Item 16. Form 10-K Summary

502K characters. Original on sec.gov · Markdown

Item 16. Form 10-K Summary

None.

SIGNATURES

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

CHUBB LIMITED



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

February 28, 2019

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



Signature	Title	Date

/s/ Evan G. Greenberg	Chairman, President, Chief Executive Officer, and Director	February 28, 2019
Evan G. Greenberg

/s/ Philip V. Bancroft	Executive Vice President and Chief Financial Officer	February 28, 2019
Philip V. Bancroft	(Principal Financial Officer)

/s/ Paul B. Medini	Chief Accounting Officer	February 28, 2019
Paul B. Medini	(Principal Accounting Officer)

/s/ Michael G. Atieh	Director	February 28, 2019
Michael G. Atieh

/s/ Sheila P. Burke	Director	February 28, 2019
Sheila P. Burke

/s/ James I. Cash	Director	February 28, 2019
James I. Cash

/s/ Mary A. Cirillo	Director	February 28, 2019
Mary A. Cirillo

/s/ Michael P. Connors	Director	February 28, 2019
Michael P. Connors



Signature	Title	Date

/s/ John Edwardson	Director	February 28, 2019
John Edwardson

/s/ Robert M. Hernandez	Director	February 28, 2019
Robert M. Hernandez

/s/ Kimberly Ross	Director	February 28, 2019
Kimberly Ross

/s/ Robert Scully	Director	February 28, 2019
Robert Scully

/s/ Eugene B. Shanks, Jr.	Director	February 28, 2019
Eugene B. Shanks, Jr.

/s/ Theodore E. Shasta	Director	February 28, 2019
Theodore E. Shasta

/s/ David Sidwell	Director	February 28, 2019
David Sidwell

/s/ Olivier Steimer	Director	February 28, 2019
Olivier Steimer

/s/ James M. Zimmerman	Director	February 28, 2019
James M. Zimmerman

CHUBB LIMITED AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2018

F-1

Chubb Limited

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



		Page
Management's Responsibility for Financial Statements and Internal Control over Financial Reporting		F-3
Report of Independent Registered Public Accounting Firm		F-4
Consolidated Financial Statements
Consolidated Balance Sheets		F-6
Consolidated Statements of Operations and Comprehensive Income		F-7
Consolidated Statements of Shareholders’ Equity		F-8
Consolidated Statements of Cash Flows		F-9
Notes to Consolidated Financial Statements
Note 1.	Summary of significant accounting policies	F-10
Note 2.	Investments	F-21
Note 3.	Fair value measurements	F-29
Note 4.	Reinsurance	F-38
Note 5.	Goodwill and Other intangible assets	F-41
Note 6.	Unpaid losses and loss expenses	F-43
Note 7.	Taxation	F-69
Note 8.	Debt	F-73
Note 9.	Commitments, contingencies, and guarantees	F-75
Note 10.	Shareholders' equity	F-80
Note 11.	Share-based compensation	F-81
Note 12.	Postretirement benefits	F-85
Note 13.	Other (income) expense	F-91
Note 14.	Segment information	F-92
Note 15.	Earnings per share	F-96
Note 16.	Related party transactions	F-96
Note 17.	Statutory financial information	F-98
Note 18.	Information provided in connection with outstanding debt of subsidiaries	F-99
Note 19.	Condensed unaudited quarterly financial data	F-106
Financial Statement Schedules
Schedule I	Summary of Investments - Other Than Investments in Related Parties	F-107
Schedule II	Condensed Financial Information of Registrant	F-108
Schedule IV	Supplemental Information Concerning Reinsurance	F-111
Schedule VI	Supplementary Information Concerning Property and Casualty Operations	F-112

F-2

MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS AND

INTERNAL CONTROL OVER FINANCIAL REPORTING

Financial Statements

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

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

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

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

Internal Control over Financial Reporting

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

As of December 31, 2018, management has evaluated the effectiveness of Chubb's internal control over financial reporting based on the criteria for effective internal control over financial reporting established in “Internal Control - Integrated Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. Based on this evaluation, we have concluded that Chubb's internal control over financial reporting was effective as of December 31, 2018.

PricewaterhouseCoopers LLP, the independent registered public accounting firm that audited the consolidated financial statements of Chubb included in this Annual Report, has issued a report on the effectiveness of Chubb's internal controls over financial reporting as of December 31, 2018. The report, which expresses an unqualified opinion on the effectiveness of Chubb's internal control over financial reporting as of December 31, 2018, is included in this Item under “Report of Independent Registered Public Accounting Firm” and follows this statement.



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

F-3

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of Chubb Limited

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Chubb Limited and its subsidiaries (the "Company") as of December 31, 2018 and 2017, and the related consolidated statements of operations and comprehensive income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2018, including the related notes and financial statement schedules listed in the index appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Responsibility for Financial Statements and Internal Control over Financial Reporting. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

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

F-4

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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



/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Philadelphia, PA
February 28, 2019

We have served as the Company’s auditor since 1985, which includes periods before the Company became subject to SEC reporting requirements.

F-5

CONSOLIDATED BALANCE SHEETS

Chubb Limited and Subsidiaries



			December 31			December 31
(in millions of U.S. dollars, except share and per share data)			2018			2017
Assets
Investments
	Fixed maturities available for sale, at fair value (amortized cost – $79,323 and $77,835) (includes hybrid financial instruments of $9 and $5)		$	78,470		$	78,939
	Fixed maturities held to maturity, at amortized cost (fair value – $13,259 and $14,474)		13,435			14,335
	Equity securities, at fair value (cost – $770 and $737)		770			937
	Short-term investments, at fair value and amortized cost		3,016			3,561
	Other investments (cost – $5,277 and $4,417)		5,277			4,672
		Total investments	100,968			102,444
Cash			1,247			728
Restricted cash			93			123
Securities lending collateral			1,926			1,737
Accrued investment income			883			909
Insurance and reinsurance balances receivable			10,075			9,334
Reinsurance recoverable on losses and loss expenses			15,993			15,034
Reinsurance recoverable on policy benefits			202			184
Deferred policy acquisition costs			4,922			4,723
Value of business acquired			295			326
Goodwill			15,271			15,541
Other intangible assets			6,143			6,513
Prepaid reinsurance premiums			2,544			2,529
Investments in partially-owned insurance companies			678			662
Other assets			6,531			6,235
Total assets			$	167,771		$	167,022
Liabilities
Unpaid losses and loss expenses			$	62,960		$	63,179
Unearned premiums			15,532			15,216
Future policy benefits			5,506			5,321
Insurance and reinsurance balances payable			6,437			5,868
Securities lending payable			1,926			1,737
Accounts payable, accrued expenses, and other liabilities			10,472			9,545
Deferred tax liabilities			304			699
Repurchase agreements			1,418			1,408
Short-term debt			509			1,013
Long-term debt			12,087			11,556
Trust preferred securities			308			308
Total liabilities			117,459			115,850
Commitments and contingencies
Shareholders’ equity
Common Shares (CHF 24.15 par value; 479,783,864 shares issued; 459,203,378 and 463,833,179 shares outstanding)			11,121			11,121
Common Shares in treasury (20,580,486 and 15,950,685 shares)			(2,618		)	(1,944		)
Additional paid-in capital			12,557			13,978
Retained earnings			31,700			27,474
Accumulated other comprehensive income (loss) (AOCI)			(2,448		)	543
Total shareholders’ equity			50,312			51,172
Total liabilities and shareholders’ equity			$	167,771		$	167,022

See accompanying notes to the consolidated financial statements

F-6

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

Chubb Limited and Subsidiaries



For the years ended December 31, 2018, 2017, and 2016
(in millions of U.S. dollars, except per share data)	2018			2017			2016
Revenues
Net premiums written	$	30,579		$	29,244		$	28,145
(Increase) decrease in unearned premiums	(515		)	(210		)	604
Net premiums earned	30,064			29,034			28,749
Net investment income	3,305			3,125			2,865
Net realized gains (losses):
Other-than-temporary impairment (OTTI) losses gross	(52		)	(46		)	(111		)
Portion of OTTI losses recognized in other comprehensive income (OCI)	3			1			8
Net OTTI losses recognized in income	(49		)	(45		)	(103		)
Net realized gains (losses) excluding OTTI losses	(603		)	129			(42		)
Total net realized gains (losses) (includes $(302), $(15), and $(119) reclassified from AOCI)	(652		)	84			(145		)
Total revenues	32,717			32,243			31,469
Expenses
Losses and loss expenses	18,067			18,454			16,052
Policy benefits	590			676			588
Policy acquisition costs	5,912			5,781			5,904
Administrative expenses	2,886			2,833			3,081
Interest expense	641			607			605
Other (income) expense	(434		)	(400		)	(222		)
Amortization of purchased intangibles	339			260			19
Chubb integration expenses	59			310			492
Total expenses	28,060			28,521			26,519
Income before income tax	4,657			3,722			4,950
Income tax expense (benefit) (includes $(41), $(13), and $28 on reclassified unrealized gains and losses)	695			(139		)	815
Net income	$	3,962		$	3,861		$	4,135
Other comprehensive income (loss)
Unrealized appreciation (depreciation)	$	(2,298	)	$	618		$	(35	)
Reclassification adjustment for net realized (gains) losses included in net income	302			15			119
	(1,996		)	633			84
Change in:
Cumulative foreign currency translation adjustment	(802		)	471			(154		)
Postretirement benefit liability adjustment	(321		)	(16		)	545
Other comprehensive income (loss), before income tax	(3,119		)	1,088			475
Income tax (expense) benefit related to OCI items	399			(231		)	(54		)
Other comprehensive income (loss)	(2,720		)	857			421
Comprehensive income	$	1,242		$	4,718		$	4,556
Earnings per share
Basic earnings per share	$	8.55		$	8.26		$	8.94
Diluted earnings per share	$	8.49		$	8.19		$	8.87

See accompanying notes to the consolidated financial statements

F-7

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

Chubb Limited and Subsidiaries



For the years ended December 31, 2018, 2017, and 2016
(in millions of U.S. dollars)	2018			2017			2016
Common Shares
Balance – beginning of year	$	11,121		$	11,121		$	7,833
Shares issued for Chubb Corp acquisition	—			—			3,288
Balance – end of year	11,121			11,121			11,121
Common Shares in treasury
Balance – beginning of year	(1,944		)	(1,480		)	(1,922		)
Common Shares repurchased	(1,021		)	(830		)	—
Net shares redeemed under employee share-based compensation plans	347			366			442
Balance – end of year	(2,618		)	(1,944		)	(1,480		)
Additional paid-in capital
Balance – beginning of year	13,978			15,335			4,481
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	(313		)	(313		)	(382		)
Exercise of stock options	(49		)	(58		)	(64		)
Share-based compensation expense	285			331			313
Funding of dividends declared to Retained earnings	(1,344		)	(1,317		)	(1,284		)
Tax benefit on share-based compensation expense	—			—			32
Balance – end of year	12,557			13,978			15,335
Retained earnings
Balance – beginning of year	27,474			23,613			19,478
Cumulative effect of adoption of accounting standards (refer to Note 1)	264			—			—
Balance – beginning of year, as adjusted	27,738			23,613			19,478
Net income	3,962			3,861			4,135
Funding of dividends declared from Additional paid-in capital	1,344			1,317			1,284
Dividends declared on Common Shares	(1,344		)	(1,317		)	(1,284		)
Balance – end of year	31,700			27,474			23,613
Accumulated other comprehensive income (loss)
Net unrealized appreciation on investments
Balance – beginning of year	1,450			1,058			874
Cumulative effect of adoption of accounting standards (refer to Note 1)	(296		)	—			—
Balance – beginning of year, as adjusted	1,154			1,058			874
Change in year, before reclassification from AOCI, net of income tax benefit (expense) of $338, $(228), and $72	(1,960		)	390			37
Amounts reclassified from AOCI, net of income tax benefit (expense) of $(41), $(13), and $28	261			2			147
Change in year, net of income tax benefit (expense) of $297, $(241), and $100	(1,699		)	392			184
Balance – end of year	(545		)	1,450			1,058
Cumulative foreign currency translation adjustment
Balance – beginning of year	(1,187		)	(1,663		)	(1,539		)
Cumulative effect of adoption of accounting standards (refer to Note 1)	(22		)	—			—
Balance – beginning of year, as adjusted	(1,209		)	(1,663		)	(1,539		)
Change in year, net of income tax benefit of $35, $5, and $30	(767		)	476			(124		)
Balance – end of year	(1,976		)	(1,187		)	(1,663		)
Postretirement benefit liability adjustment
Balance – beginning of year	280			291			(70		)
Cumulative effect of adoption of accounting standards (refer to Note 1)	47			—			—
Balance – beginning of year, as adjusted	327			291			(70		)
Change in year, net of income tax benefit (expense) of $67, $5, and $(184)	(254		)	(11		)	361
Balance – end of year	73			280			291
Accumulated other comprehensive income (loss)	(2,448		)	543			(314		)
Total shareholders’ equity	$	50,312		$	51,172		$	48,275

See accompanying notes to the consolidated financial statements

F-8

CONSOLIDATED STATEMENTS OF CASH FLOWS

Chubb Limited and Subsidiaries



For the years ended December 31, 2018, 2017, and 2016
(in millions of U.S. dollars)	2018			2017			2016
Cash flows from operating activities
Net income	$	3,962		$	3,861		$	4,135
Adjustments to reconcile net income to net cash flows from operating activities
Net realized (gains) losses	652			(84		)	145
Amortization of premiums/discounts on fixed maturities	592			694			737
Amortization of purchased intangibles	339			260			1,578
Deferred income taxes	16			(527		)	96
Unpaid losses and loss expenses	570			2,137			332
Unearned premiums	654			264			(680		)
Future policy benefits	235			217			188
Insurance and reinsurance balances payable	722			271			848
Accounts payable, accrued expenses, and other liabilities	375			(517		)	(97		)
Income taxes payable	161			(365		)	147
Insurance and reinsurance balances receivable	(981		)	(243		)	(616		)
Reinsurance recoverable	(1,165		)	(1,248		)	(358		)
Deferred policy acquisition costs	(301		)	(317		)	(1,449		)
Other	(351		)	100			286
Net cash flows from operating activities	5,480			4,503			5,292
Cash flows from investing activities
Purchases of fixed maturities available for sale	(24,700		)	(25,720		)	(30,759		)
Purchases of to be announced mortgage-backed securities	(35		)	(27		)	(56		)
Purchases of fixed maturities held to maturity	(456		)	(352		)	(282		)
Purchases of equity securities	(207		)	(173		)	(146		)
Sales of fixed maturities available for sale	14,001			13,228			16,621
Sales of to be announced mortgage-backed securities	29			27			56
Sales of equity securities	315			187			1,000
Maturities and redemptions of fixed maturities available for sale	7,352			10,425			9,349
Maturities and redemptions of fixed maturities held to maturity	1,124			879			958
Net change in short-term investments	516			(537		)	12,350
Net derivative instruments settlements	16			(265		)	(168		)
Private equity contributions	(1,337		)	(648		)	(553		)
Private equity distributions	980			1,084			958
Acquisition of subsidiaries (net of cash acquired of nil, nil, and $71)	—			—			(14,248		)
Other	(533		)	(530		)	(402		)
Net cash flows used for investing activities	(2,935		)	(2,422		)	(5,322		)
Cash flows from financing activities
Dividends paid on Common Shares	(1,337		)	(1,308		)	(1,173		)
Common Shares repurchased	(1,044		)	(801		)	—
Proceeds from issuance of long-term debt	2,171			—			—
Proceeds from issuance of repurchase agreements	2,029			2,353			2,310
Repayment of long-term debt	(2,001		)	(501		)	—
Repayment of repurchase agreements	(2,019		)	(2,348		)	(2,311		)
Proceeds from share-based compensation plans	115			151			167
Policyholder contract deposits	453			442			522
Policyholder contract withdrawals	(358		)	(307		)	(253		)
Other	—			—			(4		)
Net cash flows used for financing activities	(1,991		)	(2,319		)	(742		)
Effect of foreign currency rate changes on cash and restricted cash	(65		)	1			(25		)
Net increase (decrease) in cash and restricted cash	489			(237		)	(797		)
Cash and restricted cash – beginning of year	851			1,088			1,885
Cash and restricted cash – end of year	$	1,340		$	851		$	1,088
Supplemental cash flow information
Taxes paid	$	503		$	736		$	662
Interest paid	$	621		$	644		$	642

See accompanying notes to the consolidated financial statements

F-9

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Chubb Limited and Subsidiaries

Summary of significant accounting policies

a) Basis of presentation

Chubb Limited is a holding company incorporated in Zurich, Switzerland. Chubb Limited, through its subsidiaries, provides a broad range of insurance and reinsurance products to insureds worldwide. Our results are reported through the following business segments: North America Commercial P&C Insurance, North America Personal P&C Insurance, North America Agricultural Insurance, Overseas General Insurance, Global Reinsurance, and Life Insurance. Refer to Note 14 for additional information.

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

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


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


•	future policy benefits reserves;


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


•	reinsurance recoverable, including a provision for uncollectible reinsurance;


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


•	the valuation of the investment portfolio and assessment of other than temporary impairment (OTTI);


•	the valuation of deferred income taxes;


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


•	the valuation and amortization of purchased intangibles; and


•	the assessment of goodwill for impairment.

b) Premiums

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

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

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

F-10

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries

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

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

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

c) Deferred policy acquisition costs and value of business acquired

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

Advertising costs are expensed as incurred except for direct-response campaigns that qualify for cost deferral, principally related to long-duration A&H business produced by the Overseas General Insurance segment, which are deferred and recognized as a component of Policy acquisition costs. For individual direct-response marketing campaigns that we can demonstrate have specifically resulted in incremental sales to customers and such sales have probable future economic benefits, incremental costs directly related to the marketing campaigns are capitalized as Deferred policy acquisition costs. Deferred policy acquisition costs, including deferred marketing costs, are reviewed regularly for recoverability from future income, including investment income, and amortized in proportion to premium revenue recognized, primarily over a ten-year period, the expected economic future benefit period based upon the same assumptions used in estimating the liability for future policy benefits. The expected future benefit period is evaluated periodically based on historical results and adjusted prospectively. The amount of deferred marketing costs reported in Deferred policy acquisition costs in the Consolidated balance sheets was $255 million and $271 million at December 31, 2018 and 2017, respectively. Amortization expense for deferred marketing costs was $114 million, $116 million, and $92 million for the years ended December 31, 2018, 2017, and 2016, respectively.

d) Reinsurance

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

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

F-11

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries

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

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


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

•

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


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

•

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


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

•

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


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

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

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

The value of reinsurance business assumed of $14 million and $18 million at December 31, 2018 and 2017, respectively, included in Other assets in the accompanying Consolidated balance sheets, represents the excess of estimated ultimate value of the liabilities assumed under retroactive reinsurance contracts over consideration received. The value of reinsurance business assumed is amortized and recorded to Losses and loss expenses based on the payment pattern of the losses assumed and ranges between 9 and 40 years. The unamortized value is reviewed regularly to determine if it is recoverable based upon the terms of the contract, estimated losses and loss expenses, and anticipated investment income. Unrecoverable amounts are expensed in the period identified.

F-12

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries

e) Investments

Fixed maturities, equity securities, and short-term investments

Fixed maturities are classified as either available for sale or held to maturity.


•	Available for sale (AFS) portfolio is reported at fair value with changes in fair value recorded as a separate component of AOCI in Shareholders' equity.


•	Held to maturity (HTM) portfolio includes securities for which we have the ability and intent to hold to maturity or redemption and is reported at amortized cost.

Equity securities are reported at fair value with changes in fair value recorded in net realized gains (losses) on the Consolidated statement of operations. Prior to January 1, 2018, changes in fair value were recorded as a separate component of AOCI in Shareholders' equity.

Short-term investments comprise securities due to mature within one year of the date of purchase and are recorded at fair value which typically approximates cost.

Interest, dividend income, amortization of fixed maturity market premiums and discounts related to these securities are recorded in Net investment income, net of investment management and custody fees, in the Consolidated statement of operations.

