UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


FORM 10-K
þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 20142016
OR
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from             to             
Commission File No. 1-11778

ACECHUBB LIMITED
(Exact name of registrant as specified in its charter)
Switzerland 98-0091805
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
Baerengasse 32
Zurich, Switzerland CH-8001
(Address of principal executive offices) (Zip Code)
+41 (0)43 456 76 00
(Registrant’s telephone number, including area code)
   
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Shares, par value CHF 24.7724.15 per share New York Stock Exchange
   
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
YES þ NO ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
YES ¨ NO þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES þ NO ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES þ NO ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference into Part III of this Form 10-K or any amendment to this Form 10-K. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer  þ
     
Accelerated filer ¨
Non-accelerated filer  ¨
(Do not check if a smaller reporting company) 
Smaller reporting company ¨
  
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES ¨ NO þ
The aggregate market value of voting stock held by non-affiliates as of June 30, 20142016 (the last business day of the registrant's most recently completed second fiscal quarter), was approximately $35$60 billion. For the purposes of this computation, shares held by directors and officers of the registrant have been excluded. Such exclusion is not intended, nor shall it be deemed, to be an admission that such persons are affiliates of the registrant.
As of February 13, 20152017 there were 327,341,997465,781,102 Common Shares par value CHF 24.7724.15 of the registrant outstanding.
Documents Incorporated by Reference
Certain portions of the registrant's definitive proxy statement relating to its 20152017 Annual General Meeting of Shareholders are incorporated by reference into Part III of this report.


Table of Contents

ACECHUBB LIMITED INDEX TO 10-K

PART I Page
ITEM 1.
ITEM 1A.
ITEM 1B.
ITEM 2.
ITEM 3.
ITEM 4.
   
PART II  
ITEM 5.
ITEM 6.
ITEM 7.
ITEM 7A.
ITEM 8.
ITEM 9.
ITEM 9A.
ITEM 9B.
   
PART III  
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.
   
PART IV  
ITEM 15.



Table of Contents

PART I





ITEM 1. Business

General

ACEChubb Limited is the Swiss-incorporated holding company of the ACEChubb Group of Companies. ACEChubb Limited, which is headquartered in Zurich, Switzerland, and its direct and indirect subsidiaries (collectively, the ACEChubb Group of Companies, ACE,Chubb, we, us, or our) are a global insurance and reinsurance organization, serving the needs of a diverse group of clients worldwide. At December 31, 20142016, we had total assets of $98$160 billion and shareholders’ equity of $30$48 billion. ACEChubb was incorporated in 1985 at which time it opened its first business office in Bermuda in 1985 and continues to maintain operations in Bermuda. We have grown our business through increased premium volume, expansion of product offerings and geographic reach, and the acquisition of other companies, including The Chubb Corporation (Chubb Corp) on January 14, 2016. With the acquisition of Chubb Corp, we have become a global property and casualty (P&C) leader.

With operations in 54 countries, Chubb provides commercial and personal property and casualty insurance, personal accident and supplemental health insurance (A&H), reinsurance and life insurance to a diverse group of clients. We offer commercial insurance products and service offerings such as risk management programs, loss control and engineering and complex claims management. We provide specialized insurance products ranging from Directors & Officers (D&O) and professional liability to various specialty-casualty and umbrella and excess casualty lines to niche areas such as aviation and energy. We also offer personal lines insurance coverage including homeowners, automobile, valuables, umbrella liability, and recreational marine products. In addition, we supply personal accident, supplemental health, and life insurance to individuals in select countries.

We have grown our business through increased premium volume, expansion of product offeringsserve multinational corporations, mid-size and geographic reach, and acquisition of other companies. During 2014, we acquired the large corporate accountsmall businesses with property and casualty (P&C) insurance business of Itaú Seguros, S.A. (Itaú Seguros), Brazil's leading carrier for that business, and werisk engineering services; affluent and our local partner acquired 93.03 percent of The Siam Commercial Samaggi Insurance PCL (Samaggi), a generalhigh net worth individuals with substantial assets to protect; individuals purchasing life, personal accident, supplemental health, homeowners, automobile and specialty personal insurance company in Thailand. These businesses operate under our Insurance – Overseas General segmentcoverage; companies and the consolidated financial statements include the results of these businesses from the acquisition dates. Referaffinity groups providing or offering accident and health insurance programs and life insurance to Note 2 to the Consolidated Financial Statements for additional information on our acquisitions.their employees or members; and insurers managing exposures with reinsurance coverage.

At December 31, 2014,2016, we employed approximately 21,00031,000 people. We believe that employee relations are satisfactory.

We make available free of charge through our website (www.acegroup.com,(investors.chubb.com, under Investor Information / SEC - Section 16 Filings)Financials) our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports, if any, filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after they have been electronically filed with or furnished to the U.S. Securities and Exchange Commission (SEC). Also available through our website (under Investor InformationRelations / Corporate Governance) are our Corporate Governance Guidelines, Code of Conduct, and Charters for the Committees of our Board of Directors (the Board). Printed documents are available by contacting our Investor Relations Department (Telephone: +1 (441) 299-9283,
E-mail: investorrelations@acegroup.com)investorrelations@chubb.com).

We also use our website as a means of disclosing material, non-public information and for complying with our disclosure obligations under SEC Regulation FD (Fair Disclosure). Accordingly, investors should monitor the Investor InformationRelations portion of our website, in addition to following our press releases, SEC filings, and public conference calls and webcasts. The information contained on, or that may be accessed through, our website is not incorporated by reference into, and is not a part of, this report. The public may also read and copy any materials ACEChubb files with the SEC at the SEC's Public Reference Room at 100 F Street, NE, Washington, DC 20549 or by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

Customers
For most commercial and personal lines of business we offer, insureds typically use the services of an insurance broker or agent. An insurance broker acts as an agent for the insureds, offering advice on the types and amount of insurance to purchase and also assisting in the negotiation of price and terms and conditions. We obtain business from the local and major international insurance brokers and typically pay a commission to brokers for any business accepted and bound. Loss of all or a substantial portion of the business provided by one or more of these brokers could have a material adverse effect on our business. In our opinion, no material part of our business is dependent upon a single insured or group of insureds. We do not believe that the loss of any one insured would have a material adverse effect on our financial condition or results of operations, and no one insured or group of affiliated insureds account for as much as 10 percent of our total revenues.


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Competition
Competition in the insurance and reinsurance marketplace is substantial. Competitors include other stock companies, mutual companies, alternative risk sharing groups (such as group captives and catastrophe pools), and other underwriting organizations. Competitors sell through various distribution channels and business models, across a broad array of product lines, and with a high level of variation regarding geographic, marketing, and customer segmentation. We compete for business not only on the basis of price but also on the basis of availability of coverage desired by customers and quality of service. Our ability to compete is dependent on a number of factors, particularly our ability to maintain the appropriate financial strength ratings as assigned by independent rating agencies.agencies and effectively utilize new technology in our business. Our broad market capabilities in personal, commercial, specialty, and A&H lines made available by our underwriting expertise, business infrastructure, and global presence, define our competitive advantage. Our strong balance sheet is attractive to businesses, and our strong capital position and global platform affords us opportunities for growth not available to smaller, less diversified insurance companies. Refer to “Segment Information” for competitive environment by segment.

Trademarks and Trade Names
Various trademarks and trade names we use protect names of certain products and services we offer and are important to the extent they provide goodwill and name recognition in the insurance industry. We use commercially reasonable efforts to protect these proprietary rights, including various trade secret and trademark laws. We intend to retain material trademark rights in perpetuity, so long as it satisfies the use and registration requirements of applicable countries. One or more of the trademarks and trade names could be material to our ability to sell our products and services. We have taken appropriate steps to protect our ownership of key names, and we believe it is unlikely that anyone would be able to prevent us from using names in places or circumstances material to our operations.

Segment Information
We operate through fiveimplemented organizational changes in 2016 that resulted in new business segments.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. In addition, the results of all run-off asbestos and environmental (A&E) exposures, the results of our run-off Brandywine business, the results of Westchester specialty operations for 1996 and prior years, and certain other run-off exposures are now presented within Corporate. Prior period amounts of Chubb Limited contained in this report have been adjusted to conform to the new segment presentation. The results of operations of Chubb Corp are included from the acquisition date forward (i.e., after January 14, 2016). The following table presents net premiums earned (NPE) by segment:
Years Ended December 31
(in millions of U.S. dollars, except for percentages)
 2014 Net Premiums Earned
 % of Total
 2013 Net Premiums Earned
 % of Total
 2012 Net Premiums Earned
 % of Total
Insurance – North American P&C $6,107
 35% $5,721
 34% $5,147
 33%
Insurance – North American Agriculture 1,526
 9% 1,678
 10% 1,872
 12%
Insurance – Overseas General 6,805
 39% 6,333
 38% 5,740
 37%
Global Reinsurance 1,026
 6% 976
 6% 1,002
 6%
Life 1,962
 11% 1,905
 12% 1,916
 12%
   Total $17,426
 100% $16,613
 100% $15,677
 100%
Years Ended December 31
(in millions of U.S. dollars, except for percentages)
2016 Net Premiums Earned
 % of Total
 2015 Net Premiums Earned
 % of Total
 2014 Net Premiums Earned
 % of Total
North America Commercial P&C Insurance$12,217
 43% $5,634
 33% $5,547
 32%
North America Personal P&C Insurance4,319
 15% 948
 5% 560
 3%
North America Agricultural Insurance1,316
 5% 1,364
 8% 1,526
 9%
Overseas General Insurance8,132
 28% 6,471
 38% 6,805
 39%
Global Reinsurance710
 2% 849
 5% 1,026
 6%
Life Insurance2,055
 7% 1,947
 11% 1,962
 11%
   Total$28,749
 100% $17,213
 100% $17,426
 100%

Additional financial information about our segments, including net premiums earned by geographic region, is included in
Note 15 to the Consolidated Financial Statements.


Insurance – North AmericanAmerica Commercial P&C (35Insurance (43 percent of 20142016 Consolidated NPE)

Overview
The Insurance – North AmericanAmerica Commercial P&C Insurance segment comprises operations that provide P&C insurance and services to large, middle market, and small commercial businesses in the U.S., Canada, and Bermuda. This segment includes:
OurMajor Accounts, a retail divisions: ACE USA (including ACE Canada), ACE division focused on large institutional organizations and corporate companies
Commercial Risk Services,Insurance, including Small Commercial Insurance, retail divisions focused on middle market customers and ACE Private Risk Servicessmall businesses
OurWestchester and Chubb Bermuda, our wholesale and specialty divisions: ACE Westchester and ACE Bermuda
Various run-off operations, including Brandywine Holdings Corporation (Brandywine)divisions



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Products and Distribution
ACE USA, the segment's largest operation, represented 67 percent of Insurance – North American P&C's net premiums earned in 2014. ACE USAMajor Accounts provides a broad array of traditional and specialty P&C, A&H, and risk management products and services to a diverse group of North American commerciallarge U.S. and non-commercial enterprisesCanadian-based institutional organizations and consumers. ACE USAcorporate companies. Major Accounts distributes its insurance products primarily through a limited number of retail brokers. In addition to using brokers, certain products are also distributed through general agents, independent agents, managing general agents (MGA), managing general underwriters, alliances, affinity groups, and direct marketing operations. Products and services offered include property, generalprofessional liability, umbrella and excess liability, workers' compensation,casualty, commercial marine, automobile liability, professional lines D&O and errors and omissions (E&O), surety, medical liability, environmental, inland marine, aerospace, A&H coverages, as well as claims and risk management products and services.

ACE USA's on-goingThe Major Accounts operations, which represented 41 percent of North America Commercial P&C Insurance’s net premiums earned in 2016, are organized into the following distinct business units, each offering specialized products and services targeted at specific niche markets:
ACE Risk Management
Chubb Global Casualty offers a range of customized risk management primary casualty products designed to help mid-size to large insureds, including national accounts, address the significant costs of financing and managing risk for workers’ compensation, general liability and automobile liability coverages. Chubb Global Casualty also provides products which insure specific global operating risks of U.S.-based multinational companies and include deductible programs, captive programs, and paid or incurred loss retrospective plans. Within ACEChubb Global Casualty, Chubb Alternative Risk Management, ACE Financial Solutions (AFS)Group underwrites contractual indemnification policies in which AFS provides prospective coverage for loss events within the insured’s policy retention levels, and underwrites assumed loss portfolio transfer (LPT) contracts in which insured loss events have occurred prior to the inception of the contract. LPT contracts can cause significant variances to premiums, losses and loss expenses, and expense ratios in the periods in which they are written.
ACE Foreign CasualtyProperty provides products which insure specific global operating risks of U.S.-based multinational companies and include deductible programs, captive programs, and paid or incurred loss retrospective plans for U.S.-based insured's foreign operations.
ACE North America Property & Specialty Lines provide products and services including primary, quota share and excess all-risk insurance, risk management programs and services, commercial and inland marine products, and aerospace products.
ACE Casualty Risk key coverages include umbrella and excess liability, environmental risk, and casualty programs for commercial construction related projects.
ACE Professional Risk provides management liability and professional liability (D&O and E&O) products.
ACE Surety offers a wide variety of surety products and specializes in underwriting both commercial and contract bonds and has the capacity for bond issuance on an international basis.
ACE Canada (ACE USA's Canadian operations) offers a broad range of P&C products as well as life and A&H coverages.
ACE Accident & Health products include employee benefit plans, occupational accident, student accident, and worldwide travel accident and global medical programs. With respect to products that include supplemental medical and hospital indemnity coverages, we typically pay fixed amounts for claims and are therefore insulated from rising health carehealthcare costs. ACE Accident & Health also provides specialty personal lines products, including credit card enhancement programs (identity theft, rental car collision damage waiver, trip travel, and purchase protection benefits) distributed through affinity groups.
ACE Financial Lines provides management liability and professional liability (D&O and E&O) and cyber risk products to public companies as well as to private and not for profit organizations
Casualty Risk provides coverages including umbrella and excess liability, environmental risk, and casualty programs for commercial construction related projects for companies and institutions.
Medical Risk offers a wide range of specialty liability products for the health carehealthcare industry through licensed excess and surplus lines brokers. Products include primary coverages for professional liability and general liability for selected types of medical facilities, excess/umbrella liability for medical facilities, primary and excess coverages for products liability for large biotechnology and specialty pharmaceutical companies, and liability insurance for human clinical trials.
ESIS Inc. (ESIS), ACE USA'sis an in-house third-party claims administrator, performs claims management and risk control services for domestic and international organizations as well as for the Insurance – North AmericanAmerica Commercial P&C Insurance segment. ESIS services include comprehensive medical managed care,care; integrated disability services,services; pre-loss control and risk management,management; and health, safety and environmental consulting, andconsulting; salvage and subrogationsubrogation; and health carehealthcare recovery services. The net results for ESIS are included in Insurance – North AmericanAmerica Commercial P&C's&C Insurance’s administrative expenses.

ACE Commercial Risk Services provides comprehensive specialty product solutions for smaller companies in targeted industries that lend themselves to technology-assisted underwriting. Core products and services for small businesses include casualty insurance (including international casualty), environmental, inland marine, professional risk, disaster protection, vacant land and building, and claims and risk management services. Products are offered through wholesale, retail, program agent and alternative distribution channels. In addition, ACE Commercial Risk Services offers coverage for specialty programs through program agents.



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ACE Private Risk ServicesThe Commercial Insurance operations, including Small Commercial, represented 40 percent of North America Commercial P&C Insurance’s net premiums earned in 2016. Commercial Insurance provides high-value personala broad range of P&C and professional lines products targeted to U.S and Canadian-based middle market customers in a variety of industries with annual revenues greater than $10 million, while the Small Commercial operations provide a broad range of small commercial management and professional liability and standard insurance coverages for high net worth individualssmall businesses based in the U.S., targeted to customers with annual revenues up to $10 million.

Commercial Insurance products and families in North Americaservices offered include traditional property and casualty lines of business, including homeowners, automobile, valuables (including fine art), umbrellaPackage which combines property and general liability, Workers Compensation, Automobile, Umbrella; financial lines of business, including professional liability, management liability and recreationalCyber risk coverage; and other lines including Environmental, Accident & Health, International coverages, and Product Recall. Commercial Insurance distributes its insurance products through a North American network of independent retail agents, regional brokers and multinational brokers. Generally, our customers purchase insurance through a single retail agent or broker, do not employ a risk management department and do not retain significant risk through self-insured retentions or cash flow programs. The majority of our customers purchase a Package or Portfolio product.
Small Commercial Insurance products and services offered include property, professional and management liability, environmental, inland marine, insuranceumbrella, workers’ compensation, automobile liability, surety, A&H coverages, and business owner’s policy package coverage. Products are generally offered through independent regionala North American network of retail agents and brokers.

ACEWholesale and Specialty P&C, which represented 19 percent of North America Commercial P&C Insurance’s net premiums earned in 2016, comprises Westchester and Chubb Bermuda. Chubb Westchester serves the market for business risks that tend to be hard to place due to unique or complex exposures. Products offered include wholesale excess and surplus lines property, casualty, environmental, professional liability, inland marine, and product recall coverages in North America.the U.S., Canada, and Bermuda.

ACEChubb Bermuda, our original insurance company, provides commercial insurance products on an excess basis including excess liability, D&O, professional liability, property, insurance, and political risk, the latter being written by Sovereign Risk Insurance Ltd., a wholly-owned managing agent. ACEChubb Bermuda focuses on Fortune 1000 companies and targets risks that are generally low in frequency and high in severity. ACEChubb Bermuda offers its products primarily through the Bermuda offices of major, internationally recognized insurance brokers.

The run-off operations do not actively sell insurance products, but are responsible for the management of certain existing policies and settlement of related claims.

Competitive Environment
ACE USA and ACE Westchester competeMajor Accounts competes against a number of large, national carriers as well as regional competitors and other entities offering risk alternatives such as self-insured retentions and captive programs. The markets in which we compete are subject to significant cycles of fluctuating capacity and wide disparities in price adequacy. We strive to offer superior service, which we believe has differentiated us from our competitors. The ACE USA and ACE Westchester operations pursue a specialist strategy and focus on market opportunities where we can compete effectively based on service levels and product design, while still achieving an adequate level of profitability. AWe also achieve a competitive advantage is also achieved through ACE USA'sMajor Accounts’ innovative product offerings and our ability to provide multiple products to a single client due to our nationwide local presence. An additional competitive strength ofIn addition, all our domestic commercial units is the abilityare able to deliver global products and coverage to customers in concert with our Insurance – Overseas General Insurance segment. ACE USA has grown, in part, from the leveraging of cross-marketing opportunities with our other

The Commercial Insurance and Small Commercial Insurance operations to take advantage of our organization's global presence. ACE Bermuda competes against international commercial carriers writing business on an excess of loss basis. ACE Commercial Risk Services competescompete against numerous insurance companies ranging from large national carriers to small and mid-size insurers who provide specialty coverages and standard P&C products.

Westchester competes against a number of large, national carriers as well as regional competitors and other entities offering risk alternatives such as self-insured retentions and captive programs. Chubb Bermuda competes against international commercial carriers writing business on an excess of loss basis.

North America Personal P&C Insurance (15 percent of 2016 Consolidated NPE)

Overview
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. Our homeowners business represented 70 percent of North America Personal P&C Insurance’s net premiums earned in 2016.


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Products and Distribution
Chubb Personal Risk Services offers comprehensive personal insurance products and services to meet the evolving needs of successful families and individuals. Our seamless customer experience and superior coverage protect not only our clients’ most valuable possessions, but also their standard of living. Our target customers consist of high net worth consumers with insurance needs that typically extend beyond what mass market carriers can offer. These coverages are offered through independent regional agents and brokers.

Competitive Environment
Chubb Personal Risk Services competes against insurance companies of varying sizes that sell personal lines products through various distribution channels, including retail agents as well as online distribution channels. We achieve a competitive advantage through our ability to provide superior service to our customers as well as our ability to address the Internet.specific needs of high net worth families and individuals.

North America Agricultural Insurance – North American Agriculture (9(5 percent of 20142016 Consolidated NPE)

Overview
The Insurance – North American AgricultureAmerica Agricultural Insurance segment comprises our North American basedU.S. and Canadian-based businesses that provide a variety of coverages in the U.S. and Canada including crop insurance, primarily Multiple Peril Crop Insurance (MPCI) and crop-hail insurance through Rain and Hail Insurance Service, Inc. (Rain and Hail) as well as farm and ranch and specialty P&C commercial insurance products and services through our ACEChubb Agribusiness unit.

Products and Distribution
The Insurance – North American Agriculture segment comprises Rain and Hail whichbusiness provides comprehensive MPCI and crop-hail insurance, and ACEChubb Agribusiness which offers farm and ranch coverages as well as specialty P&C coverages for companies that manufacture, process and distribute agriculture products. The MPCI program is offered in conjunction with the U.S. Department of Agriculture (USDA). The USDA's Risk Management Agency (RMA) sets the policy terms and conditions, rates and forms, and is also responsible for setting compliance standards. As a participating company, we report all details of policies underwritten to the RMA and are party to a Standard Reinsurance Agreement (SRA). The SRA sets out the relationship between private insurance companies and the Federal Crop Insurance Corporation (FCIC) concerning the terms and conditions regarding the risks each will bear including the pro-rata and state stop-loss provisions which allow companies to limit the exposure of any one state or group of states on their underwriting results. In addition to the pro-rata and excess of loss reinsurance protections inherent in the SRA, we also purchase third-party proportional and stop-loss reinsurance for our MPCI business to reduce our exposure. We may also enter into crop derivative contracts to further manage our risk exposure. For additional information, refer to “Crop Insurance”, under Item 7.



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Competitive Environment
Rain and Hail primarily operates in a federally regulated program where all approved providers offer the same product forms and rates through independent and/or captive agents. ACEChubb Agribusiness competes against both national and regional competitors offering specialty P&C insurance coverages to companies that manufacture, process, and distribute agricultural products.

Insurance – Overseas General (39Insurance (28 percent of 20142016 Consolidated NPE)

Overview
The Insurance – Overseas General Insurance segment comprises ACEChubb International ACEand Chubb Global Markets (AGM), and the international supplemental A&H business of Combined Insurance. ACE International comprises our retail commercial P&C, A&H, and personal lines businesses serving territories outside the U.S., Bermuda, and Canada. AGM,(CGM). CGM, our London-based international specialty and excess and surplus lines business, includes Lloyd's of London (Lloyd's) Syndicate 2488 (Syndicate 2488), aand Syndicate 1882, both wholly-owned ACE syndicate. ACE providesChubb syndicates supported by funds at Lloyd's to supportLloyd’s provided by Chubb Corporate Members. Effective December 31, 2016, Syndicate 1882 ceased underwriting bynew business and Syndicate 2488 which is managed by ACE Underwriting Agencies Limited andwill underwrite all Chubb’s Lloyd’s business from January 1, 2017 onwards. Syndicate 2488 has an underwriting capacity of £350£405 million for 2015.the Lloyd’s 2017 year of account. The syndicates are managed by Chubb’s Lloyd’s managing agency, ACE Underwriting Agencies Limited. The reinsurance operation of AGMCGM is included in the Global Reinsurance segment.

Products and Distribution
ACEChubb International maintains a presence in every major insurance market in the world and is organized geographically along product lines as follows: ACE Europe, ACE Asia Pacific, ACE Eurasia and Africa, ACE Far East, and ACE Latin America. Products offered include P&C, A&H, specialty coverages, and personal lines insurance products and services. During 2014, ACE International expanded its operations through the acquisition of Samaggi, a general insurance company, and its P&C offerings through the acquisition of the large corporate account P&C insurance business of Itaú Seguros. ACEChubb International's P&C business is generally


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written, on both a direct and assumed basis, through major international, regional, and local brokers and agents. Certain ACE Europe branded products are also offered via an e-commerce platform, ACEChubb Online, that allows brokers to quote, bind, and issue specialty policies online. Property insurance products include traditional commercial fire coverage as well as energy industry-related, marine, construction, and other technical coverages. Principal casualty products are commercial primary and excess casualty, environmental, and general liability. A&H and other consumer lines products are distributed through brokers, agents, direct marketing programs, and sponsor relationships. ACEChubb International specialty coverages include D&O, professional indemnity, energy, aviation, political risk, and specialty personal lines products. The A&H operations primarily offer personal accident and supplemental medical coverages including accidental death, business/holiday travel, specified disease, disability, medical and hospital indemnity, and income protection. We are not in the primary health carehealthcare business. With respect to our supplemental medical and hospital indemnity products, we typically pay fixed amounts for claims and are therefore largely insulated from the direct impact of rising health carehealthcare costs. ACEChubb International's personal lines operations provide specialty products and services designed to meet the needs of specific target markets and include property damage, automobile, homeowners, and personal liability.

AGMCGM offers products through its parallel distribution network via ACE European Group Limited (AEGL) and Syndicate 2488. AGMCGM uses Syndicate 2488the syndicate to underwrite P&C business on a global basis through Lloyd's worldwide licenses. AGMCGM uses AEGL to underwrite similar classes of business through its network of U.K. and European licenses, and in the U.S. where it is eligible to write excess and surplus lines business. Factors influencing the decision to place business with Syndicate 2488each syndicate or AEGL include licensing eligibilities, capitalization requirements, and client/broker preference. All business underwritten by AGMCGM is accessed through registered brokers. The main lines of business include aviation, property, energy, professional lines, marine, financial lines, political risk, and A&H.

Combined Insurance uses an international sales force to distribute a wide range of supplemental A&H products including personal accident, short-term disability, critical conditions and cancer aid, and hospital confinement/recovery. Most of these products are primarily fixed-indemnity obligations and are not subject directly to escalating medical cost inflation.

Competitive Environment
ACEChubb International's primary competitors include U.S.-based companies with global operations, as well as non-U.S. global carriers and indigenous companies in regional and local markets. For the A&H lines of business, including those offered by Combined Insurance, locally-basedlocally based competitors include financial institutions and bank-ownedbank owned insurance subsidiaries. Our international operations have the distinct advantage of being part of one of the few international insurance groups with a global network of licensed companies able to write policies on a locally admitted basis. The principal competitive factors that affect the international operations are underwriting expertise and pricing, relative operating efficiency, product differentiation, producer relations, and the quality of policyholder services. A competitive strength of our international operations is our global network and breadth of insurance programs, which assist individuals and business organizations to meet their risk management


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objectives, while also giving us the advantage of accessing local technical expertise, accomplishing a spread of risk, and offering a global network to service multinational accounts.

AGMCGM is one of the preeminent international specialty insurers in London and is an established lead underwriter on a significant portion of the risks it underwrites for all lines of business. This leadership position allows AGMCGM to set the policy terms and conditions of many of the policies written. All lines of business face competition, depending on the business class, from Lloyd's syndicates, the London market, and other major international insurers and reinsurers. Competition for international risks is also seen from domestic insurers in the country of origin of the insured. AGMCGM differentiates itself from competitors through long standing experience in its product lines, its multiple insurance entities (Syndicate 2488 and AEGL), and the quality of its underwriting and claims service.

Global Reinsurance (6(2 percent of 20142016 Consolidated NPE)

Overview
The Global Reinsurance segment represents ACE'sChubb's reinsurance operations comprising ACEChubb Tempest Re Bermuda, ACEChubb Tempest Re USA, ACEChubb Tempest Re International, and ACEChubb Tempest Re Canada. The Global Reinsurance segment also includes AGM'sCGM's reinsurance operations. Global Reinsurance markets reinsurance products worldwide under the ACEChubb Tempest Re brand name and provides solutions for small to mid-sized clients and multinational ceding companies including licensed reinsurance capabilities,companies. Global Re offers a broad array of traditional and non-traditional property and workers' compensation catastrophe, loss-warranty, stop-loss cover, marine and aviation programs.casualty products.

Products and Distribution
Global Reinsurance services clients globally through its major units. Major international brokers submit business to one or more of these units' underwriting teams who have built strong relationships with both key brokers and clients by providing a responsive, client-focused approach to risk assessment and pricing.

ACE

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Chubb Tempest Re Bermuda principally provides property catastrophe reinsurance on an excess of loss basis globally to insurers of commercial and personal property. Property catastrophe reinsurance is on an occurrence or aggregate basis and protects a ceding company against an accumulation of losses covered by its issued insurance policies, arising from a common event or occurrence. ACEChubb Tempest Re Bermuda underwrites reinsurance principally on an excess of loss basis, meaning that its exposure only arises after the ceding company's accumulated losses have exceeded the attachment point of the reinsurance policy. ACEChubb Tempest Re Bermuda also writes other types of reinsurance on a limited basis for selected clients. Examples include proportional property where the reinsurer shares a proportional part of the premiums and losses of the ceding company and per risk excess of loss treaty reinsurance where coverage applies on a per risk basis rather than per event or aggregate basis, together with casualty (catastrophe workers' compensation) and specialty lines (crop and terrorism). ACEChubb Tempest Re Bermuda's business is produced through reinsurance intermediaries.

ACEChubb Tempest Re USA writes all lines of traditional and specialty P&C reinsurance, and surety and fidelity reinsurance for the North American market, principally on a treaty basis, with a focus on writing property per risk and casualty reinsurance. ACEChubb Tempest Re USA underwrites reinsurance on both a proportional and excess of loss basis. This unit's diversified portfolio is produced through reinsurance intermediaries.

ACEChubb Tempest Re International provides traditional and specialty P&C reinsurance to insurance companies worldwide, with emphasis on non-U.S. and Canadian risks. ACEChubb Tempest Re International writes all lines of traditional and specialty reinsurance including property risk and property catastrophe, casualty, marine, aviation, and specialty through our London- and Zurich-based divisions. The London-based divisions of ACEChubb Tempest Re International focus on the development of business sourced through London market brokers and, consequently,accordingly, write a diverse book of international business using Syndicate 2488 and AEGL. The Zurich-based division focuses on providing reinsurance to continental European insurers via continental European brokers while also serving Asian and Latin American markets. ACEChubb Tempest Re International also includes our Shanghai, China office which provides reinsurance coverage for Chinese-based risks. ACEChubb Tempest Re International underwrites reinsurance on both a proportional and excess of loss basis.

ACEChubb Tempest Re Canada offers a full array of traditional and specialty P&C, and Surety reinsurance to the Canadian market, including casualty, property risk and property catastrophe. ACEChubb Tempest Re Canada provides coverage through its Canadian company platform and also offers clients access to Syndicate 2488. ACEChubb Tempest Re Canada underwrites reinsurance on both a proportional and excess of loss basis.



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Competitive Environment
The Global Reinsurance segment competes worldwide with major U.S. and non-U.S. reinsurers as well as reinsurance departments of numerous multi-line insurance organizations. In addition, over the last several years, capital markets participants have developed financial products intended to compete with traditional reinsurance. Additionally, government sponsored or backed catastrophe funds can affect demand for reinsurance. Global Reinsurance is considered a lead reinsurer and is typically involved in the negotiation and quotation of the terms and conditions of the majority of the contracts in which it participates. Global Reinsurance competes effectively in P&C markets worldwide because of its strong capital position, analytical capabilities and quality customer service, the leading role it plays in setting the terms, pricing, and conditions in negotiating contracts, and its customized approach to risk selection. The key competitors in our markets vary by geographic region and product line. An advantage of our international platform is that we are able to change our mix of business in response to changes in competitive conditions in the territories in which we operate. Our geographic reach is also sought by multinational ceding companies since all of our offices, with the exception of Bermuda, provide local reinsurance license capabilities which benefit our clients in dealing with country regulators.



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Life (11Insurance (7 percent of 20142016 Consolidated NPE)

Overview
The Life segment comprises ACE'sChubb's international life operations (ACE(Chubb Life), ACEChubb Tempest Life Re (ACE(Chubb Life Re), and the North American supplemental A&H and life business of Combined Insurance.

Products and Distribution
ACEChubb Life provides individual life and group benefit insurance primarily in emerging markets, including Egypt, Hong Kong, Indonesia, South Korea, Taiwan, Thailand, Vietnam, and Vietnam;Egypt; also throughout Latin America; selectively in Europe; and in China through a non-consolidated joint venture insurance company. ACEChubb Life offers a broad portfolio of protection and savings products including whole life, endowment plans, individual term life, group term life, group medical and health, personal accident, credit life, universal life, and unit linked contracts. The policies written by ACEChubb Life generally provide funds to beneficiaries of insureds after death and/or protection and/or savings benefits while the contract owner is living. ACEChubb Life sells to consumers through a variety of distribution channels including captive and independent agency, bancassurance, worksite marketing, retailers, brokers, and direct to consumer marketing. We continue to expand ACEChubb Life with a focus on opportunities in emerging markets that we believe will result in strong and sustainable operating profits as well as a favorable return on capital commitments over time. Our dedicated captive agency distribution channel, whereby agents sell ACEChubb Life products exclusively, enables us to maintain direct contact with the individual consumer, promote quality sales practices, and exercise greater control over the future of the business. We have developed a substantial sales force of agents principally located in our Asia-Pacific countries. ACEChubb also maintains approximately 35.936 percent direct and indirect ownership interest in Huatai Life Insurance Co., Ltd. (Huatai Life), which commenced operations in 2005 and has since grown to become one of the largestlarger life insurance foreign joint ventures in China. Huatai Life offers a broad portfolio of insurance products through a variety of distribution channels including approximately 277333 licensed sales locations in 1416 Chinese provinces.

ACEChubb Life Re's core business is a Bermuda-based operation which provides reinsurance to primary life insurers, focusing on guarantees included in certain fixed and variable annuity products and also on more traditional mortality reinsurance protection. ACEChubb Life Re's U.S.-based traditional life reinsurance operation was discontinued for new business in January 2010. Since 2007, ACEChubb Life Re has not quoted on new opportunities in the variable annuity reinsurance marketplace and our focus has been on managing the current portfolio of risk, both in the aggregate and on a contract basis. This business is managed with a long-term perspective and short-term earnings volatility is expected.

Combined Insurance distributes specialty supplemental A&H and life insurance products targeted to middle income consumers and businesses in the U.S. and Canada. Combined Insurance's substantial North American sales force distributes a wide range of supplemental accident and sickness insurance products, including personal accident, short-term disability, critical illness, Medicare supplement products, and hospital confinement/recovery. Most of these products are primarily fixed-indemnity benefit obligations and are not directly subject to escalating medical cost inflation.

Competitive Environment
ACEChubb Life's competition differs by location but generally includes multinational insurers, and in some locations, local insurers, joint ventures, or state-owned insurers. ACE'sChubb's financial strength and reputation as an entrepreneurial organization with a global presence gives ACEChubb Life a strong base from which to compete. While ACEChubb Life Re is not currently quoting on new opportunities in the variable annuity reinsurance marketplace, we continue to monitor developments in this market. Combined Insurance competes for A&H business in the U.S. against numerous A&H and life insurance companies across various industry segments.

Corporate

Overview
Corporate results primarily include loss and loss expenses of asbestos and environmental (A&E) liabilities and certain other run-off exposures, income and expenses not attributable to reportable segments and the results of our non-insurance companies. The run-off operations do not actively sell insurance products, but are responsible for the management of existing policies and settlement of related claims.

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 legacy Chubb Corp A&E claims in 2016. The A&E liabilities principally relate to claims arising from bodily-injury claims related to asbestos products and remediation costs associated with hazardous waste sites. 



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Underwriting
ACEChubb is an underwriting company and we strive to emphasize quality of underwriting rather than volume of business or market share. Our underwriting strategy is to manage risk by employing consistent, disciplined pricing and risk selection. This, coupled with writing a number of less cyclical product lines, has helped us develop flexibility and stability of our business, and has allowed us to maintain a profitable book of business throughout market cycles. Clearly defined underwriting authorities, standards, and guidelines coupled with a strong underwriting audit function are in place in each of our local operations and global profit centers. Global product boards ensure consistency of approach and the establishment of best practices throughout the world. Our priority is to help ensure adherence to criteria for risk selection by maintaining high levels of experience and expertise in our underwriting staff. In addition, we employ a business review structure that helps ensure control of risk quality and conservative use of policy limits and terms and conditions. Underwriting discipline is at the heart of our operating philosophy.

Qualified actuariesActuaries in each region work closely with the underwriting teams to provide additional expertise in the underwriting process. We use internal and external data together with sophisticated analytical, catastrophe loss and risk modeling techniques to ensure an appropriate understanding of risk, including diversification and correlation effects, across different product lines and territories. This helps to ensure that losses are contained within our risk tolerance and appetite for individual product lines, businesses, and ACEChubb as a whole. Our use of such tools and data also reflects an understanding of their inherent limitations and uncertainties. We also purchase protection from third parties, including, but not limited to, reinsurance as a tool to diversify risk and limit the net loss potential of catastrophes and large or unusually hazardous risks. For additional information refer to "Risk Factors" under Item 1A, “Reinsurance Protection”, below, “Insurance and Reinsurance Markets”, under Item 1A, “Catastrophe Management” and “Natural Catastrophe Property Reinsurance Program”, under Item 7, and Note 5 to the Consolidated Financial Statements, under Item 8.

Reinsurance Protection
As part of our risk management strategy, we purchase reinsurance protection to mitigate our exposure to losses, including certain catastrophes, to a level consistent with our risk appetite. Although reinsurance agreements contractually obligate our reinsurers to reimburse us for an agreed-upon portion of our gross paid losses, reinsurance does not discharge our primary liability to our insureds and, thus, we ultimately remain liable for the gross direct losses. In certain countries, reinsurer selection is limited by local laws or regulations. In most countries there is more freedom of choice, and the counterparty is selected based upon its financial strength, claims settlement record, management, line of business expertise, and its price for assuming the risk transferred. In support of this process, we maintain an ACEa Chubb authorized reinsurer list that stratifies these authorized reinsurers by classes of business and acceptable limits. This list is maintained by our Reinsurance Security Committee (RSC), a committee comprising senior management personnel and a dedicated reinsurer security team. Changes to the list are authorized by the RSC and recommended to the Chair of the Risk and Underwriting Committee. The reinsurers on the authorized list and potential new markets are regularly reviewed and the list may be modified following these reviews. In addition to the authorized list, there is a formal exception process that allows authorized reinsurance buyers to use reinsurers already on the authorized list for higher limits or different lines of business, for example, or other reinsurers not on the authorized list if their use is supported by compelling business reasons for a particular reinsurance program.

A separate policy and process exists for captive reinsurance companies. Generally, these reinsurance companies are established by our clients or our clients have an interest in them. It is generally our policy to obtain collateral equal to the expected losses that may be ceded to the captive. Where appropriate, exceptions to the collateral requirement are granted but only after senior management review. Specific collateral guidelines and an exception process are in place for the Insurance – North AmericanAmerica Commercial P&C and Insurance, North America Personal P&C Insurance, and Overseas General Insurance segments, bothall of which have credit management units evaluating the captive's credit quality and that of their parent company. The credit management units, working with actuaries, determine reasonable exposure estimates (collateral calculations), ensure receipt of collateral in an acceptable form, and coordinate collateral adjustments as and when needed. Financial reviews and expected loss evaluations are performed annually for active captive accounts and as needed for run-off exposures. In addition to collateral, parental guarantees are often used to enhance the credit quality of the captive.

In general, we seek to place our reinsurance with highly rated companies with which we have a strong trading relationship. For additional information refer to “Catastrophe Management” and “Natural Catastrophe Property Reinsurance Program” under Item 7, and Note 5 to the Consolidated Financial Statements.Statements, under Item 8.


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Unpaid Losses and Loss Expenses
We establish reserves for unpaid losses and loss expenses, which are estimates of future payments on reported and unreported claims for losses and related expenses, with respect to insured events that have occurred. These reserves are recorded in Unpaid losses and loss expenses in the consolidatedConsolidated balance sheets. The process of establishing loss and loss expense reserves for P&C claims can be complex and is subject to considerable uncertainty as it requires the use of informed estimates and judgments based on circumstances known at the date of accrual. These estimates and judgments are based on numerous factors, and may be revised as additional experience and other data become available and are reviewed, as new or improved methodologies are developed, or as laws change. Internal actuaries regularly analyze the levels of loss and loss expense reserves, taking into consideration factors that may impact the ultimate settlement value of the unpaid losses and loss expenses. These analyses could result in future changes in the estimates of loss and loss expense reserves or reinsurance recoverables and any such changes would be reflected in our results of operations in the period in which the estimates are changed. Losses and loss expenses are charged to income as incurred. The reserve for unpaid losses and loss expenses represents the estimated ultimate losses and loss expenses less paid losses and loss expenses, and comprises case reserves and incurred but not reported (IBNR) loss reserves. With the exception of certain structured settlements, for which the timing and amount of future claim payments are reliably determinable, and certain reserves for unsettled claims that are discounted in statutory filings, our loss reserves are not discounted for the time value of money. In connection with such structured settlements and certain reserves for unsettled claims, we carried net discounted reserves of $111$88 million at December 31, 2014.2016.
During the loss settlement period, which can be many years in duration, additional facts regarding individual claims and trends often will become known. As these become apparent, case reserves may be adjusted by allocation from IBNR with or without any change in the overall reserve. In addition, the circumstances of individual claims or the application of statistical and actuarial methods to loss experience data may lead to the adjustment of the overall reserves upward or downward from time to time. Accordingly, the ultimate settlement of losses may be significantly greater than or less than reported loss and loss expense reserves.
We have considered asbestos and environmental (A&E) claims and claims expenses in establishing the liability for unpaid losses and loss expenses and have developed reserving methods which consider historical experience as well as incorporate new sources of data to estimate the ultimate losses arising from A&E exposures. The reserves for A&E claims and claims expenses represent management's best estimate of future loss and loss expense payments and recoveries that are expected to develop over the next several decades. We continuously monitor evolving case law and its effect on environmental and latent injury claims, we monitor A&E claims activity quarterly, and we perform a full reserve review annually.
For each product line, management, in conjunction with internal actuaries, develops a “best estimate” of the ultimate settlement value of the unpaid losses and loss expenses that it believes provides a reasonable estimate of the required reserve. We evaluate our estimates of reserves quarterly in light of developing information. While we are unable at this time to determine whether additional reserves may be necessary in the future, we believe that our reserves for unpaid losses and loss expenses are adequate at December 31, 2014.2016. Future additions to reserves, if needed, could have a material adverse effect on our financial condition, results of operations, and cash flows. For additional information refer to “Critical Accounting Estimates – Unpaid losses and loss expenses”, under Item 7, and Note 7 to the Consolidated Financial Statements, under Item 8.
The “Analysis of Losses and Loss Expenses Development” table shown below presents, for each balance sheet date over the period 2004-2014, the gross and net loss and loss expense reserves recorded at the balance sheet date and subsequent net payments on the associated liabilities. The reserves represent the amount required for the estimated future settlement value of liabilities incurred at or prior to the balance sheet date and those estimates may change subsequent to the balance sheet date as new information emerges regarding the ultimate settlement value of the liability. Accordingly, the table also presents through December 31, 2014, for each balance sheet date, the cumulative impact of subsequent valuations of the liabilities incurred at the original balance sheet date. The table is presented in accordance with SEC reporting requirements. This table should be interpreted with care by those not familiar with its format or those who are familiar with other triangulations arranged by origin year of loss such as accident or underwriting year rather than balance sheet date, as shown below. To clarify the interpretation of the table, we use the reserves established at December 31, 2004, in the following example.
The top two lines of the table show, for successive balance sheet dates, the gross and net unpaid losses and loss expenses recorded as provision for liabilities incurred at or prior to each balance sheet date. It can be seen that at December 31, 2004, a reserve of $17.5 billion, net of reinsurance, had been established.

The upper (paid) triangulation shows the net amounts paid as of periods subsequent to the balance sheet date. Hence in the 2005 financial year, $3.3 billion of payments were made on liabilities contemplated in the December 31, 2004, reserve balance. At the end of the 2014 financial year, there were cumulative net payments of $12.0 billion on this block of liabilities.


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The lower triangulation within the table shows the revised estimate of the net liability originally recorded at each balance sheet date as of the end of subsequent financial years. With the benefit of actual loss emergence and hindsight over the intervening period, the net liabilities incurred as of December 31, 2004, are now estimated to be $17.4 billion, rather than the original estimate of $17.5 billion. This change includes the impact of adverse development on latent claims that we categorize as A&E covered under the National Indemnity Company (NICO) reinsurance treaties. Of the cumulative redundancy of $82 million recognized in the ten years since December 31, 2004, redundancy of $1.1 billion relates to non-latent claims and deficiency of $1.0 billion relates to latent claims. The redundancy of $82 million was identified and recorded as follows: $86 million deficient in 2005, $48 million deficient in 2006, $22 million redundant in 2007, $120 million redundant in 2008, $233 million redundant in 2009, $160 million redundant in 2010, $55 million redundant in 2011, $106 million deficient in 2012, $187 million deficient in 2013, and $81 million deficient in 2014. This development subsequent to the balance sheet date of valuation is referred to as prior period development.
Importantly, the cumulative deficiency or redundancy for different balance sheet dates are not independent and, therefore, should not be added together. In the last financial year, we revised our estimate of the December 31, 2004, liabilities from $17,354 million to $17,435 million. This adverse development of $81 million is also included in each column to the right of the December 31, 2004, column to recognize that this additional amount was also required in the reserves established for each annual balance sheet date from December 31, 2005 to December 31, 2014.
The loss development table shows that our original estimate of the net unpaid loss and loss expense requirement at December 31, 2013, of $26.8 billion has, with the benefit of actual loss emergence and hindsight, been revised to $26.3 billion at December 31, 2014. This favorable movement of $527 million reflects prior period development and is the net result of a number of underlying movements both favorable and adverse. The key underlying movements are discussed in more detail in Note 7 to the Consolidated Financial Statements under Item 8.
The bottom lines of the table show the re-estimated amount of previously recorded gross liabilities at December 31, 2014, together with the change in reinsurance recoverable. Similar to the net liabilities, the cumulative redundancy or deficiency on the gross liability is the difference between the gross liability originally recorded and the re-estimated gross liability at December 31, 2014. For example, with respect to the gross unpaid loss and loss expenses of $31.5 billion for December 31, 2004, this gross liability was re-estimated to be $32.8 billion at December 31, 2014, resulting in the cumulative deficiency on the gross liability originally recorded for the 2004 balance sheet year of $1.3 billion. This deficiency relates primarily to U.S. liabilities, including A&E liabilities for 1996 and prior. The gross deficiency results in a net redundancy of $82 million after consideration of substantial reinsurance coverage that reduces the gross loss; approximately $1.6 billion was covered by reinsurance placed when the risks were originally written and $1.3 billion and $128million of the remaining insurance coverage has been ceded under the Brandywine NICO Agreement and Westchester NICO Agreement, respectively.
We do not consider it appropriate to extrapolate future deficiencies or redundancies based upon the table, as conditions and trends that have affected development of the liability in the past may not necessarily recur in the future. We believe that our current estimates of net liabilities appropriately reflect our current knowledge of the business profile and the prevailing market, social, legal, and economic conditions while giving due consideration to historical trends and volatility evidenced in our markets over the longer term. The key issues and considerations involved in establishing our estimate of the net liabilities are discussed in more detail within the “Critical Accounting Estimates – Unpaid losses and loss expenses” section of Item 7.
The Unpaid losses and loss expense information for acquired businesses has been included in the table from the acquisition date forward:
Combined Insurance (April 1, 2008);
Jerneh Insurance Berhad (December 1, 2010);
Rain and Hail (we acquired all of the outstanding common stock not previously owned by us on December 28, 2010);
Penn Millers Holding Corporation (November 30, 2011);
Rio Guayas Compania de Seguros y Reaseguros (December 28, 2011);
PT Asuransi Jaya Proteski (we acquired 80 percent on September 18, 2012 and our local partner acquired the remaining 20 percent on January 3, 2013);
Fianzas Monterrey (April 1, 2013);
ABA Seguros (May 2, 2013);
The Siam Commercial Samaggi Insurance PCL (we and our local partner acquired 93.03 percent during the second quarter of 2014); and
The large corporate account P&C insurance business of Itaú Seguros, S.A. (October 31, 2014).


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Analysis of Losses and Loss Expenses Development
 Years Ended December 31
(in millions of U.S. dollars)2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Gross unpaid losses$31,483
$35,055
$35,517
$37,112
$37,176
$37,783
$37,391
$37,477
$37,946
$37,443
$38,315
Net unpaid losses17,517
20,458
22,008
23,592
24,241
25,038
25,242
25,875
26,547
26,831
27,008
Net paid losses (cumulative) as of:        
1 year later3,293
3,711
4,038
3,628
4,455
4,724
4,657
4,894
5,035
5,260
 
2 years later5,483
6,487
6,356
6,092
7,526
7,510
7,281
7,714
7,969
  
3 years later7,222
7,998
8,062
8,393
9,690
9,404
9,424
9,973
   
4 years later8,066
9,269
9,748
9,949
11,114
11,097
11,102
    
5 years later8,920
10,597
10,826
10,951
12,502
12,428
     
6 years later9,810
11,428
11,496
11,985
13,556
      
7 years later10,478
11,957
12,312
12,766
       
8 years later10,859
12,664
12,970
        
9 years later11,462
13,209
         
10 years later11,952
          
Net liability re-estimated as of:        
End of year17,517
20,458
22,008
23,592
24,241
25,038
25,242
25,875
26,547
26,831
27,008
1 year later17,603
20,446
21,791
22,778
23,653
24,481
24,686
25,396
26,017
26,304
 
2 years later17,651
20,366
21,188
22,158
23,127
23,801
24,167
24,887
25,411
  
3 years later17,629
19,926
20,650
21,596
22,576
23,363
23,690
24,299
   
4 years later17,509
19,589
20,080
21,037
22,184
22,955
23,091
    
5 years later17,276
19,258
19,618
20,773
21,913
22,476
     
6 years later17,116
19,136
19,584
20,760
21,810
      
7 years later17,061
19,180
19,684
20,667
       
8 years later17,167
19,329
19,647
        
9 years later17,354
19,356
         
10 years later17,435
          
Cumulative redundancy/ (deficiency) on net unpaid losses82
1,102
2,361
2,925
2,431
2,562
2,151
1,576
1,136
527
 
Cumulative deficiency related to A&E(1,039)(1,039)(987)(958)(907)(824)(720)(621)(451)(257) 
Cumulative redundancy/ (deficiency) excluding A&E1,121
2,141
3,348
3,883
3,338
3,386
2,871
2,197
1,587
784
 
Gross unpaid losses31,483
35,055
35,517
37,112
37,176
37,783
37,391
37,477
37,946
37,443
38,315
Reinsurance recoverable on unpaid losses13,966
14,597
13,509
13,520
12,935
12,745
12,149
11,602
11,399
10,612
11,307
Net unpaid losses17,517
20,458
22,008
23,592
24,241
25,038
25,242
25,875
26,547
26,831
27,008
Gross liability re-estimated32,767
33,854
33,117
33,586
34,325
34,482
34,287
35,294
36,335
36,758
 
Reinsurance recoverable on unpaid losses15,332
14,498
13,470
12,919
12,515
12,006
11,196
10,995
10,924
10,454
 
Net liability re-estimated17,435
19,356
19,647
20,667
21,810
22,476
23,091
24,299
25,411
26,304
 
Cumulative redundancy/ (deficiency) on gross unpaid losses$(1,284)$1,201
$2,400
$3,526
$2,851
$3,301
$3,104
$2,183
$1,611
$685
 
The reference to “losses” in the table above refers to losses and loss expenses.



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Reconciliation of Unpaid Losses and Loss Expenses
Net losses and loss expenses incurred for 2014 were $9.6 billion, compared with $9.3 billion in 2013, and $9.7 billion in 2012 which includes $527 million, $530 million, and $479 million of net favorable prior period development (PPD), respectively. Refer to Note 7 to the Consolidated Financial Statements for a reconciliation of Unpaid losses and loss expenses and for additional information on PPD.

Investments
Our objective is to maximize investment income and total return while ensuring an appropriate level of liquidity and investment quality and diversification. As such, ACE'sChubb's investment portfolio is invested primarily in investment-grade fixed-income securities as measured by the major rating agencies. We do not allow leverage or complex credit structures in our investment portfolio.

The critical aspects of the investment process are controlled by ACEChubb Asset Management, an indirect wholly-owned subsidiary of ACE.Chubb. These aspects include asset allocation, portfolio and guideline design, risk management and oversight of external asset managers. In this regard, ACEChubb Asset Management:

conducts formal asset allocation modeling for each of the ACEChubb subsidiaries, providing formal recommendations for the portfolio's structure;
establishes recommended investment guidelines that are appropriate to the prescribed asset allocation targets;
provides the analysis, evaluation, and selection of our external investment advisors;
establishes and develops investment-related analytics to enhance portfolio engineering and risk control;
monitors and aggregates the correlated risk of the overall investment portfolio; and
provides governance over the investment process for each of our operating companies to ensure consistency of approach and adherence to investment guidelines.

Under our guidance and direction, external asset managers conduct security and sector selection and transaction execution. Use of multiple managers benefits ACEChubb in several ways – it provides us with operational and cost efficiencies, diversity of styles and approaches, innovations in investment research and credit and risk management, all of which enhance the risk adjusted returns of our portfolios.

ACEChubb Asset Management determines the investment portfolio's allowable, targeted asset allocation and ranges for each of the segments. These asset allocation targets are derived from sophisticated asset and liability modeling that measures correlated histories of returns and volatility of returns. Allowable investment classes are further refined through analysis of our operating environment, including expected volatility of cash flows, potential impact on our capital position, as well as regulatory and rating agency considerations.



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The Board has established a Risk & Finance Committee which helps execute the Board's supervisory responsibilities pertaining to enterprise risk management including investment risk. Under the overall supervision of the Risk & Finance Committee, ACE'sChubb's governance over investment management is rigorous and ongoing. Among its responsibilities, the Risk & Finance Committee of the Board:

reviews and approves asset allocation targets and investment policy to ensure that it is consistent with our overall goals, strategies, and objectives;
reviews and approves investment guidelines to ensure that appropriate levels of portfolio liquidity, credit quality, diversification, and volatility are maintained; and
systematically reviews the portfolio's exposures including any potential violations of investment guidelines.

We have long-standing global credit limits for our entire portfolio across the organization and for individual obligors. Exposures are aggregated, monitored, and actively managed by our Global Credit Committee, comprising senior executives, including our Chief Financial Officer, our Chief Risk Officer, our Chief Investment Officer, and our Treasurer.

Within the guidelines and asset allocation parameters established by the Risk & Finance Committee, individual investment committees of the segments determine tactical asset allocation. Additionally, these committees review all investment-related activity that affects their operating company, including the selection of outside investment advisors, proposed asset allocation changes, and the systematic review of investment guidelines.

For additional information regarding the investment portfolio, including breakdowns of the sector and maturity distributions, refer to Note 3 to the Consolidated Financial Statements, under Item 8.


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Regulation
Our insurance and reinsurance subsidiaries conduct business globally, including in all 50 states of the United States and the District of Columbia. Our businesses in each of these jurisdictions are subject to varying degrees of regulation and supervision. The laws and regulations of the jurisdictions in which our insurance and reinsurance subsidiaries are domiciled require among other things that these subsidiaries maintain minimum levels of statutory capital, surplus, and liquidity, meet solvency standards, and submit to periodic examinations of their financial condition. The complex regulatory environments in which ACEChubb operates are subject to change and are regularly monitored.

Group Supervision
In September 2012, pursuant to recently enacted legislation passed in the state of Pennsylvania, U.S., based on the Model Insurance Holding Company System Regulatory Act (model law) adopted by the National Association of Insurance Commissioners (NAIC), the Pennsylvania Insurance Department (Department), in consultation with other insurance regulatory bodies that oversee ACE'sChubb's insurance activities, convened the first ACE GroupChubb Supervisory College (College). Regulators from approximately 15 jurisdictions worldwide were invited to participate in the College, the purpose of which was to initiate establishment of, and to clarify the membership, participation, functionality, and ongoing activities in, the College with respect to group-wide supervision of ACE.Chubb. Representatives from approximately ten jurisdictions attended the College in Philadelphia, Pennsylvania, during which the supervisors reviewed, without adverse comment, information on our group governance, risk assessment and management, capital adequacy, and material intercompany transactions. On October 19, 2012, the Department, in cooperation with the other supervisory college regulators, published a notice of its determination that it is the appropriate group-wide supervisor for ACE.Chubb.

In September 2014, the Department, in consultation with other insurance regulatory bodies that oversee ACE'sChubb's insurance activities, convened the second College. Representatives from approximately ten jurisdictions attended the College in Philadelphia, Pennsylvania, during which the supervisors reviewed, without adverse comment, information on our group governance, compliance, risk assessment and management, and capital adequacy.

In September 2016, the Department, in consultation with other insurance regulatory bodies that oversee Chubb's insurance activities, convened the third College. Representatives from six jurisdictions participated in the College, held in Lafayette Hill, Pennsylvania, during which the supervisors reviewed, without adverse comment, the company's legal and compliance operations, cyber security, business plans and enterprise risk and capital/liquidity management, as well as company-specific issues of interest.



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The following is an overview of regulations for our operations in Switzerland, the U.S., Bermuda, and other international locations.

Swiss Operations
The Swiss Financial Market Supervisory Authority (FINMA) has the discretion to supervise ACEChubb on a group-wide basis. However, FINMA acknowledges the Department's assumption of group supervision over us.

In 2008, we formed ACEChubb Insurance (Switzerland) Limited which offers property and casualty insurance to Swiss companies, A&H insurance for individuals of Swiss Corporations as well as reinsurance predominantly in Continental Europe. We have also formed a reinsurance subsidiary named ACEChubb Reinsurance (Switzerland) Limited, which we operate as primarily a provider of reinsurance to ACEChubb entities. Both companies are licensed and governed by FINMA.

U.S. Operations
Our U.S. insurance subsidiaries are subject to extensive regulation and supervision by the states in which they do business. The laws of the various states establish departments of insurance with broad authority to regulate, among other things: the standards of solvency that must be met and maintained, the licensing of insurers and their producers, approval of policy forms and rates, the nature of and limitations on investments, restrictions on the size of the risks which may be insured under a single policy, deposits of securities for the benefit of policyholders, requirements for the acceptability of reinsurers, periodic examinations of the affairs of insurance companies, the form and content of reports of financial condition required to be filed, and the adequacy of reserves for unearned premiums, losses, and other purposes.

Our U.S. insurance subsidiaries are required to file detailed annual and quarterly reports with state insurance regulators. In addition, our U.S. insurance subsidiaries' operations and financial records are subject to examination at regular intervals by state regulators.
  
All states have enacted legislation that regulates insurance holding companies. This legislation provides that each insurance company in the insurance holding company system (system) is required to register with the insurance department of its state of domicile and furnish information concerning the operations of companies within the system that may materially affect the operations, management, or financial condition of the insurers within the system. Since 2014, we have also beenWe are required to file an annual enterprise risk report with the Department, identifying the material risks within our system that could pose


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enterprise risk to the insurance subsidiaries in the system. All transactions within a system must be fair and equitable. Notice to the insurance departments is required prior to the consummation of transactions affecting the ownership or control of an insurer and of certain material transactions between an insurer and an entity in its system. In addition, certain transactions may not be consummated without the department's prior approval.

Beginning in 2015, weWe are also required to file an annual summary report with the Department, reflecting our internal assessment of material risks associated with our current business plan and the sufficiency of our capital resources to support those risks.
   
Statutory surplus is an important measure used by the regulators and rating agencies to assess our U.S. insurance subsidiaries' ability to support business operations and provide dividend capacity. Our U.S. insurance subsidiaries are subject to various state statutory and regulatory restrictions that limit the amount of dividends that may be paid without prior approval from regulatory authorities. These restrictions differ by state, but are generally based on calculations incorporating statutory surplus, statutory net income, and/or investment income.

The NAIC has a risk-based capital requirement for P&C insurance companies. This risk-based capital formula is used by many state regulatory authorities to identify insurance companies that may be undercapitalized and which merit further regulatory attention. These requirements are designed to monitor capital adequacy using a formula that prescribes a series of risk measurements to determine a minimum capital amount for an insurance company, based on the profile of the individual company. The ratio of a company's actual policyholder surplus to its minimum capital requirement will determine whether any state regulatory action is required. There are progressive risk-based capital failure levels that trigger more stringent regulatory action. If an insurer's policyholders' surplus falls below the Mandatory Control Level (70 percent of the Authorized Control Level, as defined by the NAIC), the relevant insurance commissioner is required to place the insurer under regulatory control.

However, an insurance commissionerregulator may allow a P&C company operating below the Mandatory Control Level that is writing no business and is running off its existing business to continue its run-off. Brandywine is running off its liabilities consistent with the terms of an order issued by the Insurance Commissioner of Pennsylvania. This includes periodic reporting obligations to the Department.


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Government intervention has also occurred in the insurance and reinsurance markets in relation to terrorism coverage in the U.S. (and through industry initiatives in other countries). The U.S. Terrorism Risk Insurance Act (TRIA), which was enacted in 2002 to ensure the availability of insurance coverage for certain types of terrorist acts in the U.S., was extended in 2015 for six years, through December 31, 2020, and applies to certain of our operations.

From time to time, ACEChubb and its subsidiaries and affiliates receive inquiries from state agencies and attorneys general, with which we generally comply, seeking information concerning business practices, such as underwriting and non-traditional or loss mitigation insurance products. Moreover, many recent factors, such as consequences of and reactions to industry and economic conditions and focus on domestic issues, have contributed to the potential for change in the legal and regulatory framework applicable to ACE'sChubb's U.S. operations and businesses. We cannot assure that changes in laws or investigative or enforcement activities in the various states in the U.S. will not have a material adverse impact on our financial condition, results of operations, or business practices.

Bermuda Operations
The Insurance Act 1978 of Bermuda and related regulations, as amended (the Insurance Act), regulates the insurance business of our Bermuda domiciled (re)insurance subsidiaries (Bermuda domiciled subsidiaries) and provides that no person may carry on any insurance business in or from within Bermuda unless registered as an insurer by the Bermuda Monetary Authority (BMA). The Insurance Act imposes solvency and liquidity standards and auditing and reporting requirements on Bermuda insurance companies and grants the BMA powers to supervise, investigate, and intervene in the affairs of insurance companies. Our

Bermuda domiciled insurance subsidiaries must prepare and file with the BMA, audited annual statutory financial statements and file them with the BMA, and certain subsidiaries must file audited annual financial statements prepared in accordance with accounting principles generally accepted in the U.S. (GAAP), International Financial Reporting Standards (IFRS), or any such other generally accepted accounting principles as the BMA may recognize. These audited financialsfinancial statements are made public by the BMA. The Insurance Act prescribes rules for the preparation and content of the statutory financial statements that require ACEBermuda domiciled subsidiaries to give detailed information and analyses regarding premiums, claims, reinsurance, and investments. In addition, commencing with the 2016 financial year end filing, the Bermuda domiciled subsidiaries will be required to prepare and publish a Financial Condition Report (FCR). The FCR shall provide details of measures governing the business operations, corporate governance framework, solvency and financial performance. The FCR will be required to be filed with the BMA and requires Bermuda insurance companies to make the FCR publicly available.

The BMA established risk-based regulatory capital adequacyEffective January 1, 2016, Bermuda implemented a new solvency and solvency margin requirements forrisk management regime which has been deemed equivalent to the EU’s Solvency II regime. Bermuda insurers that mandate that a Class E (long-term business), Class 3A (general business), and Class 4 insurer's Enhanced Capital Requirement


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(ECR) be calculated by either (a) the BMA model, or (b)statutory reporting rules have been amended to introduce an internal capital model which the BMA has approved for use for this purpose. ACE's Bermuda insurance subsidiaries use the BMA model in calculating their solvency requirements.economic balance sheet (“EBS”) framework.

The risk-basedBermuda’s regulatory capital adequacy and solvency margin regime provides a risk-based capital model, termed the Bermuda Solvency Capital Requirement (BSCR), as a tool to assist the BMA both in measuring risk and in determining appropriate levels of capitalization. The BSCR employs a standard mathematical model that correlates the risk underwritten by Bermuda insurers to their capital. The BSCR framework applies a standard measurement format to the risk associated with an insurer's assets, liabilities, and premiums, including a formula to take account of catastrophe risk exposure.

The BMA established risk-based regulatory capital adequacy and solvency margin requirements for Bermuda insurers that mandate that a Bermuda domiciled subsidiary’s Enhanced Capital Requirement (ECR) be calculated by either (a) BSCR, or (b) an internal capital model which the BMA has approved for use for this purpose. The Bermuda domiciled subsidiaries use the BSCR in calculating their solvency requirements. The EBS framework is embedded as part of the BSCR and forms the basis of our ECR.

In order to minimize the risk of a shortfall in capital arising from an unexpected adverse deviation and in moving towards the implementation of a risk based capital approach, the BMA has established a threshold capital level, (termed the Target Capital Level (TCL)), set at 120 percent of ECR, that serves as an early warning tool for the BMA and failure to maintain statutory capital at least equal to the TCL will likely result in increased BMA regulatory oversight.

The Bermuda domiciled subsidiaries will submit their first annual filings under the EBS framework in 2017. The new regulations are not expected to have a material effect on our capital management strategies, results of operations or financial condition.



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Under the Insurance Act, Class 4 insurersChubb's Bermuda domiciled subsidiaries are prohibited from declaring or paying any dividends of more than 25 percent of total statutory capital and surplus, as shown in its previous financial year statutory balance sheet, unless at least seven days before payment of the dividends, it files with the BMA an affidavit that it will continue to meet its required solvency margins. In addition, Class 4, 3A, and E insurers must obtain the BMA's prior approval before reducing total statutory capital, as shown in its previous financial year statutory balance sheet, by 15 percent or more. Furthermore, Bermuda insurancedomiciled subsidiaries may only declare and pay a dividend from retained earnings and a dividend or distribution from contributed surplus if it has no reasonable grounds for believing that it is, or would after the payment be, unable to pay its liabilities as they become due, or if the realizable value of its assets would not be less than the aggregate of its liabilities and its issued share capital and share premium accounts.

In addition, Chubb's Bermuda domiciled subsidiaries must obtain the BMA's prior approval before reducing total statutory capital, as shown in its previous financial year statutory balance sheet, by 15 percent or more.

Other International Operations
The extent of insurance regulation varies significantly among the countries in which non-U.S. ACEChubb operations conduct business. While each country imposes licensing, solvency, auditing, and financial reporting requirements, the type and extent of the requirements differ substantially. For example:
in some countries, insurers are required to prepare and file monthly and/or quarterly financial reports, and in others, only annual reports;
some regulators require intermediaries to be involved in the sale of insurance products, whereas other regulators permit direct sales contact between the insurer and the customer;
the extent of restrictions imposed upon an insurer's use of local and offshore reinsurance vary;
policy form filing and rate regulation vary by country;
the frequency of contact and periodic on-site examinations by insurance authorities differ by country; and
regulatory requirements relating to insurer dividend policies vary by country.

Significant variations can also be found in the size, structure, and resources of the local regulatory departments that oversee insurance activities. Certain regulators prefer close relationships with all subject insurers and others operate a risk-based approach.

ACEChubb operates in some countries through subsidiaries and in some countries through branches of subsidiaries. Local capital requirements applicable to a subsidiary generally include its branches. Certain ACEChubb companies are jointly owned with local companies to comply with legal requirements for local ownership. Other legal requirements include discretionary licensing procedures, compulsory cessions of reinsurance, local retention of funds and records, data privacy and protection program requirements, and foreign exchange controls. ACE'sChubb's international companies are also subject to multinational application of certain U.S. laws.

There are various regulatory bodies and initiatives that impact ACEChubb in multiple international jurisdictions and the potential for significant impact on ACEChubb could be heightened as a result of recent industry and economic developments. In particular, the European Union's (EU) executive body, the European Commission, is implementingimplemented a new capital adequacy and risk management regulations for the European insurance industry, known as Solvency II, which aims to establish a revised set of EU-wide capital requirements and risk management standards that will replacereplaced the current Solvency I requirements. The Solvency II requirements are expected to bewere effective January 1, 2016.2016 for our European operations.



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Under Solvency II, it is possible that a U.S. domiciled parent company of a subsidiary domiciled in the EU could be subject to certain requirements if determined by the regulator that its subsidiary's capital position is dependent on the U.S. parent company that is not subject to requirements deemed to be ''equivalent'' to Solvency II. While it is not certain how or if these actions will impact ACE, weWe do not currently expect that our capital management strategies, results of operations, and financial condition will be materially affected by the Solvency II requirements.


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Enterprise Risk Management
As an insurer, ACEChubb is in the business of profitably managing risk for its customers. Since risk management must permeate an organization conducting a global insurance business, we have an established Enterprise Risk Management (ERM) framework that is integrated into management of our businesses and is led by ACE'sChubb's senior management. As a result, ERM is a part of the day-to-day management of ACEChubb and its operations.
Our global ERM framework is broadly multi-disciplinary and its objectives include:

External Risks: identify, analyze, quantify, and where possible, mitigate significant external risks that could materially hamper the financial condition of ACEChubb and/or the achievement of corporate business objectives over the next 36 months;
Exposure Accumulations: identify and quantify the accumulation of exposure to individual counterparties, products or industry sectors, particularly those that materially extend across or correlate between business units or divisions and/or the balance sheet;
Risk Modeling: develop and use various data-sets, analytical tools, metrics and processes (including economic capital models and advanced analytics) that help division and corporate leaders make informed underwriting, portfolio management and risk management decisions within a consistent risk/reward framework;
Governance: establish and coordinate risk guidelines that reflect the corporate appetite for risk, monitor exposure accumulations relative to established guidelines, and ensure effective internal risk management communication up to management and the Board, down to the various business units and legal entities, and across the firm; and
Disclosure: develop protocols and processes for risk-related disclosure internally as well as externally to rating agencies, regulators, shareholders and analysts.

ACE'sChubb Group's Risk and Underwriting Committee (RUC) reports to and assists the Chief Executive Officer in the oversight and review of the ERM framework which covers the processes and guidelines used to manage insurance risk, financial risk, strategic risk, and operational risk. The RUC is chaired by ACE'sChubb Group’s Chief Risk Officer and Chief Actuary.Officer. The RUC meets at least monthly, and is comprised of ACE'sChubb Group's most senior executives, in addition to the Chair, including the Chief Executive Officer, Chief Operating Officer, Chief Financial Officer, Chief Investment Officer, Chief Claims Officer, General Counsel, Chairman for InsurancePresident – North America Chairman for ACECommercial and Personal Insurance, President – North America Major Accounts and Specialty Insurance, President – Overseas General Insurance, and Chief Underwriting Officer.

The RUC is assisted in its activities by ACE'sChubb's Enterprise Risk Unit (ERU) and Product Boards. The ERU is responsible for the collation and analysis of risk insight in two key areas. First, external information that provides insight to the RUC on existing or emerging risks that might significantly impact ACE'sChubb's key objectives and second, internal risk aggregations arising from ACE'sChubb's business writings and other activities such as investments and operations. The ERU is independent of the operating units and reports to our Chief Risk Officer and Chief Actuary.Officer. The Product Boards exist to provide oversight for products that we offer globally. A Product Board currently exists for each of ACE'sChubb's major product areas. Each Product Board is responsible for ensuring consistency in underwriting and pricing standards, identification of emerging issues, and guidelines for relevant accumulations.

ACE'sChubb's Chief Risk Officer and Chief Actuary also reports to the Board's Risk & Finance Committee, which helps execute the Board's supervisory responsibilities pertaining to ERM. The role of the Risk & Finance Committee includes evaluation of the integrity and effectiveness of our ERM procedures, systems, and information; governance on major policy decisions pertaining to risk aggregation and minimization; and assessment of our major decisions and preparedness levels pertaining to perceived material risks. The Audit Committee meets annually and on an as needed basis with the Risk & Finance Committee in order to exercise its duties under New York Stock Exchange Rules.
Others within the ERM structure contribute toward accomplishing ACE'sChubb's ERM objectives, including regional management, Corporate Underwriting, Internal Audit, Compliance, external consultants, and managers of our internal control processes and procedures.

Tax Matters
Refer to “Risk Factors”, under Item 1A and Note 1n) o) and Note 8 to the Consolidated Financial Statements.Statements, under Item 8.



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EXECUTIVE OFFICERS OF THE REGISTRANT
NameAgePosition
Evan G. Greenberg6062Chairman, President, Chief Executive Officer, and Director
John W. Keogh5052Executive Vice Chairman and Chief Operating Officer; Chairman, ACE Overseas GeneralOfficer
Philip V. Bancroft5557Executive Vice President and Chief Financial Officer
John J. Lupica4951Vice Chairman; Chairman, Insurance –President, North America Major Accounts & Specialty Insurance
Joseph F. Wayland5759Executive Vice President and General Counsel and Secretary
Sean Ringsted5153Executive Vice President, Chief RiskDigital Officer, and Chief ActuaryRisk Officer
Timothy A. Boroughs6567Executive Vice President and Chief Investment Officer
Paul J. Krump57Executive Vice President; President, North America Commercial and Personal Insurance
Juan C. Andrade51Executive Vice President; President, Overseas General Insurance

Evan G. Greenberg has been a director of ACEChubb Limited since August 2002. Mr. Greenberg was elected Chairman of the Board of Directors in May 2007. Mr. Greenberg becamewas a director of The Coca-Cola Company from February 2011 until his resignation in February 2011.October 2016. Mr. Greenberg was appointed to the position of President and Chief Executive Officer of ACEChubb Limited in May 2004, and in June 2003, was appointed President and Chief Operating Officer of ACEChubb Limited. Mr. Greenberg was appointed to the position of Chief Executive Officer of ACEChubb Overseas General in April 2002. He joined ACEChubb as Vice Chairman, ACEChubb Limited, and Chief Executive Officer of ACEChubb Tempest Re in November 2001. Prior to joining ACE,Chubb, Mr. Greenberg was most recently President and Chief Operating Officer of American International Group (AIG), a position he held from 1997 until 2000.

John W. Keogh was appointed Executive Vice Chairman of Chubb Limited in November 2015. Mr. Keogh has served as Chief Operating Officer of ACEChubb Limited insince July 2011 and Vice Chairman of ACEChubb Limited and ACEChubb Group Holdings insince August 2010. Mr. Keogh joined ACEChubb as Chief Executive Officer of ACE Overseas General Insurance in April 2006 and became Chairman of ACE Overseas General Insurance in August 2010. Prior to joining ACE,Chubb, Mr. Keogh served as Senior Vice President, Domestic General Insurance of AIG, and President and Chief Executive Officer of National Union Fire Insurance Company, AIG's member company that specializes in D&O and fiduciary liability coverages. Mr. Keogh joined AIG in 1986. He served in a number of other senior positions there including as Executive Vice President of AIG's Domestic Brokerage Group and as President and Chief Operating Officer of AIG's Lexington Insurance Company unit.  

Philip V. Bancroft was appointed Chief Financial Officer of ACEChubb Limited in January 2002. For nearly 20 years, Mr. Bancroft worked for PricewaterhouseCoopers LLP. Prior to joining ACE,Chubb, he served as partner-in-charge of the New York Regional Insurance Practice. Mr. Bancroft had been a partner with PricewaterhouseCoopers LLP for ten years.

John J. Lupica was appointed President, North America Major Accounts & Specialty Insurance in January 2016, Vice Chairman of ACEChubb Limited and ACEChubb Group Holdings in November 2013 and Chairman, Insurance - North America, in July 2011. Mr. Lupica had been Chief Operating Officer, Insurance - North America, since 2010 and President of ACE USA since 2006. He also previously served as Division President of ACEU.S. Professional Risk business and ACE USAU.S. Regional Operations. Mr. Lupica joined ACE USA Chubbas Executive Vice President of Professional Risk in 2000. Prior to joining ACE,Chubb, he served as Senior Vice President for Munich-American Risk Partners, Inc. He also held various management positions at AIG.

Joseph F. Wayland was appointed Executive Vice President of Chubb Limited in January 2016, General Counsel and Secretary of ACEChubb Limited in July 2013.  Mr. Wayland joined ACEChubb from the law firm of Simpson Thacher & Bartlett LLP, where he was a partner since 1994. From 2010 to 2012, he served in the United States Department of Justice, first as Deputy Assistant Attorney General of the Antitrust Division, and was later appointed as the Acting Assistant Attorney General in charge of that division.

Sean Ringsted was appointed Executive Vice President and Chief Digital Officer in February 2017 and Chief Risk Officer andin November 2008.  Mr. Ringsted previously served as Chief Actuary of ACEChubb Limited infrom November 2008.2008 to January 2017.  Mr. Ringsted’s previous roles at ACEChubb also include Chief Actuary for ACEChubb Group from 2004 to 2008, Executive Vice President and Chief Risk Officer for ACEChubb Tempest Re from 2002 to 2004, and Senior Vice President and Chief Actuary for ACEChubb Tempest Re from 1998 to 2002.  Prior to joining ACE,Chubb, Mr. Ringsted was a consultant at Tillinghast-Towers Perrin.



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Timothy A. Boroughs was appointed Executive Vice President and Chief Investment Officer of ACEChubb Group in June 2000. Prior to joining ACE,Chubb, Mr. Boroughs was Director of Fixed Income at Tudor Investment Corporation from 1997 to 2000, and Managing Partner and Director of Global Leveraged Investment Activity at Fischer Francis Trees & Watts from 1976 to 1997.


Paul J. Krump was appointed Executive Vice President, Chubb Group and President North America Commercial and Personal Insurance in January 2016. Prior to Chubb Limited’s January 2016 acquisition of The Chubb Corporation, Mr. Krump was Chief Operating Officer of The Chubb Corporation, responsible for the company’s Commercial, Specialty, Personal and Accident & Health insurance lines; Claims; Global Field Operations; Information Technology; Human Resources; Communications; and External Affairs. Mr. Krump joined The Chubb Corporation in 1982 as a commercial underwriting trainee in the Minneapolis office. He held numerous headquarters and field positions in the United States and Europe, including President of Personal Lines and Claims and President of Commercial and Specialty Lines.
Juan C. Andrade was appointed Executive Vice President, Chubb Group and President, Overseas General Insurance in January 2016. Mr. Andrade joined Chubb in December 2010 to lead the global personal lines and small commercial property & casualty insurance businesses. In January 2013, he became the Chief Operating Officer for Overseas General Insurance. Prior to joining Chubb, Mr. Andrade was President and Chief Operating Officer of property & casualty operations for The Hartford Financial Services Group. He joined The Hartford in 2006 as head of the property & casualty claims organization.

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ITEM 1A. Risk Factors
Factors that could have a material impact on our results of operations or financial condition are outlined below. Additional risks not presently known to us or that we currently deem insignificant may also impair our business or results of operations as they become known facts or as facts and circumstances change. Any of the risks described below could result in a significant or material adverse effect on our results of operations or financial condition.

Insurance

Our results of operations or financial condition could be adversely affected by the occurrence of natural and man-made disasters.
We have substantial exposure to losses resulting from natural disasters, man-made catastrophes such as terrorism or cyber-attack, and other catastrophic events, including pandemics. This could impact a variety of our businesses, including our commercial and personal lines, and life and A&Haccident and health (A&H) products. Catastrophes can be caused by various events, including hurricanes, typhoons, earthquakes, hailstorms, drought, explosions, severe winter weather, fires, war, acts of terrorism, nuclear accidents, political instability, and other natural or man-made disasters, including a global or other wide-impact pandemic or a significant cyber-attack. The incidence and severity of catastrophes are inherently unpredictable and our losses from catastrophes could be substantial. In addition, climate conditions may be changing, primarily through changes in global temperatures, which may increase the frequency and severity of natural catastrophes and the resulting losses in the future. We cannot predict the impact that changing climate conditions, if any, may have on our results of operations or our financial condition. Additionally, we cannot predict how legal, regulatory and/or social responses to concerns around global climate change may impact our business. The occurrence of claims from catastrophic events could result in substantial volatility in our results of operations or financial condition for any fiscal quarter or year. The historical incidence for events such as earthquakes, pandemics and cyber-attacks is infrequent and may not be representative of contemporary exposures and risks. As an example, increases in the values and concentrations of insured property may increase the severity of these occurrences in the future. Although we attempt to manage our exposure to such events through the use of underwriting controls, risk models, and the purchase of third-party reinsurance, catastrophic events are inherently unpredictable and the actual nature of such events when they occur could be more frequent or severe than contemplated in our pricing and risk management expectations. As a result, the occurrence of one or more catastrophic events could have an adverse effect on our results of operations and financial condition.

If actual claims exceed our loss reserves, our financial results could be adversely affected.
Our results of operations and financial condition depend upon our ability to accurately assess the potential losses associated with the risks that we insure and reinsure. We establish reserves for unpaid losses and loss expenses, which are estimates of future payments of reported and unreported claims for losses and related expenses, with respect to insured events that have occurred at or prior to the balance sheet date. The process of establishing reserves can be highly complex and is subject to considerable variability as it requires the use of informed estimates and judgments.

Actuarial staff in each of our segments analyzeanalyzes insurance reserves and regularly evaluateevaluates the levels of loss reserves. Any such evaluationsevaluation could result in future changes in estimates of losses or reinsurance recoverables and would be reflected in our results


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of operations in the period in which the estimates are changed. Losses and loss expenses are charged to income as incurred. During the loss settlement period, which can be many years in duration for some of our lines of business, additional facts regarding individual claims and trends often will become known which may result in a change in overall reserves. In addition, application of statistical and actuarial methods may require the adjustment of overall reserves upward or downward from time to time.

Included in our loss reserves are liabilities for latent claims such as A&E,asbestos and environmental (A&E), which are principally related to claims arising from remediation costs associated with hazardous waste sites and bodily-injury claims related to exposure to asbestos products and environmental hazards. At December 31, 20142016, gross A&E liabilities represented approximately 4.43.8 percent of our loss reserves. The estimation of these liabilities is subject to many complex variables including: the current legal environment; specific settlements that may be used as precedents to settle future claims; assumptions regarding trends with respect to claim severity and the frequency of higher severity claims; assumptions regarding the ability to allocate liability among defendants (including bankruptcy trusts) and other insurers; the ability of a claimant to bring a claim in a state in which they haveit has no residency or exposure; the ability of a policyholder to claim the right to non-products coverage; whether high-level excess policies have the potential to be accessed given the policyholder's claim trends and liability situation; payments to unimpaired claimants; and the potential liability of peripheral defendants. Accordingly, the ultimate settlement of losses, arising from either latent or non-latent causes, may be significantly greater or less than the loss and loss expense reserves held at the balance sheet date. In particular the amount and timing of the settlement of our P&C liabilities are not determinate and our actual payments


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could be higher than contemplated in our loss reserves owing to the impact of insurance, judicial decisions, and/or social inflation. If our loss reserves are determined to be inadequate, we may be required to increase loss reserves at the time of the determination and our net income and capital may be reduced.

The effects of emerging claim and coverage issues on our business are uncertain.
As industry practices and legislative, regulatory, judicial, social, financial, technology and other environmental conditions change, unexpected and unintended issues related to claims and coverage may emerge. These issues may adversely affect our business by either extending coverage beyond our underwriting intent or by increasing the frequency and severity of claims. In some instances, these changes may not become apparent until after we have issued insurance or reinsurance contracts that are affected by the changes. As a result, the full extent of liability under our insurance or reinsurance contracts may not be known for many years after issuance.

The failure of any of the loss limitation methods we use could have an adverse effect on our results of operations and financial condition.
We seek to manage our loss exposure by maintaining a disciplined underwriting process throughout our insurance operations. We also look to limit our loss exposure by writing a number of our insurance and reinsurance contracts on an excess of loss basis. Excess of loss insurance and reinsurance indemnifies the insured against losses in excess of a specified amount. In addition, we limit program size for each client and purchase third-party reinsurance for our own account. In the case of our assumed proportional reinsurance treaties, we seek per occurrence limitations or loss and loss expense ratio caps to limit the impact of losses ceded by the client. In proportional reinsurance, the reinsurer shares a proportional part of the premiums and losses of the reinsured. We also seek to limit our loss exposure by geographic diversification. Geographic zone limitations involve significant underwriting judgments, including the determination of the area of the zones and the inclusion of a particular policy within a particular zone's limits. Various

However, there are inherent limitations in all of these tactics and no assurance can be given against the possibility of an event or series of events that could result in loss levels that could have an adverse effect on our financial condition or results of operations. It is also possible that losses could manifest themselves in ways that we do not anticipate and that our risk mitigation strategies are not designed to address. Additionally, various provisions of our policies, such as limitations or exclusions from coverage or choice of forum negotiated to limit our risks, may not be enforceable in the manner we intend. As a result, one or more catastrophicnatural catastrophes and/or terrorism or other events could result in claims that substantially exceed our expectations, which could have an adverse effect on our results of operations and financial condition.

We may be unable to purchase reinsurance, andand/or if we successfully purchase reinsurance, we are subject to the possibility of non-payment.
We purchase protection from third parties including, but not limited to, reinsurance to protect against catastrophes and other sources of volatility, to increase the amount of protection we can provide our clients, and as part of our overall risk management strategy. Our reinsurance business also purchases retrocessional protection which allows a reinsurer to cede to another company all or part of the reinsurance originally assumed by the reinsurer. A reinsurer's or retrocessionaire's insolvency or inability or unwillingness to make timely payments under the terms of its reinsurance agreement with us could have an adverse


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effect on us because we remain liable to the insured. From time to time, market conditions have limited, and in some cases have prevented, insurers and reinsurers from obtaining the types and amounts of reinsurance or retrocessional reinsurance that they consider adequate for their business needs.

There is no guarantee our desired amounts of reinsurance or retrocessional reinsurance will be available in the marketplace in the future. In addition to capacity risk, the remaining capacity may not be on terms we deem appropriate or acceptable or with companies with whom we want to do business. Finally, we face some degree of counterparty risk whenever we purchase reinsurance or retrocessional reinsurance. Consequently, the insolvency of these counterparties, or the inability, or unwillingness of any of our present or future reinsurers to make timely payments to us under the terms of our reinsurance or retrocessional agreements could have an adverse effect on us. At December 31, 20142016, we had $12.0$13.8 billion of reinsurance recoverables, net of reserves for uncollectible recoverables.

Certain active ACEChubb companies are primarily liable for A&E and other exposures they have reinsured to our inactive run-off company Century Indemnity Company (Century). At December 31, 20142016, the aggregate reinsurance balances ceded by our active subsidiaries to Century were approximately $1.1$1.2 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 its affiliates would be payable only after the payment in full of certainthird party 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. While we believe the intercompany reinsurance recoverables from Century are not impaired at this time, we cannot assure that adverse development with respect to Century's loss reserves, if manifested, will not result in Century's insolvency, which could result in our recognizing a loss to the extent of any uncollectible reinsurance from Century. This could have an adverse effect on our results of operations and financial condition.



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Our net income may be volatile because certain products sold by our Life Insurance business expose us to reserve and fair value liability changes that are directly affected by market and other factors and assumptions.
Our pricing, establishment of reserves for future policy benefits and valuation of life insurance and annuity products, including reinsurance programs, are based upon various assumptions, including but not limited to market changes, interest rates, mortality rates, morbidity rates, and policyholder behavior. The process of establishing reserves for future policy benefits relies on our ability to accurately estimate insured events that have not yet occurred but that are expected to occur in future periods.  Significant deviations in actual experience from assumptions used for pricing and for reserves for future policy benefits could have an adverse effect on the profitability of our products and our business.

Under reinsurance programs covering variable annuity guarantees, we assumed the risk of guaranteed minimum death benefits (GMDB) and guaranteed living benefits (GLB) associated with variable annuity contracts. Our GLB liability includes guaranteed minimum income benefits (GMIB) and guaranteed minimum accumulation benefits (GMAB). We ceased writing this business in 2007. Our net income is directly impacted by changes in the reserves calculated in connection with the reinsurance of GMDB and GLB liabilities. In addition, our net income is directly impacted by the change in the fair value of the GLB liability. Reported liabilities for both GMDB and GLB reinsurance are determined using internal valuation models which require considerable judgment and are subject to significant uncertainty. Refer to the “Critical Accounting Estimates – Guaranteed living benefits (GLB) derivatives”, under Item 7 and “Quantitative and Qualitative Disclosures about Market Risk – Reinsurance of GMDB and GLB guarantees”, under Item 7A for additional information on the assumptions used in this program. We view our variable annuity reinsurance business as having a similar risk profile to that of catastrophe reinsurance, with the probability of long-term economic loss relatively small at the time of pricing. Adverse changes in market factors and policyholder behavior will have an impact on both lifeLife Insurance underwriting income and consolidated net income.

Payment of obligations under surety bonds could have an adverse effect on our results of operations.
The surety business tends to be characterized by infrequent but potentially high severity losses. The majority of our surety obligations are intended to be performance-based guarantees. When losses occur, they may be mitigated, at times, by recovery rights to the customer’s assets, contract payments, and collateral and bankruptcy recoveries. We have substantial commercial and construction surety exposure for current and prior customers. In that regard, we have exposures related to surety bonds issued on behalf of companies that have experienced or may experience deterioration in creditworthiness. If the financial condition of these companies were adversely affected by the economy or otherwise, we may experience an increase in filed claims and may incur high severity losses, which could have an adverse effect on our results of operations.



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Our exposure to counterparties in various industries, our reliance on brokers, and certain of our policies may subject us to credit risk.
We have exposure to counterparties through reinsurance and in various industries, including banks, hedge funds and other investment vehicles, and derivative transactions that expose us to credit risk in the event our counterparty fails to perform its obligations. We also have exposure to financial institutions in the form of secured and unsecured debt instruments and equity securities.

In accordance with industry practice, we generally pay amounts owed on claims to brokers who, in turn, remit these amounts to the insured or ceding insurer. Although the law is unsettled and depends upon the facts and circumstances of the particular case, in some jurisdictions, if a broker fails to make such a payment, we might remain liable to the insured or ceding insurer for the deficiency. Conversely, in certain jurisdictions, if the brokers doa broker does not remit premiums paid for these policies over to us, these premiums might be considered to have been paid and the insured or ceding insurer will no longer be liable to us for those amounts, whether or not we have actually received the premiums from the broker. Consequently, we assume a degree of credit risk associated with brokersa broker with whom we transact business. However, due to the unsettled and fact-specific nature of the law, we are unable to quantify our exposure to this risk. To date, we have not experienced any material losses related to these credit risks.

Under the terms of certain high-deductible policies which we offer, such as workers’ compensation and general liability, our customers are responsible to reimburse us for an agreed-upon dollar amount per claim. In nearly all cases we are required under such policies to pay covered claims first, and then seek reimbursement for amounts within the applicable deductible from our customers. This obligation subjects us to credit risk from these customers. While we generally seek to mitigate this risk through collateral agreements and maintain a provision for uncollectible accounts associated with this credit exposure, an increased inability of customers to reimburse us in this context could have an adverse effect on our financial condition and results of operations. In addition, a lack of credit available to our customers could impact our ability to collateralize this risk to our satisfaction, which in turn, could reduce the amount of high-deductible policies we could offer.

