Table	of	Contents

# UNITED	STATES	SECURITIES	AND	EXCHANGE	COMMISSION

# ANNUAL	REPORT	PURSUANT	TO	SECTION	13	OR	15(d)	OF	THE	SECURITIES	EXCHANGE	ACT	OF	1934

For	the	fiscal	year	ended	December	31,	2010

# TRANSITION	REPORT	PURSUANT	TO	SECTION	13	OR	15(d)	OF	THE	SECURITIES	EXCHANGE	ACT	OF	1934

# ACE	LIMITED

(Exact	name	of	registrant	as	specified	in	its	charter)

Switzerland

(State	or	other	jurisdiction	of	incorporation	or	organization)

# Baerengasse	32

Zurich,	Switzerland	CH-8001

(Address	of	principal	executive	offices,	Zip	Code)

(Registrant's	telephone	number,	including	area	code)

# Securities	registered	pursuant	to	Section	12(b)	of	the	Act:

# Title	of	each	class

Common	Shares,	par	value	CHF	30.57	per	share

(I.R.S.	Employer	Identification	No.)

# Name	of	each	exchange	on	which	registered

New	York	Stock	Exchange

Securities	registered	pursuant	to	Section	12(g)	of	the	Act:	None

Indicate	by	check	mark	if	the	registrant	is	a	well-known	seasoned	issuer,	as	defined	in	Rule	405	of	the	Securities

Indicate	by	check	mark	if	the	registrant	is	not	required	to	file	reports	pursuant	to	Section	13	or	Section	15(d)	of	the

Indicate	by	check	mark	whether	the	registrant	(1)	has	filed	all	reports	required	to	be	filed	by	Section	13	or	15(d)	of	the	Securities	Exchange	Act	of	1934 during	the	preceding	12	months	(or	for	such	shorter	periods	that	the	registrant	was	required	to	file	such	reports),	and	(2)	has	been	subject	to	such	filing requirements	for	the	past	90	days.		YES		x		NO		¨

Indicate	by	checkmark	whether	the	registrant	has	submitted	electronically	and	posted	on	its	corporate	Web	site,	if	any,	every	Interactive	Data	File required	to	be	submitted	and	posted	pursuant	to	Rule	405	of	Regulation	S-T	(§232.405	of	this	chapter)	during	the	preceding	12	months	(or	for	such shorter	period	that	the	registrant	was	required	to	submit	and	post	such	files).		YES		x		NO		¨

Indicate	by	check	mark	if	disclosure	of	delinquent	filers	pursuant	to	Item	405	of	Regulation	S-K	is	not	contained	herein,	and	will	not	be	contained,	to	the best	of	the	registrant's	knowledge,	in	definitive	proxy	or	information	statements	incorporated	by	reference	into	Part	III	of	this	Form	10-K	or	any amendment	to	this	Form	10-K.		x

Indicate	by	check	mark	whether	the	registrant	is	a	large	accelerated	filer,	an	accelerated	filer,	a	non-accelerated	filer,	or	a	smaller	reporting	company.

See	the	definitions	of	"large	accelerated	filer,"	"accelerated	filer"	and	"smaller	reporting	company"	in	Rule	12b-2	of	the	Exchange	Act.	(Check	one):

Large	accelerated	filer		x												Accelerated	filer		¨

Non-accelerated	filer		¨												(Do	not	check	if	a	smaller	reporting	company)	Smaller	reporting	company		 ¨

Indicate	by	check	mark	whether	the	registrant	is	a	shell	company	(as	defined	in	Rule	12b-2	of	the	Exchange	Act)		YES ¨		NO		x

The	aggregate	market	value	of	voting	stock	held	by	non-affiliates	as	of	June	30,	2010	(the	last	business	day	of	the	registrant's	most	recently	completed second	fiscal	quarter),	was	approximately	$17	billion.	For	the	purposes	of	this	computation,	shares	held	by	directors	and	officers	of	the	registrant	have been	excluded.	Such	exclusion	is	not	intended,	nor	shall	it	be	deemed,	to	be	an	admission	that	such	persons	are	affiliates	of	the	registrant.

# DOCUMENTS	INCORPORATED	BY	REFERENCE

Certain	portions	of	the	registrant's	definitive	proxy	statement	relating	to	its	2011	Annual	General	Meeting	of	Shareholders	are	incorporated	by	reference in	Part	III	of	this	report.

# ACE	LIMITED	INDEX	TO	10-K

| Part	I |  | Page |
| :--- | :--- | :--- |
| Item\t1. | \t\t Business | 3 |
| Item\t1A. | \t\t Risk\tFactors | 19 |
| Item\t1B. | \t\t Unresolved\tStaff\tComments | 30 |
| Item\t2. | \t\t Properties | 30 |
| Item\t3. | \t\t Legal\tProceedings | 30 |
| Item\t4. | (Removed\tand\tReserved) | 31 |
| Part\tII |  |  |
| Item\t5. | \t\t Market\tfor\tRegistrant's\tCommon\tEquity,\tRelated\tStockholder\tMatters\tand\tIssuer\tPurchases\tof\tEquity\tSecurities | 32 |
| Item\t6. | \t\t Selected\tFinancial\tData | 34 |
| Item\t7. | \t\t Management's\tDiscussion\tand\tAnalysis\tof\tFinancial\tCondition\tand\tResults\tof\tOperations | 35 |
| Item\t7A. | \t\t Quantitative\tand\tQualitative\tDisclosures\tAbout\tMarket\tRisk | 86 |
| Item\t8. | \t\t Financial\tStatements\tand\tSupplementary\tData | 90 |
| Item\t9. | \t\t Changes\tin\tand\tDisagreements\tWith\tAccountants\ton\tAccounting\tand\tFinancial\tDisclosure | 90 |
| Item\t9A. | \t\t Controls\tand\tProcedures | 90 |
| Item\t9A(T). | \t\t Controls\tand\tProcedures | 90 |
| Item\t9B. | \t\t Other\tInformation | 90 |
| Part\tIII |  |  |
| Item\t10. | \t\t Directors,\tExecutive\tOfficers\tand\tCorporate\tGovernance | 91 |
| Item\t11. | \t\t Executive\tCompensation | 91 |
| Item\t12. | \t\t Security\tOwnership\tof\tCertain\tBeneficial\tOwners\tand\tManagement\tand\tRelated\tStockholder\tMatters | 91 |
| Item\t13. | \t\t Certain\tRelationships\tand\tRelated\tTransactions,\tand\tDirector\tIndependence | 92 |
| Item\t14. | Principal\tAccounting\tFees\tand\tServices | 92 |
| Part\tIV\nItem\t15. | \t\t Exhibits,\tFinancial\tStatement\tSchedules | 93 |

# Forward-Looking	Statements

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

•	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	position,	and	financing	plans;

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

•	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,	rain	and	snow),	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	following	a	catastrophic	event;	and

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

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

•	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;

•	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	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,	and	the	impact	of	bankruptcy	protection	sought	by	various	asbestos producers	and	other	related	businesses	and	the	timing	of	loss	payments;

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

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

•	the	capital	markets;

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

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

•	uncertainties	relating	to	governmental,	legislative	and	regulatory	policies,	developments,	actions,	investigations	and	treaties,	which,	among	other	things,

could	subject	us	to	insurance	regulation	or	taxation	in	additional	jurisdictions	or	affect	our	current	operations;

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

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

•	acquisitions	made	by	us	performing	differently	than	expected,	our	failure	to	realize	anticipated	expense-related	efficiencies	or	growth	from	acquisitions,

the	impact	of	acquisitions	on	our	pre-existing	organization	or	announced	acquisitions	not	closing;

•	risks	associated	with	our	re-domestication	to	Switzerland,	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	to	perform	as	anticipated;	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.

# PART	I

# Item	1. Business

# General	Development	of	Business

ACE	Limited	is	the	Swiss-incorporated	holding	company	of	the	ACE	Group	of	Companies.	ACE	opened	its	business	office	in	Bermuda	in	1985	and continues	to	maintain	operations	in	Bermuda.	ACE	Limited,	which	is	headquartered	in	Zurich,	Switzerland,	and	its	direct	and	indirect	subsidiaries (collectively,	the	ACE	Group	of	Companies,	ACE,	the	Company,	we,	us,	or	our)	is	a	global	insurance	and	reinsurance	organization,	serving	the	needs	of commercial	and	individual	customers	in	more	than	170	countries.	We	serve	the	P&C	insurance	and	reinsurance	needs	of	businesses	of	all	sizes	in	a broad	range	of	industries.	We	also	provide	specialized	insurance	products:	such	as	personal	accident,	supplemental	health,	and	life	insurance	to individuals	in	select	countries.	At	December	31,	2010,	ACE	had	total	assets	of	$83	billion	and	shareholders'	equity	of	$23	billion.

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

On	December	28,	2010,	we	acquired	all	of	the	outstanding	common	stock	of	Rain	and	Hail	Insurance	Service,	Inc.	(Rain	and	Hail)	not	previously owned	by	us	for	approximately	$1.1	billion	in	cash.	Prior	to	this	transaction,	ACE	owned	approximately	20	percent	of	the	outstanding	common	stock	of Rain	and	Hail.	Headquartered	in	Johnston,	Iowa,	Rain	and	Hail	has	served	America's	farmers	since	1919,	providing	comprehensive	multiple	peril	crop and	crop/hail	insurance	protection	to	customers	in	the	U.S.	and	Canada.	We	intend	to	operate	Rain	and	Hail	as	a	unit	of	our	ACE	Westchester	division	in the	Insurance-North	American	segment.

On	December	1,	2010,	we	acquired	100	percent	of	Jerneh	Insurance	Berhad,	a	general	insurance	company	in	Malaysia	that	had	been	majority owned	by	Jerneh	Asia	Berhad,	an	investment	holding	company	listed	on	Bursa	Malaysia	Securities	Berhad.	The	acquisition	price	was	approximately $218	million	in	cash.

On	October	26,	2010,	we	announced	that	we	had	signed	a	definitive	purchase	agreement	(the	purchase	agreement)	to	acquire	New	York	Life's Hong	Kong	and	Korea	life	insurance	operations	for	approximately	$425	million	in	cash.	The	purchase	agreement	with	New	York	Life	was	amended	to allow	for	separate	closings	for	the	Hong	Kong	and	Korea	operations.	On	February	1,	2011,	we	acquired	New	York	Life's	Korea	operations	for approximately	$75	million	in	cash.	The	Hong	Kong	portion	of	the	transaction	is	currently	expected	to	close	early	in	2011.

# Employees

At	December	31,	2010,	there	were	approximately	16,000	employees	in	the	ACE	Group	of	Companies.	We	believe	that	employee	relations	are satisfactory.

# Customers

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

# Competition

Competition	in	the	insurance	and	reinsurance	marketplace	is	substantial.	Competition	varies	by	type	of	business	and	geographic	area.	Competitors include	other	stock	companies,	mutual	companies,	alternative	risk	sharing	groups	(such	as	group	captives	and	catastrophe	pools),	and	other	underwriting organizations.	These	companies	sell	through	various	distribution	channels	and	business	models,	across	a	broad	array	of	product	lines,	and	with	a	high level	of	variation	regarding	geographic,	marketing,	and	customer	segmentation.	We	compete	for	business	not	only	on	the	basis	of	price,	but	also	on	the basis	of	availability	of	coverage	desired	by	customers	and	quality	of	service.	Our	ability	to	compete	is	dependent	on	a	number	of	factors,	particularly	our ability	to	maintain	the	appropriate	financial	strength	ratings	as	assigned	by	independent	rating	agencies.	Our	strong	capital	position	and	global	platform affords	us	opportunities	for	growth	not	available	to	smaller,	less	diversified	insurance	companies.	Refer	to	"Segment	Information"	for	competitive environment	by	segment.

# Trademarks	and	Trade	Names

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

# Available	Information

We	make	available	free	of	charge	through	our	website	(www.acegroup.com,	under	Investor	Information	/	Financial	Reports	or	Investor	Information	/	SEC –	Section	16	Filings)	our	annual	report	on	Form	10-K,	quarterly	reports	on	Form	10-Q,	current	reports	on	Form	8-K,	and	amendments	to	those	reports filed	or	furnished	pursuant	to	Section	13(a)	or	15(d)	of	the	Exchange	Act	(15	U.S.C.	78m(a)	or	78o(d))	as	soon	as	reasonably	practicable	after	we electronically	file	such	material	with,	or	furnish	it	to,	the	SEC.

We	also	make	available	free	of	charge	through	our	website	(under	Investor	Information	/	Corporate	Governance)	our	Corporate	Governance Guidelines,	our	Code	of	Conduct,	and	Charters	for	the	Committees	of	our	Board	of	Directors	(the	Board).	These	documents	are	also	available	in	print	to any	shareholder	who	requests	them	from	our	Investor	Relations	Department	by:

# E-mail:	investorrelations@acegroup.com

We	also	use	this	website	as	a	means	of	disclosing	material,	non-public	information	and	for	complying	with	our	disclosure	obligations	under	SEC Regulation	FD	(Fair	Disclosure).	Accordingly,	investors	should	monitor	the	Investor	Relations	portion	of	our	website,	in	addition	to	following	our	press releases,	SEC	filings,	and	public	conference	calls	and	webcasts.	The	information	contained	on,	or	that	may	be	accessed	through,	our	website	is	not incorporated	by	reference	into,	and	is	not	a	part	of,	this	report.

# Segment	Information

We	operate	through	the	following	business	segments:	Insurance	–	North	American,	Insurance	–	Overseas	General,	Global	Reinsurance,	and	Life.

The	following	table	sets	forth	an	analysis	of	net	premiums	earned	by	segment	for	the	years	ended	December	31,	2010,	2009,	and	2008.

Additional	financial	information	about	our	segments,	including	net	premiums	earned	by	geographic	area,	is	included	in	Note	17	to	the	Consolidated Financial	Statements,	under	Item	8.

|  | 2010 | 2010 | 2009 | 2009 | 2008 | 2008 |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | Net |  | Net |  | Net |  |
|  | Premiums\nEarned | %\tof\nTotal | Premiums\nEarned | %\tof\nTotal | Premiums\nEarned | %\tof\nTotal |
|  |  |  | (in\tmillions\tof\tU.S.\tdollars) | (in\tmillions\tof\tU.S.\tdollars) |  |  |
| Insurance\t–\tNorth\tAmerican | $5,651 | 42% | $5,684 | 43% | $5,679 | 43% |
| Insurance\t–\tOverseas\tGeneral | 5,240 | 39% | 5,147 | 39% | 5,337 | 40% |
| Global\tReinsurance | 1,071 | 8% | 979 | 7% | 1,017 | 8% |
| Life | 1,542 | 11% | 1,430 | 11% | 1,170 | 9% |
| Total | $13,504 | \t100% | $13,240 | \t100% | $13,203 | \t100% |

# Insurance	–	North	American

# Overview

The	Insurance	–	North	American	segment	comprises	our	operations	in	the	U.S.,	Canada,	and	Bermuda.	This	segment,	which	accounted	for	42	percent	of our	2010	consolidated	net	premiums	earned,	includes	the	operations	of	ACE	USA	(including	ACE	Canada),	ACE	Westchester,	ACE	Bermuda,	ACE Private	Risk	Services,	and	various	run-off	operations.

# Products	and	Distribution

ACE	USA,	our	retail	operating	division	in	North	America,	provides	a	broad	array	of	P&C,	accident	and	health	(A&H),	and	risk	management	products	and services	to	a	diverse	group	of	North	American	commercial	and	non	commercial	enterprises	and	consumers.	ACE	USA	is	this	segment's	largest	operation and	represented	approximately	70	percent	of	Insurance	–	North	American's	net	premiums	earned	in	2010.	ACE	USA	distributes	its	insurance	products primarily	through	a	limited	number	of	retail	brokers.	In	addition	to	using	brokers,	certain	products	are	also	distributed	through	general	agents, independent	agents,	managing	general	agents	(MGA),	managing	general	underwriters,	alliances,	affinity	groups,	and	direct	marketing	operations. Products	offered	include	general	liability,	excess	liability,	property,	workers'	compensation,	commercial	marine,	automobile	liability,	professional	lines (D&O	and	E&O),	medical	liability,	aerospace,	and	A&H	coverages,	as	well	as	claims	and	risk	management	products	and	services.	ACE	USA	has	also established	internet	distribution	channels	for	some	of	its	products.

ACE	USA's	on-going	operations	are	organized	into	distinct	business	units,	each	offering	specialized	products	and	services	targeted	at	specific niche	markets:

•	ACE	Risk	Management	offers	a	wide	range	of	customized	casualty	products	to	respond	to	the	needs	of	mid-size	to	large	companies,	including	national accounts,	irrespective	of	industry.	These	programs	are	designed	to	help	insureds	address	the	significant	costs	of	financing	and	managing	risk	for workers'	compensation	and	general	and	auto	liability	coverages.	A	variety	of	program	structures	are	offered	to	support	each	client's	risk	financing	needs including:	large	deductible,	captives,	third-party	rent-a-captives,	funded	deductibles,	paid	or	incurred	loss	retrospective	plans,	and	net	present	value	and other	risk	financing	structures,	including	a	prospective	close-out	product.	We	also	underwrite	assumed	loss	portfolio	contracts	in	which	insured	loss events	have	occurred	prior	to	the	inception	of	the	contract,	when	the	contract	carries	the	requisite	amount	of	insurance	risk	transfer.	These	contracts	can cause	significant	variances	to	premiums,	losses	and	loss	expenses,	and	expense	ratios	in	the	periods	in	which	they	are	written.

•	ACE	Global	Underwriting	Group	is	comprised	of	property	and	specialty	operations	and	foreign	casualty,	providing	comprehensive	risk	management programs	and	services	to	mid-size	to	large	U.S.-based	companies,	not-for-profit,	and	government	entities.	The	group's	key	products	include	global property,	corporate	risk	property,	inland	marine,	foreign	casualty,	commercial	marine,	aerospace,	and	energy.

•	ACE	Casualty	Risk	offers	specialty	casualty	products	to	a	broad	range	of	customers,	ranging	from	small,	local	businesses	to	large,	multinational	clients. Key	coverages	offered	by	ACE	Casualty	Risk	include	umbrella	and	excess	liability,	environmental	risk	for	commercial	and	industrial	risks,	and	wrap-up programs	written	on	a	loss	sensitive	basis,	protecting	contractors	and	project	sponsors	with	multi-risk	coverage	on	large	single-	and	multi-location construction	projects.	We	also	write	custom	casualty	products	for	specialized	industry	segments	and	unique	risks	as	well	as	products	which	address	the needs	of	public	entities	such	as	educational	institutions.	On	a	selected	basis,	workers'	compensation	coverage	is	available	to	small	to	mid-size businesses.

•	ACE	Professional	Risk	provides	management	liability	and	professional	liability	(D&O	and	E&O)	as	well	as	surety	and	kidnap	&	extortion	products	to middle	market	and	Fortune	1000	clients.

•	ACE	Canada	(ACE	USA's	Canadian	operations)	offers	a	broad	range	of	P&C	products	as	well	as	life	and	A&H	coverage.	ACE	Canada	specializes	in providing	customized	products	to	commercial	and	industrial	clients	as	well	as	to	groups	and	associations,	operating	nationally	or	internationally.

•	ACE	Accident	&	Health	works	with	employers,	travel	agencies,	and	affinity	groups	to	offer	a	variety	of	accident	and	other	supplemental	insurance programs.	Key	products	include	employee	benefit	plans,	occupational	accident,	student	accident,	and	worldwide	travel	accident	and	global	medical programs.	With	respect	to	products	that	include	supplemental	medical	and	hospital	indemnity	coverages,	we	typically	pay	fixed	amounts	for	claims	and are	therefore,	insulated	from	rising	health	care	costs.	ACE	Accident	&	Health	also	provides	specialty	personal	lines	products,	including	credit	card enhancement	programs	(identity	theft,	rental	car	collision	damage	waiver,	trip	travel,	and	purchase	protection	benefits),	and	disaster	recovery	programs distributed	through	affinity	groups.

•	ACE	Medical	Risk	offers	a	wide	range	of	liability	products	for	the	health	care	industry	only	through	licensed	excess	and	surplus	lines	brokers.	Products include	primary	coverages	for	professional	liability	and	general	liability	for	selected	types	of	medical	facilities,	excess/umbrella	liability	for	medical facilities,	primary	and	excess	coverages	for	products	liability	for	biotechnology	and	specialty	pharmaceutical	companies,	and	liability	insurance	for	human clinical	trials.

•	ESIS	Inc.	(ESIS),	ACE	USA's	in-house	third-party	claims	administrator,	performs	claims	management	and	risk	control	services	for	domestic	and international	organizations,	including	for	the	Insurance	–	North	American	segment.	These	services	include	comprehensive	medical	managed	care, integrated	disability	services,	and	pre-loss	control	and	risk	management	services.	Additional	insurance-related	services	are	offered	by	ESIS's	Recovery Services	International,	which	provides	salvage	and	subrogation	and	health	care	recovery	services.	ESIS's	services	are	available	through	a	preferred relationship	with	ACE	Risk

Management	or	separately	for	those	clients	that	select	insurance	and	claims	management	services	independently.	The	net	results	for	ESIS	are	included in	Insurance	–	North	American's	administrative	expenses.

ACE	Westchester	offers	wholesale	distribution	of	excess	and	surplus	property,	inland	marine,	casualty,	professional	lines,	and	environmental liability	products.	Its	ACE	Commercial	Risk	Services	unit	addresses	the	needs	of	wholesale	brokers	with	accounts	requiring	rapid	quotes	for	less	complex exposures.	ACE	Westchester's	Program	division	provides	coverage	for	agriculture	business	and	specialty	programs,	writing	a	variety	of	commercial coverages	through	program	agents,	including	sports/leisure	activities,	farm,	and	crop/hail	insurance.	We	write	crop	insurance	business	throughout	the U.S.	through	Rain	and	Hail.	During	the	fourth	quarter	of	2010,	we	acquired	all	of	the	outstanding	common	stock	of	Rain	and	Hail	not	already	owned	by us.	Rain	and	Hail	provides	comprehensive	multiple	peril	crop	and	crop/hail	insurance	protection	to	customers	in	the	U.S.	and	Canada.	For	more information,	refer	to	"Crop	Insurance",	under	Item	7.

ACE	Bermuda	is	our	original	insurance	company.	It	provides	commercial	insurance	products	on	an	excess	basis	mainly	to	a	global	client	base targeting	Fortune	1000	companies	and	covering	exposures	that	are	generally	low	in	frequency	and	high	in	severity.	ACE	Bermuda	offers	excess	liability, professional	lines,	excess	property,	and	political	risk,	the	latter	being	written	on	a	subscription	basis	by	Sovereign	Risk	Insurance	Ltd.	(Sovereign),	a wholly	owned	managing	agent.	ACE	Bermuda	accesses	its	clients	primarily	through	the	Bermuda	offices	of	major,	internationally	recognized	insurance brokers.

ACE	Private	Risk	Services	provides	personal	lines	coverages	including	homeowners,	automobile,	valuables,	umbrella	liability,	and	recreational marine	insurance	for	affluent	individuals	and	families	in	North	America.	ACE	Private	Risk	Services'	products	are	distributed	through	independent	regional agents	and	brokers.

The	run-off	operations	include	Brandywine	Holdings	Corporation	(Brandywine),	Commercial	Insurance	Services,	residual	market	workers' compensation	business,	pools	and	syndicates	not	attributable	to	a	single	business	group,	and	other	exited	lines	of	business.	Run-off	operations	do	not actively	sell	insurance	products,	but	are	responsible	for	the	management	of	existing	policies	and	settlement	of	related	claims.

# Competitive	Environment

ACE	USA	and	ACE	Westchester	compete	against	a	number	of	large,	national	carriers	as	well	as	regional	competitors	and	other	entities	offering	risk alternatives	such	as	self-insured	retentions	and	captive	programs.	The	markets	in	which	we	compete	are	subject	to	significant	cycles	of	fluctuating capacity	and	wide	disparities	in	price	adequacy.	We	strive	to	offer	superior	service,	which	we	believe	has	differentiated	us	from	our	competitors.	The ACE	USA	and	ACE	Westchester	operations	pursue	a	specialist	strategy	and	focus	on	market	opportunities	where	we	can	compete	effectively	based	on service	levels	and	product	design,	while	still	achieving	an	adequate	level	of	profitability.	A	competitive	advantage	is	also	achieved	through	ACE	USA's innovative	product	offerings	and	our	ability	to	provide	multiple	products	to	a	single	client	due	to	our	nationwide	local	presence.	An	additional	competitive strength	of	all	our	domestic	commercial	units	is	the	ability	to	deliver	global	products	and	coverage	to	customers	in	concert	with	our	Insurance	–	Overseas General	segment.	ACE	USA	has	grown,	in	part,	from	the	leveraging	of	cross-marketing	opportunities	with	our	other	operations	to	take	advantage	of	our organization's	global	presence.	ACE	Bermuda	competes	against	international	commercial	carriers	writing	business	on	an	excess	of	loss	basis.	ACE Private	Risk	Services	competes	against	insurance	companies	of	varying	sizes	that	sell	products	through	various	distribution	channels,	including	through the	internet.

# Insurance	–	Overseas	General

The	Insurance	–	Overseas	General	segment,	which	accounted	for	39	percent	of	2010	consolidated	net	premiums	earned,	comprises	ACE	International, our	global	retail	insurance	operations,	the	wholesale	insurance	business	of	ACE	Global	Markets,	and	the	international	A&H	and	life	business	of Combined	Insurance.	ACE	International	is	our	retail	business	serving	territories	outside	the	U.S.,	Bermuda,	and	Canada.	ACE	Global	Markets,	our London-based	excess	and	surplus	lines	business,	includes	Lloyd's	of	London	(Lloyd's)	Syndicate	2488	(Syndicate	2488).	ACE	provides	funds	at	Lloyd's to	support	underwriting	by	Syndicate	2488,	which	is	managed	by	ACE	Underwriting	Agencies	Limited	and	has	an	underwriting	capacity	of	£360	million	for 2011.	The	reinsurance	operation	of	ACE	Global	Markets	is	included	in	the	Global	Reinsurance	segment.

ACE	International	maintains	a	presence	in	every	major	insurance	market	in	the	world	and	is	organized	geographically	along	product	lines	that	provide dedicated	underwriting	focus	to	customers.	ACE	International's	P&C	business	is	generally	written,	on	both	a	direct	and	assumed	basis,	through	major international,	regional,	and	local	brokers	and	agents.	Its	A&H	and	other	con-

sumer	lines	products	are	distributed	through	brokers,	agents,	direct	marketing	programs,	and	sponsor	relationships.	Certain	ACE	Europe	branded products	are	also	offered	via	an	e-commerce	platform,	ACE	Online,	that	allows	brokers	to	quote,	bind,	and	issue	specialty	policies	online.	Property insurance	products	include	traditional	commercial	fire	coverage	as	well	as	energy	industry-related,	construction,	and	other	technical	coverages.	Principal casualty	products	are	commercial	primary	and	excess	casualty,	environmental,	marine	and	general	liability.	ACE	International	also	provides	D&O,	and professional	indemnity	coverages.	The	A&H	operations	primarily	offer	personal	accident	and	supplemental	medical	products	to	meet	the	insurance	needs of	individuals	and	groups	outside	of	U.S.	insurance	markets.	These	coverages	include,	but	are	not	limited	to,	accidental	death,	business/holiday	travel, specified	disease,	credit	life,	disability,	medical	and	hospital	indemnity,	and	income	protection	coverages.	We	are	not	in	the	primary	health	care	business. With	respect	to	our	supplemental	medical	and	hospital	indemnity	products,	we	typically	pay	fixed	amounts	for	claims	and	are	therefore,	insulated	from rising	health	care	costs.	ACE	International's	personal	lines	operations	provide	specialty	products	and	services	designed	to	meet	the	needs	of	specific target	markets	and	include,	but	are	not	limited	to,	property	damage,	auto,	homeowners,	and	personal	liability.

The	following	is	a	discussion	of	ACE	International's	areas	of	operations:	ACE	Europe,	ACE	Asia	Pacific,	ACE	Far	East,	and	ACE	Latin	America. •	ACE	Europe	is	headquartered	in	London	and	offers	a	broad	range	of	P&C,	A&H,	and	specialty	coverages	throughout	the	European	Union,	Central	and Eastern	Europe,	the	Commonwealth	of	Independent	States,	the	Middle	East,	North	Africa,	and	South	Africa.	ACE's	operations	in	these	regions	comprise both	insurance	subsidiaries	and	joint	ventures.

•	ACE	Asia	Pacific	is	headquartered	in	Singapore	and	has	an	extensive	network	of	operations	offering	a	broad	range	of	P&C,	A&H,	and	specialty coverages	principally	directed	at	large	and	mid-sized	corporations	as	well	as	individual	consumers.	This	region	also	provides	management,	underwriting, reinsurance	protection	and	administrative	support	to	our	equity	investee,	Huatai	Insurance	Company	of	China,	Limited.

•	ACE	Far	East	is	based	in	Tokyo	and	offers	a	broad	range	of	P&C,	A&H,	and	personal	lines	insurance	products	and	services	to	businesses	and consumers	in	Japan,	principally	delivered	through	an	extensive	agency	network.

•	ACE	Latin	America	includes	business	operations	throughout	Latin	America	and	the	Caribbean,	focusing	on	P&C,	A&H,	and	specialty	personal	lines insurance	products	and	services	to	both	large	and	small	commercial	clients	as	well	as	individual	consumers.

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

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

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

ACE	Global	Markets	is	one	of	the	preeminent	international	specialty	insurers	in	London	and	is	an	established	lead	underwriter	on	a	significant portion	of	the	risks	underwritten	for	all	lines	of	business.	This	leadership	position	allows	ACE	Global	Markets	to	set	the	policy	terms	and	conditions	of many	of	the	policies	written.	All	lines	of	business	face	competition,	depending	on	the	business	class,	from	Lloyd's	syndicates,	the	London	market,	and other	major	international	insurers	and	reinsurers.

Competition	for	international	risks	is	also	seen	from	domestic	insurers	in	the	country	of	origin	of	the	insured.	ACE	Global	Markets	differentiates	itself	from competitors	through	long	standing	experience	in	its	product	lines,	its	multiple	insurance	entities	(Syndicate	2488	and	AEGL),	and	the	quality	of	its underwriting	and	claims	service.

# Global	Reinsurance

The	Global	Reinsurance	segment,	which	accounted	for	eight	percent	of	2010	consolidated	net	premiums	earned,	represents	ACE's	reinsurance operations	comprising	ACE	Tempest	Re	Bermuda,	ACE	Tempest	Re	USA,	ACE	Tempest	Re	International,	and	ACE	Tempest	Re	Canada.	Global Reinsurance	markets	its	reinsurance	products	worldwide	under	the	ACE	Tempest	Re	brand	name	and	provides	a	broad	range	of	products	to	a	diverse array	of	primary	P&C	insurers.

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

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

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

ACE	Tempest	Re	International	provides	P&C	treaty	reinsurance	to	insurance	companies	worldwide,	with	emphasis	on	non-U.S.	and	Canada	risks. ACE	Tempest	Re	International	writes	all	lines	of	traditional	and	specialty	reinsurance	including	property	risk	and	property	catastrophe,	casualty,	marine, and	aviation,	through	our	London-	and	Zurich-based	divisions.	The	London-based	divisions	of	ACE	Tempest	Re	International	focus	on	the	development of	business	sourced	through	London	market	brokers	and,	consequently,	write	a	diverse	book	of	international	business	utilizing	Syndicate	2488	and AEGL.	The	Zurich-based	division	focuses	on	providing	reinsurance	to	continental	European	insurers	via	continental	European	brokers.	ACE	Tempest	Re International	also	includes	our	Shanghai	office	which	provides	reinsurance	coverage	for	Chinese-based	risks	and	our	Sao	Paulo,	Brazil	office	which provides	reinsurance	for	Brazilian-based	risks.	ACE	Tempest	Re	International	underwrites	reinsurance	on	both	a	proportional	and	excess	of	loss	basis. ACE	Tempest	Re	Canada	offers	a	full	array	of	traditional	and	specialty	P&C	reinsurance	to	the	Canadian	market,	including	casualty,	property	risk and	property	catastrophe.	ACE	Tempest	Re	Canada	provides	its	coverage	through	its	Canadian	company	platform	and	also	offers	its	clients	access	to Syndicate	2488.	ACE	Tempest	Re	Canada	underwrites	reinsurance	on	both	a	proportional	and	excess	of	loss	basis.

The	Global	Reinsurance	segment	competes	worldwide	with	major	U.S.	and	non-U.S.	reinsurers	as	well	as	reinsurance	departments	of	numerous	multi- line	insurance	organizations.	Over	the	last	several	years,	capital	markets	participants	have	developed	financial	products	intended	to	compete	with traditional	reinsurance.	In	addition,	government	sponsored	or	backed	catastrophe	funds	can	affect	demand	for	reinsurance.	Global	Reinsurance	is considered	a	lead	reinsurer	and	is	typically	involved	in	the	negotiation	and	quotation	of	the	terms	and	conditions	of	the	majority	of	the	contracts	in	which	it participates.	Global	Reinsurance	competes	effectively	in	P&C	markets	worldwide	because	of	its	strong	capital	position,	analytical	capabilities	and	quality service	provided	to	customers,	the	leading	role	it	plays	in	setting	the	terms,	pricing,	and	conditions	in	negotiating	contracts,	and	its	customized	approach to	risk	selection.	The	key	competitors	in	our	markets	vary	by	geographic	region	and	product	line.	An	advantage	of	our	international	platform	is	that	we	are able	to	change	our	mix	of	business	in	response	to

changes	in	competitive	conditions	in	the	territories	in	which	we	operate.	Our	geographic	reach	is	also	sought	by	multinational	ceding	companies	since	all of	our	offices,	with	the	exception	of	Bermuda,	provide	local	reinsurance	license	capabilities	which	benefit	our	clients	in	dealing	with	country	regulators.

Life,	which	accounted	for	11	percent	of	2010	consolidated	net	premiums	earned,	includes	ACE's	international	life	operations	(ACE	Life),	ACE	Tempest Life	Re	(ACE	Life	Re),	and	the	North	American	supplemental	A&H	and	life	business	of	Combined	Insurance.

ACE	Life	provides	individual	life	and	group	benefit	insurance	primarily	in	emerging	markets,	including	Egypt,	Indonesia,	Taiwan,	Thailand,	Vietnam,	the United	Arab	Emirates,	throughout	Latin	America,	selectively	in	Europe,	as	well	as	China	through	a	non-consolidated	joint-venture	insurance	company.	In February	2011,	we	commenced	life	insurance	operations	in	the	Republic	of	Korea	by	way	of	our	acquisition	of	New	York	Life's	Korea	operations.	ACE Life	offers	a	broad	portfolio	of	protection	and	savings	products	including	whole	life,	endowment	plans,	individual	term	life,	group	term	life,	group	medical, personal	accident,	universal	life,	and	unit	linked	contracts.	The	policies	written	by	ACE	Life	generally	provide	funds	to	beneficiaries	of	insureds	after death	and/or	protection	and/or	savings	benefits	while	the	contract	owner	is	living.	ACE	Life	sells	to	consumers	through	a	variety	of	distribution	channels including	agency,	bancassurance,	brokers,	and	direct	to	consumer	marketing.	We	continue	to	expand	this	business	with	a	focus	on	opportunities	in developed	and	emerging	markets	that	we	believe	will	result	in	strong	and	sustainable	operating	profits	as	well	as	a	favorable	return	on	capital commitments	after	an	initial	growth	period.	Our	dedicated	agency	distribution	channel,	whereby	agents	sell	ACE	Life	products	exclusively,	enables	us	to maintain	direct	contact	with	the	individual	consumer,	promote	quality	sales	practices,	and	exercise	greater	control	over	the	future	of	the	business.	ACE Life	is	developing	agency	distribution	in	those	countries	in	which	we	believe	we	can	achieve	sustainable	growth	as	well	as	a	favorable	return	on	our investment	from	that	channel.	We	have	developed	a	substantial	sales	force	of	agents	principally	located	in	Asia-Pacific	countries,	including	a	leadership position	in	Vietnam	and	growing	agency	forces	in	Indonesia	and	Thailand.	ACE	Life	manages	its	agency	business	through,	among	other	things,	key performance	indicators	that	monitor	the	retention	and	productivity	of	its	agents	and	persistency	of	our	business.	ACE	maintains	approximately	36.7 percent	direct	and	indirect	ownership	interest	in	Huatai	Life	Insurance	Co.,	Ltd.	("Huatai	Life"),	which	commenced	operations	in	2005	and	has	since grown	to	become	one	of	the	largest	life	insurance	foreign	joint	ventures	in	China.	Huatai	Life	offers	a	broad	portfolio	of	insurance	products	through	a variety	of	distribution	channels	including	approximately	150	licensed	sales	locations	in	nine	provinces	within	China.	Huatai	Life	has	developed	a	large sales	force	and	maintains	distribution	agreements	with	many	large	banks	within	China.

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

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

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

# Underwriting

ACE	is	an	underwriting	company	and	we	strive	to	emphasize	quality	of	underwriting	rather	than	volume	of	business	or	market	share.	Our	underwriting strategy	is	to	employ	consistent,	disciplined	pricing	and	risk	selection	in	order	to	maintain	a	profitable	book	of	business	throughout	market	cycles.	Clearly defined	underwriting	authorities,	standards,	and	guidelines	are	in	place	in	each	of	our	local	operations	and	global	profit	centers.	Global	product	boards ensure	consistency	of	approach	and	the	establishment	of	best	practices	throughout	the	world.	Our	priority	is	to	help	ensure	adherence	to	criteria	for	risk selection	by	maintaining	high	levels	of	experience	and	expertise	in	our	underwriting	staff.	In	addition,	we	employ	a	business	review	structure	that	helps ensure	control	of	risk	quality	and	conservative	use	of	policy	limits	and	terms	and	conditions.

Qualified	actuaries	in	each	region	work	closely	with	the	underwriting	teams	to	provide	additional	expertise	in	the	underwriting	process.	We	use sophisticated	catastrophe	loss	and	risk	modeling	techniques	designed	to	ensure	appropriate	spread	of	risk	and	to	analyze	correlation	of	risk	across different	product	lines	and	territories.	This	helps	to	ensure	that	losses	are	contained	within	our	risk	tolerance	and	appetite	for	individual	products	lines, businesses,	and	ACE	as	a	whole.	We	also	purchase	reinsurance	as	a	tool	to	diversify	risk	and	limit	the	net	loss	potential	of	catastrophes	and	large	or unusually	hazardous	risks,	refer	to	"Reinsurance	Protection".	For	more	information	refer	to	"Insurance	and	Reinsurance	Markets",	under	Item	1A, "Catastrophe	Management"	and	"Natural	Catastrophe	Property	Reinsurance	Program",	under	Item	7,	and	Note	5	to	the	Consolidated	Financial Statements,	under	Item	8.

# Reinsurance	Protection

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

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

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

# Unpaid	Losses	and	Loss	Expenses

We	establish	reserves	for	unpaid	losses	and	loss	expenses,	which	are	estimates	of	future	payments	on	reported	and	unreported	claims	for	losses	and related	expenses,	with	respect	to	insured	events	that	have	occurred.	The	process	of	establishing	loss	and	loss	expense	reserves	for	P&C	claims	can	be complex	and	is	subject	to	considerable	uncertainty	as	it	requires	the	use	of	informed	estimates	and	judgments	based	on	circumstances	known	at	the	date of	accrual.	These	estimates	and	judgments	are

based	on	numerous	factors,	and	may	be	revised	as	additional	experience	and	other	data	become	available	and	are	reviewed,	as	new	or	improved methodologies	are	developed,	or	as	laws	change.	We	have	actuarial	staff	in	each	of	our	operating	segments	who	regularly	analyze	the	levels	of	loss	and loss	expense	reserves,	taking	into	consideration	factors	that	may	impact	the	ultimate	settlement	value	of	the	unpaid	losses	and	loss	expenses.	These analyses	could	result	in	future	changes	in	the	estimates	of	loss	and	loss	expense	reserves	or	reinsurance	recoverables	and	any	such	changes	would	be reflected	in	our	results	of	operations	in	the	period	in	which	the	estimates	are	changed.	Losses	and	loss	expenses	are	charged	to	income	as	incurred.	The reserve	for	unpaid	losses	and	loss	expenses	represents	the	estimated	ultimate	losses	and	loss	expenses	less	paid	losses	and	loss	expenses,	and comprises	case	reserves	and	incurred	but	not	reported	(IBNR)	loss	reserves.	With	the	exception	of	certain	structured	settlements,	for	which	the	timing and	amount	of	future	claim	payments	are	reliably	determinable,	our	loss	reserves	are	not	discounted	for	the	time	value	of	money.	In	connection	with these	structured	settlements,	we	carried	net	reserves	of	$69	million,	net	of	discount,	at	December	31,	2010.

During	the	loss	settlement	period,	which	can	be	many	years	in	duration,	additional	facts	regarding	individual	claims	and	trends	often	will	become known.	As	these	become	apparent,	case	reserves	may	be	adjusted	by	allocation	from	IBNR	without	any	change	in	the	overall	reserve.	In	addition,	the circumstances	of	individual	claims	or	the	application	of	statistical	and	actuarial	methods	to	loss	experience	data	may	lead	to	the	adjustment	of	the	overall reserves	upward	or	downward	from	time	to	time.	Accordingly,	the	ultimate	settlement	of	losses	may	be	significantly	greater	than	or	less	than	reported loss	and	loss	expense	reserves.

We	have	considered	asbestos	and	environmental	(A&E)	claims	and	claims	expenses	in	establishing	the	liability	for	unpaid	losses	and	loss expenses	and	have	developed	reserving	methods	which	consider	historical	experience	as	well	as	incorporate	new	sources	of	data	to	estimate	the ultimate	losses	arising	from	A&E	exposures.	The	reserves	for	A&E	claims	and	claims	expenses	represent	management's	best	estimate	of	future	loss	and loss	expense	payments	and	recoveries	that	are	expected	to	develop	over	the	next	several	decades.	We	continuously	monitor	evolving	case	law	and	its effect	on	environmental	and	latent	injury	claims,	we	monitor	A&E	claims	activity	quarterly,	and	we	perform	a	full	reserve	review	annually.

For	each	product	line,	management,	in	conjunction	with	internal	actuaries,	develops	a	"best	estimate"	of	the	ultimate	settlement	value	of	the	unpaid losses	and	loss	expenses	that	it	believes	provides	a	reasonable	estimate	of	the	required	reserve.	We	evaluate	our	estimates	of	reserves	quarterly	in	light of	developing	information.	While	we	are	unable	at	this	time	to	determine	whether	additional	reserves	may	be	necessary	in	the	future,	we	believe	that	our reserves	for	unpaid	losses	and	loss	expenses	are	adequate	at	December	31,	2010.	Future	additions	to	reserves,	if	needed,	could	have	a	material adverse	effect	upon	our	financial	condition,	results	of	operations,	and	cash	flows.

For	more	information	refer	to	"Critical	Accounting	Estimates	–	Unpaid	losses	and	loss	expenses",	under	Item	7	and	Note	7	to	the	Consolidated Financial	Statements,	under	Item	8.

The	"Analysis	of	Losses	and	Loss	Expenses	Development"	table	shown	below	presents,	for	each	balance	sheet	date	over	the	period	2000-2010, the	gross	and	net	loss	and	loss	expense	reserves	recorded	at	the	balance	sheet	date	and	subsequent	net	payments	on	the	associated	liabilities.	The reserves	represent	the	amount	required	for	the	estimated	future	settlement	value	of	liabilities	incurred	at	or	prior	to	the	balance	sheet	date	and	those estimates	may	change	subsequent	to	the	balance	sheet	date	as	new	information	emerges	regarding	the	ultimate	settlement	value	of	the	liability. Accordingly,	the	table	also	presents	through	December	31,	2010,	for	each	balance	sheet	date,	the	cumulative	impact	of	subsequent	valuations	of	the liabilities	incurred	at	the	original	balance	sheet	date.	The	data	in	the	table	is	presented	in	accordance	with	reporting	requirements	of	the	SEC.	This	table should	be	interpreted	with	care	by	those	not	familiar	with	its	format	or	those	who	are	familiar	with	other	triangulations	arranged	by	origin	year	of	loss	such as	accident	or	underwriting	year	rather	than	balance	sheet	date,	as	shown	below.	To	clarify	the	interpretation	of	the	table,	we	use	the	reserves established	at	December	31,	2000,	in	the	following	example.

The	top	two	lines	of	the	table	show,	for	successive	balance	sheet	dates,	the	gross	and	net	unpaid	losses	and	loss	expenses	recorded	as	provision for	liabilities	incurred	at	or	prior	to	each	balance	sheet	date.	It	can	be	seen	that	at	December	31,	2000,	a	reserve	of	$9.437	billion	net	of	reinsurance	had been	established.

The	upper	(paid)	triangulation	presents	the	net	amounts	paid	as	of	periods	subsequent	to	the	balance	sheet	date.	Hence	in	the	2001	financial	year, $2.425	billion	of	payments	were	made	on	liabilities	contemplated	in	the	December	31,	2000,	reserve	balance.	At	the	end	of	the	2010	financial	year,	there were	cumulative	net	payments	of	$7.543	billion	on	this	block	of	liabilities.

The	lower	triangulation	within	the	table	shows	the	revised	estimate	of	the	net	liability	originally	recorded	at	each	balance	sheet	date	as	of	the	end	of subsequent	financial	years.	With	the	benefit	of	actual	loss	emergence	and	hindsight	over	the	intervening	period,	the	net	liabilities	incurred	as	of December	31,	2000,	are	now	estimated	to	be	$11.5	billion,	rather	than	the	original	estimate	of	$9.437	billion.	One	of	the	key	drivers	of	this	change	has been	adverse	development	on	latent	claims	that

we	categorize	as	A&E	covered	under	the	National	Indemnity	Company	(NICO)	reinsurance	treaties.	Of	the	cumulative	deficiency	of	$2.063	billion recognized	in	the	ten	years	since	December	31,	2000,	$758	million	relates	to	non-latent	claims	and	$1.305	billion	relates	to	latent	claims.	The	deficiency of	$2.063	billion	was	identified	and	recorded	as	follows;	$159	million	deficient	in	2001,	$576	million	deficient	in	2002,	$245	million	deficient	in	2003,	$880 million	deficient	in	2004,	$66	million	redundant	in	2005,	$164	million	deficient	in	2006,	$24	million	deficient	in	2007,	$101	million	deficient	in	2008,	$31 million	redundant	in	2009,	and	$11	million	deficient	in	2010.

Importantly,	the	cumulative	deficiency	or	redundancy	for	different	balance	sheet	dates	are	not	independent	and,	therefore,	should	not	be	added together.	In	the	last	year,	we	revised	our	estimate	of	the	December	31,	2000,	liabilities	from	$11.489	billion	to	$11.5	billion.	This	adverse	development	of $11	million	will	also	be	included	in	each	column	to	the	right	of	the	December	31,	2000,	column	to	recognize	that	this	additional	amount	was	also	required in	the	reserves	established	for	each	annual	balance	sheet	date	from	December	31,	2001,	to	December	31,	2010.

The	loss	development	table	shows	that	our	original	estimate	of	the	net	unpaid	loss	and	loss	expense	requirement	at	December	31,	2009,	of $25.038	billion	has,	with	the	benefit	of	actual	loss	emergence	and	hindsight,	been	revised	to	$24.481	billion	at	December	31,	2010.	This	favorable movement	of	$557	million	is	referred	to	as	prior	period	development	and	is	the	net	result	of	a	number	of	underlying	movements	both	favorable	and adverse.	The	key	underlying	movements	are	discussed	in	more	detail	within	the	"Prior	Period	Development"	section	of	Item	7.

The	bottom	lines	of	the	table	show	the	re-estimated	amount	of	previously	recorded	gross	liabilities	at	December	31,	2010,	together	with	the	change in	reinsurance	recoverable.	Similar	to	the	net	liabilities,	the	cumulative	redundancy	or	deficiency	on	the	gross	liability	is	the	difference	between	the	gross liability	originally	recorded	and	the	re-estimated	gross	liability	at	December	31,	2010.	For	example,	with	respect	to	the	gross	unpaid	loss	and	loss expenses	of	$17.603	billion	for	December	31,	2000,	this	gross	liability	was	re-estimated	to	be	$24.539	billion	at	December	31,	2010,	resulting	in	the cumulative	deficiency	on	the	gross	liability	originally	recorded	for	the	2000	balance	sheet	year	of	$6.936	billion.	This	deficiency	relates	primarily	to	U.S. liabilities,	including	A&E	liabilities	for	1996	and	prior.	The	gross	deficiency	results	in	a	net	deficiency	of	$2.063	billion	after	consideration	of	substantial reinsurance	coverage	that	reduces	the	gross	loss;	approximately	$2.2	billion	was	covered	by	reinsurance	placed	when	the	risks	were	originally	written and	$1.25	billion	of	the	remaining	liability	has	been	ceded	under	the	Brandywine	NICO	Agreement.

We	do	not	consider	it	appropriate	to	extrapolate	future	deficiencies	or	redundancies	based	upon	the	table,	as	conditions	and	trends	that	have affected	development	of	the	liability	in	the	past	may	not	necessarily	recur	in	the	future.	We	believe	that	our	current	estimates	of	net	liabilities appropriately	reflect	our	current	knowledge	of	the	business	profile	and	the	prevailing	market,	social,	legal,	and	economic	conditions	while	giving	due consideration	to	historical	trends	and	volatility	evidenced	in	our	markets	over	the	longer	term.	The	key	issues	and	considerations	involved	in	establishing our	estimate	of	the	net	liabilities	are	discussed	in	more	detail	within	the	"Critical	Accounting	Estimates	–	Unpaid	losses	and	loss	expenses"	section	of Item	7.

On	April	1,	2008,	we	acquired	Combined	Insurance.	On	December	1,	2010,	we	acquired	Jerneh	Insurance	Berhad.	On	December	28,	2010,	we acquired	all	of	the	outstanding	commons	stock	of	Rain	and	Hail	not	previously	owned	by	us.	The	unpaid	loss	information	for	these	acquisitions	has	been included	in	the	table	commencing	in	the	year	of	acquisition.

# Analysis	of	Losses	and	Loss	Expenses	Development

| U.S.	dollars) | 2000 | 2001 | 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | 2010 |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Gross\tunpaid\tlosses | \t $17,603 | \t $20,941 | \t $24,597 | \t $27,083 | \t $31,483 | \t $35,055 | \t $35,517 | \t $37,112 | \t $37,176 | \t $37,783 | \t $37,391 |
| Net\tunpaid\tlosses | 9,437 | 10,617 | 11,988 | 14,674 | \t 17,517 | \t 20,458 | \t 22,008 | \t 23,592 | \t 24,241 | \t 25,038 | \t 25,242 |
| Net\tpaid\tlosses\t(cumulative) |  |  |  |  |  |  |  |  |  |  |  |
| as\tof: |  |  |  |  |  |  |  |  |  |  |  |
| 1\tyear\tlater | 2,425 | 2,667 | 2,702 | 2,855 | 3,293 | 3,711 | 4,038 | 3,628 | 4,455 | 4,724 |  |
| 2\tyears\tlater | 3,850 | 4,640 | 4,379 | 4,878 | 5,483 | 6,487 | 6,356 | 6,092 | 7,526 |  |  |
| 3\tyears\tlater | 5,165 | 5,568 | 5,817 | 6,427 | 7,222 | 7,998 | 8,062 | 8,393 |  |  |  |
| 4\tyears\tlater | 5,515 | 6,688 | 7,009 | 7,819 | 8,066 | 9,269 | 9,748 |  |  |  |  |
| 5\tyears\tlater | 6,204 | 7,496 | 8,032 | 8,416 | 8,920 | \t 10,597 |  |  |  |  |  |
| 6\tyears\tlater | 6,638 | 8,014 | 8,390 | 9,049 | 9,810 |  |  |  |  |  |  |
| 7\tyears\tlater | 6,959 | 8,226 | 8,851 | 9,781 |  |  |  |  |  |  |  |
| 8\tyears\tlater | 7,036 | 8,584 | 9,372 |  |  |  |  |  |  |  |  |
| 9\tyears\tlater | 7,239 | 8,971 |  |  |  |  |  |  |  |  |  |
| 10\tyears\tlater | 7,543 |  |  |  |  |  |  |  |  |  |  |
| Net\tliability\tre-estimated |  |  |  |  |  |  |  |  |  |  |  |
| as\tof: |  |  |  |  |  |  |  |  |  |  |  |
| End\tof\tyear | 9,437 | 10,617 | 11,988 | 14,674 | \t 17,517 | \t 20,458 | \t 22,008 | \t 23,592 | \t 24,241 | \t 25,038 | \t 25,242 |
| 1\tyear\tlater | 9,596 | 11,344 | 12,170 | 15,221 | \t 17,603 | \t 20,446 | \t 21,791 | \t 22,778 | \t 23,653 | \t 24,481 |  |
| 2\tyears\tlater | 10,172 | 11,552 | 13,215 | 15,468 | \t 17,651 | \t 20,366 | \t 21,188 | \t 22,158 | \t 23,127 |  |  |
| 3\tyears\tlater | 10,417 | 12,541 | 13,477 | 15,732 | \t 17,629 | \t 19,926 | \t 20,650 | \t 21,596 |  |  |  |
| 4\tyears\tlater | 11,297 | 12,725 | 13,790 | 16,015 | \t 17,509 | \t 19,589 | \t 20,080 |  |  |  |  |
| 5\tyears\tlater | 11,231 | 12,880 | 14,152 | 16,086 | \t 17,276 | \t 19,258 |  |  |  |  |  |
| 6\tyears\tlater | 11,395 | 13,013 | 14,201 | 15,994 | \t 17,116 |  |  |  |  |  |  |
| 7\tyears\tlater | 11,419 | 13,099 | 14,210 | 15,965 |  |  |  |  |  |  |  |
| 8\tyears\tlater | 11,520 | 13,110 | 14,185 |  |  |  |  |  |  |  |  |
| 9\tyears\tlater | 11,489 | 13,074 |  |  |  |  |  |  |  |  |  |
| 10\tyears\tlater | 11,500 |  |  |  |  |  |  |  |  |  |  |
| Cumulative\tredundancy/(deficiency)\ton |  |  |  |  |  |  |  |  |  |  |  |
| net\tunpaid\tlosses | (2,063) | (2,457) | (2,197) | (1,291) | 401 | 1,200 | 1,928 | 1,996 | 1,114 | 557^(1) |  |
| Cumulative\tdeficiency\trelated\tto\tA&E | (1,305) | (1,300) | (784) | (784) | (319) | (319) | (267) | (238) | (187) | (104) |  |
| Cumulative\tredundancy/(deficiency) |  |  |  |  |  |  |  |  |  |  |  |
| excluding\tA&E | (758) | (1,157) | (1,413) | (507) | 720 | 1,519 | 2,195 | 2,234 | 1,301 | 661 |  |
| Gross\tunpaid\tlosses | 17,603 | 20,941 | 24,597 | 27,083 | \t 31,483 | \t 35,055 | \t 35,517 | \t 37,112 | \t 37,176 | \t 37,783 | \t 37,391 |
| Reinsurance\trecoverable\ton\tunpaid |  |  |  |  |  |  |  |  |  |  |  |
| losses | 8,166 | 10,324 | 12,609 | 12,409 | \t 13,966 | \t 14,597 | \t 13,509 | \t 13,520 | \t 12,935 | \t 12,745 | \t 12,149 |
| Net\tunpaid\tlosses | 9,437 | 10,617 | 11,988 | 14,674 | \t 17,517 | \t 20,458 | \t 22,008 | \t 23,592 | \t 24,241 | \t 25,038 | \t 25,242 |
| Gross\tliability\tre-estimated | 24,539 | 28,504 | 29,726 | 30,955 | \t 31,831 | \t 33,340 | \t 33,371 | \t 34,784 | \t 36,276 | \t 37,181 |  |
| Reinsurance\trecoverable\ton\tunpaid |  |  |  |  |  |  |  |  |  |  |  |
| losses | 13,039 | 15,430 | 15,541 | 14,990 | \t 14,715 | \t 14,082 | \t 13,291 | \t 13,188 | \t 13,149 | \t 12,700 |  |
| Net\tliability\tre-estimated | 11,500 | 13,074 | 14,185 | 15,965 | \t 17,116 | \t 19,258 | \t 20,080 | \t 21,596 | \t 23,127 | \t 24,481 |  |
| Cumulative\tredundancy/(deficiency)\ton |  |  |  |  |  |  |  |  |  |  |  |
| gross\tunpaid\tlosses | \t $(6,936) | \t\t\t\t $(7,563) | \t\t\t\t $(5,129) | \t\t\t\t $(3,872) | \t\t\t\t $(348) | \t\t\t\t $1,715 | \t\t\t\t $2,146 | \t\t\t\t $2,328 | \t\t\t\t $900 | \t\t\t\t $602 |  |

The	reference	to	"losses"	in	the	table	above	refers	to	losses	and	loss	expenses.

	This	amount	does	not	agree	to	the	reconciliation	of	unpaid	losses	and	loss	expenses	for	the	2010	year	in	the	table	below	due	to	the	accounting	treatment	of	Crop	profit	commission	resulting	in	the reduction	of	$45	million	in	the	related	net	losses	and	loss	expenses	incurred	in	respect	of	losses	occurring	in	prior	years.	Note	that	there	is	a	corresponding	increase	of	$45	million	in	net	losses	and loss	expenses	incurred	in	respect	of	losses	occurring	in	the	current	year. (1)

# Reconciliation	of	Unpaid	Losses	and	Loss	Expenses

|  |  | Year	Ended	December	31 |  |
| :--- | :--- | :--- | :--- |
| (in\tmillions\tof\tU.S.\tdollars) | 2010 | 2009 | 2008 |
| Gross\tunpaid\tlosses\tand\tloss\texpenses\tat\tbeginning\tof\tyear | $37,783 | $37,176 | $37,112 |
| Reinsurance\trecoverable\ton\tunpaid\tlosses^(1) | (12,745) | (12,935) | (13,520) |
| Net\tunpaid\tlosses\tand\tloss\texpenses\tat\tbeginning\tof\tyear | 25,038 | 24,241 | 23,592 |
| Acquisition\tof\tsubsidiaries | 145 | – | 353 |
| Total | 25,183 | 24,241 | 23,945 |
| Net\tlosses\tand\tloss\texpenses\tincurred\tin\trespect\tof\tlosses\toccurring\tin:\nCurrent\tyear | 8,091 | 8,001 | 8,417 |
| Prior\tyears | (512) | (579) | (814) |
| Total | 7,579 | 7,422 | 7,603 |
| Net\tlosses\tand\tloss\texpenses\tpaid\tin\trespect\tof\tlosses\toccurring\tin:\nCurrent\tyear | 2,689 | 2,493 | 2,699 |
| Prior\tyears | 4,724 | 4,455 | 3,628 |
| Total | 7,413 | 6,948 | 6,327 |
| Foreign\tcurrency\trevaluation\tand\tother | (107) | 323 | (980) |
| Net\tunpaid\tlosses\tand\tloss\texpenses\tat\tend\tof\tyear | 25,242 | 25,038 | 24,241 |
| Reinsurance\trecoverable\ton\tunpaid\tlosses^(1) | 12,149 | 12,745 | 12,935 |
| Gross\tunpaid\tlosses\tand\tloss\texpenses\tat\tend\tof\tyear | $37,391 | $37,783 | $37,176 |
| (1)\n\tNet\tof\tprovision\tfor\tuncollectible\treinsurance |  |  |  |

	Net	of	provision	for	uncollectible	reinsurance (1)

Net	losses	and	loss	expenses	incurred	for	2010	were	$7.6	billion,	compared	with	$7.4	billion	in	2009,	and	$7.6	billion	in	2008.	Net	losses	and	loss expenses	incurred	for	2010,	2009,	and	2008,	include	$512	million,	$579	million,	and	$814	million	of	net	favorable	prior	period	development,	respectively. For	more	information,	refer	to	the	"Prior	Period	Development"	section	of	Item	7.

# Investments

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

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

•	conducts	formal	asset	allocation	modeling	for	each	of	the	ACE	subsidiaries,	providing	formal	recommendations	for	the	portfolio's	structure;

•	establishes	recommended	investment	guidelines	that	are	appropriate	to	the	prescribed	asset	allocation	targets;

•	provides	the	analysis,	evaluation,	and	selection	of	our	external	investment	advisors;

•	establishes	and	develops	investment-related	analytics	to	enhance	portfolio	engineering	and	risk	control;

•	monitors	and	aggregates	the	correlated	risk	of	the	overall	investment	portfolio;	and

•	provides	governance	over	the	investment	process	for	each	of	our	operating	companies	to	ensure	consistency	of	approach	and	adherence	to	investment guidelines.

Under	our	guidance	and	direction,	external	asset	managers	conduct	security	and	sector	selection,	transaction	execution	and	portfolio	accounting.

This	use	of	multiple	managers	benefits	ACE	in	several	ways	–	it	provides	us	with	operational	and	cost	efficiencies,	diversity	of	styles	and	approaches, innovations	in	investment	research	and	credit	and	risk	management,	all	of	which	enhance	the	risk	adjusted	returns	of	our	portfolios.

ACE	Asset	Management	determines	the	investment	portfolio's	allowable,	targeted	asset	allocation	and	ranges	for	each	of	the	operating	segments. These	asset	allocation	targets	are	derived	from	sophisticated	asset	and	liability	modeling	that	measures	correlated	histories	of	returns	and	volatility	of returns.	Allowable	investment	classes	are	further	refined	through	analysis	of	our	operating	environment,	including	expected	volatility	of	cash	flows,

potential	impact	on	our	capital	position,	as	well	as	regulatory	and	rating	agency	considerations.

Under	the	overall	supervision	of	the	Finance	and	Investment	Committee	of	the	Board,	ACE's	governance	over	investment	management	is	rigorous and	ongoing.	Among	its	responsibilities,	the	Finance	and	Investment	Committee	of	the	Board:

•	reviews	and	approves	asset	allocation	targets	and	investment	policy	to	ensure	that	it	is	consistent	with	our	overall	goals,	strategies,	and	objectives;

•	reviews	and	approves	investment	guidelines	to	ensure	that	appropriate	levels	of	portfolio	liquidity,	credit	quality,	diversification,	and	volatility	are maintained;	and

•	systematically	reviews	the	portfolio's	exposures	including	any	potential	violations	of	investment	guidelines.

We	have	long-standing	global	credit	limits	for	our	entire	portfolio	across	the	organization	and	for	individual	obligors.	Exposures	are	aggregated, monitored,	and	actively	managed	by	our	Global	Credit	Committee,	comprised	of	senior	executives,	including	our	Chief	Financial	Officer,	our	Chief	Risk Officer,	our	Chief	Investment	Officer,	and	our	Treasurer.	Additionally,	the	Board	has	established	a	Risk	Committee	which	helps	execute	the	Board's supervisory	responsibilities	pertaining	to	enterprise	risk	management	including	investment	risk.

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

For	additional	information	regarding	the	investment	portfolio,	including	breakdowns	of	the	sector	and	maturity	distributions,	refer	to	Note	4	to	the Consolidated	Financial	Statements,	under	Item	8.

# Regulation

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

# Swiss	Operations

The	Swiss	Financial	Market	Supervisory	Authority,	which	we	refer	to	as	"FINMA"	has	the	discretion	to	supervise	our	group	activities.	Under	so-called "group	supervision,"	FINMA	has	the	right	to	supervise	the	Company	on	a	group-wide	basis.	The	regulatory	power	of	FINMA	covers	in	particular	the following	areas:

•	reporting	on	organization;

•	reporting	on	structure;

•	reporting	on	internal	transactions;

•	solvency;

•	group/conglomerate	report;	and

•	corporate	governance/risk	management/internal	control	system.

In	2008,	we	received	written	confirmation	from	the	Federal	Office	of	Private	Insurance	(FOPI),	a	FINMA	predecessor	insurance	supervising authority,	that	it	does	not	intend	to	subject	us	to	group	supervision	so	long	as	certain	business	parameters	within	Switzerland	are	not	exceeded.	From time	to	time,	we	may	exceed	these	parameters.	While	we	cannot	assure	you	that	FINMA	will	not	change	these	parameters	or	otherwise	begin	to	exercise group	supervision	over	us,	we	do	not	presently	foresee	becoming	subject	to	such	group	supervision	at	ACE's	current	or	anticipated	business	levels	in Switzerland.	However,	the	costs	and	administrative	burdens	of	group	supervision,	should	we	be	subjected	to	it,	could	be	substantial.	Late	in	2008,	we formed	ACE	Insurance	(Switzerland)	Limited	which	offers	various	insurance	covers	to	small	and	mid-sized	Swiss	companies,	as	well	as	A&H	solutions	to individuals.	We	have	also	formed	a	reinsurance	subsidiary	named	ACE	Reinsurance	(Switzerland)	Limited	which	we	operate	as	primarily	a	provider	of reinsurance	to	other	ACE	entities.	Both	new	companies	are	licensed	and	governed	by	FINMA.

# U.S.	Operations

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

Our	U.S.	insurance	subsidiaries	are	required	to	file	detailed	annual	and	quarterly	reports	with	state	insurance	regulators	in	each	of	the	states	in which	they	do	business.	In	addition,	our	U.S.	insurance	subsidiaries'	operations	and	financial	records	are	subject	to	examination	at	regular	intervals	by state	regulators.

All	states	have	enacted	legislation	that	regulates	insurance	holding	companies.	This	legislation	provides	that	each	insurance	company	in	the system	is	required	to	register	with	the	insurance	department	of	its	state	of	domicile	and	furnish	information	concerning	the	operations	of	companies	within the	holding	company	system	that	may	materially	affect	the	operations,	management,	or	financial	condition	of	the	insurers	within	the	system.	All transactions	within	a	holding	company	system	must	be	fair	and	equitable.	Notice	to	the	insurance	departments	is	required	prior	to	the	consummation	of transactions	affecting	the	ownership	or	control	of	an	insurer	and	of	certain	material	transactions	between	an	insurer	and	an	entity	in	its	holding	company system;	in	addition,	certain	transactions	may	not	be	consummated	without	the	department's	prior	approval.

Statutory	surplus	is	an	important	measure	utilized	by	the	regulators	and	rating	agencies	to	assess	our	U.S.	insurance	subsidiaries'	ability	to	support business	operations	and	provide	dividend	capacity.	Our	U.S.	insurance	subsidiaries	are	subject	to	various	state	statutory	and	regulatory	restrictions	that limit	the	amount	of	dividends	that	may	be	paid	without	prior	approval	from	regulatory	authorities.	These	restrictions	differ	by	state,	but	are	generally	based on	calculations	incorporating	statutory	surplus,	statutory	net	income,	and/or	investment	income.

The	National	Association	of	Insurance	Commissioners	(NAIC)	has	a	risk-based	capital	requirement	for	P&C	insurance	companies.	This	risk-based capital	formula	is	used	by	many	state	regulatory	authorities	to	identify	insurance	companies	that	may	be	undercapitalized	and	which	merit	further regulatory	attention.	These	requirements	are	designed	to	monitor	capital	adequacy	using	a	formula	that	prescribes	a	series	of	risk	measurements	to determine	a	minimum	capital	amount	for	an	insurance	company,	based	on	the	profile	of	the	individual	company.	The	ratio	of	a	company's	actual policyholder	surplus	to	its	minimum	capital	requirement	will	determine	whether	any	state	regulatory	action	is	required.	There	are	progressive	risk-based capital	failure	levels	that	trigger	more	stringent	regulatory	action.	If	an	insurer's	policyholders'	surplus	falls	below	the	Mandatory	Control	Level	(70	percent of	the	Authorized	Control	Level,	as	defined	by	the	NAIC),	the	relevant	insurance	commissioner	is	required	to	place	the	insurer	under	regulatory	control. However,	an	insurance	commissioner	may	allow	a	P&C	company	operating	below	the	Mandatory	Control	Level	that	is	writing	no	business	and	is	running off	its	existing	business	to	continue	its	run-off.	Brandywine	is	running	off	its	liabilities	consistent	with	the	terms	of	an	order	issued	by	the	Insurance Commissioner	of	Pennsylvania.	This	includes	periodic	reporting	obligations	to	the	Pennsylvania	Insurance	Department.

Government	intervention	has	also	occurred	in	the	insurance	and	reinsurance	markets	in	relation	to	terrorism	coverage	in	the	U.S.	(and	through industry	initiatives	in	other	countries).	The	U.S.	Terrorism	Risk	Insurance	Act	(TRIA),	which	was	enacted	in	2002	to	ensure	the	availability	of	insurance coverage	for	certain	types	of	terrorist	acts	in	the	U.S.,	was	extended	in	2007	for	seven	years,	through	2014,	and	applies	to	certain	of	our	operations. From	time	to	time,	ACE	and	its	subsidiaries	and	affiliates	receive	inquiries	from	state	agencies	and	attorneys	general,	with	which	we	generally comply,	seeking	information	concerning	business	practices,	such	as	underwriting	and	non-traditional	or	loss	mitigation	insurance	products.	Moreover, many	recent	factors,	such	as	consequences	of	and	reactions	to	industry	and	economic	conditions	as	well	as	a	change	in	the	presidential	administration and	focus	on	domestic	issues,	have	contributed	to	the	potential	for	change	in	the	legal	and	regulatory	framework	applicable	to	ACE's	U.S.	operations	and businesses.	We	cannot	assure	you	that	changes	in	laws	or	investigative	or	enforcement	activities	in	the	various	U.S	states	will	not	have	a	material adverse	impact	on	our	financial	condition,	results	of	operations,	or	business	practices.	More	information	on	insurance	industry	investigations,	including settlement	agreements	and	related	matters,	is	set	forth	in	Note	10	to	the	Consolidated	Financial	Statements,	under	Item	8.

# Bermuda	Operations

In	Bermuda,	our	insurance	subsidiaries	are	principally	regulated	by	the	Insurance	Act	1978	(as	amended)	and	related	regulations	(the	Bermuda	Act).	The Bermuda	Act	imposes	solvency	and	liquidity	standards	as	well	as	auditing	and	reporting	requirements,	and	grants	the	Bermuda	Monetary	Authority	(the BMA)	powers	to	supervise,	investigate,	and	intervene	in	the

affairs	of	insurance	companies.	Significant	requirements	include	the	appointment	of	an	independent	auditor,	the	appointment	of	a	loss	reserve	specialist, an	approved	actuary	and	the	filing	of	the	annual	statutory	financial	return	with	the	Executive	Member	responsible	for	Insurance	(the	Bermuda	Executive). We	must	comply	with	provisions	of	the	Bermuda	Act	regulating	the	payment	of	dividends	and	distributions.	A	Bermuda	company	may	not	declare	or	pay	a dividend	or	make	a	distribution	out	of	contributed	surplus	if	there	are	reasonable	grounds	for	believing	that:	(a)	the	company	is,	or	would	after	the payment	be,	unable	to	pay	its	liabilities	as	they	become	due;	or	(b)	the	realizable	value	of	the	company's	assets	would	thereby	be	less	than	the aggregate	of	its	liabilities	and	its	issued	share	capital	and	share	premium	accounts.	Further,	an	insurer	may	not	declare	or	pay	any	dividends	during	any financial	year	if	it	would	cause	the	insurer	to	fail	to	meet	its	relevant	margins,	and	an	insurer	which	fails	to	meet	its	relevant	margins	on	the	last	day	of	any financial	year	may	not,	without	the	approval	of	the	Minister	of	Finance,	declare	or	pay	any	dividends	during	the	next	financial	year.	In	addition,	some	of ACE's	Bermuda	subsidiaries	qualify	as	"Class	4"	insurers	and	may	not	in	any	financial	year	pay	dividends	which	would	exceed	25	percent	of	their	total statutory	capital	and	surplus,	as	shown	on	their	statutory	balance	sheet	in	relation	to	the	previous	financial	year,	unless	they	file	a	solvency	affidavit	at least	seven	days	in	advance.

The	BMA	may	appoint	an	inspector	with	extensive	powers	to	investigate	the	affairs	of	an	insurer	if	he	or	she	believes	that	an	investigation	is required	in	the	interest	of	the	insurer's	policyholders	or	persons	who	may	become	policyholders.	If	it	appears	to	the	BMA	that	there	is	a	risk	of	the	insurer becoming	insolvent,	or	that	the	insurer	is	in	breach	of	the	Bermuda	Act	or	any	conditions	of	its	registration	under	the	Bermuda	Act,	the	BMA	may	direct the	insurer	not	to	take	on	any	new	insurance	business,	not	to	vary	any	insurance	contract	if	the	effect	would	be	to	increase	the	insurer's	liabilities,	not	to make	certain	investments,	to	realize	certain	investments,	to	maintain	in,	or	transfer	to	the	custody	of	a	specified	bank	certain	assets,	not	to	declare	or pay	any	dividends	or	other	distributions,	or	to	restrict	the	making	of	such	payments	and/or	to	limit	its	premium	income.

The	Bermuda	Act	also	requires	the	BMA	to	supervise	persons	carrying	on	insurance	business,	insurance	managers,	and	intermediaries	with	the aim	of	protecting	the	interests	of	clients	and	potential	clients	of	such	persons.	The	Bermuda	Act	requires	every	insurer	to	appoint	a	principal representative	resident	in	Bermuda	and	to	maintain	a	principal	office	in	Bermuda.	The	principal	representative	must	be	knowledgeable	in	insurance	and is	responsible	for	arranging	the	maintenance	and	custody	of	the	statutory	accounting	records	and	for	filing	the	annual	statutory	financial	return.

# Other	International	Operations

The	extent	of	insurance	regulation	varies	significantly	among	the	countries	in	which	the	non-U.S.	ACE	operations	conduct	business.	While	each	country imposes	licensing,	solvency,	auditing,	and	financial	reporting	requirements,	the	type	and	extent	of	the	requirements	differ	substantially.	For	example:

•	in	some	countries,	insurers	are	required	to	prepare	and	file	quarterly	financial	reports,	and	in	others,	only	annual	reports;

•	some	regulators	require	intermediaries	to	be	involved	in	the	sale	of	insurance	products,	whereas	other	regulators	permit	direct	sales	contact	between the	insurer	and	the	customer;

•	the	extent	of	restrictions	imposed	upon	an	insurer's	use	of	foreign	reinsurance	vary;

•	policy	form	filing	and	rate	regulation	vary	by	country;

•	the	frequency	of	contact	and	periodic	on-site	examinations	by	insurance	authorities	differ	by	country;	and

•	regulatory	requirements	relating	to	insurer	dividend	policies	vary	by	country.

Significant	variations	can	also	be	found	in	the	size,	structure,	and	resources	of	the	local	regulatory	departments	that	oversee	insurance	activities.

Certain	regulators	prefer	close	relationships	with	all	subject	insurers	and	others	operate	a	risk-based	approach.

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

Moreover,	there	are	various	regulatory	bodies	and	initiatives	that	impact	ACE	in	multiple	international	jurisdictions	and	the	potential	for	significant impact	on	ACE	could	be	heightened	as	a	result	of	recent	industry	and	economic	developments.	In	particular,	the	European	Union's	(EU)	executive	body, the	European	Commission,	is	implementing	new	capital	adequacy	and	risk	management	regulations	for	the	European	insurance	industry,	known	as Solvency	II,	which	aims	to	establish	a	revised	set	of	EU-wide	capital	requirements	and	risk	management	standards	that	will	replace	the	current	Solvency	I requirements.	Once	finalized,	Solvency	II	is	expected	to	set	out	new,	strengthened	requirements	applicable	to	the	entire	EU	relating	to	capital

adequacy	and	risk	management	for	insurers.	Other	jurisdictions	such	as	Bermuda	and	Switzerland	are	likely	to	strengthen	their	respective	capital	and	risk management	requirements.

# Enterprise	Risk	Management

As	an	insurer,	ACE	is	in	the	business	of	risk	management	for	profit.	As	a	result,	enterprise	risk	management,	or	ERM,	is	a	part	of	the	day-to-day management	of	the	Company	and	its	operations.	Because	risk	management	must	permeate	an	organization	conducting	insurance	businesses	around the	world,	we	have	established	an	ERM	process	that	is	integrated	into	management	of	our	businesses	and	is	led	by	ACE's	senior	management.

Our	global	ERM	framework	is	broadly	multi-disciplinary	and	its	objectives	include:

•	support	core	risk	management	responsibilities	at	division	and	corporate	levels	through	the	identification	and	management	of	risks	that	aggregate	and/or correlate	across	divisions;

•	identify,	analyze,	and	mitigate	significant	external	risks	that	could	impair	the	financial	condition	of	ACE	and/or	hinder	its	business	objectives;

•	coordinate	accumulation	guidelines	and	actual	exposure	relative	to	guidelines,	risk	codes,	and	other	risk	processes;

•	provide	analysis	and	maintain	accumulation	and	economic	capital	and	information	systems	that	enable	business	leaders	to	make	appropriate	and consistent	risk/return	decisions;

•	identify	and	assess	emerging	risk	issues;	and

•	develop	and	communicate	to	the	Company's	business	lines	consistent	risk	management	processes.

The	Company's	Enterprise	Risk	Management	Board	(ERMB)	reports	to	and	assists	the	Chief	Executive	Officer	in	the	oversight	and	review	of ACE's	ERM	framework.	The	ERMB	is	chaired	by	the	Company's	Chief	Risk	Officer	and	Chief	Actuary.	The	ERMB	oversees	and	monitors	the	processes and	guidelines	used	to	manage	insurance	risk,	financial	risk,	strategic	risk,	and	operational	risk.	The	ERMB	governance	framework	relies	in	part	on establishment	and	maintenance	of	risk	limits	and	a	risk	matrix	through	which	inherent	and	residual	risks	across	the	organization	are	catalogued.	The ERMB	meets	at	least	monthly,	and	is	comprised	of	the	Company's	most	senior	executives,	in	addition	to	the	Chair:	the	Chief	Executive	Officer,	Chief Financial	Officer,	Chief	Investment	Officer,	Chief	Claims	Officer,	General	Counsel,	Chief	Executive	Officer	for	Insurance	–	North	America,	Chief Executive	Officer	for	ACE	Overseas	General,	and	our	Chief	Executive	Officer	for	Global	Reinsurance.

The	ERMB	is	provided	support	from	various	sources,	including	the	Enterprise	Risk	Unit	(ERU)	and	product	boards.	The	ERU	is	responsible	for	the collation	and	analysis	of	two	types	of	information.	First,	external	information	that	provides	insight	to	the	ERMB	on	risks	that	might	imperil	ACE's	key objectives	and	second,	internal	information	on	single	named,	product,	and	cross-product	accumulations.	The	ERU	is	independent	of	the	operating	units and	reports	to	our	Chief	Risk	Officer	and	Chief	Actuary.	The	Product	Boards	exist	to	provide	oversight	for	products	that	the	Company	offers	globally.	A Product	Board	currently	exists	for	each	of	the	following	products;	property/energy,	marine,	casualty,	financial	lines,	aviation,	and	political	risk.	Each Product	Board	is	responsible	for	ensuring	consistency	in	underwriting	and	pricing	standards,	identification	of	emerging	issues,	and	single	name accumulation	guidelines.

The	Company's	Chief	Risk	Officer	and	Chief	Actuary	also	reports	to	the	Board's	Risk	Committee,	which	helps	execute	the	Board's	supervisory responsibilities	pertaining	to	ERM.	The	role	of	the	Risk	Committee	includes	evaluation	of	the	integrity	and	effectiveness	of	the	Company's	ERM procedures	and	systems	and	information;	oversight	of	policy	decisions	pertaining	to	risk	aggregation	and	minimization,	including	credit	risk;	and assessment	of	the	Company's	major	decisions	and	preparedness	levels	pertaining	to	perceived	material	risks.	The	Audit	Committee,	which	regularly meets	jointly	with	the	Risk	Committee,	provides	oversight	of	the	financial	reporting	process	and	safeguarding	of	assets.

Others	within	the	ERM	structure	contribute	toward	accomplishing	ACE's	ERM	objectives,	including	regional	management,	Internal	Audit,

Compliance,	external	consultants,	and	managers	of	our	internal	control	processes	and	procedures.

# Tax	Matters

Refer	to	"Risk	Factors",	under	Item	1A	below,	and	Note	2	n)	to	the	Consolidated	Financial	Statements,	under	Item	8.

# Item	1A. Risk	Factors

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

# Business

# U.S.	and	global	economic	and	financial	industry	events	and	their	consequences	could	harm	our	business,	our	liquidity	and	financial condition,	and	our	stock	price.

The	consequences	of	adverse	global	market	and	economic	conditions	may	affect	(among	other	aspects	of	our	business)	the	demand	for	and	claims	made under	our	products,	the	ability	of	customers,	counterparties,	and	others	to	establish	or	maintain	their	relationships	with	us,	our	ability	to	access	and efficiently	use	internal	and	external	capital	resources,	the	availability	of	reinsurance	protection,	the	risks	we	assume	under	reinsurance	programs	covering variable	annuity	guarantees,	and	our	investment	performance.	Volatility	in	the	U.S.	and	other	securities	markets	may	adversely	affect	our	stock	price.

# Our	financial	condition	could	be	adversely	affected	by	the	occurrence	of	natural	and	man-made	disasters.

We	have	substantial	exposure	to	losses	resulting	from	natural	disasters,	man-made	catastrophes,	and	other	catastrophic	events.	Catastrophes	can	be caused	by	various	events,	including	hurricanes,	typhoons,	earthquakes,	hailstorms,	explosions,	severe	winter	weather,	fires,	war,	acts	of	terrorism, political	instability,	and	other	natural	or	man-made	disasters,	including	a	global	or	other	wide-impact	pandemic.	The	incidence	and	severity	of catastrophes	are	inherently	unpredictable	and	our	losses	from	catastrophes	could	be	substantial.	In	addition,	climate	conditions	may	be	changing, primarily	through	changes	in	global	temperatures,	which	may	in	the	future	increase	the	frequency	and	severity	of	natural	catastrophes	and	the	resulting losses.	The	occurrence	of	claims	from	catastrophic	events	could	result	in	substantial	volatility	in	our	results	of	operations	or	financial	condition	for	any fiscal	quarter	or	year.	Increases	in	the	values	and	concentrations	of	insured	property	may	also	increase	the	severity	of	these	occurrences	in	the	future. Although	we	attempt	to	manage	our	exposure	to	such	events	through	the	use	of	underwriting	controls	and	the	purchase	of	third-party	reinsurance, catastrophic	events	are	inherently	unpredictable	and	the	actual	nature	of	such	events	when	they	occur	could	be	more	frequent	or	severe	than contemplated	in	our	pricing	and	risk	management	expectations.	As	a	result,	the	occurrence	of	one	or	more	catastrophic	events	could	have	an	adverse effect	on	our	results	of	operations	or	financial	condition.

# If	actual	claims	exceed	our	loss	reserves,	our	financial	results	could	be	adversely	affected.

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

We	have	actuarial	staff	in	each	of	our	operating	segments	who	analyze	insurance	reserves	and	regularly	evaluate	the	levels	of	loss	reserves.	Any such	evaluations	could	result	in	future	changes	in	estimates	of	losses	or	reinsurance	recoverable	and	would	be	reflected	in	our	results	of	operations	in	the period	in	which	the	estimates	are	changed.	Losses	and	loss	expenses	are	charged	to	income	as	incurred.	Reserves	for	unpaid	losses	and	loss	expenses represent	the	estimated	ultimate	losses	and	loss	expenses	less	paid	losses	and	loss	expenses,	and	is	comprised	of	case	reserves	and	IBNR.	During	the loss	settlement	period,	which	can	be	many	years	in	duration	for	some	of	our	lines	of	business,	additional	facts	regarding	individual	claims	and	trends	often will	become	known.	As	these	become	apparent,	case	reserves	may	be	adjusted	by	allocation	from	IBNR	without	any	change	in	overall	reserves.	In addition,	application	of	statistical	and	actuarial	methods	may	require	the	adjustment	of	overall	reserves	upward	or	downward	from	time	to	time.

