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

The following is a discussion of our results of operations, financial condition, and liquidity and capital resources as of and for the year ended December 31, 2019. This discussion should be read in conjunction with the consolidated financial statements and related Notes, under Item 8 of this Form 10-K.

All comparisons in this discussion are to the corresponding prior year unless otherwise indicated. All dollar amounts are rounded. However, percent changes and ratios are calculated using whole dollars. Accordingly, calculations using rounded dollars may differ.

MD&A Index	Page
Forward-Looking Statements	36
Overview	38
Financial Highlights	38
Critical Accounting Estimates	39
Consolidated Operating Results	50
Segment Operating Results	57
Net Investment Income	74
Interest Expense	74
Net Realized and Unrealized Gains (Losses)	75
Amortization of Purchased Intangibles and Other Amortization	76
Investments	77
Asbestos and Environmental (A&E)	80
Catastrophe Management	81
Natural Catastrophe Property Reinsurance Program	81
Political Risk and Credit Insurance	82
Crop Insurance	83
Liquidity	84
Capital Resources	86
Contractual Obligations and Commitments	88
Credit Facilities	89
Ratings	90

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Forward-Looking Statements

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. Any written or oral statements made by us or on our behalf may include forward-looking statements that reflect our current views with respect to future events and financial performance. These forward-looking statements are subject to certain risks, uncertainties, and other factors that could, should potential events occur, cause actual results to differ materially from such statements. These risks, uncertainties, and other factors, which are described in more detail under Part I, Item 1A, under Risk Factors, starting on page 19 and elsewhere herein and in other documents we file with the U.S. Securities and Exchange Commission (SEC), include but are not limited to:

•	losses arising out of natural or man-made catastrophes such as hurricanes, typhoons, earthquakes, floods, climate change (including effects on weather patterns; greenhouse gases; sea, land and air temperatures; sea levels; and rain and snow), nuclear accidents, or terrorism which could be affected by:

•	the number of insureds and ceding companies affected;

•	the amount and timing of losses actually incurred and reported by insureds;

•	the impact of these losses on our reinsurers and the amount and timing of reinsurance recoverable actually received;

•	the cost of building materials and labor to reconstruct properties or to perform environmental remediation following a catastrophic event; and

•	complex coverage and regulatory issues such as whether losses occurred from storm surge or flooding and related lawsuits;

•	actions that rating agencies may take from time to time, such as financial strength or credit ratings downgrades or placing these ratings on credit watch negative or the equivalent;

•	the ability to collect reinsurance recoverable, credit developments of reinsurers, and any delays with respect thereto and changes in the cost, quality, or availability of reinsurance;

•	actual loss experience from insured or reinsured events and the timing of claim payments;

•	the uncertainties of the loss-reserving and claims-settlement processes, including the difficulties associated with assessing environmental damage and asbestos-related latent injuries, the impact of aggregate-policy-coverage limits, the impact of bankruptcy protection sought by various asbestos producers and other related businesses, and the timing of loss payments;

•	changes to our assessment as to whether it is more likely than not that we will be required to sell, or have the intent to sell, available for sale fixed maturity investments before their anticipated recovery;

•	infection rates and severity of pandemics and their effects on our business operations and claims activity;

•

developments in global financial markets, including changes in interest rates, stock markets, and other financial markets, increased government involvement or intervention in the financial services industry, the cost and availability of financing, and foreign currency exchange rate fluctuations (which we refer to in this report as foreign exchange and foreign currency exchange), which could affect our statement of operations, investment portfolio, financial condition, and financing plans;

•	general economic and business conditions resulting from volatility in the stock and credit markets and the depth and duration of potential recession;

•	global political conditions, the occurrence of any terrorist attacks, including any nuclear, radiological, biological, or chemical events, or the outbreak and effects of war, and possible business disruption or economic contraction that may result from such events;

•	the potential impact of the United Kingdom’s vote to withdraw from the European Union, including political, regulatory, social, and economic uncertainty and market and exchange rate volatility;

•	judicial decisions and rulings, new theories of liability, legal tactics, and settlement terms;

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•	the effects of public company bankruptcies and/or accounting restatements, as well as disclosures by and investigations of public companies relating to possible accounting irregularities, and other corporate governance issues, including the effects of such events on:

•	the capital markets;

•	the markets for directors and officers (D&O) and errors and omissions (E&O) insurance; and

•	claims and litigation arising out of such disclosures or practices by other companies;

•	uncertainties relating to governmental, legislative and regulatory policies, developments, actions, investigations, and treaties, which, among other things, could subject us to insurance regulation or taxation in additional jurisdictions or affect our current operations;

•	the effects of data privacy or cyber laws or regulation on our current or future business;

•	the actual amount of new and renewal business, market acceptance of our products, and risks associated with the introduction of new products and services and entering new markets, including regulatory constraints on exit strategies;

•	the competitive environment in which we operate, including trends in pricing or in policy terms and conditions, which may differ from our projections and changes in market conditions that could render our business strategies ineffective or obsolete;

•	acquisitions made by us performing differently than expected, our failure to realize anticipated expense-related efficiencies or growth from acquisitions, the impact of acquisitions on our pre-existing organization, or announced acquisitions not closing;

•	risks and uncertainties relating to our planned purchases of additional interests in Huatai Insurance Group Company Limited (Huatai Group), including our ability to receive Chinese insurance regulatory approval and complete the purchases;

•	risks associated with being a Swiss corporation, including reduced flexibility with respect to certain aspects of capital management and the potential for additional regulatory burdens;

•	the potential impact from government-mandated insurance coverage for acts of terrorism;

•	the availability of borrowings and letters of credit under our credit facilities;

•	the adequacy of collateral supporting funded high deductible programs;

•	changes in the distribution or placement of risks due to increased consolidation of insurance and reinsurance brokers;

•	material differences between actual and expected assessments for guaranty funds and mandatory pooling arrangements;

•	the effects of investigations into market practices in the property and casualty (P&C) industry;

•	changing rates of inflation and other economic conditions, for example, recession;

•	the amount of dividends received from subsidiaries;

•	loss of the services of any of our executive officers without suitable replacements being recruited in a reasonable time frame;

•	the ability of our technology resources, including information systems and security, to perform as anticipated such as with respect to preventing material information technology failures or third-party infiltrations or hacking resulting in consequences adverse to Chubb or its customers or partners;

•	the ability of our company to increase use of data analytics and technology as part of our business strategy and adapt to new technologies; and

•	management’s response to these factors and actual events (including, but not limited to, those described above).

The words “believe,” “anticipate,” “estimate,” “project,” “should,” “plan,” “expect,” “intend,” “hope,” “feel,” “foresee,” “will likely result,” or “will continue,” and variations thereof and similar expressions, identify forward-looking statements. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. We undertake no obligation to publicly update or review any forward-looking statements, whether as a result of new information, future events or otherwise.

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Overview

We operate through six business segments: North America Commercial P&C Insurance, North America Personal P&C Insurance, North America Agricultural Insurance, Overseas General Insurance, Global Reinsurance, and Life Insurance. For more information on our segments refer to “Segment Information” under Item 1.

We have grown our business through increased premium volume, expansion of product offerings and geographic reach, and acquisitions of other companies.

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

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

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

Financial Highlights for the Year Ended December 31, 2019

•	Net income was $4,454 million compared with $3,962 million in 2018.

•	Net premiums written were $32.3 billion, up 5.5 percent, or 7.0 percent on a constant-dollar basis.

•	The North America Agricultural Insurance segment combined ratio was 95.1 percent compared with 75.5 percent in 2018, or a decline of $296 million in underwriting income, principally due to the downward revision in the 2019 crop year margin estimate reflecting preventive planting claims due to the impact of wet weather conditions and crop yield shortfalls resulting from poor growing conditions.

•	P&C combined ratio was 90.6 percent in both 2019 and 2018. P&C current accident year combined ratio excluding catastrophe losses was 89.2 percent compared with 88.0 percent in 2018, reflecting the increase in the North America Agricultural Insurance segment combined ratio noted above.

•

Total pre-tax and after-tax catastrophe losses, including reinstatement premiums, were $1,187 million (4.1 percentage points of the combined ratio) and $966 million, respectively, compared with $1,626 million (5.9 percentage points of the combined ratio) and $1,354 million, respectively, in 2018. Refer to the Consolidated Operating Results section for additional information on our catastrophe losses.

•

Total pre-tax and after-tax favorable prior period development were $792 million (2.7 percentage points of the combined ratio) and $624 million, respectively, compared with $896 million (3.3 percentage points of the combined ratio) and $706 million, respectively, in 2018. Pre-tax favorable prior period development in 2018 included favorable reinsurance settlements of $205 million related to legacy run-off exposures.

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•	Operating cash flow was $6,342 million compared with $5,480 million in 2018, an increase of $862 million primarily due to higher underwriting cash flow. Refer to the Liquidity section for additional information on our cash flows.

•	Net investment income was $3,426 million compared with $3,305 million in 2018.

•	Share repurchases totaled $1,531 million, or approximately 10.4 million shares for the year, at an average purchase price of $146.61 per share.

Outlook

We completed 2019 with net premiums written growth of 5.5 percent, or 7.0 percent on a constant-dollar basis. Premium growth accelerated globally with the current pricing and underwriting environment, which has continued to improve in more lines of business and more territories. We plan to use our global presence to capitalize on these market conditions in the year ahead, while continuing to focus on our long-term strategic growth initiatives.

Our net investment income increased 3.6 percent in 2019, reflecting strong operating cash flow and a higher invested asset base. There are several factors that impact the variability in investment income, including interest rates and private equity distributions. Nevertheless, we expect our quarterly pre-tax net investment income in 2020 to be in the range of $852 million to $862 million, including the expected amortization of the fair value adjustment on acquired invested assets, at current exchange rates, of approximately $33 million per quarter. Excluding the amortization of the fair value adjustment on acquired invested assets, we expect quarterly pre-tax adjusted net investment income in 2020 to be in the range of $885 million to $895 million. The estimate of amortization expense of the fair value adjustment on acquired invested assets could vary materially based on current market conditions, bond calls, overall duration of the acquired investment portfolio, and foreign exchange.

During 2019, Chubb increased its ownership interest in Huatai Group and is committed to acquire additional interests with the goal of majority and beyond ownership. To that end, Chubb entered into agreements to purchase an additional 22.4 percent ownership in Huatai Group through separate purchases of 15.3 percent and 7.1 percent, respectively, each contingent upon regulatory approvals and other important conditions. At the completion of the 7.1 percent purchase, which is expected by the end of 2021, Chubb is expected to apply consolidation accounting.

Critical Accounting Estimates

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

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

•	future policy benefits reserves;

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

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

•	reinsurance recoverable, including a provision for uncollectible reinsurance;

•	the valuation of our investment portfolio and assessment of other-than-temporary impairments (OTTI);

•	the valuation of deferred income taxes;

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

•	the assessment of goodwill for impairment.

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

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Unpaid losses and loss expenses

As an insurance and reinsurance company, we are required by applicable laws and regulations and GAAP to establish loss and loss expense reserves for the estimated unpaid portion of the ultimate liability for losses and loss expenses under the terms of our policies and agreements with our insured and reinsured customers. At December 31, 2019, our gross unpaid loss and loss expense reserves were $62.7 billion and our net unpaid loss and loss expense reserves were $48.5 billion. With the exception of certain structured settlements, for which the timing and amount of future claim payments are reliably determinable, and certain reserves for unsettled claims, our loss reserves are not discounted for the time value of money. In connection with such structured settlements and certain reserves for unsettled claims, we carried net discounted reserves of $74 million and $73 million at December 31, 2019 and 2018, respectively.

The following table presents a roll-forward of our unpaid losses and loss expenses:

	December 31, 2019												December 31, 2018
(in millions of U.S. dollars)	Gross Losses				Reinsurance Recoverable**(1)**				Net Losses				Gross Losses				Reinsurance Recoverable(1)				Net Losses
Balance, beginning of year	$	62,960			$	14,689			$	48,271			$	63,179			$	14,014			$	49,165
Losses and loss expenses incurred	23,657				4,927				18,730				23,645				5,578				18,067
Losses and loss expenses paid	(23,911		)		(5,438		)		(18,473		)		(23,079		)		(4,739		)		(18,340		)
Other (including foreign exchange translation)	(16		)		3				(19		)		(785		)		(164		)		(621		)
Balance, end of year	$	62,690			$	14,181			$	48,509			$	62,960			$	14,689			$	48,271

(1)	Net of provision for uncollectible reinsurance.

The estimate of the liabilities includes provisions for claims that have been reported but are unpaid at the balance sheet date (case reserves) and for obligations on claims that have been incurred but not reported (IBNR) at the balance sheet date. IBNR may also include provisions to account for the possibility that reported claims may settle for amounts that differ from the established case reserves. Loss reserves also include an estimate of expenses associated with processing and settling unpaid claims (loss expenses). Our loss reserves comprise approximately 80 percent casualty-related business, which typically encompasses long-tail risks, and other risks where a high degree of judgment is required.

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

Case reserves for those claims reported by insureds or ceding companies to us prior to the balance sheet date and where we have sufficient information are determined by our claims personnel as appropriate based on the circumstances of the claim(s), standard claim handling practices, and professional judgment. Furthermore, for our Brandywine run-off operations and our

assumed reinsurance operation, Global Reinsurance, we may adjust the case reserves as notified by the ceding company if the judgment of our respective claims department differs from that of the cedant.

With respect to IBNR reserves and those claims that have been incurred but not reported prior to the balance sheet date, there is, by definition, limited actual information to form the case reserve estimate and reliance is placed upon historical loss experience and actuarial methods to estimate the ultimate loss obligations and the corresponding amount of IBNR. IBNR reserve estimates are generally calculated by first projecting the ultimate amount of losses for a product line and subtracting paid losses and case reserves for reported claims. The judgments involved in projecting the ultimate losses may pertain to the use and interpretation of various standard actuarial reserving methods that place reliance on the extrapolation of actual historical data, loss development patterns, industry data, and other benchmarks as appropriate. The estimate of the required IBNR reserve also requires judgment by actuaries and management to reflect the impact of more contemporary and subjective factors, both qualitative and quantitative. Among some of these factors that might be considered are changes in business mix or

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volume, changes in ceded reinsurance structures, changes in claims handling practices, reported and projected loss trends, inflation, the legal environment, and the terms and conditions of the contracts sold to our insured parties.

Determining management's best estimate

Our recorded reserves represent management's best estimate of the provision for unpaid claims as of the balance sheet date, and establishing them involves a process that includes collaboration with various relevant parties in the company. For information on our reserving process, refer to Note 7 to the Consolidated Financial Statements.

Sensitivity to underlying assumptions

While we believe that our reserve for unpaid losses and loss expenses at December 31, 2019, is adequate, new information or emerging trends that differ from our assumptions may lead to future development of losses and loss expenses that is significantly greater or less than the recorded reserve, which could have a material effect on future operating results. As noted previously, our best estimate of required loss reserves for most portfolios is judgmentally selected for each origin year after considering the results from a number of reserving methods and is not a purely mechanical process. Therefore, it is difficult to convey, in a simple and quantitative manner, the impact that a change to a single assumption will have on our best estimate. In the examples below, we attempt to give an indication of the potential impact by isolating a single change for a specific reserving method that would be pertinent in establishing the best estimate for the product line described. We consider each of the following sensitivity analyses to represent a reasonably likely deviation in the underlying assumption.

North America Commercial P&C Insurance

Given the long reporting and paid development patterns for workers' compensation business, the development factors used to project actual current losses to ultimate losses for our current exposure require considerable judgment that could be material to consolidated loss and loss expense reserves. Specifically, adjusting ground up ultimate losses by a one percent change in the tail factor (i.e., 1.04 changed to either 1.05 or 1.03) would cause a change of approximately $823 million, either positive or negative, for the projected net loss and loss expense reserves. This represents an impact of about 8.8 percent relative to recorded net loss and loss expense reserves of approximately $9.4 billion.

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

North America Personal P&C Insurance

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

North America Agricultural Insurance

Approximately 66 percent of the reserves for this segment are from the crop related lines, which all have short payout patterns, with the majority of the liabilities expected to be resolved in the ensuing twelve months. Claim reserves for our Multiple Peril Crop Insurance (MPCI) product are set on a case-by-case basis and our aggregate exposure is subject to state level risk sharing formulae as well as third-party reinsurance. The majority of the development risk arises out of the accuracy of case reserve estimates and the time needed for final crop conditions to be assessed. We do not view our Agriculture reserves as substantially influenced by the general assumptions and risks underlying more typical P&C reserve estimates.

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Overseas General Insurance

Certain long-tail lines, such as casualty and professional lines, are particularly susceptible to changes in loss trend and claim inflation. Heightened perceptions of tort and settlement awards around the world can increase the demand for these products as well as contributing to the uncertainty in the reserving estimates. Our reserving methods rely on loss development patterns estimated from historical data and while we attempt to adjust such factors for known changes in the current tort environment, it is possible that such factors may not entirely reflect all recent trends in tort environments. For example, when applying the reported loss development method, the lengthening of our selected loss development patterns by six months would increase reserve estimates on long-tail casualty and professional lines for accident years 2017 and prior by approximately $525 million. This represents an impact of 14.4 percent relative to recorded net loss and loss expense reserves of approximately $3.6 billion.

Global Reinsurance

Typically, there is inherent uncertainty around the length of paid and reported development patterns, especially for certain casualty lines such as excess workers' compensation or general liability, which may take decades to fully develop. This uncertainty is accentuated by the need to supplement client development patterns with industry development patterns due to the sometimes low statistical credibility of the data. The underlying source and selection of the final development patterns can thus have a significant impact on the selected ultimate net losses and loss expenses. For example, a 20 percent shortening or lengthening of the development patterns used for U.S. long-tail lines would cause the loss reserve estimate derived by the reported Bornhuetter-Ferguson method for these lines to change by approximately $285 million. This represents an impact of 43 percent relative to recorded net loss and loss expense reserves of approximately $670 million.

Assumed reinsurance

At December 31, 2019, net unpaid losses and loss expenses for the Global Reinsurance segment aggregated to $1.4 billion, consisting of $769 million of case reserves and $664 million of IBNR. In comparison, at December 31, 2018, net unpaid losses and loss expenses for the Global Reinsurance segment aggregated to $1.6 billion, consisting of $807 million of case reserves and $807 million of IBNR.

