Chubb Limited (CB, NYSE)
Industry: Insurance - Property & Casualty
Annual report, fiscal year 2015


## CHUBB

Chubb Limited
Annual Report
2015



## A Global Leader in Property and Casualty Insurance

A local presence in 54 countries around the world



Chubb has operations in the countries and territories listed below and can help clients manage their risks anywhere in the world.

Argentina

Australia

Chile

China

Austria

Colombia

Bahrain

Czech

Belgium

Republic

Bermuda

Denmark

Brazil

Ecuador

Canada

Egypt

Finland

France

Germany

Gibraltar

Hong Kong

Hungary

Indonesia

Ireland

Italy

Japan

Korea

Macao

Malaysia

Mexico

Netherlands

New Zealand

Norway

Pakistan

Panama

Peru

Philippines

Poland

Portugal

Puerto Rico

Russia

Saudi Arabia

Singapore

South Africa

Spain

Sweden

Switzerland

United Arab Emirates

Thailand

Tunisia

Turkey

United Arab Emirates

United Kingdom

United States

Vietnam

## ACE and Chubb Are Now One.

On January 14, 2016, ACE Limited acquired The Chubb Corporation, creating a global insurance leader operating under the renowned Chubb name. The new Chubb is defined by attributes shared by both ACE and Chubb: superior underwriting, service and execution. What those attributes say to us is superior craftsmanship. As craftspeople, we conceive, craft and deliver extraordinary insurance coverage and service that our customers deserve. We're proud to sign all of our work with our mark of craftsmanship: Chubb. Insured.



Superior Craftsmanship



## Chubb is the world's largest publicly traded P&C insurer

## Balance Sheet

(Pro forma for ACE-Chubb at 12/31/15)

Total assets:

## $154.4 billion

Total investments:
$94.9 billion

Total capital:

## $58.1 billion

Shareholders' equity:
$44.6 billion

## Products

Premium Distribution by Product \( ^{*} \) 



*FY2015 pro forma net written premiums

## Products and Services

- A global leader in traditional and specialty P&C coverage for industrial commercial and mid-market companies

- A leading commercial lines insurer in the U.S. and the largest financial lines writer globally

- The leader in U.S. high net worth personal lines and a large personal lines provider globally

- A global leader in personal accident and supplemental health insurance

- An international life insurer focused on Asia

- A P&C reinsurer

## Ratings

Core operating insurance companies are rated AA for financial strength by S&P and A++ by A.M. Best



## Distribution

- 14,000 independent agents and brokers in North America

- 32,000 independent agents and brokers outside of North America

- 55,000 captive agents globally

- 7,500 telemarketers in more than 100 call centers

- Sponsoring partners and affinity groups
- Bancassurance

- Mobilassurance

## Underwriting

Chubb's underwriting results outperformed the averages of North American and global peers over the last five years



## Management

- Chubb's top six leaders average 30 years of insurance experience

- Proven track record managing through various industry and economic cycles
- Internationalists

## Geography

Geographic Sources of Premium**



## Claims and Engineering

- Claims handling service renowned for its quality, promptness and fairness

- Industry-leading loss control services and more than 400 risk engineering professionals serving commercial clients in the U.S. and globally

- Residential risk consulting and appraisal services

 \( ^{1} \)  Includes AIG, CNA, HIG, TRV, XL

 \( ^{2} \)  Includes Allianz, AXA, Munich Re, QBE, RSA, Zurich

 \( ^{3} \)  Pro forma combined ratios for ACE-Chubb prior to 2015 are based on each company's individual results and do not reflect financing, acquisition-related or accounting alignment adjustments

Source: SNL and company disclosures

## Culture

- Underwriting discipline

- Can-do attitude

- Execution oriented

- Constant improvement

- Technical proficiency

- Optimism

- Humility

## Customers

- Large domestic and international corporations

- Middle market companies of all sizes

- Small businesses

- High net worth families and individuals

- Middle-income consumers

- Farmers and ranchers

- Government and other public entities

- Insurers seeking reinsurance coverage



## Contents

Financial Summary 1
Chairman and CEO Letter to Shareholders 2
Meet the New Chubb: A Conversation with Senior Leadership 20
Officers and Executives 36
Chubb Limited Board of Directors 38
Shareholder Information 39
Form 10-K
Swiss Statutory Financial Statements
Swiss Statutory Compensation Report
Environmental Statement



<table><tr><td rowspan="2">(in millions of U.S. dollars except per share data and ratios)</td><td colspan="2">Legacy ACE</td><td rowspan="2">Percentage Change Constant Dollars</td><td colspan="2">Pro forma ACE-Chubb</td></tr><tr><td>Year Ended</td><td>Year Ended</td><td>Year Ended</td><td>Year Ended</td></tr><tr><td></td><td>Dec. 31, 2015</td><td>Dec. 31, 2014</td><td>Percentage Change</td><td>Dec. 31, 2015</td><td>Dec. 31, 2015</td></tr><tr><td>Gross premiums written</td><td>$23,811</td><td>$23,390</td><td>1.8%</td><td>7.0%</td><td>$37,379</td></tr><tr><td>Net premiums written</td><td>17,713</td><td>17,799</td><td>(0.5)%</td><td>5.1%</td><td>30,346</td></tr><tr><td>Net premiums earned</td><td>17,713</td><td>17,426</td><td>(1.2)%</td><td>4.3%</td><td>29,731</td></tr><tr><td>Operating income1</td><td>3,210</td><td>3,320</td><td>(3.3)%</td><td>0.3%</td><td>4,815</td></tr><tr><td>Net income</td><td>2,834</td><td>2,853</td><td>(0.7)%</td><td></td><td>4,578</td></tr><tr><td>Diluted earnings per share - net income</td><td>8.62</td><td>8.42</td><td>2.4%</td><td></td><td>9.73</td></tr><tr><td>Diluted earnings per share - operating income</td><td>9.76</td><td>9.79</td><td>(0.3)%</td><td>3.5%</td><td>10.24</td></tr><tr><td>P&amp;C combined ratio2</td><td>87.4%</td><td>87.7%</td><td>NM</td><td>NM</td><td>88.4%</td></tr><tr><td>Total investments</td><td>66,251</td><td>62,904</td><td>5.3%</td><td></td><td>94,916</td></tr><tr><td>Total assets</td><td>102,366</td><td>98,248</td><td>4.2%</td><td></td><td>154,369</td></tr><tr><td>Shareholders&#x27; equity</td><td>29,135</td><td>29,587</td><td>(1.5)%</td><td></td><td>44,633</td></tr><tr><td>Book value per share</td><td>89.77</td><td>90.02</td><td>(1.1)%</td><td>3.2%</td><td>96.71</td></tr><tr><td>Tangible book value per share</td><td>72.25</td><td>72.61</td><td>(0.5)%</td><td>2.3%</td><td>51.07</td></tr><tr><td>Operating return on equity3</td><td>11.5%</td><td>12.0%</td><td>NM</td><td>NM</td><td>11.6%</td></tr></table>

Pro forma amounts included in this report are based on the consolidated results of the combined company as if the acquisition had occurred on January 1, 2015, and include financing, acquisition-related and accounting alignment adjustments, consistent with our disclosures set forth in a Form 8-K/A filed with the Securities and Exchange Commission on March 24, 2016.




Evan G. Greenberg
Chairman and Chief Executive Officer
Chubb Limited / Chubb Group



We will remember 2015 as a transfor-
mational year in our company’s
history. ACE’s acquisition of The Chubb
Corporation, announced in July 2015
and completed in January 2016, creates
the largest publicly traded property
and casualty insurance company in
the world by market cap – and, more
importantly, the highest quality one,
too. The historic combination, which
is complementary in terms of product,
customer, distribution and geographic
presence, is more than a noteworthy
milestone. It furthers in a dramatic way
our clear, long-term strategy of targeted
diversification and balanced mix of
business, and positions our company
so well for substantial incremental long-
term growth. I will have much more to
say about our new company, Chubb,
throughout this letter.

We will also remember 2015 as our last year with the name ACE. We have worn it proudly – beginning 30 years ago when we were founded in 1985 as a niche monoline insurer in Bermuda and concluding with the acquisition of Chubb. As one of the world’s truly global P&C insurance companies with operations in 54 countries, we completed this chapter in distinguished fashion – earning over $3.2 billion last year in net operating income, producing an operating ROE of 11.5% and generating a record P&C combined ratio of 87.4%. Just 10 years ago, we earned less than $1 billion. Given the challenging macroeconomic and industry conditions, particularly for multinationals, the results were a testament to ACE’s long-term strategic vision and relentless focus on execution excellence. Indeed, if the makeup of the company’s business in terms of product and geographic capabilities was the same as it was five, seven or even 10 years ago, we would not have been able to achieve this level of success.
Let’s first review last year and our history through the lens of ACE – who we are and what we accomplished – and then transition to who we are becoming and the exciting potential of the new combined company, which now operates around the globe under the renowned Chubb name.

## A difficult operating environment

The operating environment in 2015 was challenging to say the least. The global economy overall decelerated, driven by anemic growth in most developed countries – the U.S. and U.K. being exceptions; further cooling in emerging and natural resources-based countries due to the collapse in commodity prices – a result of China’s slowdown; and global overcapacity and increase of capital caused by cheap money from years of central banks’ stimulus – a drug we should have been off of some time ago. The stability but below-trend growth of the U.S. economy was a relative bright spot and an attractive haven for foreign capital. This contributed to the rapid rate of strengthening of the dollar over the past two years, which was a constant drag on all U.S. dollar-based multinationals and U.S. exports. Geopolitical tensions escalated with conditions deteriorating further in the Middle East, including Sunni-Shia conflict led by Iran and Saudi Arabia, inviting an opportunistic Russia into the mix and driving extraordinary waves of immigrants across Europe; terrorist activity increasing globally including on U.S. and European soil; a menacing and isolated North Korea continuing to pose a nuclear threat to its neighbors and the world; and a more aggressive China asserting itself regionally in Asia and further inciting an ongoing arms race. As for the global P&C industry, insurance prices continued to soften, driven by stable results, increased capital and more static demand.

“The results were
a testament to
ACE’s long-term
strategic vision
and relentless
focus on execution
excellence.”



Despite these challenging conditions, ACE’s financial performance last year was simply excellent. While full-year operating income was essentially flat on a per share basis with 2014’s record earnings and down about 3% in absolute dollar terms, adjusted for the impact of foreign exchange, our operating EPS was up 3.5% over prior year and our earnings in dollars were flat. That’s an accomplishment few multinationals can claim and particularly noteworthy given that 50% of our income comes from outside the U.S. The strong dollar impacted our per share book value growth by $1 billion, with growth flat for the year but up over 3% excluding the unfavorable foreign currency movement. Net income of $8.62 per share was up about 2.5% from prior year despite the foreign exchange volatility. All in all, for a U.S. dollar-based multinational, our operating results were excellent. However, book and tangible book value growth, our primary measures of wealth creation and which ultimately drive share price along with ROE, were below our standard.

I want to review ACE’s 2015 results in a little more detail, beginning with underwriting. We are an underwriting company and so we measure ourselves first by combined ratio. We produced a record P&C combined ratio last year of 87.4% versus 87.7% in 2014, whereas our domestic and global peer groups’ results were 95.3% and 96.8%, respectively. We also had record P&C underwriting income of nearly $2 billion, up 1.7% on a reported basis, or 8% in constant dollars, driven by strong results from current year underwriting exposures (known as the current accident year). Loss activity, including natural catastrophes, was relatively benign last year with CAT losses of $272 million after tax, up modestly from the prior year’s $249 million. The industry’s natural catastrophe losses in 2015 were $27 billion – the lowest level since 2009 – versus the previous 10-year average of $56 billion. Taking a disciplined approach to underwriting management also shows up in the positive development of our loss reserves for the business we wrote in prior years. We have prudently managed our loss reserves. (Keep in mind, in the P&C business, good news tends to come early, and bad news tends to come late.) Last year we recorded a total of $546 million in pre-tax positive earnings from our reserve releases, essentially the same amount as the prior year.

Our other source of earnings in addition to underwriting is investment income, which declined 2.6% to $2.2 billion. Given the low interest rate environment and, again, the strength of the dollar, this was a very good result as currency and interest rate headwinds were offset by cash contributions to the portfolio of $4 billion. For the year, our investment portfolio generated an average book yield of 3.55% versus new money rates of about 2.80%. Remember, we take most of our risk on the liability side of the balance sheet, with our capital leveraged against insurance risk exposure, so we are conservative on the asset side (our invested assets are comprised of shareholder capital and the loss reserves we hold to pay policyholder claims). We are fiduciaries of shareholder and policyholder money.

Our balance sheet is a formidable competitive advantage in a business where our financial strength and security equate to our ability to back the promises we make. We ended the year with total shareholders’ equity of $29.1 billion and total capital of $38.9 billion, up from $26.8 billion just five years ago and almost triple its $14.2 billion size 10 years ago.

“Adjusted for the
impact of foreign
exchange, our
operating EPS
was up 3.5% over
prior year.”



My ACE colleagues worked hard last year to produce reasonable premium revenue growth given the challenges of an exceptionally strong U.S. dollar, weak economic conditions globally and a competitive insurance market. (By the way, so did my legacy Chubb colleagues.) Total company net written premiums for the year were essentially flat versus prior year but up over 5% in constant dollars. Global P&C net premiums, which represent over 80% of our company’s business and include our core commercial and personal P&C and personal accident lines but exclude agriculture and life insurance, grew just over 1% on a reported basis and nearly 8% in constant dollars. From a regional perspective, premium growth last year was led by our businesses in Latin America and Asia, with retail P&C net premiums up 18% and 15%, respectively, in constant dollars. This was followed by P&C net premium growth of over 10% in North America, which benefited substantially from our acquisition of the U.S. high net worth personal lines business of the Fireman’s Fund.

## A consistent long-term strategy and vision

Our success last year and, frankly, over the last decade is not by accident. We have had a clear and relatively simple long-term strategy for the company. I say simple because strategy should be able to be expressed in a reasonably simple, clear way. The tactics, the nuance and the execution add much complexity, but how we fundamentally think about strategy should be simple so we have absolute clarity of vision, which enables our focus and clear communication. Then we can adopt and execute that strategy obsessively all over the world – which is what we’ve been doing for the last 10 years and longer.
We are an insurance company – that is our sole focus – and our strategy can be described in five statements:

1. We are a growth company and measure ourselves in terms of growth in book value and tangible book value. These are the ultimate measures of shareholder wealth creation. We also measure ourselves in terms of ROE, which speaks to how efficiently we use our capital. ROE efficiency plus growth in book value ultimately drive share price.

2. We follow an organized plan of long-term growth for our businesses and think about opportunity and capability in terms of geography, mix or line of business, customer and distribution. We have an objective to diversify our business in a targeted manner and go deeper and deeper by these four dimensions.

3. We grow organically and through strategic acquisitions that complement or enhance our organic efforts. We don’t acquire simply for the sake of size.

4. We strive to always maintain underwriting discipline – underwriting should enhance and never destroy book value. We should earn a profit in our basic business, and that’s underwriting.

5. We thoughtfully make investments to improve our capabilities and our ability to execute our strategies while at the same time creating future optionality.

We have been patient in this strategy and impatient in executing it. How have we done? Let's look at each component in more detail.
Four dimensions – Over the past 10 years, ACE has increased its presence substantially in the fastest-growing regions and lines of business where we have perceived an opportunity to create a comparative advantage, provide the market a needed service, make money and grow. Our attention over this period has been particularly centered in Asia, Latin America and the U.S., though we continued to pay attention to and support our very good business in Europe. We enter markets and businesses around the globe selectively; we don’t just enter blindly in a mindless, “do everything everywhere” approach for the sake of size. We study the market and determine which segments are most promising, where we bring competitive advantage and what it will take to be successful. We have assembled and groomed over many years an experienced senior management team comprised of insurance professionals and internationalists with substantial global experience. We are underwriters and global practitioners – something many of our large competitors don’t have and that’s to their detriment. We know the cultures, structure of markets, geography, risk exposure and opportunities. Personally, I have been in the underwriting business for 40 years, working globally for over 30 years, and know the regions and countries firsthand. We have had an objective that Asia and Latin America should ultimately be 30% of the company. Over the past decade, the share has gone from 15% to 23% of our gross premiums at year-end. In constant dollars, it was about 25% at year-end, so we’ve made good progress.

In terms of product diversification, our mix of commercial and consumer business has also evolved. Ten years



ago, commercial lines were 86% of our net premiums, with consumer lines 14%. Five years ago, the mix was 67% commercial and 33% consumer. By year-end 2015, the split was 61% commercial and 39% consumer. Of the consumer business, A&H and life insurance were 25% of our business at year-end (with most of that A&H) – in line with our objective of 30%. Personal lines was 14%. We talked about a long-term objective of 20% for personal lines, so we’re on a path to achieving that – in fact, faster than I thought. Targeted acquisitions are opportunistic and they helped accelerate our growth. Reinsurance is a much smaller part of our company, representing 5% of our net premiums at year-end, down from 9% 10 years ago, and that’s a natural consequence of the kind of company we’ve become and the marketplace.

Growth organically and through acquisition – We’re builders first. Over the last 10 years, about 70% of our business growth has been organic, 30% has been through targeted and complementary acquisitions. (That’s before Chubb, of course.) Our growth is, again, the result of clear, strategic intent – nothing has been by accident. Though, as I said, acquisitions are opportunistic – right company, right place, right time, right price. Our approach has produced the kinds of returns shareholders expect. Over the last five years, we have grown premium revenue about 50% faster than the industry.

Underwriting focus – We have created long-term sustainable value through our culture of underwriting excellence. Underwriting is and always will be the heart of our company. We will trade market share for underwriting profit for any product in any geography with little exception. We endeavor in all we do to make a profit in our basic business of taking risk, and we have produced an excellent track record in this regard. Over the last one, three, five and 10 years, our average P&C combined ratio has ranged between 87.4% and 90.3%. This is simply world class in absolute terms and superior to both our North American and global peer groups, which over the same time periods recorded average combined ratios of between 94.5% and 97.6% and 96.3% and 97.1%, respectively. Only one other company shared the same underwriting discipline, mindset and track record – and that was Chubb. They produced an average P&C combined ratio of between 87.3% and 90.5%.

Investments in our company – We have made important investments in our capabilities over the last five and 10 years as part of our strategy to ensure we don’t outrun our supply lines. We continue to invest in the core capabilities that build comparative advantage and contribute to long-term returns. Over the last five years, we have made substantial investments in underwriting and portfolio management, data management/ predictive analytics, workflow management and industrial engineering capabilities, customer and distribution management, and claims management, including the technologies that support these areas. We have invested in developing, tracking and retaining our talent in all disciplines globally and this includes a comprehensive training and development agenda with formal education and on-the-job training. We also hire and manage a diverse pool of several hundred new associates globally every year. By the way, legacy Chubb was renowned for their training and development programs and they will make us better. In addition, recognizing that the world is going digital at a faster and faster rate, and the possibilities to digitize all facets of our business have accelerated, we have embraced a vision to ultimately become a company that incorporates digital capability as a component of every step of our business in a seamless fashion – from marketing and sales, underwriting and pricing, servicing and claims handling, to interacting with our distribution partners and directly with our customers. To achieve this in totality is iterative and will take time.

Deploying shareholder capital responsibly – We have been resolute that we will, as a first priority, use our capital to grow per share book value by investing in and growing the company and by doing it efficiently. Many companies have increased their share price by buying back stock and shrinking or slowly growing their company – it has become the safe and fashionable trend. If you have no other strategic uses for your capital that can generate superior risk-adjusted returns over time, that makes sense. We haven’t had that problem. By the way, I think many other companies haven’t either; they’ve just taken the easy way and succumbed to short-term investor pressures – and that’s not strategy. The truth is, when you reach a certain stage of development, size matters in this industry. Relative to our peers over the past 10 years, we have grown our per share book value at the highest level, without buying back much stock, and at the same time our market cap, which is a reflection of our balance sheet and earning power, has grown faster.



Over any reasonable period of time, book and tangible book value growth combined with ROE underpin total return. As stated earlier, we are a growth company and we measure ourselves by growth in book value over the medium and long term. In a risk business with market and economic cycles, responsible earnings growth will not occur in a smooth line so book value growth is the more insightful measure. ACE’s book value has nearly tripled in the last 10 years and has grown at a compound annual rate of 9.4%; over the past five years, it’s grown 5% annually or 6.3% in constant dollars. While we have been impacted recently by the U.S. dollar, our shareholders will continue to benefit over time from our diversified global presence, which is a unique source of earnings strength, provides stability and enables us to capitalize on opportunities with the best growth prospects. This is a winning strategy and it will translate into superior book value growth, again, over time.

Our earning power is derived from the growth velocity and quality of our businesses, the size and strength of our balance sheet, and the quality and character of our culture and people. These are the most important factors that drive long-term sustainable book value and tangible book value growth and total return. All three are exceptional for this company. Again, companies increase their per share book value growth and maintain a reasonable ROE either by investing for growth (increasing the numerator) or by returning capital to shareholders (shrinking the denominator) or a combination of the two. We prefer a combination of the two. In much of the past decade, we invested most of our capital for growth while paying an attractive and increasing dividend for which we target circa 30% of our earnings. Over the more recent past, based on our earning power and the insurance operating environment, we balanced our approach by retaining capital to grow our earning power and returning more capital to shareholders through targeted share repurchases. In 2015, for example, we earned $3.2 billion and returned $1.6 billion, which included $875 million in dividends and $734 million in repurchased shares. We have clearly demonstrated over a period of years that when we build up sufficient capital flexibility for both opportunity and risk, we return the additional capital surplus we generate via share repurchase and dividends as long as we retain enough for future opportunity and risk. With our acquisition of Chubb, there will be no change to this philosophy.

Our strategy has held us in good stead over the years. Looking at ACE since 2010, we’ve done well by virtually any measure, relative and absolute. We’ve made substantial progress in growing premiums, operating income, book value and book value per share, and market cap:

- In gross premiums, we went on a published basis from $19.5 billion to $24 billion, a 22% change – all while the dollar strengthened

- Operating income from $2.7 billion to $3.2 billion

- Book value, how we create wealth, from $23 billion to nearly $30 billion – up 28%, or 36% in constant dollars

- Book value per share, from $68.17 to $89.77 – up 32%, or 40% in constant dollars

- Our market cap went from $21 billion to $38 billion, up over 80%

- All of this while producing an operating ROE in the range of 10.6% to 13.1% – a pretty good spread over risk-free rates
“We have created long-term sustainable value through our culture of underwriting excellence.”



Lastly, I believe good results, including ROE and book value per share growth, ultimately find their way into the share price. The 4.2% total return on ACE’s common stock in 2015, which includes share price appreciation plus dividends, was modest but compares favorably with the 1.4% return for the S&P 500 and the 2.3% return for the S&P 500 Insurance index. Using a longer-term perspective, ACE has produced a total return of 57%, 112% and 174%, respectively, for the three-, five- and 10-year periods.

All of this success over the past 10 years puts us in a position of strength in both absolute and relative terms. Quite frankly, I would not have had the confidence to embrace the bold vision that has led us in so many directions if I did not have such great faith in our organization’s leadership capabilities and people. And nowhere is that more true or apparent than with our acquisition of Chubb.

## The Chubb acquisition – a continuity of strategy

We completed the acquisition of The Chubb Corporation on January 14 paying $29.5 billion in aggregate cash and stock in what is the largest P&C insurance transaction ever. Chubb shareholders received total consideration valued at $129.75 per share – a 36% premium to Chubb’s price at the time of the announcement – in an approximately 50%-50% mix of stock and cash. ACE shareholders retained 70% of the company while Chubb shareholders received 30% ownership. Both ACE and Chubb shareholders overwhelmingly approved the transaction, which received support from approximately 98% of the votes cast.
We financed the $14.3 billion cash portion of the transaction through a combination of $9 billion of cash on hand between both companies and $5.3 billion of new long-term debt, which we raised in October in the largest-ever – and much oversubscribed – bond offering from an insurance company. Regarding the stock component, we issued 137 million shares of ACE to Chubb shareholders with a fixed exchange ratio of 0.6019 ACE shares for each Chubb share based on ACE’s closing price of $111.02. The equity consideration represented approximately $15.2 billion. By the way, the ACE share price appreciated over 9% from the time we announced the acquisition in July to the closing in January – unusual for the acquirer and a sign of shareholder confidence in the combined company.

What makes the transaction exceptional is that it’s both strategically compelling – which I will discuss during the course of this letter – and financially compelling due to the attractive shareholder returns we expect to generate. It’s immediately accretive to book value per share and we expect it to be accretive to EPS on a double-digit basis by year two. It’s dilutive to tangible book value on a per share basis but returns to its pre-transaction level by end of year three, which implies an accelerated tangible book value growth rate. The transaction is dilutive to tangible book value because of the premium paid, which results in goodwill from an intangible, income-producing asset. In my judgment, what makes the dilution acceptable and, in fact, compelling is the high-quality nature of that income-producing asset: Chubb’s earning power. As a result, book value and tangible book value grow faster because of this intangible income-producing asset. The earnings pay back the goodwill in five years. On the other hand, goodwill increases shareholder equity and that impacts ROE accretion,

“What makes
the transaction
exceptional is that
it’s both strategically
compelling
and financially
compelling.”



which will be relatively modest. All in all, it’s a fair price to pay given the quality franchise we bought and all of the value creation that will continue in perpetuity. And as noted earlier, our share price performance is ultimately derived from a combination of book value growth and ROE. While ROE accretion is modest, book value will grow faster. Lastly, we expect that the ROI will exceed ACE’s cost of capital within two years, resulting in a double-digit return by year three. This is a metric I watch because it speaks most clearly to underlying shareholder economics and good use of shareholder money.

In terms of the transaction’s future value creation and savings, we are on track to realize – and likely substantially exceed – the originally announced $650 million of annual run-rate expense savings by 2018, which will improve our earnings and provide us with more flexibility to invest for growth and a sustainable competitive profile. More importantly, the combination of our two companies into the new Chubb is a story of enhanced growth. The two together will grow more quickly than the sum of the two separately. I have said from the beginning that this is the ultimate strategic purpose of the transaction, given the complementary strengths of the two companies. I am more convinced than ever that we will achieve meaningful growth that will result in substantial additional revenue and earnings over time. We didn’t waste time in the six-month period between our acquisition announcement on July 1 and our closing date on January 14. We established a comprehensive integration roadmap and a detailed integration plan of action that covered all areas globally including underwriting, claims, sales, marketing, client and technical services, business

processing, IT systems, HR and real estate. This ensured that everyone was ready to hit the ground running and begin executing as soon as we closed – and that included some early growth-related initiatives as priorities for 2016, some of which I will describe later.

## ACE and Chubb – a shared passion for underwriting

Both ACE and Chubb have always been underwriting companies – underwriting is deep in the culture of both companies, bred in our grooming, standards and day-to-day behavior. That doesn’t mean we never make mistakes or aren’t caught off guard occasionally. But at our core, we share a passion for the art and science of underwriting and that passion is reflected in our discipline and in our results as I demonstrated earlier with consistent industry-leading combined ratios. Both companies have insisted on making an underwriting profit on the risks we take, and the new Chubb’s pro forma 2015 results bear that out – a P&C combined ratio of 88.4% and underwriting income exceeding $3 billion.

Another example of our shared passion is that we both have been intensely focused on underwriting portfolio management. This focus has enabled us to constantly refine our risk selection decisions around what lines to grow or shrink and, where necessary, take corrective actions. Dynamic portfolio management, along with years of experience and large risk pools of data, have no doubt contributed to both companies’ fine underwriting results. In addition, the use of data and advanced analytics, including predictive modeling, has been a mutual strategic priority for some time. Analytical tools and data management better inform fact-based decision-making and improve our underwriting. By the way, some companies confuse

data analytics and modeling with underwriting, believing the key to managing risk is simply about the rate charged. That’s a display of ignorance and a lack of understanding of what our business is about. We are particularly excited about the prospect of mining our combined companies’ trove of data assets – including Chubb’s vast insights and data into many lines of business in the U.S. middle market and personal lines – to drive new opportunities in both the developed and developing markets. Managed correctly, this is a powerful and strategic advantage that will further differentiate our company over the long term.

## Complementary strengths

The new Chubb is also a very well diversified and reasonably balanced company. First, in terms of geography, we have a deep presence around the world with extensive local operations in nearly 700 offices in 54 countries and territories. We are both a local insurance company, serving the needs of indigenous businesses, individuals and families with many offices covering a wide geography in any one country, and a global insurance company, providing complex and sophisticated commercial insurance services to large corporations and multinationals that benefit from a global network. Sixty-four percent of our gross premiums written are now based in the United States, with 14% based in Europe, 18% in Asia and Latin America, and the remaining 4% in Canada and Bermuda.

As I explained earlier, as ACE, we steadily built our presence and capabilities around the globe wherever there was opportunity, and as of year-end (before Chubb,) 50% of our business was outside the U.S. This includes developed markets in Europe and Asia as well as emerging markets



in Asia and Latin America where ACE positioned itself to take advantage of faster-growth economies that are fostering new business creation and the emergence of a middle class. While we’re now more U.S.-centric given the addition of Chubb’s massive, predominantly agency-based U.S. middle market and personal lines businesses, the scale of our international business is also greater with each region of the world larger in absolute terms. We remain committed to our vision that business from markets outside of the U.S. will again represent a larger share of our company; we aspire to achieve a 50-50 balance.

Second, the new Chubb is well balanced in terms of product mix. Commercial and specialty property and casualty represent 55% of our net premiums, followed by personal lines at 21%, A&H and life at 17%, and agriculture and reinsurance taking up the remaining 4% and 3%, respectively. (Net premiums are a better measure for product mix because that's the portion of our writings we retain on our balance sheet, with the balance going to third-party reinsurers. Gross premiums are the portion we retain plus what we give reinsurers, and are better for measuring our market presence.) The Chubb acquisition brings us so much more capability – including underwriting knowledge, data and analytical insights, product and distribution capability, exceptional claims and engineering services, and so many talented, seasoned professionals – to serve, in particular, the mid-size commercial and high net worth personal lines markets in North America through an expanded agency system that can be leveraged globally.
- With $8.5 billion in net premiums ($12 billion gross) in 2015, ACE already was a major force in commercial P&C. But today the new Chubb is a global commercial P&C powerhouse – with nearly $17 billion in pro forma net premiums ($21 billion gross) and product, claims and risk engineering capabilities to serve companies of all sizes. With no slowdown in the world’s evolving and emerging risks facing business – from cyber security and terrorism to complex product recall and environmental liabilities, to the full range of D&O and E&O risks, where the new Chubb is again the largest writer in the world – we are extremely well equipped to assist commercial customers of all sizes with their insurance and risk management needs. About 35% of our commercial P&C business is focused on large corporate customers that are served by retail brokers while 47% is focused on middle market and small commercial companies served by retail independent agents and brokers. The balance, or 18%, is specialty excess and surplus lines (E&S) distributed through wholesale brokers.

- On the consumer insurance side, we have an exceptionally broad range of products for individual consumers and their families that include automobile, homeowners, fine art, planes and boats, personal liability, cell phones, accident, travel, supplemental health and life insurance. The consumer insurance product area where the Chubb acquisition makes the greatest impact is property and casualty personal lines, where we go from a $2.5 billion business as measured by net premiums ($3.2 billion gross) to a nearly $6.5 billion business ($7.4 billion gross). About three-quarters of that premium is generated in the U.S. where the new Chubb remains the premier provider of personal lines to high net worth individuals and families, and where all other competitors are thin gruel in comparison. The balance of our global personal lines business is written outside the U.S. and ranges from general-market auto in Malaysia, Thailand and in Mexico, where we have over one million customers, to specialty mobile phone replacement coverage in Europe. We are highly selective in what we do in this category – focusing, for example, only on areas where we can earn reasonable underwriting margins and where our skills and capability bring comparative advantage.

- With over $4 billion in net premiums ($4.5 billion gross), A&H is truly a global business as it has been for ACE for many years. The business comprises personal accident and supplemental health coverage typically sold as either a group benefit via employer plans or as special insurance protection offerings from a sponsoring organization for its members and customers. We sell our A&H products through a variety of channels including independent agents, brokers, tied agents, direct marketing and bank branches.

- With $1.8 billion in annual premiums and deposits, Chubb Life is focused on Asia and primarily utilizes exclusive agency and bancassurance distribution. We have been building our life insurance business patiently and with discipline – the only way it can be done if the objective is to have a sustainable and profitable business. When life insurance is combined with our personal lines and global A&H



“We aim to deliver more products through our distribution partners to our existing customers, particularly mid-market commercial companies.”

businesses, our consumer-facing lines represent 37% of the company’s net premiums, and we have an objective to grow them to a greater percentage over time.

- Lastly, with $830 million in net premiums ($883 million gross), and now operating under the Chubb Tempest Re name, our global reinsurance business has been shrinking for several years in the face of declining reinsurance rates and increasing competition in an overcapitalized market. Global Re experienced modest catastrophe losses and produced excellent underwriting results in 2015 with a world-class combined ratio of 65%.

The third dimension of the new Chubb is its diversified customer base, and it’s related to the product mix I just described. While 10 or 15 years ago ACE was an insurer that predominantly served large companies for their commercial P&C needs, the new Chubb today has an extremely broad mix of commercial and personal customers. On the commercial side, our customers range from large domestic companies and multinational corporations to middle market commercial businesses of all sizes to small commercial enterprises and even the microbusiness market. On the personal insurance side, our customers range from high net worth families in the U.S., where we insure their homes, cars and precious valuables, to lower-middle income consumers in emerging markets purchasing accident insurance from their credit card, cell phone or utility provider. The addition of Chubb’s leading franchises serving middle market commercial customers in the U.S., Europe and several major markets in Asia and Latin America, as well as their premier business serving U.S. high net worth individuals and families, substantially deepen and broaden the company’s portfolio of customer segments. Again, Chubb’s exceptional claims and engineering capabilities and service quality generally are a real asset and make us better.

The fourth and last dimension to consider for the new Chubb is our distribution strength, and that’s all about what customers we are trying to reach and the best methods to do so respective of local cultures, history and economic conditions. In fact, distribution is core to a number of our growth strategies. For example, we aim to deliver more products through our distribution partners to our existing customers, particularly mid-market commercial companies. Growing our small commercial business globally through innovative and traditional distribution is another major long-term strategic initiative.

We are particularly excited about the addition of Chubb’s exceptional field organization in North America, which overnight morphs our distribution presence from nine regional and branch offices for ACE to 48 as the new Chubb. This branch presence was created to work hand in glove with the thousands of independent agents with whom Chubb has had decades-strong relationships and who represent our middle market commercial lines and high net worth personal lines products. We now have more than 5,000 agents and brokers representing the new Chubb’s commercial and personal lines P&C products in North America. We also have about 9,000 specialized agents who market our crop and agricultural insurance products, and 3,600 captive agents in our Combined Insurance operation marketing personal accident and supplemental health insurance products.



“The business will benefit from ACE’s approach to innovation and investment – an example of how our cultures complement each other.”

When added to the 32,000 P&C agents and brokers the company has in Europe, Asia and Latin America, the universe of the new Chubb’s agent and broker distribution means exceptional access to existing and potential customers. And as a reminder, in addition to agents and brokers, we have many other valuable distribution partners. These include hundreds of sponsoring organizations, employers and banks that sell our A&H products to their millions of customers and members, either through their own channels or through our specialized direct marketing capabilities. In our direct marketing operation, we have about 7,500 telemarketers in over 100 call centers making close to 100 million calls each year. We also have about 51,000 exclusive agents who market life insurance for us in Asia.

As I did in last year’s letter, but now reflecting the new Chubb organization, I would like to take you on a tour of our company’s operations geographically beginning with North America.

## North America

Comprising operations in the U.S., Canada and Bermuda and with $25.5 billion in gross premiums, North America is by far the new Chubb’s largest region representing 68% of the company. In addition to our 48 commercial P&C branch offices, we have another 220 locations and altogether nearly 18,000 employees who write commercial and personal P&C and A&H coverage for a broad swath of businesses and individual consumers. In fact, our North American division is larger than the vast majority of U.S. insurers. The balance of business in the region is excellent: one-third is with large and upper middle-market corporate customers, over 40% is focused on the vast middle and small commercial markets, and just over 25% is with consumers.

Our North American business is organized into five separate divisions. The first is North America Major Accounts & Specialty Insurance, which comprises the traditional and specialty commercial P&C insurance businesses that serve the large corporate and upper middle markets in the U.S. and Canada, and the E&S markets in the U.S. and Bermuda. The second division is North America Commercial Insurance, which is our business that serves the middle market and small commercial customer segments in the U.S. and Canada. Next is North America Personal Risk Services, our company’s personal lines insurance business serving affluent and high net worth individuals and families on the continent. We then have Combined Insurance, which sells A&H products to middle-income consumers in the U.S. and Canada through its own captive agents. And lastly there’s our business that serves the agriculture insurance market across the U.S.

Large corporate and upper middle-market companies have been a core ACE franchise from its earliest days and the new Chubb organization has a truly impressive lineup of talent and a broad portfolio of products to continue to meet the sophisticated risk management insurance needs of the Fortune 2000. We serve this segment of the market through our North America Major Accounts business, which works with retail brokers, as well as through Chubb Bermuda, our newly named but original high-excess insurer, which conducts business through wholesale brokers. The Westchester is our E&S and specialty product company, which serves both the large corporate and middle market segments. Westchester distributes



its specialty products through the wholesale brokerage marketplace and is a top-three E&S provider in North America writing hard-to-place and unusual risks. Products offered by these businesses have a specialty bent and provide coverage where an underwriter makes a difference. The large corporate segment of the market is currently quite competitive, with relatively flat premium growth in 2015. However, product and service innovations, together with insightful underwriting through portfolio management, help identify profitable growth areas and maintain margins.

North America Commercial Insurance is the name of our business that serves the U.S. middle market. For the last five years, ACE has focused on growing its capabilities to better serve this vast commercial segment with specialty products, and we produced good results though we remained a modest presence. That strategic objective simply morphed with the addition of Chubb's premier commercial P&C franchise – an independent agent-based powerhouse that serves companies up and down the entire middle market spectrum with a combination of packaged products offering broad coverage as well as a menu of many specialty products. With its foundation based on the heritage Chubb Commercial Insurance and Specialty Insurance divisions, North America Commercial Insurance is a business distinguished by deep knowledge, expertise and experience serving middle market companies generally and within specific industry segments, from clean energy and high tech to life sciences and real estate. It's also distinguished by time-honored relationships with over 4,500 independent agents, and renowned claims and engineering services. As I alluded to earlier, one of our primary growth strategies is to arm these agents

with a broader portfolio of products – many of which address specialty risks and come from the old ACE organization. As a complement to the traditional packaged product offerings, which are central but common to this market segment, specialty risk solutions such as environmental, cyber and construction will expand sales and service opportunities for the agents and premium revenue growth for us.

Turning to consumers, ACE was a young entrant but fast-growing provider of insurance to the high net worth market in North America through ACE Private Risk Services, a business that we built over the last seven years and added to substantially in 2015 with the acquisition of the Fireman’s Fund personal lines insurance business in the U.S. The legacy Chubb high net worth personal lines business was in a class by itself. They were the pioneers of this segment and the number one provider in the country with a depth of knowledge, capabilities, services and customer insights unlike any other provider. The merging of our businesses into the new North America Personal Risk Services creates the absolute premier insurer to this discerning clientele. We have an extensive product portfolio – home, auto, fine art, personal liability, watercraft – paired with the industry’s best claims and residential risk consulting teams and a distribution network of more than 2,500 independent agents and brokers. The business will benefit from ACE’s approach to innovation and investment – an example of how our cultures complement each other – and we see tremendous growth potential as we leverage the power of Chubb’s rich data insights into this market.

We have two other consumer-facing businesses in North America. The first is Combined Insurance, which primarily uses a captive agency sales force and fast-growing worksite business to deliver supplemental employee benefits, personal accident and life products to middle-income consumers. The other is the A&H unit of our Major Accounts & Commercial divisions, which sells employee benefit programs and accident and supplemental health group coverage to large and mid-size companies and various organizations through brokers. For Combined Insurance, net premiums in North America were up 5% in constant dollars for the year – the continuation of its successful comeback story. Agent recruitment was up 24% in 2015, much of that coming from U.S. military veterans, whom we favor for their self-motivation and discipline. For the second year in a row, Combined was recognized as the number one Military Friendly Employer in the U.S. by G.I. Jobs magazine. The company also has a promising initiative aimed at hiring Spanish-speaking agents who are able to culturally connect with and serve the Hispanic community, which is an underserved market.

Finally, we have our agriculture insurance business, which finished the year with a current accident year combined ratio of 89% and net premiums down about 15%, driven by lower crop commodity prices. Our Rain and Hail unit is a leading crop insurer in the U.S. and distributes its coverage through a large network of independent agents. Crop insurance is a business where premiums fluctuate up and down based on commodity prices and how revenue and losses are shared with the government. Complementing what we do in crop insurance is our agribusiness group, which focuses on the commercial P&C



needs of farmers and ranchers. This represents another unique cross-sell opportunity for Chubb agents in certain branches to market farm and ranch coverages to their clients – a capability legacy Chubb did not possess. Agriculture is a $2.2 billion gross premiums business for us and overall it had an excellent year.

## Europe

Europe is the company’s second largest region representing 14% of the new Chubb with about $5.4 billion in combined gross premiums last year. Focusing on large and mid-market companies with commercial P&C products, and A&H and specialty personal lines for consumers, the region consists of substantial operations in the United Kingdom and 18 other countries and territories. We have over 3,800 colleagues in nearly 90 offices.

Legacy Chubb’s operations, particularly in the U.K., Germany and France, add incremental people, product and distribution capabilities that enhance our middle market and personal lines know-how. We have significant presence in some of these markets. The U.K. and Ireland market, for example, is half the region and the company’s second-largest market after the U.S. with over $2.9 billion in gross premiums, 12 offices and a full range of commercial and specialty P&C and A&H products and services. We also have nine offices in France and seven in Germany serving both commercial customers and consumers.

The business mix in the region comprises 70% commercial lines and 30% consumer lines. Our distribution strategy in Europe relies on retail brokers and agents and wholesale brokers operating in London, one of the world’s largest insurance markets and where we have had a longstanding presence in Lloyd’s. Our specialty personal lines and A&H programs, including business travel accident, are sold through brokers and sponsors, and selectively through direct marketing to consumers, employees and customers of large organizations.

Our European business has been a solid and steady contributor to earnings. Given the competitive insurance market and weak eurozone economic conditions, premium growth has and will remain constrained for at least the short term. This includes Chubb Global Markets, our wholesale Lloyd's-centric E&S business that's based in the currently hyper-competitive London market. Chubb Global Markets products include trade credit, aviation, energy, marine and specialty property, and when combined with the capabilities of Chubb Bermuda's Sovereign Risk Insurance unit, the company is one of the largest writers of political risk insurance in the world. Challenging economic conditions have been offset by focused underwriting portfolio management, strengthened sales and distribution capabilities, and product and service enhancements. Concerning the latter, for example, we introduced a new multinational product with increased capacity for buyers of terrorism, political violence and war insurance.

## Asia

Our Asia region, with $3.5 billion in gross premiums, represents 10% of the new Chubb. We’re present in 14 countries and have over 5,300 employees in 144 offices serving all sizes of commercial customers and consumers. Chubb’s capabilities in the region strengthen our already-deep presence and improve our market standing in several countries, particularly Australia, Hong Kong and Singapore.
“Asia, of any region of the world, represents the greatest long-term growth potential for our company.”



In terms of premium revenue mix, commercial P&C is 32% of our business in Asia. Consumer non-life, meaning A&H and personal lines, is about 50% with life the remaining 18%. Our mix of business is aligned with the region’s secular growth trends, including the continued emergence of middle-class consumers and small businesses as well as the development of large world-class companies as these economies develop. Our large commercial business in the region is distributed predominantly through retail brokers while middle market, small commercial, personal lines and A&H are through over 6,300 independent agents. Our A&H products are also distributed through 3,600 telemarketers and through travel agents.

I have said in the past that Asia, of any region of the world, represents the greatest long-term growth potential for our company due to its size and the fact that the global center of economic gravity, led by China and to a lesser degree India, continues shifting toward Asia. Since 2010, ACE’s gross premiums in Asia have grown at a compound annual rate of 13% in constant dollars. In fact, in 2015, some of the company’s fastest-growing countries were based in the region as measured by growth in net premiums, including Thailand and Vietnam, both at 28%, and Taiwan at 23%. Relative to other global insurers present in Asia, the new Chubb is a major player as measured by gross premium and well positioned to continue to capitalize on the region’s favorable growth trends.

Unique to the Asia region is our life insurance business, which operates in six countries as Chubb Life and maintains a separate 36% joint venture interest in China’s Huatai Life. We market our savings and investment-oriented life products through our exclusive agents as well as through bank branches and telemarketing. Our life business should be a growing contributor to earnings in the short-to-medium term.

## Latin America

In Latin America, we are active in nine nations and write total gross premiums of $3 billion, which is about 8% of the company. We are the leading commercial P&C insurer in Brazil, which ACE became after combining the large commercial P&C business of Itaú Seguros with ACE Brazil in 2014. We are also a leading P&C company in Mexico, as well as Chile, Colombia and Ecuador. Across the region today we have 4,600 employees in over 120 offices. Commercial P&C represents about 40% of our book with the balance concentrated in consumer products – A&H and personal lines.

Like Asia, Latin America has a growing middle class, plenty of new business creation, and the presence of both large domestic and multinational companies in most countries. We distribute our commercial P&C products predominantly through retail brokers while small commercial and personal lines are sold through brokers and over 13,000 independent agents. A&H is sold mostly through agents and direct marketing using our 4,300 telemarketers.

In the last five years, Latin America has been ACE’s fastest-growing region with compound annual growth in gross premiums of 21% in constant dollars. However, Latin America, like Asia, is undergoing many of the same challenges of economic volatility and political instability, driven on the one hand by China’s slowdown and the impact on its appetite for natural resources that are major exports of many of these regions’ countries, and on the other hand by the countries’ own political and economic problems. That said, we remain bullish on the region’s medium- and long-term prospects.

## Global insurance market conditions: sluggish demand and oversupply

I want to say a few words about the external operating environment. For context, on a micro level relative to the industry, the new Chubb is on the ascendency – our potential value-creating power and momentum, and the opportunities and possibilities we see, stand in stark contrast to the operating environment for our industry. It is in our hands to make it happen and realize that potential, and that’s our organization’s focus. Compared to the mood of our industry and a number of major competitors that are heading in the other direction, we are energized and optimistic. The weakness of major incumbents and the rise of the new Chubb are major events that may reshape our industry.

Concerning industry market conditions, the environment continues to grow more competitive for commercial P&C insurance globally and varies depending on the territory, line of business and size of risk. There has been an absence of major natural catastrophes for a number of years, though we have had some large man-made loss activity. The industry is awash in capital. And we have relatively slow economic growth, which means slow industry growth because exposures grow more slowly when economic growth is slow or stagnant. So supply, or capital, is out of balance



with demand – it’s the fundamental economic equation that applies to any industry. Therefore, we have a soft and softening market producing headwinds which we now confront and will likely be with us for a number of years. The pressures are beginning to show through in the operating results of many other companies, but we are just at the beginning. Conditions are the most competitive in reinsurance and the major wholesale markets of London and Bermuda. Our industry is global, and the wholesale and reinsurance markets are impacting insurance conditions in all regions, where again supply exceeds demand – a phenomenon we see from Australia to Brazil.

For short-tail lines and physical risks such as property, marine, energy and aviation, rates are as cheap as we have seen for many years and have reached levels that are not sustainable to earn a profit over any reasonable period. Many market participants are simply gambling that if they don’t have a normal level of expected CATs or large losses they will make money – a pretty dumb plan. Casualty pricing is not keeping pace with loss costs and that means pressure on margins. Add to that the impact of low interest rates on investment income and there’s simply no place for many insurers to hide when it comes to earning power.

## Macroeconomic conditions: slow and slowing growth

From a macro perspective, it is a difficult operating environment economically and politically. The world cannot be summed up in a single sentence. Macroeconomic conditions are difficult and quite complex, and as a result visibility is limited and identifying a definitive direction is not easy. Economically, the world is moving at different speeds, and geopolitical concerns around the world contribute to a high level of uncertainty and unease. That’s why financial markets right now are so volatile and jump between risk-on and risk-off modes at the drop of a hat. The world is more complex and troubled than at any time since World War II.

Economic growth is slow and slowing. It’s a combination of economic and geopolitical pressures. The slowdown in China, as the country continues to reform and moves from an export- and investment-led economy to a more consumer-oriented one, will be felt for some time. Chinese leadership appears committed to that strategy and, in fact, there is some evidence it is happening. But it will take time for services and consumption to replace the old model of heavy industry, exports and investment. It is in their long-term interest to do so, but the execution and determination leave a lot to be desired. Command and control in China is not what many people think it is. Reform in China is a threat to many powerful entrenched interests, and at the same time the current political and social priorities to reassert control by the party and subsume individual rights in the name of stability and security are in direct tension with economic reform. Visibility and certainty around China are difficult.

China’s slowing growth continues to impact all natural resource- and export-dependent countries around the world, particularly throughout Asia and Latin America. Depressed commodity prices; elevated private and public sector dollar-denominated debt levels in many emerging markets, with currencies depreciated against the dollar; and political turmoil are all factors that add up to a troubled emerging markets environment.

We may be at the beginning of a great unwind in credit availability. If so, that bodes poorly for future growth and the interest rate outlook. Central bank policies to stimulate growth following the financial crisis have in my judgment outlived their usefulness, and stimulus was deployed too long as a substitute for fiscal and economic reform. Central banks pumped $9 trillion to $10 trillion in stimulus, and the misallocation of capital from cheap money is part of what we are experiencing. Today, we see less-coordinated central bank policies with the Fed aiming to tighten but confounded by a strong dollar while the EU and Japan engage in continued monetary easing. Many emerging economies are suffering at their own hand as well, exacerbating macro problems as a result of self-inflicted political, fiscal and monetary poor judgment.

Europe has produced somewhere between zero and 1% growth – hardly exciting. Lack of economic and fiscal reform is at the heart of Europe’s problems, and they are not solving them. So that doesn’t inspire a lot of confidence. Then you overlay the geopolitical issues that Europe is dealing with, particularly around terrorism and immigration, and that raises a lot of concerns and the specter of risk around Europe. As for Japan, again, there is lack of fiscal and economic reform and an aging population. Slow, unexciting domestic growth – in fact, shrinkage – is their future. That’s why Japanese companies are investing abroad for growth and higher returns.



“There is a craving for leadership to solve problems – to make us feel good and proud about ourselves and our country – in other words, to lead us.”
Flight to safety and misallocation of capital

The U.S. has been an engine of growth, but the U.S. is slowing. The dollar’s strength and low interest rates are a result of the flight to safety. Everyone wants their money in dollars. If you are Chinese, Brazilian, Venezuelan, Russian, or if you are in the Middle East, you want your money in U.S. assets – you want U.S. dollars. It is the safest place to be in troubled times, and that’s what’s contributing to downward pressure on U.S. Treasury rates and driving up urban real estate in many cities. The dollar has soared more in the last two years than at any other time in recent history, and that’s weighing on our economic growth. It’s weighing on all multinationals. For ACE last year, we grew our global P&C premium revenue 1% on a published basis but in local currency – on a constant dollar basis – we grew 8%. And we did better than most.

In the U.S., we see the impact on growth and productivity from cheap money that has driven asset prices and capital misallocation. The result has played out in a lack of corporate investment in favor of share repurchases from companies simply to drive short-term share prices. U.S. public companies have spent over $3 trillion on share buybacks since 2010, representing approximately half of their earnings over that period. Combined with dividends, companies have returned 85% of earnings to shareholders, leaving only 15% to invest in their businesses – hardly a strategy for long-term growth. We are eating our seed corn brought to you by the Fed.

## Geopolitical hotspots everywhere

On the geopolitical front, hotspots are everywhere – the Middle East, the South China Sea, North Korea, Russia and the Ukraine – as are threats such as global terrorism and immigration. A contributing factor is America’s withdrawal from the world stage. We are the sole superpower and have benefited from that historically. As we have abdicated leadership and shown our ambivalence to lead, a vacuum is created – but not for long, as others seek opportunity in their own interests. Event risk can come from so many different directions and in so many combinations.

Bottom line: I think we will be living in a world of low interest rates and relatively low inflation with a major potential for disruption and volatility for the next few years. In a word, uncertainty.

Which brings me to the U.S. election season, which everyone around the world is watching. Everyone wants to vote in the U.S. election; everyone has an opinion about our election season. But that’s what happens when you’re a leader and in the spotlight. There is deep unease in our country as evidenced by our slate of candidates and voter sentiment. The disillusionment and anger among voters are palpable.

On the one hand, there is a craving for leadership to solve problems, to make us feel good and proud about ourselves and our country – in other words, to lead us. On the other hand, it has to do with the haves versus the have-nots in our society. Inequality is a profound issue and it is causing real tension. It is a threat to democracy when citizens rightfully believe there is both economic inequality and inequality



in opportunity, and that the system is rigged to benefit a few. People are suffering, and as a society we are just at the beginning of the dialogue on this subject. It is hard to sustain a quality of life on current middle income wages. People are vulnerable to populist rhetoric as they search for a cause and solution to their problems. They blame trade and immigration; they have no confidence in public or private institutions. When inequality isn’t solved by the market, it is solved politically where we hopefully have greater equality of representation. The causes are numerous and complex but the answer isn’t wealth redistribution. It’s wealth creation and greater opportunity for all to participate. The private sector, not government, creates economic wealth.

## Trade and TPP

I want to say a few words on the subject of trade. If you look at the world today, Asia is the region with the greatest 21st century wealth creation potential. America is a Pacific nation, and American companies must be free to participate. America’s future prosperity, including our ability to create good jobs and compete globally, depends on our active participation in trade and investment in Asia Pacific and around the world. Countries in the region want and expect U.S. leadership and engagement. In fact, over the last 60 years, Asia’s progress is in no small part due to the stability and security provided by the U.S. presence in the region.

One major trade agreement now facing legislative action is the Trans-Pacific Partnership (TPP), an economically and geopolitically important 12-nation agreement that would, among other benefits, expand opportunities for U.S. companies in the fast-growing economies of Asia Pacific. Our country enjoys the benefits of global leadership and we have a responsibility to lead the world, including Asia, in a modern vision of fair and open trade and investment that TPP represents. By addressing barriers to doing business such as investment restrictions, regulatory discrimination and local ownership requirements, TPP will help level the playing field and create new opportunities for American manufacturers, service providers, the agricultural industry and companies like Chubb. Failure to do so will create a dangerous vacuum that others with competing visions will fill.

Beyond that, government and business must work together to do more to advance our leadership. It’s not enough just to make agreements. We must work with our allies to promote stability and prosperity in the Asia Pacific region, including its security, infrastructure and institutions to administer the rule of law. We must lead and our allies must believe we are dependable and committed.

## The Chubb name and brand – excellence, quality, service, craftsmanship

Chubb is a unique name. Backed by 130 years of heritage, particularly in the North American market where it has excellent recognition with agents, brokers and high net worth customers, the Chubb name stands for excellence, quality and service – attributes that we value strongly. However, we are a new company and that called for a new identity, created from the shared DNA of the two companies. ACE’s brand was about its can-do attitude, its discipline, energy, drive, professionalism and optimism, and its global nature and entrepreneurial spirit. The legacy Chubb brand was about its deep customer thinking, its quality work, and unparalleled knowledge of and dedication to both its customers and the independent agency system.

When we looked to see what we had in common – our shared values and purpose – and when we looked closely at our cultures, we found three core truths about the new Chubb:

1. We are both underwriting companies. At our core, we are underwriters – it all starts there;

2. We both believe in providing excellent service; and

3. We are both disciplined in how we manage and execute with excellence.

Together, these three truths – superior underwriting, superior service and superior execution – are our North Star. And together what they say to us is: superior craftsmanship.

All of us in the new Chubb are craftsmen of what we do – underwriting, claims, actuarial, finance, legal, marketing, sales and so on. As craftsmen of insurance, we meticulously conceive, craft and deliver extraordinary coverage and service for our customers and their agents and brokers. As craftsmen, we adhere to certain ideals:

- Excellence in All We Do – we hold ourselves to exacting standards of technical proficiency and constant improvement – we are a learning organization. We are constantly searching for ways to improve our craft.

- Global Reach and Local Expertise – we apply our craft locally all around the world.



- A Can-Do Attitude – we are optimistic about our future and we have an enthusiasm to serve our customers and business partners with utmost speed and energy.

- Humility – we are no bigger than our smallest customer.

Craftsmanship is also about people. It’s personal. The finest craftspeople demand excellence of themselves and they often sign their products. At Chubb, we should all be proud to sign our name to whatever work we do. And that is why at the end of every Chubb piece of work, it will be signed “Chubb. Insured.” This is our signature, our mark of craftsmanship.

We’re excited by our new Chubb brand and the unique concept of craftsmanship, as well as our colorful new visual identity that’s vibrant and full of life. We look forward to building greater awareness and familiarity of the Chubb name and brand with current and prospective customers and business partners in all of the places where we do business around the globe.

## The next chapter

It’s been an extraordinary year. The name ACE is now in the history books – it’s in the rearview mirror. I have many people to thank beginning with all of my legacy ACE colleagues including our employees, my senior management team and Board of Directors, without whom our successful financial performance and strategic achievements last year would not have been possible. I also want to express my gratitude to the leaders and employees of both the legacy ACE and Chubb organizations for their remarkable efforts in what was a demanding race to the finish to create comprehensive integration plans, close the transaction and, more importantly, begin the hard work of bringing our companies together. I would like to acknowledge the contributions of Peter Menikoff, one of our founding directors who is retiring from the Board this year after 30 years of service. It has been a pleasure and an honor to work with Peter. Lastly, I also want to welcome to the Board our newest members who have joined from legacy Chubb Corporation’s Board.

We are ready and eager to begin the next chapter of our story as the new Chubb. We are optimistic about our future but not Pollyannaish about the realities of the operating environment, the will of our competitors or the challenges of integrating two large, successful companies. Concerning the latter, I am encouraged by what I have seen so far. The energy level and morale of our leaders are high and there is a strong sense of focus in the organization on the day-to-day blocking and tackling needed to pursue opportunity, secure new customers, renew and serve the customers we have, introduce new products and expand our distribution. Collectively, our 31,000 employees are knitting us together with a common culture and vision.

I’m energized by that culture and inspired by that vision. On behalf of the entire new Chubb family, I can say that we are all excited by the value creation potential of this company and more confident than ever in our future.



Sincerely,

Evan G. Greenberg

Chairman and Chief Executive Officer

“Together, these three truths – superior underwriting, superior service and superior execution – are our North Star.”



## Meet the New Chubb:
A Conversation with Senior Leadership

In this section, six Chubb senior executives discuss their respective businesses and what our clients and distribution partners can expect from the new Chubb in 2016. Joining the conversation are the company’s Chief Operating Officer, the leaders of our North American and international insurance operations, and the heads of our North American field organization and global Accident & Health and Life insurance businesses. Throughout the section you’ll also be introduced to two dozen other Chubb executives who lead businesses and key functions across the globe.




Back, from left

Juan C. Andrade
Executive Vice President
Chubb Group;
President
Overseas General Insurance

John Lupica
Vice Chairman
Chubb Group;
President
North America Major Accounts
& Specialty Insurance
Edward Clancy
Executive Vice President
Chubb Group;
Global Accident & Health
and Life

Paul J. Krump
Executive Vice President
Chubb Group;
President
North America Commercial
& Personal Insurance
Harold L. Morrison, Jr.
Senior Vice President
Chubb Group;
Division President
Field Operations
North America Insurance

John Keogh
Executive Vice Chairman
Chubb Limited/Chubb Group;
Chief Operating Officer



Chubb’s insurance businesses in North America serve clients ranging from the largest multinationals, mid-size companies and small businesses to high net worth individuals, middle-income consumers and farmers.

Chubb is now among the world’s largest insurance companies. What do you think will surprise customers and distribution partners the most about the new Chubb?

John Keogh: Our customers and distribution partners are going to see a company that’s on its front foot, looking for opportunities to do more for them. The new Chubb is going to be innovative, creative, ambitious, enthusiastic and energized.

I think people will also be surprised to see that the delta between ACE’s culture and Chubb’s culture is not as big as some imagine. When you think about what we do for a living, we’re both underwriting companies. There is very little difference in the way the two companies thought about underwriting. Our approach to underwriting – our discipline, risk appetite, pricing terms and conditions – is consistent and sustainable. This is important for our clients, agents and brokers because it means we will continue to provide a stable and steady market. With so much uncertainty in the world, clients and distribution partners are looking for a partner they can trust. They can rely on us.

Chubb is now a leading commercial lines insurer in the U.S. What can your largest corporate customers expect to see from the company?

John Lupica: Our Major Accounts business serves our largest customers in North America. These clients typically have a full-time risk manager, purchase bespoke products and services, and utilize the services of a broker versus an agent. Our core products are domestic and foreign casualty, property, environmental, marine, financial lines, A&H and ESIS risk management and third-party administration.

Major Accounts clients in the new Chubb can expect to see consistency in underwriting and capacity, continuity in our products and services, and a commitment to innovation. The Chubb merger gives us an expanded risk appetite for all of our buying community and also brings us even closer to clients, given our increased presence across North America. We have an opportunity to further cultivate our current relationships and acquaint clients with our industry-leading and award-winning products and services. Among them are Worldview, our proprietary, global policy management platform, which brings the Chubb team and risk management program to a client’s desktop, as well as our world-class loss control capabilities and claims infrastructure.

Chubb’s operation in Bermuda remains our large capacity excess play for Chubb globally. It remains a low-frequency/high-severity business model. It is our center of excellence for excess capacity plays. Their clients are global multinationals in risk classes that require large blocks of capacity in property, excess and financial lines.

What about middle market and small businesses? How is the new Chubb better equipped to serve their needs?

Paul Krump: For North America Commercial Insurance and Small Commercial, our P&C businesses



Chubb's North America Insurance Business Units

<table><tr><td>Major Accounts</td><td>Westchester</td></tr><tr><td>Commercial P&amp;C insurance products for the large corporate market sold by retail brokers</td><td>Commercial P&amp;C excess and surplus lines sold through wholesale brokers</td></tr><tr><td>Commercial Insurance</td><td>Chubb Bermuda</td></tr><tr><td>Commercial P&amp;C insurance products for middle market companies sold by independent agents and retail brokers</td><td>Liability, property, political risk coverages and captive programs sold by large international brokers</td></tr><tr><td>Small Commercial</td><td>Agriculture</td></tr><tr><td>P&amp;C insurance products for small commercial clients sold by independent agents and retail brokers</td><td>Crop insurance from Rain and Hail and farm and other P&amp;C coverages, sold by agents and brokers</td></tr><tr><td>Personal Risk Services</td><td>Combined Insurance</td></tr><tr><td>Personal lines coverage, including home, auto, valuables, umbrella and recreational marine insurance, for high net worth individuals and families sold by independent agents</td><td>Personal accident and supplemental health insurance coverages sold by captive agents</td></tr></table>

focused on middle market and small commercial clients, we are able to offer so many more products with far greater services. Our international capabilities are second to none, with deep knowledge in dozens of countries. We have a balance sheet with great stability. We offer an enormous range of underwriting expertise to tailor solutions to the specific needs of customers and industries. Given our size, we have the ability to put even more people in place as industry and geographic experts. In the middle market, our top priority is to infuse the new organization with knowledge of the product lines and the business so everyone can cross-sell and upsell. We also want to stay visible in the marketplace, and bring our full set of products and skills to bear for middle market customers. Our priority for Small Commercial is to set the stage for accelerated growth over the next few years.
Chubb is the leader in U.S. high net worth personal lines. How will you leverage the strengths of the combined business? How is the new Chubb better equipped to serve the needs of high net worth individuals and families?

Paul Krump: In Personal Risk Services, it’s our larger balance sheet and taking the best of both companies, including our underwriting approaches. The key strategic priorities are to integrate the Fireman’s Fund, ACE and Chubb portfolios efficiently and effectively, begin to harness our collective data, synchronize our pricing and coverage options, and figure out how to wrestle more high net worth customers away from the direct writer channel and standard-issue policies that do not adequately address their needs.

We have credibility in the daily blocking and tackling of delivering a better product and service proposition for high net worth customers. So many people in this market segment are being underserved with mass market products that aren’t properly covering their jewelry or their homes. Their fine art isn’t being scheduled and adequately appraised, and they are operating without sufficient liability coverage. We know how to get these customers into the right program and provide them an appropriate level of service and coverage.

## What about your other consumer-facing business in North America?

Ed Clancy: Combined Insurance offers personal accident and supplemental health coverage to middle-income consumers. Combined has a captive agency sales force that’s 3,600 strong in the U.S. and Canada. This is an underserved market and we see opportunity to grow by providing this affordable protection to consumers in communities across the continent.

How does the Westchester wholesale business fit into the new Chubb? How important is having a major E&S company as part of the company’s commercial P&C capabilities?

John Lupica: The Westchester is an important company for us. It’s E&S and core to our operation. We’re returning Westchester to its legacy as



“Our approach to
underwriting is
consistent and
sustainable. This is
important for clients
and distribution
partners because it
means we will
continue to provide
a stable and
steady market.”

– John Keogh

a wholesale-only distribution model, which demonstrates our loyalty and commitment to our trading partners in the E&S market. The core of the business is hard-to-place casualty, property CAT and specialty lines. For those retail brokers who don’t have the capability or expertise for E&S products, Westchester provides an avenue to access Chubb. We’ve mirrored the majority of our specialty offerings in Westchester to match the products we sell through the retail company. The freedom of rate and form provides flexibility in delivering innovative products and solutions to the market.

We’ve also integrated legacy ACE’s wholesale small commercial business into Westchester. This business has innovative technology where we can rate, quote, bind, issue and register, all with efficient, straightforward processing. We are also in the wholesale small commercial market with broad program and binder offerings, which is a vibrant alternative solution for unique risks, such as pet insurance and motor sports.

Chubb is one of the largest
crop insurers in the U.S. Why is
crop insurance and its related
agribusiness P&C lines a good
complement to traditional and
specialty commercial P&C?

John Lupica: We’ve been in the multi-peril crop insurance business since it was privatized in 1981. We’re a leader in North America. Rain and Hail insures about 60 million acres and more than 100 different crops. We are proud to service the American farmer. This business has great social value and we are committed to it. It’s a terrific business for other reasons, too. It provides balance for our portfolio, offering a diverse stream of premium revenue that is not subject to the P&C insurance cycle. While rates are fixed as part of our partnership with the government, we have the opportunity to differentiate ourselves with our outstanding service and claims. Amid the changes we’ve seen among other players in this space, we have continued to be a stable market for farmers, agents and brokers. Our agribusiness P&C lines, which insure ranches, farms and the agribusiness community, are an excellent complement to our crop insurance business.

Chubb is known for the quality of its claims and engineering services. How will superior quality be maintained across the larger organization?

Paul Krump: It’s still early, but I couldn’t be happier with how deeply committed we are on the claims side to get it right. We are being really thoughtful about transforming claims into an even greater asset – having it become an even stronger part of our marketing narratives to help capture new customers and retain more existing ones as we differentiate ourselves as craftsmen with technical skills, empathy and integrity. We are working to take the best of both organizations and really burnish our claims brand and make it stronger.



## North American Leadership

Chubb is a leading commercial lines insurer in the U.S., the premier provider of insurance coverage for high net worth individuals and families, and an industry leader in financial lines, personal accident and supplemental health insurance and crop insurance.













Bruce L. Kessler
Division President, Westchester
Joseph S. Clabby
Division President, Bermuda & Global Accounts



Steven R. Pozzi
Division President, Commercial Insurance
Brad Bennett
President, Combined Insurance

Michael J. Coleman
Division President, Agriculture



Christopher A. Maleno
Division President, Major Accounts
Frances D. O'Brien
Division President, Personal Risk Services
James Williamson
Division President, Small Commercial Insurance



“We are being really thoughtful about transforming claims into an even greater asset to help capture new customers and retain more existing ones as we differentiate ourselves as craftsmen with technical skills, empathy and integrity.”

– Paul Krump

John Keogh: Legacy Chubb has a well-earned reputation, built over many years, for exceptional claims service. Claims will absolutely be a priority going forward. Superior, outstanding claims services, combined with superior underwriting, will define the new Chubb. We will continue to invest in our claims capability around the globe to maintain and further build that reputation.

Bringing together the best of both claims organizations will enable us to strengthen our reputation for claims. Chubb’s reputation was in a class by itself. Legacy ACE also had a strong claims organization. Think about all the large, complex claims we’ve handled for major accounts and multinationals. Now we are weaving together the best of both worlds.

## How will commercial customers benefit from Chubb’s risk engineering capabilities?

Paul Krump: Risk engineering delivers a lot of sophistication to our commercial customers. It is really one of the distinguishing services we offer. The acquisition added over 250 engineers in North America, specializing in such areas as property, industrial hygiene, fleet safety and product liability. They personalize Chubb by helping customers lower their costs of risk by avoiding losses and giving us a chance to provide value at all times.
Our engineers also help us lower our combined ratios. They help us achieve insurance-to-value, which is so essential in the middle market where blanketed property and business interruption limits are the norm. They also improve our retention and sales opportunities. The bottom line is that our engineers are the eyes and ears of our underwriters.

## How are customers and distribution partners in North America reacting to the new Chubb?

Paul Krump: We are starting to surprise and delight people. Employees, agents, brokers and clients can see we are really hitting the ground running – that we are visible and focused. That we are not distracted and this isn’t going to take us years and years to sort out. Our philosophies are compatible and our skill sets are complementary. Chubb is a company led by people who love insurance and all its details. In the field and throughout the company, we are energized. We aren’t afraid to roll up our sleeves and go to work to help people.

John Lupica: Customers and partners will be pleased with the familiarity of what they see, including the continuity of people as well as with our new combined energy, our bigger risk appetite and the breadth of products and services that we will be introducing. Our priorities are integrating the company, staying on our front foot, and delivering our broad product set through the robust distribution network of Chubb, using our deep agent and broker relationships to cross-sell products and services.



How is Chubb’s branch and field organization in the U.S. and Canada a competitive advantage? How does it better serve the company’s distribution?

We have 48 branches throughout the U.S. and Canada that allow us to have a local presence and a closeness with our customers. We bring the whole global capability of our new Chubb organization to our clients in each local market where we do business. By being on the ground, we also can spend more time with our producers, which means we have deeper relationships with them as well.

In the middle market, being local matters. The real decision makers are the agents and brokers who are the trusted advisors with the expertise to determine which insurer can best serve a client’s needs. They want to interact with a local underwriter they can bring in front of their client.

Each branch really serves as our storefront, where our clients and distribution come to shop at Chubb. It’s where they connect with our resources, see how we can help them and learn about our combined shelf of complementary products. So we’ve got to be close in order to drive the business.

## What are your priorities for 2016?

My biggest priority is to blend the organization and get us united as one Chubb, while at the same time remaining externally focused. We’ve got to stay in front of our customers and producers. I am very confident we will be able to achieve this, because we put a lot of time into planning through the integration, to ensure we would be able to execute and be externally focused once we closed. The work we did during the second half of 2015 has really positioned us to hit the ground running in 2016. It’s an advantage for us to be out in the market from the start.

## What else should customers and distribution partners expect from the new Chubb?

Our existing clients will continue to receive the superior level of service and products they have always received from our legacy firms, but now they will have an accessible local network of loss control, claims and senior officials who will be familiar with the conditions they’re experiencing, to better support them. Our distribution partners who weren’t familiar with both ACE and Chubb will be surprised by our much broader underwriting appetite and our combined expertise. This will allow us to be more flexible and creative in how we are able to deal with their individual situations and solve their problems, so we can serve a wider segment of their customers.

Separately, ACE or Chubb might have been fourth, fifth or sixth in our share of a distribution partner’s total business. Together, we will pretty consistently be first, second or third. From the perspective of product shelf space and presence, this gives us a different profile than we’ve had. We’ll have a greater level of interaction, which will mean more powerful opportunities for partnering and creativity.



Chubb’s international general insurance operations comprise two major businesses: one with distribution through retail brokers in five regions of the world and the other an excess and surplus (E&S) lines business with distribution through brokers in the London wholesale market and Lloyd’s.

## How have the company’s international operations changed with the ACE-Chubb transaction? How is the new Chubb better equipped to serve customers’ needs? How about distribution partners?

Juan Andrade: Our international capabilities have expanded and strengthened post the acquisition in terms of talent, product and distribution. While we already were a truly global company with a deep local presence in 54 countries, the acquisition has provided us with new middle market products focused on different industries, an expanded international personal lines high net worth capability in selected developed countries, a stronger and deeper claims organization, and increased scale in several key countries like the U.K., Australia, France and Colombia. These additional capabilities are complementary to ACE’s strengths in the large risk and multinational space, middle market commercial, accident and health, and personal lines businesses, both emerging markets and specialty. The new Chubb can effectively and seamlessly serve all customers, from individual consumers in Thailand to wealthy individuals in Australia, and from the smallest companies to the world’s largest and most complex multinationals.

While we are a global company, business is conducted locally. We have people in underwriting, sales, claims, operations, IT and general management in each of our 54 countries. Our employees have local relationships and understand local laws, customs and regulations. The global reach and local depth of this company sets us apart. It all starts with our sizable presence across Europe and in developed Asia, which is more than half of our international operation. Add to that, the new Chubb is one of the largest non-life insurers in the emerging nations of Asia and Latin America.

With regard to our distribution partners, we also each brought complementary relationships that now offer us much broader reach and access to different customers. Our expanded product, claims and risk engineering capabilities offer our distribution partners the opportunity to continue growing with us in different areas and with the certainty of working with a superior company with exceptional service capabilities.

John Keogh: Building a world-class organization globally to serve the middle market and consumers is something we’ve been striving in recent years to do at legacy ACE. Building takes time and we are patient. With Chubb we get the benefit of years and years of hard work, and that’s terrific.



## Chubb's Overseas General Insurance Business Units

## International

Commercial P&C, A&H and traditional and specialty personal lines sold by retail brokers, agents and other channels in five regions:

## Europe

Operations in the U.K. and 18 other countries comprised of P&C commercial lines and consumer lines, including A&H and specialty personal lines

## Asia Pacific

Operations in 14 countries – six with both life and non-life operations – serving commercial customers and consumers with P&C, A&H and personal lines

## Latin America

Operations in nine nations serving commercial customers with P&C products and consumers through A&H and personal lines

## Far East

Operations in Japan serving commercial customers with P&C products and consumers through A&H and personal lines

## Eurasia & Africa

Operations in nine countries serving commercial customers with P&C products and consumers through A&H and personal lines

## Chubb Global Markets

Commercial P&C excess and surplus lines and A&H sold by wholesale brokers in the London market and through Lloyd's
We have also deepened our team around the world with the addition of legacy Chubb's very talented professionals. We are like-minded. We all share a passion for underwriting excellence and a deep understanding of local markets.

Our already strong claims capabilities have also broadened and deepened. ACE’s strengths were in the large commercial space, working with risk managers and brokers on highly complex claims, and in A&H and personal lines, where expertise in managing frequency is more of the focus. In working with mid-size companies and high net worth individuals, legacy Chubb lived in a slightly different world – and from a claims perspective very demanding. Their reputation for great claims is very well deserved. From a servicing standpoint, we will take the best of what they bring and raise our game across the board.

Juan Andrade: Personal lines is an example of the complementary nature of both companies. ACE had built a growing and very profitable business aimed at two distinct markets. First, we have a very large, successful specialty personal lines business in Europe insuring mobile phones and other personal devices. Second, we work with over 32,000 independent agents and brokers selling basic residential, automobile and specialty personal lines products to the emerging middle classes of the developing world in places like Monterrey, Mexico, and
Bangkok, Thailand. Chubb had an established capability in the high net worth space in the developed markets of the U.K. and Australia offering products that protect fine art collections, high-end homes and collector automobiles. We can now leverage these capabilities to expand our reach through enhanced distribution and presence.

## How do Chubb’s international insurance operations fit into the company’s overall growth strategy?

Juan Andrade: In terms of products, customer segments, geography and distribution channels, Overseas General is a well-diversified, profitable and growing multinational business. We are a significant growth and profit driver for Chubb. We offer the company balance and diversification.



“With so much
uncertainty in the
world, clients and
brokers are looking
for a partner they
can trust.”

– John Keogh

Chubb is a multinational company by strategic design. First and foremost, we are global so that we can pursue opportunity everywhere it exists. Another reason for being global is to create stability and diversity in the portfolio. When growth has been difficult to come by in developed market economies, whether it’s the U.S., continental Europe or Japan, our footprint and our profile, particularly in emerging markets, has really paid off. When one region is down, another is growing.

## How will multinational customers and their distribution partners benefit from Chubb’s global capabilities?

John Keogh: Chubb’s global reach and capability is a unique, distinguishing strength. This company has the ability to serve Fortune 500 corporations and multinationals as well as emerging middle market businesses that are just starting to expand outside their own country. We have made significant investments to build that capability over the years. We’ve invested in people, including our team of global client executives exclusively focused on bringing the best of our entire global capabilities to clients and brokers. We’ve invested in technology – our Worldview web-based portal allows multinational risk managers to monitor the status of their entire global program in real time. This technology, which is second to none, is highly valued by both brokers and clients.

Our global A&H business is another unique capability. We work with sponsoring partners to offer their employees, customers and members around the world personal accident and supplemental health coverage.

Lastly, we’ve made substantial investments in expanding our product and service capabilities overseas.

## Can you offer an example?

John Keogh: A few years ago we expanded our presence in Mexico by acquiring a leading auto insurer. That’s a good business for us – as a company we are very much focused on expanding our personal lines, commercial P&C and A&H businesses in faster-growing developing markets with low insurance penetration and a growing middle class. But our deeper local presence also benefits our clients that operate internationally. Now, when a U.S.- or Europe-based client with operations in Mexico needs to insure a fleet of vehicles, we are there for them on the ground. We are able to provide



## International Leadership

Chubb is a global leader in traditional and specialty P&C coverage for industrial commercial and mid-market companies and in personal accident and supplemental health insurance. The company is also the largest financial lines writer globally and has a large international personal lines business.







Jeffery Hager
Regional President, Far East



Jorge Luis Cazar
Regional President, Latin America

Juan Luis Ortega
Regional President, Asia Pacific



Giles Ward
Regional President, Eurasia & Africa

Andrew Kendrick
Regional President, European Group



“The new Chubb can effectively and seamlessly serve all customers from individual consumers in Thailand to wealthy individuals in Australia, and from the smallest companies to the world’s largest and most complex multinationals.”

– Juan Andrade

that coverage and service it with cutting-edge claims handling. That’s just one example of the capabilities we can offer that most of our competitors cannot. Clients of legacy Chubb will also benefit from that more fulsome, stronger, industry-leading international presence. At the same time, legacy ACE clients will benefit from the strong loss control, risk engineering and claims capabilities that legacy Chubb had in some overseas markets. Again, our operations and strengths complement each other.

Another example: the new Chubb is the largest underwriter of financial lines coverage in the world. Two companies, each very well regarded and a leader in its own customer and geographic segments, come together. As economies in developing markets grow, they become more sophisticated, and companies increasingly do more business outside their own borders. With those trends, exposure to professional liability grows. Whether it’s directors and officers or errors and emissions coverage, we see a significant opportunity to take our industry-leading capability and deliver it as demand grows around the globe in those emerging economies.

## What can international customers and distribution partners expect to see from the new Chubb?

Juan Andrade: Number one is just the sheer size and reach of this company, the expansive product breadth and capabilities. We can write a simple travel accident or personal accident policy for an individual and the most complex risk for a multinational corporation – and everything in between. We have the ability to service pretty much any type of risk, from commercial to consumer, wholesale business to retail business, in 54 markets around the world. There aren’t many other companies that can match our breadth of product and geographic reach.

Ed Clancy: Concerning our A&H business, I think the market will welcome our commitment to treat our customers and distribution partners as well or better than we did in the past. It’s important to note that legacy Chubb’s reputation for great service extended to its A&H business. All of our people are energized by the opportunity to build on what we’ve accomplished.

John Keogh: When you look at the new Chubb’s international profile, we’re better positioned than ever to compete and be relevant in offering potential clients our full range of capabilities. When you add it all up, it’s just a great story and pretty exciting in terms of the opportunities we can bring to our customers and distribution partners around the world.



Chubb is a global leader in personal accident and supplemental health insurance. How have the company’s capabilities changed with the ACE-Chubb transaction? How is the new Chubb better equipped to serve customers’ needs? How about distribution partners?

Prior to the Chubb acquisition, A&H represented about 20% of ACE’s overall net premiums written. A&H is important because it brings balance and stability to the company’s overall business mix – and because it continues to have the potential to grow faster than Chubb’s other lines. We’re excited by what legacy Chubb brings to this business. First, our new colleagues are experienced, talented and know the business. They have excellent underwriting and marketing expertise and are well respected in the brokerage community. We’re particularly excited about the distribution opportunities Chubb brings us. In North America, legacy Chubb gives us an extensive field operation as well as an extraordinary network of independent agents and brokers. We’re very interested in exploring these channels to bring A&H products to middle market and small businesses – customer segments where legacy Chubb was particularly strong. So, yes, the new Chubb is better equipped to serve and reach producers as well as consumers.
Tell us about the innovative distribution channels you are deploying for A&H products.

Outside of North America, the lion’s share of what we do is direct marketing. Our distribution includes telemarketing, bancassurance and mobilassurance. In Thailand, for example, we’re in more than 1,200 Siam Commercial Bank branches and have more than 650 outbound telemarketers reaching out to credit card, financial institution and retailer customers. In South Korea, we have more than 1,400 telemarketers marketing product to the customers of credit card companies, home shopping networks and on television through DRTV.

In Brazil, we have an active mobilassurance program, which involves selling traditional personal accident coverage through mobile phones. Consumers learn about the product, purchase it and pay their premium using intelligent SMS (texting) technology. Many of these low- to middle-income consumers do not have credit cards or bank accounts and would be difficult to reach through traditional distribution channels. We expect to continue to invest in our direct marketing business and further expand distribution through innovative digital channels.

Building relationships with large affinity partners is also an important part of our direct marketing strategy. These organizations are very concerned about protecting their brands, so working with a company that has the right experience, capabilities and people is very important to them. The depth and breadth of our capabilities are differentiators as we talk with financial institutions, retailers or other potential partners and explain how we will take care of their customers and help them generate more revenue.

## What are your key priorities for 2016?

We’re focused on expanding on what we do today and finding new ways to offer A&H products. That includes taking the best of what legacy Chubb brings to us and maximizing distribution opportunities that we didn’t have before. In North America, for example, we’re looking at the new Chubb’s expanded capabilities to reach middle market businesses for group coverage and potentially voluntary benefits programs offered by Combined Insurance.