Included	in	our	liabilities	for	losses	and	loss	expenses	are	liabilities	for	latent	claims	such	as	A&E.	At	December	31,	2010,	these	A&E	liabilities represented	approximately	6.2	percent	of	our	liabilities	for	losses	and	loss	expenses.	These	claims	are	principally	related	to	claims	arising	from remediation	costs	associated	with	hazardous	waste	sites	and	bodily-injury	claims	related	to	exposure	to	asbestos	products	and	environmental	hazards. The	estimation	of	these	liabilities	is	subject	to	many	complex	variables	including:	the	current	legal	environment;	specific	settlements	that	may	be	used	as precedents	to	settle	future	claims;	assumptions	regarding	trends	with	respect	to	claim	severity	and	the	frequency	of	higher	severity	claims;	assumptions

regarding	the	ability	to	allocate	liability	among	defendants	(including	bankruptcy	trusts)	and	other	insurers;	the	ability	of	a	claimant	to	bring	a	claim	in	a state	in	which	they	have	no	residency	or	exposure;	the	ability	of	a	policyholder	to	claim	the	right	to	non-products	coverage;	whether	high-level	excess policies	have	the	potential	to	be	accessed	given	the	policyholder's	claim	trends	and	liability	situation;	payments	to	unimpaired	claimants;	and,	the potential	liability	of	peripheral	defendants.

Accordingly,	the	ultimate	settlement	of	losses,	arising	from	either	latent	or	non-latent	causes,	may	be	significantly	greater	or	less	than	the	loss	and loss	expense	reserves	held	at	the	date	of	the	balance	sheet.	If	our	loss	reserves	are	determined	to	be	inadequate,	we	will	be	required	to	increase	loss reserves	at	the	time	of	such	determination	and	our	net	income	will	be	reduced.	If	the	increase	in	loss	reserves	is	large	enough,	we	could	incur	a	net	loss and	a	net	reduction	of	our	capital.

# The	effects	of	emerging	claim	and	coverage	issues	on	our	business	are	uncertain.

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

# The	failure	of	any	of	the	loss	limitation	methods	we	employ	could	have	an	adverse	effect	on	our	results	of	operations	or	financial	condition.

We	seek	to	limit	our	loss	exposure	by	writing	a	number	of	our	insurance	and	reinsurance	contracts	on	an	excess	of	loss	basis.	Excess	of	loss	insurance and	reinsurance	indemnifies	the	insured	against	losses	in	excess	of	a	specified	amount.	In	addition,	we	limit	program	size	for	each	client	and	purchase third-party	reinsurance	for	our	own	account.	In	the	case	of	our	assumed	proportional	reinsurance	treaties,	we	seek	per	occurrence	limitations	or	loss	and loss	expense	ratio	caps	to	limit	the	impact	of	losses	ceded	by	the	client.	In	proportional	reinsurance,	the	reinsurer	shares	a	proportional	part	of	the premiums	and	losses	of	the	reinsured.	We	also	seek	to	limit	our	loss	exposure	by	geographic	diversification.	Geographic	zone	limitations	involve significant	underwriting	judgments,	including	the	determination	of	the	area	of	the	zones	and	the	inclusion	of	a	particular	policy	within	a	particular	zone's limits.	Various	provisions	of	our	policies,	such	as	limitations	or	exclusions	from	coverage	or	choice	of	forum	negotiated	to	limit	our	risks,	may	not	be enforceable	in	the	manner	we	intend.	As	a	result,	one	or	more	catastrophic	or	other	events	could	result	in	claims	that	substantially	exceed	our expectations,	which	could	have	an	adverse	effect	on	our	results	of	operations	or	financial	condition.

# We	may	be	unable	to	purchase	reinsurance,	and	if	we	successfully	purchase	reinsurance,	we	are	subject	to	the	possibility	of	non-payment.

We	purchase	reinsurance	to	protect	against	catastrophes,	to	increase	the	amount	of	protection	we	can	provide	our	clients,	and	as	part	of	our	overall	risk management	strategy.	Our	reinsurance	business	also	purchases	some	retrocessional	protection.	A	retrocessional	reinsurance	agreement	allows	a reinsurer	to	cede	to	another	company	all	or	part	of	the	reinsurance	that	was	originally	assumed	by	the	reinsurer.	A	reinsurer's	or	retrocessionaire's insolvency	or	inability	or	unwillingness	to	make	timely	payments	under	the	terms	of	its	reinsurance	agreement	with	us	could	have	an	adverse	effect	on	us because	we	remain	liable	to	the	insured.	From	time	to	time,	market	conditions	have	limited,	and	in	some	cases	have	prevented,	insurers	and	reinsurers from	obtaining	the	types	and	amounts	of	reinsurance	or	retrocessional	reinsurance	that	they	consider	adequate	for	their	business	needs.

There	is	no	guarantee	our	desired	amounts	of	reinsurance	or	retrocessional	reinsurance	will	be	available	in	the	marketplace	in	the	future.	In addition	to	capacity	risk,	the	remaining	capacity	may	not	be	on	terms	we	deem	appropriate	or	acceptable	or	with	companies	with	whom	we	want	to	do business.	Finally,	we	face	some	degree	of	counterparty	risk	whenever	we	purchase	reinsurance	or	retrocessional	reinsurance.	Consequently,	the insolvency,	inability,	or	unwillingness	of	any	of	our	present	or	future	reinsurers	to	make	timely	payments	to	us	under	the	terms	of	our	reinsurance	or retrocessional	agreements	could	have	an	adverse	effect	on	us.	At	December	31,	2010,	we	had	$12.9	billion	of	reinsurance	recoverables,	net	of	reserves for	uncollectible	recoverables.

Certain	of	our	subsidiaries	are	liable	for	A&E	and	other	exposures	they	have	reinsured	to	our	inactive	run-off	company	Century	Indemnity	Company (Century).	At	December	31,	2010,	the	aggregate	reinsurance	balances	ceded	by	our	active	subsidiaries	to	Century	were	approximately	$758	million. Should	Century's	loss	reserves	experience	adverse	development	in	the	future	and	should	Century	be	placed	into	rehabilitation	or	liquidation,	the reinsurance	recoverables	due	from	Century's	to	its	affiliates	would	be	payable	only	after	the	payment	in	full	of	certain	expenses	and	liabilities,	including administrative	expenses

and	direct	policy	liabilities.	Thus,	the	intercompany	reinsurance	recoverables	would	be	at	risk	to	the	extent	of	the	shortage	of	assets	remaining	to	pay these	recoverables.	While	we	believe	the	intercompany	reinsurance	recoverables	from	Century	are	not	impaired	at	this	time,	we	cannot	assure	you	that adverse	development	with	respect	to	Century's	loss	reserves,	if	manifested,	will	not	result	in	Century's	insolvency,	which	could	result	in	our	recognizing	a loss	to	the	extent	of	any	uncollectible	reinsurance	from	Century.	This	could	have	an	adverse	effect	on	our	results	of	operations	or	financial	condition.

# Our	net	income	may	be	volatile	because	certain	products	sold	by	our	Life	business	expose	us	to	reserve	and	fair	value	liability	changes	that are	directly	affected	by	market	and	other	factors	and	assumptions.

Our	pricing	and	valuation	of	life	insurance	and	annuity	products,	including	reinsurance	programs,	are	based	upon	various	assumptions,	including	but	not limited	to	market	changes,	mortality	rates,	morbidity	rates,	and	policyholder	behavior.	Significant	deviations	in	actual	experience	from	our	pricing assumptions	could	have	an	adverse	effect	on	the	profitability	of	our	products	and	our	business.

Under	reinsurance	programs	covering	variable	annuity	guarantees,	we	assumed	the	risk	of	guaranteed	minimum	death	benefits	(GMDB)	and guaranteed	living	benefits	(GLB)	associated	with	variable	annuity	contracts.	We	ceased	writing	this	business	in	2007.	Our	net	income	is	directly	impacted by	changes	in	the	reserves	calculated	in	connection	with	the	reinsurance	of	GMDB	and	GLB	liabilities.	In	addition,	our	net	income	is	directly	impacted	by the	change	in	the	fair	value	of	the	GLB	liability.	Reported	liabilities	for	both	GMDB	and	GLB	reinsurance	are	determined	using	internal	valuation	models. Such	valuations	require	considerable	judgment	and	are	subject	to	significant	uncertainty.	The	valuation	of	these	products	is	subject	to	fluctuations	arising from,	among	other	factors,	changes	in	interest	rates,	changes	in	equity	markets,	changes	in	credit	markets,	changes	in	the	allocation	of	the	investments underlying	annuitant's	account	values,	and	assumptions	regarding	future	policyholder	behavior.	Significant	changes	in	behavior	as	a	result	of	policyholder reactions	to	market	or	economic	conditions	could	be	material.	ACE	views	our	variable	annuity	reinsurance	business	as	having	a	similar	risk	profile	to	that of	catastrophe	reinsurance,	with	the	probability	of	long-term	economic	loss	relatively	small	at	the	time	of	pricing.	Adverse	changes	in	market	factors	and policyholder	behavior	will	have	an	impact	on	both	life	underwriting	income	and	net	income.	When	evaluating	these	risks,	we	expect	to	be	compensated for	taking	both	the	risk	of	a	cumulative	long-term	economic	net	loss,	as	well	as	the	short-term	accounting	variations	caused	by	these	market	movements. Therefore,	we	evaluate	this	business	in	terms	of	its	long-term	economic	risk	and	reward.	Refer	to	the	"Critical	Accounting	Estimates	–	Guaranteed	living benefits	(GLB)	derivatives",	under	Item	7	and	"Quantitative	and	Qualitative	Disclosures	about	Market	Risk	–	Reinsurance	of	GLB	and	GMDB guarantees",	under	Item	7A	for	more	information.

# A	failure	in	our	operational	systems	or	infrastructure	or	those	of	third	parties	could	disrupt	business,	damage	our	reputation,	and	cause losses.

ACE's	operations	rely	on	the	secure	processing,	storage,	and	transmission	of	confidential	and	other	information	in	its	computer	systems	and	networks. ACE's	business	depends	on	effective	information	systems	and	the	integrity	and	timeliness	of	the	data	it	uses	to	run	its	business.	Our	ability	to	adequately price	products	and	services,	to	establish	reserves,	to	provide	effective	and	efficient	service	to	our	customers,	and	to	timely	and	accurately	report	our financial	results	also	depends	significantly	on	the	integrity	of	the	data	in	our	information	systems.	Although	we	take	protective	measures	and	endeavor	to modify	them	as	circumstances	warrant,	our	computer	systems,	software,	and	networks	may	be	vulnerable	to	unauthorized	access,	computer	viruses	or other	malicious	code,	and	other	events	that	could	have	security	consequences.	If	one	or	more	of	such	events	occur,	this	potentially	could	jeopardize ACE's	or	our	clients'	or	counterparties'	confidential	and	other	information	processed	and	stored	in,	and	transmitted	through,	our	computer	systems	and networks,	or	otherwise	cause	interruptions	or	malfunctions	in	ACE's,	its	clients',	its	counterparties',	or	third	parties'	operations,	which	could	result	in significant	losses	or	reputational	damage.	ACE	may	be	required	to	expend	significant	additional	resources	to	modify	our	protective	measures	or	to investigate	and	remediate	vulnerabilities	or	other	exposures,	and	we	may	be	subject	to	litigation	and	financial	losses	that	are	either	not	insured	against	or not	fully	covered	by	insurance	maintained.

Despite	the	contingency	plans	and	facilities	we	have	in	place,	our	ability	to	conduct	business	may	be	adversely	affected	by	a	disruption	of	the infrastructure	that	supports	our	business	in	the	communities	in	which	we	are	located,	or	of	outsourced	services	or	functions.	This	may	include	a	disruption involving	electrical,	communications,	transportation,	or	other	services	used	by	ACE.	These	disruptions	may	occur,	for	example,	as	a	result	of	events	that affect	only	the	buildings	occupied	by	ACE	or	as	a	result	of	events	with	a	broader	effect	on	the	cities	where	those	buildings	are	located.	If	a	disruption occurs	in	one	location	and	ACE	employees	in	that	location	are	unable	to	occupy	its	offices	and	conduct	business	or	communicate	with	or	travel	to	other locations,	our	ability	to	service	and	interact	with	clients	may	suffer	and	we	may	not	be	able	to	successfully	implement	contingency	plans	that	depend	on communication	or	travel.

# Employee	error	and	misconduct	may	be	difficult	to	detect	and	prevent	and	could	adversely	affect	our	business,	results	of	operations,	and financial	condition.

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

# The	integration	of	acquired	companies	may	not	be	as	successful	as	we	anticipate.

Acquisitions	involve	numerous	risks,	including	operational,	strategic,	financial,	accounting,	and	tax	risks	such	as	potential	liabilities	associated	with	the acquired	business.	Difficulties	in	integrating	an	acquired	company	may	result	in	the	acquired	company	performing	differently	than	we	currently	expect	or in	our	failure	to	realize	anticipated	expense-related	efficiencies.	Our	existing	businesses	could	also	be	negatively	impacted	by	acquisitions.	In	addition, intangible	assets	recorded	in	connection	with	insurance	company	acquisitions	may	be	impaired	if	agency	retention	and	policy	persistency	differ	from expectations.

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

# Financial	Strength	and	Debt	Ratings

A	decline	in	our	financial	strength	ratings	could	affect	our	standing	among	brokers	and	customers	and	cause	our	premiums	and	earnings	to decrease.	A	decline	in	our	debt	ratings	could	increase	our	borrowing	costs	and	impact	our	ability	to	access	capital	markets.

Ratings	are	an	important	factor	in	establishing	the	competitive	position	of	insurance	and	reinsurance	companies.	The	objective	of	these	rating	systems	is to	provide	an	opinion	of	an	insurer's	financial	strength	and	ability	to	meet	ongoing	obligations	to	its	policyholders.	Our	financial	strength	ratings	reflect	the rating	agencies'	opinions	of	our	claims	paying	ability,	are	not	evaluations	directed	to	investors	in	our	securities,	and	are	not	recommendations	to	buy,	sell, or	hold	our	securities.	If	our	financial	strength	ratings	are	reduced	from	their	current	levels	by	one	or	more	of	these	rating	agencies,	our	competitive position	in	the	insurance	industry	could	suffer	and	it	would	be	more	difficult	for	us	to	market	our	products.	A	downgrade,	therefore,	could	result	in	a substantial	loss	of	business	as	insureds,	ceding	companies,	and	brokers	move	to	other	insurers	and	reinsurers	with	higher	ratings.	If	one	or	more	of	our debt	ratings	were	downgraded,	we	could	also	incur	higher	borrowing	costs,	and	our	ability	to	access	the	capital	markets	could	be	impacted.	Additionally, we	could	be	required	to	post	collateral	or	be	faced	with	the	cancellation	of	premium	in	certain	circumstances.	Refer	to	"Ratings",	under	Item	7.

We	cannot	give	any	assurance	regarding	whether	or	to	what	extent	any	of	the	rating	agencies	may	downgrade	our	ratings	in	the	future.

# Loss	of	Key	Executives

# We	could	be	adversely	affected	by	the	loss	of	one	or	more	key	executives	or	by	an	inability	to	attract	and	retain	qualified	personnel.

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

# Brokers	and	Customers

# Since	we	depend	on	a	few	brokers	for	a	large	portion	of	our	revenues,	loss	of	business	provided	by	any	one	of	them	could	adversely	affect us.

We	market	our	insurance	and	reinsurance	worldwide	primarily	through	insurance	and	reinsurance	brokers.	Marsh,	Inc.	and	its	affiliates	and	Aon Corporation	and	its	affiliates	provided	approximately	12	percent	and	10	percent,	respectively,	of	our	gross	premiums	written	in	2010.	Loss	of	all	or	a substantial	portion	of	the	business	provided	by	one	or	more	of	these	brokers	could	have	an	adverse	effect	on	our	business.

# Our	reliance	on	brokers	subjects	us	to	credit	risk.

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

# Certain	of	our	policies	subject	us	to	credit	risk	from	customers.

We	offer	high-deductible	policies	which	are	primarily	provided	in	the	workers'	compensation	and	certain	general	liability	protection	lines	of	our	business. Under	the	terms	of	these	policies,	our	customers	are	responsible	for	a	set	dollar	amount	per	claim	and/or	an	aggregate	amount	for	all	covered	claims before	we	are	ultimately	liable.	However,	we	may	be	required	under	such	policies	to	pay	third	party	claimants	directly	and	then	seek	reimbursement	for losses	within	the	deductible	from	our	customers.	This	subjects	us	to	credit	risk	from	these	customers.	While	we	generally	seek	to	mitigate	this	risk through	collateral	agreements	and	maintain	a	provision	for	uncollectible	accounts	associated	with	this	credit	exposure,	an	increased	inability	of customers	to	reimburse	us	in	this	context	could	have	an	adverse	effect	on	our	financial	condition	and	results	of	operations.	In	addition,	a	lack	of	credit available	to	our	customers	could	impact	our	ability	to	collateralize	this	risk	to	our	satisfaction,	which	in	turn,	could	reduce	the	amount	of	high-deductible policies	we	could	offer.

# Liquidity	and	Investments

# Our	investment	performance	may	affect	our	financial	results	and	ability	to	conduct	business.

Our	funds	are	invested	by	professional	investment	management	firms	under	the	direction	of	our	management	team	in	accordance	with	investment guidelines	approved	by	the	Finance	and	Investment	Committee	of	the	Board	of	Directors.	Although	our	investment	guidelines	stress	diversification	of	risks and	conservation	of	principal	and	liquidity,	our	investments	are	subject	to	market	risks,	as	well	as	risks	inherent	in	individual	securities.	The	volatility	of	our loss	claims	may	force	us	to	liquidate	securities,	which	may	cause	us	to	incur	capital	losses.	Realized	and	unrealized	losses	in	our	investment	portfolio would	generally	reduce	our	book	value,	and	if	significant,	can	affect	our	ability	to	conduct	business.	We	experienced	$1.5	billion	of	pre-tax	realized	and unrealized	gains	on	our	investment	portfolio	in	2010.	The	carrying	value	of	our	investment	portfolio	was	$51.4	billion	at	December	31,	2010.

# Financial	markets	events	create	greater	risks	relating	to	impairment	of	investments.

As	a	part	of	our	ongoing	analysis	of	our	investment	portfolio,	we	are	required	to	assess	whether	the	debt	and	equity	securities	we	hold	for	which	we	have recorded	an	unrealized	loss	have	been	"other-than-temporarily	impaired".	Refer	to	Note	4	under	Item	8	and	our	disclosure	for	details	and	results	of	our analysis.	This	analysis	requires	a	high	degree	of	judgment	and	requires	us	to	make	certain	assessments	about	the	potential	for	recovery	of	the	assets	we hold.	Declines	in	relevant	stock	and	other	financial	markets	could	adversely	affect	our	net	income	and	other	financial	results,	and	may	result	in	additional impairments.

# We	may	be	adversely	affected	by	interest	rate	changes.

Our	operating	results	are	affected	by	the	performance	of	our	investment	portfolio.	Our	investment	portfolio	contains	primarily	fixed	income	investments and	may	be	adversely	affected	by	changes	in	interest	rates.	Volatility	in	interest	rates	could	also	have	an	adverse	effect	on	our	investment	income	and operating	results.	For	example,	if	interest	rates	decline,	funds	reinvested	will	earn	less	than	the	maturing	investment.	Interest	rates	are	highly	sensitive	to many	factors,	including	inflation,	monetary	and	fiscal	policies,	and	domestic	and	international	political	conditions.	Although	we	take	measures	to	manage the	risks	of	investing	in	a	changing	interest	rate	environment,	we	may	not	be	able	to	effectively	mitigate	interest	rate	sensitivity.	Our	mitigation	efforts include	maintaining	a	high	quality	portfolio	with	a	relatively	short	duration	to	reduce	the	effect	of	interest	rate	changes	on	book	value.	A	significant increase	in	interest	rates	would	generally	have	an	adverse	effect	on	our	book	value.

# We	may	require	additional	capital	or	financing	sources	in	the	future,	which	may	not	be	available	or	may	be	available	only	on	unfavorable terms.

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

# We	may	be	required	to	post	additional	collateral	because	of	changes	in	our	reinsurance	liabilities	to	regulated	insurance	companies,	or because	of	regulatory	changes	that	affect	our	companies.

If	our	reinsurance	liabilities	increase,	we	may	be	required	to	post	additional	collateral	for	insurance	company	clients.	In	addition,	regulatory	changes sometimes	affect	our	obligations	to	post	collateral.	Several	such	regulatory	changes	have	been	implemented	or	are	currently	under	consideration, including	changes	related	to	variable	annuity	contracts.	The	need	to	post	this	additional	collateral,	if	significant	enough,	may	require	us	to	sell	investments at	a	loss	in	order	to	provide	securities	of	suitable	credit	quality	or	otherwise	secure	adequate	capital	at	an	unattractive	cost.	This	could	adversely	impact our	net	income	and	liquidity	and	capital	resources.

# Our	investment	portfolio	includes	below	investment-grade	securities	that	have	a	higher	degree	of	credit	or	default	risk	which	could	adversely affect	our	results	of	operations	and	financial	condition.

Our	fixed	income	portfolio	is	primarily	invested	in	high	quality,	investment-grade	securities.	However,	we	invest	a	smaller	portion	of	the	portfolio	in	below investment-grade	securities.	At	December	31,	2010,	below	investment-grade	securities	comprised	approximately	14	percent	of	our	fixed	income	portfolio. These	securities,	which	pay	a	higher	rate	of	interest,	also	have	a	higher	degree	of	credit	or	default	risk.	These	securities	may	also	be	less	liquid	in	times of	economic	weakness	or	market	disruptions.	While	we	have	put	in	place	procedures	to	monitor	the	credit	risk	and	liquidity	of	our	invested	assets,	it	is possible	that,	in	periods	of	economic	weakness	(such	as	recession),	we	may	experience	default	losses	in	our	portfolio,	which	could	adversely	affect	our net	income	and	book	value.

# Exchange	Rates

# Our	operating	results	and	shareholders'	equity	may	be	adversely	affected	by	currency	fluctuations.

Our	reporting	currency	is	the	U.S.	dollar.	Where	possible,	capital	levels	in	local	currencies	are	limited	to	satisfy	minimum	regulatory	requirements	and	to support	local	insurance	operations.	The	principal	currencies	creating	foreign	exchange	risk	are	the	British	pound	sterling,	the	euro,	and	the	Canadian dollar.	At	December	31,	2010,	approximately	16.8	percent	of	our	net	assets	were	denominated	in	foreign	currencies.	We	may	experience	losses	resulting from	fluctuations	in	the	values	of	non-U.S.	currencies,	which	could	adversely	impact	our	results	of	operations	and	financial	condition.

# Regulatory	and	Other	Governmental	Developments

# The	regulatory	and	political	regimes	under	which	we	operate,	and	their	volatility,	could	have	an	adverse	effect	on	our	business.

Our	insurance	and	reinsurance	subsidiaries	conduct	business	globally.	Our	businesses	in	each	jurisdiction	are	subject	to	varying	degrees	of	regulation and	supervision.	The	laws	and	regulations	of	the	jurisdictions	in	which	our	insurance	and	reinsurance	subsidiaries	are	domiciled	require,	among	other things,	maintenance	of	minimum	levels	of	statutory	capital,	surplus,	and	liquidity;	various	solvency	standards;	and	periodic	examinations	of	subsidiaries' financial	condition.	In	some	jurisdictions,	laws	and	regulations	also	restrict	payments	of	dividends	and	reductions	of	capital.	Applicable	statutes,

regulations,	and	policies	may	also	restrict	the	ability	of	these	subsidiaries	to	write	insurance	and	reinsurance	policies,	to	make	certain	investments,	and	to

distribute	funds.	The	purpose	of	insurance	laws	and	regulations	generally	is	to	protect	insureds	and	ceding	insurance	companies,	not	our	shareholders. The	insurance	industry	is	affected	by	political,	judicial,	and	legal	developments	that	may	create	new	and	expanded	regulations	and	theories	of liability.	The	current	economic	climate	and	the	recent	financial	crisis	present	additional	uncertainties	and	risks	relating	to	increased	regulation	and	the potential	for	increased	involvement	of	the	U.S.	and	other	governments	in	the	financial	services	industry.

In	July	2010,	the	U.S.	enacted	comprehensive	financial	reform	legislation,	known	as	the	Dodd-Frank	Wall	Street	Reform	and	Consumer	Protection Act	("Dodd-Frank	Act"),	which	creates	a	new	regulatory	regime	for	financial	services	companies.	Among	other	things,	the	legislation	calls	for	the	creation of	a	Federal	Insurance	Office,	or	FIO,	that	will	focus	on	systemic	risk	oversight	and	will	develop	Federal	policy	on	prudential	aspects	of	international insurance	matters.	The	FIO	is	also	required	to	conduct	a	study	for	submission	to	the	U.S.	Congress	on	how	to	modernize	and	improve	insurance regulation	in	the	U.S.	While	the	impact	to	ACE	of	the	establishment	and	activity	of	the	FIO	is	not	clear,	it	is	possible	that	it	could	have	an	adverse	effect on	our	business	and	operations.	Moreover,	various	Federal	regulatory	agencies	have	begun	proposing	and	adopting	regulations	in	furtherance	of	the Dodd-Frank	Act	provisions	and	will	continue	in	the	coming	months,	and	some	of	these	new	regulations	could	require	us	to	change	how	we	conduct	and manage	our	business	and	could	adversely	affect	us.	It	is	also	expected	that	one	or	more	Federal	funds	could	be	created	by	way	of	assessments	on financial	services	companies,	and	it	is	unclear	how	and	to	what	extent	these	requirements	might	apply	to	us	and	whether	we	would	have	to	make	material contributions.

The	European	Union's	executive	body,	the	European	Commission,	is	implementing	new	capital	adequacy	and	risk	management	regulations	called Solvency	II	that	would	apply	to	our	businesses	across	the	European	Union.	In	addition,	regulators	in	countries	where	we	have	operations	are	working with	the	International	Association	of	Insurance	Supervisors	(and	in	the	U.S.,	with	the	National	Association	of	Insurance	Commissioners)	to	consider changes	to	insurance	company	supervision,	including	solvency	requirements	and	group	supervision.

In	the	event	of,	or	even	in	the	absence	of,	changes	in	applicable	laws	and	regulations	in	particular	jurisdictions,	we	may	from	time	to	time	face more	challenges,	or	changes	in	approach	to	oversight	of	our	business,	from	our	insurance	or	other	regulators.

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

# Legal	and	regulatory	activities	relating	to	insurance	brokers	and	agents,	contingent	commissions,	and	certain	finite-risk	insurance	products could	adversely	affect	our	business,	results	of	operations,	and	financial	condition.

Beginning	in	2004,	ACE	received	numerous	regulatory	inquiries,	subpoenas,	interrogatories,	and	civil	investigative	demands	from	regulatory	authorities in	connection	with	pending	investigations	of	insurance	industry	practices.	ACE	is	cooperating	and	will	continue	to	cooperate	with	such	inquiries.	We cannot	assure	you	that	we	will	not	receive	any	additional	requests	for	information	or	subpoenas	or	what	actions,	if	any,	any	of	these	governmental agencies	will	take	as	a	result	of	these	investigations.	Additionally,	at	this	time,	we	are	unable	to	predict	the	potential	effects,	if	any,	that	these	actions	may have	upon	the	insurance	and	reinsurance	markets	and	industry	business	practices	or	what,	if	any,	changes	may	be	made	to	laws	and	regulations regarding	the	industry	and	financial	reporting.	Any	of	the	foregoing	could	adversely	affect	our	business,	results	of	operations,	and	financial	condition.

# Our	operations	in	developing	nations	expose	us	to	political	developments	that	could	have	an	adverse	effect	on	our	business,	liquidity,	results of	operations,	and	financial	condition.

Our	international	operations	include	operations	in	various	developing	nations.	Both	current	and	future	foreign	operations	could	be	adversely	affected	by unfavorable	political	developments	including	law	changes,	tax	changes,	regulatory	restrictions,	and	nationalization	of	ACE	operations	without compensation.	Adverse	actions	from	any	one	country	could	have	an	adverse	effect	on	our	business,	liquidity,	results	of	operations,	and	financial	condition depending	on	the	magnitude	of	the	event	and	ACE's	net	financial	exposure	at	that	time	in	that	country.

# We	may	become	subject	to	additional	Swiss	regulation.

The	Swiss	Financial	Market	Supervisory	Authority	(FINMA)	has	the	discretion	to	supervise	our	group	activities.	Under	so-called	"group	supervision," FINMA	has	the	right	to	supervise	the	Company	on	a	group-wide	basis.	In	March	2008,	we	received	written	confirmation	from	the	Federal	Office	of	Private Insurance	(FOPI),	a	FINMA	predecessor	insurance	supervising	authority,

that	it	does	not	intend	to	subject	us	to	group	supervision	so	long	as	certain	business	parameters	within	Switzerland	are	not	exceeded.	From	time	to	time, we	may	exceed	these	parameters.	While	we	cannot	assure	you	that	FINMA	will	not	change	these	parameters	or	otherwise	begin	to	exercise	group supervision	over	us,	we	do	not	presently	foresee	becoming	subject	to	such	group	supervision	at	ACE's	current	or	anticipated	business	levels	in Switzerland.	However,	the	costs	and	administrative	burdens	of	such	group	supervision,	should	we	be	subjected	to	it,	could	be	substantial.

# Company	Structure

# Our	ability	to	pay	dividends	and	to	make	payments	on	indebtedness	may	be	constrained	by	our	holding	company	structure.

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

# ACE	Limited	is	a	Swiss	company;	it	may	be	difficult	for	you	to	enforce	judgments	against	it	or	its	directors	and	executive	officers.

ACE	Limited	is	incorporated	pursuant	to	the	laws	of	Switzerland.	In	addition,	certain	of	our	directors	and	officers	reside	outside	the	United	States	and	all or	a	substantial	portion	of	our	assets	and	the	assets	of	such	persons	are	located	in	jurisdictions	outside	the	United	States.	As	such,	it	may	be	difficult	or impossible	to	effect	service	of	process	within	the	United	States	upon	those	persons	or	to	recover	against	us	or	them	on	judgments	of	U.S.	courts,

including	judgments	predicated	upon	civil	liability	provisions	of	the	U.S.	federal	securities	laws.

ACE	has	been	advised	by	its	Swiss	counsel	that	there	is	doubt	as	to	whether	the	courts	in	Switzerland	would	enforce:

•	judgments	of	U.S.	courts	based	upon	the	civil	liability	provisions	of	the	U.S.	Federal	securities	laws	obtained	in	actions	against	it	or	its	directors	and officers,	who	reside	outside	the	United	States;	or

•	original	actions	brought	in	Switzerland	against	these	persons	or	ACE	predicated	solely	upon	U.S.	Federal	securities	laws.

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

As	a	result	of	the	increase	in	par	value	of	our	shares	that	occurred	in	connection	with	our	continuation	from	a	Cayman	Islands	corporation	to	a Swiss	corporation	(Continuation),	we	have	less	flexibility	with	respect	to	certain	aspects	of	capital	management	than	previously.

As	of	December	31,	2010,	our	par	value	is	CHF	30.57	per	share.	Under	Swiss	law,	we	generally	may	not	issue	registered	shares	below	their	par value.	In	the	event	there	is	a	need	to	raise	common	equity	capital	at	a	time	when	the	trading	price	of	our	registered	shares	is	below	our	par	value,	we	will need	to	obtain	approval	of	our	shareholders	to	decrease	the	par	value	of	our	registered	shares.	We	cannot	assure	you	that	we	would	be	able	to	obtain such	shareholder	approval.	Furthermore,	obtaining	shareholder	approval	would	require	filing	a	preliminary	proxy	statement	with	the	SEC	and	convening	a meeting	of	shareholders	which	would	delay	any	capital	raising	plans.	Furthermore,	any	reduction	in	par	value	would	decrease	our	ability	to	pay	dividends as	a	repayment	of	share	capital	which	is	not	subject	to	Swiss	withholding	tax.	See	"Taxation	–	Shareholders	may	be	subject	to	Swiss	withholding	taxes on	the	payment	of	dividends."

# Insurance	and	Reinsurance	Markets

# Competition	in	the	insurance	and	reinsurance	markets	could	reduce	our	margins.

Insurance	and	reinsurance	markets	are	highly	competitive.	We	compete	on	an	international	and	regional	basis	with	major	U.S.,	Bermuda,	European,	and other	international	insurers	and	reinsurers	and	with	underwriting	syndicates,	some	of	which	have	greater	financial,	marketing,	and	management resources	than	we	do.	We	also	compete	with	new	companies	that	continue	to	be	formed	to	enter	the	insurance	and	reinsurance	markets.	In	addition, capital	market	participants	have	created	alternative	products	that	are	intended	to	compete	with	reinsurance	products.	Increased	competition	could	result in	fewer	submissions,	lower	premium	rates,	and	less	favorable	policy	terms	and	conditions,	which	could	reduce	our	profit	margins	and	adversely	impact our	net	income	and	book	value.

# Insurance	and	reinsurance	markets	are	historically	cyclical,	and	we	expect	to	experience	periods	with	excess	underwriting	capacity	and unfavorable	premium	rates.

The	insurance	and	reinsurance	markets	have	historically	been	cyclical,	characterized	by	periods	of	intense	price	competition	due	to	excessive underwriting	capacity	as	well	as	periods	when	shortages	of	capacity	permitted	favorable	premium	levels.	An	increase	in	premium	levels	is	often	offset	by an	increasing	supply	of	insurance	and	reinsurance	capacity,	either	by	capital	provided	by	new	entrants	or	by	the	commitment	of	additional	capital	by existing	insurers	or	reinsurers,	which	may	cause	prices	to	decrease.	Any	of	these	factors	could	lead	to	a	significant	reduction	in	premium	rates,	less favorable	policy	terms,	and	fewer	submissions	for	our	underwriting	services.	In	addition	to	these	considerations,	changes	in	the	frequency	and	severity	of losses	suffered	by	insureds	and	insurers	may	affect	the	cycles	of	the	insurance	and	reinsurance	markets	significantly,	as	could	periods	of	economic weakness	(such	as	recession).

# Charter	Documents	and	Applicable	Law

# There	are	provisions	in	our	charter	documents	that	may	reduce	the	voting	rights	of	our	Common	Shares.

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

# Applicable	laws	may	make	it	difficult	to	effect	a	change	of	control	of	our	company.

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

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

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

# U.S.	persons	who	own	our	Common	Shares	may	have	more	difficulty	in	protecting	their	interests	than	U.S.	persons	who	are	shareholders	of	a U.S.	corporation.

Swiss	corporate	law,	which	applies	to	us,	differs	in	certain	material	respects	from	laws	generally	applicable	to	U.S.	corporations	and	their	shareholders. These	differences	include	the	manner	in	which	directors	must	disclose	transactions	in	which	they	have	an	interest,	the	rights	of	shareholders	to	bring class	action	and	derivative	lawsuits,	and	the	scope	of	indemnification	available	to	directors	and	officers.

# Anti-takeover	provisions	in	our	charter	and	corporate	documents	could	impede	an	attempt	to	replace	our	directors	or	to	effect	a	change	of control,	which	could	diminish	the	value	of	our	Common	Shares.

Our	Articles	of	Association	contain	provisions	that	may	make	it	more	difficult	for	shareholders	to	replace	directors	and	could	delay	or	prevent	a	change	of control	that	a	shareholder	might	consider	favorable.	These	provisions	include	a	staggered	Board	of	Directors	and	voting	restrictions.	These	provisions may	prevent	a	shareholder	from	receiving	the	benefit	from	any	premium	over	the	market	price	of	our	Common	Shares	offered	by	a	bidder	in	a	potential takeover.	Even	in	the	absence	of	an	attempt	to	effect	a	change	in	management	or	a	takeover	attempt,	these	provisions	may	adversely	affect	the prevailing	market	price	of	our	Common	Shares	if	they	are	viewed	as	discouraging	takeover	attempts	in	the	future.

# Shareholder	voting	requirements	under	Swiss	law	may	limit	the	Company's	flexibility	with	respect	to	certain	aspects	of	capital	management.

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

# Taxation

# Shareholders	may	be	subject	to	Swiss	withholding	taxes	on	the	payment	of	dividends.

Our	dividends	are	generally	subject	to	a	Swiss	federal	withholding	tax	at	a	rate	of	35	percent.	The	tax	must	be	withheld	from	the	gross	distribution,	and be	paid	to	the	Swiss	Federal	Tax	Administration.	A	U.S.	holder	that	qualifies	for	benefits	under	the	Convention	between	the	United	States	of	America	and the	Swiss	Confederation	for	the	Avoidance	of	Double	Taxation	with	Respect	to	Taxes	on	Income,	(U.S.-Swiss	Tax	Treaty),	may	apply	for	a	refund	of	the tax	withheld	in	excess	of	the	15	percent	treaty	rate	(or	for	a	full	refund	in	the	case	of	qualifying	retirement	arrangements).	Payment	of	a	dividend	in	the form	of	a	par	value	reduction	or	qualifying	capital	contributions	reserves	reduction	is	not	subject	to	Swiss	withholding	tax.	We	have	previously	obtained shareholder	approval	for	dividends	to	be	paid	in	the	form	of	a	reduction	of	our	par	value	or	qualifying	capital	contributions	reserves	and,	subject	to	the requirements	of	our	business	and	applicable	law,	we	currently	intend	to	continue	to	annually	recommend	to	shareholders	that	they	approve	the	payment of	dividends	in	such	form.	We	estimate	we	would	be	able	to	pay	dividends	in	the	form	of	a	reduction	of	par	value	or	qualifying	capital	contributions reserves,	and	thus	exempt	from	Swiss	withholding	tax,	for	approximately	15-20	years	after	the	Continuation.	This	range	may	vary	depending	upon changes	in	annual	dividends,	special	dividends,	fluctuations	in	U.S.	dollar/Swiss	franc	exchange	rates,	increases/decreases	in	par	value	or	qualifying capital	contributions	reserves,	or	changes	or	new	interpretations	to	Swiss	tax	law	or	regulations.	In	addition,	we	cannot	assure	you	that	our	shareholders will	approve	a	reduction	in	par	value	or	qualifying	capital	contributions	reserves	each	year,	that	we	will	be	able	to	meet	the	other	legal	requirements	for	a reduction	in	par	value,	or	that	Swiss	withholding	rules	will	not	be	changed	in	the	future.

# We	may	become	subject	to	taxes	in	Bermuda	after	March	28,	2016,	which	may	have	an	adverse	effect	on	our	results	of	operations	and	your investment.

The	Bermuda	Minister	of	Finance,	under	the	Exempted	Undertakings	Tax	Protection	Act	1966	of	Bermuda,	as	amended,	has	given	ACE	Limited	and	its Bermuda	insurance	subsidiaries	a	written	assurance	that	if	any	legislation	is	enacted	in	Bermuda	that	would	impose	tax	computed	on	profits	or	income, or	computed	on	any	capital	asset,	gain,	or	appreciation,	or	any	tax	in	the	nature	of	estate	duty	or	inheritance	tax,	then	the	imposition	of	any	such	tax would	not	be	applicable	to	those	companies	or	any	of	their	respective	operations,	shares,	debentures,	or	other	obligations	until	March	28,	2016,	except insofar	as	such	tax	would	apply	to	persons	ordinarily	resident	in	Bermuda	or	is	payable	by	us	in	respect	of	real	property	owned	or	leased	by	us	in Bermuda.	Given	the	limited	duration	of	the	Minister	of	Finance's	assurance,	we	cannot	be	certain	that	we	will	not	be	subject	to	any	Bermuda	tax	after March	28,	2016.

# ACE	Limited,	our	Bermuda-based	management	and	holding	company	and	our	non-U.S.	subsidiaries	may	become	subject	to	U.S.	tax,	which may	have	an	adverse	effect	on	our	results	of	operations	and	your	investment.

ACE	Limited,	ACE	Group	Management	&	Holdings	Ltd.	and	our	non-U.S.	subsidiaries,	including	ACE	Bermuda	Insurance	Ltd.,	and	ACE	Tempest Reinsurance	Ltd.,	operate	in	a	manner	so	that	none	of	these	companies	should	be	subject	to	U.S.	tax	(other	than	U.S.	excise	tax	on	insurance	and reinsurance	premium	income	attributable	to	insuring	or	reinsuring	U.S.	risks	and	U.S.

withholding	tax	on	some	types	of	U.S.	source	investment	income),	because	none	of	these	companies	should	be	treated	as	engaged	in	a	trade	or business	within	the	United	States.	However,	because	there	is	considerable	uncertainty	as	to	the	activities	that	constitute	being	engaged	in	a	trade	or business	within	the	United	States,	we	cannot	be	certain	that	the	Internal	Revenue	Service	(IRS)	will	not	contend	successfully	that	ACE	Limited	or	its	non- U.S.	subsidiaries	are	engaged	in	a	trade	or	business	in	the	United	States.	If	ACE	Limited	or	any	of	its	non-U.S.	subsidiaries	were	considered	to	be engaged	in	a	trade	or	business	in	the	United	States,	such	entity	could	be	subject	to	U.S.	corporate	income	and	branch	profits	taxes	on	the	portion	of	its earnings	effectively	connected	to	such	U.S.	business,	in	which	case	our	results	of	operations	and	your	investment	could	be	adversely	affected.

# If	you	acquire	10	percent	or	more	of	ACE	Limited's	shares,	you	may	be	subject	to	taxation	under	the	"controlled	foreign	corporation"	(the CFC)	rules.

Under	certain	circumstances,	a	U.S.	person	who	owns	10	percent	or	more	of	the	voting	power	of	a	foreign	corporation	that	is	a	CFC	(a	foreign corporation	in	which	10	percent	U.S.	shareholders	own	more	than	50	percent	of	the	voting	power	or	value	of	the	stock	of	a	foreign	corporation	or	more than	25	percent	of	a	foreign	insurance	corporation)	for	an	uninterrupted	period	of	30	days	or	more	during	a	taxable	year	must	include	in	gross	income	for U.S.	federal	income	tax	purposes	such	"10	percent	U.S.	Shareholder's"	pro	rata	share	of	the	CFC's	"subpart	F	income",	even	if	the	subpart	F	income	is not	distributed	to	such	10	percent	U.S.	Shareholder	if	such	10	percent	U.S.	Shareholder	owns	(directly	or	indirectly	through	foreign	entities)	any	of	our shares	on	the	last	day	of	our	fiscal	year.	Subpart	F	income	of	a	foreign	insurance	corporation	typically	includes	foreign	personal	holding	company	income (such	as	interest,	dividends,	and	other	types	of	passive	income),	as	well	as	insurance	and	reinsurance	income	(including	underwriting	and	investment income)	attributable	to	the	insurance	of	risks	situated	outside	the	CFC's	country	of	incorporation.

We	believe	that	because	of	the	dispersion	of	our	share	ownership,	provisions	in	our	organizational	documents	that	limit	voting	power,	and	other factors,	no	U.S.	person	or	U.S.	partnership	who	acquires	shares	of	ACE	Limited	directly	or	indirectly	through	one	or	more	foreign	entities	should	be required	to	include	our	subpart	F	income	in	income	under	the	CFC	rules	of	US	tax	law.	It	is	possible,	however,	that	the	IRS	could	challenge	the effectiveness	of	these	provisions	and	that	a	court	could	sustain	such	a	challenge,	in	which	case	your	investment	could	be	adversely	affected	if	you	own 10	percent	or	more	of	ACE	Limited's	stock.

# U.S.	persons	who	hold	shares	may	be	subject	to	U.S.	federal	income	taxation	at	ordinary	income	tax	rates	on	their	proportionate	share	of	our Related	Person	Insurance	Income	(RPII).

If	the	RPII	of	any	of	our	non-U.S.	insurance	subsidiaries	(each	a	"Non-U.S.	Insurance	Subsidiary")	were	to	equal	or	exceed	20	percent	of	that	company's gross	insurance	income	in	any	taxable	year	and	direct	or	indirect	insureds	(and	persons	related	to	those	insureds)	own	directly	or	indirectly	through foreign	entities	20	percent	or	more	of	the	voting	power	or	value	of	ACE	Limited,	then	a	U.S.	person	who	owns	any	shares	of	ACE	Limited	(directly	or indirectly	through	foreign	entities)	on	the	last	day	of	the	taxable	year	would	be	required	to	include	in	its	income	for	U.S.	federal	income	tax	purposes	such person's	pro	rata	share	of	such	company's	RPII	for	the	entire	taxable	year.	This	amount	is	determined	as	if	such	RPII	were	distributed	proportionately only	to	U.S.	persons	at	that	date	regardless	of	whether	such	income	is	distributed.	In	addition,	any	RPII	that	is	includible	in	the	income	of	a	U.S.	tax- exempt	organization	may	be	treated	as	unrelated	business	taxable	income.	We	believe	that	the	gross	RPII	of	each	Non-U.S.	Insurance	Subsidiary	did not	in	prior	years	of	operation	and	is	not	expected	in	the	foreseeable	future	to	equal	or	exceed	20	percent	of	each	such	company's	gross	insurance income.	Likewise,	we	do	not	expect	the	direct	or	indirect	insureds	of	each	Non-U.S.	Insurance	Subsidiary	(and	persons	related	to	such	insureds)	to directly	or	indirectly	own	20	percent	or	more	of	either	the	voting	power	or	value	of	our	shares.	However,	we	cannot	be	certain	that	this	will	be	the	case because	some	of	the	factors	which	determine	the	extent	of	RPII	may	be	beyond	our	control.	If	these	thresholds	are	met	or	exceeded	and	if	you	are	an affected	U.S.	person,	your	investment	could	be	adversely	affected.

# U.S.	persons	who	hold	shares	will	be	subject	to	adverse	tax	consequences	if	we	are	considered	to	be	a	Passive	Foreign	Investment	Company (PFIC)	for	U.S.	federal	income	tax	purposes.

If	ACE	Limited	is	considered	a	PFIC	for	U.S.	federal	income	tax	purposes,	a	U.S.	person	who	owns	any	shares	of	ACE	Limited	will	be	subject	to	adverse tax	consequences,	including	subjecting	the	investor	to	a	greater	tax	liability	than	might	otherwise	apply	and	subjecting	the	investor	to	tax	on	amounts	in advance	of	when	tax	would	otherwise	be	imposed,	in	which	case	your	investment	could	be	adversely	affected.	In	addition,	if	ACE	Limited	were considered	a	PFIC,	upon	the	death	of	any	U.S.	individual	owning	shares,	such	individual's	heirs	or	estate	would	not	be	entitled	to	a	"step-up"	in	the	basis of	the	shares	which

might	otherwise	be	available	under	U.S.	federal	income	tax	laws.	We	believe	that	we	are	not,	have	not	been,	and	currently	do	not	expect	to	become,	a PFIC	for	U.S.	federal	income	tax	purposes.	We	cannot	assure	you,	however,	that	we	will	not	be	deemed	a	PFIC	by	the	IRS.	If	we	were	considered	a PFIC,	it	could	have	adverse	tax	consequences	for	an	investor	that	is	subject	to	U.S.	federal	income	taxation.	There	are	currently	no	regulations	regarding the	application	of	the	PFIC	provisions	to	an	insurance	company.	New	regulations	or	pronouncements	interpreting	or	clarifying	these	rules	may	be forthcoming.	We	cannot	predict	what	impact,	if	any,	such	guidance	would	have	on	an	investor	that	is	subject	to	U.S.	federal	income	taxation.

# U.S.	tax-exempt	organizations	who	own	our	shares	may	recognize	unrelated	business	taxable	income.

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

# The	Organization	for	Economic	Cooperation	and	Development	and	the	European	Union	are	considering	measures	that	might	encourage countries	to	increase	our	taxes.

A	number	of	multilateral	organizations,	including	the	European	Union	and	the	Organization	for	Economic	Cooperation	and	Development	(OECD)	have,	in recent	years,	expressed	concern	about	some	countries	not	participating	in	adequate	tax	information	exchange	arrangements	and	have	threatened	those that	do	not	agree	to	cooperate	with	punitive	sanctions	by	member	countries.	It	is	as	yet	unclear	what	these	sanctions	might	be,	which	countries	might adopt	them,	and	when	or	if	they	might	be	imposed.	We	cannot	assure	you,	however,	that	the	Tax	Information	Exchange	Agreements	(TIEAs)	that	have been	or	will	be	entered	into	by	Switzerland	and	Bermuda	will	be	sufficient	to	preclude	all	of	the	sanctions	described	above,	which,	if	ultimately	adopted, could	adversely	affect	us	or	our	shareholders.

# Changes	in	U.S.	federal	income	tax	law	could	adversely	affect	an	investment	in	our	shares.

Legislation	is	periodically	introduced	in	the	U.S.	Congress	intended	to	eliminate	some	perceived	tax	advantages	of	companies	(including	insurance companies)	that	have	legal	domiciles	outside	the	United	States	but	have	certain	U.S.	connections.	For	example,	HR	3424	was	introduced	during	the	last House	(although	a	companion	bill	was	not	introduced	in	the	last	Senate)	that	would	effectively	render	cross	border	affiliate	reinsurance	by	foreign-owned U.S.	insurance/reinsurance	companies	uneconomical	regardless	of	whether	or	not	it	is	properly	priced	under	the	internationally	accepted	arms-length standard.	If	enacted,	such	a	law	could	have	an	adverse	impact	on	us	or	our	shareholders.	It	is	possible	that	other	legislative	proposals	could	emerge	in the	future	that	could	have	an	adverse	impact	on	us	or	our	shareholders,	including	a	tax	proposal	regarding	affiliate	reinsurance	that	was	included	in	the President's	fiscal	year	2011	budget	proposal.

# Item	1B. Unresolved	Staff	Comments

There	are	currently	no	unresolved	SEC	staff	comments	regarding	our	periodic	or	current	reports.

# Item	2. Properties

We	maintain	office	facilities	around	the	world	including	in	North	America,	Europe	(including	our	principal	executive	offices	in	Switzerland),	Bermuda,	Latin America,	Asia,	and	the	Far	East.	Most	of	our	office	facilities	are	leased,	although	we	own	major	facilities	in	Hamilton,	Bermuda	and	Philadelphia,	U.S. Management	considers	its	office	facilities	suitable	and	adequate	for	the	current	level	of	operations.

# Item	3. Legal	Proceedings

Our	insurance	subsidiaries	are	subject	to	claims	litigation	involving	disputed	interpretations	of	policy	coverages	and,	in	some	jurisdictions,	direct	actions by	allegedly-injured	persons	seeking	damages	from	policyholders.	These	lawsuits,	involving	claims	on	policies	issued	by	our	subsidiaries	which	are typical	to	the	insurance	industry	in	general	and	in	the	normal	course	of	business,	are	considered	in	our	loss	and	loss	expense	reserves	which	are discussed	in	the	P&C	loss	reserves	discussion.	In	addition	to	claims	litigation,	we	and	our	subsidiaries	are	subject	to	lawsuits	and	regulatory	actions	in the	normal	course	of	business	that	do	not	arise	from	or	directly	relate	to	claims	on	insurance	policies.	This	category	of	business	litigation	typically involves,	among	other	things,	allegations	of	underwriting	errors	or	misconduct,	employment	claims,	regulatory	activity,	or	disputes	arising	from	our business	ventures.

While	the	outcomes	of	the	business	litigation	involving	us	cannot	be	predicted	with	certainty	at	this	point,	we	are	disputing	and	will	continue	to dispute	allegations	against	us	that	are	without	merit	and	believe	that	the	ultimate	outcomes	of	the	matters	in	this	category	of	business	litigation	will	not have	a	material	adverse	effect	on	our	financial	condition,	future	operating	results,	or	liquidity,	although	an	adverse	resolution	of	a	number	of	these	items could	have	a	material	adverse	effect	on	our	results	of	operations	in	a	particular	quarter	or	fiscal	year.

More	information	relating	to	legal	proceedings	is	set	forth	in	Note	10	f)	to	the	Consolidated	Financial	Statements,	under	Item	8,	which	is	hereby incorporated	herein	by	reference.

# Executive	Officers	of	the	Company

The	table	below	sets	forth	the	names,	ages,	positions,	and	business	experience	of	the	Executive	Officers	of	the	Company.

Robert	F.	Cusumano 	54 General	Counsel	and	Secretary

Paul	B.	Medini 	53 Chief	Accounting	Officer

Evan	G.	Greenberg	has	been	a	director	of	ACE	since	August	2002.	Mr.	Greenberg	was	elected	Chairman	of	the	Board	of	Directors	in	May	2007.

Mr.	Greenberg	became	a	director	of	the	Coca-Cola	Company	in	February	2011.	Mr.	Greenberg	was	appointed	to	the	position	of	President	and	Chief Executive	Officer	of	ACE	in	May	2004,	and	in	June	2003,	was	appointed	President	and	Chief	Operating	Officer	of	ACE.	Mr.	Greenberg	was	appointed	to the	position	of	Chief	Executive	Officer	of	ACE	Overseas	General	in	April	2002.	He	joined	ACE	as	Vice	Chairman,	ACE	Limited,	and	Chief	Executive Officer	of	ACE	Tempest	Re	in	November	2001.	Prior	to	joining	ACE,	Mr.	Greenberg	was	most	recently	President	and	Chief	Operating	Officer	of	American International	Group	(AIG),	a	position	he	held	from	1997	until	2000.

Brian	E.	Dowd	was	appointed	Vice	Chairman	of	ACE	Limited	and	ACE	Group	Holdings	in	May	2009.	Mr.	Dowd	was	appointed	Chairman	of Insurance	–	North	America	in	May	2006.	In	January	2005,	Mr.	Dowd	was	named	Chairman	and	Chief	Executive	Officer	of	ACE	USA,	Chairman	of	ACE Westchester	and	President	of	ACE	INA	Holdings	Inc.	From	2002	until	2005,	Mr.	Dowd	was	President	and	Chief	Executive	Officer	of	ACE	Westchester.	In January	2004,	he	was	elected	to	the	position	of	Office	of	the	Chairman	of	ACE	INA	Holdings	Inc.		–		a	position	which	Mr.	Dowd	currently	holds	along	with that	of	President.	Mr.	Dowd	served	as	Executive	Vice	President,	ACE	USA	Property	Division	from	1999	through	2001	when	he	was	appointed	President, ACE	Specialty	P&C	Group.	Mr.	Dowd	joined	ACE	in	1995.

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

Philip	V.	Bancroft	was	appointed	Chief	Financial	Officer	of	ACE	in	January	2002.	For	nearly	twenty	years,	Mr.	Bancroft	worked	for PricewaterhouseCoopers	LLP.	Prior	to	joining	ACE,	he	served	as	partner-in-charge	of	the	New	York	Regional	Insurance	Practice.	Mr.	Bancroft	had	been a	partner	with	PricewaterhouseCoopers	LLP	for	10	years.

Robert	F.	Cusumano	was	appointed	General	Counsel	and	Secretary	of	ACE	in	March	2005.	Mr.	Cusumano	joined	ACE	from	the	international	law firm	of	Debevoise	&	Plimpton	LLP,	where	he	was	a	partner	and	a	member	of	the	firm's	Litigation	Department	from	2003	to	2005.	From	1990	to	2003,

Mr.	Cusumano	was	a	partner	with	the	law	firm	of	Simpson	Thacher	and	Bartlett.

Paul	B.	Medini	was	appointed	Chief	Accounting	Officer	of	ACE	in	October	2003.	For	twenty-two	years,	Mr.	Medini	worked	for PricewaterhouseCoopers	LLP.	Prior	to	joining	ACE,	he	served	as	a	partner	in	their	insurance	industry	practice.

# Item	4. (Removed	and	Reserved)

# PART	II

# Item	5. Market	for	Registrant's	Common	Equity,	Related	Stockholder	Matters	and	Issuer	Purchases	of	Equity	Securities

(a)	Our	Common	Shares	(previous	to	the	Continuation,	known	as	Ordinary	Shares),	with	a	current	par	value	of	CHF	30.57	per	share,	have	been	listed	on the	New	York	Stock	Exchange	since	March	25,	1993.

The	following	table	sets	forth	the	high	and	low	closing	sales	prices	of	our	Common	Shares	per	fiscal	quarter,	as	reported	on	the	New	York	Stock Exchange	Composite	Tape	for	the	periods	indicated:

| 2010 | 2010 | 2009 | 2009 |
| :--- | :--- | :--- | :--- |
| High | Low | High | Low |
| $ 52.88 | $ 47.50 | $53.03 | $31.84 |
| $ 53.89 | $ 48.43 | $47.51 | $40.82 |
| $ 58.80 | $ 50.83 | $53.46 | $41.76 |
| $ 62.37 | $ 58.10 | $55.14 | $48.18 |

The	last	reported	sale	price	of	the	Common	Shares	on	the	New	York	Stock	Exchange	Composite	Tape	on	February	22,	2011	was	$64.84.

(b)	The	approximate	number	of	record	holders	of	Common	Shares	as	of	February	22,	2011	was	3,919.

(c)	We	have	paid	dividends	each	quarter	since	we	became	a	public	company	in	1993.	Since	the	third	quarter	of	2008,	we	have	paid	dividends	by	way	of par	value	reduction	distributions.	The	following	table	represents	dividends	paid	per	Common	Share	to	shareholders	of	record	on	each	of	the	following dates:

ACE	Limited	is	a	holding	company	whose	principal	source	of	income	is	investment	income	and	dividends	from	its	operating	subsidiaries.	The	ability	of	the operating	subsidiaries	to	pay	dividends	to	us	and	our	ability	to	pay	dividends	to	our	shareholders	are	each	subject	to	legal	and	regulatory	restrictions.	The declaration	and	payment	of	future	dividends	will	be	at	the	discretion	of	the	Board	of	Directors	and	will	be	dependent	upon	the	profits	and	financial requirements	of	ACE	and	other	factors,	including	legal	restrictions	on	the	payment	of	dividends	and	such	other	factors	as	the	Board	of	Directors	deems relevant.	Refer	to	Item	1A	and	Item	7.

(d)	The	following	table	provides	information	with	respect	to	purchases	by	the	Company	of	its	Common	Shares	during	the	three	months	ended December	31,	2010:

# Issuer's	Purchases	of	Equity	Securities

| Period | Total	Number<br>of	Shares<br>Purchased* | Average	Price<br>Paid	per<br>Share | Total	Number<br>of	Shares<br>Purchased	as<br>Part	of	Publicly<br>Announced	Plan** | Approximate	Dollar<br>Value	of	Shares<br>that	May	Yet<br>be	Purchased<br>Under	the	Plan** |
| :--- | :--- | :--- | :--- | :--- |
| October\t1\tthrough\tOctober\t31 | 3,833 | $58.16 | – | – |
| November\t1\tthrough\tNovember\t30 | 2,203 | $60.54 | – | $600\tmillion |
| December\t1\tthrough\tDecember\t31 | \t4,927,928 | $61.47 | 4,926,082 | $297\tmillion |
| Total | \t4,933,964 |  |  |  |

*	This	column	primarily	represents	open	market	share	repurchases	made	in	December	2010.	Other	activity	during	the	three	months	ended	December	31,	2010,	is	related	to	the	surrender	to	the Company	of	Common	Shares	to	satisfy	tax	withholding	obligations	in	connection	with	the	vesting	of	restricted	stock	issued	to	employees.

**	In	November	2010,	the	Company's	Board	of	Directors	authorized	the	repurchase	of	up	to	$600	million	of	ACE's	Common	Shares	through	2012.

(e)	Set	forth	below	is	a	line	graph	comparing	the	dollar	change	in	the	cumulative	total	shareholder	return	on	the	Company's	Common	Shares	from December	31,	2005,	through	December	31,	2010,	as	compared	to	the	cumulative	total	return	of	the	Standard	&	Poor's	500	Stock	Index	and	the cumulative	total	return	of	the	Standard	&	Poor's	Property-Casualty	Insurance	Index.	The	chart	depicts	the	value	on	December	31,	2006,	2007,	2008, 2009,	and	2010,	of	a	$100	investment	made	on	December	31	2005,	with	all	dividends	reinvested.

# Item	6. Selected	Financial	Data

The	following	table	sets	forth	selected	consolidated	financial	data	of	the	Company	as	of	and	for	the	years	ended	December	31,	2010,	2009,	2008,	2007, and	2006.	These	selected	financial	and	other	data	should	be	read	in	conjunction	with	the	Consolidated	Financial	Statements	and	related	notes,	under Item	8,	and	with	Item	7.	"Management's	Discussion	and	Analysis	of	Financial	Condition	and	Results	of	Operations".

| percentages) |  | 2010 | 2009 | 2008 | 2007 | 2006 |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Operations\tdata: |  |  |  |  |  |  |
| Net\tpremiums\tearned |  | $13,504 | $13,240 | $13,203 | $12,297 | $11,825 |
| Net\tinvestment\tincome | Net\tinvestment\tincome | 2,070 | 2,031 | 2,062 | 1,918 | 1,601 |
| Net\trealized\tgains\t(losses):\nNet\tOTTI\tlosses\trecognized\tin\tincome | Net\trealized\tgains\t(losses):\nNet\tOTTI\tlosses\trecognized\tin\tincome | (59) | (397) | (1,064) | (141) | (214) |
| Net\trealized\tgains\t(losses)\texcluding\tOTTI\tlosses | Net\trealized\tgains\t(losses)\texcluding\tOTTI\tlosses | 491 | 201 | (569) | 80 | 116 |
| Total\tnet\trealized\tgains\t(losses) | Total\tnet\trealized\tgains\t(losses) | 432 | (196) | (1,633) | (61) | (98) |
| Losses\tand\tloss\texpenses |  | 7,579 | 7,422 | 7,603 | 7,351 | 7,070 |
| Policy\tbenefits | Policy\tbenefits | 357 | 325 | 399 | 168 | 123 |
| Policy\tacquisition\tcosts\tand\tadministrative\texpenses | Policy\tacquisition\tcosts\tand\tadministrative\texpenses | 4,195 | 3,941 | 3,872 | 3,226 | 3,171 |
| Interest\texpense | Interest\texpense | 224 | 225 | 230 | 175 | 176 |
| Other\t(income)\texpense |  | (16) | 85 | (39) | 81 | (35) |
| Income\ttax\texpense | Income\ttax\texpense | 559 | 528 | 370 | 575 | 522 |
| Income\tbefore\tcumulative\teffect |  | 3,108 | 2,549 | 1,197 | 2,578 | 2,301 |
| Cumulative\teffect\tof\tchange\tin\taccounting\tprinciples\t(net\tof |  |  |  |  |  |  |
| income\ttax) |  | – | – | – | – | 4 |
| Net\tincome |  | 3,108 | 2,549 | 1,197 | 2,578 | 2,305 |
| Dividends\ton\tPreferred\tShares | Dividends\ton\tPreferred\tShares | – | – | (24) | (45) | (45) |
| Net\tincome\tavailable\tto\tholders\tof\tCommon\tShares | Net\tincome\tavailable\tto\tholders\tof\tCommon\tShares | $3,108 | $2,549 | $1,173 | $2,533 | $2,260 |
| Diluted\tearnings\tper\tshare\tbefore\tcumulative\teffect\tof\ta\tchange\tin |  |  |  |  |  |  |
| accounting\tprinciple |  | $9.11 | $7.55 | $3.50 | $7.63 | $6.87 |
| Diluted\tearnings\tper\tshare^(1) |  | $9.11 | $7.55 | $3.50 | $7.63 | $6.88 |
| Balance\tsheet\tdata\t(at\tend\tof\tperiod): |  |  |  |  |  |  |
| Total\tinvestments |  | $51,407 | $46,515 | $39,715 | $41,779 | $36,601 |
| Cash | Cash | 772 | 669 | 867 | 510 | 565 |
| Total\tassets |  | 83,355 | 77,980 | 72,057 | 72,090 | 67,135 |
| Net\tunpaid\tlosses\tand\tloss\texpenses | Net\tunpaid\tlosses\tand\tloss\texpenses | 25,242 | 25,038 | 24,241 | 23,592 | 22,008 |
| Net\tfuture\tpolicy\tbenefits |  | 2,825 | 2,710 | 2,645 | 537 | 508 |
| Long-term\tdebt | Long-term\tdebt | 3,358 | 3,158 | 2,806 | 1,811 | 1,560 |
| Trust\tpreferred\tsecurities |  | 309 | 309 | 309 | 309 | 309 |
| Total\tliabilities | Total\tliabilities | 60,381 | 58,313 | 57,611 | 55,413 | 52,857 |
| Shareholders'\tequity |  | 22,974 | 19,667 | 14,446 | 16,677 | 14,278 |
| Book\tvalue\tper\tshare | Book\tvalue\tper\tshare | $68.59 | $58.44 | $43.30 | $48.89 | $42.03 |
| Selected\tdata |  |  |  |  |  |  |
| Loss\tand\tloss\texpense\tratio^(2) | Loss\tand\tloss\texpense\tratio^(2) | 59.2% | 58.8% | 60.6% | 61.6% | 61.2% |
| Underwriting\tand\tadministrative\texpense\tratio^(3) | Underwriting\tand\tadministrative\texpense\tratio^(3) | 31.0% | 29.5% | 29.0% | 26.3% | 26.9% |
| Combined\tratio^(4) | Combined\tratio^(4) | 90.2% | 88.3% | 89.6% | 87.9% | 88.1% |
| Net\tloss\treserves\tto\tcapital\tand\tsurplus\tratio | (5) | 122.2% | 141.1% | 186.1% | 144.7% | 157.7% |
| Weighted-average\tshares\toutstanding\t–\tdiluted | Weighted-average\tshares\toutstanding\t–\tdiluted | \t 341,246,387 | \t 337,539,294 | \t 334,606,237 | \t 331,989,064 | \t 328,617,569 |
| Cash\tdividends\tper\tshare |  | $1.30 | $1.19 | $1.09 | $1.06 | $0.98 |
| (1) |  |  |  |  |  |  |

	Diluted	earnings	per	share	is	calculated	by	dividing	net	income	available	to	holders	of	Common	Shares	by	weighted-average	shares	outstanding	–	diluted. (1)

The	loss	and	loss	expense	ratio	is	calculated	by	dividing	the	losses	and	loss	expenses	by	net	premiums	earned	excluding	the	Life	segment	premiums.	Net	premiums	earned	for	the	Life	segment were	$1.5	billion,	$1.4	billion,	$1.2	billion,	$368	million,	and	$274	million,	for	the	years	ended	December	31,	2010,	2009,	2008,	2007,	and	2006,	respectively. (2)

	The	underwriting	and	administrative	expense	ratio	is	calculated	by	dividing	the	policy	acquisition	costs	and	administrative	expenses	by	net	premiums	earned,	excluding	the	Life	segment. (3)

The	combined	ratio	is	the	sum	of	the	loss	and	loss	expense	ratio	and	the	underwriting	and	administrative	expense	ratio. (4)

	The	net	loss	reserves	to	capital	and	surplus	ratio	is	calculated	by	dividing	the	sum	of	the	net	unpaid	losses	and	loss	expenses	and	net	future	policy	benefits	for	life	and	annuity	contracts	by shareholders'	equity. (5)

# 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,	2010.	This	discussion	should	be	read	in	conjunction	with	the	Consolidated	Financial	Statements	and	related	notes,	under	Item	8	of	this Form	10-K.

ACE	Limited	is	the	Swiss-incorporated	holding	company	of	the	ACE	Group	of	Companies.	ACE	opened	its	business	office	in	Bermuda	in	1985	and continues	to	maintain	operations	in	Bermuda.	ACE	Limited,	which	is	headquartered	in	Zurich,	Switzerland,	and	its	direct	and	indirect	subsidiaries (collectively,	the	ACE	Group	of	Companies,	ACE,	the	Company,	we,	us,	or	our)	are	a	global	insurance	and	reinsurance	organization,	serving	the	needs of	commercial	and	individual	customers	in	more	than	170	countries.	We	serve	the	P&C	insurance	and	reinsurance	needs	of	businesses	of	all	sizes	in	a broad	range	of	industries.	We	also	provide	specialized	insurance	products	–	such	as	personal	accident,	supplemental	health,	and	life	insurance	to individuals	in	select	countries.	At	December	31,	2010,	ACE	had	total	assets	of	$83	billion	and	shareholders'	equity	of	$23	billion.

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	the	utilization	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.	This	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	an	underwriting	organization	and	senior	management	is	focused	on	delivering	underwriting	profit.	We	strive to	achieve	underwriting	income	by	only	writing	policies	which	we	believe	adequately	compensate	us	for	the	risk	we	accept.

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

# Acquisitions

# Market	Conditions

We	are	observing	typical	soft	market	behavior	as	prices	are	continuing	to	decrease	worldwide,	along	with	increased	competitive	terms	and	conditions. Globally,	the	second	half	of	2010	was	more	competitive	than	the	first	half	and	relative	to	the	rest	of	the	world,	the	soft	market	conditions	are	more pronounced	in	the	U.S.,	Bermuda	and	the	London	wholesale	markets.

As	a	result	of	adherence	to	our	strict	underwriting	standards,	new	business	writings	for	North	American	retail	commercial	P&C	decreased significantly	in	2010,	compared	with	2009.	We	are	writing	less	new	business	and	maintaining	our	renewals.	Retentions	were	up	particularly	in	those	lines of	business	where	more	than	price	mattered.

New	business	premiums	in	our	international	retail	P&C	business	increased	in	2010,	compared	with	2009,	driven	largely	by	Asia	and	Latin	America. New	business	writings	decreased	in	our	London	wholesale	business.	Our	aviation	business,	in	particular,	shrank	significantly	due	to	competitive conditions.

Our	Global	Reinsurance	segment	continues	to	experience	competitive	conditions,	reporting	premium	declines	during	the	January	1	renewal	period on	property	catastrophe	and	property-per-risk	business,	while	growth	in	international	casualty	was	offset	by	reduced	U.S.	casualty.

A&H	premium	increased	modestly	worldwide,	with	our	international	A&H	business	experiencing	growth	driven	by	Asia	and	Latin	America,	partially offset	by	decreases	in	our	Combined	Insurance	business.	We	believe	our	international	A&H	business	will	continue	to	improve	through	2011.	We	expect our	Combined	Insurance	premiums	to	continue	to	decrease	through	2011,	given	that	our	business	is	primarily	concentrated	in	regions	still	emerging	from recession	–	the	United	States	and	Western	Europe.	Additionally,	Combined's	business	in	the	U.K.	and	Ireland	has	been	impacted	by	changes	in regulatory	environment	as	regulators	in	these	two	countries	have	adopted	a	new	stance	regarding	sales	practices.	This	new	stance	has	resulted	in	a need	for	us	to	re-train	our	agents	and	re-engineer	our	processes.	We	put	these	two	operations	on	a	sales	moratorium	while	we	address	these	issues. Ireland	is	back	in	operation	and	in	the	U.K.,	the	moratorium	is	continuing.

# Critical	Accounting	Estimates

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

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

•	future	policy	benefits	reserves;

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

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

•	reinsurance	recoverable,	including	a	provision	for	uncollectible	reinsurance;

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

•	the	valuation	of	deferred	tax	assets;

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

•	the	valuation	of	goodwill.

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	and	Other	Run-off	Liabilities,	Reinsurance	Recoverable	on	Ceded Reinsurance,	Investments,	Net	Realized	Gains	(Losses),	and	Other	Income	and	Expense	Items.

# Overview	and	key	data

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.	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	a	provision	for additional	development	on	reported	claims	in	instances	where	the	case	reserve	is	viewed	to	be	potentially	insufficient).	Loss	reserves	also	include	an estimate	of	expenses	associated	with	processing	and	settling	unpaid	claims	(loss	expenses).	At	December	31,	2010,	our	gross	unpaid	loss	and	loss expense	reserves	were	$37.4	billion	and	our	net	unpaid	loss	and	loss	expense	reserves

were	$25.2	billion.	With	the	exception	of	certain	structured	settlements,	for	which	the	timing	and	amount	of	future	claim	payments	are	reliably determinable,	our	loss	reserves	are	not	discounted	for	the	time	value	of	money.	In	connection	with	such	structured	settlements,	we	carry	net	discounted reserves	of	$69	million.

The	table	below	presents	a	roll-forward	of	our	unpaid	losses	and	loss	expenses	for	the	years	ended	December	31,	2010	and	2009.

|  | 2010 | 2010 | 2010 | 2009 | 2009 | 2009 |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | Gross | Reinsurance | Net | Gross | Reinsurance | Net |
| (in\tmillions\tof\tU.S.\tdollars) | Losses | Recoverable^(1) | Losses | Losses | Recoverable^(1) | Losses |
| Balance,\tbeginning\tof\tyear | $ 37,783 | $12,745 | $25,038 | $ 37,176 | $12,935 | $24,241 |
| Losses\tand\tloss\texpenses\tincurred | 10,855 | 3,276 | 7,579 | 11,141 | 3,719 | 7,422 |
| Losses\tand\tloss\texpenses\tpaid | (11,279) | (3,866) | (7,413) | (11,093) | (4,145) | (6,948) |
| Other\t(including\tforeign\texchange\ttranslation) | (101) | 6 | (107) | 559 | 236 | 323 |
| Losses\tand\tloss\texpenses\tacquired | 133 | (12) | 145 | – | – | – |
| Balance,\tend\tof\tyear | $ 37,391 | $12,149 | $25,242 | $ 37,783 | $12,745 | $25,038 |
| (1)\n\tNet\tof\tprovision\tfor\tuncollectible\treinsurance |  |  |  |  |  |  |

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	known	at	the	date	of	accrual.

The	following	table	shows	our	total	reserves	(including	loss	expense	reserves)	segregated	between	case	reserves	and	IBNR	reserves	at December	31,	2010	and	2009.

|  | 2010 | 2010 | 2010 | 2009 | 2009 | 2009 |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| (in\tmillions\tof\tU.S.\tdollars) | Gross | Ceded | Net | Gross | Ceded | Net |
| Case\treserves | $16,899 | $5,951 | $10,948 | $17,307 | $6,664 | $10,643 |
| IBNR\treserves | \t 20,492 | 6,198 | \t 14,294 | \t 20,476 | 6,081 | \t 14,395 |
| Total | $37,391 | $12,149 | $25,242 | $37,783 | $12,745 | $25,038 |

The	following	table	segregates	loss	reserves	at	December	31,	2010	and	2009,	by	three	broad	line	of	business	groupings:	property	and	all	other,	casualty, and	personal	accident	(A&H).	In	the	table,	loss	expenses	are	defined	to	include	unallocated	and	allocated	loss	adjustment	expenses.	For	certain	lines,	in particular	ACE	International	and	ACE	Bermuda	products,	loss	adjustment	expenses	are	partially	included	in	IBNR	and	partially	included	in	loss	expenses.

|  | 2010 | 2010 | 2010 | 2009 | 2009 | 2009 |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| (in\tmillions\tof\tU.S.\tdollars) | Gross | Ceded | Net | Gross | Ceded | Net |
| Property\tand\tall\tother |  |  |  |  |  |  |
| Case\treserves | $2,871 | $1,325 | $1,546 | $3,149 | $1,600 | $1,549 |
| Loss\texpenses | 234 | 62 | 172 | 260 | 81 | 179 |
| IBNR\treserves | 2,053 | 814 | 1,239 | 2,028 | 815 | 1,213 |
| Subtotal | 5,158 | 2,201 | 2,957 | 5,437 | 2,496 | 2,941 |
| Casualty |  |  |  |  |  |  |
| Case\treserves | 9,203 | 2,700 | 6,503 | 9,506 | 3,177 | 6,329 |
| Loss\texpenses | 4,034 | 1,733 | 2,301 | 3,773 | 1,661 | 2,112 |
| IBNR\treserves | \t 17,704 | 5,132 | \t 12,572 | \t 17,777 | 5,110 | \t 12,667 |
| Subtotal | \t 30,941 | 9,565 | \t 21,376 | \t 31,056 | 9,948 | \t 21,108 |
| A&amp;H |  |  |  |  |  |  |
| Case\treserves | 530 | 131 | 399 | 588 | 144 | 444 |
| Loss\texpenses | 27 | – | 27 | 31 | 1 | 30 |
| IBNR\treserves | 735 | 252 | 483 | 671 | 156 | 515 |
| Subtotal | 1,292 | 383 | 909 | 1,290 | 301 | 989 |
| Total |  |  |  |  |  |  |
| Case\treserves | \t 12,604 | 4,156 | 8,448 | \t 13,243 | 4,921 | 8,322 |
| Loss\texpenses | 4,295 | 1,795 | 2,500 | 4,064 | 1,743 | 2,321 |
| IBNR\treserves | \t 20,492 | 6,198 | \t 14,294 | \t 20,476 | 6,081 | \t 14,395 |
| Total | $37,391 | $12,149 | $25,242 | $37,783 | $12,745 | $25,038 |

The	judgments	used	to	estimate	unpaid	loss	and	loss	expense	reserves	require	different	considerations	depending	upon	the	individual	circumstances underlying	the	insured	loss.	For	example,	the	reserves	established	for	high	excess	casualty	claims,	A&E	claims,	claims	from	major	catastrophic	events, or	the	IBNR	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	by	worsening	our	reported	results	if	the	prior	year reserves	prove	to	be	deficient,	or	improving	our	reported	results	if	the	prior	year	reserves	prove	to	be	redundant.	The	potential	for	variation	in	loss reserves	is	impacted	by	numerous	factors,	which	we	discuss	below.

We	establish	loss	and	loss	expense	reserves	for	our	liabilities	from	claims	for	all	of	the	insurance	and	reinsurance	business	that	we	write.	For	those claims	reported	by	insureds	or	ceding	companies	to	us	prior	to	the	balance	sheet	date,	and	where	we	have	sufficient	information,	our	claims	personnel establish	case	reserves	as	appropriate	based	on	the	circumstances	of	the	claim(s),	standard	claim	handling	practices,	and	professional	judgment.	In respect	of	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	project	the	ultimate	loss	obligations	and	the corresponding	amount	of	IBNR.	Furthermore,	for	our	assumed	reinsurance	operation,	Global	Reinsurance,	an	additional	case	reserve	may	be	established above	the	amount	notified	by	the	ceding	company	if	the	notified	case	reserve	is	judged	to	be	insufficient	by	Global	Reinsurance's	claims	department (refer	to	"Assumed	reinsurance"	below).

We	have	actuarial	staff	within	each	of	our	operating	segments	who	analyze	loss	reserves	and	regularly	project	estimates	of	ultimate	losses	and	the required	IBNR	reserve.	IBNR	reserve	estimates	are	generally	calculated	by	first	projecting	the	ultimate	amount	of	expected	claims	for	a	product	line	and subtracting	paid	losses	and	case	reserves	for	reported	claims.	The	judgments	involved	in	projecting	the	ultimate	losses	may	include	the	use	and interpretation	of	various	standard	actuarial	reserving

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

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

# Standard	actuarial	reserving	methods

The	standard	actuarial	reserving	methods	may	include,	but	are	not	limited	to,	paid	and	reported	loss	development,	expected	loss	ratio,	and	Bornhuetter- Ferguson	methods.	A	general	description	of	these	methods	is	provided	below.	In	the	subsequent	discussion	on	short-	and	long-tail	business,	reference	is also	made,	where	appropriate,	to	how	consideration	in	method	selection	impacted	2010	results.	In	addition	to	these	standard	methods,	we	may	use	other recognized	actuarial	methods	and	approaches	depending	upon	the	product	line	characteristics	and	available	data.	To	ensure	that	the	projections	of	future loss	emergence	based	on	historical	loss	development	patterns	are	representative	of	the	underlying	business,	the	historical	loss	and	premium	data	is required	to	be	of	sufficient	homogeneity	and	credibility.	For	example,	to	improve	data	homogeneity,	we	may	subdivide	product	line	data	further	by	similar risk	attribute	(e.g.,	geography,	coverage	such	as	property	versus	liability	exposure,	or	origin	year),	project	losses	for	these	homogenous	groups	and	then combine	these	results	to	provide	the	overall	product	line	estimate.	The	premium	and	loss	data	are	aggregated	by	origin	year	(e.g.,	the	year	in	which	the losses	were	incurred	–	"accident	year"	or	"report	year",	for	example)	and	annual	or	quarterly	development	periods.	Implicit	in	the	standard	actuarial methods	that	we	generally	utilize	is	the	need	for	two	fundamental	assumptions:	first,	the	pattern	by	which	losses	are	expected	to	emerge	over	time	for each	origin	year	and	second,	the	expected	loss	ratio	for	each	origin	year	(i.e.,	accident,	report,	or	underwriting).

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

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

The	Bornhuetter-Ferguson	method	is	essentially	a	combination	of	the	expected	loss	ratio	method	and	the	loss	development	method,	under	which the	loss	development	method	is	given	more	weight	as	the	origin	year	matures.	This	approach	allows	a	logical	transition	between	the	expected	loss	ratio method	which	is	generally	utilized	at	earlier	maturities	and	the	loss

development	methods	which	are	typically	utilized	at	latter	maturities.	We	usually	apply	this	method	using	reported	loss	data	although	paid	data	may	be used.

The	applicability	of	actuarial	methods	will	also	be	impacted	by	the	attachment	point	of	the	policy	or	contract	with	the	insured	or	ceding	company.	In the	case	of	low	attachment	points	typical	of	primary	or	working	layer	reinsurance,	the	experience	tends	to	be	more	frequency	driven.	For	these	product types,	standard	actuarial	methods	generally	work	well	in	determining	loss	reserve	levels,	as	the	loss	experience	is	often	credible,	given	a	sufficient history	and	volume	of	claims	experience.	In	the	case	of	high	attachment	points	typical	of	excess	insurance	or	excess	of	loss	reinsurance,	the	experience tends	to	be	severity	driven,	as	only	a	loss	of	significant	size	will	enter	the	layer.	For	structured	or	unique	contracts,	most	common	to	the	financial	solutions business	(which	we	have	considerably	curtailed)	and,	to	a	lesser	extent,	our	reinsurance	business,	we	typically	supplement	the	standard	actuarial methods	with	an	analysis	of	each	contract's	terms,	original	pricing	information,	subsequent	internal	and	external	analyses	of	the	ongoing	contracts, market	exposures	and	history,	and	qualitative	input	from	claims	managers.

# 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.	We	perform	an	actuarial reserve	review	for	each	product	line	at	least	once	a	year.	At	the	conclusion	of	each	review,	we	establish	an	actuarial	central	estimate.	The	process	to select	the	actuarial	central	estimate,	when	more	than	one	estimate	is	available,	may	differ	across	product	lines.	For	example,	an	actuary	may	base	the central	estimate	on	loss	projections	developed	using	an	incurred	loss	development	approach	instead	of	a	paid	loss	development	approach	when reported	losses	are	viewed	to	be	a	more	credible	indication	of	the	ultimate	loss	compared	with	paid	losses.	The	availability	of	estimates	by	different projection	techniques	will	depend	upon	the	product	line,	the	underwriting	circumstances,	and	the	maturity	of	the	loss	emergence.	For	a	well-established product	line	with	sufficient	volume	and	history,	the	actuarial	central	estimate	may	be	drawn	from	a	weighting	of	paid	and	reported	loss	development and/or	Bornhuetter-Ferguson	methods.	However,	for	a	new	long-tail	product	line	for	which	we	have	limited	data	and	experience	or	a	rapidly	growing	line, the	emerging	loss	experience	may	not	have	sufficient	credibility	to	allow	selection	of	loss	development	or	Bornhuetter-Ferguson	methods	and	reliance may	be	placed	upon	the	expected	loss	ratio	method	until	the	experience	matures	and	becomes	credible.

Management's	best	estimate	is	developed	from	the	actuarial	central	estimate	after	collaboration	with	actuarial,	underwriting,	claims,	legal,	and finance	departments	and	culminates	with	the	input	of	reserve	committees.	Each	business	unit	reserve	committee	includes	the	participation	of	the relevant	parties	from	actuarial,	finance,	claims,	and	unit	senior	management	and	has	the	responsibility	for	finalizing	and	approving	the	estimate	to	be used	as	management's	best	estimate.	Reserves	are	further	reviewed	by	ACE	Limited's	Chief	Actuary	and	senior	management.	The	objective	of	such	a process	is	to	determine	a	single	estimate	that	we	believe	represents	a	better	estimate	than	any	other.	Such	an	estimate	is	viewed	by	management	to	be the	best	estimate	of	ultimate	loss	settlements	and	is	determined	based	on	several	factors	including,	but	not	limited	to:

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

•	extent	of	internal	historical	loss	data,	and	industry	information	where	required;

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

•	perceived	credibility	of	emerged	loss	experience;	and

•	nature	and	extent	of	underlying	assumptions.

Management	does	not	build	in	any	specific	provision	for	uncertainty.