Since we depend on a few brokersdistribution partners for a large portion of our revenues, loss of business provided by any one of them could adversely affect us.
We market our insurance and reinsurance worldwide primarily through independent insurance agents and insurance and reinsurance brokers. Marsh, Inc.Accordingly, our business is dependent on the willingness of these agents and its affiliates provided approximately 10 percentbrokers to recommend our products to their customers, who may also promote and distribute the products of our gross premiums writtencompetitors. Deterioration in 2014.relationships with our agent and broker distribution network or their increased promotion and distribution of our competitors' products could adversely affect our ability to sell our products. Loss of all or a substantial portion of the business provided by one or more of these agents and brokers could have an adverse effect on our business.

Financial

Our investment performance may affect our financial results and our ability to conduct business.
Our investment assets are invested by professional investment management firms under the direction of our management team in accordance with investment guidelines approved by the Risk & Finance Committee of the Board of Directors. Although our


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investment guidelines stress diversification of risks and conservation of principal and liquidity, our investments are subject to market risks and risks inherent in individual securities. Interest rates are highly sensitive to many factors, including inflation, monetary and fiscal policies, and domestic and international political conditions. The volatility of our losses may force us to liquidate securities, which may cause us to incur capital losses. Realized and unrealized losses in our investment portfolio would generally reduce our book value, and if significant, can affect our ability to conduct business.

Volatility in interest rates could impact the performance of our investment portfolio which could have an adverse effect on our investment income and operating results. Although we take measures to manage the risks of investing in a changing interest rate environment, we may not be able to effectively mitigate interest rate sensitivity. Our mitigation efforts include maintaining a high quality portfolio of primarily fixed income investments with a relatively short duration to reduce the effect of interest rate changes on book value. A significant increase in interest rates would generally have an adverse effect on our book value. Our life insurance investments typically focus on longer duration bonds to better match the obligations of this business. For the life insurance business, policyholder behavior may be influenced by changing interest rate conditions and require a rebalancingre-balancing of duration to effectively manage our asset/liability position.

OurAs stated, our fixed income portfolio is primarily invested in high quality, investment-grade securities. AHowever, a smaller portion of the portfolio, approximately 1412 percent at December 31, 20142016, is invested in below investment-grade securities.


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These securities, which pay a higher rate of interest, also have a higher degree of credit or default risk and may also be less liquid in times of economic weakness or market disruptions. While we have put in place procedures to monitor the credit risk and liquidity of our invested assets, it is possible that, in periods of economic weakness (such as recession), we may experience credit or default losses in our portfolio, which could adversely affect our results of operations and financial condition.

As a part of our ongoing analysis of our investment portfolio, we are required to assess whether the debt and equity securities we hold for which we have recorded an unrealized loss have been “other-than-temporarily impaired” under GAAP, which implies an inability to recover the full economic benefits of these securities. Refer to Note 3 to the Consolidated Financial Statements for additional information. This analysis requires a high degree of judgment and requires us to make certain assessments about the potential for recovery of the assets we hold. Declines in relevant stock and other financial markets, and other factors impacting the value of our investments, could result in impairments and could adversely affect our net income and other financial results.

We may require additional capital or financing sources in the future, which may not be available or may be available only on unfavorable terms.
Our future capital and financing requirements depend on many factors, including our ability to write new business successfully and to establish premium rates and reserves at levels sufficient to cover losses, as well as our investment performance.performance and capital expenditure obligations, including with respect to acquisitions. We may need to raise additional funds through financings or access funds through existing or new credit facilities or through short-term repurchase agreements. We also from time to time seek to refinance debt or credit as amounts become due or commitments expire. Any equity or debt financing or refinancing, if available at all, may be on terms that are not favorable to us. In the case of equity financings, dilution to our shareholders could result, and in any case, such securities may have rights, preferences, and privileges that are senior to those of our Common Shares. Our access to funds under existing credit facilities is dependent on the ability of the banks that are parties to the facilities to meet their funding commitments. If we cannot obtain adequate capital or sources of credit on favorable terms, or at all, we could be forced to use assets otherwise available for our business operations, and our business, results of operations, and financial condition could be adversely affected.

We may be required to post additional collateral because of changes in our reinsurance liabilities to regulated insurance companies, or because of regulatory changes that affect our companies.
If our reinsurance liabilities increase, including in our property & casualty and variable annuity reinsurance businesses, we may be required to post additional collateral for insurance company clients. In addition, regulatory changes sometimes affect our obligations to post collateral. The need to post this additional collateral, if significant enough, may require us to sell investments at a loss in order to provide securities of suitable credit quality or otherwise secure adequate capital at an unattractive cost. This could adversely impact our net income and liquidity and capital resources.

U.S. and global economic and financial industry events and their consequences could harm our business, our liquidity and financial condition, and our stock price.
The consequences of adverse global or regional market and economic conditions may affect (among other aspects of our business) the demand for and claims made under our products, the ability of customers, counterparties, and others to establish or maintain their relationships with us, our ability to access and efficiently use internal and external capital resources, the


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availability of reinsurance protection, the risks we assume under reinsurance programs covering variable annuity guarantees, and our investment performance. Volatility in the U.S. and other securities markets may adversely affect our stock price.

A decline in our financial strength ratings could affect our standing among brokers and customers and cause our premiums and earnings to decrease. A decline in our debt ratings could increase our borrowing costs and impact our ability to access capital markets.
Ratings are an important factor in establishing the competitive position of insurance and reinsurance companies. The objective of these rating systems is to provide an opinion of an insurer's financial strength and ability to meet ongoing obligations to its policyholders. A ratings downgrade could result in a substantial loss of business as insureds, ceding companies, and brokers move to other insurers and reinsurers with higher ratings. If one or more of our debt ratings were downgraded, we could also incur higher borrowing costs, and our ability to access the capital markets could be impacted. Additionally, we could be required to post collateral or be faced with the cancellation of policies and resulting premium in certain circumstances. We cannot give any assurance regarding whether or to what extent any of the rating agencies maymight downgrade our ratings in the future.



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Our ability to pay dividends andand/or to make payments on indebtedness may be constrained by our holding company structure.
ACEChubb Limited is a holding company and does not have any significant operations or assets other than its ownership of the shares of its operating insurance and reinsurance subsidiaries. Dividends and other permitted distributions from our insurance subsidiaries are our primary source of funds to meet ongoing cash requirements, including any future debt service payments and other expenses, and to pay dividends to our shareholders. Some of our insurance subsidiaries are subject to significant regulatory restrictions limiting their ability to declare and pay dividends. The inability of our insurance subsidiaries to pay dividends in an amount sufficient to enable us to meet our cash requirements at the holding company level could have an adverse effect on our operations and our ability to pay dividends to our shareholders and/or meet our debt service obligations.

Our operating results and shareholders' equity may be adversely affected by currency fluctuations.
Our reporting currency is the U.S. dollar. In general, we match assets and liabilities in local currencies. Where possible, capital levels in local currencies are limited to satisfy minimum regulatory requirements and to support local insurance operations. The principal currencies creating foreign exchange risk are the British pound sterling, the Brazilian real,euro, the Mexican peso, the euro,Brazilian real, the Korean won, the Canadian dollar, the Korean won,Japanese yen, the Thai baht, the Australian dollar, and the yen.Hong Kong dollar. At December 31, 20142016, approximately 25.326.8 percent of our net assets were denominated in foreign currencies. We may experience losses resulting from fluctuations in the values of non-U.S. currencies, which could adversely impact our results of operations and financial condition.

Operational

The regulatory and political regimes under which we operate, and their volatility, could have an adverse effect on our business.
Our insurance and reinsurance subsidiaries conduct business globally. Our businesses in each jurisdiction are subject to varying degrees of regulation and supervision. The laws and regulations of the jurisdictions in which our insurance and reinsurance subsidiaries are domiciled require, among other things, maintenance of minimum levels of statutory capital, surplus, and liquidity; various solvency standards; and periodic examinations of subsidiaries' financial condition. In some jurisdictions, laws and regulations also restrict payments of dividends and reductions of capital. Applicable statutes, regulations, and policies may also restrict the ability of these subsidiaries to write insurance and reinsurance policies, to make certain investments, and to distribute funds. The purpose of insurance laws and regulations generally is to protect policyholders and ceding insurance companies, not our shareholders. For example, some jurisdictions have enacted various consumer protection laws that make it more burdensome for insurance companies to sell policies and interact with customers in personal lines businesses. Failure to comply with such regulations can lead to significant penalties and reputational injury. Fines and penalties in the U.S. in particular have been trending upwards.
 
The foreign and U.S. federal and state laws and regulations that are applicable to our operations are complex and may increase the costs of regulatory compliance or subject our business to the possibility of regulatory actions or proceedings. Laws and regulations not specifically related to the insurance industry include trade sanctions that relate to certain countries, anti-money laundering laws, and anti-corruption laws such as the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act 2010, the anti-bribery provisions of the Swiss Penal Code and similar local laws prohibiting corrupt payments to governmental officials. The insurance industry is also affected by political, judicial, and legal developments that may create new and expanded regulations and theories of liability. The current economic climate and the recent financial crisisclimates present additional uncertainties and risks relating to increased regulation and the potential for increased involvement of the U.S. and other governments in the financial services industry.


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In addition, various legislative initiatives may impact the conduct of our business. For example, in the U.S., Congress may make changes to the terrorism risk insurance program, which could have adverse effects on our business.

Regulators in countries where we have operations are working with the International Association of Insurance Supervisors (IAIS) to consider changes to insurance company supervision, including with respect to group supervision and solvency requirements. The IAIS has developed a Common Framework for the Supervision of Internationally Active Insurance Groups (ComFrame) which is developing a common framework to supervise internationallyfocused on the effective group-wide supervision of international active insurance groups (IAIGs), such as ACE, known as Com Frame.Chubb. As part of Com Frame,ComFrame, the IAIS has announced plans to develop an international capital standard for insurance groups. The details of Com FrameComFrame including this global capital standard and its applicability to ACEChubb are uncertain at this time. In addition, the European Union (EU) is implementinghas implemented a new capital and risk management regime known as Solvency II that would applyapplies to our businesses across the EU, which became effective January 1, 2016. ACEBermuda also implemented a new capital and risk management regime effective January 1, 2016, which has been deemed equivalent to the EU's Solvency II regime. Chubb businesses are also subject to the requirements of the Swiss Financial Market Supervisory Authority (FINMA) whose regulations


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include Swiss Solvency Tests. There are also Risk Based Capital Requirements(RBC) requirements in the U.S. which are also subject to revision in response to global developments. While it is not certain how or if these actions will impact ACE,Chubb, we do not currently expect that our capital management strategies, results of operations and financial condition will be materially affected by these regulatory changes.

In the event or absence of changes in applicable laws and regulations in particular jurisdictions, we may from time to time face challenges, or changes in approach to oversight of our business from insurance or other regulators, including challenges resulting from requiring the use of information technology that cannot be quickly adjusted to address new regulatory requirements.

We may not be able to comply fully with, or obtain appropriate exemptions from, applicable statutes and regulations and any changes thereto, which could have an adverse effect on our business. Failure to comply with or to obtain appropriate authorizations and/or exemptions under any applicable laws and regulations could result in restrictions on our ability to do business or undertake activities that are regulated in one or more of the jurisdictions in which we conduct business and could subject us to fines and other sanctions.

Political uncertainty in the United Kingdom and the European Union may lead to volatility and/or have an adverse effect on our business, our liquidity and financial condition, and our stock price.
On June 23, 2016, the United Kingdom (UK) voted in a national referendum to withdraw from the European Union. The UK’s Supreme Court has determined that an Act of Parliament is required to confer power on the UK government to give notice to the European Union, under Article 50(2) of the Treaty on European Union, of the UK’s intention to withdraw from the European Union. As of the date of this document, the European Union (Notification of Withdrawal) Bill has not yet been granted royal assent. The UK government has indicated that it intends to give notice of the UK’s intention to withdraw from the European Union before the end of March 2017 subject to the bill being granted royal assent by that time. If such notice is given by the UK government, the withdrawal process would be unprecedented in European Union history, and one that could involve months or years of negotiation to draft and approve a withdrawal agreement. In addition, a withdrawal agreement may not be concluded within the time limit specified in Article 50(3), in which case the UK may be required to withdraw from the European Union without a withdrawal agreement being in force.

The possible exit of the UK (or any other country) from the European Union, the potential withdrawal of Scotland or Northern Ireland from the UK, or prolonged periods of uncertainty relating to any of these possibilities could result in significant macroeconomic deterioration including, but not limited to, further decreases in global stock exchange indices, increased foreign exchange volatility (in particular a further weakening of the pound sterling and euro against other leading currencies), decreased GDP in the UK, and a downgrade of the UK’s sovereign credit rating. In addition, these events could push the UK, Eurozone, and/or United States into an economic recession any of which, were they to occur, would further destabilize the global financial markets and could have a material adverse effect on our business, financial condition, and results of operations. We have significant operations in the UK and other EU member states. Depending on the final terms of the UK exit, we may be required to reorganize our operations and legal entity structure in the UK and the EU in a manner that could be less efficient and more expensive.

The result of the June referendum has also raised concerns regarding the terms for future UK access to the EU Single Market, which is made up of the 27 other EU member states and, to some extent, Iceland, Liechtenstein, and Norway (together, the European Economic Area or EEA). The rules governing the EU Single Market require local risks to be underwritten by a local authorized insurer; an EEA authorized insurer or a non-local insurer with the benefit of an EU “passport”. As such, UK insurers, including us, are able to underwrite risks from the UK into EEA member states via a “passport”. The UK government has announced that it will not be seeking membership of the EU Single Market during any withdrawal negotiations but will pursue instead a free trade agreement that covers goods and services. However, there can be no assurance that any such agreement will maintain the passporting rights of UK insurers or will deem relevant UK regulations to be equivalent to those of the EU. In the event that, following the UK’s withdrawal from the EU, UK insurers were unable to access the EU Single Market via a passporting arrangement, a regulatory equivalence regime or other similar arrangement, such insurers may not be able to underwrite risks into EEA member states except through local branches incorporated in the EEA. Such branches might require local authorization, regulatory and prudential supervision, and capital to be deposited. Any change to the terms of the UK’s access to the EU Single Market following the withdrawal of the UK from the EU could have a material adverse effect on our business, financial condition, and results of operations.

In addition, Lloyd’s currently benefits from EU Single Market passporting arrangements, which allow its syndicates and coverholders to write business in EEA member states. Lloyd’s might not be able to maintain such passporting rights or


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equivalent rights following the withdrawal of the UK from the EU, which could restrict our ability to write business in the EEA through Lloyd’s syndicates and coverholders and therefore have a material adverse effect on our business, financial condition, and results of operations.

Our worldwide operations, particularly in developing nations, expose us to global geopolitical developments that could have an adverse effect on our business, liquidity, results of operations, and financial condition.
With operations in 54 countries, we provide insurance and reinsurance products and services to a diverse group of clients worldwide, including operations in various developing nations. Both current and future foreign operations could be adversely affected by unfavorable geopolitical developments including law changes, tax changes, changes in trade policies, changes to visa or immigration policies, regulatory restrictions, government leadership changes, political events and upheaval, sociopolitical instability, and nationalization of our operations without compensation. Adverse activity in any one country could negatively impact operations, increase our loss exposure under certain of our insurance products, and could, otherwise, have an adverse effect on our business, liquidity, results of operations, and financial condition depending on the magnitude of the events and our net financial exposure at that time in that country.

A failure in our operational systems or infrastructure or those of third parties, including due to security breaches or cyber-attacks, could disrupt business, damage our reputation, and cause losses.
Our operations rely on the secure processing, storage, and transmission of confidential and other information and assets, including in our computer systems and networks.networks and those of third-party service providers. Our business depends on effective information security and systems and the integrity and timeliness of the data our information systems use to run our business. Our ability to adequately price products and services, to establish reserves, to provide effective, efficient and secure service to our customers, to value our investments and to timely and accurately report our financial results also depends significantly on the integrity and availability of the data we maintain, including that within our information systems, as well as data in and assets held through third-party service providers and systems. In an effort to ensure the integrity of such data, we implement new security measures and systems, including the use of confidential intellectual property, and improve or upgrade our existing security measures and systems on a continuing basis. Although we have implemented administrative and technical controls and take protective actions to reduce the risk of cyber incidents and to protect our information technology and assets, and although we additionally endeavor to modify such procedures as circumstances warrant and negotiate agreements with third-party providers to protect our assets, such measures may be insufficient to prevent unauthorized access, computer viruses, malware or other malicious code or cyber-attack, catastrophic events, system failures and disruptions (including in relation to new security measures and systems), employee errors or malfeasance, third party (including outsourced service providers) errors or malfeasance, loss of assets and other events that could have security consequences (each, a Security Event). In some cases, such events may not be immediately detected. As the breadth and complexity of our security infrastructure continues to grow, the potential risk of a Security Event increases. Like other global companies, we have from time to time experienced Security Events, none of which had, a materialindividually or in the aggregate, an adverse impact on our business, results of operations, andor financial condition. If additional Security Events occur, these events may jeopardize ACE'sChubb's or its clients' or counterparties' confidential and other information processed and stored within ACE,Chubb, and transmitted through its computer systems and networks, or otherwise cause interruptions, delays, or malfunctions in ACE's,Chubb's, its clients', its counterparties', or third parties' operations, or result in data loss or loss of assets which could result in significant losses,


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reputational damage or a materialan adverse effect on our operations and critical business functions. ACEChubb may be required to expend significant additional resources to modify our protective measures or to investigate and remediate vulnerabilities or other exposures and to pursue recovery of lost data or assets and we may be subject to litigation and financial losses that are either not insured against or not fully covered by insurance maintained.
    
The regulatory environment surrounding information security and privacy is increasingly demanding. We are subject to numerous U.S. federal and state laws and foreign regulations in jurisdictions outside the U.S. governing the protection of personal and confidential information of our clients or employees, including in relation to medical records, credit card data and financial information. These laws and regulations are increasing in complexity and number, change frequently and sometimes conflict. If any person, including any of our employees or those with whom we share such information, negligently disregards or intentionally breaches our established controls with respect to our client data, or otherwise mismanages or misappropriates that data, we could be subject to significant monetary damages, regulatory enforcement actions, fines and/or criminal prosecution in one or more jurisdictions.

Despite the contingency plans and facilities we have in place and our efforts to observe the regulatory requirements surrounding information security, our ability to conduct business may be adversely affected by a disruption of the infrastructure that supports our business in the communities in which we are located, or of outsourced services or functions. This may include a disruption involving electrical, communications, transportation, or other services used by ACE.Chubb. If a disruption occurs in one location and ACE


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Chubb employees in that location are unable to occupy our offices and conduct business or communicate with or travel to other locations, our ability to service and interact with clients may suffer and we may not be able to successfully implement contingency plans that depend on communication or travel.

We use analytical models to assist our decision making in key areas such as underwriting, claims, reserving, and catastrophe risks but actual results could differ materially from the model outputs and related analyses.
We use various modeling techniques (e.g., scenarios, predictive, stochastic and/or forecasting) and data analytics to analyze and estimate exposures, loss trends and other risks associated with our assets and liabilities. We use the modeled outputs and related analyses to assist us in decision-making (e.g., underwriting, pricing, claims, reserving, reinsurance, and catastrophe risk) and to maintain competitive advantage. The modeled outputs and related analyses are subject to various assumptions, uncertainties, model errors and the inherent limitations of any statistical analysis, including the use of historical internal and industry data. In addition, the modeled outputs and related analyses may from time to time contain inaccuracies, perhaps in material respects, including as a result of inaccurate inputs or applications thereof. Consequently, actual results may differ materially from our modeled results. If, based upon these models or other factors, we misprice our products or underestimate the frequency and/or severity of loss events, or overestimate the risks we are exposed to, new business growth and retention of our existing business may be adversely affected which could have a materialan adverse effect on our results of operations and financial condition.

We could be adversely affected by the loss of one or more key executives or by an inability to attract and retain qualified personnel.
Our success depends on our ability to retain the services of our existing key executives and to attract and retain additional qualified personnel in the future. The loss of the services of any of our key executives or the inability to hire and retain other highly qualified personnel in the future could adversely affect our ability to conduct or grow our business. This risk may be particularly acute for us relative to some of our competitors because some of our senior executives work in countries where they are not citizens and work permit and immigration issues could adversely affect the ability to retain or hire key persons. We do not maintain key person life insurance policies with respect to our employees.

Employee error and misconduct may be difficult to detect and prevent and could adversely affect our business, results of operations, and financial condition.
Losses may result from, among other things, fraud, errors, failure to document transactions properly, failure to obtain proper internal authorization, failure to comply with underwriting or other internal guidelines, or failure to comply with regulatory requirements. It is not always possible to deter or prevent employee misconduct and the precautions that we take to prevent and detect this activity may not be effective in all cases. Resultant losses could adversely affect our business, results of operations, and financial condition.

Strategic

Competition in the insurance and reinsurance markets could reduce our margins.margins and adversely impact our business and results of operations.
Insurance and reinsurance markets are highly competitive. We compete on an international and regional basiswith major U.S., Bermuda, European, and other international insurers and reinsurers and with underwriting syndicates, some of which have greater financial, marketing, and management resources than we do. We also compete with new companies that continue to be


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formed to enter the insurance and reinsurance markets. Technological advancements in the insurance industry in the markets in which we operate may also present competitive risks; technology advancements are occurring in distribution, underwriting and operations and at a pace that may increase. In addition, capital market participants have created alternativeproducts that are intended to compete with reinsurance products. If competition or technological or other changes to the insurance markets in which we operate limit our ability to retain existing business or write new business at adequate rates or on appropriate terms, our business and results of operations could be materially and adversely affected. Increased competition could also result in fewer submissions, lower premium rates, and less favorable policy terms and conditions, which could reduce our profit margins and adversely impact our net income and book value.shareholders' equity.

Insurance and reinsurance markets are historically cyclical, and we expect to experience periods with excess underwriting capacity and unfavorable premium rates.
The insurance and reinsurance markets have historically been cyclical, characterized by periods of intense price competition due to excessive underwriting capacity as well as periods when shortages of capacity permitted favorable premium levels. An increase in premium levels is often offset by an increasing supply of insurance and reinsurance capacity, either by capital provided by new entrants or by the commitment of additional capital by existing insurers or reinsurers, which may cause prices to decrease. Any of these factors could lead to a significant reduction in premium rates, less favorable policy terms, and fewer


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submissions for our underwriting services. In addition to these considerations, changes in the frequency and severity of losses suffered by insureds and insurers may affect the cycles of the insurance and reinsurance markets significantly, as could periods of economic weakness (such as recession).

The integration of acquired companies may not be as successful as we anticipate.
Acquisitions, such as our acquisition of The Chubb Corporation (Chubb Corp) through a merger (the Chubb acquisition), involve numerous operational, strategic, financial, accounting, legal, tax, and other risks; potential liabilities associated with the acquired businesses; and uncertainties related to design, operation and integration of acquired businesses’ internal controls over financial reporting. Difficulties in integrating an acquired company, along with its personnel, may result in the acquired company performing differently than we expected, in operational challenges or in our failure to realize anticipated expense-related efficiencies. Our existing businesses could also be negatively impacted by acquisitions. In addition, goodwill and intangible assets recorded in connection with insurance company acquisitions may be impaired if premium growth, underwriting profitability, agency retention and policy persistency, among other factors, differ from expectations.

There is also the potential that proposed acquisitions that have been publicly announced will not be consummated, even if a definitive agreement has been signed by the parties. If an agreement is terminated before closing, the result would be that our proposed acquisition would not occur, which could, among other things, expose us to damages or liability and adversely impact our stock price and future operations.

We may be subject to U.S. tax and Bermuda tax which may have an adverse effect on our results of operations and shareholder investment.
ACEChubb Limited and our non-U.S. subsidiaries operate in a manner so that none of these companies should be subject to U.S. tax (other than U.S. excise tax on insurance and reinsurance premium income attributable to insuring or reinsuring U.S. risks and U.S. withholding tax on some types of U.S. source investment income), because none of these companies should be treated as engaged in a trade or business within the U.S. However, because there is considerable uncertainty as to the activities that constitute being engaged in a trade or business within the U.S., we cannot be certain that the Internal Revenue Service (IRS) will not contend successfully that ACEChubb Limited or its non-U.S. subsidiaries are engaged in a trade or business in the U.S. If ACEChubb Limited or any of its non-U.S. subsidiaries were considered to be engaged in a trade or business in the U.S., such entity could be subject to U.S. corporate income and branch profits taxes on the portion of its earnings effectively connected to such U.S. business, in which case our results of operations and our shareholders' investments could be adversely affected.

The Bermuda Minister of Finance, under the Exempted Undertakings Tax Protection Act 1966 of Bermuda, as amended, has given ACEChubb Limited and its Bermuda insurance subsidiaries a written assurance that if any legislation is enacted in Bermuda that would impose tax computed on profits or income, or computed on any capital asset, gain, or appreciation, or any tax in the nature of estate duty or inheritance tax, then the imposition of any such tax would not be applicable to those companies or any of their respective operations, shares, debentures, or other obligations until March 31, 2035, except insofar as such tax would apply to persons ordinarily resident in Bermuda or is payable by us in respect of real property owned or leased by us in Bermuda. We cannot be certain that we will not be subject to any Bermuda tax after March 31, 2035.

The Organization for Economic Cooperation and Development (OECD) and the European Union (EU) are considering measures that might encourage countries to increase our taxes.
The OECD has published an action plan to address base erosion and profit shifting (BEPS) impacting its member countries and other jurisdictions. It is possible that jurisdictions in which we do business could react to the BEPS initiative or their own concerns by enacting tax legislation that could adversely affect us or our shareholders.

A number of multilateral organizations, including the EU and the OECD have, in recent years, expressed concern about some countries not participating in adequate tax information exchange arrangements and have threatened those that do not agree to


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cooperate with punitive sanctions by member countries. It is as yet unclear what all of these sanctions might be, which countries might adopt them, and when or if they might be imposed. We cannot assure, however, that the Tax Information Exchange Agreements (TIEAs) that have been or will be entered into by Switzerland and Bermuda will be sufficient to preclude all of the sanctions described above, which, if ultimately adopted, could adversely affect us or our shareholders.

Shareholders

There are provisions in our charter documents that may reduce the voting rights and diminish the value of our Common Shares.
Our Articles of Association generally provide that shareholders have one vote for each Common Share held by them and are entitled to vote at all meetings of shareholders. However, the voting rights exercisable by a shareholder may be limited so that


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certain persons or groups are not deemed to hold 10 percent or more of the voting power conferred by our Common Shares. Moreover, these provisions could have the effect of reducing the voting power of some shareholders who would not otherwise be subject to the limitation by virtue of their direct share ownership. Our Board of Directors may refuse to register holders of shares as shareholders with voting rights based on certain grounds, including if the holder would, directly or indirectly, formally, constructively or beneficially own (as described in Articles 8 and 14 of our Articles of Association) or otherwise control voting rights with respect to 10 percent or more of the registered share capital recorded in the commercial register. In addition, the Board of Directors shall reject entry of holders of registered shares as shareholders with voting rights in the share register or shall decide on their deregistration when the acquirer or shareholder upon request does not expressly state that she/he has acquired or holds the shares in her/his own name and for her/his account.

Applicable laws may make it difficult to effect a change of control of our company.
Before a person can acquire control of a U.S. insurance company, prior written approval must be obtained from the insurance commissioner of the state where the domestic insurer is domiciled. Prior to granting approval of an application to acquire control of a domestic insurer, the state insurance commissioner will consider such factors as the financial strength of the applicant, the integrity and management of the applicant's Board of Directors and executive officers, the acquirer's plans for the future operations of the domestic insurer, and any anti-competitive results that may arise from the consummation of the acquisition of control. Generally, state statutes provide that control over a domestic insurer is presumed to exist if any person, directly or indirectly, owns, controls, holds with the power to vote, or holds proxies representing 10 percent or more of the voting securities of the domestic insurer. Because a person acquiring 10 percent or more of our Common Shares would indirectly control the same percentage of the stock of our U.S. insurance subsidiaries, the insurance change of control laws of various U.S. jurisdictions would likely apply to such a transaction. Laws of other jurisdictions in which one or more of our existing subsidiaries are, or a future subsidiary may be, organized or domiciled may contain similar restrictions on the acquisition of control of ACE.Chubb.

While our Articles of Association limit the voting power of any shareholder to less than 10 percent, we cannot assure that the applicable regulatory body would agree that a shareholder who owned 10 percent or more of our Common Shares did not, because of the limitation on the voting power of such shares, control the applicable insurance subsidiary.

These laws may discourage potential acquisition proposals and may delay, deter, or prevent a change of control of ACE,Chubb, including transactions that some or all of our shareholders might consider to be desirable.

Shareholder voting requirements under Swiss law may limit ACE'sour flexibility with respect to certain aspects of capital management.
Swiss law allows our shareholders to authorize share capital which can be issued by the Board of Directors without shareholder approval but this authorization must be renewed by the shareholders every two years. Swiss law also does not provide as much flexibility in the various terms that can attach to different classes of stock as permitted in other jurisdictions. Swiss law also reserves for approval by shareholders many corporate actions over which the Board of Directors had authority prior to our redomesticationre-domestication to Switzerland. For example, dividends must be approved by shareholders. While we do not believe that Swiss law requirements relating to our capital management will have an adverse effect on ACE,Chubb, we cannot assure that situations will not arise where such flexibility would have provided substantial benefits to our shareholders.

ACEChubb Limited is a Swiss company; it may be difficult to enforce judgments against it or its directors and executive officers.
ACEChubb Limited is incorporated pursuant to the laws of Switzerland. In addition, certain of our directors and officers reside outside the U.S. and all or a substantial portion of our assets and the assets of such persons are located in jurisdictions outside the U.S. As such, it may be difficult or impossible to effect service of process within the U.S. upon those persons or to recover against us or them on judgments of U.S. courts, including judgments predicated upon civil liability provisions of the U.S. federal securities laws.


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ACEChubb has been advised by its Swiss counsel that there is doubt as to whether the courts in Switzerland would enforce:
judgments of U.S. courts based upon the civil liability provisions of the U.S. federal securities laws obtained in actions against it or its directors and officers, who reside outside the U.S.; or
original actions brought in Switzerland against these persons or ACEChubb predicated solely upon U.S. federal securities laws.

ACEChubb has also been advised by its Swiss counsel that there is no treaty in effect between the U.S. and Switzerland providing for this enforcement and there are grounds upon which Swiss courts may not enforce judgments of U.S. courts. Some remedies available under the laws of U.S. jurisdictions, including some remedies available under the U.S. federal securities laws, would not be allowed in Swiss courts as contrary to that nation's public policy.

As

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Under Swiss law, if we need to raise equity capital at a result oftime when our share price is below the increase in par value of our shares, that occurred in connection with our redomestication from the Cayman Islandsequity issuance could be delayed by the need to Switzerland in July 2008, we have less flexibility with respect to certain aspects of capital management than previously.obtain shareholder approval, which cannot be assured.
As of December 31, 2014,2016, the par value of our Common Shares is CHF 24.7724.15 per share. Under Swiss law, we generally may not issue registered shares below their par value. In the event there is a need to raise common equity capital at a time when the trading price of our registered shares is below our par value, we will need to obtain approval of our shareholders to decrease the par value of our registered shares. We cannot assure that we would be able to obtain such shareholder approval. Furthermore, obtaining shareholder approval would require filing a preliminary proxy statement with the SEC and convening a meeting of shareholders which would delay any capital raising plans. Furthermore, any reduction in par value would decrease our ability to pay dividends as a repayment of share capital which is not subject to Swiss withholding tax. See “Shareholders may be subject to Swiss withholding taxes on the payment of dividends” for additional information.

Shareholders may be subject to Swiss withholding taxes on the payment of dividends.
Our dividends are generally subject to a Swiss withholding tax at a rate of 35 percent; however, payment of a dividend in the form of a par value reduction or qualifying capital contribution reserves reduction is not subject to Swiss withholding tax. We have previously obtained shareholder approval for dividends to be paid in such form. We currently intend to recommend to shareholders that they annually approve the payment of dividends in such form but we cannot assure that our shareholders will continue to approve a reduction in such form each year or that we will be able to meet the other legal requirements for a reduction in par value, or that Swiss withholding tax rules will not be changed in the future. We estimate we would be able to pay dividends in such form, and thus exempt from Swiss withholding tax until 2023–2028.2028–2033. This range may vary depending upon changes in annual dividends, special dividends, fluctuations in U.S. dollar/Swiss franc exchange rates, changes in par value or qualifying capital contribution reserves or changes or new interpretations to Swiss corporate or tax law or regulations.

Under certain circumstances, U. S.U.S. shareholders may be subject to adverse U.S. federal income tax consequences.
Under certain circumstances, a U.S. person who owns 10 percent or more of the voting power of a foreign corporation that is a “controlled foreign corporation” (CFC) (a foreign corporation in which 10 percent U.S. shareholders own more than 50 percent of the voting power or value of the stock of a foreign corporation or more than 25 percent of certain foreign insurance corporations) for an uninterrupted period of 30 days or more during a taxable year must include in gross income for U.S. federal income tax purposes such "10 percent U.S. Shareholder's" pro rata share of the CFC's "subpart F income". We believe that because of the dispersion of our share ownership, provisions in our organizational documents that limit voting power, and other factors, no U.S. person or U.S. partnership who acquires shares of ACEChubb Limited directly or indirectly through one or more foreign entities should be required to include ourany subpart F income in income under the CFC rules of U.S. tax law. It is possible, however, that the IRS could challenge the effectiveness of these provisions and that a court could sustain such a challenge, in which case thea U.S. person's investment could be adversely affected ifin 10 percent or more of ACEChubb Limited's stock is owned.could be adversely affected.

Separately, any U.S. persons who hold shares may be subject to U.S. federal income taxation at ordinary income tax rates on their proportionate share of our Related Person Insurance Income (RPII). If the RPII of any of our non-U.S. insurance subsidiaries (each a "Non-U.S. Insurance Subsidiary") were to equal or exceed 20 percent of that company's gross insurance income in any taxable year and direct or indirect insureds (and persons related to those insureds) own directly or indirectly through foreign entities 20 percent or more of the voting power or value of ACEChubb Limited, then a U.S. person who owns any shares of ACEChubb Limited (directly or indirectly through foreign entities) on the last day of the taxable year would be required to include in his or her income for U.S. federal income tax purposes such person's pro rata share of such company's RPII for the entire taxable year. In addition, any RPII that is includible in the income of a U.S. tax-exempt organization may be treated as unrelated business taxable income. We believe that the gross RPII of each Non-U.S. Insurance Subsidiary did not in prior years of operation and is not expected in the foreseeable future to equal or exceed 20 percent of each such company's gross insurance income. Likewise, we do not expect the direct or indirect insureds of each Non-U.S. Insurance Subsidiary (and persons related


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to such insureds) to directly or indirectly own 20 percent or more of either the voting power or value of our shares. However, we cannot be certain that this will be the case because some of the factors which determine the extent of RPII may be beyond our control. If these thresholds are met or exceeded, any U.S. person’s investment in ACEChubb Limited could be adversely affected.

A U.S. tax-exempt organization may recognize unrelated business taxable income if a portion of our insurance income is allocated to the organization. This generally would be the case if either we are a CFC and the tax-exempt shareholder is a 10 percent U.S. shareholder or there is RPII, certain exceptions do not apply, and the tax-exempt organization, directly or indirectly through foreign entities, owns any shares of ACEChubb Limited. Although we do not believe that any U.S. tax-exempt organization should be allocated such insurance income, we cannot be certain that this will be the case. Potential U.S. tax-exempt investors are advised to consult their tax advisors.



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U.S. persons who hold shares will be subject to adverse tax consequences if we are considered to be a Passive Foreign Investment Company (PFIC) for U.S. federal income tax purposes.
If ACEChubb Limited is considered a PFIC for U.S. federal income tax purposes, a U.S. person who holds ACEChubb Limited shares will be subject to adverse U.S. federal income tax consequences in which case their investment could be adversely affected. In addition, if ACEChubb Limited were considered a PFIC, upon the death of any U.S. individual owning shares, such individual's heirs or estate would not be entitled to a "step-up" in the basis of the shares which might otherwise be available under U.S. federal income tax laws. We believe that we are not, have not been, and currently do not expect to become, a PFIC for U.S. federal income tax purposes. We cannot assure, however, that we will not be deemed a PFIC by the IRS. While there are currently noThe IRS issued proposed regulations regarding the application of the PFIC provisions to an insurance company, newand final regulations or pronouncements interpreting or clarifying these rules may be forthcoming. We cannot predict what impact, if any, such guidance would have on an investor that is subject to U.S. federal income taxation.

Changes in tax law could adversely affect an investment in our shares.
Legislation is periodically introduced in the U.S. Congress intended to eliminate some perceived tax advantages of companies (including insurance companies) that have legal domiciles outside the U.S. but have certain U.S. connections. It is possible that such legislation or other legislation could be enacted in the future that could have an adverse impact on us or our shareholders. For example, tax reform has been identified by current U.S. administration as a priority in 2017. Certain provisions of the tax reform proposals, if enacted, as well as future U.S. Treasury Regulations and U.S. court decisions regarding current law or future legislation, could adversely affect us or our shareholders.

Similarly, jurisdictions outside the U.S. in which we do business could enact tax legislation in the future that could have an adverse impact on us or our shareholders. For example, Switzerland is currently consideringpursuing the implementation of corporate tax reform measures thatmeasures. The first effort was rejected by a public vote; however a revised corporate tax reform measure is expected. The next tax reform version could adversely affect us or our shareholders.

Risks Relating to The Chubb Corporation Acquisition (Chubb Corp)
We have incurred, and will continue to incur, significant integration-related costs in connection with the Chubb Acquisition.
We have incurred and will continue to incur substantial expenses in connection with the Chubb Corp acquisition.
We expect to continue to incur a number of non-recurring costs associated with combining the operations of the two companies and achieving desired synergies. These fees and costs have been, and will continue to be, substantial, and include, among others, severance and benefit costs, employee retention costs, filing fees, and legal and professional fees.
We also will incur fees and costs related to formulating and implementing integration plans, including facilities and systems consolidation costs and employment-related costs. We continue to assess the magnitude of these costs, and additional unanticipated costs may be incurred as of a result of the Chubb Corp acquisition and the integration of the two companies’ businesses. Although we expect that the elimination of duplicative costs, as well as the realization of other efficiencies related to the integration of the businesses, should allow us to offset integration-related costs over time, this net benefit may not be achieved in the near term, or at all.
These costs described above, as well as other unanticipated costs and expenses, could have an adverse effect on our financial condition and results of operations.

We may fail to realize all of the anticipated benefits of the Chubb Corp Acquisition.
The success of the Chubb Corp acquisition will depend, in part, on our ability to realize the anticipated benefits and cost savings from combining our businesses. The anticipated benefits and cost savings of the Chubb Corp acquisition may not be realized fully or at all, or may take longer to realize than expected or could have other adverse effects that we do not currently foresee. Some of the assumptions that we have made, such as the achievement of operating synergies, may not be realized. The integration process may result in the loss of key employees, the disruption of ongoing businesses or inconsistencies in standards, controls, procedures and policies. There could be potential unknown liabilities and unforeseen expenses associated with the Chubb Corp acquisition that were not discovered in the course of performing due diligence.
Chubb’s results will suffer if it does not effectively manage its expanded operations following the Chubb Corp Acquisition.
Our success will depend, in part, on our ability to manage the expanded business following the merger, which poses numerous risks and uncertainties, including the need to integrate the operations and business of Chubb Corp into our existing business in an efficient and timely manner, to combine systems and management controls, and to integrate relationships with customers, vendors, and business partners.


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ITEM 1B. Unresolved Staff Comments
There are currently no unresolved SEC staff comments regarding our periodic or current reports.


ITEM 2. Properties
We maintain office facilities around the world including in North America, Europe (including our principal executive offices in Switzerland), Bermuda, Latin America, Asia Pacific, and the Far East. Most of our office facilities are leased, although we own major facilities in Hamilton, Bermuda, and in the U.S., including in Philadelphia, PennsylvaniaPennsylvania; Wilmington, Delaware; Whitehouse Station, New Jersey; and Wilmington, Delaware.Simsbury, Connecticut. Management considers its office facilities suitable and adequate for the current level of operations.


ITEM 3. Legal Proceedings
The information required with respect to Item 3 is included in Note 10 e) h) to the Consolidated Financial Statements, which is hereby incorporated herein by reference.


ITEM 4. Mine Safety Disclosures
Item not applicable.


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PART II



ITEM 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Repurchases of Equity Securities

Our Common Shares with a current par value of CHF 24.77 per share, have been listed on the New York Stock Exchange since March 25, 1993, under thewith a current par value of CHF 24.15 per share. The trading symbol "ACE".for our Common Shares is "CB."

Quarterly Stock Information
The following table sets forth the high and low closing sales prices of our Common Shares per fiscal quarter, as reported on the New York Stock Exchange Composite Tape, and cash dividends on Common Shares:
 2014 2013 2016 2015
     Dividends     Dividends     Dividends     Dividends
Quarter Ending High
 Low
 USD
 CHF High
 Low
 USD
 CHF High
 Low
 USD
 CHF High
 Low
 USD
 CHF
March 31 $101.70
 $92.19
 $0.75
(1) 
0.65 $89.06
 $79.99
 $0.49
 0.46 $122.47
 $108.00
 $0.67

0.66 $115.00
 $107.96
 $0.65
 0.62
June 30 $105.32
 $97.61
 $0.65
 0.58 $92.67
 $85.79
 $0.51
 0.48 $130.71
 $117.19
 $0.69
 0.68 $112.37
 $101.60
 $0.67
 0.62
September 30 $107.39
 $99.95
 $0.65
 0.61 $95.58
 $87.72
 $0.51
 0.46 $130.32
 $124.28
 $0.69
 0.67 $111.13
 $99.72
 $0.67
 0.65
December 31 $117.58
 $102.92
 $0.65
 0.63 $103.53
 $91.01
 $0.51
 0.45 $133.32
 $121.88
 $0.69
 0.69 $119.47
 $102.29
 $0.67
 0.67
(1)
On January 10, 2014, our shareholders approved an increase to our dividend from $0.51 per share to $0.63 per share for the final two quarterly installments that had been earlier approved at our 2013 annual general meeting. Due to the timing of the approval, the $0.12 per share increase related to the quarter ended December 31, 2013 installment is included in the quarter ended March 31, 2014 dividend amount. Refer to Note 11 to the Consolidated Financial Statements for additional information.

We have paid dividends each quarter since we became a public company in 1993. Following ACE'sChubb's redomestication to Switzerland, our dividends have been distributed primarily by way of a par value reduction. The dividend increase approved byHowever, at our May 2015 and 2016 annual general meetings, our shareholders on January 10, 2014 was distributedapproved annual dividends to be paid by way of a distribution from capital contribution reserves (Additional paid-in capital) through the transfer of dividends from Additional paid-in capital to Retained earnings.earnings (free reserves).

ACEChubb Limited is a holding company whose principal sources of income are investment income and dividends from its operating subsidiaries. The ability of the operating subsidiaries to pay dividends to us and our ability to pay dividends to our shareholders are each subject to legal and regulatory restrictions. The recommendation and payment of future dividends will be based on the determination of the Board of Directors (Board) and will be dependent upon shareholder approval, profits and financial requirements of ACEChubb and other factors, including legal restrictions on the payment of dividends and such other factors as the Board deems relevant. Refer to Part I, Item 1A and Part II, Item 7 for additional information.

The last reported sale price of the Common Shares on the New York Stock Exchange Composite Tape on February 13, 20152017 was$113.05.

$133.81. The number of record holders of Common Shares as of February 13, 20152017 was4,419. 9,280. This is not the actual number of beneficial owners of ACE'sChubb's Common Shares since most of our shareholders hold their shares through a stockbroker, bank or other nominee rather than directly in their own name.


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Refer to Part III, Item 12 for information relating to compensation plans under which equity securities are authorized for issuance.



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Issuer's Repurchases of Equity Securities
Period
Total Number of Shares Purchased(1)

 Average Price Paid per Share 
Total Number of Shares Purchased as Part of Publicly Announced Plan(2)

 
Approximate Dollar Value of Shares that May Yet be Purchased Under the Plan(3)

 
October 1 through October 31, 2014888,057
 $106.20 884,965
  $830 million
 
November 1 through November 30, 20141,263,924
 $111.66 1,260,000
  $689 million
 
December 1 through December 31, 20141,701,307
 $115.12 1,694,209
 
(4) 
Total3,853,288
   3,839,174
   
Period
Total Number of Shares Purchased(1)

 
Average Price
Paid per Share

 
Approximate Dollar Value of Shares that May Yet be Purchased Under Publicly Announced Plan(2)

 
October 1 through October 3110,125
 $123.87
 
 
November 1 through November 3052,955
 $126.82
 $1.0 billion 
December 1 through December 313,766
 $130.42
 $1.0 billion
(3) 
Total66,846
 $126.58
   
(1) 
This column primarily represents open market share repurchases. Otherincludes activity during the three months ended December 31, 2014 is related to the surrender to ACEChubb of Common Sharescommon shares to satisfy tax withholding obligations in connection with the vesting of restricted stock issued to employees and the exercising of options by employees.
(2) 
The aggregate valueIn November 2016, our Board authorized a $1.0 billion share repurchase program of shares purchased in the three months ended Chubb's Common Shares through December 31, 2014 as part of the publicly announced plan was $430 million.
2017.
(3) 
In November 2013, our Board authorized the repurchase of up to $2 billion of ACE's Common Shares through December 31, 2014.
(4)
In November 2014, our Board authorized the repurchase of $1.5 billion of ACE's Common Shares for the period January 1, 2015 through December 31, 2015, to replace the November 2013 authorization when it expired on December 31, 2014. For the period January 1, 20152017 through February 26, 2015,24, 2017, we repurchased 1,877,463419,623 Common Shares for a total of $211$55 million in a series of open market transactions. At February 26, 2015, $1.3 billion24, 2017, $945 million in share repurchase authorization remained through December 31, 2015.
2017.

Performance Graph
Set forth below is a line graph comparing the dollar change in the cumulative total shareholder return on ACE'sChubb's Common Shares from December 31, 20092011, through December 31, 20142016, as compared to the cumulative total return of the Standard & Poor's 500 Stock Index and the cumulative total return of the Standard & Poor's Property-Casualty Insurance Index. The cumulative total shareholder return is a concept used to compare the performance of a company's stock over time and is the ratio of the stock price change plus the cumulative amount of dividends over the specified time period (assuming dividend reinvestment), to the stock price at the beginning of the time period. The chart depicts the value on December 31, 2010, 2011, 2012, 2013, 2014, 2015, and 20142016, of a $100 investment made on December 31, 20092011, with all dividends reinvested.
12/31/200912/31/201012/31/201112/31/201212/31/201312/31/201412/31/201112/31/201212/31/201312/31/201412/31/201512/31/2016
ACE Limited$100$126$145$170$224$256
Chubb Limited$100$117$155$177$185$213
S&P 500 Index$100$115$117$136$180$205$100$116$154$175$177$198
S&P 500 P&C Index$100$109$130$180$209$100$120$166$192$211$244


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ITEM 6. Selected Financial Data

Effective January 1, 2016, we retrospectively adopted new accounting guidance that requires debt issuance costs (previously included in Other assets in the Consolidated balance sheets) to be recorded as a reduction of the carrying amount of the related debt liability instead of as a deferred charge. Prior year balances, including Total assets, Long-term debt, Trust preferred securities, and Total liabilities, have been adjusted in the table below to reflect this adoption. Refer to Note 1 to the Consolidated Financial Statements for additional information.

On January 14, 2016, we completed the acquisition of the Chubb Corporation (Chubb Corp). The results of operations of Chubb Corp are included in our results from the acquisition date forward (i.e., after January 14, 2016 and only in the 2016 column) within the table below. Refer to Note 2 to the Consolidated Financial Statements for additional information on the acquisition.
(in millions, except per share data and percentages)2014
 2013
 2012
 2011
 2010
2016
 2015
 2014
 2013
 2012
Operations data:                  
Net premiums earned – excluding Life segment$15,464
 $14,708
 $13,761
 $13,528
 $11,875
Net premiums earned – Life segment1,962
 1,905
 1,916
 1,859
 1,629
Net premiums earned – excluding Life Insurance segment$26,694
 $15,266
 $15,464
 $14,708
 $13,761
Net premiums earned – Life Insurance segment2,055
 1,947
 1,962
 1,905
 1,916
Total net premiums earned17,426
 16,613
 15,677
 15,387
 13,504
28,749
 17,213
 17,426
 16,613
 15,677
Net investment income2,252
 2,144
 2,181
 2,242
 2,070
2,865
 2,194
 2,252
 2,144
 2,181
Losses and loss expenses9,649
 9,348
 9,653
 9,520
 7,579
16,052
 9,484
 9,649
 9,348
 9,653
Policy benefits517
 515
 521
 401
 357
588
 543
 517
 515
 521
Policy acquisition costs and administrative expenses5,320
 4,870
 4,542
 4,540
 4,218
8,985
 5,211
 5,320
 4,870
 4,542
Net income2,853
 3,758
 2,706
 1,540
 3,085
4,135
 2,834
 2,853
 3,758
 2,706
Weighted-average shares outstanding – diluted339
 344
 343
 341
 341
466
 329
 339
 344
 343
Diluted earnings per share$8.42
 $10.92
 $7.89
 $4.52
 $9.04
$8.87
 $8.62
 $8.42
 $10.92
 $7.89
Balance sheet data (at end of period):                  
Total investments$62,904
 $60,928
 $60,264
 $55,676
 $51,407
$99,094
 $66,251
 $62,904
 $60,928
 $60,264
Total assets98,248
 94,510
 92,545
 87,321
 83,216
159,786
 102,306
 98,223
 94,487
 92,527
Net unpaid losses and loss expenses27,008
 26,831
 26,547
 25,875
 25,242
47,832
 26,562
 27,008
 26,831
 26,547
Net future policy benefits4,537
 4,397
 4,229
 4,025
 2,825
4,854
 4,620
 4,537
 4,397
 4,229
Long-term debt3,357
 3,807
 3,360
 3,360
 3,358
12,610
 9,389
 3,334
 3,786
 3,344
Trust preferred securities309
 309
 309
 309
 309
308
 307
 307
 307
 307
Total liabilities68,661
 65,685
 65,014
 62,989
 60,381
111,511
 73,171
 68,636
 65,662
 64,996
Shareholders' equity29,587
 28,825
 27,531
 24,332
 22,835
48,275
 29,135
 29,587
 28,825
 27,531
Book value per share$90.02
 $84.83
 $80.90
 $72.22
 $68.17
$103.60
 $89.77
 $90.02
 $84.83
 $80.90
Selected data:                  
Loss and loss expense ratio (1)
58.7% 59.6% 65.7% 66.0% 59.4%57.7% 58.1% 58.7% 59.6% 65.7%
Underwriting and administrative expense ratio (2)
29.4% 28.4% 28.2% 28.7% 30.9%30.6% 29.2% 29.4% 28.4% 28.2%
Combined ratio (3)
88.1% 88.0% 93.9% 94.7% 90.3%88.3% 87.3% 88.1% 88.0% 93.9%
Net loss reserves to capital and surplus ratio (4)
106.6% 108.3% 111.8% 122.9% 122.9%
Cash dividends per share (5)
$2.70
 $2.02
 $2.06
 $1.38
 $1.30
Cash dividends per share (4)
$2.74
 $2.66
 $2.70
 $2.02
 $2.06
(1) 
The loss and loss expense ratio is calculated by dividing Losses and loss expenses, excluding the Life Insurance segment, by Net premiums earned – excluding Life Insurance segment. Losses and loss expenses for the Life Insurance segment were $663 million, $601 million, $589 million, $582 million, $611 million, $593 million, and $528611 million for the years ended December 31, 2016, 2015, 2014, 2013, 2012, 2011, and 20102012, respectively.
(2) 
The underwriting and administrative expense ratio is calculated by dividing the Policy acquisition costs and administrative expenses, excluding the Life Insurance segment, by Net premiums earned – excluding Life Insurance segment. Policy acquisition costs and administrative expenses for the Life Insurance segment were $816 million, $767 million, $763 million, $701 million, $662 million, $656 million, and $552662 million for the years ended December 31, 2016, 2015, 2014, 2013, 2012, 2011, and 20102012, respectively.
(3) 
The combined ratio is the sum of loss and loss expense ratio and the underwriting and administrative expense ratio.
(4) 
The net loss reserves to capital and surplus ratio is calculated by dividing the sum of the Net unpaid losses and loss expenses and Net future policy benefits by Shareholders' equity.
(5)
Cash dividends per share in 2014 and 2012 include a $0.12 per share increase related to the fourth quarter 2013 and 2011 dividend installments, respectively, approved by our shareholders on January 10, 2014 and January 9, 2012, respectively.


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ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following is a discussion of our results of operations, financial condition, and liquidity and capital resources as of and for the year ended December 31, 2014.2016. This discussion should be read in conjunction with the consolidated financial statements and related Notes, under Item 8 of this Form 10-K.

All comparisons in this discussion are to the corresponding prior year unless otherwise indicated.

MD&A IndexPage


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Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. Any written or oral statements made by us or on our behalf may include forward-looking statements that reflect our current views with respect to future events and financial performance. These forward-looking statements are subject to certain risks, uncertainties, and other factors that could, should potential events occur, cause actual results to differ materially from such statements. These risks, uncertainties, and other factors, which are described in more detail under Part I, Item 1A, under Risk Factors, starting on page 18 and elsewhere herein and in other documents we file with the U.S. Securities and Exchange Commission (SEC), include but are not limited to:
losses arising out of natural or man-made catastrophes such as hurricanes, typhoons, earthquakes, floods, climate change (including effects on weather patterns; greenhouse gases; sea; land and air temperatures; sea levels; and rain and snow), nuclear accidents, or terrorism which could be affected by:
the number of insureds and ceding companies affected;
the amount and timing of losses actually incurred and reported by insureds;
the impact of these losses on our reinsurers and the amount and timing of reinsurance recoverable actually received;
the cost of building materials and labor to reconstruct properties or to perform environmental remediation following a catastrophic event; and
complex coverage and regulatory issues such as whether losses occurred from storm surge or flooding and related lawsuits;
actions that rating agencies may take from time to time, such as financial strength or credit ratings downgrades or placing these ratings on credit watch negative or the equivalent;
the ability to collect reinsurance recoverable, credit developments of reinsurers, and any delays with respect thereto and changes in the cost, quality, or availability of reinsurance;
actual loss experience from insured or reinsured events and the timing of claim payments;
the uncertainties of the loss-reserving and claims-settlement processes, including the difficulties associated with assessing environmental damage and asbestos-related latent injuries, the impact of aggregate-policy-coverage limits, the impact of bankruptcy protection sought by various asbestos producers and other related businesses, and the timing of loss payments;
changes to our assessment as to whether it is more likely than not that we will be required to sell, or have the intent to sell, available for sale fixed maturity investments before their anticipated recovery;
infection rates and severity of pandemics and their effects on our business operations and claims activity;
developments in global financial markets, including changes in interest rates, stock markets, and other financial markets, increased government involvement or intervention in the financial services industry, the cost and availability of financing, and foreign currency exchange rate fluctuations (which we refer to in this report as foreign exchange and foreign currency exchange), which could affect our statement of operations, investment portfolio, financial condition, and financing plans;
general economic and business conditions resulting from volatility in the stock and credit markets and the depth and duration of potential recession;
global political conditions, the occurrence of any terrorist attacks, including any nuclear, radiological, biological, or chemical events, or the outbreak and effects of war, and possible business disruption or economic contraction that may result from such events;
the potential impact of the United Kingdom’s vote to withdraw from the European Union, including political, regulatory, social, and economic uncertainty and market and exchange rate volatility;
judicial decisions and rulings, new theories of liability, legal tactics, and settlement terms;


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the effects of public company bankruptcies and/or accounting restatements, as well as disclosures by and investigations of public companies relating to possible accounting irregularities, and other corporate governance issues, including the effects of such events on:
the capital markets;
the markets for directors and officers (D&O) and errors and omissions (E&O) insurance; and
claims and litigation arising out of such disclosures or practices by other companies;


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uncertainties relating to governmental, legislative and regulatory policies, developments, actions, investigations, and treaties, which, among other things, could subject us to insurance regulation or taxation in additional jurisdictions or affect our current operations;
the actual amount of new and renewal business, market acceptance of our products, and risks associated with the introduction of new products and services and entering new markets, including regulatory constraints on exit strategies;
the competitive environment in which we operate, including trends in pricing or in policy terms and conditions, which may differ from our projections and changes in market conditions that could render our business strategies ineffective or obsolete;
acquisitions made by us performing differently than expected, our failure to realize anticipated expense-related efficiencies or growth from acquisitions, the impact of acquisitions on our pre-existing organization, or announced acquisitions not closing;
risks and uncertainties relating to our acquisition of The Chubb Corporation (Chubb Corp acquisition) including our ability to successfully integrate the acquired company;
risks associated with being a Swiss corporation, including reduced flexibility with respect to certain aspects of capital management and the potential for additional regulatory burdens;
the potential impact from government-mandated insurance coverage for acts of terrorism;
the availability of borrowings and letters of credit under our credit facilities;
the adequacy of collateral supporting funded high deductible programs;
changes in the distribution or placement of risks due to increased consolidation of insurance and reinsurance brokers;
material differences between actual and expected assessments for guaranty funds and mandatory pooling arrangements;
the effects of investigations into market practices in the property and casualty (P&C) industry;
changing rates of inflation and other economic conditions, for example, recession;
the amount of dividends received from subsidiaries;
loss of the services of any of our executive officers without suitable replacements being recruited in a reasonable time frame;
the ability of our technology resources, including information systems and security, to perform as anticipated such as with respect to preventing material information technology failures or third-party infiltrations or hacking resulting in consequences adverse to ACEChubb or its customers or partners; and
management’s response to these factors and actual events (including, but not limited to, those described above).
The words “believe,” “anticipate,” “estimate,” “project,” “should,” “plan,” “expect,” “intend,” “hope,” “feel,” “foresee,” “will likely result,” or “will continue,” and variations thereof and similar expressions, identify forward-looking statements. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. We undertake no obligation to publicly update or review any forward-looking statements, whether as a result of new information, future events or otherwise.


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Overview
WeEffective the first quarter of 2016 and subsequent to our acquisition of The Chubb Corporation (Chubb Corp), we operate through fivethe following business segments: Insurance – North AmericanAmerica Commercial P&C Insurance, North American Agriculture,America Personal P&C Insurance, North America Agricultural Insurance, Overseas General Insurance, Global Reinsurance, and Life.Life Insurance. 2015 results were revised to conform to the new segment presentation and only include legacy ACE results (i.e., does not include legacy Chubb Corp results except in "As If" presentations). For more information on our segments refer to “Segment Information” under Item 1.

We have grown our business through increased premium volume, expansion of product offerings and geographic reach, and acquisitions of other companies. Acquisitions in 2016, 2015, and 2014 are as follows:
All segments excluding North America Agricultural Insurance:The Chubb Corporation (Chubb Corp) (January 14, 2016).
North America Personal P&C Insurance: Fireman's Fund Insurance Company high net worth personal lines insurance business in the U.S. (April 1, 2015).
Overseas General segment has recently expanded its operations through the following acquisitions in 2014, 2013, and 2012:Insurance:
The large corporate account property and casualty (P&C) insurance business of Itaú Seguros (Itaú Seguros) (October 31, 2014); and
The Siam Commercial Samaggi Insurance PCL (Samaggi) (we and our local partner acquired 60.86 percent ownership on April 28, 2014, and subsequently acquired an additional 32.17 percent ownership through a mandatory tender offer, which expired on June 17, 2014);
ABA Seguros (May 2, 2013);
Fianzas Monterrey (April 1, 2013); and
PT Asuransi Jaya Proteksi (JaPro) (we acquired 80 percent on September 18, 2012, and our local partner acquired the remaining 20 percent on January 3, 2013).

The consolidated financial statements include results of acquired businesses from the acquisition dates. Refer to
Note 2 to the Consolidated Financial Statements for additional information on our acquisitions.

Our product and geographic diversification differentiates us from the vast majority of our competitors and has been a source of stability during periods of industry volatility. Our long-term business strategy focuses on sustained growth in book value achieved through a combination of underwriting and investment income. By doing so, we provide value to our clients and shareholders through use of our substantial capital base in the insurance and reinsurance markets.

We are organized along a profit center structure by line of business and territory that does not necessarily correspond to corporate legal entities. Profit centers can access various legal entities, subject to licensing and other regulatory rules. Profit centers are expected to generate underwriting income and appropriate risk-adjusted returns. Our corporate structure has facilitated the development of management talent by giving each profit center's senior management team the necessary autonomy within underwriting authorities to make operating decisions and create products and coverages needed by its target customer base. We are focused on delivering underwriting profit and strive to achieve underwriting income by only writing policies which we believe adequately compensate us for the risk we accept.

Our insurance and reinsurance operations generate gross revenues from two principal sources: premiums and investment income. Cash flow is generated from premiums collected and investment income received less paid losses and loss expenses, policy acquisition costs, and administrative expenses. Invested assets are substantially held in liquid, investment grade fixed income securities of relatively short duration. Claims payments in any short-term period are highly unpredictable due to the random nature of loss events and the timing of claims awards or settlements. The value of investments held to pay future claims is subject to market forces such as the level of interest rates, stock market volatility, and credit events such as corporate defaults. The actual cost of claims is also volatile based on loss trends, inflation rates, court awards, and catastrophes. We believe that our cash balance, our highly liquid investments, credit facilities, and reinsurance protection provide sufficient liquidity to meet unforeseen claim demands that might occur in the year ahead. Refer to “Liquidity” and “Capital Resources” for additional information.



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Combined legacy ACE and legacy Chubb Corp results ("As If")

We present financial measures on an "As If" basis for both the 2016 and 2015 periods throughout the Management's Discussion and Analysis section exclusive of the impact of the unearned premium reserves intangible amortization and the elimination of the historical policy acquisition costs as a result of purchase accounting related to the Chubb Corp acquisition in order to present the underlying profitability of our insurance business for the entire relevant periods. We believe these measures provide visibility into our results, allow for comparability to our historical results and are consistent with how management evaluates results. We define our results presented on an "As If" basis as follows:

2016 "As If" results: The combined company results do not include the impact of the unearned premium reserves intangible amortization and the elimination of the historical policy acquisition costs as a result of purchase accounting related to the Chubb Corp acquisition. The combined company results for the year ended December 31, 2016 are inclusive of the first 14 days of January 2016 (the Chubb Corp acquisition closed January 14, 2016).

2015 "As If" results: Legacy ACE plus legacy Chubb Corp historical results after accounting policy alignment adjustments, including reclassifying certain legacy Chubb Corp corporate expenses to administrative expenses and redefining legacy Chubb Corp segment underwriting income by allocating the amortization of deferred policy acquisition costs to each segment.  2015 "As If" results exclude purchase accounting adjustments related to the Chubb Corp acquisition.

A reconciliation of "As If" results as defined above is provided under the Non-GAAP Reconciliation section starting on page 72.
Financial Highlights for the Year Ended December 31, 20142016

Net income was $4,135 million compared with $2,834 million last year.
Total company and P&C net premiums written increased 4.6were $28.1 billion and $26.0 billion, respectively, up 58.9 percent and 65.6 percent, respectively, reflecting the acquisition of Chubb Corp. P&C net premiums written decreased 5.1 percent, or 5.73.3 percent in constant dollars, when compared with last year on a constant-dollaran "As If" basis.
Since the acquisition of Chubb Corp, we have entered into new reinsurance agreements with third-party reinsurers for certain legacy Chubb Corp business and have taken other merger-related underwriting actions, including exiting certain types of business that do not meet our underwriting standards or adhere to our risk diversification strategy. Merger-related underwriting actions, including the purchase of additional reinsurance, adversely impacted P&C net premiums written growth by $650 million.
On October 31, 2016, we harmonized and amended several U.S. retirement programs to create a unified retirement savings program. These changes reduced benefit obligations by $496 million. Net income was favorably impacted by the one-time curtailment benefit of $113 million pre-tax related to the harmonization of our U.S. pension plans, as well as a favorable recurring impact of approximately $17 million pre-tax related to harmonizing the post-retirement benefit programs. Refer to the outlook section below for the expected benefit in 2017 related to the plan changes.
The combined ratio was 88.3 percent, which included 0.4 percentage point impact for the $113 million curtailment benefit. P&C combined ratio was 87.788.7 percent, which excludes the curtailment benefit, compared with 87.4 percent in 2015. On an “As If” basis, P&C combined ratio was 88.0 percent compared with 88.087.5 percent in 2013. The GAAP combined ratio was 88.1 percent compared with 88.0 percent in 2013.
The current accident year P&C combined ratio excluding catastrophe losses was 89.3 percent compared with 90.0 percent in 2013.
The P&C expense ratio was 29.4 percent compared with 28.4 percent in 2013.2015.
Total pre-tax and after-tax catastrophe losses, including reinstatement premiums, were $288$1,060 million (1.8(4.0 percentage points of the combined ratio) and $249$844 million, respectively, compared with $227$322 million (1.7(2.1 percentage points of the combined ratio) and $197$272 million, respectively, in 2013.2015.
FavorableTotal pre-tax and after-tax favorable prior period development pre-tax and after-tax were $527was $1,135 million (3.4(4.3 percentage points of the combined ratio) and $459$898 million, respectively, compared with $530$546 million (3.7pre-tax (3.5 percentage points of the combined ratio) and $450$474 million respectively,after-tax in 2013.
Operating cash flow was $4.5 billion compared with $4.0 billion in 2013.2015.
Net investment income was $2.3 billion$2,865 million which is net of $393 million related to the amortization of the fair value adjustment on acquired invested assets of Chubb Corp. Excluding this amortization, net investment income was $3,258 million, compared with $2.1 billion$2,194 million last year.
Integration expenses related to the Chubb acquisition were $492 million pre-tax in 2013.
Net income decreased 24.1 percent2016, and include all internal and external costs directly related to $2.9 billion. Net income in 2014 was negatively impacted compared to 2013 as a resultthe integration activities of the mark to market accounting associated with our living benefit variable annuity reinsurance business. The relative difference isChubb Corp acquisition, consisting primarily due to interest rates, which fell during 2014 after rising during 2013.
Share repurchases totaled $1.4 billion, or approximately 14of personnel-related expenses, including severance and employee retention and relocation; consulting fees; and advisor fees. Chubb integration expenses were $33 million sharespre-tax in 2014.2015, consisting primarily of legal and professional fees.

We reported strong premium revenue growth and combined ratios in 2014 with all divisions contributing positively to our results. Growth was broad-based from all regions, reflecting our diversified business by product, geography, customer and distribution.

In addition to producing strong financial results, we made numerous investments intended for future growth and earnings. For example, we launched retail distribution to complement our existing wholesale capabilities for our U.S. middle market specialty and Excess & Surplus business; we started a new micro business division to serve very small U.S. commercial businesses; we made acquisitions in Thailand and Brazil, further expanding our presence and capabilities in promising developing markets. And we signed a definitive agreement in December 2014 to acquire the Fireman’s Fund high net worth personal lines business. This acquisition will complement our existing personal lines business, which has tripled in size in the last five years. Our personal lines business is a strategic growth area and poised to continue its growth globally.

These are some of the investments we made in the future of our company that will strengthen our presence and capabilities and increase our ability to produce sustainable outperformance. We are off to a good start in 2015 and we remain confident in our strategy and are relentless in our drive to execute with excellence.




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Outlook
Chubb had an excellent year with many accomplishments. In 2016, we produced net income per share of $8.87 and book value per share growth of over 15 percent, despite elevated catastrophe losses and soft P&C market conditions globally. Operationally, we completed the largest merger in insurance history, and managed a transformational company-wide global integration effort, all while staying focused on our core business of underwriting and servicing customers and distribution partners, and retaining our commercial and personal lines customers. We launched new products and entirely new businesses, made investments in our people, technologies, and capabilities, and began to harness the complementary strengths of the organization in cross-selling and other revenue initiatives. We achieved financial and non-financial targets, including realizing efficiencies, while remaining outward-facing in managing and growing our business in all aspects. While more work remains, we have made progress, from underwriting to claims to real estate and information technology (IT), to finance and human resources, our operational integration has been detailed and all-encompassing, and we are ahead of schedule in all areas.

During the fourth quarter of 2016 we harmonized, and amended several U.S. retirement programs to create a unified retirement savings program. In 2020, we plan to transition 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 plan that had been in place for certain employees, generating an expected annualized benefit of $100 million pre-tax each year for the next five years, after which time the benefit is expected to continue in a range of $50 million to $80 million, pre-tax, depending on interest rates at the time.

In 2017, the expected retiree healthcare harmonization benefit of $100 million will be recognized in losses and loss expense (approximately $25 million) and administrative expenses (approximately $75 million), thereby benefiting both underwriting income and the combined ratio.

Also in 2017, we expect to recognize intangibles amortization expenses of $251 million, primarily associated with our agency distribution relationships and renewal rights established in connection with the Chubb Corp acquisition. This compares to $19 million of intangibles amortization expense in 2016.

Annual run-rate savings of $800 million by the end of 2018 are on track. Expected realized savings of $800 million will be partially offset by inflation and increased spending to support growth. The following table presents expected annualized and realized integration-related savings and integration and merger-related expenses by year:
    Actual
 Expected 
(in millions of U.S. dollars) 2015
 2016
 2017
 2018
 Total
Chubb integration-related savings (1)
          
        Annualized savings   $578
 $740
 $800
 $800
        Realized savings (2)
   $325
 $580
 $760
 $800
           
Chubb integration and merger-related expenses (3)
          
        One-time integration expenses related to savings $22
 $299
 $137
 $39
 $497
        Other one-time merger-related expenses 11
 193
 97
 11
 312
            Total expected integration and merger-related expenses $33
 $492
 $234
 $50
 $809
(1) Realized savings are the portion that is recorded in the financial statements in the current period. Annualized savings are the annualized run rate of the realized savings that will impact future years.
(2) Refer to page 56 for realized savings by segment and income statement line item.
(3) Integration expenses related to savings 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 acquisition. These costs are not allocated at the segment level as they are one-time in nature and are not related to the ongoing business of the segment, and therefore are reported within Corporate.

The anticipated integration-related savings and integration and merger-related expenses may not be realized fully, or may take longer to realize than expected or could have other adverse effects that we do not currently foresee. Some of the assumptions that we have made, such as the achievement of operating synergies, may not be realized. Refer to the Risk Factors under Item 1A on page 18 for additional information.



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Critical Accounting Estimates
Our consolidated financial statements include amounts that, either by their nature or due to requirements of generally accepted accounting principles in the U.S. (GAAP), are determined using best estimates and assumptions. While we believe that the amounts included in our consolidated financial statements reflect our best judgment, actual amounts could ultimately materially differ from those currently presented. We believe the items that require the most subjective and complex estimates are:

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;
the assessment of risk transfer for certain structured insurance and reinsurance contracts;
reinsurance recoverable, including a provision for uncollectible reinsurance;
the valuation of our investment portfolio and assessment of other-than-temporary impairments (OTTI);
the valuation of deferred tax assets;
the valuation of derivative instruments related to guaranteed living benefits (GLB); and
the valuationassessment of goodwill.goodwill for impairment.

We believe our accounting policies for these items are of critical importance to our consolidated financial statements. The following discussion provides more information regarding the estimates and assumptions required to arrive at these amounts and should be read in conjunction with the sections entitled: Prior Period Development, Asbestos and Environmental (A&E), Reinsurance Recoverable on Ceded Reinsurance, Investments, Net Realized and Unrealized Gains (Losses), and Other (Income)Income and Expense Items.

Unpaid losses and loss expenses
As an insurance and reinsurance company, we are required by applicable laws and regulations and GAAP to establish loss and loss expense reserves for the estimated unpaid portion of the ultimate liability for losses and loss expenses under the terms of our policies and agreements with our insured and reinsured customers. At December 31, 2014,2016, our gross unpaid loss and loss expense reserves were $38.3$60.5 billion and our net unpaid loss and loss expense reserves were $27.0$47.8 billion. With the exception of certain structured settlements, for which the timing and amount of future claim payments are reliably determinable, and certain reserves for unsettled claims that are discounted in statutory filings, our loss reserves are not discounted for the time value of money. In connection with such structured settlements and certain reserves for unsettled claims, we carried net discounted reserves of $111$88 million and $106$92 million at December 31, 20142016 and 2013,2015, respectively.

The following table presents a roll-forward of our unpaid losses and loss expenses:
December 31, 2014  December 31, 2013 December 31, 2016  December 31, 2015 
(in millions of U.S. dollars)
Gross
Losses

 
Reinsurance
Recoverable(1)

 
Net
Losses

 
Gross
Losses

 
Reinsurance
Recoverable(1)

 
Net
Losses

Gross
Losses

 
Reinsurance
Recoverable(1)

 
Net
Losses

 
Gross
Losses

 
Reinsurance
Recoverable(1)

 
Net
Losses

Balance, beginning of year$37,443
 $10,612
 $26,831
 $37,946
 $11,399
 $26,547
$37,303
 $10,741
 $26,562
 $38,315
 $11,307
 $27,008
Losses and loss expenses incurred12,748
 3,099
 9,649
 12,429
 3,081
 9,348
20,195
 4,143
 16,052
 12,541
 3,057
 9,484
Losses and loss expenses paid(12,409) (3,174) (9,235) (12,785) (3,808) (8,977)(19,436) (3,721) (15,715) (12,914) (3,249) (9,665)
Other (including foreign exchange translation)(835) (278) (557) (246) (73) (173)(445) 24
 (469) (1,056) (374) (682)
Losses and loss expenses acquired1,368
 1,048
 320
 99
 13
 86
22,923
 1,521
 21,402
 417
 
 417
Balance, end of year$38,315
 $11,307
 $27,008
 $37,443
 $10,612
 $26,831
$60,540
 $12,708
 $47,832
 $37,303
 $10,741
 $26,562
(1) 
Net of provision for uncollectible reinsurance.

Unpaid losses and loss expenses acquired from Chubb Corp included an increase of $715 million to adjust the carrying value of Chubb Corp's historical unpaid losses and loss expenses to fair value as of the acquisition date. The estimated fair value consists of the present value of the expected net unpaid loss and loss adjustment expenses payments adjusted for an estimated risk margin. The expected 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. This adjustment will be amortized to Amortization of purchased intangibles on the Consolidated statements of operations over a range of 5 to 17 years based on the estimated payout pattern of the loss reserves


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as of the acquisition date. The remaining balance of the fair value adjustment for unpaid losses and loss expenses at December 31, 2016 is $470 million.

The estimate of the liabilities includes provisions for claims that have been reported but are unpaid at the balance sheet date (case reserves) and for obligations on claims that have been incurred but not reported (IBNR) at the balance sheet date. IBNR may also include provisions to account for the possibility that reported claims may settle for amounts that differ from the established case reserves. Loss reserves also include an estimate of expenses associated with processing and settling unpaid claims (loss expenses).


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The following table segregates Our loss reserves by three broad linecomprise approximately 82 percent casualty-related business, which typically encompasses long-tail risks, and other risks where a high degree of business groupings: property and all other, casualty, and A&H (or personal accident). In the table, loss expenses are defined to include unallocated and allocated loss adjustment expenses.
   December 31, 2014  December 31, 2013 
(in millions of U.S. dollars) Gross
 Ceded
 Net
 Gross
 Ceded
 Net
Property and all other            
 Case reserves $4,110
 $1,959
 $2,151
 $2,862
 $998
 $1,864
 Loss expenses 216
 58
 158
 222
 59
 163
 IBNR reserves 2,095
 792
 1,303
 2,098
 714
 1,384
 Subtotal 6,421
 2,809
 3,612
 5,182
 1,771
 3,411
Casualty            
 Case reserves 9,071
 2,210
 6,861
 9,023
 2,271
 6,752
 Loss expenses 3,881
 1,348
 2,533
 3,907
 1,341
 2,566
 IBNR reserves 17,914
 4,672
 13,242
 18,172
 4,872
 13,300
 Subtotal 30,866
 8,230
 22,636
 31,102
 8,484
 22,618
A&H            
 Case reserves 417
 85
 332
 514
 113
 401
 Loss expenses 28
 7
 21
 30
 8
 22
 IBNR reserves 583
 176
 407
 615
 236
 379
 Subtotal 1,028
 268
 760
 1,159
 357
 802
Total            
 Case reserves 13,598
 4,254
 9,344
 12,399
 3,382
 9,017
 Loss expenses 4,125
 1,413
 2,712
 4,159
 1,408
 2,751
 IBNR reserves 20,592
 5,640
 14,952
 20,885
 5,822
 15,063
 Total $38,315
 $11,307
 $27,008
 $37,443
 $10,612
 $26,831
judgment is required.

The process of establishing loss reserves for property and casualty claims can be complex and is subject to considerable uncertainty as it requires the use of informed estimates and judgments based on circumstances underlying the insured loss known at the date of accrual. For example, the reserves established for high excess casualty claims, asbestos and environmental claims, claims from major catastrophic events, or for our various product lines each require different assumptions and judgments to be made. Necessary judgments are based on numerous factors and may be revised as additional experience and other data become available and are reviewed, as new or improved methods are developed, or as laws change. Hence, ultimate loss payments may differ from the estimate of the ultimate liabilities made at the balance sheet date. Changes to our previous estimates of prior period loss reserves impact the reported calendar year underwriting results, adversely if our estimates increase and favorably if our estimates decrease. The potential for variation in loss reserve estimates is impacted by numerous factors, which we discuss below. In particular, these considerations differ markedly depending upon whether case or IBNR reserves are being established.factors. Reserve estimates for casualty lines are particularly uncertain given the lengthy reporting patterns and corresponding need for IBNR.

Case reserves for those claims reported by insureds or ceding companies to us prior to the balance sheet date and where we have sufficient information are determined by our claims personnel as appropriate based on the circumstances of the claim(s), standard claim handling practices, and professional judgment. Furthermore, for our Brandywine run-off operations and our
assumed reinsurance operation, Global Reinsurance, we may adjust the ceded case reserves as notified by the ceding company via use of an additional case reserve if the judgment of our respective claims department differs from that of the cedant (see also the Assumed reinsurance section below).cedant.

With respect to IBNR reserves and those claims that have been incurred but not reported prior to the balance sheet date, there is, by definition, limited actual information to form the case reserve estimate and reliance is placed upon historical loss experience and actuarial methods to estimate the ultimate loss obligations and the corresponding amount of IBNR. IBNR reserve estimates are generally calculated by first projecting the ultimate amount of losses for a product line and subtracting paid losses and case reserves for reported claims. The judgments involved in projecting the ultimate losses may pertain to the use and interpretation of various standard actuarial reserving methods that place reliance on the extrapolation of actual


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historical data, loss development patterns, and industry data, and other benchmarks as appropriate. The estimate of the required IBNR reserve also requires judgment by actuaries and management to reflect the impact of more contemporary and subjective factors, both qualitative and quantitative. Among some of these factors that might be considered are changes in business mix or volume, changes in ceded reinsurance structures, changes in claims handling practices, reported and projected loss trends, inflation, the legal environment, and the terms and conditions of the contracts sold to our insured parties.

Determining management's best estimate
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 afterdate and involves a process that includes 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 thevarious relevant parties from actuarial, finance, claims, and unit senior management and has the responsibility for finalizing and approving the estimate to be used as management's best estimate. Reserves are further reviewed by ACE'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 generally 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 subject matter experts such as underwriting. Exposure-based methods are most commonly used on relatively immature origin years 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.
Management does not build in any specific provision for uncertainty.
We do not calculate ranges of loss reserve estimates for our individual loss reserve studies, given the lack of robust statistical approaches and the limited usefulness for such information in decision making. Determining such ranges is a complex and uncertain process, and such ranges generally do not capture the potential changes in external and internal circumstances between the balance sheet date and the final settlement date that may impact the ultimate value of loss. While we believe that our recorded reserves are reasonable and represent management's best estimate for each product line as of the current valuation date, future changes to our view of the ultimate liabilities are possible. A five percent change in our net loss reserves equates to $1.4 billion and represents five percent of shareholders' equity at December 31, 2014. Historically our reserves, at times, have developed in excess of 10 percent of recorded amounts. Refer to “Analysis of Losses and Loss Expenses Development”, under Item 1, for a summary of historical volatility between estimated loss reserves and ultimate loss settlements.

We have actuarial staff within each of our business units who analyze loss reserves and regularly project estimates of ultimate losses and the corresponding indications of the required IBNR reserve. Note that losses include loss expenses for the purposes of this discussion. We perform an actuarial reserve review for each product line at least once a year. At the conclusion of each review, we establish an actuarial central estimate. The process to select the actuarial central estimate, when more than one estimate is available, may differ across product lines. For example, an actuary may base the central estimate on loss projections developed using an incurred loss development approach instead of a paid loss development approach when reported losses are viewed to be a more credible indication of the ultimate loss compared with paid losses. The availability of estimates


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for different projection techniques will depend upon the product line, the underwriting circumstances, and the maturity of the loss emergence. For a well-established product line with sufficient volume and history and low volatility, the actuarial central estimate may be drawn from a weighting of paid and reported loss development and/or Bornhuetter-Ferguson methods (described below). However, for a new long-tail product line for which we have limited data and experience, a rapidly growing line, or an established line with volatile experience, the emerging loss experience may not have sufficient credibility to allow selection of loss development or Bornhuetter-Ferguson methods and reliance may be placed upon the expected loss ratio method (described below) until the experience matures and becomes credible.

Typically, for each product line, one or more standard actuarial reserving methods may be used to estimate ultimate losses and loss expenses, and from these estimates, a single actuarial central estimate is selected. Exceptions to the use of standard actuarial projection methods occur for individual claims of significance that require complex legal, claims, and actuarial analysis and judgment (for example, A&E account projections or high excess casualty/professional lines accounts in litigation) or for product lines where the nature of the claims experience and/or availability of the data prevent application of such standard methods. In addition, claims arising from certain catastrophic events require evaluations that do not utilize standard actuarial loss projection methods but are based upon our exposure at the time of the event and the circumstances of the catastrophe and its post-event impact.

In addition to the annual loss reserve studies performed for each product line, we review the emergence of actual losses relative to expectations for most product lines each quarter. If warranted from findings in loss emergence tests, we may alter the timing of our product line reserve studies. Finally, loss reserve studies are performed annually by external third-parties and the findings are used to provide management an independent assessment of our internal findings.

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 the subsequent discussion on short-tail and long-tail business, reference is also made, where appropriate, to how consideration in method selection impacted 2014 results. In addition to these standard methods, depending upon the product line characteristics and available data we may use other recognized actuarial methods and approaches. To ensure that the projections of future loss emergence based on historical loss development patterns are representative of the underlying business, historical loss and premium data is required to be of sufficient homogeneity and credibility. For example, to improve data homogeneity, we may subdivide product line data further by similar risk attribute (e.g., geography, coverage such as property versus liability exposure, or elements of program structure such as attachments or limits), project ultimate losses for these homogeneous groups and then combine the results to provide the overall product line estimate. The premium and loss data are aggregated by origin year (e.g., the year in which the losses were incurred - “accident year” or “report year”) and annual or quarterly development periods, and data at all valuations is converted at the same foreign exchange rates in order to avoid distortions from exchange rate movements over time. 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 periodscompany. For information 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 (for example, 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 with appropriate allowance for changes in business mix, claims handling process, and/or ceded reinsurance that are likely to lead to a discernible difference between the rate of historical and future loss emergence. 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 ACE. 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


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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 essentially 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.

The applicability of actuarial methods will also be impacted by the attachment point of the policy or contract with the insured or ceding company. In the case of low attachment points typical of primary insurance or working layer reinsurance, the experience tends to be more frequency driven. For these product types, standard actuarial methods are generally applicable in determining loss reserve levels given sufficient history and credible loss experience (although still subject to the same limitations and uncertainties described elsewhere in this section, for example, changing inflationary or legal environments). In the case of high attachment points typical of excess insurance or excess of loss reinsurance, the experience tends to be severity driven, as only a loss of significant size will enter the layer. For these product lines, it typically takes longer for loss experience to gain credibility, which adds uncertainty to the estimates derived from standard actuarial methods. For products such as our assumed reinsurance business, we typically supplement the standard actuarial methods with an analysis of each contract's terms, original pricing information, subsequent internal and external analyses of the ongoing contracts, market exposures and history, and qualitative input from claims managers. This approach is also used for structured or unique contracts.

Short-tail and long-tail business
The time period between the date of loss occurrence and the final payment date of the ensuing claim(s) is referred to as the "claim-tail." The following is a discussion of specific reserving considerations for both short-tail and long-tail product lines. In this section, we reference the nature of recent prior period development to give a high-level understanding of how these considerations translate through the reserving process, into financial decisions. Referrefer to Note 7 to the Consolidated Financial Statements for additional information on prior period development.

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, aviation hull, and automobile physical damage policies that we write. There are some exceptions on certain product lines or events (e.g., major hurricanes or aviation crashes) where the event has occurred, but the final settlement amount is highly uncertain (e.g., coverage disputes or liability-related claims) and not known with certainty for a potentially lengthy period. 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.

For origin year 2014, loss reserves for short-tail lines were typically established for the non-catastrophe exposures using a combination of the initial expected loss ratio method (see above) and loss development methods that incorporate actual loss emergence. As the year progressed, we also adjusted these reserves for non-catastrophe large loss activity that we considered to be greater or less than the assumptions used to establish the initial expected loss ratio. Catastrophe activity was relatively low in 2014 and accordingly the judgments and uncertainties used to establish reserves for incurred catastrophe events were correspondingly less complex. For our short-tail businesses taken as a whole, overall loss trend assumptions did not differ significantly relative to prior years.

In terms of prior accident years, the bulk of the changes made in the 2014 calendar year arose from origin years 2010 through 2012. Specifically, the Insurance – North American P&C, Insurance – Overseas General, and Global Reinsurance segments experienced $56 million, $210 million, and $11 million of favorable prior period development, respectively, primarily due to lower than anticipated loss emergence rather than any significant changes to underlying actuarial assumptions such as loss


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development patterns. This favorable prior period development was primarily the result of changes to the ultimate loss estimates for origin years 2011 and 2012 for Insurance – North American P&C, origin years 2010 through 2013 for Insurance – Overseas General, and origin year 2012 for Global Reinsurance. Insurance – North American Agriculture experienced $34 million of adverse prior period development primarily due to higher than expected claim development for the 2013 crop year in our Multiple Peril Crop Insurance business.

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 considerable inherent uncertainty around loss trends, claims inflation (e.g., medical and judicial) and underlying economic conditions;
The inherent uncertainty of the estimated duration of the paid and reported loss development patterns beyond the historical record requires that professional judgment be used in the determination of the length of the patterns based on the historical data and other information;
The inherent uncertainty of assuming that historical paid and reported loss development patterns for older origin years will be representative of subsequent loss emergence on 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 can be seen from the 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. Examples of the relationship between changes in historical loss experience and key reserving assumptions are provided below.

For those long-tail product lines that are less claim frequency and more claim severity oriented, such as high excess professional and casualty lines, we placed more reliance upon expert legal and claims review of the specific circumstances underlying reported cases rather than loss development patterns. Where appropriate, we then supplemented this with loss development and Bornhuetter-Ferguson approaches to provide for claims that have been reported but are too immature to develop individual claims estimates and also to provide for claims that have occurred but have not been reported. The assumptions used for these lines of business are updated over time to reflect new claim and legal advice judged to be of significance.

For origin year 2014, loss reserves were typically established through the application of individual product line expected loss ratios, as discussed earlier. Our assumptions on loss trend and development patterns reflect reliance on our historical loss data provided the length and volume of history and homogeneity afford credibility. For those lines where our internal historical experience lacks credibility, we may place reliance upon the latest benchmark patterns (where available) from external industry bodies such as Insurance Services Office (ISO) or the National Council on Compensation Insurance, Inc. (NCCI). In such cases, the assumptions used to project ultimate loss estimates will not fully reflect our own actual loss experience until our data is deemed sufficiently credible. We note that industry patterns are not always available to match the nature of the business being written; this issue is particularly problematic for non-U.S. exposed lines. Given the underlying volatility of the long-tail product


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lines and the lengthy period required for full paid and reported loss emergence, we typically assign little to no credibility to actual loss emergence that is lower than expected in the early development periods. Accordingly, we generally used the expected loss ratio method for the 2014 and immediately preceding origin years to establish reserves by product line. We monitor actual paid and reported loss emergence relative to expected loss emergence for most individual product lines.
As described earlier, the process to develop origin year 2014 reserves for our long-tail casualty business relies on estimates of ultimate and historical loss ratios for prior origin years adjusted to current levels through the use of key assumptions like expected rate change and loss trend. When estimating the ultimate loss levels for these prior origin years for the major long-tail lines in Insurance – North American P&C, Insurance – Overseas General, and Global Reinsurance no changes of significance were made to the loss development patterns. While we generally use trends observed in internal and/or industry data to adjust prior year losses to current levels, we have made no material changes to the prospective loss trends used to develop ultimate loss ratios for origin year 2014.

For long-tail portfolios where actual loss emergence in calendar year 2014 was lower than expected for the more recent origin years, the deviation was not typically seen as sufficiently credible, particularly given the volatility and lengthy period for full loss emergence, to fully reflect in our booked ultimate loss selections or the actuarial assumptions underlying the reserve reviews. However, for certain product lines with early loss emergence on more recent origin years that was greater than expected, we did respond where we believed that such adverse emergence was generally significant relative to the loss emergence assumptions (e.g., origin years 2012 and 2013 for casualty and financial lines in Insurance – Overseas General). Such judgments were made with due consideration to the factors impacting reserve uncertainty as discussed above. The reserve actions that we took in 2014 are discussed further below and in Note 7 to the Consolidated Financial Statements.

For more mature origin years, typically 2010 and prior, we gave meaningful weight to indicated ultimates derived from methods that rely on the paid and reported loss development patterns based on our own historical experience where sufficient credibility was deemed to exist. As noted previously, this is consistent with our practice of allowing favorable loss emergence sufficient time to be reliably established before assigning partial or full credibility.

The prior period development in 2014 for long-tail lines of business comprised several main components. First, we experienced favorable prior period development on a number of product lines where actual loss emergence was lower than expected and/or increased weighting was given to experience-based methods as relevant origin years mature (typically 2010 and prior). In particular, this included D&O, medical risk operations, and financial solutions business in Insurance – North American P&C ($179 million favorable) principally in origin years 2009 and 2010, casualty and financial lines in Insurance – Overseas General for origin years 2010 and prior ($246 million favorable), and origin years 2009 and prior for long-tail product lines in Global Reinsurance ($63 million favorable). Second, we recorded both favorable and adverse reserve actions in response to development on specific large claims. Third, we experienced adverse development from Insurance – North American P&C run-off operations including Westchester and Brandywine run-off operations ($247 million). The causes for the Westchester and Brandywine operations are described further below.

