Table of Contents


UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2016

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
CHUBB 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)
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 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 Exchange Act).
YES  ¨                                                 NO   þ
The number of registrant’s Common Shares (CHF 24.15 par value) outstanding as of July 22, 2016 was 465,079,457 .

Table of Contents

CHUBB LIMITED
INDEX TO FORM 10-Q



 
 
 
 
Page
Part I.
FINANCIAL INFORMATION
 
Item 1.
 
 
 
 
 
 
 
 
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.
Item 2.
Item 3.
Item 4.
 
 
 
Part II.
OTHER INFORMATION
 
Item 1.
Item 1A.
Item 2.
Item 6.



2
Table of Contents

PART I FINANCIAL INFORMATION

ITEM 1. Financial Statements

CONSOLIDATED BALANCE SHEETS (Unaudited)
Chubb Limited and Subsidiaries
 
June 30

 
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 – $ 77,436  and $43,149)
$
79,951

 
$
43,587

    (includes hybrid financial instruments of $ 2  and $31)
Fixed maturities held to maturity, at amortized cost (fair value – $11,581 and $8,552)
11,090

 
8,430

Equity securities, at fair value (cost – $ 703  and $441)
787

 
497

Short-term investments, at fair value and amortized cost
3,631

 
10,446

Other investments (cost – $ 4,152  and $2,993)
4,387

 
3,291

Total investments
99,846

 
66,251

Cash
1,011

 
1,775

Securities lending collateral
1,142

 
1,046

Accrued investment income
919

 
513

Insurance and reinsurance balances receivable
8,532

 
5,323

Reinsurance recoverable on losses and loss expenses
13,235

 
11,386

Reinsurance recoverable on policy benefits
199

 
187

Deferred policy acquisition costs
3,948

 
2,873

Value of business acquired
381

 
395

Goodwill
15,525

 
4,796

Other intangible assets
7,398

 
887

Prepaid reinsurance premiums
2,464

 
2,082

Deferred tax assets
—

 
318

Investments in partially-owned insurance companies
658

 
653

Other assets
4,945

 
3,821

Total assets
$
160,203

 
$
102,306

Liabilities
 
 
 
Unpaid losses and loss expenses
$
60,819

 
$
37,303

Unearned premiums
15,229

 
8,439

Future policy benefits
4,975

 
4,807

Insurance and reinsurance balances payable
4,944

 
4,270

Securities lending payable
1,143

 
1,047

Accounts payable, accrued expenses, and other liabilities
9,614

 
6,205

Deferred tax liabilities
1,409

 
—

Repurchase agreements
1,405

 
1,404

Short-term debt
500

 
—

Long-term debt
12,631

 
9,389

Trust preferred securities
308

 
307

Total liabilities
112,977

 
73,171

Commitments and contingencies

 

Shareholders’ equity
 
 
 
Common Shares (CHF 24.15 par value; 479,783,864 and 342,832,412 shares issued; 465,012,980 and 324,563,441 shares outstanding)
11,121

 
7,833

Common Shares in treasury ( 14,770,884  and 18,268,971 shares)
(1,577
)
 
(1,922
)
Additional paid-in capital
15,858

 
4,481

Retained earnings
20,643

 
19,478

Accumulated other comprehensive income (loss) (AOCI)
1,181

 
(735
)
Total shareholders’ equity
47,226

 
29,135

Total liabilities and shareholders’ equity
$
160,203

 
$
102,306

See accompanying notes to the consolidated financial statements


3


Table of Contents

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (Unaudited)
Chubb Limited and Subsidiaries

 
Three Months Ended
 
 
Six Months Ended
 
 
June 30
 
 
June 30
 
(in millions of U.S. dollars, except per share data)
2016

 
2015

 
2016

 
2015

Revenues
 
 
 
 
 
 
 
Net premiums written
$
7,639

 
$
4,784

 
$
13,634

 
$
8,860

Decrease (increase) in unearned premiums
(234
)
 
(424
)
 
368

 
(573
)
Net premiums earned
7,405

 
4,360

 
14,002

 
8,287

Net investment income
708

 
562

 
1,382

 
1,113

Net realized gains (losses):
 
 
 
 

 
 
Other-than-temporary impairment (OTTI) losses gross
(16
)
 
(14
)
 
(87
)
 
(27
)
Portion of OTTI losses recognized in other comprehensive income (OCI)
—

 
6

 
8

 
6

Net OTTI losses recognized in income
(16
)
 
(8
)
 
(79
)
 
(21
)
Net realized gains (losses) excluding OTTI losses
(200
)
 
134

 
(531
)
 
58

Total net realized gains (losses) (includes $2, $34, $(150), and $31 reclassified from AOCI)
(216
)
 
126

 
(610
)
 
37

Total revenues
7,897

 
5,048

 
14,774

 
9,437

Expenses
 
 
 
 
 
 
 
Losses and loss expenses
4,254

 
2,417

 
7,928

 
4,539

Policy benefits
146

 
153

 
272

 
295

Policy acquisition costs
1,560

 
727

 
2,973

 
1,434

Administrative expenses
829

 
578

 
1,601

 
1,132

Interest expense
153

 
71

 
299

 
139

Other (income) expense
(29
)
 
(38
)
 
(1
)
 
(73
)
Amortization of purchased intangibles
5

 
55

 
12

 
85

Chubb integration expenses
98

 
—

 
246

 
—

Total expenses
7,016

 
3,963

 
13,330

 
7,551

Income before income tax
881

 
1,085

 
1,444

 
1,886

Income tax expense (includes $6, $10, $5 and $14 on reclassified unrealized gains and losses)
155

 
143

 
279

 
263

Net income
$
726

 
$
942

 
$
1,165

 
$
1,623

Other comprehensive income (loss)
 
 
 
 
 
 
 
Unrealized appreciation (depreciation)
$
947

 
$
(816
)
 
$
1,852

 
$
(375
)
Reclassification adjustment for net realized (gains) losses included in net income
(2
)
 
(34
)
 
150

 
(31
)
 
945

 
(850
)
 
2,002

 
(406
)
Change in:
 
 
 
 
 
 
 
Cumulative translation adjustment
81

 
136

 
393

 
(285
)
Pension liability
1

 
(6
)
 
3

 
7

Other comprehensive income (loss), before income tax
1,027

 
(720
)
 
2,398

 
(684
)
Income tax (expense) benefit related to OCI items
(213
)
 
175

 
(482
)
 
100

Other comprehensive income (loss)
814

 
(545
)
 
1,916

 
(584
)
Comprehensive income
$
1,540

 
$
397

 
$
3,081

 
$
1,039

Earnings per share
 
 
 
 
 
 
 
Basic earnings per share
$
1.55

 
$
2.89

 
$
2.55

 
$
4.97

Diluted earnings per share
$
1.54

 
$
2.86

 
$
2.53

 
$
4.91

See accompanying notes to the consolidated financial statements


4
Table of Contents

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)
Chubb Limited and Subsidiaries

 
Six Months Ended
 
 
June 30
 
(in millions of U.S. dollars)
2016

 
2015

Common Shares
 
 
 
Balance – beginning of period
$
7,833

 
$
8,055

Shares issued for Chubb Corp acquisition
3,288

 
—

Dividends declared on Common Shares – par value reduction
—

 
(222
)
Balance – end of period
11,121

 
7,833

Common Shares in treasury
 
 
 
Balance – beginning of period
(1,922
)
 
(1,448
)
Common Shares repurchased
—

 
(734
)
Net shares redeemed under employee share-based compensation plans
345

 
183

Balance – end of period
(1,577
)
 
(1,999
)
Additional paid-in capital
 
 
 
Balance – beginning of period
4,481

 
5,145

Shares issued for Chubb Corp acquisition
11,916

 
—

Equity awards assumed in Chubb Corp acquisition
323

 
—

Net shares redeemed under employee share-based compensation plans
(358
)
 
(163
)
Exercise of stock options
(37
)
 
(29
)
Share-based compensation expense and other
170

 
111

Funding of dividends declared to Retained earnings
(637
)
 
(217
)
Balance – end of period
15,858

 
4,847

Retained earnings
 
 
 
Balance – beginning of period
19,478

 
16,644

Net income
1,165

 
1,623

Funding of dividends declared from Additional paid-in capital
637

 
217

Dividends declared on Common Shares
(637
)
 
(217
)
Balance – end of period
20,643

 
18,267

Accumulated other comprehensive income (loss)
 
 
 
Net unrealized appreciation on investments
 
 
 
Balance – beginning of period
874

 
1,851

Change in period, before reclassification from AOCI, net of income tax benefit (expense) of $(477) and $81
1,375

 
(294
)
Amounts reclassified from AOCI, net of income tax benefit of $5 and $14
155

 
(17
)
Change in period, net of income tax benefit (expense) of $(472) and $95
1,530

 
(311
)
Balance – end of period
2,404

 
1,540

Cumulative translation adjustment
 
 
 
Balance – beginning of period
(1,539
)
 
(581
)
Change in period, net of income tax benefit (expense) of $(11) and $7
382

 
(278
)
Balance – end of period
(1,157
)
 
(859
)
Pension liability adjustment
 
 
 
Balance – beginning of period
(70
)
 
(79
)
Change in period, net of income tax benefit (expense) of $1 and $(2)
4

 
5

Balance – end of period
(66
)
 
(74
)
Accumulated other comprehensive income
1,181

 
607

Total shareholders’ equity
$
47,226

 
$
29,555

See accompanying notes to the consolidated financial statements


5


Table of Contents

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Chubb Limited and Subsidiaries


 
Six Months Ended June 30
 
(in millions of U.S. dollars)
2016

 
2015

Cash flows from operating activities
 
 
 
Net income
$
1,165

 
$
1,623

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

 

Net realized (gains) losses
610

 
(37
)
Amortization of premiums/discounts on fixed maturities
376

 
71

Amortization of UPR related to the Chubb Corp acquisition
1,095

 
—

Deferred income taxes
48

 
108

Unpaid losses and loss expenses
330

 
(87
)
Unearned premiums
(382
)
 
420

Future policy benefits
106

 
114

Insurance and reinsurance balances payable
193

 
532

Accounts payable, accrued expenses, and other liabilities
18

 
48

Income taxes payable
67

 
(120
)
Insurance and reinsurance balances receivable
(238
)
 
(332
)
Reinsurance recoverable on losses and loss expenses
(17
)
 
55

Reinsurance recoverable on policy benefits
(11
)
 
16

Deferred policy acquisition costs
(1,042
)
 
(236
)
Prepaid reinsurance premiums
12

 
(261
)
Other
(177
)
 
(23
)
Net cash flows from operating activities
2,153

 
1,891

Cash flows from investing activities
 
 
 
Purchases of fixed maturities available for sale
(17,077
)
 
(9,179
)
Purchases of to be announced mortgage-backed securities
—

 
(31
)
Purchases of fixed maturities held to maturity
(121
)
 
(24
)
Purchases of equity securities
(78
)
 
(70
)
Sales of fixed maturities available for sale
11,868

 
3,611

Sales of to be announced mortgage-backed securities
—

 
31

Sales of equity securities
932

 
102

Maturities and redemptions of fixed maturities available for sale
3,910

 
3,691

Maturities and redemptions of fixed maturities held to maturity
443

 
470

Net change in short-term investments
11,711

 
228

Net derivative instruments settlements
(93
)
 
(33
)
Acquisition of subsidiaries (net of cash acquired of $71 and $620)
(14,248
)
 
255

Other
81

 
(71
)
Net cash flows used for investing activities
(2,672
)
 
(1,020
)
Cash flows from financing activities
 
 
 
Dividends paid on Common Shares
(530
)
 
(427
)
Common Shares repurchased
—

 
(750
)
Proceeds from issuance of long-term debt
—

 
800

Proceeds from issuance of repurchase agreements
904

 
1,327

Repayment of long-term debt
—

 
(450
)
Repayment of repurchase agreements
(902
)
 
(1,327
)
Proceeds from share-based compensation plans, including windfall tax benefits
92

 
46

Policyholder contract deposits
274

 
235

Policyholder contract withdrawals
(103
)
 
(107
)
Other
(4
)
 
(6
)
Net cash flows used for financing activities
(269
)
 
(659
)
Effect of foreign currency rate changes on cash and cash equivalents
24

 
(77
)
Net (decrease) increase in cash
(764
)
 
135

Cash – beginning of period
1,775

 
655

Cash – end of period
$
1,011

 
$
790

Supplemental cash flow information
 
 
 
Taxes paid
$
259

 
$
263

Interest paid
$
319

 
$
127

See accompanying notes to the consolidated financial statements


6
Table of Contents

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



1 . General

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 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. Chubb Limited, through its subsidiaries, provides a broad range of insurance and reinsurance products to insureds worldwide. Effective the first quarter of 2016, our results are reported through the following business segments: North America Commercial P&C Insurance, North America Personal P&C Insurance, North America Agricultural Insurance, Overseas General Insurance, Global Reinsurance, and Life Insurance. 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. Refer to Note 12 for additional information.

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

The results of operations and cash flows of Chubb Corp are included from the acquisition date forward (i.e., after January 14, 2016). The results of operations and cash flows for any interim period are not necessarily indicative of the results for the full year. These consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in our 2015 Form 10-K.

b) Accounting guidance 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. 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.
 
c) 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.

Short-Duration Contracts
In May 2015, the FASB issued guidance that requires additional disclosures for short-duration insurance contracts. New disclosure will be required to 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. The guidance is effective for us beginning with our 2016 annual reporting on Form 10-K. The guidance requires a change in disclosure only and adoption of this guidance will not have an impact on our financial condition or results of operations.



7



Table of Contents



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 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 and 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 available for sale (AFS) 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 credit loss exists. The AFS debt security model will also require the use of a valuation allowance.

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 impact of adopting this guidance on our financial condition and results of operations closer to the date of adoption.

Stock Compensation
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, entities can elect to account for forfeitures related to share-based payments either as they occur or through an estimation method. If elected, the change to recognize forfeitures as they occur would be adopted using a modified retrospective approach, with a cumulative effect adjustment recorded to retained earnings. The updated guidance is effective for us in the first quarter of 2017 with early adoption permitted. We are in the process of evaluating the effect the updated guidance will have on our financial condition and results of operations.






8
Table of Contents

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



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 approximately $323 million . The total consideration, including the 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, which were issued in November 2015. Refer to Note 7 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. The 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 are expected to add to our presence and capabilities and position 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.


9


Table of Contents

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


The table below details the purchase consideration and preliminary allocation of assets acquired and liabilities assumed. During the second quarter of 2016, we reassessed certain components of our preliminary estimates of assets acquired and liabilities assumed, including the net realizable value for Reinsurance recoverables on losses and loss expenses and Insurance and reinsurance balances receivables and certain components of the Deferred tax liabilities, which resulted in an adjustment to our preliminary estimates that increased Goodwill by $81 million. These estimates remain preliminary and are subject to adjustment. While they are not expected to be materially different than those shown, any material adjustments to the estimates will be reflected, retroactively, as of the date of the acquisition.
 
 
(in millions, except per share data)
 
Purchase consideration
 
Chubb Limited common shares
 
Chubb Corp common shares outstanding
228

Per share exchange ratio
0.6019

Common shares issued by Chubb Limited
137

Common share price of Chubb Limited at January 14, 2016
$
111.02

Fair value of common shares issued by Chubb Limited to common shareholders of Chubb Corp
$
15,204

Cash consideration
 
Chubb Corp common shares outstanding
228

Agreed cash price per share paid to common shareholders of Chubb Corp
$
62.93

Cash consideration paid by Chubb Limited to common shareholders of Chubb Corp
$
14,319

Stock-based awards
 
Fair value of equity awards issued (1)
$
323

Fair value of purchase consideration
$
29,846

Preliminary estimate of assets acquired and (liabilities) assumed
 
Cash
$
71

Investments
42,967

Accrued investment income
337

Insurance and reinsurance balances receivable
2,981

Reinsurance recoverable on losses and loss expenses
1,650

Indefinite lived intangible assets
2,860

Finite lived intangible assets
4,795

Prepaid reinsurance premiums
280

Other assets
863

Unpaid losses and loss expenses
(22,906
)
Unearned premium
(7,033
)
Insurance and reinsurance balances payable
(511
)
Accounts payable, accrued expenses, and other liabilities
(1,935
)
Deferred tax liabilities
(1,334
)
Long-term debt
(3,765
)
Total identifiable net assets acquired
19,320

Goodwill
10,526

Purchase price
$
29,846

(1)  
The estimated 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 10 for further information on these replacement equity awards.
Direct costs related to the Chubb Corp acquisition were expensed as incurred. Chubb integration expenses were $ 98 million and $ 246 million for the three and six months ended June 30, 2016, respectively, and include all internal and external costs


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


directly related to the integration activities of the Chubb Corp acquisition, primarily personnel-related expenses, including severance and employee retention and relocation; consulting fees; and advisor fees.
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, indefinite lived intangible assets of $ 2.9 billion and finite lived intangible assets of $ 4.8 billion , which will be amortized over their estimated useful lives, ranging from one to 24 years. Refer to Note 6 for additional information.

The following table summarizes the results of the acquired Chubb Corp operations since the acquisition date that have been included within our Consolidated statements of income:
(in millions of U.S. dollars)
Three Months Ended June 30, 2016

 
January 14, 2016 to June 30, 2016

Total revenues
$
2,745

 
$
5,232

Net income
$
326

 
$
581

The following table provides supplemental unaudited pro forma consolidated information for the three and six months ended June 30, 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.
 
Three Months Ended
 
 
Six Months Ended
 
 
June 30
 
 
June 30
 
(in millions of U.S. dollars, except per share data)
2016

 
2015

 
2016

 
2015

Total revenues
$
7,915

 
$
8,378

 
$
15,237

 
$
16,073

Net income
$
712

 
$
1,199

 
$
1,246

 
$
2,158

Earnings per share
 
 
 
 
 
 
 
Basic earnings per share
$
1.52

 
$
2.57

 
$
2.67

 
$
4.62

Diluted earnings per share
$
1.51

 
$
2.55

 
$
2.65

 
$
4.57


Prior year acquisition

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. During the third quarter of 2015, we recorded an adjustment to the valuation of our other intangible assets. The acquisition expanded our position in the high net worth personal lines insurers in the U.S. The Fireman’s Fund business was integrated into our existing high net worth personal lines business, offering a broad range of coverage including homeowners, automobile, umbrella and excess liability, collectibles, and yachts. Goodwill and other intangible assets arising from this acquisition are included in our North America Personal P&C Insurance segment.

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




11


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Chubb Limited and Subsidiaries


3 . Investments

a) Fixed maturities
 
June 30, 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
$
2,595

 
$
103

 
$
—

 
$
2,698

 
$
—

Foreign
21,633

 
916

 
(69
)
 
22,480

 
(13
)
Corporate securities
21,714

 
846

 
(125
)
 
22,435

 
(16
)
Mortgage-backed securities
12,369

 
400

 
(5
)
 
12,764

 
(1
)
States, municipalities, and political subdivisions
19,125

 
454

 
(5
)
 
19,574

 
—

 
$
77,436

 
$
2,719

 
$
(204
)
 
$
79,951

 
$
(30
)
Held to maturity
 
 
 
 
 
 
 
 
 
U.S. Treasury and agency
$
686

 
$
30

 
$
—

 
$
716

 
$
—

Foreign
730

 
44

 
(1
)
 
773

 
—

Corporate securities
2,882

 
137

 
(4
)
 
3,015

 
—

Mortgage-backed securities
1,600

 
77

 
(1
)
 
1,676

 
—

States, municipalities, and political subdivisions
5,192

 
209

 
—

 
5,401

 
—

 
$
11,090

 
$
497

 
$
(6
)
 
$
11,581

 
$
—


December 31, 2015
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
$
2,481

 
$
52

 
$
(5
)
 
$
2,528

 
$
—

Foreign
13,190

 
468

 
(213
)
 
13,445

 
(13
)
Corporate securities
15,028

 
355

 
(454
)
 
14,929

 
(28
)
Mortgage-backed securities
9,827

 
183

 
(52
)
 
9,958

 
(1
)
States, municipalities, and political subdivisions
2,623

 
110

 
(6
)
 
2,727

 
—

 
$
43,149

 
$
1,168

 
$
(730
)
 
$
43,587

 
$
(42
)
Held to maturity
 
 
 
 
 
 
 
 
 
U.S. Treasury and agency
$
733

 
$
13

 
$
(1
)
 
$
745

 
$
—

Foreign
763

 
30

 
(8
)
 
785

 
—

Corporate securities
3,054

 
57

 
(55
)
 
3,056

 
—

Mortgage-backed securities
1,707

 
38

 
(2
)
 
1,743

 
—

States, municipalities, and political subdivisions
2,173

 
52

 
(2
)
 
2,223

 
—

 
$
8,430

 
$
190

 
$
(68
)
 
$
8,552

 
$
—


As discussed in Note 3 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 Unrealized appreciation (depreciation) in the Consolidated statement of shareholders’ equity. For the three and six months ended June 30, 2016 , $ 21 million and $ 44 million , respectively, of net unrealized appreciation related to such securities is included in OCI. For the three and six months ended June 30, 2015, nil and $4 million , respectively, of net unrealized appreciation related to such securities is included in OCI. At June 30, 2016 and December 31, 2015 , AOCI included


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


cumulative net unrealized depreciation of $3 million and $35 million, respectively, related to securities remaining in the investment portfolio for which a non-credit OTTI was recognized.

Mortgage-backed securities (MBS) issued by U.S. government agencies are combined with all other to be announced mortgage derivatives held (refer to Note 8 c) (iv)) and are included in the category, “Mortgage-backed securities.” Approximately 79 percent and 81 percent of the total mortgage-backed securities at June 30, 2016 and December 31, 2015 , respectively, are represented by investments in U.S. government agency bonds. The remainder of the mortgage exposure consists of collateralized mortgage obligations and non-government mortgage-backed securities, the majority of which provide a planned structure for principal and interest payments and carry a rating of AAA by the major credit rating agencies.

The following table presents fixed maturities by contractual maturity:
 
 
 
June 30

 
 
 
December 31

 
 
 
2016

 
 
 
2015

(in millions of U.S. dollars)
Amortized Cost

 
Fair Value

 
Amortized Cost

 
Fair Value

Available for sale
 
 
 
 
 
 
 
Due in 1 year or less
$
3,485

 
$
3,501

 
$
1,856

 
$
1,865

Due after 1 year through 5 years
25,540

 
26,174

 
14,936

 
15,104

Due after 5 years through 10 years
25,905

 
26,685

 
12,258

 
12,173

Due after 10 years
10,137

 
10,827

 
4,272

 
4,487

 
65,067

 
67,187

 
33,322

 
33,629

Mortgage-backed securities
12,369

 
12,764

 
9,827

 
9,958

 
$
77,436

 
$
79,951

 
$
43,149

 
$
43,587

Held to maturity
 
 
 
 
 
 
 
Due in 1 year or less
$
368

 
$
372

 
$
492

 
$
495

Due after 1 year through 5 years
2,614

 
2,716

 
2,443

 
2,517

Due after 5 years through 10 years
2,942

 
3,063

 
2,292

 
2,313

Due after 10 years
3,566

 
3,754

 
1,496

 
1,484

 
9,490

 
9,905

 
6,723

 
6,809

Mortgage-backed securities
1,600

 
1,676

 
1,707

 
1,743

 
$
11,090

 
$
11,581

 
$
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. 

b) Equity securities

June 30


December 31

(in millions of U.S. dollars)
2016


2015

Cost
$
703

 
$
441

Gross unrealized appreciation
103

 
74

Gross unrealized depreciation
(19
)
 
(18
)
Fair value
$
787

 
$
497


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, Chubb 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


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


portion of OTTI related to all other factors is recognized in OCI. For fixed maturities held to maturity, OTTI recognized in OCI is accreted from AOCI to the amortized cost of the fixed maturity prospectively over the remaining term of the securities.

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

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

•
the amount of time a security has been in a loss position and the magnitude of the loss position;
•
the period in which cost is expected to be recovered, if at all, based on various criteria including economic conditions and other issuer-specific developments; and
•
Our ability and intent to hold the security to the expected recovery period.

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

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.

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

For the three and six months ended June 30, 2016 , credit losses recognized in Net income for corporate securities were $7 million and $ 24 million , respectively. For the three and six months ended June 30, 2015 , credit losses recognized in Net income for corporate securities were $5 million and $ 9 million , respectively.

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.

For the three and six months ended June 30, 2016 and 2015 , there were no credit losses recognized in Net income for mortgage-backed securities.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited)
Chubb 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”:
 
Three Months Ended
 
Six Months Ended
 
 
June 30
 
June 30
 
(in millions of U.S. dollars)
2016

 
2015

2016

 
2015

Fixed maturities:
 
 
 
 
 
 
OTTI on fixed maturities, gross
$
(11
)
 
$
(13
)
$
(78
)
 
$
(26
)
OTTI on fixed maturities recognized in OCI (pre-tax)
—

 
6

8

 
6

OTTI on fixed maturities, net
(11
)
 
(7
)
(70
)

(20
)
Gross realized gains excluding OTTI
37

 
28

102

 
72

Gross realized losses excluding OTTI
(19
)
 
(16
)
(215
)
 
(51
)
Total fixed maturities
7

 
5

(183
)

1

Equity securities:
 
 
 
 
 
 
OTTI on equity securities
(5
)
 
(1
)
(6
)
 
(1
)
Gross realized gains excluding OTTI
4

 
30

44

 
33

Gross realized losses excluding OTTI
(4
)
 
—

(5
)
 
(2
)
Total equity securities
(5
)
 
29

33


30

OTTI on other investments
—

 
—

(3
)
 
—

Foreign exchange gains (losses)
(22
)
 
(40
)
17

 
(71
)
Investment and embedded derivative instruments
(47
)
 
27

(86
)
 
28

Fair value adjustments on insurance derivative
(131
)
 
104

(359
)
 
59

S&P put options and futures
(28
)
 
(2
)
(43
)
 
(14
)
Other derivative instruments
—

 
(1
)
(2
)
 
(1
)
Other
10

 
4

16

 
5

Net realized gains (losses)
$
(216
)
 
$
126

$
(610
)

$
37

 
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:  
 
Three Months Ended
 
Six Months Ended
 
 
June 30
 
June 30
 
(in millions of U.S. dollars)
2016

 
2015

2016

 
2015

Balance of credit losses related to securities still held – beginning of period
$
57

 
$
22

$
53

 
$
28

Additions where no OTTI was previously recorded
1

 
4

12

 
7

Additions where an OTTI was previously recorded
6

 
1

12

 
2

Reductions for securities sold during the period
(13
)
 
(4
)
(26
)
 
(14
)
Balance of credit losses related to securities still held – end of period
$
51

 
$
23

$
51


$
23


d) Gross unrealized loss
At June 30, 2016 , there were 4,157 fixed maturities out of a total of 30,835 fixed maturities in an unrealized loss position. The largest single unrealized loss in the fixed maturities was $4 million . There were 93 equity securities out of a total of 297 equity securities in an unrealized loss position. The largest single unrealized loss in the equity securities was $2 million . Fixed maturities in an unrealized loss position at June 30, 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.



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Chubb Limited and Subsidiaries


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
 
June 30, 2016
Fair Value

 
Gross
Unrealized
Loss

 
Fair Value

 
Gross
Unrealized
Loss

 
Fair Value

 
Gross
Unrealized
Loss

(in millions of U.S. dollars)
 
 
 
 
 
Foreign
$
2,266

 
$
(27
)
 
$
673

 
$
(43
)
 
$
2,939

 
$
(70
)
Corporate securities
2,855

 
(61
)
 
1,047

 
(68
)
 
3,902

 
(129
)
Mortgage-backed securities
481

 
(3
)
 
414

 
(3
)
 
895

 
(6
)
States, municipalities, and political subdivisions
1,308

 
(4
)
 
60

 
(1
)
 
1,368

 
(5
)
Total fixed maturities
6,910

 
(95
)
 
2,194

 
(115
)
 
9,104

 
(210
)
Equity securities
186

 
(19
)
 
—

 
—

 
186

 
(19
)
Other investments
280

 
(27
)
 
—

 
—

 
280

 
(27
)
Total
$
7,376

 
$
(141
)
 
$
2,194

 
$
(115
)
 
$
9,570

 
$
(256
)
 
 
0 – 12 Months
 
 
Over 12 Months
 
 
Total
 
December 31, 2015
Fair Value

 
Gross
Unrealized
Loss

 
Fair Value

 
Gross
Unrealized
Loss

 
Fair Value

 
Gross
Unrealized
Loss

(in millions of U.S. dollars)
 
 
 
 
 
U.S. Treasury and agency
$
996

 
$
(5
)
 
$
153

 
$
(1
)
 
$
1,149

 
$
(6
)
Foreign
3,953

 
(148
)
 
436

 
(73
)
 
4,389

 
(221
)
Corporate securities
7,518

 
(371
)
 
738

 
(138
)
 
8,256

 
(509
)
Mortgage-backed securities
3,399

 
(42
)
 
516

 
(12
)
 
3,915

 
(54
)
States, municipalities, and political subdivisions
556

 
(6
)
 
42

 
(2
)
 
598

 
(8
)
Total fixed maturities
16,422

 
(572
)
 
1,885

 
(226
)
 
18,307

 
(798
)
Equity securities
131

 
(18
)
 
—

 
—

 
131

 
(18
)
Other investments
210

 
(11
)
 
—

 
—

 
210

 
(11
)
Total
$
16,763

 
$
(601
)
 
$
1,885

 
$
(226
)
 
$
18,648

 
$
(827
)

e) Restricted assets
Chubb is required to maintain assets on deposit with various regulatory authorities to support its insurance and reinsurance operations. These requirements are generally promulgated in the statutory regulations of the individual jurisdictions. The assets on deposit are available to settle insurance and reinsurance liabilities. Chubb is also required to restrict assets pledged under repurchase agreements, which represent Chubb's agreement to sell securities and repurchase them at a future date for a predetermined price. 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 June 30, 2016 and December 31, 2015 , are investments, primarily fixed maturities, totaling $18.6 billion and $16.9 billion, respectively, and cash of $80 million and $110 million, respectively.
The following table presents the components of restricted assets:
 
June 30

 
December 31

(in millions of U.S. dollars)
2016

 
2015

Trust funds
$
12,271

 
$
11,862

Deposits with non-U.S. regulatory authorities
2,340

 
2,075

Deposits with U.S. regulatory authorities
2,241

 
1,242

Assets pledged under repurchase agreements
1,457

 
1,459

Other pledged assets
409

 
392

 
$
18,718

 
$
17,030



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Chubb Limited and Subsidiaries


4 . Fair value measurements

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

•
Level 1 – Unadjusted quoted prices for identical assets or liabilities in active markets;
•
Level 2 – Includes, among other items, inputs other than quoted prices that are observable for the asset or liability such as
interest rates and yield curves, quoted prices for similar assets and liabilities in active markets, and quoted prices for identical or similar assets and liabilities in markets that are not active; and
•
Level 3 – Inputs that are unobservable and reflect management’s judgments about assumptions that market participants
would use in pricing an asset or liability.

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

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

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

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



17


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited)
Chubb 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) and are excluded from the fair value hierarchy table below. Certain of our long-duration contracts are supported by assets that do not qualify for separate account reporting under GAAP. These assets comprise mutual funds classified within Level 1 in the valuation hierarchy on the same basis as other equity securities traded in active markets. Other investments also include equity securities classified within Level 1, and fixed maturities, classified within Level 2, held in rabbi trusts maintained by Chubb for deferred compensation plans, and are classified within the valuation hierarchy on the same basis as other equity securities and fixed maturities. Other investments for which pricing is unobservable are classified within Level 3.

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

Investment derivative instruments
Actively traded investment derivative instruments, including futures, options, and forward contracts are classified within Level 1 as fair values are based on quoted market prices. The fair value of cross-currency swaps 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 consolidated balance sheets.

Other derivative instruments
We generally maintain positions in other derivative instruments including exchange-traded equity futures contracts and option contracts designed to limit exposure to a severe equity market decline, which would cause an increase in expected claims and, therefore, an increase in reserves for our guaranteed minimum death benefits (GMDB) and guaranteed living benefits (GLB) reinsurance business. Our position in exchange-traded equity futures contracts is classified within Level 1. At June 30, 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 consolidated balance sheets.

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

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


18
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited)
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.

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.

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. For the three and six months ended June 30, 2016 and 2015, no material technical refinements were made to the model. For detailed information on our lapse and annuitization rate assumptions, refer to Note 4 to the Consolidated Financial Statements of our 2015 Form 10-K.

Financial instruments measured at fair value on a recurring basis, by valuation hierarchy
June 30, 2016
Level 1

 
Level 2

 
Level 3

 
Total

(in millions of U.S. dollars)
 
 
 
Assets:
 
 
 
 
 
 
 
Fixed maturities available for sale
 
 
 
 
 
 
 
U.S. Treasury and agency
$
2,155

 
$
543

 
$
—

 
$
2,698

Foreign
—

 
22,393

 
87

 
22,480

Corporate securities
—

 
22,154

 
281

 
22,435

Mortgage-backed securities
—

 
12,715

 
49

 
12,764

States, municipalities, and political subdivisions
—

 
19,574

 
—

 
19,574

 
2,155

 
77,379

 
417

 
79,951

Equity securities
750

 
—

 
37

 
787

Short-term investments
2,321

 
1,260

 
50

 
3,631

Other investments (1)
369

 
240

 
216

 
825

Securities lending collateral
—

 
1,142

 
—

 
1,142

Investment derivative instruments
18

 
—

 
—

 
18

Other derivative instruments
7

 
—

 
—

 
7

Separate account assets
1,592

 
95

 
—

 
1,687

Total assets measured at fair value (1)
$
7,212

 
$
80,116

 
$
720

 
$
88,048

Liabilities:
 
 
 
 
 
 
 
Investment derivative instruments
$
71

 
$
—

 
$
—

 
$
71

Other derivative instruments
4

 
—

 
10

 
14

GLB (2)
—

 
—

 
971

 
971

Total liabilities measured at fair value
$
75

 
$
—

 
$
981

 
$
1,056

(1)  
Excluded from the table above are partially-owned investments, investment funds, and limited partnerships of $ 3,537 million and other investments of $ 25 million at June 30, 2016 measured using NAV as a practical expedient.
(2)  
Our GLB reinsurance product meets the definition of a derivative instrument for accounting purposes and is accordingly carried at fair value. Excluded from the table above is the portion of the GLB derivative liability classified as Future policy benefits in the consolidated balance sheets. Refer to Note 5 for additional information.


19


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


 
December 31, 2015
Level 1

 
Level 2

 
Level 3

 
Total

(in millions of U.S. dollars)
 
 
 
Assets:
 
 
 
 
 
 
 
Fixed maturities available for sale
 
 
 
 
 
 
 
U.S. Treasury and agency
$
1,712

 
$
816

 
$
—

 
$
2,528

Foreign
—

 
13,388

 
57

 
13,445

Corporate securities
—

 
14,755

 
174

 
14,929

Mortgage-backed securities
—

 
9,905

 
53

 
9,958

States, municipalities, and political subdivisions
—

 
2,727

 
—

 
2,727

 
1,712

 
41,591

 
284

 
43,587

Equity securities
481

 
—

 
16

 
497

Short-term investments
7,171

 
3,275

 
—

 
10,446

Other investments (1)
347

 
230

 
212

 
789

Securities lending collateral
—

 
1,046

 
—

 
1,046

Investment derivative instruments
12

 
—

 
—

 
12

Separate account assets
1,464

 
88

 
—

 
1,552

Total assets measured at fair value (1)
$
11,187

 
$
46,230

 
$
512

 
$
57,929

Liabilities:
 
 
 
 
 
 
 
Investment derivative instruments
$
13

 
$
—

 
$
—

 
$
13

Other derivative instruments
4

 
—

 
6

 
10

GLB (2)
—

 
—

 
609

 
609

Total liabilities measured at fair value
$
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 consolidated balance sheets. Refer to Note 5 for additional information.

There were no transfers between Level 1 and Level 2 for the three and six months ended June 30, 2016 and 2015.

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



20
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited)
Chubb Limited and Subsidiaries


The following table presents, by investment category, the expected liquidation period, fair value, and maximum future funding commitments of alternative investments:
 
 
 
 
 
June 30

 
 
 
December 31

 
Expected
Liquidation
Period of Underlying Assets
 
 
 
2016

 
 
 
2015

(in millions of U.S. dollars)
Fair
Value

 
Maximum
Future Funding
Commitments

 
Fair
Value

 
Maximum
Future Funding
Commitments

Financial
5 to 9 Years
 
$
571

 
$
201

 
$
300

 
$
105

Real Assets
3 to 7 Years
 
520

 
304

 
474

 
140

Distressed
5 to 9 Years
 
456

 
200

 
261

 
218

Private Credit
3 to 7 Years
 
262

 
335

 
265

 
209

Traditional
3 to 9 Years
 
1,451

 
1,054

 
895

 
152

Vintage
1 to 2 Years
 
34

 
14

 
13

 
—

Investment funds
Not Applicable
 
243

 
—

 
269

 
—

 
 
 
$
3,537

 
$
2,108

 
$
2,477

 
$
824


Included in all categories in the above table except for Investment funds are investments for which Chubb will never have the contractual option to redeem but receives distributions based on the liquidation of the underlying assets. Further, for all categories except for Investment funds, Chubb does not have the ability to sell or transfer the investments without the consent from the general partner of individual funds.
Investment Category
 
Consists of investments in private equity funds:
Financial
 
targeting financial services companies such as financial institutions and insurance services worldwide
Real Assets
 
targeting investments related to hard physical assets such as real estate, infrastructure and natural resources
Distressed
 
targeting distressed corporate debt/credit and equity opportunities in the U.S.
Private Credit
 
targeting privately originated corporate debt investments including senior secured loans and subordinated bonds
Traditional
 
employing traditional private equity investment strategies such as buyout and growth equity globally
Vintage
 
made before 2002 and where the funds’ commitment periods had already expired

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

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



21


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited)
Chubb 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 and contain no quantitative unobservable inputs developed by management. 
(in millions of U.S. dollars, except for percentages)
Fair Value
 
 
Valuation
Technique
 
Significant
Unobservable Inputs
 
Ranges
June 30, 2016

 
December 31, 2015

 
 
 
GLB (1)
$
971

 
$
609

 
Actuarial model
 
Lapse rate
 
1% – 30%
 
 
 
 
 
 
 
Annuitization rate
 
0% – 55%
(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

Three Months Ended
 
Available-for-Sale Debt Securities
 
 
Equity
securities

Short-term investments

Other
investments

 
Other
derivative
instruments

GLB (1)

June 30, 2016
 
Foreign

 
Corporate
securities

 
MBS

 
 
(in millions of U.S. dollars)
 
 
 
 
 
Balance–Beginning of Period
 
$
62

 
$
261

 
$
48

 
$
29

$
—

$
211

 
$
10

$
839

Transfers into Level 3
 
3

 
2

 
—

 
—

—

—

 
—

—

Change in Net Unrealized Gains (Losses) included in OCI
 
3

 
9

 
—

 
(1
)
—

—

 
—

—

Net Realized Gains/Losses
 
(1
)
 
(2
)
 
—

 
1

—

—

 
—

132

Purchases
 
27

 
31

 
1

 
10

50

8

 
—

—

Sales
 
(7
)
 
(16
)
 
—

 
(2
)
—

—

 
—

—

Settlements
 
—

 
(4
)
 
—

 
—

—

(3
)
 
—

—

Balance–End of Period
 
$
87

 
$
281

 
$
49

 
$
37

$
50

$
216

 
$
10

$
971

Net Realized Gains/Losses Attributable to Changes in Fair Value at the Balance Sheet Date
 
$
(1
)
 
$
—

 
$
—

 
$
—

$
—

$
—

 
$
—

$
132

(1)  
Our GLB reinsurance product meets the definition of a derivative instrument for accounting purposes and is accordingly carried at fair value. Excluded from the table above is the portion of the GLB derivative liability classified as Future policy benefits in the consolidated balance sheets. Refer to Note 5 for additional information.





22
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited)
Chubb Limited and Subsidiaries


  
 
Assets
 
 
 
 
Liabilities

Three Months Ended
 
Available-for-Sale Debt Securities
 
 
Equity
securities

 
Other
investments

 
Other derivative instruments

 
GLB (1)

June 30, 2015
 
Foreign

 
Corporate
securities

 
MBS

 
 
 
(in millions of U.S. dollars)
 
 
 
 
 
 
Balance–Beginning of Period
 
$
22

 
$
167

 
$
33

 
$
2

 
$
208

 
$
4

 
$
451

Transfers into Level 3
 
28

 
12

 
—

 
—

 
—

 
—

 
—

Change in Net Unrealized Gains (Losses) included in OCI
 
(2
)
 
(3
)
 
—

 
—

 
2

 
—

 
—

Net Realized Gains/Losses
 
—

 
—

 
—

 
(1
)
 
—

 
(1
)
 
(104
)
Purchases
 
8

 
8

 
23

 
1

 
7

 
—

 
—

Sales
 
—

 
(2
)
 
—

 
—

 
—

 
—

 
—

Settlements
 
—

 
(15
)
 
(1
)
 
—

 
(3
)
 
—

 
—

Balance–End of Period
 
$
56

 
$
167

 
$
55

 
$
2

 
$
214

 
$
3

 
$
347

Net Realized Gains/Losses Attributable to Changes in Fair Value at the Balance Sheet Date
 
$
—

 
$
—

 
$
—

 
$
(1
)
 
$
—

 
$
(1
)
 
$
(104
)
(1)  
Our GLB reinsurance product meets the definition of a derivative instrument for accounting purposes and is accordingly carried at fair value. Excluded from the table above is the portion of the GLB derivative liability classified as Future policy benefits in the consolidated balance sheets. The liability for GLB reinsurance was $615 million at June 30, 2015 , and $716 million at March 31, 2015, which includes a fair value derivative adjustment of $347 million and $451 million, respectively.

 
 
 
 
 
 
 
 
 
Assets

 
 
Liabilities

Six Months Ended
Available-for-Sale Debt Securities
 
 
Equity
securities

Short-term investments

Other
investments

 
Other
derivative
instruments

GLB (1)

June 30, 2016
Foreign

 
Corporate
securities

 
MBS

 
 
(in millions of U.S. dollars)
 
 
 
 
Balance–Beginning of Period
$
57

 
$
174

 
$
53

 
$
16

$
—

$
212

 
$
6

$
609

Transfers into Level 3
9

 
18

 
—

 
—

—

—

 
—

—

Transfers out of Level 3
(2
)
 
—

 
—

 
—

—

—

 
—

—

Change in Net Unrealized Gains (Losses) included in OCI
9

 
11

 
—

 
(1
)
—

—

 
—

—

Net Realized Gains/Losses
(6
)
 
(8
)
 
—

 
1

—

—

 
2

362

Purchases (2)
32

 
124

 
1

 
23

50

14

 
2

—

Sales
(8
)
 
(30
)
 
(5
)
 
(2
)
—

—

 
—

—

Settlements
(4
)
 
(8
)
 
—

 
—

—

(10
)
 
—

—

Balance–End of Period
$
87

 
$
281

 
$
49

 
$
37

$
50

$
216

 
$
10

$
971

Net Realized Gains/Losses Attributable to Changes in Fair Value at the Balance Sheet Date
$
(5
)
 
$
(7
)
 
$
—

 
$
—

$
—

$
—

 
$
2

$
362

(1)  
Our GLB reinsurance product meets the definition of a derivative instrument for accounting purposes and is accordingly carried at fair value. Excluded from the table above is the portion of the GLB derivative liability classified as Future policy benefits in the consolidated balance sheets. Refer to Note 5 for additional information.
(2)  
Includes acquired invested assets as a result of the Chubb Corp acquisition.


23


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



  
 
Assets
 
 
 
Liabilities

Six Months Ended
 
Available-for-Sale Debt Securities
 
 
 
 
Other investments

 
Other
derivative
instruments

GLB (1)

June 30, 2015
 
Foreign

 
Corporate
securities

 
MBS

 
Equity
securities

 
 
(in millions of U.S. dollars)
 
 
 
 
 
 
Balance–Beginning of Period
 
$
22

 
$
187

 
$
15

 
$
2

 
$
204

 
$
4

$
406

Transfers into Level 3
 
28

 
13

 
—

 
—

 
—

 
—

—

Change in Net Unrealized Gains (Losses) included in OCI
 
(2
)
 
—

 
—

 
—

 
—

 
—

—

Net Realized Gains/Losses
 
—

 
(3
)
 
—

 
(1
)
 
—

 
(1
)
(59
)
Purchases
 
9

 
16

 
41

 
1

 
16

 
—

—

Sales
 
(1
)
 
(5
)
 
—

 
—

 
—

 
—

—

Settlements
 
—

 
(41
)
 
(1
)
 
—

 
(6
)
 
—

—

Balance–End of Period
 
$
56


$
167


$
55

 
$
2


$
214

 
$
3

$
347

Net Realized Gains/Losses Attributable to Changes in Fair Value at the Balance Sheet Date
 
$
—

 
$
(2
)
 
$
—

 
$
(1
)
 
$
—

 
$
(1
)
$
(59
)
(1)  
Our GLB reinsurance product meets the definition of a derivative instrument for accounting purposes and is accordingly carried at fair value. Excluded from the table above is the portion of the GLB derivative liability classified as Future policy benefits in the consolidated balance sheets. The liability for GLB reinsurance was $615 million at June 30, 2015 , and $ 663 million at December 31, 2014, which includes a fair value derivative adjustment of $347 million and $ 406 million , respectively.