In addition, net investment income includes the amortization of the fair value adjustment related to the acquired invested assets of The Chubb Corporation (Chubb Corp). An adjustment of $1,652 million related to the fair value of Chubb Corp’s fixed maturities securities was recorded (fair value adjustment) at the date of acquisition. At December 31, 2018, the remaining balance of this fair value adjustment was $520 million which is expected to amortize over the next three years; however, the estimate could vary materially based on current market conditions, bond calls, and the duration of the acquired investment portfolio. In addition, sales of these acquired fixed maturities would also reduce the fair value adjustment balance. For mortgage-backed securities and any other holdings for which there is a prepayment risk, prepayment assumptions are evaluated and revised as necessary. Any adjustments required due to the resultant change in effective yields and maturities are recognized prospectively. Prepayment fees or call premiums that are only payable when a security is called prior to its maturity are earned when received and reflected in Net investment income.

We regularly review our fixed maturities for other than temporary impairment (OTTI). Refer to Note 2 for additional information. With respect to fixed maturities where the decline in value is determined to be temporary and is not written down, a subsequent decision may be made to sell that security and realize a loss. Subsequent decisions on fixed maturities sales are the result of changing or unforeseen facts and circumstances (i.e., arising from a large insured loss such as a catastrophe), deterioration of the creditworthiness of the issuer or its industry, or changes in regulatory requirements. We believe that subsequent decisions to sell such securities are consistent with the classification of the majority of the portfolio as available for sale.

Other investments

Other investments principally comprise investment funds, limited partnerships, partially-owned investment companies, life insurance policies, policy loans, and non-qualified separate account assets.

Investment funds and limited partnerships

Investment funds, limited partnerships, and all other investments over which Chubb cannot exercise significant influence are accounted for as follows. Generally, we own less than three percent of the investee’s shares.


•	Income and expenses from these funds are reported within Net investment income.


•	These funds are carried at net asset value, which approximates fair value with changes in fair value recorded in net realized gains (losses) on the Consolidated statement of operations. Refer to Note 3 for a further discussion on net asset value. Prior to January 1, 2018, changes in fair value were recorded as a separate component of AOCI in Shareholders' equity.


•	As a result of the timing of the receipt of valuation data from the investment managers, these investments are generally reported on a three-month lag.


•	Sales of these investments are reported within Net realized gains (losses).

F-13

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries

Partially-owned investment companies

Partially-owned investment companies where our ownership interest is in excess of three percent are accounted for under the equity method because Chubb exerts significant influence. These investments apply investment company accounting to determine operating results, and Chubb retains the investment company accounting in applying the equity method.


•	This means that investment income, realized gains or losses, and unrealized gains or losses are included in the portion of equity earnings reflected in Other (income) expense.


•	As a result of the timing of the receipt of valuation data from the investment managers, these investments are generally reported on a three-month lag.

Other


•	Policy loans are carried at outstanding balance and interest income is reflected in Net investment income.


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


•	Non-qualified separate account assets are supported by assets that do not qualify for separate accounting reporting under GAAP. The underlying securities are recorded on a trade date basis and carried at fair value. Unrealized gains and losses on non-qualified separate account assets are reflected in Other (income) expense.

Investments in partially-owned insurance companies

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

Derivative instruments

Chubb recognizes all derivatives at fair value in the Consolidated balance sheets in either Accounts payable, accrued expenses, and other liabilities or Other assets. Changes in fair value are included in Net realized gains (losses) in the Consolidated statements of operations. We did not designate any derivatives as accounting hedges during 2018, 2017, or 2016. We participate in derivative instruments in two principal ways:

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

(ii) To mitigate financial risks and manage certain investment portfolio risks and exposures, including assets and liabilities held in foreign currencies. We use derivative instruments including futures, options, swaps, and foreign currency. Refer to Note 9 for additional information.

Securities lending program

Borrowers provide collateral, in the form of either cash or approved securities, at a minimum of 102 percent of the fair value of the loaned securities. Each security loan is deemed to be an overnight transaction. Cash collateral is invested in a collateral pool which is managed by the banking institution. The collateral pool is subject to written investment guidelines with key objectives which include the safeguard of principal and adequate liquidity to meet anticipated redemptions. The fair value of the loaned securities is monitored on a daily basis, with additional collateral obtained or refunded as the fair value of the loaned securities changes. The collateral is held by the third-party banking institution, and the collateral can only be accessed in the event that the institution borrowing the securities is in default under the lending agreement. As a result of these restrictions, we consider our securities lending activities to be non-cash investing and financing activities. An indemnification agreement with the lending agent protects us in the event a borrower becomes insolvent or fails to return any of the securities on loan.

The fair value of the securities on loan is included in fixed maturities and equity securities in the Consolidated balance sheets. The securities lending collateral is reported as a separate line in the Consolidated balance sheets with a related liability reflecting our obligation to return the collateral plus interest.

F-14

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries

Repurchase agreements

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

Refer to Note 3 for a discussion on the determination of fair value for Chubb's various investment securities.

f) Cash

Cash includes cash on hand and deposits with an original maturity of three months or less at time of purchase.

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

Restricted cash

Restricted cash in the Consolidated balance sheets represents amounts held for the benefit of third parties and is legally or contractually restricted as to withdrawal or usage. Amounts include deposits with U.S. and non-U.S. regulatory authorities, trust funds set up for the benefit of ceding companies, and amounts pledged as collateral to meet financing arrangements.

Effective January 1, 2018, we retrospectively adopted guidance on "Restricted Cash" that clarified the presentation of restricted cash on the Consolidated statement of cash flows. As a result, we revised the Consolidated statement of cash flows for the years ended December 31, 2017 and 2016 to include restricted cash in the beginning and ending cash balances. In addition, we reclassified $123 million of Restricted cash from Other assets to a separate line in the Consolidated balance sheets as of December 31, 2017.

The following table provides a reconciliation of cash and restricted cash reported within the Consolidated balance sheets that total to the amounts shown in the Consolidated statements of cash flows:



	December 31
(in millions of U.S. dollars)	2018		2017		2016
Cash	$	1,247	$	728	$	985
Restricted cash	93		123		103
Total cash and restricted cash shown in the Consolidated statements of cash flows	$	1,340	$	851	$	1,088

g) Goodwill and Other intangible assets

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

Indefinite lived intangible assets are not subject to amortization. Finite lived intangible assets are amortized over their useful lives, generally ranging from 1 to 30 years. Intangible assets are regularly reviewed for indicators of impairment. Impairment is

F-15

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries

recognized if the carrying amount is not recoverable from its undiscounted cash flows and is measured as the difference between the carrying amount and fair value.

h) Unpaid losses and loss expenses

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

Except for net loss and loss expense reserves of $33 million, net of discount, held at December 31, 2018, representing certain structured settlements for which the timing and amount of future claim payments are reliably determinable and $40 million, net of discount, of certain reserves for unsettled claims that are discounted in statutory filings, Chubb does not discount its P&C loss reserves. This compares with reserves of $36 million for certain structured settlements and $41 million of certain reserves for unsettled claims at December 31, 2017. Structured settlements represent contracts purchased from life insurance companies primarily to settle workers' compensation claims, where payments to the claimant by the life insurance company are expected to be made in the form of an annuity. Chubb retains the liability to the claimant in the event that the life insurance company fails to pay. At December 31, 2018, the liability due to claimants was $581 million, net of discount, and reinsurance recoverables due from the life insurance companies was $548 million, net of discount. For structured settlement contracts where payments are guaranteed regardless of claimant life expectancy, the amounts recoverable from the life insurance companies at December 31, 2018 are included in Other assets in the Consolidated balance sheets, as they do not meet the requirements for reinsurance accounting.

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

Also included in Unpaid losses and loss expenses is the fair value adjustment of $207 million and $309 million at December 31, 2018 and December 31, 2017, respectively, related to Chubb Corp’s historical unpaid losses and loss expenses. The estimated fair value consists of the present value of the expected net unpaid loss and loss adjustment expense payments adjusted for an estimated risk margin. The estimated cash flows are discounted at a risk free rate. The estimated risk margin varies based on the inherent risks associated with each type of reserve. The fair value is amortized through Amortization of purchased intangibles on the consolidated statements of operations through the year 2032, based on the estimated payout patterns of unpaid loss and loss expenses at the acquisition date.

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

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

F-16

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries

i) Future policy benefits

The valuation of long-duration contract reserves requires management to make estimates and assumptions regarding expenses, mortality, persistency, and investment yields. Estimates are primarily based on historical experience and information provided by ceding companies and include a margin for adverse deviation. Interest rates used in calculating reserves range from less than 1.0 percent to 11.0 percent and less than 1.0 percent to 8.0 percent at December 31, 2018 and 2017, respectively. Actual results could differ materially from these estimates. Management monitors actual experience and where circumstances warrant, will revise assumptions and the related reserve estimates. Revisions are recorded in the period they are determined.

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

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

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

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

Under reinsurance programs covering GLBs, we assume the risk of guaranteed minimum income benefits (GMIB) 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. We also assume the risk of guaranteed minimum accumulation benefits (GMAB). However, at December 31, 2018, the risks related to our GMAB programs are minimal given that the majority of these policies are no longer in force. Our GLB reinsurance products meet the definition of a derivative for accounting purposes and are carried at fair value with changes in fair value recognized in Realized gains (losses) in the Consolidated statement of operations. Refer to Notes 4 c) and 9 a) for additional information.

k) Deposit assets and liabilities

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

Interest income on deposit assets, representing the consideration received or to be received in excess of cash payments related to the deposit contract, is earned based on an effective yield calculation. The calculation of the effective yield is based on the amount and timing of actual cash flows at the balance sheet date and the estimated amount and timing of future cash flows. The effective yield is recalculated periodically to reflect revised estimates of cash flows. When a change in the actual or estimated cash flows occurs, the resulting change to the carrying amount of the deposit asset is reported as income or expense. Deposit assets of $97 million and $89 million at December 31, 2018 and 2017, respectively, are reflected in Other assets in the Consolidated balance sheets and the accretion of deposit assets related to interest pursuant to the effective yield calculation is reflected in Net investment income in the Consolidated statements of operations.

F-17

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries

Deposit liabilities include reinsurance deposit liabilities of $97 million and $100 million and contract holder deposit funds of $1.8 billion at both December 31, 2018 and 2017. Deposit liabilities are reflected in Accounts payable, accrued expenses, and other liabilities in the Consolidated balance sheets. At contract inception, the deposit liability equals net cash received. An accretion rate is established based on actuarial estimates whereby the deposit liability is increased to the estimated amount payable over the contract term. The deposit accretion rate is the rate of return required to fund expected future payment obligations. We periodically reassess the estimated ultimate liability and related expected rate of return. Changes to the deposit liability are generally reflected through Interest expense to reflect the cumulative effect of the period the contract has been in force, and by an adjustment to the future accretion rate of the liability over the remaining estimated contract term.

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

l) Property and Equipment

Property and equipment used in operations are capitalized and carried at cost less accumulated depreciation and are reported within Other assets in the Consolidated balance sheets. At December 31, 2018, property and equipment totaled $1.7 billion, consisting principally of capitalized software costs of $970 million incurred to develop or obtain computer software for internal use and company-owned facilities of $277 million. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. For capitalized software, the estimated useful life is generally three to five years, but can be as long as 15 years and for company-owned facilities the estimated useful life is 39 years. At December 31, 2017, property and equipment totaled $1.3 billion.

m) Foreign currency remeasurement and translation

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

n) Administrative expenses

Administrative expenses generally include all operating costs other than policy acquisition costs. The North America Commercial P&C Insurance segment manages and uses an in-house third-party claims administrator, ESIS Inc. (ESIS). ESIS performs claims management and risk control services for domestic and international organizations that self-insure P&C exposures as well as internal P&C exposures. The net operating results of ESIS are included within Administrative expenses in the Consolidated statements of operations and were $49 million, $38 million, and $32 million for the years ended December 31, 2018, 2017, and 2016, respectively.

o) Income taxes

Income taxes have been recorded related to those operations subject to income tax. Deferred tax assets and liabilities result from temporary differences between the amounts recorded in the consolidated financial statements and the tax basis of our assets and liabilities. The effect on deferred tax assets and liabilities of a change in tax law or rates is recognized in the period that includes the enactment date. A valuation allowance against deferred tax assets is recorded if it is more likely than not that all, or some portion, of the benefits related to these deferred tax assets will not be realized. The valuation allowance assessment considers tax planning strategies, where appropriate.

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

p) Earnings per share

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

F-18

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries

q) Cash flow information

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

r) Share-based compensation

Chubb measures and records compensation cost for all share-based payment awards at grant-date fair value. Compensation costs are recognized for vesting of share-based payment awards with only service conditions on a straight-line basis over the requisite service period for each separately vesting portion of the award as if the award were, in substance, multiple awards. For retirement-eligible participants, compensation costs for certain share-based payment awards are recognized immediately at the date of grant. Refer to Note 11 for additional information.

s) Chubb integration expenses

Direct costs related to the Chubb Corp acquisition were expensed as incurred. Chubb integration expenses were $59 million, $310 million, and $492 million for the years ended December 31, 2018, 2017 and 2016, respectively, and include all internal and external costs directly related to the integration activities of the Chubb Corp acquisition. These expenses principally consisted of personnel-related expenses, consulting fees, and rebranding.

t) New accounting pronouncements

Adopted in 2018

Revenue from Contracts with Customers

Effective January 2018, we adopted new accounting guidance on "Revenue from Contracts with Customers" on a prospective basis. 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 adoption of this guidance did not have a material impact on our financial condition or results of operations given that the majority of our business is outside the scope of this guidance.

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

Effective January 2018, we adopted new accounting guidance on "Recognition and Measurement of Financial Assets and Financial Liabilities" on a modified-retrospective basis. The guidance requires equity investments, other than those accounted for under the equity method of accounting, to be measured at fair value with changes in fair value recognized through net income. The guidance impacts our public equities and cost-method private equities. As a result, we recorded a cumulative-effect adjustment to increase beginning Retained earnings by $417 million after tax ($454 million pre-tax), representing the unrealized appreciation on our equity investments as of December 31, 2017 with an offsetting adjustment to decrease beginning Accumulated other comprehensive income. All subsequent changes in fair value of our equity investments are recognized within realized gains (losses) on the Consolidated statement of operations. Prior period amounts have not been adjusted and continue to be reported in accordance with the previous accounting guidance.

Income Tax Accounting Implications of the Tax Cuts and Jobs Act

The Tax Cuts and Jobs Act (2017 Tax Act) was enacted in December 2017. Among other things, the 2017 Tax Act reduced the U.S. Federal income tax rate to 21 percent from 35 percent effective in 2018, and instituted a dividends received deduction for foreign earnings with a related tax for the deemed repatriation of unremitted foreign earnings. The 2017 Tax Act also included provisions for Global Intangible Low-Taxed Income (GILTI) under which taxes may be imposed on income of foreign subsidiaries, and for a Base Erosion and Anti-Abuse Tax (BEAT) under which taxes may be imposed on certain payments to affiliated foreign companies.

The Securities and Exchange Commission issued Staff Accounting Bulletin No. 118 (SAB 118), Income Tax Accounting Implications of the Tax Cuts and Jobs Act, which provided guidance for the application of the 2017 Tax Act and allowed companies up to one year to complete their accounting. In connection with the 2017 Tax Act, we recorded a $450 million income tax provisional benefit in the fourth quarter of 2017. In 2018, we recorded an additional benefit of $25 million as a measurement period adjustment, resulting in a final transition benefit of $475 million. This change reflected the favorable impact of changes to certain tax only accounting methods offset by updates to provisional amounts recorded related to foreign

F-19

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries

tax credits and withholding taxes as a result of additional guidance issued during 2018. Refer to Note 7 for additional information.

Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income

In February 2018, the FASB issued guidance that allows the optional reclassification from Accumulated other comprehensive income (AOCI) to Retained earnings of the stranded tax effects resulting from the 2017 Tax Act for all items accounted for in AOCI. We adopted the standard in 2018 and elected to reclassify $146 million of stranded tax effects from beginning AOCI to beginning Retained earnings. The stranded tax effects included $121 million of tax expense related to Net unrealized appreciation of investments, $47 million of tax expense related to Postretirement benefit liability, and a tax benefit of $22 million related to Cumulative foreign currency translation losses as of December 31, 2017.

Intra-Entity Transfers of Assets Other than Inventory

Effective January 2018, we adopted new accounting guidance on “Intra-Entity Transfers of Assets Other Than Inventory” on a modified-retrospective basis. Under the new guidance, we will no longer defer taxes on intra-company asset transfers and will recognize any related income tax expense (benefit) immediately through the Consolidated statement of operations. As a result, we recorded a cumulative-effect adjustment to decrease beginning Retained earnings by $7 million, representing the removal of the deferred tax assets for previous intra-company asset transfer transactions not yet recognized through earnings.

Changes to the Disclosure Requirements for Fair Value Measurements

In August 2018, the FASB issued amendments to modify the disclosure requirements on fair value measurements. The amendments allow for the removal of (1) the amount and reasons for transfer between Level 1 and Level 2 of the fair value hierarchy; (2) the policy for transfers between levels; and (3) the valuation processes for Level 3 fair value measurements. This update also requires the expanded discussion on unobservable inputs that are significant to the fair value measurement. We have early adopted the amendments that allow the removal of certain disclosures and deferred the adoption of the additional disclosure until the effective date in the first quarter of 2020, as permitted. The guidance changes disclosure only and did not have an impact on our financial condition or results of operations.

Changes to the Disclosure Requirements for Defined Benefit Plans

In August 2018, the FASB issued amendments to allow for the removal and addition of various disclosure requirements related to defined benefit pension or other postretirement plans. We elected to early adopt this guidance in the fourth quarter of 2018, as permitted. The guidance changes disclosures only and did not have an impact on our financial condition or results of operations.

Adopted in 2019

Premium Amortization on Purchased Callable Debt Securities

In March 2017, the FASB issued guidance on the amortization period for purchased callable debt securities held at a premium. The guidance requires the premium to be amortized to the earliest call date. Under current guidance, premiums generally are amortized over the contracted life of the security. We adopted this guidance on January 1, 2019 on a modified retrospective basis through a cumulative effect adjustment which decreased beginning retained earnings by approximately $15 million pre-tax, or $11 million after-tax. Securities held at a discount do not require an accounting change.

Lease Accounting

In February 2016, the FASB issued accounting guidance requiring leases with lease terms of more than 12 months to recognize

a right of use asset and a corresponding lease liability on the balance sheets. We adopted this guidance on January 1, 2019 on a modified retrospective basis and recognized a right of use asset and a corresponding lease liability for our real estate leases of approximately $800 million. The adoption of this guidance did not have a material effect on our results of operations, financial condition or liquidity.

Accounting guidance not yet adopted

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.

F-20

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries

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

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

Targeted Improvements to the Accounting for Long-Duration Contracts

In August 2018, the FASB issued guidance to improve the existing recognition, measurement, presentation, and disclosure requirements for long-duration contracts issued by an insurance entity. The amendments in this update require more frequent updating of assumptions and a standardized discount rate for the future policy benefit liability, a requirement to use the fair value measurement model for policies with market risk benefits, simplified amortization of deferred acquisition costs, and enhanced disclosures.

This standard will be effective for us in the first quarter of 2021 with early adoption permitted. We are currently assessing the effect of adopting this guidance on our financial condition and results of operations. We will be better able to quantify the effect of adopting this standard as we progress in our implementation process and draw nearer to the date of adoption.

Investments

a) Fixed maturities



December 31, 2018	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	$	4,158	$	30	$	(43	)	$	4,145	$	—
Foreign	21,370		395		(349		)	21,416		—
Corporate securities	27,183		150		(750		)	26,583		(6		)
Mortgage-backed securities	15,758		66		(284		)	15,540		(1		)
States, municipalities, and political subdivisions	10,854		49		(117		)	10,786		—
	$	79,323	$	690	$	(1,543	)	$	78,470	$	(7	)
Held to maturity
U.S. Treasury and agency	$	1,185	$	8	$	(11	)	$	1,182	$	—
Foreign	1,549		11		(18		)	1,542		—
Corporate securities	2,601		11		(104		)	2,508		—
Mortgage-backed securities	2,524		5		(43		)	2,486		—
States, municipalities, and political subdivisions	5,576		16		(51		)	5,541		—
	$	13,435	$	51	$	(227	)	$	13,259	$	—

F-21

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries



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

As discussed in Note 2 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 Net unrealized appreciation on investments in the Consolidated statements of shareholders' equity. For the years ended December 31, 2018 and 2017, net unrealized depreciation of $4 million and $2 million, respectively, related to such securities are included in OCI. At December 31, 2018 and 2017, AOCI included cumulative net unrealized appreciation of $1 million and $7 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-backed securities held (refer to Note 9 b) (iv)) and are included in the category, “Mortgage-backed securities”. Approximately 81 percent and 83 percent of the total mortgage-backed securities at December 31, 2018 and 2017, 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.