Sensitivity to underlying assumptions
While we believe that our reserve for unpaid losses and loss expenses at December 31, 2014,2016, is adequate, new information or emerging trends that differ from our assumptions may lead to future development of losses and loss expenses that is significantly greater or less than the recorded reserve, which could have a material effect on future operating results. As noted previously, our best estimate of required loss reserves for most portfolios is judgmentally selected for each origin year after considering the results from a number of reserving methods and is not a purely mechanical process. Therefore, it is difficult to convey, in a simple and quantitative manner, the impact that a change to a single assumption will have on our best estimate. In the examples below, we attempt to give an indication of the potential impact by isolating a single change for a specific reserving method that would be pertinent in establishing the best estimate for the product line described. We consider each of the following sensitivity analyses to represent a reasonably likely deviation in the underlying assumption.

Insurance –

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North AmericanAmerica Commercial P&C Insurance
Given the long reporting and paid development patterns for workers' compensation business, the development factors used to project actual current losses to ultimate losses for our current exposure requiresrequire considerable judgment that could be material to consolidated loss and loss expense reserves. Specifically, adjusting ground up ultimate losses by a one percent change in the tail factor (i.e., 1.04 changed to either 1.05 or 1.03) would cause a change of approximately $432$625 million, either positive or negative, for the projected net loss and loss expense reserves. This represents an impact of 10about 8.0 percent relative to recorded net loss and loss expense reserves of approximately $4.3$7.7 billion.



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The reserve portfolio for our ACEChubb Bermuda operations contains exposure to predominantly high excess liability coverage on an occurrence-first-reported basis (typically with attachment points in excess of $325 million and gross limits of up to $150 million) and D&O and other professional liability coverage on a claims-made basis (typically with attachment points in excess of $125 million and gross limits of up to $75 million). Due to the layer of exposure covered, the expected frequency for this book is very low. As a result of the low frequency/high severity nature of the book, a small difference in the actual vs. expected claim frequency, either positive or negative, could result in a material change to the projected ultimate loss if such change in claim frequency was related to a policy where close to maximum limits were deployed.

Insurance – North American AgricultureAmerica Personal P&C Insurance
Due to the relatively short-tailed nature of many of the coverages involved (e.g., homeowners property damage), most of the incurred losses in Personal Lines are resolved within a few years of occurrence.  As shown in our loss triangle disclosure, the vast majority (over 95 percent) of Personal Lines net ultimate loss and allocated loss adjustment expenses are typically paid within five years of the accident date and over 80 percent within two years.  Even though there are significant reserves associated with some longer-tailed exposures such as personal excess/umbrella liability, our incurred loss triangle also shows a consistent pattern of only relatively minor movements in incurred estimates over time by accident year especially after twenty four months of maturity.  While the longer-tailed exposures are subject to additional uncertainties from more protracted resolution times, the main drivers of volatility in the Personal Lines business are relatively short-term in nature and relate to things like natural catastrophes, non-catastrophe weather events, man-made risks, and individual large loss volatility from other fortuitous claim events.

North America Agricultural Insurance
Approximately 8076 percent of the reserves for this segment are from the crop related lines, which all have short payout patterns, with the majority of the liabilities expected to be resolved in the ensuing twelve months. Reserves for our Multiple Peril Crop Insurance (MPCI) product are set on a case-by-case basis and our aggregate exposure is subject to state level risk sharing formulae as well as third-party reinsurance. The majority of the development risk arises out of the accuracy of case reserve estimates. We do not view our Agriculture reserves as substantially influenced by the general assumptions and risks underlying more typical P&C reserve estimates.

Insurance – Overseas General Insurance
Certain long-tail lines, such as casualty and professional lines, are particularly susceptible to changes in loss trend and claim inflation. Heightened perceptions of tort and settlement awards around the world are increasing the demand for these products as well as contributing to the uncertainty in the reserving estimates. Our reserving methods rely on loss development patterns estimated from historical data and while we attempt to adjust such factors for known changes in the current tort environment, it is possible that such factors may not entirely reflect all recent trends in tort environments. For example, when applying the reported loss development method, the lengthening of our selected loss development patterns by six months would increase reserve estimates on long-tail casualty and professional lines for accident years 20122013 and prior by approximately $281$493 million. This represents an impact of 12.114.0 percent relative to recorded net loss and loss expense reserves of approximately $2.3$3.5 billion.

Global Reinsurance
Typically, there is inherent uncertainty around the length of paid and reported development patterns, especially for certain casualty lines such as excess workers' compensation or general liability, which may take up to 30 years to fully develop. This uncertainty is accentuated by the need to supplement client development patterns with industry development patterns due to the sometimes low credibility of the data. The underlying source and selection of the final development patterns can thus have a significant impact on the selected ultimate net losses and loss expenses. For example, a 20 percent shortening or lengthening of the development patterns used for U.S. long-tail lines would cause the loss reserve estimate derived by the reported Bornhuetter-Ferguson method for these lines to change by approximately $430$650 million. This represents an impact of 3760 percent relative to recorded net loss and loss expense reserves of approximately $1.2$1.1 billion.



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Assumed reinsurance
At December 31, 20142016, net unpaid losses and loss expenses for the Global Reinsurance segment aggregated to $2.0$1.7 billion, consisting of $872$760 million of case reserves and $1.1 billion$978 million of IBNR. In comparison, at December 31, 2013,2015, net unpaid losses and loss expenses for the Global Reinsurance segment aggregated to $2.2$1.7 billion, consisting of $938$740 million of case reserves and $1.2 billion$975 million of IBNR.

For our catastrophe business, we principally estimate unpaid losses and loss expenses on an event basis by considering various sources of information, including specific loss estimates reported by our cedants, ceding company and overall industry loss estimates reported by our brokers, and our internal data regarding reinsured exposures related to the geographical location of the event. Our internal data analysis enables us to establish catastrophe reserves for known events with more certainty at an earlier date than would be the case if we solely relied on reports from third parties to determine carried reserves.

For our casualty reinsurance business, we generally rely on ceding companies to report claims and then use that data as a key input to estimate unpaid losses and loss expenses. Due to the reliance on claims information reported by ceding companies, as well as other factors, the estimation of unpaid losses and loss expenses for assumed reinsurance includes certain risks and uncertainties that are unique relative to our direct insurance business. These include, but are not necessarily limited to, the following:

The reported claims information could be inaccurate;
Typically, a lag exists between the reporting of a loss event to a ceding company and its reporting to us as a reinsurance claim. The use of a broker to transmit financial information from a ceding company to us increases the reporting lag.


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Because most of our reinsurance business is produced by brokers, ceding companies generally first submit claim and other financial information to brokers, who then report the proportionate share of such information to each reinsurer of a particular treaty. The reporting lag generally results in a longer period of time between the date a claim is incurred and the date a claim is reported compared with direct insurance operations. Therefore, the risk of delayed recognition of loss reserve development is higher for assumed reinsurance than for direct insurance lines; and
The historical claims data for a particular reinsurance contract can be limited relative to our insurance business in that there may be less historical information available. Further, for certain coverages or products, such as excess of loss contracts, there may be relatively few expected claims in a particular year so the actual number of claims may be susceptible to significant variability. In such cases, the actuary often relies on industry data from several recognized sources.

We mitigate the above risks in several ways. In addition to routine analytical reviews of ceding company reports to ensure reported claims information appears reasonable, we perform regular underwriting and claims audits of certain ceding companies to ensure reported claims information is accurate, complete, and timely. As appropriate, audit findings are used to adjust claims in the reserving process. We also use our knowledge of the historical development of losses from individual ceding companies to adjust the level of adequacy we believe exists in the reported ceded losses.

On occasion, there will be differences between our carried loss reserves and unearned premium reserves and the amount of loss reserves and unearned premium reserves reported by the ceding companies.  This is due to the fact that we receive consistent and timely information from ceding companies only with respect to case reserves.  For IBNR, we use historical experience and other statistical information, depending on the type of business, to estimate the ultimate loss.  We estimate our unearned premium reserve by applying estimated earning patterns to net premiums written for each treaty based upon that treaty's coverage basis (i.e., risks attaching or losses occurring).  At December 31, 2014,2016, the case reserves reported to us by our ceding companies were $851$745 million, compared with the $872$760 million we recorded.  Our policy is to post additional case reserves in addition to the amounts reported by our cedants when our evaluation of the ultimate value of a reported claim is different than the evaluation of that claim by our cedant.

Within the Insurance – North American P&C segment,Corporate, we also have exposure to certain liability reinsurance lines that have been in run-off since 1994. Unpaid losses and loss expenses relating to this run-off reinsurance business resides within the Brandywine Division of our Insurance – North American P&C segment.Corporate. Most of the remaining unpaid loss and loss expense reserves for the run-off reinsurance business relate to A&E claims. Refer to the “Asbestos and Environmental (A&E)” section for additional information.

Asbestos and environmental reserves
Included in our liabilities for losses and loss expenses are amounts for A&E (A&E liabilities). The A&E liabilities principally relate to claims arising from bodily-injury claims related to asbestos products and remediation costs associated with hazardous waste sites. The estimation of our A&E liabilities is particularly sensitive to future changes in the legal, social, and economic


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environment. We have not assumed any such future changes in setting the value of our A&E liabilities, which include provisions for both reported and IBNR claims.

There are many complex variables that we consider when estimating the reserves for our inventory of asbestos accounts and these variables may directly impact the predicted outcome. We believe the most significant variables relating to our A&E liabilities include the current legal environment; specific settlements that may be used as precedents to settle future claims; assumptions regarding trends with respect to claim severity and the frequency of higher severity claims; assumptions regarding the ability to allocate liability among defendants (including bankruptcy trusts) and other insurers; the ability of a claimant to bring a claim in a state in which they have no residency or exposure; the ability of a policyholder to claim the right to unaggregated coverage; whether high-level excess policies have the potential to be accessed given the policyholder's claim trends and liability situation; payments to unimpaired claimants; and, the potential liability of peripheral defendants. Based on the policies, the facts, the law, and a careful analysis of the impact that these factors will likely have on any given account, we estimate the potential liability for indemnity, policyholder defense costs, and coverage litigation expense.

The results in asbestos cases announced by other carriers or defendants may well have little or no relevance to us because coverage exposures are highly dependent upon the specific facts of individual coverage and resolution status of disputes among carriers, policyholders, and claimants.

For additional information refer to the “Asbestos and Environmental (A&E)” section and to Note 7to the Consolidated Financial Statements.


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Future policy benefits reserves
We issue contracts in our Insurance – Overseas General Insurance and Life Insurance segments that are classified as long-duration. These contracts generally include accident and supplemental health products, term and whole life products, endowment products, and annuities. In accordance with GAAP, we establish reserves for contracts determined to be long-duration based on approved actuarial methods that include assumptions related to expenses, mortality, morbidity, persistency, and investment yields with a factor for adverse deviation. These assumptions are “locked in” at the inception of the contract, meaning we use our original assumptions throughout the life of the policy and do not subsequently modify them unless we deem the reserves to be inadequate. The future policy benefits reserves balance is regularly evaluated for a premium deficiency. If experience is less favorable than assumptions, additional liabilities may be required, resulting in a charge to policyholder benefits and claims.

Valuation of value of business acquired (VOBA), and amortization of deferred policy acquisition costs and VOBA
As part of the acquisition of businesses that sell long-duration contracts, such as life products, we established an intangible asset related to VOBA, which represented the fair value of the future profits of the in-force contracts. The valuation of VOBA at the time of acquisition is derived from similar assumptions to those used to establish the associated future policy benefits reserves. The most significant input in this calculation is the discount rate used to arrive at the present value of the net cash flows. We amortize deferred policy acquisition costs associated with long-duration contracts and VOBA (collectively policy acquisition costs) 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 estimates of expected gross profits. The estimated life is established at the inception of the contracts or upon acquisition and is based on current persistency assumptions. Policy acquisition costs, which consist of commissions, premium taxes, and certain underwriting costs related directly to the successful acquisition of a new or renewal insurance contract, are reviewed to determine if they are recoverable from future income, including investment income. Unrecoverable costs are expensed in the period identified.

Risk transfer
In the ordinary course of business, we both purchase (or cede) and sell (or assume) reinsurance protection. We discontinued the purchase of all finite risk reinsurance contracts, as a matter of policy, in 2002. For both ceded and assumed reinsurance, risk transfer requirements must be met in order to use reinsurance accounting, principally resulting in the recognition of cash flows under the contract as premiums and losses. If risk transfer requirements are not met, a contract is to be accounted for as a deposit, typically resulting in the recognition of cash flows under the contract through a deposit asset or liability and not as revenue or expense. To meet risk transfer requirements, a reinsurance contract must include both insurance risk, consisting of underwriting and timing risk, and a reasonable possibility of a significant loss for the assuming entity. We also apply similar risk transfer requirements to determine whether certain commercial insurance contracts should be accounted for as insurance or a deposit. Contracts that include fixed premium (i.e., premium not subject to adjustment based on loss experience under the contract) for fixed coverage generally transfer risk and do not require judgment.



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Reinsurance and insurance contracts that include both significant risk sharing provisions, such as adjustments to premiums or loss coverage based on loss experience, and relatively low policy limits, as evidenced by a high proportion of maximum premium assessments to loss limits, can require considerable judgment to determine whether or not risk transfer requirements are met. For such contracts, often referred to as finite or structured products, we require that risk transfer be specifically assessed for each contract by developing expected cash flow analyses at contract inception. To support risk transfer, the cash flow analyses must demonstrate that a significant loss is reasonably possible, such as a scenario in which the ratio of the net present value of losses divided by the net present value of premiums equals or exceeds 110 percent. For purposes of cash flow analyses, we generally use a risk-free rate of return consistent with the expected average duration of loss payments. In addition, to support insurance risk, we must prove the reinsurer's risk of loss varies with that of the reinsured and/or support various scenarios under which the assuming entity can recognize a significant loss.

To ensure risk transfer requirements are routinely assessed, qualitative and quantitative risk transfer analyses and memoranda supporting risk transfer are developed by underwriters for all structured products. We have established protocols for structured products that include criteria triggering an accounting review of the contract prior to quoting. If any criterion is triggered, a contract must be reviewed by a committee established by each of our segments with reporting oversight, including peer review, from our global Structured Transaction Review Committee.

With respect to ceded reinsurance, we entered into a few multi-year excess of loss retrospectively-rated contracts, principally in 2002. These contracts primarily provided severity protection for specific product divisions. Because traditional one-year reinsurance coverage had become relatively costly, these contracts were generally entered into in order to secure a more cost-


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effectivecost-effective reinsurance program. All of these contracts transferred risk and were accounted for as reinsurance. In addition, we maintain a few aggregate excess of loss reinsurance contracts that were principally entered into prior to 2003, such as the National Indemnity Company (NICO) contracts referred to in the section entitled, “Asbestos and Environmental (A&E)”. We have not purchased any other retroactive ceded reinsurance contracts since 1999.

With respect to assumed reinsurance and insurance contracts, products giving rise to judgments regarding risk transfer were primarily sold by our financial solutions business. Although we have significantly curtailed writing financial solutions business, several contracts remain in-force and principally include multi-year retrospectively-rated contracts and loss portfolio transfers. Because transfer of insurance risk is generally a primary client motivation for purchasing these products, relatively few insurance and reinsurance contracts have historically been written for which we concluded that risk transfer criteria had not been met. For certain insurance contracts that have been reported as deposits, the insured desired to self-insure a risk but was required, legally or otherwise, to purchase insurance so that claimants would be protected by a licensed insurance company in the event of non-payment from the insured.

Reinsurance recoverable
Reinsurance recoverable includes balances due to us from reinsurance companies for paid and unpaid losses and loss expenses and is presented net of a provision for uncollectible reinsurance. The provision for uncollectible reinsurance is determined based upon a review of the financial condition of the reinsurers and other factors. Ceded reinsurance contracts do not relieve our primary obligation to our policyholders. Consequently, an exposure exists with respect to reinsurance recoverable to the extent that any reinsurer is unable or unwilling to meet its obligations or disputes the liabilities assumed under the reinsurance contracts. We determine the reinsurance recoverable on unpaid losses and loss expenses using actuarial estimates as well as a determination of our ability to cede unpaid losses and loss expenses under existing reinsurance contracts.

The recognition of a reinsurance recoverable asset requires two key judgments. The first judgment involves our estimation based on the amount of gross reserves and the percentage of that amount which may be ceded to reinsurers. Ceded IBNR, which is a major component of the reinsurance recoverable on unpaid losses and loss expenses, is generally developed as part of our loss reserving process and, consequently, its estimation is subject to similar risks and uncertainties as the estimation of gross IBNR (refer to “Critical Accounting Estimates – Unpaid losses and loss expenses”). The second judgment involves our estimate of the amount of the reinsurance recoverable balance that we may ultimately be unable to recover from reinsurers due to insolvency, contractual dispute, or for other reasons. Estimated uncollectible amounts are reflected in a provision that reduces the reinsurance recoverable asset and, in turn, shareholders' equity. Changes in the provision for uncollectible reinsurance are reflected in net income.

Although the obligation of individual reinsurers to pay their reinsurance obligations is based on specific contract provisions, the collectability of such amounts requires estimation by management. The majority of the recoverable balance will not be due for collection until sometime in the future, and the duration of our recoverables may be longer than the duration of our direct exposures. Over this period of time, economic conditions and operational performance of a particular reinsurer may impact


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their ability to meet these obligations and while they may continue to acknowledge their contractual obligation to do so, they may not have the financial resources or willingness to fully meet their obligation to us.

To estimate the provision for uncollectible reinsurance, the reinsurance recoverable must first be determined for each reinsurer. This determination is based on a process rather than an estimate, although an element of judgment must be applied. As part of the process, ceded IBNR is allocated to reinsurance contracts because ceded IBNR is not generally calculated on a contract by contract basis. The allocations are generally based on premiums ceded under reinsurance contracts, adjusted for actual loss experience and historical relationships between gross and ceded losses. If actual premium and loss experience vary materially from historical experience, the allocation of reinsurance recoverable by reinsurer will be reviewed and may change. While such change is unlikely to result in a large percentage change in the provision for uncollectible reinsurance, it could, nevertheless, have a material effect on our net income in the period recorded.

Generally, we use 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 estimate the probability that the reinsurer may be unable to meet its future obligations in full. The definition of collateral for this purpose requires some judgment and is generally limited to assets held in an ACE-onlya Chubb-only beneficiary trust, letters of credit, and liabilities held by us with the same legal entity for which we believe there is a right of offset. We do not currently include multi-beneficiary trusts. However, we have several reinsurers that have established multi-beneficiary trusts for which certain of our companies are beneficiaries. The determination of the default factor is principally based on the financial strength rating of the reinsurer and a corresponding default factor applicable to the financial strength rating. Default factors require considerable judgment and are


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determined using the current financial strength rating, or rating equivalent, of each reinsurer as well as other key considerations and assumptions. Significant considerations and assumptions 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 judgment exercised by management to determine the provision for uncollectible reinsurance of each reinsurer is typically limited because the financial rating is based on a published source and the default factor we apply is based on a historical default factor of a major rating agency applicable to the particular rating class. Default factors applied for financial ratings of AAA, AA, A, BBB, BB, B, and CCC, are 0.8 percent, 1.2 percent, 1.7 percent, 4.9 percent, 19.6 percent, 34.0 percent, and 62.2 percent, respectively. Because our model is predicated on the historical default factors of a major rating agency, we do not generally consider alternative factors. However, 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 or affiliated company, we may determine a rating equivalent based on our 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 our ceded reserve is below a certain threshold, we generally apply a default factor of 34.0 percent;
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 specific facts and circumstances surrounding each company. Upon initial notification of an insolvency, we generally recognize 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 captives and other recoverables, management determines the provision for uncollectible reinsurance based on the specific facts and circumstances.


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The following table summarizes reinsurance recoverables and the provision for uncollectible reinsurance for each type of recoverable balance at December 31, 2014:2016:
 Gross Reinsurance Recoverables on Losses and Loss Expenses
 Recoverables (net of Usable Collateral)
   Gross Reinsurance Recoverables on Losses and Loss Expenses
 Recoverables (net of Usable Collateral)
  
 Provision for Uncollectible Reinsurance
 Provision for Uncollectible Reinsurance
(in millions of U.S. dollars)  
Type        
Reinsurers with credit ratings $9,169
 $8,390
 $202
 $10,073
 $8,944
 $153
Reinsurers not rated 186
 146
 50
 354
 156
 53
Reinsurers under supervision and insolvent reinsurers 98
 97
 54
 102
 99
 45
Captives 1,986
 366
 23
 2,172
 287
 16
Other - structured settlements and pools 910
 904
 28
 1,176
 1,102
 33
Total $12,349
 $9,903
 $357
 $13,877
 $10,588
 $300

At December 31, 20142016, the use of different assumptions within our approach could have a material effect on the provision for uncollectible reinsurance. To the extent the creditworthiness of our reinsurers were to deteriorate due to an adverse event affecting the reinsurance industry, such as a large number of major catastrophes, actual uncollectible amounts could be significantly greater than our provision for uncollectible reinsurance. Such an event could have a material adverse effect on our financial condition, results of operations, and our liquidity. Given the various considerations used to estimate our uncollectible provision, we cannot precisely quantify the effect a specific industry event may have on the provision for uncollectible reinsurance. However, based on the composition (particularly the average credit quality) of the reinsurance recoverable balance at December 31, 2014,2016, we estimate that a ratings downgrade of one notch for all rated reinsurers (i.e., from A to A- or A- to BBB+) could increase our provision for uncollectible reinsurance by approximately $73$68 million or approximately 0.60.5 percent of the gross reinsurance recoverable balance, assuming no other changes relevant to the calculation. While a ratings downgrade would result in an increase in our provision for uncollectible reinsurance and a charge to earnings in that period, a downgrade in


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and of itself does not imply that we will be unable to collect all of the ceded reinsurance recoverable from the reinsurers in question. Refer to Note 5 to the Consolidated Financial Statements for additional information.

Other-than-temporary impairments (OTTI)
Each quarter, we review securities in an unrealized loss position (impaired securities), including fixed maturities, securities lending collateral, equity securities, and other investments, to identify impaired securities to be specifically evaluated for a potential OTTI. Because our investment portfolio is the largest component of consolidated assets, and a multiple of shareholders' equity, OTTI could be material to our financial condition and results of operations. Refer to Note 3 d)c) to the Consolidated Financial Statements for a description of the OTTI process.

Deferred tax assetstaxes
Many of our insurance businesses operate in income tax-paying jurisdictions. Our deferred tax assets and liabilities primarily result from temporary differences between the amounts recorded in our consolidated financial statements and the tax basis of our assets and liabilities.  We determine deferred tax assets and liabilities separately for each tax-paying component (an individual entity or group of entities that is consolidated for tax purposes) in each tax jurisdiction. The realization of deferred tax assets depends upon the existence of sufficient taxable income within the carryback or carryforward periods under the tax law in the applicable tax jurisdiction.

At December 31, 2014,2016, our net deferred tax assetliability was $295$988 million. Refer to Note 8 to the Consolidated Financial Statements for additional information. At each balance sheet date, management assesses the need to establish a valuation allowance that reduces deferred tax assets when it is more likely than not that all, or some portion, of the deferred tax assets will not be realized.  The valuation allowance is based on all available information including projections of future taxable income from each tax-paying component in each tax jurisdiction, principally derived from business plans and available tax planning strategies.  Projections of future taxable income incorporate several assumptions of future business and operations that are apt to differ from actual experience. The valuation allowance is also based on maintaining our ability and intent to hold our U.S. available for sale fixed maturities to recovery. If our assumptions and estimates that resulted in our forecast of future taxable income for each tax-paying component prove to be incorrect, or future market events occur that prevent our ability to hold our U.S. fixed maturities to recovery, an additional valuation allowance could become necessary, which could have a material adverse effect on our financial condition, results of operations, and liquidity.  At December 31, 2014,2016, the valuation allowance of $17


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$78 million reflects management's assessment that it is more likely than not that a portion of the deferred tax asset will not be realized due to the potential inability of certain foreign subsidiaries to generate sufficient taxable income.

Fair value measurements
Accounting 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 (Level 1 inputs) and the lowest priority to unobservable data (Level 3 inputs):

Level 1 inputs are unadjusted quoted prices for identical assets or liabilities in active markets.
. Level 2 includes inputs, other than quoted prices included within Level 1, that are observable for assets or liabilities either directly or indirectly. Level 2 inputs include, among other items, quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, and inputs other than quoted prices that are observable for the asset or liability such as interest rates and yield curves.
Level 3 inputs are unobservable and reflect our 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.

While we obtain values for the majority of our investment securities from pricing services, it is ultimately our responsibility to determine whether the values obtained in the financial statements are representative of fair value. We periodically update our understanding of the methodologies used by our pricing services in order to validate that the prices obtained from those services


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are consistent with the GAAP definition of fair value as an exit price. Based on our understanding of the methodologies, our 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 our pricing services, all applicable investments have been valued in accordance with GAAP valuation principles. We have controls to review significant price changes and stale pricing, and to ensure that prices received from pricing services have been accurately reflected in the consolidated financial statements. We do not adjust prices obtained from pricing services.

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. For a small number of fixed maturities, we obtain a quote from a broker (typically 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.

At December 31, 2014 and 2013, Level 3 assets represented five percent of assets measured at fair value and three percent of total assets. Level 3 liabilities represented 88 percent and 74 percent of liabilities measured at fair value at December 31, 2014 and 2013, respectively, and less than one percent of our total liabilities at both December 31, 2014 and 2013. Refer to Note 4 and Note 13 to the consolidated financial statementsConsolidated Financial Statements for a description of the valuation techniques and inputs used to determine fair values forinformation on our financial instruments measured or disclosed at fair value by valuation hierarchy (Levels 1, 2, and 3) as well as a roll-forward of Level 3 financial instruments measured at fair value for the years ended December 31, 2014, 2013, and 2012.measurements.

Assumed reinsurance programs involving minimum benefit guarantees under variable annuity contracts
ACEChubb reinsures various death and living benefit guarantees associated with variable annuities issued primarily in the United States and Japan. We ceased writing this business in 2007. Guarantees which are payable on death are referred to as guaranteed minimum death benefits (GMDB). Guarantees on living benefits (GLB) includes guaranteed minimum income benefits (GMIB) and guaranteed minimum accumulation benefits (GMAB). For further description of this product and related accounting treatment, refer to Note 1 j) to the Consolidated Financial Statements.

Guaranteed living benefits (GLB) derivatives
Our GLB reinsurance is classified as a derivative for accounting purposes and therefore carried at fair value. We believe that the most meaningful presentation of these GLB derivatives is as follows:
Estimates of the average modeled value of future cash outflows is recorded as incurred losses (i.e., benefit reserves). Cash inflows or revenue are reported as net premiums earned and changes in the benefit reserves are reflected as Policy benefits expense in the consolidated statementConsolidated statements of operations, which is included in underwriting income.
The incremental difference between the fair value of GLB reinsurance contracts and benefit reserves is reflected in Accounts payable, accrued expenses, and other liabilities in the consolidatedConsolidated balance sheets and related changes in fair value are reflected in Net realized gains (losses) in the consolidated statementConsolidated statements of operations.

Determination of GLB fair value
The fair value of GLB reinsurance is estimated using an internal valuation model, which includes current market information and estimates of policyholder behavior from the perspective of a theoretical market participant that would assume these liabilities. All of our 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 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 more timely market information. Due to the inherent uncertainties of the assumptions used in the valuation models to determine the fair value of these derivative products, actual experience may differ materially from the estimates reflected in our consolidated financial statements.Consolidated Financial Statements.

We intend to hold these derivative contracts to maturity (i.e., the expiration of the underlying liabilities through lapse, annuitization, death, or expiration of the reinsurance contract). To partially offset the risk of changes in the fair value of GLB reinsurance contracts, we invest in derivative hedge instruments. At maturity, the cumulative realized gains and losses (excluding cumulative hedge gains or losses) from fair value changes of GLB reinsurance contracts will net to zero because, over time, the insurance liability will be increased or decreased to equal our obligation.



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Determination of GLB and Guaranteed minimum death benefits (GMDB) benefit reserves
Management established benefit reserves based on a long-term benefit ratio (or loss ratio) calculated using assumptions reflecting management’s best estimate of the future short-term and long-term performance of the variable annuity line of business. Despite the long-term nature of the risk, the benefit ratio calculation is impacted by short-term market movements that may be judged by management to be transient. Management regularly examines both qualitative and quantitative analysis, including a review of the differential between the benefit ratio used at the most recent valuation date and the benefit ratio calculated on subsequent dates. Management regularly evaluates its estimates and uses judgment to determine the extent to which assumptions underlying the benefit ratio calculation should be adjusted. ForAs part of that evaluation, during the year ended December 31, 2014,fourth quarter of 2016, management determined that no change tocertain assumptions underlying the long-term benefit ratio, primarily long-term interest rates, should be updated based on changes in expected future market conditions. Our current Long term benefit ratio is now 80 percent. This adjustment resulted in a charge to Policy benefits expense of $17 million. Since we carry the overall


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GMIB reserves at fair value, there was warranted.a realized gain recognized that offset this expense. On an annualized basis, we expect a similar incremental impact to Policy benefits expense of approximately $60 million in 2017 as we apply these updated assumptions to our expected future earned premium with an offsetting impact to realized gains.

For further information on the estimates and assumptions used in determining the fair value of GLB reinsurance, refer to Note 4 to the Consolidated Financial Statements. For a sensitivity discussion of the effect of changes in interest rates, equity indices, and other assumptions on the fair value of GLBs, and the estimated resulting impact on our net income, refer to Item 7A.

Risk Management
We employ a strategy to manage the financial market and policyholder behavior risks embedded in the reinsurance of variable annuity (VA) guarantees. Risk management begins with underwriting a prospective client and guarantee design, with particular focus on protecting our position from policyholder options that, because of anti-selective behavior, could adversely impact our obligation.

A second layer of risk management is the structure of the reinsurance contracts. All VA guarantee reinsurance contracts include some form of annual or aggregate claim limit(s). For example, for 60 percent of the GMDB portfolio (based on guaranteed value), there is an annual claim limit of 2 percent of account value. The different categories of claim limits are as follows:
Reinsurance program covering % of total guaranteed value (GV) % of GV that has additional reinsurance coverage  Additional terms
 GMDB with an annual claim limit of 2% of account value (AV) 60% of total GMDB 2% for GLB N/A
 GMDB with claim limit(s) that are a function of underlying GV
(varies from 0.4% to 2.0% of GV)
 30% of total GMDB 80% for GLB 
l 60%• 55% of GV subject to annual claim
deductibles(1) of 0.1% to 0.2% of GV
l 45%• 40% of GV subject to an aggregate claim limit
of approximately $384$385 million
GMDB and GMAB 10%5% of total GLB
10% of total GMDB

 N/A 
l Programs are quota-share (QS) agreements
with QS % decreasing as ratio of AV to GV
decreases:
— QS 100% for ratios between 100% - 75%
— QS 60% for ratios between 75% - 45%
— QS 30% for ratios less than 45%
l 35% of GV subject to a per policy claim
deductible of 8.8% of GV for GMAB only(1) 
GMIB with an annual claim limit of 10% of GV on over 95% of GV 60%65% of total GLB 45% for GMDB 
l Annual annuitization limit range 17.5% -
30%:
— 55% subject to limit of 30%
— 45% subject to limit of 20% or under
l 42%• 43% of GV subject to minimum annuity
conversion factors that limits exposure to low
interest rates
GMIB with an aggregate claim limit of $1.9$2.0 billion30% of total GLB 40%35% for GMDB 
l Annual annuitization limit of 20%
l 60%65% of GV subject to minimum annuity
conversion factors that limit exposure to low
interest rates
l 35%40% of GV subject to an aggregate claim
deductible of 2% of underlying annuity
deposits
(1) ACEChubb would only pay total annual claims in excess of deductibles.



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A third layer of risk management is the hedging strategy which looks to mitigate both long-term economic loss over time as well as dampen income statement volatility. We owned financial market instruments as part of the hedging strategy with a fair value liabilityasset (liability) of $19$1 million and $54$(4) million at December 31, 20142016 and 2013,2015, respectively. The instruments are substantially collateralized by our counterparties, on a daily basis.

We also limit the aggregate amount of variable annuity reinsurance guarantee risk we are willing to assume. The last substantive transactions were quoted in late 2007. The aggregate number of policyholders is currently decreasing through policyholder withdrawals, annuitizations, and deaths at a rate of 5 percent to 15 percent per annum.


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Note that GLB claims cannot occur for any reinsured policy until it has reached the end of its “waiting period”. 48As shown in the table below, 62 percent of the policies we reinsure reached the end of their “waiting periods” in 20142016 and prior, as shown in the table below.prior.
Year of first payment eligibility
Percent of living benefit
account values

Percent of living benefit
account values

2014 and prior48%
20156%
20166%
2016 and prior62%
201719%19%
201813%10%
2019 and after8%
20192%
20201%
2021 and after6%
Total100%100%

The following table presents the historical cash flows under these policies for the periods indicated. The amounts represent accrued past premium received and claims paid, split by benefit type.
(in millions of U.S. dollars)2014  2013  2012 2016  2015  2014 
GMDB
GLB
Total
 GMDB
GLB
Total
 GMDB
GLB
Total
GMDB
 GLB
 Total
 GMDB
 GLB
 Total
 GMDB
 GLB
 Total
Premium received$71
$138
$209
 $77
$149
$226
 $84
$160
$244
$55
 $118
 $173
 $61
 $121
 $182
 $71
 $138
 $209
Less paid claims39
13
52
 63
23
86
 99
11
110
42
 39
 81
 28
 16
 44
 39
 13
 52
Net cash received (paid)$32
$125
$157
 $14
$126
$140
 $(15)$149
$134
Net cash received$13
 $79
 $92
 $33
 $105
 $138
 $32
 $125
 $157

Collateral
ACEChubb holds collateral on behalf of most of its clients in the form of qualified assets in trust or letters of credit, typically in an amount sufficient for the client to obtain statutory reserve credit for the reinsurance.  The timing of the calculation and amount of the collateral varies by client according to the particulars of the reinsurance treaty and the statutory reserve guidelines of the client's domicile.



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Goodwill impairment assessment
Goodwill, which represents the excess of acquisition cost over the estimated fair value of net assets acquired, was $4.9$15.3 billion and $4.6$4.8 billion at December 31, 20142016 and 2013,2015, respectively. During 2014,2016, our goodwill balance increased 7 percent, primarily duereflecting the Chubb Corp acquisition. Goodwill is assigned to acquisitions. applicable reporting units of acquired entities at the time of acquisition. Our reporting units are the same as our reportable segments. For goodwill balances by reporting units, including information on the assignment of the goodwill related to the Chubb Corp acquisition by reporting units, refer to Note 6 to the Consolidated Financial Statements.

Goodwill is not amortized but is subject to a periodic evaluation for impairment at least annually, or earlier if there are any indications of possible impairment. Impairment is tested at the reporting unit level. Goodwill is assigned to applicable reporting units of acquired entities at acquisition. The most significant reporting units are:

New York Life's Korea operations and Hong Kong operations acquired in 2011;
Rain and Hail Insurance Service, Inc. (Rain and Hail) acquired in 2010;
North American division of Combined Insurance acquired in 2008;
Domestic and International divisions of ACE INA acquired in 1999, including subsequent international acquisitions; and
ACE Tempest Re's businesses acquired in 1996 and 1998.

The impairment evaluation first uses 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 a reporting unit fails this qualitative assessment, a quantitative analysis is then used. The quantitative analysis is a two-step process in which an initial assessment for potential impairment is performed and, if a potential impairment is present, the amount of impairment is measured and recorded.

Other reporting units from smaller acquisitions are also assessed annually. Based on our impairment testing for 2014, we determined no impairment was required and none of our reporting units were at risk for impairment.

In assessing the fair value of a reporting unit, we make assumptions and estimates about the profitability attributable to our reporting units, including:
short-term and long-term growth rates; and
estimated cost of equity and changes in long-term risk-free interest rates.

If our assumptions and estimates made in assessing the fair value of acquired entities change, we could be required to write-down the carrying value of goodwill which could be material to our results of operations in the period the charge is taken.
Based on our impairment testing for 2016, we determined no impairment was required and none of our reporting units were at risk for impairment.


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Consolidated Operating Results – Years Ended December 31, 20142016, 20132015, and 20122014
    % Change    % Change 
(in millions of U.S. dollars, except for percentages)2014
 2013
 2012
 2014 vs. 2013
 2013 vs. 2012
2016
 2015
 2014
 2016 vs. 2015
 2015 vs. 2014
Net premiums written(1)$17,799
 $17,025
 $16,075
 4.6 % 5.9 %$28,145
 $17,713
 $17,799
 58.9 % (0.5)%
Net premiums earned(1)17,426
 16,613
 15,677
 4.9 % 6.0 %28,749
 17,213
 17,426
 67.0 % (1.2)%
Net investment income2,252
 2,144
 2,181
 5.1 % (1.7)%2,865
 2,194
 2,252
 30.6 % (2.6)%
Net realized gains (losses)(507) 504
 78
 NM
 NM
(145) (420) (507) (65.5)% (17.2)%
Total revenues19,171
 19,261
 17,936
 (0.5)% 7.4 %31,469
 18,987
 19,171
 65.7 % (1.0)%
Losses and loss expenses9,649
 9,348
 9,653
 3.2 % (3.2)%16,052
 9,484
 9,649
 69.3 % (1.7)%
Policy benefits517
 515
 521
 0.4 % (1.2)%588
 543
 517
 8.3 % 5.0 %
Policy acquisition costs3,075
 2,659
 2,446
 15.6 % 8.7 %5,904
 2,941
 3,075
 100.7 % (4.4)%
Administrative expenses2,245
 2,211
 2,096
 1.5 % 5.5 %3,081
 2,270
 2,245
 35.7 % 1.1 %
Interest expense280
 275
 250
 1.8 % 10.0 %605
 300
 280
 101.7 % 7.1 %
Other (income) expense(82) 15
 (6) NM
 NM
(222) (51) (190) 335.3 % (73.2)%
Amortization of purchased intangibles19
 171
 108
 (88.9)% 58.3 %
Chubb integration expenses492
 33
 
 NM
 NM
Total expenses15,684
 15,023
 14,960
 4.4 % 0.4 %26,519
 15,691
 15,684
 69.0 % 
Income before income tax3,487
 4,238
 2,976
 (17.7)% 42.4 %4,950
 3,296
 3,487
 50.2 % (5.5)%
Income tax expense634
 480
 270
 32.1 % 77.8 %815
 462
 634
 76.4 % (27.1)%
Net income$2,853
 $3,758
 $2,706
 (24.1)% 38.9 %$4,135
 $2,834
 $2,853
 45.9 % (0.7)%
NM – not meaningful                  
(1)
On a constant-dollar basis for the years ended December 31, 2016 and 2015, net premiums written increased$10.8 billion and $860 million, respectively, and net premiums earned increased$11.9 billion and $714 million, respectively. Amounts are calculated by translating prior period results using the same local currency rates as the comparable current period.

Net Premiums Written
2016 vs. 2015
Net premiums written reflect the premiums we retain after purchasing reinsurance protection. Consolidated net premiums written increased $10.4 billion in 2016, primarily due to the Chubb Corp acquisition, which added about $10.8 billion of growth to premiums. This increase in premiums was partially offset by the adverse impact of foreign exchange of $367 million. On a constant-dollar basis, as if legacy ACE and legacy Chubb were one company in 2015 and since the beginning of 2016 ("As If" basis), net premiums written decreased $843 million in 2016, primarily driven by merger-related underwriting actions ($650 million), including the purchase of additional reinsurance.

Net premiums written in our North America Commercial P&C Insurance segment increased$6,025 million in 2016. On an "As If" basis, net premiums written decreased$355 million in 2016, principally due to merger-related underwriting actions ($241 million), including the purchase of additional reinsurance. In addition, net premiums decreased due to lower new business written, driven by competitive market conditions and rate declines.

Net premiums written in our North America Personal P&C Insurance segment increased$2,961 million in 2016. On an "As If" basis, net premiums written decreased$509 million in 2016, principally driven by the purchase of additional reinsurance ($273 million) primarily for our homeowners and large limit valuable articles business written in the northeast United States. In addition, we experienced a decline in our Fireman’s Fund high net worth personal lines business in 2016 ($298 million), primarily reflecting a benefit in the prior year from a non-recurring unearned premium reserves (UPR) transfer ($252 million) and the conversion to Chubb legal entities in the current year. Excluding these items, net premiums written were up 1.3 percent in 2016.

Net premiums written in our Overseas General Insurance segment increased$1,490 million in 2016, and increased$95 million, on an "As If" constant-dollar basis, primarily driven by growth in personal lines, property and casualty lines (P&C), and A&H lines. This increase was partially offset by declines in our business written by Chubb Global Markets and by merger-related underwriting actions ($119 million), including the purchase of additional reinsurance.


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Net premiums written in our Life Insurance segment increased $126 million in 2016 and increased $32 million on an "As If" basis. Growth in our international life operations and in our Combined Insurance Supplemental A&H program business was partially offset by the adverse effect of foreign exchange. Our life reinsurance business continues to decline as there is no new life reinsurance business currently being written. On a constant-dollar basis, production, which includes deposits collected on universal life and investment contracts of $1,006 million in 2016 and $997 million in 2015, increased 6.0 percent.

Net premiums written in our North America Agricultural Insurance segment decreased$18 million in 2016, primarily due to the revision to the 2016 crop year margin estimate related to the MPCI program, which resulted in lower premium retention under the premium sharing formula with the U.S. government. This decrease was partially offset by lower cessions under existing third-party proportional reinsurance programs.

Net premiums written in our Global Reinsurance segment decreased $152 million in 2016 and decreased $161 million on an "As If" basis, as we maintained underwriting discipline in an environment of declining rates and increasing competition. In addition, the decline in premiums reflects increased cessions of $17 million due to the purchase of additional property catastrophe reinsurance in 2016.

2015 vs. 2014
Consolidated net premiums written decreased $86 million in 2015. On a constant-dollar basis, net premiums written increased $860 million.

Net premiums written in our North America Commercial P&C Insurance segment increased $30 million in 2015 due to growth in our global risk management lines, professional lines, wholesale casualty business, and small specialty division. These increases were partially offset by declines in our property and casualty businesses reflecting a more competitive market and rate decreases. Net premiums written in 2014 were favorably impacted by lower excess of loss premiums ceded under our 2014 catastrophe reinsurance program ($32 million).
Net premiums written in our North America Personal P&C Insurance segment increased $614 million in 2015 primarily due to the Fireman's Fund acquisition which added $561 million to premiums (including a non-recurring UPR transfer of $252 million recognized as written premiums at the acquisition date).

Net premiums written in our Overseas General Insurance segment increased $441 million in constant dollars reflecting organic growth across most operations. Included in the increase in net premiums written were contributions from the acquisition of Itaú Seguros in October 2014 and Samaggi in April 2014 which added $273 million of growth to premiums in constant dollars.

Net premiums written in our Life Insurance segment increased $71 million in constant dollars due to new business growth in our supplemental A&H businesses and our international life business, primarily in Asia, tempered by a decline in our variable annuity reinsurance business, as there is currently no new business being written.

Net premiums written in our Global Reinsurance segment decreased $85 million in constant dollars primarily due to lower production from competitive market conditions. The decline was partially offset by new business written, primarily in our U.S. automobile business.

Net premiums written in our North America Agricultural Insurance segment decreased $244 million in 2015 due to lower commodity base prices and lower premium retention as a result of the premium-sharing formulas with the U.S. government.



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Line of Business
The following tables presenttable presents a breakdown of consolidated net premiums written:written by line of business for the years indicated:
    % Change        

 % Change
(in millions of U.S. dollars, except for percentages)2014
 2013
 2012
 2014 vs. 2013
 2013 vs. 2012
2016
 2015
 2014
 As If
2016

 
C$ (1) As-If
2015

 
C$ (1) As-If
2016 vs. 2015

Commercial P&C (retail and wholesale)$8,235
 $7,887
 $7,237
 4.4 % 9.0 %
Personal and small commercial lines2,292
 1,909
 1,454
 20.0 % 31.3 %
Commercial multiple peril (2)
$815
 $
 $
 $895
 $938
 (4.6)%
Commercial casualty3,401
 2,171
 2,097
 3,519
 3,522
 (0.1)%
Workers' compensation2,006
 901
 941
 2,145
 2,134
 0.5 %
Professional liability3,576
 1,516
 1,519
 3,712
 3,850
 (3.6)%
Surety584
 323
 295
 593
 621
 (4.5)%
Property and other short-tail lines3,856
 2,884
 3,047
 3,993
 4,267
 (6.4)%
International other casualty1,038
 755
 804
 1,094
 997
 9.7 %
Total Commercial P&C15,276
 8,550
 8,703
 15,951
 16,329
 (2.3)%
           
Agriculture1,328
 1,346
 1,590
 1,328
 1,346
 (1.3)%
           
Personal automobile - North America698
 219
 134
 712
 740
 (3.8)%
Personal automobile - International673
 700
 688
 673
 633
 6.3 %
Personal homeowners3,053
 937
 506
 3,119
 3,722
 (16.2)%
Personal other1,400
 606
 496
 1,440
 1,255
 14.7 %
Total Personal lines5,824
 2,462
 1,824
 5,944
 6,350
 (6.4)%
Total Property and Casualty lines22,428
 12,358
 12,117
 23,223
 24,025
 (3.3)%
Other Lines           
Global A&H (3)
3,970
 3,548
 3,735
 4,009
 3,935
 1.9 %
Reinsurance935
 991
 1,025
 (5.7)% (3.3)%676
 828
 935
 696
 843
 (17.5)%
Property, casualty and all other11,462
 10,787
 9,716
 6.3 % 11.0 %
Agriculture1,590
 1,627
 1,859
 (2.3)% (12.5)%
Personal accident (A&H)3,735
 3,655
 3,532
 2.2 % 3.5 %
Life1,012
 956
 968
 5.9 % (1.2)%1,071
 979
 1,012
 1,072
 1,040
 3.1 %
Total consolidated$17,799
 $17,025
 $16,075
 4.6 % 5.9 %$28,145
 $17,713
 $17,799
 $29,000
 $29,843
 (2.8)%
Total consolidated - constant dollars (C$) (1)
  $16,847
 $15,926
 5.7 % 6.9%
         
2014
% of Total

 2013
% of Total

 2012
% of Total

    
Commercial P&C (retail and wholesale)46% 46% 45%    
Personal and small commercial lines13% 11% 9%    
Reinsurance5% 6% 6%    
Property, casualty and all other64% 63% 60%    
Agriculture9% 10% 12%    
Personal accident (A&H)21% 21% 22%    
Life6% 6% 6%    
Total consolidated100% 100% 100%    
(1) 
On a constant-dollar basis.  Amounts are calculated by translating prior period results using the same local currency rates as the comparable current period.
(2)
Commercial multiple peril represents retail package business (property and general liability).
(3)
For purposes of this schedule only, A&H results from our Combined North America and International businesses, normally included in the Life Insurance and Overseas General Insurance segments, respectively, as well as the A&H results of our North America Commercial P&C segment, are included in the Global A&H line item above.

Total commercial P&C increased $6,726 million in 2016, primarily reflecting the Chubb Corp acquisition.  On a constant-dollar “As If” basis, total commercial P&C premiums decreased $378 million (2.3 percent), primarily driven by merger-related underwriting actions ($321 million), including the purchase of additional reinsurance in 2016.

Total personal lines increased $3,362 million in 2016, primarily reflecting the Chubb Corp acquisition.  On a constant-dollar “As If” basis, total personal lines growth decreased $406 million (6.4 percent), primarily driven by the purchase of additional reinsurance and other merger-related underwriting actions ($277 million), primarily for our homeowners business written in the northeast United States. 

Global A&H lines increased $422 million in 2016, primarily reflecting the Chubb Corp acquisition. On a constant-dollar "As If" basis, Global A&H lines increased $74 million (1.9 percent), growth was partially offset by merger-related underwriting actions ($35 million).

Reinsurance lines decreased $152 million in 2016, or $147 million (17.4 percent) on a constant dollar "As If" basis, as we maintained underwriting discipline in an environment of declining rates, and due to increased cessions reflecting the purchase of additional property catastrophe reinsurance in 2016 ($17 million).



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Net premiums written reflect the premiums we retain after purchasing reinsurance protection. Net premiums written increased in our Insurance – Overseas General segment on a constant-dollar basis from new business writings in our retail operations in all product lines - personal lines, A&H, and P&C and from the acquisitions of Fianzas Monterrey in April 2013, ABA Seguros in May 2013, Samaggi in April 2014, and Itaú Seguros in October 2014. Foreign exchange adversely impacted growth on an as reported basis. Our Insurance – North American P&C segment reported an increase in net premiums written from growth across a broad range of our product portfolio throughout our ACE USA retail and our wholesale divisions, as well as in our Commercial Risk Services and ACE Private Risk Services divisions, primarily reflecting strong renewal retention and new business. Our Life segment also reported an increase in net premiums written primarily due to growth in our Asian markets. Net premiums written decreased in our Insurance – North American Agriculture segment due to lower Multiple Peril Crop Insurance (MPCI) revenues reflecting lower commodity prices, partially offset by higher premium retention as a result of the non-renewal of a third-party proportional reinsurance agreement. Our Global Reinsurance segment also reported a decrease in net premiums written due to the non-renewal of a large workers' compensation treaty, partially offset by new business.Premiums Earned

Net premiums written increased in 2013 due to higher net premiums written in our Insurance Overseas General segment on a constant-dollar basis driven by strong performance in our retail operations in all product lines P&C, A&H, and personal lines. The acquisitions of ABA Seguros and Fianzas Monterrey (Mexican Acquisitions), and Jaya Proteksi in September 2012 also added to premium growth. Foreign exchange adversely impacted growth on an as reported basis. Our Insurance North American P&C segment also reported increases in net premiums written in our ACE USA retail division from growth across a broad range of our product portfolio reflecting rate increases, exposure changes, strong renewal retention, and new business. Net written premiums decreased in our Insurance North American Agriculture segment due to lower premium retention in our MPCI program.

2016 vs. 2015
Net premiums earned for short-duration contracts, typically P&C contracts, generally reflect the portion of net premiums written that were recorded as revenues for the period as the exposure periods expire.  Net premiums earned for long-duration contracts,


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typically traditional life contracts, generally are recognized as earned when due from policyholders. Net premiums earned increased $11.5 billion in 2014 in our Insurance – Overseas General, Insurance – North American P&C, and Life segments as described above. Our Global Reinsurance segment also reported an increase in2016, primarily due to the Chubb Corp acquisition which added about $11.8 billion of growth to premiums, partially offset by the adverse impact of foreign currency of $328 million. On a constant-dollar basis, net premiums earned primarily from the shorter earning period on certain of the new business written this year including two non-recurring short-term treaties. Netincreased $11.9 billion in 2016.

On an "As If" constant-dollar basis, net premiums earned decreased $135 million in 2016, primarily in our Insurance –Global Reinsurance, North American Agriculture segment from lower net premiums written as described above.

Net premiums earned increased in 2013 in our Insurance Overseas General segment driven by strong performance in all product lines and our acquisitions as described above. Our Insurance North AmericanAmerica Commercial P&C segment also reported increasesinsurance, North America Agricultural Insurance, and North America Personal P&C Insurance segments due to the same factors driving the decrease in net premiums earned from higher net premiums written, as described above. Net premiums earned decreased in our Overseas General Insurance North American Agriculture and Global ReinsuranceLife Insurance segments from lowerincreased due to the same factors driving the increase in net premiums written, as described above.

2015 vs. 2014
Net investment income was $2.3 billion for 2014, $2.1 billion for 2013, and $2.2 billion for 2012. Referpremiums earned decreased $213 million in 2015, primarily reflecting the adverse impact of foreign exchange. On a constant-dollar basis, net premiums earned increased $714 million in 2015 due to “Net Investment Income” and “Investments” for additional information.the same factors driving the increase in net premiums written as described above.

Combined Ratio
In evaluating our segments excluding Life, we use the P&C combined ratio, the loss and loss expense ratio (including the impact of realized gains and losses on crop derivatives for the North America Agricultural Insurance segment), the policy acquisition cost ratio, and the administrative expense ratio. We calculate these ratios by dividing the respective expense amounts by net premiums earned. We do not calculate these ratios for the Life segment as we do not use these measures to monitor or manage that segment. The P&C combined ratio is determined by adding the loss and loss expense ratio, the policy acquisition cost ratio, and the administrative expense ratio. A P&C combined ratio under 100 percent indicates underwriting income, and a combined ratio exceeding 100 percent indicates underwriting loss.

The following table presents the components of GAAPthe combined ratio, as well as a reconciliation of GAAP combined ratio to P&C combined ratio. The P&C combined ratio is a non-GAAP financial measure and includes the impact of realized gains and losses on crop derivatives. Thesederivatives and the one-time pension curtailment benefit. The crop derivatives were purchased to provide economic benefit, in a manner similar to reinsurance protection, in the event that a significant decline in commodity pricing impactswill impact underwriting results. We view gains and losses on these derivatives as part of the results of our underwriting operations. The one-time pension curtailment benefit is related to the amendment of our U.S. pension plans as part of a harmonization effort that moves us toward a more unified retirement savings approach.
 2016
 2015
 2014
Loss and loss expense ratio57.7% 58.1% 58.7 %
Policy acquisition cost ratio20.2% 16.1% 16.8 %
Administrative expense ratio10.4% 13.1% 12.6 %
Combined ratio88.3% 87.3% 88.1 %
Impact of pension curtailment benefit (1)
0.4% 
 
Impact of (gains) and losses on crop derivatives
 0.1% (0.4)%
P&C combined ratio88.7% 87.4% 87.7 %
(1)The $113 million pension curtailment benefit comprised $23 million in Losses and loss expenses, and $90 million in Administrative expenses.
 2014
 2013
 2012
Loss and loss expense ratio58.7 % 59.6% 65.7%
Policy acquisition cost ratio16.8 % 15.7% 15.3%
Administrative expense ratio12.6 % 12.7% 12.9%
GAAP combined ratio88.1 % 88.0% 93.9%
Gains on crop derivatives(0.4)% 
 
P&C combined ratio87.7 % 88.0% 93.9%

The following table presents the impact of catastrophe losses and related reinstatement premiums and prior period reserve development on our consolidated loss and loss expense ratio, including gains on crop derivatives: 
 2014
 2013
 2012
Loss and loss expense ratio, including gains on crop derivatives58.3 % 59.6 % 65.7 %
Catastrophe losses and related reinstatement premiums(1.9)% (1.5)% (4.6)%
Prior period development3.4 % 3.7 % 3.5 %
Loss and loss expense ratio, adjusted59.8 % 61.8 % 64.6 %

Total net pre-tax catastrophe losses, excluding reinstatement premiums, were $291 million in 2014, compared with $230 million in 2013 and $pre-tax favorable prior period development:633 million in 2012.
   As If
    
(in millions of U.S dollars)2016
 2015
 2015
 2014
Catastrophe losses, pre-tax$1,067
 $848
 $321
 $291
Favorable prior period development, pre-tax$1,134
 $1,170
 $546
 $527



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Catastrophe losses in 2014 were primarily related tofrom the following events:
2016: severe weather-related events in the U.S., including Hurricane Matthew, severe weather-related events in Europe, a wildfire in Canada, and earthquakes in Ecuador and New Zealand.
2015: severe weather-related events in the U.S. and Asia, a chemical storage facility explosion in Tianjin, China, a hailstorm in Australia, and flooding and an earthquake in Chile
2014: severe weather-related events in the U.S., Japan, and Australia; flooding and hailstorms in Europe; and a hurricane in Mexico. Catastrophe losses in 2013 were primarily from flooding in Canada and Australia and severe weather-related events in the U.S. Catastrophe losses in 2012 were primarily from Superstorm Sandy, Hurricane Isaac, other severe weather-related events in the U.S. and Canada, and flooding in the U.K. The adjusted loss and loss expense was lower in 2014 due to underwriting actions improving loss ratios on several portfolios in the current year and higher losses in 2013 in our MPCI program.

Prior period development arises from changes to loss estimates recognized in the current year that relate to loss events that occurred in previous calendar years and excludes the effect of losses from the development of earned premium from previous accident years.


56The following table presents the impact of catastrophe losses and related reinstatement premiums and prior period reserve development on our consolidated loss and loss expense ratio. The loss ratio numerator includes losses and loss expenses adjusted to exclude catastrophe losses and PPD. The loss ratio denominator includes Net premiums earned adjusted to exclude the amount of reinstatement premiums (expensed) collected. In periods where there are adjustments on loss sensitive policies, these adjustments are excluded from PPD and net earned premiums when calculating this ratio. We believe that excluding the impact of catastrophe losses and PPD provides a better evaluation of our underwriting performance and enhances the understanding of the trends in our property & casualty business that may be obscured by these items.

 2016
 2015
 2014
Loss and loss expense ratio, including gains and losses on crop derivatives and excluding pension curtailment benefit57.8 % 58.2 % 58.3 %
Catastrophe losses and related reinstatement premiums(4.0)% (2.1)% (1.9)%
Prior period development4.3 % 3.6 % 3.4 %
Loss and loss expense ratio, adjusted58.1 % 59.7 % 59.8 %
2016 vs. 2015

accident years. We experiencedThe adjusted loss and loss expense ratio decreased 1.6 percentage points in 2016, primarily due to the net favorable prior period developmentimpact of $527the Chubb Corp acquisition which experienced a relatively lower loss ratio in our North America P&C businesses but experienced a higher loss ratio in our international business. The current year also included claims handling expense savings realized in connection with the integration of Chubb Corp of $60 million in 2014, $530 million in 2013, and $479 million in 2012, which includes an asbestos and environmental (A&E) and other run-off charge of $215 million, $166 million, and $140 million, respectively. Refer to “Prior Period Development” for additional information.(0.2 percentage points).

On an "As-If" basis, the adjusted loss and loss expense ratio decreased 0.1 percentage points in 2016.

Policy acquisition costs consist of commissions, premium taxes, and certain underwriting costs directly related directly to the successful acquisition of a new or renewal insurance contract. Administrative expenses include all other operating costs. Our policy acquisition cost ratio increased 4.1 percentage points in 20142016, primarily due to the normaladdition of the Chubb Corp business which carried a higher acquisition cost ratio (2.1 percentage points) and due to the net unfavorable impact of initial year purchase accounting adjustments related to our Mexican acquisitions which favorably impacted the 2013 ratio. As a result of purchase accounting requirements, the unearned premiums at the date of purchase(1.4 percentage points) related to the businesses acquiredChubb Corp acquisition in the current year and the Fireman's Fund acquisition in the prior year. In addition, during 2016, we determined that certain underwriting costs that are recognized overdirectly attributable to the remaining coverage period with no expense for the associated historicalsuccessful acquisition of business previously classified as administrative expenses were more appropriately classified as policy acquisition costs. This resulted in a $290 million (1.1 percentage points) increase to policy acquisition costs, that were incurredwith an offsetting decrease to underwrite those policies. In addition,administrative expenses in 2016.

On an "As If" basis, the policy acquisition cost ratio increased 0.3 percentage points in 2016, primarily due to the impact of the Fireman’s Fund acquisition in 2015 which favorably impacted the prior year ratio by 0.4 percentage points.

Our administrative expense ratio decreased 2.7 percentage points in 2016, primarily due to cost savings realized as a change inresult of the overall mixChubb Corp acquisition of $223 million (0.8 percentage points), the $290 million (1.1 percentage points) reclassification of underwriting costs that are directly attributable to the successful acquisition of business, towards A&Has discussed above, and personal lines productsthe one-time pension curtailment benefit of $90 million (0.3 percentage points) related to the amendment of our U.S. pension plan as part of a harmonization effort that moves us toward a more unified retirement savings approach.

On an "As If" basis, our administrative expense ratio decreased 0.5 percentage points in regions that have higher2016, primarily due to cost savings realized as a result of the Chubb Corp acquisition cost ratios. and the one-time pension curtailment benefit, as discussed above, partially offset by increased spending to support growth initiatives.


55


2015 vs. 2014
The adjusted loss and loss expense ratio remained relatively flat in 2015.

Our policy acquisition cost ratio increaseddecreased 0.7 percentage points in 2013 primarily due to a decrease in net premiums earned and higher agent commissions in our Insurance North American Agriculture segment's MPCI business. The 2012 ratio was favorably impacted by higher premium retention and lower agent commissions in the MPCI business caused by the drought conditions in the U.S. This increase was partially offset by a lower policy acquisition cost ratio in our Insurance Overseas General segment primarily2015, due to the relatively lower acquisition costs expensed by our new Mexican operations.Fireman's Fund purchase accounting adjustments, as described above.

Our administrative expense ratio decreased slightlyincreased 0.5 percentage points in 2014 as growth in net premiums earned outpaced growth in administrative expenses, partially offset by the favorable impact of a $29 million prior year legal settlement. Our administrative expense ratio decreased in 20132015, primarily due to increased spending to support growth, and the favorable impactintegration costs associated with the Fireman's Fund acquisition.

Policy benefits
Policy benefits represent losses on contracts classified as long-duration and generally include accident and supplemental health products, term and whole life products, endowment products, and annuities. Policy benefits also include gains and losses for changes in liabilities associated with our separate account assets that do not qualify for separate account reporting under GAAP. 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 legal settlementoffsetting liabilities are reported in 2013Future policy benefits in the consolidated balance sheets. Changes in fair value of separate account assets that do not qualify for separate account reporting under GAAP are reported in Other income (expense) and growththe offsetting movements in net premiums earned that outpaced the growthliabilities are included in administrative expensesthe Policy benefits in the Consolidated statements of operations.

In 2016, Policy benefits were $588 million, which included $11 million of separate account liabilities losses, compared to $543 million and $517 million in 2015 and 2014, respectively, which included gains of $19 million and losses of $2 million, respectively, related to separate account liabilities. The offsetting movements of these liabilities are recorded in Other income (expense) on the Consolidated statement of operations. Excluding the separate account gains and losses, Policy benefits were $577 million in 2016, compared with $562 million and $515 million in 2015 and 2014, respectively. The increase in 2016 is due to the increase in the long-term benefit ratio in our Insurance – North American P&C segment. This favorable impact was offset by a decrease in our Insurance North American Agriculture segment's net premiums earned as well as the impact of lower Administrative and Operating expense (A&O) reimbursements in our MPCIvariable annuity reinsurance business.

Integration Savings
The following table presents consolidated integration related savings realized by segment and income statement line item for the year ended December 31, 2016:
  North America Commercial P&C Insurance
 North America Personal P&C Insurance
 Overseas General Insurance
 Global Reinsurance
 Life Insurance
 Corporate
 Consolidated
Year Ended December 31, 2016
(in millions of U.S. dollars)
Losses and loss expenses $34
 $15
 $11
 $
 $
 $
 $60
Policy acquisition costs 19
 6
 12
 
 
 
 37
Administrative expenses 91
 38
 66
 1
 2
 25
 223
Net investment income 2
 2
 
 
 
 1
 5
Total $146
 $61
 $89
 $1
 $2
 $26
 $325

Effective income tax rate
Our effective income tax rate, which we calculate as income tax expense divided by income before income tax, is dependent upon the mix of earnings from different jurisdictions with various tax rates. A change in the geographic mix of earnings would change the effective income tax rate. Our

In 2016, 2015, and 2014, our effective income tax rate was18.2 16.5 percent, in 2014, compared with 11.314.0 percent, and 9.118.2 percent, in 2013 and 2012, respectively. The increase in the effective income tax rate in 2014 is higher2016 compared to 20132015 was primarily due to both net realized losses and a lower percentage of operating earnings being generated in lower taxing jurisdictions and realized gains being generated in higher taxing jurisdictions in 2016, compared to net realized losses in both higher and lower taxing jurisdictions in 2015. Additionally, a higher percentage of profit excluding realized gains and losses were generated in higher taxing jurisdictions in 2016, largely driven by earnings generated as a result of the Chubb Corp acquisition. The decrease in the effective income tax paying jurisdictions as well asrate in 2015 compared to 2014 was primarily due to a $115 million change to deferred tax assets in 2014 that resulted from the decline in the book value of certain foreign subsidiaries, related to unrealized foreign exchange losses. The increase in our effective income tax rate in 2013 compared to 2012 was due to the favorable resolution of various prior years' tax matters and the closing of statutes of limitations of $124 million during 2012. Partially offsetting the increase in the 2013 effective tax rate was the impact of both net realized gains on derivatives and a higher percentage of earnings being generated in lower tax paying jurisdictions during 2013.

The lower tax rates attributed to our foreign operations primarily reflectsreflect the lower corporate tax rates that prevail outside of the U.S. During 2014,2016, approximately 6654 percent of our total pre-tax income was tax effected based on these lower rates.rates compared


56


with 69 percent and 66 percent in 2015 and 2014, respectively. The significant lower taxing jurisdictions outside of the U.S. include the U.K., Switzerland, and Bermuda with effective federal income tax rates in those countries of 21.520.0 percent, 7.83 percent, and 0.0 percent, respectively. In addition, as part of the Chubb Corp acquisition, we have an intercompany loan that decreased our income tax expense by $87 million in 2016.



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Prior Period Development

The following table summarizes (favorable) and adverse prior period development (PPD) by segments. 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, aviation, marine (including associated liability-related exposures) and agriculture.
Years Ended December 31
(in millions of U.S. dollars, except for percentages)
Long-tail    
 Short-tail    
 Total
 
% of net unpaid
reserves (1)

2014       
Insurance – North American P&C – active$(298) $(56) $(354) 2.2%
Insurance – North American P&C – run-off(2)
247
 
 247
 1.6%
Insurance – North American Agriculture
 34
 34
 6.8%
Insurance – Overseas General(181) (210) (391) 4.8%
Global Reinsurance(52) (11) (63) 2.9%
Total$(284) $(243) $(527) 2.0%
2013       
Insurance – North American P&C – active$(221) $(106) $(327) 2.1%
Insurance – North American P&C – run-off(2)
193
 
 193
 1.2%
Insurance – North American Agriculture
 (13) (13) 4.0%
Insurance – Overseas General(127) (172) (299) 3.8%
Global Reinsurance(53) (31) (84) 3.6%
Total$(208) $(322) $(530) 2.0%
2012       
Insurance – North American P&C – active$(245) $(103) $(348) 2.2%
Insurance – North American P&C – run-off(2)
168
 
 168
 1.1%
Insurance – North American Agriculture
 (12) (12) 2.6%
Insurance – Overseas General(121) (105) (226) 3.1%
Global Reinsurance(32) (29) (61) 2.7%
Total$(230) $(249) $(479) 1.9%
Years Ended December 31
(in millions of U.S. dollars, except for percentages)
Long-tail    
 Short-tail    
 Total
 
% of beginning net unpaid reserves (1)

2016       
North America Commercial P&C Insurance$(650) $(128) $(778) 1.6%
North America Personal P&C Insurance13
 14
 27
 0.1%
North America Agricultural Insurance
 (72) (72) 0.2%
Overseas General Insurance(191) (232) (423) 0.9%
Global Reinsurance(77) (1) (78) 0.2%
Corporate189
 
 189
 0.4%
Total$(716) $(419) $(1,135) 2.4%
2015       
North America Commercial P&C Insurance$(155) $(109) $(264) 1.0%
North America Personal P&C Insurance10
 15
 25
 0.1%
North America Agricultural Insurance
 (45) (45) 0.1%
Overseas General Insurance(166) (177) (343) 1.3%
Global Reinsurance(106) (13) (119) 0.4%
Corporate200
 
 200
 0.7%
Total$(217) $(329) $(546) 2.0%
2014       
North America Commercial P&C Insurance$(281) $(97) $(378) 1.4%
North America Personal P&C Insurance9
 15
 24
 0.1%
North America Agricultural Insurance
 34
 34
 0.1%
Overseas General Insurance(181) (210) (391) 1.5%
Global Reinsurance(52) (11) (63) 0.2%
Corporate247
 
 247
 0.9%
Total$(258) $(269) $(527) 2.0%
(1)
(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.
Calculated based on the segment's total beginning of period net unpaid loss and loss expenses reserves.
(2)
Brandywine Holdings and Westchester Specialty operations in respect of 1996 and prior years.

For a discussion of significant prior period movements by segment, refer toNote 7 to the Consolidated Financial Statements.




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Segment Operating Results – Years Ended December 31, 20142016, 20132015, and 20122014

Effective the first quarter of 2016, reflecting our significantly larger and expanded operations, subsequent to the Chubb Corp
acquisition, we implemented organizational changes that resulted in new business segments. We operate through fivesix business
segments: Insurance – North AmericanAmerica Commercial P&C Insurance, North American Agriculture,America Personal P&C Insurance, North America Agricultural
Insurance, Overseas General Insurance, Global Reinsurance, and Life. For additional information referLife Insurance. We have also redefined Corporate to “Segment Information” under Item 1. The discussions that follow include tables that show ourall
run-off asbestos and environmental (A&E) exposures, the results of run-off Brandywine business, the results of Westchester
specialty operations for 1996 and prior years and certain other run-off exposures. Prior period amounts contained in this report
have been adjusted to conform to the new segment operating results for the years ended December 31, 2014, 2013, and 2012.

Insurance – North American

Insurance – North American P&Cpresentation.

The Insurance –
North AmericanAmerica Commercial P&C Insurance

The North America Commercial P&C Insurance segment comprises our operations 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: ACE USA (including ACE Canada)North America Major Accounts and Specialty Insurance (principally large corporate accounts and wholesale business), ACEand the North America Commercial Risk Services,Insurance divisions (principally middle market and ACE Private Risk Services; our wholesale and specialty divisions: ACE Westchester and ACE Bermuda; and various run-off operations, including Brandywine Holdings Corporation (Brandywine)small commercial accounts).
      % Change      % Change 
(in millions of U.S. dollars, except for percentages)2014
 2013
 2012
 2014 vs. 2013
 2013 vs. 2012
2016

2015

2014

2016 vs. 2015

2015 vs. 2014
Net premiums written$6,263
 $5,915
 $5,349
 5.9 % 10.6 %$11,740

$5,715

$5,685

105.4 %
0.5 %
Net premiums earned6,107
 5,721
 5,147
 6.8 % 11.1 %12,217

5,634

5,547

116.9 %
1.6 %
Losses and loss expenses4,086
 3,776
 3,715
 8.2 % 1.6 %7,439

3,661

3,476

103.2 %
5.3 %
Policy acquisition costs634
 597
 558
 6.2 % 7.0 %2,023

531

518

281.0 %
2.5 %
Administrative expenses678
 601
 608
 12.8 % (1.2)%1,125

621

599

81.2 %
3.7 %
Underwriting income709
 747
 266
 (5.1)% 180.8 %1,630

821

954

98.5 %
(13.9)%
Net investment income1,085
 1,021
 1,066
 6.3 % (4.2)%1,860

1,032

1,060

80.2 %
(2.6)%
Net realized gains (losses)(67) 72
 41
 NM
 75.6 %
Interest expense9
 5
 12
 80.0 % (58.3)%
Other (income) expense(101) (58) (41) 74.1%
 41.5%
(2)
(7)
(12)
(71.4)%
(41.7)%
Income tax expense306
 347
 229
 (11.8)% 51.5 %
Net income$1,513
 $1,546
 $1,173
 (2.1)% 31.8 %
Segment income$3,492

$1,860

$2,026

87.7 %
(8.2)%
Loss and loss expense ratio66.9% 66.0% 72.2%    60.9%
65.0%
62.6%
   
Policy acquisition cost ratio10.4% 10.4% 10.8%    16.6%
9.4%
9.3%
   
Administrative expense ratio11.1% 10.5% 11.8%    9.2%
11.0%
10.9%
   
Combined ratio88.4% 86.9% 94.8%    86.7%
85.4%
82.8%
   

Premiums
2016 vs. 2015
Net premiums written increased $6,025 million in 20142016 primarily due to the Chubb Corp acquisition which added about $5.9 billion in premiums to this segment.

On an "As If" basis, net premiums written declined $355 million in 2016, principally reflecting merger-related underwriting actions ($241 million) including the purchase of additional reinsurance which decreased premiums, and lower new business written, driven by competitive market conditions and rate declines, particularly in our ACE USA retail division fromproperty and financial lines. Partially offsetting the decline was growth across a broad range ofin our product portfolio, including ourglobal risk management general and specialty casualty, A&H, professionalworkers' compensation lines reflecting new business and strong renewal retention.

Net premiums earned increased $6,583 million in 2016 primarily due to the Chubb Corp acquisition which added about $6.5 billion in earned premiums. On an "As If" basis, net premiums earned decreased $59 million primarily due to the same factors driving the decrease in net premiums written as described above, partially offset by the earning in of prior year premium growth.

2015 vs. 2014
Net premiums written increased $30 million in 2015 due to growth in our global risk management and suretyfinancial lines of business reflecting strongsolid renewal retention and new business. This growth wasOur wholesale casualty business grew and our small specialty division grew due to higher new business reflecting increased submission activity and the introduction of new products, as well as strong premium


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renewal retention. These increases were partially offset by reductionsdeclines in our retail property divisionand casualty businesses reflecting a more competitive market and rate decreases. Net premiums written grew in 2014 were favorably impacted by lower excess of loss premiums ceded under our wholesale division from higher production in our casualty, property, and professional lines of business, and in our Commercial Risk Services division, primarily due to2014 catastrophe reinsurance program ($32 million). Foreign exchange adversely impacted growth in our specialty and program business. Our personal lines division contributed to the increase in net premiums written due to higher production in the homeowners, automobile and umbrella business offered through ACE Private Risk Services.by $34 million (0.6 percentage points).

Net premiums written increased in 2013 in our ACE USA retail division from growth across a broad range of our product portfolio including our risk management business, specialty casualty, professional, property, and A&H lines of business reflecting rate increases, exposure changes, strong renewal retention, and new business. In addition, we grew net premiums written in our Commercial Risk Services division, primarily management and professional lines of business and programs, and our personal lines division, primarily in the homeowners, automobile, and umbrella business offered through ACE Private Risk Services. Our wholesale and specialty division contributed to the increase in net premiums written due to higher production from our property, casualty, and professional lines of business.



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Net premiums earned increased $87 million in 2014 and 20132015 primarily due to the increase in net premiums written as described above.

Combined Ratio
The following table presents the pre-tax catastrophe losses and pre-tax favorable prior period development:
   As If
    
(in millions of U.S. dollars)2016
 2015
 2015
 2014
Catastrophe losses, pre-tax$448
 $268
 $85
 $93
Favorable prior period development, pre-tax$778
 $783
 $264
 $378

Catastrophe losses were primarily from the following events:
2016: severe weather-related events in the U.S., including Hurricane Matthew, and a wildfire in Canada
2015: severe-weather related events in the U.S., a Mexican hurricane, and civil unrest in Baltimore, Maryland
2014: severe weather-related events in the U.S, Bermuda, and Australia, as well as a hurricane in Mexico
The following table presents the impact of catastrophe losses and related reinstatement premiums and prior period reserve development on our loss and loss expense ratio:
 2016

2015

2014
Loss and loss expense ratio60.9 %
65.0 %
62.6 %
Catastrophe losses and related reinstatement premiums(3.7)%
(1.5)%
(1.6)%
Prior period development6.5 %
4.7 %
6.9 %
Loss and loss expense ratio, adjusted63.7 %
68.2 %
67.9 %

2016 vs. 2015
The adjusted loss and loss expense ratio decreased 4.5 percentage points in 2016, primarily due to the addition of the Chubb Corp business, which experienced a lower loss ratio. On an "As If" basis, the adjusted loss and loss expense ratio increased 0.8 percentage points in 2016, primarily due to lower non-catastrophe losses in the prior year, partially offset by integration related claims handling expense savings realized of $34 million (0.3 percentage points).

The policy acquisition cost ratio increased 7.2 percentage points in 2016, primarily due to the addition of the Chubb Corp business which carried a higher acquisition cost ratio and due to the normal impact of initial year purchase accounting adjustments related to the Chubb Corp acquisition. In 2013,addition, during 2016, we determined that certain underwriting costs that are directly attributable to the successful acquisition of business previously classified as administrative expenses were more appropriately classified as policy acquisition costs. Excluding these items, the policy acquisition cost ratio decreased 0.4 percentage points in 2016, primarily due to integration related savings realized.

The normal impact of initial year purchase accounting adjustments related to the Chubb Corp acquisition includes a fair value adjustment for the unearned premiums at the date of the purchase. This adjustment is then amortized into policy acquisition costs. Partially offsetting this is a favorable impact related to the recognition of the acquired unearned premiums without having to recognize the associated policy acquisition costs. The net impact of these purchase accounting adjustments was an increase to policy acquisition costs of $130 million (1.1 percentage points) in 2016, which will not recur in 2017. In addition, the reclassification described above resulted in a $129 million (1.1 percentage points of the ratio) increase to policy acquisition costs in 2016 with an offsetting decrease to administrative expenses.

On an "As If" basis, which excludes purchase accounting adjustments, the policy acquisition cost ratio decreased 0.4 percentage points in 2016, primarily due to integration related savings realized as described above.
The administrative expense ratio decreased 1.8 percentage points in 2016 due to the $129 million reclassification noted above which decreased the administrative expense ratio by 1.1 percentage points, and the inclusion of the Chubb Corp businesses which carried a lower administrative expense ratio, partially offset by increased spending to support growth.


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On an "As If" basis, the administrative expense ratio decreased 0.2 percentage points in 2016, as cost savings realized of $91 million (0.7 percentage points) were partially offset by increased spending to support growth.

2015 vs. 2014
The adjusted loss and loss expense ratio increased 0.3 percentage points in 2015 primarily due to lower excess of loss premiums ceded in the prior year from the 2014 catastrophe reinsurance program.

The policy acquisition ratio and the administrative expense ratio both remained relatively flat in 2015.

North America Personal P&C Insurance
The North America Personal P&C Insurance segment is the business written by the North America Personal Risk Services, which comprises Chubb high net worth personal lines business and ACE Private Risk Services, which includes operations in the U.S. and Canada.
       % Change 
(in millions of U.S. dollars, except for percentages)2016
 2015
 2014
 2016 vs. 2015
 2015 vs. 2014
Net premiums written$4,153
 $1,192
 $578
 248.4 % 106.4 %
Net premiums earned4,319
 948
 560
 355.5 % 69.2 %
Losses and loss expenses2,558
 590
 368
 333.6 % 60.3 %
Policy acquisition costs966
 69
 116
 NM
 (40.5)%
Administrative expenses363
 123
 74
 195.1 % 66.2 %
Underwriting income432
 166
 2
 160.2 % NM
Net investment income207
 25
 22
 NM
 13.6 %
Other (income) expense6
 2
 1
 200.0 % 100.0 %
Amortization of purchased intangibles19
 78
 
 (75.6)% NM
Segment income$614
 $111
 $23
 453.2 % 382.6 %
Loss and loss expense ratio59.2% 62.3% 65.7%    
Policy acquisition cost ratio22.4% 7.3% 20.8%    
Administrative expense ratio8.4% 13.0% 13.2%    
Combined ratio90.0% 82.6% 99.7%    
NM – not meaningful

Premiums
2016 vs. 2015
Net premiums written increased $2,961 million in 2016, primarily due to the Chubb Corp acquisition which added about $3.3 billion in premiums to this segment.
On an "As If" basis, net premiums written decreased $509 million due to the purchase of additional reinsurance in 2016 ($273 million), primarily for our homeowners and large limit valuable articles business written in the northeast United States. In addition, we experienced a decline in our Fireman’s Fund high net worth personal lines business in 2016 ($298 million) primarily reflecting a benefit in the prior year from a non-recurring unearned premium reserves (UPR) transfer ($252 million), and the conversion to Chubb legal entities in the current year. Excluding these items, net premiums written were up 1.3 percent in 2016, due to growth in our Chubb high net worth business, primarily within our homeowner lines, driven by strong renewal premium retention, rate and exposure increases.
Net premiums earned increased $3,371 million in 2016 primarily due to the Chubb Corp acquisition. On an "As If" basis, net premiums earned decreased slightly in 2016.

2015 vs. 2014
Net premiums written increased $614 million in 2015 primarily due to the Fireman's Fund acquisition whichadded $561 million to premiums (including a non-recurring UPR transfer of $252 million recognized as written premiums at the acquisition date). Excluding the Fireman's Fund acquisition, net premiums written increased 9.1 percent. Underwriting income in 2015 included a benefit of $100 million related to the initial UPR transfer as unearned premiums at the date of the transfer are


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recognized over the remaining coverage period with no associated expense for the historical acquisition costs as these historical acquisition costs are eliminated in purchase accounting.

Net premiums earned increased $388 million in 2015 primarily due to the factors driving the increase in net premiums earned for the retail division was partially offset by lower earned premiums from our program business.written as described above.

Combined Ratio
The following tables present a line of business breakdown of Insurance – North American P&C net premiums earned:table presents the pre-tax catastrophe losses and pre-tax favorable prior period development:
      % Change
(in millions of U.S. dollars, except for percentages)2014
 2013
 2012
 2014 vs. 2013
 2013 vs. 2012
Commercial P&C (retail and wholesale)$4,785
 $4,524
 $4,031
 5.8% 12.2%
Personal and small commercial lines909
 812
 745
 11.9% 9.0%
Personal accident (A&H)413
 385
 371
 7.3% 3.8%
Net premiums earned$6,107
 $5,721
 $5,147
 6.8% 11.1%
          
 2014
% of Total

 2013
% of Total

 2012
% of Total

    
Commercial P&C (retail and wholesale)78% 79% 78%    
Personal and small commercial lines15% 14% 15%    
Personal accident (A&H)7% 7% 7%    
Net premiums earned100% 100% 100%    
   As if
    
(in millions of U.S. dollars)2016
 2015
 2015
 2014
Catastrophe losses, pre-tax$326
 $383
 $63
 $39
Favorable (unfavorable) prior period development, pre-tax$(27) $18
 $(25) $(24)

Catastrophe losses were primarily from the following events:
2016: severe weather-related events in the U.S., including Hurricane Matthew
2015: severe weather-related events in the U.S., including the California wildfires
2014: severe weather-related events in the U.S.

The following table presents the impact of catastrophe losses and related reinstatement premiums and prior period reserve development on our loss and loss expense ratio:
2014
 2013
 2012
2016
 2015
 2014
Loss and loss expense ratio, as reported66.9 % 66.0 % 72.2 %
Loss and loss expense ratio59.2 % 62.3 % 65.7 %
Catastrophe losses and related reinstatement premiums(2.2)% (1.7)% (8.5)%(7.5)% (6.7)% (7.0)%
Prior period development1.9 % 2.5 % 3.7 %(0.7)% (2.7)% (4.2)%
Loss and loss expense ratio, adjusted66.6 % 66.8 % 67.4 %51.0 % 52.9 % 54.5 %

Net pre-tax catastrophe losses, excluding reinstatement premiums, were $132 million in 2014, compared with $94 million in 2013 and $430 million in 2012. Catastrophe losses in 2014 were primarily from severe weather-related events in the U.S., Bermuda and Australia, as well as a hurricane in Mexico. Catastrophe losses in 2013 were primarily from flooding in Canada and severe weather-related events in the U.S. Catastrophe losses in 2012 were primarily from Superstorm Sandy, Hurricane Isaac, and other severe weather-related events in the U.S. and Canada. Net favorable prior period development was $107 million in 2014, compared with $134 million in 2013 and $180 million in 2012. Refer to the “Prior Period Development” section for additional information. 2016 vs. 2015
The adjusted loss and loss expense ratio decreased 1.9 percentage points in 20142016 primarily due to the addition of the Chubb Corp business, which experienced a lower loss ratios in several of our lines where a combination of the execution of detailed portfolio management plans, product mix and earned rate changes have resulted in improved current accident year loss ratio performance. The improvement was partially offset by higher non-catastrophe large losses in the current year. In 2013,ratio. On an "As If" basis, the adjusted loss and loss expense ratio benefited fromdecreased 0.8 percentage points reflecting lower loss ratios in severalnon-catastrophe weather related losses and integration related claims handling expense savings of our lines where a combination of the execution of detailed portfolio management plans, product mix and earned rate changes have resulted in improved current accident year loss ratio performance. Partially offsetting the improvement in the 2013 current accident year loss ratio performance is higher premiums from assumed loss portfolio programs, which is written at a higher loss ratio than other lines of business.$15 million (0.3 percentage points).

The policy acquisition cost ratio increased 15.1 percentage points in 2016, primarily due to the net unfavorable impact of purchase accounting adjustments (12.5 percentage points) related to the Chubb Corp acquisition in the current year, which will not recur in 2017, and the Fireman's Fund acquisition in the prior year and due to the addition of the Chubb Corp business which carried a higher acquisition cost ratio (2.7 percentage points).

On an "As If" basis, which excludes purchase accounting adjustments related to the Chubb Corp acquisition, the policy acquisition cost ratio increased 0.9 percentage points in 2016, primarily due to our Fireman's Fund acquisition in the prior year which favorably impacted the prior year policy acquisition cost ratio by $100 million (2.2 percentage points). This increase was partially offset by the favorable impact of the ceded commission benefits related to the additional reinsurance purchased in 2016.

The administrative expense ratio decreased 4.6 percentage points in 2016, primarily due to the Chubb Corp acquisition which carried a lower administrative expense ratio.

On an "As If" basis, the administrative expense ratio remained flat as cost savings realized as a result of the Chubb Corp acquisition of $38 million (0.9 percentage points) were offset by increased spending to support growth.

2015 vs. 2014
The adjusted loss and loss expense ratio decreased 1.6 percentage points in 2014. 2015 reflecting the favorable impact of the acquisition of Fireman's Fund personal lines business which carries a lower loss ratio. Excluding the impact of the acquisition, the adjusted loss and loss expense ratio increased 0.3 percentage points.



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The policy acquisition cost ratio decreased 13.5percentage points in 20132015 primarily due to growth in certain businesses that have lower acquisition cost ratios.
The administrative expense ratio was higher in 2014 compared to the prior year ratio which included a 0.5 point favorable impact related to a $29 million legal settlement. Excluding the impact of the legal settlement, the administrative expense ratio remained relatively flat compared with the prior year.normal initial year purchase accounting adjustments related to our Fireman's Fund acquisition. The administrative expense ratio decreased slightly in 2013 primarily due to the favorable impact of the legal settlement in 2013 as noted above and growth in net premiums earned that outpaced the growth in administrative expenses.2015.



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Insurance – North American AgricultureAmerica Agricultural Insurance

The Insurance – North American AgricultureAmerica Agricultural Insurance segment comprises our North American based businesses that provide a variety of coverages in the U.S. and Canada including crop insurance, primarily MPCIMultiple Peril Crop Insurance (MPCI) and crop-hail through Rain and Hail Insurance Service, Inc. (Rain and Hail) as well as farm and ranch and specialty P&C commercial insurance products and services through our ACEChubb Agribusiness unit.
      % Change      % Change 
(in millions of U.S. dollars, except for percentages)2014
 2013
 2012
 2014 vs. 2013
 2013 vs. 2012
2016
 2015
 2014
 2016 vs. 2015
 2015 vs. 2014
Net premiums written$1,590
 $1,627
 $1,859
 (2.3)% (12.5)%$1,328
 $1,346
 $1,590
 (1.3)% (15.3)%
Net premiums earned1,526
 1,678
 1,872
 (9.1)% (10.4)%1,316
 1,364
 1,526
 (3.6)% (10.6)%
Losses and loss expenses (1)
1,300
 1,525
 1,911
 (14.8)% (20.2)%898
 1,097
 1,300
 (18.1)% (15.6)%
Policy acquisition costs81
 53
 28
 52.8 % 89.3 %83
 69
 81
 20.3 % (14.8)%
Administrative expenses9
 11
 (7) (18.2)% NM
(6) 1
 9
 NM
 (88.9)%
Underwriting income (loss)136
 89
 (60) 52.8%
 NM
Underwriting income341
 197
 136
 73.1%
 44.9%
Net investment income26
 26
 25
 
 4.0 %20
 23
 26
 (13.0)% (11.5)%
Net realized gains (losses) (1)
3
 2
 1
 50.0 % 100.0 %
Interest expense
 1
 
 NM
 NM
Other (income) expense33
 32
 32
 3.1 % 
1
 1
 2
 
 (50.0)%
Income tax expense (benefit)33
 20
 (29) 65.0%
 NM
Net income (loss)$99
 $64
 $(37) 54.7%
 NM
Amortization of purchased intangibles29
 30
 31
 (3.3)% (3.2)%
Segment income$331
 $189
 $129
 75.1 % 46.5 %
Loss and loss expense ratio85.2% 90.9% 102.1 %    68.3 % 80.4% 85.2%    
Policy acquisition cost ratio5.3% 3.2% 1.5 %    6.3 % 5.1% 5.3%    
Administrative expense ratio0.6% 0.6% (0.4)%    (0.5)% % 0.6%    
Combined ratio91.1% 94.7% 103.2 %    74.1 % 85.5% 91.1%    
NM – not meaningful
(1)
(Gains) losses
Gains (losses) on crop derivatives were $(5) million,$(9) million, and $51 million in 2016, 2015, and 2014, respectively. These gains (losses) are reclassified fromincluded in Net realized gains (losses) in our Consolidated statements of operations but are reclassified to Losses and loss expenses for purposes of presenting Insurance – North American AgricultureAmerica Agricultural Insurance underwriting income. Refer to Note 10 and Note 15 to the Consolidated Financial Statements for more information on these derivatives.

Premiums
2016 vs 2015
Net premiums written decreased $18 million in 2014 principally2016 primarily due to lower commodity prices and higher premium cessionsthe revision to the U.S. government in 2014 for2016 crop year margin estimate related to the MPCI business.program, which resulted in lower premium retention under the premium sharing formula with the U.S. government. Under the government's crop insurance profit and loss calculation formula,formulas, we retained moreless premiums in 20132016 as losses were higher. Thelower compared to 2015. This decrease was partially offset by lower cessions under existing third-party proportional reinsurance programs.

Net premiums earned decreased $48 million in 2016 primarily due to the same factors driving the decrease in net premiums written was partially offset by higheras described above.

Underwriting income increased $144 million primarily due to the favorable revision to the 2016 crop year margin estimate reflecting a combination of better than average yields and less than expected movement in price between base price and harvest price this year.

2015 vs 2014
Net premiums written decreased $244 million in 2015 primarily due to lower commodity base prices used to price the 2015 MPCI policies and lower premium retention as a result of the non-renewal of a third-party proportional reinsurance agreement.premium-sharing formulas with the U.S. government. Under the government's crop insurance profit and loss calculation formulas, we retained more premiums in 2014 as losses were higher compared to 2015.

Net premiums written decreased in 2013 primarily due to lower premium retention in our MPCI program. Retention for 2013 was lower due to the purchase

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Table of proportional reinsurance on the MPCI business for the 2013 crop year, which was in addition to the excess of loss reinsurance coverage historically purchased.Contents

Net premiums earned decreased $162 million in 2014 and 20132015 primarily due to the same factors driving the decrease in net premiums written as described above.