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

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

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

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



24
Table of Contents

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


The following tables present fair value, by valuation hierarchy, and carrying value of the financial instruments not measured at fair value:
June 30, 2016
Fair 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
$
605

 
$
111

 
$
—

 
$
716

 
$
686

Foreign
—

 
773

 
—

 
773

 
730

Corporate securities
—

 
3,002

 
13

 
3,015

 
2,882

Mortgage-backed securities
—

 
1,676

 
—

 
1,676

 
1,600

States, municipalities, and political subdivisions
—

 
5,401

 
—

 
5,401

 
5,192

Total assets
$
605

 
$
10,963

 
$
13

 
$
11,581

 
$
11,090

Liabilities:
 
 
 
 
 
 
 
 
 
Repurchase agreements
$
—

 
$
1,405

 
$
—

 
$
1,405

 
$
1,405

Short-term debt
—

 
514

 
—

 
514

 
500

Long-term debt
—

 
13,633

 
—

 
13,633

 
12,631

Trust preferred securities
—

 
451

 
—

 
451

 
308

Total liabilities
$
—

 
$
16,003

 
$
—

 
$
16,003

 
$
14,844


December 31, 2015
Fair 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




25


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


5 . 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.
 
Three Months Ended
 
 
Six Months Ended
 
 
June 30
 
 
June 30
 
(in millions of U.S. dollars)
2016

 
2015

 
2016

 
2015

GMDB
 
 
 
 
 
 
 
Net premiums earned
$
13

 
$
16

 
$
27

 
$
32

Policy benefits and other reserve adjustments
$
15

 
$
11

 
$
23

 
$
20

GLB
 
 
 
 
 
 
 
Net premiums earned
$
31

 
$
30

 
$
60

 
$
62

Policy benefits and other reserve adjustments
4

 
7

 
15

 
19

Net realized gains (losses)
(137
)
 
104

 
(371
)
 
59

Loss recognized in Net income
$
(110
)
 
$
127

 
$
(326
)
 
$
102

Less: Net cash received
24

 
26

 
42

 
54

Net (increase) decrease in liability
$
(134
)
 
$
101

 
$
(368
)
 
$
48


Net realized gains (losses) in the table above include gains (losses) related to foreign exchange and fair value adjustments on insurance derivatives and exclude gains (losses) on S&P put options and futures used to partially offset the risk in the GLB reinsurance portfolio. Refer to Note 8 for additional information.

The reported liability for GMDB reinsurance was $118 million and $ 117 million at June 30, 2016 and December 31, 2015 , respectively. At June 30, 2016 and December 31, 2015 , the reported liability for GLB reinsurance was $1.3 billion and $888 million, respectively, which includes a fair value derivative adjustment of $ 971 million and $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.

6 . Goodwill and Other intangible assets
At June 30, 2016 and December 31, 2015, Goodwill was $ 15.5 billion and $ 4.8 billion , respectively, and Other intangible assets were $ 7.4 billion and $ 887 million , respectively. The increases in Goodwill and Other intangible assets reflect the goodwill and intangible assets recorded in connection with the Chubb Corp acquisition.

The following table presents a roll-forward of Goodwill by segment for the six months ended June 30, 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

 
Chubb Consolidated

Balance at December 31, 2015
$
1,203

 
$
196

 
$
134

 
$
2,078

 
$
365

 
$
820

 
$
4,796

Acquisition of Chubb Corp
5,712

 
2,025

 
—

 
2,789

 
—

 
—

 
10,526

Foreign exchange revaluation
58

 
18

 
—

 
126

 
—

 
1

 
203

Balance at June 30, 2016
$
6,973

 
$
2,239

 
$
134

 
$
4,993

 
$
365

 
$
821

 
$
15,525



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Chubb Limited and Subsidiaries


 
The preliminary 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)
Preliminary purchase price allocation

 
Estimated useful life
Definite life
 
 
 
Unearned premium reserves (UPR) intangible asset
$
1,550

 
1 year
Agency distribution relationships and renewal rights
3,150

 
24 years
Internally developed technology
95

 
3 years
Indefinite life
 
 
 
Trademarks
2,800

 
Indefinite
Licenses
50

 
Indefinite
Syndicate capacity
10

 
Indefinite
Total identified intangible assets
$
7,655

 
 

Additionally, 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. 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 fair value adjustment was recorded within Unpaid losses and loss expenses on the Consolidated balance sheets and will amortize 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 as of the acquisition date.

The following table presents, as of June 30, 2016 , the expected estimated pre-tax amortization expense (benefit), at current foreign currency exchange rates, for the third and fourth quarters of 2016 and the next five years, related to purchased intangibles as well as the fair value adjustment to Unpaid losses and loss expenses described above:
 
Associated with the Chubb Corp Acquisition
 
 
 
For the Year Ending December 31
(in millions of U.S. dollars)
Agency distribution relationships and renewal rights

Internally developed technology

Fair value adjustment to Unpaid losses and loss expense

Total

Other intangible assets

Total Amortization of purchased intangibles

Third quarter of 2016
$
33

$
8

$
(61
)
$
(20
)
$
23

$
3

Fourth quarter of 2016
33

8

(61
)
(20
)
23

3

2017
296

32

(160
)
168

85

253

2018
324

32

(101
)
255

74

329

2019
281

—

(62
)
219

66

285

2020
240

—

(35
)
205

59

264

2021
217

—

(20
)
197

53

250

Total
$
1,424

$
80

$
(500
)
$
1,004

$
383

$
1,387




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Chubb Limited and Subsidiaries


The following table presents the expected amortization, at current foreign currency exchange rates, for the remainder of the UPR intangible asset which amortizes through Policy acquisition costs on the Consolidated statements of operations.
 
Associated with the Chubb Corp Acquisition

For the Year Ending December 31, 2016
(in millions of U.S. dollars)
Amortization of UPR intangible asset

Third quarter of 2016
$
320

Fourth quarter of 2016
144

Total
$
464


7 . 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, during the first quarter of 2016 we adopted new guidance that required debt issuance costs 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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Chubb Limited and Subsidiaries



 
June 30

 
December 31

 
 
(in millions of U.S. dollars)
2016

 
2015

 
Early Redemption Option
Repurchase agreements (weighted average interest rate of 0.8% in 2016 and 0.6% in 2015)
$
1,405

 
$
1,404

 
None
Short-term debt
 
 
 
 
 
Chubb INA senior notes:
 
 
 
 
 
$500 million 5.7% due February 2017
$
500

 
$
—

 
Make-whole premium plus 0.20%
Total short-term debt
$
500

 
$
—

 
 
Long-term debt
 
 
 
 
 
Chubb INA senior notes:
 
 
 
 
 
$500 million 5.7% due February 2017
$
—

 
$
500

 
Make-whole premium plus 0.20%
$300 million 5.8% due March 2018
300

 
299

 
Make-whole premium plus 0.35%
$600 million 5.75% due May 2018
648

 
—

 
Make-whole premium plus 0.30%
$100 million 6.6% due August 2018
109

 
—

 
None
$500 million 5.9% due June 2019
497

 
497

 
Make-whole premium plus 0.40%
$1,300 million 2.3% due November 2020
1,294

 
1,294

 
Make-whole premium plus 0.15%
$1,000 million 2.875% due November 2022
994

 
994

 
Make-whole premium plus 0.20%
$475 million 2.7% due March 2023
471

 
471

 
Make-whole premium plus 0.10%
$700 million 3.35% due May 2024
694

 
694

 
Make-whole premium plus 0.15%
$800 million 3.15% due March 2025
794

 
794

 
Make-whole premium plus 0.15%
$1,500 million 3.35% due May 2026
1,487

 
1,487

 
Make-whole premium plus 0.20%
$100 million 8.875% due August 2029
100

 
100

 
None
$200 million 6.8% due November 2031
259

 
—

 
Make-whole premium plus 0.25%
$300 million 6.7% due May 2036
297

 
297

 
Make-whole premium plus 0.20%
$800 million 6.0% due May 2037
984

 
—

 
Make-whole premium plus 0.20%
$600 million 6.5% due May 2038
780

 
—

 
Make-whole premium plus 0.30%
$475 million 4.15% due March 2043
469

 
469

 
Make-whole premium plus 0.15%
$1,500 million 4.35% due November 2045
1,482

 
1,482

 
Make-whole premium plus 0.25%
Chubb INA $1,000 million 6.375% capital securities due March 2067 (1)
961

 
—

 
Make-whole premium plus 0.25%-0.50%
Other long-term debt (2.75% to 7.1% due December 2019 to September 2020)
11

 
11

 
None
Total long-term debt
$
12,631

 
$
9,389

 
 
Trust preferred securities
 
 
 
 
 
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 is 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 debentures from the redemption date to April 1, 2030.

Certain of Chubb INA's senior notes and capital securities are redeemable at any time at Chubb INA's option subject to the provisions described in the table above. A "make-whole" premium is the present value of the remaining principal and interest


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Chubb Limited and Subsidiaries


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.
We have outstanding $ 1.0 billion of unsecured junior subordinated capital securities at June 30, 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.

8 . 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
Chubb maintains positions in derivative instruments such as futures, options, swaps, and foreign currency forward contracts for which the primary purposes are to manage duration and foreign currency exposure, yield enhancement, or to obtain an exposure to a particular financial market. Chubb also maintains positions in convertible securities that contain embedded derivatives. Investment derivative instruments are recorded in either Other assets (OA) or Accounts payable, accrued expenses, and other liabilities (AP), convertible bonds are recorded in Fixed maturities available for sale (FM AFS), and convertible equity securities are recorded in Equity securities (ES) in the consolidated balance sheets. These are the most numerous and frequent derivative transactions.

In addition, Chubb from time to time purchases to be announced mortgage-backed securities (TBAs) as part of its investing activities.

Under reinsurance programs covering GLBs, Chubb assumes the risk of GLBs, including GMIB and GMAB, associated with variable annuity contracts. The GMIB risk is triggered if, at the time the contract holder elects to convert the accumulated account value to a periodic payment stream (annuitize), the accumulated account value is not sufficient to provide a guaranteed minimum level of monthly income. The GMAB risk is triggered if, at contract maturity, the contract holder’s account value is less than a guaranteed minimum value. The GLB reinsurance product meets the definition of a derivative instrument. Benefit reserves in respect of GLBs are classified as Future policy benefits (FPB) while the fair value derivative adjustment is classified within AP. Chubb also generally maintains positions in exchange-traded equity futures contracts and options on equity market indices to limit equity exposure in the GMDB and GLB blocks of business. At June 30, 2016, we held no positions in option contracts on equity market indices.



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Chubb Limited and Subsidiaries


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

The following table presents the balance sheet locations, fair values of derivative instruments in an asset or (liability) position, and notional values/payment provisions of our derivative instruments:
 
 
 
 
 
June 30, 2016
 
 
 
 
December 31, 2015
 
 
Consolidated
Balance Sheet
Location
 
Fair Value
 
 
Notional
Value/
Payment
Provision

 
Fair Value
 
 
Notional
Value/
Payment
Provision

(in millions of U.S. dollars)
 
Derivative Asset

 
Derivative (Liability)

 
 
Derivative Asset

 
Derivative (Liability)

 
Investment and embedded derivative instruments
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency forward contracts
OA / (AP)
 
$
10

 
$
(27
)
 
$
1,258

 
$
7

 
$
(11
)
 
$
1,029

Cross-currency swaps
OA / (AP)
 
—

 
—

 
95

 
—

 
—

 
95

Options/Futures contracts on notes and bonds
OA / (AP)
 
8

 
(44
)
 
1,249

 
5

 
(2
)
 
751

Convertible securities (1)
FM AFS / ES
 
2

 
—

 
6

 
31

 
—

 
40

 
 
 
$
20

 
$
(71
)
 
$
2,608

 
$
43

 
$
(13
)
 
$
1,915

Other derivative instruments
 
 
 
 
 
 
 
 
 
 
 
 
 
Futures contracts on equities   (2)
OA / (AP)
 
$
—

 
$
(4
)
 
$
1,225

 
$
—

 
$
(4
)
 
$
1,197

Other
OA / (AP)
 
7

 
(10
)
 
277

 
—

 
(6
)
 
15

 
 
 
$
7

 
$
(14
)
 
$
1,502

 
$
—

 
$
(10
)
 
$
1,212

GLB (3)
(AP) / (FPB)
 
$
—

 
$
(1,256
)
 
$
1,511

 
$
—

 
$
(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 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 June 30, 2016 and December 31, 2015, derivative liabilities of $51 million and derivative 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 June 30, 2016 and December 31, 2015, our securities lending collateral was $1,142 million and $1,046 million, respectively, and our securities lending payable, reflecting our obligation to return the collateral plus interest, was $1,143 million and $1,047 million, respectively. The securities lending collateral can only be drawn down by Chubb in the event that the institution borrowing the securities is in default under the lending agreement. An indemnification agreement with the lending agent protects us in the event a borrower becomes insolvent or fails to return any of the securities on loan. The collateral is recorded in Securities lending collateral and the liability is recorded in Securities lending payable in the consolidated balance sheets.



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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

June 30, 2016
 
Overnight and Continuous

(in millions of U.S. dollars)
 
Collateral held under securities lending agreements:
 
 
Cash
 
$
447

U.S. Treasury and agency
 
71

Foreign
 
262

Corporate securities
 
11

Equity securities
 
351

 
 
$
1,142

Gross amount of recognized liability for securities lending payable
 
$
1,143

Difference (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 June 30, 2016 and December 31, 2015, our repurchase agreement obligations of $1,405 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:
 
Remaining contractual maturity
 
June 30, 2016
Up to 30 Days

 
Greater than
90 Days

 
Total

(in millions of U.S. dollars)
 
 
Collateral pledged under repurchase agreements:
 
 
 
 
 
U.S. Treasury and agency
$
234

 
$
5

 
$
239

Mortgage-backed securities
329

 
889

 
1,218

 
$
563

 
$
894

 
$
1,457

Gross amount of recognized liabilities for repurchase agreements
 
 
 
 
$
1,405

Difference (1)
 
 
 
 
$
52

(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.



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Chubb Limited and Subsidiaries


The following table presents net realized gains (losses) related to derivative instrument activity in the Consolidated statements of operations:
 
Three Months Ended
 
Six Months Ended
 
 
June 30
 
June 30
 
(in millions of U.S. dollars)
2016

 
2015

2016

 
2015

Investment and embedded derivative instruments
 
 
 
 
 
 
Foreign currency forward contracts
$
(10
)
 
$
(10
)
$
(20
)
 
$
15

All other futures contracts and options
(37
)
 
42

(71
)
 
13

Convertible securities (1)
—

 
(5
)
5

 
—

Total investment and embedded derivative instruments
$
(47
)
 
$
27

$
(86
)

$
28

GLB and other derivative instruments
 
 
 
 
 
 
GLB (2)
$
(131
)
 
$
104

$
(359
)
 
$
59

Futures contracts on equities (3)
(28
)
 
(2
)
(43
)
 
(13
)
Options on equity market indices (3)
—

 
—

—

 
(1
)
Other
—

 
(1
)
(2
)
 
(1
)
Total GLB and other derivative instruments
$
(159
)
 
$
101

$
(404
)

$
44

 
$
(206
)
 
$
128

$
(490
)

$
72

(1)  
Includes embedded derivatives.
(2)  
Excludes foreign exchange gains (losses) related to GLB.
(3)  
Related to GMDB and GLB blocks of business.

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

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

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

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

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


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Chubb 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, Chubb 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. Chubb purchases convertible securities for their total return and not specifically for the conversion feature.

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

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

d) Fixed maturities
At June 30, 2016 , we have commitments to purchase fixed income securities of $243 million over the next several years.

e) Other investments
At June 30, 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 $3.3 billion. In connection with these investments, we have commitments that may require funding of up to $2.1 billion over the next several years. 

f) Taxation
At June 30, 2016 , $20 million of unrecognized tax benefits remains outstanding. 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. With few exceptions, Chubb is no longer subject to state and local or non-U.S. income tax examinations for years before 2005.

g) 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


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Chubb Limited and Subsidiaries


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.

9 . Shareholders’ equity

All of Chubb’s Common Shares are authorized under Swiss corporate law. Though the par value of Common Shares is stated in Swiss francs, Chubb continues to use U.S. dollars as its reporting currency for preparing consolidated financial statements. Under Swiss corporate law, dividends, including distributions through a reduction in par value (par value reduction) or from legal reserves, must be stated in Swiss francs though dividend payments are made by Chubb in U.S. dollars. At June 30, 2016, our Common Shares had a par value of CHF 24.15 per share.

At our May 2014 annual general meeting, our shareholders approved an annual dividend for the following year of $2.60 per share, payable 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 until the date of the 2017 annual general meeting, and is authorized to abstain from distributing a dividend at their discretion.

The following table presents dividend distributions per Common Share in Swiss francs (CHF) and U.S. dollars (USD):
 
Three Months Ended
 
 
Six Months Ended
 
 
June 30
 
 
June 30
 
 
2016
 
 
2015
 
 
2016
 
 
2015
 
CHF

 
USD

 
CHF

 
USD

 
CHF

 
USD

 
CHF

 
USD

Dividends – par value reduction
—

 
$


 
—

 
$
—

 
—

 
$


 
0.62

 
$
0.65

Dividends –  distributed from capital contribution reserves
0.68

 
0.69

 
0.62

 
0.67

 
1.34

 
1.36

 
0.62

 
0.67

Total dividend distributions per common share
0.68

 
$
0.69

 
0.62

 
$
0.67

 
1.34

 
$
1.36

 
1.24

 
$
1.32


Common Shares in treasury are used principally for issuance upon the exercise of employee stock options, grants of restricted stock, and purchases under the Employee Stock Purchase Plan (ESPP). At June 30, 2016 , 14,770,884 Common Shares remain in treasury after net shares redeemed under employee share-based compensation plans.

Chubb Limited securities repurchase authorization
In November 2014, the Board authorized a share repurchase program of $1.5 billion of Chubb's Common Shares for the period January 1, 2015 through December 31, 2015 . For the three and six months ended June 30, 2015, Chubb repurchased $394 million ( 3,650,200 Common Shares) and $734 million ( 6,677,663 Common Shares), respectively. There are no outstanding repurchase authorizations subsequent to December 31, 2015.



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Chubb Limited and Subsidiaries


10 . Share-based compensation

The ACE Limited 2004 Long-Term Incentive Plan (the 2004 LTIP) permitted grants of both incentive and non-qualified stock options principally at an option price per share equal to the grant date fair value of Chubb's Common Shares. Stock options are generally granted with a 3-year vesting period and a 10-year term. Stock options typically vest in equal annual installments over the vesting period, which is also the requisite service period. On February 25, 2016 , Chubb granted 1,926,842 stock options with a weighted-average grant date fair value of $21.52 each. The fair value of the options issued is estimated on the grant date using the Black-Scholes option pricing model.

The 2004 LTIP also permitted grants of service-based restricted stock and restricted stock units as well as performance-based restricted stock awards. Chubb generally grants service-based restricted stock and restricted stock units with a 4-year vesting period, based on a graded vesting schedule. The performance-based stock awards comprise target awards which have four installments that vest annually based on tangible book value (shareholders' equity less goodwill and intangible assets) per share growth compared to a defined group of peer companies, 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. The restricted stock is granted at market close price on the grant date. On February 25, 2016 , Chubb granted 1,119,686 service-based restricted stock awards, 337,581 service-based restricted stock units, and 452,820 performance-based awards to employees and officers with a grant date fair value of $118.39 each. Each restricted stock unit represents our obligation to deliver to the holder one Common Share upon vesting.

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 Corporation to employees and directors with a fair value of approximately $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 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, 19,500,000 Common Shares were authorized to be issued, in addition to any shares that have not been delivered pursuant to the 2004 LTIP and remain available for grant pursuant to the 2004 LTIP, including any shares covered by awards granted under the 2004 LTIP that are forfeited, expire or are canceled after the effective date of the 2016 LTIP without delivery of shares or which result in the forfeiture of the shares back to Chubb.

11. Postretirement benefits

We maintain non-contributory defined benefit pension plans and other postretirement plans that cover certain employees located in the U.S., Europe, Asia, Canada, and Mexico. All underlying plans are subject to periodic actuarial valuations by qualified actuarial firms using actuarial models to calculate the expense and liability for each plan. 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 provides postretirement benefits to eligible employees and their dependents through various defined contribution plans and defined benefit plans sponsored by Chubb. With the acquisition, Chubb assumed the outstanding pension obligations of legacy Chubb Corp, which consisted of several non-contributory defined benefit pension plans covering substantially all its employees.

We also assumed the legacy Chubb Corp other postretirement benefits plans, principally health care and life insurance, to retired employees, their beneficiaries, and covered dependents. Health care 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 health care benefits obligation where such funding can be accomplished on a tax-effective basis. Benefits are paid as covered expenses are incurred.

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 at the time of the acquisition. In addition, Chubb conformed the accounting policies for the acquired plans of legacy Chubb Corp to the accounting policies of Chubb, including


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Chubb Limited and Subsidiaries


selecting the applicable discount rates using specific spot rates along a yield curve determined by the projected cash flows assumptions. 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.

At the date of the acquisition of Chubb Corp, we assumed the following postretirement benefit plan assets and obligations:
 
Pension Benefits
 
 
Other Postretirement Benefits
 
January 14, 2016
U.S. Plans

 
Non-U.S. Plans

 
Total

 
U.S. Plans

 
Non-U.S. Plans

 
Total

(in millions of U.S. dollars)
 
 
 
 
 
Fair value of plan assets
$
2,473

 
$
315

 
$
2,788

 
$
138

 
$
—

 
$
138

Benefit obligations
(3,153
)
 
(372
)
 
(3,525
)
 
(491
)
 
(15
)
 
(506
)
Funded status
$
(680
)
 
$
(57
)
 
$
(737
)
 
$
(353
)
 
$
(15
)
 
$
(368
)

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). 

For the three and six months ended June 30, 2016, we contributed $ 105 million and $ 132 million , respectively, to our U.S. and non-U.S. pension and other postretirement benefits plans. At June 30, 2016, we estimate that we will contribute an additional $ 19 million for the remainder of 2016. These estimates are subject to change due to contribution decisions that are affected by various factors including our liquidity, market performance and management discretion.

The following tables summarize the components of net periodic benefit costs for our pension and postretirement benefit plans recognized in the Consolidated statements of operations:
Three Months Ended June 30
Pension Benefits
 
 
Other Postretirement Benefits
 
(in millions of U.S. dollars)
U.S. Plans

 
Non-U.S. Plans

 
Total

 
U.S. Plans

 
Non-U.S. Plans

 
Total

2016
 
 
 
 
 
 
 
 
 
 
 
Net periodic benefit cost:
 
 
 
 
 
 
 
 
 
 
 
     Service cost
$
20

 
$
4

 
$
24

 
$
2

 
$
1

 
$
3

     Interest cost
27

 
8

 
35

 
4

 
—

 
4

     Expected return on plan assets
(42
)
 
(10
)
 
(52
)
 
(2
)
 
—

 
(2
)
     Amortization of net actuarial loss
—

 
1

 
1

 
—

 
—

 
—

             Net periodic benefit cost
$
5

 
$
3

 
$
8

 
$
4

 
$
1

 
$
5

2015
 
 
 
 
 
 
 
 
 
 
 
Net periodic benefit cost:
 
 
 
 
 
 
 
 
 
 
 
     Service cost
$
—

 
$
1

 
$
1

 
 
 
 
 
 
     Interest cost
—

 
5

 
5

 
 
 
 
 
 
     Expected return on plan assets
—

 
(7
)
 
(7
)
 
 
 
 
 
 
     Amortization of net actuarial loss
—

 
1

 
1

 
 
 
 
 
 
             Net periodic benefit cost
$
—

 
$
—

 
$
—

 
 
 
 
 
 


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Chubb Limited and Subsidiaries


Six Months Ended June 30
Pension Benefits
 
 
Other Postretirement Benefits
 
(in millions of U.S. dollars)
U.S. Plans

 
Non-U.S. Plans

 
Total

 
U.S. Plans

 
Non-U.S. Plans

 
Total

2016
 
 
 
 
 
 
 
 
 
 
 
Net periodic benefit cost:
 
 
 
 
 
 
 
 
 
 
 
     Service cost
$
37

 
$
9

 
$
46

 
$
4

 
$
1

 
$
5

     Interest cost
54

 
16

 
70

 
9

 
—

 
9

     Expected return on plan assets
(79
)
 
(20
)
 
(99
)
 
(4
)
 
—

 
(4
)
     Amortization of net actuarial loss
—

 
2

 
2

 
—

 
—

 
—

             Net periodic benefit cost
$
12

 
$
7

 
$
19

 
$
9

 
$
1

 
$
10

2015
 
 
 
 
 
 
 
 
 
 
 
Net periodic benefit cost:
 
 
 
 
 
 
 
 
 
 
 
     Service cost
$
—

 
$
3

 
$
3

 
 
 
 
 
 
     Interest cost
—

 
10

 
10

 
 
 
 
 
 
     Expected return on plan assets
—

 
(14
)
 
(14
)
 
 
 
 
 
 
     Amortization of net actuarial loss
—

 
2

 
2

 
 
 
 
 
 
             Net periodic benefit cost
$
—

 
$
1

 
$
1

 
 
 
 
 
 

The weighted-average assumptions used to determine net 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

June 30, 2016
 
 
 
 
 
 
 
Discount rate
4.28
%
 
3.74
%
 
4.41
%
 
4.30
%
Rate of compensation increase
4.00
%
 
3.40
%
 
N/A

 
N/A

Expected long-term rate of return on plan assets
7.00
%
 
4.90
%
 
7.00
%
 
N/A

December 31, 2015

 

 

 

Discount rate
N/A

 
3.51
%
 
N/A

 
N/A

Rate of compensation increase
N/A

 
3.09
%
 
N/A

 
N/A

Expected long-term rate of return on plan assets
N/A

 
4.81
%
 
N/A

 
N/A


12 . Segment information

Effective the first quarter of 2016, we are reporting our financial results within the following business segments: North America Commercial P&C Insurance, North America Personal P&C Insurance, North America Agricultural Insurance, Overseas General Insurance, Global Reinsurance, and Life Insurance. We have also redefined Corporate to include all 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. All legacy ACE prior period amounts (i.e., legacy Chubb Corp prior period results are not included in the prior period amounts in the tables below) have been adjusted to conform to the new segment presentation.

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


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Chubb Limited and Subsidiaries


corporate accounts and wholesale business), and the North American Commercial Insurance divisions (principally middle market and small commercial accounts).

•
The North America Personal P&C Insurance segment includes the business written by Chubb’s North America Personal Risk Services division, which comprises Chubb high net worth personal lines business and ACE Private Risk Services, with operations in U.S. and Canada. This segment provides affluent and high net worth individuals and families with homeowners, automobile, valuables, umbrella and recreational marine insurance and services.

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

•
The Overseas General Insurance segment includes the business written by two Chubb divisions that provide P&C insurance and services in the 51 countries outside of North America where the company operates.  Chubb International provides 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 Global Markets provides commercial P&C excess and surplus lines and A&H through wholesale brokers in the London market and through Lloyd’s.  These divisions write a variety of coverages, including traditional commercial property and casualty, specialty categories such as financial lines, marine, energy, aviation, political risk and construction risk, as well as group A&H and traditional and specialty personal lines. 

•
The Global Reinsurance segment primarily includes the reinsurance business written by Chubb Tempest Re as well as the legacy Chubb U.K. Assumed Reinsurance business, which is active, and the legacy Chubb run-off Reinsurance business.

•
The Life Insurance segment includes the business written by Chubb Life, Chubb Tempest Life Re and Combined Insurance’s North America operations.

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

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, amortization of purchased intangibles, Chubb integration expenses, and income taxes will be reported within Corporate. The amortization of purchased intangibles includes amortization of agency distribution relationships and renewal rights, internally developed technology, and the fair value adjustment on acquired loss reserves. Also the amortization of fair value adjustments on acquired invested assets and debt associated with the Chubb Corp acquisition is considered a corporate cost and is therefore included in Corporate. These items will not be allocated to the segment level; therefore, the segment income statement will only include underwriting income, net investment income, and beginning with the second quarter of 2016, 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 that the segments are held accountable for. We determined that this definition of segment income is appropriate and aligns with how the business is managed. As we progress through the integration and refine our processes, we may continue to further refine our segments and segment income measures. The prior periods have been adjusted to conform to the new segment presentation. 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.

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. Chubb calculates underwriting income by subtracting Losses and loss expenses, Policy benefits, Policy acquisition costs, and Administrative expenses from Net premiums earned. To calculate segment income, include net investment income and other (income) expense. For the North America Agricultural segment, management includes gains and losses on crop derivatives as a component of underwriting income. For example, for the three months ended June 30, 2016, underwriting income in our North America Agricultural Insurance segment was $14 million . This amount includes $2 million of realized losses related to crop derivatives which are reported in Net realized gains (losses) in the Corporate column below.



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Chubb Limited and Subsidiaries


The following tables present the Statement of Operations by segment:
 
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

For the Three Months Ended
 
 
 
 
 
 
June 30, 2016
 
 
 
 
 
 
(in millions of U.S. dollars)
 
 
 
 
 
 
Net premiums written
$
3,245

 
$
1,231

 
$
375

 
$
2,031

 
$
230

 
$
527

 
$
—

 
$
7,639

Net premiums earned
3,148

 
1,140

 
327

 
2,093

 
185

 
512

 
—

 
7,405

Losses and loss expenses
1,971

 
661

 
284

 
1,089

 
87

 
147

 
15

 
4,254

Policy benefits
—

 
—

 
—

 
—

 
—

 
146

 
—

 
146

Policy acquisition costs
545

 
269

 
25

 
537

 
47

 
137

 
—

 
1,560

Administrative expenses
299

 
98

 
2

 
277

 
14

 
77

 
62

 
829

Underwriting income (loss)
333

 
112

 
16

 
190

 
37

 
5

 
(77
)
 
616

Net investment income (loss)
468

 
55

 
5

 
147

 
65

 
69

 
(101
)
 
708

Other (income) expense
(9
)
 
3

 
—

 
(5
)
 
(2
)
 
—

 
(16
)
 
(29
)
Segment income (loss)
810

 
164

 
21

 
342

 
104

 
74

 
(162
)
 
1,353

Net realized gains (losses) including OTTI
 
 
 
 
 
 
 
 
 
 
 
 
(216
)
 
(216
)
Interest expense
 
 
 
 
 
 
 
 
 
 
 
 
153

 
153

Amortization of purchased intangibles
 
 
 
 
 
 
 
 
 
 
 
 
5

 
5

Chubb integration expenses
 
 
 
 
 
 
 
 
 
 
 
 
98

 
98

Income tax expense
 
 
 
 
 
 
 
 
 
 
 
 
155

 
155

Net income (loss)
 
 
 
 
 
 
 
 
 
 
 
 
$
(789
)
 
$
726


 
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

For the Three Months Ended
 
 
 
 
 
June 30, 2015
 
 
 
 
 
(in millions of U.S. dollars)
 
 
 
 
 
Net premiums written
$
1,428

 
$
547

 
$
379

 
$
1,669

 
$
261

 
$
500

 
$
—

 
$
4,784

Net premiums earned
1,419

 
269

 
321

 
1,644

 
220

 
487

 
—

 
4,360

Losses and loss expenses
916

 
156

 
271

 
816

 
72

 
137

 
49

 
2,417

Policy benefits
—

 
—

 
—

 
—

 
—

 
153

 
—

 
153

Policy acquisition costs
131

 
(1
)
 
23

 
396

 
60

 
118

 
—

 
727

Administrative expenses
154

 
34

 
4

 
254

 
13

 
74

 
45

 
578

Underwriting income (loss)
218

 
80

 
23

 
178

 
75

 
5

 
(94
)
 
485

Net investment income
262

 
7

 
6

 
139

 
79

 
66

 
3

 
562

Other (income) expense
1

 
—

 
1

 
(4
)
 
—

 
(7
)
 
(29
)
 
(38
)
Segment income (loss)
479

 
87

 
28

 
321

 
154

 
78

 
(62
)
 
1,085

Net realized gains (losses) including OTTI


 
 
 
 
 
 
 
 
 
 
 
126

 
126

Interest expense


 
 
 
 
 
 
 
 
 
 
 
71

 
71

Amortization of purchased intangibles


 
 
 
 
 
 
 
 
 
 
 
55

 
55

Income tax expense


 
 
 
 
 
 
 
 
 
 
 
143

 
143

Net income (loss)


 
 
 
 
 
 
 
 
 
 
 
$
(205
)
 
$
942




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Chubb Limited and Subsidiaries


 
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

For the Six Months Ended
 
 
 
 
 
 
June 30, 2016
 
 
 
 
 
 
(in millions of U.S. dollars)
 
 
 
 
 
 
Net premiums written
$
5,547

 
$
2,102

 
$
439

 
$
4,072

 
$
431

 
$
1,043

 
$
—

 
$
13,634

Net premiums earned
6,044

 
2,164

 
350

 
4,048

 
387

 
1,009

 
—

 
14,002

Losses and loss expenses
3,718

 
1,322

 
254

 
2,110

 
176

 
324

 
24

 
7,928

Policy benefits
—

 
—

 
—

 
—

 
—

 
272

 
—

 
272

Policy acquisition costs
1,027

 
518

 
29

 
1,040

 
100

 
259

 
—

 
2,973

Administrative expenses
565

 
186

 
(2
)
 
540

 
28

 
149

 
135

 
1,601

Underwriting income (loss)
734

 
138

 
69

 
358

 
83

 
5

 
(159
)
 
1,228

Net investment income (loss)
894

 
102

 
10

 
293

 
132

 
136

 
(185
)
 
1,382

Other (income) expense
(9
)
 
4

 
—

 
(10
)
 
(3
)
 
6

 
11

 
(1
)
Segment income (loss)
1,637

 
236

 
79

 
661

 
218

 
135

 
(355
)
 
2,611

Net realized gains (losses) including OTTI
 
 
 
 
 
 
 
 
 
 
 
 
(610
)
 
(610
)
Interest expense
 
 
 
 
 
 
 
 
 
 
 
 
299

 
299

Amortization of purchased intangibles
 
 
 
 
 
 
 
 
 
 
 
 
12

 
12

Chubb integration expenses
 
 
 
 
 
 
 
 
 
 
 
 
246

 
246

Income tax expense
 
 
 
 
 
 
 
 
 
 
 
 
279

 
279

Net income (loss)
 
 
 
 
 
 
 
 
 
 
 
 
$
(1,801
)
 
$
1,165


 
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

For the Six Months Ended
 
 
 
 
 
June 30, 2015
 
 
 
 
 
(in millions of U.S. dollars)
 
 
 
 
 
Net premiums written
$
2,725

 
$
680

 
$
467

 
$
3,463

 
$
534

 
$
991

 
$
—

 
$
8,860

Net premiums earned
2,799

 
415

 
385

 
3,281

 
446

 
961

 
—

 
8,287

Losses and loss expenses
1,831

 
267

 
293

 
1,630

 
171

 
289

 
58

 
4,539

Policy benefits
—

 
—

 
—

 
—

 
—

 
295

 
—

 
295

Policy acquisition costs
261

 
30

 
19

 
785

 
114

 
225

 
—

 
1,434

Administrative expenses
305

 
53

 
3

 
510

 
25

 
147

 
89

 
1,132

Underwriting income (loss)
402

 
65

 
70

 
356

 
136

 
5

 
(147
)
 
887

Net investment income
520

 
12

 
12

 
277

 
154

 
132

 
6

 
1,113

Other (income) expense
(2
)
 
—

 
2

 
(6
)
 
(1
)
 
(16
)
 
(50
)
 
(73
)
Segment income (loss)
924

 
77

 
80

 
639

 
291

 
153

 
(91
)
 
2,073

Net realized gains (losses) including OTTI
 
 
 
 
 
 
 
 
 
 
 
 
37

 
37

Interest expense
 
 
 
 
 
 
 
 
 
 
 
 
139

 
139

Amortization of purchased intangibles
 
 
 
 
 
 
 
 
 
 
 
 
85

 
85

Income tax expense
 
 
 
 
 
 
 
 
 
 
 
 
263

 
263

Net income (loss)
 
 
 
 
 
 
 
 
 
 
 
 
$
(541
)
 
$
1,623


Underwriting assets are reviewed in total by management for purposes of decision-making. Other than goodwill and other intangible assets, Chubb does not allocate assets to its segments.


41


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




13 . Earnings per share
 
Three Months Ended
 
 
Six Months Ended
 
 
June 30
 
 
June 30
 
(in millions of U.S. dollars, except share and per share data)
2016

 
2015

 
2016

 
2015

Numerator:
 
 
 
 
 
 
 
Net income
$
726

 
$
942

 
$
1,165

 
$
1,623

Denominator:
 
 
 
 
 
 
 
Denominator for basic earnings per share:
 
 
 
 
 
 
 
Weighted-average shares outstanding
467,701,328

 
325,463,196

 
457,102,802

 
326,795,838

Denominator for diluted earnings per share:
 
 
 
 

 

Share-based compensation plans
3,455,969

 
3,222,562

 
3,379,559

 
3,373,809

Weighted-average shares outstanding and assumed conversions
471,157,297

 
328,685,758

 
460,482,361

 
330,169,647

Basic earnings per share
$
1.55

 
$
2.89

 
$
2.55

 
$
4.97

Diluted earnings per share
$
1.54

 
$
2.86

 
$
2.53

 
$
4.91

Potential anti-dilutive share conversions
2,103,281

 
1,934,454

 
2,056,018

 
1,306,817


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

14 . 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 June 30, 2016 and December 31, 2015 , and for the three and six months ended June 30, 2016 and 2015 for Chubb Limited (Parent Guarantor) and Chubb 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 Chubb Limited Subsidiaries column on a combined basis.



42
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited)
Chubb Limited and Subsidiaries


Condensed Consolidating Balance Sheet at June 30, 2016
(in millions of U.S. dollars)
Chubb
Limited
(Parent
Guarantor)

 
Chubb INA
Holdings Inc.
(Subsidiary
Issuer)

 
Other Chubb
Limited
Subsidiaries

 
Consolidating
Adjustments and Eliminations

 
Chubb Limited
Consolidated

Assets
 
 
 
 
 
 
 
 
 
Investments
$
27

 
$
618

 
$
99,201

 
$
—

 
$
99,846

Cash (1)
1

 
207

 
1,825

 
(1,022
)
 
1,011

Insurance and reinsurance balances receivable
—

 
—

 
12,095

 
(3,563
)
 
8,532

Reinsurance recoverable on losses and loss expenses
—

 
—

 
23,071

 
(9,836
)
 
13,235

Reinsurance recoverable on policy benefits
—

 
—

 
1,185

 
(986
)
 
199

Value of business acquired
—

 
—

 
381

 
—

 
381

Goodwill and other intangible assets
—

 
—

 
22,923

 
—

 
22,923

Investments in subsidiaries
37,011

 
49,412

 
—

 
(86,423
)
 
—

Due from subsidiaries and affiliates, net
11,179

 
—

 
—

 
(11,179
)
 
—

Other assets
7

 
522

 
17,962

 
(4,415
)
 
14,076

Total assets
$
48,225

 
$
50,759

 
$
178,643

 
$
(117,424
)
 
$
160,203

Liabilities
 
 
 
 
 
 
 
 
 
Unpaid losses and loss expenses
$
—

 
$
—

 
$
70,026

 
$
(9,207
)
 
$
60,819

Unearned premiums
—

 
—

 
18,999

 
(3,770
)
 
15,229

Future policy benefits
—

 
—

 
5,961

 
(986
)
 
4,975

Due to subsidiaries and affiliates, net
—

 
11,036

 
143

 
(11,179
)
 
—

Affiliated notional cash pooling programs (1)
776

 
246

 
—

 
(1,022
)
 
—

Repurchase agreements
—

 
—

 
1,405

 
—

 
1,405

Short-term debt
—

 
500

 
—

 
—

 
500

Long-term debt
—

 
12,620

 
11

 
—

 
12,631

Trust preferred securities
—

 
308

 
—

 
—

 
308

Other liabilities
223

 
1,608

 
20,116

 
(4,837
)
 
17,110

Total liabilities
999

 
26,318

 
116,661

 
(31,001
)
 
112,977

Total shareholders’ equity
47,226

 
24,441

 
61,982

 
(86,423
)
 
47,226

Total liabilities and shareholders’ equity
$
48,225

 
$
50,759

 
$
178,643

 
$
(117,424
)
 
$
160,203

(1)  
Chubb maintains two notional multicurrency cash pools (Pools) with a third-party bank. Various Chubb entities participate in one or the other of the Pools, pursuant to which credit and debit balances in individual Chubb accounts are translated daily into a single currency and pooled on a notional basis. Individual Chubb entities are permitted to overdraw on their individual accounts provided the overall Pool balances do not fall below zero. At June 30, 2016 , the cash balance of one or more entities was negative; however, the overall Pool balances were positive.
 






43


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited)
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 subsidiaries
29,612

 
18,386

 
—

 
(47,998
)
 
—

Due from subsidiaries and affiliates, net
644

 
1,800

 
—

 
(2,444
)
 
—

Other assets
8

 
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 liabilities
276

 
1,422

 
12,916

 
(3,092
)
 
11,522

Total liabilities
1,158

 
11,196

 
78,257

 
(17,440
)
 
73,171

Total shareholders’ equity
29,135

 
17,288

 
30,710

 
(47,998
)
 
29,135

Total liabilities and shareholders’ equity
$
30,293

 
$
28,484

 
$
108,967

 
$
(65,438
)
 
$
102,306

(1)  
Chubb maintains two notional multicurrency cash pools (Pools) with a third-party bank. Various Chubb entities participate in one or the other of the Pools, pursuant to which credit and debit balances in individual Chubb accounts are translated daily into a single currency and pooled on a notional basis. Individual Chubb entities are permitted to overdraw on their individual accounts provided the overall Pool balances do not fall below zero. At December 31, 2015 , the cash balance of one or more entities was negative; however, the overall Pool balances were positive.


44
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited)
Chubb Limited and Subsidiaries


Condensed Consolidating Statements of Operations and Comprehensive Income
For the Three Months Ended June 30, 2016
Chubb
Limited
(Parent
Guarantor)

 
Chubb INA
Holdings Inc.
(Subsidiary
Issuer)

 
Other Chubb
Limited
Subsidiaries

 
Consolidating
Adjustments and Eliminations

 
Chubb
Limited
Consolidated

(in millions of U.S. dollars)
 
 
 
 
Net premiums written
$
—

 
$
—

 
$
7,639

 
$
—

 
$
7,639

Net premiums earned
—

 
—

 
7,405

 
—

 
7,405

Net investment income
1

 
3

 
704

 
—

 
708

Equity in earnings of subsidiaries
664

 
549

 
—

 
(1,213
)
 
—

Net realized gains (losses) including OTTI
(1
)
 
(1
)
 
(214
)
 
—

 
(216
)
Losses and loss expenses
—

 
—

 
4,254

 
—

 
4,254

Policy benefits
—

 
—

 
146

 
—

 
146

Policy acquisition costs and administrative expenses
16

 
96

 
2,277

 
—

 
2,389

Interest (income) expense
(93
)
 
233

 
13

 
—

 
153

Other (income) expense
(4
)
 
10

 
(35
)
 
—

 
(29
)
Amortization of purchased intangibles
—

 
—

 
5

 
—

 
5

Chubb integration expenses
14

 
(97
)
 
181

 
—

 
98

Income tax expense (benefit)
5

 
(37
)
 
187

 
—

 
155

Net income
$
726

 
$
346

 
$
867

 
$
(1,213
)
 
$
726

Comprehensive income
$
1,540

 
$
1,004

 
$
1,681

 
$
(2,685
)
 
$
1,540


During the second quarter of 2016, we refined our internal expense allocation processes and as a result we were able to more precisely identify which of our wholly-owned subsidiaries were responsible for specific Chubb integration expenses and subsequently transferred Chubb integration expenses of $97 million and income tax benefit of $34 million from Chubb INA Holdings Inc. to the Other Chubb Limited Subsidiaries column above. The offsetting movement is within Equity in earnings of subsidiaries in the Chubb INA Holdings Inc. column above.