F-22

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries

The following table presents fixed maturities by contractual maturity:



	December 31				December 31
			2018				2017
(in millions of U.S. dollars)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Available for sale
Due in 1 year or less	$	3,569	$	3,568	$	3,164	$	3,182
Due after 1 year through 5 years	27,134		27,005		24,749		25,068
Due after 5 years through 10 years	24,095		23,543		25,388		25,704
Due after 10 years	8,767		8,814		9,255		9,695
	63,565		62,930		62,556		63,649
Mortgage-backed securities	15,758		15,540		15,279		15,290
	$	79,323	$	78,470	$	77,835	$	78,939
Held to maturity
Due in 1 year or less	$	536	$	537	$	743	$	746
Due after 1 year through 5 years	3,122		3,106		2,669		2,688
Due after 5 years through 10 years	4,468		4,407		4,744		4,756
Due after 10 years	2,785		2,723		3,455		3,542
	10,911		10,773		11,611		11,732
Mortgage-backed securities	2,524		2,486		2,724		2,742
	$	13,435	$	13,259	$	14,335	$	14,474

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 and Other investments

Effective January 1, 2018, we adopted new accounting guidance that requires any changes in fair value of equity securities and other investments that are accounted for under the cost-method to be recognized immediately in realized gains and losses in net income. As a result, beginning on January 1, 2018, realized gains and losses from these investments include both sales of securities and unrealized gains and losses as follows:



	Year Ended December 31, 2018
(in millions of U.S. dollars)	Equity Securities			Other Investments			Total
Net losses recognized during the period	$	(59	)	$	(5	)	$	(64	)
Less: Net gains recognized from sales of securities	70			121			191
Unrealized losses recognized for securities still held at reporting date	$	(129	)	$	(126	)	$	(255	)

At December 31, 2017, the cost, gross unrealized appreciation, gross unrealized depreciation, and fair value of equity securities was $737 million, $212 million, $12 million, and $937 million, respectively. At December 31, 2017, the net unrealized appreciation (depreciation) was recorded within accumulated other comprehensive income on the balance sheet.

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, we must evaluate the security to determine the portion of the impairment, if any, related to credit losses. If a credit loss is incurred, an OTTI is considered to have occurred and any portion of the OTTI related to credit losses must be reflected in Net income while the portion of OTTI related to all other factors is recognized in OCI. For fixed maturities held to maturity, OTTI recognized in OCI is accreted from AOCI to the amortized cost of the fixed maturity prospectively over the remaining term of the securities.

F-23

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries

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

Evaluation of potential credit losses related to fixed maturities

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

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

U.S. Treasury and agency obligations (including agency mortgage-backed securities); foreign government obligations; and states, municipalities, and political subdivisions obligations represent $630 million of gross unrealized loss at December 31, 2018. These securities were evaluated for credit loss primarily using qualitative assessments of the likelihood of credit loss considering credit rating of the issuers and level of credit enhancement, if any. We concluded that the high level of creditworthiness of the issuers coupled with credit enhancement, where applicable, supports recognizing no credit loss in Net income.

Corporate securities

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

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



Moody's Rating Category	1-in-100 Year Default Rate		Historical Mean Default Rate
Investment Grade:
Aaa-Baa	0.0 - 1.3%		0.0 - 0.3%
Below Investment Grade:
Ba	4.8	%	1.0	%
B	12.0	%	3.2	%
Caa-C	36.6	%	10.5	%

Application of the methodology and assumptions described above resulted in credit losses recognized in Net income for corporate securities of $25 million, $5 million, and $30 million for the years ended December 31, 2018, 2017, and 2016, respectively.

Mortgage-backed securities

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

F-24

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries

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

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

For the years ended December 31, 2018 and 2017, there were no credit losses recognized in Net income for mortgage-backed securities. For the year ended December 31, 2016, there was $1 million of credit losses recognized in Net income for mortgage-backed securities.

The following table presents the components of Net realized gains (losses) and the change in net unrealized appreciation (depreciation) of investments:



	Year Ended December 31
(in millions of U.S. dollars)	2018			2017			2016
Fixed maturities:
OTTI on fixed maturities, gross	$	(52	)	$	(24	)	$	(89	)
OTTI on fixed maturities recognized in OCI (pre-tax)	3			1			8
OTTI on fixed maturities, net	(49		)	(23		)	(81		)
Gross realized gains excluding OTTI	334			149			183
Gross realized losses excluding OTTI	(587		)	(157		)	(265		)
Total fixed maturities	(302		)	(31		)	(163		)
Equity securities:
OTTI on equity securities	—			(10		)	(8		)
Gross realized gains excluding OTTI	74			28			65
Gross realized losses excluding OTTI	(133		)	(2		)	(13		)
Total equity securities	(59		)	16			44
OTTI on other investments	—			(12		)	(14		)
Other investments	(5		)	—			—
Foreign exchange gains	131			36			118
Investment and embedded derivative instruments	(75		)	(11		)	(33		)
Fair value adjustments on insurance derivative	(248		)	364			53
S&P put options and futures	(4		)	(261		)	(136		)
Other derivative instruments	(3		)	(5		)	(10		)
Other	(87		)	(12		)	(4		)
Net realized gains (losses) (pre-tax)	$	(652	)	$	84		$	(145	)

Change in net unrealized appreciation (depreciation) on investments (pre-tax):
Fixed maturities available for sale	$	(1,958	)	$	519		$	142
Fixed maturities held to maturity	(38		)	18			(59		)
Equity securities	—			88			52
Other	—			8			(51		)
Income tax (expense) benefit	297			(241		)	100
Change in net unrealized appreciation (depreciation) on investments (after-tax)	$	(1,699	)	$	392		$	184

Other net realized gains (losses) for the year ended December 31, 2018, included a $36 million loss from the extinguishment of debt as discussed in Note 8 to the Consolidated Financial Statements, a $24 million loss related to lease impairments, and a $23 million loss related to the impairment of fixed assets.

F-25

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries

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



	Year Ended December 31
(in millions of U.S. dollars)	2018			2017			2016
Balance of credit losses related to securities still held – beginning of year	$	22		$	35		$	53
Additions where no OTTI was previously recorded	20			4			17
Additions where an OTTI was previously recorded	5			2			14
Reductions for securities sold during the period	(13		)	(19		)	(49		)
Balance of credit losses related to securities still held – end of year	$	34		$	22		$	35

d) Other investments



			December 31				December 31
			2018				2017
(in millions of U.S. dollars)	Fair Value		Cost		Fair Value		Cost
Partially-owned investment companies	$	3,623	$	3,623	$	2,803	$	2,803
Limited partnerships	538		538		549		441
Investment funds	83		83		270		123
Other
Life insurance policies	304		304		305		305
Policy loans	243		243		244		244
Non-qualified separate account assets	252		252		333		333
Other	234		234		168		168
Total	$	5,277	$	5,277	$	4,672	$	4,417

Included in limited partnerships and partially-owned investment companies are 145 individual limited partnerships covering a broad range of investment strategies including large cap buyouts, specialist buyouts, growth capital, distressed, mezzanine, real estate, and co-investments. The underlying portfolio consists of various public and private debt and equity securities of publicly traded and privately held companies and real estate assets. The underlying investments across various partnerships, geographies, industries, asset types, and investment strategies provide risk diversification within the limited partnership portfolio and the overall investment portfolio. Investment funds include one highly diversified fund investment as well as several direct funds that employ a variety of investment styles such as long/short equity and arbitrage/distressed. Non-qualified separate account assets are comprised of mutual funds, supported by assets that do not qualify for separate account reporting under GAAP.

During 2018, we converted a $28 million loan into additional ownership interest in an investment classified within Other in the table above. This was a non-cash transaction and therefore excluded from our Consolidated statements of cash flows.

F-26

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries

e) Investments in partially-owned insurance companies

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



	December 31, 2018						December 31, 2017
(in millions of U.S. dollars, except for percentages)	Carrying Value		Issued Share Capital		Ownership Percentage		Carrying Value		Issued Share Capital		Ownership Percentage		Domicile
Huatai Group	$	452	$	587	20	%	$	438	$	616	20	%	China
Huatai Life Insurance Company	106		472		20	%	105		495		20	%	China
Freisenbruch-Meyer	9		—		40	%	9		—		40	%	Bermuda
Chubb Arabia Cooperative Insurance Company	18		27		30	%	15		27		30	%	Saudi Arabia
Russian Reinsurance Company	2		4		23	%	2		4		23	%	Russia
ABR Reinsurance Ltd.	91		774		12	%	93		800		11	%	Bermuda
Total	$	678	$	1,864			$	662	$	1,942

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

f) Gross unrealized loss

At December 31, 2018, there were 19,606 fixed maturities out of a total of 31,054 fixed maturities in an unrealized loss position. The largest single unrealized loss in the fixed maturities was $10 million. Fixed maturities in an unrealized loss position at December 31, 2018, comprised both investment grade and below investment grade securities for which fair value declined primarily due to widening credit spreads since the date of purchase.

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



	0 – 12 Months					Over 12 Months					Total
December 31, 2018	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	$	523	$	(4	)	$	2,859	$	(50	)	$	3,382	$	(54	)
Foreign	6,764		(208		)	5,349		(159		)	12,113		(367		)
Corporate securities	16,538		(599		)	4,873		(255		)	21,411		(854		)
Mortgage-backed securities	6,103		(98		)	6,913		(229		)	13,016		(327		)
States, municipalities, and political subdivisions	5,024		(44		)	7,768		(124		)	12,792		(168		)
Total fixed maturities	$	34,952	$	(953	)	$	27,762	$	(817	)	$	62,714	$	(1,770	)



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

F-27

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries

g) Net investment income



	Year Ended December 31
(in millions of U.S. dollars)	2018			2017			2016
Fixed maturities	$	3,128		$	2,987		$	2,779
Short-term investments	90			56			58
Other interest income	118			75			35
Equity securities	33			38			36
Other investments	104			133			98
Gross investment income (1)	3,473			3,289			3,006
Investment expenses	(168		)	(164		)	(141		)
Net investment income (1)	$	3,305		$	3,125		$	2,865
(1) Includes amortization expense related to fair value adjustment of acquired invested assets related to the Chub Corp acquisition	$	(248	)	$	(332	)	$	(393	)

h) 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 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 have investments in segregated portfolios primarily to provide collateral or guarantees for LOC and derivative transactions. Included in restricted assets at December 31, 2018 and 2017, are investments, primarily fixed maturities, totaling $21.0 billion and $23.3 billion, and cash of $93 million and $123 million, respectively.

The following table presents the components of restricted assets:



	December 31		December 31
(in millions of U.S. dollars)	2018		2017
Trust funds	$	13,988	$	17,011
Deposits with U.S. regulatory authorities	2,405		2,345
Deposits with non-U.S. regulatory authorities	2,531		2,250
Assets pledged under repurchase agreements	1,468		1,434
Other pledged assets	692		414
Total	$	21,084	$	23,454

F-28

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries

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.

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

Fixed maturities

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

Equity securities

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

F-29

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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 and supplemental retirement 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 and interest rate swaps is based on market valuations and is classified within Level 2. Investment derivative instruments are recorded in either Other assets or Accounts payable, accrued expenses, and other liabilities in the Consolidated balance sheets.

Other derivative instruments

We maintain positions in exchange-traded equity futures 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 positions in exchange-traded equity futures contracts are classified within Level 1. 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) 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.

F-30

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries

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

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

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

The level of annuitization assumptions at December 31, 2018 are as follows:



% of total GMIB guaranteed value	Policyholder age	Maximum annuitization rate(s) (per year)
19%	Under 65 years old	1% - 21%
81%	Over 65 years old	3% - 42%

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

In the fourth quarter of 2018, we completed a review of policyholder behavior related to annuitizations, partial withdrawals, lapses, and mortality for our variable annuity reinsurance business.


•	As annuitization experience continued to emerge, we refined our annuitization assumptions including age-based behavior. The change in annuitization assumptions had an insignificant impact on the fair value of GLB liabilities.


•	We also refined our lapse assumptions based on additional emerging experience, with a focus on underlying policies eligible for annuitization. These refinements resulted in a net increase to the fair value of GLB liabilities generating a realized loss of approximately $20 million.

•

Reinsured policies allow for policyholders to make periodic withdrawals from their account values without lapsing the policy. The partial withdrawal results in a reduction to the associated guaranteed value that is either equal or proportional to the amount of the reduction in account value. We further refined our assumptions around the types of partial withdrawals according to their impact on guaranteed value. This resulted in an increase to the fair value of GLB liabilities generating a realized loss of approximately $11 million.


•	After having performed a mortality study for the first time in 2017, we performed a second study this year and enhanced our analysis by increasing the weight given to emerging experience, which resulted in lower mortality assumptions. The updated mortality rates increased the fair value of GLB liabilities generating a realized loss of approximately $28 million.

F-31

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries

During the year ended December 31, 2018, we also made minor model refinements to the internal valuation model which resulted in no material impact on income.

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



December 31, 2018	Level 1		Level 2		Level 3		Total
(in millions of U.S. dollars)
Assets:
Fixed maturities available for sale
U.S. Treasury and agency	$	3,400	$	745	$	—	$	4,145
Foreign	—		21,071		345		21,416
Corporate securities	—		25,284		1,299		26,583
Mortgage-backed securities	—		15,479		61		15,540
States, municipalities, and political subdivisions	—		10,786		—		10,786
	3,400		73,365		1,705		78,470
Equity securities	713		—		57		770
Short-term investments	1,575		1,440		1		3,016
Other investments (1)	381		303		11		695
Securities lending collateral	—		1,926		—		1,926
Investment derivative instruments	28		—		—		28
Other derivative instruments	25		—		—		25
Separate account assets	2,686		137		—		2,823
Total assets measured at fair value (1)	$	8,808	$	77,171	$	1,774	$	87,753
Liabilities:
Investment derivative instruments	$	38	$	115	$	—	$	153
GLB (2)	—		—		452		452
Total liabilities measured at fair value	$	38	$	115	$	452	$	605


(1)	Excluded from the table above are partially-owned investments, investment funds, and limited partnerships of $4,244 million and other investments of $95 million at December 31, 2018 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 4 c) for additional information.

F-32

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries



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


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


(2)	Our GLB reinsurance product meets the definition of a derivative instrument for accounting purposes and is accordingly carried at fair value. Excluded from the table above is the portion of the GLB derivative liability classified as Future policy benefits in the Consolidated balance sheets. Refer to Note 4 c) for additional information.

Fair value of alternative investments

Alternative investments include investment funds, limited partnerships, and partially-owned investment companies measured at fair value using NAV as a practical expedient. The following table presents, by investment category, the expected liquidation period, fair value, and maximum future funding commitments of alternative investments:



		December 31				December 31
		2018				2017
(in millions of U.S. dollars)	Expected Liquidation Period of Underlying Assets	Fair Value		Maximum Future Funding Commitments		Fair Value		Maximum Future Funding Commitments
Financial	2 to 9 Years	$	596	$	193	$	540	$	330
Real Assets	2 to 11 Years	704		362		651		114
Distressed	2 to 7 Years	296		105		289		141
Private Credit	3 to 8 Years	147		310		187		327
Traditional	2 to 14 Years	2,362		2,735		1,656		3,149
Vintage	1 to 2 Years	56		—		30		—
Investment funds	Not Applicable	83		—		270		—
		$	4,244	$	3,705	$	3,623	$	4,061

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.

F-33

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries



Investment Category		Consists of investments in private equity funds:
Financial		targeting financial services companies, such as financial institutions and insurance services worldwide
Real Assets		targeting investments related to hard physical assets, such as real estate, infrastructure, and natural resources
Distressed		targeting distressed corporate debt/credit and equity opportunities in the U.S.
Private Credit		targeting privately originated corporate debt investments, including senior secured loans and subordinated bonds
Traditional		employing traditional private equity investment strategies such as buyout and growth equity globally
Vintage		made before 2002 or where the funds’ commitment periods have 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 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. The majority of our fixed maturities classified as Level 3 used external pricing when markets are less liquid due to the lack of market inputs (i.e., stale pricing, broker quotes).



(in millions of U.S. dollars, except for percentages)	Fair Value at December 31, 2018		Valuation Technique	Significant Unobservable Inputs	Ranges
GLB(1)	$	452	Actuarial model	Lapse rate	3% – 32%
				Annuitization rate	0% – 42%


(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 3 a) Guaranteed living benefits.

F-34

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries

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



																Assets						Liabilities
	Available-for-Sale Debt Securities									Equity securities			Short-term investments			Other investments			Other derivative instruments			GLB (1)
Year Ended December 31, 2018	Foreign			Corporate securities			MBS
(in millions of U.S. dollars)
Balance, beginning of year	$	93		$	1,037		$	78		$	44		$	—		$	263		$	2		$	204
Transfers into Level 3	13			24			1			—			5			—			—			—
Transfers out of Level 3	(2		)	(31		)	(3		)	—			—			(252		)	—			—
Change in Net Unrealized Gains/Losses included in OCI	(12		)	(4		)	—			(2		)	—			(2		)	—			—
Net Realized Gains/Losses	(3		)	(5		)	—			6			—			1			(2		)	248
Purchases	334			672			5			37			9			50			—			—
Sales	(69		)	(164		)	—			(28		)	—			—			—			—
Settlements	(9		)	(230		)	(20		)	—			(13		)	(49		)	—			—
Balance, end of year	$	345		$	1,299		$	61		$	57		$	1		$	11		$	—		$	452
Net Realized Gains/Losses Attributable to Changes in Fair Value at the Balance Sheet Date	$	(1	)	$	(7	)	$	—		$	(1	)	$	—		$	1		$	—		$	248


(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 4 c) for additional information.



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


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

(2)

Our GLB reinsurance product meets the definition of a derivative instrument for accounting purposes and is accordingly carried at fair value. Excluded from the table above is the portion of the GLB derivative liability classified as Future policy benefits in the Consolidated balance sheets. The liability for GLB reinsurance was $550 million at December 31, 2017 and $853 million at December 31, 2016, which includes a fair value derivative adjustment of $204 million and $559 million, respectively.

F-35

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries



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

(1)

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


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

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.

F-36

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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:



December 31, 2018	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	$	1,128	$	54	$	—	$	1,182	$	1,185
Foreign	—		1,542		—		1,542		1,549
Corporate securities	—		2,477		31		2,508		2,601
Mortgage-backed securities	—		2,486		—		2,486		2,524
States, municipalities, and political subdivisions	—		5,541		—		5,541		5,576
Total assets	$	1,128	$	12,100	$	31	$	13,259	$	13,435
Liabilities:
Repurchase agreements	$	—	$	1,418	$	—	$	1,418	$	1,418
Short-term debt	—		516		—		516		509
Long-term debt	—		12,181		—		12,181		12,087
Trust preferred securities	—		409		—		409		308
Total liabilities	$	—	$	14,524	$	—	$	14,524	$	14,322



December 31, 2017	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	$	857	$	58	$	—	$	915	$	908
Foreign	—		1,757		—		1,757		1,738
Corporate securities	—		3,184		35		3,219		3,159
Mortgage-backed securities	—		2,742		—		2,742		2,724
States, municipalities, and political subdivisions	—		5,841		—		5,841		5,806
Total assets	$	857	$	13,582	$	35	$	14,474	$	14,335
Liabilities:
Repurchase agreements	$	—	$	1,408	$	—	$	1,408	$	1,408
Short-term debt	—		1,013		—		1,013		1,013
Long-term debt	—		12,332		—		12,332		11,556
Trust preferred securities	—		468		—		468		308
Total liabilities	$	—	$	15,221	$	—	$	15,221	$	14,285

F-37

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries

Reinsurance

a) Consolidated reinsurance

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



	Year Ended December 31
(in millions of U.S. dollars)	2018			2017			2016
Premiums written
Direct	$	34,782		$	33,137		$	31,543
Assumed	3,186			3,239			3,440
Ceded	(7,389		)	(7,132		)	(6,838		)
Net	$	30,579		$	29,244		$	28,145
Premiums earned
Direct	$	34,108		$	32,782		$	31,811
Assumed	3,175			3,332			3,744
Ceded	(7,219		)	(7,080		)	(6,806		)
Net	$	30,064		$	29,034		$	28,749

Ceded losses and loss expenses incurred were $5.6 billion, $5.5 billion, and $4.1 billion for the years ended December 31, 2018, 2017, and 2016, respectively.

b) Reinsurance recoverable on ceded reinsurance



	December 31, 2018				December 31, 2017
(in millions of U.S. dollars)	Net Reinsurance Recoverable (1)		Provision for Uncollectible		Net Reinsurance Recoverable (1)		Provision for Uncollectible
Reinsurance recoverable on unpaid losses and loss expenses	$	14,689	$	251	$	14,014	$	247
Reinsurance recoverable on paid losses and loss expenses	1,304		72		1,020		74
Reinsurance recoverable on losses and loss expenses	$	15,993	$	323	$	15,034	$	321
Reinsurance recoverable on policy benefits	$	202	$	4	$	184	$	4


(1)	Net of provision for uncollectible reinsurance.