Corporate & Global Business Unit Leaders



Philip Bancroft
Chief Financial Officer





Timothy Boroughs
Chief Investment Officer

Frank Lattal
Chief Claims Officer





Jacques Q. Bonneau
Executive Vice President, Global Underwriting
Sean Ringsted
Chief Risk Officer & Chief Actuary










Rainer Kirchgaessner
Global Corporate Development Officer
Patricia Henry

Global Government & Industry Affairs Officer



James E. Wixtead
President, Chubb Tempest Re Group
Russell G. Bundschuh
President, Chubb Life



Joseph Wayland
General Counsel
Paul Medini
Chief Accounting Officer



## Chubb Group Corporate Officers

Evan G. Greenberg \( ^{*} \) 
Chairman &
Chief Executive Officer
Chubb Limited/Chubb Group

John Keogh \( ^{*} \) 
Executive Vice Chairman
Chubb Limited/Chubb Group;
Chief Operating Officer

John Lupica \( ^{*} \) 
Vice Chairman
Chubb Group;
President
North America Major Accounts
& Specialty Insurance

Paul J. Krump \( ^{*} \) 
Executive Vice President
Chubb Group;
President
North America Commercial
& Personal Insurance

Juan C. Andrade \( ^{*} \) 
Executive Vice President
Chubb Group;
President
Overseas General Insurance

Philip Bancroft \( ^{*} \) 
Executive Vice President
Chubb Limited/Chubb Group;
Chief Financial Officer

Jacques Q. Bonneau
Executive Vice President
Chubb Group;
Global Underwriting

Timothy Boroughs \( ^{*} \) 
Executive Vice President
Chubb Group;
Chief Investment Officer

Edward Clancy
Executive Vice President
Chubb Group;
Global Accident & Health and Life

Sean Ringsted \( ^{*} \) 
Executive Vice President
Chubb Group;
Chief Risk Officer & Chief Actuary

Joseph Wayland \( ^{*} \) 
Executive Vice President
Chubb Limited/Chubb Group;
General Counsel

Brad Bennett
Senior Vice President
Chubb Group;
President
Combined Insurance

Russell G. Bundschuh
Senior Vice President
Chubb Group;
President
Chubb Life

Jorge Luis Cazar
Senior Vice President
Chubb Group;
Regional President
Latin America

Phillip Cole
Senior Vice President
Chubb Group;
Global Human Resources Officer

Andrew Kendrick
Senior Vice President
Chubb Group;
Regional President
European Group

Bruce L. Kessler
Senior Vice President
Chubb Group;
Division President
Westchester

Rainer Kirchgaessner
Senior Vice President
Chubb Group;
Global Corporate Development Officer

Ken Koreyva
Senior Vice President
Chubb Group;
Treasurer

Frank Lattal
Senior Vice President
Chubb Group;
Chief Claims Officer

Edward Levin
Senior Vice President
Chubb Group;
Division President
Accident & Health
Overseas General Insurance

Christopher A. Maleno
Senior Vice President
Chubb Group;
Division President
North America Major Accounts

Patrick McGovern
Senior Vice President
Chubb Group;
Chief Communications Officer

Paul Medini
Senior Vice President
Chubb Group;
Chief Accounting Officer

Harold L. Morrison, Jr.
Senior Vice President
Chubb Group;
Division President
Field Operations
North America Insurance

Frances D. O'Brien
Senior Vice President
Chubb Group;
Division President
North America Personal Risk Services

Juan Luis Ortega
Senior Vice President
Chubb Group;
Regional President
Asia Pacific

Steven R. Pozzi
Senior Vice President
Chubb Group;
Division President
North America Commercial Insurance

James E. Wixtead
Senior Vice President
Chubb Group;
President
Chubb Tempest Re Group

Richard Betzler
Vice President
Chubb Group;
Global Tax



Joseph S. Clabby
Vice President
Chubb Group;
Division President
Bermuda & Global Accounts

Michael J. Coleman
Vice President
Chubb Group;
Division President
North America Agriculture

Sean Corridon
Vice President
Chubb Group;
Deputy Chief Investment Officer

David Furby
Vice President
Chubb Group;
Division President
Commercial Property & Casualty
Overseas General Insurance

Patricia Henry
Vice President
Chubb Group;
Global Government & Industry
Affairs Officer

Paul O'Connell
Vice President
Chubb Group;
Chief Actuary
Global Property & Casualty
North America

William O'Farrell
Vice President
Chubb Group;
Chief Reinsurance Officer

Darryl Page
Vice President
Chubb Group;
Division President
Personal Insurance
Overseas General Insurance

Kevin Shearan
Vice President
Chubb Group;
Chief Information Officer

## Other Executives

Gerard M. Butler
Executive Vice President &
Deputy Field Officer
North America Insurance

Richard A. Ciullo
Chief Operating Officer
North America Surety

Dimitry DiRienzo
Chief Auditor
Chubb Group

Samantha Froud
Chief Administration Officer
Bermuda Operations

Kevin Goulding
Regional President
Asia Pacific
Chubb Life

C. Scott Gunter
Chief Operating Officer
North America Personal Risk Services

Marcos Gunn
Division President
Northern Latin America;
Chief Operating Officer
Latin America

Jeffery Hager
Regional President
Far East

Stephen M. Haney
Division Chairman
North America Surety;
Chief Underwriting Officer
Global Surety

Ivy Kusinga
Chief Culture Officer
Chubb Group

Eric Larson
Chief Compliance Officer
Chubb Group

David Lupica
Chief Operating &
Distribution Management Officer
Westchester

Paul McNamee
Deputy Regional President
Asia Pacific
Timothy Mardon
Division President
Chubb Tempest Re Bermuda

Scott A. Meyer
Division President
North America Financial Lines

Jeff Moghrabi
Division President
Continental Europe

Timothy O'Donnell
Chief Operating Officer
Commercial Property & Casualty
Overseas General Insurance

Michael O'Donnell
Division President
Chubb Tempest Re USA

Jalil Rehman
Chief Business Operations Officer
European Group

Steve Roberts
Division President
Chubb Tempest Re International

David Robinson
Division President
U.K. & Ireland

Matthew Shaw
Division President
Chubb Global Markets

Leo Takagi
Chief Operations Officer
Far East

Derek Talbott
Division Chairman
North America Property

Giles Ward
Regional President
Eurasia & Africa

Herman Weiss
Division President
Andean Region

James Williamson
Vice President
Chubb Group;
Division President
North America Small Commercial
Insurance
















Evan G. Greenberg
Chairman and
Chief Executive Officer
Chubb Limited

Michael G. Atieh
Retired Chief Financial
& Business Officer
Ophthotech Corporation

Sheila P. Burke
Faculty Research Fellow
John F. Kennedy School
of Government
Harvard University

James I. Cash
Emeritus Professor of
Business Administration
Harvard University

Mary A. Cirillo
Advisor
Hudson Venture
Partners L.P.

Michael P. Connors
Chairman and
Chief Executive Officer
Information Services
Group, Inc.

John A. Edwardson
Retired Chairman and
Chief Executive Officer
CDW Corporation















Robert M. Hernandez
Lead Director
Chubb Limited

Retired Vice Chairman and Chief Financial Officer USX Corporation

Lawrence W. Kellner
President
Emerald Creek Group,
LLC

Leo F. Mullin
Retired Chairman
and Chief Executive
Officer
Delta Airlines

Kimberly A. Ross
Senior Vice President and
Chief Financial Officer
Baker Hughes
Incorporated

Robert W. Scully
Retired Co-President
Morgan Stanley

Eugene B. Shanks, Jr.
Retired President
Bankers Trust Company

Theodore E. Shasta
Retired Partner
Wellington Management
Company







David H. Sidwell
Retired Chief Financial
Officer
Morgan Stanley

Olivier Steimer
Chairman
Banque Cantonale
Vaudoise

James M. Zimmerman
Retired Chairman and
Chief Executive Officer
Federated Department
Stores, Inc. (Macy's)

## Board Committees

Audit Committee
Michael G. Atieh, Chairman
James I. Cash
Lawrence W. Kellner
Kimberly A. Ross
Theodore E. Shasta
David H. Sidwell

Compensation Committee
Michael P. Connors, Chairman
Mary A. Cirillo
Robert M. Hernandez

Nominating and Governance Committee
Mary A. Cirillo, Chair
Michael P. Connors
Robert M. Hernandez
Robert W. Scully
James M. Zimmerman

Risk & Finance Committee
Olivier Steimer, Chairman
Sheila P. Burke
John A. Edwardson
Leo F. Mullin
Eugene B. Shanks, Jr.

Executive Committee
Evan G. Greenberg, Chairman
Michael G. Atieh
Mary A. Cirillo
Michael P. Connors
Robert M. Hernandez
Olivier Steimer



Visit investors.chubb.com, write to the Investor Relations Department at Chubb Limited or e-mail investorrelations@chubb.com for copies of the company’s reports to the Securities and Exchange Commission on Form 10-K, Form 10-Q or Form 8-K, all of which are available without charge.

## Address Investor Relations Inquiries to:

Investor Relations
Chubb Limited
17 Woodbourne Avenue
Hamilton HM 08
Bermuda
Tel: 441 299 9283
E-mail: investorrelations@chubb.com

## Transfer Agent & Registrar

Computershare
250 Royall Street
Canton, MA 02021 USA
US: 877 522 3752
Outside the US: 201 680 6898

Address Shareholder Inquiries to:

By regular mail:
Computershare
P.O. Box 30170
College Station, TX 77842-3170 USA

By overnight delivery:
Computershare
211 Quality Circle, Suite 210
College Station, TX 77845 USA
Website:
www-us.computershare.com/Investor

Send Certificates for Transfer and Address Changes to:

Computershare
P.O. Box 30170
College Station, TX 77842-3170 USA

## Independent Auditors

PricewaterhouseCoopers AG
Birchstrasse 160
8050 Zurich
Switzerland
Tel: 41 58 792 44 00

PricewaterhouseCoopers LLP
Two Commerce Square, Suite 1800
Philadelphia, PA 19103 USA
Tel: 267 330 3000

## New York Stock Exchange Symbol

CB

Chubb Common Shares CUSIP Number

H1467J 104

## Price Range of Common Shares and Dividends

As of February 12, 2016, the company had 461,670,290 Common Shares outstanding with 7,893 registered holders of Common Shares. The accompanying table sets forth the cash dividends and the high/low closing sales prices of the company's Common Shares, as reported on the NYSE Composite Tape for the periods indicated. We have paid dividends each quarter since we became a public company in 1993. The method of payment of our dividend approved at our May 2015 annual general meeting was a distribution from capital contribution reserves (additional paid-in capital). This was also the method used for the dividend increase approved by our shareholders on January 10, 2014. However, the method for our dividend approved at our May 2014 annual general meeting (and the method primarily used before then) was a distribution by way of par value reduction.

<table><tr><td rowspan="2">Quarter Ending</td><td colspan="4">2015</td><td colspan="4">2014</td></tr><tr><td>High</td><td>Low</td><td>Dividends USD</td><td>CHF</td><td>High</td><td>Low</td><td>Dividends USD</td><td>CHF</td></tr><tr><td>March 31</td><td>$115.00</td><td>$107.96</td><td>$0.65</td><td>0.62</td><td>$101.70</td><td>$92.19</td><td>$0.75 (1)</td><td>0.65</td></tr><tr><td>June 30</td><td>$112.37</td><td>$101.60</td><td>$0.67</td><td>0.62</td><td>$105.32</td><td>$97.61</td><td>$0.65</td><td>0.58</td></tr><tr><td>September 30</td><td>$111.13</td><td>$99.72</td><td>$0.67</td><td>0.65</td><td>$107.39</td><td>$99.95</td><td>$0.65</td><td>0.61</td></tr><tr><td>December 31</td><td>$119.47</td><td>$102.29</td><td>$0.67</td><td>0.67</td><td>$117.58</td><td>$102.92</td><td>$0.65</td><td>0.63</td></tr></table>

 \( ^{1} \)  On January 10, 2014, our shareholders approved an increase to our dividend from $0.51 per share to $0.63 per share for the final two quarterly installments that had been earlier approved at our 2013 annual general meeting. Due to the timing of the approval, the $0.12 per share increase related to the quarter ended December 31, 2013 installment is included in the quarter ended March 31, 2014 dividend amount.



## Form 10-K



Washington, D.C. 20549

FORM 10 - K

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

For the fiscal year ended December 31, 2015

OR

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

For the Transition Period from to

Commission File No. 1-11778

CHUBBLIMITED

(Exact name of registrant as specified in its charter)

Switzerland

98-0091805

(State or other jurisdiction of incorporation or organization)

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

Baerengasse 32

Zurich, Switzerland CH-8001

(Address of principal executive offices) (Zip Code)

+41 (0)43 456 76 00

(Registrant's telephone number, including area code)

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

Title of each class

Name of each exchange on which registered

Common Shares, par value CHF 24.15 per share

New York Stock Exchange

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

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

YES ☑ NO ☐

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

YES ☐ NO ☑

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

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K ( \( §229.405 \)  of this chapter) is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference into Part III of this Form 10-K or any amendment to this Form 10-K. ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☑

Accelerated filer ☐

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

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

The aggregate market value of voting stock held by non-affiliates as of June 30, 2015 (the last business day of the registrant's most recently completed second fiscal quarter), was approximately $33 billion. For the purposes of this computation, shares held by directors and officers of the registrant have been excluded. Such exclusion is not intended, nor shall it be deemed, to be an admission that such persons are affiliates of the registrant.

As of February 12, 2016 there were 461,670,290 Common Shares par value CHF 24.15 of the registrant outstanding.

## Documents Incorporated by Reference

Certain portions of the registrant's definitive proxy statement relating to its 2016 Annual General Meeting of Shareholders are incorporated by reference into Part III of this report.



[This Page Intentionally Left Blank]



## CHUBB LIMITED INDEX TO 10-K

PART I Page
ITEM 1. Business 2
ITEM 1A. Risk Factors 19
ITEM 1B. Unresolved Staff Comments 31
ITEM 2. Properties 31
ITEM 3. Legal Proceedings 31
ITEM 4. Mine Safety Disclosures 31

## PART II

ITEM 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 32
ITEM 6. Selected Financial Data 34
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 35
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk 87
ITEM 8. Financial Statements and Supplementary Data 92
ITEM 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 92
ITEM 9A. Controls and Procedures 92
ITEM 9B. Other Information 92

## PART III

ITEM 10. Directors, Executive Officers and Corporate Governance 93
ITEM 11. Executive Compensation 93
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 93
ITEM 13. Certain Relationships and Related Transactions, and Director Independence 93
ITEM 14. Principal Accounting Fees and Services 93

## PART IV

ITEM 15. Exhibits, Financial Statements Schedules 94



## ITEM 1. Business

## General

On January 14, 2016, we completed the acquisition of The Chubb Corporation, creating a global leader in property and casualty insurance. We have changed our name from ACE Limited to Chubb Limited and plan to adopt the Chubb name globally, although some subsidiaries may continue to use ACE as part of their names. All references to Chubb Limited throughout this Form 10-K refer to legacy ACE Limited, unless otherwise indicated. The financial condition and results of operations presented herein are those of legacy ACE Limited and its subsidiaries and do not include the financial conditions and results of operations of legacy Chubb Corporation and its subsidiaries.

Chubb Limited is the Swiss-incorporated holding company of the Chubb Group of Companies. Chubb Limited, which is headquartered in Zurich, Switzerland, and its direct and indirect subsidiaries (collectively, the Chubb Group of Companies, Chubb, we, us, or our) are a global insurance and reinsurance organization, serving the needs of a diverse group of clients worldwide. At December 31, 2015, we had total assets of $102 billion and shareholders' equity of $29 billion. Chubb was incorporated in 1985 at which time it opened its first business office in Bermuda and continues to maintain operations in Bermuda.

We offer commercial insurance products and service offerings such as risk management programs, loss control and engineering and complex claims management. We provide specialized insurance products ranging from Directors & Officers (D&O) and professional liability to various specialty-casualty and umbrella and excess casualty lines to niche areas such as aviation and energy. We also offer personal lines insurance coverage including homeowners, automobile, valuables, umbrella liability, and recreational marine products. In addition, we supply personal accident, supplemental health, and life insurance to individuals in select countries. We have grown our business through increased premium volume, expansion of product offerings and geographic reach, and the acquisition of other companies. During 2015, we acquired the Fireman's Fund Insurance Company high net worth personal lines business in the U.S., which included the renewal rights for new and existing business and reinsurance of all existing reserves. This business operates under our Insurance – North American P&C segment and the consolidated financial statements include the results of this business from the acquisition date.

With the acquisition of The Chubb Corporation we have become a global P&C leader, with highly complementary business lines, distribution channels, customer segments and underwriting skills. In the U.S., where The Chubb Corporation has a substantial presence, the acquisition makes us a leading insurer of business, from the large corporate segment to the middle market, with a broad variety of coverages. Together we have become one of the largest commercial insurers in the U.S. Internationally, where legacy ACE is a truly global insurer with extensive presence in 54 countries, The Chubb Corporation's operations in 25 markets are expected to add to our presence and capabilities and position us to better pursue important market opportunities globally. We expect the combined company to be a top-tier leader in a number of global specialty and traditional products such as professional lines, risk management, workers compensation, accident and health (A&H) and other property and general casualty lines.

Refer to Note 2 to the Consolidated Financial Statements for additional information on our acquisitions.

At December 31, 2015, we employed approximately 22,000 people. We believe that employee relations are satisfactory.

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

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



report. The public may also read and copy any materials Chubb files with the SEC at the SEC's Public Reference Room at 100 F Street, NE, Washington, DC 20549 or by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

## Customers

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

## Competition

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

## Trademarks and Trade Names

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

## Segment Information

Through December 31, 2015, we operated through five business segments. The following table presents net premiums earned (NPE) by segment:

<table><tr><td>Years Ended December 31 (in millions of U.S. dollars, except for percentages)</td><td>2015 Net Premiums Earned</td><td>% of Total</td><td>2014 Net Premiums Earned</td><td>% of Total</td><td>2013 Net Premiums Earned</td><td>% of Total</td></tr><tr><td>Insurance - North American P&amp;C</td><td>$ 6,582</td><td>38%</td><td>$ 6,107</td><td>35%</td><td>$ 5,721</td><td>34%</td></tr><tr><td>Insurance - North American Agriculture</td><td>1,364</td><td>8%</td><td>1,526</td><td>9%</td><td>1,678</td><td>10%</td></tr><tr><td>Insurance - Overseas General</td><td>6,471</td><td>38%</td><td>6,805</td><td>39%</td><td>6,333</td><td>38%</td></tr><tr><td>Global Reinsurance</td><td>849</td><td>5%</td><td>1,026</td><td>6%</td><td>976</td><td>6%</td></tr><tr><td>Life</td><td>1,947</td><td>11%</td><td>1,962</td><td>11%</td><td>1,905</td><td>12%</td></tr><tr><td>Total</td><td>$ 17,213</td><td>100%</td><td>$ 17,426</td><td>100%</td><td>$ 16,613</td><td>100%</td></tr></table>

Additional financial information about our segments, including net premiums earned by geographic region, is included in Note 16 to the Consolidated Financial Statements.



## Insurance – North American P&C (38 percent of 2015 Consolidated NPE)

## Overview

The Insurance – North American P&C segment comprises operations in the U.S., Canada, and Bermuda. This segment includes:

- Our retail divisions: ACE USA (including ACE Canada), ACE Commercial Risk Services, and ACE Private Risk Services, which includes the Fireman’s Fund high net worth personal lines business acquired effective April 1, 2015

• Our wholesale and specialty divisions: ACE Westchester and ACE Bermuda

• Various run-off operations, including Brandywine Holdings Corporation (Brandywine)

## Products and Distribution

ACE USA, the segment's largest operation, represented 62 percent of Insurance – North American P&C's net premiums earned in 2015. ACE USA provides a broad array of traditional and specialty P&C, A&H, and risk management products and services to a diverse group of North American commercial and non-commercial enterprises and consumers. 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 and services offered include property, general liability, umbrella and excess liability, workers' compensation, commercial marine, automobile liability, professional lines D&O and errors and omissions (E&O), surety, medical liability, environmental, inland marine, aerospace, A&H coverages, as well as claims and risk management products and services.

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

- ACE Risk Management offers a range of customized risk management primary casualty products designed to help mid-size to large insureds, including national accounts, address the significant costs of financing and managing risk for workers' compensation, general liability and automobile liability coverages. Within ACE Risk Management, ACE Financial Solutions (AFS) underwrites contractual indemnification policies in which AFS provides prospective coverage for loss events within the insured's policy retention levels, and underwrites assumed loss portfolio transfer (LPT) contracts in which insured loss events have occurred prior to the inception of the contract. LPT contracts can cause significant variances to premiums, losses and loss expenses, and expense ratios in the periods in which they are written.

- ACE Foreign Casualty provides products which insure specific global operating risks of U.S.-based multinational companies and include deductible programs, captive programs, and paid or incurred loss retrospective plans for U.S.-based insured's foreign operations.

- ACE North America Property & Specialty Lines provide products and services including primary, quota share and excess all-risk insurance, risk management programs and services, commercial and inland marine products, and aerospace products.

- ACE Casualty Risk key coverages include umbrella and excess liability, environmental risk, and casualty programs for commercial construction related projects.

• ACE Professional Risk provides management liability and professional liability (D&O and E&O) products.

- ACE Surety offers a wide variety of surety products and specializes in underwriting both commercial and contract bonds and has the capacity for bond issuance on an international basis.

• ACE Canada (ACE USA's Canadian operations) offers a broad range of P&C products as well as life and A&H coverages.

- ACE Accident & Health products include employee benefit plans, occupational accident, student accident, and worldwide travel accident and global medical programs. With respect to products that include supplemental medical and hospital indemnity coverages, we typically pay fixed amounts for claims and are therefore insulated from rising health 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) distributed through affinity groups.

- ACE Medical Risk offers a wide range of specialty liability products for the health care industry through licensed excess and surplus lines brokers. Products include primary coverages for professional liability and general liability for selected types of medical facilities, excess/umbrella liability for medical facilities, primary and excess coverages for products liability for 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 as well as for the Insurance – North American P&C segment. ESIS services include comprehensive medical managed care; integrated disability services; pre-loss control and risk



management; and health, safety and environmental consulting; salvage and subrogation; and health care recovery services. The net results for ESIS are included in Insurance – North American P&C's administrative expenses.

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

ACE Private Risk Services provides high-value personal lines coverages for high net worth individuals and families in North America including homeowners, automobile, valuables (including fine art), umbrella liability, and recreational marine insurance offered through independent regional agents and brokers. During 2015, ACE Private Risk Services expanded its operations through the acquisition of the Fireman's Fund Insurance Company high net worth personal lines insurance business in the U.S.

ACE Westchester serves the market for business risks that tend to be hard to place due to unique or complex exposures. Products offered include wholesale excess and surplus lines property, casualty, environmental, professional liability, inland marine, and product recall coverages in North America.

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

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

## Competitive Environment

ACE USA and ACE Westchester 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 Commercial Risk Services competes against numerous insurance companies ranging from large national carriers to small and mid-size insurers who provide specialty coverages and standard P&C products. ACE Private Risk Services competes against insurance companies of varying sizes that sell products through various distribution channels, including through the Internet.

## Insurance – North American Agriculture (8 percent of 2015 Consolidated NPE)

## Overview

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

## Products and Distribution

The Rain and Hail business provides comprehensive MPCI and crop-hail insurance, and the ACE Agribusiness offers farm and ranch coverages as well as specialty P&C coverages for companies that manufacture, process and distribute agriculture products. The MPCI program is offered in conjunction with the U.S. Department of Agriculture (USDA). The USDA's Risk Management Agency (RMA) sets the policy terms and conditions, rates and forms, and is also responsible for setting



compliance standards. As a participating company, we report all details of policies underwritten to the RMA and are party to a Standard Reinsurance Agreement (SRA). The SRA sets out the relationship between private insurance companies and the Federal Crop Insurance Corporation (FCIC) concerning the terms and conditions regarding the risks each will bear including the pro-rata and state stop-loss provisions which allow companies to limit the exposure of any one state or group of states on their underwriting results. In addition to the pro-rata and excess of loss reinsurance protections inherent in the SRA, we also purchase third-party proportional and stop-loss reinsurance for our MPCI business to reduce our exposure. We may also enter into crop derivative contracts to further manage our risk exposure. For additional information, refer to “Crop Insurance”, under Item 7.

## Competitive Environment

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

## Insurance – Overseas General (38 percent of 2015 Consolidated NPE)

## Overview

The Insurance – Overseas General segment comprises ACE International, ACE Global Markets (AGM) and the international supplemental A&H business of Combined Insurance. ACE International comprises our retail commercial P&C, A&H, and personal lines businesses serving territories outside the U.S., Bermuda, and Canada. AGM, our London-based international specialty and excess and surplus lines business, includes Lloyd's of London (Lloyd's) Syndicate 2488 (Syndicate 2488), a wholly-owned Chubb syndicate. Chubb 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 £350 million for 2016. The reinsurance operation of AGM is included in the Global Reinsurance segment.

## Products and Distribution

ACE International maintains a presence in every major insurance market in the world and is organized geographically along product lines as follows: ACE Europe, ACE Asia Pacific, ACE Eurasia and Africa, ACE Far East, and ACE Latin America. Products offered include P&C, A&H, specialty coverages, and personal lines insurance products and services. 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. 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, marine, construction, and other technical coverages. Principal casualty products are commercial primary and excess casualty, environmental, and general liability. A&H and other consumer lines products are distributed through brokers, agents, direct marketing programs, and sponsor relationships. ACE International specialty coverages include D&O, professional indemnity, energy, aviation, political risk, and specialty personal lines products. The A&H operations primarily offer personal accident and supplemental medical coverages including accidental death, business/holiday travel, specified disease, disability, medical and hospital indemnity, and income protection. We are not in the primary health care business. With respect to our supplemental medical and hospital indemnity products, we typically pay fixed amounts for claims and are therefore largely insulated from the direct impact of rising health care costs. ACE International's personal lines operations provide specialty products and services designed to meet the needs of specific target markets and include property damage, automobile, homeowners, and personal liability.

AGM offers products through its parallel distribution network via ACE European Group Limited (AEGL) and Syndicate 2488. AGM uses Syndicate 2488 to underwrite P&C business on a global basis through Lloyd's worldwide licenses. AGM uses AEGL to underwrite similar classes of business through its network of U.K. and European licenses, and in the U.S. where it is eligible to write excess and surplus lines business. 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 AGM is accessed through registered brokers. The main lines of business include aviation, property, energy, professional lines, marine, financial lines, political risk, and A&H.

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



## Competitive Environment

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 multinational accounts.

AGM is one of the preeminent international specialty insurers in London and is an established lead underwriter on a significant portion of the risks it underwrites for all lines of business. This leadership position allows AGM 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. AGM 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 (5 percent of 2015 Consolidated NPE)

## Overview

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

## Products and Distribution

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

ACE 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 where the reinsurer shares a proportional part of the premiums and losses of the ceding company and per risk excess of loss treaty reinsurance where coverage applies on a per risk basis rather than per event or aggregate basis, together with casualty (catastrophe workers' compensation) and specialty lines (crop and terrorism). 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, and surety and fidelity reinsurance for the North American market, principally on a treaty basis, with a focus on writing property per risk and casualty reinsurance. 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 traditional and specialty P&C reinsurance to insurance companies worldwide, with emphasis on non-U.S. and Canadian risks. ACE Tempest Re International writes all lines of traditional and specialty reinsurance including property risk and property catastrophe, casualty, marine, aviation, and specialty through our London- and Zurich-based divisions. The London-based divisions of ACE Tempest Re International focus on the development of business sourced through London market brokers and, accordingly, write a diverse book of international business using Syndicate 2488 and AEGL. The Zurich-based division focuses on providing reinsurance to continental European insurers via continental European brokers while also serving Asian and Latin American markets. ACE Tempest Re International also includes our Shanghai, China



office which provides reinsurance coverage for Chinese-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, and Surety reinsurance to the Canadian market, including casualty, property risk and property catastrophe. ACE Tempest Re Canada provides coverage through its Canadian company platform and also offers clients access to Syndicate 2488. ACE Tempest Re Canada underwrites reinsurance on both a proportional and excess of loss basis.

## Competitive Environment

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

## Life (11 percent of 2015 Consolidated NPE)

## Overview

The Life segment comprises 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.

## Products and Distribution

ACE Life provides individual life and group benefit insurance primarily in emerging markets, including Egypt, Hong Kong, Indonesia, South Korea, Taiwan, Thailand, and Vietnam; also throughout Latin America; selectively in Europe; and in China through a non-consolidated joint venture insurance company. 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, credit life, 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, worksite marketing, retailers, brokers, and direct to consumer marketing. We continue to expand ACE Life with a focus on opportunities in emerging markets that we believe will result in strong and sustainable operating profits as well as a favorable return on capital commitments over time. Our dedicated 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. We have developed a substantial sales force of agents principally located in our Asia-Pacific countries. Chubb also maintains approximately 35.9 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 296 licensed sales locations in 15 Chinese provinces.

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 and our focus has been on managing the current portfolio of risk, both in the aggregate and on a contract basis. This business is managed with a long-term perspective and short-term earnings volatility is expected.

Combined Insurance distributes specialty supplemental A&H and life insurance products targeted to middle income consumers and businesses in the U.S. and Canada. Combined Insurance's substantial North American sales force distributes a wide range of supplemental accident and sickness insurance products, including personal accident, short-term disability, critical illness,



Medicare supplement products, and hospital confinement/recovery. Most of these products are primarily fixed-indemnity benefit obligations and are not directly subject to escalating medical cost inflation.

## Competitive Environment

ACE Life's competition differs by location but generally includes multinational insurers, and in some locations, local insurers, joint ventures, or state-owned insurers. Chubb'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

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

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

## Reinsurance Protection

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

A separate policy and process exists for captive reinsurance companies. Generally, these reinsurance companies are established by our clients or our clients have an interest in them. It is generally our policy to obtain collateral equal to the expected losses that may be ceded to the captive. Where appropriate, exceptions to the collateral requirement are granted but only after senior management review. Specific collateral guidelines and an exception process are in place for the Insurance – North American P&C and Insurance – Overseas General segments, 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 actuaries, determine reasonable exposure estimates (collateral calculations), ensure receipt of collateral in an acceptable form, and coordinate collateral adjustments as and when needed. Financial reviews and expected loss evaluations are performed annually for active captive accounts and as



needed for run-off exposures. In addition to collateral, parental guarantees are often used to enhance the credit quality of the captive.

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

## Unpaid Losses and Loss Expenses

We establish reserves for unpaid losses and loss expenses, which are estimates of future payments on reported and unreported claims for losses and related expenses, with respect to insured events that have occurred. These reserves are recorded in Unpaid losses and loss expenses in the consolidated balance sheets. The process of establishing loss and loss expense reserves for P&C claims can be complex and is subject to considerable uncertainty as it requires the use of informed estimates and judgments based on circumstances known at the date of accrual. These estimates and judgments are based on numerous factors, and may be revised as additional experience and other data become available and are reviewed, as new or improved methodologies are developed, or as laws change. Internal actuaries regularly analyze the levels of loss and loss expense reserves, taking into consideration factors that may impact the ultimate settlement value of the unpaid losses and loss expenses. These analyses could result in future changes in the estimates of loss and loss expense reserves or reinsurance recoverables and any such changes would be reflected in our results of operations in the period in which the estimates are changed. Losses and loss expenses are charged to income as incurred. The reserve for unpaid losses and loss expenses represents the estimated ultimate losses and loss expenses less paid losses and loss expenses, and comprises case reserves and incurred but not reported (IBNR) loss reserves. With the exception of certain structured settlements, for which the timing and amount of future claim payments are reliably determinable, and certain reserves for unsettled claims that are discounted in statutory filings, our loss reserves are not discounted for the time value of money. In connection with such structured settlements and certain reserves for unsettled claims, we carried net discounted reserves of $92 million at December 31, 2015.

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

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

For each product line, management, in conjunction with internal actuaries, develops a “best estimate” of the ultimate settlement value of the unpaid losses and loss expenses that it believes provides a reasonable estimate of the required reserve. We evaluate our estimates of reserves quarterly in light of developing information. While we are unable at this time to determine whether additional reserves may be necessary in the future, we believe that our reserves for unpaid losses and loss expenses are adequate at December 31, 2015. Future additions to reserves, if needed, could have a material adverse effect on our financial condition, results of operations, and cash flows. For additional information refer to “Critical Accounting Estimates – Unpaid losses and loss expenses”, under Item 7, and Note 7 to the Consolidated Financial Statements, under Item 8.

The “Analysis of Losses and Loss Expenses Development” table shown below presents, for each balance sheet date over the period 2005-2015, 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, 2015, for each balance sheet date, the cumulative impact of subsequent valuations of the liabilities incurred at the original balance sheet date. The table is presented in accordance with SEC reporting requirements. This table should be interpreted with care by those not familiar with its format or those who are familiar with other triangulations arranged by origin year of loss such as accident or underwriting year rather than balance sheet date, as shown below. To clarify the interpretation of the table, we use the reserves established at December 31, 2005, 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, 2005, a reserve of $20.5 billion, net of reinsurance, had been established.

The upper (paid) triangulation shows the net amounts paid as of periods subsequent to the balance sheet date. Hence in the 2006 financial year, $3.7 billion of payments were made on liabilities contemplated in the December 31, 2005 reserve balance. At the end of the 2015 financial year, there were cumulative net payments of $13.7 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, 2005, are now estimated to be $19.5 billion, rather than the original estimate of $20.5 billion. This change includes the impact of adverse development on latent claims that we categorize as A&E covered under the National Indemnity Company (NICO) reinsurance treaties. Of the cumulative redundancy of $1.0 billion recognized in the ten years since December 31, 2005 redundancy of $2.2 billion relates to non-latent claims and deficiency of $1.2 billion relates to latent claims. The redundancy of $957 million was identified and recorded as follows: $12 million redundant in 2006, $80 million redundant in 2007, $440 million redundant in 2008, $337 million redundant in 2009, $331 million redundant in 2010, $122 million redundant in 2011, $44 million deficient in 2012, $149 million deficient in 2013, $27 million deficient in 2014, and $145 million deficient in 2015. This development subsequent to the balance sheet date of valuation is referred to as prior period development.

Importantly, the cumulative deficiency or redundancy for different balance sheet dates are not independent and, therefore, should not be added together. In the last financial year, we revised our estimate of the December 31, 2005 liabilities from $19,356 million to $19,501 million. This adverse development of $145 million is also included in each column to the right of the December 31, 2005 column to recognize that this additional amount was also required in the reserves established for each annual balance sheet date from December 31, 2006 to December 31, 2015.

The loss development table shows that our original estimate of the net unpaid loss and loss expense requirement at December 31, 2014, of $27.0 billion has, with the benefit of actual loss emergence and hindsight, been revised to $26.5 billion at December 31, 2015. This favorable movement of $546 million reflects prior period development and is the net result of a number of underlying movements both favorable and adverse. The key underlying movements are discussed in more detail in Note 7 to the Consolidated Financial Statements under Item 8.

The bottom lines of the table show the re-estimated amount of previously recorded gross liabilities at December 31, 2015, 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, 2015. For example, with respect to the gross unpaid loss and loss expenses of $35.1 billion for December 31, 2005, this gross liability was re-estimated to be $33.9 billion at December 31, 2015, resulting in the cumulative redundancy on the gross liability originally recorded for the 2005 balance sheet year of $1.2 billion.

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

The Unpaid losses and loss expense information for acquired businesses has been included in the table from the acquisition date forward:

• Combined Insurance (April 1, 2008);

• Jerneh Insurance Berhad (December 1, 2010);

• Rain and Hail (we acquired all of the outstanding common stock not previously owned by us on December 28, 2010);

• Penn Millers Holding Corporation (November 30, 2011);

• Rio Guayas Compania de Seguros y Reaseguros (December 28, 2011);

- PT Asuransi Jaya Proteksi (we acquired 80 percent on September 18, 2012 and our local partner acquired the remaining 20 percent on January 3, 2013);

• Fianzas Monterrey (April 1, 2013);

• ABA Seguros (May 2, 2013);

- The Siam Commercial Samaggi Insurance PCL (we and our local partner acquired 93.03 percent during the second quarter of 2014);

• The large corporate account P&C insurance business of Itaú Seguros, S.A. (October 31, 2014); and

• Fireman's Fund Insurance Company high net worth personal lines insurance business in the U.S. (April 1, 2015).



Analysis of Losses and Loss Expenses Development

<table><tr><td>(in millions of U.S. dollars)</td><td>2005</td><td>2006</td><td>2007</td><td>2008</td><td>2009</td><td>2010</td><td>2011</td><td>2012</td><td>2013</td><td>2014</td><td>2015</td></tr><tr><td>Gross unpaid losses</td><td>$35,055</td><td>$35,517</td><td>$37,112</td><td>$37,176</td><td>$37,783</td><td>$37,391</td><td>$37,477</td><td>$37,946</td><td>$37,443</td><td>$38,315</td><td>$37,303</td></tr><tr><td>Net unpaid losses</td><td>20,458</td><td>22,008</td><td>23,592</td><td>24,241</td><td>25,038</td><td>25,242</td><td>25,875</td><td>26,547</td><td>26,831</td><td>27,008</td><td>26,562</td></tr><tr><td>Net paid losses (cumulative) as of:</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>1 year later</td><td>3,711</td><td>4,038</td><td>3,628</td><td>4,455</td><td>4,724</td><td>4,657</td><td>4,894</td><td>5,035</td><td>5,260</td><td>5,612</td><td></td></tr><tr><td>2 years later</td><td>6,487</td><td>6,356</td><td>6,092</td><td>7,526</td><td>7,510</td><td>7,281</td><td>7,714</td><td>7,969</td><td>8,245</td><td></td><td></td></tr><tr><td>3 years later</td><td>7,998</td><td>8,062</td><td>8,393</td><td>9,690</td><td>9,404</td><td>9,424</td><td>9,973</td><td>10,308</td><td></td><td></td><td></td></tr><tr><td>4 years later</td><td>9,269</td><td>9,748</td><td>9,949</td><td>11,114</td><td>11,097</td><td>11,102</td><td>11,757</td><td></td><td></td><td></td><td></td></tr><tr><td>5 years later</td><td>10,597</td><td>10,826</td><td>10,951</td><td>12,502</td><td>12,428</td><td>12,544</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>6 years later</td><td>11,428</td><td>11,496</td><td>11,985</td><td>13,556</td><td>13,493</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>7 years later</td><td>11,957</td><td>12,312</td><td>12,766</td><td>14,433</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>8 years later</td><td>12,664</td><td>12,970</td><td>13,491</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>9 years later</td><td>13,209</td><td>13,587</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>10 years later</td><td>13,745</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Net liability re-estimated as of:</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>End of year</td><td>20,458</td><td>22,008</td><td>23,592</td><td>24,241</td><td>25,038</td><td>25,242</td><td>25,875</td><td>26,547</td><td>26,831</td><td>27,008</td><td>26,562</td></tr><tr><td>1 year later</td><td>20,446</td><td>21,791</td><td>22,778</td><td>23,653</td><td>24,481</td><td>24,686</td><td>25,396</td><td>26,017</td><td>26,304</td><td>26,462</td><td></td></tr><tr><td>2 years later</td><td>20,366</td><td>21,188</td><td>22,158</td><td>23,127</td><td>23,801</td><td>24,167</td><td>24,887</td><td>25,411</td><td>25,686</td><td></td><td></td></tr><tr><td>3 years later</td><td>19,926</td><td>20,650</td><td>21,596</td><td>22,576</td><td>23,363</td><td>23,690</td><td>24,299</td><td>24,940</td><td></td><td></td><td></td></tr><tr><td>4 years later</td><td>19,589</td><td>20,080</td><td>21,037</td><td>22,184</td><td>22,955</td><td>23,091</td><td>23,889</td><td></td><td></td><td></td><td></td></tr><tr><td>5 years later</td><td>19,258</td><td>19,618</td><td>20,773</td><td>21,913</td><td>22,476</td><td>22,805</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>6 years later</td><td>19,136</td><td>19,584</td><td>20,760</td><td>21,810</td><td>22,420</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>7 years later</td><td>19,180</td><td>19,684</td><td>20,667</td><td>21,834</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>8 years later</td><td>19,329</td><td>19,647</td><td>20,718</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>9 years later</td><td>19,356</td><td>19,705</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>10 years later</td><td>19,501</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Cumulative redundancy/ (deficiency) on net unpaid losses</td><td>957</td><td>2,303</td><td>2,874</td><td>2,407</td><td>2,618</td><td>2,437</td><td>1,986</td><td>1,607</td><td>1,145</td><td>546</td><td></td></tr><tr><td>Cumulative deficiency related to A&amp;E</td><td>(1,239)</td><td>(1,187)</td><td>(1,158)</td><td>(1,107)</td><td>(1,024)</td><td>(920)</td><td>(821)</td><td>(651)</td><td>(457)</td><td>(200)</td><td></td></tr><tr><td>Cumulative redundancy/ excluding A&amp;E</td><td>2,196</td><td>3,490</td><td>4,032</td><td>3,514</td><td>3,642</td><td>3,357</td><td>2,807</td><td>2,258</td><td>1,602</td><td>746</td><td></td></tr><tr><td>Gross unpaid losses</td><td>35,055</td><td>35,517</td><td>37,112</td><td>37,176</td><td>37,783</td><td>37,391</td><td>37,477</td><td>37,946</td><td>37,443</td><td>38,315</td><td>37,303</td></tr><tr><td>Reinsurance recoverable on unpaid losses</td><td>14,597</td><td>13,509</td><td>13,520</td><td>12,935</td><td>12,745</td><td>12,149</td><td>11,602</td><td>11,399</td><td>10,612</td><td>11,307</td><td>10,741</td></tr><tr><td>Net unpaid losses</td><td>20,458</td><td>22,008</td><td>23,592</td><td>24,241</td><td>25,038</td><td>25,242</td><td>25,875</td><td>26,547</td><td>26,831</td><td>27,008</td><td>26,562</td></tr><tr><td>Gross liability re-estimated</td><td>33,906</td><td>33,082</td><td>33,563</td><td>34,320</td><td>34,347</td><td>33,909</td><td>34,681</td><td>35,614</td><td>35,848</td><td>37,349</td><td></td></tr><tr><td>Reinsurance recoverable on unpaid losses</td><td>14,405</td><td>13,377</td><td>12,845</td><td>12,486</td><td>11,927</td><td>11,104</td><td>10,792</td><td>10,674</td><td>10,162</td><td>10,887</td><td></td></tr><tr><td>Net liability re-estimated</td><td>19,501</td><td>19,705</td><td>20,718</td><td>21,834</td><td>22,420</td><td>22,805</td><td>23,889</td><td>24,940</td><td>25,686</td><td>26,462</td><td></td></tr><tr><td>Cumulative redundancy/ (deficiency) on gross unpaid losses</td><td>$ 1,149</td><td>$ 2,435</td><td>$ 3,549</td><td>$ 2,856</td><td>$ 3,436</td><td>$ 3,482</td><td>$ 2,796</td><td>$ 2,332</td><td>$ 1,595</td><td>$ 966</td><td></td></tr></table>

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



## Reconciliation of Unpaid Losses and Loss Expenses

Net losses and loss expenses incurred for 2015 were $9.5 billion, compared with $9.6 billion in 2014, and $9.3 billion in 2013 which includes $546 million, $527 million, and $530 million of net favorable prior period development (PPD), respectively. Refer to Note 7 to the Consolidated Financial Statements for a reconciliation of Unpaid losses and loss expenses and for additional information on PPD.

## Investments

Our objective is to maximize investment income and total return while ensuring an appropriate level of liquidity and investment quality and diversification. As such, Chubb'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 Chubb. 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 Chubb subsidiaries, providing formal recommendations for the portfolio’s structure;

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

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

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

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

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

Under our guidance and direction, external asset managers conduct security and sector selection and transaction execution. Use of multiple managers benefits Chubb 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 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.

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

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

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

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

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

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

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



## Regulation

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

## Group Supervision

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

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

The Department has circulated an invitation to various regulators to participate in the third College to be held in Lafayette Hill, Pennsylvania in September 2016.

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

## Swiss Operations

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

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

## U.S. Operations

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

Our U.S. insurance subsidiaries are required to file detailed annual and quarterly reports with state insurance regulators. In addition, our U.S. insurance subsidiaries' operations and financial records are subject to examination at regular intervals by state regulators.

All states have enacted legislation that regulates insurance holding companies. This legislation provides that each insurance company in the insurance holding company system (system) is required to register with the insurance department of its state of domicile and furnish information concerning the operations of companies within the system that may materially affect the



operations, management, or financial condition of the insurers within the system. We are required to file an annual enterprise risk report with the Department, identifying the material risks within our system that could pose enterprise risk to the insurance subsidiaries in the system. All transactions within a system must be fair and equitable. Notice to the insurance departments is required prior to the consummation of transactions affecting the ownership or control of an insurer and of certain material transactions between an insurer and an entity in its system. In addition, certain transactions may not be consummated without the department's prior approval.

We are also required to file an annual summary report with the Department, reflecting our internal assessment of material risks associated with our current business plan and the sufficiency of our capital resources to support those risks.

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

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

However, an insurance 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 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 2015 for six years, through December 31, 2020, and applies to certain of our operations.

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

## Bermuda Operations

The Insurance Act 1978 of Bermuda and related regulations, as amended (the Insurance Act), regulates the insurance business of our Bermuda insurance subsidiaries and provides that no person may carry on any insurance business in or from within Bermuda unless registered as an insurer by the Bermuda Monetary Authority (BMA). The Insurance Act imposes solvency and liquidity standards and auditing and reporting requirements on Bermuda insurance companies and grants the BMA powers to supervise, investigate, and intervene in the affairs of insurance companies. Our Bermuda domiciled insurance subsidiaries must prepare annual statutory financial statements and file them with the BMA, and certain subsidiaries must file audited annual financial statements prepared in accordance with accounting principles generally accepted in the U.S. (GAAP), International Financial Reporting Standards (IFRS), or any such other generally accepted accounting principles as the BMA may recognize. These audited financials are made public by the BMA. The Insurance Act prescribes rules for the preparation and content of the statutory financial statements that require Chubb subsidiaries to give detailed information and analyses regarding premiums, claims, reinsurance, and investments.



The BMA established risk-based regulatory capital adequacy and solvency margin requirements for Bermuda insurers that mandate that a Class E (long-term business), Class 3A (general business), and Class 4 insurer's Enhanced Capital Requirement (ECR) be calculated by either (a) the BMA model, or (b) an internal capital model which the BMA has approved for use for this purpose. ACE's Bermuda insurance subsidiaries use the BMA model in calculating their solvency requirements.

The risk-based regulatory capital adequacy and solvency margin regime provides a risk-based capital model, termed the Bermuda Solvency Capital Requirement (BSCR), as a tool to assist the BMA both in measuring risk and in determining appropriate levels of capitalization. The BSCR employs a standard mathematical model that correlates the risk underwritten by Bermuda insurers to their capital. The BSCR framework applies a standard measurement format to the risk associated with an insurer's assets, liabilities, and premiums, including a formula to take account of catastrophe risk exposure. In order to minimize the risk of a shortfall in capital arising from an unexpected adverse deviation and in moving towards the implementation of a risk-based capital approach, the BMA has established a threshold capital level, (termed the Target Capital Level (TCL)), set at 120 percent of ECR, that serves as an early warning tool for the BMA and failure to maintain statutory capital at least equal to the TCL will likely result in increased BMA regulatory oversight.

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

During 2015, the European Insurance and Occupational Pensions Authority (EIOPA) completed its review of the BMA's proposed supervisory regime with respect to Bermuda's commercial insurers (i.e., those registered as Class 3A, 3B or 4, C, D or E). EIOPA concluded that the BMA's proposed supervisory regime was broadly equivalent to the European Union (EU) directive which provides new rules with respect to capital requirements, governance, risk management and disclosure for (re)insurers. The EU directive is more commonly known as "Solvency II". EIOPA's views on Bermuda's Solvency II equivalence were formally adopted by the European Commission via a delegated act on November 26, 2015 (subject to a three-month review period by the European Parliament and European Council). Once the delegated act comes into effect, the BMA's revised supervisory regime will be effective retroactively to January 1, 2016. Our Bermuda commercial (re)insurance subsidiaries would submit their first annual filings under the new requirements in 2017. We do not believe the new regulations will have a material effect on our capital management strategies, results of operations or financial condition.

## Other International Operations

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

- in some countries, insurers are required to prepare and file monthly and/or quarterly financial reports, and in others, only annual reports;

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

- the extent of restrictions imposed upon an insurer’s use of local and offshore reinsurance vary;

• policy form filing and rate regulation vary by country;

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

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

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



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

There are various regulatory bodies and initiatives that impact Chubb in multiple international jurisdictions and the potential for significant impact on Chubb could be heightened as a result of recent industry and economic developments. In particular, the European Union's (EU) executive body, the European Commission, implemented a new capital adequacy and risk management regulations for the European insurance industry, known as Solvency II, which aims to establish a revised set of EU-wide capital requirements and risk management standards that replaced the Solvency I requirements. The Solvency II requirements were effective January 1, 2016 for our European operations.

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

## Enterprise Risk Management

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

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

- External Risks: identify, analyze, quantify, and where possible, mitigate significant external risks that could materially hamper the financial condition of Chubb and/or the achievement of corporate business objectives over the next 36 months;

- Exposure Accumulations: identify and quantify the accumulation of exposure to individual counterparties, products or industry sectors, particularly those that materially extend across or correlate between business units or divisions and/or the balance sheet;

- Risk Modeling: develop and use various data-sets, analytical tools, metrics and processes (including economic capital models and advanced analytics) that help division and corporate leaders make informed underwriting, portfolio management and risk management decisions within a consistent risk/reward framework;

- Governance: establish and coordinate risk guidelines that reflect the corporate appetite for risk, monitor exposure accumulations relative to established guidelines, and ensure effective internal risk management communication up to management and the Board, down to the various business units and legal entities, and across the firm; and

- Disclosure: develop protocols and processes for risk-related disclosure internally as well as externally to rating agencies, regulators, shareholders and analysts.

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

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



ensuring consistency in underwriting and pricing standards, identification of emerging issues, and guidelines for relevant accumulations.

Chubb's Chief Risk Officer and Chief Actuary also reports to the Board's Risk & Finance Committee, which helps execute the Board's supervisory responsibilities pertaining to ERM. The role of the Risk & Finance Committee includes evaluation of the integrity and effectiveness of our ERM procedures, systems, and information; governance on major policy decisions pertaining to risk aggregation and minimization; and assessment of our major decisions and preparedness levels pertaining to perceived material risks. The Audit Committee meets annually and on an as needed basis with the Risk & Finance Committee in order to exercise its duties under New York Stock Exchange Rules.

Others within the ERM structure contribute toward accomplishing Chubb's ERM objectives, including regional management, Corporate Underwriting, Internal Audit, Compliance, external consultants, and managers of our internal control processes and procedures.

## Tax Matters

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

## EXECUTIVE OFFICERS OF THE REGISTRANT

<table><tr><td>Name</td><td>Age</td><td>Position</td></tr><tr><td>Evan G. Greenberg</td><td>61</td><td>Chairman, President, Chief Executive Officer, and Director</td></tr><tr><td>John W. Keogh</td><td>51</td><td>Executive Vice Chairman and Chief Operating Officer; Chairman, Overseas General Insurance</td></tr><tr><td>Philip V. Bancroft</td><td>56</td><td>Executive Vice President and Chief Financial Officer</td></tr><tr><td>John J. Lupica</td><td>50</td><td>Vice Chairman; President, North America Major Accounts &amp; Specialty Insurance</td></tr><tr><td>Joseph F. Wayland</td><td>58</td><td>Executive Vice President and General Counsel</td></tr><tr><td>Sean Ringsted</td><td>52</td><td>Chief Risk Officer and Chief Actuary</td></tr><tr><td>Timothy A. Boroughs</td><td>66</td><td>Chief Investment Officer</td></tr><tr><td>Paul J. Krump</td><td>56</td><td>Executive Vice President; President, North America Commercial and Personal Insurance</td></tr><tr><td>Juan C. Andrade</td><td>51</td><td>Executive Vice President; President, Overseas General Insurance</td></tr></table>

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

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

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



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

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

Sean Ringsted was appointed Chief Risk Officer and Chief Actuary of Chubb Limited in November 2008. Mr. Ringsted's previous roles at Chubb include Chief Actuary for Chubb Group from 2004 to 2008, Executive Vice President and Chief Risk Officer for ACE Tempest Re from 2002 to 2004, and Senior Vice President and Chief Actuary for ACE Tempest Re from 1998 to 2002. Prior to joining Chubb, Mr. Ringsted was a consultant at Tillinghast-Towers Perrin.

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

Paul J. Krump was appointed Executive Vice President, Chubb Group and President North America Commercial and Personal Insurance in January 2016. Prior to ACE Limited's January 2016 acquisition of The Chubb Corporation, Mr. Krump was Chief Operating Officer of The Chubb Corporation, responsible for the company's Commercial, Specialty, Personal and Accident & Health insurance lines; Claims; Global Field Operations; Information Technology; Human Resources; Communications; and External Affairs. Mr. Krump joined The Chubb Corporation in 1982 as a commercial underwriting trainee in the Minneapolis office. He held numerous headquarters and field positions in the United States and Europe, including President of Personal Lines and Claims and President of Commercial and Specialty Lines.

Juan C. Andrade was appointed Executive Vice President, Chubb Group and President, Overseas General Insurance in January 2016. Mr. Andrade joined Chubb in December 2010 to lead the global personal lines and small commercial property & casualty insurance businesses. In January 2013, he became the Chief Operating Officer for Overseas General Insurance. Prior to joining Chubb, Mr. Andrade was President and Chief Operating Officer of property & casualty operations for The Hartford Financial Services Group. He joined The Hartford in 2006 as head of the property & casualty claims organization.

## 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 or as facts and circumstances change. Any of the risks described below could result in a significant or adverse effect on our results of operations or financial condition.

## Insurance

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

We have substantial exposure to losses resulting from natural disasters, man-made catastrophes such as terrorism or cyber-attack, and other catastrophic events, including pandemics. This could impact a variety of our businesses, including our commercial and personal lines, and life and A&H products. Catastrophes can be caused by various events, including hurricanes, typhoons, earthquakes, hailstorms, drought, explosions, severe winter weather, fires, war, acts of terrorism, nuclear accidents, political instability, and other natural or man-made disasters, including a global or other wide-impact pandemic or a significant cyber-attack. The incidence and severity of catastrophes are inherently unpredictable and our losses from catastrophes could be substantial. In addition, climate conditions may be changing, primarily through changes in global temperatures, which may increase the frequency and severity of natural catastrophes and the resulting losses in the future. We cannot predict the impact that changing climate conditions, if any, may have on our results of operations or our financial condition. Additionally, we



cannot predict how legal, regulatory and/or social responses to concerns around global climate change may impact our business. The occurrence of claims from catastrophic events could result in substantial volatility in our results of operations or financial condition for any fiscal quarter or year. The historical incidence for events such as earthquakes, pandemics and cyberattacks is infrequent and may not be representative of contemporary exposures and risks. As an example, increases in the values and concentrations of insured property may increase the severity of these occurrences in the future. Although we attempt to manage our exposure to such events through the use of underwriting controls, risk models, and the purchase of third-party reinsurance, catastrophic events are inherently unpredictable and the actual nature of such events when they occur could be more frequent or severe than contemplated in our pricing and risk management expectations. As a result, the occurrence of one or more catastrophic events could have an adverse effect on our results of operations and financial condition.

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

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

Actuarial staff in each of our segments 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 recoverables 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. During the loss settlement period, which can be many years in duration for some of our lines of business, additional facts regarding individual claims and trends often will become known which may result in a change in overall reserves. In addition, application of statistical and actuarial methods may require the adjustment of overall reserves upward or downward from time to time.

Included in our loss reserves are liabilities for latent claims such as A&E, which are principally related to claims arising from remediation costs associated with hazardous waste sites and bodily-injury claims related to exposure to asbestos products and environmental hazards. At December 31, 2015, gross A&E liabilities represented approximately 4.2 percent of our loss reserves. The estimation of these liabilities is subject to many complex variables including: the current legal environment; specific settlements that may be used as precedents to settle future claims; assumptions regarding trends with respect to claim severity and the frequency of higher severity claims; assumptions regarding the ability to allocate liability among defendants (including bankruptcy trusts) and other insurers; the ability of a claimant to bring a claim in a state in which they 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 balance sheet date. In particular the amount and timing of the settlement of our P&C liabilities are not determinate and our actual payments could be higher than contemplated in our loss reserves owing to the impact of insurance, judicial decisions, and/or social inflation. If our loss reserves are inadequate, we may be required to increase loss reserves at the time of the determination and our net income and capital may be reduced.

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

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

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

We seek to manage our loss exposure by maintaining a disciplined underwriting process throughout our insurance operations. We also look to limit our loss exposure by writing a number of our insurance and reinsurance contracts on an excess of loss basis. Excess of loss insurance and reinsurance indemnifies the insured against losses in excess of a specified amount. In addition, we limit program size for each client and purchase third-party reinsurance for our own account. In the case of our assumed proportional reinsurance treaties, we seek per occurrence limitations or loss and loss expense ratio caps to limit the impact of losses ceded by the client. In proportional reinsurance, the reinsurer shares a proportional part of the premiums and



losses of the reinsured. We also seek to limit our loss exposure by geographic diversification. Geographic zone limitations involve significant underwriting judgments, including the determination of the area of the zones and the inclusion of a particular policy within a particular zone's limits.

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

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

We purchase protection from third parties including, but not limited to, reinsurance to protect against catastrophes and other sources of volatility, to increase the amount of protection we can provide our clients, and as part of our overall risk management strategy. Our reinsurance business also purchases retrocessional protection which allows a reinsurer to cede to another company all or part of the reinsurance originally assumed by the reinsurer. A reinsurer's or retrocessional'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, 2015, we had $11.4 billion of reinsurance recoverables, net of reserves for uncollectible recoverables.

Certain active Chubb companies are primarily liable for A&E and other exposures they have reinsured to our inactive run-off company Century Indemnity Company (Century). At December 31, 2015, the aggregate reinsurance balances ceded by our active subsidiaries to Century were approximately $1.2 billion. Should Century's loss reserves experience adverse development in the future and should Century be placed into rehabilitation or liquidation, the reinsurance recoverables due from Century to its affiliates would be payable only after the payment in full of third party expenses and liabilities, including administrative expenses and direct policy liabilities. Thus, the intercompany reinsurance recoverables would be at risk to the extent of the shortage of assets remaining to pay these recoverables. While we believe the intercompany reinsurance recoverables from Century are not impaired at this time, we cannot assure that adverse development with respect to Century's loss reserves, if manifested, will not result in Century's insolvency, which could result in our recognizing a loss to the extent of any uncollectible reinsurance from Century. This could have an adverse effect on our results of operations and financial condition.

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, establishment of reserves for future policy benefits and valuation of life insurance and annuity products, including reinsurance programs, are based upon various assumptions, including but not limited to market changes, interest rates, mortality rates, morbidity rates, and policyholder behavior. The process of establishing reserves for future policy benefits relies on our ability to accurately estimate insured events that have not yet occurred but that are expected to occur in future periods. Significant deviations in actual experience from assumptions used for pricing and for reserves for future policy benefits could have an adverse effect on the profitability of our products and our business.

Under reinsurance programs covering variable annuity guarantees, we assumed the risk of guaranteed minimum death benefits (GMDB) and guaranteed living benefits (GLB) associated with variable annuity contracts. Our GLB liability includes guaranteed minimum income benefits (GMIB) and guaranteed minimum accumulation benefits (GMAB). We ceased writing this business in 2007. Our net income is directly impacted by changes in the reserves calculated in connection with the reinsurance of GMDB and GLB liabilities. In addition, our net income is directly impacted by the change in the fair value of the GLB liability. Reported liabilities for both GMDB and GLB reinsurance are determined using internal valuation models which require considerable



judgment and are subject to significant uncertainty. Refer to the “Critical Accounting Estimates – Guaranteed living benefits (GLB) derivatives” under Item 7 and “Quantitative and Qualitative Disclosures about Market Risk – Reinsurance of GMDB and GLB guarantees” under Item 7A for additional information on the assumptions used in this program. We view our variable annuity reinsurance business as having a similar risk profile to that of catastrophe reinsurance, with the probability of long-term economic loss relatively small at the time of pricing. Adverse changes in market factors and policyholder behavior will have an impact on both life underwriting income and net income.

## Payment of obligations under surety bonds could have an adverse effect on our results of operations.

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

Our exposure to counterparties in various industries, our reliance on brokers, and certain of our policies may subject us to credit risk.

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

In accordance with industry practice, we generally pay amounts owed on claims to brokers who, in turn, remit these amounts to the insured or ceding insurer. Although the law is unsettled and depends upon the facts and circumstances of the particular case, in some jurisdictions, if a broker fails to make such a payment, we might remain liable to the insured or ceding insurer for the deficiency. Conversely, in certain jurisdictions, if the brokers do not remit premiums paid for these policies over to us, these premiums might be considered to have been paid and the insured or ceding insurer will no longer be liable to us for those amounts, whether or not we have actually received the premiums from the broker. Consequently, we assume a degree of credit risk associated with 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.

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

## Since we depend on a few 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 independent insurance agents and insurance and reinsurance brokers. Accordingly, our business is dependent on the willingness of these agents and brokers to recommend our products to their customers, who may also promote and distribute the products of our competitors. Deterioration in relationships with our agent and broker distribution network or their increased promotion and distribution of our competitors' products could adversely affect our ability to sell our products. Loss of all or a substantial portion of the business provided by one or more of these brokers could have an adverse effect on our business.

## Financial

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

Our investment assets are invested by professional investment management firms under the direction of our management team in accordance with investment guidelines approved by the Risk & Finance Committee of the Board of Directors. Although our investment guidelines stress diversification of risks and conservation of principal and liquidity, our investments are subject to market risks and risks inherent in individual securities. Interest rates are highly sensitive to many factors, including inflation,



monetary and fiscal policies, and domestic and international political conditions. The volatility of our losses may force us to liquidate securities, which may cause us to incur capital losses. Realized and unrealized losses in our investment portfolio would reduce our book value, and if significant, can affect our ability to conduct business.

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

Our fixed income portfolio is primarily invested in high quality, investment-grade securities. A smaller portion of the portfolio, approximately 11 percent at December 31, 2015, is invested in below investment-grade securities. These securities, which pay a higher rate of interest, also have a higher degree of credit or default risk and may also be less liquid in times of economic weakness or market disruptions. While we have put in place procedures to monitor the credit risk and liquidity of our invested assets, it is possible that, in periods of economic weakness (such as recession), we may experience credit or default losses in our portfolio, which could adversely affect our results of operations and financial condition.

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

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

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

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

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

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

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



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

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

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

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

Our reporting currency is the U.S. dollar. In general, we match assets and liabilities in local currencies. Where possible, capital levels in local currencies are limited to satisfy minimum regulatory requirements and to support local insurance operations. The principal currencies creating foreign exchange risk are the British pound sterling, the euro, the Mexican peso, the Brazilian real, the Korean won, the Canadian dollar, the yen, the Thailand baht, and the Australian dollar. At December 31, 2015, approximately 23.6 percent of our net assets were denominated in foreign currencies. We may experience losses resulting from fluctuations in the values of non-U.S. currencies, which could adversely impact our results of operations and financial condition.

## Operational

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

Our insurance and reinsurance subsidiaries conduct business globally. Our businesses in each jurisdiction are subject to varying degrees of regulation and supervision. The laws and regulations of the jurisdictions in which our insurance and reinsurance subsidiaries are domiciled require, among other things, maintenance of minimum levels of statutory capital, surplus, and liquidity; various solvency standards; and periodic examinations of subsidiaries' financial condition. In some jurisdictions, laws and regulations also restrict payments of dividends and reductions of capital. Applicable statutes, regulations, and policies may also restrict the ability of these subsidiaries to write insurance and reinsurance policies, to make certain investments, and to distribute funds. The purpose of insurance laws and regulations generally is to protect policyholders and ceding insurance companies, not our shareholders. For example, some jurisdictions have enacted various consumer protection laws that make it more burdensome for insurance companies to sell policies and interact with customers in personal lines businesses. Failure to comply with such regulations can lead to significant penalties and reputational injury. Fines and penalties in the U.S. in particular have been trending upwards.

The foreign and U.S. federal and state laws and regulations that are applicable to our operations are complex and may increase the costs of regulatory compliance or subject our business to the possibility of regulatory actions or proceedings. Laws and regulations not specifically related to the insurance industry include trade sanctions that relate to certain countries, anti-money laundering laws, and anti-corruption laws such as the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act 2010, the anti-bribery provisions of the Swiss Penal Code and similar local laws prohibiting corrupt payments to governmental officials. The insurance industry is also affected by political, judicial, and legal developments that may create new and expanded regulations and theories of liability. The current economic climate and the recent financial 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 addition, various legislative initiatives may impact the conduct of our business.



Regulators in countries where we have operations are working with the International Association of Insurance Supervisors (IAIS) to consider changes to insurance company supervision, including with respect to group supervision and solvency requirements. The IAIS is developing a common framework to supervise internationally active insurance groups, such as Chubb, known as Com Frame. As part of Com Frame, the IAIS has announced plans to develop an international capital standard for insurance groups. The details of Com Frame including this global capital standard and its applicability to Chubb are uncertain at this time. In addition, the European Union (EU) has implemented a new capital and risk management regime known as Solvency II that applies to our businesses across the EU, which became effective January 1, 2016. Chubb businesses are also subject to the requirements of the Swiss Financial Market Supervisory Authority (FINMA) whose regulations include Swiss Solvency Tests. There are also Risk Based Capital Requirements in the U.S. which are also subject to revision in response to global developments. While it is not certain how or if these actions will impact Chubb, we do not currently expect that our capital management strategies, results of operations and financial condition will be materially affected by these regulatory changes.

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

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

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

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

A failure in our operational systems or infrastructure or those of third parties, including due to security breaches or cyber-attacks, could disrupt business, damage our reputation, and cause losses.

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



measures or to investigate and remediate vulnerabilities or other exposures and to pursue recovery of lost data or assets and we may be subject to litigation and financial losses that are either not insured against or not fully covered by insurance maintained.

The regulatory environment surrounding information security and privacy is increasingly demanding. We are subject to numerous U.S. federal and state laws and regulations in jurisdictions outside the U.S. governing the protection of personal and confidential information of our clients or employees, including in relation to medical records, credit card data and financial information. These laws and regulations are increasing in complexity and number, change frequently and sometimes conflict. If any person, including any of our employees or those with whom we share such information, negligently disregards or intentionally breaches our established controls with respect to our client data, or otherwise mismanages or misappropriates that data, we could be subject to significant monetary damages, regulatory enforcement actions, fines and/or criminal prosecution in one or more jurisdictions.

Despite the contingency plans and facilities we have in place and our efforts to observe the regulatory requirements surrounding information security, our ability to conduct business may be adversely affected by a disruption of the infrastructure that supports our business in the communities in which we are located, or of outsourced services or functions. This may include a disruption involving electrical, communications, transportation, or other services used by Chubb. If a disruption occurs in one location and Chubb employees in that location are unable to occupy our offices and conduct business or communicate with or travel to other locations, our ability to service and interact with clients may suffer and we may not be able to successfully implement contingency plans that depend on communication or travel.

We use analytical models to assist our decision making in key areas such as underwriting, claims, reserving, and catastrophe risks but actual results could differ materially from the model outputs and related analyses.

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

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

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

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

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

## Strategic

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

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).

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

Acquisitions, such as our acquisition of The Chubb Corporation (Chubb Corporation) through a merger (the Chubb acquisition), involve numerous operational, strategic, financial, accounting, legal, tax, and other risks; potential liabilities associated with the acquired businesses; and uncertainties related to design, operation and integration of acquired businesses' internal controls over financial reporting. Difficulties in integrating an acquired company, along with its personnel, may result in the acquired company performing differently than we expected, in operational challenges or in our failure to realize anticipated expense-related efficiencies. Our existing businesses could also be negatively impacted by acquisitions. In addition, goodwill and intangible assets recorded in connection with insurance company acquisitions may be impaired if premium growth, underwriting profitability, agency retention and policy persistency, among other factors, differ from expectations.

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

We may be subject to U.S. tax and Bermuda tax which may have an adverse effect on our results of operations and shareholder investment.

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

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

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

The OECD has published an action plan to address base erosion and profit shifting (BEPS) impacting its member countries and other jurisdictions. It is possible that jurisdictions in which we do business could react to the BEPS initiative or their own concerns by enacting tax legislation that could adversely affect us or our shareholders.

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



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

## Shareholders

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

Our Articles of Association generally provide that shareholders have one vote for each Common Share held by them and are entitled to vote at all meetings of shareholders. However, the voting rights exercisable by a shareholder may be limited so that 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 Chubb.

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

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

## Shareholder voting requirements under Swiss law may limit our flexibility with respect to certain aspects of capital management.

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

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



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

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

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

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

Under Swiss law, if we need to raise equity capital at a time when our share price is below the par value of our shares, the equity issuance could be delayed by the need to obtain shareholder approval, which cannot be assured.

As of December 31, 2015, the par value of our Common Shares is CHF 24.15 per share. Under Swiss law, we generally may not issue registered shares below their par value. In the event there is a need to raise common equity capital at a time when the trading price of our registered shares is below our par value, we will need to obtain approval of our shareholders to decrease the par value of our registered shares. We cannot assure that we would be able to obtain such shareholder approval. Furthermore, obtaining shareholder approval would require filing a preliminary proxy statement with the SEC and convening a meeting of shareholders which would delay any capital raising plans. Furthermore, any reduction in par value would decrease our ability to pay dividends as a repayment of share capital which is not subject to Swiss withholding tax. See “Shareholders may be subject to Swiss withholding taxes on the payment of dividends” for additional information.

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

Our dividends are generally subject to a Swiss withholding tax at a rate of 35 percent; however, payment of a dividend in the form of a par value reduction or qualifying capital contribution reserves reduction is not subject to Swiss withholding tax. We have previously obtained shareholder approval for dividends to be paid in such form. We currently intend to recommend to shareholders that they annually approve the payment of dividends in such form but we cannot assure that our shareholders will continue to approve a reduction in such form each year or that we will be able to meet the other legal requirements for a reduction in par value, or that Swiss withholding tax rules will not be changed in the future. We estimate we would be able to pay dividends in such form, and thus exempt from Swiss withholding tax until 2028–2033. This range may vary depending upon changes in annual dividends, special dividends, fluctuations in U.S. dollar/Swiss franc exchange rates, changes in par value or qualifying capital contribution reserves or changes or new interpretations to Swiss corporate or tax law or regulations.

## Under certain circumstances, U. S. shareholders may be subject to adverse U.S. federal income tax consequences.

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

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



cannot be certain that this will be the case because some of the factors which determine the extent of RPII may be beyond our control. If these thresholds are met or exceeded, any U.S. person’s investment in Chubb Limited could be adversely affected.

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

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

## Changes in tax law could adversely affect an investment in our shares.

Legislation is periodically introduced in the U.S. Congress intended to eliminate some perceived tax advantages of companies (including insurance companies) that have legal domiciles outside the U.S. but have certain U.S. connections. It is possible that such legislation or other legislation could be enacted in the future that could have an adverse impact on us or our shareholders.

Similarly, jurisdictions outside the U.S. in which we do business could enact tax legislation in the future that could have an adverse impact on us or our shareholders. For example, Switzerland is currently considering corporate tax reform measures that could adversely affect us or our shareholders.

## Risks Relating to the Chubb Acquisition

We have incurred, and will continue to incur, significant integration-related costs in connection with the Chubb Acquisition. We have incurred and will continue to incur substantial expenses in connection with the Chubb acquisition.

We expect to continue to incur a number of non-recurring costs associated with combining the operations of the two companies and achieving desired synergies. These fees and costs have been, and will continue to be, substantial. These non-recurring expenses will include, among others, severance and benefit costs, employee retention costs, filing fees, and legal and professional fees.

We also will incur fees and costs related to formulating and implementing integration plans, including facilities and systems consolidation costs and employment-related costs. We continue to assess the magnitude of these costs, and additional unanticipated costs may be incurred as of a result of the Chubb acquisition and the integration of the two companies' businesses. Although we expect that the elimination of duplicate costs, as well as the realization of other efficiencies related to the integration of the businesses, should allow us company to offset integration-related costs over time, this net benefit may not be achieved in the near term, or at all.

These costs described above, as well as other unanticipated costs and expenses, could have an adverse effect on our financial condition and results of operations.

## We may fail to realize all of the anticipated benefits of the Chubb Acquisition.

The success of the Chubb acquisition will depend, in part, on our ability to realize the anticipated benefits and cost savings from combining our businesses. The anticipated benefits and cost savings of the Chubb acquisition may not be realized fully or at all, or may take longer to realize than expected or could have other adverse effects that we do not currently foresee. Some of the assumptions that we have made, such as the achievement of operating synergies, may not be realized. The integration process may result in the loss of key employees from both legacy ACE and Chubb Corporation, the disruption of ongoing businesses or inconsistencies in standards, controls, procedures and policies. There could be potential unknown liabilities and unforeseen expenses associated with the Chubb acquisition that were not discovered in the course of performing due diligence.



Chubb’s results will suffer if it does not effectively manage its expanded operations following the Chubb Acquisition. Our success will depend, in part, on our ability to manage the expanded business following the merger, which poses numerous risks and uncertainties, including the need to integrate the operations and business of Chubb Corporation into our existing business in an efficient and timely manner, to combine systems and management controls, and to integrate relationships with customers, vendors, and business partners.

The effective tax rate that will apply to Chubb is uncertain and may vary from expectations.

There can be no assurance that the Chubb acquisition will allow us to maintain any particular worldwide effective corporate tax rate. No assurances can be given as to what our company's effective tax rate will be because of, among other things, uncertainty regarding the tax policies of the jurisdictions where it operates. Our company's actual effective tax rate may vary from its expectations and that variance may be material.

If Section 7874 of the Internal Revenue Code were to apply as a result of the Chubb Acquisition, then we may be required to pay substantial additional U.S. federal income taxes going forward.

Section 7874 of the Internal Revenue Code of 1986, as amended (the Code) would apply if, (i) the percentage (by vote and value) of Chubb common shares considered to be held by former Chubb Corporation shareholders immediately after the Chubb acquisition by reason of holding Chubb Corporation common stock as calculated for Section 7874 purposes (the Section 7874 Percentage) is at least 60 percent, and (ii) the expanded affiliated group that includes Chubb does not have substantial business activities in Switzerland. Determining the Section 7874 Percentage is complex and, with respect to the Chubb acquisition, subject to factual and legal uncertainties, including the uncertain scope and application of possible regulatory action under Section 7874 announced by the IRS and the U.S. Treasury Department in Notices 2014-52 and 2015-79.

If the Section 7874 Percentage were determined to be at least 60 percent, several limitations could apply to us. For example, we would be prohibited from using certain net operating losses, foreign tax credits or other tax attributes, if any, to offset the income or gain recognized by reason of the transfer of property to a foreign related person during the 10-year period following the Chubb acquisition or any income received or accrued during such period by reason of a license of any property by the U.S. corporation to a foreign related person. In addition, the IRS has announced that it intends to promulgate new rules, which may limit the ability to engage in certain restructuring transactions relating to the non-U.S. members of the Chubb Group after the Chubb acquisition. Additionally, recent legislative, regulatory and treaty proposals in the United States would impose certain earnings stripping limitations and reduce potential tax treaty benefits with respect to Chubb and its affiliates if the Section 7874 Percentage is calculated to be at least 60 percent.

Section 7874 is not expected to apply as a result of the Chubb acquisition because the former Chubb Corporation shareholders received less than 60 percent of the legacy ACE common shares (by vote or value) by reason of holding Chubb Corporation common stock. However, it is possible that there could be a change in law under Section 7874 or otherwise (including the promulgation of regulations announced by the IRS and the U.S. Treasury Department in Notices 2014-52 and 2015-79) that could, prospectively or retroactively, adversely affect Chubb and its affiliates.

## ITEM 1B. Unresolved Staff Comments

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

## ITEM 2. Properties

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

## ITEM 3. Legal Proceedings

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

## ITEM 4. Mine Safety Disclosures

Item not applicable.



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

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

## Quarterly Stock Information

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

<table><tr><td rowspan="2"></td><td colspan="8">2015</td><td colspan="2">2014</td></tr><tr><td>High</td><td>Low</td><td>USD</td><td>CHF</td><td>High</td><td>Low</td><td>USD</td><td>CHF</td><td></td></tr><tr><td>Quarter Ending</td><td>$115.00</td><td>$107.96</td><td>$ 0.65</td><td>0.62</td><td>$101.70</td><td>$ 92.19</td><td>$ 0.75</td><td>(1)</td><td>0.65</td><td></td></tr><tr><td>March 31</td><td>$112.37</td><td>$101.60</td><td>$ 0.67</td><td>0.62</td><td>$105.32</td><td>$ 97.61</td><td>$ 0.65</td><td></td><td>0.58</td><td></td></tr><tr><td>June 30</td><td>$111.13</td><td>$ 99.72</td><td>$ 0.67</td><td>0.65</td><td>$107.39</td><td>$ 99.95</td><td>$ 0.65</td><td></td><td>0.61</td><td></td></tr><tr><td>September 30</td><td>$119.47</td><td>$102.29</td><td>$ 0.67</td><td>0.67</td><td>$117.58</td><td>$102.92</td><td>$ 0.65</td><td></td><td>0.63</td><td></td></tr></table>

(1) On January 10, 2014, our shareholders approved an increase to our dividend from $0.51 per share to $0.63 per share for the final two quarterly installments that had been earlier approved at our 2013 annual general meeting. Due to the timing of the approval, the $0.12 per share increase related to the quarter ended December 31, 2013 installment is included in the quarter ended March 31, 2014 dividend amount. Refer to Note 11 to the Consolidated Financial Statements for additional information.

We have paid dividends each quarter since we became a public company in 1993. Following Chubb's redemostication to Switzerland, our dividends have been distributed primarily by way of a par value reduction. However, at our May 2015 annual general meeting, our shareholders approved an annual dividend to be paid by way of a distribution from capital contribution reserves (Additional paid-in capital) through the transfer of dividends from Additional paid-in capital to Retained earnings (free reserves). This methodology was also used for the dividend increase approved by our shareholders on January 10, 2014.

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

The last reported sale price of the Common Shares on the New York Stock Exchange Composite Tape on February 12, 2016 was $114.31.

The number of record holders of Common Shares as of February 12, 2016 was 7,893. This is not the actual number of beneficial owners of Chubb's Common Shares since most of our shareholders hold their shares through a stockbroker, bank or other nominee rather than directly in their own name. This number of record holders includes the beneficial owners of the shares issued in connection with The Chubb Corporation acquisition.

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



## Issuer's Repurchases of Equity Securities

<table><tr><td>Period</td><td>Total Number of Shares Purchased \( ^{(1)} $</td><td>Average Price Paid per Share</td><td>Approximate Dollar Value of Shares that May Yet be Purchased Under Publicly Announced Plan \( ^{(2)} \)</td></tr><tr><td>October 1 through October 31</td><td>1,923</td><td>$ 106.07</td><td>$ 766 million</td></tr><tr><td>November 1 through November 30</td><td>782</td><td>$ 113.63</td><td>$ 766 million</td></tr><tr><td>December 1 through December 31</td><td>2,225</td><td>$ 116.27</td><td>— (2)</td></tr><tr><td>Total</td><td>4,930</td><td></td><td></td></tr></table>

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

(2) There are no outstanding share repurchase authorizations at December 31, 2015.

## Performance Graph

Set forth below is a line graph comparing the dollar change in the cumulative total shareholder return on Chubb's Common Shares from December 31, 2010, through December 31, 2015, as compared to the cumulative total return of the Standard & Poor's 500 Stock Index and the cumulative total return of the Standard & Poor's Property-Casualty Insurance Index. The cumulative total shareholder return is a concept used to compare the performance of a company's stock over time and is the ratio of the stock price change plus the cumulative amount of dividends over the specified time period (assuming dividend reinvestment), to the stock price at the beginning of the time period. The chart depicts the value on December 31, 2011, 2012, 2013, 2014, and 2015, of a $100 investment made on December 31, 2010, with all dividends reinvested.



<table><tr><td></td><td>12/31/2010</td><td>12/31/2011</td><td>12/31/2012</td><td>12/31/2013</td><td>12/31/2014</td><td>12/31/2015</td></tr><tr><td>Chubb Limited</td><td>$100</td><td>$114</td><td>$134</td><td>$177</td><td>$203</td><td>$212</td></tr><tr><td>S&amp;P 500 Index</td><td>$100</td><td>$102</td><td>$118</td><td>$157</td><td>$178</td><td>$181</td></tr><tr><td>S&amp;P 500 P&amp;C Index</td><td>$100</td><td>$100</td><td>$120</td><td>$166</td><td>$192</td><td>$210</td></tr></table>



<table><tr><td colspan="7">ITEM 6. Selected Financial Data</td></tr><tr><td>(in millions, except per share data and percentages)</td><td>2015</td><td>2014</td><td>2013</td><td>2012</td><td>2011</td><td></td></tr><tr><td>Operations data:</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Net premiums earned - excluding Life segment</td><td>$ 15,266</td><td>$ 15,464</td><td>$ 14,708</td><td>$ 13,761</td><td>$ 13,528</td><td></td></tr><tr><td>Net premiums earned - Life segment</td><td>1,947</td><td>1,962</td><td>1,905</td><td>1,916</td><td>1,859</td><td></td></tr><tr><td>Total net premiums earned</td><td>17,213</td><td>17,426</td><td>16,613</td><td>15,677</td><td>15,387</td><td></td></tr><tr><td>Net investment income</td><td>2,194</td><td>2,252</td><td>2,144</td><td>2,181</td><td>2,242</td><td></td></tr><tr><td>Losses and loss expenses</td><td>9,484</td><td>9,649</td><td>9,348</td><td>9,653</td><td>9,520</td><td></td></tr><tr><td>Policy benefits</td><td>543</td><td>517</td><td>515</td><td>521</td><td>401</td><td></td></tr><tr><td>Policy acquisition costs and administrative expenses</td><td>5,211</td><td>5,320</td><td>4,870</td><td>4,542</td><td>4,540</td><td></td></tr><tr><td>Net income</td><td>2,834</td><td>2,853</td><td>3,758</td><td>2,706</td><td>1,540</td><td></td></tr><tr><td>Weighted-average shares outstanding - diluted</td><td>329</td><td>339</td><td>344</td><td>343</td><td>341</td><td></td></tr><tr><td>Diluted earnings per share</td><td>$ 8.62</td><td>$ 8.42</td><td>$ 10.92</td><td>$ 7.89</td><td>$ 4.52</td><td></td></tr><tr><td>Balance sheet data (at end of period):</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Total investments</td><td>$ 66,251</td><td>$ 62,904</td><td>$ 60,928</td><td>$ 60,264</td><td>$ 55,676</td><td></td></tr><tr><td>Total assets</td><td>102,366</td><td>98,248</td><td>94,510</td><td>92,545</td><td>87,321</td><td></td></tr><tr><td>Net unpaid losses and loss expenses</td><td>26,562</td><td>27,008</td><td>26,831</td><td>26,547</td><td>25,875</td><td></td></tr><tr><td>Net future policy benefits</td><td>4,620</td><td>4,537</td><td>4,397</td><td>4,229</td><td>4,025</td><td></td></tr><tr><td>Long-term debt</td><td>9,447</td><td>3,357</td><td>3,807</td><td>3,360</td><td>3,360</td><td></td></tr><tr><td>Trust preferred securities</td><td>309</td><td>309</td><td>309</td><td>309</td><td>309</td><td></td></tr><tr><td>Total liabilities</td><td>73,231</td><td>68,661</td><td>65,685</td><td>65,014</td><td>62,989</td><td></td></tr><tr><td>Shareholders&#x27; equity</td><td>29,135</td><td>29,587</td><td>28,825</td><td>27,531</td><td>24,332</td><td></td></tr><tr><td>Book value per share</td><td>$ 89.77</td><td>$ 90.02</td><td>$ 84.83</td><td>$ 80.90</td><td>$ 72.22</td><td></td></tr><tr><td>Selected data:</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Loss and loss expense ratio (1)</td><td>58.1%</td><td>58.7%</td><td>59.6%</td><td>65.7%</td><td>66%</td><td></td></tr><tr><td>Underwriting and administrative expense ratio (2)</td><td>29.2%</td><td>29.4%</td><td>28.4%</td><td>28.2%</td><td>28.7%</td><td></td></tr><tr><td>Combined ratio (3)</td><td>87.3%</td><td>88.1%</td><td>88%</td><td>93.9%</td><td>94.7%</td><td></td></tr><tr><td>Net loss reserves to capital and surplus ratio (4)</td><td>107.0%</td><td>106.6%</td><td>108.3%</td><td>111.8%</td><td>122.9%</td><td></td></tr><tr><td>Cash dividends per share (5)</td><td>$ 2.66</td><td>$ 2.70</td><td>$ 2.02</td><td>$ 2.06</td><td>$ 1.38</td><td></td></tr></table>

(1) The loss and loss expense ratio is calculated by dividing Losses and loss expenses, excluding the Life segment, by Net premiums earned – excluding Life segment. Losses and loss expenses for the Life segment were $601 million, $589 million, $582 million, $611 million, and $593 million for the years ended December 31, 2015, 2014, 2013, 2012, and 2011, respectively.

(2) The underwriting and administrative expense ratio is calculated by dividing the Policy acquisition costs and administrative expenses, excluding the Life segment, by Net premiums earned – excluding Life segment. Policy acquisition costs and administrative expenses for the Life segment were $767 million, $763 million, $701 million, $662 million, and $656 million for the years ended December 31, 2015, 2014, 2013, 2012, and 2011, respectively.

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

(4) The net loss reserves to capital and surplus ratio is calculated by dividing the sum of the Net unpaid losses and loss expenses and Net future policy benefits by Shareholders' equity.

(5) Cash dividends per share in 2014 and 2012 include a $0.12 per share increase related to the fourth quarter 2013 and 2011 dividend installments, approved by our shareholders on January 10, 2014 and January 9, 2012, respectively.



## 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, 2015. This discussion should be read in conjunction with the consolidated financial statements and related Notes, under Item 8 of this Form 10-K.

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

<table><tr><td>MD&amp;A Index</td><td>Page</td></tr><tr><td>Forward-Looking Statements</td><td>36</td></tr><tr><td>Overview</td><td>38</td></tr><tr><td>Financial Highlights</td><td>39</td></tr><tr><td>Critical Accounting Estimates</td><td>40</td></tr><tr><td>Consolidated Operating Results</td><td>56</td></tr><tr><td>Prior Period Development</td><td>60</td></tr><tr><td>Segment Operating Results</td><td>61</td></tr><tr><td>Net Investment Income</td><td>71</td></tr><tr><td>Net Realized and Unrealized Gains (Losses)</td><td>72</td></tr><tr><td>Other Income and Expense Items</td><td>72</td></tr><tr><td>Amortization of Intangible Assets</td><td>73</td></tr><tr><td>Investments</td><td>73</td></tr><tr><td>Reinsurance Recoverable on Ceded Reinsurance</td><td>77</td></tr><tr><td>Asbestos and Environmental (A&amp;E)</td><td>77</td></tr><tr><td>Catastrophe Management</td><td>78</td></tr><tr><td>Natural Catastrophe Property Reinsurance Program</td><td>78</td></tr><tr><td>Political Risk, Trade Credit, and Structured Trade Credit</td><td>79</td></tr><tr><td>Crop Insurance</td><td>80</td></tr><tr><td>Liquidity</td><td>81</td></tr><tr><td>Capital Resources</td><td>83</td></tr><tr><td>Contractual Obligations and Commitments</td><td>85</td></tr><tr><td>Credit Facilities</td><td>86</td></tr><tr><td>Ratings</td><td>87</td></tr></table>



## Forward-Looking Statements

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

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

• the number of insureds and ceding companies affected;

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

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

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

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

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

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

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

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

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

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

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

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

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

• 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 and uncertainties relating to our the acquisition of The Chubb Corporation including our ability to successfully integrate the acquired company;

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

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

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

- the adequacy of collateral supporting funded high deductible programs;

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

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

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

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

- the amount of dividends received from subsidiaries;

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

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

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

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



## Overview

Through December 31, 2015, we operated through five business segments: Insurance – North American P&C, Insurance – North American Agriculture, Insurance – Overseas General, Global Reinsurance, and Life. For more information on our segments refer to “Segment Information” under Item 1.

We have grown our business through increased premium volume, expansion of product offerings and geographic reach, and acquisitions of other companies. Acquisitions in 2015, 2014, and 2013 are as follows:

- Insurance – North American P&C: the Fireman's Fund Insurance Company high net worth personal lines insurance business in the U.S. (April 1, 2015).

