Document and Entity Information (USD $)

In Billions, except Share data, unless otherwise specified

12 Months Ended

Dec. 31, 2017

Feb. 12, 2018

Jun. 30, 2017

Document Documentand Entity Information [Abstract]

Document Type

10-K

Amendment Flag

false

Document Period End Date

Dec. 31, 2017

Document Fiscal Year Focus

2017

Document Fiscal Period Focus

FY

Trading Symbol

CB

Entity Registrant Name

Chubb Ltd

Entity Central Index Key

0000896159

Current Fiscal Year End Date

--12-31

Entity Filer Category

Large Accelerated Filer

Entity Common Stock, Shares Outstanding

464,091,254

Entity Voluntary Filers

No

Entity Current Reporting Status

Yes

Entity Public Float

$ 67

Consolidated Balance Sheets (USD $)

In Millions, unless otherwise specified

Dec. 31, 2017

Dec. 31, 2016

Assets

Fixed maturities available for sale, at fair value (amortized cost - $77,835 and $79,536) (includes hybrid financial instruments of $5 and $2)

$ 78,939

$ 80,115

Fixed maturities held to maturity, at amortized cost (fair value – $14,474 and $10,670)

14,335

10,644

Equity securities, at fair value (cost – $737 and $706)

937

814

Short-term investments, at fair value and amortized cost

3,561

3,002

Other investments (cost – $4,417 and $4,270)

4,672

4,519

Total investments

102,444

99,094

Cash

728 ¹ ²

985 ¹ ³ ⁴

Securities lending collateral

1,737

1,092

Accrued investment income

909

918

Insurance and reinsurance balances receivable

9,334

8,970

Reinsurance recoverable on losses and loss expenses

15,034

13,577

Reinsurance recoverable on policy benefits

184 ⁵

182 ⁵

Deferred policy acquisition costs

4,723

4,314

Value of business acquired

326

355

Goodwill

15,541

15,332

Intangible Assets, Net (Excluding Goodwill)

6,513

6,763

Prepaid reinsurance premiums

2,529

2,448

Investments in partially-owned insurance companies

662

666

Other assets

6,358

5,090

Total assets

167,022

159,786

Liabilities

Unpaid losses and loss expenses

63,179

60,540

Unearned premiums

15,216

14,779

Future policy benefits

5,321

5,036

Insurance and reinsurance balances payable

5,868

5,637

Collateral held under securities lending agreements

1,737

1,093

Accounts payable, accrued expenses, and other liabilities

9,545

8,617

Deferred Income Tax Liabilities, Net

699

988

Repurchase agreements

1,408

1,403

Short-term debt

1,013

500

Long-term debt

11,556

12,610

Trust preferred securities

308

Total liabilities

115,850

111,511

Commitments and contingencies

Shareholders' equity

Common Shares (CHF 24.15 par value; 479,783,864 shares issued; 463,833,179 and 465,968,716 shares outstanding)

11,121

Common Shares in treasury (15,950,685 and 13,815,148 shares)

(1,944)

(1,480)

Additional Paid in Capital, Common Stock

13,978

15,335

Retained earnings

27,474

23,613

Accumulated other comprehensive income (loss) (AOCI)

543

(314)

Total shareholders' equity

51,172

48,275

Total liabilities and shareholders’ equity

$ 167,022

$ 159,786

[1] Chubb maintains two notional multi-currency cash pools (Pools) with a third-party bank. Refer to Note 1 f) for additional information. At December 31, 2017 and 2016, the cash balance of one or more entities was negative; however, the overall Pool balances were positive.

[2] Chubb maintains two notional multicurrency cash pools (Pools) with a third-party bank. Refer to Note 1 f) for additional information. At December 31, 2017, the cash balance of one or more entities was negative; however, the overall Pool balances were positive.

[3] Chubb maintains two notional multicurrency cash pools (Pools) with a third-party bank. Refer to Note 1 f) for additional information. At December 31, 2016, the cash balance of one or more entities was negative; however, the overall Pool balances were positive.

[4] Chubb maintains two notional multi-currency cash pools (Pools) with a third-party bank. Refer to Note 1 f) for additional information. At December 31, 2016 and 2015, the cash balance of one or more entities was negative; however, the overall Pool balances were positive.

[5] (1) Net of a provision for uncollectible reinsurance.

Consolidated Balance Sheets (Parenthetical)(USD ($))

In Millions, except Share data, unless otherwise specified

Dec. 31, 2017

Dec. 31, 2016

Statement of Financial Position [Abstract]

Fixed maturities available for sale, at amortized cost

$ 77,835

$ 79,536

Fixed maturities available for sale, hybrid financial instruments

5

2

Held-to-maturity Securities, Fair Value

14,474

10,670

Equity securities, at cost

737

706

Other investments, cost

$ 4,417

$ 4,270

Common Shares, shares issued

479,783,864

Common Shares, shares outstanding

463,833,179

465,968,716

Common Shares in treasury, shares

15,950,685

13,815,148

Consolidated Statements Of Operations and Comprehensive Income (USD $)

In Millions, except Per Share data, unless otherwise specified

12 Months Ended

Dec. 31, 2017

Dec. 31, 2016

Dec. 31, 2015

Revenues

Net premiums written

$ 29,244

$ 28,145

$ 17,713

(Increase) decrease in unearned premiums

(210)

604

(500)

Net premiums earned

29,034

28,749

17,213

Net investment income

3,125

2,865

2,194

Net realized gains (losses):

Other-than-temporary impairment (OTTI) losses gross

(46)

(111)

(151)

Portion of OTTI losses recognized in other comprehensive income (OCI)

1

8

39

Net OTTI losses recognized in income

(45)

(103)

(112)

Net realized gains (losses) excluding OTTI losses

129

(42)

(308)

Total Net realized gains (losses) including OTTI

84

(145)

(420)

Total revenues

32,243

31,469

18,987

Expenses

Losses and loss expenses

18,454

16,052

9,484

Policy benefits

676

588

543

Policy Acquisition Costs

5,781

5,904

2,941

Administrative expenses

2,833

3,081

2,270

Interest expense

607

605

300

Other (income) expense

(400)

(222)

(51)

Amortization of Purchased Intangibles

260

19

171

Chubb integration expenses

310

492

33

Total expenses

28,521

26,519

15,691

Income before income tax

3,722

4,950

3,296

Income tax expense

(139)

815

462

Net income

3,861

4,135

2,834

Other comprehensive income (loss)

Unrealized appreciation (depreciation)

618

(35)

(1,280)

Reclassification adjustment for net realized (gains) losses included in net income

15

119

151

Other comprehensive income (loss) after reclassification for net realized gains included in net income

633

84

(1,129)

Change in:

Cumulative foreign currency translation adjustment

471

(154)

(958)

Postretirement benefit liability adjustment

(16)

545

15

Other comprehensive income (loss), before income tax

1,088

475

(2,072)

Income tax (expense) benefit related to OCI items

(231)

(54)

146

Other comprehensive income (loss)

857

421

(1,926)

Comprehensive income

$ 4,718

$ 4,556

$ 908

Earnings per share

Basic earnings per share

$ 8.26

$ 8.94

$ 8.71

Diluted earnings per share

$ 8.19

$ 8.87

$ 8.62

Consolidated Statements of Operations and Comprehensive Income (Parenthetical) (USD $)

In Millions, unless otherwise specified

12 Months Ended

Dec. 31, 2017

Dec. 31, 2016

Dec. 31, 2015

Income tax expense (benefit)

$ (13)

$ 28

$ (2)

Reclassification out of Accumulated Other Comprehensive Income [Member] |
Net unrealized appreciation on investments

Net realized gains (losses)

(15)

(119)

(151)

Income tax expense (benefit)

$ (13)

$ 28

$ (2)

Consolidated Statements Of Shareholders' Equity (USD $)

In Millions

Total

Common Shares

Common Shares in Treasury

Additional Paid-in Capital

Retained Earnings

Net unrealized appreciation on investments

Cumulative Translation Adjustment

Accumulated Defined Benefit Plans Adjustment [Member]

Accumulated Other Comprehensive Income

The Chubb Corporation [Member]

Common Shares

The Chubb Corporation [Member]

Additional Paid-in Capital

Balance – beginning of year at Dec. 31, 2014

$ 8,055

$ (1,448)

$ 5,145

$ 16,644

$ 1,851

$ (581)

$ (79)

Dividends declared on Common Shares – par value reduction

(222)

Common Shares repurchased

(734)

Shares issued for Chubb Corp acquisition

0

Net shares redeemed under employee share-based compensation plans

260

(160)

Stock Issued During Period, Value, Stock Options Exercised

(61)

Share-based compensation expense and other

184

Funding of dividends declared from Additional paid-in capital

(653)

653

Tax benefit on share-based compensation expense

26

Net income

2,834

Dividends declared on Common Shares

(653)

Change in year, before reclassification from AOCI, net of income tax benefit (expense) of $(228), $72, and $154

(1,126)

Amounts reclassified from AOCI, net of income tax benefit (expense) of $(13), $28, and $(2)

149

Change in year, net of income tax benefit (expense) of $(241), $100, and $152

(977)

Change in year, net of income tax benefit of $5, $30, and nil

(958)

Change in year, net of income tax benefit (expense) of $5, $(184), and $(6)

9

Balance – Ending of year at Dec. 31, 2015

29,135

7,833

(1,922)

4,481

19,478

874

(1,539)

(70)

(735)

Common Shares repurchased

0

Shares issued for Chubb Corp acquisition

3,288

11,916

Net shares redeemed under employee share-based compensation plans

442

(382)

323

Stock Issued During Period, Value, Stock Options Exercised

(64)

Share-based compensation expense and other

313

Funding of dividends declared from Additional paid-in capital

(1,284)

1,284

Tax benefit on share-based compensation expense

32

Net income

4,135

Dividends declared on Common Shares

(1,284)

Change in year, before reclassification from AOCI, net of income tax benefit (expense) of $(228), $72, and $154

37

Amounts reclassified from AOCI, net of income tax benefit (expense) of $(13), $28, and $(2)

147

Change in year, net of income tax benefit (expense) of $(241), $100, and $152

184

Change in year, net of income tax benefit of $5, $30, and nil

(124)

Change in year, net of income tax benefit (expense) of $5, $(184), and $(6)

361

Balance – Ending of year at Dec. 31, 2016

48,275

11,121

(1,480)

15,335

23,613

1,058

(1,663)

291

(314)

Common Shares repurchased

(830)

Shares issued for Chubb Corp acquisition

0

Net shares redeemed under employee share-based compensation plans

366

(313)

Stock Issued During Period, Value, Stock Options Exercised

(58)

Share-based compensation expense and other

331

Funding of dividends declared from Additional paid-in capital

(1,317)

1,317

Net income

3,861

Dividends declared on Common Shares

(1,317)

Change in year, before reclassification from AOCI, net of income tax benefit (expense) of $(228), $72, and $154

390

Amounts reclassified from AOCI, net of income tax benefit (expense) of $(13), $28, and $(2)

2

Change in year, net of income tax benefit (expense) of $(241), $100, and $152

392

Change in year, net of income tax benefit of $5, $30, and nil

476

Change in year, net of income tax benefit (expense) of $5, $(184), and $(6)

(11)

Balance – Ending of year at Dec. 31, 2017

$ 51,172

$ 11,121

$ (1,944)

$ 13,978

$ 27,474

$ 1,450

$ (1,187)

$ 280

$ 543

Consolidated Statements Of Shareholders' Equity (Parenthetical) (USD $)

In Millions, unless otherwise specified

12 Months Ended

Dec. 31, 2017

Dec. 31, 2016

Dec. 31, 2015

Other Comprehensive Income (Loss), Available-for-sale Securities, before Reclassification Adjustments, Tax

$ (228)

$ 72

$ 154

Other Comprehensive Income (Loss), Reclassification Adjustment from AOCI for Sale of Securities, Tax

(13)

28

(2)

Net unrealized appreciation on investments, Change in year, income tax (expense) benefit

(241)

100

152

Cumulative translation adjustment, Change in year, income tax(expense) benefit

5

30

0

Pension liability adjustment, Change in year, income tax (expense) benefit

$ 5

$ (184)

$ (6)

Consolidated Statements Of Cash Flows (USD $)

In Millions, unless otherwise specified

12 Months Ended

Dec. 31, 2017

Dec. 31, 2016

Dec. 31, 2015

Cash flows from operating activities

Net income

$ 3,861

$ 4,135

$ 2,834

Adjustments to reconcile net income to net cash flows from operating activities

Net realized (gains) losses

(84)

145

420

Amortization of premiums/discounts on fixed maturities

694

737

158

Amortization of UPR related to the Chubb Corp acquisition and other intangibles

260

1,578

171

Deferred income taxes

(527)

96

113

Unpaid losses and loss expenses

2,137

332

(375)

Unearned premiums

264

(680)

335

Future policy benefits

217

188

216

Insurance and reinsurance balances payable

271

848

268

Accounts payable, accrued expenses, and other liabilities

(517)

(97)

179

Income taxes payable

(365)

147

(148)

Insurance and reinsurance balances receivable

(243)

(616)

(53)

Reinsurance recoverable on losses and loss expenses

(1,248)

(365)

218

Reinsurance recoverable on policy benefits

7

33

Deferred policy acquisition costs

(317)

(1,449)

(435)

Prepaid reinsurance premiums

(82)

18

(212)

Other

182

268

142

Net cash flows from operating activities

4,503

5,292

3,864

Cash flows from investing activities

Purchases of fixed maturities available for sale

(25,720)

(30,759)

(16,040)

Purchases of to be announced mortgage-backed securities

(27)

(56)

(31)

Purchases of fixed maturities held to maturity

(352)

(282)

(62)

Purchases of equity securities

(173)

(146)

(158)

Sales of fixed maturities available for sale

13,228

16,621

10,783

Sales of to be announced mortgage-backed securities

27

56

31

Sales of equity securities

187

1,000

183

Maturities and redemptions of fixed maturities available for sale

10,425

9,349

6,567

Maturities and redemptions of fixed maturities held to maturity

879

958

669

Net change in short-term investments

(537)

12,350

(8,216)

Net derivative instruments settlements

(265)

(168)

(21)

Acquisition of subsidiaries (net of cash acquired of $nil, $71, and $629)

(14,248)

264

Other

(114)

10

(263)

Net Cash Provided by (Used in) Investing Activities, Continuing Operations

(2,442)

(5,315)

(6,294)

Cash flows from financing activities

Dividends paid on Common Shares

(1,308)

(1,173)

(862)

Common Shares repurchased

(801)

(758)

Proceeds from issuance of long-term debt

6,090

Proceeds from issuance of repurchase agreements

2,353

2,310

2,029

Repayment of repurchase agreements

(2,348)

(2,311)

(2,027)

Repayments of Long-term Debt

(501)

0

(1,150)

Proceeds from share-based compensation plans

151

167

131

Policyholder contract deposits

442

522

503

Policyholder contract withdrawals

(307)

(253)

(221)

Other

0

(4)

(40)

Net Cash Provided by (Used in) Financing Activities, Continuing Operations

(2,319)

(742)

3,695

Effect of foreign currency rate changes on cash and cash equivalents

1

(25)

(145)

Net increase (decrease) in cash

(257)

(790)

1,120

Cash – beginning of year

985 ¹ ² ³

1,775 ¹ ⁴

655 ⁴

Cash – end of year

728 ¹ ⁵

985 ¹ ² ³

1,775 ¹ ⁴

Supplemental cash flow information

Taxes paid

736

662

469

Interest paid

$ 644

$ 642

$ 259

[1] Chubb maintains two notional multi-currency cash pools (Pools) with a third-party bank. Refer to Note 1 f) for additional information. At December 31, 2017 and 2016, the cash balance of one or more entities was negative; however, the overall Pool balances were positive.

[2] Chubb maintains two notional multicurrency cash pools (Pools) with a third-party bank. Refer to Note 1 f) for additional information. At December 31, 2016, the cash balance of one or more entities was negative; however, the overall Pool balances were positive.

[3] Chubb maintains two notional multi-currency cash pools (Pools) with a third-party bank. Refer to Note 1 f) for additional information. At December 31, 2016 and 2015, the cash balance of one or more entities was negative; however, the overall Pool balances were positive.

[4] Chubb maintains two notional multi-currency cash pools (Pools) with a third-party bank. Refer to Note 1 f) for additional information. At December 31, 2015 and 2014, the cash balance of one or more entities was negative; however, the overall Pool balances were positive.

[5] Chubb maintains two notional multicurrency cash pools (Pools) with a third-party bank. Refer to Note 1 f) for additional information. At December 31, 2017, the cash balance of one or more entities was negative; however, the overall Pool balances were positive.

Consolidated Statements Of Cash Flows (Parenthetical) (USD $)

In Millions, unless otherwise specified

12 Months Ended

Dec. 31, 2017

Dec. 31, 2016

Dec. 31, 2015

Statement of Cash Flows [Abstract]

Acquisition of subsidiaries, cash acquired

$ 0

$ 71

$ 629

Summary of significant accounting policies

a) Basis of presentation

Chubb Limited is a holding company incorporated in Zurich, Switzerland. Chubb Limited, through its subsidiaries, provides a broad range of insurance and reinsurance products to insureds worldwide. Our results are reported through the following business segments: North America Commercial P&C Insurance, North America Personal P&C Insurance, North America Agricultural Insurance, Overseas General Insurance, Global Reinsurance, and Life Insurance. Refer to Note 15 for additional information.

The accompanying consolidated financial statements, which include the accounts of Chubb Limited and its subsidiaries (collectively, Chubb, we, us, or our), have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) and, in the opinion of management, reflect all adjustments (consisting of normally recurring accruals) necessary for a fair statement of the results and financial position for such periods. All significant intercompany accounts and transactions, including internal reinsurance transactions, have been eliminated.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Amounts included in the Consolidated financial statements reflect our best estimates and assumptions; actual amounts could differ materially from these estimates. Chubb's principal estimates include:


•	unpaid loss and loss expense reserves, including long-tail asbestos and environmental (A&E) reserves;


•	future policy benefits reserves;


•	the valuation of value of business acquired (VOBA) and amortization of deferred policy acquisition costs and VOBA;


•	reinsurance recoverable, including a provision for uncollectible reinsurance;


•	the assessment of risk transfer for certain structured insurance and reinsurance contracts;


•	the valuation of the investment portfolio and assessment of OTTI;


•	the valuation of deferred tax assets;


•	the valuation of derivative instruments related to guaranteed living benefits (GLB);


•	the valuation and amortization of purchased intangibles; and


•	the assessment of goodwill for impairment.

b) Premiums

Premiums are generally recorded as written upon inception of the policy. For multi-year policies for which premiums written are payable in annual installments, only the current annual premium is included as written at policy inception due to the ability of the insured/reinsured to commute or cancel coverage within the policy term. The remaining annual premiums are recorded as written at each successive anniversary date within the multi-year term.

For P&C insurance and reinsurance products, premiums written are primarily earned on a pro-rata basis over the policy terms to which they relate. Unearned premiums represent the portion of premiums written applicable to the unexpired portion of the policies in force. For retrospectively-rated policies, written premiums are adjusted to reflect expected ultimate premiums consistent with changes to incurred losses, or other measures of exposure as stated in the policy, and earned over the policy coverage period. For retrospectively-rated multi-year policies, premiums recognized in the current period are computed using a with-and-without method as the difference between the ceding enterprise's total contract costs before and after the experience under the contract at the reporting date. Accordingly, for retrospectively-rated multi-year policies, additional premiums are generally written and earned when losses are incurred.

Mandatory reinstatement premiums assessed on reinsurance policies are earned in the period of the loss event that gave rise to the reinstatement premiums. All remaining unearned premiums are recognized over the remaining coverage period.

Premiums from long-duration contracts such as certain traditional term life, whole life, endowment, and long-duration personal accident and health (A&H) policies are generally recognized as revenue when due from policyholders. Traditional life policies include those contracts with fixed and guaranteed premiums and benefits. Benefits and expenses are matched with income to result in the recognition of profit over the life of the contracts.

Retroactive loss portfolio transfer (LPT) contracts in which the insured loss events occurred prior to contract inception are evaluated to determine whether they meet criteria for reinsurance accounting. If reinsurance accounting is appropriate, written premiums are fully earned and corresponding losses and loss expenses recognized at contract inception. These contracts can cause significant variances in gross premiums written, net premiums written, net premiums earned, and net incurred losses in the years in which they are written. Reinsurance contracts sold not meeting criteria for reinsurance accounting are recorded using the deposit method as described below in Note 1 k).

Reinsurance premiums assumed are based on information provided by ceding companies supplemented by our own estimates of premium when we have not received ceding company reports. Estimates are reviewed and adjustments are recorded in the period in which they are determined. Premiums are earned over the coverage terms of the related reinsurance contracts and range from one to three years.

c) Deferred policy acquisition costs and value of business acquired

Policy acquisition costs consist of commissions (direct and ceded), premium taxes, and certain underwriting costs related directly to the successful acquisition of new or renewal insurance contracts. A VOBA intangible asset is established upon the acquisition of blocks of long-duration contracts in a business combination and represents the present value of estimated net cash flows for the contracts in force at the acquisition date. Acquisition costs and VOBA, collectively policy acquisition costs, are deferred and amortized. Amortization is recorded in Policy acquisition costs in the Consolidated statements of operations. Policy acquisition costs on P&C contracts are generally amortized ratably over the period in which premiums are earned. Policy acquisition costs on traditional long-duration contracts are amortized over the estimated life of the contracts, generally in proportion to premium revenue recognized based upon the same assumptions used in estimating the liability for future policy benefits. For non-traditional long-duration contracts, we amortize policy acquisition costs over the expected life of the contracts in proportion to expected gross profits. The effect of changes in estimates of expected gross profits is reflected in the period the estimates are revised. Policy acquisition costs are reviewed to determine if they are recoverable from future income, including investment income. Unrecoverable policy acquisition costs are expensed in the period identified.

Advertising costs are expensed as incurred except for direct-response campaigns that qualify for cost deferral, principally related to long-duration A&H business produced by the Overseas General Insurance segment, which are deferred and recognized as a component of Policy acquisition costs. For individual direct-response marketing campaigns that we can demonstrate have specifically resulted in incremental sales to customers and such sales have probable future economic benefits, incremental costs directly related to the marketing campaigns are capitalized as Deferred policy acquisition costs. Deferred policy acquisition costs, including deferred marketing costs, are reviewed regularly for recoverability from future income, including investment income, and amortized in proportion to premium revenue recognized, primarily over a ten-year period, the expected economic future benefit period based upon the same assumptions used in estimating the liability for future policy benefits. The expected future benefit period is evaluated periodically based on historical results and adjusted prospectively. The amount of deferred marketing costs reported in Deferred policy acquisition costs in the Consolidated balance sheets was $271 million and $256 million at December 31, 2017 and 2016, respectively. Amortization expense for deferred marketing costs was $116 million, $92 million, and $78 million for the years ended December 31, 2017, 2016, and 2015, respectively.

d) Reinsurance

Chubb assumes and cedes reinsurance with other insurance companies to provide greater diversification of business and minimize the net loss potential arising from large risks. Ceded reinsurance contracts do not relieve Chubb of its primary obligation to policyholders.

For both ceded and assumed reinsurance, risk transfer requirements must be met in order to account for a contract as reinsurance, principally resulting in the recognition of cash flows under the contract as premiums and losses. To meet risk transfer requirements, a reinsurance contract must include insurance risk, consisting of both underwriting and timing risk, and a reasonable possibility of a significant loss for the assuming entity. To assess risk transfer for certain contracts, Chubb generally develops expected discounted cash flow analyses at contract inception. Deposit accounting is used for contracts that do not meet risk transfer requirements. Deposit accounting requires that consideration received or paid be recorded in the balance sheet as opposed to recording premiums written or losses incurred in the statement of operations. Non-refundable fees on deposit contracts are earned based on the terms of the contract described below in Note 1 k).

Reinsurance recoverable includes balances due from reinsurance companies for paid and unpaid losses and loss expenses and future policy benefits that will be recovered from reinsurers, based on contracts in force. The method for determining the reinsurance recoverable on unpaid losses and loss expenses incurred but not reported (IBNR) involves actuarial estimates consistent with those used to establish the associated liability for unpaid losses and loss expenses as well as a determination of Chubb's ability to cede unpaid losses and loss expenses under the terms of the reinsurance agreement.

Reinsurance recoverable is presented net of a provision for uncollectible reinsurance determined based upon a review of the financial condition of reinsurers and other factors. The provision for uncollectible reinsurance is based on an estimate of the reinsurance recoverable balance that will ultimately be unrecoverable due to reinsurer insolvency, a contractual dispute, or any other reason. The valuation of this provision includes several judgments including certain aspects of the allocation of reinsurance recoverable on IBNR claims by reinsurer and a default analysis to estimate uncollectible reinsurance. The primary components of the default analysis are reinsurance recoverable balances by reinsurer, net of collateral, and default factors used to determine the portion of a reinsurer's balance deemed uncollectible. The definition of collateral for this purpose requires some judgment and is generally limited to assets held in a Chubb-only beneficiary trust, letters of credit, and liabilities held with the same legal entity for which Chubb believes there is a contractual right of offset. The determination of the default factor is principally based on the financial strength rating of the reinsurer. Default factors require considerable judgment and are determined using the current financial strength rating, or rating equivalent, of each reinsurer as well as other key considerations and assumptions. The more significant considerations include, but are not necessarily limited to, the following:

•

For reinsurers that maintain a financial strength rating from a major rating agency, and for which recoverable balances are considered representative of the larger population (i.e., default probabilities are consistent with similarly rated reinsurers and payment durations conform to averages), the financial rating is based on a published source and the default factor is based on published default statistics of a major rating agency applicable to the reinsurer's particular rating class. When a recoverable is expected to be paid in a brief period of time by a highly rated reinsurer, such as certain property catastrophe claims, a default factor may not be applied;

•

For balances recoverable from reinsurers that are both unrated by a major rating agency and for which management is unable to determine a credible rating equivalent based on a parent, affiliate, or peer company, we determine a rating equivalent based on an analysis of the reinsurer that considers an assessment of the creditworthiness of the particular entity, industry benchmarks, or other factors as considered appropriate. We then apply the applicable default factor for that rating class. For balances recoverable from unrated reinsurers for which the ceded reserve is below a certain threshold, we generally apply a default factor of 34 percent, consistent with published statistics of a major rating agency;

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For balances recoverable from reinsurers that are either insolvent or under regulatory supervision, we establish a default factor and resulting provision for uncollectible reinsurance based on reinsurer-specific facts and circumstances. Upon initial notification of an insolvency, we generally recognize an expense for a substantial portion of all balances outstanding, net of collateral, through a combination of write-offs of recoverable balances and increases to the provision for uncollectible reinsurance. When regulatory action is taken on a reinsurer, we generally recognize a default factor by estimating an expected recovery on all balances outstanding, net of collateral. When sufficient credible information becomes available, we adjust the provision for uncollectible reinsurance by establishing a default factor pursuant to information received; and


•	For other recoverables, management determines the provision for uncollectible reinsurance based on the specific facts and circumstances.

The methods used to determine the reinsurance recoverable balance and related provision for uncollectible reinsurance are regularly reviewed and updated, and any resulting adjustments are reflected in earnings in the period identified.

Prepaid reinsurance premiums represent the portion of premiums ceded to reinsurers applicable to the unexpired coverage terms of the reinsurance contracts in-force.

The value of reinsurance business assumed of $18 million and $20 million at December 31, 2017 and 2016, respectively, included in Other assets in the accompanying Consolidated balance sheets, represents the excess of estimated ultimate value of the liabilities assumed under retroactive reinsurance contracts over consideration received. The value of reinsurance business assumed is amortized and recorded to Losses and loss expenses based on the payment pattern of the losses assumed and ranges between 9 and 40 years. The unamortized value is reviewed regularly to determine if it is recoverable based upon the terms of the contract, estimated losses and loss expenses, and anticipated investment income. Unrecoverable amounts are expensed in the period identified.

e) Investments

Fixed maturities are classified as either available for sale or held to maturity. The available for sale portfolio is reported at fair value. The held to maturity portfolio includes securities for which we have the ability and intent to hold to maturity or redemption and is reported at amortized cost. Equity securities are classified as available for sale and are recorded at fair value. Short-term investments comprise securities due to mature within one year of the date of purchase and are recorded at fair value which typically approximates cost. Short-term investments include certain cash and cash equivalents, which are part of investment portfolios under the management of external investment managers.

Other investments principally comprise life insurance policies, policy loans, trading securities, other direct equity investments, investment funds, and limited partnerships.


•	Life insurance policies are carried at policy cash surrender value and income is recorded in Other income (expense).


•	Policy loans are carried at outstanding balance and interest income is recorded to Net investment income.


•	Trading securities are recorded on a trade date basis and carried at fair value. Unrealized gains and losses on trading securities are reflected in Other (income) expense.


•	Other investments over which Chubb can exercise significant influence are accounted for using the equity method and income is recorded in Other (income) expense.


•	All other investments over which Chubb cannot exercise significant influence are carried at fair value with changes in fair value recognized through OCI. For these investments, investment income is recognized in Net investment income and realized gains are recognized as related distributions are received.

•

Partially-owned investment companies comprise entities in which we hold an ownership interest in excess of three percent. These investments as well as Chubb's investments in investment funds where our ownership interest is in excess of three percent are accounted for under the equity method because Chubb exerts significant influence. These investments apply investment company accounting to determine operating results, and Chubb retains the investment company accounting in applying the equity method. This means that investment income, realized gains or losses, and unrealized gains or losses are included in the portion of equity earnings reflected in Other (income) expense. As a result of the timing of the receipt of valuation data from the investment managers, these investments are generally reported on a three month lag.

Investments in partially-owned insurance companies primarily represent direct investments in which Chubb has significant influence and, as such, meet the requirements for equity accounting. We report our share of the net income or loss of the partially-owned insurance companies in Other (income) expense.

Realized gains or losses on sales of investments are determined on a first-in, first-out basis. Unrealized appreciation (depreciation) on investments is included as a separate component of AOCI in Shareholders' equity. We regularly review our investments for OTTI. Refer to Note 3 for additional information.

With respect to securities where the decline in value is determined to be temporary and the security's value is not written down, a subsequent decision may be made to sell that security and realize a loss. Subsequent decisions on security sales are the result of changing or unforeseen facts and circumstances (i.e., arising from a large insured loss such as a catastrophe), deterioration of the creditworthiness of the issuer or its industry, or changes in regulatory requirements. We believe that subsequent decisions to sell such securities are consistent with the classification of the majority of the portfolio as available for sale.

We use derivative instruments including futures, options, swaps, and foreign currency forward contracts for the purpose of managing certain investment portfolio risks and exposures. Refer to Note 10 for additional information. Derivatives are reported at fair value and are recorded in the accompanying Consolidated balance sheets in either Accounts payable, accrued expenses, and other liabilities or Other assets with changes in fair value included in Net realized gains (losses) in the Consolidated statements of operations. Collateral held by brokers equal to a percentage of the total value of open futures contracts is included in the investment portfolio.

Net investment income includes interest and dividend income and amortization of fixed maturity market premiums and discounts and is net of investment management and custody fees. In addition, net investment income includes the amortization of the fair value adjustment related to the acquired invested assets of Chubb Corp. An adjustment of $1,652 million related to the fair value of Chubb Corp’s fixed maturities securities was recorded (fair value adjustment) at the date of acquisition. At December 31, 2017, the remaining balance of this fair value adjustment was $858 million which is expected to amortize over the next four years; however, the estimate could vary materially based on current market conditions, bond calls, and the duration of the acquired investment portfolio. In addition, sales of these acquired fixed maturities would also reduce the fair value adjustment balance. For mortgage-backed securities, and any other holdings for which there is a prepayment risk, prepayment assumptions are evaluated and revised as necessary. Any adjustments required due to the resultant change in effective yields and maturities are recognized prospectively. Prepayment fees or call premiums that are only payable when a security is called prior to its maturity are earned when received and reflected in Net investment income.

Chubb participates in a securities lending program operated by a third-party banking institution whereby certain assets are loaned to qualified borrowers and from which we earn an incremental return. Borrowers provide collateral, in the form of either cash or approved securities, of 102 percent of the fair value of the loaned securities. Each security loan is deemed to be an overnight transaction. Cash collateral is invested in a collateral pool which is managed by the banking institution. The collateral pool is subject to written investment guidelines with key objectives which include the safeguard of principal and adequate liquidity to meet anticipated redemptions. The fair value of the loaned securities is monitored on a daily basis, with additional collateral obtained or refunded as the fair value of the loaned securities changes. The collateral is held by the third-party banking institution, and the collateral can only be accessed in the event that the institution borrowing the securities is in default under the lending agreement. As a result of these restrictions, we consider our securities lending activities to be non-cash investing and financing activities. An indemnification agreement with the lending agent protects us in the event a borrower becomes insolvent or fails to return any of the securities on loan. The fair value of the securities on loan is included in fixed maturities and equity securities. The securities lending collateral is reported as a separate line in the Consolidated balance sheets with a related liability reflecting our obligation to return the collateral plus interest.

Similar to securities lending arrangements, securities sold under repurchase agreements, whereby Chubb sells securities and repurchases them at a future date for a predetermined price, are accounted for as collateralized investments and borrowings and are recorded at the contractual repurchase amounts plus accrued interest. Assets to be repurchased are the same, or substantially the same, as the assets transferred and the transferor, through right of substitution, maintains the right and ability to redeem the collateral on short notice. The fair value of the underlying securities is included in fixed maturities and equity securities. In contrast to securities lending programs, the use of cash received is not restricted. We report the obligation to return the cash as Repurchase agreements in the Consolidated balance sheets.

Refer to Note 4 for a discussion on the determination of fair value for Chubb's various investment securities.

f) Cash

Cash includes cash on hand and deposits with an original maturity of three months or less at time of purchase. Cash held by external money managers is included in Short-term investments.

We have agreements with a third-party bank provider which implemented two international multi-currency notional cash pooling programs. In each program, participating Chubb entities establish deposit accounts in different currencies with the bank provider and each day the credit or debit balances in every account are notionally translated into a single currency (U.S. dollars) and then notionally pooled. The bank extends overdraft credit to any participating Chubb entity as needed, provided that the overall notionally-pooled balance of all accounts in each pool at the end of each day is at least zero. Actual cash balances are not physically converted and are not commingled between legal entities. Any overdraft balances incurred under this program by a Chubb entity would be guaranteed by Chubb Limited (up to $300 million in the aggregate). Our syndicated letter of credit facility allows for same day drawings to fund a net pool overdraft should participating Chubb entities overdraw contributed funds from the pool.

g) Goodwill and Other intangible assets

Goodwill represents the excess of the cost of acquisitions over the fair value of net assets acquired and is not amortized. Goodwill is assigned at acquisition to the applicable reporting unit of the acquired entities giving rise to the goodwill. Goodwill impairment tests are performed annually or more frequently if circumstances indicate a possible impairment. For goodwill impairment testing, we use a qualitative assessment to determine whether it is more likely than not (i.e., more than a 50 percent probability) that the fair value of a reporting unit is greater than its carrying amount. If our assessment indicates less than a 50 percent probability that fair value exceeds carrying value, we quantitatively estimate a reporting unit's fair value. Goodwill recorded in connection with investments in partially-owned insurance companies is recorded in Investments in partially-owned insurance companies and is also measured for impairment annually.

Indefinite lived intangible assets are not subject to amortization. Finite lived intangible assets are amortized over their useful lives, generally ranging from 1 to 30 years. Intangible assets are regularly reviewed for indicators of impairment. Impairment is recognized if the carrying amount is not recoverable from its undiscounted cash flows and is measured as the difference between the carrying amount and fair value.

h) Unpaid losses and loss expenses

A liability is established for the estimated unpaid losses and loss expenses under the terms of, and with respect to, Chubb's policies and agreements. Similar to premiums that are recognized as revenues over the coverage period of the policy, a liability for unpaid losses and loss expenses is recognized as expense when insured events occur over the coverage period of the policy. This liability includes a provision for both reported claims (case reserves) and incurred but not reported claims (IBNR reserves). IBNR reserve estimates are generally calculated by first projecting the ultimate cost of all losses that have occurred (expected losses), and then subtracting paid losses, case reserves, and loss expenses. The methods of determining such estimates and establishing the resulting liability are reviewed regularly and any adjustments are reflected in operations in the period in which they become known. Future developments may result in losses and loss expenses materially greater or less than recorded amounts.

Except for net loss and loss expense reserves of $36 million net of discount, held at December 31, 2017, representing certain structured settlements for which the timing and amount of future claim payments are reliably determinable and $41 million, net of discount, of certain reserves for unsettled claims that are discounted in statutory filings, Chubb does not discount its P&C loss reserves. This compares with reserves of $38 million for certain structured settlements and $50 million of certain reserves for unsettled claims at December 31, 2016. Structured settlements represent contracts purchased from life insurance companies primarily to settle workers' compensation claims, where payments to the claimant by the life insurance company are expected to be made in the form of an annuity. Chubb retains the liability to the claimant in the event that the life insurance company fails to pay. At December 31, 2017, the liability due to claimants was $586 million, net of discount, and reinsurance recoverables due from the life insurance companies was $550 million, net of discount. For structured settlement contracts where payments are guaranteed regardless of claimant life expectancy, the amounts recoverable from the life insurance companies at December 31, 2017 are included in Other assets in the Consolidated balance sheets, as they do not meet the requirements for reinsurance accounting.

Included in Unpaid losses and loss expenses are liabilities for asbestos and environmental (A&E) claims and expenses. These unpaid losses and loss expenses are principally related to claims arising from remediation costs associated with hazardous waste sites and bodily-injury claims related to asbestos products and environmental hazards. The estimation of these liabilities is particularly sensitive to changes in the legal environment including specific settlements that may be used as precedents to settle future claims. However, Chubb does not anticipate future changes in laws and regulations in setting its A&E reserve levels.

Also included in Unpaid losses and loss expenses is a fair value adjustment of $309 million at December 31, 2017 related to Chubb Corp’s historical unpaid losses and loss expenses. The estimated fair value consists of the present value of the expected net unpaid loss and loss adjustment expense payments adjusted for an estimated risk margin. The estimated cash flows are discounted at a risk free rate. The estimated risk margin varies based on the inherent risks associated with each type of reserve. The fair value is amortized through Amortization of purchased intangibles on the consolidated statements of operations over a range of 5 to 17 years, based on the estimated payout patterns of unpaid loss and loss expenses at the acquisition date.

Prior period development arises from changes to loss estimates recognized in the current year that relate to loss reserves first reported in previous calendar years and excludes the effect of losses from the development of earned premiums from previous accident years.

For purposes of analysis and disclosure, management views prior period development to be changes in the nominal value of loss estimates from period to period, net of premium and profit commission adjustments on loss sensitive contracts. Prior period development generally excludes changes in loss estimates that do not arise from the emergence of claims, such as those related to uncollectible reinsurance, interest, unallocated loss adjustment expenses, or foreign currency. Accordingly, specific items excluded from prior period development include the following: gains/losses related to foreign currency remeasurement; losses recognized from the early termination or commutation of reinsurance agreements that principally relate to the time value of money; changes in the value of reinsurance business assumed reflected in losses incurred but principally related to the time value of money; and losses that arise from changes in estimates of earned premiums from prior accident years. Except for foreign currency remeasurement, which is included in Net realized gains (losses), these items are included in current year losses.

i) Future policy benefits

The valuation of long-duration contract reserves requires management to make estimates and assumptions regarding expenses, mortality, persistency, and investment yields. Estimates are primarily based on historical experience and information provided by ceding companies and include a margin for adverse deviation. Interest rates used in calculating reserves range from less than 1.0 percent to 8.0 percent at both December 31, 2017 and 2016. Actual results could differ materially from these estimates. Management monitors actual experience and where circumstances warrant, will revise assumptions and the related reserve estimates. Revisions are recorded in the period they are determined.