We	do	not	calculate	ranges	of	loss	reserve	estimates	for	our	individual	loss	reserve	studies.	Such	ranges	are	generally	not	a	true	reflection	of	the potential	difference	between	loss	reserves	estimated	at	the	balance	sheet	date	and	the	ultimate	settlement	value	of	losses.	This	is	due	to	the	fact	that	an actuarial	range	is	developed	based	on	known	events	as	of	the	valuation	date	whereas	actual	prior	period	development	reported	in	subsequent consolidated	financial	statements	relates	in	part	to	events	and	circumstances	that	were	unknown	as	of	the	original	valuation	date.	While	we	believe	that our	recorded	reserves	are	reasonable	and	represent	management's	best	estimate	for	each	product	line	as	of	the	current	valuation	date,	future	changes to	our	view	of	the	ultimate	liabilities	are	possible.	A	five	percent	change	in	our	net	loss	reserves	equates	to	$1.3	billion	and	represents	six	percent	of shareholders'	equity	at	December	31,	2010.	Historically,	including	A&E	reserve	charges,	our	reserves,	at	times,	have	developed	in	excess	of	10	percent of	recorded	amounts.	Refer	to	"Analysis	of	Losses	and	Loss	Expense	Development",	under	Item	1,	for	a	summary	of	historical	volatility	between estimated	loss	reserves	and	ultimate	loss	settlements.

We	perform	internal	loss	reserve	studies	for	all	product	lines	at	least	once	a	year;	the	timing	of	such	studies	varies	throughout	the	year.

Additionally,	each	quarter	for	most	product	lines,	we	review	the	emergence	of	actual	losses	relative	to	expectations.	If	warranted	from	findings	in	loss emergence	tests,	we	may	alter	the	timing	of	our	product	line	reserve	studies.

Finally,	loss	reserve	studies	are	performed	annually	by	external	third-parties	and	the	findings	are	used	to	test	the	reasonability	of	our	internal	findings. The	time	period	between	the	date	of	loss	occurrence	and	the	final	payment	date	of	the	ensuing	claim(s)	is	referred	to	as	the	"claim-tail".	The following	is	a	discussion	of	specific	reserving	considerations	for	both	short-tail	and	long-tail	product	lines.	In	this	section,	we	reference	the	nature	of	recent prior	period	development	to	give	a	high-level	understanding	of	how	these	considerations	translate	through	the	reserving	process	into	financial	decisions. Refer	to	"Consolidated	Operating	Results"	for	more	information	on	prior	period	development.

# Short-tail	and	long-tail	business

# Short-tail	business

Short-tail	business	generally	describes	product	lines	for	which	losses	are	typically	known	and	paid	shortly	after	the	loss	actually	occurs.	This	would include,	for	example,	most	property,	personal	accident,	aviation	hull,	and	automobile	physical	damage	policies	that	are	written	by	ACE.	There	are	some exceptions	on	certain	product	lines	or	events	(e.g.,	major	hurricanes)	where	the	event	has	occurred,	but	the	final	settlement	amount	is	highly	uncertain and	not	known	with	certainty	for	a	potentially	lengthy	period.	Due	to	the	short	reporting	and	development	pattern	for	these	product	lines,	the	uncertainty associated	with	our	estimate	of	ultimate	losses	for	any	particular	accident	period	diminishes	relatively	quickly	as	actual	loss	experience	emerges.	We typically	assign	credibility	to	methods	that	incorporate	actual	loss	emergence,	such	as	the	paid	and	reported	loss	development	and	Bornhuetter-Ferguson methods,	sooner	than	would	be	the	case	for	long-tail	lines	at	a	similar	stage	of	development	for	a	given	origin	year.	The	reserving	process	for	short-tail losses	arising	from	catastrophic	events	typically	involves	an	assessment	by	the	claims	department,	in	conjunction	with	underwriters	and	actuaries,	of	our exposure	and	estimated	losses	immediately	following	an	event	and	then	subsequent	revisions	of	the	estimated	losses	as	our	insureds	provide	updated actual	loss	information.

For	the	2010	origin	year,	the	short-tail	line	loss	reserves	were	typically	established	for	the	non-catastrophe	exposures	using	a	combination	of	the expected	loss	ratio	method	and	methods	that	incorporate	actual	loss	emergence.	As	the	year	progressed,	we	also	adjusted	these	reserves	for	large	non- catastrophe	loss	activity	that	we	considered	to	be	greater	than	the	historical	averages.	Reserves	were	also	established	for	losses	arising	on	catastrophe activity	during	2010.	The	underlying	calculation	for	the	non-catastrophe	losses	requires	initial	expected	loss	ratios	by	product	line	adjusted	for	actual experience	during	the	2010	calendar	year.	As	previously	noted,	the	derivation	of	initial	loss	ratios	incorporates	actuarial	projections	of	prior	years'	losses, past	and	expected	future	loss	and	exposure	trends,	rate	adequacy	for	new	and	renewal	business,	and	ceded	reinsurance	coverage	and	costs.	We	also considered	our	view	of	the	impact	of	terms	and	conditions	and	the	market	environment,	which	by	their	nature	tend	to	be	more	subjective	relative	to	other factors.	Since	there	is	some	degree	of	random	volatility	of	non-catastrophe	loss	experience	from	year	to	year,	we	considered	average	loss	experience over	several	years	when	developing	loss	estimates	for	the	current	accident	year.	For	our	short-tail	businesses	taken	as	a	whole,	overall	loss	trend assumptions	did	not	differ	significantly	relative	to	prior	years.

In	terms	of	prior	accident	years,	the	bulk	of	the	changes	made	in	the	2010	calendar	year	arose	from	origin	years	2006-2009.	Specifically,	the Insurance	–	North	American,	Insurance	–	Overseas	General,	Global	Reinsurance,	and	Life	segments	experienced	$137	million,	$131	million,	$34	million, and	$9	million	of	favorable	prior	period	development,	respectively,	primarily	due	to	lower	than	anticipated	loss	emergence	on	the	2006-2009	origin	years. In	the	Insurance	–	North	American	and	Insurance	–	Overseas	General	segments,	these	prior	period	movements	were	primarily	the	result	of	changes	to the	ultimate	loss	estimates	for	the	2006-2009	origin	years	in	response	to	the	latest	reported	loss	data	rather	than	any	significant	changes	to	underlying actuarial	assumptions	such	as	loss	development	patterns.	In	the	Global	Reinsurance	segment,	the	prior	period	movements	were	primarily	the	result	of changes	to	the	ultimate	loss	estimates	for	the	2004-2008	origin	years	principally	in	response	to	the	latest	reported	loss	data,	rather	than	any	significant changes	to	underlying	actuarial	assumptions	such	as	loss	development	patterns.

For	a	detailed	analysis	of	changes	in	assumptions	related	to	short-tail	prior	accident	year	reserves	during	calendar	year	2010,	refer	to	"Prior	Period Development".

# Long-tail	business

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

•	Our	historical	loss	data	and	experience	is	sometimes	too	immature	and	lacking	in	credibility	to	rely	upon	for	reserving

purposes.	Where	this	is	the	case,	in	our	reserve	analysis	we	rely	on	industry	loss	ratios	or	industry	benchmark	development	patterns	that	we	believe reflect	the	nature	and	coverage	of	the	underwritten	business	and	its	future	development,	where	available.	For	such	product	lines,	actual	loss	experience may	differ	from	industry	loss	statistics	as	well	as	loss	experience	for	previous	underwriting	years;

•	The	inherent	uncertainty	around	loss	trends,	claims	inflation	(e.g.,	medical	and	judicial)	and	underlying	economic	conditions;

•	The	inherent	uncertainty	of	the	estimated	duration	of	the	paid	and	reporting	loss	development	patterns	beyond	the	historical	record	requires	that professional	judgment	be	used	in	the	determination	of	the	length	of	the	patterns	based	on	the	historical	data	and	other	information;

•	The	inherent	uncertainty	of	assuming	that	historical	paid	and	reported	loss	development	patterns	for	older	origin	years	will	be	representative	of subsequent	loss	emergence	on	recent	origin	years.	For	example,	changes	over	time	in	the	processes	and	procedures	for	establishing	case	reserves	can distort	reported	loss	development	patterns	or	changes	in	ceded	reinsurance	structures	by	origin	year	can	alter	the	development	of	paid	and	reported losses;

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

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

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

For	those	long-tail	product	lines	that	are	less	claim	frequency	and	more	claim	severity	oriented,	such	as	professional	lines	and	high	excess casualty,	we	placed	more	reliance	upon	expert	legal	and	claims	review	of	the	specific	circumstance	underlying	reported	cases	rather	than	loss development	patterns.	Where	appropriate,	we	then	supplemented	this	with	loss	development	and	Bornhuetter-Ferguson	approaches	to	provide	for	claims that	have	been	reported	but	are	too	immature	to	develop	an	individual	claims	estimate	and	also	for	pure	IBNR.	The	assumptions	used	for	these	lines	of business	are	updated	over	time	to	reflect	new	claim	and	legal	advice	judged	to	be	of	significance.

For	the	2010	origin	year,	loss	reserves	were	typically	established	through	the	application	of	individual	product	line	expected	loss	ratios	that contemplated	assumptions	similar	in	nature	to	those	noted	in	the	short-tail	line	discussion.	Our	assumptions	on	loss	trend	and	development	patterns reflect	reliance	on	our	historical	loss	data	provided	the	length	and	volume	of	history	and	homogeneity	afford	credibility.	For	those	portfolios	where	we	feel that	our	data	lacks	credibility,	our	assumptions	require	judgmental	use	of	industry	loss	trends	and	development	patterns.	We	note	that	industry	patterns are	not	always	available	to	match	the	nature	of	the	business	being	written;	this	issue	is	particularly	problematic	for	non-U.S.	exposed	lines.	Given	the underlying	volatility	of	the	long-tail	product	lines	and	the	lengthy	period	required	for	full	paid	and	reported	loss	emergence,	we	typically	assign	little	to	no credibility	to	actual	loss	emergence	in	the	early	development	periods.	Accordingly,	we	generally	used	the	expected	loss	ratio	method	for	the	2010	and immediately	preceding	origin	years	to	establish	reserves	by	product	line.	We	monitor	actual	paid	and	reported	loss	emergence	relative	to	expected	loss emergence	for	most	individual	product	lines.	Recent	experience	has	generally	been	favorable	relative	to	our	expectations.	While	we	do	not	yet	believe that	this	favorable	experience	is	sufficiently	credible	to	be	fully	reflected	in	our	booked	ultimate	losses	for	immature	years,	we	have	been	giving	increasing weight	to	emerging	experience	as	origin	years	mature	and	the	loss	emergence	gains	credibility.

The	process	to	develop	2010	origin	year	reserves	for	our	long-tail	casualty	business	relies	heavily	on	prior	origin	year	reserves	and	historical	loss ratios	adjusted	to	current	rate	and	loss	trend	levels.	When	estimating	the	ultimate	loss	levels	for	these	prior	origin	years	for	the	major	long-tail	lines	in Insurance	–	North	American,	Insurance	–	Overseas	General,	and	Global	Reinsurance	no	changes	of	significance	were	made	to	the	loss	development patterns,	however,	we	have	revised	historical	loss	and	exposure	trend	assumptions	to	reflect	emerged	frequency	and	severity	trends	observed	in	both our	internal	data	and	available	industry	data.	In	general,	this	has	resulted	in	lower	loss	trend	assumptions.	While	we	have	not	assumed	that	these reduced	loss	trends	continued	in	2010,	we	have	reflected	this	information	in	the	process	to	derive	expected	loss	ratio	assumptions	from	historical	data adjusted	to	2010	origin	year	levels.

To	the	extent	that	actual	loss	emergence	in	calendar	year	2010	differed	from	our	expectation	for	the	more	recent	origin	years,	the	deviation	was not	typically	seen	as	sufficiently	credible,	particularly	given	the	volatility	and	lengthy	period	for	full	loss	emergence,	to	fully	reflect	in	our	booked	ultimate loss	selections	or	the	actuarial	assumptions	underlying	the	reserve	reviews.	Such	judgments	were	made	with	due	consideration	to	the	factors	impacting reserve	uncertainty	as	discussed	above.	However,	for	some	product	lines,	credibility	was	assigned	to	emerging	loss	experience	and	this	is	discussed further	below	and	in	the	section	entitled	"Prior	Period	Development".	Our	booked	reserves	for	origin	years	2007-2009	include	reserves	for	what	we believe	to	be	our	exposure	to	claims	related	to	the	credit-crunch	and	recent	financial	frauds	(primarily	E&O	and	D&O)	based	on	information	received	to date.

For	more	mature	origin	years,	typically	2006	and	prior,	we	gave	meaningful	weight	to	indicated	ultimates	derived	from	methods	that	rely	on	the	paid and	reported	loss	development	patterns	based	on	historical	experience	where	sufficient	credibility	existed	(2005	and	prior	for	our	longest	tailed	lines).	For those	lines	where	the	historical	experience	lacked	credibility,	we	placed	reliance	upon	the	latest	benchmark	patterns	(where	available)	from	external industry	bodies	such	as	Insurance	Services	Office	(ISO)	or	the	National	Council	on	Compensation	Insurance,	Inc.	(NCCI).	The	assumptions	used	to project	ultimate	loss	estimates	will	not	fully	reflect	our	own	actual	loss	experience	until	our	data	is	deemed	sufficiently	credible.

The	prior	period	development	in	2010	for	long-tail	lines	of	business	comprised	several	main	components.	First,	we	experienced	favorable	prior period	development	on	a	number	of	product	lines	where	actual	loss	emergence	was	lower	than	expected	and/or	increased	weighting	was	given	to experience-based	methods	as	relevant	origin	years	mature	(typically	2003-2006).	In	particular,	this	included	national	accounts,	D&O	and	E&O	product lines	in	Insurance	–	North	American	($159	million	favorable),	casualty	and	financial	lines	in	Insurance	–	Overseas	General	for	accident	year	2006	and prior	($241	million	favorable)	and	professional	liability,	D&O,	casualty,	and	medical	malpractice	product	lines	in	Global	Reinsurance	($72	million favorable).	Second,	we	experienced	adverse	development	on	2007	and	subsequent	years	arising	from	specific	case	development	on	excess	casualty businesses	($91	million	adverse)	and	an	increasing	trend	in	frequency	and	allocated	claims	expenses	on	small	and	middle	market	workers	compensation ($30	million	adverse).	Third,	we	experienced	adverse	development	from	inactive	product	lines	including	Westchester	and	Brandywine	run-off	operations ($114	million	adverse)	and	middle	market	workers	compensation	($18	million	adverse).	The	causes	for	the	Westchester	and	Brandywine	operations	are described	further	below	while	the	development	on	the	run-off	middle	market	workers	compensation	arose	from	higher	than	expected	medical	costs	on accident	years	2000	and	prior.	For	each	reserve	action	taken,	the	change	was	generally	the	result	of	actual	loss	emergence	in	calendar	year	2010	that differed	from	the	expected	loss	emergence	and	was	deemed	significant	enough	to	warrant	revising	the	relevant	projection.

For	a	detailed	analysis	of	changes	in	assumptions	related	to	long-tail	prior	accident	year	reserves	during	calendar	year	2010,	refer	to	"Prior	Period Development".

# Sensitivity	to	underlying	assumptions

While	we	believe	that	our	reserve	for	unpaid	losses	and	loss	expenses	at	December	31,	2010,	is	adequate,	new	information	or	emerging	trends	that	differ from	our	assumptions	may	lead	to	future	development	of	losses	and	loss	expenses	significantly	greater	or	less	than	the	reserve	provided,	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	any	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.

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	the	company's	current	exposure	requires	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	$290	million,	either	positive	or	negative,	for	the	projected	net	loss	and	loss	expense	reserves.	This	represents	an impact	of	9.2	percent	relative	to	recorded	net	loss	and	loss	expense	reserves	of	approximately	$3.2	billion.

Our	ACE	Bermuda	operations	write	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	$50	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.

Certain	long-tail	lines,	such	as	casualty	and	professional	lines,	are	particularly	susceptible	to	changes	in	loss	trend	and	claim	inflation.	Heightened perceptions	of	tort	and	settlement	awards	around	the	world	are	increasing	the	demand	for	these	products	as	well	as	contributing	to	the	uncertainty	in	the reserving	estimates.	Our	reserving	methods	rely	on	loss	development	patterns	estimated	from	historical	data	and	while	we	attempt	to	adjust	such	factors for	known	changes	in	the	current	tort	environment,	it	is	possible	that	such	factors	may	not	entirely	reflect	all	recent	trends	in	tort	environments.	For example,	when	applying	the	reported	loss	development	method,	the	lengthening	by	six	months	of	our	selected	loss	development	patterns	would	increase reserve	estimates	on	long-tail	casualty	and	professional	lines	for	accident	years	2001-2008	by	approximately	$246	million.	This	movement	is	relative	to recorded	net	IBNR	reserves	of	$1.5	billion	and	net	total	reserves	of	$2.1	billion	for	these	years.

Typically,	there	is	inherent	uncertainty	around	the	length	of	paid	and	reported	development	patterns,	especially	for	certain	casualty	lines	such	as	excess workers'	compensation	or	general	liability,	which	may	take	up	to	30	years	to	fully	develop.	This	uncertainty	is	accentuated	by	the	need	to	supplement client	development	patterns	with	industry	development	patterns	due	to	the	sometimes	low	credibility	of	the	data.	The	underlying	source	and	selection	of the	final	development	patterns	can	thus	have	a	significant	impact	on	the	selected	ultimate	net	losses	and	loss	expenses.	For	example,	a	twenty	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	$298	million.	This	movement	is	relative	to	recorded	net	loss	and	loss	expense reserves	of	approximately	$1.4	billion.

# Assumed	reinsurance

At	December	31,	2010,	net	unpaid	losses	and	loss	expenses	for	the	Global	Reinsurance	segment	aggregated	to	$2.4	billion,	consisting	of	$830	million	of case	reserves	and	$1.6	billion	of	IBNR.	In	comparison,	at	December	31,	2009,	net	unpaid	losses	and	loss	expenses	for	the	Global	Reinsurance	segment aggregated	to	$2.4	billion,	consisting	of	$788	million	of	case	reserves	and	$1.6	billion	of	IBNR.

For	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	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,	2010,	the	case	reserves	reported	to	us	by our	ceding	companies	were	$807	million,	compared	with	the	$830	million	we	recorded.	Our	policy	is	to	post	additional	case	reserves	in	addition	to	the amounts	reported	by	our	cedants	when	our	evaluation	of	the	ultimate	value	of	a	reported	claim	is	different	than	the	evaluation	of	that	claim	by	our	cedant.

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

# Asbestos	and	environmental	reserves

Included	in	ACE's	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	ACE's	A&E	liabilities	is particularly	sensitive	to	future	changes	in	the	legal,	social,	and	economic	environment.	ACE	has	not	assumed	any	such	future	changes	in	setting	the value	of	its	A&E	reserves,	which	include	provisions	for	both	reported	and	IBNR	claims.

During	2010,	ACE	conducted	its	annual	internal,	ground-up	review	of	its	consolidated	A&E	liabilities	as	at	December	31,	2009.	As	a	result	of	the internal	review,	the	Company	increased	its	net	loss	reserves	for	the	Brandywine	operations,	including	A&E,	by	$84	million	(net	of	reinsurance	provided	by National	Indemnity	Company	(NICO)),	while	the	gross	loss	reserves	increased	by	$247	million.	In	addition,	the	Company	increased	gross	loss	reserves for	Westchester	Specialty's	A&E	and	other	liabilities	by	$23	million,	and	net	loss	reserves	increased	by	$5	million.	Our	A&E	reserves	are	not	discounted for	GAAP	reporting	and	do	not	reflect	any	anticipated	future	changes	in	the	legal,	social	or	economic	environment,	or	any	benefit	from	future	legislative reforms.

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	reserves	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 non-products	coverage;	whether	high-level	excess	policies	have	the	potential	to	be	accessed	given	the	policyholder's	claim	trends	and	liability	situation; payments	to	unimpaired	claimants;	and,	the	potential	liability	of	peripheral	defendants.	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	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	more	information	refer	to	"Asbestos	and	Environmental	and	Other	Run-off	Liabilities"	and	to	Note	7	to	the	Consolidated	Financial	Statements, under	Item	8,	for	more	information.

We	issue	contracts	in	our	Insurance	–	Overseas	General	and	Life	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	benefit	reserve	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	Combined	Insurance	acquisition,	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	is	derived	from	similar	assumptions	to	those	used	to	establish	the	associated	future	policy	benefit reserve.	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	in proportion	to	premium	revenue	recognized.	The	estimated	life	is	established	at	the	inception	of	the	contracts	or	upon	acquisition	and	is	based	on	current persistency	assumptions.	Policy	acquisition	costs	are	reviewed	to	determine	if	they	are	recoverable	from	future	income,	including	investment	income. Unrecoverable	costs,	if	any,	are	expensed	in	the	period	this	determination	is	made.

# 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 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 operating	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	principally	provided	severity	protection	for	specific	product	divisions.	Because	traditional	one-year	reinsurance	coverage	had	become	relatively costly,	these	contracts	were	generally	entered	into	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	NICO	contracts	referred	to	in	the	section	entitled,	"Asbestos	and	Environmental	and	Other	Run-off	Liabilities".	Subsequent	to	the	ACE INA	acquisition,	we	have	not	purchased	any	retroactive	ceded	reinsurance	contracts.

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.

A	significant	portion	of	ACE	Tempest	Re	USA's	business	is	written	through	quota	share	treaties	(approximately	$506	million	of	net	premiums earned	in	2010,	comprised	of	$392	million	of	first	dollar	quota	share	treaties	and	$114	million	of	excess	quota	share	treaties),	a	small	portion	of	which	are categorized	as	structured	products.	Structured	quota	share	treaties	typically	contain	relatively	low	aggregate	policy	limits,	a	feature	that	reduces	loss coverage	in	some	manner	and	a	profit	sharing	provision.	These	have	been	deemed	to	have	met	risk	transfer	requirements.

# Reinsurance	recoverable

Reinsurance	recoverable	includes	the	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.	Amounts	estimated	to	be	uncollectible	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	contractual	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	balance	we	have	accrued	as	recoverable	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	experience varies	materially	from	historical	experience,	including	that	used	to	determine	ceded	premium,	the	allocation	of	reinsurance	recoverable	by	reinsurer	will change.	While	such	change	is	unlikely	to	result	in	a	large	percentage	change	in	the	provision	for	uncollectible	reinsurance,	it	could,	nevertheless,	have	a material	effect	on	our	net	income	in	the	period	recorded.

Generally,	we	use	a	default	analysis	to	estimate	uncollectible	reinsurance.	The	primary	components	of	the	default	analysis	are	reinsurance recoverable	balances	by	reinsurer,	net	of	collateral,	and	default	factors	used	to	estimate	the	probability	that	the	reinsurer	may	be	unable	to	meet	its	future obligations	in	full.	The	definition	of	collateral	for	this	purpose	requires	some	judgment	and	is	generally	limited	to	assets	held	in	an	ACE-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	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	0.5 percent,	1.2	percent,	1.9	percent,	4.7	percent,	9.6	percent,	23.8	percent,	and	49.7	percent,	respectively.	Because	the	model	we	use	is	predicated	on	the default	factors	of	a	major	rating	agency,	we	do	not	generally	consider	alternative	factors.	However,	when	a	recoverable	is	expected	to	be	paid	in	a	brief period	of	time	by	a	highly-rated	reinsurer,	such	as	certain	property	catastrophe	claims,	a	default	factor	may	not	be	applied;

•	For	balances	recoverable	from	reinsurers	that	are	both	unrated	by	a	major	rating	agency	and	for	which	management	is	unable	to	determine	a	credible rating	equivalent	based	on	a	parent,	affiliate,	or	peer	company,	we	determine	a	rating	equivalent	based	on	an	analysis	of	the	reinsurer	that	considers	an assessment	of	the	creditworthiness	of	the	particular	entity,	industry	benchmarks,	or	other	factors	as	considered	appropriate.	We	then	apply	the	applicable default	factor	for	that	rating	class.	For	balances	recoverable	from	unrated	reinsurers	for	which	our	ceded	reserve	is	below	a	certain	threshold,	we generally	apply	a	default	factor	of	25	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,	2010.

| (in	millions	of	U.S.	dollars) | Recoverables<br>on	Losses<br>and	Loss<br>Expenses | Recoverables<br>(net	of<br>Usable<br>Collateral) | Provision	for<br>Uncollectible<br>Reinsurance |
| :--- | :--- | :--- | :--- |
| Type |  |  |  |
| Reinsurers\twith\tcredit\tratings | $9,882 | $8,563 | $216 |
| Reinsurers\tnot\trated | 420 | 362 | 107 |
| Reinsurers\tunder\tsupervision\tand\tinsolvent\treinsurers | 215 | 202 | 123 |
| Captives | 1,839 | 433 | 41 |
| Other\t–\tstructured\tsettlements\tand\tpools | 1,045 | 1,044 | 43 |
| Total | $13,401 | $10,604 | $530 |

At	December	31,	2010,	the	use	of	different	assumptions	within	our	approach	could	have	a	material	effect	on	the	provision	for	uncollectible	reinsurance reflected	in	our	Consolidated	Financial	Statements.	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,	2010,	we	estimate	that	a	ratings	downgrade	of	one	notch	for	all	rated	reinsurers	(i.e.,	from	A	to	A-	or	A-	to	BBB+) could	increase	our	provision	for	uncollectible	reinsurance	by	approximately	$121	million	or	approximately	one	percent	of	the	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,	under	Item	8,	for	more	information.

# Other-than-temporary	impairments	(OTTI)

Each	quarter,	we	review	our	securities	in	an	unrealized	loss	position	(impaired	securities),	including	fixed	maturities,	securities	lending	collateral,	equity securities,	and	other	investments,	to	identify	those	impaired	securities	to	be	specifically	evaluated	for	a	potential	OTTI.	Because	our	investment	portfolio is	the	largest	component	of	consolidated	assets	and	a	multiple	of	shareholders'	equity,	OTTI	could	be	material	to	our	financial	condition	and	operating results.	Refer	to	Note	4	d)	to	the	Consolidated	Financial	Statements	for	a	description	of	the	process	by	which	we	evaluate	investments	for	OTTI.

# Deferred	tax	assets

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

At	December	31,	2010,	our	net	deferred	tax	asset	was	$769	million.	(Refer	to	Note	8	to	the	Consolidated	Financial	Statements,	under	Item	8,	for more	information).	At	each	balance	sheet	date,	management	assesses	the	need	to	establish	a	valuation	allowance	that	reduces	deferred	tax	assets when	it	is	more	likely	than	not	that	all,	or	some	portion,	of	the	deferred	tax	assets	will	not	be	realized.	The	valuation	allowance	is	based	on	all	available information	including	projections	of	future	taxable	income	from	each	tax-paying	component	in	each	tax	jurisdiction,	principally	derived	from	business plans	and	available	tax	planning	strategies.	Projections	of	future	taxable	income	incorporate	several	assumptions	of	future	business	and	operations	that are	apt	to	differ	from	actual	experience.	The	valuation	allowance	is	also	based	on	maintaining	our	ability	and	intent	to	hold	our	U.S.	available	for	sale	fixed maturities	to	recovery.	If,	in	the	future,	our	assumptions	and	estimates	that	resulted	in	our	forecast	of	future	taxable	income	for	each	tax-paying component	prove	to	be	incorrect,	or	future	market	events	occur	that	prevent	our	ability	to	hold	our	U.S.	fixed	maturities	to	recovery,	an	additional	valuation allowance	could	become	necessary.	This	could	have	a	material	adverse	effect	on	our	financial	condition,	results	of	operations,	and	liquidity.	At December	31,	2010,	the	valuation	allowance	of	$31	million	(including	$24	million	with	respect	to	foreign	tax	credits)	reflects	management's	assessment that	it	is	more	likely	than	not	that	a	portion	of	the	deferred	tax	asset	will	not	be	realized	due	to	the	inability	of	certain	foreign	subsidiaries	to	generate sufficient	taxable	income	and	the	inability	of	ACE	Group	Holdings	and	its	subsidiaries	to	utilize	foreign	tax	credits.

# Fair	value	measurements

The	provisions	of	Accounting	Standards	Codification	(ASC)	Topic	820,	Fair	Value	Measurements,	define	fair	value	as	the	price	to	sell	an	asset	or	transfer a	liability	in	an	orderly	transaction	between	market	participants	and	establish	a	three	–	level	valuation	hierarchy	in	which	inputs	into	valuation	techniques used	to	measure	fair	value	are	classified.

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).	Inputs	in	Level	1	are	unadjusted	quoted	prices	for	identical	assets	or	liabilities	in	active	markets.	Level	2	includes	inputs	other	than quoted	prices	included	within	Level	1	that	are	observable	for	assets	or	liabilities	either	directly	or	indirectly.	Level	2	inputs	include,	among	other	items, quoted	prices	for	similar	assets	and	liabilities	in	active	markets,	quoted	prices	for	identical	or	similar	assets	and	liabilities	in	markets	that	are	not	active, and	inputs	other	than	quoted	prices	that	are	observable	for	the	asset	or	liability	such	as	interest	rates	and	yield	curves.	Level	3	inputs	are	unobservable and	reflect	our	judgments	about	assumptions	that	market	participants	would	use	in	pricing	an	asset	or	liability.	A	financial	instrument's	categorization within	the	valuation	hierarchy	is	based	upon	the	lowest	level	of	input	that	is	significant	to	the	fair	value	measurement.	ACE	makes	decisions	regarding	the categorization	of	assets	or	liabilities	within	the	valuation	hierarchy	based	on	the	inputs	used	to	determine	respective	fair	values	at	the	balance	sheet	date. Accordingly,	transfers	between	levels	within	the	valuation	hierarchy	are	determined	on	the	same	basis.

While	the	Company	obtains	values	for	the	majority	of	the	investment	securities	it	holds	from	one	or	more	pricing	services,	it	is	ultimately management's	responsibility	to	determine	whether	the	values	obtained	and	recorded	in	the	financial	statements	are	representative	of	fair	value.	We periodically	update	our	understanding	of	the	methodologies	used	by	our	pricing	services	in	order	to	validate	that	the	prices	obtained	from	those	services are	consistent	with	the	GAAP	definition	of	fair	value	as	an	exit	price.	Based	on	our	understanding	of	the	methodologies	used	by	our	pricing	services,	all applicable	investments	have	been	valued	in	accordance	with	GAAP	valuation	principles.	We	do	not	typically	adjust	prices	obtained	from	pricing	services. At	December	31,	2010,	our	Level	3	assets	represented	four	percent	of	our	assets	that	are	measured	at	fair	value	and	two	percent	of	our	total assets.	Our	Level	3	liabilities	represented	11	percent	of	our	liabilities	that	are	measured	at	fair	value	and

one	percent	of	our	total	liabilities	at	December	31,	2010.	During	the	year	ended	December	31,	2010,	we	transferred	$39	million	out	of	our	Level	3	assets. Refer	to	Note	15	to	the	Consolidated	Financial	Statements	for	a	description	of	the	valuation	techniques	and	inputs	used	to	determine	fair	values	for	our financial	instruments	carried	or	disclosed	at	fair	value	by	valuation	hierarchy	(Levels	1,	2,	and	3)	as	well	as	a	roll-forward	of	Level	3	financial	instruments for	the	years	ended	December	31,	2010	and	2009.

# Guaranteed	living	benefits	(GLB)	derivatives

Under	life	reinsurance	programs	covering	living	benefit	guarantees,	we	assumed	the	risk	of	GLBs	associated	with	variable	annuity	(VA)	contracts.	We ceased	writing	this	business	in	2007.	Our	GLB	reinsurance	product	meets	the	definition	of	a	derivative	for	accounting	purposes	and	is	therefore	carried	at fair	value.	We	believe	that	the	most	meaningful	presentation	of	these	derivatives	is	to	reflect	cash	inflows	or	revenue	as	net	premiums	earned,	and	to record	estimates	of	the	average	modeled	value	of	future	cash	outflows	as	incurred	losses.	Accordingly,	we	recognize	benefit	reserves	consistent	with	the provisions	of	ASC	Topic	944,	Financial	Services-Insurance,	(Topic	944)	related	to	accounting	and	reporting	by	insurance	enterprises	for	certain	non- traditional	long-duration	contracts	and	for	separate	accounts.	Changes	in	the	benefit	reserves	are	reflected	as	policy	benefits	expense,	which	is	included in	life	underwriting	income.	The	incremental	difference	between	fair	value	and	benefit	reserves	is	reflected	in	Accounts	payable,	accrued	expenses,	and other	liabilities	in	the	consolidated	balance	sheet	and	related	changes	in	fair	value	are	reflected	in	Net	realized	gains	(losses)	in	the	consolidated statement	of	operations.	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).	At	maturity,	the	cumulative	gains	and	losses	will	net	to	zero	(excluding	cumulative	hedge gains	or	losses)	because,	over	time,	the	insurance	liability	will	be	increased	or	decreased	to	equal	our	obligation.	For	a	sensitivity	discussion	of	the	effect of	changes	in	interest	rates,	equity	indices,	and	other	assumptions	on	the	fair	value	of	GLBs,	and	the	resulting	impact	on	our	net	income,	refer	to Item	7A.	Refer	to	Note	2	j)	to	the	Consolidated	Financial	Statements,	under	Item	8,	for	further	description	of	this	product	and	related	accounting treatment.

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,	current	account	value,	market volatility,	expected	annuitization	rates	and	other	policyholder	behavior,	and	changes	in	policyholder	mortality.	The	model	and	related	assumptions	are continuously	re-evaluated	by	management	and	enhanced,	as	appropriate,	based	upon	additional	experience	obtained	related	to	policyholder	behavior	and availability	of	more	timely	market	information,	such	as	market	conditions	and	demographics	of	in-force	annuities.	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	from	the	estimates reflected	in	our	Consolidated	Financial	Statements,	and	the	differences	may	be	material.

The	most	significant	policyholder	behavior	assumptions	include	lapse	rates	and	the	guaranteed	minimum	income	benefit	(GMIB)	annuitization rates.	Assumptions	regarding	lapse	rates	and	GMIB	annuitization	rates	differ	by	treaty	but	the	underlying	methodologies	to	determine	rates	applied	to each	treaty	are	comparable.	The	assumptions	regarding	lapse	and	GMIB	annuitization	rates	determined	for	each	treaty	are	based	on	a	dynamic calculation	that	uses	several	underlying	factors.

A	lapse	rate	is	the	percentage	of	in-force	policies	surrendered	in	a	given	calendar	year.	All	else	equal,	as	lapse	rates	increase,	ultimate	claim payments	will	decrease.	Key	factors	affecting	the	lapse	rate	assumption	include	investment	performance	and	policy	duration.	In	general,	the	base	lapse function	assumes	low	lapse	rates	(ranging	from	about	1	percent	to	6	percent	per	annum)	during	the	surrender	charge	period	of	the	variable	annuity contract,	followed	by	a	"spike"	lapse	rate	(ranging	from	about	10	percent	to	30	percent	per	annum)	in	the	year	immediately	following	the	surrender	charge period,	and	then	reverting	to	an	ultimate	lapse	rate	(generally	around	10	percent	per	annum),	typically	over	a	2-year	period.	This	base	rate	is	adjusted downward	for	policies	with	more	valuable	(more	"in	the	money")	guarantees	by	multiplying	the	base	lapse	rate	by	a	factor	ranging	from	15	percent	to	75 percent.	Additional	lapses	due	to	partial	withdrawals	and	older	policyholders	with	tax-qualified	contracts	(due	to	required	minimum	distributions)	are	also included.

The	GMIB	annuitization	rate	is	the	percentage	of	policies	for	which	the	policyholder	will	elect	to	annuitize	using	the	guaranteed	benefit	provided under	the	GMIB.	All	else	equal,	as	GMIB	annuitization	rates	increase,	ultimate	claim	payments	will	increase,	subject	to	treaty	claim	limits.	Key	factors affecting	the	GMIB	annuitization	rate	include	investment	performance	and	the	level	of	interest	rates	after	the	GMIB	waiting	period,	since	these	factors determine	the	value	of	the	guarantee	to	the	policyholder.	In	general,	we	assume	that	GMIB	annuitization	rates	will	be	higher	for	policies	with	more valuable	(more	"in	the	money")	guarantees.	In	addition,	we	also	assume	that	GMIB	annuitization	rates	are	higher	in	the	first	year	immediately	following the	waiting	period	(the	first	year	the	policies	are	eligible	to	annuitize	utilizing	the	GMIB)	in	comparison	to	all	subsequent

years.	The	Company	does	not	yet	have	a	robust	set	of	annuitization	experience	because	most	of	its	clients'	policyholders	are	not	yet	eligible	to	annuitize utilizing	the	GMIB.	However,	for	certain	clients	there	are	several	years	of	annuitization	experience	–	for	those	clients	the	annuitization	function	reflects	the actual	experience	and	has	a	maximum	annuitization	rate	per	annum	of	8	percent	(a	higher	maximum	applies	in	the	first	year	a	policy	is	eligible	to annuitize	utilizing	the	GMIB	–	it	is	over	13	percent).	For	most	clients	there	is	no	currently	observable	relevant	annuitization	behavior	data	and	so	we	use	a weighted	average	(with	a	heavier	weighting	on	the	observed	experience	noted	previously)	of	three	different	annuitization	functions	with	maximum annuitization	rates	per	annum	of	8	percent,	12	percent,	and	30	percent,	respectively	(with	significantly	higher	rates	in	the	first	year	a	policy	is	eligible	to annuitize	utilizing	the	GMIB).	As	noted	elsewhere,	our	GMIB	reinsurance	treaties	include	claim	limits	to	protect	ACE	in	the	event	that	actual	annuitization behavior	is	significantly	higher	than	expected.

During	2010,	the	Company	made	various	changes	to	assumptions	(primarily	annuitization	and	lapse)	and	methods	used	to	calculate	the	fair	value. The	changes	had	a	net	effect	of	reducing	fair	value	of	the	liability	by	$98	million	(where	the	dollar	impact	of	each	change	was	measured	in	the	quarter	in which	the	change	was	implemented).

During	2010,	we	recorded	realized	losses	of	$64	million	primarily	due	to	increasing	net	fair	value	of	reported	GLB	reinsurance	liabilities	resulting substantially	from	the	impact	of	falling	interest	rates.	This	excludes	realized	losses	of	$150	million	during	2010	on	derivative	hedge	instruments	held	to partially	offset	the	risk	in	the	VA	guarantee	reinsurance	portfolio.	These	derivatives	do	not	receive	hedge	accounting	treatment.	Refer	to	"Net	Realized Gains	(Losses)"	for	a	breakdown	of	the	realized	gains	on	GLB	reinsurance	and	the	realized	losses	on	the	derivatives	for	2010	and	2009.

ACE	Tempest	Life	Re	employs	a	strategy	to	manage	the	financial	market	and	policyholder	behavior	risks	embedded	in	the	reinsurance	of	VA guarantees.	Risk	management	begins	with	underwriting	a	prospective	client	and	guarantee	design,	with	particular	focus	on	protecting	ACE's	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).	The	exact	limits	vary	by	contract,	but	some	examples	of	typical	contract	provisions	include:

•	annual	claim	limits,	as	a	percentage	of	reinsured	account	or	guaranteed	value,	for	GMDBs	and	GMIBs;

•	annual	annuitization	rate	limits,	as	a	percentage	of	annuitization	eligible	account	or	guaranteed	value,	for	GMIBs;	and

•	per	policy	claim	limits,	as	a	percentage	of	guaranteed	value,	for	GMABs.

A	third	layer	of	risk	management	is	the	hedging	strategy	which	is	focused	on	mitigating	long-term	economic	losses	at	a	portfolio	level.	ACE Tempest	Life	Re	owned	financial	market	instruments	as	part	of	the	hedging	strategy	with	a	fair	value	of	$21	million	and	$47	million	at	December	31, 2010,	and	2009,	respectively.	The	instruments	are	substantially	collateralized	by	our	counterparties,	on	a	daily	basis.

We	also	limit	the	aggregate	amount	of	variable	annuity	reinsurance	guarantee	risk	we	are	willing	to	assume.	The	last	substantive	U.S.	transaction was	quoted	in	mid-2007	and	the	last	transaction	in	Japan	was	quoted	in	late	2007.	The	aggregate	number	of	policyholders	is	currently	decreasing through	policyholder	withdrawals	and	deaths	at	a	rate	of	5-10	percent	annually.

Note	that	GLB	claims	cannot	occur	for	any	reinsured	policy	until	it	has	reached	the	end	of	its	"waiting	period".	The	vast	majority	of	policies	we reinsure	reach	the	end	of	their	"waiting	periods"	in	2013	or	later,	as	shown	in	the	table	below.

The	following	table	provides	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) | 2010 | 2009 |
| :--- | :--- | :--- |
| Death\tBenefits\t(GMDB) |  |  |
| Premium | $109 | $108 |
| Less\tpaid\tclaims | \t 125 | \t 152 |
| Net | $ (16) | $ (44) |
| Living\tBenefits\t(Includes\tGMIB\tand\tGMAB) |  |  |
| Premium | $162 | $162 |
| Less\tpaid\tclaims | 4 | 5 |
| Net | $158 | $157 |
| Total\tVA\tGuaranteed\tBenefits |  |  |
| Premium | $271 | $270 |
| Less\tpaid\tclaims | \t 129 | \t 157 |
| Net | $142 | $113 |

# Death	Benefits	(GMDB)

For	premiums	and	claims	from	VA	contracts	reinsuring	GMDBs,	at	current	market	levels,	we	expect	approximately	$105	million	of	claims	and	$91	million of	premium	on	death	benefits	over	the	next	12	months.

# Guaranteed	Living	Benefits	(includes	GMIB	and	GMAB)

Premiums	and	claims	from	VA	contracts	reinsuring	predominantly	Guaranteed	Minimum	Income	Benefits	(GMIB)	and	Guaranteed	Minimum Accumulation	Benefits	(GMAB)	are	collectively	known	as	"Guaranteed	Living	Benefits	(GLB)".	Substantially	all	of	our	living	benefit	reinsurance	clients' policyholders	are	currently	ineligible	to	trigger	a	claim	payment.	The	vast	majority	of	these	policyholders	become	eligible	in	years	2013	and	beyond.	At current	market	levels,	we	expect	approximately	$1	million	of	claims	and	$149	million	of	premium	on	living	benefits	over	the	next	12	months.

# Collateral

In	order	for	its	U.S.-domiciled	clients	to	obtain	statutory	reserve	credit,	ACE	Tempest	Life	Re	holds	collateral	on	behalf	of	its	clients	in	the	form	of qualified	assets	in	trust	or	letters	of	credit,	in	an	amount	sufficient	for	them	to	obtain	statutory	reserve	credit.	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	state	of	domicile. Refer	to	Note	4	i)	to	the	Consolidated	Financial	Statements.

# Goodwill	Impairment

Goodwill,	which	represents	the	excess	of	acquisition	cost	over	the	estimated	fair	value	of	net	assets	acquired,	was	$4	billion	at	December	31,	2010. During	2010,	our	goodwill	balance	increased	by	approximately	six	percent,	primarily	due	to	acquisitions	and	foreign	exchange	movements	at	the	legal entity	level.	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.	The	impairment	evaluation	involves	a	two-step	process	in	which	an	initial	assessment	for	potential	impairment	is	performed	and,	if a	potential	impairment	is	present,	the	amount	of	impairment	is	measured	and	recorded.	Impairment	is	tested	at	the	reporting	unit	level.	Goodwill	is assigned	to	applicable	reporting	units	of	acquired	entities	at	acquisition.	The	most	significant	reporting	units	are:

•	North	American	and	International	divisions	of	Combined	Insurance	acquired	in	2008;

•	Domestic	and	International	divisions	of	ACE	INA	acquired	in	1999;	and

•	ACE	Tempest	Re's	catastrophe	businesses	acquired	in	1996	and	1998.

There	are	other	reporting	units	that	resulted	from	smaller	acquisitions	that	are	also	assessed	annually.	Based	on	our	impairment	testing	for	2010,

we	determined	that	no	impairment	was	required	and	that	none	of	our	reporting	units	were	at	risk	for	failing	the	initial	impairment	testing	step.

To	estimate	the	fair	value	of	a	reporting	unit,	we	consistently	applied	a	combination	of	the	following	models:	an	earnings	multiple,	a	book	value multiple,	a	discounted	cash	flow	or	an	allocated	market	capitalization.	The	earnings	and	book	value

models	apply	multiples,	including	the	consideration	of	a	control	premium,	of	comparable	publicly	traded	companies	to	forecasted	earnings	or	book	value of	each	reporting	unit	and	consider	current	market	transactions.	The	discounted	cash	flow	model	applies	a	discount	to	estimated	cash	flows	including	a terminal	value	calculation.	The	market	capitalization	model	applies	a	control	premium	to	our	market	capitalization	and,	so	adjusted,	compares	the allocated	market	capitalization	to	the	allocated	book	value	of	each	reporting	unit.

To	determine	an	appropriate	control	premium	we	considered	both	the	mean	and	range	of	control	premiums	paid	in	our	industry	for	recent transactions	involving	businesses	similar	to	our	reporting	units.	We	then	selected	a	control	premium	within	the	range	appropriate	to	our	business.

We	must	assess	whether	the	current	fair	value	of	our	reporting	units	is	at	least	equal	to	the	fair	value	used	in	the	determination	of	goodwill.	In	doing this,	we	make	assumptions	and	estimates	about	the	profitability	attributable	to	our	reporting	units,	including:

•	short-term	and	long-term	growth	rates;

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

•	selection	of	appropriate	earnings	and	book	value	market	multiples	to	be	utilized	in	various	multiple	approaches;	and

•	risk	premium	applied	in	determining	discount	rate	for	calculating	net	present	value	of	estimated	future	cash	flows.

If,	in	the	future,	our	assumptions	and	estimates	made	in	assessing	the	fair	value	of	acquired	entities	change,	goodwill	could	be	materially	adjusted.

This	would	cause	us	to	write-down	the	carrying	value	of	goodwill	and	could	have	a	material	adverse	effect	on	our	results	of	operations	in	the	period	the charge	is	taken.

|  |  |  |  | 2010	vs. | 2009	vs. |
| :--- | :--- | :--- | :--- | :--- | :--- |
| (in\tmillions\tof\tU.S.\tdollars,\texcept\tfor\tpercentages) | 2010 | 2009 | 2008 | 2009 | 2008 |
| Net\tpremiums\twritten | $13,708 | $13,299 | $13,080 | 3% | 2% |
| Net\tpremiums\tearned | \t 13,504 | \t 13,240 | \t 13,203 | 2% | 0% |
| Net\tinvestment\tincome | 2,070 | 2,031 | 2,062 | 2% | (2)% |
| Net\trealized\tgains\t(losses) | 432 | (196) | (1,633) | NM | 88% |
| Total\trevenues | \t 16,006 | \t 15,075 | \t 13,632 | 6% | 11% |
| Losses\tand\tloss\texpenses | 7,579 | 7,422 | 7,603 | 2% | (2)% |
| Policy\tbenefits | 357 | 325 | 399 | 10% | \t(19)% |
| Policy\tacquisition\tcosts | 2,337 | 2,130 | 2,135 | 10% | 0% |
| Administrative\texpenses | 1,858 | 1,811 | 1,737 | 3% | 4% |
| Interest\texpense | 224 | 225 | 230 | 0% | (2)% |
| Other\t(income)\texpense | (16) | 85 | (39) | NM | NM |
| Total\texpenses | \t 12,339 | \t 11,998 | \t 12,065 | 3% | (1)% |
| Income\tbefore\tincome\ttax | 3,667 | 3,077 | 1,567 | 19% | 96% |
| Income\ttax\texpense | 559 | 528 | 370 | 6% | 43% |
| Net\tincome | $3,108 | $2,549 | $1,197 | 22% | \t113% |

The	following	table	summarizes	by	major	product	line	the	approximate	effect	of	changes	in	foreign	currency	exchange	rates	on	the	growth	of	net premiums	written	and	earned	for	the	years	ended	December	31,	2010	and	2009.

|  | 2010 | 2010 | 2010 | 2009 |
| :--- | :--- | :--- | :--- | :--- |
|  | P&amp;C | A&amp;H | Total | Total |
| Net\tpremiums\twritten: |  |  |  |  |
| Growth\tin\toriginal\tcurrency | \t2.0% | \t0.5% | \t1.7% | 4.8% |
| Foreign\texchange\teffect | \t0.9% | \t3.2% | \t1.4% | \t(3.1)% |
| Growth\tas\treported\tin\tU.S.\tdollars | \t2.9% | \t3.7% | \t3.1% | 1.7% |
| Net\tpremiums\tearned: |  |  |  |  |
| Growth\tin\toriginal\tcurrency | \t0.6% | \t1.0% | \t0.7% | 3.5% |
| Foreign\texchange\teffect | \t0.7% | \t3.1% | \t1.3% | \t(3.2)% |
| Growth\tas\treported\tin\tU.S.\tdollars | \t1.3% | \t4.1% | \t2.0% | 0.3% |

The	following	table	shows	a	breakdown	of	our	consolidated	net	premiums	written	for	the	years	ended	December	31,	2010,	2009,	and	2008.

| (in	millions	of	U.S.	dollars,	except	for	percentages) | 2010 | 2009 | 2008 | 2010	vs.<br>2009 | 2009	vs.<br>2008 |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Retail\tP&amp;C | $6,533 | \t $6,347 | \t $6,289 | 3% | 1% |
| Wholesale | 2,212 | 2,222 | 2,426 | 0% | (8)% |
| Reinsurance | 1,075 | 1,038 | 914 | 4% | 14% |
| Property,\tcasualty\tand\tall\tother | 9,820 | 9,607 | 9,629 | 2% | 0% |
| Personal\taccident\t(A&amp;H) | 3,346 | 3,229 | 3,018 | 4% | 7% |
| Life | 542 | 463 | 433 | 17% | 7% |
| Total\tconsolidated | $\t\t\t\t13,708 | \t\t\t\t $\t\t\t\t13,299 | \t\t\t\t $\t\t\t\t13,080 | 3% | 2% |

Net	premiums	written,	which	reflect	the	premiums	we	retain	after	purchasing	reinsurance	protection,	increased	in	2010,	compared	with	2009.	We benefited	from	favorable	foreign	exchange	impact	and	reported	growth	in	our	international	retail	business,	global	reinsurance	operations,	personal	lines, international	life,	and	our	wholesale	division	in	the	U.S.	During	the	fourth	quarter	of	2010,	we	recognized	a	non-recurring	premium	adjustment	in	our Insurance	–	North	American	segment.	Growth	was	partially	offset	by	a	decline	in	assumed	loss	portfolio	business	and	by	our	crop	business,	which generated	a	lower	adjustment	to	net	premiums	written	and	earned	in	connection	with	crop	settlements.	In	addition,	net	premiums	written	and	earned were	reduced	by	$35	million	in	2010,	due	to	reinstatement	premiums	expensed	which	were	primarily	in	connection	with	the	first	quarter	2010	catastrophe activity.	Net	premiums	written	increased	in	2009,	compared	with	2008,	primarily	due	to	the	inclusion	of	Combined	Insurance	for	the	full	year	(the	prior year	period	included	the	results	of	Combined	Insurance	from	April	1,	2008)	and	increased	assumed	loss	portfolio	business.	We	also	reported	increased retained	premium	from	P&C	reinsurance,	increased	retail	specialty	casualty	production	and	benefitted	from	the	annual	first	quarter	crop	settlement, partially	offset	by	unfavorable	foreign	exchange	impact,	and	lower	production	in	wholesale	P&C,	retail	national	accounts,	property,	and	personal	lines.

Net	premiums	earned	reflect	the	portion	of	net	premiums	written	that	were	recorded	as	revenues	for	the	period	as	the	exposure	periods	expire.	Net premiums	earned	increased	in	2010,	compared	with	2009,	primarily	due	to	increases	in	net	premiums	earned	in	our	Global	Reinsurance	segment, international	retail	business,	personal	lines,	international	life,	and	U.S.	casualty.	These	increases	were	partially	offset	by	lower	crop	business	and assumed	loss	portfolios,	as	well,	as	declines	in	our	London	wholesale	unit.	Net	premiums	earned	for	2009	were	stable	compared	with	2008,	as	declines in	wholesale	P&C,	and	retail	national	accounts	and	property	business,	as	well	as	an	unfavorable	foreign	exchange	impact.	These	were	offset	by	growth	in assumed	loss	portfolio	business,	crop	business,	and	retail	specialty	casualty	and	included	Combined	Insurance's	results	for	the	full	period.

The	following	table	provides	a	consolidated	breakdown	of	net	premiums	earned	by	line	of	business	for	the	periods	indicated.

| (in	millions	of	U.S.	dollars,	except	for	percentages) | 2010 | 2009 | 2008 | 2010	vs.<br>2009 | 2009	vs.<br>2008 |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Property\tand\tall\tother | $3,898 | $4,023 | $3,954 | (3)% | 2% |
| Casualty | 5,752 | 5,587 | 5,838 | 3% | (4)% |
| Subtotal | 9,650 | 9,610 | 9,792 | 0% | (2)% |
| Personal\taccident\t(A&amp;H) | 3,331 | 3,198 | 3,004 | 4% | 6% |
| Life | 523 | 432 | 407 | 21% | 6% |
| Net\tpremiums\tearned | $\t\t\t\t13,504 | $\t\t\t\t13,240 | $\t\t\t\t13,203 | 2% | 0% |

|  | 2010<br>%	of	total | 2009<br>%	of	total | 2008<br>%	of	total |
| :--- | :--- | :--- | :--- |
| Property\tand\tall\tother | 29% | 30% | 30% |
| Casualty | 43% | 42% | 44% |
| Subtotal | 72% | 72% | 74% |
| Personal\taccident\t(A&amp;H) | 25% | 25% | 23% |
| Life | 3% | 3% | 3% |
| Net\tpremiums\tearned | 100% | 100% | 100% |

Net	investment	income	increased	in	2010,	compared	with	2009,	primarily	due	to	positive	operating	cash	flows	which	have	resulted	in	a	higher overall	average	invested	asset	base,	partially	offset	by	lower	yields	on	new	investments	and	short-term	securities.	Net	investment	income	decreased	in 2009,	compared	with	2008,	primarily	due	to	lower	yields	on	new	investments,	partially	offset	by	an	increase	in	average	invested	assets.	Net	investment income	was	also	adversely	impacted	by	unfavorable	foreign	exchange	rate	movements	in	2009.	Refer	to	"Net	Investment	Income"	and	"Investments". In	evaluating	our	segments	excluding	Life,	we	use	the	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	segment	as	we	do	not	use	these	measures	to	monitor	or	manage	that	segment.	The	combined	ratio	is	determined	by	adding	the	loss and	loss	expense	ratio,	the	policy	acquisition	cost	ratio,	and	the	administrative	expense	ratio.	A	combined	ratio	under	100	percent	indicates	underwriting income	and	a	combined	ratio	exceeding	100	percent	indicates	underwriting	loss.

The	following	table	shows	our	consolidated	loss	and	loss	expense	ratio,	policy	acquisition	cost	ratio,	administrative	expense	ratio,	and	combined ratio	for	the	periods	indicated.

|  | 2010 | 2009 | 2008 |
| :--- | :--- | :--- | :--- |
| Loss\tand\tloss\texpense\tratio | \t59.2% | \t58.8% | \t60.6% |
| Policy\tacquisition\tcost\tratio | \t17.4% | \t16.2% | \t16.2% |
| Administrative\texpense\tratio | \t13.6% | \t13.3% | \t12.8% |
| Combined\tratio | \t90.2% | \t88.3% | \t89.6% |

The	following	table	shows	the	impact	of	catastrophe	losses	and	related	reinstatement	premiums	and	the	impact	of	prior	period	development	on	our consolidated	loss	and	loss	expense	ratio	for	the	periods	indicated.

We	recorded	net	pre-tax	catastrophe	losses	of	$366	million	in	2010	compared	with	net	pre-tax	catastrophe	losses	of	$137	million	and	$567	million	in	2009 and	2008,	respectively.	The	catastrophe	losses	for	2010	were	primarily	related	to	weather-related	events	in	the	U.S.,	earthquakes	in	Chile,	Mexico,	and New	Zealand,	and	storms	in	Australia	and	Europe.	The	catastrophe	losses	for	2009	were	primarily	related	to	an	earthquake	in	Asia,	floods	in	Europe, several	weather-related	events	in	the	U.S.,	and	a	European	windstorm.	For	2008,	the	catastrophe	losses	were	primarily	related	to	Hurricanes	Gustav	and Ike.

Prior	period	development	arises	from	changes	to	loss	estimates	recognized	in	the	current	year	that	relate	to	loss	reserves	first	reported	in	previous calendar	years	and	excludes	the	effect	of	losses	from	the	development	of	earned	premium	from	previous	accident	years.	We	experienced	$503	million	of net	favorable	prior	period	development	in	our	P&C	segments	in	2010.	This	compares	with	net	favorable	prior	period	development	in	our	P&C	segments of	$576	million	and	$814	million	in	2009	and	2008,	respectively.	Refer	to	"Prior	Period	Development"	for	more	information.

The	adjusted	loss	and	loss	expense	ratio	declined	in	2010,	compared	with	2009,	primarily	due	to	the	impact	of	the	crop	settlements,	non-recurring premium	adjustment	and	the	reduction	in	assumed	loss	portfolio	business,	which	is	written	at	higher	loss	ratios	than	other	types	of	business.

Our	policy	acquisition	costs	include	commissions,	premium	taxes,	underwriting,	and	other	costs	that	vary	with,	and	are	primarily	related	to,	the production	of	premium.	Administrative	expenses	include	all	other	operating	costs.	Our	policy	acquisition	cost	ratio	increased	in	2010,	compared	with 2009.	The	increase	was	primarily	related	to	the	impact	of	crop	settlements,	which	generated	higher	profit-share	commissions	and	a	lower	adjustment	to net	premiums	earned,	as	well	as	the	impact	of	reinstatement	premiums	expensed	in	connection	with	catastrophe	activity	and	changes	in	business	mix. Our	administrative	expense	ratio	increased	in	2010,	primarily	due	to	the	impact	of	the	crop	settlements,	reinstatement	premiums	expensed,	and increased	costs	in	our	international	operations.	Although	the	crop	settlements	generate	minimal	administrative	expenses,	they	resulted	in	lower adjustment	to	net	premiums	earned	in	2010,	compared	with	2009.	Administrative	expenses	in	2010,	were	partially	offset	by	higher	net	results	generated by	our	third	party	claims	administration	business,	ESIS,	the	results	of	which	are	included	within	our	administrative	expenses.	ESIS	generated	$85	million in	net	results	in	2010,	compared	with	$26	million	in	2009.	The	increase	is	primarily	from	non-recurring	sources.	Our	policy	acquisition	cost	ratio	was stable	in	2009,	compared	with	2008,	as	increases	in	our	Combined	Insurance	operations	were	offset	by	more	favorable	final	crop	year	settlement	of	profit share	commissions.	Administrative	expenses	increased	in	2009,	primarily	due	to	the	inclusion	of	administrative	expenses	related	to	Combined	Insurance for	the	full	year	and	costs	associated	with	new	product	expansion	in	our	domestic	retail	operation	and	in	our	personal	lines	business.

Our	effective	income	tax	rate,	which	we	calculate	as	income	tax	expense	divided	by	income	before	income	tax,	is	dependent	upon	the	mix	of earnings	from	different	jurisdictions	with	various	tax	rates.	A	change	in	the	geographic	mix	of	earnings	would	change	the	effective	income	tax	rate.	Our effective	income	tax	rate	was	15	percent	in	2010,	compared	with	17	percent	and	24	percent	in	2009	and	2008,	respectively.	The	decrease	in	our	effective income	tax	rate	in	2010,	was	primarily	due	to	a	change	in	the	mix	of	earnings	to	lower	tax-paying	jurisdictions,	a	decrease	in	the	amount	of	unrecognized tax	benefits	which	was	the	result	of	a	settlement	with	the	U.S.	Internal	Revenue	Service	Appeals	Division	regarding	federal	tax	returns	for	the	years 2002-2004,	and	the	recognition	of	a	non-taxable	gain	related	to	the	acquisition	of	Rain	and	Hail.	The	2009	year	included	a	reduction	of	a	deferred	tax valuation	allowance	related	to	investments.	For	2008,	our	effective	income	tax	rate	was	adversely	impacted	by	a	change	in	mix	of	earnings	due	to	the impact	of	catastrophe	losses	in	lower	tax-paying	jurisdictions.

# Prior	Period	Development

The	favorable	prior	period	development,	inclusive	of	the	Life	segment,	of	$512	million	during	2010	was	the	net	result	of	several	underlying	favorable	and adverse	movements.	With	respect	to	ACE's	crop	business,	ACE	regularly	receives	reports	from	its	managing	general	agent	(MGA)	relating	to	the previous	crop	year(s)	in	subsequent	calendar	quarters	and	this	typically	results

in	adjustments	to	the	previously	reported	premiums,	losses	and	loss	expenses,	and	profit	share	commission.	Commencing	in	the	third	quarter	of	2009, prior	period	development	for	ACE's	crop	business	includes	adjustments	to	both	crop	losses	and	loss	expenses	and	the	related	crop	profit	share commission.	In	the	sections	following	the	table	below,	significant	prior	period	movements	within	each	reporting	segment	are	discussed	in	more	detail. Long-tail	lines	include	lines	such	as	workers'	compensation,	general	liability,	and	professional	liability;	while	short-tail	lines	include	lines	such	as	most property	lines,	energy,	personal	accident,	aviation,	and	marine.

The	following	table	summarizes	(favorable)	and	adverse	prior	period	development	by	segment	for	the	years	ended	December	31,	2010	and	2009.

| (in	millions	of	U.S.	dollars,	except	for	percentages) | Long-<br>tail | Short-<br>tail | Total | unpaid<br>reserves* |
| :--- | :--- | :--- | :--- | :--- |
| 2010 |  |  |  |  |
| Insurance\t–\tNorth\tAmerican\t–\tactive | $(102) | $(137) | $(239) | 1.5% |
| Insurance\t–\tNorth\tAmerican\t–\trunoff** | 132 | – | 132 | 0.8% |
| Insurance\t–\tOverseas\tGeneral | (159) | (131) | (290) | 4.3% |
| Global\tReinsurance | (72) | (34) | (106) | 4.7% |
| Life | – | (9) | (9) | 4.0% |
| Total | $(201) | $(311) | $(512) | 2.0% |
| 2009\nInsurance\t–\tNorth\tAmerican\t–\tactive | $(162) | $(105) | $(267) | 1.7% |
| Insurance\t–\tNorth\tAmerican\t–\trunoff** | 88 | – | 88 | 0.5% |
| Insurance\t–\tOverseas\tGeneral | (140) | (115) | (255) | 4.2% |
| Global\tReinsurance | (93) | (49) | (142) | 5.6% |
| Life | – | (3) | (3) | 1.4% |
| Total | $(307) | $(272) | $(579) | 2.4% |

*	Calculated	based	on	the	segment/total	beginning	of	period	net	unpaid	loss	and	loss	expenses	reserves.

**	Brandywine	Holdings	and	Westchester	Specialty	operations	in	respect	of	1996	and	prior	years,	and	Commercial	Insurance	Services	(CIS)	workers'	compensation.

Insurance	–	North	American's	active	operations	experienced	net	favorable	prior	period	development	of	$239	million	in	2010,	resulting	from	several underlying	favorable	and	adverse	movements,	driven	by	the	following	principal	changes:

•	Net	favorable	development	of	$102	million	on	long-tail	business,	including:

•	Favorable	development	of	$49	million	within	our	financial	solutions	business	driven	by	the	favorable	impact	of	a	settlement	in	2010	on	a	major contract,	primarily	in	the	2000	and	prior	accident	years;

•	Favorable	development	of	$105	million	in	our	D&O	and	E&O	portfolios	following	detailed	claim	and	actuarial	reviews	of	case	activity	in	2010.	This development	was	the	net	of	favorable	movements	primarily	in	the	2006	and	prior	accident	years,	partially	offset	by	adverse	movements	in	the 2007-2009	years;

•	Favorable	development	of	$54	million	on	our	national	accounts	portfolio.	The	favorable	development	was	a	function	of	two	primary	factors.	First, this	development	related	to	our	annual	assessment	in	2010	of	multi-claimant	events	including	industrial	accidents.	Consistent	with	prior	years,	we reviewed	these	potential	exposures	for	accident	year	2009,	after	the	close	of	the	accident	year	to	allow	for	late	reporting	or	identification	of significant	losses.	Second,	there	was	better	than	expected	loss	emergence	reported	in	2010	on	the	2005	and	2006	accident	years	and	greater weighting	assigned	to	experienced-based	methods;

•	Adverse	development	of	$91	million	in	our	excess	casualty	businesses	principally	arising	in	the	2007	accident	year	following	case	specific developments	on	several	open	claims;

•	Adverse	development	of	$30	million	in	our	small	and	middle	market	guaranteed	cost	workers'	compensation	portfolios	that	was	driven	by	an increasing	trend	in	claims	frequency	and	allocated	claims	expenses	on	accident	years	2008	and	subsequent;	and

•	Favorable	development	of	$15	million	on	other	lines	across	a	number	of	accident	years,	primarily	following	better	than	expected	loss	emergence.

•	Net	favorable	development	of	$137	million	on	short-tail	business,	including:

•	Favorable	development	of	$41	million	in	our	crop/hail	business	associated	with	recording	the	most	recent	bordereaux	for	the	2009	and	prior	crop years.	The	$41	million	reflects	the	net	of	improvement	in	the	loss	estimate	($86	million)	and	a	corresponding	increase	in	profit	share	commission expense	($45	million);	and

•	Favorable	development	of	$96	million	in	property,	aviation,	inland	and	recreational	marine,	political	risk,	and	other	short-tailed	exposures principally	in	accident	years	2007-2009	following	lower	than	expected	loss	emergence.

Insurance	–	North	American's	runoff	operations	experienced	net	adverse	prior	period	development	of	$132	million	in	2010,	which	was	the	net	result	of several	underlying	favorable	and	adverse	movements	impacting	accident	years	2000	and	prior,	driven	by	the	following	principal	changes:

•	Adverse	development	of	$114	million	in	our	Westchester	and	Brandywine	runoff	operations.	This	development	includes	$89	million	related	to	the completion	of	the	reserve	review	during	2010	and	is	comprised	primarily	of	adverse	development	for	asbestos	claims	related	to	increased	loss	and defense	cost	payment	activity	on	a	limited	number	of	accounts	and	adverse	development	for	assumed	reinsurance	due	to	increased	paid	loss	and case	reserve	activity	in	recent	years,	partially	offset	by	increased	distributions	received	from	insolvent	reinsurers	and	commutations.	This	also includes	additional	adverse	development	of	$19	million	for	unallocated	loss	adjustment	expenses	due	to	runoff	operating	expenses	paid	during	the current	year;	and

•	Adverse	development	of	$18	million	on	runoff	CIS	workers'	compensation	following	emergence	of	higher	than	expected	medical	costs.

Insurance	–	North	American's	active	operations	experienced	net	favorable	prior	period	development	of	$267	million	in	2009,	which	was	the	net	result	of several	underlying	favorable	and	adverse	movements,	driven	by	the	following	principal	changes:

•	Net	favorable	development	of	$162	million	on	long-tail	business,	including:

•	Favorable	development	of	$42	million	in	our	foreign	casualty	product	lines	where	both	paid	and	reported	incurred	loss	and	allocated	loss adjustment	expense	activity	was	favorable	relative	to	the	expected	activity	implied	in	our	prior	review,	particularly	for	workers'	compensation	and general	liability	coverages	primarily	impacting	accident	years	2004-2006;

•	Favorable	development	of	$52	million	in	our	national	accounts	loss	sensitive	accounts	unit	impacting	the	2005-2007	accident	years.	This development	represents	the	reduction	in	premium-based	loss	reserves	that	resulted	from	a	$96	million	reduction	in	our	estimate	of	retrospectively rated	premiums	due	to	updated	information	for	the	2004-2007	policy	years;

•	Favorable	development	of	$33	million	in	our	ACE	Financial	Solutions	business	unit	concentrated	in	policies	issued	in	the	2004-2006	years.	This favorable	development	was	a	function	of	a	continuation	of	lower	than	expected	loss	development,	first	observed	in	2008,	on	a	small	number	of large	risks	with	predominantly	workers'	compensation	exposure;	and

•	Favorable	development	of	$35	million	on	all	other	long-tail	lines,	including	our	programs	division	and	medical	risk	business,	concentrated	within the	2006	and	prior	accident	years.

•	Net	favorable	development	of	$105	million	on	short-tail	business,	including:

•Favorable	development	of	$49	million	mainly	in	our	political	risk	business,	short-tail	lines	in	our	programs	division,	and	recreational	marine business,	primarily	relating	to	the	2004-2008	accident	years	as	a	result	of	a	lack	of	claims	emergence;	and

•	Favorable	development	of	$56	million	in	other	lines	including	property,	crop,	A&H,	and	other	lines	principally	in	accident	years	2005-2007 following	lower	than	expected	loss	emergence.

Insurance	–	North	American's	runoff	operations	experienced	net	adverse	prior	period	development	of	$88	million	in	2009,	which	was	the	net	result	of several	underlying	favorable	and	adverse	movements	impacting	accident	years	1999	and	prior,	driven	by	the	following	principal	change:

•	Adverse	development	in	our	Brandywine	runoff	operations	comprising	several	components.	First,	adverse	development	of	$47	million	in	assumed reinsurance	pools	which	was	the	combined	impact	from	receipt	of	updated	information	on	pool	reserves	and	adverse	impact	of	activity	on	a litigated	claim.	Second,	adverse	development	of	$28	million	on	workers'	compensation	business	due	to	higher	than	expected	case	incurred	loss development	since	the	last	review.

Insurance	–	North	American	incurred	net	favorable	prior	period	development	of	$351	million	in	2008,	representing	2.4	percent	of	the	segment's	net unpaid	loss	and	loss	expense	reserves	at	December	31,	2007.

Insurance	–	Overseas	General	experienced	net	favorable	prior	period	development	of	$290	million	in	2010,	which	was	the	net	result	of	several	underlying favorable	and	adverse	movements,	driven	by	the	following	principal	changes:

•	Favorable	development	of	$241	million	in	casualty	(primary	and	excess)	and	financial	lines	for	accident	years	2006	and	prior	that	recognized	both favorable	loss	emergence	and	a	greater	weight	to	experience-based	methods	as	years	mature;	and

•	Adverse	development	of	$82	million	in	the	casualty	(primary	and	excess)	and	financial	lines	book	for	accident	years	2007-2009	principally	arising from	a	claims	review	of	financial	crisis-related	claims	(adverse	$57	million	impact)	and	emergence	of	adverse	frequency	and	severity	trends	within certain	portfolios	(adverse	$24	million	impact).

•	Net	favorable	development	of	$131	million	on	short-tail	business,	including	property,	marine,	A&H,	and	energy	lines	across	multiple	geographical regions,	and	within	both	retail	and	wholesale	operations,	lower	than	expected	loss	emergence,	principally	on	accident	years	2007-2009.

Insurance	–	Overseas	General	experienced	net	favorable	prior	period	development	of	$255	million	in	2009,	which	was	the	net	result	of	several	underlying favorable	and	adverse	movements,	driven	by	the	following	principal	changes:

•	Favorable	development	of	$201	million	on	casualty	(primary	and	excess)	and	financial	lines,	predominantly	arising	on	the	2005	and	prior	accident years.	This	amount	was	based	primarily	on	detailed	reviews	completed	in	2009	which	noted	improvements	in	experience	relative	to	the expectations	of	the	prior	detailed	analyses,	including	case-specific	savings	on	several	significant	2001-2003	bankers'	professional	indemnity claims.	Due	to	the	greater	level	of	maturity	of	these	years,	increasing	weight	has	been	given	to	the	emerged	loss	experience;	and •	Adverse	development	of	$70	million	relating	to	the	2008	accident	year	for	financial	lines	in	connection	with	exposure	to	financial	frauds	and	sub- prime	claims.	This	amount	was	based	primarily	on	a	claims	review	conducted	during	2009	of	notifications	and	potential	exposure.	During	this review,	we	obtained	assessments	from	external	legal	counsel	of	the	governing	law	on	each	potential	claim	and	assessed	all	other	claimant information	to	arrive	at	the	provision	for	each	case.

•	Favorable	development	of	$94	million	in	the	property	and	energy,	A&H,	and	marine	lines	of	business	across	multiple	geographic	regions,

principally	due	to	specific	case	reserve	reductions	on	previously	reported	claims	and	lower	than	anticipated	development	on	other	claims	led	to	a release	of	prior	year	reserves	mainly	in	accident	years	2003-2008;	and

•	Favorable	development	of	$21	million	on	other	lines	including	aviation	where	case	development	has	been	favorable	on	the	2005	and	prior accident	years	as	a	result	of	case	specific	reductions	for	product	liability	claims.

Insurance	–	Overseas	General	incurred	net	favorable	prior	period	development	of	$304	million	in	2008,	representing	4.7	percent	of	the	segment's	net unpaid	loss	and	loss	expense	reserves	at	December	31,	2007.

Global	Reinsurance	experienced	net	favorable	prior	period	development	of	$106	million	in	2010,	which	was	the	net	result	of	several	underlying	favorable and	adverse	movements,	driven	by	the	following	principal	changes:

•	Net	favorable	development	of	$72	million	on	long-tail	business,	including	net	favorable	prior	period	development	of	$96	million	principally	in	treaty	years 2003-2006	across	a	number	of	portfolios	(professional	liability,	D&O,	casualty,	and	medical	malpractice).	The	lower	loss	estimates	arose	from	a combination	of	favorable	incurred	loss	trends	and	increased	weighting	to	experience-based	methods.

•	Net	favorable	development	of	$34	million	on	short-tail	business,	primarily	in	treaty	years	2003-2008	across	property	lines,	including	property catastrophe,	trade	credit	and	surety	principally	as	a	result	of	lower	than	anticipated	loss	emergence.

Global	Reinsurance	experienced	net	favorable	prior	period	development	of	$142	million	in	2009,	which	was	the	net	result	of	several	underlying	favorable and	adverse	movements,	driven	by	the	following	principal	changes:

•	Net	favorable	development	of	$93	million	on	long-tail	business	principally	in	treaty	years	2003-2005	across	a	number	of	portfolios	(professional liability,	D&O,	casualty,	and	medical	malpractice).	The	lower	loss	estimates	arose	from	the	combined	impact	of	continued	favorable	paid	and	case incurred	loss	trends	and	increased	weighting	given	to	experience-based	methods	and	away	from	expectations	as	these	treaty	periods	mature. •	Net	favorable	development	of	$49	million	on	short-tail	business	following	lower	than	expected	loss	emergence	in	property	and	trade	credit-related lines.

Global	Reinsurance	incurred	net	favorable	prior	period	development	of	$159	million	in	2008,	representing	5.9	percent	of	the	segment's	net	unpaid	loss and	loss	expense	reserves	at	December	31,	2007.

Life	experienced	net	favorable	prior	period	development	of	$9	million	in	2010.	The	favorable	development	followed	a	detailed	review	during	2010	and was	mainly	for	accident	year	2009	in	the	short-tail	A&H	line	of	business.

Life	experienced	net	favorable	prior	period	development	of	$3	million	in	2009	on	short-tail	A&H	business.	The	reserve	release	followed	a	detailed	review during	2009	and	reflected	lower	reported	claim	development	than	previously	anticipated.

Life	experienced	no	net	prior	period	development	in	2008.

The	discussions	that	follow	include	tables	that	show	our	segment	operating	results	for	the	years	ended	December	31,	2010,	2009,	and	2008.

For	more	information	on	each	of	our	segments	refer	to	"Segment	Information"	under	Item	1.

The	Insurance	–	North	American	segment	comprises	our	operations	in	the	U.S.,	Canada,	and	Bermuda.	This	segment	includes	the	operations	of	ACE USA	(including	ACE	Canada),	ACE	Westchester,	ACE	Bermuda,	ACE	Private	Risk	Services,	and	various	run-off	operations.

|  |  |  |  | 2010 | 2009 |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  |  |  |  | vs. | vs. |
| (in\tmillions\tof\tU.S.\tdollars,\texcept\tfor\tpercentages) | 2010 | 2009 | 2008 | 2009 | 2008 |
| Net\tpremiums\twritten | $ 5,797 | $5,641 | $5,636 | 3% | 0% |
| Net\tpremiums\tearned | 5,651 | 5,684 | 5,679 | \t(1)% | 0% |
| Losses\tand\tloss\texpenses | 3,918 | 4,013 | 4,080 | \t(2)% | (2)% |
| Policy\tacquisition\tcosts | 625 | 517 | 562 | \t21% | (8)% |
| Administrative\texpenses | 561 | 572 | 536 | \t(2)% | 7% |
| Underwriting\tincome | 547 | 582 | 501 | \t(6)% | 16% |
| Net\tinvestment\tincome | 1,138 | 1,094 | 1,095 | 4% | 0% |
| Net\trealized\tgains\t(losses) | 417 | 10 | (709) | NM | NM |
| Interest\texpense | 9 | 1 | 1 | NM | 0% |
| Other\t(income)\texpense | (22) | 36 | 7 | NM | \t414% |
| Income\ttax\texpense | 436 | 384 | 315 | \t14% | 22% |
| Net\tincome | $ 1,679 | $1,265 | $564 | \t33% | \t124% |
| Loss\tand\tloss\texpense\tratio | \t 69.3% | \t 70.6% | \t 71.8% |  |  |
| Policy\tacquisition\tcost\tratio | \t 11.1% | 9.1% | 9.9% |  |  |
| Administrative\texpense\tratio | 9.9% | \t 10.1% | 9.4% |  |  |
| Combined\tratio | \t 90.3% | \t 89.8% | \t 91.1% |  |  |

Insurance	–	North	American	reported	an	increase	in	net	premiums	written	in	2010,	compared	with	2009.	For	2010,	the	retail	division	reported	growth	in A&H	and	workers'	compensation,	as	well	as	increased	premium	retention	in	professional	risk	lines	and	favorable	foreign	exchange	impact	on	Canadian business.	The	retail	division	also	benefited	from	one-time	premium-related	adjustments	totaling	$80	million	in	the	fourth	quarter	of	2010.	These	increases were	partially	offset	by	less	new	business	and	renewed	policies	across	several	lines	of	business,	reflecting	a	decline	in	value	of	exposures,	competitive market	conditions,	and	our	adherence	to	underwriting	discipline.	These	factors	were	especially	evident	in	our	national	accounts,	as	well	as	aerospace and	energy	lines	of	business.	Growth	in	the	retail	division	was	also	offset	by	a	decline	in	assumed	loss	portfolio	business.	The	years	ended	December	31, 2010	and	2009,	included	net	premiums	written	and	earned	of	approximately	$86	million	and	$221	million,	respectively,	related	to	assumed	loss	portfolio business.	Net	premiums	written	in	our	wholesale

division	increased	in	2010,	compared	with	the	prior	year,	primarily	due	to	higher	premium	retention,	along	with	increases	in	commercial	risk	and professional	lines	as	well	as	the	addition	of	new	program	business.	These	increases	were	partially	offset	by	lower	crop	production	primarily	reflecting	the impact	of	crop	settlements.	Throughout	the	year,	we	receive	the	results	from	the	previous	crop	year	which	typically	require	us	to	make	adjustments	to previously	estimated	premiums,	losses	and	loss	expenses,	and	profit	share	commission	(refer	to	Crop	Insurance).	Our	personal	lines	business	reported growth	in	homeowners	and	auto	insurance,	as	well	as	specialty	offerings	in	2010.	Insurance	–	North	American	reported	stable	net	premiums	written	in 2009,	compared	with	2008.

We	experienced	growth	in	our	retail	specialty	casualty,	professional	risk,	A&H,	and	assumed	loss	portfolio	businesses	and	in	the	crop	business within	our	wholesale	division.	These	increases	were	offset	by	declines	in	retail	property	and	national	accounts	production,	unfavorable	foreign	exchange impact	from	our	Canadian	operations,	declines	in	wholesale	professional	and	casualty	lines,	as	well	as	lower	personal	lines	production.

The	following	two	tables	provide	a	line	of	business	breakdown	of	Insurance	–	North	American's	net	premiums	earned	for	the	periods	indicated.

Insurance	–	North	American	reported	a	decline	in	net	premiums	earned	in	2010,	compared	with	2009.	This	decline	was	attributable	to	less	assumed	loss portfolio	transfers,	in	addition	to	a	decrease	in	risk	management	business	in	the	retail	division,	lower	professional	and	casualty	business	and	less favorable	crop	settlements	in	the	wholesale	division.	These	decreases	were	partially	offset	by	increases	in	workers'	compensation,	professional	risk, A&H,	and	personal	lines,	favorable	foreign	exchange	impact,	the	one-time	premium-related	adjustments	totaling	$80	million	and	new	program	business	in the	wholesale	division.

Insurance	–	North	American	reported	stable	net	premiums	earned	for	2009,	compared	with	2008.	We	reported	increases	in	the	specialty	casualty and	professional	lines	and	higher	assumed	loss	portfolio	business	in	the	retail	division	as	well	as	an	increase	in	the	annual	crop	settlement	in	the wholesale	division.	These	increases	were	offset	by	declines	in	national	accounts	and	property	business,	an	unfavorable	foreign	exchange	impact	in	the retail	division	and	declines	in	property,	casualty	and	professional	risk	business	in	the	wholesale	division.

The	following	table	shows	the	impact	of	catastrophe	losses	and	related	reinstatement	premiums,	prior	period	development,	and	large	assumed	loss portfolio	transfers	on	our	loss	and	loss	expense	ratio	for	the	periods	indicated.

Insurance	–	North	American's	net	catastrophe	losses	were	$143	million	in	2010,	compared	with	$58	million	and	$298	million	in	2009	and	2008, respectively.	The	catastrophe	losses	for	2010,	were	related	to	severe	weather-related	events	in	the	U.S.	and	earthquakes	in	Haiti	and	Chile.	The catastrophe	losses	for	2009	were	related	to	an	earthquake	in	Asia	and	several	weather-related	events	in	the	U.S.	Catastrophe	losses	in	2008	were primarily	related	to	Hurricanes	Gustav	and	Ike.	Insurance	–	North	American	experienced	net	favorable	prior	period	development	of	$107	million	in	2010. This	compares	with	net	favorable	prior	period	development	of	$179	million	and	$351	million	in	2009	and	2008,	respectively.	Refer	to	"Prior	Period Development"	for	more	information.	The	adjusted	loss	and	loss	expense	ratio	declined	in	2010,	compared	with	2009,	primarily	due	to	the	impact	of	the crop	settlements,	non-	recurring	premium	adjustment	and	the	reduction	in	assumed	loss	portfolio	business,	which	is	written	at	higher	loss	ratios	than other	types	of	business.

Insurance	–	North	American's	policy	acquisition	cost	ratio	increased	in	2010,	compared	with	2009.	In	2010,	our	retail	units	experienced	a	shift	in mix	of	business	towards	higher	commission	specialty	casualty	business,	professional	and	personal	lines,	and	a	decline	in	assumed	loss	portfolio business	which	generates	minimal	expense.	In	the	wholesale	division,	the	impact	of	crop	settlements	which	generated	higher	profit-share	commissions and	a	lower	adjustment	to	net	premiums	earned	compared	with	2009,	contributed	to	this	increase.	Insurance	–	North	American's	policy	acquisition	cost ratio	decreased	in	2009,	compared	with	2008,	due	to	a	higher	ceding	commission	benefit	and	the	increased	assumed	loss	portfolio	business	in	the	retail division.	In	addition,	we	experienced	more	favorable	final	crop	year	settlement	of	profit	share	commissions	in	the	wholesale	division	in	2009.	Insurance	– North	American's	administrative	expense	ratio	decreased	in	2010	primarily	due	to	higher	net	results	generated	by	our	third	party	claims	administration business	in	the	retail	division,	ESIS,	the	results	of	which	are	included	within	our	administrative	expenses.	ESIS	generated	$85	million	in	net	results	in 2010,	compared	with	$26	million	in	2009.	This	increase	is	primarily	from	non-recurring	sources.	In	addition,	the	decline	in	assumed	loss	portfolio business	resulted	in	an	adverse	impact	on	our	administrative	expense	ratio	in	2010.	Insurance	–	North	American's	administrative	expense	ratio increased	in	2009,	compared	with	2008,	primarily	due	to	higher	administrative	expenses	in	our	retail	division	to	support	growth	in	certain	businesses, from	both	new	and	existing	products,	as	well	as	higher	spending	to	support	growth	in	the	personal	lines	business.

