EDGAR 10-K Filing

Company CIK: 896159
Filing Year: 2021
Filename: 896159_10-K_2021_0000896159-21-000003.json

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ITEM 1. BUSINESS
ITEM 1. Business
General
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, 2020, we had total assets of $191 billion and shareholders’ equity of $59 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 have grown our business through increased premium volume, expansion of product offerings and geographic reach, and the acquisition of other companies to become a global property and casualty (P&C) leader.
During 2020, we completed the purchase of an additional 16.2 percent ownership interest in Huatai Insurance Group Co., Ltd. (Huatai Group) bringing our aggregate ownership interest from 30.9 percent to 47.1 percent as of December 31, 2020. On December 30, 2019, we acquired Banchile Seguros de Vida, an insurance company providing both life and property and casualty coverages in Chile. The results of Huatai Group and Banchile Seguros de Vida are included in the Overseas General Insurance and Life Insurance segments as appropriate, determined by the type of policy written. Refer to Note 2 to the Consolidated Financial Statements for additional information.
With operations in 54 countries and territories, Chubb provides commercial and personal property and casualty insurance, personal accident and supplemental health insurance (A&H), reinsurance, and life insurance to a diverse group of clients. We provide 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 serve multinational corporations, mid-size and small businesses with property and casualty insurance and risk engineering services; affluent and high net worth individuals with substantial assets to protect; individuals purchasing life, personal accident, supplemental health, homeowners, automobile, and specialty personal insurance coverage; companies and affinity groups providing or offering accident and health insurance programs and life insurance to their employees or members; and insurers managing exposures with reinsurance coverage.
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 Relations / Corporate Governance) are our Corporate Governance Guidelines, Code of Conduct, and Charters for the Committees of the Board of Directors (the Board). Printed documents are available by contacting our Investor Relations Department (Telephone: +1 (212) 827-4445, 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 Relations portion of our website, in addition to following our press releases, SEC filings, and public conference calls and webcasts. The information contained on, or that may be accessed through, our website is not incorporated by reference into, and is not a part of, this report. The SEC maintains an Internet site (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file with the SEC.
Customers
For most commercial and personal 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 assists 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. 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, technological, marketing, distribution and management resources than we do. In addition, capital market participants have created alternative products that are intended to compete with reinsurance products. We also compete with new companies and existing companies that move into the insurance and reinsurance markets. 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.
The insurance industry is changing rapidly. 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 and effectively utilize new technology in our business. Our broad market capabilities in personal, commercial, specialty, and A&H lines made available by our underwriting expertise, business infrastructure, and global presence, help 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.
Human Capital Management
Our employees are critical to our mission to protect the present and build a better future, by providing our customers with the security from risk that allows people and businesses to grow and prosper. To accomplish this mission, we seek to attract and retain the very best insurance professionals and to provide an inclusive and supportive culture that allows all of our employees to reach their full potential as we deliver insurance solutions and claims service for individuals, families and businesses of all sizes. Our highly collaborative, inclusive approach helps us drive better business outcomes. We track and report internally on key talent metrics including employee demographics, critical role succession planning, diversity data, and employee retention and engagement. This information is regularly reported to senior management as well as the Chubb Board of Directors. At December 31, 2020, we employed approximately 31,000 people in 54 countries and territories around the world, including 53 percent in North America, 12 percent in Europe, Eurasia and Africa, 19 percent in Asia, and 16 percent in Latin America. We believe that employee relations are good.
Diversity and inclusion
Diversity and inclusion are integral to Chubb’s culture. We recognize our responsibility to provide opportunity within our own organization, where we aim to foster a diverse and inclusive meritocracy. Our extensive efforts in this area include mentorships, affinity groups, diversity awareness training, and education, open dialogue on race and racism, management development programs, and considering a diverse pool of candidates in recruiting and promotion.
Examples of initiatives include Business Roundtables (our employee affinity groups) and Regional Inclusion Councils, which promote dynamic networking across the business and engage hundreds of employees in constructive dialogue. These circles of support focus on employee onboarding, development and retention and help us build stronger relationships with, and gain deeper insights into, our varied customer and distribution partner communities. Other programs include Chubb Start, which supports the continuous professional development of women who are early in their careers, and Chubb Signatures, a global and regional lecture series for successful senior women, diverse men and inclusion champions to share their unique backgrounds,
experiences and hard-earned lessons in business. In addition, we remain attuned to demographic shifts within our workforce and society to evaluate and update employee policies, procedures and systems that reflect this commitment. We depend on our culture of leadership accountability to continue progress in diversity and inclusion at Chubb.
Attraction, Development, and Retention
The foundation to Chubb’s long-term success is our disciplined approach to attracting, developing and retaining the next generation of insurance professional and leaders. We strive to be an inclusive meritocracy, where all employees regardless of race, gender or background can thrive. Learning and professional development are central to the Chubb culture, and we are committed to providing opportunities to evolve professionally. Our talent development efforts are for all employee levels and we expect our employees to own and drive their development by availing themselves of the structured and unstructured learning we offer, including on-the-job training, through personal interaction and involvement, or via online and classroom learning. Chubb has made substantial investments for a robust technical and leadership development environment and, where appropriate, fills open positions with internal sourcing of talent.
Compensation and Benefits
Chubb is committed to delivering competitive compensation and benefits to its employees worldwide as a means to attract and retain a highly qualified, experienced, talented and motivated workforce. We vary and adjust our offerings to support the human resources requirements of our business in markets around the world in which we operate. Additionally, we structure our compensation programs for leaders to include a mix of short- and long-term awards, with a focus on linking pay to Chubb's performance and the enhancement of shareholder value over the medium- and long-term.
Segment Information
Chubb operates through six business segments: North America Commercial P&C Insurance, North America Personal P&C Insurance, North America Agricultural Insurance, Overseas General Insurance, Global Reinsurance, and Life Insurance. In 2020, consolidated net premiums earned was $33.1 billion. Additional financial information about our segments, including net premiums earned by geographic region, is included in Note 15 to the Consolidated Financial Statements.
North America Commercial P&C Insurance (42 percent of 2020 Consolidated NPE)
Overview
The North America Commercial P&C Insurance segment comprises operations that provide P&C insurance and services to large, middle market, and small commercial businesses in the U.S., Canada, and Bermuda. This segment includes:
•Major Accounts, the retail division focused on large institutional organizations and corporate companies
•Commercial Insurance, which includes the retail division focused on middle market customers and small businesses
•Westchester and Chubb Bermuda, our wholesale and specialty divisions
Products and Distribution
Major Accounts provides a broad array of commercial lines of products and services, including traditional and specialty P&C, and risk management, as well as consumer A&H products to large U.S. and Canadian-based institutional organizations and corporate companies. Major Accounts 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, professional liability, cyber risk, excess casualty, workers’ compensation, general liability, automobile liability, commercial marine, surety, environmental, construction, medical risk, inland marine, A&H coverages, as well as claims and risk management products and services.
The Major Accounts operations, which represented approximately 41 percent of North America Commercial P&C Insurance’s net premiums earned in 2020, are organized into the following distinct business units, each offering specialized products and services targeted at specific markets:
•Chubb Global Casualty offers a range of customized risk management primary casualty products designed to help large insureds, including national accounts, and managing risk for workers’ compensation, general liability and automobile liability coverages as well as offering casualty insurance solutions for commercial real estate. Chubb Global Casualty also 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. Within Chubb Global Casualty, Chubb Alternative Risk Solutions Group underwrites contractual indemnification policies which 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.
•Property provides products and services including primary, quota share and excess all-risk insurance, risk management programs and services, commercial, inland marine, and aerospace products.
•Casualty Risk provides coverages including umbrella and excess liability, environmental risk, casualty programs for commercial construction related projects for companies and institutions, and medical risk specialty liability products for the healthcare industry.
•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.
•Accident & Health (A&H) 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 healthcare costs. A&H 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.
•Financial Lines provides management liability and professional liability (D&O and E&O), transactional risk and cyber risk products to public companies as well as to private and not for profit organizations.
•ESIS Inc. (ESIS) is an in-house third-party claims administrator that performs claims management and risk control services for domestic and international organizations as well as for the North America Commercial P&C Insurance segment. ESIS services include comprehensive medical managed care; integrated disability services; pre-loss control and risk management; health, safety and environmental consulting; salvage and subrogation; and healthcare recovery services. The net results for ESIS are included in North America Commercial P&C Insurance’s administrative expenses.
The Commercial Insurance operations, which include Small Commercial, represented approximately 40 percent of North America Commercial P&C Insurance’s net premiums earned in 2020. Commercial Insurance provides a broad range of P&C, financial lines, and A&H products targeted to U.S and Canadian-based middle market customers in a variety of industries, while the Small Commercial operations provide a broad range of property and casualty, workers' compensation, small commercial management and professional liability for small businesses based in the U.S.
•Commercial Insurance products and services offered include traditional property and casualty lines of business, including Package, which combines property and general liability, workers' compensation, automobile, umbrella; financial lines of business, including professional liability, management liability and cyber risk coverage; and other lines including environmental, A&H, and international coverages. Commercial Insurance distributes its insurance products through a North American network of independent retail agents, and regional, multinational and digital brokers. Generally, our customers purchase insurance through a single retail agent or broker, do not employ a risk management department, and do not retain significant risk through self-insured retentions. The majority of our customers purchase a Package product or a portfolio of products, which is a collection of insurance offerings designed to cover various needs.
•Small Commercial Insurance products and services offered include property and casualty lines of business, including a business owner policy which contains property and general liability; financial lines, including professional liability, management liability, cyber risk; and other lines including workers’ compensation, automobile liability, and international coverages. Products are generally offered through a North American network of independent agents and brokers, as well as eTraditional, which are digital platforms where we electronically quote, bind, and issue for agents and brokers. An example of this is the Chubb Marketplace.
Wholesale and Specialty, which represented approximately 19 percent of North America Commercial P&C Insurance’s net premiums earned in 2020, comprises Westchester and Chubb Bermuda.
•Westchester serves the market for business risks that tend to be hard to place or not easily covered by traditional policies due to unique or complex exposures and provides specialty products for property, casualty, environmental, professional liability, inland marine, product recall, small business, binding and program coverages in the U.S., Canada, and Bermuda. Products are offered through the wholesale distribution channel.
•Chubb Bermuda provides commercial insurance products on an excess basis including excess liability, D&O, professional liability, property, and political risk, the latter being written by Sovereign Risk Insurance Ltd., a wholly-owned managing agent. Chubb Bermuda focuses on Fortune 1000 companies and targets risks that are generally low in frequency and high
in severity. Products are offered primarily through the Bermuda offices of major, internationally recognized insurance brokers.
Competitive Environment
Major Accounts competes against a number of large, global 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 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. We also achieve a competitive advantage through Major Accounts’ innovative product offerings and our ability to provide multiple products to a single client due to our nationwide local presence. In addition, all our domestic commercial units are able to deliver global products and coverage to customers in concert with our Overseas General Insurance segment.
The Commercial Insurance operations compete against numerous insurance companies ranging from large national carriers to small and mid-size insurers who provide specialty coverages and standard P&C products. Recent competitive developments include the growth of new digital-based distribution models.
Westchester competes 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. Chubb Bermuda competes against international commercial carriers writing business on an excess of loss basis.
North America Personal P&C Insurance (15 percent of 2020 Consolidated NPE)
Overview
The North America Personal P&C Insurance segment includes the business written by Chubb Personal Risk Services division, which includes high net worth personal lines business, with operations in the U.S. and Canada. This segment provides affluent and high net worth individuals and families with homeowners, automobile and collector cars, valuable articles (including fine arts), personal and excess liability, travel insurance, and recreational marine insurance and services. Our homeowners business, including valuable articles, represented 68 percent of North America Personal P&C Insurance’s net premiums earned in 2020.
Products and Distribution
Chubb Personal Risk Services offers comprehensive personal insurance products and services to meet the evolving needs of high net worth families and individuals. Our seamless customer experience and superior coverage protect not only our clients’ most valuable possessions, but also their standard of living. Our target customers consist of high net worth consumers with insurance needs that typically extend beyond what mass market carriers can offer. These coverages are offered solely through independent regional agents and brokers.
Competitive Environment
Chubb Personal Risk Services competes against insurance companies of varying sizes that sell personal lines products through various distribution channels, including retail agents as well as online distribution channels. We achieve a competitive advantage through our ability to address the specific needs of high net worth families and individuals, to provide superior service to our customers, and to develop and deploy digital production and processes.
North America Agricultural Insurance (6 percent of 2020 Consolidated NPE)
Overview
The North America Agricultural Insurance segment comprises our U.S. and Canadian-based businesses that provide a variety of coverages including crop insurance, primarily Multiple Peril Crop Insurance (MPCI) and crop-hail insurance through Rain and Hail Insurance Service, Inc. (Rain and Hail) as well as farm and ranch and specialty P&C commercial insurance products and services through our Chubb Agribusiness unit.
Products and Distribution
Rain and Hail provides comprehensive MPCI and crop-hail insurance coverages.
•MPCI is federally subsidized crop protection from numerous causes of loss, including drought, excessive moisture, freeze, disease and more. The MPCI program is offered in conjunction with the U.S. Department of Agriculture. MPCI products include revenue protection (defined as providing both commodity price and yield coverages), yield protection, margin protection, prevented planting coverage and replant coverage. For additional information on our MPCI program, refer to “Crop Insurance” under Item 7.
•Crop-Hail coverage provides crop protection from damage caused by hail and/or fire, with options in some markets for other perils such as wind or theft. Coverage is provided on an acre-by-acre basis and is available in the U.S. and in some parts of Canada. Crop-Hail can be used in conjunction with MPCI or other comprehensive coverages to offset the deductible and provide protection up to the actual cash value of the crop.
Chubb Agribusiness comprises Commercial Agribusiness and Farm and Ranch Agribusiness.
•Commercial Agribusiness offers specialty P&C coverages for commercial companies that manufacture, process and distribute agricultural products. Commercial products and services include property, general liability for premises/operations and product liability, commercial automobile, workers' compensation, employment practices liability coverage, built-in coverage for premises pollution, cyber and information security, and product withdrawal.