Certain of our long-duration contracts are supported by assets that do not qualify for separate account reporting under GAAP. These assets are classified as trading securities and reported in Other investments and the offsetting liabilities are reported in Future policy benefits in the Consolidated balance sheets. Changes in the fair value of separate account assets that do not qualify for separate account reporting under GAAP are reported in Other income (expense) and the offsetting movements in the liabilities are included in Policy benefits in the Consolidated statements of operations.

j) Assumed reinsurance programs involving minimum benefit guarantees under variable annuity contracts

Chubb reinsures various death and living benefit guarantees associated with variable annuities issued primarily in the United States and Japan. We generally receive a monthly premium during the accumulation phase of the covered annuities (in-force) based on a percentage of either the underlying accumulated account values or the underlying accumulated guaranteed values. Depending on an annuitant's age, the accumulation phase can last many years. To limit our exposure under these programs, all reinsurance treaties include annual or aggregate claim limits and many include an aggregate deductible.

The guarantees which are payable on death, referred to as guaranteed minimum death benefits (GMDB), principally cover shortfalls between accumulated account value at the time of an annuitant's death and either i) an annuitant's total deposits; ii) an annuitant's total deposits plus a minimum annual return; or iii) the highest accumulated account value attained at any policy anniversary date. In addition, a death benefit may be based on a formula specified in the variable annuity contract that uses a percentage of the growth of the underlying contract value. Liabilities for GMDBs are based on cumulative assessments or premiums to date multiplied by a benefit ratio that is determined by estimating the present value of benefit payments and related adjustment expenses divided by the present value of cumulative assessment or expected premiums during the contract period.

Under reinsurance programs covering GLBs, we assume the risk of guaranteed minimum income benefits (GMIB) and guaranteed minimum accumulation benefits (GMAB) associated with variable annuity contracts. The GMIB risk is triggered if, at the time the contract holder elects to convert the accumulated account value to a periodic payment stream (annuitize), the accumulated account value is not sufficient to provide a guaranteed minimum level of monthly income. The GMAB risk is triggered if, at contract maturity, the contract holder's account value is less than a guaranteed minimum value. Our GLB reinsurance products meet the definition of a derivative for accounting purposes and are carried at fair value with changes in fair value recognized in income. Refer to Notes 5 c) and 10 a) for additional information.

k) Deposit assets and liabilities

Deposit assets arise from ceded reinsurance contracts purchased that do not transfer significant underwriting or timing risk. Deposit liabilities include reinsurance deposit liabilities and contract holder deposit funds. The reinsurance deposit liabilities arise from contracts sold for which there is not a significant transfer of risk. Contract holder deposit funds represent a liability for investment contracts sold that do not meet the definition of an insurance contract, and certain of these contracts are sold with a guaranteed rate of return. Under deposit accounting, consideration received or paid is recorded as a deposit asset or liability in the balance sheet as opposed to recording premiums and losses in the statement of operations.

Interest income on deposit assets, representing the consideration received or to be received in excess of cash payments related to the deposit contract, is earned based on an effective yield calculation. The calculation of the effective yield is based on the amount and timing of actual cash flows at the balance sheet date and the estimated amount and timing of future cash flows. The effective yield is recalculated periodically to reflect revised estimates of cash flows. When a change in the actual or estimated cash flows occurs, the resulting change to the carrying amount of the deposit asset is reported as income or expense. Deposit assets of $89 million and $93 million at December 31, 2017 and 2016, respectively, are reflected in Other assets in the Consolidated balance sheets and the accretion of deposit assets related to interest pursuant to the effective yield calculation is reflected in Net investment income in the Consolidated statements of operations.

Deposit liabilities include reinsurance deposit liabilities of $100 million and $108 million and contract holder deposit funds of $1.8 billion and $1.5 billion at December 31, 2017 and 2016, respectively. Deposit liabilities are reflected in Accounts payable, accrued expenses, and other liabilities in the Consolidated balance sheets. At contract inception, the deposit liability equals net cash received. An accretion rate is established based on actuarial estimates whereby the deposit liability is increased to the estimated amount payable over the contract term. The deposit accretion rate is the rate of return required to fund expected future payment obligations. We periodically reassess the estimated ultimate liability and related expected rate of return. Changes to the deposit liability are generally reflected through Interest expense to reflect the cumulative effect of the period the contract has been in force, and by an adjustment to the future accretion rate of the liability over the remaining estimated contract term.

The liability for contract holder deposit funds equals accumulated policy account values, which consist of the deposit payments plus credited interest less withdrawals and amounts assessed through the end of the period.

l) Property and Equipment

Property and equipment used in operations, including certain costs incurred to develop or obtain computer software for internal use, are capitalized and carried at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. Property and equipment are included in Other assets in the Consolidated balance sheets and totaled $1.3 billion and $1.2 billion at December 31, 2017 and 2016, respectively.

m) Foreign currency remeasurement and translation

The functional currency for each of our foreign operations is generally the currency of the local operating environment. Transactions in currencies other than a foreign operation's functional currency are remeasured into the functional currency and the resulting foreign exchange gains and losses are reflected in Net realized gains (losses) in the Consolidated statements of operations. Functional currency assets and liabilities are translated into the reporting currency, U.S. dollars, using period end exchange rates and the related translation adjustments are recorded as a separate component of AOCI. Functional statement of operations amounts expressed in functional currencies are translated using average exchange rates.

n) Administrative expenses

Administrative expenses generally include all operating costs other than policy acquisition costs. The North America Commercial P&C Insurance segment manages and uses an in-house third-party claims administrator, ESIS Inc. (ESIS). ESIS performs claims management and risk control services for domestic and international organizations that self-insure P&C exposures as well as internal P&C exposures. The net operating results of ESIS are included within Administrative expenses in the Consolidated statements of operations and were $38 million, $32 million, and $30 million for the years ended December 31, 2017, 2016, and 2015, respectively.

o) Income taxes

Income taxes have been recorded related to those operations subject to income taxes. Deferred tax assets and liabilities result from temporary differences between the amounts recorded in the Consolidated financial statements and the tax basis of our assets and liabilities. The effect on deferred tax assets and liabilities of a change in tax law or rates is recognized in income in the period that includes the enactment date. For example, we recorded a net reduction in our deferred tax balances reflecting the impact of the Tax Cuts and Jobs Act (2017 Tax Act) in the fourth quarter of 2017, the period when the legislation was enacted. Refer to Note 8 for additional information. A valuation allowance against deferred tax assets is recorded if it is more likely than not that all, or some portion, of the benefits related to deferred tax assets will not be realized. The valuation allowance assessment considers tax planning strategies, where applicable.

We recognize uncertain tax positions deemed more likely than not of being sustained upon examination. Recognized income tax positions are measured at the largest amount that has a greater than 50 percent likelihood of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.

p) Earnings per share

Basic earnings per share is calculated using the weighted-average shares outstanding including participating securities with non-forfeitable rights to dividends such as unvested restricted stock. All potentially dilutive securities including stock options are excluded from the basic earnings per share calculation. In calculating diluted earnings per share, the weighted-average shares outstanding is increased to include all potentially dilutive securities. Basic and diluted earnings per share are calculated by dividing net income by the applicable weighted-average number of shares outstanding during the year.

q) Cash flow information

Premiums received and losses paid associated with the GLB reinsurance products, which as discussed previously meet the definition of a derivative instrument for accounting purposes, are included within Cash flows from operating activities. Cash flows, such as settlements and collateral requirements, associated with GLB and all other derivative instruments are included on a net basis within Cash flows from investing activities. Purchases, sales, and maturities of short-term investments are recorded on a net basis within Cash flows from investing activities.

r) Derivatives

Chubb recognizes all derivatives at fair value in the Consolidated balance sheets and participates in derivative instruments in two principal ways:

(i) To sell protection to customers as an insurance or reinsurance contract that meets the definition of a derivative for accounting purposes. For 2017 and 2016, the reinsurance of GLBs was our primary product falling into this category; and

(ii) To mitigate financial risks, principally arising from investment holdings, products sold, or assets and liabilities held in foreign currencies. For these instruments, changes in assets or liabilities measured at fair value are recorded as realized gains or losses in the Consolidated statements of operations.

We did not designate any derivatives as accounting hedges during 2017, 2016, or 2015.

s) Share-based compensation

Chubb measures and records compensation cost for all share-based payment awards at grant-date fair value. Compensation costs are recognized for share-based payment awards with only service conditions that have graded vesting schedules on a straight-line basis over the requisite service period for each separately vesting portion of the award as if the award were, in substance, multiple awards. Refer to Note 12 for additional information.

t) Chubb integration expenses

Direct costs related to the Chubb Corp acquisition were expensed as incurred. Chubb integration expenses were $310 million and $492 million for the years ended December 31, 2017 and 2016, respectively, and include all internal and external costs directly related to the integration activities of the Chubb Corp acquisition, consisting primarily of personnel-related expenses, including severance and employee retention and relocation; lease termination costs; and consulting fees. Chubb integration expenses were $33 million for the year ended December 31, 2015, consisting primarily of personnel-related expenses; consulting fees; and advisor fees.

u) New accounting pronouncements

Adopted in 2017

Stock Compensation

Effective January 2017, we prospectively adopted new guidance on stock compensation which requires recognition of the excess tax benefits or deficiencies of share-based compensation awards to employees through net income rather than through additional paid in capital. The calculation of the excess tax benefits or deficiencies is based on the difference between the market value of a stock award at the date of vesting, or at the time of exercise for a stock option, compared to the grant date fair value recognized as compensation expense in the Consolidated statements of operations. For the year ended December 31, 2017, the excess tax benefit recorded to Income tax expense in the Consolidated statement of operations was $48 million. Additionally, the guidance allowed for an election to account for forfeitures related to share-based payments either as they occur or through an estimation method. We elected to retain our current accounting for compensation expense using a forfeiture estimation process.

Income Tax Accounting Implications of the Tax Cuts and Jobs Act

The Tax Cuts and Jobs Act (2017 Tax Act) was signed into legislation in December 2017. Among other things, the 2017 Tax Act reduces the U.S. federal income tax rate to 21 percent from 35 percent effective in 2018, institutes a dividends received deduction for foreign earnings with a related tax for the deemed repatriation of unremitted foreign earnings and creates a new base erosion anti-abuse tax (BEAT) which is a new U.S. minimum tax.

The Securities and Exchange Commission issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act, which provides guidance for the application of the 2017 Tax Act. The income tax guidance allows for the transition impact of the 2017 Tax Act to be recorded as 1) complete with all accounting implications identified, 2) provisional based on a reasonable estimate, or 3) not recorded as no reasonable estimate was determinable.

We recorded a $450 million income tax transition benefit in the fourth quarter of 2017 on a provisional basis. This income tax benefit principally reflects our best estimate of the impact of the reduced U.S. corporate tax rate and other provisions of the 2017 Tax Act. Refer to Note 8 for additional information.

Adopted in 2018

Revenue from Contracts with Customers

In May 2014, the FASB issued an accounting standard that supersedes most existing revenue recognition guidance. The standard excludes from its scope the accounting for insurance contracts, leases, financial instruments, and certain other agreements that are governed under other GAAP guidance, but could affect the revenue recognition for certain of our claims management and risk control services. The updated guidance requires an entity to recognize revenue as performance obligations are met, in order to reflect the transfer of promised goods or services to customers in an amount that reflects the consideration the entity is entitled to receive for those goods or services. This guidance was effective for us on January 1, 2018. The adoption of this guidance did not have a material impact on our financial condition or results of operations given that the majority of our business is outside the scope of this guidance.

Financial Instruments – Recognition and Measurement of Financial Assets and Financial Liabilities

In January 2016, the FASB issued guidance that affects the recognition, measurement, presentation, and disclosure of financial instruments. The guidance requires equity investments to be measured at fair value with changes in fair value recognized through net income (other than those accounted for under equity method of accounting or those that result in consolidation of the investee). The standard was effective for us in the first quarter of 2018 and required recognition of a cumulative effect adjustment at adoption to beginning retained earnings. As a result, in the first quarter of 2018, we reduced other comprehensive income by $455 million, representing the unrealized appreciation on our equity investments, other than those accounted for under the equity method, with an offsetting increase in retained earnings. All subsequent changes in fair value will be recognized within realized gains (losses) on the consolidated statement of operations.

Statement of Cash Flows

In August 2016, the FASB issued guidance clarifying the classification of certain cash receipts and cash payments within the statement of cash flows, including distributions received from equity method investments. The guidance requires entities to make an accounting policy election to present cash flows received either in operating cash flows or investing cash flows based on cumulative equity-method earnings or on the nature of the distributions. We adopted this guidance effective January 1, 2018 and elected to retain our current presentation of cash receipts and cash payments based on the nature of the distributions.

Goodwill Impairment

In January 2017, the FASB issued updated guidance on goodwill impairment testing that eliminates Step 2 of the goodwill impairment test requiring entities to calculate the implied fair value of goodwill through a hypothetical purchase price allocation. Under the updated guidance, impairment will now be recognized as the amount by which a reporting unit’s carrying value exceeds its fair value. Although the standard would have been effective for us in the first quarter of 2020 on a prospective basis, we adopted this guidance early effective January 1, 2018, as permitted. The adoption of this guidance did not have an impact on our financial condition or results of operations.

Accounting guidance not yet adopted

Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income

In February 2018, the FASB issued guidance that allows the reclassification from accumulated other comprehensive loss to retained earnings for stranded tax effects resulting from the newly enacted corporate tax rate. Because the adjustment of deferred taxes due to the reduction of the corporate tax rate is required to be included in net income, the tax effects of items within accumulated other comprehensive income (referred to as stranded tax effects) do not reflect the appropriate tax rates. The amount of the reclassification will be the difference between the 35 percent historical U.S. corporate tax rate and the newly enacted 21 percent U.S. corporate tax rate. This guidance is effective for us in the first quarter of 2019 with early adoption permitted.

Premium Amortization on Purchased Callable Debt Securities

In March 2017, the FASB issued guidance on the amortization period for purchased callable debt securities held at a premium. The guidance requires the premium to be amortized to the earliest call date. Under current guidance, premiums generally are amortized over the contracted life of the security. This guidance is effective for us in the first quarter of 2019 on a modified retrospective basis through a cumulative effect adjustment to beginning retained earnings. Early adoption is permitted. Securities held at a discount do not require an accounting change. Based on our best estimate at the time of this filing, the cumulative effect adjustment at the time of adoption would be approximately $30 million pre-tax.

Lease Accounting

In February 2016, the FASB issued accounting guidance requiring leases with lease terms of more than 12 months to recognize a right of use asset and a corresponding lease liability on the balance sheets. This accounting guidance is effective for us in the first quarter of 2019 on a modified retrospective basis with early adoption permitted. In January 2018, the FASB issued a proposed update that provides an alternative transition method of adoption, permitting the recognition of a cumulative-effect adjustment to retained earnings on the date of adoption. The adoption of the guidance is not expected to have a material impact on our financial condition or results of operations. We expect that the most significant impact will be the recognition of a right of use asset and a corresponding lease liability for our real estate leases.

Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments

In June 2016, the FASB issued guidance on the accounting for credit losses of financial instruments that are measured at amortized cost, including held to maturity securities and reinsurance recoverables, by applying an approach based on the current expected credit losses (CECL). The estimate of expected credit losses should consider historical information, current information, as well as reasonable and supportable forecasts, including estimates of prepayments. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset in order to present the net carrying value at the amount expected to be collected on the financial asset on the Consolidated balance sheet.

The guidance also amends the current debt security other-than-temporary impairment model by requiring an estimate of the expected credit loss (ECL) only when the fair value is below the amortized cost of the asset. The length of time the fair value of an AFS debt security has been below the amortized cost will no longer impact the determination of whether a potential credit loss exists. The AFS debt security model will also require the use of a valuation allowance as compared to the current practice of writing down the asset.

The standard is effective for us in the first quarter of 2020 with early adoption permitted in the first quarter of 2019. We will be able to assess the effect of adopting this guidance on our financial condition and results of operations closer to the date of adoption.

Acquisitions

The Chubb Corporation (Chubb Corp)

On January 14, 2016, we completed the acquisition of Chubb Corp, a leading provider of middle-market commercial, specialty, surety, and personal insurance for $29.5 billion, comprising $14.3 billion in cash and $15.2 billion in newly-issued stock. In addition, we assumed outstanding equity awards to employees and directors with an attributed value of $323 million. The total consideration, including the assumption of equity awards, was $29.8 billion. We recognized goodwill of $10.5 billion, attributable to expected growth and profitability, none of which is expected to be deductible for income tax purposes. We financed the cash portion of the transaction through a combination of $9.0 billion sourced from various Chubb Limited and Chubb Corp companies plus $5.3 billion of senior notes, which were issued in November 2015. Refer to Note 9 for additional information on the senior notes.

Upon completion of the merger, each Chubb Corp common share (other than shares held by certain legacy Chubb Corp employee benefit plans) was canceled and converted, in accordance with the procedures set forth in the merger agreement, into the right to receive (i) 0.6019 of a Chubb Limited common share and (ii) $62.93 in cash. In addition, replacement equity awards were issued by Chubb Limited to the holders of Chubb Corp's outstanding equity awards (stock options, restricted stock units, deferred stock units, deferred unit obligations, and performance units).

We believe the Chubb Corp acquisition is highly complementary to our existing business lines, distribution channels, customer segments, and underwriting skills. Chubb Corp has a substantial presence in the U.S. with a broad variety of coverages serving large corporate and upper middle market accounts, middle market and small commercial accounts, and personal lines. Together we are one of the largest commercial insurers in the U.S. Internationally, where legacy ACE is a truly global insurer with extensive presence in 54 countries and territories, Chubb Corp's operations in 25 markets added to our presence and capabilities and positioned us to better pursue important market opportunities globally. The combined company is a leader in a number of global specialty and traditional products such as professional lines, risk management, workers' compensation, accident and health (A&H), and other property and general casualty lines.

The table below details the purchase consideration and allocation of assets acquired and liabilities assumed:




(in millions of U.S. dollars, except per share data)
Purchase consideration
Chubb Limited common shares
Chubb Corp common shares outstanding	228
Per share exchange ratio	0.6019
Common shares issued by Chubb Limited	137
Common share price of Chubb Limited at January 14, 2016	$	111.02
Fair value of common shares issued by Chubb Limited to common shareholders of Chubb Corp	$	15,204
Cash consideration
Chubb Corp common shares outstanding	228
Agreed cash price per share paid to common shareholders of Chubb Corp	$	62.93
Cash consideration paid by Chubb Limited to common shareholders of Chubb Corp	$	14,319
Stock-based awards
Fair value of equity awards issued ⁽¹⁾	$	323
Fair value of purchase consideration	$	29,846
Assets acquired and (liabilities) assumed
Cash	$	71
Investments	42,967
Accrued investment income	359
Insurance and reinsurance balances receivable	3,095
Reinsurance recoverable on losses and loss expenses	1,676
Indefinite lived intangible assets	2,860
Finite lived intangible assets	4,795
Prepaid reinsurance premiums	280
Other assets	853
Unpaid losses and loss expenses	(22,923		)
Unearned premiums	(7,011		)
Insurance and reinsurance balances payable	(603		)
Accounts payable, accrued expenses, and other liabilities	(2,030		)
Deferred tax liabilities	(1,292		)
Long-term debt	(3,765		)
Total identifiable net assets acquired	19,332
Goodwill	10,514
Purchase price	$	29,846

⁽¹⁾The fair value of the replacement equity awards was $525 million, of which $323 million was attributed to service periods prior to the acquisition and was included in the purchase consideration. Refer to Note 12 for further information on these replacement equity awards.

The purchase price allocation to intangible assets recorded in connection with the Chubb Corp acquisition and their related useful lives are as follows:



(in millions of U.S. dollars)	Purchase price Allocation at January 14, 2016		Estimated useful life
Definite life
Unearned premium reserves (UPR) intangible asset	$	1,550	1 year
Agency distribution relationships and renewal rights	3,150		24 years
Internally developed technology	95		3 years
Indefinite life
Trademarks	2,800		Indefinite
Licenses	50		Indefinite
Syndicate capacity	10		Indefinite
Total identified intangible assets	$	7,655

Refer to Note 6 for additional information on goodwill and intangible assets acquired.

The following table summarizes the results of the acquired Chubb Corp operations since the acquisition date that have been included within our Consolidated statement of operations:



(in millions of U.S. dollars)	January 14, 2016 to December 31, 2016
Total revenues	$	12,376
Net income	$	1,756

The following table provides supplemental unaudited pro forma consolidated information for the years ended December 31, 2016 and 2015, as if Chubb Corp had been acquired as of January 1, 2015. The unaudited pro forma consolidated financial statements are presented solely for informational purposes and are not necessarily indicative of the consolidated results of operations that might have been achieved had the transaction been completed as of the date indicated, nor are they meant to be indicative of any anticipated consolidated future results of operations that the combined company will experience after the transaction.



	Year Ended December 31
(in millions of U.S. dollars, except per share data)	2016		2015
Total revenues	$	31,937	$	32,622
Net income	$	4,183	$	4,478
Earnings per share
Basic earnings per share	$	8.95	$	9.61
Diluted earnings per share	$	8.88	$	9.52

Total revenues and net income were lower for the year ended December 31, 2016, compared to the prior year, primarily reflecting merger-related actions in 2016, which lowered net premiums earned.

Fireman's Fund Insurance Company High Net Worth Personal Lines Insurance Business in the U.S. (Fireman's Fund)

On April 1, 2015, we acquired the Fireman's Fund Insurance Company high net worth personal lines insurance business in the U.S., which included the renewal rights for new and existing business and reinsurance of all existing reserves for $365 million in cash. We acquired assets with a fair value of $753 million, consisting primarily of cash of $629 million and insurance and reinsurance balances receivable of $124 million. We assumed liabilities with a fair value of $863 million, consisting primarily of unpaid losses and loss expenses of $417 million and unearned premiums of $428 million. This acquisition generated $196 million of goodwill, attributable to expected growth and profitability, all of which is expected to be deductible for income tax purposes, and other intangible assets of $278 million, primarily related to renewal rights, based on Chubb’s purchase price allocation. The acquisition expanded our position in the high net worth personal lines insurers in the U.S. The Fireman’s Fund business was integrated into our existing high net worth personal lines business, offering a broad range of coverage including homeowners, automobile, umbrella and excess liability, collectibles, and yachts. Goodwill and other intangible assets arising from this acquisition are included in our North America Personal P&C Insurance segment.

The Consolidated financial statements include results of acquired businesses from the acquisition dates.

Investments

a) Transfers of securities

During December 2017, we transferred securities, considered essential holdings in a diversified portfolio, with a total fair value of $4.3 billion from Fixed maturities available for sale to Fixed maturities held to maturity. These securities, which we have the intent and ability to hold to maturity, were transferred given the growth in our investment portfolio over the last several years, as well as continued efforts to manage the diversification of our global portfolio. The net unrealized appreciation at the date of the transfer continues to be reported in the carrying value of the transferred investments and is amortized through OCI over the remaining life of the securities using the effective interest method in a manner consistent with the amortization of any premium or discount. This transfer represents a non-cash transaction and does not impact the Consolidated statements of cash flows.

b) Fixed maturities



December 31, 2017	Amortized Cost		Gross Unrealized Appreciation		Gross Unrealized Depreciation			Fair Value		OTTI Recognized in AOCI
(in millions of U.S. dollars)	Amortized Cost		Gross Unrealized Appreciation		Gross Unrealized Depreciation			Fair Value		OTTI Recognized in AOCI
Available for sale
U.S. Treasury and agency	$	3,701	$	32	$	(35	)	$	3,698	$	—
Foreign	20,514		622		(106		)	21,030		(1		)
Corporate securities	23,453		638		(95		)	23,996		(4		)
Mortgage-backed securities	15,279		111		(100		)	15,290		(1		)
States, municipalities, and political subdivisions	14,888		125		(88		)	14,925		—
	$	77,835	$	1,528	$	(424	)	$	78,939	$	(6	)
Held to maturity
U.S. Treasury and agency	$	908	$	12	$	(5	)	$	915	$	—
Foreign	1,738		27		(8		)	1,757		—
Corporate securities	3,159		67		(7		)	3,219		—
Mortgage-backed securities	2,724		23		(5		)	2,742		—
States, municipalities, and political subdivisions	5,806		50		(15		)	5,841		—
	$	14,335	$	179	$	(40	)	$	14,474	$	—



December 31, 2016	Amortized Cost		Gross Unrealized Appreciation		Gross Unrealized Depreciation			Fair Value		OTTI Recognized in AOCI
(in millions of U.S. dollars)	Amortized Cost		Gross Unrealized Appreciation		Gross Unrealized Depreciation			Fair Value		OTTI Recognized in AOCI
Available for sale
U.S. Treasury and agency	$	2,883	$	32	$	(45	)	$	2,870	$	—
Foreign	20,929		636		(125		)	21,440		(5		)
Corporate securities	23,736		580		(167		)	24,149		(8		)
Mortgage-backed securities	14,066		135		(194		)	14,007		(1		)
States, municipalities, and political subdivisions	17,922		72		(345		)	17,649		—
	$	79,536	$	1,455	$	(876	)	$	80,115	$	(14	)
Held to maturity
U.S. Treasury and agency	$	655	$	9	$	(3	)	$	661	$	—
Foreign	640		28		(1		)	667		—
Corporate securities	2,771		50		(26		)	2,795		—
Mortgage-backed securities	1,393		35		—			1,428		—
States, municipalities, and political subdivisions	5,185		26		(92		)	5,119		—
	$	10,644	$	148	$	(122	)	$	10,670	$	—

As discussed in Note 3 d), if a credit loss is incurred on an impaired fixed maturity, an OTTI is considered to have occurred and the portion of the impairment not related to credit losses (non-credit OTTI) is recognized in OCI. Included in the “OTTI Recognized in AOCI” columns above are the cumulative amounts of non-credit OTTI recognized in OCI adjusted for subsequent sales, maturities, and redemptions. OTTI recognized in AOCI does not include the impact of subsequent changes in fair value of the related securities. In periods subsequent to a recognition of OTTI in OCI, changes in the fair value of the related fixed maturities are reflected in Net unrealized appreciation on investments in the Consolidated statements of shareholders' equity. For the years ended December 31, 2017 and 2016, $2 million of net unrealized depreciation and $62 million of net unrealized appreciation, respectively, related to such securities is included in OCI. At December 31, 2017 and 2016, AOCI included cumulative net unrealized appreciation of $7 million and $10 million, respectively, related to securities remaining in the investment portfolio for which a non-credit OTTI was recognized.

Mortgage-backed securities (MBS) issued by U.S. government agencies are combined with all other to be announced mortgage derivatives held (refer to Note 10 c) (iv)) and are included in the category, “Mortgage-backed securities”. Approximately 83 percent and 81 percent of the total mortgage-backed securities at December 31, 2017 and 2016, respectively, are represented by investments in U.S. government agency bonds. The remainder of the mortgage exposure consists of collateralized mortgage obligations and non-government mortgage-backed securities, the majority of which provide a planned structure for principal and interest payments and carry a rating of AAA by the major credit rating agencies.

The following table presents fixed maturities by contractual maturity:



	December 31				December 31
			2017				2016
(in millions of U.S. dollars)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Available for sale
Due in 1 year or less	$	3,164	$	3,182	$	3,892	$	3,913
Due after 1 year through 5 years	24,749		25,068		24,027		24,429
Due after 5 years through 10 years	25,388		25,704		27,262		27,379
Due after 10 years	9,255		9,695		10,289		10,387
	62,556		63,649		65,470		66,108
Mortgage-backed securities	15,279		15,290		14,066		14,007
	$	77,835	$	78,939	$	79,536	$	80,115
Held to maturity
Due in 1 year or less	$	743	$	746	$	430	$	435
Due after 1 year through 5 years	2,669		2,688		2,646		2,691
Due after 5 years through 10 years	4,744		4,756		2,969		2,944
Due after 10 years	3,455		3,542		3,206		3,172
	11,611		11,732		9,251		9,242
Mortgage-backed securities	2,724		2,742		1,393		1,428
	$	14,335	$	14,474	$	10,644	$	10,670

Expected maturities could differ from contractual maturities because borrowers may have the right to call or prepay obligations, with or without call or prepayment penalties.

c) Equity securities



	December 31			December 31
(in millions of U.S. dollars)	2017			2016
Cost	$	737		$	706
Gross unrealized appreciation	212			129
Gross unrealized depreciation	(12		)	(21		)
Fair value	$	937		$	814

d) Net realized gains (losses)

In accordance with guidance related to the recognition and presentation of OTTI, when an impairment related to a fixed maturity has occurred, OTTI is required to be recorded in Net income if management has the intent to sell the security or it is more likely than not that we will be required to sell the security before the recovery of its amortized cost. Further, in cases where we do not intend to sell the security and it is more likely than not that we will not be required to sell the security, we must evaluate the security to determine the portion of the impairment, if any, related to credit losses. If a credit loss is incurred, an OTTI is considered to have occurred and any portion of the OTTI related to credit losses must be reflected in Net income, while the portion of OTTI related to all other factors is recognized in OCI. For fixed maturities held to maturity, OTTI recognized in OCI is accreted from AOCI to the amortized cost of the fixed maturity prospectively over the remaining term of the securities.

Each quarter, securities in an unrealized loss position (impaired securities), including fixed maturities, securities lending collateral, equity securities, and other investments, are reviewed to identify impaired securities to be specifically evaluated for a potential OTTI.

For all non-fixed maturities, OTTI is evaluated based on the following:


•	the amount of time a security has been in a loss position and the magnitude of the loss position;


•	the period in which cost is expected to be recovered, if at all, based on various criteria including economic conditions and other issuer-specific developments; and


•	our ability and intent to hold the security to the expected recovery period.

As a general rule, we also consider that equity securities in an unrealized loss position for twelve consecutive months are other than temporarily impaired. For mutual funds included in equity securities in our Consolidated balance sheets, we employ analysis similar to fixed maturities, when applicable.

Evaluation of potential credit losses related to fixed maturities

We review each fixed maturity in an unrealized loss position to assess whether the security is a candidate for credit loss. Specifically, we consider credit rating, market price, and issuer-specific financial information, among other factors, to assess the likelihood of collection of all principal and interest as contractually due. Securities, for which we determine that credit loss is likely, are subjected to further analysis to estimate the credit loss recognized in Net income, if any. In general, credit loss recognized in Net income equals the difference between the security’s amortized cost and the net present value of its projected future cash flows discounted at the effective interest rate implicit in the debt security. All significant assumptions used in determining credit losses are subject to change as market conditions evolve.

U.S. Treasury and agency obligations (including agency mortgage-backed securities); foreign government obligations; and states, municipalities, and political subdivisions obligations

U.S. Treasury and agency obligations (including agency mortgage-backed securities); foreign government obligations; and states, municipalities, and political subdivisions obligations represent $311 million of gross unrealized loss at December 31, 2017. These securities were evaluated for credit loss primarily using qualitative assessments of the likelihood of credit loss considering credit rating of the issuers and level of credit enhancement, if any. We concluded that the high level of creditworthiness of the issuers coupled with credit enhancement, where applicable, supports recognizing no credit loss in Net income.

Corporate securities

Projected cash flows for corporate securities (principally senior unsecured bonds) are driven primarily by assumptions regarding probability of default and also the timing and amount of recoveries associated with defaults. Chubb developed projected cash flows for corporate securities using market observable data, issuer-specific information, and credit ratings. We use historical default data by Moody’s Investors Service (Moody’s) rating category to calculate a 1-in-100 year probability of default, which results in a default assumption in excess of the historical mean default rate. Consistent with management's approach, Chubb assumed a 32 percent recovery rate (the par value of a defaulted security that will be recovered) across all rating categories, rather than using Moody's historical mean recovery rate of 42 percent. We believe that use of a default assumption, in excess of the historical mean, is conservative in light of current market conditions.

The following table presents default assumptions by Moody's rating category (historical mean default rate provided for comparison):



Moody's Rating Category	1-in-100 Year Default Rate		Historical Mean Default Rate
Investment Grade:
Aaa-Baa	0.0-1.3%		0.0-0.3%
Below Investment Grade:
Ba	4.8	%	1.0	%
B	12.1	%	3.2	%
Caa-C	36.8	%	10.5	%

Application of the methodology and assumptions described above resulted in credit losses recognized in Net income for corporate securities of $5 million, $30 million, and $50 million for the years ended December 31, 2017, 2016, and 2015, respectively.

Mortgage-backed securities

For mortgage-backed securities, credit impairment is assessed using a cash flow model that estimates the cash flows on the underlying mortgages, using the security-specific collateral and transaction structure. The model estimates cash flows from the underlying mortgage loans and distributes those cash flows to various tranches of securities, considering the transaction structure and any subordination and credit enhancements that exist in that structure. The cash flow model incorporates actual cash flows on the mortgage-backed securities through the current period and then projects the remaining cash flows using a number of assumptions, including default rates, prepayment rates, and loss severity rates (the par value of a defaulted security that will not be recovered) on foreclosed properties.

We develop specific assumptions using market data, where available, and include internal estimates as well as estimates published by rating agencies and other third-party sources. We project default rates by mortgage sector considering current underlying mortgage loan performance, generally assuming lower loss severity for Prime sector bonds versus ALT-A and Sub-prime bonds.

These estimates are extrapolated along a default timing curve to estimate the total lifetime pool default rate. Other assumptions used contemplate the actual collateral attributes, including geographic concentrations, rating agency loss projections, rating actions, and current market prices. If cash flow projections indicate that losses will exceed the credit enhancement for a given tranche, then we do not expect to recover our amortized cost basis, and we recognize an estimated credit loss in Net income.

For the years ended December 31, 2017 and 2015, there were no credit losses recognized in Net income for mortgage-backed securities. For the year ended December 31, 2016, there was $1 million of credit losses recognized in Net income for mortgage-backed securities.

The following table presents the Net realized gains (losses) and the losses included in Net realized gains (losses) and OCI as a result of conditions which caused us to conclude the decline in fair value of certain investments was “other-than-temporary” and the change in net unrealized appreciation (depreciation) of investments:



	Year Ended December 31
(in millions of U.S. dollars)	2017			2016			2015
Fixed maturities:
OTTI on fixed maturities, gross	$	(24	)	$	(89	)	$	(142	)
OTTI on fixed maturities recognized in OCI (pre-tax)	1			8			39
OTTI on fixed maturities, net	(23		)	(81		)	(103		)
Gross realized gains excluding OTTI	149			183			158
Gross realized losses excluding OTTI	(157		)	(265		)	(235		)
Total fixed maturities	(31		)	(163		)	(180		)
Equity securities:
OTTI on equity securities	(10		)	(8		)	(7		)
Gross realized gains excluding OTTI	28			65			47
Gross realized losses excluding OTTI	(2		)	(13		)	(11		)
Total equity securities	16			44			29
OTTI on other investments	(12		)	(14		)	(2		)
Foreign exchange gains (losses)	36			118			(80		)
Investment and embedded derivative instruments	(11		)	(33		)	32
Fair value adjustments on insurance derivative	364			53			(203		)
S&P put options and futures	(261		)	(136		)	(10		)
Other derivative instruments	(5		)	(10		)	(12		)
Other	(12		)	(4		)	6
Net realized gains (losses)	84			(145		)	(420		)
Change in net unrealized appreciation (depreciation) on investments:
Fixed maturities available for sale	519			142			(1,119		)
Fixed maturities held to maturity	18			(59		)	43
Equity securities	88			52			(17		)
Other	8			(51		)	(36		)
Income tax (expense) benefit	(241		)	100			152
Change in net unrealized appreciation (depreciation) on investments	392			184			(977		)
Total net realized gains (losses) and change in net unrealized appreciation (depreciation) on investments	$	476		$	39		$	(1,397	)

The following table presents a roll-forward of pre-tax credit losses related to fixed maturities for which a portion of OTTI was recognized in OCI:



	Year Ended December 31
(in millions of U.S. dollars)	2017			2016			2015
Balance of credit losses related to securities still held – beginning of year	$	35		$	53		$	28
Additions where no OTTI was previously recorded	4			17			41
Additions where an OTTI was previously recorded	2			14			9
Reductions for securities sold during the period	(19		)	(49		)	(25		)
Balance of credit losses related to securities still held – end of year	$	22		$	35		$	53

e) Other investments



			December 31				December 31
			2017				2016
(in millions of U.S. dollars)	Fair Value		Cost		Fair Value		Cost
Investment funds	$	270	$	123	$	251	$	126
Limited partnerships	549		441		730		607
Partially-owned investment companies	2,803		2,803		2,645		2,645
Life insurance policies	305		305		248		248
Policy loans	244		244		209		209
Trading securities	333		333		296		295
Other	168		168		140		140
Total	$	4,672	$	4,417	$	4,519	$	4,270

Investment funds include one highly diversified fund investment as well as several direct funds that employ a variety of investment styles such as long/short equity and arbitrage/distressed. Included in limited partnerships and partially-owned investment companies are 138 individual limited partnerships covering a broad range of investment strategies including large cap buyouts, specialist buyouts, growth capital, distressed, mezzanine, real estate, and co-investments. The underlying portfolio consists of various public and private debt and equity securities of publicly traded and privately held companies and real estate assets. The underlying investments across various partnerships, geographies, industries, asset types, and investment strategies provide risk diversification within the limited partnership portfolio and the overall investment portfolio. Trading securities comprise $333 million of mutual funds supported by assets that do not qualify for separate account reporting under GAAP at December 31, 2017 compared with $271 million at December 31, 2016. There were no trading securities held in rabbi trusts at December 31, 2017, compared with $14 million of equity securities and $11 million of fixed maturities at December 31, 2016.

f) Investments in partially-owned insurance companies

The following table presents Investments in partially-owned insurance companies:



	December 31, 2017						December 31, 2016
(in millions of U.S. dollars, except for percentages)	Carrying Value		Issued Share Capital		Ownership Percentage		Carrying Value		Issued Share Capital		Ownership Percentage		Domicile
Huatai Group	$	438	$	616	20	%	$	447	$	624	20	%	China
Huatai Life Insurance Company	105		495		20	%	99		428		20	%	China
Freisenbruch-Meyer	9		—		40	%	8		5		40	%	Bermuda
Chubb Arabia Cooperative Insurance Company	15		27		30	%	13		27		30	%	Saudi Arabia
Russian Reinsurance Company	2		4		23	%	2		4		23	%	Russia
ABR Reinsurance Ltd.	93		800		11	%	97		800		11	%	Bermuda
Total	$	662	$	1,942			$	666	$	1,888

Huatai Group and Huatai Life Insurance Company provide a range of P&C, life, and investment products.

g) Gross unrealized loss

At December 31, 2017, there were 9,828 fixed maturities out of a total of 30,932 fixed maturities in an unrealized loss position. The largest single unrealized loss in the fixed maturities was $7 million. There were 82 equity securities out of a total of 328 equity securities in an unrealized loss position. The largest single unrealized loss in the equity securities was $3 million. Fixed maturities in an unrealized loss position at December 31, 2017, comprised both investment grade and below investment grade securities for which fair value declined primarily due to widening credit spreads since the date of purchase.