The increase in reinsurance recoverable on loss and loss expenses was principally related to an increase in catastrophe loss recoveries and favorable reinsurance settlements that were not collected as of December 31, 2018.

We evaluate the financial condition of our reinsurers and potential reinsurers on a regular basis and also monitor concentrations of credit risk with reinsurers. The provision for uncollectible reinsurance is required principally due to the potential failure of reinsurers to indemnify Chubb, primarily because of disputes under reinsurance contracts and insolvencies. We have established provisions for amounts estimated to be uncollectible on both unpaid and paid losses as well as future policy benefits.

F-38

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries

The following tables present a listing, at December 31, 2018, of the categories of Chubb's reinsurers:



December 31, 2018	Gross Reinsurance Recoverable on Loss and Loss Expenses		Provision for Uncollectible Reinsurance		% of Gross Reinsurance Recoverable
(in millions of U.S. dollars, except for percentages)
Categories
Largest reinsurers	$	6,578	$	70	1.1	%
Other reinsurers rated A- or better	5,339		63		1.2	%
Other reinsurers with ratings lower than A- or not rated	558		68		12.2	%
Pools	429		16		3.7	%
Structured settlements	548		18		3.3	%
Captives	2,590		16		0.6	%
Other	274		72		26.3	%
Total	$	16,316	$	323	2.0	%



Largest Reinsurers
ABR Reinsurance Capital Holdings	HDI Group (Hannover Re)	Munich Re Group	Swiss Re Group
Berkshire Hathaway Insurance Group	Lloyd's of London	Starr International Group



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

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

F-39

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries

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

The following table presents income and expenses relating to GMDB and GLB reinsurance. GLBs include GMIBs.



	Year Ended December 31
(in millions of U.S. dollars)	2018			2017		2016
GMDB
Net premiums earned	$	47		$	49	$	55
Policy benefits and other reserve adjustments	$	20		$	40	$	45
GLB
Net premiums earned	$	96		$	110	$	118
Policy benefits and other reserve adjustments	110			105		52
Net realized gains (losses)	(250		)	363		48
Gain (loss) recognized in Net income	$	(264	)	$	368	$	114
Net cash received and other	47			65		79
Net decrease (increase) in liability	$	(311	)	$	303	$	35

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 futures used to partially offset the risk in the GLB reinsurance portfolio. Refer to Note 9 for additional information.

At December 31, 2018 and 2017, the reported liability for GMDB reinsurance was $117 million and $129 million, respectively. At December 31, 2018 and 2017, the reported liability for GLB reinsurance was $861 million and $550 million, respectively, which includes a fair value derivative adjustment of $452 million and $204 million, respectively. Reported liabilities for both GMDB and GLB reinsurance are determined using internal valuation models. Such valuations require considerable judgment and are subject to significant uncertainty. The valuation of these products is subject to fluctuations arising from, among other factors, changes in interest rates, changes in equity markets, changes in credit markets, changes in the allocation of the investments underlying annuitants’ account values, and assumptions regarding future policyholder behavior. These models and the related assumptions are regularly reviewed by management and enhanced, as appropriate, based upon improvements in modeling assumptions and availability of updated information, such as market conditions and demographics of in-force annuities.

F-40

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries

Variable Annuity Net Amount at Risk

The net amount at risk is defined as the present value of future claim payments assuming policy account values and guaranteed values are fixed at the valuation date (December 31, 2018 and 2017, respectively) and reinsurance coverage ends at the earlier of the maturity of the underlying variable annuity policy or the reinsurance treaty. In addition, the following assumptions were used:



(in millions of U.S. dollars, except for percentages)		Net amount at risk
Reinsurance covering		December 31 2018		December 31 2017		2018 Future claims discount rate	Other assumptions	Total claims at 100% mortality at December 31, 2018(1)
GMDB Risk Only		$	408	$	279	3.3% - 3.5%	No lapses or withdrawals	$	177
							Mortality according to 100% of the Annuity 2000 mortality table
GLB Risk Only		$	1,233	$	691	4.0% - 4.3%	No deaths, lapses or withdrawals	N/A
							Annuitization at a frequency most disadvantageous to Chubb(2)
							Claim calculated using interest rates in line with rates used to calculate reserve
Both Risks: (3)	GMDB	$	103	$	81	4.0% - 4.3%	No lapses or withdrawals	$	18
							Mortality according to 100% of the Annuity 2000 mortality table
	GLB	$	517	$	392	4.0% - 4.3%	Annuitization at a frequency most disadvantageous to Chubb(2)	N/A
							Claim calculated using interest rates in line with rates used to calculate reserve


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


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


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

The average attained age of all policyholders for all risk categories above, weighted by the guaranteed value of each reinsured policy, is approximately 71 years.

Goodwill and Other intangible assets

At December 31, 2018 and 2017, Goodwill was $15.3 billion and $15.5 billion, respectively, and Other intangible assets were $6.1 billion and $6.5 billion, respectively.

a) Goodwill

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



(in millions of U.S. dollars)	North America Commercial P&C Insurance			North America Personal P&C Insurance			North America Agricultural Insurance		Overseas General Insurance			Global Reinsurance		Life Insurance			Chubb Consolidated
Balance at December 31, 2016	$	6,961		$	2,235		$	134	$	4,817		$	365	$	820		$	15,332
Foreign exchange revaluation and other	15			5			—		187			—		2			209
Balance at December 31, 2017	$	6,976		$	2,240		$	134	$	5,004		$	365	$	822		$	15,541
Foreign exchange revaluation and other	(30		)	(10		)	—		(234		)	6		(2		)	(270		)
Balance at December 31, 2018	$	6,946		$	2,230		$	134	$	4,770		$	371	$	820		$	15,271

F-41

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries

b) Other intangible assets

The majority of the Other intangible assets balance at December 31, 2018 relates to the Chubb Corp acquisition and comprised of $3.2 billion that are subject to amortization, principally Agency distribution relationships and renewal rights, and $2.9 billion that are not subject to amortization, principally trademarks. This compares to $3.5 billion and $3.0 billion at December 31, 2017, respectively.

Amortization of purchased intangibles

Amortization expense related to purchased intangibles were $339 million, $260 million, and $19 million for the years ended December 31, 2018, 2017, and 2016, respectively. The increase in amortization expense of purchased intangibles in 2018 and 2017 compared to 2016, primarily reflects a lower amortization benefit from the fair value adjustment on acquired Unpaid losses and loss expenses related to the Chubb Corp acquisition.

The following table presents, as of December 31, 2018, the expected estimated pre-tax amortization expense (benefit) of purchased intangibles, at current foreign currency exchange rates, for the next five years:



	Associated with the Chubb Corp Acquisition
For the Year Ending December 31 (in millions of U.S. dollars)	Agency distribution relationships and renewal rights		Fair value adjustment on Unpaid losses and loss expense (1)			Total		Other intangible assets		Total Amortization of purchased intangibles
2019	$	280	$	(62	)	$	218	$	80	$	298
2020	239		(35		)	204		76		280
2021	216		(20		)	196		70		266
2022	196		(14		)	182		64		246
2023	177		(7		)	170		62		232
Total	$	1,108	$	(138	)	$	970	$	352	$	1,322

(1)

In connection with the Chubb Corp acquisition, we recorded an increase to Unpaid losses and loss expenses acquired to adjust the carrying value of Chubb Corp's historical Unpaid losses and loss expenses to fair value as of the acquisition date. This fair value adjustment amortizes through Amortization of purchased intangibles on the Consolidated statements of operations through the year 2032. The balance of the fair value adjustment on Unpaid losses and loss expense was $207 million and $309 million at December 31, 2018 and 2017, respectively. Refer to Note 1(h) for additional information.

c) VOBA

The following table presents a roll-forward of VOBA:



(in millions of U.S. dollars)	2018			2017			2016
Balance, beginning of year	$	326		$	355		$	395
Amortization of VOBA (1)	(25		)	(35		)	(41		)
Foreign exchange revaluation	(6		)	6			1
Balance, end of year	$	295		$	326		$	355


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

The following table presents, as of December 31, 2018, the expected estimated pre-tax amortization expense related to VOBA for the next five years:



For the Year Ending December 31	VOBA
(in millions of U.S. dollars)
2019	$	26
2020	24
2021	22
2022	20
2023	18
Total	$	110

F-42

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries

Unpaid losses and loss expenses

Chubb establishes reserves for the estimated unpaid ultimate liability for losses and loss expenses under the terms of its policies and agreements. Reserves include estimates for both claims that have been reported and for IBNR claims, and include estimates of expenses associated with processing and settling these claims. Reserves are recorded in Unpaid losses and loss expenses in the consolidated balance sheets. While we believe that our reserves for unpaid losses and loss expenses at December 31, 2018 are adequate, new information or trends may lead to future developments in incurred loss and loss expenses significantly greater or less than the reserves provided. Any such revisions could result in future changes in estimates of losses or reinsurance recoverable and would be reflected in our results of operations in the period in which the estimates are changed.

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



	Year Ended December 31
(in millions of U.S. dollars)	2018			2017			2016
Gross unpaid losses and loss expenses, beginning of year	$	63,179		$	60,540		$	37,303
Reinsurance recoverable on unpaid losses (1)	(14,014		)	(12,708		)	(10,741		)
Net unpaid losses and loss expenses, beginning of year	49,165			47,832			26,562
Acquisition of subsidiaries	—			—			21,402
Total	49,165			47,832			47,964
Net losses and loss expenses incurred in respect of losses occurring in:
Current year	19,048			19,391			17,256
Prior years (2)	(981		)	(937		)	(1,204		)
Total	18,067			18,454			16,052
Net losses and loss expenses paid in respect of losses occurring in:
Current year	7,544			6,575			5,899
Prior years	10,796			10,873			9,816
Total	18,340			17,448			15,715
Foreign currency revaluation and other	(621		)	327			(469		)
Net unpaid losses and loss expenses, end of year	48,271			49,165			47,832
Reinsurance recoverable on unpaid losses (1)	14,689			14,014			12,708
Gross unpaid losses and loss expenses, end of year	$	62,960		$	63,179		$	60,540


(1)	Net of provision for uncollectible reinsurance.


(2)	Relates to prior period loss reserve development only and excludes prior period development related to reinstatement premiums, expense adjustments and earned premiums totaling $85 million, $108 million and $69 million for 2018, 2017, and 2016, respectively.

The decrease in gross and net unpaid losses and loss expenses in 2018 was primarily driven by payments related to the 2017 catastrophic events, favorable prior period development and foreign exchange movement, partially offset by catastrophic events in 2018.

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

The loss development tables under section c) below, present Chubb’s historical incurred and paid claims development by broad product line through December 31, 2018, net of reinsurance, as well as the cumulative number of reported claims, IBNR balances, and other supplementary information.

F-43

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries

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



Reconciliation of Reserve Balances to Liability for Unpaid Loss and Loss Expenses
(in millions of U.S. dollars)	December 31, 2018
Presented in the loss development tables:
North America Commercial P&C Insurance — Workers' Compensation	$	9,183
North America Commercial P&C Insurance — Liability	16,485
North America Commercial P&C Insurance — Other Casualty	1,884
North America Commercial P&C Insurance — Non-Casualty	1,871
North America Personal P&C Insurance	2,319
Overseas General Insurance — Casualty	5,833
Overseas General Insurance — Non-Casualty	2,265
Global Reinsurance — Casualty	1,218
Global Reinsurance — Non-Casualty	390
Excluded from the loss development tables:
Other	4,399
Net unpaid loss and allocated loss adjustment expense	45,847
Ceded unpaid loss and allocated loss adjustment expense:
North America Commercial P&C Insurance — Workers' Compensation	$	1,766
North America Commercial P&C Insurance — Liability	4,812
North America Commercial P&C Insurance — Other Casualty	544
North America Commercial P&C Insurance — Non-Casualty	1,531
North America Personal P&C Insurance	895
Overseas General Insurance — Casualty	2,070
Overseas General Insurance — Non-Casualty	1,208
Global Reinsurance — Casualty	58
Global Reinsurance — Non-Casualty	99
Other	1,874
Ceded unpaid loss and allocated loss adjustment expense	14,857
Unpaid loss and loss expense on other than short-duration contracts (1)	831
Unpaid unallocated loss adjustment expenses	1,425
Unpaid losses and loss expenses	$	62,960


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

F-44

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries

Business excluded from the loss development tables

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


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


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


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


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

◦

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


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


◦	Reinsurance recoverable bad debt;


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

a) Description of Reserving Methodologies

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

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


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


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


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


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


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


•	rate monitor information for new and renewal business;


•	facts and circumstances of large claims;


•	impact of applicable reinsurance recoveries; and


•	nature and extent of underlying assumptions.

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

F-45

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries

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

b) Standard actuarial reserving methods

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

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

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

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

Short-tail business

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

F-46

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries

Long-tail business

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


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

•

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


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


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

•

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

•

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


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

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

c) Loss Development Tables

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

Each table follows a similar format and reflects the following:


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


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


•	The amounts in both triangles for the years ended December 31, 2009, to December 31, 2017 and average historical claim duration as of December 31, 2018, are presented as supplementary information.


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


•	The IBNR reserves shown to the right of each incurred loss development exhibit reflect the net IBNR recorded as of December 31, 2018.

•

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

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

F-47

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries

shown. The change in incurred loss shown will differ from other GAAP disclosures of incurred prior period reserve development amounts, which include the effect of fluctuations in exchanges rates.

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

In 2018, we further refined prior year information in our loss development triangles to better align results by line of business and accident year. The most significant refinement is a reclassification of $63 million from North America Commercial P&C Insurance - Liability - Long-tail to North America Commercial P&C Insurance - Non-Casualty - Short tail.

Cumulative Number of Reported Claims

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


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


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


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


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

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

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

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

The triangle below shows all loss and allocated expense development for the workers' compensation product line. In our prior period development disclosure, we exclude any loss development where there is a directly related premium adjustment. For workers' compensation, changes in the exposure base due to payroll audits will drive changes in ultimate losses. In addition, we record involuntary pool assumptions (premiums and losses) on a lagged basis. Both of these items will influence the development in the triangle, particularly the first prior accident year, and are included in the reconciliation table presented on page F-61.

F-48

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries



North America Commercial P&C Insurance — Workers' Compensation — Long-tail (continued)
Net Incurred Loss and Allocated Loss Adjustment Expenses
	Years Ended December 31																					December 31 2018
(in millions of U.S. dollars)					Unaudited																	Net IBNR Reserves
Accident Year	2009		2010			2011		2012		2013		2014		2015		2016		2017		2018		2018
2009	$	1,029	$	998		$	997	$	990	$	980	$	977	$	966	$	972	$	965	$	964	$	218
2010			1,049			1,037		1,050		1,065		1,064		1,052		1,028		1,020		1,018		248
2011						1,037		1,030		1,046		1,049		1,053		1,022		1,012		1,008		271
2012								1,050		1,011		1,030		1,040		1,011		989		986		292
2013										1,109		1,108		1,122		1,127		1,086		1,073		358
2014												1,207		1,201		1,217		1,215		1,163		465
2015														1,282		1,259		1,276		1,279		594
2016																1,366		1,361		1,383		743
2017																		1,412		1,380		831
2018																				1,359		995
Total																				$	11,613



Net Cumulative Paid Loss and Allocated Loss Adjustment Expenses
	Years Ended December 31																					December 31 2018
(in millions of U.S. dollars)					Unaudited																	Reported Claims (in thousands)
Accident Year	2009		2010			2011		2012		2013		2014		2015		2016		2017		2018		2018
2009	$	107	$	258		$	348	$	416	$	475	$	519	$	550	$	597	$	617	$	633	282
2010			123			300		411		493		551		592		617		641		666		303
2011						119		294		411		484		533		567		595		616		286
2012								111		271		365		436		486		532		574		287
2013										107		286		422		506		553		587		299
2014												113		295		410		484		532		336
2015														116		301		418		501		334
2016																122		326		452		304
2017																		120		313		338
2018																				130		321
Total																				$	5,004



Net Liabilities for Loss and Allocated Loss Adjustment Expenses
(in millions of U.S. dollars)	December 31, 2018
Accident years prior to 2009	$	2,574
All Accident years	$	9,183



Supplementary Information: (Favorable)/ Adverse Prior Period Development
(in millions of U.S. dollars)	December 31, 2018
Accident years prior to 2009	$	(73	)
All Accident years	$	(155	)

F-49

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries



North America Commercial P&C Insurance — Workers' Compensation — Long-tail (continued)
Supplementary Information: Average Annual Percentage Payout of Net Incurred Claims by Age, as of December 31, 2018
Age in Years	1		2		3		4		5		6		7		8		9		10
Percentage	10	%	16	%	10	%	7	%	5	%	4	%	3	%	3	%	2	%	2	%

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

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

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

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



Net Incurred Loss and Allocated Loss Adjustment Expenses
	Years Ended December 31																					December 31 2018
(in millions of U.S. dollars)					Unaudited																	Net IBNR Reserves
Accident Year	2009		2010			2011		2012		2013		2014		2015		2016		2017		2018		2018
2009	$	3,791	$	3,777		$	3,764	$	3,737	$	3,636	$	3,386	$	3,309	$	3,237	$	3,096	$	3,082	$	221
2010			3,571			3,576		3,594		3,554		3,413		3,245		3,123		3,103		2,991		234
2011						3,494		3,579		3,623		3,658		3,588		3,492		3,377		3,309		473
2012								3,546		3,622		3,606		3,557		3,517		3,419		3,323		626
2013										3,541		3,536		3,536		3,526		3,423		3,209		748
2014												3,529		3,580		3,668		3,711		3,649		1,148
2015														3,553		3,702		3,812		3,968		1,570
2016																3,528		3,589		3,686		1,726
2017																		3,317		3,492		2,442
2018																				3,369		2,950
Total																				$	34,078

F-50

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries



North America Commercial P&C Insurance — Liability — Long-tail (continued)
Net Cumulative Paid Loss and Allocated Loss Adjustment Expenses
	Years Ended December 31																					December 31 2018
(in millions of U.S. dollars)					Unaudited																	Reported Claims (in thousands)
Accident Year	2009		2010			2011		2012		2013		2014		2015		2016		2017		2018		2018
2009	$	134	$	587		$	1,159	$	1,670	$	2,017	$	2,354	$	2,541	$	2,673	$	2,725	$	2,766	20
2010			126			611		1,107		1,557		1,891		2,257		2,423		2,523		2,658		19
2011						160		651		1,207		1,802		2,211		2,473		2,655		2,736		20
2012								166		654		1,170		1,677		2,089		2,322		2,497		20
2013										129		547		1,190		1,594		2,004		2,229		19
2014												164		679		1,249		1,802		2,200		19
2015														138		604		1,204		1,853		21
2016																171		662		1,335		21
2017																		161		616		21
2018																				189		24
Total																				$	19,079



Net Liabilities for Loss and Allocated Loss Adjustment Expenses
(in millions of U.S. dollars)	December 31, 2018
Accident years prior to 2009	$	1,486
All Accident years	$	16,485



Supplementary Information: (Favorable)/ Adverse Prior Period Development
(in millions of U.S. dollars)	December 31, 2018
Accident years prior to 2009	$	(3	)
All Accident years	$	(141	)



Supplementary Information: Average Annual Percentage Payout of Net Incurred Claims by Age, as of December 31, 2018
Age in Years	1		2		3		4		5		6		7		8		9		10
Percentage	5	%	14	%	17	%	16	%	12	%	9	%	6	%	3	%	3	%	1	%

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

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

F-51

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries



North America Commercial P&C Insurance — Other-Casualty — Long-tail (continued)
Net Incurred Loss and Allocated Loss Adjustment Expenses
	Years Ended December 31																					December 31 2018
(in millions of U.S. dollars)					Unaudited																	Net IBNR Reserves
Accident Year	2009		2010			2011		2012		2013		2014		2015		2016		2017		2018		2018
2009	$	599	$	589		$	555	$	535	$	492	$	458	$	452	$	450	$	445	$	452	$	12
2010			613			607		600		545		506		478		480		492		483		8
2011						580		589		580		548		532		524		516		510		17
2012								633		605		576		560		519		518		508		17
2013										526		530		522		515		468		461		27
2014												594		582		580		596		554		68
2015														486		469		501		514		148
2016																503		501		527		196
2017																		531		565		265
2018																				535		383
Total																				$	5,109



Net Cumulative Paid Loss and Allocated Loss Adjustment Expenses
	Years Ended December 31																					December 31 2018
(in millions of U.S. dollars)					Unaudited																	Reported Claims (in thousands)
Accident Year	2009		2010			2011		2012		2013		2014		2015		2016		2017		2018		2018
2009	$	70	$	206		$	287	$	336	$	373	$	401	$	413	$	422	$	427	$	431	15
2010			97			236		321		363		392		433		443		448		452		15
2011						86		235		341		400		436		460		465		479		16
2012								69		222		319		386		435		470		486		16
2013										68		196		270		348		385		411		18
2014												80		220		317		391		454		17
2015														47		137		214		304		15
2016																52		145		246		15
2017																		66		175		16
2018																				74		14
Total																				$	3,512



Net Liabilities for Loss and Allocated Loss Adjustment Expenses
(in millions of U.S. dollars)	December 31, 2018
Accident years prior to 2009	$	287
All Accident years	$	1,884



Supplementary Information: (Favorable)/ Adverse Prior Period Development
(in millions of U.S. dollars)	December 31, 2018
Accident years prior to 2009	$	14
All Accident years	$	20

F-52

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries



North America Commercial P&C Insurance — Other-Casualty — Long-tail (continued)
Supplementary Information: Average Annual Percentage Payout of Net Incurred Claims by Age, as of December 31, 2018
Age in Years	1		2		3		4		5		6		7		8		9		10
Percentage	14	%	25	%	18	%	13	%	8	%	6	%	2	%	2	%	1	%	1	%

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

This product line represents first party commercial product lines that are short-tailed in nature, such as property, inland marine, ocean marine, surety and A&H. There is a wide diversity of products, primary and excess coverages, and policy sizes. During this ten-year period, this product line was also impacted by natural catastrophes mainly in the 2012, 2017, and 2018 accident years.