45


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



Condensed Consolidating Statements of Operations and Comprehensive Income
For the Three Months Ended June 30, 2015
Chubb
Limited
(Parent
Guarantor)

 
Chubb INA
Holdings Inc.
(Subsidiary
Issuer)

 
Other Chubb
Limited
Subsidiaries

 
Consolidating
Adjustments and Eliminations

 
Chubb
Limited
Consolidated

(in millions of U.S. dollars)
 
 
 
 
Net premiums written
$
—

 
$
—

 
$
4,784

 
$
—

 
$
4,784

Net premiums earned
—

 
—

 
4,360

 
—

 
4,360

Net investment income
—

 
—

 
562

 
—

 
562

Equity in earnings of subsidiaries
901

 
296

 
—

 
(1,197
)
 
—

Net realized gains (losses) including OTTI
—

 
(2
)
 
128

 
—

 
126

Losses and loss expenses
—

 
—

 
2,417

 
—

 
2,417

Policy benefits
—

 
—

 
153

 
—

 
153

Policy acquisition costs and administrative expenses
18

 
7

 
1,280

 
—

 
1,305

Interest (income) expense
(7
)
 
69

 
9

 
—

 
71

Other (income) expense
(57
)
 
(4
)
 
23

 
—

 
(38
)
Amortization of purchased intangibles
—

 
—

 
55

 
—

 
55

Income tax expense (benefit)
5

 
(27
)
 
165

 
—

 
143

Net income
$
942

 
$
249

 
$
948

 
$
(1,197
)
 
$
942

Comprehensive income (loss)
$
397

 
$
(91
)
 
$
403

 
$
(312
)
 
$
397





46
Table of Contents

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


Condensed Consolidating Statements of Operations and Comprehensive Income
Six Months Ended June 30, 2016
Chubb
Limited
(Parent
Guarantor)

 
Chubb INA
Holdings Inc.
(Subsidiary
Issuer)

 
Other Chubb
Limited
Subsidiaries

 
Consolidating
Adjustments and Eliminations

 
Chubb
Limited
Consolidated

(in millions of U.S. dollars)
 
 
 
 
Net premiums written
$
—

 
$
—

 
$
13,634

 
$
—

 
$
13,634

Net premiums earned
—

 
—

 
14,002

 
—

 
14,002

Net investment income
2

 
7

 
1,373

 
—

 
1,382

Equity in earnings of subsidiaries
1,039

 
1,055

 
—

 
(2,094
)
 
—

Net realized gains (losses) including OTTI
(1
)
 
(1
)
 
(608
)
 
—

 
(610
)
Losses and loss expenses
—

 
—

 
7,928

 
—

 
7,928

Policy benefits
—

 
—

 
272

 
—

 
272

Policy acquisition costs and administrative expenses
33

 
132

 
4,409

 
—

 
4,574

Interest (income) expense
(173
)
 
448

 
24

 
—

 
299

Other (income) expense
(13
)
 
20

 
(8
)
 
—

 
(1
)
Amortization of purchased intangibles
—

 
—

 
12

 
—

 
12

Chubb integration expenses
17

 
40

 
189

 
—

 
246

Income tax expense (benefit)
11

 
(187
)
 
455

 
—

 
279

Net income
$
1,165

 
$
608

 
$
1,486

 
$
(2,094
)
 
$
1,165

Comprehensive income
$
3,081

 
$
2,060

 
$
3,402

 
$
(5,462
)
 
$
3,081


Condensed Consolidating Statements of Operations and Comprehensive Income
Six Months Ended June 30, 2015
Chubb
Limited
(Parent
Guarantor)

 
Chubb INA
Holdings Inc.
(Subsidiary
Issuer)

 
Other Chubb
Limited
Subsidiaries

 
Consolidating
Adjustments and Eliminations

 
Chubb
Limited
Consolidated

(in millions of U.S. dollars)
 
 
 
 
Net premiums written
$
—

 
$
—

 
$
8,860

 
$
—

 
$
8,860

Net premiums earned
—

 
—

 
8,287

 
—

 
8,287

Net investment income
1

 
1

 
1,111

 
—

 
1,113

Equity in earnings of subsidiaries
1,549

 
500

 
—

 
(2,049
)
 
—

Net realized gains (losses) including OTTI
—

 
(2
)
 
39

 
—

 
37

Losses and loss expenses
—

 
—

 
4,539

 
—

 
4,539

Policy benefits
—

 
—

 
295

 
—

 
295

Policy acquisition costs and administrative expenses
32

 
13

 
2,521

 
—

 
2,566

Interest (income) expense
(15
)
 
138

 
16

 
—

 
139

Other (income) expense
(98
)
 
(7
)
 
32

 
—

 
(73
)
Amortization of purchased intangibles
—

 
—

 
85

 
—

 
85

Income tax expense (benefit)
8

 
(53
)
 
308

 
—

 
263

Net income
$
1,623

 
$
408

 
$
1,641

 
$
(2,049
)
 
$
1,623

Comprehensive income (loss)
$
1,039

 
$
(67
)
 
$
1,057

 
$
(990
)
 
$
1,039








47


Table of Contents

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


Condensed Consolidating Statement of Cash Flows
Six Months Ended June 30, 2016
Chubb
Limited
(Parent
Guarantor)

 
Chubb INA
Holdings Inc.
(Subsidiary
Issuer)

 
Other Chubb
Limited
Subsidiaries

 
Consolidating
Adjustments and Eliminations

 
Chubb
Limited
Consolidated

(in millions of U.S. dollars)
 
 
 
 
Net cash flows from operating activities
$
3,213

 
$
4,050

 
$
2,262

 
$
(7,372
)
 
$
2,153

Cash flows from investing activities
 
 
 
 
 
 
 
 
 
Purchases of fixed maturities available for sale
—

 
(83
)
 
(16,994
)
 
—

 
(17,077
)
Purchases of fixed maturities held to maturity
—

 
—

 
(121
)
 
—

 
(121
)
Purchases of equity securities
—

 
—

 
(78
)
 
—

 
(78
)
Sales of fixed maturities available for sale
—

 
—

 
11,868

 
—

 
11,868

Sales of equity securities
—

 
—

 
932

 
—

 
932

Maturities and redemptions of fixed maturities available for sale
—

 
—

 
3,910

 
—

 
3,910

Maturities and redemptions of fixed maturities held to maturity
—

 
—

 
443

 
—

 
443

Net change in short-term investments
—

 
7,829

 
3,882

 
—

 
11,711

Net derivative instruments settlements
—

 
(10
)
 
(83
)
 
—

 
(93
)
Acquisition of subsidiaries (net of cash acquired of $71)
—

 
(14,282
)
 
34

 
—

 
(14,248
)
Capital contribution
(2,330
)
 
—

 
(2,330
)
 
4,660

 
—

Other
—

 
(3
)
 
84

 
—

 
81

Net cash flows (used for) from investing activities
(2,330
)
 
(6,549
)
 
1,547

 
4,660

 
(2,672
)
Cash flows from financing activities
 
 
 
 
 
 
 
 
 
Dividends paid on Common Shares
(530
)
 
—

 
—

 
—

 
(530
)
Proceeds from issuance of repurchase agreements
—

 
—

 
904

 
—

 
904

Repayment of repurchase agreements
—

 
—

 
(902
)
 
—

 
(902
)
Proceeds from share-based compensation plans, including windfall tax benefits
—

 
—

 
92

 
—

 
92

Dividend to parent company
—

 
—

 
(7,372
)
 
7,372

 
—

Advances (to) from affiliates
(247
)
 
221

 
26

 
—

 
—

Capital contribution
—

 
2,330

 
2,330

 
(4,660
)
 
—

Net proceeds from (payments to) affiliated notional cash pooling programs (1)
(106
)
 
157

 
—

 
(51
)
 
—

Policyholder contract deposits
—

 
—

 
274

 
—

 
274

Policyholder contract withdrawals
—

 
—

 
(103
)
 
—

 
(103
)
Other
—

 
(4
)
 
—

 
—

 
(4
)
Net cash flows (used for) from financing activities
(883
)
 
2,704

 
(4,751
)
 
2,661

 
(269
)
Effect of foreign currency rate changes on cash and cash equivalents
—

 
—

 
24

 
—

 
24

Net increase (decrease) in cash
—

 
205

 
(918
)
 
(51
)
 
(764
)
Cash – beginning of period (1)
1

 
2

 
2,743

 
(971
)
 
1,775

Cash – end of period (1)
$
1

 
$
207

 
$
1,825

 
$
(1,022
)
 
$
1,011

(1)  
Chubb maintains two notional multicurrency cash pools (Pools) with a third-party bank. Various Chubb entities participate in one or the other of the Pools, pursuant to which credit and debit balances in individual Chubb accounts are translated daily into a single currency and pooled on a notional basis. Individual Chubb entities are permitted to overdraw on their individual accounts provided the overall Pool balances do not fall below zero. At June 30, 2016 and December 31, 2015, the cash balance of one or more entities was negative; however, the overall Pool balances were positive.



48
Table of Contents

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


Condensed Consolidating Statement of Cash Flows
Six Months Ended June 30, 2015
Chubb
Limited
(Parent
Guarantor)

 
Chubb INA
Holdings Inc.
(Subsidiary
Issuer)

 
Other Chubb
Limited
Subsidiaries

 
Consolidating
Adjustments and Eliminations

 
Chubb
Limited
Consolidated

(in millions of U.S. dollars)
 
 
 
 
Net cash flows from (used for) operating activities
$
65

 
$
(35
)
 
$
1,861

 
$
—

 
$
1,891

Cash flows from investing activities
 
 
 
 
 
 
 
 
 
Purchases of fixed maturities available for sale
—

 
—

 
(9,210
)
 
—

 
(9,210
)
Purchases of fixed maturities held to maturity
—

 
—

 
(24
)
 
—

 
(24
)
Purchases of equity securities
—

 
—

 
(70
)
 
—

 
(70
)
Sales of fixed maturities available for sale
—

 
—

 
3,642

 
—

 
3,642

Sales of equity securities
—

 
—

 
102

 
—

 
102

Maturities and redemptions of fixed maturities
   available for sale
—

 
—

 
3,691

 
—

 
3,691

Maturities and redemptions of fixed maturities held to maturity
—

 
—

 
470

 
—

 
470

Net change in short-term investments
—

 
190

 
38

 
—

 
228

Net derivative instruments settlements
—

 
(9
)
 
(24
)
 
—

 
(33
)
Acquisition of subsidiaries (net of cash acquired of $620)
—

 
—

 
255

 
—

 
255

Other
—

 
(2
)
 
(69
)
 
—

 
(71
)
Net cash flows from (used for) investing activities
—

 
179

 
(1,199
)
 
—

 
(1,020
)
Cash flows from financing activities
 
 
 
 
 
 
 
 
 
Dividends paid on Common Shares
(427
)
 
—

 
—

 
—

 
(427
)
Common Shares repurchased
—

 
—

 
(750
)
 
—

 
(750
)
Proceeds from issuance of long-term debt
—

 
800

 
—

 
—

 
800

Proceeds from issuance of repurchase agreements
—

 
—

 
1,327

 
—

 
1,327

Repayment of long-term debt
—

 
(450
)
 
—

 
—

 
(450
)
Repayment of repurchase agreements
—

 
—

 
(1,327
)
 
—

 
(1,327
)
Proceeds from share-based compensation plans, including windfall tax benefits
—

 
—

 
46

 
—

 
46

Advances (to) from affiliates
223

 
(214
)
 
(9
)
 
—

 
—

Net proceeds from (payments to) affiliated notional cash pooling programs (1)
140

 
(272
)
 
—

 
132

 
—

Policyholder contract deposits
—

 
—

 
235

 
—

 
235

Policyholder contract withdrawals
—

 
—

 
(107
)
 
—

 
(107
)
Other
—

 
(6
)
 
—

 
—

 
(6
)
Net cash flows used for financing activities
(64
)
 
(142
)
 
(585
)
 
132

 
(659
)
Effect of foreign currency rate changes on cash and cash equivalents
—

 
—

 
(77
)
 
—

 
(77
)
Net increase in cash
1

 
2

 
—

 
132

 
135

Cash – beginning of period (1)
—

 
1

 
1,209

 
(555
)
 
655

Cash – end of period (1)
$
1

 
$
3

 
$
1,209

 
$
(423
)
 
$
790

(1)  
Chubb maintains two notional multicurrency cash pools (Pools) with a third-party bank. Various Chubb entities participate in one or the other of the Pools, pursuant to which credit and debit balances in individual Chubb accounts are translated daily into a single currency and pooled on a notional basis. Individual Chubb entities are permitted to overdraw on their individual accounts provided the overall Pool balances do not fall below zero. At June 30, 2015 and December 31, 2014, the cash balance of one or more entities was negative; however, the overall Pool balances were positive.


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ITEM 2. 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 six months ended June 30, 2016 .

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

Our results of operations and cash flows for any interim period are not necessarily indicative of our results for the full year. This discussion should be read in conjunction with our consolidated financial statements and related notes and our Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2015 ( 2015 Form 10-K).

Other Information
We routinely post important information for investors on our website (investors.chubb.com). We use this website as a means of disclosing material, non-public information and for complying with our disclosure obligations under Securities and Exchange Commission (SEC) Regulation FD (Fair Disclosure). Accordingly, investors should monitor the Investor Information portion of our website, in addition to following our press releases, SEC filings, 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.
MD&A Index
Page



50
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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 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;
•
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 Chubb 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
Chubb Limited is the Swiss-incorporated holding company of the Chubb Group of Companies. Chubb Limited, which is headquartered in Zurich, Switzerland, and its direct and indirect subsidiaries (collectively, the Chubb Group of Companies, Chubb, we, us, or our) are a global insurance and reinsurance organization, serving the needs of a diverse group of clients worldwide. At June 30, 2016 , we had total assets of $160 billion and shareholders’ equity of $47 billion . Chubb was incorporated in 1985 at which time it opened its first business office in Bermuda and continues to maintain operations in Bermuda.

On January 14, 2016, we completed the acquisition of The Chubb Corporation (Chubb Corp), creating a global leader in property and casualty 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 part of their names.

Products and Services
•
We are a global leader in traditional and specialty P&C coverage for industrial, commercial and mid-market companies with claims and risk engineering capabilities to serve companies of all sizes. Our commercial P&C business is focused on large corporate customers that are served by retail brokers, middle market and small commercial companies served by retail independent agents and brokers, and specialty excess and surplus lines (E&S) distributed through wholesale brokers.

•
On the consumer insurance side, we have a broad range of products for individual consumers and their families that include automobile, homeowners, fine art, planes and boats, personal liability, cell phones, accident, travel, supplemental health and life insurance. The consumer insurance product area where the Chubb Corp acquisition makes the greatest impact is property and casualty personal lines, primarily in the U.S. where the new Chubb remains the premier provider of personal lines to high net worth individuals and families. The balance of our global personal lines business is written outside the U.S. and ranges from general-market auto in Malaysia, Thailand and in Mexico, where we have over one million customers, to specialty mobile phone replacement coverage in Europe.

•
A&H business comprises personal accident and supplemental health coverage typically sold as either a group benefit via employer plans or as special insurance protection offerings from a sponsoring organization for its members and customers. We sell our A&H products through a variety of channels including independent agents, brokers, tied agents, direct marketing and bank branches.

•
Chubb Life is focused on Asia and primarily uses exclusive agency and bancassurance distribution.

•
Chubb Tempest Re, our global reinsurance business, provides a broad range of traditional reinsurance coverage to a diverse array of primary P&C companies. This business is offered worldwide through major business units in Bermuda, North America, Europe, and Asia, with expertise in property catastrophe reinsurance and other diversified lines. This business has been shrinking for several years in the face of declining reinsurance rates and increasing competition.

Customers
The new Chubb today has an extremely broad mix of commercial and personal customers. On the commercial side, our customers range from large domestic companies and multinational corporations to middle market commercial businesses of all sizes to small commercial enterprises and even the microbusiness market. On the personal insurance side, our customers range from high net worth families in the U.S., where we insure their homes, cars and precious valuables, to lower-middle income consumers in emerging markets purchasing accident insurance from their credit card, cell phone or utility provider. The addition of Chubb Corp’s leading franchises serving middle market commercial customers in the U.S., Europe and several major markets in Asia and Latin America, as well as their premier business serving U.S. high net worth individuals and families, substantially deepen and broaden the company’s portfolio of customer segments.

Segment Reporting
Effective the first quarter of 2016 and subsequent to our acquisition of Chubb Corp, we operate through the following business segments: North America Commercial P&C Insurance, North America Personal P&C Insurance, North America Agricultural Insurance, Overseas General Insurance, Global Reinsurance, and Life Insurance. 2015 results were revised to conform to the new segment presentation and only include legacy ACE results (i.e., does not include legacy Chubb results except in "As If" presentations as defined below).


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The segments are as follows:

•
The North America Commercial P&C Insurance segment includes the business written by Chubb divisions that provide property and casualty (P&C) insurance and services to large, middle market and small commercial businesses in the U.S., Bermuda and Canada. These divisions write a variety of coverages, including traditional commercial property, marine, general casualty, workers’ compensation, package policies, and risk management; specialty categories such as professional lines, marine and construction risk, environmental and cyber risk, excess casualty, as well as group accident and health (A&H) insurance.  The divisions included in this segment are North America Major Accounts, North America Commercial Insurance, Westchester and North America Small Commercial.
•
The North America Personal P&C Insurance segment includes the business written by Chubb’s North America Personal Risk Services division, which provides affluent and high net worth individuals and families with homeowners, automobile, valuables, umbrella and recreational marine insurance and services.
•
The North America Agricultural Insurance segment continues to include the business written by Rain and Hail Service, Inc. which provides comprehensive multiple peril crop and crop-hail insurance, and Chubb Agribusiness, which offers farm and ranch property as well as specialty P&C coverages, including commercial agriculture products.
•
The Overseas General Insurance segment includes the business written by two Chubb divisions that provide P&C insurance and services in the 51 countries outside of North America where the company operates.  Chubb International provides commercial P&C traditional and specialty lines serving large corporations, middle market and small customers. In addition, Chubb International provides A&H and traditional and specialty personal lines through retail brokers, agents and other channels locally around the world. Chubb Global Markets provides commercial P&C excess and surplus lines and A&H through wholesale brokers in the London market and through Lloyd’s.  These divisions write a variety of coverages, including traditional commercial property and casualty, specialty categories such as financial lines, marine, energy, aviation, political risk and construction risk, as well as group A&H and traditional and specialty personal lines. 
•
The Global Reinsurance segment primarily includes the reinsurance business written by Chubb Tempest Re as well as the legacy Chubb U.K. Assumed Reinsurance business, which is active, and the legacy Chubb run-off Reinsurance business.
•
There were no material changes to the Life Insurance segment, which continues to include the business written by Chubb Life, Chubb Tempest Life Re and Combined Insurance’s North America operations. The legacy Chubb life insurance business in Latin America is also included in this segment.

Corporate includes all run-off asbestos and environmental (A&E) exposures, the results of its run-off Brandywine business, the results of its Westchester Specialty operations for 1996 and prior years, and certain other run-off exposures. Chubb’s exposure to A&E claims principally arises out of liabilities acquired when it purchased Westchester Specialty in 1998, CIGNA’s P&C business in 1999, and legacy Chubb business in 2016. These A&E liabilities principally relate to claims arising from bodily-injury claims related to asbestos products and remediation costs associated with hazardous waste sites.  Corporate also includes the results of Chubb’s non-insurance companies, including Chubb Limited, Chubb Group Management and Holdings Ltd., and Chubb INA Holdings Inc. (Chubb INA).  Corporate results consist primarily of investment income, including the amortization of the fair value adjustment of acquired invested assets related to the Chubb Corp acquisition, the non-operating income of our partially-owned entities, interest expense, corporate staff expenses, Chubb integration expenses and other expenses not attributable to specific reportable segments. 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.

Segment income includes underwriting income, investment income and beginning with the second quarter of 2016, 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 that the segments are held accountable for. We determined that this definition of segment income is appropriate and aligns with how the business is managed. As we progress through the integration, and refine our processes, we may continue to further refine our segments and segment income measures.

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

We present financial measures on an "As If" basis on both the current and prior year 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 relating 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


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provide visibility into our results and 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 for the six months ended June 30, 2016 are inclusive of the first 14 days of January 2016 (the Chubb Corp acquisition closed January 14, 2016) and 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.

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 80 .
Financial Highlights for the Three Months Ended June 30, 2016

•
Net income was $726 million compared with $942 million in the prior year period.
•
Total company and P&C net premiums written of $7.6 billion and $7.1 billion, respectively, up 59.7 percent and 66.0 percent reflecting the acquisition of Chubb Corp. P&C net premiums written decreased 6.2 percent or 4.7 percent in constant dollars when compared with prior year as if legacy ACE and legacy Chubb were one company in 2015 ("As If" basis). The prior year net premiums written included $252 million from the transfer of the Fireman’s Fund in-force business at the time of the transaction which was non-recurring in 2016.
•
Total company net premiums earned increased 69.8 percent, or 73.0 percent in constant dollars, reflecting the acquisition of Chubb Corp. On an "As If" basis, total company net premiums earned decreased 1.3 percent, or increased 0.3 percent in constant dollars.
•
P&C combined ratio was 91.2 percent compared with 87.7 percent in the prior year period. On an “As If” basis, P&C combined ratio was 90.2 percent compared with 87.1 percent in the prior year period. On and "As If" basis, current accident year P&C combined ratio excluding catastrophe losses was 88.9 percent compared with 88.0 percent in the prior year period.
•
The P&C expense ratio was 31.6 percent, compared with 28.8 percent in the prior year period reflecting the purchase accounting adjustments related to the Chubb Corp acquisition in the current year as well as the Fireman’s Fund non-recurring transfer which benefited the prior year ratio by 1.3 percentage points. On an "As If" basis, the P&C expense ratio was 30.6 percent, compared with 30.3 percent in the prior year which included a 0.7 percentage points benefit from the non-recurring Fireman’s Fund transfer.
•
Total pre-tax and after-tax catastrophe losses were $390 million (5.7 percentage points of the combined ratio) and $311 million, respectively, compared with $124 million (3.2 percentage points of the combined ratio) and $106 million, respectively, in the prior year period. On an "As If" basis, total pre-tax catastrophe losses for the second quarter of 2015 were $274 million (3.9 percentage points of the combined ratio).
•
Total pre-tax and after-tax favorable prior period development were $301 million (4.4 percentage points of the combined ratio) and $241 million, respectively, compared with $153 million pre-tax (3.9 percentage points of the combined ratio) and $128 million after-tax in the prior year period. On an "As If" basis, total pre-tax favorable prior period development for second quarter of 2015 was $336 million (4.8 percentage points of the combined ratio).
•
Net investment income was $708 million which is net of $108 million related to the amortization of the fair value adjustment on acquired invested assets of Chubb Corp. Excluding this amortization, net investment income was $816 million, compared with $562 million last year.
•
The North America Personal P&C Insurance segment included $252 million of net premiums written and $49 million of underwriting income in the prior year period related to the transfer of Fireman’s Fund in-force business in April 2015 that were non-recurring in 2016.


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Consolidated Operating Results – Three and Six Months Ended June 30, 2016 and 2015
 
Three Months Ended
 
 
 
 
Six Months Ended
 
 
 
 
June 30
 
 
% Change

 
June 30
 
 
% Change

(in millions of U.S. dollars, except for percentages)
2016

 
2015

 
Q-16 vs.
Q-15

 
2016

 
2015

 
YTD-16 vs.
YTD-15

Net premiums written (1)
$
7,639

 
$
4,784

 
59.7
 %
 
$
13,634

 
$
8,860

 
53.9
 %
Net premiums earned (1)
7,405

 
4,360

 
69.8
 %
 
14,002

 
8,287

 
69.0
 %
Net investment income
708

 
562

 
26.0
 %
 
1,382

 
1,113

 
24.2
 %
Net realized gains (losses)
(216
)
 
126

 
NM

 
(610
)
 
37

 
NM

Total revenues
7,897

 
5,048

 
56.4
 %
 
14,774

 
9,437

 
56.6
 %
Losses and loss expenses
4,254

 
2,417

 
76.0
 %
 
7,928

 
4,539

 
74.7
 %
Policy benefits (2)
146

 
153

 
(4.6
)%
 
272

 
295

 
(7.8
)%
Policy acquisition costs
1,560

 
727

 
114.6
 %
 
2,973

 
1,434

 
107.3
 %
Administrative expenses
829

 
578

 
43.4
 %
 
1,601

 
1,132

 
41.4
 %
Interest expense
153

 
71

 
115.5
 %
 
299

 
139

 
115.1
 %
Other (income) expense (2)
(29
)
 
(38
)
 
(23.7
)%
 
(1
)
 
(73
)
 
(98.6
)%
Amortization of purchased intangibles
5

 
55

 
(90.9
)%
 
12

 
85

 
(85.9
)%
Chubb integration expenses
98

 
—

 
NM

 
246

 
—

 
NM

Total expenses
7,016

 
3,963

 
77.0
 %
 
13,330

 
7,551

 
76.5
 %
Income before income tax
881

 
1,085

 
(18.8
)%
 
1,444

 
1,886

 
(23.4
)%
Income tax expense
155

 
143

 
8.4
 %
 
279

 
263

 
6.1
 %
Net income
$
726

 
$
942

 
(22.8
)%
 
$
1,165

 
$
1,623

 
(28.2
)%
NM – not meaningful
 
 
 
 
 
 
 
 
 
 
 
(1)  
On a constant-dollar basis for the three and six months ended June 30, 2016 , net premiums written increased $2,938 million and $5,068 million, respectively, and net premiums earned increased $3,125 million and $5,977 million, respectively. Amounts are calculated by translating prior period results using the same local currency rates as the comparable current period.
(2)  
Other (income) expense includes (gains) losses from fair value changes in separate account assets that do not qualify for separate account reporting under GAAP. For the three and six months ended June 30 2016, these (gains) losses were $(3) million and nil, respectively, compared with $(6) million and $ (17) million in the prior year periods. The offsetting movement in the separate account liabilities is included in Policy benefits.


Net premiums written reflect the premiums we retain after purchasing reinsurance protection. Consolidated net premiums written increased $2,855 million and $4,774 million for the three and six months ended June 30, 2016 , respectively, primarily due to the Chubb Corp acquisition, which added $3.1 billion and $5.3 billion, respectively to premiums. This increase in premiums was partially offset by the adverse impact of foreign exchange of $83 million and $294 million, respectively. 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 $333 million and $399 million for the three and six months ended June 30, 2016 , respectively.

•
Net premiums written in our North America Commercial P&C Insurance segment increased $1,817 million and $2,822 million for the three and six months ended June 30, 2016 , respectively. On an "As If" basis, net premiums written were relatively flat for the three months ended June 30, 2016 , as slight increases in our North America Commercial Insurance (NACI) and Wholesale businesses were offset by a slight decrease in our Major Accounts business.

•
Net premiums written in our North America Personal P&C Insurance segment increased $684 million and $1,422 million for the three and six months ended June 30, 2016 , respectively. On an "As If" basis, net premiums written decreased $319 million and $257 million for the three and six months ended June 30, 2016 , respectively. The prior year included $252 million of non-recurring unearned premium reserves (UPR) related to the Fireman’s Fund high net worth personal lines business acquired in April 2015 recognized as written premiums at the date of acquisition. Excluding the non-recurring written premiums, on an "As If" basis, net premiums written decreased 5.2 percent for the


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three months ended June 30, 2016. For the six months ended June 30, 2016, net premiums written remained relatively flat.

•
Net premiums written in our Overseas General Insurance segment increased $362 million and $609 million for the three and six months ended June 30, 2016 , respectively. For the three and six months ended June 30, 2016 , on an "As If" constant-dollar basis, net premiums written increased by $11 million and $48 million, respectively, driven by growth in new personal residential business, property and casualty lines (P&C) and A&H lines, partially offset by declines in our excess and surplus lines.

•
Net premiums written in our Life Insurance segment increased $ 27 million and $ 52 million for the three and six months ended June 30, 2016, respectively and increased $3 million and $4 million, respectively, on an "As If" basis.  Growth in our Life insurance business was partially offset by the adverse foreign exchange impact. Our life reinsurance business continues to decline as there is no new life reinsurance business currently being written.

•
Net premiums written in our Global Reinsurance segment decreased $ 31 million and $ 103 million for the three and six months ended June 30, 2016 , respectively, and declined $ 36 million and $ 110 million, respectively, on an "As If" basis as we maintained underwriting discipline in an environment of flat to declining rates and increasing competition.

•
Net premiums written in our North America Agricultural Insurance segment decreased $4 million and $28 million for the three and six months ended June 30, 2016 , respectively, due to lower base prices used in our 2016 policy pricing.



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The following tables present a breakdown of consolidated net premiums written by line of business for the periods indicated:

 
 
 
 
 
Three Months Ended
 
 
 
 
 
 
 
 
June 30

 
 
 
 
 
 
 
 
 
 
 
 
 
C$ (1) Impact of Total FF and One-Time Item on Growth

(in millions of U.S. dollars, except for percentages)
2016

 
2015

 
% Change Q-16 vs.
Q-15

 
As If 2015

 
C$ (1)  As If Q-15

 
% Change C$ (1) Q-16 vs. As If Q-15

 
Commercial multiple peril (2)
$
236

 
$
—

 
NM

 
$
239

 
$
239

 
(1.3
)%
 
 
Commercial casualty
893

 
471

 
89.6
 %
 
848

 
848

 
5.3
 %
 
 
Workers' compensation
548

 
194

 
182.5
 %
 
503

 
503

 
8.9
 %
 
 
Professional liability
927

 
369

 
151.2
 %
 
954

 
945

 
(1.9
)%
 
 
Surety
149

 
80

 
86.3
 %
 
163

 
158

 
(5.7
)%
 
 
Property and other short-tail lines
1,097

 
818

 
34.1
 %
 
1,241

 
1,202

 
(8.7
)%
 
 
International other casualty
247

 
182

 
35.7
 %
 
227

 
224

 
10.3
 %
 
 
Total Commercial P&C
4,097

 
2,114

 
93.8
 %
 
4,175

 
4,119

 
(0.5
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Agriculture
375

 
379

 
(1.2
)%
 
379

 
379

 
(1.2
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Personal automobile
344

 
274

 
25.5
 %
 
416

 
397

 
(13.4
)%
 
(9.6
)%
Personal homeowners
898

 
325

 
176.3
 %
 
1,076

 
1,075

 
(16.5
)%
 
(17.4
)%
Personal other
405

 
276

 
46.7
 %
 
502

 
483

 
(16.1
)%
 
(21.5
)%
Total Personal lines
1,647

 
875

 
88.2
 %
 
1,994

 
1,955

 
(15.8
)%
 
(16.8
)%
Total Property and Casualty lines
6,119

 
3,368

 
81.7
 %
 
6,548

 
6,453

 
(5.2
)%
 
(5.0
)%
Other Lines
 
 
 
 
 
 
 
 
 
 
 
 
 
Global A&H (3)
1,029

 
910

 
13.1
 %
 
1,025

 
997

 
3.2
 %
 
 
Reinsurance
230

 
261

 
(11.9
)%
 
266

 
265

 
(13.0
)%
 
 
Life
261

 
245

 
6.5
 %
 
269

 
257

 
1.6
 %
 
 
Total consolidated
$
7,639

 
$
4,784

 
59.7
 %
 
$
8,108

 
$
7,972

 
(4.2
)%
 
(4.0
)%
(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 personal lines increased 88.2 percent for the three months ended June 30, 2016, compared to the prior year period, primarily reflecting the Chubb Corp acquisition.  On a constant-dollar “As If” basis, total personal lines growth declined 15.8 percent, reflecting lower renewal premium retention on the acquired Fireman’s Fund high net worth personal lines business (Fireman’s Fund) and our decision to exit the legacy Chubb Brazilian high net worth automobile business due to competitive market conditions.  In addition, the prior year period included $252 million of non-recurring UPR related to the Fireman’s Fund business recognized as written premiums at the date of acquisition that is non-recurring in 2016 as well as a non-recurring reinsurance benefit in the prior year of $19 million related to a modification in terms related to a ceded reinsurance contract that resulted in a reinsurance return premium. 

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, typically traditional life contracts, generally are recognized as earned when due from policyholders. Net premiums earned increased $3,045 million and $5,715 million for the three and six months ended June 30, 2016 , respectively, primarily due to the Chubb Corp acquisition which added about $3.1 billion and $5.9 billion, respectively, of growth to premiums partially offset


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by the adverse impact of foreign currency of $80 million and $262 million. On a constant-dollar basis, net premiums earned increased $3,125 million and $5,977 million, for the three and six months ended June 30, 2016 , respectively.

On an "As If" constant-dollar basis, net premiums earned increased $22 million for the three months ended June 30, 2016 , primarily in our Overseas General Insurance and Life Insurance segments due to the same factors driving the increase in net premiums written as described above. The North America Commercial P&C Insurance net premiums earned increased $ 36 million despite the decline in net premiums written reflecting the earning in of prior year premium growth. Net premiums earned in our North America Agricultural Insurance also increased due to lower cessions under existing third party proportional reinsurance programs, and Global Reinsurance segment declined due to the same factors driving the decrease in net premiums written as described above.

On an "As If" constant-dollar basis, net premiums earned increased $225 million for the six months ended June 30, 2016 , due to the same factors driving the increase in net premiums written as described above.

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 the P&C combined ratio. A reconciliation of the P&C combined ratio to the GAAP combined ratio is provided under the Non-GAAP Reconciliation section starting on page 80 .
 
Three Months Ended
 
 
Six Months Ended
 
 
June 30
 
 
June 30
 
 
2016

 
2015

 
2016

 
2015

Loss and loss expense ratio
59.6
%
 
58.9
%
 
58.5
%
 
58.0
%
Policy acquisition cost ratio
20.6
%
 
15.7
%
 
20.9
%
 
16.5
%
Administrative expense ratio
11.0
%
 
13.1
%
 
11.2
%
 
13.5
%
P&C combined ratio
91.2
%
 
87.7
%
 
90.6
%
 
88.0
%
The following table presents the pre-tax catastrophe losses, excluding reinstatement premiums, and pre-tax favorable prior period development:
 
Three Months Ended June 30
 
 
Six Months Ended June 30
 
 
 
 
As If

 
 
 
As If
(in millions of U.S dollars)
2016

2015

 
2015

 
2016

2015

 
2016

2015

Catastrophe losses, pre-tax
$
396

$
124

 
$
274

 
$
654

$
175

 
$
654

$
589

Favorable prior period development, pre-tax
$
301

$
153

 
$
336

 
$
548

$
236

 
$
548

$
528


Catastrophe losses for the three and six months ended June 30, 2016 , were primarily related to severe weather-related events in the U.S. and Europe, a wildfire in Canada, and an earthquake in Ecuador. Catastrophe losses in the prior year periods were primarily related to severe weather-related events in the U.S. and Asia, a hailstorm in Australia, and flooding in Chile.

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.



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The following table presents the break out of catastrophe losses for the three months ended June 30, 2016 , by segment, both gross and net of reinsurance.
 
North America Commercial P&C Insurance

 
North America Personal P&C Insurance

 
North America Agricultural Insurance

 
Overseas General Insurance

 
Global
Reinsurance

 
Chubb
Consolidated

For the Three Months Ended
 
 
 
 
June 30, 2016
 
 
 
 
(in millions of U.S. dollars)
 
 
 
 
Catastrophe Loss Charge by Event - Gross
 
 
 
 
 
 
 
 
 
 
 
Texas storms
$
64

 
$
32

 
$
1

 
$
3

 
$
3

 
$
103

Other U.S. flooding, tornadoes, hail, wind
86

 
60

 
11

 
1

 
—

 
158

Japan & Ecuador earthquakes
—

 
—

 
—

 
38

 
—

 
38

Other international events
—

 
—

 
—

 
97

 
—

 
97

Fort McMurray wildfire
20

 
1

 
—

 
—

 
57

 
78

Other
19

 
4

 
2

 
4

 
—

 
29

Total
$
189

 
$
97

 
$
14

 
$
143

 
$
60

 
$
503

Catastrophe Loss Charge by Event - Net
 
 
 
 
 
 
 
 
 
 
 
Texas storms
$
56

 
$
32

 
$
1

 
$
3

 
$
3

 
$
95

Other U.S. flooding, tornadoes, hail, wind
77

 
60

 
11

 
1

 
—

 
149

Japan & Ecuador earthquakes
—

 
—

 
—

 
31

 
—

 
31

Other international events
—

 
—

 
—

 
34

 
—

 
34

Fort McMurray wildfire
20

 
1

 
—

 
—

 
49

 
70

Other
7

 
4

 
2

 
4

 
—

 
17

Total
$
160

 
$
97

 
$
14

 
$
73

 
$
52

 
$
396

Reinstatement premium collected
$
—

 
$
—

 
$
—

 
$
—

 
$
6

 
$
6

Total impact before income tax
$
160

 
$
97

 
$
14

 
$
73

 
$
46

 
$
390

Total impact after income tax
$
118

 
$
71

 
$
10

 
$
66

 
$
46

 
$
311


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. The loss ratio numerator includes adjusted 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.
 
Three Months Ended
 
 
Six Months Ended
 
 
June 30
 
 
June 30
 
 
2016

 
2015

 
2016

 
2015

Loss and loss expense ratio
59.6
 %
 
58.9
 %
 
58.5
 %
 
58.0
 %
Catastrophe losses and related reinstatement premiums
(5.7
)%
 
(3.2
)%
 
(5.0
)%
 
(2.4
)%
Prior period development
4.5
 %
 
4.0
 %
 
4.4
 %
 
3.3
 %
Loss and loss expense ratio, adjusted
58.4
 %
 
59.7
 %
 
57.9
 %
 
58.9
 %

The adjusted loss and loss expense ratio decreased 1.3 percentage points and 1.0 percentage points for the three and six months ended June 30, 2016 , respectively, primarily due to the net favorable impact of the Chubb Corp acquisition which carries a relatively lower loss ratio in our North America P&C businesses but carries a higher loss ratio in our international business. The current periods also included claims handling expense savings realized in connection with the integration of Chubb Corp of $18 million for both the three and six months ended June 30, 2016.



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On an "As-If" basis, the adjusted loss and loss expense ratio increased 0.7 percentage points and 0.3 percentage points for the three and six months ended June 30, 2016, respectively, primarily due to a low level of short-tail large losses in the prior year, partially offset by claims handling expense savings as noted above.

Policy acquisition costs consist of commissions, premium taxes, and certain underwriting costs directly related to the successful acquisition of a new or renewal insurance contract. Our policy acquisition cost ratio increased 4.9 percentage points and 4.4 percentage points for the three and six months ended June 30, 2016 , respectively, primarily due to the normal impact of initial year purchase accounting adjustments related to the Chubb Corp acquisition and the prior year acquisition of Fireman's Fund. The Chubb Corp purchase accounting includes a fair value adjustment related to the unearned premiums at the date of the purchase. This adjustment is then amortized into policy acquisition costs over the remaining coverage period. 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 $66 million and $130 million for the three and six months ended June 30, 2016 , respectively, or 0.9 percentage points to the policy acquisition cost ratio for both periods. The prior year Fireman's Fund purchase accounting included the favorable impact related to the recognition of the acquired unearned premiums without having to recognize the associated policy acquisition costs. The net impact of the Fireman's Fund purchase accounting adjustments was an increase of 1.3 percentage points and 0.7 percentage points for the three and six months ended June 30, 2016, respectively. 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 $73 million (1.1 percentage points to the ratio) and $144 million (1.1 percentage points to the ratio) increase to policy acquisition costs, with an offsetting decrease to administrative expenses for the three and six months ended June 30, 2016, respectively.

On an "As If" basis, the policy acquisition cost ratio increased by 0.6 percentage points and 0.5 percentage points for the three and six months ended June 30, 2016 , respectively, primarily due to the impact of the Fireman’s Fund acquisition in 2015.

Our administrative expense ratio decreased by 2.1 percentage points and 2.3 percentage points for the three and six months ended June 30, 2016, respectively, primarily due to the $73 million (1.1 percentage points to the ratio) and $144 million (1.1 percentage points to the ratio) reclassification of underwriting costs that are directly attributable to the successful acquisition of business, as discussed above, and cost savings realized as a result of the Chubb Corp acquisition of $46 million and $74 million, respectively.

On an "As If" basis, our administrative expense ratio decreased 0.3 percentage points and 0.4 percentage points for the three and six months ended June 30, 2016 , respectively primarily due to cost savings realized as a result of the Chubb Corp acquisition, partially offset by increased spending to support growth.



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The following table presents consolidated integration related savings realized by segment and income statement line item for the three and six months ended June 30, 2016:
(in millions of U.S. dollars)
 
North America Commercial P&C Insurance

 
North America Personal P&C Insurance

 
Overseas General Insurance

 
Corporate

 
Consolidated

 
For the Three Months Ended
June 30, 2016
Losses and loss expenses
 
$
9

 
$
6

 
$
3

 
$
—

 
$
18

Policy acquisition costs
 
4

 
—

 
2

 
—

 
6

Administrative expenses
 
18

 
10

 
11

 
7

 
46

Net investment income
 
1

 
1

 
—

 
—

 
2

Total
 
$
32

 
$
17

 
$
16

 
$
7

 
$
72

For the Six Months Ended
 
 
 
 
 
 
 
 
 
 
June 30, 2016
 
 
 
 
 
 
 
 
 
 
Losses and loss expenses
 
$
9

 
$
6

 
$
3

 
$
—

 
$
18

Policy acquisition costs
 
4

 
—

 
2

 
—

 
6

Administrative expenses
 
32

 
15

 
17

 
10

 
74

Net investment income
 
1

 
1

 
—

 
—

 
2

Total
 
$
46

 
$
22

 
$
22

 
$
10

 
$
100


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 effective income tax rate was 17.6 percent and 19.3 percent for the three and six months ended June 30, 2016, respectively. Our effective income tax rate was 13.2 percent and 13.9 percent for the three and six months ended June 30, 2015, respectively. The increase in the effective rate is primarily due to a higher percentage of realized losses being generated in lower taxing jurisdictions and a higher percentage of operating profits being generated in higher taxing jurisdictions, primarily driven by the earnings generated as a result of the Chubb Corp acquisition. The lower tax rates attributed to our foreign operations primarily reflect the lower corporate tax rates that prevail outside of the U.S. During the three and six months ended June 30, 2016, approximately 51 percent and 46 percent of our total pre-tax income was tax effected based on these lower rates compared with 66 percent for both the three and six months ended June 30, 2015. 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 20.0 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 $23 million and $42 million for the three and six months ended June 30, 2016, respectively.

Prior Period Development
The following tables summarize (favorable) and adverse prior period development (PPD) by segment. Long-tail lines include lines such as workers' compensation, general liability, and professional liability; while short-tail lines include lines such as most property lines, energy, personal accident, 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 and short-tail business for each segment comprises numerous favorable and adverse movements across a number of lines and accident years, none of which is significant individually or in the aggregate.


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Three Months Ended June 30
 
 
Six Months Ended June 30
 
(in millions of U.S. dollars)
Long-tail    

 
Short-tail

 
Total

 
Long-tail    

 
Short-tail

 
Total

2016
 
 
 
 
 
 
 
 
 
 
 
North America Commercial P&C Insurance
$
(167
)
 
$
(1
)
 
$
(168
)
 
$
(309
)
 
$
(37
)
 
$
(346
)
North America Personal P&C Insurance
(4
)
 
(11
)
 
(15
)
 
(4
)
 
(14
)
 
(18
)
North America Agricultural Insurance
—

 
—

 
—

 
—

 
(41
)
 
(41
)
Overseas General Insurance
(1
)
 
(84
)
 
(85
)
 
(1
)
 
(114
)
 
(115
)
Global Reinsurance
(47
)
 
—

 
(47
)
 
(49
)
 
(1
)
 
(50
)
Corporate
14

 
—

 
14

 
22

 
—

 
22

Total
$
(205
)
 
$
(96
)
 
$
(301
)
 
$
(341
)
 
$
(207
)
 
$
(548
)
2015
 
 
 
 
 
 
 
 
 
 
 
North America Commercial P&C Insurance
$
(84
)
 
$
(12
)
 
$
(96
)
 
$
(86
)
 
$
(40
)
 
$
(126
)
North America Personal P&C Insurance
—

 
—

 
—

 
—

 
—

 
—

North America Agricultural Insurance
—

 
—

 
—

 
—

 
(33
)
 
(33
)
Overseas General Insurance
1

 
(69
)
 
(68
)
 
1

 
(93
)
 
(92
)
Global Reinsurance
(39
)
 
3

 
(36
)
 
(40
)
 
(1
)
 
(41
)
Corporate
47

 
—

 
47

 
56

 
—

 
56

Total
$
(75
)
 
$
(78
)
 
$
(153
)
 
$
(69
)
 
$
(167
)
 
$
(236
)


North America Commercial P&C Insurance

2016
For the three months ended June 30, 2016, net favorable PPD was $168 million, which was the net result of several underlying favorable and adverse movements, driven by the following principal changes:

•
Net favorable development of $167 million in long-tail business, primarily from:

•
Net favorable development of $114 million in our workers’ compensation lines with favorable development of $40 million in the 2015 accident year related to our annual assessment of multi-claimant events including industrial accidents. 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. Favorable development of $59 million driven by accident years 2011 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. Adverse development in accident years 2012 through 2015 was due to a small number of large claims in our excess business;

•
Net favorable development of $50 million in our commercial-multi peril (CMP) and monoline general liability lines, driven by favorable paid and reported loss activity relative to prior expectations, principally in accident years 2007 through 2014; and

•
Net favorable development of $20 million in our professional E&O portfolios, in the 2003 accident year due to a favorable development on a specific claim.