The following tables present, for all securities in an unrealized loss position (including securities on loan), the aggregate fair value and gross unrealized loss by length of time the security has continuously been in an unrealized loss position:



	0 – 12 Months					Over 12 Months					Total
December 31, 2017	Fair Value		Gross Unrealized Loss			Fair Value		Gross Unrealized Loss			Fair Value		Gross Unrealized Loss
(in millions of U.S. dollars)	Fair Value		Gross Unrealized Loss			Fair Value		Gross Unrealized Loss			Fair Value		Gross Unrealized Loss
U.S. Treasury and agency	$	2,172	$	(14	)	$	1,249	$	(26	)	$	3,421	$	(40	)
Foreign	5,657		(65		)	1,693		(49		)	7,350		(114		)
Corporate securities	5,210		(56		)	1,332		(46		)	6,542		(102		)
Mortgage-backed securities	6,194		(31		)	3,209		(74		)	9,403		(105		)
States, municipalities, and political subdivisions	9,259		(71		)	1,402		(32		)	10,661		(103		)
Total fixed maturities	28,492		(237		)	8,885		(227		)	37,377		(464		)
Equity securities	115		(12		)	—		—			115		(12		)
Other investments	78		(8		)	—		—			78		(8		)
Total	$	28,685	$	(257	)	$	8,885	$	(227	)	$	37,570	$	(484	)



	0 – 12 Months					Over 12 Months					Total
December 31, 2016	Fair Value		Gross Unrealized Loss			Fair Value		Gross Unrealized Loss			Fair Value		Gross Unrealized Loss
(in millions of U.S. dollars)	Fair Value		Gross Unrealized Loss			Fair Value		Gross Unrealized Loss			Fair Value		Gross Unrealized Loss
U.S. Treasury and agency	$	2,216	$	(48	)	$	—	$	—		$	2,216	$	(48	)
Foreign	5,918		(99		)	386		(27		)	6,304		(126		)
Corporate securities	7,021		(149		)	641		(44		)	7,662		(193		)
Mortgage-backed securities	8,638		(189		)	234		(5		)	8,872		(194		)
States, municipalities, and political subdivisions	19,448		(435		)	49		(2		)	19,497		(437		)
Total fixed maturities	43,241		(920		)	1,310		(78		)	44,551		(998		)
Equity securities	199		(21		)	—		—			199		(21		)
Other investments	201		(18		)	—		—			201		(18		)
Total	$	43,641	$	(959	)	$	1,310	$	(78	)	$	44,951	$	(1,037	)

h) Net investment income



	Year Ended December 31
(in millions of U.S. dollars)	2017			2016			2015
Fixed maturities	$	2,987		$	2,779		$	2,157
Short-term investments	131			93			49
Equity securities	38			36			16
Other investments	133			98			86
Gross investment income ⁽¹⁾	3,289			3,006			2,308
Investment expenses	(164		)	(141		)	(114		)
Net investment income ⁽¹⁾	$	3,125		$	2,865		$	2,194
⁽¹⁾ Includes amortization expense related to fair value adjustment of acquired invested assets related to the Chubb Corp acquisition	$	(332	)	$	(393	)	$	—

i) Restricted assets

Chubb is required to maintain assets on deposit with various regulatory authorities to support its insurance and reinsurance operations. These requirements are generally promulgated in the statutory regulations of the individual jurisdictions. The assets on deposit are available to settle insurance and reinsurance liabilities. Chubb is also required to restrict assets pledged under repurchase agreements. We also use trust funds in certain large reinsurance transactions where the trust funds are set up for the benefit of the ceding companies and generally take the place of letter of credit (LOC) requirements. We also have investments in segregated portfolios primarily to provide collateral or guarantees for LOC and derivative transactions. Included in restricted assets at December 31, 2017 and 2016, are investments, primarily fixed maturities, totaling $23.3 billion and $20.1 billion, and cash of $123 million and $103 million, respectively.

The following table presents the components of restricted assets:



	December 31		December 31
(in millions of U.S. dollars)	2017		2016
Trust funds	$	17,011	$	13,880
Deposits with U.S. regulatory authorities	2,345		2,203
Deposits with non-U.S. regulatory authorities	2,250		2,191
Assets pledged under repurchase agreements	1,434		1,461
Other pledged assets	414		435
	$	23,454	$	20,170

Fair value measurements

a) Fair value hierarchy

Fair value of financial assets and financial liabilities is estimated based on the framework established in the fair value accounting guidance. The guidance defines fair value as the price to sell an asset or transfer a liability (an exit price) in an orderly transaction between market participants and establishes a three-level valuation hierarchy based on the reliability of the inputs. The fair value hierarchy gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data.

The three levels of the hierarchy are as follows:


•	Level 1 – Unadjusted quoted prices for identical assets or liabilities in active markets;


•	Level 2 – Includes, among other items, inputs other than quoted prices that are observable for the asset or liability such as

interest rates and yield curves, quoted prices for similar assets and liabilities in active markets, and quoted prices for identical or similar assets and liabilities in markets that are not active; and


•	Level 3 – Inputs that are unobservable and reflect management’s judgments about assumptions that market participants

would use in pricing an asset or liability.

We categorize financial instruments within the valuation hierarchy at the balance sheet date based upon the lowest level of inputs that are significant to the fair value measurement. Accordingly, transfers between levels within the valuation hierarchy occur when there are significant changes to the inputs, such as increases or decreases in market activity, changes to the availability of current prices, changes to the transparency to underlying inputs, and whether there are significant variances in quoted prices. Transfers in and/or out of any level are assumed to occur at the end of the period.

We use pricing services to obtain fair value measurements for the majority of our investment securities. Based on management’s understanding of the methodologies used, these pricing services only produce an estimate of fair value if there is observable market information that would allow them to make a fair value estimate. Based on our understanding of the market inputs used by the pricing services, all applicable investments have been valued in accordance with GAAP. We do not adjust prices obtained from pricing services. The following is a description of the valuation techniques and inputs used to determine fair values for financial instruments carried at fair value, as well as the general classification of such financial instruments pursuant to the valuation hierarchy.

Fixed maturities

We use pricing services to estimate fair value measurements for the majority of our fixed maturities. The pricing services use market quotations for fixed maturities that have quoted prices in active markets; such securities are classified within Level 1. For fixed maturities other than U.S. Treasury securities that generally do not trade on a daily basis, the pricing services prepare estimates of fair value measurements using their pricing applications, which include available relevant market information, benchmark curves, benchmarking of like securities, sector groupings, and matrix pricing. Additional valuation factors that can be taken into account are nominal spreads, dollar basis, and liquidity adjustments. The pricing services evaluate each asset class based on relevant market and credit information, perceived market movements, and sector news. The market inputs used in the pricing evaluation, listed in the approximate order of priority include: benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, reference data, and industry and economic events. The extent of the use of each input is dependent on the asset class and the market conditions. Given the asset class, the priority of the use of inputs may change, or some market inputs may not be relevant. Additionally, fixed maturities valuation is more subjective when markets are less liquid due to the lack of market based inputs (i.e., stale pricing), which may increase the potential that an investment's estimated fair value is not reflective of the price at which an actual transaction would occur. The overwhelming majority of fixed maturities are classified within Level 2 because the most significant inputs used in the pricing techniques are observable. For a small number of fixed maturities, we obtain a single broker quote (typically from a market maker). Due to the disclaimers on the quotes that indicate that the price is indicative only, we include these fair value estimates in Level 3.

Equity securities

Equity securities with active markets are classified within Level 1 as fair values are based on quoted market prices. For equity securities in markets which are less active, fair values are based on market valuations and are classified within Level 2. Equity securities for which pricing is unobservable are classified within Level 3.

Short-term investments

Short-term investments, which comprise securities due to mature within one year of the date of purchase that are traded in active markets, are classified within Level 1 as fair values are based on quoted market prices. Securities such as commercial paper and discount notes are classified within Level 2 because these securities are typically not actively traded due to their approaching maturity and, as such, their cost approximates fair value. Short-term investments for which pricing is unobservable are classified within Level 3.

Other investments

Fair values for the majority of Other investments including investments in partially-owned investment companies, investment funds, and limited partnerships are based on their respective net asset values or equivalent (NAV) and are excluded from the fair value hierarchy table below. Certain of our long-duration contracts are supported by assets that do not qualify for separate account reporting under GAAP. These assets comprise mutual funds classified within Level 1 in the valuation hierarchy on the same basis as other equity securities traded in active markets. Other investments also include equity securities classified within Level 1, and fixed maturities, classified within Level 2, held in rabbi trusts maintained by Chubb for deferred compensation plans and are classified within the valuation hierarchy on the same basis as other equity securities and fixed maturities. Other investments for which pricing is unobservable are classified within Level 3.

Securities lending collateral

The underlying assets included in Securities lending collateral in the Consolidated balance sheets are fixed maturities which are classified in the valuation hierarchy on the same basis as other fixed maturities. Excluded from the valuation hierarchy is the corresponding liability related to Chubb’s obligation to return the collateral plus interest as it is reported at contract value and not fair value in the Consolidated balance sheets.

Investment derivative instruments

Actively traded investment derivative instruments, including futures, options, and forward contracts are classified within Level 1 as fair values are based on quoted market prices. The fair value of cross-currency swaps is based on market valuations and is classified within Level 2. Investment derivative instruments are recorded in either Other assets or Accounts payable, accrued expenses, and other liabilities in the Consolidated balance sheets.

Other derivative instruments

We generally maintain positions in other derivative instruments including exchange-traded equity futures contracts and option contracts designed to limit exposure to a severe equity market decline, which would cause an increase in expected claims and, therefore, an increase in reserves for our guaranteed minimum death benefits (GMDB) and guaranteed living benefits (GLB) reinsurance business. Our position in exchange-traded equity futures contracts is classified within Level 1. At December 31, 2017, we held no positions in option contracts on equity market indices. The fair value of the majority of the remaining positions in other derivative instruments is based on significant observable inputs including equity security and interest rate indices. Accordingly, these are classified within Level 2. Other derivative instruments based on unobservable inputs are classified within Level 3. Other derivative instruments are recorded in either Other assets or Accounts payable, accrued expenses, and other liabilities in the Consolidated balance sheets.

Separate account assets

Separate account assets represent segregated funds where investment risks are borne by the customers, except to the extent of certain guarantees made by Chubb. Separate account assets comprise mutual funds classified within Level 1 in the valuation hierarchy on the same basis as other equity securities traded in active markets. Separate account assets also include fixed maturities classified within Level 2 because the most significant inputs used in the pricing techniques are observable. Excluded from the valuation hierarchy are the corresponding liabilities as they are reported at contract value and not fair value in the Consolidated balance sheets. Separate account assets are recorded in Other assets in the Consolidated balance sheets.

Guaranteed living benefits

The GLB arises from life reinsurance programs covering living benefit guarantees whereby we assume the risk of guaranteed minimum income benefits (GMIB) and guaranteed minimum accumulation benefits (GMAB) associated with variable annuity contracts. GLB’s are recorded in Accounts payable, accrued expenses, and other liabilities and Future policy benefits in the Consolidated balance sheets. For GLB reinsurance, Chubb estimates fair value using an internal valuation model which includes current market information and estimates of policyholder behavior. All of the treaties contain claim limits, which are factored into the valuation model. The fair value depends on a number of factors, including interest rates, equity markets, credit risk, current account value, market volatility, expected annuitization rates and other policyholder behavior, and changes in policyholder mortality.

The most significant policyholder behavior assumptions include lapse rates and the GMIB annuitization rates. Assumptions regarding lapse rates and GMIB annuitization rates differ by treaty, but the underlying methodologies to determine rates applied to each treaty are comparable.

A lapse rate is the percentage of in-force policies surrendered in a given calendar year. All else equal, as lapse rates increase, ultimate claim payments will decrease. In general, the base lapse function assumes low lapse rates (ranging from about 3 percent to 9 percent per annum) during the surrender charge period of the GMIB contract, followed by a “spike” lapse rate (ranging from about 6 percent to 33 percent per annum) in the year immediately following the surrender charge period, and then reverting to an ultimate lapse rate (generally around 10 percent per annum), typically over a 2-year period. This base rate is adjusted downward for policies with more valuable guarantees (policies with guaranteed values far in excess of their account values) by multiplying the base lapse rate by a factor ranging from 15 percent to 75 percent. Partial withdrawals and the impact of older policyholders with tax-qualified contracts (due to required minimum distributions) are also reflected in our modeling.

The GMIB annuitization rate is the percentage of policies for which the policyholder will elect to annuitize using the guaranteed benefit provided under the GMIB. All else equal, as GMIB annuitization rates increase, ultimate claim payments will increase, subject to treaty claim limits. All GMIB reinsurance treaties include claim limits to protect Chubb in the event that actual annuitization behavior is significantly higher than expected. In general, Chubb assumes that GMIB annuitization rates will be higher for policies with more valuable guarantees (policies with guaranteed values far in excess of their account values). In addition, we also assume that GMIB annuitization rates are higher in the first year immediately following the waiting period (the first year the policies are eligible to annuitize using the GMIB) in comparison to all subsequent years. We do not yet have fully credible annuitization experience for all clients.

The level of annuitization assumptions at December 31, 2017 are as follows:



% of total GMIB guaranteed value	Year of GMIB eligibility	Maximum annuitization rate(s) (per year)	Maximum annuitization rates based on
67%	First year	2% - 52%	Actual Experience
67%	Subsequent years	1% - 100%	Actual Experience
3%	First year	N/A	N/A⁽¹⁾
3%	Subsequent years	12%, 100%	Weighted average⁽²⁾
30%	First year	25%, 56%	Weighted average⁽²⁾
30%	Subsequent years	12%, 36%	Weighted average⁽²⁾

⁽¹⁾Because all policies in this bracket are past the first year of eligibility, first year annuitization assumptions are no longer modeled.

⁽²⁾Weighted average of two different annuitization rates.

The effect of changes in key market factors on assumed lapse and annuitization rates reflect emerging trends using data available from cedants. For treaties with limited experience, rates are established in line with data received from other ceding companies adjusted, as appropriate, with industry estimates. The model and related assumptions are regularly re-evaluated by management and enhanced, as appropriate, based upon additional experience obtained related to policyholder behavior and availability of updated information such as market conditions, market participant assumptions, and demographics of in-force annuities. Because of the significant use of unobservable inputs including policyholder behavior, GLB reinsurance is classified within Level 3.

In the fourth quarter of 2017, we completed a review of policyholder behavior related to annuitizations, partial withdrawals, lapses, and mortality for our variable annuity reinsurance business.


•	As annuitization experience continued to emerge, we refined our annuitization assumptions including age-based behavior, which generally lowered the annuitization rate. The change in annuitization assumptions decreased the fair value of GLB liabilities and generated a realized gain of approximately $117 million.

•

Reinsured policies allow for policyholders to make periodic withdrawals from their account values without lapsing the policy. The partial withdrawal results in a reduction to the associated guaranteed value that is either equal or proportional to the amount of the reduction in account value. Based on continued emerging experience, we refined our assumptions around the types of partial withdrawals according to their impact on guaranteed value. This resulted in an increase to the fair value of GLB liabilities generating a realized loss of approximately $43 million.


•	As lapse experience continued to emerge, we further refined our assumptions which resulted in a net increase to the fair value of GLB liabilities generating a realized loss of approximately $9 million.


•	We studied mortality experience for our variable annuity business for the first time this year and subsequently refined our mortality assumptions. The updated mortality rates increased the fair value of GLB liabilities generating a realized loss of approximately $25 million.

In addition to the updates described above, we updated aspects of our valuation model relating to interest rates during the year ended December 31, 2017. This resulted in a decrease to the fair value of GLB liabilities generating a realized gain of approximately $94 million.

During the year ended December 31, 2017, we also made minor technical refinements to the internal valuation model which resulted in no material impact on the financial statements.

Financial instruments measured at fair value on a recurring basis, by valuation hierarchy



December 31, 2017	Level 1		Level 2		Level 3		Total
(in millions of U.S. dollars)	Level 1		Level 2		Level 3		Total
Assets:
Fixed maturities available for sale
U.S. Treasury and agency	$	3,129	$	569	$	—	$	3,698
Foreign	—		20,937		93		21,030
Corporate securities	—		22,959		1,037		23,996
Mortgage-backed securities	—		15,212		78		15,290
States, municipalities, and political subdivisions	—		14,925		—		14,925
	3,129		74,602		1,208		78,939
Equity securities	893		—		44		937
Short-term investments	2,309		1,252		—		3,561
Other investments ⁽¹⁾	466		305		263		1,034
Securities lending collateral	—		1,737		—		1,737
Investment derivative instruments	18		—		—		18
Other derivative instruments	1		—		—		1
Separate account assets	2,635		99		—		2,734
Total assets measured at fair value ⁽¹⁾	$	9,451	$	77,995	$	1,515	$	88,961
Liabilities:
Investment derivative instruments	$	30	$	—	$	—	$	30
Other derivative instruments	21		—		2		23
GLB ⁽²⁾	—		—		204		204
Total liabilities measured at fair value	$	51	$	—	$	206	$	257


⁽¹⁾	Excluded from the table above are partially-owned investments, investment funds, and limited partnerships of $3,623 million and other investments of $15 million at December 31, 2017 measured using NAV as a practical expedient.


⁽²⁾	Our GLB reinsurance product meets the definition of a derivative instrument for accounting purposes and is accordingly carried at fair value. Excluded from the table above is the portion of the GLB derivative liability classified as Future policy benefits in the Consolidated balance sheets. Refer to Note 5 c) for additional information.



December 31, 2016	Level 1		Level 2		Level 3		Total
(in millions of U.S. dollars)	Level 1		Level 2		Level 3		Total
Assets:
Fixed maturities available for sale
U.S. Treasury and agency	$	2,175	$	695	$	—	$	2,870
Foreign	—		21,366		74		21,440
Corporate securities	—		23,468		681		24,149
Mortgage-backed securities	—		13,962		45		14,007
States, municipalities, and political subdivisions	—		17,649		—		17,649
	2,175		77,140		800		80,115
Equity securities	773		—		41		814
Short-term investments	1,757		1,220		25		3,002
Other investments ⁽¹⁾	384		259		225		868
Securities lending collateral	—		1,092		—		1,092
Investment derivative instruments	31		—		—		31
Other derivative instruments	3		—		—		3
Separate account assets	1,784		95		—		1,879
Total assets measured at fair value ⁽¹⁾	$	6,907	$	79,806	$	1,091	$	87,804
Liabilities:
Investment derivative instruments	$	54	$	—	$	—	$	54
Other derivative instruments	—		—		13		13
GLB ⁽²⁾	—		—		559		559
Total liabilities measured at fair value	$	54	$	—	$	572	$	626


⁽¹⁾	Excluded from the table above are partially-owned investments, investment funds, and limited partnerships of $3,626 million and other investments of $25 million at December 31, 2016 measured using NAV as a practical expedient.


⁽²⁾	Our GLB reinsurance product meets the definition of a derivative instrument for accounting purposes and is accordingly carried at fair value. Excluded from the table above is the portion of the GLB derivative liability classified as Future policy benefits in the Consolidated balance sheets. Refer to Note 5 c) for additional information.

There were no transfers of financial instruments between Level 1 and Level 2 for the years ended December 31, 2017, 2016, and 2015.

Fair value of alternative investments

Alternative investments include investment funds, limited partnerships, and partially-owned investment companies measured at fair value using NAV as a practical expedient.

The following table presents, by investment category, the expected liquidation period, fair value, and maximum future funding commitments of alternative investments:



		December 31				December 31
		2017				2016
(in millions of U.S. dollars)	Expected Liquidation Period of Underlying Assets	Fair Value		Maximum Future Funding Commitments		Fair Value		Maximum Future Funding Commitments
Financial	5 to 9 Years	$	540	$	330	$	548	$	428
Real Assets	3 to 7 Years	651		114		536		230
Distressed	3 to 7 Years	289		141		485		179
Private Credit	3 to 7 Years	187		327		236		259
Traditional	3 to 15 Years	1,656		3,149		1,550		930
Vintage	1 to 2 Years	30		—		21		14
Investment funds	Not Applicable	270		—		251		—
		$	3,623	$	4,061	$	3,627	$	2,040

Included in all categories in the above table, except for Investment funds, are investments for which Chubb will never have the contractual option to redeem but receives distributions based on the liquidation of the underlying assets. Further, for all categories except for Investment funds, Chubb does not have the ability to sell or transfer the investments without the consent from the general partner of individual funds.



Investment Category		Consists of investments in private equity funds:
Financial		targeting financial services companies such as financial institutions and insurance services worldwide
Real Assets		targeting investments related to hard physical assets such as real estate, infrastructure, and natural resources
Distressed		targeting distressed corporate debt/credit and equity opportunities in the U.S.
Private Credit		targeting privately originated corporate debt investments including senior secured loans and subordinated bonds
Traditional		employing traditional private equity investment strategies such as buyout and growth equity globally
Vintage		made before 2002 or where the funds’ commitment periods had already expired

Investment funds

Chubb’s investment funds employ various investment strategies such as long/short equity and arbitrage/distressed. Included in this category are investments for which Chubb has the option to redeem at agreed upon value as described in each investment fund’s subscription agreement. Depending on the terms of the various subscription agreements, investment fund investments may be redeemed monthly, quarterly, semi-annually, or annually. If Chubb wishes to redeem an investment fund investment, it must first determine if the investment fund is still in a lock-up period (a time when Chubb cannot redeem its investment so that the investment fund manager has time to build the portfolio). If the investment fund is no longer in its lock-up period, Chubb must then notify the investment fund manager of its intention to redeem by the notification date prescribed by the subscription agreement. Subsequent to notification, the investment fund can redeem Chubb’s investment within several months of the notification. Notice periods for redemption of the investment funds range between 5 and 120 days. Chubb can redeem its investment funds without consent from the investment fund managers.

Level 3 financial instruments

The fair values of assets and liabilities measured at fair value using significant unobservable inputs (Level 3) consist of various inputs and assumptions that management makes when determining fair value. Management analyzes changes in fair value measurements classified within Level 3 by comparing pricing and returns of our investments to benchmarks, including month-over-month movements, investment credit spreads, interest rate movements, and credit quality of securities.

The following table presents the significant unobservable inputs used in the Level 3 liability valuations. Excluded from the table below are inputs used to determine the fair value of Level 3 assets which are based on single broker quotes and contain no quantitative unobservable inputs developed by management.



(in millions of U.S. dollars, except for percentages)	Fair Value at December 31, 2017		Valuation Technique	Significant Unobservable Inputs	Ranges
GLB⁽¹⁾	$	204	Actuarial model	Lapse rate	3% – 33%
				Annuitization rate	0% – 100%


⁽¹⁾	Discussion of the most significant inputs used in the fair value measurement of GLB and the sensitivity of those assumptions is included within Note 4 a) Guaranteed living benefits.

The following tables present a reconciliation of the beginning and ending balances of financial instruments measured at fair value using significant unobservable inputs (Level 3):



																Assets						Liabilities
	Available-for-Sale Debt Securities									Equity securities			Short-term investments			Other investments			Other derivative instruments			GLB⁽²⁾
Year Ended December 31, 2017	Foreign			Corporate securities ⁽¹⁾			MBS
(in millions of U.S. dollars)	Foreign			Corporate securities ⁽¹⁾			MBS
Balance, beginning of year	$	74		$	681		$	45		$	41		$	25		$	225		$	13		$	559
Transfers into Level 3	—			231			50			—			—			—			—			9
Transfers out of Level 3	(3		)	(93		)	—			—			—			—			(9		)	—
Change in Net Unrealized Gains (Losses) included in OCI	3			(12		)	—			(1		)	—			6			—			—
Net Realized Gains/Losses	—			—			—			2			—			—			(2		)	(364		)
Purchases	84			521			8			24			16			56			—			—
Sales	(59		)	(111		)	(1		)	(22		)	—			—			—			—
Settlements	(6		)	(180		)	(24		)	—			(41		)	(24		)	—			—
Balance, end of year	$	93		$	1,037		$	78		$	44		$	—		$	263		$	2		$	204
Net Realized Gains/Losses Attributable to Changes in Fair Value at the Balance Sheet Date	$	(1	)	$	(2	)	$	—		$	(1	)	$	—		$	—		$	(2	)	$	(364	)


⁽¹⁾	Transfers into and Purchases in Level 3 primarily consist of privately-placed fixed income securities.


⁽²⁾	Our GLB reinsurance product meets the definition of a derivative instrument for accounting purposes and is accordingly carried at fair value. Excluded from the table above is the portion of the GLB derivative liability classified as Future policy benefits in the Consolidated balance sheets. Refer to Note 5 c) for additional information.



																						Liabilities
	Available-for-Sale Debt Securities									Equity securities			Short-term investments			Other investments				Other derivative instruments		GLB⁽¹⁾
Year Ended December 31, 2016	Foreign			Corporate securities			MBS
(in millions of U.S. dollars)	Foreign			Corporate securities			MBS
Balance, beginning of year	$	57		$	174		$	53		$	16		$	—		$	212		—	$	6	$	609
Transfers into Level 3	9			53			—			—			—			—			—	—		—
Transfers out of Level 3	(24		)	(10		)	—			—			(50		)	—				—		—
Change in Net Unrealized Gains (Losses) included in OCI	1			15			(1		)	2			—			(2		)		—		—
Net Realized Gains/Losses	(6		)	(13		)	—			1			—			1				5		(50		)
Purchases⁽²⁾	70			566			1			27			75			33				2		—
Sales	(17		)	(59		)	(8		)	(5		)	—			—				—		—
Settlements	(16		)	(45		)	—			—			—			(19		)		—		—
Balance, end of year	$	74		$	681		$	45		$	41		$	25		$	225			$	13	$	559
Net Realized Gains/Losses Attributable to Changes in Fair Value at the Balance Sheet Date	$	(5	)	$	(11	)	$	—		$	—		$	—		$	1			$	5	$	(50	)

⁽¹⁾

Our GLB reinsurance product meets the definition of a derivative instrument for accounting purposes and is accordingly carried at fair value. Excluded from the table above is the portion of the GLB derivative liability classified as Future policy benefits in the Consolidated balance sheets. The liability for GLB reinsurance was $853 million at December 31, 2016 and $888 million at December 31, 2015, which includes a fair value derivative adjustment of $559 million and $609 million, respectively.

⁽²⁾ Includes acquired invested assets as a result of the Chubb Corp acquisition.



	Assets															Liabilities
	Available-for-Sale Debt Securities															Other derivative instruments		GLB⁽¹⁾
Year Ended December 31, 2015	Foreign			Corporate securities			MBS			Equity securities			Other investments
(in millions of U.S. dollars)	Foreign			Corporate securities			MBS			Equity securities			Other investments
Balance, beginning of year	$	22		$	187		$	15		$	2		$	204		$	4	$	406
Transfers into Level 3	34			16			—			—			—			—		—
Transfers out of Level 3	—			—			—			—			—			—		—
Change in Net Unrealized Gains (Losses) included in OCI	(2		)	(1		)	—			3			(6		)	—		—
Net Realized Gains/Losses	(1		)	(4		)	—			(2		)	—			2		203
Purchases	15			52			41			13			33			—		—
Sales	(3		)	(28		)	(2		)	—			—			—		—
Settlements	(8		)	(48		)	(1		)				(19		)	—
Balance, end of year	$	57		$	174		$	53		$	16		$	212		$	6	$	609
Net Realized Gains/Losses Attributable to Changes in Fair Value at the Balance Sheet Date	$	(1	)	$	(2	)	$	—		$	(2	)	$	—		$	2	$	203

⁽¹⁾

Our GLB reinsurance product meets the definition of a derivative instrument for accounting purposes and is accordingly carried at fair value. Excluded from the table above is the portion of the GLB derivative liability classified as Future policy benefits in the Consolidated balance sheets. The liability for GLB reinsurance was $888 million at December 31, 2015 and $663 million at December 31, 2014, which includes a fair value derivative adjustment of $609 million and $406 million, respectively.

b) Financial instruments disclosed, but not measured, at fair value

Chubb uses various financial instruments in the normal course of its business. Our insurance contracts are excluded from fair value of financial instruments accounting guidance, and therefore, are not included in the amounts discussed below.

The carrying values of cash, other assets, other liabilities, and other financial instruments not included below approximated their fair values.

Investments in partially-owned insurance companies

Fair values for investments in partially-owned insurance companies are based on Chubb’s share of the net assets based on the financial statements provided by those companies and are excluded from the valuation hierarchy tables below.

Short- and long-term debt, repurchase agreements, and trust preferred securities

Where practical, fair values for short-term debt, long-term debt, repurchase agreements, and trust preferred securities are estimated using discounted cash flow calculations based principally on observable inputs including incremental borrowing rates, which reflect Chubb’s credit rating, for similar types of borrowings with maturities consistent with those remaining for the debt being valued.

The following tables present fair value, by valuation hierarchy, and carrying value of the financial instruments not measured at fair value:



December 31, 2017	Fair Value								Carrying Value
(in millions of U.S. dollars)	Level 1		Level 2		Level 3		Total		Carrying Value
Assets:
Fixed maturities held to maturity
U.S. Treasury and agency	$	857	$	58	$	—	$	915	$	908
Foreign	—		1,757		—		1,757		1,738
Corporate securities	—		3,184		35		3,219		3,159
Mortgage-backed securities	—		2,742		—		2,742		2,724
States, municipalities, and political subdivisions	—		5,841		—		5,841		5,806
Total assets	$	857	$	13,582	$	35	$	14,474	$	14,335
Liabilities:
Repurchase agreements	$	—	$	1,408	$	—	$	1,408	$	1,408
Short-term debt	—		1,013		—		1,013		1,013
Long-term debt	—		12,332		—		12,332		11,556
Trust preferred securities	—		468		—		468		308
Total liabilities	$	—	$	15,221	$	—	$	15,221	$	14,285



December 31, 2016	Fair Value								Carrying Value
(in millions of U.S. dollars)	Level 1		Level 2		Level 3		Total		Carrying Value
Assets:
Fixed maturities held to maturity
U.S. Treasury and agency	$	555	$	106	$	—	$	661	$	655
Foreign	—		667		—		667		640
Corporate securities	—		2,782		13		2,795		2,771
Mortgage-backed securities	—		1,428		—		1,428		1,393
States, municipalities, and political subdivisions	—		5,119		—		5,119		5,185
Total assets	$	555	$	10,102	$	13	$	10,670	$	10,644
Liabilities:
Repurchase agreements	$	—	$	1,403	$	—	$	1,403	$	1,403
Short-term debt	—		503		—		503		500
Long-term debt	—		12,998		—		12,998		12,610
Trust preferred securities	—		456		—		456		308
Total liabilities	$	—	$	15,360	$	—	$	15,360	$	14,821

Reinsurance

a) Consolidated reinsurance

Chubb purchases reinsurance to manage various exposures including catastrophe risks. Although reinsurance agreements contractually obligate Chubb's reinsurers to reimburse it for the agreed-upon portion of its gross paid losses, they do not discharge Chubb's primary liability. The amounts for net premiums written and net premiums earned in the Consolidated statements of operations are net of reinsurance. The following table presents direct, assumed, and ceded premiums:



	Year Ended December 31
(in millions of U.S. dollars)	2017			2016				2015
Premiums written
Direct	$	33,137			$	31,543			$	19,879
Assumed	3,239				3,440				3,932
Ceded	(7,132		)		(6,838		)		(6,098		)
Net	$	29,244			$	28,145			$	17,713
Premiums earned
Direct	$	32,782			$	31,811			$	19,355
Assumed	3,332				3,744				3,676
Ceded	(7,080		)		(6,806		)		(5,818		)
Net	$	29,034			$	28,749			$	17,213

Ceded losses and loss expenses incurred were $5.5 billion, $4.1 billion, and $3.1 billion for the years ended December 31, 2017, 2016, and 2015, respectively.

b) Reinsurance recoverable on ceded reinsurance



	December 31		December 31
(in millions of U.S. dollars)	2017		2016
Reinsurance recoverable on unpaid losses and loss expenses ⁽¹⁾	$	14,014		$	12,708
Reinsurance recoverable on paid losses and loss expenses ⁽¹⁾	1,020			869
Reinsurance recoverable on losses and loss expenses ⁽¹⁾	$	15,034		$	13,577
Reinsurance recoverable on policy benefits ⁽¹⁾	$	184		$	182


⁽¹⁾	Net of a provision for uncollectible reinsurance.

The increase in reinsurance recoverable on loss and loss expenses was principally related to the California wildfires and other catastrophe losses in 2017.

We evaluate the financial condition of our reinsurers and potential reinsurers on a regular basis and also monitor concentrations of credit risk with reinsurers. The provision for uncollectible reinsurance is required principally due to the potential failure of reinsurers to indemnify Chubb, primarily because of disputes under reinsurance contracts and insolvencies. We have established provisions for amounts estimated to be uncollectible. At December 31, 2017 and 2016, the provision for uncollectible reinsurance was $321 million and $300 million, respectively.

The following tables present a listing, at December 31, 2017, of the categories of Chubb's reinsurers:



December 31, 2017	Gross Reinsurance Recoverable on Loss and Loss Expenses		Provision for Uncollectible Reinsurance		% of Gross Reinsurance Recoverable
(in millions of U.S. dollars, except for percentages)	Gross Reinsurance Recoverable on Loss and Loss Expenses		Provision for Uncollectible Reinsurance		% of Gross Reinsurance Recoverable
Categories
Largest reinsurers	$	5,190	$	59	1.1	%
Other reinsurers rated A- or better	5,898		58		1.0	%
Other reinsurers with ratings lower than A- or not rated	681		75		11.0	%
Pools	577		15		2.6	%
Structured settlements	550		16		2.9	%
Captives	2,199		18		0.8	%
Other	260		80		30.8	%
Total	$	15,355	$	321	2.1	%



Largest Reinsurers
Berkshire Hathaway Insurance Group	Lloyd's of London	Swiss Re Group
HDI Group (Hannover Re)	Munich Re Group



Categories of Chubb's reinsurers		Comprises:
Largest reinsurers		• All groups of reinsurers or captives where the gross recoverable exceeds one percent of Chubb's total shareholders' equity.
Other reinsurers rated A- or better		• All reinsurers rated A- or better that were not included in the largest reinsurer category.
Other reinsurers rated lower than A- or not rated		• All reinsurers rated lower than A- or not rated that were not included in the largest reinsurer category.
Pools		• Related to Chubb's voluntary pool participation and Chubb's mandatory pool participation required by law in certain states.
Structured settlements		• Annuities purchased from life insurance companies to settle claims. Since we retain ultimate liability in the event that the life company fails to pay, we reflect the amounts as both a liability and a recoverable/receivable for GAAP purposes.
Captives		• Companies established and owned by our insurance clients to assume a significant portion of their direct insurance risk from Chubb; structured to allow clients to self-insure a portion of their reinsurance risk. It generally is our policy to obtain collateral equal to expected losses. Where appropriate, exceptions are granted but only with review and approval at a senior officer level. Excludes captives included in the largest reinsurer category.
Other		• Amounts recoverable that are in dispute or are from companies that are in supervision, rehabilitation, or liquidation.

The provision for uncollectible reinsurance is principally based on an analysis of the credit quality of the reinsurer and collateral balances. We establish the provision for uncollectible reinsurance for the Other category based on a case-by-case analysis of individual situations including the merits of the underlying matter, credit and collateral analysis, and consideration of our collection experience in similar situations.

c) Assumed life reinsurance programs involving minimum benefit guarantees under variable annuity contracts

The following table presents income and expenses relating to GMDB and GLB reinsurance. GLBs include GMIBs as well as some GMABs originating in Japan.



	Year Ended December 31
(in millions of U.S. dollars)	2017		2016		2015
GMDB
Net premiums earned	$	49	$	55	$	61
Policy benefits and other reserve adjustments	$	40	$	45	$	34
GLB
Net premiums earned	$	110	$	118	$	121
Policy benefits and other reserve adjustments	105		52		45
Net realized gains (losses)	363		48		(203		)
Gain (loss) recognized in Net income	$	368	$	114	$	(127	)
Net cash received and other	65		79		98
Net decrease (increase) in liability	$	303	$	35	$	(225	)

Net realized gains (losses) in the table above include gains (losses) related to foreign exchange and fair value adjustments on insurance derivatives and exclude gains (losses) on S&P put options and futures used to partially offset the risk in the GLB reinsurance portfolio. Refer to Note 10 for additional information.

At December 31, 2017 and 2016, the reported liability for GMDB reinsurance was $129 million and $120 million, respectively. At December 31, 2017 and 2016, the reported liability for GLB reinsurance was $550 million and $853 million, respectively, which includes a fair value derivative adjustment of $204 million and $559 million, respectively. Reported liabilities for both GMDB and GLB reinsurance are determined using internal valuation models. Such valuations require considerable judgment and are subject to significant uncertainty. The valuation of these products is subject to fluctuations arising from, among other factors, changes in interest rates, changes in equity markets, changes in credit markets, changes in the allocation of the investments underlying annuitants’ account values, and assumptions regarding future policyholder behavior. These models and the related assumptions are regularly reviewed by management and enhanced, as appropriate, based upon improvements in modeling assumptions and availability of updated information, such as market conditions and demographics of in-force annuities.

Variable Annuity Net Amount at Risk

The net amount at risk is defined as the present value of future claim payments assuming policy account values and guaranteed values are fixed at the valuation date (December 31, 2017 and 2016, respectively) and reinsurance coverage ends at the earlier of the maturity of the underlying variable annuity policy or the reinsurance treaty. In addition, the following assumptions were used:



(in millions of U.S. dollars, except for percentages)		Net amount at risk
Reinsurance covering		December 31, 2017		December 31, 2016		2017 Future claims discount rate	Other assumptions	Total claims at 100% mortality at December 31, 2017⁽¹⁾
GMDB Risk Only		$	279	$	341	4.00% - 4.50%	No lapses or withdrawals	$	189
							Mortality according to 100% of the Annuity 2000 mortality table
GLB Risk Only		$	691	$	800	4.25% - 4.75%	No deaths, lapses or withdrawals	N/A
							Annuitization at a frequency most disadvantageous to Chubb⁽²⁾
							Claim calculated using interest rates in line with rates used to calculate reserve
Both Risks: ⁽³⁾	GMDB	$	81	$	88	4.25% - 4.75%	No lapses or withdrawals	$	18
							Mortality according to 100% of the Annuity 2000 mortality table
	GLB	$	392	$	464	4.25% - 4.75%	Annuitization at a frequency most disadvantageous to Chubb⁽²⁾	N/A
							Claim calculated using interest rates in line with rates used to calculate reserve

⁽¹⁾ Takes into account all applicable reinsurance treaty claim limits.

⁽²⁾ Annuitization at a level that maximizes claims taking into account the treaty limits.

⁽³⁾ Covering both the GMDB and GLB risks on the same underlying policyholders.

The average attained age of all policyholders for all risk categories above, weighted by the guaranteed value of each reinsured policy, is approximately 70 years.

Intangible Assets

Intangible Assets Disclosure [Text Block]

6. Goodwill and Other intangible assets

At December 31, 2017 and 2016, Goodwill was $15.5 billion and $15.3 billion, respectively, and Other intangible assets were $6.5 billion and $6.8 billion, respectively.

a) Goodwill

The following table presents a roll-forward of Goodwill by segment:



(in millions of U.S. dollars)	North America Commercial P&C Insurance		North America Personal P&C Insurance		North America Agricultural Insurance		Overseas General Insurance			Global Reinsurance		Life Insurance		Chubb Consolidated
Balance at December 31, 2015	$	1,203	$	196	$	134	$	2,078		$	365	$	820	$	4,796
Acquisition of Chubb Corp	5,714		2,025		—		2,775			—		—		10,514
Foreign exchange revaluation and other	44		14		—		(36		)	—		—		22
Balance at December 31, 2016	$	6,961	$	2,235	$	134	$	4,817		$	365	$	820	$	15,332
Foreign exchange revaluation and other	15		5		—		187			—		2		209
Balance at December 31, 2017	$	6,976	$	2,240	$	134	$	5,004		$	365	$	822	$	15,541

b) Other intangible assets

The majority of the Other intangible assets balance at December 31, 2017 relates to the Chubb Corp acquisition and comprised of $3.5 billion that are subject to amortization, principally Agency distribution relationships and renewal rights, and $3.0 billion that are not subject to amortization, principally trademarks. This compares to $3.8 billion and $3.0 billion at December 31, 2016, respectively.