• Insurance – Overseas General:

- The large corporate account property and casualty (P&C) insurance business of Itaú Seguros (Itaú Seguros) (October 31, 2014);

- The Siam Commercial Samaggi Insurance PCL (Samaggi) (we and our local partner acquired 60.86 percent ownership on April 28, 2014, and subsequently acquired an additional 32.17 percent ownership through a mandatory tender offer, which expired on June 17, 2014);

• ABA Seguros (May 2, 2013);

• Fianzas Monterrey (April 1, 2013); and

- PT Asuransi Jaya Proteksi (JaPro) (we acquired 80 percent on September 18, 2012, and our local partner acquired the remaining 20 percent on January 3, 2013).

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

On January 14, 2016, we completed the acquisition of The Chubb Corporation (Chubb acquisition), a leading provider of middle-market commercial, specialty, surety, and personal insurance. Together, we expect the combined company, which operates under the Chubb brand, to be a global leader in commercial, specialty, and personal P&C insurance. The financial condition of the combined company, results of operations, liquidity, and capital resources are expected to materially change in 2016 and subsequent years.

Refer to Note 2 to the Consolidated Financial Statements for additional information on our acquisitions.

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

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

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



## Financial Highlights for the Year Ended December 31, 2015

• Net income was $2,834 million compared with $2,853 million last year.

- Total company net premiums written decreased 0.5 percent (increased 5.1 percent in constant dollars). Net premiums written included $252 million from the transfer of the Fireman's Fund in-force business at the time of the transaction and will be non-recurring in 2016.

- P&C combined ratio was 87.4 percent compared with 87.7 percent in 2014. The GAAP combined ratio was 87.3 percent compared with 88.1 percent in 2014.

- The current accident year P&C combined ratio excluding catastrophe losses was 88.8 percent compared with 89.3 percent in 2014.

• The P&C expense ratio was 29.2 percent compared with 29.4 percent in 2014.

- Total pre-tax and after-tax catastrophe losses including reinstatement premiums were $322 million (2.1 percentage points of the combined ratio) and $272 million, respectively, compared with $288 million (1.8 percentage points of the combined ratio) and $249 million, respectively, in 2014.

- Favorable prior period development pre-tax and after-tax were $546 million (3.5 percentage points of the combined ratio) and $474 million, respectively, compared with $527 million (3.4 percentage points of the combined ratio) and $459 million, respectively, in 2014.

- Operating cash flow was $3.9 billion compared with $4.5 billion in 2014. Refer to “Liquidity” for additional information on our cash flows.

- Net investment income was $2.2 billion compared with $2.3 billion in 2014, down 2.6 percent, primarily reflecting the negative impact of foreign exchange of $49 million.

- Shareholders' equity declined during the year, as net income was more than offset by the negative impact of unrealized losses in our investment portfolio and unfavorable foreign currency movement, together totaling $2 billion, after-tax, dividends on common shares, and share repurchases during the year.

- The acquisition of The Chubb Corporation (Chubb acquisition) for $29.5 billion was completed on January 14, 2016, and included $14.3 billion in cash (including proceeds from the issuance of $5.3 billion of senior notes in November 2015) and $15.2 billion in newly issued stock. In addition, we assumed outstanding equity awards to employees and directors with an attributed value of approximately $340 million.

- Integration expenses related to the Chubb acquisition were $33 million, pre-tax, or $23 million, after-tax, in 2015 and include legal and professional fees and all costs directly related to the integration activities of the Chubb acquisition.

All divisions contributed positively to net income in 2015, driven by excellent underwriting results resulting in a record low combined ratio and strong investment income, despite the adverse impact of foreign exchange. On a constant-dollar basis, net premiums written grew over 5 percent, primarily in North America, Latin America, and Asia, and Net investment income declined less than one percent, despite historic low interest rates.

We completed the acquisition of the Fireman's Fund high net worth personal lines business in the U.S. and launched ABR Reinsurance Ltd. (ABR Re), an independent reinsurance company. We own approximately 11.3 percent of the common equity of ABR Re's holding company. Through long-term arrangements, Chubb will be the sole source of reinsurance risks ceded to ABR Re. We also closed on our acquisition of The Chubb Corporation in January 2016 creating what we expect to be a global leader, operating under the Chubb brand, in commercial P&C for customers of many sizes, a premier provider of personal lines to high net worth individuals and families in the U.S., and a global leader in professional lines, commercial, specialty, and A&H. Our growth plans include new product capabilities into the middle market and agency channels. With respect to 2016 earnings of the combined entities, we estimate an investment income run rate for a full quarter of approximately $810 million to $825 million. We are now executing a detailed integration road map globally with integration plans on track including expense and growth-related initiatives. Our expected expense synergy target at this time for the Chubb acquisition is a $650 million annual run rate by the end of 2018. Our current estimate of integration costs is $535



million with an additional $100 million in branding-related expenses. We plan to update these estimates at the end of the first quarter of 2016.

## Critical Accounting Estimates

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

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

• future policy benefits reserves;

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

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

• reinsurance recoverable, including a provision for uncollectible reinsurance;

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

• the valuation of deferred tax assets;

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

• the assessment of goodwill for impairment.

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

## Unpaid losses and loss expenses

As an insurance and reinsurance company, we are required by applicable laws and regulations and GAAP to establish loss and loss expense reserves for the estimated unpaid portion of the ultimate liability for losses and loss expenses under the terms of our policies and agreements with our insured and reinsured customers. At December 31, 2015, our gross unpaid loss and loss expense reserves were $37.3 billion and our net unpaid loss and loss expense reserves were $26.6 billion. With the exception of certain structured settlements, for which the timing and amount of future claim payments are reliably determinable, and certain reserves for unsettled claims that are discounted in statutory filings, our loss reserves are not discounted for the time value of money. In connection with such structured settlements and certain reserves for unsettled claims, we carried net discounted reserves of $92 million and $111 million at December 31, 2015 and 2014, respectively.

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

<table><tr><td rowspan="2">(in millions of U.S. dollars)</td><td colspan="4">December 31, 2015</td><td colspan="2">December 31, 2014</td></tr><tr><td>Gross Losses</td><td>Reinsurance Recoverable \( ^{(1)} \)</td><td>Net Losses</td><td>Gross Losses</td><td>Reinsurance Recoverable \( ^{(1)} \)</td><td>Not Losses</td></tr><tr><td>Balance, beginning of year</td><td>$ 38,315</td><td>$ 11,307</td><td>$ 27,008</td><td>$ 37,443</td><td>$ 10,612</td><td>$ 26,831</td></tr><tr><td>Losses and loss expenses incurred</td><td>12,541</td><td>3,057</td><td>9,484</td><td>12,748</td><td>3,099</td><td>9,649</td></tr><tr><td>Losses and loss expenses paid</td><td>(12,914)</td><td>(3,249)</td><td>(9,665)</td><td>(12,409)</td><td>(3,174)</td><td>(9,235)</td></tr><tr><td>Other (including foreign exchange translation)</td><td>(1,056)</td><td>(374)</td><td>(682)</td><td>(835)</td><td>(278)</td><td>(557)</td></tr><tr><td>Losses and loss expenses acquired</td><td>417</td><td>—</td><td>417</td><td>1368</td><td>1,048</td><td>320</td></tr><tr><td>Balance, end of year</td><td>$ 37,303</td><td>$ 10,741</td><td>$ 26,562</td><td>$ 38,315</td><td>$ 11,307</td><td>$ 27,008</td></tr></table>

(1) Net of provision for uncollectible reinsurance.

The estimate of the liabilities includes provisions for claims that have been reported but are unpaid at the balance sheet date (case reserves) and for obligations on claims that have been incurred but not reported (IBNR) at the balance sheet date. IBNR



may also include provisions to account for the possibility that reported claims may settle for amounts that differ from the established case reserves. Loss reserves also include an estimate of expenses associated with processing and settling unpaid claims (loss expenses). Our loss reserves comprise approximately 85 percent casualty-related business, which typically encompasses long-tail risks and other risks where a high degree of judgment is required (see discussion below on reserving for long-tail business).

The following table segregates loss reserves by three broad line of business groupings: property and all other, casualty, and A&H (or personal accident). In the table, loss expenses are defined to include unallocated and allocated loss adjustment expenses.

<table><tr><td rowspan="2">(in millions of U.S. dollars)</td><td colspan="6">December 31, 2015</td><td colspan="2">December 31, 2014</td></tr><tr><td colspan="2">Gross</td><td colspan="2">Ceded</td><td>Net</td><td>Gross</td><td>Ceded</td><td>Net</td></tr><tr><td>Property and all other</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Case reserves</td><td>$ 3,354</td><td>$ 1,707</td><td>$ 1,647</td><td>$ 4,110</td><td>$ 1,959</td><td>$ 2,151</td><td></td><td></td></tr><tr><td>Loss expenses</td><td>269</td><td>66</td><td>203</td><td>216</td><td>58</td><td>158</td><td></td><td></td></tr><tr><td>IBNR reserves</td><td>2,367</td><td>858</td><td>1,509</td><td>2,095</td><td>792</td><td>1,303</td><td></td><td></td></tr><tr><td>Subtotal</td><td>5,990</td><td>2,631</td><td>3,359</td><td>6,421</td><td>2,809</td><td>3,612</td><td></td><td></td></tr><tr><td>Casualty</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Case reserves</td><td>8,845</td><td>2,240</td><td>6,605</td><td>9,071</td><td>2,210</td><td>6,861</td><td></td><td></td></tr><tr><td>Loss expenses</td><td>3,790</td><td>1,230</td><td>2,560</td><td>3,881</td><td>1,348</td><td>2,533</td><td></td><td></td></tr><tr><td>IBNR reserves</td><td>17,762</td><td>4,470</td><td>13,292</td><td>17,914</td><td>4,672</td><td>13,242</td><td></td><td></td></tr><tr><td>Subtotal</td><td>30,397</td><td>7,940</td><td>22,457</td><td>30,866</td><td>8,230</td><td>22,636</td><td></td><td></td></tr><tr><td>A&amp;H</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Case reserves</td><td>361</td><td>42</td><td>319</td><td>417</td><td>85</td><td>332</td><td></td><td></td></tr><tr><td>Loss expenses</td><td>28</td><td>6</td><td>22</td><td>28</td><td>7</td><td>21</td><td></td><td></td></tr><tr><td>IBNR reserves</td><td>527</td><td>122</td><td>405</td><td>583</td><td>176</td><td>407</td><td></td><td></td></tr><tr><td>Subtotal</td><td>916</td><td>170</td><td>746</td><td>1,028</td><td>268</td><td>760</td><td></td><td></td></tr><tr><td>Total</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Case reserves</td><td>12,560</td><td>3,989</td><td>8,571</td><td>13,598</td><td>4,254</td><td>9,344</td><td></td><td></td></tr><tr><td>Loss expenses</td><td>4,087</td><td>1,302</td><td>2,785</td><td>4,125</td><td>1,413</td><td>2,712</td><td></td><td></td></tr><tr><td>IBNR reserves</td><td>20,656</td><td>5,450</td><td>15,206</td><td>20,592</td><td>5,640</td><td>14,952</td><td></td><td></td></tr><tr><td>Total</td><td>$ 37,303</td><td>$ 10,741</td><td>$ 26,562</td><td>$ 38,315</td><td>$ 11,307</td><td>$ 27,008</td><td></td><td></td></tr></table>

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

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

With respect to IBNR reserves, and those claims that have been incurred but not reported prior to the balance sheet date, there is, by definition, limited actual information to form the case reserve estimate and reliance is placed upon historical loss



experience and actuarial methods to estimate the ultimate loss obligations and the corresponding amount of IBNR. IBNR reserve estimates are generally calculated by first projecting the ultimate amount of losses for a product line and subtracting paid losses and case reserves for reported claims. The judgments involved in projecting the ultimate losses may pertain to the use and interpretation of various standard actuarial reserving methods that place reliance on the extrapolation of actual historical data, loss development patterns, industry data, and other benchmarks as appropriate. The estimate of the required IBNR reserve also requires judgment by actuaries and management to reflect the impact of more contemporary and subjective factors, both qualitative and quantitative. Among some of these factors that might be considered are changes in business mix or volume, changes in ceded reinsurance structures, changes in claims handling practices, reported and projected loss trends, inflation, the legal environment, and the terms and conditions of the contracts sold to our insured parties.

## Determining management's best estimate

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

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

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

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

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

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

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

• rate monitor information for new and renewal business;

• facts and circumstances of large claims;

• impact of applicable reinsurance recoveries; and

• nature and extent of underlying assumptions.

Management does not build in any specific provision for uncertainty.

We do not calculate ranges of loss reserve estimates for our individual loss reserve studies, given the lack of robust statistical approaches and the limited usefulness for such information in decision making. Determining such ranges is a complex and uncertain process, and such ranges generally do not capture the potential changes in external and internal circumstances between the balance sheet date and the final settlement date that may impact the ultimate value of loss. While we believe that our recorded reserves are reasonable and represent management's best estimate for each product line as of the current valuation date, future changes to our view of the ultimate liabilities are possible. A five percent change in our net loss reserves equates to $1.3 billion and represents five percent of shareholders' equity at December 31, 2015. Historically our reserves, at times, have developed in excess of 10 percent of recorded amounts. Refer to “Analysis of Losses and Loss Expenses Development”, under Item 1, for a summary of historical volatility between estimated loss reserves and ultimate loss settlements.

We have actuarial staff within each of our business units who analyze loss reserves and regularly project estimates of ultimate losses and the corresponding indications of the required IBNR reserve. Note that losses include loss expenses for the purposes



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

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

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

## Standard actuarial reserving methods

Standard actuarial reserving methods include, but are not limited to, expected loss ratio, paid and reported loss development, and Bornhuetter-Ferguson methods. A general description of these methods is provided below. In the subsequent discussion on short-tail and long-tail business, reference is also made, where appropriate, to how consideration in method selection impacted 2015 results. In addition to these standard methods, depending upon the product line characteristics and available data we may use other recognized actuarial methods and approaches. To ensure that the projections of future loss emergence based on historical loss development patterns are representative of the underlying business, historical loss and premium data is required to be of sufficient homogeneity and credibility. For example, to improve data homogeneity, we may subdivide product line data further by similar risk attribute (e.g., geography, coverage such as property versus liability exposure, or elements of program structure such as attachments or limits), project ultimate losses for these homogeneous groups and then combine the results to provide the overall product line estimate. The premium and loss data are aggregated by origin year (e.g., the year in which the losses were incurred - “accident year” or “report year”) and annual or quarterly development periods, and data at all valuations is converted at the same foreign exchange rates in order to avoid distortions from exchange rate movements over time. Implicit in the standard actuarial methods that we generally utilize is the need for two fundamental assumptions: first, the pattern by which losses are expected to emerge over time for each origin year, and second the expected loss ratio for each origin year.

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

Our selected paid and reported development patterns provide a benchmark against which the actual emerging loss experience can be monitored. Where possible, development patterns are selected based on historical loss emergence by origin year with



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

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

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

## Short-tail and long-tail business

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

## Short-tail business

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

For origin year 2015, loss reserves for short-tail lines were typically established for the non-catastrophe exposures using a combination of the initial expected loss ratio method (see above) and loss development methods that incorporate actual loss emergence. As the year progressed, we also adjusted these reserves for non-catastrophe large loss activity that we considered to be greater or less than the assumptions used to establish the initial expected loss ratio. Catastrophe activity was relatively low in 2015 and accordingly the judgments and uncertainties used to establish reserves for incurred catastrophe events were correspondingly less complex. For our short-tail businesses taken as a whole, overall loss trend assumptions did not differ significantly relative to prior years.



In terms of prior accident years, the bulk of the changes made in the 2015 calendar year arose from origin years 2010 through 2013. Specifically, the Insurance – North American P&C, Insurance – Overseas General, and Global Reinsurance segments experienced $70 million, $177 million, and $13 million of favorable prior period development, respectively, primarily due to lower than anticipated loss emergence rather than any significant changes to underlying actuarial assumptions such as loss development patterns. This favorable prior period development was primarily the result of changes to the ultimate loss estimates for origin years 2012 and 2013 for Insurance – North American P&C, origin years 2010 through 2013 for Insurance – Overseas General, and origin year 2001 for Global Reinsurance. Insurance – North American Agriculture experienced $45 million of favorable prior period development primarily due to better than expected claim development for the 2014 crop year in our Multiple Peril Crop Insurance business.

## Long-tail business

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

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

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

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

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

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

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

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

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

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

Our assumptions on loss trend and development patterns reflect reliance on our historical loss data provided the length and volume of history and homogeneity afford credibility. For those lines where our internal historical experience lacks credibility, we may place reliance upon the latest benchmark patterns (where available) from external industry bodies such as Insurance



Services Office (ISO) or the National Council on Compensation Insurance, Inc. (NCCI). In such cases, the assumptions used to project ultimate loss estimates will not fully reflect our own actual loss experience until our data is deemed sufficiently credible. We note that industry patterns are not always available to match the nature of the business being written; this issue is particularly problematic for non-U.S. exposed lines. Given the underlying volatility of the long-tail product lines and the lengthy period required for full paid and reported loss emergence, we typically assign little to no credibility to actual loss emergence that is lower than expected in the early development periods. Accordingly, we generally used the expected loss ratio method for the 2015 and immediately preceding origin years to establish reserves by product line. We monitor actual paid and reported loss emergence relative to expected loss emergence for most individual product lines.

As described earlier, the process to develop origin year 2015 reserves for our long-tail casualty business relies on estimates of ultimate and historical loss ratios for prior origin years adjusted to current levels through the use of key assumptions such as expected rate change and loss trend. When estimating the ultimate loss levels for these prior origin years for the major long-tail lines in Insurance – North American P&C, Insurance – Overseas General, and Global Reinsurance no changes of significance were made to the loss development patterns. While we generally use trends observed in internal and/or industry data to adjust prior year losses to current levels, we have made no material changes to the prospective loss trends used to develop ultimate loss ratios for origin year 2015.

For long-tail portfolios where actual loss emergence in calendar year 2015 was lower than expected for the more recent origin years, the deviation was not typically seen as sufficiently credible, particularly given the volatility and lengthy period for full loss emergence, to fully reflect in our booked ultimate loss selections or the actuarial assumptions underlying the reserve reviews. However, for certain product lines with early loss emergence on more recent origin years that was greater than expected, we did respond where we believed that such adverse emergence was generally significant relative to the loss emergence assumptions (e.g., origin years 2012 and 2014 for casualty and financial lines in Insurance – Overseas General). Such judgments were made with due consideration to the factors impacting reserve uncertainty as discussed above. The reserve actions that we took in 2015 are discussed further below and in Note 7 to the Consolidated Financial Statements.

For more mature origin years, typically 2011 and prior, we gave meaningful weight to indicated ultimates derived from methods that rely on the paid and reported loss development patterns based on our own historical experience where sufficient credibility was deemed to exist. As noted previously, this is consistent with our practice of allowing favorable loss emergence sufficient time to be reliably established before assigning partial or full credibility.

The prior period development in 2015 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 2011 and prior). In particular, this included management and professional liability portfolios, and auto liability excess and general liability portfolios, in Insurance – North American P&C ($166 million favorable) principally in origin years 2009 through 2011, casualty and financial lines in Insurance – Overseas General for origin years 2011 and prior ($175 million favorable), and origin years 2010 and prior for long-tail product lines in Global Reinsurance ($64 million favorable). Second, we recorded reserve actions in response to development on specific large claims. Third, we experienced adverse development from Insurance – North American P&C run-off operations including Westchester and Brandywine run-off operations ($200 million). The causes for the Westchester and Brandywine operations are described further below.

## Sensitivity to underlying assumptions

While we believe that our reserve for unpaid losses and loss expenses at December 31, 2015, is adequate, new information or emerging trends that differ from our assumptions may lead to future development of losses and loss expenses that is significantly greater or less than the recorded reserve, which could have a material effect on future operating results. As noted previously, our best estimate of required loss reserves for most portfolios is judgmentally selected for each origin year after considering the results from a number of reserving methods and is not a purely mechanical process. Therefore, it is difficult to convey, in a simple and quantitative manner, the impact that a change to a single assumption will have on our best estimate. In the examples below, we attempt to give an indication of the potential impact by isolating a single change for a specific reserving method that would be pertinent in establishing the best estimate for the product line described. We consider each of the following sensitivity analyses to represent a reasonably likely deviation in the underlying assumption.

## Insurance – North American P&C

Given the long reporting and paid development patterns for workers' compensation business, the development factors used to project actual current losses to ultimate losses for our current exposure 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 $470 million, either positive or negative, for the projected net loss and loss expense reserves. This represents an impact of 10 percent relative to recorded net loss and loss expense reserves of approximately $4.6 billion.

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

## Insurance – North American Agriculture

Approximately 69 percent of the reserves for this segment are from the crop related lines, which all have short payout patterns, with the majority of the liabilities expected to be resolved in the ensuing twelve months. Reserves for our Multiple Peril Crop Insurance (MPCI) product are set on a case-by-case basis and our aggregate exposure is subject to state level risk sharing formulae as well as third-party reinsurance. The majority of the development risk arises out of the accuracy of case reserve estimates. We do not view our Agriculture reserves as substantially influenced by the general assumptions and risks underlying more typical P&C reserve estimates.

## Insurance – Overseas General

Certain long-tail lines, such as casualty and professional lines, are particularly susceptible to changes in loss trend and claim inflation. Heightened perceptions of tort and settlement awards around the world are increasing the demand for these products as well as contributing to the uncertainty in the reserving estimates. Our reserving methods rely on loss development patterns estimated from historical data and while we attempt to adjust such factors for known changes in the current tort environment, it is possible that such factors may not entirely reflect all recent trends in tort environments. For example, when applying the reported loss development method, the lengthening of our selected loss development patterns by six months would increase reserve estimates on long-tail casualty and professional lines for accident years 2013 and prior by approximately $262 million. This represents an impact of 12.4 percent relative to recorded net loss and loss expense reserves of approximately $2.1 billion.

## Global Reinsurance

Typically, there is inherent uncertainty around the length of paid and reported development patterns, especially for certain casualty lines such as excess workers' compensation or general liability, which may take up to 30 years to fully develop. This uncertainty is accentuated by the need to supplement client development patterns with industry development patterns due to the sometimes low credibility of the data. The underlying source and selection of the final development patterns can thus have a significant impact on the selected ultimate net losses and loss expenses. For example, a 20 percent shortening or lengthening of the development patterns used for U.S. long-tail lines would cause the loss reserve estimate derived by the reported Bornhuetter-Ferguson method for these lines to change by approximately $446 million. This represents an impact of 45 percent relative to recorded net loss and loss expense reserves of approximately $1.0 billion.

## Assumed reinsurance

At December 31, 2015, net unpaid losses and loss expenses for the Global Reinsurance segment aggregated to $1.7 billion, consisting of $740 million of case reserves and $975 million of IBNR. In comparison, at December 31, 2014, net unpaid losses and loss expenses for the Global Reinsurance segment aggregated to $2.0 billion, consisting of $872 million of case reserves and $1.1 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, 2015, the case reserves reported to us by our ceding companies were $723 million, compared with the $740 million we recorded. Our policy is to post additional case reserves in addition to the amounts reported by our cedants when our evaluation of the ultimate value of a reported claim is different than the evaluation of that claim by our cedant.

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

## Asbestos and environmental reserves

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

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



the policies, the facts, the law, and a careful analysis of the impact that these factors will likely have on any given account, we estimate the potential liability for indemnity, policyholder defense costs, and coverage litigation expense.

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

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

## Future policy benefits reserves

We issue contracts in our 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 benefits reserves balance is regularly evaluated for a premium deficiency. If experience is less favorable than assumptions, additional liabilities may be required, resulting in a charge to policyholder benefits and claims.

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

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

## Risk transfer

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

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



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

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

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

## Reinsurance recoverable

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

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

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

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



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

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

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

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

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

The following table summarizes reinsurance recoverables and the provision for uncollectible reinsurance for each type of recoverable balance at December 31, 2015:

<table><tr><td>(in millions of U.S. dollars)</td><td>Gross Reinsurance Recoverables on Losses and Loss Expenses</td><td>Recoverables (net of Usable Collateral)</td><td>Provision for Uncollectible Reinsurance</td></tr><tr><td>Type</td><td></td><td></td><td></td></tr><tr><td>Reinsurers with credit ratings</td><td>$     8,399</td><td>$     7,601</td><td>$     169</td></tr><tr><td>Reinsurers not rated</td><td>185</td><td>131</td><td>46</td></tr><tr><td>Reinsurers under supervision and insolvent reinsurers</td><td>101</td><td>97</td><td>53</td></tr><tr><td>Captives</td><td>2,102</td><td>393</td><td>23</td></tr><tr><td>Other - structured settlements and pools</td><td>927</td><td>922</td><td>37</td></tr><tr><td>Total</td><td>$     11,714</td><td>$     9,144</td><td>$     328</td></tr></table>

At December 31, 2015, the use of different assumptions within our approach could have a material effect on the provision for uncollectible reinsurance. To the extent the creditworthiness of our reinsurers were to deteriorate due to an adverse event



affecting the reinsurance industry, such as a large number of major catastrophes, actual uncollectible amounts could be significantly greater than our provision for uncollectible reinsurance. Such an event could have a material adverse effect on our financial condition, results of operations, and our liquidity. Given the various considerations used to estimate our uncollectible provision, we cannot precisely quantify the effect a specific industry event may have on the provision for uncollectible reinsurance. However, based on the composition (particularly the average credit quality) of the reinsurance recoverable balance at December 31, 2015, 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 $69 million or approximately 0.6 percent of the gross reinsurance recoverable balance, assuming no other changes relevant to the calculation. While a ratings downgrade would result in an increase in our provision for uncollectible reinsurance and a charge to earnings in that period, a downgrade in and of itself does not imply that we will be unable to collect all of the ceded reinsurance recoverable from the reinsurers in question. Refer to Note 5 to the Consolidated Financial Statements for additional information.

## Other-than-temporary impairments (OTTI)

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

## 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, 2015, our net deferred tax asset was $318 million. Refer to Note 8 to the Consolidated Financial Statements for additional information. At each balance sheet date, management assesses the need to establish a valuation allowance that reduces deferred tax assets when it is more likely than not that all, or some portion, of the deferred tax assets will not be realized. The valuation allowance is based on all available information including projections of future taxable income from each tax-paying component in each tax jurisdiction, principally derived from business plans and available tax planning strategies. Projections of future taxable income incorporate several assumptions of future business and operations that are apt to differ from actual experience. The valuation allowance is also based on maintaining our ability and intent to hold our U.S. available for sale fixed maturities to recovery. If our assumptions and estimates that resulted in our forecast of future taxable income for each tax-paying component prove to be incorrect, or future market events occur that prevent our ability to hold our U.S. fixed maturities to recovery, an additional valuation allowance could become necessary, which could have a material adverse effect on our financial condition, results of operations, and liquidity. At December 31, 2015, the valuation allowance of $38 million reflects management's assessment that it is more likely than not that a portion of the deferred tax asset will not be realized due to the inability of certain foreign subsidiaries to generate sufficient taxable income.

## Fair value measurements

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

## Assumed reinsurance programs involving minimum benefit guarantees under variable annuity contracts

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

## Guaranteed living benefits (GLB) derivatives

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



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

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

## Determination of GLB fair value

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

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

## Determination of GLB and Guaranteed minimum death benefits (GMDB) benefit reserves

Management established benefit reserves based on a long-term benefit ratio (or loss ratio) calculated using assumptions reflecting management's best estimate of the future short-term and long-term performance of the variable annuity line of business. Despite the long-term nature of the risk, the benefit ratio calculation is impacted by short-term market movements that may be judged by management to be transient. Management regularly examines both qualitative and quantitative analysis, including a review of the differential between the benefit ratio used at the most recent valuation date and the benefit ratio calculated on subsequent dates. Management regularly evaluates its estimates and uses judgment to determine the extent to which assumptions underlying the benefit ratio calculation should be adjusted. For the year ended December 31, 2015, management determined that no change to the benefit ratio was warranted.

For further information on the estimates and assumptions used in determining the fair value of GLB reinsurance, refer to Note 4 to the Consolidated Financial Statements. 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.

## Risk Management

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



A second layer of risk management is the structure of the reinsurance contracts. All VA guarantee reinsurance contracts include some form of annual or aggregate claim limit(s). For example, for 60 percent of the GMDB portfolio (based on guaranteed value), there is an annual claim limit of 2 percent of account value. The different categories of claim limits are as follows:

<table><tr><td>Reinsurance program covering</td><td>% of total guaranteed value (GV)</td><td>% of GV that has additional reinsurance coverage</td><td>Additional terms</td></tr><tr><td>GMDB with an annual claim limit of 2% of account value (AV)</td><td>60% of total GMDB</td><td>2% for GLB</td><td>N/A</td></tr><tr><td>GMDB with claim limit(s) that are a function of underlying GV (varies from 0.4% to 2.0% of GV)</td><td>30% of total GMDB</td><td>80% for GLB</td><td>· 60% of GV subject to annual claim deductibles(1) of 0.1% to 0.2% of GV· 40% of GV subject to an aggregate claim limit of approximately $385 million</td></tr><tr><td>GMDB and GMAB</td><td>10% of total GLB 10% of total GMDB</td><td>N/A</td><td>· Programs are quota-share (QS) agreements with QS % decreasing as ratio of AV to GV decreases:— QS 100% for ratios between 100% - 75%— QS 60% for ratios between 75% - 45%— QS 30% for ratios less than 45%· 35% of GV subject to a per policy claim deductible of 8.8% of GV for GMAB only(1)</td></tr><tr><td>GMIB with an annual claim limit of 10% of GV on over 95% of GV</td><td>60% of total GLB</td><td>45% for GMDB</td><td>· Annual annuitization limit range 17.5% - 30%:— 55% subject to limit of 30%— 45% subject to limit of 20% or under· 42% of GV subject to minimum annuity conversion factors that limits exposure to low interest rates</td></tr><tr><td>GMIB with an aggregate claim limit of $2.0 billion</td><td>30% of total GLB</td><td>40% for GMDB</td><td>· Annual annuitization limit of 20%· 60% of GV subject to minimum annuity conversion factors that limit exposure to low interest rates· 40% of GV subject to an aggregate claim deductible of 2% of underlying annuity deposits</td></tr></table>

 \( ^{(1)} \)  Chubb would only pay total annual claims in excess of deductibles.

A third layer of risk management is the hedging strategy which looks to mitigate both long-term economic loss over time as well as dampen income statement volatility. We owned financial market instruments as part of the hedging strategy with a fair value liability of $4 million and $19 million at December 31, 2015 and 2014, respectively. The instruments are substantially collateralized by our counterparties, on a daily basis.

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



Note that GLB claims cannot occur for any reinsured policy until it has reached the end of its “waiting period.” As shown in the table below, 55 percent of the policies we reinsure reached the end of their “waiting periods” in 2015 and prior.

<table><tr><td>Year of first payment eligibility</td><td>Percent of living benefit account values</td></tr><tr><td>2015 and prior</td><td>55%</td></tr><tr><td>2016</td><td>7%</td></tr><tr><td>2017</td><td>19%</td></tr><tr><td>2018</td><td>10%</td></tr><tr><td>2019</td><td>2%</td></tr><tr><td>2020 and after</td><td>7%</td></tr><tr><td>Total</td><td>100%</td></tr></table>

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

<table><tr><td rowspan="2">(in millions of U.S. dollars)</td><td colspan="6">2015</td><td colspan="4">2014</td><td colspan="2">2013</td></tr><tr><td colspan="2">GMDB</td><td colspan="2">GLB</td><td colspan="2">Total</td><td colspan="2">GMDB</td><td colspan="2">GLB</td><td colspan="3">Total</td></tr><tr><td>Premium received</td><td>$ 61</td><td>$ 121</td><td>$ 182</td><td>$ 71</td><td>$ 138</td><td>$ 209</td><td>$ 77</td><td>$ 149</td><td>$ 226</td><td></td><td></td><td></td></tr><tr><td>Less paid claims</td><td>28</td><td>16</td><td>44</td><td>39</td><td>13</td><td>52</td><td>63</td><td>23</td><td>86</td><td></td><td></td><td></td></tr><tr><td>Net cash received (paid)</td><td>$ 33</td><td>$ 105</td><td>$ 138</td><td>$ 32</td><td>$ 125</td><td>$ 157</td><td>$ 14</td><td>$ 126</td><td>$ 140</td><td></td><td></td><td></td></tr></table>

## Collateral

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

## Goodwill impairment

Goodwill, which represents the excess of acquisition cost over the estimated fair value of net assets acquired, was $4.8 billion and $4.9 billion at December 31, 2015 and 2014, respectively. During 2015, our goodwill balance decreased 2 percent, primarily due to the negative impact of foreign exchange, partially offset by an acquisition. Goodwill is not amortized but is subject to a periodic evaluation for impairment at least annually, or earlier if there are any indications of possible impairment. Impairment is tested at the reporting unit level. Goodwill is assigned to applicable reporting units of acquired entities at acquisition. The most significant reporting units are:

• New York Life's Korea operations and Hong Kong operations acquired in 2011;

• Rain and Hail Insurance Service, Inc. (Rain and Hail) acquired in 2010;

• North American division of Combined Insurance acquired in 2008;

- Domestic and International divisions of ACE INA acquired in 1999, including subsequent domestic and international acquisitions; and

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

The impairment evaluation first uses a qualitative assessment to determine whether it is more likely than not (i.e., more than a 50 percent probability) that the fair value of a reporting unit is greater than its carrying amount. If a reporting unit fails this qualitative assessment, a quantitative analysis is then used. The quantitative analysis is a two-step process in which an initial assessment for potential impairment is performed and, if a potential impairment is present, the amount of impairment is measured and recorded.

Other reporting units from smaller acquisitions are also assessed annually. Based on our impairment testing for 2015, we determined no impairment was required and none of our reporting units were at risk for impairment.



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

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

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

If our assumptions and estimates made in assessing the fair value of acquired entities change, we could be required to write-down the carrying value of goodwill which could be material to our results of operations in the period the charge is taken.

Consolidated Operating Results – Years Ended December 31, 2015, 2014, and 2013

<table><tr><td rowspan="2">(in millions of U.S. dollars, except for percentages)</td><td rowspan="2">2015</td><td rowspan="2">2014</td><td rowspan="2">2013</td><td colspan="2">% Change</td></tr><tr><td>2015 vs. 2014</td><td>2014 vs. 2013</td></tr><tr><td>Net premiums written(1)</td><td>$ 17,713</td><td>$ 17,799</td><td>$ 17,025</td><td>(0.5)%</td><td>4.6%</td></tr><tr><td>Net premiums earned(2)</td><td>17,213</td><td>17,426</td><td>16,613</td><td>(1.2)%</td><td>4.9%</td></tr><tr><td>Net investment income</td><td>2,194</td><td>2,252</td><td>2,144</td><td>(2.6)%</td><td>5.1%</td></tr><tr><td>Net realized gains (losses)</td><td>(420)</td><td>(507)</td><td>504</td><td>(17.2)%</td><td>NM</td></tr><tr><td>Total revenues</td><td>18,987</td><td>19,171</td><td>19,261</td><td>(1.0)%</td><td>(0.5)%</td></tr><tr><td>Losses and loss expenses</td><td>9,484</td><td>9,649</td><td>9,348</td><td>(1.7)%</td><td>3.2%</td></tr><tr><td>Policy benefits(3)</td><td>543</td><td>517</td><td>515</td><td>5.0%</td><td>0.4%</td></tr><tr><td>Policy acquisition costs</td><td>2,941</td><td>3,075</td><td>2,659</td><td>(4.4)%</td><td>15.6%</td></tr><tr><td>Administrative expenses</td><td>2,270</td><td>2,245</td><td>2,211</td><td>1.1%</td><td>1.5%</td></tr><tr><td>Interest expense</td><td>300</td><td>280</td><td>275</td><td>7.1%</td><td>1.8%</td></tr><tr><td>Other (income) expense(3)</td><td>(51)</td><td>(190)</td><td>(80)</td><td>(73.2)%</td><td>NM</td></tr><tr><td>Amortization of intangible assets</td><td>171</td><td>108</td><td>95</td><td>58.3%</td><td>13.7%</td></tr><tr><td>Chubb integration expenses</td><td>33</td><td>—</td><td>—</td><td>NM</td><td>—%</td></tr><tr><td>Total expenses</td><td>15,691</td><td>15,684</td><td>15,023</td><td>—%</td><td>4.4%</td></tr><tr><td>Income before income tax</td><td>3,296</td><td>3,487</td><td>4,238</td><td>(5.5)%</td><td>(17.7)%</td></tr><tr><td>Income tax expense</td><td>462</td><td>634</td><td>480</td><td>(27.1)%</td><td>32.1%</td></tr><tr><td>Net income</td><td>$ 2,834</td><td>$ 2,853</td><td>$ 3,758</td><td>(0.7)%</td><td>(24.1)%</td></tr></table>

NM – not meaningful

(1) In 2015 and 2014 net premiums written increased $860 million or 5.1%, and $952 million or 5.7%, respectively, in constant dollars. Amounts are calculated by translating prior period results using the same local currency rates as the current period.

(2) In 2015 and 2014 net premiums earned increased $714 million or 4.3%, and $991 million or 6.0%, respectively, in constant dollars. Amounts are calculated by translating prior period results using the same local currency rates as the current period.

(3) Other (income) expense includes (gains) losses from fair value changes in separate account assets that do not qualify for separate account reporting under GAAP in 2015, 2014, and 2013 these (gains) losses were $19 million, $(2) million, and $(16) million, respectively. The offsetting movement in the separate account liabilities is included in Policy benefits.



The following tables present a breakdown of consolidated net premiums written:

<table><tr><td rowspan="2">(in millions of U.S. dollars, except for percentages)</td><td colspan="2">2015</td><td colspan="2">2014</td><td colspan="2">% Change</td></tr><tr><td>2015</td><td>2014</td><td>2013</td><td>2015 vs. 2014</td><td>2014 vs. 2013</td><td></td></tr><tr><td>Commercial P&amp;C (retail and wholesale)</td><td>$ 8,017</td><td>$ 8,235</td><td>$ 7,887</td><td>(2.7)%</td><td>4.4%</td><td></td></tr><tr><td>Personal and small commercial lines</td><td>2,995</td><td>2,292</td><td>1,909</td><td>30.7%</td><td>20.0%</td><td></td></tr><tr><td>Reinsurance</td><td>828</td><td>935</td><td>991</td><td>(11.4)%</td><td>(5.7)%</td><td></td></tr><tr><td>Property, casualty, and all other</td><td>11,840</td><td>11,462</td><td>10,787</td><td>3.3%</td><td>6.3%</td><td></td></tr><tr><td>Agriculture</td><td>1,346</td><td>1,590</td><td>1,627</td><td>(15.3)%</td><td>(2.3)%</td><td></td></tr><tr><td>Personal accident (A&amp;H)</td><td>3,548</td><td>3,735</td><td>3,655</td><td>(5)%</td><td>2.2%</td><td></td></tr><tr><td>Life</td><td>979</td><td>1,012</td><td>956</td><td>(3.2)%</td><td>5.9%</td><td></td></tr><tr><td>Total consolidated</td><td>$ 17,713</td><td>$ 17,799</td><td>$ 17,025</td><td>(0.5)%</td><td>4.6%</td><td></td></tr><tr><td>Total consolidated - constant dollars (C) \( ^{(1)} \)</td><td></td><td>$ 16,853</td><td>$ 16,847</td><td>5.1%</td><td>5.7%</td><td></td></tr><tr><td></td><td>2015 % of Total</td><td>2014 % of Total</td><td>2013 % of Total</td><td></td><td></td><td></td></tr><tr><td>Commercial P&amp;C (retail and wholesale)</td><td>45%</td><td>46%</td><td>46%</td><td></td><td></td><td></td></tr><tr><td>Personal and small commercial lines</td><td>17%</td><td>13%</td><td>11%</td><td></td><td></td><td></td></tr><tr><td>Reinsurance</td><td>5%</td><td>5%</td><td>6%</td><td></td><td></td><td></td></tr><tr><td>Property, casualty, and all other</td><td>67%</td><td>64%</td><td>63%</td><td></td><td></td><td></td></tr><tr><td>Agriculture</td><td>8%</td><td>9%</td><td>10%</td><td></td><td></td><td></td></tr><tr><td>Personal accident (A&amp;H)</td><td>19%</td><td>21%</td><td>21%</td><td></td><td></td><td></td></tr><tr><td>Life</td><td>6%</td><td>6%</td><td>6%</td><td></td><td></td><td></td></tr><tr><td>Total consolidated</td><td>100%</td><td>100%</td><td>100%</td><td></td><td></td><td></td></tr></table>

 \( ^{(1)} \)  In constant dollars. Amounts are calculated by translating prior period results using the same local currency rates as the comparable current period.

Net premiums written reflect the premiums we retain after purchasing reinsurance protection. Consolidated net premiums written decreased less than one percent in 2015. On a constant-dollar basis, net premiums written increased 5.1 percent ($860 million).

- Net premiums written in our Insurance – North American P&C segment increased $677 million in constant dollars reflecting solid renewal retention and new business in our risk management, A&H, surety, retail and wholesale casualty, Commercial Risk Services (CRS), and personal lines divisions. These increases were partially offset by declines in our retail and wholesale property divisions, as well as in our retail casualty business, reflecting a more competitive market and rate decreases, and lower excess of loss premiums for the 2014 property catastrophe program of $32 million. Net premiums written also increased due to the acquisition of Fireman's Fund high net worth personal lines business in April 2015 which added $561 million of growth. Included in premiums from Fireman's Fund is $252 million of non-recurring unearned premium reserves recognized as written premiums at the date of purchase. Excluding the Fireman's Fund acquisition, net premiums written increased 1.3 percent, or 1.9 percent in constant dollars.

- Net premiums written in our Insurance – Overseas General segment increased $441 million in constant dollars reflecting organic growth across most operations. Growth in our retail operations in personal and P&C product lines was from new business writings. Included in the increase in net premiums written were contributions from the acquisition of Itaú Seguros in October 2014 and Samaggi in April 2014 which added $273 million of growth to premiums in constant dollars.

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

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



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

Consolidated net premiums written increased 4.6 percent in 2014. In constant dollars, net premiums written increased 5.7 percent ($952 million).

- Net premiums written in our Insurance – North American P&C segment increased $368 million in constant dollars from growth across a broad range of our product portfolio throughout our ACE USA retail and our wholesale divisions, as well as in our Commercial Risk Services and ACE Private Risk Services divisions, primarily reflecting strong renewal retention and new business.

- Net premiums written in our Insurance – Overseas General segment increased $600 million in constant dollars reflecting new business writings in our retail operations in all product lines - personal lines, A&H, and P&C and growth of $310 million from the acquisitions of Fianzas Monterrey in April 2013, ABA Seguros in May 2013, Samaggi in April 2014, and Itaú Seguros in October 2014.

- Net premiums written in our Life segment increased $78 million in constant dollars due to new business growth in our Asian markets.

- Net premiums written in our Global Reinsurance segment decreased $57 million in constant dollars due to the non-renewal of a large workers' compensation treaty, partially offset by new business written.

- Net premiums written in our Insurance – North American Agriculture segment decreased $37 million primarily due to lower Multiple Peril Crop Insurance (MPCI) revenues reflecting lower commodity prices, partially offset by higher premium retention as a result of the non-renewal of a third-party proportional reinsurance agreement.

Net premiums earned for short-duration contracts, typically P&C contracts, generally reflect the portion of net premiums written that were recorded as revenues for the period as the exposure periods expire. Net premiums earned for long-duration contracts, typically traditional life contracts, generally are recognized as earned when due from policyholders. Net premiums earned decreased 1.2 percent in 2015 primarily reflecting the adverse impact of foreign exchange. On a constant-dollar basis, net premiums earned increased 4.3 percent due to the same factors driving the increase in net premiums written as described above. Net premiums earned increased 4.9 percent in 2014, or 6.0 percent in constant dollars, primarily in our Insurance – Overseas General, Insurance – North American P&C, and Life segments as described above. Our Global Reinsurance segment also reported an increase in net premiums earned primarily from the shorter earning period on certain of the new business written including two non-recurring short-term treaties. Net premiums earned decreased in our Insurance – North American Agriculture segment from lower net premiums written as described above.

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 presents the components of GAAP combined ratio as well as a reconciliation of GAAP combined ratio to P&C combined ratio. The P&C combined ratio is a non-GAAP financial measure and includes the impact of gains and losses on crop derivatives. These derivatives were purchased to provide economic benefit, in a manner similar to reinsurance protection, in the event that a significant decline in commodity pricing impacts underwriting results. We view gains and losses on these derivatives as part of the results of our underwriting operations.

<table><tr><td></td><td>2015</td><td>2014</td><td>2013</td></tr><tr><td>Loss and loss expense ratio</td><td>58.1%</td><td>58.7%</td><td>59.6%</td></tr><tr><td>Policy acquisition cost ratio</td><td>16.1%</td><td>16.8%</td><td>15.7%</td></tr><tr><td>Administrative expense ratio</td><td>13.1%</td><td>12.6%</td><td>12.7%</td></tr><tr><td>GAAP combined ratio</td><td>87.3%</td><td>88.1%</td><td>88.0%</td></tr><tr><td>(Gains) losses on crop derivatives</td><td>0.1%</td><td>(0.4)%</td><td>—</td></tr><tr><td>P&amp;C combined ratio</td><td>87.4%</td><td>87.7%</td><td>88.0%</td></tr></table>



The following table presents the impact of catastrophe losses and related reinstatement premiums and prior period reserve development on our consolidated loss and loss expense ratio, including gains and losses on crop derivatives:

<table><tr><td></td><td>2015</td><td>2014</td><td>2013</td></tr><tr><td>Loss and loss expense ratio, including gains and losses on crop derivatives</td><td>58.2%</td><td>58.3%</td><td>59.6%</td></tr><tr><td>Catastrophe losses and related reinstatement premiums</td><td>(2.1)%</td><td>(1.9)%</td><td>(1.5)%</td></tr><tr><td>Prior period development</td><td>3.6%</td><td>3.4%</td><td>3.7%</td></tr><tr><td>Loss and loss expense ratio, adjusted</td><td>59.7%</td><td>59.8%</td><td>61.8%</td></tr></table>

Total net pre-tax catastrophe losses, excluding reinstatement premiums, were $321 million in 2015, compared with $291 million in 2014 and $230 million in 2013. Catastrophe losses in 2015 were primarily related to severe weather-related events in the U.S. and Asia, a chemical storage facility explosion in Tianjin, China, a hailstorm in Australia, and flooding and an earthquake in Chile. Catastrophe losses in 2014 were primarily related to severe weather-related events in the U.S., Japan, and Australia; flooding and hailstorms in Europe; and a hurricane in Mexico. Catastrophe losses in 2013 were primarily from flooding in Canada and Australia and severe weather-related events in the U.S. The adjusted loss and loss expense ratio remained relatively flat in 2015. In 2014, the adjusted loss and loss expense ratio decreased due to underwriting actions improving loss ratios on several portfolios and higher losses in 2013 in our MPCI program.

Prior period development arises from changes to loss estimates recognized in the current year that relate to loss events that occurred in previous calendar years and excludes the effect of losses from the development of earned premium from previous accident years. We experienced net favorable prior period development of $546 million in 2015, $527 million in 2014, and $530 million in 2013, which includes an asbestos and environmental (A&E) and other run-off charge of $170 million, $215 million, and $166 million, respectively. Refer to “Prior Period Development” for additional information.

Policy acquisition costs consist of commissions, premium taxes, and certain underwriting costs related directly to the successful acquisition of a new or renewal insurance contract. Administrative expenses include all other operating costs. Our policy acquisition ratio decreased in 2015 due to the impact of normal initial purchase accounting adjustments related to our acquisition of Fireman's Fund in our Insurance – North American P&C segment. The non-recurring unearned premium reserves (UPR) transfer, discussed in our Insurance – North American P&C segment, benefited the policy acquisition cost ratio by 0.7 percentage points. Our policy acquisition cost ratio increased in 2014 primarily due to the normal impact of initial year purchase accounting adjustments related to our Mexican acquisitions which favorably impacted the 2013 ratio. As a result of purchase accounting requirements, the unearned premiums at the date of purchase related to the businesses acquired are recognized over the remaining coverage period with no expense for the associated historical acquisition costs that were incurred to underwrite those policies.

Our administrative expense ratio increased in 2015 primarily due to increased spending to support growth and the integration costs associated with the Fireman's Fund acquisition. Our administrative expense ratio decreased slightly in 2014 as growth in net premiums earned outpaced growth in administrative expenses, partially offset by the favorable impact of a $29 million prior year legal settlement.

Chubb integration expenses were $33 million for 2015 and include legal and professional fees and all other external costs directly related to the integration activities of the Chubb acquisition.

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 14.0 percent in 2015, compared with 18.2 percent and 11.3 percent in 2014 and 2013, respectively. The effective income tax rate in 2015 is lower compared to 2014 primarily due to a $115 million change to deferred tax assets in 2014 that resulted from the decline in the book value of certain foreign subsidiaries, related to unrealized foreign exchange losses. The effective income tax rate in 2014 is higher compared to 2013 primarily due to both net realized losses and a lower percentage of operating earnings being generated in lower tax paying jurisdictions as well as the change to deferred tax assets noted above. The lower tax rates attributed to our foreign operations primarily reflects lower corporate tax rates that prevail outside of the U.S. During 2015, approximately 69 percent of our total pre-tax income was tax effected based on these lower rates compared with 66 percent and 73 percent in 2014 and 2013, respectively. The significant jurisdictions outside of the U.S. include the U.K., Switzerland, and Bermuda with effective federal income tax rates in those countries of 20.25 percent, 7.83 percent, and 0.0 percent, respectively.



## Prior Period Development

The following table summarizes (favorable) and adverse prior period development (PPD) by segments. Long-tail lines include lines such as workers' compensation, general liability, and professional liability; while short-tail lines include lines such as most property lines, energy, personal accident, aviation, marine (including associated liability-related exposures) and agriculture.

<table><tr><td>Years Ended December 31 (in millions of U.S. dollars, except for percentages)</td><td>Long-tail</td><td>Short-tail</td><td>Total</td><td>% of net unpaid reserves (1)</td></tr><tr><td>2015</td><td></td><td></td><td></td><td></td></tr><tr><td>Insurance - North American P&amp;C - active</td><td>$ (169)</td><td>$ (70)</td><td>$ (239)</td><td>1.5%</td></tr><tr><td>Insurance - North American P&amp;C - run-off (2)</td><td>200</td><td>—</td><td>200</td><td>1.2%</td></tr><tr><td>Insurance - North American Agriculture</td><td>—</td><td>(45)</td><td>(45)</td><td>7.8%</td></tr><tr><td>Insurance - Overseas General</td><td>(166)</td><td>(177)</td><td>(343)</td><td>4.2%</td></tr><tr><td>Global Reinsurance</td><td>(106)</td><td>(13)</td><td>(119)</td><td>6.4%</td></tr><tr><td>Total</td><td>$ (241)</td><td>$ (305)</td><td>$ (546)</td><td>2.0%</td></tr><tr><td>2014</td><td></td><td></td><td></td><td></td></tr><tr><td>Insurance - North American P&amp;C - active</td><td>$ (298)</td><td>$ (56)</td><td>$ (354)</td><td>2.2%</td></tr><tr><td>Insurance - North American P&amp;C - run-off (2)</td><td>247</td><td>—</td><td>247</td><td>1.6%</td></tr><tr><td>Insurance - North American Agriculture</td><td>—</td><td>34</td><td>34</td><td>6.8%</td></tr><tr><td>Insurance - Overseas General</td><td>(181)</td><td>(210)</td><td>(391)</td><td>4.8%</td></tr><tr><td>Global Reinsurance</td><td>(52)</td><td>(11)</td><td>(63)</td><td>2.9%</td></tr><tr><td>Total</td><td>$ (284)</td><td>$ (243)</td><td>$ (527)</td><td>2.0%</td></tr><tr><td>2013</td><td></td><td></td><td></td><td></td></tr><tr><td>Insurance - North American P&amp;C - active</td><td>$ (221)</td><td>$ (106)</td><td>$ (327)</td><td>2.1%</td></tr><tr><td>Insurance - North American P&amp;C - run-off (2)</td><td>193</td><td>—</td><td>193</td><td>1.2%</td></tr><tr><td>Insurance - North American Agriculture</td><td>—</td><td>(13)</td><td>(13)</td><td>4.0%</td></tr><tr><td>Insurance - Overseas General</td><td>(127)</td><td>(172)</td><td>(299)</td><td>3.8%</td></tr><tr><td>Global Reinsurance</td><td>(53)</td><td>(31)</td><td>(84)</td><td>3.6%</td></tr><tr><td>Total</td><td>$ (208)</td><td>$ (322)</td><td>$ (530)</td><td>2.0%</td></tr></table>

(1) Calculated based on the segment's total beginning of period net unpaid loss and loss expenses reserves.

(2) Brandywine Holdings and Westchester Specialty operations in respect of 1996 and prior years.

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



## Segment Operating Results – Years Ended December 31, 2015, 2014, and 2013

We operate through five business segments: Insurance – North American P&C, Insurance – North American Agriculture, Insurance – Overseas General, Global Reinsurance, and Life. For additional information refer to “Segment Information” under Item 1. The discussions that follow include tables that show our segment operating results for the years ended December 31, 2015, 2014, and 2013.

## Insurance – North American

## Insurance – North American P&C

The Insurance – North American P&C segment comprises our operations in the U.S., Canada, and Bermuda. This segment includes our retail divisions: ACE USA (including ACE Canada), ACE Commercial Risk Services, and ACE Private Risk Services, which includes the Fireman's Fund high net worth personal lines business acquired effective April 1, 2015; our wholesale and specialty divisions: ACE Westchester and ACE Bermuda; and various run-off operations, including Brandywine Holdings Corporation (Brandywine).

<table><tr><td rowspan="2">(in millions of U.S. dollars, except for percentages)</td><td colspan="2">2015</td><td colspan="2">2014</td><td colspan="2">2013</td><td colspan="2">% Change</td></tr><tr><td></td><td></td><td></td><td></td><td></td><td>2015 vs. 2014</td><td>2014 vs. 2013</td><td></td></tr><tr><td>Net premiums written</td><td>$ 6,907</td><td>$ 6,582</td><td>$ 6,107</td><td>$ 5,721</td><td></td><td>10.3 %</td><td>5.9 %</td><td></td></tr><tr><td>Net premiums earned</td><td>6,582</td><td>6,107</td><td>5,721</td><td></td><td>7.8 %</td><td>6.8 %</td><td></td><td></td></tr><tr><td>Losses and loss expenses</td><td>4,450</td><td>4,086</td><td>3,776</td><td></td><td>8.9 %</td><td>8.2 %</td><td></td><td></td></tr><tr><td>Policy acquisition costs</td><td>600</td><td>634</td><td>597</td><td></td><td>(5.4)%</td><td>6.2 %</td><td></td><td></td></tr><tr><td>Administrative expenses</td><td>748</td><td>678</td><td>601</td><td></td><td>10.3 %</td><td>12.8 %</td><td></td><td></td></tr><tr><td>Underwriting income</td><td>784</td><td>709</td><td>747</td><td></td><td>10.6 %</td><td>(5.1)%</td><td></td><td></td></tr><tr><td>Net investment income</td><td>1,056</td><td>1,085</td><td>1,021</td><td></td><td>(2.7)%</td><td>6.3 %</td><td></td><td></td></tr><tr><td>Net realized gains (losses)</td><td>(108)</td><td>(67)</td><td>72</td><td></td><td>61.2 %</td><td>NM</td><td></td><td></td></tr><tr><td>Interest expense</td><td>2</td><td>9</td><td>5</td><td></td><td>(77.8)%</td><td>80.0 %</td><td></td><td></td></tr><tr><td>Other (income) expense</td><td>(29)</td><td>(101)</td><td>(58)</td><td></td><td>(71.3)%</td><td>74.1%</td><td></td><td></td></tr><tr><td>Amortization of intangible assets</td><td>78</td><td>—</td><td>—</td><td></td><td>NM</td><td>— %</td><td></td><td></td></tr><tr><td>Income tax expense</td><td>316</td><td>306</td><td>347</td><td></td><td>3.3 %</td><td>(11.8)%</td><td></td><td></td></tr><tr><td>Net income</td><td>$ 1,365</td><td>$ 1,513</td><td>$ 1,546</td><td></td><td>(9.8)%</td><td>(2.1)%</td><td></td><td></td></tr><tr><td>Loss and loss expense ratio</td><td>67.6%</td><td>66.9%</td><td>66.0%</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Policy acquisition cost ratio</td><td>9.1%</td><td>10.4%</td><td>10.4%</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Administrative expense ratio</td><td>11.4%</td><td>11.1%</td><td>10.5%</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Combined ratio</td><td>88.1%</td><td>88.4%</td><td>86.9%</td><td></td><td></td><td></td><td></td><td></td></tr></table>

Net premiums written increased in 2015 due to growth in our risk management, A&H, surety, and professional lines of business in our retail division reflecting solid renewal retention and new business. There was also growth in our wholesale casualty and professional lines businesses. Our small specialty division (Commercial Risk Services, or CRS) grew due to higher new business reflecting increased submission activity and the introduction of new products, as well as strong premium renewal retention. Our personal lines division, specifically products offered through ACE Private Risk Services, also generated higher premiums primarily due to the Fireman's Fund acquisition. Net premiums were favorably impacted by lower excess of loss premiums ceded under our 2014 catastrophe reinsurance program of $32 million. These increases were partially offset by declines in our retail and wholesale property divisions and in our retail casualty business reflecting a more competitive market and rate decreases. The acquisition of Fireman's Fund high net worth personal lines business in April 2015 added $561 million of growth to premiums. Excluding the Fireman's Fund acquisition, net premiums written increased 1.3 percent. Foreign exchange adversely impacted growth by $34 million (0.6 percentage points). Net premiums written in 2015 included $252 million of non-recurring unearned premium reserves (UPR) recognized as written premiums at the date of the Fireman's Fund acquisition. Underwriting income for the year included a benefit of $100 million related to the initial UPR transfer as unearned premiums at the date of the transfer are recognized over the remaining coverage period with no associated expense for the historical acquisition costs. These costs are eliminated in purchase accounting. This underwriting benefit was partially offset by the amortization of the intangible asset related to this UPR of $71 million for a pre-tax net income impact of $30 million ($22 million after-tax).



Net premiums written increased in 2014 in our ACE USA retail division from growth across a broad range of our product portfolio, including our risk management, general and specialty casualty, A&H, professional risk, and surety lines of business reflecting strong renewal retention and new business. This growth was partially offset by reductions in our retail property division reflecting a more competitive market and rate decreases. Net premiums written grew in our wholesale division from higher production in our casualty, property, and professional lines of business, and in our Commercial Risk Services division, primarily due to growth in our specialty and program business. Our personal lines division contributed to the increase in net premiums written due to higher production in the homeowners, automobile and umbrella business offered through ACE Private Risk Services. Net premiums written in 2014 were favorably impacted by lower excess of loss premiums ceded under our 2014 catastrophe reinsurance program of $32 million.

Net premiums earned increased in 2015 and 2014 primarily due to the increase in net premiums written as described above.

The following tables present a line of business breakdown of Insurance – North American P&C net premiums earned:

<table><tr><td rowspan="2">(in millions of U.S. dollars, except for percentages)</td><td rowspan="2">2015</td><td rowspan="2">2014</td><td rowspan="2">2013</td><td colspan="2">% Change</td></tr><tr><td>2015 vs. 2014</td><td>2014 vs. 2013</td></tr><tr><td>Commercial P&amp;C (retail and wholesale)</td><td>$ 4,789</td><td>$ 4,785</td><td>$ 4,524</td><td>0.1%</td><td>5.8%</td></tr><tr><td>Personal and small commercial lines</td><td>1,373</td><td>909</td><td>812</td><td>51.1%</td><td>11.9%</td></tr><tr><td>Personal accident (A&amp;H)</td><td>420</td><td>413</td><td>385</td><td>1.6%</td><td>7.3%</td></tr><tr><td>Net premiums earned</td><td>$ 6,582</td><td>$ 6,107</td><td>$ 5,721</td><td>7.8%</td><td>6.8%</td></tr><tr><td></td><td>2015 % of Total</td><td>2014 % of Total</td><td>2013 % of Total</td><td></td><td></td></tr><tr><td>Commercial P&amp;C (retail and wholesale)</td><td>73%</td><td>78%</td><td>79%</td><td></td><td></td></tr><tr><td>Personal and small commercial lines</td><td>21%</td><td>15%</td><td>14%</td><td></td><td></td></tr><tr><td>Personal accident (A&amp;H)</td><td>6%</td><td>7%</td><td>7%</td><td></td><td></td></tr><tr><td>Net premiums earned</td><td>100%</td><td>100%</td><td>100%</td><td></td><td></td></tr></table>

The following table presents the impact of catastrophe losses and related reinstatement premiums and prior period reserve development on our loss and loss expense ratio:

<table><tr><td></td><td>2015</td><td>2014</td><td>2013</td></tr><tr><td>Loss and loss expense ratio, as reported</td><td>67.6%</td><td>66.9%</td><td>66.0%</td></tr><tr><td>Catastrophe losses and related reinstatement premiums</td><td>(2.3)%</td><td>(2.2)%</td><td>(1.7)%</td></tr><tr><td>Prior period development</td><td>0.7%</td><td>1.9%</td><td>2.5%</td></tr><tr><td>Loss and loss expense ratio, adjusted</td><td>66.0%</td><td>66.6%</td><td>66.8%</td></tr></table>

Net pre-tax catastrophe losses, excluding reinstatement premiums, were $148 million in 2015, compared with $132 million in 2014 and $94 million in 2013. Catastrophe losses in 2015 were primarily from severe-weather related events in the U.S., including the California wildfires, Mexican hurricane, and civil unrest in Baltimore, Maryland. Catastrophe losses in 2014 were primarily from severe weather-related events in the U.S., Bermuda and Australia, as well as a hurricane in Mexico. Catastrophe losses in 2013 were primarily from flooding in Canada and severe weather-related events in the U.S. Net favorable prior period development was $39 million in 2015, compared with $107 million in 2014 and $134 million in 2013. Refer to the “Prior Period Development” section for additional information. The adjusted loss and loss expense ratio decreased 0.6 percentage points in 2015 reflecting the favorable impact of the acquisition of Fireman’s Fund personal lines business which carries a lower loss ratio. Excluding the impact of the acquisition, the adjusted loss and loss expense ratio increased 0.3 percentage points due to lower excess of loss premiums ceded in the prior year from the 2014 catastrophe reinsurance program. The adjusted loss and loss expense ratio decreased 0.2 percentage points in 2014 due to lower loss ratios in several of our lines where a combination of the execution of detailed portfolio management plans, product mix and earned rate changes resulted in improved current accident year loss ratio performance. The improvement was partially offset by higher non-catastrophe large losses during the year.

The policy acquisition cost ratio decreased 1.3 percentage points in 2015 primarily due to the impact of normal initial year purchase accounting adjustments related to our Fireman's Fund acquisition. As a result of purchase accounting requirements, the unearned premiums at the date of the purchase related to the business acquired are recognized over the remaining coverage



period with no expense for the associated historical acquisition costs that were incurred to write those policies, thereby favorably impacting the policy acquisition ratio by 1.4 percentage points. Excluding the Fireman's Fund acquisition, the policy acquisition cost ratio increased slightly due to a change in the mix of business. The policy acquisition cost ratio remained flat in 2014 compared to 2013.

The administrative expense ratio increased 0.3 percentage points in 2015 due to the integration costs associated with the Fireman's Fund acquisition as well as increased spending to support growth. The administrative expense ratio was higher in 2014 compared to the prior year ratio which included a 0.5 point favorable impact related to a $29 million legal settlement. Excluding the impact of the legal settlement, the administrative expense ratio remained relatively flat compared with the prior year.

## Insurance – North American Agriculture

The Insurance – North American Agriculture segment comprises our North American based businesses that provide a variety of coverages in the U.S. and Canada including crop insurance, primarily MPCI and crop-hail through Rain and Hail as well as farm and ranch and specialty P&C commercial insurance products and services through our ACE Agribusiness unit.

<table><tr><td rowspan="2">(in millions of U.S. dollars, except for percentages)</td><td colspan="2">2015</td><td colspan="2">2014</td><td colspan="2">2013</td><td colspan="2">% Change</td></tr><tr><td></td><td></td><td></td><td></td><td></td><td>2015 vs. 2014</td><td>2014 vs. 2013</td><td></td></tr><tr><td>Net premiums written</td><td>$ 1,346</td><td>$ 1,590</td><td>$ 1,627</td><td></td><td></td><td>(15.3)%</td><td>(2.3)%</td><td></td></tr><tr><td>Net premiums earned</td><td>1,364</td><td>1,526</td><td>1,678</td><td></td><td></td><td>(10.6)%</td><td>(9.1)%</td><td></td></tr><tr><td>Losses and loss expenses (1)</td><td>1,097</td><td>1,300</td><td>1,525</td><td></td><td></td><td>(15.6)%</td><td>(14.8)%</td><td></td></tr><tr><td>Policy acquisition costs</td><td>69</td><td>81</td><td>53</td><td></td><td></td><td>(14.8)%</td><td>52.8%</td><td></td></tr><tr><td>Administrative expenses</td><td>1</td><td>9</td><td>11</td><td></td><td></td><td>(88.9)%</td><td>(18.2)%</td><td></td></tr><tr><td>Underwriting income</td><td>197</td><td>136</td><td>89</td><td></td><td></td><td>44.9%</td><td>52.8%</td><td></td></tr><tr><td>Net investment income</td><td>23</td><td>26</td><td>26</td><td></td><td></td><td>(11.5)%</td><td>—%</td><td></td></tr><tr><td>Net realized gains (losses) (1)</td><td>1</td><td>3</td><td>2</td><td></td><td></td><td>(66.7)%</td><td>50.0%</td><td></td></tr><tr><td>Interest expense</td><td>—</td><td>—</td><td>1</td><td></td><td></td><td>—%</td><td>NM</td><td></td></tr><tr><td>Other (income) expense</td><td>1</td><td>2</td><td>—</td><td></td><td></td><td>(50.0)%</td><td>NM</td><td></td></tr><tr><td>Amortization of intangible assets</td><td>30</td><td>31</td><td>32</td><td></td><td></td><td>(3.2)%</td><td>(3.1)%</td><td></td></tr><tr><td>Income tax expense</td><td>40</td><td>33</td><td>20</td><td></td><td></td><td>21.2%</td><td>65.0%</td><td></td></tr><tr><td>Net income</td><td>$ 150</td><td>$ 99</td><td>$ 64</td><td></td><td></td><td>51.5%</td><td>54.7%</td><td></td></tr><tr><td>Loss and loss expense ratio</td><td>80.4%</td><td>85.2%</td><td>90.9%</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Policy acquisition cost ratio</td><td>5.1%</td><td>5.3%</td><td>3.2%</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Administrative expense ratio</td><td>—%</td><td>0.6%</td><td>0.6%</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Combined ratio</td><td>85.5%</td><td>91.1%</td><td>94.7%</td><td></td><td></td><td></td><td></td><td></td></tr></table>

(1) Gains (losses) on crop derivatives were $(9) million and $51 million in 2015 and 2014, respectively. These gains (losses) are reclassified from Net realized gains (losses) to Losses and loss expenses for purposes of presenting Insurance – North American Agriculture underwriting income. Refer to Note 10 and Note 16 to the Consolidated Financial Statements for more information on these derivatives.

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

Net premiums written decreased in 2014 principally due to lower commodity base prices and lower premium retention for the MPCI business as a result of the premium-sharing formulas with the U.S. government in 2014 for the MPCI business. Under the government's crop insurance profit and loss calculation formula, we retained more premiums in 2013 as losses were higher. The decrease in net premiums written was partially offset by higher premium retention as a result of the non-renewal of a third-party proportional reinsurance agreement.

Net premiums earned decreased in 2015 and 2014 primarily due to the factors described above.



The following table presents the impact of catastrophe losses and related reinstatement premiums and prior period reserve development on our loss and loss expense ratio:

<table><tr><td></td><td>2015</td><td>2014</td><td>2013</td></tr><tr><td>Loss and loss expense ratio, as reported</td><td>80.4%</td><td>85.2%</td><td>90.9%</td></tr><tr><td>Catastrophe losses and related reinstatement premiums</td><td>(0.7)%</td><td>(0.8)%</td><td>(0.4)%</td></tr><tr><td>Prior period development</td><td>3.1%</td><td>(2.6)%</td><td>0.8%</td></tr><tr><td>Loss and loss expense ratio, adjusted</td><td>82.8%</td><td>81.8%</td><td>91.3%</td></tr></table>

Net pre-tax catastrophe losses, excluding reinstatement premiums, were $9 million in 2015, compared with $13 million in 2014 and $7 million in 2013. Net prior period development was $45 million favorable in 2015, compared with $34 million unfavorable in 2014 and $13 million favorable in 2013. For 2015 the prior period development amount included a decrease in incurred losses of $42 million for lower than expected MPCI losses for the 2014 crop year, partially offset by a $6 million decrease in net premiums earned related to the government's crop insurance profit and loss calculation formula. For 2014, the prior period development amount includes an increase in incurred losses of $64 million for higher than expected MPCI losses for the 2013 crop year, as well as $26 million of favorable increase in net premiums earned related to the government's crop insurance profit and loss calculation formula. Refer to the "Prior Period Development" section for additional information. The adjusted loss and loss expense ratio increased 1.0 percentage point in 2015 principally due to relatively flat unallocated loss adjustment expenses with lower earned premiums. The adjusted loss and loss expense ratio declined 9.5 percentage points in 2014 due to lower commodity prices in the prior year that resulted in higher losses in our MPCI program in 2013. The lower ratio in 2014 also reflected the benefit of our crop derivatives entered into in 2014.

The policy acquisition cost ratio decreased 0.2 percentage points in 2015 primarily due to higher cede commission on third-party reinsurance and lower agent profit sharing commission. The policy acquisition cost ratio increased 2.1 percentage points in 2014, primarily due to less net premiums earned in our MPCI business as a result of lower commodity prices, a reduction in ceded commission benefits on third-party reinsurance primarily due to the non-renewal of a third-party proportional reinsurance agreement, and lower agent commission accruals in 2013.

The administrative expense ratio decreased 0.6 percentage points in 2015 primarily due to higher A&O reimbursements on the MPCI business. The administrative expense ratio remained flat in 2014 compared with 2013.



## Insurance – Overseas General

The Insurance – Overseas General segment comprises ACE International, ACE Global Markets (AGM), and the international supplemental A&H business of Combined Insurance. ACE International comprises our retail commercial P&C, A&H, and personal lines businesses serving territories outside the U.S., Bermuda, and Canada. AGM comprises the segment's London-based wholesale insurance business for excess and surplus lines; this includes Lloyd's of London Syndicate 2488. The reinsurance operations of AGM are included in the Global Reinsurance segment.

<table><tr><td rowspan="2">(in millions of U.S. dollars, except for percentages)</td><td colspan="3">2015</td><td colspan="3">2014</td><td colspan="2">% Change</td></tr><tr><td>2015</td><td>2014</td><td>2013</td><td>2015 vs. 2014</td><td>2014 vs. 2013</td><td></td><td></td><td></td></tr><tr><td>Net premiums written(1)</td><td>$ 6,634</td><td>$ 6,999</td><td>$ 6,520</td><td>(5.2)%</td><td>7.4%</td><td></td><td></td><td></td></tr><tr><td>Net premiums earned</td><td>6,471</td><td>6,805</td><td>6,333</td><td>(4.9)%</td><td>7.5%</td><td></td><td></td><td></td></tr><tr><td>Losses and loss expenses</td><td>3,052</td><td>3,189</td><td>3,062</td><td>(4.3)%</td><td>4.1%</td><td></td><td></td><td></td></tr><tr><td>Policy acquisition costs</td><td>1,581</td><td>1,625</td><td>1,453</td><td>(2.7)%</td><td>11.8%</td><td></td><td></td><td></td></tr><tr><td>Administrative expenses</td><td>997</td><td>1,026</td><td>1,008</td><td>(2.8)%</td><td>1.8%</td><td></td><td></td><td></td></tr><tr><td>Underwriting income(2)</td><td>841</td><td>965</td><td>810</td><td>(12.8)%</td><td>19.1%</td><td></td><td></td><td></td></tr><tr><td>Net investment income</td><td>534</td><td>545</td><td>539</td><td>(2.0)%</td><td>1.1%</td><td></td><td></td><td></td></tr><tr><td>Net realized gains (losses)</td><td>(38)</td><td>(78)</td><td>18</td><td>(51.3)%</td><td>NM</td><td></td><td></td><td></td></tr><tr><td>Interest expense</td><td>8</td><td>6</td><td>5</td><td>33.3%</td><td>20.0%</td><td></td><td></td><td></td></tr><tr><td>Other (income) expense</td><td>(16)</td><td>(63)</td><td>(21)</td><td>(74.6)%</td><td>200.0%</td><td></td><td></td><td></td></tr><tr><td>Amortization of intangible assets</td><td>61</td><td>74</td><td>60</td><td>(17.6)%</td><td>23.3%</td><td></td><td></td><td></td></tr><tr><td>Income tax expense</td><td>232</td><td>378</td><td>222</td><td>(38.6)%</td><td>70.3%</td><td></td><td></td><td></td></tr><tr><td>Net income</td><td>$ 1,052</td><td>$ 1,037</td><td>$ 1,101</td><td>1.4%</td><td>(5.8)%</td><td></td><td></td><td></td></tr><tr><td>Loss and loss expense ratio</td><td>47.2%</td><td>46.9%</td><td>48.4%</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Policy acquisition cost ratio</td><td>24.4%</td><td>23.9%</td><td>22.9%</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Administrative expense ratio</td><td>15.4%</td><td>15.0%</td><td>15.9%</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Combined ratio</td><td>87.0%</td><td>85.8%</td><td>87.2%</td><td></td><td></td><td></td><td></td><td></td></tr></table>

(1) For the year ended December 31, 2015 and 2014, net premiums written increased $441 million or 7.1% and $601 million or 9.4% in constant dollars, respectively. Amounts are calculated by translating prior period results using the same local currency rates as the comparable current period.

(2) For the year ended December 31, 2015 and 2014, underwriting income decreased $22 million or (2.5%) and increased $166 million or 20.7%, in constant dollars, respectively. Amounts are calculated by translating prior period results using the same local currency rates as the comparable current period.

Net premiums written decreased 5.2 percent in 2015 primarily reflecting the adverse impact of foreign exchange which reduced growth by $807 million or 11.5 percent. On a constant-dollar basis, net premiums written increased 7.1 percent in 2015, reflecting organic growth across most operations. Growth in our retail operations for personal and P&C product lines was from new business writings. Included in the increase in net premiums written were contributions from the acquisitions of Itau Seguros in October 2014 and Samaggi in April 2014 which added $273 million of premiums.

Net premiums written increased 7.4 percent in 2014, or 9.4 percent in constant dollars, from new business writings in our retail operations in all product lines – personal lines, A&H, and P&C. The increase in personal lines reflected growth in all regions, and A&H growth was driven by strong results in all regions except Europe. P&C growth was driven primarily by new business writings in Asia and Latin America. In addition, the acquisitions of Fianzas Monterrey in April 2013, ABA Seguros in May 2013, Samaggi, and Itaú Seguros added $310 million of growth to premiums. Foreign exchange adversely impacted growth by $122 million on a constant-dollar basis.

Net premiums earned decreased in 2015 primarily reflecting the adverse impact of foreign exchange. Net premiums earned increased in 2015 and 2014 in constant dollars, due to the same factors driving the increase in net premiums written as described above.



Insurance – Overseas General conducts business internationally and in most major foreign currencies. The following tables present a line of business and regional breakdown of Insurance – Overseas General net premiums earned:

<table><tr><td rowspan="2">(in millions of U.S. dollars, except for percentages)</td><td rowspan="2">2015</td><td rowspan="2">2014</td><td rowspan="2">2013</td><td rowspan="2">C\(^{(1)} 2014</td><td rowspan="2">C\)^{(1)} 2013</td><td colspan="3">% Change</td></tr><tr><td>2015 vs. 2014</td><td>2014 vs. 2013</td><td>C\(^{(1)} 2015 vs. 2014</td></tr><tr><td>Line of Business</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Commercial P&amp;C (retail and wholesale)</td><td>$ 3,107</td><td>$ 3,226</td><td>$ 3,113</td><td>$ 2,914</td><td>$ 3,093</td><td>(3.7)%</td><td>3.6%</td><td>6.6%</td></tr><tr><td>Personal and small commercial lines</td><td>1,298</td><td>1,295</td><td>1,038</td><td>1,106</td><td>987</td><td>0.2%</td><td>24.8%</td><td>17.4%</td></tr><tr><td>Personal accident (A&amp;H)</td><td>2,066</td><td>2,284</td><td>2,182</td><td>1,999</td><td>2,129</td><td>(9.5)%</td><td>4.7%</td><td>3.3%</td></tr><tr><td>Net premiums earned</td><td>$ 6,471</td><td>$ 6,805</td><td>$ 6,333</td><td>$ 6,019</td><td>$ 6,209</td><td>(4.9)%</td><td>7.5%</td><td>7.5%</td></tr><tr><td>Region</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Europe / U.K. (2)</td><td>$ 2,821</td><td>$ 3,115</td><td>$ 3,058</td><td>$ 2,797</td><td>$ 3,203</td><td>(9.4)%</td><td>1.9%</td><td>0.9%</td></tr><tr><td>Asia Pacific</td><td>1,588</td><td>1,571</td><td>1,383</td><td>1,424</td><td>1,235</td><td>1.1%</td><td>13.6%</td><td>11.5%</td></tr><tr><td>Far East</td><td>377</td><td>433</td><td>458</td><td>375</td><td>423</td><td>(12.9)%</td><td>(5.5)%</td><td>0.5%</td></tr><tr><td>Latin America</td><td>1,685</td><td>1,686</td><td>1,434</td><td>1,423</td><td>1,348</td><td>(0.1)%</td><td>17.6%</td><td>18.4%</td></tr><tr><td>Net premiums earned</td><td>$ 6,471</td><td>$ 6,805</td><td>$ 6,333</td><td>$ 6,019</td><td>$ 6,209</td><td>(4.9)%</td><td>7.5%</td><td>7.5%</td></tr><tr><td></td><td>2015 % of Total</td><td>2014 % of Total</td><td>2013 % of Total</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Line of Business</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Commercial P&amp;C (retail and wholesale)</td><td>48%</td><td>47%</td><td>49%</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Personal and small commercial lines</td><td>20%</td><td>19%</td><td>16%</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Personal accident (A&amp;H)</td><td>32%</td><td>34%</td><td>35%</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Net premiums earned</td><td>100%</td><td>100%</td><td>100%</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Region</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Europe / U.K. (2)</td><td>43%</td><td>46%</td><td>48%</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Asia Pacific</td><td>25%</td><td>23%</td><td>22%</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Far East</td><td>6%</td><td>6%</td><td>7%</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Latin America</td><td>26%</td><td>25%</td><td>23%</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Net premiums earned</td><td>100%</td><td>100%</td><td>100%</td><td></td><td></td><td></td><td></td><td></td></tr></table>

(1) In constant dollars. Amounts are calculated by translating prior period results using the same local currency rates as the comparable current period.
(2) Europe/U.K. includes Eurasia and Africa region.

The following table presents the impact of catastrophe losses and related reinstatement premiums and prior period reserve development on our loss and loss expense ratio:

<table><tr><td></td><td>2015</td><td>2014</td><td>2013</td></tr><tr><td>Loss and loss expense ratio, as reported</td><td>47.2%</td><td>46.9%</td><td>48.4%</td></tr><tr><td>Catastrophe losses and related reinstatement premiums</td><td>(2.2)%</td><td>(1.6)%</td><td>(1.4)%</td></tr><tr><td>Prior period development</td><td>5.3%</td><td>5.7%</td><td>4.7%</td></tr><tr><td>Loss and loss expense ratio, adjusted</td><td>50.3%</td><td>51.0%</td><td>51.7%</td></tr></table>

Net pre-tax catastrophe losses, excluding reinstatement premiums, were $142 million in 2015, compared with $112 million in 2014 and $88 million in 2013. Catastrophe losses in 2015 were primarily related to a chemical storage facility explosion in Tianjin, China, a hailstorm in Australia, flooding and an earthquake in Chile, and severe storms in the U.K. and Asia. Catastrophe losses in 2014 were primarily related to flooding in Europe, severe storms in Japan, a hurricane in Mexico, and a hailstorm in Australia. Catastrophe losses in 2013 were primarily related to flooding in Australia, Europe, and Canada, as well



as hurricanes in Latin America, and an earthquake in New Zealand. Net favorable prior period development was $343 million in 2015, compared with $391 million in 2014 and $299 million in 2013. Refer to the “Prior Period Development” section for additional information. The adjusted loss and loss expense ratio improved by 0.7 percentage points in 2015 due to lower non-catastrophe large losses. The adjusted loss and loss expense ratio decreased 0.7 percentage points in 2014 due primarily to both mix of business and underwriting actions which improved loss ratios on several portfolios.

The policy acquisition ratio increased 0.5 percentage points in 2015, primarily due to lower ceded commission benefits as a result of the non-renewal of an A&H external quota share treaty, (0.3 percentage points), as well as less favorable normal initial year purchase accounting adjustments than in 2014 (0.3 percentage points). As a result of purchase accounting requirements, the unearned premiums at the date of purchase related to the businesses acquired are recognized over the remaining coverage period with no expense for the associated historical acquisition costs that were incurred to underwrite those policies. The policy acquisition ratio increased 1.0 percentage point in 2014 due primarily to less favorable normal initial year purchase accounting adjustments than in 2013 (0.6 percentage points). In addition, the policy acquisition cost ratio increased due to a change in the overall mix of business towards A&H and personal lines products in regions that have higher acquisition cost ratios.

The administrative expense ratio increased 0.4 percentage points in 2015 primarily due to a higher proportion of expenses incurred in U.S. dollars compared to premiums earned in foreign currencies as well as integration expenses related to our Itaú Seguros acquisition. The administrative expense ratio decreased 0.9 percentage points in 2014 due primarily to growth in net premiums earned that outpaced the growth in administrative expenses. In addition, the administrative expense ratio decreased due to increased spending in 2013 to support growth.

## Global Reinsurance

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

<table><tr><td rowspan="2">(in millions of U.S. dollars, except for percentages)</td><td colspan="5">% Change</td></tr><tr><td>2015</td><td>2014</td><td>2013</td><td>2015 vs. 2014</td><td>2014 vs. 2013</td></tr><tr><td>Net premiums written</td><td>$ 828</td><td>$ 935</td><td>$ 991</td><td>(11.4)%</td><td>(5.7)%</td></tr><tr><td>Net premiums earned</td><td>849</td><td>1,026</td><td>976</td><td>(17.2)%</td><td>5.1%</td></tr><tr><td>Losses and loss expenses</td><td>290</td><td>431</td><td>396</td><td>(32.7)%</td><td>8.8%</td></tr><tr><td>Policy acquisition costs</td><td>214</td><td>257</td><td>197</td><td>(16.7)%</td><td>30.5%</td></tr><tr><td>Administrative expenses</td><td>49</td><td>54</td><td>50</td><td>(9.3)%</td><td>8.0%</td></tr><tr><td>Underwriting income</td><td>296</td><td>284</td><td>333</td><td>4.2%</td><td>(14.7)%</td></tr><tr><td>Net investment income</td><td>300</td><td>316</td><td>280</td><td>(5.1)%</td><td>12.9%</td></tr><tr><td>Net realized gains (losses)</td><td>(32)</td><td>(29)</td><td>53</td><td>10.3%</td><td>NM</td></tr><tr><td>Interest expense</td><td>5</td><td>4</td><td>5</td><td>25.0%</td><td>(20.0)%</td></tr><tr><td>Other (income) expense</td><td>(6)</td><td>(54)</td><td>(19)</td><td>(88.9)%</td><td>184.2%</td></tr><tr><td>Income tax expense</td><td>26</td><td>38</td><td>36</td><td>(31.6)%</td><td>5.6%</td></tr><tr><td>Net income</td><td>$ 539</td><td>$ 583</td><td>$ 644</td><td>(7.5)%</td><td>(9.5)%</td></tr><tr><td>Loss and loss expense ratio</td><td>34.2%</td><td>42.0%</td><td>40.5%</td><td></td><td></td></tr><tr><td>Policy acquisition cost ratio</td><td>25.2%</td><td>25.0%</td><td>20.3%</td><td></td><td></td></tr><tr><td>Administrative expense ratio</td><td>5.8%</td><td>5.3%</td><td>5.1%</td><td></td><td></td></tr><tr><td>Combined ratio</td><td>65.2%</td><td>72.3%</td><td>65.9%</td><td></td><td></td></tr></table>

Net premiums written decreased in 2015 as we maintained underwriting discipline in an environment of flat to declining rates and increasing competition. The decline was partially offset by new business written, primarily in our U.S. automobile business. Net premiums written decreased in 2014 primarily due to the non-renewal of a $79 million workers' compensation treaty, partially offset by new business written.



Net premiums earned decreased in 2015 primarily due to the same factors driving the decrease in net premiums written as described above and from the adverse impact of the non-renewal of a workers' compensation treaty in the third quarter of 2014, which resulted in a $39 million decrease in premiums. Net premiums earned increased in 2014 primarily from the shorter earning period on certain of the new business written including two non-recurring short-term treaties.