•Farm and Ranch Agribusiness offers an extensive line of coverages for farming operations from Hobby/Gentleman farms to complex corporate farms and equine services including personal use, boarding, and training. Coverages include farm and ranch structures, machinery and other equipment, automobile and other vehicle coverages, and livestock.
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. We seek a competitive advantage through our ability to provide superior service to our customers, including the development of digital solutions. Chubb Agribusiness competes against both national and regional competitors offering specialty P&C insurance coverages to companies that manufacture, process, and distribute agricultural products.
Overseas General Insurance (28 percent of 2020 Consolidated NPE)
Overview
The Overseas General Insurance segment comprises Chubb International and Chubb Global Markets (CGM). CGM, our London-based international specialty and excess and surplus lines business, includes Lloyd's of London (Lloyd's) Syndicate 2488, a wholly-owned Chubb syndicate supported by funds at Lloyd’s provided by Chubb Corporate Members. Syndicate 2488 has an underwriting capacity of £550 million for the Lloyd’s 2021 account year. The syndicate is managed by Chubb’s Lloyd’s managing agency, Chubb Underwriting Agencies Limited.
Products and Distribution
Chubb International maintains a presence in every major insurance market in the world and is organized geographically along product lines as follows: Europe, Asia Pacific and Far East, Eurasia and Africa, and Latin America. Products offered include commercial P&C lines, including specialty coverages and services, and consumer lines, including A&H and personal lines insurance products. Chubb 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 branded products are also offered via digital-commerce platforms, allowing agents and brokers to quote, bind, and issue policies at their convenience. 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, including thousands of telemarketers, and sponsor relationships. 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 healthcare 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 healthcare costs. Chubb International specialty coverages include D&O, professional indemnity, cyber, surety, aviation, political risk, and specialty personal lines products. Chubb International personal lines operations provide a wide range of consumer lines
products to meet the needs of specific target markets around the world. Products include high net worth homes, traditional homeowners, automobile, and specialty products that cover smart phones, spectacles and personal cyber risk.
Chubb International’s presence in China also includes its 47.1 percent ownership interest in Huatai Group. Huatai Group wholly owns Huatai Property & Casualty Insurance Co., Ltd. (Huatai P&C). Therefore, Chubb owns an approximately 47.1 percent indirect ownership interest in Huatai P&C, which provides a range of commercial and personal P&C products in China, including property, professional liability, product liability, employer liability, business interruption, marine cargo, personal accident and specialty risk. These products are marketed through a variety of distribution channels including over 200 licensed sales locations in 28 Chinese provinces. Chubb is in the process of increasing its ownership interest in Huatai Group.
CGM offers products through its parallel distribution network via two legal entities, Chubb European Group SE (CEG) and Chubb Underwriting Agencies Limited, managing agent of Syndicate 2488. CGM uses the Syndicate to underwrite P&C business on a global basis through Lloyd's worldwide licenses. CGM uses CEG 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 the Syndicate or CEG include licensing eligibilities, capitalization requirements, and client/broker preference. All business underwritten by CGM is accessed through registered brokers. The main lines of business include aviation, property, energy, professional lines, marine, financial lines, and political risk.
Competitive Environment
Chubb 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, locally based competitors also 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 having a significant presence in all of the countries in which we operate, giving us the advantage of accessing local technical expertise and regulatory environments, understanding local markets and culture, accomplishing a spread of risk, and offering a global network to service multinational accounts.
CGM 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. 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. CGM differentiates itself from competitors through long standing experience in its product lines, its multiple insurance entities (Syndicate 2488 and CEG), and the quality of its underwriting and claims service.
Global Reinsurance (2 percent of 2020 Consolidated NPE)
Overview
The Global Reinsurance segment represents Chubb's reinsurance operations comprising Chubb Tempest Re Bermuda, Chubb Tempest Re USA, Chubb Tempest Re International, and Chubb Tempest Re Canada. Global Reinsurance markets reinsurance products worldwide under the Chubb Tempest Re brand name and provides solutions for small to mid-sized clients and multinational ceding companies. Global Re offers a broad array of traditional and non-traditional (e.g., loss portfolio transfer) property and casualty products.
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. Global Reinsurance’s diversified portfolio is produced through reinsurance intermediaries.
Chubb Tempest Re Bermuda principally provides property catastrophe reinsurance to insurers of commercial and personal property. Property catastrophe reinsurance is on an occurrence or aggregate basis and protects a ceding company against an accumulation of losses covered by its issued insurance policies, arising from a common event or occurrence. Chubb 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. Chubb Tempest Re Bermuda also writes other types of reinsurance on a limited basis for selected clients.
Chubb Tempest Re USA writes all lines of traditional and specialty P&C reinsurance for the North American market, principally on a treaty basis, with a focus on writing property and casualty reinsurance. Chubb Tempest Re USA underwrites reinsurance on both a proportional and excess of loss basis.
Chubb Tempest Re International provides traditional and specialty P&C reinsurance to insurance companies worldwide, with emphasis on non-U.S. and non-Canadian risks. Chubb Tempest Re International writes all lines of traditional and specialty reinsurance including property, property catastrophe, casualty, marine, and specialty through our London- and Zurich-based offices. Chubb Tempest Re International underwrites reinsurance on both a proportional and excess of loss basis.
Chubb Tempest Re Canada offers a full array of traditional and specialty P&C, and reinsurance to the Canadian market, including casualty, property, property catastrophe, surety, and crop hail. Chubb Tempest Re Canada provides coverage through its Canadian company platform. Chubb 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, capital markets participants have developed alternative capital sources intended to compete with traditional reinsurance. Additionally, government sponsored or backed catastrophe funds can affect demand for reinsurance. Global Reinsurance 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 Chubb's strong capital position, analytical capabilities, experienced underwriting team and quality customer service. The key competitors in our markets vary by geographic region and product line. An advantage of our international platform is that we can 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 our offices, except for Bermuda, provide local reinsurance license capabilities which benefit our clients in dealing with country regulators.
Life Insurance (7 percent of 2020 Consolidated NPE)
Overview
The Life Insurance segment comprises Chubb's international life operations (Chubb Life), Chubb Tempest Life Re (Chubb Life Re), and the North American supplemental A&H and life business of Combined Insurance.
Products and Distribution
Chubb Life provides individual life and group benefit insurance primarily in Asia, including Hong Kong, Indonesia, South Korea, Taiwan, Thailand, Vietnam, and Myanmar; throughout Latin America; selectively in Europe; Egypt; and in China through our direct and indirect investments in Huatai Group and Huatai Life Insurance Co., Ltd. (Huatai Life). Chubb Life offers a broad portfolio of protection and savings products including whole life, endowment plans, individual term life, group term life, medical and health, personal accident, credit life, universal life, Group Employee benefits, unit linked contracts, and credit protection insurance for automobile, motorcycle and home loans. The policies written by Chubb Life generally provide funds to beneficiaries of insureds after death and/or protection and/or savings benefits while the contract owner is living. Chubb Life sells to consumers through a variety of distribution channels including captive and independent agencies, bancassurance, worksite marketing, retailers, brokers, telemarketing, mobilassurance, and direct to consumer marketing. We continue to expand Chubb Life with a focus on opportunities in developing 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 captive agency distribution channel, whereby agents sell Chubb 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. As of December 31, 2020, Chubb had a 57.5 percent direct and indirect ownership interest in Huatai Life, comprising a 20 percent direct ownership interest as well as a 37.5 percent indirect ownership interest through Huatai Group, the parent company of Huatai Life. Huatai Life commenced operations in 2005 and has since grown to become one of the larger life insurance foreign joint ventures in China. Huatai Life offers a broad portfolio of insurance products including whole life, universal life, medical and health, personal accident and disability. These products are marketed through a variety of distribution channels including approximately 454 licensed sales locations in 20 Chinese provinces. Chubb is in the process of increasing its ownership interest in Huatai Group. We also have an indirect investment in Huatai Asset Management, a third-party investment management firm, through our direct ownership in Huatai Group.
Chubb Life Re's core business is a Bermuda-based operation which provides reinsurance to primary life insurers, focusing on guarantees included in certain variable annuity products and also on more traditional mortality reinsurance protection. Chubb Life Re's U.S.-based traditional life reinsurance operation was discontinued for new business in January 2010. Since 2007, Chubb 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 net income 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
Chubb 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 Chubb Life a strong base from which to compete. While Chubb 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.
Corporate
Corporate results primarily include results of all run-off asbestos and environmental (A&E) exposures, the results of our run-off Brandywine business, the results of Westchester specialty operations for 1996 and prior years, certain other run-off exposures, and income and expenses not attributable to reportable segments and the results of our non-insurance companies. The run-off operations do not actively sell insurance products, but are responsible for the management of existing policies and settlement of related claims.
Our exposure to A&E claims principally arises out of liabilities acquired when we purchased Westchester Specialty in 1998, CIGNA’s P&C business in 1999, and The Chubb Corporation in 2016. 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.
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 appropriate use of policy limits and terms and conditions. Underwriting discipline is at the heart of our operating philosophy.
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. We recognize that climate changes and weather patterns are integral to our underwriting process and we continually adjust our process to address these changes. This is intended to help ensure that exposures are priced appropriately and resulting 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 North America Commercial P&C Insurance, North America Personal P&C Insurance, and Overseas General Insurance segments, all 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, under Item 8.
Unpaid Losses and Loss Expenses
We establish reserves for unpaid losses and loss expenses, which are estimates of future payments on reported and unreported claims for losses and related expenses, with respect to insured events that have occurred. 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) 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, 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 $68 million at December 31, 2020.
For each product line, management, after consultation 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, 2020. 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.
Investments
Our objective is to maximize investment income and total return while ensuring an appropriate level of liquidity, 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 in our investment portfolio. The critical aspects of the investment process are controlled by Chubb 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, Chubb 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.
Chubb 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, and 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, the District of Columbia and all U.S. Territories. Our business is subject to varying degrees of regulation and supervision in each of the jurisdictions in which our insurance and reinsurance subsidiaries are domiciled and on a group basis. 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 2012, the Pennsylvania Insurance Department (Department), in consultation with other insurance regulatory bodies that oversee Chubb's insurance activities, convened the first Chubb Supervisory College (College). 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.
Since 2012, the College has convened bi-annually primarily in-person, with the most recent College convened in September 2020, albeit virtually. In July 2017, the College convened its first interim regulators-only College teleconference, with the most recent teleconference held in September 2019. During these meetings, the College reviewed extensive information about Chubb, without material adverse comment. Given the virtual nature of the September 2020 College, another in-person College is tentatively scheduled for September 2021 in Philadelphia, Pennsylvania.
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 Chubb 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 Chubb 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 exposures.
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 U.S. 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 our U.S. insurers. 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 our U.S. insurers. 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 annually with the Department a disclosure report that identifies our corporate governance practices and a report 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 National Association of Insurance Commissioners (NAIC) has a risk-based capital requirement for P&C insurance companies. This risk-based capital formula is used by many state regulatory authorities to identify insurance companies that may be undercapitalized and which merit further regulatory attention. These requirements are designed to monitor capital adequacy using a formula that prescribes a series of risk measurements to determine a minimum capital amount for an insurance company, based on the profile of the individual company. The ratio of a company's actual policyholder surplus to its minimum capital requirement will determine whether any state regulatory action is required. There are progressive risk-based capital failure levels that trigger more stringent regulatory action. If an insurer's policyholders' surplus falls below the Mandatory Control Level (70 percent of the Authorized Control Level, as defined by the NAIC), the relevant insurance commissioner is required to place the insurer under regulatory control.
However, an insurance regulator 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 continued 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 December 2019 through December 31, 2027, 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.
We are subject to numerous U.S. federal and state laws governing the protection of personal and confidential information of our clients or employees. These laws and regulations are increasing in complexity, and the requirements are extensive and detailed. Numerous states require us to certify our compliance with their data protection laws.
We are subject to the New York Department of Financial Services’ Cybersecurity Regulation (the NYDFS Cybersecurity Regulation) which mandates detailed cybersecurity standards for all institutions, including insurance entities, authorized by the NYDFS to operate in New York. Among the requirements are the maintenance of a cybersecurity program with governance controls, risk-based minimum data security standards for technology systems, cyber breach preparedness and response requirements, including reporting obligations, vendor oversight, training, and program record keeping and certification obligations. Because our North America systems are integrated, our companies domiciled in other states may also be impacted by this requirement.
Additionally, the NAIC adopted an Insurance Data Security Model Law, which requires licensed insurance entities to comply with detailed information security requirements. The NAIC model law is similar in many respects to the NYDFS Cybersecurity Regulation.
Bermuda Operations
The Insurance Act 1978 of Bermuda and related regulations, as amended (the Insurance Act), regulates the insurance business of our Bermuda domiciled (re)insurance subsidiaries (Bermuda domiciled 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.
Bermuda domiciled subsidiaries must prepare and file with the BMA, audited annual statutory financial statements and 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. The GAAP audited financial statements are made public by the BMA. The Insurance Act prescribes rules for the preparation and content of the statutory financial statements that require Bermuda domiciled subsidiaries to give detailed information and analyses regarding premiums, claims, reinsurance, and investments. In addition, each year, the Bermuda domiciled insurers are required to file with the BMA a capital and solvency return along with an annual statutory financial return. The prescribed form of capital and solvency return is comprised of the BMA’s risk based capital model, termed the Bermuda Solvency Capital Requirement (BSCR) or an approved internal capital model in lieu thereof; a statutory economic balance sheet; the approved actuary’s opinion; and several prescribed schedules. The BSCR is 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 into account catastrophe risk exposure.
The BMA established risk-based regulatory capital adequacy and solvency margin requirements for Bermuda insurers that mandate that a Bermuda domiciled subsidiary’s Enhanced Capital Requirement (ECR) be calculated by either (a) BSCR, or (b) an internal capital model which the BMA has approved for use for this purpose. The Bermuda domiciled subsidiaries use the BSCR in calculating their solvency requirements. Bermuda statutory reporting rules include an Economic Balance Sheet (EBS) framework. The EBS framework is embedded as part of the BSCR and forms the basis of our ECR.
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. Failure to maintain statutory capital at least equal to the TCL would likely result in increased BMA regulatory oversight.