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

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

•	The reported claims information could be inaccurate;

•

Typically, a lag exists between the reporting of a loss event to a ceding company and its reporting to us as a reinsurance claim. The use of a broker to transmit financial information from a ceding company to us increases the reporting lag. Because most of our reinsurance business is produced by brokers, ceding companies generally first submit claim and other financial information to brokers, who then report the proportionate share of such information to each reinsurer of a particular treaty. The reporting lag generally results in a longer period of time between the date a claim is incurred and the date a claim is reported compared with direct insurance operations. Therefore, the risk of delayed recognition of loss reserve development is higher for assumed reinsurance than for direct insurance lines; and

•

The historical claims data for a particular reinsurance contract can be limited relative to our insurance business in that there may be less historical information available. Further, for certain coverages or products, such as excess of loss contracts, there may be relatively few expected claims in a particular year so the actual number of claims may be susceptible to significant variability. In such cases, the actuary often relies on industry data from several recognized sources.

We mitigate the above risks in several ways. In addition to routine analytical reviews of ceding company reports to ensure reported claims information appears reasonable, we perform regular underwriting and claims audits of certain ceding companies to ensure reported claims information is accurate, complete, and timely. As appropriate, audit findings are used to adjust claims

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in the reserving process. We also use our knowledge of the historical development of losses from individual ceding companies to adjust the level of adequacy we believe exists in the reported ceded losses.

On occasion, there will be differences between our carried loss reserves and unearned premium reserves and the amount of loss reserves and unearned premium reserves reported by the ceding companies. This is due to the fact that we receive consistent and timely information from ceding companies only with respect to case reserves. For IBNR, we use historical experience and other statistical information, depending on the type of business, to estimate the ultimate loss. We estimate our unearned premium reserve by applying estimated earning patterns to net premiums written for each treaty based upon that treaty's coverage basis (i.e., risks attaching or losses occurring). At December 31, 2019, the case reserves reported to us by our ceding companies were $758 million, compared with the $769 million we recorded. Our policy is to post additional case reserves in addition to the amounts reported by our cedants when our evaluation of the ultimate value of a reported claim is different than the evaluation of that claim by our cedant.

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

Asbestos and environmental reserves

Included in our liabilities for losses and loss expenses are amounts for A&E (A&E liabilities). The A&E liabilities principally relate to claims arising from bodily-injury claims related to asbestos products and remediation costs associated with hazardous waste sites. The estimation of our A&E liabilities is particularly sensitive to future changes in the legal, social, and economic environment. We have not assumed any such future changes in setting the value of our A&E liabilities, which include provisions for both reported and IBNR claims.

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

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

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

Future policy benefits reserves

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

Valuation of value of business acquired (VOBA), and amortization of deferred policy acquisition costs and VOBA

As part of the acquisition of businesses that sell long-duration contracts, such as life products, we established an intangible asset related to VOBA, which represented the fair value of the future profits of the in-force contracts. The valuation of VOBA at the time of acquisition is derived from similar assumptions to those used to establish the associated future policy benefits

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reserves. The most significant input in this calculation is the discount rate used to arrive at the present value of the net cash flows. We amortize deferred policy acquisition costs associated with long-duration contracts and VOBA (collectively policy acquisition costs) over the estimated life of the contracts, generally in proportion to premium revenue recognized based upon the same assumptions used in estimating the liability for future policy benefits. For non-traditional long-duration contracts, we amortize policy acquisition costs over the expected life of the contracts in proportion to estimates of expected gross profits. The estimated life is established at the inception of the contracts or upon acquisition and is based on current persistency assumptions. Policy acquisition costs, which consist of commissions, premium taxes, and certain underwriting costs related directly to the successful acquisition of a new or renewal insurance contract, are reviewed to determine if they are recoverable from future income, including investment income. Unrecoverable costs are expensed in the period identified.

Risk transfer

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

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

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

With respect to ceded reinsurance, we entered into a few multi-year excess of loss retrospectively-rated contracts, principally in 2002. These contracts primarily provided severity protection for specific product divisions. Because traditional one-year reinsurance coverage had become relatively costly, these contracts were generally entered into in order to secure a more cost-effective reinsurance program. All of these contracts transferred risk and were accounted for as reinsurance. In addition, we maintain a few aggregate excess of loss reinsurance contracts that were principally entered into prior to 2003, such as the National Indemnity Company (NICO) contracts referred to in the section entitled, “Asbestos and Environmental (A&E)”. We have not purchased any other retroactive ceded reinsurance contracts since 1999.

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

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Reinsurance recoverable

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

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

Although the obligation of individual reinsurers to pay their reinsurance obligations is based on specific contract provisions, the collectability of such amounts requires estimation by management. The majority of the recoverable balance will not be due for collection until sometime in the future, and the duration of our recoverables may be longer than the duration of our direct exposures. Over this period of time, economic conditions and operational performance of a particular reinsurer may impact their ability to meet these obligations and while they may continue to acknowledge their contractual obligation to do so, they may not have the financial resources or willingness to fully meet their obligation to us.

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

Generally, we use a default analysis to estimate uncollectible reinsurance. The primary components of the default analysis are reinsurance recoverable balances by reinsurer, net of collateral, and default factors used to estimate the probability that the reinsurer may be unable to meet its future obligations in full. The definition of collateral for this purpose requires some judgment and is generally limited to assets held in a Chubb-only beneficiary trust, letters of credit, and liabilities held by us with the same legal entity for which we believe there is a right of offset. We do not currently include multi-beneficiary trusts. However, we have several reinsurers that have established multi-beneficiary trusts for which certain of our companies are beneficiaries. The determination of the default factor is principally based on the financial strength rating of the reinsurer and a corresponding default factor applicable to the financial strength rating. Default factors require considerable judgment and are determined using the current financial strength rating, or rating equivalent, of each reinsurer as well as other key considerations and assumptions. Significant considerations and assumptions include, but are not necessarily limited to, the following:

•

For reinsurers that maintain a financial strength rating from a major rating agency, and for which recoverable balances are considered representative of the larger population (i.e., default probabilities are consistent with similarly rated reinsurers and payment durations conform to averages), the judgment exercised by management to determine the provision for uncollectible reinsurance of each reinsurer is typically limited because the financial rating is based on a published source and the default factor we apply is based on a historical default factor of a major rating agency applicable to the particular rating class. Default factors applied for financial ratings of AAA, AA, A, BBB, BB, B, and CCC, are 0.8 percent, 1.2 percent, 1.7 percent, 4.9 percent, 19.6 percent, 34.0 percent, and 62.2 percent, respectively. Because our model is predicated on the historical default factors of a major rating agency, we do not generally consider alternative factors. However, when a recoverable is expected to be paid in a brief period of time by a highly-rated reinsurer, such as certain property catastrophe claims, a default factor may not be applied;

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•

For balances recoverable from reinsurers that are both unrated by a major rating agency and for which management is unable to determine a credible rating equivalent based on a parent or affiliated company, we may determine a rating equivalent based on our analysis of the reinsurer that considers an assessment of the creditworthiness of the particular entity, industry benchmarks, or other factors as considered appropriate. We then apply the applicable default factor for that rating class. For balances recoverable from unrated reinsurers for which our ceded reserve is below a certain threshold, we generally apply a default factor of 34.0 percent;

•

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

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

The following table summarizes reinsurance recoverables and the provision for uncollectible reinsurance for each type of recoverable balance at December 31, 2019:

		Gross Reinsurance Recoverables on Losses and Loss Expenses				Recoverables (net of Usable Collateral)
				Provision for Uncollectible Reinsurance (1)
(in millions of U.S. dollars)
Type
Reinsurers with credit ratings		$	11,460			$	10,043			$	156
Reinsurers not rated		321				190				66
Reinsurers under supervision and insolvent reinsurers		81				79				37
Captives		2,647				378				20
Other - structured settlements and pools		988				978				37
Total		$	15,497			$	11,668			$	316

(1)	The provision for uncollectible reinsurance is based on a default analysis applied to gross reinsurance recoverables, net of approximately $3.8 billion of collateral at December 31, 2019.

At December 31, 2019, the use of different assumptions within our approach could have a material effect on the provision for uncollectible reinsurance. To the extent the creditworthiness of our reinsurers were to deteriorate due to an adverse event affecting the reinsurance industry, such as a large number of major catastrophes, actual uncollectible amounts could be significantly greater than our provision for uncollectible reinsurance. Such an event could have a material adverse effect on our financial condition, results of operations, and our liquidity. Given the various considerations used to estimate our uncollectible provision, we cannot precisely quantify the effect a specific industry event may have on the provision for uncollectible reinsurance. However, based on the composition (particularly the average credit quality) of the reinsurance recoverable balance at December 31, 2019, we estimate that a ratings downgrade of one notch for all rated reinsurers (e.g., from A to A- or A- to BBB+) could increase our provision for uncollectible reinsurance by approximately $66 million or approximately 0.4 percent of the gross reinsurance recoverable balance, assuming no other changes relevant to the calculation. While a ratings downgrade would result in an increase in our provision for uncollectible reinsurance and a charge to earnings in that period, a downgrade in and of itself does not imply that we will be unable to collect all of the ceded reinsurance recoverable from the reinsurers in question. Refer to Note 5 to the Consolidated Financial Statements for additional information.

Fair value measurements

Accounting guidance defines fair value as the price to sell an asset or transfer a liability (an exit price) in an orderly transaction between market participants and establishes a three-level valuation hierarchy based on the reliability of the inputs. The fair value hierarchy gives the highest priority to quoted prices in active markets (Level 1 inputs) and the lowest priority to unobservable data (Level 3 inputs). Level 2 includes inputs, other than quoted prices within Level 1, that are observable for assets or liabilities either directly or indirectly. Refer to Note 4 and Note 13 to the Consolidated Financial Statements for information on our fair value measurements.

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Other-than-temporary impairments (OTTI)

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

Deferred income taxes

At December 31, 2019, our net deferred tax liability was $804 million. Our deferred tax assets and liabilities primarily result from temporary differences between the amounts recorded in our consolidated financial statements and the tax basis of our assets and liabilities. We determine deferred tax assets and liabilities separately for each tax-paying component (an individual entity or group of entities that is consolidated for tax purposes) in each tax jurisdiction. The realization of deferred tax assets depends upon the existence of sufficient taxable income within the carryback or carryforward periods under the tax law in the applicable tax jurisdiction. There may be changes in tax laws in a number of countries where we transact business that impact our deferred tax assets and liabilities.

At each balance sheet date, management assesses the need to establish a valuation allowance that reduces deferred tax assets when it is more likely than not that all, or some portion, of the deferred tax assets will not be realized. The determination of the need for a valuation allowance is based on all available information including projections of future taxable income, principally derived from business plans and where appropriate available tax planning strategies. Projections of future taxable income incorporate assumptions of future business and operations that are apt to differ from actual experience. If our assumptions and estimates that resulted in our forecast of future taxable income prove to be incorrect, an additional valuation allowance could become necessary, which could have a material adverse effect on our financial condition, results of operations, and liquidity. At December 31, 2019, the valuation allowance of $114 million reflects management's assessment 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.

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 ceased writing this business in 2007. Guarantees which are payable on death are referred to as guaranteed minimum death benefits (GMDB). Guarantees on living benefits (GLB) consist mainly of guaranteed minimum income benefits (GMIB). For further description of this product and related accounting treatment, refer to Note 1 j) to the Consolidated Financial Statements.

Guaranteed living benefits (GLB) derivatives

Our GLB reinsurance is classified as a derivative for accounting purposes and therefore carried at fair value. We believe that the most meaningful presentation of these GLB derivatives is as follows:

•	Estimates of the average modeled value of future cash outflows is recorded as incurred losses (i.e., benefit reserves). Cash inflows or revenue are reported as net premiums earned and changes in the benefit reserves are reflected as Policy benefits expense in the Consolidated statements of operations, which is included in underwriting income.

•	The incremental difference between the fair value of GLB reinsurance contracts and benefit reserves is reflected in Accounts payable, accrued expenses, and other liabilities in the Consolidated balance sheets and related changes in fair value are reflected in Net realized gains (losses) in the Consolidated statements of operations.

Determination of GLB fair value

The fair value of GLB reinsurance is estimated using an internal valuation model, which includes current market information and estimates of policyholder behavior from the perspective of a theoretical market participant that would assume these liabilities. All of our treaties contain claim limits, which are factored into the valuation model. The fair value depends on a number of factors, including interest rates, equity markets, credit risk, current account value, market volatility, expected annuitization rates and other policyholder behavior, and changes in policyholder mortality. The model and related assumptions are regularly re-evaluated by management and enhanced, as appropriate, based upon additional experience obtained related to policyholder behavior and availability of more timely market information. Due to the inherent uncertainties of the assumptions used in the valuation models to determine the fair value of these derivative products, actual experience may differ materially from the estimates reflected in our Consolidated Financial Statements.

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

Determination of GLB and GMDB benefit reserves

Management established benefit reserves based on a long-term benefit ratio (or loss ratio) calculated using assumptions reflecting management’s best estimate of the future short-term and long-term performance of the variable annuity line of business. Despite the long-term nature of the risk, the benefit ratio calculation is impacted by short-term market movements that may be judged by management to be transient. Management regularly examines both qualitative and quantitative analysis, including a review of the differential between the benefit ratio used at the most recent valuation date and the benefit ratio calculated on subsequent dates. Management regularly evaluates its estimates and uses judgment to determine the extent to which assumptions underlying the benefit ratio calculation should be adjusted. For the year ended December 31, 2019, management determined that no change to the benefit ratio was warranted.

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

Risk Management

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

A second layer of risk management is the structure of the reinsurance contracts. All VA guarantee reinsurance contracts include some form of annual or aggregate claim limit(s) primarily designed to reduce our exposure to severe equity market and/or interest rate declines (which would cause an increase in expected claims).

A third layer of risk management is the hedging strategy which looks to mitigate both long-term economic loss over time as well as dampen income statement volatility. We owned financial market instruments as part of the hedging strategy with a fair value asset (liability) of $(13) million and $23 million at December 31, 2019 and 2018, respectively. The instruments are substantially collateralized on a daily basis.

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

Note that GLB claims cannot occur for any reinsured policy until it has reached the end of its “waiting period”. As shown in the table below, 92 percent of the policies we reinsure reached the end of their “waiting periods” in 2019 and prior.

Year of first payment eligibility	Percent of living benefit account values
2019 and prior	92	%
2020	1	%
2021	2	%
2022	—	%
2023	1	%
2024 and after	4	%
Total	100	%

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The following table presents the historical cash flows under these policies for the periods indicated. The amounts represent accrued past premium received and claims paid, split by benefit type.

(in millions of U.S. dollars)	2019												2018												2017
GMDB				GLB				Total				GMDB				GLB				Total				GMDB				GLB				Total
Premium received	$	40			$	91			$	131			$	47			$	96			$	143			$	49			$	110			$	159
Less paid claims	34				91				125				32				49				81				31				54				85
Net cash received	$	6			$	—			$	6			$	15			$	47			$	62			$	18			$	56			$	74

Collateral

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

Goodwill impairment assessment

Goodwill, which represents the excess of acquisition cost over the estimated fair value of net assets acquired, was $15.3 billion at both December 31, 2019 and 2018. Goodwill is assigned to applicable reporting units of acquired entities at the time of acquisition. Our reporting units are the same as our reportable segments. For goodwill balances by reporting units, refer to Note 6 to the Consolidated Financial Statements.

Goodwill is not amortized but is subject to a periodic evaluation for impairment at least annually, or earlier if there are any indications of possible impairment. Impairment is tested at the reporting unit level. The impairment evaluation first uses a qualitative assessment to determine whether it is more likely than not (i.e., more than a 50 percent probability) that the fair value of a reporting unit is greater than its carrying amount. If a reporting unit fails this qualitative assessment, a single quantitative analysis is used to measure and record the amount of the impairment.

In assessing the fair value of a reporting unit, we make assumptions and estimates about the profitability attributable to our reporting units, including:

•	short-term and long-term growth rates; and

•	estimated cost of equity and changes in long-term risk-free interest rates.

If our assumptions and estimates made in assessing the fair value of acquired entities change, we could be required to write-down the carrying value of goodwill which could be material to our results of operations in the period the charge is taken. Based on our impairment testing for 2019, we determined no impairment was required and none of our reporting units was at risk for impairment.

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Consolidated Operating Results – Years Ended December 31, 2019**,** 2018**, and** 2017

													% Change
(in millions of U.S. dollars, except for percentages)	2019				2018				2017				2019 vs. 2018			2018 vs. 2017
Net premiums written	$	32,275			$	30,579			$	29,244			5.5	%		4.6	%
Net premiums earned	31,290				30,064				29,034				4.1	%		3.5	%
Net investment income	3,426				3,305				3,125				3.6	%		5.8	%
Net realized gains (losses)	(530		)		(652		)		84				(18.8	)%		NM
Total revenues	34,186				32,717				32,243				4.5	%		1.5	%
Losses and loss expenses	18,730				18,067				18,454				3.7	%		(2.1	)%
Policy benefits	740				590				676				25.5	%		(12.7	)%
Policy acquisition costs	6,153				5,912				5,781				4.1	%		2.3	%
Administrative expenses	3,030				2,886				2,833				5.0	%		1.9	%
Interest expense	552				641				607				(13.9	)%		5.6	%
Other (income) expense	(596		)		(434		)		(400		)		37.2	%		8.5	%
Amortization of purchased intangibles	305				339				260				(10.2	)%		30.4	%
Chubb integration expenses	23				59				310				(61.7	)%		(81.0	)%
Total expenses	28,937				28,060				28,521				3.1	%		(1.6	)%
Income before income tax	5,249				4,657				3,722				12.7	%		25.1	%
Income tax expense (benefit)	795				695				(139		)		14.3	%		NM
Net income	$	4,454			$	3,962			$	3,861			12.4	%		2.6	%
Net premiums written - constant dollars (1)													7.0	%		4.1	%
Net premiums earned - constant dollars (1)													5.5	%		3.1	%
NM – not meaningful

(1)	On a constant-dollar basis. Amounts are calculated by translating prior period results using the same local currency rates as the comparable current period.

Net Premiums Written

2019 vs. 2018

Net premiums written reflect the premiums we retain after purchasing reinsurance protection. Consolidated net premiums written increased $1.7 billion in 2019, or $2.1 billion on a constant-dollar basis, reflecting growth across most segments.

•

Net premiums written in our North America Commercial P&C Insurance segment increased $890 million (7.1 percent) in 2019, reflecting positive rate increases, new business written and strong retention across most retail lines, including property, financial lines, excess casualty, risk management, and commercial package, as well as in our wholesale and high excess Bermuda lines, and in our small commercial businesses.

•

Net premiums written in our North America Personal P&C Insurance segment increased $113 million (2.4 percent) in 2019, primarily due to strong retention and rate and exposure increases across most lines, partially offset by a $44 million benefit in 2018 related to the harmonization of our legacy premium registration systems, which unfavorably impacted growth by approximately 0.9 percentage points.