Combined Ratio
The following table presents the impact ofpre-tax catastrophe losses and related reinstatement premiums andpre-tax favorable prior period reservedevelopment:
(in millions of U.S. dollars)2016
 2015
 2014
Catastrophe losses, pre-tax$19
 $9
 $13
Favorable (unfavorable) prior period development, pre-tax$72
 $45
 $(34)

Catastrophe losses in 2016, 2015, and 2014 were primarily from our farm, ranch and specialty P&C business. Net favorable (unfavorable) prior period development on ourwas $72 million, $45 million, and $(34) million in 2016, 2015, and 2014, respectively. For 2016, the prior period development amount included $99 million of favorable incurred losses due to lower than expected MPCI losses for the 2015 crop year, partially offset by $52 million of unfavorable decrease in net premiums earned related to the government’s crop insurance profit and loss calculation formulas. Also included in prior period development, but not impacting the loss and loss expense ratio:
 2014
 2013
 2012
Loss and loss expense ratio, as reported85.2 % 90.9 % 102.1 %
Catastrophe losses and related reinstatement premiums(0.8)% (0.4)% (0.6)%
Prior period development(2.6)% 0.8 % 0.7 %
Loss and loss expense ratio, adjusted81.8 % 91.3 % 102.2 %

Net pre-tax catastrophe losses, excluding reinstatement premiums, were $13ratio was a $12 million in 2014, compared with $7 million in 2013 and $11 million in 2012. Netfavorable benefit of ceded profit share commissions earned from third-party reinsurers. For 2015, the prior period development was $34amount included a decrease in incurred losses of $42 million unfavorablefor lower than expected MPCI losses for the 2014 crop year, partially offset by a $6 million decrease in 2014, compared with $13 million favorable in 2013net premiums earned related to the government's crop insurance profit and $12 million favorable in 2012.loss calculation formula. For 2014, the amount includes an increase in incurred losses of $64 million for higher than expected MPCI losses for the 2013 crop year, as well as $26 million of favorable increase in net premiums earned related to the government's crop insurance profit and loss calculation formula. Refer to the “Prior Period


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Development” section for additional information. The adjusted loss and loss expense ratio declined in 2014 due to lower commodity prices in the prior year that resulted in higher losses in our MPCI program in 2013. The lower ratio in 2014 also reflects the benefit of our crop derivatives entered into in 2014. The adjusted loss and loss expense ratio for 2013 reflects higher losses resulting from lower commodity prices at the time of harvest as compared to the original base price used at the time the insurance contract is sold. Despite this increase, the adjusted loss and loss expense ratio for 2013 declined over 2012 because 2012 was adversely impacted by the U.S. drought.

The policy acquisition cost ratio increased in 2014, primarily due to less net premiums earned in our MPCI business as a result of lower commodity prices, a reduction in ceded commission benefits on third-party reinsurance primarily due to the non-renewal of a third-party proportional reinsurance agreement, and lower agent commission accruals in 2013. The policy acquisition cost ratio increased in 2013 primarily due to lower agent commission accruals in 2012, partially offset by the cede commission benefit from the third party proportional reinsurance purchased on the 2013 crop year. The U.S. drought significantly impacted the profitability of the MPCI business in 2012, and in years when the MPCI program is in an unprofitable position as defined in the SRA there are no agent profit share commissions. The increase for 2013 also reflects a $14 million benefit in 2012 reflecting a revision in estimated agent profit share commissions for the prior year's MPCI business. 

The administrative expense ratio remained flat compared with the prior year. The administrative expense ratio increased in 2013 primarily due to higher Administrative and Operating expense (A&O) reimbursements on the MPCI business in 2012 mainly due to additional reimbursements earned for high loss ratio states and underserved states. Under the SRA with the federal government, ACE receives additional expense reimbursements when losses in individual states exceed a specified threshold.

Insurance – Overseas General

The Insurance Overseas General segment comprises ACE International, ACE Global Markets (AGM), and the international supplemental A&H business of Combined Insurance. ACE International comprises our retail commercial P&C, A&H, and personal lines businesses serving territories outside the U.S., Bermuda, and Canada.  AGM comprises the segment’s London-based wholesale insurance business for excess and surplus lines; this includes Lloyd's of London Syndicate 2488. The reinsurance operations of AGM are included in the Global Reinsurance segment.
       % Change 
(in millions of U.S dollars, except for percentages)2014
 2013
 2012
 2014 vs. 2013
 2013 vs. 2012
 
Net premiums written$6,999
 $6,520
 $5,863
 7.4 %
(1) 
11.2 %
(1) 
Net premiums earned6,805
 6,333
 5,740
 7.5 % 10.3 % 
Losses and loss expenses3,189
 3,062
 2,862
 4.1 % 7.0 % 
Policy acquisition costs1,625
 1,453
 1,353
 11.8 % 7.4 % 
Administrative expenses1,026
 1,008
 935
 1.8 % 7.8 % 
Underwriting income965
 810
 590
 19.1 % 37.3 % 
Net investment income545
 539
 521
 1.1 % 3.5 % 
Net realized gains (losses)(78) 18
 103
 NM
 (82.5)% 
Interest expense6
 5
 5
 20.0 % 
 
Other (income) expense11
 39
 3
 (71.8)% NM
 
Income tax expense378
 222
 133
 70.3 % 66.9 % 
Net income$1,037
 $1,101
 $1,073
 (5.8)% 2.6 % 
Loss and loss expense ratio46.9% 48.4% 49.8%     
Policy acquisition cost ratio23.9% 22.9% 23.6%     
Administrative expense ratio15.0% 15.9% 16.3%     
Combined ratio85.8% 87.2% 89.7%     
(1) For the year ended December 31, 2014 and 2013, net premiums written increased $601 million or 9.4% and $787 million or 13.7% on a constant-dollar basis, respectively. Amounts are calculated by translating prior period results using the same local currency rates as the comparable current period. 

Net premiums written increased in 2014 on a constant-dollar basis from new business writings in our retail operations in all product lines personal lines, A&H, and P&C. The increase in personal lines reflected growth in all regions, and A&H growth


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was driven by strong results in all regions except Europe. P&C growth was driven primarily by new business writings in Asia and Latin America. In addition, the acquisitions of Fianzas Monterrey in April 2013, ABA Seguros in May 2013, Samaggi in April 2014, and Itaú Seguros in October 2014 added $310 million of growth to premiums. Foreign exchange adversely impacted growth for 2014 on an as reported basis.

Net premiums written increased in 2013 on a constant-dollar basis driven by strong performance in our retail operations and from acquisitions. Growth was reported in our retail operations in all product lines P&C, A&H, and personal lines. P&C growth was reported across all regions of our retail operations, driven by strong renewal retention and improved new business writings. A&H growth was primarily driven by strong results in Asia and Latin America. Personal lines growth reflected new business opportunities in Europe, Latin America, and Asia. In addition, the acquisitions of ABA Seguros, Fianzas Monterrey, and Jaya Proteksi in September 2012, added $407 million of growth to premiums. Foreign exchange adversely impacted growth for 2013 on an as reported basis.

Net premiums earned increased in 2014 and 2013 primarily due to the increase in net premiums written as described above.
Insurance – Overseas General conducts business internationally and in most major foreign currencies. The following tables present a line of business and regional breakdown of Insurance – Overseas General net premiums earned:
           % Change 
(in millions of U.S. dollars,
except for percentages)
2014
 2013
 2012
 
C$(1)
2013
 
C$(1)
2012
 2014 vs. 2013
 2013 vs. 2012
C$(1) 2014 vs. 2013

 
C$(1) 2013 vs. 2012

Line of Business                
Commercial P&C (retail and wholesale)$3,226
 $3,113
 $2,941
 $3,093
 $2,902
 3.6 % 5.8 %4.3 % 7.3%
Personal and small commercial lines1,295
 1,038
 674
 987
 624
 24.8 % 54.0 %31.2 % 66.4%
Personal accident (A&H)2,284
 2,182
 2,125
 2,129
 2,094
 4.7 % 2.7 %7.3 % 4.2%
Net premiums earned$6,805
 $6,333
 $5,740
 $6,209
 $5,620
 7.5 % 10.3 %9.6 % 12.7%
Region                
Europe / U.K.(2)
$3,115
 $3,058
 $2,917
 $3,203
 $2,941
 1.9 % 4.8 %(2.7)% 4.0%
Asia Pacific1,571
 1,383
 1,244
 1,235
 1,231
 13.6 % 11.2 %27.2 % 12.3%
Far East433
 458
 525
 423
 436
 (5.5)% (12.8)%2.4 % 5.0%
Latin America1,686
 1,434
 1,054
 1,348
 1,012
 17.6 % 36.1 %25.1 % 41.7%
Net premiums earned$6,805
 $6,333
 $5,740
 $6,209
 $5,620
 7.5 % 10.3 %9.6 % 12.7%
                 
 2014
% of Total

 2013
% of Total

 2012
% of Total

      
  
   
Line of Business                
Commercial P&C (retail and wholesale)47% 49% 51%           
Personal and small commercial lines19% 16% 12%           
Personal accident (A&H)34% 35% 37%           
Net premiums earned100% 100% 100%           
Region                
Europe / U.K.(2)
46% 48% 51%           
Asia Pacific23% 22% 22%           
Far East6% 7% 9%           
Latin America25% 23% 18%           
Net premiums earned100% 100% 100%           
(1) On a constant-dollar basis. Amounts are calculated by translating prior period results using the same local currency rates as the comparable current period.
(2) Europe/U.K. includes Eurasia and Africa region.


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The following table presents the impact of catastrophe losses and related reinstatement premiums and prior period reserve development on our loss and loss expense ratio:
 2014
 2013
 2012
Loss and loss expense ratio, as reported46.9 % 48.4 % 49.8 %
Catastrophe losses and related reinstatement premiums(1.6)% (1.4)% (1.4)%
Prior period development5.7 % 4.7 % 4.0 %
Loss and loss expense ratio, adjusted51.0 % 51.7 % 52.4 %

Net pre-tax catastrophe losses, excluding reinstatement premiums, were $112 million in 2014, compared with $88 million in 2013 and $76 million in 2012. Catastrophe losses in 2014 were primarily related to flooding in Europe, severe storms in Japan, a hurricane in Mexico, and a hailstorm in Australia. Catastrophe losses in 2013 were primarily related to flooding in Australia, Europe, and Canada, as well as hurricanes in Latin America, and an earthquake in New Zealand. Catastrophe losses in 2012 were primarily from Superstorm Sandy, Hurricane Isaac, and flooding in the U.K. Net favorable prior period development was $391 million in 2014, compared with $299 million in 2013 and $226 million in 2012. Refer to the “Prior Period Development” section for additional information. The adjusted loss ratio decreased in 2014 due primarily to both mix of business and underwriting actions which improved loss ratios on several portfolios. The adjusted loss ratio decreased in 2013 due primarily to large property losses in 2012 which unfavorably impacted the 2012 ratio.

The policy acquisition ratio increased in 2014 due primarily to the normal impact of initial year purchase accounting adjustments related to our Mexican acquisitions which favorably impacted the 2013 policy acquisition cost ratio by 0.6 points. As a result of purchase accounting requirements, the unearned premiums at the date of purchase related to the businesses acquired are recognized over the remaining coverage period with no expense for the associated historical acquisition costs that were incurred to underwrite those policies. In addition, the policy acquisition cost ratio increased due to a change in the overall mix of business towards A&H and personal lines products in regions that have higher acquisition cost ratios. The policy acquisition ratio decreased in 2013 primarily due to the relatively lower acquisition costs expensed by our new Mexican operations.

The administrative expense ratio decreased in 2014 due primarily to growth in net premiums earned that outpaced the growth in administrative expenses. In addition, the administrative expense ratio decreased due to increased spending in the prior year to support growth. The administrative expense ratio decreased in 2013 due to the favorable impact of foreign exchange, the Mexican acquisitions described above, which generate lower administrative expenses than our other businesses, as well as growth in net premiums earned that outpaced the growth in administrative expenses and lower A&H regulatory fees paid in Europe.



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Global Reinsurance

The Global Reinsurance segment represents our reinsurance operations comprising ACE Tempest Re Bermuda, ACE Tempest Re USA, ACE Tempest Re International, and ACE Tempest Re Canada. Global Reinsurance markets its reinsurance products worldwide under the ACE Tempest Re brand name and provides a broad range of coverage to a diverse array of primary P&C companies.
     % Change
(in millions of U.S. dollars, except for percentages)2014
 2013
 2012
 2014 vs. 2013
 2013 vs. 2012
Net premiums written$935
 $991
 $1,025
 (5.7)% (3.3)%
Net premiums earned1,026
 976
 1,002
 5.1 % (2.6)%
Losses and loss expenses431
 396
 553
 8.8 % (28.4)%
Policy acquisition costs257
 197
 172
 30.5 % 14.5 %
Administrative expenses54
 50
 51
 8.0 % (2.0)%
Underwriting income284
 333
 226
 (14.7)% 47.3 %
Net investment income316
 280
 290
 12.9 % (3.4)%
Net realized gains (losses)(29) 53
 6
 NM
 NM
Interest expense4
 5
 4
 (20.0)% 25.0%
Other (income) expense(54) (19) (15) 184.2%
 26.7 %
Income tax expense38
 36
 15
 5.6 % 140.0 %
Net income$583
 $644
 $518
 (9.5)% 24.3 %
Loss and loss expense ratio42.0% 40.5% 55.2%    
Policy acquisition cost ratio25.0% 20.3% 17.1%    
Administrative expense ratio5.3% 5.1% 5.2%    
Combined ratio72.3% 65.9% 77.5%    

Net premiums written decreased in 2014 primarily due to the non-renewal of a $79 million workers' compensation treaty, partially offset by new business. Net premiums written decreased in 2013 due to a non-recurring LPT treaty written in 2012, increased property catastrophe cessions to a sidecar, Altair Re, and lower catastrophe reinstatement premiums. This decrease was substantially offset by strong renewal retention and new business written, primarily in our U.S. property and U.S. automobile lines of business.

Net premiums earned increased in 2014 primarily from the shorter earning period on certain of the new business written this year including two non-recurring short-term treaties. Net premiums earned decreased in 2013 due to a non-recurring LPT treaty written in 2012, which was fully earned when written and, to a lesser extent, the higher property catastrophe cessions noted above. This decrease was partially offset by higher net premiums earned in our U.S. property lines due to higher premiums written in 2013 and prior years.


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The following tables present a line of business breakdown of Global Reinsurance net premiums earned:
     % Change
(in millions of U.S. dollars, except for percentages)2014
 2013
 2012
 2014 vs. 2013
 2013 vs. 2012
Property and all other$298
 $253
 $194
 17.8 % 30.4 %
Casualty475
 433
 507
 9.7 % (14.6)%
Property catastrophe253
 290
 301
 (12.8)% (3.7)%
Net premiums earned$1,026
 $976
 $1,002
 5.1 % (2.6)%
          
 2014
% of Total

 2013
% of Total

 2012
% of Total

  
  
Property and all other29% 26% 19%    
Casualty46% 44% 51%    
Property catastrophe25% 30% 30%    
Net premiums earned100% 100% 100%    

The following table presents the impact of catastrophe losses and related reinstatement premiums and prior period reserve development on our loss and loss expense ratio:
2014
 2013
 2012
2016
 2015
 2014
Loss and loss expense ratio, as reported42.0 % 40.5 % 55.2 %
Loss and loss expense ratio68.3 % 80.4 % 85.2 %
Catastrophe losses and related reinstatement premiums(3.2)% (4.0)% (11.1)%(1.5)% (0.7)% (0.8)%
Prior period development6.7 % 9.1 % 6.3 %5.6 % 3.1 % (2.6)%
Loss and loss expense ratio, adjusted45.5 % 45.6 % 50.4 %72.4 % 82.8 % 81.8 %

2016 vs 2015
The adjusted loss and loss expense ratio decreased 10.4 percentage points in 2016 reflecting the revision to the 2016 crop year margin estimate as discussed above.

The policy acquisition cost ratio increased 1.2 percentage point in 2016, primarily due to the reduction in net premiums earned related to the government's crop insurance profit and loss calculation formula this year of $202 million, compared to a reduction of $30 million in the prior year. Excluding the impact of these reductions in net premiums earned, the policy acquisition ratio increased over prior year by 0.4 percentage points, primarily due to higher agent profit sharing commissions in the current year. In addition, during 2016, we determined that certain underwriting costs that are directly attributable to the successful acquisition of business previously classified as administrative expenses were more appropriately classified as policy acquisition costs. This resulted in a $2 million (0.2 percentage points) increase to policy acquisition costs, with an offsetting decrease to administrative expenses in 2016.

The administrative expense ratio decreased 0.5 percentage points in 2016 primarily due to higher Administrative and Operating (A&O) reimbursements on the MPCI business and the reclassification as noted above.

2015 vs 2014
The adjusted loss and loss expense ratio increased 1.0 percentage point in 2015 principally due to relatively flat unallocated loss adjustment expenses with lower earned premiums.

The policy acquisition cost ratio decreased 0.2 percentage points in 2015 primarily due to higher cede commission on third-party reinsurance and lower agent profit sharing commission.



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The administrative expense ratio decreased 0.6 percentage points in 2015 primarily due to higher A&O reimbursements on the MPCI business.

Overseas General Insurance
Overseas General Insurance segment comprises Chubb International and Chubb Global Markets (CGM). Chubb International comprises our commercial P&C traditional and specialty lines serving large corporations, middle market and small customers, A&H and traditional and specialty personal lines business serving local territories outside the U.S., Bermuda, and Canada. CGM, our London-based international commercial P&C excess and surplus lines business, includes Lloyd's of London (Lloyd's) Syndicate 2488. Chubb provides funds at Lloyd's to support underwriting by Syndicate 2488 which is managed by ACE Underwriting Agencies Limited. The reinsurance operations of CGM are included in the Global Reinsurance segment.
       % Change 
(in millions of U.S. dollars, except for percentages)2016
 2015
 2014
 2016 vs. 2015
 2015 vs. 2014
Net premiums written (1)
$8,124
 $6,634
 $6,999
 22.5 % (5.2)%
Net premiums earned8,132
 6,471
 6,805
 25.7 % (4.9)%
Losses and loss expenses4,005
 3,052
 3,189
 31.2 % (4.3)%
Policy acquisition costs2,136
 1,581
 1,625
 35.1 % (2.7)%
Administrative expenses1,057
 997
 1,026
 6.0 % (2.8)%
Underwriting income (2)
934
 841
 965
 11.1 % (12.8)%
Net investment income600
 534
 545
 12.4 % (2.0)%
Other (income) expense(11) (17) (18) (35.3)% (5.6)%
Amortization of purchased intangibles48
 61
 74
 (21.3)% (17.6)%
Segment income$1,497
 $1,331
 $1,454
 12.5 % (8.5)%
Loss and loss expense ratio49.3% 47.2% 46.9%    
Policy acquisition cost ratio26.3% 24.4% 23.9%    
Administrative expense ratio12.9% 15.4% 15.0%    
Combined ratio88.5% 87.0% 85.8%    
(1)
For the years ended December 31, 2016 and 2015, net premiums written increased$1,792 million or 28.3 percent, and $441 million, or 7.1 percent, respectively, on a constant-dollar basis. Amounts are calculated by translating prior period results using the same local currency rates as the comparable current period. 
(2)
For the years ended December 31, 2016 and 2015, underwriting income increased$115 million or 14.1 percent and decreased $22 million or 2.5 percent, respectively, on a constant-dollar basis. Amounts are calculated by translating prior period results using the same local currency rates as the comparable current period

Premiums
2016 vs. 2015
Net premiums written increased $1,490 million in 2016, primarily due to the impact of the Chubb Corp acquisition, which added about $1.5 billion of growth in premiums. This increase was partially offset by the adverse impact of foreign exchange which decreased premiums by $302 million in 2016.

In 2016, net premiums written increased $95 million, on a constant-dollar "As If" basis, primarily driven by growth in personal lines, property and casualty lines (P&C), and A&H lines, partially offset by declines in our business written by Chubb Global Markets. Personal lines and P&C growth was primarily in Europe and Asia. Growth in personal lines was negatively impacted by our decision to exit the legacy Chubb Brazilian high net worth automobile business due to competitive market conditions. Growth in P&C was partially offset by declines in Latin America, reflecting economic conditions. A&H lines growth was driven by new business written, primarily in Latin America and Asia. Additionally, growth was partially offset by merger-related underwriting actions ($119 million), including the purchase of additional reinsurance.
Net premiums earned increased $1,661 million in 2016, and increased $81 million on a constant-dollar "As If" basis, primarily due to the same factors driving the movements in net premiums written as described above.

2015 vs. 2014
In 2015, net premiums written decreased $365 million, primarily reflecting the adverse impact of foreign exchange which reduced growth by $807 million. On a constant-dollar basis, net premiums written increased 7.1 percent in 2015, reflecting organic growth across most operations. Growth in our retail operations for personal and P&C product lines was from new


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business writings. Included in the increase in net premiums written were contributions from the acquisitions of Itaú Seguros in October 2014 and Samaggi in April 2014 which added $273 million of premiums.
Net premiums earned decreased $334 million in 2015, primarily reflecting the adverse impact of foreign exchange. Net premiums earned increased in 2015 on a constant-dollar basis, due to the same factors driving the increase in net premiums written as described above.
Overseas General Insurance conducts business internationally and in most major foreign currencies. The following table presents a regional breakdown of Overseas General Insurance net premiums written:
         % Change 
(in millions of U.S. dollars, except for percentages)2016
 2015
 2014
 
C$ (1)
2015

 2016 vs.
2015
 
C$ (1)
2016 vs.
2015
2015 vs.
2014

Region            
Europe$3,227
 $2,508
 $2,837
 $2,406
 28.7% 34.1%(11.6)%
Latin America1,992
 1,767
 1,780
 1,593
 12.7% 25.0%(0.7)%
Asia2,537
 1,963
 1,959
 1,961
 29.2% 29.4%0.2 %
Other (2)
368
 396
 423
 372
  (7.1)%  (1.1)%(6.4)%
Net premiums written$8,124
 $6,634
 $6,999
 $6,332
 22.5% 28.3%(5.2)%
 2016
% of Total

 2015
% of Total

 2014
% of Total

       
Region            
Europe40%
 38%
 41%       
Latin America25%
 27%
 25%       
Asia31%
 30%
 28%       
Other (2)
4%
 5%
 6%       
Net premiums written100%
 100%
 100%       
(1) On a constant-dollar basis.  Amounts are calculated by translating prior period results using the same local currency rates as the comparable current period. 
(2) Comprises Combined International, Eurasia and Africa region, and other international.

Combined Ratio
The following table presents the pre-tax catastrophe losses and pre-tax favorable prior period development:
   As If
    
(in millions of U.S. dollars)2016
 2015
 2015
 2014
Catastrophe losses, pre-tax$183
 $162
 $142
 $112
Favorable prior period development, pre-tax$423
 $477
 $343
 $391

Catastrophe losses were primarily from the following events:
2016: severe weather related events in Europe, earthquakes in Ecuador and New Zealand, and flooding in the U.K.
2015: a chemical storage facility explosion in Tianjin, China, a hailstorm in Australia, flooding and an earthquake in Chile, and severe storms in the U.K. and Asia
2014: flooding in Europe, severe storms in Japan, a hurricane in Mexico, and a hailstorm in Australia

The following table presents the impact of catastrophe losses and related reinstatement premiums and prior period reserve development on our loss and loss expense ratio: 
 2016
 2015
 2014
Loss and loss expense ratio49.3 % 47.2 % 46.9 %
Catastrophe losses and related reinstatement premiums(2.3)% (2.2)% (1.6)%
Prior period development5.2 % 5.3 % 5.7 %
Loss and loss expense ratio, adjusted52.2 % 50.3 % 51.0 %


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2016 vs. 2015
The adjusted loss and loss expense ratio increased 1.9 percentage points in 2016, primarily due to the Chubb Corp acquisition which experienced a higher loss ratio.

On an "As If" basis, the adjusted loss and loss expense ratio increased 0.5 percentage points in 2016, primarily due to a lower level of short-tail large losses in the prior year.
The policy acquisition cost ratio increased 1.9 percentage points in 2016, primarily because we determined that certain underwriting costs that are directly attributable to the successful acquisition of business previously classified as administrative expenses were more appropriately classified as policy acquisition costs. This resulted in a $144 million (1.8 percentage points) increase to policy acquisition costs, with an offsetting decrease to administrative expenses in 2016.
On an "As If" basis, which excludes purchase accounting adjustments related to the Chubb Corp acquisition, the policy acquisition cost ratio increased 0.8 percentage points in 2016, due to a shift in the mix of business away from E&S lines, which carry a lower acquisition cost ratio, towards more personal lines products which carry a higher acquisition cost ratio.
The administrative expense ratio decreased 2.5 percentage points in 2016, due to the $144 million (1.8 percentage points) reclassification noted above, and cost savings realized as a result of the Chubb Corp acquisition of $66 million (0.8 percentage points).
On an "As If" basis, the administrative expense ratio decreased 1.0 percentage points in 2016, primarily due to cost savings realized as a result of the Chubb Corp acquisition as noted above.

2015 vs. 2014
The adjusted loss and loss expense ratio decreased 0.7 percentage points in 2015 due to lower non-catastrophe large losses.
The policy acquisition ratio increased 0.5 percentage points in 2015, primarily due to lower ceded commission benefits as a result of the non-renewal of an A&H external quota share treaty, (0.3 percentage points), as well as less favorable normal initial year purchase accounting adjustments than in 2014 (0.3 percentage points).
The administrative expense ratio increased 0.4 percentage points in 2015 primarily due to a higher proportion of expenses incurred in U.S. dollars compared to premiums earned in foreign currencies as well as integration expenses related to our Itaú Seguros acquisition.



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Global Reinsurance

The Global Reinsurance segment represents our reinsurance operations comprising Chubb Tempest Re Bermuda, Chubb Tempest Re USA, Chubb Tempest Re International, and Chubb Tempest Re Canada. Global Reinsurance markets its reinsurance products worldwide under the Chubb Tempest Re brand name and provides a broad range of traditional reinsurance coverage to a diverse array of primary P&C companies.
     % Change
(in millions of U.S. dollars, except for percentages)2016
 2015
 2014
 2016 vs. 2015
 2015 vs. 2014
Net premiums written$676
 $828
 $935
 (18.4)% (11.4)%
Net premiums earned710
 849
 1,026
 (16.5)% (17.2)%
Losses and loss expenses325
 290
 431
 12.1 % (32.7)%
Policy acquisition costs187
 214
 257
 (12.6)% (16.7)%
Administrative expenses52
 49
 54
 6.1 % (9.3)%
Underwriting income146
 296
 284
 (50.7)% 4.2 %
Net investment income263
 300
 316
 (12.3)% (5.1)%
Other (income) expense(4) (6) (4) (33.3)% 50.0 %
Segment income$413
 $602
 $604
 (31.4)% (0.3)%
Loss and loss expense ratio45.7% 34.2% 42.0%    
Policy acquisition cost ratio26.3% 25.2% 25.0%    
Administrative expense ratio7.5% 5.8% 5.3%    
Combined ratio79.5% 65.2% 72.3%    

Premiums
2016 vs. 2015
Net premiums written decreased $152 million in 2016 as we maintained underwriting discipline in an environment of declining rates and increasing competition. In addition, the decline in premiums reflects increased cessions of $17 million due to the purchase of additional property catastrophe reinsurance in 2016. On an "As If" basis, net premiums written declined $161 million in 2016 due to the same factors as described above.

Net premiums earned decreased $139 million in 2016 and $165 million on an "As If" basis, primarily due to the same factors driving the decrease in net premiums written as described above.
2015 vs. 2014
Net premiums written decreased $107 million in 2015 as we maintained underwriting discipline in an environment of flat to declining rates and increasing competition. The decline was partially offset by new business written, primarily in our U.S. automobile business.

Net premiums earned decreased $177 million in 2015 due to the same factors driving the decrease in net premiums written as described above and from the adverse impact of the non-renewal of a workers' compensation treaty in the third quarter of 2014, which resulted in a $39 million decrease in net premiums earned in 2015.


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Combined Ratio
The following table presents pre-tax catastrophe losses, excluding reinstatement premiums, were $34 million in 2014, compared with $41 million in 2013 and $116 million in 2012. pre-tax favorable prior period development, net of related reinstatement premiums:
   As If
    
(in millions of U.S dollars)2016
 2015
 2015
 2014
Catastrophe losses, pre-tax$91
 $26
 $22
 $34
Favorable prior period development and related reinstatement premiums, pre-tax$78
 $138
 $119
 $63

Catastrophe losses were primarily from the following events:
2016: Fort McMurray wildfire, Hurricane Matthew, and severe weather-related events in Europe, the U.S. and Canada
2015: severe weather-related events in the U.S.
2014 were related to: severe storms in Japan, European hailstorms, and severe weather-related events in the U.S. Catastrophe

The following table presents the impact of catastrophe losses in 2013 were primarily from flooding in Canada and Europe. Catastrophe losses in 2012 were primarily from Superstorm Sandy, Hurricane Isaac,related reinstatement premiums and other North American weather-related events. Net favorable prior period reserve development was $63 million in 2014, compared with $84 million in 2013 and $61 million in 2012 (2014, 2013related reinstatement premiums on our loss and 2012 are net of $10 million, $8 million, and $4 million, respectively, of unfavorable premium adjustments to loss sensitive treaties). Refer to the “Prior Period Development” section for additional information. expense ratio:
 2016
 2015
 2014
Loss and loss expense ratio, as reported45.7 % 34.2 % 42.0 %
Catastrophe losses and related reinstatement premiums (1)
(12.5)% (2.6)% (3.2)%
Prior period development and related reinstatement premiums (2)
11.8 % 14.3 % 6.7 %
Loss and loss expense ratio, adjusted45.0 % 45.9 % 45.5 %
(1) Catastrophe reinstatement premiums collected - pre-tax$7
 $1
 $3
(2) Reinstatement premiums expensed on prior period development - pre-tax$5
 $4
 $10

2016 vs. 2015
The adjusted loss and loss expense ratio decreased slightly0.9 percentage points in 2014 and decreased in 2013 primarily due to the LPT treaty written in 2012, which unfavorably impacted the 2012 ratio.

The policy acquisition cost ratio increased in 20142016 primarily due to a change in the mix of business towards products written in the U.S. that have a higher acquisition costlower loss ratio. On an "As If" basis, the adjusted loss and loss expense ratio thandecreased 1.7 percentage points in other regions and2016 due to the impactchange in the mix of the non-renewal of a large workers' compensation treaty which incurred no acquisition costs. business as described above.

The policy acquisition cost ratio increased 1.1 percentage points in 20132016 primarily due to a change in the mix of business towards regions and products that have higher acquisition cost ratios, partially offset by the impact of the Chubb Corp acquisition which carries a lower acquisition cost ratio. On an "As If" basis, the policy acquisition cost ratio increased 1.9 percentage points in 2016, primarily due to the change in the mix of business as described above.

The administrative expense ratio increased 1.7 percentage points in 2016 primarily due to decreases in net premiums earned and the inclusion of the Chubb Corp business. On an "As If" basis, the administrative expense ratio increased 1.2 percentage points in 2016 primarily due to decreases in net premiums earned outpacing the decline in administrative expenses.

2015 vs. 2014
The adjusted loss and loss expense ratio increased 0.4 percentage points in 2015 primarily due to a change in the mix of business towards products that have a higher loss ratio, offset by the non-renewal of a workers' compensation treaty in 2014, which had a higher loss ratio.

The policy acquisition cost ratio as well asincreased 0.2 percentage points in 2015 due to the LPTnon-renewal of the workers' compensation treaty written in 2012,2014, noted above, which did not generateincurred no acquisition costs.

The administrative expense ratio increased 0.5 percentage points in 2014 as2015 primarily from lower net premiums earned including the prior year includednon-renewal of the favorable impact of a $2 million expense adjustment that reduced theworkers' compensation treaty noted above, which did not generate any administrative expense ratioexpenses, partially offset by lower administrative expenses incurred in 2013. Excluding this adjustment, the administrative expense ratio remained flat. The administrative expense ratio remained relatively flat in 2013.2015.



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Life

Insurance
The Life Insurance segment includes ourcomprises Chubb's international life operations (ACE(Chubb Life), ACEChubb Tempest Life Re (ACE(Chubb Life Re), and the North American supplemental A&H and life business of Combined Insurance. We assess the performance of our life business based on Life Insurance underwriting income, which 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.
    % Change    % Change 
(in millions of U.S. dollars, except for percentages)2014
 2013
 2012
 2014 vs. 2013
 2013 vs. 2012
2016
 2015
 2014
 2016 vs. 2015
 2015 vs. 2014
Net premiums written$2,012
 $1,972
 $1,979
 2.0 % (0.4)%$2,124
 $1,998
 $2,012
 6.3 % (0.7)%
Net premiums earned1,962
 1,905
 1,916
 3.0 % (0.6)%2,055
 1,947
 1,962
 5.6 % (0.8)%
Losses and loss expenses589
 582
 611
 1.2 % (4.7)%663
 601
 589
 10.3 % 2.0 %
Policy benefits(1)517
 515
 521
 0.4 % (1.2)%588
 543
 517
 8.3 % 5.0 %
(Gains) losses from fair value changes in separate account assets(1)
(2) (16) (29) (87.5)%  (44.8)%
(11) 19
 (2) NM
 NM
Policy acquisition costs478
 358
 334
 33.5 % 7.2 %509
 476
 478
 6.9 % (0.4)%
Administrative expenses285
 343
 328
 (16.9)% 4.6 %307
 291
 285
 5.5 % 2.1 %
Net investment income268
 251
 251
 6.8 % 
283
 265
 268
 6.8 % (1.1)%
Life underwriting income363
 374
 402
 (2.9)% (7.0)%
Net realized gains (losses)(383) 360
 (72) NM
 NM
Interest expense11
 15
 12
 (26.7)% 25.0%
Life Insurance underwriting income282
 282
 363
 
 (22.3)%
Other (income) expense(1)
2
 13
 25
 (84.6)% (48.0)%16
 4
 5
 300.0 % (20.0)%
Income tax expense46
 34
 58
 35.3 % (41.4)%
Net income (loss)$(79) $672
 $235
 NM
 186.0%
Amortization of purchased intangibles3
 2
 3
 50.0 % (33.3)%
Segment income$263
 $276
 $355
 (4.7)% (22.3)%
NM – not meaningful         
 
(1)
(Gains) losses from fair value changes in separate account assets that do not qualify for separate account reporting under GAAP arehave been reclassified from Other (income) expenseincome (expense) for purposes of presenting Life Insurance underwriting income. The offsetting movement in the separate account liabilities is included in Policy benefits.

Premiums
2016 vs. 2015
Net premiums written increased $126 million in 2016, primarily reflecting the impact of the Chubb Corp acquisition, which added $64 million of growth to premiums. In addition, growth in our international life operations, primarily in Asia, and in our Combined Insurance supplemental A&H program business contributed to the increase. The following table presents a lineadverse effect of business breakdown of Lifeforeign exchange impacted growth in net premiums written and deposits collected on universalby $41 million in 2016. Our life and investment contracts:
     % Change
(in millions of U.S. dollars, except for percentages)2014
 2013
 2012
 2014 vs. 2013
 2013 vs. 2012
A&H(1)
$1,000
 $1,016
 $1,011
 (1.6)% 0.5 %
Life insurance750
 672
 654
 11.6 % 2.8 %
Life reinsurance262
 284
 314
 (7.6)% (9.6)%
Net premiums written (excludes deposits below)$2,012
 $1,972
 $1,979
 2.0 % (0.4)%
          
Deposits collected on universal life and investment contracts$823
 $684
 $509
 20.3 % 34.4 %
(1) Includes the North American supplemental A&H and lifereinsurance business of Combined Insurance

Life net premiums written increased two percent, or four percent on a constant-dollar basis in 2014. Life net premiums written decreased 0.4 percent, or increased 0.2 percent on a constant-dollar basis in 2013. A&H net premiums written remained flat in 2014 after adjusting for the $16 million unfavorable impact of foreign exchange. A&H net premiums written increased slightly in 2013 with improved new business production and a catch-up in premium registrations. Life insurance net premiums written increased in 2014 and 2013 primarily duecontinues to growth in our Asian markets. Life reinsurance net premiums written decreased in 2014 and 2013 becausedecline as there is no new life reinsurance business currently being written. On an "As If" basis, net premiums written increased $32 million in 2016 due to the same factors as described above.

2015 vs. 2014
Net premiums written decreased slightly in 2015 reflecting the adverse impact of foreign exchange of $84 million. On a constant dollar basis, net premiums written increased reflecting growth in our Combined Insurance supplement A&H program business and in our international life operations, primarily in Asia. Our life reinsurance business continued to decline as there is no new life reinsurance business currently being written.

Deposits
The following table presents deposits collected on universal life and investment contracts:
  % Change 
(in millions of U.S. dollars, except for percentages)2016
 2015
 2014
 2016 vs. 2015
 
C$(1) 2016 vs. 2015

 2015 vs. 2014
Deposits collected on universal life and investment contracts$1,006
 $1,015
 $997
 (0.9)% 0.9% 1.8%
(1) On a constant-dollar basis.  Amounts are calculated by translating prior period results using the same local currency rates as the comparable current period. 

Deposits collected on universal life and investment contracts (life deposits) are not reflected as revenues in our consolidatedConsolidated statements of operations in accordance with GAAP.  New life deposits are an important component of production, and key to our efforts to grow our business. Although life depositsalthough they do not significantly affect current period income from operations they are an important indicator of growth. The increase in life deposits collected in 2014 and 2013 is primarily duekey to growth in our Asian markets.efforts to grow our business. Life



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Indeposits collected decreased slightly in 2016 due to a decline in Korea, partially offset by growth in other Asian markets, primarily in Hong Kong, Vietnam, and Taiwan. Foreign exchange adversely impacted growth by $18 million in 2016.

Life Insurance underwriting income and Other (income) expense
Life Insurance underwriting income remained flat in 2016 compared to 2015 as an increase in the long-term benefit ratio in our variable annuity reinsurance business, which adversely impacted underwriting income by $17 million, was offset by unfavorable loss reserve development in the prior year in our Combined Insurance supplemental A&H program business.

Life Insurance underwriting income decreased in 2015 primarily due to the unfavorable loss reserve development noted above compared to favorable reserve development in 2014. Additionally, 2014 was favorably impacted by a one-time adjustment to certain life products in Asia.

Other expense of $16 million in 2016 was related primarily to our share of net losses from our partially-owned life insurance entities. Refer to the Other Income and Expense Items section for further information.

Corporate

Corporate results primarily include the results of our non-insurance companies, income and expenses not attributable to reportable segments and loss and loss expenses of asbestos and environmental (A&E) liabilities and certain other run-off exposures.

Our exposure to A&E claims principally arises out of liabilities acquired when we determinedpurchased Westchester Specialty in 1998, CIGNA’s P&C business in 1999, and legacy Chubb Corp A&E claims in 2016. Corporate staff expenses and net investment income of Chubb Limited, including the amortization of the fair value adjustment on acquired invested assets and debt, interest expense, amortization of purchased intangibles related to the Chubb Corp acquisition, Chubb integration expenses and other merger related expenses, the one-time pension curtailment benefit related to the harmonization of our U.S. pension plans, and the results of Chubb Group Management and Holdings Ltd, and Chubb INA Holdings Inc. are reported within Corporate.
       % Change 
(in millions of U.S. dollars, except for percentages)2016
 2015
 2014
 2016 vs. 2015
 2015 vs. 2014
Losses and loss expenses (1)
$169
 $202
 $245
 (16.3)% (17.6)%
Policy acquisition costs
 1
 
 NM
 NM
Administrative expenses183
 188
 198
 (2.7)% (5.1)%
Underwriting loss352
 391
 443
 (10.0)% (11.7)%
Net investment income (loss)(368) 15
 15
 NM
 
Interest expense605
 300
 280
 101.7 % 7.1 %
Adjusted net realized gains (losses)(140) (411) (558) (65.9)% (26.3)%
Other (income) expense(217) (47) (162) 361.7 % (71.0)%
Amortization expense (benefit) of purchased intangibles(80) 
 
 NM
 
Chubb integration expenses492
 33
 
 NM
 NM
Income tax expense815
 462
 634
 76.4 % (27.1)%
Net corporate loss$(2,475) $(1,535) $(1,738) 61.2 % (11.7)%
(1) Losses and loss expenses - As If basis
$169
 $293
 
 (42.3)% 
NM – not meaningful         

Losses and loss expenses in 2016, 2015, and 2014 were primarily due to unfavorable prior period development related to Brandywine asbestos and environmental exposures, as well as unallocated loss adjustment expenses of the A&E claim operations. Refer to Note 7 of the Consolidated Financial Statements for further information. Additionally, during the fourth quarter of 2016, we amended several of our U.S. retirement programs as part of a harmonization effort that certain A&H marketing-related costs weremoves us toward a more appropriately classified as acquisition costs.unified retirement savings approach. This resulted in a $59one-time pension curtailment benefit of $113 million, increase$23 million


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of which was related to acquisitionclaims staff and was therefore recorded in losses and loss expenses. Refer to Note 13 to the Consolidated Financial Statements for further discussion of the pension curtailment.

Administrative expenses and an offsetting decreasedecreased $5 million in 2016 primarily due to the one-time pension curtailment benefit discussed above, of which $90 million was recorded in administrative expenses, partially offset by the addition of Chubb Corp expenses from the Chubb Corp acquisition. On an "As If" basis, administrative expenses decreased $131 million, primarily due to the one-time pension curtailment benefit and cost savings of $25 million realized as a result of the Chubb Corp acquisition. Administrative expenses decreased slightly in 2014.2015.

Net investment income for the year ended December 31, 2016 included amortization of $393 million related to the fair value adjustment on invested assets related to the Chubb Corp acquisition. Excluding the fair value adjustment amortization, net investment income increased by $10 million in 2016. Net investment income remained flat in 2015 compared to 2014. Refer to the Net Investment Income section for a discussion on consolidated Net investment income.

Interest expense increased $305 million in 2016 primarily driven by the $5.3 billion senior notes issued in November 2015, as well as the $3.3 billion par value of debt assumed in connection with the Chubb Corp acquisition. Interest expense increased $20 million in 2015 primarily due to the $5.3 billion senior notes issued in November 2015.

During 2016, net realized losses of $140 million were primarily related to net losses on our investment portfolio of $156 million, partially offset by realized gains (losses), which are excluded from Life underwriting income, relate primarily to the change in theassociated with a net fair value of reported guaranteed living benefits (GLB) reinsurance liabilities and changesdecrease in the fair value of derivatives usedGLB liabilities. The decrease was primarily due to higher global equity market levels and the impact of updating our assumptions on policyholder behavior, partially offset by the risk inunfavorable impact of discounting future claims for one less year. Refer to Note 4 of the variable annuity guarantee portfolio. Consolidated Financial Statements for further information regarding the fair value of GLB liabilities.

During 2014,2015, realized losses of $213$411 million were primarily associated with a net increase in the fair value of GLB liabilities; this increase was primarily due to the falling equity market levels and the unfavorable impact of discounting future claims for one less year, partially offset by higher interest rates. Additionally, there were realized losses on our investment portfolio of $106 million.
During 2014, realized losses of $558 million were primarily associated with a net increase in the fair value of GLB liabilities; this increase was primarily due to lower interest rates and the unfavorable impact of discounting future claims for one less year, partially offset by a weakening yen and rising U.S. equity levels.

In the fourth quarter Additionally, there were realized losses on our investment portfolio of 2014, we completed an updated in-depth review of actual policyholder lapse and annuitization behavior by treaty for our variable annuity reinsurance business.  As a result of our review, we made several refinements to our lapse assumptions, the most significant of which was an increase in lapses for most large, in-the-money, guaranteed minimum income benefits (GMIB) policies beyond the surrender charge period. The increase in lapse assumptions decreased the fair value of GLB liabilities and generated a realized gain of $31 million. Because of a greater degree of reported experience related to behavior in years subsequent to the first year of annuitization eligibility, we also made several adjustments to our annuitization assumptions, which generally lowered the annuitization rate for most clients, while raising it for two clients. The change in annuitization assumptions decreased the fair value of GLB liabilities and generated a realized gain of $39 million. We will continue to monitor actual policyholder behavior against our assumptions and make adjustments as appropriate. Also, during the fourth quarter of 2014, we increased the granularity of policy groupings used in our valuation model. This refinement increased the fair value of GLB liabilities and generated a realized loss of $78$134 million.

During 2013, realized gainsAs part of $929 million were associated with a netour loss mitigation strategy for our GLB exposures, we maintain positions in derivative instruments that decrease in the value of GLB liabilities; this decrease was primarily due to rising equity levels, higher interest rates, and a weakening yen, partially offset by a net unfavorable impact of changes in lapse and annuitization assumptions and the unfavorable impact of discounting future claims for one less year.

During 2012, realized gains of $203 million were associated with a net decrease in the value of GLB liabilities; this decrease was primarily due to rising equity levels and a weakening yen, partially offset by an increased value of GLB liabilities due to falling interest rates and the unfavorable impact of discounting future claims for one less year.

In addition, we experienced realized losses of $168 million, $579 million, and $297 million in 2014, 2013, and 2012, respectively, due to a decrease in the value of derivative instruments, which decrease infair value when the S&P 500 index increases. During the years ended December 31, 2016, 2015, and 2014, we experienced realized losses of $136 million, $10 million, and $168 million, respectively, related to these derivative instruments. For further discussion of the remaining Net realized gains and (losses), refer to the Net realized and unrealized gains and (losses) section.

Other income of $217 million, $47 million, and $162 million for the years ended December 31, 2016, 2015, and 2014, respectively, were related primarily to our share of net income of partially-owned entities. Refer to the Other Income and Expense Items section for further information.

Amortization benefit of purchased intangibles related to the Chubb Corp acquisition was $80 million for the year ended December 31, 2016, reflecting the favorable impact of the amortization of the fair value adjustment on acquired Unpaid losses and loss expenses, offset by the amortization of other intangibles, including agency distribution relationships and internally developed technology, related to the Chubb Corp acquisition. This amortization is considered a corporate cost as it is incurred by the overall company.

Chubb integration expenses were $492 million the year ended December 31, 2016, primarily comprising $181 million of personnel-related expenses, $125 million of consulting fees, $58 million of leases and real estate costs, and $38 million of advisor fees. Chubb integration expenses were $33 million for the year ended December 31, 2015, primarily comprising $16 million of consulting fees, $6 million of legal fees, and $5 million of system integration costs. Chubb integration expenses are one-time in nature and are not related to the on-going business activities of the segments. 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.



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Non-GAAP Reconciliation

We provide financial measures such as net premiums written and net premiums earned on a constant-dollar basis. We believe it is useful to evaluate the trends in these measures exclusive of the effect of fluctuations in exchange rates between the U.S. dollar and the currencies in which our international business is transacted, as these exchange rates could fluctuate significantly between periods and distort the analysis of trends. The impact is determined by assuming constant foreign exchange rates between periods by translating prior period results using the same local currency exchange rates as the comparable current period.

P&C performance metrics are non-GAAP financial measures and comprise consolidated operating results (including Corporate) and exclude the operating results of the Life Insurance segment. We believe that these measures are useful and meaningful to investors as they are used by management to assess the company’s P&C operations which are the most economically similar.  We exclude the Life Insurance segment because the results of this business do not always correlate with the results of our P&C operations.   

"As If" measures presented throughout this section are prepared exclusive of the impact of the unearned premium reserves intangible amortization and the elimination of the historical policy acquisition costs as a result of purchase accounting related to the Chubb Corp acquisition in order to present the underlying profitability of our insurance business for the entire relevant periods.  We believe this measure provides visibility into our results, allows for comparability to our historical results and is consistent with how management evaluates results. We have discussed our results on an "As If" basis for both the 2016 and 2015 periods, which are defined below:

2016 "As If" results: The combined company results do not include the impact of the unearned premium reserves intangible amortization and the elimination of the historical policy acquisition costs as a result of purchase accounting related to the Chubb Corp acquisition. The combined company results for the year ended December 31, 2016 are inclusive of the first 14 days of January 2016 (the Chubb Corp acquisition closed January 14, 2016).

2015 "As If" results: Legacy ACE plus legacy Chubb Corp historical results after accounting policy alignment adjustments, including reclassifying certain legacy Chubb Corp corporate expenses to administrative expenses and redefining legacy Chubb Corp segment underwriting income by allocating the amortization of deferred policy acquisition costs to each segment.  2015 "As If" results exclude purchase accounting adjustments.



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The following tables present a reconciliation of 2016 "As If" results to 2016 results, as well as 2015 "As If" results to 2015 results and pro forma results as calculated in accordance with SEC Article 11:
(in millions of U.S. dollars, except percentages)North America Commercial P&C Insurance
 North America Personal P&C Insurance
 North America Agricultural Insurance
 Overseas General Insurance
 Global Reinsurance
 Life Insurance
 Consolidated
Net premiums written             
2016             
Net premiums written$11,740
 $4,153
 $1,328
 $8,124
 $676
 $2,124
 $28,145
14 day stub period519
 100
 
 215
 20
 1
 855
2016 As If$12,259
 $4,253
 $1,328
 $8,339
 $696
 $2,125
 $29,000
2015 As If 
             
Net premiums written$5,715
 $1,192
 $1,346
 $6,634
 $828
 $1,998
 $17,713
Legacy Chubb6,899
 3,570
 
 2,099
 29
 36
 12,633
Accounting policy alignment
 
 
 18
 
 59
 77
2015 As If (1)
$12,614
 $4,762
 $1,346
 $8,751
 $857
 $2,093
 $30,423
Constant-dollar 2015 As If$12,605
 $4,756
 $1,346
 $8,244
 $843
 $2,049
 $29,843
Constant-dollar change As If$(346) $(503) $(18) $95
 $(147) $76
 $(843)
Constant-dollar percent change As If(2.8)% (10.6)% (1.3)% 1.2% (17.5)% 3.7% (2.8)%
Net premiums earned             
2016             
Net premiums earned$12,217
 $4,319
 $1,316
 $8,132
 $710
 $2,055
 $28,749
14 day stub period208
 110
 
 71
 
 2
 391
2016 As If$12,425
 $4,429
 $1,316
 $8,203
 $710
 $2,057
 $29,140
2015 As If             
Net premiums earned$5,634
 $948
 $1,364
 $6,471
 $849
 $1,947
 $17,213
Legacy Chubb6,850
 3,506
 
 2,096
 26
 40
 12,518
Accounting policy alignment
 
 
 (1) 
 56
 55
2015 As If (1)
$12,484
 $4,454
 $1,364
 $8,566
 $875
 $2,043
 $29,786
Constant-dollar 2015 As If$12,471
 $4,454
 $1,364
 $8,122
 $863
 $2,001
 $29,275
Constant-dollar change As If$(46) $(25) $(48) $81
 $(153) $56
 $(135)
Constant-dollar percent change As If(0.4)% (0.6)% (3.6)% 1.0% (17.9)% 2.8% (0.5)%
(1) As If amounts for premium are calculated on the same basis as SEC pro forma.


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(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
 Corporate
 Total P&C
Loss and loss expenses
2016             
Loss and loss expenses$7,439
 $2,558
 $893
 $4,005
 $325
 $169
 $15,389
14 day stub period127
 53
 
 42
 
 
 222
(Gain) loss on crop derivatives



5







5
Pension curtailment benefit









23

23
2016 As If$7,566
 $2,611
 $898
 $4,047
 $325
 $192
 $15,639
2015             
Loss and loss expenses$3,661
 $590
 $1,088
 $3,052
 $290
 $202
 $8,883
Legacy Chubb3,681
 2,079
 
 1,064
 5
 105
 6,934
(Gain) loss on crop derivatives



9







9
Accounting policy alignments
 
 
 4
 
 (14) (10)
2015 As If (1)
$7,342
 $2,669
 $1,097
 $4,120
 $295
 $293
 $15,816
Policy acquisition costs
2016             
Policy acquisition costs$2,023
 $966
 $83
 $2,136
 $187
 $
 $5,395
Amortization of acquired UPR intangible asset(859) (492) 
 (208) 
 
 (1,559)
Elimination of deferred acquisition cost benefit729
 406
 
 238
 
 
 1,373
14 day stub period33
 14
 
 13
 
 
 60
2016 As If$1,926
 $894
 $83
 $2,179
 $187
 $
 $5,269
2015             
Policy acquisition costs$531
 $69
 $69
 $1,581
 $214
 $1
 $2,465
Legacy Chubb1,321
 774
 
 491
 
 
 2,586
Accounting policy alignment128
 15
 
 138
 
 
 281
2015 As If$1,980
 $858
 $69
 $2,210
 $214
 $1
 $5,332
Amortization of acquired UPR intangible asset855
 490
 
 205
 
 
 1,550
Elimination of deferred acquisition cost benefit(709) (406) 
 (169) 
 
 (1,284)
2015 SEC pro forma$2,126
 $942
 $69
 $2,246
 $214
 $1
 $5,598
Administrative expenses             
2016             
Administrative expenses$1,125
 $363
 $(6) $1,057
 $52
 $183
 $2,774
Pension curtailment benefit









90

90
14 day stub period35
 13
 
 12
 
 3
 63
2016 As If$1,160
 $376
 $(6) $1,069
 $52
 $276
 $2,927
2015             
Administrative expenses$621
 $123
 $1
 $997
 $49
 $188
 $1,979
Legacy Chubb694
 271
 
 343
 6
 45
 1,359
Accounting policy alignment(128) (15) 
 (142) 
 84
 (201)
2015 As If (1)
$1,187
 $379
 $1
 $1,198
 $55
 $317
 $3,137
(Favorable) and unfavorable PPD, pre-tax             
2015             
(Favorable) and unfavorable PPD, pre-tax$(264) $25
 $(45) $(343) $(119) $200
 $(546)
Legacy Chubb(519) (43) 
 (134) (19) 91
 (624)
2015 As If (1)
$(783) $(18) $(45) $(477) $(138) $291
 $(1,170)
Catastrophe losses, pre-tax             
2015             
Catastrophe losses, pre-tax$85
 $63
 $9
 $142
 $22
 $
 $321
Legacy Chubb183
 320
 
 20
 4
 
 527
2015 As If (1)
$268
 $383
 $9
 $162
 $26
 $
 $848
(1)As If amounts for Loss and loss expenses, Administrative expenses, Prior period development and Catastrophe losses are calculated on the same basis as SEC pro forma.



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The P&C combined ratio is a non-GAAP financial measure and includes the impact of realized gains and losses on crop derivatives. These derivatives were purchased to provide economic benefit, in a manner similar to reinsurance protection, in the event that a significant decline in commodity pricing will impact underwriting results. We view gains and losses on these derivatives as part of the results of our underwriting operations. The P&C combined ratio also excludes the one-time pension curtailment benefit recognized in 2016.

Net Investment Income
Years Ended December 31 
(in millions of U.S. dollars)2014
 2013
 2012
2016
 2015
 2014
Fixed maturities$2,199
 $2,093
 $2,134
$2,779
 $2,157
 $2,199
Short-term investments45
 29
 28
93
 49
 45
Equity securities33
 37
 34
36
 16
 33
Other94
 105
 104
98
 86
 94
Gross investment income2,371
 2,264
 2,300
3,006
 2,308
 2,371
Investment expenses(119) (120) (119)(141) (114) (119)
Net investment income$2,252
 $2,144
 $2,181
$2,865
 $2,194
 $2,252

Net investment income is influenced by a number of factors including the amounts and timing of inward and outward cash flows, the level of interest rates, and changes in overall asset allocation. Net investment income increased 5.130.6 percent in 20142016 compared with 20132015 primarily due to a higher overall invested asset basethe Chubb Corp acquisition which added $1.2 billion of net investment income, partially offset by the unfavorable impact of liquidating investments to fund the acquisition, and the unfavorable impact of amortizing the purchase accounting fair value adjustment to investments at the date of acquisition of $393 million. Net investment income decreased 2.6 percent in 2015 compared with 2014 primarily due to the negative impact of foreign exchange of $49 million and lower call activity in our corporate bond portfolio, partially offset by the negative impact of foreign exchange. Net investment income decreased 1.7 percent in 2013 compared with 2012 primarily due to lower reinvestment rates in our fixed income portfolio, offset by a higher overall invested asset base.

The investment portfolio’syield on our fixed maturities was 3.5 percent in 2016 and 4.0 percent in both 2015 and 2014. This compares to the average market yield, on fixed maturities was 2.8 percent, 3.0 percent, and 2.3 percent at December 31, 2014, 2013, and 2012, respectively. Average market yield on fixed maturitieswhich represents the weighted average yield to maturity of our fixed income portfolio based on the market prices of the holdings at that date.throughout the period, of 2.4 percent for 2016 and 2.8 percent for both 2015 and 2014.

The 2.5 percent, 1.3 percent, and 1.9 percent yield on short-term investments for the year ended December 31,in 2016, 2015, and 2014, respectively, reflects the global nature of our insurance operations. For example, yields onThe yield in 2015 is lower compared to both 2016 and 2014 despite a higher average balance in short-term investments, due to investments held in Brazil, Indonesia, Ecuador, and Malaysia range from 3.3 percent to 11.8 percent.the U.S. in anticipation of the Chubb Corp acquisition, which earned a lower yield in 2015.

The 4.9 percentFor 2016, the increase in net investment income from our equity securities reflects the higher invested assets base as a result of the Chubb Corp acquisition. In 2016, the yield on our equity securities portfolio for the year ended December 31,was 3.7 percent. In 2015 and 2014, is high relative to the yield on the S&P 500 Index because of dividends on preferredour equity securities portfolio was 3.1 percent and because we classified our strategic4.9 percent, respectively, and reflects the yield on a global high dividend equity portfolio. 2014 also included dividends from an emerging debt portfolio, which iswas a mutual fund classified as equity. During the third quarter of 2014, however, we elected to exchange our interest in the strategic emerging debt portfolio for direct ownership of certain of the underlying fixed maturities, and the remainder in cash. In 2014, the strategic emerging debt portfolio, prior to the election to exchange our interest, and the preferred equity securities represented 64 percentof the gross equity securities investment income.

The following table shows the return on average invested assets:
Years Ended December 31 
(in millions of U.S. dollars, except for percentages)2014
 2013
 2012
2016
 2015
 2014
Average invested assets$60,382
 $58,574
 $55,655
$96,656
 $63,252
 $60,382
Net investment income$2,252
 $2,144
 $2,181
$2,865
 $2,194
 $2,252
Return on average invested assets3.7% 3.7% 3.9%
Return on average invested assets (1)
3.4% 3.5% 3.7%
(1)
Excludes $393 million of amortization on the purchase accounting fair value adjustment of acquired invested assets related to the Chubb Corp acquisition in 2016.


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Net Realized and Unrealized Gains (Losses)

We take a long-term view with our investment strategy, and our investment managers manage our investment portfolio to maximize total return within certain specific guidelines designed to minimize risk. The majority of our investment portfolio is available for sale and reported at fair value. Our held to maturity investment portfolio is reported at amortized cost.
The effect of market movements on our available for sale investment portfolio impacts Net income (through Net realized gains (losses)) when securities are sold or when we record an Other-than-temporary impairment (OTTI) charge in Net income. For a discussion related to how we assess OTTI for all of our investments, including credit-related OTTI, and the related impact on Net income, refer to Note 3 d)c) to the Consolidated Financial Statements. Additionally, Net income is impacted through the reporting of changes in the fair value of derivatives, including financial futures, options, swaps, and GLB reinsurance. Changes in unrealized appreciation and depreciation on available for sale securities which resultresulting from the revaluation of securities held, changes in cumulative translation adjustment, and unrealized postretirement benefit obligations liability adjustment, are reported as a separate componentcomponents of Accumulated other comprehensive income in Shareholders’ equity in the consolidatedConsolidated balance sheets.

The following table presents our pre-tax net realized and unrealized gains (losses) on investments::
 Year Ended December 31, 2014 
Year Ended December 31, 2013 
(in millions of U.S. dollars)
Net
Realized
Gains
(Losses)(1)

 
Net
Unrealized
Gains
(Losses)

 
Net
Impact

 
Net
Realized
Gains
(Losses)(1)

 
Net
Unrealized
Gains
(Losses)

 
Net
Impact

Fixed maturities$23
 $732
 $755
 $90
 $(1,880) $(1,790)
Fixed income derivatives(107) 
 (107) 78
 
 78
Total fixed maturities(84) 732
 648
 168
 (1,880) (1,712)
Public equity(47) 77
 30
 15
 (41) (26)
Private equity(3) 42
 39
 (2) 51
 49
Other2
 (7) (5) (3) 3
 
Subtotal(132) 844
 712
 178
 (1,867) (1,689)
Derivatives           
Fair value adjustment on insurance derivatives(217) 
 (217) 878
 
 878
S&P put option and futures(168) 
 (168) (579) 
 (579)
Other derivatives50
 
 50
 (2) 
 (2)
Subtotal derivatives(335) 
 (335) 297
 
 297
Foreign exchange gains (losses)(40) 
 (40) 29
 
 29
Total gains (losses)$(507) $844
 $337
 $504
 $(1,867) $(1,363)
 Year Ended December 31, 2016 
Year Ended December 31, 2015 
(in millions of U.S. dollars)
Net
Realized
Gains
(Losses) 

 
Net
Unrealized
Gains
(Losses)

 
Net
Impact

 
Net
Realized
Gains
(Losses)

 
Net
Unrealized
Gains
(Losses)

 
Net
Impact

Fixed maturities$(163) $83
 $(80) $(180) $(1,076) $(1,256)
Fixed income derivatives(33) 
 (33) 32
 
 32
Public equity44
 52
 96
 29
 (17) 12
Private equity(4) (49) (53) 13
 (46) (33)
Total investment portfolio (1)
(156) 86
 (70) (106) (1,139) (1,245)
Variable annuity reinsurance derivative transactions, net of applicable hedges(83) 
 (83) (213) 
 (213)
Other derivatives(10) 
 (10) (12) 
 (12)
Foreign exchange118
 (154) (36) (80) (958) (1,038)
Other(14) 543
 529
 (9) 25
 16
Net gains (losses) before tax(145) 475
 330
 (420) (2,072) (2,492)
Income tax expense (benefit)66
 54
 120
 (10) (146) (156)
Net gains (losses)$(211) $421
 $210
 $(410) $(1,926) $(2,336)
(1)
For the year ended December 31, 20142016, other-than-temporary impairments in Net realized gains (losses) include $5781 million for fixed maturities, $3 million for private equity, and $8 million for public equity, and $14 million for private equity. For the year ended December 31, 20132015, other-than-temporary impairments in Net realized gains (losses) include $18103 million for fixed maturities, $27 million for privatepublic equity, and $2 million for publicprivate equity.
At December 31, 2014, our investment portfolios held by U.S. legal entities included approximately $37 million of gross unrealized losses on fixed income investments. Our tax planning strategy related to these losses is based on our view that we will hold these fixed income investments until they recover their cost. As such, we have recognized a deferred tax asset of approximately $13 million related to these fixed income investments. This strategy allows us to recognize the associated deferred tax asset related to these fixed income investments as we do not believe these losses will ever be realized.

Other Income and Expense Items

Other (income) expense was $(82)$(222) million in 20142016 compared with $15$(51) million and $(6)$(190) million in 20132015 and 2012, respectively.2014, respectively, and were related primarily to our share of net income of partially-owned entities. Refer to Note 14 to the Consolidated Financial Statements for the components of Other (income) expense.



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Amortization of purchased intangibles and Other amortization

Amortization expense related to purchased intangibles amounted to $19 million, $171 million, and $108 million for the years ended December 31, 2016, 2015, and 2014, respectively. Amortization expense of purchased intangibles was low in 2016 reflecting the favorable impact of the amortization benefit of the fair value adjustment on acquired Unpaid losses and loss expenses. In 2017, the amortization is expected to increase to $251 million, primarily reflecting the increase in intangible amortization related to agency distribution relationships and renewal rights.

The following table presents, as of December 31, 2016, the 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 Years Ending December 31
(in millions of U.S. dollars)
Agency distribution relationships and renewal rights
 Internally developed technology
 Fair value adjustment to Unpaid losses and loss expense
 
Total (1)

 
Other intangible assets (2)

 
Total
Amortization of purchased intangibles

2017$295
 $32
 $(160) $167
 $84
 $251
2018323
 32
 (101) 254
 74
 328
2019280
 
 (62) 218
 68
 286
2020239
 
 (35) 204
 59
 263
2021217
 
 (20) 197
 52
 249
Total$1,354
 $64
 $(378) $1,040
 $337
 $1,377
(1) Recorded in Corporate.
(2) Recorded in applicable segment(s) that acquired the intangible assets.

Amortization of Unearned premium reserves (UPR) intangible assets and Expected future benefit associated with the elimination of historical deferred policy acquisition costs (DAC) asset
As part of purchase accounting, we recognized an intangible asset of $1,559 million, at applicable foreign currency exchange rates, related to the fair value adjustment for the UPR recorded on legacy Chubb Corp books, which was fully amortized into policy acquisition costs in 2016. In addition, as part of purchase accounting, we recognized a benefit of $1,373 million associated with unearned premiums in 2016 with no expense for the historical acquisition costs. This DAC elimination benefit was fully recognized in 2016.

Reduction of deferred tax liability associated with intangible assets related to the Chubb Corp acquisition
At the date of acquisition, we recorded a deferred tax liability of $2,679 million, which assumed an expected 35 percent tax rate, associated with agency distribution relationships and renewal rights, internally developed technology, and UPR intangible assets related to the Chubb Corp acquisition. For example, for 2017, the expected reduction to deferred tax liability of $114 million associated with intangible assets in the table below is calculated by applying the 35 percent expected tax rate against the sum of the estimated amortization of $327 million, comprised of agency distribution relationships and renewal rights of $295 million and internally developed technology of $32 million. At December 31, 2016, the remaining deferred tax liability associated with these intangibles was $2,076 million.

The following table presents, as of December 31, 2016, the expected reduction to the deferred tax liability (which reduces as agency distribution relationships and renewal rights, internally developed technology, and UPR intangible assets amortize), at current foreign currency exchange rates, for the next five years:
For the Years Ending December 31
(in millions of U.S. dollars)
Reduction to deferred tax liability associated with intangible assets
2017$114
2018124
201998
202084
202176
Total$496


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Amortization of the fair value of acquired invested assets
In addition to the amortization of purchased intangibles outlined in the table above, at December 31, 2016 we expect amortization of the fair value of acquired invested assets of approximately $360 million in 2017, $320 million in each 2018 and 2019, and $225 million in 2020 at current foreign currency exchange rates. This estimate could vary materially based on current market conditions, bond calls, overall duration of the acquired investment portfolio, and foreign exchange. The amortization of the fair value adjustment on acquired invested assets is recorded as a reduction to Net investment income in the Consolidated statements of operations.

Amortization of the fair value adjustment on assumed long-term debt
The benefit from the amortization of the fair value adjustment on assumed long-term debt was $48 million for the year ended December 31, 2016. As of December 31, 2016, we expect a benefit from the amortization of the fair value adjustment on assumed long-term debt over the next five years as follows: $49 million in 2017, $31 million in 2018, and $19 million in each of the years 2019 through 2021. The amortization of the fair value adjustment on assumed long-term debt is recorded as a reduction to Interest expense in the Consolidated statements of operations.
Investments

Our investment portfolio is invested primarily in publicly traded, investment grade, fixed income securities with an average credit quality of A/Aa as rated by the independent investment rating services Standard and Poor’s (S&P)/ Moody’s Investors Service (Moody’s). The portfolio is externally managed by independent, professional investment managers and is broadly diversified across geographies, sectors, and issuers. Other investments principally comprise direct investments, investment funds, and limited partnerships. We hold no collateralized debt obligations or collateralized loan obligations in our investment portfolio, and we provide no credit default protection. We have long-standing global credit limits for our entire portfolio across the organization. Exposures are aggregated, monitored, and actively managed by our Global Credit Committee, comprising senior executives, including our Chief Financial Officer, our Chief Risk Officer, our Chief Investment Officer, and our Treasurer. We also have well-established, strict contractual investment rules requiring managers to maintain highly diversified exposures to individual issuers and closely monitor investment manager compliance with portfolio guidelines.

The average duration of our fixed income securities, including the effect of options and swaps, was 4.04.2 years and 3.5 years at both December 31, 20142016 and 2013.2015, respectively. The increase in duration in 2016 was primarily due to higher interest rates in 2016. We estimate that a 100 basis point (bps) increase in interest rates would reduce the valuation of our fixed income portfolio by approximately $2.4$3.9 billion at December 31, 2014.2016.

The following table shows the fair value and cost/amortized cost of our invested assets: 
December 31, 2014  December 31, 2013 December 31, 2016  December 31, 2015 
(in millions of U.S. dollars)
Fair
Value

 
Cost/
Amortized
Cost

 
Fair
Value

 
Cost/
Amortized
Cost

Fair
Value

 
Cost/
Amortized
Cost

 
Fair
Value

 
Cost/
Amortized
Cost

Fixed maturities available for sale$49,395
 $47,826
 $49,254
 $48,406
$80,115
 $79,536
 $43,587
 $43,149
Fixed maturities held to maturity7,589
 7,331
 6,263
 6,098
10,670
 10,644
 8,552
 8,430
Short-term investments2,322
 2,322
 1,763
 1,763
3,002
 3,002
 10,446
 10,446
59,306
 57,479
 57,280
 56,267
93,787
 93,182
 62,585
 62,025
Equity securities510
 440
 837
 841
814
 706
 497
 441
Other investments3,346
 2,999
 2,976
 2,671
4,519
 4,270
 3,291
 2,993
Total investments$63,162
 $60,918
 $61,093
 $59,779
$99,120
 $98,158
 $66,373
 $65,459

The fair value of our total investments increased $2.1$32.7 billion during the year ended December 31, 2014,2016, primarily due to the Chubb Corp acquisition, which added $43.0 billion at the date of acquisition, and the investing of operating cash flows, and unrealized appreciation, partially offset by share repurchases, andinvestments sold to fund the impact of unfavorable foreign exchange.Chubb Corp acquisition.

During the third quarter of 2014, we decided to transfer securities, considered essential holdings in a diversified portfolio, with a total fair value of $2.0 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 ACE’s investment portfolio over the last several years, as well as continued efforts to manage the diversification of our global portfolio.



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The following tables present the market value of our fixed maturities and short-term investments at December 31, 20142016 and 2013.2015. The first table lists investments according to type and the second according to S&P credit rating:
December 31, 2014  December 31, 2013 December 31, 2016  December 31, 2015 
(in millions of U.S. dollars, except for percentages)Market Value
 % of Total
 Market Value
 % of Total
Market Value
 % of Total
 Market Value
 % of Total
Treasury$2,448
 4% $2,327
 4%$2,832
 3% $2,395
 4%
Agency1,222
 2% 1,454
 3%699
 1% 878
 1%
Corporate and asset-backed securities19,854
 34% 19,475
 34%26,944
 29% 17,985
 28%
Mortgage-backed securities12,325
 21% 12,273
 21%15,435
 16% 11,701
 19%
Municipal4,930
 8% 4,500
 8%22,768
 24% 4,950
 8%
Non-U.S.16,205
 27% 15,488
 27%22,107
 24% 14,230
 23%
Short-term investments2,322
 4% 1,763
 3%3,002
 3% 10,446
 17%
Total$59,306
 100% $57,280
 100%$93,787
 100% $62,585
 100%
AAA$8,943
 15% $8,677
 15%$15,746
 17% $14,369
 23%
AA21,589
 36% 21,520
 38%36,235
 39% 22,141
 36%
A11,625
 20% 11,168
 19%17,519
 19% 10,163
 16%
BBB8,690
 15% 7,193
 12%12,237
 13% 8,941
 14%
BB4,372
 7% 4,418
 8%6,993
 7% 3,775
 6%
B3,916
 7% 3,940
 7%4,814
 5% 3,018
 5%
Other171
 % 364
 1%243
 % 178
 %
Total$59,306
 100% $57,280
 100%$93,787
 100% $62,585
 100%

Corporate and asset-backed securities
The following table presents our 10 largest global exposures to corporate bonds by market value at December 31, 20142016::
(in millions of U.S. dollars)Market Value
Market Value
JP Morgan Chase & Co$447
$575
Wells Fargo & Co522
Goldman Sachs Group Inc435
Anheuser-Busch InBev NV426
General Electric Co419
423
Goldman Sachs Group Inc347
Wells Fargo & Co270
HSBC Holdings Plc265
Verizon Communications Inc233
381
Morgan Stanley358
Bank of America Corp231
356
Morgan Stanley217
AT&T Inc216
338
Citigroup Inc206
Berkshire Hathaway Inc324

Mortgage-backed securities
S&P Credit Rating  Market Value
Amortized Cost
S&P Credit Rating  Market Value
 Amortized Cost
December 31, 2014 (in millions of U.S. dollars)AAA
 AA
 A
 BBB
 
BB and
below

 Total
Total
December 31, 2016 (in millions of U.S. dollars)AAA
 AA
 A
 BBB
 
BB and
below

 Total
 Total
Agency residential mortgage-backed (RMBS)$
 $10,216
 $
 $
 $
 $10,216
$9,911
$
 $12,530
 $
 $
 $
 $12,530
 $12,557
Non-agency RMBS35
 5
 18
 12
 15
 85
83
1
 5
 60
 5
 32
 103
 103
Commercial mortgage-backed1,995
 14
 12
 3
 
 2,024
2,000
2,763
 38
 1
 
 
 2,802
 2,799
Total mortgage-backed securities$2,030
 $10,235
 $30
 $15
 $15
 $12,325
$11,994
$2,764
 $12,573
 $61
 $5
 $32
 $15,435
 $15,459


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Municipal
As part of our overall investment strategy, we may invest in states, municipalities, and other political subdivisions fixed maturity securities (Municipal). We apply the same investment selection process described previously to our Municipal investments. The portfolio is highly diversified primarily in state general obligation bonds and essential service revenue bonds including education and utilities (water, power, and sewers).

Non-U.S.
Our exposure to the Euro results primarily from ACE European Group which is headquartered in London and offers a broad range of coverages throughout the European Union, Central, and Eastern Europe. ACEChubb primarily invests in Euro denominated investments to support its local currency insurance obligations and required capital levels. ACE’sChubb’s local currency investment portfolios have strict contractual investment guidelines requiring managers to maintain a high quality and diversified portfolio to both sector and individual issuers. Investment portfolios are monitored daily to ensure investment manager compliance with portfolio guidelines.

Our non-U.S. investment grade fixed income portfolios are currency-matched with the insurance liabilities of our non-U.S. operations. The average credit quality of our non-U.S. fixed income securities is A and 5455 percentof our holdings are rated AAA or guaranteed by governments or quasi-government agencies. Within the context of these investment portfolios, our government and corporate bond holdings are highly diversified across industries and geographies. Issuer limits are based on credit rating (AA—two percent, A—one percent, BBB—0.5 percent of the total portfolio) and are monitored daily via an internal compliance system. Because of this investment approach, we do not have a direct exposure to troubled sovereign borrowers in Europe. We manage our indirect exposure using the same credit rating based investment approach. Accordingly, we do not believe our indirect exposure is material.

The following table summarizes the market value and amortized cost of our non-U.S. fixed income portfolio by country/sovereign for non-U.S. government securities at December 31, 20142016: 
(in millions of U.S. dollars)Market Value
 Amortized Cost
Market Value
 Amortized Cost
United Kingdom$1,119
 $1,090
$1,647
 $1,595
Canada1,066
 1,067
Republic of Korea790
 705
1,038
 934
Federative Republic of Brazil660
 663
860
 854
United Mexican States509
 505
Canada483
 471
Kingdom of Thailand407
 389
Province of Ontario373
 358
567
 560
Province of Quebec263
 251
442
 438
Japan243
 242
Germany200
 188
437
 423
United Mexican States422
 430
Kingdom of Thailand403
 384
Australia334
 321
Other Non-U.S. Government Securities (1)
2,788
 2,659
3,952
 3,861
Total$7,835
 $7,521
$11,168
 $10,867
(1)There are no investments in Portugal, Ireland, Italy, Greece or Spain.

There are no investments in Portugal, Ireland, Italy, Greece or Spain.


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The following table summarizes the market value and amortized cost of our non-U.S. fixed income portfolio by country/sovereign for non-U.S. corporate securities at December 31, 2014:2016:
(in millions of U.S. dollars)Market Value
 Amortized Cost
Market Value
 Amortized Cost
United Kingdom$1,621
 $1,541
$2,031
 $1,960
Canada1,047
 1,018
1,448
 1,427
United States(1)566
 550
848
 835
France809
 788
Netherlands765
 744
Australia542
 526
634
 620
Netherlands518
 495
France508
 486
Germany420
 395
604
 585
Japan393
 392
Switzerland291
 279
322
 316
Euro Supranational257
 246
China247
 240
278
 275
Other Non-U.S. Corporate Securities2,353
 2,322
2,807
 2,761
Total$8,370
 $8,098
$10,939
 $10,703

(1) The countries that are listed in the non-U.S. corporate fixed income portfolio above represent the ultimate parent company's country of risk. Non-U.S. corporate securities could be issued by foreign subsidiaries of U.S. corporations.

Below-investment grade corporate fixed income portfolio
Below-investment grade securities have different characteristics than investment grade corporate debt securities. Risk of loss from default by the borrower is greater with below-investment grade securities. Below-investment grade securities are generally unsecured and are often subordinated to other creditors of the issuer. Also, issuers of below-investment grade securities usually have higher levels of debt and are more sensitive to adverse economic conditions, such as recession or increasing interest rates, than investment grade issuers. At December 31, 2014,2016, our corporate fixed income investment portfolio included below-investment grade and non-rated securities which, in total, comprised approximately 1311 percent of our fixed income portfolio. Our below-investment grade and non-rated portfolio includes over 1,2001,000 issuers, with the greatest single exposure being $96$169 million.

We manage high-yield bonds as a distinct and separate asset class from investment grade bonds. The allocation to high-yield bonds is explicitly set by internal management and is targeted to securities in the upper tier of credit quality (BB/B). Our minimum rating for initial purchase is BB/B. SixEight external investment managers are responsible for high-yield security selection and portfolio construction. Our high-yield managers have a conservative approach to credit selection and very low historical default experience. Holdings are highly diversified across industries and generally subject to a 1.5 percent issuer limit as a percentage of high-yield allocation. We monitor position limits daily through an internal compliance system. Derivative and structured securities (e.g., credit default swaps and collateralized loan obligations) are not permitted in the high-yield portfolio.



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Reinsurance Recoverable on Ceded Reinsurance
(in millions of U.S. dollars)(in millions of U.S. dollars)December 31 2014
 December 31 2013
(in millions of U.S. dollars)December 31 2016
 December 31 2015
Reinsurance recoverable on unpaid losses and loss expenses (1)
Reinsurance recoverable on unpaid losses and loss expenses (1)
$11,307
 $10,612
Reinsurance recoverable on unpaid losses and loss expenses (1)
$12,708
 $10,741
Reinsurance recoverable on paid losses and loss expenses (1)
Reinsurance recoverable on paid losses and loss expenses (1)
685
 615
Reinsurance recoverable on paid losses and loss expenses (1)
869
 645
Net reinsurance recoverable on losses and loss expenses$11,992
 $11,227
Reinsurance recoverable on losses and loss expenses (1)
Reinsurance recoverable on losses and loss expenses (1)
$13,577
 $11,386
Reinsurance recoverable on policy benefits(1)Reinsurance recoverable on policy benefits(1)$217
 $218
Reinsurance recoverable on policy benefits(1)$182
 $187
(1) 
Net of a provision for uncollectible reinsurance.

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 us, primarily because of disputes under reinsurance contracts and insolvencies. The provision for


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uncollectible reinsurance is based on a default analysis applied to gross reinsurance recoverables, net of approximately $2.4$3.3 billion and $2.3$2.6 billion of collateral at December 31, 20142016 and 2013,2015, respectively. The increase in net reinsurance recoverable on loss and loss expenses was primarily due to the acquisition of Itaú Seguros, which added $1.1 billion, partially offset by unfavorable foreign exchange.Chubb Corp acquisition.

Asbestos and Environmental (A&E)

Asbestos and environmental (A&E) reserving considerations
For asbestos, ACEChubb faces claims relating to policies issued to manufacturers, distributors, installers, and other parties in the chain of commerce for asbestos and products containing asbestos. Claims can be filed by individual claimants or groups of claimants with the potential for hundreds of individual claimants at one time. Claimants will generally allege damages across an extended time period which may coincide with multiple policies covering a wide range of time periods for a single insured.

Environmental claims present exposure for remediation and defense costs associated with the contamination of property as a result of pollution. It is common, especially for larger defendants, to be named as a potentially responsible party at multiple sites.

The following table presents count information for asbestos claims by causative agent and environmental claims by site,account, for direct policies only:
Asbestos (by causative agent) Environmental (by site)Asbestos (by causative agent)  Environmental (by account) 
2014
 2013
 2014
 2013
2016
 2015
 2016
 
2015 (1)

Open at beginning of year1,107
 1,058
 3,339
 3,390
1,145
 1,127
 1,011
 1,060
Newly reported64
 69
 201
 138
81
 64
 76
 8
Closed or otherwise disposed44
 20
 422
 189
23
 46
 18
 57
Acquired563
 
 326
 
Open at end of year1,127
 1,107
 3,118
 3,339
1,766
 1,145
 1,395
 1,011

Closed or otherwise disposed environmental sites were higher in 2014 primarily due(1) 2015 was revised to several settlements and a continuous review of pending cases completed in prior years.show claim count by account. Previously disclosed by site.

Survival ratios are calculated by dividing the asbestos or environmental loss and allocated loss adjustment expense (ALAE) reserves by the average asbestos or environmental loss and ALAE payments for the three most recent calendar years (3 year(3-year survival ratio). The 3 year3-year survival ratios for gross and net Asbestos loss and ALAE reserves were 3.94.4 years and 4.45.0 years, respectively. The 3 year3-year survival ratios for gross and net Environmental loss and ALAE reserves were 2.04.5 years and 1.84.9 years, respectively. The survival ratios provide only a very rough depiction of reserves and are significantly impacted by a number of factors such as aggressive settlement practices, variations in gross to ceded relationships within the asbestos or environmental claims, and levels of coverage provided. We, therefore, urge caution in using these very simplistic ratios to gauge reserve adequacy.



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Catastrophe Management

We actively monitor our catastrophe risk accumulation around the world. The table below presents our modeled annual aggregate pre-tax probable maximum loss (PML), net of reinsurance, for 100-year and 250-year return periods for U.S. hurricane and California earthquake at December 31, 20142016 and 20132015. The table also presents ACE’sChubb’s corresponding share of pre-tax industry lossesPMLs for each of the return periods for U.S. hurricane and California earthquake. For example, according to the model, for the 1-in-100 return period scenario, there is a one percent chance that our losses incurred in any year from U.S. hurricane events could be in excess of $1,757$3,071 million (or 5.96.4 percent of our total shareholders’ equity at December 31, 2014)2016). We estimate that at such hypothetical loss levels, ACE’sChubb’s share of the aggregate industry lossesPML would be approximately 1.12.1 percent.
 U.S. Hurricane California Earthquake Modeled Annual Aggregate Net PML
 December 31  December 31
 December 31  December 31
 U.S. Hurricane California Earthquake
 2014  2013
 2014  2013
 December 31  December 31
 December 31  December 31
Modeled Annual
Aggregate Net PML
 ACE 
% of Total
Shareholders’
Equity
 
% of
Industry
 ACE ACE 
% of Total
Shareholders’
Equity
 
% of
Industry
 ACE
 2016  
2015 (1)

 2016  
2015 (1)

(in millions of U.S. dollars, except for percentages) (in millions of U.S. dollars, except for percentages) Chubb 
% of Total
Shareholders’
Equity
 
% of
Industry
 Chubb Chubb 
% of Total
Shareholders’
Equity
 
% of
Industry
 Chubb
1-in-100 $1,757
 5.9% 1.1% $2,235
 $797
 2.7% 2.0% $722
 $3,071
 6.4% 2.1% $1,700
 $1,487
 3.1% 3.8% $718
1-in-250 $2,383
 8.1% 1.1% $2,959
 $1,046
 3.5% 1.7% $931
 $5,229
 10.8% 2.5% $2,346
 $1,980
 4.1% 3.3% $988
(1) Reflects legacy ACE in-force portfolio only (i.e., 2015 information does not include legacy Chubb Corp portfolio)

The above modeled loss information at December 31, 20142016 reflects our in-force portfolio at October 1, 2014 and2016. The December 31, 2016 modeled loss information reflects the April 1, 2016 reinsurance program at January 1, 2015.  The modeling estimates at December 31, 2013 reflected ouras well as inuring reinsurance program at January 1, 2014, which excluded Named Storm coverage in North America for the time period generally considered outside U.S. Hurricane season.  While this exclusion carried nominal risk, it impacted the point in time PML estimate in the prior year as the point in time estimate does not take into account the seasonality of hurricanes.  We had defined "Named Storm" as a storm or storm system that has been declared by the National Hurricane Center (NHC) to be a tropical cyclone, tropical storm or a hurricane and includes wind, gusts, hail, rain, tornadoes or cyclones related to such storm.  ACE established a new Global Property Catastrophe Program for our North American and International operations that provided global natural catastrophe and terrorism coverage that was effective as of July 1, 2014.  Refer to "Natural catastrophe property reinsurance program" for additional information.  As a result of the new reinsurance program, the modeled PML for U.S. hurricane at December 31, 2014 is lower compared to December 31, 2013.protection coverages.

The modeling estimates of both ACEChubb and industry loss levels are inherently uncertain owing to key assumptions. First, while the use of third-party catastrophe modeling packages to simulate potential hurricane and earthquake losses is prevalent within the insurance industry, the models are reliant upon significant meteorology, seismology, and engineering assumptions to estimate hurricane and earthquake losses. In particular, modeled hurricane and earthquake events are not always a representation of actual events and ensuing additional loss potential. Second, there is no universal standard in the preparation of insured data for use in the models and the running of the modeling software. Third, we are reliant upon third-party estimates of industry insured exposures and there is significant variation possible around the relationship between our loss and that of the industry following an event. Fourth, we assume that our reinsurance recoveries following an event are fully collectible. These loss estimates do not represent our potential maximum exposures and it is highly likely that our actual incurred losses would vary materially from the modeled estimates.

Natural Catastrophe Property Reinsurance Program

ACE’sChubb’s core property catastrophe reinsurance program provides protection against natural catastrophes impacting its primary property operations (i.e., excluding our Global Reinsurance and Life Insurance segments).

We regularly review our reinsurance protection and corresponding property catastrophe exposures. This may or may not lead to the purchase of additional reinsurance prior to a program’s renewal date. In addition, prior to each renewal date, we consider how much, if any, coverage we intend to buy and we may make material changes to the current structure in light of various factors, including modeled PML assessment at various return periods, reinsurance pricing, our risk tolerance and exposures, and various other structuring considerations.



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ACE establishedChubb purchased a new Global Property Catastrophe Reinsurance Program for our North American and International operations. The program is effective JulyApril 1, 20142016 through June 30, 2015,March 31, 2017, and consists of twothree layers in excess of losses retained by ACE. Approximately 20 percent of the coverage was placed with reinsurers providing upfront collateral equal to the limit of their participation and without a reinstatement. The remaining coverage was placed without upfront collateral and with one additional reinstatement limit in the event of a natural peril loss.Chubb. In addition, we also purchased terrorism coverage (excluding nuclear, biological, chemical and radiation coverage)coverage, with an inclusion of coverage for biological and chemical coverage for personal lines) for the United States from JulyApril 1, 2014 to June 30, 20152016 through March 31, 2017 with the same limits and retention and percentage placed except that the majority of terrorism coverage is on an aggregate basis above our retentions without a reinstatement.


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Loss Location Layer of Loss CommentsNotes
United States
(excluding Alaska and Hawaii)
 
$0 million  
$500 million1.0 billion
 Losses retained by ACEChubb(a)
United States
(excluding Alaska and Hawaii)
 
$500 million1.0 billion
$1.01.25 billion
 All natural perils and terrorism (excluding nuclear, biological, chemical and radiation)(b)
United States
(excluding Alaska and Hawaii)
 
$1.01.25 billion
$1.2752.0 billion
 All natural perils and terrorism (excluding nuclear, biological, chemical(c)
United States
(excluding Alaska and radiation)Hawaii)
(c)
$2.0 billion
$3.5 billion
All natural perils and terrorism(d)
International
(including Alaska and Hawaii)
 
$0 million
$150175 million
 Losses retained by ACE
(a)
International
(including Alaska and Hawaii)
 
$150 million
$650 million
All natural perils, and terrorism (excluding nuclear, biological, chemical and radiation)(b)
Alaska, Hawaii, and Canada
$650175 million
$925 million
 All natural perils and terrorism (excluding nuclear, biological, chemical and radiation)(c)
Alaska, Hawaii, and Canada 
$925 million
$2.425 billion
 All natural perils and terrorism(d)
(a) Ultimate retention will depend upon the nature of the loss and the interplay between the underlying per risk programs and certain other catastrophe programs purchased by individual business units. These other catastrophe programs have the potential to reduce our effective retention below the stated levels.
(b) These coverages are both part of the same Core layer within the Global Catastrophe Program and are approximately 90%20 percent placed with Reinsurers. As such, it may be exhausted in one region and not available in the other.
(c) These coverages are both part of the same Second layer within the Global Catastrophe Program and are approximately 98%100 percent placed with Reinsurers. As such, it may be exhausted in one region and not available in the other.
(d) These coverages are both part of the same Third layer within the Global Catastrophe Program and are 100 percent placed with Reinsurers. As such, it may be exhausted in one region and not available in the other.

Chubb also has two series of property catastrophe bonds in place (assumed as part of the Chubb Corp acquisition) that offer additional natural catastrophe protection for certain parts of the portfolio.  The geographic scope of this coverage is from Virginia through Maine. The East Lane VI 2014 series currently provides $270 million of coverage as part of a $300 million layer in excess of $3.453 billion retention through March 14, 2018. The East Lane VI 2015 series currently provides $250 million of coverage as part of a $500 million layer in excess of $2.602 billion retention through March 13, 2020.

Political Risk Tradeand Credit and Structured Trade CreditInsurance

Political risk insurance is a specialized coverage that provides clients with protection against unexpected, catastrophic political or macroeconomic events, primarily in developing markets. We participate in this market through our wholly-owned subsidiary Sovereign Risk Insurance Ltd. (Sovereign), and through a unit of our London-based AGMCGM operation. SovereignChubb is one of the world's leading underwriters of political risk and credit insurance and has a global portfolio spread across more than 100 countries. Its150 countries, and is also a member of the Berne Union. Our clients include financial institutions, national export credit agencies, leading multilateral agencies, and multinational corporations. AGMCGM writes political risk tradeand credit and structured trade creditinsurance business out of underwriting offices in London, England;United Kingdom; Hamburg, Germany; Sao Paulo, Brazil; Singapore; Tokyo, Japan; and in the U.S. in the following locations: Chicago, Illinois; New York, New York; and Los Angeles; California; and Washington, D.C.Angeles, California.