The	Insurance	–	Overseas	General	segment	comprises	ACE	International,	our	retail	business	serving	territories	outside	the	U.S.,	Bermuda,	and	Canada; the	international	A&H	and	life	business	of	Combined	Insurance;	and	the	wholesale	insurance	business	of	ACE	Global	Markets,	our	London-based	excess and	surplus	lines	business	that	includes	Lloyd's	Syndicate	2488.	The	reinsurance	operation	of	ACE	Global	Markets	is	included	in	the	Global	Reinsurance segment.

|  |  |  |  | 2010	vs. | 2009	vs. |
| :--- | :--- | :--- | :--- | :--- | :--- |
| (in\tmillions\tof\tU.S.\tdollars,\texcept\tfor\tpercentages) | 2010 | 2009 | 2008 | 2009 | 2008 |
| Net\tpremiums\twritten | $ 5,280 | $5,145 | $5,332 | 3% | (4)% |
| Net\tpremiums\tearned | 5,240 | 5,147 | 5,337 | 2% | (4)% |
| Losses\tand\tloss\texpenses | 2,647 | 2,597 | 2,679 | 2% | (3)% |
| Policy\tbenefits | 4 | 4 | 12 | 0% | \t(67)% |
| Policy\tacquisition\tcosts | 1,251 | 1,202 | 1,193 | 4% | 1% |
| Administrative\texpenses | 840 | 783 | 793 | 7% | (1)% |
| Underwriting\tincome | 498 | 561 | 660 | \t(11)% | \t(15)% |
| Net\tinvestment\tincome | 475 | 479 | 521 | (1)% | (8)% |
| Net\trealized\tgains\t(losses) | 123 | (20) | (316) | NM | 94% |
| Interest\texpense | 1 | – | – | NM | 0% |
| Other\t(income)\texpense | (13) | 20 | (11) | NM | NM |
| Income\ttax\texpense | 173 | 186 | 100 | (7)% | 86% |
| Net\tincome | $935 | $814 | $776 | 15% | 5% |
| Loss\tand\tloss\texpense\tratio | \t 50.6% | \t 50.5% | \t 50.4% |  |  |
| Policy\tacquisition\tcost\tratio | \t 23.9% | \t 23.3% | \t 22.4% |  |  |
| Administrative\texpense\tratio | \t 16.0% | \t 15.2% | \t 14.8% |  |  |
| Combined\tratio | \t 90.5% | \t 89.0% | \t 87.6% |  |  |

|  | 2010 | 2010 | 2010 | 2009 |
| :--- | :--- | :--- | :--- | :--- |
|  | P&amp;C | A&amp;H | Total | Total |
| Net\tpremiums\twritten: |  |  |  |  |
| Growth\tin\toriginal\tcurrency | 0.2% | \t0.3% | 0.2% | 2.9% |
| Foreign\texchange\teffect | 1.6% | \t3.7% | 2.4% | \t(6.4)% |
| Growth\tas\treported\tin\tU.S.\tdollars | 1.8% | \t4.0% | 2.6% | \t(3.5)% |
| Net\tpremiums\tearned: |  |  |  |  |
| Growth\tin\toriginal\tcurrency | \t(0.8)% | \t0.3% | \t(0.4)% | 3.2% |
| Foreign\texchange\teffect | 1.4% | \t3.6% | 2.2% | \t(6.8)% |
| Growth\tas\treported\tin\tU.S.\tdollars | 0.6% | \t3.9% | 1.8% | \t(3.6)% |

Insurance	–	Overseas	General's	net	premiums	written	increased	in	2010,	primarily	due	to	growth	in	our	international	retail	operations	and	favorable foreign	exchange	impact,	partially	offset	by	reduced	production	in	our	London	wholesale	business.	Refer	to	the	table	above	for	the	impact	of	foreign exchange	on	net	premiums	written	and	earned.	In	2010,	our	international	retail	P&C	business	reported	growth	driven	primarily	by	new	business	in	Asia Pacific,	Latin	America,	the	U.K.	and	Europe.	A&H	improved	in	2010	on	the	strength	of	new	business	in	Asia	Pacific	and	Latin	America.	The	personal	lines business	increased	during	2010,	primarily	due	to	an	increase	in	production	retention	as	well	new	business	in	the	U.K.,	Europe,	and	Latin	America.	Our London	wholesale	business	unit	reported	lower	production	within	most	product	lines,	as	we	continue	to	decline	business	submitted	at	prices	we	deem	to be	inadequate	from	an	underwriting	perspective.	For	2010,	Insurance	–	Overseas	General's	net	premiums	written	and	earned	were	reduced	by approximately	$33	million	due	to	reinstatement	premiums	expensed	primarily	in	connection	with	first	quarter	catastrophe	activity.	Insurance	–	Overseas General's	net	premiums	written	decreased	in	2009,	compared	with	2008,	primarily	due	to	an	unfavorable	foreign	exchange	impact	and	lower	constant dollar	production	within	our	London	wholesale	business.	On	a	constant	dollar	basis,	our	international	retail	operations	experienced	P&C	growth	in	all regions,	with	the	exception	of	the	Far	East,	and	reported	increased	A&H	business	in	Europe,	Asia,	and	Latin	America.

Insurance	–	Overseas	General's	net	premiums	earned	increased	in	2010,	compared	with	2009,	primarily	due	to	the	growth	in	the	international retail	operations	and	favorable	foreign	exchange	impact,	partially	offset	by	lower	wholesale	writings	and	reinstatement	premiums	expensed	in	connection with	first	quarter	catastrophe	activity.	Insurance	–	Overseas	General's	net	premiums	earned	decreased	in	2009,	compared	with	2008,	primarily	due	to	an unfavorable	foreign	exchange	impact.	On	a	constant	dollar	basis,	net	premiums	earned	increased	due	to	growth	in	P&C	production	in	our	international retail	operations.	Our	London	wholesale	operations	reported	a	decline	in	net	premiums	earned	due	to	lower	production.

The	following	two	tables	provide	a	line	of	business	and	regional	breakdown	of	Insurance	–	Overseas	General's	net	premiums	earned	for	the	periods indicated.

%	Change

The	following	table	shows	the	impact	of	catastrophe	losses	and	related	reinstatement	premiums	and	prior	period	development	on	our	loss	and	loss expense	ratio	for	the	periods	indicated.

|  | 2010 | 2009 | 2008 |
| :--- | :--- | :--- | :--- |
| Loss\tand\tloss\texpense\tratio,\tas\treported | \t50.6% | \t50.5% | \t50.4% |
| Catastrophe\tlosses\tand\trelated\treinstatement\tpremiums | \t(2.8)% | \t(1.0)% | \t(1.6)% |
| Prior\tperiod\tdevelopment | 5.5% | 5.0% | 5.7% |
| Loss\tand\tloss\texpense\tratio,\tadjusted | \t53.3% | \t54.5% | \t54.5% |

Net	catastrophe	losses	in	2010	were	$132	million,	compared	with	$51	million	and	$83	million	in	2009	and	2008,	respectively.	The	catastrophe losses	in	2010	included	earthquakes	in	Chile	and	Mexico,	and	storms	in	Australia	and	Europe.	The	catastrophe	losses	for	2009	were	primarily	related	to floods	and	windstorms	in	Europe.	Catastrophe	losses	in	2008	were	primarily	related	to	Hurricanes	Gustav	and	Ike,	tornadoes	in	the	U.S.,	and	an earthquake	in	China.	Insurance	–	Overseas

General	experienced	net	favorable	prior	period	development	of	$290	million,	$255	million,	and	$304	million	in	2010,	2009,	and	2008,	respectively.	Refer to	"Prior	Period	Development"	for	more	information.	The	adjusted	loss	and	loss	expense	ratio	for	2010	decreased	primarily	due	to	improved	current accident	year	loss	experience	compared	with	the	prior	year	periods	in	our	retail	business,	partially	offset	by	an	increase	in	current	year	accident	losses	in our	wholesale	business.

Insurance	–	Overseas	General's	policy	acquisition	cost	ratio	increased	in	2010,	compared	with	2009,	primarily	due	to	changes	in	mix	of	business, and	the	impact	of	catastrophe-related	reinstatement	premiums	expensed.	Insurance	–	Overseas	General's	administrative	expense	ratio	increased	in 2010,	primarily	due	to	the	impact	of	reinstatement	premiums	expensed,	and	reduced	wholesale	earned	premiums.	Insurance	–	Overseas	General's policy	acquisition	cost	ratio	increased	in	2009,	compared	with	2008,	primarily	due	to	lower	net	premiums	earned	in	the	retail	A&H	business,	without	a commensurate	reduction	in	advertising	costs,	which	are	generally	deferred	and	amortized	over	a	longer	period	than	the	related	premium.	Insurance	– Overseas	General's	administrative	expense	ratio	increased	in	2009,	primarily	due	to	the	inclusion	of	Combined	Insurance	for	the	full	year.

The	Global	Reinsurance	segment	represents	ACE's	reinsurance	operations	comprising	ACE	Tempest	Re	Bermuda,	ACE	Tempest	Re	USA,	ACE Tempest	Re	International,	and	ACE	Tempest	Re	Canada.	Global	Reinsurance	markets	its	reinsurance	products	worldwide	under	the	ACE	Tempest	Re brand	name	and	provides	a	broad	range	of	coverage	to	a	diverse	array	of	primary	P&C	companies.

|  |  |  |  | 2010	vs. | 2009	vs. |
| :--- | :--- | :--- | :--- | :--- | :--- |
| (in\tmillions\tof\tU.S.\tdollars,\texcept\tfor\tpercentages) | 2010 | 2009 | 2008 | 2009 | 2008 |
| Net\tpremiums\twritten | $ 1,075 | $1,038 | $914 | 4% | 14% |
| Net\tpremiums\tearned | 1,071 | 979 | 1,017 | 9% | (4)% |
| Losses\tand\tloss\texpenses | 518 | 330 | 524 | 57% | \t(37)% |
| Policy\tacquisition\tcosts | 204 | 195 | 192 | 5% | 2% |
| Administrative\texpenses | 55 | 55 | 56 | 0% | (2)% |
| Underwriting\tincome | 294 | 399 | 245 | \t(26)% | 63% |
| Net\tinvestment\tincome | 288 | 278 | 309 | 4% | \t(10)% |
| Net\trealized\tgains\t(losses) | 93 | (17) | (163) | NM | 90% |
| Other\t(income)\texpense | (23) | 2 | 2 | NM | 0% |
| Income\ttax\texpense | 42 | 46 | 30 | (9)% | 53% |
| Net\tincome | $656 | $612 | $359 | 7% | 70% |
| Loss\tand\tloss\texpense\tratio | \t 48.4% | \t 33.7% | \t 51.5% |  |  |
| Policy\tacquisition\tcost\tratio | \t 19.0% | \t 19.9% | \t 18.8% |  |  |
| Administrative\texpense\tratio | 5.1% | 5.6% | 5.5% |  |  |
| Combined\tratio | \t 72.5% | \t 59.2% | \t 75.8% |  |  |

Global	Reinsurance	reported	an	increase	in	net	premiums	written	in	2010,	compared	with	2009,	primarily	due	to	a	significant	new	workers'	compensation treaty	recorded	during	2010	in	our	U.S.	operation,	partially	offset	by	generally	competitive	conditions	across	most	of	Global	Reinsurance's	product	lines and	regions	of	operations.	Net	premiums	written	increased	in	2009,	compared	with	2008,	primarily	due	to	P&C	production	growth	in	the	U.S.,	Canada, and	Bermuda.

The	following	tables	provide	a	line	of	business	breakdown	of	Global	Reinsurance's	net	premiums	earned	for	the	periods	indicated.

Global	Reinsurance's	net	premiums	earned	increased	in	2010,	compared	with	2009,	primarily	due	to	the	significant	new	workers'	compensation	business bound	and	higher	casualty	reinsurance	production	in	the	prior	year	in	our	U.S.	operations.	Global	Reinsurance's	net	premiums	earned	decreased	in 2009,	compared	with	2008,	primarily	because	2008	included	non-recurring	inward	reinstatement	premiums	related	to	Hurricanes	Gustav	and	Ike.	In addition,	we	experienced	lower	production	in	2008,	which	had	an	adverse	impact	on	net	premiums	earned	in	2009.

The	following	table	shows	the	impact	of	catastrophe	losses	and	related	reinstatement	premiums	and	prior	period	development	on	this	segment's loss	and	loss	expense	ratio	for	the	periods	indicated.

|  | 2010 | 2009 | 2008 |
| :--- | :--- | :--- | :--- |
| Loss\tand\tloss\texpense\tratio,\tas\treported | \t 48.4% | \t33.7% | 51.5% |
| Catastrophe\tlosses\tand\trelated\treinstatement\tpremiums | \t(8.4)% | \t(2.8)% | \t(17.6)% |
| Prior\tperiod\tdevelopment | \t 10.0% | \t14.5% | 16.0% |
| Loss\tand\tloss\texpense\tratio,\tadjusted | \t 50.0% | \t45.4% | 49.9% |

Global	Reinsurance	recorded	net	catastrophe	losses	of	$91	million	in	2010,	compared	with	net	catastrophe	losses	of	$28	million	and	$186	million	in	2009 and	2008,	respectively.	Catastrophe	losses	in	2010,	included	storms	in	Australia	and	earthquakes	in	Chile	and	New	Zealand.	Catastrophe	losses	for 2009,	were	primarily	related	to	various	Canadian	storms	and	Hurricane	Klaus.	For	2008,	catastrophe	losses	were	primarily	due	to	Hurricanes	Gustav	and Ike.	Global	Reinsurance	experienced	net	favorable	prior	period	development	of	$106	million	in	2010.	This	compares	with	net	favorable	prior	period development	of	$142	million	and	$159	million	for	2009	and	2008,	respectively.	Refer	to	"Prior	Period	Development"	for	more	information.	The	increase	in the	adjusted	loss	and	loss	expense	ratio	was	due	to	a	change	in	business	mix.

Global	Reinsurance's	policy	acquisition	costs	ratio	decreased	in	2010,	compared	with	2009,	as	a	result	of	lower	commission	in	our	U.S.	operations, primarily	due	to	the	new	workers'	compensation	treaty	business	which	did	not	generate	acquisition	costs.	Global	Reinsurance's	policy	acquisition	costs ratio	increased	in	2009,	compared	with	2008,	primarily	due	to	the	impact	of	inward	reinstatement	premiums	in	2008,	which	generated	minimal	acquisition costs.	The	administrative	expense	ratio	decreased	in	2010,	compared	with	2009,	primarily	due	to	the	increase	in	net	premiums	earned.	In	2009,	the administrative	expense	ratio	increased	compared	with	2008,	primarily	due	to	the	decrease	in	net	premiums	earned.

The	Life	segment	includes	ACE's	international	life	operations	(ACE	Life),	ACE	Tempest	Life	Re	(ACE	Life	Re),	and	the	North	American	supplemental A&H	and	life	business	of	Combined	Insurance.	We	assess	the	performance	of	our	life	business	based	on	life	underwriting	income	which	includes	net investment	income.

|  |  |  |  | 2010	vs. | 2009	vs. |
| :--- | :--- | :--- | :--- | :--- | :--- |
| (in\tmillions\tof\tU.S.\tdollars,\texcept\tfor\tpercentages) | 2010 | 2009 | 2008 | 2009 | 2008 |
| Net\tpremiums\twritten | $1,556 | $1,475 | $1,198 | 5% | 23% |
| Net\tpremiums\tearned | \t 1,542 | \t 1,430 | \t 1,170 | 8% | 22% |
| Losses\tand\tloss\texpenses | 496 | 482 | 320 | 3% | 51% |
| Policy\tbenefits | 353 | 321 | 387 | 10% | \t(17)% |
| Policy\tacquisition\tcosts | 257 | 216 | 188 | 19% | 15% |
| Administrative\texpenses | 228 | 243 | 199 | (6)% | 22% |
| Net\tinvestment\tincome | 172 | 176 | 142 | (2)% | 24% |
| Life\tunderwriting\tincome | 380 | 344 | 218 | 10% | 58% |
| Net\trealized\tgains\t(losses) | (192) | (15) | (532) | NM | 97% |
| Interest\texpense | 3 | – | – | NM | 0% |
| Other\t(income)\texpense | 20 | 2 | 12 | NM | \t(83)% |
| Income\ttax\texpense | 62 | 48 | 30 | 29% | 60% |
| Net\tincome | $103 | $279 | $(356) | \t(63)% | NM |

The	following	table	provides	a	line	of	business	breakdown	of	life	underwriting	income	for	the	periods	indicated.

|  |  |  |  | 2010 | 2009 |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  |  |  |  | vs. | vs. |
| (in\tmillions\tof\tU.S.\tdollars,\texcept\tfor\tpercentages) | 2010 | 2009 | 2008 | 2009 | 2008 |
| Life\treinsurance\tand\tother\tnon-recurring\texpenses | $172 | $154 | $105 | 12% | \t 47% |
| Life\tinsurance | (30) | (20) | (28) | \t(50)% | \t 29% |
| A&amp;H | \t 238 | \t 210 | \t 141 | 13% | \t 49% |
| Life\tunderwriting\tincome | $380 | $344 | $218 | 10% | \t 58% |

Life	underwriting	income	increased	in	2010,	compared	with	2009,	primarily	due	to	increased	A&H	premium	retention	as	well	as	lower	administrative	costs due	to	operating	efficiencies	in	North	American	supplemental	A&H.	In	addition,	for	2010,	life	reinsurance	benefited	from	favorable	market	movements	in the	first	quarter	relative	to	the	prior	year	period.	ACE	Life	generated	a	modest	underwriting	loss	due	to	on-going	development	costs	in	its	businesses.	For 2009,	the	improvement	in	life	underwriting	income,	compared	with	2008,	was	primarily	due	to	the	inclusion	of	Combined	Insurance	business	for	the	full year	(the	prior	year	included	Combined	Insurance	from	April	1,	2008)	and	an	increase	in	life	reinsurance	underwriting	income,	primarily	due	to	a	larger increase	in	reserves	in	2008	compared	with	2009,	due	to	unfavorable	market	movements.

Net	realized	gains	(losses),	which	are	excluded	from	life	underwriting	income,	relate	primarily	to	the	change	in	the	net	fair	value	of	reported	GLB reinsurance	liabilities	and	changes	in	the	fair	value	of	derivatives	used	to	partially	offset	the	risk	in	the	variable	annuity	guarantee	portfolio.	During	2010, realized	losses	were	primarily	associated	with	an	increasing	net	fair	value	of	reported	GLB	reinsurance	liabilities	resulting	substantially	from	the	impact	of falling	interest	rates.	The	2010	realized	loss	was	also	impacted	by	a	reduction	in	the	value	of	hedge	instruments	and	increasing	GLB	liabilities	due	to	the annual	collection	of	premium,	offset	by	decreasing	GLB	liabilities	due	to	rising	equity	markets	and	model	enhancements.	During	2009,	realized	gains associated	with	a	decreasing	net	fair	value	of	reported	GLB	reinsurance	liabilities	were	almost	entirely	offset	by	a	combination	of	a	reduction	in	the	value of	hedge	instruments	and	modeling	changes.	The	residual	realized	loss	for	2009	also	included	the	impact	of	foreign	exchange	and	changes	in	asset values.	We	experienced	significant	net	realized	losses	in	2008,	which	were	primarily	due	to	adverse	financial	market	conditions.

# Net	Investment	Income

| (in	millions	of	U.S.	dollars) | 2010 | 2009 | 2008 |
| :--- | :--- | :--- | :--- |
| Fixed\tmaturities | $2,071 | $1,985 | $1,972 |
| Short-term\tinvestments | 34 | 38 | 109 |
| Equity\tsecurities | 26 | 54 | 93 |
| Other | 44 | 48 | (20) |
| Gross\tinvestment\tincome | \t 2,175 | \t 2,125 | \t 2,154 |
| Investment\texpenses | (105) | (94) | (92) |
| Net\tinvestment\tincome | $2,070 | $2,031 | $2,062 |

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	two	percent	in	the	year	ended	December	31,	2010,	compared	with	2009. Positive	operating	cash	flows,	which	have	resulted	in	a	higher	overall	average	invested	asset	base,	were	partially	offset	by	lower	yields	on	new investments	and	short-term	securities.	Net	investment	income	decreased	in	2009,	compared	with	2008,	primarily	due	to	lower	yields	on	new	investments and	unfavorable	foreign	exchange	rate	movements,	partially	offset	by	an	increase	in	average	invested	assets.	The	investment	portfolio's	average	market yield	on	fixed	maturities	was	3.6	percent	and	4.3	percent	at	December	31,	2010	and	2009,	respectively.	Average	market	yield	on	fixed	maturities represents	the	weighted	average	yield	to	maturity	of	our	fixed	income	portfolio	based	on	the	market	prices	of	the	holdings	at	that	date. The	following	table	shows	the	return	on	average	invested	assets	for	the	years	ended	December	31,	2010,	2009,	and	2008.

# Net	Realized	and	Unrealized	Gains	(Losses)

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

The	effect	of	market	movements	on	our	available	for	sale	investment	portfolio	impacts	net	income	(through	net	realized	gains	(losses))	when securities	are	sold	or	when	we	record	an	Other-than-temporary	impairment	(OTTI)	charge	in	net	income.	For	a	discussion	related	to	how	we	assess	OTTI for	all	of	our	investments,	including	credit-related	OTTI,	and	the	related	impact	on	net	income,	refer	to	Note	4	d)	to	the	Consolidated	Financial Statements.	Additionally,	net	income	is	impacted	through	the	reporting	of	changes	in	the	fair	value	of	derivatives,	including	financial	futures,	options, swaps,	and	GLB	reinsurance.	Changes	in	unrealized	appreciation	and	depreciation	on	available	for	sale	securities,	which	result	from	the	revaluation	of securities	held,	are	reported	as	a	separate	component	of	accumulated	other	comprehensive	income	in	shareholders'	equity.

The	following	tables	present	our	pre-tax	net	realized	and	unrealized	gains	(losses),	as	well	a	breakdown	of	our	OTTI	and	other	net	realized	gains (losses)	on	investments	for	the	years	ended	December	31,	2010	and	2009.

|  | 2010 | 2010 | 2010 | 2009 | 2009 | 2009 |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | Net | Net |  | Net | Net |  |
|  | Realized | Unrealized |  | Realized | Unrealized |  |
|  | Gains | Gains | Net | Gains | Gains | Net |
| (in\tmillions\tof\tU.S.\tdollars) | (Losses) | (Losses) | Impact | (Losses) | (Losses) | Impact |
| Fixed\tmaturities\tand\tshort-term\tinvestments | $380 | $973 | $1,353 | $(41) | $2,717 | $2,676 |
| Equity\tsecurities | 84 | (44) | 40 | (145) | 213 | 68 |
| Other | 161 | (35) | 126 | 31 | 162 | 193 |
| Subtotal | 625 | 894 | 1,519 | (155) | 3,092 | \t 2,937 |
| Derivatives |  |  |  |  |  |  |
| Equity\tand\tfixed\tincome\tderivatives | 58 | – | 58 | 68 | – | 68 |
| Fair\tvalue\tadjustment\ton\tinsurance\tderivatives | (28) | – | (28) | 368 | – | 368 |
| S&amp;P\tput\toption\tand\tfutures | (150) | – | (150) | (363) | – | (363) |
| Fair\tvalue\tadjustment\ton\tother\tderivatives | (19) | – | (19) | (93) | – | (93) |
| Subtotal\tderivatives | (139) | – | (139) | (20) | – | (20) |
| Foreign\texchange\tgains\t(losses) | (54) | – | (54) | (21) | – | (21) |
| Total\tgains\t(losses) | $432 | $894 | $1,326 | $(196) | $3,092 | $2,896 |

|  | 2010 | 2010 | 2010 | 2009 | 2009 | 2009 |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  |  | Other |  |  | Other |  |
|  |  | Net | Net |  | Net | Net |
|  |  | Realized | Realized |  | Realized | Realized |
|  |  | Gains | Gains |  | Gains | Gains |
| (in\tmillions\tof\tU.S.\tdollars) | OTTI | (Losses) | (Losses) | OTTI | (Losses) | (Losses) |
| Fixed\tmaturities\tand\tshort-term\tinvestments | $ (46) | $426 | $380 | $(234) | $193 | $(41) |
| Equity\tsecurities | – | 84 | 84 | (26) | (119) | (145) |
| Other | (13) | 174 | 161 | (137) | 168 | 31 |
| Total\tinvestment\tportfolio\tgains\t(losses) | $ (59) | $684 | $625 | $(397) | $242 | $(155) |

Our	net	realized	gains	(losses)	in	the	year	ended	December	31,	2010,	included	write-downs	of	$59	million	as	a	result	of	an	other-than-temporary	decline in	fair	value	of	certain	securities.	This	compares	with	write-downs	of	$397	million	and	$1.1	billion	in	2009	and	2008,	respectively.	Included	in	other	net realized	gains	(losses)	is	a	realized	gain	of	$175	million	related	to	the	acquisition	of	Rain	and	Hail.	Refer	to	Note	3	to	the	Consolidated	Financial Statements.

At	December	31,	2010,	our	investment	portfolios	held	by	U.S.	legal	entities	included	approximately	$151	million	of	gross	unrealized	losses	on	fixed income	investments.	Our	tax	planning	strategy	related	to	these	losses	is	based	on	our	view	that	we	will	hold	these	fixed	income	investments	until	they recover	their	cost.	As	such,	we	have	recognized	a	deferred	tax	asset	of	approximately	$53	million	related	to	these	fixed	income	investments.	This strategy	allows	us	to	recognize	the	associated	deferred	tax	asset	related	to	these	fixed	income	investments	as	we	do	not	believe	these	losses	will	ever	be realized.

We	engage	in	a	securities	lending	program	which	involves	lending	investments	to	other	institutions	for	short	periods	of	time.	ACE	invests	the collateral	received	in	securities	of	high	credit	quality	and	liquidity,	with	the	objective	of	maintaining	a	stable	principal	balance.	Certain	investments purchased	with	the	securities	lending	collateral	declined	in	value	resulting	in	an	unrealized	loss	of	$23	million	at	December	31,	2010.	The	unrealized	loss is	attributable	to	fluctuations	in	market	values	of	the	underlying	performing	debt	instruments	held	by	the	respective	mutual	funds,	rather	than	default	of	a debt	issuer.	We	concluded	that	the	decline	in	value	is	temporary.

# Other	Income	and	Expense	Items

| (in	millions	of	U.S.	dollars) | 2010 | 2009 | 2008 |
| :--- | :--- | :--- | :--- |
| Equity\tin\tnet\t(income)\tloss\tof\tpartially-owned\tentities | $ (81) | $39 | $(52) |
| Noncontrolling\tinterest\texpense | 14 | 3 | 11 |
| Federal\texcise\tand\tcapital\ttaxes | 19 | \t 16 | 16 |
| Other | 32 | \t 27 | (14) |
| Other\t(income)\texpense | $ (16) | $85 | $(39) |

Other	(income)	expense	primarily	comprises	our	equity	in	net	income	of	investment	funds,	limited	partnerships,	partially-owned	investment	companies, Huatai	Insurance	Company	of	China,	Limited,	and	Huatai	Life	Insurance	Company	of	China,	Limited,	which	are	included	in	equity	in	net	income	of partially-owned	entities.	Other	(income)	expense	also	includes	certain	federal	excise	and	capital	taxes	incurred	as	a	result	of	capital	management initiatives.	These	transactions	are	considered	capital	in	nature	and	are	excluded	from	underwriting	results.

Our	investment	portfolio	is	invested	primarily	in	publicly	traded,	investment	grade	fixed	income	securities	with	an	average	credit	quality	of	AA	(with approximately	one	half	invested	in	AAA	securities),	as	rated	by	the	independent	investment	rating	service	Standard	and	Poor's	(S&P).	The	portfolio	is externally	managed	by	independent,	professional	investment	managers	and	is	broadly	diversified	across	geographies,	sectors,	and	issuers.	Our	Other investments	principally	comprise	direct	investments,	investment	funds,	and	limited	partnerships.	We	hold	no	collateralized	debt	obligations	or collateralized	loan	obligations	in	our	investment	portfolio	and	we	provide	no	credit	default	protection.	We	have	long-standing	global	credit	limits	for	our entire	portfolio	across	the	organization.	Exposures	are	aggregated,	monitored,	and	actively	managed	by	our	Global	Credit	Committee,	comprised	of 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.

As	part	of	the	Company's	fixed	income	diversification	strategy,	ACE	has	decided	to	hold	certain	additional	securities	to	maturity.	Because	the Company	has	the	intent	to	hold	these	securities	to	maturity,	a	transfer	of	such	securities	with	a	fair	value	of	$6.8	billion	was	made	during	2010,	from Fixed	maturities	available	for	sale	to	Fixed	maturities	held	to	maturity.	In	2009,	a	transfer	of	such	securities	with	a	fair	value	of	$704	million	was	made from	Fixed	maturities	available	for	sale	to	Fixed	maturities	held	to	maturity.

The	average	duration	of	our	fixed	income	securities,	including	the	effect	of	options	and	swaps,	was	3.7	years	at	December	31,	2010,	and	2009.	We estimate	that	a	100	basis	point	(bps)	increase	in	interest	rates	would	reduce	our	book	value	by	approximately	$1.8	billion	at	December	31,	2010.	We experienced	net	unrealized	gains	of	$894	million	in	2010,	primarily	due	to	continued	tightening	of	credit	spreads.

The	following	table	shows	the	fair	value	and	cost/amortized	cost	of	our	invested	assets	at	December	31,	2010	and	2009.

|  | 2010 | 2010 | 2009 | 2009 |
| :--- | :--- | :--- | :--- | :--- |
|  |  | Cost/ |  | Cost/ |
|  | Fair | Amortized |  | Amortized |
| (in\tmillions\tof\tU.S.\tdollars) | Value | Cost | Fair\tValue | Cost |
| Fixed\tmaturities\tavailable\tfor\tsale | $37,539 | $36,542 | $39,525 | $38,985 |
| Fixed\tmaturities\theld\tto\tmaturity | 9,461 | 9,501 | 3,561 | 3,481 |
| Short-term\tinvestments | 1,983 | 1,983 | 1,667 | 1,667 |
|  | \t 48,983 | 48,026 | \t 44,753 | \t 44,133 |
| Equity\tsecurities | 692 | 666 | 467 | 398 |
| Other\tinvestments | 1,692 | 1,511 | 1,375 | 1,258 |
| Total\tinvestments | $51,367 | $50,203 | $46,595 | $45,789 |

The	fair	value	of	our	total	investments	increased	$4.8	billion	during	2010,	primarily	due	to	unrealized	appreciation,	the	investing	of	operating	cash	flows, and	the	portfolios	acquired	in	the	2010	corporate	acquisitions.

The	following	tables	show	the	market	value	of	our	fixed	maturities	and	short-term	investments	at	December	31,	2010	and	2009.	The	first	table	lists investments	according	to	type	and	the	second	according	to	S&P	credit	rating.

|  | 2010 | 2010 | 2009 | 2009 |
| :--- | :--- | :--- | :--- | :--- |
|  |  | Percentage |  | Percentage |
| (in\tmillions\tof\tU.S.\tdollars,\texcept\tfor\tpercentages) | Market\tValue | of\tTotal | Market\tValue | of\tTotal |
| Treasury | $2,075 | 4% | $2,068 | 5% |
| Agency | 2,015 | 4% | 2,698 | 6% |
| Corporate\tand\tasset-backed\tsecurities | 15,900 | 33% | 13,537 | 30% |
| Mortgage-backed\tsecurities | 12,362 | 25% | 11,311 | 25% |
| Municipal | 2,449 | 5% | 2,300 | 5% |
| Non-U.S. | 12,199 | 25% | 11,172 | 25% |
| Short-term\tinvestments | 1,983 | 4% | 1,667 | 4% |
| Total | $48,983 | 100% | $44,753 | 100% |
| AAA | $23,718 | 48% | $22,884 | 51% |
| AA | 4,714 | 10% | 4,021 | 9% |
| A | 8,482 | 17% | 7,461 | 17% |
| BBB | 5,487 | 11% | 4,910 | 11% |
| BB | 3,357 | 7% | 2,866 | 6% |
| B | 2,393 | 5% | 2,029 | 5% |
| Other | 832 | 2% | 582 | 1% |
| Total | $48,983 | 100% | $44,753 | 100% |

The	table	below	summarizes	the	market	value	of	our	non-U.S.	fixed	income	portfolio	by	country/sovereign	for	non-U.S.	government	securities	at December	31,	2010.

ACE's	non-U.S.	investment	grade	fixed	income	portfolios	are	currency-matched	with	the	insurance	liabilities	of	our	non-U.S.	operations.	We	have	85 percent	of	our	non-U.S.	fixed	income	portfolio	denominated	in	G7	currencies.	The	average	credit	quality	of	our	non-U.S.	fixed	income	securities	is	AA	and 53	percent	of	our	holdings	are	rated	AAA	or	guaranteed	by	governments	or	quasi-government	agencies.	Our	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	on	a	daily	basis	by	ACE	via	an	internal	compliance	system.	With	respect	to	the	$7.4	billion	in	non-U.S.	corporate	fixed income	securities	in	the	table	above,	approximately	$329	million	relates	to	investments	in	Spain	and	Italy.	Investments	in	Ireland	and	Portugal	total	$58 million.	We	have	inconsequential	corporate	fixed	income	exposure	to	Greece.

The	table	below	summarizes	our	largest	exposures	to	corporate	bonds	by	market	value	at	December	31,	2010.

| (in	millions	of	U.S.	dollars) | Market	Value |
| :--- | :--- |
| General\tElectric\tCo | $468 |
| JP\tMorgan\tChase\t&amp;\tCo | 451 |
| Bank\tof\tAmerica\tCorp | 409 |
| Citigroup\tInc | 330 |
| Goldman\tSachs\tGroup\tInc/The | 305 |
| Wells\tFargo\t&amp;\tCo | 297 |
| Verizon\tCommunications\tInc | 296 |
| Morgan\tStanley | 285 |
| AT&amp;T\tINC | 240 |
| HSBC\tHoldings\tPlc | 234 |
| Credit\tSuisse\tGroup | 195 |
| Barclays\tPLC | 181 |
| Kraft\tFoods\tInc | 162 |
| Comcast\tCorp | 153 |
| Royal\tBank\tof\tScotland\tGroup\tPlc | 151 |
| Lloyds\tBanking\tGroup\tPlc | 147 |
| American\tExpress\tCo | 135 |
| Time\tWarner\tCable\tInc | 128 |
| ConocoPhillips | 125 |
| UBS\tAG | 116 |
| Pfizer\tInc | 111 |
| Anheuser-Busch\tInBev\tNV | 105 |
| Dominion\tResources\tInc/VA | 104 |
| BP\tPLC | 99 |
| Banco\tSantander\tSA | 95 |
| Total | $5,322 |

# Mortgage-backed	securities

Additional	details	on	the	mortgage-backed	component	of	our	investment	portfolio	at	December	31,	2010,	are	provided	below:

# (in	millions	of	U.S.	dollars)

|  | AAA | AA | A | BBB | BB	and<br>below | Total |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Mortgage-backed\tsecurities |  |  |  |  |  |  |
| Residential\tmortgage-backed\t(RMBS) |  |  |  |  |  |  |
| Agency\tRMBS | $9,700 | $– | $– | $– | $– | $9,700 |
| Non-agency\tRMBS | 337 | \t 20 | \t 21 | 48 | 812 | 1,238 |
| Total\tRMBS | \t 10,037 | \t 20 | \t 21 | 48 | 812 | \t 10,938 |
| Commercial\tmortgage-backed | 1,386 | \t 21 | \t 14 | 3 | – | 1,424 |
| Total\tmortgage-backed\tsecurities | $11,423 | $41 | $35 | $ 51 | $812 | $12,362 |

# Amortized	Cost

|  | AAA | AA | A | BBB | BB<br>and<br>below | Total |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Mortgage-backed\tsecurities |  |  |  |  |  |  |
| Residential\tmortgage-backed\t(RMBS) |  |  |  |  |  |  |
| Agency\tRMBS | $9,564 | $– | $– | $– | $– | $9,564 |
| Non-agency\tRMBS | 351 | \t 23 | \t 23 | 55 | 947 | 1,399 |
| Total\tRMBS | 9,915 | \t 23 | \t 23 | 55 | 947 | \t 10,963 |
| Commercial\tmortgage-backed | 1,320 | \t 20 | \t 13 | 3 | – | 1,356 |
| Total\tmortgage-backed\tsecurities | $11,235 | $43 | $36 | $ 58 | $ 947 | $12,319 |

Our	mortgage-backed	securities	are	rated	predominantly	AAA	and	comprise	approximately	25	percent	of	our	fixed	income	portfolio.	This	compares	with	a 35	percent	mortgage-backed	weighting	in	representative	indices	of	the	U.S.	fixed	income	market	at	the	end	of	the	fourth	quarter	of	2010.	The	minimum rating	for	our	initial	purchases	of	mortgage-backed	securities	is	AAA.

Agency	RMBS	represent	securities	which	have	been	issued	by	Federal	agencies	(Government	National	Mortgage	Association,	Federal	National Mortgage	Association,	and	Federal	Home	Loan	Mortgage	Corporation)	with	implied	or	explicit	government	guarantees.	These	represent	89	percent	of	our total	RMBS	portfolio.	With	respect	to	our	non-agency	RMBS,	these	are	backed	primarily	by	prime	collateral	and	are	broadly	diversified	in	over	220,000 loans.	This	portfolio's	loan-to-value	ratio	is	approximately	70	percent	with	an	average	Fair	Isaac	Corporation	(FICO)	score	of	730.	With	this	conservative loan-to-value	ratio	and	subordinated	collateral	of	12	percent,	the	cumulative	5-year	foreclosure	rate	would	have	to	rise	to	18	percent	and	real	estate values	would	have	to	fall	19	percent	from	their	levels	at	the	end	of	the	fourth	quarter	of	2010,	before	principal	is	impaired.	The	foreclosure	rate	for	ACE's non-agency	RMBS	portfolio	was	nine	percent	at	the	end	of	the	fourth	quarter	of	2010.

Our	commercial	mortgage-backed	securities	(CMBS)	are	rated	predominantly	AAA,	broadly	diversified	with	over	17,000	loans,	and	79	percent	of the	portfolio	was	issued	before	2006.	The	average	loan-to-value	ratio	is	approximately	68	percent	with	a	debt	service	coverage	ratio	in	excess	of	1.7	and weighted-average	subordinated	collateral	of	33	percent.	The	cumulative	foreclosure	rate	would	have	to	rise	to	41	percent	and	commercial	real	estate values	would	have	to	fall	more	than	five	percent	from	their	levels	at	the	end	of	the	fourth	quarter	of	2010,	before	principal	is	impaired.	The	foreclosure rate	for	ACE's	CMBS	portfolio	at	the	end	of	the	fourth	quarter	of	2010,	was	approximately	2.6	percent.

# 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	are	investment	grade	issuers.	At	December	31,	2010,	our	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	approximately	650	issuers,	with	the	greatest	single	exposure	being	$72	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.	Six	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	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	mortgage	obligations)	are	not	permitted	in	the	high-yield	portfolio.

# Reinsurance	recoverable	on	ceded	reinsurance

The	composition	of	our	reinsurance	recoverable	at	December	31,	2010	and	2009,	is	as	follows:

| (in	millions	of	U.S.	dollars) | 2010 | 2009 |
| :--- | :--- | :--- |
| Reinsurance\trecoverable\ton\tunpaid\tlosses\tand\tloss\texpenses,\tnet\tof\ta\tprovision\tfor\tuncollectible\treinsurance | $\t\t\t\t12,149 | $\t\t\t\t12,745 |
| Reinsurance\trecoverable\ton\tpaid\tlosses\tand\tloss\texpenses,\tnet\tof\ta\tprovision\tfor\tuncollectible\treinsurance | 722 | 850 |
| Net\treinsurance\trecoverable\ton\tlosses\tand\tloss\texpenses | $12,871 | $13,595 |
| Reinsurance\trecoverable\ton\tpolicy\tbenefits | $281 | $298 |

We	evaluate	the	financial	condition	of	our	reinsurers	and	potential	reinsurers	on	a	regular	basis	and	also	monitor	concentrations	of	credit	risk	with reinsurers.	The	provision	for	uncollectible	reinsurance	is	required	principally	due	to	the	failure	of	reinsurers	to	indemnify	us,	primarily	because	of	disputes under	reinsurance	contracts	and	insolvencies.	The	decrease	in	net	reinsurance	recoverable	on	losses	and	loss	expenses	was	primarily	due	to	collections of	reinsurance	recoverable	on	paid	losses	and	loss	expenses	in	the	active	operations	during	the	year	ended	December	31,	2010.

# Asbestos	and	environmental	(A&E)	and	other	run-off	liabilities

Included	in	ACE's	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	ACE's	A&E	liabilities	is particularly	sensitive	to	future	changes	in	the	legal,	social,	and	economic	environment.	ACE	has	not	assumed	any	such	future	changes	in	setting	the value	of	its	A&E	reserves,	which	include	provisions	for	both	reported	and	IBNR	claims.	Refer	to	Note	7	to	the	Consolidated	Financial	Statements,	under Item	8,	for	more	information.

# Reserving	considerations

For	asbestos,	ACE	faces	claims	relating	to	policies	issued	to	manufacturers,	distributors,	installers,	and	other	parties	in	the	chain	of	commerce	for asbestos	and	products	containing	asbestos.	Claims	can	be	filed	by	individual	claimants	or	groups	of	claimants	with	the	potential	for	hundreds	of	individual claimants	at	one	time.	Claimants	will	generally	allege	damages	across	an	extended	time	period	which	may	coincide	with	multiple	policies	for	a	single insured.

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

The	table	below	summarizes	count	information	for	asbestos	and	environmental	claims	for	the	years	ended	December	31,	2010	and	2009,	for	direct policies	only.

|  | 2010 | 2009 |
| :--- | :--- | :--- |
| Asbestos\t(by\tcausative\tagent) |  |  |
| Open\tat\tthe\tbeginning\tof\tyear | \t1,023 | \t1,198 |
| Newly\treported | 66 | 54 |
| Closed\tor\totherwise\tdisposed | 64 | 229 |
| Open\tat\tend\tof\tyear | \t1,025 | \t1,023 |
| Environmental\t(by\tsite) |  |  |
| Open\tat\tthe\tbeginning\tof\tyear | \t3,371 | \t4,704 |
| Newly\treported | 133 | 196 |
| Closed\tor\totherwise\tdisposed | 172 | \t1,529 |
| Open\tat\tend\tof\tyear | \t3,332 | \t3,371 |

Closed	or	otherwise	disposed	claims	were	significantly	lower	in	2010,	compared	with	2009,	due	to	a	review	in	the	prior	year	of	inactive	files	that	revealed that	payment	was	no	longer	sought	on	the	files;	therefore,	the	files	were	closed.

The	following	table	shows	our	gross	and	net	survival	ratios	for	our	A&E	loss	reserves	and	allocated	loss	adjustment	expense	(ALAE)	reserves	at December	31,	2010	and	2009.

The	net	ratios	reflect	third	party	reinsurance	other	than	the	aggregate	excess	reinsurance	provided	under	the	NICO	contracts.	These	survival	ratios	are calculated	by	dividing	the	asbestos	or	environmental	loss	and	ALAE	reserves	by	the	average	asbestos	or	environmental	loss	and	ALAE	payments	for	the three	most	recent	calendar	years	(3	year	survival	ratio),	and	by	asbestos	or	environmental	loss	and	ALAE	payments	in	2010	(1	year	survival	ratio).	The survival	ratios	provide	only	a	very	rough	depiction	of	reserves	and	are	significantly	impacted	by	a	number	of	factors	such	as	aggressive	settlement practices,	variations	in	gross	to	ceded	relationships	within	the	asbestos	or	environmental	claims,	and	levels	of	coverage	provided.	We,	therefore,	urge caution	in	using	these	very	simplistic	ratios	to	gauge	reserve	adequacy	and	note	that	the	1	year	survival	ratios,	particularly,	are	likely	to	move considerably	from	year	to	year	for	the	reasons	just	described.

The	1	year	net	survival	ratio	increased	in	2010,	compared	with	2009,	primarily	due	to	lower	net	payments	for	asbestos	during	2010.

# Catastrophe	management

We	continue	to	closely	monitor	our	catastrophe	risk	accumulation	around	the	world.	The	following	modeled	loss	information	reflects	ACE's	in-force portfolio	at	October	1,	2010,	and	reinsurance	program	at	January	1,	2011.

The	table	below	shows	our	modeled	annual	aggregate	pre-tax	probable	maximum	loss	(PML),	net	of	reinsurance,	for	100-year	and	250-year	return periods	for	U.S.	hurricanes	and	California	earthquakes	at	December	31,	2010	and	2009.	The	table	also	shows	corresponding	pre-tax	industry	losses	for each	of	the	return	periods	for	U.S.	hurricanes	and	California	earthquakes	at	December	31,	2010.	For	example,	according	to	the	model,	for	the	1-in-100 return	period	scenario,	there	is	a	one	percent	chance	that	ACE's	losses	incurred	in	any	year	from	U.S.	hurricanes	could	be	in	excess	of	$1.182	billion	(or five	percent	of	our	total	shareholders'	equity	at	December	31,	2010).	We	estimate	that	at	such	hypothetical	loss	levels,	aggregate	industry	losses	would be	approximately	$136.196	billion.

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

# Natural	catastrophe	property	reinsurance	program

ACE's	core	property	catastrophe	reinsurance	program	provides	protection	against	natural	catastrophes	impacting	its	primary	property	operations	(i.e., excluding	assumed	reinsurance)	and	consists	of	two	separate	towers.

The	first	tower,	for	losses	arising	out	of	North	America,	our	core	traditional	program	renewed	on	January	1,	2011,	for	a	period	of	one	year,	and	we have	purchased	reinsurance	coverage	in	one	layer	that	provides	$600	million	in	excess	of	$500	million	in	all-risk	coverage.	This	core	layer	of	the	program has	a	single	additional	limit	available	for	reinstatement	post-loss	event	on	the	same	terms	as	the	original	limit.

Our	2011	core	North	American	catastrophe	program	has	approximately	the	same	limits	in	coverage	as	our	2010	program.	We	consider	our retention	to	be	approximately	$500	million	for	our	North	American	catastrophe	reinsurance	program	but	this	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	$500	million.

In	addition	to	the	foregoing,	we	have	in	place	a	multi-year,	peril-specific	program	from	a	major	reinsurer	that	is	backed	by	its	strong	credit worthiness	and	the	issuance	of	fully	collateralized	catastrophe	bonds	(the	Calabash	program).	Under	this	coverage,	we	have	$86	million	part	of	$200 million	of	U.S.	hurricane	coverage	in	excess	of	an	attachment	point	of	approximately	$750	million.	In	addition,	the	Calabash	program	also	provides	the majority	of	$100	million	of	U.S.	earthquake	coverage	excess	of	approximately	$1.173	billion	with	a	territorial	scope	of	California,	the	Pacific	Northwest, and	the	central	U.S.	The	Calabash	program	does	not	have	a	reinstatement	feature	over	its	multi-year	period	of	coverage.	The	program's	expected	loss	is kept	the	same	each	year	by	the	annual	adjustment,	either	up	or	down,	of	the	attachment	point	based	upon	an	independent	modeling	firm's	review	of	the exposure	data	underlying	each	program.	Due	to	exposure	change,	the	attachment	for	the	Calabash	program	increased	from	$575	million	in	2010	to	$750 million	in	2011,	for	the	$86	million	of	wind	protection	and	from	approximately	$961	million	in	2010	to	approximately	$1.173	billion	in	2011,	for	earthquake protection.	The	Calabash	program	expires	in	June	2012	and	the	next	reset	will	occur	in	January	2012.

The	second	tower	is	our	international	catastrophe	program	effective	July	1,	2010,	to	June	30,	2011,	covering	losses	arising	outside	the	United States.	At	the	last	renewal	we	expanded	the	geographic	scope	of	the	coverage	to	include	the	states	of	Alaska	and	Hawaii	in	the	first	two	core	layers	of this	program.	In	addition,	we	raised	the	retention	of	our	first	reinsurance	layer	from	$50	million	to	$75	million.	Our	first	layer	is	now	$75	million	in	excess	of a	$75	million	retention	with	two	reinstatements.	This	layer	was	70	percent	placed	with	reinsurers.	Our	second	layer	was	100	percent	placed	and	provides $150	million	in	protection	in	excess	of	$150	million	with	one	reinstatement.	We	also	purchased	a	$150	million	in	excess	of	$300	million	layer	that	covers Europe	and	worldwide	earthquake	exposure.	Above	these	pillars	of	cover	is	an	additional	treaty	that	provides	$50	million	of	protection	with	one reinstatement	(Umbrella	1).	However,	Umbrella	1	may	also	be	exhausted	by	certain	property	per	risk	losses	so	it	is	not	certain	that	it	will	be	available	to us	for	a	catastrophe	event.	In	addition,	we	purchased	another	$50	million	layer	above	Umbrella	1.

With	respect	to	the	July	1,	2010,	to	June	30,	2011,	treaty	period,	we	also	purchased	certain	underlying	regional	catastrophe	covers	for	our	ACE Overseas	General	and	ACE	Bermuda	business	units.	These	catastrophe	covers	include	a	Latin	America	and	Caribbean	cover	($65	million	in	excess	of $10	million)	an	Australia,	Africa,	and	Asia	(excludes	Japan)	cover	($40	million	in	excess	of	$10	million)	and	a	cover	for	local	Japanese	business (denominated	in	yen	and	approximately	$40	million	in	excess	of	$15	million).	Finally,	we	bought	a	layer	of	$25	million	in	excess	of	$50	million	for	our Australia,	Africa,	and	Asia	as	well	as	Japanese	exposures,	with	the	underlying	programs	inuring	to	the	benefit	of	this	component.	With	respect	to	these four	regional	covers,	we	placed	55	percent	of	the	layer	with	reinsurers,	and	each	has	two	reinstatements.

In	summary,	for	our	international	catastrophe	exposures,	we	purchased	$550	million	in	limits	for	earthquake	protection	outside	the	contiguous United	States,	$550	million	in	limits	for	all	perils	Europe,	and	$400	million	in	limits	for	other	perils	in	the	rest	of	the	world	(excluding	the	contiguous	United States).	In	comparison	to	last	year's	program,	we	have	increased	the	limits	purchased	for	Europe	by	$69	million	and	for	Japan	wind	by	$72	million	and Japan	earthquake	by	$222	million.	In	addition,	we	increased	our	retention	in	Europe	by	approximately	$31	million	and	in	Japan	by	$34	million	relative	to last	year.

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.

# 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	an	MGA subsidiary	of	Rain	and	Hail.	As	discussed	under	"Acquisitions",	on	December	28,	2010,	we	acquired	all	of	the	outstanding	common	stock	of	Rain	and	Hail not	previously	owned	by	us.	Prior	to	this	transaction,	ACE	owned	approximately	20	percent	of	the	outstanding	common	stock	of	Rain	and	Hail.

We	provide	protection	throughout	the	U.S.	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	–	multi-peril	crop	insurance	(MPCI)	and	hail insurance.

The	MPCI	program	is	a	partnership	with	the	U.S.	Department	of	Agriculture	(USDA).	The	policies	cover	revenue	shortfalls	or	production	losses	due to	natural	causes	such	as	drought,	excessive	moisture,	hail,	wind,	frost,	insects,	and	disease.	Generally,	policies	have	deductibles	ranging	from	10 percent	to	50	percent	of	the	insured's	risk.	The	USDA's	Risk	Management	Agency	(RMA)	sets	the	policy	terms	and	conditions,	rates	and	forms,	and	is also	responsible	for	setting	compliance	standards.	As	a	participating	company,	we	report	all	details	of	policies	underwritten	to	the	RMA	and	are	party	to	a Standard	Reinsurance	Agreement	(SRA),	which	sets	out	the	relationship	between	private	insurance	companies	and	the	federal	government	concerning the	terms	and	conditions	regarding	the	risks	each	will	bear.	In	addition	to	the	pro-rata	and	excess	of	loss	reinsurance	protections	inherent	in	the	SRA,	we cede	business	on	a	quota-share	basis	to	third-party	reinsurers	and	further	protect	our	net	retained	position	through	the	purchase	of	stop-loss	reinsurance in	the	private	market	place.	In	July	2010,	the	RMA	released	a	final	version	of	a	new	SRA	(the	2011	SRA),	replacing	the	prior	agreement	which	expired	on June	30,	2010.	The	2011	SRA	applies	to	the	2011	Crop	year,	and	therefore	there	is	minimal	impact	from	the	new	agreement	on	our	2010	financial results.	Similar	to	the	recently	expired	SRA,	the	2011	SRA	contains	the	pro	rata	and	state	stop-loss	provisions	which	continue	to	allow	companies	to	limit the	exposure	of	any	one	state	or	group	of	states	on	their	underwriting	results.	Generally,	it	also	continues	to	allow	companies	to	selectively	retain	the more	attractive	risks	while	ceding	the	historically	less	profitable	risks	to	the	federal	government.	While	the	2011	SRA	does	reduce	the	potential underwriting	profit,	it	also	decreases	the	maximum	underwriting	loss,	compared	with	the	prior	version.	Despite	the	potential	underwriting	profitability reduction,	we	believe	the	2011	SRA	allows	for	an	acceptable	rate	of	return	in	2011.

Our	hail	program	is	a	private	offering.	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	hail	exposures	through	the	use	of	township	liability	limits,	quota-share	reinsurance cessions,	and	stop-loss	reinsurance	on	our	net	retained	hail	business.

On	the	MPCI	business,	we	recognize	net	premiums	written	as	we	receive	acreage	reports	from	the	policyholders	on	the	various	crops	throughout the	U.S.	The	program	has	specific	timeframes	as	to	when	producers	must	report	acreage	to	us.	These	reports	allow	us	to	determine	the	actual	premium associated	with	the	liability	that	is	being	planted.	Once	the	net	premium	written	has	been	booked,	the	premium	is	then	earned	over	the	growing	season for	the	crops.	Given	the	major	crops	that	are	covered	in	the	program,	we	typically	see	a	substantial	written	premium	impact	in	the	second	and	third quarters	and	the	earned	premium	is	also	more	concentrated	in	the	second	and	third	quarters.	Premium	is	earned	on	the	hail	program	over	the	coverage period	of	the	policy.	Given	the	very	short	nature	of	the	growing	season,	most	hail	business	is	typically	written	in	the	second	and	third	quarters	with	the earned	premium	also	more	heavily	occurring	during	this	time	frame.	Prior	to	the	acquisition	of	Rain	and	Hail,	we	regularly	received	reports	relating	to	the previous	crop	year(s),	resulting	in	adjustments	to	previously	reported	premiums,	losses	and	loss	expenses,	and	profit	share	commissions.	The adjustments	were	typically	more	significant	in	the	first	quarter	of	the	year	(annual	first	quarter	settlement),	compared	with	other	periods.	Following	the Rain	and	Hail	acquisition	closing	on	December	28,	2010,	we	have	access	to	such	information	sooner	and	as	a	result	the	more	significant	changes	in estimate	that	occurred	in	the	first	quarter	in	prior	years	now	occurs	in	the	fourth	quarter.

# Political	Risk,	Trade	Credit,	and	Structured	Trade	Credit

Political	risk	insurance	is	a	specialized	coverage	that	provides	clients	with	protection	against	unexpected,	catastrophic	political	or	macroeconomic	events, primarily	in	developing	markets.	We	participate	in	this	market	through	our	wholly	owned	subsidiary	Sovereign	Risk	Insurance	Ltd.	(Sovereign),	and through	a	unit	of	our	London-based	ACE	Global	Markets	operation.	Sovereign	is	one	of	the	world's	leading	underwriters	of	political	risk	insurance	and	has a	global	portfolio	spread	across	more	than	100	countries.	Its	clients	include	financial	institutions,	national	export	credit	agencies,	leading	multilateral agencies,	and	multinational	corporations.	ACE	Global	Markets	writes	political	risk,	trade	credit,	and	structured	trade	credit	business	out	of	underwriting offices	in	London,	Hamburg,	New	York,	Los	Angeles,	and	Singapore.

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	nonpayment	or	non-honoring	of	government	guarantees.	Equity	investors	and corporations	receive	similar	coverage	to	that	of	lenders,	except	they	are	protected	against	financial	losses,	inability	to	repatriate	dividends,	and	physical damage	to	their	operations	caused	by	covered	events.	Our	export	contracts	protection	provides	coverage	for	both	exporters	and	their	financing	banks against	the	risk	of	contract	frustration	due	to	government	actions,	including	non-payment	by	government	entities.

ACE	Global	Markets'	trade	credit	and	structured	trade	credit	businesses	cover	losses	due	to	insolvency,	protracted	default,	and	political	risk	perils including	export	and	license	cancellation.	It	provides	trade	credit	coverage	to	larger	companies	that	have	sophisticated	credit	risk	management	systems, with	exposure	to	multiple	customers	and	that	have	the	ability	to	self-insure	losses	up	to	a	certain	level	through	excess	of	loss	coverage.	Its	structured trade	credit	business	provides	coverage	to	trade	finance	banks,	exporters,	and	trading	companies,	with	exposure	to	trade-related	financing	instruments.

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

# Liquidity

Liquidity	is	a	measure	of	a	company's	ability	to	generate	cash	flows	sufficient	to	meet	the	short-term	and	long-term	cash	requirements	of	its	business operations.	As	a	holding	company,	ACE	Limited	possesses	assets	that	consist	primarily	of	the	stock	of	its	subsidiaries	and	other	investments.	In	addition to	net	investment	income,	ACE	Limited's	cash	flows	depend	primarily	on	dividends	or	other	statutorily	permissible	payments.	Historically,	these	dividends and	other	payments	have	come	from	ACE'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	and	to	service	debt	and	purchase	investments.

We	anticipate	that	positive	cash	flows	from	operations	(underwriting	activities	and	investment	income)	should	be	sufficient	to	cover	cash	outflows under	most	loss	scenarios	through	2011.	Should	the	need	arise,	we	generally	have	access	to	the	capital	markets	and	available	credit	facilities.	Refer	to "Credit	Facilities"	below.	Our	access	to	funds	under	existing	credit	facilities	is	dependent	on	the	ability	of	the	banks	that	are	parties	to	the	facilities	to	meet their	funding	commitments.	Our	existing	credit	facilities	have	remaining	terms	expiring	between	2012	and	2014	and	require	that	we	maintain	certain financial	covenants,	all	of	which	we	met	at	December	31,	2010.	Should	any	of	our	existing	credit	providers	experience	financial	difficulty,	we	may	be required	to	replace	credit	sources,	possibly	in	a	difficult	market.	There	has	also	been	recent	consolidation	in	the	banking	industry	which	could	lead	to increased	reliance	on	and	exposure	to	particular	institutions.	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 any	of	our	credit	facilities.	To	further	ensure	the	sufficiency	of	funds	to	settle	unforeseen	claims,	we	hold	a	certain	amount	of	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.	In	a	low	interest	rate	environment,	the	overall	duration	of	our	fixed maturity	investments	tends	to	be	shorter	and	in	a	high	interest	rate	environment,	such	duration	tends	to	be	longer.	Given	the	current	low	interest	rate environment,	at	December	31,	2010,	the	average	duration	of	our	fixed	maturity	investments	(3.7	years)	is	less	than	the	average	expected	duration	of	our insurance	liabilities	(4.5	years).

Despite	our	safeguards,	if	paid	losses	accelerated	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	or	large	uncollectible	reinsurance	recoverables	on	paid	losses	(as	a	result	of coverage	disputes,	reinsurers'	credit	problems,	decreases	in	the	value	of	collateral	supporting	reinsurance	recoverables,	or	increases	in	collateral postings	under	our	variable	annuity	reinsurance	business).	Because	each	subsidiary	focuses	on	a	more	limited	number	of	specific	product	lines	than	is collectively	available	from	the	ACE	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	payments	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	2010,	we	were	able	to	meet	all	of	our	obligations,	including	the	payments	of dividends	declared	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.	The	legal	restrictions	on	the	payment	of	dividends	from	retained earnings	by	our	Bermuda	subsidiaries	are	currently	satisfied	by	the	share	capital	and	additional	paid-in	capital	of	each	of	the	Bermuda	subsidiaries.	ACE Tempest	Life	Re	paid	dividends	of	$200	million	in	2010	and	$350	million	in	2009.	ACE	Bermuda	dividends	were	nil	in	2010	and	2009.

The	payment	of	any	dividends	from	ACE	Global	Markets	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	ACE	Global	Markets	is	subject	to	regulations	promulgated	by	the	Society	of	Lloyd's.	The	U.S. insurance	subsidiaries	of	ACE	INA	may	pay	dividends,	without	prior	regulatory	approval,	subject	to	restrictions	set	out	in	state	law	of	the	subsidiary's domicile	(or,	if	applicable,	"commercial	domicile").	ACE	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.

ACE	Limited	did	not	receive	any	dividends	from	ACE	Global	Markets	or	ACE	INA	during	the	years	ended	December	31,	2010	and	2009.	Debt issued	by	ACE	INA	is	serviced	by	statutorily	permissible	distributions	by	ACE	INA's	insurance	subsidiaries	to	ACE	INA	as	well	as	other	group	resources.

# 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	be	comprised	of	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	2010	and	2009.

The	operating	cash	flows	reflect	net	income	for	each	period,	adjusted	for	non-cash	items	and	changes	in	working	capital.

Our	consolidated	net	cash	flows	from	operating	activities	were	$3.5	billion	in	2010,	compared	with	$3.3	billion	in	2009.	Net	loss	and	loss	expenses paid	were	$7.4	billion	in	2010,	compared	with	$6.9	billion	in	2009.	Operating	cash	flow	increased	in	2010,	in	part	due	to	net	collections	of	insurance	and reinsurance	balances.	Operating	cash	flow	in	2009	included	higher	than	typical	net	claim	payments	in	connection	with	prior	year	catastrophes	and	other individual	large	losses,	and	an	increase	in	tax	payments.	In	addition,	during	2009,	operating	cash	flow	was	adversely	impacted	by	the	return	of	collateral collected	in	2008.

Our	consolidated	net	cash	flows	used	for	investing	activities	were	$4.2	billion	in	2010,	compared	with	$3.2	billion	in	2009.	Net	investing	activities for	the	indicated	periods	were	related	primarily	to	net	purchases	of	fixed	maturities	and	for	2010	included	the	acquisitions	of	Rain	and	Hail	and	Jerneh Insurance	Berhad.

Our	consolidated	net	cash	flows	from	financing	activities	were	$732	million	in	2010,	compared	with	net	cash	flows	used	for	financing	activities	of $321	million	in	2009.	Net	cash	flows	from/used	for	financing	activities	in	2010	and	2009,	included	dividends	paid	on	our	Common	Shares	of	$435	million and	$388	million,	respectively.	Net	cash	flows	from	financing	activities	in	2010,	included	net	proceeds	of	$699	million	from	the	issuance	of	long-term	debt, $1	billion	in	reverse	repurchase	agreements,	and	$300	million	in	credit	facility	borrowings.	This	was	partially	offset	by	repayment	of	$659	million	in	debt and	share	repurchases	settled	in	2010	of	$235	million.	For	2009,	net	cash	flows	used	for	financing	activities	included	net	proceeds	from	the	issuance	of $500	million	in	long-term	debt	and	the	net	repayment	of	debt	and	reverse	repurchase	agreements	of	$466	million.

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.

From	time	to	time,	we	utilize	reverse	repurchase	agreements	as	a	low-cost	alternative	for	short-term	funding	needs.	We	use	these	instruments	on a	limited	basis	to	address	short-term	cash	timing	differences	without	disrupting	our	investment	portfolio	holdings	and	settle	the	transactions	with	future operating	cash	flows.	At	December	31,	2010,	there	were	$1	billion	in	reverse	repurchase	agreements	outstanding	(refer	to	Short-term	Debt).

In	addition	to	cash	from	operations,	routine	sales	of	investments,	and	financing	arrangements,	we	have	agreements	with	a	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.	In	each	program,	participating	ACE	entities	establish	deposit	accounts	in different	currencies	with	the	bank	provider	and	each	day	the	credit	or	debit	balances	in	every	account	are	notionally	translated	into	a	single	currency (U.S.	dollars)	and	then	notionally	pooled.	The	bank	extends	overdraft	credit	to	any	participating	ACE	entity	as	needed,	provided	that	the	overall notionally-pooled	balance	of	all	accounts	in	each	pool	at	the	end	of	each	day	is	at	least	zero.	Actual	cash	balances	are	not	physically	converted	and	are not	co-mingled	between	legal	entities.	ACE	entities	may	incur	overdraft	balances	as	a	means	to	address	short-term	timing	mismatches,	and	any overdraft	balances	incurred	under	this	program	by	an	ACE	entity	would	be	guaranteed	by	ACE	Limited	(up	to	$150	million	in	the	aggregate).	Our revolving	credit	facility	allows	for	same	day	drawings	to	fund	a	net	pool	overdraft	should	participating	ACE	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.	The	following	table	summarizes	the components	of	our	capital	resources	at	December	31,	2010,	and	2009.

| (in	millions	of	U.S.	dollars,	except	for	percentages) | 2010 | 2009 |
| :--- | :--- | :--- |
| Short-term\tdebt | $1,300 | $161 |
| Long-term\tdebt | 3,358 | 3,158 |
| Total\tdebt | 4,658 | 3,319 |
| Trust\tpreferred\tsecurities | 309 | 309 |
| Total\tshareholders'\tequity | \t 22,974 | \t 19,667 |
| Total\tcapitalization | $27,941 | $23,295 |
| Ratio\tof\tdebt\tto\ttotal\tcapitalization | 16.7% | 14.2% |
| Ratio\tof\tdebt\tplus\ttrust\tpreferred\tsecurities\tto\ttotal\tcapitalization | 17.8% | 15.6% |

Our	ratios	of	debt	to	total	capitalization	and	debt	plus	trust	preferred	securities	to	total	capitalization	have	increased	temporarily	due	to	the	increase	in short-term	debt,	as	discussed	below.	We	expect	that	these	ratios	will	decline	over	the	next	six	to	nine	months	as	we	repay	the	short-term	debt.

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.

The	following	table	reports	the	significant	movements	in	our	shareholders'	equity	for	the	year	ended	December	31,	2010.

| (in	millions	of	U.S.	dollars) | 2010 |
| :--- | :--- |
| Balance,\tbeginning\tof\tyear | $19,667 |
| Net\tincome | 3,108 |
| Dividends\tdeclared\ton\tCommon\tShares | (443) |
| Change\tin\tnet\tunrealized\tappreciation\t(depreciation)\ton\tinvestments,\tnet\tof\ttax | 742 |
| Repurchase\tof\tshares | (303) |
| Other\tmovements,\tnet\tof\ttax | 203 |
| Balance,\tend\tof\tyear | $22,974 |

Total	shareholders'	equity	increased	$3.3	billion	in	2010,	primarily	due	to	net	income	of	$3.1	billion	and	the	change	in	net	unrealized	appreciation	on investments	of	$742	million.

# Short-term	Debt

At	December	31,	2010,	in	connection	with	the	financing	of	the	Rain	and	Hail	acquisition,	short-term	debt	includes	reverse	repurchase	agreements	totaling $1	billion.	In	addition,	$300	million	in	borrowings	against	ACE's	revolving	credit	facility	were	outstanding	at	December	31,	2010.	At	December	31,	2009, short-term	debt	consisted	of	a	five-year	term	loan	which	we	repaid	in	December	2010.

# Long-term	Debt

Our	total	long-term	debt	increased	by	$200	million	during	the	year	to	$3.4	billion	and	is	described	in	detail	in	Note	9	to	the	Consolidated	Financial Statements,	under	Item	8.

In	November	2010,	ACE	INA	issued	$700	million	of	2.6	percent	senior	notes	due	November	2015.	These	senior	unsecured	notes	are	guaranteed on	a	senior	basis	by	the	Company	and	they	rank	equally	with	all	of	the	Company's	other	senior	obligations.

In	April	2008,	as	part	of	the	financing	of	the	Combined	Insurance	acquisition,	ACE	INA	entered	into	a	$450	million	floating	interest	rate	syndicated term	loan	agreement	due	April	2013.	Simultaneously,	the	Company	entered	into	a	swap	transaction	that	had	the	economic	effect	of	fixing	the	interest	rate for	the	term	of	the	loan.	In	December	2010,	ACE	repaid	this	loan	and	exited	the	swap.

In	December	2008,	ACE	INA	entered	into	a	$66	million	dual	tranche	floating	interest	rate	term	loan	agreement.	The	first	tranche,	a	$50	million three-year	term	loan	due	December	2011,	had	a	floating	interest	rate.	Simultaneously,	the	Company	entered	into	a	swap	transaction	that	had	the economic	effect	of	fixing	the	interest	rate	for	the	term	of	the	loan.	In	December	2010,	ACE	repaid	this	loan	and	exited	the	swap.	The	second	tranche,	a $16	million	nine-month	term	loan,	was	due	and	repaid	in	September	2009.

# Trust	Preferred	Securities

The	securities	outstanding	consist	of	$300	million	of	trust	preferred	securities	due	2030,	issued	by	a	special	purpose	entity	(a	trust)	that	is	wholly	owned by	us.	The	sole	assets	of	the	special	purpose	entity	are	debt	instruments	issued	by	one	or	more	of	our	subsidiaries.	The	special	purpose	entity	looks	to payments	on	the	debt	instruments	to	make	payments	on	the	preferred	securities.	We	have	guaranteed	the	payments	on	these	debt	instruments.	The trustees	of	the	trust	include	one	or	more	of	our	officers	and	at	least	one	independent	trustee,	such	as	a	trust	company.	Our	officers	serving	as	trustees	of the	trust	do	not	receive	any	compensation	or	other	remuneration	for	their	services	in	such	capacity.	The	full	$309	million	of	outstanding	trust	preferred securities	(calculated	as	$300	million	as	discussed	above	plus	our	equity	share	of	the	trust)	is	shown	on	our	consolidated	balance	sheet	as	a	liability. Additional	information	with	respect	to	the	trust	preferred	securities	is	contained	in	Note	9	d)	to	the	Consolidated	Financial	Statements,	under	Item	8.

# Common	Shares

At	the	Annual	General	Meeting	held	in	May	2010,	the	Company's	shareholders	approved	a	par	value	reduction	in	an	aggregate	Swiss	franc amount,	pursuant	to	a	formula,	equal	to	$1.32	per	share,	which	we	refer	to	as	the	Base	Annual	Dividend.	The	Base	Annual	Dividend	is	payable	in	four installments,	provided	that	each	of	the	Swiss	franc	installments	will	be

adjusted	pursuant	to	the	formula	so	that	the	actual	Swiss	franc	par	value	reduction	amount	for	each	installment	will	equal	$0.33,	subject	to	an	aggregate upward	adjustment,	which	we	refer	to	as	the	Dividend	Cap,	for	the	four	installments	of	50	percent	of	the	Base	Annual	Dividend.

Application	of	the	formula	means	that	the	Swiss	franc	amount	of	each	installment	will	be	determined	in	advance	of	distribution	while	the	U.S.	dollar value	of	the	installment	will	remain	$0.33	unless	and	until	the	Dividend	Cap	is	reached.	Par	value	reduction	that	would	otherwise	exceed	the	Dividend Cap	will	be	reduced	to	equal	the	Swiss	franc	amount	remaining	available	under	the	Dividend	Cap	and	the	U.S.	dollar	amount	distributed	will	be	the	then- applicable	U.S.	dollar	equivalent	of	that	Swiss	franc	amount.

Should	we	determine	to	pay	dividends	other	than	by	a	reduction	in	par	value,	under	Swiss	law,	such	dividends	(other	than	by	reductions	in	par value)	may	be	paid	out	only	if	the	corporation	has	sufficient	distributable	profits	from	previous	business	years,	or	if	the	reserves	of	the	corporation	are sufficient	to	allow	distribution	of	a	dividend.	The	Board	of	Directors	of	a	Swiss	corporation	may	propose	that	a	dividend	be	paid,	but	cannot	itself	set	the dividend.	The	Company	auditors	must	confirm	that	the	dividend	proposal	of	the	board	of	directors	conforms	with	Swiss	statutory	law.	Prior	to	the distribution	of	dividends,	five	percent	of	the	annual	profits	must	be	allocated	to	the	general	reserve	until	the	amount	of	general	reserves	has	reached twenty	percent	of	the	paid-in	nominal	share	capital.	Our	Swiss	Articles	of	Association	can	provide	for	a	higher	general	reserve	or	for	the	creation	of further	reserves	setting	forth	their	purpose	and	use.	Once	this	level	has	been	reached	and	maintained,	the	shareholders	may	approve	a	distribution	of each	year's	profit	within	the	framework	of	applicable	legal	requirements.	Dividends	paid	from	retained	earnings	are	usually	due	and	payable	immediately after	the	shareholders'	resolution	relating	to	the	allocation	of	profits	has	been	passed.	Under	Swiss	law,	the	statute	of	limitations	in	respect	of	claims	for dividend	payments	is	five	years.

# Contractual	Obligations	and	Commitments

The	table	below	shows	our	contractual	obligations	and	commitments	including	our	payments	due	by	period	at	December	31,	2010.

|  |  | Less	than	1 |  |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- |
| (in\tmillions\tof\tU.S.\tdollars) | Total | Year | 1-3\tYears | 4-5\tYears | After\t5\tYears |
| Payment\tamounts\tdeterminable\tfrom\tthe\trespective\tcontracts |  |  |  |  |  |
| Deposit\tliabilities | $421 | $143 | $60 | $23 | $195 |
| Purchase\tobligations | 425 | 108 | 182 | 91 | 44 |
| Limited\tpartnerships\t–\tfunding\tcommitments | 753 | 323 | 365 | 65 | – |
| Operating\tleases | 397 | 75 | 119 | 83 | 120 |
| Short-term\tdebt | 1,300 | 1,300 | – | – | – |
| Long-term\tdebt | 3,358 | – | – | 1,646 | 1,712 |
| Trust\tpreferred\tsecurities | 309 | – | – | – | 309 |
| Interest\ton\tdebt\tobligations | 2,090 | 207 | 413 | 351 | 1,119 |
| Total\tobligations\tin\twhich\tpayment\tamounts\tare\tdeterminable\tfrom\tthe |  |  |  |  |  |
| respective\tcontracts | 9,053 | 2,156 | 1,139 | 2,259 | 3,499 |
| Payment\tamounts\tnot\tdeterminable\tfrom\tthe\trespective\tcontracts |  |  |  |  |  |
| Estimated\tgross\tloss\tpayments\tunder\tinsurance\tand\treinsurance\tcontracts | \t 37,391 | 9,003 | 9,727 | 5,639 | 13,022 |
| Estimated\tpayments\tfor\tfuture\tlife\tand\tannuity\tpolicy\tbenefits | 3,982 | 246 | 392 | 322 | 3,022 |
| Total\tcontractual\tobligations\tand\tcommitments | $50,426 | $11,405 | $11,258 | $8,220 | $19,543 |

# 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	14	to	the	Consolidated	Financial	Statements,	under	Item	8,	for	more information.

Liabilities	for	unrecognized	tax	benefits:	The	liability	for	unrecognized	tax	benefits,	excluding	interest,	was	$139	million	at	December	31,	2010.	We recognize	accruals	for	interest	and	penalties,	if	any,	related	to	unrecognized	tax	benefits	in	income

tax	expense.	At	December	31,	2010,	we	had	$19	million	in	liabilities	for	income	tax-related	interest	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,	under	Item	8,	for	more	information.

We	have	no	other	significant	contractual	obligations	or	commitments	not	reflected	in	the	table	above.

# Deposit	liabilities

Deposit	liabilities	include	reinsurance	deposit	liabilities	of	$351	million	and	contract	holder	deposit	funds	of	$70	million	at	December	31,	2010.	The reinsurance	deposit	liabilities	arise	from	contracts	we	sold	for	which	there	is	not	a	significant	transfer	of	risk.	At	contract	inception,	the	deposit	liability	is equal	to	net	cash	received.	An	accretion	rate	is	established	based	on	actuarial	estimates	whereby	the	deposit	liability	is	increased	to	the	estimated amount	payable	over	the	term	of	the	contract.	The	deposit	accretion	rate	is	the	rate	of	return	required	to	fund	expected	future	payment	obligations.	We periodically	reassess	the	estimated	ultimate	liability	and	related	expected	rate	of	return.	Any	resulting	changes	to	the	amount	of	the	deposit	liability	are reflected	as	an	adjustment	to	earnings	to	reflect	the	cumulative	effect	of	the	period	the	contract	has	been	in	force,	and	by	an	adjustment	to	the	future accretion	rate	of	the	liability	over	the	remaining	estimated	contract	term.

Additional	information	with	respect	to	deposit	liabilities	is	contained	in	Note	2	k)	to	the	Consolidated	Financial	Statements,	under	Item	8.

# Purchase	obligations

We	are	party	to	enforceable	and	legally	binding	agreements	to	purchase	certain	services.	Purchase	obligations	in	the	table	primarily	comprise	audit	fees and	agreements	with	vendors	to	purchase	system	software	administration	and	maintenance	services.

# Limited	partnerships	–	funding	commitments

In	connection	with	our	investments	in	limited	partnerships,	we	have	commitments	that	may	require	funding	over	the	next	several	years.	The	timing	of	the payment	of	these	commitments	is	uncertain	and	will	differ	from	our	estimated	timing	in	the	table.

# Operating	lease	commitments

We	lease	office	space	in	most	countries	in	which	we	operate	under	operating	leases	that	expire	at	various	dates	through	February	2033.	We	renew	and enter	into	new	leases	in	the	ordinary	course	of	business	as	required.

# 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,	2010,	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.

# Estimated	payments	for	future	life	and	annuity	policy	benefits

We	establish	reserves	for	future	policy	benefits	for	life	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	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	for	life and	annuity	contracts	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	not	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	LOCs.	In	addition,	ACE	Global	Markets	is	required	to	satisfy	certain	U.S.	regulatory	trust	fund requirements	which	can	be	met	by	the	issuance	of	LOCs.	LOCs	may	also	be	used	for	general	corporate	purposes	and	to	provide	underwriting	capacity	as funds	at	Lloyd's.

The	following	table	shows	our	main	credit	facilities	by	credit	line,	usage,	and	expiry	date	at	December	31,	2010.

Certain	facilities	are	guaranteed	by	operating	subsidiaries	and/or	ACE	Limited. (1)

May	also	be	used	for	LOCs. (2)

Supports	ACE	Global	Markets	underwriting	capacity	for	Lloyd's	Syndicate	2488	(see	discussion	below). (3)

In	November	2010,	we	entered	into	four	letter	of	credit	facility	agreements	which	collectively	permit	the	issuance	of	up	to	$400	million	of	letters	of credit.	We	expect	that	most	of	the	LOCs	issued	under	the	LOC	agreements	will	be	used	to	support	the	ongoing	Funds	at	Lloyd's	requirements	of Syndicate	2488,	but	LOCs	may	also	be	used	for	other	general	corporate	purposes.

It	is	anticipated	that	our	commercial	facilities	will	be	renewed	on	expiry	but	such	renewals	are	subject	to	the	availability	of	credit	from	banks	utilized by	ACE.	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	letters	of	credit	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	facilities	in	the	table	above	require	that	we	maintain	certain	covenants,	all	of	which	have	been	met	at	December	31,	2010.	These	covenants include:

(i) Maintenance	of	a	minimum	consolidated	net	worth	in	an	amount	not	less	than	the	"Minimum	Amount".	For	the	purpose	of	this	calculation,	the Minimum	Amount	is	an	amount	equal	to	the	sum	of	the	base	amount	(currently	$13.8	billion)	plus	25	percent	of	consolidated	net	income	for	each	fiscal quarter,	ending	after	the	date	on	which	the	current	base	amount	became	effective,	plus	50	percent	of	any	increase	in	consolidated	net	worth	during the	same	period,	attributable	to	the	issuance	of	Common	and	Preferred	Shares.	The	Minimum	Amount	is	subject	to	an	annual	reset	provision. (ii) Maintenance	of	a	maximum	debt	to	total	capitalization	ratio	of	not	greater	than	0.35	to	1.	Under	this	covenant,	debt	does	not	include	trust	preferred securities	or	mezzanine	equity,	except	where	the	ratio	of	the	sum	of	trust	preferred	securities	and	mezzanine	equity	to	total	capitalization	is	greater than	15	percent.	In	this	circumstance,	the	amount	greater	than	15	percent	would	be	included	in	the	debt	to	total	capitalization	ratio.

At	December	31,	2010,	(a)	the	minimum	consolidated	net	worth	requirement	under	the	covenant	described	in	(i)	above	was	$14.5	billion	and	our actual	consolidated	net	worth	as	calculated	under	that	covenant	was	$21.6	billion	and	(b)	our	ratio	of	debt	to	total	capitalization	was	0.167	to	1,	which	is below	the	maximum	debt	to	total	capitalization	ratio	of	0.35	to	1	as	described	in	(ii)	above.

Our	failure	to	comply	with	the	covenants	under	any	credit	facility	would,	subject	to	grace	periods	in	the	case	of	certain	covenants,	result	in	an	event of	default.	This	could	require	us	to	repay	any	outstanding	borrowings	or	to	cash	collateralize	LOCs	under	such	facility.	A	failure	by	ACE	Limited	(or	any	of its	subsidiaries)	to	pay	an	obligation	due	for	an	amount	exceeding	$50	million	would	result	in	an	event	of	default	under	all	of	the	facilities	described above.

# Ratings

ACE	Limited	and	its	subsidiaries	are	assigned	debt	and	financial	strength	(insurance)	ratings	from	internationally	recognized	rating	agencies,	including S&P,	A.M.	Best,	Moody's	Investors	Service,	and	Fitch.	The	ratings	issued	on	our	companies	by	these	agencies	are	announced	publicly	and	are	available directly	from	the	agencies.	Our	internet	site,	www.acegroup.com,

also	contains	some	information	about	our	ratings,	which	can	be	found	under	the	Investor	Information	tab	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.

Debt	ratings	apply	to	short-term	and	long-term	debt.	These	ratings	are	assessments	of	the	likelihood	that	we	will	make	timely	payments	of	principal and	interest.

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.	For	example,	the	ACE	Global	Markets	capital	facility	requires	that	collateral	be	posted	if	the	S&P	financial	strength	rating	of	ACE	falls	to BBB+	or	lower.	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	ACE	fall	to	BBB+	or	lower,	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,	2010,	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.

# Recent	Accounting	Pronouncements

Refer	to	Note	2	to	the	Consolidated	Financial	Statements,	under	Item	8,	for	a	discussion	of	new	accounting	pronouncements.

# Item	7A. Quantitative	and	Qualitative	Disclosures	about	Market	Risk

# Market	Sensitive	Instruments	and	Risk	Management

Market	risk	represents	the	potential	for	loss	due	to	adverse	changes	in	the	fair	value	of	financial	instruments.	We	are	exposed	to	potential	losses	from various	market	risks	including	changes	in	interest	rates,	equity	prices,	and	foreign	currency	exchange	rates.	Further,	through	writing	the	GLB	and	GMDB products,	we	are	exposed	to	volatility	in	the	equity	and	credit	markets,	as	well	as	interest	rates	and	the	equity	markets.	Our	investment	portfolio	consists primarily	of	fixed	income	securities,	denominated	in	both	U.S.	dollars	and	foreign	currencies,	which	are	sensitive	to	changes	in	interest	rates	and	foreign currency	exchange	rates.	The	majority	of	our	fixed	income	portfolio	is	classified	as	available	for	sale.	The	effect	of	market	movements	on	our	available	for sale	investment	portfolio	impacts	net	income	(through	net	realized	gains	(losses))	when	securities	are	sold	or	when	we	record	an	OTTI	charge	in	net income.	Changes	in	interest	rates	and	foreign	currency	exchange	rates	will	have	an	immediate	effect	on	comprehensive	income	and	shareholders'	equity but	will	not	ordinarily	have	an	immediate	effect	on	net	income.	From	time	to	time,	we	also	use	investment	derivative	instruments	such	as	futures,	options, swaps,	and	foreign	currency	forward	contracts	to	manage	the	duration	of	our	investment	portfolio	and	foreign	currency	exposures	and	also	to	obtain exposure	to	a	particular	financial	market.	At	December	31,	2010	and	2009,	our	notional	exposure	to	investment	derivative	instruments	was	$7.9	billion and	$8.9	billion,	respectively.	In	addition,	as	part	of	our	investing	activity,	we	purchase	to	be	announced	mortgage	backed	securities	(TBAs).	These instruments	are	recognized	as	assets	or	liabilities	in	our	Consolidated	Financial	Statements	and	are	sensitive	to	changes	in	interest	rates,	foreign currency	exchange	rates,	and	equity	security	prices.	Changes	in	the	fair	value	of	TBAs	are	included	in	net	realized	gains	(losses)	and	therefore,	have	an immediate	effect	on	both	our	net	income	and	shareholders'	equity.

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

The	following	is	a	discussion	of	our	primary	market	risk	exposures	at	December	31,	2010.	Our	policies	to	address	these	risks	in	2010	were	not materially	different	from	2009.	We	do	not	currently	anticipate	significant	changes	in	our	primary	market	risk	exposures	or	in	how	those	exposures	are managed	in	future	reporting	periods	based	upon	what	is	known	or	expected	to	be	in	effect	in	future	reporting	periods.