•

Net premiums written in our North America Agricultural Insurance segment increased $233 million (14.8 percent) in 2019, primarily due to growth in our MPCI business and growth in our Chubb Agribusiness. Growth in our MPCI premium was driven primarily by higher retention as a result of the premium sharing formulas under the U.S. government, as well as the non-renewal of a quota-share treaty effective with the current crop year and an increase in current year production. Under the MPCI premium sharing formula under the U.S. government, we cede additional premiums to the government during profitable years. In 2018, the program was more profitable which resulted in higher cessions compared to 2019.

•

Net premiums written in our Overseas General Insurance segment increased $360 million (4.0 percent) in 2019, or $722 million (8.4 percent) on a constant-dollar basis, reflecting growth across all regions and most lines of business. P&C lines growth was across all regions and was principally due to positive rate increases and new business in property, casualty, and financial lines. Personal lines growth was driven by new business principally in Latin America and Europe. Accident and health (A&H) lines growth was principally in Asia and Latin America driven by new business.

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•	Net premiums written in our Global Reinsurance segment decreased $22 million (3.2 percent) in 2019, or $12 million (1.7 percent) on a constant-dollar basis, as an increase in new business written in property and marine lines was more than offset by an increase in ceded retrocessions, reductions in the international motor line, and higher reinstatement premiums collected in the prior year.

•

Net premiums written in our Life Insurance segment increased $122 million (5.3 percent) in 2019, or $143 million (6.4 percent) on a constant-dollar basis, primarily reflecting growth in our Asian and Latin American international life operations and North American Combined Insurance supplemental A&H program, partially offset by our life reinsurance business, which continues to decline as no new life reinsurance business is being written.

2018 vs. 2017

Consolidated net premiums written increased $1.3 billion in 2018, or $1.2 billion (4.1 percent) on a constant-dollar basis, reflecting growth across most segments.

•

Net premiums written in our North America Commercial P&C Insurance segment increased $466 million (3.9 percent) in 2018 reflecting positive rate increases, new business written, and strong renewals across a number of lines. Retail casualty and risk management, A&H, retail property, and continued growth in our small commercial business represented $339 million of the $466 million increase. In addition, the year-over-year increase in large structured transactions was $195 million. This growth was partially offset by merger-related underwriting actions of $123 million and premium reductions from planned portfolio management in our retail and wholesale brokerage financial lines ($62 million).

•

Net premiums written in our North America Personal P&C Insurance segment increased $141 million (3.1 percent) for 2018, primarily due to strong retention and new business growth in homeowners and complementary products such as automobiles and valuables. In addition, the non-renewal of a quota share treaty in the second quarter of 2017 covering the acquired Fireman's Fund homeowners and automobile businesses added $47 million of additional net premiums written in 2018. These increases were partially offset by the addition of California to the homeowners quota share reinsurance treaty, effective October 1, 2018 ($47 million), which included a non-recurring unearned premium reserves (UPR) transfer of $32 million.

•

Net premiums written in our North America Agricultural Insurance segment increased $61 million (4.0 percent) in 2018, primarily due to growth in our MPCI business and growth in our Chubb Agribusiness. The growth in MPCI premium was driven by policy count growth and the year-over-year impact of the premium sharing formulas under the U.S. government. In 2017, the program was more profitable which resulted in higher cessions compared to 2018. The increase was partially offset by lower volatility factors, which are a component of the policy pricing that measures the likelihood the commodity price will fluctuate over the crop year and reduces the premium we charge.

•

Net premiums written in our Overseas General Insurance segment increased $552 million (6.6 percent) in 2018, or $448 million (5.3 percent) on a constant-dollar basis, reflecting growth across most regions and lines of business. P&C lines growth was across all regions, principally in small commercial property and general casualty lines reflecting new business, and in middle market driven by new business and rate increases. Personal lines growth was principally in our automobile line in Mexico driven by new business, as well as in our specialty lines in Asia. A&H lines growth was principally in Asia driven by new business.

•

Net premiums written in our Global Reinsurance segment decreased $14 million (2.1 percent) in 2018, or $22 million (3.3 percent) on a constant-dollar basis, primarily due to higher reinstatement premiums collected in the prior year principally relating to the 2017 natural catastrophes ($15 million year-over-year decrease) and lower renewals, which is reflective of competitive market conditions primarily in catastrophe and catastrophe exposed lines of business, partially offset by new business written in the casualty line of business.

•

Net premiums written in our Life Insurance segment increased $129 million (6.1 percent) in 2018, or $123 million (5.7 percent) on a constant-dollar basis, primarily due to growth in our North American Combined Insurance supplemental A&H program business, and Asian and Latin American international life operations, partially offset by our life reinsurance business, which continues to decline as no new life reinsurance business is being written.

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Net Premiums Written By Line of Business

																	% Change
(in millions of U.S. dollars, except for percentages)	2019				2018				2017				C$ (1) 2018				C$ (1) 2019 vs. 2018
Commercial casualty	$	5,654			$	5,204			$	4,721			$	5,154			9.7	%
Workers' compensation	2,098				2,094				2,067				2,094				0.1	%
Professional liability	3,697				3,527				3,547				3,479				6.3	%
Surety	639				635				627				622				2.7	%
Commercial multiple peril (2)	983				910				879				910				8.0	%
Property and other short-tail lines	4,468				4,016				3,819				3,930				13.7	%
Total Commercial P&C (3)	17,539				16,386				15,660				16,189				8.3	%
Agriculture	1,810				1,577				1,516				1,577				14.8	%
Personal automobile	1,786				1,695				1,563				1,685				6.0	%
Personal homeowners	3,513				3,391				3,302				3,383				3.9	%
Personal other	1,514				1,508				1,441				1,454				4.0	%
Total Personal lines	6,813				6,594				6,306				6,522				4.4	%
Total Property and Casualty lines	26,162				24,557				23,482				24,288				7.7	%
Global A&H lines (4)	4,315				4,277				4,056				4,157				3.8	%
Reinsurance lines	649				671				685				661				(1.7	)%
Life	1,149				1,074				1,021				1,059				8.5	%
Total consolidated	$	32,275			$	30,579			$	29,244			$	30,165			7.0	%

(1)	On a constant-dollar basis. Amounts are calculated by translating prior period results using the same local currency rates as the comparable current period.

(2)	Commercial multiple peril represents retail package business (property and general liability).

(3)	2018 included a reclassification of $56 million from Workers’ compensation and $1 million from Commercial multiple peril to Commercial casualty ($48 million) and Property and other short-tail lines ($9 million) to better align the reporting with current year. There is no impact to total Commercial P&C.

(4)	For purposes of this schedule only, A&H results from our Combined North America and International businesses, normally included in the Life Insurance and Overseas General Insurance segments, respectively, as well as the A&H results of our North America Commercial P&C segment, are included in Global A&H lines above.

The increase in net premiums written in 2019 reflects growth across most lines of business.

•	The growth in commercial casualty was due to new business and rate improvement in North America. In addition, commercial casualty grew internationally due to positive rate increases and new business across Europe, as well as growth in Australia.

•	Growth in workers' compensation was adversely impacted by competitive market conditions in North America.

•	The increase in professional liability was due to growth in North America and new business in Australia and Europe. Professional liability also had positive rate increases and retention in Australia.

•	Surety increased due to new business in North America.

•	Commercial multiple peril increased due to new business and higher renewal business in North America.

•	Property and other short-tail lines increased due to growth in North America. In addition, property and other short-tail lines increased internationally, primarily due to new business in Australia and across Europe, as well as positive rate increases internationally.

•	Our personal lines increased due to strong retention and rate and exposure increases in North America. Personal lines also increased due to growth in Latin America and Europe.

•	Global A&H lines increased due to growth in our North American Combined Insurance supplemental A&H program, along with new business in Asia and Latin America.

•	The increase in Life was primarily driven by growth in our Asian and Latin American international life operations.

For additional information on net premiums written, refer to the segment results discussions.

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Net Premiums Earned

2019 vs. 2018

Net premiums earned for short-duration contracts, typically P&C contracts, generally reflect the portion of net premiums written that were recorded as revenues for the period as the exposure periods expire. Net premiums earned for long-duration contracts, typically traditional life contracts, generally are recognized as earned when due from policyholders. Net premiums earned increased $1.2 billion, or $1.6 billion on a constant-dollar basis in 2019, reflecting the growth in net premiums written described above, including the impact of premiums that were fully earned when written (e.g., large structured transactions and audit and retrospective premium adjustments).

2018 vs. 2017

Net premiums earned increased $1.0 billion, or $912 million on a constant-dollar basis in 2018, primarily due to the same factors driving the increase in net premiums written as described above. Net premiums earned were favorably impacted by the year-over-year increase in large structured transactions ($163 million), a number of which were earned immediately when written. These retroactive transactions did not impact premiums earned in 2019 as they were fully earned in 2018.

P&C Combined Ratio

In evaluating our segments excluding Life Insurance financial performance, we use the P&C combined ratio, the loss and loss expense ratio, the policy acquisition cost ratio, and the administrative expense ratio. We calculate these ratios by dividing the respective expense amounts by net premiums earned. We do not calculate these ratios for the Life Insurance segment as we do not use these measures to monitor or manage that segment. The P&C combined ratio is determined by adding the loss and loss expense ratio, the policy acquisition cost ratio, and the administrative expense ratio. A P&C combined ratio under 100 percent indicates underwriting income, and a combined ratio exceeding 100 percent indicates underwriting loss.

	2019			2018			2017
Loss and loss expense ratio	62.1	%		62.1	%		65.8	%
Policy acquisition cost ratio	19.1	%		19.2	%		19.5	%
Administrative expense ratio	9.4	%		9.3	%		9.4	%
P&C Combined ratio	90.6	%		90.6	%		94.7	%

The loss and loss expense ratio decreased 3.7 percentage points in 2018 principally due to the following:

•	Lower catastrophe losses;

•	Integration-related claims handling expense savings;

•	Partially offset by increased frequency and severity of homeowners losses in our North America Personal P&C Insurance segment, primarily non-catastrophe water related events and large fire losses which are trending above our expectations, and higher non-catastrophe large losses in our North America Commercial P&C Insurance segment.

Policy acquisition costs consist of commissions, premium taxes, and certain underwriting costs directly related to the successful acquisition of a new or renewal insurance contract. Our policy acquisition cost ratio decreased 0.3 percentage points in 2018 principally due to increased cessions under certain reinsurance agreements that resulted in higher ceded acquisition costs benefits than in the prior year.

Catastrophe Losses and Prior Period Development

Catastrophe losses exclude reinstatement premiums which are additional premiums paid on certain reinsurance agreements in order to reinstate coverage that had been exhausted by loss occurrences. The reinstatement premium amount is typically a pro rata portion of the original ceded premium paid based on how much of the reinsurance limit had been exhausted. Prior period development is net of related adjustments which typically relate to either profit commission reserves or policyholder dividend reserves based on actual claim experience that develops after the policy period ends. The expense adjustments correlate to the prior period loss development on these same policies. Refer to the Non-GAAP Reconciliation section for further information on reinstatement premiums on catastrophe losses and adjustments to prior period development.

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(in millions of U.S dollars)	2019				2018				2017
Catastrophe losses (excludes reinstatement premiums)	$	1,175			$	1,622			$	2,753
Favorable prior period development	$	792			$	896			$	829

We generally define catastrophe loss events consistent with the definition of the Property Claims Service (PCS) for events in the U.S. and Canada. PCS defines a catastrophe as an event that causes damage of $25 million or more in insured property losses and affects a significant number of insureds. For events outside of the U.S. and Canada, we generally use a similar definition. The tables below represent catastrophe loss estimates for events that occurred in the related calendar year only. Changes in catastrophe loss estimates in the current calendar year that relate to loss events that occurred in previous calendar years are considered prior period development and are excluded from the tables below.

The following table presents catastrophe losses and reinstatement premiums (RIPs) collected (expensed) in 2019:

	Catastrophe Loss Charge by Event
	North America Commercial P&C Insurance				North America Personal P&C Insurance				North America Agricultural Insurance				Overseas General Insurance				Global Reinsurance				Total excluding RIPs				RIPs collected (expensed)				Total including RIPs
(in millions of U.S. dollars)
Net losses
U.S. flooding, hail, tornadoes, and wind events	$	220			$	202			$	7			$	—			$	9			$	438			$	—			$	438
Tornado in Dallas, Texas	55				145				—				—				2				202				(11		)		213
Winter-related storms	74				110				1				6				2				193				—				193
Hurricane Dorian	26				30				—				10				8				74				1				73
California wildfires	11				45				—				—				—				56				—				56
Typhoon Hagibis	—				—				—				20				17				37				1				36
Civil unrest in Hong Kong and Chile	—				—				—				33				—				33				(4		)		37
International weather-related events	1				2				—				30				—				33				—				33
Tropical Storm Imelda	26				4				—				—				1				31				—				31
Australia storms	—				—				—				27				1				28				—				28
Typhoon Faxai	—				—				—				15				10				25				1				24
Hurricane Barry	3				4				—				—				—				7				—				7
Australia wildfires	—				—				—				5				—				5				—				5
Other	5				1				—				6				1				13				—				13
Total	$	421			$	543			$	8			$	152			$	51			$	1,175
RIPs collected (expensed)	—				(11		)		—				(4		)		3								(12		)
Total before income tax	$	421			$	554			$	8			$	156			$	48											$	1,187
Income tax benefit																													221
Total after income tax																													$	966

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The following table presents catastrophe losses and reinstatement premiums (RIPs) collected (expensed) in 2018:

	Catastrophe Loss Charge by Event
	North America Commercial P&C Insurance				North America Personal P&C Insurance				North America Agricultural Insurance				Overseas General Insurance				Global Reinsurance				Total excluding RIPs				RIPs collected (expensed)				Total including RIPs
(in millions of U.S. dollars)
Net losses
Hurricane Michael	$	187			$	16			$	6			$	6			$	85			$	300			$	15			$	285
U.S. flooding, hail, tornadoes, and wind events (1)	162				157				7				—				6				332				—				332
Northeast winter storms	43				117				—				—				5				165				—				165
California wildfires	51				61				1				1				58				172				(23		)		195
Hurricane Florence	109				29				7				15				14				174				1				173
California mudslides	4				120				—				1				—				125				—				125
Colorado rain and hail storm	7				65				—				1				—				73				—				73
International weather-related events	—				—				—				182				31				213				2				211
Other	16				46				—				—				6				68				1				67
Total	$	579			$	611			$	21			$	206			$	205			$	1,622
RIPs collected (expensed)	—				(26		)		—				—				22								(4		)
Total before income tax	$	579			$	637			$	21			$	206			$	183											$	1,626
Income tax benefit																													272
Total after income tax																													$	1,354

(1)	This grouping comprised of 34 separate events, principally impacting the southern and northeastern regions of the U.S.

The following table presents catastrophe losses and reinstatement premiums (RIPs) collected (expensed) in 2017:

	Catastrophe Loss Charge by Event
	North America Commercial P&C Insurance				North America Personal P&C Insurance				North America Agricultural Insurance				Overseas General Insurance				Global Reinsurance				Total excluding RIPs				RIPs collected (expensed)				Total including RIPs
(in millions of U.S. dollars)
Net losses
N. California wildfires	$	61			$	151			$	—			$	2			$	42			$	256			$	(21	)		$	277
S. California wildfires	23				134				—				—				—				157				—				157
Hurricane Harvey	391				175				1				40				48				655				5				650
Hurricane Irma	464				206				2				79				159				910				30				880
Hurricane Maria	50				—				—				89				55				194				(7		)		201
Mexico Earthquakes	—				—				—				25				—				25				—				25
Other	231				205				15				96				9				556				—				556
Total	$	1,220			$	871			$	18			$	331			$	313			$	2,753
RIPs collected (expensed)	(4		)		(22		)		—				(4		)		37								7
Total before income tax	$	1,224			$	893			$	18			$	335			$	276											$	2,746
Income tax benefit																													575
Total after income tax																													$	2,171

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Prior period development (PPD) 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.

Pre-tax net favorable prior period development for the year ended 2019 was $792 million, which included favorable development of $80 million in our crop insurance business and adverse development of $116 million related to legacy run-off exposures, principally asbestos and environmental liabilities. The remaining favorable development of $828 million comprised 92 percent long-tail lines, principally from accident years 2015 and prior, and 8 percent short-tail lines.

Net favorable prior period development for the year ended 2018 was $896 million, which included favorable reinsurance settlements of $205 million related to legacy run-off exposures, $197 million favorable development related to the 2017 catastrophe events, and favorable development of $110 million in our crop insurance business. There were $216 million of adverse development related to legacy run-off exposures, principally asbestos and environmental liabilities. The remaining favorable development of $600 million comprised 82 percent long-tail lines, principally for the 2014 and prior accident years, and 18 percent short-tail lines.

Refer to the Prior Period Development section in Note 7 to the Consolidated Financial Statements for additional information.

Current Accident Year (CAY) Loss Ratio excluding Catastrophe Losses (CATs)

The following table presents the impact of catastrophe losses and prior period development on our loss and loss expense ratio. Refer to the Non-GAAP Reconciliation section for additional information.

	2019			2018			2017
Loss and loss expense ratio	62.1	%		62.1	%		65.8	%
Catastrophe losses	(4.1	)%		(5.8	)%		(10.2	)%
Favorable prior period development	2.8	%		3.3	%		3.2	%
CAY loss ratio excluding catastrophe losses	60.8	%		59.6	%		58.8	%

2019 vs. 2018

The CAY loss ratio excluding catastrophe losses increased 1.2 percentage points in 2019 principally due to the following:

•	Downward revision in the 2019 crop year margin estimate reflecting preventive planting claims due to the impact of wet weather conditions and crop yield shortfalls resulting from poor growing conditions;

•	Change in mix of business and earned price changes modestly below loss trends in certain classes of our business;

•	Partially offset by the adverse impact of elevated homeowners losses in the prior year.

2018 vs. 2017

The CAY loss ratio excluding catastrophe losses increased 0.8 percentage points in 2018 principally due to the following:

•	Increased frequency and severity of homeowners losses in our North America Personal P&C Insurance segment, primarily non-catastrophe water related events and large fire losses;

•	Higher non-catastrophe large losses in our North America Commercial P&C Insurance segment;

•	Partially offset by integration-related claims handling expense savings realized.