Amortization of purchased intangibles

Amortization expense related to purchased intangibles amounted to $260 million, $19 million, and $171 million for the years ended December 31, 2017, 2016, and 2015, respectively. The increase in amortization expense of purchased intangibles primarily reflects higher intangible amortization expense related to agency distribution relationships and renewal rights and lower amortization benefit from the fair value adjustment on Unpaid losses and loss expenses, both related to the Chubb Corp acquisition.

The following table presents, as of December 31, 2017, the expected estimated pre-tax amortization expense (benefit) of purchased intangibles, at current foreign currency exchange rates, for the next five years:



	Associated with the Chubb Corp Acquisition
For the Year Ending December 31 (in millions of U.S. dollars)	Agency distribution relationships and renewal rights		Internally developed technology		Fair value adjustment on Unpaid losses and loss expense ⁽¹⁾			Total		Other intangible assets		Total Amortization of purchased intangibles
2018	$	325	$	32	$	(102	)	$	255	$	83	$	338
2019	282		—		(63		)	219		75		294
2020	241		—		(36		)	205		67		272
2021	218		—		(20		)	198		61		259
2022	198		—		(14		)	184		57		241
Total	$	1,264	$	32	$	(235	)	$	1,061	$	343	$	1,404

⁽¹⁾

In connection with the Chubb Corp acquisition, we recorded an increase to Unpaid losses and loss expenses acquired to adjust the carrying value of Chubb Corp's historical unpaid losses and loss expenses to fair value as of the acquisition date. This fair value adjustment amortizes through Amortization of purchased intangibles on the Consolidated statements of operations over a range of 5 to 17 years. The balance of the fair value adjustment on Unpaid losses and loss expense at December 31, 2017 was $309 million. Refer to Note 1(h) for additional information.

c) VOBA

The following table presents a roll-forward of VOBA:



(in millions of U.S. dollars)	2017			2016			2015
Balance, beginning of year	$	355		$	395		$	466
Amortization of VOBA ⁽¹⁾	(35		)	(41		)	(42		)
Foreign exchange revaluation	6			1			(29		)
Balance, end of year	$	326		$	355		$	395


⁽¹⁾	Recognized in Policy acquisition costs in the Consolidated statements of operations.

The following table presents, as of December 31, 2017, the expected estimated pre-tax amortization expense related to VOBA for the next five years:



For the Year Ending December 31	VOBA
(in millions of U.S. dollars)	VOBA
2018	$	32
2019	27
2020	25
2021	22
2022	20
Total	$	126

Unpaid losses and loss expenses

Unpaid Losses and Loss Expenses

Unpaid losses and loss expenses

Chubb establishes reserves for the estimated unpaid ultimate liability for losses and loss expenses under the terms of its policies and agreements. Reserves include estimates for both claims that have been reported and for IBNR claims, and include estimates of expenses associated with processing and settling these claims. Reserves are recorded in Unpaid losses and loss expenses in the consolidated balance sheets. While we believe that our reserves for unpaid losses and loss expenses at December 31, 2017 are adequate, new information or trends may lead to future developments in incurred loss and loss expenses significantly greater or less than the reserves provided. Any such revisions could result in future changes in estimates of losses or reinsurance recoverable and would be reflected in our results of operations in the period in which the estimates are changed.

The following table presents a reconciliation of Unpaid losses and loss expenses:



	Year Ended December 31
(in millions of U.S. dollars)	2017			2016				2015
Gross unpaid losses and loss expenses, beginning of year	$	60,540			$	37,303			$	38,315
Reinsurance recoverable on unpaid losses ⁽¹⁾	(12,708		)		(10,741		)		(11,307		)
Net unpaid losses and loss expenses, beginning of year	47,832				26,562				27,008
Acquisition of subsidiaries	—				21,402				417
Total	47,832				47,964				27,425
Net losses and loss expenses incurred in respect of losses occurring in:
Current year	19,391				17,256				10,030
Prior years ⁽²⁾	(937		)		(1,204		)		(546		)
Total	18,454				16,052				9,484
Net losses and loss expenses paid in respect of losses occurring in:
Current year	6,575				5,899				4,053
Prior years	10,873				9,816				5,612
Total	17,448				15,715				9,665
Foreign currency revaluation and other	327				(469		)		(682		)
Net unpaid losses and loss expenses, end of year	49,165				47,832				26,562
Reinsurance recoverable on unpaid losses ⁽¹⁾	14,014				12,708				10,741
Gross unpaid losses and loss expenses, end of year	$	63,179			$	60,540			$	37,303

⁽¹⁾ Net of provision for uncollectible reinsurance.

⁽²⁾ Relates to prior period loss reserve development only and excludes prior period development related to reinstatement premiums, expense adjustments, and earned premiums totaling $108 million, $69 million, and nil, for 2017, 2016, and 2015, respectively.

The increase in gross and net unpaid losses and loss expenses in 2017 primarily reflects the significant catastrophe events, principally from California wildfires, hurricanes Harvey, Irma, and Maria and the earthquakes in Mexico. The increase in gross and net unpaid losses and loss expenses in 2016 reflects the acquisition of Chubb Corp.

The loss development tables under section c) below, present Chubb’s historical incurred and paid claims development by broad product line through December 31, 2017, net of reinsurance, as well as the cumulative number of reported claims, IBNR balances, and other supplementary information.

The following table presents a reconciliation of the loss development tables to the liability for unpaid losses and loss expenses in the consolidated balance sheet:



Reconciliation of Reserve Balances to Liability for Unpaid Loss and Loss Expenses
(in millions of U.S. dollars)	December 31, 2017
Presented in the loss development tables:
North America Commercial P&C Insurance — Workers' Compensation	$	8,873
North America Commercial P&C Insurance — Liability	16,631
North America Commercial P&C Insurance — Other Casualty	1,789
North America Commercial P&C Insurance — Non-Casualty	2,398
North America Personal P&C Insurance	2,421
Overseas General Insurance — Casualty	6,026
Overseas General Insurance — Non-Casualty	2,549
Global Reinsurance — Casualty	1,340
Global Reinsurance — Non-Casualty	371
Excluded from the loss development tables:
Other	4,302
Net unpaid loss and allocated loss adjustment expense	46,700
Ceded unpaid loss and allocated loss adjustment expense:
North America Commercial P&C Insurance — Workers' Compensation	$	1,737
North America Commercial P&C Insurance — Liability	4,133
North America Commercial P&C Insurance — Other Casualty	813
North America Commercial P&C Insurance — Non-Casualty	1,336
North America Personal P&C Insurance	503
Overseas General Insurance — Casualty	2,550
Overseas General Insurance — Non-Casualty	1,269
Global Reinsurance — Casualty	76
Global Reinsurance — Non-Casualty	142
Other	1,628
Ceded unpaid loss and allocated loss adjustment expense	14,187
Unpaid loss and loss expense on other than short-duration contracts ⁽¹⁾	810
Unpaid unallocated loss adjustment expenses	1,482
Unpaid losses and loss expenses	$	63,179

⁽¹⁾ Primarily includes the claims reserve of our international A&H business and Life Insurance segment reserves.

Business excluded from the loss development tables

“Other” shown in the reconciliation table above comprises businesses excluded from the loss development tables below:


•	North America Agricultural Insurance segment business, which is short-tailed with the majority of the liabilities expected to be resolved in the ensuing twelve months;


•	Corporate segment business, which includes run-off liabilities such as asbestos and environmental and other mass tort exposures and which impact accident years older than those shown in the exhibits below;


•	Life Insurance segment business, which is generally written using long-duration contracts; and


•	Certain subsets of our business due to data limitations or unsuitability to the development table presentation, including:

◦

We underwrite loss portfolio transfers at various times; by convention, all premium and losses associated with these transactions are recorded to the policy period of the transaction, even though the accident dates of the claims covered may be a decade or more in the past. We also underwrite certain high attachment, high limit, multiple-line and excess of aggregate coverages for large commercial clients. Changes in incurred loss and cash flow patterns are volatile and sufficiently different from those of typical insureds. This category includes the loss portfolio transfer of Fireman’s Fund personal lines run-off liabilities and Alternative Risk Solutions business within the North America Commercial P&C segment;


◦	2015 and prior paid history on a subset of previously acquired international businesses, within the Overseas General Insurance segment, due to limitations on the data prior to the acquisition;


◦	Reinsurance recoverable bad debt;


◦	Purchase accounting adjustments related to unpaid losses and loss expenses for Chubb Corp.

a) Description of Reserving Methodologies

Our recorded reserves represent management's best estimate of the provision for unpaid claims as of the balance sheet date. Management's best estimate is developed after collaboration with actuarial, underwriting, claims, legal, and finance departments and culminates with the input of reserve committees. Each business unit reserve committee includes the participation of the relevant parties from actuarial, finance, claims, and unit senior management and has the responsibility for finalizing, recommending and approving the estimate to be used as management's best estimate. Reserves are further reviewed by Chubb's Chief Actuary and senior management. The objective of such a process is to determine a single estimate that we believe represents a better estimate than any other and which is viewed by management to be the best estimate of ultimate loss settlements.

This estimate is based on a combination of exposure and experience-based actuarial methods (described below) and other considerations such as claims reviews, reinsurance recovery assumptions and/or input from other knowledgeable parties such as underwriting. Exposure-based methods are most commonly used on relatively immature origin years (i.e., the year in which the losses were incurred — “accident year” or “report year”), while experience-based methods provide a view based on the projection of loss experience that has emerged as of the valuation date. Greater reliance is placed upon experience-based methods as the pool of emerging loss experience grows and where it is deemed sufficiently credible and reliable as the basis for the estimate. In comparing the held reserve for any given origin year to the actuarial projections, judgment is required as to the credibility, uncertainty and inherent limitations of applying actuarial techniques to historical data to project future loss experience. Examples of factors that impact such judgments include, but are not limited to, the following:


•	nature and complexity of underlying coverage provided and net limits of exposure provided;


•	segmentation of data to provide sufficient homogeneity and credibility for loss projection methods;


•	extent of credible internal historical loss data and reliance upon industry information as required;


•	historical variability of actual loss emergence compared with expected loss emergence;


•	extent of emerged loss experience relative to the remaining expected period of loss emergence;


•	rate monitor information for new and renewal business;


•	facts and circumstances of large claims;


•	impact of applicable reinsurance recoveries; and


•	nature and extent of underlying assumptions.

We have actuarial staff within each of our business units who analyze loss reserves (including loss expenses) and regularly project estimates of ultimate losses and the corresponding indications of the required IBNR reserve. Our reserving approach is a comprehensive ground-up process using data at a detailed level that reflects the specific types and coverages of the diverse products written by our various operations. The data presented in this disclosure was prepared on a more aggregated basis and with a focus on changes in incurred loss estimates over time as well as associated cash flows. We note that data prepared on this basis may not demonstrate the full spectrum of characteristics that are evident in the more detailed level studied internally.

We perform an actuarial reserve review for each product line at least once a year. For most product lines, one or more standard actuarial reserving methods may be used to determine estimates of ultimate losses and loss expenses, and from these estimates, a single actuarial central estimate is selected. The actuarial central estimate is an input to the reserve committee process described above. For the few product lines that do not lend themselves to standard actuarial reserving methods, appropriate techniques are applied to produce the actuarial central estimates. For example, run-off asbestos and environmental liability estimates are better suited to the application of account-specific exposure-based analyses to best evaluate their associated aggregate reserve levels.

b) Standard actuarial reserving methods

Standard actuarial reserving methods include, but are not limited to, expected loss ratio, paid and reported loss development, and Bornhuetter-Ferguson methods. A general description of these methods is provided below. In addition to these standard methods, depending upon the product line characteristics and available data, we may use other recognized actuarial methods and approaches. Implicit in the standard actuarial methods that we generally utilize is the need for two fundamental assumptions: first, the pattern by which losses are expected to emerge over time for each origin year, and second the expected loss ratio for each origin year.

The expected loss ratio for any particular origin year is selected after consideration of a number of factors, including historical loss ratios adjusted for rate changes, premium and loss trends, industry benchmarks, the results of policy level loss modeling at the time of underwriting, and/or other more subjective considerations for the product line (e.g., terms and conditions) and external environment as noted above. The expected loss ratio for a given origin year is initially established at the start of the origin year as part of the planning process. This analysis is performed in conjunction with underwriters and management. The expected loss ratio method arrives at an ultimate loss estimate by multiplying the expected ultimate loss ratio by the corresponding premium base. This method is most commonly used as the basis for the actuarial central estimate for immature origin periods on product lines where the actual paid or reported loss experience is not yet deemed sufficiently credible to serve as the principal basis for the selection of ultimate losses. The expected loss ratio for a given origin year may be modified over time if the underlying assumptions differ from the original assumptions (e.g., the assessment of prior year loss ratios, loss trend, rate changes, actual claims, or other information).

Our selected paid and reported development patterns provide a benchmark against which the actual emerging loss experience can be monitored. Where possible, development patterns are selected based on historical loss emergence by origin year. For product lines where the historical data is viewed to have low statistical credibility, the selected development patterns also reflect relevant industry benchmarks and/or experience from similar product lines written elsewhere within Chubb. This most commonly occurs for relatively new product lines that have limited historical data or for high severity/low frequency portfolios where our historical experience exhibits considerable volatility and/or lacks credibility. The paid and reported loss development methods convert the selected loss emergence pattern to a set of multiplicative factors which are then applied to actual paid or reported losses to arrive at an estimate of ultimate losses for each period. Due to their multiplicative nature, the paid and reported loss development methods will leverage differences between actual and expected loss emergence. These methods tend to be utilized for more mature origin periods and for those portfolios where the loss emergence has been relatively consistent over time.

The Bornhuetter-Ferguson method is a combination of the expected loss ratio method and the loss development method, where the loss development method is given more weight as the origin year matures. This approach allows a logical transition between the expected loss ratio method which is generally utilized at earlier maturities and the loss development methods which are typically utilized at later maturities. We usually apply this method using reported loss data although paid data may also be used.

Short-tail business

Short-tail business generally describes product lines for which losses are typically known and paid shortly after the loss actually occurs. This would include, for example, most property, personal accident, and automobile physical damage policies that we write. Due to the short reporting and development pattern for these product lines, the uncertainty associated with our estimate of ultimate losses for any particular accident period diminishes relatively quickly as actual loss experience emerges. We typically assign credibility to methods that incorporate actual loss emergence, such as the paid and reported loss development and Bornhuetter-Ferguson methods, sooner than would be the case for long-tail lines at a similar stage of development for a given origin year. The reserving process for short-tail losses arising from catastrophic events typically involves an assessment by the claims department, in conjunction with underwriters and actuaries, of our exposure and estimated losses immediately following an event and then subsequent revisions of the estimated losses as our insureds provide updated actual loss information.

Long-tail business

Long-tail business describes lines of business for which specific losses may not be known/reported for some period and for which claims can take significant time to settle/close. This includes most casualty lines such as general liability, D&O, and workers' compensation. There are various factors contributing to the uncertainty and volatility of long-tail business. Among these are:


•	The nature and complexity of underlying coverage provided and net limits of exposure provided;

•

Our historical loss data and experience is sometimes too immature and lacking in credibility to rely upon for reserving purposes. Where this is the case, in our reserve analysis we may utilize industry loss ratios or industry benchmark development patterns that we believe reflect the nature and coverage of the underwritten business and its future development, where available. For such product lines, actual loss experience may differ from industry loss statistics as well as loss experience for previous underwriting years;


•	The difficulty in estimating loss trends, claims inflation (e.g., medical and judicial) and underlying economic conditions;


•	The need for professional judgment to estimate loss development patterns beyond that represented by historical data using supplemental internal or industry data, extrapolation, or a blend of both;

•

The need to address shifts in mix over time when applying historical paid and reported loss development patterns from older origin years to more recent origin years. For example, changes over time in the processes and procedures for establishing case reserves can distort reported loss development patterns or changes in ceded reinsurance structures by origin year can alter the development of paid and reported losses;

•

Loss reserve analyses typically require loss or other data be grouped by common characteristics in some manner. If data from two combined lines of business exhibit different characteristics, such as loss payment patterns, the credibility of the reserve estimate could be affected. Additionally, since casualty lines of business can have significant intricacies in the terms and conditions afforded to the insured, there is an inherent risk as to the homogeneity of the underlying data used in performing reserve analyses; and


•	The applicability of the price change data used to estimate ultimate loss ratios for most recent origin years.

As described above, various factors are considered when determining appropriate data, assumptions, and methods used to establish the loss reserve estimates for long-tail product lines. These factors may also vary by origin year for given product lines. The derivation of loss development patterns from data and the selection of a tail factor to project ultimate losses from actual loss emergence require considerable judgment, particularly with respect to the extent to which historical loss experience is relied upon to support changes in key reserving assumptions.

c) Loss Development Tables

The tables were designed to present business with similar risk characteristics which exhibit like development patterns and generally similar trends, in order to provide insight into the nature, amount, timing and uncertainty of cash flows related to our claims liabilities.

Each table follows a similar format and reflects the following:


•	The incurred loss triangle includes both reported case reserves and IBNR liabilities.


•	Both the incurred and paid loss triangles include allocated loss adjustment expense (i.e., defense and investigative costs particular to individual claims) but exclude unallocated loss adjustment expense (i.e., the costs associated with internal claims staff and third-party administrators).


•	The amounts in both triangles for the years ended December 31, 2008, to December 31, 2016 and average historical claim duration as of December 31, 2017, are presented as supplementary information.


•	All data presented in the triangles is net of reinsurance recoverables.


•	The IBNR reserves shown to the right of each incurred loss development exhibit reflect the net IBNR recorded as of December 31, 2017.

•

The tables are presented retrospectively with respect to acquisitions where these are material and doing so is practicable. Most notably, the Chubb Corp acquisition is presented retrospectively. The unaudited consolidated data is presented solely for informational purposes and is not necessarily indicative of the consolidated data that might have been observed had the transactions been completed prior to the date indicated.

Historical dollar amounts are presented in this footnote on a constant-currency basis, which is achieved by assuming constant foreign exchange rates for all periods in the loss triangles, translating prior period amounts using the same local currency exchange rates as the current year end. The impact of this conversion is to show the change between periods exclusive of the effect of fluctuations in exchange rates, which would otherwise distort the change in incurred loss and cash flow patterns shown. The change in incurred loss shown will differ from other U.S. GAAP disclosures of incurred prior period reserve development amounts, which include the effect of fluctuations in exchanges rates.

We provided guidance above on key assumptions that should be considered when reviewing this disclosure and information relating to how loss reserve estimates are developed. We believe the information provided in the “Loss Development Tables” section of the disclosure is of limited use for independent analysis or application of standard actuarial estimations.

Cumulative Number of Reported Claims

Reported claim counts, on a cumulative basis, are provided to the far right of each paid loss development table. We generally consider a reported claim to be one claim per coverage per claimant. We exclude claims closed without payment. Use of the presented claim counts in analysis of company experience has significant limitations, including:


•	High deductible workers' compensation claim counts include claims below the applicable policy deductible.


•	Professional liability and certain other lines have a high proportion of claims reported which will be closed without any payment; shifts in total reported counts may not meaningfully impact reported and ultimate loss experience.


•	Claims for certain events and/or product lines, such as portions of assumed reinsurance and A&H business, are not reported on an individual basis, but rather in bulk and thus not available for inclusion in this disclosure. For certain A&H business, where bulk reporting affected only the oldest few accident years, presented claim counts for these years were estimated.


•	Each of the segments below typically has a mixture of primary and excess experience which has shifted over time.

Reported claim counts include open claims which have case reserves and exclude claims that have been incurred but not reported. As such the reported claims are consistent with reported losses, which can be calculated by subtracting incurred but not reported losses from incurred losses. Reported claim counts are inconsistent with losses in the incurred loss triangle, which include incurred but not reported losses, and are also inconsistent with losses in the paid loss triangle, which exclude case reserves.

North America Commercial P&C Insurance — Workers' Compensation — Long-tail

During the year ended December 31, 2017, we refined our loss development groupings based on the similarity of loss payout characteristics. The new groupings were applied consistently to all years presented.

This product line has a substantial geographic spread and a broad mix across industries. Types of coverage include risk management business predominantly with high deductible policies, loss sensitive business (i.e., retrospectively-rated policies), business fronted for captives, as well as excess and primary guaranteed cost coverages.

The triangle below shows all loss and allocated expense development for the workers' compensation product line. In our prior period development disclosure, we exclude any loss development where there is a directly related premium adjustment. For workers' compensation, changes in the exposure base due to payroll audits will drive changes in ultimate losses. In addition, we record involuntary pool assumptions (premiums and losses) on a lagged basis. Both of these items will influence the development in the triangle, particularly the first prior accident year, and are included in the reconciliation table presented on page F-65.



North America Commercial P&C Insurance — Workers' Compensation — Long-tail (continued)
Net Incurred Loss and Allocated Loss Adjustment Expenses
	Years Ended December 31																					December 31 2017
(in millions of U.S. dollars)					Unaudited																	Net IBNR Reserves
Accident Year	2008		2009			2010		2011		2012		2013		2014		2015		2016		2017		2017
2008	$	1,084	$	1,042		$	1,043	$	1,037	$	1,036	$	1,010	$	1,009	$	1,004	$	986	$	993	$	214
2009			1,029			998		997		990		980		977		966		972		965		233
2010						1,049		1,037		1,050		1,065		1,064		1,052		1,028		1,020		262
2011								1,037		1,030		1,046		1,049		1,053		1,022		1,012		294
2012										1,050		1,011		1,030		1,040		1,011		989		326
2013												1,109		1,108		1,122		1,127		1,085		368
2014														1,207		1,201		1,217		1,214		553
2015																1,282		1,259		1,271		631
2016																		1,367		1,367		806
2017																				1,411		1,080
Total																				$	11,327



Net Cumulative Paid Loss and Allocated Loss Adjustment Expenses
	Years Ended December 31																					December 31 2017
(in millions of U.S. dollars)					Unaudited																	Reported Claims (in thousands)
Accident Year	2008		2009			2010		2011		2012		2013		2014		2015		2016		2017		2017
2008	$	124	$	275		$	371	$	439	$	503	$	546	$	578	$	607	$	632	$	651	333
2009			107			258		348		416		475		519		550		597		617		282
2010						123		300		411		493		551		592		617		641		304
2011								119		294		411		484		533		567		595		287
2012										111		271		365		436		486		532		288
2013												107		286		422		506		553		300
2014														113		295		410		484		337
2015																116		301		418		339
2016																		122		326		310
2017																				120		307
Total																				$	4,937



Net Liabilities for Loss and Allocated Loss Adjustment Expenses
(in millions of U.S. dollars)	December 31, 2017
Accident years prior to 2008	$	2,483
All Accident years	$	8,873



Supplementary Information: (Favorable)/ Adverse Prior Period Development
(in millions of U.S. dollars)	December 31, 2017
Accident years prior to 2008	$	(35	)
All Accident years	$	(108	)



North America Commercial P&C Insurance — Workers' Compensation — Long-tail (continued)
Supplementary Information: Average Annual Percentage Payout of Net Incurred Claims by Age, as of December 31, 2017
Age in Years	1		2		3		4		5		6		7		8		9		10
Percentage	10	%	16	%	10	%	7	%	5	%	4	%	3	%	3	%	2	%	2	%

North America Commercial P&C Insurance — Liability — Long-tail

During the year ended December 31, 2017, we refined our loss development groupings based on the similarity of loss payout characteristics. The new groupings were applied consistently to all years presented.

This line consists of primary and excess liability exposures, including medical liability, and professional lines, including directors and officers (D&O) liability, errors and omissions (E&O) liability, employment practices liability (EPL), fidelity bonds, and fiduciary liability.

The primary and excess liability business represents the largest part of these exposures. The former includes both monoline and commercial package liability. The latter includes a substantial proportion of commercial umbrella, excess and high excess business, where loss activity can produce significant volatility in the loss triangles at later ages within an accident year (and sometimes across years) due to the size of the limits afforded and the complex nature of the underlying losses.

This line includes management and professional liability products provided to a wide variety of clients, from national accounts to small firms along with private and not-for-profit organizations, distributed through brokers, agents, wholesalers and MGAs. Many of these coverages, particularly D&O and E&O, are typically written on a claims-made form. While most of the coverages are underwritten on a primary basis, there are significant amounts of excess exposure with large policy limits.



Net Incurred Loss and Allocated Loss Adjustment Expenses
	Years Ended December 31																					December 31 2017
(in millions of U.S. dollars)					Unaudited																	Net IBNR Reserves
Accident Year	2008		2009			2010		2011		2012		2013		2014		2015		2016		2017		2017
2008	$	3,792	$	3,823		$	3,812	$	3,791	$	3,652	$	3,412	$	3,352	$	3,278	$	3,174	$	3,157	$	245
2009			3,798			3,783		3,770		3,743		3,642		3,392		3,316		3,244		3,103		250
2010						3,578		3,583		3,601		3,559		3,419		3,250		3,128		3,107		423
2011								3,500		3,585		3,629		3,664		3,593		3,498		3,383		589
2012										3,552		3,628		3,613		3,564		3,524		3,426		856
2013												3,546		3,541		3,542		3,532		3,430		1,090
2014														3,535		3,585		3,674		3,717		1,526
2015																3,559		3,708		3,818		1,941
2016																		3,533		3,594		2,381
2017																				3,386		2,994
Total																				$	34,121



North America Commercial P&C Insurance — Liability — Long-tail (continued)
Net Cumulative Paid Loss and Allocated Loss Adjustment Expenses
	Years Ended December 31																					December 31 2017
(in millions of U.S. dollars)					Unaudited																	Reported Claims (in thousands)
Accident Year	2008		2009			2010		2011		2012		2013		2014		2015		2016		2017		2017
2008	$	147	$	580		$	1,110	$	1,643	$	1,992	$	2,323	$	2,558	$	2,657	$	2,753	$	2,836	21
2009			135			587		1,160		1,672		2,019		2,357		2,545		2,678		2,730		21
2010						126		611		1,108		1,559		1,893		2,259		2,426		2,527		20
2011								160		652		1,209		1,805		2,214		2,476		2,659		20
2012										166		656		1,172		1,680		2,092		2,326		20
2013												130		548		1,192		1,597		2,007		20
2014														164		679		1,250		1,804		21
2015																138		605		1,206		23
2016																		171		663		24
2017																				161		19
Total																				$	18,919



Net Liabilities for Loss and Allocated Loss Adjustment Expenses
(in millions of U.S. dollars)	December 31, 2017
Accident years prior to 2008	$	1,429
All Accident years	$	16,631



Supplementary Information: (Favorable)/ Adverse Prior Period Development
(in millions of U.S. dollars)	December 31, 2017
Accident years prior to 2008	$	(154	)
All Accident years	$	(434	)



Supplementary Information: Average Annual Percentage Payout of Net Incurred Claims by Age, as of December 31, 2017
Age in Years	1		2		3		4		5		6		7		8		9		10
Percentage	4	%	14	%	17	%	15	%	12	%	9	%	6	%	4	%	2	%	3	%

North America Commercial P&C Insurance — Other Casualty — Long-tail

During the year ended December 31, 2017, we refined our loss development groupings based on the similarity of loss payout characteristics. The new groupings were applied consistently to all years presented.

This product line consists of the remaining commercial casualty coverages such as automobile liability and aviation. There is also a small portion of commercial multi-peril (CMP) business in accident years 2014 and prior. The paid and reported data are impacted by some catastrophe loss activity primarily on the CMP exposures just noted.



North America Commercial P&C Insurance — Other-Casualty — Long-tail (continued)
Net Incurred Loss and Allocated Loss Adjustment Expenses
	Years Ended December 31																					December 31 2017
(in millions of U.S. dollars)					Unaudited																	Net IBNR Reserves
Accident Year	2008		2009			2010		2011		2012		2013		2014		2015		2016		2017		2017
2008	$	693	$	733		$	700	$	661	$	644	$	647	$	643	$	646	$	641	$	637	$	13
2009			594			584		550		531		488		454		447		445		441		2
2010						610		604		598		543		503		475		477		489		33
2011								577		586		578		545		530		521		513		33
2012										632		604		575		559		518		517		27
2013												526		530		522		515		468		60
2014														592		581		579		594		147
2015																486		469		501		191
2016																		503		494		249
2017																				531		387
Total																				$	5,185



Net Cumulative Paid Loss and Allocated Loss Adjustment Expenses
	Years Ended December 31																					December 31 2017
(in millions of U.S. dollars)					Unaudited																	Reported Claims (in thousands)
Accident Year	2008		2009			2010		2011		2012		2013		2014		2015		2016		2017		2017
2008	$	144	$	342		$	446	$	520	$	566	$	591	$	602	$	610	$	618	$	617	20
2009			70			206		287		337		374		402		414		423		428		15
2010						97		236		322		364		392		434		444		449		15
2011								86		235		341		400		437		461		466		16
2012										69		223		319		386		435		470		16
2013												69		197		271		348		385		18
2014														80		220		317		391		17
2015																47		137		215		15
2016																		52		146		15
2017																				66		13
Total																				$	3,633



Net Liabilities for Loss and Allocated Loss Adjustment Expenses
(in millions of U.S. dollars)	December 31, 2017
Accident years prior to 2008	$	237
All Accident years	$	1,789



Supplementary Information: (Favorable)/ Adverse Prior Period Development
(in millions of U.S. dollars)	December 31, 2017
Accident years prior to 2008	$	14
All Accident years	$	—



North America Commercial P&C Insurance — Other-Casualty — Long-tail (continued)
Supplementary Information: Average Annual Percentage Payout of Net Incurred Claims by Age, as of December 31, 2017
Age in Years	1		2		3		4		5		6		7		8		9		10
Percentage	15	%	26	%	17	%	12	%	8	%	6	%	2	%	1	%	1	%	—	%

North America Commercial P&C Insurance — Non-Casualty — Short-tail

During the year ended December 31, 2017, we refined our loss development groupings based on the similarity of loss payout characteristics. The new groupings were applied consistently to all years presented.

This product line represents first party commercial product lines that are short-tailed in nature, such as property, inland marine, ocean marine, surety and A&H. There is a wide diversity of products, primary and excess coverages, and policy sizes. During this ten-year period, this product line was also impacted by natural catastrophes mainly in the 2008, 2012, and 2017 accident years.



Net Incurred Loss and Allocated Loss Adjustment Expenses
	Years Ended December 31																					December 31 2017
(in millions of U.S. dollars)					Unaudited																	Net IBNR Reserves
Accident Year	2008		2009			2010		2011		2012		2013		2014		2015		2016		2017		2017
2008	$	1,999	$	1,941		$	1,916	$	1,901	$	1,890	$	1,881	$	1,877	$	1,865	$	1,863	$	1,859	$	5
2009			1,310			1,307		1,251		1,222		1,205		1,198		1,198		1,195		1,194		9
2010						1,507		1,543		1,466		1,430		1,428		1,420		1,416		1,410		9
2011								1,963		1,938		1,881		1,859		1,839		1,843		1,838		15
2012										2,034		1,918		1,884		1,866		1,861		1,848		11
2013												1,434		1,424		1,337		1,360		1,340		18
2014														1,647		1,663		1,581		1,561		29
2015																1,737		1,746		1,650		83
2016																		1,911		1,888		168
2017																				2,641		1,089
Total																				$	17,229



North America Commercial P&C Insurance — Non-Casualty — Short-tail (continued)
Net Cumulative Paid Loss and Allocated Loss Adjustment Expenses
	Years Ended December 31																					December 31 2017
(in millions of U.S. dollars)					Unaudited																	Reported Claims (in thousands)
Accident Year	2008		2009			2010		2011		2012		2013		2014		2015		2016		2017		2017
2008	$	965	$	1,622		$	1,744	$	1,794	$	1,823	$	1,832	$	1,838	$	1,847	$	1,848	$	1,851	999
2009			620			1,035		1,125		1,149		1,163		1,171		1,179		1,181		1,181		1,125
2010						724		1,223		1,323		1,359		1,384		1,393		1,396		1,397		1,059
2011								939		1,573		1,718		1,777		1,787		1,811		1,816		1,053
2012										715		1,577		1,698		1,766		1,795		1,822		1,037
2013												651		1,138		1,237		1,285		1,311		1,074
2014														820		1,373		1,484		1,505		1,102
2015																726		1,343		1,488		1,173
2016																		846		1,504		1,293
2017																				979		1,175
Total																				$	14,854



Net Liabilities for Loss and Allocated Loss Adjustment Expenses
(in millions of U.S. dollars)	December 31, 2017
Accident years prior to 2008	$	23
All Accident years	$	2,398



Supplementary Information: (Favorable)/ Adverse Prior Period Development
(in millions of U.S. dollars)	December 31, 2017
Accident years prior to 2008	$	—
All Accident years	$	(188	)



Supplementary Information: Average Annual Percentage Payout of Net Incurred Claims by Age, as of December 31, 2017
Age in Years	1		2		3		4		5		6		7		8		9		10
Percentage	46	%	37	%	7	%	3	%	1	%	1	%	—	%	—	%	—	%	—	%

North America Personal P&C Insurance — Short-tail

Chubb provides personal lines coverages for high-net-worth individuals and families in North America including homeowners, automobile, valuable articles (including fine art), umbrella liability, and recreational marine insurance offered through independent regional agents and brokers. A portfolio acquired from Fireman’s Fund is presented on a prospective basis beginning in May of accident year 2015. Reserves associated with prior accident periods were acquired through a loss portfolio transfer, which does not allow for a retrospective presentation. During this ten-year period, this segment was also impacted by natural catastrophes, mainly in 2008, 2012, and 2017 accident years.



North America Personal P&C Insurance — Short-tail (continued)
Net Incurred Loss and Allocated Loss Adjustment Expenses
	Years Ended December 31																					December 31 2017
(in millions of U.S. dollars)					Unaudited																	Net IBNR Reserves
Accident Year	2008		2009			2010		2011		2012		2013		2014		2015		2016		2017		2017
2008	$	1,779	$	1,779		$	1,749	$	1,724	$	1,695	$	1,677	$	1,670	$	1,661	$	1,661	$	1,659	$	5
2009			1,611			1,598		1,568		1,554		1,545		1,538		1,538		1,534		1,533		7
2010						1,870		1,878		1,855		1,838		1,834		1,830		1,825		1,822		9
2011								2,208		2,210		2,185		2,173		2,164		2,160		2,159		13
2012										2,185		2,183		2,183		2,191		2,185		2,186		9
2013												1,860		1,888		1,896		1,899		1,924		41
2014														2,205		2,206		2,192		2,145		29
2015																2,494		2,549		2,560		126
2016																		2,439		2,542		248
2017																				3,034		725
Total																				$	21,564



Net Cumulative Paid Loss and Allocated Loss Adjustment Expenses
	Years Ended December 31																					December 31 2017
(in millions of U.S. dollars)					Unaudited																	Reported Claims (in thousands)
Accident Year	2008		2009			2010		2011		2012		2013		2014		2015		2016		2017		2017
2008	$	975	$	1,409		$	1,521	$	1,586	$	1,622	$	1,638	$	1,644	$	1,647	$	1,651	$	1,651	139
2009			887			1,236		1,347		1,439		1,486		1,503		1,513		1,521		1,523		125
2010						1,153		1,522		1,670		1,729		1,772		1,793		1,805		1,811		149
2011								1,360		1,835		1,971		2,051		2,105		2,129		2,138		168
2012										1,176		1,806		1,957		2,063		2,117		2,149		173
2013												1,043		1,504		1,687		1,786		1,843		126
2014														1,310		1,764		1,925		2,034		135
2015																1,499		2,083		2,270		139
2016																		1,453		2,051		140
2017																				1,698		123
Total																				$	19,168



Net Liabilities for Loss and Allocated Loss Adjustment Expenses
(in millions of U.S. dollars)	December 31, 2017
Accident years prior to 2008	$	25
All Accident years	$	2,421



Supplementary Information: (Favorable)/ Adverse Prior Period Development
(in millions of U.S. dollars)	December 31, 2017
Accident years prior to 2008	$	(10	)
All Accident years	$	76



North America Personal P&C Insurance — Short-tail (continued)
Supplementary Information: Average Annual Percentage Payout of Net Incurred Claims by Age, as of December 31, 2017
Age in Years	1		2		3		4		5		6		7		8		9		10
Percentage	58	%	24	%	7	%	5	%	3	%	1	%	1	%	—	%	—	%	—	%

Overseas General Insurance — Casualty — Long-tail

During the year ended December 31, 2017, we refined our loss development groupings based on the similarity of loss payout characteristics. The new groupings were applied consistently to all years presented.

This product line is comprised of D&O liability, E&O liability, financial institutions (including crime/fidelity coverages), and non-U.S. general liability as well as aviation and political risk. Exposures are located around the world, including Europe, Latin America, and Asia. Approximately 40 percent of Chubb International’s business is generated by European accounts.

There is some U.S. exposure in Casualty from multinational accounts. The financial lines coverages are typically written on a claims-made form, while general liability coverages are typically on an occurrence basis and comprised of a mix of primary and excess businesses.



Net Incurred Loss and Allocated Loss Adjustment Expenses
	Years Ended December 31																					December 31 2017
(in millions of U.S. dollars)					Unaudited																	Net IBNR Reserves
Accident Year	2008		2009			2010		2011		2012		2013		2014		2015		2016		2017		2017
2008	$	1,220	$	1,334		$	1,423	$	1,444	$	1,453	$	1,408	$	1,336	$	1,315	$	1,330	$	1,281	$	81
2009			1,284			1,425		1,474		1,485		1,482		1,365		1,257		1,256		1,202		76
2010						1,231		1,311		1,358		1,430		1,365		1,312		1,183		1,178		97
2011								1,272		1,277		1,270		1,262		1,176		1,109		1,094		157
2012										1,311		1,281		1,348		1,367		1,363		1,345		279
2013												1,289		1,284		1,284		1,330		1,270		314
2014														1,295		1,366		1,377		1,388		506
2015																1,223		1,324		1,353		542
2016																		1,227		1,333		749
2017																				1,229		968
Total																				$	12,673



Overseas General Insurance — Casualty — Long-tail (continued)
Net Cumulative Paid Loss and Allocated Loss Adjustment Expenses
	Years Ended December 31																					December 31 2017
(in millions of U.S. dollars)					Unaudited																	Reported Claims (in thousands)
Accident Year	2008		2009			2010		2011		2012		2013		2014		2015		2016		2017		2017
2008	$	121	$	306		$	472	$	642	$	790	$	895	$	971	$	1,029	$	1,083	$	1,116	39
2009			123			341		524		667		763		824		896		993		1,020		39
2010						109		277		481		629		740		831		883		938		41
2011								91		250		400		534		638		719		795		42
2012										77		254		443		598		714		856		42
2013												90		272		432		584		727		42
2014														117		299		481		614		43
2015																92		296		504		45
2016																		127		328		45
2017																				99		34
Total																				$	6,997



Net Liabilities for Loss and Allocated Loss Adjustment Expenses
(in millions of U.S. dollars)	December 31, 2017
Accident years prior to 2008	$	350
All Accident years	$	6,026



Supplementary Information: (Favorable)/ Adverse Prior Period Development
(in millions of U.S. dollars)	December 31, 2017
Accident years prior to 2008	$	(13	)
All Accident years	$	(68	)



Supplementary Information: Average Annual Percentage Payout of Net Incurred Claims by Age, as of December 31, 2017
Age in Years	1		2		3		4		5		6		7		8		9		10
Percentage	8	%	15	%	14	%	12	%	10	%	8	%	6	%	6	%	3	%	3	%

Overseas General Insurance — Non-Casualty — Short-tail

During the year ended December 31, 2017, we refined our loss development groupings based on the similarity of loss payout characteristics. The new groupings were applied consistently to all years presented. In addition, the Overseas General segment disclosure has been enhanced to include some previously excluded international business as data became available. This includes historical experience for most acquisitions. The added business is principally Non-Casualty; personal automobile, property and surety lines in Latin America and Asia Pacific regions.