For the six months ended June 30, 2016, net favorable PPD was $346 million, which was the net result of several underlying favorable and adverse movements, driven by the following principal changes:

•
Net favorable development of $309 million in long-tail business, primarily from:

•
Favorable development of $145 million in our commercial excess and umbrella portfolios, driven by continued lower than expected reported loss activity in accident years 2010 and prior; in general, the severity of claims has been less than previously expected;


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•
Net favorable development of $114 million on our workers’ compensation lines as described above;

•
Favorable development of $63 million in our professional E&O portfolios, primarily impacting the 2012 and prior accident years and arising from both lower than expected reported loss activity and re-assessments of remaining claim-specific liabilities for the older accident years; and

•
Net favorable development of $24 million in our primary casualty and general liability portfolios was driven by $50 million favorable development in our CMP and monoline general liability lines as described above, and $26 million adverse development due to higher than expected reported loss activity, mainly associated with construction defect coverages.

•
Net favorable development of $37 million in short-tail business, primarily from favorable development of $24 million in our surety business, due to favorable claim emergence in the 2013 accident year.

2015
For the three months ended June 30, 2015, net favorable PPD was $96 million, which was the net result of several underlying favorable and adverse movements, driven by the following principal changes:

•
Net favorable development of $84 million in long-tail business, primarily from 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 $32 million in our auto liability excess lines primarily impacting the 2010 accident year, resulting from lower than expected loss emergence and an increase in weighting applied to experience-based methods;

•
Favorable development of $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; and

•
Net favorable development of $22 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 close of the accident year to allow for late reporting or identification of significant losses. Adverse development of $30 million impacting the 2009 and prior accident years, was due to a combination of claim-specific deteriorations and higher than expected loss emergence. There was additional adverse development in the 2014 accident year due to revised account-level estimates, which proved to be higher than our original aggregate book expectations.

For the six months ended June 30, 2015, net favorable PPD was $126 million, which was the net result of several underlying favorable and adverse movements, driven by the following principal changes:

•
Net favorable development of $86 million in long-tail business, primarily from favorable development of $84 million in our national accounts portfolios as described above.

•
Net favorable development of $40 million in short-tail business, primarily from favorable development of $24 million in our surety business due to lower than expected claims emergence primarily in the 2013 accident year.


North America Personal P&C Insurance

For the three and six months ended June 30, 2016, net favorable PPD was $15 million and $18 million, respectively, which were the net result of several underlying favorable and adverse movements, none of which were significant individually or in the aggregate. There was no prior period development in the prior year periods.



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North America Agricultural Insurance

There was no PPD in both the three months ended June 30, 2016 and 2015.

For the six months ended June 30, 2016, net favorable PPD was $41 million compared with $33 million the prior year period. Actual claim development in the first quarter of 2016 for the 2015 crop year for the Multiple Peril Crop Insurance (MPCI) business was favorable due to better than expected crop yield results in certain states at year-end 2015.

Overseas General Insurance

2016
For the three months ended June 30, 2016, net favorable PPD was $85 million, which was the net result of several underlying favorable and adverse movements, driven by the following principal changes:

•
Net favorable development of $84 million in short-tail business, primarily from:

•
Favorable development of $38 million in property (excluding technical lines), primarily from favorable Continental Europe loss emergence in accident years 2013 through 2015; and

•
Favorable development of $32 million in energy lines, primarily from a claims review of catastrophe impacts on underwriting years 2004 through 2008, as well as favorable loss emergence in accident years 2010 through 2013, primarily in offshore where experience has been better than expected.

For the six months ended June 30, 2016, net favorable PPD was $115 million, due primarily to the same factors experienced for the three months ended June 30, 2016 as described above.

2015
For the three months ended June 30, 2015, net favorable PPD was $68 million, which was the net result of several underlying favorable and adverse movements, driven by the following principal change:

•
Net favorable development of $69 million in short-tail business, primarily from property and marine lines. Favorable development on specific claims and an increase in weighting applied to experience-based methods in accident years 2013 and prior led to an $88 million reduction. Unfavorable large loss experience in accident year 2014 led to a $19 million increase.

For the six months ended June 30, 2015, net favorable PPD was $92 million, which was the net result of several underlying favorable and adverse movements, driven by the following principal changes:

•
Net favorable development of $93 million in short-tail business, primarily from:

•
Favorable development of $73 million primarily in property and marine lines due to the same factors experienced for the three months ended June 30, 2015 as described above; and

•
Favorable development of $20 million in consumer business mainly in Latin America and Asia Pacific, resulting from lower than expected loss emergence and an increase in weighting applied to experience-based methods in accident years 2012 and 2013.




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Global Reinsurance

2016
For the three and six months ended June 30, 2016, net favorable PPD was $47 million and $50 million, respectively, which were the net result of several underlying favorable and adverse movements, driven by the following principal change:

•
Favorable development of $41 million in casualty lines primarily impacting treaty years 2011 and prior, principally resulting from lower than expected loss emergence.

2015
For the three and six months ended June 30, 2015, net favorable PPD was $36 million and $41 million, respectively, which were the net result of several underlying favorable and adverse movements across a number of lines, driven by the following principal change:

•
Favorable development of $23 million in casualty lines primarily impacting treaty years 2009 and prior, principally resulting from lower than expected loss emergence combined with an increase in weighting applied to experience-based methods.

Corporate

2016
For the three and six months ended June 30, 2016, net adverse development was $14 million and $22 million, respectively, primarily due to unallocated loss adjustment expenses paid and incurred in the respective periods on our run-off lines.

2015
For the three months ended June 30, 2015, net adverse development was $47 million in our runoff portfolios, principally in the general and products liability lines, impacting the 1995 and prior accident years, where loss activity was higher than expected.

For the six months ended June 30, 2015, net adverse development was $56 million in our runoff portfolios for the same factors experienced for the three months ended June 30, 2015 described above and including loss adjustment expenses.



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Segment Operating Results – Three and Six Months Ended June 31, 2016 and 2015

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 six business segments: North America Commercial P&C Insurance, North America Personal P&C Insurance, North America Agricultural Insurance, Overseas General Insurance, Global Reinsurance, and Life Insurance. We have also redefined Corporate to include all 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 presentation.

North America Commercial P&C Insurance

The North America Commercial P&C Insurance segment comprises 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 North American Major Accounts and Specialty Insurance (principally large corporate accounts and wholesale business), and the North American Commercial Insurance divisions (principally middle market and small commercial accounts).
 
Three Months Ended
 
 
 
 
Six Months Ended
 
 
 
 
June 30
 
 
% Change

 
June 30
 
 
% Change

(in millions of U.S. dollars, except for percentages)
2016

 
2015

 
Q-16 vs.
Q-15

 
2016

 
2015

 
YTD-16 vs.
YTD-15

Net premiums written
$
3,245

 
$
1,428

 
127.4
%
 
$
5,547

 
$
2,725

 
103.6
%
Net premiums earned
3,148

 
1,419

 
121.8
%
 
6,044

 
2,799

 
115.9
%
Losses and loss expenses
1,971

 
916

 
115.2
%
 
3,718

 
1,831

 
103.1
%
Policy acquisition costs
545

 
131

 
NM

 
1,027

 
261

 
293.5
%
Administrative expenses
299

 
154

 
94.2
%
 
565

 
305

 
85.2
%
Underwriting income
333

 
218

 
52.8
%
 
734

 
402

 
82.6
%
Net investment income
468

 
262

 
78.6
%
 
894

 
520

 
71.9
%
Other (income) expense
(9
)
 
1

 
NM

 
(9
)
 
(2
)
 
NM

Segment income
$
810

 
$
479

 
69.1
%
 
$
1,637

 
$
924

 
77.2
%
Loss and loss expense ratio
62.6
%
 
64.5
%
 
 
 
61.5
%
 
65.4
%
 
 
Policy acquisition cost ratio
17.3
%
 
9.2
%
 
 
 
17.0
%
 
9.3
%
 
 
Administrative expense ratio
9.6
%
 
10.9
%
 
 
 
9.4
%
 
10.9
%
 
 
Combined ratio
89.5
%
 
84.6
%
 
 
 
87.9
%
 
85.6
%
 
 

Net premiums written increased $1,817 million and $2,822 million for the three and six months ended June 30, 2016 , respectively, primarily due to the Chubb Corp acquisition which added about $1.7 billion and $2.8 billion of growth in premiums, respectively.
 
For the three months ended June 30, 2016 on an "As If" basis, net premiums written were relatively flat as slight increases in our North America Commercial Insurance (NACI) and Wholesale businesses were offset by a slight decrease in our Major Accounts business. Within Major Accounts, growth in our risk management business, reflecting new business written, was more than offset by declines in property and specialty lines and casualty lines, due to $35 million of additional third-party reinsurance purchased and competitive market conditions. Within our NACI business, growth in casualty, primarily workers' compensation lines, was partially offset by declines in our property lines due to lower new business and lower renewals, reflecting competitive market conditions.

For the six months ended June 30, 2016 , on an "As If" basis, net premiums written declined $115 million, principally reflecting an additional $48 million of third-party reinsurance purchased and lower new business, driven by competitive market conditions, and rate declines. Partially offsetting the decline is growth in our global risk management and workers' compensation lines reflecting new business and strong renewals.


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Net premiums earned increased 121.8 percent and 115.9 percent for the three and six months ended June 30, 2016 , respectively, primarily due to the Chubb Corp acquisition which added $1.7 billion (120.0 percent) and $3.2 billion (115.0 percent) of growth to premiums, respectively. On an "As If" basis, net premiums earned increased $ 34 million and $64 million, respectively, reflecting the earning in of prior year premium growth.
The following table presents the pre-tax catastrophe losses and pre-tax favorable prior period development:
 
Three Months Ended June 30
 
 
Six Months Ended June 30
 
 
 
 
As If

 
 
 
As If
(in millions of U.S. dollars)
2016

2015

 
2015

 
2016

2015

 
2016

2015

Catastrophe losses, pre-tax
$
160

$
41

 
$
100

 
$
241

$
50

 
$
241

$
166

Favorable prior period development, pre-tax
$
168

$
96

 
$
246

 
$
346

$
126

 
$
346

$
361


Catastrophe losses through June 30, 2016 were primarily from severe weather-related events in the U.S. and a wildfire in Canada. Catastrophe losses through June 30, 2015, were primarily from 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:
 
Three Months Ended
 
 
Six Months Ended
 
 
June 30
 
 
June 30
 
 
2016

 
2015

 
2016

 
2015

Loss and loss expense ratio
62.6
 %
 
64.5
 %
 
61.5
 %
 
65.4
 %
Catastrophe losses and related reinstatement premiums
(5.1
)%
 
(2.8
)%
 
(4.0
)%
 
(1.8
)%
Prior period development
5.4
 %
 
6.9
 %
 
5.8
 %
 
4.6
 %
Loss and loss expense ratio, adjusted
62.9
 %
 
68.6
 %
 
63.3
 %
 
68.2
 %

The adjusted loss and loss expense ratio decreased 5.7 percentage points and 4.9 percentage points for the three and six months ended June 30, 2016 , respectively, primarily due to the addition of the Chubb Corp business, which carried a lower loss ratio, and claims handling expense savings realized in connection with the integration of Chubb Corp of $9 million (0.3 and 0.1 percentage points) for both the three and six months ended June 30, 2016, respectively. On an "As If" basis, the adjusted loss and loss expense ratio was relatively flat for both the three and six months ended June 30, 2016 .

The policy acquisition cost ratio increased 8.1 percentage points and 7.7 percentage points for the three and six months ended June 30, 2016 , respectively, primarily due to the addition of the Chubb Corp business which has a higher acquisition cost ratio and the normal impact of initial year purchase accounting adjustments related to the Chubb Corp acquisition. The Chubb Corp purchase accounting includes a fair value adjustment related to 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 $46 million and $92 million for the three and six months ended June 30, 2016, respectively, or 1.4 percentage points and 1.5 percentage points to the policy acquisition cost ratio, respectively. 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 $31 million (1.0 percentage point of the ratio) and $63 million (1.0 percentage point of the ratio) increase to policy acquisition costs for the three and six months ended June 30, 2016 , respectively, with an offsetting decrease to administrative expenses.

On an "As If" basis, which excludes purchase accounting adjustments, the policy acquisition cost ratio was relatively flat for both the three and six months ended June 30, 2016 .
The administrative expense ratio decreased by 1.3 percentage points and 1.5 percentage points for the three and six months ended June 30, 2016 , respectively, primarily due to the $31 million and $63 million reclassification, respectively, noted above which decreased the administrative expense ratio by 1.0 percentage points for each period, cost savings realized of $18 million (0.6 percentage points) and $32 million (0.5 percentage points), respectively, 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 remained relatively flat for both the three and six months ended June 30, 2016 , as cost savings realized of $18 million (0.6 percentage points) and $32 million (0.5 percentage points), respectively, were offset by increased spending to support growth.

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.
 
Three Months Ended
 
 
 
 
Six Months Ended
 
 
 
 
June 30
 
 
% Change

 
June 30
 
 
% Change

(in millions of U.S. dollars, except for percentages)
2016

 
2015

 
Q-16 vs.
Q-15

 
2016

 
2015

 
YTD-16 vs.
YTD-15

Net premiums written
$
1,231

 
$
547

 
125.1
%
 
$
2,102

 
$
680

 
209.2
%
Net premiums earned
1,140

 
269

 
NM

 
2,164

 
415

 
NM

Losses and loss expenses
661

 
156

 
NM

 
1,322

 
267

 
NM

Policy acquisition costs
269

 
(1
)
 
NM

 
518

 
30

 
NM

Administrative expenses
98

 
34

 
188.2
%
 
186

 
53

 
250.9
%
Underwriting income
112

 
80

 
40.0
%
 
138

 
65

 
112.3
%
Net investment income
55

 
7

 
NM

 
102

 
12

 
NM

Other (income) expense
3

 
—

 
NM

 
4

 
—

 
NM

Segment income
$
164

 
$
87

 
88.5
%
 
$
236

 
$
77

 
206.5
%
Loss and loss expense ratio
58.0
%
 
57.9
 %
 


 
61.1
%
 
64.3
%
 

Policy acquisition cost ratio
23.6
%
 
(0.3
)%
 


 
23.9
%
 
7.2
%
 


Administrative expense ratio
8.5
%
 
13.0
 %
 


 
8.6
%
 
12.9
%
 


Combined ratio
90.1
%
 
70.6
 %
 
 
 
93.6
%
 
84.4
%
 
 
NM – not meaningful
 
 
 
 
 
 
 
 
 
 
 
Net premiums written increased $684 million and $1,422 million for the three and six months ended June 30, 2016 , primarily due to the acquisition of the Chubb Corp which added about $1.0 billion and $1.7 billion of growth to premiums, respectively.
For the three and six months ended June 30, 2016, on an "As If" basis, net premiums written decreased 20.6 percent and 10.5 percent respectively. The prior year included $252 million of non-recurring unearned premium reserves (UPR) related to the Fireman’s Fund high net worth personal lines business acquired in April 2015 recognized as written premiums at the date of acquisition. Excluding the non-recurring written premiums, on an "As If" basis, net premiums written decreased 5.2 percent for the three months ended June 30, 2016, primarily due to lower renewal premium retention on the acquired Fireman's Fund business and a one-time benefit of $19 million in the prior year from a modification in terms related to a ceded reinsurance contract that resulted in a reinsurance return premium. This decrease was partially offset by growth in both our Chubb high net worth and ACE Private Risk services businesses, primarily within our homeowner lines, driven by strong renewal premium retention, rate and exposure increases as well as modest growth in new business. For the six months ended June 30, 2016 , excluding the non-recurring written premium from the Fireman's Fund acquisition, net premiums written remained relatively flat.
Net premiums earned increased $871 million and $1,749 million for the three and six months ended June 30, 2016, respectively, primarily due to the Chubb Corp acquisition. On an "As If" basis, net premiums earned decreased $20 million for the three months ended June 30, 2016 primarily due to the same factors driving the decrease in net premiums written as described above. For the six months ended June 30, 2016, on an "As If" basis, net premiums earned increased $107 million, reflecting the earning in of prior year premium growth.


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The following table presents the pre-tax catastrophe losses and pre-tax favorable prior period development:
 
Three Months Ended June 30
 
 
Six Months Ended June 30
 
 
 
 
As If

 
 
 
As If
 
(in millions of U.S. dollars)
2016

2015

 
2015

 
2016

2015

 
2016

2015

Catastrophe losses, pre-tax
$
97

$
13

 
$
95

 
$
253

$
49

 
$
253

$
338

Favorable prior period development, pre-tax
$
15

$
—

 
$
17

 
$
18

$
—

 
$
18

$
22


Catastrophe losses through both June 30, 2016 and 2015 were primarily from 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:
 
Three Months Ended
 
 
Six Months Ended
 
 
June 30
 
 
June 30
 
 
2016

 
2015

 
2016

 
2015

Loss and loss expense ratio
58.0
 %
 
57.9
 %
 
61.1
 %
 
64.3
 %
Catastrophe losses and related reinstatement premiums
(8.5
)%
 
(5.2
)%
 
(11.7
)%
 
(12.0
)%
Prior period development
1.4
 %
 
—

 
0.9
 %
 
—

Loss and loss expense ratio, adjusted
50.9
 %
 
52.7
 %
 
50.3
 %
 
52.3
 %

The adjusted loss and loss expense ratio decreased 1.8 percentage points and 2.0 percentage points for the three and six months ended June 30, 2016 , respectively, and decreased 0.6 percentage points and 1.9 percentage points on an "As If" basis, respectively, reflecting lower non-catastrophe weather related losses and claims handling expense savings of $6 million (0.5 and 0.3 percentage points) for both the three and six months ended, respectively, realized in connection with the integration of Chubb Corp.

The policy acquisition cost ratio for the three and six months ended June 30, 2016 was adversely impacted by the normal impact of initial year purchase accounting relative to the Chubb Corp acquisition and the prior year acquisition of Fireman’s Fund.  The Chubb Corp purchase accounting includes a fair value adjustment related to the unearned premiums at the date of purchase.  This adjustment is then amortized into policy acquisition costs over the remaining coverage period.  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 acquisition expenses of $29 million and $60 million, or 2.5 percentage points and 2.8 percentage points, for the three and six months ended June 30, 2016 , respectively.  The prior year Fireman’s Fund purchase accounting included the favorable impact related to the recognition of the acquired unearned premiums without having to recognize the associated policy acquisition costs. The net impact of the Fireman’s Fund purchase accounting adjustments was an increase of 18.0 percentage points and 11.7 percentage points for the three and six months ended June 30, 2016, respectively.

On an "As If" basis, which excludes purchase accounting adjustments related to the Chubb Corp acquisition, the policy acquisition cost ratio increased 3.9 percentage points and 1.5 percentage points for the three and six months ended June 30, 2016 , respectively, primarily due to our Fireman's Fund acquisition in the prior year period which favorably impacted the prior year policy acquisition cost ratio by 4.2 percentage points and 2.1 percentage points, respectively.

The administrative expense ratio decreased 4.5 percentage points and 4.3 percentage points for the three and six months ended June 30, 2016 , respectively, primarily due to the Chubb Corp acquisition (4.1 percentage points and 4.3 percentage points, respectively), which carried a lower administrative expense ratio.

On an "As If" basis, the administrative expense ratio decreased 0.4 percentage points for the three months ended June 30, 2016 primarily reflecting cost savings realized of $10 million (0.9 percentage points), as a result of the Chubb Corp acquisition. For the six months ended June 30, 2016 , on an "As If" basis, the administrative expense ratio remained relatively flat as cost savings realized of $15 million (0.7 percentage points), were offset by increased spending to support growth.



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North America Agricultural Insurance

The North America Agricultural Insurance segment comprises our North American based businesses that provides a variety of coverages in the U.S. and Canada including crop insurance, primarily Multiple 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 Chubb Agribusiness unit.
 
Three Months Ended
 
 
 
 
Six Months Ended
 
 
 
 
June 30
 
 
% Change

 
June 30
 
 
% Change

(in millions of U.S. dollars, except for percentages)
2016

 
2015

 
Q-16 vs.
Q-15

 
2016

 
2015

 
YTD-16 vs.
YTD-15

Net premiums written
$
375

 
$
379

 
(1.2
)%
 
$
439

 
$
467

 
(6.1
)%
Net premiums earned
327

 
321

 
1.6
 %
 
350

 
385

 
(9.3
)%
Losses and loss expenses (1)
286

 
273

 
4.8
 %
 
256

 
295

 
(13.2
)%
Policy acquisition costs
25

 
23

 
8.7
 %
 
29

 
19

 
52.6
 %
Administrative expenses
2

 
4

 
(50.0
)%
 
(2
)
 
3

 
NM

Underwriting income
14

 
21

 
(33.3
)%
 
67

 
68

 
(1.5
)%
Net investment income
5

 
6

 
(16.7
)%
 
10

 
12

 
(16.7
)%
Other (income) expense
—

 
1

 
NM

 
—

 
2

 
NM

Segment income
$
19

 
$
26

 
(26.9
)%
 
$
77

 
$
78

 
(1.3
)%
Loss and loss expense ratio
87.5
%
 
85.3
%
 
 
 
73.3
 %
 
76.6
%
 
 
Policy acquisition cost ratio
7.7
%
 
7.2
%
 


 
8.2
 %
 
5.0
%
 


Administrative expense ratio
0.7
%
 
1.1
%
 


 
(0.5
)%
 
0.7
%
 


Combined ratio
95.9
%
 
93.6
%
 
 
 
81.0
 %
 
82.3
%
 
 
(1)  
Losses on crop derivatives were $2 million for both the three and six months ended June 30, 2016 and 2015, respectively. These losses are reclassified from Net realized gains (losses) to Losses and loss expenses for purposes of presenting North America Agricultural Insurance underwriting income.
Net premiums written decreased $4 million and $28 million for the three and six months ended June 30, 2016 , respectively, due to lower base prices used in our 2016 policy pricing, partially offset by lower cessions under existing third party proportional reinsurance programs. Lower premium retention as a result of the premium-sharing formulas with the U.S. government also added to the decline in premiums for the six months ended June 30, 2016. Under the government's crop insurance profit and loss calculation formulas, we retained less premiums in 2016 as losses were lower compared to 2015.
Net premiums earned increased $6 million for the three months ended June 30, 2016 primarily due to the lower cessions under existing third party proportional reinsurance programs as described above.
Net premiums earned decreased $35 million for the six months ended June 30, 2016 primarily due to the same factors driving the decrease in net premiums written as described above.
The following table presents the pre-tax catastrophe losses and pre-tax favorable prior period development:
 
Three Months Ended
 
 
Six Months Ended
 
 
June 30
 
 
June 30
 
(in millions of U.S. dollars)
2016

2015

 
2016

2015

Catastrophe losses, pre-tax
$
14

$
7

 
$
16

$
8

Favorable prior period development, pre-tax
$
—

$
—

 
$
41

$
33


Catastrophe losses through June 30, 2016 were primarily from our farm, ranch and specialty P&C business. For the six months ended June 30, 2016 net favorable prior period development was $41 million, which included $85 million of favorable incurred losses due to lower than expected MPCI losses for the 2015 crop year, partially offset by $48 million of unfavorable decrease in net premiums earned related to the government’s crop insurance profit and loss calculation formula. Also included in prior period development but not impacting the loss ratio was a $4 million favorable benefit of ceded profit share commissions earned from third-party reinsurers. For the six months ended June 30, 2015, net favorable PPD was $33 million, which included a decrease in incurred losses of $36 million for lower than expected MPCI losses for the 2014 crop year,


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Table of Contents






partially offset by $3 million unfavorable decrease in net premiums earned related to the governments crop insurance profit and loss calculation formulas.
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:
 
Three Months Ended
 
 
Six Months Ended
 
 
June 30
 
 
June 30
 
 
2016

 
2015

 
2016

 
2015

Loss and loss expense ratio
87.5
 %
 
85.3
 %
 
73.3
 %
 
76.6
 %
Catastrophe losses and related reinstatement premiums
(4.2
)%
 
(2.2
)%
 
(4.5
)%
 
(2.0
)%
Prior period development
—

 
—

 
13.0
 %
 
8.5
 %
Loss and loss expense ratio, adjusted
83.3
 %
 
83.1
 %
 
81.8
 %
 
83.1
 %

The adjusted loss and loss expense ratio increased 0.2 percentage points for the three months ended June 30, 2016 . For the six months ended June 30, 2016 the adjusted loss and loss expense ratio decreased 1.3 percentage points compared to the prior year period which included higher loss adjustment expenses reflecting a revision in estimated claims handling costs.

The policy acquisition cost ratio increased 0.5 percentage points for the three months ended June 30, 2016 , primarily due to lower profit share commission benefits on third-party reinsurance. For the six months ended June 30, 2016 , the policy acquisition cost ratio increased 3.2 percentage points, due primarily to the $48 million reduction in net premiums earned related to the government's crop insurance profit and loss calculation formula this year, compared to a reduction of $3 million in the prior year. Excluding the impact of these reductions in net premiums earned, the policy acquisition ratio increased over prior year by 2.3 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 $1 million (0.3 percentage points of the ratio) increase to policy acquisition costs, with an offsetting decrease to administrative expenses for both the three and six months ended June 30, 2016 .

The administrative expense ratio decreased 0.4 percentage points for the three months ended June 30, 2016 , primarily due to the reclassification, as noted above. For the six months ended June 30, 2016 , the administrative expense ratio decreased 1.2 percentage points primarily due to higher Administrative and Operating (A&O) reimbursements on the MPCI business and the reclassification as noted above.

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 and Lloyd's Syndicate 1882. Chubb provides funds at Lloyd's to support underwriting by Syndicate 2488 which is managed by ACE Underwriting Agencies Limited, and Syndicate 1882, which is managed by Chubb Managing Agent Limited. The reinsurance operation of CGM is included in the Global Reinsurance segment.


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Three Months Ended
 
 
 
 
Six Months Ended
 
 
 
 
June 30
 
 
% Change

 
June 30
 
 
% Change

(in millions of U.S. dollars, except for percentages)
2016

 
2015

 
Q-16 vs.
Q-15

 
2016

 
2015

 
YTD-16 vs.
YTD-15

Net premiums written (1)
$
2,031

 
$
1,669

 
21.6
%
 
$
4,072

 
$
3,463

 
17.6
%
Net premiums earned
2,093

 
1,644

 
27.3
%
 
4,048

 
3,281

 
23.4
%
Losses and loss expenses
1,089

 
816

 
33.5
%
 
2,110

 
1,630

 
29.4
%
Policy acquisition costs
537

 
396

 
35.6
%
 
1,040

 
785

 
32.5
%
Administrative expenses
277

 
254

 
9.1
%
 
540

 
510

 
5.9
%
Underwriting income (2)
190

 
178

 
6.7
%
 
358

 
356

 
0.6
%
Net investment income
147

 
139

 
5.8
%
 
293

 
277

 
5.8
%
Other (income) expense
(5
)
 
(4
)
 
25.0
%
 
(10
)
 
(6
)
 
66.7
%
Segment income
$
342

 
$
321

 
6.5
%
 
$
661

 
$
639

 
3.4
%
Loss and loss expense ratio
52.1
%
 
49.7
%
 
 
 
52.1
%
 
49.7
%
 
 
Policy acquisition cost ratio
25.6
%
 
24.1
%
 


 
25.7
%
 
23.9
%
 


Administrative expense ratio
13.2
%
 
15.4
%
 


 
13.3
%
 
15.5
%
 


Combined ratio
90.9
%
 
89.2
%
 
 
 
91.1
%
 
89.1
%
 
 
(1)  
For the three and six months ended June 30, 2016 , net premiums written increased $ 429 million and $850 million, or 26.7 percent and 26.4 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 three and six months ended June 30, 2016 , underwriting income increased $18 million and $24 million, or 10.6 percent and 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
Net premiums written increased $362 million and $609 million for the three and six months ended June 30, 2016 , respectively, primarily due to the impact of the Chubb Corp acquisition, which added about $400 million and $800 million, respectively, of growth in premiums, partially offset by the adverse impact of foreign exchange which decreased premium by $67 million and $241 million, respectively.
For the three and six months ended months ended June 30, 2016 , net premiums written increased $11 million and $48 million, respectively, on a constant dollar "As If" basis primarily driven by growth in new personal residential business, property and casualty lines (P&C), and A&H lines, partially offset by declines in our excess and surplus lines. Personal lines growth was primarily in Europe and Asia. P&C growth was primarily in Asia, offset by declines in Latin America due to economic conditions in Brazil. A&H lines growth was driven by new business written, primarily in Latin America and Asia.
Net premiums earned increased $449 million and $767 million for the three and six months ended June 30, 2016 , respectively, and increased $26 million and $103 million on an "As If" constant dollar basis, respectively, primarily due to the same factors driving the increase in net premiums written as described above.



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Overseas General Insurance conducts business internationally and in most major foreign currencies. The following tables present a regional breakdown of Overseas General Insurance net premiums written:
 
Three Months Ended June 30
 
 
% Change
 
(in millions of U.S. dollars, except for percentages)
2016


2016
% of Total


2015


2015
% of Total


C$ (1)
2015


Q-16 vs.
Q-15


C$ (1) Q-16 vs.
Q-15

Region
 
 
 
 
 
 
 
 
 
 
 
 
 
Europe (2)
$
807

 
40
%
 
$
596

 
36
%
 
$
595

 
35.4
%
 
35.6
%
Latin America
483

 
24
%
 
454

 
27
%
 
402

 
6.4
%
 
20.1
%
Asia
641

 
31
%
 
521

 
31
%
 
512

 
23.0
%
 
25.2
%
Other (3)
100

 
5
%
 
98

 
6
%
 
93

 
2.0
%
 
7.5
%
Net premiums written
$
2,031

 
100
%
 
$
1,669

 
100
%
 
$
1,602

 
21.6
%
 
26.7
%
(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 excluding Eurasia and Africa region.
(3) Combined International, Eurasia and Africa region, other international.
 
Six Months Ended June 30
 
 
% Change
 
(in millions of U.S. dollars, except for percentages)
2016


2016
% of Total


2015


2015
% of Total


C$ (1)
2015


YTD-16 vs.
YTD-15

 
C$ (1) YTD-16 vs.
YTD-15

Region
 
 
 
 
 
 
 
 
 
 
 
 
 
Europe (2)
$
1,706

 
42
%
 
$
1,376

 
40
%
 
$
1,329

 
24.0
 %
 
28.4
%
Latin America
965

 
24
%
 
913

 
26
%
 
774

 
5.7
 %
 
24.7
%
Asia
1,211

 
30
%
 
973

 
28
%
 
933

 
24.5
 %
 
29.8
%
Other (3)
190

 
4
%
 
201

 
6
%
 
186

 
(5.5
)%
 
2.2
%
Net premiums written
$
4,072

 
100
%
 
$
3,463

 
100
%
 
$
3,222

 
17.6
 %
 
26.4
%
(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 excluding Eurasia and Africa region.
(3) Combined International, Eurasia and Africa region, other international.
The following table presents the pre-tax catastrophe losses and pre-tax favorable prior period development:
 
Three Months Ended June 30
 
 
Six Months Ended June 30
 
 
 
 
As If

 
 
 
As If
(in millions of U.S. dollars)
2016

2015

 
2015

 
2016

2015

 
2016

2015

Catastrophe losses, pre-tax
$
73

$
58

 
$
66

 
$
91

$
63

 
$
91

$
71

Favorable prior period development, pre-tax
$
85

$
68

 
$
90

 
$
115

$
92

 
$
115

$
140

Catastrophe losses through June 30, 2016 were primarily related to severe weather related events in Europe and an earthquake in Ecuador. Catastrophe losses through June 30, 2015 were primarily related to a hailstorm in Australia, flooding in Chile, and severe storms in Asia.



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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: 
 
Three Months Ended
 
 
Six Months Ended
 
 
June 30
 
 
June 30
 
 
2016

 
2015

 
2016

 
2015

Loss and loss expense ratio
52.1
 %
 
49.7
 %
 
52.1
 %
 
49.7
 %
Catastrophe losses and related reinstatement premiums
(3.5
)%
 
(3.5
)%
 
(2.2
)%
 
(1.9
)%
Prior period development
4.1
 %
 
4.1
 %
 
2.9
 %
 
2.8
 %
Loss and loss expense ratio, adjusted
52.7
 %
 
50.3
 %
 
52.8
 %
 
50.6
 %

The adjusted loss and loss expense ratio increased 2.4 percentage points and 2.2 percentage points for the three and six months ended June 30, 2016 , primarily due to the Chubb Corp acquisition which carries a higher loss ratio.

On an "As If" basis, the adjusted loss and loss expense ratio increased 1.8 percentage points and 1.3 percentage points, for the three and six months ended June 30, 2016 , respectively, primarily due to a lower level of short-tail large losses in the prior year periods.
The policy acquisition cost ratio increased 1.5 percentage points and 1.8 percentage points for the three and six months ended June 30, 2016 , respectively, 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 $36 million (1.7 percentage points of the ratio) and $72 million (1.8 percentage points to the ratio) increase to policy acquisition costs, with an offsetting decrease to administrative expenses for the three and six months ended June 30, 2016 , respectively.
On an "As If" basis, excluding purchase accounting adjustments, the policy acquisition cost ratio increased 0.3 percentage points and 0.7 percentage points for the three and six months ended June 30, 2016 , respectively. The prior year periods were favorably impacted by purchase accounting adjustments.
The administrative expense ratio decreased 2.2 percentage points for both the three and six months ended June 30, 2016 , due to the $36 million (1.7 percentage points of the ratio) and $72 million (1.8 percentage points to the ratio) reclassification, respectively, noted above, and cost savings realized of $11 million (0.5 percentage points), and $17 million (0.4 percentage points), as a result of the Chubb Corp acquisition.
On an "As If" basis, the administrative expense ratio decreased 0.8 percentage points for both the three and six months ended June 30, 2016 , primarily due to cost savings realized as a result of the Chubb Corp acquisition, as noted above.



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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. Following the Chubb Corp acquisition, Chubb Tempest Re USA includes the run-off business of legacy Chubb Re, and Chubb Tempest Re International includes the active legacy Chubb U.K. assumed reinsurance business. 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.
 
Three Months Ended
 
 
 
 
Six Months Ended
 
 
 
 
June 30
 
 
% Change

 
June 30
 
 
% Change

(in millions of U.S. dollars, except for percentages)
2016

 
2015

 
Q-16 vs.
Q-15

 
2016

 
2015

 
YTD-16 vs.
YTD-15

Net premiums written
$
230

 
$
261

 
(11.9
)%
 
$
431

 
$
534

 
(19.3
)%
Net premiums earned
185

 
220

 
(15.7
)%
 
387

 
446

 
(13.2
)%
Losses and loss expenses
87

 
72

 
20.8
 %
 
176

 
171

 
2.9
 %
Policy acquisition costs
47

 
60

 
(21.7
)%
 
100

 
114

 
(12.3
)%
Administrative expenses
14

 
13

 
7.7
 %
 
28

 
25

 
12.0
 %
Underwriting income
37

 
75

 
(50.7
)%
 
83

 
136

 
(39.0
)%
Net investment income
65

 
79

 
(17.7
)%
 
132

 
154

 
(14.3
)%
Other (income) expense
(2
)
 
—

 
NM

 
(3
)
 
(1
)
 
200.0
 %
Segment income
$
104

 
$
154

 
(32.5
)%
 
$
218

 
$
291

 
(25.1
)%
Loss and loss expense ratio
46.9
%
 
32.9
%
 
 
 
45.5
%
 
38.3
%
 
 
Policy acquisition cost ratio
25.5
%
 
27.2
%
 
 
 
25.9
%
 
25.6
%
 
 
Administrative expense ratio
7.4
%
 
5.6
%
 
 
 
7.1
%
 
5.6
%
 
 
Combined ratio
79.8
%
 
65.7
%
 
 
 
78.5
%
 
69.5
%
 
 

Net premiums written decreased $ 31 million and $ 103 million for the three and six months ended June 30, 2016 , respectively, as we maintained underwriting discipline in an environment of flat to declining rates and increasing competition.

For the three and six months ended June 30, 2016 on an "As If" basis, net premiums written declined $ 36 million and $ 110 million, respectively, due to the same factors as described above.

Net premiums earned decreased $ 35 million and $ 59 million for the three and six months ended June 30, 2016 , respectively, primarily due to the same factors driving the decrease in net premiums written as described above. Net premiums earned declined less than net premiums written for the six months ended June 30, 2016 due to the favorable contribution to earned premium of written premium activity throughout 2015.
On an "As If" basis, net premiums earned decreased $ 42 million and $ 68 million for the three and six months ended June 30, 2016 , respectively, primarily due to the same factors as described above.


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The following table presents pre-tax catastrophe losses, excluding reinstatement premiums, and pre-tax favorable prior period development:
 
Three Months Ended June 30
 
 
Six Months Ended June 30
 
 
 
 
As If

 
 
 
As If
 
(in millions of U.S dollars)
2016

 
2015

 
2015

 
2016

 
2015

 
2016

 
2015

Catastrophe losses, pre-tax
$
52

 
$
5

 
$
6

 
$
53

 
$
5

 
$
53

 
$
6

Favorable prior period development, pre-tax
$
47

 
$
36

 
$
41

 
$
50

 
$
41

 
$
50

 
$
47


Catastrophe losses through June 30, 2016 were primarily related to the Fort McMurray wildfire. Catastrophe losses through June 30, 2015 were primarily related to severe weather related events in the U.S.

The following table presents the impact of catastrophe losses and related reinstatement premiums ($6 million for the three and six months ended June 30, 2016) and prior period reserve development on our loss and loss expense ratio:
 
Three Months Ended
 
 
Six Months Ended
 
 
June 30
 
 
June 30
 
 
2016

 
2015

 
2016

 
2015

Loss and loss expense ratio
46.9
 %
 
32.9
 %
 
45.5
 %
 
38.3
 %
Catastrophe losses and related reinstatement premiums
(27.8
)%
 
(2.3
)%
 
(13.3
)%
 
(1.1
)%
Prior period development
26.9
 %
 
16.1
 %
 
13.6
 %
 
9.1
 %
Loss and loss expense ratio, adjusted
46.0
 %
 
46.7
 %
 
45.8
 %
 
46.3
 %

The adjusted loss and loss expense ratio decreased 0.7 percentage points and 0.5 percentage points for the three and six months ended June 30, 2016 , respectively, primarily due to a change in the mix of business towards products that have a lower loss ratio and higher non-catastrophe losses in the prior year periods. On an "As If" basis, the adjusted loss and loss expense ratio declined 1.7 percentage points and 0.8 percentage points for the three and six months ended June 30, 2016 , respectively, due to the change in the mix of business and higher non-catastrophe losses as noted above.

The policy acquisition cost ratio decreased 1.7 percentage points for the three months ended June 30, 2016 primarily due to a change in the mix of business towards regions that have lower acquisition cost ratio products. The policy acquisition cost ratio increased 0.3 percentage points for the six months ended June 30, 2016 due to higher acquisition expenses in legacy Chubb.

On an "As If" basis, the policy acquisition cost ratio decreased 0.8 percentage points for the three months ended June 30, 2016 and increased 1.1 percentage points for the six months ended June 30, 2016, primarily due to the factors as described above.

The administrative expense ratio increased 1.8 percentage points and 1.5 percentage points for the three and six months ended June 30, 2016 , respectively, primarily due to decreases in net premiums earned and an increase in administrative expenses due to the Chubb Corp acquisition.

On an "As If" basis, the administrative expense ratio increased 1.2 percentage points and 0.6 percentage points for the three and six months ended June 30, 2016 , respectively, primarily due to decreases in net premiums earned outpacing the decline in administrative expenses.


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Life Insurance

The Life Insurance segment comprises Chubb's international life operations (Chubb Life), Chubb Tempest Life Re (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 segment income, which includes (Gains) losses from fair value changes in separate account assets that do not qualify for separate account reporting under GAAP.
 
Three Months Ended
 
 


 
Six Months Ended
 
 


 
June 30
 
 
% Change

 
June 30
 
 
% Change

(in millions of U.S. dollars, except for percentages)
2016

 
2015

 
Q-16 vs.
Q-15

 
2016

 
2015

 
YTD-16 vs.
YTD-15

Net premiums written
$
527

 
$
500

 
5.5
 %
 
$
1,043

 
$
991

 
5.3
 %
Net premiums earned
512

 
487

 
5.1
 %
 
1,009

 
961

 
5.0
 %
Losses and loss expenses
147

 
137

 
7.3
 %
 
324

 
289

 
12.1
 %
Policy benefits (1)
146

 
153

 
(4.6
)%
 
272

 
295

 
(7.8
)%
(Gains) losses from fair value changes in separate account assets (1)
(3
)
 
(6
)
 
(50.0
)%
 
—

 
(17
)
 
NM

Policy acquisition costs
137

 
118

 
16.1
 %
 
259

 
225

 
15.1
 %
Administrative expenses
77

 
74

 
4.1
 %
 
149

 
147

 
1.4
 %
Net investment income
69

 
66

 
4.5
 %
 
136

 
132

 
3.0
 %
Other (income) expense (1)
3

 
(1
)
 
NM

 
6

 
1

 
NM

Segment income
$
74

 
$
78

 
(5.1
)%
 
$
135

 
$
153

 
(11.8
)%
(1)  
(Gains) losses from fair value changes in separate account assets that do not qualify for separate account reporting under GAAP have been reclassified from Other income (expense). The offsetting movement in the separate account liabilities is included in Policy benefits.
Net premiums written increased $ 27 million and $ 52 million for the three and six months ended June 30, 2016 , respectively, primarily reflecting the impact of the Chubb Corp acquisition (which added $14 million and $36 million of growth to premiums, respectively). In addition, growth in our Life insurance business, primarily in Asia, and in our Combined Insurance supplemental A&H program business contributed to the increase, partially offset by the adverse foreign exchange impact of $12 million and $35 million for the three and six months ended June 30, 2016 , respectively. Our life reinsurance business continues to decline as there is no new life reinsurance business currently being written.
On an "As If" basis, net premiums written increased $ 3 million and $ 4 million for the three and six months ended June 30, 2016, respectively, as growth in our Life insurance and Combined Insurance supplemental A&H businesses as noted above, was partially offset by declines in written premiums as we maintained underwriting discipline in an environment of increasing competition in Latin America as well as the adverse foreign exchange impact of $ 14 million and $ 37 million, respectively.
 
Three Months Ended
 
 


 
 
 
Six Months Ended
 
 
 
 


 
June 30
 
 
% Change
 
 
June 30
 
 
% Change
 
(in millions of U.S. dollars, except for percentages)
2016

 
2015

 
C$ (1) 2015

 
Q-16 vs.
Q-15

 
C$ (1) Q-16 vs.
Q-15

 
2016

 
2015

 
C$ (1) 2015

 
Y-16 vs. Y-15

 
C$ (1)  Y-16 vs. Y-15

Deposits collected on Universal life and investment contracts
$
262

 
$
263

 
$
251

 
(0.4
)%
 
4.2
%
 
$
475

 
$
516

 
$
492

 
(7.9
)%
 
(3.5
)%
(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 Consolidated statements of operations in accordance with GAAP.  New life deposits are an important component of production, and although they do not significantly affect current period income from operations they are key to our efforts to grow our business. Life deposits collected remained flat for the three months ended June 30, 2016 but decreased for the six months ended June 30, 2016 primarily due to declines in Taiwan and Korea driven by low interest rates that negatively impacted product sales, partially offset by growth in other Asian markets. The impact of foreign exchange adversely impacted growth by $ 12 million and $ 24 million for the three and six months ended June 30, 2016, respectively.
   


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Life Insurance segment income decreased $ 4 million and $ 18 million for the three and six months ended June 30, 2016, respectively. The six months ended June 30, 2016, was negatively impacted by unfavorable loss reserve development related to our Combined Insurance supplemental A&H business in the first quarter of 2016.

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 purchased 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 valued of acquired invested assets and debt, interest expense, Chubb integration expenses and the results of Chubb Group Management and Holdings Ltd, and Chubb INA Holdings, Inc. are reported within Corporate.
 
Three Months Ended
 
 
 
 
Six Months Ended
 
 
 
 
June 30
 
 
% Change

 
June 30
 
 
% Change

(in millions of U.S. dollars, except for percentages)
2016

 
2015

 
Q-16 vs.
Q-15

 
2016

 
2015

 
YTD-16 vs.
YTD-15

Losses and loss expenses
$
15

 
$
49

 
(69.4
)%
 
$
24

 
$
58

 
(58.6
)%
Administrative expenses
62

 
45

 
37.8
 %
 
135

 
89

 
51.7
 %
Underwriting loss
77

 
94

 
(18.1
)%
 
159

 
147

 
8.2
 %
Net investment income (loss)
(101
)
 
3

 
NM

 
(185
)
 
6

 
NM

Interest expense
153

 
71

 
115.5
 %
 
299

 
139

 
115.1
 %
Net realized gains (losses)
(214
)
 
128

 
NM

 
(608
)
 
39

 
NM

Other (income) expense
(16
)
 
(29
)
 
(44.8
)%
 
11

 
(50
)
 
NM

Amortization of purchased intangibles
5

 
55

 
(90.9
)%
 
12

 
85

 
(85.9
)%
Chubb integration expenses
98

 
—

 
NM

 
246

 
—

 
NM

Income tax expense
155

 
143

 
8.4
 %
 
279

 
263

 
6.1
 %
Net loss
$
(787
)
 
$
(203
)
 
287.7
 %
 
$
(1,799
)
 
$
(539
)
 
233.8
 %
NM – not meaningful
 
 
 
 
 
 
 
 
 
 
 

Losses and loss expenses were $ 15 million and $ 24 million for the three and six months ended June 30, 2016 , respectively. This compared with $ 49 million and $ 58 million, respectively, and $60 million and $77 million on an "As If" basis, respectively, for the three and six months ended June 30, 2015, respectively. The 2016 losses and loss expenses related primarily to unallocated loss adjustment expenses of the A&E claim operations. The incurred losses and loss expenses were higher in the prior year periods primarily due to unfavorable prior period development in the second quarter of 2015 related to our Brandywine run-off portfolios, principally in the general and products liability lines, where loss activity was higher than expected.