CAY P&C Combined Ratio excluding CATs

	2019			2018			2017
CAY Loss and loss expense ratio ex CATs	60.8	%		59.6	%		58.8	%
CAY Policy acquisition cost ratio ex CATs	19.1	%		19.2	%		19.4	%
CAY Administrative expense ratio ex CATs	9.3	%		9.2	%		9.4	%
CAY P&C combined ratio ex CATs	89.2	%		88.0	%		87.6	%

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Policy benefits

Policy benefits represent losses on contracts classified as long-duration and generally include accident and supplemental health products, term and whole life products, endowment products, and annuities. Refer to the Life Insurance segment operating results section for further discussion.

Policy benefits were $740 million, $590 million and $676 million in 2019, 2018 and 2017, respectively, which included separate account liabilities (gains) losses of $44 million, $(38) million and $97 million, respectively. The offsetting movements of these liabilities are recorded in Other (income) expense on the Consolidated statements of operations. Excluding the separate account gains and losses, Policy benefits were $696 million in 2019, compared with $628 million and $579 million in 2018 and 2017, respectively.

Refer to the respective sections that follow for a discussion of Net investment income, Interest expense, Other (income) expense, Net realized gains and losses, Amortization of purchased intangibles, and Income tax expense.

Segment Operating Results – Years Ended December 31, 2019**,** 2018**, and** 2017

We operate through six business segments: North America Commercial P&C Insurance, North America Personal P&C Insurance, North America Agricultural Insurance, Overseas General Insurance, Global Reinsurance, and Life Insurance. In addition, the results of our run-off Brandywine business, including all run-off asbestos and environmental (A&E) exposures, and the results of Westchester specialty operations for 1996 and prior years are presented within Corporate.

North America Commercial P&C Insurance

The North America Commercial P&C Insurance segment comprises operations that provide property and casualty (P&C) insurance and services to large, middle market, and small commercial businesses in the U.S., Canada, and Bermuda. This segment includes our North America Major Accounts and Specialty Insurance division (large corporate accounts and wholesale business), and the North America Commercial Insurance division (principally middle market and small commercial accounts).

													% Change
(in millions of U.S. dollars, except for percentages)	2019				2018				2017				2019 vs. 2018					2018 vs. 2017
Net premiums written	$	13,375			$	12,485			$	12,019			7.1			%		3.9			%
Net premiums earned	12,922				12,402				12,191				4.2			%		1.7			%
Losses and loss expenses	8,206				8,000				8,287				2.6			%		(3.5			)%
Policy acquisition costs	1,831				1,829				1,873				0.2			%		(2.3			)%
Administrative expenses	1,028				966				981				6.4			%		(1.5			)%
Underwriting income	1,857				1,607				1,050				15.5			%		53.0			%
Net investment income	2,082				2,033				1,961				2.4			%		3.7			%
Other (income) expense	(3		)		(25		)		1				(86.5			)%		NM
Segment income	$	3,942			$	3,665			$	3,010			7.5			%		21.8			%
Loss and loss expense ratio	63.5		%		64.5		%		68.0		%		(1.0	)	pt			(3.5	)	pts
Policy acquisition cost ratio	14.2		%		14.7		%		15.4		%		(0.5	)	pts			(0.7	)	pts
Administrative expense ratio	7.9		%		7.8		%		8.0		%		0.1		pts			(0.2	)	pts
Combined ratio	85.6		%		87.0		%		91.4		%		(1.4	)	pts			(4.4	)	pts

NM – not meaningful

Premiums

The table below shows the impact of large structured transactions as well as other transactions that are fully earned when written (e.g., audit and retrospective premium adjustments).

(in millions of U.S. dollars)	2019				2018				2017
Net premiums fully earned when written	$	391			$	342			$	160

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2019 vs. 2018

Net premiums written increased $890 million, or 7.1 percent in 2019, reflecting positive rate increases, new business written and strong retention across most retail lines, including property, financial lines, excess casualty, risk management, and commercial package, as well as in our wholesale and high excess Bermuda lines, and in our small commercial businesses.

Net premiums earned increased $520 million, or 4.2 percent in 2019, due to the growth in net premiums written described above.

2018 vs. 2017

Net premiums written increased $466 million, or 3.9 percent in 2018 reflecting positive rate increases, new business written, and strong renewals across a number of lines. Retail casualty and risk management, A&H, retail property, and continued growth in our small commercial business represented $339 million of the $466 million increase. In addition, the year-over-year increase in large structured transactions was $195 million. This growth was partially offset by merger-related underwriting actions of $123 million and premium reductions from planned portfolio management in our retail and wholesale brokerage financial lines ($62 million).

Net premiums earned increased $211 million, or 1.7 percent in 2018 principally reflecting the net premiums written increases described above and the year-over-year increase in large structured transactions ($163 million), a number of which were earned immediately when written as they were retroactive covers.

Combined Ratio

2019 vs. 2018

The loss and loss expense ratio decreased 1.0 percentage point in 2019, primarily due to lower catastrophe losses, partially offset by a change in mix of business and earned price changes modestly below loss trends in certain classes of our business.

The policy acquisition cost ratio decreased 0.5 percentage points in 2019, due to a change in mix of business towards lower acquisition cost ratio lines and increased cessions under certain reinsurance agreements that resulted in higher ceded acquisition cost benefits than in the prior year.

2018 vs. 2017

The loss and loss expense ratio decreased 3.5 percentage points in 2018, primarily due to lower catastrophe losses and integration-related claims handling expense savings realized, partially offset by lower favorable prior period development, higher non-catastrophe losses (0.4 percentage points), and a less favorable adjustment to our claims handling reserve in the current year relative to 2017.

The policy acquisition cost ratio decreased 0.7 percentage points in 2018, due to increased cessions under certain reinsurance agreements that resulted in higher ceded acquisition costs benefits than in the prior year.

The administrative expense ratio decreased 0.2 percentage points in 2018, primarily due to integration-related expense savings realized, higher net profit from our third-party claims administration business, ESIS, and the net favorable impact of one-time expense accrual releases.

Catastrophe Losses and Prior Period Development

(in millions of U.S. dollars)	2019				2018				2017
Catastrophe losses (excludes reinstatement premiums)	$	421			$	579			$	1,220
Favorable prior period development	$	649			$	610			$	746

Catastrophe losses were primarily from the following events (refer to the table on page 54):

•	2019: Winter-related storms and other severe weather-related events in the U.S., including tornadoes in Texas, Hurricane Dorian, and Tropical Storm Imelda

•	2018: Hurricanes Florence and Michael, and severe weather-related events in the U.S., including California wildfires

•	2017: Hurricanes Harvey, Irma and Maria and severe weather-related events in the U.S., including California wildfires

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CAY Loss Ratio excluding Catastrophe Losses

	2019			2018			2017
Loss and loss expense ratio	63.5	%		64.5	%		68.0	%
Catastrophe losses	(3.3	)%		(4.7	)%		(10.0	)%
Favorable prior period development	5.1	%		5.1	%		6.3	%
CAY loss ratio excluding catastrophe losses	65.3	%		64.9	%		64.3	%

2019 vs. 2018

The CAY loss ratio excluding catastrophe losses increased 0.4 percentage points for 2019 due to a change in mix of business and earned price changes modestly below loss trends in certain classes of our business.

2018 vs. 2017

The CAY loss ratio excluding catastrophe losses increased 0.6 percentage points for 2018, due to higher year-over-year large loss activity and a less favorable adjustment to our claims handling reserve in the current year relative to 2017, partially offset by integration-related claims handling expense savings realized.

North America Personal P&C Insurance

The North America Personal P&C Insurance segment comprises operations that provide high net worth personal lines products, including homeowners and complementary products such as valuable articles, excess liability, automobile, and recreational marine insurance and services in the U.S. and Canada.

													% Change
(in millions of U.S. dollars, except for percentages)	2019				2018				2017				2019 vs. 2018					2018 vs. 2017
Net premiums written	$	4,787			$	4,674			$	4,533			2.4			%		3.1			%
Net premiums earned	4,694				4,593				4,399				2.2			%		4.4			%
Losses and loss expenses	3,043				3,229				3,265				(5.8			)%		(1.1			)%
Policy acquisition costs	948				939				899				1.0			%		4.4			%
Administrative expenses	286				269				264				6.0			%		1.9			%
Underwriting income (loss)	417				156				(29		)		167.2			%		NM
Net investment income	258				236				226				9.2			%		4.4			%
Other (income) expense	3				1				4				117.1			%		(75.0			)%
Amortization of purchased intangibles	12				13				16				(11.1			)%		(18.8			)%
Segment income	$	660			$	378			$	177			74.7			%		113.6			%
Loss and loss expense ratio	64.8		%		70.3		%		74.2		%		(5.5	)	pts			(3.9	)	pts
Policy acquisition cost ratio	20.2		%		20.4		%		20.4		%		(0.2	)	pts			—
Administrative expense ratio	6.1		%		5.9		%		6.1		%		0.2		pts			(0.2	)	pts
Combined ratio	91.1		%		96.6		%		100.7		%		(5.5	)	pts			(4.1	)	pts

NM – not meaningful

Premiums

2019 vs. 2018

Net premiums written increased $113 million, or 2.4 percent for 2019, primarily due to strong retention and rate and exposure increases across most lines, partially offset by a $44 million benefit in 2018 related to the harmonization of our legacy premium registration systems, which unfavorably impacted growth by approximately 0.9 percentage points.

Net premiums earned increased $101 million, or 2.2 percent for 2019, reflecting the growth in net premiums written described above.

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2018 vs. 2017

Net premiums written increased $141 million, or 3.1 percent for 2018, primarily due to strong retention and new business growth in homeowners and complementary products such as automobiles and valuables. In addition, the non-renewal of a quota share treaty in the second quarter of 2017 covering the acquired Fireman's Fund homeowners and automobile businesses added $47 million of additional net premiums written in 2018. These increases were partially offset by the addition of California to the homeowners quota share reinsurance treaty, effective October 1, 2018 ($47 million), which included a non-recurring unearned premium reserves (UPR) transfer of $32 million.

Net premiums earned increased $194 million, or 4.4 percent for 2018, primarily due to the factors described above.

Combined Ratio

2019 vs. 2018

The loss and loss expense ratio decreased 5.5 percentage points in 2019, primarily due to lower catastrophe losses and favorable prior period development in the current year compared to unfavorable prior period development in the prior year. Additionally, the prior year underlying loss ratio was elevated principally due to increased frequency and severity, primarily non-catastrophe water and fire losses in our homeowners business.

The policy acquisition cost ratio decreased 0.2 percentage points in 2019, primarily due to higher ceded commission benefits.

2018 vs. 2017

The loss and loss expense ratio decreased 3.9 percentage points in 2018, primarily due to lower catastrophe losses (6.5 percentage points), lower unfavorable prior period development (0.6 percentage points), and integration-related claims handling expense savings realized. These decreases were offset by increased frequency and severity of homeowners losses primarily non-catastrophe water related events and large fire losses which are trending above our expectations (3.3 percentage points).

The policy acquisition cost ratio remained flat in 2018. The administrative expense ratio decreased 0.2 percentage points in 2018, primarily due to integration-related expense savings realized that exceeded normal merit and inflation.

Catastrophe Losses and Prior Period Development

(in millions of U.S. dollars)	2019				2018				2017
Catastrophe losses (excludes reinstatement premiums)	$	543			$	611			$	871
Favorable (unfavorable) prior period development	$	95			$	(41	)		$	(69	)

Catastrophe losses were primarily from the following events (refer to the table on page 54):

•	2019: Winter-related storms and other severe weather-related events in the U.S., including tornadoes in Texas, California wildfires and Hurricane Dorian

•	2018: Colorado rain and hailstorms, Hurricanes Florence and Michael, California mudslides, and other severe weather-related events in the U.S., including California wildfires

•	2017: Hurricanes Harvey and Irma and severe weather-related events in the U.S., including California wildfires

CAY Loss Ratio excluding Catastrophe Losses

	2019			2018			2017
Loss and loss expense ratio	64.8	%		70.3	%		74.2	%
Catastrophe losses	(11.6	)%		(13.6	)%		(20.1	)%
Favorable (unfavorable) prior period development	1.9	%		(0.9	)%		(1.5	)%
CAY loss ratio excluding catastrophe losses	55.1	%		55.8	%		52.6	%

2019 vs. 2018

The CAY loss ratio excluding catastrophe losses decreased 0.7 percentage points in 2019. The prior year underlying loss ratio was elevated, principally due to increased frequency and severity, primarily non-catastrophe water and fire losses in our homeowners business.

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2018 vs. 2017

The CAY loss ratio excluding catastrophe losses increased 3.2 percentage points in 2018, due to increased frequency and severity of homeowners losses primarily non-catastrophe water related events and large fire losses.

North America Agricultural Insurance

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

													% Change
(in millions of U.S. dollars, except for percentages)	2019				2018				2017				2019 vs. 2018					2018 vs. 2017
Net premiums written	$	1,810			$	1,577			$	1,516			14.8			%		4.0			%
Net premiums earned	1,795				1,569				1,508				14.4			%		4.1			%
Adjusted losses and loss expenses	1,616				1,114				1,043				45.1			%		6.8			%
Policy acquisition costs	84				79				81				6.8			%		(2.5			)%
Administrative expenses	6				(9		)		(8		)		NM					12.5			%
Underwriting income	89				385				392				(77.0			)%		(1.8			)%
Net investment income	30				28				25				5.0			%		12.0			%
Other (income) expense	1				2				2				(33.6			)%		—
Amortization of purchased intangibles	28				28				29				(2.0			)%		(3.4			)%
Segment income	$	90			$	383			$	386			(76.6			)%		(0.8			)%
Loss and loss expense ratio	90.1		%		71.0		%		69.2		%		19.1		pts			1.8		pts
Policy acquisition cost ratio	4.7		%		5.0		%		5.4		%		(0.3	)	pts			(0.4	)	pts
Administrative expense ratio	0.3		%		(0.5		)%		(0.6		)%		0.8		pts			0.1		pts
Combined ratio	95.1		%		75.5		%		74.0		%		19.6		pts			1.5		pts

NM – not meaningful

Premiums

2019 vs. 2018

Net premiums written increased $233 million, or 14.8 percent in 2019, primarily due to growth in our MPCI business and growth in our Chubb Agribusiness. Growth in our MPCI premium was driven primarily by higher retention as a result of the premium sharing formulas under the U.S. government, as well as the non-renewal of a quota-share treaty effective with the current crop year and an increase in current year production. Under the MPCI premium sharing formula under the U.S. government, we cede additional premiums to the government during profitable years. In 2018, the program was more profitable which resulted in higher cessions compared to 2019.

Net premiums earned increased $226 million, or 14.4 percent in 2019, reflecting the growth in net premiums written described above.

2018 vs. 2017

Net premiums written increased $61 million, or 4.0 percent in 2018, primarily due to growth in our MPCI business and growth in our Chubb Agribusiness. The growth in MPCI premium was driven by policy count growth and the year-over-year impact of the premium sharing formulas under the U.S. government. In 2017, the program was more profitable which resulted in higher cessions compared to 2018. The increase was partially offset by lower volatility factors, which are a component of the policy pricing that measures the likelihood the commodity price will fluctuate over the crop year and reduces the premium we charge.

Net premiums earned increased $61 million, or 4.1 percent in 2018, due to the factors described above.

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Combined Ratio

2019 vs. 2018

The loss and loss expense ratio increased 19.1 percentage points in 2019, principally due to lower favorable prior period development and the downward revision in the 2019 crop year margin estimate reflecting preventive planting claims due to the impact of wet weather conditions and crop yield shortfalls resulting from poor growing conditions. The increase in the loss ratio was partially offset by lower catastrophe losses.

The policy acquisition cost ratio decreased 0.3 percentage points in 2019, primarily due to lower agent profit sharing commission.

The administrative expense ratio increased 0.8 percentage points in 2019, primarily due to a reduction in the current year Administrative and Operating (A&O) reimbursements on the MPCI business we received under the government program and normal operating expense and inflationary increases.

2018 vs. 2017

The loss and loss expense ratio increased 1.8 percentage points in 2018 due to higher catastrophe losses and lower favorable prior period development.

The policy acquisition cost ratio decreased 0.4 percentage points in 2018 due to lower MPCI reinsurance cessions in the current year.

Catastrophe Losses and Prior Period Development

(in millions of U.S. dollars)	2019				2018				2017
Catastrophe losses (excludes reinstatement premiums)	$	8			$	21			$	18
Favorable prior period development	$	80			$	110			$	119

Catastrophe losses in 2019, 2018, and 2017 were primarily from severe weather-related events in the U.S. in our farm, ranch and specialty P&C businesses. Refer to the table on page 54.

Net favorable prior period development was $80 million, $110 million, and $119 million in 2019, 2018, and 2017, respectively. For 2019, the prior period development amount included $103 million of favorable incurred losses and $13 million of lower acquisition costs due to lower than expected MPCI losses for the 2018 crop year, partially offset by a $36 million decrease in net premiums earned related to the MPCI profit and loss calculation formula. For 2018, the prior period development amount included $140 million of favorable incurred losses and $10 million of lower acquisition costs due to lower than expected MPCI losses for the 2017 crop year, partially offset by a $40 million decrease in net premiums earned related to the MPCI profit and loss calculation formula.

CAY Loss Ratio excluding Catastrophe Losses

	2019			2018			2017
Loss and loss expense ratio	90.1	%		71.0	%		69.2	%
Catastrophe losses	(0.5	)%		(1.3	)%		(1.2	)%
Favorable prior period development	3.9	%		7.0	%		8.2	%
CAY loss ratio excluding catastrophe losses	93.5	%		76.7	%		76.2	%

2019 vs. 2018

The CAY loss ratio excluding catastrophe losses increased 16.8 percentage points in 2019, principally due to the downward revision in the 2019 crop year margin estimate reflecting preventive planting claims due to the impact of wet weather conditions and crop yield shortfalls resulting from poor growing conditions.

2018 vs. 2017

The CAY loss ratio excluding catastrophe losses increased 0.5 percentage points in 2018, primarily due to a less favorable crop margin in the current year versus 2017, partially offset by lower underlying losses in our Chubb Agribusiness unit.

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Overseas General Insurance

Overseas General Insurance segment comprises Chubb International and Chubb Global Markets (CGM). Chubb International comprises our international commercial P&C traditional and specialty lines serving large corporations, middle market and small customers; A&H and traditional and specialty personal lines business serving local territories outside the U.S., Bermuda, and Canada. CGM, our London-based international commercial P&C excess and surplus lines business, includes Lloyd's of London (Lloyd's) Syndicate 2488. Chubb provides funds at Lloyd's to support underwriting by Syndicate 2488 which is managed by Chubb Underwriting Agencies Limited.

