Effective January 1, 2016, we retrospectively adopted new accounting guidance that requires debt issuance costs (previously included in Other assets in the Consolidated balance sheets) to be recorded as a reduction of the carrying amount of the related debt liability instead of as a deferred charge. Prior year balances, including Total assets, Long-term debt, Trust preferred securities, and Total liabilities, have been adjusted in the table below to reflect this adoption. Refer to Note 1 to the Consolidated Financial Statements for additional information.
The loss and loss expense ratio is calculated by dividing Losses and loss expenses, excluding the Life Insurance segment, by Net premiums earned - excluding Life Insurance segment. Losses and loss expenses for the Life Insurance segment were $663 million, $601 million, $589 million, $582 million, and $611 million for the years ended December 31, 2016, 2015, 2014, 2013, and 2012, respectively.
the potential impact of the United Kingdom’s vote to withdraw from the European Union, including political, regulatory, social, and economic uncertainty and market and exchange rate volatility;
risks and uncertainties relating to our acquisition of The Chubb Corporation (Chubb Corp acquisition) including our ability to successfully integrate the acquired company;
Effective the first quarter of 2016 and subsequent to our acquisition of The Chubb Corporation (Chubb Corp), we operate through the following business segments: North America Commercial P&C Insurance, North America Personal P&C Insurance, North America Agricultural Insurance, Overseas General Insurance, Global Reinsurance, and Life Insurance. 2015 results were revised to conform to the new segment presentation and only include legacy ACE results (i.e., does not include legacy Chubb Corp results except in "As If" presentations). 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 2016, 2015, and 2014 are as follows:
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).
The consolidated financial statements include results of acquired businesses from the acquisition dates. Refer to Note 2 to the Consolidated Financial Statements for additional information on our acquisitions.
We present financial measures on an "As If" basis for both the 2016 and 2015 periods throughout the Management's Discussion and Analysis section exclusive of the impact of the unearned premium reserves intangible amortization and the elimination of the historical policy acquisition costs as a result of purchase accounting related to the Chubb Corp acquisition in order to present the underlying profitability of our insurance business for the entire relevant periods. We believe these measures provide visibility into our results, allow for comparability to our historical results and are consistent with how management evaluates results. We define our results presented on an "As If" basis as follows:
Net income was $4,135 million compared with $2,834 million last year.
The combined ratio was 88.3 percent, which included 0.4 percentage point impact for the $113 million curtailment benefit. P&C combined ratio was 88.7 percent, which excludes the curtailment benefit, compared with 87.4 percent in 2015. On an “As If” basis, P&C combined ratio was 88.0 percent compared with 87.5 percent in 2015.
Total pre-tax and after-tax catastrophe losses, including reinstatement premiums, were $1,060 million (4.0 percentage points of the combined ratio) and $844 million, respectively, compared with $322 million (2.1 percentage points of the combined ratio) and $272 million, respectively, in 2015.
Net investment income was $2,865 million which is net of $393 million related to the amortization of the fair value adjustment on acquired invested assets of Chubb Corp. Excluding this amortization, net investment income was $3,258 million, compared with $2,194 million last year.
Integration expenses related to the Chubb acquisition were $492 million pre-tax in 2016, and include all internal and external costs directly related to the integration activities of the Chubb Corp acquisition, consisting primarily of personnel-related expenses, including severance and employee retention and relocation; consulting fees; and advisor fees. Chubb integration expenses were $33 million pre-tax in 2015, consisting primarily of legal and professional fees.
Chubb had an excellent year with many accomplishments. In 2016, we produced net income per share of $8.87 and book value per share growth of over 15 percent, despite elevated catastrophe losses and soft P&C market conditions globally. Operationally, we completed the largest merger in insurance history, and managed a transformational company-wide global integration effort, all while staying focused on our core business of underwriting and servicing customers and distribution partners, and retaining our commercial and personal lines customers. We launched new products and entirely new businesses, made investments in our people, technologies, and capabilities, and began to harness the complementary strengths of the organization in cross-selling and other revenue initiatives. We achieved financial and non-financial targets, including realizing efficiencies, while remaining outward-facing in managing and growing our business in all aspects. While more work remains, we have made progress, from underwriting to claims to real estate and information technology (IT), to finance and human resources, our operational integration has been detailed and all-encompassing, and we are ahead of schedule in all areas.
During the fourth quarter of 2016 we harmonized, and amended several U.S. retirement programs to create a unified retirement savings program. In 2020, we plan to transition a traditional defined benefit pension program that had been in effect for certain employees, to a defined contribution program. Additionally, after 2025, we plan to eliminate a subsidized U.S. retiree healthcare plan that had been in place for certain employees, generating an expected annualized benefit of $100 million pre-tax each year for the next five years, after which time the benefit is expected to continue in a range of $50 million to $80 million, pre-tax, depending on interest rates at the time.
Also in 2017, we expect to recognize intangibles amortization expenses of $251 million, primarily associated with our agency distribution relationships and renewal rights established in connection with the Chubb Corp acquisition. This compares to $19 million of intangibles amortization expense in 2016.
(2) Refer to page 56 for realized savings by segment and income statement line item.
(3) Integration expenses related to savings are one-time costs that are directly attributable to the achievement of the annualized savings, including employee severance, third-party consulting fees, and systems integration expenses. Other merger-related expenses are one-time costs directly attributable to the merger, including rebranding, employee retention costs and other professional and legal fees related to the acquisition. These costs are not allocated at the segment level as they are one-time in nature and are not related to the ongoing business of the segment, and therefore are reported within Corporate.
The anticipated integration-related savings and integration and merger-related expenses may not be realized fully, 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. Refer to the Risk Factors under Item 1A on page 18 for additional information.
the valuation of value of business acquired (VOBA) and amortization of deferred policy acquisition costs and VOBA;
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 82 percent casualty-related business, which typically encompasses long-tail risks, and other risks where a high degree of judgment is required.
Our recorded reserves represent management's best estimate of the provision for unpaid claims as of the balance sheet date and involves a process that includes collaboration with various relevant parties in the company. For information on our reserving process, refer to Note 7 to the Consolidated Financial Statements.
While we believe that our reserve for unpaid losses and loss expenses at December 31, 2016, 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.
Approximately 76 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.
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 $493 million. This represents an impact of 14.0 percent relative to recorded net loss and loss expense reserves of approximately $3.5 billion.
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 $650 million. This represents an impact of 60 percent relative to recorded net loss and loss expense reserves of approximately $1.1 billion.
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.
At December 31, 2016, 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, 2016, 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 $68 million or approximately 0.5 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.
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, 2016, our net deferred tax liability was $988 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, 2016, the valuation allowance of
$78 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 potential inability of certain foreign subsidiaries to generate sufficient taxable income.
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:
For further information on the estimates and assumptions used in determining the fair value of GLB reinsurance, refer to Note 4 to the Consolidated Financial Statements. For a sensitivity discussion of the effect of changes in interest rates, equity indices, and other assumptions on the fair value of GLBs, and the estimated resulting impact on our net income, refer to