Under the BMA’s powers to set standards on public disclosure under the Insurance Act, the Bermuda domiciled subsidiaries are required to prepare and publish a Financial Condition Report (FCR). The FCR provides details of measures governing the business operations, corporate governance framework, solvency and financial performance. The FCR must be filed with the BMA and requires Bermuda insurance companies to make the FCR publicly available.
Under the Insurance Act, Chubb's Bermuda domiciled subsidiaries 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 signed by at least two directors of the relevant Chubb Bermuda domiciled subsidiary (one of whom must be a director resident in Bermuda) and by the relevant Chubb Bermuda domiciled subsidiary’s principal representative, that it will continue to meet its required solvency margins. Furthermore, Bermuda domiciled 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 be less than the aggregate of its liabilities.
In addition, Chubb's Bermuda domiciled subsidiaries must obtain the BMA's prior approval before reducing total statutory capital, as shown in its previous financial year's financial statements, by 15 percent or more.
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 cessions of reinsurance, local retention of funds and records, data privacy and protection program requirements such as the General Data Protection Regulation (GDPR), 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.
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 strategic 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 (such as economic capital models and advanced analytics, including catastrophe models to quantify natural catastrophe risk for product pricing, risk management, capital allocation and to simulate and estimate hurricane losses) that help business 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, (including our Risk & Finance Committee and our Nominating & Governance Committee), 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 the entire landscape of insurance, financial, strategic, and operational risks. The RUC is chaired by Chubb Group’s Chief Risk Officer. The RUC meets at least monthly, and is comprised of Chubb Group's most senior executives which, in addition to the Chair, includes the Chief Executive Officer, the President and Chief Operating Officer, Chief Financial Officer, Chief Investment Officer, Chief Actuary, Chief Claims Officer, General Counsel, President - North America Commercial and Personal Insurance, President - North America Major Accounts and Specialty Insurance, President - Overseas General 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. The first relates to external information that provides insight to the RUC on existing or emerging risks that might significantly impact Chubb's key objectives while the second involves 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. 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 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 with the Risk & Finance Committee at least annually in order to exercise its duties under New York Stock Exchange Rules.
Others within the overall 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 o) and Note 8 to the Consolidated Financial Statements, under Item 8.
Information about our Executive Officers
Name Age Position
Evan G. Greenberg 66 Chairman, Chief Executive Officer, and Director
John W. Keogh 56 President and Chief Operating Officer
Philip V. Bancroft 61 Executive Vice President and Chief Financial Officer
John J. Lupica 55 Vice Chairman; President, North America Insurance
Joseph F. Wayland 63 Executive Vice President and General Counsel
Sean Ringsted 58 Executive Vice President, Chief Digital Officer, and Chief Risk Officer
Timothy A. Boroughs 71 Executive Vice President and Chief Investment Officer
Paul J. Krump 61 Vice Chairman, Global Underwriting and Claims
Juan Luis Ortega 46 Executive Vice President; President, Overseas General Insurance
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 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 Chubb Overseas General in April 2002. He joined Chubb as Vice Chairman, Chubb Limited, and Chief Executive Officer of Chubb 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. Mr. Greenberg was a director of The Coca-Cola Company from February 2011 until October 2016.
John W. Keogh was appointed President of Chubb in December 2020, and has served as Chief Operating Officer since July 2011. Mr. Keogh joined Chubb in 2006 as Chairman, Insurance - Overseas General. Mr. Keogh was appointed Vice Chairman in 2010 and Executive Vice Chairman in 2015. Before joining Chubb, Mr. Keogh held a range of positions with increasing responsibility during a 20-year career with American International Group (AIG), including Senior Vice President, Domestic General Insurance, and President and Chief Executive Officer of National Union Fire Insurance Company of Pittsburgh, an AIG member company. He began his insurance career as an underwriter with AIG in 1986.
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. Mr. Bancroft plans to retire on July 1, 2021.
John J. Lupica was appointed President, North America Insurance in September 2020, and has served as Vice Chairman of Chubb Limited and Chubb Group Holdings since November 2013. Prior to his current role, Mr. Lupica served as President, North America Major Accounts and Specialty Insurance since January 2016. Mr. Lupica was appointed 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 U.S. Professional Risk business and U.S. Regional Operations. Mr. Lupica joined Chubb 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 Executive Vice President and Chief Digital Officer in February 2017 and Chief Risk Officer in November 2008. Mr. Ringsted previously served as Chief Actuary of Chubb Limited from November 2008 to January 2017. Mr. Ringsted’s previous roles at Chubb also include Chief Actuary for Chubb Group from 2004 to 2008, Executive Vice President and Chief Risk Officer for Chubb Tempest Re from 2002 to 2004, and Senior Vice President and Chief Actuary for Chubb Tempest Re from 1998 to 2002. Prior to joining Chubb, Mr. Ringsted was a consultant at Tillinghast-Towers Perrin.
Timothy A. Boroughs was appointed Executive Vice President and 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 Vice Chairman, Global Underwriting and Claims in September 2020. Prior to his current role, Mr. Krump served as Executive Vice President, Chubb Group and President North America Commercial and Personal Insurance since January 2016. Before Chubb 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 Luis Ortega was appointed Executive Vice President, Chubb Group and President, Overseas General Insurance in August 2019. Mr. Ortega previously served as Senior Vice President, Chubb Group and Regional President of Latin America since 2016 and Regional President of Asia Pacific from 2013 to 2016. Mr. Ortega's previous roles at Chubb also include Senior Vice President, Accident & Health, for the Asia Pacific region from 2011 to 2013 and Senior Vice President and Regional Head of Accident & Health for the Latin America region from 2008 to 2010. Mr. Ortega joined Chubb in 1999 and advanced through a series of accident and health and credit insurance management positions in Miami, Puerto Rico and Mexico, before being named Country President of Chile in 2005.

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ITEM 1A. RISK FACTORS
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 material 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 accident and health (A&H) products. Catastrophes can be caused by various events, including hurricanes, typhoons, earthquakes, hailstorms, droughts, 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 change and resulting changes in global temperatures, weather patterns, and sea levels may both increase the frequency and severity of natural catastrophes and the resulting losses in the future and impact our risk modeling assumptions. 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. 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.
COVID-19 pandemic, the effects of global actions taken to contain its spread, and its economic and societal impact could adversely impact our businesses, invested assets, financial condition, and results of operations.
COVID-19 pandemic (the “virus” or the “pandemic”) is causing significant disruption to public health, the global economy, financial markets, and commercial, social and community activity generally. The pandemic has had a significant effect on our company’s business operations and, depending on the course of the pandemic and government responses, may have a significant effect on current and future financial results. We may experience higher levels of loss and, claims activity in certain lines of business in excess of losses we have already recognized, and our premiums could also be adversely affected by any further suppression of global commercial activity that results in a reduction in insurable assets and other exposure. Financial conditions resulting from the pandemic may also have a negative effect on the value and quality of our portfolio of invested assets, thereby adversely affecting our investment returns and increasing our credit and related risk. Certain lines of our business, such as our variable annuity life reinsurance business, may require additional forms of collateral in the event of a decline in the securities and benchmarks to which those repayment mechanisms are linked.
To protect our employees and in response to the global and regional restrictions on interpersonal contact and travel because of the pandemic, much of our work force may be working remotely, either for extended periods or intermittently, in response to changing health and regulatory conditions, placing increased demands on our IT systems. While we have continued to conduct our business effectively throughout the pandemic, there is no assurance that our ability to continue to function in this environment will not be adversely affected by an extended disruption in the telecommunications and internet infrastructures that support our remote work capability.
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 regularly evaluates the levels of loss reserves. Any such evaluation 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 asbestos and environmental (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, 2020, gross A&E liabilities represented approximately 2.8 percent of our gross 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 it has 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 addition, the amount and timing of the settlement of our P&C liabilities are uncertain 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 determined to be 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, technological 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. For example, recently enacted "reviver" legislation in certain states does allow civil claims relating to molestation and abuse to be asserted against policyholders that would otherwise be barred by statutes of limitations. 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 against the possibility of an event or series of events that could 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 natural catastrophes and/or terrorism 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/or 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 retrocessionaire's insolvency or inability or unwillingness to make timely payments under the terms of its reinsurance agreement with us could have an adverse effect on us because we remain liable to the insured. From time to time, market conditions have limited, and in some cases have prevented, insurers and reinsurers from obtaining the types and amounts of reinsurance or retrocessional reinsurance that they consider adequate for their business needs.
There is no guarantee our desired amounts of reinsurance or retrocessional reinsurance will be available in the marketplace in the future. In addition to capacity risk, the remaining capacity may not be on terms we deem appropriate or acceptable or with companies with whom we want to do business. Finally, we face some degree of counterparty risk whenever we purchase reinsurance or retrocessional reinsurance. Consequently, the insolvency of these counterparties, or the 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, 2020, we had $15.8 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, 2020, the aggregate reinsurance balances ceded by our active subsidiaries to Century were approximately $1.6 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 Insurance 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 equity 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), principally guaranteed minimum income benefits (GMIB), associated with variable annuity contracts. We ceased writing this business in 2007. Our net income is directly impacted by the change in the reserve calculated in connection with the reinsurance of GMDB liability and 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. Additionally, the fair value of GLB liabilities is impacted by market conditions. 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 Insurance underwriting income and consolidated 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, and 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 various commercial and contractual counterparties, our reliance on brokers, and certain of our policies may subject us to credit risk.
We have exposure to counterparties through a variety of commercial transactions and arrangements, including reinsurance transactions; agreements with 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. This includes exposure to financial institutions in the form of secured and unsecured debt instruments and equity securities. Moreover, a deposit paid in connection with our agreement to acquire additional shares of Huatai Group exposes us to risk if the transaction is not completed.
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 a broker does 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 a broker 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 this credit risk.
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 distribution and bancassurance partners 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, insurance and reinsurance brokers, and bancassurance relationships. 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 agents and brokers could have an adverse effect on our business.
Financial
Our investment performance may affect our financial results and our 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. Our investment performance is highly sensitive to many factors, including interest rates, 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 insurance business, policyholder behavior may be influenced by changing interest rate conditions and require a re-balancing of duration to effectively manage our asset/liability position.
As stated, our fixed income portfolio is primarily invested in high quality, investment-grade securities. However, a smaller portion of the portfolio, approximately 18 percent at December 31, 2020, 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 current expected credit losses for all held-to-maturity securities and evaluate expected credit losses for available-for-sale securities when fair value is below amortized cost, which considers reasonable and supportable forecasts of future economic conditions in addition to information about past events and current conditions. This analysis requires a high degree of judgment. Financial assets with similar risk characteristics and relevant historical loss information are included in the development of an estimate of expected lifetime losses. Declines in relevant stock and other financial markets and other factors impacting the value of our investments could result in an adverse effect on 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. Under Swiss law we would be prohibited from selling shares in an equity financing at a purchase price below our then-current par value. 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. The increasing impact of climate change could affect our cost of claims, loss ratios, and financial results. 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 distribution partners 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 might downgrade our ratings in the future.
Our ability to pay dividends and/or to make payments on indebtedness may be constrained by our holding company structure.
Chubb Limited is a holding company that owns shares of its operating insurance and reinsurance subsidiaries along with several loans receivable from affiliates. Beyond this it does not itself have any significant operations or liquid assets. Repayment of loans receivable, guarantee fees and dividends and other permitted distributions from our insurance subsidiaries are its primary sources of funds to meet ongoing cash requirements, including any future debt service payments, other expenses, repurchases of its shares, 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 (or other intercompany amounts due, such as intercompany debt obligations) 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 repurchase shares and pay dividends to our shareholders.
Swiss law imposes certain restrictions on our ability to repurchase our shares.
Swiss law imposes certain withholding tax and other restrictions on a Swiss company’s ability to return earnings or capital to its shareholders, including through the repurchase of its own shares. We may only repurchase shares to the extent that sufficient freely distributable reserves are available. In addition, Swiss law requires that the total par value of Chubb's acquisition of treasury shares must not be in excess of 10 percent of its total share capital. As a result, in order to maintain our share repurchase program, our shareholders must periodically authorize, through ballot item approval at our annual general meeting, a reduction in our share capital through the cancellation of designated blocks of repurchased shares held in treasury. If our shareholders do not approve the cancellation of previously repurchased shares, we may be unable to return capital to shareholders through share repurchases in the future. Furthermore, our current repurchase program relies on a Swiss tax ruling. Any future revocation or loss of our Swiss tax ruling or the inability to conduct repurchases in accordance with the ruling could also jeopardize our ability to continue repurchasing our shares.
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 euro, British pound, Canadian dollar, Chinese yuan, Australian dollar, Mexican peso, Brazilian real, Korean won, Japanese yen, Thai baht, and Hong Kong dollar. At December 31, 2020, approximately 21.4 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.
We may from time to time face challenges resulting from changes in applicable law and regulations in particular jurisdictions, or changes in approach to oversight of our business from insurance or other regulators.
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.
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. 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 and financial climates 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.
Regulators in countries where we have operations continue to work 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 has developed a Common Framework for the Supervision of Internationally Active Insurance Groups (ComFrame), which is focused on the effective group-wide supervision of international active insurance groups (IAIGs), such as Chubb. As part of ComFrame, the IAIS is developing an international capital standard for such IAIGs. The details of this global capital standard and its applicability to Chubb are evolving and uncertain at this time. In addition, Chubb businesses across the EU are subject to Solvency II, a capital and risk management regime, and our Bermuda businesses are subject to an equivalent of the EU's Solvency II regime. Also applicable to Chubb businesses are the requirements of the Swiss Financial Market Supervisory Authority (FINMA) whose regulations include Swiss Solvency Tests. There are also Risk Based Capital (RBC) requirements in the U.S. which are also subject to revision in response to global developments. The impact to Chubb of these developments remains uncertain, although currently we do not expect that our capital management strategies, results of operations and financial condition will be materially affected by these regulatory changes.
Evolving privacy and data security regulations could adversely affect our business.
We are subject to numerous U.S. federal and state laws and non-U.S. regulations governing the protection of personal and confidential information of our clients and 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, sometimes conflict, and could expose Chubb to significant monetary damages, regulatory enforcement actions, fines and/or criminal prosecution in one or more jurisdictions.