# Interest	rate	risk	–	fixed	income	portfolio	and	debt	obligations

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

The	following	table	shows	the	impact	at	December	31,	2010	and	2009,	on	the	market	value	of	our	fixed	income	portfolio	of	a	hypothetical	increase in	interest	rates	of	100	bps	applied	instantly	across	the	U.S.	yield	curve	(an	immediate	time	horizon	was	used	as	this	presents	the	worst	case	scenario).

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

Although	our	debt	and	trust	preferred	securities	(collectively	referred	to	as	debt	obligations)	are	reported	at	amortized	value	and	not	adjusted	for	fair value	changes,	changes	in	interest	rates	could	have	a	material	impact	on	their	fair	value,	albeit	there	is	no	immediate	impact	on	our	Consolidated Financial	Statements.	The	following	table	shows	the	impact	at	December	31,	2010	and	2009,	on	the	market	value	of	our	debt	obligations	of	a	hypothetical decrease	in	interest	rates	of	100	bps	applied	instantly	across	the	U.S.	yield	curve	(an	immediate	time	horizon	was	used	as	this	presents	the	worst	case scenario).

# Equity	price	risk	–	equity	portfolio

Our	portfolio	of	equity	securities,	which	we	carry	on	our	balance	sheet	at	fair	value,	has	exposure	to	price	risk.	This	risk	is	defined	as	the	potential	loss	in fair	value	resulting	from	adverse	changes	in	stock	prices.	In	addition,	we	attain	exposure	to	the	equity	markets	through	the	use	of	derivative	instruments, which	also	have	exposure	to	price	risk.	Our	U.S.	equity	portfolio	is	correlated	with	the	S&P	500	index	and	changes	in	that	index	would	approximate	the impact	on	our	portfolio.	Our	international	equity	portfolio	has	exposure	to	a	broad	range	of	non-U.S.	equity	markets.	The	following	table	provides	more information	on	our	exposure	to	equity	price	risk	at	December	31,	2010	and	2009.

Changes	in	the	fair	value	of	our	equity	portfolio	are	recorded	as	unrealized	appreciation	(depreciation)	and	are	included	as	a	separate	component	of accumulated	other	comprehensive	income	in	shareholders'	equity.

# Foreign	currency	exchange	rate	risk

Many	of	our	non-U.S.	companies	maintain	both	assets	and	liabilities	in	local	currencies.	Therefore,	foreign	exchange	rate	risk	is	generally	limited	to	net assets	denominated	in	those	foreign	currencies.	Foreign	exchange	rate	risk	is	reviewed	as	part	of	our	risk	management	process.	Locally	required	capital levels	are	invested	in	home	currencies	in	order	to	satisfy	regulatory	requirements	and	to	support	local	insurance	operations	regardless	of	currency fluctuations.	The	principal	currencies	creating	foreign	exchange	risk	for	us	are	the	British	pound	sterling,	the	euro,	and	the	Canadian	dollar.	The	following table	provides	more	information	on	our	exposure	to	foreign	exchange	rate	risk	at	December	31,	2010	and	2009.

# Reinsurance	of	GMDB	and	GLB	guarantees

Our	net	income	is	directly	impacted	by	changes	in	the	benefit	reserves	calculated	in	connection	with	the	reinsurance	of	variable	annuity	guarantees, primarily	GMDB	and	GLB.	The	benefit	reserves	are	calculated	in	accordance	with	the	provisions	of	Topic	944,	related	to	accounting	and	reporting	by insurance	enterprises	for	certain	non-traditional	long-duration	contracts	and	for	separate	accounts.	Changes	in	the	benefit	reserves	are	reflected	as policy	benefits	expense,	which	is	included	in	life	underwriting	income.	In	addition,	our	net	income	is	directly	impacted	by	the	change	in	the	fair	value	of the	GLB	liability	(FVL),	which	is	classified	as	a	derivative	for	accounting	purposes.	The	FVL	established	for	a	GLB	reinsurance	contract	represents	the difference	between	the	fair	value	of	the	contract	and	the	benefit	reserves.	Changes	in	the	FVL,	net	of	associated	changes	in	the	calculated	benefit reserves,	are	reflected	as	realized	gains	or	losses.

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

At	December	31,	2010,	management	established	benefit	reserves	based	on	the	benefit	ratio	calculated	using	assumptions	reflecting management's	best	estimate	of	the	future	performance	of	the	variable	annuity	line	of	business.	Management	exercises	judgment	in	determining	the extent	to	which	short-term	market	movements	impact	the	benefit	reserves.	The	benefit	reserves	are	based	on	the	calculation	of	a	long-term	benefit	ratio (or	loss	ratio)	for	the	variable	annuity	guarantee	reinsurance.	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	temporary	or	transient.	Management's	best	estimate	reflected	a	judgment	that	the equity	markets	will	exhibit	sub-par	growth	over	the	next	several	years.	Management	regularly	examines	both	quantitative	and	qualitative	analysis	and	for the	quarter	ended	December	31,	2010,	determined	that	no	change	to	the	benefit	ratio	was	warranted.	The	benefit	ratio	used	to	establish	the	benefit reserves	at	December	31,	2010,	has	averaged	less	than	1/4	standard	deviation	from	the	calculated	benefit	ratios,	averaging	the	periodic	results	from	the time	the	benefit	ratio	was	changed	during	the	first	quarter	of	2009	until	December	31,	2010.

Topic	944	requires	ACE	to	"regularly	evaluate	estimates	used	and	adjust	the	liability	balance…	if	actual	experience	or	other	evidence	suggests	that earlier	assumptions	should	be	revised."	ACE	evaluates	its	estimates	regularly	and	management	uses	judgment	to	determine	the	extent	to	which	the assumptions	underlying	the	benefit	ratio	calculation	used	to	establish	benefit	reserves	should	be	adjusted.	The	benefit	ratio	will	be	calculated	based	on management's	expectation	for	the	short-term	and	long-term	performance	of	the	variable	annuity	guarantee	liability.	Management's	quantitative	analysis includes	a	review	of	the	differential	between	the	benefit	ratio	used	at	the	most	recent	valuation	date	and	the	benefit	ratio	calculated	on	subsequent	dates. The	differential	is	measured	in	terms	of	the	standard	deviation	of	the	distribution	of	benefit	ratios	(reflecting	1,000	stochastic	scenarios)	calculated	on subsequent	dates.

The	benefit	reserves	and	FVL	calculations	are	directly	affected	by	market	factors,	including	equity	levels,	interest	rate	levels,	credit	risk,	and	implied volatilities,	as	well	as	policyholder	behaviors,	such	as	annuitization	and	lapse	rates.	The	tables	below	show	the	sensitivity,	at	December	31,	2010,	of	the benefit	reserves	and	FVL	associated	with	the	variable	annuity	guarantee	reinsurance	portfolio.	In	addition,	the	tables	below	show	the	sensitivity	of	the	fair value	of	specific	derivative	instruments	held	(hedge	value),	which	includes	only	those	instruments	owned	at	the	reporting	date,	to	partially	offset	the	risk	in the	variable	annuity	guarantee	reinsurance	portfolio.

The	above	tables	assume	benefit	reserves	and	FVL	using	the	benefit	ratio	calculated	at	December	31,	2010.	Additionally,	the	above	table	assumes equity	shocks	impact	all	global	equity	markets	equally	and	that	the	interest	rate	shock	is	a	parallel	shift	in	the	U.S.	yield	curve.	Although	our	liabilities have	sensitivity	to	global	equity	markets,	we	would	suggest	using	the	S&P	500	as	a	proxy	and	although	our	liabilities	have	sensitivity	to	global	interest rates	at	various	points	on	the	yield	curve,	we	would	suggest	using	the	10-year	U.S.	Treasury	yield	as	a	proxy.	A	change	in	AA-rated	credit	spreads	(AA- rated	credit	spreads	are	a	proxy	for	both	ACE's	own	credit	spreads	and	the	credit	spreads	of	the	ceding	insurers),	impacts	the	rate	used	to	discount	cash flows	in	the	fair	value	model.	The	hedge	sensitivity	is	from	December	31,	2010,	market	levels.

The	above	sensitivities	are	not	directly	additive	because	changes	in	one	factor	will	affect	the	sensitivity	to	changes	in	other	factors.	Also,	the sensitivities	do	not	scale	linearly	and	may	be	proportionally	greater	for	larger	movements	in	the	market	factors.	The	calculation	of	the	benefit	reserves and	FVL	is	based	on	internal	models	that	include	assumptions	regarding	future	policyholder	behavior,	including	lapse,	annuitization,	and	asset	allocation. These	assumptions	impact	both	the	absolute	level	of	the	benefit	reserves	and	the	FVL	as	well	as	the	sensitivities	to	changes	in	market	factors	shown above.	Additionally,	actual	sensitivity	of	our	benefit	reserves,	FVL,	and	net	income	may	differ	from	those	disclosed	in	the	tables	above	due	to	differences between	short-term	market	movements	and	management	judgment	regarding	the	long-term	assumptions	implicit	in	our	benefit	ratio.	Furthermore,	the sensitivities	above	could	vary	by	multiples	of	the	sensitivities	in	the	tables	above.

# Item	8. Financial	Statements	and	Supplementary	Data

The	financial	statements	and	supplementary	data	required	by	Regulation	S-X	are	included	in	this	report	on	Form	10-K	commencing	on	page	F-1.

# Item	9. Changes	in	and	Disagreements	with	Accountants	on	Accounting	and	Financial	Disclosure

There	have	been	no	changes	in,	or	any	disagreements	with,	accountants	on	accounting	and	financial	disclosure	within	the	two	years	ended December	31,	2010.

# Item	9A. Controls	and	Procedures

The	Company's	management,	with	the	participation	of	the	Company's	Chief	Executive	Officer	and	Chief	Financial	Officer,	evaluated	the	effectiveness	of the	Company's	disclosure	controls	and	procedures	as	defined	in	Rule	13(a)	-15(e)	and	Rule	15(d)	-15(e)	under	the	Securities	Exchange	Act	of	1934	as	of December	31,	2010.	Based	upon	that	evaluation,	the	Company's	Chief	Executive	Officer	and	Chief	Financial	Officer	concluded	that	the	Company's disclosure	controls	and	procedures	are	effective	in	allowing	information	required	to	be	disclosed	in	reports	filed	under	the	Securities	and	Exchange	Act	of 1934	to	be	recorded,	processed,	summarized,	and	reported	within	time	periods	specified	in	the	rules	and	forms	of	the	SEC,	and	that	such	information	is accumulated	and	communicated	to	the	Company's	management,	including	its	Chief	Executive	Officer	and	Chief	Financial	Officer,	as	appropriate	to	allow timely	decisions	regarding	required	disclosure.

There	has	been	no	change	in	the	Company's	internal	controls	over	financial	reporting	during	the	Company's	quarter	ended	December	31,	2010, that	has	materially	affected,	or	is	reasonably	likely	to	materially	affect,	the	Company's	internal	controls	over	financial	reporting.	The	Company's management	report	on	internal	control	over	financial	reporting	is	included	on	page	F-3	and	PricewaterhouseCoopers	LLP's	audit	report	is	included	on page	F-4.

# Item	9A(T). Controls	and	Procedures

# Item	not	applicable.

# Item	9B. Other	Information

# PART	III

# Item	10. Directors,	Executive	Officers	and	Corporate	Governance

Information	pertaining	to	this	item	is	incorporated	by	reference	to	the	sections	entitled	"Agenda	Item	No.	1:	Election	of	Directors",	"Corporate	Governance –	Director	Independence	and	Other	Information,"	"Corporate	Governance	–	Did	our	Officers	and	Directors	Comply	with	Section	16(a)	Beneficial Ownership	Reporting	in	2010?",	"Corporate	Governance	–	How	are	Directors	Nominated?",	and	"Corporate	Governance	–	The	Committees	of	the	Board –	The	Audit	Committee"	of	the	definitive	proxy	statement	for	the	2011	Annual	General	Meeting	of	Shareholders	which	will	be	filed	with	the	SEC	not	later than	120	days	after	the	close	of	the	fiscal	year	pursuant	to	regulation	14A.	Also	incorporated	herein	by	reference	is	the	text	under	the	caption	"Executive Officers	of	the	Company"	appearing	at	the	end	of	Part	I	of	the	Annual	Report	on	Form	10-K.

# Code	of	Ethics

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

# Item	11. Executive	Compensation

This	item	is	incorporated	by	reference	to	the	sections	entitled	"Executive	Compensation"	of	the	definitive	proxy	statement	for	the	2011	Annual	General Meeting	of	Shareholders	which	will	be	filed	with	the	SEC	not	later	than	120	days	after	the	close	of	the	fiscal	year	pursuant	to	regulation	14A.

# Item	12. Security	Ownership	of	Certain	Beneficial	Owners	and	Management	and	Related	Stockholder	Matters

The	following	table	presents	securities	authorized	for	issuance	under	equity	compensation	plans	at	December	31,	2010.

(1) These	totals	include	securities	available	for	future	issuance	under	the	following	plans:

(i)	ACE	Limited	2004	Long-Term	Incentive	Plan.	(the	"2004	LTIP")	A	total	of	30,600,000	Common	Shares	of	the	Company	are	authorized	to	be issued	pursuant	to	awards	made	as	options,	stock	appreciation	rights,	stock	units,	performance	shares,	performance	units,	restricted	stock,	and restricted	stock	units.	The	maximum	number	of	shares	that	may	be	delivered	to	participants	and	their	beneficiaries	under	the	2004	LTIP	shall	be	equal	to the	sum	of:	(i)	30,600,000	shares;	and	(ii)	any	shares	that	are	represented	by	awards	granted	under	the	ACE	Limited	1995	Long-Term	Incentive	Plan,	the ACE	Limited	1995	Outside	Directors	Plan,	the	ACE	Limited	1998	Long-Term	Incentive	Plan,	and	the	ACE	Limited	1999	Replacement	Long-Term Incentive	Plan	(the	"Prior	Plans")	that	are	forfeited,	expired,	or	are	canceled	after	the	effective	date	of	the	2004	LTIP	of	February	25,	2004,	without delivery	of	shares	or	which	result	in	the	forfeiture	of	the	shares	back	to	the	Company	to	the	extent	that	such	shares	would	have	been	added	back	to	the reserve	under	the	terms	of	the	applicable	Prior	Plan.	As	of	December	31,	2010,	a	total	of	12,525,434	shares	remain	available	for	future	issuance	under this	plan.

(ii)	ACE	Limited	1998	Long-Term	Incentive	Plan.	A	total	of	21,252,007	shares	were	authorized	to	be	issued	pursuant	to	awards	made	as	options,

stock	appreciation	rights,	stock	units,	performance	shares,	performance	units,	restricted	stock,	and	restricted	stock	units;	the	number	of	shares	available for	awards	other	than	options	and	stock	appreciation	rights	was	3,232,485	shares.	This	plan	only	remains	in	effect	with	respect	to	outstanding	awards made	pursuant	to	this	plan.	Future	awards	will	be	made	pursuant	to	the	2004	LTIP.

(iii)	ACE	Limited	1995	Long-Term	Incentive	Plan.	Shares	were	authorized	to	be	issued	in	an	amount	determined	by	a	formula	described	in footnote	(2)	below	pursuant	to	awards	to	be	made	as	options,	stock	appreciation	rights,	and	restricted	stock.	This	plan	only	remains	in	effect	with	respect to	outstanding	awards	made	pursuant	to	this	plan.	Future	awards	will	be	made	pursuant	to	the	2004	LTIP.

(iv)	ACE	Limited	1995	Outside	Directors	Plan .	Shares	were	authorized	to	be	issued	in	an	amount	determined	by	a	formula	described	in	footnote	(2) below	pursuant	to	awards	made	as	options,	restricted	stock,	and	unrestricted	stock.	This	plan	only	remains	in	effect	with	respect	to	outstanding	awards made	pursuant	to	this	plan.	Future	awards	will	be	made	pursuant	to	the	2004	LTIP.

(v)	Employee	Stock	Purchase	Plan.	A	total	of	3,000,000	shares	are	authorized	for	purchase	at	a	discount.	As	of	December	31,	2010,	489,358 shares	remain	available	for	future	issuance	under	this	plan.

(2) This	plan	category	includes	shares	issuable	pursuant	to	the	following	plans	that	authorize	shares	based	on	a	formula:

(i)	ACE	Limited	1995	Long-Term	Incentive	Plan.	The	total	number	of	shares	available	for	awards	under	this	plan	in	any	fiscal	year	was	five	percent of	the	adjusted	average	of	the	outstanding	Common	Shares	of	the	Company,	as	that	number	is	determined	by	the	Company,	to	calculate	fully	diluted earnings	per	share	for	the	preceding	fiscal	year,	reduced	by	any	shares	of	stock	granted	pursuant	to	awards	under	this	plan	and	any	shares	of	stock subject	to	any	outstanding	award	under	this	plan.	This	plan	only	remains	in	effect	with	respect	to	outstanding	awards	made	pursuant	to	this	plan.	Future awards	will	be	made	pursuant	to	the	2004	LTIP.

(ii)	ACE	Limited	1995	Outside	Directors	Plan .	The	total	number	of	shares	available	for	awards	under	this	plan	in	any	fiscal	year	was	0.5	percent	of the	adjusted	average	of	the	outstanding	Common	Shares	of	the	Company,	as	that	number	was	determined	by	the	Company,	to	calculate	fully	diluted earnings	per	share	for	the	preceding	fiscal	year,	reduced	by	any	shares	of	stock	granted	pursuant	to	awards	under	the	plan	and	any	shares	of	stock subject	to	any	outstanding	award	under	the	plan.	This	plan	only	remains	in	effect	with	respect	to	outstanding	awards	made	pursuant	to	this	plan.	Future awards	will	be	made	pursuant	to	the	2004	LTIP.

Additional	information	is	incorporated	by	reference	to	the	section	entitled	"Information	About	our	Common	Share	Ownership"	of	the	definitive	proxy statement	for	the	2011	Annual	General	Meeting	of	Shareholders	which	will	be	filed	with	the	SEC	not	later	than	120	days	after	the	close	of	the	fiscal	year pursuant	to	regulation	14A.

# Item	13. Certain	Relationships	and	Related	Transactions	and	Director	Independence

This	item	is	incorporated	by	reference	to	the	sections	entitled	"Corporate	Governance	–	What	Is	Our	Related	Party	Transactions	Approval	Policy	and What	Procedures	Do	We	Use	to	Implement	It?",	"Corporate	Governance	–	What	Related	Person	Transactions	Do	We	Have?",	and	"Corporate Governance	–	Director	Independence	and	Other	Information"	of	the	definitive	proxy	statement	for	the	2011	Annual	General	Meeting	of	Shareholders which	will	be	filed	with	the	SEC	not	later	than	120	days	after	the	close	of	the	fiscal	year	pursuant	to	regulation	14A.

# Item	14. Principal	Accounting	Fees	and	Services

This	item	is	incorporated	by	reference	to	the	section	entitled	"Agenda	Item	No.	5.2:	Election	of	Auditors	–	Ratification	of	appointment	of PricewaterhouseCoopers	LLP	(United	States)	as	independent	registered	public	accounting	firm	for	purposes	of	United	States	securities	law	reporting	for the	year	ending	December	31,	2011"	of	the	definitive	proxy	statement	for	the	2011	Annual	General	Meeting	of	Shareholders	which	will	be	filed	with	the SEC	not	later	than	120	days	after	the	close	of	the	fiscal	year	pursuant	to	regulation	14A.

# PART	IV

# Item	15. Exhibits,	Financial	Statement	Schedules

# 3.Exhibits

| Exhibit<br>Number | Exhibit	Description | Form | Original<br>Number | Date	Filed | Reference<br>Number |
| :--- | :--- | :--- | :--- | :--- | :--- |
| 3.1 | Articles\tof\tAssociation\tof\tthe\tCompany,\tas\tamended\tand\trestated | 8-K | 3 | December\t16,\t2010 | \t001-11778 |
| 3.2 | Organizational\tRegulations\tof\tthe\tCompany,\tas\tamended\tand | 8-K | 3 | August\t12,\t2010 | \t001-11778 |
|  | restated |  |  |  |  |
| 4.1 | Articles\tof\tAssociation\tof\tthe\tCompany,\tas\tamended\tand\trestated | 8-K | 4 | December\t16,\t2010 | \t001-11778 |
| 4.2 | Organizational\tRegulations\tof\tthe\tCompany,\tas\tamended\tand | 8-K | 4 | August\t12,\t2010 | \t001-11778 |
|  | restated |  |  |  |  |
| 4.3 | Specimen\tshare\tcertificate\trepresenting\tCommon\tShares | 8-K | 4.3 | July\t18,\t2008 | \t000-11778 |
| 4.4 | Form\tof\t2.6\tpercent\tSenior\tNotes\tdue\t2015 | 8-K | 4.1 | November\t23,\t2010 | \t000-11778 |
| 4.5 | Indenture,\tdated\tMarch\t15,\t2002,\tbetween\tACE\tLimited\tand\tBank | 8-K | 4.1 | March\t22,\t2002 | \t001-11778 |
|  | One\tTrust\tCompany,\tN.A. |  |  |  |  |
| 4.6 | Senior\tIndenture,\tdated\tAugust\t1,\t1999,\tamong\tACE\tINA\tHoldings, | \tS-3/A | 4.5 | August\t12,\t1999 | \t333-78841 |
|  | Bank\tof\tChicago),\tas\ttrustee |  |  |  |  |
| 4.7 | Indenture,\tdated\tNovember\t30,\t1999,\tamong\tACE\tINA\tHoldings, | \t 10-K | \t10.38 | March\t29,\t2000 | \t001-11778 |

| Exhibit<br>Number | Exhibit	Description | Form | Original<br>Number | Date	Filed | Reference<br>Number | Filed<br>Herewith |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| \t\t4.8 | Indenture,\tdated\tDecember\t1,\t1999,\tamong\tACE\tINA\tHoldings, | \t10-K | \t10.41 | March\t29,\t2000 | \t001-11778 |  |
|  | Inc.,\tACE\tLimited\tand\tBank\tOne\tTrust\tCompany,\tNational |  |  |  |  |  |
|  | Association,\tas\ttrustee |  |  |  |  |  |
| \t\t4.9 | Amended\tand\tRestated\tTrust\tAgreement,\tdated\tMarch\t31,\t2000, | \t10-K | 4.17 | March\t16,\t2006 | \t011-11778 |  |
|  | among\tACE\tINA\tHoldings,\tInc.,\tBank\tOne\tTrust\tCompany,\tNational |  |  |  |  |  |
|  | Association,\tas\tproperty\ttrustee,\tBank\tOne\tDelaware\tInc.,\tas |  |  |  |  |  |
|  | Delaware\ttrustee\tand\tthe\tadministrative\ttrustees\tnamed\ttherein |  |  |  |  |  |
| \t\t\t4.10 | Common\tSecurities\tGuarantee\tAgreement,\tdated\tMarch\t31,\t2000 | \t10-K | 4.18 | March\t16,\t2006 | \t011-11778 |  |
| \t\t\t4.11 | Capital\tSecurities\tGuarantee\tAgreement,\tdated\tMarch\t31,\t2000 | \t10-K | 4.19 | March\t16,\t2006 | \t011-11778 |  |
| 10.1 | Agreement\tand\tPlan\tof\tMerger\tby\tand\tamong\tRain\tand\tHail | \t10-Q | 10.1 | November\t8,\t2010 | \t011-11778 |  |
|  | Insurance\tService,\tInc.,\tSteve\tC.\tHarms,\tas\tshareholders' |  |  |  |  |  |
|  | representative,\tACE\tAmerican\tInsurance\tCompany,\tRaha\tIowa |  |  |  |  |  |
|  | Acquisition\tCorp.\tand\tACE\tLimited. |  |  |  |  |  |
| \t10.2* | Form\tof\tIndemnification\tAgreement\tbetween\tthe\tCompany\tand | \t10-Q | 10.1 | August\t6,\t2010 | \t011-11778 |  |
|  | individuals\twho\tbecame\tdirectors\tof\tthe\tCompany\tafter\tthe |  |  |  |  |  |
|  | Company's\tredomestication\tto\tSwitzerland |  |  |  |  |  |
| \t10.3* | Second\tAmended\tand\tRestated\tIndemnification\tAgreement\tin\tthe | \t10-Q | 10.1 | August\t7,\t2007 | \t011-11778 |  |
|  | form\texecuted\tbetween\tthe\tCompany\tand\tdirectors\t(except\tfor |  |  |  |  |  |
|  | Olivier\tSteimer)\tand/or\tofficers |  |  |  |  |  |
| \t10.4* | Indemnification\tagreement\tbetween\tthe\tCompany\tand\tOlivier | \t10-K | 10.2 | February\t27,\t2009 | \t011-11778 |  |
|  | Steimer,\tdated\tNovember\t20,\t2008 |  |  |  |  |  |
| 10.5 | Letter\tof\tcredit\tfacility\tagreements\tdated\tNovember\t18,\t2010, |  |  |  |  | X |
|  | between\tACE\tLimited\tand\tLloyds\tTSB\tBank\tPLC |  |  |  |  |  |
| 10.6 | Letter\tof\tcredit\tfacility\tagreements\tdated\tNovember\t18,\t2010, |  |  |  |  | X |
|  | between\tACE\tLimited\tand\tING\tBank\tN.V.,\tLondon\tBranch |  |  |  |  |  |
| 10.7 | Letter\tof\tcredit\tfacility\tagreements\tdated\tNovember\t18,\t2010, |  |  |  |  | X |
|  | between\tACE\tLimited\tand\tThe\tBank\tof\tTokyo-Mitsibushi\tUFJ,\tLtd., |  |  |  |  |  |
|  | New\tYork\tBranch |  |  |  |  |  |
| 10.8 | Letter\tof\tcredit\tfacility\tagreements\tdated\tNovember\t18,\t2010, |  |  |  |  | X |
|  | between\tACE\tLimited\tand\tThe\tRoyal\tBank\tof\tScotland\tPLC |  |  |  |  |  |
| 10.9 | Second\tAmended\tand\tRestated\tReimbursement\tAgreement\tfor | 8-K | 10.1 | November\t14,\t2007 | \t001-11778 |  |

| Exhibit<br>Number | Exhibit	Description | Form | Original<br>Number | Date	Filed | Reference<br>Number |
| :--- | :--- | :--- | :--- | :--- | :--- |
| \t10.10 | First\tAmendment\tand\tWaiver\tdated\tas\tof\tJuly\t10,\t2008,\tto\tthe | 8-K | 10.7 | July\t16,\t2008 | \t001-11778 |
|  | Second\tAmended\tand\tRestated\tReimbursement\tAgreement\tfor |  |  |  |  |
|  | $1,000,000,000\tUnsecured\tLetter\tof\tCredit\tFacility,\tdated\tas\tof |  |  |  |  |
|  | November\t8,\t2007,\tamong\tACE\tLimited,\tcertain\tsubsidiaries, |  |  |  |  |
|  | various\tlenders\tand\tWachovia\tCapital\tMarkets,\tLLC\tand\tBanc\tof |  |  |  |  |
|  | America\tSecurities\tLLC\tas\tjoint\tlead\tarrangers\tand\tjoint\tbookrunners |  |  |  |  |
| \t10.11 | Second\tAmended\tand\tRestated\tCredit\tAgreement\tfor\t$500,000,000 | 8-K | 10.2 | November\t14,\t2007 | \t001-11778 |
|  | dated\tas\tof\tNovember\t8,\t2007,\tamong\tACE\tLimited,\tcertain |  |  |  |  |
|  | subsidiaries,\tvarious\tlenders\tand\tJ.P.\tMorgan\tSecurities\tInc.\tand |  |  |  |  |
|  | Barclays\tCapital\tas\tjoint\tlead\tarrangers\tand\tjoint\tbookrunners |  |  |  |  |
| \t10.12 | First\tAmendment\tand\tWaiver\tdated\tJuly\t10,\t2008,\tto\tthe\tSecond | 8-K | 10.6 | July\t16,\t2008 | \t001-11778 |
|  | Amended\tand\tRestated\tCredit\tAgreement\tfor\t$500,000,000\tdated |  |  |  |  |
|  | as\tof\tNovember\t8,\t2007,\tamong\tACE\tLimited,\tcertain\tsubsidiaries, |  |  |  |  |
|  | various\tlenders\tand\tJ.P.\tMorgan\tSecurities\tInc.\tand\tBarclays\tCapital |  |  |  |  |
|  | as\tjoint\tlead\tarrangers\tand\tjoint\tbookrunners |  |  |  |  |
| \t10.13 | Letter\tof\tCredit\tAgreement\tfor\t$500,000,000,\tdated\tJune\t16,\t2009, | \t10-Q | 10.1 | August\t7,\t2009 | \t001-11778 |
|  | among\tACE\tLimited,\tand\tDeutsche\tBank,\tNew\tYork\tBranch |  |  |  |  |
| \t10.14* | Employment\tTerms\tdated\tOctober\t29,\t2001,\tbetween\tACE\tLimited | \t10-K | \t10.64 | March\t27,\t2003 | \t001-11778 |
|  | and\tEvan\tGreenberg |  |  |  |  |
| \t10.15* | Employment\tTerms\tdated\tNovember\t2,\t2001,\tbetween\tACE\tLimited | \t10-K | \t10.65 | March\t27,\t2003 | \t001-11778 |
|  | and\tPhilip\tV.\tBancroft |  |  |  |  |
| \t10.16* | Executive\tSeverance\tAgreement\tbetween\tACE\tLimited\tand\tPhilip | \t10-Q | \t 10.\t1 | May\t10,\t2004 | \t001-11778 |
|  | Bancroft,\teffective\tJanuary\t2,\t2002 |  |  |  |  |
| \t10.17* | Letter\tRegarding\tExecutive\tSeverance\tbetween\tACE\tLimited\tand |  |  |  |  |
|  | Philip\tV.\tBancroft |  |  |  |  |
| \t10.18* | Employment\tTerms\tdated\tFebruary\t25,\t2005,\tbetween\tACE\tLimited | \t10-K | \t10.21 | March\t1,\t2007 | \t001-11778 |
|  | and\tRobert\tCusumano |  |  |  |  |
| \t10.19* | Employment\tTerms\tdated\tApril\t10,\t2006,\tbetween\tACE\tand\tJohn | \t10-K | \t10.29 | February\t29,\t2008 | \t001-11778 |
|  | Keogh |  |  |  |  |
| \t10.20* | Executive\tSeverance\tAgreement\tbetween\tACE\tand\tJohn\tKeogh | \t10-K | \t10.30 | February\t29,\t2008 | \t001-11778 |
| \t10.21* | ACE\tLimited\tExecutive\tSeverance\tPlan\tas\tamended\tand\trestated, | \t10-K | \t10.29 | February\t27,\t2009 | \t011-11778 |
|  | effective\tJanuary\t1,\t2009 |  |  |  |  |
| \t10.22* | Form\tof\temployment\tagreement\tbetween\tthe\tCompany\t(or | 8-K | 10.1 | July\t16,\t2008 | \t001-11778 |

| Exhibit<br>Number | Exhibit	Description | Form | Original<br>Number | Date	Filed | Reference<br>Number |
| :--- | :--- | :--- | :--- | :--- | :--- |
| \t10.41* | First\tAmendment\tto\tthe\tAmended\tand\tRestated\tACE\tUSA | \t10-K | \t10.39 | February\t25,\t2010 | \t 001-11778 |
|  | Supplemental\tEmployee\tRetirement\tSavings\tPlan |  |  |  |  |
| \t10.42* | The\tACE\tLimited\t1995\tOutside\tDirectors\tPlan\t(as\tamended | \t10-Q | 10.1 | August\t14,\t2003 | \t 001-11778 |
|  | through\tthe\tSeventh\tAmendment) |  |  |  |  |
| \t10.43* | Board\tof\tDirectors\tResolution\tAmending\tOption\tAwards\tfor\tGary | \t10-Q | 10.2 | May\t8,\t2009 | \t 001-11778 |
|  | Stuart |  |  |  |  |
| \t10.44* | ACE\tLimited\t1995\tLong-Term\tIncentive\tPlan\t(as\tamended\tthrough | \t10-K | \t10.33 | March\t1,\t2007 | \t 001-11778 |
|  | the\tThird\tAmendment) |  |  |  |  |
| \t10.45* | ACE\tLimited\t1998\tLong-Term\tIncentive\tPlan\t(as\tamended\tthrough | \t10-K | \t10.34 | March\t1,\t2007 | \t 001-11778 |
|  | the\tFourth\tAmendment) |  |  |  |  |
| \t10.46* | ACE\tLimited\t1999\tReplacement\tLong-Term\tIncentive\tPlan | \t10-Q | 10.1 | November\t15,\t1999 | \t 001-11778 |
| \t10.47* | ACE\tLimited\tRules\tof\tthe\tApproved\tU.K.\tStock\tOption\tProgram | \t10-Q | 10.2 | February\t13,\t1998 | \t 001-11778 |
| \t10.48* | ACE\tLimited\t2004\tLong-Term\tIncentive\tPlan\t(as\tamended\tthrough | 8-K | 10 | May\t21,\t2010 | \t 001-11778 |
|  | the\tFifth\tAmendment) |  |  |  |  |
| \t10.49* | Revised\tForm\tof\tRestricted\tStock\tAward\tTerms\tunder\tthe\tACE | \t10-Q | 10.3 | November\t8,\t2006 | \t 001-11778 |
|  | Limited\t2004\tLong-Term\tIncentive\tPlan. |  |  |  |  |
| \t10.50* | Form\tof\tRestricted\tStock\tAward\tTerms\tunder\tthe\tACE\tLimited | \t10-K | \t10.54 | February\t27,\t2009 | \t 001-11778 |
|  | 2004\tLong-Term\tIncentive\tPlan. |  |  |  |  |
| \t10.51* | Form\tof\tRestricted\tStock\tAward\tTerms\tunder\tthe\tACE\tLimited | \t10-K | \t10.55 | February\t27,\t2009 | \t 001-11778 |
|  | 2004\tLong-Term\tIncentive\tPlan. |  |  |  |  |
| \t10.52* | Director\tRestricted\tStock\tAward\tTerms\tunder\tthe\tACE\tLimited | \t10-Q | 10.1 | November\t9,\t2009 | \t 001-11778 |
|  | 2004\tLong-Term\tIncentive\tPlan |  |  |  |  |
| \t10.53* | Form\tof\tRestricted\tStock\tUnit\tAward\tTerms\tunder\tthe\tACE\tLimited | 8-K | 10.3 | September\t13,\t2004 | \t 001-11778 |
|  | 2004\tLong-Term\tIncentive\tPlan |  |  |  |  |
| \t10.54* | Form\tof\tRestricted\tStock\tUnit\tAward\tTerms\tunder\tthe\tACE\tLimited | \t10-Q | 10.4 | November\t8,\t2006 | \t 001-11778 |
|  | 2004\tLong-Term\tIncentive\tPlan. |  |  |  |  |
| \t10.55* | Form\tof\tRestricted\tStock\tUnit\tAward\tTerms\tunder\tthe\tACE\tLimited | \t10-Q | 10.1 | May\t8,\t2008 | \t 001-11778 |
|  | 2004\tLong-Term\tIncentive\tPlan. |  |  |  |  |
| \t10.56* | Form\tof\tRestricted\tStock\tUnit\tAward\tTerms\tunder\tthe\tACE\tLimited | \t10-Q | 10.2 | May\t8,\t2008 | \t 001-11778 |
|  | 2004\tLong-Term\tIncentive\tPlan. |  |  |  |  |
| \t10.57* | Form\tof\tRestricted\tStock\tUnit\tAward\tTerms\tunder\tthe\tACE\tLimited | \t10-K | \t10.60 | February\t27,\t2009 | \t 001-11778 |
|  | 2004\tLong-Term\tIncentive\tPlan. |  |  |  |  |
| \t10.58* | Form\tof\tIncentive\tStock\tOption\tTerms\tunder\tthe\tACE\tLimited\t2004 | 8-K | 10.4 | September\t13,\t2004 | \t 001-11778 |

# Incorporated	by	Reference

*	Management	Contract	or	Compensation	Plan

# SIGNATURES

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

# Philip	V.	Bancroft

Chief	Financial	Officer

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

| Signature | Title | Date |
| :--- | :--- | :--- |
| /S/\t\t\t\tEVAN\tG.\tGREENBERG | Chairman,\tPresident,\tChief\tExecutive | February\t25,\t2011 |
| Evan\tG.\tGreenberg | Officer;\tDirector |  |
| /S/\t\t\t\tPHILIP\tV.\tBANCROFT | Chief\tFinancial\tOfficer | February\t25,\t2011 |
| Philip\tV.\tBancroft | (Principal\tFinancial\tOfficer) |  |
| /S/\t\t\t\tPAUL\tB.\tMEDINI | Chief\tAccounting\tOfficer | February\t25,\t2011 |
| Paul\tB.\tMedini | (Principal\tAccounting\tOfficer) |  |
| /S/\t\t\t\tMICHAEL\tG.\tATIEH | Director | February\t25,\t2011 |
| Michael\tG.\tAtieh |  |  |
| /S/\t\t\t\tMARY\tA.\tCIRILLO | Director | February\t25,\t2011 |
| Mary\tA.\tCirillo |  |  |
| /S/\t\t\t\tBRUCE\tL.\tCROCKETT | Director | February\t25,\t2011 |
| Bruce\tL.\tCrockett |  |  |
| /S/\t\t\t\tROBERT\tM.\tHERNANDEZ | Director | February\t25,\t2011 |
| Robert\tM.\tHernandez |  |  |
| /S/\t\t\t\tJOHN\tA.\tKROL | Director | February\t25,\t2011 |
| John\tA.\tKrol |  |  |
| /S/\t\t\t\tPETER\tMENIKOFF | Director | February\t25,\t2011 |
| Peter\tMenikoff |  |  |
| /S/\t\t\t\tLEO\tF.\tMULLIN | Director | February\t25,\t2011 |

# ACE	LIMITED	AND	SUBSIDIARIES

# CONSOLIDATED	FINANCIAL	STATEMENTS

# INDEX	TO	CONSOLIDATED	FINANCIAL	STATEMENTS

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

# Financial	Statements

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

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

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

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

# Internal	Control	over	Financial	Reporting

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

As	of	December	31,	2010,	management	has	evaluated	the	effectiveness	of	ACE's	internal	control	over	financial	reporting	based	on	the	criteria	for effective	internal	control	over	financial	reporting	established	in	"Internal	Control	–	Integrated	Framework,"	issued	by	the	Committee	of	Sponsoring Organizations	of	the	Treadway	Commission.	Based	on	this	evaluation,	we	have	concluded	that	ACE's	internal	control	over	financial	reporting	was effective	as	of	December	31,	2010.

PricewaterhouseCoopers	LLP,	the	independent	registered	public	accounting	firm	that	audited	the	consolidated	financial	statements	of	ACE included	in	this	Annual	Report,	has	issued	a	report	on	the	effectiveness	of	the	Company's	internal	controls	over	financial	reporting	as	of	December	31, 2010.	The	report,	which	expresses	an	unqualified	opinion	on	the	effectiveness	of	ACE's	internal	control	over	financial	reporting	as	of	December	31,	2010, is	included	in	this	Item	under	"Report	of	Independent	Registered	Public	Accounting	Firm"	and	follows	this	statement.

# /s/	EVAN	G.	GREENBERG

Evan	G.	Greenberg

Chairman,	President	and	Chief	Executive	Officer

/s/	PHILIP	V.	BANCROFT

Philip	V.	Bancroft Chief	Financial	Officer

# Report	of	Independent	Registered	Public	Accounting	Firm

To	the	Board	of	Directors	and	Shareholders	of	ACE	Limited:

In	our	opinion,	the	accompanying	consolidated	balance	sheets	and	the	related	consolidated	statements	of	operations	and	comprehensive	income, shareholders'	equity,	and	cash	flows	present	fairly,	in	all	material	respects,	the	financial	position	of	ACE	Limited	and	its	subsidiaries	(the	"Company")	at December	31,	2010	and	December	31,	2009,	and	the	results	of	their	operations	and	their	cash	flows	for	each	of	the	three	years	in	the	period	ended December	31,	2010	in	conformity	with	accounting	principles	generally	accepted	in	the	United	States	of	America.	In	addition,	in	our	opinion,	the	financial statement	schedules	listed	in	the	index	appearing	under	Item	15	(2)	present	fairly,	in	all	material	respects,	the	information	set	forth	therein	when	read	in conjunction	with	the	related	consolidated	financial	statements.	Also	in	our	opinion,	the	Company	maintained,	in	all	material	respects,	effective	internal control	over	financial	reporting	as	of	December	31,	2010,	based	on	criteria	established	in	Internal	Control	–	Integrated	Framework	issued	by	the Committee	of	Sponsoring	Organizations	of	the	Treadway	Commission	(COSO).	The	Company's	management	is	responsible	for	these	financial statements	and	financial	statement	schedules,	for	maintaining	effective	internal	control	over	financial	reporting	and	for	its	assessment	of	the effectiveness	of	internal	control	over	financial	reporting,	included	in	Management's	Responsibility	for	Financial	Statements	and	Internal	Controls	Over Financial	Reporting	appearing	under	Item	15	(1).	Our	responsibility	is	to	express	opinions	on	these	financial	statements,	on	the	financial	statement schedules,	and	on	the	Company's	internal	control	over	financial	reporting	based	on	our	integrated	audits.	We	conducted	our	audits	in	accordance	with the	standards	of	the	Public	Company	Accounting	Oversight	Board	(United	States).	Those	standards	require	that	we	plan	and	perform	the	audits	to	obtain reasonable	assurance	about	whether	the	financial	statements	are	free	of	material	misstatement	and	whether	effective	internal	control	over	financial reporting	was	maintained	in	all	material	respects.	Our	audits	of	the	financial	statements	included	examining,	on	a	test	basis,	evidence	supporting	the amounts	and	disclosures	in	the	financial	statements,	assessing	the	accounting	principles	used	and	significant	estimates	made	by	management,	and evaluating	the	overall	financial	statement	presentation.	Our	audit	of	internal	control	over	financial	reporting	included	obtaining	an	understanding	of internal	control	over	financial	reporting,	assessing	the	risk	that	a	material	weakness	exists,	and	testing	and	evaluating	the	design	and	operating effectiveness	of	internal	control	based	on	the	assessed	risk.	Our	audits	also	included	performing	such	other	procedures	as	we	considered	necessary	in the	circumstances.	We	believe	that	our	audits	provide	a	reasonable	basis	for	our	opinions.

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

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

PricewaterhouseCoopers	LLP Philadelphia,	Pennsylvania February	25,	2011

# CONSOLIDATED	BALANCE	SHEETS

|  | 2010 | 2009 |
| :--- | :--- | :--- |
| Assets |  |  |
| Investments |  |  |
| Fixed\tmaturities\tavailable\tfor\tsale,\tat\tfair\tvalue\t(amortized\tcost\t–\t$36,542\tand\t$38,985)\t(includes\thybrid |  |  |
| financial\tinstruments\tof\t$416\tand\t$354) | $37,539 | $39,525 |
| Fixed\tmaturities\theld\tto\tmaturity,\tat\tamortized\tcost\t(fair\tvalue\t–\t$9,461\tand\t$3,561) | 9,501 | 3,481 |
| Equity\tsecurities,\tat\tfair\tvalue\t(cost\t–\t$666\tand\t$398) | 692 | 467 |
| Short-term\tinvestments,\tat\tfair\tvalue\tand\tamortized\tcost | 1,983 | 1,667 |
| Other\tinvestments\t(cost\t–\t$1,511\tand\t$1,258) | 1,692 | 1,375 |
| Total\tinvestments | \t 51,407 | \t 46,515 |
| Cash | 772 | 669 |
| Securities\tlending\tcollateral | 1,495 | 1,544 |
| Accrued\tinvestment\tincome | 521 | 502 |
| Insurance\tand\treinsurance\tbalances\treceivable | 4,233 | 3,671 |
| Reinsurance\trecoverable\ton\tlosses\tand\tloss\texpenses | \t 12,871 | \t 13,595 |
| Reinsurance\trecoverable\ton\tpolicy\tbenefits | 281 | 298 |
| Deferred\tpolicy\tacquisition\tcosts | 1,641 | 1,445 |
| Value\tof\tbusiness\tacquired | 634 | 748 |
| Goodwill\tand\tother\tintangible\tassets | 4,664 | 3,931 |
| Prepaid\treinsurance\tpremiums | 1,511 | 1,521 |
| Deferred\ttax\tassets | 769 | 1,154 |
| Investments\tin\tpartially-owned\tinsurance\tcompanies\t(cost\t–\t$357\tand\t$314) | 360 | 433 |
| Other\tassets | 2,196 | 1,954 |
| Total\tassets | $83,355 | $77,980 |
| Liabilities |  |  |
| Unpaid\tlosses\tand\tloss\texpenses | $37,391 | $37,783 |
| Unearned\tpremiums | 6,330 | 6,067 |
| Future\tpolicy\tbenefits | 3,106 | 3,008 |
| Insurance\tand\treinsurance\tbalances\tpayable | 3,282 | 3,295 |
| Deposit\tliabilities | 421 | 332 |
| Securities\tlending\tpayable | 1,518 | 1,586 |
| Payable\tfor\tsecurities\tpurchased | 292 | 154 |
| Accounts\tpayable,\taccrued\texpenses,\tand\tother\tliabilities | 2,958 | 2,349 |
| Income\ttaxes\tpayable | 116 | 111 |
| Short-term\tdebt | 1,300 | 161 |
| Long-term\tdebt | 3,358 | 3,158 |
| Trust\tpreferred\tsecurities | 309 | 309 |
| Total\tliabilities | \t 60,381 | \t 58,313 |
| Commitments\tand\tcontingencies |  |  |
| Shareholders'\tequity |  |  |
| 334,942,852\tand\t336,524,657\tshares\toutstanding) | \t 10,161 | \t 10,503 |
| Common\tShares\tin\ttreasury\t(6,151,707\tand\t1,316,959\tshares) | (330) | (3) |
| Additional\tpaid-in\tcapital | 5,623 | 5,526 |
| Retained\tearnings | 5,926 | 2,818 |
| Deferred\tcompensation\tobligation | 2 | 2 |
| Accumulated\tother\tcomprehensive\tincome\t(AOCI) | 1,594 | 823 |
| Common\tShares\tissued\tto\temployee\ttrust | (2) | (2) |
| Total\tshareholders'\tequity | \t 22,974 | \t 19,667 |
| Total\tliabilities\tand\tshareholders'\tequity | $83,355 | $77,980 |

# CONSOLIDATED	STATEMENTS	OF	OPERATIONS	AND	COMPREHENSIVE	INCOME

| (in	millions	of	U.S.	dollars,	except	per	share	data) | 2010 | 2009 | 2008 |
| :--- | :--- | :--- | :--- |
| Revenues |  |  |  |
| Net\tpremiums\twritten | $13,708 | $13,299 | $13,080 |
| Change\tin\tunearned\tpremiums | (204) | (59) | 123 |
| Net\tpremiums\tearned | \t 13,504 | \t 13,240 | \t 13,203 |
| Net\tinvestment\tincome | 2,070 | 2,031 | 2,062 |
| Net\trealized\tgains\t(losses): |  |  |  |
| Other-than-temporary\timpairment\t(OTTI)\tlosses\tgross | (128) | (699) | (1,064) |
| Portion\tof\tOTTI\tlosses\trecognized\tin\tother\tcomprehensive\tincome\t(OCI) | 69 | 302 | – |
| Net\tOTTI\tlosses\trecognized\tin\tincome | (59) | (397) | (1,064) |
| Net\trealized\tgains\t(losses)\texcluding\tOTTI\tlosses | 491 | 201 | (569) |
| Total\tnet\trealized\tgains\t(losses) | 432 | (196) | (1,633) |
| Total\trevenues | \t 16,006 | \t 15,075 | \t 13,632 |
| Expenses |  |  |  |
| Losses\tand\tloss\texpenses | 7,579 | 7,422 | 7,603 |
| Policy\tbenefits | 357 | 325 | 399 |
| Policy\tacquisition\tcosts | 2,337 | 2,130 | 2,135 |
| Administrative\texpenses | 1,858 | 1,811 | 1,737 |
| Interest\texpense | 224 | 225 | 230 |
| Other\t(income)\texpense | (16) | 85 | (39) |
| Total\texpenses | \t 12,339 | \t 11,998 | \t 12,065 |
| Income\tbefore\tincome\ttax | 3,667 | 3,077 | 1,567 |
| Income\ttax\texpense | 559 | 528 | 370 |
| Net\tincome | $3,108 | $2,549 | $1,197 |
| Other\tcomprehensive\tincome\t(loss) |  |  |  |
| Unrealized\tappreciation\t(depreciation) | $1,526 | $2,712 | $ (3,948) |
| Reclassification\tadjustment\tfor\tnet\trealized\t(gains)\tlosses\tincluded\tin\tnet\tincome | (632) | 75 | 1,189 |
|  | 894 | 2,787 | (2,759) |
| Change\tin: |  |  |  |
| Cumulative\ttranslation\tadjustment | (7) | 568 | (590) |
| Pension\tliability | 11 | (48) | 23 |
| Other\tcomprehensive\tincome,\tbefore\tincome\ttax | 898 | 3,307 | (3,326) |
| Income\ttax\texpense\t(benefit)\trelated\tto\tother\tcomprehensive\tincome\titems | (127) | (568) | 647 |
| Other\tcomprehensive\tincome\t(loss) | 771 | 2,739 | (2,679) |
| Comprehensive\tincome\t(loss) | $3,879 | $5,288 | $ (1,482) |
| Basic\tearnings\tper\tshare | $9.15 | $7.57 | $3.52 |
| Diluted\tearnings\tper\tshare | $9.11 | $7.55 | $3.50 |

See	accompanying	notes	to	the	consolidated	financial	statements

# CONSOLIDATED	STATEMENTS	OF	SHAREHOLDERS'	EQUITY

| (in	millions	of	U.S.	dollars) | 2010 | 2009 | 2008 |
| :--- | :--- | :--- | :--- |
| Preferred\tShares |  |  |  |
| Balance\t–\tbeginning\tof\tyear | $– | $– | $2 |
| Preferred\tShares\tredeemed | – | – | (2) |
| Balance\t–\tend\tof\tyear | – | – | – |
| Common\tShares |  |  |  |
| Balance\t–\tbeginning\tof\tyear | \t 10,503 | \t 10,827 | 14 |
| Net\tshares\tissued\tunder\temployee\tshare-based\tcompensation\tplans | 71 | 73 | – |
| Exercise\tof\tstock\toptions | 30 | 5 | 6 |
| Dividends\tdeclared\ton\tCommon\tShares-par\tvalue\treduction | (443) | (402) | (178) |
| Common\tShares\tstock\tdividend | – | – | \t 10,985 |
| Balance\t–\tend\tof\tyear | \t 10,161 | \t 10,503 | \t 10,827 |
| Common\tShares\tin\ttreasury |  |  |  |
| Balance\t–\tbeginning\tof\tyear | (3) | (3) | – |
| Common\tShares\trepurchased | (303) | – | – |
| Other\tCommon\tShares\tissued\tin\ttreasury,\tnet\tof\tnet\tshares\tredeemed\tunder\temployee |  |  |  |
| share-based\tcompensation\tplans | (24) | – | (3) |
| Balance\t–\tend\tof\tyear | (330) | (3) | (3) |
| Additional\tpaid-in\tcapital |  |  |  |
| Balance\t–\tbeginning\tof\tyear | 5,526 | 5,464 | 6,812 |
| Net\tshares\tredeemed\tunder\temployee\tshare-based\tcompensation\tplans | (64) | (77) | (14) |
| Exercise\tof\tstock\toptions | 23 | 10 | 91 |
| Share-based\tcompensation\texpense | 139 | 121 | 126 |
| Preferred\tShares\tredeemed | – | – | (573) |
| Common\tShares\tstock\tdividend | – | – | (990) |
| Tax\t(expense)\tbenefit\ton\tshare-based\tcompensation\texpense | (1) | 8 | 12 |
| Balance\t–\tend\tof\tyear | 5,623 | 5,526 | 5,464 |
| Retained\tearnings |  |  |  |
| Balance\t–\tbeginning\tof\tyear | 2,818 | 74 | 9,080 |
| Effect\tof\tpartial\tadoption\tof\tfair\tvalue\tmeasurements\tstandard | – | – | (4) |
| Effect\tof\tadoption\tof\tfair\tvalue\toption\tstandard | – | – | 6 |
| Balance\t–\tbeginning\tof\tyear,\tadjusted\tfor\teffect\tof\tadoption\tof\tnew\taccounting\tprinciples | 2,818 | 74 | 9,082 |
| Effect\tof\tadoption\tof\tOTTI\tstandard | – | 195 | – |
| Net\tincome | 3,108 | 2,549 | 1,197 |
| Dividends\tdeclared\ton\tCommon\tShares | – | – | (186) |
| Dividends\tdeclared\ton\tPreferred\tShares | – | – | (24) |
| Common\tShares\tstock\tdividend | – | – | (9,995) |
| Balance\t–\tend\tof\tyear | 5,926 | 2,818 | 74 |
| Deferred\tcompensation\tobligation |  |  |  |
| Balance\t–\tbeginning\tof\tyear | 2 | 3 | 3 |
| Decrease\tto\tobligation | – | (1) | – |
| Balance\t–\tend\tof\tyear | $2 | $2 | $3 |

# CONSOLIDATED	STATEMENTS	OF	SHAREHOLDERS'	EQUITY	(continued)

| (in	millions	of	U.S.	dollars) | 2010 | 2009 | 2008 |
| :--- | :--- | :--- | :--- |
| Accumulated\tother\tcomprehensive\tincome\t(loss) |  |  |  |
| Net\tunrealized\tappreciation\t(depreciation)\ton\tinvestments |  |  |  |
| Balance\t–\tbeginning\tof\tyear | $657 | $ (1,712) | $596 |
| Effect\tof\tadoption\tof\tfair\tvalue\toption\tstandard | – | – | (6) |
| Balance\t–\tbeginning\tof\tyear,\tadjusted\tfor\teffect\tof\tadoption\tof\tnew\taccounting\tprinciple | 657 | (1,712) | 590 |
| Effect\tof\tadoption\tof\tOTTI\tstandard | – | (242) | – |
| Change\tin\tyear,\tnet\tof\tincome\ttax\t(expense)\tbenefit\tof\t$(152),\t$(481),\tand\t$457 | 742 | 2,611 | (2,302) |
| Balance\t–\tend\tof\tyear | 1,399 | 657 | (1,712) |
| Cumulative\ttranslation\tadjustment |  |  |  |
| Balance\t–\tbeginning\tof\tyear | 240 | (161) | 231 |
| Change\tin\tyear,\tnet\tof\tincome\ttax\t(expense)\tbenefit\tof\t$29,\t$(167),\tand\t$198 | 22 | 401 | (392) |
| Balance\t–\tend\tof\tyear | 262 | 240 | (161) |
| Pension\tliability\tadjustment |  |  |  |
| Balance\t–\tbeginning\tof\tyear | (74) | (43) | (58) |
| Change\tin\tyear,\tnet\tof\tincome\ttax\t(expense)\tbenefit\tof\t$(4),\t$17,\tand\t$(8) | 7 | (31) | 15 |
| Balance\t–\tend\tof\tyear | (67) | (74) | (43) |
| Accumulated\tother\tcomprehensive\tincome\t(loss) | 1,594 | 823 | (1,916) |
| Common\tShares\tissued\tto\temployee\ttrust |  |  |  |
| Balance\t–\tbeginning\tof\tyear | (2) | (3) | (3) |
| Decrease\tin\tCommon\tShares | – | 1 | – |
| Balance\t–\tend\tof\tyear | (2) | (2) | (3) |
| Total\tshareholders'\tequity | $22,974 | $19,667 | $14,446 |

# CONSOLIDATED	STATEMENTS	OF	CASH	FLOWS

| (in	millions	of	U.S.	dollars) | 2010 | 2009 | 2008 |
| :--- | :--- | :--- | :--- |
| Cash\tflows\tfrom\toperating\tactivities |  |  |  |
| Net\tincome | $3,108 | $2,549 | $1,197 |
| Adjustments\tto\treconcile\tnet\tincome\tto\tnet\tcash\tflows\tfrom\toperating\tactivities |  |  |  |
| Net\trealized\t(gains)\tlosses | (432) | 196 | 1,633 |
| Amortization\tof\tpremiums/discounts\ton\tfixed\tmaturities | 145 | 53 | (1) |
| Deferred\tincome\ttaxes | 116 | (19) | (141) |
| Unpaid\tlosses\tand\tloss\texpenses | (360) | 298 | 1,300 |
| Unearned\tpremiums | 262 | 102 | (128) |
| Future\tpolicy\tbenefits | 48 | 67 | 212 |
| Insurance\tand\treinsurance\tbalances\tpayable | (172) | 434 | (26) |
| Accounts\tpayable,\taccrued\texpenses,\tand\tother\tliabilities | 130 | (206) | 638 |
| Income\ttaxes\tpayable | 10 | 13 | 46 |
| Insurance\tand\treinsurance\tbalances\treceivable | 50 | (119) | (6) |
| Reinsurance\trecoverable\ton\tlosses\tand\tloss\texpenses | 626 | 518 | (224) |
| Reinsurance\trecoverable\ton\tpolicy\tbenefits | 49 | (51) | (9) |
| Deferred\tpolicy\tacquisition\tcosts | (193) | (309) | (185) |
| Prepaid\treinsurance\tpremiums | (13) | 24 | (15) |
| Other | 172 | (215) | (190) |
| Net\tcash\tflows\tfrom\toperating\tactivities | 3,546 | 3,335 | 4,101 |
| Cash\tflows\tused\tfor\tinvesting\tactivities |  |  |  |
| Purchases\tof\tfixed\tmaturities\tavailable\tfor\tsale | (29,985) | (31,789) | (24,537) |
| Purchases\tof\tto\tbe\tannounced\tmortgage-backed\tsecurities | (1,271) | (5,471) | (18,969) |
| Purchases\tof\tfixed\tmaturities\theld\tto\tmaturity | (616) | (472) | (366) |
| Purchases\tof\tequity\tsecurities | (794) | (354) | (971) |
| Sales\tof\tfixed\tmaturities\tavailable\tfor\tsale | 23,096 | 23,693 | 21,087 |
| Sales\tof\tto\tbe\tannounced\tmortgage-backed\tsecurities | 1,183 | 5,961 | 18,340 |
| Sales\tof\tfixed\tmaturities\theld\tto\tmaturity | – | 11 | – |
| Sales\tof\tequity\tsecurities | 774 | 1,272 | 1,164 |
| Maturities\tand\tredemptions\tof\tfixed\tmaturities\tavailable\tfor\tsale | 3,660 | 3,404 | 2,780 |
| Maturities\tand\tredemptions\tof\tfixed\tmaturities\theld\tto\tmaturity | 1,353 | 514 | 445 |
| Net\tderivative\tinstruments\tsettlements | (109) | (92) | 32 |
| Acquisition\tof\tsubsidiaries\t(net\tof\tcash\tacquired\tof\t$80\tin\t2010\tand\t$19\tin\t2008) | (1,139) | – | (2,521) |
| Other | (333) | 99 | (608) |
| Net\tcash\tflows\tused\tfor\tinvesting\tactivities | (4,181) | (3,224) | (4,124) |
| Cash\tflows\tfrom\t(used\tfor)\tfinancing\tactivities |  |  |  |
| Dividends\tpaid\ton\tCommon\tShares | (435) | (388) | (362) |
| Common\tShares\trepurchased | (235) | – | – |
| Proceeds\tfrom\tissuance\tof\tshort-term\tdebt | 1,300 | – | 266 |
| Repayment\tof\tshort-term\tdebt | (159) | (466) | (355) |
| Proceeds\tfrom\tissuance\tof\tlong-term\tdebt | 699 | 500 | 1,245 |
| Repayment\tof\tlong-term\tdebt | (500) | – | – |
| Proceeds\tfrom\texercise\tof\toptions\tfor\tCommon\tShares | 53 | 15 | 97 |
| Proceeds\tfrom\tCommon\tShares\tissued\tunder\tEmployee\tStock\tPurchase\tPlan\t(ESPP) | 10 | 10 | 10 |
| Tax\t(expense)\tbenefit\ton\tshare-based\tcompensation\texpense | (1) | 8 | 12 |
| Dividends\tpaid\ton\tPreferred\tShares | – | – | (24) |
| Redemption\tof\tPreferred\tShares | – | – | (575) |
| Net\tcash\tflows\tfrom\t(used\tfor)\tfinancing\tactivities | 732 | (321) | 314 |
| Effect\tof\tforeign\tcurrency\trate\tchanges\ton\tcash\tand\tcash\tequivalents | 6 | 12 | 66 |
| Net\tincrease\t(decrease)\tin\tcash | 103 | (198) | 357 |
| Cash\t–\tbeginning\tof\tyear | 669 | 867 | 510 |
| Cash\t–\tend\tof\tyear | $772 | $669 | $867 |
| Supplemental\tcash\tflow\tinformation |  |  |  |
| Taxes\tpaid | $434 | $538 | $403 |
| Interest\tpaid | $204 | $228 | $226 |

# NOTES	TO	THE	CONSOLIDATED	FINANCIAL	STATEMENTS

# 1.	General

ACE	Limited	(ACE	or	the	Company)	is	a	holding	company	incorporated	in	Zurich,	Switzerland.	The	Company,	through	its	various	subsidiaries,	provides	a broad	range	of	insurance	and	reinsurance	products	to	insureds	worldwide.	ACE	operates	through	the	following	business	segments:	Insurance	–	North American,	Insurance	–	Overseas	General,	Global	Reinsurance,	and	Life.	Refer	to	Note	17.

On	December	28,	2010,	ACE	acquired	all	the	outstanding	common	stock	of	Rain	and	Hail	Insurance	Services,	Inc.	(Rain	and	Hail)	not	previously owned	by	ACE	for	approximately	$1.1	billion.	Headquartered	in	Johnston,	Iowa,	Rain	and	Hail	has	served	America's	farmers	since	1919,	providing comprehensive	multiple	peril	crop	and	crop/hail	insurance	protection	to	customers	in	the	U.S.	and	Canada.	Prior	to	this	transaction,	ACE's	20.1	percent share	in	Rain	and	Hail	was	recorded	in	Investments	in	partially-owned	insurance	companies.

On	December	1,	2010,	ACE	acquired	all	of	the	net	assets	of	Jerneh	Insurance	Berhad	(Jerneh),	a	general	insurance	company	in	Malaysia,	for approximately	$218	million.	Refer	to	Note	3.

# 2.	Significant	accounting	policies

# a)	Basis	of	presentation

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

The	preparation	of	financial	statements	in	conformity	with	GAAP	requires	management	to	make	estimates	and	assumptions	that	affect	the	reported amounts	of	assets	and	liabilities,	disclosure	of	contingent	assets	and	liabilities	at	the	date	of	the	financial	statements,	and	the	reported	amounts	of revenues	and	expenses	during	the	reporting	period.	The	Company's	principal	estimates	include:

•	unpaid	loss	and	loss	expense	reserves	and	future	policy	benefits	reserves;

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

Amounts	included	in	the	consolidated	financial	statements	reflect	the	Company's	best	estimates	and	assumptions;	actual	amounts	could	differ materially	from	these	estimates.

# b)	Premiums

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

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

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

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

# (continued)

Retroactive	loss	portfolio	transfer	(LPT)	contracts	in	which	the	insured	loss	events	occurred	prior	to	the	inception	of	the	contract	are	evaluated	to determine	whether	they	meet	the	established	criteria	for	reinsurance	accounting.	If	reinsurance	accounting	is	appropriate,	written	premiums	are	fully earned	and	corresponding	losses	and	loss	expenses	recognized	at	the	inception	of	the	contract.	The	contracts	can	cause	significant	variances	in	gross premiums	written,	net	premiums	written,	net	premiums	earned,	and	net	incurred	losses	in	the	years	in	which	they	are	written.	Reinsurance	contracts	sold not	meeting	the	established	criteria	for	reinsurance	accounting	are	recorded	using	the	deposit	method	as	described	below	in	Note	2	k).

Reinsurance	premiums	assumed	are	based	on	information	provided	by	ceding	companies	supplemented	by	the	Company's	own	estimates	of premium	when	the	Company	has	not	received	ceding	company	reports.	The	information	used	in	establishing	these	estimates	is	reviewed	and adjustments	are	recorded	in	the	period	in	which	they	are	determined.	These	premiums	are	earned	over	the	coverage	terms	of	the	related	reinsurance contracts	and	range	from	one	to	three	years.

# c)	Policy	acquisition	costs

Policy	acquisition	costs	consist	of	commissions,	premium	taxes,	and	underwriting	and	other	costs	that	vary	with,	and	are	primarily	related	to,	the production	of	premium.	A	VOBA	intangible	asset	is	established	upon	the	acquisition	of	blocks	of	long	duration	contracts	and	represents	the	present	value of	estimated	net	cash	flows	for	the	contracts	in	force	at	the	time	of	the	acquisition.	Acquisition	costs	and	VOBA,	collectively	policy	acquisition	costs,	are deferred	and	amortized.	Policy	acquisition	costs	on	P&C	contracts	are	generally	amortized	ratably	over	the	period	in	which	premiums	are	earned.	Policy acquisition	costs	on	long	duration	contracts	are	amortized	over	the	estimated	life	of	the	contracts	in	proportion	to	premium	revenue	recognized.	Policy acquisition	costs	are	reviewed	to	determine	if	they	are	recoverable	from	future	income,	including	investment	income.	Unrecoverable	costs	are	expensed in	the	period	identified.

Advertising	costs	are	expensed	as	incurred	except	for	direct-response	campaigns,	principally	related	to	A&H	business	produced	by	the	Insurance	– Overseas	General	segment,	which	are	deferred	and	recognized	over	the	expected	future	benefit	period.	For	individual	direct-response	marketing campaigns	that	the	Company	can	demonstrate	have	specifically	resulted	in	incremental	sales	to	customers	and	such	sales	have	probable	future economic	benefits,	incremental	costs	directly	related	to	the	marketing	campaigns	are	capitalized.	Deferred	marketing	costs	are	reviewed	regularly	for recoverability	and	amortized	over	five	years,	the	expected	economic	future	benefit	period.	The	expected	future	benefit	period	is	evaluated	periodically based	on	historical	results	and	adjusted	prospectively.	The	amount	of	deferred	marketing	costs	reported	in	deferred	policy	acquisition	costs	was	$327 million,	$333	million,	and	$300	million	at	December	31,	2010,	2009,	and	2008,	respectively.	The	amortization	expense	for	deferred	marketing	costs	was $152	million,	$135	million,	and	$124	million	for	the	years	ended	December	31,	2010,	2009,	and	2008,	respectively.

# d)	Reinsurance

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

For	both	ceded	and	assumed	reinsurance,	risk	transfer	requirements	must	be	met	in	order	to	obtain	reinsurance	status	for	accounting	purposes, principally	resulting	in	the	recognition	of	cash	flows	under	the	contract	as	premiums	and	losses.	To	meet	risk	transfer	requirements,	a	reinsurance contract	must	include	insurance	risk,	consisting	of	both	underwriting	and	timing	risk,	and	a	reasonable	possibility	of	a	significant	loss	for	the	assuming entity.	To	assess	risk	transfer	for	certain	contracts,	ACE	generally	develops	expected	discounted	cash	flow	analyses	at	contract	inception.	Deposit accounting	is	used	for	contracts	that	do	not	meet	risk	transfer	requirements.	Deposit	accounting	requires	that	consideration	received	or	paid	be	recorded in	the	balance	sheet	as	opposed	to	recording	premiums	written	or	losses	incurred	in	the	statement	of	operations.	Non-refundable	fees	on	deposit contracts	are	earned	based	on	the	terms	of	the	contract.	Refer	to	Note	2	k).

Reinsurance	recoverable	includes	the	balances	due	from	reinsurance	companies	for	paid	and	unpaid	losses	and	loss	expenses	and	policy	benefits that	will	be	recovered	from	reinsurers,	based	on	contracts	in	force.	The	method	for	determining	the	reinsurance	recoverable	on	unpaid	losses	and	loss expenses	incurred	but	not	reported	(IBNR)	involves	actuarial	estimates	consistent	with	those	used	to	establish	the	associated	liability	for	unpaid	losses and	loss	expenses	as	well	as	a	determination	of	the	Company's	ability	to	cede	unpaid	losses	and	loss	expenses	under	its	existing	reinsurance	contracts. Reinsurance	recoverable	is	presented	net	of	a	provision	for	uncollectible	reinsurance	determined	based	upon	a	review	of	the	financial	condition	of the	reinsurers	and	other	factors.	The	provision	for	uncollectible	reinsurance	is	based	on	an	estimate	of	the	amount	of	the	reinsurance	recoverable balance	that	the	Company	will	ultimately	be	unable	to	recover	due	to	reinsurer	insolvency,	a	contractual	dispute,	or	any	other	reason.	The	valuation	of this	provision	includes	several	judgments	including	certain	aspects	of	the	allocation	of	reinsurance	recoverable	on	IBNR	claims	by	reinsurer	and	a	default analysis	to	estimate

uncollectible	reinsurance.	The	primary	components	of	the	default	analysis	are	reinsurance	recoverable	balances	by	reinsurer,	net	of	collateral,	and default	factors	used	to	determine	the	portion	of	a	reinsurer's	balance	deemed	uncollectible.	The	definition	of	collateral	for	this	purpose	requires	some judgment	and	is	generally	limited	to	assets	held	in	an	ACE-only	beneficiary	trust,	letters	of	credit,	and	liabilities	held	with	the	same	legal	entity	for	which ACE	believes	there	is	a	contractual	right	of	offset.	The	determination	of	the	default	factor	is	principally	based	on	the	financial	strength	rating	of	the reinsurer.	Default	factors	require	considerable	judgment	and	are	determined	using	the	current	financial	strength	rating,	or	rating	equivalent,	of	each reinsurer	as	well	as	other	key	considerations	and	assumptions.	The	more	significant	considerations	include,	but	are	not	necessarily	limited	to,	the following:

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

•	For	balances	recoverable	from	reinsurers	that	are	both	unrated	by	a	major	rating	agency	and	for	which	management	is	unable	to	determine	a	credible rating	equivalent	based	on	a	parent,	affiliate,	or	peer	company,	the	Company	determines	a	rating	equivalent	based	on	an	analysis	of	the	reinsurer	that considers	an	assessment	of	the	creditworthiness	of	the	particular	entity,	industry	benchmarks,	or	other	factors	as	considered	appropriate.	The	Company then	applies	the	applicable	default	factor	for	that	rating	class.	For	balances	recoverable	from	unrated	reinsurers	for	which	the	ceded	reserve	is	below	a certain	threshold,	the	Company	generally	applies	a	default	factor	of	25	percent,	consistent	with	published	statistics	of	a	major	rating	agency; •	For	balances	recoverable	from	reinsurers	that	are	either	insolvent	or	under	regulatory	supervision,	the	Company	establishes	a	default	factor	and resulting	provision	for	uncollectible	reinsurance	based	on	reinsurer-specific	facts	and	circumstances.	Upon	initial	notification	of	an	insolvency,	the Company	generally	recognizes	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,	the	Company	generally recognizes	a	default	factor	by	estimating	an	expected	recovery	on	all	balances	outstanding,	net	of	collateral.	When	sufficient	credible	information becomes	available,	the	Company	adjusts	the	provision	for	uncollectible	reinsurance	by	establishing	a	default	factor	pursuant	to	information	received;	and •	For	other	recoverables,	management	determines	the	provision	for	uncollectible	reinsurance	based	on	the	specific	facts	and	circumstances	of	that dispute.

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

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

The	value	of	reinsurance	business	assumed	of	$92	million	and	$111	million	at	December	31,	2010	and	2009,	respectively,	included	in	Other	assets in	the	accompanying	consolidated	balance	sheets,	represents	the	excess	of	estimated	ultimate	value	of	the	liabilities	assumed	under	retroactive reinsurance	contracts	over	consideration	received.	The	value	of	reinsurance	business	assumed	is	amortized	and	recorded	to	losses	and	loss	expenses based	on	the	payment	pattern	of	the	losses	assumed	and	ranges	between	5	and	40	years.	The	unamortized	value	is	reviewed	regularly	to	determine	if	it is	recoverable	based	upon	the	terms	of	the	contract,	estimated	losses	and	loss	expenses,	and	anticipated	investment	income.	Unrecoverable	amounts are	expensed	in	the	period	identified.

# e)	Investments

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

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

•	Life	insurance	policies	are	carried	at	policy	cash	surrender	value.

•	Policy	loans	are	carried	at	outstanding	balance.

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

•	Other	investments	over	which	ACE	can	exercise	significant	influence	are	accounted	for	using	the	equity	method.

•	All	other	investments	over	which	ACE	cannot	exercise	significant	influence	are	carried	at	fair	value	with	changes	in	fair	value	recognized	through	OCI.

For	these	investments,	investment	income	and	realized	gains	are	recognized	as	related	distributions	are	received.

•	Partially-owned	investment	companies	comprise	entities	in	which	the	Company	holds	an	ownership	interest	in	excess	of	three	percent.	These investments	as	well	as	ACE's	investments	in	investment	funds	where	its	ownership	interest	is	in	excess	of	three	percent	are	accounted	for	under	the equity	method	because	ACE	exerts	significant	influence.	These	investments	apply	investment	company	accounting	to	determine	operating	results,	and ACE	retains	the	investment	company	accounting	in	applying	the	equity	method.	This	means	that	investment	income,	realized	gains	or	losses,	and unrealized	gains	or	losses	are	included	in	the	portion	of	equity	earnings	reflected	in	Other	(income)	expense.

Investments	in	partially-owned	insurance	companies	primarily	represent	direct	investments	in	which	the	Company	has	significant	influence	and,	as such,	meet	the	requirements	for	equity	accounting.	The	Company	reports	its	share	of	the	net	income	or	loss	of	the	partially-owned	insurance	companies in	Other	(income)	expense.	Investments	in	partially-owned	insurance	companies	over	which	the	Company	does	not	exert	significant	influence	are	carried at	fair	value.

Realized	gains	or	losses	on	sales	of	investments	are	determined	on	a	first-in,	first-out	basis.	Unrealized	appreciation	(depreciation)	on	investments is	included	as	a	separate	component	of	AOCI	in	shareholders'	equity.	The	Company	regularly	reviews	its	investments	for	OTTI.	Refer	to	Note	4.

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

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

Net	investment	income	includes	interest	and	dividend	income	and	amortization	of	fixed	maturity	market	premiums	and	discounts	and	is	net	of investment	management	and	custody	fees.	For	mortgage-backed	securities,	and	any	other	holdings	for	which	there	is	a	prepayment	risk,	prepayment assumptions	are	evaluated	and	revised	as	necessary.	Any	adjustments	required	due	to	the	resultant	change	in	effective	yields	and	maturities	are recognized	prospectively.	Prepayment	fees	or	call	premiums	that	are	only	payable	when	a	security	is	called	prior	to	its	maturity	are	earned	when received	and	reflected	in	Net	investment	income.

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

Similar	to	securities	lending	arrangements,	securities	sold	under	reverse	repurchase	agreements,	whereby	the	Company	sells	securities	and repurchases	them	at	a	future	date	for	a	predetermined	price,	are	accounted	for	as	collateralized	investments	and	borrowings	and	are	recorded	at	the contractual	repurchase	amounts	plus	accrued	interest.	Assets	to	be	repurchased

are	the	same,	or	substantially	the	same,	as	the	assets	transferred	and	the	transferor,	through	right	of	substitution,	maintains	the	right	and	ability	to redeem	the	collateral	on	short	notice.	The	fair	value	of	the	underlying	securities	is	included	in	fixed	maturities	and	equity	securities.	In	contrast	to securities	lending	programs,	the	use	of	cash	received	is	not	restricted.	The	Company	reports	its	obligation	to	return	the	cash	as	short-term	debt. Refer	to	Note	15	for	a	discussion	on	the	determination	of	fair	value	for	the	Company's	various	investment	securities.

# f)	Cash

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

# g)	Goodwill	and	other	intangible	assets

Goodwill	represents	the	excess	of	the	cost	of	acquisitions	over	the	fair	value	of	net	assets	acquired	and	is	not	amortized.	Goodwill	is	assigned	at acquisition	to	the	applicable	reporting	unit	of	the	acquired	entities	giving	rise	to	the	goodwill.	Goodwill	impairment	tests	are	performed	annually,	or	more frequently	if	circumstances	indicate	a	possible	impairment.	The	Company	estimates	a	reporting	unit's	fair	value	using	a	consistently	applied	combination of	the	following	models:	an	earnings	multiple,	a	book	value	multiple,	a	discounted	cash	flow	or	an	allocated	market	capitalization	model.	The	Company's earnings	and	book	value	models	apply	multiples	of	comparable	publicly	traded	companies	to	forecasted	earnings	or	book	value	of	each	reporting	unit	and consider	current	market	transactions.	The	discounted	cash	flow	model	applies	a	discount	to	estimated	cash	flows	including	a	terminal	value	calculation. The	market	capitalization	model	allocates	the	Company's	market	capitalization	to	each	reporting	unit.	Where	appropriate,	the	Company	considers	the impact	of	a	control	premium.	Goodwill	recorded	in	connection	with	investments	in	partially-owned	insurance	companies	is	recorded	in	Investments	in partially-owned	insurance	companies	and	is	also	measured	for	impairment	annually.

Indefinite	lived	intangible	assets	are	not	subject	to	amortization.	Finite	lived	intangible	assets	are	amortized	over	their	useful	lives,	generally	ranging from	4	to	20	years.	The	carrying	amounts	of	intangible	assets	are	regularly	reviewed	for	indicators	of	impairment.	Impairment	is	recognized	if	the	carrying amount	is	not	recoverable	from	its	undiscounted	cash	flows	and	is	measured	as	the	difference	between	the	carrying	amount	and	fair	value.

# h)	Unpaid	losses	and	loss	expenses

A	liability	is	established	for	the	estimated	unpaid	losses	and	loss	expenses	under	the	terms	of,	and	with	respect	to,	the	Company's	policies	and agreements.	These	amounts	include	provision	for	both	reported	claims	(case	reserves)	and	IBNR	claims.	The	methods	of	determining	such	estimates and	establishing	the	resulting	liability	are	reviewed	regularly	and	any	adjustments	are	reflected	in	operations	in	the	period	in	which	they	become	known. Future	developments	may	result	in	losses	and	loss	expenses	materially	greater	or	less	than	recorded	amounts.

Except	for	net	loss	and	loss	expense	reserves	of	$69	million	net	of	discount	held	at	December	31,	2010,	representing	structured	settlements	for which	the	timing	and	amount	of	future	claim	payments	are	reliably	determinable,	the	Company	does	not	discount	its	P&C	loss	reserves.	Structured settlements	represent	contracts	purchased	from	life	insurance	companies	primarily	to	settle	workers'	compensation	claims,	where	payments	to	the claimant	by	the	life	insurance	company	are	expected	to	be	made	in	the	form	of	an	annuity.	The	Company	retains	the	liability	to	the	claimant	in	the	event that	the	life	insurance	company	fails	to	pay.	At	December	31,	2010,	the	Company	has	a	gross	liability	of	$654	million	for	the	amount	due	to	claimants	and reinsurance	recoverables	of	$585	million	for	amounts	due	from	the	life	insurance	companies.	For	structured	settlement	contracts	where	payments	are guaranteed	regardless	of	claimant	life	expectancy,	the	amounts	recoverable	from	the	life	insurance	companies	are	included	in	Other	Assets,	as	they	do not	meet	the	requirements	for	reinsurance	accounting.	At	December	31,	2010,	there	was	$69	million	included	in	Other	Assets	relating	to	structured settlements.

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

Prior	period	development	arises	from	changes	to	loss	estimates	recognized	in	the	current	year	that	relate	to	loss	reserves	first	reported	in	previous calendar	years	and	excludes	the	effect	of	losses	from	the	development	of	earned	premiums	from	previous	accident	years.	With	respect	to	crop	business, prior	to	the	acquisition	of	Rain	and	Hail,	reports	relating	to	the	previous	crop	year(s)	were	normally	received	in	subsequent	calendar	years	and	this typically	resulted	in	adjustments	to	the	previously

reported	premiums,	losses	and	loss	expenses,	and	profit	share	commission.	Following	the	acquisition,	such	information	is	available	before	the	close	of the	calendar	year.	Commencing	with	the	quarter	ended	September	30,	2009,	prior	period	development	for	the	crop	business	includes	adjustments	to both	crop	losses	and	loss	expenses	and	the	related	crop	profit	share	commission.

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

# i)	Future	policy	benefits

The	development	of	long	duration	contract	reserves	requires	management	to	make	estimates	and	assumptions	regarding	expenses,	mortality, persistency,	and	investment	yields.	Such	estimates	are	primarily	based	on	historical	experience	and	information	provided	by	ceding	companies	and include	a	margin	for	adverse	deviation.	Interest	rates	used	in	calculating	reserves	range	from	one	percent	to	seven	percent	at	December	31,	2010	and 2009.	Actual	results	could	differ	materially	from	these	estimates.	Management	monitors	actual	experience,	and	where	circumstances	warrant,	will	revise its	assumptions	and	the	related	reserve	estimates.	Revisions	are	recorded	in	the	period	they	are	determined.

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

The	Company	reinsures	various	death	and	living	benefit	guarantees	associated	with	variable	annuities	issued	primarily	in	the	United	States	and	Japan. Each	reinsurance	treaty	covers	variable	annuities	written	during	a	limited	period,	typically	not	exceeding	two	years.	The	Company	generally	receives	a monthly	premium	during	the	accumulation	phase	of	the	covered	annuities	(in-force)	based	on	a	percentage	of	either	the	underlying	accumulated	account values	or	the	underlying	accumulated	guaranteed	values.	Depending	on	an	annuitant's	age,	the	accumulation	phase	can	last	many	years.	To	limit	the Company's	exposure	under	these	programs,	all	reinsurance	treaties	include	aggregate	claim	limits	and	many	include	an	aggregate	deductible. The	guarantees	which	are	payable	on	death,	referred	to	as	guaranteed	minimum	death	benefits	(GMDB),	principally	cover	shortfalls	between accumulated	account	value	at	the	time	of	an	annuitant's	death	and	either	i)	an	annuitant's	total	deposits;	ii)	an	annuitant's	total	deposits	plus	a	minimum annual	return;	or	iii)	the	highest	accumulated	account	value	attained	at	any	policy	anniversary	date.	In	addition,	a	death	benefit	may	be	based	on	a formula	specified	in	the	variable	annuity	contract	that	uses	a	percentage	of	the	growth	of	the	underlying	contract	value.	Liabilities	for	GMDBs	are	based on	cumulative	assessments	or	premiums	to	date	multiplied	by	a	benefit	ratio	that	is	determined	by	estimating	the	present	value	of	benefit	payments	and related	adjustment	expenses	divided	by	the	present	value	of	cumulative	assessment	or	expected	fees	during	the	contract	period.

Under	reinsurance	programs	covering	GLBs,	the	Company	assumes	the	risk	of	guaranteed	minimum	income	benefits	(GMIB)	and	Guaranteed Minimum	Accumulation	Benefits	(GMAB)	associated	with	variable	annuity	contracts.	The	GMIB	risk	is	triggered	if,	at	the	time	the	contract	holder	elects to	convert	the	accumulated	account	value	to	a	periodic	payment	stream	(annuitize),	the	accumulated	account	value	is	not	sufficient	to	provide	a guaranteed	minimum	level	of	monthly	income.	The	GMAB	risk	is	triggered	if,	at	contract	maturity,	the	contract	holder's	account	value	is	less	than	a guaranteed	minimum	value.	The	Company's	GLB	reinsurance	product	meets	the	definition	of	a	derivative	for	accounting	purposes	and	is	carried	at	fair value	with	changes	in	fair	value	recognized	in	income	and	classified	as	described	below.	As	the	assuming	entity,	the	Company	is	obligated	to	provide coverage	until	the	earlier	of	the	expiration	of	the	underlying	guaranteed	benefit	or	the	treaty	expiration	date.	Premiums	received	under	the	reinsurance treaties	are	classified	as	premium.	Expected	losses	allocated	to	premiums	received	are	classified	as	policy	benefits	and	valued	similar	to	GMDB reinsurance.	Other	changes	in	fair	value,	principally	arising	from	changes	in	expected	losses	allocated	to	expected	future	premiums,	are	classified	as	Net realized	gains	(losses).	Fair	value	represents	management's	estimate	of	exit	price	and	thus	includes	a	risk	margin.	The	Company	may	recognize	a realized	loss	for	other	changes	in	fair	value	due	to	adverse	changes	in	the	capital	markets	(i.e.,	declining	interest	rates	and/or	declining	equity	markets) and	changes	in	policyholder	behavior	(i.e.,	increased	annuitization	or	decreased	lapse	rates)	although	the	Company	expects	the	business	to	be profitable.	The	Company	believes	this	presentation	provides	the	most	meaningful	disclosure	of	changes	in	the	underlying	risk	within	the	GLB	reinsurance programs	for	a	given	reporting	period.	Refer	to	Note	5	c).