The following tables present a line of business breakdown of Global Reinsurance net premiums earned:

<table><tr><td rowspan="2">(in millions of U.S. dollars, except for percentages)</td><td colspan="2">2015</td><td colspan="2">2014</td><td colspan="2">2013</td><td colspan="2">% Change</td></tr><tr><td>2015</td><td>2014</td><td>2013</td><td>2015 vs. 2014</td><td>2014 vs. 2013</td><td></td><td></td><td></td></tr><tr><td>Property and all other</td><td>$     204</td><td>$     298</td><td>$     253</td><td>(31.5)%</td><td>17.8%</td><td></td><td></td><td></td></tr><tr><td>Casualty</td><td>426</td><td>475</td><td>433</td><td>(10.1)%</td><td>9.7%</td><td></td><td></td><td></td></tr><tr><td>Property catastrophe</td><td>219</td><td>253</td><td>290</td><td>(13.4)%</td><td>(12.8)%</td><td></td><td></td><td></td></tr><tr><td>Net premiums earned</td><td>$     849</td><td>$     1,026</td><td>$     976</td><td>(17.2)%</td><td>5.1%</td><td></td><td></td><td></td></tr><tr><td></td><td>2015</td><td>2014</td><td>2013</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td></td><td>% of Total</td><td>% of Total</td><td>% of Total</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Property and all other</td><td>24%</td><td>29%</td><td>26%</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Casualty</td><td>50%</td><td>46%</td><td>44%</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Property catastrophe</td><td>26%</td><td>25%</td><td>30%</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Net premiums earned</td><td>100%</td><td>100%</td><td>100%</td><td></td><td></td><td></td><td></td><td></td></tr></table>

The following table presents the impact of catastrophe losses and related reinstatement premiums and prior period reserve development on our loss and loss expense ratio:

<table><tr><td></td><td>2015</td><td>2014</td><td>2013</td></tr><tr><td>Loss and loss expense ratio, as reported</td><td>34.2%</td><td>42.0%</td><td>40.5%</td></tr><tr><td>Catastrophe losses and related reinstatement premiums</td><td>(2.6)%</td><td>(3.2)%</td><td>(4.0)%</td></tr><tr><td>Prior period development</td><td>14.3%</td><td>6.7%</td><td>9.1%</td></tr><tr><td>Loss and loss expense ratio, adjusted</td><td>45.9%</td><td>45.5%</td><td>45.6%</td></tr></table>

Net pre-tax catastrophe losses, excluding reinstatement premiums, were $22 million in 2015, compared with $34 million in 2014 and $41 million in 2013. Catastrophe losses in 2015 were primarily related to severe weather-related events in the U.S. Catastrophe losses in 2014 were related to severe storms in Japan, European hailstorms, and severe weather-related events in the U.S. Catastrophe losses in 2013 were primarily from flooding in Canada and Europe. Net favorable prior period development was $119 million in 2015, compared with $63 million in 2014 and $84 million in 2013 (2015, 2014 and 2013 are net of $4 million, $10 million, and $8 million, respectively, of unfavorable premium adjustments to loss sensitive treaties). Refer to the “Prior Period Development” section for additional information. The adjusted loss and loss expense ratio increased 0.4 percentage points in 2015 primarily due to a change in the mix of business in the current year towards higher loss ratio products in the U.S., offset by the non-renewal of a workers’ compensation treaty in 2014, which had a higher loss ratio. The adjusted loss and loss expense ratio decreased slightly in 2014 compared to 2013.

The policy acquisition cost ratio increased 0.2 percentage points in 2015 due to the non-renewal of the workers' compensation treaty in 2014, noted above, which incurred no acquisition costs. The policy acquisition cost ratio increased in 2014 primarily due to a change in the mix of business towards products written in the U.S. that have a higher acquisition cost ratio than in other regions and the impact of the non-renewal of the workers' compensation treaty noted above, which incurred no acquisition costs.

The administrative expense ratio increased 0.5 percentage points in 2015 primarily from lower net premiums earned including the non-renewal of the workers' compensation treaty noted above, which did not generate any administrative expenses, partially offset by lower administrative expenses incurred in the current year. The administrative expense ratio increased 0.2 percentage points in 2014 as the prior year included the favorable impact of a $2 million expense adjustment that reduced the administrative expense ratio in 2013. Excluding this adjustment, the administrative expense ratio remained flat.



## Life

The Life segment includes our 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 (A&H). We assess the performance of our life business based on Life underwriting income, which includes Net investment income and (Gains) losses from fair value changes in separate account assets that do not qualify for separate account reporting under GAAP.

<table><tr><td rowspan="2">(in millions of U.S. dollars, except for percentages)</td><td rowspan="2">2015</td><td rowspan="2">2014</td><td rowspan="2">2013</td><td colspan="2">% Change</td></tr><tr><td>2015 vs. 2014</td><td>2014 vs. 2013</td></tr><tr><td>Net premiums written</td><td>$ 1,998</td><td>$ 2,012</td><td>$ 1,972</td><td>(0.7)%</td><td>2.0%</td></tr><tr><td>Net premiums earned</td><td>1,947</td><td>1,962</td><td>1,905</td><td>(0.8)%</td><td>3.0%</td></tr><tr><td>Losses and loss expenses</td><td>601</td><td>589</td><td>582</td><td>2.0%</td><td>1.2%</td></tr><tr><td>Policy benefits</td><td>543</td><td>517</td><td>515</td><td>5.0%</td><td>0.4%</td></tr><tr><td>(Gains) losses from fair value changes in separate account assets \( ^{(1)} \)</td><td>19</td><td>(2)</td><td>(16)</td><td>NM</td><td>(87.5)%</td></tr><tr><td>Policy acquisition costs</td><td>476</td><td>478</td><td>358</td><td>(0.4)%</td><td>33.5%</td></tr><tr><td>Administrative expenses</td><td>291</td><td>285</td><td>343</td><td>2.1%</td><td>(16.9)%</td></tr><tr><td>Net investment income</td><td>265</td><td>268</td><td>251</td><td>(1.1)%</td><td>6.8%</td></tr><tr><td>Life underwriting income</td><td>282</td><td>363</td><td>374</td><td>(22.3)%</td><td>(2.9)%</td></tr><tr><td>Net realized gains (losses)</td><td>(229)</td><td>(383)</td><td>360</td><td>(40.2)%</td><td>NM</td></tr><tr><td>Interest expense</td><td>5</td><td>11</td><td>15</td><td>(54.5)%</td><td>(26.7)%</td></tr><tr><td>Other (income) expense \( ^{(1)} \)</td><td>(39)</td><td>(1)</td><td>10</td><td>NM</td><td>NM</td></tr><tr><td>Amortization of intangible assets</td><td>2</td><td>3</td><td>3</td><td>(33.3)%</td><td>—%</td></tr><tr><td>Income tax expense</td><td>30</td><td>46</td><td>34</td><td>(34.8)%</td><td>35.3%</td></tr><tr><td>Net income (loss)</td><td>$ 55</td><td>$ (79)</td><td>$ 672</td><td>NM</td><td>NM</td></tr></table>

(1) (Gains) losses from fair value changes in separate account assets that do not qualify for separate account reporting under GAAP are reclassified for Life segment underwriting income presentation from Other (income) expense. For example, 2015 included losses on these assets of $19 million; the offsetting movement in the separate account liabilities is included in and reduces Policy benefits.

The following table presents a line of business breakdown of Life net premiums written and deposits collected on universal life and investment contracts:

<table><tr><td rowspan="2">(in millions of U.S. dollars, except for percentages)</td><td rowspan="2">2015</td><td rowspan="2">2014</td><td rowspan="2">2013</td><td rowspan="2">C\(^{(1)}</td><td rowspan="2">2013</td><td rowspan="2">C\)^{(1)}</td><td rowspan="2">2015 vs. 2014</td><td rowspan="2">2014 vs. 2013</td><td colspan="2">% Change</td></tr><tr><td>C\(^{(1)}</td><td>2014 vs. 2013</td></tr><tr><td>A&amp;H \( ^{(1)} \)</td><td>$1,019</td><td>$1,000</td><td>$1,016</td><td>$ 972</td><td>$1,000</td><td>1.9%</td><td>(1.6)%</td><td>4.8%</td><td>—%</td></tr><tr><td>Life insurance</td><td>744</td><td>750</td><td>672</td><td>693</td><td>650</td><td>(0.7)%</td><td>11.6%</td><td>7.3%</td><td>15.3%</td></tr><tr><td>Life reinsurance</td><td>235</td><td>262</td><td>284</td><td>262</td><td>284</td><td>(10.2)%</td><td>(7.6)%</td><td>(10.2)%</td><td>(7.6)%</td></tr><tr><td>Net premiums written (excludes deposits below)</td><td>$1,998</td><td>$2,012</td><td>$1,972</td><td>$1,927</td><td>$1,934</td><td>(0.7)%</td><td>2.0%</td><td>3.7%</td><td>4.0%</td></tr><tr><td>Deposits collected on universal life and investment contracts</td><td>$1,015</td><td>$ 997</td><td>$ 821</td><td>$ 953</td><td>$ 811</td><td>1.8%</td><td>21.4%</td><td>6.5%</td><td>22.9%</td></tr></table>

(1) Includes the North American supplemental A&H and life business of Combined Insurance

Life net premiums written decreased slightly in 2015 reflecting the adverse impact of foreign exchange of $84 million. Life net premiums written increased 3.7 percent in 2015 in constant dollars, reflecting growth in our A&H and Life insurance businesses. A&H net premiums written increased due to growth in our core distribution channels, primarily Combined Insurance's supplemental A&H individual and group sales. Our Life insurance business grew primarily in Asia. Our life reinsurance business continues to decline as there is no new life reinsurance business currently being written. Life net premiums written increased 2.0 percent, or 4.0 percent in constant dollars in 2014. A&H net premiums written remained flat in 2014 after adjusting for the $16 million unfavorable impact of foreign exchange. Life insurance net premiums written increased in



2014 primarily due to growth in our Asian markets. Our life reinsurance business continues to decline as there is no new life reinsurance business currently being written.

In 2014, we determined that certain A&H marketing-related costs were more appropriately classified as acquisition costs. This resulted in a $59 million increase to acquisition expenses and an offsetting decrease to administrative expenses in 2014.

Life underwriting income decreased in 2015 primarily due to unfavorable loss reserve development related to our A&H business in the current year, compared to favorable reserve development last year. The prior year was also favorable impacted by a one-time adjustment to certain life products in Asia. Foreign exchange adversely impacted underwriting income on an as reported basis. Life underwriting income decreased slightly in 2014 compared to 2013.

Deposits collected on universal life and investment contracts (life deposits) are not reflected as revenues in our consolidated statements of operations in accordance with GAAP. New life deposits are an important component of production, and although they do not significantly affect current period income from operations they are key to our efforts to grow our business. The increase in life deposits collected in both 2015 and 2014 is primarily due to growth in our Asian markets.

Other (income) expense consists primarily of our share of net (income) loss related to partially-owned insurance companies. Other income of $39 million for 2015 primarily resulted from gains on sales of investments by our partially-owned insurance company in China.

Net realized gains (losses), which are excluded from Life underwriting income, relate primarily to the change in the net fair value of reported guaranteed living benefits (GLB) reinsurance liabilities and changes in the fair value of derivatives used to partially offset the risk in the variable annuity guarantee portfolio. During 2015, realized losses of $203 million were associated with a net increase in the fair value of the GLB liabilities. These increases were primarily due to the falling equity market levels and the unfavorable impact of discounting future claims for one less year, partially offset by higher interest rates.

In the fourth quarter of 2015, we completed a review of policyholder behavior related to partial withdrawals and updated our review of policyholder lapse and annuitization behavior by treaty for our variable annuity reinsurance business. Reinsured policies allow for policyholders to make periodic withdrawals from their account values without lapsing the policy. The partial withdrawal results in a reduction to the associated guaranteed value that is either equal or proportional to the amount of the reduction in account value. Based on our review of emerging behavior, we refined our assumptions around the types of partial withdrawals according to their impact on guaranteed value. This resulted in an increase to the fair value of GLB liabilities generating a realized loss of approximately $110 million. As lapse experience continued to emerge, we were able to expand our analysis and further refine our assumptions which resulted in a net increase to the fair value of GLB liabilities generating a realized loss of approximately $10 million. Because of a greater degree of reported experience related to behavior in years subsequent to the first year of annuitization eligibility, we also made several changes to our annuitization assumptions, which generally lowered the annuitization rate for most clients, while raising it for one client. The change in annuitization assumptions decreased the fair value of GLB liabilities and generated a realized gain of approximately $80 million. We will continue to monitor actual policyholder behavior (lapse, partial withdrawal, and annuitization) against our assumptions and make adjustments as appropriate in the period we receive and analyze this data. Also, during the fourth quarter of 2015, we refined certain assumptions around policyholder annuity type selection based on claim experience. This refinement decreased the fair value of GLB liabilities and generated a realized gain of approximately $45 million.

During 2014, realized losses of $213 million were associated with a net increase in the value of GLB liabilities; this increase was primarily due to lower interest rates and the unfavorable impact of discounting future claims for one less year, partially offset by a weakening yen and rising U.S. equity levels.

During 2013, realized gains of $929 million were associated with a net decrease in the value of GLB liabilities; this decrease was primarily due to rising equity levels, higher interest rates, and a weakening yen, partially offset by a net unfavorable impact of changes in lapse and annuitization assumptions and the unfavorable impact of discounting future claims for one less year.

We maintain positions in derivative instruments that increase in fair value when the S&P 500 index decreases. During the years ended December 31, 2015, 2014, and 2013, we experienced realized losses of $10 million, $168 million, and $579 million, respectively, related to these derivative instruments.



<table><tr><td rowspan="2">(in millions of U.S. dollars)</td><td colspan="4">Years Ended December 31</td></tr><tr><td>2015</td><td>2014</td><td>2013</td><td></td></tr><tr><td>Fixed maturities</td><td>$ 2,157</td><td>$ 2,199</td><td>$ 2,093</td><td></td></tr><tr><td>Short-term investments</td><td>49</td><td>45</td><td>29</td><td></td></tr><tr><td>Equity securities</td><td>16</td><td>33</td><td>37</td><td></td></tr><tr><td>Other</td><td>86</td><td>94</td><td>105</td><td></td></tr><tr><td>Gross investment income</td><td>2,308</td><td>2,371</td><td>2,264</td><td></td></tr><tr><td>Investment expenses</td><td>(114)</td><td>(119)</td><td>(120)</td><td></td></tr><tr><td>Net investment income</td><td>$ 2,194</td><td>$ 2,252</td><td>$ 2,144</td><td></td></tr></table>

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 decreased 2.6 percent in 2015 compared with 2014 primarily due to the negative impact of foreign exchange of $49 million and lower call activity in our corporate bond portfolio, partially offset by a higher overall invested asset base. Net investment income increased 5.1 percent in 2014 compared with 2013 primarily due to a higher overall invested asset base and call activity in our corporate bond portfolio, partially offset by the negative impact of foreign exchange.

The yield on our fixed maturities was 4.0 percent for the years ended December 31, 2015, 2014, and 3.9 percent in 2013. This compares to the average market yield, which represents the weighted average yield to maturity of our fixed income portfolio based on market prices of the holdings at that date, of 2.8 percent in both December 31, 2015 and 2014 and 3.0 percent at December 31, 2013.

The 1.3 percent, 1.9 percent, and 1.3 percent yield on short-term investments for the years ended December 31, 2015, 2014, and 2013, respectively, reflects the global nature of our insurance operations. For example, yields on short-term investments in Brazil, Mexico, Indonesia, and Malaysia range from 3.3 percent to 14.3 percent in 2015. The yield in 2015 is lower compared to 2014 despite a higher average balance in short-term investments, due to investments held in the U.S. in anticipation of the Chubb acquisition, which earned a lower yield.

For the year ended December 31, 2015, the yield on our equity securities portfolio was 3.1 percent compared with 4.9 percent for 2014 and 4.6 percent for 2013, and reflects the yield on a global high dividend equity portfolio. The prior years also included dividends from an emerging debt portfolio, which was a mutual fund classified as equity. During the third quarter of 2014, however, we elected to exchange our interest in the strategic emerging debt portfolio for direct ownership of certain of the underlying fixed maturities, and the remainder in cash. In 2013 and 2014, the strategic emerging debt portfolio, prior to the election to exchange our interest, and the preferred equity securities represented 76 percent and 64 percent, respectively, of the gross equity securities investment income.

The following table shows the return on average invested assets:

<table><tr><td rowspan="2">(in millions of U.S. dollars, except for percentages)</td><td colspan="3">Year Ended December 31</td></tr><tr><td>2015</td><td>2014</td><td>2013</td></tr><tr><td>Average invested assets</td><td>$ 63,252</td><td>$ 60,382</td><td>$ 58,574</td></tr><tr><td>Net investment income</td><td>$ 2,194</td><td>$ 2,252</td><td>$ 2,144</td></tr><tr><td>Return on average invested assets</td><td>3.5%</td><td>3.7%</td><td>3.7%</td></tr></table>

Return on average invested assets is lower in 2015 compared to 2014 and 2013 primarily due to increased holdings in U.S. short-term investments in anticipation of the Chubb acquisition, which earned a low yield.



## Net Realized and Unrealized Gains (Losses)

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

The effect of market movements on our available for sale investment portfolio impacts Net income (through Net realized gains (losses)) when securities are sold or when we record an Other-than-temporary impairment (OTTI) charge in Net income. For a discussion related to how we assess OTTI for all of our investments, including credit-related OTTI, and the related impact on Net income, refer to Note 3 e) 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 in the consolidated balance sheets.

The following table presents our net realized and unrealized gains (losses) on investments:

<table><tr><td rowspan="2">(in millions of U.S. dollars)</td><td colspan="4">Year Ended December 31, 2015</td><td colspan="4">Year Ended December 31, 2014</td></tr><tr><td>Net Realized Gains (Losses) (1)</td><td>Net Unrealized Gains (Losses)</td><td>Net Impact</td><td>Net Realized Gains (Losses) (1)</td><td>Net Unrealized Gains</td><td>Net Impact</td><td>Net Realized Gains (Losses) (1)</td><td></td></tr><tr><td>Fixed maturities</td><td>$ (180)</td><td>$ (1,076)</td><td>$ (1,256)</td><td>$ 23</td><td>$ 732</td><td>$ 755</td><td></td><td></td></tr><tr><td>Fixed income derivatives</td><td>32</td><td>—</td><td>32</td><td>(107)</td><td>—</td><td>(107)</td><td></td><td></td></tr><tr><td>Public equity</td><td>29</td><td>(17)</td><td>12</td><td>(47)</td><td>77</td><td>30</td><td></td><td></td></tr><tr><td>Private equity</td><td>13</td><td>(46)</td><td>(33)</td><td>(3)</td><td>42</td><td>39</td><td></td><td></td></tr><tr><td>Total investment portfolio</td><td>(106)</td><td>(1,139)</td><td>(1,245)</td><td>(134)</td><td>851</td><td>717</td><td></td><td></td></tr><tr><td>Variable annuity reinsurance derivative transactions, net of applicable hedges</td><td>(213)</td><td>—</td><td>(213)</td><td>(385)</td><td>—</td><td>(385)</td><td></td><td></td></tr><tr><td>Other derivatives</td><td>(12)</td><td>—</td><td>(12)</td><td>50</td><td>—</td><td>50</td><td></td><td></td></tr><tr><td>Foreign exchange</td><td>(80)</td><td>(958)</td><td>(1,038)</td><td>(40)</td><td>(632)</td><td>(672)</td><td></td><td></td></tr><tr><td>Other</td><td>(9)</td><td>25</td><td>16</td><td>2</td><td>(5)</td><td>(3)</td><td></td><td></td></tr><tr><td>Net gains (losses) before tax</td><td>(420)</td><td>(2,072)</td><td>(2,492)</td><td>(507)</td><td>214</td><td>(293)</td><td></td><td></td></tr><tr><td>Income tax (benefit) expense</td><td>(10)</td><td>(146)</td><td>(156)</td><td>100</td><td>175</td><td>275</td><td></td><td></td></tr><tr><td>Net gains (losses)</td><td>$ (410)</td><td>$ (1,926)</td><td>$ (2,336)</td><td>$ (607)</td><td>$ 39</td><td>$ (568)</td><td></td><td></td></tr></table>

(1) For the year ended December 31, 2015, other-than-temporary impairments include $103 million for fixed maturities, $7 million for public equity, and $2 million for private equity. For the year ended December 31, 2014, other-than-temporary impairments include $57 million for fixed maturities, $3 million for private equity, and $8 million for public equity.

At December 31, 2015, our investment portfolios held by U.S. legal entities included approximately $97 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 $34 million related to these fixed income investments. This strategy allows us to recognize the associated deferred tax asset related to these fixed income investments as we do not believe these losses will ever be realized.

## Other Income and Expense Items

Effective 2015, amortization of intangible assets are excluded from Other (income) expense and disclosed separately in the consolidated statements of operations. Prior year amounts have been reclassified to conform to the current year presentation.

Other (income) expense was $(51) million in 2015 compared with $(190) million and $(80) million in 2014 and 2013, respectively. Refer to Note 14 to the Consolidated Financial Statements for the components of Other (income) expense.



## Amortization of Intangible Assets

Amortization of intangible assets was $171 million in 2015 compared with $108 million and $95 million in 2014 and 2013, respectively. Refer to Note 6 to the Consolidated Financial Statements for the Amortization of intangible assets as well as the expected amortization expense for the next five years.

The pre-tax amortization expense related to purchased intangibles resulting from the Chubb acquisition, which will be included in Amortization of intangible assets is currently expected to reduce amortization expense in 2016. This impact reflects the fact that the unfavorable amortization expense from these purchased intangible assets will be more than offset by the favorable impact of amortization of the loss reserve fair value adjustment. The intangibles that are subject to amortization, consist principally of distributor relationships and technology.

For 2016, the amortization of acquired UPR intangible of the Chubb acquisition (currently estimated at $1.5 billion) is expected to be recognized through Policy acquisition costs (within segment underwriting income) in line with the earnings pattern of the acquired UPR, with approximately 40 percent in the first quarter, 30 percent in the second quarter, 20 percent in the third quarter, and 10 percent in the fourth quarter. This amortization will reduce the positive impact of the elimination of the historical deferred acquisition costs (approximately $1.3 billion) given that these costs are eliminated in purchase accounting.

In addition, net income in 2016 will also include the net impact of the amortization associated with the fair value adjustments of acquired invested assets and long-term debt related to purchase accounting. These items will amortize through net investment income and interest expense, respectively, on the consolidated statement of operations.

We will provide updated information regarding the expected impact of the amortization of the intangibles related to the Chubb acquisition in a future filing with the SEC.

## Investments

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

The average duration of our fixed income securities, including the effect of options and swaps, was 3.5 and 4.0 years at December 31, 2015 and 2014, respectively. The decrease in duration in 2015 was primarily due to investment portfolio asset allocation changes toward higher short-term holdings in anticipation of the Chubb acquisition in early 2016. We estimate that a 100 basis point (bps) increase in interest rates would reduce the valuation of our fixed income portfolio by approximately $2.2 billion at December 31, 2015.



The following table shows the fair value and cost/amortized cost of our invested assets:

<table><tr><td rowspan="2">(in millions of U.S. dollars)</td><td colspan="3">December 31, 2015</td><td colspan="2">December 31, 2014</td></tr><tr><td>Fair Value</td><td>Cost/ Amortized Cost</td><td>Fair Value</td><td>Cost/ Amortized Cost</td><td></td></tr><tr><td>Fixed maturities available for sale</td><td>$ 43,587</td><td>$ 43,149</td><td>$ 49,395</td><td>$ 47,826</td><td></td></tr><tr><td>Fixed maturities held to maturity</td><td>8,552</td><td>8,430</td><td>7,589</td><td>7,331</td><td></td></tr><tr><td>Short-term investments</td><td>10,446</td><td>10,446</td><td>2,322</td><td>2,322</td><td></td></tr><tr><td></td><td>62,585</td><td>62,025</td><td>59,306</td><td>57,479</td><td></td></tr><tr><td>Equity securities</td><td>497</td><td>441</td><td>510</td><td>440</td><td></td></tr><tr><td>Other investments</td><td>3,291</td><td>2,993</td><td>3,346</td><td>2,999</td><td></td></tr><tr><td>Total investments</td><td>$ 66,373</td><td>$ 65,459</td><td>$ 63,162</td><td>$ 60,918</td><td></td></tr></table>

The fair value of our total investments increased $3.2 billion during the year ended December 31, 2015, primarily due to the proceeds from debt issuances (net of repayments) and the investing of operating cash flows, partially offset by unrealized depreciation, the unfavorable impact of foreign exchange, dividends paid on our Common Shares, and share repurchases.

The following tables present the market value of our fixed maturities and short-term investments at December 31, 2015 and 2014. The first table lists investments according to type and the second according to S&P credit rating:

<table><tr><td rowspan="2">(in millions of U.S. dollars, except for percentages)</td><td colspan="3">December 31, 2015</td><td colspan="2">December 31, 2014</td></tr><tr><td>Market Value</td><td>% of Total</td><td>Market Value</td><td>% of Total</td><td></td></tr><tr><td>Treasury</td><td>$ 2,395</td><td>4%</td><td>$ 2,448</td><td>4%</td><td></td></tr><tr><td>Agency</td><td>878</td><td>1%</td><td>1,222</td><td>2%</td><td></td></tr><tr><td>Corporate and asset-backed securities</td><td>17,985</td><td>28%</td><td>19,854</td><td>34%</td><td></td></tr><tr><td>Mortgage-backed securities</td><td>11,701</td><td>19%</td><td>12,325</td><td>21%</td><td></td></tr><tr><td>Municipal</td><td>4,950</td><td>8%</td><td>4,930</td><td>8%</td><td></td></tr><tr><td>Non-U.S.</td><td>14,230</td><td>23%</td><td>16,205</td><td>27%</td><td></td></tr><tr><td>Short-term investments</td><td>10,446</td><td>17%</td><td>2,322</td><td>4%</td><td></td></tr><tr><td>Total</td><td>$ 62,585</td><td>100%</td><td>$ 59,306</td><td>100%</td><td></td></tr><tr><td>AAA</td><td>$ 14,369</td><td>23%</td><td>$ 8,943</td><td>15%</td><td></td></tr><tr><td>AA</td><td>22,141</td><td>36%</td><td>21,589</td><td>36%</td><td></td></tr><tr><td>A</td><td>10,163</td><td>16%</td><td>11,625</td><td>20%</td><td></td></tr><tr><td>BBB</td><td>8,941</td><td>14%</td><td>8,690</td><td>15%</td><td></td></tr><tr><td>BB</td><td>3,775</td><td>6%</td><td>4,372</td><td>7%</td><td></td></tr><tr><td>B</td><td>3,018</td><td>5%</td><td>3,916</td><td>7%</td><td></td></tr><tr><td>Other</td><td>178</td><td>—%</td><td>171</td><td>—%</td><td></td></tr><tr><td>Total</td><td>$ 62,585</td><td>100%</td><td>$ 59,306</td><td>100%</td><td></td></tr></table>



## Corporate and asset-backed securities

The following table presents our 10 largest global exposures to corporate bonds by market value at December 31, 2015:

<table><tr><td>(in millions of U.S. dollars)</td><td>Market Value</td></tr><tr><td>JP Morgan Chase &amp; Co</td><td>$ 441</td></tr><tr><td>General Electric Co</td><td>392</td></tr><tr><td>Goldman Sachs Group Inc</td><td>318</td></tr><tr><td>AT&amp;T INC</td><td>269</td></tr><tr><td>Wells Fargo &amp; Co</td><td>257</td></tr><tr><td>Bank of America Corp</td><td>237</td></tr><tr><td>Verizon Communications Inc</td><td>232</td></tr><tr><td>Morgan Stanley</td><td>216</td></tr><tr><td>Citigroup Inc</td><td>200</td></tr><tr><td>Ford Motor Co</td><td>197</td></tr></table>

## Mortgage-backed securities

<table><tr><td rowspan="2">December 31, 2015 (in millions of U.S. dollars)</td><td colspan="2">AAA</td><td colspan="2">AA</td><td colspan="2">A</td><td colspan="2">BBB</td><td colspan="2">BB and below</td><td colspan="2">Market Value</td><td colspan="2">Amortized Cost</td></tr><tr><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Agency residential mortgage-backed (RMBS)</td><td>$ —</td><td>$ 9,502</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$ 9,502</td><td>$ 9,325</td><td></td><td></td><td></td><td></td></tr><tr><td>Non-agency RMBS</td><td>15</td><td>5</td><td>12</td><td>6</td><td>12</td><td></td><td>50</td><td></td><td>48</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Commercial mortgage-backed</td><td>2,126</td><td>10</td><td>13</td><td>—</td><td>—</td><td></td><td>2,149</td><td></td><td>2,161</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Total mortgage-backed securities</td><td>$ 2,141</td><td>$ 9,517</td><td>$ 25</td><td>$ 6</td><td>$ 12</td><td>$ 11,701</td><td>$ 11,534</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr></table>

## Municipal

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

## Non-U.S.

Our exposure to the Euro results primarily from Chubb European Group which is headquartered in London and offers a broad range of coverages throughout the European Union, Central, and Eastern Europe. Chubb primarily invests in Euro denominated investments to support its local currency insurance obligations and required capital levels. Chubb's local currency investment portfolios have strict contractual investment guidelines requiring managers to maintain a high quality and diversified portfolio to both sector and individual issuers. Investment portfolios are monitored daily to ensure investment manager compliance with portfolio guidelines.
Our non-U.S. investment grade fixed income portfolios are currency-matched with the insurance liabilities of our non-U.S. operations. The average credit quality of our non-U.S. fixed income securities is A and 53 percent of our holdings are rated AAA or guaranteed by governments or quasi-government agencies. Within the context of these investment portfolios, our government and corporate bond holdings are highly diversified across industries and geographies. Issuer limits are based on credit rating (AA—two percent, A—one percent, BBB—0.5 percent of the total portfolio) and are monitored daily via an internal compliance system. Because of this investment approach, we do not have a direct exposure to troubled sovereign borrowers in Europe. We manage our indirect exposure using the same credit rating based investment approach. Accordingly, we do not believe our indirect exposure is material.



The following table summarizes the market value and amortized cost of our non-U.S. fixed income portfolio by country/sovereign for non-U.S. government securities at December 31, 2015:

<table><tr><td>(in millions of U.S. dollars)</td><td>Market Value</td><td>Amortized Cost</td></tr><tr><td>United Kingdom</td><td>$ 959</td><td>$ 948</td></tr><tr><td>Republic of Korea</td><td>900</td><td>788</td></tr><tr><td>Federative Republic of Brazil</td><td>568</td><td>575</td></tr><tr><td>United Mexican States</td><td>498</td><td>499</td></tr><tr><td>Canada</td><td>396</td><td>383</td></tr><tr><td>Kingdom of Thailand</td><td>375</td><td>350</td></tr><tr><td>Province of Ontario</td><td>300</td><td>287</td></tr><tr><td>Province of Quebec</td><td>210</td><td>201</td></tr><tr><td>Japan</td><td>192</td><td>192</td></tr><tr><td>Socialist Republic of Vietnam</td><td>168</td><td>158</td></tr><tr><td>Other Non-U.S. Government Securities  \( {}^{(1)} \)</td><td>2,391</td><td>2,328</td></tr><tr><td>Total</td><td>$ 6,957</td><td>$ 6,709</td></tr></table>

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

The following table summarizes the market value and amortized cost of our non-U.S. fixed income portfolio by country/sovereign for non-U.S. corporate securities at December 31, 2015:

<table><tr><td>(in millions of U.S. dollars)</td><td>Market Value</td><td>Amortized Cost</td></tr><tr><td>United Kingdom</td><td>$ 1,442</td><td>$ 1,414</td></tr><tr><td>Canada</td><td>783</td><td>790</td></tr><tr><td>United States \( ^{(1)} \)</td><td>568</td><td>570</td></tr><tr><td>France</td><td>507</td><td>498</td></tr><tr><td>Netherlands</td><td>499</td><td>490</td></tr><tr><td>Australia</td><td>483</td><td>476</td></tr><tr><td>Germany</td><td>347</td><td>336</td></tr><tr><td>Switzerland</td><td>248</td><td>246</td></tr><tr><td>China</td><td>231</td><td>226</td></tr><tr><td>Hong Kong</td><td>164</td><td>162</td></tr><tr><td>Other Non-U.S. Corporate Securities</td><td>2,001</td><td>2,035</td></tr><tr><td>Total</td><td>$ 7,273</td><td>$ 7,243</td></tr></table>

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

## Below-investment grade corporate fixed income portfolio

Below-investment grade securities have different characteristics than investment grade corporate debt securities. Risk of loss from default by the borrower is greater with below-investment grade securities. Below-investment grade securities are generally unsecured and are often subordinated to other creditors of the issuer. Also, issuers of below-investment grade securities usually have higher levels of debt and are more sensitive to adverse economic conditions, such as recession or increasing interest rates, than investment grade issuers. At December 31, 2015, our corporate fixed income investment portfolio included below-investment grade and non-rated securities which, in total, comprised approximately 10 percent of our fixed income portfolio. Our below-investment grade and non-rated portfolio includes over 1,000 issuers, with the greatest single exposure being $113 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 generally subject to a 1.5 percent issuer limit as a percentage of high-yield allocation. We monitor position limits daily through an internal compliance system. Derivative and structured securities (e.g., credit default swaps and collateralized loan obligations) are not permitted in the high-yield portfolio.

## Reinsurance Recoverable on Ceded Reinsurance

<table><tr><td>(in millions of U.S. dollars)</td><td>December 31 2015</td><td>December 31 2014</td></tr><tr><td>Reinsurance recoverable on unpaid losses and loss expenses (1)</td><td>$ 10,741</td><td>$ 11,307</td></tr><tr><td>Reinsurance recoverable on paid losses and loss expenses (1)</td><td>645</td><td>685</td></tr><tr><td>Net reinsurance recoverable on losses and loss expenses</td><td>$ 11,386</td><td>$ 11,992</td></tr><tr><td>Reinsurance recoverable on policy benefits</td><td>$ 187</td><td>$ 217</td></tr></table>

(1) Net of a provision for uncollectible reinsurance.

We evaluate the financial condition of our reinsurers and potential reinsurers on a regular basis and also monitor concentrations of credit risk with reinsurers. The provision for uncollectible reinsurance is required principally due to the potential failure of reinsurers to indemnify us, primarily because of disputes under reinsurance contracts and insolvencies. The provision for uncollectible reinsurance is based on a default analysis applied to gross reinsurance recoverables, net of approximately $2.6 billion and $2.4 billion of collateral at December 31, 2015 and 2014, respectively. The decrease in net reinsurance recoverable on loss and loss expenses was primarily due to the impact of unfavorable foreign exchange, favorable PPD, and collections relating to run-off operations, partially offset by higher non-catastrophe large losses.

## Asbestos and Environmental (A&E)

## Asbestos and environmental (A&E) reserving considerations

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

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

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

<table><tr><td rowspan="2"></td><td colspan="2">Asbestos (by causative agent)</td><td colspan="2">Environmental (by site)</td></tr><tr><td>2015</td><td>2014</td><td>2015</td><td>2014</td></tr><tr><td>Open at beginning of year</td><td>1,127</td><td>1,107</td><td>3,118</td><td>3,339</td></tr><tr><td>Newly reported</td><td>64</td><td>64</td><td>463</td><td>201</td></tr><tr><td>Closed or otherwise disposed</td><td>46</td><td>44</td><td>471</td><td>422</td></tr><tr><td>Open at end of year</td><td>1,145</td><td>1,127</td><td>3,110</td><td>3,118</td></tr></table>

The increase in newly reported environmental sites in 2015 were primarily for administrative purposes to process settlement payments.

Survival ratios are calculated by dividing the asbestos or environmental loss and allocated loss adjustment expense (ALAE) reserves by the average asbestos or environmental loss and ALAE payments for the three most recent calendar years (3 year survival ratio). The 3 year survival ratios for gross and net Asbestos loss and ALAE reserves were 4.2 years and 5.4 years, respectively. The 3 year survival ratios for gross and net Environmental loss and ALAE reserves were both 1.7 years. 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.

## Catastrophe Management

We actively monitor our catastrophe risk accumulation around the world. The table below presents our modeled annual aggregate pre-tax probable maximum loss (PML), net of reinsurance, for 100-year and 250-year return periods for U.S. hurricane and California earthquake at December 31, 2015 and 2014. The table also presents Chubb's corresponding share of pre-tax industry losses for each of the return periods for U.S. hurricane and California earthquake. For example, according to the model, for the 1-in-100 return period scenario, there is a one percent chance that our losses incurred in any year from U.S. hurricane events could be in excess of $1,700 million (or 5.8 percent of our total shareholders' equity at December 31, 2015). We estimate that at such hypothetical loss levels, Chubb's share of aggregate industry losses would be approximately 1.1 percent.

Modeled Annual Aggregate Net PML

<table><tr><td rowspan="3"></td><td colspan="3">U.S. Hurricane</td><td colspan="5">California Earthquake</td></tr><tr><td rowspan="2">December 31 2015</td><td rowspan="2">December 31 2014</td><td rowspan="2"></td><td rowspan="2">December 31 2015</td><td rowspan="2">December 31 2014</td><td rowspan="2"></td><td rowspan="2">December 31 2014</td><td rowspan="2" colspan="2">December 31 2014</td></tr><tr></tr><tr><td>(in millions of U.S. dollars, except for percentages)</td><td>Chubb</td><td>% of Total Shareholders&#x27; Equity</td><td>% of Industry</td><td>Chubb</td><td>Chubb</td><td>% of Total Shareholders&#x27; Equity</td><td>% Industry</td><td>Chubb</td></tr><tr><td>1-in-100</td><td>$ 1,700</td><td>5.8%</td><td>1.1%</td><td>$ 1,757</td><td>$ 718</td><td>2.5%</td><td>1.9%</td><td>$ 797</td><td></td></tr><tr><td>1-in-250</td><td>$ 2,346</td><td>8.1%</td><td>1.1%</td><td>$ 2,383</td><td>$ 988</td><td>3.4%</td><td>1.7%</td><td>$ 1,046</td><td></td></tr></table>

The above modeled loss information at December 31, 2015 reflects our in-force portfolio at October 1, 2015 and reinsurance program at January 1, 2016.

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

## Natural Catastrophe Property Reinsurance Program

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

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

Chubb purchases a Global Property Catastrophe Reinsurance Program for our North American and International operations. The program is effective July 1, 2015 through June 30, 2016, and consists of three layers in excess of losses retained by Chubb. In addition, we also purchased terrorism coverage (excluding nuclear, biological, chemical and radiation coverage) for the United States from July 1, 2015 to June 30, 2016 with the same limits and retention and percentage placed except that the majority



of terrorism coverage is on an aggregate basis above our retentions without a reinstatement. A majority of the program, excess of a $1 billion attachment point, also includes biological and chemical terrorism coverage for the personal lines exposures in those states that mandate such coverage.

<table><tr><td>Loss Location</td><td>Layer of Loss</td><td>Comments</td><td>Notes</td></tr><tr><td>United States (excluding Alaska and Hawaii)</td><td>$0 million - $500 million</td><td>Losses retained by Chubb</td><td>(a)</td></tr><tr><td>United States (excluding Alaska and Hawaii)</td><td>$500 million - $1.0 billion</td><td>All natural perils, and terrorism (excluding nuclear, biological, chemical and radiation)</td><td>(b)</td></tr><tr><td>United States (excluding Alaska and Hawaii)</td><td>$1.0 billion - $1.275 billion</td><td>All natural perils, and terrorism (excluding nuclear, biological, chemical and radiation - with biological and chemical covered for the personal lines exposures)</td><td>(c)</td></tr><tr><td>United States (excluding Alaska and Hawaii)</td><td>$1.275 billion - $1.475 billion</td><td>All natural perils, and terrorism (excluding nuclear, biological, chemical and radiation)</td><td>(d)</td></tr><tr><td>International (including Alaska and Hawaii)</td><td>$0 million - $125 million</td><td>Losses retained by Chubb</td><td>(a)</td></tr><tr><td>International (including Alaska and Hawaii)</td><td>$125 million - $625 million</td><td>All natural perils, and terrorism (excluding nuclear, biological, chemical and radiation)</td><td>(b)</td></tr><tr><td>Alaska, Hawaii, and Canada</td><td>$625 million - $900 million</td><td>All natural perils, and terrorism (excluding nuclear, biological, chemical and radiation)</td><td>(c)</td></tr><tr><td>Alaska, Hawaii, and Canada</td><td>$925 million - $1.1 billion</td><td>All natural perils, and terrorism (excluding nuclear, biological, chemical and radiation)</td><td>(d)</td></tr></table>

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

(b) These coverages are both part of the same Core layer within the Global Catastrophe Program and are approximately 97% placed with Reinsurers. As such, it may be exhausted in one region and not available in the other.

(c) These coverages are both part of the same Second layer within the Global Catastrophe Program and are approximately 100% placed with Reinsurers. As such, it may be exhausted in one region and not available in the other.

(d) These coverages are both part of the same Third layer within the Global Catastrophe Program and are 100% placed with Reinsurers. As such, it may be exhausted in one region and not available in the other.

## 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 AGM 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. AGM writes political risk, trade credit, and structured trade credit business out of underwriting offices in London, England; Hamburg, Germany; Sao Paulo, Brazil; Singapore; Tokyo, Japan; and in the U.S. in the following locations: New York, New York; Los Angeles, California; and Washington, D.C.

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



exporters and their financing banks against the risk of contract frustration due to government actions, including non-payment by government entities.

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

## Crop Insurance

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

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

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

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



covered in the program are typically subject to the SRA in effect at the beginning of the year. Given the major crops covered in the program, we typically see a substantial written and earned premium impact in the second and third quarters.

The pricing of MPCI premium is determined using a number of factors including commodity prices and related volatility. For instance, in most states the pricing for the MPCI Revenue Product for corn includes a factor that is based on the average price in February of the Chicago Board of Trade December corn futures. To the extent that the corn commodity prices are higher in February than they were in the previous February, and all other factors are the same, the increase in corn prices will increase the corn premium year over year.

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

## Liquidity

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

We anticipate that positive cash flows from operations (underwriting activities and investment income) should be sufficient to cover cash outflows under most loss scenarios for the near term. Should the need arise, we generally have access to capital markets and available credit facilities. In December 2015, we increased our existing $1.0 billion unsecured operational letters of credit (LOC) facility from $1.0 billion to $1.5 billion with the consent of the issuers. Refer to “Credit Facilities” below for additional information. Our access to funds under an existing credit facility is dependent on the ability of the bank that is a party to the facility to meet its funding commitments. Our existing credit facility has a remaining term expiring in November 2017 and requires that we maintain certain financial covenants, all of which we met at December 31, 2015. Should our existing credit provider experience financial difficulty, we may be required to replace credit sources, possibly in a difficult market. If we cannot obtain adequate capital or sources of credit on favorable terms, on a timely basis, or at all, our business, operating results, and financial condition could be adversely affected. To date, we have not experienced difficulty accessing our credit facility.

To further ensure the sufficiency of funds to settle unforeseen claims, we hold certain invested assets in cash and short-term investments. In addition, for certain insurance, reinsurance, or deposit contracts that tend to have relatively large and reasonably predictable cash outflows, we attempt to establish dedicated portfolios of assets that are duration-matched with the related liabilities. With respect to the duration of our overall investment portfolio, we manage asset durations to both maximize return given current market conditions and provide sufficient liquidity to cover future loss payments. All things being equal, in a low interest rate environment, the overall duration of our fixed maturities tends to be shorter and in a high interest rate environment, such duration tends to be longer. At December 31, 2015, the average duration of our fixed maturities (3.5 years) is less than the average expected duration of our insurance liabilities (4.8 years).

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



consolidated basis. If such a liquidity strain were to occur in a subsidiary, we could be required to liquidate a portion of our investments, potentially at distressed prices, as well as be required to contribute capital to the particular subsidiary and/or curtail dividends from the subsidiary to support holding company operations.

The payment of dividends or other statutorily permissible distributions from our operating companies are subject to the laws and regulations applicable to each jurisdiction, as well as the need to maintain capital levels adequate to support the insurance and reinsurance operations, including financial strength ratings issued by independent rating agencies. During 2015, we were able to meet all of our obligations, including the payments of dividends on our Common Shares, with our net cash flows.

We assess which subsidiaries to draw dividends from based on a number of factors. Considerations such as regulatory and legal restrictions as well as the subsidiary's financial condition are paramount to the dividend decision. Chubb Limited received dividends of $5.0 billion and $300 million from its Bermuda subsidiaries in 2015 and 2014, respectively. $2.7 billion of the 2015 dividends were paid in 2015, while the remainder were paid in 2016. The dividends received in 2015 included $5.0 billion used to finance a portion of the Chubb acquisition in 2016. Chubb Limited received dividends of $261 million and nil from its Switzerland subsidiaries in 2015 and 2014, respectively.

The payment of any dividends from AGM 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 AGM is subject to regulations promulgated by the Society of Lloyd's. Chubb Limited received no dividends from AGM in 2015 and 2014.

The U.S. insurance subsidiaries of ACE INA Holdings Inc. (ACE INA) may pay dividends, without prior regulatory approval, subject to restrictions set out in state law of the subsidiary's domicile (or, if applicable, commercial domicile). 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. Chubb Limited received no dividends from ACE INA in 2015 and 2014. 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. ACE INA received $833 million of dividends from its subsidiaries in 2015 and $401 million of dividends from its subsidiaries in 2014, of which $374 million was paid in cash. At December 31, 2015, the amount of dividends available to be paid to ACE INA in 2016 from its subsidiaries without prior approval of insurance regulatory authorities totals $1.0 billion.

ACE INA also received $5.1 billion in capital contributions in 2015, of which $2.8 billion were paid in 2015, while the remainder were paid in 2016. $5.0 billion of these capital contributions were sourced from the dividends from the Bermuda subsidiaries to fund the Chubb acquisition as noted above.

## Cash Flows

Our insurance and reinsurance operations provide liquidity in that premiums are received in advance, sometimes substantially in advance, of the time claims are paid. Generally, cash flows are affected by claim payments that, due to the nature of our operations, may comprise large loss payments on a limited number of claims and which can fluctuate significantly from period to period. The irregular timing of these loss payments can create significant variations in cash flows from operations between periods. Refer to “Contractual Obligations and Commitments” for our estimate of future claim payments by period. Sources of liquidity include cash from operations, routine sales of investments, and financing arrangements. The following is a discussion of our cash flows for 2015, 2014, and 2013.

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

Operating cash flows were $3.9 billion in 2015, compared to $4.5 billion and $4.0 billion in 2014 and 2013, respectively. The decrease in operating cash flows of $632 million in 2015 compared to 2014 was primarily due to higher net losses paid of $478 million and higher income taxes paid of $120 million. The increase in operating cash flows of $474 million in 2014 compared to 2013 was primarily due to higher net premiums collected of $1.0 billion, partially offset by higher net losses paid of $406 million.

Cash used for investing was $6.3 billion in 2015, compared with $2.5 billion and $4.4 billion in 2014 and 2013, respectively. The increase in cash used for investing of $3.8 billion in 2015 compared to 2014 was primarily due to changes in our investment portfolios, principally an increase in short-term investments, to fund the Chubb acquisition. This decrease was offset by a net cash inflow of $264 million related to the purchase of Fireman's Fund (cash paid of $365 million, netted with



cash acquired of $629 million). This compares to cash used for acquisitions of $766 million in 2014. The decrease in cash used for investing of $1.9 billion in 2014 compared to 2013 was primarily due to lower net purchases of fixed maturities.

Cash from (used for) financing was $3.7 billion in 2015, compared with $1.8 billion in 2014, and $391 million in 2013. Cash from financing in 2015 included $4.9 billion of net proceeds from the issuance of long-term debt (net of repayments) partially offset by $862 million of dividends paid on Common Shares and $758 million of share repurchases. Cash used for financing in 2014 included $1.4 billion of share repurchases and $862 million of dividends paid on Common Shares. Cash flows from financing in 2013 included $947 million of proceeds from the issuance of long-term debt, partially offset by dividends paid on Common Shares of $517 million. Dividends paid on Common Shares in 2015 were flat compared to 2014 as the three percent increase in our quarterly dividend beginning with the payment made in July 2015 was offset by fewer shares outstanding as a result of share repurchases in 2015. Dividends paid on Common Shares were higher in 2014 compared to 2013, primarily due to a $0.12 per share increase in our quarterly dividend beginning with the payment made in January 2014 and an additional three percent increase beginning with the payment made in August 2014.

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

In the current low interest rate environment, we use repurchase agreements as a low-cost alternative for short-term funding needs and to address short-term cash timing differences without disrupting our investment portfolio holdings. At December 31, 2015, there were $1.4 billion in repurchase agreements outstanding.

In addition to cash from operations, routine sales of investments, and financing arrangements, we have agreements with a third-party bank provider which implemented two international multi-currency notional cash pooling programs to enhance cash management efficiency during periods of short-term timing mismatches between expected inflows and outflows of cash by currency. The programs allow us to optimize investment income by avoiding portfolio disruption. In each program, participating Chubb entities establish deposit accounts in different currencies with the bank provider. Each day the credit or debit balances in every account are notionally translated into a single currency (U.S. dollars) and then notionally pooled. The bank extends overdraft credit to all participating Chubb entities as needed, provided that the overall notionally pooled balance of all accounts in each pool at the end of each day is at least zero. Actual cash balances are not physically converted and are not commingled between legal entities. Chubb entities may incur overdraft balances as a means to address short-term liquidity needs. Any overdraft balances incurred under this program by a Chubb entity would be guaranteed by Chubb Limited (up to $300 million in the aggregate). Our syndicated letter of credit facility allows for same day drawings to fund a net pool overdraft should participating Chubb entities withdraw contributed funds from the pool.

## Capital Resources

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

<table><tr><td>(in millions of U.S. dollars, except for percentages)</td><td>December 31 2015</td><td>December 31 2014</td></tr><tr><td>Short-term debt</td><td>$ —</td><td>$ 1,150</td></tr><tr><td>Long-term debt</td><td>9,447</td><td>3,357</td></tr><tr><td>Total financial debt</td><td>9,447</td><td>4,507</td></tr><tr><td>Trust preferred securities</td><td>309</td><td>309</td></tr><tr><td>Total shareholders&#x27; equity</td><td>29,135</td><td>29,587</td></tr><tr><td>Total capitalization</td><td>$ 38,891</td><td>$ 34,403</td></tr><tr><td>Ratio of financial debt to total capitalization</td><td>24.3%</td><td>13.1%</td></tr><tr><td>Ratio of financial debt plus trust preferred securities to total capitalization</td><td>25.1%</td><td>14.0%</td></tr></table>

In 2015, repurchase agreements are excluded from short-term debt and disclosed separately in the consolidated balance sheets. Prior year amounts have been reclassified to conform to the current year presentation. The repurchase agreements are



collateralized borrowings where we maintain the right and ability to redeem the collateral on short notice, unlike short-term debt which comprises the current maturities of our long-term debt instruments.

In March 2015, we issued $800 million of 3.15 percent senior notes due March 2025. The proceeds from the debt issuance are expected to be used to repay at maturity $500 million of 5.7 percent senior notes due February 2017 and $300 million of 5.8 percent senior notes due March 2018. In May 2015, ACE INA's $450 million of 5.6 percent senior notes matured and were fully paid. In November 2015, we issued $5.3 billion of senior notes, the proceeds of which were used to finance a portion of the Chubb acquisition as discussed below. In November 2015, ACE INA's $700 million of 2.6 percent senior notes matured and were fully paid. For a discussion of our debt outstanding, refer to Note 9 to the Consolidated Financial Statements.

On January 14, 2016, we acquired The Chubb Corporation for approximately $29.5 billion, comprising $14.3 billion in cash and $15.2 billion in newly-issued stock, based on the Chubb Limited (formerly ACE Limited) closing price on the acquisition date. In addition, we assumed outstanding equity awards to employees, directors, and consultants with an attributed value of approximately $340 million. We financed the cash portion of the transaction through a combination of $9 billion sourced from various Chubb Limited and Chubb Corporation companies plus $5.3 billion of senior notes as discussed above. Refer to Note 2 to the Consolidated Financial Statements for additional information.

As part of the acquisition of The Chubb Corporation, we assumed all of its senior and subordinated debt obligations, totaling $3.3 billion par value, which is guaranteed by Chubb Limited. Junior subordinated capital securities of $1 billion bear interest at a fixed rate of 6.375 percent through April 14, 2017 and at a rate equal to the three-month Libor rate plus 2.25 percent thereafter. If the current three-month Libor rate is not substantially higher in early 2017, and the near-term expectations are similar, it is our expectation that these securities would not be redeemed at the reset date. However, our expectations are subject to change depending on market conditions and other factors.

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

As part of our capital management program, in November 2014, our Board of Directors (Board) authorized the repurchase of up to $1.5 billion of Chubb's Common Shares through December 31, 2015 to replace the prior repurchase authorization of $2.0 billion of Chubb's shares when it expired on December 31, 2014. We repurchased $734 million, $1,449 million, and $290 million of Common Shares in a series of open market transactions in 2015, 2014, and 2013, respectively. At this time, management has elected to discontinue share repurchases. There are no outstanding share repurchase authorizations at December 31, 2015. As of December 31, 2015, there were 18,268,971 Common Shares in treasury with a weighted average cost of $105.22 per share.

## Common Shares

Our Common Shares had a par value of CHF 24.15 each at December 31, 2015.

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

At our May 2014 annual general meeting, our shareholders approved an annual dividend for the following year of $2.60 per share, payable in four quarterly installments of $0.65 per share after the annual general meeting in the form of a distribution by way of a par value reduction.

At our May 2015 annual general meeting, our shareholders approved an annual dividend for the following year of up to $2.68 per share, expected to be paid in four quarterly installments of $0.67 per share after the annual general meeting by way of a distribution from capital contribution reserves (Additional paid-in-capital), transferred to free reserves for payment (Retained earnings). The Board will determine the record and payment dates at which the annual dividend may be paid, and is authorized to abstain from distributing a dividend at its discretion, until the date of the 2016 annual general meeting. The first three quarterly installments, each of $0.67 per share, have been distributed by the Board as expected. Refer to Note 11 to the Consolidated Financial Statements for additional information on our dividends.



Dividend distributions on Common Shares amounted to CHF 2.56 ($2.66) per share for the year ended December 31, 2015 (including par value reductions of CHF 0.62 per share).

## Contractual Obligations and Commitments

The following table presents our future payments due by period under contractual obligations at December 31, 2015:

<table><tr><td rowspan="2">(in millions of U.S. dollars)</td><td colspan="6">Payments Due By Period</td></tr><tr><td>Total</td><td>2016</td><td>2017 and 2018</td><td>2019 and 2020</td><td>Thereafter</td><td></td></tr><tr><td>Payment amounts determinable from the respective contracts</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Deposit liabilities \( ^{(1)} \)</td><td>1,259</td><td>23</td><td>45</td><td>35</td><td>1,156</td><td></td></tr><tr><td>Purchase obligations \( ^{(2)} \)</td><td>375</td><td>144</td><td>163</td><td>68</td><td>—</td><td></td></tr><tr><td>Limited partnerships - funding commitments \( ^{(3)} \)</td><td>824</td><td>415</td><td>322</td><td>87</td><td>—</td><td></td></tr><tr><td>Operating leases</td><td>459</td><td>111</td><td>165</td><td>97</td><td>86</td><td></td></tr><tr><td>Repurchase agreements</td><td>1,404</td><td>1,404</td><td>—</td><td>—</td><td>—</td><td></td></tr><tr><td>Long-term debt</td><td>9,461</td><td>—</td><td>802</td><td>1,800</td><td>6,859</td><td></td></tr><tr><td>Trust preferred securities</td><td>309</td><td>—</td><td>—</td><td>—</td><td>309</td><td></td></tr><tr><td>Interest on debt obligations</td><td>5,075</td><td>390</td><td>728</td><td>644</td><td>3,313</td><td></td></tr><tr><td>Total obligations in which payment amounts are determinable from the respective contracts</td><td>19,166</td><td>2,487</td><td>2,225</td><td>2,731</td><td>11,723</td><td></td></tr><tr><td>Payment amounts not determinable from the respective contracts</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Estimated gross loss payments under insurance and reinsurance contracts</td><td>37,348</td><td>9,257</td><td>9,811</td><td>5,283</td><td>12,997</td><td></td></tr><tr><td>Estimated payments for future policy benefits</td><td>20,090</td><td>814</td><td>1,786</td><td>1,498</td><td>15,992</td><td></td></tr><tr><td>Total contractual obligations and commitments</td><td>76,604</td><td>12,558</td><td>13,822</td><td>9,512</td><td>40,712</td><td></td></tr></table>

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

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

 \( ^{(3)} \)  The timing of the payments of these commitments is uncertain and will differ from the estimated timing in the table.

The above table excludes the following items:

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

- Liabilities for unrecognized tax benefits: The liability for unrecognized tax benefits, excluding interest, was $16 million at December 31, 2015. We recognize accruals for interest and penalties, if any, related to unrecognized tax benefits in Income tax expense in the consolidated statements of operations. At December 31, 2015, we had $4 million in liabilities for income tax-related interest and penalties in our consolidated balance sheets. We are unable to make a reasonably reliable estimate for the timing of cash settlement with respect to these liabilities. Refer to Note 8 to the Consolidated Financial Statements for additional information.

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

## 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, 2015, and do not take into account reinsurance recoverable. These estimated loss payments are inherently uncertain and the amount and timing of actual loss payments are likely to differ from these estimates and the differences could be material. Given the numerous factors and assumptions involved in both estimates of loss and loss expense reserves and related estimates as to the timing of future loss and loss expense payments in the table above, differences between actual and estimated loss payments will not necessarily indicate a commensurate change in ultimate loss estimates. The liability for unpaid losses and loss expenses presented in our balance sheet is discounted for certain structured settlements for which the timing and amount of future claim payments are reliably determinable and certain reserves for unsettled claims that are discounted in statutory filings. Accordingly, the estimated amounts in the table exceed the liability for Unpaid losses and loss expenses presented in our balance sheet. Refer to Note 1 h) to the Consolidated Financial Statements for additional information.

## Estimated payments for future policy benefits

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

## Credit Facilities

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

In December 2015, we increased our existing $1.0 billion unsecured operational LOC facility guaranteed by Chubb Limited expiring in November 2017 to $1.5 billion with the consent of the issuers. We are allowed to use up to $300 million of this LOC facility as an unsecured revolving credit facility. At December 31, 2015, outstanding LOCs issued under this facility were $797 million.

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

The facility noted above requires that we maintain certain covenants, all of which have been met at December 31, 2015. These covenants include:

(i) Maintenance of a minimum consolidated net worth in an amount not less than the “Minimum Amount”. For the purpose of this calculation, the Minimum Amount is an amount equal to the sum of the base amount (currently $20.7 billion) plus 25 percent of consolidated net income for each fiscal quarter, ending after the date on which the current base amount became effective, plus 50 percent of any increase in consolidated net worth during the same period, attributable to the issuance of Common and Preferred Shares. The Minimum Amount is subject to an annual reset provision.

(ii) Maintenance of a maximum debt to total capitalization ratio of not greater than 0.35 to 1. Under this covenant, debt does not include repurchase agreements, trust preferred securities or mezzanine equity, except where the ratio of the sum of trust preferred securities and mezzanine equity to total capitalization is greater than 15 percent. In this circumstance, the amount greater than 15 percent would be included in the financial debt to total capitalization ratio.

At December 31, 2015, (a) the minimum consolidated net worth requirement under the covenant described in (i) above was $21.4 billion and our actual consolidated net worth as calculated under that covenant was $28.3 billion and (b) our ratio of



financial debt to total capitalization was .243 to 1, which is below the maximum debt to total capitalization ratio of 0.35 to 1 as described in (ii) above.

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

## Ratings

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

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

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

It is possible that, in the future, one or more of the rating agencies may reduce our existing ratings. If one or more of our ratings were downgraded, we could incur higher borrowing costs, and our ability to access the capital markets could be impacted. In addition, our insurance and reinsurance operations could be adversely impacted by a downgrade in our financial strength ratings, including a possible reduction in demand for our products in certain markets. Also, we have insurance and reinsurance contracts which contain rating triggers. In the event the S&P or A.M. Best financial strength ratings of Chubb fall, we may be faced with the cancellation of premium or be required to post collateral on our underlying obligation associated with this premium. We estimate that at December 31, 2015, 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.

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

## Market Sensitive Instruments and Risk Management

Market risk represents the potential for loss due to adverse changes in the fair value of financial instruments. We are exposed to potential losses from various market risks including changes in interest rates, equity prices, and foreign currency exchange rates. Further, through writing the GLB and GMDB products, we are exposed to volatility in the equity and credit markets, as well as interest rates. Our investment portfolio consists primarily of fixed income securities, denominated in both U.S. dollars and foreign currencies, which are sensitive to changes in interest rates and foreign currency exchange rates. The majority of our fixed income portfolio is classified as available for sale. The effect of market movements on our available for sale investment portfolio impacts Net income (through Net realized gains (losses)) when securities are sold or when we record an OTTI charge in Net income. Changes in interest rates and foreign currency exchange rates will have an immediate effect on Shareholders' equity and Comprehensive income and in certain instances, Net income. From time to time, we also use derivative instruments such as futures, options, swaps, and foreign currency forward contracts to manage the duration of our investment portfolio and foreign currency exposures and also to obtain exposure to a particular financial market. At December 31, 2015 and 2014, our notional exposure to derivative instruments was $3.1 billion and $7.4 billion, respectively. These instruments are recognized as assets or liabilities in our consolidated financial statements and are sensitive to changes in interest rates, foreign currency exchange rates, and equity security prices. As part of our investing activities, we from time to time purchase to be announced mortgage backed securities (TBAs). Changes in the fair value of TBAs are included in Net realized gains (losses) and therefore, have an immediate effect on both our Net income and Shareholders' equity.



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

The following is a discussion of our primary market risk exposures at December 31, 2015. Our policies to address these risks in 2015 were not materially different from 2014. We do not currently anticipate significant changes in our primary market risk exposures or in how those exposures are managed in future reporting periods based upon what is known or expected to be in effect in future reporting periods.

## Interest rate risk – fixed income portfolio and debt obligations

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

The following table presents the impact at December 31, 2015 and 2014, on the fair value of our fixed income portfolio of a hypothetical increase in interest rates of 100 bps applied instantly across the U.S. yield curve (an immediate time horizon was used as this presents the worst case scenario):

<table><tr><td>(in billions of U.S. dollars, except for percentages)</td><td>2015</td><td>2014</td></tr><tr><td>Fair value of fixed income portfolio</td><td>$ 62.6</td><td>$ 59.3</td></tr><tr><td>Pre-tax impact of 100 bps increase in interest rates:</td><td></td><td></td></tr><tr><td>In dollars</td><td>$ 2.2</td><td>$ 2.4</td></tr><tr><td>As a percentage of total fixed income portfolio at fair value</td><td>3.5%</td><td>4.0%</td></tr></table>

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

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

The following table presents the impact at December 31, 2015 and 2014, on the fair value of our debt obligations of a hypothetical decrease in interest rates of 100 bps applied instantly across the U.S. yield curve (an immediate time horizon was used as this presents the worst case scenario):

<table><tr><td>(in millions of U.S. dollars, except for percentages)</td><td>2015</td><td>2014</td></tr><tr><td>Fair value of debt obligations, including repurchase agreements</td><td>$ 11,528</td><td>$ 6,723</td></tr><tr><td>Impact of 100 bps decrease in interest rates:</td><td></td><td></td></tr><tr><td>In dollars</td><td>$ 921</td><td>$ 362</td></tr><tr><td>As a percentage of total debt obligations at fair value</td><td>8.0%</td><td>5.4%</td></tr></table>

## Foreign currency management

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



The following table summarizes the net assets in non-U.S. currencies at December 31, 2015 and 2014:

<table><tr><td rowspan="2">(in millions of U.S. dollars, except for percentages)</td><td colspan="3">2015</td><td>2014</td><td rowspan="2">2015 vs. 2014 % change in exchange rate per USD</td></tr><tr><td>Value of Net Assets</td><td>Exchange rate per USD</td><td>Value of Net Assets</td><td>Exchange rate per USD</td></tr><tr><td>British pound sterling (GBP)</td><td>$ 1,200</td><td>1.4736</td><td>$ 1,274</td><td>1.5577</td><td>(5.4)%</td></tr><tr><td>Euro (EUR)</td><td>749</td><td>1.0862</td><td>704</td><td>1.2098</td><td>(10.2)%</td></tr><tr><td>Mexican peso (MXN)</td><td>683</td><td>0.0581</td><td>822</td><td>0.0678</td><td>(14.3)%</td></tr><tr><td>Brazilian real (BRL)</td><td>682</td><td>0.2525</td><td>918</td><td>0.3763</td><td>(32.9)%</td></tr><tr><td>Korean Won (KRW) (x100)</td><td>613</td><td>0.0851</td><td>559</td><td>0.0917</td><td>(7.2)%</td></tr><tr><td>Canadian dollar (CAD)</td><td>507</td><td>0.7226</td><td>580</td><td>0.8605</td><td>(16.0)%</td></tr><tr><td>Japanese yen (JPY)</td><td>493</td><td>0.0083</td><td>476</td><td>0.0084</td><td>(1.2)%</td></tr><tr><td>Thailand Baht (THB)</td><td>377</td><td>0.0278</td><td>381</td><td>0.0304</td><td>(8.6)%</td></tr><tr><td>Australian dollar (AUD)</td><td>373</td><td>0.7286</td><td>509</td><td>0.8175</td><td>(10.9)%</td></tr><tr><td>Other foreign currencies</td><td>1,189</td><td>various</td><td>1,254</td><td>various</td><td>NM</td></tr><tr><td>Value of net assets denominated in foreign currencies</td><td>$ 6,866</td><td></td><td>$ 7,477</td><td></td><td></td></tr><tr><td>As a percentage of total net assets</td><td>23.6%</td><td></td><td>25.3%</td><td></td><td></td></tr><tr><td>Pre-tax impact on Shareholders&#x27; equity of a hypothetical 10 percent strengthening of the U.S. dollar</td><td>$ 624</td><td></td><td>$ 677</td><td></td><td></td></tr></table>

## Reinsurance of GMDB and GLB guarantees

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

Net income is directly impacted by changes in benefit reserves calculated in connection with reinsurance of variable annuity guarantees, primarily GMDB and GLB. In addition, net income is directly impacted by changes in the fair value of the GLB liability (FVL), which is classified as a derivative for accounting purposes. The FVL established for a GLB reinsurance contract represents the difference between the fair value of the contract and the benefit reserves. Benefit reserves and FVL calculations are directly affected by market factors, including equity levels, interest rate levels, credit risk, and implied volatilities, as well as policyholder behaviors, such as annuitization and lapse rates.



The tables below are estimates of the sensitivities to instantaneous changes in economic inputs (e.g., equity shock, interest rate shock etc.) or actuarial assumptions at December 31, 2015 of the FVL and of the fair value of specific derivative instruments held (hedge value) to partially offset the risk in the variable annuity guarantee reinsurance portfolio. The following assumptions should be considered when using the below tables:

• No changes to the benefit ratio used to establish benefit reserves at December 31, 2015.

• Equity shocks impact all global equity markets equally

- Our liabilities are sensitive to global equity markets in the following proportions: 70 percent—80 percent U.S. equity, 10 percent—20 percent international equity ex-Japan, up to 10 percent Japan equity.

- Our current hedge portfolio is sensitive to global equity markets in the following proportions: 100 percent U.S. equity.

- We would suggest using the S&P 500 index as a proxy for U.S. equity, the MSCI EAFE index as a proxy for international equity, and the TOPIX as a proxy for Japan equity.

• Interest rate shocks assume a parallel shift in the U.S. yield curve

- Our liabilities are also sensitive to global interest rates at various points on the yield curve, mainly the U.S. Treasury curve in the following proportions: up to 10 percent short-term rates (maturing in less than 5 years), 20 percent—30 percent medium-term rates (maturing between 5 years and 10 years, inclusive), and 70 percent—80 percent long-term rates (maturing beyond 10 years).

- A change in AA-rated credit spreads (AA-rated credit spreads are a proxy for both our own credit spreads and the credit spreads of the ceding insurers) impacts the rate used to discount cash flows in the fair value model.

• The hedge sensitivity is from December 31, 2015 market levels.

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

- In addition, the tables below do not reflect the expected quarterly run rate of net income generated by the variable annuity guarantee reinsurance portfolio if markets remain unchanged during the period. All else equal, if markets remain unchanged during the period, the Gross FVL will increase, resulting in a realized loss. The realized loss occurs primarily because, during the period, we will collect premium on the full population while only 55 percent of that population has become eligible to annuitize and generate a claim (since approximately 45 percent of policies are not eligible to annuitize until after December 31, 2015). This increases the Gross FVL because future premiums are lower by the amount collected in the quarter, and also because future claims are discounted for a shorter period. We refer to this increase in Gross FVL as “timing effect”. The unfavorable impact of timing effect on our Gross FVL in a quarter is not reflected in the sensitivity tables below. For this reason, when using the tables below to estimate the sensitivity of Gross FVL in the first quarter 2016 to various changes, it is necessary to assume an additional $5 million to $45 million increase in Gross FVL and realized losses. However, the impact to Net income is substantially mitigated because the majority of this realized loss is offset by the positive quarterly run rate of Life underwriting income generated by the variable annuity guarantee reinsurance portfolio if markets remain unchanged during the period. Note that both the timing effect and the quarterly run rate of Life underwriting income change over time as the book ages.



<table><tr><td colspan="4">Interest Rate Shock</td><td colspan="6">Worldwide Equity Shock</td></tr><tr><td colspan="4">(in millions of U.S. dollars)</td><td>+10%</td><td colspan="2">Flat</td><td>-10%</td><td>-20%</td><td>-30%</td></tr><tr><td rowspan="3">&lt;100 bps</td><td>(Increase)/decrease in Gross FVL</td><td>$ 457</td><td>$ 314</td><td>$ 60</td><td>$ (258)</td><td>$ (634)</td><td>$ (1,064)</td><td></td><td></td></tr><tr><td>Increase/(decrease) in hedge value</td><td>(120)</td><td>—</td><td>120</td><td>239</td><td>359</td><td>479</td><td></td><td></td></tr><tr><td>Increase/(decrease) in net income</td><td>$ 337</td><td>$ 314</td><td>$ 180</td><td>$ (19)</td><td>$ (275)</td><td>$ (585)</td><td></td><td></td></tr><tr><td rowspan="3">Flat</td><td>(Increase)/decrease in Gross FVL</td><td>$ 233</td><td>$ —</td><td>$ (304)</td><td>$ (667)</td><td>$ (1,088)</td><td>$ (1,555)</td><td></td><td></td></tr><tr><td>Increase/(decrease) in hedge value</td><td>(120)</td><td>—</td><td>120</td><td>239</td><td>359</td><td>479</td><td></td><td></td></tr><tr><td>Increase/(decrease) in net income</td><td>$ 113</td><td>$ —</td><td>$ (184)</td><td>$ (428)</td><td>$ (729)</td><td>$ (1,076)</td><td></td><td></td></tr><tr><td rowspan="3">&lt;100 bps</td><td>(Increase)/decrease in Gross FVL</td><td>$ (108)</td><td>$ (389)</td><td>$ (738)</td><td>$ (1,143)</td><td>$ (1,601)</td><td>$ (2,090)</td><td></td><td></td></tr><tr><td>Increase/(decrease) in hedge value</td><td>(120)</td><td>—</td><td>120</td><td>239</td><td>359</td><td>479</td><td></td><td></td></tr><tr><td>Increase/(decrease) in net income</td><td>$ (228)</td><td>$ (389)</td><td>$ (618)</td><td>$ (904)</td><td>$ (1,242)</td><td>$ (1,611)</td><td></td><td></td></tr></table>

<table><tr><td colspan="3">Sensitivities to Other Economic Variables</td><td colspan="3">AA-rated Credit Spreads</td><td colspan="3">Interest Rate Volatility</td><td colspan="2">Equity Volatility</td></tr><tr><td colspan="3">(in millions of U.S. dollars)</td><td>+100 bps</td><td>-100 bps</td><td></td><td>+2%</td><td></td><td>-2%</td><td>+2%</td><td>-2%</td></tr><tr><td colspan="3">(Increase)/decrease in Gross FVL</td><td>$ 68</td><td>$ (76)</td><td>$ 7</td><td>$ —</td><td>$ (15)</td><td>$ 13</td><td></td><td></td></tr><tr><td colspan="3">Increase/(decrease) in hedge value</td><td>—</td><td>—</td><td></td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td></tr><tr><td colspan="3">Increase/(decrease) in net income</td><td>$ 68</td><td>$ (76)</td><td>$ 7</td><td>$ —</td><td>$ (15)</td><td>$ 13</td><td></td><td></td></tr></table>

<table><tr><td colspan="4">Sensitivities to Actuarial Assumptions</td><td colspan="4">Mortality</td></tr><tr><td colspan="3">(in millions of U.S. dollars)</td><td>+20%</td><td>+10%</td><td>-10%</td><td>-20%</td><td></td></tr><tr><td colspan="3">(Increase)/decrease in Gross FVL</td><td>$ 26</td><td>$ 13</td><td>$ (13)</td><td>$ (27)</td><td></td></tr><tr><td colspan="3">Increase/(decrease) in hedge value</td><td>—</td><td>—</td><td>—</td><td>—</td><td></td></tr><tr><td colspan="3">Increase/(decrease) in net income</td><td>$ 26</td><td>$ 13</td><td>$ (13)</td><td>$ (27)</td><td></td></tr></table>

<table><tr><td colspan="4">(in millions of U.S. dollars)</td><td colspan="4">Lapses</td></tr><tr><td colspan="3">(Increase)/decrease in Gross FVL</td><td>$ 252</td><td>$ 140</td><td>$ (172)</td><td>$ (367)</td><td></td></tr><tr><td colspan="3">Increase/(decrease) in hedge value</td><td>—</td><td>—</td><td>—</td><td>—</td><td></td></tr><tr><td colspan="3">Increase/(decrease) in net income</td><td>$ 252</td><td>$ 140</td><td>$ (172)</td><td>$ (367)</td><td></td></tr></table>

<table><tr><td colspan="4">(in millions of U.S. dollars)</td><td colspan="4">Annuitization</td></tr><tr><td colspan="3">(Increase)/decrease in Gross FVL</td><td>$ (345)</td><td>$ (191)</td><td>$ 238</td><td>$ 443</td><td></td></tr><tr><td colspan="3">Increase/(decrease) in hedge value</td><td>—</td><td>—</td><td>—</td><td>—</td><td></td></tr><tr><td colspan="3">Increase/(decrease) in net income</td><td>$ (345)</td><td>$ (191)</td><td>$ 238</td><td>$ 443</td><td></td></tr></table>

## Variable Annuity Net Amount at Risk

All our VA reinsurance treaties include annual or aggregate claim limits and many include an aggregate deductible which limit the net amount at risk under these programs. The tables below present the net amount at risk at December 31, 2015 following an immediate change in equity market levels, assuming all global equity markets are impacted equally. For further information on the net amount at risk, refer to Note 5 c) to the Consolidated Financial Statements.

## a) Reinsurance covering the GMDB risk only

<table><tr><td rowspan="2">(in millions of U.S. dollars)</td><td colspan="6">Equity Shock</td></tr><tr><td>+20%</td><td>Flat</td><td>-20%</td><td>-40%</td><td>-60%</td><td>-80%</td></tr><tr><td>GMDB net amount at risk</td><td>$ 359</td><td>$ 364</td><td>$ 854</td><td>$ 1,246</td><td>$ 1,211</td><td>$ 1,031</td></tr><tr><td>Claims at 100% immediate mortality</td><td>207</td><td>229</td><td>253</td><td>254</td><td>237</td><td>219</td></tr></table>



The treaty claim limits function as a ceiling on the net amount at risk as equity markets fall. In addition, if all of the policyholders were to die immediately the claims payable declines as equity markets fall due to the specific nature of these claim limits, many of which are annual claim limits calculated as a percentage of the reinsured account value. There is also some impact due to a small portion of the GMDB reinsurance under which claims are positively correlated to equity markets (claims decrease as equity markets fall).

## b) Reinsurance covering the GLB risk only

<table><tr><td rowspan="2">(in millions of U.S. dollars)</td><td colspan="6">Equity Shock</td></tr><tr><td>+20%</td><td>Flat</td><td>-20%</td><td>-40%</td><td>-60%</td><td>-80%</td></tr><tr><td>GLB net amount at risk</td><td>$ 385</td><td>$ 733</td><td>$ 1,403</td><td>$ 2,286</td><td>$ 2,778</td><td>$ 3,016</td></tr></table>

The treaty claim limits cause the net amount at risk to increase at a declining rate as equity markets fall.

## c) Reinsurance covering both the GMDB and GLB risks on the same underlying policyholders

<table><tr><td rowspan="2">(in millions of U.S. dollars)</td><td colspan="6">Equity Shock</td></tr><tr><td>+20%</td><td>Flat</td><td>-20%</td><td>-40%</td><td>-60%</td><td>-80%</td></tr><tr><td>GMDB net amount at risk</td><td>$ 66</td><td>$ 89</td><td>$ 115</td><td>$ 136</td><td>$ 152</td><td>$ 163</td></tr><tr><td>GLB net amount at risk</td><td>243</td><td>422</td><td>749</td><td>1,230</td><td>1,663</td><td>2,009</td></tr><tr><td>Claims at 100% immediate mortality</td><td>19</td><td>56</td><td>231</td><td>359</td><td>459</td><td>555</td></tr></table>

The treaty limits control the increase in the GMDB net amount at risk as equity markets fall. The GMDB net amount at risk continues to grow as equity markets fall because most of these reinsurance treaties do not have annual claim limits calculated as a percentage of the underlying account value.

The treaty limits cause the GLB net amount at risk to increase at a declining rate as equity markets fall.

## ITEM 8. Financial Statements and Supplementary Data

The financial statements and supplementary data are included in this Form 10-K commencing on page F-1.

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

## ITEM 9A. Controls and Procedures

Chubb’s management, with the participation of Chubb’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of Chubb’s disclosure controls and procedures as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934 as of December 31, 2015. Based upon that evaluation, Chubb’s Chief Executive Officer and Chief Financial Officer concluded that Chubb’s disclosure controls and procedures are effective in allowing information required to be disclosed in reports filed under the Securities and Exchange Act of 1934 to be recorded, processed, summarized, and reported within time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to Chubb’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

There has been no change in Chubb’s internal controls over financial reporting during the three months ended December 31, 2015 that has materially affected, or is reasonably likely to materially affect, Chubb’s internal controls over financial reporting. Chubb’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 10. Directors, Executive Officers and Corporate Governance

Information pertaining to this item is incorporated by reference to the sections entitled “Agenda Item 5 - Election of the Board of Directors”, “Corporate Governance - Director Nomination Process and Annual Board Skills Review”, “Corporate Governance - The Committees of the Board - Audit Committee”, and “Corporate Governance - Did Our Officers and Directors Comply with Section 16(a) Beneficial Ownership Reporting in 2015?” of the definitive proxy statement for the 2016 Annual General Meeting of Shareholders which will be filed with the SEC not later than 120 days after the close of the fiscal year pursuant to regulation 14A. Also incorporated herein by reference is the text under the caption “Executive Officers of the Registrant” appearing at the end of Part I Item 1 of the Annual Report on Form 10-K.

## Code of Ethics

Chubb has adopted a Code of Conduct, which sets forth standards by which all Chubb employees, officers, and directors must abide as they work for Chubb. Chubb has posted this Code of Conduct on its Internet site (investors.chubb.com, under Corporate Governance/Integrity First: The Chubb Code of Conduct). Chubb 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”, “Compensation Committee Report” and “Director Compensation” of the definitive proxy statement for the 2016 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

This item is incorporated by reference to the sections entitled “Information About our Share Ownership” and “Agenda Item 10 - Approval of the Chubb Limited 2016 Long-Term Incentive Plan - Authorized Securities under Equity Compensation Plans” of the definitive proxy statement for the 2016 Annual General Meeting of Shareholders which will be filed with the SEC not later than 120 days after the close of the fiscal year pursuant to Regulation 14A.

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

This item is incorporated by reference to the sections entitled “Corporate Governance - What Is Our Related Party Transactions Approval Policy and What Procedures Do We Use to Implement It?”, “Corporate Governance - What Related Person Transactions Do We Have?”, and “Corporate Governance - The Board of Directors - Director Independence and Other Information” of the definitive proxy statement for the 2016 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 4 – 4.2 - Election of Auditors - Ratification of appointment of PricewaterhouseCoopers LLP (United States) as independent registered public accounting firm for purposes of U.S. securities law reporting” of the definitive proxy statement for the 2016 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 15. Exhibits, Financial Statement Schedules

## (a) Financial Statements, Schedules, and Exhibits

<table><tr><td></td><td>Page</td></tr><tr><td>1.</td><td>Consolidated Financial Statements</td></tr><tr><td></td><td>Management&#x27;s Responsibility for Financial Statements and Internal Control over Financial Reporting</td></tr><tr><td></td><td>Report of Independent Registered Public Accounting Firm</td></tr><tr><td></td><td>Consolidated Balance Sheets at December 31, 2015 and 2014</td></tr><tr><td></td><td>Consolidated Statements of Operations and Comprehensive Income for the years ended December 31, 2015, 2014, and 2013</td></tr><tr><td></td><td>Consolidated Statements of Shareholders&#x27; Equity for the years ended December 31, 2015, 2014, and 2013</td></tr><tr><td></td><td>Consolidated Statements of Cash Flows for the years ended December 31, 2015, 2014, and 2013</td></tr><tr><td></td><td>Notes to Consolidated Financial Statements</td></tr><tr><td>2.</td><td>Financial Statement Schedules</td></tr><tr><td></td><td>Schedule I - Summary of Investments - Other Than Investments in Related Parties</td></tr><tr><td></td><td>Schedule II - Condensed Financial Information of Registrant (Parent Company Only)</td></tr><tr><td></td><td>Schedule IV - Supplemental Information Concerning Reinsurance</td></tr><tr><td></td><td>Schedule VI - Supplementary Information Concerning Property and Casualty Operations</td></tr></table>

Other schedules have been omitted as they are not applicable to Chubb, or the required information has been included in the Consolidated Financial Statements and related notes.