Net Incurred Loss and Allocated Loss Adjustment Expenses
	Years Ended December 31																					December 31 2018
(in millions of U.S. dollars)					Unaudited																	Net IBNR Reserves
Accident Year	2009		2010			2011		2012		2013		2014		2015		2016		2017		2018		2018
2009	$	1,302	$	1,298		$	1,243	$	1,213	$	1,196	$	1,189	$	1,189	$	1,186	$	1,185	$	1,183	$	1
2010			1,500			1,535		1,459		1,423		1,421		1,413		1,409		1,403		1,393		—
2011						1,956		1,930		1,873		1,852		1,831		1,835		1,831		1,831		11
2012								2,029		1,911		1,878		1,860		1,854		1,842		1,840		10
2013										1,428		1,418		1,331		1,354		1,335		1,334		13
2014												1,640		1,656		1,574		1,554		1,544		20
2015														1,732		1,741		1,646		1,634		39
2016																1,906		1,885		1,795		68
2017																		2,700		2,604		207
2018																				2,048		474
Total																				$	17,206



Net Cumulative Paid Loss and Allocated Loss Adjustment Expenses
	Years Ended December 31																					December 31 2018
(in millions of U.S. dollars)					Unaudited																	Reported Claims (in thousands)
Accident Year	2009		2010			2011		2012		2013		2014		2015		2016		2017		2018		2018
2009	$	618	$	1,032		$	1,122	$	1,146	$	1,160	$	1,168	$	1,176	$	1,178	$	1,178	$	1,178	1,124
2010			722			1,221		1,319		1,356		1,381		1,389		1,393		1,393		1,390		1,058
2011						938		1,570		1,714		1,773		1,783		1,807		1,812		1,817		1,052
2012								713		1,573		1,694		1,762		1,790		1,817		1,812		1,036
2013										648		1,134		1,233		1,280		1,306		1,319		1,073
2014												817		1,369		1,479		1,501		1,527		1,101
2015														725		1,340		1,485		1,553		1,170
2016																844		1,500		1,651		1,291
2017																		977		2,084		1,372
2018																				1,026		1,326
Total																				$	15,357

F-53

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries



North America Commercial P&C Insurance — Non-Casualty — Short-tail (continued)
Net Liabilities for Loss and Allocated Loss Adjustment Expenses
(in millions of U.S. dollars)	December 31, 2018
Accident years prior to 2009	$	22
All Accident years	$	1,871



Supplementary Information: (Favorable)/ Adverse Prior Period Development
(in millions of U.S. dollars)	December 31, 2018
Accident years prior to 2009	$	(1	)
All Accident years	$	(224	)



Supplementary Information: Average Annual Percentage Payout of Net Incurred Claims by Age, as of December 31, 2018
Age in Years	1		2		3		4		5		6		7		8		9		10
Percentage	47	%	38	%	8	%	3	%	1	%	1	%	—	%	—	%	—	%	—	%

North America Personal P&C Insurance — Short-tail

Chubb provides personal lines coverages for high-net-worth individuals and families in North America including homeowners, automobile, valuable articles (including fine art), umbrella liability, and recreational marine insurance offered through independent regional agents and brokers. A portfolio acquired from Fireman’s Fund is presented on a prospective basis beginning in May of accident year 2015. Reserves associated with prior accident periods were acquired through a loss portfolio transfer, which does not allow for a retrospective presentation. During this ten-year period, this segment was also impacted by natural catastrophes, mainly in 2012, 2017 and 2018 accident years.



Net Incurred Loss and Allocated Loss Adjustment Expenses
	Years Ended December 31																					December 31 2018
(in millions of U.S. dollars)					Unaudited																	Net IBNR Reserves
Accident Year	2009		2010			2011		2012		2013		2014		2015		2016		2017		2018		2018
2009	$	1,606	$	1,593		$	1,563	$	1,549	$	1,541	$	1,534	$	1,534	$	1,530	$	1,529	$	1,527	$	5
2010			1,866			1,875		1,852		1,834		1,830		1,827		1,821		1,819		1,820		8
2011						2,203		2,205		2,181		2,169		2,160		2,156		2,155		2,154		9
2012								2,181		2,179		2,179		2,187		2,182		2,182		2,185		10
2013										1,851		1,879		1,887		1,890		1,915		1,927		16
2014												2,199		2,201		2,187		2,140		2,154		35
2015														2,489		2,544		2,555		2,538		48
2016																2,434		2,530		2,539		190
2017																		3,029		3,064		291
2018																				3,003		428		(1	)
Total																				$	22,911


(1)	At December 31, 2018, ceded reinsurance recoveries on aggregate catastrophe treaties of approximately $200 million on reported losses have been reflected as a reduction to net IBNR.

F-54

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries



North America Personal P&C Insurance — Short-tail (continued)
Net Cumulative Paid Loss and Allocated Loss Adjustment Expenses
	Years Ended December 31																						December 31 2018
(in millions of U.S. dollars)					Unaudited																		Reported Claims (in thousands)
Accident Year	2009		2010			2011		2012		2013		2014		2015		2016		2017		2018			2018
2009	$	884	$	1,233		$	1,343	$	1,435	$	1,482	$	1,499	$	1,509	$	1,517	$	1,519	$	1,520		125
2010			1,151			1,519		1,667		1,726		1,768		1,790		1,801		1,807		1,809			149
2011						1,357		1,831		1,968		2,048		2,101		2,125		2,134		2,141			168
2012								1,174		1,803		1,954		2,059		2,113		2,146		2,160			173
2013										1,038		1,496		1,679		1,778		1,834		1,876			126
2014												1,307		1,760		1,921		2,029		2,074			135
2015														1,495		2,079		2,266		2,386			139
2016																1,450		2,047		2,206			140
2017																		1,694		2,515			144
2018																				1,923		(1)	129
Total																				$	20,610


(1)	At December 31, 2018, ceded reinsurance recoveries on aggregate catastrophe treaties of approximately $200 million on reported losses have been reflected as a reduction to net IBNR.



Net Liabilities for Loss and Allocated Loss Adjustment Expenses
(in millions of U.S. dollars)	December 31, 2018
Accident years prior to 2009	$	18
All Accident years	$	2,319



Supplementary Information: (Favorable)/ Adverse Prior Period Development
(in millions of U.S. dollars)	December 31, 2018
Accident years prior to 2009	$	(7	)
All Accident years	$	47



Supplementary Information: Average Annual Percentage Payout of Net Incurred Claims by Age, as of December 31, 2018
Age in Years	1		2		3		4		5		6		7		8		9		10
Percentage	59	%	24	%	7	%	5	%	3	%	1	%	1	%	—	%	—	%	—	%

Overseas General Insurance — Casualty — Long-tail

This product line is comprised of D&O liability, E&O liability, financial institutions (including crime/fidelity coverages), and non-U.S. general liability as well as aviation and political risk. Exposures are located around the world, including Europe, Latin America, and Asia. Approximately 45 percent of Chubb Overseas General business is generated by European accounts, exclusive of Lloyd's market. There is some U.S. exposure in Casualty from multinational accounts and in financial lines for Lloyd's market. The financial lines coverages are typically written on a claims-made form, while general liability coverages are typically on an occurrence basis and comprised of a mix of primary and excess businesses.

F-55

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries



Overseas General Insurance — Casualty — Long-tail (continued)
Net Incurred Loss and Allocated Loss Adjustment Expenses
	Years Ended December 31																					December 31 2018
(in millions of U.S. dollars)					Unaudited																	Net IBNR Reserves
Accident Year	2009		2010			2011		2012		2013		2014		2015		2016		2017		2018		2018
2009	$	1,231	$	1,367		$	1,414	$	1,421	$	1,422	$	1,309	$	1,205	$	1,204	$	1,152	$	1,138	$	29
2010			1,180			1,259		1,304		1,375		1,312		1,260		1,138		1,134		1,139		83
2011						1,210		1,216		1,209		1,199		1,116		1,052		1,038		988		62
2012								1,252		1,220		1,283		1,301		1,297		1,278		1,258		166
2013										1,247		1,243		1,240		1,283		1,227		1,192		221
2014												1,248		1,318		1,327		1,337		1,253		333
2015														1,170		1,267		1,293		1,314		387
2016																1,179		1,278		1,345		555
2017																		1,186		1,287		676
2018																				1,287		989
Total																				$	12,201



Net Cumulative Paid Loss and Allocated Loss Adjustment Expenses
	Years Ended December 31																					December 31 2018
(in millions of U.S. dollars)					Unaudited																	Reported Claims (in thousands)
Accident Year	2009		2010			2011		2012		2013		2014		2015		2016		2017		2018		2018
2009	$	117	$	327		$	502	$	641	$	733	$	791	$	861	$	952	$	978	$	1,007	38
2010			102			264		461		603		709		797		847		899		942		40
2011						87		239		382		511		610		688		760		811		41
2012								73		244		424		572		683		818		888		43
2013										85		260		414		559		695		796		44
2014												112		287		462		591		704		44
2015														86		282		482		659		46
2016																123		316		521		46
2017																		96		314		44
2018																				109		32
Total																				$	6,751



Net Liabilities for Loss and Allocated Loss Adjustment Expenses
(in millions of U.S. dollars)	December 31, 2018
Accident years prior to 2009	$	383
All Accident years	$	5,833



Supplementary Information: (Favorable)/ Adverse Prior Period Development
(in millions of U.S. dollars)	December 31, 2018
Accident years prior to 2009	$	(55	)
All Accident years	$	(64	)

F-56

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries



Overseas General Insurance — Casualty — Long-tail (continued)
Supplementary Information: Average Annual Percentage Payout of Net Incurred Claims by Age, as of December 31, 2018
Age in Years	1		2		3		4		5		6		7		8		9		10
Percentage	8	%	15	%	15	%	12	%	9	%	8	%	6	%	6	%	3	%	3	%

Overseas General Insurance — Non-Casualty — Short-tail

This product line is comprised of commercial fire, marine (predominantly cargo), surety, personal automobile (in Latin America, Asia Pacific and Japan), personal cell phones, personal residential (including high net worth), energy and construction. In general, these lines have relatively stable payment and reporting patterns although they are impacted by natural catastrophes mainly in the 2010, 2011, 2017, and 2018 accident years. Latin America and Europe each make up about 30 percent of the Chubb Overseas General non-casualty book.



Net Incurred Loss and Allocated Loss Adjustment Expenses
	Years Ended December 31																					December 31 2018
(in millions of U.S. dollars)					Unaudited																	Net IBNR Reserves
Accident Year	2009		2010			2011		2012		2013		2014		2015		2016		2017		2018		2018
2009	$	1,492	$	1,464		$	1,380	$	1,350	$	1,331	$	1,313	$	1,313	$	1,302	$	1,301	$	1,303	$	—
2010			1,638			1,660		1,635		1,623		1,617		1,603		1,590		1,573		1,575		13
2011						1,861		1,951		1,894		1,855		1,838		1,826		1,818		1,808		2
2012								1,694		1,683		1,644		1,590		1,583		1,572		1,557		15
2013										1,780		1,773		1,705		1,659		1,649		1,619		42
2014												1,868		1,938		1,879		1,852		1,814		29
2015														1,992		2,117		2,071		2,036		63
2016																2,032		2,009		1,998		24
2017																		2,199		2,236		29
2018																				2,161		437
Total																				$	18,107



Net Cumulative Paid Loss and Allocated Loss Adjustment Expenses
	Years Ended December 31																					December 31 2018
(in millions of U.S. dollars)					Unaudited																	Reported Claims (in thousands)
Accident Year	2009		2010			2011		2012		2013		2014		2015		2016		2017		2018		2018
2009	$	572	$	1,043		$	1,177	$	1,241	$	1,265	$	1,275	$	1,281	$	1,284	$	1,283	$	1,287	516
2010			664			1,218		1,415		1,477		1,515		1,528		1,534		1,535		1,541		560
2011						753		1,453		1,654		1,709		1,739		1,754		1,762		1,766		578
2012								676		1,220		1,407		1,465		1,488		1,497		1,509		599
2013										695		1,271		1,464		1,495		1,531		1,550		620
2014												755		1,421		1,630		1,693		1,724		591
2015														850		1,548		1,772		1,853		621
2016																1,016		1,654		1,851		619
2017																		1,040		1,822		659
2018																				987		627
Total																				$	15,890

F-57

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries



Overseas General Insurance — Non-Casualty — Short-tail (continued)
Net Liabilities for Loss and Allocated Loss Adjustment Expenses
(in millions of U.S. dollars)	December 31, 2018
Accident years prior to 2009	$	48
All Accident years	$	2,265



Supplementary Information: (Favorable)/ Adverse Prior Period Development
(in millions of U.S. dollars)	December 31, 2018
Accident years prior to 2009	$	(11	)
All Accident years	$	(109	)



Supplementary Information: Average Annual Percentage Payout of Net Incurred Claims by Age, as of December 31, 2018
Age in Years	1		2		3		4		5		6		7		8		9		10
Percentage	44	%	35	%	11	%	4	%	2	%	1	%	1	%	—	%	—	%	—	%

Global Reinsurance

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

Global Reinsurance — Casualty — Long-tail

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



Net Incurred Loss and Allocated Loss Adjustment Expenses
	Years Ended December 31																					December 31 2018
(in millions of U.S. dollars)					Unaudited																	Net IBNR Reserves
Accident Year	2009		2010			2011		2012		2013		2014		2015		2016		2017		2018		2018
2009	$	316	$	348		$	360	$	367	$	363	$	344	$	328	$	318	$	313	$	303	$	11
2010			398			418		429		440		429		423		413		399		386		39
2011						404		411		426		430		425		416		412		406		34
2012								383		380		388		391		376		369		368		15
2013										318		324		327		327		328		321		30
2014												330		331		336		339		341		36
2015														281		286		296		297		30
2016																219		223		231		38
2017																		210		211		65
2018																				239		139
Total																				$	3,103

F-58

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries



Global Reinsurance — Casualty — Long-tail (continued)
Net Cumulative Paid Loss and Allocated Loss Adjustment Expenses
	Years Ended December 31																					December 31 2018
(in millions of U.S. dollars)					Unaudited																	Reported Claims (in thousands)
Accident Year	2009		2010			2011		2012		2013		2014		2015		2016		2017		2018		2018
2009	$	34	$	79		$	116	$	154	$	187	$	208	$	226	$	239	$	255	$	262	0.864
2010			56			124		179		220		249		273		291		306		314		0.796
2011						70		145		195		235		266		290		310		323		0.668
2012								76		166		220		259		290		306		321		0.464
2013										64		142		185		221		240		258		0.342
2014												91		183		216		247		263		0.389
2015														89		157		190		215		0.316
2016																57		111		141		0.324
2017																		46		99		0.401
2018																				40		0.196
Total																				$	2,236



Net Liabilities for Loss and Allocated Loss Adjustment Expenses
(in millions of U.S. dollars)	December 31, 2018
Accident years prior to 2009	$	351
All Accident years	$	1,218



Supplementary Information: (Favorable)/ Adverse Prior Period Development
(in millions of U.S. dollars)	December 31, 2018
Accident years prior to 2009	$	(48	)
All Accident years	$	(73	)



Supplementary Information: Average Annual Percentage Payout of Net Incurred Claims by Age, as of December 31, 2018
Age in Years	1		2		3		4		5		6		7		8		9		10
Percentage	20	%	22	%	13	%	10	%	7	%	6	%	5	%	4	%	3	%	3	%

Global Reinsurance — Non-Casualty — Short-tail

This product line includes property, property catastrophe, marine, credit/surety, A&H and energy. This product line is impacted by natural catastrophes, particularly in the 2011, 2017 and 2018 accident years. Of the non-catastrophe book, the mixture of business varies by year with approximately 69 percent of loss on proportional treaties in treaty year 2009 and after. This percentage has increased over time with the proportion being approximately 54 percent for treaty years 2009 to 2012 growing to an average of 80 percent for treaty years 2013 to 2018, with the remainder being written on an excess of loss basis.

F-59

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries



Global Reinsurance — Non-Casualty — Short-tail (continued)
Net Incurred Loss and Allocated Loss Adjustment Expenses
																Years Ended December 31						December 31 2018
(in millions of U.S. dollars)					Unaudited																	Net IBNR Reserves
Accident Year	2009		2010			2011		2012		2013		2014		2015		2016		2017		2018		2018
2009	$	139	$	170		$	150	$	149	$	142	$	140	$	138	$	138	$	138	$	137	$	3
2010			197			232		221		215		219		221		222		223		222		6
2011						271		272		270		260		261		262		261		261		2
2012								230		210		200		190		189		187		184		1
2013										160		158		146		141		142		140		1
2014												162		178		178		181		180		6
2015														145		153		160		160		8
2016																179		185		187		13
2017																		396		422		32
2018																				283		93
Total																				$	2,176



Net Cumulative Paid Loss and Allocated Loss Adjustment Expenses
																Years Ended December 31						December 31 2018
(in millions of U.S. dollars)					Unaudited																	Reported Claims (in thousands)
Accident Year	2009		2010			2011		2012		2013		2014		2015		2016		2017		2018		2018
2009	$	52	$	105		$	121	$	128	$	130	$	132	$	133	$	133	$	133	$	133	0.113
2010			56			160		186		197		203		213		211		214		214		0.102
2011						85		174		205		230		248		253		255		257		0.131
2012								44		129		155		165		171		176		179		0.112
2013										46		102		119		129		132		134		0.119
2014												64		128		151		161		167		0.100
2015														56		103		132		142		0.114
2016																56		130		157		0.177
2017																		191		322		0.290
2018																				94		0.151
Total																				$	1,799



Net Liabilities for Loss and Allocated Loss Adjustment Expenses
(in millions of U.S. dollars)	December 31, 2018
Accident years prior to 2009	$	13
All Accident years	$	390



Supplementary Information: (Favorable)/ Adverse Prior Period Development
(in millions of U.S. dollars)	December 31, 2018
Accident years prior to 2009	$	(2	)
All Accident years	$	18

F-60

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries



Global Reinsurance — Non-Casualty — Short-tail (continued)
Supplementary Information: Average Annual Percentage Payout of Net Incurred Claims by Age, as of December 31, 2018
Age in Years	1		2		3		4		5		6		7		8		9		10
Percentage	34	%	37	%	13	%	7	%	4	%	3	%	1	%	1	%	—	%	—	%

Prior Period Development — Supplementary Information

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



	Components of PPD
Year Ended December 31, 2018 (in millions of U.S. dollars)(favorable)/unfavorable	2009 - 2017 accident years (implied PPD per loss triangles)			Accident years prior to 2009			Other (1)				PPD on loss reserves			RIPs, Expense adjustments, and earned premiums		Total
North America Commercial P&C Insurance
Long-tail	$	(214	)	$	(62	)	$	(149	)		$	(425	)	$	30	$	(395	)
Short-tail	(223		)	(1		)	(4		)		(228		)	13		(215		)
	(437		)	(63		)	(153		)	(2)	(653		)	43		(610		)
North America Personal P&C Insurance (Short-tail)	54			(7		)	(7		)		40			1		41
Overseas General Insurance
Long-tail	(9		)	(55		)	(3		)		(67		)	—		(67		)
Short-tail	(98		)	(11		)	(40		)		(149		)	4		(145		)
	(107		)	(66		)	(43		)	(3)	(216		)	4		(212		)
Global Reinsurance
Long-tail	(25		)	(48		)	(1		)		(74		)	5		(69		)
Short-tail	20			(2		)	(1		)		17			2		19
	(5		)	(50		)	(2		)		(57		)	7		(50		)
Subtotal	$	(495	)	$	(186	)	$	(205	)		$	(886	)	$	55	$	(831	)
North America Agricultural Insurance (Short-tail)											$	(140	)	$	30	$	(110	)
Corporate (Long-tail)											45			—		45
Consolidated PPD											$	(981	)	$	85	$	(896	)


(1)	Other includes the impact of foreign exchange.