Administrative expenses increased $ 17 million and $ 46 million for the three and six months ended June 30, 2016 , respectively, primarily due to the Chubb Corp acquisition. On an "As If" basis, administrative expenses decreased $ 6 million and $ 12 million, respectively, primarily due to cost savings realized as a result of the Chubb Corp acquisition.


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Net investment income for the three and six months ended June 30, 2016 included amortization of $108 million and $201 million, respectively, 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 $4 million and $10 million for the three and six months ended June 30, 2016, respectively. Refer to the Net Investment Income section for a discussion on consolidated Net investment income.

Interest expense increased $ 82 million and $ 160 million for the three and six months ended June 30, 2016 , respectively, 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.

Net realized losses for the three and six months ended June 30, 2016 , were primarily associated with a net increase in the fair value of GLB liabilities. These increases were primarily due to lower interest rates and the unfavorable impact of discounting future claims for one and two less quarters, respectively. Falling international equity market levels also contributed to the increase in the fair value of the GLB liabilities for the six months ended June 30, 2016. In addition, we maintain positions in derivative instruments that decrease in fair value when the S&P 500 index increases. During the three and six months ended June 30, 2016 , we experienced realized losses of $28 million and $43 million, respectively, related to these derivative instruments. Additionally, there were realized losses on our investment portfolios during the three and six months ended June 30, 2016 of $32 million and $220 million, respectively. For further discussion of the remaining Net realized gains and (losses), refer to "Net realized and unrealized gains and (losses)".

Other (income) expense of $ (16) million and $ 11 million for the three and six months ended June 30, 2016, respectively, were related primarily to our share of net (income) loss of partially-owned entities. Refer to the Other Income and Expense Items section for further information.

Amortization of purchased intangibles was $ 5 million and $ 12 million for the three and six months ended June 30, 2016 , respectively. Amortization of purchased intangibles was lower in 2016 due primarily to the favorable impact of the amortization of the fair value adjustment on acquired Unpaid losses and loss expense, offset by the amortization of other intangibles, including agency distribution relationships, related to the Chubb Corp acquisition.

Chubb integration expenses were $ 98 million for the three months ended June 30, 2016, primarily comprising $41 million of personnel-related expenses, including severance and employee retention and relocation, and $33 million of consulting fees. Chubb integration expenses were $ 246 million for the six months ended June 30, 2016, primarily comprising $116 million of personnel-related expenses, $38 million of advisor fees, and $45 million of consulting fees. 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.

Non-GAAP Reconciliation

We provide financial measures such as net premiums written, net premiums earned and underwriting income 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.

"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 relating 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 and 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 current and prior year periods, which are defined below:

2016 "As If" results: The combined company results for the six months ended June 30, 2016 are inclusive of the first 14 days of January 2016 (the Chubb Corp acquisition closed January 14, 2016) and do not include the impact of the unearned


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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.

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.

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:
 
Three Months Ended
 
 
June 30
 
(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
$
3,245

 
$
1,231

 
$
375

 
$
2,031

 
$
230

 
$
527

 
$
7,639

2015 As If
 
 
 
 
 
 
 
 
 
 
 
 
 
Net premiums written
$
1,428

 
$
547

 
$
379

 
$
1,669

 
$
261

 
$
500

 
$
4,784

Legacy Chubb
1,825

 
1,003

 
—

 
467

 
5

 
9

 
3,309

Accounting policy alignment
—

 
—

 
—

 
—

 
—

 
15

 
15

2015 As If  (1)
$
3,253

 
$
1,550

 
$
379

 
$
2,136

 
$
266

 
$
524

 
$
8,108

Constant-dollar 2015 As If
$
3,249

 
$
1,550

 
$
379

 
$
2,020

 
$
265

 
$
509

 
$
7,972

Constant-dollar change As If
$
(4
)
 
$
(319
)
 
(4
)
 
$
11

 
$
(35
)
 
18

 
$
(333
)
Constant-dollar percent change As If
(0.1
)%
 
(20.6
)%
 
(1.2
)%
 
0.5
%
 
(13.0
)%
 
3.5
%
 
(4.2
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended
 
 
June 30
 
Net premiums written
 
 
 
 
 
 
 
 
 
 
 
 
 
2016 As If
 
 
 
 
 
 
 
 
 
 
 
 
 
Net premiums written
$
5,547

 
$
2,102

 
$
439

 
$
4,072

 
$
431

 
$
1,043

 
$
13,634

14 day stub period
519

 
100

 
—

 
215

 
20

 
1

 
855

2016 As If
$
6,066

 
$
2,202

 
$
439

 
$
4,287

 
$
451

 
$
1,044

 
$
14,489

2015 As If
 
 
 
 
 
 
 
 
 
 
 
 
 
Net premiums written
$
2,725

 
$
680

 
$
467

 
$
3,463

 
$
534

 
$
991

 
$
8,860

Legacy Chubb
3,456

 
1,779

 
—

 
1,134

 
27

 
19

 
6,415

Accounting policy alignment
—

 
—

 
—

 
19

 
—

 
30

 
49

2015 As If (1)
$
6,181

 
$
2,459

 
$
467

 
$
4,616

 
$
561

 
$
1,040

 
$
15,324

Constant-dollar 2015 As If
$
6,172

 
$
2,454

 
$
467

 
$
4,239

 
$
553

 
$
1,003

 
$
14,888

Constant-dollar change As If
$
(106
)
 
$
(252
)
 
$
(28
)
 
$
48

 
$
(102
)
 
$
41

 
$
(399
)
Constant-dollar percent change As If
(1.7
)%
 
(10.3
)%
 
(6.1
)%
 
1.1
%
 
(18.4
)%
 
4.0
%
 
(2.7
)%
(1) As If amounts for premium are calculated on the same basis as SEC pro forma.



81


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Three Months Ended
 
 
June 30
 
(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 earned
 
 
 
 
 
 
 
 
 
 
 
 
 
2016
 
 
 
 
 
 
 
 
 
 
 
 
 
Net premiums earned
$
3,148

 
$
1,140

 
$
327

 
$
2,093

 
$
185

 
$
512

 
$
7,405

2015 As If  
 
 
 
 
 
 
 
 
 
 
 
 
 
Net premiums earned
$
1,419

 
$
269

 
$
321

 
$
1,644

 
$
220

 
$
487

 
$
4,360

Legacy Chubb
1,695

 
891

 
—

 
530

 
7

 
10

 
3,133

Accounting policy alignment
—

 
—

 
—

 
(4
)
 
—

 
14

 
10

2015 As If (1)
$
3,114

 
$
1,160

 
$
321

 
$
2,170

 
$
227

 
$
511

 
$
7,503

Constant-dollar 2015 As If
$
3,112

 
$
1,160

 
$
321

 
$
2,067

 
$
226

 
$
497

 
$
7,383

Constant-dollar change As If
$
36

 
$
(20
)
 
6

 
$
26

 
$
(41
)
 
15

 
$
22

Constant-dollar percent change As If
1.2
%
 
(1.8
)%
 
1.6
 %
 
1.2
%
 
(17.6
)%
 
2.9
%
 
0.3
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended
 
 
June 30
 
Net premiums earned
 
 
 
 
 
 
 
 
 
 
 
 
 
2016
 
 
 
 
 
 
 
 
 
 
 
 
 
Net premiums earned
$
6,044

 
$
2,164

 
$
350

 
$
4,048

 
$
387

 
$
1,009

 
$
14,002

14 day stub period
208

 
110

 
—

 
71

 
—

 
2

 
391

2016 As If
$
6,252


$
2,274


$
350


$
4,119


$
387


$
1,011


$
14,393

2015 As If
 
 
 
 
 
 
 
 
 
 
 
 
 
Net premiums earned
$
2,799

 
$
415

 
$
385

 
$
3,281

 
$
446

 
$
961

 
$
8,287

Legacy Chubb
3,389

 
1,751

 
—

 
1,068

 
9

 
20

 
6,238

Accounting policy alignment
—

 
—

 
—

 
(13
)
 
—

 
28

 
15

2015 As If (1)
$
6,188

 
$
2,167

 
$
385

 
$
4,336

 
$
455

 
$
1,009

 
$
14,540

Constant-dollar 2015 As If
$
6,177

 
$
2,166

 
$
385

 
$
4,016

 
$
450

 
$
974

 
$
14,168

Constant-dollar change As If
$
75

 
$
108

 
$
(35
)
 
$
103

 
$
(63
)
 
$
38

 
$
225

Constant-dollar percent change As If
1.2
%
 
4.9
 %
 
(9.3
)%
 
2.6
%
 
(13.8
)%
 
3.8
%
 
1.6
%
(1) As If amounts for premium are calculated on the same basis as SEC pro forma.







82
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Three Months Ended June 30
 
(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
$
1,971

 
$
661

 
$
286

 
$
1,089

 
$
87

 
$
15

 
$
4,109

2015
 
 
 
 
 
 
 
 
 
 
 
 
 
Loss and loss expenses
$
916

 
$
156

 
$
273

 
$
816

 
$
72

 
$
49

 
$
2,282

Legacy Chubb
892

 
520

 
—

 
278

 
1

 
12

 
1,703

Accounting policy alignments
—

 
—

 
—

 
(14
)
 
—

 
(1
)
 
(15
)
2015 As If  (1)
$
1,808

 
$
676

 
$
273

 
$
1,080

 
$
73

 
$
60

 
$
3,970

Policy acquisition costs
2016
 
 
 
 
 
 
 
 
 
 
 
 
 
Policy acquisition costs
$
545

 
$
269

 
$
25

 
$
537

 
$
47

 
$
—

 
$
1,423

Amortization of acquired unearned premium reserves intangible asset
(290
)
 
(165
)
 
—

 
(70
)
 
—

 
—

 
(525
)
Elimination of deferred acquisition cost benefit
244

 
136

 
—

 
79

 
—

 
—

 
459

2016 As If
$
499

 
$
240

 
$
25

 
$
546

 
$
47

 
$
—

 
$
1,357

2015
 
 
 
 
 
 
 
 
 
 
 
 
 
Policy acquisition costs
$
131

 
$
(1
)
 
$
23

 
$
396

 
$
60

 
$
—

 
$
609

Legacy Chubb
330

 
197

 
—

 
123

 
1

 
—

 
651

Accounting policy alignment
31

 
3

 
—

 
39

 
—

 
—

 
73

2015 As If
$
492

 
$
199

 
$
23

 
$
558

 
$
61

 
$
—

 
$
1,333

Amortization of acquired unearned premium reserves intangible asset
271

 
155

 
—

 
63

 
—

 
—

 
489

Elimination of deferred acquisition cost benefit
(219
)
 
(126
)
 
—

 
(50
)
 
—

 
—

 
(395
)
2015 SEC pro forma
$
544

 
$
228

 
$
23

 
$
571

 
$
61

 
$
—

 
$
1,427

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Administrative expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
2016
 
 
 
 
 
 
 
 
 
 
 
 
 
Administrative expenses
$
299

 
$
98

 
$
2

 
$
277

 
$
14

 
$
62

 
$
752

2015
 
 
 
 
 
 
 
 
 
 
 
 
 
Administrative expenses
$
154

 
$
34

 
$
4

 
$
254

 
$
13

 
$
45

 
$
504

Legacy Chubb
174

 
71

 
—

 
87

 
2

 
6

 
340

Accounting policy alignment
(31
)
 
(3
)
 
—

 
(36
)
 
—

 
17

 
(53
)
2015 As If (1)
$
297

 
$
102

 
$
4

 
$
305

 
$
15

 
$
68

 
$
791

(Favorable) and unfavorable PPD, pre-tax
 
 
 
 
 
 
 
 
 
 
 
 
 
2015
 
 
 
 
 
 
 
 
 
 
 
 
 
(Favorable) and unfavorable PPD, pre-tax
$
(96
)
 
$
—

 
$
—

 
$
(68
)
 
$
(36
)
 
$
47

 
$
(153
)
Legacy Chubb
(150
)
 
(17
)
 
—

 
(22
)
 
(5
)
 
11

 
(183
)
2015 As If (1)
$
(246
)

$
(17
)

$
—


$
(90
)

$
(41
)

$
58


$
(336
)
Catastrophe losses, pre-tax
 
 
 
 
 
 
 
 
 
 
 
 
 
2015
 
 
 
 
 
 
 
 
 
 
 
 
 
Catastrophe losses, pre-tax
$
41

 
$
13

 
$
7

 
$
58

 
$
5

 
$
—

 
$
124

Legacy Chubb
59

 
82

 
—

 
8

 
1

 
—

 
150

2015 As If (1)
$
100


$
95


$
7


$
66


$
6


$
—


$
274

(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.




83


Table of Contents






 
Six Months Ended June 30
 
(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
$
3,718

 
$
1,322

 
$
256

 
$
2,110

 
$
176

 
$
24

 
$
7,606

14 day stub period
127

 
53

 
—

 
42

 
—

 
—

 
222

2016 As If
$
3,845


$
1,375


$
256


$
2,152


$
176


$
24


$
7,828

2015
 
 
 
 
 
 
 
 
 
 
 
 
 
Loss and loss expenses
$
1,831

 
$
267

 
$
295

 
$
1,630

 
$
171

 
$
58

 
$
4,252

Legacy Chubb
1,869

 
1,176

 
—

 
546

 
—

 
26

 
3,617

Accounting policy alignments
—

 
—

 
—

 
(15
)
 
—

 
(7
)
 
(22
)
2015 As If (1)
$
3,700

 
$
1,443

 
$
295

 
$
2,161

 
$
171

 
$
77

 
$
7,847

Policy acquisition costs
2016
 
 
 
 
 
 
 
 
 
 
 
 
 
Policy acquisition costs
$
1,027

 
$
518

 
$
29

 
$
1,040

 
$
100

 
$
—

 
$
2,714

Amortization of acquired unearned premium reserves intangible asset
(605
)
 
(346
)
 
—

 
(144
)
 
—

 
—

 
(1,095
)
Elimination of deferred acquisition cost benefit
513

 
286

 
—

 
166

 
—

 
—

 
965

14 day stub period
33

 
14

 
—

 
13

 
—

 
—

 
60

2016 As If
$
968


$
472


$
29


$
1,075


$
100


$
—


$
2,644

2015
 
 
 
 
 
 
 
 
 
 
 
 
 
Policy acquisition costs
$
261

 
$
30

 
$
19

 
$
785

 
$
114

 
$
—

 
$
1,209

Legacy Chubb
641

 
383

 
—

 
250

 
—

 
—

 
1,274

Accounting policy alignment
63

 
6

 
—

 
65

 
—

 


 
134

2015 As If
$
965


$
419


$
19


$
1,100


$
114


$
—


$
2,617

Amortization of acquired unearned premium reserves intangible asset
644

 
369

 
—

 
150

 
—

 
—

 
1,163

Elimination of deferred acquisition cost benefit
(520
)
 
(299
)
 
—

 
(119
)
 
—

 
—

 
(938
)
2015 SEC pro forma
$
1,089

 
$
489

 
$
19

 
$
1,131

 
$
114

 
$
—

 
$
2,842

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Administrative expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
2016
 
 
 
 
 
 
 
 
 
 
 
 
 
Administrative expenses
$
565

 
$
186

 
$
(2
)
 
$
540

 
$
28

 
$
135

 
$
1,452

14 day stub period
35

 
13

 
—

 
12

 
—

 
3

 
63

2016 As If
$
600


$
199


$
(2
)

$
552


$
28


$
138


$
1,515

2015
 
 
 
 
 
 
 
 
 
 
 
 
 
Administrative expenses
$
305

 
$
53

 
$
3

 
$
510

 
$
25

 
$
89

 
$
985

Legacy Chubb
353

 
138

 
—

 
173

 
5

 
21

 
690

Accounting policy alignment
(63
)
 
(6
)
 
—

 
(62
)
 
—

 
40

 
(91
)
2015 As If (1)
$
595

 
$
185

 
$
3

 
$
621

 
$
30

 
$
150

 
$
1,584

(Favorable) and unfavorable PPD, pre-tax
 
 
 
 
 
 
 
 
 
 
 
 
 
2015 SEC pro forma
 
 
 
 
 
 
 
 
 
 
 
 
 
(Favorable) and unfavorable PPD, pre-tax
$
(126
)
 
$
—

 
$
(33
)
 
$
(92
)
 
$
(41
)
 
$
56

 
$
(236
)
Legacy Chubb
(235
)
 
(22
)
 
—

 
(48
)
 
(6
)
 
19

 
(292
)
2015 As If (1)
$
(361
)

$
(22
)

$
(33
)

$
(140
)

$
(47
)

$
75


$
(528
)
Catastrophe losses, pre-tax
 
 
 
 
 
 
 
 
 
 
 
 
 
2015 SEC pro forma
 
 
 
 
 
 
 
 
 
 
 
 
 
Catastrophe losses, pre-tax
$
50

 
$
49

 
$
8

 
$
63

 
$
5

 
$
—

 
$
175

Legacy Chubb
116

 
289

 
—

 
8

 
1

 
—

 
414

2015 As If (1)
$
166


$
338


$
8


$
71


$
6


$
—


$
589

(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.


84
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Other Income and Expense Items
 
Three Months Ended
 
 
Six Months Ended
 
 
June 30
 
 
June 30
 
(in millions of U.S. dollars)
2016

 
2015

 
2016

 
2015

Equity in net (income) loss of partially-owned entities
$
(31
)
 
$
(40
)
 
$
(16
)
 
$
(73
)
(Gains) losses from fair value changes in separate account assets (1)
(3
)
 
(6
)
 
—

 
(17
)
Federal excise and capital taxes
5

 
5

 
6

 
8

Acquisition-related costs (2)
1

 
1

 
2

 
3

Other
(1
)
 
2

 
7

 
6

Other (income) expense
$
(29
)
 
$
(38
)
 
$
(1
)
 
$
(73
)
(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 equity in net (income) loss of partially-owned entities, which includes our share of net (income) loss related to partially-owned investment companies (private equity) and partially-owned insurance companies. Also included in Other (income) expense are (Gains) losses from fair value changes in separate account assets that do not qualify for separate account reporting under GAAP. The offsetting movement in the separate account liabilities is included in Policy benefits in the Consolidated statements of operations. Certain federal excise and capital taxes incurred as a result of capital management initiatives are included in Other (income) expense as these are considered capital transactions and are excluded from underwriting results.

Amortization of Purchased Intangibles and Other Amortization

Amortization of purchased intangibles was $ 5 million and $ 12 million for the three and six months ended June 30, 2016, respectively, compared with $ 55 million and $ 85 million in the prior year periods, respectively.  Amortization of purchased intangibles was lower in 2016 due primarily to the favorable impact of the amortization benefit of the fair value adjustment on acquired Unpaid losses and loss expense offset by the amortization expense of other intangibles, including agency distribution relationships and internally developed technology, related to the Chubb Corp acquisition as presented in the table below.

The following table presents, as of June 30, 2016 , the estimated pre-tax amortization expense (benefit), at current foreign currency exchange rates, for the third and fourth quarters of 2016 and the next five years for intangibles, related to the Chubb Corp acquisition and intangibles from prior acquisitions:
 
Associated with the Chubb Corp Acquisition
 
 
 
For the Year Ending December 31
(in millions of U.S. dollars)
Agency distribution relationships and renewal rights

Internally developed technology

Fair value adjustment to Unpaid losses and loss expense

Total

Other intangible assets

Total
Amortization of purchased intangibles

Third quarter of 2016
$
33

$
8

$
(61
)
$
(20
)
$
23

$
3

Fourth quarter of 2016
33

8

(61
)
(20
)
23

3

2017
296

32

(160
)
168

85

253

2018
324

32

(101
)
255

74

329

2019
281

—

(62
)
219

66

285

2020
240

—

(35
)
205

59

264

2021
217

—

(20
)
197

53

250

Total
$
1,424

$
80

$
(500
)
$
1,004

$
383

$
1,387




85


Table of Contents






Amortization of Unearned premium reserves (UPR) intangible assets and Expected future benefit associated with the elimination of historical deferred policy acquisition costs (DAC) asset
At the date of the Chubb Corp acquisition, as part of purchase accounting, we recorded an intangible asset of $1,550 million related to the fair value adjustment for the UPR recorded on legacy Chubb Corp books, which is expected to amortize over the remaining coverage period as additional policy acquisition costs. At June 30, 2016 , the remaining balance of the UPR intangible asset was $464 million .

In addition, as part of purchase accounting, we expect to recognize a benefit of $1,376 million associated with unearned premiums being recognized over the remaining coverage period with no expense for the historical acquisition costs. The recognition of this DAC elimination is expected to amortize in a similar pattern as the UPR intangible asset amortization as noted above. At June 30, 2016, the expected remaining benefit associated with the DAC elimination was $410 million.

The following table presents, as of June 30, 2016, the expected amortization, at current foreign currency exchange rates, of the UPR intangible asset and the expected future benefit related to the DAC elimination for the third and fourth quarters of 2016:

 
Associated with the Chubb Corp Acquisition
 
(in millions of U.S. dollars)
Amortization of UPR intangible asset

 
Benefit related to DAC elimination

 
Net increase to Policy acquisition costs

Third quarter of 2016
$
320

 
$
(283
)
 
$
37

Fourth quarter of 2016
144

 
(127
)
 
17

Total
$
464

 
$
(410
)
 
$
54


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 Unearned Premium Reserves (UPR) intangible assets related to the Chubb Corp acquisition. For example, for the third quarter of 2016, the expected reduction to deferred tax liability of $126 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 $361 million, comprised of agency distribution relationships and renewal rights of $33 million, internally developed technology of $8 million, and UPR intangible assets of $320 million (from the tables above). At June 30, 2016 , the deferred tax liability associated with these intangibles was $ 2,267 million .

The following table below presents, as of June 30, 2016, the expected reduction to that deferred tax liability at current foreign currency exchange rates, which reduces as agency distribution relationships and renewal rights, internally developed technology, and UPR intangible assets amortize for the third and fourth quarters of 2016 and the next five years:
 
 
For the Year Ending December 31
(in millions of U.S. dollars)
Reduction to deferred tax liability associated with intangible assets

Third quarter of 2016
$
(126
)
Fourth quarter of 2016
(65
)
2017
(115
)
2018
(125
)
2019
(98
)
2020
(84
)
2021
(76
)
Total
$
(689
)



86
Table of Contents






Amortization of the fair value of acquired invested assets
In addition to the amortization of purchased intangibles outlined in the table above, at June 30, 2016 we expect amortization of the fair value of acquired invested assets of approximately $ 100 million for each of the remaining quarters in 2016, $ 360 million in 2017, approximately $ 320 million each in 2018 and 2019, and $250 million in 2020 at current foreign currency exchange rates. This estimate could vary materially based on current market conditions, bond calls, and overall duration of the acquired investment portfolio. 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 $ 13 million and $ 23 million for the three and six months ended June 30, 2016, respectively. As of June 30, 2016 , we expect a benefit from the amortization of the fair value adjustment on assumed long-term debt of $ 12 million for each of the remaining quarters in 2016, and 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.

Net Investment Income
 
Three Months Ended
 
Six Months Ended
 
 
June 30
 
June 30
 
(in millions of U.S. dollars)
2016

 
2015

2016

 
2015

Fixed maturities
$
686

 
$
550

$
1,329

 
$
1,092

Short-term investments
22

 
10

45

 
23

Equity securities
9

 
5

21

 
9

Other investments
26

 
28

53

 
49

Gross investment income
743

 
593

1,448


1,173

Investment expenses
(35
)
 
(31
)
(66
)
 
(60
)
Net investment income
$
708

 
$
562

$
1,382


$
1,113


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 26.0 percent and 24.2 percent for the three and six months ended June 30, 2016 , respectively, compared with the prior year periods, primarily due to the Chubb Corp acquisition which added $311 million and $572 million of net investment income, respectively, partially offset by the unfavorable impact of liquidating investments to fund the acquisition, the unfavorable impact of amortizing the purchase accounting fair value adjustment to investments at the date of acquisition of $108 million and $201 million, respectively, and the unfavorable impact of foreign exchange.

The investment portfolio’s average market yield on fixed maturities was 2.3 percent and 2.9 percent at June 30, 2016 and 2015, respectively. Average market yield on fixed maturities represents the weighted average yield to maturity of our fixed income portfolio based on the market prices of the holdings at that date.

The 2.5 percent and 2.3 percent yield on short-term investments for the three and six months ended June 30, 2016 , reflects the global nature of our insurance operations.

For the three and six months ended June 30, 2016 , the increase in net investment income from our equity securities reflects the higher invested assets from the Chubb Corp acquisition.

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.



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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 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 resulting from the revaluation of securities held, changes in cumulative translation adjustment, and unrealized pension liability adjustment, are reported as separate components of Accumulated other comprehensive income in Shareholders’ equity in the Consolidated balance sheets.

The following table presents our net realized and unrealized gains (losses):
 
Three Months Ended June 30, 2016
 
 
Three Months Ended June 30, 2015
 
(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
$
7

 
$
954

 
$
961

 
$
5

 
$
(832
)
 
$
(827
)
Fixed income derivatives
(47
)
 
—

 
(47
)
 
27

 
—

 
27

Public equity
(5
)
 
33

 
28

 
29

 
(23
)
 
6

Private equity
13

 
(42
)
 
(29
)
 
11

 
5

 
16

Total investment portfolio
(32
)
 
945

 
913

 
72

 
(850
)
 
(778
)
Variable annuity reinsurance derivative transactions, net of applicable hedges
(159
)
 
—

 
(159
)
 
102

 
—

 
102

Other derivatives
—

 
—

 
—

 
(1
)
 
—

 
(1
)
Foreign exchange
(22
)
 
81

 
59

 
(40
)
 
136

 
96

Other
(3
)
 
1

 
(2
)
 
(7
)
 
(6
)
 
(13
)
Net gains (losses) before tax
(216
)
 
1,027

 
811

 
126

 
(720
)
 
(594
)
Income tax expense (benefit)
(1
)
 
213

 
212

 
7

 
(175
)
 
(168
)
Net gains (losses)
$
(215
)
 
$
814

 
$
599

 
$
119

 
$
(545
)
 
$
(426
)
(1)  
For the three months ended June 30, 2016 , other-than-temporary impairments included $11 million for fixed maturities and $5 million for public equity. For the three months ended June 30, 2015 , other-than-temporary impairments included $7 million for fixed maturities and $1 million for public equity.
 
Six Months Ended June 30, 2016
 
 
Six Months Ended June 30, 2015
 
(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
$
(183
)
 
$
2,042

 
$
1,859

 
$
1

 
$
(393
)
 
$
(392
)
Fixed income derivatives
(86
)
 
—

 
(86
)
 
28

 
—

 
28

Public equity
33

 
29

 
62

 
30

 
(6
)
 
24

Private equity
16

 
(69
)
 
(53
)
 
11

 
(7
)
 
4

Total investment portfolio
(220
)
 
2,002

 
1,782

 
70

 
(406
)
 
(336
)
Variable annuity reinsurance derivative transactions, net of applicable hedges
(402
)
 
—

 
(402
)
 
45

 
—

 
45

Other derivatives
(2
)
 
—

 
(2
)
 
(1
)
 
—

 
(1
)
Foreign exchange
17

 
393

 
410

 
(71
)
 
(285
)
 
(356
)
Other
(3
)
 
3

 
—

 
(6
)
 
7

 
1

Net gains (losses) before tax
(610
)
 
2,398

 
1,788

 
37

 
(684
)
 
(647
)
Income tax expense (benefit)
(5
)
 
482

 
477

 
8

 
(100
)
 
(92
)
Net gains (losses)
$
(605
)
 
$
1,916

 
$
1,311

 
$
29

 
$
(584
)
 
$
(555
)
(1)  
For the six months ended June 30, 2016 , other-than-temporary impairments included $70 million for fixed maturities, $6 million for public equity and $3 million for private equity. For the six months ended June 30, 2015 , other-than-temporary impairments included $20 million for fixed maturities and $1 million for public equity.


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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 3.9 years and 3.5 years at June 30, 2016 and December 31, 2015 , respectively. We estimate that a 100 basis point (bps) increase in interest rates would reduce the valuation of our fixed income portfolio by approximately $3.7 billion at June 30, 2016 .

The following table shows the fair value and cost/amortized cost of our invested assets:
 
June 30, 2016
 
 
December 31, 2015
 
(in millions of U.S. dollars)
Fair
Value

 
Cost/
Amortized
Cost

 
Fair
Value

 
Cost/
Amortized
Cost

Fixed maturities available for sale
$
79,951

 
$
77,436

 
$
43,587

 
$
43,149

Fixed maturities held to maturity
11,581

 
11,090

 
8,552

 
8,430

Short-term investments
3,631

 
3,631

 
10,446

 
10,446

 
95,163

 
92,157

 
62,585

 
62,025

Equity securities
787

 
703

 
497

 
441

Other investments
4,387

 
4,152

 
3,291

 
2,993

Total investments
$
100,337

 
$
97,012

 
$
66,373

 
$
65,459


The fair value of our total investments increased $34.0 billion during the six months ended June 30, 2016 , primarily due to the Chubb Corp acquisition, which added $43.0 billion, the investing of operating cash flows, and unrealized appreciation, partially offset by investments sold to fund the Chubb Corp acquisition.


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The following tables present the market value of our fixed maturities and short-term investments at June 30, 2016 and December 31, 2015 . The first table lists investments according to type and second according to S&P credit rating:
 
June 30, 2016
 
 
December 31, 2015
 
(in millions of U.S. dollars, except for percentages)
Market
Value

 
% of Total

 
Market
Value

 
% of Total

Treasury
$
2,864

 
3
%
 
$
2,395

 
4
%
Agency
550

 
1
%
 
878

 
1
%
Corporate and asset-backed securities
25,450

 
27
%
 
17,985

 
28
%
Mortgage-backed securities
14,440

 
15
%
 
11,701

 
19
%
Municipal
24,975

 
26
%
 
4,950

 
8
%
Non-U.S.
23,253

 
24
%
 
14,230

 
23
%
Short-term investments
3,631

 
4
%
 
10,446

 
17
%
Total
$
95,163

 
100
%
 
$
62,585

 
100
%
AAA
$
17,412

 
18
%
 
$
14,369

 
23
%
AA
36,802

 
39
%
 
22,141

 
36
%
A
18,016

 
19
%
 
10,163

 
16
%
BBB
12,148

 
13
%
 
8,941

 
14
%
BB
6,465

 
7
%
 
3,775

 
6
%
B
4,061

 
4
%
 
3,018

 
5
%
Other
259

 
—
%
 
178

 
—
%
Total
$
95,163

 
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 June 30, 2016 :  
(in millions of U.S. dollars)
Market Value

JP Morgan Chase & Co
$
546

Wells Fargo & Co
468

General Electric Co
444

Goldman Sachs Group Inc
416

Bank of America Corp
385

Anheuser-Busch InBev NV
356

Verizon Communications Inc
355

AT&T Inc
334

Berkshire Hathaway Inc
321

Rabobank Nederland NV
310


Mortgage-backed securities
 
S&P Credit Rating
 
 
Market
 Value

 
Amortized Cost

June 30, 2016 (in millions of U.S. dollars)
AAA

 
AA

 
A

 
BBB

 
BB and
below

 
Total

 
Total

Agency residential mortgage-backed (RMBS)
$
—

 
$
11,360

 
$
—

 
$
—

 
$
—

 
$
11,360

 
$
10,976

Non-agency RMBS
4

 
6

 
10

 
8

 
35

 
63

 
62

Commercial mortgage-backed
2,978

 
33

 
6

 
—

 
—

 
3,017

 
2,931

Total mortgage-backed securities
$
2,982

 
$
11,399

 
$
16

 
$
8

 
$
35

 
$
14,440

 
$
13,969



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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. Chubb primarily invests in Euro denominated investments to support its local currency insurance obligations and required capital levels. Chubb’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 56 percent of 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 June 30, 2016 : 
(in millions of U.S. dollars)
Market Value

 
Amortized Cost

United Kingdom
$
1,848

 
$
1,771

Canada
1,204

 
1,181

Republic of Korea
1,046

 
889

Federative Republic of Brazil
833

 
827

Germany
622

 
599

Province of Ontario
513

 
492

United Mexican States
489

 
481

Kingdom of Thailand
424

 
380

Province of Quebec
385

 
368

Australia
320

 
301

Other Non-U.S. Government Securities (1)
4,303

 
4,138

Total
$
11,987

 
$
11,427

(1)  
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 June 30, 2016 : 
(in millions of U.S. dollars)
Market Value

 
Amortized Cost

United Kingdom
$
2,178

 
$
2,103

Canada
1,341

 
1,312

United States (1)
906

 
882

France
870

 
835

Netherlands
805

 
776

Australia
660

 
639

Germany
541

 
518

Japan
429

 
424

Switzerland
347

 
339

China
279

 
267

Other Non-U.S. Corporate Securities
2,910

 
2,840

Total
$
11,266

 
$
10,935

(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 June 30, 2016 , our corporate fixed income investment portfolio included below-investment grade and non-rated securities which, in total, comprised approximately 10 percent of our fixed income portfolio. Our below-investment grade and non-rated portfolio includes over 1,000 issuers, with the greatest single exposure being $181 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. Ten 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.

Critical Accounting Estimates
As of June 30, 2016 , there were no material changes to our critical accounting estimates. For a full discussion of our critical accounting estimates, refer to Item 7 in our 2015 Form 10-K.

Reinsurance recoverable on ceded reinsurance
 
June 30

 
December 31

(in millions of U.S. dollars)
2016

 
2015

Reinsurance recoverable on unpaid losses and loss expenses (1)
$
12,396

 
$
10,741

Reinsurance recoverable on paid losses and loss expenses   (1)
839

 
645

Reinsurance recoverable on losses and loss expenses (1)
$
13,235

 
$
11,386

Reinsurance recoverable on policy benefits (1)
$
199

 
$
187

(1)  
Net of 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


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reinsurers to indemnify us, primarily because of disputes under reinsurance contracts and insolvencies. The provision for uncollectible reinsurance is based on a default analysis applied to gross reinsurance recoverables, net of approximately $ 3.2 billion and $ 2.6 billion of collateral at June 30, 2016 and December 31, 2015 , respectively. The increase in reinsurance recoverable on losses and loss expenses was primarily due to the Chubb Corp acquisition.

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. 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.

The following table presents a roll-forward of our unpaid losses and loss expenses: 
(in millions of U.S. dollars)
Gross
Losses

 
Reinsurance
Recoverable (1)

 
Net
Losses

Balance at December 31, 2015
$
37,303

 
$
10,741

 
$
26,562

Losses and loss expenses incurred
9,902

 
1,974

 
7,928

Losses and loss expenses paid
(9,400
)
 
(1,895
)
 
(7,505
)
Other (including foreign exchange translation)
108

 
68

 
40

Losses and loss expenses acquired from Chubb Corp
22,906

 
1,508

 
21,398

Balance at June 30, 2016
$
60,819

 
$
12,396

 
$
48,423

(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 as of the acquisition date.

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).

The following table presents our total reserves segregated between case reserves (including loss expense reserves) and IBNR reserves: 
 
June 30, 2016
 
 
December 31, 2015
 
(in millions of U.S. dollars)
Gross

 
Ceded

 
Net

 
Gross

 
Ceded

 
Net

Case reserves
$
22,533

 
$
5,758

 
$
16,775

 
$
16,647

 
$
5,291

 
$
11,356

IBNR reserves
38,286

 
6,638

 
31,648

 
20,656

 
5,450

 
15,206

Total
$
60,819

 
$
12,396

 
$
48,423

 
$
37,303

 
$
10,741

 
$
26,562


Asbestos and Environmental (A&E)
There was no significant A&E reserve activity during the three and six months ended June 30, 2016.  A&E reserves are included in Corporate.  Refer to Corporate in the Overview section and to our 2015 Form 10-K for further information on our A&E exposures.

Fair value measurements
Refer to Note 4 to the Consolidated Financial Statements for information on our fair value measurements.


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Assumed reinsurance programs involving minimum benefit guarantees under variable annuity contracts
Chubb reinsures various death and living benefit guarantees associated with variable annuities issued primarily in the United States and Japan.

We 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 to the Consolidated Financial Statements of our 2015 Form 10-K.

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 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 consolidated balance sheets and related changes in fair value are reflected in Net realized gains (losses) in the Consolidated 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.

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.

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. For the six months ended June 30, 2016 and 2015 , management determined that no change to the benefit ratio was warranted.

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 of our 2015 Form 10-K. 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 resulting impact on our net income, refer to Item 3.

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


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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 further information on the different categories of claim limits, refer to "Guaranteed living benefits derivatives" in our 2015 Form 10-K under Item 7.

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 liability of $4 million at both June 30, 2016 and December 31, 2015 . 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.

Note that GLB claims cannot occur for any reinsured policy until it has reached the end of its “waiting period”. As shown in the table below, 58 percent of the policies we reinsure reached the end of their “waiting periods” prior to June 30, 2016 .
Year of first payment eligibility
Percent of living benefit
account values

June 30, 2016 and prior
58
%
Remainder of 2016
4
%
2017
19
%
2018
11
%
2019
2
%
2020
1
%
2021 and after
5
%
Total
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.
 
Three Months Ended June 30
 
 
Six Months Ended June 30
 
(in millions of U.S. dollars)
2016
 
 
2015
 
 
2016
 
 
2015
 
GMDB

 
GLB

 
Total

 
GMDB

 
GLB

 
Total

 
GMDB

 
GLB

 
Total

 
GMDB

 
GLB

 
Total

Premium received
$
14

 
$
30

 
$
44

 
$
16

 
$
30

 
$
46

 
$
28

 
$
59

 
$
87

 
$
32

 
$
61

 
$
93

Less paid claims
13

 
6

 
19

 
9

 
4

 
13

 
23

 
17

 
40

 
17

 
7

 
24

Net cash received
$
1

 
$
24

 
$
25

 
$
7

 
$
26

 
$
33

 
$
5

 
$
42

 
$
47

 
$
15

 
$
54

 
$
69


Collateral
Chubb 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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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 June 30, 2016 and 2015 . The table also presents Chubb’s corresponding share of pre-tax industry losses 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 $3,310 million (or 7.0 percent of our total shareholders’ equity at June 30, 2016 ). We estimate that at such hypothetical loss levels, Chubb’s share of aggregate industry losses would be approximately 2.1 percent.
 
 
Modeled Annual Aggregate Net PML
 
 
U.S. Hurricane
 
California Earthquake
 
 
June 30
 
 
June 30

 
June 30
 
 
June 30

 
 
2016
 
 
2015

 
2016
 
 
2015

(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
 
$
3,310

 
7.0
%
 
2.1
%
 
$
1,766

 
$
1,504

 
3.2
%
 
3.8
%
 
$
769

1-in-250
 
$
5,717

 
12.1
%
 
2.7
%
 
$
2,452

 
$
2,114

 
4.5
%
 
3.5
%
 
$
1,063


The above modeled loss information at June 30, 2016 reflects our in-force portfolio program at April 1, 2016 for legacy ACE and December 31, 2015 for legacy Chubb Corp. Effective April 1, 2016 Chubb renewed its Global Property Catastrophe Program for our North American and International operations that provides global natural catastrophe and terrorism coverage. The June 30, 2016 modeled loss information reflects the April 1, 2016 reinsurance program as well as the inuring reinsurance protections coverage at July 1, 2016. Refer to “Natural catastrophe property reinsurance program” for additional information on our reinsurance program.

The modeling estimates of both Chubb 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
Chubb’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.

Chubb purchases a Global Property Catastrophe Reinsurance Program for our North American and International operations. The program is effective April 1, 2016 through March 31, 2017, and consists of three layers in excess of losses retained by Chubb. In addition, we also purchased terrorism coverage (excluding nuclear, biological, chemical and radiation coverage, with an inclusion of coverage for biological and chemical coverage for personal lines) for the United States from April 1, 2016 to 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
 
Comments
Notes
United States
(excluding Alaska and Hawaii)
 
$0 million –  
$1.0 billion
 
Losses retained by Chubb
(a)
United States
(excluding Alaska and Hawaii)
 
$1.0 billion –
$1.25 billion
 
All natural perils, and terrorism
(b)
United States
(excluding Alaska and Hawaii)
 
$1.25 billion –
$2.0 billion
 
All natural perils, and terrorism
(c)
United States
(excluding Alaska and Hawaii)
 
$2.0 billion –
$3.5 billion
 
All natural perils, and terrorism
(d)
International
(including Alaska and Hawaii)
 
$0 million –
$175 million
 
Losses retained by Chubb
(a)
International
(including Alaska and Hawaii)
 
$175 million –
$925 million
 
All natural perils, and terrorism
(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 20% placed with Reinsurers.
(c) These coverages are both part of the same Second layer within the Global Catastrophe Program and are 100% 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% 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.


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



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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 in February of the Chicago Board of Trade December corn futures. To the extent that the corn commodity prices are higher in 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
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. 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. Should the need arise, we generally have access to capital markets and an available $1.5 billion letter of credit/revolver facility. At June 30, 2016 , our usage of this letter of credit was $469 million . 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 credit facility has a remaining term expiring in November 2017 and requires that we maintain certain financial covenants, all of which we met at June 30, 2016 . 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 . Refer to “Credit Facilities” in our 2015 Form 10-K for additional information.

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 and reinsurance operations, including financial strength ratings issued by independent rating agencies. During the six months ended June 30, 2016 , we were able to meet all of our obligations, including the payments of dividends on our Common Shares, with our net cash flows.

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. Chubb Limited received dividends of $5.0 billion from its Bermuda subsidiaries in 2015, 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 and Chubb Group Holdings, both subsidiaries of Chubb Limited. In addition, Chubb Limited received dividends of $875 million and $15 million from its Bermuda subsidiaries during the six months ended June 30, 2016 and 2015, respectively.

The payment of any dividends from CGM 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 CGM is subject to regulations promulgated by the Society of Lloyd’s. The U.S. insurance subsidiaries of Chubb INA Holdings Inc. (Chubb 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). Chubb


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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. Chubb Limited received no dividends from CGM or Chubb INA during the six months ended June 30, 2016 and 2015 . Debt issued by Chubb INA is serviced by statutorily permissible distributions by Chubb INA’s insurance subsidiaries to Chubb INA as well as other group resources. Chubb INA received dividends of $1.2 billion and nil from its subsidiaries during the six months ended June 30, 2016 and 2015, respectively.

Chubb INA received $1.0 billion in capital contribution from Chubb Limited and $4.2 billion from Chubb Group Holdings during the six months ended June 30, 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 sources of liquidity include cash from operations, routine sales of investments, and financing arrangements. The following is a discussion of our cash flows for the six months ended June 30, 2016 and 2015 .

Operating cash flows were $2.15 billion in the six months ended June 30, 2016 , compared with $1.89 billion in the prior year period. The $ 262 million increase in operating cash flows was primarily due to legacy Chubb Corp which contributed $752 million, partially offset by higher interest paid of $192 million on long-term debt and integration expenses paid of $200 million.

Cash used for investing was $2.67 billion in the six months ended June 30, 2016 , compared with $1.02 billion in the prior year period. The increase in cash used for investing of $ 1,652 million was primarily due to cash paid for the purchase of Chubb Corp of $14.25 billion, which was largely funded by sales in our investment portfolio, including net proceeds in short-term investments which offset the cash paid for Chubb Corp. In addition, cash used for investing increased due to higher net purchases in our investment portfolio. The prior year cash used for investing included cash paid for the purchase of the Fireman's Fund of $365 million, which when netted with cash acquired of $620 million, resulted in a net $255 million of cash inflow.

Cash used for financing was $269 million in the six months ended June 30, 2016 , compared with $659 million in the prior year period. The current year included $530 million 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 $171 million. The prior year included $427 million of dividends paid on common shares, $750 million of shares repurchased, and $450 million for the repayments of long-term debt, partially offset by $800 million of proceeds from the issuance of long-term debt.

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.

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 long-term investment portfolio holdings. At June 30, 2016 , there were $ 1.4 billion in repurchase agreements outstanding with various maturities over the next 6 months.



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Capital Resources
Capital resources consist of funds deployed or available to be deployed to support our business operations.
 
June 30

 
December 31

(in millions of U.S. dollars, except for percentages)
2016

 
2015

Short-term debt
$
500

 
$
—

Long-term debt
12,631

 
9,389

Total debt
13,131

 
9,389

Trust preferred securities
308

 
307

Total shareholders’ equity
47,226

 
29,135

Total capitalization
$
60,665

 
$
38,831

Ratio of debt to total capitalization
21.6
%
 
24.2
%
Ratio of debt plus trust preferred securities to total capitalization
22.1
%
 
25.0
%

In April 2015, the FASB issued new guidance related to the accounting for debt issuance costs.  The new guidance requires presentation of debt issuance costs in the balance sheet as a deduction from the carrying amount of the related debt liability instead of a deferred charge.  We retrospectively adopted this guidance effective first quarter of 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 to conform to the current period presentation.