This product line is comprised of commercial fire, marine (predominantly cargo), surety, personal automobile (in Latin America, Asia Pacific and Japan), personal cell phones, personal residential (including high net worth), energy and construction. Latin America and Europe each make up about 35 percent of the Chubb International non-casualty book. In general, these lines have relatively stable payment and reporting patterns although they are impacted by natural catastrophes mainly in the 2008, 2010, 2011, and 2017 accident years.



Overseas General Insurance — Non-Casualty — Short-tail (continued)
Net Incurred Loss and Allocated Loss Adjustment Expenses
	Years Ended December 31																					December 31 2017
(in millions of U.S. dollars)					Unaudited																	Net IBNR Reserves
Accident Year	2008		2009			2010		2011		2012		2013		2014		2015		2016		2017		2017
2008	$	1,609	$	1,608		$	1,563	$	1,547	$	1,553	$	1,527	$	1,524	$	1,519	$	1,508	$	1,504	$	25
2009			1,564			1,534		1,446		1,415		1,395		1,377		1,377		1,366		1,366		3
2010						1,713		1,734		1,705		1,693		1,687		1,673		1,660		1,643		13
2011								1,950		2,035		1,978		1,939		1,920		1,908		1,901		7
2012										1,775		1,764		1,723		1,667		1,661		1,650		34
2013												1,868		1,859		1,787		1,739		1,730		62
2014														1,975		2,048		1,985		1,959		72
2015																2,111		2,243		2,195		157
2016																		2,164		2,148		19
2017																				2,349		307
Total																				$	18,445



Net Cumulative Paid Loss and Allocated Loss Adjustment Expenses
	Years Ended December 31																					December 31 2017
(in millions of U.S. dollars)					Unaudited																	Reported Claims (in thousands)
Accident Year	2008		2009			2010		2011		2012		2013		2014		2015		2016		2017		2017
2008	$	646	$	1,218		$	1,360	$	1,428	$	1,451	$	1,461	$	1,469	$	1,477	$	1,477	$	1,484	539
2009			602			1,095		1,233		1,300		1,324		1,335		1,341		1,344		1,343		518
2010						698		1,276		1,480		1,543		1,583		1,596		1,603		1,604		561
2011								793		1,520		1,728		1,786		1,817		1,832		1,841		579
2012										716		1,284		1,479		1,539		1,562		1,572		600
2013												738		1,340		1,541		1,574		1,612		622
2014														800		1,497		1,715		1,782		594
2015																901		1,638		1,873		627
2016																		1,083		1,752		637
2017																				1,098		616
Total																				$	15,961



Net Liabilities for Loss and Allocated Loss Adjustment Expenses
(in millions of U.S. dollars)	December 31, 2017
Accident years prior to 2008	$	65
All Accident years	$	2,549



Supplementary Information: (Favorable)/ Adverse Prior Period Development
(in millions of U.S. dollars)	December 31, 2017
Accident years prior to 2008	$	(3	)
All Accident years	$	(141	)



Overseas General Insurance — Non-Casualty — Short-tail (continued)
Supplementary Information: Average Annual Percentage Payout of Net Incurred Claims by Age, as of December 31, 2017
Age in Years	1		2		3		4		5		6		7		8		9		10
Percentage	44	%	35	%	11	%	4	%	2	%	1	%	—	%	—	%	—	%	—	%

Global Reinsurance

Chubb analyzes its Global Reinsurance business on a treaty year basis rather than on an accident year basis. Treaty year data was converted to an accident year basis for the purposes of this disclosure. Mix shifts are an important consideration in these product line groupings. As proportional business and excess of loss business have different earning and loss reporting and payment patterns, this change in mix will affect the cash flow patterns across the accident years. In addition, the shift from excess to proportional business over time will make the cash flow patterns of older and more recent years difficult to compare. In general, the proportional business will pay out more quickly than the excess of loss business, as such, using older years development patterns may overstate the ultimate loss estimates in more recent years.

Global Reinsurance — Casualty — Long-tail

During the year ended December 31, 2017, we refined our loss development groupings based on the similarity of loss payout characteristics. The new groupings were applied consistently to all years presented.

This product line includes proportional and excess coverages in general, automobile liability, professional liability, medical malpractice, workers' compensation and aviation, with exposures located around the world. In general, reinsurance exhibits less stable development patterns than primary business. In particular general casualty reinsurance and excess coverages are long-tailed and can be very volatile.



Net Incurred Loss and Allocated Loss Adjustment Expenses
	Years Ended December 31																					December 31 2017
(in millions of U.S. dollars)					Unaudited																	Net IBNR Reserves
Accident Year	2008		2009			2010		2011		2012		2013		2014		2015		2016		2017		2017
2008	$	399	$	420		$	439	$	431	$	428	$	407	$	408	$	404	$	401	$	399	$	48
2009			319			351		363		370		366		347		331		320		316		24
2010						401		421		432		443		432		426		416		402		55
2011								409		416		431		434		429		419		415		45
2012										387		383		391		394		379		372		23
2013												321		327		330		330		331		41
2014														333		334		340		343		46
2015																285		289		300		47
2016																		224		228		63
2017																				214		121
Total																				$	3,320



Global Reinsurance — Casualty — Long-tail (continued)
Net Cumulative Paid Loss and Allocated Loss Adjustment Expenses
	Years Ended December 31																					December 31 2017
(in millions of U.S. dollars)					Unaudited																	Reported Claims (in thousands)
Accident Year	2008		2009			2010		2011		2012		2013		2014		2015		2016		2017		2017
2008	$	33	$	77		$	131	$	176	$	220	$	253	$	277	$	295	$	305	$	315	1.209
2009			34			79		116		154		187		209		227		241		256		0.868
2010						56		125		179		221		249		274		292		307		0.795
2011								70		146		195		236		267		291		311		0.660
2012										77		167		222		261		292		308		0.472
2013												65		143		186		222		242		0.337
2014														92		185		218		249		0.400
2015																90		159		191		0.304
2016																		57		113		0.258
2017																				47		0.088
Total																				$	2,339



Net Liabilities for Loss and Allocated Loss Adjustment Expenses
(in millions of U.S. dollars)	December 31, 2017
Accident years prior to 2008	$	359
All Accident years	$	1,340



Supplementary Information: (Favorable)/ Adverse Prior Period Development
(in millions of U.S. dollars)	December 31, 2017
Accident years prior to 2008	$	(60	)
All Accident years	$	(72	)



Supplementary Information: Average Annual Percentage Payout of Net Incurred Claims by Age, as of December 31, 2017
Age in Years	1		2		3		4		5		6		7		8		9		10
Percentage	19	%	20	%	12	%	11	%	8	%	6	%	5	%	4	%	4	%	3	%

Global Reinsurance — Non-Casualty — Short-tail

During the year ended December 31, 2017, we refined our loss development groupings based on the similarity of loss payout characteristics. The new groupings were applied consistently to all years presented.

This product line includes property, property catastrophe, marine, credit/surety, A&H and energy. This product line is impacted by natural catastrophes, particularly in the 2008, 2011 and 2017 years. Of the non-catastrophe book, the mixture of business varies by year with approximately 72 percent of loss on proportional treaties in Treaty Year 2008 and after. This percentage has increased over time with the proportion being approximately 60 percent from 2008 to 2012 growing to an average of 84 percent from 2013 to 2017, with the remainder being written on an excess of loss basis.



Global Reinsurance — Non-Casualty — Short-tail (continued)
Net Incurred Loss and Allocated Loss Adjustment Expenses																Years Ended December 31						December 31 2017
(in millions of U.S. dollars)					Unaudited																	Net IBNR Reserves
Accident Year	2008		2009			2010		2011		2012		2013		2014		2015		2016		2017		2017
2008	$	316	$	310		$	301	$	292	$	286	$	286	$	287	$	284	$	285	$	286	$	2
2009			141			172		152		150		144		141		139		139		139		3
2010						200		235		224		218		222		224		225		225		5
2011								274		275		272		262		263		264		264		1
2012										232		210		200		191		189		187		2
2013												163		160		149		143		144		5
2014														163		179		179		182		9
2015																146		154		161		8
2016																		182		188		17
2017																				396		82
Total																				$	2,172



Net Cumulative Paid Loss and Allocated Loss Adjustment Expenses																Years Ended December 31						December 31 2017
(in millions of U.S. dollars)					Unaudited																	Reported Claims (in thousands)
Accident Year	2008		2009			2010		2011		2012		2013		2014		2015		2016		2017		2017
2008	$	79	$	177		$	228	$	260	$	274	$	276	$	278	$	280	$	280	$	280	0.179
2009			52			106		122		129		132		134		134		134		134		0.114
2010						56		162		188		200		205		216		214		217		0.101
2011								85		176		207		232		251		255		258		0.128
2012										44		129		156		166		172		177		0.113
2013												46		103		121		131		133		0.119
2014														65		128		151		162		0.100
2015																56		103		132		0.110
2016																		57		132		0.168
2017																				191		0.205
Total																				$	1,816



Net Liabilities for Loss and Allocated Loss Adjustment Expenses
(in millions of U.S. dollars)	December 31, 2017
Accident years prior to 2008	$	15
All Accident years	$	371



Supplementary Information: (Favorable)/ Adverse Prior Period Development
(in millions of U.S. dollars)	December 31, 2017
Accident years prior to 2008	$	—
All Accident years	$	16



Supplementary Information: Average Annual Percentage Payout of Net Incurred Claims by Age, as of December 31, 2017
Age in Years	1		2		3		4		5		6		7		8		9		10
Percentage	34	%	38	%	14	%	7	%	4	%	2	%	—	%	1	%	—	%	—	%

Prior Period Development — Supplementary Information

The following table presents a reconciliation of the loss development triangles above to prior period development:



	Components of PPD
Year Ended December 31, 2017 (in millions of U.S. dollars)	2008 - 2016 accident years (implied PPD per loss triangles)			Accident years prior to 2008			Other ⁽¹⁾				PPD on loss reserves			RIPs, Expense adjustments, and earned premiums			Total
(favorable)/unfavorable
North America Commercial P&C Insurance
Long-tail	$	(367	)	$	(175	)	$	(76	)		$	(618	)	$	56		$	(562	)
Short-tail	(188		)	—			3				(185		)	1			(184		)
	(555		)	(175		)	(73		)	⁽²⁾	(803		)	57			(746		)
North America Personal P&C Insurance (Short-tail)	86			(10		)	(7		)		69			—			69
Overseas General Insurance
Long-tail	(55		)	(13		)	(3		)		(71		)	—			(71		)
Short-tail	(138		)	(3		)	(40		)		(181		)	—			(181		)
	(193		)	(16		)	(43		)	⁽³⁾	(252		)	—			(252		)
Global Reinsurance
Long-tail	(12		)	(60		)	1				(71		)	3			(68		)
Short-tail	16			—			—				16			(7		)	9
	4			(60		)	1				(55		)	(4		)	(59		)
Subtotal	$	(658	)	$	(261	)	$	(122	)		$	(1,041	)	$	53		$	(988	)
North America Agricultural Insurance (Short-tail)											$	(174	)	$	55		$	(119	)
Corporate (Long-tail)											278			—			278
Consolidated PPD											$	(937	)	$	108		$	(829	)

⁽¹⁾Other includes the impact of foreign exchange.

⁽²⁾Includes favorable development of $55 million related to our Alternative Risk Solutions business; the remaining difference relates to a number of other items, none of which are individually material.

⁽³⁾Includes favorable development of $35 million related to International A&H business, the remaining difference relates to a number of other items, none of which are individually material.

Prior Period Development

The following table summarizes (favorable) and adverse prior period development (PPD) by segment. Long-tail lines include lines such as workers' compensation, general liability, and professional liability; while short-tail lines include lines such as most property lines, energy, personal accident, and agriculture. In 2017, we determined that the loss development classification for certain businesses, previously grouped within the short-tail column in the table below, would be more appropriately grouped within the long-tail column to better align with the classification of these businesses within our loss development triangles. We also determined that the loss development for certain other businesses should be reclassified from long-tail to short-tail. We updated our 2016 and 2015 amounts below to conform to the current year presentation and reclassified $101 million and $46 million, respectively, of net favorable development into long-tail from short-tail. These changes to the previously disclosed amounts have no impact to our financial condition and results of operations.



Years Ended December 31 (in millions of U.S. dollars, except for percentages)	Long-tail			Short-tail			Total			% of beginning net unpaid reserves ⁽¹⁾
2017
North America Commercial P&C Insurance	$	(562	)	$	(184	)	$	(746	)	1.6	%
North America Personal P&C Insurance	—			69			69			0.1	%
North America Agricultural Insurance	—			(119		)	(119		)	0.2	%
Overseas General Insurance	(71		)	(181		)	(252		)	0.5	%
Global Reinsurance	(68		)	9			(59		)	0.1	%
Corporate	278			—			278			0.6	%
Total	$	(423	)	$	(406	)	$	(829	)	1.7	%
2016
North America Commercial P&C Insurance	$	(693	)	$	(85	)	$	(778	)	1.6	%
North America Personal P&C Insurance	—			27			27			0.1	%
North America Agricultural Insurance	—			(72		)	(72		)	0.2	%
Overseas General Insurance	(236		)	(187		)	(423		)	0.9	%
Global Reinsurance	(77		)	(1		)	(78		)	0.2	%
Corporate	189			—			189			0.4	%
Total	$	(817	)	$	(318	)	$	(1,135	)	2.4	%
2015
North America Commercial P&C Insurance	$	(162	)	$	(102	)	$	(264	)	1.0	%
North America Personal P&C Insurance	—			25			25			0.1	%
North America Agricultural Insurance	—			(45		)	(45		)	0.1	%
Overseas General Insurance	(192		)	(151		)	(343		)	1.3	%
Global Reinsurance	(109		)	(10		)	(119		)	0.4	%
Corporate	200			—			200			0.7	%
Total	$	(263	)	$	(283	)	$	(546	)	2.0	%

⁽¹⁾ Calculated based on the beginning of period consolidated net unpaid losses and loss expenses. For 2016, the percent of beginning net unpaid reserves is calculated inclusive of the net unpaid losses and loss expenses acquired in the Chubb Corp acquisition of $21.4 billion.

North America Commercial P&C Insurance

2017

North America Commercial P&C Insurance experienced net favorable PPD of $746 million, which was the net result of several underlying favorable and adverse movements, and was driven by the following principal changes:


•	Net favorable development of $562 million in long-tail business, primarily from:


•	Net favorable development of $184 million in our commercial excess and umbrella portfolios, primarily in accident years 2011 and prior, driven by lower than expected case activity and an increase in weighting towards experience-based methods. Large loss activity in accident year 2015 led to adverse development in that year, partially offsetting the favorable development in the older years;


•	Net favorable development of $181 million in our management liability portfolios, favorably impacting accident years 2012 and prior where paid and reported loss activity was lower than expected, partially offset by adverse development in accident years 2014 through 2016, mostly as a result of higher severity claim costs compared to prior expectations in certain lines or coverages;

•

Net favorable development of $123 million in our workers’ compensation businesses (including excess workers' compensation) with favorable development of $57 million in the 2016 accident year related to our annual assessment of multi-claimant events including industrial accidents. Consistent with prior years, we reviewed these potential exposures after the close of the accident year to allow for late reporting or identification of significant losses. Net favorable development of $65 million was principally due to lower than expected loss experience and updates to development patterns used in our loss projection methods, mainly impacting accident years 2013 and prior, and partially offset by smaller adverse development in the more recent prior accident years;


•	Net favorable development of $32 million in our professional Errors and Omissions (E&O) portfolios, primarily in the 2012 and 2013 accident years, arising from lower than expected reported loss activity, partially offset by claim-specific adverse development in other years;

•

Net favorable development of $28 million on several large multi-line prospective deals primarily impacting the 2012 and 2013 accident years, due to lower than expected reported loss activity. These structured deals typically cover large clients for multiple product lines and with varying loss limitations; this development is net of premium adjustments of $26 million tied to the loss performance of the particular deals;


•	Net favorable development of $21 million in our political risk portfolio, primarily impacting the 2013 accident year, principally due to reported experience below expectations and an increase in weighting towards experience-based methods; and


•	Net adverse development of $21 million in our auto liability lines, primarily in the 2012 through 2015 accident years, driven by higher than expected paid and reported experience.


•	Net favorable development of $184 million in short-tail business, primarily from:


•	Net favorable development of $98 million in our property and inland marine portfolios, impacting the 2012 through 2016 accident years, resulting from lower than expected loss emergence;


•	Net favorable development of $45 million in our surety business, primarily due to lower than expected claims severity in the 2015 accident year; and


•	Net favorable development of $20 million in our accident & health (A&H) business, primarily due to lower than expected loss emergence in the 2015 and 2016 accident years.

2016

North America Commercial P&C Insurance experienced net favorable PPD of $778 million, which was the net result of several underlying favorable and adverse movements, and was driven by the following principal changes:


•	Net favorable development of $693 million in long-tail business, primarily from:


•	Net favorable development of $264 million in our commercial excess and umbrella portfolios, primarily in accident years 2010 and prior, driven by lower than expected reported loss activity and an increase in weighting towards experience-based methods; in general, the severity of claims has been less than expected;

•

Net favorable development of $220 million in our management liability portfolios, where paid and reported loss activity was lower than expected. The majority of this favorable activity impacted accident years 2011 and prior. Partially offsetting this were smaller amounts of adverse development in the more recent accident years, mostly as a result of higher severity claim costs compared to prior expectations in some lines;

•

Net favorable development of $141 million in our workers’ compensation lines with favorable development of $40 million in the 2015 accident year related to our annual assessment of multi-claimant events including industrial accidents. Favorable development of $92 million driven by accident years 2012 and prior was principally due to lower than expected loss experience and revision to the basis for selecting development patterns used in our loss projection methods for select portfolios;


•	Favorable development of $58 million in our professional Errors & Omission (E&O) portfolios, primarily impacting the 2012 and prior accident years and arising from both lower than expected reported loss activity and re-assessments of remaining claim-specific liabilities for the older accident years; and


•	Net favorable development of $21 million in our political risk business, mainly due to favorable claim emergence in the 2012 accident year.


•	Net favorable development of $85 million in short-tail business, primarily from our property and inland marine portfolios, impacting the 2014 and 2015 accident years, resulting from lower than expected loss emergence.

2015

North America Commercial P&C Insurance experienced net favorable PPD of $264 million, representing 1.0 percent of the beginning consolidated net unpaid losses and loss expense reserves.

North America Personal P&C Insurance

2017

North America Personal P&C Insurance incurred net adverse PPD of $69 million, which was the net result of several underlying favorable and adverse movements, and was driven by the following principal changes:


•	Net adverse development of $105 million in our homeowners lines, primarily impacting the 2013 and 2016 accident years, due to higher than expected loss severity; and


•	Net favorable development of $58 million in our personal excess lines primarily impacting the 2014 accident year, due to lower than expected loss experience and an increased weighting towards experience-based methods.

2016

North America Personal P&C Insurance incurred net adverse PPD of $27 million, in our homeowners and umbrella lines due to higher than expected loss emergence. Average loss severities were higher than expected, and to a lesser degree, reinsurance and other recoveries were lower than expected.

2015

North America Personal P&C Insurance incurred net adverse PPD of $25 million, representing 0.1 percent of the beginning consolidated net unpaid losses and loss expense reserves.

North America Agricultural Insurance

North America Agricultural Insurance experienced net favorable development of $119 million, $72 million, and $45 million in 2017, 2016, and 2015, respectively. Actual claim development relates to our Multiple Peril Crop Insurance (MPCI) business and is favorable due to better than expected crop yield results in certain states at the prior year-end period (i.e., 2017 results based on crop yield results at year-end 2016).

Overseas General Insurance

2017

Overseas General Insurance experienced net favorable PPD of $252 million, which was the net result of several underlying favorable and adverse movements, and was driven by the following principal changes:


•	Net favorable development of $71 million in long-tail business, primarily from:

•

Net favorable development of $34 million in financial lines, with favorable development of $124 million in accident years 2013 and prior, resulting from lower than expected loss emergence including favorable development on specific, litigated claims, partially offset by adverse development of $90 million in accident years 2014 through 2016, primarily due to large loss experience in specific Directors and Officers (D&O) portfolios within the U.K., Continental Europe, and Australia and Financial Institutions lines in the U.K. and Continental Europe; and

•

Net favorable development of $10 million in casualty lines, with favorable development of $69 million in accident years 2013 and prior, resulting from lower than expected loss emergence, partially offset by adverse development of $32 million driven by a change in the discount rate in the U.K. (Ogden rate) impacting the 2016 and prior accident years and adverse development of $27 million in accident years 2014 to 2016, primarily due to large loss experience in U.K. excess lines and wholesale business.


•	Net favorable development of $181 million in short-tail business, primarily from:


•	Net favorable development of $48 million in A&H lines, primarily from favorable loss emergence in Asia Pacific and Continental Europe in accident years 2014 through 2016;


•	Net favorable development of $43 million in technical and energy lines, primarily from favorable loss emergence in accident years 2014 through 2016 primarily in offshore and power generation where experience has been better than expected;


•	Favorable development of $42 million in marine, primarily in accident years 2015 and 2016, driven mainly by favorable cargo loss emergence, including favorable claim-specific loss settlements and recoveries; and


•	Favorable development of $25 million in property (excluding technical lines), primarily in accident years 2013 through 2015, driven mainly by favorable loss emergence, including claim-specific loss settlements in all regions except Asia Pacific, partially offset by adverse Asia Pacific large loss experience in accident year 2016.

2016

Overseas General Insurance experienced net favorable PPD of $423 million, which was the net result of several underlying favorable and adverse movements, and was driven by the following principal changes:


•	Net favorable development of $236 million in long-tail business, primarily from:


•	Net favorable development of $177 million, primarily in casualty and financial lines, with favorable development of $266 million in accident years 2012 and prior, resulting from lower than expected loss emergence, and adverse development of $89 million in accident years 2013 to 2015, primarily due to large loss experience in our D&O portfolio in Asia and financial lines in Europe;


•	Favorable development of $28 million in aviation lines due to lower than expected loss emergence and case-specific reserve reductions impacting accident years 2012 and prior; and


•	Favorable development of $25 million on an individual legacy liability case reserve take-down. This release follows a legal analysis completed in 2016, based on court opinion in the year and discussions with defense counsel, which concluded that these reserves were no longer required.


•	Net favorable development of $187 million in short-tail business, primarily from:


•	Favorable development of $97 million in property (including technical lines), primarily from favorable Continental Europe loss emergence in accident years 2012 through 2014;


•	Favorable development of $43 million in energy lines, driven by favorable loss emergence in accident years 2010 through 2014, primarily in offshore where experience on multi-year construction accounts has been better than expected, as well as a claims review of catastrophe impacts on underwriting years 2004 through 2008; and


•	Favorable development of $28 million in accident & health (A&H) lines related to development of claim reserves, due to lower than expected loss emergence, primarily in Asia Pacific and Continental Europe in accident years 2013 through 2015.

2015

Overseas General Insurance experienced net favorable PPD of $343 million, representing 1.3 percent of the beginning consolidated net unpaid losses and loss expense reserves.

Global Reinsurance

2017

Global Reinsurance experienced net favorable PPD of $59 million, which was the net result of several underlying favorable and adverse movements, and was driven by the following principal changes:


•	Net favorable development of $68 million on long-tail lines of business, primarily from:


•	Net favorable development of $67 million in our casualty (excluding motor), professional liability, and medical malpractice lines, primarily from treaty years 2013 and prior, principally resulting from lower than expected loss emergence in the U.S. portfolios; and


•	Net adverse development of $10 million in our motor and excess liability lines, primarily due to adverse development of $9 million driven by a change in the discount rate in the U.K. (Ogden rate) primarily impacting the 2015 and prior treaty years.


•	Net adverse development of $9 million in our short-tail business, none of which was significant individually or in the aggregate.

2016

Global Reinsurance experienced net favorable PPD of $78 million, which was the net result of several underlying favorable and adverse movements, and was driven by the following principal changes:


•	Net favorable development of $42 million in casualty lines primarily impacting treaty years 2011 and prior, principally resulting from lower than expected loss emergence; and


•	Net favorable development of $30 million in professional liability lines primarily impacting treaty years 2011 and prior due to lower than expected loss emergence.

2015

Global Reinsurance experienced net favorable PPD of $119 million, representing 0.4 percent of the beginning consolidated net unpaid losses and loss expense reserves.

Corporate

2017

Corporate incurred adverse development of $278 million in long-tail lines, driven by the following principal changes:


•	Adverse development of $239 million in asbestos, environmental, and other run-off liabilities, driven primarily by resolution of a limited number of direct cases, increases in severity trends, somewhat greater than expected defense spending and increases in reported claims for certain assumed reinsurance portfolios; and


•	Adverse development of $39 million on unallocated loss adjustment expenses due to run-off operating expenses paid and incurred in 2017.

2016

Corporate incurred adverse development of $189 million in long-tail lines, driven by the following principal changes:


•	Adverse development of $141 million in asbestos, environmental, and other run-off liabilities primarily arose as a result of the annual review of individual accounts and case specific exposures, with account changes driven by recent frequency and severity trends, certain case specific settlements and higher than expected defense spending; and


•	Adverse development of $48 million on unallocated loss adjustment expenses due to run-off operating expenses paid and incurred in 2016.

2015

Corporate incurred adverse PPD of $200 million, representing 0.7 percent of the beginning consolidated net unpaid losses and loss expense reserves.

Asbestos and environmental (A&E)

Chubb's exposure to A&E claims principally arises out of liabilities acquired when it purchased Westchester Specialty in 1998, CIGNA's P&C business in 1999, and Chubb Corp in 2016. The following table presents a roll-forward of consolidated A&E loss reserves including allocated loss expense reserves for A&E exposures, and the provision for uncollectible paid and unpaid reinsurance recoverables:



	Asbestos						Environmental						Total
(in millions of U.S. dollars)	Gross			Net			Gross			Net			Gross			Net
Balance at December 31, 2016	$	1,726		$	1,119		$	577		$	490		$	2,303		$	1,609
Incurred activity	228			104			199			113			427			217			⁽¹⁾
Paid activity	(333		)	(172		)	(169		)	(127		)	(502		)	(299		)
Balance at December 31, 2017	$	1,621		$	1,051		$	607		$	476		$	2,228		$	1,527

⁽¹⁾Excludes unallocated loss expenses and the net activity reflects third-party reinsurance other than the aggregate excess of loss reinsurance provided by National Indemnity Company (NICO) to Westchester Specialty (see Westchester Specialty section below).

The A&E net loss reserves including allocated loss expense reserves and provision for uncollectible reinsurance at December 31, 2017 and 2016 shown in the table above is comprised of:



	December 31
(in millions of U.S. dollars)	2017		2016
Brandywine operations	$	849	$	760
Westchester Specialty	113		112
Chubb Corp	486		657
Other, mainly Overseas General Insurance	79		80
Total	$	1,527	$	1,609

The incurred activity of $217 million in 2017 and $164 million in 2016 were primarily the result of our annual internal, ground-up review of A&E liabilities.

Brandywine Run-off entities – The Restructuring Plan and uncertainties relating to Chubb's ultimate Brandywine exposure

In 1996, the Pennsylvania Insurance Commissioner approved a plan to restructure INA Financial Corporation and its subsidiaries (the Restructuring) which included the division of Insurance Company of North America (INA) into two separate corporations:

(1) An active insurance company that retained the INA name and continued to write P&C business; and

(2) An inactive run-off company, now called Century Indemnity Company (Century).

As a result of the division, predominantly all A&E and certain other liabilities of INA were ascribed to Century and extinguished, as a matter of Pennsylvania law, as liabilities of INA.

As part of the Restructuring, most A&E liabilities of various U.S. affiliates of INA were reinsured to Century. Century and certain other run-off companies having A&E and other liabilities were contributed to Brandywine Holdings.

The U.S.-based Chubb INA companies assumed two contractual obligations in respect of the Brandywine operations in connection with the Restructuring: a surplus maintenance obligation in the form of the excess of loss (XOL) agreement and a dividend retention fund obligation.

XOL Agreement

In 1996, in connection with the Restructuring, a Chubb INA insurance subsidiary provided reinsurance coverage to Century in the amount of $800 million under an Aggregate Excess of Loss Reinsurance Agreement (XOL Agreement), triggerable if the statutory capital and surplus of Century falls below $25 million or if Century lacks liquid assets with which to pay claims as they become due.

Dividend Retention Fund

INA Financial Corporation established and funded a dividend retention fund (the Dividend Retention Fund) consisting of $50 million plus investment earnings. The full balance of the Dividend Retention Fund was contributed to Century as of December 31, 2002. Under the Restructuring Order, while any obligation to maintain the Dividend Retention Fund is in effect, to the extent dividends are paid by INA Holdings Corporation to its parent, INA Financial Corporation, and to the extent INA Financial Corporation then pays such dividends to INA Corporation, a portion of those dividends must be withheld to replenish the principal of the Dividend Retention Fund to $50 million. During 2011 and 2010, $35 million and $15 million, respectively, were withheld from such dividends and deposited into the Dividend Retention Fund as a result of dividends paid up to the INA Corporation. Pursuant to a 2011 amendment to the Restructuring Order, capital contributions from the Dividend Retention Fund to Century are not required until the XOL Agreement has less than $200 million of capacity remaining on an incurred basis for statutory reporting purposes. The amount of the capital contribution shall be the lesser of the amount necessary to restore the XOL Agreement remaining capacity to $200 million or the Dividend Retention Fund balance. In 2017, the Pennsylvania Department of Insurance approved a capital contribution of $49 million from the Dividend Retention Fund to Century in order to restore the XOL capacity to $200 million. The Dividend Retention Fund may not be terminated without prior written approval from the Pennsylvania Insurance Commissioner.

Effective December 31, 2004, Chubb INA contributed $100 million to Century in exchange for a surplus note. After giving effect to the contribution and issuance of the surplus note, the statutory surplus of Century at December 31, 2017 was $25 million and $672 million in statutory-basis losses have been ceded to the XOL Agreement on an inception-to-date basis. Century reports the amount ceded under the XOL Agreement in accordance with statutory accounting principles, which differ from GAAP by, among other things, allowing Century to discount its liabilities, including certain asbestos related and environmental pollution liabilities and Century's reinsurance payable to active companies. For GAAP reporting purposes, intercompany reinsurance recoverables related to the XOL are eliminated upon consolidation.

While Chubb believes it has no legal obligation to fund Century losses above the XOL limit of coverage, Chubb's consolidated results would nevertheless continue to include any losses above the limit of coverage for so long as the Brandywine companies remain consolidated subsidiaries of Chubb.

Certain active Chubb companies are primarily liable for asbestos, environmental, and other exposures that they have reinsured to Century. Accordingly, if Century were to become insolvent and placed into rehabilitation or liquidation, some or all of the recoverables due to these active Chubb companies from Century could become uncollectible. At December 31, 2017 and 2016, the aggregate reinsurance recoverables owed by Century to certain active Chubb companies were approximately $1.4 billion and $1.2 billion, respectively. Chubb believes the active company intercompany reinsurance recoverables, which relate to direct liabilities payable over many years, are not impaired. At both December 31, 2017 and 2016, Century's carried gross reserves (including reserves assumed from the active Chubb companies) were $2.0 billion. Should Century's loss reserves experience adverse development in the future and should Century be placed into rehabilitation or liquidation, the reinsurance recoverables due from Century to certain active Chubb companies would be payable only after the payment in full of certain expenses and liabilities, including administrative expenses and direct policy liabilities. Thus, the intercompany reinsurance recoverables would be at risk to the extent of the shortage of assets remaining to pay these recoverables.

Westchester Specialty – impact of NICO contracts on Chubb’s run-off entities

As part of the Westchester Specialty acquisition in 1998, NICO provided a 75 percent pro-rata share of $1.0 billion of reinsurance protection on losses and loss adjustment expenses incurred on or before December 31, 1996, in excess of a retention of $721 million. At December 31, 2017, the remaining unused incurred limit under the Westchester NICO agreement was $409 million.

Taxation

Under current Swiss law, a resident company is subject to income tax at the federal, cantonal, and communal levels that is levied on net worldwide income. Income attributable to permanent establishments or real estate located abroad is excluded from the Swiss tax base. Chubb Limited is a holding company and, therefore, is exempt from cantonal and communal income tax. As a result, Chubb Limited is subject to Swiss income tax only at the federal level. Furthermore, participation relief (i.e., tax relief) is granted to Chubb Limited at the federal level for qualifying dividend income and capital gains related to the sale of qualifying participations (i.e., subsidiaries). It is expected that the participation relief will result in a full exemption of participation income from federal income tax. Chubb Limited is subject to an annual cantonal and communal capital tax on the taxable equity of Chubb Limited in Switzerland.

Chubb has two Swiss operating subsidiaries, an insurance company, Chubb Insurance (Switzerland) Limited and a reinsurance company, Chubb Reinsurance (Switzerland) Limited. Both are subject to federal, cantonal, and communal income tax and to annual cantonal and communal capital tax.

Under current Bermuda law, Chubb Limited and its Bermuda subsidiaries are not required to pay any taxes on income or capital gains. If a Bermuda law were enacted that would impose taxes on income or capital gains, Chubb Limited and the Bermuda subsidiaries have received an undertaking from the Minister of Finance in Bermuda that would exempt such companies from Bermudian taxation until March 2035.

Income from Chubb's operations at Lloyd's is subject to United Kingdom (U.K.) corporation taxes. Lloyd's is required to pay U.S. income tax on U.S. connected income (U.S. income) written by Lloyd's syndicates. Lloyd's has a closing agreement with the Internal Revenue Service (IRS) whereby the amount of tax due on this business is calculated by Lloyd's and remitted directly to the IRS. These amounts are then charged to the accounts of Chubb's Corporate Members in proportion to their participation in the relevant syndicates. Chubb's Corporate Members are subject to this arrangement but, as U.K. domiciled companies, will receive U.K. corporation tax credits for any U.S. income tax incurred up to the value of the equivalent U.K. corporation income tax charge on the U.S. income.

Chubb Group Holdings and its respective subsidiaries are subject to income taxes imposed by U.S. authorities and file a consolidated U.S. tax return. As part of the Chubb Corp acquisition, immediately following the merger, Chubb Corp merged with and into Chubb INA Holdings Inc., and therefore, joined the Chubb Group Holdings consolidated return. Should Chubb Group Holdings pay a dividend to Chubb Limited, withholding taxes would apply. Currently, however, no withholding taxes are accrued with respect to such un-remitted earnings as management has no intention of remitting these earnings. Similarly, no taxes have been provided on the un-remitted earnings of certain foreign subsidiaries (Hong Kong and Korea life companies) as management has no intention of remitting these earnings. The cumulative amount that would be subject to withholding tax, if distributed, as well as the determination of the associated tax liability are not practicable to compute; however, such amount would be material to Chubb. Certain international operations of Chubb are also subject to income taxes imposed by the jurisdictions in which they operate.

Chubb's domestic operations are in Switzerland, the jurisdiction where we are legally organized, incorporated, and registered.

The following table presents pre-tax income and the related provision for income taxes:



	Year Ended December 31
(in millions of U.S. dollars)	2017			2016			2015
Pre-tax income:
Switzerland	$	527		$	766		$	469
Outside Switzerland	3,195			4,184			2,827
Total pre-tax income	$	3,722		$	4,950		$	3,296
Provision for income taxes
Current tax expense:
Switzerland	$	46		$	97		$	38
Outside Switzerland	313			727			266
Total current tax expense	359			824			304
Deferred tax expense (benefit):
Switzerland	2			(27		)	4
Outside Switzerland	(500		)	18			154
Total deferred tax expense (benefit)	(498		)	(9		)	158
Provision for income taxes	$	(139	)	$	815		$	462

The most significant jurisdictions contributing to the overall taxation of Chubb are calculated using the following rates in 2017: Switzerland 7.83 percent, Bermuda 0.0 percent, U.S. 35.0 percent, and U.K. 19.0 percent. Effective January 1, 2018, the U.S. corporate rate was reduced to 21 percent.

The following table presents a reconciliation of the difference between the provision for income taxes and the expected tax provision at the Swiss statutory income tax rate:



	Year Ended December 31
(in millions of U.S. dollars)	2017			2016			2015
Expected tax provision at Swiss statutory tax rate	$	291		$	388		$	258
Permanent differences:
Taxes on earnings subject to rate other than Swiss statutory rate	263			582			193
Tax-exempt interest and dividends received deduction, net of proration	(199		)	(200		)	(32		)
Net withholding taxes	30			20			35
Excess tax benefit on share-based compensation	(48		)	—			—
Impact of 2017 Tax Act	(450		)	—			—
Corporate owned life insurance	(37		)	—			—
Other	11			25			8
Total provision for income taxes	$	(139	)	$	815		$	462

The following table presents the components of net deferred tax assets and liabilities:



	December 31			December 31
(in millions of U.S. dollars)	2017			2016
Deferred tax assets:
Loss reserve discount	$	715		$	1,269
Unearned premiums reserve	231			498
Foreign tax credits	340			2,115
Provision for uncollectible balances	45			72
Loss carry-forwards	90			92
Debt related amounts	77			219
Compensation related amounts	260			449
Cumulative translation adjustments	30			59
Other, net	70			69
Total deferred tax assets	1,858			4,842
Deferred tax liabilities:
Deferred policy acquisition costs	635			842
Other intangible assets, including VOBA	1,437			2,352
Un-remitted foreign earnings	66			2,001
Investments	53			406
Unrealized appreciation on investments	184			60
Depreciation	83			91
Total deferred tax liabilities	2,458			5,752
Valuation allowance	99			78
Net deferred tax assets (liabilities)	$	(699	)	$	(988	)

The 2017 Tax Act, enacted on December 22, 2017, among other things, reduces the U.S. federal income tax rate to 21 percent from 35 percent effective in 2018. We have not completed our assessment of the effects of the 2017 Tax Act; however, we have made our best estimate of those effects based on our current understanding of the provisions in the Act. Accordingly, we recorded a $450 million income tax transition benefit in the fourth quarter of 2017 on a provisional basis, principally reflecting the reduction in the U.S. corporate tax rate from 35 percent to 21 percent. This is comprised of a $743 million reduction in the deferred tax liabilities principally related to certain intangible assets, a $371 million reduction in net deferred tax assets related to other net assets, and a net benefit of $78 million related to the impact of excess foreign tax credits generated by the deemed repatriation rules and the impact of the reduced rate on our foreign branches. We have computed these amounts based on the best available information and our understanding of the 2017 Tax Act.