(2)

Includes favorable development of $81 million related to our Alternative Risk Solutions business (U.S. and Bermuda) and an adjustment to exclude $42 million in unfavorable development in the workers' compensation line associated with an increase in exposure for which additional premiums were collected; the remaining difference relates to a number of other items, none of which are individually material.


(3)	Includes favorable development of $31 million related to International A&H business; the remaining difference relates to a number of other items, none of which are individually material.

Prior Period Development

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. Long-tail lines include lines such as workers' compensation, general liability, and professional liability; while short-tail lines include lines such as most property lines, energy, personal accident, and agriculture.

F-61

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries

The following table summarizes (favorable) and adverse prior period development (PPD) by segment.



Years Ended December 31 (in millions of U.S. dollars, except for percentages)	Long-tail			Short-tail			Total			% of beginning net unpaid reserves (1)
2018
North America Commercial P&C Insurance	$	(395	)	$	(215	)	$	(610	)	1.2	%
North America Personal P&C Insurance	—			41			41			0.1	%
North America Agricultural Insurance	—			(110		)	(110		)	0.2	%
Overseas General Insurance	(67		)	(145		)	(212		)	0.4	%
Global Reinsurance	(69		)	19			(50		)	0.1	%
Corporate	45			—			45			0.1	%
Total	$	(486	)	$	(410	)	$	(896	)	1.8	%
2017
North America Commercial P&C Insurance	$	(562	)	$	(184	)	$	(746	)	1.6	%
North America Personal P&C Insurance	—			69			69			0.1	%
North America Agricultural Insurance	—			(119		)	(119		)	0.2	%
Overseas General Insurance	(71		)	(181		)	(252		)	0.5	%
Global Reinsurance	(68		)	9			(59		)	0.1	%
Corporate	278			—			278			0.6	%
Total	$	(423	)	$	(406	)	$	(829	)	1.7	%
2016
North America Commercial P&C Insurance	$	(693	)	$	(85	)	$	(778	)	1.6	%
North America Personal P&C Insurance	—			27			27			0.1	%
North America Agricultural Insurance	—			(72		)	(72		)	0.2	%
Overseas General Insurance	(236		)	(187		)	(423		)	0.9	%
Global Reinsurance	(77		)	(1		)	(78		)	0.2	%
Corporate	189			—			189			0.4	%
Total	$	(817	)	$	(318	)	$	(1,135	)	2.4	%


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

Significant prior period movements by segment, principally driven by reserve reviews completed during each respective period, are discussed in more detail below. The remaining net development for long-tail lines and short-tail business for each segment and Corporate comprises numerous favorable and adverse movements across a number of lines and accident years, none of which is significant individually or in the aggregate.

North America Commercial P&C Insurance

2018

North America Commercial P&C Insurance experienced net favorable PPD of $610 million, which was the net result of several underlying favorable and adverse movements, and was driven by the following principal changes:


•	Net favorable development of $395 million in long-tail business, primarily from:

•

Net favorable development of $199 million in our management liability portfolios, favorably impacting accident years 2013 and prior where paid and reported loss activity was lower than expected, partially offset by adverse development in the 2014 through 2017 accident years, mostly as a result of higher severity claim costs compared to prior expectations in certain lines or coverages, particularly in our Directors and Officers (D&O) portfolio;

•

Net favorable development of $194 million in workers’ compensation lines with favorable development of $56 million in the 2017 accident year mainly 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. The net remaining favorable development of $138 million was principally due to lower than expected loss experience, mainly impacting accident years 2014 and prior;

F-62

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries

•

Net favorable development of $100 million in our commercial excess and umbrella portfolios, primarily in accident years 2012 and prior. This was driven by lower than expected reported loss activity, and an increase in weighting towards experience-based methods, partly offset by higher than expected claim activity in the 2014, 2015 and 2017 accident years which led to reserve strengthening in those years;


•	Favorable development of $33 million in a runoff professional liability portfolio, impacting accident years 2002 and prior, owing mainly to the favorable disposition of a specific claim;


•	Net favorable development of $28 million in our foreign casualty lines, primarily impacting accident years 2014 and prior, driven by reported loss activity that was generally lower than expected;


•	Favorable development of $23 million in our political risk and trade credit portfolios, mainly impacting the 2014 accident year, primarily due to favorable reported experience and an increased in weighting towards experience-based methods;


•	Net favorable development of $3 million on several lines of business due to favorable claim development on the 2017 natural catastrophes;


•	Net adverse development of $91 million in our medical portfolios, mainly impacting accident years 2015, 2016 and 2017. The increase was driven by a combination of several large claims and generally higher than expected paid and reported case incurred activity; and


•	Net adverse development of $109 million, mainly in our automobile liability, commercial-multi peril (CMP) liability, products and general liability lines, driven by adverse paid and reported loss activity relative to prior expectations in accident years 2015 through 2017, partly offset by favorable emergence in older accident years.


•	Net favorable development of $215 million in short-tail business, primarily from:


•	Net favorable development of $155 million in our commercial property and marine businesses due to favorable claim development, including $129 million net favorable development on the 2017 natural catastrophes; and


•	Net favorable development of $60 million in other short-tail business, including $19 million in surety and also including several smaller net favorable movements from lower than expected case activity in other classes, such as accident and commercial automobile physical damage, none of which were significant individually or in the aggregate.

2017

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


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


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


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

•

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

F-63

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries

development patterns used in our loss projection methods, mainly impacting accident years 2013 and prior, and partially offset by smaller adverse development in the more recent prior accident years;


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

•

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


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


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


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


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


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


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

2016

North America Commercial P&C Insurance experienced net favorable PPD of $778 million, representing 1.6 percent of the beginning consolidated net unpaid losses and loss expense reserves.

North America Personal P&C Insurance

2018

North America Personal P&C Insurance incurred net adverse PPD of $41 million, which was the net result of several underlying favorable and adverse movements, and was driven by the following principal changes:

•

Net adverse development of $63 million in our homeowners and valuables lines, primarily impacting the 2017 accident year. Overall, non-catastrophe losses were $136 million higher than expected, partially offset by favorable claim development of $73 million on the 2017 natural catastrophes. The higher than expected non-catastrophe homeowners losses were primarily severity driven and included water-related claims, large fire losses, and non-catastrophe weather claims;


•	Net favorable development of $24 million in our personal excess lines primarily impacting the 2015 accident year, due to lower than expected loss emergence and an increase in weighting towards experience-based methods; and


•	Favorable development of $10 million from claim development on the 2017 natural catastrophes from other personal lines.

2017

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


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

F-64

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries


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

2016

North America Personal P&C Insurance incurred net adverse PPD of $27 million, representing 0.1 percent of the beginning consolidated net unpaid losses and loss expense reserves.

North America Agricultural Insurance

North America Agricultural Insurance experienced net favorable PPD of $110 million, $119 million, and $72 million in 2018, 2017, and 2016, respectively. Actual claim development relates to our Multiple Peril Crop Insurance business and was favorable due to better than expected crop yield results in certain states at the prior year-end period (i.e., 2018 results based on crop yield results at year-end 2017). 2018 also included $1 million of favorable claim development on the 2017 natural catastrophes.

Overseas General Insurance

2018

Overseas General Insurance experienced net favorable PPD of $212 million, which was the net result of several underlying favorable and adverse movements, and was driven by the following principal changes:


•	Net favorable development of $67 million in long-tail business, primarily from:


•	Net favorable development of $70 million in casualty lines, with net favorable development of $107 million in accident years 2014 and prior, resulting from lower than expected loss emergence across primary and excess lines, partially offset by adverse development of $38 million in accident years 2015 through 2017, primarily due to large loss experience in U.K. excess lines and wholesale business;


•	Favorable development of $32 million, primarily including $12 million in political risks, $10 million in aviation and $10 million in environmental; and

•

Net adverse development of $38 million in financial lines, with net favorable development of $93 million in accident years 2014 and prior, resulting from lower than expected loss emergence including favorable development due to specific large claim reductions in Asia financial institutions including wholesale bankers D&O and bankers professional indemnity, and adverse development of $131 million in accident years 2015 through 2017, primarily due to adverse large loss experience in specific D&O and financial institutions portfolios in Australia, Continental Europe and the U.K.


•	Net favorable development of $145 million in short-tail business, primarily from:


•	Net favorable development of $99 million in property and marine (excluding technical lines), primarily in accident years 2013 through 2016, driven mainly by favorable loss emergence across all regions, including favorable claim-specific loss settlements and salvage/subrogation recoveries;


•	Net favorable development of $33 million in A&H, primarily in accident years 2015 through 2017, driven by favorable development across Asia Pacific direct marketing and Continental Europe corporate lines; and


•	Adverse development of $1 million from claim development on the 2017 natural catastrophes.

2017

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


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

•

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

F-65

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries

•

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


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


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


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


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


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

2016

Overseas General Insurance experienced net favorable PPD of $423 million, representing 0.9 percent of the beginning consolidated net unpaid losses and loss expense reserves.

Global Reinsurance

2018

Global Reinsurance experienced net favorable PPD of $50 million, which was the net result of several underlying favorable and adverse movements, and was driven by the following principal changes:


•	Net favorable development of $69 million in long-tail business, primarily in our casualty, professional liability, medical malpractice, and workers' compensation lines primarily from treaty years 2013 and prior principally resulting from lower than expected loss emergence; and


•	Net adverse development of $19 million in short-tail business, which included $18 million of net adverse claim development on the 2017 natural catastrophes.

2017

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


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


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


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


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

F-66

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries

2016

Global Reinsurance experienced net favorable PPD of $78 million, representing 0.2 percent of the beginning consolidated net unpaid losses and loss expense reserves.

Corporate

2018

Corporate incurred adverse development of $45 million in long-tail lines, driven by the following principal changes:


•	Adverse development of $216 million in run-off liabilities, driven primarily by increased exposure on a limited number of direct asbestos claims and environmental sites, somewhat greater than expected defense cost spending and increases in reported claims and settlements with respect to molestation exposures;


•	Adverse development of $35 million on unallocated loss adjustment expenses due to run-off operating expenses paid and incurred in 2018; and


•	Favorable development of $205 million as a result of the settlements of certain previously disputed reinsurance balances.

2017

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


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


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

2016

Corporate incurred adverse PPD of $189 million, representing 0.4 percent of the beginning consolidated net unpaid losses and loss expense reserves.

Asbestos and environmental (A&E)

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



	Asbestos						Environmental						Total
(in millions of U.S. dollars)	Gross			Net			Gross			Net			Gross			Net
Balance at December 31, 2017	$	1,621		$	1,051		$	607		$	476		$	2,228		$	1,527
Incurred activity	136			75			101			(97		)	237			(22		)	(1)
Paid activity	(265		)	(162		)	(83		)	104			(348		)	(58		)
Balance at December 31, 2018	$	1,492		$	964		$	625		$	483		$	2,117		$	1,447


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

The positive development of $22 million in 2018 principally reflects favorable reinsurance settlements.

F-67

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries

The A&E net loss reserves including allocated loss expense reserves and provision for uncollectible reinsurance at December 31, 2018 and 2017 shown in the table above is comprised of:



	December 31
(in millions of U.S. dollars)	2018		2017
Brandywine operations	$	807	$	849
Westchester Specialty	120		113
Chubb Corp	442		486
Other, mainly Overseas General Insurance	78		79
Total	$	1,447	$	1,527

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

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

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

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

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

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

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

XOL Agreement

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

Dividend Retention Fund

INA Financial Corporation established and funded a dividend retention fund (the Dividend Retention Fund) consisting of $50 million plus investment earnings. The full balance of the Dividend Retention Fund was contributed to Century as of December 31, 2002. Under the Restructuring Order, while any obligation to maintain the Dividend Retention Fund is in effect, to the extent dividends are paid by INA Holdings Corporation to its parent, INA Financial Corporation, and to the extent INA Financial Corporation then pays such dividends to INA Corporation, a portion of those dividends must be withheld to replenish the principal of the Dividend Retention Fund to $50 million. During 2018, 2011 and 2010, $50 million, $35 million and $15 million, respectively, were withheld from such dividends and deposited into the Dividend Retention Fund as a result of dividends paid up to the INA Corporation. Pursuant to a 2011 amendment to the Restructuring Order, capital contributions from the Dividend Retention Fund to Century are not required until the XOL Agreement has less than $200 million of capacity remaining on an incurred basis for statutory reporting purposes. The amount of the capital contribution shall be the lesser of the amount necessary to restore the XOL Agreement remaining capacity to $200 million or the Dividend Retention Fund balance. In 2018 and 2017, the Pennsylvania Department of Insurance approved a capital contribution of $39 million and $49 million, respectively, from the Dividend Retention Fund to Century in order to restore the XOL capacity to $200 million. The Dividend Retention Fund may not be terminated without prior written approval from the Pennsylvania Insurance Commissioner.

Effective December 31, 2004, Chubb INA contributed $100 million to Century in exchange for a surplus note. After giving effect to the contribution and issuance of the surplus note, the statutory surplus of Century at December 31, 2018 was $25 million and $634 million in statutory-basis losses have been ceded to the XOL Agreement on an inception-to-date basis.

F-68

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries

Century reports the amount ceded under the XOL Agreement in accordance with statutory accounting principles, which differ from GAAP by, among other things, allowing Century to discount its liabilities, including certain asbestos related and environmental pollution liabilities and Century's reinsurance payable to active companies. For GAAP reporting purposes, intercompany reinsurance recoverables related to the XOL are eliminated upon consolidation.

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

Certain active Chubb companies are primarily liable for asbestos, environmental, and other exposures that they have reinsured to Century. Accordingly, if Century were to become insolvent and placed into rehabilitation or liquidation, some or all of the recoverables due to these active Chubb companies from Century could become uncollectible. At December 31, 2018 and 2017, the aggregate reinsurance recoverables owed by Century to certain active Chubb companies were approximately $1.5 billion and $1.4 billion, on an undiscounted basis, respectively. Chubb believes the active company intercompany reinsurance recoverables, which relate to direct liabilities payable over many years, are not impaired. At December 31, 2018 and 2017, Century's carried gross reserves (including reserves assumed from the active Chubb companies) were $2.0 billion. Should Century's loss reserves experience adverse development in the future and should Century be placed into rehabilitation or liquidation, the reinsurance recoverables due from Century to certain active Chubb companies would be payable only after the payment in full of certain expenses and liabilities, including administrative expenses and direct policy liabilities. Thus, the intercompany reinsurance recoverables would be at risk to the extent of the shortage of assets remaining to pay these recoverables.

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

As part of the Westchester Specialty acquisition in 1998, NICO provided a 75 percent pro-rata share of $1.0 billion of reinsurance protection on losses and loss adjustment expenses incurred on or before December 31, 1996, in excess of a retention of $721 million. At December 31, 2018, the remaining unused incurred limit under the Westchester NICO agreement was $395 million.

Taxation

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

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

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

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

F-69

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries

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

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

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



	Year Ended December 31
(in millions of U.S. dollars)	2018		2017			2016
Pre-tax income:
Switzerland	$	950	$	527		$	766
Outside Switzerland	3,707		3,195			4,184
Total pre-tax income	$	4,657	$	3,722		$	4,950
Provision for income taxes
Current tax expense:
Switzerland	$	89	$	46		$	97
Outside Switzerland	563		313			727
Total current tax expense	652		359			824
Deferred tax expense (benefit):
Switzerland	3		2			(27		)
Outside Switzerland	40		(500		)	18
Total deferred tax expense (benefit)	43		(498		)	(9		)
Provision for income taxes	$	695	$	(139	)	$	815

The most significant jurisdictions contributing to the overall taxation of Chubb are calculated using the following rates in 2018: Switzerland 7.83 percent, Bermuda 0.0 percent, U.S. 21.0 percent, and U.K. 19.0 percent.

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



	Year Ended December 31
(in millions of U.S. dollars)	2018			2017			2016
Expected tax provision at Swiss statutory tax rate	$	365		$	291		$	388
Permanent differences:
Taxes on earnings subject to rate other than Swiss statutory rate	372			263			582
Tax-exempt interest and dividends received deduction, net of proration	(75		)	(199		)	(200		)
Net withholding taxes	33			30			20
Excess tax benefit on share-based compensation	(19		)	(48		)	—
Impact of 2017 Tax Act	(25		)	(450		)	—
Corporate owned life insurance	2			(37		)	—
Other	42			11			25
Provision for income taxes	$	695		$	(139	)	$	815

F-70

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries

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



	December 31			December 31
(in millions of U.S. dollars)	2018			2017
Deferred tax assets:
Loss reserve discount	$	584		$	715
Unearned premiums reserve	471			231
Foreign tax credits	262			340
Provision for uncollectible balances	37			45
Loss carry-forwards	137			90
Debt related amounts	71			77
Compensation related amounts	263			260
Cumulative translation adjustments	43			30
Unrealized depreciation on investments	102			—
Other, net	95			70
Total deferred tax assets	2,065			1,858
Deferred tax liabilities:
Deferred policy acquisition costs	621			635
Other intangible assets, including VOBA	1,440			1,437
Un-remitted foreign earnings	47			66
Investments	59			53
Unrealized appreciation on investments	—			184
Depreciation	123			83
Total deferred tax liabilities	2,290			2,458
Valuation allowance	79			99
Net deferred tax liabilities	$	(304	)	$	(699	)

The 2017 Tax Act, enacted in December 2017, among other things, reduced the U.S. Federal income tax rate from 35 percent to 21 percent effective in 2018. In the fourth quarter of 2017, we recorded a $450 million income tax benefit on a provisional basis, and an additional $25 million in 2018, principally reflecting this reduction in the U.S. corporate tax rate from 35 percent to 21 percent. Our final $475 million income tax benefit was comprised of a $743 million reduction in the deferred tax liabilities principally related to certain intangible assets, a $250 million reduction in net deferred tax assets related to other net assets, a net charge of $18 million related to the impact of excess foreign tax credits, withholding taxes associated with unremitted earnings and the impact of the reduced rate on our foreign branches. The 2018 change reflected the favorable impact of changes to certain tax only accounting methods offset by updates to provisional amounts recorded related to foreign tax credits and withholding taxes as a result of additional guidance issued during 2018.

The 2017 Tax Act also included provisions for Global Intangible Low-Taxed Income (GILTI) under which taxes may be imposed on income of foreign subsidiaries and for a Base Erosion and Anti-Abuse Tax (BEAT) under which taxes may be imposed on certain payments to affiliated foreign companies. We have evaluated the accounting policy election required with regard to the BEAT and GILTI provisions, and have concluded we will treat both as a period cost. As a result, we have recorded no related deferred taxes.