# k)	Deposit	assets	and	liabilities

Deposit	assets	arise	from	ceded	reinsurance	contracts	purchased	that	do	not	transfer	significant	underwriting	or	timing	risk.	Under	deposit	accounting, consideration	received	or	paid,	excluding	non-refundable	fees,	is	recorded	as	a	deposit	asset	or	liability	in	the	balance	sheet	as	opposed	to	recording ceded	premiums	and	losses	in	the	statement	of	operations.	Interest	income	on	deposits,	representing	the	consideration	received	or	to	be	received	in excess	of	cash	payments	related	to	the	deposit	contract,	is	earned	based	on	an	effective	yield	calculation.	The	calculation	of	the	effective	yield	is	based on	the	amount	and	timing	of	actual	cash	flows	at	the	balance	sheet	date	and	the	estimated	amount	and	timing	of	future	cash	flows.	The	effective	yield	is recalculated	periodically	to	reflect	revised	estimates	of	cash	flows.	When	a	change	in	the	actual	or	estimated	cash	flows	occurs,	the	resulting	change	to the	carrying	amount	of	the	deposit	asset	is	reported	as	income	or	expense.	Deposit	assets	of	$144	million	and	$55	million	at	December	31,	2010	and 2009,	respectively,	are	reflected	in	Other	assets	in	the	balance	sheets	and	the	accretion	of	deposit	assets	related	to	interest	pursuant	to	the	effective	yield calculation	is	reflected	in	Net	investment	income	in	the	statement	of	operations.

Non-refundable	fees	are	earned	based	on	contract	terms.	Non-refundable	fees	paid	but	unearned	are	reflected	in	Other	assets	in	the	balance	sheet and	earned	fees	are	reflected	in	Other	(income)	expense	in	the	statement	of	operations.

Deposit	liabilities	include	reinsurance	deposit	liabilities	of	$351	million	and	$281	million	and	contract	holder	deposit	funds	of	$70	million	and	$51 million	at	December	31,	2010	and	2009,	respectively.	The	reinsurance	deposit	liabilities	arise	from	contracts	sold	for	which	there	is	not	a	significant transfer	of	risk.	At	contract	inception,	the	deposit	liability	equals	net	cash	received.	An	accretion	rate	is	established	based	on	actuarial	estimates	whereby the	deposit	liability	is	increased	to	the	estimated	amount	payable	over	the	contract	term.	The	deposit	accretion	rate	is	the	rate	of	return	required	to	fund expected	future	payment	obligations.	The	Company	periodically	reassesses	the	estimated	ultimate	liability	and	related	expected	rate	of	return.	Changes to	the	amount	of	the	deposit	liability	are	reflected	through	Net	investment	income	to	reflect	the	cumulative	effect	of	the	period	the	contract	has	been	in force,	and	by	an	adjustment	to	the	future	accretion	rate	of	the	liability	over	the	remaining	estimated	contract	term.

Contract	holder	deposit	funds	represent	a	liability	for	investment	contracts	sold	that	do	not	meet	the	definition	of	an	insurance	contract	and	are	sold with	a	guaranteed	rate	of	return.	The	liability	equals	accumulated	policy	account	values,	which	consist	of	the	deposit	payments	plus	credited	interest,	less withdrawals	and	amounts	assessed	through	the	end	of	the	period.

# l)	Foreign	currency	remeasurement	and	translation

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

# m)	Administrative	expenses

Administrative	expenses	generally	include	all	operating	costs	other	than	policy	acquisition	costs.	The	Insurance	–	North	American	segment	manages	and utilizes	an	in-house	third-party	claims	administrator,	ESIS	Inc.	(ESIS).	ESIS	performs	claims	management	and	risk	control	services	for	domestic	and international	organizations	that	self-insure	P&C	exposures	as	well	as	internal	P&C	exposures.	The	net	operating	results	of	ESIS	are	included	within administrative	expenses	and	were	$85	million,	$26	million,	and	$34	million	for	the	years	ended	December	31,	2010,	2009,	and	2008,	respectively.

# n)	Income	taxes

Income	taxes	have	been	recorded	related	to	those	operations	subject	to	income	taxes.	Deferred	tax	assets	and	liabilities	result	from	temporary differences	between	the	amounts	recorded	in	the	consolidated	financial	statements	and	the	tax	basis	of	the	Company's	assets	and	liabilities.	Refer	to Note	8.	The	effect	on	deferred	tax	assets	and	liabilities	of	a	change	in	tax	rates	is	recognized	in	income	in	the	period	that	includes	the	enactment	date.	A valuation	allowance	against	deferred	tax	assets	is	recorded	if	it	is	more	likely	than	not	that	all,	or	some	portion,	of	the	benefits	related	to	deferred	tax assets	will	not	be	realized.	The	valuation	allowance	assessment	considers	tax	planning	strategies,	where	applicable.

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

# o)	Earnings	per	share

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

# p)	Cash	flow	information

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

# q)	Derivatives

The	Company	recognizes	all	derivatives	at	fair	value	in	the	consolidated	balance	sheets.	The	Company	participates	in	derivative	instruments	in	two principal	ways:

(i)	To	sell	protection	to	customers	as	an	insurance	or	reinsurance	contract	that	meets	the	definition	of	a	derivative	for	accounting	purposes .	For	2010	and 2009,	the	reinsurance	of	GLBs	was	the	Company's	primary	product	falling	into	this	category;	and

(ii)	To	mitigate	financial	risks,	principally	arising	from	investment	holdings,	products	sold,	or	assets	and	liabilities	held	in	foreign	currencies.	For	these instruments,	changes	in	assets	or	liabilities	measured	at	fair	value	are	recorded	as	realized	gains	or	losses	in	the	consolidated	statement	of	operations. The	Company	did	not	designate	any	derivatives	as	accounting	hedges	during	2010,	2009,	or	2008.

# r)	Share-based	compensation

The	Company	measures	and	records	compensation	cost	for	all	share-based	payment	awards	at	grant-date	fair	value.	Compensation	costs	are recognized	for	share-based	payment	awards	with	only	service	conditions	that	have	graded	vesting	schedules	on	a	straight-line	basis	over	the	requisite service	period	for	each	separately	vesting	portion	of	the	award	as	if	the	award	was,	in	substance,	multiple	awards.	Refer	to	Note	13.

# s)	New	accounting	pronouncements

# Fair	value	measurements	and	disclosures

Accounting	Standard	Update	(ASU)	No.	2010-06,	Improving	Disclosures	about	Fair	Value	Measurements	(ASU	2010-06)	includes	provisions	that	amend Accounting	Standards	Codification	(ASC)	Topic	820,	Fair	Value	Measurements	and	Disclosures,	(Topic	820)	to	require	reporting	entities	to	make	new disclosures	about	recurring	and	nonrecurring	fair	value	measurements	including	the	amounts	of	and	reasons	for	significant	transfers	into	and	out	of	Level 1	and	Level	2	fair	value	measurements	and	separate	disclosure	of	purchases,	sales,	issuances,	and	settlements	in	the	reconciliation	of	Level	3	fair	value measurements.	ASU	2010-6	was	effective	for	interim	and	annual	reporting	periods	beginning	after	December	15,	2009,	except	for	Level	3	reconciliation disclosures	which	are	effective	for	interim	and	annual	periods	beginning	after	December	15,	2010.

# Consolidation	of	variable	interest	entities	and	accounting	for	transfers	of	financial	assets

ASU	No.	2009-16,	Accounting	for	Transfers	of	Financial	Assets	(ASU	2009-16)	and	ASU	No.	2009-17, Improvements	to	Financial	Reporting	by Enterprises	Involved	With	Variable	Interest	Entities	(ASU	2009-17)	include	provisions	effective	for	interim	and	annual	reporting	periods	beginning	on January	1,	2010.	ASU	2009-16	amends	ASC	Topic	860,	Transfers	and	Servicing,	by	removing	the	exemption	from	consolidation	for	qualifying	special purpose	entities.	This	statement	also	limits	the	circumstances	in	which	a	financial	asset,	or	portion	of	a	financial	asset,	should	be	derecognized	when	the transferor	has	not	transferred	the	entire	original	financial	asset	to	an	entity	that	is	not	consolidated	with	the	transferor	in	the	financial	statements	being presented	and/or	when	the	transferor	has	continuing	involvement	with	the	transferred	financial	asset.	ASU	2009-17	amends	ASC	Topic	810, Consolidation,	to	eliminate	the	quantitative	approach	previously	required	for	determining	the	primary

beneficiary	of	a	variable	interest	entity	and	requires	ongoing	qualitative	reassessments	of	whether	an	enterprise	is	the	primary	beneficiary	of	a	variable interest	entity.	The	adoption	of	these	provisions	did	not	have	a	material	impact	on	ACE's	financial	condition	or	results	of	operations.

# Embedded	credit	derivatives

ASU	No.	2010-11,	Scope	Exception	Related	to	Embedded	Credit	Derivatives 	(ASU	2010-11)	includes	provisions	effective	for	interim	and	annual reporting	periods	beginning	on	July	1,	2010.	The	provisions	of	ASU	2010-11	amend	ASC	Topic	815,	Derivatives	and	Hedging,	to	provide	clarification	on the	bifurcation	scope	exception	for	embedded	credit	derivative	features.	The	adoption	of	these	provisions	did	not	have	a	material	impact	on	ACE's financial	condition	or	results	of	operations.

# To	be	adopted	after	2010

# Accounting	for	costs	associated	with	acquiring	or	renewing	insurance	contracts

In	October	2010,	the	Financial	Accounting	Standards	Board	(FASB)	issued	ASU	No.	2010-26,	 Accounting	for	Costs	Associated	with	Acquiring	or Renewing	Insurance	Contracts	(ASU	2010-26).	The	provisions	of	ASU	2010-26	modify	the	definition	of	acquisition	costs	to	specify	that	a	cost	must	be directly	related	to	the	successful	acquisition	of	a	new	or	renewal	insurance	contract	in	order	to	be	deferred.	This	guidance	is	effective	for	interim	and annual	reporting	periods	beginning	on	January	1,	2012,	and	may	be	applied	prospectively	or	retrospectively.	ACE	is	in	the	process	of	assessing	the impact	that	the	implementation	of	ASU	2010-26	will	have	on	its	financial	condition	and	results	of	operations.

On	December	28,	2010,	ACE	acquired	all	the	outstanding	common	stock	of	Rain	and	Hail	not	previously	owned	by	ACE	for	approximately	$1.1	billion	in cash.	Rain	and	Hail	has	served	America's	farmers	since	1919,	providing	comprehensive	multiple	peril	crop	and	crop/hail	insurance	protection	to customers	in	the	U.S.	and	Canada.	This	acquisition	is	consistent	with	ACE's	strategy	to	expand	its	specialty	lines	business	and	provides	further diversification	of	ACE's	global	product	mix.

Prior	to	the	consummation	of	this	business	combination,	ACE's	20.1	percent	ownership	in	Rain	and	Hail	was	recorded	in	Investments	in	partially- owned	insurance	companies.	In	accordance	with	GAAP,	at	the	date	of	the	business	combination,	ACE	was	deemed	to	have	disposed	of	its	20.1	percent ownership	interest	and	recognized	100	percent	of	the	assets	and	liabilities	of	Rain	and	Hail	at	acquisition	date	fair	value.	In	connection	with	this	deemed disposition,	ACE	recognized	a	$175	million	gain	in	Net	realized	gains	(losses)	in	the	consolidated	statement	of	operations,	which	represents	the	excess of	acquisition	date	fair	value	of	the	20.1	percent	ownership	interest	over	the	cost	basis.	Acquisition	date	fair	value	of	the	20.1	percent	ownership	interest was	determined	by	first	calculating	the	implied	fair	value	of	100	percent	of	Rain	and	Hail	based	on	the	purchase	price	for	the	net	assets	not	previously owned	by	ACE	at	the	acquisition	date.	The	implied	fair	value	of	the	20.1	percent	ownership	interest	was	then	reduced	to	reflect	a	noncontrolling	interest discount.	The	consolidated	financial	statements	include	the	results	of	Rain	and	Hail	from	December	28,	2010.

The	acquisition	generated	$135	million	of	goodwill,	none	of	which	is	expected	to	be	deductible	for	income	tax	purposes	and	$523	million	of	other intangible	assets	based	on	ACE's	purchase	price	allocation.	Goodwill	and	other	intangible	assets	arising	from	this	acquisition	are	included	in	the Insurance	–	North	American	segment.	Legal	and	other	expenses	incurred	to	complete	the	acquisition	amounted	to	$2	million	and	are	included	in	Other (income)	expense.

The	following	table	presents	ACE's	best	estimate	of	fair	value	of	the	assets	and	liabilities	of	Rain	and	Hail	at	December	28,	2010.

| Investments	and	cash | $630 |
| :--- | :--- |
| Insurance\tand\treinsurance\tbalances\treceivable | 538 |
| Goodwill\tand\tother\tintangible\tassets | 658 |
| Other\tassets | 101 |
| Total\tassets | $1,927 |
| Liabilities\tand\tShareholder's\tEquity |  |
| Unpaid\tlosses\tand\tloss\texpenses | $124 |
| Unearned\tpremiums | 55 |
| Deferred\ttax\tliabilities | 179 |
| Other\tliabilities | 298 |
| Total\tliabilities | 656 |
| Total\tshareholder's\tequity | \t 1,271 |
| Total\tliabilities\tand\tshareholder's\tequity | $1,927 |

The	following	table	presents	unaudited	pro	forma	information	for	the	years	ended	December	31,	2010	and	2009,	assuming	the	acquisition	of	Rain	and Hail	occurred	on	January	1,	2009.	The	pro	forma	financial	information	is	presented	for	informational	purposes	only	and	is	not	necessarily	indicative	of	the operating	results	that	would	have	occurred	had	the	acquisition	been	consummated	on	January	1,	2009,	nor	is	it	necessarily	indicative	of	future	operating results.	Significant	assumptions	used	to	determine	pro	forma	operating	results	include	amortization	of	acquired	intangible	assets	and	the	investment income	opportunity	cost	related	to	the	purchase	price.	Further,	for	pro	forma	information	purposes,	the	gain	recorded	in	connection	with	the	deemed disposition	discussed	above	is	included	in	the	year	ended	December	31,	2009.

| (in	millions	of	U.S.	dollars,	except	per	share	data)	(unaudited) | 2010 | 2009 |
| :--- | :--- | :--- |
| Pro\tforma: |  |  |
| Net\tpremiums\tearned | $14,208 | $14,040 |
| Total\trevenues | $16,525 | $16,056 |
| Net\tincome | $2,983 | $2,891 |
| Basic\tearnings\tper\tshare | $8.78 | $8.58 |
| Diluted\tearnings\tper\tshare | $8.74 | $8.56 |

On	December	1,	2010,	ACE	acquired	the	net	assets	of	Jerneh,	a	general	insurance	company	in	Malaysia,	for	approximately	$218	million	in	cash.	The acquisitions	of	Rain	and	Hail	and	Jerneh	were	financed	with	cash	on	hand	and	the	use	of	reverse	repurchase	agreements	of	$1	billion.	Refer	to	Note	9.

# a)	Transfers	of	securities

As	part	of	the	Company's	fixed	income	diversification	strategy,	ACE	has	decided	to	hold	certain	additional	securities	to	maturity.	Because	the	Company has	the	intent	to	hold	these	securities	to	maturity,	transfers	of	such	securities	with	a	total	fair	value	of	$6.8	billion	were	made	during	the	third	and	fourth quarters	of	2010	from	Fixed	maturities	available	for	sale	to	Fixed	maturities	held	to	maturity.	The	net	unrealized	appreciation	at	the	date	of	the	transfer continues	to	be	reported	as	a	component	of	AOCI	and	is	being	amortized	over	the	remaining	life	of	the	securities	as	an	adjustment	of	yield	in	a	manner consistent	with	the	amortization	of	any	premium	or	discount.

# b)	Fixed	maturities

The	following	tables	present	the	fair	values	and	amortized	costs	of	and	the	gross	unrealized	appreciation	(depreciation)	related	to	fixed	maturities	as	well as	related	OTTI	recognized	in	AOCI.

| (in	millions	of	U.S.	dollars) | Amortized<br>Cost | Gross<br>Unrealized<br>Appreciation | Gross<br>Unrealized<br>Depreciation | Fair	Value | Recognized<br>in<br>AOCI |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Available\tfor\tsale |  |  |  |  |  |
| U.S.\tTreasury\tand\tagency | $2,904 | $74 | $(15) | $2,963 | $– |
| Foreign | 10,926 | 340 | (80) | \t 11,186 | (28) |
| Corporate\tsecurities | 12,902 | 754 | (69) | \t 13,587 | (29) |
| Mortgage-backed\tsecurities | 8,508 | 213 | (205) | 8,516 | (228) |
| States,\tmunicipalities,\tand\tpolitical\tsubdivisions | 1,302 | 15 | (30) | 1,287 | – |
|  | $36,542 | $1,396 | $(399) | $37,539 | $(285) |
| Held\tto\tmaturity |  |  |  |  |  |
| U.S.\tTreasury\tand\tagency | $1,105 | $32 | $(10) | $1,127 | $– |
| Foreign | 1,049 | 1 | (37) | 1,013 | – |
| Corporate\tsecurities | 2,361 | 12 | (60) | 2,313 | – |
| Mortgage-backed\tsecurities | 3,811 | 62 | (27) | 3,846 | – |
| States,\tmunicipalities,\tand\tpolitical\tsubdivisions | 1,175 | 5 | (18) | 1,162 | – |
|  | $9,501 | $112 | $(152) | $9,461 | $– |

|  |  |  | December	31,	2009 |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- |
| (in\tmillions\tof\tU.S.\tdollars) | Amortized\nCost | Gross\nUnrealized\nAppreciation | Gross\nUnrealized\nDepreciation | Fair\tValue | OTTI\nRecognized\nin\tAOCI |
| Available\tfor\tsale |  |  |  |  |  |
| U.S.\tTreasury\tand\tagency | $3,680 | $48 | $(19) | $3,709 | $– |
| Foreign | \t 10,960 | 345 | (160) | \t 11,145 | (37) |
| Corporate\tsecurities | \t 12,707 | 658 | (150) | \t 13,215 | (41) |
| Mortgage-backed\tsecurities | \t 10,058 | 239 | (455) | 9,842 | (227) |
| States,\tmunicipalities,\tand\tpolitical\tsubdivisions | 1,580 | 52 | (18) | 1,614 | – |
|  | $38,985 | $1,342 | $(802) | $39,525 | $(305) |
| Held\tto\tmaturity |  |  |  |  |  |
| U.S.\tTreasury\tand\tagency | $1,026 | $33 | $(2) | $1,057 | $– |
| Foreign | 26 | 1 | – | 27 | – |
| Corporate\tsecurities | 313 | 10 | (1) | 322 | – |
| Mortgage-backed\tsecurities | 1,440 | 39 | (10) | 1,469 | – |
| States,\tmunicipalities,\tand\tpolitical\tsubdivisions | 676 | 11 | (1) | 686 | – |
|  | $3,481 | $94 | $(14) | $3,561 | $– |

As	discussed	in	Note	4	d),	if	a	credit	loss	is	indicated	on	an	impaired	fixed	maturity,	an	OTTI	is	considered	to	have	occurred	and	the	portion	of	the impairment	not	related	to	credit	losses	(non-credit	OTTI)	is	recognized	in	OCI.	Included	in	the	"OTTI	Recognized	in	AOCI"	columns	above	is	the cumulative	amount	of	non-credit	OTTI	recognized	in	OCI	adjusted	for	subsequent	sales,	maturities,	and	redemptions.	OTTI	Recognized	in	AOCI	does not	include	the	impact	of	subsequent	changes	in	fair	value	of	the	related	securities.	In	periods	subsequent	to	a	recognition	of	OTTI	in	OCI,	changes	in	the fair	value	of	the	related	fixed	maturities	are	reflected	in	Unrealized	appreciation	(depreciation)	in	the	consolidated	statement	of	shareholders'	equity.	For the	years	ended	December	31,	2010	and	2009,	$193	million	and	$196	million,	respectively,	of	net	unrealized	appreciation	related	to	such	securities	is included	in	OCI.	At	December	31,	2010	and	2009,	AOCI	includes	net	unrealized	depreciation	of	$99	million	and	$162	million,	respectively,	related	to securities	remaining	in	the	investment	portfolio	at	those	dates	for	which	ACE	has	recognized	a	non-credit	OTTI.

Mortgage-backed	securities	issued	by	U.S.	government	agencies	are	combined	with	all	other	to	be	announced	mortgage	derivatives	held	(refer	to Note	10	a)	(iv))	and	are	included	in	the	category,	"Mortgage-backed	securities".	Approximately	79	percent	and	69	percent	of	the	total	mortgage-backed securities	at	December	31,	2010	and	2009,	respectively,	are	represented	by	investments	in	U.S.	government	agency	bonds.	The	remainder	of	the mortgage	exposure	consists	of	collateralized	mortgage	obligations	and	nongovernment	mortgage-backed	securities,	the	majority	of	which	provide	a planned	structure	for	principal	and	interest	payments	and	carry	a	rating	of	AAA	by	the	major	credit	rating	agencies.

The	following	table	presents	fixed	maturities	at	December	31,	2010	and	2009,	by	contractual	maturity.	Expected	maturities	could	differ	from contractual	maturities	because	borrowers	may	have	the	right	to	call	or	prepay	obligations,	with	or	without	call	or	prepayment	penalties.

| (in	millions	of	U.S.	dollars) | Amortized<br>Cost | Fair	Value | Amortized<br>Cost | Fair	Value |
| :--- | :--- | :--- | :--- | :--- |
| Available\tfor\tsale;\tmaturity\tperiod |  |  |  |  |
| Due\tin\t1\tyear\tor\tless | $1,846 | $1,985 | $1,354 | $1,352 |
| Due\tafter\t1\tyear\tthrough\t5\tyears | 13,094 | \t 13,444 | 14,457 | \t 14,905 |
| Due\tafter\t5\tyears\tthrough\t10\tyears | 10,276 | \t 10,782 | 9,642 | \t 10,067 |
| Due\tafter\t10\tyears | 2,818 | 2,812 | 3,474 | 3,359 |
|  | 28,034 | \t 29,023 | 28,927 | \t 29,683 |
| Mortgage-backed\tsecurities | 8,508 | 8,516 | 10,058 | 9,842 |
|  | $36,542 | $37,539 | $ 38,985 | $39,525 |
| Held\tto\tmaturity;\tmaturity\tperiod |  |  |  |  |
| Due\tin\t1\tyear\tor\tless | $400 | $404 | $755 | $766 |
| Due\tafter\t1\tyear\tthrough\t5\tyears | 1,983 | 2,010 | 1,096 | 1,129 |
| Due\tafter\t5\tyears\tthrough\t10\tyears | 2,613 | 2,524 | 108 | 115 |
| Due\tafter\t10\tyears | 694 | 677 | 82 | 82 |
|  | 5,690 | 5,615 | 2,041 | 2,092 |
| Mortgage-backed\tsecurities | 3,811 | 3,846 | 1,440 | 1,469 |
|  | $9,501 | $9,461 | $3,481 | $3,561 |

# c)	Equity	securities

The	following	table	presents	the	fair	value	and	cost	of	and	gross	unrealized	appreciation	(depreciation)	related	to	equity	securities	at	December	31,	2010 and	2009.

| (in	millions	of	U.S.	dollars) | December	31<br>2010 | December	31<br>2009 |
| :--- | :--- | :--- |
| Cost | $666 | $398 |
| Gross\tunrealized\tappreciation | 28 | 70 |
| Gross\tunrealized\tdepreciation | (2) | (1) |
| Fair\tvalue | $692 | $467 |

# d)	Net	realized	gains	(losses)

The	Company	adopted	provisions	included	in	ASC	Topic	320,	 Investments-Debt	and	Equity	Securities,	(Topic	320)	related	to	the	recognition	and presentation	of	OTTI	on	April	1,	2009.	Under	these	provisions,	when	an	OTTI	related	to	a	fixed	maturity	has	occurred,	ACE	is	required	to	record	the	OTTI in	net	income	if	the	Company	has	the	intent	to	sell	the	security	or	it	is	more	likely	than	not	that	it	will	be	required	to	sell	the	security	before	the	recovery	of its	amortized	cost.	Further,	in	cases	where	the	Company	does	not	intend	to	sell	the	security	and	it	is	more	likely	than	not	that	it	will	not	be	required	to	sell the	security,	ACE	must	evaluate	the	security	to	determine	the	portion	of	the	impairment,	if	any,	related	to	credit	losses.	If	a	credit	loss	is	indicated,	an OTTI	is	considered	to	have	occurred	and	any	portion	of	the	OTTI	related	to	credit	losses	must	be	reflected	in	net	income	while	the	portion	of	OTTI	related to	all	other	factors	is	recognized	in	OCI.	For	fixed	maturities	held	to	maturity,	OTTI	recognized	in	OCI	is	accreted	from	AOCI	to	the	amortized	cost	of	the fixed	maturity	prospectively	over	the	remaining	term	of	the

securities.	For	fixed	maturities,	prior	to	this	adoption,	ACE	was	required	to	record	OTTI	in	net	income	unless	the	Company	had	the	intent	and	ability	to hold	the	impaired	security	to	recovery.	These	provisions	do	not	have	any	impact	on	the	accounting	for	OTTI	for	any	other	type	of	investment.

The	cumulative	effect	of	the	adoption	resulted	in	a	reduction	to	AOCI	and	an	increase	to	Retained	earnings	of	$242	million.	These	adjustments reflect	the	net	of	tax	amount	($305	million	pre-tax)	of	OTTI	recognized	in	net	income	prior	to	the	adoption	related	to	fixed	maturities	held	at	the	adoption date	that	had	not	suffered	a	credit	loss,	the	Company	did	not	intend	to	sell,	and	it	was	more	likely	than	not	that	ACE	would	not	be	required	to	sell	before the	recovery	of	their	amortized	cost.	Retained	earnings	and	Deferred	tax	assets	at	the	adoption	date	were	also	reduced	by	$47	million	as	a	result	of	an increase	in	the	Company's	valuation	allowance	against	deferred	tax	assets,	which	was	a	direct	effect	of	the	adoption.

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

For	impaired	fixed	maturities,	the	Company	assesses	OTTI	based	on	the	provisions	of	Topic	320	as	described	above.	The	factors	that	the Company	considers	when	determining	if	a	credit	loss	exists	related	to	a	fixed	maturity	are	discussed	in	"Evaluation	of	potential	credit	losses	related	to fixed	maturities"	below.	Prior	to	the	adoption,	when	evaluating	fixed	maturities	for	OTTI,	the	Company	principally	considered	its	ability	and	intent	to	hold the	impaired	security	to	the	expected	recovery	period,	the	issuer's	financial	condition,	and	the	Company's	assessment	(using	available	market information	such	as	credit	ratings)	of	the	issuer's	ability	to	make	future	scheduled	principal	and	interest	payments	on	a	timely	basis.

The	Company	reviews	all	non-fixed	maturities	for	OTTI	based	on	the	following:

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

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

•	the	Company's	ability	and	intent	to	hold	the	security	to	the	expected	recovery	period.

ACE,	as	a	general	rule,	also	considers	that	equity	securities	in	an	unrealized	loss	position	for	twelve	consecutive	months	are	impaired.

# Evaluation	of	potential	credit	losses	related	to	fixed	maturities

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

U.S.	Treasury	and	agency	obligations	(including	agency	mortgage-backed	securities),	foreign	government	obligations,	and	states,	municipalities,	and	political	subdivisions	obligations U.S.	Treasury	and	agency	obligations	(including	agency	mortgage-backed	securities),	foreign	government	obligations,	and	states,	municipalities,	and political	subdivisions	obligations	represent	less	than	$160	million	of	gross	unrealized	loss	at	December	31,	2010.	These	securities	were	evaluated	for credit	loss	primarily	using	qualitative	assessments	of	the	likelihood	of	credit	loss	considering	credit	rating	of	the	issuers	and	level	of	credit	enhancement,	if any.	ACE	concluded	that	the	high	level	of	creditworthiness	of	the	issuers	coupled	with	credit	enhancement,	where	applicable,	supports	recognizing	no credit	loss	in	net	income.

# Corporate	securities

Projected	cash	flows	for	corporate	securities	(principally	senior	unsecured	bonds)	are	driven	primarily	by	assumptions	regarding	probability	of	default	and also	the	timing	and	amount	of	recoveries	associated	with	defaults.	ACE	develops	these	estimates	using	information	based	on	market	observable	data, issuer-specific	information,	and	credit	ratings.	ACE	developed	its	default	assumption	by	using	historical	default	data	by	Moody's	Investors	Service (Moody's)	rating	category	to	calculate	a	1-in-100	year	probability	of	default,	which	results	in	a	default	assumption	in	excess	of	the	historical	mean	default rate.	ACE	believes	that	use	of	a	default	assumption	in	excess	of	the	historical	mean	is	reasonable	in	light	of	recent	market	conditions.	The	following	table presents	default	assumptions	by	Moody's	rating	category	(historical	mean	default	rate	provided	for	comparison).

| Moody's	Rating	Category | 1-in-100	Year<br>Default	Rate | Historical	Mean<br>Default	Rate |
| :--- | :--- | :--- |
| Investment\tGrade: |  |  |
| Aaa-Baa | \t0.0%-1.4% | \t0.0%-0.3% |
| Below\tInvestment\tGrade: |  |  |
| Ba | 4.8% | 1.1% |
| B | 12.9% | 3.4% |
| Caa-C | 53.6% | 13.8% |

Consistent	with	management's	approach	to	developing	default	rate	assumptions	considering	recent	market	conditions,	ACE	assumed	a	25	percent recovery	rate	(the	par	value	of	a	defaulted	security	that	will	be	recovered)	across	all	rating	categories	rather	than	using	Moody's	historical	mean	recovery rate	of	40	percent.	ACE	believes	that	use	of	a	recovery	rate	assumption	lower	than	the	historical	mean	is	reasonable	in	light	of	recent	market	conditions. Application	of	the	methodology	and	assumptions	described	above	resulted	in	credit	losses	recognized	in	net	income	for	corporate	securities	for	the year	ended	December	31,	2010,	of	$14	million.	Credit	losses	recognized	in	net	income	for	corporate	securities	from	the	date	of	adoption	to	December	31, 2009	amounted	to	$59	million.

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

ACE	develops	specific	assumptions	using	market	data,	where	available,	and	includes	internal	estimates	as	well	as	estimates	published	by	rating agencies	and	other	third-party	sources.	ACE	projects	default	rates	by	mortgage	sector	considering	current	underlying	mortgage	loan	performance, generally	assuming:

•	lower	loss	severity	for	Prime	sector	bonds	versus	ALT-A,	Sub-prime,	and	Option	ARM	sector	bonds;	and

•	lower	loss	severity	for	older	vintage	securities	versus	more	recent	vintage	securities,	which	reflects	the	recent	decline	in	underwriting	standards.

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

# NOTES	TO	THE	CONSOLIDATED	FINANCIAL	STATEMENTS	 –	(continued)

The	following	table	presents	the	significant	assumptions	used	to	estimate	future	cash	flows	for	specific	mortgage-backed	securities	evaluated	for potential	credit	loss	at	December	31,	2010,	by	sector	and	vintage.

| Vintage | Default<br>Rate^(2) | Loss<br>Severity<br>Rate^(2) |
| :--- | :--- | :--- |
| \t2003\tand\tprior | 11% | 22% |
| 2004 | \t18-38% | \t37-59% |
| 2005 | 3-42% | \t48-80% |
| 2006-2007 | \t11-65% | \t39-62% |
| \t2003\tand\tprior | 25% | 41% |
| 2004 | 35% | 48% |
| 2005 | \t13-47% | \t49-62% |
| 2006-2007 | \t32-59% | \t55-67% |
| \t2003\tand\tprior | 25% | 37% |
| 2004 | 52% | 45% |
| 2005 | \t64-75% | \t57-66% |
| 2006-2007 | \t69-78% | \t65-66% |
| \t2003\tand\tprior | 48% | 73% |
| 2004 | 50% | 70% |
| 2005 | 65% | 78% |
| 2006-2007 | \t58-75% | \t72-86% |

	Prime,	ALT-A,	and	Sub-prime	sector	bonds	are	categorized	based	on	creditworthiness	of	the	borrower.	Option	ARM	sector	bonds	are	categorized	based	on	the	type	of	mortgage	product,	rather than	creditworthiness	of	the	borrower. (1)

	Default	rate	and	loss	severity	rate	assumptions	vary	within	a	given	sector	and	vintage	depending	upon	the	geographic	concentration	of	the	collateral	underlying	the	bond	and	the	level	of	serious delinquencies,	among	other	factors. (2)

Application	of	the	methodology	and	assumptions	described	above	resulted	in	credit	losses	recognized	in	net	income	for	mortgage-backed	securities	for the	year	ended	December	31,	2010,	of	$32	million.	Credit	losses	recognized	in	net	income	for	mortgage-backed	securities	from	the	date	of	adoption	to December	31,	2009,	were	$56	million.

The	following	table	presents,	for	the	years	ended	December	31,	2010,	2009,	and	2008,	the	Net	realized	gains	(losses)	and	the	losses	included	in Net	realized	gains	(losses)	and	OCI	as	a	result	of	conditions	which	caused	the	Company	to	conclude	the	decline	in	fair	value	of	certain	investments	was "other-than-temporary"	and	the	change	in	net	unrealized	appreciation	(depreciation)	on	investments.

| (in	millions	of	U.S.	dollars) | 2010 | 2009 | 2008 |
| :--- | :--- | :--- | :--- |
| Fixed\tmaturities: |  |  |  |
| OTTI\ton\tfixed\tmaturities,\tgross | $(115) | $(536) | $(760) |
| OTTI\ton\tfixed\tmaturities\trecognized\tin\tOCI\t(pre-tax) | 69 | 302 | – |
| OTTI\ton\tfixed\tmaturities,\tnet | (46) | (234) | (760) |
| Gross\trealized\tgains\texcluding\tOTTI | 569 | 591 | 654 |
| Gross\trealized\tlosses\texcluding\tOTTI | (143) | (398) | (740) |
| Total\tfixed\tmaturities | 380 | (41) | (846) |
| Equity\tsecurities:\nOTTI\ton\tequity\tsecurities | – | (26) | (248) |
| Gross\trealized\tgains\texcluding\tOTTI | 86 | 105 | 140 |
| Gross\trealized\tlosses\texcluding\tOTTI | (2) | (224) | (241) |
| Total\tequity\tsecurities | 84 | (145) | (349) |
| OTTI\ton\tother\tinvestments | (13) | (137) | (56) |
| Foreign\texchange\tgains\t(losses) | (54) | (21) | 23 |
| Investment\tand\tembedded\tderivative\tinstruments | 58 | 68 | (3) |
| Fair\tvalue\tadjustments\ton\tinsurance\tderivative | (28) | 368 | (650) |
| S&amp;P\tput\toptions\tand\tfutures | (150) | (363) | 164 |
| Other\tderivative\tinstruments | (19) | (93) | 83 |
| Other | 174 | 168 | 1 |
| Net\trealized\tgains\t(losses) | 432 | (196) | (1,633) |
| Change\tin\tnet\tunrealized\tappreciation\t(depreciation)\ton\tinvestments: |  |  |  |
| Fixed\tmaturities\tavailable\tfor\tsale | 451 | \t 2,723 | (2,089) |
| Fixed\tmaturities\theld\tto\tmaturity | 522 | (6) | (2) |
| Equity\tsecurities | (44) | 213 | (363) |
| Other | (35) | 162 | (305) |
| Income\ttax\t(expense)\tbenefit | (152) | (481) | 457 |
| Change\tin\tnet\tunrealized\tappreciation\t(depreciation)\ton\tinvestments | 742 |  |  |
|  |  | \t 2,611 | (2,302) |
| Total\tnet\trealized\tgains\t(losses)\tand\tchange\tin\tnet\tunrealized\tappreciation\t(depreciation)\ton\ninvestments | $1,174 | $2,415 | $(3,935) |

The	following	table	presents,	for	the	year	ended	December	31,	2010,	and	for	the	nine	month	period	from	the	date	of	adoption	of	the	then	new	OTTI standard	to	December	31,	2009,	a	roll-forward	of	pre-tax	credit	losses	related	to	fixed	maturities	for	which	a	portion	of	OTTI	was	recognized	in	OCI.

|  | Year	Ended |  |
| :--- | :--- | :--- |
|  | December\t31, | Nine\tMonths\tEnded |
| (in\tmillions\tof\tU.S.\tdollars) | 2010 | December\t31,\t2009 |
| Balance\tof\tcredit\tlosses\trelated\tto\tsecurities\tstill\theld-beginning\tof\tperiod | $174 | $130 |
| Additions\twhere\tno\tOTTI\twas\tpreviously\trecorded | 34 | 104 |
| Additions\twhere\tan\tOTTI\twas\tpreviously\trecorded | 12 | 11 |
| Reductions\treflecting\tamounts\tpreviously\trecorded\tin\tOCI\tbut\tsubsequently\treflected\tin\tnet |  |  |
| income | – | (2) |
| Reductions\tfor\tsecurities\tsold\tduring\tthe\tperiod | (83) | (69) |
| Balance\tof\tcredit\tlosses\trelated\tto\tsecurities\tstill\theld-end\tof\tperiod | $137 | $174 |

# e)	Other	investments

The	following	table	presents	the	fair	value	and	cost	of	other	investments	at	December	31,	2010	and	2009.

| (in	millions	of	U.S.	dollars) | Fair	Value | Cost | Fair	Value | Cost |
| :--- | :--- | :--- | :--- | :--- |
| Investment\tfunds | $329 | $232 | $310 | $240 |
| Limited\tpartnerships | 438 | 356 | 396 | 349 |
| Partially-owned\tinvestment\tcompanies | 703 | 703 | 475 | 475 |
| Life\tinsurance\tpolicies | 118 | 118 | 97 | 97 |
| Policy\tloans | 54 | 54 | 52 | 52 |
| Trading\tsecurities | 37 | 35 | 42 | 42 |
| Other | 13 | 13 | 3 | 3 |
| Total | $1,692 | $1,511 | $1,375 | $1,258 |

Investment	funds	include	one	highly	diversified	funds	investment	as	well	as	several	direct	funds	that	employ	a	variety	of	investment	styles	such	as long/short	equity	and	arbitrage/distressed.	Included	in	limited	partnerships	and	partially-owned	investment	companies	are	53	individual	limited partnerships	covering	a	broad	range	of	investment	strategies	including	large	cap	buyouts,	specialist	buyouts,	growth	capital,	distressed,	mezzanine,	real estate,	and	co-investments.	The	underlying	portfolio	consists	of	various	public	and	private	debt	and	equity	securities	of	publicly	traded	and	privately	held companies	and	real	estate	assets.	The	underlying	investments	across	various	partnerships,	geographies,	industries,	asset	types,	and	investment strategies	provide	risk	diversification	within	the	limited	partnership	portfolio	and	the	overall	investment	portfolio.	Trading	securities	are	comprised	of	$28 million	of	equity	securities	and	$9	million	of	fixed	maturities	at	December	31,	2010,	compared	with	$31	million	and	$11	million,	respectively,	at December	31,	2009.	The	Company	maintains	rabbi	trusts,	the	holdings	of	which	include	all	of	these	trading	securities	in	addition	to	life	insurance	policies. Refer	to	Note	12	f).

# f)	Investments	in	partially-owned	insurance	companies

The	following	table	presents	Investments	in	partially-owned	insurance	companies	at	December	31,	2010	and	2009.

|  |  | 2010 |  |  |  | 2009 |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| (in\tmillions\tof\tU.S.\tdollars,\texcept | Carrying | Issued\tShare | Ownership | Carrying | Issued\tShare |  | Ownership |  |
| percentages) | Value | Capital | Percentage | Value | Capital |  | Percentage | Domicile |
| Freisenbruch-Meyer | $8 | $5 | 40.0% | $9 | $5 |  | 40.0% | \tBermuda |
| ACE\tCooperative\tIns.\tCo.\t–\tSaudi\tArabia |  |  |  |  |  |  |  | Saudi |
|  | 7 | 27 | 30.0% | – | – |  | N/A | Arabia |
| Huatai\tInsurance\tCompany | 229 | 207 | 21.3% | 220 | 202 |  | 21.3% | China |
| Huatai\tLife\tInsurance\tCompany | 112 | 179 | 20.0% | 74 | 125 |  | 20.0% | China |
| Island\tHeritage | 4 | 27 | 10.8% | 4 | 27 |  | 10.8% | Cayman\nIslands |
| Intrepid\tRe\tHoldings\tLimited | – | – | N/A | – | 0.2 |  | 38.5% | \tBermuda |
| Rain\tand\tHail | – | – | N/A | 126 | 613 |  | 20.7% | United\nStates |
| Total | $360 | $445 |  | $433 | $972.2 |  |  |  |

Huatai	Insurance	Company	and	Huatai	Life	Insurance	Company	are	China-based	entities	which	provide	a	range	of	P&C,	life,	and	investment	products.

# g)	Gross	unrealized	loss

At	December	31,	2010,	there	were	4,682	fixed	maturities	out	of	a	total	of	19,998	fixed	maturities	in	an	unrealized	loss	position.	The	largest	single unrealized	loss	in	the	fixed	maturities	was	$5	million.	Fixed	maturities	in	an	unrealized	loss	position	at	December	31,	2010,	were	comprised	of	both investment	grade	and	below	investment	grade	securities	for	which	fair	value	declined	primarily	due	to	widening	credit	spreads	since	the	date	of	purchase and	included	mortgage-backed	securities	that	suffered	a	decline	in	value	since	their	original	date	of	purchase.

The	following	tables	present,	for	all	securities	in	an	unrealized	loss	position	at	December	31,	2010,	and	December	31,	2009	(including	securities	on loan),	the	aggregate	fair	value	and	gross	unrealized	loss	by	length	of	time	the	security	has	continuously	been	in	an	unrealized	loss	position.

|  |  | 0	–	12	Months |  | Over	12	Months |  | Total |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| December\t31,\t2010 |  | Gross | Fair | Gross |  | Gross |
| (in\tmillions\tof\tU.S.\tdollars) | Fair\tValue | Unrealized\tLoss | Value | Unrealized\tLoss | Fair\tValue | Unrealized\tLoss |
| U.S.\tTreasury\tand\tagency | $864 | $(24.6) | $– | $– | $864 | $(24.6) |
| Foreign | 4,409 | (79.0) | 312 | (37.6) | 4,721 | (116.6) |
| Corporate\tsecurities | 3,553 | (85.1) | 273 | (43.9) | 3,826 | (129.0) |
| Mortgage-backed\tsecurities | 3,904 | (67.3) | \t 1,031 | (165.1) | 4,935 | (232.4) |
| States,\tmunicipalities,\tand\tpolitical\tsubdivisions | 1,115 | (36.2) | 79 | (11.9) | 1,194 | (48.1) |
| Total\tfixed\tmaturities | \t 13,845 | (292.2) | \t 1,695 | (258.5) | \t 15,540 | (550.7) |
| Equity\tsecurities | 45 | (1.9) | 1 | (0.3) | 46 | (2.2) |
| Other\tinvestments | 66 | (8.7) | – | – | 66 | (8.7) |
| Total | $13,956 | $(302.8) | $1,696 | $(258.8) | $15,652 | $(561.6) |

|  |  | 0	–	12	Months |  | Over	12	Months |  | Total |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| December\t31,\t2009 | Fair | Gross | Fair | Gross |  | Gross |
| (in\tmillions\tof\tU.S.\tdollars) | Value | Unrealized\tLoss | Value | Unrealized\tLoss | Fair\tValue | Unrealized\tLoss |
| U.S.\tTreasury\tand\tagency | $1,952 | $(19.4) | $21 | $(1.1) | $1,973 | $(20.5) |
| Foreign | \t 2,568 | (124.0) | 363 | (36.4) | 2,931 | (160.4) |
| Corporate\tsecurities | \t 1,222 | (52.3) | 865 | (99.1) | 2,087 | (151.4) |
| Mortgage-backed\tsecurities | \t 1,731 | (54.8) | \t 1,704 | (409.7) | 3,435 | (464.5) |
| States,\tmunicipalities,\tand\tpolitical\tsubdivisions | 455 | (13.9) | 60 | (5.0) | 515 | (18.9) |
| Total\tfixed\tmaturities | \t 7,928 | (264.4) | \t 3,013 | (551.3) | \t 10,941 | (815.7) |
| Equity\tsecurities | 111 | (1.3) | – | – | 111 | (1.3) |
| Other\tinvestments | 81 | (16.4) | – | – | 81 | (16.4) |
| Total | $8,120 | $(282.1) | $3,013 | $(551.3) | $11,133 | $(833.4) |

# h)	Net	investment	income

The	following	table	presents	the	source	of	net	investment	income	for	the	years	ended	December	31,	2010,	2009,	and	2008.

| (in	millions	of	U.S.	dollars) | 2010 | 2009 | 2008 |
| :--- | :--- | :--- | :--- |
| Fixed\tmaturities | $2,071 | $1,985 | $1,972 |
| Short-term\tinvestments | 34 | 38 | 109 |
| Equity\tsecurities | 26 | 54 | 93 |
| Other | 44 | 48 | (20) |
| Gross\tinvestment\tincome | \t 2,175 | \t 2,125 | \t 2,154 |
| Investment\texpenses | (105) | (94) | (92) |
| Net\tinvestment\tincome | $2,070 | $2,031 | $2,062 |

# i)	Restricted	assets

The	Company	is	required	to	maintain	assets	on	deposit	with	various	regulatory	authorities	to	support	its	insurance	and	reinsurance	operations.	These requirements	are	generally	promulgated	in	the	statutory	regulations	of	the	individual	jurisdictions.	The	assets	on	deposit	are	available	to	settle	insurance and	reinsurance	liabilities.	The	Company	also	utilizes	trust	funds	in	certain	large	reinsurance	transactions	where	the	trust	funds	are	set	up	for	the	benefit of	the	ceding	companies	and	generally	take	the	place	of	letter	of	credit	(LOC)	requirements.	The	Company	also	has	investments	in	segregated	portfolios primarily	to	provide	collateral	or	guarantees	for	LOCs	and	derivative	transactions.	Included	in	restricted	assets	at	December	31,	2010,	are	fixed	maturities and	short-term	investments	totaling	$12	billion	and	cash	of	$104	million.	The	following	table	presents	the	components	of	the	restricted	assets	at December	31,	2010	and	2009.

| (in	millions	of	U.S.	dollars) | December	31<br>2010 | December	31<br>2009 |
| :--- | :--- | :--- |
| Trust\tfunds | $8,200 | $8,402 |
| Deposits\twith\tnon-U.S.\tregulatory\tauthorities | 2,289 | 2,475 |
| Deposits\twith\tU.S.\tregulatory\tauthorities | 1,384 | 1,199 |
| Other\tpledged\tassets | 190 | 245 |
|  | $12,063 | $12,321 |

# 5.	Reinsurance

# a)	Consolidated	reinsurance

The	Company	purchases	reinsurance	to	manage	various	exposures	including	catastrophe	risks.	Although	reinsurance	agreements	contractually	obligate the	Company's	reinsurers	to	reimburse	it	for	the	agreed-upon	portion	of	its	gross	paid	losses,	they	do	not	discharge	the	primary	liability	of	the	Company. The	amounts	for	net	premiums	written	and	net	premiums	earned	in	the	consolidated	statements	of	operations	are	net	of	reinsurance.	The	following	table presents	direct,	assumed,	and	ceded	premiums	for	the	years	ended	December	31,	2010,	2009,	and	2008.

| (in	millions	of	U.S.	dollars) | 2010 | 2009 | 2008 |
| :--- | :--- | :--- | :--- |
| Premiums\twritten |  |  |  |
| Direct | $15,887 | $15,467 | $15,815 |
| Assumed | 3,624 | 3,697 | 3,427 |
| Ceded | (5,803) | (5,865) | (6,162) |
| Net | $13,708 | $13,299 | $13,080 |
| Premiums\tearned |  |  |  |
| Direct | $15,780 | $15,415 | $16,087 |
| Assumed | 3,516 | 3,768 | 3,260 |
| Ceded | (5,792) | (5,943) | (6,144) |
| Net | $13,504 | $13,240 | $13,203 |

For	the	years	ended	December	31,	2010,	2009,	and	2008,	the	Company	recorded	reinsurance	recoveries	on	losses	and	loss	expenses	incurred	of	$3.3 billion,	$3.7	billion,	and	$3.3	billion,	respectively.

# b)	Reinsurance	recoverable	on	ceded	reinsurance

The	following	table	presents	the	composition	of	the	Company's	reinsurance	recoverable	on	losses	and	loss	expenses	at	December	31,	2010	and	2009.

The	Company	evaluates	the	financial	condition	of	its	reinsurers	and	potential	reinsurers	on	a	regular	basis	and	also	monitors	concentrations	of	credit	risk with	reinsurers.	The	provision	for	uncollectible	reinsurance	is	required	principally	due	to	the	failure	of	reinsurers	to	indemnify	ACE,	primarily	because	of disputes	under	reinsurance	contracts	and	insolvencies.	Provisions	have	been	established	for	amounts	estimated	to	be	uncollectible.	At	December	31, 2010	and	2009,	the	Company	recorded	a	provision	for	uncollectible	reinsurance	of	$530	million	and	$582	million,	respectively.

The	following	tables	present	a	listing,	at	December	31,	2010,	of	the	categories	of	the	Company's	reinsurers.	The	first	category,	largest	reinsurers, represents	all	reinsurers	where	the	gross	recoverable	exceeds	one	percent	of	ACE's	total	shareholders'	equity.	The	provision	for	uncollectible reinsurance	for	the	largest	reinsurers,	other	reinsurers	rated	A-	or	better,	and	other	reinsurers	with	ratings	lower	than	A-	is	principally	based	on	an analysis	of	the	credit	quality	of	the	reinsurer	and	collateral	balances.	Other	pools	and	government	agencies	include	amounts	backed	by	certain	state	and federal	agencies.	In	certain	states,	insurance	companies	are	required	by	law	to	participate	in	these	pools.	Structured	settlements	include	annuities purchased	from	life	insurance	companies	to	settle	claims.	Since	the	Company	retains	the	ultimate	liability	in	the	event	that	the	life	company	fails	to	pay,	it reflects	the	amount	as	a	liability	and	a	recoverable/receivable	for	GAAP	purposes.	Other	captives	include	companies	established	and	owned	by	the Company's	insurance	clients	to	assume	a	significant	portion	of	their	direct	insurance	risk	from	the	Company	(they	are	structured	to	allow	clients	to	self- insure	a	portion	of	their	insurance	risk).	It	is	generally	the	Company's	policy	to	obtain	collateral	equal	to	expected	losses.	Where	appropriate,	exceptions are	granted	but	only	with	review	and	approval	at	a	senior	officer	level.	The	final	category,	Other,	includes	amounts	recoverable	that	are	in	dispute	or	are from	companies	that	are	in	supervision,	rehabilitation,	or	liquidation.	The	Company	establishes	its	provision	for	uncollectible	reinsurance	in	this	category based	on	a	case	by	case	analysis	of	individual	situations	including	the	merits	of	the	underlying	matter,	credit	and	collateral	analysis,	and	consideration	of the	Company's	collection	experience	in	similar	situations.

| (in	millions	of	U.S.	dollars,	except	percentages) | 2010 | Provision | %	of	Gross |
| :--- | :--- | :--- | :--- |
| Categories |  |  |  |
| Largest\treinsurers | $6,789 | $111 | 1.6% |
| Other\treinsurers\tbalances\trated\tA-\tor\tbetter | 2,931 | 46 | 1.6% |
| Other\treinsurers\tbalances\twith\tratings\tlower\tthan\tA-\tor\tnot\trated | 715 | 115 | 16.1% |
| Other\tpools\tand\tgovernment\tagencies | 147 | 8 | 5.4% |
| Structured\tsettlements | 585 | 21 | 3.6% |
| Other\tcaptives | 1,838 | 41 | 2.2% |
| Other | 396 | 188 | 47.5% |
| Total | $13,401 | $530 | 4.0% |

# Largest	Reinsurers

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

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

| (in	millions	of	U.S.	dollars) | 2010 | 2009 | 2008 |
| :--- | :--- | :--- | :--- |
| GMDB |  |  |  |
| Net\tpremiums\tearned | $109 | $104 | $ 124 |
| Policy\tbenefits\tand\tother\treserve\tadjustments | $99 | $111 | $ 183 |
| GLB |  |  |  |
| Net\tpremiums\tearned | $164 | $159 | $ 150 |
| Policy\tbenefits\tand\tother\treserve\tadjustments | 29 | 20 | 31 |
| Realized\tgains\t(losses) | (64) | \t 368 | (650) |
| Gain\t(loss)\trecognized\tin\tincome | $71 | $507 | $(531) |
| Effect\tof\tpartial\tadoption\tof\tfair\tvalue\tmeasurements\tstandard | $– | $– | $4 |
| Net\tcash\treceived | $160 | $156 | $ 150 |
| Net\t(increase)\tdecrease\tin\tliability | $ (89) | $351 | $(685) |

At	December	31,	2010,	reported	liabilities	for	GMDB	and	GLB	reinsurance	were	$185	million	and	$648	million,	respectively,	compared	with	$212	million and	$559	million,	respectively,	at	December	31,	2009.	The	reported	liability	for	GLB	reinsurance	of	$648	million	at	December	31,	2010,	and	$559	million at	December	31,	2009,	includes	a	fair	value	derivative	adjustment	of	$507	million	and	$443	million,	respectively.	Included	in	"Net	realized	gains	(losses)" in	the	table	above	are	gains	(losses)	related	to	foreign	exchange	and	other	fair	value	derivative	adjustments;	the	gains	(losses)	related	to	foreign exchange	for	the	years	ended	December	31,	2010,	2009,	and	2008,	were	$(36)	million,	$8	million,	and	$(51)	million,	respectively.	Reported	liabilities	for both	GMDB	and	GLB	reinsurance	are	determined	using	internal	valuation	models.	Such	valuations	require	considerable	judgment	and	are	subject	to significant	uncertainty.	The	valuation	of	these	products	is	subject	to	fluctuations	arising	from,	among	other	factors,	changes	in	interest	rates,	changes	in equity	markets,	changes	in	credit	markets,	changes	in	the	allocation	of	the	investments	underlying	annuitant's	account	values,	and	assumptions regarding	future	policyholder	behavior.	These	models	and	the	related	assumptions	are	continually	reviewed	by	management	and	enhanced,	as appropriate,	based	upon	improvements	in	modeling	assumptions	and	availability	of	more	information,	such	as	market	conditions	and	demographics	of	in- force	annuities.

# GMDB	reinsurance

At	December	31,	2010	and	2009,	the	Company's	net	amount	at	risk	from	its	GMDB	reinsurance	programs	was	$2.9	billion	and	$3.8	billion,

respectively.	For	GMDB	reinsurance	programs,	the	net	amount	at	risk	is	defined	as	the	present	value	of	future	claim	payments	under	the	following assumptions:

•	policy	account	values	and	guaranteed	values	are	fixed	at	the	valuation	date	(December	31,	2010,	and	December	31,	2009,	respectively);

•	there	are	no	lapses	or	withdrawals;

•	mortality	according	to	100	percent	of	the	Annuity	2000	mortality	table;	and

•	future	claims	are	discounted	in	line	with	the	discounting	assumption	used	in	the	calculation	of	the	benefit	reserve	averaging	between	2	to	3	percent.

At	December	31,	2010,	if	all	of	the	Company's	cedants'	policyholders	covered	under	GMDB	reinsurance	agreements	were	to	die	immediately,	the total	claim	amount	payable	by	the	Company,	taking	into	account	all	appropriate	claims	limits,	would	be	approximately	$1.4	billion.	As	a	result	of	the annual	claim	limits	on	the	GMDB	reinsurance	agreements,	the	claims	payable	are	lower	in	this	case	than	if	all	the	policyholders	were	to	die	over	time,	all else	equal.

# GLB	reinsurance

At	December	31,	2010	and	2009,	the	Company's	net	amount	at	risk	from	its	GLB	reinsurance	programs	was	$719	million	and	$683	million,	respectively. For	GLB	reinsurance	programs,	the	net	amount	at	risk	is	defined	as	the	present	value	of	future	claim	payments	under	the	following	assumptions: •	policy	account	values	and	guaranteed	values	are	fixed	at	the	valuation	date	(December	31,	2010,	and	December	31,	2009,	respectively);

•	there	are	no	deaths,	lapses,	or	withdrawals;

•	policyholders	annuitize	at	a	frequency	most	disadvantageous	to	ACE	(in	other	words,	annuitization	at	a	level	that	maximizes	claims	taking	into	account the	treaty	limits)	under	the	terms	of	the	Company's	reinsurance	contracts;

•	for	annuitizing	policyholders,	the	GMIB	claim	is	calculated	using	interest	rates	in	line	with	those	used	in	calculating	the	reserve;	and

The	average	attained	age	of	all	policyholders	under	all	benefits	reinsured,	weighted	by	the	guaranteed	value	of	each	reinsured	policy,	is approximately	66.

# 6.	Intangible	assets

Included	in	Goodwill	and	other	intangible	assets	at	December	31,	2010,	are	goodwill	of	$4	billion	and	other	intangible	assets	of	$634	million.

The	following	table	presents	a	roll-forward	of	Goodwill	by	business	segment	for	the	years	ended	December	31,	2010	and	2009.	On	April	1,	2008, ACE	acquired	all	outstanding	shares	of	Combined	Insurance	Company	of	America	and	certain	of	its	subsidiaries	(Combined	Insurance),	generating	$882 million	of	goodwill.	The	purchase	price	allocation	adjustments	in	the	following	table	reflect	the	final	allocation	of	goodwill	generated	on	the	Combined Insurance	acquisition	to	reporting	segments.

| (in	millions	of	U.S.	dollars) | Insurance	-<br>North	American | Insurance	-<br>Overseas	General | Global<br>Reinsurance | Life | ACE<br>Consolidated |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Balance\tat\tDecember\t31,\t2008 | $1,205 | $1,366 | $365 | $686 | $3,622 |
| Purchase\tprice\tallocation\tadjustments | – | (65) | – | 61 | (4) |
| Foreign\texchange\trevaluation\tand\tother | – | 196 | – | – | 196 |
| Balance\tat\tDecember\t31,\t2009 | $1,205 | $1,497 | $365 | $747 | $3,814 |
| Purchase\tprice\tallocation\tadjustment | – | – | – | 3 | 3 |
| Acquisition\tof\tRain\tand\tHail | 135 | – | – | – | 135 |
| Acquisition\tof\tJerneh | – | 94 | – | – | 94 |
| Foreign\texchange\trevaluation\tand\tother | 11 | (27) | – | – | (16) |
| Balance\tat\tDecember\t31,\t2010 | $1,351 | $1,564 | $365 | $750 | $4,030 |

Included	in	the	other	intangible	assets	balance	at	December	31,	2010,	are	intangible	assets	subject	to	amortization	of	$541	million	and	intangible	assets not	subject	to	amortization	of	$93	million.	Intangible	assets	subject	to	amortization	include	agency	relationships,	software,	client	lists,	and	renewal	rights, primarily	attributable	to	the	acquisitions	of	Rain	and	Hail	and	Combined	Insurance.	The	majority	of	the	balance	of	intangible	assets	not	subject	to amortization	relates	to	Lloyd's	of	London	(Lloyd's)	Syndicate	2488	capacity.	Amortization	expense	related	to	other	intangible	assets	amounted	to	$9 million,	$11	million,	and	$12	million	for	the	years	ended	December	31,	2010,	2009,	and	2008,	respectively.	Amortization	expense	related	to	other intangible	assets	is	estimated	to	be	between	approximately	$26	million	and	$37	million	for	each	of	the	next	five	fiscal	years.

The	following	table	presents	a	roll-forward	of	VOBA,	which	was	generated	from	the	Combined	Insurance	acquisition,	for	the	years	ended December	31,	2010,	2009,	and	2008.

| (in	millions	of	U.S.	dollars) | 2010 | 2009 | 2008 |
| :--- | :--- | :--- | :--- |
| Balance,\tbeginning\tof\tyear | $ 748 | $ 823 | $– |
| Acquisition\tof\tCombined\tInsurance | – | – | \t 1,040 |
| Amortization\texpense | (111) | (130) | (84) |
| Foreign\texchange\trevaluation | (3) | 55 | (133) |
| Balance,\tend\tof\tyear | $ 634 | $ 748 | $823 |

The	following	table	presents	the	estimated	amortization	expense	related	to	VOBA	for	the	next	five	years.

# Property	and	casualty

The	Company	establishes	reserves	for	the	estimated	unpaid	ultimate	liability	for	losses	and	loss	expenses	under	the	terms	of	its	policies	and agreements.	These	reserves	include	estimates	for	both	claims	that	have	been	reported	and	for	IBNR,	and	include	estimates	of	expenses	associated	with processing	and	settling	these	claims.	The	process	of	establishing	reserves	for	P&C	claims	can	be	complex	and	is	subject	to	considerable	variability	as	it requires	the	use	of	informed	estimates	and	judgments.	The	Company's	estimates	and	judgments	may	be	revised	as	additional	experience	and	other	data become	available	and	are	reviewed,	as	new	or	improved	methodologies	are	developed,	or	as	current	laws	change.	The	Company	continually	evaluates its	estimates	of	reserves	in	light	of	developing	information	and	in	light	of	discussions	and	negotiations	with	its	insureds.	While	the	Company	believes	that its	reserves	for	unpaid	losses	and	loss	expenses	at	December	31,	2010,	are	adequate,	new	information	or	trends	may	lead	to	future	developments	in ultimate	losses	and	loss	expenses	significantly	greater	or	less	than	the	reserves	provided.	Any	such	revisions	could	result	in	future	changes	in	estimates of	losses	or	reinsurance	recoverable,	and	would	be	reflected	in	the	Company's	results	of	operations	in	the	period	in	which	the	estimates	are	changed. The	following	table	presents	a	reconciliation	of	unpaid	losses	and	loss	expenses	for	the	years	ended	December	31,	2010,	2009,	and	2008.

| (in	millions	of	U.S.	dollars) | 2010 | 2009 | 2008 |
| :--- | :--- | :--- | :--- |
| Gross\tunpaid\tlosses\tand\tloss\texpenses,\tbeginning\tof\tyear | $ 37,783 | $ 37,176 | $ 37,112 |
| (1)\nReinsurance\trecoverable\ton\tunpaid\tlosses | (12,745) | (12,935) | (13,520) |
| Net\tunpaid\tlosses\tand\tloss\texpenses,\tbeginning\tof\tyear | 25,038 | 24,241 | 23,592 |
| Acquisition\tof\tsubsidiaries | 145 | – | 353 |
| Total | 25,183 | 24,241 | 23,945 |
| Net\tlosses\tand\tloss\texpenses\tincurred\tin\trespect\tof\tlosses\toccurring\tin: |  |  |  |
| Current\tyear | 8,091 | 8,001 | 8,417 |
| Prior\tyears | (512) | (579) | (814) |
| Total | 7,579 | 7,422 | 7,603 |
| Net\tlosses\tand\tloss\texpenses\tpaid\tin\trespect\tof\tlosses\toccurring\tin: |  |  |  |
| Current\tyear | 2,689 | 2,493 | 2,699 |
| Prior\tyears | 4,724 | 4,455 | 3,628 |
| Total | 7,413 | 6,948 | 6,327 |
| Foreign\tcurrency\trevaluation\tand\tother | (107) | 323 | (980) |
| Net\tunpaid\tlosses\tand\tloss\texpenses,\tend\tof\tyear | 25,242 | 25,038 | 24,241 |
| (1)\nReinsurance\trecoverable\ton\tunpaid\tlosses | 12,149 | 12,745 | 12,935 |
| Gross\tunpaid\tlosses\tand\tloss\texpenses,\tend\tof\tyear | $ 37,391 | $ 37,783 | $ 37,176 |
| (1)\n\tNet\tof\tprovision\tfor\tuncollectible\treinsurance |  |  |  |

Net	losses	and	loss	expenses	incurred	includes	$512	million,	$579	million,	and	$814	million,	of	net	favorable	prior	period	development	in	the	years	ended December	31,	2010,	2009,	and	2008,	respectively.	The	following	is	a	summary	of	prior	period	development	for	the	periods	indicated.	The	remaining	net development	for	long-tail	and	short-tail	business	for	each	segment	was	comprised	of	numerous	favorable	and	adverse	movements	across	lines	and accident	years.

Insurance	–	North	American's	active	operations	experienced	net	favorable	prior	period	development	of	$239	million	in	2010,	representing	1.5	percent	of net	unpaid	reserves	at	December	31,	2009.	Net	prior	period	development	was	the	net	result	of	several	underlying	favorable	and	adverse	movements. Net	favorable	development	of	$102	million	on	long-tail	business	included	$49	million	within	the	financial	solutions	business,	primarily	in	the	2000	and	prior accident	years;	favorable	development	of	$105	million	in	the	portfolios	of	D&O	and	E&O,	primarily	in	the	2006	and	prior	accident	years	partially	offset	by adverse	movements	in	the	2007-2009	years;	and	favorable	development	of	$54	million	on	the	national	accounts	portfolio	primarily	in	the	2005,	2006,	and 2009	accident	years.	Partially	offsetting	this	favorable	development	was	adverse	development	of	$91	million	in	excess	casualty	businesses	principally arising	in	the	2007	accident	year;	and	adverse	development	of	$30	million	in	small	and	middle	market	guaranteed	cost	workers'	compensation	portfolios on	accident	years	2008	and	subsequent.	Net	prior	period	development	also	included	favorable	development	of	$15	million	on	other	lines	across	a	number of	accident	years,	due	primarily	to	following	better	than	expected	loss	emergence.	Net	favorable	development	of	$137	million	on	short-tail	business included	favorable	development	of	$41	million	in	the	crop/hail	business	associated	with	recording	the	most	recent	bordereaux	for	the	2009	and	prior	crop years;	and	favorable	development	of	$96	million	in	property,	aviation,	inland	and	recreational	marine,	political	risk,	and	other	short-tailed	exposures principally	in	accident	years	2007-2009.

Insurance	–	North	American's	runoff	operations	experienced	net	adverse	prior	period	development	of	$132	million	in	2010,	representing	0.8 percent	of	net	unpaid	reserves	at	December	31,	2009.	Net	prior	period	development	was	the	net	result	of	several	underlying	favorable	and	adverse movements,	including	adverse	development	of	$114	million	in	the	Westchester	and	Brandywine	runoff	operations,	impacting	accident	years	1999	and prior,	including	$89	million	related	to	the	completion	of	the	reserve	review	during	2010,	and	adverse	development	of	$18	million	on	runoff	CIS	workers' compensation	following	emergence	of	higher	than	expected	medical	costs	impacting	accident	years	2000	and	prior.

Insurance	–	North	American's	active	operations	experienced	net	favorable	prior	period	development	of	$267	million	in	2009,	representing	1.7 percent	of	net	unpaid	reserves	at	December	31,	2008.	Net	prior	period	development	was	the	net	result	of	several	underlying	favorable	and	adverse movements.	Net	favorable	development	of	$162	million	on	long-tail	business	included	favorable	development	of	$42	million	in	foreign	casualty	product lines	primarily	impacting	accident	years	2004-2006;	favorable	development	of	$52	million	on	national	accounts	loss	sensitive	accounts	unit	impacting	the 2005-2007	accident	years;	favorable	development	of	$33	million	on	ACE	Financial	Solutions	business	unit	concentrated	in	policies	issued	in	the	2004- 2006	years;	and	favorable	development	of	$35	million	on	all	other	long-tail	lines,	including	the	programs	division	and	medical	risk	business,	concentrated within	the	2006	and	prior	accident	years.	Net	favorable	development	of	$105	million	on	short-tail	business	included	favorable	development	of	$49	million mainly	on	political	risk	business,	short-tail	lines	in	the	programs	division,	and	recreational	marine	business,	primarily	relating	to	the	2004-2008	accident years;	and	favorable	development	of	$56	million	in	other	lines	including	property,	crop,	A&H,	and	other	lines	principally	in	accident	years	2005-2007.

Insurance	–	North	American's	runoff	operations	experienced	net	adverse	prior	period	development	of	$88	million	in	2009,	representing	0.5	percent of	net	unpaid	reserves	at	December	31,	2008.	Net	prior	period	development	was	the	net	result	of	several	underlying	favorable	and	adverse	movements, including	adverse	development	of	$80	million	in	the	Brandywine	operations	impacting	accident	years	1999	and	prior.

Insurance	–	North	American	experienced	net	favorable	prior	period	development	of	$351	million	in	2008,	representing	2.4	percent	of	the	segment's net	unpaid	loss	and	loss	expense	reserves	at	December	31,	2007.

Insurance	–	Overseas	General	experienced	net	favorable	prior	period	development	of	$290	million	in	2010	representing	4.3	percent	of	net	unpaid reserves	at	December	31,	2009.	Net	prior	period	development	was	the	net	result	of	several	underlying	favorable	and	adverse	movements.	Net	favorable development	of	$159	million	on	long-tail	business	included	favorable	development	of	$241	million	in	casualty	(primary	and	excess)	and	financial	lines	for accident	years	2006	and	prior,	and	adverse	development	of	$82	million	in	the	casualty	(primary	and	excess)	and	financial	lines	book	for	accident	years 2007-2009.	Net	favorable	development	of	$131	million	on	short-tail	business	included	property,	marine,	A&H,	and	energy	lines	across	multiple geographical	regions,	and	within	both	retail	and	wholesale	operations,	principally	on	accident	years	2007-2009.

Insurance	–	Overseas	General	experienced	net	favorable	prior	period	development	of	$255	million	in	2009,	representing	4.2	percent	of	net	unpaid reserves	at	December	31,	2008.	Net	prior	period	development	was	the	net	result	of	several	underlying	favorable	and	adverse	movements.	Net	favorable development	of	$140	million	on	long-tail	business	included	favorable	development	of	$201	million	on	the	2005	and	prior	accident	years	in	casualty	and financial	lines,	partially	offset	by	$70	million	of	adverse	development	primarily	relating	to	the	2008	accident	year	for	financial	lines.	Net	favorable development	of	$115	million	on	short-tail	business	included	favorable	development	of	$94	million	in	the	property	and	energy,	A&H,	and	marine	lines	of business	mainly	in	accident	years	2003-2008;	and	favorable	development	of	$21	million	on	other	lines	including	aviation	relating	to	the	2005	and	prior accident	years.

Insurance	–	Overseas	General	experienced	net	favorable	prior	period	development	of	$304	million	in	2008,	representing	4.7	percent	of	the segment's	net	unpaid	loss	and	loss	expense	reserves	at	December	31,	2007.

Global	Reinsurance	experienced	net	favorable	prior	period	development	of	$106	million	in	2010	representing	4.7	percent	of	net	unpaid	reserves	at December	31,	2009.	Net	prior	period	development	was	the	net	result	of	several	underlying	favorable	and	adverse	movements.	Net	favorable development	of	$72	million	on	long-tail	business	included	net	favorable	development	of	$96	million	principally	in	treaty	years	2003-2006	across	a	number of	portfolios	(professional	liability,	D&O,	casualty,	and	medical	malpractice).	Net	favorable	development	of	$34	million	on	short-tail	business,	primarily	in treaty	years	2003-2008	across	property	lines,	included	property	catastrophe,	trade	credit,	and	surety.

Global	Reinsurance	experienced	net	favorable	prior	period	development	of	$142	million	in	2009,	representing	5.6	percent	of	net	unpaid	reserves	at December	31,	2008.	Net	prior	period	development	was	the	net	result	of	several	underlying	favorable	and	adverse	movements.	Net	favorable development	of	$93	million	on	long-tail	business	was	principally	related	to	treaty	years	2003-2005	across	a	number	of	portfolios	(professional	liability, D&O,	casualty	and	medical	malpractice).	Net	favorable	development	of	$49	million	on	short-tail	business	included	property	and	trade	credit-related	lines. Global	Reinsurance	experienced	net	favorable	prior	period	development	of	$159	million	in	2008,	representing	5.9	percent	of	the	segment's	net unpaid	loss	and	loss	expense	reserves	at	December	31,	2007.

Life	experienced	net	favorable	prior	period	development	of	$9	million	in	2010	representing	4.0	percent	of	net	unpaid	reserves	at	December	31,	2009.	Net prior	period	development	was	the	net	result	of	several	underlying	favorable	and	adverse	movements.	The	favorable	development	was	mainly	related	to accident	year	2009	in	short-tail	A&H.

Life	experienced	net	favorable	prior	period	development	of	$3	million	on	short-tail	A&H	business	in	2009,	representing	1.4	percent	of	net	unpaid reserves	at	December	31,	2008.	Life	experienced	no	net	prior	period	development	in	2008.

ACE's	exposure	to	A&E	claims	principally	arises	out	of	liabilities	acquired	when	it	purchased	Westchester	Specialty	in	1998	and	the	P&C	business of	CIGNA	in	1999,	with	the	larger	exposure	contained	within	the	liabilities	acquired	in	the	CIGNA	transaction.	In	1996,	prior	to	ACE's	acquisition	of	the P&C	business	of	CIGNA,	the	Pennsylvania	Insurance	Commissioner	approved	a	plan	to	restructure	INA	Financial	Corporation	and	its	subsidiaries	(the Restructuring)	which	included	the	division	of	Insurance	Company	of	North	America	(INA)	into	two	separate	corporations:

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

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

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

As	part	of	the	Restructuring,	most	A&E	liabilities	of	various	U.S.	affiliates	of	INA	were	reinsured	to	Century.	Century	and	certain	other	run-off companies	having	A&E	and	other	liabilities	were	contributed	to	Brandywine	Holdings.	As	part	of	the	1999	acquisition	of	the	P&C	business	of	CIGNA,	ACE acquired	Brandywine	Holdings	and	its	various	subsidiaries.	For	more	information	refer	to	"Brandywine	Run-Off	Entities"	below.

During	2010,	ACE	conducted	its	annual	internal,	ground-up	review	of	its	consolidated	A&E	liabilities	as	at	December	31,	2009.	As	a	result	of	the internal	review,	the	Company	increased	its	net	loss	reserves	for	the	Brandywine	operations,	including	A&E,	by	$84	million	(net	of	reinsurance	provided	by NICO),	while	the	gross	loss	reserves	increased	by	$247	million.	In	addition,	the	Company	increased	gross	loss	reserves	for	Westchester	Specialty's	A&E and	other	liabilities	by	$23	million,	while	the	net	loss	reserves	increased	by	$5	million.	An	internal	review	was	also	conducted	during	2009	of	consolidated A&E	liabilities	as	at	December	31,	2008.	As	a	result	of	that	internal	review,	the	Company	increased	net	loss	reserves	for	the	Brandywine	operations, including	A&E,	by	$44	million	(net	of	reinsurance	provided	by	NICO),	while	the	gross	loss	reserves	increased	by	$198	million.	This	review	also	resulted	in the	Company	decreasing	gross	loss	reserves	for	Westchester	Specialty's	A&E	and	other	liabilities	by	$64	million,	while	the	net	loss	reserves	did	not change.

In	2010,	in	addition	to	ACE's	annual	internal	review,	a	team	of	external	actuaries	performed	an	evaluation	as	to	the	adequacy	of	the	reserves	of Century.	This	external	review	was	conducted	in	accordance	with	the	Brandywine	Restructuring	Order,	which	requires	that	an	independent	actuarial review	of	Century's	reserves	be	completed	every	two	years.	Management	takes	full	responsibility	for	the	estimation	of	its	A&E	liabilities.	The	difference between	the	conclusions	of	the	internal	and	external	reviews	is	an	immaterial	amount	on	a	net	basis	after	giving	effect	to	the	reserve	increases	for	the Brandywine	operations	described	above.

ACE's	A&E	reserves	are	not	discounted	for	GAAP	reporting	and	do	not	reflect	any	anticipated	future	changes	in	the	legal,	social,	or	economic environment,	or	any	benefit	from	future	legislative	reforms.

The	table	below	presents	a	roll	forward	of	ACE's	consolidated	A&E	loss	reserves	(excluding	other	run-off	liabilities),	allocated	loss	expense reserves	for	A&E	exposures,	and	the	provision	for	uncollectible	paid	and	unpaid	reinsurance	recoverables	for	the	year	ended	December	31,	2010.

|  |  | Asbestos | Environmental | Environmental |  | Total |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| (in\tmillions\tof\tU.S.\tdollars) | Gross | Net | Gross | Net | Gross |  | Net |
| (1)\nBalance\tat\tDecember\t31,\t2009 | $2,229 | $1,123 | $246 | $234 | $2,475 |  | $1,357 |
| Incurred\tactivity | 223 | 103 | 34 | 4 | 257 |  | 107 |
| Payment\tactivity | (323) | (147) | (74) | (40) | (397) |  | (187) |
| Foreign\tcurrency\trevaluation | 1 | (1) | (1) | – | – |  | (1) |
| Balance\tat\tDecember\t31,\t2010 | $2,130 | $1,078 | $205 | $198 | $2,335 |  | $1,276 |
| (1)\n\tUnallocated\tloss\texpense\treserves\thave\tbeen\tremoved\tfrom\tDecember\t31,\t2009\tbalances,\tresulting\tin\treductions\tto\tasbestos\tgross\tand\tnet\treserves\tof\t$64\tmillion\tand\t$52\tmillion,\trespectively, |  |  |  |  |  |  |  |

	Unallocated	loss	expense	reserves	have	been	removed	from	December	31,	2009	balances,	resulting	in	reductions	to	asbestos	gross	and	net	reserves	of	$64	million	and	$52	million,	respectively, and	Environmental	gross	and	net	reserves	of	$6	million	and	$5	million,	respectively.	Prior	disclosures	have	included	an	estimated	allocation	of	reserves	for	unallocated	loss	expenses. (1)

The	A&E	net	loss	reserves	including	allocated	loss	expense	reserves	and	provision	for	uncollectible	reinsurance	at	December	31,	2010,	of	$1.276 billion	shown	in	the	table	above	are	comprised	of	$957	million	in	reserves	in	respect	of	Brandywine	operations,	$122	million	of	reserves	held	by Westchester	Specialty,	$101	million	of	reserves	held	by	ACE	Bermuda	and	$96	million	of	reserves	held	by	Insurance	–	Overseas	General.	The	incurred activity	of	$107	million	is	the	result	of	adverse	activity	in	Brandywine	and	Westchester	of	$94	million	and	$26	million,	respectively,	offset	by	favorable activity	in	Insurance	–	Overseas	General	of	$13	million	on	the	provision	for	uncollectible	reinsurance.	A	portion	of	the	Brandywine	incurred	activity	reflects the	allocation	of	reserve	balances	for	assumed	reinsurance	and	bad	debt	between	A&E	and	other	reserves.

The	net	figures	in	the	above	table	reflect	third-party	reinsurance	other	than	reinsurance	provided	by	NICO	under	two	aggregate	excess	of	loss contracts	described	below	(collectively,	the	NICO	contracts).	ACE	excludes	the	NICO	contracts	as	they	cover	non-A&E	liabilities	as	well	as	A&E liabilities.	The	split	of	coverage	provided	under	the	NICO	contracts	for	A&E	liabilities	as	compared	to	non-A&E	liabilities	is	entirely	dependent	on	the timing	of	the	payment	of	the	related	claims.	ACE's	ability	to	make	an	estimate	of	this	split	is	not	practicable.	ACE	believes,	instead,	that	the	A&E discussion	is	best	provided	excluding	the	NICO	contracts,	while	separately	discussing	the	NICO	contracts	in	relation	to	the	total	subject	business,	both A&E	and	non-A&E,	covered	by	those	contracts.	With	certain	exceptions,	the	NICO	contracts	provide	coverage	for	the	net	A&E	incurred	losses	and allocated	loss	expenses	within	the	limits	of	coverage	and	above	ACE's	retention	levels.	These	exceptions	include	losses	arising	from	certain	operations of	Insurance	–	Overseas	General	and	participation	by	ACE	Bermuda	as	a	co-reinsurer	or	retrocessionaire	in	the	NICO	contracts.

# Brandywine	run-off	–	impact	of	NICO	contracts	on	ACE's	run-off	liabilities

As	part	of	the	acquisition	of	CIGNA's	P&C	business,	NICO	provided	$2.5	billion	of	reinsurance	protection	to	Century	on	all	Brandywine	loss	and	allocated loss	adjustment	expense	reserves	and	on	the	A&E	reserves	of	various	ACE	INA	insurance	subsidiaries	reinsured	by	Century	(in	each	case,	including uncollectible	reinsurance).	The	benefits	of	this	NICO	contract	(the	Brandywine	NICO	Agreement)	flow	to	the	other	Brandywine	companies	and	to	the	ACE INA	insurance	subsidiaries	through	agreements	between	those	companies	and	Century.	The	Brandywine	NICO	Agreement	was	exhausted	on	an incurred	basis	in	the	fourth	quarter	of	2002.

The	following	table	presents	a	roll-forward	of	net	loss	reserves,	allocated	loss	expense	reserves,	and	provision	for	uncollectible	paid	and	unpaid reinsurance	recoverables	in	respect	of	Brandywine	operations	only,	including	the	impact	of	the	Brandywine	NICO	Agreement.	The	table	presents Brandywine	activity	for	the	year	ended	December	31,	2010.

|  |  | Brandywine |  |  | Net	of	NICO |
| :--- | :--- | :--- | :--- | :--- | :--- |
| (in\tmillions\tof\tU.S.\tdollars) | A&amp;E | Other^(1) | Total | NICO\tCoverage | Coverage |
| (2)\nBalance\tat\tDecember\t31,\t2009 | $1,022 | $953 | $1,975 | $1,140 | $835 |
| Incurred\tactivity | 94 | (13) | 81 | – | 81 |
| Paid\tactivity | (159) | (59) | (218) | (212) | (6) |
| Balance\tat\tDecember\t31,\t2010 | $957 | $881 | $1,838 | $928 | $910 |
| (1) |  |  |  |  |  |

Other	consists	primarily	of	workers'	compensation,	non-A&E	general	liability	losses,	and	provision	for	uncollectible	reinsurance	on	non-A&E	business.	The	Other	balance	was	increased	by	$22 million	at	December	31,	2009,	to	more	properly	reflect	bad	debt	reserves	as	part	of	Brandywine. (1)

	Unallocated	loss	expense	reserves	have	been	removed	from	the	December	31,	2009	balances,	resulting	in	reductions	to	A&E	reserves	of	$49	million,	and	Other	reserves	of	$16	million. (2)

The	incurred	activity	of	$81	million	was	primarily	related	to	the	internal	review	of	consolidated	A&E	liabilities	as	discussed	above.	As	part	of	the	internal review,	the	allocation	of	reserve	balances	for	assumed	reinsurance	and	bad	debt	was	updated	resulting	in	an	increase	to	reserves	allocated	to	A&E offset	by	a	corresponding	reduction	to	Other	reserves.

# Westchester	Specialty	–	impact	of	NICO	contracts	on	ACE's	run-off	liabilities

As	part	of	the	acquisition	of	Westchester	Specialty	in	1998,	NICO	provided	a	75	percent	pro-rata	share	of	$1	billion	of	reinsurance	protection	on	losses and	loss	adjustment	expenses	incurred	on	or	before	December	31,	1996,	in	excess	of	a	retention	of	$721	million	(the	1998	NICO	Agreement).	NICO	has also	provided	an	85	percent	pro-rata	share	of	$150	million	of	reinsurance	protection	on	losses	and	allocated	loss	adjustment	expenses	incurred	on	or before	December	31,	1992,	in	excess	of	a	retention	of	$755	million	(the	1992	NICO	Agreement).	At	December	31,	2010,	the	remaining	unused	incurred limit	under	the	1998	NICO	Agreement	was	$518	million,	which	is	only	available	for	losses	and	loss	adjustment	expenses.	The	1992	NICO	Agreement was	exhausted	on	a	paid	basis	in	the	third	quarter	of	2009.