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 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 which were issued in November 2015. Refer to Note 2 and Note 7 to the Consolidated Financial Statements for additional information on the acquisition and the $5.3 billion debt issuance, 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 obligations are junior 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 redeemed at the reset date. However, our expectations are subject to change depending on market conditions and other factors.

In February 2016, we reclassified $500 million of 5.7 percent senior notes, due to mature in February 2017, from Long-term debt to Short-term debt in the consolidated balance sheet.

For the six months ended June 30, 2015, we repurchased $734 million of Common Shares in a series of open market transactions under the Board of Directors (Board) authorization which expired on December 31, 2015. There are no outstanding repurchase authorizations subsequent to December 31, 2015. At this time, management has elected to discontinue share repurchases. At June 30, 2016 , there were 14,770,884 Common Shares in treasury with a weighted average cost of $106.80 per share.

We generally maintain the ability to issue certain classes of debt and equity securities via an unlimited Securities and Exchange Commission (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. In October 2015, we filed a new unlimited shelf registration which allows us to issue certain classes of debt and equity. This shelf registration expires in October 2018.

Dividends
We have paid dividends each quarter since we became a public company in 1993. Under Swiss law, dividends must be stated in Swiss francs though dividend payments are made by Chubb in U.S. dollars. Refer to Note 9 to the Consolidated Financial Statements for a discussion of our dividend methodology.


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At our May 2016 annual general meeting, our shareholders approved an annual dividend for the following year of up to $2.76 per share, or CHF 2.72 per share, calculated using the USD/CHF exchange rate as published in the Wall Street Journal on May 19, 2016, expected to be paid in four quarterly installments of $0.69 per share after the general meeting by way of a distribution from capital contribution reserves, transferred to free reserves for payment. The Board will determine the record and payment dates at which the annual dividend may be paid until the date of the 2017 annual general meeting, and is authorized to abstain from distributing a dividend at their discretion. The annual dividend approved in May 2016 represented an $0.08 per share increase ($0.02 per quarter) over the prior year dividend.

The following table represents dividends paid per Common Share to shareholders of record on each of the following dates:  
Shareholders of record as of:
 
Dividends paid as of:
 
 
December 31, 2015
 
January 21, 2016
 
$0.67 (CHF 0.67)
March 31, 2016
 
April 21, 2016
 
$0.67 (CHF 0.66)
June 30, 2016
 
July 21, 2016
 
$0.69 (CHF 0.68)


ITEM 3. 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 June 30, 2016 and December 31, 2015 , our notional exposure to derivative instruments was $ 4.1 billion and $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 June 30, 2016 . Our policies to address these risks in 2016 were not materially different from 2015. 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.


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The following table presents the impact at June 30, 2016 and December 31, 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)
June 30 2016

 
December 31 2015

Fair value of fixed income portfolio
$
95.2

 
$
62.6

Pre-tax impact of 100 bps increase in interest rates:
 
 
 
 
In dollars
$
3.7

 
$
2.2

 
As a percentage of total fixed income portfolio at fair value
3.9
%
 
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.

Changes in interest rates could have a material impact on our debt and trust preferred securities fair value, albeit there would be no impact on our consolidated financial statements.

The following table presents the impact at June 30, 2016 and December 31, 2015 , 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)
June 30 2016

 
December 31 2015

Fair value of debt obligations, including repurchase agreements
$
16,003

 
$
11,528

Impact of 100 bps decrease in interest rates:
 
 


     In dollars
 
$
1,366

 
$
921

     As a percentage of total debt obligations at fair value
 
8.5
%
 
8.0
%

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. We do not hedge our net asset non-U.S. dollar capital positions; however, we do consider hedging for planned cross border transactions.
 


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The following table summarizes the net assets in non-U.S. currencies at June 30, 2016 and December 31, 2015:
 
 
June 30, 2016
 
December 31, 2015
 
 
2016 vs. 2015 % change in exchange rate per USD

 
 
 
 
Exchange rate
 
 
 
Exchange rate

 
(in millions of U.S. dollars, except for percentages)
 
Net Assets

 
per USD
 
Net Assets

 
per USD

 
British pound sterling (GBP)
 
$
2,900

 
1.3311
 
$
1,200

 
1.4736

 
(9.7
)%
Canadian dollar (CAD)
 
2,367

 
0.7737
 
507

 
0.7226

 
7.1
 %
Euro (EUR)
 
1,778

 
1.1106
 
749

 
1.0862

 
2.2
 %
Australian dollar (AUD)
 
1,340

 
0.7451
 
373

 
0.7286

 
2.3
 %
Brazilian real (BRL)
 
1,197

 
0.3112
 
682

 
0.2525

 
23.2
 %
Korean Won (KRW) (x100)
 
683

 
0.0868
 
613

 
0.0851

 
2.0
 %
Mexican peso (MXN)
 
655

 
0.0547
 
683

 
0.0581

 
(5.9
)%
Japanese yen (JPY)
 
511

 
0.0097
 
493

 
0.0083

 
16.9
 %
Thailand Baht (THB)
 
434

 
0.0285
 
377

 
0.0278

 
2.5
 %
Other foreign currencies
 
1,742

 
     various
 
1,189

 
     various

 
NM

Net assets denominated in foreign currencies
 
$
13,607

 
 
 
$
6,866

 
 
 
 
As a percentage of total net assets
 
28.8
%
 
 
 
23.6
%
 
 
 
 
Pre-tax impact on Shareholders' equity of a hypothetical 10 percent strengthening of the U.S. dollar
 
$
1,235

 
 
 
$
624

 
 
 
 
(1) At June 30, 2016 , net assets denominated in foreign currencies comprised approximately 41% tangible assets and 59% intangible assets, primarily goodwill. The increase in foreign denominated net assets is due to the Chubb Corp acquisition.

Reinsurance of GMDB and GLB guarantees
Chubb 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 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.

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 June 30, 2016 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 June 30, 2016

•
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.



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•
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), 20 percent— 30 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  June 30, 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 only 58 percent of that population has become eligible to annuitize and generate a claim (since approximately 42 percent of policies are not eligible to annuitize until after June 30, 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 third quarter to various changes, it is necessary to assume an additional $5 million to $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 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.



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Interest Rate Shock
Worldwide Equity Shock
(in millions of U.S. dollars)
+10%
 
Flat
 
-10%
 
-20%
 
-30%
 
-40%
+100 bps
(Increase)/decrease in Gross FVL
$
599

 
$
357

 
$
53

 
$
(306
)
 
$
(718
)
 
$
(1,176
)
 
Increase/(decrease) in hedge value
(123
)
 
—

 
123

 
246

 
369

 
492

 
Increase/(decrease) in net income
$
476

 
$
357

 
$
176

 
$
(60
)
 
$
(349
)
 
$
(684
)
Flat
(Increase)/decrease in Gross FVL
$
284

 
$
—

 
$
(345
)
 
$
(745
)
 
$
(1,193
)
 
$
(1,676
)
 
Increase/(decrease) in hedge value
(123
)
 
—

 
123

 
246

 
369

 
492

 
Increase/(decrease) in net income
$
161

 
$
—

 
$
(222
)
 
$
(499
)
 
$
(824
)
 
$
(1,184
)
-100 bps
(Increase)/decrease in Gross FVL
$
(87
)
 
$
(408
)
 
$
(791
)
 
$
(1,225
)
 
$
(1,700
)
 
$
(2,194
)
 
Increase/(decrease) in hedge value
(123
)
 
—

 
123

 
246

 
369

 
492

 
Increase/(decrease) in net income
$
(210
)
 
$
(408
)
 
$
(668
)
 
$
(979
)
 
$
(1,331
)
 
$
(1,702
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Sensitivities to Other Economic Variables
AA-rated Credit Spreads
 
 Interest Rate Volatility
 
 Equity Volatility
(in millions of U.S. dollars)
+100 bps

 
-100 bps
 
+2%
 
-2%
 
+2%
 
-2%
(Increase)/decrease in Gross FVL
$
89

 
$
(103
)
 
$
(2
)
 
$
1

 
$
(13
)
 
$
12

Increase/(decrease) in hedge value
—

 
—

 
—

 
—

 
—

 
—

Increase/(decrease) in net income
$
89

 
$
(103
)
 
$
(2
)
 
$
1

 
$
(13
)
 
$
12

 
 
 
 
 
 
 
 
 
 
 
 
Sensitivities to Actuarial Assumptions
 
 
 
 
Mortality
(in millions of U.S. dollars)
 
 
 
 
+20%
 
+10%
 
-10%
 
-20%
(Increase)/decrease in Gross FVL
 
 
 
 
$
32

 
$
16

 
$
(17
)
 
$
(33
)
Increase/(decrease) in hedge value
 
 
 
 
—

 
—

 
—

 
—

Increase/(decrease) in net income
 
 
 
 
$
32

 
$
16

 
$
(17
)
 
$
(33
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Lapses
(in millions of U.S. dollars)
 
 
 
 
+50%
 
+25%
 
-25%
 
-50%
(Increase)/decrease in Gross FVL
 
 
 
 
$
317

 
$
173

 
$
(211
)
 
$
(452
)
Increase/(decrease) in hedge value
 
 
 
 
—

 
—

 
—

 
—

Increase/(decrease) in net income
 
 
 
 
$
317

 
$
173

 
$
(211
)
 
$
(452
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annuitization
(in millions of U.S. dollars)
 
 
 
 
+50%
 
+25%
 
-25%
 
-50%
(Increase)/decrease in Gross FVL
 
 
 
 
$
(407
)
 
$
(224
)
 
$
290

 
$
643

Increase/(decrease) in hedge value
 
 
 
 
—

 
—

 
—

 
—

Increase/(decrease) in net income
 
 
 
 
$
(407
)
 
$
(224
)
 
$
290

 
$
643



ITEM 4. Controls and Procedures
Chubb’s management, with the participation of Chubb’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of Chubb’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 June 30, 2016. Based upon that evaluation, which excluded the impact of the acquisition of The Chubb Corporation discussed below, Chubb’s Chief Executive Officer and Chief Financial Officer concluded that Chubb’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 Chubb’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.


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During the first quarter 2016, we acquired all of the outstanding shares of The Chubb Corporation (Legacy Chubb). For the three and six months ended June 30, 2016, Legacy Chubb represented approximately 35 percent of consolidated revenues for both periods, and approximately 47 percent and 52 percent of pre-tax income, respectively. At June 30, 2016, Legacy Chubb represented approximately 40 percent of total assets. We currently exclude, and are in the process of working to incorporate, Legacy Chubb in our evaluation of internal controls over financial reporting and related disclosure controls and procedures.

There has been no change in Chubb’s internal controls over financial reporting during the three months ended June 30, 2016 that has materially affected, or is reasonably likely to materially affect, Chubb’s internal controls over financial reporting.

PART II OTHER INFORMATION
ITEM 1. Legal Proceedings
The information required with respect to this item is included in Note 8 g) to the Consolidated Financial Statements which is hereby incorporated by reference.

ITEM 1A. Risk Factors
The following supplements the risk factors that could have a material impact on our results of operations or financial condition as described under "Risk Factors" in Item 1A of Part I of our 2015 Form 10-K.

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 voted in a national referendum to withdraw from the European Union. The result of the referendum does not legally obligate the United Kingdom to exit the European Union, and it is unclear if or when the United Kingdom will formally serve notice to the European Council of its desire to withdraw, a process that is unprecedented in European Union history and one that could involve months or years of negotiation to draft and approve a withdrawal agreement in accordance with Article 50 of the Treaty on European Union.

Regardless of any eventual timing or terms of the United Kingdom’s exit from the European Union, the June referendum has created significant political, social and macroeconomic uncertainty. As a result of this uncertainty, in the immediate wake of the UK referendum, stock exchange indices around the world, and in the United Kingdom in particular, declined significantly. In addition, the pound sterling experienced sharp depreciation following the vote. Refer to Quantitative and Qualitative Disclosures about Market Risk under Part I, Item 3 for additional information on our foreign currency management. Also, within one day of the referendum, Moody’s, Fitch and S&P each downgraded the outlook of the UK government’s bond rating from stable to negative, warning that the country’s economic growth and fiscal strength are likely to be lower in the event the United Kingdom exits the European Union.

The possible exit of the United Kingdom (or any other country) from the European Union, the potential withdrawal of Scotland or Northern Ireland from the United Kingdom, 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 United Kingdom and a downgrade of the United Kingdom’s sovereign credit rating. In addition, there are increasing concerns that these events could push the United Kingdom, 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.

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 requires 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”. 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


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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 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.


ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds and Issuer Repurchases of Equity Securities

Issuer’s Repurchases of Equity Securities
The following table provides information with respect to purchases by Chubb of its Common Shares during the three months ended June 30, 2016 :
Period
Total
Number of
Shares
Purchased (1)

 
Average Price
Paid per Share

April 1 through April 30
76,828

 
$
120.17

May 1 through May 31
115,408

 
$
123.61

June 1 through June 30
41,399

 
$
125.00

Total
233,635

 
$
122.73

 
(1)  
This column includes activity related to the surrender to Chubb of common shares to satisfy tax withholding obligations in connection with the vesting of restricted stock issued to employees and the exercising of options by employees.


ITEM 6. Exhibits
Refer to the Exhibit Index.


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Table of Contents






SIGNATURES

Pursuant to the requirements 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.
 
CHUBB LIMITED
 
(Registrant)
 
 
August 5, 2016
/s/ Evan G. Greenberg
 
Evan G. Greenberg
 
Chairman, President and Chief Executive Officer
 
 
August 5, 2016
/s/ Philip V. Bancroft
 
Philip V. Bancroft
 
Executive Vice President and Chief Financial Officer




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Table of Contents






 
 
 
 
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
 
8-K
 
3.1
 
May 20, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
3.2
 
Organizational Regulations of the Company, as amended
 
8-K
 
3.1
 
March 2, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
4.1
 
Articles of Association of the Company, as amended
 
8-K
 
4.1
 
May 20, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
4.2
 
Organizational Regulations of the Company, as amended
 
8-K
 
3.1
 
March 2, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
10.1*
 
Chubb Limited 2016 Long-Term Incentive Plan
 
S-8
 
4.4
 
May 26, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
10.2*
 
Form of Incentive Stock Option Terms under the Chubb Limited 2016 Long-Term Incentive Plan
 
 
 
 
 
 
 
X
 
 
 
 
 
 
 
 
 
 
 
10.3*
 
Form of Restricted Stock Award Terms under the Chubb Limited 2016 Long-Term Incentive Plan
 
 
 
 
 
 
 
X
 
 
 
 
 
 
 
 
 
 
 
10.4*
 
Form of Restricted Stock Unit Award Terms under the Chubb Limited 2016 Long-Term Incentive Plan
 
 
 
 
 
 
 
X
 
 
 
 
 
 
 
 
 
 
 
10.5*
 
Form of Non-Qualified Stock Option Terms under the Chubb Limited 2016 Long-Term Incentive Plan
 
 
 
 
 
 
 
X
 
 
 
 
 
 
 
 
 
 
 
10.6*
 
Form of Incentive Stock Option Terms under the Chubb Limited 2016 Long-Term Incentive Plan for Swiss Executive Management
 
 
 
 
 
 
 
X
 
 
 
 
 
 
 
 
 
 
 
10.7*
 
Form of Restricted Stock Award Terms under the Chubb Limited 2016 Long-Term Incentive Plan for Swiss Executive Management
 
 
 
 
 
 
 
X
 
 
 
 
 
 
 
 
 
 
 
10.8*
 
Form of Restricted Stock Unit Award Terms under the Chubb Limited 2016 Long-Term Incentive Plan for Swiss Executive Management
 
 
 
 
 
 
 
X
 
 
 
 
 
 
 
 
 
 
 
10.9*
 
Form of Non-Qualified Stock Option Terms under the Chubb Limited 2016 Long-Term Incentive Plan for Swiss Executive Management
 
 
 
 
 
 
 
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
 
 
 
 
 
 
 
 
 
 
 


109



Table of Contents



101.1
 
The following financial information from Chubb Limited’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2016 formatted in XBRL: (i) Consolidated Balance Sheets at June 30, 2016, and December 31, 2015; (ii) Consolidated Statements of Operations and Comprehensive Income for the three and six months ended June 30, 2016 and 2015; (iii) Consolidated Statements of Shareholders’ Equity for the six months ended June 30, 2016 and 2015; (iv) Consolidated Statements of Cash Flows for the six months ended June 30, 2016 and 2015; and (v) Notes to Consolidated Financial Statements
 
 
 
 
 
 
 
X
 
 
 
 
 
 
 
 
 
 
 
* Management Contract or Compensation Plan


110



Exhibit 10.2

Incentive Stock Option Terms
under the
Chubb Limited 2016 Long-Term Incentive Plan

The Participant has been granted an Option by Chubb Limited (the "Company") under the Chubb Limited 2016 Long-Term Incentive Plan (the "Plan"). The Option shall be subject to the following Incentive Stock Option Terms (sometimes referred to as the "Option Terms"):
1. Terms of Award . The following words and phrases used in these Option Terms shall have the meanings set forth in this paragraph 1:
(a)      The "Participant" is the individual recipient of the Incentive Stock Option Award on the specified Grant Date.
(b)      The "Grant Date" is [Insert Date].
(c)      The number of "Covered Shares" shall be that number of shares of Stock awarded to the Participant on the Grant Date as reflected in the corporate records and shown in the Record-Keeping System in the Participant’s individual account records.
(d)      The "Exercise Price" is $[Insert Price] per share.
Other words and phrases used in these Option Terms are defined pursuant to paragraph 8 or elsewhere in these Option Terms.
2. Incentive Stock Option . The Option is intended to constitute an "incentive stock option" as that term is used in Code section 422. To the extent that the aggregate fair market value (determined at the time of grant) of Shares with respect to which incentive stock options are exercisable for the first time by the Participant during any calendar year under all plans of the Company and its Subsidiaries exceeds $100,000, the options or portions thereof which exceed such limit (according to the order in which they were granted) shall be treated as nonstatutory stock options. It should be understood that there is no assurance that the Option will, in fact, be treated as an incentive stock option.
3. Date of Exercise . Subject to the limitations of these Option Terms, each Installment of Covered Shares of the Option shall be exercisable on and after the Vesting Date for such Installment as described in the following schedule (but only if the Date of Termination has not occurred before the Vesting Date):
INSTALLMENT
VESTING DATE
APPLICABLE TO
INSTALLMENT
1/3 of Covered Shares
One year anniversary of the Grant Date
1/3 of Covered Shares
Two year anniversary of the Grant Date
1/3 of Covered Shares
Three year anniversary of the Grant Date

Notwithstanding the foregoing provisions of this paragraph 3, the Option shall become fully vested and exercisable as follows, with the exception of paragraph (c):




(a)
The Option shall become fully exercisable upon the Date of Termination, if the Date of Termination occurs by reason of the Participant’s death or Long-Term Disability.
(b)
The Option shall become fully exercisable upon a Change in Control that occurs on or before the Date of Termination.
(c)
For Installments as to which the Restricted Period has not ended prior to the Date of Termination, if the Date of Termination occurs by reason of the Participant’s Retirement, vesting shall continue pursuant to the foregoing schedule following the Date of Termination. Following the Date of Termination the Restricted Period shall end in accordance with the above schedule.

Except as specified in (c), the Option may be exercised on or after the Date of Termination only as to that portion of the Covered Shares for which it was exercisable (or became exercisable) immediately prior to the Date of Termination.
4. Expiration . The Option shall not be exercisable after the Company’s close of business on the last business day that occurs prior to the Expiration Date. The "Expiration Date" shall be the earliest to occur of:
(a)
the ten‑year anniversary of the Grant Date;
(b)
if the Participant's Date of Termination occurs by reason of death or Long-Term Disability, the one-year anniversary of such Date of Termination;
(c)
if the Participant's Date of Termination occurs by reason of Retirement, the date on which the Expiration Date would occur if the Participant's Date of Termination occurred on the ten-year anniversary of the Grant Date, or if earlier, the date of the Participant's death; or
(d)
if the Participant's Date of Termination occurs for any reason other than those listed in subparagraph (b) or (c) of this paragraph 4, the three-month anniversary of such Date of Termination.
5. Method of Option Exercise . Subject to these Option Terms and the Plan, the Option may be exercised in whole or in part by filing a written notice (or by such other method as may be provided by the Committee, including but not limited to processes provided in electronic record-keeping systems utilized for management of the Plan) with the Secretary of the Company at its corporate headquarters prior to the Company’s close of business on the last business day that occurs prior to the Expiration Date. Such notice shall specify the number of shares of Stock which the Participant elects to purchase, and shall be accompanied by payment of the Exercise Price for such shares of Stock indicated by the Participant’s election. Payment shall be by cash or by check payable to the Company. Except as otherwise provided by the Committee before the Option is exercised: (i) all or a portion of the Exercise Price may be paid by the Participant by delivery of shares of Stock (including shares of Stock that would otherwise be distributable upon the exercise of the Option) owned by the Participant and acceptable to the Committee having an aggregate Fair Market Value (valued as of the date of exercise) that is equal to the amount of cash that would otherwise be required; and (ii) the Participant may pay the Exercise Price by authorizing a third party to sell shares of Stock (or a sufficient portion of the shares) acquired upon exercise of the Option and remit to the Company a sufficient portion of the sale proceeds to pay the entire Exercise Price and any tax withholding resulting from such exercise. The Option shall not be exercisable if and to the extent the Company determines that such exercise would violate applicable state or Federal securities laws or the rules and regulations of any securities exchange on which the Stock is traded. If the Company




makes such a determination, it shall use all reasonable efforts to obtain compliance with such laws, rules and regulations. In making any determination hereunder, the Company may rely on the opinion of counsel for the Company.
6. Withholding . All deliveries and distributions under these Option Terms are subject to withholding of all applicable taxes. At the election of the Participant, and subject to such rules and limitations as may be established by the Committee from time to time, such withholding obligations may be satisfied through the surrender of shares of Stock which the Participant already owns, or to which the Participant is otherwise entitled under the Plan; provided, however, that such shares may be used to satisfy not more than the Company’s minimum statutory withholding obligation (based on minimum statutory withholding rates for Federal and state tax purposes, including payroll taxes, that are applicable to such supplemental taxable income).
7. Transferability . Except as otherwise provided by the Committee, the Option is not transferable other than as designated by the Participant by will or by the laws of descent and distribution, and during the Participant’s life, may be exercised only by the Participant.
8. Definitions . For purposes of these Option Terms, words and phrases shall be defined as follows:
(a)
Change in Control . The term "Change in Control" shall be defined as set forth in the Plan.
(b)
Date of Termination . A Participant's "Date of Termination" means, with respect to an employee, the date on which the Participant's employment with the Company and Subsidiaries terminates for any reason, and with respect to a Director, the date immediately following the last day on which the Participant serves as a Director; provided that a Date of Termination shall not be deemed to occur by reason of a Participant's transfer of employment between the Company and a Subsidiary or between two Subsidiaries; further provided that a Date of Termination shall not be deemed to occur by reason of a Participant's cessation of service as a Director if immediately following such cessation of service the Participant becomes or continues to be employed by the Company or a Subsidiary, nor by reason of a Participant's termination of employment with the Company or a Subsidiary if immediately following such termination of employment the Participant becomes or continues to be a Director; and further provided that a Participant's employment shall not be considered terminated while the Participant is on a leave of absence from the Company or a Subsidiary approved by the Participant's employer.
(c)      Director . The term "Director" means a member of the Board, who may or may not be an employee of the Company or a Subsidiary.
(d)      Long-Term Disability . A Participant shall be considered to have a “Long-Term Disability” if the Participant is determined to be eligible for long-term disability benefits under the long-term disability plan in which the Participant participates and which is sponsored by the Company or a Related Company; or if the Participant does not participate in a long-term disability plan sponsored by the Company or a Related Company, then the Participant shall be considered to have a “Long-Term Disability” if the Committee determines, under standards comparable to those of the Company’s long-term disability plan, that the Participant would be eligible for long-term disability benefits if he or she participated in such plan.
(e)      Retirement . The term “Retirement” means an employee who’s Date of Termination occurs after satisfying all of the following: (i) the employee has provided at least ten years of service with the Company or a Related Company; (ii) the employee has attained at least age 62; and (iii) the employee




terminates employment in good standing with the Company or a Related Company, and (iv) the employee executes an agreement and release as required by the Company which will include, without limitation, a general release, and non-competition and non-solicitation provisions. However, with respect to exercising vested options pursuant to 4(c), above, “Retirement” shall mean the occurrence of a Participant's Date of Termination with the consent of the Participant's employer after the Participant is eligible for early retirement or normal retirement under a retirement plan maintained by the Company or the Subsidiaries.
(f)      Plan Definitions . Except where the context clearly implies or indicates the contrary, a word, term, or phrase used in the Plan is similarly used in these Option Terms.
9. Heirs and Successors . The Option Terms shall be binding upon, and inure to the benefit of, the Company and its successors and assigns, and upon any person acquiring, whether by merger, consolidation, purchase of assets or otherwise, all or substantially all of the Company’s assets and business. If any rights exercisable by the Participant or benefits deliverable to the Participant under these Option Terms have not been exercised or delivered, respectively, at the time of the Participant’s death, such rights shall be exercisable by the Designated Beneficiary, and such benefits shall be delivered to the Designated Beneficiary, in accordance with the provisions of these Option Terms and the Plan. The "Designated Beneficiary" shall be the beneficiary or beneficiaries designated by the Participant in a writing filed with the Committee in such form and at such time as the Committee shall require. If a deceased Participant fails to designate a beneficiary, or if the Designated Beneficiary does not survive the Participant, any rights that would have been exercisable by the Participant and any benefits distributable to the Participant shall be exercised by or distributed to the legal representative of the estate of the Participant. If a deceased Participant designates a beneficiary and the Designated Beneficiary survives the Participant but dies before the Designated Beneficiary’s exercise of all rights under these Option Terms or before the complete distribution of benefits to the Designated Beneficiary under these Option Terms, then any rights that would have been exercisable by the Designated Beneficiary shall be exercised by the legal representative of the estate of the Designated Beneficiary, and any benefits distributable to the Designated Beneficiary shall be distributed to the legal representative of the estate of the Designated Beneficiary.
10. Administration . The authority to manage and control the operation and administration of these Option Terms shall be vested in the Committee, and the Committee shall have all powers with respect to these Option Terms as it has with respect to the Plan. Any interpretation of the Agreement by the Committee and any decision made by it with respect to the Agreement is final and binding on all persons.
11. Plan and Corporate Records Govern . Notwithstanding anything in these Option Terms to the contrary, these Option Terms shall be subject to the terms of the Plan, a copy of which may be obtained by the Participant from the office of the Secretary of the Company; and these Option Terms are subject to all interpretations, amendments, rules and regulations promulgated by the Committee from time to time pursuant to the Plan. Notwithstanding anything in the Option Terms to the contrary, in the event of any discrepancies between the corporate records regarding this award and the Record-Keeping System, the corporate records shall control.
12. Not An Employment Contract . The Option will not confer on the Participant any right with respect to continuance of employment or other service with the Company or any Subsidiary, nor will it interfere in any way with any right the Company or any Subsidiary would otherwise have to terminate or modify the terms of such Participant’s employment or other service at any time.




13. Notices . Any written notices provided for in these Option Terms or the Plan shall be in writing and shall be deemed sufficiently given if either hand delivered or if sent by fax or overnight courier, or by postage paid first class mail. Notices sent by mail shall be deemed received three business days after mailing but in no event later than the date of actual receipt. Notices shall be directed, if to the Participant, at the Participant’s address indicated by the Company’s records, or if to the Company, at the Company’s principal executive office.
14. Fractional Shares . In lieu of issuing a fraction of a share upon any exercise of the Option, resulting from an adjustment of the Option pursuant to paragraph 5.2(f) of the Plan or otherwise, the Company will be entitled to pay to the Participant an amount equal to the fair market value of such fractional share.
15. No Rights As Shareholder . The Participant shall not have any rights of a shareholder with respect to the shares subject to the Option, until a stock certificate has been duly issued following exercise of the Option as provided herein. The Participant is not entitled to any dividend equivalents (current or deferred) with respect to the Option.
16. Amendment . The Option Terms may be amended in accordance with the provisions of the Plan, and may otherwise be amended by written agreement of the Participant and the Company without the consent of any other person.
IN WITNESS WHEREOF, the Company has caused these presents to be executed in its name and on its behalf, all as of the Grant Date.

CHUBB LIMITED



By:      ______________________________________
Its:      ______________________________________
    






Exhibit 10.3

Restricted Stock Award Terms
under the
Chubb Limited 2016 Long-Term Incentive Plan
The Participant has been granted a Restricted Stock Award by Chubb Limited (the “Company”) under the Chubb Limited 2016 Long-Term Incentive Plan (the “Plan”). The Restricted Stock Award shall be subject to the following Restricted Stock Award Terms:
1. Terms of Award . The following words and phrases used in these Restricted Stock Award Terms shall have the meanings set forth in this paragraph 1:
(a)
The “Participant” is the individual recipient of the Restricted Stock Award on the specified Grant Date.
(b)
The “Grant Date” is ( Insert Date )
(c)
The number of “Covered Shares” shall be that number of shares of Stock awarded to the Participant on the Grant Date as reflected in the corporate records and shown in the Record-Keeping System in the Participant’s individual account records.
Other words and phrases used in these Restricted Stock Award Terms are defined pursuant to paragraph 9 or elsewhere in these Restricted Stock Award Terms.
2. Restricted Period . Subject to the limitations of these Restricted Stock Award Terms, the “Restricted Period” for each Installment of Covered Shares of the Restricted Stock Award shall begin on the Grant Date and end as described in the following schedule (but only if the Date of Termination has not occurred before the end of the Restricted Period):
INSTALLMENT
RESTRICTED
PERIOD WILL
END ON:
¼ of Covered Shares
One year anniversary of the Grant Date
¼ of Covered Shares
Two year anniversary of the Grant Date
¼ of Covered Shares
Three year anniversary of the Grant Date
¼ of Covered Shares
Four year anniversary of the Grant Date

The Restricted Period shall end prior to the date specified in the foregoing schedule to the extent set forth below:
(a)
For Installments as to which the Restricted Period has not ended prior to the Date of Termination, the Restricted Period for such Installments shall end upon the Participant’s Date of Termination, if the Date of Termination occurs by reason of the Participant’s death.
(b)
For Installments as to which the Restricted Period has not ended prior to the Date of Termination, the Restricted Period for such Installments shall end upon the Participant’s Date of Termination, if the Date of Termination occurs by reason of the Participant’s Long-Term Disability.




(c)
For Installments as to which the Restricted Period has not ended prior to the date of a Change in Control, the Restricted Period for such Installments shall end upon a Change in Control, provided that such Change in Control occurs on or before the Date of Termination.
3. Transfer and Forfeiture of Shares . Except as otherwise determined by the Committee in its sole discretion, the Participant shall forfeit the Installments of the Covered Shares as of the Participant’s Date of Termination, if such Date of Termination occurs prior to the end of the Restricted Period which applies to those Installments. If the Participant’s Date of Termination has not occurred prior to the last day of the Restricted Period with respect to any Installment of the Covered Shares, then, at the end of such Restricted Period, that Installment of Covered Shares shall be transferred to the Participant free of all restrictions.
4. Withholding . All deliveries and distributions under These Restricted Stock Award Terms are subject to withholding of all applicable taxes. At the election of the Participant, and subject to such rules and limitations as may be established by the Committee from time to time, such withholding obligations may be satisfied through the surrender of shares of Stock which the Participant already owns, or to which the Participant is otherwise entitled under the Plan; provided, however, that such shares may be used to satisfy not more than the Company’s minimum statutory withholding obligation (based on minimum statutory withholding rates for Federal and state tax purposes, including payroll taxes, that are applicable to such supplemental taxable income).
5. Transferability . Except as otherwise provided by the Committee, the Restricted Stock Award may not be sold, assigned, transferred, pledged or otherwise encumbered during the Restricted Period.
6. Dividends . The Participant shall not be prevented from receiving dividends and distributions paid on the Covered Shares of Restricted Stock merely because those shares are subject to the restrictions imposed by these Restricted Stock Award Terms and the Plan; provided, however that no dividends or distributions shall be payable to or for the benefit of the Participant with respect to record dates for such dividends or distributions for any Covered Shares occurring on or after the date, if any, on which the Participant has forfeited those shares.
7. Voting . The Participant shall not be prevented from voting the Restricted Stock Award merely because those shares are subject to the restrictions imposed by these Restricted Stock Award Terms and the Plan; provided, however, that the Participant shall not be entitled to vote Covered Shares with respect to record dates for any Covered Shares occurring on or after the date, if any, on which the Participant has forfeited those shares.
8. Deposit of Restricted Stock Award . Each certificate issued in respect of the Covered Shares awarded under these Restricted Stock Award Terms shall be registered in the name of the Participant and shall be deposited in a bank designated by the Committee.
9. Definitions . For purposes of these Restricted Stock Award Terms, words and phrases shall be defined as follows:
(a)
Change in Control . The term “Change in Control” shall be defined as set forth in the Plan.
(b)
Date of Termination . A Participant’s “Date of Termination” means, with respect to an employee, the date on which the Participant’s employment with the Company and Related Companies terminates for any reason, and with respect to a Director, the date immediately following the last day on which the Participant serves as a Director; provided that a Date of Termination shall not be




deemed to occur by reason of a Participant’s transfer of employment between the Company and a Related Company or between two Related Companies; further provided that a Date of Termination shall not be deemed to occur by reason of a Participant’s cessation of service as a Director if immediately following such cessation of service the Participant becomes or continues to be employed by the Company or a Related Company, nor by reason of a Participant’s termination of employment with the Company or a Related Company if immediately following such termination of employment the Participant becomes or continues to be a Director; and further provided that a Participant’s employment shall not be considered terminated while the Participant is on a leave of absence from the Company or a Related Company approved by the Participant’s employer.
(c)
Director . The term “Director” means a member of the Board, who may or may not be an employee of the Company or a Related Company.
(d)
Long-Term Disability . A Participant shall be considered to have a “Long-Term Disability” if the Participant is determined to be eligible for long-term disability benefits under the long-term disability plan in which the Participant participates and which is sponsored by the Company or a Related Company; or if the Participant does not participate in a long-term disability plan sponsored by the Company or a Related Company, then the Participant shall be considered to have a “Long-Term Disability” if the Committee determines, under standards comparable to those of the Company’s long-term disability plan, that the Participant would be eligible for long-term disability benefits if he or she participated in such plan.
(e)
Plan Definitions . Except where the context clearly implies or indicates the contrary, a word, term, or phrase used in the Plan is similarly used in these Restricted Stock Award Terms.
10. Heirs and Successors . These Restricted Stock Award Terms shall be binding upon, and inure to the benefit of, the Company and its successors and assigns, and upon any person acquiring, whether by merger, consolidation, purchase of assets or otherwise, all or substantially all of the Company’s assets and business. If any benefits deliverable to the Participant under these Restricted Stock Award Terms have not been delivered at the time of the Participant’s death, such benefits shall be delivered to the Designated Beneficiary, in accordance with the provisions of these Restricted Stock Award Terms and the Plan. The “Designated Beneficiary” shall be the beneficiary or beneficiaries designated by the Participant in a writing filed with the Committee in such form and at such time as the Committee shall require. If a deceased Participant fails to designate a beneficiary, or if the Designated Beneficiary does not survive the Participant, any rights that would have been exercisable by the Participant and any benefits distributable to the Participant shall be distributed to the legal representative of the estate of the Participant. If a deceased Participant designates a beneficiary and the Designated Beneficiary survives the Participant but dies before the complete distribution of benefits to the Designated Beneficiary under these Restricted Stock Award Terms, then any benefits distributable to the Designated Beneficiary shall be distributed to the legal representative of the estate of the Designated Beneficiary.
11. Administration . The authority to manage and control the operation and administration of these Restricted Stock Award Terms shall be vested in the Committee, and the Committee shall have all powers with respect to these Restricted Stock Award Terms as it has with respect to the Plan. Any interpretation of these Restricted Stock Award Terms by the Committee and any decision made by it with respect to these Restricted Stock Award Terms are final and binding on all persons.
12. Plan and Corporate Records Govern . Notwithstanding anything in these Restricted Stock Award Terms to the contrary, these Restricted Stock Award Terms shall be subject to the terms of the Plan, a copy of which may be obtained by the Participant from the office of the Secretary of the Company; and




these Restricted Stock Award Terms are subject to all interpretations, amendments, rules and regulations promulgated by the Committee from time to time pursuant to the Plan. Notwithstanding anything in the Restricted Stock Award Terms to the contrary, in the event of any discrepancies between the corporate records regarding this award and the Record-Keeping System, the corporate records shall control.
13. Not An Employment Contract . The Restricted Stock Award will not confer on the Participant any right with respect to continuance of employment or other service with the Company or any Related Company, nor will it interfere in any way with any right the Company or any Related Company would otherwise have to terminate or modify the terms of such Participant’s employment or other service at any time.
14. Notices . Any written notices provided for in these Restricted Stock Award Terms or the Plan shall be in writing and shall be deemed sufficiently given if either hand delivered or if sent by fax or overnight courier, or by postage paid first class mail. Notices sent by mail shall be deemed received three business days after mailing but in no event later than the date of actual receipt. Notices shall be directed, if to the Participant, at the Participant’s address indicated by the Company’s records, or if to the Company, at the Company’s principal executive office.
15. Fractional Shares . In lieu of issuing a fraction of a share, resulting from an adjustment of the Restricted Stock Award pursuant to paragraph 5.2(f) of the Plan or otherwise, the Company will be entitled to pay to the Participant an amount equal to the fair market value of such fractional share.
16. Amendment . These Restricted Stock Award Terms may be amended in accordance with the provisions of the Plan, and may otherwise be amended by written agreement of the Participant and the Company without the consent of any other person.
IN WITNESS WHEREOF, the Company has caused these presents to be executed in its name and on its behalf, all as of the Grant Date.
CHUBB LIMITED

By:      ______________________________________
Its:      ______________________________________
                    





Exhibit 10.4

Restricted Stock Unit Award Terms
under the
Chubb Limited 2016 Long-Term Incentive Plan
The Participant has been granted a Restricted Stock Unit Award by Chubb Limited (the "Company") under the Chubb Limited 2016 Long-Term Incentive Plan (the "Plan"). The Restricted Stock Unit Award shall be subject to the following Restricted Stock Unit Award Terms:
1. Terms of Award . Subject to the following Restricted Stock Unit Award Terms, the Participant has been granted the right to receive shares of Stock of the Company (“Units”) as of the Delivery Date. Each “Unit” represents the right to receive one share of Stock. The following words and phrases used in these Restricted Stock Unit Award Terms shall have the meanings set forth in this paragraph 1:
(a) The "Participant" is the individual recipient of the Restricted Stock Unit Award on the specified Grant Date.
(b) The "Grant Date" is [Insert the date] .
(c) The number of "Units" shall be that number of Units awarded to the Participant on the Grant Date as reflected in the corporate records and shown in the Record-Keeping System in the Participant’s individual account records.
(d) The “Delivery Date” shall be the end of the Restricted Period with respect to the applicable Units. However, notwithstanding the preceding sentence, if the Participant would be eligible to retire in accordance with paragraph 2(d) (determined without regard to clauses 9(f)(i) and (ii)) on or at any time after the Grant Date and prior to the last day of the Restricted Period with respect to any Installment of Units as determined in accordance with the Vesting Schedule set forth in paragraph 2:
(i) The occurrence of a Change in Control shall be disregarded for purposes of determining the Delivery Date of such Installments unless the Change in Control satisfies the requirements of Treas. Reg. §1.409A-3(i)(5), or distribution is otherwise permitted under Code §409A upon such Change in Control; provided that this sentence shall not affect the vesting of the Units upon a Change in Control in accordance with subparagraph 2(c).
(ii) The occurrence of a Long-Term Disability shall be disregarded for purposes of determining the Delivery Date of such Units; provided that this sentence shall not affect the vesting of the Units upon the occurrence of a Long-Term Disability in accordance with subparagraph 2(b).
(e) Other words and phrases used in these Restricted Stock Unit Award Terms are defined pursuant to paragraph 9 or elsewhere in these Restricted Stock Unit Award Terms.
2. Restricted Period . Subject to the limitations of these Restricted Stock Unit Award Terms, the "Restricted Period" for each Installment of Units shall begin on the Grant Date and end as described in the following schedule (the “Vesting Schedule”) (but only if the Date of Termination has not occurred before end of the Restricted Period):




VESTING SCHEDULE
INSTALLMENT
RESTRICTED
PERIOD WILL
END ON:
¼ of Restricted Stock Units
One year anniversary of the Grant Date
¼ of Restricted Stock Units
Two year anniversary of the Grant Date
¼ of Restricted Stock Units
Three year anniversary of the Grant Date
¼ of Restricted Stock Units
Four year anniversary of the Grant Date

The Restricted Period shall end prior to the date specified in the foregoing Vesting Schedule to the extent set forth below, with the exception of subparagraph (d):
(a) For Installments as to which the Restricted Period has not ended prior to the Date of Termination, the Restricted Period for such Installments shall end upon the Participant’s Date of Termination, if the Date of Termination occurs by reason of the Participant’s death.
(b) For Installments as to which the Restricted Period has not ended prior to the Date of Termination, the Restricted Period for such Installments shall end upon the Participant’s Date of Termination, if the Date of Termination occurs by reason of the Participant’s Long-Term Disability.
(c) For Installments as to which the Restricted Period has not ended prior to the date of a Change in Control, the Restricted Period for such Installments shall end upon a Change in Control, provided that such Change in Control occurs on or before the Date of Termination (determined without regard to the provisions of subparagraph (d) below).
(d)      For Installments as to which the Restricted Period has not ended prior to the Date of Termination, if the Date of Termination occurs by reason of the Participant’s Retirement, vesting shall continue pursuant to the Vesting Schedule following the Date of Termination as though the Participant continued to be employed through the end of the longest Restricted Period. Following the Date of Termination by reason of Retirement, the end of the Restricted Period for any Installment shall be determined in accordance with the Vesting Schedule.
3. Transfer and Forfeiture of Shares. Except as otherwise determined by the Committee in its sole discretion, and subject to subparagraph 2(d), the Participant shall forfeit the Units as of the Participant's Date of Termination, if such Date of Termination occurs prior to the end of the Restricted Period which applies to those Installments. If the Participant's Date of Termination has not occurred prior to the last day of the Restricted Period with respect to any Installment of the Units, then that Installment of Units shall be delivered to the Participant in the form of Stock free of all restrictions at or within 30 days after the Delivery Date; provided, however, if such delivery is contingent on the Participant's execution of a release in accordance with Section 9(f) and the applicable 30-day period begins in one taxable year and ends in a second taxable year, that Installment of Units shall be delivered in the second taxable year. After delivery of a share of Stock for a Unit, the Unit shall have no further force or effect.
4. Withholding . All deliveries and distributions under these Restricted Stock Unit Award Terms are subject to withholding of all applicable taxes. At the election of the Participant, and subject to such rules and limitations as may be established by the Committee from time to time, such withholding obligations may be satisfied through the surrender of shares of Stock which the Participant already owns, or to which the Participant is otherwise entitled under the Plan. Notwithstanding the foregoing, the Committee has the authority to make the necessary elections to ensure appropriate taxes are withheld.




5. Transferability . Except as otherwise provided by the Committee, the Restricted Stock Unit Award may not be sold, assigned, transferred, pledge or otherwise encumbered during the Restricted Period.
6. Dividends . The Participant shall be permitted to receive cash payments equal to the dividends and distributions paid on shares of Stock to the same extent as if each Unit was a share of Stock, and those shares were not subject to the restrictions imposed by these Restricted Stock Unit Award Terms and the Plan; provided, however, that no dividends or distributions shall be payable to or for the benefit of the Participant with respect to record dates for such dividends or distributions occurring on or after the date, if any, on which the Participant has received a share of Stock in exchange for a Unit or has forfeited the Units. Dividend payments made under this paragraph 6 with respect to any record date will be paid as soon as practicable after dividends with respect to that record date are paid on outstanding shares but in all events within the calendar year in which such dividends are paid to the holders of Stock.
7. Voting . The Participant shall not be a shareholder of record with respect to the Units and shall have no voting rights with respect to the Units during the Restricted Period.
8. Participant’s Rights to Shares . Prior to the delivery of shares of Stock which are to be delivered pursuant to these Restricted Stock Unit Award Terms, (a) the Participant shall not be treated as owner of the shares, shall not have any rights as a shareholder as to those shares, and shall have only a contractual right to receive them, unsecured by any assets of the Company or its subsidiaries; and (b) the Participant’s right to receive such shares will be subject to the adjustment provisions relating to mergers, reorganizations, and similar events set forth in the Plan.
9. Definitions . For purposes of these Restricted Stock Unit Award Terms, words and phrases shall be defined as follows:
(a) Change in Control . The term "Change in Control" shall be defined as set forth in the Plan.
(b) Date of Termination . A Participant's "Date of Termination" means, with respect to an employee, the date on which the Participant's employment with the Company and Related Companies terminates for any reason, and with respect to a Director, the date immediately following the last day on which the Participant serves as a Director; provided that a Date of Termination shall not be deemed to occur by reason of a Participant's transfer of employment between the Company and a Related Company or between two Related Companies; further provided that a Date of Termination shall not be deemed to occur by reason of a Participant's cessation of service as a Director if immediately following such cessation of service the Participant becomes or continues to be employed by the Company or a Related Company, nor by reason of a Participant's termination of employment with the Company or a Related Company if immediately following such termination of employment the Participant becomes or continues to be a Director; and further provided that a Participant's employment shall not be considered terminated while the Participant is on a leave of absence from the Company or a Related Company approved by the Participant's employer.
(c) Director . The term "Director" means a member of the Board, who may or may not be an employee of the Company or a Related Company.
(d) Long-Term Disability . A Participant shall be considered to have a “Long-Term Disability” if the Participant is determined to be eligible for long-term disability benefits under the long-term disability plan in which the Participant participates and which is sponsored by the Company or a Related Company; or if the Participant does not participate in a long-term disability plan sponsored by the Company or a Related Company, then the Participant shall be considered to have a “Long-Term Disability” if the Committee determines, under standards comparable to those of the Company’s long-term disability plan, that the Participant would be eligible for long-term disability benefits if he or she participated in such plan.