The valuation allowance of $79 million at December 31, 2018, and $99 million at December 31, 2017, reflects management's assessment, based on available information, that it is more likely than not that a portion of the deferred tax assets will not be realized due to the inability of certain foreign subsidiaries to generate sufficient taxable income. Adjustments to the valuation allowance are made when there is a change in management's assessment of the amount of deferred tax assets that are realizable.

At December 31, 2018, Chubb has net operating loss carry-forwards of $491 million which, if unused, will expire starting in 2019, and a foreign tax credit carry-forward in the amount of $262 million which, if unused, will expire starting in 2025.

F-71

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries

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



	December 31		December 31
(in millions of U.S. dollars)	2018		2017
Balance, beginning of year	$	13	$	17
Additions based on tax positions related to the current year	1		3
Additions based on tax positions related to prior years	—		—
Reductions for tax positions of prior years	—		(4		)
Reductions for the lapse of the applicable statutes of limitations	—		(3		)
Balance, end of year	$	14	$	13

At December 31, 2018 and 2017, the total amount of unrecognized tax benefits that would affect the effective tax rate, if recognized, were $14 million and $13 million, respectively.

Chubb recognizes accruals for interest and penalties, if any, related to unrecognized tax benefits in income tax expense in the Consolidated statements of operations. Tax-related interest expense (income) and penalties reported in the Consolidated statements of operations were immaterial for December 31, 2018, 2017, and 2016. Liabilities for tax-related interest and penalties in our Consolidated balance sheets were $3 million at both December 31, 2018 and 2017.

In September 2016, the IRS completed its examination of Chubb Group Holdings’ (formerly ACE Group Holdings) U.S. Federal income tax returns for the 2010-2012 tax years. No material adjustments resulted from this examination. During 2017, the IRS commenced its field examination of Chubb Group Holdings U.S. Federal income tax returns for 2014 and 2015 and Chubb Corp’s U.S. Federal income tax return for 2014 all of which were still ongoing at December 31, 2018. As a multinational company, we also have examinations under way in several foreign jurisdictions. It is reasonably possible that over the next twelve months, that the amount of unrecognized tax benefits may change resulting from the re-evaluation of unrecognized tax benefits arising from examinations by taxing authorities and the lapsing of statutes of limitations. With few exceptions, Chubb is no longer subject to income tax examinations for years before 2010.

F-72

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries

Debt



	December 31		December 31
(in millions of U.S. dollars)	2018		2017		Early Redemption Option
Repurchase agreements (weighted average interest rate of 2.5% in 2018 and 1.5% in 2017)	$	1,418	$	1,408	None
Short-term debt
Chubb INA senior notes:
$300 million 5.8% due March 2018	$	—	$	300	Make-whole premium plus 0.35%
$600 million 5.75% due May 2018	—		610		Make-whole premium plus 0.30%
$100 million 6.6% due August 2018	—		103		None
$500 million 5.9% due June 2019	500		—		Make-whole premium plus 0.40%
Other short-term debt (7.1% due December 2019)	9		—		None
Total short-term debt	$	509	$	1,013
Long-term debt
Chubb INA senior notes:
$500 million 5.9% due June 2019	$	—	$	499	Make-whole premium plus 0.40%
$1,300 million 2.3% due November 2020	1,297		1,296		Make-whole premium plus 0.15%
$1,000 million 2.875% due November 2022	996		995		Make-whole premium plus 0.20%
$475 million 2.7% due March 2023	473		472		Make-whole premium plus 0.10%
$700 million 3.35% due May 2024	696		695		Make-whole premium plus 0.15%
$800 million 3.15% due March 2025	796		795		Make-whole premium plus 0.15%
$1,500 million 3.35% due May 2026	1,491		1,489		Make-whole premium plus 0.20%
€900 million 1.55% due March 2028	1,008		—		Make-whole premium plus 0.15%
$100 million 8.875% due August 2029	100		100		None
$200 million 6.8% due November 2031	250		254		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	962		971		Make-whole premium plus 0.20%
€900 million 2.5% due March 2038	1,008		—		Make-whole premium plus 0.25%
$600 million 6.5% due May 2038	759		768		Make-whole premium plus 0.30%
$475 million 4.15% due March 2043	470		469		Make-whole premium plus 0.15%
$1,500 million 4.35% due November 2045	1,483		1,482		Make-whole premium plus 0.25%
Chubb INA $1,000 million 6.375% capital securities due March 2067(1)	—		964		Make-whole premium plus 0.25%-0.50%
Other long-term debt (2.75% to 7.1% due December 2019 to September 2020)	1		10		None
Total long-term debt	$	12,087	$	11,556
Trust preferred securities
Chubb INA capital securities due April 2030	$	308	$	308	Redemption prices(2)


(1)	6.375% interest rate through April 14, 2017; interest rate equal to three-month LIBOR rate plus 2.25% thereafter.


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

F-73

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries

a) Repurchase agreements

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

b) Short-term debt

Short-term debt comprises the current maturities of our long-term debt instruments described below. These short-term debt instruments were reclassified from long-term debt during 2018 and are reflected in the table above. Chubb INA Holdings Inc.'s (Chubb INA) $300 million of 5.8 percent senior notes due March 2018, $600 million of 5.75 percent senior notes due May 2018, and $100 million of 6.6 percent senior notes due August 2018 were paid upon maturity.

c) Long-term debt

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

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

In March 2018, Chubb INA issued €900 million ($1.1 billion based on the foreign exchange rate at the date of issuance) of 1.55 percent Euro denominated senior notes due March 2028 and €900 million ($1.1 billion based on the foreign exchange rate at the date of issuance) of 2.5 percent Euro denominated senior notes due March 2038. These senior notes are redeemable at any time at Chubb INA's option subject to a “make-whole” premium (the present value of the remaining principal and interest discounted at the applicable comparable government bond rate plus 0.15 percent for the senior notes due 2028 and 0.25 percent for the senior notes due 2038). The notes are also redeemable at par plus accrued and unpaid interest in the event of certain changes in tax law. These notes do not have the benefit of any sinking fund. These senior unsecured notes are guaranteed on a senior basis by Chubb and they rank equally with all of Chubb's other senior obligations. They also contain customary limitations on lien provisions as well as customary events of default provisions which, if breached, could result in the accelerated maturity of such senior debt.

During April 2018, we redeemed $1.0 billion of 6.375 percent unsecured junior subordinated capital securities with the final maturity date of March 2067 and recorded a loss of $36 million from the extinguishment of debt, which is included in Net realized gains (losses) in the Consolidated statement of operations.

d) Trust preferred securities

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

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

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

F-74

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries

Commitments, contingencies, and guarantees

a) Derivative instruments

Foreign currency management

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

Derivative instruments employed

Chubb maintains positions in derivative instruments such as futures, options, swaps, and foreign currency forward contracts for which the primary purposes are to manage duration and foreign currency exposure, yield enhancement, or to obtain an exposure to a particular financial market. Chubb also maintains positions in convertible securities that contain embedded derivatives. Investment derivative instruments are recorded in either Other assets (OA) or Accounts payable, accrued expenses, and other liabilities (AP), convertible bonds are recorded in Fixed maturities available for sale (FM AFS), and convertible equity securities are recorded in Equity securities (ES) in the Consolidated balance sheets. These are the most numerous and frequent derivative transactions. In addition, Chubb 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, (principally GMIB) 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 GLB reinsurance product meets the definition of a derivative instrument. Benefit reserves in respect of GLBs are classified as Future policy benefits (FPB) while the fair value derivative adjustment is classified within AP. Chubb also generally maintains positions in exchange-traded equity futures contracts on equity market indices to limit equity exposure in the GMDB and GLB books of business. All derivative instruments are carried at fair value with changes in fair value recorded in Net realized gains (losses) in the Consolidated statements of operations. None of the derivative instruments are designated as hedges for accounting purposes. The following table presents the balance sheet locations, fair values of derivative instruments in an asset or (liability) position, and notional values/payment provisions of our derivative instruments:



			December 31, 2018								December 31, 2017
	Consolidated Balance Sheet Location		Fair Value						Notional Value/ Payment Provision		Fair Value					Notional Value/ Payment Provision
		Derivative Asset			Derivative (Liability)					Derivative Asset	Derivative (Liability)
(in millions of U.S. dollars)
Investment and embedded derivative instruments:
Foreign currency forward contracts	OA / (AP)		$	15		$	(19	)	$	2,185	$	14	$	(27	)	$	2,064
Cross-currency swaps	OA / (AP)		—			—			45		—		—			45
Interest rate swaps	OA / (AP)		—			(115		)	5,250		—		—			—
Options/Futures contracts on notes, bonds, and equities	OA / (AP)		13			(19		)	1,046		4		(3		)	1,007
Convertible securities (1)	FM AFS / ES		9			—			11		5		—			6
TBAs	FM AFS		6			—			6		—		—			—
			$	43		$	(153	)	$	8,543	$	23	$	(30	)	$	3,122
Other derivative instruments:
Futures contracts on equities (2)	OA / (AP)		$	23		$	—		$	507	$	—	$	(21	)	$	1,553
Other	OA / (AP)		2			—			74		1		(2		)	75
			$	25		$	—		$	581	$	1	$	(23	)	$	1,628
GLB (3)	(AP) / (FPB)		$	—		$	(861	)	$	1,750	$	—	$	(550	)	$	1,083


(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 4 c) for additional information. Note that the payment provision related to GLB is the net amount at risk. The concept of a notional value does not apply to the GLB reinsurance contracts.

F-75

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries

At December 31, 2018 and 2017, derivative liabilities of $95 million and $24 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) 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 our investment portfolio as protection against unexpected shifts in interest rates, which would affect the duration of the fixed maturity portfolio. By using options in the portfolio, the overall interest rate sensitivity of the portfolio can be reduced. Option contracts may also be used as an alternative to futures contracts in the synthetic strategy as described above.

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

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

Interest rate swaps

An interest rate swap is a contract between two counterparties in which interest payments are made based on a notional principal amount, which itself is never paid or received. Under the terms of an interest rate swap, one counterparty makes interest payments based on a fixed interest rate and the other counterparty’s payments are based on a floating rate. Interest rate swap contracts are used occasionally in our investment portfolio as protection against unexpected shifts in interest rates, which would affect the fair value of the fixed maturity portfolio. By using interest rate swaps in the portfolio, the overall duration or interest rate sensitivity of the portfolio can be impacted.

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.

F-76

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries

(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 arise principally from changes in expected losses allocated to expected future premiums. 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 U.S. and/or international 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.

To mitigate adverse changes in the capital markets, we maintain positions in exchange-traded equity futures contracts, as noted under section "(ii) Futures" above. These futures increase in fair value when the S&P 500 index decreases (and decrease in fair value when the S&P 500 index increases). The net impact of gains or losses related to changes in fair value of the GLB liability and the exchange-traded equity futures are included in Net realized gains (losses).

c) Securities lending and 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. The securities lending collateral can only be drawn down by Chubb in the event that the institution borrowing the securities is in default under the lending agreement. An indemnification agreement with the lending agent protects us in the event a borrower becomes insolvent or fails to return any of the securities on loan. The collateral is recorded in Securities lending collateral and the liability is recorded in Securities lending payable in the Consolidated balance sheets.

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



	Remaining contractual maturity
	December 31, 2018		December 31, 2017
(in millions of U.S. dollars)	Overnight and Continuous
Collateral held under securities lending agreements:
Cash	$	756	$	828
U.S. Treasury and agency	64		36
Foreign	795		712
Corporate securities	15		—
Mortgage-backed securities	45		74
Equity securities	251		87
	$	1,926	$	1,737
Gross amount of recognized liability for securities lending payable	$	1,926	$	1,737

At December 31, 2018 and 2017, our repurchase agreement obligations of $1,418 million and $1,408 million, respectively, were fully collateralized. In contrast to securities lending programs, the use of cash received is not restricted for the repurchase

F-77

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries

obligations. The fair value of the underlying securities sold remains in Fixed maturities available for sale, and the repurchase agreement obligation is recorded in Repurchase agreements in the Consolidated balance sheets.

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



	Remaining contractual maturity
	December 31, 2018						December 31, 2017
	30-90 Days		Greater than 90 Days				Up to 30 Days		Greater than 90 Days		Total
(in millions of U.S. dollars)		Total
Collateral pledged under repurchase agreements:
U.S. Treasury and agency	$	—	$	259	$	259	$	9	$	230	$	239
Mortgage-backed securities	496		713		1,209		369		826		1,195
	$	496	$	972	$	1,468	$	378	$	1,056	$	1,434
Gross amount of recognized liabilities for repurchase agreements					$	1,418					$	1,408
Difference (1)					$	50					$	26


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

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

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



	Year Ended December 31
(in millions of U.S. dollars)	2018			2017			2016
Investment and embedded derivative instruments:
Foreign currency forward contracts	$	3		$	9		$	(31	)
Interest rate swaps	(115		)	—			—
All other futures contracts, options, and equities	39			(21		)	(10		)
Convertible securities (1)	(2		)	1			8
Total investment and embedded derivative instruments	$	(75	)	$	(11	)	$	(33	)
GLB and other derivative instruments:
GLB (2)	$	(248	)	$	364		$	53
Futures contracts on equities (3)	(4		)	(261		)	(136		)
Other	(3		)	(5		)	(10		)
Total GLB and other derivative instruments	$	(255	)	$	98		$	(93	)
	$	(330	)	$	87		$	(126	)


(1)	Includes embedded derivatives.


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


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

F-78

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries

d) Concentrations of credit risk

Our investment portfolio is managed following prudent standards of diversification. Specific provisions limit the allowable holdings of a single issue and issuer. We believe that there are no significant concentrations of credit risk associated with our investments. Our three largest corporate exposures by issuer at December 31, 2018, were Wells Fargo & Co., Bank of America Corp, and JP Morgan Chase & Co. Our largest exposure by industry at December 31, 2018 was financial services.

We market our insurance and reinsurance worldwide primarily through insurance and reinsurance brokers. We assume a degree of credit risk associated with brokers with whom we transact business. For the year ended December 31, 2018, approximately 10 percent of our gross premiums written was generated from or placed by Marsh & McLennan Companies, Inc. This entity is a large, well-established company, and there are no indications that it is financially troubled at December 31, 2018. No broker or one insured accounted for more than 10 percent of our gross premiums written for the years ended December 31, 2017 and 2016.

e) Fixed maturities

At December 31, 2018, we have commitments to purchase fixed income securities of $711 million over the next several years.

f) Other investments

At December 31, 2018, included in Other investments in the Consolidated balance sheet are investments in limited partnerships and partially-owned investment companies with a carrying value of $4.2 billion. In connection with these investments, we have commitments that may require funding of up to $3.7 billion over the next several years.

g) Letters of credit

On October 25, 2017, we entered into a credit facility that provides for up to $1.0 billion of availability, all of which may be used for the issuance of letters of credit and for revolving loans. We have the ability to increase the capacity under our existing credit facility to $2.0 billion under certain conditions, but any such increase would not raise the sub-limit for revolving loans above $1.0 billion. Our existing credit facility has a remaining term expiring in October 2022. At December 31, 2018, our LOC usage was $398 million.

h) Legal proceedings

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

i) Lease commitments

We lease office space and equipment under operating leases which expire at various dates through 2033. Rent expense was $169 million, $211 million, and $209 million for the years ended December 31, 2018, 2017, and 2016, respectively. Future minimum lease payments under the leases are expected to be as follows:



For the years ending December 31
(in millions of U.S. dollars)
2019	$	173
2020	151
2021	126
2022	100
2023	86
Thereafter	184
Total minimum future lease commitments	$	820

F-79

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries

Shareholders’ equity

a) Common Shares

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

Dividend approval

At our May 2017 and 2016 annual general meetings, our shareholders approved an annual dividend for the following year of up to $2.84 and $2.76 per share, respectively, which was paid in four quarterly installments of $0.71 per share and $0.69 per share, respectively, at dates determined by the Board of Directors (Board) after the annual general meeting by way of a distribution from capital contribution reserves, transferred to free reserves for payment.

At our May 2018 annual general meeting, our shareholders approved an annual dividend for the following year of up to $2.92 per share, expected to be paid in four quarterly installments of $0.73 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 2019 annual general meeting, and is authorized to abstain from distributing a dividend at its discretion. The first three quarterly installments each of $0.73 per share, have been distributed by the Board as expected.

Dividend distributions

Under Swiss corporate law, dividends must be stated in Swiss francs though dividend payments are made by Chubb in U.S. dollars. We issue dividends without subjecting them to withholding tax by way of distributions from capital contribution reserves and payment out of free reserves.

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



	Year Ended December 31
		2018			2017			2016
	CHF	USD		CHF	USD		CHF	USD
Total dividend distributions per common share	2.84	$	2.90	2.76	$	2.82	2.70	$	2.74

b) Shares issued, outstanding, authorized, and conditional



	Year Ended December 31
	2018		2017		2016
Shares issued, beginning of year	479,783,864		479,783,864		342,832,412
Shares issued for Chubb Corp acquisition	—		—		136,951,452
Shares issued, end of year	479,783,864		479,783,864		479,783,864
Common Shares in treasury, end of year (at cost)	(20,580,486	)	(15,950,685	)	(13,815,148	)
Shares issued and outstanding, end of year	459,203,378		463,833,179		465,968,716

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

Authorized share capital for general purposes

The Board has shareholder-approved authority as set forth in the Articles of Association to increase for general purposes Chubb's share capital from time to time until May 17, 2020, by the issuance of up to 200,000,000 fully paid up Common Shares, with a par value equal to the par value of Chubb's Common Shares as set forth in the Articles of Association at the time of any such issuance.

F-80

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries

Conditional share capital for bonds and similar debt instruments

Chubb's share capital may be increased through the issuance of a maximum of 33,000,000 fully paid up Common Shares (with a par value of CHF 24.15 as of December 31, 2018) through the exercise of conversion and/or option or warrant rights granted in connection with bonds, notes, or similar instruments, issued or to be issued by Chubb, including convertible debt instruments.

Conditional share capital for employee benefit plans

Chubb's share capital may be increased through the issuance of a maximum of 25,410,929 fully paid up Common Shares (with a par value of CHF 24.15 as of December 31, 2018) in connection with the exercise of option rights granted to any employee of Chubb, and any consultant, director, or other person providing services to Chubb.

c) Chubb Limited securities repurchases

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


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


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


•	$1.5 billion of Chubb Common Shares from December 1, 2018 through December 31, 2019

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

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



	Year Ended December 31						January 1, 2019 through
(in millions of U.S. dollars, except share data)	2018		2017		2016		February 27, 2019
Number of shares repurchased	7,719,035		5,866,612		—		1,328,754
Cost of shares repurchased	$	1,021	$	830	$	—	$	174

d) General restrictions

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

Share-based compensation

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

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

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

F-81

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries

Chubb principally issues restricted stock grants and stock options on a graded vesting schedule, with equal percentages of the award subject to vesting over a number of years (typically three or four). Chubb recognizes compensation cost for vesting of restricted stock and stock option grants with only service conditions on a straight-line basis over the requisite service period for each separately vesting portion of the award as if the award were, in-substance, multiple awards. We incorporate an estimate of future forfeitures in determining compensation cost for both grants of restricted stock and stock options.

Under the 2016 LTIP, 19,500,000 Common Shares are authorized to be issued. This is 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 and includes any shares covered by awards granted under the 2004 LTIP that have forfeited, expired or canceled after the effective date of the 2016 LTIP. At December 31, 2018, a total of 14,100,867 shares remain available for future issuance under the 2016 LTIP, which includes shares canceled or forfeited from the 2004 LTIP, in addition to common shares that were previously registered and authorized to be issued.

Under the Employee Stock Purchase Plan (ESPP), 6,500,000 shares are authorized to be issued. At December 31, 2018, a total of 2,104,942 shares remain available for issuance under the ESPP.

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

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



	Year Ended December 31
(in millions of U.S. dollars)	2018		2017		2016
Stock options and shares issued under ESPP:
Pre-tax	$	50	$	41	$	33
After-tax (1)	$	40	$	26	$	20
Restricted stock:
Pre-tax	$	235	$	259	$	268
After-tax	$	178	$	151	$	167

(1)

Excludes windfall tax benefit for share-based compensation recognized as a direct adjustment to Additional paid-in capital of $32 million for the year ended December 31, 2016. Beginning in 2017, windfall tax benefits for share-based compensation are recognized through Net income rather than Additional paid-in capital. The excess tax benefit recorded to Income tax expense in the Consolidated statement of operations was $19 million and $48 million for the years ended December 31, 2018 and 2017, respectively.