We are subject to the New York Department of Financial Services’ Cybersecurity Regulation (the NYDFS Cybersecurity Regulation) which mandates detailed cybersecurity standards for all institutions, including insurance entities, authorized by the NYDFS to operate in New York. The NYDFS Cybersecurity Regulation has increased our compliance costs and could increase the risk of noncompliance and subject us to regulatory enforcement actions and penalties, as well as reputation risk.
Additionally, the National Association of Insurance Commissioners (NAIC) adopted an Insurance Data Security Model Law, which requires licensed insurance entities to comply with detailed information security requirements. A number of states have enacted it into law, and it is not yet known whether or not, and to what extent, additional states will enact it. Such enactments, especially if inconsistent between states or with existing laws and regulations could raise compliance costs or increase the risk of noncompliance, with the attendant risk of being subject to regulatory enforcement actions and penalties, as well as reputational harm.
The EU General Data Protection Regulation (the “GDPR”) is a comprehensive regulation applying across all EU member states. All our business units (regardless of whether they are located in the EU) may be subject to the GDPR when personal data is processed in relation to the offer of goods and services to individuals within the EU. Our failure to comply with GDPR and other countries’ privacy or data security-related laws, rules or regulations could result in significant penalties imposed by regulators, which could have an adverse effect on our business, financial condition and results of operations.
Significant other comprehensive privacy laws have been enacted by other jurisdictions, most notably the California Consumer Privacy Act (CCPA), the California Privacy Rights Act (CPRA), and Brazil’s Lei Geral de Protecao de Dados (LGPD), which may affect our use of data and could affect our operations and subject us to fines and actions for noncompliance. In the U.S., several other states are considering similar legislation, and there are ongoing discussions regarding a National Privacy Law. New laws similar to the GDPR and the CCPA are expected to be enacted in coming years in various countries and jurisdictions in which we operate.
Economic uncertainty in either or both of the United Kingdom ("U.K.") and the European Union ("EU"), and/or operational uncertainty between them, may have an adverse effect on our business, our liquidity and financial condition, and our stock price.
The U.K. ceased to be a member of the EU on January 31, 2020 ("Brexit"). Economic relations between the U.K. and the EU are now governed by a Trade and Cooperation Agreement which is limited in scope to primarily the trade of goods, transport, energy links and fishing. Uncertainties remain relating to certain aspects of the U.K.'s future economic, trading and legal relationships with the EU and with other countries, including with respect to financial services industries such as ours. Moreover, free movement of persons, services and capital between the U.K. and the EU ended on January 1, 2021, which has meant the loss to U.K./EU service sectors of the automatic right to offer such services across the EU and U.K. The overall
macroeconomic impact of Brexit - an impact which inevitably affects the volume of business we transact in Europe - is not yet clear. Throughout both the EU and U.K., we have significant investments in both financial and human resources, as well as a large portfolio of commercial and consumer insurance business. On an operational level, we have already redomiciled our primary European carriers from the U.K. to France although we will continue to have a substantial presence in London and elsewhere in the U.K.
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 and territories, 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; changes in trade policies; changes to visa or immigration policies; regulatory restrictions; government leadership changes; political events and upheaval; sociopolitical instability; social, political or economic instability resulting from climate change; 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 timeliness 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. Although we have implemented administrative and technical controls and have taken protective actions to reduce the risk of cyber incidents and to protect our information technology and assets, and although we additionally 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, business compromise attacks, catastrophic events, system failures and disruptions, 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). As the breadth and complexity of our security infrastructure continues to grow, the potential risk of a Security Event increases. Such an event or 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.
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. Climate change may make modeled outcomes less certain or produce new, non-modeled risks. 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
The continually changing landscape, including competition, technology and products, and existing and new market entrants could reduce our margins and adversely impact our business and results of operations.
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, technological, marketing, distribution and/or management resources than we do. In addition, capital market participants have created alternative products that are intended to compete with reinsurance products. We also compete with new companies and existing companies that move into the insurance and reinsurance markets. If competition, or technological or other changes to the insurance markets in which we operate, limits our ability to retain existing business or write new business at adequate rates or on appropriate terms, our business and results of operations could be materially and adversely affected. Increased competition could also 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 shareholders' equity.
Recent technological advancements in the insurance industry and information technology industry present new and fast-evolving competitive risks as participants seek to increase transaction speeds, lower costs and create new opportunities. Advancements in technology are occurring in underwriting, claims, distribution and operations at a pace that may quicken, including as companies increase use of data analytics and technology as part of their business strategy. We will be at a competitive disadvantage if, over time, our competitors are more effective than us in their utilization of technology and evolving data analytics. If we do not anticipate or keep pace with these technological and other changes impacting the insurance industry, it could also limit our ability to compete in desired markets.
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 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. This may also apply to companies in which we acquire majority ownership. 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.
We could be adversely affected by certain features of the 2017 U.S. tax reform legislation.
Tax legislation known as the Tax Cuts and Jobs Act (2017 Tax Act) was enacted in the U.S. on December 22, 2017. In addition to reducing the U.S. corporate income tax rate from 35 percent to 21 percent, it fundamentally changed many elements of the pre-2017 Tax Act U.S. tax law and introduced several new concepts to tax multinational corporations such as us. Among the most notable new rules are the Base Erosion and Anti-Abuse Tax (commonly called BEAT), which may apply as a result of payments by U.S. taxpayers to non-U.S. affiliates, and the Global Intangible Low Taxed Income (GILTI) addition to Subpart F income, which for insurance groups potentially expands U.S. taxation on the earnings of foreign subsidiaries. The 2017 Tax Act also included a one-time reduced-rate transition tax in 2017 on previously untaxed post-1986 earnings of foreign subsidiaries of U.S. corporations. The 2017 Tax Act, which was generally effective in 2018, is a complex law with many significant new provisions. Since enactment, the IRS and U.S. Treasury Department have continued to issue rulings, notices, and proposed and final regulations to assist taxpayers in understanding and implementing the new provisions. Some of this guidance remains subject to comment or in proposed form; thus, there are many uncertainties relating to its ultimate application and effects on our company.
The Biden Administration and several members of the U.S. Congress have suggested enacting legislation intended to modify aspects of the 2017 Tax Act. This legislation may include increases to the corporate income tax rate, as well as modifications to the GILTI provisions. It is possible that such legislation or other legislation could be enacted in the future and could have an adverse impact on us or our shareholders.
The Organization for Economic Cooperation and Development (OECD) and the European Union (EU) are considering measures that might change long standing tax principles that could increase our taxes.
The OECD has published a framework for taxation that in many respects is different than long standing international tax principles. This framework is a proposal that we expect to develop further in 2021 as it is designed by the OECD Secretariat. This framework is an alternative to digital services taxes that several countries have enacted or are considering. These changes could redefine what income is taxed in which country and institute a global minimum tax. These proposals may be completed sometime in 2021 or later which could be adopted by OECD countries in 2022 or later years. As countries unilaterally amend their tax laws to adopt certain parts of the OECD framework, this may increase the company’s income taxes and cause uncertainties related to our income taxes.
The OECD also published an action plan several years ago 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 continue to react to the BEPS initiative or their own concerns by enacting tax legislation that could adversely affect us or our shareholders.
Several 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 still unclear what all 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 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. The 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 re-domestication 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.
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 reserve reduction is not subject to Swiss withholding tax. We have previously obtained shareholder approval for dividends to be paid in such form. It is our practice 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, certain share repurchases, fluctuations in U.S. dollar/Swiss franc exchange rate, 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 or is deemed to own 10 percent or more of the voting power or value of a foreign corporation that is a “controlled foreign corporation” (CFC) (a foreign corporation in which 10 percent U.S. shareholders own or are deemed to 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 any period during a taxable year must include in gross income for U.S. federal income tax purposes a pro rata share of the CFC's "subpart F income". We believe that because of the dispersion of our share ownership it is unlikely that any 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.
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 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 (i) Chubb Limited is considered a CFC and the tax-exempt shareholder is a 10 percent U.S. shareholder or (ii) 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. Recently enacted U.S. federal tax law and recent final and proposed regulations issued by the IRS and U.S. Treasury Department contain new rules that may affect the application of the PFIC provisions to an insurance company. The final regulations are effective for tax years beginning after January 15, 2021 and would not apply to us until 2022. Any shareholder electing to apply certain provisions of the newly finalized or proposed PFIC regulations prior to the effective date could be adversely affected by an investment in us. Shareholders are advised to consult their tax advisors.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 1B. Unresolved Staff Comments
There are currently no unresolved SEC staff comments regarding our periodic or current reports.

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ITEM 2. PROPERTIES
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; Wilmington, Delaware; Whitehouse Station, New Jersey; and Simsbury, Connecticut. Management considers its office facilities suitable and adequate for the current level of operations.

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ITEM 3. LEGAL PROCEEDINGS
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.

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ITEM 4. MINE SAFETY DISCLOSURE
ITEM 4. Mine Safety Disclosures
Item not applicable.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
ITEM 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases 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".
We have paid dividends each quarter since we became a public company in 1993. In 2020 and 2019, our annual dividends were 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) as approved by our shareholders.
Chubb Limited is a holding company whose principal sources of income are dividends and investment income 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 other such factors as the Board deems relevant. Refer to Part I, Item 1A and Part II, Item 7 for additional information.
The number of record holders of Common Shares as of February 11, 2021 was 6,598. 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 names.
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 for the Three Months Ended December 31, 2020
Period Total Number of Shares Purchased (1)
Average Price
Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plan (2)
Approximate Dollar Value of Shares that May Yet be Purchased Under Publicly Announced Plans (3)
October 1 through October 31 144,550 $ 131.11 140,000 $ 1.11 billion
November 1 through November 30 886,702 $ 143.52 883,000 $ 2.48 billion
December 1 through December 31 296,858 $ 152.73 295,000 $ 1.50 billion
Total 1,328,110 $ 144.23 1,318,000
(1)This column represents open market share repurchases and the surrender to Chubb of Common Shares to satisfy tax withholding obligations in connection with the vesting of restricted stock issued to employees and to cover the cost of the exercise of options by employees through stock swaps.
(2)The aggregate value of shares purchased in the three months ended December 31, 2020 as part of the publicly announced plan was $190 million.
(3)In November 2020, the Board authorized the repurchase of up to $1.5 billion of Chubb's Common Shares from November 19, 2020 through December 31, 2021. Subsequently, in February 2021, the Board approved an increase to the November 2020 share repurchase program of $1.0 billion to a total of $2.5 billion, effective through December 31, 2021. The $1.5 billion November 2019 Board authorization remained effective through December 31, 2020. Repurchases through December 31, 2020 were made under this authorization. For the period January 1, 2021 through February 24, 2021, we repurchased 1,971,000 Common Shares for a total of $327 million in a series of open market transactions under the share repurchase program authorized in November 2020. As of February 24, 2021, $2.17 billion in share repurchase authorization remained through December 31, 2021. Refer to Note 11 to the Consolidated Financial Statements for more information on the Chubb Limited securities repurchase authorizations.
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, 2015, through December 31, 2020, 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, 2016, 2017, 2018, 2019, and 2020, of a $100 investment made on December 31, 2015, with all dividends reinvested.
12/31/2015 12/31/2016 12/31/2017 12/31/2018 12/31/2019 12/31/2020
Chubb Limited $100 $116 $130 $118 $145 $147
S&P 500 Index $100 $112 $136 $130 $171 $203
S&P 500 P&C Index $100 $116 $142 $135 $170 $182

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ITEM 6. SELECTED FINANCIAL DATA
ITEM 6. Selected Financial Data
Not required.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following is a discussion of our financial condition and results of operations for the years ended December 31, 2020 and 2019 and comparisons between 2020 and 2019. This discussion should be read in conjunction with the Consolidated Financial Statements and related Notes, under Item 8 of this Form 10-K. Comparisons between 2019 and 2018 have been omitted from this Form 10-K, but can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of our Form 10-K for the year ended December 31, 2019.
All comparisons in this discussion are to the corresponding prior year unless otherwise indicated. All dollar amounts are rounded. However, percent changes and ratios are calculated using whole dollars. Accordingly, calculations using rounded dollars may differ.
MD&A Index Page
Forward-Looking Statements
Overview
Financial Highlights
Critical Accounting Estimates
Consolidated Operating Results
Segment Operating Results
Net Realized and Unrealized Gains (Losses)
Non-GAAP Reconciliation
Net Investment Income
Amortization of Purchased Intangibles and Other Amortization
Investments
Asbestos and Environmental (A&E)
Catastrophe Management
Natural Catastrophe Property Reinsurance Program
Political Risk and Credit Insurance
Crop Insurance
Liquidity
Capital Resources
Contractual Obligations and Commitments
Credit Facilities
Ratings
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. The words “believe,” “anticipate,” “estimate,” “project,” “should,” “plan,” “expect,” “intend,” “hope,” “feel,” “foresee,” “will likely result,” “will continue,” and variations thereof and similar expressions, identify forward-looking statements. 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, and elsewhere herein and in other documents we file with the U.S. Securities and Exchange Commission (SEC), include but are not limited to:
•actual amount of new and renewal business, premium rates, underwriting margins, market acceptance of our products, and risks associated with the introduction of new products and services and entering new markets; 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;
•losses arising out of natural or man-made catastrophes; 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;
•infection rates and severity of COVID-19 and related risks, and their effects on our business operations and claims activity, and any adverse impact to our insureds, brokers, agents, and employees; actual claims may exceed our best estimate of ultimate insurance losses incurred through December 31, 2020 which could change including as a result of, among other things, the impact of legislative or regulatory actions taken in response to COVID-19;
•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 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;
•uncertainties relating to governmental, legislative and regulatory policies, developments, actions, investigations, and treaties; judicial decisions and rulings, new theories of liability, legal tactics, and settlement terms; the effects of data privacy or cyber laws or regulation; global political conditions and possible business disruption or economic contraction that may result from such events;
•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; changing rates of inflation; and other general economic and business conditions, including the depth and duration of potential recession;
•the availability of borrowings and letters of credit under our credit facilities; the adequacy of collateral supporting funded high deductible programs; the amount of dividends received from subsidiaries;
•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;
•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 effects of public company bankruptcies and accounting restatements, as well as disclosures by and investigations of public companies relating to possible accounting irregularities, and other corporate governance issues;
•acquisitions made performing differently than expected, our failure to realize anticipated expense-related efficiencies or growth from acquisitions, the impact of acquisitions on our pre-existing organization, or announced acquisitions not closing; risks and uncertainties relating to our planned purchases of additional interests in Huatai Insurance Group Co., Ltd. (Huatai Group), including our ability to receive Chinese insurance regulatory approval and complete the purchases;
•risks associated with being a Swiss corporation, including reduced flexibility with respect to certain aspects of capital management and the potential for additional regulatory burdens; share repurchase plans and share cancellations;
•loss of the services of any of our executive officers without suitable replacements being recruited in a reasonable time frame;
•the ability of our technology resources, including information systems and security, to perform as anticipated such as with respect to preventing material information technology failures or third-party infiltrations or hacking resulting in consequences adverse to Chubb or its customers or partners; the ability of our company to increase use of data analytics and technology as part of our business strategy and adapt to new technologies; and
•management’s response to these factors and actual events (including, but not limited to, those described above).