The	following	table	presents	a	roll-forward	of	net	loss	reserves,	allocated	loss	expense	reserves,	and	provision	for	uncollectible	paid	and	unpaid reinsurance	recoverables	in	respect	of	1996	and	prior	Westchester	Specialty	operations	that	are	the	subject	business	of	the	NICO	covers.	The	table presents	activity	for	the	year	ended	December	31,	2010.

|  |  | Westchester	Specialty |  |  | Net	of	NICO |
| :--- | :--- | :--- | :--- | :--- | :--- |
| (in\tmillions\tof\tU.S.\tdollars) | A&amp;E | Other | Total | NICO\tCoverage | Coverage |
| (1)\nBalance\tat\tDecember\t31,\t2009 | $100 | $104 | $204 | $188 | $16 |
| Incurred\tactivity | 26 | (12) | 14 | 11 | 3 |
| Paid\tactivity | (4) | (5) | (9) | (13) | 4 |
| Balance\tat\tDecember\t31,\t2010 | $122 | $87 | $209 | $186 | $23 |
| (1) |  |  |  |  |  |

Unallocated	loss	expense	reserves	have	been	removed	from	the	December	31,	2009	balances,	resulting	in	reductions	to	A&E	reserves	of	$10	million,	and	Other	reserves	of	$3	million. (1)

# Brandywine	run-off	entities

In	addition	to	housing	a	significant	portion	of	ACE's	A&E	exposure,	the	Brandywine	operations	include	run-off	liabilities	related	to	various	insurance	and reinsurance	businesses.	ACE's	Brandywine	operations	are	comprised	of	Century	(a	Pennsylvania	insurer)	and	Century	International	Reinsurance Company	Ltd.,	a	Bermuda	insurer	(CIRC).	The	Brandywine	companies	are	direct	or	indirect	subsidiaries	of	Brandywine	Holdings.

During	the	quarter	ended	June	30,	2010,	in	order	to	better	align	assets	and	liabilities,	Brandywine	Holdings	Corporation	transferred	its	ownership	of CIRC	stock	to	Century.	Thus,	Century	(which	reinsures	substantially	all	of	CIRC's	liabilities)	became	the	direct	parent	of	CIRC	and	Century's	statutory surplus	rose	above	the	$25	million	required	by	the	1996	Pennsylvania	Insurance	Department	Restructuring	Order.	The	realignment	of	CIRC	as	a subsidiary	of	Century	increased	Century's	surplus	and	strengthened	its	ability	to	meet	its	future	obligations,	including	its	obligations	as	a	reinsurer	of	the ACE	active	companies.	The	transfer	of	CIRC	stock	increased	Century's	assets	by	$169	million	and	resulted	in	(a)	the	elimination	of	Century's	reserve cession	to	the	aggregate	excess	of	loss	agreement,	described	below	(the	XOL)	and	(b)	an	increase	in	Century's	surplus	by	$26	million	to	$51	million	as	of June	30,	2010.	Century's	increased	statutory	surplus	position	allowed	it	to	satisfy	certain	balances	payable	to	ACE	active	companies	under	another affiliate	reinsurance	agreement.	Due	to	a	contractual	provision,	these	balances	were	prohibited	from	being	paid	to	ACE	active	companies	while	Century was	ceding	statutory	reserves	under	the	XOL.

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

INA	Financial	Corporation	established	and	funded	a	dividend	retention	fund	(the	Dividend	Retention	Fund)	consisting	of	$50	million	plus	investment earnings.	Pursuant	to	an	interpretation	of	the	Brandywine	Restructuring	Order,	the	full	balance	of	the	Dividend	Retention	Fund	was	contributed	to	Century as	at	December	31,	2002.	Under	the	Restructuring	Order,	while	any	obligation	to	maintain	the	Dividend	Retention	Fund	is	in	effect,	to	the	extent dividends	are	paid	by	INA	Holdings	Corporation	to	its	parent,	INA	Financial	Corporation,	and	to	the	extent	INA	Financial	Corporation	then	pays	such dividends	to	INA	Corporation,	a	portion	of	those	dividends	must	be	withheld	to	replenish	the	principal	of	the	Dividend	Retention	Fund	to	$50	million. During	2010,	$15	million	was	withheld	from	such	dividends	and	deposited	in	the	Dividend	Retention	Fund	by	INA	Financial	Corporation.	The	Dividend Retention	Fund	may	not	be	terminated	without	prior	written	approval	from	the	Pennsylvania	Insurance	Commissioner.

In	addition,	an	ACE	INA	insurance	subsidiary	provided	reinsurance	coverage	to	Century	in	the	amount	of	$800	million	under	an	XOL,	triggered	if the	statutory	capital	and	surplus	of	Century	falls	below	$25	million	or	if	Century	lacks	liquid	assets	with	which	to	pay	claims	as	they	become	due.

Effective	December	31,	2004,	ACE	INA	Holdings	contributed	$100	million	to	Century	in	exchange	for	a	surplus	note.	After	giving	effect	to	the contribution	and	issuance	of	the	surplus	note,	the	statutory	surplus	of	Century	at	December	31,	2010,	was	$25	million	and	approximately	$88	million	in statutory-basis	losses	have	been	ceded	to	the	XOL	on	an	inception-to-date	basis.	Century	reports	the	amount	ceded	under	the	XOL	in	accordance	with statutory	accounting	principles,	which	differ	from	GAAP	by,	among	other	things,	allowing	Century	to	discount	its	liabilities,	including	certain	asbestos related	and	environmental	pollution	liabilities.	For	GAAP	reporting	purposes,	intercompany	reinsurance	recoverables	related	to	the	XOL	are	eliminated upon	consolidation.	To	estimate	ACE's	remaining	claim	exposure	under	the	XOL	on	an	undiscounted	basis,	ACE	adjusts	the	statutory	cession	to	exclude the	discount	embedded	in	statutory	loss	reserves.	At	December	31,	2010,	approximately	$390	million	in	undiscounted	losses	were	ceded	under	the	XOL, leaving	a	remaining	limit	of	coverage	under	that	agreement	of	approximately	$410	million.	At	December	31,	2009,	the	remaining	limit	of	coverage	under the	agreement	was	$298	million	on	an	undiscounted	basis.

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

# Uncertainties	relating	to	ACE's	ultimate	Brandywine	exposure

In	addition	to	the	Dividend	Retention	Fund	and	XOL	commitments	described	above,	certain	ACE	entities	are	primarily	liable	for	asbestos,	environmental, and	other	exposures	that	they	have	reinsured	to	Century.	Accordingly,	if	Century	were	to	become	insolvent	and	ACE	were	to	lose	control	of	Century, some	or	all	of	the	recoverables	due	to	these	ACE	companies	from	Century	could	become	uncollectible,	yet	those	ACE	entities	would	continue	to	be responsible	to	pay	claims	to	their	insureds	or	reinsureds.	At	December	31,	2010	and	2009,	the	aggregate	reinsurance	balances	ceded	by	the	active	ACE companies	to	Century	were	approximately	$758	million	and	$1.2	billion,	respectively.	At	December	31,	2010	and	2009,	Century's	carried	gross	reserves (including	reserves	ceded	by	the	active	ACE	companies	to	Century)	were	$2.7	billion	and	$2.8	billion,	respectively.	ACE	believes	the	intercompany reinsurance	recoverables,	which	relate	to	liabilities	payable	over	many	years	(i.e.,	25	years	or	more),	are	not	impaired	at	this	time.	A	substantial	portion	of the	liabilities	ceded	to	Century	by	its	affiliates	have,	in	turn,	been	ceded	by	Century	to	NICO	and,	at	December	31,	2010	and	2009,	remaining	cover	on	a paid	loss	basis	was	approximately	$927	million	and	$1.14	billion,	respectively.	Should	Century's	loss	reserves	experience	adverse	development	in	the future	and	should	Century	be	placed	into	rehabilitation	or	liquidation,	the	reinsurance	recoverables	due	from	Century	to	its	affiliates	would	be	payable only	after	the	payment	in	full	of	certain	expenses	and	liabilities,	including	administrative	expenses

and	direct	policy	liabilities.	Thus,	the	intercompany	reinsurance	recoverables	would	be	at	risk	to	the	extent	of	the	shortage	of	assets	remaining	to	pay these	recoverables.	Losses	ceded	by	Century	to	the	active	ACE	companies	and	other	amounts	owed	to	Century	by	the	active	ACE	companies	were,	in the	aggregate,	approximately	$453	million	and	$629	million	at	December	31,	2010	and	2009,	respectively.

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

The	Company	has	two	Swiss	operating	subsidiaries	resident	in	the	Canton	and	City	of	Zurich,	an	insurance	company,	ACE	Insurance	(Switzerland) Limited,	which,	in	turn,	owns	a	reinsurance	company,	ACE	Reinsurance	(Switzerland)	Limited.	Both	are	subject	to	federal,	cantonal,	and	communal income	tax	and	to	annual	cantonal	and	communal	capital	tax.

Under	current	Bermuda	law,	ACE	Limited	and	its	Bermuda	subsidiaries	are	not	required	to	pay	any	taxes	on	its	income	or	capital	gains.	If	a Bermuda	law	were	to	be	enacted	that	would	impose	taxes	on	income	or	capital	gains,	ACE	Limited	and	the	Bermuda	subsidiaries	have	received	an undertaking	from	the	Minister	of	Finance	in	Bermuda	that	would	exempt	such	companies	from	Bermudian	taxation	until	March	2016.

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

ACE	Group	Holdings	and	its	respective	subsidiaries	are	subject	to	income	taxes	imposed	by	U.S.	authorities	and	file	a	consolidated	U.S.	tax return.	Combined	Insurance	and	its	subsidiaries	will	file	a	separate	consolidated	U.S.	tax	return	for	tax	years	prior	to	2014.	Should	ACE	Group	Holdings pay	a	dividend	to	the	Company,	withholding	taxes	would	apply.	Currently,	however,	no	withholding	taxes	are	accrued	with	respect	to	such	un-remitted earnings	as	management	has	no	intention	of	remitting	these	earnings.	The	cumulative	amount	that	would	be	subject	to	withholding	tax,	if	distributed,	as well	as	the	determination	of	the	associated	tax	liability	are	not	practicable	to	compute;	however,	such	amount	would	be	material	to	the	Company.	Certain international	operations	of	the	Company	are	also	subject	to	income	taxes	imposed	by	the	jurisdictions	in	which	they	operate.

The	Company	is	not	subject	to	income	taxation	other	than	as	stated	above.	There	can	be	no	assurance	that	there	will	not	be	changes	in	applicable laws,	regulations,	or	treaties	which	might	require	the	Company	to	change	the	way	it	operates	or	become	subject	to	taxation.

The	following	table	presents	the	income	tax	provision	for	the	years	ended	December	31,	2010,	2009,	and	2008.

| (in	millions	of	U.S.	dollars) | 2010 | 2009 | 2008 |
| :--- | :--- | :--- | :--- |
| Current\ttax\texpense | $443 | $547 | $ 511 |
| Deferred\ttax\texpense\t(benefit) | \t 116 | (19) | (141) |
| Provision\tfor\tincome\ttaxes | $559 | $528 | $ 370 |

The	weighted-average	expected	tax	provision	has	been	calculated	using	pre-tax	accounting	income	(loss)	in	each	jurisdiction	multiplied	by	that jurisdiction's	applicable	statutory	tax	rate.	The	following	table	presents	a	reconciliation	of	the	difference	between	the	provision	for	income	taxes	and	the expected	tax	provision	at	the	weighted-average	tax	rate	for	the	years	ended	December	31,	2010,	2009,	and	2008.

| (in	millions	of	U.S.	dollars) | 2010 | 2009 | 2008 |
| :--- | :--- | :--- | :--- |
| Expected\ttax\tprovision\tat\tweighted-average\trate | $614 | $560 | $353 |
| Permanent\tdifferences: |  |  |  |
| Tax-exempt\tinterest\tand\tDRD,\tnet\tof\tproration | (20) | (25) | (25) |
| Non-taxable\tacquisition\tgain | (61) | – | – |
| Net\twithholding\ttaxes | 15 | 14 | 16 |
| Change\tin\tvaluation\tallowance | (3) | (48) | 1 |
| Other | 14 | 27 | 25 |
| Total\tprovision\tfor\tincome\ttaxes | $559 | $528 | $370 |

The	following	table	presents	the	components	of	the	net	deferred	tax	assets	at	December	31,	2010	and	2009.

| (in	millions	of	U.S.	dollars) | 2010 | 2009 |
| :--- | :--- | :--- |
| Deferred\ttax\tassets: |  |  |
| Loss\treserve\tdiscount | $852 | $877 |
| Unearned\tpremiums\treserve | 87 | 83 |
| Foreign\ttax\tcredits | 952 | 855 |
| Investments | 51 | 35 |
| Provision\tfor\tuncollectible\tbalances | 132 | 145 |
| Loss\tcarry-forwards | 57 | 102 |
| Other,\tnet | 114 | 146 |
| Cumulative\ttranslation\tadjustment | 2 | – |
| Total\tdeferred\ttax\tassets | \t 2,247 | \t 2,243 |
| Deferred\ttax\tliabilities: |  |  |
| Deferred\tpolicy\tacquisition\tcosts | 100 | 73 |
| VOBA\tand\tother\tintangible\tassets | 367 | 188 |
| Un-remitted\tforeign\tearnings | 718 | 657 |
| Unrealized\tappreciation\ton\tinvestments | 262 | 110 |
| Cumulative\ttranslation\tadjustment | – | 27 |
| Total\tdeferred\ttax\tliabilities | \t 1,447 | \t 1,055 |
| Valuation\tallowance | 31 | 34 |
| Net\tdeferred\ttax\tassets | $769 | $1,154 |

The	valuation	allowance	of	$31	million	at	December	31,	2010,	and	$34	million	at	December	31,	2009,	reflects	management's	assessment,	based	on available	information,	that	it	is	more	likely	than	not	that	a	portion	of	the	deferred	tax	assets	will	not	be	realized	due	to	the	inability	of	certain	foreign subsidiaries	to	generate	sufficient	taxable	income	and	the	inability	of	ACE	Group	Holdings	and	its	subsidiaries	to	utilize	foreign	tax	credits.	Adjustments	to the	valuation	allowance	are	made	when	there	is	a	change	in	management's	assessment	of	the	amount	of	deferred	tax	assets	that	are	realizable.

At	December	31,	2010,	the	Company	has	a	U.S.	capital	loss	carry-forward	of	$131	million	which,	if	unutilized,	will	expire	in	the	years	2013-2014,	a U.S.	net	operating	loss	carry-forward	of	$30	million,	which,	if	unutilized,	will	expire	in	the	years	2021-2029,	and	a	foreign	tax	credit	carry-forward	in	the amount	of	$105	million	which,	if	unutilized,	will	expire	in	the	years	2014	-2020.

The	following	table	presents	a	reconciliation	of	the	beginning	and	ending	amount	of	unrecognized	tax	benefits	for	the	years	ended	December	31, 2010	and	2009.

| (in	millions	of	U.S.	dollars) | 2010 | 2009 |
| :--- | :--- | :--- |
| Balance,\tbeginning\tof\tyear | $155 | $150 |
| Additions\tbased\ton\ttax\tpositions\trelated\tto\tthe\tcurrent\tyear | 1 | 1 |
| Additions\t(reductions)\tfor\ttax\tpositions\tof\tprior\tyears | (17) | 4 |
| Balance,\tend\tof\tyear | $139 | $155 |

Included	in	the	balance	at	December	31,	2010	and	2009,	is	$1	million	of	unrecognized	tax	benefits	for	which	the	ultimate	deductibility	is	highly	certain	but for	which	there	is	uncertainty	about	the	timing	of	such	deductibility.	Because	of	the	impact	of	deferred	tax	accounting,	other	than	interest	and	penalties,	an unfavorable	resolution	of	these	temporary	items	would	not	affect	the	annual	effective	tax	rate	but	would	accelerate	the	payment	of	cash	to	the	taxing authority	to	an	earlier	period.	Consequently,	the	total	amount	of	unrecognized	tax	benefits	as	at	December	31,	2010,	that	would	affect	the	effective	tax rate,	if	recognized,	is	$138	million.

The	Company	recognizes	accruals	for	interest	and	penalties,	if	any,	related	to	unrecognized	tax	benefits	in	income	tax	expense.	At	December	31, 2010	and	2009,	the	Company	has	recorded	$19	million	and	$20	million,	respectively,	in	liabilities	for	tax-related	interest	in	its	consolidated	balance	sheet.

In	June	2010,	the	Company	reached	final	settlement	with	the	IRS	Appeals	Division	regarding	the	Company's	federal	tax	returns	for	2002,	2003, and	2004.	As	a	result	of	the	settlement,	the	Company	reduced	the	amount	of	its	unrecognized	tax	benefits	including	interest	by	approximately	$21 million.	During	the	quarter	ended	June	30,	2010,	the	IRS	completed	its	field	examination	of	the	Company's	federal	tax	returns	for	2005,	2006,	and	2007 and	has	proposed	several	adjustments	principally	involving	transfer	pricing	and	other	insurance-related	matters.	In	July	2010,	the	Company	filed	a	written protest	with	the	IRS	seeking	review	by	the	IRS	Appeals	Division.	While	it	is	reasonably	possible	that	a	significant	change	in	the	Company's	unrecognized tax	benefits	could	occur	in	the	next	12	months,	the	Company	believes	that	the	outcome	of	the	appeal	will	not	have	a	material	impact	on	the	Company's financial	condition	or	results	of	operations.	The	IRS	commenced	its	field	examination	of	the	Company's	federal	tax	returns	for	2008	and	2009	during January,	2011.	With	few	exceptions,	the	Company's	significant	U.K.	subsidiaries	remain	subject	to	examination	for	tax	years	2007	and	later.

The	following	table	presents	the	Company's	debt	at	December	31,	2010	and	2009.

| (in	millions	of	U.S.	dollars) | 2010 | 2009 |
| :--- | :--- | :--- |
| Short-term\tdebt |  |  |
| ACE\tLimited\trevolving\tcredit\tfacility | $300 | $– |
| Reverse\trepurchase\tagreements | \t 1,000 | – |
| ACE\tEuropean\tHoldings\tdue\t2010 | – | 161 |
|  | $1,300 | $161 |
| Long-term\tdebt |  |  |
| ACE\tINA\tsenior\tnotes\tdue\t2014 | 500 | 500 |
| ACE\tINA\tsenior\tnotes\tdue\t2015 | 447 | 446 |
| ACE\tINA\tsenior\tnotes\tdue\t2015 | 699 | – |
| ACE\tINA\tsenior\tnotes\tdue\t2017 | 500 | 500 |
| ACE\tINA\tsenior\tnotes\tdue\t2018 | 300 | 300 |
| ACE\tINA\tsenior\tnotes\tdue\t2019 | 500 | 500 |
| ACE\tINA\tdebentures\tdue\t2029 | 100 | 100 |
| ACE\tINA\tsenior\tnotes\tdue\t2036 | 299 | 298 |
| Other | 13 | 14 |
| ACE\tINA\tterm\tloan\tdue\t2011 | – | 50 |
| ACE\tINA\tterm\tloan\tdue\t2013 | – | 450 |
|  | $3,358 | $3,158 |
| Trust\tPreferred\tSecurities |  |  |
| ACE\tINA\tcapital\tsecurities\tdue\t2030 | $309 | $309 |

# a)	Short-term	debt

At	December	31,	2010,	in	connection	with	the	financing	of	the	acquisition	of	Rain	and	Hail,	short-term	debt	includes	reverse	repurchase	agreements totaling	$1	billion.	In	addition,	$300	million	in	borrowings	against	ACE's	revolving	credit	facility	were	outstanding	at	December	31,	2010.	Refer	to	Note	10 d).

# b)	ACE	European	Holdings	notes

In	December	2010,	ACE	European	Holdings	No.	2	Ltd.	repaid	a	£100	million	syndicated	five-year	term	loan	that	was	due.	This	term	loan	agreement	was entered	into	in	December	2005.	At	the	date	of	repayment,	the	U.S.	dollar	equivalent	of	the	amount	repaid	was	$159	million.	The	interest	rate	on	this unsecured	loan	was	5.25	percent.

# c)	ACE	INA	term	loans,	notes,	and	debentures

In	December	2008,	ACE	INA	entered	into	a	$66	million	dual	tranche	floating	interest	rate	term	loan	agreement.	The	first	tranche,	a	$50	million	three-year term	loan	due	December	2011,	had	a	floating	interest	rate	based	on	LIBOR.	Simultaneously,	the	Company	entered	into	a	swap	transaction	that	had	the economic	effect	of	fixing	the	interest	rate,	excluding	fees	and	expenses,	at	5.61	percent	for	the	full	term	of	the	loan.	In	December	2010,	ACE	repaid	this loan	and	exited	the	swap.	The	second	tranche,	a	$16	million	nine-month	term	loan,	due	and	repaid	in	September	2009,	had	a	floating	interest	rate	based on	LIBOR.	Simultaneously,	the	Company	entered	into	a	swap	transaction	that	had	the	economic	effect	of	fixing	the	interest	rate,	excluding	fees	and expenses,	at	3.02	percent	for	the	full	term	of	the	loan.	The	obligation	of	the	borrower	under	this	unsecured	loan	agreement	was	guaranteed	by	ACE Limited.

In	April	2008,	as	part	of	the	financing	of	the	Combined	Insurance	acquisition,	ACE	INA	entered	into	a	$450	million	floating	interest	rate	syndicated term	loan	agreement	due	April	2013.	The	floating	interest	rate	was	based	on	LIBOR	plus	0.65	percent.	Simultaneously,	the	Company	entered	into	a	$450 million	swap	transaction	that	had	the	economic	effect	of	fixing	the	interest	rate	at	4.15	percent	for	the	term	of	the	loan.	In	December	2010,	ACE	repaid this	loan	and	exited	the	swap.	The	obligation	of	the	borrower	under	this	unsecured	loan	agreement	was	guaranteed	by	ACE	Limited.

In	June	2004,	ACE	INA	issued	$500	million	of	5.875	percent	notes	due	June	2014.	These	notes	are	redeemable	at	any	time	at	ACE	INA's	option subject	to	a	"make-whole"	premium	plus	0.20	percent.	The	notes	are	also	redeemable	at	par	plus	accrued	and	unpaid	interest	in	the	event	of	certain changes	in	tax	law.	The	notes	do	not	have	the	benefit	of	any	sinking	fund.	These	senior	unsecured	notes	are	guaranteed	on	a	senior	basis	by	the Company	and	they	rank	equally	with	all	of	the	Company's	other	senior	obligations.	They	also	contain	customary	limitation	on	lien	provisions	as	well	as customary	events	of	default	provisions	which,	if	breached,	could	result	in	the	accelerated	maturity	of	such	senior	debt.

In	May	2008,	ACE	INA	issued	$450	million	of	5.6	percent	senior	notes	due	May	2015.	These	notes	are	redeemable	at	any	time	at	ACE	INA's	option subject	to	a	"make-whole"	premium	plus	0.35	percent.	The	notes	are	also	redeemable	at	par	plus	accrued	and	unpaid	interest	in	the	event	of	certain changes	in	tax	law.	The	notes	do	not	have	the	benefit	of	any	sinking	fund.	These	senior	unsecured	notes	are	guaranteed	on	a	senior	basis	by	the Company	and	they	rank	equally	with	all	of	the	Company's	other	senior	obligations.	They	also	contain	customary	limitations	on	lien	provisions	as	well	as customary	events	of	default	provisions	which,	if	breached,	could	result	in	the	accelerated	maturity	of	such	senior	debt.

In	November	2010,	ACE	INA	issued	$700	million	of	2.6	percent	senior	notes	due	November	2015.	These	notes	are	redeemable	at	any	time	at	ACE INA's	option	subject	to	a	"make-whole"	premium	plus	0.20	percent.	The	notes	are	also	redeemable	at	par	plus	accrued	and	unpaid	interest	in	the	event	of certain	changes	in	tax	law.	The	notes	do	not	have	the	benefit	of	any	sinking	fund.	These	senior	unsecured	notes	are	guaranteed	on	a	senior	basis	by	the Company	and	they	rank	equally	with	all	of	the	Company's	other	senior	obligations.	They	also	contain	customary	limitations	on	lien	provisions	as	well	as customary	events	of	default	provisions	which,	if	breached,	could	result	in	the	accelerated	maturity	of	such	senior	debt.

In	February	2007,	ACE	INA	issued	$500	million	of	5.7	percent	notes	due	February	2017.	These	notes	are	redeemable	at	any	time	at	ACE	INA's option	subject	to	a	"make-whole"	premium	plus	0.20	percent.	The	notes	are	also	redeemable	at	par	plus	accrued	and	unpaid	interest	in	the	event	of certain	changes	in	tax	law.	These	notes	do	not	have	the	benefit	of	any	sinking	fund.	These	senior	unsecured	notes	are	guaranteed	on	a	senior	basis	by the	Company	and	they	rank	equally	with	all	of	the	Company's	other	senior	obligations.	They	also	contain	customary	limitation	on	lien	provisions	as	well as	customary	events	of	default	provisions	which,	if	breached,	could	result	in	the	accelerated	maturity	of	such	senior	debt.

In	February	2008,	as	part	of	the	financing	of	the	Combined	Insurance	acquisition,	ACE	INA	issued	$300	million	of	5.8	percent	senior	notes	due March	2018.	These	notes	are	redeemable	at	any	time	at	ACE	INA's	option	subject	to	a	"make-whole"	premium	plus	0.35	percent.	The	notes	are	also redeemable	at	par	plus	accrued	and	unpaid	interest	in	the	event	of	certain	changes	in	tax	law.	These	notes	do	not	have	the	benefit	of	any	sinking fund.	These	senior	unsecured	notes	are	guaranteed	on	a	senior	basis	by	the	Company	and	they	rank	equally	with	all	of	the	Company's	other	senior obligations.	They	also	contain

customary	limitations	on	lien	provisions	as	well	as	customary	events	of	default	provisions	which,	if	breached,	could	result	in	the	accelerated	maturity	of such	senior	debt.

In	June	2009,	ACE	INA	issued	$500	million	of	5.9	percent	senior	notes	due	June	2019.	These	notes	are	redeemable	at	any	time	at	ACE	INA's option	subject	to	a	"make-whole"	premium	plus	0.40	percent.	The	notes	are	also	redeemable	at	par	plus	accrued	and	unpaid	interest	in	the	event	of certain	changes	in	tax	law.	The	notes	do	not	have	the	benefit	of	any	sinking	fund.	These	senior	unsecured	notes	are	guaranteed	on	a	senior	basis	by	the Company	and	they	rank	equally	with	all	of	the	Company's	other	senior	obligations.	They	also	contain	customary	limitations	on	lien	provisions	as	well	as customary	events	of	default	provisions	which,	if	breached,	could	result	in	the	accelerated	maturity	of	such	senior	debt.

In	August	1999,	ACE	INA	issued	$100	million	of	8.875	percent	debentures	due	August	2029.	Subject	to	certain	exceptions,	the	debentures	are	not redeemable	before	maturity	and	do	not	have	the	benefit	of	any	sinking	fund.	These	unsecured	debentures	are	guaranteed	on	a	senior	basis	by	the Company	and	they	rank	equally	with	all	of	ACE	INA's	other	senior	indebtedness.

In	May	2006,	ACE	INA	issued	$300	million	of	6.7	percent	notes	due	May	2036.	These	notes	are	redeemable	at	any	time	at	ACE	INA's	option subject	to	a	"make-whole"	premium	plus	0.20	percent.	The	notes	are	also	redeemable	at	par	plus	accrued	and	unpaid	interest	in	the	event	of	certain changes	in	tax	law.	These	notes	do	not	have	the	benefit	of	any	sinking	fund.	These	senior	unsecured	notes	are	guaranteed	on	a	senior	basis	by	the Company	and	they	rank	equally	with	all	of	the	Company's	other	senior	obligations.	They	also	contain	customary	limitation	on	lien	provisions	as	well	as customary	events	of	default	provisions	which,	if	breached,	could	result	in	the	accelerated	maturity	of	such	senior	debt.

# d)	ACE	INA	capital	securities

In	March	2000,	ACE	Capital	Trust	II,	a	Delaware	statutory	business	trust,	publicly	issued	$300	million	of	9.7	percent	Capital	Securities	(the	Capital Securities).	At	the	same	time,	ACE	INA	purchased	$9.2	million	of	common	securities	of	ACE	Capital	Trust	II.

The	Capital	Securities	mature	in	April	2030.	Distributions	on	the	Capital	Securities	are	payable	semi-annually.	ACE	Capital	Trust	II	may	defer	these payments	for	up	to	ten	consecutive	semi-annual	periods	(but	no	later	than	April	1,	2030).	Any	deferred	payments	would	accrue	interest	compounded semi-annually	if	ACE	INA	defers	interest	on	the	Subordinated	Debentures	due	2030	(as	defined	below).

The	sole	assets	of	ACE	Capital	Trust	II	consist	of	$309	million	principal	amount	of	9.7	percent	Junior	Subordinated	Deferrable	Interest	Debentures (the	Subordinated	Debentures)	issued	by	ACE	INA.	The	Subordinated	Debentures	mature	in	April	2030.	Interest	on	the	Subordinated	Debentures	is payable	semi-annually.	ACE	INA	may	defer	such	interest	payments	(but	no	later	than	April	1,	2030),	with	such	deferred	payments	accruing	interest compounded	semi-annually.	ACE	INA	may	redeem	the	Subordinated	Debentures	in	the	event	certain	changes	in	tax	or	investment	company	law	occur	at a	redemption	price	equal	to	accrued	and	unpaid	interest	to	the	redemption	date	plus	the	greater	of	(i)	100	percent	of	the	principal	amount	thereof,	or (ii)	the	sum	of	the	present	value	of	scheduled	payments	of	principal	and	interest	on	the	debentures	from	the	redemption	date	to	April	1,	2030.	The	Capital Securities	and	the	ACE	Capital	Trust	II	Common	Securities	will	be	redeemed	upon	repayment	of	the	Subordinated	Debentures.

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

# e)	Other	long-term	debt

In	August	2005,	ACE	American	borrowed	$10	million	from	the	Pennsylvania	Industrial	Development	Authority	(PIDA)	at	a	rate	of	2.75	percent	due September	2020.	The	proceeds	from	PIDA	were	restricted	for	purposes	of	defraying	construction	costs	of	a	new	office	building.	Principal	and	interest	are payable	on	a	monthly	basis.	The	current	balance	outstanding	is	$7	million.

In	addition,	in	1999,	ACE	American	assumed	a	CIGNA	loan	of	$8	million	borrowed	from	the	City	of	Philadelphia	under	the	Urban	Development Action	Grant	with	an	imputed	rate	of	7.1	percent	due	December	2019.	The	current	amount	outstanding	is	$6	million.

# 10.	Commitments,	contingencies,	and	guarantees

# a)	Derivative	instruments

# Derivative	instruments	employed

The	Company	maintains	positions	in	derivative	instruments	such	as	futures,	options,	swaps,	and	foreign	currency	forward	contracts	for	which	the	primary purposes	are	to	manage	duration	and	foreign	currency	exposure,	yield	enhancement,	or	to

obtain	an	exposure	to	a	particular	financial	market.	Along	with	convertible	bonds	and	to	be	announced	mortgage-backed	securities	(TBA),	discussed below,	these	are	the	most	numerous	and	frequent	derivative	transactions.

ACE	maintains	positions	in	convertible	bond	investments	that	contain	embedded	derivatives.	In	addition,	the	Company	purchases	TBAs	as	part	of its	investing	activities.	These	securities	are	included	within	the	Company's	fixed	maturities	available	for	sale	(FM	AFS)	portfolio.

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

In	relation	to	certain	debt	issuances,	the	Company	has	entered	into	interest	rate	swap	transactions	for	the	purpose	of	either	fixing	or	reducing borrowing	costs.	Although	the	use	of	these	interest	rate	swaps	has	the	economic	effect	of	fixing	or	reducing	borrowing	costs	on	a	net	basis,	gross	interest expense	on	the	related	debt	issuances	is	included	in	Interest	expense	while	the	settlements	related	to	the	interest	rate	swaps	are	reflected	in	Net	realized gains	(losses)	in	the	consolidated	statements	of	operations.	At	December	31,	2010,	ACE	had	no	in	force	interest	rate	swaps	having	exited	such	positions upon	the	repayment	of	related	debt	issuances	during	the	fourth	quarter	of	2010.

ACE	buys	credit	default	swaps	to	mitigate	global	credit	risk	exposure,	primarily	related	to	reinsurance	recoverable.

The	Company	carries	all	derivative	instruments	at	fair	value	with	changes	in	fair	value	recorded	in	Net	realized	gains	(losses)	in	the	consolidated statements	of	operations.	None	of	the	derivative	instruments	are	used	as	hedges	for	accounting	purposes.

The	following	table	presents	the	balance	sheet	locations,	fair	values	in	an	asset	or	(liability)	position,	and	notional	values/payment	provisions	of	the Company's	derivative	instruments	at	December	31,	2010	and	2009.

| (in	millions	of	U.S.	dollars) | Consolidated<br>Balance	Sheet<br>Location | Fair<br>Value | Notional<br>Value/<br>Payment<br>Provision | Fair<br>Value | Notional<br>Value/<br>Payment<br>Provision |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Investment\tand\tembedded\tderivative\tinstruments |  |  |  |  |  |
| Foreign\tcurrency\tforward\tcontracts | AP | $3 | $729 | $6 | $393 |
| Futures\tcontracts\ton\tmoney\tmarket\tinstruments | AP | 3 | 4,297 | 4 | 4,711 |
| Futures\tcontracts\ton\tnotes\tand\tbonds | AP | 5 | 676 | (2) | 500 |
| Options\ton\tmoney\tmarket\tinstruments | AP | – | 1 | – | 200 |
| Options\ton\tnotes\tand\tbonds\tfutures | AP | – | – | (1) | 200 |
| Convertible\tbonds | FM\tAFS | 416 | 382 | 354 | 354 |
| TBAs | FM\tAFS | 101 | 98 | 11 | 10 |
|  |  | $ 528 | $6,183 | $ 372 | $6,368 |
| Other\tderivative\tinstruments |  |  |  |  |  |
| Futures\tcontracts\ton\tequities | AP | $(25) | $1,069 | $(9) | $960 |
| Options\ton\tequity\tmarket\tindices | AP | 46 | 250 | 56 | 250 |
| Interest\trate\tswaps | AP | – | – | (24) | 500 |
| Credit\tdefault\tswaps | AP | 4 | 350 | 2 | 350 |
| Other | AP | – | 17 | 12 | 37 |
|  |  | $25 | $1,686 | $37 | $2,097 |
| (1)\nGLB | AP/FPB | $(648) | $719 | $(559) | $683 |
| (1) |  |  |  |  |  |

	Note	that	the	payment	provision	related	to	GLB	is	the	net	amount	at	risk.	The	concept	of	a	notional	value	does	not	apply	to	the	GLB	reinsurance	contracts. (1)

The	following	table	presents	net	realized	gains	(losses)	related	to	derivative	instrument	activity	in	the	consolidated	statement	of	operations	for	the	years ended	December	31,	2010	and	2009.

| (in	millions	of	U.S.	dollars) | 2010 | 2009 |
| :--- | :--- | :--- |
| Investment\tand\tembedded\tderivative\tinstruments |  |  |
| Foreign\tcurrency\tforward\tcontracts | $21 | $(14) |
| All\tother\tfutures\tcontracts\tand\toptions | 29 | 6 |
| Convertible\tbonds | 7 | 82 |
| TBAs | 1 | (6) |
|  | $58 | $68 |
| GLB\tand\tother\tderivative\tinstruments |  |  |
| GLB | $(28) | $ 368 |
| Futures\tcontracts\ton\tequities | (140) | (268) |
| Options\ton\tequity\tmarket\tindices | (10) | (95) |
| Interest\trate\tswaps | (21) | (22) |
| Credit\tdefault\tswaps | 1 | (75) |
| Other | 1 | 4 |
|  | $(197) | $(88) |
|  | $(139) | $(20) |

# Derivative	instrument	objectives

# (i)	Foreign	currency	exposure	management

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

# (ii)	Duration	management	and	market	exposure

# Futures

Futures	contracts	give	the	holder	the	right	and	obligation	to	participate	in	market	movements,	determined	by	the	index	or	underlying	security	on	which	the futures	contract	is	based.	Settlement	is	made	daily	in	cash	by	an	amount	equal	to	the	change	in	value	of	the	futures	contract	times	a	multiplier	that	scales the	size	of	the	contract.	Exchange-traded	bond	and	note	futures	contracts	are	used	in	fixed	maturity	portfolios	as	substitutes	for	ownership	of	the	bonds and	notes	without	significantly	increasing	the	risk	in	the	portfolio.	Investments	in	futures	contracts	may	be	made	only	to	the	extent	that	there	are	assets under	management	not	otherwise	committed.	Exchange-traded	equity	futures	contracts	are	used	to	limit	exposure	to	a	severe	equity	market	decline, which	would	cause	an	increase	in	expected	claims	and	therefore,	reserves	for	GMDB	and	GLB	reinsurance	business.

# Options

An	option	contract	conveys	to	the	holder	the	right,	but	not	the	obligation,	to	purchase	or	sell	a	specified	amount	or	value	of	an	underlying	security	at	a fixed	price.	Option	contracts	are	used	in	the	investment	portfolio	as	protection	against	unexpected	shifts	in	interest	rates,	which	would	affect	the	duration of	the	fixed	maturity	portfolio.	By	using	options	in	the	portfolio,	the	overall	interest	rate	sensitivity	of	the	portfolio	can	be	reduced.	Option	contracts	may also	be	used	as	an	alternative	to	futures	contracts	in	the	Company's	synthetic	strategy	as	described	above.	Another	use	for	option	contracts	is	to	limit exposure	to	a	severe	equity	market	decline,	which	would	cause	an	increase	in	expected	claims	and	therefore,	reserves	for	GMDB	and	GLB	reinsurance business.	The	price	of	an	option	is	influenced	by	the	underlying	security,	expected	volatility,	time	to	expiration,	and	supply	and	demand.

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

# Interest	rate	swaps

An	interest	rate	swap	is	a	contract	between	two	counterparties	in	which	interest	payments	are	made	based	on	a	notional	principal	amount,	which	itself	is never	paid	or	received.	Under	the	terms	of	an	interest	rate	swap,	one	counterparty	makes	interest	payments	based	on	a	fixed	interest	rate	and	the	other counterparty's	payments	are	based	on	a	floating	rate.	Interest	rate	swap	contracts	are	used	occasionally	in	the	investment	portfolio	as	protection	against unexpected	shifts	in	interest	rates,	which	would	affect	the	fair	value	of	the	fixed	maturity	portfolio.	By	using	interest	rate	swaps	in	the	portfolio,	the	overall duration	or	interest	rate	sensitivity	of	the	portfolio	can	be	reduced.	The	Company	also	employs	interest	rate	swaps	related	to	certain	debt	issuances	for the	purpose	of	either	fixing	and/or	reducing	borrowing	costs.

# Credit	default	swaps

A	credit	default	swap	is	a	bilateral	contract	under	which	two	counterparties	agree	to	isolate	and	separately	trade	the	credit	risk	of	at	least	one	third-party reference	entity.	Under	a	credit	default	swap	agreement,	a	protection	buyer	pays	a	periodic	fee	to	a	protection	seller	in	exchange	for	a	contingent payment	by	the	seller	upon	a	credit	event	(such	as	a	default	or	failure	to	pay)	related	to	the	reference	entity.	When	a	credit	event	is	triggered,	the protection	seller	pays	the	protection	buyer	the	difference	between	the	fair	value	of	assets	and	the	principal	amount.	The	Company	has	purchased	a credit	default	swap	to	mitigate	its	global	credit	risk	exposure	to	one	of	its	reinsurers.

# (iii)	Convertible	security	investments

A	convertible	bond	is	a	debt	instrument	that	can	be	converted	into	a	predetermined	amount	of	the	issuer's	equity	at	certain	times	prior	to	the	bond's maturity.	The	convertible	option	is	an	embedded	derivative	within	the	fixed	maturity	host	instruments	which	are	classified	in	the	investment	portfolio	as available	for	sale.	The	Company	purchases	convertible	bonds	for	their	total	return	and	not	specifically	for	the	conversion	feature.

By	acquiring	a	TBA,	the	Company	makes	a	commitment	to	purchase	a	future	issuance	of	mortgage-backed	securities.	For	the	period	between	purchase of	the	TBA	and	issuance	of	the	underlying	security,	the	Company's	position	is	accounted	for	as	a	derivative	in	the	consolidated	financial	statements.	The Company	purchases	TBAs	both	for	their	total	return	and	for	the	flexibility	they	provide	related	to	ACE's	mortgage-backed	security	strategy.

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

# b)	Concentrations	of	credit	risk

The	investment	portfolio	is	managed	following	prudent	standards	of	diversification.	Specific	provisions	limit	the	allowable	holdings	of	a	single	issue	and issuer.	The	Company	believes	that	there	are	no	significant	concentrations	of	credit	risk	associated	with	its	investments.	The	Company's	three	largest exposures	by	issuer	at	December	31,	2010,	were	General	Electric	Company,	JP	Morgan	Chase	&	Co.,	and	Bank	of	America	Corp.	The	Company's largest	exposure	by	industry	at	December	31,	2010,	was	financial	services.

The	Company	markets	its	insurance	and	reinsurance	worldwide	primarily	through	insurance	and	reinsurance	brokers.	The	Company	assumes	a degree	of	credit	risk	associated	with	brokers	with	whom	it	transacts	business.	During	the	year	ended	December	31,	2010,	approximately	12	percent	of the	Company's	gross	premiums	written	were	generated	from	or	placed	by	Marsh,	Inc.	and	its	affiliates	and	10	percent	by	Aon	Corporation	and	its affiliates.	Both	of	these	entities	are	large,	well	established	companies	and	there	are	no	indications	that	either	of	them	is	financially	troubled	at December	31,	2010.	No	other	broker	and	no	one	insured	or	reinsured	accounted	for	more	than	ten	percent	of	gross	premiums	written	in	the	three	years ended	December	31,	2010,	2009,	and	2008.

# c)	Other	investments

Included	in	Other	investments	are	investments	in	limited	partnerships	and	partially-owned	investment	companies	with	a	carrying	value	of	$1.1	billion.	In connection	with	these	investments,	the	Company	has	commitments	that	may	require	funding	of	up	to	$753	million	over	the	next	several	years.

# d)	Credit	facilities

The	Company	has	a	$500	million	unsecured	revolving	credit	facility	expiring	in	November	2012	available	for	general	corporate	purposes	and	the issuance	of	LOCs.	At	December	31,	2010,	ACE	had	outstanding	borrowings	against	this	facility	included	in	Short-term	debt	totaling	$300	million. Outstanding	LOCs	issued	under	this	facility	were	$70	million	at	December	31,	2010.	This	facility	requires	that	the	Company	and/or	certain	of	its subsidiaries	continue	to	maintain	certain	covenants,	including	a	minimum	consolidated	net	worth	covenant	and	a	maximum	leverage	covenant,	which have	been	met	at	December	31,	2010.

# e)	Letters	of	credit

The	Company	has	a	$1	billion	unsecured	operational	LOC	facility	expiring	in	November	2012.	At	December	31,	2010,	$574	million	of	this	facility	was utilized.	The	Company	also	has	a	$500	million	unsecured	operational	LOC	facility	expiring	in	September	2014.	At	December	31,	2010,	this	facility	was fully	utilized.

To	satisfy	funding	requirements	of	the	Company's	Lloyd's	Syndicate	2488	through	2012,	the	Company	has	a	series	of	four	bilateral	uncollateralized LOC	facilities	totaling	$400	million.	LOCs	issued	under	these	facilities	will	expire	no	earlier	than	December	2015.	At	December	31,	2010,	$340	million	of this	facility	was	utilized.

These	facilities	require	that	the	Company	and/or	certain	of	its	subsidiaries	continue	to	maintain	certain	covenants,	including	a	minimum consolidated	net	worth	covenant	and	a	maximum	leverage	covenant,	which	have	been	met	at	December	31,	2010.

# f)	Legal	proceedings

# (i)	Claims	and	other	litigation

The	Company's	insurance	subsidiaries	are	subject	to	claims	litigation	involving	disputed	interpretations	of	policy	coverage	and,	in	some	jurisdictions, direct	actions	by	allegedly-injured	persons	seeking	damages	from	policyholders.	These	lawsuits,	involving	claims	on	policies	issued	by	the	Company's subsidiaries,	which	are	typical	to	the	insurance	industry	in	general	and	in	the	normal	course	of	business,	are	considered	in	the	Company's	loss	and	loss expense	reserves.	In	addition	to	claims	litigation,	the	Company	and	its	subsidiaries	are	subject	to	lawsuits	and	regulatory	actions	in	the	normal	course	of business	that	do	not	arise	from,	or	directly	relate	to,	claims	on	insurance	policies.	This	category	of	business	litigation	typically	involves,	amongst	other things,	allegations	of	underwriting	errors	or	misconduct,	employment	claims,	regulatory	activity,	or	disputes	arising	from	business	ventures.	In	the	opinion of	ACE's	management,	ACE's	ultimate	liability	for	these	matters	is	not	likely	to	have	a	material	adverse	effect	on	ACE's	consolidated	financial	condition, although	it	is	possible	that	the	effect	could	be	material	to	ACE's	consolidated	results	of	operations	for	an	individual	reporting	period.

# (ii)	Business	practices	litigation

Beginning	in	2004,	ACE	and	its	subsidiaries	and	affiliates	received	numerous	subpoenas,	interrogatories,	and	civil	investigative	demands	in	connection with	certain	investigations	of	insurance	industry	practices.	These	inquiries	were	issued	by	a	number	of	attorneys	general,	state	departments	of	insurance, and	other	authorities,	including	the	New	York	Attorney	General	(NYAG)	and	the	Pennsylvania	Insurance	Department.	Such	inquiries	concerned underwriting	practices	and	non-traditional	or	loss	mitigation	insurance	products.

On	April	25,	2006,	ACE	reached	a	settlement	with	the	Attorneys	General	of	New	York,	Illinois,	and	Connecticut	and	the	New	York	Insurance Department	pursuant	to	which	ACE	received	from	these	authorities	an	Assurance	of	Discontinuance	(AOD).	On	May	9,	2007,	ACE	and	the	Pennsylvania Insurance	Department	(Department)	and	the	Pennsylvania	Office	of	Attorney	General	(OAG)	entered	into	a	settlement	agreement.	On	October	24,	2007, ACE	entered	into	a	settlement	agreement	with	the	Attorneys	General	of	Florida,	Hawaii,	Maryland,	Massachusetts,	Michigan,	Oregon,	Texas,	West Virginia,	the	District	of	Columbia,	and	the	Florida	Department	of	Financial	Services	and	Office	of	Insurance	Regulation.	These	agreements	resolved investigations	of	ACE's	underwriting	practices	and	contingent	commission	payments.	In	December	2010,	the	NYAG	amended	its	AOD	with	ACE, eliminating	the	ban	on	contingent	commissions	that	was	levied	as	part	of	the	agreement.

ACE,	ACE	INA	Holdings,	Inc.,	and	ACE	USA,	Inc.,	along	with	a	number	of	other	insurers	and	brokers,	were	named	in	a	series	of	federal	putative nationwide	class	actions	brought	by	insurance	policyholders.	The	Judicial	Panel	on	Multidistrict	Liti-

gation	(JPML)	consolidated	these	cases	in	the	District	of	New	Jersey.	On	August	1,	2005,	plaintiffs	in	the	New	Jersey	consolidated	proceedings	filed	two consolidated	amended	complaints	–	one	concerning	commercial	insurance	and	the	other	concerning	employee	benefit	plans.	The	employee	benefit plans	litigation	against	ACE	has	been	dismissed.

In	the	commercial	insurance	complaint,	the	plaintiffs	named	ACE,	ACE	INA	Holdings,	Inc.,	ACE	USA,	Inc.,	ACE	American	Insurance	Co.,	Illinois Union	Insurance	Co.,	and	Indemnity	Insurance	Co.	of	North	America.	They	allege	that	certain	brokers	and	insurers,	including	certain	ACE	entities, conspired	to	increase	premiums	and	allocate	customers	through	the	use	of	"B"	quotes	and	contingent	commissions.	In	addition,	the	complaints	allege that	the	broker	defendants	received	additional	income	by	improperly	placing	their	clients'	business	with	insurers	through	related	wholesale	entities	that acted	as	intermediaries	between	the	broker	and	insurer.	Plaintiffs	also	allege	that	broker	defendants	tied	the	purchase	of	primary	insurance	to	the placement	of	such	coverage	with	reinsurance	carriers	through	the	broker	defendants'	reinsurance	broker	subsidiaries.	The	complaint	asserts	the following	causes	of	action	against	ACE:	Federal	Racketeer	Influenced	and	Corrupt	Organizations	Act	(RICO),	federal	antitrust	law,	state	antitrust	law, aiding	and	abetting	breach	of	fiduciary	duty,	and	unjust	enrichment.

In	2006	and	2007,	the	Court	dismissed	plaintiffs'	first	two	attempts	to	properly	plead	a	case	without	prejudice	and	permitted	plaintiffs	one	final opportunity	to	re-plead.	The	amended	complaint,	filed	on	May	22,	2007,	purported	to	add	several	new	ACE	defendants:	ACE	Group	Holdings,	Inc.,	ACE US	Holdings,	Inc.,	Westchester	Fire	Insurance	Company,	INA	Corporation,	INA	Financial	Corporation,	INA	Holdings	Corporation,	ACE	Property	and Casualty	Insurance	Company,	and	Pacific	Employers	Insurance	Company.	Plaintiffs	also	added	a	new	antitrust	claim	against	Marsh,	ACE,	and	other insurers	based	on	the	same	allegations	as	the	other	claims	but	limited	to	excess	casualty	insurance.	On	June	21,	2007,	defendants	moved	to	dismiss	the amended	complaint	and	moved	to	strike	the	new	parties.	The	Court	granted	defendants'	motions	and	dismissed	plaintiffs'	antitrust	and	RICO	claims	with prejudice	on	August	31,	2007,	and	September	28,	2007,	respectively.	The	Court	also	declined	to	exercise	supplemental	jurisdiction	over	plaintiffs'	state law	claims	and	dismissed	those	claims	without	prejudice.	Plaintiffs	appealed	to	the	United	States	Court	of	Appeals	for	the	Third	Circuit.	On	August	16, 2010,	the	Third	Circuit	affirmed,	in	part,	and	vacated,	in	part,	the	District	Court's	previous	dismissals	with	instructions	for	further	briefing	at	the	District Court	on	remand.	Defendants	have	renewed	their	motions	to	dismiss,	and	the	District	Court	has	indicated	that	it	will	issue	a	decision	in	2011.

There	are	a	number	of	federal	actions	brought	by	policyholders	based	on	allegations	similar	to	the	allegations	in	the	consolidated	federal	actions that	were	filed	in,	or	transferred	to,	the	United	States	District	Court	for	the	District	of	New	Jersey	for	coordination.	All	proceedings	in	these	actions	are currently	stayed.

•	New	Cingular	Wireless	Headquarters	LLC	et	al.	v.	Marsh	&	McLennan	Companies,	Inc.	et	al.	(Case	No.	06-5120;	D.N.J.),	was	originally	filed	in	the Northern	District	of	Georgia	on	April	4,	2006.	ACE,	ACE	American	Ins.	Co.,	ACE	USA,	Inc.,	ACE	Bermuda	Ins.	Co.	Ltd.,	Illinois	Union	Ins.	Co.,	Pacific Employers	Ins.	Co.,	and	Lloyd's	of	London	Syndicate	2488	AGM,	along	with	a	number	of	other	insurers	and	brokers,	are	named.

•	Avery	Dennison	Corp.	v.	Marsh	&	McLennan	Companies,	Inc.	et	al.	(Case	No.	07-00757;	D.N.J.)	was	filed	on	February	13,	2007.	ACE,	ACE	INA Holdings,	Inc.,	ACE	USA,	Inc.,	and	ACE	American	Insurance	Co.,	along	with	a	number	of	other	insurers	and	brokers,	are	named.

•	Lincoln	Adventures	LLC	et	al.	v.	Those	Certain	Underwriters	at	Lloyd's,	London	Members	of	Syndicates	0033	et	al.	(Case	No.	07-60991;	D.N.J.)	was originally	filed	in	the	Southern	District	of	Florida	on	July	13,	2007.	Supreme	Auto	Transport	LLC	et	al.	v.	Certain	Underwriters	of	Lloyd's	of	London,	et	al. (Case	No.	07-6703;	D.N.J.)	was	originally	filed	in	the	Southern	District	of	New	York	on	July	25,	2007.	Lloyd's	of	London	Syndicate	2488	AGM,	along	with a	number	of	other	Lloyd's	of	London	Syndicates	and	various	brokers,	are	named	in	both	actions.	The	allegations	in	these	putative	class-action	lawsuits are	similar	to	the	allegations	in	the	consolidated	federal	actions	identified	above,	although	these	lawsuits	focus	on	alleged	conduct	within	the	London insurance	market.

•	Sears,	Roebuck	&	Co.	et	al.	v.	Marsh	&	McLennan	Companies,	Inc.	et	al.	(Case	No.	07-2535;	D.N.J.)	was	originally	filed	in	the	Northern	District	of Georgia	on	October	12,	2007.	ACE	American	Insurance	Co.,	ACE	Bermuda	Insurance	Ltd.,	and	Westchester	Surplus	Lines	Insurance	Co.,	along	with	a number	of	other	insurers	and	brokers,	are	named.

Three	cases	have	been	filed	in	state	courts	with	allegations	similar	to	those	in	the	consolidated	federal	actions	described	above.	One	of	the	cases,

Office	Depot,	Inc.	v.	Marsh	&	McLennan	Companies,	Inc.	et	al.,	a	Florida	state	action,	settled	in	August	2010	and	ACE	was	dismissed	with	prejudice. ACE	remains	a	named	party	in	two	state	cases:

•	Van	Emden	Management	Corporation	v.	Marsh	&	McLennan	Companies,	Inc.,	et	al.	(Case	No.	05-0066A;	Superior	Court	of	Massachusetts),	a	class action	in	Massachusetts,	was	filed	on	January	13,	2005.	Illinois	Union	Insurance	Company	is	named.	The	Van	Emden	case	has	been	stayed	pending resolution	of	the	consolidated	proceedings	in	the	District	of	New	Jersey	or	until	further	order	of	the	Court.

•	State	of	Ohio,	ex.	rel.	Marc	E.	Dann,	Attorney	General	v.	American	Int'l	Group,	Inc.	et	al.	(Case	No.	07-633857;	Court	of	Common	Pleas	in	Cuyahoga County,	Ohio)	is	an	Ohio	state	action	filed	by	the	Ohio	Attorney	General	on	August	24,	2007.	ACE	INA	Holdings,	Inc.,	ACE	American	Insurance	Co.,	ACE Property	&	Casualty	Insurance	Co.,	Insurance	Company	of	North	America,	and	Westchester	Fire	Insurance	Co.,	along	with	a	number	of	other	insurance companies	and	Marsh,	are	named.	Defendants	filed	motions	to	dismiss	in	November	2007.	On	July	2,	2008,	the	court	denied	all	of	the	defendants' motions.	Discovery	is	ongoing.	Trial	is	set	for	September	12,	2011.

ACE	was	named	in	four	putative	securities	class	action	suits	following	the	filing	of	a	civil	suit	against	Marsh	by	the	NYAG	on	October	14,	2004.	The suits	were	consolidated	by	the	JPML	in	the	Eastern	District	of	Pennsylvania	and	the	Court	appointed	Sheet	Metal	Workers'	National	Pension	Fund	and Alaska	Ironworkers	Pension	Trust	as	lead	plaintiffs.	Lead	plaintiffs	filed	a	consolidated	amended	complaint	on	September	30,	2005,	naming	ACE,	Evan G.	Greenberg,	Brian	Duperreault,	and	Philip	V.	Bancroft	as	defendants.	Plaintiffs	alleged	that	ACE's	public	statements	and	securities	filings	should	have revealed	that	insurers,	including	certain	ACE	entities,	and	brokers	allegedly	conspired	to	increase	premiums	and	allocate	customers	through	the	use	of "B"	quotes	and	contingent	commissions	and	that	ACE's	revenues	and	earnings	were	inflated	by	these	practices.	In	December	2008,	the	parties	entered into	a	Stipulation	of	Settlement	in	which	ACE	agreed	to	pay	the	plaintiffs	$1.95	million	in	exchange	for	a	full	release	of	all	claims.	On	June	9,	2009,	the Court	approved	the	settlement	and	dismissed	the	multidistrict	litigation	(including	the	four	underlying	suits)	with	prejudice.

ACE,	ACE	USA,	Inc.,	ACE	INA	Holdings,	Inc.,	and	Evan	G.	Greenberg,	as	a	former	officer	and	director	of	AIG	and	current	officer	and	director	of ACE,	are	named	in	one	or	both	of	two	derivative	cases	brought	by	certain	shareholders	of	AIG.	One	of	the	derivative	cases	was	filed	in	Delaware Chancery	Court,	and	the	other	was	filed	in	federal	court	in	the	Southern	District	of	New	York.	The	allegations	against	ACE	concern	the	alleged	bid	rigging and	contingent	commission	scheme	as	similarly	alleged	in	the	federal	commercial	insurance	cases.	Plaintiffs	assert	the	following	causes	of	action	against ACE:	breach	of	fiduciary	duty,	aiding	and	abetting	breaches	of	fiduciary	duties,	unjust	enrichment,	conspiracy,	and	fraud.	In	Delaware,	the	shareholder plaintiffs	filed	an	amended	complaint	(their	third	pleading	effort),	on	April	14,	2008,	which	drops	Evan	Greenberg	as	a	defendant	(plaintiffs	in	the	New York	action	subsequently	dismissed	Evan	Greenberg	as	well).	On	June	13,	2008,	ACE	filed	a	motion	to	dismiss,	and	on	April	20,	2009,	the	court	heard oral	argument	on	the	motion.	On	June	17,	2009,	the	Court	dismissed	all	claims	against	ACE	with	prejudice;	final	judgment	in	favor	of	ACE	was	entered	on July	13,	2009.	The	derivative	plaintiffs	appealed.	The	Delaware	Supreme	Court	affirmed	the	dismissal	on	December	29,	2010.	The	New	York	derivative action	is	currently	stayed.

In	all	of	the	lawsuits	described	above,	plaintiffs	seek	compensatory	and	in	some	cases	special	damages	without	specifying	an	amount.	As	a	result, ACE	cannot	at	this	time	estimate	its	potential	costs	related	to	these	legal	matters	and,	accordingly,	no	liability	for	compensatory	damages	has	been established	in	the	consolidated	financial	statements.

ACE's	ultimate	liability	for	these	matters	is	not	likely	to	have	a	material	adverse	effect	on	ACE's	consolidated	financial	condition,	although	it	is possible	that	the	effect	could	be	material	to	ACE's	consolidated	results	of	operations	for	an	individual	reporting	period.

# (iii)	Legislative	activity

The	State	of	New	York,	as	part	of	the	2009-10	State	budget,	adopted	language	requiring	an	insurer	(1)	which	paid	to	the	Workers'	Compensation	Board (WCB)	various	statutory	assessments	in	an	amount	less	than	that	insurer	"collected"	from	insured	employers	in	a	given	year	and	(2)	that	"has	identified and	held	any	funds	collected	but	not	paid	to	the	WCB,	as	measurable	and	available,	as	of	January	1,	2009"	to	pay	retroactive	assessments	to	the	WCB. The	Company's	understanding	is	that	the	law	is	intended	to	address	certain	inconsistencies	in	the	New	York	State	laws	regulating	the	calculation	of workers'	compensation	assessments	by	insurance	carriers	and	the	remittance	of	those	funds	to	the	State.	In	July	2009,	ACE	received	a	subpoena	from the	NYAG	requesting	documents	related	to	these	issues,	and	in	October	2009,	ACE	received	a	request	from	the	WCB	asking	ACE	to	explain	whether	or not	it	was	an	"affected	carrier"	under	the	new	law.	In	addition,	the	New	York	State	legislature,	as	part	of	the	2010-11	State	budget,	enacted	language	that appears	to	require	an	insurer	who	paid	to	the	WCB	various	statutory	assessments	in	an	amount	less	than	that	insurer	"collected"	from	insured	employers for	the	period	April	1,	2008,	through	March	31,	2009,	to	pay	such	"excess	assessment	funds"	to	the	WCB.

During	the	fourth	quarter	of	2010,	the	Company	reached	an	agreement	with	the	NYAG	and	WCB	to	satisfy	any	and	all	of	its	potential	obligations under	the	two	State	budget	bills	referred	to	above,	which	included	a	payment	to	the	WCB	of	$70	million.	This	amount	is	within	the	previously	established contingency	account.

# g)	Lease	commitments

The	Company	and	its	subsidiaries	lease	office	space	in	the	countries	in	which	they	operate	under	operating	leases	which	expire	at	various	dates	through 2033.	The	Company	renews	and	enters	into	new	leases	in	the	ordinary	course	of	business	as	required.	Total	rent	expense	with	respect	to	these operating	leases	was	$83	million,	$84	million,	and	$77	million	for	the	years	ended	December	31,	2010,	2009,	and	2008,	respectively.	Future	minimum lease	payments	under	the	leases	are	expected	to	be	as	follows:

# 11.	Preferred	Shares

In	2003,	the	Company	sold	twenty	million	depositary	shares	in	a	public	offering,	each	representing	one-tenth	of	one	of	its	7.8	percent	Cumulative Redeemable	Preferred	Shares,	for	$25	per	depositary	share.	Underwriters	exercised	their	over-allotment	option	which	resulted	in	the	issuance	of	an additional	three	million	depositary	shares.

These	shares,	with	an	annual	dividend	rate	of	7.8	percent,	were	not	convertible	into	or	exchangeable	for	the	Company's	Common	Shares.	The Company	had	the	option	to	redeem	these	shares	at	any	time	after	May	30,	2008,	at	a	redemption	value	of	$25	per	depositary	share	or	at	any	time	under certain	limited	circumstances.	On	June	13,	2008,	the	Company	redeemed	all	of	the	outstanding	Preferred	Shares	for	cash	consideration	of	$575	million.

# 12.	Shareholders'	equity

# a)	Continuation

In	2008,	during	ACE's	annual	general	meeting,	the	Company's	shareholders	approved	a	proposal	to	move	the	Company's	jurisdiction	of	incorporation from	the	Cayman	Islands	to	Zurich,	Switzerland	(the	Continuation)	and	ACE	became	a	Swiss	company	effective	July	18,	2008.	In	connection	with	the Continuation	in	July	2008,	the	Company	changed	the	currency	in	which	the	par	value	of	Ordinary	Shares	was	stated	from	U.S.	dollars	to	Swiss	francs and	increased	the	par	value	of	Ordinary	Shares	from	$0.041666667	to	CHF	33.74	(the	New	Par	Value)	through	a	conversion	of	all	issued	Ordinary Shares	into	"stock"	and	re-conversion	of	the	stock	into	Ordinary	Shares	with	a	par	value	equal	to	the	New	Par	Value	(the	Par	Value	Conversion).	The	Par Value	Conversion	was	followed	immediately	by	a	stock	dividend,	to	effectively	return	shareholders	to	the	number	of	Ordinary	Shares	held	before	the	Par Value	Conversion.	The	stock	dividend	did	not	therefore	have	the	effect	of	diluting	earnings	per	share.	Upon	the	effectiveness	of	the	Continuation,	the Company's	Ordinary	Shares	became	Common	Shares.	All	Common	Shares	of	the	Company	are	registered	common	shares	under	Swiss	corporate	law. Though	the	par	value	of	Common	Shares	is	stated	in	Swiss	francs,	the	Company	continues	to	use	U.S.	dollars	as	its	reporting	currency	for	preparing	the consolidated	financial	statements.	For	purposes	of	the	consolidated	financial	statements,	the	increase	in	par	value	was	accomplished	by	a	corresponding reduction	first	to	retained	earnings	and	second	to	additional	paid-in	capital	to	the	extent	that	the	increase	in	par	value	exhausted	retained	earnings	at	the date	of	the	Continuation.

Under	Swiss	corporate	law,	dividends,	including	distributions	through	a	reduction	in	par	value	(par	value	distributions),	must	be	declared	by	ACE	in Swiss	francs	though	dividend	payments	are	made	by	the	Company	in	U.S.	dollars.	Further,	under	Swiss	corporate	law,	the	Company	may	not	generally issue	Common	Shares	below	their	par	value.	In	the	event	there	is	a	need	to	raise	common	equity	at	a	time	when	the	trading	price	of	the	Company's Common	Shares	is	below	par	value,	the	Company	will	need	to	obtain	shareholder	approval	to	decrease	the	par	value	of	the	Common	Shares.

# b)	Shares	issued,	outstanding,	authorized,	and	conditional

The	following	table	presents	a	roll-forward	of	changes	in	Common	Shares	issued	and	outstanding	for	the	years	ended	December	31,	2010,	2009,	and 2008.

|  | 2010 | 2009 | 2008 |
| :--- | :--- | :--- | :--- |
| Shares\tissued,\tbeginning\tof\tyear | \t337,841,616 | \t335,413,501 | \t329,704,531 |
| Shares\tissued,\tnet | 2,268,000 | 2,000,000 | 3,140,194 |
| Exercise\tof\tstock\toptions | 984,943 | 168,720 | 2,365,401 |
| Shares\tissued\tunder\tESPP | – | 259,395 | 203,375 |
| Shares\tissued,\tend\tof\tyear | \t341,094,559 | \t337,841,616 | \t335,413,501 |
| Common\tShares\tin\ttreasury,\tend\tof\tyear | (6,151,707) | (1,316,959) | (1,768,030) |
| Shares\tissued\tand\toutstanding,\tend\tof\tyear | \t334,942,852 | \t336,524,657 | \t333,645,471 |
| Common\tShares\tissued\tto\temployee\ttrust |  |  |  |
| Balance,\tbeginning\tof\tyear | (101,481) | (108,981) | (117,231) |
| Shares\tredeemed | – | 7,500 | 8,250 |
| Balance,\tend\tof\tyear | (101,481) | (101,481) | (108,981) |

During	December	2010,	ACE	repurchased	4,926,082	Common	Shares	in	a	series	of	open	market	transactions.	The	cost	of	these	shares,	which	were placed	in	treasury,	totaled	$303	million.	ACE	repurchased	these	Common	Shares	to	partially	offset	potential	dilution	from	the	exercise	of	stock	options and	the	granting	of	restricted	stock	under	share-based	compensation	plans.

Common	Shares	in	treasury	are	used	principally	for	issuance	upon	the	exercise	of	employee	stock	options,	for	issuance	of	restricted	stock,	and	for purchases	under	the	ESPP.	At	December	31,	2010	and	2009,	6,151,707	and	1,316,959	Common	Shares,	respectively,	remain	in	treasury	after	net shares	redeemed	under	employee	share-based	compensation	plans.

Common	Shares	issued	to	employee	trust	are	issued	by	the	Company	to	a	rabbi	trust	for	deferred	compensation	obligations	as	discussed	in	Note 12	f)	below.

# Authorized	Share	Capital	for	General	Purposes

The	Board	has	shareholder-approved	authority	as	set	forth	in	the	Articles	of	Association	to	increase	for	general	purposes	the	Company's	share	capital from	time	to	time	through	May	19,	2012,	by	the	issuance	of	up	to	140,000,000	fully	paid	up	Common	Shares,	with	a	par	value	equal	to	the	par	value	of ACE's	Common	Shares	as	set	forth	in	the	Articles	of	Association	at	the	time	of	any	such	issuance.	It	is	expected	that	the	Company	will	seek	shareholder approval	in	2012	for	a	new	pool	of	authorized	share	capital	for	general	purposes	to	replace	the	existing	140,000,000	share	pool	when	it	expires.

# Conditional	share	capital	for	bonds	and	similar	debt	instruments

The	share	capital	of	the	Company	may	be	increased	through	the	issuance	of	a	maximum	of	33,000,000	fully	paid	up	Common	Shares	with	a	par	value	of CHF	30.57	each	through	the	exercise	of	conversion	and/or	option	or	warrant	rights	granted	in	connection	with	bonds,	notes,	or	similar	instruments, issued	or	to	be	issued	by	the	Company,	including	convertible	debt	instruments.

# Conditional	share	capital	for	employee	benefit	plans

The	share	capital	of	the	Company	may	be	increased	through	the	issuance	of	a	maximum	of	27,148,782	fully	paid	up	Common	Shares	with	a	par	value	of CHF	30.57	each	in	connection	with	the	exercise	of	option	rights	granted	to	any	employee	of	the	Company,	and	any	consultant,	director,	or	other	person providing	services	to	the	Company.

# c)	ACE	Limited	securities	repurchase	authorization

In	November	2010,	the	Board	authorized	the	repurchase	of	up	to	$600	million	of	ACE's	Common	Shares	through	December	31,	2012.	This	authorization was	granted	to	allow	ACE	to	repurchase	Common	Shares	to	partially	offset	potential	dilution	from	the	exercise	of	stock	options	and	the	granting	of restricted	stock	under	share-based	compensation	plans.	Such	repurchases	may	be	made	in	the	open	market,	in	privately	negotiated	transactions,	block trades,	accelerated	repurchases	and/or	through	option	or	other	forward	transactions.	As	discussed	above,	$303	million	of	this	authorization	was	utilized during	December	2010.

# d)	General	restrictions

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

# e)	Dividends	declared

Dividends	declared	on	Common	Shares	amounted	to	CHF	1.31	($1.30)	for	the	year	ended	December	31,	2010,	CHF	1.26	($1.19)	for	the	year	ended December	31,	2009,	and	$1.09	(including	par	value	distributions	of	CHF	0.60)	per	Common	Share	for	the	year	ended	December	31,	2008.	Par	value distributions	have	been	reflected	as	such	through	Common	Shares	in	the	consolidated	statement	of	shareholders'	equity.	The	par	value	per	Common Share	at	December	31,	2010,	stands	at	CHF	30.57.	Dividends	declared	on	Preferred	Shares	amounted	to	$24	million	for	the	year	ended	December	31, 2008.

# f)	Deferred	compensation	obligation

The	Company	maintains	rabbi	trusts	for	deferred	compensation	plans	principally	for	employees	and	former	directors.	The	shares	issued	by	the	Company to	the	rabbi	trusts	in	connection	with	deferrals	of	share	compensation	are	classified	in	shareholders'	equity	and	accounted	for	at	historical	cost	in	a manner	similar	to	Common	Shares	in	treasury.	These	shares	are	recorded	in	Common	Shares	issued	to	employee	trust	and	the	obligations	are	recorded in	Deferred	compensation	obligation.	Changes	in	the	fair	value	of	the	shares	underlying	the	obligations	are	recorded	in	Accounts	payable,	accrued expenses,	and	other	liabilities	and	the	related	expense	or	income	is	recorded	in	Administrative	expenses.

The	rabbi	trust	also	holds	other	assets,	such	as	fixed	maturities,	equity	securities,	and	life	insurance	policies.	These	assets	of	the	rabbi	trust	are consolidated	with	those	of	the	Company	and	reflected	in	Other	investments.	Except	for	life	insurance	policies	which	are	reflected	at	cash	surrender	value, these	assets	are	classified	as	trading	securities	and	reported	at	fair	value	with	changes	in	fair	value	reflected	in	Other	(income)	expense.	Except	for obligations	related	to	life	insurance	policies	which	are	carried	at	cash	surrender	value,	the	related	deferred	compensation	obligation	is	carried	at	fair	value and	included	in	Accounts	payable,	accrued	expenses,	and	other	liabilities	with	changes	reflected	as	a	corresponding	increase	or	decrease	to	Other (income)	expense.

# 13.	Share-based	compensation

The	Company	has	share-based	compensation	plans	which	currently	provide	for	awards	of	stock	options,	restricted	stock,	and	restricted	stock	units	to	its employees	and	members	of	the	Board.

The	Company	principally	issues	restricted	stock	grants	and	stock	options	on	a	graded	vesting	schedule.	The	Company	recognizes	compensation cost	for	restricted	stock	and	stock	option	grants	with	only	service	conditions	that	have	a	graded	vesting	schedule	on	a	straight-line	basis	over	the requisite	service	period	for	each	separately	vesting	portion	of	the	award	as	if	the	award	was,	in-substance,	multiple	awards.	An	estimate	of	future forfeitures	is	incorporated	into	the	determination	of	compensation	cost	for	both	grants	of	restricted	stock	and	stock	options.

During	2004,	the	Company	established	the	ACE	Limited	2004	Long-Term	Incentive	Plan	(the	2004	LTIP),	which	replaced	ACE's	prior	incentive plans	except	as	to	outstanding	awards.	The	2004	LTIP	will	continue	in	effect	until	terminated	by	the	Board.	During	the	2010	annual	general	meeting, shareholders	voted	to	increase	the	number	of	Common	Shares	authorized	to	be	issued	under	the	2004	LTIP	from	19,000,000	Common	Shares	to 30,600,000	Common	Shares.	Accordingly,	under	the	2004	LTIP,	a	total	of	30,600,000	Common	Shares	of	the	Company	are	authorized	to	be	issued pursuant	to	awards	made	as	stock	options,	stock	appreciation	rights,	performance	shares,	performance	units,	restricted	stock,	and	restricted	stock	units. The	maximum	number	of	shares	that	may	be	delivered	to	participants	and	their	beneficiaries	under	the	2004	LTIP	shall	be	equal	to	the	sum	of: (i)	30,600,000	shares;	and	(ii)	any	shares	that	are	represented	by	awards	granted	under	the	prior	plans	that	are	forfeited,	expired,	or	are	canceled	after the	effective	date	of	the	2004	LTIP,	without	delivery	of	shares	or	which	result	in	the	forfeiture	of	the	shares	back	to	the	Company	to	the	extent	that	such shares	would	have	been	added	back	to	the	reserve	under	the	terms	of	the	applicable	prior	plan.	At	December	31,	2010,	a	total	of	12,525,434	shares remain	available	for	future	issuance	under	this	plan.

Under	the	2004	LTIP,	3,000,000	Common	Shares	are	authorized	to	be	issued	under	the	ESPP.	At	December	31,	2010,	a	total	of	489,358	Common Shares	remain	available	for	issuance	under	the	ESPP.

The	Company	generally	issues	Common	Shares	for	the	exercise	of	stock	options,	restricted	stock,	and	purchases	under	the	ESPP	from	un-issued reserved	shares	and	Common	Shares	in	treasury.

Share-based	compensation	expense	for	stock	options	and	shares	issued	under	the	ESPP	amounted	to	$28	million	($25	million	after	tax	or	$0.07 per	basic	and	diluted	share),	$27	million	($25	million	after	tax	or	$0.07	per	basic	and	diluted	share),	and	$24	million	($22	million	after	tax	or	$0.07	per basic	and	diluted	share)	for	the	years	ended	December	31,	2010,	2009,	and	2008,	respectively.	For	the	years	ended	December	31,	2010,	2009,	and 2008,	the	expense	for	the	restricted	stock	was	$111	million	($72	million	after	tax),	$94	million	($68	million	after	tax),	and	$101	million	($71	million	after tax),	respectively.	Unrecognized	compensation	expense	related	to	the	unvested	portion	of	the	Company's	employee	share-based	awards	was	$129 million	at	December	31,	2010,	and	is	expected	to	be	recognized	over	a	weighted-average	period	of	approximately	2	years.

# Stock	options

The	Company's	2004	LTIP	provides	for	grants	of	both	incentive	and	non-qualified	stock	options	principally	at	an	option	price	per	share	of	100	percent	of the	fair	value	of	the	Company's	Common	Shares	on	the	date	of	grant.	Stock	options	are	generally	granted	with	a	3-year	vesting	period	and	a	10-year term.	The	stock	options	vest	in	equal	annual	installments	over	the	respective	vesting	period,	which	is	also	the	requisite	service	period.

Included	in	the	Company's	share-based	compensation	expense	in	the	year	ended	December	31,	2010,	is	the	cost	related	to	the	unvested	portion of	the	2007-2010	stock	option	grants.	The	fair	value	of	the	stock	options	was	estimated	on	the	date	of	grant	using	the	Black-Scholes	option-pricing	model that	uses	the	weighted-average	assumptions	noted	in	the	following	table.	The	risk-free	interest	rate	is	based	on	the	U.S.	Treasury	yield	curve	in	effect	at the	time	of	grant.	The	expected	life	(estimated	period	of	time	from	grant	to	exercise	date)	was	estimated	using	the	historical	exercise	behavior	of employees.	Expected	volatility	was	calculated	as	a	blend	of	(a)	historical	volatility	based	on	daily	closing	prices	over	a	period	equal	to	the	expected	life assumption,	(b)	long-term	historical	volatility	based	on	daily	closing	prices	over	the	period	from	ACE's	initial	public	trading	date	through	the	most	recent quarter,	and	(c)	implied	volatility	derived	from	ACE's	publicly	traded	options.

The	fair	value	of	the	options	issued	is	estimated	on	the	date	of	grant	using	the	Black-Scholes	option-pricing	model.	The	following	table	presents	the weighted-average	model	assumptions	used	for	grants	for	the	years	indicated.

The	following	table	presents	a	roll-forward	of	the	Company's	stock	options	for	the	years	ended	December	31,	2010,	2009,	and	2008.

|  | Number	of<br>Options | Weighted-Average<br>Exercise	Price |
| :--- | :--- | :--- |
| Options\toutstanding,\tDecember\t31,\t2007 | \t11,270,815 | $42.12 |
| Granted | 1,612,507 | $60.17 |
| Exercised | (2,650,733) | $36.25 |
| Forfeited | (309,026) | $54.31 |
| Options\toutstanding,\tDecember\t31,\t2008 | 9,923,563 | $46.24 |
| Granted | 2,339,036 | $38.60 |
| Exercised | (537,556) | $27.71 |
| Forfeited | (241,939) | $50.48 |
| Options\toutstanding,\tDecember\t31,\t2009 | \t11,483,104 | $45.46 |
| Granted | 2,094,227 | $50.38 |
| Exercised | (1,328,715) | $40.11 |
| Forfeited | (305,723) | $49.77 |
| Options\toutstanding,\tDecember\t31,\t2010 | \t11,942,893 | $46.80 |
| Options\texercisable,\tDecember\t31,\t2010 | 7,839,222 | $46.36 |

The	weighted-average	remaining	contractual	term	was	5.7	years	for	the	stock	options	outstanding	and	4.3	years	for	the	stock	options	exercisable	at December	31,	2010.	The	total	intrinsic	value	was	$184	million	for	stock	options	outstanding	and	$124	million	for	stock	options	exercisable	at December	31,	2010.	The	weighted-average	fair	value	for	the	stock	options	granted	for	the	years	ended	December	31,	2010,	2009,	and	2008,	was $12.09,	$12.95,	and	$17.60,	respectively.	The	total	intrinsic	value	for	stock	options	exercised	during	the	years	ended	December	31,	2010,	2009,	and 2008,	was	$22	million,	$12	million,	and	$54	million,	respectively.

The	amount	of	cash	received	during	the	year	ended	December	31,	2010,	from	the	exercise	of	stock	options	was	$53	million.

# Restricted	stock	and	restricted	stock	units

The	Company's	2004	LTIP	provides	for	grants	of	restricted	stock	and	restricted	stock	units	with	a	4-year	vesting	period,	based	on	a	graded	vesting schedule.	The	Company	also	grants	restricted	stock	awards	to	non-management	directors	which	vest	at	the	following	year's	annual	general	meeting.	The restricted	stock	is	granted	at	market	close	price	on	the	date	of	grant.	Each	restricted	stock	unit	represents	the	Company's	obligation	to	deliver	to	the holder	one	Common	Share	upon	vesting.	Included	in	the	Company's	share-based	compensation	expense	for	the	year	ended	December	31,	2010,	is	a portion	of	the	cost	related	to	the	unvested	restricted	stock	granted	in	the	years	2006	–	2010.

The	following	table	presents	a	roll-forward	of	the	Company's	restricted	stock	for	the	years	ended	December	31,	2010,	2009,	and	2008.	Included	in the	roll-forward	below	are	36,248	and	38,154	restricted	stock	awards	that	were	granted	to	non-management	directors	during	2010	and	2009,	respectively.

|  | Number	of<br>Restricted<br>Stock | Weighted-Average<br>Grant-Date	Fair<br>Value |
| :--- | :--- | :--- |
| Unvested\trestricted\tstock,\tDecember\t31,\t2007 | \t 3,821,707 | $53.12 |
| Granted | \t 1,836,532 | $59.84 |
| Vested\tand\tissued | \t(1,403,826) | $50.96 |
| Forfeited | (371,183) | $53.75 |
| Unvested\trestricted\tstock,\tDecember\t31,\t2008 | \t 3,883,230 | $57.01 |
| Granted | \t 2,603,344 | $39.05 |
| Vested\tand\tissued | \t(1,447,676) | $54.85 |
| Forfeited | (165,469) | $51.45 |
| Unvested\trestricted\tstock,\tDecember\t31,\t2009 | \t 4,873,429 | $48.25 |
| Granted | \t 2,461,076 | $51.09 |
| Vested\tand\tissued | \t(1,771,423) | $50.79 |
| Forfeited | (257,350) | $47.93 |
| Unvested\trestricted\tstock,\tDecember\t31,\t2010 | \t 5,305,732 | $48.74 |

During	2010,	the	Company	awarded	326,091	restricted	stock	units	to	officers	of	the	Company	and	its	subsidiaries	with	a	weighted-average	grant	date	fair value	of	$50.36.	During	2009,	333,104	restricted	stock	units,	with	a	weighted-average	grant	date	fair	value	of	$38.75,	were	awarded	to	officers	of	the Company	and	its	subsidiaries.	During	2008,	223,588	restricted	stock	units,	with	a	weighted-average	grant	date	fair	value	of	$59.93,	were	awarded	to officers	of	the	Company	and	its	subsidiaries.	At	December	31,	2010,	the	number	of	unvested	restricted	stock	units	was	636,758.

Prior	to	2009,	the	Company	granted	restricted	stock	units	with	a	1-year	vesting	period	to	non-management	directors.	Delivery	of	Common	Shares on	account	of	these	restricted	stock	units	to	non-management	directors	is	deferred	until	six	months	after	the	date	of	the	non-management	directors' termination	from	the	Board.	During	2008,	40,362	restricted	stock	units	were	awarded	to	non-management	directors.	At	December	31,	2010,	the	number of	deferred	restricted	stock	units	was	230,451.

The	ESPP	gives	participating	employees	the	right	to	purchase	Common	Shares	through	payroll	deductions	during	consecutive	"Subscription	Periods"	at a	purchase	price	of	85	percent	of	the	fair	value	of	a	Common	Share	on	the	Exercise	Date.	Annual	purchases	by	participants	are	limited	to	the	number	of whole	shares	that	can	be	purchased	by	an	amount	equal	to	ten	percent

of	the	participant's	compensation	or	$25,000,	whichever	is	less.	The	ESPP	has	two	six-month	Subscription	Periods,	the	first	of	which	runs	between January	1	and	June	30	and	the	second	of	which	runs	between	July	1	and	December	31	of	each	year.	The	amounts	that	have	been	collected	from participants	during	a	Subscription	Period	are	used	on	the	"Exercise	Date"	to	purchase	full	shares	of	Common	Shares.	An	Exercise	Date	is	generally	the last	trading	day	of	a	Subscription	Period.	The	number	of	shares	purchased	is	equal	to	the	total	amount,	as	at	the	Exercise	Date,	that	has	been	collected from	the	participants	through	payroll	deductions	for	that	Subscription	Period,	divided	by	the	"Purchase	Price",	rounded	down	to	the	next	full	share. Participants	may	withdraw	from	an	offering	before	the	exercise	date	and	obtain	a	refund	of	the	amounts	withheld	through	payroll	deductions.	Pursuant	to the	provisions	of	the	ESPP,	during	2010,	2009,	and	2008,	employees	paid	$10.4	million,	$10.6	million,	and	$10.1	million,	respectively,	to	purchase 240,979	shares,	259,219	shares,	and	203,375	shares,	respectively.

# 14.	Pension	plans

The	Company	provides	pension	benefits	to	eligible	employees	and	their	dependents	through	various	defined	contribution	plans	and	defined	benefit	plans sponsored	by	the	Company.	The	defined	contribution	plans	include	a	capital	accumulation	plan	(401(k))	in	the	United	States.	The	defined	benefit	plans consist	of	various	plans	offered	in	certain	jurisdictions	outside	of	the	United	States	and	Bermuda.