(e) Record-Keeping System . The term “Record-Keeping System” means the record-keeping system developed and maintained by third parties contracted by the Company to keep records and facilitate Participant interfaces with respect to the Plan and awards granted thereunder.
(f)      Retirement . The term “Retirement” means the Participant’s Date of Termination that occurs on or after the Participant has both completed at least ten years of service with the Company or a Related Company and attained at least age 62; provided, however, that a Date of Termination will not be treated as a Retirement unless the Participant (i) has terminated employment in good standing with the Company or a Related Company, and (ii) executes an agreement and release as required by the Company which will include, without limitation, a general release, and non-competition and non-solicitation provisions. A Participant shall be deemed to have executed a release as described in clause (ii) above only if such release is returned by such time as is established by the Company; provided that to the extent benefits provided pursuant to the Plan would be considered to be provided under a nonqualified deferred compensation plan as that term is defined in Treas. Reg. §1.409A-1, such benefits shall be paid to the Participant only if the release is returned in time to permit the distribution of the benefits to satisfy the requirements of Code section 409A with respect to the time of payment.
10. Plan Definitions . Except where the context clearly implies or indicates the contrary, a word, term, or phrase used in the Plan is similarly used in these Restricted Stock Unit Award Terms.
11. Heirs and Successors . The Restricted Stock Unit Award Terms shall be binding upon, and inure to the benefit of, the Company and its successors and assigns, and upon any person acquiring, whether by merger, consolidation, purchase of assets or otherwise, all or substantially all of the Company's assets and business. If any benefits deliverable to the Participant under these Restricted Stock Unit Award Terms have not been delivered at the time of the Participant's death, such benefits shall be delivered to the Designated Beneficiary, in accordance with the provisions of these Restricted Stock Unit Award Terms and the Plan. The "Designated Beneficiary" shall be the beneficiary or beneficiaries designated by the Participant in a writing filed with the Committee in such form and at such time as the Committee shall require. If a deceased Participant fails to designate a beneficiary, or if the Designated Beneficiary does not survive the Participant, any rights that would have been exercisable by the Participant and any benefits distributable to the Participant shall be distributed to the legal representative of the estate of the Participant. If a deceased Participant designates a beneficiary and the Designated Beneficiary survives the Participant but dies before the complete distribution of benefits to the Designated Beneficiary under these Restricted Stock Unit Award Terms, then any benefits distributable to the Designated Beneficiary shall be distributed to the legal representative of the estate of the Designated Beneficiary.
12. Administration . The authority to manage and control the operation and administration of these Restricted Stock Unit Award Terms shall be vested in the Committee, and the Committee shall have all powers with respect to these Restricted Stock Unit Award Terms as it has with respect to the Plan. Any interpretation of these Restricted Stock Unit Award Terms by the Committee and any decision made by it with respect to these Restricted Stock Unit Award Terms are final and binding on all persons.
13. Plan and Corporate Records Govern . Notwithstanding anything in these Restricted Stock Unit Award Terms to the contrary, these Restricted Stock Unit Award Terms shall be subject to the terms of the Plan, a copy of which may be obtained by the Participant from the office of the Secretary of the Company; and these Restricted Stock Unit Award Terms are subject to all interpretations, amendments, rules and regulations promulgated by the Committee from time to time pursuant to the Plan. Notwithstanding anything in the Restricted Stock Unit Award Terms to the contrary, in the event of any discrepancies between the corporate records regarding this award and the Record-Keeping System, the corporate records shall control.




14. Not An Employment Contract . The Restricted Stock Unit Award will not confer on the Participant any right with respect to continuance of employment or other service with the Company or any Related Company, nor will it interfere in any way with any right the Company or any Related Company would otherwise have to terminate or modify the terms of such Participant's employment or other service at any time.
15. Notices . Any written notices provided for in these Restricted Stock Unit Award Terms or the Plan shall be in writing and shall be deemed sufficiently given if either hand delivered or if sent by fax or overnight courier, or by postage paid first class mail. Notices sent by mail shall be deemed received three business days after mailing but in no event later than the date of actual receipt. Notices shall be directed, if to the Participant, at the Participant's address indicated by the Company's records, or if to the Company, at the Company's principal executive office.
16. Fractional Shares . In lieu of issuing a fraction of a share, resulting from an adjustment of the Restricted Stock Unit Award pursuant to paragraph 5.2(f) of the Plan or otherwise, the Company will be entitled to pay to the Participant an amount equal to the fair market value of such fractional share.
17. Amendment . The Restricted Stock Unit Award Terms may be amended in accordance with the provisions of the Plan, and may otherwise be amended by written agreement of the Participant and the Company without the consent of any other person.
18.      409A Compliance . These Restricted Stock Unit Award Terms are intended to be interpreted, operated, and administered in a manner so as not to subject the Participant to the assessment of additional taxes or interest under Code section 409A, and these Restricted Stock Unit Award Terms may be amended as the Company, in its sole discretion, determines is necessary and appropriate to avoid the application of any such taxes or interest.
IN WITNESS WHEREOF, the Company has caused these presents to be executed in its name and on its behalf, all as of the Grant Date.

CHUBB LIMITED



By:      ______________________________________
Its:      ______________________________________






Exhibit 10.5


Non-Qualified Stock Option Terms
under the
Chubb Limited 2016 Long-Term Incentive Plan

The Participant has been granted an Option by Chubb Limited (the "Company") under the Chubb Limited 2016 Long-Term Incentive Plan (the "Plan"). The Option shall be subject to the following Non-Qualified Stock Option Terms (sometimes referred to as the "Option Terms"):
1. Terms of Award . The following words and phrases used in these Option Terms shall have the meanings set forth in this paragraph 1:
(a)      The "Participant" is the individual recipient of the Non-Qualified Stock Option Award on the specified Grant Date.
(b)      The "Grant Date" is [Insert Date].
(c)      The number of "Covered Shares" shall be that number of shares of Stock awarded to the Participant on the Grant Date as reflected in the corporate records and shown in the Record-Keeping System in the Participant’s individual account records.
(d)      The "Exercise Price" is $ [Insert Price] per share.
Other words and phrases used in these Option Terms are defined pursuant to paragraph 8 or elsewhere in these Option Terms.
2. Non‑Qualified Stock Option . The Option is not intended to constitute an "incentive stock option" as that term is used in Code section 422.
3. Date of Exercise . Subject to the limitations of these Option Terms, each Installment of Covered Shares of the Option shall be exercisable on and after the Vesting Date for such Installment as described in the following schedule (but only if the Date of Termination has not occurred before the Vesting Date):
INSTALLMENT
VESTING DATE
APPLICABLE TO
INSTALLMENT
1/3 of Covered Shares
One year anniversary of the Grant Date
1/3 of Covered Shares
Two year anniversary of the Grant Date
1/3 of Covered Shares
Three year anniversary of the Grant Date

Notwithstanding the foregoing provisions of this paragraph 3, the Option shall become fully vested and exercisable as follows, with the exception of paragraph (c):
(a)
The Option shall become fully exercisable upon the Date of Termination, if the Date of Termination occurs by reason of the Participant’s death or Long-Term Disability.




(b)
The Option shall become fully exercisable upon a Change in Control that occurs on or before the Date of Termination.

(c)
For Installments as to which the Restricted Period has not ended prior to the Date of Termination, if the Date of Termination occurs by reason of the Participant’s Retirement, vesting shall continue pursuant to the foregoing schedule following the Date of Termination. Following the Date of Termination the Restricted Period shall end in accordance with the above schedule.

Except as specified in (c), the Option may be exercised on or after the Date of Termination only as to that portion of the Covered Shares for which it was exercisable (or became exercisable) immediately prior to the Date of Termination.
4. Expiration . The Option shall not be exercisable after the Company’s close of business on the last business day that occurs prior to the Expiration Date. The "Expiration Date" shall be the earliest to occur of:
(a)
the ten year anniversary of the Grant Date;
(b)
if the Participant's Date of Termination occurs by reason of death or Long-Term Disability, the one-year anniversary of such Date of Termination;
(c)
if the Participant's Date of Termination occurs by reason of Retirement, the date on which the Expiration Date would occur if the Participant's Date of Termination occurred on the ten-year anniversary of the Grant Date, or if earlier, the date of the Participant's death; or
(d)
if the Participant's Date of Termination occurs for any reason other than those listed in subparagraph (b) or (c) of this paragraph 4, the three-month anniversary of such Date of Termination.
5. Method of Option Exercise . Subject to these Option Terms and the Plan, the Option may be exercised in whole or in part by filing a written notice (or by such other method as may be provided by the Committee, including but not limited to processes provided in electronic record-keeping systems utilized for management of the Plan) with the Secretary of the Company at its corporate headquarters prior to the Company’s close of business on the last business day that occurs prior to the Expiration Date. Such notice shall specify the number of shares of Stock which the Participant elects to purchase, and shall be accompanied by payment of the Exercise Price for such shares of Stock indicated by the Participant’s election. Payment shall be by cash or by check payable to the Company. Except as otherwise provided by the Committee before the Option is exercised: (i) all or a portion of the Exercise Price may be paid by the Participant by delivery of shares of Stock (including shares of Stock that would otherwise be distributable upon the exercise of the Option) owned by the Participant and acceptable to the Committee having an aggregate Fair Market Value (valued as of the date of exercise) that is equal to the amount of cash that would otherwise be required; and (ii) the Participant may pay the Exercise Price by authorizing a third party to sell shares of Stock (or a sufficient portion of the shares) acquired upon exercise of the Option and remit to the Company a sufficient portion of the sale proceeds to pay the entire Exercise Price and any tax withholding resulting from such exercise. The Option shall not be exercisable if and to the extent the Company determines that such exercise would violate applicable state or Federal securities laws or the rules and regulations of any securities exchange on which the Stock is traded. If the Company makes such a determination, it shall use all reasonable efforts to obtain compliance with such laws, rules




and regulations. In making any determination hereunder, the Company may rely on the opinion of counsel for the Company.
6. Withholding . All deliveries and distributions under these Option Terms are subject to withholding of all applicable taxes. At the election of the Participant, and subject to such rules and limitations as may be established by the Committee from time to time, such withholding obligations may be satisfied through the surrender of shares of Stock which the Participant already owns, or to which the Participant is otherwise entitled under the Plan; provided, however, that such shares may be used to satisfy not more than the Company’s minimum statutory withholding obligation (based on minimum statutory withholding rates for Federal and state tax purposes, including payroll taxes, that are applicable to such supplemental taxable income).
7. Transferability . Except as otherwise provided by the Committee, the Option is not transferable other than as designated by the Participant by will or by the laws of descent and distribution, and during the Participant’s life, may be exercised only by the Participant.
8. Definitions For purposes of these Option Terms, words and phrases shall be defined as follows:
(a)
Change in Control . The term "Change in Control" shall be defined as set forth in the Plan.
(b)
Date of Termination . A Participant's "Date of Termination" means, with respect to an employee, the date on which the Participant's employment with the Company and Subsidiaries terminates for any reason, and with respect to a Director, the date immediately following the last day on which the Participant serves as a Director; provided that a Date of Termination shall not be deemed to occur by reason of a Participant's transfer of employment between the Company and a Subsidiary or between two Subsidiaries; further provided that a Date of Termination shall not be deemed to occur by reason of a Participant's cessation of service as a Director if immediately following such cessation of service the Participant becomes or continues to be employed by the Company or a Subsidiary, nor by reason of a Participant's termination of employment with the Company or a Subsidiary if immediately following such termination of employment the Participant becomes or continues to be a Director; and further provided that a Participant's employment shall not be considered terminated while the Participant is on a leave of absence from the Company or a Subsidiary approved by the Participant's employer.
(c)
Director . The term "Director" means a member of the Board, who may or may not be an employee of the Company or a Subsidiary.
(d)
Long-Term Disability . A Participant shall be considered to have a “Long-Term Disability” if the Participant is determined to be eligible for long-term disability benefits under the long-term disability plan in which the Participant participates and which is sponsored by the Company or a Related Company; or if the Participant does not participate in a long-term disability plan sponsored by the Company or a Related Company, then the Participant shall be considered to have a “Long-Term Disability” if the Committee determines, under standards comparable to those of the Company’s long-term disability plan, that the Participant would be eligible for long-term disability benefits if he or she participated in such plan.
(e)
Retirement . The term “Retirement” means an employee who’s Date of Termination occurs after satisfying all of the following: (i) the employee has provided at least ten years of service with the Company or a Related Company; (ii) the employee has attained at least age 62; and (iii) the employee terminates employment in good standing with the Company or a Related Company, and




(iv) the employee executes an agreement and release as required by the Company which will include, without limitation, a general release, and non-competition and non-solicitation provisions. However, with respect to exercising vested options pursuant to 4(c), above, “Retirement” shall mean the occurrence of a Participant's Date of Termination with the consent of the Participant's employer after the Participant is eligible for early retirement or normal retirement under a retirement plan maintained by the Company or the Subsidiaries.

(f)
Plan Definitions . Except where the context clearly implies or indicates the contrary, a word, term, or phrase used in the Plan is similarly used in these Option Terms.
9. Heirs and Successors . The Option Terms shall be binding upon, and inure to the benefit of, the Company and its successors and assigns, and upon any person acquiring, whether by merger, consolidation, purchase of assets or otherwise, all or substantially all of the Company’s assets and business. If any rights exercisable by the Participant or benefits deliverable to the Participant under these Option Terms have not been exercised or delivered, respectively, at the time of the Participant’s death, such rights shall be exercisable by the Designated Beneficiary, and such benefits shall be delivered to the Designated Beneficiary, in accordance with the provisions of these Option Terms and the Plan. The "Designated Beneficiary" shall be the beneficiary or beneficiaries designated by the Participant in a writing filed with the Committee in such form and at such time as the Committee shall require. If a deceased Participant fails to designate a beneficiary, or if the Designated Beneficiary does not survive the Participant, any rights that would have been exercisable by the Participant and any benefits distributable to the Participant shall be exercised by or distributed to the legal representative of the estate of the Participant. If a deceased Participant designates a beneficiary and the Designated Beneficiary survives the Participant but dies before the Designated Beneficiary’s exercise of all rights under these Option Terms or before the complete distribution of benefits to the Designated Beneficiary under these Option Terms, then any rights that would have been exercisable by the Designated Beneficiary shall be exercised by the legal representative of the estate of the Designated Beneficiary, and any benefits distributable to the Designated Beneficiary shall be distributed to the legal representative of the estate of the Designated Beneficiary.
10. Administration . The authority to manage and control the operation and administration of these Option Terms shall be vested in the Committee, and the Committee shall have all powers with respect to these Option Terms as it has with respect to the Plan. Any interpretation of the Agreement by the Committee and any decision made by it with respect to the Agreement is final and binding on all persons.
11. Plan and Corporate Records Govern . Notwithstanding anything in these Option Terms to the contrary, these Option Terms shall be subject to the terms of the Plan, a copy of which may be obtained by the Participant from the office of the Secretary of the Company; and these Option Terms are subject to all interpretations, amendments, rules and regulations promulgated by the Committee from time to time pursuant to the Plan. Notwithstanding anything in the Option Terms to the contrary, in the event of any discrepancies between the corporate records regarding this award and the Record-Keeping System, the corporate records shall control.
12. Not An Employment Contract . The Option will not confer on the Participant any right with respect to continuance of employment or other service with the Company or any Subsidiary, nor will it interfere in any way with any right the Company or any Subsidiary would otherwise have to terminate or modify the terms of such Participant’s employment or other service at any time.
13. Notices . Any written notices provided for in these Option Terms or the Plan shall be in writing and shall be deemed sufficiently given if either hand delivered or if sent by fax or overnight




courier, or by postage paid first class mail. Notices sent by mail shall be deemed received three business days after mailing but in no event later than the date of actual receipt. Notices shall be directed, if to the Participant, at the Participant’s address indicated by the Company’s records, or if to the Company, at the Company’s principal executive office.
14. Fractional Shares . In lieu of issuing a fraction of a share upon any exercise of the Option, resulting from an adjustment of the Option pursuant to paragraph 5.2(f) of the Plan or otherwise, the Company will be entitled to pay to the Participant an amount equal to the fair market value of such fractional share.
15. No Rights As Shareholder . The Participant shall not have any rights of a shareholder with respect to the shares subject to the Option, until a stock certificate has been duly issued following exercise of the Option as provided herein. The Participant is not entitled to any dividend equivalents (current or deferred) with respect to the Option.
16. Amendment . The Option Terms may be amended in accordance with the provisions of the Plan, and may otherwise be amended by written agreement of the Participant and the Company without the consent of any other person.
IN WITNESS WHEREOF, the Company has caused these presents to be executed in its name and on its behalf, all as of the Grant Date.

CHUBB LIMITED

By:      ______________________________________________________
Its:      ______________________________________________________






Exhibit 10.6
For Awards for Swiss Executive Team


Incentive Stock Option Terms
under the
Chubb Limited 2016 Long-Term Incentive Plan

The Participant has been granted an Option by Chubb Limited (the "Company") under the Chubb Limited 2016 Long-Term Incentive Plan (the "Plan"). The Option shall be subject to the following Incentive Stock Option Terms (sometimes referred to as the "Option Terms"):
1. Terms of Award . The following words and phrases used in these Option Terms shall have the meanings set forth in this paragraph 1:
(a)      The "Participant" is the individual recipient of the Incentive Stock Option Award on the specified Grant Date.
(b)      The "Grant Date" is [Insert Date] .
(c)      The number of "Covered Shares" shall be that number of shares of Stock awarded to the Participant on the Grant Date as reflected in the corporate records and shown in the Record-Keeping System in the Participant’s individual account records.
(d)      The "Exercise Price" is $ [Insert Price] per share.
Other words and phrases used in these Option Terms are defined pursuant to paragraph 8 or elsewhere in these Option Terms.
2. Incentive Stock Option . The Option is intended to constitute an "incentive stock option" as that term is used in Code section 422. To the extent that the aggregate fair market value (determined at the time of grant) of Shares with respect to which incentive stock options are exercisable for the first time by the Participant during any calendar year under all plans of the Company and its Subsidiaries exceeds $100,000, the options or portions thereof which exceed such limit (according to the order in which they were granted) shall be treated as nonstatutory stock options. It should be understood that there is no assurance that the Option will, in fact, be treated as an incentive stock option.
3. Date of Exercise . Subject to the limitations of these Option Terms, each Installment of Covered Shares of the Option shall be exercisable on and after the Vesting Date for such Installment as described in the following schedule (but only if the Date of Termination has not occurred before the Vesting Date):
INSTALLMENT
VESTING DATE
APPLICABLE TO
INSTALLMENT
1/3 of Covered Shares
One-year anniversary of the Grant Date
1/3 of Covered Shares
Two-year anniversary of the Grant Date
1/3 of Covered Shares
Three-year anniversary of the Grant Date





Notwithstanding the foregoing provisions of this paragraph 3, the Option shall become fully vested and exercisable as follows, with the exception of paragraph (c) or (d):
(a)
The Option shall become fully exercisable upon the Date of Termination, if the Date of Termination occurs by reason of the Participant’s death or Long-Term Disability.
(b)
If the Participant’s Date of Termination is a Change in Control Date of Termination, then, for Installments, if any, as to which the Restricted Period has not ended prior to the Participant’s Date of Termination, the Restricted Period will end and such Installments will become exercisable on the Change in Control Date of Termination; provided that if the Participant’s Change in Control Date of Termination occurs within the 180-day period immediately preceding the date of a Change in Control, then all unvested Installments held by the Participant on the Date of Termination will become exercisable on the date of the Change in Control. If the originally scheduled expiration date for the Option occurs before the date of the Change in Control, then the Option will not become exercisable under this paragraph (b).
(c)
For Installments as to which the Restricted Period has not ended prior to the Date of Termination, if the Date of Termination occurs by reason of the Participant’s Retirement, vesting shall continue pursuant to the foregoing schedule following the Date of Termination. Following the Date of Termination the Restricted Period shall end in accordance with the above schedule.

(d)
For Installments as to which the Restricted Period has not ended prior to the Date of Termination, if the Date of Termination occurs by reason of the Participant’s Qualifying Termination, vesting shall continue pursuant to the vesting schedule in this paragraph 3 following the Date of Termination as though the Participant continued to be employed through the two-year anniversary of the Participant’s Date of Termination, subject to the Participant not engaging in any Competitive Activity during such two-year period and subject to the Participant signing and not revoking a general release and waiver of all claims against the Company and such release becomes effective no later than the sixty-day anniversary of the Date of Termination. If such release is not effective within such sixty-day period or in the event that the Participant engages in a Competitive Activity prior to the last day of the Restricted Period for any Installment, the Participant shall immediately forfeit any unvested Installments.

Except as specified in paragraphs (b), (c) and (d), the Option may be exercised on or after the Date of Termination only as to that portion of the Covered Shares for which it was exercisable (or became exercisable) immediately prior to the Date of Termination.
4. Expiration . The Option shall not be exercisable after the Company’s close of business on the last business day that occurs prior to the Expiration Date. The "Expiration Date" shall be the earliest to occur of:
(a)
the ten‑year anniversary of the Grant Date;
(b)
if the Participant's Date of Termination occurs by reason of death or Long-Term Disability, the one-year anniversary of such Date of Termination;
(c)
if the Participant's Date of Termination occurs by reason of Retirement, the ten-year anniversary of the Grant Date, or if earlier, the date of the Participant's death;




(d)
if the Participant’s Date of Termination occurs by reason of the Participant’s Qualifying Termination or the Participant’s Change in Control Date of Termination, the three-year anniversary of the Participant’s Date of Termination; or
(e)
if the Participant's Date of Termination occurs for any reason other than those listed in subparagraph (b), (c) or (d) of this paragraph 4, then subject to paragraph 3(b), the three-month anniversary of such Date of Termination.
Notwithstanding the foregoing provisions of this paragraph 4, if the Participant exercises the Option following the three-month anniversary of his or her Date of Termination, but prior to the Expiration Date of such Option, any such Option shall be treated as a nonstatutory stock option.
5. Method of Option Exercise . Subject to these Option Terms and the Plan, the Option may be exercised in whole or in part by filing a written notice (or by such other method as may be provided by the Committee, including but not limited to processes provided in electronic record-keeping systems utilized for management of the Plan) with the Secretary of the Company at its corporate headquarters prior to the Company’s close of business on the last business day that occurs prior to the Expiration Date. Such notice shall specify the number of shares of Stock which the Participant elects to purchase, and shall be accompanied by payment of the Exercise Price for such shares of Stock indicated by the Participant’s election. Payment shall be by cash or by check payable to the Company. Except as otherwise provided by the Committee before the Option is exercised: (i) all or a portion of the Exercise Price may be paid by the Participant by delivery of shares of Stock (including shares of Stock that would otherwise be distributable upon the exercise of the Option) owned by the Participant and acceptable to the Committee having an aggregate Fair Market Value (valued as of the date of exercise) that is equal to the amount of cash that would otherwise be required; and (ii) the Participant may pay the Exercise Price by authorizing a third party to sell shares of Stock (or a sufficient portion of the shares) acquired upon exercise of the Option and remit to the Company a sufficient portion of the sale proceeds to pay the entire Exercise Price and any tax withholding resulting from such exercise. The Option shall not be exercisable if and to the extent the Company determines that such exercise would violate applicable state or Federal securities laws or the rules and regulations of any securities exchange on which the Stock is traded. If the Company makes such a determination, it shall use all reasonable efforts to obtain compliance with such laws, rules and regulations. In making any determination hereunder, the Company may rely on the opinion of counsel for the Company.
6. Withholding . All deliveries and distributions under these Option Terms are subject to withholding of all applicable taxes. At the election of the Participant, and subject to such rules and limitations as may be established by the Committee from time to time, such withholding obligations may be satisfied through the surrender of shares of Stock which the Participant already owns, or to which the Participant is otherwise entitled under the Plan; provided, however, that such shares may be used to satisfy not more than the Company’s minimum statutory withholding obligation (based on minimum statutory withholding rates for Federal and state tax purposes, including payroll taxes, that are applicable to such supplemental taxable income).
7. Transferability . Except as otherwise provided by the Committee, the Option is not transferable other than as designated by the Participant by will or by the laws of descent and distribution, and during the Participant’s life, may be exercised only by the Participant.
8. Definitions . For purposes of these Option Terms, words and phrases shall be defined as follows:




(a)
Cause . The term “Cause” shall mean - unless otherwise defined in an employment agreement between the Participant and the Company or Subsidiary - the occurrence of any of the following:
(i)      a conviction of the Participant with respect to a (x) felony or (y) a misdemeanor involving moral turpitude; or
(ii)      willful misconduct or gross negligence by the Participant resulting, in either case, in harm to the Company or any Subsidiary; or
(iii)      failure by the Participant to carry out the lawful and reasonable directions of the Board or the Participant’s immediate supervisor, as the case may be; or
(iv)      refusal to cooperate or non-cooperation by the Participant with any governmental regulatory authority; or
(v)      fraud, embezzlement, theft or dishonesty by the Participant against the Company or any Subsidiary or a material violation by the Participant of a policy or procedure of the Company, resulting, in any case, in harm to the Company or any Subsidiary.
(b)
Change in Control . The term "Change in Control" shall be defined as set forth in the Plan.
(c)
Change in Control Date of Termination . The term “Change in Control Date of Termination” means the Participant’s Date of Termination occurs because the Company and/or any of the Related Companies terminates the Participant’s employment with the Company and/or the Related Companies without Cause (other than due to death, a Long-Term Disability or a Retirement) or because the Participant terminates his or her employment for Good Reason, provided that such termination in accordance with this paragraph 8(c) occurs during the period commencing on the 180 th day immediately preceding a Change in Control date and ending on the two-year anniversary of such Change in Control date.
(d)
Competitive Activity . The term “Competitive Activity” means the Participant’s: (i) engagement in an activity - whether as an employee, consultant, principal, member, agent, officer, director, partner or shareholder (except as a less than 1% shareholder of a publicly traded company) - that is competitive with any business of the Company or any Subsidiary conducted by the Company or such Subsidiary during the Participant’s employment with the Company or the two-year period following the Date of Termination; (ii) solicitation of any client and/or customer of the Company or any affiliate with respect to an activity prohibited by subparagraph (c)(i); (iii) solicitation or employment of any employee of the Company or any affiliate for the purpose of causing such employee to terminate his or her employment with the Company or such affiliate; or (iv) failure to keep confidential all Company trade secrets, proprietary and confidential information.
(e)
Date of Termination . A Participant's "Date of Termination" means, with respect to an employee, the date on which the Participant's employment with the Company and Subsidiaries terminates for any reason, and with respect to a Director, the date immediately following the last day on which the Participant serves as a Director; provided that a Date of Termination shall not be deemed to occur by reason of a Participant's transfer of employment between the Company and a Subsidiary or between two Subsidiaries; further provided that a Date of Termination shall not be deemed to occur by reason of a Participant's cessation of service as a Director if immediately following such cessation of service the Participant becomes or continues to be employed by the Company or a Subsidiary, nor by reason of a Participant's termination of employment with the Company or a




Subsidiary if immediately following such termination of employment the Participant becomes or continues to be a Director; and further provided that a Participant's employment shall not be considered terminated while the Participant is on a leave of absence from the Company or a Subsidiary approved by the Participant's employer.
(f)
Director . The term "Director" means a member of the Board, who may or may not be an employee of the Company or a Subsidiary.
(g)
Forfeiture Payment . The term “Forfeiture Payment” means the amount of any gain on any Options exercised by the Participant during the Restrictive Covenant Period pursuant to this Agreement equal to the amount included in the Participant’s income for such exercise.
(h)
Good Reason . The term “Good Reason” shall mean - unless otherwise defined in an employment agreement between the Participant and the Company or Subsidiary - the occurrence of any of the following within the sixty-day period preceding a Date of Termination without the Participant’s prior written consent:
(i)      a material adverse diminution of the Participant’s titles, authority, duties or responsibilities, or the assignment to the Participant of titles, authority, duties or responsibilities that are materially inconsistent with his or her titles, authority, duties and/or responsibilities in a manner materially adverse to the Participant; or

(ii)      a reduction in the Participant’s base salary or annual bonus opportunity (other than any reduction applicable to all similarly situated Executives generally); or

(iii)      a failure of the Company to obtain the assumption in writing of its obligations under the Plan by any successor to all or substantially all of the assets of the Company within 45 days after a merger, consolidation, sale or similar transaction that qualifies as a Change in Control.

(i)
Long-Term Disability . A Participant shall be considered to have a “Long-Term Disability” if the Participant is determined to be eligible for long-term disability benefits under the long-term disability plan in which the Participant participates and which is sponsored by the Company or a Related Company; or if the Participant does not participate in a long-term disability plan sponsored by the Company or a Related Company, then the Participant shall be considered to have a “Long-Term Disability” if the Committee determines, under standards comparable to those of the Company’s long-term disability plan, that the Participant would be eligible for long-term disability benefits if he or she participated in such plan.
(j)
Qualifying Termination . The term “Qualifying Termination” means the Participant’s Date of Termination that occurs because the Company and/or any of the Related Companies terminates the Participant’s employment with the Company and/or the Related Companies without Cause. For the avoidance of doubt, the termination of the Participant’s employment due to death or Long-Term Disability, or a voluntary termination of the Participant’s employment by the Participant for any reason (including Good Reason or Retirement) shall not constitute a Qualifying Termination for the purposes of this Agreement.     
(k)
Restrictive Covenant Period . The term “Restrictive Covenant Period” means the twenty-four month period following a Date of Termination due to a Qualifying Termination or a Retirement.     
(l)
Retirement . The term “Retirement” means an employee who’s Date of Termination occurs after satisfying all of the following: (i) the employee has provided at least ten years of service with the




Company or a Related Company; (ii) the employee has attained at least age 62; (iii) the employee terminates employment in good standing with the Company or a Related Company; and (iv) the employee executes an agreement and release as required by the Company which will include, without limitation, a general release, and non-competition and non-solicitation provisions. However, with respect to exercising vested options pursuant to 4(c), above, “Retirement” shall mean the occurrence of a Participant's Date of Termination with the consent of the Participant's employer after the Participant is eligible for early retirement or normal retirement under a retirement plan maintained by the Company or the Subsidiaries.
(m)
Plan Definitions . Except where the context clearly implies or indicates the contrary, a word, term, or phrase used in the Plan is similarly used in these Option Terms.
9. Heirs and Successors . The Option Terms shall be binding upon, and inure to the benefit of, the Company and its successors and assigns, and upon any person acquiring, whether by merger, consolidation, purchase of assets or otherwise, all or substantially all of the Company’s assets and business. If any rights exercisable by the Participant or benefits deliverable to the Participant under these Option Terms have not been exercised or delivered, respectively, at the time of the Participant’s death, such rights shall be exercisable by the Designated Beneficiary, and such benefits shall be delivered to the Designated Beneficiary, in accordance with the provisions of these Option Terms and the Plan. The "Designated Beneficiary" shall be the beneficiary or beneficiaries designated by the Participant in a writing filed with the Committee in such form and at such time as the Committee shall require. If a deceased Participant fails to designate a beneficiary, or if the Designated Beneficiary does not survive the Participant, any rights that would have been exercisable by the Participant and any benefits distributable to the Participant shall be exercised by or distributed to the legal representative of the estate of the Participant. If a deceased Participant designates a beneficiary and the Designated Beneficiary survives the Participant but dies before the Designated Beneficiary’s exercise of all rights under these Option Terms or before the complete distribution of benefits to the Designated Beneficiary under these Option Terms, then any rights that would have been exercisable by the Designated Beneficiary shall be exercised by the legal representative of the estate of the Designated Beneficiary, and any benefits distributable to the Designated Beneficiary shall be distributed to the legal representative of the estate of the Designated Beneficiary.
10. Administration . The authority to manage and control the operation and administration of these Option Terms shall be vested in the Committee, and the Committee shall have all powers with respect to these Option Terms as it has with respect to the Plan. Any interpretation of the Agreement by the Committee and any decision made by it with respect to the Agreement is final and binding on all persons.
11. Plan and Corporate Records Govern . Notwithstanding anything in these Option Terms to the contrary, these Option Terms shall be subject to the terms of the Plan, a copy of which may be obtained by the Participant from the office of the Secretary of the Company; and these Option Terms are subject to all interpretations, amendments, rules and regulations promulgated by the Committee from time to time pursuant to the Plan. Notwithstanding anything in the Option Terms to the contrary, in the event of any discrepancies between the corporate records regarding this award and the Record-Keeping System, the corporate records shall control.
12. Not An Employment Contract . The Option will not confer on the Participant any right with respect to continuance of employment or other service with the Company or any Subsidiary, nor will it interfere in any way with any right the Company or any Subsidiary would otherwise have to terminate or modify the terms of such Participant’s employment or other service at any time.




13. Notices . Any written notices provided for in these Option Terms or the Plan shall be in writing and shall be deemed sufficiently given if either hand delivered or if sent by fax or overnight courier, or by postage paid first class mail. Notices sent by mail shall be deemed received three business days after mailing but in no event later than the date of actual receipt. Notices shall be directed, if to the Participant, at the Participant’s address indicated by the Company’s records, or if to the Company, at the Company’s principal executive office.
14. Competitive Activity .
(a)      The Committee may cancel, rescind, suspend, withhold or otherwise limit or restrict the Incentive Stock Option Award at any time if the Participant engages in any “Competitive Activity”.
(b)      Immediately prior to the exercise of the Participant’s Options, the Participant shall certify, to the extent required by the Committee, in a manner acceptable to the Committee, that the Participant is not engaging and has not engaged in any Competitive Activity. In the event a Participant has engaged in any Competitive Activity during the Restrictive Covenant Period, then the Participant shall be required to pay the Forfeiture Payment to the Company, in such manner and on such terms and conditions as may be required by the Committee, and the Company shall be entitled to set-off such amounts against any amount owed to the Participant by the Company and/or Subsidiary. In the event a Participant has engaged in any Competitive Activity during the Restrictive Covenant Period, Participant shall immediately forfeit any unvested or unexercised Options.
15. Fractional Shares . In lieu of issuing a fraction of a share upon any exercise of the Option, resulting from an adjustment of the Option pursuant to paragraph 5.2(f) of the Plan or otherwise, the Company will be entitled to pay to the Participant an amount equal to the fair market value of such fractional share.
16. No Rights As Shareholder . The Participant shall not have any rights of a shareholder with respect to the shares subject to the Option, until a stock certificate has been duly issued following exercise of the Option as provided herein. The Participant is not entitled to any dividend equivalents (current or deferred) with respect to the Option.
17. Amendment . The Option Terms may be amended in accordance with the provisions of the Plan, and may otherwise be amended by written agreement of the Participant and the Company without the consent of any other person.











IN WITNESS WHEREOF, the Company has caused these presents to be executed in its name and on its behalf, all as of the Grant Date.

CHUBB LIMITED



By:      ______________________________________
Its:      ______________________________________
    








Exhibit 10.7


For Awards for Swiss Executive Team

Restricted Stock Award Terms
under the
Chubb Limited 2016 Long-Term Incentive Plan
The Participant has been granted a Restricted Stock Award by Chubb Limited (the “Company”) under the Chubb Limited 2016 Long-Term Incentive Plan (the “Plan”). The Restricted Stock Award shall be subject to the following Restricted Stock Award Terms:
1. Terms of Award . The following words and phrases used in these Restricted Stock Award Terms shall have the meanings set forth in this paragraph 1:
(a)
The “Participant” is the individual recipient of the Restricted Stock Award on the specified Grant Date.
(b)
The “Grant Date” is ( Insert Date ).
(c)
The number of “Covered Shares” shall be that number of shares of Stock awarded to the Participant on the Grant Date as reflected in the corporate records and shown in the Record-Keeping System in the Participant’s individual account records.
Other words and phrases used in these Restricted Stock Award Terms are defined pursuant to paragraph 9 or elsewhere in these Restricted Stock Award Terms.
2. Restricted Period . Subject to the limitations of these Restricted Stock Award Terms, the “Restricted Period” for each Installment of Covered Shares of the Restricted Stock Award shall begin on the Grant Date and end as described in the following schedule (but only if the Date of Termination has not occurred before the end of the Restricted Period):
INSTALLMENT
RESTRICTED PERIOD
WILL END ON :
1/4 of Covered Shares
One-year anniversary of the Grant Date
1/4 of Covered Shares
Two-year anniversary of the Grant Date
1/4 of Covered Shares
Three-year anniversary of the Grant Date
1/4 of Covered Shares
Four-year anniversary of the Grant Date

The Restricted Period shall end prior to the date specified in the foregoing schedule to the extent set forth below:
(a)
For Installments as to which the Restricted Period has not ended prior to the Date of Termination, the Restricted Period for such Installments shall end upon the Participant’s Date of Termination, if the Date of Termination occurs by reason of the Participant’s death.
(b)
For Installments as to which the Restricted Period has not ended prior to the Date of Termination, the Restricted Period for such Installments shall end upon the Participant’s Date of Termination, if the Date of Termination occurs by reason of the Participant’s Long-Term Disability.
(c)
For Installments as to which the Restricted Period has not ended prior to the Date of Termination, if the Date of Termination occurs by reason of the Participant’s Qualifying Termination, vesting shall continue pursuant to the Vesting Schedule following the Date of Termination as though the




Participant continued to be employed through the two-year anniversary of the Participant’s Date of Termination, subject to the Participant not engaging in any Competitive Activity during such two-year period and subject to the Participant signing and not revoking a general release and waiver of all claims against the Company and such release becoming effective no later than the sixty-day anniversary of the Date of Termination. If such release is not effective within such sixty-day period or in the event that the Participant engages in a Competitive Activity prior to the last day of the Restricted Period for any Installment, the Participant shall immediately forfeit any unvested Installments.
(d)
If the Participant’s Date of Termination is a Change in Control Date of Termination, then, for Installments, if any, as to which the Restricted Period has not ended prior to the Participant’s Date of Termination, the Restricted Period will end on the Change in Control Date of Termination; provided that if the Participant’s Change in Control Date of Termination occurs within the 180-day period immediately preceding the date of a Change in Control, then the Restricted Period for all unvested Installments held by the Participant on the Date of Termination will end, and those Installments will vest on the date of a Change in Control.
3. Transfer and Forfeiture of Shares . Except as otherwise determined by the Committee in its sole discretion and subject to subparagraphs 2(c) and 2(d), the Participant shall forfeit the Installments of the Covered Shares as of the Participant’s Date of Termination, if such Date of Termination occurs prior to the end of the Restricted Period which applies to those Installments. If the Participant’s Date of Termination has not occurred prior to the last day of the Restricted Period with respect to any Installment of the Covered Shares, then, at the end of such Restricted Period, that Installment of Covered Shares shall be transferred to the Participant free of all restrictions.
4. Withholding . All deliveries and distributions under these Restricted Stock Award Terms are subject to withholding of all applicable taxes. At the election of the Participant, and subject to such rules and limitations as may be established by the Committee from time to time, such withholding obligations may be satisfied through the surrender of shares of Stock which the Participant already owns, or to which the Participant is otherwise entitled under the Plan; provided, however, that such shares may be used to satisfy not more than the Company’s minimum statutory withholding obligation (based on minimum statutory withholding rates for Federal and state tax purposes, including payroll taxes, that are applicable to such supplemental taxable income).
5. Transferability . Except as otherwise provided by the Committee, the Restricted Stock Award may not be sold, assigned, transferred, pledged or otherwise encumbered during the Restricted Period.
6. Dividends . The Participant shall not be prevented from receiving dividends and distributions paid on the Covered Shares of Restricted Stock merely because those shares are subject to the restrictions imposed by these Restricted Stock Award Terms and the Plan; provided, however, that no dividends or distributions shall be payable to or for the benefit of the Participant with respect to record dates for such dividends or distributions for any Covered Shares occurring on or after the date, if any, on which the Participant has forfeited those shares.
7. Voting . The Participant shall not be prevented from voting the Restricted Stock Award merely because those shares are subject to the restrictions imposed by these Restricted Stock Award Terms and the Plan; provided, however, that the Participant shall not be entitled to vote Covered Shares with respect to record dates for any Covered Shares occurring on or after the date, if any, on which the Participant has forfeited those shares.
8. Deposit of Restricted Stock Award . Each certificate issued in respect of the Covered Shares awarded under these Restricted Stock Award Terms shall be registered in the name of the Participant and shall be deposited in a bank designated by the Committee.
9. Definitions . For purposes of these Restricted Stock Award Terms, words and phrases shall be defined as follows:




(a)
Cause . The term “Cause” shall mean - unless otherwise defined in an employment agreement between the Participant and the Company or Subsidiary - the occurrence of any of the following:
(i) a conviction of the Participant with respect to a (x) felony or (y) a misdemeanor involving moral turpitude; or
(ii) willful misconduct or gross negligence by the Participant resulting, in either case, in harm to the Company or any Subsidiary; or
(iii) failure by the Participant to carry out the lawful and reasonable directions of the Board or the Participant’s immediate supervisor, as the case may be; or
(iv) refusal to cooperate or non-cooperation by the Participant with any governmental regulatory authority; or
(v) fraud, embezzlement, theft or dishonesty by the Participant against the Company or any Subsidiary or a material violation by the Participant of a policy or procedure of the Company, resulting, in any case, in harm to the Company or any Subsidiary.
(b)
Change in Control . The term “Change in Control” shall be defined as set forth in the Plan.
(c)
Change in Control Date of Termination . The term “Change in Control Date of Termination” means the Participant’s Date of Termination that occurs because the Company and/or any of the Related Companies terminates the Participant’s employment with the Company and/or the Related Companies without Cause (other than due to death, a Long-Term Disability or a retirement) or because the Participant terminates his or her employment for Good Reason, provided that such termination in accordance with this subparagraph (9)(c) occurs during the period commencing on the 180th day immediately preceding a Change in Control date and ending on the two year anniversary of such Change in Control date.
(d)
Competitive Activity . The term “Competitive Activity” means the Participant’s: (i) engagement in an activity - whether as an employee, consultant, principal, member, agent, officer, director, partner or shareholder (except as a less than 1% shareholder of a publicly traded company) - that is competitive with any business of the Company or any Subsidiary conducted by the Company or such Subsidiary during the Participant’s employment with the Company or the two-year period following the Date of Termination; (ii) solicitation of any client and/or customer of the Company or any affiliate with respect to an activity prohibited by subparagraph (c)(i); (iii) solicitation or employment of any employee of the Company or any affiliate for the purpose of causing such employee to terminate his or her employment with the Company or such affiliate; or (iv) failure to keep confidential all Company trade secrets, proprietary and confidential information.
(e)
Date of Termination . A Participant’s “Date of Termination” means, with respect to an employee, the date on which the Participant’s employment with the Company and Related Companies terminates for any reason, and with respect to a Director, the date immediately following the last day on which the Participant serves as a Director; provided that a Date of Termination shall not be deemed to occur by reason of a Participant’s transfer of employment between the Company and a Related Company or between two Related Companies; further provided that a Date of Termination shall not be deemed to occur by reason of a Participant’s cessation of service as a Director if immediately following such cessation of service the Participant becomes or continues to be employed by the Company or a Related Company, nor by reason of a Participant’s termination of employment with the Company or a Related Company if immediately following such termination of employment the Participant becomes or continues to be a Director; and further provided that a Participant’s employment shall not be considered terminated while the Participant is on a leave of absence from the Company or a Related Company approved by the Participant’s employer.
(f)
Director . The term “Director” means a member of the Board, who may or may not be an employee of the Company or a Related Company.
(g)
Forfeiture Payment . The term “Forfeiture Payment” means the pre-tax proceeds from sales or other transfers, if any, of the number of shares of Stock that became vested on the Date of




Termination or during the Restrictive Covenant Period pursuant to this Agreement and that the Participant has sold or otherwise transferred prior to the date of repayment required pursuant to subparagraph 15(b). For purposes of this definition, pre-tax proceeds for any shares of Stock that were transferred by the Participant in a transaction other than a sale on the New York Stock Exchange means the Fair Market Value of such shares on the New York Stock Exchange as of the date of such transaction.
(h)
Forfeiture Shares .  The term “Forfeiture Shares” means the number of shares of Stock that became vested on the Date of Termination or during the Restrictive Covenant Period pursuant to this Agreement and that remain held by the Participant as of the date of repayment required pursuant to subparagraph 15(b). It is the Participant’s responsibility to ensure that the shares of Stock delivered as Forfeiture Shares are the shares of Stock delivered previously pursuant to this Agreement. In the absence of Company records or written documentation from Participant’s broker demonstrating this fact, the Participant must deliver to the Company the Forfeiture Payment determined as of the date that such shares of Stock delivered pursuant to this Agreement are transferred from Participant’s stock account or otherwise become indistinguishable from other shares of Stock that the Participant may hold.
(a)
Good Reason . The term “Good Reason” shall mean - unless otherwise defined in an in-force employment agreement between the Participant and the Company or Subsidiary - the occurrence of any of the following within the 60-day period preceding a Date of Termination without the Participant’s prior written consent:
(i) a material adverse diminution of the Participant’s titles, authority, duties or responsibilities, or the assignment to the Participant of titles, authority, duties or responsibilities that are materially inconsistent with his or her titles, authority, duties and/or responsibilities in a manner materially adverse to the Participant; or
(ii) a reduction in the Participant’s base salary or annual bonus opportunity (other than any reduction applicable to all similarly situated Executives generally); or
(iii) a failure of the Company to obtain the assumption in writing of its obligations under the Plan by any successor to all or substantially all of the assets of the Company within 45 days after a merger, consolidation, sale or similar transaction that qualifies as a Change in Control.
(i)
Long-Term Disability . A Participant shall be considered to have a “Long-Term Disability” if the Participant is determined to be eligible for long-term disability benefits under the long-term disability plan in which the Participant participates and which is sponsored by the Company or a Related Company; or if the Participant does not participate in a long-term disability plan sponsored by the Company or a Related Company, then the Participant shall be considered to have a “Long-Term Disability” if the Committee determines, under standards comparable to those of the Company’s long-term disability plan, that the Participant would be eligible for long-term disability benefits if he or she participated in such plan.
(j)
Plan Definitions . Except where the context clearly implies or indicates the contrary, a word, term, or phrase used in the Plan is similarly used in these Restricted Stock Award Terms.
(k)
Qualifying Termination . The term “Qualifying Termination” means the Participant’s Date of Termination that occurs because the Company and/or any of the Related Companies terminates the Participant’s employment with the Company and/or the Related Companies without Cause. For the avoidance of doubt, the termination of the Participant’s employment due to death or Long-Term Disability, or a voluntary termination of the Participant’s employment by the Participant for any reason (including Good Reason or retirement) shall not constitute a Qualifying Termination for purposes of this Agreement.
(l)
Restrictive Covenant Period . The term “Restrictive Covenant Period” means the twenty-four month period following a Date of Termination due to a Qualifying Termination.