													% Change
(in millions of U.S. dollars, except for percentages)	2019				2018				2017				2019 vs. 2018					2018 vs. 2017
Net premiums written	$	9,262			$	8,902			$	8,350			4.0			%		6.6			%
Net premiums earned	8,882				8,612				8,131				3.1			%		5.9			%
Losses and loss expenses	4,606				4,429				4,281				4.0			%		3.5			%
Policy acquisition costs	2,501				2,346				2,221				6.6			%		5.6			%
Administrative expenses	1,033				1,014				982				1.9			%		3.3			%
Underwriting income	742				823				647				(9.8			)%		27.2			%
Net investment income	588				619				610				(5.1			)%		1.5			%
Other (income) expense	12				—				(4		)		NM					NM
Amortization of purchased intangibles	45				41				45				8.3			%		(8.9			)%
Segment income	$	1,273			$	1,401			$	1,216			(9.2			)%		15.2			%
Net premiums written - constant dollars (1)													8.4			%		5.3			%
Net premiums earned - constant dollars (1)													7.6			%		4.7			%
Underwriting income - constant dollars (1)													(3.7			)%		24.1			%
Loss and loss expense ratio	51.9		%		51.4		%		52.6		%		0.5		pts			(1.2	)	pts
Policy acquisition cost ratio	28.1		%		27.2		%		27.3		%		0.9		pts			(0.1	)	pts
Administrative expense ratio	11.6		%		11.8		%		12.1		%		(0.2	)	pts			(0.3	)	pts
Combined ratio	91.6		%		90.4		%		92.0		%		1.2		pts			(1.6	)	pts

NM – not meaningful

Net Premiums Written by Region

																	% Change
(in millions of U.S. dollars, except for percentages)	2019				2018				2017				C$ (1) 2018				2019 vs. 2018			C$ (1) 2019 vs. 2018			2018 vs. 2017
Region
Europe	$	3,631			$	3,508			$	3,281			$	3,357			3.5	%		8.2	%		6.9	%
Latin America	2,277				2,181				2,108				2,059				4.4	%		10.6	%		3.5	%
Asia	3,021				2,884				2,596				2,806				4.7	%		7.6	%		11.1	%
Other (2)	333				329				365				318				1.1	%		4.8	%		(9.9	)%
Net premiums written	$	9,262			$	8,902			$	8,350			$	8,540			4.0	%		8.4	%		6.6	%
	2019 % of Total				2018 % of Total				2017 % of Total
Region
Europe	38		%		39		%		40		%
Latin America	25		%		25		%		25		%
Asia	33		%		32		%		31		%
Other (2)	4		%		4		%		4		%
Net premiums written	100		%		100		%		100		%

(1)	On a constant-dollar basis. Amounts are calculated by translating prior period results using the same local currency rates as the comparable current period.

(2)	Comprises Combined International, Eurasia and Africa region, and other international.

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Premiums

2019 vs. 2018

Net premiums written increased $360 million in 2019, or $722 million on a constant-dollar basis, reflecting growth across all regions and most lines of business. P&C lines growth was across all regions and was principally due to positive rate increases and new business in property, casualty, and financial lines. Personal lines growth was driven by new business principally in Latin America and Europe. Accident and health (A&H) lines growth was principally in Asia and Latin America driven by new business.

Net premiums earned increased $270 million in 2019, or $629 million on a constant-dollar basis, reflecting the increase in net premiums written.

2018 vs. 2017

Net premiums written increased $552 million in 2018, or $448 million on a constant-dollar basis, reflecting growth across most regions and lines of business. P&C lines growth was across all regions, principally in small commercial property and general casualty lines reflecting new business, and in middle market driven by new business and rate increases. Personal lines growth was principally in our automobile line in Mexico driven by new business, as well as in our specialty lines in Asia. A&H lines growth was principally in Asia driven by new business.

Net premiums earned increased $481 million in 2018, or $384 million on a constant-dollar basis, due to the factors described above.

Combined Ratio

2019 vs. 2018

The loss and loss expense ratio increased 0.5 percentage points in 2019 due to lower favorable prior period development, partially offset by lower catastrophe losses, earned price changes modestly above loss trends, favorable loss experience in certain personal lines, and a change in mix of business towards products and regions that have a lower loss and loss expense ratio and a higher policy acquisition cost ratio.

The policy acquisition cost ratio increased 0.9 percentage points in 2019 due to a change in mix of business towards products and regions that have a higher policy acquisition cost ratio and lower loss and loss expense ratio as noted above, higher underwriting costs resulting from the successful acquisition of business, and higher commissions paid on certain personal lines due to favorable loss experience.

2018 vs. 2017

The loss and loss expense ratio decreased 1.2 percentage points in 2018, reflecting lower catastrophe losses (1.6 percentage points) and a change in the mix of business towards consumer and property and casualty lines in countries that have a lower loss ratio and a higher acquisition cost ratio (0.3 percentage points), partially offset by lower favorable prior period development in 2018 (0.6 percentage points).

The policy acquisition cost ratio was relatively flat in 2018.

The administrative expense ratio decreased 0.3 percentage points in 2018, primarily driven by integration-expense savings realized (0.3 percentage points).

Catastrophe Losses and Prior Period Development

(in millions of U.S. dollars)	2019				2018				2017
Catastrophe losses (excludes reinstatement premiums)	$	152			$	206			$	331
Favorable prior period development	$	92			$	212			$	252

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Catastrophe losses were primarily from the following events (refer to the table on page 54):

•	2019: Typhoons Faxai and Hagibis; Hurricane Dorian; storms in Australia; civil unrest in Hong Kong and Chile; and other international weather-related events

•	2018: Typhoons Jebi, Mangkhut and Trami; Hurricane Florence and storms in Australia

•	2017: Hurricanes Harvey, Irma and Maria; Earthquakes in Mexico, Cyclone Debbie in Australia, and flooding in Latin America

CAY Loss Ratio excluding Catastrophe Losses

	2019			2018			2017
Loss and loss expense ratio	51.9	%		51.4	%		52.6	%
Catastrophe losses	(1.8	)%		(2.4	)%		(4.0	)%
Favorable prior period development	1.1	%		2.5	%		3.1	%
CAY loss ratio excluding catastrophe losses	51.2	%		51.5	%		51.7	%

2019 vs. 2018

The CAY loss ratio excluding catastrophe losses decreased 0.3 percentage points in 2019 primarily due to earned price changes modestly above loss trends, favorable loss experience in certain personal lines, and a change in mix of business towards products and regions that have a lower loss and loss expense ratio and a higher policy acquisition cost ratio.

2018 vs. 2017

The CAY loss ratio excluding catastrophe losses decreased 0.2 percentage points in 2018 primarily due to a change in the mix of business towards consumer and property and casualty lines in countries that have a lower loss ratio and a higher acquisition cost ratio.

Global Reinsurance

The Global Reinsurance segment represents our reinsurance operations comprising Chubb Tempest Re Bermuda, Chubb Tempest Re USA, Chubb Tempest Re International, and Chubb Tempest Re Canada. Global Reinsurance markets its reinsurance products worldwide primarily through reinsurance brokers under the Chubb Tempest Re brand name and provides a broad range of traditional and non-traditional reinsurance coverage to a diverse array of primary P&C companies.

													% Change
(in millions of U.S. dollars, except for percentages)	2019				2018				2017				2019 vs. 2018					2018 vs. 2017
Net premiums written	$	649			$	671			$	685			(3.2			)%		(2.1			)%
Net premiums earned	654				670				704				(2.3			)%		(4.9			)%
Losses and loss expenses	352				479				561				(26.5			)%		(14.7			)%
Policy acquisition costs	169				162				177				4.2			%		(8.4			)%
Administrative expenses	35				41				44				(12.7			)%		(8.4			)%
Underwriting income (loss)	98				(12		)		(78		)		NM					84.8			%
Net investment income	220				257				273				(14.4			)%		(6.1			)%
Other (income) expense	(58		)		(32		)		(1		)		80.6			%		NM
Segment income	$	376			$	277			$	196			35.7			%		41.3			%
Net premiums written - constant dollars (1)													(1.7			)%		(3.3			)%
Net premiums earned - constant dollars (1)													(0.8			)%		(6.0			)%
Underwriting income - constant dollars (1)													NM					84.0			%
Loss and loss expense ratio	53.9		%		71.6		%		79.8		%		(17.7	)	pts			(8.2	)	pts
Policy acquisition cost ratio	25.7		%		24.2		%		25.1		%		1.5		pts			(0.9	)	pts
Administrative expense ratio	5.4		%		6.0		%		6.3		%		(0.6	)	pts			(0.3	)	pts
Combined ratio	85.0		%		101.8		%		111.2		%		(16.8	)	pts			(9.4	)	pts

NM – not meaningful

(1)	On a constant-dollar basis. Amounts are calculated by translating prior period results using the same local currency rates as the comparable current period.

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Premiums

2019 vs. 2018

Net premiums written decreased $22 million in 2019, or $12 million on a constant-dollar basis, as an increase in new business written in property and marine lines was more than offset by an increase in ceded retrocessions, reductions in the international motor line, and higher reinstatement premiums collected in the prior year.

Net premiums earned decreased $16 million in 2019, or $5 million on a constant-dollar basis, reflecting the decrease in net premiums written described above.

2018 vs. 2017

Net premiums written decreased $14 million in 2018, or $22 million on a constant-dollar basis, primarily due to higher reinstatement premiums collected in the prior year principally relating to the 2017 natural catastrophes ($15 million year-over-year decrease) and lower renewals, which is reflective of competitive market conditions primarily in catastrophe and catastrophe exposed lines of business, partially offset by new business written in the casualty line of business.

Net premiums earned decreased $34 million in 2018, or $42 million on a constant-dollar basis, reflecting the decrease in net premiums written. The decrease was also due to $14 million of short-term treaties (less than one year in duration) earned in the prior year that were written in 2016 and 2017.

Combined Ratio

2019 vs. 2018

The loss and loss expense ratio decreased 17.7 percentage points in 2019 primarily due to lower catastrophe losses, partially offset by lower favorable prior period development.

The policy acquisition cost ratio increased 1.5 percentage points in 2019 primarily due to higher commissions paid on property and motor lines treaties with adjustable commission features, and higher reinstatement premiums collected in the prior year which have a lower acquisition cost.

The administrative expense ratio decreased 0.6 percentage points in 2019 primarily driven by lower variable costs.

2018 vs. 2017

The loss and loss expense ratio decreased 8.2 percentage points in 2018 principally due to lower catastrophe losses partially offset by lower favorable prior period development and a shift in the mix of business from property catastrophe business towards casualty business, which generally has a higher loss ratio.

The policy acquisition cost ratio decreased 0.9 percentage points in 2018 primarily due to lower acquisition expenses from proportional business sold.

The administrative expense ratio decreased 0.3 percentage points in 2018 primarily due to continued expense management.

Catastrophe Losses and Prior Period Development

(in millions of U.S dollars)	2019				2018				2017
Catastrophe losses (excludes reinstatement premiums)	$	51			$	205			$	313
Favorable prior period development	$	29			$	50			$	59

Catastrophe losses were primarily from the following events (refer to the table on page 54):

•	2019: Typhoons Hagibis and Faxai; Hurricane Dorian, and other severe weather-related events primarily in the U.S.

•	2018: Hurricanes Florence and Michael; Typhoons Jebi and Trami; Windstorm Friederike, California Wildfires, and severe weather-related events in the U.S., Canada and Japan

•	2017: Hurricanes Harvey, Irma and Maria; Northern California Wildfires, and severe weather-related events in the U.S.

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CAY Loss Ratio excluding Catastrophe Losses

	2019			2018			2017
Loss and loss expense ratio	53.9	%		71.6	%		79.8	%
Catastrophe losses	(7.6	)%		(29.2	)%		(42.4	)%
Favorable prior period development	4.3	%		8.1	%		8.6	%
CAY loss ratio excluding catastrophe losses	50.6	%		50.5	%		46.0	%

The CAY loss ratio excluding catastrophe losses remained relatively flat in 2019. The CAY loss ratio excluding catastrophe losses increased 4.5 percentage points in 2018 primarily due to a shift in the mix of business from property catastrophe business towards casualty business which generally has a higher loss ratio and higher losses in our U.S. property lines.

Life Insurance

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

													% Change
(in millions of U.S. dollars, except for percentages)	2019				2018				2017				2019 vs. 2018			2018 vs. 2017
Net premiums written	$	2,392			$	2,270			$	2,141			5.3	%		6.1	%
Net premiums earned	2,343				2,218				2,101				5.6	%		5.6	%
Losses and loss expenses	757				766				739				(1.1	)%		3.7	%
Adjusted policy benefits	696				628				579				10.8	%		8.5	%
Policy acquisition costs	620				557				530				11.2	%		5.1	%
Administrative expenses	323				310				303				4.5	%		2.3	%
Net investment income	373				341				313				9.2	%		8.9	%
Life Insurance underwriting income	320				298				263				6.9	%		13.3	%
Other (income) expense	(48		)		(12		)		13				NM			NM
Amortization of purchased intangibles	2				2				2				—			—
Segment income	$	366			$	308			$	248			18.6	%		24.2	%
Net premiums written - constant dollars (1)													6.4	%		5.7	%
Net premiums earned - constant dollars (1)													6.6	%		5.3	%
Life Insurance underwriting income - constant dollars (1)													8.1	%		13.9	%
NM – not meaningful

(1)	On a constant-dollar basis. Amounts are calculated by translating prior period results using the same local currency rates as the comparable current period.

Premiums

2019 vs. 2018

Net premiums written increased $122 million in 2019, or $143 million on a constant-dollar basis, primarily reflecting growth in our Asian and Latin American international life operations and North American Combined Insurance supplemental A&H program, partially offset by our life reinsurance business, which continues to decline as no new life reinsurance business is being written.

2018 vs. 2017

Net premiums written increased $129 million in 2018, or $123 million on a constant-dollar basis, primarily due to growth in our North American Combined Insurance supplemental A&H program business, and Asian and Latin American international life operations, partially offset by our life reinsurance business, which continues to decline as no new life reinsurance business is being written.

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Deposits

The following table presents deposits collected on universal life and investment contracts:

													% Change
(in millions of U.S. dollars, except for percentages)	2019				2018				2017				2019 vs. 2018			C$ (1) 2019 vs. 2018			2018 vs. 2017
Deposits collected on universal life and investment contracts	$	1,463			$	1,538			$	1,436			(4.9	)%		(2.3	)%		7.1	%

(1)	On a constant-dollar basis. Amounts are calculated by translating prior period results using the same local currency rates as the comparable current period.

Deposits collected on universal life and investment contracts (life deposits) are not reflected as revenues in our Consolidated statements of operations in accordance with GAAP. New life deposits are an important component of production, and although they do not significantly affect current period income from operations they are key to our efforts to grow our business. Life deposits collected decreased in 2019 due to declines in Taiwan, driven by competitive market conditions, and Hong Kong, due to the civil unrest negatively impacting growth in the second half of the year, partially offset by growth in Vietnam. Foreign exchange unfavorably impacted growth by $40 million in 2019.

Life deposits collected increased in 2018 due to growth in Korea, Taiwan, and Vietnam. Foreign exchange favorably impacted growth by $14 million in 2018.

Life Insurance underwriting income and Segment income

2019 vs. 2018

Life Insurance underwriting income increased $22 million in 2019 compared to 2018, principally reflecting an increase in net investment income, partially offset by a favorable reserve development in the prior year. Additionally, segment income benefited from other income of $48 million in 2019 compared to $12 million in 2018, principally due to our share of net income from Huatai Life, our partially-owned life insurance entity in China.

2018 vs. 2017

Life Insurance underwriting income increased $35 million in 2018 compared to 2017 primarily due to an increase in net investment income as well as growth as described above.

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Corporate

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

Our exposure to A&E claims principally arises out of liabilities acquired when we purchased Westchester Specialty in 1998, CIGNA’s P&C business in 1999, and legacy Chubb Corp A&E claims in 2016. Corporate staff expenses and net investment income of Chubb Limited, including the amortization of the fair value adjustment on acquired invested assets and debt, interest expense, amortization of purchased intangibles related to the Chubb Corp acquisition, and Chubb integration expenses are reported within Corporate.

													% Change
(in millions of U.S. dollars, except for percentages)	2019				2018				2017				2019 vs. 2018			2018 vs. 2017
Losses and loss expenses	$	158			$	53			$	285			203.0	%		(81.4	)%
Administrative expenses	319				295				267				8.1	%		10.5	%
Underwriting loss	477				348				552				36.6	%		(37.0	)%
Net investment income (loss)	(125		)		(209		)		(283		)		(40.5	)%		(26.1	)%
Interest expense	552				641				607				(13.9	)%		5.6	%
Adjusted net realized gains (losses)	(522		)		(649		)		91				(19.7	)%		NM
Other (income) expense	(459		)		(406		)		(318		)		12.6	%		27.7	%
Amortization of purchased intangibles	218				255				168				(14.3	)%		51.8	%
Chubb integration expenses	23				59				310				(61.7	)%		(81.0	)%
Income tax expense (benefit)	795				695				(139		)		14.4	%		NM
Net loss	$	(2,253	)		$	(2,450	)		$	(1,372	)		(8.1	)%		78.6	%
NM – not meaningful

Losses and loss expenses in 2019, 2018, and 2017 were primarily from adverse development relating to our Brandywine asbestos and environmental exposures, non-A&E run-off casualty exposure, including workers' compensation, and unallocated loss adjustment expenses of the A&E claims operations. In addition, 2018 included favorable reinsurance settlements of $205 million. Refer to Note 7 of the Consolidated Financial Statements for further information.

Administrative expenses increased $24 million and $28 million in 2019 and 2018, respectively, primarily due to higher global advertising expenses.

Chubb integration expenses are one-time in nature and are not related to the on-going business activities of the segments. The Chief Executive Officer does not manage segment results or allocate resources to segments when considering these costs and they are therefore excluded from our definition of segment income. Chubb integration expenses in 2019 principally consisted of small residual items related to the Chubb acquisition. Chubb integration expenses for 2018 were $59 million and principally consisted of personnel-related expenses ($18 million) and rebranding ($14 million).

Refer to the respective sections that follow for a discussion of Net investment income, Interest expense, Other (income) expense, Net realized gains and losses, Amortization of purchased intangibles, and Income tax expense.

Effective income tax rate

Our effective income tax rate reflects a mix of income or losses in jurisdictions with a wide range of tax rates, permanent differences between US GAAP and local tax laws, and the timing of recording discrete items. A change in the geographic mix of earnings could impact our effective tax rate.