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
We operate through six business segments: North America Commercial P&C Insurance, North America Personal P&C Insurance, North America Agricultural Insurance, Overseas General Insurance, Global Reinsurance, and Life Insurance. For more information on our segments refer to “Segment Information” under Item 1.
We have grown our business through increased premium volume, expansion of product offerings and geographic reach, and acquisitions of other companies. Refer to Note 2 to the Consolidated Financial Statements for our most recent acquisitions.
Our product and geographic diversification differentiate 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, 2020
•Net income was $3.5 billion compared with $4.5 billion in 2019, including after-tax catastrophe losses of $2.8 billion compared with $966 million in 2019.
•The COVID-19 global pandemic and related economic conditions adversely impacted our results of operations and growth in 2020, including:
◦Net catastrophe losses included a COVID-19 charge of $1,396 million pre-tax ($1,193 million after-tax), generated primarily from entertainment and commercial property-related business interruption, liability insurance products, and workers’ compensation. These COVID-19 losses added 4.5 percentage points to the P&C combined ratio.
◦Net premiums written in consumer lines globally declined by 1.9 percent, or 0.9 percent on a constant-dollar basis, principally reflecting the impact of COVID-19. A&H lines experienced negative growth globally and were down 10.6 percent for the year. Partially offsetting the decline was our U.S. high net worth personal lines business, which grew 2.8 percent in 2020.
•Net premiums written were $33.8 billion, up 4.8 percent, or 5.5 percent on a constant-dollar basis with 9.3 percent growth in commercial lines and a decline of 0.9 percent in consumer lines. Refer to page 49 for more detail.
•Net premiums earned were $33.1 billion, up 5.8 percent, or 6.5 percent on a constant-dollar basis with growth in commercial lines of 8.9 percent and consumer lines of 2.5 percent.
•P&C combined ratio was 96.1 percent compared with 90.6 percent in 2019. P&C current accident year combined ratio excluding catastrophe losses was 86.7 percent compared with 89.2 percent in 2019.
•Total pre-tax and after-tax catastrophe losses, including reinstatement premiums, were $3.3 billion and $2.8 billion, respectively, compared with $1.2 billion and $966 million, respectively, in 2019. Refer to the Consolidated Operating Results section for additional information on our catastrophe losses.
•Total pre-tax and after-tax favorable prior period development were $395 million (1.2 percentage points of the combined ratio) and $357 million, respectively, compared with $792 million (2.7 percentage points of the combined ratio) and $624 million, respectively, in 2019.
•Operating cash flow was $9.8 billion compared with $6.3 billion in 2019, an increase of $3.4 billion primarily due to higher premiums collected and reduced payment activity due to the economic slowdown related to COVID-19 pandemic. Refer to the Liquidity section for additional information on our cash flows.
•Net investment income was $3,375 million compared with $3,426 million in 2019.
•Share repurchases totaled $516 million, or approximately 3.6 million shares for the year, at an average purchase price of $143.91 per share.
•Shareholders’ equity increased 7.4 percent during the year, principally reflecting strong underlying growth and realized and unrealized gains in our investment portfolio.
Outlook
Our premium growth in 2020 reflected increases in commercial P&C lines globally from new business, positive rate increases and higher renewal retention. This growth was tempered by decreases in consumer lines, primarily from outside North America, reflecting the adverse impact of the economic contraction resulting from the COVID-19 pandemic.
Looking forward, we are off to a good start to the year in the first quarter with both growth and the level of commercial P&C rate increases resembling the underwriting conditions of the fourth quarter. We expect the current market condition to continue which will allow us to continue to grow revenue and expand underwriting margins in our commercial lines. For consumer lines, growth globally in the fourth quarter of 2020 continued to be impacted by the pandemic's effects on consumer-related activities. Our international personal lines business and our global A&H business together shrank eight percent. We expect growth to return in these businesses as the year progresses.
In 2019, Chubb entered into agreements to acquire an additional 22.4 percent ownership interest in Huatai Group through two separate purchases. The first purchase, which was for a 15.3 percent interest, was completed in July 2020. We expect that the second purchase, which was for a 7.1 percent interest, will be completed in the future, contingent upon important conditions. Separately, in November 2020, we completed the purchase of an incremental 0.9 percent ownership interest in Huatai Group, bringing Chubb’s aggregate ownership interest to 47.1 percent as of December 31, 2020. We continue to apply equity method accounting until we complete the 7.1 percent purchase, which will result in majority ownership at which point we expect to apply consolidation accounting.
Critical Accounting Estimates
Our Consolidated Financial Statements include amounts that, either by their nature or due to requirements of generally accepted accounting principles in the U.S. (GAAP), are determined using best estimates and assumptions. While we believe that the amounts included in our Consolidated Financial Statements reflect our best judgment, actual amounts could ultimately materially differ from those currently presented. We believe the items that require the most subjective and complex estimates are:
•unpaid loss and loss expense reserves, including long-tail asbestos and environmental (A&E) reserves and non-A&E casualty exposures;
•future policy benefits reserves;
•the valuation of value of business acquired (VOBA) and amortization of deferred policy acquisition costs and VOBA;
•the assessment of risk transfer for certain structured insurance and reinsurance contracts;
•reinsurance recoverable, including a valuation allowance for uncollectible reinsurance;
•the valuation of our investment portfolio and assessment of valuation allowance for expected credit losses;
•the valuation of deferred income taxes;
•the valuation of derivative instruments related to guaranteed living benefits (GLB); and
•the assessment of goodwill for impairment.
We believe our accounting policies for these items are of critical importance to our Consolidated Financial Statements. The following discussion provides more information regarding the estimates and assumptions required to arrive at these amounts and should be read in conjunction with the sections entitled: Prior Period Development, Asbestos and Environmental (A&E), Reinsurance Recoverable on Ceded Reinsurance, Investments, and Net Realized and Unrealized Gains (Losses).
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, 2020, our gross unpaid loss and loss expense reserves were $67.8 billion and our net unpaid loss and loss expense reserves were $53.2 billion. With the exception of certain structured settlements, for which the timing and amount of future claim payments are reliably determinable, and certain reserves for unsettled claims, our loss reserves are not discounted for the time value of money. In connection with such structured settlements and certain reserves for unsettled claims, we carried net discounted reserves of $68 million and $74 million at December 31, 2020 and 2019, respectively.
The following table presents a roll-forward of our unpaid losses and loss expenses:
December 31, 2020 December 31, 2019
(in millions of U.S. dollars) Gross Losses Reinsurance Recoverable(1)
Net Losses Gross Losses Reinsurance Recoverable(1)
Net Losses
Balance, beginning of year $ 62,690 $ 14,181 $ 48,509 $ 62,960 $ 14,689 $ 48,271
Losses and loss expenses incurred 26,711 5,001 21,710 23,657 4,927 18,730
Losses and loss expenses paid (22,053) (4,619) (17,434) (23,911) (5,438) (18,473)
Other (including foreign exchange translation) 463 84 379 (16) 3 (19)
Balance, end of year $ 67,811 $ 14,647 $ 53,164 $ 62,690 $ 14,181 $ 48,509
(1)Net of valuation allowance 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 78 percent casualty-related business, which typically encompasses long-tail risks, and other risks where a high degree of judgment is required.
The process of establishing loss reserves for property and casualty claims can be complex and is subject to considerable uncertainty as it requires the use of informed estimates and judgments based on circumstances underlying the insured losses known at the date of accrual. For example, the reserves established for high excess casualty claims, asbestos and environmental claims, claims from major catastrophic events, or for our various product lines each require different assumptions and judgments to be made. Necessary judgments are based on numerous factors and may be revised as additional experience and other data become available and are reviewed, as new or improved methods are developed, or as laws change. Hence, ultimate loss payments may differ from the estimate of the ultimate liabilities made at the balance sheet date. Changes to our previous estimates of prior period loss reserves impact the reported calendar year underwriting results adversely if our estimates increase or favorably if our estimates decrease. The potential for variation in loss reserve estimates is impacted by numerous factors. Reserve estimates for casualty lines are particularly uncertain given the lengthy reporting patterns and corresponding need for IBNR.
Case reserves for those claims reported by insureds or ceding companies to us prior to the balance sheet date and where we have sufficient information are determined by our claims personnel as appropriate based on the circumstances of the claim(s), standard claim handling practices, and professional judgment. Furthermore, for our Brandywine run-off operations and our assumed reinsurance operation, Global Reinsurance, we may adjust the case reserves as notified by the ceding company if the judgment of our respective claims department differs from that of the cedant.
With respect to IBNR reserves and those claims that have been incurred but not reported prior to the balance sheet date, there is, by definition, limited actual information to form the case reserve estimate and reliance is placed upon historical loss experience and actuarial methods to estimate the ultimate loss obligations and the corresponding amount of IBNR. IBNR reserve estimates are generally calculated by first projecting the ultimate amount of losses for a product line and subtracting paid losses and case reserves for reported claims. The judgments involved in projecting the ultimate losses may pertain to the use and interpretation of various standard actuarial reserving methods that place reliance on the extrapolation of actual historical data, loss development patterns, industry data, and other benchmarks as appropriate. The estimate of the required IBNR reserve also requires judgment by actuaries and management to reflect the impact of more contemporary and subjective factors, both qualitative and quantitative. Among some of these factors that might be considered are changes in business mix or volume, changes in ceded reinsurance structures, changes in claims handling practices, reported and projected loss trends, inflation, the legal environment, and the terms and conditions of the contracts sold to our insured parties.
Determining management's best estimate
Our recorded reserves represent management's best estimate of the provision for unpaid claims as of the balance sheet date, and establishing them involves a process that includes collaboration with various relevant parties in the company. For information on our reserving process, refer to Note 7 to the Consolidated Financial Statements.
Sensitivity to underlying assumptions
While we believe that our reserve for unpaid losses and loss expenses at December 31, 2020, is adequate, new information or emerging trends that differ from our assumptions may lead to future development of losses and loss expenses that is significantly greater or less than the recorded reserve, which could have a material effect on future operating results. As noted previously, our best estimate of required loss reserves for most portfolios is judgmentally selected for each origin year after considering the results from a number of reserving methods and is not a purely mechanical process. Therefore, it is difficult to convey, in a simple and quantitative manner, the impact that a change to a single assumption will have on our best estimate. In the examples below, we attempt to give an indication of the potential impact by isolating a single change for a specific reserving method that would be pertinent in establishing the best estimate for the product line described. We consider each of the following sensitivity analyses to represent a reasonably likely deviation in the underlying assumption.
North America Commercial P&C Insurance - Workers' Compensation
Given the long reporting and paid development patterns for workers' compensation business, the development factors used to project actual current losses to ultimate losses for our current exposure require considerable judgment that could be material to consolidated loss and loss expense reserves. Specifically, adjusting ground up ultimate losses by a one percentage point change in the tail factor (i.e., 1.04 changed to either 1.05 or 1.03) would cause a change of approximately $910 million, either positive or negative, for the projected net loss and loss expense reserves. This represents an impact of about 9.5 percent relative to recorded net loss and loss expense reserves of approximately $9.6 billion.
North America Commercial P&C Insurance - Liability
As is the case for Workers’ Compensation above, given the long reporting and paid development patterns, the development factors used to project actual current losses to ultimate losses for our current exposure require considerable judgment that could be material to consolidated loss and loss expense reserves. Specifically, for our main U.S. Excess/Umbrella portfolios, a five percentage point change in the tail factor (e.g., 1.10 changed to either 1.15 or 1.05) would cause a change of approximately $546 million, either positive or negative, for the projected net loss and loss expense reserves. This represents an impact of about 19.7 percent relative to recorded net loss and loss expense reserves of approximately $2.8 billion for these portfolios.
The reserve portfolio for our Chubb Bermuda operations contains exposure to predominantly high excess liability coverage on an occurrence-first-reported basis (typically with attachment points in excess of $325 million and gross limits of up to $150 million) and D&O and other professional liability coverage on a claims-made basis (typically with attachment points in excess of $125 million and gross limits of up to $75 million). Due to the layer of exposure covered, the expected frequency for this book is very low. As a result of the low frequency/high severity nature of the book, a small difference in the actual vs. expected claim frequency, either positive or negative, could result in a material change to the projected ultimate loss if such change in claim frequency was related to a policy where close to maximum limits were deployed.
North America Personal P&C Insurance
Due to the relatively short-tailed nature of many of the coverages involved (e.g., homeowners property damage), most of the incurred losses in Personal Lines are resolved within a few years of occurrence. As shown in our loss triangle disclosure, the vast majority (approximately 95 percent) of Personal Lines net ultimate losses and allocated loss adjustment expenses are typically paid within five years of the accident date and over 80 percent within two years. Even though there are significant reserves associated with some liability exposures such as personal excess/umbrella liability, our incurred loss triangle also shows a roughly consistent pattern of only relatively minor movements in incurred estimates over time by accident year especially after twenty-four months of maturity. While the liability exposures are subject to additional uncertainties from more protracted resolution times, the main drivers of volatility in the Personal Lines business are relatively short-term in nature and relate to things like natural catastrophes, non-catastrophe weather events, man-made risks, and individual large loss volatility from other fortuitous claim events.