10. Heirs and Successors . These Restricted Stock Award Terms shall be binding upon, and inure to the benefit of, the Company and its successors and assigns, and upon any person acquiring, whether by merger, consolidation, purchase of assets or otherwise, all or substantially all of the Company’s assets and business. If any benefits deliverable to the Participant under these Restricted Stock Award Terms have not been delivered at the time of the Participant’s death, such benefits shall be delivered to the Designated Beneficiary, in accordance with the provisions of these Restricted Stock Award Terms and the Plan. The “Designated Beneficiary” shall be the beneficiary or beneficiaries designated by the Participant in a writing filed with the Committee in such form and at such time as the Committee shall require. If a deceased Participant fails to designate a beneficiary, or if the Designated Beneficiary does not survive the Participant, any rights that would have been exercisable by the Participant and any benefits distributable to the Participant shall be distributed to the legal representative of the estate of the Participant. If a deceased Participant designates a beneficiary and the Designated Beneficiary survives the Participant but dies before the complete distribution of benefits to the Designated Beneficiary under these Restricted Stock Award Terms, then any benefits distributable to the Designated Beneficiary shall be distributed to the legal representative of the estate of the Designated Beneficiary.
11. Administration . The authority to manage and control the operation and administration of these Restricted Stock Award Terms shall be vested in the Committee, and the Committee shall have all powers with respect to these Restricted Stock Award Terms as it has with respect to the Plan. Any interpretation of these Restricted Stock Award Terms by the Committee and any decision made by it with respect to these Restricted Stock Award Terms are final and binding on all persons.
12. Plan and Corporate Records Govern . Notwithstanding anything in these Restricted Stock Award Terms to the contrary, these Restricted Stock Award Terms shall be subject to the terms of the Plan, a copy of which may be obtained by the Participant from the office of the Secretary of the Company; and these Restricted Stock Award Terms are subject to all interpretations, amendments, rules and regulations promulgated by the Committee from time to time pursuant to the Plan. Notwithstanding anything in the Restricted Stock Award Terms to the contrary, in the event of any discrepancies between the corporate records regarding this award and the Record-Keeping System, the corporate records shall control.
13. Not An Employment Contract . The Restricted Stock Award will not confer on the Participant any right with respect to continuance of employment or other service with the Company or any Related Company, nor will it interfere in any way with any right the Company or any Related Company would otherwise have to terminate or modify the terms of such Participant’s employment or other service at any time.
14. Notices . Any written notices provided for in these Restricted Stock Award Terms or the Plan shall be in writing and shall be deemed sufficiently given if either hand delivered or if sent by fax or overnight courier, or by postage paid first class mail. Notices sent by mail shall be deemed received three business days after mailing but in no event later than the date of actual receipt. Notices shall be directed, if to the Participant, at the Participant’s address indicated by the Company’s records, or if to the Company, at the Company’s principal executive office.
15. Competitive Activity.
(a) The Committee may cancel, rescind, suspend, withhold or otherwise limit or restrict the Restricted Stock Award at any time if the Participant engages in any "Competitive Activity".
(b) Immediately prior to the vesting of the shares of Stock pursuant to this Agreement, the Participant shall certify, to the extent required by the Committee, in a manner acceptable to the Committee, that the Participant is not engaging and has not engaged in any Competitive Activity. In the event a Participant has engaged in any Competitive Activity during the Restrictive Covenant Period, then the Participant shall be required to transfer the Forfeiture Shares to the Company and, if applicable, pay the Forfeiture Payment to the Company, in such manner and on such terms and conditions as may be required by the Committee, and the Company shall be entitled to set-off such amounts against any amount owed to the Participant by the Company and/or Subsidiary.




16. Fractional Shares . In lieu of issuing a fraction of a share, resulting from an adjustment of the Restricted Stock Award pursuant to paragraph 5.2(f) of the Plan or otherwise, the Company will be entitled to pay to the Participant an amount equal to the fair market value of such fractional share.
17. Amendment . These Restricted Stock Award Terms may be amended in accordance with the provisions of the Plan, and may otherwise be amended by written agreement of the Participant and the Company without the consent of any other person.
IN WITNESS WHEREOF, the Company has caused these presents to be executed in its name and on its behalf, all as of the Grant Date.
CHUBB LIMITED

By:      ______________________________________
Its:      ______________________________________
    









Exhibit 10.8

For Awards for Swiss Executive Team


Restricted Stock Unit Award Terms
under the
Chubb Limited 2016 Long-Term Incentive Plan
The Participant has been granted a Restricted Stock Unit Award by Chubb Limited (the "Company") under the Chubb Limited 2016 Long-Term Incentive Plan (the "Plan"). The Restricted Stock Unit Award shall be subject to the following Restricted Stock Unit Award Terms:
1. Terms of Award . Subject to the following Restricted Stock Unit Award Terms, the Participant has been granted the right to receive shares of Stock of the Company (“Units”) as of the Delivery Date. Each “Unit” represents the right to receive one share of Stock. The following words and phrases used in these Restricted Stock Unit Award Terms shall have the meanings set forth in this paragraph 1:
(a) The "Participant" is the individual recipient of the Restricted Stock Unit Award on the specified Grant Date.
(b) The "Grant Date" is [Insert the date] .
(c) The number of "Units" shall be that number of Units awarded to the Participant on the Grant Date as reflected in the corporate records and shown in the Record-Keeping System in the Participant’s individual account records.
(d) The “Delivery Date” shall be the end of the Restricted Period with respect to the applicable Units. However, notwithstanding the preceding sentence, the following shall apply in determining the Delivery Date:
(i) The occurrence of a Change in Control Date of Termination shall be disregarded for purposes of determining the Delivery Date of such Installments.
(ii) The occurrence of a Long-Term Disability shall be disregarded for purposes of determining the Delivery Date of such Units; provided that this sentence shall not affect the vesting of the Units upon the occurrence of a Long-Term Disability in accordance with subparagraph 2(b).
(e) Other words and phrases used in these Restricted Stock Unit Award Terms are defined pursuant to paragraph 9 or elsewhere in these Restricted Stock Unit Award Terms.
2. Restricted Period . Subject to the limitations of these Restricted Stock Unit Award Terms, the "Restricted Period" for each Installment of Units shall begin on the Grant Date and end as described in the following schedule (the “Vesting Schedule”) (but only if the Date of Termination has not occurred before end of the Restricted Period):




VESTING SCHEDULE
INSTALLMENT
RESTRICTED
PERIOD WILL
END ON:
¼ of Restricted Stock Units
One year anniversary of the Grant Date
¼ of Restricted Stock Units
Two year anniversary of the Grant Date
¼ of Restricted Stock Units
Three year anniversary of the Grant Date
¼ of Restricted Stock Units
Four year anniversary of the Grant Date

The Restricted Period shall end prior to the date specified in the foregoing Vesting Schedule to the extent set forth below, with the exception of subparagraphs (c) and (e):
(a) For Installments as to which the Restricted Period has not ended prior to the Date of Termination, the Restricted Period for such Installments shall end upon the Participant’s Date of Termination, if the Date of Termination occurs by reason of the Participant’s death.
(b) For Installments as to which the Restricted Period has not ended prior to the Date of Termination, the Restricted Period for such Installments shall end upon the Participant’s Date of Termination, if the Date of Termination occurs by reason of the Participant’s Long-Term Disability.
(c) For Installments as to which the Restricted Period has not ended prior to the Date of Termination, if the Date of Termination occurs by reason of the Participant’s Qualifying Termination, vesting shall continue pursuant to the Vesting Schedule following the Date of Termination as though the Participant continued to be employed through the two-year anniversary of the Participant’s Date of Termination, subject to the Participant not engaging in any Competitive Activity during such two-year period and subject to the Participant signing and not revoking a general release and waiver of all claims against the Company and such release becomes effective no later than the sixty-day anniversary of the Date of Termination. If such release is not effective within such sixty-day period or in the event that the Participant engages in a Competitive Activity prior to the last day of the Restricted Period for any Installment, the Participant shall immediately forfeit any unvested Installments.
(d) If the Participant's Date of Termination is a Change in Control Date of Termination, then, for any Installments as to which the Restricted Period has not ended prior to the Participant’s Date of Termination, the Restricted Period for such Installments will end on the Change in Control Date of Termination; provided that if the Participant's Change in Control Date of Termination occurs within the 180-day period immediately preceding the date of a Change in Control, then the Restricted Period for all unvested Installments held by the Participant on the Date of Termination will end, and those Installments will vest on the date of a Change in Control.
(e) For Installments as to which the Restricted Period has not ended prior to the Date of Termination, if the Date of Termination occurs by reason of the Participant’s Retirement, vesting shall continue pursuant to the Vesting Schedule following the Date of Termination as though the Participant continued to be employed through the end of the longest Restricted Period. Following the Date of Termination by reason of Retirement, the end of the Restricted Period for any Installment shall be determined in accordance with the Vesting Schedule.
3. Transfer and Forfeiture of Shares. Except as otherwise determined by the Committee in its sole discretion, and subject to subparagraphs 2(c), 2(d) and 2(e), the Participant shall forfeit the Units as of the Participant's Date of Termination, if such Date of Termination occurs prior to the end of the Restricted Period which applies to those Installments. If the Participant's Date of Termination has not occurred prior to the last day of the Restricted Period with respect to any Installment of the Units, then




that Installment of Units shall be delivered to the Participant in the form of Stock free of all restrictions at or within sixty days after the Delivery Date; provided, however, if such delivery is contingent on the Participant's execution of a release in accordance with subparagraphs 2(c) or 9(n) and the applicable sixty-day period begins in one taxable year and ends in a second taxable year, that Installment of Units shall be delivered in the second taxable year. After delivery of a share of Stock for a Unit, the Unit shall have no further force or effect. Notwithstanding anything to the contrary in any agreement between the Participant and the Company or a Subsidiary, the Participate acknowledges and agrees that the Installments of Units shall vest (and the Restricted Period shall end) only as provided by, and subject to the terms of, this Restricted Stock Unit Award.
4. Withholding . All deliveries and distributions under these Restricted Stock Unit Award Terms are subject to withholding of all applicable taxes. At the election of the Participant, and subject to such rules and limitations as may be established by the Committee from time to time, such withholding obligations may be satisfied through the surrender of shares of Stock which the Participant already owns, or to which the Participant is otherwise entitled under the Plan. Notwithstanding the foregoing, the Committee has the authority to make the necessary elections to ensure appropriate taxes are withheld.
5. Transferability . Except as otherwise provided by the Committee, the Restricted Stock Unit Award may not be sold, assigned, transferred, pledged or otherwise encumbered during the Restricted Period.
6. Dividends . The Participant shall be permitted to receive cash payments equal to the dividends and distributions paid on shares of Stock to the same extent as if each Unit was a share of Stock, and those shares were not subject to the restrictions imposed by these Restricted Stock Unit Award Terms and the Plan; provided, however, that no dividends or distributions shall be payable to or for the benefit of the Participant with respect to record dates for such dividends or distributions occurring on or after the date, if any, on which the Participant has received a share of Stock in exchange for a Unit or has forfeited the Units. Dividend payments made under this paragraph 6 with respect to any record date will be paid as soon as practicable after dividends with respect to that record date are paid on outstanding shares but in all events within the calendar year in which such dividends are paid to the holders of Stock.
7. Voting . The Participant shall not be a shareholder of record with respect to the Units and shall have no voting rights with respect to the Units during the Restricted Period.
8. Participant’s Rights to Shares . Prior to the delivery of shares of Stock which are to be delivered pursuant to these Restricted Stock Unit Award Terms, (a) the Participant shall not be treated as owner of the shares, shall not have any rights as a shareholder as to those shares, and shall have only a contractual right to receive them, unsecured by any assets of the Company or its subsidiaries; and (b) the Participant’s right to receive such shares will be subject to the adjustment provisions relating to mergers, reorganizations, and similar events set forth in the Plan.
9. Definitions . For purposes of these Restricted Stock Unit Award Terms, words and phrases shall be defined as follows:
(a) Cause . The term “Cause” shall mean - unless otherwise defined in an employment agreement between the Participant and the Company or Subsidiary - the occurrence of any of the following:
(i) a conviction of the Participant with respect to a (x) felony or (y) a misdemeanor involving moral turpitude; or
(ii) willful misconduct or gross negligence by the Participant resulting, in either case, in harm to the Company or any Subsidiary; or
(iii) failure by the Participant to carry out the lawful and reasonable directions of the Board or the Participant’s immediate supervisor, as the case may be; or
(iv) refusal to cooperate or non-cooperation by the Participant with any governmental regulatory authority; or




(v) fraud, embezzlement, theft or dishonesty by the Participant against the Company or any Subsidiary or a material violation by the Participant of a policy or procedure of the Company, resulting, in any case, in harm to the Company or any Subsidiary.
(b) Change in Control . The term "Change in Control" shall be defined as set forth in the Plan.
(c) Change in Control Date Termination . The term “Change in Control Date of Termination” means the Participant’s Date of Termination that occurs because the Company and/or any of the Related Companies terminates the Participant’s employment with the Company and/or the Related Companies without Cause (other than due to death, a Long-Term Disability or a Retirement) or because the Participant terminates his or her employment for Good Reason, provided that such termination in accordance with this paragraph 9(c) occurs during the period commencing on the 180th day immediately preceding a Change in Control date and ending on the two year anniversary of such Change in Control date.
(d) Competitive Activity. The term “Competitive Activity” means the Participant’s: (i) engagement in an activity - whether as an employee, consultant, principal, member, agent, officer, director, partner or shareholder (except as a less than 1% shareholder of a publicly traded company) - that is competitive with any business of the Company or any Subsidiary conducted by the Company or such Subsidiary during the Participant’s employment with the Company or the two-year period following the Date of Termination; (ii) solicitation of any client and/or customer of the Company or any affiliate with respect to an activity prohibited by subparagraph (d)(i); (iii) solicitation or employment of any employee of the Company or any affiliate for the purpose of causing such employee to terminate his or her employment with the Company or such affiliate; or (iv) failure to keep confidential all Company trade secrets, proprietary and confidential information.
(e) Date of Termination . A Participant's "Date of Termination" means, with respect to an employee, the date on which the Participant's employment with the Company and Related Companies terminates for any reason, and with respect to a Director, the date immediately following the last day on which the Participant serves as a Director; provided that a Date of Termination shall not be deemed to occur by reason of a Participant's transfer of employment between the Company and a Related Company or between two Related Companies; further provided that a Date of Termination shall not be deemed to occur by reason of a Participant's cessation of service as a Director if immediately following such cessation of service the Participant becomes or continues to be employed by the Company or a Related Company, nor by reason of a Participant's termination of employment with the Company or a Related Company if immediately following such termination of employment the Participant becomes or continues to be a Director; and further provided that a Participant's employment shall not be considered terminated while the Participant is on a leave of absence from the Company or a Related Company approved by the Participant's employer.
(f) Director . The term "Director" means a member of the Board, who may or may not be an employee of the Company or a Related Company.
(g) Forfeiture Payment . The term “Forfeiture Payment” means the pre-tax proceeds from sales or other transfers, if any, of the number of shares of Stock that were delivered to the Participant during the Restrictive Covenant Period pursuant to this Agreement and that the Participant has sold or otherwise transferred prior to the date of repayment required pursuant to subparagraph 17(b). For purposes of this definition, pre-tax proceeds for any shares of Stock that were transferred by the Participant in a transaction other than a sale on the New York Stock Exchange means the Fair Market Value of such shares on the New York Stock Exchange as of the date of such transaction.




(h) Forfeiture Shares .  The term “Forfeiture Shares” means the number of shares of Stock that were delivered to the Participant during the Restrictive Covenant Period pursuant to this Agreement and that remain held by the Participant as of the date of repayment required pursuant to subparagraph 17(b). It is the Participant’s responsibility to ensure that the shares of Stock delivered as Forfeiture Shares are the shares of Stock delivered previously pursuant to this Agreement. In the absence of Company records or written documentation from Participant’s broker demonstrating this fact, the Participant must deliver to the Company the Forfeiture Payment determined as of the date that such shares of Stock delivered pursuant to this Agreement are transferred from Participant’s stock account or otherwise become indistinguishable from other shares of Stock that the Participant may hold.
(i) Good Reason . The term “Good Reason” shall mean - unless otherwise defined in an in-force employment agreement between the Participant and the Company or Subsidiary - the occurrence of any of the following within the 60-day period preceding a Date of Termination without the Participant’s prior written consent:
(i) a material adverse diminution of the Participant’s titles, authority, duties or responsibilities, or the assignment to the Participant of titles, authority, duties or responsibilities that are materially inconsistent with his or her titles, authority, duties and/or responsibilities in a manner materially adverse to the Participant; or
(ii) a reduction in the Participant’s base salary or annual bonus opportunity (other than any reduction applicable to all similarly situated Executives generally); or
(iii) a failure of the Company to obtain the assumption in writing of its obligations under the Plan by any successor to all or substantially all of the assets of the Company within 45 days after a merger, consolidation, sale or similar transaction that qualifies as a Change in Control.
(j) Long-Term Disability . A Participant shall be considered to have a “Long-Term Disability” if the Participant is determined to be eligible for long-term disability benefits under the long-term disability plan in which the Participant participates and which is sponsored by the Company or a Related Company; or if the Participant does not participate in a long-term disability plan sponsored by the Company or a Related Company, then the Participant shall be considered to have a “Long-Term Disability” if the Committee determines, under standards comparable to those of the Company’s long-term disability plan, that the Participant would be eligible for long-term disability benefits if he or she participated in such plan.
(k) Qualifying Termination . The term “Qualifying Termination” means the Participant’s Date of Termination that occurs because the Company and/or any of the Related Companies terminates the Participant’s employment with the Company and/or the Related Companies without Cause. For the avoidance of doubt, the termination of the Participant’s employment due to death or Long-Term Disability, or a voluntary termination of the Participant’s employment by the Participant for any reason (including      Good Reason or Retirement) shall not constitute a Qualifying Termination for purposes of this Agreement.
(l) Record-Keeping System . The term “Record-Keeping System” means the record-keeping system developed and maintained by third parties contracted by the Company to keep records and facilitate Participant interfaces with respect to the Plan and awards granted thereunder.
(m) Restrictive Covenant Period . The term “Restrictive Covenant Period” means the twenty-four month period following a Date of Termination due to a Qualifying Termination or a Retirement.
(n) Retirement . The term “Retirement” means the Participant’s Date of Termination that occurs on or after the Participant has both completed at least ten years of service with the Company or a Related Company and attained at least age 62; provided, however, that a Date of Termination will not be treated as a Retirement unless the Participant (x) has terminated




employment in good standing with the Company or a Related Company, and (y) executes an agreement and release as required by the Company which will include, without limitation, a general release, and non-competition and non-solicitation provisions. A Participant shall be deemed to have executed a release as described in clause (y) above only if such release is returned by such time as is established by the Company; provided that to the extent benefits provided pursuant to the Plan would be considered to be provided under a nonqualified deferred compensation plan as that term is defined in Treas. Reg. §1.409A-1, such benefits shall be paid to the Participant only if the release is returned in time to permit the distribution of the benefits to satisfy the requirements of Code section 409A with respect to the time of payment.
10. Plan Definitions . Except where the context clearly implies or indicates the contrary, a word, term, or phrase used in the Plan is similarly used in these Restricted Stock Unit Award Terms.
11. Heirs and Successors . The Restricted Stock Unit Award Terms shall be binding upon, and inure to the benefit of, the Company and its successors and assigns, and upon any person acquiring, whether by merger, consolidation, purchase of assets or otherwise, all or substantially all of the Company's assets and business. If any benefits deliverable to the Participant under these Restricted Stock Unit Award Terms have not been delivered at the time of the Participant's death, such benefits shall be delivered to the Designated Beneficiary, in accordance with the provisions of these Restricted Stock Unit Award Terms and the Plan. The "Designated Beneficiary" shall be the beneficiary or beneficiaries designated by the Participant in a writing filed with the Committee in such form and at such time as the Committee shall require. If a deceased Participant fails to designate a beneficiary, or if the Designated Beneficiary does not survive the Participant, any rights that would have been exercisable by the Participant and any benefits distributable to the Participant shall be distributed to the legal representative of the estate of the Participant. If a deceased Participant designates a beneficiary and the Designated Beneficiary survives the Participant but dies before the complete distribution of benefits to the Designated Beneficiary under these Restricted Stock Unit Award Terms, then any benefits distributable to the Designated Beneficiary shall be distributed to the legal representative of the estate of the Designated Beneficiary.
12. Administration . The authority to manage and control the operation and administration of these Restricted Stock Unit Award Terms shall be vested in the Committee, and the Committee shall have all powers with respect to these Restricted Stock Unit Award Terms as it has with respect to the Plan. Any interpretation of these Restricted Stock Unit Award Terms by the Committee and any decision made by it with respect to these Restricted Stock Unit Award Terms are final and binding on all persons.
13. Plan and Corporate Records Govern . Notwithstanding anything in these Restricted Stock Unit Award Terms to the contrary, these Restricted Stock Unit Award Terms shall be subject to the terms of the Plan, a copy of which may be obtained by the Participant from the office of the Secretary of the Company; and these Restricted Stock Unit Award Terms are subject to all interpretations, amendments, rules and regulations promulgated by the Committee from time to time pursuant to the Plan. Notwithstanding anything in the Restricted Stock Unit Award Terms to the contrary, in the event of any discrepancies between the corporate records regarding this award and the Record-Keeping System, the corporate records shall control.
14. Not An Employment Contract . The Restricted Stock Unit Award will not confer on the Participant any right with respect to continuance of employment or other service with the Company or any Related Company, nor will it interfere in any way with any right the Company or any Related Company would otherwise have to terminate or modify the terms of such Participant's employment or other service at any time.
15. Notices . Any written notices provided for in these Restricted Stock Unit Award Terms or the Plan shall be in writing and shall be deemed sufficiently given if either hand delivered or if sent by fax or overnight courier, or by postage paid first class mail. Notices sent by mail shall be deemed received three business days after mailing but in no event later than the date of actual receipt. Notices shall be




directed, if to the Participant, at the Participant's address indicated by the Company's records, or if to the Company, at the Company's principal executive office.
16. Fractional Shares . In lieu of issuing a fraction of a share, resulting from an adjustment of the Restricted Stock Unit Award pursuant to paragraph 5.2(f) of the Plan or otherwise, the Company will be entitled to pay to the Participant an amount equal to the fair market value of such fractional share.
17. Competitive Activity .
(a) The Committee may cancel, rescind, suspend, withhold or otherwise limit or restrict the Restricted Stock Unit Award at any time if the Participant engages in any "Competitive Activity".
(b) Immediately prior to the Delivery Date and prior to the delivery of the shares of Stock to the Participant, the Participant shall certify, to the extent required by the Committee, in a manner acceptable to the Committee, that the Participant is not engaging and has not engaged in any Competitive Activity. In the event a Participant has engaged in any Competitive Activity during the Restrictive Covenant Period, then the Participant shall be required to transfer the Forfeiture Shares to the Company and, if applicable, pay the Forfeiture Payment to the Company, in such manner and on such terms and conditions as may be required by the Committee, and the Company shall be entitled to set-off such amounts against any amount owed to the Participant by the Company and/or Subsidiary.
18. Amendment . The Restricted Stock Unit Award Terms may be amended in accordance with the provisions of the Plan, and may otherwise be amended by written agreement of the Participant and the Company without the consent of any other person.
18.      409A Compliance . These Restricted Stock Unit Award Terms are intended to be interpreted, operated, and administered in a manner so as not to subject the Participant to the assessment of additional taxes or interest under Code section 409A, and these Restricted Stock Unit Award Terms may be amended as the Company, in its sole discretion, determines is necessary and appropriate to avoid the application of any such taxes or interest.
IN WITNESS WHEREOF, the Company has caused these presents to be executed in its name and on its behalf, all as of the Grant Date.

CHUBB LIMITED



By:      ______________________________________
Its:      ______________________________________








Exhibit 10.9

For Awards for Swiss Executive Team

Non-Qualified Stock Option Terms
under the
Chubb Limited 2016 Long-Term Incentive Plan
The Participant has been granted an Option by Chubb Limited (the “Company”) under the Chubb Limited 2016 Long-Term Incentive Plan (the “Plan”). The Option shall be subject to the following Non-Qualified Stock Option Terms (sometimes referred to as the “Option Terms”):
1. Terms of Award . The following words and phrases used in these Option Terms shall have the meanings set forth in this paragraph 1:
(a)
The “Participant” is the individual recipient of the Non-Qualified Stock Option Award on the specified Grant Date.
(b)
The “Grant Date” is [Insert Date] .
(c)
The number of “Covered Shares” shall be that number of shares of Stock awarded to the Participant on the Grant Date as reflected in the corporate records and shown in the Record-Keeping System in the Participant’s individual account records.
(d)
The “Exercise Price” is $ [Insert Price] per share.
Other words and phrases used in these Option Terms are defined pursuant to paragraph 8 or elsewhere in these Option Terms.
2. Non-Qualified Stock Option . The Option is not intended to constitute an “incentive stock option” as that term is used in Code section 422.
3. Date of Exercise . Subject to the limitations of these Option Terms, each Installment of Covered Shares of the Option shall be exercisable on and after the Vesting Date for such Installment as described in the following schedule (but only if the Date of Termination has not occurred before the Vesting Date):
INSTALLMENT
VESTING DATE
APPLICABLE TO
INSTALLMENT
1/3 of Covered Shares
One-year anniversary of the Grant Date
1/3 of Covered Shares
Two-year anniversary of the Grant Date
1/3 of Covered Shares
Three-year anniversary of the Grant Date

Notwithstanding the foregoing provisions of this paragraph 3, the Option shall become fully vested and exercisable as follows, with the exception of paragraph (c) or (d):
(a)
The Option shall become fully exercisable upon the Date of Termination, if the Date of Termination occurs by reason of the Participant’s death or Long-Term Disability.
(b)
If the Participant’s Date of Termination is a Change in Control Date of Termination, then, for Installments, if any, as to which the Restricted Period has not ended prior to the Participant’s Date of Termination, the Restricted Period will end and such Installments will become exercisable on the Change in Control Date of Termination; provided that if the Participant’s Change in Control Date of Termination occurs within the 180-day period immediately preceding the date of a Change




in Control, then all unvested Installments held by the Participant on the Date of Termination will become exercisable on the date of the Change in Control. If the originally scheduled expiration date for the Option occurs before the date of the Change in Control, then the Option will not become exercisable under this paragraph (b).
(c)
For Installments as to which the Restricted Period has not ended prior to the Date of Termination, if the Date of Termination occurs by reason of the Participant’s Retirement, vesting shall continue pursuant to the foregoing schedule following the Date of Termination. Following the Date of Termination the Restricted Period shall end in accordance with the above schedule.
(d)
For Installments as to which the Restricted Period has not ended prior to the Date of Termination, if the Date of Termination occurs by reason of the Participant’s Qualifying Termination, vesting shall continue pursuant to the vesting schedule in this paragraph 3 following the Date of Termination as though the Participant continued to be employed through the two-year anniversary of the Participant’s Date of Termination, subject to the Participant not engaging in any Competitive Activity during such two-year period and subject to the Participant signing and not revoking a general release and waiver of all claims against the Company and such release becomes effective no later than the sixty-day anniversary of the Date of Termination. If such release is not effective within such sixty-day period or in the event that the Participant engages in a Competitive Activity prior to the last day of the Restricted Period for any Installment, the Participant shall immediately forfeit any unvested Installments.
Except as specified in paragraphs (b), (c) and (d), the Option may be exercised on or after the Date of Termination only as to that portion of the Covered Shares for which it was exercisable (or became exercisable) immediately prior to the Date of Termination.
4. Expiration . The Option shall not be exercisable after the Company’s close of business on the last business day that occurs prior to the Expiration Date. The “Expiration Date” shall be the earliest to occur of:
(a)
the ten-year anniversary of the Grant Date;
(b)
if the Participant’s Date of Termination occurs by reason of death or Long-Term Disability, the one-year anniversary of such Date of Termination;
(c)
if the Participant’s Date of Termination occurs by reason of Retirement, the ten-year anniversary of the Grant Date [, or if earlier, the date of the Participant’s death] ;
(d)
if the Participant’s Date of Termination occurs by reason of the Participant’s Qualifying Termination or the Participant’s Change in Control Date of Termination, the three-year anniversary of the Participant’s Date of Termination; or
(e)
if the Participant’s Date of Termination occurs for any reason other than those listed in subparagraph (b), (c) or (d) of this paragraph 4, then subject to paragraph 3(b), the three-month anniversary of such Date of Termination.
5. Method of Option Exercise . Subject to these Option Terms and the Plan, the Option may be exercised in whole or in part by filing a written notice (or by such other method as may be provided by the Committee, including but not limited to processes provided in electronic record-keeping systems utilized for management of the Plan) with the Secretary of the Company at its corporate headquarters prior to the Company’s close of business on the last business day that occurs prior to the Expiration Date. Such notice shall specify the number of shares of Stock which the Participant elects to purchase, and shall be accompanied by payment of the Exercise Price for such shares of Stock indicated by the Participant’s election. Payment shall be by cash or by check payable to the Company. Except as otherwise provided by the Committee before the Option is exercised: (i) all or a portion of the Exercise Price may be paid by the Participant by delivery of shares of Stock (including shares of Stock that would otherwise be distributable upon the exercise of the Option) owned by the Participant and acceptable to the Committee




having an aggregate Fair Market Value (valued as of the date of exercise) that is equal to the amount of cash that would otherwise be required; and (ii) the Participant may pay the Exercise Price by authorizing a third party to sell shares of Stock (or a sufficient portion of the shares) acquired upon exercise of the Option and remit to the Company a sufficient portion of the sale proceeds to pay the entire Exercise Price and any tax withholding resulting from such exercise. The Option shall not be exercisable if and to the extent the Company determines that such exercise would violate applicable state or Federal securities laws or the rules and regulations of any securities exchange on which the Stock is traded. If the Company makes such a determination, it shall use all reasonable efforts to obtain compliance with such laws, rules and regulations. In making any determination hereunder, the Company may rely on the opinion of counsel for the Company.
6. Withholding . All deliveries and distributions under these Option Terms are subject to withholding of all applicable taxes. At the election of the Participant, and subject to such rules and limitations as may be established by the Committee from time to time, such withholding obligations may be satisfied through the surrender of shares of Stock which the Participant already owns, or to which the Participant is otherwise entitled under the Plan; provided, however, that such shares may be used to satisfy not more than the Company’s minimum statutory withholding obligation (based on minimum statutory withholding rates for Federal and state tax purposes, including payroll taxes, that are applicable to such supplemental taxable income).
7. Transferability . Except as otherwise provided by the Committee, the Option is not transferable other than as designated by the Participant by will or by the laws of descent and distribution, and during the Participant’s life, may be exercised only by the Participant.
8. Definitions . For purposes of these Option Terms, words and phrases shall be defined as follows:
(a)
Cause . The term “Cause” shall mean - unless otherwise defined in an employment agreement between the Participant and the Company or Subsidiary - the occurrence of any of the following:
(i)      a conviction of the Participant with respect to a (x) felony or (y) a misdemeanor involving moral turpitude; or
(ii)      willful misconduct or gross negligence by the Participant resulting, in either case, in harm to the Company or any Subsidiary; or
(iii)      failure by the Participant to carry out the lawful and reasonable directions of the Board or the Participant’s immediate supervisor, as the case may be; or
(iv)      refusal to cooperate or non-cooperation by the Participant with any governmental regulatory authority; or
(v)      fraud, embezzlement, theft or dishonesty by the Participant against the Company or any Subsidiary or a material violation by the Participant of a policy or procedure of the Company, resulting, in any case, in harm to the Company or any Subsidiary.
(b)
Change in Control . The term “Change in Control” shall be defined as set forth in the Plan.
(c)
Change in Control Date of Termination . The term “Change in Control Date of Termination” means the Participant’s Date of Termination occurs because the Company and/or any of the Related Companies terminates the Participant’s employment with the Company and/or the Related Companies without Cause (other than due to death, a Long-Term Disability or a Retirement) or because the Participant terminates his or her employment for Good Reason, provided that such termination in accordance with this paragraph 8(c) occurs during the period commencing on the 180th day immediately preceding a Change in Control date and ending on the two-year anniversary of such Change in Control date.




(d)
Competitive Activity . The term “Competitive Activity” means the Participant’s: (i) engagement in an activity - whether as an employee, consultant, principal, member, agent, officer, director, partner or shareholder (except as a less than 1% shareholder of a publicly traded company) - that is competitive with any business of the Company or any Subsidiary conducted by the Company or such Subsidiary during the Participant’s employment with the Company or the two-year period following the Date of Termination; (ii) solicitation of any client and/or customer of the Company or any affiliate with respect to an activity prohibited by subparagraph (c)(i); (iii) solicitation or employment of any employee of the Company or any affiliate for the purpose of causing such employee to terminate his or her employment with the Company or such affiliate; or (iv) failure to keep confidential all Company trade secrets, proprietary and confidential information.
(e)
Date of Termination . A Participant’s “Date of Termination” means, with respect to an employee, the date on which the Participant’s employment with the Company and Subsidiaries terminates for any reason, and with respect to a Director, the date immediately following the last day on which the Participant serves as a Director; provided that a Date of Termination shall not be deemed to occur by reason of a Participant’s transfer of employment between the Company and a Subsidiary or between two Subsidiaries; further provided that a Date of Termination shall not be deemed to occur by reason of a Participant’s cessation of service as a Director if immediately following such cessation of service the Participant becomes or continues to be employed by the Company or a Subsidiary, nor by reason of a Participant’s termination of employment with the Company or a Subsidiary if immediately following such termination of employment the Participant becomes or continues to be a Director; and further provided that a Participant’s employment shall not be considered terminated while the Participant is on a leave of absence from the Company or a Subsidiary approved by the Participant’s employer.
(f)
Director . The term “Director” means a member of the Board, who may or may not be an employee of the Company or a Subsidiary.
(g)
Forfeiture Payment . The term “Forfeiture Payment” means the amount of any gain on any Options exercised by the Participant during the Restrictive Covenant Period pursuant to this Agreement equal to the amount included in the Participant’s income for such exercise.
(h)
Good Reason . The term “Good Reason” shall mean - unless otherwise defined in an employment agreement between the Participant and the Company or Subsidiary - the occurrence of any of the following within the sixty-day period preceding a Date of Termination without the Participant’s prior written consent:
(i) a material adverse diminution of the Participant’s titles, authority, duties or responsibilities, or the assignment to the Participant of titles, authority, duties or responsibilities that are materially inconsistent with his or her titles, authority, duties and/or responsibilities in a manner materially adverse to the Participant; or
(ii) a reduction in the Participant’s base salary or annual bonus opportunity (other than any reduction applicable to all similarly situated Executives generally); or
(iii) a failure of the Company to obtain the assumption in writing of its obligations under the Plan by any successor to all or substantially all of the assets of the Company within 45 days after a merger, consolidation, sale or similar transaction that qualifies as a Change in Control.
(i)
Long-Term Disability . A Participant shall be considered to have a “Long-Term Disability” if the Participant is determined to be eligible for long-term disability benefits under the long-term disability plan in which the Participant participates and which is sponsored by the Company or a Related Company; or if the Participant does not participate in a long-term disability plan sponsored by the Company or a Related Company, then the Participant shall be considered to have a “Long-Term Disability” if the Committee determines, under standards comparable to those of the Company’s long-term disability plan, that the Participant would be eligible for long-term disability benefits if he or she participated in such plan.




(j)
Qualifying Termination . The term “Qualifying Termination” means the Participant’s Date of Termination that occurs because the Company and/or any of the Related Companies terminates the Participant’s employment with the Company and/or the Related Companies without Cause. For the avoidance of doubt, the termination of the Participant’s employment due to death or Long-Term Disability, or a voluntary termination of the Participant’s employment by the Participant for any reason (including Good Reason or Retirement) shall not constitute a Qualifying Termination for the purposes of this Agreement.
(k)
Restrictive Covenant Period . The term “Restrictive Covenant Period” means the twenty-four month period following a Date of Termination due to a Qualifying Termination or a Retirement.
(l)
Retirement . The term “Retirement” means an employee who’s Date of Termination occurs after satisfying all of the following: (i) the employee has provided at least ten years of service with the Company or a Related Company; (ii) the employee has attained at least age 62; (iii) the employee terminates employment in good standing with the Company or a Related Company; and (iv) the employee executes an agreement and release as required by the Company which will include, without limitation, a general release, and non-competition and non-solicitation provisions. However, with respect to exercising vested options pursuant to 4(c), above, “Retirement” shall mean the occurrence of a Participant’s Date of Termination with the consent of the Participant’s employer after the Participant is eligible for early retirement or normal retirement under a retirement plan maintained by the Company or the Subsidiaries.
(m)
Plan Definitions . Except where the context clearly implies or indicates the contrary, a word, term, or phrase used in the Plan is similarly used in these Option Terms.
9. Heirs and Successors . The Option Terms shall be binding upon, and inure to the benefit of, the Company and its successors and assigns, and upon any person acquiring, whether by merger, consolidation, purchase of assets or otherwise, all or substantially all of the Company’s assets and business. If any rights exercisable by the Participant or benefits deliverable to the Participant under these Option Terms have not been exercised or delivered, respectively, at the time of the Participant’s death, such rights shall be exercisable by the Designated Beneficiary, and such benefits shall be delivered to the Designated Beneficiary, in accordance with the provisions of these Option Terms and the Plan. The “Designated Beneficiary” shall be the beneficiary or beneficiaries designated by the Participant in a writing filed with the Committee in such form and at such time as the Committee shall require. If a deceased Participant fails to designate a beneficiary, or if the Designated Beneficiary does not survive the Participant, any rights that would have been exercisable by the Participant and any benefits distributable to the Participant shall be exercised by or distributed to the legal representative of the estate of the Participant. If a deceased Participant designates a beneficiary and the Designated Beneficiary survives the Participant but dies before the Designated Beneficiary’s exercise of all rights under these Option Terms or before the complete distribution of benefits to the Designated Beneficiary under these Option Terms, then any rights that would have been exercisable by the Designated Beneficiary shall be exercised by the legal representative of the estate of the Designated Beneficiary, and any benefits distributable to the Designated Beneficiary shall be distributed to the legal representative of the estate of the Designated Beneficiary.
10. Administration . The authority to manage and control the operation and administration of these Option Terms shall be vested in the Committee, and the Committee shall have all powers with respect to these Option Terms as it has with respect to the Plan. Any interpretation of the Agreement by the Committee and any decision made by it with respect to the Agreement is final and binding on all persons.
11. Plan Governs . Notwithstanding anything in these Option Terms to the contrary, these Option Terms shall be subject to the terms of the Plan, a copy of which may be obtained by the Participant from the office of the Secretary of the Company; and these Option Terms are subject to all interpretations, amendments, rules and regulations promulgated by the Committee from time to time pursuant to the Plan. Notwithstanding anything in the Option Terms to the contrary, in the event of any discrepancies between




the corporate records regarding this award and the Record-Keeping System, the corporate records shall control.
12. Not An Employment Contract . The Option will not confer on the Participant any right with respect to continuance of employment or other service with the Company or any Subsidiary, nor will it interfere in any way with any right the Company or any Subsidiary would otherwise have to terminate or modify the terms of such Participant’s employment or other service at any time.
13. Notices . Any written notices provided for in these Option Terms or the Plan shall be in writing and shall be deemed sufficiently given if either hand delivered or if sent by fax or overnight courier, or by postage paid first class mail. Notices sent by mail shall be deemed received three business days after mailing but in no event later than the date of actual receipt. Notices shall be directed, if to the Participant, at the Participant’s address indicated by the Company’s records, or if to the Company, at the Company’s principal executive office.
14. Competitive Activity.
(a) The Committee may cancel, rescind, suspend, withhold or otherwise limit or restrict the Non-Qualified Stock Option Award at any time if the Participant engages in any "Competitive Activity".
(b) Immediately prior to the exercise of the Participant’s Options, the Participant shall certify, to the extent required by the Committee, in a manner acceptable to the Committee, that the Participant is not engaging and has not engaged in any Competitive Activity. In the event a Participant has engaged in any Competitive Activity during the Restrictive Covenant Period, then the Participant shall be required to pay the Forfeiture Payment to the Company, in such manner and on such terms and conditions as may be required by the Committee, and the Company shall be entitled to set-off such amounts against any amount owed to the Participant by the Company and/or Subsidiary. In the event a Participant has engaged in any Competitive Activity during the Restrictive Covenant Period, Participant shall immediately forfeit any unvested or unexercised Options.
15. Fractional Shares . In lieu of issuing a fraction of a share upon any exercise of the Option, resulting from an adjustment of the Option pursuant to paragraph 5.2(f) of the Plan or otherwise, the Company will be entitled to pay to the Participant an amount equal to the fair market value of such fractional share.
16. No Rights As Shareholder . The Participant shall not have any rights of a shareholder with respect to the shares subject to the Option, until a stock certificate has been duly issued following exercise of the Option as provided herein. The Participant is not entitled to any dividend equivalents (current or deferred) with respect to the Option.
17. Amendment . The Option Terms may be amended in accordance with the provisions of the Plan, and may otherwise be amended by written agreement of the Participant and the Company without the consent of any other person.










IN WITNESS WHEREOF, the Company has caused these presents to be executed in its name and on its behalf, all as of the Grant Date.
CHUBB LIMITED

By:      ______________________________________
Its:      ______________________________________
    







Exhibit 31.1
CERTIFICATION PURSUANT TO
SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Evan G. Greenberg, certify that:
1)
I have reviewed this quarterly report on Form 10-Q of Chubb Limited;
2)
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3)
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4)
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5)
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 5, 2016
/s/ Evan G. Greenberg
Evan G. Greenberg
Chairman, President and Chief Executive Officer





Exhibit 31.2
CERTIFICATION PURSUANT TO
SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Philip V. Bancroft, certify that:
1)
I have reviewed this quarterly report on Form 10-Q of Chubb Limited;
2)
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3)
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4)
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5)
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 5, 2016
/s/ Philip V. Bancroft

Philip V. Bancroft
Executive Vice President and Chief Financial Officer





Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned officer of Chubb Limited (the Corporation) hereby certifies that the Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2016, fully complies with the applicable reporting requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a)) and that the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Corporation.
Dated: August 5, 2016
/s/ Evan G. Greenberg
 
Evan G. Greenberg
 
Chairman, President and Chief Executive Officer





Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned officer of Chubb Limited (the Corporation) hereby certifies that the Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2016, fully complies with the applicable reporting requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a)) and that the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Corporation.
Dated: August 5, 2016
/s/ Philip V. Bancroft
 
Philip V. Bancroft
 
Executive Vice President and Chief Financial Officer