## 3. Exhibits

<table><tr><td rowspan="2">Exhibit Number</td><td rowspan="2">Exhibit Description</td><td colspan="3">Incorporated by Reference</td><td rowspan="2">Filed Herewith</td></tr><tr><td>Form</td><td>Original Number</td><td>Date Filed</td></tr><tr><td>2.1</td><td>Agreement and Plan of Merger, by and among ACE Limited, William Investment Holdings Corporation and The Chubb Corporation, dated as of June 30, 2015</td><td>8-K</td><td>2.1</td><td>July 7, 2015</td><td></td></tr><tr><td>3.1</td><td>Articles of Association of the Company, as amended and restated</td><td>8-K</td><td>3.1</td><td>January 15, 2016</td><td></td></tr><tr><td>3.2</td><td>Organizational Regulations of the Company as amended</td><td>8-K</td><td>3.2</td><td>May 22, 2015</td><td></td></tr><tr><td>4.1</td><td>Articles of Association of the Company, as amended and restated</td><td>S-3</td><td>4.1(b)</td><td>October 23, 2015</td><td></td></tr><tr><td>4.2</td><td>Organizational Regulations of the Company as amended</td><td>8-K</td><td>4.2</td><td>May 22, 2015</td><td></td></tr><tr><td>4.3</td><td>Specimen share certificate representing Common Shares</td><td>8-K</td><td>4.3</td><td>July 18, 2008</td><td></td></tr><tr><td>4.4</td><td>Form of 2.6 percent Senior Notes due 2015</td><td>8-K</td><td>4.1</td><td>November 23, 2010</td><td></td></tr><tr><td>4.5</td><td>Indenture, dated March 15, 2002, between ACE Limited and Bank One Trust Company, N.A.</td><td>8-K</td><td>4.1</td><td>March 22, 2002</td><td></td></tr><tr><td>4.6</td><td>Senior Indenture, dated August 1, 1999, among ACE INA Holdings, Inc., ACE Limited and Bank of New York Mellon Trust Company, N.A. (as successor), as trustee</td><td>S-3 ASR</td><td>4.4</td><td>December 10, 2014</td><td></td></tr></table>



<table><tr><td rowspan="2">Exhibit Number</td><td rowspan="2">Exhibit Description</td><td colspan="3">Incorporated by Reference</td></tr><tr><td>Form</td><td>Original Number</td><td>Date Filed</td></tr><tr><td>4.7</td><td>Indenture, dated November 30, 1999, among ACE INA Holdings, Inc. and Bank One Trust Company, N.A., as trustee</td><td>10-K</td><td>10.38</td><td>March 29, 2000</td></tr><tr><td>4.8</td><td>Indenture, dated December 1, 1999, among ACE INA Holdings, Inc., ACE Limited and Bank One Trust Company, National Association, as trustee</td><td>10-K</td><td>10.41</td><td>March 29, 2000</td></tr><tr><td>4.9</td><td>Amended and Restated Trust Agreement, dated March 31, 2000, among ACE INA Holdings, Inc., Bank One Trust Company, National Association, as property trustee, Bank One Delaware Inc., as Delaware trustee and the administrative trustees named therein</td><td>10-K</td><td>4.17</td><td>March 16, 2006</td></tr><tr><td>4.10</td><td>Common Securities Guarantee Agreement, dated March 31, 2000</td><td>10-K</td><td>4.18</td><td>March 16, 2006</td></tr><tr><td>4.11</td><td>Capital Securities Guarantee Agreement, dated March 31, 2000</td><td>10-K</td><td>4.19</td><td>March 16, 2006</td></tr><tr><td>4.12</td><td>Form of 2.70 percent Senior Notes due 2023</td><td>8-K</td><td>4.1</td><td>March 13, 2013</td></tr><tr><td>4.13</td><td>Form of 4.15 percent Senior Notes due 2043</td><td>8-K</td><td>4.2</td><td>March 13, 2013</td></tr><tr><td>4.14</td><td>First Supplemental Indenture dated as of March 13, 2013 to the Indenture dated as of August 1, 1999 among ACE INA Holdings, Inc., as Issuer, ACE Limited, as Guarantor, and The Bank of New York Mellon Trust Company, N.A., as Successor Trustee</td><td>8-K</td><td>4.3</td><td>March 13, 2013</td></tr><tr><td>4.15</td><td>Form of 3.35 percent Senior Notes due 2024</td><td>8-K</td><td>4.1</td><td>May 27, 2014</td></tr><tr><td>4.16</td><td>Form of 3.150 percent Senior Notes due 2025</td><td>8-K</td><td>4.1</td><td>March 16, 2015</td></tr><tr><td>4.17</td><td>Form of 2.30 percent Senior Notes due 2020</td><td>8-K</td><td>4.1</td><td>November 3, 2015</td></tr><tr><td>4.18</td><td>Form of 2.875 percent Senior Notes due 2022</td><td>8-K</td><td>4.2</td><td>November 3, 2015</td></tr><tr><td>4.19</td><td>Form of 3.35 percent Senior Notes due 2026</td><td>8-K</td><td>4.3</td><td>November 3, 2015</td></tr><tr><td>4.20</td><td>Form of 4.35 percent Senior Notes due 2045</td><td>8-K</td><td>4.4</td><td>November 3, 2015</td></tr><tr><td>4.21</td><td>First Supplemental Indenture to the Chubb Corp Senior Indenture dated as of January 15, 2016 to the Indenture dated as of October 25, 1989 among ACE INA Holdings, Inc., as Successor Issuer, ACE Limited, as Guarantor, and The Bank of New York Mellon Trust Company, N.A., as Trustee</td><td>8-K</td><td>4.1</td><td>January 15, 2016</td></tr><tr><td>4.22</td><td>Second Supplemental Indenture to the Chubb Corp Junior Subordinated Indenture dated as of January 15, 2016 to the Indenture dated as of March 29, 2007 among ACE INA Holdings, Inc., as Successor Issuer, ACE Limited, as Guarantor, and The Bank of New York Mellon Trust Company, N.A., as Trustee</td><td>8-K</td><td>4.2</td><td>January 15, 2016</td></tr><tr><td>4.23</td><td>Chubb Corp Senior Indenture (incorporated by reference to Exhibit 4(a) to Chubb Corp&#x27;s Registration Statement on Form S-3 filed on October 27, 1989) (File No. 33-31796)</td><td>S-3</td><td>4(a)</td><td>October 27, 1989</td></tr><tr><td>4.24</td><td>Chubb Corp Junior Subordinated Indenture (incorporated by reference to Exhibit 4.1 to Chubb Corp&#x27;s Current Report on Form 8-K filed on March 30, 2007) (File No. 001-08661)</td><td>8-K</td><td>4.1</td><td>March 30, 2007</td></tr></table>



<table><tr><td rowspan="2">Exhibit Number</td><td rowspan="2">Exhibit Description</td><td colspan="3">Incorporated by Reference</td><td rowspan="2">Filed Herewith</td></tr><tr><td>Form</td><td>Original Number</td><td>Date Filed</td></tr><tr><td>4.25</td><td>First Supplemental Indenture to the Chubb Corp Junior Subordinated Indenture dated as of March 29, 2007 between the Chubb Corporation and The Bank of New York Trust Company, N.A., as Trustee (incorporated by reference to Exhibit 4.2 to Chubb Corp&#x27;s Current Report on Form 8-K filed on March 30, 2007) (File No. 001-08661)</td><td>8-K</td><td>4.2</td><td>March 30, 2007</td><td></td></tr><tr><td>4.26</td><td>Form of 5.75 percent Chubb Corp Senior Notes due 2018 (incorporated by reference to Exhibit 4.1 to Chubb Corp&#x27;s Current Report on Form 8-K filed on May 6, 2008) (File No. 001-08661)</td><td>8-K</td><td>4.1</td><td>May 6, 2008</td><td></td></tr><tr><td>4.27</td><td>Form of 6.60 percent Chubb Corp Debentures due 2018 (incorporated by reference to Exhibit 4(a) to Chubb Corp&#x27;s Registration Statement on Form S-3 filed on October 27, 1989) (File No. 33-31796)</td><td>S-3</td><td>4(a)</td><td>October 27, 1989</td><td></td></tr><tr><td>4.28</td><td>Form of 6.80 percent Chubb Corp Debentures due 2031 (incorporated by reference to Exhibit 4(a) to Chubb Corp&#x27;s Registration Statement on Form S-3 filed on October 27, 1989) (File No. 33-31796)</td><td>S-3</td><td>4(a)</td><td>October 27, 1989</td><td></td></tr><tr><td>4.29</td><td>Form of 6.00 percent Chubb Corp Senior Notes due 2037 (incorporated by reference to Exhibit 4.1 to Chubb Corp&#x27;s Current Report on Form 8-K filed on May 11, 2007) (File No. 001-08661)</td><td>8-K</td><td>4.1</td><td>May 11, 2007</td><td></td></tr><tr><td>4.30</td><td>Form of 6.50 percent Chubb Corp Senior Notes due 2038 (incorporated by reference to Exhibit 4.2 to Chubb Corp&#x27;s Current Report on Form 8-K filed on May 6, 2008) (File No. 001-08661)</td><td>8-K</td><td>4.2</td><td>May 6, 2008</td><td></td></tr><tr><td>4.31</td><td>Form of debenture for the 6.375 percent Chubb Corp DSCs (incorporated by reference to Exhibit 4.3 to Chubb Corp&#x27;s Current Report on Form 8-K filed on March 30, 2007) (File No. 001-08661)</td><td>8-K</td><td>4.3</td><td>March 30, 2007</td><td></td></tr><tr><td>10.1*</td><td>Form of Indemnification Agreement between the Company and the directors of the Company, dated August 13, 2015</td><td></td><td></td><td></td><td>X</td></tr><tr><td>10.2</td><td>Credit Agreement for $1,000,000,000 Senior Unsecured Letter of Credit Facility, dated as of November 6, 2012, among ACE Limited, and certain subsidiaries and Wells Fargo Bank, National Association as Administrative Agent, the Swingline Bank and an Issuing Bank</td><td>10-K</td><td>10.13</td><td>February 28, 2013</td><td></td></tr><tr><td>10.3*</td><td>Employment Terms dated October 29, 2001, between ACE Limited and Evan Greenberg</td><td>10-K</td><td>10.64</td><td>March 27, 2003</td><td></td></tr><tr><td>10.4*</td><td>Employment Terms dated November 2, 2001, between ACE Limited and Philip V. Bancroft</td><td>10-K</td><td>10.65</td><td>March 27, 2003</td><td></td></tr><tr><td>10.5*</td><td>Executive Severance Agreement between ACE Limited and Philip Bancroft, effective January 2, 2002</td><td>10-Q</td><td>10.1</td><td>May 10, 2004</td><td></td></tr><tr><td>10.6*</td><td>Letter Regarding Executive Severance between ACE Limited and Philip V. Bancroft</td><td>10-K</td><td>10.17</td><td>February 25, 2011</td><td></td></tr><tr><td>10.7*</td><td>Employment Terms dated April 10, 2006, between ACE and John Keogh</td><td>10-K</td><td>10.29</td><td>February 29, 2008</td><td></td></tr><tr><td>10.8*</td><td>Executive Severance Agreement between ACE and John Keogh</td><td>10-K</td><td>10.30</td><td>February 29, 2008</td><td></td></tr></table>



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



<table><tr><td rowspan="2">Exhibit Number</td><td rowspan="2">Exhibit Description</td><td colspan="4">Incorporated by Reference</td></tr><tr><td>Form</td><td>Original Number</td><td>Date Filed</td><td>Filed Herewith</td></tr><tr><td>10.30*</td><td>ACE USA Supplemental Employee Retirement Savings Plan (as amended through the Third Amendment)</td><td>10-K</td><td>10.31</td><td>March 1, 2007</td><td></td></tr><tr><td>10.31*</td><td>ACE USA Supplemental Employee Retirement Savings Plan (as amended and restated)</td><td>10-K</td><td>10.46</td><td>February 27, 2009</td><td></td></tr><tr><td>10.32*</td><td>First Amendment to the Amended and Restated ACE USA Supplemental Employee Retirement Savings Plan</td><td>10-K</td><td>10.39</td><td>February 25, 2010</td><td></td></tr><tr><td>10.33*</td><td>The ACE Limited 1995 Outside Directors Plan (as amended through the Seventh Amendment)</td><td>10-Q</td><td>10.1</td><td>August 14, 2003</td><td></td></tr><tr><td>10.34*</td><td>ACE Limited 1998 Long-Term Incentive Plan (as amended through the Fourth Amendment)</td><td>10-K</td><td>10.34</td><td>March 1, 2007</td><td></td></tr><tr><td>10.35*</td><td>ACE Limited 2004 Long-Term Incentive Plan (as amended through the Fifth Amendment)</td><td>8-K</td><td>10</td><td>May 21, 2010</td><td></td></tr><tr><td>10.36*</td><td>ACE Limited 2004 Long-Term Incentive Plan (as amended through the Sixth Amendment)</td><td>8-K</td><td>10.1</td><td>May 20, 2013</td><td></td></tr><tr><td>10.37*</td><td>ACE Limited Rules of the Approved U.K. Stock Option Program</td><td>10-Q</td><td>10.2</td><td>February 13, 1998</td><td></td></tr><tr><td>10.38*</td><td>Form of Restricted Stock Award Terms under the ACE Limited 2004 Long-Term Incentive Plan</td><td>10-K</td><td>10.54</td><td>February 27, 2009</td><td></td></tr><tr><td>10.39*</td><td>Form of Restricted Stock Award Terms under the ACE Limited 2004 Long-Term Incentive Plan</td><td>10-K</td><td>10.55</td><td>February 27, 2009</td><td></td></tr><tr><td>10.40*</td><td>Director Restricted Stock Award Terms under the ACE Limited 2004 Long-Term Incentive Plan</td><td>10-Q</td><td>10.1</td><td>November 9, 2009</td><td></td></tr><tr><td>10.41*</td><td>Form of Restricted Stock Unit Award Terms under the ACE Limited 2004 Long-Term Incentive Plan</td><td>10-Q</td><td>10.1</td><td>May 8, 2008</td><td></td></tr><tr><td>10.42*</td><td>Form of Restricted Stock Unit Award Terms under the ACE Limited 2004 Long-Term Incentive Plan</td><td>10-Q</td><td>10.2</td><td>May 8, 2008</td><td></td></tr><tr><td>10.43*</td><td>Form of Restricted Stock Unit Award Terms under the ACE Limited 2004 Long-Term Incentive Plan</td><td>10-K</td><td>10.60</td><td>February 27, 2009</td><td></td></tr><tr><td>10.44*</td><td>Form of Restricted Stock Unit Award Terms under the ACE Limited 2004 Long-Term Incentive Plan</td><td>10-Q</td><td>10.2</td><td>October 30, 2013</td><td></td></tr><tr><td>10.45*</td><td>Form of Restricted Stock Unit Award Terms under the ACE Limited 2004 Long-Term Incentive Plan for Chief Executive Officer, Chief Financial Officer and the General Counsel</td><td>10-K</td><td>10.56</td><td>February 28, 2014</td><td></td></tr><tr><td>10.46*</td><td>Form of Incentive Stock Option Terms under the ACE Limited 2004 Long-Term Incentive Plan</td><td>8-K</td><td>10.4</td><td>September 13, 2004</td><td></td></tr><tr><td>10.47*</td><td>Form of Incentive Stock Option Terms under the ACE Limited 2004 Long-Term Incentive Plan</td><td>10-Q</td><td>10.4</td><td>May 8, 2008</td><td></td></tr><tr><td>10.48*</td><td>Form of Incentive Stock Option Terms under the ACE Limited 2004 Long-Term Incentive Plan</td><td>10-K</td><td>10.63</td><td>February 27, 2009</td><td></td></tr><tr><td>10.49*</td><td>Form of Incentive Stock Option Terms under the ACE Limited 2004 Long-Term Incentive Plan</td><td>10-Q</td><td>10.3</td><td>October 30, 2013</td><td></td></tr></table>



<table><tr><td rowspan="2">Exhibit Number</td><td rowspan="2">Exhibit Description</td><td colspan="3">Incorporated by Reference</td><td rowspan="2">Filed Herewith</td></tr><tr><td>Form</td><td>Original Number</td><td>Date Filed</td></tr><tr><td>10.50*</td><td>Form of Non-Qualified Stock Option Terms under the ACE Limited 2004 Long-Term Incentive Plan</td><td>8-K</td><td>10.5</td><td>September 13, 2004</td><td></td></tr><tr><td>10.51*</td><td>Form of Non-Qualified Stock Option Terms under the ACE Limited 2004 Long-Term Incentive Plan</td><td>10-Q</td><td>10.3</td><td>May 8, 2008</td><td></td></tr><tr><td>10.52*</td><td>Form of Non-Qualified Stock Option Terms under the ACE Limited 2004 Long-Term Incentive Plan</td><td>10-Q</td><td>10.4</td><td>October 30, 2013</td><td></td></tr><tr><td>10.53*</td><td>Form of Performance Based Restricted Stock Award Terms under the ACE Limited 2004 Long-Term Incentive Plan, as updated through May 4, 2006</td><td>10-Q</td><td>10.3</td><td>May 5, 2006</td><td></td></tr><tr><td>10.54*</td><td>Revised Form of Performance Based Restricted Stock Award Terms under the ACE Limited 2004 Long-Term Incentive Plan</td><td>10-Q</td><td>10.2</td><td>November 8, 2006</td><td></td></tr><tr><td>10.55*</td><td>Revised Form of Performance Based Restricted Stock Award Terms under The ACE Limited 2004 Long-Term Incentive Plan</td><td>10-K</td><td>10.65</td><td>February 25, 2011</td><td></td></tr><tr><td>10.56*</td><td>Form of Performance Based Restricted Stock Award Terms under the ACE Limited 2004 Long-Term Incentive Plan</td><td>10-K</td><td>10.67</td><td>February 28, 2014</td><td></td></tr><tr><td>10.57*</td><td>Form of Performance Based Restricted Stock Award Terms under the ACE Limited 2004 Long-Term Incentive Plan for Chief Executive Officer, Chief Financial Officer and the General Counsel</td><td>10-K</td><td>10.68</td><td>February 28, 2014</td><td></td></tr><tr><td>10.58*</td><td>Form of Restricted Stock Unit Award Terms (for outside directors) under the ACE Limited 2004 Long-Term Incentive Plan</td><td>10-Q</td><td>10.2</td><td>November 7, 2007</td><td></td></tr><tr><td>10.59*</td><td>Form of Restricted Stock Unit Award Terms (for outside directors) under the ACE Limited 2004 Long-Term Incentive Plan</td><td>10-Q</td><td>10.2</td><td>August 7, 2009</td><td></td></tr><tr><td>10.60*</td><td>Form of Incentive Stock Option Terms under the ACE Limited 2004 Long-Term Incentive Plan for Messrs. Greenberg and Cusumano</td><td>10-Q</td><td>10.1</td><td>August 4, 2011</td><td></td></tr><tr><td>10.61*</td><td>Form of Non-Qualified Stock Option Terms under the ACE Limited 2004 Long-Term Incentive Plan for Messrs. Greenberg and Cusumano</td><td>10-Q</td><td>10.2</td><td>August 4, 2011</td><td></td></tr><tr><td>10.62*</td><td>Form of Restricted Stock Award Terms under the ACE Limited 2004 Long-Term Incentive Plan for Messrs. Greenberg and Cusumano</td><td>10-Q</td><td>10.3</td><td>August 4, 2011</td><td></td></tr><tr><td>10.63*</td><td>ACE Limited Employee Stock Purchase Plan, as amended</td><td>8-K</td><td>10.1</td><td>May 22, 2012</td><td></td></tr><tr><td>10.64*</td><td>Form of Performance Based Restricted Stock Award Terms under the ACE Limited 2004 Long-Term Incentive Plan for Messrs. Greenberg and Cusumano</td><td>10-K</td><td>10.72</td><td>February 24, 2012</td><td></td></tr><tr><td>10.65*</td><td>Separation and Release Agreement between the Company and Robert Cusumano, dated July 24, 2013</td><td>10-Q</td><td>10.8</td><td>October 30, 2013</td><td></td></tr><tr><td>10.66*</td><td>Form of Restricted Stock Award Terms under the ACE Limited 2004 Long-Term Incentive Plan for Swiss Executive Management</td><td>10-K</td><td>10.68</td><td>February 27, 2015</td><td></td></tr><tr><td>10.67*</td><td>Form of Performance Based Restricted Stock Award Terms under the ACE Limited 2004 Long-Term Incentive Plan for Swiss Executive Management</td><td>10-K</td><td>10.69</td><td>February 27, 2015</td><td></td></tr></table>



<table><tr><td rowspan="2">Exhibit Number</td><td rowspan="2">Exhibit Description</td><td colspan="3">Incorporated by Reference</td><td rowspan="2">Filed Herewith</td></tr><tr><td>Form</td><td>Original Number</td><td>Date Filed</td></tr><tr><td>10.68*</td><td>Form of Restricted Stock Unit Award Terms under the ACE Limited 2004 Long-Term Incentive Plan for Swiss Executive Management</td><td>10-K</td><td>10.70</td><td>February 27, 2015</td><td></td></tr><tr><td>10.69*</td><td>Form of Incentive Stock Option Terms under the ACE Limited 2004 Long-Term Incentive Plan for Swiss Executive Management</td><td>10-K</td><td>10.71</td><td>February 27, 2015</td><td></td></tr><tr><td>10.70*</td><td>Form of Non-Qualified Stock Option Terms under the ACE Limited 2004 Long-Term Incentive Plan for Swiss Executive Management</td><td>10-K</td><td>10.72</td><td>February 27, 2015</td><td></td></tr><tr><td>10.71*</td><td>Form of Executive Management Non-Competition Agreement</td><td>8-K</td><td>10.1</td><td>May 22, 2015</td><td></td></tr><tr><td>10.72</td><td>Commitment Increase Agreement to increase the credit capacity under the Credit Agreement originally entered into on November 6, 2012 to $1,500,000,000 under the Senior Unsecured Letter of Credit Facility, dated as of December 11, 2015, among ACE Limited, and certain subsidiaries, and Wells Fargo Bank, National Association as Administrative Agent, the Swingline Bank and an Issuing Bank</td><td></td><td></td><td></td><td>X</td></tr><tr><td>10.73*</td><td>Form of Performance Based Restricted Stock Award Terms under the ACE Limited 2004 Long-Term Incentive Plan</td><td></td><td></td><td></td><td>X</td></tr><tr><td>10.74*</td><td>Form of Performance Based Restricted Stock Award Terms under the ACE Limited 2004 Long-Term Incentive Plan for Special Award for Messrs. Greenberg and Keogh</td><td></td><td></td><td></td><td>X</td></tr><tr><td>12.1</td><td>Ratio of earnings to fixed charges</td><td></td><td></td><td></td><td>X</td></tr><tr><td>18.1</td><td>Preferability Letter of Independent Registered Public Accounting Firm</td><td>10-Q</td><td>18.1</td><td>October 29, 2014</td><td></td></tr><tr><td>21.1</td><td>Subsidiaries of the Company</td><td></td><td></td><td></td><td>X</td></tr><tr><td>23.1</td><td>Consent of Independent Registered Public Accounting Firm</td><td></td><td></td><td></td><td>X</td></tr><tr><td>31.1</td><td>Certification Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002</td><td></td><td></td><td></td><td>X</td></tr><tr><td>31.2</td><td>Certification Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002</td><td></td><td></td><td></td><td>X</td></tr><tr><td>32.1</td><td>Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002</td><td></td><td></td><td></td><td>X</td></tr><tr><td>32.2</td><td>Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002</td><td></td><td></td><td></td><td>X</td></tr><tr><td>101</td><td>The following financial information from Chubb Limited&#x27;s Annual Report on Form 10-K for the year ended December 31, 2015, formatted in XBRL: (i) Consolidated Balance Sheets at December 31, 2015 and 2014; (ii) Consolidated Statements of Operations and Comprehensive Income for the years ended December 31, 2015, 2014, and 2013; (iii) Consolidated Statements of Shareholders&#x27; Equity for the years ended December 31, 2015, 2014, and 2013; (iv) Consolidated Statements of Cash Flows for the years ended December 31, 2015, 2014, and 2014; and (v) Notes to the Consolidated Financial Statements</td><td></td><td></td><td></td><td>X</td></tr></table>

* 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.

## CHUBB LIMITED

By: /s/ Philip V. Bancroft

Philip V. Bancroft

Executive Vice President and Chief Financial Officer

February 26, 2016

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.

<table><tr><td colspan="2">Signature</td><td>Title</td><td>Date</td></tr><tr><td>/s/ Evan G. Greenberg</td><td>Chairman, President, Chief Executive Officer, and Director</td><td>February 26, 2016</td><td></td></tr><tr><td colspan="2">Evan G. Greenberg</td><td></td><td></td></tr><tr><td>/s/ Philip V. Bancroft</td><td>Executive Vice President and Chief Financial Officer</td><td>February 26, 2016</td><td></td></tr><tr><td>Philip V. Bancroft</td><td>(Principal Financial Officer)</td><td></td><td></td></tr><tr><td>/s/ Paul B. Medini</td><td>Chief Accounting Officer</td><td>February 26, 2016</td><td></td></tr><tr><td>Paul B. Medini</td><td>(Principal Accounting Officer)</td><td></td><td></td></tr><tr><td>/s/ Michael G. Atieh</td><td>Director</td><td>February 26, 2016</td><td></td></tr><tr><td>Michael G. Atieh</td><td></td><td></td><td></td></tr><tr><td>/s/ Sheila P. Burke</td><td>Director</td><td>February 26, 2016</td><td></td></tr><tr><td>Sheila P. Burke</td><td></td><td></td><td></td></tr><tr><td>/s/ James I. Cash, Jr.</td><td>Director</td><td>February 26, 2016</td><td></td></tr><tr><td>James I. Cash, Jr.</td><td></td><td></td><td></td></tr><tr><td>/s/ Mary A. Cirillo</td><td>Director</td><td>February 26, 2016</td><td></td></tr><tr><td>Mary A. Cirillo</td><td></td><td></td><td></td></tr><tr><td>/s/ Michael P. Connors</td><td>Director</td><td>February 26, 2016</td><td></td></tr><tr><td>Michael P. Connors</td><td></td><td></td><td></td></tr></table>



<table><tr><td colspan="3">Signature</td><td>Title</td><td>Date</td></tr><tr><td>/s/</td><td>John A. Edwardson</td><td>Director</td><td></td><td>February 26, 2016</td></tr><tr><td colspan="3">John A. Edwardson</td><td></td><td></td></tr><tr><td>/s/</td><td>Robert M. Hernandez</td><td>Director</td><td></td><td>February 26, 2016</td></tr><tr><td colspan="3">Robert M. Hernandez</td><td></td><td></td></tr><tr><td>/s/</td><td>Lawrence W. Kellner</td><td>Director</td><td></td><td>February 26, 2016</td></tr><tr><td colspan="3">Lawrence W. Kellner</td><td></td><td></td></tr><tr><td>/s/</td><td>Peter Menikoff</td><td>Director</td><td></td><td>February 26, 2016</td></tr><tr><td colspan="3">Peter Menikoff</td><td></td><td></td></tr><tr><td>/s/</td><td>Leo F. Mullin</td><td>Director</td><td></td><td>February 26, 2016</td></tr><tr><td colspan="3">Leo F. Mullin</td><td></td><td></td></tr><tr><td>/s/</td><td>Kimberly A. Ross</td><td>Director</td><td></td><td>February 26, 2016</td></tr><tr><td colspan="3">Kimberly A. Ross</td><td></td><td></td></tr><tr><td>/s/</td><td>Robert W. Scully</td><td>Director</td><td></td><td>February 26, 2016</td></tr><tr><td colspan="3">Robert W. Scully</td><td></td><td></td></tr><tr><td>/s/</td><td>Eugene B. Shanks, Jr.</td><td>Director</td><td></td><td>February 26, 2016</td></tr><tr><td colspan="3">Eugene B. Shanks, Jr.</td><td></td><td></td></tr><tr><td>/s/</td><td>Theodore E. Shasta</td><td>Director</td><td></td><td>February 26, 2016</td></tr><tr><td colspan="3">Theodore E. Shasta</td><td></td><td></td></tr><tr><td>/s/</td><td>David H. Sidwell</td><td>Director</td><td></td><td>February 26, 2016</td></tr><tr><td colspan="3">David H. Sidwell</td><td></td><td></td></tr><tr><td>/s/</td><td>Olivier Steimer</td><td>Director</td><td></td><td>February 26, 2016</td></tr><tr><td colspan="3">Olivier Steimer</td><td></td><td></td></tr><tr><td>/s/</td><td>James M. Zimmerman</td><td>Director</td><td></td><td>February 26, 2016</td></tr><tr><td colspan="3">James M. Zimmerman</td><td></td><td></td></tr></table>



CHUBB LIMITED AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015



## Chubb Limited
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<table><tr><td></td><td>Page</td></tr><tr><td>Management&#x27;s Responsibility for Financial Statements and Internal Control over Financial Reporting</td><td>F-3</td></tr><tr><td>Report of Independent Registered Public Accounting Firm</td><td>F-4</td></tr></table>

## Consolidated Financial Statements

<table><tr><td>Consolidated Balance Sheets</td><td>F-5</td></tr><tr><td>Consolidated Statements of Operations and Comprehensive Income</td><td>F-6</td></tr><tr><td>Consolidated Statements of Shareholders&#x27; Equity</td><td>F-7</td></tr><tr><td>Consolidated Statements of Cash Flows</td><td>F-8</td></tr></table>

## Notes to Consolidated Financial Statements

<table><tr><td>Note 1.</td><td>Summary of significant accounting policies</td><td>F-9</td></tr><tr><td>Note 2.</td><td>Acquisitions</td><td>F-18</td></tr><tr><td>Note 3.</td><td>Investments</td><td>F-19</td></tr><tr><td>Note 4.</td><td>Fair value measurements</td><td>F-28</td></tr><tr><td>Note 5.</td><td>Reinsurance</td><td>F-37</td></tr><tr><td>Note 6.</td><td>Intangible assets</td><td>F-41</td></tr><tr><td>Note 7.</td><td>Unpaid losses and loss expenses</td><td>F-42</td></tr><tr><td>Note 8.</td><td>Taxation</td><td>F-48</td></tr><tr><td>Note 9.</td><td>Debt</td><td>F-51</td></tr><tr><td>Note 10.</td><td>Commitments, contingencies, and guarantees</td><td>F-52</td></tr><tr><td>Note 11.</td><td>Shareholders&#x27; equity</td><td>F-58</td></tr><tr><td>Note 12.</td><td>Share-based compensation</td><td>F-60</td></tr><tr><td>Note 13.</td><td>Pension plans</td><td>F-64</td></tr><tr><td>Note 14.</td><td>Other (income) expense</td><td>F-65</td></tr><tr><td>Note 15.</td><td>Chubb integration expenses</td><td>F-65</td></tr><tr><td>Note 16.</td><td>Segment information</td><td>F-65</td></tr><tr><td>Note 17.</td><td>Earnings per share</td><td>F-70</td></tr><tr><td>Note 18.</td><td>Related party transactions</td><td>F-70</td></tr><tr><td>Note 19.</td><td>Statutory financial information</td><td>F-71</td></tr><tr><td>Note 20.</td><td>Information provided in connection with outstanding debt of subsidiaries</td><td>F-72</td></tr><tr><td>Note 21.</td><td>Condensed unaudited quarterly financial data</td><td>F-79</td></tr></table>

## Financial Statement Schedules

<table><tr><td>Schedule I</td><td>Summary of Investments - Other Than Investments in Related Parties</td><td>F-80</td></tr><tr><td>Schedule II</td><td>Condensed Financial Information of Registrant</td><td>F-81</td></tr><tr><td>Schedule IV</td><td>Supplemental Information Concerning Reinsurance</td><td>F-84</td></tr><tr><td>Schedule VI</td><td>Supplementary Information Concerning Property and Casualty Operations</td><td>F-85</td></tr></table>



## Financial Statements

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

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

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

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

## Internal Control over Financial Reporting

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

As of December 31, 2015, management has evaluated the effectiveness of Chubb's internal control over financial reporting based on the criteria for effective internal control over financial reporting established in "Internal Control - Integrated Framework," issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. Based on this evaluation, we have concluded that Chubb's internal control over financial reporting was effective as of December 31, 2015.

PricewaterhouseCoopers LLP, the independent registered public accounting firm that audited the consolidated financial statements of Chubb included in this Annual Report, has issued a report on the effectiveness of Chubb's internal controls over financial reporting as of December 31, 2015. The report, which expresses an unqualified opinion on the effectiveness of Chubb's internal control over financial reporting as of December 31, 2015, is included in this Item under "Report of Independent Registered Public Accounting Firm" and follows this statement.

/s/ Evan G. Greenberg

/s/ Philip V. Bancroft

Evan G. Greenberg

Philip V. Bancroft

Chairman, President and Chief Executive Officer
Executive Vice President and Chief Financial Officer



## REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

## To the Board of Directors and Shareholders of Chubb 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 Chubb Limited and its subsidiaries (the "Company") at December 31, 2015 and December 31, 2014, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2015 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, 2015, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements and financial statement schedules, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in Internal Control Over Financial Reporting, appearing in Management's Responsibility for Financial Statements and Internal Control Over Financial Reporting. Our responsibility is to express opinions on these financial statements, on the financial statement schedules, and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

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

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

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP

Philadelphia, Pennsylvania

February 26, 2016



<table><tr><td>(in millions of U.S. dollars, except share and per share data)</td><td>December 31 2015</td><td>December 31 2014</td></tr><tr><td>Assets</td><td></td><td></td></tr><tr><td>Investments</td><td></td><td></td></tr><tr><td>Fixed maturities available for sale, at fair value (amortized cost - $43,149 and $47,826) (includes hybrid financial instruments of $31 and $274)</td><td>$ 43,587</td><td>$ 49,395</td></tr><tr><td>Fixed maturities held to maturity, at amortized cost (fair value - $8,552 and $7,589)</td><td>8,430</td><td>7,331</td></tr><tr><td>Equity securities, at fair value (cost - $441 and $440)</td><td>497</td><td>510</td></tr><tr><td>Short-term investments, at fair value and amortized cost</td><td>10,446</td><td>2,322</td></tr><tr><td>Other investments (cost - $2,993 and $2,999)</td><td>3,291</td><td>3,346</td></tr><tr><td>Total investments</td><td>66,251</td><td>62,904</td></tr><tr><td>Cash</td><td>1,775</td><td>655</td></tr><tr><td>Securities lending collateral</td><td>1,046</td><td>1,330</td></tr><tr><td>Accrued investment income</td><td>513</td><td>552</td></tr><tr><td>Insurance and reinsurance balances receivable</td><td>5,323</td><td>5,426</td></tr><tr><td>Reinsurance recoverable on losses and loss expenses</td><td>11,386</td><td>11,992</td></tr><tr><td>Reinsurance recoverable on policy benefits</td><td>187</td><td>217</td></tr><tr><td>Deferred policy acquisition costs</td><td>2,873</td><td>2,601</td></tr><tr><td>Value of business acquired</td><td>395</td><td>466</td></tr><tr><td>Goodwill and other intangible assets</td><td>5,683</td><td>5,724</td></tr><tr><td>Prepaid reinsurance premiums</td><td>2,082</td><td>2,026</td></tr><tr><td>Deferred tax assets</td><td>318</td><td>295</td></tr><tr><td>Investments in partially-owned insurance companies</td><td>653</td><td>504</td></tr><tr><td>Other assets</td><td>3,881</td><td>3,556</td></tr><tr><td>Total assets</td><td>$ 102,366</td><td>$ 98,248</td></tr><tr><td>Liabilities</td><td></td><td></td></tr><tr><td>Unpaid losses and loss expenses</td><td>$ 37,303</td><td>$ 38,315</td></tr><tr><td>Unearned premiums</td><td>8,439</td><td>8,222</td></tr><tr><td>Future policy benefits</td><td>4,807</td><td>4,754</td></tr><tr><td>Insurance and reinsurance balances payable</td><td>4,270</td><td>4,095</td></tr><tr><td>Securities lending payable</td><td>1,047</td><td>1,331</td></tr><tr><td>Accounts payable, accrued expenses, and other liabilities</td><td>6,205</td><td>5,726</td></tr><tr><td>Repurchase agreements</td><td>1,404</td><td>1,402</td></tr><tr><td>Short-term debt</td><td>—</td><td>1,150</td></tr><tr><td>Long-term debt</td><td>9,447</td><td>3,357</td></tr><tr><td>Trust preferred securities</td><td>309</td><td>309</td></tr><tr><td>Total liabilities</td><td>73,231</td><td>68,661</td></tr><tr><td>Commitments and contingencies</td><td></td><td></td></tr><tr><td>Shareholders&#x27; equity</td><td></td><td></td></tr><tr><td>Common Shares (CHF 24.15 and CHF 24.77 par value; 342,832,412 shares issued; 324,563,441 and 328,659,686 shares outstanding)</td><td>7,833</td><td>8,055</td></tr><tr><td>Common Shares in treasury (18,268,971 and 14,172,726 shares)</td><td>(1,922)</td><td>(1,448)</td></tr><tr><td>Additional paid-in capital</td><td>4,481</td><td>5,145</td></tr><tr><td>Retained earnings</td><td>19,478</td><td>16,644</td></tr><tr><td>Accumulated other comprehensive income (AOCI)</td><td>(735)</td><td>1,191</td></tr><tr><td>Total shareholders&#x27; equity</td><td>29,135</td><td>29,587</td></tr><tr><td>Total liabilities and shareholders&#x27; equity</td><td>$ 102,366</td><td>$ 98,248</td></tr></table>

See accompanying notes to the consolidated financial statements



## CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
Chubb Limited and Subsidiaries

<table><tr><td>(in millions of U.S. dollars, except per share data)</td><td>2015</td><td>2014</td><td>2013</td></tr><tr><td>Revenues</td><td></td><td></td><td></td></tr><tr><td>Net premiums written</td><td>$ 17,713</td><td>$ 17,799</td><td>$ 17,025</td></tr><tr><td>Increase in unearned premiums</td><td>(500)</td><td>(373)</td><td>(412)</td></tr><tr><td>Net premiums earned</td><td>17,213</td><td>17,426</td><td>16,613</td></tr><tr><td>Net investment income</td><td>2,194</td><td>2,252</td><td>2,144</td></tr><tr><td>Net realized gains (losses):</td><td></td><td></td><td></td></tr><tr><td>Other-than-temporary impairment (OTTI) losses gross</td><td>(151)</td><td>(75)</td><td>(22)</td></tr><tr><td>Portion of OTTI losses recognized in other comprehensive income (OCI)</td><td>39</td><td>7</td><td>—</td></tr><tr><td>Net OTTI losses recognized in income</td><td>(112)</td><td>(68)</td><td>(22)</td></tr><tr><td>Net realized gains (losses) excluding OTTI losses</td><td>(308)</td><td>(439)</td><td>526</td></tr><tr><td>Total net realized gains (losses) (includes ($151), $(24), and $105 reclassified from AOCI)</td><td>(420)</td><td>(507)</td><td>504</td></tr><tr><td>Total revenues</td><td>18,987</td><td>19,171</td><td>19,261</td></tr><tr><td>Expenses</td><td></td><td></td><td></td></tr><tr><td>Losses and loss expenses</td><td>9,484</td><td>9,649</td><td>9,348</td></tr><tr><td>Policy benefits</td><td>543</td><td>517</td><td>515</td></tr><tr><td>Policy acquisition costs</td><td>2,941</td><td>3,075</td><td>2,659</td></tr><tr><td>Administrative expenses</td><td>2,270</td><td>2,245</td><td>2,211</td></tr><tr><td>Interest expense</td><td>300</td><td>280</td><td>275</td></tr><tr><td>Other (income) expense</td><td>(51)</td><td>(190)</td><td>(80)</td></tr><tr><td>Amortization of intangible assets</td><td>171</td><td>108</td><td>95</td></tr><tr><td>Chubb integration expenses</td><td>33</td><td>—</td><td>—</td></tr><tr><td>Total expenses</td><td>15,691</td><td>15,684</td><td>15,023</td></tr><tr><td>Income before income tax</td><td>3,296</td><td>3,487</td><td>4,238</td></tr><tr><td>Income tax expense (includes ($(2), $9, and $17 on reclassified unrealized gains and losses)</td><td>462</td><td>634</td><td>480</td></tr><tr><td>Net income</td><td>$ 2,834</td><td>$ 2,853</td><td>$ 3,758</td></tr><tr><td>Other comprehensive income (loss)</td><td></td><td></td><td></td></tr><tr><td>Unrealized appreciation (depreciation)</td><td>$ (1,280)</td><td>$ 820</td><td>$ (1,762)</td></tr><tr><td>Reclassification adjustment for net realized (gains) losses included in net income</td><td>151</td><td>24</td><td>(105)</td></tr><tr><td></td><td>(1,129)</td><td>844</td><td>(1,867)</td></tr><tr><td>Change in:</td><td></td><td></td><td></td></tr><tr><td>Cumulative translation adjustment</td><td>(958)</td><td>(632)</td><td>(339)</td></tr><tr><td>Pension liability</td><td>15</td><td>2</td><td>—</td></tr><tr><td>Other comprehensive income (loss), before income tax</td><td>(2,072)</td><td>214</td><td>(2,206)</td></tr><tr><td>Income tax benefit (expense) related to OCI items</td><td>146</td><td>(175)</td><td>471</td></tr><tr><td>Other comprehensive income (loss)</td><td>(1,926)</td><td>39</td><td>(1,735)</td></tr><tr><td>Comprehensive income</td><td>$ 908</td><td>$ 2,892</td><td>$ 2,023</td></tr><tr><td>Earnings per share</td><td></td><td></td><td></td></tr><tr><td>Basic earnings per share</td><td>$ 8.71</td><td>$ 8.50</td><td>$ 11.02</td></tr><tr><td>Diluted earnings per share</td><td>$ 8.62</td><td>$ 8.42</td><td>$ 10.92</td></tr></table>

See accompanying notes to the consolidated financial statements



## CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

Chubb Limited and Subsidiaries

<table><tr><td>(in millions of U.S. dollars)</td><td>2015</td><td>2014</td><td>2013</td></tr><tr><td>Common Shares</td><td></td><td></td><td></td></tr><tr><td>Balance - beginning of year</td><td>$ 8,055</td><td>$ 8,899</td><td>$ 9,591</td></tr><tr><td>Dividends declared on Common Shares - par value reduction</td><td>(222)</td><td>(844)</td><td>(692)</td></tr><tr><td>Balance - end of year</td><td>7,833</td><td>8,055</td><td>8,899</td></tr><tr><td>Common Shares in treasury</td><td></td><td></td><td></td></tr><tr><td>Balance - beginning of year</td><td>(1,448)</td><td>(255)</td><td>(159)</td></tr><tr><td>Common Shares repurchased</td><td>(734)</td><td>(1,449)</td><td>(290)</td></tr><tr><td>Net shares redeemed under employee share-based compensation plans</td><td>260</td><td>256</td><td>194</td></tr><tr><td>Balance - end of year</td><td>(1,922)</td><td>(1,448)</td><td>(255)</td></tr><tr><td>Additional paid-in capital</td><td></td><td></td><td></td></tr><tr><td>Balance - beginning of year</td><td>5,145</td><td>5,238</td><td>5,179</td></tr><tr><td>Net shares redeemed under employee share-based compensation plans</td><td>(160)</td><td>(167)</td><td>(126)</td></tr><tr><td>Exercise of stock options</td><td>(61)</td><td>(58)</td><td>(42)</td></tr><tr><td>Share-based compensation expense and other</td><td>184</td><td>185</td><td>191</td></tr><tr><td>Funding of dividends declared to Retained earnings</td><td>(653)</td><td>(81)</td><td>—</td></tr><tr><td>Tax benefit on share-based compensation expense</td><td>26</td><td>28</td><td>36</td></tr><tr><td>Balance - end of year</td><td>4,481</td><td>5,145</td><td>5,238</td></tr><tr><td>Retained earnings</td><td></td><td></td><td></td></tr><tr><td>Balance - beginning of year</td><td>16,644</td><td>13,791</td><td>10,033</td></tr><tr><td>Net income</td><td>2,834</td><td>2,853</td><td>3,758</td></tr><tr><td>Funding of dividends declared from Additional paid-in capital</td><td>653</td><td>81</td><td>—</td></tr><tr><td>Dividends declared on Common Shares</td><td>(653)</td><td>(81)</td><td>—</td></tr><tr><td>Balance - end of year</td><td>19,478</td><td>16,644</td><td>13,791</td></tr><tr><td>Accumulated other comprehensive income (loss)</td><td></td><td></td><td></td></tr><tr><td>Net unrealized appreciation on investments</td><td></td><td></td><td></td></tr><tr><td>Balance - beginning of year</td><td>1,851</td><td>1,174</td><td>2,633</td></tr><tr><td>Change in year, before reclassification from AOCI, net of income tax benefit (expense) of $154, $176) and $391</td><td>(1,126)</td><td>644</td><td>(1,371)</td></tr><tr><td>Amounts reclassified from AOCI, net of income tax benefit (expense) of $152, $167), and $408</td><td>149</td><td>33</td><td>(88)</td></tr><tr><td>Change in year, net of income tax benefit (expense) of $152, $167), and $408</td><td>(977)</td><td>677</td><td>(1,459)</td></tr><tr><td>Balance - end of year</td><td>874</td><td>1,851</td><td>1,174</td></tr><tr><td>Cumulative translation adjustment</td><td></td><td></td><td></td></tr><tr><td>Balance - beginning of year</td><td>(581)</td><td>63</td><td>339</td></tr><tr><td>Change in year, net of income tax benefit (expense) of nil, $12), and $63</td><td>(958)</td><td>(644)</td><td>(276)</td></tr><tr><td>Balance - end of year</td><td>(1,539)</td><td>(581)</td><td>63</td></tr><tr><td>Pension liability adjustment</td><td></td><td></td><td></td></tr><tr><td>Balance - beginning of year</td><td>(79)</td><td>(85)</td><td>(85)</td></tr><tr><td>Change in year, net of income tax benefit (expense) of $6), $4, and nil</td><td>9</td><td>6</td><td>—</td></tr><tr><td>Balance - end of year</td><td>(70)</td><td>(79)</td><td>(85)</td></tr><tr><td>Accumulated other comprehensive income (loss)</td><td>(735)</td><td>1,191</td><td>1,152</td></tr><tr><td>Total shareholders&#x27; equity</td><td>$ 29,135</td><td>$ 29,587</td><td>$ 28,825</td></tr></table>

See accompanying notes to the consolidated financial statements



## CONSOLIDATED STATEMENTS OF CASH FLOWS

Chubb Limited and Subsidiaries

<table><tr><td>For the years ended December 31, 2015, 2014, and 2013 (in millions of U.S. dollars)</td><td>2015</td><td>2014</td><td>2013</td></tr><tr><td>Cash flows from operating activities</td><td></td><td></td><td></td></tr><tr><td>Net income</td><td>$ 2,834</td><td>$ 2,853</td><td>$ 3,758</td></tr><tr><td>Adjustments to reconcile net income to net cash flows from operating activities</td><td></td><td></td><td></td></tr><tr><td>Net realized (gains) losses</td><td>420</td><td>507</td><td>(504)</td></tr><tr><td>Amortization of premiums/discounts on fixed maturities</td><td>158</td><td>188</td><td>268</td></tr><tr><td>Deferred income taxes</td><td>113</td><td>145</td><td>240</td></tr><tr><td>Unpaid losses and loss expenses</td><td>(375)</td><td>317</td><td>(365)</td></tr><tr><td>Unearned premiums</td><td>335</td><td>441</td><td>402</td></tr><tr><td>Future policy benefits</td><td>216</td><td>236</td><td>191</td></tr><tr><td>Insurance and reinsurance balances payable</td><td>268</td><td>376</td><td>176</td></tr><tr><td>Accounts payable, accrued expenses, and other liabilities</td><td>179</td><td>13</td><td>37</td></tr><tr><td>Income taxes payable</td><td>(148)</td><td>103</td><td>(45)</td></tr><tr><td>Insurance and reinsurance balances receivable</td><td>(53)</td><td>(469)</td><td>(624)</td></tr><tr><td>Reinsurance recoverable on losses and loss expenses</td><td>218</td><td>119</td><td>787</td></tr><tr><td>Reinsurance recoverable on policy benefits</td><td>33</td><td>4</td><td>23</td></tr><tr><td>Deferred policy acquisition costs</td><td>(435)</td><td>(397)</td><td>(503)</td></tr><tr><td>Prepaid reinsurance premiums</td><td>(212)</td><td>(89)</td><td>(31)</td></tr><tr><td>Other</td><td>313</td><td>149</td><td>212</td></tr><tr><td>Net cash flows from operating activities</td><td>3,864</td><td>4,496</td><td>4,022</td></tr><tr><td>Cash flows from investing activities</td><td></td><td></td><td></td></tr><tr><td>Purchases of fixed maturities available for sale</td><td>(16,040)</td><td>(15,553)</td><td>(21,340)</td></tr><tr><td>Purchases of to be announced mortgage-backed securities</td><td>(31)</td><td>—</td><td>(58)</td></tr><tr><td>Purchases of fixed maturities held to maturity</td><td>(62)</td><td>(267)</td><td>(447)</td></tr><tr><td>Purchases of equity securities</td><td>(158)</td><td>(251)</td><td>(264)</td></tr><tr><td>Sales of fixed maturities available for sale</td><td>10,783</td><td>7,482</td><td>10,355</td></tr><tr><td>Sales of to be announced mortgage-backed securities</td><td>31</td><td>—</td><td>58</td></tr><tr><td>Sales of equity securities</td><td>183</td><td>670</td><td>142</td></tr><tr><td>Maturities and redemptions of fixed maturities available for sale</td><td>6,567</td><td>6,413</td><td>6,941</td></tr><tr><td>Maturities and redemptions of fixed maturities held to maturity</td><td>669</td><td>875</td><td>1,488</td></tr><tr><td>Net change in short-term investments</td><td>(8,216)</td><td>(603)</td><td>524</td></tr><tr><td>Net derivative instruments settlements</td><td>(21)</td><td>(230)</td><td>(471)</td></tr><tr><td>Acquisition of subsidiaries (net of cash acquired of $629, $20, and $38)</td><td>264</td><td>(766)</td><td>(977)</td></tr><tr><td>Other</td><td>(263)</td><td>(274)</td><td>(393)</td></tr><tr><td>Net cash flows used for investing activities</td><td>(6,294)</td><td>(2,504)</td><td>(4,442)</td></tr><tr><td>Cash flows from financing activities</td><td></td><td></td><td></td></tr><tr><td>Dividends paid on Common Shares</td><td>(862)</td><td>(862)</td><td>(517)</td></tr><tr><td>Common Shares repurchased</td><td>(758)</td><td>(1,429)</td><td>(287)</td></tr><tr><td>Proceeds from issuance of long-term debt</td><td>6,090</td><td>699</td><td>947</td></tr><tr><td>Proceeds from issuance of repurchase agreements</td><td>2,029</td><td>1,978</td><td>2,572</td></tr><tr><td>Repayment of long-term debt</td><td>(1,150)</td><td>(501)</td><td>—</td></tr><tr><td>Repayment of repurchase agreements</td><td>(2,027)</td><td>(1,977)</td><td>(2,572)</td></tr><tr><td>Proceeds from share-based compensation plans, including windfall tax benefits</td><td>131</td><td>127</td><td>135</td></tr><tr><td>Policyholder contract deposits</td><td>503</td><td>366</td><td>233</td></tr><tr><td>Policyholder contract withdrawals</td><td>(221)</td><td>(172)</td><td>(120)</td></tr><tr><td>Other</td><td>(40)</td><td>(6)</td><td>—</td></tr><tr><td>Net cash flows (used for) from financing activities</td><td>3,695</td><td>(1,777)</td><td>391</td></tr><tr><td>Effect of foreign currency rate changes on cash and cash equivalents</td><td>(145)</td><td>(139)</td><td>(7)</td></tr><tr><td>Net increase (decrease) in cash</td><td>1,120</td><td>76</td><td>(36)</td></tr><tr><td>Cash - beginning of year</td><td>655</td><td>579</td><td>615</td></tr><tr><td>Cash - end of year</td><td>$ 1,775</td><td>$ 655</td><td>$ 579</td></tr><tr><td>Supplemental cash flow information</td><td></td><td></td><td></td></tr><tr><td>Taxes paid</td><td>$ 469</td><td>$ 349</td><td>$ 218</td></tr><tr><td>Interest paid</td><td>$ 259</td><td>$ 264</td><td>$ 253</td></tr></table>

See accompanying notes to the consolidated financial statements



## 1. Summary of significant accounting policies

## a) Basis of presentation

On January 14, 2016, we completed the acquisition of The Chubb Corporation, creating a global leader in property and casualty insurance. We have changed our name from ACE Limited to Chubb Limited and plan to adopt the Chubb name globally. All references to Chubb Limited throughout this Form 10-K refer to legacy ACE Limited, unless otherwise indicated. The financial condition and results presented herein are those of legacy ACE Limited and its subsidiaries and do not include the results of legacy Chubb Corporation and its subsidiaries.

Chubb Limited is a holding company incorporated in Zurich, Switzerland. Chubb Limited, through its subsidiaries, provides a broad range of insurance and reinsurance products to insureds worldwide. Through December 31, 2015 Chubb operated through five business segments: Insurance – North American P&C, Insurance – North American Agriculture, Insurance – Overseas General, Global Reinsurance, and Life. Refer to Note 16 for additional information.

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

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

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

• future policy benefits reserves;

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

• reinsurance recoverable, including a provision for uncollectible reinsurance;

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

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

• the valuation of deferred tax assets;

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

• the assessment of goodwill for impairment.

Effective 2015, amortization of intangible assets are excluded from Other (income) expense and disclosed separately in the consolidated statements of operations. In addition, repurchase agreements, previously included within short-term debt, are now separately disclosed in the consolidated balance sheets. Prior year amounts have been reclassified to conform to the current year presentation.

We also added a new expense caption (Chubb integration expenses) on the consolidated statements of operations which includes legal and professional fees and all other external costs directly related to the integration activities of the Chubb acquisition.

## b) Premiums

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



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

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

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

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

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

## c) Deferred policy acquisition costs and value of business acquired

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

Advertising costs are expensed as incurred except for direct-response campaigns that qualify for cost deferral, principally related to long-duration A&H business produced by the Insurance – Overseas General segment, which are deferred and recognized as a component of Policy acquisition costs. For individual direct-response marketing campaigns that we can demonstrate have specifically resulted in incremental sales to customers and such sales have probable future economic benefits, incremental costs directly related to the marketing campaigns are capitalized as Deferred policy acquisition costs. Deferred policy acquisition costs, including deferred marketing costs, are reviewed regularly for recoverability from future income, including investment income, and amortized in proportion to premium revenue recognized, primarily over a ten-year period, the expected economic future benefit period based upon the same assumptions used in estimating the liability for future policy benefits. The expected future benefit period is evaluated periodically based on historical results and adjusted prospectively. The amount of deferred marketing costs reported in Deferred policy acquisition costs in the consolidated balance sheets was $250 million and $288 million at December 31, 2015 and 2014, respectively. Amortization expense for deferred marketing costs was $78 million, $99 million, and $128 million for the years ended December 31, 2015, 2014, and 2013, respectively.



## d) Reinsurance

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

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

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

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

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

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

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

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



## NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries

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 $21 million and $26 million at December 31, 2015 and 2014, respectively, included in Other assets in the accompanying consolidated balance sheets, represents the excess of estimated ultimate value of the liabilities assumed under retroactive reinsurance contracts over consideration received. The value of reinsurance business assumed is amortized and recorded to losses and loss expenses based on the payment pattern of the losses assumed and ranges between 9 and 40 years. The unamortized value is reviewed regularly to determine if it is recoverable based upon the terms of the contract, estimated losses and loss expenses, and anticipated investment income. Unrecoverable amounts are expensed in the period identified.

## e) Investments

Fixed maturities are classified as either available for sale or held to maturity. The available for sale portfolio is reported at fair value. The held to maturity portfolio includes securities for which we have the ability and intent to hold to maturity or redemption and is reported at amortized cost. Equity securities are classified as available for sale and are recorded at fair value. 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 and income is recorded in other income (expense).

• Policy loans are carried at outstanding balance and interest income is recorded to net investment income.

- Trading securities are recorded on a trade date basis and carried at fair value. Unrealized gains and losses on trading securities are reflected in Other (income) expense.

- Other investments over which Chubb can exercise significant influence are accounted for using the equity method and income is recorded in Other (income) expense.

- All other investments over which Chubb cannot exercise significant influence are carried at fair value with changes in fair value recognized through OCI. For these investments, investment income is recognized in net investment income and realized gains are recognized as related distributions are received.

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

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

Realized gains or losses on sales of investments are determined on a first-in, first-out basis. Unrealized appreciation (depreciation) on investments is included as a separate component of AOCI in Shareholders' equity. We regularly review our investments for OTTI. Refer to Note 3 for additional information.

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



We use derivative instruments including futures, options, swaps, and foreign currency forward contracts for the purpose of managing certain investment portfolio risks and exposures. Refer to Note 10 for additional information. Derivatives are reported at fair value and are recorded in the accompanying consolidated balance sheets in either Accounts payable, accrued expenses, and other liabilities or Other assets with changes in fair value included in Net realized gains (losses) in the consolidated 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.

Chubb participates in a securities lending program operated by a third-party banking institution whereby certain assets are loaned to qualified borrowers and from which we earn an incremental return. 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, we consider our securities lending activities to be non-cash investing and financing activities. An indemnification agreement with the lending agent protects us in the event a borrower becomes insolvent or fails to return any of the securities on loan. The fair value of the securities on loan is included in fixed maturities and equity securities. The securities lending collateral is reported as a separate line in total assets with a related liability reflecting our obligation to return the collateral plus interest.

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

Refer to Note 4 for a discussion on the determination of fair value for Chubb's various investment securities.

## f) Cash

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

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

## g) Goodwill and other intangible assets

Goodwill represents the excess of the cost of acquisitions over the fair value of net assets acquired and is not amortized. Goodwill is assigned at acquisition to the applicable reporting unit of the acquired entities giving rise to the goodwill. Goodwill impairment tests are performed annually or more frequently if circumstances indicate a possible impairment. For goodwill



impairment testing, we use a qualitative assessment to determine whether it is more likely than not (i.e., more than a 50 percent probability) that the fair value of a reporting unit is greater than its carrying amount. If our assessment indicates less than a 50 percent probability that fair value exceeds carrying value, we quantitatively estimate a reporting unit's fair value. Goodwill recorded in connection with investments in partially-owned insurance companies is recorded in Investments in partially-owned insurance companies and is also measured for impairment annually.

Indefinite lived intangible assets are not subject to amortization. Finite lived intangible assets are amortized over their useful lives, generally ranging from 1 to 30 years. Intangible assets are regularly reviewed for indicators of impairment. Impairment is recognized if the carrying amount is not recoverable from its undiscounted cash flows and is measured as the difference between the carrying amount and fair value.

## h) Unpaid losses and loss expenses

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

Except for net loss and loss expense reserves of $42 million net of discount, held at December 31, 2015, representing certain structured settlements for which the timing and amount of future claim payments are reliably determinable and $50 million, net of discount, of certain reserves for unsettled claims that are discounted in statutory filings, Chubb does not discount its P&C loss reserves. This compares with reserves of $49 million for certain structured settlements and $62 million of certain reserves for unsettled claims at December 31, 2014. Structured settlements represent contracts purchased from life insurance companies primarily to settle workers' compensation claims, where payments to the claimant by the life insurance company are expected to be made in the form of an annuity. Chubb retains the liability to the claimant in the event that the life insurance company fails to pay. At December 31, 2015, the gross liability due to claimants was $588 million, net of discount, and reinsurance recoverables due from the life insurance companies was $546 million, net of discount. For structured settlement contracts where payments are guaranteed regardless of claimant life expectancy, the amounts recoverable from the life insurance companies at December 31, 2015 are included in Other assets in the consolidated balance sheets, as they do not meet the requirements for reinsurance accounting.

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

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

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



## NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

## Chubb Limited and Subsidiaries

## i) Future policy benefits

The valuation of long-duration contract reserves requires management to make estimates and assumptions regarding expenses, mortality, persistency, and investment yields. Estimates are primarily based on historical experience and information provided by ceding companies and include a margin for adverse deviation. Interest rates used in calculating reserves range from less than 1.0 percent to 7.2 percent and less than 1.0 percent to 6.5 percent at December 31, 2015 and 2014, respectively. Actual results could differ materially from these estimates. Management monitors actual experience and where circumstances warrant, will revise assumptions and the related reserve estimates. Revisions are recorded in the period they are determined.

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

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

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

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

Under reinsurance programs covering GLBs, we assume the risk of guaranteed minimum income benefits (GMIB) and guaranteed minimum accumulation benefits (GMAB) associated with variable annuity contracts. The GMIB risk is triggered if, at the time the contract holder elects to convert the accumulated account value to a periodic payment stream (annuitize), the accumulated account value is not sufficient to provide a guaranteed minimum level of monthly income. The GMAB risk is triggered if, at contract maturity, the contract holder's account value is less than a guaranteed minimum value. Our GLB reinsurance products meet the definition of a derivative for accounting purposes and is carried at fair value with changes in fair value recognized in income. Refer to Notes 5 c) and 10 a) for additional information.

## k) Deposit assets and liabilities

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

Interest income on deposit assets, representing the consideration received or to be received in excess of cash payments related to the deposit contract, is earned based on an effective yield calculation. The calculation of the effective yield is based on the amount and timing of actual cash flows at the balance sheet date and the estimated amount and timing of future cash flows. The effective yield is recalculated periodically to reflect revised estimates of cash flows. When a change in the actual or estimated cash flows occurs, the resulting change to the carrying amount of the deposit asset is reported as income or expense. Deposit assets of $86 million and $89 million at December 31, 2015 and 2014, respectively, are reflected in Other assets in the consolidated balance sheets and the accretion of deposit assets related to interest pursuant to the effective yield calculation is reflected in Net investment income in the consolidated statements of operations.

Deposit liabilities include reinsurance deposit liabilities of $110 million and $120 million and contract holder deposit funds of $1.1 billion and $908 million at December 31, 2015 and 2014, respectively. Deposit liabilities are reflected in Accounts



## NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries

payable, accrued expenses, and other liabilities in the consolidated balance sheets. At contract inception, the deposit liability equals net cash received. An accretion rate is established based on actuarial estimates whereby the deposit liability is increased to the estimated amount payable over the contract term. The deposit accretion rate is the rate of return required to fund expected future payment obligations. We periodically reassess the estimated ultimate liability and related expected rate of return. Changes to the deposit liability are generally reflected through Interest expense to reflect the cumulative effect of the period the contract has been in force, and by an adjustment to the future accretion rate of the liability over the remaining estimated contract term.

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

## I) Foreign currency remeasurement and translation

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

## m) Administrative expenses

Administrative expenses generally include all operating costs other than policy acquisition costs. The Insurance – North American P&C segment manages and uses an in-house third-party claims administrator, ESIS Inc. (ESIS). ESIS performs claims management and risk control services for domestic and international organizations that self-insure P&C exposures as well as internal P&C exposures. The net operating results of ESIS are included within Administrative expenses in the consolidated statements of operations and were $30 million, $27 million, and $25 million for the years ended December 31, 2015, 2014, and 2013, 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 our assets and liabilities. Refer to Note 8 for additional information. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance against deferred tax assets is recorded if it is more likely than not that all, or some portion, of the benefits related to deferred tax assets will not be realized. The valuation allowance assessment considers tax planning strategies, where applicable.

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

## o) Earnings per share

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

## 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. Cash flows, such as settlements and collateral requirements, associated with GLB and all other derivative instruments are included on a net basis within Cash flows from investing activities. Purchases, sales, and maturities of short-term investments are recorded on a net basis within Cash flows from investing activities.



## q) Derivatives

Chubb recognizes all derivatives at fair value in the consolidated balance sheets and participates in derivative instruments in two principal ways:

(i) To sell protection to customers as an insurance or reinsurance contract that meets the definition of a derivative for accounting purposes. For 2015 and 2014, the reinsurance of GLBs was our primary product falling into this category; and

(ii) To mitigate financial risks, principally arising from investment holdings, products sold, or assets and liabilities held in foreign currencies. For these instruments, changes in assets or liabilities measured at fair value are recorded as realized gains or losses in the consolidated statement of operations.

We did not designate any derivatives as accounting hedges during 2015, 2014, or 2013.

## r) Share-based compensation

Chubb measures and records compensation cost for all share-based payment awards at grant-date fair value. Compensation costs are recognized for share-based payment awards with only service conditions that have graded vesting schedules on a straight-line basis over the requisite service period for each separately vesting portion of the award as if the award was, in substance, multiple awards. Refer to Note 12 for additional information.

## s) New accounting pronouncements

## Adopted in 2015

## Business Combinations – Simplifying the Accounting for Measurement-Period Adjustments

In September 2015, the Financial Accounting Standards Board (FASB) issued guidance to simplify the accounting for adjustments made to provisional valuation amounts recognized in a business combination. The guidance requires that the acquirer must recognize adjustments to provisional valuation amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The guidance eliminates the requirement to retrospectively account for such adjustments. Previously, the accounting for measurement-period adjustments required the acquirer to retrospectively adjust the provisional amounts recognized at the acquisition date with a corresponding adjustment to goodwill. We early adopted this guidance effective July 1, 2015. The adoption of this guidance did not have an impact on our financial condition or results of operations.

## Disclosures for investments in certain entities that calculate net asset value (NAV)

In May 2015, the FASB issued guidance that eliminated the requirement for investments measured at fair value using NAV as a practical expedient to be categorized within the fair value hierarchy. We adopted this guidance early, effective July 1, 2015 and have retrospectively revised prior year fair value hierarchy disclosures contained in this report to conform to the current period presentation. Refer to Note 4 Fair Value Measurement for further information. This guidance requires a change in disclosure only and adoption of this guidance did not have an impact on our financial condition or results of operations.

## Adopted in 2016

## Presentation of Debt Issuance Costs

In April 2015, the FASB issued new guidance related to the accounting for debt issuance costs. The new guidance requires presentation of debt issuance costs in the balance sheet as a deduction from the carrying amount of the related debt liability instead of a deferred charge. The new guidance requires retrospective adoption and is effective for interim and annual reporting periods beginning after December 15, 2015, with early adoption permitted. Adoption of this guidance will require us to present debt issuance costs, currently recorded in Other assets on the consolidated balance sheets, within Long-term debt. This guidance, which became effective on January 1, 2016, did not have any effect on our results of operations and financial condition.

## Accounting guidance not yet adopted

## Revenue from Contracts with Customers

In May 2014, the FASB issued an accounting standard that supersedes most existing revenue recognition guidance. The standard excludes from its scope the accounting for insurance contracts, leases, financial instruments, and certain other agreements that are governed under other GAAP guidance, but could affect the revenue recognition for certain of our claims management and risk control services. The updated guidance requires an entity to recognize revenue as performance obligations are met, in order to reflect the transfer of promised goods or services to customers in an amount that reflects the consideration the entity is entitled to receive for those goods or services. The standard is effective for interim and annual reporting periods beginning after December 15, 2017 and may be applied retrospectively or through a cumulative effect.



adjustment to retained earnings at the date of adoption. Early adoption is permitted only as of annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. The adoption of this guidance is not expected to have a material impact on our financial condition or results of operations.

## Short-Duration Contracts

In May 2015, the FASB issued guidance that requires additional disclosures for short-duration insurance contracts. New disclosure will be required to provide more information about initial claim estimates and subsequent adjustments to those estimates, the methodologies and judgments used to estimate claims, and the timing frequency, and severity of claims. The guidance is effective for public business entities for annual periods beginning after December 15, 2015 and interim periods within annual periods after December 15, 2016. The guidance requires a change in disclosure only and adoption of this guidance will have no impact on our financial condition or results of operations.

## 2. Acquisitions

## Fireman's Fund Insurance Company High Net Worth Personal Lines Insurance Business in the U.S. (Fireman's Fund)

On April 1, 2015, we acquired the Fireman's Fund Insurance Company high net worth personal lines insurance business in the U.S., which included the renewal rights for new and existing business and reinsurance of all existing reserves for $365 million in cash. We acquired assets with a fair value of $753 million, consisting primarily of cash of $629 million and insurance and reinsurance balances receivable of $124 million. We assumed liabilities with a fair value of $863 million, consisting primarily of unpaid losses and loss expenses of $417 million and unearned premiums of $428 million. This acquisition generated $196 million of goodwill, attributable to expected growth and profitability, all of which is expected to be deductible for income tax purposes, and other intangible assets of $278 million, primarily related to renewal rights, based on Chubb's preliminary purchase price allocation. During the third quarter of 2015, we applied the new measurement-period adjustment guidance and recorded an adjustment to the valuation of our other intangible assets. The acquisition expands our position in the high net worth personal lines insurers in the U.S. The Fireman's Fund business integrates into our existing high net worth personal lines business, ACE Private Risk Services, which offers a broad range of coverage including homeowners, automobile, umbrella and excess liability, collectibles and yachts. Goodwill and other intangible assets arising from this acquisition are included in our Insurance – North American P&C segment.

## Prior year acquisitions

## Large Corporate Account P&C Insurance Business of Itaú Seguros, S.A. (Itaú Seguros)

On October 31, 2014, we expanded our presence in Brazil with the acquisition of the large corporate account property and casualty (P&C) insurance business of Itaú Seguros, Brazil's leading carrier for that business, for $606 million in cash. This acquisition generated $445 million of goodwill, attributable to expected growth and profitability, and other intangible assets of $60 million, primarily related to renewal rights based on Chubb's purchase price allocation. During the fourth quarter of 2015, goodwill became deductible for income tax purposes under Brazilian tax law when we merged Itaú Seguros with a Chubb subsidiary.

## The Siam Commercial Samaggi Insurance PCL (Samaggi)

We and our local partner acquired 60.86 percent of Samaggi, a general insurance company in Thailand, from Siam Commercial Bank on April 28, 2014, and subsequently acquired an additional 32.17 percent ownership, through a mandatory tender offer, which expired on June 17, 2014. The purchase price for 93.03 percent of the company was $176 million in cash. This acquisition expands our presence in Thailand and Southeast Asia.

The acquisition generated $46 million of goodwill, attributable to expected growth and profitability, none of which is expected to be deductible for income tax purposes, and other intangible assets of $80 million based on Chubb's purchase price allocation. The other intangible assets primarily relate to a bancassurance agreement.

## ABA Seguros

On May 2, 2013, we acquired ABA Seguros, a property and casualty insurer in Mexico that provides automobile, homeowners, and small business coverages, for approximately $690 million in cash.

The acquisition generated $285 million of goodwill, attributable to expected growth and profitability, none of which is expected to be deductible for income tax purposes, and other intangible assets of $140 million based on Chubb's purchase price allocation. The other intangible assets primarily relate to distribution channels.



# NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries

## Fianzas Monterrey

On April 1, 2013, we acquired Fianzas Monterrey, a leading surety lines company in Mexico offering administrative performance bonds primarily to clients in the construction and industrial sectors, for approximately $293 million in cash. This acquisition expands our global franchise in the surety business and enhances our existing commercial lines and personal accident insurance business in Mexico.

The acquisition generated $137 million of goodwill, attributable to expected growth and profitability, none of which is expected to be deductible for income tax purposes, and other intangible assets of $73 million, based on Chubb's purchase price allocation. The other intangible assets primarily relate to customer lists.

## PT Asuransi Jaya Proteksi

We acquired 80 percent of PT Asuransi Jaya Proteksi (JaPro) on September 18, 2012 and our local partner acquired the remaining 20 percent on January 3, 2013. JaPro is one of Indonesia's leading general insurers offering personal lines and commercial coverages. This acquisition diversifies our existing business in Indonesia. The total purchase price for 100 percent of the company was approximately $107 million in cash.

Goodwill and other intangible assets arising from the prior year acquisitions described above are included in our Insurance – Overseas General segment.

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

## Acquired in 2016

## The Chubb Corporation

On January 14, 2016, we completed the acquisition of The Chubb Corporation (Chubb acquisition), a leading provider of middle-market commercial, specialty, surety, and personal insurance for $29.5 billion, comprising $14.3 billion in cash and $15.2 billion in newly-issued stock, based on the Chubb Limited (formerly ACE Limited) closing price on the acquisition date. In addition, we assumed outstanding equity awards to employees, directors, and consultants with an attributed value of approximately $340 million. We financed the cash portion of the transaction through a combination of $9 billion sourced from various Chubb Limited and Chubb Corporation companies plus $5.3 billion of senior notes which were issued in November 2015. Refer to Note 9 for additional information on the senior notes. Under the terms of the merger agreement, The Chubb Corporation merged with a newly-formed subsidiary of Chubb Limited and the combined company is operating under the Chubb name globally.

## 3. Investments

## a) Transfers of securities

During April 2015, we transferred securities, considered essential holdings in a diversified portfolio, with a total fair value of $1.9 billion from Fixed maturities available for sale to Fixed maturities held to maturity. These securities, which we have the intent and ability to hold to maturity, were transferred given the growth in our investment portfolio over the last several years, as well as continued efforts to manage the diversification of our global portfolio. The net unrealized appreciation at the date of the transfer continues to be reported in the carrying value of the transferred investments and is amortized through OCI over the remaining life of the securities using the effective interest method in a manner consistent with the amortization of any premium or discount. This transfer represents a non-cash transaction and does not impact the Consolidated Statements of Cash Flows.



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

## b) Fixed maturities

<table><tr><td>December 31, 2015(in millions of U.S. dollars)</td><td>Amortized Cost</td><td>Gross Unrealized Appreciation</td><td>Gross Unrealized Depreciation</td><td>Fair Value</td><td>OTTI Recognized in AOCI</td></tr><tr><td>Available for sale</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>U.S. Treasury and agency</td><td>$ 2,481</td><td>$ 52</td><td>$ (5)</td><td>$ 2,528</td><td>$ —</td></tr><tr><td>Foreign</td><td>13,190</td><td>468</td><td>(213)</td><td>13,445</td><td>(13)</td></tr><tr><td>Corporate securities</td><td>15,028</td><td>355</td><td>(454)</td><td>14,929</td><td>(28)</td></tr><tr><td>Mortgage-backed securities</td><td>9,827</td><td>183</td><td>(52)</td><td>9,958</td><td>(1)</td></tr><tr><td>States, municipalities, and political subdivisions</td><td>2,623</td><td>110</td><td>(6)</td><td>2,727</td><td>—</td></tr><tr><td></td><td>$ 43,149</td><td>$ 1,168</td><td>$ (730)</td><td>$ 43,587</td><td>$ (42)</td></tr><tr><td>Held to maturity</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>U.S. Treasury and agency</td><td>$ 733</td><td>$ 13</td><td>$ (1)</td><td>$ 745</td><td>$ —</td></tr><tr><td>Foreign</td><td>763</td><td>30</td><td>(8)</td><td>785</td><td>—</td></tr><tr><td>Corporate securities</td><td>3,054</td><td>57</td><td>(55)</td><td>3,056</td><td>—</td></tr><tr><td>Mortgage-backed securities</td><td>1,707</td><td>38</td><td>(2)</td><td>1,743</td><td>—</td></tr><tr><td>States, municipalities, and political subdivisions</td><td>2,173</td><td>52</td><td>(2)</td><td>2,223</td><td>—</td></tr><tr><td></td><td>$ 8,430</td><td>$ 190</td><td>$ (68)</td><td>$ 8,552</td><td>$ —</td></tr></table>

<table><tr><td>December 31, 2014(in millions of U.S. dollars)</td><td>Amortized Cost</td><td>Gross Unrealized Appreciation</td><td>Gross Unrealized Depreciation</td><td>Fair Value</td><td>OTTI Recognized in AOCI</td></tr><tr><td>Available for sale</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>U.S. Treasury and agency</td><td>$ 2,741</td><td>$ 87</td><td>$ (8)</td><td>$ 2,820</td><td>$ —</td></tr><tr><td>Foreign</td><td>14,703</td><td>629</td><td>(90)</td><td>15,242</td><td>—</td></tr><tr><td>Corporate securities</td><td>16,897</td><td>704</td><td>(170)</td><td>17,431</td><td>(7)</td></tr><tr><td>Mortgage-backed securities</td><td>10,011</td><td>304</td><td>(29)</td><td>10,286</td><td>(1)</td></tr><tr><td>States, municipalities, and political subdivisions</td><td>3,474</td><td>147</td><td>(5)</td><td>3,616</td><td>—</td></tr><tr><td></td><td>$ 47,826</td><td>$ 1,871</td><td>$ (302)</td><td>$ 49,395</td><td>$ (8)</td></tr><tr><td>Held to maturity</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>U.S. Treasury and agency</td><td>$ 832</td><td>$ 20</td><td>$ (2)</td><td>$ 850</td><td>$ —</td></tr><tr><td>Foreign</td><td>916</td><td>47</td><td>—</td><td>963</td><td>—</td></tr><tr><td>Corporate securities</td><td>2,323</td><td>102</td><td>(2)</td><td>2,423</td><td>—</td></tr><tr><td>Mortgage-backed securities</td><td>1,983</td><td>57</td><td>(1)</td><td>2,039</td><td>—</td></tr><tr><td>States, municipalities, and political subdivisions</td><td>1,277</td><td>40</td><td>(3)</td><td>1,314</td><td>—</td></tr><tr><td></td><td>$ 7,331</td><td>$ 266</td><td>$ (8)</td><td>$ 7,589</td><td>$ —</td></tr></table>

As discussed in Note 3 d), if a credit loss is incurred on an impaired fixed maturity, an OTTI is considered to have occurred and the portion of the impairment not related to credit losses (non-credit OTTI) is recognized in OCI. Included in the “OTTI Recognized in AOCI” columns above are the cumulative amounts of non-credit OTTI recognized in OCI adjusted for subsequent sales, maturities, and redemptions. OTTI recognized in AOCI does not include the impact of subsequent changes in fair value of the related securities. In periods subsequent to a recognition of OTTI in OCI, changes in the fair value of the related fixed maturities are reflected in Unrealized appreciation (depreciation) in the consolidated statement of shareholders' equity. For the years ended December 31, 2015 and 2014, $15 million of net unrealized depreciation and $4 million of net unrealized appreciation, respectively, related to such securities is included in OCI. At December 31, 2015 and 2014, AOCI included cumulative net unrealized depreciation of $35 million and $3 million, respectively, related to securities remaining in the investment portfolio for which a non-credit OTTI was recognized.



## NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries

Mortgage-backed securities (MBS) issued by U.S. government agencies are combined with all other to be announced mortgage derivatives held (refer to Note 10 c) (iv)) and are included in the category, “Mortgage-backed securities”. Approximately 81 percent and 83 percent of the total mortgage-backed securities at December 31, 2015 and 2014, respectively, are represented by investments in U.S. government agency bonds. The remainder of the mortgage exposure consists of collateralized mortgage obligations and non-government mortgage-backed securities, the majority of which provide a planned structure for principal and interest payments and carry a rating of AAA by the major credit rating agencies.

The following table presents fixed maturities by contractual maturity:

<table><tr><td rowspan="2">(in millions of U.S. dollars)</td><td colspan="3">December 31</td><td colspan="2">December 31</td></tr><tr><td colspan="2">2015</td><td colspan="2">2014</td><td></td></tr><tr><td>Available for sale</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Due in 1 year or less</td><td>$ 1,856</td><td>$ 1,865</td><td>$ 2,187</td><td>$ 2,206</td><td></td></tr><tr><td>Due after 1 year through 5 years</td><td>14,936</td><td>15,104</td><td>15,444</td><td>15,857</td><td></td></tr><tr><td>Due after 5 years through 10 years</td><td>12,258</td><td>12,173</td><td>15,663</td><td>16,089</td><td></td></tr><tr><td>Due after 10 years</td><td>4,272</td><td>4,487</td><td>4,521</td><td>4,957</td><td></td></tr><tr><td></td><td>33,322</td><td>33,629</td><td>37,815</td><td>39,109</td><td></td></tr><tr><td>Mortgage-backed securities</td><td>9,827</td><td>9,958</td><td>10,011</td><td>10,286</td><td></td></tr><tr><td></td><td>$ 43,149</td><td>$ 43,587</td><td>$ 47,826</td><td>$ 49,395</td><td></td></tr><tr><td>Held to maturity</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Due in 1 year or less</td><td>$ 492</td><td>$ 495</td><td>$ 353</td><td>$ 355</td><td></td></tr><tr><td>Due after 1 year through 5 years</td><td>2,443</td><td>2,517</td><td>2,603</td><td>2,693</td><td></td></tr><tr><td>Due after 5 years through 10 years</td><td>2,292</td><td>2,313</td><td>1,439</td><td>1,489</td><td></td></tr><tr><td>Due after 10 years</td><td>1,496</td><td>1,484</td><td>953</td><td>1,013</td><td></td></tr><tr><td></td><td>6,723</td><td>6,809</td><td>5,348</td><td>5,550</td><td></td></tr><tr><td>Mortgage-backed securities</td><td>1,707</td><td>1,743</td><td>1,983</td><td>2,039</td><td></td></tr><tr><td></td><td>$ 8,430</td><td>$ 8,552</td><td>$ 7,331</td><td>$ 7,589</td><td></td></tr></table>

Expected maturities could differ from contractual maturities because borrowers may have the right to call or prepay obligations, with or without call or prepayment penalties.

## c) Equity securities

<table><tr><td rowspan="2">(in millions of U.S. dollars)</td><td colspan="2">December 31</td><td colspan="2">December 31</td></tr><tr><td colspan="2">2015</td><td colspan="2">2014</td></tr><tr><td>Cost</td><td>$ 441</td><td>$ 440</td><td></td><td></td></tr><tr><td>Gross unrealized appreciation</td><td>74</td><td>83</td><td></td><td></td></tr><tr><td>Gross unrealized depreciation</td><td>(18)</td><td>(13)</td><td></td><td></td></tr><tr><td>Fair value</td><td>$ 497</td><td>$ 510</td><td></td><td></td></tr></table>

## d) Net realized gains (losses)

In accordance with guidance related to the recognition and presentation of OTTI, when an impairment related to a fixed maturity has occurred, OTTI is required to be recorded in Net income if management has the intent to sell the security or it is more likely than not that we will be required to sell the security before the recovery of its amortized cost. Further, in cases where we do not intend to sell the security and it is more likely than not that we will not be required to sell the security, we must evaluate the security to determine the portion of the impairment, if any, related to credit losses. If a credit loss is incurred, an OTTI is considered to have occurred and any portion of the OTTI related to credit losses must be reflected in Net income while the portion of OTTI related to all other factors is recognized in OCI. For fixed maturities held to maturity, OTTI recognized in OCI is accreted from AOCI to the amortized cost of the fixed maturity prospectively over the remaining term of the securities.



## NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries

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

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

• the amount of time a security has been in a loss position and the magnitude of the loss position;

- the period in which cost is expected to be recovered, if at all, based on various criteria including economic conditions and other issuer-specific developments; and

• Our ability and intent to hold the security to the expected recovery period.

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

## Evaluation of potential credit losses related to fixed maturities

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

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

U.S. Treasury and agency obligations (including agency mortgage-backed securities); foreign government obligations; and states, municipalities, and political subdivisions obligations represent $100 million of gross unrealized loss at December 31, 2015. These securities were evaluated for credit loss primarily using qualitative assessments of the likelihood of credit loss considering credit rating of the issuers and level of credit enhancement, if any. We concluded that the high level of creditworthiness of the issuers coupled with credit enhancement, where applicable, supports recognizing no credit loss in net income.

## Corporate securities

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



## NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries

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

<table><tr><td>Moody&#x27;s Rating Category</td><td>1-in-100 Year Default Rate</td><td>Historical Mean Default Rate</td></tr><tr><td>Investment Grade:</td><td></td><td></td></tr><tr><td>Aaa-Baa</td><td>0.0-1.3%</td><td>0.0-0.3%</td></tr><tr><td>Below Investment Grade:</td><td></td><td></td></tr><tr><td>Ba</td><td>4.9%</td><td>1.1%</td></tr><tr><td>B</td><td>12.7%</td><td>3.4%</td></tr><tr><td>Caa-C</td><td>50.2%</td><td>13.1%</td></tr></table>

Application of the methodology and assumptions described above resulted in credit losses recognized in Net income for corporate securities of $50 million, $27 million, and $11 million for the years ended December 31, 2015, 2014, and 2013, respectively.

## Mortgage-backed securities

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

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

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

For the years ended December 31, 2015 and 2014, there were no credit losses recognized in Net income for mortgage-backed securities and $1 million for 2013.



## NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries

The following table presents the Net realized gains (losses) and the losses included in Net realized gains (losses) and OCI as a result of conditions which caused us to conclude the decline in fair value of certain investments was “other-than-temporary” and the change in net unrealized appreciation (depreciation) of investments:

<table><tr><td rowspan="2">(in millions of U.S. dollars)</td><td colspan="4">Year Ended December 31</td></tr><tr><td>2015</td><td>2014</td><td>2013</td><td></td></tr><tr><td>Fixed maturities:</td><td></td><td></td><td></td><td></td></tr><tr><td>OTTI on fixed maturities, gross</td><td>$ (142)</td><td>$ (64)</td><td>$ (18)</td><td></td></tr><tr><td>OTTI on fixed maturities recognized in OCI (pre-tax)</td><td>39</td><td>7</td><td>—</td><td></td></tr><tr><td>OTTI on fixed maturities, net</td><td>(103)</td><td>(57)</td><td>(18)</td><td></td></tr><tr><td>Gross realized gains excluding OTTI</td><td>158</td><td>213</td><td>237</td><td></td></tr><tr><td>Gross realized losses excluding OTTI</td><td>(235)</td><td>(133)</td><td>(129)</td><td></td></tr><tr><td>Total fixed maturities</td><td>(180)</td><td>23</td><td>90</td><td></td></tr><tr><td>Equity securities:</td><td></td><td></td><td></td><td></td></tr><tr><td>OTTI on equity securities</td><td>(7)</td><td>(8)</td><td>(2)</td><td></td></tr><tr><td>Gross realized gains excluding OTTI</td><td>47</td><td>22</td><td>21</td><td></td></tr><tr><td>Gross realized losses excluding OTTI</td><td>(11)</td><td>(61)</td><td>(4)</td><td></td></tr><tr><td>Total equity securities</td><td>29</td><td>(47)</td><td>15</td><td></td></tr><tr><td>OTTI on other investments</td><td>(2)</td><td>(3)</td><td>(2)</td><td></td></tr><tr><td>Foreign exchange gains (losses)</td><td>(80)</td><td>(40)</td><td>29</td><td></td></tr><tr><td>Investment and embedded derivative instruments</td><td>32</td><td>(107)</td><td>78</td><td></td></tr><tr><td>Fair value adjustments on insurance derivative</td><td>(203)</td><td>(217)</td><td>878</td><td></td></tr><tr><td>S&amp;P put options and futures</td><td>(10)</td><td>(168)</td><td>(579)</td><td></td></tr><tr><td>Other derivative instruments</td><td>(12)</td><td>50</td><td>(2)</td><td></td></tr><tr><td>Other</td><td>6</td><td>2</td><td>(3)</td><td></td></tr><tr><td>Net realized gains (losses)</td><td>(420)</td><td>(507)</td><td>504</td><td></td></tr><tr><td>Change in net unrealized appreciation (depreciation) on investments:</td><td></td><td></td><td></td><td></td></tr><tr><td>Fixed maturities available for sale</td><td>(1,119)</td><td>734</td><td>(1,798)</td><td></td></tr><tr><td>Fixed maturities held to maturity</td><td>43</td><td>(2)</td><td>(82)</td><td></td></tr><tr><td>Equity securities</td><td>(17)</td><td>77</td><td>(41)</td><td></td></tr><tr><td>Other</td><td>(36)</td><td>35</td><td>54</td><td></td></tr><tr><td>Income tax (expense) benefit</td><td>152</td><td>(167)</td><td>408</td><td></td></tr><tr><td>Change in net unrealized appreciation (depreciation) on investments</td><td>(977)</td><td>677</td><td>(1,459)</td><td></td></tr><tr><td>Total net realized gains (losses) and change in net unrealized appreciation (depreciation) on investments</td><td>$ (1,397)</td><td>$ 170</td><td>$ (955)</td><td></td></tr></table>



## NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries

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

<table><tr><td rowspan="2">(in millions of U.S. dollars)</td><td colspan="4">Year Ended December 31</td></tr><tr><td>2015</td><td>2014</td><td>2013</td><td></td></tr><tr><td>Balance of credit losses related to securities still held - beginning of year</td><td>$ 28</td><td>$ 37</td><td>$ 43</td><td></td></tr><tr><td>Additions where no OTTI was previously recorded</td><td>41</td><td>22</td><td>9</td><td></td></tr><tr><td>Additions where an OTTI was previously recorded</td><td>9</td><td>5</td><td>3</td><td></td></tr><tr><td>Reductions for securities sold during the period</td><td>(25)</td><td>(36)</td><td>(18)</td><td></td></tr><tr><td>Balance of credit losses related to securities still held - end of year</td><td>$ 53</td><td>$ 28</td><td>$ 37</td><td></td></tr></table>

## e) Other investments

<table><tr><td rowspan="2">(in millions of U.S. dollars)</td><td colspan="3">December 31</td><td colspan="2">December 31</td></tr><tr><td colspan="2">2015</td><td colspan="2">2014</td><td>Cost</td></tr><tr><td>Investment funds</td><td>$ 269</td><td>$ 138</td><td>$ 378</td><td>$ 228</td><td></td></tr><tr><td>Limited partnerships</td><td>709</td><td>542</td><td>691</td><td>497</td><td></td></tr><tr><td>Partially-owned investment companies</td><td>1,498</td><td>1,498</td><td>1,492</td><td>1,492</td><td></td></tr><tr><td>Life insurance policies</td><td>222</td><td>222</td><td>205</td><td>205</td><td></td></tr><tr><td>Policy loans</td><td>184</td><td>184</td><td>187</td><td>187</td><td></td></tr><tr><td>Trading securities</td><td>284</td><td>284</td><td>290</td><td>287</td><td></td></tr><tr><td>Other</td><td>125</td><td>125</td><td>103</td><td>103</td><td></td></tr><tr><td>Total</td><td>$ 3,291</td><td>$ 2,993</td><td>$ 3,346</td><td>$ 2,999</td><td></td></tr></table>

Investment funds include one highly diversified fund investment as well as several direct funds that employ a variety of investment styles such as long/short equity and arbitrage/distressed. Included in limited partnerships and partially-owned investment companies are 67 individual limited partnerships covering a broad range of investment strategies including large cap buyouts, specialist buyouts, growth capital, distressed, mezzanine, real estate, and co-investments. The underlying portfolio consists of various public and private debt and equity securities of publicly traded and privately held companies and real estate assets. The underlying investments across various partnerships, geographies, industries, asset types, and investment strategies provide risk diversification within the limited partnership portfolio and the overall investment portfolio. Trading securities comprise $257 million of mutual funds supported by assets that do not qualify for separate account reporting under GAAP at December 31, 2015 compared with $261 million at December 31, 2014. Trading securities also includes assets held in rabbi trusts of $20 million of equity securities and $7 million of fixed maturities at December 31, 2015, compared with $22 million of equity securities and $7 million of fixed maturities at December 31, 2014.