North America Agricultural Insurance
Approximately 59 percent of the reserves for this segment are from the crop related lines, which all have short payout patterns, with the majority of the liabilities expected to be resolved in the ensuing twelve months. Claim reserves for our Multiple Peril Crop Insurance (MPCI) product are set on a case-by-case basis and our aggregate exposure is subject to state level risk sharing formulae as well as third-party reinsurance. The majority of the development risk arises out of the accuracy of case reserve estimates and the time needed for final crop conditions to be assessed. We do not view our Agriculture reserves as substantially influenced by the general assumptions and risks underlying more typical P&C reserve estimates.
Overseas General Insurance
Certain long-tail lines, such as casualty and professional lines, are particularly susceptible to changes in loss trend and claim inflation. Heightened perceptions of tort and settlement awards around the world can increase the demand for these products as well as contributing to the uncertainty in the reserving estimates. Our reserving methods rely on loss development patterns estimated from historical data and while we attempt to adjust such factors for known changes in the current tort environment, it is possible that such factors may not entirely reflect all recent trends in tort environments. For example, when applying the reported loss development method, the lengthening of our selected loss development patterns by six months would increase reserve estimates on long-tail casualty and professional lines for accident years 2018 and prior by approximately $590 million. This represents an impact of 15.4 percent relative to recorded net loss and loss expense reserves of approximately $3.8 billion.
Global Reinsurance
At December 31, 2020, net unpaid losses and loss expenses for the Global Reinsurance segment aggregated to $1.5 billion, consisting of $772 million of case reserves and $740 million of IBNR. In comparison, at December 31, 2019, net unpaid losses and loss expenses for the Global Reinsurance segment aggregated to $1.4 billion, consisting of $769 million of case reserves and $664 million of IBNR.
For our catastrophe business, we principally estimate unpaid losses and loss expenses on an event basis by considering various sources of information, including specific loss estimates reported by our cedants, ceding company and overall industry loss estimates reported by our brokers, and our internal data regarding reinsured exposures related to the geographical location of the
event. Our internal data analysis enables us to establish catastrophe reserves for known events with more certainty at an earlier date than would be the case if we solely relied on reports from third parties to determine carried reserves.
For our casualty reinsurance business, we generally rely on ceding companies to report claims and then use that data as a key input to estimate unpaid losses and loss expenses. Due to the reliance on claims information reported by ceding companies, as well as other factors, the estimation of unpaid losses and loss expenses for assumed reinsurance includes certain risks and uncertainties that are unique relative to our direct insurance business. These include, but are not necessarily limited to, the following:
•The reported claims information could be inaccurate;
•Typically, a lag exists between the reporting of a loss event to a ceding company and its reporting to us as a reinsurance claim. The use of a broker to transmit financial information from a ceding company to us increases the reporting lag. Because most of our reinsurance business is produced by brokers, ceding companies generally first submit claim and other financial information to brokers, who then report the proportionate share of such information to each reinsurer of a particular treaty. The reporting lag generally results in a longer period of time between the date a claim is incurred and the date a claim is reported compared with direct insurance operations. Therefore, the risk of delayed recognition of loss reserve development is higher for assumed reinsurance than for direct insurance lines; and
•The historical claims data for a particular reinsurance contract can be limited relative to our insurance business in that there may be less historical information available. Further, for certain coverages or products, such as excess of loss contracts, there may be relatively few expected claims in a particular year so the actual number of claims may be susceptible to significant variability. In such cases, the actuary often relies on industry data from several recognized sources.
We mitigate the above risks in several ways. In addition to routine analytical reviews of ceding company reports to ensure reported claims information appears reasonable, we perform regular underwriting and claims audits of certain ceding companies to ensure reported claims information is accurate, complete, and timely. As appropriate, audit findings are used to adjust claims 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, 2020, the case reserves, net of retrocessions, reported to us by our ceding companies were $762 million, compared with the $772 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.
Typically, there is inherent uncertainty around the length of paid and reported development patterns, especially for certain casualty lines such as excess workers' compensation or general liability, which may take decades to fully develop. This uncertainty is accentuated by the need to supplement client development patterns with industry development patterns due to the sometimes low statistical credibility of the data. The underlying source and selection of the final development patterns can thus have a significant impact on the selected ultimate net losses and loss expenses. For example, a 20 percent shortening or lengthening of the development patterns used for U.S. long-tail lines would cause the loss reserve estimate derived by the reported Bornhuetter-Ferguson method for these lines to change by approximately $245 million. This represents an impact of 37 percent relative to recorded net loss and loss expense reserves of approximately $655 million.
Corporate
Within Corporate, we also have exposure to certain liability reinsurance lines that have been in run-off since 1994. Unpaid losses and loss expenses relating to this run-off reinsurance business resides within the Brandywine Division reported within Corporate. Most of the remaining unpaid loss and loss expense reserves for the run-off reinsurance business relate to A&E claims.
The A&E liabilities principally relate to claims arising from bodily-injury claims related to asbestos products and remediation costs associated with hazardous waste sites. The estimation of our A&E liabilities is particularly sensitive to future changes in the legal, social, and economic environment. We have not assumed any such future changes in setting the value of our A&E liabilities, which include provisions for both reported and IBNR claims.
There are many complex variables that we consider when estimating the reserves for our inventory of asbestos accounts and these variables may directly impact the predicted outcome. We believe the most significant variables relating to our A&E liabilities include the current legal environment; specific settlements that may be used as precedents to settle future claims; assumptions regarding trends with respect to claim severity and the frequency of higher severity claims; assumptions regarding the ability to allocate liability among defendants (including bankruptcy trusts) and other insurers; the ability of a claimant to bring a claim in a state in which they have no residency or exposure; the ability of a policyholder to claim the right to unaggregated coverage; whether high-level excess policies have the potential to be accessed given the policyholder's claim trends and liability situation; payments to unimpaired claimants; and, the potential liability of peripheral defendants. Based on the policies, the facts, the law, and a careful analysis of the impact that these factors will likely have on any given account, we estimate the potential liability for indemnity, policyholder defense costs, and coverage litigation expense.
The results in asbestos cases announced by other carriers or defendants may well have little or no relevance to us because coverage exposures are highly dependent upon the specific facts of individual coverage and resolution status of disputes among carriers, policyholders, and claimants.
For additional information refer to the “Asbestos and Environmental (A&E)” section and to Note 7 to the Consolidated Financial Statements.
Future policy benefits reserves
We issue contracts in our Overseas General Insurance and Life Insurance segments that are classified as long-duration. These contracts generally include accident and supplemental health products, term and whole life products, endowment products, and annuities. In accordance with GAAP, we establish reserves for contracts determined to be long-duration based on approved actuarial methods that include assumptions related to expenses, mortality, morbidity, persistency and investment yields. For traditional long-duration contracts, these assumptions also include a provision for adverse deviation (PAD), and 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; while for non-traditional long-duration contracts, the assumptions do not include a PAD and are unlocked at each reporting date. 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 into in order to secure a more cost-effective reinsurance program. All of these contracts transferred risk and were accounted for as reinsurance. In addition, we maintain a few aggregate excess of loss reinsurance contracts that were principally entered into prior to 2003, such as the National Indemnity Company (NICO) contracts referred to in the section entitled, “Asbestos and Environmental (A&E)”. We have not purchased any other retroactive ceded reinsurance contracts since 1999.
With respect to assumed reinsurance and insurance contracts, products giving rise to judgments regarding risk transfer were primarily sold by our financial solutions business. Although we have significantly curtailed writing financial solutions business, several contracts remain in-force and principally include multi-year retrospectively-rated contracts and loss portfolio transfers. Because transfer of insurance risk is generally a primary client motivation for purchasing these products, relatively few insurance and reinsurance contracts have historically been written for which we concluded that risk transfer criteria had not been met. For certain insurance contracts that have been reported as deposits, the insured desired to self-insure a risk but was required, legally or otherwise, to purchase insurance so that claimants would be protected by a licensed insurance company in the event of non-payment from the insured.
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 valuation allowance for uncollectible reinsurance. The valuation allowance 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 valuation allowance that reduces the reinsurance recoverable asset and, in turn, shareholders' equity. Changes in the valuation allowance 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 valuation allowance 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 valuation allowance 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 forward looking default factors used to estimate the probability that the reinsurer may be unable to meet its future obligations in full. In 2020, we adopted new guidance on the accounting for expected credit losses of reinsurance recoverable. For additional information, refer to Note 1 s) to the Consolidated Financial Statements under Item 8. 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 valuation allowance 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 valuation allowance 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 valuation allowance 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 valuation allowance for uncollectible reinsurance by establishing a default factor pursuant to information received; and
•For captives and other recoverables, management determines the valuation allowance for uncollectible reinsurance based on the specific facts and circumstances.
The following table summarizes reinsurance recoverables and the valuation allowance for uncollectible reinsurance for each type of recoverable balance at December 31, 2020:
Gross Reinsurance Recoverables on Losses and Loss Expenses Recoverables (net of Usable Collateral)
Valuation Allowance for Uncollectible Reinsurance (1)
(in millions of U.S. dollars)
Type
Reinsurers with credit ratings $ 12,479 $ 10,814 $ 179
Reinsurers not rated 290 154 57
Reinsurers under supervision and insolvent reinsurers 64 60 35
Captives 2,107 372 11
Other - structured settlements and pools 966 965 32
Total $ 15,906 $ 12,365 $ 314
(1) The valuation allowance for uncollectible reinsurance is based on a default analysis applied to gross reinsurance recoverables, net of approximately $3.5 billion of collateral at December 31, 2020.
At December 31, 2020, the use of different assumptions within our approach could have a material effect on the valuation allowance for uncollectible reinsurance. To the extent the creditworthiness of our reinsurers was 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 valuation allowance 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 valuation allowance, we cannot precisely quantify the effect a specific industry event may have on the valuation allowance for uncollectible reinsurance. However, based on the composition (particularly the average credit quality) of the reinsurance recoverable balance at December 31, 2020, we estimate that a ratings downgrade of one notch for all rated reinsurers (e.g., from A to A- or A- to BBB+) could increase our valuation allowance for uncollectible reinsurance by approximately $81 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 valuation allowance for uncollectible reinsurance and a charge to earnings in that period, a downgrade in and of itself does not imply that we will be unable to collect all of the ceded reinsurance recoverable from the reinsurers in question. Refer to Note 5 to the Consolidated Financial Statements for additional information.
Fair value measurements
Accounting guidance defines fair value as the price to sell an asset or transfer a liability (an exit price) in an orderly transaction between market participants and establishes a three-level valuation hierarchy based on the reliability of the inputs. The fair value hierarchy gives the highest priority to quoted prices in active markets (Level 1 inputs) and the lowest priority to unobservable data (Level 3 inputs). Level 2 includes inputs, other than quoted prices within Level 1, that are observable for assets or liabilities either directly or indirectly. Refer to Note 4 and Note 13 to the Consolidated Financial Statements for information on our fair value measurements.
Assessment of investment portfolio credit losses
Each quarter, we evaluate current expected credit losses (CECL) for fixed maturity securities classified as held to maturity and expected credit losses (ECL) for fixed maturity securities classified as available for sale. Because our investment portfolio is the largest component of consolidated assets, CECL and ECL could be material to our financial condition and results of operations. Refer to Notes 1 e) and 3 to the Consolidated Financial Statements for more information.
Deferred income taxes
At December 31, 2020, our net deferred tax liability was $892 million. Our deferred tax assets and liabilities primarily result from temporary differences between the amounts recorded in our Consolidated Financial Statements and the tax basis of our assets and liabilities. We determine deferred tax assets and liabilities separately for each tax-paying component (an individual entity or group of entities that is consolidated for tax purposes) in each tax jurisdiction. The realization of deferred tax assets depends upon the existence of sufficient taxable income within the carryback or carryforward periods under the tax law in the applicable tax jurisdiction. There may be changes in tax laws in a number of countries where we transact business that impact our deferred tax assets and liabilities.
At each balance sheet date, management assesses the need to establish a valuation allowance that reduces deferred tax assets when it is more likely than not that all, or some portion, of the deferred tax assets will not be realized. The determination of the need for a valuation allowance is based on all available information including projections of future taxable income, principally derived from business plans and where appropriate available tax planning strategies. Projections of future taxable income incorporate assumptions of future business and operations that are apt to differ from actual experience. If our assumptions and estimates that resulted in our forecast of future taxable income prove to be incorrect, an additional valuation allowance could become necessary, which could have a material adverse effect on our financial condition, results of operations, and liquidity. At December 31, 2020, the valuation allowance of $83 million reflects management's assessment that it is more likely than not that a portion of the deferred tax assets will not be realized due to the inability of certain subsidiaries to generate sufficient taxable income.
Assumed reinsurance programs involving minimum benefit guarantees under variable annuity contracts
Chubb reinsures various death and living benefit guarantees associated with variable annuities issued primarily in the United States. We ceased writing this business in 2007. Guarantees which are payable on death are referred to as guaranteed minimum death benefits (GMDB). Guarantees on living benefits (GLB) consist mainly of guaranteed minimum income benefits (GMIB). For further description of this product and related accounting treatment, refer to Note 1 j) to the Consolidated Financial Statements.
Guaranteed living benefits (GLB) derivatives
Our GLB reinsurance is classified as a derivative for accounting purposes and therefore carried at fair value. 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.
For further information on the estimates and assumptions used in determining the fair value of GLB reinsurance, refer to Note 4 to the Consolidated Financial Statements. For a sensitivity discussion of the effect of changes in interest rates, equity indices, and other assumptions on the fair value of GLBs, and the estimated resulting impact on our net income, refer to Item 7A.
Determination of 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 performance of the GMDB 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, 2020, management determined that no change to the benefit ratio was warranted.
Risk Management
We employ a strategy to manage the financial market and policyholder behavior risks embedded in the reinsurance of variable annuity (VA) guarantees. Risk management begins with underwriting a prospective client and guarantee design, with particular focus on protecting our position from policyholder options that, because of anti-selective behavior, could adversely impact our obligation.
A second layer of risk management is the structure of the reinsurance contracts. All VA guarantee reinsurance contracts include some form of annual or aggregate claim limit(s) primarily designed to reduce our exposure to severe equity market and interest rate declines (which would cause an increase in expected claims).