In 2019, 2018, and 2017, our effective income tax rate was 15.1 percent, 14.9 percent, and (3.7) percent, respectively. The effective income tax rate in 2018 was favorably impacted by an increase to the provisional benefit recorded related to the impact of the 2017 Tax Act. The effective income tax rate in 2017 included the favorable income tax benefit of $450 million,

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which represented our best estimate of the impact of the 2017 Tax Act. In addition, the income tax benefit in 2017 reflected the significant catastrophe losses in the year.

The 2017 Tax Act 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. There remain substantial uncertainties in the interpretation of GILTI and BEAT and portions of the formal guidance issued to date are still in part in proposed form. Finalization of the proposed guidance, and changes to the interpretations and assumptions related to these provisions may impact amounts recorded with respect to the international provisions of the 2017 Tax Act, which may be material in the period the adjustment is recorded. Refer to Note 8 to the Consolidated Financial Statements for additional information on the 2017 Tax Act.

Our effective income tax rate reflects the lower corporate tax rates that prevailed outside the United States on income attributed to certain foreign operations, including 7.83 percent in Switzerland and 0.0 percent in Bermuda. During 2019, approximately 42 percent of our total pre-tax income was tax effected based on these lower rates compared with 49 percent and 62 percent in 2018 and 2017, respectively.

Non-GAAP Reconciliation

In presenting our results, we included and discussed certain non-GAAP measures. These non-GAAP measures, which may be defined differently by other companies, are important for an understanding of our overall results of operations and financial condition. However, they should not be viewed as a substitute for measures determined in accordance with generally accepted accounting principles (GAAP).

Adjusted interest expense and adjusted net investment income are non-GAAP financial measures which exclude amortization of the fair value adjustment on assumed long-term debt and acquired invested assets, respectively, related to the Chubb Corp acquisition due to the size and complexity of this acquisition. Refer to the Interest Expense section for a reconciliation of interest expense to adjusted interest expense.

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

Adjusted policy benefits include gains and losses from fair value changes in separate account assets, as well as the offsetting

movement in separate account liabilities, for purposes of reporting Life Insurance underwriting income. The gains and losses from fair value changes in separate account assets that do not qualify for separate account reporting under GAAP have been reclassified from Other (income) expense. We view gains and losses from fair value changes in both separate account assets and liabilities as part of the results of our underwriting operations, and therefore these gains and losses are reclassified to adjusted policy benefits.

The following table presents a reconciliation of Policy benefits to Adjusted policy benefits:

	Year Ended
	December 31
(in millions of U.S. dollars)	2019				2018				2017
Policy benefits	$	740			$	590			$	676
Add: (Gains) losses from fair value changes in separate account assets	(44		)		38				(97		)
Adjusted policy benefits	$	696			$	628			$	579

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

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P&C combined ratio is the sum of the loss and loss expense ratio, acquisition cost ratio and the administrative expense ratio excluding the life business and including the realized gains and losses on the crop derivatives. These derivatives were purchased to provide economic benefit, in a manner similar to reinsurance protection, in the event that a significant decline in commodity pricing impacts underwriting results. We view gains and losses on these derivatives as part of the results of our underwriting operations.

CAY P&C combined ratio excluding catastrophe losses (CATs) excludes CATs and prior period development (PPD) from the P&C combined ratio. We exclude CATs as they are not predictable as to timing and amount and PPD as these unexpected loss developments on historical reserves are not indicative of our current underwriting performance. The combined ratio numerator is adjusted to exclude CATs, net premiums earned adjustments on PPD, prior period expense adjustments and reinstatement premiums on PPD, and the denominator is adjusted to exclude net premiums earned adjustments on PPD and reinstatement premiums on CATs and PPD. In periods where there are adjustments on loss sensitive policies, these adjustments are excluded from PPD and net premiums earned when calculating the ratios. We believe this measure provides a better evaluation of our underwriting performance and enhances the understanding of the trends in our P&C business that may be obscured by these items. This measure is commonly reported among our peer companies and allows for a better comparison.

Reinstatement premiums are additional premiums paid on certain reinsurance agreements in order to reinstate coverage that had been exhausted by loss occurrences. The reinstatement premium amount is typically a pro rata portion of the original ceded premium paid based on how much of the reinsurance limit had been exhausted.

Net premiums earned adjustments within PPD are adjustments to the initial premium earned on retrospectively rated policies based on actual claim experience that develops after the policy period ends. The premium adjustments correlate to the prior period loss development on these same policies and are fully earned in the period the adjustments are recorded.

Prior period expense adjustments typically relate to adjustable commission reserves or policyholder dividend reserves based on actual claim experience that develops after the policy period ends. The expense adjustments correlate to the prior period loss development on these same policies.

For this disclosure purpose, the normalized level of CATs, or expected level of CATs, is not intended to represent a probability weighted expectation for the company but rather to represent management's view of what might be more typical for a given period based on various factors, including historical experience, seasonal patterns, and consideration of both modeled CATs (e.g., windstorm and earthquake) as well as non-modeled CATs (e.g., wildfires, floods and freeze).

The following table presents CATs above (below) expected level and the impact on the combined ratio:

	Year Ended
	December 31
(in millions of U.S. dollars, except for percentage points)	2019				2018				2017
Actual level of CATs - pre-tax	$	1,187			$	1,626			$	2,746
Less: Expected level of CATs - pre-tax	969				937				908
CATs above expected level - pre-tax	$	218			$	689			$	1,838
Adverse impact of CATs above an expected level on combined ratio	0.7		%		2.5		%		6.8		%

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The following tables present the calculation of combined ratio, as reported for each segment to P&C combined ratio, adjusted for catastrophe losses (CATs) and PPD:

		North America Commercial P&C Insurance					North America Personal P&C Insurance				North America Agricultural Insurance					Overseas General Insurance				Global Reinsurance				Corporate				Total P&C
For the Year Ended
December 31, 2019
(in millions of U.S. dollars except for ratios)
Numerator
Losses and loss expenses
Losses and loss expenses		$	8,206				$	3,043			$	1,608				$	4,606			$	352			$	158			$	17,973
Realized (gains) losses on crop derivatives		—					—				8					—				—				—				8
Adjusted losses and loss expenses	A	$	8,206				$	3,043			$	1,616				$	4,606			$	352			$	158			$	17,981
Catastrophe losses and related adjustments
Catastrophe losses, net of related adjustments		(421		)			(554		)		(8		)			(156		)		(48		)		—				(1,187		)
Reinstatement premiums collected (expensed) on catastrophe losses		—					(11		)		—					(4		)		3				—				(12		)
Catastrophe losses, gross of related adjustments		(421		)			(543		)		(8		)			(152		)		(51		)		—				(1,175		)
PPD and related adjustments
PPD, net of related adjustments - favorable (unfavorable)		649					95				80					92				29				(153		)		792
Net premiums earned adjustments on PPD - unfavorable (favorable)		38					—				36					—				1				—				75
Expense adjustments - unfavorable (favorable)		(3		)			—				(13		)			—				(1		)		—				(17		)
PPD reinstatement premiums - unfavorable (favorable)		(1		)			(4		)		—					1				(1		)		—				(5		)
PPD, gross of related adjustments - favorable (unfavorable)		683					91				103					93				28				(153		)		845
CAY loss and loss expense ex CATs	B	$	8,468				$	2,591			$	1,711				$	4,547			$	329			$	5			$	17,651
Policy acquisition costs and administrative expenses
Policy acquisition costs and administrative expenses	C	$	2,859				$	1,234			$	90				$	3,534			$	204			$	319			$	8,240
Expense adjustments - favorable (unfavorable)		3					—				13					—				1				—				17
Policy acquisition costs and administrative expenses, adjusted	D	$	2,862				$	1,234			$	103				$	3,534			$	205			$	319			$	8,257
Denominator
Net premiums earned	E	$	12,922				$	4,694			$	1,795				$	8,882			$	654							$	28,947
Reinstatement premiums (collected) expensed on catastrophe losses		—					11				—					4				(3		)						12
Net premiums earned adjustments on PPD - unfavorable (favorable)		38					—				36					—				1								75
PPD reinstatement premiums - unfavorable (favorable)		(1		)	—		(4		)		—			—		1				(1		)						(5		)
Net premiums earned excluding adjustments	F	$	12,959				$	4,701			$	1,831				$	8,887			$	651							$	29,029
P&C Combined ratio
Loss and loss expense ratio	A/E	63.5		%			64.8		%		90.1		%			51.9		%		53.9		%						62.1		%
Policy acquisition cost and administrative expense ratio	C/E	22.1		%			26.3		%		5.0		%			39.7		%		31.1		%						28.5		%
P&C Combined ratio		85.6		%			91.1		%		95.1		%			91.6		%		85.0		%						90.6		%
CAY P&C Combined ratio ex CATs
Loss and loss expense ratio, adjusted	B/F	65.3		%			55.1		%		93.5		%			51.2		%		50.6		%						60.8		%
Policy acquisition cost and administrative expense ratio, adjusted	D/F	22.1		%			26.3		%		5.6		%			39.7		%		31.5		%						28.4		%
CAY P&C Combined ratio ex CATs		87.4		%			81.4		%		99.1		%			90.9		%		82.1		%						89.2		%
Combined ratio
Combined ratio																												90.6		%
Add: impact of gains and losses on crop derivatives																												—
P&C Combined ratio																												90.6		%

Note: The ratios above are calculated using whole U.S. dollars. Accordingly, calculations using rounded amounts may differ. Letters A, B, C, D, E and F included in the table are references for calculating the ratios above.

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		North America Commercial P&C Insurance				North America Personal P&C Insurance				North America Agricultural Insurance				Overseas General Insurance				Global Reinsurance				Corporate				Total P&C
For the Year Ended
December 31, 2018
(in millions of U.S. dollars except for ratios)
Numerator
Losses and loss expenses
Losses and loss expenses		$	8,000			$	3,229			$	1,111			$	4,429			$	479			$	53			$	17,301
Realized (gains) losses on crop derivatives		—				—				3				—				—				—				3
Adjusted losses and loss expenses	A	$	8,000			$	3,229			$	1,114			$	4,429			$	479			$	53			$	17,304
Catastrophe losses and related adjustments
Catastrophe losses, net of related adjustments		(579		)		(637		)		(21		)		(206		)		(183		)		—				(1,626		)
Reinstatement premiums collected (expensed) on catastrophe losses		—				(26		)		—				—				22				—				(4		)
Catastrophe losses, gross of related adjustments		(579		)		(611		)		(21		)		(206		)		(205		)		—				(1,622		)
PPD and related adjustments
PPD, net of related adjustments - favorable (unfavorable)		610				(41		)		110				212				50				(45		)		896
Net premiums earned adjustments on PPD - unfavorable (favorable)		29				—				40				—				8				—				77
Expense adjustments - unfavorable (favorable)		7				—				(10		)		—				(1		)		—				(4		)
PPD reinstatement premiums - unfavorable (favorable)		7				1				—				4				—				—				12
PPD, gross of related adjustments - favorable (unfavorable)		653				(40		)		140				216				57				(45		)		981
CAY loss and loss expense ex CATs	B	$	8,074			$	2,578			$	1,233			$	4,439			$	331			$	8			$	16,663
Policy acquisition costs and administrative expenses
Policy acquisition costs and administrative expenses	C	$	2,795			$	1,208			$	70			$	3,360			$	203			$	295			$	7,931
Expense adjustments - favorable (unfavorable)		(7		)		—				10				—				1				—				4
Policy acquisition costs and administrative expenses, adjusted	D	$	2,788			$	1,208			$	80			$	3,360			$	204			$	295			$	7,935
Denominator
Net premiums earned	E	$	12,402			$	4,593			$	1,569			$	8,612			$	670							$	27,846
Reinstatement premiums (collected) expensed on catastrophe losses		—				26				—				—				(22		)						4
Net premiums earned adjustments on PPD - unfavorable (favorable)		29				—				40				—				8								77
PPD reinstatement premiums - unfavorable (favorable)		7				1				—				4				—								12
Net premiums earned excluding adjustments	F	$	12,438			$	4,620			$	1,609			$	8,616			$	656							$	27,939
P&C Combined ratio
Loss and loss expense ratio	A/E	64.5		%		70.3		%		71.0		%		51.4		%		71.6		%						62.1		%
Policy acquisition cost and administrative expense ratio	C/E	22.5		%		26.3		%		4.5		%		39.0		%		30.2		%						28.5		%
P&C Combined ratio		87.0		%		96.6		%		75.5		%		90.4		%		101.8		%						90.6		%
CAY P&C Combined ratio ex CATs
Loss and loss expense ratio, adjusted	B/F	64.9		%		55.8		%		76.7		%		51.5		%		50.5		%						59.6		%
Policy acquisition cost and administrative expense ratio, adjusted	D/F	22.4		%		26.1		%		4.9		%		39.0		%		31.1		%						28.4		%
CAY P&C Combined ratio ex CATs		87.3		%		81.9		%		81.6		%		90.5		%		81.6		%						88.0		%
Combined ratio
Combined ratio																										90.6		%
Add: impact of gains and losses on crop derivatives																										—
P&C Combined ratio																										90.6		%

Note: The ratios above are calculated using whole U.S. dollars. Accordingly, calculations using rounded amounts may differ. Letters A, B, C, D, E and F included in the table are references for calculating the ratios above.

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Net Investment Income

(in millions of U.S. dollars, except for percentages)	2019				2018				2017
Average invested assets	$	104,074			$	101,453			$	99,675
Net investment income (1)	$	3,426			$	3,305			$	3,125
Yield on average invested assets	3.3		%		3.3		%		3.1		%
Market yield on fixed maturities	2.7		%		3.7		%		2.9		%

(1)	Includes $161 million, $248 million and $332 million of amortization expense related to the fair value adjustment of acquired invested assets related to the Chubb Corp acquisition in 2019, 2018 and 2017, respectively.

Net investment income is influenced by a number of factors including the amounts and timing of inward and outward cash flows, the level of interest rates, and changes in overall asset allocation. Net investment income increased 3.6 percent in 2019 compared with 2018, primarily due to higher average invested assets, partially offset by a reduction in the usage of notional cash pooling programs and unfavorable foreign exchange. Net investment income increased 5.8 percent in 2018 compared with 2017, primarily due to higher reinvestment rates offset by lower private equity distributions. Refer to Note 3 g) to the Consolidated Financial Statements for additional information.

For private equities where we own less than three percent, investment income is included within Net investment income in the table above. For private equities where we own more than three percent, investment income is included within Other income (expense) in the Consolidated statements of operations. Excluded from Net investment income is the mark-to-market movement for private equities, which is recorded within either Other income (expense) or Net realized gains (losses) based on our percentage of ownership. The total mark-to-market movement for private equities excluded from Net investment income was as follows:

(in millions of U.S. dollars)	2019				2018
Total mark-to-market gain on private equity, pre-tax	$	449			$	298

Interest Expense

The following table presents our pre-tax interest expense for the years ended December 31, 2019 and 2018. Also presented below is our estimated pre-tax interest expense for the year ended December 31, 2020 based on our existing debt obligations as well as fees based on our expected usage of certain facilities, including letters of credit, collateral fees, and repurchase agreements.

									Estimated Interest Expense												Actual Interest Expense
	First Quarter				Second Quarter				Third Quarter				Fourth Quarter				Full Year				Full Year				Full Year
(in millions of U.S. dollars)	2020				2020				2020				2020				2020				2019				2018
Fixed interest expense based on outstanding debt	$	123			$	123			$	122			$	118			$	486			$	488			$	520
Variable interest expense based on expected usage	18				18				18				18				72				85				154
Adjusted interest expense	$	141			$	141			$	140			$	136			$	558			$	573			$	674
Amortization of the fair value of debt assumed in the Chubb Corp acquisition	(5		)		(5		)		(5		)		(6		)		(21		)		(21		)		(33		)
Total interest expense, including amortization of the fair value of debt	$	136			$	136			$	135			$	130			$	537			$	552			$	641

Estimated 2020 fixed interest expense assumes that the $1.3 billion 2.3 percent senior notes is fully paid in November 2020 at the maturity date. Estimated variable interest expense is based on expected usage and current interest rates and may fluctuate.

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Net Realized and Unrealized Gains (Losses)

We take a long-term view with our investment strategy, and our investment managers manage our investment portfolio to maximize total return within certain specific guidelines designed to minimize risk. The majority of our investment portfolio is available for sale and reported at fair value. Our held to maturity investment portfolio is reported at amortized cost.

The effect of market movements on our fixed maturities portfolio impacts Net income (through Net realized gains (losses)) when securities are sold or when we record an Other-than-temporary impairment (OTTI) charge. For a further discussion related to how we assess OTTI for our fixed maturities, including credit-related OTTI, and the related impact on Net income, refer to Note 3 c) to the Consolidated Financial Statements. Additionally, Net income is impacted through the reporting of changes in the fair value of equity securities and private equity securities where we own less than three percent, and derivatives, including financial futures, options, swaps, and GLB reinsurance. Changes in unrealized appreciation and depreciation on available for sale securities resulting from the revaluation of securities held, changes in cumulative foreign currency translation adjustment, and unrealized postretirement benefit obligations liability adjustment, are reported as separate components of Accumulated other comprehensive income (loss) in Shareholders’ equity in the Consolidated balance sheets. The following table presents our net realized and unrealized gains (losses):

	Year Ended December 31
	2019												2018												2017
(in millions of U.S. dollars)	Net Realized Gains (Losses)				Net Unrealized Gains (Losses)				Net Impact				Net Realized Gains (Losses)				Net Unrealized Gains (Losses)				Net Impact				Net Realized Gains (Losses)
Fixed maturities	$	(31	)		$	3,738			$	3,707			$	(302	)		$	(1,996	)		$	(2,298	)		$	(31	)
Fixed income and equity derivatives	(435		)		—				(435		)		(75		)		—				(75		)		(11		)
Public equity
Sales	58				—				58				70				—				70				16
Mark-to-market	46				—				46				(129		)		—				(129		)		—
Private equity (less than 3 percent ownership)
Sales	(5		)		—				(5		)		121				—				121				(11		)
Mark-to-market	(15		)		—				(15		)		(126		)		—				(126		)		—
Total investment portfolio	(382		)		3,738				3,356				(441		)		(1,996		)		(2,437		)		(37		)
Variable annuity reinsurance derivative transactions, net of applicable hedges	(142		)		—				(142		)		(252		)		—				(252		)		103
Other derivatives	(8		)		—				(8		)		(3		)		—				(3		)		(5		)
Foreign exchange	7				13				20				131				(802		)		(671		)		36
Other (1)	(5		)		(79		)		(84		)		(87		)		(321		)		(408		)		(13		)
Net gains (losses), pre-tax	$	(530	)		$	3,672			$	3,142			$	(652	)		$	(3,119	)		$	(3,771	)		$	84

(1)	Net unrealized gains (losses) includes our postretirement programs of $(76) million, $(321) million, and $(16) million for the years ended December 31, 2019, 2018, and 2017, respectively.