As we complete our analysis of the 2017 Tax Act, collect and prepare necessary data and interpret any additional guidance issued by the IRS, the Treasury Department and other standard setting agencies, we may make adjustments to the provisional amounts. Those adjustments may materially impact our provision for income taxes in the period in which the adjustments are made.

The valuation allowance of $99 million at December 31, 2017, and $78 million at December 31, 2016, reflects management's assessment, based on available information, that it is more likely than not that a portion of the deferred tax assets will not be realized due to the potential inability to utilize foreign tax credits in the U.S. and the inability of certain foreign subsidiaries to generate sufficient taxable income. Adjustments to the valuation allowance are made when there is a change in management's assessment of the amount of deferred tax assets that are realizable.

At December 31, 2017, Chubb has net operating loss carry-forwards of $329 million which, if unused, will expire starting in 2018, and a foreign tax credit carry-forward in the amount of $340 million which, if unused, will expire in the years 2022 through 2027.

The following table presents a reconciliation of the beginning and ending amount of gross unrecognized tax benefits:



	December 31			December 31
(in millions of U.S. dollars)	2017			2016
Balance, beginning of year	$	17		$	16
Additions based on tax positions related to the current year	3			3
Additions based on tax positions related to prior years ⁽¹⁾	—			2
Reductions for tax positions of prior years	(4		)	(4		)
Reductions for the lapse of the applicable statutes of limitations	(3		)	—
Balance, end of year	$	13		$	17

⁽¹⁾Assumed in connection with the Chubb Corp acquisition in 2016.

At December 31, 2017 and 2016, the total amount of unrecognized tax benefits that would affect the effective tax rate, if recognized, were $13 million and $17 million, respectively.

Chubb recognizes accruals for interest and penalties, if any, related to unrecognized tax benefits in income tax expense in the Consolidated statements of operations. For the years ended December 31, 2017, 2016, and 2015, tax-related interest expense (income) and penalties reported in the Consolidated statements of operations was $1 million for each of the three years. At December 31, 2017 and 2016, liabilities for tax-related interest and penalties in our Consolidated balance sheets were $3 million and $4 million, respectively.

In September 2016, the IRS completed its examination of Chubb Group Holdings’ (formerly ACE Group Holdings) federal tax returns for the 2010-2012 tax years. No material adjustments resulted from this examination. During 2017, the IRS commenced its field examination of Chubb Group Holdings federal income tax returns for 2014 and 2015 and Chubb Corp’s federal tax return for 2014 which were still ongoing at December 31, 2017. It is reasonably possible that over the next twelve months, the amount of unrecognized tax benefits may change resulting from the re-evaluation of unrecognized tax benefits arising from examinations of taxing authorities and the closing of tax statutes of limitations. With few exceptions, Chubb is no longer subject to state and local and non-U.S. income tax examinations for years before 2010.

Debt



	December 31		December 31
(in millions of U.S. dollars)	2017		2016		Early Redemption Option
Repurchase agreements (weighted average interest rate of 1.5% in 2017 and 0.8% in 2016)	$	1,408	$	1,403	None
Short-term debt
Chubb INA senior notes:
$500 million 5.7% due February 2017	$	—	$	500	Make-whole premium plus 0.20%
$300 million 5.8% due March 2018	300		—		Make-whole premium plus 0.35%
$600 million 5.75% due May 2018	610		—		Make-whole premium plus 0.30%
$100 million 6.6% due August 2018	103		—		None
Total short-term debt	$	1,013	$	500
Long-term debt
Chubb INA senior notes:
$300 million 5.8% due March 2018	$	—	$	300	Make-whole premium plus 0.35%
$600 million 5.75% due May 2018	—		635		Make-whole premium plus 0.30%
$100 million 6.6% due August 2018	—		107		None
$500 million 5.9% due June 2019	499		498		Make-whole premium plus 0.40%
$1,300 million 2.3% due November 2020	1,296		1,294		Make-whole premium plus 0.15%
$1,000 million 2.875% due November 2022	995		994		Make-whole premium plus 0.20%
$475 million 2.7% due March 2023	472		471		Make-whole premium plus 0.10%
$700 million 3.35% due May 2024	695		695		Make-whole premium plus 0.15%
$800 million 3.15% due March 2025	795		794		Make-whole premium plus 0.15%
$1,500 million 3.35% due May 2026	1,489		1,488		Make-whole premium plus 0.20%
$100 million 8.875% due August 2029	100		100		None
$200 million 6.8% due November 2031	254		257		Make-whole premium plus 0.25%
$300 million 6.7% due May 2036	297		297		Make-whole premium plus 0.20%
$800 million 6.0% due May 2037	971		980		Make-whole premium plus 0.20%
$600 million 6.5% due May 2038	768		776		Make-whole premium plus 0.30%
$475 million 4.15% due March 2043	469		469		Make-whole premium plus 0.15%
$1,500 million 4.35% due November 2045	1,482		1,482		Make-whole premium plus 0.25%
Chubb INA $1,000 million 6.375% capital securities due March 2067⁽¹⁾	964		962		Make-whole premium plus 0.25%-0.50%
Other long-term debt (2.75% to 7.1% due December 2019 to September 2020)	10		11		None
Total long-term debt	$	11,556	$	12,610
Trust preferred securities
Chubb INA capital securities due April 2030	$	308	$	308	Redemption prices⁽²⁾


⁽¹⁾	6.375% interest rate through April 14, 2017; interest rate equal to three-month LIBOR rate plus 2.25% thereafter. The current interest rate at the time of this filing is 3.97%.


⁽²⁾	Redemption prices are equal to accrued and unpaid interest to the redemption date plus the greater of (i) 100 percent of the principal amount thereof, or (ii) sum of present value of scheduled payments of principal and interest on the capital securities from the redemption date to April 1, 2030.

a) Repurchase agreements

Chubb has executed repurchase agreements with certain counterparties under which Chubb agreed to sell securities and repurchase them at a future date for a predetermined price.

b) Short-term debt

Short-term debt comprises the current maturities of our long-term debt instruments described below. These short-term debt instruments were reclassified from long-term debt during 2017 and are reflected in the table above.

c) Long-term debt

Certain of Chubb INA's senior notes and capital securities are redeemable at any time at Chubb INA's option subject to the provisions described in the table above. A "make-whole" premium is the present value of the remaining principal and interest discounted at the applicable U.S. Treasury rate. The senior notes and capital securities are also redeemable at par plus accrued and unpaid interest in the event of certain changes in tax law.

The senior notes do not have the benefit of any sinking fund. These senior unsecured notes are guaranteed on a senior basis by Chubb Limited and they rank equally with all of Chubb's other senior obligations. They also contain customary limitations on lien provisions as well as customary events of default provisions which, if breached, could result in the accelerated maturity of such senior debt.

We have outstanding $1.0 billion of unsecured junior subordinated capital securities at December 31, 2017, which were assumed by Chubb INA in connection with the Chubb Corp acquisition. Effective April 15, 2017, the interest rate on our $1.0 billion of unsecured junior subordinated capital securities converted to a floating rate, equal to the three-month LIBOR plus 2.25 percentage points. Previously, these capital securities carried interest at a rate of 6.375 percent. The current interest rate at the time of this filing on these securities is 3.97 percent. The scheduled maturity date for these securities is April 15, 2037.

In August 2017, Chubb eliminated the Replacement Capital Covenant (RCC) associated with these capital securities which benefited the holders of the 6.8 percent debentures due November 2031. The RCC was eliminated through a consent solicitation process whereby the holders of the 6.8 percent debentures agreed to waive their rights under the RCC in exchange for a nominal fee. Chubb received the requisite number of consents required to eliminate the RCC and as a result, the RCC was terminated in August 2017.

d) Trust preferred securities

In March 2000, ACE Capital Trust II, a Delaware statutory business trust, publicly issued $300 million of 9.7 percent Capital Securities (the Capital Securities) due to mature in April 2030. At the same time, Chubb INA purchased $9.2 million of common securities of ACE Capital Trust II. The sole assets of ACE Capital Trust II consist of $309 million principal amount of 9.7 percent Junior Subordinated Deferrable Interest Debentures (the Subordinated Debentures) issued by Chubb INA due to mature in April 2030.

Distributions on the Capital Securities are payable semi-annually and may be deferred for up to ten consecutive semi-annual periods (but no later than April 1, 2030). Any deferred payments would accrue interest compounded semi-annually if Chubb INA defers interest on the Subordinated Debentures. Interest on the Subordinated Debentures is payable semi-annually. Chubb INA may defer such interest payments (but no later than April 1, 2030), with such deferred payments accruing interest compounded semi-annually. The Capital Securities and the ACE Capital Trust II Common Securities will be redeemed upon repayment of the Subordinated Debentures.

Chubb Limited has guaranteed, on a subordinated basis, Chubb INA's obligations under the Subordinated Debentures, and distributions and other payments due on the Capital Securities. These guarantees, when taken together with Chubb's obligations under expense agreements entered into with ACE Capital Trust II, provide a full and unconditional guarantee of amounts due on the Capital Securities.

Commitments, contingencies, and guarantees

a) Derivative instruments

Foreign currency management

As a global company, Chubb entities transact business in multiple currencies. Our policy is to generally match assets, liabilities, and required capital for each individual jurisdiction in local currency, which would include the use of derivatives discussed below. We do not hedge our net asset non-U.S. dollar capital positions; however, we do consider economic hedging for planned cross border transactions.

Derivative instruments employed

Chubb maintains positions in derivative instruments such as futures, options, swaps, and foreign currency forward contracts for which the primary purposes are to manage duration and foreign currency exposure, yield enhancement, or to obtain an exposure to a particular financial market. Chubb also maintains positions in convertible securities that contain embedded derivatives. Investment derivative instruments are recorded in either Other assets (OA) or Accounts payable, accrued expenses, and other liabilities (AP), convertible bonds are recorded in Fixed maturities available for sale (FM AFS), and convertible equity securities are recorded in Equity securities (ES) in the Consolidated balance sheets. These are the most numerous and frequent derivative transactions. In addition, Chubb from time to time purchases to be announced mortgage-backed securities (TBAs) as part of its investing activities.

Under reinsurance programs covering GLBs, Chubb assumes the risk of GLBs, including GMIB and GMAB, associated with variable annuity contracts. The GMIB risk is triggered if, at the time the contract holder elects to convert the accumulated account value to a periodic payment stream (annuitize), the accumulated account value is not sufficient to provide a guaranteed minimum level of monthly income. The GMAB risk is triggered if, at contract maturity, the contract holder’s account value is less than a guaranteed minimum value. The GLB reinsurance product meets the definition of a derivative instrument. Benefit reserves in respect of GLBs are classified as Future policy benefits (FPB) while the fair value derivative adjustment is classified within AP. Chubb also generally maintains positions in exchange-traded equity futures contracts on equity market indices to limit equity exposure in the GMDB and GLB blocks of business.

All derivative instruments are carried at fair value with changes in fair value recorded in Net realized gains (losses) in the Consolidated statements of operations. None of the derivative instruments are designated as hedges for accounting purposes.

The following table presents the balance sheet locations, fair values of derivative instruments in an asset or (liability) position, and notional values/payment provisions of our derivative instruments:



		December 31, 2017							December 31, 2016
	Consolidated Balance Sheet Location	Fair Value					Notional Value/ Payment Provision		Fair Value					Notional Value/ Payment Provision
		Derivative Asset		Derivative (Liability)					Derivative Asset		Derivative (Liability)
(in millions of U.S. dollars)		Derivative Asset		Derivative (Liability)					Derivative Asset		Derivative (Liability)
Investment and embedded derivative instruments:
Foreign currency forward contracts	OA / (AP)	$	14	$	(27	)	$	2,064	$	25	$	(50	)	$	2,220
Cross-currency swaps	OA / (AP)	—		—			45		—		—			95
Options/Futures contracts on notes and bonds	OA / (AP)	4		(3		)	1,007		6		(4		)	2,344
Convertible securities ⁽¹⁾	FM AFS/ES	5		—			6		2		—			7
		$	23	$	(30	)	$	3,122	$	33	$	(54	)	$	4,666
Other derivative instruments:
Futures contracts on equities ⁽²⁾	OA / (AP)	$	—	$	(21	)	$	1,553	$	1	$	—		$	1,316
Other	OA / (AP)	1		(2		)	75		2		(13		)	214
		$	1	$	(23	)	$	1,628	$	3	$	(13	)	$	1,530
GLB ⁽³⁾	(AP) / (FPB)	$	—	$	(550	)	$	1,083	$	—	$	(853	)	$	1,264


⁽¹⁾	Includes fair value of embedded derivatives.


⁽²⁾	Related to GMDB and GLB blocks of business.


⁽³⁾	Includes both future policy benefits reserves and fair value derivative adjustment. Refer to Note 5 c) for additional information. Note that the payment provision related to GLB is the net amount at risk. The concept of a notional value does not apply to the GLB reinsurance contracts.

At December 31, 2017 and 2016, derivative liabilities of $24 million and $10 million, respectively, included in the table above were subject to a master netting agreement. The remaining derivatives included in the table above were not subject to a master netting agreement.

b) Secured borrowings

Chubb participates in a securities lending program operated by a third-party banking institution whereby certain assets are loaned to qualified borrowers and from which we earn an incremental return. At December 31, 2017 and 2016, our securities lending collateral was $1,737 million and $1,092 million, respectively, and our securities lending payable, reflecting our obligation to return the collateral plus interest, was $1,737 million and $1,093 million, respectively. The securities lending collateral can only be drawn down by Chubb in the event that the institution borrowing the securities is in default under the lending agreement. An indemnification agreement with the lending agent protects us in the event a borrower becomes insolvent or fails to return any of the securities on loan. The collateral is recorded in Securities lending collateral and the liability is recorded in Securities lending payable in the Consolidated balance sheets.

The following table presents the carrying value of collateral held under securities lending agreements by investment category and remaining contractual maturity of the underlying agreements:



	Remaining contractual maturity
	December 31 2017		December 31 2016
(in millions of U.S. dollars)	Overnight and Continuous
Collateral held under securities lending agreements:
Cash	$	828	$	423
U.S. Treasury and agency	36		54
Foreign	712		578
Corporate securities	—		37
Mortgage-backed securities	74		—
Equity securities	87		—
	$	1,737	$	1,092
Gross amount of recognized liability for securities lending payable	$	1,737	$	1,093
Difference ⁽¹⁾	$	—	$	(1	)


⁽¹⁾	The carrying value of the securities lending collateral held is $1 million lower than the securities lending payable at December 31, 2016 due to accrued interest recorded in the securities lending payable.

At December 31, 2017 and 2016, our repurchase agreement obligations of $1,408 million and $1,403 million, respectively, were fully collateralized. In contrast to securities lending programs, the use of cash received is not restricted for the repurchase obligations. The fair value of the underlying securities sold remains in Fixed maturities available for sale, and the repurchase agreement obligation is recorded in Repurchase agreements in the Consolidated balance sheets.

The following table presents the carrying value of collateral pledged under repurchase agreements by investment category and remaining contractual maturity of the underlying agreements:



	Remaining contractual maturity
	December 31, 2017						December 31, 2016
	Up to 30 Days		Greater than 90 Days				Up to 30 Days		Greater than 90 Days		Total
(in millions of U.S. dollars)	Up to 30 Days		Greater than 90 Days		Total		Up to 30 Days		Greater than 90 Days		Total
Collateral pledged under repurchase agreements:
Cash	$	—	$	—	$	—	$	—	$	1	$	1
U.S. Treasury and agency	9		230		239		230		10		240
Mortgage-backed securities	369		826		1,195		339		881		1,220
	$	378	$	1,056	$	1,434	$	569	$	892	$	1,461
Gross amount of recognized liabilities for repurchase agreements					$	1,408					$	1,403
Difference ⁽¹⁾					$	26					$	58


⁽¹⁾	Per the repurchase agreements, the amount of collateral posted is required to exceed the amount of gross liability.

Potential risks exist in our secured borrowing transactions due to market conditions and counterparty exposure. With collateral that we pledge, there is a risk that the collateral may not be returned at the expiration of the agreement. If the counterparty fails to return the collateral, Chubb will have free use of the borrowed funds until our collateral is returned. In addition, we may encounter the risk that Chubb may not be able to renew outstanding borrowings with a new term or with an existing counterparty due to market conditions including a decrease in demand as well as more restrictive terms from banks due to increased regulatory and capital constraints. Should this condition occur, Chubb may seek alternative borrowing sources or reduce borrowings. Additionally, increased margins and collateral requirements due to market conditions would increase our restricted assets as we are required to provide additional collateral to support the transaction.

The following table presents net realized gains (losses) related to derivative instrument activity in the Consolidated statements of operations:



	Year Ended December 31
(in millions of U.S. dollars)	2017			2016			2015
Investment and embedded derivative instruments:
Foreign currency forward contracts	$	9		$	(31	)	$	31
All other futures contracts and options	(21		)	(10		)	9
Convertible securities ⁽¹⁾	1			8			(8		)
Total investment and embedded derivative instruments	$	(11	)	$	(33	)	$	32
GLB and other derivative instruments:
GLB ⁽²⁾	$	364		$	53		$	(203	)
Futures contracts on equities ⁽³⁾	(261		)	(136		)	(8		)
Other	(5		)	(10		)	(14		)
Total GLB and other derivative instruments	$	98		$	(93	)	$	(225	)
	$	87		$	(126	)	$	(193	)


⁽¹⁾	Includes embedded derivatives.


⁽²⁾	Excludes foreign exchange gains (losses) related to GLB.


⁽³⁾	Related to GMDB and GLB blocks of business.

c) Derivative instrument objectives

(i) Foreign currency exposure management

A foreign currency forward contract (forward) is an agreement between participants to exchange specific foreign currencies at a future date. Chubb uses forwards to minimize the effect of fluctuating foreign currencies as discussed above.

(ii) Duration management and market exposure

Futures

Futures contracts give the holder the right and obligation to participate in market movements, determined by the index or underlying security on which the futures contract is based. Settlement is made daily in cash by an amount equal to the change in value of the futures contract times a multiplier that scales the size of the contract. Exchange-traded futures contracts on money market instruments, notes and bonds are used in fixed maturity portfolios to more efficiently manage duration, as substitutes for ownership of the money market instruments, bonds and notes without significantly increasing the risk in the portfolio. Investments in futures contracts may be made only to the extent that there are assets under management not otherwise committed.

Exchange-traded equity futures contracts are used to limit exposure to a severe equity market decline, which would cause an increase in expected claims and therefore, an increase in reserves for GMDB and GLB reinsurance business.

Options

An option contract conveys to the holder the right, but not the obligation, to purchase or sell a specified amount or value of an underlying security at a fixed price. Option contracts are used in the investment portfolio as protection against unexpected shifts in interest rates, which would affect the duration of the fixed maturity portfolio. By using options in the portfolio, the overall interest rate sensitivity of the portfolio can be reduced. Option contracts may also be used as an alternative to futures contracts in the synthetic strategy as described above.

The price of an option is influenced by the underlying security, expected volatility, time to expiration, and supply and demand.

The credit risk associated with the above derivative financial instruments relates to the potential for non-performance by counterparties. Although non-performance is not anticipated, in order to minimize the risk of loss, management monitors the creditworthiness of its counterparties and obtains collateral. The performance of exchange-traded instruments is guaranteed by the exchange on which they trade. For non-exchange-traded instruments, the counterparties are principally banks which must meet certain criteria according to our investment guidelines.

Cross-currency swaps

Cross-currency swaps are agreements under which two counterparties exchange interest payments and principal denominated in different currencies at a future date. We use cross-currency swaps to reduce the foreign currency and interest rate risk by converting cash flows back into local currency. We invest in foreign currency denominated investments to improve credit diversification and also to obtain better duration matching to our liabilities that is limited in the local currency market.

Other

Included within Other are derivatives intended to reduce potential losses which may arise from certain exposures in our insurance business. The economic benefit provided by these derivatives is similar to purchased reinsurance. For example, Chubb may enter into crop derivative contracts to protect underwriting results in the event of a significant decline in commodity prices.

(iii) Convertible security investments

A convertible security is a debt instrument or preferred stock that can be converted into a predetermined amount of the issuer’s equity. The convertible option is an embedded derivative within the host instruments which are classified in the investment portfolio as either available for sale or as an equity security. Chubb purchases convertible securities for their total return and not specifically for the conversion feature.

(iv) TBA

By acquiring TBAs, we make a commitment to purchase a future issuance of mortgage-backed securities. For the period between purchase of the TBAs and issuance of the underlying security, we account for our position as a derivative in the consolidated financial statements. Chubb purchases TBAs both for their total return and for the flexibility they provide related to our mortgage-backed security strategy.

(v) GLB

Under the GLB program, as the assuming entity, Chubb is obligated to provide coverage until the expiration or maturity of the underlying deferred annuity contracts or the expiry of the reinsurance treaty. Premiums received under the reinsurance treaties are classified as premium. Expected losses allocated to premiums received are classified as Future policy benefits and valued similar to GMDB reinsurance. Other changes in fair value, principally arising from changes in expected losses allocated to expected future premiums, are classified as Net realized gains (losses). Fair value represents management’s estimate of an exit price and thus, includes a risk margin. We may recognize a realized loss for other changes in fair value due to adverse changes in the capital markets (e.g., declining interest rates and/or declining equity markets) and changes in actual or estimated future policyholder behavior (e.g., increased annuitization or decreased lapse rates) although we expect the business to be profitable. We believe this presentation provides the most meaningful disclosure of changes in the underlying risk within the GLB reinsurance programs for a given reporting period.

d) Concentrations of credit risk

Our investment portfolio is managed following prudent standards of diversification. Specific provisions limit the allowable holdings of a single issue and issuer. We believe that there are no significant concentrations of credit risk associated with our investments. Our three largest exposures by issuer at December 31, 2017, were Wells Fargo & Co., JP Morgan Chase & Co., and Anheuser-Busch InBev NV. Our largest exposure by industry at December 31, 2017 was financial services.

We market our insurance and reinsurance worldwide primarily through insurance and reinsurance brokers. We assume a degree of credit risk associated with brokers with whom we transact business. No broker or one insured accounted for more than 10 percent of gross written premium for the years ended December 31, 2017, 2016, and 2015.

e) Fixed maturities

At December 31, 2017, we have commitments to purchase fixed income securities of $1,020 million over the next several years.

f) Other investments

At December 31, 2017, included in Other investments in the Consolidated balance sheet are investments in limited partnerships and partially-owned investment companies with a carrying value of $3.4 billion. In connection with these investments, we have commitments that may require funding of up to $4.1 billion over the next several years.

g) Letters of credit

On October 25, 2017, we replaced our $1.5 billion letter of credit/revolver facility that was set to expire in November 2017 with an amended and restated credit facility that provides for up to $1.0 billion of availability, all of which may be used for the issuance of letters of credit and for revolving loans. We have the ability to increase the capacity under our existing credit facility to $2.0 billion under certain conditions, but any such increase would not raise the sub-limit for revolving loans above $1.0 billion. The letter of credit facility required that we maintain certain financial covenants, all of which we met at December 31, 2017. At December 31, 2017, outstanding LOCs issued under this facility were $250 million.

h) Legal proceedings

Our insurance subsidiaries are subject to claims litigation involving disputed interpretations of policy coverages and, in some jurisdictions, direct actions by allegedly-injured persons seeking damages from policyholders. These lawsuits, involving claims on policies issued by our subsidiaries which are typical to the insurance industry in general and in the normal course of business, are considered in our loss and loss expense reserves. In addition to claims litigation, we are subject to lawsuits and regulatory actions in the normal course of business that do not arise from or directly relate to claims on insurance policies. This category of business litigation typically involves, among other things, allegations of underwriting errors or misconduct, employment claims, regulatory activity, or disputes arising from our business ventures. In the opinion of management, our ultimate liability for these matters could be, but we believe is not likely to be, material to our consolidated financial condition and results of operations.

i) Lease commitments

We lease office space and equipment under operating leases which expire at various dates through 2033. Rent expense was $211 million, $209 million, and $126 million for the years ended December 31, 2017, 2016, and 2015, respectively. Future minimum lease payments under the leases are expected to be as follows:



For the years ending December 31
(in millions of U.S. dollars)
2018	$	181
2019	153
2020	133
2021	114
2022	89
Thereafter	230
Total minimum future lease commitments	$	900

Shareholders' equity

Shareholders’ equity

a) Common Shares

All of Chubb’s Common Shares are authorized under Swiss corporate law. Though the par value of Common Shares is stated in Swiss francs, Chubb continues to use U.S. dollars as its reporting currency for preparing the consolidated financial statements. Under Swiss corporate law, we are generally prohibited from issuing Common Shares below their par value. If there were a need to raise common equity at a time when the trading price of Chubb's Common Shares is below par value, we would need in advance to obtain shareholder approval to decrease the par value of the Common Shares.

Dividend approval

At our May 2016 and 2015 annual general meetings, our shareholders approved an annual dividend for the following year of up to $2.76 and $2.68 per share, respectively, which was paid in four quarterly installments of $0.69 per share and $0.67 per share, respectively, at dates determined by the Board of Directors (Board) after the annual general meeting by way of a distribution from capital contribution reserves, transferred to free reserves for payment.

At our May 2017 annual general meeting, our shareholders approved an annual dividend for the following year of up to $2.84 per share, expected to be paid in four quarterly installments of $0.71 per share after the annual general meeting by way of distribution from capital contribution reserves, transferred to free reserves for payment. The Board will determine the record and payment dates at which the annual dividend may be paid until the date of the 2018 annual general meeting, and is authorized to abstain from distributing a dividend at its discretion. The first three quarterly installments each of $0.71 per share, have been distributed by the Board as expected.

Dividend distributions

Under Swiss corporate law, dividends, including distributions through a reduction in par value (par value reduction), must be stated in Swiss francs though dividend payments are made by Chubb in U.S. dollars. Dividend distributions following Chubb's redomestication to Switzerland have generally been made by way of par value reduction (under the methods approved by our shareholders at our annual general meetings) and had the effect of reducing par value per Common Share each time a dividend was distributed. We may also issue dividends without subjecting them to withholding tax by way of distributions from capital contribution reserves and payment out of free reserves. We employed this method of dividends for the annual dividends approved in May 2015, 2016 and 2017 as noted above.

The following table presents dividend distributions per Common Share in Swiss francs (CHF) and U.S. dollars (USD):



	Year Ended December 31
		2017			2016			2015
	CHF	USD		CHF	USD		CHF	USD
Dividends - par value reduction	—	$	—	—	$	—	0.62	$	0.65
Dividends - distributed from capital contribution reserves	2.76	2.82		2.70	2.74		1.94	2.01
Total dividend distributions per common share	2.76	$	2.82	2.70	$	2.74	2.56	$	2.66

b) Shares issued, outstanding, authorized, and conditional



	Year Ended December 31
	2017		2016		2015
Shares issued, beginning of year	479,783,864		342,832,412		342,832,412
Shares issued for Chubb Corp acquisition	—		136,951,452		—
Shares issued, end of year	479,783,864		479,783,864		342,832,412
Common Shares in treasury, end of year (at cost)	(15,950,685	)	(13,815,148	)	(18,268,971	)
Shares issued and outstanding, end of year	463,833,179		465,968,716		324,563,441

Increases in Common Shares in treasury are due to open market repurchases of Common Shares and the surrender of Common Shares to satisfy tax withholding obligations in connection with the vesting of restricted stock and the forfeiture of unvested restricted stock. Decreases in Common Shares in treasury are principally due to grants of restricted stock, exercises of stock options, and purchases under the Employee Stock Purchase Plan (ESPP).

Authorized share capital for general purposes

The Board has shareholder-approved authority as set forth in the Articles of Association to increase for general purposes Chubb's share capital from time to time until May 19, 2018, by the issuance of up to 200,000,000 fully paid up Common Shares, with a par value equal to the par value of Chubb's Common Shares as set forth in the Articles of Association at the time of any such issuance. Chubb intends to seek shareholder approval at its 2018 annual general meeting for a new pool of authorized share capital for general purposes to replace the existing 200,000,000 share pool when it expires.

Conditional share capital for bonds and similar debt instruments

Chubb's share capital may be increased through the issuance of a maximum of 33,000,000 fully paid up Common Shares (with a par value of CHF 24.15 as of December 31, 2017) through the exercise of conversion and/or option or warrant rights granted in connection with bonds, notes, or similar instruments, issued or to be issued by Chubb, including convertible debt instruments.

Conditional share capital for employee benefit plans

Chubb's share capital may be increased through the issuance of a maximum of 25,410,929 fully paid up Common Shares (with a par value of CHF 24.15 as of December 31, 2017) in connection with the exercise of option rights granted to any employee of Chubb, and any consultant, director, or other person providing services to Chubb.

c) Chubb Limited securities repurchases

From time to time, we repurchase shares as part of our capital management program and to partially offset potential dilution from the exercise of stock options and the granting of restricted stock under share-based compensation plans. Our Board of Directors has authorized share repurchase programs as follows:


•	$1.5 billion of Chubb Common Shares from January 1, 2015 through December 31, 2015


•	$1.0 billion of Chubb Common Shares from November 17, 2016 through December 31, 2017


•	$1.0 billion of Chubb Common Shares from January 1, 2018 through December 31, 2018

Share repurchases may be in the open market, in privately negotiated transactions, block trades, accelerated repurchases and/or through option or other forward transactions.

The following table presents repurchases of Chubb's Common Shares conducted in a series of open market transactions under the Board authorizations:



	Year Ended December 31
(in millions of U.S. dollars, except share data)	2017		2016		2015
Number of shares repurchased	5,866,612		—		6,677,663
Cost of shares repurchased	$	830	$	—	$	734

d) General restrictions

The holders of the Common Shares are entitled to receive dividends as approved by the shareholders. Holders of Common Shares are allowed one vote per share provided that, if the controlled shares of any shareholder constitute ten percent or more of the outstanding Common Shares of Chubb, only a fraction of the vote will be allowed so as not to exceed ten percent in aggregate. Entry of acquirers of Common Shares as shareholders with voting rights in the share register may be refused if it would confer voting rights with respect to ten percent or more of the registered share capital recorded in the commercial register.

Share-based compensation

Chubb has share-based compensation plans which currently provide the Board the ability to grant awards of stock options, restricted stock, and restricted stock units to its employees, consultants, and members of the Board.

In connection with the Chubb Corp acquisition in 2016, we assumed outstanding equity awards consisting of service-based restricted stock units, performance-based restricted stock units, and stock options issued by Chubb Corp to employees and directors with a fair value of $525 million, of which $323 million is attributed to purchase consideration for the acquisition. These awards were generally granted with a 3-year vesting period, and the stock options generally have a 10-year term.

In May 2016, our shareholders approved the Chubb Limited 2016 Long-Term Incentive Plan (the 2016 LTIP), which replaced both the ACE Limited 2004 LTIP (the 2004 LTIP) and The Chubb Corporation Long-Term Incentive Plan (2014). The 2016 LTIP is substantially similar to the 2004 LTIP in its operation and the types of awards that may be granted. Under the 2016 LTIP, Common Shares of Chubb were authorized to be issued pursuant to awards made as stock options, stock appreciation rights, performance shares, performance units, restricted stock, and restricted stock units.

Chubb principally issues restricted stock grants and stock options on a graded vesting schedule. Chubb recognizes compensation cost for restricted stock and stock option grants with only service conditions that have a graded vesting schedule on a straight-line basis over the requisite service period for each separately vesting portion of the award as if the award was, in-substance, multiple awards. We incorporate an estimate of future forfeitures (6.5 percent assumption used for grants made in 2017, 2016, and 2015) in determining compensation cost for both grants of restricted stock and stock options.

Chubb generally grants restricted stock and restricted stock units with a 4-year vesting period, which vest in equal annual installments over the respective vesting period. The restricted stock is granted at market close price on the day of grant. Each restricted stock unit represents our obligation to deliver to the holder one Common Share upon vesting.

Under the 2016 LTIP, 19,500,000 Common Shares were authorized to be issued, in addition to any shares that have not been delivered pursuant to the 2004 LTIP and remain available for grant pursuant to the 2004 LTIP, including any shares covered by awards granted under the 2004 LTIP that are forfeited, expire or are canceled after the effective date of the 2016 LTIP without delivery of shares or which result in the forfeiture of the shares back to Chubb. At December 31, 2017, a total of 17,065,705 shares remain available for future issuance under the 2016 LTIP, which includes shares canceled or forfeited from the 2004 LTIP, in addition to common shares that were previously registered and authorized to be issued.

In May 2017, our shareholders approved an increase of 2,000,000 shares authorized to be issued under the Employee Stock Purchase Plan (ESPP), bringing the total shares authorized to 6,500,000 shares. At December 31, 2017, a total of 2,452,058 shares remain available for issuance under the ESPP.

Chubb generally issues Common Shares for the exercise of stock options, restricted stock, and purchases under the ESPP from un-issued reserved shares (conditional share capital) and Common Shares in treasury.

The following table presents pre-tax and after-tax share-based compensation expense:



	Year Ended December 31
(in millions of U.S. dollars)	2017		2016		2015
Stock options and shares issued under ESPP:
Pre-tax	$	41	$	33	$	31
After-tax ⁽¹⁾	$	26	$	20	$	21
Restricted stock:
Pre-tax	$	259	$	268	$	143
After-tax	$	151	$	167	$	84

⁽¹⁾

Excludes windfall tax benefit for share-based compensation recognized as a direct adjustment to Additional paid-in capital of $32 million and $26 million for the years ended December 31, 2016 and 2015, respectively. Due to the adoption of new accounting guidance, windfall tax benefits for share-based compensation beginning in 2017 are recognized through Net income rather than Additional paid-in capital. The excess tax benefit recorded to Income tax expense in the Consolidated statement of operations was $48 million for the year ended December 31, 2017.

Unrecognized compensation expense related to the unvested portion of Chubb's employee share-based awards was $345 million at December 31, 2017, and is expected to be recognized over a weighted-average period of approximately 1 year.

Stock options

Both incentive and non-qualified stock options are principally granted at an option price per share equal to the grant date fair value of Chubb's Common Shares. Stock options are generally granted with a 3-year vesting period and a 10-year term. Stock options vest in equal annual installments over the respective vesting period, which is also the requisite service period.

Chubb's 2017 share-based compensation expense includes a portion of the cost related to the 2014 through 2017 stock option grants. Stock option fair value was estimated on the grant date using the Black-Scholes option-pricing model that uses the weighted-average assumptions noted below:



	Year Ended December 31
	2017		2016		2015
Dividend yield	2.0	%	2.3	%	2.3	%
Expected volatility	19.7	%	23.2	%	21.0	%
Risk-free interest rate	2.0	%	1.3	%	1.7	%
Expected life	5.8 years		5.6 years		5.8 years

The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. The expected life (estimated period of time from grant to exercise date) was estimated using the historical exercise behavior of employees. Expected volatility was calculated as a blend of (a) historical volatility based on daily closing prices over a period equal to the expected life assumption, (b) long-term historical volatility based on daily closing prices over the period from Chubb's initial public trading date through the most recent quarter, and (c) implied volatility derived from Chubb's publicly traded options.

The following table presents a roll-forward of Chubb's stock options:



(Intrinsic Value in millions of U.S. dollars)	Number of Options		Weighted-Average Exercise Price		Weighted-Average Fair Value		Total Intrinsic Value
Options outstanding, December 31, 2014	9,623,986		$	69.06
Granted	1,892,641		$	114.78	$	18.49
Exercised	(1,457,580	)	$	60.88			$	72
Forfeited	(205,551	)	$	100.25
Options outstanding, December 31, 2015	9,853,496		$	78.40
Assumed in Chubb Corp Acquisition	339,896		$	77.83	$	36.07
Granted	1,929,616		$	118.39	$	21.52
Exercised	(1,728,949	)	$	66.65			$	99
Forfeited	(213,339	)	$	110.01
Options outstanding, December 31, 2016	10,180,720		$	87.29
Granted	2,079,522		$	139.00	$	22.97
Exercised	(1,632,629	)	$	73.53			$	111
Forfeited	(194,297	)	$	119.44
Options outstanding, December 31, 2017	10,433,316		$	99.20			$	490
Options exercisable, December 31, 2017	6,675,491		$	82.59			$	424

The weighted-average remaining contractual term was 6.2 years for stock options outstanding and 4.8 years for stock options exercisable at December 31, 2017. Cash received from the exercise of stock options for the year ended December 31, 2017 was $133 million.

Restricted stock and restricted stock units

Grants of restricted stock and restricted stock units awarded under both the 2004 LTIP and 2016 LTIP typically have a 4-year vesting period, based on a graded vesting schedule. Chubb grants performance-based restricted stock to certain executives that vest based on tangible book value (shareholders' equity less goodwill and intangible assets, net of tax) per share growth compared to a defined group of peer companies. The performance-based stock awards comprise target awards which have four installments that vest annually based on the performance criteria, and premium awards, which are earned only if tangible book value per share growth over the cumulative 4-year period after the grant of the associated target awards exceeds a higher threshold compared to our peer group. Shares representing target awards are issued when the performance award is approved. They are subject to forfeiture if applicable performance criteria are not met. For awards granted prior to February 2014, shares representing premium awards were not issued at the time the target award was approved. Rather, they were subject to issuance following the 4-year performance period, if and to the extent the premium awards were earned. For awards granted in February 2014 and thereafter, premium awards have been issued subject to vesting if actually earned or forfeited if not earned at the end of the 4-year performance period.

The terms of performance-based restricted stock awards granted beginning in January 2017 were updated to now include a 3-year cliff vesting provision in place of the 4-year graded vesting period. In addition, these awards now include an additional vesting criteria based on the P&C combined ratio compared to a defined group of peer companies as well as an additional vesting provision based on total shareholder return (TSR) compared to a defined group of peer companies.

Chubb also grants restricted stock awards to non-management directors which vest at the following year's annual general meeting. The restricted stock is granted at market close price on the grant date. Each restricted stock unit represents our obligation to deliver to the holder one Common Share upon vesting. Chubb's 2017 share-based compensation expense includes a portion of the cost related to the restricted stock granted in the years 2013 through 2017.

The following table presents a roll-forward of our restricted stock awards. Included in the roll-forward below are 22,013 restricted stock awards, 23,812 restricted stock awards, and 24,945 restricted stock awards that were granted to non-management directors during the years ended December 31, 2017, 2016, and 2015, respectively:



	Service-based Restricted Stock Awards and Restricted Stock Units				Performance-based Restricted Stock Awards and Restricted Stock Units
	Number of Shares		Weighted-Average Grant-Date Fair Value		Number of Shares		Weighted-Average Grant-Date Fair Value
Unvested restricted stock, December 31, 2014	3,837,097		$	83.60	378,690		$	90.87
Granted	1,417,965		$	114.37	326,860		$	113.29
Vested	(1,341,358	)	$	80.05	(110,340	)	$	98.70
Forfeited	(424,535	)	$	87.36	—		$	—
Unvested restricted stock, December 31, 2015	3,489,169		$	97.01	595,210		$	101.73
Assumed in Chubb Corp Acquisition	3,706,639		$	111.02	—		$	—
Granted	1,622,065		$	118.70	517,507		$	118.96
Vested	(2,592,622	)	$	100.87	(181,548	)	$	102.43
Forfeited	(420,125	)	$	109.42	—		$	—
Unvested restricted stock, December 31, 2016	5,805,126		$	109.39	931,169		$	111.17
Granted	1,707,094		$	139.18	267,282		$	138.90
Vested	(2,646,084	)	$	107.73	(222,954	)	$	113.30
Forfeited	(156,694	)	$	114.54	—		$	—
Unvested restricted stock, December 31, 2017	4,709,422		$	121.16	975,497		$	118.28

Prior to 2009, legacy ACE granted restricted stock units with a 1-year vesting period to non-management directors. Delivery of Common Shares on account of these restricted stock units to non-management directors is deferred until after the date of the non-management directors' termination from the Board. Legacy Chubb Corp historically allowed directors and certain key employees of Chubb Corp and its subsidiaries to defer a portion of their compensation earned with respect to services performed in the form of deferred stock units. In addition, legacy Chubb Corp provides supplemental retirement benefits for certain employees through its Defined Contribution Excess Benefit Plan in the form of deferred shares of stock. The minimum vesting period under these legacy Chubb Corp deferred plans is 1-year and the maximum is 3-years. Employees and directors had the option to elect to receive their awards at a future specified date or upon their termination of service with Chubb. At December 31, 2017, there were 279,986 deferred restricted stock units.