# Defined	contribution	plans	(including	401(k))

Under	these	plans,	employees'	contributions	may	be	supplemented	by	ACE	matching	contributions	based	on	the	level	of	employee	contribution.	These contributions	are	invested	at	the	election	of	each	employee	in	one	or	more	of	several	investment	portfolios	offered	by	a	third	party	investment	advisor. Expenses	for	these	plans	totaled	$87	million,	$84	million,	and	$77	million	for	the	years	ended	December	31,	2010,	2009,	and	2008,	respectively.

# Defined	benefit	plans

The	Company	maintains	non-contributory	defined	benefit	plans	that	cover	certain	employees,	principally	located	in	Europe	and	Asia.	The	Company	does not	provide	any	such	plans	to	U.S.-based	employees.	The	Company	accounts	for	pension	benefits	using	the	accrual	method.	Benefits	under	these	plans are	based	on	employees'	years	of	service	and	compensation	during	final	years	of	service.	All	underlying	defined	benefit	plans	are	subject	to	periodic actuarial	valuation	by	qualified	local	actuarial	firms	using	actuarial	models	in	calculating	the	pension	expense	and	liability	for	each	plan.	The	Company uses	December	31	as	the	measurement	date	for	its	defined	benefit	pension	plans.

At	December	31,	2010,	the	fair	value	of	plan	assets	and	the	projected	benefit	obligation	were	$394	million	and	$487	million,	respectively.	The	fair value	of	plan	assets	and	the	projected	benefit	obligation	were	$368	million	and	$471	million,	respectively,	at	December	31,	2009.	The	accrued	pension liability	of	$93	million	at	December	31,	2010,	and	$103	million	at	December	31,	2009,	is	included	in	Accounts	payable,	accrued	expenses,	and	other liabilities.

The	defined	benefit	pension	plan	contribution	for	2011	is	expected	to	be	$17	million.	The	estimated	net	actuarial	loss	for	the	defined	benefit pension	plans	that	will	be	amortized	from	AOCI	into	net	benefit	costs	over	the	next	year	is	$2	million.

Benefit	payments	were	$15	million	and	$20	million	in	2010	and	2009,	respectively.	Expected	future	payments	are	as	follows:

# a)	Fair	value	hierarchy

The	Company	partially	adopted	the	provisions	(specific	provisions	described	below)	of	Topic	820	on	January	1,	2008,	and	the	cumulative	effect	of	the adoption	resulted	in	a	reduction	to	retained	earnings	of	$4	million	related	to	an	increase	in	risk	mar-

gins	included	in	the	valuation	of	certain	GLB	contracts.	The	Company	fully	adopted	these	provisions	on	January	1,	2009.	The	provisions	of	Topic	820 define	fair	value	as	the	price	to	sell	an	asset	or	transfer	a	liability	in	an	orderly	transaction	between	market	participants	and	establish	a	three-level valuation	hierarchy	in	which	inputs	into	valuation	techniques	used	to	measure	fair	value	are	classified.	The	fair	value	hierarchy	gives	the	highest	priority to	quoted	prices	in	active	markets	and	the	lowest	priority	to	unobservable	data.	Inputs	in	Level	1	are	unadjusted	quoted	prices	for	identical	assets	or liabilities	in	active	markets.	Level	2	includes	inputs	other	than	quoted	prices	included	within	Level	1	that	are	observable	for	assets	or	liabilities	either directly	or	indirectly.	Level	2	inputs	include,	among	other	items,	quoted	prices	for	similar	assets	and	liabilities	in	active	markets,	quoted	prices	for	identical or	similar	assets	and	liabilities	in	markets	that	are	not	active,	and	inputs	other	than	quoted	prices	that	are	observable	for	the	asset	or	liability	such	as interest	rates	and	yield	curves.	Level	3	inputs	are	unobservable	and	reflect	management's	judgments	about	assumptions	that	market	participants	would use	in	pricing	an	asset	or	liability.	A	financial	instrument's	categorization	within	the	valuation	hierarchy	is	based	upon	the	lowest	level	of	input	that	is significant	to	the	fair	value	measurement.	ACE	makes	decisions	regarding	the	categorization	of	assets	or	liabilities	within	the	valuation	hierarchy	based on	the	inputs	used	to	determine	respective	fair	values	at	the	balance	sheet	date.	Accordingly,	transfers	between	levels	within	the	valuation	hierarchy	are determined	on	the	same	basis.

The	Company	utilizes	one	or	more	pricing	services	to	obtain	fair	value	measurements	for	the	majority	of	the	investment	securities	it	holds.	Based on	management's	understanding	of	the	methodologies	used	by	these	pricing	services,	all	applicable	investments	have	been	valued	in	accordance	with GAAP	valuation	principles.	The	following	is	a	description	of	the	valuation	techniques	and	inputs	used	to	determine	fair	values	for	the	Company's	financial instruments	carried	or	disclosed	at	fair	value,	as	well	as	the	general	classification	of	such	financial	instruments	pursuant	to	the	valuation	hierarchy.

# Fixed	maturities

The	Company	utilizes	pricing	services	to	estimate	fair	value	measurements	for	the	majority	of	its	fixed	maturities.	The	pricing	services	utilize	market quotations	for	fixed	maturities	that	have	quoted	prices	in	active	markets;	such	securities	are	classified	within	Level	1.	For	fixed	maturities	other	than	U.S. Treasury	securities	that	generally	do	not	trade	on	a	daily	basis,	the	pricing	services	prepare	estimates	of	fair	value	measurements	using	their	pricing applications,	which	include	available	relevant	market	information,	benchmark	curves,	benchmarking	of	like	securities,	sector	groupings,	and	matrix pricing.	Additional	valuation	factors	that	can	be	taken	into	account	are	nominal	spreads,	dollar	basis,	and	liquidity	adjustments.	The	pricing	services evaluate	each	asset	class	based	on	relevant	market	and	credit	information,	perceived	market	movements,	and	sector	news.	The	market	inputs	utilized	in the	pricing	evaluation,	listed	in	the	approximate	order	of	priority	include:	benchmark	yields,	reported	trades,	broker/dealer	quotes,	issuer	spreads,	two- sided	markets,	benchmark	securities,	bids,	offers,	reference	data,	and	industry	and	economic	events.	The	extent	of	the	use	of	each	input	is	dependant	on the	asset	class	and	the	market	conditions.	Additionally,	given	the	asset	class,	the	priority	of	the	use	of	inputs	may	change	or	some	market	inputs	may	not be	relevant.	The	overwhelming	majority	of	fixed	maturities	are	classified	within	Level	2	because	the	most	significant	inputs	used	in	the	pricing	techniques are	observable.	Fixed	maturities	for	which	pricing	is	unobservable	are	classified	within	Level	3.

# Equity	securities

Equity	securities	with	active	markets	are	classified	within	Level	1	as	fair	values	are	based	on	quoted	market	prices.	For	non-public	equity	securities,	fair values	are	based	on	market	valuations	and	are	classified	within	Level	2.

# Short-term	investments

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

# Securities	lending	collateral

The	underlying	assets	included	in	Securities	lending	collateral	are	fixed	maturities	which	are	classified	in	the	valuation	hierarchy	on	the	same	basis	as the	Company's	other	fixed	maturities.	Excluded	from	the	valuation	hierarchy	is	the	corresponding	liability	related	to	the	Company's	obligation	to	return the	collateral	plus	interest.

# Other	investments

Fair	values	for	the	majority	of	Other	investments	including	investments	in	partially-owned	investment	companies,	investment	funds,	and	limited partnerships	are	based	on	their	respective	net	asset	values	or	equivalent	(NAV).	The	majority	of	these

investments,	for	which	the	Company	has	used	NAV	as	a	practical	expedient	to	measure	fair	value,	are	classified	within	Level	3	because	either	ACE	will never	have	the	contractual	option	to	redeem	the	investment	or	will	not	have	the	contractual	option	to	redeem	the	investments	in	the	near	term.	The remainder	of	such	investments	are	classified	within	Level	2.	Equity	securities	and	fixed	maturities	held	in	rabbi	trusts	maintained	by	the	Company	for deferred	compensation	plans,	and	included	in	Other	investments,	are	classified	within	the	valuation	hierarchy	on	the	same	basis	as	the	Company's	other equity	securities	and	fixed	maturities.

# Investments	in	partially-owned	insurance	companies

Fair	values	for	investments	in	partially-owned	insurance	companies	based	on	the	financial	statements	provided	by	those	companies	are	classified	within Level	3.

# Investment	derivative	instruments

For	actively	traded	investment	derivative	instruments,	including	futures,	options,	and	exchange-traded	forward	contracts,	the	Company	obtains	quoted market	prices	to	determine	fair	value.	As	such,	these	instruments	are	included	within	Level	1.

# Guaranteed	living	benefits

The	liability	for	GLBs	arises	from	the	Company's	life	reinsurance	programs	covering	living	benefit	guarantees	whereby	the	Company	assumes	the	risk	of GMIBs	and	GMABs	associated	with	variable	annuity	contracts.	For	GLB	reinsurance,	ACE	estimates	fair	value	using	an	internal	valuation	model	which includes	current	market	information	and	estimates	of	policyholder	behavior.	All	of	the	treaties	contain	claim	limits,	which	are	factored	into	the	valuation model.	The	fair	value	depends	on	a	number	of	inputs,	including	changes	in	interest	rates,	changes	in	equity	markets,	credit	risk,	current	account	value, changes	in	market	volatility,	expected	annuitization	rates,	changes	in	policyholder	behavior,	and	changes	in	policyholder	mortality.

The	most	significant	policyholder	behavior	assumptions	include	lapse	rates	and	the	GMIB	annuitization	rates.	Assumptions	regarding	lapse	rates and	GMIB	annuitization	rates	differ	by	treaty	but	the	underlying	methodologies	to	determine	rates	applied	to	each	treaty	are	comparable.	The assumptions	regarding	lapse	and	GMIB	annuitization	rates	determined	for	each	treaty	are	based	on	a	dynamic	calculation	that	uses	several	underlying factors.

A	lapse	rate	is	the	percentage	of	in-force	policies	surrendered	in	a	given	calendar	year.	All	else	equal,	as	lapse	rates	increase,	ultimate	claim payments	will	decrease.	In	general,	the	base	lapse	function	assumes	low	lapse	rates	(ranging	from	about	1	percent	to	6	percent	per	annum)	during	the surrender	charge	period	of	the	GMIB	contract,	followed	by	a	"spike"	lapse	rate	(ranging	from	about	10	percent	to	30	percent	per	annum)	in	the	year immediately	following	the	surrender	charge	period,	and	then	reverting	to	an	ultimate	lapse	rate	(generally	around	10	percent	per	annum),	typically	over	a 2-year	period.	This	base	rate	is	adjusted	downward	for	policies	with	more	valuable	guarantees	(policies	with	guaranteed	values	far	in	excess	of	their account	values	)	by	multiplying	the	base	lapse	rate	by	a	factor	ranging	from	15	percent	to	75	percent.	Additional	lapses	due	to	partial	withdrawals	and older	policyholders	with	tax-qualified	contracts	(due	to	required	minimum	distributions)	are	also	included.

The	GMIB	annuitization	rate	is	the	percentage	of	policies	for	which	the	policyholder	will	elect	to	annuitize	using	the	guaranteed	benefit	provided under	the	GMIB.	All	else	equal,	as	GMIB	annuitization	rates	increase,	ultimate	claim	payments	will	increase,	subject	to	treaty	claim	limits.	In	general	ACE assumes	that	GMIB	annuitization	rates	will	be	higher	for	policies	with	more	valuable	guarantees	(policies	with	guaranteed	values	far	in	excess	of	their account	values).	In	addition,	ACE	also	assumes	that	GMIB	annuitization	rates	are	higher	in	the	first	year	immediately	following	the	waiting	period	(the	first year	the	policies	are	eligible	to	annuitize	utilizing	the	GMIB)	in	comparison	to	all	subsequent	years.	The	Company	does	not	yet	have	a	robust	set	of annuitization	experience	because	most	of	its	clients'	policyholders	are	not	yet	eligible	to	annuitize	utilizing	the	GMIB.	However,	for	certain	clients	there are	several	years	of	annuitization	experience.	For	these	clients	the	annuitization	function	reflects	the	actual	experience	and	has	a	maximum	annuitization rate	per	annum	of	8	percent	(a	higher	maximum	applies	in	the	first	year	a	policy	is	eligible	to	annuitize	utilizing	the	GMIB–it	is	over	13	percent).	For	most clients,	there	is	no	currently	observable	relevant	annuitization	behavior	data	and	so	ACE	uses	a	weighted-average	(with	a	heavier	weighting	on	the observed	experience	noted	previously)	of	three	different	annuitization	functions	with	maximum	annuitization	rates	per	annum	of	8	percent,	12	percent, and	30	percent,	respectively	(with	significantly	higher	rates	in	the	first	year	a	policy	is	eligible	to	annuitize	utilizing	the	GMIB).	As	noted	elsewhere,	the GMIB	reinsurance	treaties	include	claim	limits	to	protect	ACE	in	the	event	that	actual	annuitization	behavior	is	significantly	higher	than	expected.

The	effect	of	changes	in	key	market	factors	on	assumed	lapse	and	annuitization	rates	reflect	emerging	trends	using	data	available	from	cedants. For	treaties	with	limited	experience,	rates	are	established	in	line	with	data	received	from	other	ceding	companies	adjusted	as	appropriate	with	industry estimates.	The	model	and	related	assumptions	are	continuously	re-evaluated

by	management	and	enhanced,	as	appropriate,	based	upon	additional	experience	obtained	related	to	policyholder	behavior	and	availability	of	more information,	such	as	market	conditions,	market	participant	assumptions,	and	demographics	of	in-force	annuities.	During	2010,	the	Company	made various	changes	to	assumptions	(primarily	annuitization	and	lapse)	and	methods	used	to	calculate	the	fair	value.	The	changes	had	a	net	effect	of reducing	fair	value	of	the	liability	by	$98	million	(where	the	dollar	impact	of	each	change	was	measured	in	the	quarter	in	which	the	change	was implemented).

The	Company	views	the	variable	annuity	reinsurance	business	as	having	a	similar	risk	profile	to	that	of	catastrophe	reinsurance,	with	the	probability of	a	cumulative	long-term	economic	net	loss	relatively	small	at	the	time	of	pricing.	However,	adverse	changes	in	market	factors	and	policyholder	behavior will	have	an	adverse	impact	on	net	income,	which	may	be	material.	Because	of	the	significant	use	of	unobservable	inputs	including	policyholder	behavior, GLB	reinsurance	is	classified	within	Level	3.

# Short-	and	long-term	debt	and	trust	preferred	securities

Where	practical,	fair	values	for	short-term	debt,	long-term	debt,	and	trust	preferred	securities	are	estimated	using	discounted	cash	flow	calculations	based principally	on	observable	inputs	including	the	Company's	incremental	borrowing	rates,	which	reflect	ACE's	credit	rating,	for	similar	types	of	borrowings with	maturities	consistent	with	those	remaining	for	the	debt	being	valued.	As	such,	these	instruments	are	classified	within	Level	2.

# Other	derivative	instruments

The	Company	maintains	positions	in	other	derivative	instruments	including	exchange-traded	equity	futures	contracts	and	option	contracts	designed	to limit	exposure	to	a	severe	equity	market	decline,	which	would	cause	an	increase	in	expected	claims	and,	therefore,	reserves	for	GMDB	and	GLB reinsurance	business.	The	Company's	position	in	exchange-traded	equity	futures	contracts	is	classified	within	Level	1.	The	fair	value	of	the	majority	of the	Company's	remaining	positions	in	other	derivative	instruments	is	based	on	significant	observable	inputs	including	equity	security	and	interest	rate indices.	Accordingly,	these	are	classified	within	Level	2.	The	Company's	position	in	credit	default	swaps	is	typically	included	within	Level	3.

The	following	tables	present,	by	valuation	hierarchy,	the	financial	instruments	carried	or	disclosed	at	fair	value,	and	measured	on	a	recurring	basis, at	December	31,	2010,	and	December	31,	2009.

| December	31,	2010<br>(in	millions	of	U.S.	dollars) | Quoted	Prices	in<br>Active	Markets<br>Level	1 | Significant<br>Observable<br>Inputs	Level	2 | Significant<br>Unobservable<br>Inputs	Level	3 | Total |
| :--- | :--- | :--- | :--- | :--- |
| Assets: |  |  |  |  |
| Fixed\tmaturities\tavailable\tfor\tsale |  |  |  |  |
| U.S.\tTreasury\tand\tagency | $1,564 | $1,399 | $– | $2,963 |
| Foreign | 187 | 10,973 | 26 | \t 11,186 |
| Corporate\tsecurities | 31 | 13,441 | 115 | \t 13,587 |
| Mortgage-backed\tsecurities | – | 8,477 | 39 | 8,516 |
| States,\tmunicipalities,\tand\tpolitical\tsubdivisions | – | 1,285 | 2 | 1,287 |
|  | 1,782 | 35,575 | 182 | \t 37,539 |
| Fixed\tmaturities\theld\tto\tmaturity |  |  |  |  |
| U.S.\tTreasury\tand\tagency | 439 | 688 | – | 1,127 |
| Foreign | – | 1,007 | 6 | 1,013 |
| Corporate\tsecurities | – | 2,296 | 17 | 2,313 |
| Mortgage-backed\tsecurities | – | 3,846 | – | 3,846 |
| States,\tmunicipalities,\tand\tpolitical\tsubdivisions | – | 1,162 | – | 1,162 |
|  | 439 | 8,999 | 23 | 9,461 |
| Equity\tsecurities | 676 | 3 | 13 | 692 |
| Short-term\tinvestments | 903 | 1,080 | – | 1,983 |
| Other\tinvestments | 39 | 221 | 1,432 | 1,692 |
| Securities\tlending\tcollateral | – | 1,495 | – | 1,495 |
| Investments\tin\tpartially-owned\tinsurance\tcompanies | – | – | 360 | 360 |
| Investment\tderivative\tinstruments | 11 | – | – | 11 |
| Other\tderivative\tinstruments | (25) | 46 | 4 | 25 |
| Total\tassets\tat\tfair\tvalue | $3,825 | $47,419 | $2,014 | $53,258 |
| Liabilities: |  |  |  |  |
| GLB | $– | $– | $648 | $648 |
| Short-term\tdebt | – | 1,300 | – | 1,300 |
| Long-term\tdebt | – | 3,846 | – | 3,846 |
| Trust\tpreferred\tsecurities | – | 376 | – | 376 |
| Total\tliabilities\tat\tfair\tvalue | $– | $5,522 | $648 | $6,170 |

There	were	no	significant	gross	transfers	between	Level	1	and	Level	2	during	the	year	ended	December	31,	2010.

| December	31,	2009<br>(in	millions	of	U.S.	dollars) | Prices	in<br>Active<br>Markets<br>Level	1 | Significant<br>Observable<br>Inputs<br>Level	2 | Significant<br>Unobservable<br>Inputs	Level	3 | Total |
| :--- | :--- | :--- | :--- | :--- |
| Assets: |  |  |  |  |
| Fixed\tmaturities\tavailable\tfor\tsale |  |  |  |  |
| U.S.\tTreasury\tand\tagency | $1,611 | $2,098 | $– | $3,709 |
| Foreign | 207 | 10,879 | 59 | \t 11,145 |
| Corporate\tsecurities | 31 | 13,016 | 168 | \t 13,215 |
| Mortgage-backed\tsecurities | – | 9,821 | 21 | 9,842 |
| States,\tmunicipalities,\tand\tpolitical\tsubdivisions | – | 1,611 | 3 | 1,614 |
|  | \t 1,849 | 37,425 | 251 | \t 39,525 |
| Fixed\tmaturities\theld\tto\tmaturity |  |  |  |  |
| U.S.\tTreasury\tand\tagency | 414 | 643 | – | 1,057 |
| Foreign | – | 27 | – | 27 |
| Corporate\tsecurities | – | 322 | – | 322 |
| Mortgage-backed\tsecurities | – | 1,424 | 45 | 1,469 |
| States,\tmunicipalities,\tand\tpolitical\tsubdivisions | – | 686 | – | 686 |
|  | 414 | 3,102 | 45 | 3,561 |
| Equity\tsecurities | 453 | 2 | 12 | 467 |
| Short-term\tinvestments | \t 1,132 | 535 | – | 1,667 |
| Other\tinvestments | 31 | 195 | 1,149 | 1,375 |
| Securities\tlending\tcollateral | – | 1,544 | – | 1,544 |
| Investments\tin\tpartially-owned\tinsurance\tcompanies | – | – | 433 | 433 |
| Investment\tderivative\tinstruments | 7 | – | – | 7 |
| Other\tderivative\tinstruments | (9) | 32 | 14 | 37 |
| Total\tassets\tat\tfair\tvalue | $3,877 | $ 42,835 | $1,904 | $48,616 |
| Liabilities: |  |  |  |  |
| GLB | $– | $– | $559 | $559 |
| Short-term\tdebt | – | 168 | – | 168 |
| Long-term\tdebt | – | 3,401 | – | 3,401 |
| Trust\tpreferred\tsecurities | – | 336 | – | 336 |
| Total\tliabilities\tat\tfair\tvalue | $– | $3,905 | $559 | $4,464 |

# Fair	value	of	alternative	investments

Included	in	Other	investments	in	the	fair	value	hierarchy	at	December	31,	2010,	and	December	31,	2009,	are	investment	funds,	limited	partnerships,	and partially-owned	investment	companies	measured	at	fair	value	using	NAV	as	a	practical	expedient.	At	December	31,	2010,	there	were	no	probable	or pending	sales	related	to	any	of	the	investments	measured	at	fair	value	using	NAV.	The	following	table	presents,	by	investment	category,	the	fair	values	of and	maximum	future	funding	commitments	related	to	these	investments	at	December	31,	2010,	and	December	31,	2009.	The	table	also	shows	the expected	liquidation	period	from	December	31,	2010.

|  |  | December	31,	2010 |  | December	31,	2009 | December	31,	2009 |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  |  |  | Maximum | Maximum | Maximum |
|  | Expected |  | Future |  | Future |
|  | Liquidation | Fair | Funding | Fair | Funding |
| (in\tmillions\tof\tU.S.\tdollars) | Period | Value | Commitments | Value | Commitments |
| Financial | 5\tto\t9\tYears | $192 | $151 | $173 | $109 |
| Real\testate | 3\tto\t9\tYears | 168 | 92 | 89 | 150 |
| Distressed | 6\tto\t9\tYears | 243 | 43 | 233 | 59 |
| Mezzanine | 6\tto\t9\tYears | 135 | 173 | 102 | 75 |
| Traditional | 3\tto\t8\tYears | 376 | 291 | 243 | 300 |
| Vintage | 1\tto\t3\tYears | 27 | 3 | 31 | 2 |
| Investment\tfunds | \tNot\tApplicable | 329 | – | 310 | – |
|  |  | $1,470 | $753 | $1,181 | $695 |

Included	in	all	categories	in	the	above	table	except	for	Investment	funds	are	investments	for	which	ACE	will	never	have	the	contractual	option	to	redeem but	receives	distributions	based	on	the	liquidation	of	the	underlying	assets.	Included	in	the	"Expected	Liquidation	Period"	column	above	is	the	range	in years	over	which	ACE	expects	the	majority	of	underlying	assets	in	the	respective	categories	to	be	liquidated.	Further,	for	all	categories	except	for Investment	funds,	ACE	does	not	have	the	ability	to	sell	or	transfer	the	investments	without	the	consent	from	the	general	partner	of	individual	funds.

# Financial

Financial	primarily	consists	of	investments	in	private	equity	funds	targeting	financial	services	companies	such	as	financial	institutions	and	insurance services	around	the	world.

# Real	estate

Real	estate	consists	of	investments	in	private	equity	funds	targeting	global	distress	opportunities,	value	added	U.S.	properties,	and	global	mezzanine debt	securities	in	the	commercial	real	estate	market.

# Distressed

Distressed	consists	of	investments	in	private	equity	funds	targeting	distressed	debt/credit	and	equity	opportunities	in	the	U.S.

# Mezzanine

Mezzanine	consists	of	investments	in	private	equity	funds	targeting	private	mezzanine	debt	of	large-cap	and	mid-cap	companies	in	the	U.S.	and worldwide.

# Traditional

Traditional	consists	of	investments	in	private	equity	funds	employing	traditional	private	equity	investment	strategies	such	as	buyout	and	venture	with different	geographical	focuses	including	Brazil,	Asia,	Europe,	and	the	U.S.

# Vintage

Vintage	consists	of	investments	in	private	equity	funds	made	before	2002	and	where	the	funds'	commitment	periods	had	already	expired.

# Investment	funds

ACE's	investment	funds	employ	various	investment	strategies	such	as	long/short	equity	and	arbitrage/distressed.	Included	in	this	category	are investments	for	which	ACE	has	the	option	to	redeem	at	agreed	upon	value	as	described	in	each	investment

fund's	subscription	agreement.	Depending	on	the	terms	of	the	various	subscription	agreements,	the	Company	may	redeem	investment	fund	investments monthly,	quarterly,	semi-annually,	or	annually.	If	the	Company	wishes	to	redeem	an	investment	fund	investment,	ACE	must	first	determine	if	the investment	fund	is	still	in	a	lock-up	period	(a	time	when	ACE	cannot	redeem	its	investment	so	that	the	investment	fund	manager	has	time	to	build	the portfolio).	If	the	investment	fund	is	no	longer	in	its	lock-up	period,	ACE	must	then	notify	the	investment	fund	manager	of	its	intention	to	redeem	by	the notification	date	prescribed	by	the	subscription	agreement.	Subsequent	to	notification,	the	investment	fund	can	redeem	ACE's	investment	within	several months	of	the	notification.	Notice	periods	for	redemption	of	ACE's	investment	funds	range	between	5	and	120	days.	ACE	can	redeem	its	investment funds	without	consent	from	the	investment	fund	managers.

# Level	3	financial	instruments

The	following	tables	present	a	reconciliation	of	the	beginning	and	ending	balances	of	financial	instruments	carried	or	disclosed	at	fair	value	using significant	unobservable	inputs	(Level	3)	for	the	years	ended	December	31,	2010,	2009,	and	2008.

|  |  |  | Change	in	Net | Purchases, |  |  | Net	Realized |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  |  |  | Unrealized | Sales, |  |  | Gains/Losses |
|  |  | Net | Gains | Issuances, | Transfers |  | Attributable |
|  | Balance- | Realized | (Losses) | and | Into\t(Out | Balance- | to\tChanges |
| Year\tEnded\tDecember\t31,\t2010 | Beginning | Gains/ | Included\tin | Settlements, | of)\tLevel | End\tof | in\tFair |
| (in\tmillions\tof\tU.S.\tdollars) | of\tYear | Losses | OCI | Net | 3 | Year | Value^(1) |
| Assets: |  |  |  |  |  |  |  |
| Fixed\tmaturities\tavailable\tfor\tsale |  |  |  |  |  |  |  |
| Foreign | $59 | $1 | $1 | $(21) | $(14) | $26 | $– |
| Corporate\tsecurities | 168 | (3) | 9 | (34) | (25) | 115 | – |
| Mortgage-backed\tsecurities | 21 | – | – | 19 | (1) | 39 | – |
| States,\tmunicipalities,\tand\tpolitical\tsubdivisions | 3 | – | – | (1) | – | 2 | – |
|  | 251 | (2) | 10 | (37) | (40) | 182 | – |
| Fixed\tmaturities\theld\tto\tmaturity |  |  |  |  |  |  |  |
| Foreign | – | – | – | 6 | – | 6 | – |
| Corporate\tsecurities | – | – | 1 | 16 | – | 17 | – |
| Mortgage-backed\tsecurities | 45 | – | – | (45) | – | – | – |
|  | 45 | – | 1 | (23) | – | 23 | – |
| Equity\tsecurities | 12 | 1 | – | (1) | 1 | 13 | – |
| Other\tinvestments | 1,149 | (7) | 53 | 237 | – | 1,432 | (7) |
| Investments\tin\tpartially-owned\tinsurance |  |  |  |  |  |  |  |
| companies | 433 | 180 | (115) | (138) | – | 360 | – |
| Other\tderivative\tinstruments | 14 | 2 | – | (12) | – | 4 | 1 |
| Total\tassets\tat\tfair\tvalue | $1,904 | $174 | $(51) | $26 | $(39) | $ 2,014 | $(6) |
| Liabilities: |  |  |  |  |  |  |  |
| GLB | $559 | $64 | $– | $25 | $– | $648 | $64 |
| (1) |  |  |  |  |  |  |  |

|  |  |  |  | Purchases, |  |  | Net	Realized |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  |  |  | Change\tin\tNet | Sales, |  |  | Gains/Losses |
|  |  | Net | Unrealized | Issuances, | Transfers |  | Attributable |
|  | Balance- | Realized | Gains\t(Losses) | and | Into\t(Out | Balance- | to\tChanges |
| Year\tEnded\tDecember\t31,\t2009 | Beginning | Gains/ | Included\tin | Settlements, | of)\tLevel | End\tof | in\tFair |
| (in\tmillions\tof\tU.S.\tdollars) | of\tYear | Losses | OCI | Net | 3 | Year | Value^(1) |
| Assets: |  |  |  |  |  |  |  |
| Fixed\tmaturities\tavailable\tfor\tsale |  |  |  |  |  |  |  |
| Foreign | $45 | $(1) | $5 | $6 | $4 | $59 | $2 |
| Corporate\tsecurities | 117 | 1 | 17 | 25 | 8 | 168 | 1 |
| Mortgage-backed\tsecurities | 109 | (2) | 12 | (61) | (37) | 21 | – |
| States,\tmunicipalities,\tand\tpolitical\tsubdivisions | 3 | – | – | – | – | 3 | – |
|  | 274 | (2) | 34 | (30) | (25) | 251 | 3 |
| Fixed\tmaturities\theld\tto\tmaturity |  |  |  |  |  |  |  |
| Mortgage-backed\tsecurities | – | – | – | 45 | – | 45 | – |
| States,\tmunicipalities,\tand\tpolitical\tsubdivisions | 1 | – | – | (1) | – | – | – |
|  | 1 | – | – | 44 | – | 45 | – |
| Equity\tsecurities | 21 | – | 9 | (18) | – | 12 | – |
| Other\tinvestments | 1,099 | (149) | 191 | 38 | (30) | \t 1,149 | (149) |
| Investments\tin\tpartially-owned\tinsurance |  |  |  |  |  |  |  |
| companies | 435 | 8 | 13 | (23) | – | 433 | – |
| Other\tderivative\tinstruments | 87 | (71) | – | (2) | – | 14 | (71) |
| Total\tassets\tat\tfair\tvalue | $1,917 | $(214) | $247 | $9 | $(55) | $1,904 | $(217) |
| Liabilities: |  |  |  |  |  |  |  |
| GLB | $910 | $(368) | $– | $17 | $– | $559 | $(368) |
| (1) |  |  |  |  |  |  |  |

	Relates	only	to	financial	instruments	still	held	at	the	balance	sheet	date. (1)

|  |  |  |  | Purchases, |  |  | Net	Realized |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  |  |  | Change\tin\tNet | Sales, |  |  | Gains/Losses |
|  |  | Net | Unrealized | Issuances, | Transfers |  | Attributable |
|  | Balance- | Realized | Gains\t(Losses) | and | Into\t(Out | Balance- | to\tChanges |
| Year\tEnded\tDecember\t31,\t2008 | Beginning | Gains/ | Included\tin | Settlements, | of)\tLevel | End\tof | in\tFair |
| (in\tmillions\tof\tU.S.\tdollars) | of\tYear | Losses | OCI | Net | 3 | Year | Value^(1) |
| Assets: |  |  |  |  |  |  |  |
| Fixed\tmaturities\tavailable\tfor\tsale | $601 | $(29) | $(86) | $(8) | $(204) | $274 | $(24) |
| Fixed\tmaturities\theld\tto\tmaturity | – | (2) | – | – | 3 | 1 | (2) |
| Equity\tsecurities | 12 | – | (8) | (8) | 25 | 21 | – |
| Other\tinvestments | 898 | (56) | (270) | 527 | – | \t 1,099 | (56) |
| Investments\tin\tpartially-owned\tinsurance |  |  |  |  |  |  |  |
| companies | 381 | (6) | 28 | 32 | – | 435 | (8) |
| Investment\tderivative\tinstruments | 6 | 5 | – | (11) | – | – | – |
| Other\tderivative\tinstruments | 17 | 47 | – | 23 | – | 87 | 73 |
| Total\tassets\tat\tfair\tvalue | $1,915 | $(41) | $(336) | $555 | $(176) | $1,917 | $(17) |
| Liabilities: |  |  |  |  |  |  |  |
| GLB | $225 | $650 | $– | $35 | $– | $910 | $650 |
| (1) |  |  |  |  |  |  |  |

# b)	Fair	value	option

Effective	January	1,	2008,	the	Company	elected	the	fair	value	option	provided	within	ASC	Topic	825,	 Financial	Instruments,	for	certain	of	its	available	for sale	equity	securities	valued	and	carried	at	$161	million	on	the	election	date.	The	Company	elected	the	fair	value	option	for	these	particular	equity securities	to	simplify	the	accounting	and	oversight	of	this	portfolio	given

the	portfolio	management	strategy	employed	by	the	external	investment	manager.	The	election	resulted	in	an	increase	in	retained	earnings	and	a reduction	to	AOCI	of	$6	million	at	January	1,	2008.	This	adjustment	reflects	the	net	of	tax	unrealized	gains	($9	million	pre-tax)	associated	with	this particular	portfolio	at	January	1,	2008.	In	June	2008,	the	Company	sold	the	entire	portfolio.	Accordingly,	the	Company	currently	holds	no	assets	for	which this	fair	value	option	has	been	elected.	Throughout	2008	to	the	date	of	sale,	all	of	these	securities	were	classified	within	Level	1	in	the	fair	value hierarchy.

# 16.	Other	(income)	expense

The	following	table	presents	the	components	of	Other	(income)	expense	as	reflected	in	the	consolidated	statements	of	operations	for	the	years	ended December	31,	2010,	2009,	and	2008.

| (in	millions	of	U.S.	dollars) | 2010 | 2009 | 2008 |
| :--- | :--- | :--- | :--- |
| Equity\tin\tnet\t(income)\tloss\tof\tpartially-owned\tentities | $(81) | $39 | $(52) |
| Noncontrolling\tinterest\texpense | 14 | 3 | 11 |
| Federal\texcise\tand\tcapital\ttaxes | 19 | \t 16 | 16 |
| Other | 32 | \t 27 | (14) |
| Other\t(income)\texpense | $(16) | $85 | $(39) |

Equity	in	net	(income)	loss	of	partially-owned	entities	includes	net	(income)	loss	related	to	investment	funds,	limited	partnerships,	partially-owned investment	companies,	and	partially-owned	insurance	companies.	Certain	federal	excise	and	capital	taxes	incurred	as	a	result	of	capital	management initiatives	are	included	in	Other	(income)	expense.	As	these	are	considered	capital	transactions,	they	are	excluded	from	underwriting	results.

The	Company	operates	through	the	following	business	segments,	certain	of	which	represent	the	aggregation	of	distinct	operating	segments:	Insurance	– North	American,	Insurance	–	Overseas	General,	Global	Reinsurance,	and	Life.	These	segments	distribute	their	products	through	various	forms	of brokers,	agencies,	and	direct	marketing	programs.	All	business	segments	have	established	relationships	with	reinsurance	intermediaries.

The	Insurance	–	North	American	segment	comprises	the	operations	in	the	U.S.,	Canada,	and	Bermuda.	This	segment	includes	the	operations	of ACE	USA	(including	ACE	Canada),	ACE	Westchester,	ACE	Bermuda,	ACE	Private	Risk	Services,	and	various	run-off	operations.	ACE	USA	is	the	North American	retail	operating	division	which	provides	a	broad	array	of	P&C,	A&H,	and	risk	management	products	and	services	to	a	diverse	group	of commercial	and	non-commercial	enterprises	and	consumers.	ACE	Westchester,	which	includes	the	operations	of	Rain	and	Hail,	specializes	in	the	North American	wholesale	distribution	of	excess	and	surplus	P&C,	environmental,	professional	and	inland	marine	products	in	addition	to	crop	insurance	in	the U.S.	ACE	Bermuda	provides	commercial	insurance	products	on	an	excess	basis	to	a	global	client	base,	covering	exposures	that	are	generally	low	in frequency	and	high	in	severity.	ACE	Private	Risk	Services	provides	personal	lines	coverages	(such	as	homeowners	and	automobile)	for	high	net	worth individuals	and	families	in	North	America.	The	run-off	operations	include	Brandywine	Holdings	Corporation,	Commercial	Insurance	Services,	residual market	workers'	compensation	business,	pools	and	syndicates	not	attributable	to	a	single	business	group,	and	other	exited	lines	of	business.	Run-off operations	do	not	actively	sell	insurance	products,	but	are	responsible	for	the	management	of	existing	policies	and	related	claims.

The	Insurance	–	Overseas	General	segment	comprises	ACE	International,	the	wholesale	insurance	business	of	ACE	Global	Markets,	and	the international	A&H	and	life	business	of	Combined	Insurance.	ACE	International,	the	ACE	INA	retail	business	serving	territories	outside	the	U.S.,	Bermuda, and	Canada,	maintains	a	presence	in	every	major	insurance	market	in	the	world	and	is	organized	geographically	along	product	lines	that	provide dedicated	underwriting	focus	to	customers.	ACE	International	has	four	regions	of	operations:	ACE	Europe,	ACE	Asia	Pacific,	ACE	Far	East,	and	ACE Latin	America.	ACE	Global	Markets,	the	London-based	excess	and	surplus	lines	business	that	includes	Lloyd's	Syndicate	2488,	offers	products	through its	parallel	distribution	network	via	ACE	European	Group	Limited	(AEGL)	and	Lloyd's	Syndicate	2488.	ACE	provides	funds	at	Lloyd's	to	support underwriting	by	Syndicate	2488,	which	is	managed	by	ACE	Underwriting	Agencies	Limited.	ACE	Global	Markets	utilizes	Syndicate	2488	to	underwrite P&C	business	on	a	global	basis	through	Lloyd's	worldwide	licenses.	ACE	Global	Markets	utilizes	AEGL	to	underwrite	similar	classes	of	business	through its	network	of	U.K.	and	Continental	Europe	licenses,	and	in	the	U.S.	where	it	is	eligible	to	write	excess	&	surplus	business.	The	reinsurance	operation	of ACE	Global	Markets	is	included	in	the	Global	Reinsurance	segment.	Combined	Insurance	distributes	a	wide	range	of	supplemental	accident	and	health products.

Companies	within	the	Insurance	–	Overseas	General	segment	write	a	variety	of	insurance	products	including	P&C,	professional	lines	(directors	&	officers and	errors	&	omissions),	marine,	energy,	aviation,	political	risk,	specialty	consumer-oriented	products,	and	A&H	(principally	accident	and	supplemental health).

The	Global	Reinsurance	segment	represents	ACE's	reinsurance	operations	comprising	ACE	Tempest	Re	Bermuda,	ACE	Tempest	Re	USA,	ACE Tempest	Re	International,	and	ACE	Tempest	Re	Canada.	These	divisions	provide	a	broad	range	of	property	catastrophe,	casualty,	and	property reinsurance	coverages	to	a	diverse	array	of	primary	P&C	insurers.	The	Global	Reinsurance	segment	also	includes	ACE	Global	Markets'	reinsurance operations.

The	Life	segment	includes	ACE's	international	life	operations	(ACE	Life),	ACE	Tempest	Life	Re	(ACE	Life	Re),	and	the	North	American supplemental	A&H	and	life	business	of	Combined	Insurance.	ACE	Life	provides	individual	life	and	group	benefit	insurance	through	multiple	distribution channels	primarily	in	emerging	markets,	including	Egypt,	Indonesia,	Taiwan,	Thailand,	Vietnam,	the	United	Arab	Emirates,	throughout	Latin	America, selectively	in	Europe,	as	well	as	China	through	a	partially-owned	insurance	company.	ACE	Life	Re	helps	clients	(ceding	companies)	manage	mortality, morbidity,	and	lapse	risks	embedded	in	their	books	of	business.	ACE	Life	Re's	core	business	is	a	Bermuda-based	operation	which	provides	reinsurance to	primary	life	insurers,	focusing	on	guarantees	included	in	certain	fixed	and	variable	annuity	products	and	also	on	more	traditional	mortality	reinsurance protection.	ACE	Life	Re's	U.S.-based	traditional	life	reinsurance	operation	was	discontinued	for	new	business	in	January	2010.	Since	2007,	ACE	Life	Re has	not	quoted	on	new	opportunities	in	the	variable	annuity	reinsurance	marketplace.	Combined	Insurance	distributes	specialty	individual	accident	and supplemental	health	and	life	insurance	products	targeted	to	middle	income	consumers	in	the	U.S.	and	Canada.

Corporate	and	Other	(Corporate)	includes	ACE	Limited,	ACE	Group	Management	and	Holdings	Ltd.,	ACE	INA	Holdings,	Inc.,	and	intercompany eliminations.	Losses	and	loss	expenses	arise	in	connection	with	the	commutation	of	ceded	reinsurance	contracts	that	result	from	a	differential	between the	consideration	received	from	reinsurers	and	the	related	reduction	of	reinsurance	recoverable,	principally	related	to	the	time	value	of	money.	Due	to	the Company's	initiatives	to	reduce	reinsurance	recoverable	balances	and	thereby	encourage	such	commutations,	losses	recognized	in	connection	with	the commutation	of	ceded	reinsurance	contracts	are	generally	not	considered	when	assessing	segment	performance	and,	accordingly,	are	directly	allocated to	Corporate.	ACE	also	eliminates	the	impact	of	intersegment	loss	portfolio	transfer	transactions	which	are	not	reflected	in	the	results	within	the statements	of	operations	by	segment.

For	segment	reporting	purposes,	certain	items	have	been	presented	in	a	different	manner	than	in	the	consolidated	financial	statements. Management	uses	underwriting	income	as	the	main	measure	of	segment	performance.	ACE	calculates	underwriting	income	by	subtracting	losses	and loss	expenses,	policy	benefits,	policy	acquisition	costs,	and	administrative	expenses	from	net	premiums	earned.	For	the	Life	business,	management	also includes	net	investment	income	as	a	component	of	underwriting	income.	The	following	tables	present	the	operations	by	segment	for	the	periods indicated.

# Statement	of	Operations	by	Segment

|  | Insurance	– | Insurance	– |  |  |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| For\tthe\tYear\tEnded\tDecember\t31,\t2010 | North | Overseas | Global |  | Corporate | ACE |
| (in\tmillions\tof\tU.S.\tdollars) | American | General | Reinsurance | Life | and\tOther | Consolidated |
| Net\tpremiums\twritten | $5,797 | $5,280 | $1,075 | $1,556 | $– | $13,708 |
| Net\tpremiums\tearned | 5,651 | 5,240 | 1,071 | \t 1,542 | – | 13,504 |
| Losses\tand\tloss\texpenses | 3,918 | 2,647 | 518 | 496 | – | 7,579 |
| Policy\tbenefits | – | 4 | – | 353 | – | 357 |
| Policy\tacquisition\tcosts | 625 | 1,251 | 204 | 257 | – | 2,337 |
| Administrative\texpenses | 561 | 840 | 55 | 228 | 174 | 1,858 |
| Underwriting\tincome\t(loss) | 547 | 498 | 294 | 208 | (174) | 1,373 |
| Net\tinvestment\tincome | 1,138 | 475 | 288 | 172 | (3) | 2,070 |
| Net\trealized\tgains\t(losses)\tincluding\tOTTI | 417 | 123 | 93 | (192) | (9) | 432 |
| Interest\texpense | 9 | 1 | – | 3 | 211 | 224 |
| Other\t(income)\texpense | (22) | (13) | (23) | 20 | 22 | (16) |
| Income\ttax\texpense\t(benefit) | 436 | 173 | 42 | 62 | (154) | 559 |
| Net\tincome\t(loss) | $1,679 | $935 | $656 | $103 | $(265) | $3,108 |

|  | Insurance	– | Insurance	– |  |  |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| For\tthe\tYear\tEnded\tDecember\t31,\t2009 | North | Overseas | Global |  | Corporate | ACE |
| (in\tmillions\tof\tU.S.\tdollars) | American | General | Reinsurance | Life | and\tOther | Consolidated |
| Net\tpremiums\twritten | $5,641 | $5,145 | $1,038 | $1,475 | $– | $13,299 |
| Net\tpremiums\tearned | 5,684 | 5,147 | 979 | \t 1,430 | – | 13,240 |
| Losses\tand\tloss\texpenses | 4,013 | 2,597 | 330 | 482 | – | 7,422 |
| Policy\tbenefits | – | 4 | – | 321 | – | 325 |
| Policy\tacquisition\tcosts | 517 | 1,202 | 195 | 216 | – | 2,130 |
| Administrative\texpenses | 572 | 783 | 55 | 243 | 158 | 1,811 |
| Underwriting\tincome\t(loss) | 582 | 561 | 399 | 168 | (158) | 1,552 |
| Net\tinvestment\tincome | 1,094 | 479 | 278 | 176 | 4 | 2,031 |
| Net\trealized\tgains\t(losses)\tincluding\tOTTI | 10 | (20) | (17) | (15) | (154) | (196) |
| Interest\texpense | 1 | – | – | – | 224 | 225 |
| Other\t(income)\texpense | 36 | 20 | 2 | 2 | 25 | 85 |
| Income\ttax\texpense\t(benefit) | 384 | 186 | 46 | 48 | (136) | 528 |
| Net\tincome\t(loss) | $1,265 | $814 | $612 | $279 | $(421) | $2,549 |

|  | Insurance	– | Insurance	– |  |  |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| For\tthe\tYear\tEnded\tDecember\t31,\t2008 | North | Overseas | Global |  | Corporate | ACE |
| (in\tmillions\tof\tU.S.\tdollars) | American | General | Reinsurance | Life | and\tOther | Consolidated |
| Net\tpremiums\twritten | $5,636 | $5,332 | $914 | $1,198 | $– | $13,080 |
| Net\tpremiums\tearned | 5,679 | 5,337 | 1,017 | \t 1,170 | – | 13,203 |
| Losses\tand\tloss\texpenses | 4,080 | 2,679 | 524 | 320 | – | 7,603 |
| Policy\tbenefits | – | 12 | – | 387 | – | 399 |
| Policy\tacquisition\tcosts | 562 | 1,193 | 192 | 188 | – | 2,135 |
| Administrative\texpenses | 536 | 793 | 56 | 199 | 153 | 1,737 |
| Underwriting\tincome\t(loss) | 501 | 660 | 245 | 76 | (153) | 1,329 |
| Net\tinvestment\tincome | 1,095 | 521 | 309 | 142 | (5) | 2,062 |
| Net\trealized\tgains\t(losses)\tincluding\tOTTI | (709) | (316) | (163) | (532) | 87 | (1,633) |
| Interest\texpense | 1 | – | – | – | 229 | 230 |
| Other\t(income)\texpense | 7 | (11) | 2 | 12 | (49) | (39) |
| Income\ttax\texpense\t(benefit) | 315 | 100 | 30 | 30 | (105) | 370 |
| Net\tincome\t(loss) | $564 | $776 | $359 | $(356) | $(146) | $1,197 |

Underwriting	assets	are	reviewed	in	total	by	management	for	purpose	of	decision-making.	Other	than	goodwill,	the	Company	does	not	allocate	assets	to its	segments.

The	following	table	presents	the	net	premiums	earned	for	each	segment	by	product	for	the	periods	indicated.

| For	the	Year	Ended	December	31,	2010 | Property	&amp; |  | Life,	Accident	&amp; | ACE |
| :--- | :--- | :--- | :--- | :--- |
| (in\tmillions\tof\tU.S.\tdollars) | All\tOther | Casualty | Health | Consolidated |
| Insurance\t–\tNorth\tAmerican | $1,578 | $ 3,777 | $296 | $5,651 |
| Insurance\t–\tOverseas\tGeneral | 1,800 | 1,424 | 2,016 | 5,240 |
| Global\tReinsurance | 520 | 551 | – | 1,071 |
| Life | – | – | 1,542 | 1,542 |
|  | $3,898 | $ 5,752 | $3,854 | $13,504 |
| For\tthe\tYear\tEnded\tDecember\t31,\t2009 |  |  |  |  |
| Insurance\t–\tNorth\tAmerican | $1,690 | $ 3,734 | $260 | $5,684 |
| Insurance\t–\tOverseas\tGeneral | 1,787 | 1,420 | 1,940 | 5,147 |
| Global\tReinsurance | 546 | 433 | – | 979 |
| Life | – | – | 1,430 | 1,430 |
|  | $4,023 | $ 5,587 | $3,630 | $13,240 |
| For\tthe\tYear\tEnded\tDecember\t31,\t2008 |  |  |  |  |
| Insurance\t–\tNorth\tAmerican | $1,576 | $ 3,857 | $246 | $5,679 |
| Insurance\t–\tOverseas\tGeneral | 1,855 | 1,487 | 1,995 | 5,337 |
| Global\tReinsurance | 523 | 494 | – | 1,017 |
| Life | – | – | 1,170 | 1,170 |
|  | $3,954 | $ 5,838 | $3,411 | $13,203 |

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

Excluded	from	adjusted	weighted-average	shares	outstanding	and	assumed	conversions	is	the	impact	of	securities	that	would	have	been	anti-dilutive during	the	respective	years.	For	the	years	ended	December	31,	2010,	2009,	and	2008,	the	potential	anti-dilutive	share	conversions	were	256,868	shares, 1,230,881	shares,	and	638,401	shares,	respectively.

# 19.	Related	party	transactions

The	ACE	Foundation	–	Bermuda	is	an	unconsolidated	not-for-profit	organization	whose	primary	purpose	is	to	fund	charitable	causes	in	Bermuda.	The Trustees	are	principally	comprised	of	ACE	management.	The	Company	maintains	a	non-interest	bearing	demand	note	receivable	from	the	ACE Foundation	–	Bermuda,	the	balance	of	which	was	$30	million	and	$31	million,	at	December	31,	2010	and	2009,	respectively.	The	receivable	is	included	in Other	assets	in	the	accompanying	consolidated	balance	sheets.	The	borrower	has	used	the	related	proceeds	to	finance	investments	in	Bermuda	real estate,	some	of	which	have	been	rented	to	ACE	employees	at	rates	established	by	independent,	professional	real	estate	appraisers.	The	borrower	uses income	from	the	investments	to	both	repay	the	note	and	to	fund	charitable	activities.	Accordingly,	the	Company	reports	the	demand	note	at	the	lower	of its	principal	value	or	the	fair	value	of	assets	held	by	the	borrower	to	repay	the	loan,	including	the	real	estate	properties.

# 20.	Statutory	financial	information

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

There	are	no	statutory	restrictions	on	the	payment	of	dividends	from	retained	earnings	by	any	of	the	Bermuda	subsidiaries	as	the	minimum statutory	capital	and	surplus	requirements	are	satisfied	by	the	share	capital	and	additional	paid-in	capital	of	each	of	the	Bermuda	subsidiaries.

The	Company's	U.S.	subsidiaries	file	financial	statements	prepared	in	accordance	with	statutory	accounting	practices	prescribed	or	permitted	by insurance	regulators.

Statutory	accounting	differs	from	GAAP	in	the	reporting	of	certain	reinsurance	contracts,	investments,	subsidiaries,	acquisition	expenses,	fixed assets,	deferred	income	taxes,	and	certain	other	items.	The	statutory	capital	and	surplus	of	the	U.S.	subsidiaries	met	regulatory	requirements	for	2010, 2009,	and	2008.	The	amount	of	dividends	available	to	be	paid	in	2011,	without	prior	approval	from	the	state	insurance	departments,	totals	$850	million.

The	following	table	presents	the	combined	statutory	capital	and	surplus	and	statutory	net	income	of	the	Bermuda	and	U.S.	subsidiaries	at	and	for the	years	ended	December	31,	2010,	2009,	and	2008.

|  |  | Bermuda	Subsidiaries |  |  | U.S.	Subsidiaries |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| (in\tmillions\tof\tU.S.\tdollars) | 2010 | 2009 | 2008 | 2010 | 2009 | 2008 |
| Statutory\tcapital\tand\tsurplus | $11,798 | $9,164 | $6,205 | $6,266 | $5,885 | $5,368 |
| Statutory\tnet\tincome | $2,430 | $2,369 | $2,196 | $1,047 | $904 | $818 |

As	permitted	by	the	Restructuring	discussed	previously	in	Note	7,	certain	of	the	Company's	U.S.	subsidiaries	discount	certain	A&E	liabilities,	which increased	statutory	capital	and	surplus	by	approximately	$206	million,	$215	million,	and	$211	million	at	December	31,	2010,	2009,	and	2008,	respectively. The	Company's	international	subsidiaries	prepare	statutory	financial	statements	based	on	local	laws	and	regulations.	Some	jurisdictions	impose complex	regulatory	requirements	on	insurance	companies	while	other	jurisdictions	impose	fewer	requirements.	In	some	countries,	the	Company	must obtain	licenses	issued	by	governmental	authorities	to	conduct	local	insurance	business.	These	licenses	may	be	subject	to	reserves	and	minimum	capital and	solvency	tests.	Jurisdictions	may	impose	fines,	censure,	and/or	criminal	sanctions	for	violation	of	regulatory	requirements.

# 21.	Information	provided	in	connection	with	outstanding	debt	of	subsidiaries

The	following	tables	present	condensed	consolidating	financial	information	at	December	31,	2010,	and	December	31,	2009,	and	for	years	ended December	31,	2010,	2009,	and	2008,	for	ACE	Limited	(the	Parent	Guarantor)	and	its	"Subsidiary	Issuer",	ACE	INA	Holdings,	Inc.	The	Subsidiary	Issuer is	an	indirect	100	percent-owned	subsidiary	of	the	Parent	Guarantor.	Investments	in	subsidiaries	are	accounted	for	by	the	Parent	Guarantor	under	the equity	method	for	purposes	of	the	supplemental	consolidating	presentation.	Earnings	of	subsidiaries	are	reflected	in	the	Parent	Guarantor's	investment accounts	and	earnings.	The	Parent	Guarantor	fully	and	unconditionally	guarantees	certain	of	the	debt	of	the	Subsidiary	Issuer.	Condensed	consolidating financial	information	of	the	Subsidiary	Issuer	is	presented	on	a	consolidated	basis	and	consists	principally	of	the	net	assets,	results	of	operations,	and cash	flows	of	operating	insurance	company	subsidiaries.

# Condensed	Consolidating	Balance	Sheet	at	December	31,	2010

| (in	millions	of	U.S.	dollars) | ACE<br>Limited<br>(Parent<br>Guarantor) | ACE	INA<br>Holdings,	Inc.<br>(Subsidiary<br>Issuer) | Other	ACE<br>Limited<br>Subsidiaries	and<br>Eliminations^(1) | Consolidating<br>Adjustments^(2) | ACE	Limited<br>Consolidated |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Assets |  |  |  |  |  |
| Investments | $47 | $26,718 | $24,642 | $– | $51,407 |
| Cash | 308 | 573 | (109) | – | 772 |
| Insurance\tand\treinsurance\tbalances\treceivable | – | 3,710 | 523 | – | 4,233 |
| Reinsurance\trecoverable\ton\tlosses\tand\tloss\texpenses | – | 16,877 | (4,006) | – | 12,871 |
| Reinsurance\trecoverable\ton\tpolicy\tbenefits | – | 959 | (678) | – | 281 |
| Value\tof\tbusiness\tacquired | – | 634 | – | – | 634 |
| Goodwill\tand\tother\tintangible\tassets | – | 4,113 | 551 | – | 4,664 |
| Investments\tin\tsubsidiaries | 22,529 | – | – | (22,529) | – |
| Due\tfrom\t(to)\tsubsidiaries\tand\taffiliates,\tnet | 564 | (555) | 555 | (564) | – |
| Other\tassets | 14 | 7,045 | 1,434 | – | 8,493 |
| Total\tassets | $23,462 | $60,074 | $22,912 | $(23,093) | $83,355 |
| Liabilities |  |  |  |  |  |
| Unpaid\tlosses\tand\tloss\texpenses | $– | $30,430 | $6,961 | $– | $37,391 |
| Unearned\tpremiums | – | 5,379 | 951 | – | 6,330 |
| Future\tpolicy\tbenefits | – | 2,495 | 611 | – | 3,106 |
| Short-term\tdebt | 300 | 1,000 | – | – | 1,300 |
| Long-term\tdebt | – | 3,358 | – | – | 3,358 |
| Trust\tpreferred\tsecurities | – | 309 | – | – | 309 |
| Other\tliabilities | 188 | 7,394 | 1,005 | – | 8,587 |
| Total\tliabilities | 488 | 50,365 | 9,528 | – | 60,381 |
| Total\tshareholders'\tequity | 22,974 | 9,709 | 13,384 | (23,093) | 22,974 |
| Total\tliabilities\tand\tshareholders'\tequity | $23,462 | $60,074 | $22,912 | $(23,093) | $83,355 |
| (1)\n\tIncludes\tall\tother\tsubsidiaries\tof\tACE\tLimited\tand\tintercompany\teliminations. |  |  |  |  |  |

	Includes	all	other	subsidiaries	of	ACE	Limited	and	intercompany	eliminations. (1)

	Includes	ACE	Limited	parent	company	eliminations. (2)

| (in	millions	of	U.S.	dollars) | ACE<br>Limited<br>(Parent<br>Guarantor) | ACE	INA<br>Holdings,	Inc.<br>(Subsidiary<br>Issuer) | Limited<br>Subsidiaries<br>and<br>Eliminations^(1) | Consolidating<br>Adjustments^(2) | ACE	Limited<br>Consolidated |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Assets |  |  |  |  |  |
| Investments | $51 | $24,125 | $22,339 | $– | $46,515 |
| Cash | (1) | 400 | 270 | – | 669 |
| Insurance\tand\treinsurance\tbalances\treceivable | – | 3,043 | 628 | – | 3,671 |
| Reinsurance\trecoverable\ton\tlosses\tand\tloss\texpenses | – | 17,173 | (3,578) | – | 13,595 |
| Reinsurance\trecoverable\ton\tpolicy\tbenefits | – | 681 | (383) | – | 298 |
| Value\tof\tbusiness\tacquired | – | 748 | – | – | 748 |
| Goodwill\tand\tother\tintangible\tassets | – | 3,377 | 554 | – | 3,931 |
| Investments\tin\tsubsidiaries | \t 18,714 | – | – | (18,714) | – |
| Due\tfrom\t(to)\tsubsidiaries\tand\taffiliates,\tnet | 1,062 | (669) | 669 | (1,062) | – |
| Other\tassets | 18 | 7,158 | 1,377 | – | 8,553 |
| Total\tassets | $19,844 | $56,036 | $21,876 | $(19,776) | $77,980 |
| Liabilities |  |  |  |  |  |
| Unpaid\tlosses\tand\tloss\texpenses | $– | $30,038 | $7,745 | $– | $37,783 |
| Unearned\tpremiums | – | 4,944 | 1,123 | – | 6,067 |
| Future\tpolicy\tbenefits | – | 2,383 | 625 | – | 3,008 |
| Short-term\tdebt | – | 161 | – | – | 161 |
| Long-term\tdebt | – | 3,158 | – | – | 3,158 |
| Trust\tpreferred\tsecurities | – | 309 | – | – | 309 |
| Other\tliabilities | 177 | 6,613 | 1,037 | – | 7,827 |
| Total\tliabilities | 177 | 47,606 | 10,530 | – | 58,313 |
| Total\tshareholders'\tequity | \t 19,667 | 8,430 | 11,346 | (19,776) | 19,667 |
| Total\tliabilities\tand\tshareholders'\tequity | $19,844 | $56,036 | $21,876 | $(19,776) | $77,980 |
| (1)\n\tIncludes\tall\tother\tsubsidiaries\tof\tACE\tLimited\tand\tintercompany\teliminations. |  |  |  |  |  |

# Condensed	Consolidating	Statement	of	Operations

| For	the	Year	Ended	December	31,	2010<br>(in	millions	of	U.S.	dollars) | ACE<br>Limited<br>(Parent<br>Guarantor) | ACE	INA<br>Holdings,	Inc.<br>(Subsidiary<br>Issuer) | Limited<br>Subsidiaries<br>and<br>Eliminations^(1) | Consolidating<br>Adjustments^(2) | ACE	Limited<br>Consolidated |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Net\tpremiums\twritten | $– | $8,195 | $5,513 | $– | $13,708 |
| Net\tpremiums\tearned | – | 7,940 | 5,564 | – | 13,504 |
| Net\tinvestment\tincome | 1 | 1,011 | 1,058 | – | 2,070 |
| Equity\tin\tearnings\tof\tsubsidiaries | 3,066 | – | – | (3,066) | – |
| Net\trealized\tgains\t(losses)\tincluding\tOTTI | (42) | 303 | 171 | – | 432 |
| Losses\tand\tloss\texpenses | – | 4,910 | 2,669 | – | 7,579 |
| Policy\tbenefits | – | 148 | 209 | – | 357 |
| Policy\tacquisition\tcosts\tand\tadministrative\texpenses | 70 | 2,372 | 1,793 | (40) | 4,195 |
| Interest\texpense | (37) | 251 | (27) | 37 | 224 |
| Other\t(income)\texpense | (123) | 95 | 12 | – | (16) |
| Income\ttax\texpense | 7 | 447 | 105 | – | 559 |
| Net\tincome | $3,108 | $1,031 | $2,032 | $(3,063) | $3,108 |
| (1)\n\tIncludes\tall\tother\tsubsidiaries\tof\tACE\tLimited\tand\tintercompany\teliminations. |  |  |  |  |  |

# Condensed	Consolidating	Statement	of	Cash	Flows

| For	the	Year	Ended	December	31,	2010<br>(in	millions	of	U.S.	dollars) | ACE<br>Limited<br>(Parent<br>Guarantor) | ACE	INA<br>Holdings,<br>Inc.<br>(Subsidiary<br>Issuer) | Other	ACE<br>Limited<br>Subsidiaries<br>and<br>Eliminations^(1) | ACE	Limited<br>Consolidated |
| :--- | :--- | :--- | :--- | :--- |
| Net\tcash\tflows\tfrom\toperating\tactivities | $59 | $1,798 | $1,689 | $3,546 |
| Cash\tflows\tfrom\t(used\tfor)\tinvesting\tactivities |  |  |  |  |
| Purchases\tof\tfixed\tmaturities\tavailable\tfor\tsale | (1) | (13,785) | (17,470) | (31,256) |
| Purchases\tof\tfixed\tmaturities\theld\tto\tmaturity | – | (615) | (1) | (616) |
| Purchases\tof\tequity\tsecurities | – | (107) | (687) | (794) |
| Sales\tof\tfixed\tmaturities\tavailable\tfor\tsale | – | 10,225 | 14,054 | 24,279 |
| Sales\tof\tequity\tsecurities | – | 17 | 757 | 774 |
| Maturities\tand\tredemptions\tof\tfixed\tmaturities\tavailable\tfor\tsale | – | 1,845 | 1,815 | 3,660 |
| Maturities\tand\tredemptions\tof\tfixed\tmaturities\theld\tto\tmaturity | – | 1,142 | 211 | 1,353 |
| Net\tderivative\tinstruments\tsettlements | (3) | (10) | (96) | (109) |
| Capitalization\tof\tsubsidiary | (290) | – | 290 | – |
| Advances\t(to)\tfrom\taffiliates | 851 | – | (851) | – |
| Acquisition\tof\tsubsidiaries\t(net\tof\tcash\tacquired\tof\t$80) | – | (1,139) | – | (1,139) |
| Other | – | (253) | (80) | (333) |
| Net\tcash\tflows\tfrom\t(used\tfor)\tinvesting\tactivities | 557 | (2,680) | (2,058) | (4,181) |
| Cash\tflows\tfrom\t(used\tfor)\tfinancing\tactivities |  |  |  |  |
| Dividends\tpaid\ton\tCommon\tShares | (435) | – | – | (435) |
| Common\tShares\trepurchased | (235) | – | – | (235) |
| Net\tproceeds\tfrom\tissuance\tof\tshort-term\tdebt | 300 | 841 | – | 1,141 |
| Net\tproceeds\tfrom\tissuance\tof\tlong-term\tdebt | – | 199 | – | 199 |
| Proceeds\tfrom\texercise\tof\toptions\tfor\tCommon\tShares |  |  |  |  |
|  | 53 | – | – | 53 |
| Proceeds\tfrom\tCommon\tShares\tissued\tunder\tESPP | 10 | – | – | 10 |
| Advances\t(to)\tfrom\taffiliates | – | 3 | (3) | – |
| Tax\texpense\ton\tshare-based\tcompensation\texpense | – | – | (1) | (1) |
| Net\tcash\tflows\tfrom\t(used\tfor)\tfinancing\tactivities | (307) | 1,043 | (4) | 732 |
| Effect\tof\tforeign\tcurrency\trate\tchanges\ton\tcash\tand\tcash\tequivalents | – | 12 | (6) | 6 |
| Net\tdecrease\tin\tcash | 309 | 173 | (379) | 103 |
| Cash\t–\tbeginning\tof\tyear | (1) | 400 | 270 | 669 |
| Cash\t–\tend\tof\tyear | $308 | $573 | $(109) | $772 |
| (1)\n\tIncludes\tall\tother\tsubsidiaries\tof\tACE\tLimited\tand\tintercompany\teliminations. |  |  |  |  |

| For	the	Year	Ended	December	31,	2009<br>(in	millions	of	U.S.	dollars) | ACE	Limited<br>(Parent<br>Guarantor) | ACE	INA<br>Holdings,	Inc.<br>(Subsidiary<br>Issuer) | Other	ACE<br>Limited<br>Subsidiaries	and<br>Eliminations^(1) | ACE	Limited<br>Consolidated |
| :--- | :--- | :--- | :--- | :--- |
| Net\tcash\tflows\tfrom\toperating\tactivities | $594 | $1,888 | $853 | $3,335 |
| Cash\tflows\tused\tfor\tinvesting\tactivities |  |  |  |  |
| Purchases\tof\tfixed\tmaturities\tavailable\tfor\tsale | – | (16,877) | (20,383) | (37,260) |
| Purchases\tof\tfixed\tmaturities\theld\tto\tmaturity | – | (457) | (15) | (472) |
| Purchases\tof\tequity\tsecurities | – | (186) | (168) | (354) |
| Sales\tof\tfixed\tmaturities\tavailable\tfor\tsale | 88 | 12,650 | 16,916 | 29,654 |
| Sales\tof\tfixed\tmaturities\theld\tto\tmaturity | – | 10 | 1 | 11 |
| Sales\tof\tequity\tsecurities | – | 544 | 728 | 1,272 |
| Maturities\tand\tredemptions\tof\tfixed\tmaturities\tavailable\tfor\tsale | – | 1,792 | 1,612 | 3,404 |
| Maturities\tand\tredemptions\tof\tfixed\tmaturities\theld\tto\tmaturity | – | 410 | 104 | 514 |
| Net\tderivative\tinstruments\tsettlements | – | (6) | (86) | (92) |
| Capitalization\tof\tsubsidiaries | (90) | – | 90 | – |
| Advances\t(to)\tfrom\taffiliates | (174) | – | 174 | – |
| Other | (4) | (14) | 117 | 99 |
| Net\tcash\tflows\tused\tfor\tinvesting\tactivities | (180) | (2,134) | (910) | (3,224) |
| Cash\tflows\tfrom\t(used\tfor)\tfinancing\tactivities |  |  |  |  |
| Dividends\tpaid\ton\tCommon\tShares | (388) | – | – | (388) |
| Proceeds\tfrom\texercise\tof\toptions\tfor\tCommon\tShares | 15 | – | – | 15 |
| Proceeds\tfrom\tCommon\tShares\tissued\tunder\tESPP | 10 | – | – | 10 |
| Net\trepayment\tof\tshort-term\tdebt | – | (466) | – | (466) |
| Net\tproceeds\tfrom\tissuance\tof\tlong-term\tdebt | – | 500 | – | 500 |
| Advances\t(to)\tfrom\taffiliates | – | 156 | (156) | – |
| Tax\tbenefit\ton\tshare-based\tcompensation\texpense | – | 6 | 2 | 8 |
| Net\tcash\tflows\tfrom\t(used\tfor)\tfinancing\tactivities | (363) | 196 | (154) | (321) |
| Effect\tof\tforeign\tcurrency\trate\tchanges\ton\tcash\tand\tcash\tequivalents | – | 8 | 4 | 12 |
| Net\tincrease\t(decrease)\tin\tcash | 51 | (42) | (207) | (198) |
| Cash\t–\tbeginning\tof\tyear | (52) | 442 | 477 | 867 |
| Cash\t–\tend\tof\tyear | $(1) | $400 | $270 | $669 |
| (1)\n\tIncludes\tall\tother\tsubsidiaries\tof\tACE\tLimited\tand\tintercompany\teliminations. |  |  |  |  |

| For	the	Year	Ended	December	31,	2008<br>(in	millions	of	U.S.	dollars) | ACE	Limited<br>(Parent<br>Guarantor) | ACE	INA<br>Holdings,	Inc.<br>(Subsidiary<br>Issuer) | Other	ACE<br>Limited<br>Subsidiaries	and<br>Eliminations^(1) | ACE	Limited<br>Consolidated |
| :--- | :--- | :--- | :--- | :--- |
| Net\tcash\tflows\tfrom\toperating\tactivities | $1,613 | $886 | $1,602 | $4,101 |
| Cash\tflows\tused\tfor\tinvesting\tactivities |  |  |  |  |
| Purchases\tof\tfixed\tmaturities\tavailable\tfor\tsale | (94) | (15,535) | (27,877) | (43,506) |
| Purchases\tof\tfixed\tmaturities\theld\tto\tmaturity | – | (351) | (15) | (366) |
| Purchases\tof\tequity\tsecurities | – | (492) | (479) | (971) |
| Sales\tof\tfixed\tmaturities\tavailable\tfor\tsale | – | 14,117 | 25,310 | 39,427 |
| Sales\tof\tequity\tsecurities | – | 749 | 415 | 1,164 |
| Maturities\tand\tredemptions\tof\tfixed\tmaturities\tavailable\tfor\tsale | – | 1,355 | 1,425 | 2,780 |
| Maturities\tand\tredemptions\tof\tfixed\tmaturities\theld\tto\tmaturity | – | 332 | 113 | 445 |
| Net\tderivative\tinstruments\tsettlements | 11 | – | 21 | 32 |
| Capitalization\tof\tsubsidiary | (215) | – | 215 | – |
| Advances\t(to)\tfrom\taffiliates | (475) | – | 475 | – |
| Acquisition\tof\tsubsidiary\t(net\tof\tcash\tacquired\tof\t$19) | – | (2,521) | – | (2,521) |
| Other | 13 | (150) | (471) | (608) |
| Net\tcash\tflows\tused\tfor\tinvesting\tactivities | (760) | (2,496) | (868) | (4,124) |
| Cash\tflows\tfrom\t(used\tfor)\tfinancing\tactivities |  |  |  |  |
| Dividends\tpaid\ton\tCommon\tShares | (362) | – | – | (362) |
| Dividends\tpaid\ton\tPreferred\tShares | (24) | – | – | (24) |
| Net\trepayment\tof\tshort-term\tdebt | (51) | 196 | (234) | (89) |
| Net\tproceeds\tfrom\tissuance\tof\tlong-term\tdebt | – | 1,245 | – | 1,245 |
| Redemption\tof\tPreferred\tShares | (575) | – | – | (575) |
| Proceeds\tfrom\texercise\tof\toptions\tfor\tCommon\tShares | 97 | – | – | 97 |
| Proceeds\tfrom\tCommon\tShares\tissued\tunder\tESPP | 10 | – | – | 10 |
| Advances\tfrom\t(to)\taffiliates | – | 234 | (234) | – |
| Tax\tbenefit\ton\tshare-based\tcompensation\texpense | – | – | 12 | 12 |
| Net\tcash\tflows\tfrom\t(used\tfor)\tfinancing\tactivities | (905) | 1,675 | (456) | 314 |
| Effect\tof\tforeign\tcurrency\trate\tchanges\ton\tcash\tand\tcash |  |  |  |  |
| equivalents | – | 67 | (1) | 66 |
| Net\tincrease\t(decrease)\tin\tcash | (52) | 132 | 277 | 357 |
| Cash\t–\tbeginning\tof\tyear | – | 310 | 200 | 510 |
| Cash\t–\tend\tof\tyear | $(52) | $442 | $477 | $867 |
| (1)\n\tIncludes\tall\tother\tsubsidiaries\tof\tACE\tLimited\tand\tintercompany\teliminations. |  |  |  |  |

# 22.	Condensed	unaudited	quarterly	financial	data

| (in	millions	of	U.S.	dollars,	except	per	share	data) | Quarter	Ended<br>March	31,	2010 | Quarter	Ended<br>June	30,	2010 | Quarter	Ended<br>September	30,<br>2010 | Quarter	Ended<br>December	31,<br>2010 |
| :--- | :--- | :--- | :--- | :--- |
| Net\tpremiums\tearned | $3,277 | $3,233 | $3,422 | $3,572 |
| Net\tinvestment\tincome | 504 | 518 | 516 | 532 |
| Net\trealized\tgains\t(losses)\tincluding\tOTTI | 168 | 9 | (50) | 305 |
| Total\trevenues | $3,949 | $3,760 | $3,888 | $4,409 |
| Losses\tand\tloss\texpenses | $1,921 | $1,800 | $1,887 | $1,971 |
| Policy\tbenefits | $87 | $87 | $93 | $90 |
| Net\tincome | $755 | $677 | $675 | $1,001 |
| Basic\tearnings\tper\tshare | $2.23 | $1.99 | $1.98 | $2.94 |
| Diluted\tearnings\tper\tshare | $2.22 | $1.98 | $1.97 | $2.92 |

| (in	millions	of	U.S.	dollars,	except	per	share	data) | Quarter	Ended<br>March	31,	2009 | Quarter	Ended<br>June	30,	2009 | Quarter	Ended<br>September	30,<br>2009 | Quarter	Ended<br>December	31,<br>2009 |
| :--- | :--- | :--- | :--- | :--- |
| Net\tpremiums\tearned | $3,194 | $3,266 | $3,393 | $3,387 |
| Net\tinvestment\tincome | 502 | 506 | 511 | 512 |
| Net\trealized\tgains\t(losses)\tincluding\tOTTI | (121) | (225) | (223) | 373 |
| Total\trevenues | $3,575 | $3,547 | $3,681 | $4,272 |
| Losses\tand\tloss\texpenses | $1,816 | $1,821 | $1,885 | $1,900 |
| Policy\tbenefits | $99 | $78 | $79 | $69 |
| Net\tincome | $567 | $535 | $494 | $953 |
| Basic\tearnings\tper\tshare | $1.69 | $1.58 | $1.46 | $2.82 |
| Diluted\tearnings\tper\tshare | $1.69 | $1.58 | $1.46 | $2.81 |

# SCHEDULE	I

# SUMMARY	OF	INVESTMENTS	–	OTHER	THAN	INVESTMENTS	IN	RELATED	PARTIES

| December	31,	2010<br>(in	millions	of	U.S.	dollars) | Cost	or<br>Amortized	Cost | Fair	Value | Shown	in	the<br>Balance	Sheet |
| :--- | :--- | :--- | :--- |
| Fixed\tmaturities\tavailable\tfor\tsale |  |  |  |
| U.S.\tTreasury\tand\tagency | $2,904 | $2,963 | $2,963 |
| Foreign | 10,926 | \t 11,186 | 11,186 |
| Corporate\tsecurities | 12,902 | \t 13,587 | 13,587 |
| Mortgage-backed\tsecurities | 8,508 | 8,516 | 8,516 |
| States,\tmunicipalities,\tand\tpolitical\tsubdivisions | 1,302 | 1,287 | 1,287 |
| Total\tfixed\tmaturities | 36,542 | \t 37,539 | 37,539 |
| Fixed\tmaturities\theld\tto\tmaturity |  |  |  |
| U.S.\tTreasury\tand\tagency | 1,105 | 1,127 | 1,105 |
| Foreign | 1,049 | 1,013 | 1,049 |
| Corporate\tsecurities | 2,361 | 2,313 | 2,361 |
| Mortgage-backed\tsecurities | 3,811 | 3,846 | 3,811 |
| States,\tmunicipalities,\tand\tpolitical\tsubdivisions | 1,175 | 1,162 | 1,175 |
| Total\tfixed\tmaturities | 9,501 | 9,461 | 9,501 |
| Equity\tsecurities |  |  |  |
| Industrial,\tmiscellaneous,\tand\tall\tother | 666 | 692 | 692 |
| Short-term\tinvestments | 1,983 | 1,983 | 1,983 |
| Other\tinvestments | 1,511 | 1,692 | 1,692 |
|  | 3,494 | 3,675 | 3,675 |
| Total\tinvestments\t–\tother\tthan\tinvestments\tin\trelated\tparties | $50,203 | $51,367 | $51,407 |

# SCHEDULE	II

# CONDENSED	FINANCIAL	INFORMATION	OF	REGISTRANT

# BALANCE	SHEETS	(Parent	Company	Only)

| (in	millions	of	U.S.	dollars) | 2010 | 2009 |
| :--- | :--- | :--- |
| Assets |  |  |
| Investments\tin\tsubsidiaries\tand\taffiliates\ton\tequity\tbasis | $22,529 | $18,714 |
| Short-term\tinvestments | 10 | 9 |
| Other\tinvestments,\tat\tcost | 37 | 42 |
| Total\tinvestments | \t 22,576 | \t 18,765 |
| Cash | 308 | (1) |
| Due\tfrom\tsubsidiaries\tand\taffiliates,\tnet | 564 | 1,062 |
| Other\tassets | 14 | 18 |
| Total\tassets | $23,462 | $19,844 |
| Liabilities |  |  |
| Accounts\tpayable,\taccrued\texpenses,\tand\tother\tliabilities | $76 | $73 |
| Dividends\tpayable | 112 | 104 |
| Short-term\tdebt | 300 | – |
| Total\tliabilities | 488 | 177 |
| Shareholders'\tequity |  |  |
| Common\tShares | \t 10,161 | \t 10,503 |
| Common\tShares\tin\ttreasury | (330) | (3) |
| Additional\tpaid-in\tcapital | 5,623 | 5,526 |
| Retained\tearnings | 5,926 | 2,818 |
| Deferred\tcompensation\tobligation | 2 | 2 |
| Accumulated\tother\tcomprehensive\tincome | 1,594 | 823 |
| Common\tShares\tissued\tto\temployee\ttrust | (2) | (2) |
| Total\tshareholders'\tequity | \t 22,974 | \t 19,667 |
| Total\tliabilities\tand\tshareholders'\tequity | $23,462 | $19,844 |

# SCHEDULE	II	–	(continued)

# STATEMENTS	OF	OPERATIONS	(Parent	Company	Only)

| (in	millions	of	U.S.	dollars) | 2010 | 2009 | 2008 |
| :--- | :--- | :--- | :--- |
| Revenues |  |  |  |
| Investment\tincome,\tincluding\tintercompany\tinterest\tincome | $38 | $39 | $14 |
| Equity\tin\tnet\tincome\tof\tsubsidiaries\tand\taffiliates | \t 3,066 | \t 2,636 | \t 1,150 |
| Net\trealized\tgains\t(losses) | (42) | (75) | 90 |
|  | \t 3,062 | \t 2,600 | \t 1,254 |
| Expenses |  |  |  |
| Administrative\tand\tother\t(income)\texpenses | (46) | 56 | 65 |
| Interest\texpense\t(income) | – | (5) | (8) |
|  | (46) | 51 | 57 |
| Net\tincome | $3,108 | $2,549 | $1,197 |

# STATEMENTS	OF	CASH	FLOWS	(Parent	Company	Only)

| (in	millions	of	U.S.	dollars) | 2010 | 2009 | 2008 |
| :--- | :--- | :--- | :--- |
| Net\tcash\tflows\tfrom\toperating\tactivities | $59 | $ 594 | $1,613 |
| Cash\tflows\tfrom\t(used\tfor)\tinvesting\tactivities |  |  |  |
| Purchases\tof\tfixed\tmaturities\tavailable\tfor\tsale | (1) | – | (94) |
| Sales\tof\tfixed\tmaturities\tavailable\tfor\tsale | – | 88 | – |
| Net\tderivative\tinstruments\tsettlements | (3) | – | 11 |
| Capitalization\tof\tsubsidiaries | (290) | (90) | (215) |
| Advances\t(to)\tfrom\taffiliates | 851 | (174) | (475) |
| Other | – | (4) | 13 |
| Net\tcash\tflows\tfrom\t(used\tfor)\tinvesting\tactivities | 557 | (180) | (760) |
| Cash\tflows\tused\tfor\tfinancing\tactivities |  |  |  |
| Dividends\tpaid\ton\tCommon\tShares | (435) | (388) | (362) |
| Dividends\tpaid\ton\tPreferred\tShares | – | – | (24) |
| Common\tShares\trepurchased | (235) | – | – |
| Net\tproceeds\tfrom\t(repayment\tof)\tshort-term\tdebt | 300 | – | (51) |
| Proceeds\tfrom\texercise\tof\toptions\tfor\tCommon\tShares | 53 | 15 | 97 |
| Proceeds\tfrom\tCommon\tShares\tissued\tunder\tESPP | 10 | 10 | 10 |
| Redemption\tof\tPreferred\tShares | – | – | (575) |
| Net\tcash\tflows\tused\tfor\tfinancing\tactivities | (307) | (363) | (905) |
| Net\tincrease\t(decrease)\tin\tcash | 309 | 51 | (52) |
| Cash\t–\tbeginning\tof\tyear | (1) | (52) | – |
| Cash\t–\tend\tof\tyear | $ 308 | $(1) | $(52) |

# SCHEDULE	IV

# SUPPLEMENTAL	INFORMATION	CONCERNING	REINSURANCE

# Premiums	Earned

| For	the	years	ended	December	31,	2010,	2009,	and	2008<br>(in	millions	of	U.S.	dollars,	except	for	percentages) | Direct<br>Amount | Ceded	To<br>Other<br>Companies | Assumed<br>From	Other<br>Companies | Net<br>Amount | Assumed<br>to<br>Net |
| :--- | :--- | :--- | :--- | :--- | :--- |
| 2010 | $15,780 | $5,792 | $3,516 | $13,504 | 26% |
| 2009 | $15,415 | $5,943 | $3,768 | $13,240 | 28% |
| 2008 | $16,087 | $6,144 | $3,260 | $13,203 | 25% |

# SCHEDULE	VI

# SUPPLEMENTARY	INFORMATION	CONCERNING	PROPERTY	AND	CASUALTY	OPERATIONS

|  |  | Net |  |  |  | Net	Losses	and	Loss | Net	Losses	and	Loss |  |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  |  | Reserves |  |  |  | Expenses | Expenses | Amortization |  |  |
|  | Deferred | for\tUnpaid |  |  |  | Incurred\tRelated\tto | Incurred\tRelated\tto | of\tDeferred | Net\tPaid |  |
|  | Policy | Losses |  | Net | Net |  |  | Policy | Losses | Net |
|  | Acquisition | and\tLoss | Unearned | Premiums | Investment | Current | Prior | Acquisition | and\tLoss | Premiums |
|  | Costs | Expenses | Premiums | Earned | Income | Year | Year | Costs | Expenses | Written |
| 2010 | \t $1,581 | \t\t\t\t $25,242 | \t\t\t\t $6,295 | \t\t\t\t $12,981 | \t\t\t\t $1,996 | \t\t\t\t $8,091 | \t\t\t\t $(512) | \t\t\t\t $2,252 | \t\t\t\t $7,413 | \t\t\t\t $13,166 |
| 2009 | \t $1,396 | \t\t\t\t $25,038 | \t\t\t\t $6,034 | \t\t\t\t $12,713 | \t\t\t\t $1,940 | \t\t\t\t $8,001 | \t\t\t\t $(579) | \t\t\t\t $2,076 | \t\t\t\t $6,948 | \t\t\t\t $12,735 |
| 2008 | \t $1,192 | \t\t\t\t $24,241 | \t\t\t\t $5,924 | \t\t\t\t $12,742 | \t\t\t\t $1,966 | \t\t\t\t $8,417 | \t\t\t\t $(814) | \t\t\t\t $2,087 | \t\t\t\t $6,327 | \t\t\t\t $12,594 |



Question: what is the change in fair value of financial market instruments as part of the hedging strategy during 2010?
Calculation:   fair_value_2010 = 21
 fair_value_2009 = 47
 change = fair_value_2010 - fair_value_2009
 answer = change
Answer: -26