Our political risk insurance provides protection to commercial lenders against defaults on cross border loans, insulates investors against equity losses, and protects exporters against defaults on contracts. Commercial lenders, our largest client segment, are covered for missed scheduled loan repayments due to acts of confiscation, expropriation or nationalization by the host government, currency inconvertibility or exchange transfer restrictions, or war or other acts of political violence. In addition, in the case of loans to government-owned entities or loans that have a government guarantee, political risk policies cover scheduled payments against risks of non-payment or non-honoring of government guarantees. Equity investors and corporations receive similar coverage to that of lenders, except they are protected against financial losses, inability to repatriate dividends, and physical damage to their operations caused by covered events. Our export contracts protection provides coverage for both exporters and their financing banks against the risk of contract frustration due to government actions, including non-payment by government entities.



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AGM's tradeCGM's credit and structured trade creditinsurance businesses cover losses due to insolvency, protracted default, and political risk perils including export and license cancellation. ItOur credit insurance product provides trade credit coverage to larger companies that have sophisticated credit risk management systems, with exposure to multiple customers and that have the ability to self-insure losses up to a certain level


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through excess of loss coverage. Its structured trade credit businessIt also provides coverage to trade finance banks, exporters, and trading companies, with exposure to trade-related financing instruments.

We have implemented structural features in our policies in order to control potential losses within the political risk tradeand credit and structured creditinsurance businesses. These include basic loss sharing features that include co-insurance and deductibles, and in the case of trade credit, the use of non-qualifying losses that drop smaller exposures deemed too difficult to assess. Ultimate loss severity is also limited by using waiting periods to enable the insurer and insured to agree on recovery strategies, and the subrogation of the rights of the lender/exporter to the insurer following a claim. We have the option to pay claims over the original loan payment schedule, rather than in a lump sum in order to provide insureds and the insurer additional time to remedy problems and work towards full recoveries. It is important to note that political risk trade credit, and structured trade credit policies are named peril conditional contracts, not financial guarantees, and claims are only paid after conditions and warranties are fulfilled. Political risk trade credit, and structured trade credit insurance do not cover currency devaluations, bond defaults, any form of derivatives, movements in overseas equity markets, transactions deemed illegal, or situations where corruption or misrepresentation has occurred, or debt that is not legally enforceable. In addition to assessing and mitigating potential exposure on a policy-by-policy basis, we also have specific risk management measures in place to manage overall exposure and risk. These measures include placing country, credit, and individual transaction limits based on country risk and credit ratings, combined single loss limits on multi-country policies, the use of reinsurance protection, and regular modeling and stress-testing of the portfolio. We have a dedicated Country and Credit Risk management team that are responsible for the portfolio.

Crop Insurance

We are, and have been since the 1980s, one of the leading writers of crop insurance in the U.S. and have conducted that business through a managing general agent subsidiary of Rain and Hail. We provide protection throughout the U.S. on a variety of crops and are therefore geographically diversified, which reduces the risk of exposure to a single event or a heavy accumulation of losses in any one region. Our crop insurance business comprises two components – Multiple Peril Crop Insurance (MPCI) and crop-hail insurance.

The MPCI program is offered in conjunction with the U.S. Department of Agriculture (USDA). The policies cover revenue shortfalls or production losses due to natural causes such as drought, excessive moisture, hail, wind, frost, insects, and disease. Generally, policies have deductibles ranging from 10 percent to 50 percent of the insured's risk. The USDA's Risk Management Agency (RMA) sets the policy terms and conditions, rates and forms, and is also responsible for setting compliance standards. As a participating company, we report all details of policies underwritten to the RMA and are party to a Standard Reinsurance Agreement (SRA). The SRA sets out the relationship between private insurance companies and the Federal Crop Insurance Corporation (FCIC) concerning the terms and conditions regarding the risks each will bear including the pro-rata and state stop-loss provisions which allows companies to limit the exposure of any one state or group of states on their underwriting results. In addition to the pro-rata and excess of loss reinsurance protections inherent in the SRA, we also purchase third-party proportional and stop-loss reinsurance for our MPCI business to reduce our exposure. We may also enter into crop derivative contracts to further manage our risk exposure.

Each year the RMA issues a final SRA for the subsequent reinsurance year. In June 2014,2016, the RMA released the 20152017 SRA which establishes the terms and conditions for the 20152017 reinsurance year (i.e., July 1, 20142016 through June 30, 2015)2017) that replaced the 20142016 SRA. There were no significant changes in the terms and conditions.conditions, and therefore the new SRA does not impact Chubb's outlook on the crop program relative to 2017.

On the MPCI business, we recognize net premiums written as soon as estimable, which is generally when we receive acreage reports from the policyholders on the various crops throughout the U.S. This allows us to best determine the premium associated with the liability that is being planted. The MPCI program has specific timeframes as to when producers must report acreage to us and in certain cases, the reporting occurs after the close of the respective reinsurance year. Once the net premium written has been recorded, the premium is then earned over the growing season for the crops. A majority of the crops that are covered in the program are typically subject to the SRA in effect at the beginning of the year. Given the major crops covered in the program, we typically see a substantial written and earned premium impact in the second and third quarters.

The pricing of MPCI premium is determined using a number of factors including commodity prices and related volatility. For instance, in most states the pricing for the MPCI Revenue Product for corn includes a factor that is based on the average price


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in February of the Chicago Board of Trade December corn futures. To the extent that the corn commodity prices are higher in


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February than they were in the previous February, and all other factors are the same, the increase in corn prices will increase the corn premium year over year.

Our crop-hail program is a private offering. Premium is earned on the crop-hail program over the coverage period of the policy. Given the very short nature of the growing season, most crop-hail business is typically written in the second and third quarters with the earned premium also more heavily occurring during this time frame. We use industry data to develop our own rates and forms for the coverage offered. The policy primarily protects farmers against yield reduction caused by hail and/or fire, and related costs such as transit to storage. We offer various deductibles to allow the grower to partially self-insure for a reduced premium cost. We limit our crop-hail exposures through the use of township liability limits and third-party proportional and stop-loss reinsurance on our net retained hail business.

Liquidity
Liquidity is a measure of a company's ability to generate cash flows sufficient to meet short-term and long-term cash requirements. As a holding company, ACEChubb Limited possesses assets that consist primarily of the stock of its subsidiaries and other investments. In addition to net investment income, ACEChubb Limited's cash flows depend primarily on dividends or other statutorily permissible payments. Historically, these dividends and other payments have come primarily from ACE'sChubb's Bermuda-based operating subsidiaries, which we refer to as our Bermuda subsidiaries. Our consolidated sources of funds consist primarily of net premiums written, fees, net investment income, and proceeds from sales and maturities of investments. Funds are used at our various companies primarily to pay claims, operating expenses, and dividends, to service debt, to purchase investments, and to purchase investments.fund acquisitions.

We anticipate that positive cash flows from operations (underwriting activities and investment income) should be sufficient to cover cash outflows under most loss scenarios for the near term. Should the need arise, we generally have access to capital markets and available credit facilities. Refer to “Credit Facilities” below for additional information. Our access to funds under an existing credit facility is dependent on the ability of the bank that is a party to the facility to meet its funding commitments. Our existing $1.5 billion credit facility has a remaining term expiring in November 2017 and requires that we maintain certain financial covenants, all of which we met at December 31, 2014.2016. Refer to “Credit Facilities” below for additional information. Our access to funds under the existing credit facility is dependent on the ability of the bank that is a party to the facility to meet its funding commitments. Should our existing credit provider experience financial difficulty, we may be required to replace credit sources, possibly in a difficult market. If we cannot obtain adequate capital or sources of credit on favorable terms, on a timely basis, or at all, our business, operating results, and financial condition could be adversely affected. To date, we have not experienced difficulty accessing our credit facility.

To further ensure the sufficiency of funds to settle unforeseen claims, we hold certain invested assets in cash and short-term investments. In addition, for certain insurance, reinsurance, or deposit contracts that tend to have relatively large and reasonably predictable cash outflows, we attempt to establish dedicated portfolios of assets that are duration-matched with the related liabilities. With respect to the duration of our overall investment portfolio, we manage asset durations to both maximize return given current market conditions and provide sufficient liquidity to cover future loss payments. All things being equal, in a low interest rate environment, the overall duration of our fixed maturities tends to be shorter and in a high interest rate environment, such duration tends to be longer. At December 31, 2014,2016, the average duration of our fixed maturities (4.0(4.2 years) is less than the average expected duration of our insurance liabilities (4.8(4.4 years). The increase in duration of our insurance liabilities (4.8 years in 2014 and 4.5 years in 2013) is principally due to decreases in interest rates in 2014.
 
Despite our safeguards, if paid losses accelerate beyond our ability to fund such paid losses from current operating cash flows, we might need to either liquidate a portion of our investment portfolio or arrange for financing. Potential events causing such a liquidity strain could include several significant catastrophes occurring in a relatively short period of time, large uncollectible reinsurance recoverables on paid losses (as a result of coverage disputes, reinsurers' credit problems, or decreases in the value of collateral supporting reinsurance recoverables) or increases in collateral postings under our variable annuity reinsurance business. Because each subsidiary focuses on a more limited number of specific product lines than is collectively available from the ACEChubb Group of Companies, the mix of business tends to be less diverse at the subsidiary level. As a result, the probability of a liquidity strain, as described above, may be greater for individual subsidiaries than when liquidity is assessed on a consolidated basis. If such a liquidity strain were to occur in a subsidiary, we could be required to liquidate a portion of our investments, potentially at distressed prices, as well as be required to contribute capital to the particular subsidiary and/or curtail dividends from the subsidiary to support holding company operations.

The payment of dividends or other statutorily permissible distributions from our operating companies are subject to the laws and regulations applicable to each jurisdiction, as well as the need to maintain capital levels adequate to support the insurance


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and reinsurance operations, including financial strength ratings issued by independent rating agencies. During 20142016, we were able to meet all of our obligations, including the payments of dividends on our Common Shares, with our net cash flows.


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We assess which subsidiaries to draw dividends from based on a number of factors. Considerations such as regulatory and legal restrictions as well as the subsidiary's financial condition are paramount to the dividend decision. ACEChubb Limited received dividends of $300 million and $825 million$5.0 billion from its Bermuda subsidiaries in 20142015, of which $2.7 billion were paid in 2015, while the remaining $2.3 billion were paid during the first quarter of 2016. These dividends were used to finance a portion of the Chubb Corp acquisition by making capital contributions to Chubb INA Holdings Inc. (Chubb INA) and Chubb Group Holdings, both subsidiaries of Chubb Limited. In addition, Chubb Limited received dividends of2013$1.0 billion,and $15 million from its Bermuda subsidiaries in 2016 and 2015, respectively. Chubb Limited received dividends of nil and $261 million from its Switzerland subsidiaries in 2016 and 2015, respectively.

The payment of any dividends from AGMCGM or its subsidiaries is subject to applicable U.K. insurance laws and regulations.  In addition, the release of funds by Syndicate 2488 to subsidiaries of AGMCGM is subject to regulations promulgated by the Society of Lloyd's. ACEChubb Limited received no dividendsfrom AGMCGM in 20142016 and 20132015.

The U.S. insurance subsidiaries of ACEChubb INA Holdings Inc. (ACE INA) may pay dividends, without prior regulatory approval, subject to restrictions set out in state law of the subsidiary's domicile (or, if applicable, commercial domicile). ACEChubb INA's international subsidiaries are also subject to insurance laws and regulations particular to the countries in which the subsidiaries operate. These laws and regulations sometimes include restrictions that limit the amount of dividends payable without prior approval of regulatory insurance authorities. ACEChubb Limited received no dividends from ACEChubb INA in 20142016 and 20132015. Debt issued by ACEChubb INA is serviced by statutorily permissible distributions by ACEChubb INA's insurance subsidiaries to ACEChubb INA as well as other group resources. ACEChubb INA received $401dividends of $1.8 billion and $833 million of dividends from its subsidiaries of which $374 million was paid in cash, in2016 and 20142015 and no dividendsin 2013., respectively. At December 31, 2014,2016, the amount of dividends available to be paid to ACEChubb INA in 20152017 from its subsidiaries without prior approval of insurance regulatory authorities totals $1.1$1.3 billion.

Chubb INA received $1.0 billion in capital contributions from Chubb Limited and $4.2 billion from Chubb Group Holdings during 2016. Chubb INA also received $5.1 billion in capital contributions in 2015, of which $2.8 billion were paid in 2015, while the remaining $2.3 billion were paid in 2016. $5.0 billion of these capital contributions were sourced from the dividends from the Bermuda subsidiaries to fund the Chubb Corp acquisition as noted above.

Cash Flows
Our insurance and reinsurance operations provide liquidity in that premiums are received in advance, sometimes substantially in advance, of the time claims are paid. Generally, cash flows are affected by claim payments that, due to the nature of our operations, may comprise large loss payments on a limited number of claims and which can fluctuate significantly from period to period. The irregular timing of these loss payments can create significant variations in cash flows from operations between periods. Refer to “Contractual Obligations and Commitments” for our estimate of future claim payments by period. Sources of liquidity include cash from operations, routine sales of investments, and financing arrangements. The following is a discussion of our cash flows for 20142016, 20132015, and 20122014.

Operating cash flows reflect Net income for each period, adjusted for non-cash items and changes in working capital.

Operating cash flows were $4.5$5.3 billion in 2014,2016, compared with $4.0to $3.9 billion and $4.5 billion in both 20132015 and 2012. Operating2014, respectively. The increase in operating cash flows increasedof $1.4 billion in 20142016 compared with 2013,to 2015 was primarily due to cash flow contributions from legacy Chubb Corp operations, partially offset by integration expenses paid, higher interest paid on long-term debt, and higher taxes paid. The decrease in operating cash flows of $632 million in 2015 compared to 2014 was primarily due to higher net premiums collected of $1.0 billion, partially offset by higher net losses paid of $406 million. Operating cash flows in 2013 were comparable to 2012, as higher net premiums collected of $276$478 million and lowerhigher income taxes paid of $220 million were offset by higher net losses paid of $287 million and higher expenses paid of $136$120 million.

Cash used for investing was $2.5 billion in 2014, compared with $4.4 billion and $3.4 billion in 2013 and 2012, respectively. Cash used for investing in 2014 was lower compared to 2013 primarily due to lower net purchases of fixed maturities. Cash used for investing in 2013 was higher compared to 2012 primarily due to the acquisitions of ABA Seguros and Fianzas Monterrey of $977 million, compared to acquisitions in 2012 of $98 million.

Cash used for financinginvesting was $1.8$5.3 billion in 2016, compared to $6.3 billion and $2.5 billion in 2015 and 2014, compared with cash flows from financing of $391 millionrespectively. The decrease in 2013, and cash used for financinginvesting of $550$979 million in 2012.2016 compared to 2015 was primarily due to cash paid for the purchase of Chubb Corp of $14.3 billion, which was largely funded by sales in our investment portfolio, including net proceeds in short-term investments. The increase in cash used for investing of $3.8 billion in 2015 compared to 2014 was primarily due to changes in our investment portfolios, principally an increase in short-term investments, to fund the Chubb Corp acquisition. This was offset by a net cash inflow of $264 million related to the purchase of Fireman's Fund high net worth personal lines business (cash paid of $365 million, netted with cash acquired of $629 million).

Cash (used for) from financing was $(742) million in 2016, compared to $3.7 billion in 2015, and $(1.8) billion in 2014. Cash used for financing in 2016 included $1.2 billion of dividends paid on Common Shares reflecting our higher outstanding share count following the Chubb Corp acquisition, partially offset by policyholder deposits, net of withdrawals, of $269 million.


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Cash from financing in 2015 included $4.9 billion of net proceeds from the issuance of long-term debt (net of repayments) partially offset by $862 million of dividends paid on Common Shares and $758 million of share repurchases. Cash used for financing in 2014 included $1.4 billion of share repurchases and $862 million of dividends paid on Common Shares. Cash flows from financing in 2013 included $947 million of proceeds from the issuance of long-term debt, partially offset by dividends paid on Common Shares of $517 million.  Cash used for financing in 2012 primarily related to dividends paid on Common Shares of $815 million.  Dividends paid on Common Shares were higher in 2014 compared to 2013 due to a $0.12 per share increase in our quarterly dividend approved by our shareholders in January 2014 and an additional three percent increase approved by our shareholders at our May 2014 annual general meeting.  Dividends paid on Common Shares in 20132015 were lowerflat compared to 2012 due to2014 as the acceleratedthree percent increase in our quarterly dividend beginning with the payment made in July 2015 was offset by fewer shares outstanding as a result of the fourth quarter 2012 dividendshare repurchases in December 2012, which would normally have been paid in the first quarter 2013.2015. 

Both internal and external forces influence our financial condition, results of operations, and cash flows. Claim settlements, premium levels, and investment returns may be impacted by changing rates of inflation and other economic conditions. In many cases, significant periods of time, ranging up to several years or more, may lapse between the occurrence of an insured loss, the reporting of the loss to us, and the settlement of the liability for that loss.


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In the current low interest rate environment, we use repurchase agreements as a low-cost alternative for short-term funding needs and to address short-term cash timing differences without disrupting our investment portfolio holdings. At December 31, 2014,2016, there were $1.4$1.4 billion in repurchase agreements outstanding.outstanding with various maturities over the next 8 months.

In addition to cash from operations, routine sales of investments, and financing arrangements, we have agreements with a third-party bank provider which implemented two international multi-currency notional cash pooling programs to enhance cash management efficiency during periods of short-term timing mismatches between expected inflows and outflows of cash by currency. The programs allow us to optimize investment income by avoiding portfolio disruption. In each program, participating ACEChubb entities establish deposit accounts in different currencies with the bank provider. 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 all participating ACEChubb entities 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. ACEChubb entities may incur overdraft balances as a means to address short-term liquidity needs. Any overdraft balances incurred under this program by an ACEa Chubb entity would be guaranteed by ACEChubb Limited (up to $300$300 million in the aggregate). Our syndicated letter of credit facility allows for same day drawings to fund a net pool overdraft should participating ACEChubb entities withdraw contributed funds from the pool.

Capital Resources
Capital resources consist of funds deployed or available to be deployed to support our business operations.
December 31
 December 31
December 31
 December 31
(in millions of U.S. dollars, except for percentages)2014
 2013
2016
 2015
Short-term debt$2,552
 $1,901
$500
 $
Long-term debt3,357
 3,807
12,610
 9,389
Total debt5,909
 5,708
Total financial debt13,110
 9,389
Trust preferred securities309
 309
308
 307
Total shareholders’ equity29,587
 28,825
48,275
 29,135
Total capitalization$35,805
 $34,842
$61,693
 $38,831
Ratio of debt to total capitalization16.5% 16.4%
Ratio of debt plus trust preferred securities to total capitalization17.4% 17.3%
Ratio of financial debt to total capitalization21.3% 24.2%
Ratio of financial debt plus trust preferred securities to total capitalization21.8% 25.0%

In 2014, we reclassified $450 million of 5.6 percent senior notes due May 2015Repurchase agreements are excluded from the table above and $700 million of 2.6 percent senior notes due November 2015,are disclosed separately from Long-term debt to Short-termshort-term debt in the consolidatedConsolidated balance sheet. In May 2014,sheets. The repurchase agreements are collateralized borrowings where we issued $700maintain the right and ability to redeem the collateral on short notice, unlike short-term debt which comprises the current maturities of our long-term debt instruments.

Effective January 1, 2016, we retrospectively adopted new accounting guidance that requires debt issuance costs to be recorded as a reduction of the carrying amount of the related debt liability instead of as a deferred charge. Accordingly, we reclassified $60 million of 3.35 percentdebt issuance costs from Other assets to Long-term debt ($58 million) and Trust preferred securities ($2 million) as of December 31, 2015 to reflect this adoption.

On January 14, 2016, we acquired Chubb Corp for approximately $29.5 billion, comprising $14.3 billion in cash and $15.2 billion in newly-issued stock, based on the Chubb Limited (formerly ACE Limited) closing price on the acquisition date. In


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addition, we assumed outstanding equity awards to employees and directors with an attributed value of approximately $323 million. The total consideration, including assumption of equity awards, was $29.8 billion. 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, due May 2024. The proceeds fromwhich were issued in November 2015. Refer to Note 2 and Note 9 to the Consolidated Financial Statements for additional information on the acquisition and the $5.3 billion of senior notes, respectively.

As part of the acquisition, we assumed Chubb Corp's senior and subordinated debt obligations, totaling $3.3 billion par value (fair valued at $3.8 billion at the acquisition date), which is guaranteed by Chubb Limited. Included in the debt issuanceobligations are expectedjunior subordinated capital securities of $1.0 billion that bear interest at a fixed rate of 6.375 percent through April 14, 2017 and at a rate equal to the three-month Libor rate plus 2.25 percent thereafter. If the current three-month Libor rate is not substantially higher in early 2017, and the near-term expectations are similar, it is our expectation that these securities would not be usedredeemed at the reset date. However, our expectations are subject to repay at maturity the $700 million of 2.6 percent senior notes due November 2015. change depending on market conditions and other factors.

In June 2014, ACE INA'sFebruary 2017, $500 million of 5.8755.7 percent senior notes matured and were fully paid. For a discussion of our debt outstanding, refer to Note 9 to the Consolidated Financial Statements.

We believe our financial strength provides us with the flexibility and capacity to obtain available funds externally through debt or equity financing on both a short-term and long-term basis. Our ability to access the capital markets is dependent on, among other things, market conditions and our perceived financial strength. We have accessed both the debt and equity markets from time to time. We generally maintain the ability to issue certain classes of debt and equity securities via an unlimited SEC shelf registration which is renewed every three years. This allows us capital market access for refinancing as well as for unforeseen or opportunistic capital needs. Our currentIn October 2015, we filed a new unlimited shelf registration on file with the SECwhich allows us to issue certain classes of debt and equity. This shelf registration expires in December 2017.October 2018.

AsSecurities Repurchases
From time to time, we repurchase shares as part of our capital management program, in November 2013, ourprogram. Our Board of Directors (Board)has authorized theshare repurchase of up to $2.0programs as follows:

$2.0 billion of ACE’sChubb Common Shares from November 21, 2013 through December 31, 2014 replacing prior Board authorizations.
$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

Share repurchases may be made in the open market, in privately negotiated transactions, block trades, accelerated repurchases and/or through option or other forward transactions. We repurchased $1,449 million, $290$734 million and $7$1,449 million of Common Shares in a series of open market transactions in 2015 and 2014, 2013, and 2012, respectively. As of December 31, 2014, there were 14,172,726 Common Shares in treasury with a weighted average cost of $102.17 per share.



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In November 2014, ourrespectively, under the Board authorized theshare repurchase of $1.5 billion of ACE's Common Shares through December 31, 2015, replacing the November 2013 authorization when it expired on December 31, 2014.programs. There were no share repurchases in 2016. For the period January 1, 20152017 through February 26, 2015,24, 2017, we repurchased 1,877,463419,623 Common Shares for a total of $211$55 million in a series of open market transactions. At February 26, 2015, $1.3 billion24, 2017, $945 million in share repurchase authorization remained through December 31, 2015.2017.

Common Shares
Our Common Shares had a par value of CHF 24.7724.15 each at December 31, 20142016.

As of December 31, 2016, there were 13,815,148 Common Shares in treasury with a weighted average cost of $107.16 per share.

Under Swiss law, dividends must be stated in Swiss francs though dividend payments are made by ACEChubb in U.S. dollars. Following ACE's redomestication to Switzerland, dividends have generally been distributed by way of a par value reduction (under the methods approved by our shareholders at our annual general meetings).

Our annual dividend is payable in four quarterly installments. At the January 10, 2014 extraordinary general meeting, our shareholders approved a resolution to increase our quarterly dividend 24 percent from $0.51 per share to $0.63 per share for the payments made on January 31, 2014 and April 17, 2014, with the $0.12 per share increase for each installment distributed from capital contribution reserves (and the $0.51 per share distributed by way of par value reduction). At our May 20142015 annual general meeting, our shareholders approved an annual dividend for the following year of $2.60up to $2.68 per share, payablewhich was paid in four quarterly installments of $0.65$0.67 per share at dates determined by the Board after the annual general meeting by way of a distribution from capital contribution reserves, transferred to free reserves for payment.

At our May 2016 annual general meeting, our shareholders approved an annual dividend for the following year of up to $2.76 per share, expected to be paid in four quarterly installments of $0.69 per share after the annual general meeting in the form of a distribution by way of a par value reduction.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, and is authorized to abstain from distributing a dividend at its


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discretion, until the date of the 2017 annual general meeting. The first three quarterly installments, each of $0.69 per share, have been distributed by the Board as expected.

Dividend distributions on Common Shares amounted to CHF 2.70 ($2.74) per share for the year ended December 31, 2016. Refer to Note 11 to the Consolidated Financial Statements for additional information on our dividends.

Dividend distributions on Common Shares amounted to CHF 2.47 ($2.70) per share for the year ended December 31, 2014 (including par value reductions of CHF 2.27 per share).

Contractual Obligations and Commitments

The following table presents our future payments due by period under contractual obligations at December 31, 2014:2016:
Payments Due By PeriodPayments Due By Period 
    2016
 2018
      2018
 2020
  
(in millions of U.S. dollars)Total
2015
and 2017
and 2019
Thereafter
Total
2017
and 2019
and 2021
Thereafter
Payment amounts determinable from the respective contracts                  
Deposit liabilities(1)
$1,027
 $16
 $48
 $44
 $919
$1,559
 $18
 $37
 $37
 $1,467
Purchase obligations(2)
379
 167
 202
 8
 2
626
 198
 205
 151
 72
Limited partnerships – funding commitments(3)
1,010
 483
 398
 110
 19
Investments, including Limited Partnerships (3)
2,756
 1,319
 1,031
 406
 
Operating leases474
 108
 171
 100
 95
797
 173
 267
 171
 186
Repurchase agreements1,403
 1,403
 
 
 
Short-term debt2,552
 2,552
 
 
 
500
 500
 
 
 
Long-term debt3,361
 
 502
 802
 2,057
12,261
 
 1,500
 1,311
 9,450
Trust preferred securities309
 
 
 
 309
309
 
 
 
 309
Interest on debt obligations2,221
 221
 367
 284
 1,349
Interest on debt obligations (4)
7,458
 565
 973
 865
 5,055
Total obligations in which payment amounts are determinable from the respective contracts11,333
 3,547
 1,688
 1,348
 4,750
27,669
 4,176
 4,013
 2,941
 16,539
Payment amounts not determinable from the respective contracts                  
Estimated gross loss payments under insurance and reinsurance contracts38,368
 9,492
 10,103
 5,551
 13,222
60,571
 15,418
 16,626
 8,641
 19,886
Estimated payments for future policy benefits19,573
 773
 1,697
 1,471
 15,632
20,549
 905
 1,767
 1,544
 16,333
Total contractual obligations and commitments$69,274
 $13,812
 $13,488
 $8,370
 $33,604
$108,789
 $20,499
 $22,406
 $13,126
 $52,758
(1) 
Refer to Note 1 k) to the Consolidated Financial Statements.
(2) 
Primarily comprises audit fees and agreements with vendors to purchase system software administration and maintenance services.
(3) 
Funding commitment primarily related to limited partnerships.  The timing of the payments of these commitments is uncertain and willmay differ from the estimated timing in the table.
(4)
Junior subordinated capital securities of $1.0 billion bear interest at a fixed rate of 6.375 percent through April 14, 2017 and at a rate equal to the three-month LIBOR rate plus 2.25 percent thereafter. For purposes of the above table, interest after April 14, 2017 was calculated using the three-month LIBOR rate as of December 31, 2016. The table includes future interest payments through the scheduled maturity date, April 15, 2037. Interest payments for the period from the scheduled maturity date through the final maturity date, March 29, 2067, would increase the contractual obligation by $974 million.



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The above table excludes the following items:

Pension obligations: Minimum funding requirements for our pension obligations are immaterial. Subsequent funding commitments are apt to vary due to many factors and are difficult to estimate at this time. Refer to Note 13 to the Consolidated Financial Statements for additional information.
Liabilities for unrecognized tax benefits: The liability for unrecognized tax benefits, excluding interest, was $2317 million at December 31, 20142016. We recognize accruals for interest and penalties, if any, related to unrecognized tax benefits in Income tax expense in the consolidatedConsolidated statements of operations. At December 31, 20142016, we had $94 million in liabilities for income tax-related interest and penalties in our consolidatedConsolidated balance sheets. We are unable to make a reasonably reliable estimate for the timing of cash settlement with respect to these liabilities. Refer to Note 8 to the Consolidated Financial Statements for additional information.

We have no other significant contractual obligations or commitments not reflected in the table above. We do not have any off-balance sheet arrangements that are reasonably likely to have a material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources.


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Estimated gross loss payments under insurance and reinsurance contracts
We are obligated to pay claims under insurance and reinsurance contracts for specified loss events covered under those contracts. Such loss payments represent our most significant future payment obligation as a P&C insurance and reinsurance company. In contrast to other contractual obligations, cash payments are not determinable from the terms specified within the contract. For example, we do not ultimately make a payment to our counterparty for many insurance and reinsurance contracts (i.e., when a loss event has not occurred) and if a payment is to be made, the amount and timing cannot be determined from the contract. In the table above, we estimate payments by period relating to our gross liability for unpaid losses and loss expenses included in the consolidatedConsolidated balance sheet at December 31, 20142016, and do not take into account reinsurance recoverable. These estimated loss payments are inherently uncertain and the amount and timing of actual loss payments are likely to differ from these estimates and the differences could be material. Given the numerous factors and assumptions involved in both estimates of loss and loss expense reserves and related estimates as to the timing of future loss and loss expense payments in the table above, differences between actual and estimated loss payments will not necessarily indicate a commensurate change in ultimate loss estimates. The liability for unpaidUnpaid losses and loss expenses presented in our balance sheet is discounted for certain structured settlements for which the timing and amount of future claim payments are reliably determinable and certain reserves for unsettled claims that are discounted in statutory filings. Accordingly, the estimated amounts in the table exceed the liability for Unpaid losses and loss expenses presented in our balance sheet. Refer to Note 1 h) to the Consolidated Financial Statements for additional information.

Estimated payments for future policy benefits
We establish reserves for future policy benefits for life, long-term health, and annuity contracts. The amounts in the table are gross of fees or premiums due from the underlying contracts. The liability for futureFuture policy benefits for life, long-term health, and annuity contracts presented in our balance sheet is discounted and reflected net of fees or premiums due from the underlying contracts. Accordingly, the estimated amounts in the table exceed the liability for futureFuture policy benefits presented in our balance sheet. Payment amounts related to these reserves must be estimated and are not determinable from the contract. Due to the uncertainty with respect to the timing and amount of these payments, actual results could materially differ from the estimates in the table.

Credit Facilities

As our Bermuda subsidiaries are non-admitted insurers and reinsurers in the U.S., the terms of certain U.S. insurance and reinsurance contracts require them to provide collateral, which can be in the form of letters of credit (LOCs). LOCs may also be used for general corporate purposes.

We have a $1$1.5 billion unsecured operational LOC facility guaranteed by ACEChubb Limited (adjustable to $1.5 billion upon consent of the issuers) expiringwhich expires in November 2017. We are allowed to use up to $300 million of this LOC facility as an unsecured revolving credit facility. At December 31, 2014,2016, outstanding LOCs issued under this facility were $479$443 million.



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We did not renew our $500 million bilateral LOC facility that expired in June 2014. We also did not renew our $425 million series of four bilateral uncollateralized LOC facilities supporting AGM underwriting capacity for Lloyd's Syndicate 2488. We elected instead to satisfy our collateral obligations primarily by pledging additional fixed income securities from our investment portfolio into existing insurance trusts.

It is anticipated that our $1$1.5 billion unsecured operational LOC facility will be renewed on expiryexpiration but such renewal is subject to the availability of credit from banks utilized by ACE.Chubb. In the event that such credit support is insufficient, we could be required to provide alternative security to clients. This could take the form of additional insurance trusts supported by our investment portfolio or funds withheld using our cash resources. The value of LOCs required is driven by, among other things, statutory liabilities reported by variable annuity guarantee reinsurance clients, loss development of existing reserves, the payment pattern of such reserves, the expansion of business, and loss experience of such business.



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The facility noted above requires that we maintain certain covenants, all of which have been met at December 31, 2014.2016. These covenants include:

(i)Maintenance of a minimum consolidated net worth in an amount not less than the “Minimum Amount”. For the purpose of this calculation, the Minimum Amount is an amount equal to the sum of the base amount (currently $20.2$20.4 billion) plus 25 percent of consolidated net income for each fiscal quarter, ending after the date on which the current base amount became effective, plus 50 percent of any increase in consolidated net worth during the same period, attributable to the issuance of Common and Preferred Shares. The Minimum Amount is subject to an annual reset provision.

(ii)Maintenance of a maximum debt to total capitalization ratio of not greater than 0.35 to 1. Under this covenant, debt does not include repurchase agreements, trust preferred securities or mezzanine equity, except where the ratio of the sum of trust preferred securities and mezzanine equity to total capitalization is greater than 15 percent. In this circumstance, the amount greater than 15 percent would be included in the debt to total capitalization ratio. This covenant also excludes the purchase accounting fair value adjustment of the debt acquired through the Chubb Corp acquisition.

At December 31, 2014,2016, (a) the minimum consolidated net worth requirement under the covenant described in (i) above was $20.9$29.0 billion and our actual consolidated net worth as calculated under that covenant was $27.7$47.2 billion and (b) our ratio of debt to total capitalization, as calculated under the covenant which excludes the fair value adjustment of debt acquired through the Chubb Corp acquisition, was 0.165.207 to 1, which is below the maximum debt to total capitalization ratio of 0.35 to 1 as described in (ii) above.

Our failure to comply with the covenants under any credit facility would, subject to grace periods in the case of certain covenants, result in an event of default. This could require us to repay any outstanding borrowings or to cash collateralize LOCs under such facility. Our failure to repay material financial obligations, as well as our failure with respect to certain other events expressly identified, would result in an event of default under the facility.

Ratings

ACEChubb Limited and its subsidiaries are assigned credit and financial strength (insurance) ratings from internationally recognized rating agencies, including S&P, A.M. Best, Moody's, and Fitch. The ratings issued on our companies by these agencies are announced publicly and are available directly from the agencies. Our Internet site (www.acegroup.com,(investors.chubb.com, under Investor Information)Shareholder Resources/Rating Agency Ratings) also contains some information about our ratings, but such information on our website is not incorporated by reference into this report.

Financial strength ratings reflect the rating agencies' opinions of a company's claims paying ability. Independent ratings are one of the important factors that establish our competitive position in the insurance markets. The rating agencies consider many factors in determining the financial strength rating of an insurance company, including the relative level of statutory surplus necessary to support the business operations of the company. These ratings are based upon factors relevant to policyholders, agents, and intermediaries and are not directed toward the protection of investors. Such ratings are not recommendations to buy, sell, or hold securities.

Credit ratings assess a company's ability to make timely payments of principal and interest on its debt.

It is possible that, in the future, one or more of the rating agencies may reduce our existing ratings. If one or more of our ratings were downgraded, we could incur higher borrowing costs, and our ability to access the capital markets could be impacted. In addition, our insurance and reinsurance operations could be adversely impacted by a downgrade in our financial strength


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ratings, including a possible reduction in demand for our products in certain markets. Also, we have insurance and reinsurance contracts which contain rating triggers. In the event the S&P or A.M. Best financial strength ratings of ACEChubb fall, we may be faced with the cancellation of premium or be required to post collateral on our underlying obligation associated with this premium. We estimate that at December 31, 20142016, a one-notch downgrade of our S&P or A.M. Best financial strength ratings would result in an immaterial loss of premium or requirement for collateral to be posted.



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ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk

Market Sensitive Instruments and Risk Management
Market risk represents the potential for loss due to adverse changes in the fair value of financial instruments. We are exposed to potential losses from various market risks including changes in interest rates, equity prices, and foreign currency exchange rates. Further, through writing the GLB and GMDB products, we are exposed to volatility in the equity and credit markets, as well as interest rates. Our investment portfolio consists primarily of fixed income securities, denominated in both U.S. dollars and foreign currencies, which are sensitive to changes in interest rates and foreign currency exchange rates. The majority of our fixed income portfolio is classified as available for sale. The effect of market movements on our available for sale investment portfolio impacts Net income (through Net realized gains (losses)) when securities are sold or when we record an OTTI charge in Net income. Changes in interest rates and foreign currency exchange rates will have an immediate effect on Shareholders' equity and Comprehensive income and in certain instances, Net income. From time to time, we also use derivative instruments such as futures, options, swaps, and foreign currency forward contracts to manage the duration of our investment portfolio and foreign currency exposures and also to obtain exposure to a particular financial market. At December 31, 20142016 and 2013,2015, our notional exposure to derivative instruments was $7.4$6.2 billion and $8.2$3.1 billion,, respectively. These instruments are recognized as assets or liabilities in our consolidated financial statements and are sensitive to changes in interest rates, foreign currency exchange rates, and equity security prices. As part of our investing activities, we from time to time purchase to be announced mortgage backed securities (TBAs). Changes in the fair value of TBAs are included in Net realized gains (losses) and therefore, have an immediate effect on both our Net income and Shareholders' equity.

We seek to mitigate market risk using a number of techniques, including maintaining and managing the assets and liabilities of our international operations consistent with the foreign currencies of the underlying insurance and reinsurance businesses, thereby limiting exchange rate risk to net assets denominated in foreign currencies.

The following is a discussion of our primary market risk exposures at December 31, 20142016. Our policies to address these risks in 20142016 were not materially different from 20132015. We do not currently anticipate significant changes in our primary market risk exposures or in how those exposures are managed in future reporting periods based upon what is known or expected to be in effect in future reporting periods.

Interest rate risk – fixed income portfolio and debt obligations
Our fixed income portfolio and debt obligations have exposure to interest rate risk. Changes in investment values attributable to interest rate changes are mitigated by corresponding and partially offsetting changes in the economic value of our insurance reserves and debt obligations. We monitor this exposure through periodic reviews of our asset and liability positions.

The following table presents the impact at December 31, 20142016 and 2013,2015, on the fair value of our fixed income portfolio of a hypothetical increase in interest rates of 100 bps applied instantly across the U.S. yield curve (an immediate time horizon was used as this presents the worst case scenario):
(in billions of U.S. dollars, except for percentages)(in billions of U.S. dollars, except for percentages)2014
 2013
(in billions of U.S. dollars, except for percentages)2016
 2015
Fair value of fixed income portfolioFair value of fixed income portfolio$59.3
 $57.3
Fair value of fixed income portfolio$93.8
 $62.6
Pre-tax impact of 100 bps increase in interest rates:Pre-tax impact of 100 bps increase in interest rates:   Pre-tax impact of 100 bps increase in interest rates:   
In dollars$2.4
 $2.3
 Decrease in dollars$3.9
 $2.2
As a percentage of total fixed income portfolio at fair value4.0% 4.0%As a percentage of total fixed income portfolio at fair value4.2% 3.5%

Changes in interest rates will have an immediate effect on Comprehensive income and Shareholders' equity but will not ordinarily have an immediate effect on Net income. Variations in market interest rates could produce significant changes in the timing of prepayments due to available prepayment options. For these reasons, actual results could differ from those reflected in the tables.


85



Although our debt and trust preferred securities (collectively referred to as debt obligations) are reported at amortized cost and not adjusted for fair value changes, changes in interest rates could have a material impact on their fair value, albeit there would be no impact on our consolidated financial statements.



93


The following table presents the impact at December 31, 20142016 and 20132015, on the fair value of our debt obligations of a hypothetical decrease in interest rates of 100 bps applied instantly across the U.S. yield curve (an immediate time horizon was used as this presents the worst case scenario):
(in millions of U.S. dollars, except for percentages)(in millions of U.S. dollars, except for percentages)2014
 2013
(in millions of U.S. dollars, except for percentages)2016
 2015
Fair value of debt obligations$6,723
 $6,439
Fair value of debt obligations, including repurchase agreementsFair value of debt obligations, including repurchase agreements$15,360
 $11,528
Impact of 100 bps decrease in interest rates:Impact of 100 bps decrease in interest rates:   Impact of 100 bps decrease in interest rates:   
In dollars$362
 $282
Increase in dollars$1,154
 $921
As a percentage of total debt obligations at fair value5.4% 4.4%As a percentage of total debt obligations at fair value7.5% 8.0%

Foreign currency management
As a global company, ACEChubb 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 local currency.use of derivatives. We do not hedge our currency exposure to foreign currency net asset positions. Wenon-U.S. dollar capital positions; however, we do consider hedging for planned cross border transactions.

The following table summarizes the net assets in non-U.S. currencies at December 31, 20142016 and 2013:2015:
   2014
   2013
 2014 vs. 2013 % change in exchange rate per USD
   2016
   2015
 2016 vs. 2015 % change in exchange rate per USD
 Value of
 Exchange rate
 Value of
 Exchange rate
  Value of
 Exchange rate
 Value of
 
Exchange
rate

 
(in millions of U.S. dollars, except for percentages) Net Assets
 per USD
 Net Assets
 per USD
  Net Assets
 per USD
 Net Assets
 per USD
 
British pound sterling (GBP) $1,274
 1.5577 $1,227
 1.6557
 (5.9)% $2,643
 1.2340 $1,200
 1.4736
 (16.3)%
Canadian dollar (CAD) 2,508
 0.7440 507
 0.7226
 3.0 %
Euro (EUR) 1,871
 1.0517 749
 1.0862
 (3.2)%
Australian dollar (AUD) 1,327
 0.7208 373
 0.7286
 (1.1)%
Brazilian real (BRL) 918
 0.3763 264
 0.4234
 (11.1)% 1,194
 0.3072 682
 0.2525
 21.7 %
Mexican peso (MXN) 822
 0.0678 989
 0.0767
 (11.6)% 687
 0.0483 683
 0.0581
 (16.9)%
Euro (EUR) 704
 1.2098 1,036
 1.3743
 (12.0)%
Canadian dollar (CAD) 580
 0.8605 608
 0.9414
 (8.6)%
Korean won (KRW) 559
 0.0917 435
 0.0953
 (3.8)%
Australian dollar (AUD) 509
 0.8175 612
 0.8918
 (8.3)%
Thai baht (THB) 429
 0.0279 377
 0.0278
 0.4 %
Japanese yen (JPY) 476
 0.0084
 431
 0.0095
 (12.1)% 391
 0.0086 493
 0.0083
 3.6 %
Hong Kong dollar (HKD) 370
 0.1289 82
 0.1290
 (0.1)%
Korean won (KRW) (x100) 316
 0.0829 613
 0.0851
 (2.6)%
Other foreign currencies 1,635
  various
 1,341
 various
   1,191
      various
 1,107
      various
 NM
Value of net assets denominated in foreign currencies $7,477
   $6,943
     $12,927
 
 $6,866
 
  
As a percentage of total net assets 25.3%   24.1%     26.8%   23.6%    
Pre-tax impact on shareholders' equity of a hypothetical 10 percent strengthening of the U.S. dollar $677
   $628
    
Pre-tax decrease to Shareholders' equity of a hypothetical 10 percent strengthening of the U.S. dollar $1,175
   $624
    
(1) At December 31, 2016, net assets denominated in foreign currencies comprised approximately 40 percent tangible assets and 60 percent intangible assets, primarily goodwill. The increase in foreign denominated net assets is due to the Chubb Corp acquisition.

Reinsurance of GMDB and GLB guarantees
ACEChubb views its variable annuity reinsurance business as having a similar risk profile to that of catastrophe reinsurance with the probability of long-term economic loss relatively small, at the time of pricing. Adverse changes in market factors and policyholder behavior will have an impact on both life underwriting income and net income. When evaluating these risks, we expect to be compensated for taking both the risk of a cumulative long-term economic net loss, as well as the short-term accounting variations caused by these market movements. Therefore, we evaluate this business in terms of its long-term economic risk and reward.

Net income is directly impacted by changes in benefit reserves calculated in connection with reinsurance of variable annuity guarantees, primarily GMDB and GLB. In addition, net income is directly impacted by changes in the fair value of the GLB liability (FVL), which is classified as a derivative for accounting purposes. The FVL established for a GLB reinsurance contract represents the difference between the fair value of the contract and the benefit reserves. Benefit reserves and FVL calculations


94


are directly affected by market factors, including equity levels, interest rate levels, credit risk, and implied volatilities, as well as policyholder behaviors, such as annuitization and lapse rates.


86



The tables below are estimates of the sensitivities to instantaneous changes in economic inputs (e.g., equity shock, interest rate shock etc.) or actuarial assumptions at December 31, 20142016 of the FVL and of the fair value of specific derivative instruments held (hedge value) to partially offset the risk in the variable annuity guarantee reinsurance portfolio. The following assumptions should be considered when using the below tables:
No changes to the benefit ratio used to establish benefit reserves at December 31, 20142016.
Equity shocks impact all global equity markets equally
Our liabilities are sensitive to global equity markets in the following proportions: 70 percent—80 percent U.S. equity, 10 percent—20 percent international equity ex-Japan, up to 10 percent Japan equity.
Our current hedge portfolio is sensitive to global equity markets in the following proportions: 100 percent U.S. equity.
We would suggest using the S&P 500 index as a proxy for U.S. equity, the MSCI EAFE index as a proxy for international equity, and the TOPIX as a proxy for Japan equity.
Interest rate shocks assume a parallel shift in the U.S. yield curve
Our liabilities are also sensitive to global interest rates at various points on the yield curve, mainly the U.S. Treasury curve in the following proportions: up to 10 percent short-term rates (maturing in less than 5 years), 2015 percent—3025 percent medium-term rates (maturing between 5 years and 10 years, inclusive), and 70 percent—80 percent long-term rates (maturing beyond 10 years).
A change in AA-rated credit spreads (AA-rated credit spreads are a proxy for both our own credit spreads and the credit spreads of the ceding insurers) impacts the rate used to discount cash flows in the fair value model.
The hedge sensitivity is from December 31, 2016 market levels.
The sensitivities are not directly additive because changes in one factor will affect the sensitivity to changes in other factors. The sensitivities do not scale linearly and may be proportionally greater for larger movements in the market factors. The sensitivities may also vary due to foreign exchange rate fluctuations. The calculation of the FVL is based on internal models that include assumptions regarding future policyholder behavior, including lapse, annuitization, and asset allocation. These assumptions impact both the absolute level of the FVL as well as the sensitivities to changes in market factors shown below. Actual sensitivity of our net income may differ from those disclosed in the tables below due to differences between short-term market movements and management judgment regarding the long-term assumptions implicit in our benefit ratios. Furthermore, the sensitivities below could vary by multiples of the sensitivities in the tables below.
In addition, the tables below do not reflect the expected quarterly run rate of net income generated by the variable annuity guarantee reinsurance portfolio if markets remain unchanged during the period. All else equal, if markets remain unchanged during the period, the Gross FVL will increase, resulting in a realized loss. The realized loss occurs primarily because, during the period, we will collect premium on the full population while paying little or no claims on our GLB reinsuranceonly 62 percent of that population has become eligible to annuitize and generate a claim (since mostapproximately 38 percent of policies are not eligible to annuitize until 2015 or later)after December 31, 2016). This increases the Gross FVL because future premiums are lower by the amount collected in the quarter, and also because future claims are discounted for a shorter period. We refer to this increase in Gross FVL as “timing effect”. The unfavorable impact of timing effect on our Gross FVL in a quarter is not reflected in the sensitivity tables below. For this reason, when using the tables below to estimate the sensitivity of Gross FVL in the first quarter 20152017 to various changes, it is necessary to assume an additional $5$5 million to $45$45 million increase in Gross FVL and realized losses. However, the impact to Net income is substantially mitigated because the majority of this realized loss is offset by the positive quarterly run rate of Life Insurance underwriting income generated by the variable annuity guarantee reinsurance portfolio if markets remain unchanged during the period. Note that both the timing effect and the quarterly run rate of Life underwriting income change over time as the book ages.


8795


Interest Rate ShockInterest Rate ShockWorldwide Equity ShockInterest Rate ShockWorldwide Equity Shock
(in millions of U.S. dollars)(in millions of U.S. dollars)+10% Flat
 -10 % -20 % -30 % -40 %(in millions of U.S. dollars)+10% Flat
 -10 % -20 % -30 % -40 %
+100 bps(Increase)/decrease in Gross FVL$386
 $261
 $57
 $(222) $(574) $(1,012)(Increase)/decrease in Gross FVL$410
 $264
 $38
 $(242) $(577) $(958)
Increase/(decrease) in hedge value(139) 
 140
 282
 428
 581
Increase/(decrease) in hedge value(132) 
 132
 263
 395
 526
Increase/(decrease) in net income$247
 $261
 $197
 $60
 $(146) $(431)Increase/(decrease) in net income$278
 $264
 $170
 $21
 $(182) $(432)
Flat(Increase)/decrease in Gross FVL$197
 $
 $(263) $(599) $(1,017) $(1,508)(Increase)/decrease in Gross FVL$207
 $
 $(260) $(576) $(943) $(1,347)
Increase/(decrease) in hedge value(139) 
 140
 283
 429
 582
Increase/(decrease) in hedge value(132) 
 132
 263
 395
 526
Increase/(decrease) in net income$58
 $
 $(123) $(316) $(588) $(926)Increase/(decrease) in net income$75
 $
 $(128) $(313) $(548) $(821)
-100 bps(Increase)/decrease in Gross FVL$(112) $(354) $(672) $(1,073) $(1,543) $(2,080)(Increase)/decrease in Gross FVL$(78) $(318) $(613) $(960) $(1,352) $(1,768)
Increase/(decrease) in hedge value(139) 
 140
 283
 429
 583
Increase/(decrease) in hedge value(132) 
 132
 263
 395
 526
Increase/(decrease) in net income$(251) $(354) $(532) $(790) $(1,114) $(1,497)Increase/(decrease) in net income$(210) $(318) $(481) $(697) $(957) $(1,242)
                        
Sensitivities to Other Economic VariablesSensitivities to Other Economic VariablesAA-rated Credit Spreads   Interest Rate Volatility   Equity Volatility Sensitivities to Other Economic VariablesAA-rated Credit Spreads   Interest Rate Volatility   Equity Volatility 
(in millions of U.S. dollars)(in millions of U.S. dollars)+100 bps
 -100 bps
 +2 % -2 % +2 % -2 %(in millions of U.S. dollars)+100 bps
 -100 bps
 +2 % -2 % +2 % -2 %
(Increase)/decrease in Gross FVL(Increase)/decrease in Gross FVL$61
 $(69) $(1) $
 $(20) $18
(Increase)/decrease in Gross FVL$65
 $(73) $(1) $1
 $(9) $8
Increase/(decrease) in hedge valueIncrease/(decrease) in hedge value
 
 
 
 1
 
Increase/(decrease) in hedge value
 
 
 
 
 
Increase/(decrease) in net incomeIncrease/(decrease) in net income$61
 $(69) $(1) $
 $(19) $18
Increase/(decrease) in net income$65
 $(73) $(1) $1
 $(9) $8
                       
Sensitivities to Actuarial AssumptionsSensitivities to Actuarial Assumptions    MortalitySensitivities to Actuarial Assumptions    Mortality
(in millions of U.S. dollars)(in millions of U.S. dollars)    +20 % +10 % -10 % -20 %(in millions of U.S. dollars)    +20 % +10 % -10 % -20 %
(Increase)/decrease in Gross FVL(Increase)/decrease in Gross FVL    $23
 $12
 $(12) $(24)(Increase)/decrease in Gross FVL    $33
 $17
 $(17) $(35)
Increase/(decrease) in hedge valueIncrease/(decrease) in hedge value    
 
 
 
Increase/(decrease) in hedge value    
 
 
 
Increase/(decrease) in net incomeIncrease/(decrease) in net income    $23
 $12
 $(12) $(24)Increase/(decrease) in net income    $33
 $17
 $(17) $(35)
                        
     Lapses     Lapses
(in millions of U.S. dollars)(in millions of U.S. dollars)    +50 % +25 % -25 % -50 %(in millions of U.S. dollars)    +50 % +25 % -25 % -50 %
(Increase)/decrease in Gross FVL(Increase)/decrease in Gross FVL    $212
 $117
 $(146) $(314)(Increase)/decrease in Gross FVL    $144
 $76
 $(84) $(178)
Increase/(decrease) in hedge valueIncrease/(decrease) in hedge value    
 
 
 
Increase/(decrease) in hedge value    
 
 
 
Increase/(decrease) in net incomeIncrease/(decrease) in net income    $212
 $117
 $(146) $(314)Increase/(decrease) in net income    $144
 $76
 $(84) $(178)
                        
     Annuitization     Annuitization
(in millions of U.S. dollars)(in millions of U.S. dollars)    +50 % +25 % -25 % -50 %(in millions of U.S. dollars)    +50 % +25 % -25 % -50 %
(Increase)/decrease in Gross FVL(Increase)/decrease in Gross FVL    $(279) $(154) $183
 $351
(Increase)/decrease in Gross FVL    $(452) $(246) $287
 $514
Increase/(decrease) in hedge valueIncrease/(decrease) in hedge value    
 
 
 
Increase/(decrease) in hedge value    
 
 
 
Increase/(decrease) in net incomeIncrease/(decrease) in net income    $(279) $(154) $183
 $351
Increase/(decrease) in net income    $(452) $(246) $287
 $514

Variable Annuity Net Amount at Risk

All our VA reinsurance treaties include annual or aggregate claim limits and many include an aggregate deductible which limit the net amount at risk under these programs. The tables below present the net amount at risk at December 31, 20142016 following an immediate change in equity market levels, assuming all global equity markets are impacted equally. For further information on the net amount at risk, refer to Note 5 c) to the Consolidated Financial Statements.

a) Reinsurance covering the GMDB risk only
Equity ShockEquity Shock
(in millions of U.S. dollars)+20% Flat
 -20 % -40 % -60 % -80 %+20% Flat
 -20 % -40 % -60 % -80 %
GMDB net amount at risk$365
 $418
 $932
 $1,525
 $1,540
 $1,313
$305
 $341
 $725
 $1,089
 $1,071
 $910
Claims at 100% immediate mortality230
 245
 268
 267
 247
 226
196
 202
 226
 235
 233
 219

The treaty claim limits function as a ceiling on the net amount at risk as equity markets fall. In addition, if all ofAs the policyholders wereshocks in the table above become incrementally more negative, the impact on the NAR and claims at 100 percent mortality begin to die immediately the claims payable declines as equity markets falldrop due to the specific nature of these claim


96


limits, many of which are annual claim limits calculated as a percentage of the reinsured account value. There is also


88


some impact due to a small portion of the GMDB reinsurance under which claims are positively correlated to equity markets (claims decrease as equity markets fall).

b) Reinsurance covering the GLB risk only
Equity ShockEquity Shock
(in millions of U.S. dollars)+20% Flat
 -20 % -40 % -60 % -80 %+20% Flat
 -20 % -40 % -60 % -80 %
GLB net amount at risk$226
 $440
 $987
 $1,908
 $2,655
 $2,933
$444
 $800
 $1,400
 $2,227
 $2,722
 $2,968

The treaty claim limits cause the net amount at risk to increase at a declining rate as equity markets fall.
c) Reinsurance covering both the GMDB and GLB risks on the same underlying policyholders
Equity ShockEquity Shock
(in millions of U.S. dollars)+20% Flat
 -20 % -40 % -60 % -80 %+20% Flat
 -20 % -40 % -60 % -80 %
GMDB net amount at risk$53
 $76
 $111
 $144
 $170
 $190
$69
 $88
 $110
 $127
 $139
 $145
GLB net amount at risk126
 235
 483
 1,051
 1,602
 2,057
287
 464
 772
 1,228
 1,661
 2,026
Claims at 100% immediate mortality19
 19
 215
 406
 565
 715
19
 22
 206
 370
 469
 561
The treaty limits control the increase in the GMDB net amount at risk as equity markets fall. The GMDB net amount at risk continues to grow as equity markets fall because most of these reinsurance treaties do not have annual claim limits calculated as a percentage of the underlying account value.
The treaty limits cause the GLB net amount at risk to increase at a declining rate as equity markets fall.


ITEM 8. Financial Statements and Supplementary Data
The financial statements and supplementary data are included in this Form 10-K commencing on page F-1.


ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.


ITEM 9A. Controls and Procedures
ACE’sChubb’s management, with the participation of ACE’sChubb’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of ACE’sChubb’s disclosure controls and procedures as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934 as of December 31, 2014.2016. Based upon that evaluation, ACE’swhich excluded the acquisition of The Chubb Corporation discussed below, Chubb’s Chief Executive Officer and Chief Financial Officer concluded that ACE’sChubb’s disclosure controls and procedures are effective in allowing information required to be disclosed in reports filed under the Securities and Exchange Act of 1934 to be recorded, processed, summarized, and reported within time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to ACE’sChubb’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. In accordance with

During the SEC's published guidance, the disclosure controls and proceduresfirst quarter 2016, we acquired all of the large corporate account P&C businessoutstanding shares of Itaú Seguros, S.A. (Itaú Seguros), which was acquired on October 31, 2014, was excluded from our evaluation of the effectiveness of our disclosure controls and procedures as of December 31, 2014. As of and forThe Chubb Corporation (legacy Chubb Corp). For the year ended December 31, 2014, Itaú Seguros' assets2016, legacy Chubb Corp represented approximately three percent of consolidated assets, revenues represented less than one39 percent of consolidated revenues, and net income represented less than oneapproximately 42 percent of consolidated net income. At December 31, 2016, legacy Chubb Corp represented approximately 27 percentof consolidated assets. We currently exclude, and are in the process of working to incorporate, legacy Chubb Corp in our evaluation of internal controls over financial reporting and related disclosure controls and procedures.

ThereOther than working to incorporate legacy Chubb Corp as mentioned above, there has been no change in ACE’sChubb’s internal controls over financial reporting during the three months ended December 31, 20142016 that has materially affected, or is reasonably likely to materially affect, ACE’sChubb’s internal controls over financial reporting. ACE'sChubb's management report on internal control over financial reporting is included on page F-3 and PricewaterhouseCoopers LLP's audit report is included on page F-4.


ITEM 9B. Other Information
None.



8997


PART III




ITEM 10. Directors, Executive Officers and Corporate Governance

Information pertaining to this item is incorporated by reference to the sections entitled “Election“Agenda Item 5 - Election of the Board of Directors”, “Corporate Governance - Director Nomination Process and Annual Board Skills Review”,“Corporate “Corporate Governance - Director Independence and Other Information”The Committees of the Board - Audit Committee”, and “Corporate Governance - Did Our Officers and Directors Comply with Section 16(a) Beneficial Ownership Reporting in 20142016?” of the definitive proxy statement for the 20152017 Annual General Meeting of Shareholders which will be filed with the SEC not later than 120 days after the close of the fiscal year pursuant to regulation 14A. Also incorporated herein by reference is the text under the caption “Executive Officers of the Registrant” appearing at the end of Part I Item 1.1 of the Annual Report on Form 10-K.

Code of Ethics
ACEChubb has adopted a Code of Conduct, which sets forth standards by which all ACEChubb employees, officers, and directors must abide as they work for ACE. ACEChubb. Chubb has posted this Code of Conduct on its Internet site (www.acegroup.com,(investors.chubb.com, under Investor Information / Corporate Governance/Highlights and Governance / ACE Ethics Helpline / Integrity First: Documents/The ACEChubb Code of Conduct). ACEChubb intends to disclose on its Internet site any amendments to, or waivers from, its Code of Conduct that are required to be publicly disclosed pursuant to the rules of the SEC or the New York Stock Exchange.


ITEM 11. Executive Compensation

This item is incorporated by reference to the sectionsections entitled “Executive Compensation”, “Compensation Committee Report” and “Director Compensation” of the definitive proxy statement for the 20152017 Annual General Meeting of Shareholders which will be filed with the SEC not later than 120 days after the close of the fiscal year pursuant to Regulation 14A.


ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Plan CategoryNumber of securities to be issued upon exercise of outstanding options, warrants, and rights Weighted-average exercise price of outstanding options, warrants, and rights
 Number of securities remaining available for future issuance under equity compensation plans
Equity compensation plans approved by security holders(1)
9,623,986 $69.06
 8,943,524

(1) These totals include securities available for future issuance under the following plans:
(i) ACE Limited 2004 Long-Term Incentive Plan (the 2004 LTIP). A total of 38,600,000 Common Shares of ACE are authorized to be issued pursuant to awards made as options, stock appreciation rights, performance shares, performance units, restricted stock, and restricted stock units. The maximum number of shares that may be delivered to participants and their beneficiaries under the 2004 LTIP shall be equal to the sum of: (i) 38,600,000 shares; and (ii) any shares that are represented by awards granted under the ACE Limited 1995 Long-Term Incentive Plan, the ACE Limited 1995 Outside Directors Plan, the ACE Limited 1998 Long-Term Incentive Plan, and the ACE Limited 1999 Replacement Long-Term Incentive Plan (the Prior Plans) that are forfeited, expired, or are canceled after the effective date of the 2004 LTIP of February 25, 2004, without delivery of shares or which result in the forfeiture of the shares back to ACE to the extent that such shares would have been added back to the reserve under the terms of the applicable Prior Plan. As of December 31, 2014, a total of 9,623,986 option awards are outstanding and 7,811,839 shares remain available for future issuance under this plan.
(ii) Employee Stock Purchase Plan. A total of 4,500,000 shares are authorized for purchase at a discount. As of December 31, 2014, 1,131,685 shares remain available for future issuance under this plan.

Additional informationThis item is incorporated by reference to the sectionsections entitled “Information About our Share Ownership” and “Agenda Item 9 - Approval of Amended and Restated Chubb Limited Employee Stock Purchase Plan - Authorized Securities under Equity Compensation Plans” of the definitive proxy statement for the 20152017 Annual General Meeting of Shareholders which will be filed with the SEC not later than 120 days after the close of the fiscal year pursuant to Regulation 14A.


ITEM 13. Certain Relationships and Related Transactions and Director Independence

This item is incorporated by reference to the sections entitled “Corporate Governance - What Is Our Related Party Transactions Approval Policy and What Procedures Do We Use to Implement It?”, “Corporate Governance - What Related Person Transactions Do We Have?”, and “Corporate Governance - The Board of Directors - Director Independence and Other Information” of the definitive proxy statement for the 20152017 Annual General Meeting of Shareholders which will be filed with the SEC not later than 120 days after the close of the fiscal year pursuant to Regulation 14A.


ITEM 14. Principal Accounting Fees and Services

This item is incorporated by reference to the section entitled “Election“Agenda Item 4 – 4.2 - Election of Auditors - Ratification of appointment of PricewaterhouseCoopers LLP (United States) as independent registered public accounting firm for purposes of United StatesU.S. securities law reporting for the year ending December 31, 2015”reporting” of the definitive proxy statement for the 20152017 Annual General Meeting of Shareholders which will be filed with the SEC not later than 120 days after the close of the fiscal year pursuant to Regulation 14A.


9098


PART IV




ITEM 15. Exhibits, Financial Statement Schedules

(a)Financial Statements, Schedules, and Exhibits    
Other schedules have been omitted as they are not applicable to ACE,Chubb, or the required information has been included in the Consolidated Financial Statements and related notes.
3.Exhibits
      Incorporated by Reference  
Exhibit Number Exhibit Description Form Original Number Date Filed Filed Herewith
3.1 Articles of Association of the Company, as amended and restated 8-K 3 December 17, 2014  
           
3.2 Organizational Regulations of the Company as amended 8-K 3.1 November 21, 2014  
           
4.1 Articles of Association of the Company, as amended and restated 8-K 4 December 17, 2014  
           
4.2 Organizational Regulations of the Company as amended 8-K 4.1 November 21, 2014  
           
4.3 Specimen share certificate representing Common Shares 8-K 4.3 July 18, 2008  
           
4.4 Form of 2.6 percent Senior Notes due 2015 8-K 4.1 November 23, 2010  
           
4.5 Indenture, dated March 15, 2002, between ACE Limited and Bank One Trust Company, N.A. 8-K 4.1 March 22, 2002  
           
4.6 Senior Indenture, dated August 1, 1999, among ACE INA Holdings, Inc., ACE Limited and Bank of New York Mellon Trust Company, N.A. (as successor), as trustee 
S-3
ASR
 4.4 December 10, 2014  
           
4.7 Indenture, dated November 30, 1999, among ACE INA Holdings, Inc. and Bank One Trust Company, N.A., as trustee 10-K 10.38 March 29, 2000  
           
      Incorporated by Reference  
Exhibit Number Exhibit Description Form Original Number Date Filed Filed Herewith
2.1 Agreement and Plan of Merger, by and among ACE Limited, William Investment Holdings Corporation and The Chubb Corporation, dated as of June 30, 2015 8-K 2.1 July 7, 2015  
           
3.1 Articles of Association of the Company, as amended and restated 8-K 3.1 May 20, 2016  
           
3.2 Organizational Regulations of the Company as amended 8-K 3.1 November 21, 2016  
           
4.1 Articles of Association of the Company, as amended and restated 8-K 4.1 May 20, 2016  
           
4.2 Organizational Regulations of the Company as amended 8-K 3.1 November 21, 2016  
           
4.3 Specimen share certificate representing Common Shares 8-K 4.3 July 18, 2008  
           
4.4 Form of 2.6 percent Senior Notes due 2015 8-K 4.1 November 23, 2010  
           
4.5 Indenture, dated March 15, 2002, between ACE Limited and Bank One Trust Company, N.A. 8-K 4.1 March 22, 2002  
           
4.6 Senior Indenture, dated August 1, 1999, among ACE INA Holdings, Inc., ACE Limited and Bank of New York Mellon Trust Company, N.A. (as successor), as trustee 
S-3
ASR
 4.4 December 10, 2014  


9199


      Incorporated by Reference  
Exhibit Number Exhibit Description Form Original Number Date Filed Filed Herewith
4.8 Indenture, dated December 1, 1999, among ACE INA Holdings, Inc., ACE Limited and Bank One Trust Company, National Association, as trustee 10-K 10.41 March 29, 2000  
           
4.9 Amended and Restated Trust Agreement, dated March 31, 2000, among ACE INA Holdings, Inc., Bank One Trust Company, National Association, as property trustee, Bank One Delaware Inc., as Delaware trustee and the administrative trustees named therein 10-K 4.17 March 16, 2006  
           
4.10 Common Securities Guarantee Agreement, dated March 31, 2000 10-K 4.18 March 16, 2006  
           
4.11 Capital Securities Guarantee Agreement, dated March 31, 2000 10-K 4.19 March 16, 2006  
           
4.12 Form of 2.70 percent Senior Notes due 2023 8-K 4.1 March 13, 2013  
           
4.13 Form of 4.15 percent Senior Notes due 2043 8-K 4.2 March 13, 2013  
           
4.14 First Supplemental Indenture dated as of March 13, 2013 to the Indenture dated as of August 1, 1999 among ACE INA Holdings, Inc., as Issuer, ACE Limited, as Guarantor, and The Bank of New York Mellon Trust Company, N.A., as Successor Trustee 8-K 4.3 March 13, 2013  
           
4.15 Form of 3.35 percent Senior Notes due 2024 8-K 4.1 May 27, 2014  
           
10.1* Form of Indemnification Agreement between the Company and individuals who became directors of the Company after the Company's redomestication to Switzerland 10-Q 10.1 August 6, 2010  
           
10.2* Second Amended and Restated Indemnification Agreement in the form executed between the Company and directors (except for Olivier Steimer) and/or officers 10-Q 10.1 August 7, 2007  
           
10.3* Indemnification agreement between the Company and Olivier Steimer, dated November 20, 2008 10-K 10.2 February 27, 2009  
           
10.4 Credit Agreement for $1,000,000,000 Senior Unsecured Letter of Credit Facility, dated as of November 6, 2012, among ACE Limited, and certain subsidiaries and Wells Fargo Bank, National Association as Administrative Agent, the Swingline Bank and an Issuing Bank 10-K 10.13 February 28, 2013  
           
10.5* Employment Terms dated October 29, 2001, between ACE Limited and Evan Greenberg 10-K 10.64 March 27, 2003  
           
10.6* Employment Terms dated November 2, 2001, between ACE Limited and Philip V. Bancroft 10-K 10.65 March 27, 2003  
           
10.7* Executive Severance Agreement between ACE Limited and Philip Bancroft, effective January 2, 2002 10-Q 10.1 May 10, 2004  
           
10.8* Letter Regarding Executive Severance between ACE Limited and Philip V. Bancroft 10-K 10.17 February 25, 2011  
           
10.9* Employment Terms dated April 10, 2006, between ACE and John Keogh 10-K 10.29 February 29, 2008  
           
10.10* Executive Severance Agreement between ACE and John Keogh 10-K 10.30 February 29, 2008  
           
10.11* ACE Limited Executive Severance Plan as amended effective May 18, 2011 10-K 10.21 February 24, 2012  
           
      Incorporated by Reference  
Exhibit Number Exhibit Description Form Original Number Date Filed Filed Herewith
           
4.7 Indenture, dated November 30, 1999, among ACE INA Holdings, Inc. and Bank One Trust Company, N.A., as trustee 10-K 10.38 March 29, 2000  
           
4.8 Indenture, dated December 1, 1999, among ACE INA Holdings, Inc., ACE Limited and Bank One Trust Company, National Association, as trustee 10-K 10.41 March 29, 2000  
           
4.9 Amended and Restated Trust Agreement, dated March 31, 2000, among ACE INA Holdings, Inc., Bank One Trust Company, National Association, as property trustee, Bank One Delaware Inc., as Delaware trustee and the administrative trustees named therein 10-K 4.17 March 16, 2006  
           
4.10 Common Securities Guarantee Agreement, dated March 31, 2000 10-K 4.18 March 16, 2006  
           
4.11 Capital Securities Guarantee Agreement, dated March 31, 2000 10-K 4.19 March 16, 2006  
           
4.12 Form of 2.70 percent Senior Notes due 2023 8-K 4.1 March 13, 2013  
           
4.13 Form of 4.15 percent Senior Notes due 2043 8-K 4.2 March 13, 2013  
           
4.14 First Supplemental Indenture dated as of March 13, 2013 to the Indenture dated as of August 1, 1999 among ACE INA Holdings, Inc., as Issuer, ACE Limited, as Guarantor, and The Bank of New York Mellon Trust Company, N.A., as Successor Trustee 8-K 4.3 March 13, 2013  
           
4.15 Form of 3.35 percent Senior Notes due 2024 8-K 4.1 May 27, 2014  
           
4.16 Form of 3.150 percent Senior Notes due 2025 8-K 4.1 March 16, 2015  
           
4.17 Form of 2.30 percent Senior Notes due 2020 8-K 4.1 November 3, 2015  
           
4.18 Form of 2.875 percent Senior Notes due 2022 8-K 4.2 November 3, 2015  
           
4.19 Form of 3.35 percent Senior Notes due 2026 8-K 4.3 November 3, 2015  
           
4.20 Form of 4.35 percent Senior Notes due 2045 8-K 4.4 November 3, 2015  
           
4.21 First Supplemental Indenture to the Chubb Corp Senior Indenture dated as of January 15, 2016 to the Indenture dated as of October 25, 1989 among ACE INA Holdings, Inc., as Successor Issuer, ACE Limited, as Guarantor, and The Bank of New York Mellon Trust Company, N.A., as Trustee 8-K 4.1 January 15, 2016  
           
4.22 Second Supplemental Indenture to the Chubb Corp Junior Subordinated Indenture dated as of January 15, 2016 to the Indenture dated as of March 29, 2007 among ACE INA Holdings, Inc., as Successor Issuer, ACE Limited, as Guarantor, and The Bank of New York Mellon Trust Company, N.A., as Trustee 8-K 4.2 January 15, 2016  
           
4.23 Chubb Corp Senior Indenture (incorporated by reference to Exhibit 4(a) to Chubb Corp's Registration Statement on Form S-3 filed on October 27, 1989) (File No. 33-31796) S-3 4(a) October 27, 1989  
           
4.24 Chubb Corp Junior Subordinated Indenture (incorporated by reference to Exhibit 4.1 to Chubb Corp's Current Report on Form 8-K filed on March 30, 2007) (File No. 001-08661) 8-K 4.1 March 30, 2007  
           


92100


      Incorporated by Reference  
Exhibit Number Exhibit Description Form Original Number Date Filed Filed Herewith
4.25 First Supplemental Indenture to the Chubb Corp Junior Subordinated Indenture dated as of March 29, 2007 between the Chubb Corporation and The Bank of New York Trust Company, N.A., as Trustee (incorporated by reference to Exhibit 4.2 to Chubb Corp's Current Report on Form 8-K filed on March 30, 2007) (File No. 001-08661) 8-K 4.2 March 30, 2007  
           
4.26 Form of 5.75 percent Chubb Corp Senior Notes due 2018 (incorporated by reference to Exhibit 4.1 to Chubb Corp's Current Report on Form 8-K filed on May 6, 2008) (File No. 001-08661) 8-K 4.1 May 6, 2008  
           
4.27 Form of 6.60 percent Chubb Corp Debentures due 2018 (incorporated by reference to Exhibit 4(a) to Chubb Corp's Registration Statement on Form S-3 filed on October 27, 1989) (File No. 33-31796) S-3 4(a) October 27, 1989  
           
4.28 Form of 6.80 percent Chubb Corp Debentures due 2031 (incorporated by reference to Exhibit 4(a) to Chubb Corp's Registration Statement on Form S-3 filed on October 27, 1989) (File No. 33-31796) S-3 4(a) October 27, 1989  
           
4.29 Form of 6.00 percent Chubb Corp Senior Notes due 2037 (incorporated by reference to Exhibit 4.1 to Chubb Corp's Current Report on Form 8-K filed on May 11, 2007) (File No. 001-08661) 8-K 4.1 May 11, 2007  
           
4.30 Form of 6.50 percent Chubb Corp Senior Notes due 2038 (incorporated by reference to Exhibit 4.2 to Chubb Corp's Current Report on Form 8-K filed on May 6, 2008) (File No. 001-08661) 8-K 4.2 May 6, 2008  
           
4.31 Form of debenture for the 6.375 percent Chubb Corp DISCs (incorporated by reference to Exhibit 4.3 to Chubb Corp's Current Report on Form 8-K filed on March 30, 2007) (File No. 001-08661) 8-K 4.3 March 30, 2007  
           
4.32 Procedures regarding the registration of shareholders in the share register of Chubb Limited       X
           
10.1* Form of Indemnification Agreement between the Company and the directors of the Company, dated August 13, 2015 10-K 10.1 February 26, 2016  
           
10.2 Credit Agreement for $1,000,000,000 Senior Unsecured Letter of Credit Facility, dated as of November 6, 2012, among ACE Limited, and certain subsidiaries and Wells Fargo Bank, National Association as Administrative Agent, the Swingline Bank and an Issuing Bank 10-K 10.13 February 28, 2013  
           
10.3* Employment Terms dated October 29, 2001, between ACE Limited and Evan Greenberg 10-K 10.64 March 27, 2003  
           
10.4* Employment Terms dated November 2, 2001, between ACE Limited and Philip V. Bancroft 10-K 10.65 March 27, 2003  
           
10.5* Executive Severance Agreement between ACE Limited and Philip Bancroft, effective January 2, 2002 10-Q 10.1 May 10, 2004  
           
10.6* Letter Regarding Executive Severance between ACE Limited and Philip V. Bancroft 10-K 10.17 February 25, 2011  
           
10.7* Employment Terms dated April 10, 2006, between ACE and John Keogh 10-K 10.29 February 29, 2008  
           


101


      Incorporated by Reference  
Exhibit Number Exhibit Description Form Original Number Date Filed Filed Herewith
10.12*10.8*Executive Severance Agreement between ACE and John Keogh10-K10.30February 29, 2008
10.9*ACE Limited Executive Severance Plan as amended effective May 18, 201110-K10.21February 24, 2012
10.10* Form of employment agreement between the Company (or subsidiaries of the Company) and executive officers of the Company to allocate a percentage of aggregate salary to the Company (or subsidiaries of the Company) 8-K 10.1 July 16, 2008  
           
10.13*10.11* Description of Executive Officer Cash Compensation for 2011 10-Q 10.1 November 3, 2011  
           
10.14*10.12* Description ofOutside Directors Compensation10-Q10.1May 2, 2014 Parameters  X
           
10.15*10.13* ACE Limited Annual Performance Incentive Plan  S-1 10.13 January 21, 1993  
           
10.16*10.14* ACE Limited Elective Deferred Compensation Plan (as amended and restated effective January 1, 2005) 10-K 10.24 March 16, 2006  
           
10.17*10.15* ACE USA Officer Deferred Compensation Plan (as amended through January 1, 2001) 10-K 10.25 March 16, 2006  
           
10.18*10.16* ACE USA Officer Deferred Compensation Plan (as amended and restated effective January 1, 2011) 10-Q 10.7 October 30, 2013  
           
10.19*10.17* ACE USA Officer Deferred Compensation Plan (as amended and restated effective January 1, 2009) 10-K 10.36 February 27, 2009  
           
10.20*10.18* First Amendment to the Amended and Restated ACE USA Officers Deferred Compensation Plan 10-K 10.28 February 25, 2010  
           
10.21*10.19* Form of Swiss Mandatory Retirement Benefit Agreement (for Swiss-employed named executive officers) 10-Q 10.2 May 7, 2010  
           
10.22*10.20* ACE Limited Supplemental Retirement Plan (as amended and restated effective July 1, 2001) 10-Q 10.1 November 14, 2001  
         
10.23*10.21* ACE Limited Supplemental Retirement Plan (as amended and restated effective January 1, 2011) 10-Q 10.6 October 30, 2013  
           
10.24*10.22* Amendments to the ACE Limited Supplemental Retirement Plan and the ACE Limited Elective Deferred Compensation Plan 10-K 10.38 February 29, 2008  
           
10.25*10.23* ACE Limited Elective Deferred Compensation Plan (as amended and restated effective January 1, 2009) 10-K 10.39 February 27, 2009  
           
10.26*10.24* ACE Limited Elective Deferred Compensation Plan (as amended and restated effective January 1, 2011) 10-Q 10.5 October 30, 2013  
           
10.27*10.25* Deferred Compensation Plan amendments, effective January 1, 2009 10-K 10.40 February 27, 2009  
           
10.28*10.26* Amendment to the ACE Limited Supplemental Retirement Plan 10-K 10.39 February 29, 2008  
           
10.29*10.27* Amendment and restated ACE Limited Supplemental Retirement Plan, effective January 1, 2009 10-K 10.42 February 27, 2009  
           
10.30*10.28* ACE USA Supplemental Employee Retirement Savings Plan 10-Q 10.6 May 15, 2000  
           
10.31*ACE USA Supplemental Employee Retirement Savings Plan (as amended through the Second Amendment)10-K10.30March 1, 2007
10.32*ACE USA Supplemental Employee Retirement Savings Plan (as amended through the Third Amendment)10-K10.31March 1, 2007


93102


      Incorporated by Reference  
Exhibit Number Exhibit Description Form Original Number Date Filed Filed Herewith
10.33*10.29*ACE USA Supplemental Employee Retirement Savings Plan (as amended through the Second Amendment)10-K10.30March 1, 2007
10.30*ACE USA Supplemental Employee Retirement Savings Plan (as amended through the Third Amendment)10-K10.31March 1, 2007
10.31* ACE USA Supplemental Employee Retirement Savings Plan (as amended and restated) 10-K 10.46 February 27, 2009  
           
10.34*10.32* First Amendment to the Amended and Restated ACE USA Supplemental Employee Retirement Savings Plan 10-K 10.39 February 25, 2010  
    ��      
10.35*10.33* The ACE Limited 1995 Outside Directors Plan (as amended through the Seventh Amendment) 10-Q 10.1 August 14, 2003  
           
10.36*10.34* ACE Limited 1998 Long-Term Incentive Plan (as amended through the Fourth Amendment) 10-K 10.34 March 1, 2007  
           
10.37*10.35* ACE Limited 2004 Long-Term Incentive Plan (as amended through the Fifth Amendment) 8-K 10 May 21, 2010  
           
10.38*10.36* ACE Limited 2004 Long-Term Incentive Plan (as amended through the Sixth Amendment) 8-K 10.1 May 20, 2013  
           
10.39*10.37* ACE Limited Rules of the Approved U.K. Stock Option Program 10-Q 10.2 February 13, 1998  
           
10.40*10.38* Form of Restricted Stock Award Terms under the ACE Limited 2004 Long-Term Incentive Plan 10-K 10.54 February 27, 2009  
           
10.41*10.39* Form of Restricted Stock Award Terms under the ACE Limited 2004 Long-Term Incentive Plan 10-K 10.55 February 27, 2009  
           
10.42*10.40* Director Restricted Stock Award Terms under the ACE Limited 2004 Long-Term Incentive Plan 10-Q 10.1 November 9, 2009  
           
10.43*10.41* Form of Restricted Stock Unit Award Terms under the ACE Limited 2004 Long-Term Incentive Plan 10-Q 10.1 May 8, 2008  
           
10.44*10.42* Form of Restricted Stock Unit Award Terms under the ACE Limited 2004 Long-Term Incentive Plan 10-Q 10.2 May 8, 2008  
           
10.45*10.43* Form of Restricted Stock Unit Award Terms under the ACE Limited 2004 Long-Term Incentive Plan 10-K 10.60 February 27, 2009  
           
10.46*10.44* Form of Restricted Stock Unit Award Terms under the ACE Limited 2004 Long-Term Incentive Plan 10-Q 10.2 October 30, 2013  
           
10.47*10.45* Form of Restricted Stock Unit Award Terms under the ACE Limited 2004 Long-Term Incentive Plan for Chief Executive Officer, Chief Financial Officer and the General Counsel 10-K 10.56 February 28, 2014  
           
10.48*10.46* Form of Incentive Stock Option Terms under the ACE Limited 2004 Long-Term Incentive Plan 8-K 10.4 September 13, 2004  
           
10.49*10.47* Form of Incentive Stock Option Terms under the ACE Limited 2004 Long-Term Incentive Plan 10-Q 10.4 May 8, 2008  
           
10.50*10.48* Form of Incentive Stock Option Terms under the ACE Limited 2004 Long-Term Incentive Plan 10-K 10.63 February 27, 2009  
           
10.51*Form of Incentive Stock Option Terms under the ACE Limited 2004 Long-Term Incentive Plan10-Q10.3October 30, 2013
10.52*Form of Non-Qualified Stock Option Terms under the ACE Limited 2004 Long-Term Incentive Plan8-K10.5September 13, 2004


94103


      Incorporated by Reference  
Exhibit Number Exhibit Description Form Original Number Date Filed Filed Herewith
10.53*10.49*Form of Incentive Stock Option Terms under the ACE Limited 2004 Long-Term Incentive Plan10-Q10.3October 30, 2013
10.50*Form of Non-Qualified Stock Option Terms under the ACE Limited 2004 Long-Term Incentive Plan8-K10.5September 13, 2004
10.51* Form of Non-Qualified Stock Option Terms under the ACE Limited 2004 Long-Term Incentive Plan 10-Q 10.3 May 8, 2008  
           
10.54*10.52* Form of Non-Qualified Stock Option Terms under the ACE Limited 2004 Long-Term Incentive Plan 10-Q 10.4 October 30, 2013  
           
10.55*10.53* Form of Performance Based Restricted Stock Award Terms under the ACE Limited 2004 Long-Term Incentive Plan, as updated through May 4, 2006 10-Q 10.3 May 5, 2006  
           
10.56*10.54* Revised Form of Performance Based Restricted Stock Award Terms under the ACE Limited 2004 Long-Term Incentive Plan 10-Q 10.2 November 8, 2006  
           
10.57*10.55* Revised Form of Performance Based Restricted Stock Award Terms under The ACE Limited 2004 Long-Term Incentive Plan 10-K 10.65 February 25, 2011  
           
10.58*10.56* Form of Performance Based Restricted Stock Award Terms under the ACE Limited 2004 Long-Term Incentive Plan 10-K 10.67 February 28, 2014  
           
10.59*10.57* Form of Performance Based Restricted Stock Award Terms under the ACE Limited 2004 Long-Term Incentive Plan for Chief Executive Officer, Chief Financial Officer and the General Counsel 10-K 10.68 February 28, 2014  
           
10.60*10.58* Form of Restricted Stock Unit Award Terms (for outside directors) under the ACE Limited 2004 Long-Term Incentive Plan 10-Q 10.2 November 7, 2007  
           
10.61*10.59* Form of Restricted Stock Unit Award Terms (for outside directors) under the ACE Limited 2004 Long-Term Incentive Plan 10-Q 10.2 August 7, 2009  
           
10.62*10.60* Form of Incentive Stock Option Terms under the ACE Limited 2004 Long-Term Incentive Plan for Messrs. Greenberg and Cusumano 10-Q 10.1 August 4, 2011  
           
10.63*10.61* Form of Non-Qualified Stock Option Terms under the ACE Limited 2004 Long-Term Incentive Plan for Messrs. Greenberg and Cusumano 10-Q 10.2 August 4, 2011  
           
10.64*10.62* Form of Restricted Stock Award Terms under the ACE Limited 2004 Long-Term Incentive Plan for Messrs. Greenberg and Cusumano 10-Q 10.3 August 4, 2011  
           
10.65*10.63* ACE Limited Employee Stock Purchase Plan, as amended 8-K 10.1 May 22, 2012  
           
10.66*10.64* Form of Performance Based Restricted Stock Award Terms under the ACE Limited 2004 Long-Term Incentive Plan for Messrs. Greenberg and Cusumano 10-K 10.72 February 24, 2012  
           
10.67*10.65* Separation and Release Agreement between the Company and Robert Cusumano, dated July 24, 2013 10-Q 10.8 October 30, 2013  
           
10.68*10.66* Form of Restricted Stock Award Terms under the ACE Limited 2004 Long-Term Incentive Plan for Swiss Executive Management 10-K10.68February 27, 2015  X
10.69*Form of Performance Based Restricted Stock Award Terms under the ACE Limited 2004 Long-Term Incentive Plan for Swiss Executive ManagementX
           


95104


      Incorporated by Reference  
Exhibit Number Exhibit Description Form Original Number Date Filed Filed Herewith
10.70* Form of Restricted Stock Unit Award Terms under the ACE Limited 2004 Long-Term Incentive Plan for Swiss Executive Management       X
           
10.71* Form of Incentive Stock Option Terms under the ACE Limited 2004 Long-Term Incentive Plan for Swiss Executive Management       X
           
10.72* Form of Non-Qualified Stock Option Terms under the ACE Limited 2004 Long-Term Incentive Plan for Swiss Executive Management       X
           
12.1 Ratio of earnings to fixed charges       X
           
18.1 Preferability Letter of Independent Registered Public Accounting Firm 10-Q 18.1 October 29, 2014  
           
21.1 Subsidiaries of the Company       X
           
23.1 Consent of Independent Registered Public Accounting Firm       X
           
31.1 Certification Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002       X
           
31.2 Certification Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002       X
           
32.1 Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002       X
           
32.2 Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002       X
           
101 The following financial information from ACE Limited's Annual Report on Form 10-K for the year ended December 31, 2014, formatted in XBRL: (i)  Consolidated Balance Sheets at December 31, 2014 and 2013; (ii) Consolidated Statements of Operations and Comprehensive Income for the years ended December 31, 2014, 2013, and 2012; (iii) Consolidated Statements of Shareholders' Equity for the years ended December 31, 2014, 2013, and 2012; (iv) Consolidated Statements of Cash Flows for the years ended December 31, 2014, 2013, and 2012; and (v) Notes to the Consolidated Financial Statements       X
           
* Management Contract or Compensation Plan
      Incorporated by Reference  
Exhibit Number Exhibit Description Form Original Number Date Filed Filed Herewith
10.67* Form of Performance Based Restricted Stock Award Terms under the ACE Limited 2004 Long-Term Incentive Plan for Swiss Executive Management 10-K 10.69 February 27, 2015  
           
10.68* Form of Restricted Stock Unit Award Terms under the ACE Limited 2004 Long-Term Incentive Plan for Swiss Executive Management 10-K 10.70 February 27, 2015  
           
10.69* Form of Incentive Stock Option Terms under the ACE Limited 2004 Long-Term Incentive Plan for Swiss Executive Management 10-K 10.71 February 27, 2015  
           
10.70* Form of Non-Qualified Stock Option Terms under the ACE Limited 2004 Long-Term Incentive Plan for Swiss Executive Management 10-K 10.72 February 27, 2015  
           
10.71* Form of Executive Management Non-Competition Agreement 8-K 10.1 May 22, 2015  
           
10.72 Commitment Increase Agreement to increase the credit capacity under the Credit Agreement originally entered into on November 6, 2012 to $1,500,000,000 under the Senior Unsecured Letter of Credit Facility, dated as of December 11, 2015, among ACE Limited, and certain subsidiaries, and Wells Fargo Bank, National Association as Administrative Agent, the Swingline Bank and an Issuing Bank 10-K 10.72 February 26, 2016  
           
10.73* Form of Performance Based Restricted Stock Award Terms under the ACE Limited 2004 Long-Term Incentive Plan 10-K 10.73 February 26, 2016  
           
10.74* Form of Performance Based Restricted Stock Award Terms under the ACE Limited 2004 Long-Term Incentive Plan for Special Award for Messrs. Greenberg and Keogh 10-K 10.74 February 26, 2016  
           
10.75* Chubb Limited 2016 Long-Term Incentive Plan S-8 4.4 May 26, 2016  
           
10.76* Form of Incentive Stock Option Terms under the Chubb Limited 2016 Long-Term Incentive Plan 10-Q 10.2 August 5, 2016  
           
10.77* Form of Restricted Stock Award Terms under the Chubb Limited 2016 Long-Term Incentive Plan 10-Q 10.3 August 5, 2016  
           
10.78* Form of Restricted Stock Unit Award Terms under the Chubb Limited 2016 Long-Term Incentive Plan 10-Q 10.4 August 5, 2016  
           
10.79* Form of Non-Qualified Stock Option Terms under the Chubb Limited 2016 Long-Term Incentive Plan 10-Q 10.5 August 5, 2016  
           
10.80* Form of Incentive Stock Option Terms under the Chubb Limited 2016 Long-Term Incentive Plan for Swiss Executive Management 10-Q 10.6 August 5, 2016  
           
10.81* Form of Restricted Stock Award Terms under the Chubb Limited 2016 Long-Term Incentive Plan for Swiss Executive Management 10-Q 10.7 August 5, 2016  
           
10.82* Form of Restricted Stock Unit Award Terms under the Chubb Limited 206 Long-Term Incentive Plan for Swiss Executive Management 10-Q 10.8 August 5, 2016  
           
10.83* Form of Non-Qualified Stock Option Terms under the Chubb Limited 2016 Long-Term Incentive Plan for Swiss Executive Management 10-Q 10.9 August 5, 2016  


96105


      Incorporated by Reference  
Exhibit Number Exhibit Description Form Original Number Date Filed Filed Herewith
           
10.84* Form of Performance Based Restricted Stock Award Terms under the Chubb Limited 2016 Long-Term Incentive Plan for Swiss Executive Management       X
           
10.85* Form of Performance Based Restricted Stock Award Terms under the Chubb Limited 2016 Long-Term Incentive Plan       X
           
12.1 Ratio of earnings to fixed charges       X
           
18.1 Preferability Letter of Independent Registered Public Accounting Firm 10-Q 18.1 October 29, 2014  
           
21.1 Subsidiaries of the Company       X
           
23.1 Consent of Independent Registered Public Accounting Firm       X
           
31.1 Certification Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002       X
           
31.2 Certification Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002       X
           
32.1 Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002       X
           
32.2 Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002       X
           
101 The following financial information from Chubb Limited's Annual Report on Form 10-K for the year ended December 31, 2016, formatted in XBRL: (i)  Consolidated Balance Sheets at December 31, 2016 and 2015; (ii) Consolidated Statements of Operations and Comprehensive Income for the years ended December 31, 2016, 2015, and 2014; (iii) Consolidated Statements of Shareholders' Equity for the years ended December 31, 2016, 2015, and 2014; (iv) Consolidated Statements of Cash Flows for the years ended December 31, 2016, 2015, and 2014; and (v) Notes to the Consolidated Financial Statements       X
           
* Management Contract or Compensation Plan


106


SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

ACECHUBB LIMITED

By:/s/ Philip V. Bancroft
 
Philip V. Bancroft
Executive Vice President and Chief Financial Officer

February 27, 20152017

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature TitleDate
    
/s/ Evan G. Greenberg Chairman, President, Chief Executive Officer, and DirectorFebruary 27, 20152017
Evan G. Greenberg   
    
/s/ Philip V. Bancroft Executive Vice President and Chief Financial OfficerFebruary 27, 20152017
Philip V. Bancroft (Principal Financial Officer) 
    
/s/ Paul B. Medini Chief Accounting OfficerFebruary 27, 20152017
Paul B. Medini (Principal Accounting Officer)
    
/s/ Michael G. Atieh DirectorFebruary 27, 20152017
Michael G. Atieh  
    
/s/ Sheila P. BurkeDirectorFebruary 27, 2017
Sheila P. Burke
/s/ James I. CashDirectorFebruary 27, 2017
James I. Cash
/s/ Mary A. Cirillo DirectorFebruary 27, 20152017
Mary A. Cirillo  
    
/s/ Michael P. Connors DirectorFebruary 27, 20152017
Michael P. Connors  
    
/s/ John A. EdwardsonDirectorFebruary 27, 2015
John A. Edwardson
/s/ Robert M. HernandezDirectorFebruary 27, 2015
Robert M. Hernandez
/s/ Peter MenikoffDirectorFebruary 27, 2015
Peter Menikoff




97107


Signature TitleDate
    
/s/ John EdwardsonDirectorFebruary 27, 2017
John Edwardson
/s/ Robert M. HernandezDirectorFebruary 27, 2017
Robert M. Hernandez
/s/ Leo F. Mullin DirectorFebruary 27, 20152017
Leo F. Mullin   
    
/s/ Kimberly A. Ross DirectorFebruary 27, 20152017
Kimberly A. Ross  
    
/s/ Robert W. Scully DirectorFebruary 27, 20152017
Robert W. Scully  
    
/s/ Eugene B. Shanks, Jr. DirectorFebruary 27, 20152017
Eugene B. Shanks, Jr.  
    