A third layer of risk management is the hedging strategy which looks to mitigate both long-term economic loss over time as well as dampen income statement volatility. We owned financial market instruments as part of the hedging strategy with a fair value liability of $17 million and $13 million at December 31, 2020 and 2019, respectively. The instruments are substantially collateralized on a daily basis.
We also limit the aggregate amount of variable annuity reinsurance guarantee risk we are willing to assume. The last substantive transactions were quoted in late 2007. The aggregate number of policyholders is currently decreasing through policyholder withdrawals, annuitizations, and deaths at a rate of 5 percent to 15 percent per annum.
Note that GLB claims cannot occur for any reinsured policy until it has reached the end of its “waiting period”. As of December 31, 2020, 93 percent of the policies we reinsure reached the end of their “waiting periods”.
Collateral
Chubb maintains collateral, including letters of credit (LOC), 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. Refer to "Credit Facilities" for a discussion of the LOC related to our variable annuity program.
Goodwill impairment assessment
Goodwill, which represents the excess of acquisition cost over the estimated fair value of net assets acquired, was $15.4 billion and $15.3 billion at December 31, 2020 and 2019, respectively. Goodwill is assigned to applicable reporting units of acquired entities at the time of acquisition. Our reporting units are the same as our reportable segments. For goodwill balances by reporting units, refer to Note 6 to the Consolidated Financial Statements.
Goodwill is not amortized but is subject to a periodic evaluation for impairment at least annually, or earlier if there are any indications of possible impairment. Impairment is tested at the reporting unit level. The impairment evaluation first uses a qualitative assessment to determine whether it is more likely than not (i.e., more than a 50 percent probability) that the fair value of a reporting unit is greater than its carrying amount. If a reporting unit fails this qualitative assessment, a single quantitative analysis is used to measure and record the amount of the impairment.
In assessing the fair value of a reporting unit, we make assumptions and estimates about the profitability attributable to our reporting units, including:
•short-term and long-term growth rates; and
•estimated cost of equity and changes in long-term risk-free interest rates.
If our assumptions and estimates made in assessing the fair value of acquired entities change, we could be required to write-down the carrying value of goodwill which could be material to our results of operations in the period the charge is taken. Based on our impairment testing for 2020, we determined no impairment was required and none of our reporting units was at risk for impairment.
Consolidated Operating Results - Years Ended December 31, 2020, 2019, and 2018
% Change
(in millions of U.S. dollars, except for percentages) 2020 2019 2018 2020 vs. 2019 2019 vs. 2018
Net premiums written $ 33,820 $ 32,275 $ 30,579 4.8 % 5.5 %
Net premiums written - constant dollars (1)
5.5 % 7.0 %
Net premiums earned 33,117 31,290 30,064 5.8 % 4.1 %
Net investment income 3,375 3,426 3,305 (1.5) % 3.6 %
Net realized gains (losses) (498) (530) (652) (6.1) % (18.8) %
Total revenues 35,994 34,186 32,717 5.3 % 4.5 %
Losses and loss expenses 21,710 18,730 18,067 15.9 % 3.7 %
Policy benefits 784 740 590 5.9 % 25.5 %
Policy acquisition costs 6,547 6,153 5,912 6.4 % 4.1 %
Administrative expenses 2,979 3,030 2,886 (1.7) % 5.0 %
Interest expense 516 552 641 (6.4) % (13.9) %
Other (income) expense (994) (596) (434) 66.8 % 37.2 %
Amortization of purchased intangibles 290 305 339 (4.9) % (10.2) %
Chubb integration expenses - 23 59 NM (61.7) %
Total expenses 31,832 28,937 28,060 10.0 % 3.1 %
Income before income tax 4,162 5,249 4,657 (20.7) % 12.7 %
Income tax expense 629 795 695 (20.8) % 14.3 %
Net income $ 3,533 $ 4,454 $ 3,962 (20.7) % 12.4 %
NM - not meaningful
(1)On a constant-dollar basis. Amounts are calculated by translating prior period results using the same local currency exchange rates as the comparable current period.
Net Premiums Written % Change
(in millions of U.S. dollars, except for percentages) 2020 2019 2018 2020 vs. 2019 2019 vs. 2018 C$ 2020 vs. 2019
Commercial casualty $ 6,177 $ 5,654 $ 5,204 9.2 % 8.7 % 9.3 %
Workers' compensation 2,015 2,098 2,094 (4.0) % 0.1 % (4.0) %
Professional liability 4,201 3,697 3,527 13.6 % 4.8 % 14.0 %
Surety 531 639 635 (16.9) % 0.6 % (14.5) %
Commercial multiple peril (1)
1,047 983 910 6.6 % 8.0 % 6.6 %
Property and other short-tail lines 5,231 4,468 4,016 17.1 % 11.3 % 18.3 %
Total Commercial P&C 19,202 17,539 16,386 9.5 % 7.0 % 10.0 %
Agriculture 1,846 1,810 1,577 2.0 % 14.8 % 2.0 %
Personal automobile 1,550 1,786 1,695 (13.2) % 5.4 % (10.0) %
Personal homeowners 3,627 3,513 3,391 3.2 % 3.6 % 3.5 %
Personal other 1,656 1,514 1,508 9.4 % 0.3 % 9.8 %
Total Personal lines 6,833 6,813 6,594 0.3 % 3.3 % 1.5 %
Total Property and Casualty lines 27,881 26,162 24,557 6.6 % 6.5 % 7.2 %
Global A&H lines (2)
3,859 4,315 4,277 (10.6) % 0.9 % (9.7) %
Reinsurance lines 731 649 671 12.6 % (3.2) % 12.1 %
Life 1,349 1,149 1,074 17.4 % 7.0 % 18.4 %
Total consolidated $ 33,820 $ 32,275 $ 30,579 4.8 % 5.5 % 5.5 %
(1)Commercial multiple peril represents retail package business (property and general liability).
(2)For purposes of this schedule only, A&H results from our Combined North America and International businesses, normally included in the Life Insurance and Overseas General Insurance segments, respectively, as well as the A&H results of our North America Commercial P&C segment, are included in Global A&H lines above.
The increase in net premiums written in 2020 principally reflects positive growth in commercial P&C lines globally, partially offset by negative growth in consumer P&C lines primarily from outside North America. The increase in net premiums written principally reflected new business, positive rate increases and higher renewal retention. This growth was tempered by the adverse impact of the economic contraction resulting from the COVID-19 pandemic, principally in consumer P&C lines.
•The growth in commercial casualty was due to new business, positive rate increases and growth in North America, Asia and Europe, partially offset by the adverse impact of the COVID-19 pandemic, including $58 million of exposure adjustments on in-force policies which depressed growth by 1.1 percentage points.
•Workers' compensation was adversely impacted by market conditions and by the adverse impact of the economic contraction resulting from the COVID-19 pandemic. The decrease included $121 million of exposure adjustments on in-force policies which depressed growth by 5.8 percentage points.
•The increase in professional liability was due to new business and positive rate increases primarily in North America, Asia and Europe.
•Surety decreased in North America and Latin America due to market conditions and the adverse impact of the economic contraction resulting from the COVID-19 pandemic.
•Commercial multiple peril increased due to strong renewal retention and positive rate increases in North America. The increase was partially offset by the adverse impact of the economic contraction resulting from the COVID-19 pandemic.
•Property and other short-tail lines increased due to new business and positive rate increases primarily in North America and Europe.
•Personal lines increased primarily due to positive rate increases and strong renewal retention in homeowners business in North America, as well as growth in Europe. In addition, North America benefited from the favorable year-over-year impact of reinstatement premiums. The increase was partially offset by the impact of the COVID-19 pandemic, which caused declines in automobile business in Latin America and North America.
•Global A&H lines decreased in all regions, principally from less travel volume due to the COVID-19 pandemic.
•The increase in Life was primarily driven by growth in Latin America, principally driven by our expanded presence in Chile, and in the Asian international life operations.
For additional information on net premiums written, refer to the segment results discussions.
Net Premiums Earned
Net premiums earned for short-duration contracts, typically P&C contracts, generally reflect the portion of net premiums written that were recorded as revenues for the period as the exposure periods expire. Net premiums earned for long-duration contracts, typically traditional life contracts, generally are recognized as earned when due from policyholders. Net premiums earned increased $1.8 billion, or $2.0 billion on a constant-dollar basis in 2020, comprising 8.9 percent positive growth in commercial P&C lines and 2.5 percent positive growth in consumer lines on a constant-dollar basis.
Catastrophe Losses and Prior Period Development
Catastrophe losses exclude reinstatement premiums which are additional premiums paid on certain reinsurance agreements in order to reinstate coverage that had been exhausted by loss occurrences. The reinstatement premium amount is typically a pro rata portion of the original ceded premium paid based on how much of the reinsurance limit had been exhausted. Prior period development is net of related adjustments which typically relate to either profit commission reserves or policyholder dividend reserves based on actual claim experience that develops after the policy period ends. The expense adjustments correlate to the prior period loss development on these same policies. Refer to the Non-GAAP Reconciliation section for further information on reinstatement premiums on catastrophe losses and adjustments to prior period development.
We generally define catastrophe loss events consistent with the definition of the Property Claims Service (PCS) for events in the U.S. and Canada. PCS defines a catastrophe as an event that causes damage of $25 million or more in insured losses and affects a significant number of insureds. For events outside of the U.S. and Canada, we generally use a similar definition. We also define losses from certain pandemics, such as COVID-19, as a catastrophe loss. The tables below represent catastrophe loss estimates for events that occurred in the related calendar year only. Changes in catastrophe loss estimates in the current calendar year that relate to loss events that occurred in previous calendar years are considered prior period development and are excluded from the tables below.
Catastrophe Loss Charge by Event For Full Year 2020
North America Commercial P&C Insurance North America Personal P&C Insurance North America Agricultural Insurance Overseas General Insurance Global
Reinsurance Life Insurance Total excluding RIPs RIPs collected (expensed) Total including RIPs
(in millions of U.S. dollars)
Net losses
COVID-19 $ 925 $ - $ - $ 421 $ 10 $ 24 $ 1,380 $ (16) $ 1,396
U.S. hurricanes/tropical storms 429 132 1 79 86 - 727 7 720
U.S. flooding, hail, tornadoes, and wind events 295 191 25 9 11 - 531 (3) 534
U.S. wildfires 61 162 1 5 1 - 230 - 230
Civil unrest 111 2 - 17 - - 130 - 130
International weather-related events 3 6 - 67 15 - 91 2 89
Midwest derecho 37 38 8 - 1 - 84 - 84
Australia storms - - - 66 - - 66 - 66
Other 7 2 - 26 (1) - 34 - 34
Total $ 1,868 $ 533 $ 35 $ 690 $ 123 $ 24 $ 3,273
RIPs collected (expensed) (3) (1) (1) (15) 10 - (10)
Total before income tax $ 1,871 $ 534 $ 36 $ 705 $ 113 $ 24 $ 3,283
Income tax benefit 506
Total after income tax $ 2,777
Catastrophe Loss Charge by Event For Full Year 2019
North America Commercial P&C Insurance North America Personal P&C Insurance North America Agricultural Insurance Overseas General Insurance Global
Reinsurance Total excluding RIPs RIPs collected (expensed) Total including RIPs
(in millions of U.S. dollars)
Net losses
U.S. flooding, hail, tornadoes, and wind events $ 220 $ 202 $ 7 $ - $ 9 $ 438 $ - $ 438
Tornado in Dallas, Texas 55 145 - - 2 202 (11) 213
Winter-related storms 74 110 1 6 2 193 - 193
Hurricane Dorian 26 30 - 10 8 74 1 73
California wildfires 11 45 - - - 56 - 56
Typhoon Hagibis - - - 20 17 37 1 36
Civil unrest in Hong Kong and Chile - - - 33 - 33 (4) 37
International weather-related events 1 2 - 30 - 33 - 33
Other 34 9 - 53 13 109 1 108
Total $ 421 $ 543 $ 8 $ 152 $ 51 $ 1,175
RIPs collected (expensed) - (11) - (4) 3 (12)
Total before income tax $ 421 $ 554 $ 8 $ 156 $ 48 $ 1,187
Income tax benefit 221
Total after income tax $ 966
Catastrophe Loss Charge by Event For Full Year 2018
North America Commercial P&C Insurance North America Personal P&C Insurance North America Agricultural Insurance Overseas General Insurance Global
Reinsurance Total excluding RIPs RIPs collected (expensed) Total including RIPs
(in millions of U.S. dollars)
Net losses
Hurricane Michael $ 187 $ 16 $ 6 $ 6 $ 85 $ 300 $ 15 $ 285
U.S. flooding, hail, tornadoes, and wind events (1)
162 157 7 - 6 332 - 332
Northeast winter storms 43 117 - - 5 165 - 165
California wildfires 51 61 1 1 58 172 (23) 195
Hurricane Florence 109 29 7 15 14 174 1 173
California mudslides 4 120 - 1 - 125 - 125
Colorado rain and hail storm 7 65 - 1 - 73 - 73
International weather-related events - - - 182 31 213 2 211
Other 16 46 - - 6 68 1 67
Total $ 579 $ 611 $ 21 $ 206 $ 205 $ 1,622
RIPs collected (expensed) - (26) - - 22 (4)
Total before income tax $ 579 $ 637 $ 21 $ 206 $ 183 $ 1,626
Income tax benefit 272
Total after income tax $ 1,354
(1)This grouping comprised of 34 separate events, principally impacting the southern and northeastern regions of the U.S.
Prior Period Development
(in millions of U.S. dollars) 2020 2019 2018
Favorable prior period development $ 395 $ 792 $ 896
Prior period development (PPD) arises from changes to loss estimates recognized in the current year that relate to loss events that occurred in previous calendar years and excludes the effect of losses from the development of earned premium from previous accident years.
Pre-tax net favorable prior period development for the year ended 2020 was $395 million, which included adverse development of $259 million for U.S. child molestation claims, predominately reviver statute-related, and $106 million adverse development related to legacy asbestos and environmental liabilities. The remaining favorable development of $760 million principally comprises 89 percent long-tail lines, principally from accident years 2016 and prior, and 11 percent short-tail lines.