Unrecognized compensation expense related to the unvested portion of Chubb's employee share-based awards of restricted stock, restricted stock units, and stock options was $458 million at December 31, 2018 and is expected to be recognized over a weighted-average period of approximately 1 year.

Stock options

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

Chubb's 2018 share-based compensation expense includes a portion of the cost related to the 2015 through 2018 stock option grants. Stock option fair value was estimated on the grant date using the Black-Scholes option-pricing model that uses the weighted-average assumptions noted below:



	Year Ended December 31
	2018		2017		2016
Dividend yield	2.0	%	2.0	%	2.3	%
Expected volatility	23.2	%	19.7	%	23.2	%
Risk-free interest rate	2.7	%	2.0	%	1.3	%
Expected life	5.7 years		5.8 years		5.6 years

F-82

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries

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

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



(Intrinsic Value in millions of U.S. dollars)	Number of Options		Weighted-Average Exercise Price		Weighted-Average Fair Value		Total Intrinsic Value
Options outstanding, December 31, 2015	9,853,496		$	78.40
Assumed in Chubb Corp Acquisition	339,896		$	77.83	$	36.07
Granted	1,929,616		$	118.39	$	21.52
Exercised	(1,728,949	)	$	66.65			$	99
Forfeited	(213,339	)	$	110.01
Options outstanding, December 31, 2016	10,180,720		$	87.29
Granted	2,079,522		$	139.00	$	22.97
Exercised	(1,632,629	)	$	73.53			$	111
Forfeited	(194,297	)	$	119.44
Options outstanding, December 31, 2017	10,433,316		$	99.20
Granted	1,842,690		$	143.07	$	29.71
Exercised	(1,065,384	)	$	73.57			$	71
Forfeited	(202,900	)	$	133.92
Options outstanding, December 31, 2018	11,007,722		$	108.25			$	274
Options exercisable, December 31, 2018	7,405,354		$	93.88			$	268

The weighted-average remaining contractual term was 6.0 years for stock options outstanding and 4.8 years for stock options exercisable at December 31, 2018. Cash received from the exercise of stock options for the year ended December 31, 2018 was $78 million.

Restricted stock and restricted stock units

Grants of restricted stock and restricted stock units awarded under both the 2004 LTIP and 2016 LTIP typically have a 4-year vesting period, subject to vesting as to one-quarter of the award each anniversary of grant. Restricted stock and restricted stock units are granted at market close price on the day of grant. Each restricted stock unit represents our obligation to deliver to the holder one Common Share upon vesting.

In addition, Chubb grants performance-based restricted stock to certain executives that vest based on certain performance criteria as compared to a defined group of peer companies. Performance-based stock awards comprise target awards and premium awards that cliff vest at the end of a 3-year performance period based on both our tangible book value (shareholders' equity less goodwill and intangible assets, net of tax) per share growth and P&C combined ratio compared to our peer group. Premium awards are subject to an additional vesting provision based on total shareholder return (TSR) compared to our peer group. Shares representing target awards and premium awards are issued when the awards are approved and are subject to forfeiture, if applicable performance criteria are not met at the end of the 3-year performance period. Prior to January 2017, performance-based restricted stock awards had a 4-year vesting period with the potential to vest as to a portion each year, and excluded the P&C combined ratio and TSR additional vesting criteria.

Chubb also grants restricted stock awards to non-management directors which vest at the following year's annual general meeting.

Chubb's 2018 share-based compensation expense includes a portion of the cost related to the restricted stock granted in the years 2014 through 2018.

F-83

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries

The following table presents a roll-forward of our restricted stock awards. Included in the roll-forward below are 20,784 restricted stock awards, 22,013 restricted stock awards, and 23,812 restricted stock awards that were granted to non-management directors during the years ended December 31, 2018, 2017, and 2016, respectively:



	Service-based Restricted Stock Awards and Restricted Stock Units				Performance-based Restricted Stock Awards and Restricted Stock Units
	Number of Shares		Weighted-Average Grant-Date Fair Value		Number of Shares		Weighted-Average Grant-Date Fair Value
Unvested restricted stock, December 31, 2015	3,489,169		$	97.01	595,210		$	101.73
Assumed in Chubb Corp Acquisition	3,706,639		$	111.02	—		$	—
Granted	1,622,065		$	118.70	517,507		$	118.96
Vested	(2,592,622	)	$	100.87	(181,548	)	$	102.43
Forfeited	(420,125	)	$	109.42	—		$	—
Unvested restricted stock, December 31, 2016	5,805,126		$	109.39	931,169		$	111.17
Granted	1,707,094		$	139.18	267,282		$	138.90
Vested	(2,646,084	)	$	107.73	(222,954	)	$	113.30
Forfeited	(156,694	)	$	114.54	—		$	—
Unvested restricted stock, December 31, 2017	4,709,442		$	121.16	975,497		$	118.28
Granted	1,326,979		$	142.76	180,065		$	143.07
Vested	(2,545,090	)	$	114.83	(244,332	)	$	103.03
Forfeited	(196,482	)	$	131.06	—		$	—
Unvested restricted stock, December 31, 2018	3,294,849		$	134.17	911,230		$	127.27

Prior to 2009, legacy ACE granted restricted stock units with a 1-year vesting period to non-management directors. Delivery of Common Shares on account of these restricted stock units to non-management directors is deferred until after the date of the non-management directors' termination from the Board. Legacy Chubb Corp historically allowed directors and certain key employees of Chubb Corp and its subsidiaries to defer a portion of their compensation earned with respect to services performed in the form of deferred stock units. In addition, legacy Chubb Corp provided supplemental retirement benefits for certain employees through its Defined Contribution Excess Benefit Plan in the form of deferred shares of stock. The minimum vesting period under these legacy Chubb Corp deferred plans was 1-year and the maximum was 3-years. Employees and directors had the option to elect to receive their awards at a future specified date or upon their termination of service with Chubb. At December 31, 2018, there were 251,843 deferred restricted stock units.

ESPP

The ESPP gives participating employees the right to purchase Common Shares through payroll deductions during consecutive subscription periods at a purchase price of 85 percent of the fair value of a Common Share on the exercise date (Purchase Price). Annual purchases by participants are limited to the number of whole shares that can be purchased by an amount equal to ten percent of the participant's compensation or $25,000, whichever is less. The ESPP has two six-month subscription periods each year, the first of which runs between January 1 and June 30 and the second of which runs between July 1 and December 31. Legacy Chubb Corp employees were eligible to participate in the ESPP beginning in the July 1 to December 31 subscription period of 2016. The amounts collected from participants during a subscription period are used on the exercise date to purchase full shares of Common Shares. An exercise date is generally the last trading day of a subscription period. The number of shares purchased is equal to the total amount, at the exercise date, collected from the participants through payroll deductions for that subscription period, divided by the Purchase Price, rounded down to the next full share. Participants may withdraw from an offering before the exercise date and obtain a refund of amounts withheld through payroll deductions. Pursuant to the provisions of the ESPP, during the years ended December 31, 2018, 2017, and 2016, employees paid $37 million, $34 million, and $24 million to purchase 347,116 shares, 271,185 shares, and 211,492 shares, respectively.

F-84

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries

Postretirement benefits

Chubb provides postretirement benefits to eligible employees and their dependents through various defined benefit pension plans, other postretirement benefit plans, and defined contribution plans sponsored by Chubb.

Defined benefit pension plans

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

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



	Pension Benefit Plans												Other Postretirement Benefit Plans
	2018						2017						2018			2017
	U.S. Plans			Non-U.S. Plans			U.S. Plans			Non-U.S. Plans
(in millions of U.S. dollars)
Benefit obligation, beginning of year	$	3,285		$	1,077		$	3,035		$	1,025		$	137		$	165
Service cost	57			12			63			17			1			2
Interest cost	105			27			105			27			3			4
Actuarial loss (gain)	(214		)	(71		)	232			(4		)	(20		)	(2		)
Benefits paid	(108		)	(26		)	(132		)	(28		)	(15		)	(14		)
Amendments	—			4			—			—			—			(23		)
Curtailments	—			—			—			(32		)	—			2
Settlements	(33		)	(27		)	(18		)	(8		)	—			—
Foreign currency revaluation and other	—			(54		)	—			80			7			3
Benefit obligation, end of year	$	3,092		$	942		$	3,285		$	1,077		$	113		$	137
Plan assets at fair value, beginning of year	$	3,109		$	1,172		$	2,765		$	962		$	157		$	159
Actual return on plan assets	(218		)	(63		)	441			100			1			6
Employer contributions	34			14			53			63			—			6
Benefits paid	(108		)	(26		)	(132		)	(28		)	(15		)	(14		)
Settlements	(33		)	(27		)	(18		)	(8		)	—			—
Foreign currency revaluation and other	—			(62		)	—			83			—			—
Plan assets at fair value, end of year	$	2,784		$	1,008		$	3,109		$	1,172		$	143		$	157
Funded status at end of year	$	(308	)	$	66		$	(176	)	$	95		$	30		$	20
Amounts recognized in Accumulated other comprehensive income, not yet recognized in net periodic cost (benefit):
Net actuarial loss (gain)	$	(15	)	$	112		$	(227	)	$	82		$	—		$	12
Prior service cost (benefit)	—			9			—			6			(200		)	(288		)
Total	$	(15	)	$	121		$	(227	)	$	88		$	(200	)	$	(276	)



For the Year Ended December 31, 2018 (in millions of U.S. dollars)	North America Commercial P&C Insurance			North America Personal P&C Insurance		North America Agricultural Insurance			Overseas General Insurance		Global Reinsurance			Life Insurance			Corporate			Chubb Consolidated
Net premiums written	$	12,485		$	4,674	$	1,577		$	8,902	$	671		$	2,270		$	—		$	30,579
Net premiums earned	12,402			4,593		1,569			8,612		670			2,218			—			30,064
Losses and loss expenses	8,000			3,229		1,111			4,429		479			766			53			18,067
Policy benefits	—			—		—			—		—			590			—			590
Policy acquisition costs	1,829			939		79			2,346		162			557			—			5,912
Administrative expenses	966			269		(9		)	1,014		41			310			295			2,886
Underwriting income (loss)	1,607			156		388			823		(12		)	(5		)	(348		)	2,609
Net investment income (loss)	2,033			236		28			619		257			341			(209		)	3,305
Other (income) expense	(25		)	1		2			—		(32		)	26			(406		)	(434		)
Amortization expense of purchased intangibles	—			13		28			41		—			2			255			339
Segment income (loss)	$	3,665		$	378	$	386		$	1,401	$	277		$	308		$	(406	)	$	6,009
Net realized gains (losses) including OTTI																	(652		)	(652		)
Interest expense																	641			641
Chubb integration expenses																	59			59
Income tax expense																	695			695
Net income (loss)																	$	(2,453	)	$	3,962



For the Year Ended December 31, 2017 (in millions of U.S. dollars)	North America Commercial P&C Insurance		North America Personal P&C Insurance			North America Agricultural Insurance			Overseas General Insurance			Global Reinsurance			Life Insurance			Corporate			Chubb Consolidated
Net premiums written	$	12,019	$	4,533		$	1,516		$	8,350		$	685		$	2,141		$	—		$	29,244
Net premiums earned	12,191		4,399			1,508			8,131			704			2,101			—			29,034
Losses and loss expenses	8,287		3,265			1,036			4,281			561			739			285			18,454
Policy benefits	—		—			—			—			—			676			—			676
Policy acquisition costs	1,873		899			81			2,221			177			530			—			5,781
Administrative expenses	981		264			(8		)	982			44			303			267			2,833
Underwriting income (loss)	1,050		(29		)	399			647			(78		)	(147		)	(552		)	1,290
Net investment income (loss)	1,961		226			25			610			273			313			(283		)	3,125
Other (income) expense	1		4			2			(4		)	(1		)	(84		)	(318		)	(400		)
Amortization expense of purchased intangibles	—		16			29			45			—			2			168			260
Segment income (loss)	$	3,010	$	177		$	393		$	1,216		$	196		$	248		$	(685	)	$	4,555
Net realized gains (losses) including OTTI																		84			84
Interest expense																		607			607
Chubb integration expense																		310			310
Income tax benefit																		(139		)	(139		)
Net income (loss)																		$	(1,379	)	$	3,861



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




	For the Year Ended December 31
(in millions of U.S. dollars)	2018		2017		2016
North America Commercial P&C Insurance
Property & other short-tail lines	$	1,861	$	1,899	$	1,963
Casualty & all other	9,773		9,554		9,552
A&H	768		738		702
Total North America Commercial P&C Insurance	12,402		12,191		12,217
North America Personal P&C Insurance
Personal automobile	803		742		699
Personal homeowners	3,127		3,014		3,007
Personal other	663		643		613
Total North America Personal P&C Insurance	4,593		4,399		4,319
North America Agricultural Insurance	1,569		1,508		1,316
Overseas General Insurance
Property & other short-tail lines	2,134		2,076		2,133
Casualty & all other	2,429		2,266		2,177
Personal lines	1,784		1,609		1,626
A&H	2,265		2,180		2,196
Total Overseas General Insurance	8,612		8,131		8,132
Global Reinsurance
Property & other short-tail lines	123		132		118
Property catastrophe	170		198		185
Casualty & all other	377		374		407
Total Global Reinsurance	670		704		710
Life Insurance
Life	1,022		980		1,002
A&H	1,196		1,121		1,053
Total Life Insurance	2,218		2,101		2,055
Total net premiums earned	$	30,064	$	29,034	$	28,749



	North America		Europe (1)		Asia Pacific / Far East		Latin America
2018	70	%	11	%	12	%	7	%
2017	70	%	11	%	12	%	7	%
2016	70	%	12	%	11	%	7	%



(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	$	—	$	214	$	100,754	$	—		$	100,968
Cash (1)	1		2		1,896		(652		)	1,247
Restricted Cash	—		—		93		—			93
Insurance and reinsurance balances receivable	—		—		11,861		(1,786		)	10,075
Reinsurance recoverable on losses and loss expenses	—		—		26,422		(10,429		)	15,993
Reinsurance recoverable on policy benefits	—		—		306		(104		)	202
Value of business acquired	—		—		295		—			295
Goodwill and other intangible assets	—		—		21,414		—			21,414
Investments in subsidiaries	43,531		50,209		—		(93,740		)	—
Due from subsidiaries and affiliates, net	7,074		—		598		(7,672		)	—
Other assets	3		1,007		18,102		(1,628		)	17,484
Total assets	$	50,609	$	51,432	$	181,741	$	(116,011	)	$	167,771
Liabilities
Unpaid losses and loss expenses	$	—	$	—	$	72,857	$	(9,897	)	$	62,960
Unearned premiums	—		—		16,611		(1,079		)	15,532
Future policy benefits	—		—		5,610		(104		)	5,506
Due to subsidiaries and affiliates, net	—		7,672		—		(7,672		)	—
Affiliated notional cash pooling programs(1)	35		617		—		(652		)	—
Repurchase agreements	—		—		1,418		—			1,418
Short-term debt	—		500		9		—			509
Long-term debt	—		12,086		1		—			12,087
Trust preferred securities	—		308		—		—			308
Other liabilities	262		2,545		19,199		(2,867		)	19,139
Total liabilities	297		23,728		115,705		(22,271		)	117,459
Total shareholders’ equity	50,312		27,704		66,036		(93,740		)	50,312
Total liabilities and shareholders’ equity	$	50,609	$	51,432	$	181,741	$	(116,011	)	$	167,771



For the Year Ended December 31, 2018	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	$	—		$	—		$	30,579		$	—		$	30,579
Net premiums earned	—			—			30,064			—			30,064
Net investment income	6			13			3,286			—			3,305
Equity in earnings of subsidiaries	3,753			2,578			—			(6,331		)	—
Net realized gains (losses) including OTTI	—			117			(769		)	—			(652		)
Losses and loss expenses	—			—			18,067			—			18,067
Policy benefits	—			—			590			—			590
Policy acquisition costs and administrative expenses	87			(58		)	8,769			—			8,798
Interest (income) expense	(299		)	806			134			—			641
Other (income) expense	(24		)	26			(436		)	—			(434		)
Amortization of purchased intangibles	—			—			339			—			339
Chubb integration expenses	14			1			44			—			59
Income tax expense (benefit)	19			(148		)	824			—			695
Net income	$	3,962		$	2,081		$	4,250		$	(6,331	)	$	3,962
Comprehensive income (loss)	$	1,242		$	(27	)	$	1,808		$	(1,781	)	$	1,242



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



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



	Three Months Ended
	March 31			June 30		September 30		December 31
(in millions of U.S. dollars, except per share data)	2018			2018		2018		2018
Net premiums earned	$	7,027		$	7,664	$	7,908	$	7,465
Net investment income	806			828		823		848
Net realized gains (losses) including OTTI	(2		)	18		19		(687		)
Total revenues	$	7,831		$	8,510	$	8,750	$	7,626
Losses and loss expenses	$	4,102		$	4,487	$	4,868	$	4,610
Policy benefits	$	151		$	150	$	127	$	162
Net income	$	1,082		$	1,294	$	1,231	$	355
Basic earnings per share	$	2.32		$	2.78	$	2.66	$	0.77
Diluted earnings per share	$	2.30		$	2.76	$	2.64	$	0.76



December 31, 2018 (in millions of U.S. dollars)	Cost or Amortized Cost		Fair Value		Amount at Which Shown in the Balance Sheet
Fixed maturities available for sale
U.S. Treasury and agency	$	4,158	$	4,145	$	4,145
Foreign	21,370		21,416		21,416
Corporate securities	27,183		26,583		26,583
Mortgage-backed securities	15,758		15,540		15,540
States, municipalities, and political subdivisions	10,854		10,786		10,786
Total fixed maturities available for sale	79,323		78,470		78,470
Fixed maturities held to maturity
U.S. Treasury and agency	1,185		1,182		1,185
Foreign	1,549		1,542		1,549
Corporate securities	2,601		2,508		2,601
Mortgage-backed securities	2,524		2,486		2,524
States, municipalities, and political subdivisions	5,576		5,541		5,576
Total fixed maturities held to maturity	13,435		13,259		13,435
Equity securities
Industrial, miscellaneous, and all other	770		770		770
Short-term investments	3,016		3,016		3,016
Other investments (1)	5,153		5,153		5,153
Total investments - other than investments in related parties	$	101,697	$	100,668	$	100,844



Premiums Earned
For the years ended December 31, 2018, 2017, and 2016 (in millions of U.S. dollars, except for percentages)	Direct Amount		Ceded To Other Companies		Assumed From Other Companies		Net Amount		Percentage of Amount Assumed to Net
2018
Property and Casualty	$	28,793	$	6,792	$	2,812	$	24,813	11	%
Accident and Health	4,409		342		162		4,229		4	%
Life	906		85		201		1,022		20	%
Total	$	34,108	$	7,219	$	3,175	$	30,064	11	%
2017
Property and Casualty	$	27,774	$	6,650	$	2,891	$	24,015	12	%
Accident and Health	4,167		349		221		4,039		5	%
Life	841		81		220		980		22	%
Total	$	32,782	$	7,080	$	3,332	$	29,034	11	%
2016
Property and Casualty	$	26,919	$	6,407	$	3,284	$	23,796	14	%
Accident and Health	4,047		315		219		3,951		6	%
Life	845		84		241		1,002		24	%
Total	$	31,811	$	6,806	$	3,744	$	28,749	13	%



As of and for the years ended December 31, 2018, 2017, and 2016 (in millions of U.S. dollars)
	Deferred Policy Acquisition Costs		Net Reserves for Unpaid Losses and Loss Expenses		Unearned Premiums		Net Premiums Earned		Net Investment Income		Net Losses and Loss Expenses Incurred Related to						Amortization of Deferred Policy Acquisition Costs		Net Paid Losses and Loss Expenses		Net Premiums Written
			Current Year		Prior Year
2018	$	3,926	$	48,271	$	15,532	$	29,042	$	3,047		$	19,048	$	(981	)	$	5,630	$	18,340	$	29,505
2017	$	3,805	$	49,165	$	15,216	$	28,054	$	2,890		$	19,391	$	(937	)	$	5,519	$	17,448	$	28,225
2016	$	3,537	$	47,832	$	14,779	$	27,747	$	2,656		$	17,256	$	(1,204	)	$	5,654	$	15,715	$	27,074