For the years ended December 31, 2019 and 2018, other-than-temporary impairments in Net realized gains (losses) include $58 million and $49 million, respectively, for fixed maturities.

The variable annuity reinsurance derivative transactions resulted in realized gains (losses), due to the (increase) decrease in the fair value of GLB liabilities of $(4) million, $(248) million, and $364 million for the years ended December 31, 2019, 2018, and 2017, respectively. The realized losses in 2019 reflected an increase in the fair value of GLB liabilities due to lower interest rates and changes made to our valuation model relating to policyholder behavior which was partially offset by higher global equity market levels. The realized losses in 2018 reflected an increase in the fair value of GLB liabilities due to lower global equity market levels, the impact of discounting future claims for one less year and changes made to our valuation model relating to policyholder behavior. In addition, we maintain positions in derivative instruments that decrease in fair value when the S&P 500 index increases. During the years ended December 31, 2019, 2018, and 2017, we experienced realized losses of $138 million, $4 million, and $261 million, respectively, related to these derivative instruments.

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Amortization of Purchased Intangibles and Other Amortization

Amortization expense related to purchased intangibles were $305 million, $339 million, and $260 million for the years ended December 31, 2019, 2018, and 2017, respectively, and principally relates to the Chubb Corp acquisition. The decrease in amortization expense of purchased intangibles in 2019 compared to 2018 primarily reflects lower intangible amortization expense related to agency distribution relationships and renewal rights. The increase in 2018 compared to 2017 primarily reflects a lower amortization benefit from the fair value adjustment on unpaid losses and loss expenses. The amortization of purchased intangibles expense in 2020 is expected to be $290 million, or approximately $73 million each quarter.

Reduction of deferred tax liability associated with intangible assets related to Other intangible assets (excluding the fair value adjustment on Unpaid losses and loss expense)

At December 31, 2019, the deferred tax liability associated with the Other intangible assets (excluding the fair value adjustment on Unpaid losses and loss expenses) was $1,347 million.

The following table presents at December 31, 2019, the expected reduction to the deferred tax liability associated with Other intangible assets (which reduces as agency distribution relationships and renewal rights, and other intangible assets amortize), at current foreign currency exchange rates for the next five years:

For the Years Ending December 31 (in millions of U.S. dollars)	Reduction to deferred tax liability associated with intangible assets
2020	$	72
2021	67
2022	64
2023	60
2024	55
Total	$	318

Amortization of the fair value adjustment on acquired invested assets and assumed long-term debt

The following table presents at December 31, 2019, the expected amortization expense of the fair value adjustment on acquired invested assets, at current foreign currency exchange rates, and the expected amortization benefit from the amortization of the fair value adjustment on assumed long-term debt for the next five years as follows:

	Amortization (expense) benefit of the fair value adjustment on
For the Years Ending December 31 (in millions of U.S. dollars)	Acquired invested assets (1)				Assumed long-term debt (2)
2020	$	(130	)		$	21
2021	(110		)		21
2022	(92		)		21
2023	—				21
2024	—				21
Total	$	(332	)		$	105

(1)	Recorded as a reduction to Net investment income in the Consolidated statements of operations.

(2)	Recorded as a reduction to Interest expense in the Consolidated statements of operations.

The estimate of amortization expense of the fair value adjustment on acquired invested assets could vary materially based on current market conditions, bond calls, overall duration of the acquired investment portfolio, and foreign exchange.

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Investments

Our investment portfolio is invested primarily in publicly traded, investment grade, fixed income securities with an average credit quality of A/Aa as rated by the independent investment rating services Standard and Poor’s (S&P)/ Moody’s Investors Service (Moody’s). The portfolio is externally managed by independent, professional investment managers and is broadly diversified across geographies, sectors, and issuers. Other investments principally comprise direct investments, investment funds, and limited partnerships. We hold no collateralized debt obligations in our investment portfolio, and we provide no credit default protection. We have long-standing global credit limits for our entire portfolio across the organization. Exposures are aggregated, monitored, and actively managed by our Global Credit Committee, comprising senior executives, including our Chief Financial Officer, our Chief Risk Officer, our Chief Investment Officer, and our Treasurer. We also have well-established, strict contractual investment rules requiring managers to maintain highly diversified exposures to individual issuers and closely monitor investment manager compliance with portfolio guidelines. The average duration of our fixed income securities, including the effect of options and swaps, was 3.8 years and 3.7 years at December 31, 2019 and 2018, respectively. We estimate that a 100 basis point (bps) increase in interest rates would reduce the valuation of our fixed income portfolio by approximately $3.9 billion at December 31, 2019.

	December 31, 2019								December 31, 2018
(in millions of U.S. dollars)	Fair Value				Cost/ Amortized Cost				Fair Value				Cost/ Amortized Cost
Fixed maturities available for sale	$	85,488			$	82,580			$	78,470			$	79,323
Fixed maturities held to maturity	13,005				12,581				13,259				13,435
Short-term investments	4,291				4,291				3,016				3,016
	102,784				99,452				94,745				95,774
Equity securities	812				812				770				770
Other investments	6,062				6,062				5,277				5,277
Total investments	$	109,658			$	106,326			$	100,792			$	101,821

The fair value of our total investments increased $8.9 billion during the year ended December 31, 2019, primarily due to unrealized appreciation driven by declining interest rates and the investing of both operating cash flows and net proceeds from debt issuance. This increase was partially offset by the payment of dividends on our Common Shares and share repurchases.

The following tables present the market value of our fixed maturities and short-term investments at December 31, 2019 and 2018. The first table lists investments according to type and the second according to S&P credit rating:

	December 31, 2019							December 31, 2018
(in millions of U.S. dollars, except for percentages)	Market Value				% of Total			Market Value				% of Total
Treasury / Agency	$	4,630			5	%		$	5,327			6	%
Corporate and asset-backed	34,259				33	%		29,091				31	%
Mortgage-backed	21,588				21	%		18,026				19	%
Municipal	12,824				12	%		16,327				17	%
Non-U.S.	25,192				25	%		22,958				24	%
Short-term investments	4,291				4	%		3,016				3	%
Total	$	102,784			100	%		$	94,745			100	%
AAA	$	15,714			15	%		$	14,571			15	%
AA	37,504				37	%		36,715				39	%
A	19,236				19	%		17,253				18	%
BBB	13,650				13	%		12,035				13	%
BB	9,474				9	%		8,363				9	%
B	6,897				7	%		5,596				6	%
Other	309				—			212				—
Total	$	102,784			100	%		$	94,745			100	%

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Corporate and asset-backed securities

The following table presents our 10 largest global exposures to corporate bonds by market value at December 31, 2019:

(in millions of U.S. dollars)	Market Value
Wells Fargo & Co	$	637
Bank of America Corp	575
JP Morgan Chase & Co	568
Comcast Corp	461
HSBC Holdings Plc	396
AT&T Inc	392
Citigroup Inc	392
Verizon Communications Inc	381
Goldman Sachs Group Inc	369
Morgan Stanley	358

Mortgage-backed securities

	S&P Credit Rating																				Market Value				Amortized Cost
December 31, 2019 (in millions of U.S. dollars)	AAA				AA				A				BBB				BB and below				Total				Total
Agency residential mortgage-backed (RMBS)	$	187			$	17,722			$	—			$	—			$	—			$	17,909			$	17,436
Non-agency RMBS	184				32				75				18				10				319				317
Commercial mortgage-backed	2,946				272				136				6				—				3,360				3,290
Total mortgage-backed securities	$	3,317			$	18,026			$	211			$	24			$	10			$	21,588			$	21,043

Municipal

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

Non-U.S.

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

Our non-U.S. investment grade fixed income portfolios are currency-matched with the insurance liabilities of our non-U.S. operations. The average credit quality of our non-U.S. fixed income securities is A and 49 percent of our holdings are rated AAA or guaranteed by governments or quasi-government agencies. Within the context of these investment portfolios, our government and corporate bond holdings are highly diversified across industries and geographies. Issuer limits are based on credit rating (AA—two percent, A—one percent, BBB—0.5 percent of the total portfolio) and are monitored daily via an internal compliance system. We manage our indirect exposure using the same credit rating based investment approach. Accordingly, we do not believe our indirect exposure is material.

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The following table summarizes the market value and amortized cost of our non-U.S. fixed income portfolio by country/sovereign for non-U.S. government securities at December 31, 2019:

(in millions of U.S. dollars)	Market Value				Amortized Cost
Republic of Korea	$	1,032			$	920
United Kingdom	924				903
Canada	835				830
Federative Republic of Brazil	688				669
Kingdom of Thailand	652				558
Province of Ontario	644				634
United Mexican States	567				554
Province of Quebec	496				484
Commonwealth of Australia	365				324
Socialist Republic of Vietnam	362				277
Other Non-U.S. Government Securities	4,890				4,706
Total	$	11,455			$	10,859

The following table summarizes the market value and amortized cost of our non-U.S. fixed income portfolio by country/sovereign for non-U.S. corporate securities at December 31, 2019:

(in millions of U.S. dollars)	Market Value				Amortized Cost
United Kingdom	$	2,316			$	2,224
Canada	1,781				1,735
United States (1)	1,156				1,111
France	1,136				1,088
Australia	813				781
Netherlands	685				656
Japan	587				576
Germany	560				538
Switzerland	511				490
China	371				362
Other Non-U.S. Corporate Securities	3,821				3,673
Total	$	13,737			$	13,234

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

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Below-investment grade corporate fixed income portfolio

Below-investment grade securities have different characteristics than investment grade corporate debt securities. Risk of loss from default by the borrower is greater with below-investment grade securities. Below-investment grade securities are generally unsecured and are often subordinated to other creditors of the issuer. Also, issuers of below-investment grade securities usually have higher levels of debt and are more sensitive to adverse economic conditions, such as recession or increasing interest rates, than investment grade issuers. At December 31, 2019, our corporate fixed income investment portfolio included below-investment grade and non-rated securities which, in total, comprised approximately 14 percent of our fixed income portfolio. Our below-investment grade and non-rated portfolio includes over 1,300 issuers, with the greatest single exposure being $149 million.

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

Asbestos and Environmental (A&E)

Asbestos and environmental (A&E) reserving considerations

For asbestos, Chubb faces claims relating to policies issued to manufacturers, distributors, installers, and other parties in the chain of commerce for asbestos and products containing asbestos. Claimants will generally allege damages across an extended time period which may coincide with multiple policies covering a wide range of time periods for a single insured.

Environmental claims present exposure for remediation and defense costs associated with the contamination of property as a result of pollution.

The following table presents count information for asbestos claims by causative agent and environmental claims by account, for direct policies only:

	Asbestos (by causative agent)						Environmental (by account)
	2019			2018			2019			2018
Open at beginning of year	1,838			1,789			1,361			1,349
Newly reported/reopened	173			188			140			149
Closed or otherwise disposed	287			139			284			137
Open at end of year	1,724			1,838			1,217			1,361

Survival ratios are calculated by dividing the asbestos or environmental loss and allocated loss adjustment expense (ALAE) reserves by the average asbestos or environmental loss and ALAE payments for the three most recent calendar years (3-year survival ratio). The 3-year survival ratios for gross and net Asbestos loss and ALAE reserves were 5.8 years and 6.0 years, respectively. The 3-year survival ratios for gross and net Environmental loss and ALAE reserves were 4.0 years and 12.1 years, respectively. The net 3-year survival ratios were impacted by favorable reinsurance settlements in 2018. Excluding the settlements, the 3-year survival ratio for net Asbestos loss and ALAE reserves and net Environmental loss and ALAE reserves were 5.7 years and 4.5 years, respectively. Refer to the PPD section in Note 7 to the consolidated financial statements for additional information on the settlements. The survival ratios provide only a very rough depiction of reserves and are significantly impacted by a number of factors such as aggressive settlement practices, variations in gross to ceded relationships within the asbestos or environmental claims, and levels of coverage provided. Therefore, we urge caution in using these very simplistic ratios to gauge reserve adequacy.

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Catastrophe Management

We actively monitor and manage our catastrophe risk accumulation around the world such as setting risk limits based on probable maximum loss (PML) and purchasing catastrophe reinsurance. The table below presents our modeled pre-tax estimates of natural catastrophe PML, net of reinsurance, at December 31, 2019, for Worldwide, U.S. hurricane and California earthquake events, based on our in-force portfolio at October 1, 2019 and reflecting the April 1, 2019 reinsurance program (see Natural Catastrophe Property Reinsurance Program section) as well as inuring reinsurance protection coverages. According to the model, for the 1-in-100 return period scenario, there is a one percent chance that our pre-tax annual aggregate losses incurred in any year from U.S. hurricane events could be in excess of $2,685 million (or 4.9 percent of our total shareholders’ equity at December 31, 2019). These estimates assume that reinsurance recoverable is fully collectible.

	Modeled Net Probable Maximum Loss (PML) Pre-tax
	Worldwide (1)							U.S. Hurricane (2)							California Earthquake (3)
	Annual Aggregate							Annual Aggregate							Single Occurrence
(in millions of U.S. dollars, except for percentages)	Chubb				% of Total Shareholders’ Equity			Chubb				% of Total Shareholders’ Equity			Chubb				% of Total Shareholders’ Equity
1-in-10	$	1,873			3.4	%		$	1,089			2.0	%		$	129			0.2	%
1-in-100	$	3,804			6.9	%		$	2,685			4.9	%		$	1,338			2.4	%
1-in-250	$	6,227			11.3	%		$	4,698			8.5	%		$	1,513			2.7	%

(1)	Worldwide losses are comprised of losses arising only from hurricanes, typhoons, convective storms and earthquakes and do not include “non-modeled” perils such as wildfire and flood.

(2)	U.S. Hurricane losses include losses from wind and storm-surge and exclude rainfall.

(3)	California earthquakes include fire-following perils.

The above estimates of Chubb’s loss profile are inherently uncertain for many reasons, including the following:

•

While the use of third-party catastrophe modeling packages to simulate potential hurricane and earthquake losses is prevalent within the insurance industry, the models are reliant upon significant meteorology, seismology, and engineering assumptions to estimate catastrophe losses. In particular, modeled catastrophe events are not always a representation of actual events and ensuing additional loss potential;

•	There is no universal standard in the preparation of insured data for use in the models, the running of the modeling software and interpretation of loss output. These loss estimates do not represent our potential maximum exposures and it is highly likely that our actual incurred losses would vary materially from the modeled estimates; and

•	The potential effects of climate change add to modeling complexity.

Natural Catastrophe Property Reinsurance Program

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

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

Chubb renewed its Global Property Catastrophe Reinsurance Program for our North American and International operations effective April 1, 2019 through March 31, 2020, with modest enhancements in coverage from the expiring program. The program consists of three layers in excess of losses retained by Chubb on a per occurrence basis. In addition, Chubb also renewed its terrorism coverage (excluding nuclear, biological, chemical and radiation coverage, with an inclusion of coverage for biological and chemical coverage for personal lines) for the United States from April 1, 2019 through March 31, 2020 with the same limits and retention and percentage placed except that the majority of terrorism coverage is on an aggregate basis above our retentions without a reinstatement.

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Natural Catastrophe Property Reinsurance Program
Loss Location		Layer of Loss		Comments	Notes
United States (excluding Alaska and Hawaii)		$0 million – $1.0 billion		Losses retained by Chubb	(a)
United States (excluding Alaska and Hawaii)		$1.0 billion – $1.2 billion		All natural perils and terrorism	(b)
United States (excluding Alaska and Hawaii)		$1.2 billion – $2.2 billion		All natural perils and terrorism	(c)
United States (excluding Alaska and Hawaii)		$2.2 billion – $3.5 billion		All natural perils and terrorism	(d)
International (including Alaska and Hawaii)		$0 million – $175 million		Losses retained by Chubb	(a)
International (including Alaska and Hawaii)		$175 million – $1.175 billion		All natural perils and terrorism	(c)
Alaska, Hawaii, and Canada		$1.175 billion– $2.475 billion		All natural perils and terrorism	(d)

(a)	Ultimate retention will depend upon the nature of the loss and the interplay between the underlying per risk programs and certain other catastrophe programs purchased by individual business units. These other catastrophe programs have the potential to reduce our effective retention below the stated levels.

(b)	These coverages are partially placed with Reinsurers.

(c)	These coverages are both part of the same Second layer within the Global Catastrophe Program and are fully placed with Reinsurers.

(d)	These coverages are both part of the same Third layer within the Global Catastrophe Program and are fully placed with Reinsurers.

Chubb also has a property catastrophe bond in place that offers additional natural catastrophe protection for certain parts of the portfolio. The geographic scope of this coverage is from Virginia through Maine. The East Lane VI 2015 bond currently provides $250 million of coverage as part of a $427 million layer in excess of $2.0 billion retention through March 13, 2020.

Political Risk and Credit Insurance

Political risk insurance is a specialized coverage that provides clients with protection against unexpected, catastrophic political or macroeconomic events, primarily in emerging markets. We participate in this market through our wholly-owned subsidiary Sovereign Risk Insurance Ltd. (Sovereign), and through a unit of our London-based CGM operation. Chubb is one of the world's leading underwriters of political risk and credit insurance, has a global portfolio spread across more than 150 countries and is also a member of the Berne Union. Our clients include financial institutions, national export credit agencies, leading multilateral agencies, private equity firms and multinational corporations. CGM writes political risk and credit insurance business out of underwriting offices in London, United Kingdom; Hamburg, Germany; Sao Paulo, Brazil; Singapore; Tokyo, Japan; and in the U.S. in the following locations: Chicago, Illinois; New York, New York; Los Angeles, California; and Washington, D.C.

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

CGM's credit insurance businesses cover losses due to insolvency, protracted default, and political risk perils including export and license cancellation. Our credit insurance product provides coverage to larger companies that have sophisticated credit risk management systems, with exposure to multiple customers and that have the ability to self-insure losses up to a certain level through excess of loss coverage. It also provides coverage to trade finance banks, exporters, and trading companies, with exposure to trade-related financing instruments. CGM also has limited capacity for Specialist Credit insurance products which provide coverage for project finance and working capital loans for large corporations and banks.

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

Crop Insurance

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

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

Each year the RMA issues a final SRA for the subsequent reinsurance year (i.e., the 2020 SRA covers the 2020 reinsurance year from July 1, 2019 through June 30, 2020). There were no significant changes in the terms and conditions from the 2019 SRA and therefore, the new SRA does not impact Chubb's outlook on the crop program relative to 2020.