ESPP

The ESPP gives participating employees the right to purchase Common Shares through payroll deductions during consecutive subscription periods at a purchase price of 85 percent of the fair value of a Common Share on the exercise date (Purchase Price). Annual purchases by participants are limited to the number of whole shares that can be purchased by an amount equal to ten percent of the participant's compensation or $25,000, whichever is less. The ESPP has two six-month subscription periods each year, the first of which runs between January 1 and June 30 and the second of which runs between July 1 and December 31. Legacy Chubb Corp employees were eligible to participate in the ESPP beginning in the July 1 to December 31 subscription period of 2016. The amounts collected from participants during a subscription period are used on the exercise date to purchase full shares of Common Shares. An exercise date is generally the last trading day of a subscription period. The number of shares purchased is equal to the total amount, at the exercise date, collected from the participants through payroll deductions for that subscription period, divided by the Purchase Price, rounded down to the next full share. Participants may withdraw from an offering before the exercise date and obtain a refund of amounts withheld through payroll deductions. Pursuant to the provisions of the ESPP, during the years ended December 31, 2017, 2016, and 2015, employees paid $34 million, $24 million, and $18 million to purchase 271,185 shares, 211,492 shares, and 197,442 shares, respectively.

Postretirement benefits

Chubb provides postretirement benefits to eligible employees and their dependents through various defined contribution plans and defined benefit plans sponsored by Chubb. With the acquisition, Chubb assumed the outstanding pension and other postretirement benefit plan obligations of Chubb Corp, which consisted of several non-contributory defined benefit pension plans covering substantially all its employees, and several other postretirement benefit plans to retired employees. After the acquisition, Chubb also sponsors the defined contribution plans covering Chubb Corp employees.

Defined benefit pension plans

We maintain non-contributory defined benefit pension plans that cover certain employees located in the U.S., U.K., Canada, and various other statutorily required countries. We account for pension benefits using the accrual method. Benefits under these plans are based on employees' years of service and compensation during final years of service. All underlying plans are subject to periodic actuarial valuations by qualified actuarial firms using actuarial models to calculate the expense and liability for each plan. We use December 31 as the measurement date for our defined benefit pension plans.

Under the Chubb Corp plans, prior to 2001, benefits were generally based on an employee’s years of service and average compensation during the last five years of employment. Effective January 1, 2001, the formula for providing pension benefits was changed from the final average pay formula to a cash balance formula. Under the cash balance formula, a notional account is established for each employee, which is credited semi-annually with an amount equal to a percentage of eligible compensation based on age and years of service plus interest based on the account balance. Chubb Corp employees hired prior to 2001 will generally be eligible to receive vested benefits based on the higher of the final average pay or cash balance formulas.

Other postretirement benefit plans

We also assumed Chubb Corp other postretirement benefit plans, principally healthcare and life insurance, to retired employees, their beneficiaries, and covered dependents. Healthcare coverage is contributory. Retiree contributions vary based upon retiree’s age, type of coverage, and years of service requirements. Life insurance coverage is non-contributory. Chubb funds a portion of the healthcare benefits obligation where such funding can be accomplished on a tax-effective basis. Benefits are paid as covered expenses are incurred.

Amendments to U.S. Qualified and Excess Pension Plans and U.S. Retiree Healthcare Plan

On October 31, 2016, we harmonized and amended several of our U.S. retirement programs to create a unified retirement savings program. In 2020, we will transition from a traditional defined benefit pension program that had been in effect for certain employees to a defined contribution program. Additionally, after 2025, we plan to eliminate a subsidized U.S. retiree healthcare and life insurance plan that had been in place for certain employees. Both amendments required a remeasurement of the plan assets and benefit obligations with updated assumptions, including discount rates and the expected return on assets.

The plan amendments and related remeasurement of the obligation at October 31, 2016 resulted in a net decrease to the benefit obligations of $496 million as follows:


•	The amendment of the pension plan and excess pension plan resulted in a pre-tax curtailment gain of $113 million immediately recognized in income during the fourth quarter of 2016 as it reduced expected years of future service of active plan participants.

•

The amendment of the retiree healthcare plan resulted in a reduction in the obligation of $383 million, of which $410 million will be amortized as a reduction to expense over the next 4.5 years as it relates to benefits already accrued. During the fourth quarter of 2016 and for the year ended 2017, $15 million and $89 million, respectively, was amortized as a reduction to expense. Additionally, during 2017, the number of involuntary departures due to the Chubb integration met our established threshold for recognition in income. As a result, we recognized $39 million of accelerated amortization. At December 31, 2017, the remaining curtailment benefit balance was $267 million which will be amortized as a reduction to expense over the next 3.5 years.

Obligations and funded status

The funded status of the pension and other postretirement benefit plans as well as the amounts recognized in Accumulated other comprehensive income at December 31, 2017 and 2016 was as follows:



	Pension Benefits												Other Postretirement Benefits
	2017						2016						2017			2016
	U.S. Plans			Non-U.S. Plans			U.S. Plans			Non-U.S. Plans
(in millions of U.S. dollars)	U.S. Plans			Non-U.S. Plans			U.S. Plans			Non-U.S. Plans
Benefit obligation, beginning of year	$	3,035		$	1,025		$	10		$	559		$	165		$	16
Acquisition of Chubb Corp	—			—			3,153			372			—			506
Service cost	63			17			75			18			2			10
Interest cost	105			27			103			30			4			17
Actuarial loss (gain)	232			(4		)	131			204			(2		)	36
Benefits paid	(132		)	(28		)	(79		)	(22		)	(14		)	(11		)
Amendments	—			—			—			(9		)	(23		)	(410		)
Curtailments	—			(32		)	(259		)	(7		)	2			—
Settlements	(18		)	(8		)	(99		)	(7		)	—			—
Foreign currency revaluation and other	—			80			—			(113		)	3			1
Benefit obligation, end of year	$	3,285		$	1,077		$	3,035		$	1,025		$	137		$	165
Plan assets at fair value, beginning of year	$	2,765		$	962		$	9		$	564		$	159		$	—
Acquisition of Chubb Corp	—			—			2,473			315			—			138
Actual return on plan assets	441			100			359			168			6			29
Employer contributions	53			63			98			67			6			3
Benefits paid	(132		)	(28		)	(79		)	(22		)	(14		)	(11		)
Settlements	(18		)	(8		)	(95		)	(7		)	—			—
Foreign currency revaluation and other	—			83			—			(123		)	—			—
Plan assets at fair value, end of year	$	3,109		$	1,172		$	2,765		$	962		$	157		$	159
Funded status at end of year	$	(176	)	$	95		$	(270	)	$	(63	)	$	20		$	(6	)
Amounts recognized in Accumulated other comprehensive income, not yet recognized in net periodic cost (benefit):
Net actuarial loss (gain)	$	(227	)	$	82		$	(207	)	$	156		$	12		$	17
Prior service cost (benefit)	—			6			—			(2		)	(288		)	(395		)
Total	$	(227	)	$	88		$	(207	)	$	154		$	(276	)	$	(378	)

The accumulated benefit obligation for the pension benefit plans was $4.3 billion and $3.8 billion at December 31, 2017 and 2016, respectively. The accumulated benefit obligation is the present value of pension benefits earned as of the measurement date based on employee service and compensation prior to that date. It differs from the pension benefit obligation in the table above in that the accumulated benefit obligation includes no assumptions regarding future compensation levels.

The net components of the funded status of the pension and other postretirement benefit plans are included in Accounts payable, accrued expenses, and other liabilities in the consolidated balance sheets.

Chubb’s funding policy is to contribute amounts that meet regulatory requirements plus additional amounts determined based on actuarial valuations, market conditions and other factors. All benefit plans satisfy minimum funding requirements of the Employee Retirement Income Security Act of 1974 (ERISA).

At December 31, 2017, we estimate that we will contribute $28 million to the pension plans and $2 million to the other postretirement benefits plan in 2018. The estimate is subject to change due to contribution decisions that are affected by various factors including our liquidity, market performance and management discretion.

The weighted-average assumptions used to determine the projected benefit obligation were as follows:



	Pension Benefits
	U.S. Plans		Non-U.S. Plans		Other Postretirement Benefits
	U.S. Plans		Non-U.S. Plans		Other Postretirement Benefits
December 31, 2017
Discount rate	3.59	%	2.76	%	2.77	%
Rate of compensation increase	4.00	%	3.46	%	N/A
December 31, 2016
Discount rate	4.14	%	2.83	%	2.97	%
Rate of compensation increase	4.00	%	3.57	%	N/A

The components of net pension and other postretirement benefit costs reflected in Net income and other changes in plan assets and benefit obligations recognized in other comprehensive income were as follows:



	Pension Benefits																	Other Postretirement Benefits
	U.S. Plans								Non-U.S. Plans
Year Ended December 31	2017			2016			2015		2017			2016			2015			2017			2016			2015
(in millions of U.S. dollars)	2017			2016			2015		2017			2016			2015			2017			2016			2015
Costs reflected in Net income:
Service cost	$	63		$	75		$	—	$	17		$	18		$	6		$	2		$	10		$	1
Interest cost	105			103			—		27			30			21			4			17			—
Expected return on plan assets	(189		)	(165		)	—		(42		)	(39		)	(29		)	(5		)	(8		)	—
Amortization of net actuarial loss (gain)	—			—			—		3			2			2			—			(1		)	(1		)
Amortization of prior service cost	—			—			—		—			(1		)	—			(89		)	(15		)	—
Curtailments	—			(117		)	—		(27		)	—			—			(37		)	—			—
Settlements	—			(2		)	—		—			1			1			—			—			—
Net periodic (benefit) cost	$	(21	)	$	(106	)	$	—	$	(22	)	$	11		$	1		$	(125	)	$	3		$	—
Changes in plan assets and benefit obligations recognized in other comprehensive income
Net actuarial loss (gain)	$	(21	)	$	(326	)	$	—	$	(57	)	$	49		$	(16	)	$	(3	)	$	17		$	—
Prior service cost (benefit)	—			—			—		—			(8		)	1			(23		)	(395		)	—
Amortization of net actuarial loss	—			—			—		(3		)	—			—			—			—			—
Amortization of prior service cost	—			—			—		—			—			—			89			—			—
Curtailments	—			117			—		(6		)	—			—			39			—			—
Settlements	1			2			—		—			(1		)	—			—			—			—
Total (increase) decrease in other comprehensive income	$	(20	)	$	(207	)	$	—	$	(66	)	$	40		$	(15	)	$	102		$	(378	)	$	—

The estimated net actuarial loss that will be amortized from AOCI into net periodic benefit costs in Net income for Non-U.S. pension plans during 2018 is $1 million. The estimated net prior service credit that will be amortized from AOCI into net periodic benefit cost in Net income during 2018 for U.S. other postretirement benefit plans is $80 million.

The weighted-average assumptions used to determine the net periodic pension and other postretirement benefit costs were as follows:



	Pension Benefits
	U.S. Plans		Non-U.S. Plans		Other Postretirement Benefits
Year Ended December 31	U.S. Plans		Non-U.S. Plans		Other Postretirement Benefits
2017
Discount rate in effect for determining service cost	4.20	%	3.55	%	2.84	%
Discount rate in effect for determining interest cost	3.53	%	2.61	%	2.44	%
Rate of compensation increase	4.00	%	3.57	%	N/A
Expected long-term rate of return on plan assets	7.00	%	4.23	%	3.00	%
2016
Discount rate in effect for determining service cost	4.38	%	3.85	%	4.32	%
Discount rate in effect for determining interest cost	3.59	%	3.44	%	4.02	%
Rate of compensation increase	4.00	%	3.33	%	N/A
Expected long-term rate of return on plan assets	7.00	%	4.79	%	6.34	%
2015
Discount rate	NM		3.51	%	NM
Rate of compensation increase	NM		3.09	%	NM
Expected long-term rate of return on plan assets	NM		4.81	%	NM
NM – not meaningful

The weighted-average healthcare cost trend rate assumptions used to measure the expected cost of healthcare benefits were as follows:



	U.S. Plans						Non-U.S. Plans
	2017		2016		2015		2017		2016
Healthcare cost trend rate	7.01	%	7.28	%	6.50	%	6.61	%	6.61	%
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)	4.50	%	4.50	%	4.50	%	4.50	%	4.50	%
Year that the rate reaches the ultimate trend rate	2038		2038		2026		2029		2029

The healthcare cost trend rate assumption has a significant effect on the amount of the accumulated other postretirement benefit obligation and the net other postretirement benefit cost reported. To illustrate, a one percent increase in the trend rate for each year would increase the accumulated other postretirement benefit obligation at December 31, 2017 by approximately $8 million and the aggregate of the service and interest cost components of net other postretirement benefit cost for the year ended December 31, 2017 by approximately $1 million. A one percent decrease in the trend rate for each year would decrease the accumulated other postretirement benefit obligation at December 31, 2017 by approximately $7 million and the aggregate of the service and interest cost components of net other postretirement benefit cost for the year ended December 31, 2017 by approximately $1 million.

Plan Assets

The long term objective of the pension plan is to provide sufficient funding to cover expected benefit obligations, while assuming a prudent level of portfolio risk. The assets of the pension plan are invested, either directly or through pooled funds, in a diversified portfolio of predominately equity securities and fixed maturities. We seek to obtain a rate of return that over time equals or exceeds the returns of the broad markets in which the plan assets are invested. The target allocation of plan assets is 55 percent to 65 percent invested in equity securities (including certain other investments measured using NAV), with the remainder primarily invested in fixed maturities. We rebalance our pension assets to the target allocation as market conditions permit. We determined the expected long term rate of return assumption for each asset class based on an analysis of the historical returns and the expectations for future returns. The expected long term rate of return for the portfolio is a weighted aggregation of the expected returns for each asset class.

In order to minimize risk, the Plan maintains a listing of permissible and prohibited investments. In addition, the Plan has certain concentration limits and investment quality requirements imposed on permissible investments options. Investment risk is measured and monitored on an ongoing basis.

The following table presents the fair values of the pension plan assets, by valuation hierarchy. For additional information on how we classify these assets within the valuation hierarchy, refer to Note 4 to the Consolidated financial statements.



December 31, 2017	Pension Benefits
(in millions of U.S. dollars)	Level 1		Level 2		Level 3		Total
U.S. Plans:
Short-term investments	$	9	$	52	$	—	$	61
U.S. Treasury and agency	446		79		—		525
Foreign and corporate bonds	—		692		—		692
Equity securities	1,154		—		—		1,154
Total U.S. Plan assets ⁽¹⁾	$	1,609	$	823	$	—	$	2,432
Non-U.S. Plans:
Short-term investments	$	5	$	—	$	—	$	5
Foreign and corporate bonds	—		456		—		456
Equity securities	122		492		—		614
Total Non-U.S. Plan assets⁽¹⁾	$	127	$	948	$	—	$	1,075


⁽¹⁾	Excluded from the table above are $677 million and $95 million of other investments measured using NAV as a practical expedient related to the U.S. Plans and non-U.S. Plans respectively.



December 31, 2016	Pension Benefits
(in millions of U.S. dollars)	Level 1		Level 2		Level 3		Total
U.S. Plans:
Short-term investments	$	—	$	43	$	—	$	43
U.S. Treasury and agency	206		112		—		318
Foreign and corporate bonds	—		482		5		487
Equity securities	728		—		—		728
Derivative instruments	3		—		—		3
Total U.S. Plan assets ⁽¹⁾	$	937	$	637	$	5	$	1,579
Non-U.S. Plans:
Short-term investments	$	2	$	—	$	—	$	2
Foreign and corporate bonds	—		435		—		435
Equity securities	100		412		—		512
Total Non-U.S. Plan assets ⁽¹⁾	$	102	$	847	$	—	$	949


⁽¹⁾	Excluded from the table above are $1.2 billion and $13 million of other investments measured using NAV as a practical expedient related to the U.S. Plans and Non-U.S. Plans, respectively.

We had other postretirement benefit plan assets of $157 million and $159 million at December 31, 2017 and 2016, respectively, all of which are held in equity securities and categorized as Level 1.

Assets classified within Level 3 were nil and $5 million at December 31, 2017 and 2016, respectively, and the change in the balance during the years ended December 31, 2017 and 2016 was insignificant.

Benefit payments were $200 million and $213 million for the years ended December 31, 2017 and 2016, respectively. Expected future payments are as follows:



	Pension
For the years ending December 31	U.S. Plans		Non-U.S. Plans		Other Postretirement Benefits
(in millions of U.S. dollars)	U.S. Plans		Non-U.S. Plans		Other Postretirement Benefits
2018	$	129	$	23	$	17
2019	141		25		19
2020	148		29		20
2021	155		28		23
2022	163		27		25
2023-2027	881		159		44

Defined contribution plans (including 401(k))

Under these plans, employees' contributions may be supplemented by Chubb matching contributions based on the level of employee contribution. These contributions are invested at the election of each employee in one or more of several investment portfolios offered by a third-party investment advisor. Expenses for these plans totaled $166 million, $150 million, and $117 million for the years ended December 31, 2017, 2016, and 2015, respectively.

Other (income) expense

14. Other (income) expense



	Year Ended December 31
(in millions of U.S. dollars)	2017			2016			2015
Equity in net (income) loss of partially-owned entities	$	(418	)	$	(264	)	$	(113	)
(Gains) losses from fair value changes in separate account assets ⁽¹⁾	(97		)	(11		)	19
One-time contribution to the Chubb Charitable Foundation	50			—			—
Federal excise and capital taxes	35			19			19
Other	30			34			24
Other (income) expense	$	(400	)	$	(222	)	$	(51	)

⁽¹⁾Related to (gains) losses from fair value changes in separate account assets that do not qualify for separate account reporting under GAAP.

Other (income) expense includes equity in net (income) loss of partially-owned entities, which includes our share of net (income) loss related to partially-owned investment companies (private equity) and partially-owned insurance companies. Also included in Other (income) expense are (Gains) losses from fair value changes in separate account assets that do not qualify for separate account reporting under GAAP. The offsetting movement in the separate account liabilities is included in Policy benefits in the Consolidated statements of operations. Certain federal excise and capital taxes incurred as a result of capital management initiatives are included in Other (income) expense as these are considered capital transactions and are excluded from underwriting results.

Segment information

Chubb operates through six business segments: North America Commercial P&C Insurance, North America Personal P&C Insurance, North America Agricultural Insurance, Overseas General Insurance, Global Reinsurance, and Life Insurance. These segments distribute their products through various forms of brokers, agencies, and direct marketing programs. All business segments have established relationships with reinsurance intermediaries.

•

The North America Commercial P&C Insurance segment includes the business written by Chubb divisions that provide property and casualty (P&C) insurance and services to large, middle market and small commercial businesses in the U.S., Canada, and Bermuda. This segment includes our retail divisions: Major Accounts, Commercial Insurance, including Small Commercial Insurance; and our wholesale and specialty divisions: Westchester and Chubb Bermuda. These divisions write a variety of coverages, including traditional commercial property, marine, general casualty, workers’ compensation, package policies, and risk management; specialty categories such as professional lines, marine, construction, environmental, medical, cyber risk, and excess casualty; as well as group accident and health (A&H) insurance.

•

The North America Personal P&C Insurance segment includes the business written by Chubb Personal Risk Services division, which comprises Chubb high net worth personal lines business and ACE Private Risk Services, with operations in the U.S. and Canada. This segment provides affluent and high net worth individuals and families with homeowners, automobile and collector cars, valuable articles (including fine arts), personal and excess liability, travel insurance, and recreational marine insurance and services.


•	The North America Agricultural Insurance segment includes the business written by Rain and Hail Insurance Service, Inc. which provides comprehensive multiple peril crop insurance (MPCI) and crop-hail insurance, and Chubb Agribusiness, which offers farm and ranch property as well as specialty P&C coverages, including commercial agriculture products.

•

The Overseas General Insurance segment includes the business written by two Chubb divisions that provide P&C insurance and services in the 51 countries and territories outside of North America where the company operates. Chubb International provides commercial P&C, A&H and traditional and specialty personal lines for large corporations, middle markets and small customers through retail brokers, agents and other channels locally around the world. Chubb Global Markets (CGM) provides commercial P&C excess and surplus lines and A&H through wholesale brokers in the London market and through Lloyd’s. These divisions write a variety of coverages, including traditional commercial P&C, specialty categories such as financial lines, marine, energy, aviation, political risk and construction risk, as well as group A&H and traditional and specialty personal lines.


•	The Global Reinsurance segment primarily includes the reinsurance business written by Chubb Tempest Re. Chubb Tempest Re provides a broad range of traditional and specialty reinsurance coverages to a diverse array of primary P&C companies.


•	The Life Insurance segment includes Chubb's international life operations written by Chubb Life, Chubb Tempest Life Re and the North American supplemental A&H and life business of Combined Insurance.

Corporate primarily includes the results of all run-off asbestos and environmental (A&E) exposures, our run-off Brandywine business, and our Westchester specialty operations for 1996 and prior years, and certain other run-off exposures. In addition, Corporate includes the results of our non-insurance companies including Chubb Limited, Chubb Group Management and Holdings Ltd., and Chubb INA Holdings Inc. Our exposure to A&E claims principally arises out of liabilities acquired when we purchased Westchester Specialty in 1998, CIGNA’s P&C business in 1999, and the Chubb Corp run-off business in 2016.

In addition, revenue and expenses managed at the corporate level, including realized gains and losses, interest expense, the non-operating income of our partially-owned entities, and income taxes are reported within Corporate. Chubb integration expenses and other merger-related expenses (both included in Chubb integration expenses in the Consolidated statements of operations), and the one-time benefit recorded in 2016 related to the harmonization of our U.S. pension plans, are also reported within Corporate. Chubb integration expenses are one-time costs that are directly attributable to the achievement of the annualized savings, including employee severance, third-party consulting fees, and systems integration expenses. Other merger-related expenses are one-time costs directly attributable to the merger, including rebranding, employee retention costs and other professional and legal fees related to the Chubb Corp acquisition. These items will not be allocated to the segment level as they are one-time in nature and are not related to the ongoing business activities of the segment. The Chief Executive Officer does not manage segment results or allocate resources to segments when considering these costs and they are therefore excluded from our definition of segment income. Therefore, segment income will only include underwriting income, net investment income, and other operating income and expense items such as each segment's share of the operating income (loss) related to partially-owned entities and miscellaneous income and expense items for which the segments are held accountable. Segment income also includes amortization of purchased intangibles related to business combination intangible assets acquired by the segment and other purchase accounting related intangible assets, including agency relationships, renewal rights, and client lists. The amortization of intangible assets purchased as part of the Chubb Corp acquisition is considered a Corporate cost as these are incurred by the overall company. We determined that this definition of segment income is appropriate and aligns with how the business is managed. As we progress through the integration and refine our processes as our business continues to evolve, we will evaluate and may further refine our segments and segment income measures.

For segment reporting purposes, certain items are presented in a different manner below than in the consolidated financial statements. Management uses underwriting income as the main measures of segment performance. Chubb calculates underwriting income by subtracting Losses and loss expenses, Policy benefits, Policy acquisition costs, and Administrative expenses from Net premiums earned. To calculate segment income, include Net investment income, Other (income) expense, and Amortization of purchased intangibles. For the North America Agricultural Insurance segment, management includes gains and losses on crop derivatives as a component of underwriting income. For example, for the year ended December 31, 2017, underwriting income in our North America Agricultural Insurance segment was $392 million. This amount includes $7 million of realized losses related to crop derivatives which are reported in Net realized gains (losses) in the Corporate column below.

For the Life Insurance segment, management includes Net investment income and (Gains) losses from fair value changes in separate account assets that do not qualify for separate account reporting under GAAP as components of Life Insurance underwriting income. For example, for the year ended December 31, 2017, Life Insurance underwriting income of $263 million includes Net investment income of $313 million and gains from fair value changes in separate account assets of $97 million. The gains from fair value changes in separate account assets are reported in Other (income) expense in the table below.

The following tables present the Statement of Operations by segment:



For the Year Ended December 31, 2017 (in millions of U.S. dollars)	North America Commercial P&C Insurance		North America Personal P&C Insurance			North America Agricultural Insurance			Overseas General Insurance			Global Reinsurance			Life Insurance			Corporate			Chubb Consolidated
Net premiums written	$	12,028	$	4,533		$	1,516		$	8,341		$	685		$	2,141		$	—		$	29,244
Net premiums earned	12,191		4,399			1,508			8,131			704			2,101			—			29,034
Losses and loss expenses	8,287		3,265			1,036			4,281			561			739			285			18,454
Policy benefits	—		—			—			—			—			676			—			676
Policy acquisition costs	1,873		899			81			2,221			177			530			—			5,781
Administrative expenses	981		264			(8		)	982			44			303			267			2,833
Underwriting income (loss)	1,050		(29		)	399			647			(78		)	(147		)	(552		)	1,290
Net investment income	1,961		226			25			610			273			313			(283		)	3,125
Other (income) expense	1		4			2			(4		)	(1		)	(84		)	(318		)	(400		)
Amortization expense of purchased intangibles	—		16			29			45			—			2			168			260
Segment income (loss)	3,010		177			393			1,216			196			248			(685		)	4,555
Net realized gains (losses) including OTTI																		84			84
Interest expense																		607			607
Chubb integration expenses																		310			310
Income tax benefit																		(139		)	(139		)
Net income (loss)																		$	(1,379	)	$	3,861



For the Year Ended December 31, 2016 (in millions of U.S. dollars)	North America Commercial P&C Insurance			North America Personal P&C Insurance		North America Agricultural Insurance			Overseas General Insurance			Global Reinsurance			Life Insurance			Corporate			Chubb Consolidated
Net premiums written	$	11,740		$	4,153	$	1,328		$	8,124		$	676		$	2,124		$	—		$	28,145
Net premiums earned	12,217			4,319		1,316			8,132			710			2,055			—			28,749
Losses and loss expenses	7,439			2,558		893			4,005			325			663			169			16,052
Policy benefits	—			—		—			—			—			588			—			588
Policy acquisition costs	2,023			966		83			2,136			187			509			—			5,904
Administrative expenses	1,125			363		(6		)	1,057			52			307			183			3,081
Underwriting income (loss)	1,630			432		346			934			146			(12		)	(352		)	3,124
Net investment income	1,860			207		20			600			263			283			(368		)	2,865
Other (income) expense	(2		)	6		1			(11		)	(4		)	5			(217		)	(222		)
Amortization expense (benefit) of purchased intangibles	—			19		29			48			—			3			(80		)	19
Segment income (loss)	3,492			614		336			1,497			413			263			(423		)	6,192
Net realized gains (losses) including OTTI																		(145		)	(145		)
Interest expense																		605			605
Chubb integration expense																		492			492
Income tax expense																		815			815
Net income (loss)																		$	(2,480	)	$	4,135



For the Year Ended December 31, 2015 (in millions of U.S. dollars)	North America Commercial P&C Insurance			North America Personal P&C Insurance		North America Agricultural Insurance		Overseas General Insurance			Global Reinsurance			Life Insurance		Corporate			Chubb Consolidated
Net premiums written	$	5,715		$	1,192	$	1,346	$	6,634		$	828		$	1,998	$	—		$	17,713
Net premiums earned	5,634			948		1,364		6,471			849			1,947		—			17,213
Losses and loss expenses	3,661			590		1,088		3,052			290			601		202			9,484
Policy benefits	—			—		—		—			—			543		—			543
Policy acquisition costs	531			69		69		1,581			214			476		1			2,941
Administrative expenses	621			123		1		997			49			291		188			2,270
Underwriting income (loss)	821			166		206		841			296			36		(391		)	1,975
Net investment income	1,032			25		23		534			300			265		15			2,194
Other (income) expense	(7		)	2		1		(17		)	(6		)	23		(47		)	(51		)
Amortization expense of purchased intangibles	—			78		30		61			—			2		—			171
Segment income (loss)	1,860			111		198		1,331			602			276		(329		)	4,049
Net realized gains (losses) including OTTI																(420		)	(420		)
Interest expense																300			300
Chubb Integration Expense																33			33
Income tax expense																462			462
Net income (loss)																$	(1,544	)	$	2,834

Underwriting assets are reviewed in total by management for purposes of decision-making. Other than Unpaid losses and loss expenses, Reinsurance recoverables, Goodwill and Other intangible assets, Chubb does not allocate assets to its segments.

The following table presents net premiums earned for each segment by line of business:




	For the Year Ended December 31
(in millions of U.S. dollars)	2017		2016		2015
North America Commercial P&C Insurance
Property & other short-tail lines	$	1,899	$	1,963	$	1,040
Casualty & all other	9,554		9,552		4,175
A&H	738		702		419
Total North America Commercial P&C Insurance	12,191		12,217		5,634
North America Personal P&C Insurance
Personal automobile	742		699		186
Personal homeowners	3,014		3,007		579
Personal other	643		613		183
Total North America Personal P&C Insurance	4,399		4,319		948
North America Agricultural Insurance	1,508		1,316		1,364
Overseas General Insurance
Property & other short-tail lines	2,076		2,133		1,833
Casualty & all other	2,266		2,177		1,361
Personal lines	1,609		1,626		1,211
A&H	2,180		2,196		2,066
Total Overseas General Insurance	8,131		8,132		6,471
Global Reinsurance
Property & other short-tail lines	132		118		155
Property catastrophe	198		185		219
Casualty & all other	374		407		475
Total Global Reinsurance	704		710		849
Life Insurance
Life	980		1,002		931
A&H	1,121		1,053		1,016
Total Life Insurance	2,101		2,055		1,947
Total net premiums earned	$	29,034	$	28,749	$	17,213

The following table presents net premiums earned by geographic region. Allocations have been made on the basis of location of risk:



	North America		Europe ⁽¹⁾		Asia Pacific / Far East		Latin America
2017	70	%	11	%	12	%	7	%
2016	70	%	12	%	11	%	7	%
2015	60	%	15	%	15	%	10	%

⁽¹⁾Europe includes Eurasia and Africa region.

Earnings per share



	Year Ended December 31
(in millions of U.S. dollars, except share and per share data)	2017		2016		2015
Numerator:
Net income	$	3,861	$	4,135	$	2,834
Denominator:
Denominator for basic earnings per share:
Weighted-average shares outstanding	467,145,716		462,519,789		325,589,361
Denominator for diluted earnings per share:
Share-based compensation plans	4,051,185		3,429,610		3,246,017
Weighted-average shares outstanding and assumed conversions	471,196,901		465,949,399		328,835,378
Basic earnings per share	$	8.26	$	8.94	$	8.71
Diluted earnings per share	$	8.19	$	8.87	$	8.62
Potential anti-dilutive share conversions	1,776,025		1,206,828		1,601,668

Excluded from weighted-average shares outstanding and assumed conversions is the impact of securities that would have been anti-dilutive during the respective years.

Related party transaction

Related party transactions

Starr Indemnity & Liability Company and its affiliates (collectively, Starr)

We have a number of agency and reinsurance agreements with Starr, the Chairman of which is related to a member of our senior management team. A number of these agreements pre-dated our acquisition of Chubb Corp; however, in connection with our acquisition of Chubb Corp on January 14, 2016, we obtained Chubb Corp’s pre-existing business with Starr, which included agency agreements and agreements in which Chubb Corp was a reinsurer to Starr. Our Board has reviewed and approved our arrangements with Starr.

We have agency, claims services and underwriting services agreements with various Starr subsidiaries. Under the agency agreements, we secure the ability to sell our insurance policies through Starr as one of our non-exclusive agents for writing policies, contracts, binders, or agreements of insurance or reinsurance. Under the claims services agreements, Starr adjusts the claims under policies and arranges for third party treaty and facultative agreements covering such policies. Under the underwriting services agreements, Starr underwrites insurance policies on our behalf and we agree to reinsure such policies to Starr under one or more quota reinsurance agreements.

Transactions generated under these agreements were as follows:



	Year Ended December 31
(in millions of U.S. dollars)	2017		2016		2015
Gross premiums written	$	464	$	658	$	305
Ceded premiums written	$	175	$	208	$	78
Commissions paid	$	101	$	145	$	60
Commissions received	$	37	$	56	$	19
Losses and loss expenses incurred	$	438	$	313	$	137

Certain agency agreements also contain a profit-sharing arrangement based on loss ratios, triggered if Starr underwrites a minimum of $20 million of annual program business net written premiums on our behalf. No profit share commission has been payable yet under this arrangement. Another agency agreement contains a profit-sharing arrangement based on the earned premiums for the business underwritten by Starr (excluding workers’ compensation) and the reinsurance recoveries associated with excess of loss reinsurance agreements placed by Starr for the business underwritten. No profit share commission under this arrangement has been payable yet.

Reinsurance recoverable on losses and loss expenses due from Starr was $557 million and $412 million as of December 31, 2017 and 2016, respectively, and the amount of ceded reinsurance premium payable included in Insurance and reinsurance balances payable in the consolidated balance sheet was $44 million and $72 million, respectively.

ABR Re

We own 11.3 percent of the common equity of ABR Reinsurance Capital Holdings Ltd. and warrants to acquire 0.5 percent of additional equity. ABR Reinsurance Capital Holdings Ltd., is the parent company of ABR Reinsurance Ltd. (ABR Re), an independent reinsurance company. Through long-term arrangements, Chubb will be the sole source of reinsurance risks ceded to ABR Re, and BlackRock, Inc. will be ABR Re’s exclusive investment management service provider. As an investor, Chubb is expected to benefit from underwriting profit generated by ABR Re’s reinsuring a wide range of Chubb’s primary insurance business and the income and capital appreciation BlackRock, Inc. seeks to deliver through its investment management services. In addition, Chubb has entered into an arrangement with BlackRock, Inc. under which both Chubb and BlackRock, Inc. will be entitled to an equal share of the aggregate amount of certain fees, including underwriting and investment management performance related fees, in connection with their respective reinsurance and investment management arrangements with ABR Re.

ABR Re is a variable interest entity; however, Chubb is not the primary beneficiary and does not consolidate ABR Re because Chubb does not have the power to control and direct ABR Re’s most significant activities, including investing and underwriting. Our minority ownership interest is accounted for under the equity method of accounting. Chubb cedes premiums to ABR Re and recognizes the associated commissions. At December 31, 2017 and 2016, Chubb ceded reinsurance premiums of $342 million and $288 million, respectively, and recognized ceded commissions of $94 million and $66 million, respectively. At December 31, 2017 and 2016, the amount of Reinsurance recoverable on losses and loss expenses was $365 million and $148 million, respectively, and the amount of ceded reinsurance premium payable included in Insurance and reinsurance balances payable in our Consolidated balance sheets was $51 million and $53 million, respectively.

Statutory Financial Information

Statutory financial information

Our subsidiaries file financial statements prepared in accordance with statutory accounting practices prescribed or permitted by insurance regulators. Statutory accounting differs from GAAP in the reporting of certain reinsurance contracts, investments, subsidiaries, acquisition expenses, fixed assets, deferred income taxes, and certain other items. Some jurisdictions impose complex regulatory requirements on insurance companies while other jurisdictions impose fewer requirements. In some jurisdictions, we must obtain licenses issued by governmental authorities to conduct local insurance business. These licenses may be subject to reserves and minimum capital and solvency tests. Jurisdictions may impose fines, censure, and/or criminal sanctions for violation of regulatory requirements. The 2017 amounts below are based on estimates.

Chubb's insurance and reinsurance subsidiaries are subject to insurance laws and regulations in the jurisdictions in which they operate. These regulations include restrictions that limit the amount of dividends or other distributions, such as loans or cash advances, available to shareholders without prior approval of the local insurance regulatory authorities. The amount of dividends available to be paid in 2018 without prior approval totals $5.8 billion.

The statutory capital and surplus of our insurance subsidiaries met regulatory requirements for 2017, 2016, and 2015. The minimum amounts of statutory capital and surplus necessary to satisfy regulatory requirements was $23.9 billion and $22.2 billion for December 31, 2017 and 2016, respectively. These minimum regulatory capital requirements were significantly lower than the corresponding amounts required by the rating agencies which review Chubb’s insurance and reinsurance subsidiaries.

The following tables present the combined statutory capital and surplus and statutory net income (loss) of our Property and casualty and Life subsidiaries:



	December 31
(in millions of U.S. dollars)	2017		2016
Statutory capital and surplus
Property and casualty	$	40,498	$	38,734
Life	$	1,507	$	1,225



	Year Ended December 31
(in millions of U.S. dollars)	2017		2016		2015
Statutory net income (loss)
Property and casualty	$	8,123	$	6,903	$	2,712
Life	$	74	$	55	$	(148	)

Several insurance subsidiaries follow accounting practices prescribed or permitted by the jurisdiction of domicile that differ from the applicable local statutory practice. The application of prescribed or permitted accounting practices does not have a material impact on Chubb's statutory surplus and income. As prescribed by the Restructuring discussed previously in Note 7, certain of our U.S. subsidiaries discount certain A&E liabilities, which increased statutory capital and surplus by approximately $169 million and $155 million at December 31, 2017 and 2016, respectively.

Federal Insurance Company (Federal), a direct subsidiary of Chubb INA Holdings Inc., has a permitted practice granted by the Indiana Department of Insurance that relates to its investments in foreign subsidiaries and affiliates. Under Statement of Statutory Accounting Principles No. 97, Investments in Subsidiary, Controlled and Affiliated Entities, A Replacement of SSAP No. 88, in order for a reporting entity to admit its investments in foreign subsidiaries and affiliates, audited financial statements of the subsidiary or affiliate must be obtained to support the carrying value. Such financial statements must be prepared in accordance with U.S. GAAP, or alternatively, in accordance with the local statutory requirements in the subsidiary’s or affiliate’s country of domicile, with an audited footnote reconciliation of net income and shareholder’s equity as reported to a U.S. GAAP basis. With the explicit permission of the Indiana Department of Insurance, Federal obtains audited financial statements for its admitted foreign subsidiaries and affiliates, which had an aggregate carrying value of $156 million and $308 million at December 31, 2017 and 2016, respectively, prepared in accordance with their respective local statutory requirements and supplemented with a separate unaudited reconciliation of shareholder’s equity as reported to a U.S. GAAP basis.

Information provided in connection with outstanding debt of subsidiaries

The following tables present condensed consolidating financial information at December 31, 2017 and December 31, 2016, and for the years ended December 31, 2017, 2016, and 2015 for Chubb Limited (Parent Guarantor) and Chubb INA Holdings Inc. (Subsidiary Issuer). The Subsidiary Issuer is an indirect 100 percent-owned subsidiary of the Parent Guarantor. The Parent Guarantor fully and unconditionally guarantees certain of the debt of the Subsidiary Issuer. Condensed consolidating financial information of the Parent Guarantor and Subsidiary Issuer are presented on the equity method of accounting. The revenues and expenses and cash flows of the subsidiaries of the Subsidiary Issuer are presented in the Other Chubb Limited Subsidiaries column on a combined basis.