## f) Investments in partially-owned insurance companies

In 2015, we paid $90 million to acquire 11.3 percent of the common equity of ABR Reinsurance Capital Holdings Ltd. and warrants to acquire 0.5 percent of additional equity. ABR Reinsurance Capital Holdings Ltd., is the parent company of ABR Reinsurance Ltd. (ABR Re), an independent reinsurance company. Through long-term arrangements, Chubb will be the sole source of reinsurance risks ceded to ABR Re, and BlackRock, Inc. will be ABR Re's exclusive investment management service provider. As an investor, Chubb is expected to benefit from underwriting profit generated by ABR Re's reinsuring a wide range of Chubb's primary insurance business and the income and capital appreciation BlackRock, Inc. seeks to deliver through its investment management services. In addition, Chubb has entered into an arrangement with BlackRock, Inc. under which both Chubb and BlackRock, Inc. will be entitled to an equal share of the aggregate amount of certain fees, including underwriting and investment management performance related fees, in connection with their respective reinsurance and investment management arrangements with ABR Re.

ABR Re is a variable interest entity; however, Chubb is not the primary beneficiary and does not consolidate ABR Re because Chubb does not have the power to control and direct ABR Re's most significant activities, including investing and underwriting. Our minority ownership interest is accounted for under the equity method of accounting. Chubb cedes premiums to ABR Re and recognizes the associated commissions. At December 31, 2015, Chubb ceded reinsurance premiums of $115 million and



## NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

recognized ceded commissions of $30 million. At December 31, 2015, the amount of Reinsurance recoverable on losses and loss expenses was $82 million and the amount of ceded reinsurance premium payable included in Insurance and reinsurance balances payable in the consolidated balance sheet was $6 million.

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

<table><tr><td rowspan="2">(in millions of U.S. dollars, except for percentages)</td><td colspan="2">December 31</td><td colspan="2">December 31</td><td colspan="2">December 31</td></tr><tr><td>Carrying Value</td><td>Issued Share Capital</td><td>Ownership Percentage</td><td>Carrying Value</td><td>Issued Share Capital</td><td>Ownership Percentage</td></tr><tr><td>Huatai Group</td><td>$ 430</td><td>$ 624</td><td>20.0%</td><td>$ 397</td><td>$ 638</td><td>20.0%</td></tr><tr><td>Huatai Life Insurance Company</td><td>107</td><td>428</td><td>20.0%</td><td>86</td><td>438</td><td>20.0%</td></tr><tr><td>Friesenbruch-Meyer</td><td>9</td><td>5</td><td>40.0%</td><td>9</td><td>5</td><td>40.0%</td></tr><tr><td>ACE Cooperative Insurance Co. - Saudi Arabia</td><td>11</td><td>27</td><td>30.0%</td><td>10</td><td>27</td><td>30.0%</td></tr><tr><td>Russian Reinsurance Company</td><td>2</td><td>4</td><td>23.3%</td><td>2</td><td>4</td><td>23.3%</td></tr><tr><td>ABR Reinsurance Ltd.</td><td>94</td><td>800</td><td>11.3%</td><td>—</td><td>—</td><td>—%</td></tr><tr><td>Total</td><td>$ 653</td><td>$ 1,888</td><td></td><td>$ 504</td><td>$ 1,112</td><td></td></tr></table>

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

## g) Gross unrealized loss

At December 31, 2015, there were 8,542 fixed maturities out of a total of 25,500 fixed maturities in an unrealized loss position. The largest single unrealized loss in the fixed maturities was $5 million. There were 90 equity securities out of a total of 250 equity securities in an unrealized loss position. The largest single unrealized loss in the equity securities was $2 million. Fixed maturities in an unrealized loss position at December 31, 2015, comprised both investment grade and below investment grade securities for which fair value declined primarily due to widening credit spreads since the date of purchase.

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

<table><tr><td rowspan="2">December 31, 2015(in millions of U.S. dollars)</td><td colspan="2">Fair Value</td><td colspan="2">Gross Unrealized Loss</td><td colspan="2">Fair Value</td><td colspan="2">Gross Unrealized Loss</td><td>Fair Value</td><td colspan="2">Gross Unrealized Loss</td></tr><tr><td>$</td><td>996</td><td>$</td><td>(5)</td><td>$</td><td>153</td><td>$</td><td>(1)</td><td>$</td><td>1,149</td><td>$</td></tr><tr><td>U.S. Treasury and agency</td><td>$</td><td>996</td><td>$</td><td>(148)</td><td>$</td><td>436</td><td></td><td>(73)</td><td></td><td>4,389</td><td></td></tr><tr><td>Foreign</td><td></td><td>3,953</td><td></td><td>(141)</td><td></td><td>738</td><td></td><td>(138)</td><td></td><td>8,256</td><td></td></tr><tr><td>Corporate securities</td><td></td><td>7,518</td><td></td><td>(371)</td><td></td><td>716</td><td></td><td>(12)</td><td></td><td>3,915</td><td></td></tr><tr><td>Mortgage-backed securities</td><td></td><td>3,399</td><td></td><td>(42)</td><td></td><td>516</td><td></td><td>(2)</td><td></td><td>598</td><td></td></tr><tr><td>States, municipalities, and political subdivisions</td><td></td><td>556</td><td></td><td>(6)</td><td></td><td>42</td><td></td><td>(2)</td><td></td><td></td><td>(8)</td></tr><tr><td>Total fixed maturities</td><td></td><td>16,422</td><td></td><td>(572)</td><td></td><td>1,885</td><td></td><td>(226)</td><td></td><td>18,307</td><td></td></tr><tr><td>Equity securities</td><td></td><td>131</td><td></td><td>(18)</td><td></td><td>—</td><td></td><td>—</td><td></td><td>131</td><td></td></tr><tr><td>Other investments</td><td></td><td>210</td><td></td><td>(11)</td><td></td><td>—</td><td></td><td>—</td><td></td><td>210</td><td></td></tr><tr><td>Total</td><td>$</td><td>16,763</td><td>$</td><td>(601)</td><td>$</td><td>1,885</td><td>$</td><td>(226)</td><td>$</td><td>18,648</td><td>$</td></tr></table>



## NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries

<table><tr><td rowspan="2">December 31, 2014(in millions of U.S. dollars)</td><td colspan="4">0 - 12 Months</td><td colspan="4">Over 12 Months</td><td colspan="2">Total</td></tr><tr><td colspan="2">Fair Value</td><td colspan="2">Gross Unrealized Loss</td><td colspan="2">Fair Value</td><td colspan="2">Gross Unrealized Loss</td><td>Fair Value</td><td>Gross Unrealized Loss</td></tr><tr><td>U.S. Treasury and agency</td><td>$ 350</td><td>$ (1)</td><td>$ 666</td><td>$ (9)</td><td>$ 1,016</td><td>$ (10)</td><td></td><td></td><td></td><td></td></tr><tr><td>Foreign</td><td>2,262</td><td>(75)</td><td>375</td><td>(15)</td><td>2,637</td><td>(90)</td><td></td><td></td><td></td><td></td></tr><tr><td>Corporate securities</td><td>4,684</td><td>(150)</td><td>738</td><td>(22)</td><td>5,422</td><td>(172)</td><td></td><td></td><td></td><td></td></tr><tr><td>Mortgage-backed securities</td><td>704</td><td>(2)</td><td>1,663</td><td>(28)</td><td>2,367</td><td>(30)</td><td></td><td></td><td></td><td></td></tr><tr><td>States, municipalities, and political subdivisions</td><td>458</td><td>(3)</td><td>490</td><td>(5)</td><td>948</td><td>(8)</td><td></td><td></td><td></td><td></td></tr><tr><td>Total fixed maturities</td><td>8,458</td><td>(231)</td><td>3,932</td><td>(79)</td><td>12,390</td><td>(310)</td><td></td><td></td><td></td><td></td></tr><tr><td>Equity securities</td><td>101</td><td>(13)</td><td>—</td><td>—</td><td>101</td><td>(13)</td><td></td><td></td><td></td><td></td></tr><tr><td>Total</td><td>$ 8,559</td><td>$ (244)</td><td>$ 3,932</td><td>$ (79)</td><td>$ 12,491</td><td>$ (323)</td><td></td><td></td><td></td><td></td></tr></table>

## h) Net investment income

<table><tr><td rowspan="2">(in millions of U.S. dollars)</td><td colspan="4">Year Ended December 31</td></tr><tr><td>2015</td><td>2014</td><td>2013</td><td></td></tr><tr><td>Fixed maturities</td><td>$ 2,157</td><td>$ 2,199</td><td>$ 2,093</td><td></td></tr><tr><td>Short-term investments</td><td>49</td><td>45</td><td>29</td><td></td></tr><tr><td>Equity securities</td><td>16</td><td>33</td><td>37</td><td></td></tr><tr><td>Other</td><td>86</td><td>94</td><td>105</td><td></td></tr><tr><td>Gross investment income</td><td>2,308</td><td>2,371</td><td>2,264</td><td></td></tr><tr><td>Investment expenses</td><td>(114)</td><td>(119)</td><td>(120)</td><td></td></tr><tr><td>Net investment income</td><td>$ 2,194</td><td>$ 2,252</td><td>$ 2,144</td><td></td></tr></table>

## i) Restricted assets

Chubb is required to maintain assets on deposit with various regulatory authorities to support its insurance and reinsurance operations. These requirements are generally promulgated in the statutory regulations of the individual jurisdictions. The assets on deposit are available to settle insurance and reinsurance liabilities. Chubb is also required to restrict assets pledged under repurchase agreements. We also use trust funds in certain large reinsurance transactions where the trust funds are set up for the benefit of the ceding companies and generally take the place of letter of credit (LOC) requirements. We also have investments in segregated portfolios primarily to provide collateral or guarantees for LOC and derivative transactions. Included in restricted assets at December 31, 2015 and 2014, are investments, primarily fixed maturities, totaling $16.9 billion and $16.3 billion, and cash of $110 million and $117 million, respectively.

The following table presents the components of restricted assets:

<table><tr><td rowspan="2">(in millions of U.S. dollars)</td><td colspan="2">December 31</td><td colspan="2">December 31</td></tr><tr><td colspan="2">2015</td><td colspan="2">2014</td></tr><tr><td>Trust funds</td><td>$ 11,862</td><td>$ 10,838</td><td></td><td></td></tr><tr><td>Deposits with non-U.S. regulatory authorities</td><td>2,075</td><td>2,305</td><td></td><td></td></tr><tr><td>Assets pledged under repurchase agreements</td><td>1,459</td><td>1,431</td><td></td><td></td></tr><tr><td>Deposits with U.S. regulatory authorities</td><td>1,242</td><td>1,345</td><td></td><td></td></tr><tr><td>Other pledged assets</td><td>392</td><td>457</td><td></td><td></td></tr><tr><td></td><td>$ 17,030</td><td>$ 16,376</td><td></td><td></td></tr></table>



## 4. Fair value measurements

In 2015, we retrospectively adopted new accounting guidance that no longer requires investments measured at fair value using NAV to be categorized within the fair value hierarchy. Therefore, we no longer include our investments in partially-owned investment companies, investment funds, and limited partnerships within the fair value hierarchy and the Level 3 rollforward tables disclosed below. Prior year amounts within the fair value hierarchy disclosures contained in this section have been revised to conform to the current year presentation.

## a) Fair value hierarchy

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

The three levels of the hierarchy are as follows:

• Level 1 – Unadjusted quoted prices for identical assets or liabilities in active markets;

- Level 2 – Includes, among other items, inputs other than quoted prices that are observable for the asset or liability such as interest rates and yield curves, quoted prices for similar assets and liabilities in active markets, and quoted prices for identical or similar assets and liabilities in markets that are not active; and

- Level 3 – Inputs that are unobservable and reflect management’s judgments about assumptions that market participants would use in pricing an asset or liability.

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

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

## Fixed maturities

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



## Equity securities

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

## Short-term investments

Short-term investments, which comprise securities due to mature within one year of the date of purchase that are traded in active markets, are classified within Level 1 as fair values are based on quoted market prices. Securities such as commercial paper and discount notes are classified within Level 2 because these securities are typically not actively traded due to their approaching maturity and, as such, their cost approximates fair value. Short-term investments for which pricing is unobservable are classified within Level 3.

## Other investments

Fair values for the majority of Other investments including investments in partially-owned investment companies, investment funds, and limited partnerships are based on their respective net asset values or equivalent (NAV) and are excluded from the fair value hierarchy table below. Certain of our long-duration contracts are supported by assets that do not qualify for separate account reporting under GAAP. These assets comprise mutual funds classified within Level 1 in the valuation hierarchy on the same basis as other equity securities traded in active markets. Other investments also include equity securities classified within Level 1, and fixed maturities, classified within Level 2, held in rabbi trusts maintained by Chubb for deferred compensation plans, and are classified within the valuation hierarchy on the same basis as other equity securities and fixed maturities. Other investments for which pricing is unobservable are classified within Level 3.

## Securities lending collateral

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

## Investment derivative instruments

Actively traded investment derivative instruments, including futures, options, and forward contracts are classified within Level 1 as fair values are based on quoted market prices. The fair value of cross-currency swaps are based on market valuations and are classified within Level 2. Investment derivative instruments are recorded in either Other assets or Accounts payable, accrued expenses, and other liabilities in the consolidated balance sheets.

## Other derivative instruments

We generally maintain positions in other derivative instruments including exchange-traded equity futures contracts and option contracts designed to limit exposure to a severe equity market decline, which would cause an increase in expected claims and, therefore, an increase in reserves for our guaranteed minimum death benefits (GMDB) and guaranteed living benefits (GLB) reinsurance business. Our position in exchange-traded equity futures contracts is classified within Level 1. At December 31, 2015 we held no positions in option contracts on equity market indices. The fair value of the majority of the remaining positions in other derivative instruments is based on significant observable inputs including equity security and interest rate indices. Accordingly, these are classified within Level 2. Other derivative instruments based on unobservable inputs are classified within Level 3. Other derivative instruments are recorded in either Other assets or Accounts payable, accrued expenses, and other liabilities in the consolidated balance sheets.

## Separate account assets

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



## Guaranteed living benefits

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

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

A lapse rate is the percentage of in-force policies surrendered in a given calendar year. All else equal, as lapse rates increase, ultimate claim payments will decrease. In general, the base lapse function assumes low lapse rates (ranging from about 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 10 percent to 75 percent. Partial withdrawals and the impact of older policyholders with tax-qualified contracts (due to required minimum distributions) are also reflected in our modeling.

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

The level of annuitization assumptions at December 31, 2015 are as follows:

<table><tr><td rowspan="2">% of total GMIB guaranteed value</td><td rowspan="2">Year of GMIB eligibility</td><td colspan="2">Maximum annuitization rate(s) (per year)</td><td rowspan="2">Maximum annuitization rates based on</td></tr><tr><td>First year</td><td>7% - 55%</td></tr><tr><td rowspan="2">68%</td><td>Subsequent years</td><td>5% - 27%</td><td></td><td>Actual Experience</td></tr><tr><td colspan="2">First year</td><td>18%</td><td>Actual Experience</td></tr><tr><td rowspan="2">4%</td><td>Subsequent years</td><td>5%, 10%, 27%</td><td></td><td>Weighted average \( ^{(1)} \)</td></tr><tr><td colspan="2">First year</td><td>7%, 15%, 55%</td><td>Weighted average \( ^{(1)} \)</td></tr><tr><td rowspan="2">28%</td><td>Subsequent years</td><td>5%, 10%, 27%</td><td></td><td>Weighted average \( ^{(1)} \)</td></tr></table>

(1) Weighted average of three different annuitization rates (with heavier weighting on credible experience from other clients when own experience is less credible)

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



In the fourth quarter of 2015, we completed a review of policyholder behavior related to partial withdrawals and updated our review of policyholder lapse and annuitization behavior by treaty for our variable annuity reinsurance business. Reinsured policies allow for policyholders to make periodic withdrawals from their account values without lapsing the policy. The partial withdrawal results in a reduction to the associated guaranteed value that is either equal or proportional to the amount of the reduction in account value. Based on our review of emerging behavior, we refined our assumptions around the types of partial withdrawals according to their impact on guaranteed value. This resulted in an increase to the fair value of GLB liabilities generating a realized loss of approximately $110 million. As lapse experience continued to emerge, we were able to expand our analysis and further refine our assumptions which resulted in a net increase to the fair value of GLB liabilities generating a realized loss of approximately $10 million. Because of a greater degree of reported experience related to behavior in years subsequent to the first year of annuitization eligibility, we also made several changes to our annuitization assumptions, which generally lowered the annuitization rate for most clients, while raising it for one client. The change in annuitization assumptions decreased the fair value of GLB liabilities and generated a realized gain of approximately $80 million. We will continue to monitor actual policyholder behavior (lapse, partial withdrawal, and annuitization) against our assumptions and make adjustments as appropriate in the period we receive and analyze this data. Also, during the fourth quarter of 2015, we refined certain assumptions around policyholder annuity type selection based on claim experience. This refinement decreased the fair value of GLB liabilities and generated a realized gain of approximately $45 million.

During each of the years ended December 31, 2015, 2014, and 2013, we made minor technical refinements to the internal valuation model which resulted in no material impact on the financial statements.

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

<table><tr><td colspan="6">December 31, 2015</td></tr><tr><td>(in millions of U.S. dollars)</td><td>Level 1</td><td>Level 2</td><td>Level 3</td><td>Total</td><td></td></tr><tr><td>Assets:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Fixed maturities available for sale</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>U.S. Treasury and agency</td><td>$ 1,712</td><td>$ 816</td><td>$ —</td><td>$ 2,528</td><td></td></tr><tr><td>Foreign</td><td>—</td><td>13,388</td><td>57</td><td>13,445</td><td></td></tr><tr><td>Corporate securities</td><td>—</td><td>14,755</td><td>174</td><td>14,929</td><td></td></tr><tr><td>Mortgage-backed securities</td><td>—</td><td>9,905</td><td>53</td><td>9,958</td><td></td></tr><tr><td>States, municipalities, and political subdivisions</td><td>—</td><td>2,727</td><td>—</td><td>2,727</td><td></td></tr><tr><td></td><td>1,712</td><td>41,591</td><td>284</td><td>43,587</td><td></td></tr><tr><td>Equity securities</td><td>481</td><td>—</td><td>16</td><td>497</td><td></td></tr><tr><td>Short-term investments</td><td>7,171</td><td>3,275</td><td>—</td><td>10,446</td><td></td></tr><tr><td>Other investments \( ^{(1)} \)</td><td>347</td><td>230</td><td>212</td><td>789</td><td></td></tr><tr><td>Securities lending collateral</td><td>—</td><td>1,046</td><td>—</td><td>1,046</td><td></td></tr><tr><td>Investment derivative instruments</td><td>12</td><td>—</td><td>—</td><td>12</td><td></td></tr><tr><td>Separate account assets</td><td>1,464</td><td>88</td><td>—</td><td>1,552</td><td></td></tr><tr><td>Total assets measured at fair value \( ^{(1)} \)</td><td>$ 11,187</td><td>$ 46,230</td><td>$ 512</td><td>$ 57,929</td><td></td></tr><tr><td>Liabilities:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Investment derivative instruments</td><td>$ 13</td><td>$ —</td><td>$ —</td><td>$ 13</td><td></td></tr><tr><td>Other derivative instruments</td><td>4</td><td>—</td><td>6</td><td>10</td><td></td></tr><tr><td>GLB \( ^{(2)} \)</td><td>—</td><td>—</td><td>609</td><td>609</td><td></td></tr><tr><td>Total liabilities measured at fair value</td><td>$ 17</td><td>$ —</td><td>$ 615</td><td>$ 632</td><td></td></tr></table>

(1) Excluded from the table above are partially-owned investments, investment funds, and limited partnerships of $2,477 million and other investments of $25 million at December 31, 2015 measured using NAV. Based on new accounting guidance adopted in 2015, these investments are excluded from the hierarchy table.

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



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

<table><tr><td colspan="6">December 31, 2014</td></tr><tr><td>(in millions of U.S. dollars)</td><td>Level 1</td><td>Level 2</td><td>Level 3</td><td>Total</td><td></td></tr><tr><td>Assets:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Fixed maturities available for sale</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>U.S. Treasury and agency</td><td>$ 1,680</td><td>$ 1,140</td><td>$ —</td><td>$ 2,820</td><td></td></tr><tr><td>Foreign</td><td>—</td><td>15,220</td><td>22</td><td>15,242</td><td></td></tr><tr><td>Corporate securities</td><td>—</td><td>17,244</td><td>187</td><td>17,431</td><td></td></tr><tr><td>Mortgage-backed securities</td><td>—</td><td>10,271</td><td>15</td><td>10,286</td><td></td></tr><tr><td>States, municipalities, and political subdivisions</td><td>—</td><td>3,616</td><td>—</td><td>3,616</td><td></td></tr><tr><td></td><td>1,680</td><td>47,491</td><td>224</td><td>49,395</td><td></td></tr><tr><td>Equity securities</td><td>492</td><td>16</td><td>2</td><td>510</td><td></td></tr><tr><td>Short-term investments</td><td>1,183</td><td>1,139</td><td>—</td><td>2,322</td><td></td></tr><tr><td>Other investments \( ^{(1)} \)</td><td>370</td><td>211</td><td>204</td><td>785</td><td></td></tr><tr><td>Securities lending collateral</td><td>—</td><td>1,330</td><td>—</td><td>1,330</td><td></td></tr><tr><td>Investment derivative instruments</td><td>18</td><td>—</td><td>—</td><td>18</td><td></td></tr><tr><td>Other derivative instruments</td><td>—</td><td>2</td><td>—</td><td>2</td><td></td></tr><tr><td>Separate account assets</td><td>1,400</td><td>90</td><td>—</td><td>1,490</td><td></td></tr><tr><td>Total assets measured at fair value \( ^{(1)} \)</td><td>$ 5,143</td><td>$ 50,279</td><td>$ 430</td><td>$ 55,852</td><td></td></tr><tr><td>Liabilities:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Investment derivative instruments</td><td>$ 36</td><td>—</td><td>—</td><td>$ 36</td><td></td></tr><tr><td>Other derivative instruments</td><td>21</td><td>—</td><td>4</td><td>25</td><td></td></tr><tr><td>GLB \( ^{(2)} \)</td><td>—</td><td>—</td><td>406</td><td>406</td><td></td></tr><tr><td>Total liabilities measured at fair value</td><td>$ 57</td><td>—</td><td>$ 410</td><td>$ 467</td><td></td></tr></table>

(1) Excluded from the table above are partially-owned investments, investment funds, and limited partnerships of $2,561 million at December 31, 2014 measured using NAV. Based on new accounting guidance adopted in 2015, these investments are excluded from the hierarchy table.

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

The following table presents transfers of financial instruments between Level 1 and Level 2:

<table><tr><td rowspan="2">(in millions of U.S. dollars)</td><td colspan="4">Year Ended December 31</td></tr><tr><td>2015</td><td>2014</td><td>2013</td><td></td></tr><tr><td>Transfers from Level 1 to Level 2</td><td>$ —</td><td>$ 189</td><td>$ 19</td><td></td></tr><tr><td>Transfers from Level 2 to Level 1</td><td>$ —</td><td>$ —</td><td>$ —</td><td></td></tr></table>



## Fair value of alternative investments

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

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

<table><tr><td rowspan="2">(in millions of U.S. dollars)</td><td rowspan="2">Expected Liquidation Period of Underlying Assets</td><td colspan="3">December 31</td><td colspan="3">December 31</td></tr><tr><td>Fair Value</td><td colspan="2">Maximum Future Funding Commitments</td><td>Fair Value</td><td colspan="2">Maximum Future Funding Commitments</td></tr><tr><td>Financial</td><td>5 to 9 Years</td><td>300</td><td>105</td><td>282</td><td>$</td><td>145</td><td></td></tr><tr><td>Real Assets</td><td>3 to 7 Years</td><td>474</td><td>140</td><td>451</td><td></td><td>210</td><td></td></tr><tr><td>Distressed</td><td>5 to 9 Years</td><td>261</td><td>218</td><td>232</td><td></td><td>175</td><td></td></tr><tr><td>Private Credit</td><td>3 to 7 Years</td><td>265</td><td>209</td><td>299</td><td></td><td>190</td><td></td></tr><tr><td>Traditional</td><td>3 to 9 Years</td><td>895</td><td>152</td><td>895</td><td></td><td>285</td><td></td></tr><tr><td>Vintage</td><td>1 to 2 Years</td><td>13</td><td>—</td><td>24</td><td></td><td>5</td><td></td></tr><tr><td>Investment funds</td><td>Not Applicable</td><td>269</td><td>—</td><td>378</td><td></td><td>—</td><td></td></tr><tr><td></td><td></td><td>$ 2,477</td><td>$ 824</td><td>$ 2,561</td><td>$</td><td>1,010</td><td></td></tr></table>

In 2015, we redefined and regrouped certain alternative investment categories to better align with our management approach. The prior year amounts have been reclassified to conform to the current year presentation. Included in all categories in the above table except for Investment funds are investments for which Chubb will never have the contractual option to redeem but receives distributions based on the liquidation of the underlying assets. Further, for all categories except for Investment funds, Chubb does not have the ability to sell or transfer the investments without the consent from the general partner of individual funds.

<table><tr><td>Investment Category</td><td>Consists of investments in private equity funds:</td></tr><tr><td>Financial</td><td>targeting financial services companies such as financial institutions and insurance services worldwide</td></tr><tr><td>Real Assets</td><td>targeting investments related to hard physical assets such as real estate, infrastructure and natural resources</td></tr><tr><td>Distressed</td><td>targeting distressed corporate debt/credit and equity opportunities in the U.S.</td></tr><tr><td>Private Credit</td><td>targeting privately originated corporate debt investments including senior secured loans and subordinated bonds</td></tr><tr><td>Traditional</td><td>employing traditional private equity investment strategies such as buyout and growth equity globally</td></tr><tr><td>Vintage</td><td>made before 2002 and where the funds’ commitment periods had already expired</td></tr></table>

## Investment funds

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



## Level 3 financial instruments

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

The following table presents the significant unobservable inputs used in the Level 3 liability valuations. Excluded from the table below are inputs used to determine the fair value of Level 3 assets which are based on single broker quotes and contain no quantitative unobservable inputs developed by management.

<table><tr><td>(in millions of U.S. dollars, except for percentages)</td><td>Fair Value at December 31, 2015</td><td>Valuation Technique</td><td>Significant Unobservable Inputs</td><td>Ranges</td></tr><tr><td>GLB \( ^{(1)} \)</td><td>$ 609</td><td>Actuarial model</td><td>Lapse rate</td><td>1% - 30%</td></tr><tr><td></td><td></td><td></td><td>Annuitization rate</td><td>0% - 55%</td></tr></table>

(1) Discussion of the most significant inputs used in the fair value measurement of GLB and the sensitivity of those assumptions is included within Note 4 a) Guaranteed living benefits.

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

<table><tr><td rowspan="2"></td><td colspan="9">Assets</td><td rowspan="2">Liabilities</td></tr><tr><td colspan="6">Available-for-Sale Debt Securities</td><td colspan="3">Other derivative instruments</td></tr><tr><td>Year Ended December 31, 2015 (in millions of U.S. dollars)</td><td>Foreign</td><td>Corporate securities</td><td>MBS</td><td>Equity securities</td><td>Other investments</td><td></td><td></td><td></td><td>GLB \( ^{(1)} \)</td></tr><tr><td>Balance, beginning of year</td><td>$ 22</td><td>$ 187</td><td>$ 15</td><td>$ 2</td><td>$ 204</td><td>$ 4</td><td>$ 406</td><td></td><td></td><td></td></tr><tr><td>Transfers into Level 3</td><td>34</td><td>16</td><td>—</td><td>—</td><td>—</td><td></td><td>—</td><td></td><td></td><td></td></tr><tr><td>Change in Net Unrealized Gains (Losses) included in OCI</td><td>(2)</td><td>(1)</td><td>—</td><td>3</td><td>(6)</td><td></td><td>—</td><td></td><td></td><td></td></tr><tr><td>Net Realized Gains/Losses</td><td>(1)</td><td>(4)</td><td>—</td><td>(2)</td><td>—</td><td></td><td>2</td><td></td><td>203</td><td></td></tr><tr><td>Purchases</td><td>15</td><td>52</td><td>41</td><td>13</td><td>33</td><td></td><td>—</td><td></td><td>—</td><td></td></tr><tr><td>Sales</td><td>(3)</td><td>(28)</td><td>(2)</td><td>—</td><td>—</td><td></td><td>—</td><td></td><td>—</td><td></td></tr><tr><td>Settlements</td><td>(8)</td><td>(48)</td><td>(1)</td><td>—</td><td>(19)</td><td></td><td>—</td><td></td><td>—</td><td></td></tr><tr><td>Balance, end of year</td><td>$ 57</td><td>$ 174</td><td>$ 53</td><td>$ 16</td><td>$ 212</td><td>$ 6</td><td>$ 609</td><td></td><td></td><td></td></tr><tr><td>Net Realized Gains/Losses Attributable to Changes in Fair Value at the Balance Sheet Date</td><td>$ (1)</td><td>$ (2)</td><td>$ —</td><td>$ (2)</td><td>$ —</td><td>$ 2</td><td>$ 203</td><td></td><td></td><td></td></tr></table>

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



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

<table><tr><td rowspan="2"></td><td colspan="12">Assets</td></tr><tr><td colspan="6">Available-for-Sale Debt Securities</td><td colspan="6">Liabilities</td></tr><tr><td>Year ended December 31, 2014 (in millions of U.S. dollars)</td><td>Foreign</td><td>Corporate securities</td><td>MBS</td><td>Equity securities</td><td>Short-term investments</td><td>Other investments</td><td>Other derivative instruments</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Balance, beginning of year</td><td>$ 44</td><td>$ 166</td><td>$ 8</td><td>$ 4</td><td>$ 7</td><td>$ 196</td><td>$ —</td><td>$ 193</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Transfers into Level 3</td><td>10</td><td>37</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>2</td><td>—</td><td></td><td></td><td></td><td></td></tr><tr><td>Transfers out of Level 3</td><td>(34)</td><td>(23)</td><td>—</td><td>(2)</td><td>(7)</td><td>—</td><td>—</td><td>—</td><td>—</td><td></td><td></td><td></td><td></td></tr><tr><td>Change in Net Unrealized Gains (Losses) included in OCI</td><td>(1)</td><td>(1)</td><td>—</td><td>—</td><td>—</td><td>(1)</td><td>—</td><td>—</td><td>—</td><td></td><td></td><td></td><td></td></tr><tr><td>Net Realized Gains/Losses</td><td>(3)</td><td>(5)</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>2</td><td>213</td><td></td><td></td><td></td><td></td></tr><tr><td>Purchases</td><td>15</td><td>73</td><td>8</td><td>2</td><td>—</td><td>20</td><td>—</td><td>—</td><td>—</td><td></td><td></td><td></td><td></td></tr><tr><td>Sales</td><td>(4)</td><td>(38)</td><td>—</td><td>(2)</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td></td><td></td><td></td><td></td></tr><tr><td>Settlements</td><td>(5)</td><td>(22)</td><td>(1)</td><td>—</td><td>—</td><td>(11)</td><td>—</td><td>—</td><td>—</td><td></td><td></td><td></td><td></td></tr><tr><td>Balance, end of year</td><td>$ 22</td><td>$ 187</td><td>$ 15</td><td>$ 2</td><td>$ —</td><td>$ 204</td><td>$ 4</td><td>$ 406</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Net Realized Gains/Losses Attributable to Changes in Fair Value at the Balance Sheet Date</td><td>$ (4)</td><td>$ (5)</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$ —</td><td>2</td><td>$ 213</td><td></td><td></td><td></td><td></td></tr></table>

(1) Our GLB reinsurance product meets the definition of a derivative instrument for accounting purposes and is accordingly carried at fair value. Excluded from the table above is the portion of the GLB derivative liability classified as Future policy benefits in the consolidated balance sheets. The liability for GLB reinsurance was $663 million at December 31, 2014 and $427 million at December 31, 2013, which includes a fair value derivative adjustment of $406 million and $193 million, respectively.

<table><tr><td rowspan="2"></td><td colspan="12">Assets</td></tr><tr><td colspan="6">Available-for-Sale Debt Securities</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Year ended December 31, 2013 (in millions of U.S. dollars)</td><td>Foreign</td><td>Corporate securities</td><td>MBS</td><td>Equity securities</td><td>Short term investments</td><td>Other investments</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Balance, beginning of year</td><td>$ 60</td><td>$ 102</td><td>$ 13</td><td>$ 3</td><td>$ —</td><td>$ 180</td><td>$ 1,119</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Transfers into Level 3</td><td>36</td><td>47</td><td>—</td><td>8</td><td>8</td><td>—</td><td>—</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Transfers out of Level 3</td><td>(54)</td><td>(31)</td><td>—</td><td>(1)</td><td>(2)</td><td>—</td><td>—</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Change in Net Unrealized Gains (Losses) included in OCI</td><td>—</td><td>—</td><td>—</td><td>(6)</td><td>—</td><td>(2)</td><td>—</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Net Realized Gains/Losses</td><td>1</td><td>(2)</td><td>—</td><td>4</td><td>—</td><td>—</td><td>(926)</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Purchases</td><td>24</td><td>75</td><td>—</td><td>2</td><td>3</td><td>29</td><td>—</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Sales</td><td>(21)</td><td>(7)</td><td>(3)</td><td>(6)</td><td>(1)</td><td>—</td><td>—</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Settlements</td><td>(2)</td><td>(18)</td><td>(2)</td><td>—</td><td>(1)</td><td>(11)</td><td>—</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Balance, end of year</td><td>$ 44</td><td>$ 166</td><td>$ 8</td><td>$ 4</td><td>$ 7</td><td>$ 196</td><td>$ 193</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Net Realized Gains/Losses Attributable to Changes in Fair Value at the Balance Sheet Date</td><td>$ —</td><td>$ (2)</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$ (926)</td><td></td><td></td><td></td><td></td><td></td></tr></table>

(1) Our GLB reinsurance product meets the definition of a derivative instrument for accounting purposes and is accordingly carried at fair value. Excluded from the table above is the portion of the GLB derivative liability classified as Future policy benefits in the consolidated balance sheets. The liability for GLB reinsurance was $427 million at December 31, 2013 and $1.4 billion at December 31, 2012, which includes a fair value derivative adjustment of $193 million and $1.1 billion, respectively.



## b) Financial instruments disclosed, but not measured, at fair value

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

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

## Investments in partially-owned insurance companies

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

## Short- and long-term debt, repurchase agreements and trust preferred securities

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

The following tables present fair value, by valuation hierarchy, and carrying value of the financial instruments not measured at fair value:

<table><tr><td rowspan="2">December 31, 2015(in millions of U.S. dollars)</td><td colspan="6">Fair Value</td></tr><tr><td>Level 1</td><td>Level 2</td><td>Level 3</td><td>Total</td><td>Carrying Value</td><td></td></tr><tr><td>Assets:</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Fixed maturities held to maturity</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>U.S. Treasury and agency</td><td>$ 583</td><td>$ 162</td><td>$ —</td><td>$ 745</td><td>$ 733</td><td></td></tr><tr><td>Foreign</td><td>—</td><td>785</td><td>—</td><td>785</td><td>763</td><td></td></tr><tr><td>Corporate securities</td><td>—</td><td>3,042</td><td>14</td><td>3,056</td><td>3,054</td><td></td></tr><tr><td>Mortgage-backed securities</td><td>—</td><td>1,743</td><td>—</td><td>1,743</td><td>1,707</td><td></td></tr><tr><td>States, municipalities, and political subdivisions</td><td>—</td><td>2,223</td><td>—</td><td>2,223</td><td>2,173</td><td></td></tr><tr><td>Total assets</td><td>$ 583</td><td>$ 7,955</td><td>$ 14</td><td>$ 8,552</td><td>$ 8,430</td><td></td></tr><tr><td>Liabilities:</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Repurchase agreements</td><td>$ —</td><td>$ 1,404</td><td>$ —</td><td>$ 1,404</td><td>$ 1,404</td><td></td></tr><tr><td>Long-term debt</td><td>—</td><td>9,678</td><td>—</td><td>9,678</td><td>9,447</td><td></td></tr><tr><td>Trust preferred securities</td><td>—</td><td>446</td><td>—</td><td>446</td><td>309</td><td></td></tr><tr><td>Total liabilities</td><td>$ —</td><td>$ 11,528</td><td>$ —</td><td>$ 11,528</td><td>$ 11,160</td><td></td></tr></table>



<table><tr><td>December 31, 2014</td><td></td><td></td><td></td><td colspan="3">Fair Value</td><td rowspan="2">Carrying Value</td></tr><tr><td>(in millions of U.S. dollars)</td><td>Level 1</td><td>Level 2</td><td>Level 3</td><td>Total</td><td></td><td></td></tr><tr><td>Assets:</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Fixed maturities held to maturity</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>U.S. Treasury and agency</td><td>$ 659</td><td>$ 191</td><td>$ —</td><td>$ 850</td><td>$ 832</td><td></td><td></td></tr><tr><td>Foreign</td><td>—</td><td>963</td><td>—</td><td>963</td><td>916</td><td></td><td></td></tr><tr><td>Corporate securities</td><td>—</td><td>2,408</td><td>15</td><td>2,423</td><td>2,323</td><td></td><td></td></tr><tr><td>Mortgage-backed securities</td><td>—</td><td>2,039</td><td>—</td><td>2,039</td><td>1,983</td><td></td><td></td></tr><tr><td>States, municipalities, and political subdivisions</td><td>—</td><td>1,314</td><td>—</td><td>1,314</td><td>1,277</td><td></td><td></td></tr><tr><td>Total assets</td><td>$ 659</td><td>$ 6,915</td><td>$ 15</td><td>$ 7,589</td><td>$ 7,331</td><td></td><td></td></tr><tr><td>Liabilities:</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Repurchase Agreements</td><td>$ —</td><td>$ 1,402</td><td>$ —</td><td>$ 1,402</td><td>$ 1,402</td><td></td><td></td></tr><tr><td>Short-term debt</td><td>—</td><td>1,169</td><td>—</td><td>1,169</td><td>1,150</td><td></td><td></td></tr><tr><td>Long-term debt</td><td>—</td><td>3,690</td><td>—</td><td>3,690</td><td>3,357</td><td></td><td></td></tr><tr><td>Trust preferred securities</td><td>—</td><td>462</td><td>—</td><td>462</td><td>309</td><td></td><td></td></tr><tr><td>Total liabilities</td><td>$ —</td><td>$ 6,723</td><td>$ —</td><td>$ 6,723</td><td>$ 6,218</td><td></td><td></td></tr></table>

## 5. Reinsurance

## a) Consolidated reinsurance

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

<table><tr><td rowspan="2">(in millions of U.S. dollars)</td><td colspan="4">Years Ended December 31</td></tr><tr><td>2015</td><td>2014</td><td>2013</td><td></td></tr><tr><td>Premiums written</td><td></td><td></td><td></td><td></td></tr><tr><td>Direct</td><td>$ 19,879</td><td>$ 20,069</td><td>$ 19,212</td><td></td></tr><tr><td>Assumed</td><td>3,932</td><td>3,321</td><td>3,616</td><td></td></tr><tr><td>Ceded</td><td>(6,098)</td><td>(5,591)</td><td>(5,803)</td><td></td></tr><tr><td>Net</td><td>$ 17,713</td><td>$ 17,799</td><td>$ 17,025</td><td></td></tr><tr><td>Premiums earned</td><td></td><td></td><td></td><td></td></tr><tr><td>Direct</td><td>$ 19,355</td><td>$ 19,555</td><td>$ 18,856</td><td></td></tr><tr><td>Assumed</td><td>3,676</td><td>3,336</td><td>3,479</td><td></td></tr><tr><td>Ceded</td><td>(5,818)</td><td>(5,465)</td><td>(5,722)</td><td></td></tr><tr><td>Net</td><td>$ 17,213</td><td>$ 17,426</td><td>$ 16,613</td><td></td></tr></table>

For each of the years ended December 31, 2015, 2014, and 2013, reinsurance recoveries on losses and loss expenses incurred were $3.1 billion.



## NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries

## b) Reinsurance recoverable on ceded reinsurance

<table><tr><td></td><td>December 31</td><td>December 31</td></tr><tr><td>(in millions of U.S. dollars)</td><td>2015</td><td>2014</td></tr><tr><td>Reinsurance recoverable on unpaid losses and loss expenses \( ^{(1)} \)</td><td>10,741</td><td>11,307</td></tr><tr><td>Reinsurance recoverable on paid losses and loss expenses \( ^{(1)} \)</td><td>645</td><td>685</td></tr><tr><td>Net reinsurance recoverable on losses and loss expenses</td><td>11,386</td><td>11,992</td></tr></table>

(1) Net of a provision for uncollectible reinsurance.

We evaluate the financial condition of our reinsurers and potential reinsurers on a regular basis and also monitor concentrations of credit risk with reinsurers. The provision for uncollectible reinsurance is required principally due to the potential failure of reinsurers to indemnify Chubb, primarily because of disputes under reinsurance contracts and insolvencies. We have established provisions for amounts estimated to be uncollectible. At December 31, 2015 and 2014, we recorded a provision for uncollectible reinsurance of $328 million and $357 million, respectively.

The following tables present a listing, at December 31, 2015, of the categories of Chubb's reinsurers.

<table><tr><td>December 31, 2015</td><td colspan="2">Gross Reinsurance Recoverable on Loss and Loss Expenses</td><td>Provision for Uncollectible Reinsurance</td><td>% of Gross Reinsurance Recoverable</td></tr><tr><td>(in millions of U.S. dollars, except for percentages)</td><td></td><td></td><td></td><td></td></tr><tr><td>Categories</td><td></td><td></td><td></td><td></td></tr><tr><td>Largest reinsurers</td><td>$     5,335</td><td>$     69</td><td></td><td>1.3%</td></tr><tr><td>Other reinsurers rated A- or better</td><td>3,078</td><td>44</td><td></td><td>1.4%</td></tr><tr><td>Other reinsurers with ratings lower than A- or not rated</td><td>378</td><td>68</td><td></td><td>18.0%</td></tr><tr><td>Pools</td><td>347</td><td>14</td><td></td><td>4.0%</td></tr><tr><td>Structured settlements</td><td>546</td><td>10</td><td></td><td>1.8%</td></tr><tr><td>Captives</td><td>1,786</td><td>23</td><td></td><td>1.3%</td></tr><tr><td>Other</td><td>244</td><td>100</td><td></td><td>41.0%</td></tr><tr><td>Total</td><td>$     11,714</td><td>$     328</td><td></td><td>2.8%</td></tr></table>

## Largest Reinsurers

Alleghany Corp

Atlantic Indemnity

Berkshire Hathaway Insurance Group
HDI Group (Hannover Re)

IRB Brasil Resseguros S.A. Group

Lloyds of London

Munich Re Group

Partner Re Group

Swiss Re Group



## NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries

<table><tr><td>Categories of Chubb&#x27;s reinsurers</td><td>Comprises:</td></tr><tr><td>Largest reinsurers</td><td>·All groups of reinsurers or captives where the gross recoverable exceeds one percent of Chubb&#x27;s total shareholders&#x27; equity.</td></tr><tr><td>Other reinsurers rated A- or better</td><td>·All reinsurers rated A- or better that were not included in the largest reinsurer category.</td></tr><tr><td>Other reinsurers rated lower than A- or not rated</td><td>·All reinsurers rated lower than A- or not rated that were not included in the largest reinsurer category.</td></tr><tr><td>Pools</td><td>·Related to Chubb&#x27;s voluntary pool participation and Chubb&#x27;s mandatory pool participation required by law in certain states.</td></tr><tr><td>Structured settlements</td><td>·Annuities purchased from life insurance companies to settle claims. Since we retain ultimate liability in the event that the life company fails to pay, we reflect the amounts as both a liability and a recoverable/receivable for GAAP purposes.</td></tr><tr><td>Captives</td><td>·Companies established and owned by our insurance clients to assume a significant portion of their direct insurance risk from Chubb; structured to allow clients to self-insure a portion of their reinsurance risk. It generally is our policy to obtain collateral equal to expected losses. Where appropriate, exceptions are granted but only with review and approval at a senior officer level. Excludes captives included in the largest reinsurer category.</td></tr><tr><td>Other</td><td>·Recoverables that are in dispute or are from companies that are in supervision, rehabilitation, or liquidation.</td></tr></table>

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

c) Assumed life reinsurance programs involving minimum benefit guarantees under variable annuity contracts
The following table presents income and expenses relating to GMDB and GLB reinsurance. GLBs include GMIBs as well as some GMABs originating in Japan.

<table><tr><td rowspan="2">(in millions of U.S. dollars)</td><td colspan="4">Year Ended December 31</td></tr><tr><td>2015</td><td>2014</td><td>2013</td><td></td></tr><tr><td>GMDB</td><td></td><td></td><td></td><td></td></tr><tr><td>Net premiums earned</td><td>$ 61</td><td>$ 71</td><td>$ 77</td><td></td></tr><tr><td>Policy benefits and other reserve adjustments</td><td>$ 34</td><td>$ 50</td><td>$ 73</td><td></td></tr><tr><td>GLB</td><td></td><td></td><td></td><td></td></tr><tr><td>Net premiums earned</td><td>$ 121</td><td>$ 138</td><td>$ 149</td><td></td></tr><tr><td>Policy benefits and other reserve adjustments</td><td>45</td><td>36</td><td>27</td><td></td></tr><tr><td>Net realized gains (losses)</td><td>(203)</td><td>(213)</td><td>929</td><td></td></tr><tr><td>Gain (loss) recognized in Net income</td><td>$ (127)</td><td>$ (111)</td><td>$ 1,051</td><td></td></tr><tr><td>Net cash received</td><td>$ 98</td><td>$ 125</td><td>$ 126</td><td></td></tr><tr><td>Net (increase) decrease in liability</td><td>$ (225)</td><td>$ (236)</td><td>$ 925</td><td></td></tr></table>

Net realized gains (losses) in the table above include gains (losses) related to foreign exchange and fair value adjustments on insurance derivatives and exclude gains (losses) on S&P put options and futures used to partially offset the risk in the GLB reinsurance portfolio. Refer to Note 10 for additional information.

At December 31, 2015 and 2014, the reported liability for GMDB reinsurance was $117 million and $111 million, respectively. At December 31, 2015 and 2014, the reported liability for GLB reinsurance was $888 million and $663 million, respectively, which includes a fair value derivative adjustment of $609 million and $406 million, respectively. Reported liabilities for both GMDB and GLB reinsurance are determined using internal valuation models. Such valuations require



## NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries

considerable judgment and are subject to significant uncertainty. The valuation of these products is subject to fluctuations arising from, among other factors, changes in interest rates, changes in equity markets, changes in credit markets, changes in the allocation of the investments underlying annuitants' account values, and assumptions regarding future policyholder behavior. These models and the related assumptions are regularly reviewed by management and enhanced, as appropriate, based upon improvements in modeling assumptions and availability of updated information, such as market conditions and demographics of in-force annuities.

## Variable Annuity Net Amount at Risk

The net amount at risk is defined as the present value of future claim payments assuming policy account values and guaranteed values are fixed at the valuation date (December 31, 2015 and 2014, respectively) and reinsurance coverage ends at the earlier of the maturity of the underlying variable annuity policy or the reinsurance treaty. In addition, the following assumptions were used:

<table><tr><td colspan="7">(in millions of U.S. dollars, except for percentages)</td></tr><tr><td></td><td colspan="3">Net amount at risk</td><td>2015</td><td>Future claims discount rate</td><td>Other assumptions</td></tr><tr><td>Reinsurance covering</td><td></td><td>2015</td><td>2014</td><td></td><td></td><td></td></tr><tr><td>GMDB Risk Only</td><td>$</td><td>364</td><td>$</td><td>418</td><td>3.8% - 4.3%</td><td>No lapses or withdrawals</td></tr><tr><td></td><td></td><td></td><td></td><td></td><td></td><td>Mortality according to 100% of the Annuity 2000 mortality table</td></tr><tr><td>GLB Risk Only</td><td>$</td><td>733</td><td>$</td><td>440</td><td>4.5% - 5.0%</td><td>No deaths, lapses or withdrawals</td></tr><tr><td></td><td></td><td></td><td></td><td></td><td></td><td>Annuitization at a frequency most disadvantageous to Chubb \( ^{2)} \)</td></tr><tr><td></td><td></td><td></td><td></td><td></td><td></td><td>Claim calculated using interest rates in line with rates used to calculate reserve</td></tr><tr><td>Both Risks:  \( {}^{(3)} \)</td><td>GMDB</td><td>$</td><td>89</td><td>$</td><td>76</td><td>4.5% - 5.0%</td></tr><tr><td></td><td></td><td></td><td></td><td></td><td></td><td>Mortality according to 100% of the Annuity 2000 mortality table</td></tr><tr><td></td><td>GLB</td><td>$</td><td>422</td><td>$</td><td>235</td><td>4.5% - 5.0%</td></tr><tr><td></td><td></td><td></td><td></td><td></td><td></td><td>Annuitization at a frequency most disadvantageous to Chubb \( ^{2)} \)</td></tr><tr><td></td><td></td><td></td><td></td><td></td><td></td><td>Claim calculated using interest rates in line with rates used to calculate reserve</td></tr></table>

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

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

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

The average attained age of all policyholders for all risk categories above, weighted by the guaranteed value of each reinsured policy, is approximately 69 years.



## 6. Intangible assets

Included in Goodwill and other intangible assets in the consolidated balance sheets at December 31, 2015 and 2014, are goodwill of $4.8 billion and $4.9 billion, respectively, and other intangible assets of $887 million and $820 million, respectively.

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

<table><tr><td>(in millions of U.S. dollars)</td><td>Insurance - North American P&amp;C</td><td>Insurance - North American Agriculture</td><td>Insurance - Overseas General</td><td>Global Reinsurance</td><td>Life</td><td>ACE Consolidated</td></tr><tr><td>Balance at December 31, 2013</td><td>$ 1,215</td><td>$ 134</td><td>$ 2,054</td><td>$ 365</td><td>$ 835</td><td>$ 4,603</td></tr><tr><td>Purchase price allocation adjustment</td><td>—</td><td>—</td><td>4</td><td>—</td><td>—</td><td>4</td></tr><tr><td>Acquisition of Samaggi</td><td>—</td><td>—</td><td>46</td><td>—</td><td>—</td><td>46</td></tr><tr><td>Acquisition of Itaú Seguros</td><td>—</td><td>—</td><td>449</td><td>—</td><td>—</td><td>449</td></tr><tr><td>Foreign exchange revaluation and other</td><td>(4)</td><td>—</td><td>(187)</td><td>—</td><td>(7)</td><td>(198)</td></tr><tr><td>Balance at December 31, 2014</td><td>$ 1,211</td><td>$ 134</td><td>$ 2,366</td><td>$ 365</td><td>$ 828</td><td>$ 4,904</td></tr><tr><td>Purchase price allocation adjustment</td><td>—</td><td>—</td><td>(4)</td><td>—</td><td>—</td><td>(4)</td></tr><tr><td>Acquisition of Fireman&#x27;s Fund</td><td>196</td><td>—</td><td>—</td><td>—</td><td>—</td><td>196</td></tr><tr><td>Foreign exchange revaluation and other</td><td>(8)</td><td>—</td><td>(284)</td><td>—</td><td>(8)</td><td>(300)</td></tr><tr><td>Balance at December 31, 2015</td><td>$ 1,399</td><td>$ 134</td><td>$ 2,078</td><td>$ 365</td><td>$ 820</td><td>$ 4,796</td></tr></table>

Included in other intangible assets at December 31, 2015 and 2014, are intangible assets subject to amortization of $789 million and $717 million, respectively, and intangible assets not subject to amortization of $98 million and $103 million, respectively. Intangible assets subject to amortization include agency relationships, renewal rights, software, client lists, and trademarks, primarily attributable to the acquisitions of Rain and Hail, Fireman's Fund, Samaggi, ABA Seguros, Itaú Seguros, and Fianzas Monterrey. The majority of the balance of intangible assets not subject to amortization relates to Lloyd's of London (Lloyd's) Syndicate 2488 (Syndicate 2488) capacity. Amortization expense related to other intangible assets amounted to $171 million, $108 million, and $95 million for the years ended December 31, 2015, 2014, and 2013, respectively. Amortization of intangible assets was higher in 2015 due primarily to the acquisitions of Fireman's Fund, Itaú Seguros, and Samaggi.

The following table presents a roll-forward of VOBA:

<table><tr><td>(in millions of U.S. dollars)</td><td>2015</td><td>2014</td><td>2013</td></tr><tr><td>Balance, beginning of year</td><td>$ 466</td><td>$ 536</td><td>$ 614</td></tr><tr><td>Amortization expense</td><td>(42)</td><td>(51)</td><td>(64)</td></tr><tr><td>Foreign exchange revaluation</td><td>(29)</td><td>(19)</td><td>(14)</td></tr><tr><td>Balance, end of year</td><td>$ 395</td><td>$ 466</td><td>$ 536</td></tr></table>

The following table presents, as of December 31, 2015, the estimated pre-tax amortization expense related to other intangible assets and VOBA for the next five years.

<table><tr><td>For the Year Ending December 31 (in millions of U.S. dollars)</td><td>Other intangible assets</td><td>VOBA</td></tr><tr><td>2016</td><td>$ 88</td><td>$ 39</td></tr><tr><td>2017</td><td>78</td><td>35</td></tr><tr><td>2018</td><td>70</td><td>32</td></tr><tr><td>2019</td><td>63</td><td>27</td></tr><tr><td>2020</td><td>58</td><td>24</td></tr><tr><td>Total</td><td>$ 357</td><td>$ 157</td></tr></table>



## 7. Unpaid losses and loss expenses

Chubb establishes reserves for the estimated unpaid ultimate liability for losses and loss expenses under the terms of its policies and agreements. Reserves include estimates for both claims that have been reported and for IBNR, and include estimates of expenses associated with processing and settling these claims. Reserves are recorded in Unpaid losses and loss expenses in the consolidated balance sheets. The process of establishing loss and loss expense reserves for P&C claims can be complex and is subject to considerable uncertainty as it requires the use of informed estimates and judgments. Our estimates and judgments may be revised as additional experience and other data become available and are reviewed, as new or improved methodologies are developed, or as laws change. We continually evaluate our estimate of reserves in light of developing information and in light of discussions and negotiations with our insureds. While we believe that our reserves for unpaid losses and loss expenses at December 31, 2015 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 our results of operations in the period in which the estimates are changed.

The following table presents a reconciliation of unpaid losses and loss expenses:

<table><tr><td rowspan="2">(in millions of U.S. dollars)</td><td colspan="3">Years Ended December 31</td></tr><tr><td>2015</td><td>2014</td><td>2013</td></tr><tr><td>Gross unpaid losses and loss expenses, beginning of year</td><td>$ 38,315</td><td>$ 37,443</td><td>$ 37,946</td></tr><tr><td>Reinsurance recoverable on unpaid losses \( ^{(1)} \)</td><td>(11,307)</td><td>(10,612)</td><td>(11,399)</td></tr><tr><td>Net unpaid losses and loss expenses, beginning of year</td><td>27,008</td><td>26,831</td><td>26,547</td></tr><tr><td>Acquisition of subsidiaries</td><td>417</td><td>320</td><td>86</td></tr><tr><td>Total</td><td>27,425</td><td>27,151</td><td>26,633</td></tr><tr><td>Net losses and loss expenses incurred in respect of losses occurring in:</td><td></td><td></td><td></td></tr><tr><td>Current year</td><td>10,030</td><td>10,176</td><td>9,878</td></tr><tr><td>Prior years</td><td>(546)</td><td>(527)</td><td>(530)</td></tr><tr><td>Total</td><td>9,484</td><td>9,649</td><td>9,348</td></tr><tr><td>Net losses and loss expenses paid in respect of losses occurring in:</td><td></td><td></td><td></td></tr><tr><td>Current year</td><td>4,053</td><td>3,975</td><td>3,942</td></tr><tr><td>Prior years</td><td>5,612</td><td>5,260</td><td>5,035</td></tr><tr><td>Total</td><td>9,665</td><td>9,235</td><td>8,977</td></tr><tr><td>Foreign currency revaluation and other</td><td>(682)</td><td>(557)</td><td>(173)</td></tr><tr><td>Net unpaid losses and loss expenses, end of year</td><td>26,562</td><td>27,008</td><td>26,831</td></tr><tr><td>Reinsurance recoverable on unpaid losses \( ^{(1)} \)</td><td>10,741</td><td>11,307</td><td>10,612</td></tr><tr><td>Gross unpaid losses and loss expenses, end of year</td><td>$ 37,303</td><td>$ 38,315</td><td>$ 37,443</td></tr></table>

 \( ^{(1)} \)  Net of provision for uncollectible reinsurance.

Net losses and loss expenses incurred includes $546 million, $527 million, and $530 million, of net favorable prior period development (PPD) in the years ended December 31, 2015, 2014, and 2013, respectively. Long-tail lines include lines such as workers' compensation, general liability, and professional liability; while short-tail lines include lines such as most property lines, energy, personal accident, aviation, marine (including associated liability-related exposures) and agriculture. Significant prior period movements by segment, principally driven by reserve reviews completed during each respective period, are discussed in more detail below. The remaining net development for long-tail and short-tail business for each segment comprises numerous favorable and adverse movements across a number of lines and accident years, none of which is significant individually or in the aggregate.



# NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries

## Insurance – North American P&C

## 2015

Insurance – North American P&C's active operations experienced net favorable PPD of $239 million in 2015, which was the net result of several underlying favorable and adverse movements, driven by the following principal changes:

• Net favorable development of $169 million in long-tail business, primarily from:

- Net favorable development of $108 million in our management and professional liability portfolios, primarily impacting accident years 2010 and prior. Lower than expected paid and reported loss activity led to reductions in our estimates of ultimate loss for these accident years;

- Favorable development of $32 million in our auto liability excess lines and $26 million in our general liability product lines primarily impacting the 2010 accident year, resulting from lower than expected loss emergence and an increase in weighting applied to experience-based methods;

- Net favorable development of $21 million in our workers' compensation lines with favorable development of $52 million in the 2014 accident year related to our annual assessment of multi-claimant events including industrial accidents. Consistent with prior years, we reviewed these potential exposures after the end of the accident year to allow for late reporting or identification of significant losses. Adverse development of $29 million was experienced on the 2009 and prior accident years due to a combination of claim-specific deteriorations and higher than expected loss emergence. There was also adverse development on the 2014 accident year due to revised account-level estimates, which were higher than our original aggregate expectations;

- Favorable development of $24 million in our surety business due to lower than expected claims emergence primarily in the 2013 accident year; and

- Net adverse development of $33 million in our commercial umbrella and excess portfolios, primarily impacting accident years 2010 and 2011. Higher than expected reported loss activity, combined with an increase in weighting applied to experience-based methods, led to increased provisions in accident years 2010 and 2011, which was partly offset by the recognition of favorable emergence in the 2009 and prior accident years.

- Favorable development of $70 million in short-tail business, primarily driven by favorable development of $34 million in our excess property business primarily impacting the 2013 accident year. Paid and reported loss activity was lower than expected leading to reductions in our estimate of ultimate loss.

Insurance – North American P&C's run-off operations incurred adverse PPD of $200 million in our Westchester and Brandywine run-off operations during 2015, which was the result of several adverse movements impacting accident years 1996 and prior, driven by the following principal changes:

- Adverse development of $170 million related to the completion of reserve reviews during 2015. The development primarily arose from case specific settlements and higher than expected remediation expense and defense costs for environmental claims and increases in indemnity and defense costs on a select number of modeled accounts for asbestos. Further, we experienced higher than expected loss emergence on certain portfolios in our assumed reinsurance book and in other run-off lines; and

- Adverse development of $30 million on unallocated loss adjustment expenses due to run-off operating expenses paid and incurred during 2015.

## 2014

Insurance – North American P&C's active operations experienced net favorable PPD of $354 million in 2014 which was the net result of several underlying favorable and adverse movements driven by the following principal changes:

• Net favorable development of $298 million in long-tail business, primarily from:

- Favorable development of $104 million in our D&O portfolios, primarily impacting the 2009 and prior accident years. Case incurred loss emergence that was lower than expected combined with an increase in weighting applied to experience-based methods led to a reduction in the estimates of ultimate loss for those years;



- Favorable development of $55 million in our excess casualty and umbrella businesses. Resolution of a disputed matter on an individual claim led to a release of $42 million in the 2003 accident year, and lower than expected reported activity across a number of accident years drove the remaining improvement;

- Favorable development of $48 million on an older claim following recent legal developments, after which it was determined that the reserves were no longer required;

- Favorable development of $40 million in our medical risk operations, primarily impacting the 2009 and 2010 accident years. Paid and case incurred loss emergence that was lower than expected combined with an increase in weighting applied to experience-based methods led to a reduction in the estimate of ultimate loss for those years;

- Favorable development of $35 million in our financial solutions business, primarily in the 2010 and prior accident years. Net favorable development principally resulted from the recognition of lower than expected loss activity on two large excess liability transactions;

- Favorable development of $27 million in our surety business, primarily from favorable claims emergence in the 2012 accident year;

- Net adverse development of $32 million in our workers' compensation lines, with adverse development in the 2013 accident year and mainly favorable development in accident years 2009 and 2010. Adverse development in the 2013 accident year is being driven by one large account which is experiencing higher than expected claims frequency and severity; and

- Net favorable development of $21 million in our auto liability excess lines primarily impacting the 2009 accident year. Reported activity on loss and allocated loss expenses was lower than expected based on estimates from our prior review and original pricing assumptions.

- Favorable development of $56 million in short-tail business, primarily driven by net favorable development of $20 million in our energy and technical risk property business, primarily impacting the 2012 and 2013 accident years. Across most lines, paid and reported loss activity was lower than expected.

Insurance – North American P&C's run-off operations incurred adverse PPD of $247 million in our Westchester and Brandywine run-off operations during 2014, which was a net result of adverse movements impacting accident years 1996 and prior, driven by the following principal changes:

- Adverse development of $215 million related to the completion of reserve reviews during 2014. The development primarily arose from case specific asbestos and environmental claims related to increased payment activity and the costs associated with certain case settlements in 2014. Further, we experienced higher than expected case incurred activity in our assumed reinsurance portfolio; and

- Adverse development of $32 million on unallocated loss adjustment expenses due to run-off operating expenses paid and incurred during 2014.

## 2013

Insurance – North American P&C active operations experienced net favorable PPD of $327 million in 2013, representing 2.1 percent of its beginning of period net unpaid loss and loss expense reserves. Insurance – North American P&C run-off operations incurred net adverse PPD of $193 million in 2013, representing 1.2 percent of its beginning of period net unpaid loss and loss expense reserves.

## Insurance – North American Agriculture

Insurance – North American Agriculture experienced net favorable development of $45 million in short-tail lines in 2015, net adverse development of $34 million in 2014 and net favorable development of $13 million in 2013. Actual claim development in 2015 for the 2014 crop year for the Multiple Peri Crop Insurance (MPCI) business was favorable due to better than expected crop yield results in certain states at year-end 2014. Actual claim development in 2014 for the 2013 crop year for the MPCI business was adverse due to worse than expected crop yield results in certain states at year-end 2013. Net



## NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries

favorable development in 2013 was across a number of accident years, none of which was significant individually or in the aggregate.

## Insurance – Overseas General

## 2015

Insurance – Overseas General experienced net favorable PPD of $343 million in 2015, which was the net result of several underlying favorable and adverse movements, driven by the following principal changes:

• Net favorable development of $166 million in long-tail business, primarily from:

- Net favorable development of $140 million, primarily in casualty and financial lines with favorable development of $175 million in accident years 2011 and prior, resulting from lower than expected loss emergence, and adverse development of $35 million in accident years 2012 to 2014, primarily due to large loss experience in the U.K. and Europe; and

- Favorable development of $26 million on an individual legacy liability case reserve take-down. This release follows a legal analysis completed in 2015, based on court opinion in the year and discussions with defense counsel, which concluded that these reserves were no longer required.

• Favorable development of $177 million in short-tail business primarily from:

- Favorable development of $90 million in property, technical, energy and marine lines from specific claims and additional credibility assigned to accident years 2013 and prior favorable indications;

- Favorable development of $34 million in accident and health business primarily in accident year 2013 and 2014 across all regions and products, none of which was individually significant; and

- Favorable development of $26 million in consumer business primarily in Latin America and Asia Pacific, resulting from favorable development and additional credibility assigned to accident years 2012 and 2013.

## 2014

Insurance – Overseas General experienced net favorable PPD of $391 million in 2014, which was the net result of several underlying favorable and adverse movements, driven by the following principal changes:

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

- Net favorable development of $102 million primarily in casualty lines with favorable development of $148 million in accident years 2010 and prior, predominantly due to favorable loss experience in European primary and excess lines, and adverse development of $46 million in accident years 2011 to 2013, predominantly due to large loss experience in the U.K. primary and excess lines;

- Favorable development of $52 million on an individual liability case reserve take-down. This release follows discussions with defense counsel, a review of key legal briefing, and a coverage analysis, all of which was completed in the third quarter of 2014 and after which it was concluded that the reserves were no longer required; and

- Net favorable development of $27 million in financial lines with favorable development of $98 million in accident years 2010 and prior due to favorable loss experience and adverse development of $71 million in accident years 2011 to 2013. The adverse development was primarily due to large loss experience in D&O and financial institutions.

• Favorable development of $210 million in short-tail business, primarily from:

- Favorable development of $136 million across property, technical and marine lines with favorable development of $44 million in accident year 2013 due to favorable large loss experience, and favorable development of $92 million in accident years 2012 and prior due to favorable development on specific claims and an increase in weighting applied to experience-based methods;



## NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries

- Favorable development of $30 million in aviation lines primarily in accident years 2010 and prior in the aviation products, airlines and airport liability lines; and

- Favorable development of $25 million in personal lines primarily in accident years 2011 to 2013 across all Latin America personal lines and Asia Pacific personal automobile lines.

## 2013

Insurance – Overseas General experienced net favorable PPD of $299 million in 2013, representing 3.8 percent of the segment's beginning of period net unpaid loss and loss expense reserves.

## Global Reinsurance

## 2015

Global Reinsurance experienced net favorable PPD of $119 million in 2015, which was the net result of several underlying favorable and adverse movements, driven by the following principal changes:

- Favorable development of $54 million comprising $42 million in long-tail lines and $12 million in short-tail lines, on an individual legacy liability case reserve take-down. This release follows a legal analysis completed in 2015, based on court opinion and discussions with defense counsel, which concluded that these reserves were no longer required;

- Favorable development of $33 million in professional liability lines, including medical malpractice business, primarily in treaty years 2010 and prior reflecting favorable paid and incurred loss trends and an increase in weighting applied to experience-based methods; and

- Favorable development of $23 million in casualty lines, principally in treaty years 2009 and prior reflecting favorable paid and incurred loss trends and an increase in weighting applied to experience-based methods.

## 2014

Global Reinsurance experienced net favorable PPD of $63 million in 2014, which was the net result of several underlying favorable and adverse movements, driven by the following principal change:

• Net favorable development of $52 million in long-tail business, primarily from:

- Favorable development of $34 million in professional liability lines, including medical malpractice business, primarily in treaty years 2009 and prior reflecting favorable paid and incurred loss trends and an increase in weighting applied to experience-based methods; and

- Favorable development of $25 million in casualty lines, principally in treaty years 2009 and prior reflecting favorable paid and incurred loss trends and an increase in weighting applied to experience-based methods.

## 2013

Global Reinsurance experienced net favorable PPD of $84 million in 2013, representing 3.6 percent of the segment's beginning of period net unpaid loss and loss expense reserves.



## Asbestos and environmental (A&E)

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

<table><tr><td rowspan="2">(in millions of U.S. dollars)</td><td colspan="2">Asbestos</td><td colspan="2">Environmental</td><td colspan="2">Total</td></tr><tr><td>Gross</td><td>Net</td><td>Gross</td><td>Net</td><td>Gross</td><td>Net</td></tr><tr><td>Balance at December 31, 2014</td><td>$ 1,500</td><td>$ 892</td><td>$ 199</td><td>$ 149</td><td>$ 1,699</td><td>$ 1,041</td></tr><tr><td>Incurred activity</td><td>125</td><td>76</td><td>118</td><td>86</td><td>243</td><td>162</td></tr><tr><td>Paid activity</td><td>(274)</td><td>(137)</td><td>(118)</td><td>(86)</td><td>(392)</td><td>(223)</td></tr><tr><td>Balance at December 31, 2015</td><td>$ 1,351</td><td>$ 831</td><td>$ 199</td><td>$ 149</td><td>$ 1,550</td><td>$ 980</td></tr></table>

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

The A&E net loss reserves including allocated loss expense reserves and provision for uncollectible reinsurance at December 31, 2015 and 2014, of $980 million and $1.0 billion shown in the table above comprise $782 million and $837 million, respectively, of reserves held by Brandywine operations, $115 million and $119 million, respectively, of reserves held by Westchester Specialty, and $83 million and $85 million, respectively, of reserves held by other operations, mainly Insurance – Overseas General. For 2015 and 2014, the incurred activity of $162 million and $210 million, respectively, were primarily the result of our annual internal, ground-up review of A&E liabilities.

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

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

(1) An active insurance company that retained the INA name and continued to write P&C business; and
(2) An inactive run-off company, now called Century Indemnity Company (Century).

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

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

The U.S.-based 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 excess of loss (XOL) agreement.

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



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

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 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, 2015 was $25 million and approximately $335 million in statutory-basis losses have been ceded to the XOL on an inception-to-date basis. Century reports the amount ceded under the XOL in accordance with statutory accounting principles, which differ from GAAP by, among other things, allowing Century to discount its liabilities, including certain asbestos related and environmental pollution liabilities and Century's reinsurance payable to active companies. For GAAP reporting purposes, intercompany reinsurance recoverables related to the XOL are eliminated upon consolidation.

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

Certain active Chubb companies are primarily liable for asbestos, environmental, and other exposures that they have reinsured to Century. Accordingly, if Century were to become insolvent and placed into rehabilitation or liquidation, some or all of the recoverables due to these active Chubb companies from Century could become uncollectible. At December 31, 2015 and 2014, the aggregate reinsurance recoverables owed by Century to the active Chubb companies were approximately $1.2 billion and $1.1 billion, respectively. Chubb believes the active company intercompany reinsurance recoverables, which relate to direct liabilities payable over many years, are not impaired. At December 31, 2015 and 2014, Century's carried gross reserves (including reserves assumed from the active Chubb companies) were $1.9 billion and $2.1 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 the active Chubb companies would be payable only after the payment in full of certain expenses and liabilities, including administrative expenses and direct policy liabilities. Thus, the intercompany reinsurance recoverables would be at risk to the extent of the shortage of assets remaining to pay these recoverables.

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

As part of the Westchester Specialty acquisition in 1998, NICO provided a 75 percent pro-rata share of $1 billion of reinsurance protection on losses and loss adjustment expenses incurred on or before December 31, 1996, in excess of a retention of $721 million. At December 31, 2015, the remaining unused incurred limit under the Westchester NICO agreement was $466 million.

## 8. Taxation

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

Chubb has two Swiss operating subsidiaries, an insurance company, ACE Insurance (Switzerland) Limited and 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, Chubb Limited and its Bermuda subsidiaries are not required to pay any taxes on income or capital gains. If a Bermuda law were enacted that would impose taxes on income or capital gains, Chubb Limited and the Bermuda subsidiaries have received an undertaking from the Minister of Finance in Bermuda that would exempt such companies from Bermudian taxation until March 2035.



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

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. Starting in tax year 2014, Combined Insurance and its life subsidiary joined the ACE Group Holdings consolidated return. For tax years prior to 2014, Combined Insurance and its life subsidiary filed a separate consolidated U.S. tax return. Should ACE Group Holdings pay a dividend to Chubb, withholding taxes would apply. Currently, however, no withholding taxes are accrued with respect to such un-remitted earnings as management has no intention of remitting these earnings. Similarly, no taxes have been provided on the un-remitted earnings of certain foreign subsidiaries 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 Chubb. Certain international operations of Chubb are also subject to income taxes imposed by the jurisdictions in which they operate.

Chubb 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 Chubb to change the way it operates or becomes subject to taxation.

Chubb's domestic operations are in Switzerland, the jurisdiction where we are legally organized, incorporated, and registered. Domestic operations for the years ended December 31, 2015, 2014, and 2013 are not considered significant to the consolidated income before income taxes for the respective periods.

The following table presents the provision for income taxes:

<table><tr><td rowspan="2">(in millions of U.S. dollars)</td><td colspan="4">Years Ended December 31</td></tr><tr><td>2015</td><td>2014</td><td>2013</td><td></td></tr><tr><td>Current tax expense</td><td>$ 304</td><td>$ 481</td><td>$ 231</td><td></td></tr><tr><td>Deferred tax expense</td><td>158</td><td>153</td><td>249</td><td></td></tr><tr><td>Provision for income taxes</td><td>$ 462</td><td>$ 634</td><td>$ 480</td><td></td></tr></table>

The most significant jurisdictions contributing to the overall taxation of Chubb are calculated using the following rates: Switzerland 7.83 percent, Bermuda 0.0 percent, U.S. 35.0 percent, and U.K. 20.25 percent. The following table presents a reconciliation of the difference between the provision for income taxes and the expected tax provision at the Swiss statutory income tax rate:

<table><tr><td rowspan="2">(in millions of U.S. dollars)</td><td colspan="4">Years Ended December 31</td></tr><tr><td>2015</td><td>2014</td><td>2013</td><td></td></tr><tr><td>Expected tax provision at Swiss statutory tax rate</td><td>$ 258</td><td>$ 273</td><td>$ 331</td><td></td></tr><tr><td>Permanent differences:</td><td></td><td></td><td></td><td></td></tr><tr><td>Taxes on earnings subject to rate other than Swiss statutory rate</td><td>193</td><td>224</td><td>124</td><td></td></tr><tr><td>Change to deferred taxes related to unrealized foreign exchange (1)</td><td>—</td><td>139</td><td>—</td><td></td></tr><tr><td>Tax-exempt interest and dividends received deduction, net of proration</td><td>(32)</td><td>(33)</td><td>(27)</td><td></td></tr><tr><td>Net withholding taxes</td><td>35</td><td>33</td><td>27</td><td></td></tr><tr><td>Change in valuation allowance (1)</td><td>2</td><td>(20)</td><td>4</td><td></td></tr><tr><td>Other</td><td>6</td><td>18</td><td>21</td><td></td></tr><tr><td>Total provision for income taxes</td><td>$ 462</td><td>$ 634</td><td>$ 480</td><td></td></tr></table>

(1) 2014 includes a charge to deferred taxes related to non-recognition of foreign tax credits related to unrealized foreign exchange losses.



## NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries

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

<table><tr><td>(in millions of U.S. dollars)</td><td>December 31 2015</td><td>December 31 2014</td></tr><tr><td>Deferred tax assets:</td><td></td><td></td></tr><tr><td>Loss reserve discount</td><td>$ 663</td><td>$ 794</td></tr><tr><td>Unearned premiums reserve</td><td>190</td><td>99</td></tr><tr><td>Foreign tax credits</td><td>969</td><td>1,103</td></tr><tr><td>Investments</td><td>29</td><td>9</td></tr><tr><td>Provision for uncollectible balances</td><td>65</td><td>81</td></tr><tr><td>Loss carry-forwards</td><td>72</td><td>40</td></tr><tr><td>Compensation related amounts</td><td>189</td><td>185</td></tr><tr><td>Other</td><td>65</td><td>—</td></tr><tr><td>Total deferred tax assets</td><td>2,242</td><td>2,311</td></tr><tr><td>Deferred tax liabilities:</td><td></td><td></td></tr><tr><td>Deferred policy acquisition costs</td><td>412</td><td>213</td></tr><tr><td>VOBA and other intangible assets</td><td>384</td><td>321</td></tr><tr><td>Un-remitted foreign earnings</td><td>827</td><td>939</td></tr><tr><td>Unrealized appreciation on investments</td><td>195</td><td>406</td></tr><tr><td>Depreciation</td><td>68</td><td>77</td></tr><tr><td>Other</td><td>—</td><td>43</td></tr><tr><td>Total deferred tax liabilities</td><td>1,886</td><td>1,999</td></tr><tr><td>Valuation allowance</td><td>38</td><td>17</td></tr><tr><td>Net deferred tax assets</td><td>$ 318</td><td>$ 295</td></tr></table>

The valuation allowance of $38 million at December 31, 2015, and $17 million at December 31, 2014, reflects management's assessment, based on available information, that it is more likely than not that a portion of the deferred tax assets will not be realized due to the inability of certain foreign subsidiaries to generate sufficient taxable income. Adjustments to the valuation allowance are made when there is a change in management's assessment of the amount of deferred tax assets that are realizable.

At December 31, 2015, Chubb has net operating loss carry-forwards of $325 million which, if unused, will expire starting in the year 2016, and a foreign tax credit carry-forward in the amount of $142 million which, if unused, will expire in the years 2016 through 2025.

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

<table><tr><td>(in millions of U.S. dollars)</td><td>December 31 2015</td><td>December 31 2014</td></tr><tr><td>Balance, beginning of year</td><td>$ 23</td><td>$ 27</td></tr><tr><td>Additions based on tax provisions related to the current year</td><td>1</td><td>2</td></tr><tr><td>Reductions for tax positions of prior years</td><td>(7)</td><td>—</td></tr><tr><td>Reductions for the lapse of the applicable statutes of limitations</td><td>(1)</td><td>(6)</td></tr><tr><td>Balance, end of year</td><td>$ 16</td><td>$ 23</td></tr></table>

At December 31, 2015 and 2014, the total amount of unrecognized tax benefits that would affect the effective tax rate, if recognized, were $16 million and $6 million, respectively. At December 31, 2014, $17 million of unrecognized tax benefits would not affect the effective tax rate, if recognized, as the ultimate deductibility is highly certain but there is uncertainty about the timing of such deductibility. Because of the impact of deferred tax accounting, other than interest and penalties, an unfavorable resolution of these temporary items would not affect the effective tax rate but would accelerate the payment of cash to the taxing authority to an earlier period.



Chubb recognizes accruals for interest and penalties, if any, related to unrecognized tax benefits in income tax expense in the consolidated statements of operations. For the year ended December 31, 2015, tax-related interest expense (income) and penalties reported in the consolidated statements of operations were $1 million and $(1) million for both the years ended December 31, 2014 and 2013. At December 31, 2015 and 2014, Chubb recorded $4 million and $9 million, respectively, in liabilities for tax-related interest and penalties in our consolidated balance sheets.

The IRS commenced its field examination of Chubb’s federal tax returns for 2010, 2011 and 2012 during October 2014, which were still ongoing at December 31, 2015. It is reasonably possible that over the next twelve months, the amount of unrecognized tax benefits may change resulting from the re-evaluation of unrecognized tax benefits arising from examinations of taxing authorities and the closing of tax statutes of limitations. With few exceptions, Chubb is no longer subject to state and local or non-U.S. income tax examinations for years before 2005.

## 9. Debt

<table><tr><td rowspan="2">(in millions of U.S. dollars)</td><td colspan="2">December 31</td><td colspan="2">December 31</td><td rowspan="2">Early Redemption Option</td></tr><tr><td>2015</td><td>2014</td><td></td><td></td></tr><tr><td>Repurchase agreements (weighted average interest rate of 0.6% in 2015 and 0.3% in 2014)</td><td>$ 1,404</td><td>$ 1,402</td><td>None</td><td></td><td></td></tr><tr><td>Short-term debt</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>ACE INA senior notes:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>$450 million 5.6% due May 2015</td><td>$ —</td><td>$ 450</td><td>Make-whole premium plus 0.35%</td><td></td><td></td></tr><tr><td>$700 million 2.6% due November 2015</td><td>—</td><td>700</td><td>Make-whole premium plus 0.20%</td><td></td><td></td></tr><tr><td>Total short-term debt</td><td>$ —</td><td>$ 1,150</td><td></td><td></td><td></td></tr><tr><td>Long-term debt</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>ACE INA senior notes:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>$500 million 5.7% due February 2017</td><td>$ 500</td><td>$ 500</td><td>Make-whole premium plus 0.20%</td><td></td><td></td></tr><tr><td>$300 million 5.8% due March 2018</td><td>300</td><td>300</td><td>Make-whole premium plus 0.35%</td><td></td><td></td></tr><tr><td>$500 million 5.9% due June 2019</td><td>500</td><td>500</td><td>Make-whole premium plus 0.40%</td><td></td><td></td></tr><tr><td>$1,300 million 2.3% due November 2020</td><td>1,299</td><td>—</td><td>Make-whole premium plus 0.15%</td><td></td><td></td></tr><tr><td>$1,000 million 2.875% due November 2022</td><td>999</td><td>—</td><td>Make-whole premium plus 0.20%</td><td></td><td></td></tr><tr><td>$475 million 2.7% due March 2023</td><td>474</td><td>474</td><td>Make-whole premium plus 0.10%</td><td></td><td></td></tr><tr><td>$700 million 3.35% due May 2024</td><td>699</td><td>699</td><td>Make-whole premium plus 0.15%</td><td></td><td></td></tr><tr><td>$800 million 3.15% due March 2025</td><td>800</td><td>—</td><td>Make-whole premium plus 0.15%</td><td></td><td></td></tr><tr><td>$1,500 million 3.35% due May 2026</td><td>1,496</td><td>—</td><td>Make-whole premium plus 0.20%</td><td></td><td></td></tr><tr><td>$300 million 6.7% due May 2036</td><td>299</td><td>299</td><td>Make-whole premium plus 0.20%</td><td></td><td></td></tr><tr><td>$475 million 4.15% due March 2043</td><td>474</td><td>474</td><td>Make-whole premium plus 0.15%</td><td></td><td></td></tr><tr><td>$1,500 million 4.35% due November 2045</td><td>1,496</td><td>—</td><td>Make-whole premium plus 0.25%</td><td></td><td></td></tr><tr><td>ACE INA $100 million 8.875% debentures due August 2029</td><td>100</td><td>100</td><td>None</td><td></td><td></td></tr><tr><td>Other long-term debt (2.75% to 7.1% due December 2019 to September 2020)</td><td>11</td><td>11</td><td>None</td><td></td><td></td></tr><tr><td>Total long-term debt</td><td>$ 9,447</td><td>$ 3,357</td><td></td><td></td><td></td></tr><tr><td>Trust preferred securities</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>ACE INA capital securities due April 2030</td><td>$ 309</td><td>$ 309</td><td>Redemption price(1)</td><td></td><td></td></tr></table>

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



## a) Repurchase agreements

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

## b) Long-term debt

In March 2015, ACE INA issued $800 million of 3.15 percent senior notes due March 2025. In May 2015, ACE INA's $450 million of 5.6 percent senior notes matured and were fully paid. In November 2015, ACE INA's $700 million of 2.6 percent senior notes matured and were fully paid.

In November 2015, ACE INA issued $5.3 billion of senior notes comprising $1.3 billion of 2.3 percent senior notes due November 2020 (2020 Notes), $1.0 billion of 2.875 percent senior notes due November 2022 (2022 Notes), $1.5 billion of 3.35 percent senior notes due May 2026 (2026 Notes), and $1.5 billion of 4.35 percent senior notes due November 2045 (2045 Notes). The proceeds from the issuance of these notes were used to finance a portion of the Chubb acquisition.

ACE INA may redeem some or all of these notes at its option one month (for the 2020 Notes), two months (for the 2022 Notes), three months (for the 2026 Notes), and six months (for the 2045 Notes) prior to the respective maturity dates at a redemption price equal to 100 percent of the principal amount of the notes plus accrued and unpaid interest. The remaining terms of the senior notes are commensurate with those of our existing senior notes as described below.

All of ACE INA's senior notes are redeemable at any time at ACE INA's option subject to the provisions described in the table above. A "make-whole premium" is the present value of the remaining principal and interest discounted at the applicable U.S. Treasury rate. The senior notes are also redeemable at par plus accrued and unpaid interest in the event of certain changes in tax law. The debentures, subject to certain exceptions, are not redeemable before maturity.

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

## c) 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) due to mature in April 2030. At the same time, ACE INA purchased $9.2 million of common securities of ACE Capital Trust II. The sole assets of ACE Capital Trust II consist of $309 million principal amount of 9.7 percent Junior Subordinated Deferrable Interest Debentures (the Subordinated Debentures) issued by ACE INA due to mature in April 2030.

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

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

## 10. Commitments, contingencies, and guarantees

## a) Derivative instruments

## Foreign currency management

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



## Derivative instruments employed

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

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

Under reinsurance programs covering GLBs, Chubb assumes the risk of GLBs, including GMIB and GMAB, associated with variable annuity contracts. The GMIB risk is triggered if, at the time the contract holder elects to convert the accumulated account value to a periodic payment stream (annuitize), the accumulated account value is not sufficient to provide a guaranteed minimum level of monthly income. The GMAB risk is triggered if, at contract maturity, the contract holder's account value is less than a guaranteed minimum value. The GLB reinsurance product meets the definition of a derivative instrument. Benefit reserves in respect of GLBs are classified as Future policy benefits (FPB) while the fair value derivative adjustment is classified within AP. Chubb also generally maintains positions in exchange-traded equity futures contracts and options on equity market indices to limit equity exposure in the GMDB and GLB blocks of business. At December 31, 2015, we held no positions in option contracts on equity market indices.