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

The pricing of MPCI premium is determined using a number of factors including commodity prices and related volatility (i.e., both impact the amount of premium we can charge to the policyholder). For example, in most states, the pricing for the MPCI Revenue Product for corn (i.e., insurance coverage for lower than expected crop revenue in a given season) includes a factor based on the average commodity price in February. If corn commodity prices are higher in February, compared to the February price in the prior year, and all other factors are the same, the increase in price will increase the corn premium year-over-year.

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Pricing is also impacted by volatility factors, which measure the likelihood commodity prices will fluctuate over the crop year. For example, if volatility is set at a higher rate compared to the prior year, and all other factors are the same, the premium charged to the policyholder will be higher year-over-year for the same level of coverage.

Losses incurred on the MPCI business are determined using both commodity price and crop yield. With respect to commodity price, there are two important periods on a large portion of the business: The month of February when the initial premium base is set, and the month of October when the final harvest price is set. If the price declines from February to October, with yield remaining at normal levels, the policyholder may be eligible to recover on the policy. However, in most cases there are deductibles on these policies, therefore, the impact of a decline in price would have to exceed the deductible before a policyholder would be eligible to recover.

We evaluate our MPCI business at an aggregate level and the combination of all of our insured crops (both winter and summer) go into our underwriting gain or loss estimate in any given year. Typically, we do not have enough information on the harvest prices or crop yield outputs to quantify the preliminary estimated impact to our underwriting results until the fourth quarter.

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

Liquidity

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

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

To further ensure the sufficiency of funds to settle unforeseen claims, we hold certain invested assets in cash and short-term investments. In addition, for certain insurance, reinsurance, or deposit contracts that tend to have relatively large and reasonably predictable cash outflows, we attempt to establish dedicated portfolios of assets that are duration-matched with the related liabilities. With respect to the duration of our overall investment portfolio, we manage asset durations to both maximize return given current market conditions and provide sufficient liquidity to cover future loss payments. At December 31, 2019, the average duration of our fixed maturities (3.8 years) is less than the average expected duration of our insurance liabilities (4.3 years).

Despite our safeguards, if paid losses accelerate beyond our ability to fund such paid losses from current operating cash flows, we might need to either liquidate a portion of our investment portfolio or arrange for financing. Potential events causing such a liquidity strain could include several significant catastrophes occurring in a relatively short period of time, large uncollectible reinsurance recoverables on paid losses (as a result of coverage disputes, reinsurers' credit problems, or decreases in the value of collateral supporting reinsurance recoverables) or increases in collateral postings under our variable annuity reinsurance business. Because each subsidiary focuses on a more limited number of specific product lines than is collectively available from

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the Chubb Group of Companies, the mix of business tends to be less diverse at the subsidiary level. As a result, the probability of a liquidity strain, as described above, may be greater for individual subsidiaries than when liquidity is assessed on a consolidated basis. If such a liquidity strain were to occur in a subsidiary, we could be required to liquidate a portion of our investments, potentially at distressed prices, as well as be required to contribute capital to the particular subsidiary and/or curtail dividends from the subsidiary to support holding company operations.

The payment of dividends or other statutorily permissible distributions from our operating companies are subject to the laws and regulations applicable to each jurisdiction, as well as the need to maintain capital levels adequate to support the insurance and reinsurance operations, including financial strength ratings issued by independent rating agencies. During 2019, we were able to meet all our obligations, including the payments of dividends on our Common Shares, with our net cash flows.

We assess which subsidiaries to draw dividends from based on a number of factors. Considerations such as regulatory and legal restrictions as well as the subsidiary's financial condition are paramount to the dividend decision. Chubb Limited received dividends of $200 million and $75 million from its Bermuda subsidiaries in 2019 and 2018, respectively.

The payment of any dividends from CGM or its subsidiaries is subject to applicable U.K. insurance laws and regulations. In addition, the release of funds by Syndicate 2488 to subsidiaries of CGM is subject to regulations promulgated by the Society of Lloyd's. Chubb Limited received no dividends from CGM in 2019 and 2018.

The U.S. insurance subsidiaries of Chubb INA may pay dividends, without prior regulatory approval, subject to restrictions set out in state law of the subsidiary's domicile (or, if applicable, commercial domicile). Chubb INA's international subsidiaries are also subject to insurance laws and regulations particular to the countries in which the subsidiaries operate. These laws and regulations sometimes include restrictions that limit the amount of dividends payable without prior approval of regulatory insurance authorities. Chubb Limited received no dividends from Chubb INA in 2019 and 2018. Debt issued by Chubb INA is serviced by statutorily permissible distributions by Chubb INA's insurance subsidiaries to Chubb INA as well as other group resources. Chubb INA received dividends of $3.7 billion and $5.2 billion from its subsidiaries in 2019 and 2018, respectively. At December 31, 2019, the amount of dividends available to be paid to Chubb INA in 2019 from its subsidiaries without prior approval of insurance regulatory authorities totals $3.1 billion.

In January 2020, Chubb INA Holdings Inc. paid $1.5 billion towards the series of intercompany loans involving its parents, Chubb Group Holdings Inc. and Chubb Limited. Additionally, Chubb Limited contributed $1.2 billion to a Bermuda subsidiary.

Cash Flows

Our insurance and reinsurance operations provide liquidity in that premiums are received in advance, sometimes substantially in advance, of the time claims are paid. Generally, cash flows are affected by claim payments that, due to the nature of our operations, may comprise large loss payments on a limited number of claims and which can fluctuate significantly from period to period. The irregular timing of these loss payments can create significant variations in cash flows from operations between periods. Refer to “Contractual Obligations and Commitments” for our estimate of future claim payments by period. Sources of liquidity include cash from operations, routine sales of investments, and financing arrangements. The following is a discussion of our cash flows for 2019, 2018, and 2017.

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

Operating cash flows were $6.3 billion in 2019, compared to $5.5 billion and $4.5 billion in 2018 and 2017, respectively. Operating cash flow was higher in 2019 compared to 2018, primarily due to higher underwriting cash flow, partially offset by higher taxes paid compared to 2018 principally due to the timing of tax payments. The increase in operating cash flows of $977 million in 2018 compared to 2017 was primarily due to higher premiums collected, net of higher catastrophe loss payments related to the 2017 catastrophe events, and lower taxes paid principally due to the timing of tax payments.

Cash used for investing was $5.9 billion in 2019, compared to $2.9 billion and $2.4 billion in 2018 and 2017, respectively. The increase in cash used for investing of $3.0 billion in 2019 was primarily due to net purchases of short-term investments of $1.1 billion in 2019 compared to net proceeds of $516 million in 2018. Additionally, the increase in 2019 was due to the purchase of an additional 10.9 percent ownership interest in Huatai Group for $580 million. Cash used for investing in 2018 was higher compared to 2017, due to higher net private equity contributions, net of distributions received, of $793 million.

Cash used for financing was $151 million in 2019, compared to $2.0 billion and $2.3 billion in 2018 and 2017, respectively. Cash used for financing was lower by $1.8 billion in 2019 compared to 2018 primarily due to higher net proceeds from the

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issuance of long-term debt (net of repayments) of $2.1 billion offset by higher share repurchases of $486 million. Cash used for financing in 2018 was lower by $328 million, primarily due to higher net repayments of long-term debt in 2017.

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

We use repurchase agreements as a low-cost funding alternative. At December 31, 2019, there were $1.4 billion in repurchase agreements outstanding with various maturities over the next five months.

In addition to cash from operations, routine sales of investments, and financing arrangements, we have agreements with a third-party bank provider which implemented two international multi-currency notional cash pooling programs to enhance cash management efficiency during periods of short-term timing mismatches between expected inflows and outflows of cash by currency. The programs allow us to optimize investment income by avoiding portfolio disruption. In each program, participating Chubb entities establish deposit accounts in different currencies with the bank provider. Each day the credit or debit balances in every account are notionally translated into a single currency (U.S. dollars) and then notionally pooled. The bank extends overdraft credit to all participating Chubb entities as needed, provided that the overall notionally pooled balance of all accounts in each pool at the end of each day is at least zero. Actual cash balances are not physically converted and are not commingled between legal entities. Chubb entities may incur overdraft balances as a means to address short-term liquidity needs. 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 withdraw contributed funds from the pool.

Capital Resources

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

	December 31				December 31
(in millions of U.S. dollars, except for percentages)	2019				2018
Short-term debt	$	1,299			$	509
Long-term debt	13,559				12,087
Total financial debt	14,858				12,596
Trust preferred securities	308				308
Total shareholders’ equity	55,331				50,312
Total capitalization	$	70,497			$	63,216
Ratio of financial debt to total capitalization	21.1		%		19.9		%
Ratio of financial debt plus trust preferred securities to total capitalization	21.5		%		20.4		%

Repurchase agreements are excluded from the table above and are disclosed separately from short-term debt in the Consolidated balance sheets. The repurchase agreements are collateralized borrowings where we maintain the right and ability to redeem the collateral on short notice, unlike short-term debt which comprises the current maturities of our long-term debt instruments.

Refer to Note 9 to the Consolidated Financial Statements for details about the debt issued and debt redeemed.

We believe our financial strength provides us with the flexibility and capacity to obtain available funds externally through debt or equity financing on both a short-term and long-term basis. Our ability to access the capital markets is dependent on, among other things, market conditions and our perceived financial strength. We have accessed both the debt and equity markets from time to time. We generally maintain the ability to issue certain classes of debt and equity securities via an unlimited Securities and Exchange Commission (SEC) shelf registration which is renewed every three years. This allows us capital market access for refinancing as well as for unforeseen or opportunistic capital needs. In October 2018, we filed an unlimited shelf registration which allows us to issue certain classes of debt and equity. This shelf registration expires in October 2021.

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Securities Repurchases

From time to time, we repurchase shares as part of our capital management program. The Board of Directors (Board) 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

•	$1.5 billion of Chubb Common Shares from November 21, 2019 through December 31, 2020

Share repurchases may be made in the open market, in privately negotiated transactions, block trades, accelerated repurchases and/or through option or other forward transactions. In 2017, 2018 and 2019, we repurchased $830 million, $1.02 billion and $1.53 billion, respectively, of Common Shares in a series of open market transactions under the Board share repurchase authorizations. The $1.5 billion December 2018 Board authorization remained effective through December 31, 2019, and was used in advance of the $1.5 billion share repurchase authorized in November 2019. For the period January 1 through February 26, 2020, we repurchased 947,400 Common Shares for a total of $151 million in a series of open market transactions. At February 26, 2020, $1.30 billion in share repurchase authorization remained through December 31, 2020.

Common Shares

Our Common Shares had a par value of CHF 24.15 each at December 31, 2019.

As of December 31, 2019, there were 27,812,297 Common Shares in treasury with a weighted average cost of $134.98 per share.

Under Swiss law, dividends must be stated in Swiss francs though dividend payments are made by Chubb in U.S. dollars.

At our May 2018 annual general meeting, our shareholders approved an annual dividend for the following year of up to $2.92 per share, which was paid in four quarterly installments of $0.73 per share at dates determined by the Board after the annual general meeting by way of a distribution from capital contribution reserves, transferred to free reserves for payment.

At our May 2019 annual general meeting, our shareholders approved an annual dividend for the following year of up to $3.00 per share, expected to be paid in four quarterly installments of $0.75 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 2020 annual general meeting, and is authorized to abstain from distributing a dividend at its discretion. The first three quarterly installments each of $0.75 per share, have been distributed by the Board as expected.

Dividend distributions on Common Shares amounted to CHF 2.94 ($2.98) per share for the year ended December 31, 2019. Refer to Note 11 to the Consolidated Financial Statements for additional information on our dividends.

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Contractual Obligations and Commitments

The following table presents our future payments due by period under contractual obligations at December 31, 2019:

	Payments Due By Period
									2021				2023
(in millions of U.S. dollars)	Total			2020			and 2022			and 2024			Thereafter
Payment amounts determinable from the respective contracts
Deposit liabilities (1)	$	2,092			$	21			$	51			$	131			$	1,889
Purchase obligations (2)	411				159				223				29				—
Investments, including Limited Partnerships (3)	3,994				1,328				1,721				895				50
Huatai share acquisition deposits (4)	1,550				1,550				—				—				—
Operating leases	660				158				243				154				105
Repurchase agreements	1,416				1,416				—				—				—
Short-term debt	1,301				1,301				—				—				—
Long-term debt (5)	13,292				—				1,000				1,954				10,338
Trust preferred securities	309				—				—				—				309
Interest on debt obligations (5)	6,199				479				898				810				4,012
Total obligations in which payment amounts are determinable from the respective contracts	31,224				6,412				4,136				3,973				16,703
Payment amounts not determinable from the respective contracts
Estimated gross loss payments under insurance and reinsurance contracts	62,713				17,601				17,200				8,731				19,181
Estimated payments for future policy benefits	20,645				916				1,885				1,541				16,303
Total contractual obligations and commitments	$	114,582			$	24,929			$	23,221			$	14,245			$	52,187

(1)	Refer to Note 1 k) to the Consolidated Financial Statements.

(2)	Primarily comprises audit fees and agreements with vendors to purchase system software administration and maintenance services.

(3)	Funding commitment primarily related to limited partnerships. The timing of the payments of these commitments is uncertain and may differ from the estimated timing in the table.

(4)

Chubb entered into agreements to purchase incremental ownership interests in Huatai Insurance Group Company Limited through two separate purchases, a 15.3 percent ownership interest for approximately $1.1 billion and a 7.1 percent ownership interest for approximately $493 million. The purchases are contingent upon obtaining regulatory approvals and other important conditions, which are expected to be obtained by the end of 2021. The 7.1 percent purchase is also contingent upon receipt of Chinese insurance regulatory approval of the 15.3 percent purchase. In connection with these purchase agreements, in January 2020, we paid collateralized deposits totaling $1.550 billion to the selling shareholders, which are accounted for as loans.

(5)	Subject to foreign exchange fluctuations on interest expense and principal.

The above table excludes the following items:

•	Pension obligations: Minimum funding requirements for our pension obligations are immaterial. Subsequent funding commitments are apt to vary due to many factors and are difficult to estimate at this time. Refer to Note 13 to the Consolidated Financial Statements for additional information.

•

Liabilities for unrecognized tax benefits: The liability for unrecognized tax benefits, excluding interest and offsetting tax credits, was $47 million at December 31, 2019. At December 31, 2019, we had accrued $8 million in liabilities for income tax-related interest and penalties in our Consolidated balance sheet. We are unable to make a reasonably reliable estimate for the timing of cash settlement with respect to these liabilities. Refer to Note 8 to the Consolidated Financial Statements for additional information.

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

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Estimated gross loss payments under insurance and reinsurance contracts

We are obligated to pay claims under insurance and reinsurance contracts for specified loss events covered under those contracts. Such loss payments represent our most significant future payment obligation as a P&C insurance and reinsurance company. In contrast to other contractual obligations, cash payments are not determinable from the terms specified within the contract. For example, we do not ultimately make a payment to our counterparty for many insurance and reinsurance contracts (i.e., when a loss event has not occurred) and if a payment is to be made, the amount and timing cannot be determined from the contract. In the table above, we estimate payments by period relating to our gross liability for unpaid losses and loss expenses included in the Consolidated balance sheet at December 31, 2019, and do not take into account reinsurance recoverable. These estimated loss payments are inherently uncertain and the amount and timing of actual loss payments are likely to differ from these estimates and the differences could be material. Given the numerous factors and assumptions involved in both estimates of loss and loss expense reserves and related estimates as to the timing of future loss and loss expense payments in the table above, differences between actual and estimated loss payments will not necessarily indicate a commensurate change in ultimate loss estimates. The liability for Unpaid losses and loss expenses presented in our balance sheet is discounted for certain structured settlements, for which the timing and amount of future claim payments are reliably determinable, and certain reserves for unsettled claims. Our loss reserves are not discounted for the time value of money. Accordingly, the estimated amounts in the table exceed the liability for Unpaid losses and loss expenses presented in our balance sheet. Refer to Note 1 h) to the Consolidated Financial Statements for additional information.

Estimated payments for future policy benefits

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

Credit Facilities

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

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 LOC and for revolving loans. We have the ability to increase the capacity 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, 2019, our LOC usage was $567 million.

Our access to funds under an existing credit facility is dependent on the ability of the banks that are a party to the facility to meet their funding commitments. In the event that such credit support is insufficient, we could be required to provide alternative security to clients. This could take the form of additional insurance trusts supported by our investment portfolio or funds withheld using our cash resources. The value of LOCs required is driven by, among other things, statutory liabilities reported by variable annuity guarantee reinsurance clients, loss development of existing reserves, the payment pattern of such reserves, the expansion of business, and loss experience of such business.

The facility noted above requires that we maintain certain covenants, all of which have been met at December 31, 2019. These covenants include:

(i)	a minimum consolidated net worth of not less than $34.985 billion; and

(ii)	a ratio of consolidated debt to total capitalization of not greater than 0.35 to 1.

At December 31, 2019, (a) the minimum consolidated net worth requirement under the covenant described in (i) above was $34.985 billion and our actual consolidated net worth as calculated under that covenant was $54.7 billion and (b) our ratio of debt to total capitalization, as calculated under the covenant which excludes the fair value adjustment of debt acquired through the Chubb Corp acquisition, was 0.21 to 1, which is below the maximum debt to total capitalization ratio of 0.35 to 1 as described in (ii) above.

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

Should our existing credit provider experience financial difficulty, we may be required to replace credit sources, possibly in a difficult market. If we cannot obtain adequate capital or sources of credit on favorable terms, on a timely basis, or at all, our business, operating results, and financial condition could be adversely affected. To date, we have not experienced difficulty accessing our credit facility.

Ratings

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

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

Credit ratings assess a company's ability to make timely payments of principal and interest on its debt. It is possible that, in the future, one or more of the rating agencies may reduce our existing ratings. If one or more of our ratings were downgraded, we could incur higher borrowing costs, and our ability to access the capital markets could be impacted. In addition, our insurance and reinsurance operations could be adversely impacted by a downgrade in our financial strength ratings, including a possible reduction in demand for our products in certain markets. Also, we have insurance and reinsurance contracts which contain rating triggers. In the event the S&P or A.M. Best financial strength ratings of Chubb fall, we may be faced with the cancellation of premium or be required to post collateral on our underlying obligation associated with this premium. We estimate that at December 31, 2019, a one-notch downgrade of our S&P or A.M. Best financial strength ratings would result in an immaterial loss of premium or requirement for collateral to be posted.