/s/ Theodore E. Shasta DirectorFebruary 27, 20152017
Theodore E. Shasta  
    
/s/ David H. Sidwell DirectorFebruary 27, 20152017
David H. Sidwell   
    
/s/ Olivier Steimer DirectorFebruary 27, 20152017
Olivier Steimer  
/s/ James M. ZimmermanDirectorFebruary 27, 2017
James M. Zimmerman


98108


ACECHUBB LIMITED AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 20142016




F-1


ACEChubb Limited
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


  Page
Consolidated Financial Statements 
 
Note 1.
Note 2.
Note 3.
Note 4.
Note 5.
Note 6.
Note 7.
Note 8.
Note 9.
Note 10.
Note 11.
Note 12.
Note 13.
Note 14.
Note 15.
Note 16.
Note 17.
Note 18.
Note 19.
Note 20.
Financial Statement Schedules 
Schedule I
Schedule II
Schedule IV
Schedule VI



F-2


MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS AND
INTERNAL CONTROL OVER FINANCIAL REPORTING

Financial Statements
The consolidated financial statements of ACEChubb Limited (ACE)(Chubb) were prepared by management, which is responsible for their reliability and objectivity. The statements have been prepared in conformity with accounting principles generally accepted in the United States of America and, as such, include amounts based on informed estimates and judgments of management. Financial information elsewhere in this annual report is consistent with that in the consolidated financial statements.

The Board of Directors (Board), operating through its Audit Committee, which is composed entirely of directors who are not officers or employees of ACE,Chubb, provides oversight of the financial reporting process and safeguarding of assets against unauthorized acquisition, use or disposition. The Audit Committee annually recommends the appointment of an independent registered public accounting firm and submits its recommendation to the Board for approval.

The Audit Committee meets with management, the independent registered public accountants and the internal auditor; approves the overall scope of audit work and related fee arrangements; and reviews audit reports and findings. In addition, the independent registered public accountants and the internal auditor meet separately with the Audit Committee, without management representatives present, to discuss the results of their audits; the adequacy of ACE'sChubb's internal control; the quality of its financial reporting; and the safeguarding of assets against unauthorized acquisition, use or disposition.

The consolidated financial statements have been audited by an independent registered public accounting firm, PricewaterhouseCoopers LLP, which has been given unrestricted access to all financial records and related data, including minutes of all meetings of the Board and committees of the Board. ACEChubb believes that all representations made to our independent registered public accountants during their audits were valid and appropriate.

Internal Control over Financial Reporting
The management of ACEChubb is responsible for establishing and maintaining adequate internal control over financial reporting. Pursuant to the rules and regulations of the Securities and Exchange Commission, internal control over financial reporting is a process designed by, or under the supervision of our Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our consolidated financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

As of December 31, 20142016, management has evaluated the effectiveness of ACE'sChubb's internal control over financial reporting based on the criteria for effective internal control over financial reporting established in “Internal Control - Integrated Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. Based on this evaluation, we have concluded that ACE'sChubb's internal control over financial reporting was effective as of December 31, 20142016.

In conducting our evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2014,2016, we have excluded the acquisition of the large corporate account P&C business of Itaú Seguros, S.A. (Itaú Seguros)The Chubb Corporation (legacy Chubb Corp) as permitted by the guidance issued by the Office of the Chief Accountant of the Securities and Exchange Commission (not to extend one year beyond the date of acquisition or one annual reporting period). The acquisition was completed on October 31, 2014.January 14, 2016. As of and for the year ended December 31, 2014, Itaú Seguros'2016, legacy Chubb Corp's assets represented approximately three27 percent of consolidated assets, revenues represented less than one39 percent of consolidated revenues, and net income represented less than one42 percent of consolidated net income. See Note 2 for further discussion of this acquisition and its impact on ACE’s consolidatedChubb's Consolidated financial statements.

PricewaterhouseCoopers LLP, the independent registered public accounting firm that audited the consolidated financial statements of ACEChubb included in this Annual Report, has issued a report on the effectiveness of ACE'sChubb's internal controls over financial reporting as of December 31, 2014.2016. The report, which expresses an unqualified opinion on the effectiveness of ACE'sChubb's internal control over financial reporting as of December 31, 2014,2016, is included in this Item under “Report of Independent Registered Public Accounting Firm” and follows this statement.

/s/ Evan G. Greenberg /s/ Philip V. Bancroft
Evan G. Greenberg Philip V. Bancroft
Chairman, President and Chief Executive Officer Executive Vice President and Chief Financial Officer
                                            


F-3


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors and Shareholders of ACEChubb Limited:

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations and comprehensive income, shareholders' equity, and cash flows present fairly, in all material respects, the financial position of ACEChubb Limited and its subsidiaries (the "Company") at December 31, 20142016 and December 31, 2013,2015, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 20142016 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedules listed in the index appearing under Item 15 15(a)(2) present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014,2016, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements and financial statement schedules, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in Internal Control Overover Financial Reporting, appearing in Management's Responsibility for Financial Statements and Internal Control Overover Financial Reporting. Our responsibility is to express opinions on these financial statements, on the financial statement schedules, and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

As described in Management's Report on Internal Control over Financial Reporting, management has excluded the large corporate account P&C business of Itaú Seguros, S.A. (Itaú Seguros)The Chubb Corporation (“legacy Chubb Corp”) from its assessment of internal control over financial reporting as of December 31, 20142016 because Itaú Segurosit was acquired by the Company on October 31, 2014.in a purchase business combination during 2016. We have also excluded Itaú Seguroslegacy Chubb Corp from our audit of internal control over financial reporting. Itaú Seguros is a wholly-owned subsidiary whoseLegacy Chubb Corp's total assets, total revenues, and net income were excluded from management's assessment and our audit and representedrepresent approximately three27 percent, less than one39 percent, and less than one42 percent, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2014.

2016.

/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
February 27, 201528, 2017



F-4


CONSOLIDATED BALANCE SHEETS
ACEChubb Limited and Subsidiaries

   December 31
 December 31
(in millions of U.S. dollars, except share and per share data)2016
 2015
Assets   
Investments   
 
Fixed maturities available for sale, at fair value (amortized cost – $79,536 and $43,149)
$80,115
 $43,587
 
    (includes hybrid financial instruments of $2 and $31)
 
Fixed maturities held to maturity, at amortized cost (fair value – $10,670 and $8,552)
10,644
 8,430
 
Equity securities, at fair value (cost – $706 and $441)
814
 497
 Short-term investments, at fair value and amortized cost3,002
 10,446
 
Other investments (cost – $4,270 and $2,993)
4,519
 3,291
  Total investments99,094
 66,251
Cash985
 1,775
Securities lending collateral1,092
 1,046
Accrued investment income918
 513
Insurance and reinsurance balances receivable8,970
 5,323
Reinsurance recoverable on losses and loss expenses13,577
 11,386
Reinsurance recoverable on policy benefits182
 187
Deferred policy acquisition costs4,314
 2,873
Value of business acquired355
 395
Goodwill15,332
 4,796
Other intangible assets6,763
 887
Prepaid reinsurance premiums2,448
 2,082
Deferred tax assets
 318
Investments in partially-owned insurance companies666
 653
Other assets5,090
 3,821
Total assets$159,786
 $102,306
Liabilities   
Unpaid losses and loss expenses$60,540
 $37,303
Unearned premiums14,779
 8,439
Future policy benefits5,036
 4,807
Insurance and reinsurance balances payable5,637
 4,270
Securities lending payable1,093
 1,047
Accounts payable, accrued expenses, and other liabilities8,617
 6,205
Deferred tax liabilities988
 
Repurchase agreements1,403
 1,404
Short-term debt500
 
Long-term debt12,610
 9,389
Trust preferred securities308
 307
Total liabilities111,511
 73,171
Commitments and contingencies
 
Shareholders’ equity   
Common Shares (CHF 24.15 par value; 479,783,864 and 342,832,412 shares issued; 465,968,716 and 324,563,441 shares outstanding)
11,121
 7,833
Common Shares in treasury (13,815,148 and 18,268,971 shares)
(1,480) (1,922)
Additional paid-in capital15,335
 4,481
Retained earnings23,613
 19,478
Accumulated other comprehensive income (loss) (AOCI)(314) (735)
Total shareholders’ equity48,275
 29,135
Total liabilities and shareholders’ equity$159,786
 $102,306
   December 31
 December 31
(in millions of U.S. dollars, except share and per share data)2014
 2013
Assets   
Investments   
 Fixed maturities available for sale, at fair value (amortized cost – $47,826 and $48,406)$49,395
 $49,254
     (includes hybrid financial instruments of $274 and $302)   
 Fixed maturities held to maturity, at amortized cost (fair value – $7,589 and $6,263)7,331
 6,098
 Equity securities, at fair value (cost – $440 and $841)510
 837
 Short-term investments, at fair value and amortized cost2,322
 1,763
 Other investments (cost – $2,999 and $2,671)3,346
 2,976
  Total investments62,904
 60,928
Cash655
 579
Securities lending collateral1,330
 1,632
Accrued investment income552
 556
Insurance and reinsurance balances receivable5,426
 5,026
Reinsurance recoverable on losses and loss expenses11,992
 11,227
Reinsurance recoverable on policy benefits217
 218
Deferred policy acquisition costs2,601
 2,313
Value of business acquired466
 536
Goodwill and other intangible assets5,724
 5,404
Prepaid reinsurance premiums2,026
 1,675
Deferred tax assets295
 616
Investments in partially-owned insurance companies504
 470
Other assets3,556
 3,330
Total assets$98,248
 $94,510
Liabilities   
Unpaid losses and loss expenses$38,315
 $37,443
Unearned premiums8,222
 7,539
Future policy benefits4,754
 4,615
Insurance and reinsurance balances payable4,095
 3,628
Securities lending payable1,331
 1,633
Accounts payable, accrued expenses, and other liabilities5,726
 4,810
Short-term debt2,552
 1,901
Long-term debt3,357
 3,807
Trust preferred securities309
 309
Total liabilities68,661
 65,685
Commitments and contingencies
 
Shareholders’ equity   
Common Shares (CHF 24.77 and CHF 27.04 par value; 342,832,412 shares issued; 328,659,686 and 339,793,935 shares outstanding)8,055
 8,899
Common Shares in treasury (14,172,726 and 3,038,477 shares)(1,448) (255)
Additional paid-in capital5,145
 5,238
Retained earnings16,644
 13,791
Accumulated other comprehensive income (AOCI)1,191
 1,152
Total shareholders’ equity29,587
 28,825
Total liabilities and shareholders’ equity$98,248
 $94,510
See accompanying notes to the consolidated financial statements


F-5


CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
ACEChubb Limited and Subsidiaries

For the years ended December 31, 2014, 2013 and 2012 
For the years ended December 31, 2016, 2015 and 2014 
(in millions of U.S. dollars, except per share data)2014
 2013
 2012
2016
 2015
 2014
Revenues          
Net premiums written$17,799
 $17,025
 $16,075
$28,145
 $17,713
 $17,799
Increase in unearned premiums(373) (412) (398)
Decrease (increase) in unearned premiums604
 (500) (373)
Net premiums earned17,426
 16,613
 15,677
28,749
 17,213
 17,426
Net investment income2,252
 2,144
 2,181
2,865
 2,194
 2,252
Net realized gains (losses):          
Other-than-temporary impairment (OTTI) losses gross(75) (22) (38)(111) (151) (75)
Portion of OTTI losses recognized in other comprehensive income (OCI)7
 
 1
8
 39
 7
Net OTTI losses recognized in income(68) (22) (37)(103) (112) (68)
Net realized gains (losses) excluding OTTI losses(439) 526
 115
(42) (308) (439)
Total net realized gains (losses) (includes $(24) and $105 reclassified from AOCI in 2014 and 2013)(507) 504
 78
Total net realized gains (losses) (includes $(119), $(151), and $(24) reclassified from AOCI)
(145) (420) (507)
Total revenues19,171
 19,261
 17,936
31,469
 18,987
 19,171
Expenses          
Losses and loss expenses9,649
 9,348
 9,653
16,052
 9,484
 9,649
Policy benefits517
 515
 521
588
 543
 517
Policy acquisition costs3,075
 2,659
 2,446
5,904
 2,941
 3,075
Administrative expenses2,245
 2,211
 2,096
3,081
 2,270
 2,245
Interest expense280
 275
 250
605
 300
 280
Other (income) expense(82) 15
 (6)(222) (51) (190)
Amortization of purchased intangibles19
 171
 108
Chubb integration expenses492
 33
 
Total expenses15,684
 15,023
 14,960
26,519
 15,691
 15,684
Income before income tax3,487
 4,238
 2,976
4,950
 3,296
 3,487
Income tax expense (includes $9 and $17 on reclassified unrealized gains and losses in 2014 and 2013)634
 480
 270
Income tax expense (includes $28, $(2), and $9 on reclassified unrealized gains and losses)
815
 462
 634
Net income$2,853
 $3,758
 $2,706
$4,135
 $2,834
 $2,853
Other comprehensive income (loss)          
Unrealized appreciation (depreciation)$820
 $(1,762) $1,350
$(35) $(1,280) $820
Reclassification adjustment for net realized (gains) losses included in net income24
 (105) (234)119
 151
 24
844
 (1,867) 1,116
84
 (1,129) 844
Change in:          
Cumulative translation adjustment(632) (339) 116
Pension liability2
 
 (35)
Cumulative foreign currency translation adjustment(154) (958) (632)
Postretirement benefit liability adjustment545
 15
 2
Other comprehensive income (loss), before income tax214
 (2,206) 1,197
475
 (2,072) 214
Income tax benefit (expense) related to OCI items(175) 471
 (221)
Income tax (expense) benefit related to OCI items(54) 146
 (175)
Other comprehensive income (loss)39
 (1,735) 976
421
 (1,926) 39
Comprehensive income$2,892
 $2,023
 $3,682
$4,556
 $908
 $2,892
Earnings per share          
Basic earnings per share$8.50
 $11.02
 $7.96
$8.94
 $8.71
 $8.50
Diluted earnings per share$8.42
 $10.92
 $7.89
$8.87
 $8.62
 $8.42
See accompanying notes to the consolidated financial statements


F-6


CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
ACEChubb Limited and Subsidiaries

For the years ended December 31, 2014, 2013 and 2012 
For the years ended December 31, 2016, 2015 and 2014 
(in millions of U.S. dollars)2014
 2013
 2012
2016
 2015
 2014
Common Shares          
Balance – beginning of year$8,899
 $9,591
 $10,095
$7,833
 $8,055
 $8,899
Shares issued for Chubb Corp acquisition3,288
 
 
Dividends declared on Common Shares – par value reduction(844) (692) (504)
 (222) (844)
Balance – end of year8,055
 8,899
 9,591
11,121
 7,833
 8,055
Common Shares in treasury          
Balance – beginning of year(255) (159) (327)(1,922) (1,448) (255)
Common Shares repurchased(1,449) (290) (7)
 (734) (1,449)
Net shares redeemed under employee share-based compensation plans256
 194
 175
442
 260
 256
Balance – end of year(1,448) (255) (159)(1,480) (1,922) (1,448)
Additional paid-in capital          
Balance – beginning of year5,238
 5,179
 5,326
4,481
 5,145
 5,238
Shares issued for Chubb Corp acquisition11,916
 
 
Equity awards assumed in Chubb Corp acquisition323
 
 
Net shares redeemed under employee share-based compensation plans(167) (126) (93)(382) (160) (167)
Exercise of stock options(58) (42) (7)(64) (61) (58)
Share-based compensation expense and other185
 191
 135
313
 184
 185
Funding of dividends declared to Retained earnings(81) 
 (200)(1,284) (653) (81)
Tax benefit on share-based compensation expense28
 36
 18
32
 26
 28
Balance – end of year5,145
 5,238
 5,179
15,335
 4,481
 5,145
Retained earnings          
Balance – beginning of year13,791
 10,033
 7,327
19,478
 16,644
 13,791
Net income2,853
 3,758
 2,706
4,135
 2,834
 2,853
Funding of dividends declared from Additional paid-in capital81
 
 200
1,284
 653
 81
Dividends declared on Common Shares(81) 
 (200)(1,284) (653) (81)
Balance – end of year16,644
 13,791
 10,033
23,613
 19,478
 16,644
Accumulated other comprehensive income     
Accumulated other comprehensive income (loss)     
Net unrealized appreciation on investments          
Balance – beginning of year1,174
 2,633
 1,715
874
 1,851
 1,174
Change in year, before reclassification from AOCI, net of income tax benefit (expense) of $(176) and $391644
 (1,371)  
Amounts reclassified from AOCI, net of income tax benefit of $9 and $1733
 (88)  
Change in year, net of income tax benefit (expense) of $(167), $408, and $(198)677
 (1,459) 918
Change in year, before reclassification from AOCI, net of income tax benefit (expense) of $72, $154, and $(176)
37
 (1,126) 644
Amounts reclassified from AOCI, net of income tax benefit (expense) of $28, $(2), and $9
147
 149
 33
Change in year, net of income tax benefit (expense) of $100, $152, and $(167)
184
 (977) 677
Balance – end of year1,851
 1,174
 2,633
1,058
 874
 1,851
Cumulative translation adjustment     
Cumulative foreign currency translation adjustment     
Balance – beginning of year63
 339
 258
(1,539) (581) 63
Change in year, net of income tax benefit (expense) of $(12), $63, and $(35)(644) (276) 81
Change in year, net of income tax benefit (expense) of $30, nil, and $(12)
(124) (958) (644)
Balance – end of year(581) 63
 339
(1,663) (1,539) (581)
Pension liability adjustment     
Postretirement benefit liability adjustment     
Balance – beginning of year(85) (85) (62)(70) (79) (85)
Change in year, net of income tax benefit of $4, nil, and $126
 
 (23)
Change in year, net of income tax benefit (expense) of $(184), $(6), and $4
361
 9
 6
Balance – end of year(79) (85) (85)291
 (70) (79)
Accumulated other comprehensive income1,191
 1,152
 2,887
Accumulated other comprehensive income (loss)(314) (735) 1,191
Total shareholders’ equity$29,587
 $28,825
 $27,531
$48,275
 $29,135
 $29,587
 
See accompanying notes to the consolidated financial statements


F-7


CONSOLIDATED STATEMENTS OF CASH FLOWS
ACEChubb Limited and Subsidiaries


For the years ended December 31, 2014, 2013, and 2012 
For the years ended December 31, 2016, 2015, and 2014 
(in millions of U.S. dollars)2014
 2013
 2012
2016
 2015
 2014
Cash flows from operating activities          
Net income$2,853
 $3,758
 $2,706
$4,135
 $2,834
 $2,853
Adjustments to reconcile net income to net cash flows from operating activities
 
 

 
 
Net realized (gains) losses507
 (504) (78)145
 420
 507
Amortization of premiums/discounts on fixed maturities188
 268
 220
737
 158
 188
Amortization of UPR related to the Chubb Corp acquisition1,559
 
 
Deferred income taxes145
 240
 (7)96
 113
 145
Unpaid losses and loss expenses317
 (365) 203
332
 (375) 317
Unearned premiums441
 402
 522
(680) 335
 441
Future policy benefits236
 191
 158
188
 216
 236
Insurance and reinsurance balances payable376
 176
 (151)848
 268
 376
Accounts payable, accrued expenses, and other liabilities13
 37
 (42)(97) 179
 13
Income taxes payable103
 (45) (167)147
 (148) 103
Insurance and reinsurance balances receivable(469) (624) 335
(616) (53) (469)
Reinsurance recoverable on losses and loss expenses119
 787
 372
(365) 218
 119
Reinsurance recoverable on policy benefits4
 23
 52
7
 33
 4
Deferred policy acquisition costs(397) (503) (340)(1,449) (435) (397)
Prepaid reinsurance premiums(89) (31) (123)18
 (212) (89)
Other149
 212
 335
287
 313
 149
Net cash flows from operating activities4,496
 4,022
 3,995
5,292
 3,864
 4,496
Cash flows from investing activities    
    
Purchases of fixed maturities available for sale(15,553) (21,340) (23,572)(30,759) (16,040) (15,553)
Purchases of to be announced mortgage-backed securities
 (58) (389)(56) (31) 
Purchases of fixed maturities held to maturity(267) (447) (388)(282) (62) (267)
Purchases of equity securities(251) (264) (135)(146) (158) (251)
Sales of fixed maturities available for sale7,482
 10,355
 14,321
16,621
 10,783
 7,482
Sales of to be announced mortgage-backed securities
 58
 448
56
 31
 
Sales of equity securities670
 142
 119
1,000
 183
 670
Maturities and redemptions of fixed maturities available for sale6,413
 6,941
 5,523
9,349
 6,567
 6,413
Maturities and redemptions of fixed maturities held to maturity875
 1,488
 1,451
958
 669
 875
Net change in short-term investments(603) 524
 117
12,350
 (8,216) (603)
Net derivative instruments settlements(230) (471) (281)(168) (21) (230)
Acquisition of subsidiaries (net of cash acquired of $20, $38, and $8)(766) (977) (98)
Acquisition of subsidiaries (net of cash acquired of $71, $629, and $20)
(14,248) 264
 (766)
Other(274) (393) (555)10
 (263) (274)
Net cash flows used for investing activities(2,504) (4,442) (3,439)(5,315) (6,294) (2,504)
Cash flows from financing activities          
Dividends paid on Common Shares(862) (517) (815)(1,173) (862) (862)
Common Shares repurchased(1,429) (287) (11)
 (758) (1,429)
Proceeds from issuance of long-term debt699
 947
 

 6,090
 699
Proceeds from issuance of short-term debt1,978
 2,572
 2,933
Proceeds from issuance of repurchase agreements2,310
 2,029
 1,978
Repayment of long-term debt(501) 
 

 (1,150) (501)
Repayment of short-term debt(1,977) (2,572) (2,783)
Repayment of repurchase agreements(2,311) (2,027) (1,977)
Proceeds from share-based compensation plans, including windfall tax benefits127
 135
 126
167
 131
 127
Policyholder contract deposits522
 503
 366
Policyholder contract withdrawals(253) (221) (172)
Other188
 113
 
(4) (40) (6)
Net cash flows (used for) from financing activities(1,777) 391
 (550)(742) 3,695
 (1,777)
Effect of foreign currency rate changes on cash and cash equivalents(139) (7) (5)(25) (145) (139)
Net increase (decrease) in cash76
 (36) 1
Net (decrease) increase in cash(790) 1,120
 76
Cash – beginning of year579
 615
 614
1,775
 655
 579
Cash – end of year$655
 $579
 $615
$985
 $1,775
 $655
Supplemental cash flow information          
Taxes paid$349
 $218
 $438
$662
 $469
 $349
Interest paid$264
 $253
 $240
$642
 $259
 $264
See accompanying notes to the consolidated financial statements


F-8


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ACEChubb Limited and Subsidiaries




1. Summary of significant accounting policies

a) Basis of presentation
On January 14, 2016, we completed the acquisition of The Chubb Corporation (Chubb Corp), creating a global leader in property and casualty (P&C) insurance. We have changed our name from ACE Limited to Chubb Limited and plan to adopt the Chubb name globally, although some subsidiaries may continue to use ACE as a part of their name.

Chubb Limited is a holding company incorporated in Zurich, Switzerland. ACEChubb Limited, through its subsidiaries, provides a broad range of insurance and reinsurance products to insureds worldwide. ACE operatesEffective the first quarter of 2016, our results are reported through fivethe following business segments: Insurance – North AmericanAmerica Commercial P&C Insurance, North American Agriculture,America Personal P&C Insurance, North America Agricultural Insurance, Overseas General Insurance, Global Reinsurance, and Life.Life Insurance. This reflects our significantly larger and expanded operations subsequent to our acquisition of Chubb Corp. We have also redefined Corporate to include all run-off asbestos and environmental (A&E) exposures, the results of our run-off Brandywine business, the results of Westchester specialty operations for 1996 and prior years, and certain run-off exposures. Prior period amounts of Chubb Limited (i.e., excluding the historical results of Chubb Corp) contained in this report have been adjusted to conform to the new segment presentation. The results of operations and cash flows of Chubb Corp are included from the acquisition date forward (i.e., after January 14, 2016). Refer to Note 15 for additional information.

The accompanying consolidated financial statements, which include the accounts of ACEChubb Limited and its subsidiaries (collectively, ACE,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 consolidatedConsolidated financial statements reflect our best estimates and assumptions; actual amounts could differ materially from these estimates. ACE'sChubb'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 valuationassessment of goodwill.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 property and casualty (P&C)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


F-9


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
Chubb Limited and Subsidiaries


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.


F-9


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
ACE Limited and Subsidiaries



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 1k) 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 consolidatedConsolidated 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 Insurance – Overseas General Insurance segment, which are deferred and recognized as a component of policyPolicy 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 deferredDeferred 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 consolidatedConsolidated balance sheets was $288$256 million and $307$250 million at December 31, 20142016 and 2013,2015, respectively. Amortization expense for deferred marketing costs was $99$92 million, $128$78 million, and $119$99 million for the years ended December 31, 2014, 2013,2016, 2015, and 2012,2014, respectively.

d) Reinsurance
ACEChubb 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 ACEChubb of its primary obligation to policyholders.



F-10


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
Chubb Limited and Subsidiaries


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, ACEChubb 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 1k) k).

Reinsurance recoverable includes balances due from reinsurance companies for paid and unpaid losses and loss expenses and 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


F-10


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
ACE Limited and Subsidiaries


those used to establish the associated liability for unpaid losses and loss expenses as well as a determination of ACE'sChubb'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 an ACE-onlya Chubb-only beneficiary trust, letters of credit, and liabilities held with the same legal entity for which ACEChubb 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.in-force.



F-11


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
Chubb Limited and Subsidiaries


The value of reinsurance business assumed of $26$20 million and $27$21 million at December 31, 20142016 and 2013,2015, respectively, included in Other assets in the accompanying consolidatedConsolidated 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 lossesLosses 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.


F-11


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
ACE Limited and Subsidiaries


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.value and income is recorded in Other income (expense).
Policy loans are carried at outstanding balance.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 Net income.Other (income) expense.
Other investments over which ACEChubb can exercise significant influence are accounted for using the equity method.method and income is recorded in Other (income) expense.
All other investments over which ACEChubb 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 ACE'sChubb's investments in investment funds where our ownership interest is in excess of three percent are accounted for under the equity method because ACEChubb exerts significant influence. These investments apply investment company accounting to determine operating results, and ACEChubb 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 ACEChubb 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 consolidatedConsolidated 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 Consolidated


F-12


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
Chubb Limited and Subsidiaries


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, 2016, the remaining balance of this fair value adjustment was $1,226 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. 

ACEChubb 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, of102 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


F-12


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
ACE Limited and Subsidiaries


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 total assetsthe 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 ACEChubb 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 Short-term debtRepurchase agreements in the consolidatedConsolidated balance sheets.

Refer to Note 4 for a discussion on the determination of fair value for ACE'sChubb'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 ACEChubb 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 ACEChubb 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 an ACEa Chubb entity would be guaranteed by ACEChubb 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 ACEChubb entities overdraw contributed funds from the pool.

g) Goodwill and otherOther 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


F-13

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
Chubb Limited and Subsidiaries


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.

During the third quarter of 2014, we changed our annual goodwill impairment testing date from December 31 to September 30 of each year. We believe this change is preferable as it more closely aligns the goodwill impairment testing date with the timing of our strategic business planning process. This change does not result in any delay, acceleration or avoidance of impairment. Based on our impairment testing for 2014, we determined no impairment was required and none of our reporting units were at risk for impairment.

Indefinite lived intangible assets are not subject to amortization. Finite lived intangible assets are amortized over their useful lives, generally ranging from 1 to 2030 years. The amortization of finite lived intangible assets is reported in Other (income) expense in the consolidated statements of operations. 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.



F-13

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
ACE Limited and Subsidiaries


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, ACE'sChubb'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 $49$38 million net of discount, held at December 31, 2014,2016, representing certain structured settlements for which the timing and amount of future claim payments are reliably determinable and $62$50 million, net of discount, of certain reserves for unsettled claims that are discounted in statutory filings, ACEChubb does not discount its P&C loss reserves. This compares with reserves of $54$42 million for certain structured settlements and $52$50 million of certain reserves for unsettled claims at December 31, 2013.2015. 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. ACEChubb retains the liability to the claimant in the event that the life insurance company fails to pay. At December 31, 2014,2016, the gross liability due to claimants was $606$595 million, net of discount, and reinsurance recoverables due from the life insurance companies was $557 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, 20142016 are included in Other assets in the consolidatedConsolidated balance sheets, as they do not meet the requirements for reinsurance accounting.

Included in unpaidUnpaid 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, ACEChubb 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 an adjustment of $715 million related to Chubb Corp to adjust the carrying value of Chubb Corp’s historical unpaid losses and loss expenses to fair value at the acquisition date. 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. At December 31, 2016, the remaining balance of the fair value adjustment is $470 million.

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


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Chubb Limited and Subsidiaries


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 6.58.0 percent and less than 1.0 percent to 7.2 percent at both December 31, 20142016 and 2013.2015, respectively. 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 consolidatedConsolidated balance sheets. Changes in the fair value of separate account assets that do not


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
ACE Limited and Subsidiaries


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 consolidatedConsolidated statements of operations.

j) Assumed reinsurance programs involving minimum benefit guarantees under variable annuity contracts
ACEChubb 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 product meetsproducts meet the definition of a derivative for accounting purposes and is carried at fair value with changes in fair value recognized in income. Refer to Notes 5 c)c) and 10 a) for additional information.

k)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.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
Chubb Limited and Subsidiaries


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$93 million and $100$86 million at December 31, 20142016 and 2013,2015, respectively, are reflected in Other assets in the consolidatedConsolidated 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 consolidatedConsolidated statements of operations.

Deposit liabilities include reinsurance deposit liabilities of $120$108 million and $131$110 million and contract holder deposit funds of $908 million$1.5 billion and $699 million$1.1 billion at December 31, 20142016 and 2013,2015, respectively. Deposit liabilities are reflected in Accounts payable, accrued expenses, and other liabilities in the consolidatedConsolidated 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
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TableProperty 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 Contentsthe assets. Property and equipment are included in Other assets in the Consolidated balance sheets and totaled $1.2 billion and $938 million at December 31, 2016 and 2015, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
ACE Limited and Subsidiaries


l)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 consolidatedConsolidated 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.

m)n) Administrative expenses
Administrative expenses generally include all operating costs other than policy acquisition costs. The Insurance – North AmericanAmerica 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 consolidatedConsolidated statements of operations and were $27$32 million, $25$30 million, and $23$27 million for the years ended December 31, 2014, 2013,2016, 2015, and 2012,2014, respectively.

n)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 consolidatedConsolidated financial statements and the tax basis of our assets and liabilities. Refer to Note 8 for additional information. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. 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 is greater than 50 percent likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.

o)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


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
Chubb Limited and Subsidiaries


outstanding is increased to include all potentially dilutive securities. Basic and diluted earnings per share are calculated by dividing Netnet income by the applicable weighted-average number of shares outstanding during the year.

p)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.

q)r) Derivatives
ACEChubb recognizes all derivatives at fair value in the consolidatedConsolidated 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 20142016 and 2013,2015, 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 statementConsolidated statements of operations.

We did not designate any derivatives as accounting hedges during 2014, 2013,2016, 2015, or 2012.



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Table of Contents2014.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
ACE Limited and Subsidiaries


r)s) Share-based compensation
ACEChubb 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 was, in substance, multiple awards. Refer to Note 12 for additional information.

t) Chubb integration expenses
Direct costs related to the Chubb Corp acquisition are expensed as incurred. Chubb integration expenses were $492 million for the year ended December 31, 2016, 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; consulting fees; and advisor fees. Chubb integration expenses were $33 million for the year ended December 31, 2015, consisting primarily of consulting and legal fees.

u) New accounting pronouncements
Adopted in 2016
Presentation of Debt Issuance Costs
In April 2015, the Financial Accounting Standard Board (FASB) issued new guidance related to the accounting for debt issuance costs. The new guidance requires presentation of debt issuance costs in the Consolidated balance sheets as a reduction of the carrying amount of the related debt liability instead of as a deferred charge. Previously this cost was recorded in Other assets. We retrospectively adopted this guidance effective January 1, 2016 and reclassified $60 million of debt issuance costs from Other assets to Long-term debt ($58 million) and Trust preferred securities ($2 million) as of December 31, 2015.

Short-Duration Contracts
In May 2015, the FASB issued guidance that requires additional disclosures for short-duration insurance contracts. We adopted this disclosure as of December 31, 2016, and have included in Note 7, new disclosures that provide more information about initial claim estimates and subsequent adjustments to those estimates, the methodologies and judgments used to estimate claims, and the timing, frequency, and severity of claims. This guidance requires a change in disclosure only and adoption of this guidance did not have an impact on our financial condition or results of operations.

Adopted in 2015
Business Combinations Simplifying the Accounting for Measurement-Period Adjustments
In September 2015, the Financial Accounting Standards Board (FASB) issued guidance to simplify the accounting for adjustments made to provisional valuation amounts recognized in a business combination. The guidance requires that the acquirer must recognize adjustments to provisional valuation amounts that are identified during the measurement period in the


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Chubb Limited and Subsidiaries


reporting period in which the adjustment amounts are determined. The guidance eliminates the requirement to retrospectively account for such adjustments. Previously, the accounting for measurement-period adjustments required the acquirer to retrospectively adjust the provisional amounts recognized at the acquisition date with a corresponding adjustment to goodwill.  We early adopted this guidance effective July 1, 2015. The adoption of this guidance did not have an impact on our financial condition or results of operations.

Disclosures for investments in certain entities that calculate net asset value (NAV)
In May 2015, the FASB issued guidance that eliminated the requirement for investments measured at fair value using NAV as a practical expedient to be categorized within the fair value hierarchy. We adopted this guidance early, effective July 1, 2015 and have retrospectively revised prior year fair value hierarchy disclosures contained in this report to conform to the current period presentation. Refer to Note 4 Fair Value Measurement for further information. This guidance requires a change in disclosure only and adoption of this guidance did not have an impact on our financial condition or results of operations.

Adopted in 2017
Stock Compensation (adopted prospectively effective January 1, 2017)
In March 2016, the FASB issued guidance which requires recognition of the excess tax benefits or deficiencies of awards through net income rather than through additional paid in capital. Additionally, the guidance allows for an election to account for forfeitures related to share-based payments either as they occur or through an estimation method. We adopted this guidance effective January 1, 2017 and are recognizing the excess tax benefits (deficiencies) within our results of operations. The calculation of the excess tax benefits and 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. The impact of adoption cannot be estimated at this time. However, based on excess tax benefits recognized in prior years, we do not expect adoption of this guidance to have a material impact on our financial condition and results of operations. Additionally, we elected to retain our current accounting for compensation expense using a forfeiture estimation process.

Accounting guidance not yet adopted
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. The standard is effective for us in the first quarter of 2018 with early adoption permitted. The adoption of this guidance is not expected to 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) and an assessment of a valuation allowance on deferred tax assets related to unrealized losses of available for sale (AFS) debt securities in combination with other deferred tax assets. The standard is effective for us in the first quarter of 2018. We are in the process of evaluating the effect the updated guidance will have on our financial condition or results of operations.

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


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
Chubb Limited and Subsidiaries


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.

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. The updated guidance is effective for us in the first quarter of 2018 with early adoption permitted. The updated guidance should be applied retrospectively, unless it is impracticable to do so, at which point the guidance should be applied prospectively. We are in the process of evaluating the effect the updated guidance will have on our statements of cash flows.

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. The standard is effective for us in the first quarter of 2020 on a prospective basis with early adoption permitted. We do not expect the adoption of this guidance to have a material effect on our financial condition and results of operations.

2. Acquisitions

The Chubb Corporation
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, based on the Chubb Limited (formerly ACE Limited) closing price on the acquisition date. 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 billionof 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, 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.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
Chubb Limited and Subsidiaries


The table below details the purchase consideration and allocation of assets acquired and liabilities assumed:
  
(in millions, except per share data) 
Purchase consideration 
Chubb Limited common shares 
Chubb Corp common shares outstanding228
Per share exchange ratio0.6019
Common shares issued by Chubb Limited137
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 outstanding228
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
Investments42,967
Accrued investment income359
Insurance and reinsurance balances receivable3,095
Reinsurance recoverable on losses and loss expenses1,676
Indefinite lived intangible assets2,860
Finite lived intangible assets4,795
Prepaid reinsurance premiums280
Other assets853
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 acquired19,332
Goodwill10,514
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.

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



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
Chubb Limited and Subsidiaries


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 underwriting actions in the current year, which lowered net premiums earned.

Prior year acquisitions

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.

Large Corporate Account P&C Insurance Business of Itaú Seguros, S.A. (Itaú Seguros)
On October 31, 2014, we expanded our presence in Brazil with the acquisition of the large corporate account property and casualty (P&C) insurance business of Itaú Seguros, Brazil's leading carrier for that business, for approximately $610$606 million in cash, subject to a working capital adjustment under the purchase agreement expected to be finalized in March 2015.cash. This acquisition generated $449$445 million of goodwill, attributable to expected growth and profitability, noneand other intangible assets of which is currently deductible for income tax purposes. Goodwill may become$60 million, primarily related to renewal rights based on Chubb's purchase price allocation. During the fourth quarter of 2015, goodwill became deductible for income tax purposes under Brazilian tax law if this acquired entity iswhen we merged Itaú Seguros with certain ACE legal entities. Other intangible assets of $60 million were also generated based on ACE’s preliminary purchase price allocation. The other intangible assets primarily relate to renewal rights.a Chubb subsidiary.

The Siam Commercial Samaggi Insurance PCL (Samaggi)
We and our local partner acquired 60.86 percent of Samaggi, a general insurance company in Thailand, from Siam Commercial Bank on April 28, 2014, and subsequently acquired an additional 32.17 percent ownership, through a mandatory tender offer, which expired on June 17, 2014. The purchase price for 93.03 percent of the company was $176 million in cash. This acquisition expands our presence in Thailand and Southeast Asia.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
Chubb Limited and Subsidiaries


The acquisition generated $46 million of goodwill, attributable to expected growth and profitability, none of which is expected to be deductible for income tax purposes, and other intangible assets of $80 million based on ACE’s preliminaryChubb’s purchase price allocation. The other intangible assets primarily relate to a bancassurance agreement.

Prior year acquisitions

ABA Seguros
On May 2, 2013, we acquired ABA Seguros, a property and casualty insurer in Mexico that provides automobile, homeowners, and small business coverages, for approximately $690 million in cash.

The acquisition generated $285 million of goodwill, attributable to expected growth and profitability, none of which is expected to be deductible for income tax purposes, and other intangible assets of $140 million based on ACE’s purchase price allocation. The other intangible assets primarily relate to distribution channels.

Fianzas Monterrey
On April 1, 2013, we acquired Fianzas Monterrey, a leading surety lines company in Mexico offering administrative performance bonds primarily to clients in the construction and industrial sectors, for approximately $293 million in cash. This acquisition expands our global franchise in the surety business and enhances our existing commercial lines and personal accident insurance business in Mexico.

The acquisition generated $137 million of goodwill, attributable to expected growth and profitability, none of which is expected to be deductible for income tax purposes, and other intangible assets of $73 million, based on ACE's purchase price allocation. The other intangible assets primarily relate to customer lists.

PT Asuransi Jaya Proteksi
We acquired 80 percent of PT Asuransi Jaya Proteksi (JaPro) on September 18, 2012 and our local partner acquired the remaining 20 percent on January 3, 2013. JaPro is one of Indonesia's leading general insurers offering personal lines and commercial coverages. This acquisition diversifies our existing business in Indonesia. The total purchase price for 100 percent of the company was approximately $107 million in cash.

Goodwill and other intangible assets arising from the prior year acquisitions of Itaú Seguros and Samaggi described above are included in our Insurance – Overseas General Insurance segment.

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

3. Investments

a) Fixed maturities
December 31, 2016
Amortized
Cost

 
Gross
Unrealized
Appreciation

 
Gross
Unrealized
Depreciation

 
Fair
Value

 
OTTI Recognized
in AOCI

(in millions of U.S. dollars)    
Available for sale         
U.S. Treasury and agency$2,883
 $32
 $(45) $2,870
 $
Foreign20,929
 636
 (125) 21,440
 (5)
Corporate securities23,736
 580
 (167) 24,149
 (8)
Mortgage-backed securities14,066
 135
 (194) 14,007
 (1)
States, municipalities, and political subdivisions17,922
 72
 (345) 17,649
 
 $79,536
 $1,455
 $(876) $80,115
 $(14)
Held to maturity         
U.S. Treasury and agency$655
 $9
 $(3) $661
 $
Foreign640
 28
 (1) 667
 
Corporate securities2,771
 50
 (26) 2,795
 
Mortgage-backed securities1,393
 35
 
 1,428
 
States, municipalities, and political subdivisions5,185
 26
 (92) 5,119
 
 $10,644
 $148
 $(122) $10,670
 $

December 31, 2015Amortized
Cost

 Gross
Unrealized
Appreciation

 Gross
Unrealized
Depreciation

 Fair
Value

 OTTI Recognized
in AOCI

(in millions of U.S. dollars)    
Available for sale         
U.S. Treasury and agency$2,481
 $52
 $(5) $2,528
 $
Foreign13,190
 468
 (213) 13,445
 (13)
Corporate securities15,028
 355
 (454) 14,929
 (28)
Mortgage-backed securities9,827
 183
 (52) 9,958
 (1)
States, municipalities, and political subdivisions2,623
 110
 (6) 2,727
 
 $43,149
 $1,168
 $(730) $43,587
 $(42)
Held to maturity         
U.S. Treasury and agency$733
 $13
 $(1) $745
 $
Foreign763
 30
 (8) 785
 
Corporate securities3,054
 57
 (55) 3,056
 
Mortgage-backed securities1,707
 38
 (2) 1,743
 
States, municipalities, and political subdivisions2,173
 52
 (2) 2,223
 
 $8,430
 $190
 $(68) $8,552
 $


F-17
F-22

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACEChubb Limited and Subsidiaries


To be acquired after 2014
On December 18, 2014, we announced that we have signed a definitive agreement to acquire the Fireman's Fund high net worth personal lines insurance business in the U.S. from Allianz for approximately $365 million. The acquisition is expected to expand ACE’s position as one of the largest high net worth personal lines insurers in the U.S. The transaction, which is subject to customary closing conditions, including insurance regulatory approval, is expected to be completed in the second quarter of 2015.

3. Investments

a) Transfers of securities
During the third quarter of 2014, we decided to transfer securities, considered essential holdings in a diversified portfolio, with a total fair value of $2.0 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 ACE’s 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 being 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, 2014
Amortized
Cost

 
Gross
Unrealized
Appreciation

 
Gross
Unrealized
Depreciation

 
Fair
Value

 
OTTI Recognized
in AOCI

(in millions of U.S. dollars)    
Available for sale         
U.S. Treasury and agency$2,741
 $87
 $(8) $2,820
 $
Foreign14,703
 629
 (90) 15,242
 
Corporate securities16,897
 704
 (170) 17,431
 (7)
Mortgage-backed securities10,011
 304
 (29) 10,286
 (1)
States, municipalities, and political subdivisions3,474
 147
 (5) 3,616
 
 $47,826
 $1,871
 $(302) $49,395
 $(8)
Held to maturity         
U.S. Treasury and agency$832
 $20
 $(2) $850
 $
Foreign916
 47
 
 963
 
Corporate securities2,323
 102
 (2) 2,423
 
Mortgage-backed securities1,983
 57
 (1) 2,039
 
States, municipalities, and political subdivisions1,277
 40
 (3) 1,314
 
 $7,331
 $266
 $(8) $7,589
 $


F-18


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
ACE Limited and Subsidiaries



December 31, 2013Amortized
Cost

 Gross
Unrealized
Appreciation

 Gross
Unrealized
Depreciation

 Fair
Value

 OTTI Recognized
in AOCI

(in millions of U.S. dollars)    
Available for sale         
U.S. Treasury and agency$2,946
 $62
 $(59) $2,949
 $
Foreign14,336
 377
 (122) 14,591
 
Corporate securities16,825
 777
 (132) 17,470
 (6)
Mortgage-backed securities10,937
 184
 (227) 10,894
 (34)
States, municipalities, and political subdivisions3,362
 65
 (77) 3,350
 
 $48,406
 $1,465
 $(617) $49,254
 $(40)
Held to maturity         
U.S. Treasury and agency$820
 $16
 $(4) $832
 $
Foreign864
 33
 
 897
 
Corporate securities1,922
 83
 
 2,005
 
Mortgage-backed securities1,341
 39
 (1) 1,379
 
States, municipalities, and political subdivisions1,151
 16
 (17) 1,150
 
 $6,098
 $187
 $(22) $6,263
 $

As discussed in Note 3 d)c), 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 UnrealizedNet unrealized appreciation (depreciation)on investments in the consolidatedConsolidated statement of shareholders' equity. For the years ended December 31, 20142016 and 2013, $4 million and $252015, $62 million of net unrealized appreciation and $15 million of net unrealized depreciation, respectively, related to such securities is included in OCI. At December 31, 20142016 and 2013,2015, AOCI included cumulative net unrealized appreciation of $10 million and net unrealized depreciation of $3 million and $4$35 million, respectively, related to securities remaining in the investment portfolio for which ACE has recognized a non-credit OTTI.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 a) c) (iv)) and are included in the category, “Mortgage-backed securities”. Approximately 8381 percent of the total mortgage-backed securities at both December 31, 20142016 and 20132015, 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.


F-19


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
ACE Limited and Subsidiaries



The following table presents fixed maturities by contractual maturity:
December 31  December 31 December 31  December 31 
  2014
   2013
  2016
   2015
(in millions of U.S. dollars)Amortized Cost
 Fair Value
 Amortized Cost
 Fair Value
Amortized Cost
 Fair Value
 Amortized Cost
 Fair Value
Available for sale              
Due in 1 year or less$2,187
 $2,206
 $2,387
 $2,411
$3,892
 $3,913
 $1,856
 $1,865
Due after 1 year through 5 years15,444
 15,857
 14,139
 14,602
24,027
 24,429
 14,936
 15,104
Due after 5 years through 10 years15,663
 16,089
 16,200
 16,535
27,262
 27,379
 12,258
 12,173
Due after 10 years4,521
 4,957
 4,743
 4,812
10,289
 10,387
 4,272
 4,487
37,815
 39,109
 37,469
 38,360
65,470
 66,108
 33,322
 33,629
Mortgage-backed securities10,011
 10,286
 10,937
 10,894
14,066
 14,007
 9,827
 9,958
$47,826
 $49,395
 $48,406
 $49,254
$79,536
 $80,115
 $43,149
 $43,587
Held to maturity              
Due in 1 year or less$353
 $355
 $401
 $405
$430
 $435
 $492
 $495
Due after 1 year through 5 years2,603
 2,693
 2,284
 2,363
2,646
 2,691
 2,443
 2,517
Due after 5 years through 10 years1,439
 1,489
 1,686
 1,723
2,969
 2,944
 2,292
 2,313
Due after 10 years953
 1,013
 386
 393
3,206
 3,172
 1,496
 1,484
5,348
 5,550
 4,757
 4,884
9,251
 9,242
 6,723
 6,809
Mortgage-backed securities1,983
 2,039
 1,341
 1,379
1,393
 1,428
 1,707
 1,743
$7,331
 $7,589
 $6,098
 $6,263
$10,644
 $10,670
 $8,430
 $8,552
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)

F-23


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
Chubb Limited and Subsidiaries



b) Equity securities
December 31

December 31
December 31

December 31
(in millions of U.S. dollars)2014

2013
2016

2015
Cost$440
 $841
$706
 $441
Gross unrealized appreciation83
 63
129
 74
Gross unrealized depreciation(13) (67)(21) (18)
Fair value$510
 $837
$814
 $497

During the third quarter of 2014, we elected to exchange our interest in a strategic emerging debt portfolio, a mutual fund classified as an equity security investment, for direct ownership of certain of the underlying fixed maturities, and the remainder in cash. This transaction increased realized losses and decreased unrealized losses with no impact to shareholders' equity. The non-cash portion of the transaction was $219 million and does not impact the Consolidated Statements of Cash Flows.
d)c) 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, ACEwe 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.



F-20


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
ACE Limited and Subsidiaries


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
ACE’sour 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 consolidatedConsolidated balance sheet,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 $60$725 million of gross unrealized loss at December 31, 2014.2016. 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. ACEWe concluded that the high level of creditworthiness of the issuers coupled with credit enhancement, where applicable, supports recognizing no credit loss in netNet 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. ACEChubb developed projected cash


F-24


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
Chubb Limited and Subsidiaries


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, ACEChubb 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.


F-21


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
ACE Limited and Subsidiaries



The following table presents default assumptions by Moody's rating category (historical mean default rate provided for comparison):
Moody's Rating Category1-in-100 Year Default Rate
 Historical Mean Default Rate
1-in-100 Year Default Rate
 Historical Mean Default Rate
Investment Grade:      
Aaa-Baa0.0-1.3%
 0.0-0.3%
0.0–1.3%
 0.0–0.3%
Below Investment Grade:      
Ba4.9% 1.1%4.8% 1.0%
B12.7% 3.4%12.1% 3.2%
Caa-C50.5% 13.1%36.7% 10.5%

Application of the methodology and assumptions described above resulted in credit losses recognized in Net income for corporate securities of $27$30 million, $11$50 million, and $14$27 million for the years ended December 31, 2014, 2013,2016, 2015, and 2012,2014, 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.

ACE developsWe develop specific assumptions using market data, where available, and includesinclude internal estimates as well as estimates published by rating agencies and other third-party sources. ACE projectsWe 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.

Application ofFor the methodology and assumptions described above resulted in nil, $1 million, and $6year ended December 31, 2016, there were $1 million of credit losses recognized in Net income for mortgage-backed securities forsecurities. For the years ended December 31, 2014, 20132015 and 2012, respectively.2014, there were no credit losses recognized in Net income for mortgage-backed securities.


F-22
F-25


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACEChubb Limited and Subsidiaries


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: 
Years Ended December 31 Year Ended December 31 
(in millions of U.S. dollars)2014
 2013
 2012
2016
 2015
 2014
Fixed maturities:          
OTTI on fixed maturities, gross$(64) $(18) $(26)$(89) $(142) $(64)
OTTI on fixed maturities recognized in OCI (pre-tax)7
 
 1
8
 39
 7
OTTI on fixed maturities, net(57) (18) (25)(81) (103) (57)
Gross realized gains excluding OTTI213
 237
 388
183
 158
 213
Gross realized losses excluding OTTI(133) (129) (133)(265) (235) (133)
Total fixed maturities23
 90
 230
(163) (180) 23
Equity securities:          
OTTI on equity securities(8) (2) (5)(8) (7) (8)
Gross realized gains excluding OTTI22
 21
 11
65
 47
 22
Gross realized losses excluding OTTI(61) (4) (2)(13) (11) (61)
Total equity securities(47) 15
 4
44
 29
 (47)
OTTI on other investments(3) (2) (7)(14) (2) (3)
Foreign exchange gains (losses)(40) 29
 (16)118
 (80) (40)
Investment and embedded derivative instruments(107) 78
 (6)(33) 32
 (107)
Fair value adjustments on insurance derivative(217) 878
 171
53
 (203) (217)
S&P put options and futures(168) (579) (297)(136) (10) (168)
Other derivative instruments50
 (2) (4)(10) (12) 50
Other2
 (3) 3
(4) 6
 2
Net realized gains (losses)(507) 504
 78
(145) (420) (507)
Change in net unrealized appreciation (depreciation) on investments:          
Fixed maturities available for sale734
 (1,798) 1,099
142
 (1,119) 734
Fixed maturities held to maturity(2) (82) (94)(59) 43
 (2)
Equity securities77
 (41) 61
52
 (17) 77
Other35
 54
 50
(51) (36) 35
Income tax (expense) benefit(167) 408
 (198)100
 152
 (167)
Change in net unrealized appreciation (depreciation) on investments677
 (1,459) 918
184
 (977) 677
Total net realized gains (losses) and change in net unrealized appreciation (depreciation) on investments$170
 $(955) $996
$39
 $(1,397) $170
 


F-23


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
ACE Limited and Subsidiaries


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: 
Years Ended December 31 Year Ended December 31 
(in millions of U.S. dollars)2014
 2013
 2012
2016
 2015
 2014
Balance of credit losses related to securities still held – beginning of year$37
 $43
 $74
$53
 $28
 $37
Additions where no OTTI was previously recorded22
 9
 8
17
 41
 22
Additions where an OTTI was previously recorded5
 3
 12
14
 9
 5
Reductions for securities sold during the period(36) (18) (51)(49) (25) (36)
Balance of credit losses related to securities still held – end of year$28
 $37
 $43
$35
 $53
 $28


F-26


e)NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
Chubb Limited and Subsidiaries


d) Other investments
  December 31
   December 31
  December 31
   December 31
  2014
   2013
  2016
   2015
(in millions of U.S. dollars)Fair Value
 Cost
 Fair Value
 Cost
Fair Value
 Cost
 Fair Value
 Cost
Investment funds$378
 $228
 $428
 $278
$251
 $126
 $269
 $138
Limited partnerships691
 497
 576
 424
730
 607
 709
 542
Partially-owned investment companies1,492
 1,492
 1,284
 1,284
2,645
 2,645
 1,498
 1,498
Life insurance policies205
 205
 180
 180
248
 248
 222
 222
Policy loans187
 187
 179
 179
209
 209
 184
 184
Trading securities290
 287
 276
 273
296
 295
 284
 284
Other103
 103
 53
 53
140
 140
 125
 125
Total$3,346
 $2,999
 $2,976
 $2,671
$4,519
 $4,270
 $3,291
 $2,993

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 62143 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 $261$271 million of mutual funds supported by assets that do not qualify for separate account reporting under GAAP at December 31, 20142016 compared with $246$257 million at December 31, 2013.2015. Trading securities also includes assets held in rabbi trusts of $22$14 million of equity securities and $11 million of fixed maturities at December 31, 2016, compared with $20 million of equity securities and $7 million of fixed maturities at December 31, 2014, compared with $23 million of equity securities and $7 million of fixed maturities at December 31, 20132015.

e) Investments in partially-owned insurance companies
In 2015, we paid $90 million to acquire 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, 2016 and 2015, Chubb ceded reinsurance premiums of $288 million and $115 million, respectively, and recognized ceded commissions of $66 million and $30 million, respectively. At December 31, 2016 and 2015, the amount of Reinsurance recoverable on losses and loss expenses was $148 million and $82 million, respectively, and the amount of ceded reinsurance premium payable included in Insurance and reinsurance balances payable in the Consolidated balance sheet was $53 million and $6 million, respectively.


F-24
F-27


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACEChubb Limited and Subsidiaries


f)
The following table presents Investments in partially-owned insurance companiescompanies:
December 31  December 31  
2014  2013  December 31, 2016  December 31, 2015  
(in millions of U.S. dollars, except for percentages)Carrying Value
 
Issued
 Share
Capital

 Ownership Percentage
 Carrying Value
 Issued Share Capital
 Ownership Percentage
 DomicileCarrying Value
 
Issued
 Share
Capital

 Ownership Percentage
 Carrying Value
 Issued Share Capital
 Ownership Percentage
 Domicile
Huatai Group$397
 $638
 20.0% $365
 $631
 20.0% China$447
 $624
 20% $430
 $624
 20% China
Huatai Life Insurance Company86
 438
 20.0% 84
 379
 20.0% China99
 428
 20% 107
 428
 20% China
Freisenbruch-Meyer9
 5
 40.0% 9
 5
 40.0% Bermuda8
 5
 40% 9
 5
 40% Bermuda
ACE Cooperative Insurance Co. – Saudi Arabia10
 27
 30.0% 10
 27
 30.0% Saudi Arabia
Chubb Arabia Cooperative Insurance Company13
 27
 30% 11
 27
 30% Saudi Arabia
Russian Reinsurance Company2
 4
 23.3% 2
 4
 23.3% Russia2
 4
 23% 2
 4
 23% Russia
ABR Reinsurance Ltd.97
 800
 11% 94
 800
 11% Bermuda
Total$504
 $1,112
   $470
 $1,046
   $666
 $1,888
   $653
 $1,888
   
Huatai Group and Huatai Life Insurance Company provide a range of P&C, life, and investment products.

g)f) Gross unrealized loss
At December 31, 2014,2016, there were 5,48511,078 fixed maturities out of a total of 26,25831,955 fixed maturities in an unrealized loss position. The largest single unrealized loss in the fixed maturities was $3$7 million. There were 9387 equity securities out of a total of 282320 equity securities in an unrealized loss position. The largest single unrealized loss in the equity securities was $1$3 million. Fixed maturities in an unrealized loss position at December 31, 2014,2016, 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 0 – 12 Months  Over 12 Months  Total 
December 31, 2014Fair Value
 
Gross
Unrealized Loss

 Fair Value
 
Gross
Unrealized Loss

 Fair Value
 
Gross
Unrealized Loss

December 31, 2016Fair 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)
Foreign2,262
 (75) 375
 (15) 2,637
 (90)5,918
 (99) 386
 (27) 6,304
 (126)
Corporate securities4,684
 (150) 738
 (22) 5,422
 (172)7,021
 (149) 641
 (44) 7,662
 (193)
Mortgage-backed securities704
 (2) 1,663
 (28) 2,367
 (30)8,638
 (189) 234
 (5) 8,872
 (194)
States, municipalities, and political subdivisions458
 (3) 490
 (5) 948
 (8)19,448
 (435) 49
 (2) 19,497
 (437)
Total fixed maturities8,458
 (231) 3,932
 (79) 12,390
 (310)43,241
 (920) 1,310
 (78) 44,551
 (998)
Equity securities101
 (13) 
 
 101
 (13)199
 (21) 
 
 199
 (21)
Other investments201
 (18) 
 
 201
 (18)
Total$8,559
 $(244) $3,932
 $(79) $12,491
 $(323)$43,641
 $(959) $1,310
 $(78) $44,951
 $(1,037)
 


F-25
F-28


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACEChubb Limited and Subsidiaries


0 – 12 Months  Over 12 Months  Total 0 – 12 Months  Over 12 Months  Total 
December 31, 2013Fair Value
 
Gross
Unrealized Loss

 Fair Value
 
Gross
Unrealized Loss

 Fair Value
 
Gross
Unrealized Loss

December 31, 2015Fair 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 $996
 $(5) $153
 $(1) $1,149
 $(6)
Foreign4,621
 (114) 201
 (8) 4,822
 (122)3,953
 (148) 436
 (73) 4,389
 (221)
Corporate securities3,836
 (118) 194
 (14) 4,030
 (132)7,518
 (371) 738
 (138) 8,256
 (509)
Mortgage-backed securities5,248
 (197) 384
 (31) 5,632
 (228)3,399
 (42) 516
 (12) 3,915
 (54)
States, municipalities, and political subdivisions2,164
 (90) 84
 (4) 2,248
 (94)556
 (6) 42
 (2) 598
 (8)
Total fixed maturities17,663
 (576) 894
 (63) 18,557
 (639)16,422
 (572) 1,885
 (226) 18,307
 (798)
Equity securities498
 (67) 
 
 498
 (67)131
 (18) 
 
 131
 (18)
Other investments67
 (9) 
 
 67
 (9)210
 (11) 
 
 210
 (11)
Total$18,228
 $(652) $894
 $(63) $19,122
 $(715)$16,763
 $(601) $1,885
 $(226) $18,648
 $(827)
h)g) Net investment income
Years Ended December 31 Year Ended December 31 
(in millions of U.S. dollars)2014
 2013
 2012
2016
 2015
 2014
Fixed maturities$2,199
 $2,093
 $2,134
$2,779
 $2,157
 $2,199
Short-term investments45
 29
 28
93
 49
 45
Equity securities33
 37
 34
36
 16
 33
Other94
 105
 104
98
 86
 94
Gross investment income2,371
 2,264
 2,300
3,006
 2,308
 2,371
Investment expenses(119) (120) (119)(141) (114) (119)
Net investment income$2,252
 $2,144
 $2,181
$2,865
 $2,194
 $2,252
i)h) Restricted assets
ACEChubb 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. ACEChubb 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, 20142016 and 2013,2015, are investments, primarily fixed maturities, totaling $16.3$20.1 billion and $16.9 billion, and cash of $117$103 million and $162$110 million, respectively.
The following table presents the components of restricted assets: 
December 31
 December 31
December 31
 December 31
(in millions of U.S. dollars)2014
 2013
2016
 2015
Trust funds$10,838
 $11,315
$13,880
 $11,862
Deposits with U.S. regulatory authorities2,203
 1,242
Deposits with non-U.S. regulatory authorities2,305
 1,970
2,191
 2,075
Assets pledged under repurchase agreements1,431
 1,435
1,461
 1,459
Deposits with U.S. regulatory authorities1,345
 1,334
Other pledged assets457
 391
435
 392
$16,376
 $16,445
$20,170
 $17,030



F-26
F-29


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACEChubb Limited and Subsidiaries


4. Fair value measurements
a)
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.



F-27
F-30


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACEChubb Limited and Subsidiaries



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). The majority of these investments, for which NAV was used as a practical expedient to measure and are excluded from the fair value are classified within Level 3 because either ACE will never have the contractual option to redeem the investments or will not have the contractual option to redeem the investments in the near term. The remainder of such investments is classified within Level 2.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 includesinclude equity securities classified within Level 1, and fixed maturities, classified within Level 2, held in rabbi trusts maintained by ACEChubb for deferred compensation plans, whichand 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 consolidatedConsolidated 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 ACE’sChubb’s obligation to return the collateral plus interest as it is reported at contract value and not fair value in the consolidatedConsolidated 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 are based on market valuations and are classified within Level 2. Investment derivative instruments are recorded in either Other assets or Accounts payable, accrued expenses, and other liabilities in the consolidatedConsolidated 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, 2016 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 consolidatedConsolidated 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 ACE.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 consolidatedConsolidated balance sheets. Separate account assets are recorded in Other assets in the consolidatedConsolidated balance sheets.



F-28


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
ACE Limited and Subsidiaries


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 consolidatedConsolidated balance sheets. For GLB reinsurance, ACEChubb 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.


F-31


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
Chubb Limited and Subsidiaries


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 13 percent to 69 percent per annum) during the surrender charge period of the GMIB contract, followed by a “spike” lapse rate (ranging from about 106 percent to 3033 percent per annum) in the year immediately following the surrender charge period, and then reverting to an ultimate lapse rate (generally around 1011 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 1015 percent to 75 percent. Additional lapses due to partialPartial withdrawals and the impact of older policyholders with tax-qualified contracts (due to required minimum distributions) are also included.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 ACEChubb in the event that actual annuitization behavior is significantly higher than expected. In general, ACEChubb 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, 20142016 are as follows:
% of total GMIB guaranteed valueYear of GMIB eligibility Maximum annuitization ratesrate(s) (per year) Maximum annuitization rates based on
38%67%First year 7%2% - 12%41% Actual Experience
Subsequent years 6%1% - 10%78% 
35%4%First year 14% - 55%Actual Experience
Subsequent years6%, 11%, 31%N/A 
Weighted averageN/A(1)
27%First year7%, 15%, 55%
Weighted average(1)
Subsequent years 6%12%, 11%78%
Weighted average(2)
29%First year19%, 44%
Weighted average(2)
Subsequent years12%, 31% 
(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 threetwo different annuitization rates (with heavier weighting on credible experience from other clients when own experience is less credible)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 2014,2016, we completed an updated in-depth review of actual policyholder lapsebehavior related to partial withdrawals, lapses, and annuitization behavior by treatyannuitizations for our variable annuity reinsurance business.

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 including age-based behavior, 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 $167 million.
As lapse experience continued to emerge, we were able to expand our analysis and further refine our assumptions which resulted in a resultnet increase to the fair value of our review, we made several refinements to our lapseGLB liabilities generating a realized loss of approximately $4 million.


F-29
F-32


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACEChubb Limited and Subsidiaries


assumption, the most significant of which was an increase in lapses for most large, in-the-money, GMIB policies beyond the surrender charge period. The change in lapse assumption decreased the fair value of GLB liabilities and generated a realized gain of $31 million. 
Because of a greater degree of credibilityreported experience related to behavior in years subsequent to the first year of annuitization eligibility, we also made several adjustments to our annuitization assumption,assumptions, which generally lowered the annuitization raterate. In addition, we refined our assumptions to better account for most clients, while raising it for two clients.age-based annuitization behavior. The change in annuitization assumptionassumptions decreased the fair value of GLB liabilities and generated a realized gain of $39 million. approximately $221 million.

We will continue to monitor actual policyholder behavior against our assumptions and make adjustments as appropriate. Also, during the fourth quarter of 2014,2016, we increasedrefined our model by adjusting the granularity of policy groupings used in our valuation model.way lapse and annuitization rates react to policyholder account values reaching zero. This refinement increaseddecreased the fair value of GLB liabilities and generated a realized lossgain of $78approximately $23 million.
ForDuring each of the years ended December 31, 2014, 2013,2016, 2015, and 2012, 2014,we made minor technical refinements to the internal valuation model with a favorable net incomewhich resulted in no material impact of approximately $2 million,$9 million, and $49 million, respectively.on the financial statements.
Financial instruments measured at fair value on a recurring basis, by valuation hierarchy 
December 31, 2014Level 1
 Level 2
 Level 3
 Total
December 31, 2016Level 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$1,680
 $1,140
 $
 $2,820
$2,175
 $695
 $
 $2,870
Foreign
 15,220
 22
 15,242

 21,366
 74
 21,440
Corporate securities
 17,244
 187
 17,431

 23,468
 681
 24,149
Mortgage-backed securities
 10,271
 15
 10,286

 13,962
 45
 14,007
States, municipalities, and political subdivisions
 3,616
 
 3,616

 17,649
 
 17,649
1,680
 47,491
 224
 49,395
2,175
 77,140
 800
 80,115
Equity securities492
 16
 2
 510
773
 
 41
 814
Short-term investments1,183
 1,139
 
 2,322
1,757
 1,220
 25
 3,002
Other investments(1)370
 257
 2,719
 3,346
384
 259
 225
 868
Securities lending collateral
 1,330
 
 1,330

 1,092
 
 1,092
Investment derivative instruments18
 
 
 18
31
 
 
 31
Other derivative instruments
 2
 
 2
3
 
 
 3
Separate account assets1,400
 90
 
 1,490
1,784
 95
 
 1,879
Total assets measured at fair value(1)$5,143
 $50,325
 $2,945
 $58,413
$6,907
 $79,806
 $1,091
 $87,804
Liabilities:              
Investment derivative instruments$36
 $
 $
 $36
$54
 $
 $
 $54
Other derivative instruments21
 
 4
 25

 
 13
 13
GLB(1)(2)

 
 406
 406

 
 559
 559
Total liabilities measured at fair value$57
 $
 $410
 $467
$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 consolidatedConsolidated balance sheets. Refer to Note 5 c) for additional information.




F-30
F-33


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACEChubb Limited and Subsidiaries


December 31, 2013Level 1
 Level 2
 Level 3
 Total
December 31, 2015Level 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$1,626
 $1,323
 $
 $2,949
$1,712
 $816
 $
 $2,528
Foreign223
 14,324
 44
 14,591

 13,388
 57
 13,445
Corporate securities
 17,304
 166
 17,470

 14,755
 174
 14,929
Mortgage-backed securities
 10,886
 8
 10,894

 9,905
 53
 9,958
States, municipalities, and political subdivisions
 3,350
 
 3,350

 2,727
 
 2,727
1,849
 47,187
 218
 49,254
1,712
 41,591
 284
 43,587
Equity securities373
 460
 4
 837
481
 
 16
 497
Short-term investments953
 803
 7
 1,763
7,171
 3,275
 
 10,446
Other investments(1)305
 231
 2,440
 2,976
347
 230
 212
 789
Securities lending collateral
 1,632
 
 1,632

 1,046
 
 1,046
Investment derivative instruments19
 
 
 19
12
 
 
 12
Other derivative instruments
 6
 
 6
Separate account assets1,145
 81
 
 1,226
1,464
 88
 
 1,552
Total assets measured at fair value$4,644
 $50,400
 $2,669
 $57,713
Total assets measured at fair value (1)
$11,187
 $46,230
 $512
 $57,929
Liabilities:              
Investment derivative instruments$6
 $
 $
 $6
$13
 $
 $
 $13
Other derivative instruments60
 2
 
 62
4
 
 6
 10
GLB(1)

 
 193
 193
GLB (2)

 
 609
 609
Total liabilities measured at fair value$66
 $2
 $193
 $261
$17
 $
 $615
 $632
(1)
Excluded from the table above are partially-owned investments, investment funds, and limited partnerships of$2,477 million and other investments of $25 million at December 31, 2015 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 consolidatedConsolidated balance sheets. Refer to Note 5 c) for additional information.

The following table presentsThere were no transfers of financial instruments between Level 1 and Level 2:
     Year Ended December 31 
(in millions of U.S. dollars)  2014
 2013 2012
Transfers from Level 1 to Level 2  $189
 $19
 $40
Transfers from Level 2 to Level 1  $
 $
 $15
The $189 million transfer2 for the years ended December 31, 2016 and 2015. During 2014, there were transfers from Level 1 to Level 2 for the year ended December 31, 2014 primarily related to a change in pricing methodology for Brazilian government bonds.of $189 million.


F-34


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
Chubb Limited and Subsidiaries


Fair value of alternative investments
Included in OtherAlternative investments in the fair value hierarchy at December 31, 2014 and 2013 areinclude investment funds, limited partnerships, and partially-owned investment companies measured at fair value using NAV as a practical expedient. At December 31, 2014, there were no probable or pending sales related to any of the investments measured at fair value using NAV. 



F-31


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
ACE Limited and Subsidiaries


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  December 31  December 31 
 2014  2013  2016  2015 
(in millions of U.S. dollars)
Expected
Liquidation
Period of Underlying Assets
 Fair Value
 
Maximum
Future Funding
Commitments

 Fair Value
 
Maximum
Future Funding
Commitments

Expected
Liquidation
Period of Underlying Assets
 Fair Value
 
Maximum
Future Funding
Commitments

 Fair Value
 
Maximum
Future Funding
Commitments

Financial5 to 9 Years $282
 $145
 $256
 $129
5 to 9 Years $548
 $428
 $300
 $105
Real estate3 to 7 Years 289
 40
 322
 92
Real Assets3 to 7 Years 536
 230
 474
 140
Distressed5 to 9 Years 281
 225
 180
 230
5 to 9 Years 485
 179
 261
 218
Mezzanine3 to 7 Years 301
 191
 276
 252
Private Credit3 to 7 Years 236
 259
 265
 209
Traditional3 to 9 Years 1,021
 409
 813
 456
3 to 9 Years 1,550
 930
 895
 152
Vintage1 to 2 Years 9
 
 13
 
1 to 2 Years 21
 14
 13
 
Investment fundsNot Applicable 378
 
 428
 
Not Applicable 251
 
 269
 
 $2,561
 $1,010
 $2,288
 $1,159
 $3,627
 $2,040
 $2,477
 $824

Included in all categories in the above table, except for Investment funds, are investments for which ACEChubb 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, ACEChubb 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 estateAssets targeting global distressed opportunities, value added U.S. properties, and global mezzanine debt securities in the commercialinvestments related to hard physical assets such as real estate, marketinfrastructure, and natural resources
Distressed targeting distressed corporate debt/credit and equity opportunities in the U.S.
MezzaninePrivate Credit targeting private mezzanineprivately originated corporate debt of large-capinvestments including senior secured loans and mid-cap companies in the U.S. and worldwidesubordinated bonds
Traditional employing traditional private equity investment strategies such as buyout and growth equity globally
Vintage made before 2002 and where the funds’ commitment periods had already expired

Investment funds
ACE’sChubb’s investment funds employ various investment strategies such as long/short equity and arbitrage/distressed. Included in this category are investments for which ACEChubb 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 ACEChubb 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 ACEChubb 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, ACEChubb 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 ACE’sChubb’s investment within several months of the notification. Notice periods for redemption of the investment funds range between 5 and 120 days. ACEChubb can redeem its investment funds without consent from the investment fund managers.



F-35


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
Chubb Limited and Subsidiaries


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.


F-32


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
ACE Limited and Subsidiaries



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 or net asset value and contain no quantitative unobservable inputs developed by management.
(in millions of U.S. dollars, except for percentages)
Fair Value at
December 31, 2014

 
Valuation
Technique
 
Significant
Unobservable Inputs
 Ranges
Fair Value at
December 31, 2016

 
Valuation
Technique
 
Significant
Unobservable Inputs
 Ranges
GLB(1)
$406
 Actuarial model Lapse rate 1% – 30%$559
 Actuarial model Lapse rate 3% – 34%
  Annuitization rate 0% – 55%  Annuitization rate 0% – 78%
(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
          Assets
   Liabilities
Available-for-Sale Debt Securities 
Equity
securities

Short-term investments
Other
investments

 Other derivative instruments
GLB(1)

Available-for-Sale Debt Securities  
Equity
securities

 Short-term investments
 
Other
investments

 Other derivative instruments
 
GLB(1)

Year Ended December 31, 2014Foreign
 
Corporate
securities

 MBS
 
Year Ended December 31, 2016Foreign
 
Corporate
securities

 MBS
 
(in millions of U.S. dollars)Foreign
 
Corporate
securities

 MBS
 
Equity
securities

Short-term investments
Other
investments

 Other derivative instruments
GLB(1)

 
Equity
securities

 Short-term investments
Other
investments

 Other derivative instruments
 
GLB(1)

Balance, beginning of year $57
 $174
 $53
 $
Transfers into Level 310
 37
 
 9
 53
 
 
Transfers out of Level 3(34) (23) 
 (2)(7)
 

(24) (10) 
 
 (50) 
 
 
Change in Net Unrealized Gains (Losses) included in OCI(1) (1) 
 

39
 

1
 15
 (1) 2
 
 (2) 
 
Net Realized Gains/Losses(3) (5) 
 

(3) 2
213
(6) (13) 
 1
 
 1
 5
 (50)
Purchases(2)15
 73
 8
 2

719
 

70
 566
 1
 27
 75
 33
 2
 
Sales(4) (38) 
 (2)
(8) 

(17) (59) (8) (5) 
 
 
 
Settlements(5) (22) (1) 

(468) 

(16) (45) 
 
 
 (19) 
 
Balance, end of year$22
 $187
 $15
 $2
$
$2,719
 $4
$406
$74
 $681
 $45
 $41
 $25
 $225
 $13
 $559
Net Realized Gains/Losses Attributable to Changes in Fair Value at the Balance Sheet Date$(4) $(5) $
 $
$
$(3) $2
$213
$(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 consolidatedConsolidated balance sheets. Refer to Note 5 c) for additional information.
(2)
Includes acquired invested assets as a result of the Chubb Corp acquisition.


F-33
F-36


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACEChubb Limited and Subsidiaries


Assets  Liabilities
Assets    Liabilities
Available-for-Sale Debt Securities 
Equity
securities

 Short-term investments
 Other
investments

 
GLB(1)

Available-for-Sale Debt Securities  
Equity
securities

 Other
investments

  Other derivative instruments
 
GLB(1)

Year Ended December 31, 2013 Foreign
 
Corporate
securities

 MBS
 
Year Ended December 31, 2015Foreign
 
Corporate
securities

 MBS
  
(in millions of U.S. dollars) Foreign
 
Corporate
securities

 MBS
 
Equity
securities

Short-term investments
Other
investments

GLB(1)

 
Equity
securities

Other
investments
 Other derivative instruments
 
GLB(1)

Balance, beginning of year $3
$22
 $187
 $15
 $2 
Transfers into Level 3 36
 47
 
 8
34
 16
 
  
Transfers out of Level 3 (54) (31) 
 (1) (2) 
 
Change in Net Unrealized Gains (Losses) included in OCI 
 
 
 (6) 
 45
 
(2) (1) 
 3
 (6) 
 
Net Realized Gains/Losses 1
 (2) 
 4
 
 (2) (926)(1) (4) 
 (2) 
 2
 203
Purchases 24
 75
 
 2
 3
 551
 
15
 52
 41
 13
 33
 
 
Sales (21) (7) (3) (6) (1) (10) 
(3) (28) (2) 
 
 
 
Settlements (2) (18) (2) 
 (1) (396) 
(8) (48) (1) 
 (19) 
 
Balance, end of year $44
 $166
 $8
 $4
 $7
 $2,440
 $193
$57
 $174
 $53
 $16
 $212
 $6
 $609
Net Realized Gains/Losses Attributable to Changes in Fair Value at the Balance Sheet Date $
 $(2) $
 $
 $
 $(2) $(926)$(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 consolidatedConsolidated balance sheets. The liability for GLB reinsurance was $427888 million at December 31, 20132015 and $1.4 billion663 million at December 31, 20122014, which includes a fair value derivative adjustment of $193609 million and $1.1 billion406 million, respectively. 

  Assets  Liabilities
Assets  Liabilities 
  Available-for-Sale Debt Securities        
GLB(1)

Available-for-Sale Debt Securities        
Other
derivative
instruments

 
GLB(1)

Year Ended December 31, 2012
U.S.
Treasury
and
Agency

 Foreign
 
Corporate
securities

 MBS
 
States,
municipalities,
and political
subdivisions

 
Equity
securities

Other
investments

Other
derivative
instruments

Year Ended December 31, 2014Foreign
 
Corporate
securities

 MBS
 
Equity
securities

 Short-term investments
 
Other
investments

 
(in millions of U.S. dollars)
U.S.
Treasury
and
Agency

 Foreign
 
Corporate
securities

 MBS
 
States,
municipalities,
and political
subdivisions

 
Equity
securities

 
Other
investments

 
Other
derivative
instruments

 
GLB(1)

 
Other
derivative
instruments
GLB(1)

Balance, beginning of year $44
 $166
 $8
 $4
 $7
 $196
 $ 
Transfers into Level 3
 49
 37
 22
 1
 2
 53
 
 10
 37
 
 
 
 
 2 
Transfers out of Level 3(4) (13) (46) (35) (1) (11) 
 
 
(34) (23) 
 (2) (7) 
 
 
Change in Net Unrealized Gains (Losses) included in OCI
 (1) 6
 
 
 
 55
 
 
(1) (1) 
 
 
 (1) 
 
Net Realized Gains/Losses
 
 (1) 
 
 
 (7) (4) (200)(3) (5) 
 
 
 
 2
 213
Purchases
 46
 24
 9
 
 4
 520
 3
 
15
 73
 8
 2
 
 20
 
 
Sales
 (53) (19) (7) 
 (5) (9) 
 
(4) (38) 
 (2) 
 
 
 
Settlements(1) (1) (33) (4) (1) 
 (237) (2) 
(5) (22) (1) 
 
 (11) 
 
Balance, end of year$
 $60
 $102
 $13
 $
 $3
 $2,252
 $
 $1,119
$22
 $187
 $15
 $2
 $
 $204
 $4
 $406
Net Realized Gains/Losses Attributable to Changes in Fair Value at the Balance Sheet Date$
 $
 $
 $
 $
 $
 $(7) $
 $(200)$(4) $(5) $
 $
 $
 $
 $2
 $213
(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 consolidatedConsolidated balance sheets. The liability for GLB reinsurance was $1.4 billion663 million at December 31, 20122014 and $1.5 billion427 million at December 31, 2011,2013, which includes a fair value derivative adjustment of $1.1 billion406 million and $$1.3 billion193 million, respectively. 


F-34


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
ACE Limited and Subsidiaries



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



F-37


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
Chubb Limited and Subsidiaries


Investments in partially-owned insurance companies
Fair values for investments in partially-owned insurance companies are based on ACE’sChubb’s share of the net assets based on the financial statements provided by those companies.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 ACE’sChubb’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, 2014Fair Value Carrying Value
December 31, 2016Fair Value  Carrying Value
(in millions of U.S. dollars)Level 1
 Level 2
 Level 3
 Total
Carrying Value
Level 1
 Level 2
 Level 3
 Total
 
Assets:                
Fixed maturities held to maturity                
U.S. Treasury and agency$659
 $191
 $
 $850
$832
$555
 $106
 $
 $661
 $655
Foreign
 963
 
 963
916

 667
 
 667
 640
Corporate securities
 2,408
 15
 2,423
2,323

 2,782
 13
 2,795
 2,771
Mortgage-backed securities
 2,039
 
 2,039
1,983

 1,428
 
 1,428
 1,393
States, municipalities, and political subdivisions
 1,314
 
 1,314
1,277

 5,119
 
 5,119
 5,185
659
 6,915
 15
 7,589
7,331
Partially-owned insurance companies
 
 504
 504
504
Total assets$659
 $6,915
 $519
 $8,093
$7,835
$555
 $10,102
 $13
 $10,670
 $10,644
Liabilities:                
Repurchase agreements$
 $1,403
 $
 $1,403
 $1,403
Short-term debt$
 $2,571
 $
 $2,571
$2,552

 503
 
 503
 500
Long-term debt
 3,690
 
 3,690
3,357

 12,998
 
 12,998
 12,610
Trust preferred securities
 462
 
 462
309

 456
 
 456
 308
Total liabilities$
 $6,723
 $
 $6,723
$6,218
$
 $15,360
 $
 $15,360
 $14,821

December 31, 2015Fair Value  Carrying Value
(in millions of U.S. dollars)Level 1
 Level 2
 Level 3
 Total
 
Assets:         
Fixed maturities held to maturity         
U.S. Treasury and agency$583
 $162
 $
 $745
 $733
Foreign
 785
 
 785
 763
Corporate securities
 3,042
 14
 3,056
 3,054
Mortgage-backed securities
 1,743
 
 1,743
 1,707
States, municipalities, and political subdivisions
 2,223
 
 2,223
 2,173
Total assets$583
 $7,955
 $14
 $8,552
 $8,430
Liabilities:         
Repurchase agreements$
 $1,404
 $
 $1,404
 $1,404
Long-term debt
 9,678
 
 9,678
 9,389
Trust preferred securities
 446
 
 446
 307
Total liabilities$
 $11,528
 $
 $11,528
 $11,100



F-35
F-38


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACEChubb Limited and Subsidiaries



December 31, 2013Fair Value Carrying Value
(in millions of U.S. dollars)Level 1
 Level 2
 Level 3
 Total
Assets:        
Fixed maturities held to maturity        
U.S. Treasury and agency$596
 $236
 $
 $832
$820
Foreign
 897
 
 897
864
Corporate securities
 1,990
 15
 2,005
1,922
Mortgage-backed securities
 1,379
 
 1,379
1,341
States, municipalities, and political subdivisions
 1,150
 
 1,150
1,151
 596
 5,652
 15
 6,263
6,098
Partially-owned insurance companies
 
 470
 470
470
Total assets$596
 $5,652
 $485
 $6,733
$6,568
Liabilities:        
Short-term debt$
 $1,913
 $
 $1,913
$1,901
Long-term debt
 4,088
 
 4,088
3,807
Trust preferred securities
 438
 
 438
309
Total liabilities$
 $6,439
 $
 $6,439
$6,017

5. Reinsurance

a) Consolidated reinsurance
ACEChubb purchases reinsurance to manage various exposures including catastrophe risks. Although reinsurance agreements contractually obligate ACE'sChubb's reinsurers to reimburse it for the agreed-upon portion of its gross paid losses, they do not discharge ACE'sChubb's primary liability. The amounts for net premiums written and net premiums earned in the consolidatedConsolidated statements of operations are net of reinsurance. The following table presents direct, assumed, and ceded premiums:
Years Ended December 31 Year Ended December 31 
(in millions of U.S. dollars)2014  2013  2012 2016
2015 2014 
Premiums writtenPremiums written    Premiums written    
Direct$20,069
 $19,212
 $18,144
$31,543
 $19,879
 $20,069
Assumed 3,321
 3,616
 3,449
3,440
 3,932
 3,321
Ceded (5,591) (5,803) (5,518)(6,838) (6,098) (5,591)
Net$17,799
 $17,025
 $16,075
$28,145
 $17,713
 $17,799
Premiums earned   
 
  
 
Direct$19,555
 $18,856
 $17,802
$31,811
 $19,355
 $19,555
Assumed 3,336
 3,479
 3,302
3,744
 3,676
 3,336
Ceded (5,465) (5,722) (5,427)(6,806) (5,818) (5,465)
Net$17,426
 $16,613
 $15,677
$28,749
 $17,213
 $17,426

For both yearsthe year ended December 31, 2014 and 2013,2016, reinsurance recoveries on losses and loss expenses incurred were $3.1$4.1 billion, compared with $4.3$3.1 billion for both the yearyears ended December 31, 2012.


F-36


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
ACE Limited2015 and Subsidiaries2014.



b) Reinsurance recoverable on ceded reinsurance
 December 31  December 31  December 31
December 31 
(in millions of U.S. dollars)(in millions of U.S. dollars)2014  2013 (in millions of U.S. dollars)2016
2015 
Reinsurance recoverable on unpaid losses and loss expenses (1)
Reinsurance recoverable on unpaid losses and loss expenses (1)
 $11,307
 $10,612
Reinsurance recoverable on unpaid losses and loss expenses (1)
$12,708
 $10,741
Reinsurance recoverable on paid losses and loss expenses (1)
Reinsurance recoverable on paid losses and loss expenses (1)
 685
 615
Reinsurance recoverable on paid losses and loss expenses (1)
869
 645
Net reinsurance recoverable on losses and loss expenses $11,992
 $11,227
Reinsurance recoverable on losses and loss expenses (1)
Reinsurance recoverable on losses and loss expenses (1)
$13,577
 $11,386
(1) 
Net of a provision for uncollectible reinsurance.

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 ACE,Chubb, primarily because of disputes under reinsurance contracts and insolvencies. We have established provisions for amounts estimated to be uncollectible. At December 31, 20142016 and 20132015, we recorded a provision for uncollectible reinsurance of $357$300 million and $390328 million, respectively.

The following tables present a listing, at December 31, 2014,2016, of the categories of ACE's reinsurers. The first category, largest reinsurers, represents all groupsChubb's reinsurers:
December 31, 2016Gross Reinsurance Recoverable on Loss and Loss Expenses
 Provision for Uncollectible Reinsurance
 % of Gross Reinsurance Recoverable
(in millions of U.S. dollars, except for percentages)  
Categories 
Largest reinsurers$5,064
 $59
 1.2%
Other reinsurers rated A- or better4,699
 52
 1.1%
Other reinsurers with ratings lower than A- or not rated586
 70
 11.9%
Pools577
 11
 1.9%
Structured settlements557
 14
 2.5%
Captives2,172
 16
 0.7%
Other222
 78
 35.1%
Total$13,877
 $300
 2.2%


F-39


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
Chubb Limited and Subsidiaries


Largest Reinsurers
Alleghany CorpHDI Group (Hannover Re)Munich Re Group
Berkshire Hathaway Insurance GroupLloyd's of LondonSwiss Re Group
Categories of Chubb's reinsurersComprises:
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 for the largest reinsurers, other reinsurers rated A- or better, and other reinsurers with ratings lower than A- is principally based on an analysis of the credit quality of the reinsurer and collateral balances. Pools include amounts relating to both ACE’s voluntary pool participation, and ACE’s mandatory pool participation that is required by law in certain states. Structured settlements include annuities purchased from life insurance companies to settle claims. Since we retain the ultimate liability in the event that the life company fails to pay, we reflect the amount as a liability and a recoverable/receivable for GAAP purposes. Captives include companies established and owned by our insurance clients to assume a significant portion of their direct insurance risk from ACE (they are structured to allow clients to self-insure a portion of their insurance risk). It is generally 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. The final category, Other, includes amounts recoverable that are in dispute or are from companies that are in supervision, rehabilitation, or liquidation. We establish the provision for uncollectible reinsurance in thisfor 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.