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

The following table presents the balance sheet locations, fair values of derivative instruments in an asset or (liability) position, and notional values/payment provisions of our derivative instruments:

<table><tr><td rowspan="2"></td><td rowspan="2">Consolidated Balance Sheet Location</td><td colspan="6">December 31, 2015</td><td colspan="3">December 31, 2014</td></tr><tr><td>Derivative Asset</td><td>Fair Value Derivative (Liability)</td><td>Notional Value/ Payment Provision</td><td>Derivative Asset</td><td>Fair Value Derivative (Liability)</td><td>Notional Value/Payment Provision</td><td></td><td></td></tr><tr><td>(in millions of U.S. dollars)</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Investment and embedded derivative instruments</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Foreign currency forward contracts</td><td>OA / (AP)</td><td>$ 7</td><td>$ (11)</td><td>$ 1,029</td><td>$ 12</td><td>$ (7)</td><td>$ 1,329</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Cross-currency swaps</td><td>OA / (AP)</td><td>—</td><td>—</td><td>95</td><td>—</td><td>—</td><td>—</td><td>95</td><td></td><td></td><td></td><td></td></tr><tr><td>Futures contracts on money market instruments</td><td>OA / (AP)</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>2,467</td><td></td><td></td><td></td><td></td></tr><tr><td>Options/Futures contracts on notes and bonds</td><td>OA / (AP)</td><td>5</td><td>(2)</td><td>751</td><td>6</td><td>(29)</td><td>1,636</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Convertible securities \( ^{(1)} \)</td><td>FM AFS/ES</td><td>31</td><td>—</td><td>40</td><td>291</td><td>—</td><td>267</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td></td><td></td><td>$ 43</td><td>$ (13)</td><td>$ 1,915</td><td>$ 309</td><td>$ (36)</td><td>$ 5,794</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Other derivative instruments</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Futures contracts on equities \( ^{(2)} \)</td><td>OA / (AP)</td><td>$ —</td><td>$ (4)</td><td>$ 1,197</td><td>$ —</td><td>$ (21)</td><td>$ 1,384</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Options on equity market indices \( ^{(2)} \)</td><td>OA / (AP)</td><td>—</td><td>—</td><td>—</td><td>2</td><td>—</td><td>250</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Other</td><td>OA / (AP)</td><td>—</td><td>(6)</td><td>15</td><td>—</td><td>(4)</td><td>10</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td></td><td></td><td>$ —</td><td>$ (10)</td><td>$ 1,212</td><td>$ 2</td><td>$ (25)</td><td>$ 1,644</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>GLB \( ^{(3)} \)</td><td>(AP) / (FPB)</td><td>$ —</td><td>$ (888)</td><td>$ 1,155</td><td>$ —</td><td>$ (663)</td><td>$ 675</td><td></td><td></td><td></td><td></td><td></td></tr></table>

 \( ^{(1)} \)  Includes fair value of embedded derivatives.

 \( ^{(2)} \)  Related to GMDB and GLB blocks of business.

 \( ^{(3)} \)  Includes both future policy benefits reserves and fair value derivative adjustment. Refer to Note 5 c) for additional information. Note that the payment provision related to GLB is the net amount at risk. The concept of a notional value does not apply to the GLB reinsurance contracts.

At December 31, 2015 and 2014, derivative assets of $1 million and derivative liabilities of $34 million, respectively, included in the table above were subject to a master netting agreement. The remaining derivatives included in the table above were not subject to a master netting agreement.



## b) Secured borrowings

Chubb participates in a securities lending program operated by a third-party banking institution whereby certain assets are loaned to qualified borrowers and from which we earn an incremental return. At December 31, 2015 and 2014, our securities lending collateral was $1,046 million and $1,330 million, respectively, and our securities lending payable, reflecting our obligation to return the collateral plus interest, was $1,047 million and $1,331 million, respectively. The securities lending collateral can only be drawn down by Chubb in the event that the institution borrowing the securities is in default under the lending agreement. An indemnification agreement with the lending agent protects us in the event a borrower becomes insolvent or fails to return any of the securities on loan. The collateral is recorded in Securities lending collateral and the liability is recorded in Securities lending payable in the consolidated balance sheets.

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

<table><tr><td></td><td>Remaining contractual maturity</td></tr><tr><td>December 31, 2015(in millions of U.S. dollars)</td><td>Overnight and Continuous</td></tr><tr><td>Collateral held under securities lending agreements:</td><td></td></tr><tr><td>Cash</td><td>$ 424</td></tr><tr><td>U.S. Treasury and agency</td><td>67</td></tr><tr><td>Foreign</td><td>296</td></tr><tr><td>Corporate securities</td><td>2</td></tr><tr><td>Equity securities</td><td>257</td></tr><tr><td></td><td>$ 1,046</td></tr><tr><td>Gross amount of recognized liability for securities lending payable</td><td>$ 1,047</td></tr><tr><td>Difference (1)</td><td>$ (1)</td></tr></table>

(1) The carrying value of the securities lending collateral held is $1 million lower than the securities lending payable due to accrued interest recorded in the securities lending payable.

At December 31, 2015 and 2014, our repurchase agreement obligations of $1,404 million and $1,402 million, respectively, were fully collateralized. In contrast to securities lending programs, the use of cash received is not restricted for the repurchase obligations. The fair value of the underlying securities sold remains in Fixed maturities available for sale and Equity securities and the repurchase agreement obligation is recorded in Repurchase agreements in the consolidated balance sheets.

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

<table><tr><td rowspan="2">December 31, 2015(in millions of U.S. dollars)</td><td colspan="5">Remaining contractual maturity</td></tr><tr><td>Up to 30 Days</td><td>30 - 90 Days</td><td>Greater than 90 Days</td><td>Total</td><td></td></tr><tr><td>Collateral pledged under repurchase agreements:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Cash</td><td>$ 34</td><td>$ —</td><td>$ —</td><td>$ 34</td><td></td></tr><tr><td>U.S. Treasury and agency</td><td>6</td><td>—</td><td>231</td><td>237</td><td></td></tr><tr><td>Mortgage-backed securities</td><td>365</td><td>480</td><td>343</td><td>1,188</td><td></td></tr><tr><td></td><td>$ 405</td><td>$ 480</td><td>$ 574</td><td>$ 1,459</td><td></td></tr><tr><td>Gross amount of recognized liabilities for repurchase agreements</td><td></td><td></td><td></td><td>$ 1,404</td><td></td></tr><tr><td>Difference (1)</td><td></td><td></td><td></td><td>$ 55</td><td></td></tr></table>

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



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

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

<table><tr><td rowspan="2">(in millions of U.S. dollars)</td><td colspan="4">Years Ended December 31</td></tr><tr><td>2015</td><td>2014</td><td>2013</td><td></td></tr><tr><td>Investment and embedded derivative instruments</td><td></td><td></td><td></td><td></td></tr><tr><td>Foreign currency forward contracts</td><td>$ 31</td><td>$ 29</td><td>$ 11</td><td></td></tr><tr><td>All other futures contracts and options</td><td>9</td><td>(118)</td><td>61</td><td></td></tr><tr><td>Convertible securities \( ^{(1)} \)</td><td>(8)</td><td>(18)</td><td>6</td><td></td></tr><tr><td>Total investment and embedded derivative instruments</td><td>$ 32</td><td>$ (107)</td><td>$ 78</td><td></td></tr><tr><td>GLB and other derivative instruments</td><td></td><td></td><td></td><td></td></tr><tr><td>GLB \( ^{(2)} \)</td><td>$ (203)</td><td>$ (217)</td><td>$ 878</td><td></td></tr><tr><td>Futures contracts on equities \( ^{(3)} \)</td><td>(8)</td><td>(164)</td><td>(555)</td><td></td></tr><tr><td>Options on equity market indices \( ^{(3)} \)</td><td>(2)</td><td>(4)</td><td>(24)</td><td></td></tr><tr><td>Other</td><td>(12)</td><td>50</td><td>(2)</td><td></td></tr><tr><td>Total GLB and other derivative instruments</td><td>$ (225)</td><td>$ (335)</td><td>$ 297</td><td></td></tr><tr><td></td><td>$ (193)</td><td>$ (442)</td><td>$ 375</td><td></td></tr></table>

(1) Includes embedded derivatives.

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

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

## c) Derivative instrument objectives

## (i) Foreign currency exposure management

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

## (ii) Duration management and market exposure

## Futures

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

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

## Options

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



Another use for option contracts is to limit exposure to a severe equity market decline, which would cause an increase in expected claims and therefore, an increase in reserves for GMDB and GLB reinsurance business.

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

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

## Cross-currency swaps

Cross-currency swaps are agreements under which two counterparties exchange interest payments and principal denominated in different currencies at a future date. We use cross-currency swaps to reduce the foreign currency and interest rate risk by converting cash flows back into local currency. We invest in foreign currency denominated investments to improve credit diversification and also to obtain better duration matching to our liabilities that is limited in the local currency market.

## Other

Included within Other are derivatives intended to reduce potential losses which may arise from certain exposures in our insurance business. The economic benefit provided by these derivatives is similar to purchased reinsurance. For example, Chubb may enter into crop derivative contracts to protect underwriting results in the event of a significant decline in commodity prices. Also included within Other are certain life insurance products that meet the definition of a derivative instrument for accounting purposes.

## (iii) Convertible security investments

A convertible security is a debt instrument or preferred stock that can be converted into a predetermined amount of the issuer's equity. The convertible option is an embedded derivative within the host instruments which are classified in the investment portfolio as either available for sale or as an equity security. Chubb purchases convertible securities for their total return and not specifically for the conversion feature.

## (iv) TBA

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

## (v) GLB

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

## d) Concentrations of credit risk

Our investment portfolio is managed following prudent standards of diversification. Specific provisions limit the allowable holdings of a single issue and issuer. We believe that there are no significant concentrations of credit risk associated with our investments. Our three largest exposures by issuer at December 31, 2015, were JP Morgan Chase & Co., General Electric Company, and Goldman Sachs Group Inc. Our largest exposure by industry at December 31, 2015 was financial services.

We market our insurance and reinsurance worldwide primarily through insurance and reinsurance brokers. We assume a degree of credit risk associated with brokers with whom we transact business. No one broker or one insured accounted for more than



## NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries

10 percent of gross written premium for the year ended December 31, 2015. For the years ended December 31, 2014 and 2013, approximately 10 percent and 11 percent, respectively, of our gross premiums written were generated from or placed by Marsh, Inc. This entity is a large, well established company and there are no indications that it is financially troubled at December 31, 2015. No other broker and no one insured or reinsured accounted for more than 10 percent of gross premiums written in the years ended December 31, 2014 and 2013.

## e) Fixed maturities

At December 31, 2015, we have commitments to purchase fixed income securities of $255 million over the next several years.

## f) Other investments

At December 31, 2015, included in Other investments in the consolidated balance sheet are investments in limited partnerships and partially-owned investment companies with a carrying value of $2.2 billion. In connection with these investments, we have commitments that may require funding of up to $824 million over the next several years.

## g) Letters of credit

We have a $1.5 billion unsecured operational LOC facility expiring in November 2017. We are allowed to use up to $300 million of this LOC facility as an unsecured revolving credit facility. At December 31, 2015, outstanding LOCs issued under this facility were $797 million.

This facility requires that Chubb Limited and/or certain of its subsidiaries continue to maintain certain covenants. Chubb Limited is also required to maintain a minimum consolidated net worth covenant and a maximum leverage covenant, all of which have been met at December 31, 2015.

## h) Legal proceedings

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

## i) Lease commitments

We lease office space and equipment under operating leases which expire at various dates through 2033. Rent expense was $126 million, $127 million, and $128 million for the years ended December 31, 2015, 2014, and 2013, respectively. Future minimum lease payments under the leases are expected to be as follows:

<table><tr><td colspan="3">For the year ending December 31(in millions of U.S. dollars)</td></tr><tr><td>2016</td><td>$</td><td>111</td></tr><tr><td>2017</td><td></td><td>93</td></tr><tr><td>2018</td><td></td><td>72</td></tr><tr><td>2019</td><td></td><td>54</td></tr><tr><td>2020</td><td></td><td>43</td></tr><tr><td>Thereafter</td><td></td><td>86</td></tr><tr><td>Total minimum future lease commitments</td><td>$</td><td>459</td></tr></table>



## 11. Shareholders' equity

## a) Common Shares

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

## Dividend approval

At our May 2013 annual general meeting, our shareholders approved an annual dividend for the following year of $2.04 per share, payable in four quarterly installments of $0.51 per share after the annual general meeting in the form of a distribution by way of a par value reduction. At the January 10, 2014 extraordinary general meeting, our shareholders approved a resolution to increase our quarterly dividend from $0.51 per share to $0.63 per share for the final two quarterly installments (made on January 31, 2014 and April 17, 2014) that had been earlier approved at our 2013 annual general meeting. The $0.12 per share increase for each installment was distributed from capital contribution reserves (Additional paid-in capital), a subaccount of legal reserves, and transferred to free reserves (Retained earnings) for payment, while the existing $0.51 per share was distributed by way of a par value reduction.

At our May 2014 annual general meeting, our shareholders approved an annual dividend for the following year of $2.60 per share, payable in four quarterly installments of $0.65 per share after the annual general meeting in the form of a distribution by way of a par value reduction.

At our May 2015 annual general meeting, our shareholders approved an annual dividend for the following year of up to $2.68 per share, expected to be paid in four quarterly installments of $0.67 per share after the annual general meeting by way of a distribution from capital contribution reserves, transferred to free reserves for payment. The Board of Directors (Board) will determine the record and payment dates at which the annual dividend may be paid, and is authorized to abstain from distributing a dividend in its discretion, until the date of the 2016 annual general meeting. The first three quarterly installments, each of $0.67 per share, have been distributed by the Board as expected.

## Dividend distributions

Under Swiss corporate law, dividends, including distributions through a reduction in par value (par value reduction), must be stated in Swiss francs though dividend payments are made by Chubb in U.S. dollars. Dividend distributions following Chubb's redemostication to Switzerland have generally been made by way of par value reduction (under the methods approved by our shareholders at our annual general meetings) and had the effect of reducing par value per Common Share each time a dividend was distributed. We may also issue dividends without subjecting them to withholding tax by way of distributions from capital contribution reserves and payment out of free reserves. We employed this method of dividends to effect our dividend increase that was approved by our shareholders on January 10, 2014, and during portions of 2015, as noted above.

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

<table><tr><td rowspan="3"></td><td colspan="7">Years Ended December 31</td></tr><tr><td colspan="3">2015</td><td colspan="3">2014</td><td>2013</td></tr><tr><td>CHF</td><td>USD</td><td>CHF</td><td>USD</td><td>CHF</td><td>USD</td><td></td></tr><tr><td>Dividends - par value reduction</td><td>0.62</td><td>$ 0.65</td><td>2.27</td><td>$ 2.46</td><td>1.85</td><td>$ 2.02</td><td></td></tr><tr><td>Dividends - distributed from capital contribution reserves</td><td>1.94</td><td>2.01</td><td>0.20</td><td>0.24</td><td>—</td><td>—</td><td></td></tr><tr><td>Total dividend distributions per common share</td><td>2.56</td><td>$ 2.66</td><td>2.47</td><td>$ 2.70</td><td>1.85</td><td>$ 2.02</td><td></td></tr></table>

Par value reductions have been reflected as such through Common Shares in the consolidated statements of shareholders' equity and had the effect of reducing par value per Common Share to CHF 24.15 at December 31, 2015.



## b) Shares issued, outstanding, authorized, and conditional

<table><tr><td rowspan="2"></td><td colspan="3">Years Ended December 31</td></tr><tr><td>2015</td><td>2014</td><td>2013</td></tr><tr><td>Shares issued, beginning and end of year</td><td>342,832,412</td><td>342,832,412</td><td>342,832,412</td></tr><tr><td>Common Shares in treasury, end of year (at cost)</td><td>(18,268,971)</td><td>(14,172,726)</td><td>(3,038,477)</td></tr><tr><td>Shares issued and outstanding, end of year</td><td>324,563,441</td><td>328,659,686</td><td>339,793,935</td></tr><tr><td>Common Shares issued to employee trust</td><td></td><td></td><td></td></tr><tr><td>Balance, beginning of year</td><td>(9,467)</td><td>(9,467)</td><td>(9,467)</td></tr><tr><td>Shares redeemed</td><td>3,667</td><td>—</td><td>—</td></tr><tr><td>Balance, end of year</td><td>(5,800)</td><td>(9,467)</td><td>(9,467)</td></tr></table>

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

Common Shares issued to employee trust are issued by Chubb to a rabbi trust for deferred compensation obligations as discussed in Note 11 e) 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 Chubb's share capital from time to time until October 22, 2017, by the issuance of up to 28,048,548 fully paid up Common Shares, with a par value equal to the par value of Chubb's Common Shares as set forth in the Articles of Association at the time of any such issuance. This authorized share capital reflects the balance remaining after the issuance of approximately 137 million shares in connection with the acquisition of The Chubb Corporation on January 14, 2016.

## Conditional share capital for bonds and similar debt instruments

Chubb's share capital may be increased through the issuance of a maximum of 33,000,000 fully paid up Common Shares (with a par value of CHF 24.15 as of December 31, 2015) through the exercise of conversion and/or option or warrant rights granted in connection with bonds, notes, or similar instruments, issued or to be issued by Chubb, including convertible debt instruments.

## Conditional share capital for employee benefit plans

Chubb's share capital may be increased through the issuance of a maximum of 25,410,929 fully paid up Common Shares (with a par value of CHF 24.15 as of December 31, 2015) in connection with the exercise of option rights granted to any employee of Chubb, and any consultant, director, or other person providing services to Chubb.

## c) Chubb Limited securities repurchases

On November 21, 2013, the Board announced authorization of a share repurchase program of up to $2.0 billion of Chubb's Common Shares through December 31, 2014. This $2.0 billion authorization replaced the previous authorizations which expired on December 31, 2013.

On November 24, 2014, the Board announced authorization of a share repurchase program of $1.5 billion of Chubb's Common Shares for the period January 1, 2015 through December 31, 2015 to replace the November 2013 authorization when it expired on December 31, 2014.



## NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries

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

<table><tr><td rowspan="2">(in millions of U.S. dollars, except share data)</td><td colspan="4">Years Ended December 31</td></tr><tr><td>2015</td><td>2014</td><td>2013</td><td></td></tr><tr><td>Number of shares repurchased</td><td>6,677,663</td><td>13,982,358</td><td>3,266,531</td><td></td></tr><tr><td>Cost of shares repurchased</td><td>$ 734</td><td>$ 1,449</td><td>$ 290</td><td></td></tr></table>

Chubb repurchased these Common Shares as part of an overall capital management strategy and to partially offset potential dilution from the exercise of stock options and the granting of restricted stock under share-based compensation plans. There are no outstanding repurchase authorizations at December 31, 2015.

## d) General restrictions

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

## e) Deferred compensation obligation

Chubb maintains rabbi trusts for deferred compensation plans principally for employees and former directors. The shares issued by Chubb to the rabbi trusts in connection with deferrals of share compensation are classified in shareholders' equity and accounted for at historical cost in a manner similar to Common Shares in treasury. Changes in the fair value of the shares underlying the obligations are recorded in Accounts payable, accrued expenses, and other liabilities in the consolidated balance sheets and the related expense or income is recorded in Administrative expenses in the consolidated statements of operations.

The rabbi trusts also hold other assets, such as fixed maturities, equity securities, and life insurance policies. The assets of the rabbi trusts are consolidated with Chubb's assets in the consolidated balance sheets. Assets held by the trust and the associated obligations are reported at fair value in Other investments and Accounts payable, accrued expenses, and other liabilities, respectively, in the consolidated balance sheets, with changes in fair value reflected as a corresponding increase or decrease to Other (income) expense in the consolidated statements of operations. However, life insurance policies assets and obligations are reported at cash surrender value.

## 12. Share-based compensation

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

Chubb principally issues restricted stock grants and stock options on a graded vesting schedule. Chubb recognizes compensation cost for restricted stock and stock option grants with only service conditions that have a graded vesting schedule on a straight-line basis over the requisite service period for each separately vesting portion of the award as if the award was, in-substance, multiple awards. We incorporate an estimate of future forfeitures (6.5 percent assumption used for grants made in 2015, 2014, and 2013) in determining compensation cost for both grants of restricted stock and stock options.

During 2004, we established the ACE Limited 2004 Long-Term Incentive Plan (the 2004 LTIP), which replaced our prior incentive plans except for outstanding awards. The 2004 LTIP will continue in effect until terminated by the Board. Under the 2004 LTIP, Common Shares of Chubb 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.

Chubb generally grants restricted stock and restricted stock units with a 4-year vesting period, which vest in equal annual installments over the respective vesting period. The restricted stock is granted at market close price on the day of grant. Each restricted stock unit represents our obligation to deliver to the holder one Common Share upon vesting.

In May 2013, our shareholders approved an increase of eight million shares authorized to be issued under the 2004 LTIP, bringing the total shares authorized (i.e., for grant since its inception) to the sum of: (i) 38,600,000 common shares; and (ii) any shares that are represented by awards granted under the prior plans that are forfeited, expired, or are canceled after the



## NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

effective date of the 2004 LTIP, without delivery of shares or which result in the forfeiture of the shares back to Chubb 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, 2015, a total of 4,617,796 shares remain available for future issuance under the 2004 LTIP.

Under the 2004 LTIP, 4,500,000 shares are authorized to be issued under the ESPP. At December 31, 2015, a total of 934,243 shares remain available for issuance under the ESPP.

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

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

<table><tr><td rowspan="2">(in millions of U.S. dollars)</td><td colspan="4">Years Ended December 31</td></tr><tr><td>2015</td><td>2014</td><td>2013</td><td></td></tr><tr><td>Stock options and shares issued under ESPP:</td><td></td><td></td><td></td><td></td></tr><tr><td>Pre-tax</td><td>$ 31</td><td>$ 28</td><td>$ 24</td><td></td></tr><tr><td>After-tax  \( {}^{(1)} \)</td><td>$ 21</td><td>$ 19</td><td>$ 18</td><td></td></tr><tr><td>Restricted stock:</td><td></td><td></td><td></td><td></td></tr><tr><td>Pre-tax</td><td>$ 143</td><td>$ 128</td><td>$ 153</td><td></td></tr><tr><td>After-tax</td><td>$ 84</td><td>$ 75</td><td>$ 89</td><td></td></tr></table>

(1) Excludes windfall tax benefit for share-based compensation recognized as a direct adjustment to Additional paid-in capital of $26 million, $28 million and $36 million for the years ended December 31, 2015, 2014 and 2013, respectively.

Unrecognized compensation expense related to the unvested portion of Chubb's employee share-based awards was $175 million at December 31, 2015, and is expected to be recognized over a weighted-average period of approximately 1 year.

## Stock options

The 2004 LTIP permits grants of both incentive and non-qualified stock options principally at an option price per share equal to the grant date fair value of Chubb's Common Shares. Stock options are generally granted with a 3-year vesting period and a 10-year term. Stock options vest in equal annual installments over the respective vesting period, which is also the requisite service period.

Chubb's 2015 share-based compensation expense includes a portion of the cost related to the 2012 through 2015 stock option grants. Stock option fair value was estimated on the grant date using the Black-Scholes option-pricing model that uses the weighted-average assumptions noted below:

<table><tr><td rowspan="2"></td><td colspan="3">Years Ended December 31</td></tr><tr><td>2015</td><td>2014</td><td>2013</td></tr><tr><td>Dividend yield</td><td>2.3%</td><td>2.7%</td><td>2.4%</td></tr><tr><td>Expected volatility</td><td>21.0%</td><td>25.2%</td><td>27.8%</td></tr><tr><td>Risk-free interest rate</td><td>1.7%</td><td>1.7%</td><td>1.0%</td></tr><tr><td>Expected life</td><td>5.8 years</td><td>5.8 years</td><td>5.8 years</td></tr></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 Chubb's initial public trading date through the most recent quarter, and (c) implied volatility derived from Chubb's publicly traded options.



## NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries

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

<table><tr><td>(Intrinsic Value in millions of U.S. dollars)</td><td>Number of Options</td><td>Weighted-Average Exercise Price</td><td>Weighted-Average Fair Value</td><td>Total Intrinsic Value</td></tr><tr><td>Options outstanding, December 31, 2012</td><td>9,449,659</td><td>$ 55.03</td><td></td><td></td></tr><tr><td>Granted</td><td>1,821,063</td><td>$ 85.41</td><td>$ 17.29</td><td></td></tr><tr><td>Exercised</td><td>(1,658,671)</td><td>$ 48.17</td><td></td><td>$ 70</td></tr><tr><td>Forfeited</td><td>(115,195)</td><td>$ 72.50</td><td></td><td></td></tr><tr><td>Options outstanding, December 31, 2013</td><td>9,496,856</td><td>$ 61.84</td><td></td><td></td></tr><tr><td>Granted</td><td>1,782,903</td><td>$ 96.77</td><td>$ 18.00</td><td></td></tr><tr><td>Exercised</td><td>(1,511,948)</td><td>$ 54.84</td><td></td><td>$ 73</td></tr><tr><td>Forfeited</td><td>(143,825)</td><td>$ 84.52</td><td></td><td></td></tr><tr><td>Options outstanding, December 31, 2014</td><td>9,623,986</td><td>$ 69.06</td><td></td><td></td></tr><tr><td>Granted</td><td>1,892,641</td><td>$ 114.78</td><td>$ 18.49</td><td></td></tr><tr><td>Exercised</td><td>(1,457,580)</td><td>$ 60.88</td><td></td><td>$ 72</td></tr><tr><td>Forfeited</td><td>(205,551)</td><td>$ 100.25</td><td></td><td></td></tr><tr><td>Options outstanding, December 31, 2015</td><td>9,853,496</td><td>$ 78.40</td><td></td><td>$ 379</td></tr><tr><td>Options exercisable, December 31, 2015</td><td>6,424,800</td><td>$ 64.45</td><td></td><td>$ 337</td></tr></table>

The weighted-average remaining contractual term was 6.0 years for stock options outstanding and 4.7 years for stock options exercisable at December 31, 2015. Cash received from the exercise of stock options for the year ended December 31, 2015 was $86 million.

## Restricted stock and restricted stock units

Grants of restricted stock and restricted stock units granted under the 2004 LTIP typically have a 4-year vesting period, based on a graded vesting schedule. Chubb grants performance-based restricted stock to certain executives that vest based on tangible book value (shareholders' equity less goodwill and intangible assets) per share growth compared to a defined group of peer companies. The performance-based stock awards comprise target awards which have four installments that vest annually based on the performance criteria, and premium awards, which are earned only if tangible book value per share growth over the cumulative 4-year period after the grant of the associated target awards exceeds a higher threshold compared to our peer group. Shares representing target awards are issued when the performance award is approved. They are subject to forfeiture if applicable performance criteria are not met. For awards granted prior to February 2014, shares representing premium awards were not issued at the time the target award was approved. Rather, they were subject to issuance following the 4-year performance period, if and to the extent the premium awards were earned. For awards granted in February 2014 and thereafter, premium awards have been issued subject to vesting if actually earned or forfeited if not earned at the end of the four-year performance period. Chubb also grants restricted stock awards to non-management directors which vest at the following year's annual general meeting. The restricted stock is granted at market close price on the grant date. Each restricted stock unit represents our obligation to deliver to the holder one Common Share upon vesting. Chubb's 2015 share-based compensation expense includes a portion of the cost related to the restricted stock granted in the years 2011 through 2015.



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

The following table presents a roll-forward of our restricted stock awards. Included in the roll-forward below are 24,945 restricted stock awards, 25,339 restricted stock awards, and 20,969 restricted stock awards that were granted to non-management directors during the years ended December 31, 2015, 2014, and 2013, respectively:

<table><tr><td></td><td colspan="3">Service-based Restricted Stock Awards</td><td colspan="2">Performance-based Restricted Stock Awards</td></tr><tr><td></td><td colspan="2">Weighted-Average Grant-Date Fair Value</td><td colspan="2">Weighted-Average Grant-Date Fair Value</td><td></td></tr><tr><td></td><td>Number of Shares</td><td></td><td>Number of Shares</td><td></td><td>Number of Shares</td></tr><tr><td>Unvested restricted stock, December 31, 2012</td><td>4,015,732</td><td>$</td><td>59.51</td><td>239,115</td><td>$</td></tr><tr><td>Granted</td><td>1,347,679</td><td>$</td><td>85.61</td><td>196,806</td><td>$</td></tr><tr><td>Vested</td><td>(1,715,414)</td><td>$</td><td>54.97</td><td>(236,080)</td><td>$</td></tr><tr><td>Forfeited</td><td>(136,307)</td><td>$</td><td>67.68</td><td>(3,344)</td><td>$</td></tr><tr><td>Unvested restricted stock, December 31, 2013</td><td>3,511,690</td><td>$</td><td>71.42</td><td>196,497</td><td>$</td></tr><tr><td>Granted</td><td>1,295,734</td><td>$</td><td>97.04</td><td>374,202</td><td>$</td></tr><tr><td>Vested</td><td>(1,468,894)</td><td>$</td><td>68.00</td><td>(192,009)</td><td>$</td></tr><tr><td>Forfeited</td><td>(145,012)</td><td>$</td><td>81.73</td><td>—</td><td>$</td></tr><tr><td>Unvested restricted stock, December 31, 2014</td><td>3,193,518</td><td>$</td><td>82.91</td><td>378,690</td><td>$</td></tr><tr><td>Granted</td><td>1,124,143</td><td>$</td><td>114.28</td><td>326,860</td><td>$</td></tr><tr><td>Vested</td><td>(1,299,895)</td><td>$</td><td>79.49</td><td>(110,340)</td><td>$</td></tr><tr><td>Forfeited</td><td>(192,009)</td><td>$</td><td>95.54</td><td>—</td><td>$</td></tr><tr><td>Unvested restricted stock, December 31, 2015</td><td>2,825,757</td><td>$</td><td>96.10</td><td>595,210</td><td>$</td></tr></table>

During the years ended December 31, 2015, 2014, and 2013, Chubb awarded 293,822 restricted stock units, 300,511 restricted stock units, and 271,004 restricted stock units, respectively, to employees and officers each with a weighted-average grant date fair value per share of $114.71, $97.66, and $85.44, respectively. At December 31, 2015, there were 663,412 unvested restricted stock units.

Prior to 2009, Chubb granted restricted stock units with a 1-year vesting period to non-management directors. Delivery of Common Shares on account of these restricted stock units to non-management directors is deferred until after the date of the non-management directors' termination from the Board. At December 31, 2015, there were 145,751 deferred restricted stock units.

## ESPP

The ESPP gives participating employees the right to purchase Common Shares through payroll deductions during consecutive subscription periods at a purchase price of 85 percent of the fair value of a Common Share on the exercise date (Purchase Price). Annual purchases by participants are limited to the number of whole shares that can be purchased by an amount equal to ten percent of the participant's compensation or $25,000, whichever is less. The ESPP has two six-month subscription periods each year, the first of which runs between January 1 and June 30 and the second of which runs between July 1 and December 31. The amounts collected from participants during a subscription period are used on the exercise date to purchase full shares of Common Shares. An exercise date is generally the last trading day of a subscription period. The number of shares purchased is equal to the total amount, at the exercise date, collected from the participants through payroll deductions for that subscription period, divided by the Purchase Price, rounded down to the next full share. Participants may withdraw from an offering before the exercise date and obtain a refund of amounts withheld through payroll deductions. Pursuant to the provisions of the ESPP, during the years ended December 31, 2015, 2014, and 2013, employees paid $18 million, $17 million, and $14 million to purchase 197,442 shares, 181,901 shares, and 175,437 shares, respectively.



## 13. Pension plans

Chubb provides pension benefits to eligible employees and their dependents through various defined contribution plans and defined benefit plans sponsored by Chubb. The defined contribution plans include a capital accumulation plan (401(k)) in the U.S. At December 31, 2015, the defined benefit plans consist of various plans offered in certain jurisdictions primarily outside of the U.S. and Bermuda.

## Defined contribution plans (including 401(k))

Under these plans, employees' contributions may be supplemented by Chubb matching contributions based on the level of employee contribution. These contributions are invested at the election of each employee in one or more of several investment portfolios offered by a third-party investment advisor. Expenses for these plans totaled $117 million, $119 million, and $111 million for the years ended December 31, 2015, 2014, and 2013, respectively.

## Defined benefit plans

We maintain non-contributory defined benefit plans that cover certain employees, principally located in Europe, Asia, and Mexico. We also provide a defined benefit plan to certain U.S.-based employees as a result of our acquisition of Penn Millers. We account for pension benefits using the accrual method. Benefits under these plans are based on employees' years of service and compensation during final years of service. All underlying defined benefit plans are subject to periodic actuarial valuation by qualified local actuarial firms using actuarial models in calculating the pension expense and liability for each plan. We use December 31 as the measurement date for our defined benefit pension plans.

Components of the funded status of the pensions (included in Accounts payable, accrued expenses, and other liabilities in the consolidated balance sheets):

<table><tr><td>(in millions of U.S. dollars)</td><td colspan="2">December 31</td><td>December 31</td></tr><tr><td></td><td colspan="2">2015</td><td>2014</td></tr><tr><td>Fair value of plan assets</td><td>$     573</td><td>$     588</td><td></td></tr><tr><td>Projected benefit obligation</td><td>569</td><td></td><td>594</td></tr><tr><td>Funded status, end of year</td><td>$     4</td><td>$     6</td><td></td></tr></table>

At December 31, 2015, the defined benefit pension plan contribution for 2016 is expected to be $4 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 $29 million and $24 million for the years ended December 31, 2015 and 2014, respectively. Expected future payments are as follows:

<table><tr><td colspan="3">For the year ending December 31(in millions of U.S. dollars)</td></tr><tr><td>2016</td><td>$     20</td><td></td></tr><tr><td>2017</td><td>20</td><td></td></tr><tr><td>2018</td><td>23</td><td></td></tr><tr><td>2019</td><td>24</td><td></td></tr><tr><td>2020</td><td>24</td><td></td></tr><tr><td>2021-2025</td><td>126</td><td></td></tr></table>



## 14. Other (income) expense

<table><tr><td rowspan="2">(in millions of U.S. dollars)</td><td colspan="4">Year Ended December 31</td></tr><tr><td>2015</td><td>2014</td><td>2013</td><td></td></tr><tr><td>Equity in net (income) loss of partially-owned entities</td><td>$ (113)</td><td>$ (231)</td><td>$ (119)</td><td></td></tr><tr><td>(Gains) losses from fair value changes in separate account assets</td><td>19</td><td>(2)</td><td>(16)</td><td></td></tr><tr><td>Federal excise and capital taxes</td><td>19</td><td>20</td><td>24</td><td></td></tr><tr><td>Acquisition-related costs  \( {}^{(1)} \)</td><td>9</td><td>15</td><td>4</td><td></td></tr><tr><td>Other</td><td>15</td><td>8</td><td>27</td><td></td></tr><tr><td>Other (income) expense</td><td>$ (51)</td><td>$ (190)</td><td>$ (80)</td><td></td></tr></table>

(1) Excludes integration costs related to the Chubb acquisition.

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

Beginning in 2015, amortization of intangible assets are excluded from Other (income) expense and disclosed separately in the consolidated statements of operations. Prior year amounts have been reclassified to conform to the current year presentation.

## 15. Chubb integration expenses

Chubb integration expenses were $33 million for the year ended December 31, 2015 and include legal and professional fees and all external costs directly related to the integration activities of the Chubb acquisition.

## 16. Segment information

Through December 31, 2015, Chubb operated through five business segments: Insurance – North American P&C, Insurance – North American Agriculture, 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 P&C segment comprises our operations in the U.S., Canada, and Bermuda. This segment includes our retail divisions: ACE USA (including ACE Canada), ACE Commercial Risk Services, and ACE Private Risk Services, which includes the Fireman's Fund high net worth personal lines business acquired effective April 1, 2015; our wholesale and specialty divisions: ACE Westchester and ACE Bermuda; and various run-off operations, including Brandywine. ACE USA is the North American retail operating division which provides a broad array of traditional and specialty P&C, A&H, and risk management products and services to a diverse group of North America commercial and non-commercial enterprises and consumers. ACE Commercial Risk Services addresses the insurance needs of small and micro-sized businesses in North America by delivering a broad array of specialty product solutions for targeted industries that lend themselves to technology-assisted underwriting. ACE Private Risk Services provides high-value personal lines coverages for high net worth individuals and families in North America. ACE Westchester focuses on the North American wholesale distribution of excess and surplus lines property, casualty, environmental, professional liability, inland marine products and product recall coverages. ACE Bermuda provides commercial insurance products on an excess basis mainly to a global client base targeting Fortune 1000 companies and covering exposures that are generally low in frequency and high in severity including excess liability, D&O, professional liability, property insurance, and political risk, the latter being written by Sovereign Risk Insurance Ltd., a wholly-owned managing agent. The run-off operations do not actively sell insurance products but are responsible for the management of certain existing policies and settlement of related claims.

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



and services through our ACE Agribusiness unit. The MPCI program is offered in conjunction with the U.S. Department of Agriculture.

The Insurance – Overseas General segment comprises ACE International, ACE Global Markets (AGM), and the international supplemental A&H business of Combined Insurance. ACE International comprises our retail commercial P&C, A&H, and personal lines businesses serving territories outside the U.S., Bermuda, and Canada. 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 has five regions of operations: ACE Europe, ACE Asia Pacific, ACE Eurasia and Africa, ACE Far East, and ACE Latin America. ACE International writes a variety of insurance products including P&C, professional lines (directors and officers and errors and omissions), marine, energy, aviation, political risk, specialty consumer-oriented products, and A&H (principally accident and supplemental health). AGM, our London-based international specialty and excess and surplus lines business, includes Syndicate 2488, a wholly-owned ACE syndicate. AGM offers products through its parallel distribution network via ACE European Group Limited (AEGL) and Syndicate 2488. Chubb provides funds at Lloyd's to support underwriting by Syndicate 2488, which is managed by ACE Underwriting Agencies Limited. AGM uses Syndicate 2488 to underwrite P&C business on a global basis through Lloyd's worldwide licenses. AGM uses AEGL to underwrite similar classes of business through its network of U.K. and European licenses, and in the U.S. where it is eligible to write excess and surplus lines business. The reinsurance operation of AGM is included in the Global Reinsurance segment. Combined Insurance distributes a wide range of supplemental A&H products.

The Global Reinsurance segment represents Chubb's reinsurance operations comprising ACE Tempest Re Bermuda, ACE Tempest Re USA, ACE Tempest Re International, and ACE Tempest Re Canada. The Global Reinsurance segment also includes AGM's reinsurance operations. These divisions provide a broad range of traditional and specialty reinsurance products including property catastrophe, casualty, and property reinsurance coverages to a diverse array of primary P&C insurers.

The Life segment includes Chubb'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 a broad portfolio of protection and savings products including whole life, endowment plans, individual term life, group term life, group medical, personal accident, credit life, universal life and unit linked contracts through multiple distribution channels primarily in emerging markets including: Egypt, Hong Kong, Indonesia, South Korea, Taiwan, Thailand, and Vietnam; also throughout Latin America, selectively in Europe, and China through a non-consolidated joint venture insurance company. ACE Life Re helps clients (ceding companies) manage mortality, morbidity, and lapse risks embedded in their books of business. ACE Life Re's core business is a Bermuda-based operation which provides reinsurance to primary life insurers, focusing on guarantees included in certain fixed and variable annuity products and also on more traditional mortality reinsurance protection. ACE Life Re's U.S.-based traditional life reinsurance operation was discontinued for new business in January 2010. Since 2007, ACE Life Re has not quoted on new opportunities in the variable annuity reinsurance marketplace. Combined Insurance distributes specialty supplemental A&H and life insurance products targeted to middle income consumers and businesses in the U.S. and Canada.

Corporate includes the results of Chubb’s non-insurance subsidiaries, including Chubb Limited, ACE Group Management and Holdings Ltd., and ACE INA Holdings, Inc. Corporate results consist primarily of interest expense, corporate staff expenses, Chubb integration expenses and other expenses not attributable to specific reportable segments, and intersegment eliminations.

For segment reporting purposes, certain items have been presented in a different manner below than in the consolidated financial statements. Management uses underwriting income as the main measure of segment performance. Chubb calculates underwriting income by subtracting Losses and loss expenses, Policy benefits, Policy acquisition costs, and Administrative expenses from Net premiums earned. For the Insurance – North American Agriculture segment, management includes gains and losses on crop derivatives as a component of underwriting income. For 2015, underwriting income in our Insurance – North American Agriculture segment was $197 million. This amount includes $9 million of realized losses related to crop derivatives which are included in Net realized gains (losses) below. For the Life segment, management includes Net investment income and (Gains) losses from fair value changes in separate account assets that do not qualify for separate account reporting under GAAP as components of Life underwriting income. For example, for 2015, Life underwriting income of $282 million includes Net investment income of $265 million and losses from fair value changes in separate account assets of $19 million.



## NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries

The following tables present the Statement of Operations by segment:

<table><tr><td>For the Year Ended December 31, 2015 (in millions of U.S. dollars)</td><td>Insurance - North American P&amp;C</td><td>Insurance - North American Agriculture</td><td>Insurance - Overseas General</td><td>Global Reinsurance</td><td>Life</td><td>Corporate</td><td>Chubb Consolidated</td></tr><tr><td>Net premiums written</td><td>$ 6,907</td><td>$ 1,346</td><td>$ 6,634</td><td>$ 828</td><td>$ 1,998</td><td>$ —</td><td>$ 17,713</td></tr><tr><td>Net premiums earned</td><td>6,582</td><td>1,364</td><td>6,471</td><td>849</td><td>1,947</td><td>—</td><td>17,213</td></tr><tr><td>Losses and loss expenses</td><td>4,450</td><td>1,088</td><td>3,052</td><td>290</td><td>601</td><td>3</td><td>9,484</td></tr><tr><td>Policy benefits</td><td>—</td><td>—</td><td>—</td><td>—</td><td>543</td><td>—</td><td>543</td></tr><tr><td>Policy acquisition costs</td><td>600</td><td>69</td><td>1,581</td><td>214</td><td>476</td><td>1</td><td>2,941</td></tr><tr><td>Administrative expenses</td><td>748</td><td>1</td><td>997</td><td>49</td><td>291</td><td>184</td><td>2,270</td></tr><tr><td>Underwriting income (loss)</td><td>784</td><td>206</td><td>841</td><td>296</td><td>36</td><td>(188)</td><td>1,975</td></tr><tr><td>Net investment income</td><td>1,056</td><td>23</td><td>534</td><td>300</td><td>265</td><td>16</td><td>2,194</td></tr><tr><td>Net realized gains (losses) including OTTI</td><td>(108)</td><td>(8)</td><td>(38)</td><td>(32)</td><td>(229)</td><td>(5)</td><td>(420)</td></tr><tr><td>Interest expense</td><td>2</td><td>—</td><td>8</td><td>5</td><td>5</td><td>280</td><td>300</td></tr><tr><td>Other (income) expense:</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>(Gains) losses from fair value changes in separate account assets</td><td>—</td><td>—</td><td>—</td><td>—</td><td>19</td><td>—</td><td>19</td></tr><tr><td>Other</td><td>(29)</td><td>1</td><td>(16)</td><td>(6)</td><td>(39)</td><td>19</td><td>(70)</td></tr><tr><td>Amortization of intangible assets</td><td>78</td><td>30</td><td>61</td><td>—</td><td>2</td><td>—</td><td>171</td></tr><tr><td>Chubb integration expenses</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>33</td><td>33</td></tr><tr><td>Income tax expense (benefit)</td><td>316</td><td>40</td><td>232</td><td>26</td><td>30</td><td>(182)</td><td>462</td></tr><tr><td>Net income (loss)</td><td>$ 1,365</td><td>$ 150</td><td>$ 1,052</td><td>$ 539</td><td>$ 55</td><td>$ (327)</td><td>$ 2,834</td></tr></table>

<table><tr><td>For the Year Ended December 31, 2014 (in millions of U.S. dollars)</td><td>Insurance - North American P&amp;C</td><td>Insurance - North American Agriculture</td><td>Insurance - Overseas General</td><td>Global Reinsurance</td><td>Life</td><td>Corporate</td><td>Chubb Consolidated</td></tr><tr><td>Net premiums written</td><td>$ 6,263</td><td>$ 1,590</td><td>$ 6,999</td><td>$ 935</td><td>$ 2,012</td><td>$ —</td><td>$ 17,799</td></tr><tr><td>Net premiums earned</td><td>6,107</td><td>1,526</td><td>6,805</td><td>1,026</td><td>1,962</td><td>—</td><td>17,426</td></tr><tr><td>Losses and loss expenses</td><td>4,086</td><td>1,351</td><td>3,189</td><td>431</td><td>589</td><td>3</td><td>9,649</td></tr><tr><td>Policy benefits</td><td>—</td><td>—</td><td>—</td><td>—</td><td>517</td><td>—</td><td>517</td></tr><tr><td>Policy acquisition costs</td><td>634</td><td>81</td><td>1,625</td><td>257</td><td>478</td><td>—</td><td>3,075</td></tr><tr><td>Administrative expenses</td><td>678</td><td>9</td><td>1,026</td><td>54</td><td>285</td><td>193</td><td>2,245</td></tr><tr><td>Underwriting income (loss)</td><td>709</td><td>85</td><td>965</td><td>284</td><td>93</td><td>(196)</td><td>1,940</td></tr><tr><td>Net investment income</td><td>1,085</td><td>26</td><td>545</td><td>316</td><td>268</td><td>12</td><td>2,252</td></tr><tr><td>Net realized gains (losses) including OTTI</td><td>(67)</td><td>54</td><td>(78)</td><td>(29)</td><td>(383)</td><td>(4)</td><td>(507)</td></tr><tr><td>Interest expense</td><td>9</td><td>—</td><td>6</td><td>4</td><td>11</td><td>250</td><td>280</td></tr><tr><td>Other (income) expense:</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>(Gains) losses from fair value changes in separate account assets</td><td>—</td><td>—</td><td>—</td><td>—</td><td>(2)</td><td>—</td><td>(2)</td></tr><tr><td>Other</td><td>(101)</td><td>2</td><td>(63)</td><td>(54)</td><td>(1)</td><td>29</td><td>(188)</td></tr><tr><td>Amortization of intangible assets</td><td>—</td><td>31</td><td>74</td><td>—</td><td>3</td><td>—</td><td>108</td></tr><tr><td>Income tax expense (benefit)</td><td>306</td><td>33</td><td>378</td><td>38</td><td>46</td><td>(167)</td><td>634</td></tr><tr><td>Net income (loss)</td><td>$ 1,513</td><td>$ 99</td><td>$ 1,037</td><td>$ 583</td><td>$ (79)</td><td>$ (300)</td><td>$ 2,853</td></tr></table>



## NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries

<table><tr><td>For the Year Ended December 31, 2013 (in millions of U.S. dollars)</td><td>Insurance - North American P&amp;C</td><td>Insurance - North American Agriculture</td><td>Insurance - Overseas General</td><td>Global Reinsurance</td><td>Life</td><td>Corporate</td><td>Chubb Consolidated</td></tr><tr><td>Net premiums written</td><td>$ 5,915</td><td>$ 1,627</td><td>$ 6,520</td><td>$ 991</td><td>$ 1,972</td><td>$ —</td><td>$ 17,025</td></tr><tr><td>Net premiums earned</td><td>5,721</td><td>1,678</td><td>6,333</td><td>976</td><td>1,905</td><td>—</td><td>16,613</td></tr><tr><td>Losses and loss expenses</td><td>3,776</td><td>1,524</td><td>3,062</td><td>396</td><td>582</td><td>8</td><td>9,348</td></tr><tr><td>Policy benefits</td><td>—</td><td>—</td><td>—</td><td>—</td><td>515</td><td>—</td><td>515</td></tr><tr><td>Policy acquisition costs</td><td>597</td><td>53</td><td>1,453</td><td>197</td><td>358</td><td>1</td><td>2,659</td></tr><tr><td>Administrative expenses</td><td>601</td><td>11</td><td>1,008</td><td>50</td><td>343</td><td>198</td><td>2,211</td></tr><tr><td>Underwriting income (loss)</td><td>747</td><td>90</td><td>810</td><td>333</td><td>107</td><td>(207)</td><td>1,880</td></tr><tr><td>Net investment income</td><td>1,021</td><td>26</td><td>539</td><td>280</td><td>251</td><td>27</td><td>2,144</td></tr><tr><td>Net realized gains (losses) including OTTI</td><td>72</td><td>1</td><td>18</td><td>53</td><td>360</td><td>—</td><td>504</td></tr><tr><td>Interest expense</td><td>5</td><td>1</td><td>5</td><td>5</td><td>15</td><td>244</td><td>275</td></tr><tr><td>Other (income) expense:</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>(Gains) losses from fair value changes in separate account assets</td><td>—</td><td>—</td><td>—</td><td>—</td><td>(16)</td><td>—</td><td>(16)</td></tr><tr><td>Other</td><td>(58)</td><td>—</td><td>(21)</td><td>(19)</td><td>10</td><td>24</td><td>(64)</td></tr><tr><td>Amortization of intangible assets</td><td>—</td><td>32</td><td>60</td><td>—</td><td>3</td><td>—</td><td>95</td></tr><tr><td>Income tax expense (benefit)</td><td>347</td><td>20</td><td>222</td><td>36</td><td>34</td><td>(179)</td><td>480</td></tr><tr><td>Net income (loss)</td><td>$ 1,546</td><td>$ 64</td><td>$ 1,101</td><td>$ 644</td><td>$ 672</td><td>$ (269)</td><td>$ 3,758</td></tr></table>

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



## NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries

The following table presents net premiums earned for each segment by product:

<table><tr><td>(in millions of U.S. dollars)</td><td colspan="2">Property &amp; All Other</td><td colspan="2">Casualty</td><td>Life, Accident &amp; Health</td><td>Chubb Consolidated</td></tr><tr><td>For the Year Ended December 31, 2015</td><td>$</td><td>1,931</td><td>$</td><td>4,232</td><td>$</td><td>419</td></tr><tr><td>Insurance - North American P&amp;C</td><td>$</td><td>1,364</td><td>—</td><td>—</td><td>—</td><td>1,364</td></tr><tr><td>Insurance - North American Agriculture</td><td></td><td>2,868</td><td>1,537</td><td></td><td>2,066</td><td>6,471</td></tr><tr><td>Insurance - Overseas General</td><td></td><td>423</td><td>426</td><td></td><td>—</td><td>849</td></tr><tr><td>Global Reinsurance</td><td></td><td>—</td><td>—</td><td></td><td>1,947</td><td>1,947</td></tr><tr><td>Life</td><td>$</td><td>6,586</td><td>$</td><td>6,195</td><td>$</td><td>4,432</td></tr><tr><td>For the Year Ended December 31, 2014</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Insurance - North American P&amp;C</td><td>$</td><td>1,662</td><td>$</td><td>4,032</td><td>$</td><td>413</td></tr><tr><td>Insurance - North American Agriculture</td><td></td><td>1,526</td><td>—</td><td>—</td><td>—</td><td>1,526</td></tr><tr><td>Insurance - Overseas General</td><td></td><td>2,948</td><td>1,573</td><td></td><td>2,284</td><td>6,805</td></tr><tr><td>Global Reinsurance</td><td></td><td>551</td><td>475</td><td></td><td>—</td><td>1,026</td></tr><tr><td>Life</td><td>—</td><td>—</td><td>—</td><td></td><td>1,962</td><td>1,962</td></tr><tr><td></td><td>$</td><td>6,687</td><td>$</td><td>6,080</td><td>$</td><td>4,659</td></tr><tr><td>For the Year Ended December 31, 2013</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Insurance - North American P&amp;C</td><td>$</td><td>1,489</td><td>$</td><td>3,847</td><td>$</td><td>385</td></tr><tr><td>Insurance - North American Agriculture</td><td></td><td>1,678</td><td>—</td><td>—</td><td>—</td><td>1,678</td></tr><tr><td>Insurance - Overseas General</td><td></td><td>2,672</td><td>1,479</td><td></td><td>2,182</td><td>6,333</td></tr><tr><td>Global Reinsurance</td><td></td><td>543</td><td>433</td><td></td><td>—</td><td>976</td></tr><tr><td>Life</td><td>—</td><td>—</td><td>—</td><td></td><td>1,905</td><td>1,905</td></tr><tr><td></td><td>$</td><td>6,382</td><td>$</td><td>5,759</td><td>$</td><td>4,472</td></tr><tr><td>The following table presents net premiums earned by geographic region. Allocations have been made on the basis of location of risk:</td><td></td><td></td><td></td><td></td><td></td><td></td></tr></table>

<table><tr><td>Years Ended December 31</td><td>North America</td><td>Europe \( ^{(1)} \)</td><td>Asia Pacific/Far East</td><td>Latin America</td></tr><tr><td>2015</td><td>60%</td><td>15%</td><td>15%</td><td>10%</td></tr><tr><td>2014</td><td>58%</td><td>16%</td><td>16%</td><td>10%</td></tr><tr><td>2013</td><td>58%</td><td>17%</td><td>16%</td><td>9%</td></tr></table>

 \( ^{(1)} \)  Europe includes Eurasia and Africa region.



## 17. Earnings per share

<table><tr><td>(in millions of U.S. dollars, except share and per share data)</td><td colspan="2">2015</td><td colspan="2">2014</td><td>2013</td></tr><tr><td>Numerator:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Net income</td><td>$     2,834</td><td>$     2,853</td><td>$     3,758</td><td></td><td></td></tr><tr><td>Denominator:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Denominator for basic earnings per share:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Weighted-average shares outstanding</td><td>325,589,361</td><td>335,609,899</td><td>340,906,490</td><td></td><td></td></tr><tr><td>Denominator for diluted earnings per share:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Share-based compensation plans</td><td>3,246,017</td><td>3,376,388</td><td>3,241,085</td><td></td><td></td></tr><tr><td>Weighted-average shares outstanding and assumed conversions</td><td>328,835,378</td><td>338,986,287</td><td>344,147,575</td><td></td><td></td></tr><tr><td>Basic earnings per share</td><td>$     8.71</td><td>$     8.50</td><td>$     11.02</td><td></td><td></td></tr><tr><td>Diluted earnings per share</td><td>$     8.62</td><td>$     8.42</td><td>$     10.92</td><td></td><td></td></tr><tr><td>Potential anti-dilutive share conversions</td><td>1,601,668</td><td>1,024,788</td><td>1,031,297</td><td></td><td></td></tr></table>

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

## 18. Related party transactions

## Starr Technical Risks Agency, Inc. and its affiliates (Starr)

We have agency agreements with Starr, an indirect wholly-owned subsidiary of Starr International Company, Inc. whose chairman is related to a member of our senior management team. Our Board reviewed and approved our arrangements with Starr, and they also review and approve aggregate amounts paid to Starr on a regular basis. Under these agreements, we secure the ability to sell our insurance policies through Starr as one of our non-exclusive agents for writing policies, contracts, binders, or agreements of insurance or reinsurance. For the years ended December 31, 2015, 2014, and 2013 we generated $305 million, $314 million, and $307 million, respectively, in gross premiums written through these agreements. In addition, we ceded $78 million, $84 million, and $86 million to Starr as part of our reinsurance program on the underlying business for the years ended December 31, 2015, 2014, and 2013, respectively. We paid net commissions of $41 million, $43 million, and $42 million and incurred net Losses and loss expenses of $137 million, $91 million, and $70 million, respectively, for the years ended December 31, 2015, 2014, and 2013, under these agreements.

The agency agreements also contain a profit-sharing arrangement based on loss ratios, triggered if Starr underwrites a minimum of $20 million of annual program business net written premiums on our behalf. No profit share commission has been payable yet.

Reinsurance recoverable on losses and loss expenses due from Starr was $112 million and $101 million, respectively, and the amount of ceded reinsurance premium payable included in Insurance and reinsurance balances payable in the consolidated balance sheet was $18 million and $21 million, respectively.

## The ACE Foundation – Bermuda

The ACE Foundation is an unconsolidated not-for-profit organization whose primary purpose is to fund charitable causes in Bermuda. The Trustees are principally Chubb management. Chubb maintains a non-interest bearing demand note receivable from the ACE Foundation – Bermuda (Borrower), the balance of which was $24 million and $25 million, at December 31, 2015 and 2014, respectively. The receivable is included in Other assets in the consolidated balance sheets. The Borrower has used the related proceeds to finance investments in Bermuda real estate, some of which have been rented to Chubb employees at rates established by independent, professional real estate appraisers. The Borrower uses income from the investments to both repay the note and to fund charitable activities. Accordingly, we report the demand note at the lower of its principal value or the fair value of assets held by the Borrower to repay the loan, including the real estate properties.



## 19. Statutory financial information

Our subsidiaries file financial statements prepared in accordance with statutory accounting practices prescribed or permitted by insurance regulators. Statutory accounting differs from GAAP in the reporting of certain reinsurance contracts, investments, subsidiaries, acquisition expenses, fixed assets, deferred income taxes, and certain other items. Some jurisdictions impose complex regulatory requirements on insurance companies while other jurisdictions impose fewer requirements. In some jurisdictions, we must obtain licenses issued by governmental authorities to conduct local insurance business. These licenses may be subject to reserves and minimum capital and solvency tests. Jurisdictions may impose fines, censure, and/or criminal sanctions for violation of regulatory requirements. The 2015 amounts below are based on estimates.

Chubb's insurance and reinsurance subsidiaries are subject to insurance laws and regulations in the jurisdictions in which they operate. These regulations include restrictions that limit the amount of dividends or other distributions, such as loans or cash advances, available to shareholders without prior approval of the local insurance regulatory authorities. The amount of dividends available to be paid in 2016 without prior approval totals $4.1 billion.

The statutory capital and surplus of our insurance subsidiaries met regulatory requirements for 2015, 2014, and 2013. The minimum amounts of statutory capital and surplus necessary to satisfy regulatory requirements was $14.5 billion and $14.8 billion for December 31, 2015 and 2014, respectively. These minimum regulatory capital requirements were significantly lower than the corresponding amounts required by the rating agencies which review Chubb's insurance and reinsurance subsidiaries.

The following tables present the combined statutory capital and surplus and statutory net income (loss) of our Property and casualty and Life subsidiaries:

<table><tr><td rowspan="2">(in millions of U.S. dollars)</td><td colspan="3">December 31</td></tr><tr><td>2015</td><td>2014</td><td></td></tr><tr><td>Statutory capital and surplus</td><td></td><td></td><td></td></tr><tr><td>Property and casualty</td><td>$ 20,072</td><td>$ 25,805</td><td></td></tr><tr><td>Life</td><td>$ 1,216</td><td>$ 1,463</td><td></td></tr></table>

<table><tr><td rowspan="2">(in millions of U.S. dollars)</td><td colspan="3">Year Ended December 31</td></tr><tr><td>2015</td><td>2014</td><td>2013</td></tr><tr><td>Statutory net income (loss)</td><td></td><td></td><td></td></tr><tr><td>Property and casualty</td><td>$ 2,770</td><td>$ 3,378</td><td>$ 3,333</td></tr><tr><td>Life</td><td>$ (148)</td><td>$ (248)</td><td>$ 409</td></tr></table>

The decrease in statutory capital and surplus in 2015 was primarily due to intercompany dividends declared to holding companies in anticipation of the Chubb acquisition.

Several insurance subsidiaries follow accounting practices prescribed or permitted by the jurisdiction of domicile that differ from the applicable local statutory practice. The application of prescribed or permitted accounting practices does not have a material impact on Chubb's statutory surplus and income. As prescribed by the Restructuring discussed previously in Note 7, certain of our U.S. subsidiaries discount certain A&E liabilities, which increased statutory capital and surplus by approximately $144 million and $158 million at December 31, 2015 and 2014, respectively.



## 20. Information provided in connection with outstanding debt of subsidiaries

The following tables present condensed consolidating financial information at December 31, 2015 and December 31, 2014, and for the years ended December 31, 2015, 2014, and 2013 for Chubb Limited (Parent Guarantor) and ACE INA Holdings, Inc. (Subsidiary Issuer). The Subsidiary Issuer is an indirect 100 percent-owned subsidiary of the Parent Guarantor. The Parent Guarantor fully and unconditionally guarantees certain of the debt of the Subsidiary Issuer. Condensed consolidating financial information of the Parent Guarantor and Subsidiary Issuer are presented on the equity method of accounting. The revenues and expenses and cash flows of the subsidiaries of the Subsidiary Issuer are presented in the Other Chubb Limited Subsidiaries column on a combined basis.

## Condensed Consolidating Balance Sheet at December 31, 2015

<table><tr><td>(in millions of U.S. dollars)</td><td>Chubb Limited (Parent Guarantor)</td><td>ACE INA Holdings Inc. (Subsidiary Issuer)</td><td>Other Chubb Limited Subsidiaries</td><td>Consolidating Adjustments and Eliminations</td><td>Chubb Limited Consolidated</td></tr><tr><td>Assets</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Investments</td><td>$ 28</td><td>$ 7,839</td><td>$ 58,384</td><td>$ —</td><td>$ 66,251</td></tr><tr><td>Cash(1)</td><td>1</td><td>2</td><td>2,743</td><td>(971)</td><td>1,775</td></tr><tr><td>Insurance and reinsurance balances receivable</td><td>—</td><td>—</td><td>6,075</td><td>(752)</td><td>5,323</td></tr><tr><td>Reinsurance recoverable on losses and loss expenses</td><td>—</td><td>—</td><td>20,124</td><td>(8,738)</td><td>11,386</td></tr><tr><td>Reinsurance recoverable on policy benefits</td><td>—</td><td>—</td><td>1,129</td><td>(942)</td><td>187</td></tr><tr><td>Value of business acquired</td><td>—</td><td>—</td><td>395</td><td>—</td><td>395</td></tr><tr><td>Goodwill and other intangible assets</td><td>—</td><td>—</td><td>5,683</td><td>—</td><td>5,683</td></tr><tr><td>Investments in subsidiaries</td><td>29,612</td><td>18,386</td><td>—</td><td>(47,998)</td><td>—</td></tr><tr><td>Due from subsidiaries and affiliates, net</td><td>644</td><td>1,800</td><td>—</td><td>(2,444)</td><td>—</td></tr><tr><td>Other assets</td><td>8</td><td>517</td><td>14,434</td><td>(3,593)</td><td>11,366</td></tr><tr><td>Total assets</td><td>$ 30,293</td><td>$ 28,544</td><td>$ 108,967</td><td>$ (65,438)</td><td>$ 102,366</td></tr><tr><td>Liabilities</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Unpaid losses and loss expenses</td><td>$ —</td><td>$ —</td><td>$ 45,490</td><td>$ (8,187)</td><td>$ 37,303</td></tr><tr><td>Unearned premiums</td><td>—</td><td>—</td><td>10,243</td><td>(1,804)</td><td>8,439</td></tr><tr><td>Future policy benefits</td><td>—</td><td>—</td><td>5,749</td><td>(942)</td><td>4,807</td></tr><tr><td>Due to subsidiaries and affiliates, net</td><td>—</td><td>—</td><td>2,444</td><td>(2,444)</td><td>—</td></tr><tr><td>Affiliated notional cash pooling programs(1)</td><td>882</td><td>89</td><td>—</td><td>(971)</td><td>—</td></tr><tr><td>Repurchase agreements</td><td>—</td><td>—</td><td>1,404</td><td>—</td><td>1,404</td></tr><tr><td>Long-term debt</td><td>—</td><td>9,436</td><td>11</td><td>—</td><td>9,447</td></tr><tr><td>Trust preferred securities</td><td>—</td><td>309</td><td>—</td><td>—</td><td>309</td></tr><tr><td>Other liabilities</td><td>276</td><td>1,422</td><td>12,916</td><td>(3,092)</td><td>11,522</td></tr><tr><td>Total liabilities</td><td>1,158</td><td>11,256</td><td>78,257</td><td>(17,440)</td><td>73,231</td></tr><tr><td>Total shareholders&#x27; equity</td><td>29,135</td><td>17,288</td><td>30,710</td><td>(47,998)</td><td>29,135</td></tr><tr><td>Total liabilities and shareholders&#x27; equity</td><td>$ 30,293</td><td>$ 28,544</td><td>$ 108,967</td><td>$ (65,438)</td><td>$ 102,366</td></tr></table>

(1) Chubb maintains two notional multicurrency cash pools (Pools) with a third-party bank. Refer to Note 1 f) for additional information. At December 31, 2015, the cash balance of one or more entities was negative; however, the overall Pool balances were positive.



## NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries

## Condensed Consolidating Balance Sheet at December 31, 2014

<table><tr><td>(in millions of U.S. dollars)</td><td>Chubb Limited (Parent Guarantor)</td><td>ACE INA Holdings Inc. (Subsidiary Issuer)</td><td>Other Chubb Limited Subsidiaries</td><td>Consolidating Adjustments and Eliminations</td><td>Chubb Limited Consolidated</td></tr><tr><td>Assets</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Investments</td><td>$ 30</td><td>$ 225</td><td>$ 62,649</td><td>$ —</td><td>$ 62,904</td></tr><tr><td>Cash(1)</td><td>—</td><td>1</td><td>1,209</td><td>(555)</td><td>655</td></tr><tr><td>Insurance and reinsurance balances receivable</td><td>—</td><td>—</td><td>6,178</td><td>(752)</td><td>5,426</td></tr><tr><td>Reinsurance recoverable on losses and loss expenses</td><td>—</td><td>—</td><td>20,992</td><td>(9,000)</td><td>11,992</td></tr><tr><td>Reinsurance recoverable on policy benefits</td><td>—</td><td>—</td><td>1,194</td><td>(977)</td><td>217</td></tr><tr><td>Value of business acquired</td><td>—</td><td>—</td><td>466</td><td>—</td><td>466</td></tr><tr><td>Goodwill and other intangible assets</td><td>—</td><td>—</td><td>5,724</td><td>—</td><td>5,724</td></tr><tr><td>Investments in subsidiaries</td><td>29,497</td><td>18,762</td><td>—</td><td>(48,259)</td><td>—</td></tr><tr><td>Due from subsidiaries and affiliates, net</td><td>583</td><td>—</td><td>—</td><td>(583)</td><td>—</td></tr><tr><td>Other assets</td><td>4</td><td>295</td><td>14,196</td><td>(3,631)</td><td>10,864</td></tr><tr><td>Total assets</td><td>$ 30,114</td><td>$ 19,283</td><td>$ 112,608</td><td>$ (63,757)</td><td>$ 98,248</td></tr><tr><td>Liabilities</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Unpaid losses and loss expenses</td><td>$ —</td><td>$ —</td><td>$ 46,770</td><td>$ (8,455)</td><td>$ 38,315</td></tr><tr><td>Unearned premiums</td><td>—</td><td>—</td><td>9,958</td><td>(1,736)</td><td>8,222</td></tr><tr><td>Future policy benefits</td><td>—</td><td>—</td><td>5,731</td><td>(977)</td><td>4,754</td></tr><tr><td>Due to subsidiaries and affiliates, net</td><td>—</td><td>422</td><td>161</td><td>(583)</td><td>—</td></tr><tr><td>Affiliated notional cash pooling programs(1)</td><td>246</td><td>309</td><td>—</td><td>(555)</td><td>—</td></tr><tr><td>Repurchase agreements</td><td>—</td><td>—</td><td>1,402</td><td>—</td><td>1,402</td></tr><tr><td>Short-term debt</td><td>—</td><td>1,150</td><td>—</td><td>—</td><td>1,150</td></tr><tr><td>Long-term debt</td><td>—</td><td>3,345</td><td>12</td><td>—</td><td>3,357</td></tr><tr><td>Trust preferred securities</td><td>—</td><td>309</td><td>—</td><td>—</td><td>309</td></tr><tr><td>Other liabilities</td><td>281</td><td>1,404</td><td>12,659</td><td>(3,192)</td><td>11,152</td></tr><tr><td>Total liabilities</td><td>527</td><td>6,939</td><td>76,693</td><td>(15,498)</td><td>68,661</td></tr><tr><td>Total shareholders&#x27; equity</td><td>29,587</td><td>12,344</td><td>35,915</td><td>(48,259)</td><td>29,587</td></tr><tr><td>Total liabilities and shareholders&#x27; equity</td><td>$ 30,114</td><td>$ 19,283</td><td>$ 112,608</td><td>$ (63,757)</td><td>$ 98,248</td></tr></table>

(1) Chubb maintains two notional multicurrency cash pools (Pools) with a third-party bank. Refer to Note 1 f) for additional information. At December 31, 2014, the cash balance of one or more entities was negative; however, the overall Pool balances were positive.



## NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries

## Condensed Consolidating Statements of Operations and Comprehensive Income

<table><tr><td>For the Year Ended December 31, 2015 (in millions of U.S. dollars)</td><td>Chubb Limited (Parent Guarantor)</td><td>ACE INA Holdings Inc. (Subsidiary Issuer)</td><td>Other Chubb Limited Subsidiaries</td><td>Consolidating Adjustments and Eliminations</td><td>Chubb Limited Consolidated</td></tr><tr><td>Net premiums written</td><td>$ —</td><td>$ —</td><td>$ 17,713</td><td>$ —</td><td>$ 17,713</td></tr><tr><td>Net premiums earned</td><td>—</td><td>—</td><td>17,213</td><td>—</td><td>17,213</td></tr><tr><td>Net investment income</td><td>3</td><td>4</td><td>2,187</td><td>—</td><td>2,194</td></tr><tr><td>Equity in earnings of subsidiaries</td><td>2,673</td><td>1,038</td><td>—</td><td>(3,711)</td><td>—</td></tr><tr><td>Net realized gains (losses) including OTTI</td><td>—</td><td>(9)</td><td>(411)</td><td>—</td><td>(420)</td></tr><tr><td>Losses and loss expenses</td><td>—</td><td>—</td><td>9,484</td><td>—</td><td>9,484</td></tr><tr><td>Policy benefits</td><td>—</td><td>—</td><td>543</td><td>—</td><td>543</td></tr><tr><td>Policy acquisition costs and administrative expenses</td><td>63</td><td>28</td><td>5,120</td><td>—</td><td>5,211</td></tr><tr><td>Interest (income) expense</td><td>(32)</td><td>302</td><td>30</td><td>—</td><td>300</td></tr><tr><td>Other (income) expense</td><td>(208)</td><td>(4)</td><td>161</td><td>—</td><td>(51)</td></tr><tr><td>Amortization of intangible assets</td><td>—</td><td>—</td><td>171</td><td>—</td><td>171</td></tr><tr><td>Chubb integration expenses</td><td>3</td><td>29</td><td>1</td><td>—</td><td>33</td></tr><tr><td>Income tax expense (benefit)</td><td>16</td><td>(349)</td><td>795</td><td>—</td><td>462</td></tr><tr><td>Net income</td><td>$ 2,834</td><td>$ 1,027</td><td>$ 2,684</td><td>$ (3,711)</td><td>$ 2,834</td></tr><tr><td>Comprehensive income (loss)</td><td>$ 908</td><td>$ (192)</td><td>$ 757</td><td>$ (565)</td><td>$ 908</td></tr></table>

## Condensed Consolidating Statements of Operations and Comprehensive Income

<table><tr><td>For the Year Ended December 31, 2014 (in millions of U.S. dollars)</td><td>Chubb Limited (Parent Guarantor)</td><td>ACE INA Holdings Inc. (Subsidiary Issuer)</td><td>Other Chubb Limited Subsidiaries</td><td>Consolidating Adjustments and Eliminations</td><td>Chubb Limited Consolidated</td></tr><tr><td>Net premiums written</td><td>$ —</td><td>$ —</td><td>$ 17,799</td><td>$ —</td><td>$ 17,799</td></tr><tr><td>Net premiums earned</td><td>—</td><td>—</td><td>17,426</td><td>—</td><td>17,426</td></tr><tr><td>Net investment income</td><td>2</td><td>2</td><td>2,248</td><td>—</td><td>2,252</td></tr><tr><td>Equity in earnings of subsidiaries</td><td>2,707</td><td>791</td><td>—</td><td>(3,498)</td><td>—</td></tr><tr><td>Net realized gains (losses) including OTTI</td><td>—</td><td>53</td><td>(560)</td><td>—</td><td>(507)</td></tr><tr><td>Losses and loss expenses</td><td>—</td><td>—</td><td>9,649</td><td>—</td><td>9,649</td></tr><tr><td>Policy benefits</td><td>—</td><td>—</td><td>517</td><td>—</td><td>517</td></tr><tr><td>Policy acquisition costs and administrative expenses</td><td>78</td><td>26</td><td>5,216</td><td>—</td><td>5,320</td></tr><tr><td>Interest (income) expense</td><td>(35)</td><td>277</td><td>38</td><td>—</td><td>280</td></tr><tr><td>Other (income) expense</td><td>(201)</td><td>27</td><td>(16)</td><td>—</td><td>(190)</td></tr><tr><td>Amortization of intangible assets</td><td>—</td><td>—</td><td>108</td><td>—</td><td>108</td></tr><tr><td>Income tax expense (benefit)</td><td>14</td><td>(94)</td><td>714</td><td>—</td><td>634</td></tr><tr><td>Net income</td><td>$ 2,853</td><td>$ 610</td><td>$ 2,888</td><td>$ (3,498)</td><td>$ 2,853</td></tr><tr><td>Comprehensive income</td><td>$ 2,892</td><td>$ 583</td><td>$ 2,926</td><td>$ (3,509)</td><td>$ 2,892</td></tr></table>



## NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries

## Condensed Consolidating Statements of Operations and Comprehensive Income

<table><tr><td>For the Year Ended December 31, 2013 (in millions of U.S. dollars)</td><td>Chubb Limited (Parent Guarantor)</td><td>ACE INA Holdings Inc. (Subsidiary Issuer)</td><td>Other Chubb Limited Subsidiaries</td><td>Consolidating Adjustments and Eliminations</td><td>Chubb Limited Consolidated</td></tr><tr><td>Net premiums written</td><td>$ —</td><td>$ —</td><td>$ 17,025</td><td>$ —</td><td>$ 17,025</td></tr><tr><td>Net premiums earned</td><td>—</td><td>—</td><td>16,613</td><td>—</td><td>16,613</td></tr><tr><td>Net investment income</td><td>2</td><td>3</td><td>2,139</td><td>—</td><td>2,144</td></tr><tr><td>Equity in earnings of subsidiaries</td><td>3,580</td><td>942</td><td>—</td><td>(4,522)</td><td>—</td></tr><tr><td>Net realized gains (losses) including OTTI</td><td>—</td><td>(2)</td><td>506</td><td>—</td><td>504</td></tr><tr><td>Losses and loss expenses</td><td>—</td><td>—</td><td>9,348</td><td>—</td><td>9,348</td></tr><tr><td>Policy benefits</td><td>—</td><td>—</td><td>515</td><td>—</td><td>515</td></tr><tr><td>Policy acquisition costs and administrative expenses</td><td>60</td><td>19</td><td>4,791</td><td>—</td><td>4,870</td></tr><tr><td>Interest (income) expense</td><td>(32)</td><td>270</td><td>37</td><td>—</td><td>275</td></tr><tr><td>Other (income) expense</td><td>(221)</td><td>27</td><td>114</td><td>—</td><td>(80)</td></tr><tr><td>Amortization of intangible assets</td><td>—</td><td>—</td><td>95</td><td>—</td><td>95</td></tr><tr><td>Income tax expense (benefit)</td><td>17</td><td>(108)</td><td>571</td><td>—</td><td>480</td></tr><tr><td>Net income</td><td>$ 3,758</td><td>$ 735</td><td>$ 3,787</td><td>$ (4,522)</td><td>$ 3,758</td></tr><tr><td>Comprehensive income (loss)</td><td>$ 2,023</td><td>$ (230)</td><td>$ 2,051</td><td>$ (1,821)</td><td>$ 2,023</td></tr></table>



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

## Condensed Consolidating Statement of Cash Flows

<table><tr><td>For the Year Ended December 31, 2015 (in millions of U.S. dollars)</td><td>Chubb Limited (Parent Guarantor)</td><td>ACE INA Holdings Inc. (Subsidiary Issuer)</td><td>Other Chubb Limited Subsidiaries</td><td>Consolidating Adjustments and Eliminations</td><td>Chubb Limited Consolidated</td></tr><tr><td>Net cash flows from operating activities</td><td>$ 3,125</td><td>$ 682</td><td>$ 3,836</td><td>$ (3,779)</td><td>$ 3,864</td></tr><tr><td>Cash flows from investing activities</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Purchases of fixed maturities available for sale</td><td>—</td><td>—</td><td>(16,053)</td><td>(18)</td><td>(16,071)</td></tr><tr><td>Purchases of fixed maturities held to maturity</td><td>—</td><td>—</td><td>(62)</td><td>—</td><td>(62)</td></tr><tr><td>Purchases of equity securities</td><td>—</td><td>—</td><td>(158)</td><td>—</td><td>(158)</td></tr><tr><td>Sales of fixed maturities available for sale</td><td>—</td><td>—</td><td>10,814</td><td>—</td><td>10,814</td></tr><tr><td>Sales of equity securities</td><td>—</td><td>—</td><td>183</td><td>—</td><td>183</td></tr><tr><td>Maturities and redemptions of fixed maturities available for sale</td><td>—</td><td>—</td><td>6,567</td><td>—</td><td>6,567</td></tr><tr><td>Maturities and redemptions of fixed maturities held to maturity</td><td>—</td><td>—</td><td>669</td><td>—</td><td>669</td></tr><tr><td>Net change in short-term investments</td><td>—</td><td>(7,588)</td><td>(628)</td><td>—</td><td>(8,216)</td></tr><tr><td>Net derivative instruments settlements</td><td>—</td><td>(9)</td><td>(12)</td><td>—</td><td>(21)</td></tr><tr><td>Acquisition of subsidiaries (net of cash acquired of $629)</td><td>—</td><td>—</td><td>264</td><td>—</td><td>264</td></tr><tr><td>Capital contribution</td><td>(2,670)</td><td>(625)</td><td>(2,791)</td><td>6,086</td><td>—</td></tr><tr><td>Other</td><td>—</td><td>(25)</td><td>(256)</td><td>18</td><td>(263)</td></tr><tr><td>Net cash flows used for investing activities</td><td>(2,670)</td><td>(8,247)</td><td>(1,463)</td><td>6,086</td><td>(6,294)</td></tr><tr><td>Cash flows from financing activities</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Dividends paid on Common Shares</td><td>(862)</td><td>—</td><td>—</td><td>—</td><td>(862)</td></tr><tr><td>Common Shares repurchased</td><td>—</td><td>—</td><td>(758)</td><td>—</td><td>(758)</td></tr><tr><td>Proceeds from issuance of long-term debt</td><td>—</td><td>6,090</td><td>—</td><td>—</td><td>6,090</td></tr><tr><td>Proceeds from issuance of repurchase agreements</td><td>—</td><td>—</td><td>2,029</td><td>—</td><td>2,029</td></tr><tr><td>Repayment of long-term debt</td><td>—</td><td>(1,150)</td><td>—</td><td>—</td><td>(1,150)</td></tr><tr><td>Repayment of repurchase agreements</td><td>—</td><td>—</td><td>(2,027)</td><td>—</td><td>(2,027)</td></tr><tr><td>Proceeds from share-based compensation plans, including windfall tax benefits</td><td>—</td><td>—</td><td>131</td><td>—</td><td>131</td></tr><tr><td>Advances (to) from affiliates</td><td>(228)</td><td>95</td><td>133</td><td>—</td><td>—</td></tr><tr><td>Dividends to parent company</td><td>—</td><td>—</td><td>(3,779)</td><td>3,779</td><td>—</td></tr><tr><td>Capital contribution</td><td>—</td><td>2,791</td><td>3,295</td><td>(6,086)</td><td>—</td></tr><tr><td>Net proceeds from affiliated notional cash pooling programs(1)</td><td>636</td><td>(220)</td><td>—</td><td>(416)</td><td>—</td></tr><tr><td>Policyholder contract deposits</td><td>—</td><td>—</td><td>503</td><td>—</td><td>503</td></tr><tr><td>Policyholder contract withdrawals</td><td>—</td><td>—</td><td>(221)</td><td>—</td><td>(221)</td></tr><tr><td>Other</td><td>—</td><td>(40)</td><td>—</td><td>—</td><td>(40)</td></tr><tr><td>Net cash flows (used for) from financing activities</td><td>(454)</td><td>7,566</td><td>(694)</td><td>(2,723)</td><td>3,695</td></tr><tr><td>Effect of foreign currency rate changes on cash and cash equivalents</td><td>—</td><td>—</td><td>(145)</td><td>—</td><td>(145)</td></tr><tr><td>Net (decrease) increase in cash</td><td>1</td><td>1</td><td>1,534</td><td>(416)</td><td>1,120</td></tr><tr><td>Cash - beginning of year(1)</td><td>—</td><td>1</td><td>1,209</td><td>(555)</td><td>655</td></tr><tr><td>Cash - end of year(1)</td><td>$ 1</td><td>$ 2</td><td>$ 2,743</td><td>$ (971)</td><td>$ 1,775</td></tr></table>

(1) Chubb maintains two notional multi-currency cash pools (Pools) with a third-party bank. Refer to Note 1 f) for additional information. At December 31, 2015 and 2014, the cash balance of one or more entities was negative; however, the overall Pool balances were positive.



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

## Condensed Consolidating Statement of Cash Flows

<table><tr><td>For the Year Ended December 31, 2014(in millions of U.S. dollars)</td><td>Chubb Limited(ParentGuarantor)</td><td>ACE INAHoldings Inc.(SubsidiaryIssuer)</td><td>Other ChubbLimitedSubsidiaries</td><td>ConsolidatingAdjustmentsandEliminations</td><td>Chubb LimitedConsolidated</td></tr><tr><td>Net cash flows from (used for) operating activities</td><td>$ 541</td><td>$ 210</td><td>$ 4,419</td><td>$ (674)</td><td>$ 4,496</td></tr><tr><td>Cash flows from investing activities</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Purchases of fixed maturities available for sale</td><td>—</td><td>—</td><td>(15,816)</td><td>263</td><td>(15,553)</td></tr><tr><td>Purchases of fixed maturities held to maturity</td><td>—</td><td>—</td><td>(267)</td><td>—</td><td>(267)</td></tr><tr><td>Purchases of equity securities</td><td>—</td><td>—</td><td>(251)</td><td>—</td><td>(251)</td></tr><tr><td>Sales of fixed maturities available for sale</td><td>—</td><td>—</td><td>7,750</td><td>(268)</td><td>7,482</td></tr><tr><td>Sales of equity securities</td><td>—</td><td>—</td><td>670</td><td>—</td><td>670</td></tr><tr><td>Maturities and redemptions of fixed maturities available for sale</td><td>—</td><td>—</td><td>6,413</td><td>—</td><td>6,413</td></tr><tr><td>Maturities and redemptions of fixed maturities held to maturity</td><td>—</td><td>—</td><td>875</td><td>—</td><td>875</td></tr><tr><td>Net change in short-term investments</td><td>—</td><td>(216)</td><td>(392)</td><td>5</td><td>(603)</td></tr><tr><td>Net derivative instruments settlements</td><td>—</td><td>53</td><td>(283)</td><td>—</td><td>(230)</td></tr><tr><td>Acquisition of subsidiaries (net of cash acquired of $20)</td><td>—</td><td>—</td><td>(766)</td><td>—</td><td>(766)</td></tr><tr><td>Capital contribution</td><td>—</td><td>(258)</td><td>—</td><td>258</td><td>—</td></tr><tr><td>Other</td><td>—</td><td>(8)</td><td>(266)</td><td>—</td><td>(274)</td></tr><tr><td>Net cash flows used for investing activities</td><td>—</td><td>(429)</td><td>(2,333)</td><td>258</td><td>(2,504)</td></tr><tr><td>Cash flows from financing activities</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Dividends paid on Common Shares</td><td>(862)</td><td>—</td><td>—</td><td>—</td><td>(862)</td></tr><tr><td>Common Shares repurchased</td><td>—</td><td>—</td><td>(1,429)</td><td>—</td><td>(1,429)</td></tr><tr><td>Proceeds from issuance of long-term debt</td><td>—</td><td>699</td><td>—</td><td>—</td><td>699</td></tr><tr><td>Proceeds from the issuance of repurchase agreements</td><td>—</td><td>—</td><td>1,978</td><td>—</td><td>1,978</td></tr><tr><td>Repayment of long-term debt</td><td>—</td><td>(500)</td><td>(1)</td><td>—</td><td>(501)</td></tr><tr><td>Repayment of repurchase agreements</td><td>—</td><td>—</td><td>(1,977)</td><td>—</td><td>(1,977)</td></tr><tr><td>Proceeds from share-based compensation plans, including windfall tax benefits</td><td>—</td><td>—</td><td>127</td><td>—</td><td>127</td></tr><tr><td>Advances (to) from affiliates</td><td>260</td><td>(298)</td><td>38</td><td>—</td><td>—</td></tr><tr><td>Dividends to parent company</td><td>—</td><td>—</td><td>(674)</td><td>674</td><td>—</td></tr><tr><td>Capital contribution</td><td>—</td><td>—</td><td>258</td><td>(258)</td><td>—</td></tr><tr><td>Net proceeds from (payments to) affiliated notional cash pooling programs(1)</td><td>61</td><td>309</td><td>—</td><td>(370)</td><td>—</td></tr><tr><td>Policyholder contract deposits</td><td>—</td><td>—</td><td>366</td><td>—</td><td>366</td></tr><tr><td>Policyholder contract withdrawals</td><td>—</td><td>—</td><td>(172)</td><td>—</td><td>(172)</td></tr><tr><td>Other</td><td>—</td><td>(6)</td><td>—</td><td>—</td><td>(6)</td></tr><tr><td>Net cash flows (used for) from financing activities</td><td>(541)</td><td>204</td><td>(1,486)</td><td>46</td><td>(1,777)</td></tr><tr><td>Effect of foreign currency rate changes on cash and cash equivalents</td><td>—</td><td>—</td><td>(139)</td><td>—</td><td>(139)</td></tr><tr><td>Net (decrease) increase in cash</td><td>—</td><td>(15)</td><td>461</td><td>(370)</td><td>76</td></tr><tr><td>Cash - beginning of year(1)</td><td>—</td><td>16</td><td>748</td><td>(185)</td><td>579</td></tr><tr><td>Cash - end of year(1)</td><td>$ —</td><td>$ 1</td><td>$ 1,209</td><td>$ (555)</td><td>$ 655</td></tr></table>

(1) Chubb maintains two notional multi-currency cash pools (Pools) with a third-party bank. Refer to Note 1 f) for additional information. At December 31, 2014 and 2013, the cash balance of one or more entities was negative; however, the overall Pool balances were positive.



## NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chubb Limited and Subsidiaries

## Condensed Consolidating Statement of Cash Flows

<table><tr><td>For the Year Ended December 31, 2013(in millions of U.S. dollars)</td><td>Chubb Limited (Parent Guarantor)</td><td>ACE INA Holdings Inc. (Subsidiary Issuer)</td><td>Other Chubb Limited Subsidiaries</td><td>Consolidating Adjustments and Eliminations</td><td>Chubb Limited Consolidated</td></tr><tr><td>Net cash flows from (used for) operating activities</td><td>$ 970</td><td>$ (107)</td><td>$ 3,984</td><td>$ (825)</td><td>$ 4,022</td></tr><tr><td>Cash flows from investing activities</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Purchases of fixed maturities available for sale</td><td>—</td><td>—</td><td>(21,504)</td><td>106</td><td>(21,398)</td></tr><tr><td>Purchases of fixed maturities held to maturity</td><td>—</td><td>—</td><td>(447)</td><td>—</td><td>(447)</td></tr><tr><td>Purchases of equity securities</td><td>—</td><td>—</td><td>(264)</td><td>—</td><td>(264)</td></tr><tr><td>Sales of fixed maturities available for sale</td><td>—</td><td>—</td><td>10,519</td><td>(106)</td><td>10,413</td></tr><tr><td>Sales of equity securities</td><td>—</td><td>—</td><td>142</td><td>—</td><td>142</td></tr><tr><td>Maturities and redemptions of fixed maturities available for sale</td><td>—</td><td>—</td><td>6,941</td><td>—</td><td>6,941</td></tr><tr><td>Maturities and redemptions of fixed maturities held to maturity</td><td>—</td><td>—</td><td>1,488</td><td>—</td><td>1,488</td></tr><tr><td>Net change in short-term investments</td><td>(1)</td><td>4</td><td>521</td><td>—</td><td>524</td></tr><tr><td>Net derivative instruments settlements</td><td>—</td><td>(1)</td><td>(470)</td><td>—</td><td>(471)</td></tr><tr><td>Capital contribution</td><td>(133)</td><td>(1,097)</td><td>—</td><td>1,230</td><td>—</td></tr><tr><td>Acquisition of subsidiaries (net of cash acquired of $38)</td><td>—</td><td>—</td><td>(977)</td><td>—</td><td>(977)</td></tr><tr><td>Other</td><td>—</td><td>(4)</td><td>(389)</td><td>—</td><td>(393)</td></tr><tr><td>Net cash flows used for investing activities</td><td>(134)</td><td>(1,098)</td><td>(4,440)</td><td>1,230</td><td>(4,442)</td></tr><tr><td>Cash flows from financing activities</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Dividends paid on Common Shares</td><td>(517)</td><td>—</td><td>—</td><td>—</td><td>(517)</td></tr><tr><td>Common Shares repurchased</td><td>—</td><td>—</td><td>(287)</td><td>—</td><td>(287)</td></tr><tr><td>Proceeds from issuance of long-term debt</td><td>—</td><td>947</td><td>—</td><td>—</td><td>947</td></tr><tr><td>Proceeds from issuance of repurchase agreements</td><td>—</td><td>—</td><td>2,572</td><td>—</td><td>2,572</td></tr><tr><td>Repayment of repurchase agreements</td><td>—</td><td>—</td><td>(2,572)</td><td>—</td><td>(2,572)</td></tr><tr><td>Proceeds from share-based compensation plans, including windfall tax benefits</td><td>14</td><td>—</td><td>121</td><td>—</td><td>135</td></tr><tr><td>Advances from (to) affiliates</td><td>(621)</td><td>621</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Dividends to parent company</td><td>—</td><td>—</td><td>(825)</td><td>825</td><td>—</td></tr><tr><td>Capital contribution</td><td>—</td><td>—</td><td>1,230</td><td>(1,230)</td><td>—</td></tr><tr><td>Net proceeds from (payments to) affiliated notional cash pooling programs \( ^{(1)} \)</td><td>185</td><td>(349)</td><td>—</td><td>164</td><td>—</td></tr><tr><td>Policyholder contract deposits</td><td>—</td><td>—</td><td>233</td><td>—</td><td>233</td></tr><tr><td>Policyholder contract withdrawals</td><td>—</td><td>—</td><td>(120)</td><td>—</td><td>(120)</td></tr><tr><td>Other</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Net cash flows (used for) from financing activities</td><td>(939)</td><td>1,219</td><td>352</td><td>(241)</td><td>391</td></tr><tr><td>Effect of foreign currency rate changes on cash and cash equivalents</td><td>—</td><td>—</td><td>(7)</td><td>—</td><td>(7)</td></tr><tr><td>Net increase (decrease) in cash</td><td>(103)</td><td>14</td><td>(111)</td><td>164</td><td>(36)</td></tr><tr><td>Cash - beginning of year \( ^{(1)} \)</td><td>103</td><td>2</td><td>859</td><td>(349)</td><td>615</td></tr><tr><td>Cash - end of year \( ^{(1)} \)</td><td>$ —</td><td>$ 16</td><td>$ 748</td><td>$ (185)</td><td>$ 579</td></tr></table>

(1) Chubb maintains two notional multi-currency cash pools (Pools) with a third-party bank. Refer to Note 1 f) for additional information. At December 31, 2013 and 2012, the cash balance of one or more entities was negative; however, the overall Pool balances were positive.



## 21. Condensed unaudited quarterly financial data

<table><tr><td rowspan="2">(in millions of U.S. dollars, except per share data)</td><td colspan="2">March 31</td><td rowspan="2">June 30 2015</td><td rowspan="2">September 30 2015</td><td rowspan="2">December 31 2015</td></tr><tr><td>2015</td><td>2015</td></tr><tr><td>Net premiums earned</td><td>$ 3,927</td><td>$ 4,360</td><td>$ 4,719</td><td>$ 4,207</td><td></td></tr><tr><td>Net investment income</td><td>551</td><td>562</td><td>549</td><td>532</td><td></td></tr><tr><td>Net realized gains (losses) including OTTI</td><td>(89)</td><td>126</td><td>(397)</td><td>(60)</td><td></td></tr><tr><td>Total revenues</td><td>$ 4,389</td><td>$ 5,048</td><td>$ 4,871</td><td>$ 4,679</td><td></td></tr><tr><td>Losses and loss expenses</td><td>$ 2,122</td><td>$ 2,417</td><td>$ 2,643</td><td>$ 2,302</td><td></td></tr><tr><td>Policy benefits</td><td>$ 142</td><td>$ 153</td><td>$ 89</td><td>$ 159</td><td></td></tr><tr><td>Net income</td><td>$ 681</td><td>$ 942</td><td>$ 528</td><td>$ 683</td><td></td></tr><tr><td>Basic earnings per share</td><td>$ 2.08</td><td>$ 2.89</td><td>$ 1.63</td><td>$ 2.10</td><td></td></tr><tr><td>Diluted earnings per share</td><td>$ 2.05</td><td>$ 2.86</td><td>$ 1.62</td><td>$ 2.08</td><td></td></tr></table>

<table><tr><td rowspan="2">(in millions of U.S. dollars, except per share data)</td><td colspan="2">March 31</td><td rowspan="2">June 30 2014</td><td rowspan="2">September 30 2014</td><td rowspan="2">December 31 2014</td></tr><tr><td>2014</td><td>2014</td></tr><tr><td>Net premiums earned</td><td>$ 3,970</td><td>$ 4,332</td><td>$ 4,754</td><td>$ 4,370</td><td></td></tr><tr><td>Net investment income</td><td>553</td><td>556</td><td>566</td><td>577</td><td></td></tr><tr><td>Net realized gains (losses) including OTTI</td><td>(104)</td><td>(73)</td><td>(120)</td><td>(210)</td><td></td></tr><tr><td>Total revenues</td><td>$ 4,419</td><td>$ 4,815</td><td>$ 5,200</td><td>$ 4,737</td><td></td></tr><tr><td>Losses and loss expenses</td><td>$ 2,161</td><td>$ 2,388</td><td>$ 2,684</td><td>$ 2,416</td><td></td></tr><tr><td>Policy benefits</td><td>$ 114</td><td>$ 144</td><td>$ 125</td><td>$ 134</td><td></td></tr><tr><td>Net income (1)</td><td>$ 734</td><td>$ 779</td><td>$ 785</td><td>$ 555</td><td></td></tr><tr><td>Basic earnings per share</td><td>$ 2.16</td><td>$ 2.30</td><td>$ 2.35</td><td>$ 1.68</td><td></td></tr><tr><td>Diluted earnings per share</td><td>$ 2.14</td><td>$ 2.28</td><td>$ 2.32</td><td>$ 1.66</td><td></td></tr></table>

(1) Net income for the three months ended December 31, 2014 includes $89 million of net charges related to income taxes to correct prior periods. Such amounts are not material to any period presented.



## SCHEDULE I

## Chubb Limited and Subsidiaries

## SUMMARY OF INVESTMENTS – OTHER THAN INVESTMENTS IN RELATED PARTIES

<table><tr><td>December 31, 2015(in millions of U.S. dollars)</td><td>Cost or Amortized Cost</td><td>Fair Value</td><td>Amount at Which Shown in the Balance Sheet</td></tr><tr><td>Fixed maturities available for sale</td><td></td><td></td><td></td></tr><tr><td>U.S. Treasury and agency</td><td>$ 2,481</td><td>$ 2,528</td><td>$ 2,528</td></tr><tr><td>Foreign</td><td>13,190</td><td>13,445</td><td>13,445</td></tr><tr><td>Corporate securities</td><td>15,028</td><td>14,929</td><td>14,929</td></tr><tr><td>Mortgage-backed securities</td><td>9,827</td><td>9,958</td><td>9,958</td></tr><tr><td>States, municipalities, and political subdivisions</td><td>2,623</td><td>2,727</td><td>2,727</td></tr><tr><td>Total fixed maturities available for sale</td><td>43,149</td><td>43,587</td><td>43,587</td></tr><tr><td>Fixed maturities held to maturity</td><td></td><td></td><td></td></tr><tr><td>U.S. Treasury and agency</td><td>733</td><td>745</td><td>733</td></tr><tr><td>Foreign</td><td>763</td><td>785</td><td>763</td></tr><tr><td>Corporate securities</td><td>3,054</td><td>3,056</td><td>3,054</td></tr><tr><td>Mortgage-backed securities</td><td>1,707</td><td>1,743</td><td>1,707</td></tr><tr><td>States, municipalities, and political subdivisions</td><td>2,173</td><td>2,223</td><td>2,173</td></tr><tr><td>Total fixed maturities held to maturity</td><td>8,430</td><td>8,552</td><td>8,430</td></tr><tr><td>Equity securities</td><td></td><td></td><td></td></tr><tr><td>Industrial, miscellaneous, and all other</td><td>441</td><td>497</td><td>497</td></tr><tr><td>Short-term investments</td><td>10,446</td><td>10,446</td><td>10,446</td></tr><tr><td>Other investments</td><td>2,993</td><td>3,291</td><td>3,291</td></tr><tr><td>Total investments - other than investments in related parties</td><td>$ 65,459</td><td>$ 66,373</td><td>$ 66,251</td></tr></table>



## SCHEDULE II

## CONDENSED FINANCIAL INFORMATION OF REGISTRANT

## BALANCE SHEETS (Parent Company Only)

<table><tr><td>(in millions of U.S. dollars)</td><td>December 31 2015</td><td>December 31 2014</td></tr><tr><td>Assets</td><td></td><td></td></tr><tr><td>Investments in subsidiaries and affiliates on equity basis</td><td>$ 29,612</td><td>$ 29,497</td></tr><tr><td>Short-term investments</td><td>1</td><td>1</td></tr><tr><td>Other investments, at cost</td><td>27</td><td>29</td></tr><tr><td>Total investments</td><td>29,640</td><td>29,527</td></tr><tr><td>Cash</td><td>1</td><td>—</td></tr><tr><td>Due from subsidiaries and affiliates, net</td><td>644</td><td>583</td></tr><tr><td>Other assets</td><td>8</td><td>4</td></tr><tr><td>Total assets</td><td>$ 30,293</td><td>$ 30,114</td></tr><tr><td>Liabilities</td><td></td><td></td></tr><tr><td>Affiliated notional cash pooling programs(1)</td><td>$ 882</td><td>$ 246</td></tr><tr><td>Accounts payable, accrued expenses, and other liabilities</td><td>276</td><td>281</td></tr><tr><td>Total liabilities</td><td>1,158</td><td>527</td></tr><tr><td>Shareholders&#x27; equity</td><td></td><td></td></tr><tr><td>Common Shares</td><td>7,833</td><td>8,055</td></tr><tr><td>Common Shares in treasury</td><td>(1,922)</td><td>(1,448)</td></tr><tr><td>Additional paid-in capital</td><td>4,481</td><td>5,145</td></tr><tr><td>Retained earnings</td><td>19,478</td><td>16,644</td></tr><tr><td>Accumulated other comprehensive income (loss)</td><td>(735)</td><td>1,191</td></tr><tr><td>Total shareholders&#x27; equity</td><td>29,135</td><td>29,587</td></tr><tr><td>Total liabilities and shareholders&#x27; equity</td><td>$ 30,293</td><td>$ 30,114</td></tr></table>

(1) Chubb maintains two notional multicurrency cash pools (Pools) with a third-party bank. Refer to Note 1 f) for additional information.

The condensed financial information should be read in conjunction with the consolidated financial statements and notes thereto.



## CONDENSED FINANCIAL INFORMATION OF REGISTRANT

## STATEMENTS OF OPERATIONS (Parent Company Only)

<table><tr><td rowspan="2">(in millions of U.S. dollars)</td><td colspan="2">2015</td><td colspan="2">2014</td><td>2013</td></tr><tr><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Revenues</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Investment income, including interest income</td><td>$     35</td><td>$     37</td><td>$     34</td><td></td><td></td></tr><tr><td>Equity in net income of subsidiaries and affiliates</td><td>2,673</td><td>2,707</td><td>3,580</td><td></td><td></td></tr><tr><td>Net realized gains (losses)</td><td>—</td><td>—</td><td>—</td><td></td><td></td></tr><tr><td></td><td>2,708</td><td>2,744</td><td>3,614</td><td></td><td></td></tr><tr><td>Expenses</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Administrative and other (income) expense</td><td>(142)</td><td>(123)</td><td>(161)</td><td></td><td></td></tr><tr><td>Income tax expense</td><td>16</td><td>14</td><td>17</td><td></td><td></td></tr><tr><td></td><td>(126)</td><td>(109)</td><td>(144)</td><td></td><td></td></tr><tr><td>Net income</td><td>$     2,834</td><td>$     2,853</td><td>$     3,758</td><td></td><td></td></tr><tr><td>Comprehensive income</td><td>$     908</td><td>$     2,892</td><td>$     2,023</td><td></td><td></td></tr></table>

The condensed financial information should be read in conjunction with the consolidated financial statements and notes thereto.



## CONDENSED FINANCIAL INFORMATION OF REGISTRANT

## STATEMENTS OF CASH FLOWS (Parent Company Only)

<table><tr><td>(in millions of U.S. dollars)</td><td colspan="2">2015</td><td colspan="2">2014</td><td>2013</td></tr><tr><td>Net cash flows from operating activities \( ^{(1)} \)</td><td>$</td><td>3,125</td><td>$</td><td>541</td><td>970</td></tr><tr><td>Cash flows from investing activities</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Net change in short-term investments</td><td></td><td>—</td><td></td><td>—</td><td>(1)</td></tr><tr><td>Net derivative instruments settlements</td><td></td><td>—</td><td></td><td>—</td><td>—</td></tr><tr><td>Capital contribution</td><td></td><td>(2,670)</td><td></td><td>—</td><td>(133)</td></tr><tr><td>Net cash flows used for investing activities</td><td></td><td>(2,670)</td><td></td><td>—</td><td>(134)</td></tr><tr><td>Cash flows from financing activities</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Dividends paid on Common Shares</td><td></td><td>(862)</td><td></td><td>(862)</td><td>(517)</td></tr><tr><td>Proceeds from issuance of short-term debt</td><td></td><td>—</td><td></td><td>—</td><td>—</td></tr><tr><td>Repayment of short-term debt</td><td></td><td>—</td><td></td><td>—</td><td>—</td></tr></table>

(1) Includes cash dividends received from subsidiaries of $2.9 billion, $300 million, and $825 million in 2015, 2014, and 2013, respectively.

(2) Chubb maintains two notional multicurrency cash pools (Pools) with a third-party bank. Refer to Note 1 f) for additional information.

The condensed financial information should be read in conjunction with the consolidated financial statements and notes thereto.



## SUPPLEMENTAL INFORMATION CONCERNING REINSURANCE

Premiums Earned

<table><tr><td>For the years ended December 31, 2015, 2014, and 2013 (in millions of U.S. dollars, except for percentages)</td><td>Direct Amount</td><td>Ceded To Other Companies</td><td>Assumed From Other Companies</td><td>Net Amount</td><td>Percentage of Amount Assumed to Net</td></tr><tr><td>2015</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Property and Casualty</td><td>$ 14,895</td><td>$ 5,373</td><td>$ 3,259</td><td>$ 12,781</td><td>25%</td></tr><tr><td>Accident and Health</td><td>3,684</td><td>351</td><td>168</td><td>3,501</td><td>5%</td></tr><tr><td>Life</td><td>776</td><td>94</td><td>249</td><td>931</td><td>27%</td></tr><tr><td>Total</td><td>$ 19,355</td><td>$ 5,818</td><td>$ 3,676</td><td>$ 17,213</td><td>21%</td></tr><tr><td>2014</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Property and Casualty</td><td>$ 14,784</td><td>$ 4,940</td><td>$ 2,923</td><td>$ 12,767</td><td>23%</td></tr><tr><td>Accident and Health</td><td>3,971</td><td>434</td><td>141</td><td>3,678</td><td>4%</td></tr><tr><td>Life</td><td>800</td><td>91</td><td>272</td><td>981</td><td>28%</td></tr><tr><td>Total</td><td>$ 19,555</td><td>$ 5,465</td><td>$ 3,336</td><td>$ 17,426</td><td>19%</td></tr><tr><td>2013</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Property and Casualty</td><td>$ 14,286</td><td>$ 5,160</td><td>$ 3,015</td><td>$ 12,141</td><td>25%</td></tr><tr><td>Accident and Health</td><td>3,885</td><td>486</td><td>168</td><td>3,567</td><td>5%</td></tr><tr><td>Life</td><td>685</td><td>76</td><td>296</td><td>905</td><td>33%</td></tr><tr><td>Total</td><td>$ 18,856</td><td>$ 5,722</td><td>$ 3,479</td><td>$ 16,613</td><td>21%</td></tr></table>



## SCHEDULE VI

## Chubb Limited and Subsidiaries

## SUPPLEMENTARY INFORMATION CONCERNING PROPERTY AND CASUALTY OPERATIONS

As of and for the years ended December 31, 2015, 2014, and 2013 (in millions of U.S. dollars)

<table><tr><td></td><td>Deferred Policy Acquisition Costs</td><td>Net Reserves for Unpaid Losses and Loss Expenses</td><td>Unearned Premiums</td><td>Net Premiums Earned</td><td>Net Investment Income</td><td>Net Losses and Loss Expenses Incurred Related to Current Year</td><td>Prior Year</td><td>Amortization of Deferred Policy Acquisition Costs</td><td>Net Paid Losses and Loss Expenses</td><td>Net Premiums Written</td></tr><tr><td>2015</td><td>$ 2,219</td><td>$ 26,562</td><td>$ 8,439</td><td>$ 16,282</td><td>$ 2,007</td><td>$ 10,030</td><td>$ (546)</td><td>$ 2,692</td><td>$ 9,665</td><td>$ 16,734</td></tr><tr><td>2014</td><td>$ 2,057</td><td>$ 27,008</td><td>$ 8,222</td><td>$ 16,445</td><td>$ 2,071</td><td>$ 10,176</td><td>$ (527)</td><td>$ 2,805</td><td>$ 9,235</td><td>$ 16,787</td></tr><tr><td>2013</td><td>$ 1,865</td><td>$ 26,831</td><td>$ 7,539</td><td>$ 15,708</td><td>$ 1,977</td><td>$ 9,878</td><td>$ (530)</td><td>$ 2,447</td><td>$ 8,977</td><td>$ 16,069</td></tr></table>



# REPORT OF THE STATUTORY AUDITOR TO THE GENERAL MEETING OF CHUBB LIMITED, ZURICH ON THE (US GAAP) FINANCIAL STATEMENTS

## Report of the statutory auditor on the consolidated financial statements

As statutory auditor, we have audited the consolidated financial statements of Chubb Limited, which comprise the consolidated balance sheets, statements of operations and comprehensive income, statements of shareholders' equity, statements of cash flows and notes (pages F-5 to F-85) for the year ended December 31, 2015.

## Board of Directors' responsibility

The Board of Directors is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (US GAAP) and the requirements of Swiss law. This responsibility includes designing, implementing and maintaining an internal control system relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. The Board of Directors is further responsible for selecting and applying appropriate accounting policies and making accounting estimates that are reasonable in the circumstances.

## Auditor's responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with Swiss law, Swiss Auditing Standards and auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers the internal control system relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control system. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of accounting estimates made, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

## Opinion

In our opinion, the consolidated financial statements for the year ended December 31, 2015 present fairly, in all material respects, the financial position, the results of operations and the cash flows in accordance with accounting principles generally accepted in the United States of America (US GAAP) and comply with Swiss law.

## Report on other legal requirements

We confirm that we meet the legal requirements on licensing according to the Auditor Oversight Act (AOA) and independence (article 728 CO and article 11 AOA) and that there are no circumstances incompatible with our independence.

In accordance with article 728a paragraph 1 item 3 CO and Swiss Auditing Standard 890, we confirm that an internal control system exists which has been designed for the preparation of consolidated financial statements according to the instructions of the Board of Directors.

We recommend that the consolidated financial statements be submitted to you be approved.

PricewaterhouseCoopers AG

/s/ Ray Kunz

/s/ Philip Kirkpatrick

Ray Kunz

Philip Kirkpatrick

Audit expert

Audit expert

Auditor in charge

Zurich, February 26, 2016



CHUBB LIMITED

SWISS STATUTORY FINANCIAL STATEMENTS

December 31, 2015



<table><tr><td>(in millions of Swiss francs)</td><td>December 31 2015</td><td>December 31 2014</td></tr><tr><td>Assets</td><td></td><td></td></tr><tr><td>Cash and cash equivalents</td><td>3</td><td>—</td></tr><tr><td>Prepaid expenses and other assets</td><td>5</td><td>—</td></tr><tr><td>Receivable from subsidiaries</td><td>2,384</td><td>56</td></tr><tr><td>Total current assets</td><td>2,392</td><td>56</td></tr><tr><td>Investments in subsidiaries</td><td>23,769</td><td>18,671</td></tr><tr><td>Loans to subsidiaries</td><td>698</td><td>621</td></tr><tr><td>Other assets</td><td>7</td><td>6</td></tr><tr><td>Total non-current assets</td><td>24,474</td><td>19,298</td></tr><tr><td>Total assets</td><td>26,866</td><td>19,354</td></tr><tr><td>Liabilities</td><td></td><td></td></tr><tr><td>Accounts payable</td><td>937</td><td>301</td></tr><tr><td>Payable to subsidiaries</td><td>2,658</td><td>288</td></tr><tr><td>Capital distribution payable</td><td>219</td><td>213</td></tr><tr><td>Deferred unrealized exchange gain</td><td>171</td><td>—</td></tr><tr><td>Total short-term liabilities</td><td>3,985</td><td>802</td></tr><tr><td>Total liabilities</td><td>3,985</td><td>802</td></tr><tr><td>Shareholders&#x27; equity</td><td></td><td></td></tr><tr><td>Share capital</td><td>8,279</td><td>8,492</td></tr><tr><td>Statutory capital reserves:</td><td></td><td></td></tr><tr><td>Capital contribution reserves</td><td>4,701</td><td>5,944</td></tr><tr><td>Reserve for dividends from capital contributions</td><td>615</td><td>—</td></tr><tr><td>Reserve for treasury shares</td><td>1,798</td><td>1,325</td></tr><tr><td>Treasury shares</td><td>(2)</td><td>(2)</td></tr><tr><td>Statutory retained earnings:</td><td></td><td></td></tr><tr><td>Retained earnings</td><td>2,322</td><td>2,388</td></tr><tr><td>Profit for the period</td><td>5,168</td><td>405</td></tr><tr><td>Total shareholders&#x27; equity</td><td>22,881</td><td>18,552</td></tr><tr><td>Total liabilities and shareholders&#x27; equity</td><td>26,866</td><td>19,354</td></tr></table>

The accompanying notes form an integral part of these statutory financial statements



## SWISS STATUTORY STATEMENTS OF INCOME (Unconsolidated)
Chubb Limited

<table><tr><td colspan="3">For the years ended December 31, 2015 and 2014</td></tr><tr><td>(in millions of Swiss francs)</td><td>2015</td><td>2014</td></tr><tr><td>Royalty income</td><td>186</td><td>175</td></tr><tr><td>Dividend income</td><td>5,014</td><td>286</td></tr><tr><td>Debt guarantee fee income</td><td>17</td><td>13</td></tr><tr><td>Administrative and other expenses</td><td>(66)</td><td>(69)</td></tr><tr><td>Operating results</td><td>5,151</td><td>405</td></tr><tr><td>Interest income</td><td>33</td><td>34</td></tr><tr><td>Net realized gains (losses)</td><td>1</td><td>(4)</td></tr><tr><td>Foreign exchange translation losses</td><td>—</td><td>(14)</td></tr><tr><td>Earnings before taxes</td><td>5,185</td><td>421</td></tr><tr><td>Tax expense</td><td>(17)</td><td>(16)</td></tr><tr><td>Profit for the year</td><td>5,168</td><td>405</td></tr></table>

The accompanying notes form an integral part of these statutory financial statements



# NOTES TO SWISS STATUTORY FINANCIAL STATEMENTS
Chubb Limited

## 1. Basis of presentation

On January 14, 2016, we completed the acquisition of The Chubb Corporation (Chubb Merger), creating a global leader in property and casualty insurance. We have changed our name from ACE Limited to Chubb Limited and plan to adopt the Chubb name globally. All references to Chubb Limited throughout this report refer to legacy ACE Limited, unless otherwise indicated. The financial condition and results presented herein are those of legacy ACE Limited and its subsidiaries and do not include the results of legacy Chubb Corporation and its subsidiaries.

Chubb Limited (Chubb) is the holding company of Chubb Group (Group) with a listing on the New York Stock Exchange (NYSE). Chubb's principal activity is the holding of subsidiaries. Revenues consist mainly of royalty, dividend, and interest income. The accompanying financial statements comply with Swiss Law. The financial statements present the financial position of the holding company on a standalone basis and do not represent the consolidated financial position of the holding company and its subsidiaries.

The financial statements have been prepared in accordance with the provisions of commercial accounting as set out in the Swiss Code of Obligations (Art. 957 to 963b CO, effective since January 1, 2013). Prior period amounts have been revised to conform to the current year presentation.

All amounts in the notes are shown in millions of Swiss francs unless otherwise stated.

## 2. Significant accounting policies

## a) Cash and cash equivalents

Cash and cash equivalents includes cash on hand and deposits with an original maturity of three months or less at time of purchase.
Chubb and certain of its subsidiaries (participating entities) have agreements with a third party bank provider which implemented two international multi-currency notional cash pooling programs. In each program, participating 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 entity as needed, provided that the overall notionally-pooled balance of all accounts in each pool at the end of each day is at least zero. Actual cash balances are not physically converted and are not commingled between legal entities. Any overdraft balances incurred under this program by a participating entity would be guaranteed by Chubb (up to $300 million in the aggregate). Our syndicated letter of credit facility allows for same day drawings to fund a net pool overdraft should participating entities withdraw contributed funds from the pool.

## b) Investments in subsidiaries

Investments in subsidiaries are equity interests, which are held on a long-term basis for the purpose of the holding company's business activities. They are carried at a value no higher than their cost less adjustments for impairment. An impairment analysis of the investments in subsidiaries is performed on an annual basis. Investment in subsidiaries increased CHF 5.1 billion in 2015 due to capital contributions to subsidiaries related to financing of Chubb Merger.

## c) Translation of foreign currencies

The financial statements are translated from U.S. Dollar into Swiss francs using the following exchange rates:

• Investments in subsidiaries at historical exchange rates;

• Other assets and liabilities at period end exchange rates;

• Treasury shares and shareholders' equity at historical exchange rates; and

• Revenues and expenses at average exchange rates.

Exchange losses are recorded in the statement of income and unrealized exchange gains are deferred until realized.

## d) Royalty income

Chubb collects royalty income from various subsidiaries earned in connection with subsidiary use of certain Chubb trademarks in connection with products, services, advertising, and promotions.

## e) Debt guarantee fee income

Chubb collects a fee for Chubb's guarantee of the debt issued by one of its subsidiaries.



## f) Dividend income

Chubb collects dividend income from its direct subsidiaries.

## 3. Commitments, contingencies, and guarantees

## a) Letters of credit (LOC)

As of December 31, 2015, Chubb has a $1.5 billion (CHF 1.5 billion) unsecured operational LOC facility (expanded from $1.0 billion (CHF 1 billion) in December 2015 with the consent of the issuers) expiring in November 2017. Chubb is allowed to use up to $300 million (CHF 301 million) of this LOC facility as an unsecured revolving credit facility. At December 31, 2015, outstanding LOCs issued under this facility were $797 million (CHF 799 million).
This facility requires that Chubb and/or certain of its subsidiaries continue to maintain certain covenants, including a minimum consolidated net worth and a maximum leverage ratio, all of which have been met at December 31, 2015.

Chubb did not renew a $500 million (CHF 497 million) bilateral letter of credit facility that expired in June 2014. Chubb also did not renew a $425 million (CHF 422 million) series of four bilateral uncollateralized LOC facilities supporting underwriting capacity for Chubb's Lloyd's Syndicate 2488. Instead, Chubb elected to satisfy collateral obligations primarily with insurance trusts supported by their investment portfolio.

## b) Lease commitments

Chubb leases property under an operating lease which expires in 2018. The following table presents expected future annual minimum lease payments as of December 31, 2015:

<table><tr><td colspan="2">Year ending December 31</td></tr><tr><td>(in millions of Swiss francs)</td><td></td></tr><tr><td>2016</td><td>1.76</td></tr><tr><td>2017</td><td>1.76</td></tr><tr><td>2018</td><td>1.31</td></tr><tr><td>Thereafter</td><td>—</td></tr><tr><td>Total minimum future lease commitments</td><td>4.83</td></tr></table>

At December 31, 2014, the total minimum future lease commitments were CHF 6.59 million.

## c) Guarantee of debt

Chubb fully and unconditionally guarantees certain subsidiary debt totaling $9.8 billion (CHF 9.8 billion) and $4.4 billion (CHF 4.3 billion) at December 31, 2015 and 2014, respectively, and receives a fee.

## 4. Significant investments

The following table presents information related to significant investments. Share capital amounts are expressed in whole U.S. dollars or Swiss francs. Effective January 1, 2015 ACE Reinsurance (Switzerland) Limited (ARSL) was sold to Chubb from ACE Insurance (Switzerland) Limited (AISL). The shares in ARSL have been sold to Chubb at book value.

<table><tr><td>Holdings as of December 31, 2015</td><td>Country</td><td>% of Possession</td><td>Currency</td><td>Share Capital</td><td>Purpose</td></tr><tr><td>ACE Group Holdings, Inc.</td><td>U.S.A.</td><td>100%</td><td>USD</td><td>11</td><td>Holding company</td></tr><tr><td>ACE INA Holdings</td><td>U.S.A.</td><td>20%</td><td>USD</td><td>1</td><td>Holding company</td></tr><tr><td>ACE Insurance (Switzerland) Limited</td><td>Switzerland</td><td>100%</td><td>CHF</td><td>100,000,000</td><td>Insurance company</td></tr><tr><td>ACE Reinsurance (Switzerland) Limited</td><td>Switzerland</td><td>100%</td><td>CHF</td><td>44,000,000</td><td>Insurance company</td></tr><tr><td>ACE Group Management and Holdings Ltd.</td><td>Bermuda</td><td>100%</td><td>USD</td><td>100</td><td>Holding company</td></tr></table>



## 5. Common Share ownership of the Board of Directors and Group Executives

## a) Board of Directors

The following table presents information, at December 31, 2015 and 2014, with respect to the beneficial ownership of Common Shares by each of our directors. Although Evan G. Greenberg is Chairman of the Board, details of Mr. Greenberg's Common share ownership are included in Note 5 b) below. Unless otherwise indicated, the named individual has sole voting and investment power over the Common Shares listed in the Common Shares Beneficially Owned column.

<table><tr><td>Name of Beneficial Owner</td><td>Year</td><td>Common Shares</td><td>Restricted Stock Units (1)</td><td>Restricted Common Stock (2)</td></tr><tr><td>Michael G. Atieh (3)</td><td>2015</td><td>4,356</td><td>32,414</td><td>2,617</td></tr><tr><td></td><td>2014</td><td>3,183</td><td>31,645</td><td>1,564</td></tr><tr><td>Mary A. Cirillo</td><td>2015</td><td>15,156</td><td>13,497</td><td>2,497</td></tr><tr><td></td><td>2014</td><td>13,162</td><td>13,176</td><td>2,659</td></tr><tr><td>Michael P. Connors</td><td>2015</td><td>8,132</td><td>—</td><td>1,469</td></tr><tr><td></td><td>2014</td><td>6,959</td><td>—</td><td>1,564</td></tr><tr><td>John A. Edwardson</td><td>2015</td><td>1,906</td><td>—</td><td>2,387</td></tr><tr><td></td><td>2014</td><td>—</td><td>—</td><td>2,542</td></tr><tr><td>Robert M. Hernandez</td><td>2015</td><td>59,362</td><td>23,685</td><td>1,469</td></tr><tr><td></td><td>2014</td><td>58,189</td><td>23,123</td><td>1,564</td></tr><tr><td>Peter Menikoff (4) (5)</td><td>2015</td><td>3,545</td><td>52,032</td><td>2,387</td></tr><tr><td></td><td>2014</td><td>3,765</td><td>50,798</td><td>2,542</td></tr><tr><td>Leo F. Mullin</td><td>2015</td><td>11,151</td><td>5,290</td><td>1,469</td></tr><tr><td></td><td>2014</td><td>9,979</td><td>5,165</td><td>1,564</td></tr><tr><td>Kimberly A. Ross</td><td>2015</td><td>1,917</td><td>—</td><td>2,387</td></tr><tr><td></td><td>2014</td><td>—</td><td>—</td><td>2,542</td></tr><tr><td>Robert W. Scully</td><td>2015</td><td>1,906</td><td>—</td><td>2,387</td></tr><tr><td></td><td>2014</td><td>—</td><td>—</td><td>2,542</td></tr><tr><td>Eugene B. Shanks, Jr.</td><td>2015</td><td>5,222</td><td>—</td><td>1,469</td></tr><tr><td></td><td>2014</td><td>4,049</td><td>—</td><td>1,564</td></tr><tr><td>Theodore E. Shasta</td><td>2015</td><td>7,209</td><td>—</td><td>1,469</td></tr><tr><td></td><td>2014</td><td>6,036</td><td>—</td><td>1,564</td></tr><tr><td>David H. Sidwell</td><td>2015</td><td>4,173</td><td>—</td><td>1,469</td></tr><tr><td></td><td>2014</td><td>3,000</td><td>—</td><td>1,564</td></tr><tr><td>Olivier Steimer</td><td>2015</td><td>11,611</td><td>3,270</td><td>1,469</td></tr><tr><td></td><td>2014</td><td>10,153</td><td>3,192</td><td>1,564</td></tr><tr><td>Total</td><td>2015</td><td>135,646</td><td>130,188</td><td>24,945</td></tr><tr><td></td><td>2014</td><td>118,475</td><td>127,099</td><td>25,339</td></tr></table>



## b) Group Executives

The following table presents information, at December 31, 2015 and 2014, with respect to the beneficial ownership of Common Shares by each of the following Group Executives. Unless otherwise indicated, the named individual has sole voting and investment power over the Common Shares listed in the Common Shares Beneficially Owned column.

<table><tr><td>Name of Beneficial Owner</td><td>Year</td><td>Common Shares Beneficially Owned</td><td>Common Shares Subject to Options (1)</td><td>Weighted Average Option Exercise Price in CHF</td><td>Option Exercise Years</td><td>Restricted Common Stock (2)</td></tr><tr><td rowspan="2">Evan G. Greenberg (3) (4)</td><td>2015</td><td>993,887</td><td>1,087,917</td><td>61.45</td><td>4.53</td><td>242,466</td></tr><tr><td>2014</td><td>919,738</td><td>1,081,707</td><td>54.50</td><td>4.71</td><td>216,636</td></tr><tr><td rowspan="2">Philip V. Bancroft (5)</td><td>2015</td><td>218,411</td><td>163,678</td><td>61.43</td><td>4.23</td><td>42,898</td></tr><tr><td>2014</td><td>206,070</td><td>145,747</td><td>54.42</td><td>4.75</td><td>42,008</td></tr><tr><td rowspan="2">John W. Keogh</td><td>2015</td><td>96,982</td><td>198,000</td><td>67.31</td><td>5.16</td><td>76,123</td></tr><tr><td>2014</td><td>73,304</td><td>166,366</td><td>58.83</td><td>5.58</td><td>80,818</td></tr><tr><td rowspan="2">John J. Lupica (6)</td><td>2015</td><td>81,078</td><td>96,151</td><td>73.69</td><td>6.06</td><td>52,304</td></tr><tr><td>2014</td><td>81,903</td><td>103,717</td><td>57.83</td><td>5.32</td><td>50,899</td></tr><tr><td rowspan="2">Joseph Wayland</td><td>2015</td><td>5,435</td><td>8,945</td><td>101.58</td><td>8.65</td><td>24,711</td></tr><tr><td>2014</td><td>2,786</td><td>2,295</td><td>88.57</td><td>9.16</td><td>20,424</td></tr><tr><td>Total</td><td>2015</td><td>1,395,793</td><td>1,554,691</td><td>63.18</td><td>4.70</td><td>438,502</td></tr><tr><td></td><td>2014</td><td>1,283,801</td><td>1,499,832</td><td>55.25</td><td>4.86</td><td>410,785</td></tr></table>

(1) Represents Common Shares that the individual has the right to acquire within 60 days of December 31, 2015 and 2014, respectively, through option exercises, both vested and unvested.

(2) Represents Common Shares with respect to which the individual has the power to vote (but not to dispose of).

(3) Mr. Greenberg shares with other persons the power to vote and/or dispose of 121,624 of the Common Shares listed at both December 31, 2015 and 2014.

(4) Mr. Greenberg pledged 140,000 and 41,070 Common Shares in connection with a margin account at December 31, 2015 and 2014, respectively.

(5) Mr. Bancroft pledged 41,000 Common Shares in connection with a margin account at December 31, 2015 and 2014.

(6) Mr. Lupica shares with other persons the power to vote and/or dispose of 35,700 Common Shares listed at December 31, 2015 and 2014.

## 6. Shareholders' equity

The following table presents issued, authorized, and conditional share capital, at December 31, 2015 and 2014. Treasury shares held by Chubb which are issued, but not outstanding totaled 21,902 shares at both December 31, 2015 and 2014. In addition to the treasury shares held by Chubb, at December 31, 2015 and 2014, subsidiaries of Chubb held 18,247,069 treasury shares at a cost of $1.8 billion (CHF 1.8 billion) and 14,150,824 treasury shares at a cost of $1.4 billion (CHF 1.3 billion), respectively.

<table><tr><td></td><td>2015</td><td>2014</td></tr><tr><td>Issued share capital</td><td>342,832,412</td><td>342,832,412</td></tr><tr><td>Authorized share capital for general purposes (1)</td><td>165,000,000</td><td>140,000,000</td></tr><tr><td>Conditional share capital for bonds and similar debt instruments</td><td>33,000,000</td><td>33,000,000</td></tr><tr><td>Conditional share capital for employee benefit plans</td><td>25,410,929</td><td>25,410,929</td></tr></table>

(1) On January 14, 2016, we issued approximately 137 million shares in connection with the Chubb Merger.



## a) Shares authorized and issued

All Common Shares are authorized under Swiss Corporate law. At both December 31, 2015 and 2014, Chubb's share capital consisted of 342,832,412 Common Shares, with a par value of CHF 24.15 per share and CHF 24.77 per share, respectively. The Board of Directors (the Board) is currently authorized to increase the share capital from time to time through the issue of up to 28,048,548 fully paid up shares with a par value equal to the par value of Chubb's shares as set forth in the Articles of Association at the time of such issuance. This authorized share capital reflects the balance remaining after the issuance of approximately 137 million shares in connection with the Chubb Merger on January 14, 2016.

## b) Conditional share capital

## (i) Conditional share capital for bonds and similar debt instruments

At both December 31, 2015 and 2014, the share capital of Chubb was authorized to be increased through the issuance of a maximum of 33,000,000 fully paid up shares each with a par value of CHF 24.15 per share and CHF 24.77 per share, respectively, through the exercise of conversion and/or option or warrant rights granted in connection with bonds, notes, or similar instruments, issued or to be issued by Chubb or a subsidiary of Chubb, including convertible debt instruments.

## (ii) Conditional share capital for employee benefit plans

At both December 31, 2015 and 2014, the share capital of Chubb was authorized to be increased through the issuance of a maximum of 25,410,929 fully paid up shares each with a par value of CHF 24.15 per share and CHF 24.77 per share, respectively, in connection with the exercise of option rights granted to any employee of Chubb or a subsidiary, and any consultant, director, or other person providing services to Chubb or a subsidiary.

## c) Capital contribution reserves

At our May 2013 annual general meeting, our shareholders approved an annual dividend for the following year of $2.04 per share, payable in four quarterly installments of $0.51 per share after the annual general meeting in the form of a distribution by way of a par value reduction. At the January 10, 2014 extraordinary general meeting, our shareholders approved a resolution to increase our quarterly dividend from $0.51 per share to $0.63 per share for the final two quarterly installments made on January 31, 2014 (CHF 0.55) and April 18, 2014 (CHF 0.55) as recommended by our Board in November 2013. The effect of this dividend increase was a decrease to Capital contribution reserves and an increase to Capital distribution payable of CHF 67 million ($82 million) as of January 10, 2014.

At our May 2014 annual general meeting, our shareholders approved an annual dividend for the following year of $2.60 per share, payable in four quarterly installments of $0.65 per share after the annual general meeting in the form of a distribution by way of a par value reduction.

At our May 2015 annual general meeting, our shareholders approved an annual dividend for the following year of up to $2.68 per share, expected to be paid in four quarterly installments of $0.67 per share after the annual general meeting by way of a distribution from Capital contribution reserves, transferred to free reserves at the time of payment. At our May 2015 annual general meeting, our shareholders approved a transfer of an aggregate amount equal to CHF 1.245 billion ($1.314 billion) be released from the capital contribution reserves account and allocated to a segregated reserve for dividends account. Dividends will be transferred from this reserve for dividends account to free reserves for payment. The Board will determine the record and payment dates at which the annual dividend may be paid, and is authorized to abstain from distributing a dividend in its discretion, until the date of the 2016 annual general meeting. At the date of the 2016 annual general meeting, any balance remaining in the reserve for dividends account will be automatically reallocated to the capital contribution reserves account. The first three quarterly installments, each of $0.67 per share (CHF 0.62, CHF 0.65, and CHF 0.67 for the three months ended June 30, 2015, September 30, 2015, and December 31, 2015 respectively), have been distributed by the Board as expected.

The following table presents dividend distributions per Common Share in Swiss francs (CHF) and U.S. dollars (USD) for the years ended December 31, 2015 and 2014:

<table><tr><td rowspan="2"></td><td colspan="4">2015</td><td>2014</td></tr><tr><td>CHF</td><td>USD</td><td>CHF</td><td>USD</td><td></td></tr><tr><td>Dividends - par value reduction</td><td>0.62</td><td>$ 0.65</td><td>2.27</td><td>$ 2.46</td><td></td></tr><tr><td>Dividends - distributed from Capital contribution reserves</td><td>1.94</td><td>2.01</td><td>0.20</td><td>0.24</td><td></td></tr><tr><td>Total dividend distributions per common share</td><td>2.56</td><td>$ 2.66</td><td>2.47</td><td>$ 2.70</td><td></td></tr></table>



## d) Reserve for Treasury shares

Treasury shares held by Chubb are carried at the lower of cost or market. The following table presents a roll-forward of treasury shares held by Chubb for the years ended December 31, 2015 and 2014:

<table><tr><td rowspan="2">(cost in millions of Swiss francs)</td><td colspan="3">2015</td><td>2014</td></tr><tr><td>Number of Shares</td><td>Cost</td><td>Number of Shares</td><td>Cost</td></tr><tr><td>Balance - beginning of year</td><td>21,902</td><td>2</td><td>589,323</td><td>47</td></tr><tr><td>Additions related to share-based compensation plans</td><td>—</td><td>—</td><td>71,520</td><td>7</td></tr><tr><td>Redeemed under share-based compensation plans</td><td>—</td><td>—</td><td>(638,941)</td><td>(52)</td></tr><tr><td>Balance - end of year</td><td>21,902</td><td>2</td><td>21,902</td><td>2</td></tr></table>

Treasury shares held by Chubb subsidiaries are carried at the lower of cost or market. The following table presents a roll-forward of treasury shares held by Chubb subsidiaries for the years ended December 31, 2015 and 2014:

<table><tr><td rowspan="2">(cost in millions of Swiss francs)</td><td colspan="3">2015</td><td>2014</td></tr><tr><td>Number of Shares</td><td>Cost</td><td>Number of Shares</td><td>Cost</td></tr><tr><td>Balance - beginning of year</td><td>14,150,824</td><td>1,323</td><td>2,449,154</td><td>190</td></tr><tr><td>Repurchase of shares</td><td>6,677,663</td><td>707</td><td>13,982,358</td><td>1,327</td></tr><tr><td>Additions related to share-based compensation plans</td><td>767,183</td><td>80</td><td>739,885</td><td>64</td></tr><tr><td>Redeemed under share-based compensation plans</td><td>(3,348,601)</td><td>(314)</td><td>(3,020,573)</td><td>(258)</td></tr><tr><td>Balance - end of year</td><td>18,247,069</td><td>1,796</td><td>14,150,824</td><td>1,323</td></tr></table>

Decreases in treasury shares held by Chubb and its subsidiaries are principally due to issuances of shares upon the exercise of employee stock options, grants of restricted stock, and purchases under the Employee Stock Purchase Plan (ESPP). Increases in treasury shares are due to open market repurchases of shares and the surrender of shares to satisfy tax withholding obligations in connection with the vesting of restricted stock and the forfeiture of unvested restricted stock.

## e) Movements in Retained earnings

<table><tr><td rowspan="2">(in millions of Swiss francs)</td><td colspan="2">Year ended December 31</td></tr><tr><td>2015</td><td>2014</td></tr><tr><td>Balance - beginning of year</td><td>2,793</td><td>3,476</td></tr><tr><td>Attribution to reserve for treasury shares</td><td>(471)</td><td>(1,088)</td></tr><tr><td>Profit for the year</td><td>5,168</td><td>405</td></tr><tr><td>Balance - end of year</td><td>7,490</td><td>2,793</td></tr></table>

## f) Chubb securities repurchase authorization

In November 2014, the Board announced authorization of a share repurchase program of $1.5 billion (CHF 1.5 billion) of Chubb's Common Shares for the period January 1, 2015 through December 31, 2015. At this time, management has elected to discontinue share repurchases. There are no share repurchase authorizations outstanding subsequent to December 31, 2015.

## g) General restrictions

Holders of 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 Chubb, 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.



## 7. Significant shareholders

The following table presents information regarding each person, including corporate groups, known to ACE to own beneficially or of record more than five percent of Chubb's outstanding Common Shares at December 31, 2015 and December 31, 2014.

<table><tr><td rowspan="2">Name of Beneficial Owner</td><td colspan="2">2015</td><td colspan="2">2014</td></tr><tr><td>Number of Shares Beneficially Owned</td><td>Percent of Class</td><td>Number of Shares Beneficially Owned</td><td>Percent of Class</td></tr><tr><td>Wellington Management Group, LLP</td><td>33,121,461</td><td>10.22%</td><td>28,193,212</td><td>8.50%</td></tr><tr><td>JP Morgan Chase &amp; Co.</td><td>20,967,476</td><td>6.40%</td><td>17,847,619</td><td>5.30%</td></tr><tr><td>Capital World Investors</td><td>20,772,138</td><td>6.40%</td><td>24,024,534</td><td>7.20%</td></tr><tr><td>Vanguard Group, Inc.</td><td>20,047,961</td><td>6.18%</td><td>19,469,537</td><td>5.86%</td></tr><tr><td>FMR LLC</td><td>18,751,997</td><td>5.78%</td><td>*</td><td>*</td></tr><tr><td>BlackRock, Inc.</td><td>17,414,165</td><td>5.40%</td><td>21,386,205</td><td>6.40%</td></tr><tr><td>State Street Corporation</td><td>*</td><td>*</td><td>17,142,592</td><td>5.20%</td></tr></table>

* Represented less than five percent

## 8. Subsequent events

On January 14, 2016, we completed the acquisition of The Chubb Corporation, comprising $14.3 billion in cash and $15.2 billion in newly-issued stock, based on the Chubb Limited closing price on the acquisition date. We financed the cash portion of the transaction through a combination of $9 billion sourced from various Chubb Limited and Chubb Corporation companies plus $5.3 billion of senior notes which were issued in November 2015. Refer to Note 1 and Note 6a for further information.

## 9. Other disclosures required by Swiss law

## a) Expenses

Total personnel expenses amounted to CHF 8.8 million and CHF 7.9 million for the years ended December 31, 2015 and 2014, respectively. The number of full-time positions on an annual average was no more than 50 for years ended December 31, 2015 and 2014.

Total amortization expense related to tangible property amounted to CHF 0.7 million and CHF 0.6 million for the years ended December 31, 2015 and 2014, respectively.

## b) Fees paid to auditors

Fees paid to auditors by Chubb Limited totaled CHF 3.4 million and CHF 3.1 million for the years ended December 31, 2015 and 2014, respectively. An allocation of audit fees for professional services rendered in connection with the integrated audit of our consolidated financial statements and internal controls over financial reporting and audit fees for the standalone Swiss statutory financial statements totaled CHF 2.9 million and CHF 2.8 million for the years ended December 31, 2015 and 2014, respectively. Tax fees totaled CHF 0.5 million and CHF 0.3 million for the years ended December 31, 2015 and 2014, respectively.

## c) Loans to subsidiaries

The following table presents information regarding loans to subsidiaries at December 31, 2015 and 2014,

<table><tr><td>(in millions of Swiss francs)</td><td>2015</td><td>2014</td></tr><tr><td>Loans to ACE Group Holdings, Inc.</td><td>625</td><td>620</td></tr><tr><td>Loans to ACE INA Holdings, Inc.</td><td>73</td><td>1</td></tr><tr><td>Total loans to subsidiaries</td><td>698</td><td>621</td></tr></table>



## NOTES TO SWISS STATUTORY FINANCIAL STATEMENTS (continued)

Chubb Limited

## d) Receivables from subsidiaries

The following table presents information regarding receivables from subsidiaries at December 31, 2015 and 2014. Chubb Limited received dividends of CHF 4.8 billion from its Bermuda subsidiaries in 2015. CHF 2.7 billion of the 2015 dividends were paid in 2015, with the remaining CHF 2.1 billion paid in 2016.

<table><tr><td>(in millions of Swiss francs)</td><td>2015</td><td>2014</td></tr><tr><td>Receivables from ACE Group Management and Holdings, Ltd.</td><td>2,331</td><td>22</td></tr><tr><td>Receivables from ACE Group Holdings, Inc.</td><td>42</td><td>30</td></tr><tr><td>Receivables from ACE Reinsurance Switzerland Ltd.</td><td>11</td><td>—</td></tr><tr><td>Receivables from ACE Insurance (Switzerland) Ltd.</td><td>—</td><td>4</td></tr><tr><td>Total receivables from subsidiaries</td><td>2,384</td><td>56</td></tr></table>

## e) Payable to subsidiaries

The following table presents information regarding payables subsidiaries at December 31, 2015 and 2014, respectively. Chubb Limited contributed CHF 5.0 billion of capital to ACE Group Holdings and ACE INA Holdings in 2015, related to financing of the Chubb Merger. CHF 2.7 billion of the 2015 contributions were paid in 2015, with the remaining CHF 2.3 billion paid in 2016.

<table><tr><td>(in millions of Swiss francs)</td><td>2015</td><td>2014</td></tr><tr><td>Payable to ACE Group Holdings, Inc.</td><td>2,560</td><td>194</td></tr><tr><td>Payable to ACE Group Management and Holdings, Ltd.</td><td>92</td><td>92</td></tr><tr><td>Payable to ACE Insurance (Switzerland) Ltd.</td><td>6</td><td>2</td></tr><tr><td>Total payable to subsidiaries</td><td>2,658</td><td>288</td></tr></table>



## Proposed appropriation of available earnings

Our Board of Directors proposes to the Annual General Meeting that the Company's disposable profit (including the net income and the other items as shown below) be carried forward. The following table shows the appropriation of available earnings as proposed by the Board of Directors for the year ended December 31, 2015.

<table><tr><td>(in millions of Swiss francs)</td><td>2015</td><td>2014</td></tr><tr><td>Balance brought forward</td><td>2,793</td><td>3,476</td></tr><tr><td>Net Income</td><td>5,168</td><td>405</td></tr><tr><td>Attribution reserve for treasury shares</td><td>(471)</td><td>(1,088)</td></tr><tr><td>Balance carried forward</td><td>7,490</td><td>2,793</td></tr></table>

In order to pay dividends, our Board of Directors proposes that an aggregate amount equal to CHF 1.950 billion be released from the capital contribution reserves account of legal reserves in 2016 and allocated to a segregated dividend reserve account (the "Dividend Reserve"). The Board proposes to distribute a dividend to the shareholders up to an aggregate amount totaling $2.76 per Common Share from, and limited at a maximum to the amount of, the Dividend Reserve in one or more installments, in such amounts and on such record and payment dates as determined by the Board in its discretion. If the Board deems it advisable for the Company, the Board shall be authorized to abstain (in whole or in part) from distributing a dividend in its discretion. The authorization of the Board to distribute the installments from the Dividend Reserve will expire on the date of the 2017 annual general meeting, on which date any balance remaining in the Dividend Reserve will be automatically reallocated to the capital contribution reserves account of legal reserves.

If the Annual General Meeting approves this proposal, our Board currently intends to distribute the dividend in four equal installments of $0.69 each, on record dates at about the end of June, September, December and March, respectively, with payment dates about 21 days thereafter.

At December 31, 2015, 342,832,412 of the Company's Common Shares were eligible for dividends.

At the 2015 annual general meeting, the Company's shareholders approved an aggregate annual dividend in the form of a par value reduction in 2015 totaling $2.68 per Common Share. The annual dividend was payable in four installments, each denominated in CHF but adjusted appropriately so that the U.S. dollar value of the installment remained at $0.67. The installments were subject to a dividend cap expressed in CHF which was not reached for 2015.



# REPORT OF THE STATUTORY AUDITOR TO THE GENERAL MEETING OF CHUBB LIMITED, ZURICH ON THE (SWISS STATUTORY) FINANCIAL STATEMENTS

## Report of the statutory auditor on the financial statements

As statutory auditor, we have audited the financial statements of Chubb Limited, which comprise the balance sheets, statements of income and notes (pages S-2 to S-11), for the year ended December 31, 2015.

## Board of Directors' responsibility

The Board of Directors is responsible for the preparation of the financial statements in accordance with the requirements of Swiss law and the company's articles of incorporation. This responsibility includes designing, implementing and maintaining an internal control system relevant to the preparation of financial statements that are free from material misstatement, whether due to fraud or error. The Board of Directors is further responsible for selecting and applying appropriate accounting policies and making accounting estimates that are reasonable in the circumstances.

## Auditor's responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Swiss law and Swiss Auditing Standards. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers the internal control system relevant to the entity's preparation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control system. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of accounting estimates made, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

## Opinion

In our opinion, the financial statements for the year ended December 31, 2015 comply with Swiss law and the company's articles of incorporation.

## Report on other legal requirements

We confirm that we meet the legal requirements on licensing according to the Auditor Oversight Act (AOA) and independence (article 728 CO and article 11 AOA) and that there are no circumstances incompatible with our independence.

In accordance with article 728a paragraph 1 item 3 CO and Swiss Auditing Standard 890, we confirm that an internal control system exists which has been designed for the preparation of financial statements according to the instructions of the Board of Directors.

We further confirm that the proposed appropriation of available earnings complies with Swiss law and the company's articles of incorporation. We recommend that the financial statements submitted to you be approved.

PricewaterhouseCoopers AG

/s/ Ray Kunz

/s/ Philip Kirkpatrick

Ray Kunz

Philip Kirkpatrick

Audit expert

Audit expert

Auditor in charge

Zurich, February 29, 2016



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CHUBB LIMITED

SWISS STATUTORY COMPENSATION REPORT

December 31, 2015



## A General

Under the Swiss ordinance against excessive pay in stock exchange listed companies (the "Minder Ordinance") and our Articles of Association, we are required to prepare a separate Swiss Statutory Compensation Report each year that contains specific items in a presentation format determined by these regulations.

In 2015 and 2014, our Executive Management (as defined under Swiss law) consisted of Evan G. Greenberg, Chairman, President and Chief Executive Officer; Philip V. Bancroft, Chief Financial Officer; John W. Keogh, Executive Vice Chairman and Chief Operating Officer; John J. Lupica, Vice Chairman; President, North America Major Accounts and Specialty Insurance; and Joseph F. Wayland, General Counsel and Secretary. In 2016, following our acquisition of The Chubb Corporation and in connection with management restructuring from that acquisition, our Board of Directors determined to reduce members of our Executive Management from 5 to 4. Our Executive Management presently consists of Messrs. Greenberg, Bancroft, Keogh and Wayland.

For more detailed information about compensation for our Board of Directors and Executive Management, please review our Proxy Statement. You may access this report on the Investor Information section of our website at http://investors.chubb.com/investor-information/resources/shareholder-meeting-materials/default.aspx or by contacting Investor Relations by telephone, email or mail at:

Telephone: +1 (441) 299-9283

Email: investorrelations@chubb.com

Mail: Investor Relations, Chubb Limited, 17 Woodbourne Avenue, Hamilton, HM08, Bermuda

References in this report to “we,” “our” or “Chubb” are to Chubb Limited.

## B Compensation of the Board of Directors and Executive Management

## Basis of Presentation

The following information sets forth the compensation for the years ended December 31, 2015 and 2014, of the members of the Board and Executive Management for all of the functions that they have performed for Chubb. Compensation of the Board is paid by Chubb. Compensation of Executive Management is paid by Chubb and the Chubb group entities where they are employed. Compensation is paid as a combination of both U.S. dollars, our functional reporting currency, with translation of certain amounts to whole Swiss francs. Where presented, 2015 and 2014 Swiss franc compensation figures have been translated at the average exchange rates. The average exchange rate we used for U.S. dollars into Swiss francs was 0.96256 in 2015 and 0.915313 in 2014.

This report is established in accordance with the provisions of the Minder Ordinance.

## Compensation of the Board of Directors

Our directors receive compensation in accordance with our Director Compensation Parameters. The Director Compensation Parameters have not been changed (a zero percent increase) since 2013, other than to clarify that all per-meeting fees are subject to a maximum amount approved by shareholders. Non-management directors received $260,000 (CHF 250,266) per year in 2015 for their service as directors. Chubb paid $160,000 (CHF 154,010) of this fee in the form of restricted stock awards, based on the fair value of Chubb's Common Shares at the date of award, with the remaining portion of the annual fee paid to directors in cash quarterly.



Committee chairmen received committee chair retainers as follows:

Audit Committee – $25,000 (CHF 24,064);

Compensation Committee – $20,000 (CHF 19,251);

Risk & Finance Committee – $15,000 (CHF 14,438); and

Nominating & Governance Committee – $12,000 (CHF 11,551).

The Lead Director received a retainer of $50,000 (CHF 48,128), which is in addition to any retainer received as a committee chairman. Directors are not paid fees for attending regular Board or committee meetings but, at the discretion of the Chairman of the Board and the Lead Director, Chubb may pay an additional $2,000 (CHF 1,925) fee for each special meeting attended by telephone and $3,000 (CHF 2,888) for each special meeting attended in person. Chubb pays the retainers and premiums for committee service and special Board meeting fees quarterly in cash.

Directors may elect to receive all of their compensation, other than compensation for special meetings, in the form of restricted stock awards. Restricted stock awards vest at the following year's annual general meeting.

Chubb’s Corporate Governance Guidelines specify director equity ownership requirements. Chubb awards independent directors restricted stock awards. Chubb mandates minimum equity ownership of $600,000 (CHF 577,536) for outside directors (based on the stock price on the date of award). Each director has until the fifth anniversary of his or her initial election to the Board to achieve this minimum. The previously granted restricted stock awards (whether or not vested) will be counted toward achieving this minimum. Stock options will not be counted toward achieving this minimum.

Once a director has achieved the minimum equity ownership, this requirement will remain satisfied going forward as long as he or she retains the number of shares valued at the minimum amount based on the New York Stock Exchange closing price for Chubb's Common Shares as of the date the minimum threshold is initially met. Any vested shares held by a director in excess of the minimum share equivalent specified above may be sold at the director's discretion after consultation with Chubb's General Counsel.

No compensation was paid to former directors nor did any former director receive any benefits in kind or waivers of claims during the years ended December 31, 2015 and 2014.

During the years ended December 31, 2015 and 2014, no current directors received benefits in kind or waivers of claims and no compensation had been paid to any related party of current or former directors, except as noted below with respect to our director charitable contributions program. Additionally, no related party of current or former directors received any benefits in kind or waivers of claims during 2015 or 2014. At each of December 31, 2015 and 2014, no current or former directors or any related party of current or former directors had outstanding loans or credits from Chubb.

Chubb has a matching contribution program for directors under which Chubb will match director charitable contributions to registered charities, churches, and other places of worship or schools up to a maximum of $10,000 (CHF 9,626) per year. In February 2016, the maximum match for director contributions was increased to $20,000 (CHF 19,252) per year. For Swiss law purposes, some of these matching contributions during the years ended December 31, 2015 and 2014 qualified as related party transactions under our Related Party Transaction Guidelines because our directors or members of their immediate family were directors or officers of the charity. Pursuant to this matching charitable contributions program, Chubb matched a total of $55,000 (CHF 52,941) in contributions to six organizations that fell under our Related Party Transaction Guidelines in 2015 and $75,000 (CHF 68,649) in contributions to ten organizations that fell under our Related Party Transaction Guidelines in 2014.

The following table presents information concerning director compensation paid or, in the case of restricted stock awards, earned in the years ended December 31, 2015 and 2014. Although Evan G. Greenberg is Chairman of the Board,



Mr. Greenberg received no compensation in respect of these duties. Details of Mr. Greenberg's compensation in his capacity as a member of Executive Management are included in Table 2 below.

Table 1 – audited

<table><tr><td>Name</td><td>Year</td><td>Board Function</td><td>Fees Earned or Paid</td><td>Stock Awards (1)</td><td>All Other (2)</td><td>Total</td><td>Total in CHF</td></tr><tr><td rowspan="3">Michael G. Atieh</td><td>2015</td><td>Member Chair - Audit</td><td>$ 46,875</td><td>$ 238,125</td><td>$ 84,297</td><td>$ 369,297</td><td>CHF 355,471</td></tr><tr><td>2014</td><td>Member Chair - Audit</td><td>136,250</td><td>152,500</td><td>79,933</td><td>368,683</td><td>337,460</td></tr><tr><td>2015</td><td>Member Chair - Nominating &amp; Governance</td><td>-</td><td>272,000</td><td>35,100</td><td>307,100</td><td>295,602</td></tr><tr><td rowspan="2">Mary A. Cirillo</td><td>2014</td><td>Member Chair - Nominating &amp; Governance</td><td>15,000</td><td>256,250</td><td>33,213</td><td>304,463</td><td>278,682</td></tr><tr><td>2015</td><td>Member Chair - Compensation</td><td>120,000</td><td>160,000</td><td>-</td><td>280,000</td><td>269,517</td></tr><tr><td rowspan="2">Michael P. Connors</td><td>2014</td><td>Member Chair - Compensation</td><td>90,000</td><td>193,750</td><td>-</td><td>283,750</td><td>259,720</td></tr><tr><td>2015</td><td>Member Chair - Compensation</td><td>-</td><td>260,000</td><td>-</td><td>260,000</td><td>250,266</td></tr><tr><td rowspan="2">John Edwardson</td><td>2014</td><td>Member</td><td>-</td><td>162,500</td><td>-</td><td>162,500</td><td>148,738</td></tr><tr><td>2015</td><td>Member</td><td>-</td><td>160,000</td><td>61,597</td><td>371,597</td><td>357,684</td></tr><tr><td rowspan="2">Robert M. Hernandez</td><td>2014</td><td>Lead Director</td><td>150,000</td><td>152,500</td><td>58,285</td><td>372,035</td><td>340,528</td></tr><tr><td>2014</td><td>Lead Director</td><td>161,250</td><td>152,500</td><td>135,321</td><td>395,321</td><td>380,520</td></tr><tr><td rowspan="2">Peter Menikoff</td><td>2015</td><td>Member</td><td>-</td><td>260,000</td><td>135,321</td><td>391,794</td><td>358,614</td></tr><tr><td>2014</td><td>Member</td><td>15,000</td><td>248,750</td><td>128,044</td><td>391,794</td><td>358,614</td></tr><tr><td rowspan="2">Leo F. Mullin</td><td>2015</td><td>Member</td><td>100,000</td><td>160,000</td><td>13,757</td><td>273,757</td><td>263,508</td></tr><tr><td>2014</td><td>Member</td><td>111,250</td><td>152,500</td><td>13,019</td><td>276,769</td><td>253,330</td></tr><tr><td rowspan="2">Thomas J. Neff</td><td>2015</td><td>Retired</td><td>-</td><td>-</td><td>-</td><td>-</td><td>-</td></tr><tr><td>2014</td><td>Member</td><td>15,000</td><td>90,750</td><td>84,170</td><td>189,920</td><td>173,836</td></tr><tr><td rowspan="2">Robert Ripp</td><td>2015</td><td>Retired</td><td>-</td><td>-</td><td>-</td><td>-</td><td>-</td></tr><tr><td>2014</td><td>Member</td><td>48,750</td><td>52,500</td><td>52,739</td><td>153,989</td><td>140,948</td></tr><tr><td rowspan="2">Kimberly Ross</td><td>2015</td><td>Member</td><td>-</td><td>260,000</td><td>-</td><td>260,000</td><td>250,266</td></tr><tr><td>2014</td><td>Member</td><td>-</td><td>162,500</td><td>-</td><td>162,500</td><td>148,738</td></tr><tr><td rowspan="2">Robert Scully</td><td>2015</td><td>Member</td><td>-</td><td>260,000</td><td>-</td><td>260,000</td><td>250,266</td></tr><tr><td>2014</td><td>Member</td><td>-</td><td>162,500</td><td>-</td><td>162,500</td><td>148,738</td></tr><tr><td rowspan="2">Eugene B. Shanks, Jr.</td><td>2015</td><td>Member</td><td>100,000</td><td>160,000</td><td>-</td><td>260,000</td><td>250,266</td></tr><tr><td>2014</td><td>Member</td><td>111,250</td><td>152,500</td><td>-</td><td>263,750</td><td>241,414</td></tr><tr><td rowspan="2">Theodore E. Shasta</td><td>2015</td><td>Member</td><td>100,000</td><td>160,000</td><td>-</td><td>260,000</td><td>250,266</td></tr><tr><td>2014</td><td>Member</td><td>111,250</td><td>152,500</td><td>-</td><td>263,750</td><td>241,414</td></tr><tr><td rowspan="2">David Sidwell</td><td>2015</td><td>Member</td><td>100,000</td><td>160,000</td><td>-</td><td>260,000</td><td>250,266</td></tr><tr><td>2014</td><td>Member</td><td>62,500</td><td>100,000</td><td>-</td><td>162,500</td><td>148,738</td></tr><tr><td rowspan="2">Olivier Steimer</td><td>2015</td><td>Member</td><td>115,000</td><td>160,000</td><td>8,502</td><td>283,502</td><td>272,888</td></tr><tr><td>2014</td><td>Member</td><td>126,250</td><td>152,500</td><td>8,046</td><td>286,796</td><td>262,508</td></tr><tr><td>Total (3)</td><td>2015</td><td></td><td>$ 831,875</td><td>$ 2,670,125</td><td>$ 338,574</td><td>$ 3,840,574</td><td>CHF 3,696,786</td></tr><tr><td></td><td>2014</td><td></td><td>$ 1,003,750</td><td>$ 2,344,500</td><td>$ 457,449</td><td>$ 3,805,699</td><td>CHF 3,483,406</td></tr></table>

(1) The Stock Awards column reflects restricted stock awards earned during 2015 and 2014. These stock awards were granted in May 2015 and May 2014, respectively, at the annual general meetings and vest at the subsequent year's annual general meeting.

(2) The All Other column includes dividend equivalents on our deferred restricted stock units (which we stopped issuing in 2009) held by our longer-serving directors. We issue stock units equivalent in value to the dividend payments that those directors would have received if they held stock.

(3) Total director compensation in 2015 reflects two additional directors during the months of January through May as compared to the same period in 2014, since our Board increased by a net total of two directors at the May 2014 annual general meeting.



## Compensation of Executive Management

The following table presents information concerning Executive Management’s 2015 and 2014 compensation.

## Table 2 – audited

<table><tr><td>Name and Principal Position</td><td>Year</td><td>Salary</td><td>Bonus</td><td>Stock Awards (1)</td><td>Option Awards (2)</td><td>All Other Compensation (3)</td><td>Total in USD</td><td>Total in CHF</td></tr><tr><td>Evan G. Greenberg Chairman, President and Chief Executive Officer, Chubb Limited (highest paid executive)</td><td>2015</td><td>$ 1,351,538</td><td>$ 6,600,000</td><td>$ 12,850,051</td><td>$ 2,406,837</td><td>$ 1,208,316</td><td>$ 24,416,742</td><td>CHF 23,502,579</td></tr><tr><td></td><td>2014</td><td>1,200,000</td><td>6,600,000</td><td>8,849,997</td><td>2,371,296</td><td>1,323,314</td><td>20,344,607</td><td>18,621,683</td></tr><tr><td>All Other Executive Management</td><td>2015</td><td>3,060,000</td><td>6,405,000</td><td>13,981,385</td><td>2,320,139</td><td>1,569,785</td><td>27,336,309</td><td>26,312,838</td></tr><tr><td></td><td>2014</td><td>3,060,000</td><td>5,795,000</td><td>7,942,546</td><td>2,128,139</td><td>1,396,494</td><td>20,322,179</td><td>18,601,155</td></tr><tr><td>Total</td><td>2015</td><td>$ 4,411,538</td><td>$ 13,005,000</td><td>$ 26,831,436</td><td>$ 4,726,976</td><td>$ 2,778,101</td><td>$ 51,753,051</td><td>CHF 49,815,417</td></tr><tr><td></td><td>2014</td><td>$ 4,260,000</td><td>$ 12,395,000</td><td>$ 16,792,543</td><td>$ 4,499,435</td><td>$ 2,719,808</td><td>$ 40,666,786</td><td>CHF 37,222,838</td></tr></table>

(1) The Stock Awards column discloses the fair value of the restricted stock awards granted on February 25, 2016 for 2015 and on February 26, 2015 for 2014. This column includes time-based and performance-based restricted stock awards. This includes special one-time long-term incentive equity awards granted to certain of our employees on February 25, 2016, including members of Executive Management, in recognition of their extraordinary efforts in connection with the substantial additional work associated with the pre-closing phase of the merger of ACE Limited and The Chubb Corporation, which was announced on July 1, 2015 and completed on January 14, 2016. This award was in the form of an additional grant of performance-based restricted stock with the same vesting criteria as the performance-based restricted stock awards otherwise granted as part of annual compensation. The amounts of such awards granted to members of Executive Management were as follows: Mr. Greenberg ($4 million (CHF 3.85 million)) and All Other Executive Management ($5.45 million (CHF 5.25 million)).

(2) The Option Awards column discloses the fair value of the stock options granted on February 25, 2016 for 2015 and on February 26, 2015 for 2014.

(3) All Other Compensation column includes perquisites and other personal benefits, consisting of the following:

- For Mr. Greenberg, contributions to retirement plans of $954,185 (CHF 918,461) in 2015 and $894,000 (CHF 818,290) in 2014, personal use of corporate aircraft of $205,364 (CHF 197,676) in 2015 and $237,718 (CHF 217,587) in 2014, and miscellaneous other benefits of $48,767 (CHF 46,942) in 2015 and $191,596 (CHF 175,371) in 2014, including residential security system reimbursement, executive medical coverage and matching contributions made under our matching charitable contributions program. The Board required Mr. Greenberg to use corporate aircraft for all travel whenever practicable for security reasons.

- For the other members of Executive Management, contributions to retirement plans, personal use of corporate aircraft and corporate apartment, and miscellaneous other benefits, including, as applicable, club memberships, financial planning, executive medical coverage, home leave, residential security system reimbursement, matching contributions made under our matching charitable contributions program, car allowance or car lease and car maintenance allowance.

• Personal use of the corporate aircraft was limited to space available on normally scheduled management business flights.

• Other personal benefits including housing allowances and cost of living allowance.

• In 2015 and 2014, housing allowances were provided to Mr. Bancroft because the Company requires him to maintain a second residence in addition to maintaining his own personal residence.

- Contributions to retirement plans for 2015 and 2014 totaled $1.92 million (CHF 1.85 million) and $1.80 million (CHF 1.65 million), respectively. These consist of discretionary and non-discretionary employer contributions. The discretionary employer contributions for 2015 have been calculated and are expected to be paid in April 2016.

No former member of Executive Management or any related party of current or former Executive Management received non-market standard compensation from Chubb during each of the years ended December 31, 2015 and 2014. Additionally, no current or former member of Executive Management or any related party thereto received benefits in kind or waivers of claims during 2015 or 2014 other than as described in the footnotes to Table 2.

At each of December 31, 2015 and 2014, no current or former member of Executive Management or any related party of a current or former member of Executive Management had outstanding loans or credits from Chubb.



# REPORT OF THE STATUTORY AUDITOR TO THE GENERAL MEETING OF CHUBB LIMITED, ZURICH ON THE (SWISS STATUTORY) REMUNERATION REPORT

## Report of the statutory auditor on the remuneration report

We have audited Tables 1 and 2 within the accompanying remuneration report of Chubb Limited for the year ended 31 December 2015.

## Board of Directors' responsibility

The Board of Directors is responsible for the preparation and overall fair presentation of the remuneration report in accordance with Swiss law and the Ordinance against Excessive Compensation in Stock Exchange Listed Companies (the "Ordinance"). The Board of Directors is also responsible for designing the remuneration system and defining individual remuneration packages.

## Auditor's responsibility

Our responsibility is to express an opinion on the accompanying remuneration report. We conducted our audit in accordance with Swiss Auditing Standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the remuneration report complies with Swiss law and articles 14–16 of the Ordinance.

An audit involves performing procedures to obtain audit evidence on the disclosures made in the remuneration report with regard to compensation, loans and credits in accordance with articles 14–16 of the Ordinance. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatements in the remuneration report, whether due to fraud or error. This audit also includes evaluating the reasonableness of the methods applied to value components of remuneration, as well as assessing the overall presentation of the remuneration report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

## Opinion

In our opinion, the remuneration report of Chubb Limited for the year ended 31 December 2015 complies with Swiss law and articles 14–16 of the Ordinance.

PricewaterhouseCoopers AG

/s/ Ray Kunz

/s/ Philip Kirkpatrick

Ray Kunz
Audit expert
Auditor in charge

Philip Kirkpatrick

Audit expert

Zürich, 25 March 2016



## Chubb Greenhouse Gas Reduction Programs

On January 14, 2016, ACE Limited completed the acquisition of The Chubb Corporation and changed its name to Chubb Limited. All references to Chubb throughout this statement refer to legacy ACE Limited, unless otherwise indicated.

As an insurance company, Chubb's "environmental footprint" is relatively modest, but through our Corporate Greenhouse Gas Inventory Program and Corporate Environmental Strategy, we work to reduce it even further. Some of the primary objectives of our environmental strategy are to measure, record and reduce Chubb's corporate GHG emissions.

In 2007, the company joined the voluntary U.S. Environmental Protection Agency (EPA)-sponsored Climate Leaders program, through which the company was able to develop long-term, comprehensive climate-change strategies, inventory its emissions and set a six-year GHG reduction goal of 8% per employee. While the program was discontinued in September 2011, Chubb's Corporate GHG Inventory Program remains active using its methodology, which is based on the World Resources Institute and the World Business Council for Sustainable Development (WRI/WBCSD) GHG Protocol for data collection and analysis. In 2012, Chubb successfully met its first generation GHG reduction goal with a 27% reduction in emissions per employee since 2006. In order to continue the company's global commitment to reducing its environmental footprint, a new GHG reduction target was announced in September of 2014. The new reduction goal promised to reduce emissions 10% per employee by 2020 from a 2012 base year. Through 2015, we have achieved a decrease in emissions of 5.3% per employee from the 2012 base year.

Chubb 2015 GHG Inventory Data - Normalized Emissions Goal Tracking

<table><tr><td></td><td>2012 (base)</td><td>2015</td><td>Change</td></tr><tr><td>Total Emissions (CO2-eq. (metric tons))</td><td>67,957</td><td>70,193</td><td>3.3%</td></tr><tr><td>Normalization Factor (FTE employees)</td><td>19,038</td><td>20,754</td><td>9.0%</td></tr><tr><td>Normalized Emissions (CO2-eq./NF Units)</td><td>3.57</td><td>3.38</td><td>(5.3%)</td></tr></table>

NOTE: In 2015, a recalculation of the previously reported base year (2012) was performed due to business acquisitions made in 2014. Normalization accounts for part-time employees and acquisitions.

The data above represent 16,347 metric tons of  \( CO_{2} \) -eq. of Scope 1 emissions from fossil fuel combustion, 39,601 metric tons of  \( CO_{2} \) -eq. of location-based Scope 2 emissions from purchased electricity and 14,245 metric tons of  \( CO_{2} \) -eq. of Scope 3 emissions from United States and Bermuda employee business travel. Chubb's GHG emissions data are reviewed by a third-party on an annual basis. The company's most recent 2015 GHG inventory was reviewed by Bureau Veritas and the verification statement can be found on the following page.

In addition to tracking GHG emissions versus its goals, Chubb reports its GHG emissions data to the Carbon Disclosure Project (CDP), an organization that scores carbon emissions information from thousands of corporations on behalf of the global investment community. In 2015, Chubb's response to the questionnaire resulted in scores of 99 for Disclosure and B for Performance.

Chubb's Global GHG Management Plan concentrates primarily on reducing energy consumption at the facility level - specifically, in owned buildings and larger, long-term leased spaces. Projects have been implemented at many of our major offices including: Philadelphia, Pa., Wilmington, Del., Hamilton, Bermuda, Sydney, Australia, London, U.K. and Monterrey, Mexico. The projects include installation of new HVAC equipment, lighting upgrades and installation of central building automation systems in order to improve operations within the building and reduce energy consumption. Energy efficiency projects implemented by the corporate environmental program in 2015 represent an estimated savings of approximately 400 metric tons of  \( CO_{2}e \)  per year.

In Chubb's offices in Philadelphia, we have reduced energy consumption by over 20% since 2006 through the installation of new boilers and LED lighting, the use of variable speed drive HVAC equipment and installation of an exhaust energy recovery ventilator. Through these steps, Chubb earned LEED Silver certification in 2009 and was recently awarded LEED Gold certification in 2014. It was also awarded Energy Star Certification by the U.S. EPA in 2015.

In July 2011, our Bermuda office building was awarded LEED Gold certification - the first building in Bermuda to be awarded the designation - due in large part to a re-lamping of office lights, applying a floating temperature set point and installing motion sensors and timers on office equipment. These actions reduced electrical needs by approximately 500,000 kWh (358 metric tons CO \( _{2} \) e) per year. In 2014, the building engaged with the U.S. Green Building Council (USGBC) to become one of the early buildings using LEED Dynamic Plaque, a tool that continuously monitors and encourages improvement of overall building performance.

Information about Chubb's full range of environmental efforts can be found in the company's annual Environmental Report, which is available on the company's website. E-1



# VERIFICATION STATEMENT
GREENHOUSE GAS EMISSIONS

Bureau Veritas North America, Inc. (BVNA) was engaged to provide Limited Assurance and conduct an independent verification of the greenhouse gas (GHG) emissions and energy consumption reported by Chubb from January 1, 2015 to December 31, 2015. This Verification Statement applies to the related information included within the scope of work described below.

The determination of the GHG emissions is the sole responsibility of Chubb. BVNA was not involved in determining the GHG emissions. Our sole responsibility was to provide independent verification on the accuracy of the GHG emissions reported, and on the underlying systems and processes used to collect, analyze and review the information.

Boundaries of the reporting company GHG emissions covered by the verification:

• Operational Control

• Global

Emissions verified in Metric tonnes of  \( CO_{2} \) -equivalent (tCO \( _{2} \) e):

• Scope 1 Emissions: 16,347

• Scope 2 Emissions (Location-Based): 39,601

• Scope 2 Emissions (Market-Based): 37,490

- Scope 3 Emissions (Business Travel (Air, Rail, and Personal Car Mileage in the United States and Bermuda): 14,245

Data and information supporting the Scope 1 & Scope 2 GHG emissions were historical in nature and in some cases estimated based on historical data for similar properties in similar locations. Data and information supporting the Scope 3 GHG emissions assertion were in some cases estimated rather than historical in nature.

Period covered by GHG emissions verification:

• January 1, 2015 to December 31, 2015

Reporting Protocols against which verification was conducted:

- World Resources Institute (WRI)/World Business Council for Sustainable Development (WBCSD) Greenhouse Gas Protocol, Corporate Accounting and Reporting Standard (Scope 1 & 2)

- WRI/WBCSD Corporate Value Chain (Scope 3) Accounting and Reporting Standard (Scope 3)

GHG Verification Protocols used to conduct the verification:

- ISO 14064-3: Greenhouse gases -- Part 3: Specification with guidance for the validation and verification of greenhouse gas assertions

Level of Assurance and Qualifications:

• Limited

• Materiality Threshold:  \( \pm5\% \) 

Verification Methodology:

• Interviews with relevant personnel of Chubb;

• Review of documentary evidence produced by Chubb;

- Review of Chubb data and information systems and methodology for collection, aggregation, analysis and review of information used to determine GHG emissions;

- Audit of samples of data used by Chubb to determine GHG emissions.

## Assurance Opinion:

Based on the results of our verification process, BVNA provides Limited Assurance of the GHG emissions and energy assertion shown above, and found no evidence that the assertion:

• is not materially correct;

- is not a fair representation of the GHG emissions and energy data and information; and

- is not prepared in accordance with the WRI/WBCSD GHG Protocol Corporate Accounting and Reporting Standard.

It is our opinion that Chubb has established appropriate systems for the collection, aggregation and analysis of quantitative data for determination of GHG emissions for the stated period and boundaries.

## Statement of independence, impartiality and competence

The Bureau Veritas Group is an independent professional services company that specializes in Quality, Health, Safety, Social and Environmental management with over 180 years history in providing independent assurance services, and an annual 2014 revenue of 4.2 Billion Euros.

No member of the verification team has a business relationship with Chubb, its Directors or Managers beyond that required of this assignment. We conducted this verification independently and to our knowledge there has been no conflict of interest.

BVNA has implemented a Code of Ethics across the business to maintain high ethical standards among staff in their day-to-day business activities.

The verification team has extensive experience in conducting assurance over environmental, social, ethical and health and safety information, systems and processes, has over 20 years combined experience in this field and an excellent understanding of BVNA standard methodology for the verification of greenhouse gas emissions data.

## Attestation:



Trevor A. Donaghu, Lead Verifier

Sustainability and Climate Change Services

Bureau Veritas North America, Inc.

March 17, 2016

This verification statement, including the opinion expressed herein, is provided to Chubb and is solely for the benefit of Chubb in accordance with the terms of our agreement. We consent to the release of this statement by you to the CDP in order to satisfy the terms of CDP disclosure requirements but without accepting or assuming any responsibility or liability on our part to CDP or to any other party who may have access to this statement.

Bureau Veritas North America, Inc.



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This annual report contains trademarks, trade names and service marks owned by Chubb Limited and its subsidiaries, including Chubb \( ^{®} \) , Chubb logo \( ^{®} \) , Chubb. Insured \( ^{+} \) , Craftsmanship \( ^{+} \) , ACE \( ^{®} \)  and ACE logo \( ^{®} \) . In addition, this report contains trademarks, trade names or service marks of companies other than Chubb and ACE, which belong to their respective owners.

This report is printed on paper containing 10% post-consumer recycled content. These papers are certified to the international standards of the Forest Stewardship Council (FSC), which promotes responsible management of the world’s forests.



Chubb Limited
Bärengasse 32
CH-8001 Zurich
Switzerland

new.chubb.com

Chubb. Insured. \( ^{SM} \)