Condensed Consolidating Balance Sheet at December 31, 2017



(in millions of U.S. dollars)	Chubb Limited (Parent Guarantor)		Chubb INA Holdings Inc. (Subsidiary Issuer)		Other Chubb Limited Subsidiaries		Consolidating Adjustments and Eliminations			Chubb Limited Consolidated
Assets
Investments	$	—	$	168	$	102,276	$	—		$	102,444
Cash⁽¹⁾	3		1		839		(115		)	728
Insurance and reinsurance balances receivable	—		—		10,820		(1,486		)	9,334
Reinsurance recoverable on losses and loss expenses	—		—		27,514		(12,480		)	15,034
Reinsurance recoverable on policy benefits	—		—		1,194		(1,010		)	184
Value of business acquired	—		—		326		—			326
Goodwill and other intangible assets	—		—		22,054		—			22,054
Investments in subsidiaries	41,909		51,165		—		(93,074		)	—
Due from subsidiaries and affiliates, net	9,639		—		—		(9,639		)	—
Other assets	3		287		20,701		(4,073		)	16,918
Total assets	$	51,554	$	51,621	$	185,724	$	(121,877	)	$	167,022
Liabilities
Unpaid losses and loss expenses	$	—	$	—	$	74,767	$	(11,588	)	$	63,179
Unearned premiums	—		—		18,875		(3,659		)	15,216
Future policy benefits	—		—		6,331		(1,010		)	5,321
Due to subsidiaries and affiliates, net	—		9,432		207		(9,639		)	—
Affiliated notional cash pooling programs⁽¹⁾	—		115		—		(115		)	—
Repurchase agreements	—		—		1,408		—			1,408
Short-term debt	—		1,013		—		—			1,013
Long-term debt	—		11,546		10		—			11,556
Trust preferred securities	—		308		—		—			308
Other liabilities	382		1,411		18,848		(2,792		)	17,849
Total liabilities	382		23,825		120,446		(28,803		)	115,850
Total shareholders’ equity	51,172		27,796		65,278		(93,074		)	51,172
Total liabilities and shareholders’ equity	$	51,554	$	51,621	$	185,724	$	(121,877	)	$	167,022

⁽¹⁾Chubb maintains two notional multicurrency cash pools (Pools) with a third-party bank. Refer to Note 1 f) for additional information. At December 31, 2017, the cash balance of one or more entities was negative; however, the overall Pool balances were positive.

Condensed Consolidating Balance Sheet at December 31, 2016



(in millions of U.S. dollars)	Chubb Limited (Parent Guarantor)		Chubb INA Holdings Inc. (Subsidiary Issuer)		Other Chubb Limited Subsidiaries		Consolidating Adjustments and Eliminations			Chubb Limited Consolidated
Assets
Investments	$	27	$	485	$	98,582	$	—		$	99,094
Cash⁽¹⁾	1		1		1,965		(982		)	985
Insurance and reinsurance balances receivable	—		—		10,498		(1,528		)	8,970
Reinsurance recoverable on losses and loss expenses	—		—		24,496		(10,919		)	13,577
Reinsurance recoverable on policy benefits	—		—		1,153		(971		)	182
Value of business acquired	—		—		355		—			355
Goodwill and other intangible assets	—		—		22,095		—			22,095
Investments in subsidiaries	38,408		49,509		—		(87,917		)	—
Due from subsidiaries and affiliates, net	10,482		—		—		(10,482		)	—
Other assets	3		436		18,442		(4,353		)	14,528
Total assets	$	48,921	$	50,431	$	177,586	$	(117,152	)	$	159,786
Liabilities
Unpaid losses and loss expenses	$	—	$	—	$	70,683	$	(10,143	)	$	60,540
Unearned premiums	—		—		18,538		(3,759		)	14,779
Future policy benefits	—		—		6,007		(971		)	5,036
Due to subsidiaries and affiliates, net	—		10,209		273		(10,482		)	—
Affiliated notional cash pooling programs⁽¹⁾	363		619		—		(982		)	—
Repurchase agreements	—		—		1,403		—			1,403
Short-term debt	—		500		—		—			500
Long-term debt	—		12,599		11		—			12,610
Trust preferred securities	—		308		—		—			308
Other liabilities	283		1,582		17,368		(2,898		)	16,335
Total liabilities	646		25,817		114,283		(29,235		)	111,511
Total shareholders’ equity	48,275		24,614		63,303		(87,917		)	48,275
Total liabilities and shareholders’ equity	$	48,921	$	50,431	$	177,586	$	(117,152	)	$	159,786


⁽¹⁾	Chubb maintains two notional multicurrency cash pools (Pools) with a third-party bank. Refer to Note 1 f) for additional information. At December 31, 2016, the cash balance of one or more entities was negative; however, the overall Pool balances were positive.

Condensed Consolidating Statements of Operations and Comprehensive Income



For the Year Ended December 31, 2017	Chubb Limited (Parent Guarantor)			Chubb INA Holdings Inc. (Subsidiary Issuer)			Other Chubb Limited Subsidiaries			Consolidating Adjustments and Eliminations			Chubb Limited Consolidated
(in millions of U.S. dollars)	Chubb Limited (Parent Guarantor)			Chubb INA Holdings Inc. (Subsidiary Issuer)			Other Chubb Limited Subsidiaries			Consolidating Adjustments and Eliminations			Chubb Limited Consolidated
Net premiums written	$	—		$	—		$	29,244		$	—		$	29,244
Net premiums earned	—			—			29,034			—			29,034
Net investment income	4			14			3,107			—			3,125
Equity in earnings of subsidiaries	3,640			2,424			—			(6,064		)	—
Net realized gains (losses) including OTTI	—			(25		)	109			—			84
Losses and loss expenses	—			—			18,454			—			18,454
Policy benefits	—			—			676			—			676
Policy acquisition costs and administrative expenses	75			40			8,499			—			8,614
Interest (income) expense	(332		)	847			92			—			607
Other (income) expense	(12		)	93			(481		)	—			(400		)
Amortization of purchased intangibles	—			—			260			—			260
Chubb integration expenses	32			69			209			—			310
Income tax expense (benefit)	20			(742		)	583			—			(139		)
Net income	$	3,861		$	2,106		$	3,958		$	(6,064	)	$	3,861
Comprehensive income	$	4,718		$	3,075		$	4,430		$	(7,505	)	$	4,718

Condensed Consolidating Statements of Operations and Comprehensive Income



For the Year Ended December 31, 2016	Chubb Limited (Parent Guarantor)			Chubb INA Holdings Inc. (Subsidiary Issuer)			Other Chubb Limited Subsidiaries			Consolidating Adjustments and Eliminations			Chubb Limited Consolidated
(in millions of U.S. dollars)	Chubb Limited (Parent Guarantor)			Chubb INA Holdings Inc. (Subsidiary Issuer)			Other Chubb Limited Subsidiaries			Consolidating Adjustments and Eliminations			Chubb Limited Consolidated
Net premiums written	$	—		$	—		$	28,145		$	—		$	28,145
Net premiums earned	—			—			28,749			—			28,749
Net investment income	3			11			2,851			—			2,865
Equity in earnings of subsidiaries	3,901			2,555			—			(6,456		)	—
Net realized gains (losses) including OTTI	—			3			(148		)	—			(145		)
Losses and loss expenses	—			—			16,052			—			16,052
Policy benefits	—			—			588			—			588
Policy acquisition costs and administrative expenses	64			82			8,839			—			8,985
Interest (income) expense	(353		)	908			50			—			605
Other (income) expense	(25		)	35			(232		)	—			(222		)
Amortization of purchased intangibles	—			—			19			—			19
Chubb integration expenses	62			126			304			—			492
Income tax expense (benefit)	21			(416		)	1,210			—			815
Net income	$	4,135		$	1,834		$	4,622		$	(6,456	)	$	4,135
Comprehensive income	$	4,556		$	2,001		$	5,045		$	(7,046	)	$	4,556

Condensed Consolidating Statements of Operations and Comprehensive Income (Loss)



For the Year Ended December 31, 2015	Chubb Limited (Parent Guarantor)			Chubb INA Holdings Inc. (Subsidiary Issuer)			Other Chubb Limited Subsidiaries			Consolidating Adjustments and Eliminations			Chubb Limited Consolidated
(in millions of U.S. dollars)	Chubb Limited (Parent Guarantor)			Chubb INA Holdings Inc. (Subsidiary Issuer)			Other Chubb Limited Subsidiaries			Consolidating Adjustments and Eliminations			Chubb Limited Consolidated
Net premiums written	$	—		$	—		$	17,713		$	—		$	17,713
Net premiums earned	—			—			17,213			—			17,213
Net investment income	3			4			2,187			—			2,194
Equity in earnings of subsidiaries	2,673			1,038			—			(3,711		)	—
Net realized gains (losses) including OTTI	—			(9		)	(411		)	—			(420		)
Losses and loss expenses	—			—			9,484			—			9,484
Policy benefits	—			—			543			—			543
Policy acquisition costs and administrative expenses	63			28			5,120			—			5,211
Interest (income) expense	(32		)	302			30			—			300
Other (income) expense	(208		)	(4		)	161			—			(51		)
Amortization of purchased intangibles	—			—			171			—			171
Chubb Integration Expense	3			29			1			—			33
Income tax expense (benefit)	16			(349		)	795			—			462
Net income	$	2,834		$	1,027		$	2,684		$	(3,711	)	$	2,834
Comprehensive income (loss)	$	908		$	(192	)	$	757		$	(565	)	$	908

Condensed Consolidating Statement of Cash Flows



For the Year Ended December 31, 2017	Chubb Limited (Parent Guarantor)			Chubb INA Holdings Inc. (Subsidiary Issuer)			Other Chubb Limited Subsidiaries			Consolidating Adjustments and Eliminations			Chubb Limited Consolidated
(in millions of U.S. dollars)
Net cash flows from operating activities	$	781		$	1,648		$	4,598		$	(2,524	)	$	4,503
Cash flows from investing activities
Purchases of fixed maturities available for sale	—			(9		)	(25,738		)	—			(25,747		)
Purchases of fixed maturities held to maturity	—			—			(352		)	—			(352		)
Purchases of equity securities	—			—			(173		)	—			(173		)
Sales of fixed maturities available for sale	—			99			13,156			—			13,255
Sales of equity securities	—			—			187			—			187
Maturities and redemptions of fixed maturities available for sale	—			29			10,396			—			10,425
Maturities and redemptions of fixed maturities held to maturity	—			—			879			—			879
Net change in short-term investments	—			189			(726		)	—			(537		)
Net derivative instruments settlements	—			(15		)	(250		)	—			(265		)
Other	—			(10		)	(104		)	—			(114		)
Net cash flows (used for) from investing activities	—			283			(2,725		)	—			(2,442		)
Cash flows from financing activities
Dividends paid on Common Shares	(1,308		)	—			—			—			(1,308		)
Common Shares repurchased	—			—			(801		)	—			(801		)
Proceeds from issuance of repurchase agreements	—			—			2,353			—			2,353
Repayment of long-term debt	—			(500		)	(1		)	—			(501		)
Repayment of repurchase agreements	—			—			(2,348		)	—			(2,348		)
Proceeds from share-based compensation plans	—			—			151			—			151
Advances (to) from affiliates	892			(927		)	35			—			—
Dividends to parent company	—			—			(2,524		)	2,524			—
Net payments to affiliated notional cash pooling programs⁽¹⁾	(363		)	(504		)	—			867			—
Policyholder contract deposits	—			—			442			—			442
Policyholder contract withdrawals	—			—			(307		)	—			(307		)
Net cash flows used for financing activities	(779		)	(1,931		)	(3,000		)	3,391			(2,319		)
Effect of foreign currency rate changes on cash and cash equivalents	—			—			1			—			1
Net increase (decrease) in cash	2			—			(1,126		)	867			(257		)
Cash – beginning of year⁽¹⁾	1			1			1,965			(982		)	985
Cash – end of year⁽¹⁾	$	3		$	1		$	839		$	(115	)	$	728


⁽¹⁾	Chubb maintains two notional multi-currency cash pools (Pools) with a third-party bank. Refer to Note 1 f) for additional information. At December 31, 2017 and 2016, the cash balance of one or more entities was negative; however, the overall Pool balances were positive.

Condensed Consolidating Statement of Cash Flows



For the Year Ended December 31, 2016	Chubb Limited (Parent Guarantor)			Chubb INA Holdings Inc. (Subsidiary Issuer)			Other Chubb Limited Subsidiaries			Consolidating Adjustments and Eliminations			Chubb Limited Consolidated
(in millions of U.S. dollars)
Net cash flows from operating activities	$	3,618		$	4,305		$	5,536		$	(8,167	)	$	5,292
Cash flows from investing activities
Purchases of fixed maturities available for sale	—			(156		)	(30,659		)	—			(30,815		)
Purchases of fixed maturities held to maturity	—			—			(282		)	—			(282		)
Purchases of equity securities	—			—			(146		)	—			(146		)
Sales of fixed maturities available for sale	—			66			16,611			—			16,677
Sales of equity securities	—			—			1,000			—			1,000
Maturities and redemptions of fixed maturities available for sale	—			66			9,283			—			9,349
Maturities and redemptions of fixed maturities held to maturity	—			—			958			—			958
Net change in short-term investments	—			7,943			4,407			—			12,350
Net derivative instruments settlements	—			(9		)	(159		)	—			(168		)
Acquisition of subsidiaries (net of cash acquired of $71)	—			(14,282		)	34			—			(14,248		)
Capital contribution	(2,330		)	(215		)	(2,330		)	4,875			—
Other	—			(3		)	13			—			10
Net cash flows used for investing activities	(2,330		)	(6,590		)	(1,270		)	4,875			(5,315		)
Cash flows from financing activities
Dividends paid on Common Shares	(1,173		)	—			—			—			(1,173		)
Proceeds from issuance of repurchase agreements	—			—			2,310			—			2,310
Repayment of repurchase agreements	—			—			(2,311		)	—			(2,311		)
Proceeds from share-based compensation plans	—			—			167			—			167
Advances (to) from affiliates	404			(572		)	168			—			—
Dividends to parent company	—			—			(8,167		)	8,167			—
Capital contribution	—			2,330			2,545			(4,875		)	—
Net proceeds from (payments to) affiliated notional cash pooling programs⁽¹⁾	(519		)	530			—			(11		)	—
Policyholder contract deposits	—			—			522			—			522
Policyholder contract withdrawals	—			—			(253		)	—			(253		)
Other	—			(4		)	—			—			(4		)
Net cash flows (used for) from financing activities	(1,288		)	2,284			(5,019		)	3,281			(742		)
Effect of foreign currency rate changes on cash and cash equivalents	—			—			(25		)	—			(25		)
Net decrease in cash	—			(1		)	(778		)	(11		)	(790		)
Cash – beginning of year⁽¹⁾	1			2			2,743			(971		)	1,775
Cash – end of year⁽¹⁾	$	1		$	1		$	1,965		$	(982	)	$	985


⁽¹⁾	Chubb maintains two notional multi-currency cash pools (Pools) with a third-party bank. Refer to Note 1 f) for additional information. At December 31, 2016 and 2015, the cash balance of one or more entities was negative; however, the overall Pool balances were positive.

Condensed Consolidating Statement of Cash Flows



For the Year Ended December 31, 2015	Chubb Limited (Parent Guarantor)			Chubb INA Holdings Inc. (Subsidiary Issuer)			Other Chubb Limited Subsidiaries			Consolidating Adjustments and Eliminations			Chubb Limited Consolidated
(in millions of U.S. dollars)
Net cash flows from operating activities	$	3,125		$	682		$	3,836		$	(3,779	)	$	3,864
Cash flows from investing activities
Purchases of fixed maturities available for sale	—			—			(16,053		)	(18		)	(16,071		)
Purchases of fixed maturities held to maturity	—			—			(62		)	—			(62		)
Purchases of equity securities	—			—			(158		)	—			(158		)
Sales of fixed maturities available for sale	—			—			10,814			—			10,814
Sales of equity securities	—			—			183			—			183
Maturities and redemptions of fixed maturities available for sale	—			—			6,567			—			6,567
Maturities and redemptions of fixed maturities held to maturity	—			—			669			—			669
Net change in short-term investments	—			(7,588		)	(628		)	—			(8,216		)
Net derivative instruments settlements	—			(9		)	(12		)	—			(21		)
Acquisition of subsidiaries (net of cash acquired of $629)	—			—			264			—			264
Capital contribution	(2,670		)	(625		)	(2,791		)	6,086			—
Other	—			(25		)	(256		)	18			(263		)
Net cash flows used for investing activities	(2,670		)	(8,247		)	(1,463		)	6,086			(6,294		)
Cash flows from financing activities
Dividends paid on Common Shares	(862		)	—			—			—			(862		)
Common Shares repurchased	—			—			(758		)	—			(758		)
Proceeds from issuance of long-term debt	—			6,090			—			—			6,090
Proceeds from issuance of repurchase agreements	—			—			2,029			—			2,029
Repayment of long-term debt	—			(1,150		)	—			—			(1,150		)
Repayment of repurchase agreements	—			—			(2,027		)	—			(2,027		)
Proceeds from share-based compensation plans	—			—			131			—			131
Advances (to) from affiliates	(228		)	95			133			—			—
Dividends to parent company	—			—			(3,779		)	3,779			—
Capital contribution	—			2,791			3,295			(6,086		)	—
Net proceeds from (payments to) affiliated notional cash pooling programs⁽¹⁾	636			(220		)	—			(416		)	—
Policyholder contract deposits	—			—			503			—			503
Policyholder contract withdrawals	—			—			(221		)	—			(221		)
Other	—			(40		)	—			—			(40		)
Net cash flows (used for) from financing activities	(454		)	7,566			(694		)	(2,723		)	3,695
Effect of foreign currency rate changes on cash and cash equivalents	—			—			(145		)	—			(145		)
Net increase in cash	1			1			1,534			(416		)	1,120
Cash – beginning of year⁽¹⁾	—			1			1,209			(555		)	655
Cash – end of year⁽¹⁾	$	1		$	2		$	2,743		$	(971	)	$	1,775


⁽¹⁾	Chubb maintains two notional multi-currency cash pools (Pools) with a third-party bank. Refer to Note 1 f) for additional information. At December 31, 2015 and 2014, the cash balance of one or more entities was negative; however, the overall Pool balances were positive.

Condensed Unaudited Quarterly Financial Data

Condensed unaudited quarterly financial data



	Three Months Ended
	March 31			June 30		September 30			December 31
(in millions of U.S. dollars, except per share data)	2017			2017		2017			2017
Net premiums earned	$	6,772		$	7,237	$	7,807		$	7,218
Net investment income	745			770		813			797
Net realized gains (losses) including OTTI	(7		)	101		(10		)	—
Total revenues	$	7,510		$	8,108	$	8,610		$	8,015
Losses and loss expenses	$	3,789		$	4,146	$	6,247		$	4,272
Policy benefits	$	168		$	163	$	169		$	176
Net income (loss)	$	1,093		$	1,305	$	(70	)	$	1,533
Basic earnings (loss) per share	$	2.33		$	2.79	$	(0.15	)	$	3.29
Diluted earnings (loss) per share	$	2.31		$	2.77	$	(0.15	)	$	3.27

Net income for the three months ended September 30, 2017 included after-tax catastrophe losses of $1.5 billion. Net income for the three months ended December 31, 2017 included a one-time income tax transition benefit of $450 million related to the 2017 Tax Act. Refer to Note 8 for additional information.



	Three Months Ended
	March 31			June 30			September 30		December 31
(in millions of U.S. dollars, except per share data)	2016			2016			2016		2016
Net premiums earned	$	6,597		$	7,405		$	7,688	$	7,059
Net investment income	674			708			739		744
Net realized gains (losses) including OTTI	(394		)	(216		)	100		365
Total revenues	$	6,877		$	7,897		$	8,527	$	8,168
Losses and loss expenses	$	3,674		$	4,254		$	4,269	$	3,855
Policy benefits	$	126		$	146		$	155	$	161
Net income	$	439		$	726		$	1,360	$	1,610
Basic earnings per share	$	0.98		$	1.55		$	2.90	$	3.44
Diluted earnings per share	$	0.97		$	1.54		$	2.88	$	3.41

Schedule I

Schedule I: SUMMARY OF INVESTEMENTS - OTHER THAN INVESTMENTS IN RELATED PARTIES

SUMMARY OF INVESTMENTS – OTHER THAN INVESTMENTS IN RELATED PARTIES



December 31, 2017 (in millions of U.S. dollars)	Cost or Amortized Cost		Fair Value		Amount at Which Shown in the Balance Sheet
Fixed maturities available for sale
U.S. Treasury and agency	$	3,701	$	3,698	$	3,698
Foreign	20,514		21,030		21,030
Corporate securities	23,453		23,996		23,996
Mortgage-backed securities	15,279		15,290		15,290
States, municipalities, and political subdivisions	14,888		14,925		14,925
Total fixed maturities available for sale	77,835		78,939		78,939
Fixed maturities held to maturity
U.S. Treasury and agency	908		915		908
Foreign	1,738		1,757		1,738
Corporate securities	3,159		3,219		3,159
Mortgage-backed securities	2,724		2,742		2,724
States, municipalities, and political subdivisions	5,806		5,841		5,806
Total fixed maturities held to maturity	14,335		14,474		14,335
Equity securities
Industrial, miscellaneous, and all other	737		937		937
Short-term investments	3,561		3,561		3,561
Other investments ⁽¹⁾	4,331		4,586		4,586
Total investments - other than investments in related parties	$	100,799	$	102,497	$	102,358

⁽¹⁾ Excludes $86 million of related party investments.

Schedule II

Schedule II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT

CONDENSED FINANCIAL INFORMATION OF REGISTRANT

BALANCE SHEETS (Parent Company Only)



	December 31			December 31
(in millions of U.S. dollars)	2017			2016
Assets
Investments in subsidiaries and affiliates on equity basis	$	41,909		$	38,408
Short-term investments	—			2
Other investments, at cost	—			25
Total investments	41,909			38,435
Cash	3			1
Due from subsidiaries and affiliates, net	9,639			10,482
Other assets	3			3
Total assets	$	51,554		$	48,921
Liabilities
Affiliated notional cash pooling programs⁽¹⁾	$	—		$	363
Accounts payable, accrued expenses, and other liabilities	382			283
Total liabilities	382			646
Shareholders' equity
Common Shares	11,121			11,121
Common Shares in treasury	(1,944		)	(1,480		)
Additional paid-in capital	13,978			15,335
Retained earnings	27,474			23,613
Accumulated other comprehensive income (loss)	543			(314		)
Total shareholders' equity	51,172			48,275
Total liabilities and shareholders' equity	$	51,554		$	48,921

⁽¹⁾ Chubb maintains two notional multicurrency cash pools (Pools) with a third-party bank. Refer to Note 1 f) for additional information.
The condensed financial information should be read in conjunction with the consolidated financial statements and notes thereto.

CONDENSED FINANCIAL INFORMATION OF REGISTRANT

STATEMENTS OF OPERATIONS (Parent Company Only)



	Year Ended December 31
(in millions of U.S. dollars)	2017		2016		2015
Revenues
Investment income, including interest income	$	336	$	356	$	35
Equity in net income of subsidiaries and affiliates	3,640		3,901		2,673
	3,976		4,257		2,708
Expenses
Administrative and other (income) expense	63		39		(145		)
Chubb integration expenses	32		62		3
Income tax expense	20		21		16
	115		122		(126		)
Net income	$	3,861	$	4,135	$	2,834
Comprehensive income	$	4,718	$	4,556	$	908

The condensed financial information should be read in conjunction with the consolidated financial statements and notes thereto.

CONDENSED FINANCIAL INFORMATION OF REGISTRANT

STATEMENTS OF CASH FLOWS (Parent Company Only)



	Year Ended December 31
(in millions of U.S. dollars)	2017			2016			2015
Net cash flows from operating activities⁽¹⁾	$	781		$	3,618		$	3,125
Cash flows from investing activities
Capital contribution	—			(2,330		)	(2,670		)
Net cash flows used for investing activities	—			(2,330		)	(2,670		)
Cash flows from financing activities
Dividends paid on Common Shares	(1,308		)	(1,173		)	(862		)
Advances (to) from affiliates	892			404			(228		)
Net proceeds from (payments to) affiliated notional cash pooling programs⁽²⁾	(363		)	(519		)	636
Net cash flows used for financing activities	(779		)	(1,288		)	(454		)
Net increase in cash	2			—			1
Cash – beginning of year	1			1			—
Cash – end of year	$	3		$	1		$	1

⁽¹⁾ Includes cash dividends received from subsidiaries of $450 million, $3.4 billion, and $2.9 billion in 2017, 2016, and 2015, respectively.

⁽²⁾Chubb maintains two notional multicurrency cash pools (Pools) with a third-party bank. Refer to Note 1 f) for additional information.

The condensed financial information should be read in conjunction with the consolidated financial statements and notes thereto.

Schedule IV

SUPPLEMENTAL INFORMATION CONCERNING REINSURANCE



Premiums Earned
For the years ended December 31, 2017, 2016, and 2015 (in millions of U.S. dollars, except for percentages)	Direct Amount		Ceded To Other Companies		Assumed From Other Companies		Net Amount		Percentage of Amount Assumed to Net
2017
Property and Casualty	$	27,774	$	6,650	$	2,891	$	24,015	12	%
Accident and Health	4,167		349		221		4,039		5	%
Life	841		81		220		980		22	%
Total	$	32,782	$	7,080	$	3,332	$	29,034	11	%
2016
Property and Casualty	$	26,919	$	6,407	$	3,284	$	23,796	14	%
Accident and Health	4,047		315		219		3,951		6	%
Life	845		84		241		1,002		24	%
Total	$	31,811	$	6,806	$	3,744	$	28,749	13	%
2015
Property and Casualty	$	14,895	$	5,373	$	3,259	$	12,781	25	%
Accident and Health	3,684		351		168		3,501		5	%
Life	776		94		249		931		27	%
Total	$	19,355	$	5,818	$	3,676	$	17,213	21	%

Schedule VI

SUPPLEMENTARY INFORMATION CONCERNING PROPERTY AND CASUALTY OPERATIONS



As of and for the years ended December 31, 2017, 2016, and 2015 (in millions of U.S. dollars)
	Deferred Policy Acquisition Costs		Net Reserves for Unpaid Losses and Loss Expenses		Unearned Premiums		Net Premiums Earned		Net Investment Income		Net Losses and Loss Expenses Incurred Related to						Amortization of Deferred Policy Acquisition Costs		Net Paid Losses and Loss Expenses		Net Premiums Written
	Deferred Policy Acquisition Costs		Net Reserves for Unpaid Losses and Loss Expenses		Unearned Premiums		Net Premiums Earned		Net Investment Income			Current Year		Prior Year			Amortization of Deferred Policy Acquisition Costs		Net Paid Losses and Loss Expenses		Net Premiums Written
2017	$	3,805	$	49,165	$	15,216	$	28,054	$	2,890		$	19,391	$	(937	)	$	5,519	$	17,448	$	28,225
2016	$	3,537	$	47,832	$	14,779	$	27,747	$	2,656		$	17,256	$	(1,204	)	$	5,654	$	15,715	$	27,074
2015	$	2,219	$	26,562	$	8,439	$	16,282	$	2,007		$	10,030	$	(546	)	$	2,692	$	9,665	$	16,734

Summary of significant accounting policies (Policies)

Basis of presentation

Chubb Limited is a holding company incorporated in Zurich, Switzerland. Chubb Limited, through its subsidiaries, provides a broad range of insurance and reinsurance products to insureds worldwide. Our results are reported through the following business segments: North America Commercial P&C Insurance, North America Personal P&C Insurance, North America Agricultural Insurance, Overseas General Insurance, Global Reinsurance, and Life Insurance. Refer to Note 15 for additional information.

The accompanying consolidated financial statements, which include the accounts of Chubb Limited and its subsidiaries (collectively, Chubb, we, us, or our), have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) and, in the opinion of management, reflect all adjustments (consisting of normally recurring accruals) necessary for a fair statement of the results and financial position for such periods. All significant intercompany accounts and transactions, including internal reinsurance transactions, have been eliminated.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Amounts included in the Consolidated financial statements reflect our best estimates and assumptions; actual amounts could differ materially from these estimates. Chubb's principal estimates include:


•	unpaid loss and loss expense reserves, including long-tail asbestos and environmental (A&E) reserves;


•	future policy benefits reserves;


•	the valuation of value of business acquired (VOBA) and amortization of deferred policy acquisition costs and VOBA;


•	reinsurance recoverable, including a provision for uncollectible reinsurance;


•	the assessment of risk transfer for certain structured insurance and reinsurance contracts;


•	the valuation of the investment portfolio and assessment of OTTI;


•	the valuation of deferred tax assets;


•	the valuation of derivative instruments related to guaranteed living benefits (GLB);


•	the valuation and amortization of purchased intangibles; and


•	the assessment of goodwill for impairment.

Premiums

Premiums are generally recorded as written upon inception of the policy. For multi-year policies for which premiums written are payable in annual installments, only the current annual premium is included as written at policy inception due to the ability of the insured/reinsured to commute or cancel coverage within the policy term. The remaining annual premiums are recorded as written at each successive anniversary date within the multi-year term.

For P&C insurance and reinsurance products, premiums written are primarily earned on a pro-rata basis over the policy terms to which they relate. Unearned premiums represent the portion of premiums written applicable to the unexpired portion of the policies in force. For retrospectively-rated policies, written premiums are adjusted to reflect expected ultimate premiums consistent with changes to incurred losses, or other measures of exposure as stated in the policy, and earned over the policy coverage period. For retrospectively-rated multi-year policies, premiums recognized in the current period are computed using a with-and-without method as the difference between the ceding enterprise's total contract costs before and after the experience under the contract at the reporting date. Accordingly, for retrospectively-rated multi-year policies, additional premiums are generally written and earned when losses are incurred.

Mandatory reinstatement premiums assessed on reinsurance policies are earned in the period of the loss event that gave rise to the reinstatement premiums. All remaining unearned premiums are recognized over the remaining coverage period.

Premiums from long-duration contracts such as certain traditional term life, whole life, endowment, and long-duration personal accident and health (A&H) policies are generally recognized as revenue when due from policyholders. Traditional life policies include those contracts with fixed and guaranteed premiums and benefits. Benefits and expenses are matched with income to result in the recognition of profit over the life of the contracts.

Retroactive loss portfolio transfer (LPT) contracts in which the insured loss events occurred prior to contract inception are evaluated to determine whether they meet criteria for reinsurance accounting. If reinsurance accounting is appropriate, written premiums are fully earned and corresponding losses and loss expenses recognized at contract inception. These contracts can cause significant variances in gross premiums written, net premiums written, net premiums earned, and net incurred losses in the years in which they are written. Reinsurance contracts sold not meeting criteria for reinsurance accounting are recorded using the deposit method as described below in Note 1 k).

Reinsurance premiums assumed are based on information provided by ceding companies supplemented by our own estimates of premium when we have not received ceding company reports. Estimates are reviewed and adjustments are recorded in the period in which they are determined. Premiums are earned over the coverage terms of the related reinsurance contracts and range from one to three years.

Deferred policy acquisition costs and value of business acquired

Policy acquisition costs consist of commissions (direct and ceded), premium taxes, and certain underwriting costs related directly to the successful acquisition of new or renewal insurance contracts. A VOBA intangible asset is established upon the acquisition of blocks of long-duration contracts in a business combination and represents the present value of estimated net cash flows for the contracts in force at the acquisition date. Acquisition costs and VOBA, collectively policy acquisition costs, are deferred and amortized. Amortization is recorded in Policy acquisition costs in the Consolidated statements of operations. Policy acquisition costs on P&C contracts are generally amortized ratably over the period in which premiums are earned. Policy acquisition costs on traditional long-duration contracts are amortized over the estimated life of the contracts, generally in proportion to premium revenue recognized based upon the same assumptions used in estimating the liability for future policy benefits. For non-traditional long-duration contracts, we amortize policy acquisition costs over the expected life of the contracts in proportion to expected gross profits. The effect of changes in estimates of expected gross profits is reflected in the period the estimates are revised. Policy acquisition costs are reviewed to determine if they are recoverable from future income, including investment income. Unrecoverable policy acquisition costs are expensed in the period identified.

Advertising costs are expensed as incurred except for direct-response campaigns that qualify for cost deferral, principally related to long-duration A&H business produced by the Overseas General Insurance segment, which are deferred and recognized as a component of Policy acquisition costs. For individual direct-response marketing campaigns that we can demonstrate have specifically resulted in incremental sales to customers and such sales have probable future economic benefits, incremental costs directly related to the marketing campaigns are capitalized as Deferred policy acquisition costs. Deferred policy acquisition costs, including deferred marketing costs, are reviewed regularly for recoverability from future income, including investment income, and amortized in proportion to premium revenue recognized, primarily over a ten-year period, the expected economic future benefit period based upon the same assumptions used in estimating the liability for future policy benefits. The expected future benefit period is evaluated periodically based on historical results and adjusted prospectively. The amount of deferred marketing costs reported in Deferred policy acquisition costs in the Consolidated balance sheets was $271 million and $256 million at December 31, 2017 and 2016, respectively. Amortization expense for deferred marketing costs was $116 million, $92 million, and $78 million for the years ended December 31, 2017, 2016, and 2015, respectively.

Reinsurance

Chubb assumes and cedes reinsurance with other insurance companies to provide greater diversification of business and minimize the net loss potential arising from large risks. Ceded reinsurance contracts do not relieve Chubb of its primary obligation to policyholders.

For both ceded and assumed reinsurance, risk transfer requirements must be met in order to account for a contract as reinsurance, principally resulting in the recognition of cash flows under the contract as premiums and losses. To meet risk transfer requirements, a reinsurance contract must include insurance risk, consisting of both underwriting and timing risk, and a reasonable possibility of a significant loss for the assuming entity. To assess risk transfer for certain contracts, Chubb generally develops expected discounted cash flow analyses at contract inception. Deposit accounting is used for contracts that do not meet risk transfer requirements. Deposit accounting requires that consideration received or paid be recorded in the balance sheet as opposed to recording premiums written or losses incurred in the statement of operations. Non-refundable fees on deposit contracts are earned based on the terms of the contract described below in Note 1 k).

Reinsurance recoverable includes balances due from reinsurance companies for paid and unpaid losses and loss expenses and future policy benefits that will be recovered from reinsurers, based on contracts in force. The method for determining the reinsurance recoverable on unpaid losses and loss expenses incurred but not reported (IBNR) involves actuarial estimates consistent with those used to establish the associated liability for unpaid losses and loss expenses as well as a determination of Chubb's ability to cede unpaid losses and loss expenses under the terms of the reinsurance agreement.

Reinsurance recoverable is presented net of a provision for uncollectible reinsurance determined based upon a review of the financial condition of reinsurers and other factors. The provision for uncollectible reinsurance is based on an estimate of the reinsurance recoverable balance that will ultimately be unrecoverable due to reinsurer insolvency, a contractual dispute, or any other reason. The valuation of this provision includes several judgments including certain aspects of the allocation of reinsurance recoverable on IBNR claims by reinsurer and a default analysis to estimate uncollectible reinsurance. The primary components of the default analysis are reinsurance recoverable balances by reinsurer, net of collateral, and default factors used to determine the portion of a reinsurer's balance deemed uncollectible. The definition of collateral for this purpose requires some judgment and is generally limited to assets held in a Chubb-only beneficiary trust, letters of credit, and liabilities held with the same legal entity for which Chubb believes there is a contractual right of offset. The determination of the default factor is principally based on the financial strength rating of the reinsurer. Default factors require considerable judgment and are determined using the current financial strength rating, or rating equivalent, of each reinsurer as well as other key considerations and assumptions. The more significant considerations include, but are not necessarily limited to, the following:

•

For reinsurers that maintain a financial strength rating from a major rating agency, and for which recoverable balances are considered representative of the larger population (i.e., default probabilities are consistent with similarly rated reinsurers and payment durations conform to averages), the financial rating is based on a published source and the default factor is based on published default statistics of a major rating agency applicable to the reinsurer's particular rating class. When a recoverable is expected to be paid in a brief period of time by a highly rated reinsurer, such as certain property catastrophe claims, a default factor may not be applied;

•

For balances recoverable from reinsurers that are both unrated by a major rating agency and for which management is unable to determine a credible rating equivalent based on a parent, affiliate, or peer company, we determine a rating equivalent based on an analysis of the reinsurer that considers an assessment of the creditworthiness of the particular entity, industry benchmarks, or other factors as considered appropriate. We then apply the applicable default factor for that rating class. For balances recoverable from unrated reinsurers for which the ceded reserve is below a certain threshold, we generally apply a default factor of 34 percent, consistent with published statistics of a major rating agency;

•

For balances recoverable from reinsurers that are either insolvent or under regulatory supervision, we establish a default factor and resulting provision for uncollectible reinsurance based on reinsurer-specific facts and circumstances. Upon initial notification of an insolvency, we generally recognize an expense for a substantial portion of all balances outstanding, net of collateral, through a combination of write-offs of recoverable balances and increases to the provision for uncollectible reinsurance. When regulatory action is taken on a reinsurer, we generally recognize a default factor by estimating an expected recovery on all balances outstanding, net of collateral. When sufficient credible information becomes available, we adjust the provision for uncollectible reinsurance by establishing a default factor pursuant to information received; and


•	For other recoverables, management determines the provision for uncollectible reinsurance based on the specific facts and circumstances.

The methods used to determine the reinsurance recoverable balance and related provision for uncollectible reinsurance are regularly reviewed and updated, and any resulting adjustments are reflected in earnings in the period identified.

Prepaid reinsurance premiums represent the portion of premiums ceded to reinsurers applicable to the unexpired coverage terms of the reinsurance contracts in-force.

The value of reinsurance business assumed of $18 million and $20 million at December 31, 2017 and 2016, respectively, included in Other assets in the accompanying Consolidated balance sheets, represents the excess of estimated ultimate value of the liabilities assumed under retroactive reinsurance contracts over consideration received. The value of reinsurance business assumed is amortized and recorded to Losses and loss expenses based on the payment pattern of the losses assumed and ranges between 9 and 40 years. The unamortized value is reviewed regularly to determine if it is recoverable based upon the terms of the contract, estimated losses and loss expenses, and anticipated investment income. Unrecoverable amounts are expensed in the period identified.

Investments

Fixed maturities are classified as either available for sale or held to maturity. The available for sale portfolio is reported at fair value. The held to maturity portfolio includes securities for which we have the ability and intent to hold to maturity or redemption and is reported at amortized cost. Equity securities are classified as available for sale and are recorded at fair value. Short-term investments comprise securities due to mature within one year of the date of purchase and are recorded at fair value which typically approximates cost. Short-term investments include certain cash and cash equivalents, which are part of investment portfolios under the management of external investment managers.

Other investments principally comprise life insurance policies, policy loans, trading securities, other direct equity investments, investment funds, and limited partnerships.


•	Life insurance policies are carried at policy cash surrender value and income is recorded in Other income (expense).


•	Policy loans are carried at outstanding balance and interest income is recorded to Net investment income.


•	Trading securities are recorded on a trade date basis and carried at fair value. Unrealized gains and losses on trading securities are reflected in Other (income) expense.


•	Other investments over which Chubb can exercise significant influence are accounted for using the equity method and income is recorded in Other (income) expense.


•	All other investments over which Chubb cannot exercise significant influence are carried at fair value with changes in fair value recognized through OCI. For these investments, investment income is recognized in Net investment income and realized gains are recognized as related distributions are received.