 December 31      
(in millions of U.S. dollars, except for percentages)2014  Provision  % of Gross
Categories 
Largest reinsurers $6,141
  $79
 1.3%
Other reinsurers balances rated A- or better 2,537
  38
 1.5%
Other reinsurers balances with ratings lower than A- or not rated 501
  94
 18.8%
Pools 324
  11
 3.4%
Structured settlements 557
  12
 2.2%
Captives 1,986
  23
 1.2%
Other 303
  100
 33.0%
Total $12,349
  $357
 2.9%

Largest Reinsurers
Alleghany CorpIRB Brasil Resseguros S.A. GroupSwiss Re Group
Berkshire Hathaway Insurance GroupLloyd's of LondonXL Capital Group
Everest Re GroupMunich Re Group
HDI Group (Hanover Re)Partner Re Group



F-37


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
ACE Limited and Subsidiaries


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.
Years Ended December 31 Year Ended December 31 
(in millions of U.S. dollars)2014
 2013
 2012
2016
 2015
 2014
GMDB          
Net premiums earned$71
 $77
 $85
$55
 $61
 $71
Policy benefits and other reserve adjustments$50
 $73
 $60
$45
 $34
 $50
GLB          
Net premiums earned$138
 $149
 $160
$118
 $121
 $138
Policy benefits and other reserve adjustments36
 27
 61
52
 45
 36
Net realized gains (losses)(213) 929
 203
48
 (203) (213)
Gain (loss) recognized in Net income$(111) $1,051
 $302
$114
 $(127) $(111)
Net cash received$125
 $126
 $149
79
 98
 125
Net (increase) decrease in liability$(236) $925
 $153
Net decrease (increase) in liability$35
 $(225) $(236)

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 heldused to partially offset the risk in the GLB reinsurance portfolio. Refer to Note 10 for additional information.


F-40


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
Chubb Limited and Subsidiaries


At December 31, 20142016 and 2013,2015, the reported liability for GMDB reinsurance was $111$120 million and $100$117 million, respectively. At December 31, 20142016 and 2013,2015, the reported liability for GLB reinsurance was $663$853 million and $427$888 million, respectively, which includes a fair value derivative adjustment of $406$559 million and $193$609 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.


F-38


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
ACE Limited and Subsidiaries


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, 20142016 and 2013,2015, 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   Net amount at risk  


Reinsurance covering
 2014
2013
2014
Future claims discount rate
Other assumptions
Total claims at
100% mortality at
December 31, 2014(1)

 2016
2015
2016
Future claims discount rate
Other assumptions
Total claims at
100% mortality at
December 31, 2016(1)

GMDB Risk Only $418
$586
2.5% - 3.5%No lapses or withdrawals$245
 $341
$364
3.3% - 3.8%No lapses or withdrawals$202
   Mortality according to 100% of the Annuity 2000 mortality table    Mortality according to 100% of the Annuity 2000 mortality table 
GLB Risk Only $440
$136
3.5% - 4.5%No deaths, lapses or withdrawalsN/A
 $800
$733
4.3% - 4.8%No deaths, lapses or withdrawalsN/A
   
Annuitization at a frequency most disadvantageous to ACE (2)
    
Annuitization at a frequency most disadvantageous to Chubb(2)
 
   Claim calculated using interest rates in line with rates used to calculate reserve    Claim calculated using interest rates in line with rates used to calculate reserve 
Both Risks: (3)
GMDB$76
$73
3.5% - 4.5%No lapses or withdrawals$19
GMDB$88
$89
4.3% - 4.8%No lapses or withdrawals$22
   Mortality according to 100% of the Annuity 2000 mortality table    Mortality according to 100% of the Annuity 2000 mortality table 
GLB$235
$141
3.5% - 4.5%
Annuitization at a frequency most disadvantageous to ACE (2)
$
GLB$464
$422
4.3% - 4.8%
Annuitization at a frequency most disadvantageous to Chubb(2)
N/A
   Claim calculated using interest rates in line with rates used to calculate reserve    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 6970 years.



F-39
F-41


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACEChubb Limited and Subsidiaries


6. IntangibleGoodwill and intangible assets

IncludedAt December 31, 2016 and 2015, Goodwill was $15.3 billion and $4.8 billion, respectively, and Other intangible assets were $6.8 billion and $887 million, respectively. The increases in Goodwill and otherOther intangible assets inreflect the consolidated balance sheets at December 31, 2014goodwill and 2013, are goodwill of $4.9 billion and $4.6 billion, respectively, and other intangible assets of $820 million and $801 million, respectively.recorded in connection with the Chubb Corp acquisition.

a) Goodwill
The following table presents a roll-forward of Goodwill by segment:
(in millions of U.S. dollars)
Insurance – North American
P&C

 Insurance – North American Agriculture
 Insurance – Overseas General
 Global Reinsurance
 Life
 ACE Consolidated
Balance at December 31, 2012$1,219
 $134
 $1,764
 $365
 $837
 $4,319
Acquisition of Fianzas Monterrey
 
 135
 
 
 135
Acquisition of ABA Seguros
 
 283
 
 
 283
Foreign exchange revaluation and other(4) 
 (128) 
 (2) (134)
Balance at December 31, 2013$1,215
 $134

$2,054
 $365
 $835
 $4,603
Purchase price allocation adjustment
 
 4
 
 
 4
Acquisition of Samaggi
 
 46
 
 
 46
Acquisition of Itaú Seguros
 
 449
 
 
 449
Foreign exchange revaluation and other(4) 
 (187) 
 (7) (198)
Balance at December 31, 2014$1,211
 $134
 $2,366
 $365
 $828
 $4,904
(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, 2014$1,211
 $
 $134
 $2,366
 $365
 $828
 $4,904
Purchase price allocation adjustment
 
 
 (4) 
 
 (4)
Acquisition of Fireman's Fund
 196
 
 
 
 
 196
Foreign exchange revaluation and other(8) 
 
 (284) 
 (8) (300)
Balance at December 31, 2015$1,203
 $196
 $134

$2,078
 $365
 $820
 $4,796
Acquisition of Chubb Corp5,714
 2,025
 
 2,775
 
 
 10,514
Foreign exchange revaluation and other44
 14
 
 (36) 
 
 22
Balance at December 31, 2016$6,961
 $2,235
 $134
 $4,817
 $365
 $820
 $15,332

b) Other intangible assets
Included in otherOther intangible assets at December 31, 20142016 and 2013,2015, are intangible assets subject to amortization of $717 million$3.8 billion and $695$789 million, respectively, and intangible assets not subject to amortization of $103 million$3.0 billion and $106$98 million, respectively. Intangible assets subject to amortization primarily include agency relationships software, client lists,and renewal rights, software, and trademarks, primarily attributable to the acquisitions of Rain and Hail, Samaggi, ABA Seguros, Itaú Seguros, and Fianzas Monterrey. The majority of the balance of intangibleclient lists. Intangible assets not subject to amortization, relatesprimarily trademarks, are principally attributable to Lloyd'sthe Chubb Corp acquisition.

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
 Estimated useful life
Definite life   
Unearned premium reserves (UPR) intangible asset$1,550
 1 year
Agency distribution relationships and renewal rights3,150
 24 years
Internally developed technology95
 3 years
Indefinite life   
Trademarks2,800
 Indefinite
Licenses50
 Indefinite
Syndicate capacity10
 Indefinite
Total identified intangible assets$7,655
  

Amortization of London (Lloyd's) Syndicate 2488 (Syndicate 2488) capacity. purchased intangibles
Amortization expense related to other intangible assetspurchased intangibles amounted to $108$19 million, $95$171 million, and $51$108 million for the years ended December 31, 2016, 2015, and 2014, 2013,respectively. Amortization expense of purchased intangibles was low in 2016 reflecting the favorable impact of the amortization benefit of the fair value adjustment on acquired Unpaid losses and 2012, respectively.loss expenses. In 2017, the amortization is expected to increase to $251 million, primarily reflecting the increase in intangible amortization related to agency distribution relationships and renewal rights.

The following table presents a roll-forward of VOBA:
(in millions of U.S. dollars)2014
 2013
 2012
Balance, beginning of year$536
 $614
 $676
Amortization expense(51) (64) (82)
Foreign exchange revaluation(19) (14) 20
Balance, end of year$466
 $536
 $614

The following table presents estimated amortization expense related to other intangible assets and VOBA for the next five years:
For the Year Ending December 31Other intangible assets
 VOBA
(in millions of U.S. dollars) 
2015$97
 $44
201675
 41
201767
 37
201861
 33
201955
 30
Total$355
 $185




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F-42


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACEChubb Limited and Subsidiaries


7
The following table presents, as of December 31, 2016, 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 Years Ending December 31
(in millions of U.S. dollars)
Agency distribution relationships and renewal rights
 Internally developed technology
 
Fair value adjustment to Unpaid losses and loss expense (1)

 Total
 Other intangible assets
 Total Amortization of purchased intangibles
2017$295
 $32
 $(160) $167
 $84
 $251
2018323
 32
 (101) 254
 74
 328
2019280
 
 (62) 218
 68
 286
2020239
 
 (35) 204
 59
 263
2021217
 
 (20) 197
 52
 249
Total$1,354
 $64
 $(378) $1,040
 $337
 $1,377
(1)
In connection with the Chubb Corp acquisition, we recorded an increase to Unpaid losses and loss expenses acquired as part of Chubb Corp of $715 million 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, 2016 was $470 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)2016
 2015
 2014
Balance, beginning of year$395
 $466
 $536
Amortization of VOBA (1)
(41) (42) (51)
Foreign exchange revaluation1
 (29) (19)
Balance, end of year$355
 $395
 $466
(1)
Recognized in Policy acquisition costs in the Consolidated statements of operations.

The following table presents, as of December 31, 2016, the expected estimated pre-tax amortization expense related to VOBA for the next five years:
For the Year Ending December 31VOBA
(in millions of U.S. dollars)
2017$35
201831
201927
202023
202120
Total$136

7. Unpaid losses and loss expenses

ACEChubb 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. The process of establishing loss and loss expense reserves for P&C claims can be complex and is subject to considerable uncertainty as it requires the use of informed estimates and judgments. Our estimates and judgments may be revised as additional experience and other data become available and are reviewed, as new or improved methodologies are developed, or as laws change. We continually evaluate our estimate of reserves in light of developing information and in light of discussions and negotiations with our insureds. While we believe that our reserves for unpaid losses and loss expenses at December 31, 20142016 are adequate, new information or trends may lead to future developments in ultimate lossesincurred 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.



F-43


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
Chubb Limited and Subsidiaries


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


F-44


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
Chubb Limited and Subsidiaries


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, aviation hull, 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;


F-45


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
Chubb Limited and Subsidiaries


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 following loss development tables present Chubb’s historic incurred and paid claims development through December 31, 2016, net of reinsurance, as well as the cumulative number of reported claims, IBNR balances, and other supplementary information.

The loss development data, presented in a triangular format below, represents nine broad product line groupings within the following four segments: North America Commercial P&C Insurance, North America Personal P&C Insurance, Overseas General Insurance, and Global Reinsurance. The remaining short-duration contract portfolios provide limited insight when presented in this format and are included among the reconciling items at the end of this disclosure. The excluded segments are the North America Agricultural Insurance segment, which is short-tailed with final settlements driven largely by the variability of crop prices; and the Life Insurance segment, which is generally written using long-duration contracts. Also excluded is Corporate, 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.

Each product line grouping 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, 2007, to December 31, 2015 and average historical claim duration as of December 31, 2016, are presented as supplementary information.
All data presented in the triangles is net of reinsurance recoveries.
The IBNR reserves shown to the right of each incurred loss development exhibit reflect the net IBNR recorded as of December 31, 2016.

Historical dollar amounts are presented in this footnote on a constant-currency basis, which is achieved by assuming constant foreign exchange rates between 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 have provided guidance in the following pages on key assumptions that should be considered when reviewing this disclosure. 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.

Establishing an estimate for loss reserves requires management to incorporate many assumptions. The information contained in this disclosure allows readers to understand, at the level presented in the development tables, the change over time in incurred loss estimates reported by Chubb, as well as the nature of cash flows associated with those estimates. We have provided information relating to how loss reserve estimates are developed, which is achieved by performing studies among other estimation techniques, at a more detailed level than is presented in the disaggregated disclosures herein. We believe the


F-46


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
Chubb Limited and Subsidiaries


information provided in the “Loss Development Tables” section of the disclosure is of limited use for independent analysis or application of standard actuarial estimations, and to attempt to do so should be interpreted with care.

Development Tables
The nine development tables presented below display disaggregated loss experience for product grouping as follows:

North America Commercial P&C Insurance segment loss experience is presented within four triangular tables: Workers' Compensation, Liability, Other Casualty, and non-Casualty lines.
North America Personal P&C Insurance segment loss experience is presented within one table, since most products are short- tail.
Overseas General Insurance segment loss experience is presented within two tables: Casualty and non-Casualty.
Global Reinsurance segment loss experience is presented within two tables: Property and non-Property.

As noted above, the North America Agricultural Insurance and Life Insurance segments and Corporate are excluded from the development tables, but are included as reconciling items. In addition, certain subsets of our business are excluded from the development tables owing 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 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.
Reinsurance recoverable bad debt.
Purchase accounting adjustments related to unpaid losses and loss expenses for the Chubb Corp.

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, which is generally consistent with our U.S. statutory presentation. 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. However, they are inconsistent with losses in the incurred loss triangle, which includes incurred but not reported loss, and to losses in the paid loss triangle, which exclude case reserves.



F-47


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
Chubb Limited and Subsidiaries


North America Commercial P&C Insurance — Workers' Compensation
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 primary guaranteed cost coverages.
Net Incurred Loss and Allocated Loss Adjustment Expenses  
 Years Ended December 31  December 31 2016
(in millions of U.S. dollars)Unaudited    Net IBNR Reserves
Accident Year2007
 2008
 2009
 2010
 2011
 2012
 2013
 2014
 2015
 2016
 2016
2007$1,068
 $1,042
 $1,026
 $1,018
 $976
 $943
 $944
 $934
 $933
 $913
 $171
2008  1,018
 993
 997
 991
 966
 952
 952
 948
 932
 185
2009    960
 933
 933
 928
 908
 902
 889
 877
 220
2010      985
 988
 1,003
 1,008
 1,004
 994
 972
 254
2011        957
 963
 978
 982
 984
 954
 276
2012          956
 940
 957
 967
 932
 321
2013            1,013
 1,031
 1,043
 1,047
 374
2014              1,106
 1,111
 1,129
 526
2015                1,179
 1,157
 588
2016                  1,259
 905
Total                  $10,172
  
Net Cumulative Paid Loss and Allocated Loss Adjustment Expenses  
 Years Ended December 31  
December 31
2016

(in millions of U.S. dollars)Unaudited    
Reported Claims
(in thousands)

Accident Year2007
 2008
 2009
 2010
 2011
 2012
 2013
 2014
 2015
 2016
 2016
2007$121
 $281
 $386
 $451
 $502
 $550
 $580
 $606
 $625
 $641
 351
2008  125
 276
 370
 436
 500
 542
 574
 602
 627
 333
2009    108
 260
 347
 412
 463
 506
 535
 559
 283
2010      125
 303
 414
 495
 548
 587
 612
 304
2011        119
 294
 410
 480
 529
 560
 287
2012          111
 272
 365
 435
 483
 288
2013            107
 286
 415
 499
 301
2014              113
 296
 408
 338
2015                117
 302
 338
2016                  123
 275
Total                  $4,814
  
Net Liabilities for Loss and Allocated Loss Adjustment Expenses
(in millions of U.S. dollars) December 31, 2016
Accident years prior to 2007 $2,226
All Accident years $7,584
Supplementary Information: Average Annual Percentage Payout of Net Incurred Claims by Age, as of December 31, 2016
Age in Years1
 2
 3
 4
 5
 6
 7
 8
 9
 10
Percentage12% 17% 11% 8% 6% 4% 3% 3% 2% 2%


F-48


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
Chubb Limited and Subsidiaries


North America Commercial P&C Insurance — Liability
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), 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 also includes management and professional liability products provided to a wide variety of clients, from national accounts to small firms to 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 large line and excess exposure as well.
Net Incurred Loss and Allocated Loss Adjustment Expenses  
 Years Ended December 31  December 31 2016
(in millions of U.S. dollars)Unaudited    Net IBNR Reserves
Accident Year2007
 2008
 2009
 2010
 2011
 2012
 2013
 2014
 2015
 2016
 2016
2007$3,682
 $3,760
 $3,719
 $3,755
 $3,692
 $3,447
 $3,318
 $3,300
 $3,253
 $3,105
 $249
2008  3,716
 3,719
 3,708
 3,682
 3,551
 3,290
 3,217
 3,142
 3,036
 335
2009    3,682
 3,630
 3,599
 3,556
 3,454
 3,205
 3,130
 3,060
 447
2010      3,507
 3,468
 3,495
 3,474
 3,334
 3,169
 3,045
 559
2011        3,437
 3,498
 3,525
 3,539
 3,472
 3,360
 856
2012          3,489
 3,529
 3,519
 3,480
 3,441
 1,168
2013            3,490
 3,479
 3,481
 3,477
 1,588
2014              3,460
 3,501
 3,585
 1,969
2015                3,502
 3,668
 2,639
2016                  3,474
 3,082
Total                  $33,251
  
Net Cumulative Paid Loss and Allocated Loss Adjustment Expenses  
 Years Ended December 31  December 31 2016
(in millions of U.S. dollars)Unaudited    
Reported Claims (in thousands)

Accident Year2007
 2008
 2009
 2010
 2011
 2012
 2013
 2014
 2015
 2016
 2016
2007$76
 $447
 $922
 $1,488
 $1,980
 $2,301
 $2,497
 $2,618
 $2,700
 $2,757
 21
2008  115
 471
 987
 1,500
 1,837
 2,169
 2,394
 2,496
 2,591
 21
2009    86
 425
 979
 1,460
 1,813
 2,118
 2,307
 2,461
 21
2010      97
 501
 981
 1,421
 1,757
 2,125
 2,294
 20
2011        111
 538
 1,069
 1,638
 2,045
 2,310
 21
2012          114
 532
 1,028
 1,535
 1,953
 21
2013            101
 468
 1,089
 1,489
 22
2014              116
 576
 1,124
 23
2015                117
 544
 26
2016                  142
 19
Total                  $17,665
  


F-49


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
Chubb Limited and Subsidiaries


North America Commercial P&C Insurance — Liability (continued)
Net Liabilities for Loss and Allocated Loss Adjustment Expenses
(in millions of U.S. dollars) December 31, 2016
Accident years prior to 2007 $1,726
All Accident years $17,312
Supplementary Information: Average Annual Percentage Payout of Net Incurred Claims by Age, as of December 31, 2016
Age in Years1
 2
 3
 4
 5
 6
 7
 8
 9
 10
Percentage3% 12% 16% 15% 12% 10% 6% 4% 3% 2%

North America Commercial P&C Insurance — Other Casualty
This product line consists of the remaining commercial casualty coverages such as automobile liability, marine, 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 and, to a lesser extent, marine exposures. The ultimate loss experience for years ended December 31, 2008, 2011, and 2012 were impacted by natural catastrophes.
Net Incurred Loss and Allocated Loss Adjustment Expenses  
 Years Ended December 31  December 31 2016
(in millions of U.S. dollars)Unaudited    Net IBNR Reserves
Accident Year2007
 2008
 2009
 2010
 2011
 2012
 2013
 2014
 2015
 2016
 2016
2007$726
 $682
 $659
 $630
 $611
 $611
 $599
 $591
 $597
 $596
 $24
2008  903
 942
 910
 879
 856
 856
 849
 853
 847
 18
2009    718
 710
 665
 640
 593
 557
 548
 546
 16
2010      737
 736
 727
 668
 639
 606
 608
 27
2011        696
 717
 703
 675
 659
 651
 40
2012          748
 714
 682
 668
 633
 60
2013            619
 640
 632
 621
 121
2014              655
 658
 651
 176
2015                538
 525
 211
2016                  563
 408
Total                  $6,241
  


F-50


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
Chubb Limited and Subsidiaries


North America Commercial P&C Insurance — Other Casualty (continued)  
Net Cumulative Paid Loss and Allocated Loss Adjustment Expenses  
 Years Ended December 31  December 31 2016
(in millions of U.S. dollars)Unaudited    
Reported Claims (in thousands)

Accident Year2007
 2008
 2009
 2010
 2011
 2012
 2013
 2014
 2015
 2016
 2016
2007$112
 $274
 $379
 $452
 $489
 $527
 $540
 $547
 $558
 $564
 24
2008  210
 464
 604
 690
 748
 777
 798
 807
 815
 25
2009    106
 281
 378
 432
 471
 500
 511
 520
 20
2010      144
 334
 430
 481
 517
 560
 571
 21
2011        131
 335
 455
 522
 561
 585
 23
2012          108
 307
 413
 484
 538
 24
2013            115
 292
 372
 452
 21
2014              113
 289
 387
 22
2015                80
 205
 20
2016                  74
 17
Total                  $4,711
  
Net Liabilities for Loss and Allocated Loss Adjustment Expenses
(in millions of U.S. dollars) December 31, 2016
Accident years prior to 2007 $241
All Accident years $1,771
Supplementary Information: Average Annual Percentage Payout of Net Incurred Claims by Age, as of December 31, 2016
Age in Years1
 2
 3
 4
 5
 6
 7
 8
 9
 10
Percentage19% 29% 16% 11% 7% 5% 2% 1% 1% 1%

North America Commercial P&C Insurance — Non-Casualty
This product line represents first party commercial product lines that are short-tailed in nature, such as property, inland marine, A&H, and surety/fidelity bonds. 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 in the same years as outlined above in Other Casualty.


F-51


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
Chubb Limited and Subsidiaries


North America Commercial P&C Insurance — Non-Casualty (continued)  
Net Incurred Loss and Allocated Loss Adjustment Expenses  
 Years Ended December 31  December 31 2016
(in millions of U.S. dollars)Unaudited    Net IBNR Reserves
Accident Year2007
 2008
 2009
 2010
 2011
 2012
 2013
 2014
 2015
 2016
 2016
2007$1,271
 $1,190
 $1,181
 $1,168
 $1,151
 $1,137
 $1,138
 $1,139
 $1,138
 $1,139
 $
2008  1,927
 1,880
 1,852
 1,836
 1,845
 1,849
 1,859
 1,846
 1,845
 29
2009    1,366
 1,395
 1,367
 1,357
 1,356
 1,353
 1,355
 1,369
 28
2010      1,509
 1,568
 1,486
 1,442
 1,432
 1,424
 1,420
 15
2011        1,985
 1,957
 1,922
 1,916
 1,895
 1,915
 43
2012          2,069
 1,971
 1,938
 1,909
 1,901
 53
2013            1,487
 1,446
 1,359
 1,383
 73
2014              1,755
 1,755
 1,681
 103
2015                1,839
 1,828
 281
2016                  2,012
 828
Total                  $16,493
  
Net Cumulative Paid Loss and Allocated Loss Adjustment Expenses  
 Years Ended December 31  December 31 2016
(in millions of U.S. dollars)Unaudited    
Reported Claims (in thousands)

Accident Year2007
 2008
 2009
 2010
 2011
 2012
 2013
 2014
 2015
 2016
 2016
2007$563
 $987
 $1,076
 $1,117
 $1,124
 $1,126
 $1,130
 $1,133
 $1,134
 $1,135
 906
2008  929
 1,607
 1,708
 1,766
 1,797
 1,800
 1,807
 1,813
 1,813
 995
2009    630
 1,118
 1,213
 1,268
 1,280
 1,322
 1,332
 1,335
 1,067
2010      703
 1,231
 1,335
 1,374
 1,394
 1,400
 1,401
 1,054
2011        942
 1,585
 1,742
 1,822
 1,832
 1,856
 1,045
2012          727
 1,612
 1,745
 1,810
 1,830
 1,027
2013            630
 1,119
 1,241
 1,291
 1,068
2014              833
 1,405
 1,539
 1,095
2015                712
 1,334
 1,164
2016                  852
 1,098
Total                  $14,386
  
Net Liabilities for Loss and Allocated Loss Adjustment Expenses
(in millions of U.S. dollars) December 31, 2016
Accident years prior to 2007 $143
All Accident years $2,250
Supplementary Information: Average Annual Percentage Payout of Net Incurred Claims by Age, as of December 31, 2016
Age in Years1
 2
 3
 4
 5
 6
 7
 8
 9
 10
Percentage46% 37% 7% 4% 1% 1% % % % %


F-52


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
Chubb Limited and Subsidiaries


North America Personal P&C Insurance
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.
Net Incurred Loss and Allocated Loss Adjustment Expenses  
 Years Ended December 31  December 31 2016
(in millions of U.S. dollars)Unaudited    Net IBNR Reserves
Accident Year2007
 2008
 2009
 2010
 2011
 2012
 2013
 2014
 2015
 2016
 2016
2007$1,549
 $1,538
 $1,460
 $1,431
 $1,416
 $1,411
 $1,402
 $1,400
 $1,398
 $1,398
 $6
2008  1,777
 1,777
 1,746
 1,722
 1,693
 1,675
 1,667
 1,659
 1,659
 6
2009    1,608
 1,595
 1,565
 1,551
 1,543
 1,536
 1,536
 1,532
 9
2010      1,868
 1,876
 1,853
 1,836
 1,832
 1,828
 1,823
 11
2011        2,205
 2,207
 2,183
 2,171
 2,162
 2,158
 17
2012          2,183
 2,181
 2,181
 2,189
 2,183
 25
2013            1,855
 1,883
 1,891
 1,894
 29
2014              2,202
 2,203
 2,189
 141
2015                2,491
 2,546
 213
2016                  2,437
 609
Total                  $19,819
  
Net Cumulative Paid Loss and Allocated Loss Adjustment Expenses  
 Years Ended December 31  December 31 2016
(in millions of U.S. dollars)Unaudited    
Reported Claims (in thousands)

Accident Year2007
 2008
 2009
 2010
 2011
 2012
 2013
 2014
 2015
 2016
 2016
2007$843
 $1,182
 $1,267
 $1,328
 $1,353
 $1,370
 $1,377
 $1,384
 $1,387
 $1,387
 127
2008  974
 1,406
 1,518
 1,584
 1,620
 1,636
 1,642
 1,644
 1,648
 139
2009    886
 1,234
 1,345
 1,437
 1,484
 1,501
 1,511
 1,519
 125
2010      1,152
 1,521
 1,669
 1,727
 1,770
 1,792
 1,803
 149
2011        1,358
 1,833
 1,969
 2,049
 2,103
 2,127
 168
2012          1,175
 1,804
 1,955
 2,061
 2,115
 173
2013            1,040
 1,500
 1,683
 1,782
 126
2014              1,308
 1,762
 1,923
 134
2015                1,497
 2,081
 137
2016                  1,452
 120
Total                  $17,837
  
Net Liabilities for Loss and Allocated Loss Adjustment Expenses
(in millions of U.S. dollars) December 31, 2016
Accident years prior to 2007 $39
All Accident years $2,021


F-53


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
Chubb Limited and Subsidiaries


North America Personal P&C Insurance (continued)
Supplementary Information: Average Annual Percentage Payout of Net Incurred Claims by Age, as of December 31, 2016
Age in Years1
 2
 3
 4
 5
 6
 7
 8
 9
 10
Percentage59% 24% 7% 4% 2% 1% 1% % % %

Overseas General Insurance
Approximately 40 percent of Chubb International’s business is generated by European accounts. Business related to minor acquisitions in Overseas General Insurance is not material and therefore has been excluded from the tables below.

Overseas General Insurance — Casualty
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 shorter-tailed casualty exposures such as aviation, surety, and political risk. Exposures are located around the world, including Europe, Latin America, and Asia. 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 a mix of primary and excess business.
Net Incurred Loss and Allocated Loss Adjustment Expenses  
 Years Ended December 31  December 31 2016
(in millions of U.S. dollars)Unaudited    Net IBNR Reserves
Accident Year2007
 2008
 2009
 2010
 2011
 2012
 2013
 2014
 2015
 2016
 2016
2007$1,136
 $1,174
 $1,180
 $1,163
 $1,080
 $1,021
 $932
 $888
 $867
 $848
 $21
2008  1,189
 1,301
 1,386
 1,389
 1,398
 1,360
 1,290
 1,273
 1,267
 105
2009    1,214
 1,357
 1,400
 1,414
 1,411
 1,300
 1,195
 1,191
 124
2010      1,170
 1,203
 1,280
 1,349
 1,284
 1,239
 1,118
 162
2011        1,239
 1,232
 1,222
 1,217
 1,140
 1,062
 240
2012          1,253
 1,196
 1,257
 1,278
 1,269
 373
2013            1,229
 1,219
 1,231
 1,274
 537
2014              1,242
 1,286
 1,285
 626
2015                1,186
 1,252
 719
2016                  1,181
 914
Total                  $11,747
  
Net Cumulative Paid Loss and Allocated Loss Adjustment Expenses  
 Years Ended December 31  December 31 2016
(in millions of U.S. dollars)Unaudited    
Reported Claims (in thousands)

Accident Year2007
 2008
 2009
 2010
 2011
 2012
 2013
 2014
 2015
 2016
 2016
2007$95
 $287
 $425
 $550
 $631
 $680
 $715
 $743
 $776
 $787
 37
2008  120
 295
 455
 618
 759
 859
 931
 986
 1,036
 37
2009    119
 330
 505
 642
 734
 791
 860
 950
 36
2010      106
 266
 461
 602
 707
 794
 843
 38
2011        88
 240
 382
 511
 610
 686
 39
2012          74
 243
 422
 569
 677
 40
2013            87
 260
 413
 555
 41
2014              114
 289
 459
 41
2015                93
 283
 41
2016                  129
 29
Total                  $6,405
  


F-54


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
Chubb Limited and Subsidiaries


Overseas General Insurance — Casualty (continued)
Net Liabilities for Loss and Allocated Loss Adjustment Expenses
(in millions of U.S. dollars) December 31, 2016
Accident years prior to 2007 $339
All Accident years $5,681
Supplementary Information: Average Annual Percentage Payout of Net Incurred Claims by Age, as of December 31, 2016
Age in Years1
 2
 3
 4
 5
 6
 7
 8
 9
 10
Percentage9% 15% 14% 12% 9% 7% 5% 5% 4% 1%

Overseas General Insurance — Non-Casualty
This product line comprises commercial fire, marine (predominantly cargo), 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 particularly in the 2008, 2010 and 2011 years.
Net Incurred Loss and Allocated Loss Adjustment Expenses  
 Years Ended December 31  December 31 2016
(in millions of U.S. dollars)Unaudited    Net IBNR Reserves
Accident Year2007
 2008
 2009
 2010
 2011
 2012
 2013
 2014
 2015
 2016
 2016
2007$1,224
 $1,214
 $1,209
 $1,191
 $1,189
 $1,165
 $1,181
 $1,178
 $1,177
 $1,184
 $5
2008  1,364
 1,360
 1,318
 1,294
 1,302
 1,287
 1,284
 1,280
 1,269
 14
2009    1,315
 1,288
 1,203
 1,176
 1,160
 1,143
 1,143
 1,137
 8
2010      1,434
 1,449
 1,424
 1,424
 1,413
 1,400
 1,392
 30
2011        1,665
 1,728
 1,677
 1,644
 1,631
 1,620
 1
2012          1,472
 1,473
 1,442
 1,401
 1,400
 43
2013            1,530
 1,521
 1,474
 1,436
 59
2014              1,601
 1,664
 1,622
 63
2015                1,705
 1,812
 192
2016                  1,685
 424
Total                  $14,557
  


F-55


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
Chubb Limited and Subsidiaries


Overseas General Insurance — Non-Casualty (continued)  
Net Cumulative Paid Loss and Allocated Loss Adjustment Expenses  
 Years Ended December 31  December 31 2016
(in millions of U.S. dollars)Unaudited    
Reported Claims (in thousands)

Accident Year2007
 2008
 2009
 2010
 2011
 2012
 2013
 2014
 2015
 2016
 2016
2007$426
 $861
 $1,032
 $1,091
 $1,124
 $1,140
 $1,147
 $1,152
 $1,159
 $1,164
 183
2008  479
 985
 1,120
 1,183
 1,206
 1,215
 1,225
 1,233
 1,233
 206
2009    449
 882
 1,010
 1,073
 1,096
 1,106
 1,113
 1,116
 234
2010      523
 1,028
 1,218
 1,278
 1,316
 1,328
 1,334
 252
2011        631
 1,272
 1,465
 1,519
 1,549
 1,563
 268
2012          553
 1,050
 1,233
 1,290
 1,311
 283
2013            569
 1,088
 1,272
 1,301
 281
2014              622
 1,209
 1,394
 269
2015                692
 1,315
 256
2016                  789
 191
Total                  $12,520
  
Net Liabilities for Loss and Allocated Loss Adjustment Expenses
(in millions of U.S. dollars) December 31, 2016
Accident years prior to 2007 $65
All Accident years $2,102
Supplementary Information: Average Annual Percentage Payout of Net Incurred Claims by Age, as of December 31, 2016
Age in Years1
 2
 3
 4
 5
 6
 7
 8
 9
 10
Percentage39% 37% 12% 4% 2% 1% 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 — Property
This portfolio consists of property catastrophe, property proportional, and property per risk books, with U.S. exposure representing approximately 70 percent of the business within this segment. Although the mixture of business varies by year, property catastrophe represents approximately 70 percent in Treaty Years 2007 and after. Of the non-catastrophe book, approximately 75 percent is on proportional treaties in Treaty Year 2007 and after. This percentage has increased over time with the proportion being approximately 50 percent from 2007 growing to approximately 90 percent in Treaty Year 2015, with the remainder being written on an excess of loss basis. Also note, this product line is impacted by natural catastrophes, particularly in the 2011 and 2012 years.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
Chubb Limited and Subsidiaries


Global Reinsurance — Property (continued)  
Net Incurred Loss and Allocated Loss Adjustment Expenses  
 Years Ended December 31  December 31 2016
(in millions of U.S. dollars)Unaudited    Net IBNR Reserves
Accident Year2007
 2008
 2009
 2010
 2011
 2012
 2013
 2014
 2015
 2016
 2016
2007$107
 $106
 $97
 $91
 $90
 $88
 $87
 $87
 $87
 $86
 $2
2008  223
 214
 206
 206
 206
 208
 210
 209
 208
 
2009    99
 113
 105
 105
 103
 100
 100
 100
 
2010      155
 179
 173
 172
 178
 179
 180
 6
2011        227
 224
 224
 220
 221
 222
 1
2012          175
 154
 149
 142
 141
 4
2013            117
 117
 109
 105
 (2)
2014              125
 142
 142
 6
2015                98
 105
 9
2016                  143
 29
Total                  $1,432
  
Net Cumulative Paid Loss and Allocated Loss Adjustment Expenses  
 Years Ended December 31  December 31 2016
(in millions of U.S. dollars)Unaudited    
Reported Claims (in thousands)

Accident Year2007
 2008
 2009
 2010
 2011
 2012
 2013
 2014
 2015
 2016
 2016
2007$23
 $65
 $77
 $81
 $84
 $85
 $85
 $86
 $86
 $86
 0.215
2008  65
 139
 169
 194
 205
 207
 208
 208
 208
 0.157
2009    41
 79
 90
 95
 96
 98
 98
 98
 0.107
2010      40
 137
 157
 167
 171
 173
 173
 0.095
2011        75
 151
 175
 198
 214
 217
 0.103
2012          29
 95
 117
 125
 129
 0.084
2013            38
 85
 98
 103
 0.097
2014              56
 112
 127
 0.081
2015                50
 87
 0.086
2016                  50
 0.087
Total                  $1,278
  
Net Liabilities for Loss and Allocated Loss Adjustment Expenses
(in millions of U.S. dollars) December 31, 2016
Accident years prior to 2007 $
All Accident years $154
Supplementary Information: Average Annual Percentage Payout of Net Incurred Claims by Age, as of December 31, 2016
Age in Years1
 2
 3
 4
 5
 6
 7
 8
 9
 10
Percentage33% 41% 12% 8% 4% 1% % % %  %


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
Chubb Limited and Subsidiaries


Global Reinsurance — Non-Property
This product line includes proportional and excess casualty coverages with exposures located around the world. Reinsurance in general exhibits less stable development patterns than primary business. In particular U.S. casualty reinsurance is long-tailed and can be very volatile.
Net Incurred Loss and Allocated Loss Adjustment Expenses  
 Years Ended December 31  December 31 2016
(in millions of U.S. dollars)Unaudited    Net IBNR Reserves
Accident Year2007
 2008
 2009
 2010
 2011
 2012
 2013
 2014
 2015
 2016
 2016
2007$655
 $670
 $670
 $641
 $620
 $606
 $581
 $570
 $564
 $558
 $70
2008  488
 512
 528
 513
 503
 480
 480
 475
 474
 55
2009    356
 404
 404
 409
 401
 383
 365
 354
 35
2010      442
 472
 479
 485
 472
 467
 457
 84
2011        449
 461
 474
 472
 467
 458
 67
2012          440
 437
 440
 440
 425
 30
2013            359
 363
 362
 361
 54
2014              367
 367
 373
 69
2015                328
 333
 87
2016                  256
 141
Total                  $4,049
  
Net Cumulative Paid Loss and Allocated Loss Adjustment Expenses  
 Years Ended December 31  December 31 2016
(in millions of U.S. dollars)Unaudited    
Reported Claims (in thousands)

Accident Year2007
 2008
 2009
 2010
 2011
 2012
 2013
 2014
 2015
 2016
 2016
2007$52
 $122
 $200
 $267
 $318
 $363
 $393
 $417
 $437
 $445
 1.470
2008  46
 113
 187
 239
 286
 319
 343
 362
 373
 1.292
2009    49
 109
 151
 191
 224
 246
 265
 278
 0.921
2010      71
 149
 209
 253
 283
 315
 331
 0.877
2011        80
 171
 227
 270
 304
 330
 0.796
2012          93
 202
 260
 301
 334
 0.677
2013            72
 158
 206
 247
 0.417
2014              99
 199
 240
 0.428
2015                95
 173
 0.370
2016                  63
 0.118
Total                  $2,814
  
Net Liabilities for Loss and Allocated Loss Adjustment Expenses
(in millions of U.S. dollars) December 31, 2016
Accident years prior to 2007 $357
All Accident years $1,592
Supplementary Information: Average Annual Percentage Payout of Net Incurred Claims by Age, as of December 31, 2016
Age in Years1
 2
 3
 4
 5
 6
 7
 8
 9
 10
Percentage18% 19% 13% 11% 8% 7% 5% 4% 3% 2%


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
Chubb Limited and Subsidiaries


The following table presents a reconciliation of the loss development tables above to the gross loss reserve liability 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, 2016
Net unpaid loss and allocated loss adjustment expense:  
  North America Commercial P&C Insurance — Workers' Compensation $7,584
  North America Commercial P&C Insurance — Liability 17,312
  North America Commercial P&C Insurance — Other Casualty 1,771
  North America Commercial P&C Insurance — Non-Casualty 2,250
  North America Personal P&C Insurance 2,021
  Overseas General Insurance — Casualty 5,681
  Overseas General Insurance — Non-Casualty 2,102
  Global Reinsurance — Property 154
  Global Reinsurance — Non-Property 1,592
  Other (1)
 4,837
Net unpaid loss and allocated loss adjustment expense 45,304
Ceded unpaid loss and allocated loss adjustment expense:  
  North America Commercial P&C Insurance — Workers' Compensation $1,872
  North America Commercial P&C Insurance — Liability 4,273
  North America Commercial P&C Insurance — Other Casualty 437
  North America Commercial P&C Insurance — Non-Casualty 555
  North America Personal P&C Insurance 168
  Overseas General Insurance — Casualty 2,617
  Overseas General Insurance — Non-Casualty 968
  Global Reinsurance — Property 11
  Global Reinsurance — Non-Property 114
  Other (1)
 1,825
Ceded unpaid loss and allocated loss adjustment expense 12,840
Net unpaid loss and loss expense on other than short-duration contracts (2)
 741
Unpaid unallocated loss adjustment expenses 1,655
Unpaid losses and loss expenses $60,540
(1) Other includes the North America Agricultural Insurance segment, run-off asbestos and environmental, the loss portfolio transfer of Fireman’s Fund personal lines run-off liabilities, and Alternative Risk Solutions. Excludes the Life Insurance segment reserves.
(2) Primarily includes our international A&H business and Life Insurance segment reserves.




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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
Chubb Limited and Subsidiaries


The following table presents a reconciliation of unpaidUnpaid losses and loss expenses:
Years Ended December 31  Year Ended December 31 
(in millions of U.S. dollars)2014  2013  2012 2016 2015 2014 
Gross unpaid losses and loss expenses, beginning of year $37,443
 
$37,946
 
$37,477
 $37,303
 $38,315
 $37,443
Reinsurance recoverable on unpaid losses(1)
 (10,612) (11,399) (11,602) (10,741) (11,307) (10,612)
Net unpaid losses and loss expenses, beginning of year 26,831
 26,547
 25,875
 26,562
 27,008
 26,831
Acquisition of subsidiaries 320
 86
 14
 21,402
 417
 320
Total 27,151
 26,633
 25,889
 47,964
 27,425
 27,151
Net losses and loss expenses incurred in respect of losses occurring in:            
Current year 10,176
 9,878
 10,132
 17,256
 10,030
 10,176
Prior years (527) (530) (479)
Prior years (2)
 (1,204) (546) (527)
Total 9,649
 9,348
 9,653
 16,052
 9,484
 9,649
Net losses and loss expenses paid in respect of losses occurring in:            
Current year 3,975
 3,942
 4,325
 5,899
 4,053
 3,975
Prior years 5,260
 5,035
 4,894
 9,816
 5,612
 5,260
Total 9,235
 8,977
 9,219
 15,715
 9,665
 9,235
Foreign currency revaluation and other (557) (173) 224
 (469) (682) (557)
Net unpaid losses and loss expenses, end of year 27,008
 26,831
 26,547
 47,832
 26,562
 27,008
Reinsurance recoverable on unpaid losses(1)
 11,307
 10,612
 11,399
 12,708
 10,741
 11,307
Gross unpaid losses and loss expenses, end of year $38,315
 $37,443
 $37,946
 $60,540
 $37,303
 $38,315
(1) Net of provision for uncollectible reinsurance.
      
(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.
(2) Relates to prior period loss reserve development only and excludes prior period development related to reinstatement premiums, expense adjustments, and earned premiums.

Net losses and loss expenses incurred includes $527$1,204 million, $530$546 million, and $479$527 million, of net favorable prior period development (PPD) in the years ended December 31, 2014, 2013,2016, 2015, and 2012,2014, respectively. Long-tail lines include lines such as workers’workers' compensation, general liability, and professional liability; while short-tail lines include lines such as most property lines, energy, personal accident, aviation, marine (including associated liability-related exposures) and agriculture. Significant prior period movements by segment, principally driven by reserve reviews completed during each respective period, are discussed in more detail below. The remaining net development for long-tail lines and short-tail business for each segment and Corporate comprises numerous favorable and adverse movements across a number of lines and accident years, none of which is significant individually or in the aggregate.

North America Commercial P&C Insurance
2016
North America Commercial P&C Insurance experienced net favorable PPD of $778 million, driven by the following principal changes:

Net favorable development of $650 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


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACEChubb Limited and Subsidiaries


Insurance – 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; and

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.

Net favorable development of $128 million in short-tail business, primarily from:

Net favorable development of $79 million in our property and inland marine portfolios, primarily impacting the 2014 and 2015 accident years, resulting from lower than expected loss emergence; and

Net favorable development of $39 million in our credit-related businesses, including surety, trade credit and political risk, mainly due to favorable claim emergence in the 2012 and 2014 accident years.

2015
North AmericanAmerica Commercial P&C
Insurance – North American P&C's active operations experienced net favorable PPD of $354$264 million in 2014 which was the net result of several underlying favorable and adverse movements2015, driven by the following principal changes:

Net favorable development of $298$155 million in long-tail business, primarily from:

FavorableNet favorable development of $104$108 million in our D&Omanagement and professional liability portfolios, primarily impacting accident years 2010 and prior. Lower than expected paid and reported loss activity led to reductions in our estimates of ultimate loss for these accident years;

Favorable development of $32 million in our auto liability excess lines and $26 million in our general liability product lines primarily impacting the 2010 accident year, resulting from lower than expected loss emergence and an increase in weighting applied to experience-based methods;

Net favorable development of $21 million in our workers’ compensation lines with favorable development of $52 million in the 2014 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 end of the accident year to allow for late reporting or identification of significant losses. Adverse development of $29 million was experienced on the 2009 and prior accident years. Case incurredyears due to a combination of claim-specific deteriorations and higher than expected loss emergence thatemergence. There was loweralso adverse development on the 2014 accident year due to revised account-level estimates, which were higher than our original aggregate expectations; and

Net adverse development of $33 million in our commercial umbrella and excess portfolios, primarily impacting accident years 2010 and 2011. Higher than expected reported loss activity, combined with an increase in weighting applied to experience-based methods, led to a reductionincreased provisions in the estimates of ultimate loss for those years;

Favorable development of $55 million in our excess casualty and umbrella businesses. Resolution of a disputed matter on an individual claim led to a release of $42 million in the 2003 accident year, and lower than expected reported activity across a number of accident years drove2010 and 2011, which was partly offset by the remaining improvement;

Favorable developmentrecognition of $48 million on an older claim following recent legal developments, after which it was determined that the reserves were no longer required;

Favorable development of $40 millionfavorable emergence in our medical risk operations, primarily impacting the 2009 and 2010 accident years. Paid and case incurred loss emergence that was lower than expected combined with an increase in weighting applied to experience-based methods led to a reduction in the estimate of ultimate loss for those years;

Favorable development of $35 million in our financial solutions business, primarily in the 2010 and prior accident years. Net favorable development principally resulted from the recognition of lower than expected loss activity on two large excess liability transactions;

Favorable development of $27 million in our surety business, primarily from favorable claims emergence in the 2012 accident year;

Net adverse development of $32 million in our workers’ compensation lines, with adverse development in the 2013 accident year and mainly favorable development in accident years 2009 and 2010. Adverse development in the 2013 accident year is being driven by one large account which is experiencing higher than expected claims frequency and severity; and

Net favorable development of $21$109 million in our auto liability excess linesshort-tail business, primarily impacting the 2009 accident year. Reported activity on loss and allocated loss expenses was lower than expected based on estimates from our prior review and original pricing assumptions.from:

Favorable development of $56 million in short-tail business, primarily driven by net favorable development of $2034 million in our energy and technical riskexcess property business primarily impacting the 2012 and 2013 accident years. Across most lines, paidyear. Paid and reported loss activity was lower than expected.

Insurance – North American P&C's run-off operations incurred adverse PPD of $247 millionexpected leading to reductions in our Westchester and Brandywine run-off operations during 2014, which was a net resultestimate of adverse movements impacting accident years 1996 and prior, driven by the following principal changes:

Adverse development of $215 million related to the completion of reserve reviews during 2014. The development primarily arose from case specific asbestos and environmental claims related to increased payment activity and the costs associated with certain case settlements in 2014. Further, we experienced higher than expected case incurred activity in our assumed reinsurance portfolio;ultimate loss; and

AdverseFavorable development of $32$37 million on unallocated loss adjustment expensesin our credit-related business due to run-off operating expenses paidlower than expected claims emergence primarily in the 2013 accident year.

2014
North America Commercial P&C Insurance experienced net favorable PPD of $378 million in 2014, representing 1.4 percent of the beginning consolidated net unpaid losses and incurred during 2014.loss expense reserves.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACEChubb Limited and Subsidiaries



North America Personal P&C Insurance
North America Personal P&C Insurance incurred net adverse PPD of $27 million in 2016, 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. Net adverse PPD of $25 million, in 2015, was the net result of several underlying favorable and adverse movements, none of which were significant individually or in the aggregate.
Net adverse PPD of $24 million in 2014, represented 0.1 percent of the beginning consolidated net unpaid losses and loss expense reserves.

North American P&C's active operationsAmerica Agricultural Insurance
North America Agricultural Insurance experienced net favorable development of $72 million and $45 million in 2016 and 2015, respectively, and net adverse development of $34 million in 2014. Actual claim development relates to our MPCI business and is favorable or (adverse) based on better or (worse) than expected crop yield results in certain states at the prior year-end period (i.e., 2016 results based on crop yield results at year-end 2015).

Overseas General Insurance
2016
Overseas General Insurance experienced net favorable PPD of $327$423 million, in 2013 which was the net result of several underlying favorable and adverse movements, driven by the following principal changes:

Net favorable development of $221191 million million in long-tail business, primarily from:

Favorable development of $72 million in our retail D&O portfolios, primarily impacting the 2008 and prior accident years. Favorable settlements on several large claims drove the favorable development in 2004 and prior accident years, while favorable action in 2008 is primarily due to an increase in weighting applied to experience-based and simulation methods;

Favorable development of $63 million in our medical risk operations, primarily impacting the 2007 to 2009 accident years. Paid and reported loss activity for this business in these accident years continued to be lower than expected and we have increased our weighting applied to experience-based methods;

Favorable development of $50 million in our U.S. excess casualty and umbrella businesses primarily affecting the 2007 and prior accident years. Reported activity on loss and allocated loss adjustment expenses was lower than expected based on estimates from our prior review. In addition, increased weighting was applied to experience-based methods in the current review for these accident periods; and

Net favorable development of $28 million in our national accounts portfolios which consist of commercial auto, general liability and workers' compensation lines of business. This favorable movement was the net impact of favorable and adverse movements, including:

Favorable development of $40 million related to our annual assessment of multi-claimant events including industrial accidents, impacting the 2012 accident year. 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;

Adverse development of $40 million predominantly in workers' compensation, primarily impacting the 2006 and prior accident years. The development was a function of higher than expected reported loss activity, higher allocated loss adjustment expenses, as well as an increase in weighting applied to experience-based methods; and

Net favorable development of $28 million across a number of lines and accident years, none of which was significant individually or in the aggregate.

Favorable development of $25 million in our foreign casualty Controlled Master Program and Cash Flow portfolios affecting the 2009 and prior accident years. Paid and reported loss activity for this business in these accident years continued to be lower than expected and we have increased our weighting applied to experience-based methods.

Favorable development of $106 million in short-tail business, primarily from:

Net favorable development of $45165 million, primarily in casualty and financial lines, with favorable development of $257 million in our wholesale property and inland marine portfolios, primarily in accident years 20102012 and prior, resulting from lower than expected loss emergence, and adverse development of $92 million in accident years 2013 to 2012,2015, primarily due to favorable case incurred emergencelarge loss experience in our D&O portfolio in Asia and favorable settlements of several large claims;financial lines in Europe; and

Favorable development of $2925 million millionon an individual legacy liability case reserve take-down. This release follows a legal analysis completed in our political risk business2016, based on court opinion in the 2009year and 2010 accident years primarily due to favorable settlements of a few large claims.discussions with defense counsel, which concluded that these reserves were no longer required.

Insurance – North American P&C's run-off operations incurred adverse PPD
Net favorable development of $193$232 million in our Westchestershort-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;

Favorable development of $28 million in accident & health (A&H) lines, due to lower than expected loss emergence, primarily in Asia Pacific and Brandywine run-off operations duringContinental Europe in accident years 2013 which was a net resultthrough 2015; and

Favorable development of adverse movements$28 million in aviation lines due to lower than expected loss emergence and case-specific reserve reductions impacting accident years 19962012 and prior,prior.

2015
Overseas General Insurance experienced net favorable PPD of $343 million in 2015, driven by the following principal changes:

AdverseNet favorable development of $161166 million million related to the completionin long-tail business, primarily from:

Net favorable development of the reserve reviews during 2013. The$140 million, primarily in casualty and financial lines with favorable development primarily aroseof $175 million in accident years 2011 and prior, resulting from case specific asbestos and environmental claims related to increased loss and defense cost payment activity and the costs associated with certain case settlements in 2013. Further, we experienced higherlower than expected paid loss emergence, and case reserve activityadverse development of $35 million in our assumed reinsurance portfolio;accident years 2012 to 2014, primarily due to large loss experience in the U.K. and Europe; and



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACEChubb Limited and Subsidiaries


AdverseFavorable development of $2726 million million on unallocated loss adjustment expenses due to run-off operating expenses paid and incurred during 2013.

Insurance – North American P&C active operations experienced net favorable PPD of $348 millionan individual legacy liability case reserve take-down.  This release follows a legal analysis completed in 2012, representing 2.2 percent of its beginning of period net unpaid loss and loss expense reserves. Insurance – North American P&C run-off operations incurred net adverse PPD of $168 million in 2012, representing 1.1 percent of its beginning of period net unpaid loss and loss expense reserves.

Insurance – North American Agriculture
Insurance – North American Agriculture experienced net adverse PPD of $34 million in 2014, compared to net favorable development of $13 million, and $12 million in 2013 and 2012, respectively. Actual claim development in 2014 for the 2013 crop year for Multiple Peril Crop Insurance (MPCI) was adverse relative to the long-term historical averages used to estimate our reserves at year-end 2013. Net favorable development in 2013 and 2012 was across a number of accident years, none of which was significant individually or2015, based on court opinion in the aggregate.

Insurance – Overseas General
Insurance – Overseas General experienced net favorable PPD of $391 million in 2014,year and discussions with defense counsel, which was the net result of several underlying favorable and adverse movements, driven by the following principal changes:

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

Net favorable development of $102 million in casualty lines with favorable development of $148 million in accident years 2010 and prior, predominantly due to favorable loss experience in European primary and excess lines, and adverse development of $46 million in accident years 2011 to 2013, predominantly due to large loss experience in the U.K. primary and excess lines;concluded that these reserves were no longer required.

Favorable development of $52 million on an older liability case.  This release follows discussions with defense counsel, a review of key legal briefing, and a coverage analysis, all of which was completed in 2014 and after which it was concluded that the reserves were no longer required; and

Net favorable development of $27 million in financial lines with favorable development of $98 million in accident years 2010 and prior due to favorable loss experience and adverse development of $71 million in accident years 2011 to 2013. The adverse development was primarily due to large loss experience in D&O and financial institutions.

Favorable development of $210177 million in short-tail business primarily from:

Favorable development of $136$90 million acrossin property, technical, energy and marine lines with favorable development of $44 million in accident year 2013 due to favorable large loss experience, and favorable development of $92 million in accident years 2012 and prior due to favorable development onfrom specific claims and an increase in weighting appliedadditional credibility assigned to experience-based methods;accident years 2013 and prior favorable indications;

Favorable development of $30$34 million in aviation linesA&H business primarily in accident years 2010year 2013 and prior in the aviation2014 across all regions and products, airlines and airport liability lines;none of which was individually significant; and

Favorable development of $25$26 million in personal linesconsumer business primarily in accident years 2011 to 2013 across all Latin America personal lines and Asia Pacific, personal automobile lines.resulting from favorable development and additional credibility assigned to accident years 2012 and 2013.

Insurance – 2014
Overseas General Insurance experienced net favorable PPD of $299$391 million in 2013, which was2014, representing 1.5 percent of the beginning consolidated net resultunpaid losses and loss expense reserves.

Global Reinsurance
2016
Global Reinsurance experienced net favorable PPD of several underlying favorable and adverse movements,$78 million, driven by the following principal changes:

Net favorable development of $12742 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 in 2015, driven by the following principal changes:

Favorable development of $54 million comprising $42 million in long-tail business, primarily from:lines and $12 million in short-tail lines, on an individual legacy liability case reserve take-down. This release follows a legal analysis completed in 2015, based on court opinion and discussions with defense counsel, which concluded that these reserves were no longer required;

Favorable development of $92 million in casualty (primary and excess). Reserve reviews indicated favorable claim activity of $135 million in accident years 2009 and prior. These reviews reflected an increase in weighting applied to experience-based methods as these accident years continued to mature. Adverse development of $43 million in accident years 2010 to 2012 was primarily due to development in specific individual large claims and also in several


F-44


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
ACE Limited and Subsidiaries


accounts now exposed on an excess basis following adverse loss development of the underlying aggregate retention layer; and

Net favorable development of $35 million in financial lines. Reserve reviews indicated favorable claim activity of $63 million in accident years 2009 and prior. These reviews reflected an increase in weighting applied to experience-based methods as these accident years continued to mature. Adverse development of $28 million in accident year 2012 was incurred due to notifications on specific large claims.

Favorable development of $172 million in short-tail business, primarily from:

Favorable development of $104 million across property, technical lines and marine. Favorable development of $69 million in accident years 2010 to 2012 reflected lower than expected loss emergence. In addition, favorable development of $35 million in the property and marine liability lines in accident years 2009 and prior was primarily due to case specific developments;
Favorable development of $39 million across accident and health and personal lines primarily reflected lower than expected loss emergence, primarily in accident years 2010 to 2012; and

Favorable development of $29 million predominantly in the wholesale aviation business, primarily in accident years 2009 and prior, due to case specific developments.

Insurance – Overseas General experienced net favorable PPD of $226 million in 2012, representing 3.1 percent of the segment's beginning of period net unpaid loss and loss expense reserves.

Global Reinsurance
Global Reinsurance experienced net favorable PPD of $63 million in 2014, which was the net result of several underlying favorable and adverse movements, driven by the following principal change:

Net favorable development of $52 million in long-tail business, primarily from:

Favorable development of $3433 million in professional liability lines, including medical malpractice business, primarily in treaty years 20092010 and prior reflecting favorable paid and incurred loss trends and an increase in weighting applied to experience-based methods; and

Favorable development of $25$23 million in casualty lines, principally in treaty years 2009 and prior reflecting favorable paid and incurred loss trends and an increase in weighting applied to experience-based methods.

2014
Global Reinsurance experienced net favorable PPD of $84$63 million in 2013, which2014, representing 0.2 percent of the beginning consolidated net unpaid losses and loss expense reserves.

Corporate
2016
Corporate incurred adverse development was the net result of several underlying favorable and adverse movements,$189 million in long-tail lines, driven by the following principal changes:

Net favorableAdverse development of $53141 million million in long-tail business,asbestos, environmental, and other run-off liabilities primarily from:

Favorable developmentarose as a result of $25 million in professional liability lines, primarily in treaty years 2008the annual review of individual accounts and prior, reflected favorable paidcase specific exposures, with account changes driven by recent frequency and incurred lossseverity trends, certain case specific settlements and an increase in weighting applied to experience-based methods;higher than expected defense spending; and

FavorableAdverse development of $2048 million million in medical malpractice business, primarily in treaty years 2009 and prior, reflected favorableon unallocated loss adjustment expenses due to run-off operating expenses paid and incurred loss trends and an increase in weighting applied to experience-based methods.2016.

Net favorable development of $31 million in short-tail business, primarily in treaty years 2007 to 2012 across property lines (including property catastrophe), trade credit, marine, and surety principally as a result of lower than expected loss emergence.

Global Reinsurance experienced net favorable PPD of $61 million in 2012, representing 2.7 percent of the segment's beginning of period net unpaid loss and loss expense reserves.



F-45
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACEChubb Limited and Subsidiaries


2015
Corporate incurred adverse PPD of $200 million in long-tail lines, driven by the following principal changes:

Adverse development of $170 million in our Westchester and Brandywine run-off operations, related to the completion of reserve reviews during 2015, impacting accident years 1996 and prior. The development primarily arose from case specific settlements and higher than expected remediation expense and defense costs for environmental claims and increases in indemnity and defense costs on a select number of modeled accounts for asbestos.  Further, we experienced higher than expected loss emergence on certain portfolios in our assumed reinsurance book and in other run-off lines; and

Adverse development of $30 million on unallocated loss adjustment expenses due to run-off operating expenses paid and incurred during 2015.

2014
Corporate incurred adverse PPD of $247 million in 2014, representing 0.9 percent of the beginning consolidated net unpaid losses and loss expense reserves.

Asbestos and environmental (A&E)

ACE'sChubb's exposure to A&E claims principally arises out of liabilities acquired when it purchased Westchester Specialty in 1998, and CIGNA's P&C business in 1999, with the larger exposure contained within the liabilities acquiredand Chubb Corp in the CIGNA transaction.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  Asbestos  Environmental  Total  
(in millions of U.S. dollars) Gross Net Gross
Net Gross Net  Gross
 Net
 Gross

Net
 Gross
 Net
 
Balance at December 31, 2013 $1,644
 $926
 $195
 $125
 $1,839
 $1,051
 
Balance at December 31, 2015 $1,351
 $831
 $199
 $149
 $1,550
 $980
 
Acquired reserves 488
 468
 371
 354
 859
 822
 
Incurred activity 187
 113
 113
 97
 300
 210
(1) 
 311
 95
 104
 69
 415
 164
(1) 
Paid activity (331) (147) (109) (73) (440) (220)  (424) (275) (97) (82) (521) (357) 
Balance at December 31, 2014 $1,500
 $892
 $199
 $149
 $1,699
 $1,041
 
Balance at December 31, 2016 $1,726
 $1,119
 $577
 $490
 $2,303
 $1,609
 
(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).
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, 20142016 and 2013, of $1.0 billion and $1.1 billion2015 shown in the table above comprise $837 million and $816 million, respectively, of reserves held by Brandywine operations, $119 million and $146 million, respectively, of reserves held by Westchester Specialty, and $85 million and $89 million, respectively, of reserves held by other operations, mainly Insurance – Overseas General. For 2014 and 2013, theis comprised of:
 December 31 
(in millions of U.S. dollars)2016
 2015
Brandywine operations$760
 $782
Westchester Specialty112
 115
Chubb Corp657
 
Other, mainly Overseas General Insurance80
 83
Total$1,609
 $980

The incurred activity of $210$164 million in 2016 and $171$162 million respectively,in 2015 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 ACE'sChubb'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).


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
Chubb Limited and Subsidiaries


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

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. 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. The Dividend Retention Fund may not be terminated without prior written approval from the Pennsylvania Insurance Commissioner.



F-46


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
ACE Limited and Subsidiaries


In addition, an ACEa Chubb INA insurance subsidiary provided reinsurance coverage to Century in the amount of $800 million under an XOL, triggered 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.

Effective December 31, 2004, ACEChubb INA Holdings 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, 20142016 was $25 million and approximately $298$512 million in statutory-basis losses have been ceded to the XOL on an inception-to-date basis. Century reports the amount ceded under the XOL 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 ACEChubb believes it has no legal obligation to fund Century losses above the XOL limit of coverage, ACE'sChubb'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 ACE.Chubb.

Certain active ACEChubb 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 ACEChubb companies from Century could become uncollectible. At both December 31, 20142016 and 2013,2015, the aggregate reinsurance recoverables owed by Century to thecertain active ACEChubb companies were approximately $1.1 billion and $929 million, respectively. ACE$1.2 billion. Chubb believes the active company intercompany reinsurance recoverables, which relate to direct liabilities payable over many years, are not impaired. At December 31, 20142016 and 2013,2015, Century's carried gross reserves (including reserves assumed from the active ACEChubb companies) were $2.1$2.0 billion and $2.3$1.9 billion, respectively. 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 thecertain active ACEChubb 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 ACE’sChubb’s run-off entities

As part of the Westchester Specialty acquisition in 1998, NICO provided a 75 percent pro-rata share of $1$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, 2014,2016, the remaining unused incurred limit under the Westchester NICO agreement was $472$438 million.


F-65


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
Chubb Limited and Subsidiaries


8. Taxation

Under 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. ACEChubb Limited is a holding company and, therefore, is exempt from cantonal and communal income tax. As a result, ACEChubb Limited is subject to Swiss income tax only at the federal level. Furthermore, participation relief (i.e., tax relief) is granted to ACEChubb 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. ACEChubb Limited is resident in the Canton and City of Zurich and, as such, is subject to an annual cantonal and communal capital tax on the taxable equity of ACEChubb Limited in Switzerland.

ACEChubb has two Swiss operating subsidiaries, resident in the Canton and City of Zurich, an insurance company, ACEChubb Insurance (Switzerland) Limited which, in turn, ownsand a reinsurance company, ACEChubb 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, ACEChubb 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, ACEChubb 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 ACE'sChubb'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


F-47


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
ACE Limited and Subsidiaries


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 the Names/Corporate Members in proportion to their participation in the relevant syndicates. ACE'sChubb'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.

ACEChubb 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, legacy Chubb Corp merged with and into Chubb INA Holdings Inc., and therefore, joined the Chubb Group Holdings consolidated return. Starting in tax year 2014, Combined Insurance and its life subsidiary will joinjoined the ACEChubb Group Holdings consolidated return. For tax years prior to 2014, Combined Insurance and its life subsidiary filed a separate consolidated U.S. tax return. Should ACEChubb Group Holdings pay a dividend to ACE,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) 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 ACE.Chubb. Certain international operations of ACEChubb are also subject to income taxes imposed by the jurisdictions in which they operate.

ACE is not subject to income taxation other than as stated above.  There can be no assurance that there will not be changes in applicable laws, regulations, or treaties which might require ACE to change the way it operates or becomes subject to taxation.

ACE'sChubb's domestic operations are in Switzerland, the jurisdiction where we are legally organized, incorporated, and registered. Domestic operations for the years ended December 31, 2014, 2013,



F-66


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
Chubb Limited and 2012 are not considered significant to the consolidated income before income taxes for the respective periods.Subsidiaries


The following table presents pre-tax income and the related provision for income taxes:
Years Ended December 31 Year Ended December 31 
(in millions of U.S. dollars)2014
 2013
 2012
2016
 2015
 2014
Current tax expense$481
 $231
 $305
Deferred tax expense (benefit)153
 249
 (35)
Pre-tax income:     
Switzerland$766
 $469
 $404
Outside Switzerland4,184
 2,827
 3,083
Total pre-tax income$4,950
 $3,296
 $3,487
Provision for income taxes:     
Current tax expense:     
Switzerland$97
 $38
 $31
Outside Switzerland727
 266
 450
Total current tax expense824
 304
 481
Deferred tax expense:     
Switzerland(27) 4
 9
Outside Switzerland18
 154
 144
Total deferred tax expense(9) 158
 153
Provision for income taxes$634
 $480
 $270
$815
 $462
 $634

The most significant jurisdictions contributing to the overall taxation of ACEChubb are calculated using the following rates: Switzerland 7.83 percent, Bermuda 0.0 percent, U.S. 35.0 percent, and U.K. 21.520.0 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:
Years Ended December 31 Year Ended December 31 
(in millions of U.S. dollars)2014
 2013
 2012
2016
 2015
 2014
Expected tax provision at Swiss statutory tax rate$273
 $331
 $233
$388
 $258
 $273
Permanent differences:          
Taxes on earnings subject to rate other than Swiss statutory rate224
 124
 129
582
 193
 224
Change to deferred taxes related to unrealized foreign exchange losses (1)
139
 
 

 
 139
Tax-exempt interest and dividends received deduction, net of proration(33) (27) (24)(200) (32) (33)
Net withholding taxes33
 27
 23
20
 35
 33
Favorable resolution of prior years' tax matters and closing statutes of limitations(1) (5) (124)
Change in valuation allowance (1)
(20) 4
 4
(1) 2
 (20)
Other19
 26
 29
26
 6
 18
Total provision for income taxes$634
 $480
 $270
$815
 $462
 $634
(1) Includes2014 includes a charge to deferred taxes related to non-recognition of foreign tax credits related to unrealized foreign exchange losses. Includes $71 million of net charges related to income taxes to correct prior periods. Such amounts are not material to any period presented.


F-48
F-67


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACEChubb Limited and Subsidiaries



The following table presents the components of the net deferred tax assets:assets (liabilities):
December 31
 December 31
December 31
 December 31
(in millions of U.S. dollars)2014
 2013
2016
 
2015 (1)

Deferred tax assets:      
Loss reserve discount$794
 $807
$1,269
 $663
Unearned premiums reserve99
 93
498
 190
Foreign tax credits1,103
 1,236
2,115
 969
Investments9
 3
Provision for uncollectible balances81
 78
72
 65
Loss carry-forwards40
 54
92
 72
Debt related amounts219
 3
Compensation related amounts185
 177
449
 189
Other
 7
Cumulative translation adjustments59
 17
Other, net69
 80
Total deferred tax assets2,311
 2,455
4,842
 2,248
Deferred tax liabilities:      
Deferred policy acquisition costs213
 138
842
 412
VOBA and other intangible assets321
 351
Other intangible assets, including VOBA2,352
 384
Un-remitted foreign earnings939
 982
2,001
 827
Investments406
 6
Unrealized appreciation on investments406
 210
60
 195
Depreciation77
 66
91
 68
Other43
 28
Total deferred tax liabilities1,999
 1,775
5,752
 1,892
Valuation allowance17
 64
78
 38
Net deferred tax assets$295
 $616
Net deferred tax assets (liabilities)$(988) $318
(1) Certain amounts within the components of deferred taxes at December 31, 2015 have been reclassified to conform to the new presentation at December 31, 2016.

In connection with the Chubb Corp acquisition, we established deferred tax liabilities, principally related to purchased intangibles. These liabilities resulted in a net deferred tax liability position for us at December 31, 2016 as noted in the table above.   

The valuation allowance of $17$78 million at December 31, 2014,2016, and $64$38 million at December 31, 2013,2015, 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 inability of certain foreign subsidiaries to generate sufficient taxable income and the inability of ACE Group Holdings and its subsidiaries to use foreign tax credits.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, 2014, ACE2016, Chubb has net operating loss carry-forwards primarily from foreign jurisdictions, of $113$356 million which, if unused, will expire starting in the years 2015 through 2032,year 2018, and a foreign tax credit carry-forward in the amount of $129$114 million which, if unused, will expire in the years 20152019 through 2024.2026.



F-68


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
Chubb Limited and Subsidiaries


The following table presents a reconciliation of the beginning and ending amount of gross unrecognized tax benefits:
December 31
 December 31
December 31
 December 31
(in millions of U.S. dollars)2014
 2013
2016
 2015
Balance, beginning of year$27
 $26
$16
 $23
Additions based on tax provisions related to the current year2
 5
Additions based on tax positions related to the current year3
 1
Additions based on tax positions related to prior years (1)
2
 
Reductions for tax positions of prior years(4) (7)
Reductions for the lapse of the applicable statutes of limitations(6) (4)
 (1)
Balance, end of year$23
 $27
$17
 $16
(1) Assumed in connection with the Chubb Corp acquisition.

At December 31, 20142016 and 2013,2015, the total amount of unrecognized tax benefits that would affect the effective tax rate, if recognized, were $6 million and $5 million, respectively. At December 31, 2014 and 2013, $17 million and $22$16 million, respectively, of unrecognized tax benefits would not affect the effective tax rate, if recognized, as the ultimate deductibility is highly certain but there is uncertainty about the timing of such deductibility. Because of the impact of deferred tax accounting, other than interest and penalties, an unfavorable resolution of these temporary items would not affect the effective tax rate but would accelerate the payment of cash to the taxing authority to an earlier period.



F-49

Table of Contentsrespectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
ACE Limited and Subsidiaries


ACEChubb recognizes accruals for interest and penalties, if any, related to unrecognized tax benefits in income tax expense in the consolidatedConsolidated statements of operations. Tax-relatedFor the years ended December 31, 2016, 2015, and 2014, tax-related interest expense (income) and penalties reported in the consolidatedConsolidated statements of operations for the years endedwere $1 million, $1 million, and $(1) million, respectively. At both December 31, 20142016 and 2013 were $(1) million in both years and $(8) million in 2012. At December 31, 2014 and 2013, ACE recorded $9 million and $11 million, respectively, in2015, liabilities for tax-related interest and penalties in our consolidatedConsolidated balance sheets.sheets were $4 million.

In April 2012, ACE reached final settlement withSeptember 2016, the IRS Appeals Division regarding several issues raised by the IRS Examination Division incompleted its examination of one of our subsidiary’s federal tax returns for 2005, 2006, and 2007. The settlement of these issues had no net impact on our results of operations. In addition, the IRS completed its field examination of ACE’s federal2010-2012 tax returns for 2008 and 2009 during June 2012.years. No material adjustments resulted from this examination. During 2012, ACE recognized a $124 million benefit resulting from the favorable resolution of various prior years' tax matters and the closing of statutes of limitations. During 2013 and 2014, ACE reduced the amount of unrecognized tax benefits by $5 million and $1 million, respectively, resulting from the closing of applicable statutes of limitations. The IRS commenced its field examination of ACE’s federal tax returns for 2010, 2011 and 2012 during October 2014. 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, ACEChubb is no longer subject to state and local or non-U.S. income tax examinations for years before 2005.2009.

9. Debt
In connection with the Chubb Corp acquisition, Chubb INA Holdings Inc. (formerly ACE INA Holdings Inc.) assumed $3.3 billion par value outstanding debt of Chubb Corp, fair valued at $3.8 billion at the acquisition date. Chubb INA Holdings Inc. (Chubb INA) assumed Chubb Corp's rights, duties and obligations and Chubb Limited fully and unconditionally guarantees Chubb INA's payment obligations under these debts. Additionally, effective January 1, 2016, we retrospectively adopted new accounting guidance that requires debt issuance costs to be recorded as a reduction of the carrying amount of the related debt liability (these costs were previously included in Other assets on the Consolidated balance sheets). The debt balances at December 31, 2015 have been updated to reflect the adoption of this guidance.


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F-69


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACEChubb Limited and Subsidiaries


9. Debt
December 31
 December 31
 December 31
 December 31
 
(in millions of U.S. dollars)2014
 2013
 Early Redemption Option2016
 2015
 Early Redemption Option
Repurchase agreements (weighted average interest rate of 0.8% in 2016 and 0.6% in 2015)
$1,403

$1,404
 None
Short-term debt        
ACE INA senior notes:    
$500 million 5.875% due June 2014$
 $500
 Make-whole premium plus 0.20%
$450 million 5.6% due May 2015450
 
 Make-whole premium plus 0.35%
$700 million 2.6% due November 2015
700
 
 Make-whole premium plus 0.20%
Repurchase agreements (weighted average interest rate of 0.3%)1,402
 1,401
 None
Total short-term debt$2,552
 $1,901
 
Chubb INA senior notes:    
$500 million 5.7% due February 2017$500
 $
 Make-whole premium plus 0.20%
Long-term debt        
ACE INA senior notes:    
$450 million 5.6% due May 2015$
 $449
 Make-whole premium plus 0.35%
$700 million 2.6% due November 2015
 700
 Make-whole premium plus 0.20%
Chubb INA senior notes:    
$500 million 5.7% due February 2017500
 500
 Make-whole premium plus 0.20%$
 $500
 Make-whole premium plus 0.20%
$300 million 5.8% due March 2018300
 300
 Make-whole premium plus 0.35%300
 299
 Make-whole premium plus 0.35%
$600 million 5.75% due May 2018635
 
 Make-whole premium plus 0.30%
$100 million 6.6% due August 2018107
 
 None
$500 million 5.9% due June 2019500
 500
 Make-whole premium plus 0.40%498
 497
 Make-whole premium plus 0.40%
$1,300 million 2.3% due November 20201,294
 1,294
 Make-whole premium plus 0.15%
$1,000 million 2.875% due November 2022994
 994
 Make-whole premium plus 0.20%
$475 million 2.7% due March 2023474
 473
 Make-whole premium plus 0.10%471
 471
 Make-whole premium plus 0.10%
$700 million 3.35% due May 2024699
 
 Make-whole premium plus 0.15%695
 694
 Make-whole premium plus 0.15%
$800 million 3.15% due March 2025794
 794
 Make-whole premium plus 0.15%
$1,500 million 3.35% due May 20261,488
 1,487
 Make-whole premium plus 0.20%
$100 million 8.875% due August 2029100
 100
 None
$200 million 6.8% due November 2031257
 
 Make-whole premium plus 0.25%
$300 million 6.7% due May 2036299
 299
 Make-whole premium plus 0.20%297
 297
 Make-whole premium plus 0.20%
$800 million 6.0% due May 2037980
 
 Make-whole premium plus 0.20%
$600 million 6.5% due May 2038776
 
 Make-whole premium plus 0.30%
$475 million 4.15% due March 2043474
 474
 Make-whole premium plus 0.15%469
 469
 Make-whole premium plus 0.15%
ACE INA $100 million 8.875% debentures due August 2029100
 100
 None
$1,500 million 4.35% due November 20451,482
 1,482
 Make-whole premium plus 0.25%
Chubb INA $1,000 million 6.375% capital securities due March 2067(1)
962
 
 Make-whole premium plus 0.25%-0.50%
Other long-term debt (2.75% to 7.1% due December 2019 to September 2020)11
 12
 None11
 11
 None
Total long-term debt$3,357
 $3,807
 $12,610
 $9,389
 
Trust preferred securities        
ACE INA capital securities due April 2030$309
 $309
 
Redemption price(1)
Chubb INA capital securities due April 2030$308
 $307
 
Redemption prices(2)
(1) 
6.375% interest rate through April 14, 2017; interest rate equal to three-month LIBOR rate plus 2.25% thereafter.
(2)
Redemption price isprices 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 debenturescapital securities from the redemption date to April 1, 2030.

a) Short-term debtRepurchase agreements
ACEChubb has executed repurchase agreements with certain counterparties under which ACEChubb agreed to sell securities and repurchase them at a future date for a predetermined price.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
Chubb Limited and Subsidiaries


b) Long-termShort-term debt
Short-term debt comprises the current maturities of our long-term debt instruments described below. In May 2014, ACE INA issued $700 million of 3.35 percent senior notes due May 2024. In June 2014, ACE INA'sFebruary 2017, $500 million of 5.8755.7 percent senior notes matured and were fully paid.

Allc) Long-term debt
Certain of ACE INA’sChubb INA's senior notes and capital securities are redeemable at any time at ACEChubb INA's option subject to the provisions described in the table above. A “make-whole premium”"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 debentures, subject to certain exceptions, are not redeemable before maturity.

The senior notes and debentures do not have the benefit of any sinking fund. These senior unsecured notes and debentures are guaranteed on a senior basis by ACEChubb Limited and they rank equally with all of ACE'sChubb's other senior obligations. They also contain


F-51


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
ACE Limited and Subsidiaries


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.

c) ACEIn November 2015, Chubb INA issued $5.3 billion of senior notes. The proceeds from the issuance were used to finance a portion of the Chubb Corp acquisition. Chubb INA may redeem some or all of these notes at its option one month (for the 2020 Notes), two months (for the 2022 Notes), three months (for the 2026 Notes), and six months (for the 2045 Notes) prior to the respective maturity dates at a redemption price equal to 100 percent of the principal amount of the notes plus accrued and unpaid interest. The remaining terms of the senior notes are commensurate with those of our existing notes as described above.

We have outstanding $1.0 billion of unsecured junior subordinated capital securities at December 31, 2016, which were assumed by Chubb INA in connection with the Chubb Corp acquisition. The capital securities will become due on April 15, 2037, the scheduled maturity date, but only to the extent that we have received sufficient net proceeds from the sale of certain qualifying capital securities. We must use commercially reasonable efforts, subject to certain market disruption events, to sell enough qualifying capital securities to permit repayment of the capital securities on the scheduled maturity date or as soon thereafter as possible. Any remaining outstanding principal amount will be due on March 29, 2067, the final maturity date. The capital securities bear interest at a rate of 6.375 percent through April 14, 2017. Thereafter, the capital securities will bear interest at a rate equal to the three-month LIBOR rate plus 2.25 percent. Subject to certain conditions, we have the right to defer the payment of interest on the capital securities for a period not exceeding ten consecutive years. During any such period, interest will continue to accrue and we generally may not declare or pay any dividends on or purchase any shares of our capital stock.

In connection with the issuance of capital securities, a replacement capital covenant was entered into in which we agreed that we will not repay, redeem, or purchase capital securities before March 29, 2047, unless, subject to certain limitations, we have received proceeds from the sale of specified replacement capital securities. The replacement capital covenant is not intended for the benefit of holders of the capital securities and may not be enforced by them. The replacement capital covenant is for the benefit of holders of one or more designated series of Chubb's indebtedness, which initially was and continues to be its 6.8 percent debentures due November 2031.

Subject to the replacement capital covenant, the $1.0 billion capital securities may be redeemed, in whole or in part, at any time (i) on or after April 15, 2017 at a redemption price equal to the principal amount plus any accrued interest or (ii) prior to April 15, 2017 at a redemption price equal to the greater of (1) the principal amount or (2) a make-whole premium, in each case plus any accrued interest.

d) Trust preferred securities
In March 2000, ACE Capital Trust II, a Delaware statutory business trust, publicly issued $300$300 million of 9.7 percent Capital Securities (the Capital Securities) due to mature in April 2030. At the same time, ACEChubb INA purchased $9.2$9.2 million of common securities of ACE Capital Trust II. The sole assets of ACE Capital Trust II consist of $309$309 million principal amount of 9.7 percent Junior Subordinated Deferrable Interest Debentures (the Subordinated Debentures) issued by ACEChubb 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 ACEChubb INA defers interest on the Subordinated Debentures. Interest on the Subordinated Debentures is payable semi-annually. ACEChubb INA may defer such interest payments (but no later than April 1, 2030), with such deferred payments accruing interest


F-71


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
Chubb Limited and Subsidiaries


compounded semi-annually. The Capital Securities and the ACE Capital Trust II Common Securities will be redeemed upon repayment of the Subordinated Debentures.

ACEChubb Limited has guaranteed, on a subordinated basis, ACEChubb INA's obligations under the Subordinated Debentures, and distributions and other payments due on the Capital Securities. These guarantees, when taken together with ACE'sChubb'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.

10. 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 hedging for planned cross border transactions.

Derivative instruments employed
ACEChubb 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. ACEChubb 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 consolidatedConsolidated balance sheets. These are the most numerous and frequent derivative transactions.

In addition, ACEChubb from time to time purchases to be announced mortgage-backed securities (TBAs) as part of its investing activities.

Under reinsurance programs covering GLBs, ACEChubb 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. ACEChubb also generally maintains positions in exchange-traded equity futures contracts and options on equity market indices to limit equity exposure in the GMDB and GLB blocks of business.

In relation to certain debt issuances, ACE from time to time enters into interest rate swap transactions for the purpose of either fixing or reducing borrowing costs. Although the use of these interest rate swaps has the economic effect of fixing or reducing borrowing costs on a net basis, gross interest expense on the related debt issuances is included in Interest expense while the settlements related to the interest rate swaps are reflected in Net realized gains (losses) in the consolidated statements of operations. At December 31, 2014, ACE had2016, we held no in-force interest rate swaps.positions in option contracts on equity market indices.

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


F-52
F-72


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACEChubb Limited and Subsidiaries



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, 2014   December 31, 2013  December 31, 2016  December 31, 2015 
Consolidated
Balance Sheet
Location
 Fair Value  Notional
Value/
Payment
Provision

 Fair Value  Notional
Value/
Payment
Provision

Consolidated
Balance Sheet
Location
 Fair Value  Notional
Value/
Payment
Provision

 Fair Value  Notional
Value/
Payment
Provision

 Derivative Asset
 Derivative (Liability)
 Derivative Asset
 Derivative (Liability)
  Derivative Asset
 Derivative (Liability)
 Derivative Asset
 Derivative (Liability)
 
(in millions of U.S. dollars) Notional
Value/
Payment
Provision

 Notional
Value/
Payment
Provision

Investment and embedded derivative instruments                    
Foreign currency forward contractsOA / (AP) $12
 $(7) $1,329
 $3
$(4)$1,202
OA / (AP) $25
 $(50) $2,220
 $7
$(11)$1,029
Cross-currency swapsOA / (AP) 
 
 95
 
 
 50
OA / (AP) 
 
 95
 
 
 95
Futures contracts on money market instrumentsOA / (AP) 
 
 2,467
 3
 
 3,910
Options/Futures contracts on notes and bondsOA / (AP) 6
 (29) 1,636
 13
 (2) 871
OA / (AP) 6
 (4) 2,344
 5
 (2) 751
Convertible securities(1)
FM AFS/ES 291
 
 267
 302
 
 254
FM AFS/ES 2
 
 7
 31
 
 40
 $309
 $(36) $5,794
 $321
 $(6) $6,287
 $33
 $(54) $4,666
 $43
 $(13) $1,915
Other derivative instruments                        
Futures contracts on equities(2)
OA / (AP) $
 $(21) $1,384
 $
 $(60) $1,692
OA / (AP) $1
 $
 $1,316
 $
 $(4) $1,197
Options on equity market indices(2)
OA / (AP) 2
 
 250
 6
 
 250
OtherOA / (AP) 
 (4) 10
 
 (2) 8
OA / (AP) 2
 (13) 214
 
 (6) 15
 $2
 $(25) $1,644
 $6
 $(62) $1,950
 $3
 $(13) $1,530
 $
 $(10) $1,212
GLB(3)
(AP) / (FPB) $
 $(663) $675
 $
 $(427) $277
(AP) / (FPB) $
 $(853) $1,264
 $
 $(888) $1,155
(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, 20142016 and 2013,2015, derivative liabilities of $34$10 million and $41derivative assets of $1 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, 20142016 and 2013, our repurchase obligations of $1,402 million and $1,401 million, respectively, were fully collateralized. At December 31, 2014 and 2013,2015, our securities lending payablecollateral was $1,331$1,092 million and $1,633$1,046 million, respectively, and our securities lending payable, reflecting our obligation to return the collateral plus interest, was $1,330$1,093 million and $1,632$1,047 million, respectively. The securities lending collateral can only be accesseddrawn 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.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
Chubb Limited and Subsidiaries


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 
 
Overnight and Continuous

 
(in millions of U.S. dollars)
December 31
2016

 
December 31
2015

Collateral held under securities lending agreements:   
Cash$423
 $424
U.S. Treasury and agency54
 67
Foreign578
 296
Corporate securities37
 2
Equity securities
 257
 $1,092
 $1,046
Gross amount of recognized liability for securities lending payable$1,093
 $1,047
Difference(1)
$(1) $(1)
(1)
The carrying value of the securities lending collateral held is $1 million lower than the securities lending payable due to accrued interest recorded in the securities lending payable.
At December 31, 2016 and 2015, our repurchase agreement obligations of $1,403 million and $1,404 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 Equity securities, 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:
 December 31, 2016  December 31, 2015 
 Remaining contractual maturity    
Remaining contractual
maturity
   
 Up to 30 Days
 Greater than 90 Days
   Up to 30 Days
 30 - 90 Days
 Greater than 90 Days
 Total
(in millions of U.S. dollars) Total
   
Collateral pledged under repurchase agreements:             
Cash$
 $1
 $1
 $34
 $
 $
 $34
U.S. Treasury and agency230
 10
 240
 6
 
 231
 237
Mortgage-backed securities339
 881
 1,220
 365
 480
 343
 1,188
 $569
 $892
 $1,461
 $405
 $480
 $574
 $1,459
Gross amount of recognized liabilities for repurchase agreements    $1,403
       $1,404
Difference(1)
    $58
       $55
(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.


F-53
F-74


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACEChubb Limited and Subsidiaries


The following table presents net realized gains (losses) related to derivative instrument activity in the consolidatedConsolidated statements of operations:
Years Ended December 31 Year Ended December 31 
(in millions of U.S. dollars)2014
 2013
 2012
2016
 2015
 2014
Investment and embedded derivative instruments          
Foreign currency forward contracts$29
 $11
 $(9)$(31) $31
 $29
All other futures contracts and options(118) 61
 (22)(10) 9
 (118)
Convertible securities(1)
(18) 6
 25
8
 (8) (18)
Total investment and embedded derivative instruments$(107) $78
 $(6)$(33) $32
 $(107)
GLB and other derivative instruments          
GLB(2)
$(217) $878
 $171
$53
 $(203) $(217)
Futures contracts on equities(3)
(164) (555) (273)(136) (8) (164)
Options on equity market indices(3)
(4) (24) (24)
 (2) (4)
Other50
 (2) (4)(10) (12) 50
Total GLB and other derivative instruments$(335) $297
 $(130)$(93) $(225) $(335)
$(442) $375
 $(136)$(126) $(193) $(442)
(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. ACEChubb uses forwards to minimize the effect of fluctuating foreign currencies.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.

Another use for option contracts is 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.

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


F-54
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACEChubb Limited and Subsidiaries


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, ACEChubb may enter into crop derivative contracts to protect underwriting results in the event of a significant decline in commodity prices. Also included within Other are certain life insurance products that meet the definition of a derivative instrument for accounting purposes. 

(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. ACEChubb 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. ACEChubb 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, ACEChubb 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.

b)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, 2014,2016, were JP Morgan Chase & Co., General Electric Company,Wells Fargo & Co., and Goldman Sachs Group Inc. Our largest exposure by industry at December 31, 20142016 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 one broker or one insured accounted for more than 10 percent of gross written premium for both the years ended December 31, 2016 and 2015. For the year ended December 31, 2014,, and during both years ended December 31, 2013 and 2012, approximately 10 percent and 11 percent, respectively, of our gross premiums written were generated from or placed by Marsh, Inc. This entity is a large, well established company and there are no indications that it is financially troubled at December 31, 2014.2016. No other broker and no one insured or reinsured accounted for more than 10 percent of gross premiums written in the yearsyear ended December 31, 2014, 2013, and 2012.2014.

c) Other investmentse) Fixed maturities
At December 31, 2014, included in Other investments in the consolidated balance sheet are investments in limited partnerships and partially-owned investment companies with a carrying value of $2.2 billion. In connection with these investments,2016, we have commitments that may require fundingto purchase fixed income securities of up to $1 billion$716 million over the next several years.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACEChubb Limited and Subsidiaries


d)
f) Other investments
At December 31, 2016, 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 $2.0 billion over the next several years. 

g) Letters of credit
We have a $1$1.5 billion unsecured operational LOC facility (adjustable to $1.5 billion upon consent of the issuers) expiring in November 2017. We are allowed to use up to $300 million of this LOC facility as an unsecured revolving credit facility. At December 31, 2014,2016, outstanding LOCs issued under this facility were $479$443 million.

This facility requires that ACEChubb Limited and/or certain of its subsidiaries continue to maintain certain covenants. ACEChubb Limited is also required to maintain a minimum consolidated net worth covenant and a maximum leverage covenant, all of which have been met at December 31, 2014.2016.

We did not renew our $500 million bilateral letter of credit facility that expired in June 2014. We also did not renew our $425 million series of four bilateral uncollateralized LOC facilities supporting AGM underwriting capacity for Lloyd's Syndicate 2488. We elected instead to satisfy our collateral obligations primarily by pledging additional fixed income securities from our investment portfolio into existing insurance trusts.

e)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.

f)i) Lease commitments
We lease office space and equipment under operating leases which expire at various dates through 2033. Rent expense was $127$209 million, $128$126 million, and $112$127 million for the years ended December 31, 2014, 2013,2016, 2015, and 2012,2014, respectively. Future minimum lease payments under the leases are expected to be as follows:
For the year ending December 31
For the years ending December 31For the years ending December 31
(in millions of U.S. dollars)
2015$108
201694
201777
$173
201858
149
201942
118
202093
202178
Thereafter95
186
Total minimum future lease commitments$474
$797



F-77


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
Chubb Limited and Subsidiaries


11. Shareholders’ equity

a) Common Shares
All of ACE’sChubb’s Common Shares are authorized under Swiss corporate law. Though the par value of Common Shares is stated in Swiss francs, ACEChubb 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 ACE'sChubb'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.



F-56


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
ACE Limited and Subsidiaries


Dividend approval
At our May 2012 and 2013 annual general meetings, our shareholders approved an annual dividend for the following year of $1.96 and $2.04 per share, respectively, payable in four quarterly installments of $0.49 and $0.51 per share, respectively, after the annual general meetings in the form of a distribution by way of a par value reduction. At the January 10, 2014 extraordinary general meeting, our shareholders approved a resolution to increase our quarterly dividend from $0.51 per share to $0.63 per share for the final two quarterly installments (made on January 31, 2014 and April 17, 2014) that had been earlier approved at our 2013 annual general meeting. The $0.12 per share increase for each installment was distributed from capital contribution reserves (Additional paid-in capital), a subaccount of legal reserves, and transferred to free reserves (Retained earnings) for payment, while the existing $0.51 per share was distributed by way of a par value reduction.

At our May 2014 annual general meeting, our shareholders approved an annual dividend for the following year of $2.60 per share, payablewhich was paid in four quarterly installments of $0.65 per share after the annual general meeting in the form of a distribution by way of a par value reduction.

At our May 2015 annual general meeting, our shareholders approved an annual dividend for the following year of up to $2.68 per share, which was paid in four quarterly installments of $0.67 per share 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 2016 annual general meeting, our shareholders approved an annual dividend for the following year of up to $2.76 per share, expected to be paid in four quarterly installments of $0.69 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, and is authorized to abstain from distributing a dividend in its discretion, until the date of the 2017 annual general meeting. The first three quarterly installments, each of $0.69 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 ACEChubb in U.S. dollars. Dividend distributions following ACE'sChubb'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 during portions of 2012, and to effect our dividend increase that was approved by our shareholders on January 10, 2014,. and the annual dividends approved in May 2015 and 2016, as noted above.

The following table presents dividend distributions per Common Share in Swiss francs (CHF) and U.S. dollars (USD):
Years Ended December 31 Year Ended December 31 
 2014
 2013
 2012
  2016
   2015
   2014
CHF
USD
CHF
USD
CHF
USD
CHF
 USD
 CHF
 USD
 CHF
 USD
Dividends - par value reduction2.27
$2.46
1.85
$2.02
1.38
$1.47

 $
 0.62
 $0.65
 2.27
 $2.46
Dividends - distributed from capital contribution reserves0.20
0.24


0.53
0.59
2.70
 2.74
 1.94
 2.01
 0.20
 0.24
Total dividend distributions per common share2.47
$2.70
1.85
$2.02
1.91
$2.06
2.70
 $2.74
 2.56
 $2.66
 2.47
 $2.70

Par value reductions have been reflected as such through Common Shares in the consolidatedConsolidated statements of shareholders' equity and had the effect of reducing par value per Common Share to CHF 24.7724.15 at December 31, 20142016.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
Chubb Limited and Subsidiaries


b) Shares issued, outstanding, authorized, and conditional
Years Ended December 31 Year Ended December 31 
2014
2013
2012
2016
 2015
 2014
Shares issued, beginning and end of year342,832,412
342,832,412
342,832,412
Shares issued, beginning of year342,832,412
 342,832,412
 342,832,412
Shares issued for Chubb Corp acquisition136,951,452
 
 
Common Shares in treasury, end of year (at cost)(14,172,726)(3,038,477)(2,510,878)(13,815,148) (18,268,971) (14,172,726)
Shares issued and outstanding, end of year328,659,686
339,793,935
340,321,534
465,968,716
 324,563,441
 328,659,686
Common Shares issued to employee trust      
Balance, beginning and end of year(9,467)(9,467)(9,467)
Balance, beginning of year(5,800) (9,467) (9,467)
Shares redeemed3,000
 3,667
 
Balance, end of year(2,800) (5,800) (9,467)

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).

Common Shares issued to employee trust are issued by ACEChubb to a rabbi trust for deferred compensation obligations as discussed in Note 11 e) below.



F-57


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
ACE Limited and Subsidiaries


Authorized share capital for general purposes
The ACE Limited Board of Directors (Board) has shareholder-approved authority as set forth in the Articles of Association to increase for general purposes ACE'sChubb's share capital from time to time until May 16, 2016,19, 2018, by the issuance of up to 140,000,000200,000,000 fully paid up Common Shares, with a par value equal to the par value of ACE'sChubb's Common Shares as set forth in the Articles of Association at the time of any such issuance.

Conditional share capital for bonds and similar debt instruments
ACE'sChubb'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 24.7724.15 as of December 31, 2014)2016) 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 ACE,Chubb, including convertible debt instruments.

Conditional share capital for employee benefit plans
ACE'sChubb'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 24.7724.15 as of December 31, 2014)2016) in connection with the exercise of option rights granted to any employee of ACE,Chubb, and any consultant, director, or other person providing services to ACE.Chubb.

c) ACEChubb 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:

On$2.0 billion of Chubb Common Shares from November 21, 2013 the Board announced authorization of a share repurchase program of up to $2.0 billion of ACE's Common Shares through December 31, 2014.  This $2.02014
$1.5 billion authorization replaced the previous authorizations which expired on December 31, 2013.

On November 24, 2014, the Board announced authorization of a share repurchase program of $1.5 billion of ACE'sChubb Common Shares for the periodfrom January 1, 2015 through December 31, 2015 to replace the
$1.0 billion of Chubb Common Shares from November 2013 authorization when it expired on December 31, 2014. At February 26, 2015, $1.3 billion in share repurchase authorization remained17, 2016 through December 31, 2015. Such2017

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


F-79


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
Chubb Limited and Subsidiaries


The following table presents repurchases of ACE'sChubb's Common Shares conducted in a series of open market transactions under the Board authorizations:
Years Ended December 31 January 1, 2015 through
Year Ended December 31  January 1, 2017 through
(in millions of U.S. dollars, except share data)2014
2013
2012
February 26, 2015
2016
 2015
 2014
 February 24, 2017
Number of shares repurchased13,982,358
3,266,531
100,000
1,877,463

 6,677,663
 13,982,358
 419,623
Dollar value of shares repurchased$1,449
$290
$7
$211
Cost of shares repurchased$
 $734
 $1,449
 $55

ACE repurchased these Common Shares as part of an overall capital management strategy and to partially offset potential dilution from the exercise of stock options and the granting of restricted stock under share-based compensation plans.At February 24, 2017, $945 million in share repurchase authorization remained through December 31, 2017.

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 ACE,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.

e) Deferred compensation obligation
ACEChubb maintains rabbi trusts for deferred compensation plans principally for employees and former directors. The shares issued by ACEChubb to the rabbi trusts in connection with deferrals of share compensation are classified in shareholders' equity and accounted for at historical cost in a manner similar to Common Shares in treasury. Changes in the fair value of the shares underlying the obligations are recorded in Accounts payable, accrued expenses, and other liabilities in the consolidatedConsolidated balance sheets and the related expense or income is recorded in Administrative expenses in the consolidatedConsolidated statements of operations.

The rabbi trusts also hold other assets, such as fixed maturities, equity securities, and life insurance policies. The assets of the rabbi trusts are consolidated with ACE'sChubb's assets in the consolidated balance sheets. Assets held by the trust and the associated obligations are reported at fair value in Other investments and Accounts payable, accrued expenses, and other liabilities, respectively, in the consolidated balance sheets, with changes in fair value reflected as a corresponding increase or decrease to


F-58


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
ACE Limited and Subsidiaries


Other (income) expense in the consolidatedConsolidated statements of operations. However, life insurance policies assets and obligations are reported at cash surrender value.


12. Share-based compensation

ACEChubb 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, 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. ACEChubb 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 2014, 2013,2016, 2015, and 2012) into the determination of2014) in determining compensation cost for both grants of restricted stock and stock options.

During 2004, we established the ACE Limited 2004 Long-Term Incentive Plan (the 2004 LTIP), which replaced our prior incentive plans except for outstanding awards. The 2004 LTIP will continue in effect until terminated by the Board. Under the 2004 LTIP, Common Shares

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ACENOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
Chubb Limited and Subsidiaries


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.

In May 2013, our shareholders approved an increase of eight million sharesUnder the 2016 LTIP, 19,500,000 Common Shares were authorized to be issued, underin addition to any shares that have not been delivered pursuant to the 2004 LTIP bringing the total shares authorized (i.e.,and remain available for grant since its inception)pursuant to the sum of: (i) 38,600,000 common shares; and (ii)2004 LTIP, including any shares that are representedcovered by awards granted under the prior plans2004 LTIP that are forfeited, expired,expire or are canceled after the effective date of the 20042016 LTIP without delivery of shares or which result in the forfeiture of the shares back to ACE to the extent that such shares would have been added back to the reserve under the terms of the applicable prior plan.Chubb. At December 31, 2014,2016, a total of 7,811,83920,522,230 shares remain available for future issuance under the 2016 LTIP, which includes shares canceled or forfeited from the 2004 LTIP.

In May 2012, our shareholders approved an increase of 1,500,000LTIP, in addition to common shares that were previously registered and authorized to be issued underissued.

Under the ESPP bringing the totalEmployee Stock Purchase Plan (ESPP),4,500,000 shares are authorized to 4,500,000 shares.be issued.  At December 31, 2014,2016, a total of 1,131,685722,751 shares remain available for issuance under the ESPP.

ACEChubb 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:
Years Ended December 31 Year Ended December 31 
(in millions of U.S. dollars)2014
 2013
 2012
2016
 2015
 2014
Stock options and shares issued under ESPP:          
Pre-tax$28
 $24
 $22
$33
 $31
 $28
After-tax (1)
$19
 $18
 $17
$20
 $21
 $19
Restricted stock:          
Pre-tax$128
 $153
 $109
$268
 $143
 $128
After-tax$75
 $89
 $64
$167
 $84
 $75
(1) 
Excludes windfall tax benefit for share-based compensation recognized as a direct adjustment to Additional paid-in capital of $2832 million, $3626 million and $1828 million for the years ended December 31, 2014, 20132016, 2015 and 2012,2014, respectively.

Unrecognized compensation expense related to the unvested portion of ACE'sChubb's employee share-based awards was $149$260 million at December 31, 2014,2016, and is expected to be recognized over a weighted-average period of approximately 1 year.



F-59


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
ACE Limited and Subsidiaries


Stock options
ACE's 2004 LTIP permits grants of bothBoth incentive and non-qualified stock options are principally granted at an option price per share equal to the grant date fair value of ACE'sChubb'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.

ACE's 2014Chubb's 2016 share-based compensation expense includes a portion of the cost related to the 20112013 through 20142016 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:
Years Ended December 31 Year Ended December 31 
2014
2013
2012
2016
 2015
 2014
Dividend yield2.7%2.4%2.7%2.3% 2.3% 2.7%
Expected volatility25.2%27.8%29.8%23.2% 21.0% 25.2%
Risk-free interest rate1.7%1.0%1.1%1.3% 1.7% 1.7%
Expected life5.8 years
5.8 years
5.8 years
5.6 years
 5.8 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 ACE'sChubb's initial public trading date through the most recent quarter, and (c) implied volatility derived from ACE'sChubb's publicly traded options.


F-81


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
Chubb Limited and Subsidiaries



The following table presents a roll-forward of ACE'sChubb'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
Number of Options
 Weighted-Average Exercise Price
 Weighted-Average Fair Value
 Total Intrinsic Value
Options outstanding, December 31, 201110,579,507
 $49.78
    
Granted1,462,103
 $73.36
 $15.58
  
Exercised(2,401,869) $42.50
   $78
Forfeited(190,082) $61.87
    
Options outstanding, December 31, 20129,449,659
 $55.03
    
Granted1,821,063
 $85.41
 $17.29
  
Exercised(1,658,671) $48.17
   $70
Forfeited(115,195) $72.50
    
Options outstanding, December 31, 20139,496,856
 $61.84
    9,496,856
 $61.84
    
Granted1,782,903
 $96.77
 $18.00
  1,782,903
 $96.77
 $18.00
  
Exercised(1,511,948) $54.84
   $73
(1,511,948) $54.84
   $73
Forfeited(143,825) $84.52
    (143,825) $84.52
    
Options outstanding, December 31, 20149,623,986
 $69.06
   $441
9,623,986
 $69.06
    
Options exercisable, December 31, 20146,313,668
 $58.24
   $358
Granted1,892,641
 $114.78
 $18.49
  
Exercised(1,457,580) $60.88
   $72
Forfeited(205,551) $100.25
    
Options outstanding, December 31, 20159,853,496
 $78.40
    
Assumed in Chubb Corp Acquisition339,896
 $77.83
 $36.07
  
Granted1,929,616
 $118.39
 $21.52
  
Exercised(1,728,949) $66.65
   $99
Forfeited(213,339) $110.01
    
Options outstanding, December 31, 201610,180,720
 $87.29
   $456
Options exercisable, December 31, 20166,562,884
 $72.90
   $389

The weighted-average remaining contractual term was 6.06.1 years for stock options outstanding and 4.7 years for stock options exercisable at December 31, 2014.2016. Cash received from the exercise of stock options for the year ended December 31, 20142016 was $83$112 million.

Restricted stock and restricted stock units
Grants of restricted stock and restricted stock units grantedawarded under both the 2004 LTIP and 2016 LTIP typically have a 4-year vesting period, based on a graded vesting schedule. ACEChubb 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. 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


F-60


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
ACE Limited and Subsidiaries


represents our obligation to deliver to the holder one Common Share upon vesting. ACE's 2014Chubb's 2016 share-based compensation expense includes a portion of the cost related to the restricted stock granted in the years 20102012 through 2014.2016.



F-82


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
Chubb Limited and Subsidiaries


The following table presents a roll-forward of our restricted stock awards. Included in the roll-forward below are 25,33923,812 restricted stock awards, 20,96924,945 restricted stock awards, and 25,66925,339 restricted stock awards that were granted to non-management directors during the years ended December 31, 2014, 2013,2016, 2015, and 2012,2014, respectively:
 Number of Restricted Stock
 Weighted-Average Grant-Date Fair Value
Unvested restricted stock, December 31, 20114,851,490
 $52.20
Granted1,589,178
 $73.46
Vested(1,923,385) $52.71
Forfeited(262,436) $58.40
Unvested restricted stock, December 31, 20124,254,847
 $59.53
Granted1,544,485
 $86.07
Vested(1,951,494) $57.44
Forfeited(139,651) $67.72
Unvested restricted stock, December 31, 20133,708,187
 $71.38
Granted1,669,936
 $97.32
Vested(1,660,903) $70.01
Forfeited(145,012) $81.73
Unvested restricted stock, December 31, 20143,572,208
 $83.72

During the years ended December 31, 2014, 2013, and 2012, ACE awarded 300,511 restricted stock units, 271,004 restricted stock units, and 262,549 restricted stock units, respectively, to employees and officers each with a weighted-average grant date fair value per share of $97.66, $85.44, and $73.41, respectively. At December 31, 2014, there were 643,579 unvested restricted stock units.
 
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, 20134,129,583
 $71.85
 196,497
 $71.35
Granted1,596,245
 $97.16
 374,202
 $98.31
Vested(1,500,949) $68.33
 (192,009) $85.39
Forfeited(387,782) $73.21
 
 $
Unvested restricted stock, December 31, 20143,837,097
 $83.60
 378,690
 $90.87
Granted1,417,965
 $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, 20153,489,169
 $97.01
 595,210
 $101.73
Assumed in Chubb Corp Acquisition3,706,639
 $111.02
 
 $
Granted1,622,065
 $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, 20165,805,126
 $109.39
 931,169
 $111.17

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, 2014,2016, there were 148,368519,331 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 participant 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, 2014, 2013,2016, 2015, and 2012,2014, employees paid $17$24 million, $14$18 million, and $13$17 million to purchase 181,901211,492 shares, 175,437197,442 shares, and 198,244181,901 shares, respectively.



F-61
F-83


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACEChubb Limited and Subsidiaries


13. Pension plansPostretirement benefits

ACEChubb provides pensionpostretirement benefits to eligible employees and their dependents through various defined contribution plans and defined benefit plans sponsored by ACE. TheChubb. With the acquisition, Chubb assumed the outstanding pension and other postretirement benefit plan obligations of legacy 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 include a capital accumulation plan (401(k)) in the U.S. The defined benefit plans consist of various plans offered in certain jurisdictions primarily outside of the U.S. and Bermuda.

Defined contribution plans (including 401(k))
Under these plans, employees' contributions may be supplemented by ACE 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$119 million, $111 million, and $99 million for the years ended December 31, 2014, 2013, and 2012, respectively.covering legacy Chubb Corp employees.

Defined benefit pension plans
We maintain non-contributory defined benefit pension plans that cover certain employees principally located in Europe, Asia,the U.S., U.K., Canada, and Mexico. We also provide a defined benefit plan to certain U.S.-based employees as a result of our acquisition of Penn Millers.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 defined benefit plans are subject to periodic actuarial valuationvaluations by qualified local actuarial firms using actuarial models in calculatingto calculate the pension expense and liability for each plan. We use December 31 as the measurement date for our defined benefit pension plans.

ComponentsUnder the legacy Chubb Corp plans, prior to 2001, benefits were generally based on an employee’s years of accruedservice and average compensation during the last five years of employment. Effective January 1, 2001, the formula for providing pension liability (includedbenefits 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. Legacy 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 legacy 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 Accounts payable, accrued expenses,effect for certain employees to a defined contribution program. Additionally, after 2025, we plan to eliminate a subsidized U.S. retiree healthcare plan that had been in place for certain employees. Both amendments required a remeasurement of the plan assets and other liabilities inbenefit obligations with updated assumptions, including discount rates and the consolidated balance sheets):
 December 31
 December 31
(in millions of U.S dollars)2014 2013
Fair value of plan assets$588
 $566
Projected benefit obligation594
 591
Accrued pension liability$6
 $25
expected return on assets. 

The definedplan 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 contribution for 2015 isand 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 to be $4 million. years of future service of active plan participants.
The estimated net actuarial loss foramendment of the defined benefit pension plans thatretiree healthcare plan resulted in a reduction in the obligation of $383 million, of which $15 million pre-tax was recognized in income during the fourth quarter of 2016 and the remaining balance will be amortized from AOCI into net benefit costsas a reduction to expense over the next year is $2 million.4.5 years as it relates to benefits already accrued. 

Benefit payments were $24 million and $26 million for the years ended December 31, 2014 and 2013, respectively. Expected future payments are as follows:
For the year ending December 31
(in millions of U.S dollars)
2015$28
201621
201722
201825
201927
2020–2024135



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ACEChubb Limited and Subsidiaries


Obligations and funded status
The funded status of the pension and other postretirement benefit plans at December 31, 2016 and 2015 was as follows:
 Pension Benefits  Other Postretirement Benefits 
 2016  2015  2016  2015 
 U.S. Plans
 Non-U.S. Plans
 U.S. Plans
 Non-U.S. Plans
 U.S. Plans
 Non-U.S. Plans
 U.S. Plans
 Non-U.S. Plans
(in millions of U.S. dollars)      
Benefit obligation, beginning of year$10
 $559
 $10
 $584
 $16
 $
 $16
 $
   Acquisition of Chubb Corp3,153
 372
 
 
 491
 15
 
 
   Service cost75
 18
 
 6
 9
 1
 1
 
   Interest cost103
 30
 
 21
 16
 1
 
 
   Actuarial loss131
 204
 
 13
 33
 3
 (1) 
   Benefits paid(79) (22) 
 (22) (11) 
 
 
   Amendments
 (9) 
 1
 (410) 
 
 
   Curtailments(259) (7) 
 
 
 
 
 
   Settlements(99) (7) 
 (7) 
 
 
 
   Foreign currency revaluation
 (113) 
 (37) 
 1
 
 
Benefit obligation, end of year$3,035
 $1,025
 $10
 $559
 $144
 $21
 $16
 $
Plan assets at fair value, beginning of year$9
 $564
 $9
 $579
 $
 $
 $
 $
   Acquisition of Chubb Corp2,473
 315
 
 
 138
 
 
 
   Actual return on plan assets359
 168
 
 40
 29
 
 
 
   Employer contributions98
 67
 
 10
 3
 
 
 
   Benefits paid(79) (22) 
 (22) (11) 
 
 
   Settlements(95) (7) 
 (7) 
 
 
 
   Foreign currency revaluation
 (123) 
 (36) 
 
 
 
Plan assets at fair value, end of year$2,765
 $962
 $9
 $564
 $159
 $
 $
 $
Funded status at end of year$(270) $(63) $(1) $5
 $15
 $(21) $(16) $

The accumulated benefit obligation for the pension benefit plans was $3.8 billion and $559 million at December 31, 2016 and 2015, 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, 2016, we estimate that we will contribute $27 million to the pension plans in 2017. We do not expect to make any contributions to the other postretirement benefits plan in 2017. The estimate is subject to change due to contribution decisions that are affected by various factors including our liquidity, market performance and management discretion.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
Chubb Limited and Subsidiaries


As part of purchase accounting, Chubb eliminated legacy Chubb Corp’s postretirement benefit costs not yet recognized in Net income that were recorded in Accumulated other comprehensive income (AOCI) at the time of the acquisition. Net actuarial loss (gain) and prior service cost included in AOCI that were not yet recognized as components of net benefit costs in Net income at December 31, 2016 and 2015 were as follows:
 Pension Benefits  Other Postretirement Benefits 
 2016  2015  2016 
 U.S. Plans
 Non-U.S. Plans
 U.S. Plans
 Non-U.S. Plans
 U.S. Plans
 Non-U.S. Plans
(in millions of U.S. dollars)    
Net actuarial loss (gain)$(207) $156
 $
 $107
 $14
 $3
Prior service cost
 (2) 
 7
 (395) 
Total$(207) $154
 $
 $114
 $(381) $3

As part of the acquisition, Chubb conformed the accounting policies for the acquired plans of legacy Chubb Corp to the accounting policies of Chubb, including selecting the applicable discount rates using specific spot rates along a yield curve determined by the projected cash flows assumptions, for which the timing and amount of cash flows correspond with the timing and amount of the estimated benefits payment patterns. This resulted in a lower overall discount rate used to determine the benefit obligation and therefore increased that obligation at the date of the acquisition.

The weighted-average assumptions used to determine the projected benefit obligation were as follows:
 Pension Benefits  Other Postretirement Benefits 
 U.S. Plans
 Non-U.S. Plans
 U.S. Plans
 Non-U.S. Plans
    
December 31, 2016       
Discount rate4.14% 2.83% 2.86% 3.73%
Rate of compensation increase4.00% 3.57% N/A
 N/A
December 31, 2015       
Discount rateNM
 3.61% NM
  
Rate of compensation increaseNM
 3.05% NM
  
NM – not meaningful       



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
Chubb Limited and Subsidiaries


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 
Year Ended December 31, 2016U.S. Plans
 Non-U.S. Plans
 Total
 U.S. Plans
 Non-U.S. Plans
 Total
(in millions of U.S. dollars)     
Costs reflected in Net income:           
Service cost$75
 $18
 $93
 $9
 $1
 $10
Interest cost103
 30
 133
 16
 1
 17
Expected return on plan assets(165) (39) (204) (8) 
 (8)
Amortization of net actuarial loss (gain)
 2
 2
 (1) 
 (1)
Amortization of prior service cost
 (1) (1) (15) 
 (15)
Curtailments(117) 
 (117) 
 
 
Settlements(2) 1
 (1) 
 
 
Net periodic (benefit) cost$(106) $11
 $(95) $1
 $2
 $3
Changes in plan assets and benefit obligations recognized in other comprehensive income           
Net actuarial loss (gain)$(326) $49
 $(277) $14
 $3
 $17
Prior service benefit
 (8) (8) (395) 
 (395)
Curtailments117
 
 117
 
 
 
Settlements2
 (1) 1
 
 
 
Total (increase) decrease in other comprehensive income$(207) $40
 $(167) $(381) $3
 $(378)
Year Ended December 31, 2015           
Costs reflected in Net income:           
Service cost$
 $6
 $6
 $1
 $
 $1
Interest cost
 21
 21
 
 
 
Expected return on plan assets
 (29) (29) 
 
 
Amortization of net actuarial loss
 2
 2
 (1) 
 (1)
Settlements
 1
 1
 
 
 
Net periodic benefit cost$
 $1
 $1
 $
 $
 $
Changes in plan assets and benefit obligations recognized in other comprehensive income           
Net actuarial loss (gain)$
 $(16) $(16) $
 $
 $
Prior service cost
 1
 1
 
 
 
Total increase in other comprehensive income$
 $(15) $(15) $
 $
 $
Year Ended December 31, 2014           
Costs reflected in Net income:           
Service cost$
 $6
 $6
 $1
 $
 $1
Interest cost
 25
 25
 
 
 
Expected return on plan assets
 (30) (30) 
 
 
Amortization of net actuarial loss
 2
 2
 1
 
 1
Net periodic benefit cost$
 $3
 $3
 $2
 $
 $2
Changes in plan assets and benefit obligations recognized in other comprehensive income           
Net actuarial loss (gain)$
 $(10) $(10) $
 $
 $
Prior service cost
 8
 8
 
 
 
Total increase in other comprehensive income$
 $(2) $(2) $
 $
 $


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
Chubb Limited and Subsidiaries



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 2017 is $3 million. The estimated net prior service credit that will be amortized from AOCI into net periodic benefit costs in Net income during 2017 for U.S. other postretirement benefit plans is $92 million.

The weighted-average assumptions used to determine the net periodic pension and other postretirement benefit costs were as follows:
 Pension Benefits  Other Postretirement Benefits 
 U.S. Plans
 Non-U.S. Plans
 U.S. Plans
 Non-U.S. Plans
Year Ended December 31   
2016       
Discount rate in effect for determining service cost4.38% 3.85% 4.56% 4.30%
Discount rate in effect for determining interest cost3.59% 3.44% 3.82% 4.30%
Rate of compensation increase4.00% 3.33% N/A
 N/A
Expected long-term rate of return on plan assets7.00% 4.79% 6.34% N/A
2015       
Discount rateNM
 3.51% NM
  
Rate of compensation increaseNM
 3.09% NM
  
Expected long-term rate of return on plan assetsNM
 4.81% NM
  
2014       
Discount rateNM
 4.21% NM
  
Rate of compensation increaseNM
 3.43% NM
  
Expected long-term rate of return on plan assetsNM
 5.34% 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
 2016
 2015
 2014
 2016
Healthcare cost trend rate7.28% 6.50% 6.50% 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%
Year that the rate reaches the ultimate trend rate2038
 2026
 2026
 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, 2016 by approximately $11 million and the aggregate of the service and interest cost components of net other postretirement benefit cost for the year ended December 31, 2016 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, 2016 by approximately $9 million and the aggregate of the service and interest cost components of net other postretirement benefit cost for the year ended December 31, 2016 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, 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


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
Chubb Limited and Subsidiaries


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, 2016Pension 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 agency206
 112
 
 318
Foreign and corporate bonds
 482
 5
 487
Equity securities728
 
 
 728
Derivative instruments3
 
 
 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 securities100
 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 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 $159 million at December 31, 2016, all of which are held in equity securities and categorized as Level 1.

We had pension benefit plan assets of $573 million at December 31, 2015, which are measured at fair value on a recurring basis. The assets comprised primarily Equity securities classified within Level 1 and Equity securities and Foreign and corporate bonds classified within Level 2.

Assets classified within Level 3 were $5 million and nil at December 31, 2016 and 2015, respectively, and the change in the balance during the year ended December 31, 2016 was insignificant.

Benefit payments were $213 million and $29 million for the years ended December 31, 2016 and 2015, respectively. Expected future payments are as follows:
For the years ending December 31U.S. Plans
 Non-U.S. Plans
(in millions of U.S. dollars) 
2017$132
 $20
2018143
 23
2019158
 25
2020167
 26
2021177
 27
2022–2026931
 147

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


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
Chubb Limited and Subsidiaries


portfolios offered by a third-party investment advisor. Expenses for these plans totaled $150 million, $117 million, and $119 million for the years ended December 31, 2016, 2015, and 2014, respectively.

14. Other (income) expense
Years Ended December 31 Year Ended December 31 
(in millions of U.S. dollars)2014
 2013
 2012
2016
 2015
 2014
Amortization of intangible assets$108
 $95
 $51
Equity in net (income) loss of partially-owned entities(231) (119) (80)$(264) $(113) $(231)
(Gains) losses from fair value changes in separate account assets(2) (16) (29)
(Gains) losses from fair value changes in separate account assets (1)
(11) 19
 (2)
Federal excise and capital taxes20
 24
 22
19
 19
 20
Acquisition-related costs15
 4
 11
Acquisition-related costs (2)
2
 9
 15
Other8
 27
 19
32
 15
 8
Other (income) expense$(82) $15
 $(6)$(222) $(51) $(190)
(1) Related to (gains) losses from fair value changes in separate account assets that do not qualify for separate account reporting under GAAP.
(2) Excludes integration costs related to the Chubb Corp acquisition.

Other (income) expense includes Amortization of intangible assets, which is higher in 2014 due primarily to the acquisitions of Samaggi (completed June 17, 2014) and Itaú Seguros (completed October 31, 2014) and higher in 2013 compared with 2012 due primarily to the acquisitions of Fianzas Monterrey (completed April 1, 2013) and ABA Seguros (completed May 2, 2013). Equityequity in net (income) loss of partially-owned entities, which includes our share of net (income) loss related to investment funds, limited partnerships, 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 consolidatedConsolidated 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.

15. Segment information

ACE operates through fiveWe implemented organizational changes in 2016 that resulted in new business segments: Insurance – North AmericanAmerica Commercial P&C Insurance, North American Agriculture,America Personal P&C Insurance, North America Agricultural Insurance, Overseas General Insurance, Global Reinsurance, and Life. These segments distribute their products through various formsLife Insurance. In addition, the results of brokers, agencies,all run-off asbestos and direct marketing programs. Allenvironmental (A&E) exposures, the results of our run-off Brandywine business, segmentsthe results of Westchester specialty operations for 1996 and prior years, and certain other run-off exposures are now presented within Corporate. Prior period amounts of Chubb Limited (i.e., excluding the historical results of Chubb Corp) have established relationships with reinsurance intermediaries.been adjusted to conform to the new segment presentation.

The Insurance – North AmericanAmerica Commercial P&C Insurance segment comprises our operationsincludes 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: ACE USA (including ACE Canada), ACEMajor Accounts, Commercial Risk Services,Insurance, including Small Commercial Insurance; and ACE Private Risk Services; our wholesale and specialty divisions: ACE Westchester and ACE Bermuda;Chubb Bermuda. These divisions write a variety of coverages, including traditional commercial property, marine, general casualty, workers’ compensation, package policies, and various run-off operations, including Brandywine. ACE USA isrisk management; specialty categories such as professional lines, marine and construction risk, environmental and cyber risk, excess casualty, as well as group accident and health (A&H) insurance. 

The North America Personal P&C Insurance segment includes the North American retail operatingbusiness written by Chubb Personal Risk Services division, which provides a broad array of traditionalcomprises Chubb high net worth personal lines business and specialty P&C, A&H, and risk management products and services to a diverse group of North America commercial and non-commercial enterprises and consumers. ACE Commercial Risk Services addresses the insurance needs of small and mid-sized businesses in North America by delivering a broad array of specialty product solutions for targeted industries that lend themselves to technology-assisted underwriting. ACE Private Risk Services, with operations in the U.S. and Canada. This segment provides high-value personal lines coverages foraffluent and high net worth individuals and families in North America. ACE Westchester focuses on the North American wholesale distribution of excesswith homeowners, automobile and surplus lines property, casualty, environmental, professional liability, inland marine productscollector cars, valuable articles (including fine arts), personal and product recall coverages. ACE Bermuda provides commercial insurance products on an excess basis mainly to a global client base targeting Fortune 1000 companies and covering exposures that are generally low in frequency and high in severity including excess liability, D&O, professional liability, propertytravel insurance, and political risk, the latter being written by Sovereign Risk Insurance Ltd., a wholly-owned managing agent. The run-off operations do not actively sellrecreational marine insurance products but are responsible for the management of certain existing policies and settlement of related claims.services.

The North America Agricultural Insurance – North American Agriculture segment comprises our North American based businesses that provide a variety of coverages inincludes the U.S. and Canada including crop insurance, primarily Multiple Peril Crop Insurance (MPCI) and crop-hail throughbusiness written by Rain and Hail Insurance Services,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 farm and ranch, and specialty P&C coverages, including commercial insurance products and services through our ACE Agribusiness unit. The MPCI program is offered in conjunction with the U.S. Department of Agriculture.agriculture products.

The Insurance – Overseas General Insurance segment comprises ACE International. ACE Global Markets (AGM),includes the business written by two Chubb divisions that provide P&C insurance and services in the international supplemental A&H business51 countries outside of Combined Insurance. ACENorth America where the company operates.  Chubb International comprises our retailprovides commercial P&C traditional and specialty lines serving large corporations, middle market and small customers, A&H and traditional and specialty personal lines through retail brokers, agents and other channels locally around the world. Chubb


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ACEChubb Limited and Subsidiaries


personalGlobal Markets (CGM) provides commercial P&C excess and surplus lines businesses serving territories outside the U.S., Bermuda, and Canada. ACE International maintains a presence in every major insurance marketA&H through wholesale brokers in the worldLondon market and is organized geographically along product lines that provide dedicated underwriting focus to customers. ACE International has five regions of operations: ACE Europe, ACE Asia Pacific, ACE Eurasia and Africa, ACE Far East, and ACE Latin America. During 2014, ACE International expanded its operations with the acquisitions of Samaggi in Thailand and Itaú Seguros in Brazil. Refer to Note 2 for additional information. ACE International writesthrough Lloyd’s. These divisions write a variety of insurance productscoverages, including traditional commercial P&C, professionalspecialty categories such as financial lines, (directors and officers and errors and omissions), marine, energy, aviation, political risk specialty consumer-oriented products, and construction risk, as well as group A&H (principally accident and supplemental health). AGM, our London-based internationaltraditional and specialty and excess and surplus lines business, includes Syndicate 2488, a wholly-owned ACE syndicate. AGM offers products through its parallel distribution network via ACE European Group Limited (AEGL) and Syndicate 2488. ACE provides funds at Lloyd's to support underwriting by Syndicate 2488, which is managed by ACE Underwriting Agencies Limited. AGM uses Syndicate 2488 to underwrite P&C business on a global basis through Lloyd's worldwide licenses. AGM uses AEGL to underwrite similar classes of business through its network of U.K. and European licenses, and in the U.S. where it is eligible to write excess and surplus lines business.personal lines. The reinsurance operationoperations of AGM isCGM are included in the Global Reinsurance segment. Combined Insurance distributes a wide range of supplemental A&H products.

The Global Reinsurance segment represents ACE'sprimarily includes the reinsurance operations comprising ACEbusiness written by Chubb Tempest Re Bermuda, ACE Tempest Re USA, ACE Tempest Re International, and ACE Tempest Re Canada.Re. The Global Reinsurance segment also includes AGM'sCGM's reinsurance operations. These divisions provideChubb Tempest Re provides a broad range of traditional and specialty reinsurance products including property catastrophe, casualty, and property reinsurance coverages to a diverse array of primary P&C insurers.companies.

The Life Insurance segment includes ACE'sChubb's international life operations (ACE Life), ACEwritten by Chubb Life, Chubb Tempest Life Re (ACE Life Re), and the North American supplemental A&H and life business of Combined Insurance.ACE Life provides a broad portfolio of protection and savings products including whole life, endowment plans, individual term life, group term life, group medical, personal accident, credit life, universal life and unit linked contracts through multiple distribution channels primarily in emerging markets including: Egypt, Hong Kong, Indonesia, South Korea, Taiwan, Thailand, and Vietnam; also throughout Latin America, selectively in Europe, and China through a non-consolidated joint venture insurance company. ACE Life Re helps clients (ceding companies) manage mortality, morbidity, and lapse risks embedded in their books of business. ACE Life Re's core business is a Bermuda-based operation which provides reinsurance to primary life insurers, focusing on guarantees included in certain fixed and variable annuity products and also on more traditional mortality reinsurance protection. ACE Life Re's U.S.-based traditional life reinsurance operation was discontinued for new business in January 2010. Since 2007, ACE Life Re has not quoted on new opportunities in the variable annuity reinsurance marketplace. Combined Insurance distributes specialty supplemental A&H and life insurance products targeted to middle income consumers and businesses in the U.S. and Canada.

Corporate primarily includes ACEloss and loss expenses of asbestos and environmental (A&E) run-off liabilities, and the results of our non-insurance companies including Chubb Limited, ACEChubb Group Management and Holdings Ltd., ACELtd, 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 legacy 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 intercompany eliminations.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, the segment income statement 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. The prior periods have been adjusted to reflect the new segment income measure. As we progress through the integration and refine our processes, we may continue to further refine our segments and segment income measures.

For segment reporting purposes, certain items have been presented in a different manner below than in the consolidated financial statements. Management uses underwriting income as the main measure of segment performance. ACEChubb 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, the operating portion of other (income) expense,and amortization of purchased intangibles. For the Insurance – North American AgricultureAmerica Agricultural Insurance segment, management includes gains and losses on crop derivatives as a component of underwriting income. For 2014,example, for the year ended December 31, 2016, underwriting income in our Insurance – North American AgricultureAmerica Agricultural Insurance segment was $136$341 million. This amount includes $51$5 million of realized gainslosses related to crop derivatives which are includedreported 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 2014,the year ended December 31, 2016, Life Insurance underwriting income of $363$282 million includes Net investment income of $268$283 millionand gains from fair value changes in separate account assets of $2$11 million. The gains from fair value changes in separate account assets are reported in Other (income) expense in the table below.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACEChubb Limited and Subsidiaries


The following tables present the Statement of Operations by segment:
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 earned12,217
 4,319
 1,316
 8,132
 710
 2,055
 
 28,749
Losses and loss expenses7,439
 2,558
 893
 4,005
 325
 663
 169
 16,052
Policy benefits
 
 
 
 
 588
 
 588
Policy acquisition costs2,023
 966
 83
 2,136
 187
 509
 
 5,904
Administrative expenses1,125
 363
 (6) 1,057
 52
 307
 183
 3,081
Underwriting income (loss)1,630
 432
 346
 934
 146
 (12) (352) 3,124
Net investment income1,860
 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 expenses            492
 492
Income tax expense            815
 815
Net income (loss)

 

 

 

 

 

 $(2,480) $4,135
For the Year Ended December 31, 2014 (in millions of U.S. dollars)
Insurance –
North
American P&C

 Insurance – North American Agriculture
 
Insurance –
Overseas
General

 
Global
Reinsurance

 Life
 Corporate
 
ACE
Consolidated

Net premiums written$6,263
 $1,590
 $6,999
 $935
 $2,012
 $
 $17,799
Net premiums earned6,107
 1,526
 6,805
 1,026
 1,962
 
 17,426
Losses and loss expenses4,086
 1,351
 3,189
 431
 589
 3
 9,649
Policy benefits
 
 
 
 517
 
 517
Policy acquisition costs634
 81
 1,625
 257
 478
 
 3,075
Administrative expenses678
 9
 1,026
 54
 285
 193
 2,245
Underwriting income (loss)709
 85
 965
 284
 93
 (196) 1,940
Net investment income1,085
 26
 545
 316
 268
 12
 2,252
Net realized gains (losses) including OTTI(67) 54
 (78) (29) (383) (4) (507)
Interest expense9
 
 6
 4
 11
 250
 280
Other (income) expense:             
(Gains) losses from fair value changes in separate account assets
 
 
 
 (2) 
 (2)
Other(101) 33
 11
 (54) 2
 29
 (80)
Income tax expense (benefit)306
 33
 378
 38
 46
 (167) 634
Net income (loss)$1,513
 $99
 $1,037
 $583
 $(79) $(300) $2,853
For the Year Ended December 31, 2013
(in millions of U.S. dollars)
Insurance –
North
American P&C

 Insurance – North American Agriculture
 
Insurance –
Overseas
General

 
Global
Reinsurance

 Life
 Corporate
 
ACE
Consolidated

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$5,915
 $1,627
 $6,520
 $991
 $1,972
 $
 $17,025
$5,715
 $1,192
 $1,346
 $6,634
 $828
 $1,998
 $
 $17,713
Net premiums earned5,721
 1,678
 6,333
 976
 1,905
 
 16,613
5,634
 948
 1,364
 6,471
 849
 1,947
 
 17,213
Losses and loss expenses3,776
 1,524
 3,062
 396
 582
 8
 9,348
3,661
 590
 1,088
 3,052
 290
 601
 202
 9,484
Policy benefits
 
 
 
 515
 
 515

 
 
 
 
 543
 
 543
Policy acquisition costs597
 53
 1,453
 197
 358
 1
 2,659
531
 69
 69
 1,581
 214
 476
 1
 2,941
Administrative expenses601
 11
 1,008
 50
 343
 198
 2,211
621
 123
 1
 997
 49
 291
 188
 2,270
Underwriting income (loss)747
 90
 810
 333
 107
 (207) 1,880
821
 166
 206
 841
 296
 36
 (391) 1,975
Net investment income1,021
 26
 539
 280
 251
 27
 2,144
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 OTTI72
 1
 18
 53
 360
 
 504
  

         (420) (420)
Interest expense5
 1
 5
 5
 15
 244
 275
            300
 300
Other (income) expense:             
(Gains) losses from fair value changes in separate account assets
 
 
 
 (16) 
 (16)
Other(58) 32
 39
 (19) 13
 24
 31
Income tax expense (benefit)347
 20
 222
 36
 34
 (179) 480
Chubb integration expense            33
 33
Income tax expense            462
 462
Net income (loss)$1,546
 $64
 $1,101
 $644
 $672
 $(269) $3,758


 

 

 

 

 

 $(1,544) $2,834



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACEChubb Limited and Subsidiaries


For the Year Ended December 31, 2012
(in millions of U.S. dollars)
Insurance –
North
American P&C

 Insurance – North American Agriculture
 Insurance –
Overseas
General

 Global
Reinsurance

 Life
 Corporate
 ACE
Consolidated

For the Year Ended December 31, 2014
(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$5,349
 $1,859
 $5,863
 $1,025
 $1,979
 $
 $16,075
$5,685
 $578
 $1,590
 $6,999
 $935
 $2,012
 $
 $17,799
Net premiums earned5,147
 1,872
 5,740
 1,002
 1,916
 
 15,677
5,547
 560
 1,526
 6,805
 1,026
 1,962
 
 17,426
Losses and loss expenses3,715
 1,911
 2,862
 553
 611
 1
 9,653
3,476
 368
 1,351
 3,189
 431
 589
 245
 9,649
Policy benefits
 
 
 
 521
 
 521

 
 
 
 
 517
 
 517
Policy acquisition costs558
 28
 1,353
 172
 334
 1
 2,446
518
 116
 81
 1,625
 257
 478
 
 3,075
Administrative expenses608
 (7) 935
 51
 328
 181
 2,096
599
 74
 9
 1,026
 54
 285
 198
 2,245
Underwriting income (loss)266
 (60) 590
 226
 122
 (183) 961
954
 2
 85
 965
 284
 93
 (443) 1,940
Net investment income1,066
 25
 521
 290
 251
 28
 2,181
1,060
 22
 26
 545
 316
 268
 15
 2,252
Other (income) expense(12) 1
 2
 (18) (4) 3
 (162) (190)
Amortization expense of purchased intangibles
 
 31
 74
 
 3
 
 108
Segment income (loss)2,026
 23
 78
 1,454
 604
 355
 (266) 4,274
Net realized gains (losses) including OTTI41
 1
 103
 6
 (72) (1) 78


 

   

 

 

 (507) (507)
Interest expense12
 
 5
 4
 12
 217
 250


 

   

 

 

 280
 280
Other (income) expense:            

(Gains) losses from fair value changes in separate account assets
 
 
 
 (29) 
 (29)
Other(41) 32
 3
 (15) 25
 19
 23
Income tax expense (benefit)229
 (29) 133
 15
 58
 (136)
 270
Income tax expense            634
 634
Net income (loss)$1,173
 $(37) $1,073
 $518
 $235
 $(256) $2,706

 
 
 
 
 
 $(1,687) $2,853
Underwriting assets are reviewed in total by management for purposes of decision-making. Other than goodwillUnpaid losses and otherloss expenses, Reinsurance recoverables, Goodwill and Other intangible assets, ACEChubb does not allocate assets to its segments.
The following table presents net premiums earned for each segment by product:
(in millions of U.S. dollars)
Property &
All Other

 Casualty
 
Life,
Accident &
Health

 
ACE
Consolidated

For the Year Ended December 31, 2014   
Insurance – North American P&C$1,662
 $4,032
 $413
 $6,107
Insurance – North American Agriculture1,526
 
 
 1,526
Insurance – Overseas General2,948
 1,573
 2,284
 6,805
Global Reinsurance551
 475
 
 1,026
Life
 
 1,962
 1,962
 $6,687
 $6,080
 $4,659
 $17,426
For the Year Ended December 31, 2013       
Insurance – North American P&C$1,489
 $3,847
 $385
 $5,721
Insurance – North American Agriculture1,678
 
 
 1,678
Insurance – Overseas General2,672
 1,479
 2,182
 6,333
Global Reinsurance543
 433
 
 976
Life
 
 1,905
 1,905
 $6,382
 $5,759
 $4,472
 $16,613
For the Year Ended December 31, 2012       
Insurance – North American P&C$1,370
 $3,406
 $371
 $5,147
Insurance – North American Agriculture1,872
 
 
 1,872
Insurance – Overseas General2,236
 1,379
 2,125
 5,740
Global Reinsurance495
 507
 
 1,002
Life
 
 1,916
 1,916
 $5,973
 $5,292
 $4,412
 $15,677




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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACEChubb Limited and Subsidiaries


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)2016
 2015
 2014
North America Commercial P&C Insurance     
Property & other short-tail lines$1,963
 $1,040
 $1,113
Casualty & all other9,552
 4,175
 4,021
A&H702
 419
 413
Total North America Commercial P&C Insurance12,217
 5,634
 5,547
North America Personal P&C Insurance     
Personal automobile699
 186
 130
Personal homeowners3,007
 579
 309
Personal other613
 183
 121
Total North America Personal P&C Insurance4,319
 948
 560
North America Agricultural Insurance1,316
 1,364
 1,526
Overseas General Insurance     
Property & other short-tail lines2,133
 1,833
 1,892
Casualty & all other2,177
 1,361
 1,425
Personal lines1,626
 1,211
 1,204
A&H2,196
 2,066
 2,284
Total Overseas General Insurance8,132
 6,471
 6,805
Global Reinsurance     
Property & other short-tail lines118
 155
 246
Property catastrophe185
 219
 253
Casualty & all other407
 475
 527
Total Global Reinsurance710
 849
 1,026
Life Insurance     
Life1,002
 931
 981
A&H1,053
 1,016
 981
Total Life Insurance2,055
 1,947
 1,962
Total net premiums earned$28,749
 $17,213
 $17,426

The following table presents net premiums earned by geographic region. Allocations have been made on the basis of location of risk:
  North America
   
Asia
 Pacific/Far East

 Latin America
Years Ended December 31  
Europe(1)

  
2014 58% 16% 16% 10%
2013 58% 17% 16% 9%
2012 60% 17% 16% 7%

North America
 
Europe(1)

 
Asia
 Pacific/Far East

 Latin America
201670% 12% 11% 7%
201560% 15% 15% 10%
201458% 16% 16% 10%

(1) Europe includes Eurasia and Africa region.



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Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
Chubb Limited and Subsidiaries


16. Earnings per share
Years Ended December 31 Year Ended December 31 
(in millions of U.S. dollars, except share and per share data)2014
 2013
 2012
2016
 2015
 2014
Numerator:          
Net income$2,853
 $3,758
 $2,706
$4,135
 $2,834
 $2,853
Denominator:          
Denominator for basic earnings per share:          
Weighted-average shares outstanding335,609,899
 340,906,490
 339,843,438
462,519,789
 325,589,361
 335,609,899
Denominator for diluted earnings per share:          
Share-based compensation plans3,376,388
 3,241,085
 2,903,512
3,429,610
 3,246,017
 3,376,388
Weighted-average shares outstanding
and assumed conversions
338,986,287
 344,147,575
 342,746,950
465,949,399
 328,835,378
 338,986,287
Basic earnings per share$8.50
 $11.02
 $7.96
$8.94
 $8.71
 $8.50
Diluted earnings per share$8.42
 $10.92
 $7.89
$8.87
 $8.62
 $8.42
Potential anti-dilutive share conversions1,024,788
 1,031,297
 896,591
1,206,828
 1,601,668
 1,024,788

Excluded from weighted-average shares outstanding and assumed conversions is the impact of securities that would have been anti-dilutive during the respective years. Shares outstanding in 2016 included 136,951,452 shares issued in connection with the Chubb Corp acquisition.

17. 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. For the years ended December 31, 2016, 2015, and 2014 we generated $658 million, $305 million, and $314 million, respectively, in gross premiums written through these agreements. In addition, we ceded $208 million, $78 million, and $84 million to Starr as part of our reinsurance program on the underlying business for the years ended December 31, 2016, 2015, and 2014, respectively. We paid commissions to Starr of $145 million, $60 million, and $63 million and received commissions from Starr of $56 million, $19 million, and $20 million for the years ended December 31, 2016, 2015, and 2014, respectively, under these agreements. We incurred net Losses and loss expenses of $313 million, $137 million, and $91 million, for the years ended December 31, 2016, 2015, and 2014, respectively, under these agreements. 
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 $412 million and $112 million as of December 31, 2016 and 2015, respectively, and the amount of ceded reinsurance premium payable included in Insurance and reinsurance balances payable in the consolidated balance sheet was $72 million and $18 million, respectively.


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Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
Chubb Limited and Subsidiaries


The ACEChubb Charitable Foundation – Bermuda
The Chubb Charitable Foundation is an unconsolidated not-for-profit organization whose primary purpose is to fund charitable causes in Bermuda. The Trustees are principally ACEChubb management. ACEChubb maintains a non-interest bearing demand note receivable from the ACEChubb Charitable Foundation – Bermuda (Borrower), the balance of which was $25$23 million and $26$24 million at December 31, 20142016 and 2013,2015, respectively. The receivable is included in Other assets in the consolidated balance sheets. The Borrower has used the related proceeds to finance investments in Bermuda real estate, some of which have been rented to ACEChubb employees at rates established by independent, professional real estate appraisers. The Borrower uses income from the investments to both repay the note and to fund charitable activities. Accordingly, we report the demand note at the lower of its principal value or the fair value of assets held by the Borrower to repay the loan, including the real estate properties.



ABR Re
F-67ABR Re is a variable interest entity of which we own 11.3 percent; 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 fo

Tabler under the equity method of Contentsaccounting. Chubb cedes premiums to ABR Re and recognizes the associated commissions. Refer to Note 3 e) for additional information on the results of operations related to ABR Re.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
ACE Limited and Subsidiaries


18. 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 20142016 amounts below are based on estimates.

ACE'sChubb'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 20152017 without prior approval totals$3.8 $3.7 billion.

The statutory capital and surplus of our insurance subsidiaries met regulatory requirements for 2014, 2013,2016, 2015, and 2012.2014. The minimum amounts of statutory capital and surplus necessary to satisfy regulatory requirements was $13.7$22.8 billion and $14.5 billion for both December 31, 20142016 and 20132015., 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 December 31 
(in millions of U.S. dollars)2014
 2013
2016
 2015
Statutory capital and surplus      
Property and casualty$25,367
 $23,791
$37,946
 $19,680
Life$1,455
 $1,693
$1,294
 $1,207
 Year Ended December 31 
(in millions of U.S. dollars)2016
 2015
 2014
Statutory net income (loss)     
Property and casualty$7,042
 $2,712
 $3,378
Life$46
 $(148) $(248)


F-96

 Year Ended December 31 
(in millions of U.S. dollars)2014
2013
2012
Statutory net income (loss)   
Property and casualty$3,368
$3,333
$2,683
Life$(248)$409
$199
Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
Chubb Limited and Subsidiaries



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 ACE'sChubb'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 $158$155 million and $144 million at both December 31, 20142016 and 2013.2015, 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 $308 million at December 31, 2016 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.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACEChubb Limited and Subsidiaries


19. Information provided in connection with outstanding debt of subsidiaries

In connection with the Chubb Corp acquisition, Chubb INA Holdings Inc. entered into a series of intercompany loans totaling $10 billion involving its parents, Chubb Group Holdings Inc. and Chubb Limited. The weighted-average interest rate is 3.3 percent with fixed interest rates ranging from 2.3 percent to 4.35 percent and various maturity dates from 2021 to 2046. As part of the acquisition, Chubb INA Holdings Inc. assumed $3.3 billion par value outstanding debt of Chubb Corp, fair valued at $3.8 billion at the acquisition date. Chubb INA Holdings Inc. assumed Chubb Corp's rights, duties and obligations and Chubb Limited fully and unconditionally guarantees Chubb INA Holding Inc.'s payment obligations under these debts.

The following tables present condensed consolidating financial information at December 31, 20142016 and December 31, 20132015, and for the years ended December 31, 20142016, 20132015, and 20122014 for ACEChubb Limited (Parent Guarantor) and ACEChubb INA Holdings Inc. (Subsidiary Issuer). The transactions noted above are reflected in the tables below. 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 ACEChubb Limited Subsidiaries column on a combined basis.

Condensed Consolidating Balance Sheet at December 31, 20142016
(in millions of U.S. dollars)
ACE Limited
(Parent
Guarantor)

 
ACE INA
Holdings Inc.
(Subsidiary
Issuer)

 
Other ACE
Limited
Subsidiaries

 
Consolidating
Adjustments and Eliminations

 
ACE Limited
Consolidated

Chubb Limited
(Parent
Guarantor)

 
Chubb INA
Holdings Inc.
(Subsidiary
Issuer)

 
Other Chubb
Limited
Subsidiaries

 
Consolidating
Adjustments and Eliminations

 
Chubb Limited
Consolidated

Assets                  
Investments$30
 $225
 $62,649
 $
 $62,904
$27
 $485
 $98,582
 $
 $99,094
Cash(1)

 1
 1,209
 (555) 655
1
 1
 1,965
 (982) 985
Insurance and reinsurance balances receivable
 
 6,178
 (752) 5,426

 
 10,498
 (1,528) 8,970
Reinsurance recoverable on losses and loss expenses
 
 20,992
 (9,000) 11,992

 
 24,496
 (10,919) 13,577
Reinsurance recoverable on policy benefits
 
 1,194
 (977) 217

 
 1,153
 (971) 182
Value of business acquired
 
 466
 
 466

 
 355
 
 355
Goodwill and other intangible assets
 
 5,724
 
 5,724

 
 22,095
 
 22,095
Investments in subsidiaries29,497
 18,762
 
 (48,259) 
38,408
 49,509
 
 (87,917) 
Due from subsidiaries and affiliates, net583
 
 
 (583) 
10,482
 
 
 (10,482) 
Other assets4
 295
 14,196
 (3,631) 10,864
3
 436
 18,442
 (4,353) 14,528
Total assets$30,114
 $19,283
 $112,608
 $(63,757) $98,248
$48,921
 $50,431
 $177,586
 $(117,152) $159,786
Liabilities                  
Unpaid losses and loss expenses$
 $
 $46,770
 $(8,455) $38,315
$
 $
 $70,683
 $(10,143) $60,540
Unearned premiums
 
 9,958
 (1,736) 8,222

 
 18,538
 (3,759) 14,779
Future policy benefits
 
 5,731
 (977) 4,754

 
 6,007
 (971) 5,036
Due to subsidiaries and affiliates, net
 422
 161
 (583) 

 10,209
 273
 (10,482) 
Affiliated notional cash pooling programs(1)
246
 309
 
 (555) 
363
 619
 
 (982) 
Repurchase agreements
 
 1,403
 
 1,403
Short-term debt
 1,150
 1,402
 
 2,552

 500
 
 
 500
Long-term debt
 3,345
 12
 
 3,357

 12,599
 11
 
 12,610
Trust preferred securities
 309
 
 
 309

 308
 
 
 308
Other liabilities281
 1,404
 12,659
 (3,192) 11,152
283
 1,582
 17,368
 (2,898) 16,335
Total liabilities527
 6,939
 76,693
 (15,498) 68,661
646
 25,817
 114,283
 (29,235) 111,511
Total shareholders’ equity29,587
 12,344
 35,915
 (48,259) 29,587
48,275
 24,614
 63,303
 (87,917) 48,275
Total liabilities and shareholders’ equity$30,114
 $19,283
 $112,608
 $(63,757) $98,248
$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.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
Chubb Limited and Subsidiaries


Condensed Consolidating Balance Sheet at December 31, 2015
(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$28
 $7,839
 $58,384
 $
 $66,251
Cash(1)
1
 2
 2,743
 (971) 1,775
Insurance and reinsurance balances receivable
 
 6,075
 (752) 5,323
Reinsurance recoverable on losses and loss expenses
 
 20,124
 (8,738) 11,386
Reinsurance recoverable on policy benefits
 
 1,129
 (942) 187
Value of business acquired
 
 395
 
 395
Goodwill and other intangible assets
 
 5,683
 
 5,683
Investments in subsidiaries29,612
 18,386
 
 (47,998) 
Due from subsidiaries and affiliates, net644
 1,800
 
 (2,444) 
Other assets8
 457
 14,434
 (3,593) 11,306
Total assets$30,293
 $28,484
 $108,967
 $(65,438) $102,306
Liabilities         
Unpaid losses and loss expenses$
 $
 $45,490
 $(8,187) $37,303
Unearned premiums
 
 10,243
 (1,804) 8,439
Future policy benefits
 
 5,749
 (942) 4,807
Due to subsidiaries and affiliates, net
 
 2,444
 (2,444) 
Affiliated notional cash pooling programs(1)
882
 89
 
 (971) 
Repurchase agreements
 
 1,404
 
 1,404
Long-term debt
 9,378
 11
 
 9,389
Trust preferred securities
 307
 
 
 307
Other liabilities276
 1,422
 12,916
 (3,092) 11,522
Total liabilities1,158
 11,196
 78,257
 (17,440) 73,171
Total shareholders’ equity29,135
 17,288
 30,710
 (47,998) 29,135
Total liabilities and shareholders’ equity$30,293
 $28,484
 $108,967
 $(65,438) $102,306
(1) 
ACEChubb maintains two notional multicurrency cash pools (Pools) with a third-party bank. Refer to Note 1 f) for additional information. At December 31, 2014, the cash balance of one or more entities was negative; however, the overall Pool balances were positive.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
ACE Limited and Subsidiaries


Condensed Consolidating Balance Sheet at December 31, 2013
(in millions of U.S. dollars)
ACE Limited
(Parent
Guarantor)

 
ACE INA
Holdings Inc.
(Subsidiary
Issuer)

 
Other ACE
Limited
Subsidiaries

 
Consolidating
Adjustments and Eliminations

 
ACE Limited
Consolidated

Assets         
Investments$32
 $10
 $60,886
 $
 $60,928
Cash(1)

 16
 748
 (185) 579
Insurance and reinsurance balances receivable
 
 5,835
 (809) 5,026
Reinsurance recoverable on losses and loss expenses
 
 20,057
 (8,830) 11,227
Reinsurance recoverable on policy benefits
 
 1,215
 (997) 218
Value of business acquired
 
 536
 
 536
Goodwill and other intangible assets
 
 5,404
 
 5,404
Investments in subsidiaries28,351
 18,105
 
 (46,456) 
Due from subsidiaries and affiliates, net844
 
 
 (844) 
Other assets5
 258
 13,788
 (3,459) 10,592
Total assets$29,232
 $18,389
 $108,469
 $(61,580) $94,510
Liabilities         
Unpaid losses and loss expenses$
 $
 $45,714
 $(8,271) $37,443
Unearned premiums
 
 9,242
 (1,703) 7,539
Future policy benefits
 
 5,612
 (997) 4,615
Due to subsidiaries and affiliates, net
 714
 130
 (844) 
Affiliated notional cash pooling programs(1)
185
 
 
 (185) 
Short-term debt
 500
 1,401
 
 1,901
Long-term debt
 3,795
 12
 
 3,807
Trust preferred securities
 309
 
 
 309
Other liabilities222
 1,318
 11,655
 (3,124) 10,071
Total liabilities407
 6,636
 73,766
 (15,124) 65,685
Total shareholders’ equity28,825
 11,753
 34,703
 (46,456) 28,825
Total liabilities and shareholders’ equity$29,232
 $18,389
 $108,469
 $(61,580) $94,510
(1)
ACE maintains two notional multicurrency cash pools (Pools) with a third-party bank. Refer to Note 1 f) for additional information. At December 31, 20132015, the cash balance of one or more entities was negative; however, the overall Pool balances were positive.
















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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACEChubb Limited and Subsidiaries


Condensed Consolidating Statements of Operations and Comprehensive Income
For the Year Ended December 31, 2014
ACE Limited
(Parent
Guarantor)

 
ACE INA
Holdings Inc.
(Subsidiary
Issuer)

 
Other ACE
Limited
Subsidiaries

 
Consolidating
Adjustments and Eliminations

 
ACE Limited
Consolidated

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)
ACE Limited
(Parent
Guarantor)

 
ACE INA
Holdings Inc.
(Subsidiary
Issuer)

 
Other ACE
Limited
Subsidiaries

 
Consolidating
Adjustments and Eliminations

 
ACE Limited
Consolidated

 
Net premiums written $
 $
 $28,145
 $
 $28,145
Net premiums earned
 
 17,426
 
 17,426

 
 28,749
 
 28,749
Net investment income2
 2
 2,248
 
 2,252
3
 11
 2,851
 
 2,865
Equity in earnings of subsidiaries2,707
 791
 
 (3,498) 
3,901
 2,555
 
 (6,456) 
Net realized gains (losses) including OTTI
 53
 (560) 
 (507)
 3
 (148) 
 (145)
Losses and loss expenses
 
 9,649
 
 9,649

 
 16,052
 
 16,052
Policy benefits
 
 517
 
 517

 
 588
 
 588
Policy acquisition costs and administrative expenses78
 26
 5,216
 
 5,320
64
 82
 8,839
 
 8,985
Interest (income) expense(35) 277
 38
 
 280
(353) 908
 50
 
 605
Other (income) expense(201) 27
 92
 
 (82)(25) 35
 (232) 
 (222)
Amortization of purchased intangibles
 
 19
 
 19
Chubb integration expenses62
 126
 304
 
 492
Income tax expense (benefit)14
 (94) 714
 
 634
21
 (416) 1,210
 
 815
Net income$2,853
 $610
 $2,888
 $(3,498) $2,853
$4,135
 $1,834
 $4,622
 $(6,456) $4,135
Comprehensive income$2,892
 $583
 $2,926
 $(3,509) $2,892
$4,556
 $2,001
 $5,045
 $(7,046) $4,556

Condensed Consolidating Statements of Operations and Comprehensive Income
For the Year Ended December 31, 2013
ACE Limited
(Parent
Guarantor)

 
ACE INA
Holdings Inc.
(Subsidiary
Issuer)

 
Other ACE
Limited
Subsidiaries

 
Consolidating
Adjustments and Eliminations

 
ACE Limited
Consolidated

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)
ACE Limited
(Parent
Guarantor)

 
ACE INA
Holdings Inc.
(Subsidiary
Issuer)

 
Other ACE
Limited
Subsidiaries

 
Consolidating
Adjustments and Eliminations

 
ACE Limited
Consolidated

 
Net premiums written $
 $
 $17,713
 $
 $17,713
Net premiums earned
 
 16,613
 
 16,613

 
 17,213
 
 17,213
Net investment income2
 3
 2,139
 
 2,144
3
 4
 2,187
 
 2,194
Equity in earnings of subsidiaries3,580
 942
 
 (4,522) 
2,673
 1,038
 
 (3,711) 
Net realized gains (losses) including OTTI
 (2) 506
 
 504

 (9) (411) 
 (420)
Losses and loss expenses
 
 9,348
 
 9,348

 
 9,484
 
 9,484
Policy benefits
 
 515
 
 515

 
 543
 
 543
Policy acquisition costs and administrative expenses60
 19
 4,791
 
 4,870
63
 28
 5,120
 
 5,211
Interest (income) expense(32) 270
 37
 
 275
(32) 302
 30
 
 300
Other (income) expense(221) 27
 209
 
 15
(208) (4) 161
 
 (51)
Amortization of purchased intangibles
 
 171
 
 171
Chubb integration expenses3
 29
 1
 
 33
Income tax expense (benefit)17
 (108) 571
 
 480
16
 (349) 795
 
 462
Net income$3,758
 $735
 $3,787
 $(4,522) $3,758
$2,834
 $1,027
 $2,684
 $(3,711) $2,834
Comprehensive income (loss)$2,023
 $(230) $2,051
 $(1,821) $2,023
$908
 $(192) $757
 $(565) $908





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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACEChubb Limited and Subsidiaries



Condensed Consolidating Statements of Operations and Comprehensive Income
For the Year Ended December 31, 2012
ACE Limited
(Parent
Guarantor)

 
ACE INA
Holdings Inc.
(Subsidiary
Issuer)

 
Other ACE
Limited
Subsidiaries

 
Consolidating
Adjustments and Eliminations

 
ACE Limited
Consolidated

For the Year Ended December 31, 2014
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)
ACE Limited
(Parent
Guarantor)

 
ACE INA
Holdings Inc.
(Subsidiary
Issuer)

 
Other ACE
Limited
Subsidiaries

 
Consolidating
Adjustments and Eliminations

 
ACE Limited
Consolidated

 
Net premiums written $
 $
 $17,799
 $
 $17,799
Net premiums earned
 
 15,677
 
 15,677

 
 17,426
 
 17,426
Net investment income1
 3
 2,177
 
 2,181
2
 2
 2,248
 
 2,252
Equity in earnings of subsidiaries2,590
 911
 
 (3,501) 
2,707
 791
 
 (3,498) 
Net realized gains (losses) including OTTI17
 
 61
 
 78

 53
 (560) 
 (507)
Losses and loss expenses
 
 9,653
 
 9,653

 
 9,649
 
 9,649
Policy benefits
 
 521
 
 521

 
 517
 
 517
Policy acquisition costs and administrative expenses62
 28
 4,452
 
 4,542
78
 26
 5,216
 
 5,320
Interest (income) expense(33) 235
 48
 
 250
(35) 277
 38
 
 280
Other (income) expense(137) 9
 122
 
 (6)(201) 27
 (16) 
 (190)
Amortization of purchased intangibles
 
 108
 
 108
Income tax expense (benefit)10
 (110) 370
 
 270
14
 (94) 714
 
 634
Net income$2,706
 $752
 $2,749
 $(3,501) $2,706
$2,853
 $610
 $2,888
 $(3,498) $2,853
Comprehensive income$3,682
 $1,209
 $3,724
 $(4,933) $3,682
$2,892
 $583
 $2,926
 $(3,509) $2,892





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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACEChubb Limited and Subsidiaries


Condensed Consolidating Statement of Cash Flows 
For the Year Ended December 31, 2014
ACE Limited
(Parent
Guarantor)

 
ACE INA
Holdings Inc.
(Subsidiary
Issuer)

 
Other ACE
Limited
Subsidiaries

 
Consolidating
Adjustments and Eliminations

 
ACE Limited
Consolidated

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)
ACE Limited
(Parent
Guarantor)

 
ACE INA
Holdings Inc.
(Subsidiary
Issuer)

 
Other ACE
Limited
Subsidiaries

 
Consolidating
Adjustments and Eliminations

 
ACE Limited
Consolidated

 
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
 
 (15,816) 263
 (15,553)
 (156) (30,659) 
 (30,815)
Purchases of fixed maturities held to maturity
 
 (267) 
 (267)
 
 (282) 
 (282)
Purchases of equity securities
 
 (251) 
 (251)
 
 (146) 
 (146)
Sales of fixed maturities available for sale
 
 7,750
 (268) 7,482

 66
 16,611
 
 16,677
Sales of equity securities
 
 670
 
 670

 
 1,000
 
 1,000
Maturities and redemptions of fixed maturities available for sale
 
 6,413
 
 6,413

 66
 9,283
 
 9,349
Maturities and redemptions of fixed maturities held to maturity
 
 875
 
 875

 
 958
 
 958
Net change in short-term investments
 (216) (392) 5
 (603)
 7,943
 4,407
 
 12,350
Net derivative instruments settlements
 53
 (283) 
 (230)
 (9) (159) 
 (168)
Acquisition of subsidiaries (net of cash acquired of $20)
 
 (766) 
 (766)
Acquisition of subsidiaries (net of cash acquired of $71)
 (14,282) 34
 
 (14,248)
Capital contribution
 (258) 
 258
 
(2,330) (215) (2,330) 4,875
 
Other
 (8) (266) 
 (274)
 (3) 13
 
 10
Net cash flows used for investing activities
 (429) (2,333) 258
 (2,504)(2,330) (6,590) (1,270) 4,875
 (5,315)
Cash flows from financing activities                  
Dividends paid on Common Shares(862) 
 
 
 (862)(1,173) 
 
 
 (1,173)
Common Shares repurchased
 
 (1,429) 
 (1,429)
Proceeds from issuance of long-term debt
 699
 
 
 699
Proceeds from issuance of short-term debt
 
 1,978
 
 1,978
Repayment of long-term debt
 (500) (1) 
 (501)
Repayment of short-term debt
 
 (1,977) 
 (1,977)
Proceeds from issuance of repurchase agreements
 
 2,310
 
 2,310
Repayment of repurchase agreements
 
 (2,311) 
 (2,311)
Proceeds from share-based compensation plans, including windfall tax benefits
 
 127
 
 127

 
 167
 
 167
Advances (to) from affiliates260
 (298) 38
 
 
404
 (572) 168
 
 
Dividends to parent company
 
 (674) 674
 

 
 (8,167) 8,167
 
Capital contribution
 
 258
 (258) 

 2,330
 2,545
 (4,875) 
Net proceeds from affiliated notional cash pooling programs(1)
61
 309
 
 (370) 
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
 (6) 194
 
 188

 (4) 
 
 (4)
Net cash flows (used for) from financing activities(541) 204
 (1,486) 46
 (1,777)(1,288) 2,284
 (5,019) 3,281
 (742)
Effect of foreign currency rate changes on cash and cash equivalents
 
 (139) 
 (139)
 
 (25) 
 (25)
Net (decrease) increase in cash
 (15) 461
 (370) 76
Net decrease in cash
 (1) (778) (11) (790)
Cash – beginning of year(1)

 16
 748
 (185) 579
1
 2
 2,743
 (971) 1,775
Cash – end of year(1)
$
 $1
 $1,209
 $(555) $655
$1
 $1
 $1,965
 $(982) $985
(1) 
ACEChubb maintains two notional multi-currency cash pools (Pools) with a third-party bank. Refer to Note 1 f) for additional information. At December 31, 20142016 and 2013,2015, the cash balance of one or more entities was negative; however, the overall Pool balances were positive.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACEChubb Limited and Subsidiaries


Condensed Consolidating Statement of Cash Flows
For the Year Ended December 31, 2013
ACE Limited
(Parent
Guarantor)

 
ACE INA
Holdings Inc.
(Subsidiary
Issuer)

 
Other ACE
Limited
Subsidiaries

 
Consolidating
Adjustments and Eliminations

 
ACE Limited
Consolidated

(in millions of U.S. dollars)    
Net cash flows from (used for) operating activities$970
 $(107) $3,984
 $(825) $4,022
Cash flows from investing activities         
Purchases of fixed maturities available for sale
 
 (21,504) 106
 (21,398)
Purchases of fixed maturities held to maturity
 
 (447) 
 (447)
Purchases of equity securities
 
 (264) 
 (264)
Sales of fixed maturities available for sale
 
 10,519
 (106) 10,413
Sales of equity securities
 
 142
 
 142
Maturities and redemptions of fixed maturities available for sale
 
 6,941
 
 6,941
Maturities and redemptions of fixed maturities held to maturity
 
 1,488
 
 1,488
Net change in short-term investments(1) 4
 521
 
 524
Net derivative instruments settlements
 (1) (470) 
 (471)
Acquisition of subsidiaries (net of cash acquired of $38)
 
 (977) 
 (977)
Capital contribution(133) (1,097) 
 1,230
 
Other
 (4) (389) 
 (393)
Net cash flows used for investing activities(134) (1,098) (4,440) 1,230
 (4,442)
Cash flows from financing activities         
Dividends paid on Common Shares(517) 
 
 
 (517)
Common Shares repurchased
 
 (287) 
 (287)
Proceeds from issuance of long-term debt
 947
 
 
 947
Proceeds from the issuance of short-term debt
 
 2,572
 
 2,572
Repayment of short-term debt
 
 (2,572) 
 (2,572)
Proceeds from share-based compensation plans, including windfall tax benefits14
 
 121
 
 135
Advances (to) from affiliates(621) 621
 
 
 
Dividends to parent company
 
 (825) 825
 
Capital contribution
 
 1,230
 (1,230) 
Net proceeds from (payments to) affiliated notional cash pooling programs(1)
185
 (349) 
 164
 
Other
 
 113
 
 113
Net cash flows (used for) from financing activities(939) 1,219
 352
 (241) 391
Effect of foreign currency rate changes on cash and cash equivalents
 
 (7) 
 (7)
Net (decrease) increase in cash(103) 14
 (111) 164
 (36)
Cash – beginning of year(1)
103
 2
 859
 (349) 615
Cash – end of year(1)
$
 $16
 $748
 $(185) $579
(1)
ACE maintains two notional multi-currency cash pools (Pools) with a third-party bank. Refer to Note 1 f) for additional information. At December 31, 2013 and 2012, the cash balance of one or more entities was negative; however, the overall Pool balances were positive.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
ACE Limited and Subsidiaries


Condensed Consolidating Statement of Cash Flows
For the Year Ended December 31, 2012
ACE Limited
(Parent
Guarantor)

 
ACE INA
Holdings Inc.
(Subsidiary
Issuer)

 
Other ACE
Limited
Subsidiaries

 
Consolidating
Adjustments and Eliminations

 
ACE Limited
Consolidated

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)
ACE Limited
(Parent
Guarantor)

 
ACE INA
Holdings Inc.
(Subsidiary
Issuer)

 
Other ACE
Limited
Subsidiaries

 
Consolidating
Adjustments and Eliminations

 
ACE Limited
Consolidated

 
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
 
 (24,076) 115
 (23,961)
 
 (16,053) (18) (16,071)
Purchases of fixed maturities held to maturity
 
 (388) 
 (388)
 
 (62) 
 (62)
Purchases of equity securities
 
 (135) 
 (135)
 
 (158) 
 (158)
Sales of fixed maturities available for sale
 
 14,884
 (115) 14,769

 
 10,814
 
 10,814
Sales of equity securities
 
 119
 
 119

 
 183
 
 183
Maturities and redemptions of fixed maturities available for sale
 
 5,523
 
 5,523

 
 6,567
 
 6,567
Maturities and redemptions of fixed maturities held to maturity
 
 1,451
 
 1,451

 
 669
 
 669
Net change in short-term investments
 (4) 121
 
 117

 (7,588) (628) 
 (8,216)
Net derivative instruments settlements(1) 
 (280) 
 (281)
 (9) (12) 
 (21)
Acquisition of subsidiaries (net of cash acquired of $629)
 
 264
 
 264
Capital contribution
 (352) (90) 442
 
(2,670) (625) (2,791) 6,086
 
Acquisition of subsidiaries (net of cash acquired of $8)
 
 (98) 
 (98)
Other
 (33) (522) 
 (555)
 (25) (256) 18
 (263)
Net cash flows used for investing activities(1) (389) (3,491) 442
 (3,439)(2,670) (8,247) (1,463) 6,086
 (6,294)
Cash flows from financing activities                  
Dividends paid on Common Shares(815) 
 
 
 (815)(862) 
 
 
 (862)
Common Shares repurchased
 
 (11) 
 (11)
 
 (758) 
 (758)
Proceeds from issuance of short-term debt130
 
 2,803
 
 2,933
Repayment of short-term debt(130) 
 (2,653) 
 (2,783)
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, including windfall tax benefits34
 
 92
 
 126

 
 131
 
 131
Advances from (to) affiliates206
 (201) (5) 
 
Advances (to) from affiliates(228) 95
 133
 
 
Dividends to parent company
 
 (750) 750
 

 
 (3,779) 3,779
 
Capital contribution
 90
 352
 (442) 

 2,791
 3,295
 (6,086) 
Net proceeds from affiliated notional cash pooling programs(1)

 201
 
 (201) 
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(575) 90
 (172) 107
 (550)(454) 7,566
 (694) (2,723) 3,695
Effect of foreign currency rate changes on cash and cash equivalents
 
 (5) 
 (5)
 
 (145) 
 (145)
Net increase (decrease) in cash(3) (3) 208
 (201) 1
Net increase in cash1
 1
 1,534
 (416) 1,120
Cash – beginning of year(1)
106
 5
 651
 (148) 614

 1
 1,209
 (555) 655
Cash – end of year(1)
$103
 $2
 $859
 $(349) $615
$1
 $2
 $2,743
 $(971) $1,775
(1)
ACEChubb 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.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
Chubb Limited and Subsidiaries


Condensed Consolidating Statement of Cash Flows
For the Year Ended December 31, 2014
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$541
 $210
 $4,419
 $(674) $4,496
Cash flows from investing activities         
Purchases of fixed maturities available for sale
 
 (15,816) 263
 (15,553)
Purchases of fixed maturities held to maturity
 
 (267) 
 (267)
Purchases of equity securities
 
 (251) 
 (251)
Sales of fixed maturities available for sale
 
 7,750
 (268) 7,482
Sales of equity securities
 
 670
 
 670
Maturities and redemptions of fixed maturities available for sale
 
 6,413
 
 6,413
Maturities and redemptions of fixed maturities held to maturity
 
 875
 
 875
Net change in short-term investments
 (216) (392) 5
 (603)
Net derivative instruments settlements
 53
 (283) 
 (230)
Acquisition of subsidiaries (net of cash acquired of $20)
 
 (766) 
 (766)
Capital contribution
 (258) 
 258
 
Other
 (8) (266) 
 (274)
Net cash flows used for investing activities
 (429) (2,333) 258
 (2,504)
Cash flows from financing activities         
Dividends paid on Common Shares(862) 
 
 
 (862)
Common Shares repurchased
 
 (1,429) 
 (1,429)
Proceeds from issuance of long-term debt
 699
 
 
 699
Proceeds from issuance of repurchase agreements
 
 1,978
 
 1,978
Repayment of long-term debt
 (500) (1) 
 (501)
Repayment of repurchase agreements
 
 (1,977) 
 (1,977)
Proceeds from share-based compensation plans, including windfall tax benefits
 
 127
 
 127
Advances (to) from affiliates260
 (298) 38
 
 
Dividends to parent company
 
 (674) 674
 
Capital contribution
 
 258
 (258) 
Net proceeds from affiliated notional cash pooling programs(1)
61
 309
 
 (370) 
Policyholder contract deposits
 
 366
 
 366
Policyholder contract withdrawals
 
 (172) 
 (172)
Other

 (6) 
 
 (6)
Net cash flows (used for) from financing activities(541) 204
 (1,486) 46
 (1,777)
Effect of foreign currency rate changes on cash and cash equivalents
 
 (139) 
 (139)
Net (decrease) increase in cash
 (15) 461
 (370) 76
Cash – beginning of year(1)

 16
 748
 (185) 579
Cash – end of year(1)
$
 $1
 $1,209
 $(555) $655
(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, 20122014 and 2011,2013, the cash balance of one or more entities was negative; however, the overall Pool balances were positive.




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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACEChubb Limited and Subsidiaries


20. 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)2014
 2014
 2014
 2014
Net premiums earned$3,970
 $4,332
 $4,754
 $4,370
Net investment income553
 556
 566
 577
Net realized gains (losses) including OTTI(104) (73) (120) (210)
Total revenues$4,419
 $4,815
 $5,200
 $4,737
Losses and loss expenses$2,161
 $2,388
 $2,684
 $2,416
Policy benefits$114
 $144
 $125
 $134
Net income (1)
$734
 $779
 $785
 $555
Basic earnings per share$2.16
 $2.30
 $2.35
 $1.68
Diluted earnings per share$2.14
 $2.28
 $2.32
 $1.66

(1) Net income for the three months ended December 31, 2014 includes $89 million of net charges related to income taxes to correct prior periods. Such amounts are not material to any period presented.
 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 income674
 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

Three Months Ended Three Months Ended 
March 31
 June 30
 September 30
 December 31
March 31
 June 30
 September 30
 December 31
(in millions of U.S. dollars, except per share data)2013
 2013
 2013
 2013
2015
 2015
 2015
 2015
Net premiums earned$3,573
 $4,067
 $4,610
 $4,363
$3,927
 $4,360
 $4,719
 $4,207
Net investment income531
 534
 522
 557
551
 562
 549
 532
Net realized gains (losses) including OTTI206
 104
 40
 154
(89) 126
 (397) (60)
Total revenues$4,310
 $4,705
 $5,172
 $5,074
$4,389
 $5,048
 $4,871
 $4,679
Losses and loss expenses$1,926
 $2,250
 $2,655
 $2,517
$2,122
 $2,417
 $2,643
 $2,302
Policy benefits$131
 $110
 $138
 $136
$142
 $153
 $89
 $159
Net income$953
 $891
 $916
 $998
$681
 $942
 $528
 $683
Basic earnings per share$2.80
 $2.61
 $2.68
 $2.93
$2.08
 $2.89
 $1.63
 $2.10
Diluted earnings per share$2.77
 $2.59
 $2.66
 $2.90
$2.05
 $2.86
 $1.62
 $2.08





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SCHEDULE I
ACEChubb Limited and Subsidiaries



SUMMARY OF INVESTMENTS – OTHER THAN INVESTMENTS IN RELATED PARTIES
December 31, 2014
(in millions of U.S. dollars)
Cost or
Amortized Cost

 Fair Value
 Amount at Which Shown in the Balance Sheet
December 31, 2016
(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$2,741
 $2,820
 $2,820
$2,883
 $2,870
 $2,870
Foreign14,703
 15,242
 15,242
20,929
 21,440
 21,440
Corporate securities16,897
 17,431
 17,431
23,736
 24,149
 24,149
Mortgage-backed securities10,011
 10,286
 10,286
14,066
 14,007
 14,007
States, municipalities, and political subdivisions3,474
 3,616
 3,616
17,922
 17,649
 17,649
Total fixed maturities available for sale47,826
 49,395
 49,395
79,536
 80,115
 80,115
Fixed maturities held to maturity          
U.S. Treasury and agency832
 850
 832
655
 661
 655
Foreign916
 963
 916
640
 667
 640
Corporate securities2,323
 2,423
 2,323
2,771
 2,795
 2,771
Mortgage-backed securities1,983
 2,039
 1,983
1,393
 1,428
 1,393
States, municipalities, and political subdivisions1,277
 1,314
 1,277
5,185
 5,119
 5,185
Total fixed maturities held to maturity7,331
 7,589
 7,331
10,644
 10,670
 10,644
Equity securities          
Industrial, miscellaneous, and all other440
 510
 510
706
 814
 814
Short-term investments2,322
 2,322
 2,322
3,002
 3,002
 3,002
Other investments2,999
 3,346
 3,346
4,270
 4,519
 4,519
Total investments - other than investments in related parties$60,918
 $63,162
 $62,904
$98,158
 $99,120
 $99,094




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SCHEDULE II
ACEChubb Limited and Subsidiaries


CONDENSED FINANCIAL INFORMATION OF REGISTRANT

BALANCE SHEETS (Parent Company Only)
December 31
 December 31
December 31
 December 31
(in millions of U.S. dollars)2014
 2013
2016
 2015
Assets      
Investments in subsidiaries and affiliates on equity basis$29,497
 $28,351
$38,408
 $29,612
Short-term investments1
 2
2
 1
Other investments, at cost29
 30
25
 27
Total investments29,527
 28,383
38,435
 29,640
Cash1
 1
Due from subsidiaries and affiliates, net583
 844
10,482
 644
Other assets4
 5
3
 8
Total assets$30,114
 $29,232
$48,921
 $30,293
Liabilities      
Affiliated notional cash pooling programs(1)
$246
 $185
$363
 $882
Accounts payable, accrued expenses, and other liabilities281
 222
283
 276
Total liabilities527
 407
646
 1,158
Shareholders' equity      
Common Shares8,055
 8,899
11,121
 7,833
Common Shares in treasury(1,448) (255)(1,480) (1,922)
Additional paid-in capital5,145
 5,238
15,335
 4,481
Retained earnings16,644
 13,791
23,613
 19,478
Accumulated other comprehensive income1,191
 1,152
Accumulated other comprehensive income (loss)(314) (735)
Total shareholders' equity29,587
 28,825
48,275
 29,135
Total liabilities and shareholders' equity$30,114
 $29,232
$48,921
 $30,293
      
(1) ACE maintains two notional multicurrency cash pools (Pools) with a third-party bank. Refer to Note 1 f) for additional information. At December 31, 2014 and 2013, the cash balance of one or more entities was negative; however, the overall Pool balances were positive.
(1) Chubb maintains two notional multicurrency cash pools (Pools) with a third-party bank. Refer to Note 1 f) for additional information.
(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.


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SCHEDULE II (continued)
ACEChubb Limited and Subsidiaries


CONDENSED FINANCIAL INFORMATION OF REGISTRANT

STATEMENTS OF OPERATIONS (Parent Company Only)
Years Ended December 31 Year Ended December 31 
(in millions of U.S. dollars)2014
2013
2012
2016
 2015
 2014
Revenues      
Investment income, including interest income$37
$34
$34
$356
 $35
 $37
Equity in net income of subsidiaries and affiliates2,707
3,580
2,590
3,901
 2,673
 2,707
Net realized gains (losses)

17
2,744
3,614
2,641
4,257
 2,708
 2,744
Expenses      
Administrative and other (income) expense(123)(161)(75)101
 (142) (123)
Income tax expense14
17
10
21
 16
 14
(109)(144)(65)122
 (126) (109)
Net income$2,853
$3,758
$2,706
$4,135
 $2,834
 $2,853
Comprehensive income$2,892
$2,023
$3,682
$4,556
 $908
 $2,892
      
The condensed financial information should be read in conjunction with the consolidated financial statements and notes thereto.


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SCHEDULE II (continued)
ACEChubb Limited and Subsidiaries


CONDENSED FINANCIAL INFORMATION OF REGISTRANT

STATEMENTS OF CASH FLOWS (Parent Company Only)
Years Ended December 31 Year Ended December 31 
(in millions of U.S. dollars)2014
 2013
 2012
2016
 2015
 2014
Net cash flows from operating activities(1)
$541
 $970
 $573
$3,618
 $3,125
 $541
Cash flows from investing activities          
Net change in short-term investments
 (1) 
Net derivative instruments settlements
 
 (1)
Capital contribution
 (133) 
(2,330) (2,670) 
Net cash flows used for investing activities
 (134) (1)(2,330) (2,670) 
Cash flows from financing activities          
Dividends paid on Common Shares(862) (517) (815)(1,173) (862) (862)
Proceeds from issuance of short-term debt
 
 130
Repayment of short-term debt
 
 (130)
Proceeds from share-based compensation plans
 14
 34
Advances (to) from affiliates260
 (621) 206
404
 (228) 260
Net proceeds from affiliated notional cash pooling programs(2)
61
 185
 
Net proceeds from (payments to) affiliated notional cash pooling programs(2)
(519) 636
 61
Net cash flows used for financing activities(541) (939) (575)(1,288) (454) (541)
Net decrease in cash
 (103) (3)
Net increase in cash
 1
 
Cash – beginning of year
 103
 106
1
 
 
Cash – end of year$
 $
 $103
$1
 $1
 $
          
(1) Includes cash dividends received from subsidiaries of $300 million, $825 million, and $450 million in 2014, 2013, and 2012, respectively.
(2) ACE maintains two notional multicurrency cash pools (Pools) with a third-party bank. Refer to Note 1 f) for additional information. At December 31, 2014 and 2013, the cash balance of one or more entities was negative; however, the overall Pool balances were positive.
(1) Includes cash dividends received from subsidiaries of $3.4 billion, $2.9 billion, and $300 million in 2016, 2015, and 2014, respectively.
(1) Includes cash dividends received from subsidiaries of $3.4 billion, $2.9 billion, and $300 million in 2016, 2015, and 2014, respectively.
(2) Chubb maintains two notional multicurrency cash pools (Pools) with a third-party bank. Refer to Note 1 f) for additional information.
(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.
   


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SCHEDULE IV
ACEChubb Limited and Subsidiaries

SUPPLEMENTAL INFORMATION CONCERNING REINSURANCE
Premiums EarnedPremiums Earned       Premiums Earned       
For the years ended December 31, 2014, 2013, and 2012 (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
For the years ended December 31, 2016, 2015, and 2014 (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
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%
2014                    
Property and Casualty $14,784
 $4,940
 $2,923
 $12,767
 23% $14,784
 $4,940
 $2,923
 $12,767
 23%
Accident and Health 3,971
 434
 141
 3,678
 4% 3,971
 434
 141
 3,678
 4%
Life 800
 91
 272
 981
 28% 800
 91
 272
 981
 28%
Total $19,555
 $5,465
 $3,336
 $17,426
 19% $19,555
 $5,465
 $3,336
 $17,426
 19%
2013          
Property and Casualty $14,286
 $5,160
 $3,015
 $12,141
 25%
Accident and Health 3,885
 486
 168
 3,567
 5%
Life 685
 76
 296
 905
 33%
Total $18,856
 $5,722
 $3,479
 $16,613
 21%
2012          
Property and Casualty $13,395
 $4,918
 $2,788
 $11,265
 25%
Accident and Health 3,751
 442
 190
 3,499
 5%
Life 656
 67
 324
 913
 35%
Total $17,802
 $5,427
 $3,302
 $15,677
 21%




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SCHEDULE VI
ACEChubb Limited and Subsidiaries

SUPPLEMENTARY INFORMATION CONCERNING PROPERTY AND CASUALTY OPERATIONS
As of and for the years ended December 31, 2014, 2013, and 2012 (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
       Current Year
 Prior Year
   
2014 $2,057  $27,008
 $8,222
 $16,445
 $2,071
 $10,176
 $(527) $2,805
 $9,235
 $16,787
2013 $1,865  $26,831
 $7,539
 $15,708
 $1,977
 $9,878
 $(530) $2,447
 $8,977
 $16,069
2012 $1,757  $26,547
 $6,864
 $14,764
 $2,018
 $10,132
 $(479) $2,254
 $9,219
 $15,107
As of and for the years ended December 31, 2016, 2015, and 2014 (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 (1)

 Net Paid Losses and Loss Expenses
 Net Premiums Written
       Current Year
 Prior Year
   
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
2014 $2,057  $27,008
 $8,222
 $16,445
 $2,071
 $10,176
 $(527) $2,805
 $9,235
 $16,787
(1) 2016 includes $1,559 million of amortization of the Unearned Premium Reserve (UPR) intangible asset established in connection with the Chubb Corp acquisition. This UPR intangible asset was amortized through Policy acquisition costs in the Consolidated statement of operations.



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