Pre-tax net favorable prior period development for the year ended 2019 was $792 million, which included favorable development of $80 million in our crop insurance business and adverse development of $116 million related to legacy run-off exposures, principally asbestos and environmental liabilities. The remaining favorable development of $828 million comprised 92 percent long-tail lines, principally from accident years 2015 and prior, and 8 percent short-tail lines.
Refer to the Prior Period Development section in Note 7 to the Consolidated Financial Statements for additional information.
P&C Combined Ratio
In evaluating our segments excluding Life Insurance financial performance, we use the P&C combined ratio, the loss and loss expense ratio, the policy acquisition cost ratio, and the administrative expense ratio. We calculate these ratios by dividing the respective expense amounts by net premiums earned. We do not calculate these ratios for the Life Insurance segment as we do not use these measures to monitor or manage that segment. The P&C combined ratio is determined by adding the loss and loss expense ratio, the policy acquisition cost ratio, and the administrative expense ratio. A P&C combined ratio under 100 percent indicates underwriting income, and a combined ratio exceeding 100 percent indicates underwriting loss.
2020 2019 2018
Loss and loss expense ratio
CAY loss ratio excluding catastrophe losses 59.2 % 60.8 % 59.6 %
Catastrophe losses 10.6 % 4.1 % 5.8 %
Favorable prior period development (1.3) % (2.8) % (3.3) %
Loss and loss expense ratio 68.5 % 62.1 % 62.1 %
Policy acquisition cost ratio 18.9 % 19.1 % 19.2 %
Administrative expense ratio 8.7 % 9.4 % 9.3 %
P&C Combined ratio 96.1 % 90.6 % 90.6 %
The loss and loss expense ratio increased 6.4 percentage points in 2020 principally due to higher catastrophe losses and lower favorable prior period development.
The CAY loss ratio excluding catastrophe losses decreased 1.6 percentage points in 2020 principally due to a decrease in the underlying loss ratio reflecting earned rate increases exceeding loss cost trends, better underlying claims experience, and a more average crop loss year in 2020.
Policy acquisition costs consist of commissions, premium taxes, and certain underwriting costs directly related to the successful acquisition of a new or renewal insurance contract. The policy acquisition cost ratio decreased 0.2 percentage points in 2020 due to a change in the mix of business, including less premiums earned from A&H lines that have a lower acquisition cost ratio, reflecting the impact of the COVID-19 pandemic.
The administrative expense ratio decreased 0.7 percentage points in 2020 primarily due to lower business expenses from continued expense management control, including during the COVID-19 pandemic, lower employee benefit-related expenses and the favorable impact of higher net premiums earned.
Policy benefits
Policy benefits represent losses on contracts classified as long-duration and generally include accident and supplemental health products, term and whole life products, endowment products, and annuities. Refer to the Life Insurance segment operating results section for further discussion.
Policy benefits were $784 million, $740 million and $590 million in 2020, 2019 and 2018, respectively, which included separate account liabilities (gains) losses of $58 million, $44 million and $(38) million, respectively. The offsetting movements of these liabilities are recorded in Other (income) expense on the Consolidated statements of operations. Excluding the separate account gains and losses, Policy benefits were $726 million in 2020 compared with $696 million, principally from new business from our expanded presence in Chile and growth in Asia.
Refer to the respective sections that follow for a discussion of Net investment income, Other (income) expense, Net realized gains (losses), Amortization of purchased intangibles, and Income tax expense.
Segment Operating Results - Years Ended December 31, 2020, 2019, and 2018
We operate through six business segments: North America Commercial P&C Insurance, North America Personal P&C Insurance, North America Agricultural Insurance, Overseas General Insurance, Global Reinsurance, and Life Insurance. In addition, the results of our run-off Brandywine business, including all run-off asbestos and environmental (A&E) exposures, and the results of Westchester specialty operations for 1996 and prior years are presented within Corporate.
North America Commercial P&C Insurance
The North America Commercial P&C Insurance segment comprises operations that provide property and casualty (P&C) and accident & health (A&H) insurance and services to large, middle market, and small commercial businesses in the U.S., Canada, and Bermuda. This segment includes our North America Major Accounts and Specialty Insurance division (large corporate accounts and wholesale business), and the North America Commercial Insurance division (principally middle market and small commercial accounts).
% Change
(in millions of U.S. dollars, except for percentages) 2020 2019 2018 2020 vs. 2019 2019 vs. 2018
Net premiums written $ 14,474 $ 13,375 $ 12,485 8.2 % 7.1 %
Net premiums earned 13,964 12,922 12,402 8.1 % 4.2 %
Losses and loss expenses 10,129 8,206 8,000 23.4 % 2.6 %
Policy acquisition costs 1,942 1,831 1,829 6.1 % 0.2 %
Administrative expenses 1,006 1,028 966 (2.2) % 6.4 %
Underwriting income 887 1,857 1,607 (52.2) % 15.5 %
Net investment income 2,061 2,109 2,061 (2.3) % 2.3 %
Other (income) expense 23 24 3 (4.2) % NM
Segment income $ 2,925 $ 3,942 $ 3,665 (25.8) % 7.5 %
Loss and loss expense ratio:
CAY loss ratio excluding catastrophe losses 64.2 % 65.3 % 64.9 % (1.1) pts 0.4 pts
Catastrophe losses 13.4 % 3.3 % 4.7 % 10.1 pts (1.4) pts
Prior period development (5.1) % (5.1) % (5.1) % - pts - pts
Loss and loss expense ratio 72.5 % 63.5 % 64.5 % 9.0 pts (1.0) pt
Policy acquisition cost ratio 14.0 % 14.2 % 14.7 % (0.2) pts (0.5) pts
Administrative expense ratio 7.2 % 7.9 % 7.8 % (0.7) pts 0.1 pts
Combined ratio 93.7 % 85.6 % 87.0 % 8.1 pts (1.4) pts
NM - not meaningful
Catastrophe Losses and Prior Period Development
(in millions of U.S. dollars) 2020 2019 2018
Catastrophe losses (excludes reinstatement premiums) $ 1,868 $ 421 $ 579
Favorable prior period development $ 702 $ 649 $ 610
Refer to the tables on pages 50 - 51 for detail of catastrophe losses and Note 7 to the Consolidated Financial Statements for detail on prior period development.
Premiums
Net premiums written increased $1,099 million, or 8.2 percent in 2020, comprising positive growth of 9.6 percent in commercial P&C lines and negative growth of 13.8 percent in consumer lines. The growth in commercial P&C lines reflects positive rate increases, strong renewal retention and new business written across a number of retail and wholesale lines, including property, financial lines, excess casualty, large risk casualty, and commercial multiple peril. Net premiums written in 2020 was depressed by economic contraction resulting from the COVID-19 pandemic including $160 million of exposure adjustments on in-force policies, and lower renewal exposures and new business market limitations that impacted several lines of business, including A&H, surety, entertainment, hospitality, retail, and construction.
Net premiums earned increased $1,042 million, or 8.1 percent in 2020, due to the growth in net premiums written described above. The increase in net premiums earned was adversely impacted by the COVID-19 pandemic, including $154 million of exposure adjustments on in-force policies in 2020.
Combined Ratio
The loss and loss expense ratio increased 9.0 percentage points in 2020 due principally to higher catastrophe losses, including losses related to COVID-19 pandemic claims. The CAY loss ratio excluding catastrophe losses decreased 1.1 percentage points in 2020 primarily due to margin improvements coming from earned rate exceeding loss cost trends.
The administrative expense ratio decreased 0.7 percentage points in 2020 primarily due to lower business expenses from continued expense management control, including during the COVID-19 pandemic, lower employee benefit-related expenses, and the favorable impact of higher net premiums earned.
North America Personal P&C Insurance
The North America Personal P&C Insurance segment comprises operations that provide high net worth personal lines products, including homeowners and complementary products such as valuable articles, excess liability, automobile, and recreational marine insurance and services in the U.S. and Canada.
% Change
(in millions of U.S. dollars, except for percentages) 2020 2019 2018 2020 vs. 2019 2019 vs. 2018
Net premiums written $ 4,920 $ 4,787 $ 4,674 2.8 % 2.4 %
Net premiums earned 4,866 4,694 4,593 3.7 % 2.2 %
Losses and loss expenses 3,187 3,043 3,229 4.7 % (5.8) %
Policy acquisition costs 974 948 939 2.7 % 1.0 %
Administrative expenses 270 286 269 (5.4) % 6.0 %
Underwriting income 435 417 156 4.6 % 167.2 %
Net investment income 260 258 236 0.5 % 9.2 %
Other (income) expense 5 3 1 75.8 % 117.1 %
Amortization of purchased intangibles 11 12 13 (5.0) % (11.1) %
Segment income $ 679 $ 660 $ 378 2.8 % 74.7 %
Loss and loss expense ratio:
CAY loss ratio excluding catastrophe losses 53.1 % 55.1 % 55.8 % (2.0) pts (0.7) pts
Catastrophe losses 11.0 % 11.6 % 13.6 % (0.6) pts (2.0) pts
Prior period development 1.4 % (1.9) % 0.9 % 3.3 pts (2.8) pts
Loss and loss expense ratio 65.5 % 64.8 % 70.3 % 0.7 pts (5.5) pts
Policy acquisition cost ratio 20.0 % 20.2 % 20.4 % (0.2) pts (0.2) pts
Administrative expense ratio 5.6 % 6.1 % 5.9 % (0.5) pts 0.2 pts
Combined ratio 91.1 % 91.1 % 96.6 % - pts (5.5) pts
Catastrophe Losses and Prior Period Development
(in millions of U.S. dollars) 2020 2019 2018
Catastrophe losses (excludes reinstatement premiums) $ 533 $ 543 $ 611
Favorable (unfavorable) prior period development $ (63) $ 95 $ (41)
Refer to the tables on pages 50 - 51 for detail of catastrophe losses and Note 7 to the Consolidated Financial Statements for detail on prior period development.
Premiums
Net premiums written increased $133 million, or 2.8 percent for 2020, primarily due to rate increases and strong account retention across most lines. In addition, net premiums written also increased due to the favorable year-over-year impact of reinstatement premiums of $24 million. Growth was partially offset by $29 million in lower automobile premiums as a result of reduced exposures related to the conditions caused by the COVID-19 pandemic.
Net premiums earned increased $172 million, or 3.7 percent for 2020, reflecting the growth in net premiums written described above.
Combined Ratio
The loss and loss expense ratio increased 0.7 percentage points in 2020, primarily due to unfavorable prior period development in the current year compared to favorable prior period development in the prior year. The CAY loss ratio excluding catastrophe losses decreased 2.0 percentage points in 2020 due to better underlying claims experience reflecting indirect COVID-19 benefits and lower than expected claims frequency of weather and water losses in our homeowners line.
The administrative expense ratio decreased 0.5 percentage points in 2020 primarily due to lower employee benefit-related expenses and lower business expenses from continued expense management control, including during the COVID-19 pandemic, partially offset by normal inflationary increases.
North America Agricultural Insurance
The North America Agricultural Insurance segment comprises our North American based businesses that provide a variety of coverages in the U.S. and Canada including crop insurance, primarily Multiple Peril Crop Insurance (MPCI) and crop-hail through Rain and Hail Insurance Service, Inc. (Rain and Hail) as well as farm and ranch and specialty P&C commercial insurance products and services through our Chubb Agribusiness unit.
% Change
(in millions of U.S. dollars, except for percentages) 2020 2019 2018 2020 vs. 2019 2019 vs. 2018
Net premiums written $ 1,846 $ 1,810 $ 1,577 2.0 % 14.8 %
Net premiums earned 1,822 1,795 1,569 1.5 % 14.4 %
Losses and loss expenses 1,544 1,616 1,114 (4.5) % 45.1 %
Policy acquisition costs 123 84 79 45.7 % 6.8 %
Administrative expenses 9 6 (9) 67.2 % NM
Underwriting income 146 89 385 65.3 % (77.0) %
Net investment income 30 30 28 - 5.0 %
Other (income) expense 1 1 2 - (33.6) %
Amortization of purchased intangibles 27 28 28 (2.1) % (2.0) %
Segment income $ 148 $ 90 $ 383 65.1 % (76.6) %
Loss and loss expense ratio:
CAY loss ratio excluding catastrophe losses 83.7 % 93.5 % 76.7 % (9.8) pts 16.8 pts
Catastrophe losses 2.0 % 0.5 % 1.3 % 1.5 pts (0.8) pts
Prior period development (1.0) % (3.9) % (7.0) % 2.9 pts 3.1 pts
Loss and loss expense ratio 84.7 % 90.1 % 71.0 % (5.4) pts 19.1 pts
Policy acquisition cost ratio 6.8 % 4.7 % 5.0 % 2.1 pts (0.3) pts
Administrative expense ratio 0.5 % 0.3 % (0.5) % 0.2 pts 0.8 pts
Combined ratio 92.0 % 95.1 % 75.5 % (3.1) pts 19.6 pts
NM - not meaningful
Catastrophe Losses and Prior Period Development
(in millions of U.S. dollars) 2020 2019 2018
Catastrophe losses (excludes reinstatement premiums) $ 35 $ 8 $ 21
Favorable prior period development $ 10 $ 80 $ 110
Refer to the tables on pages 50 - 51 for detail of catastrophe losses and Note 7 to the Consolidated Financial Statements for detail on prior period development.
For 2020, prior period development included $19 million of favorable incurred losses, partially offset by $6 million of higher acquisition costs due to lower than expected MPCI losses for the 2019 crop year and a $3 million decrease in net premiums earned related to the MPCI profit and loss calculation formula. For 2019, prior period development included $103 million of favorable incurred losses and $13 million of lower acquisition costs due to lower than expected MPCI losses for the 2018 crop year, partially offset by a $36 million decrease in net premiums earned related to the MPCI profit and loss calculation formula.
Premiums
Net premiums written increased $36 million, or 2.0 percent in 2020, primarily due to growth in our Chubb Agribusiness unit, principally farm and specialty P&C, partly offset by a decrease in MPCI premiums. Net premiums earned increased $27 million, or 1.5 percent in 2020 reflecting the growth in net premiums written described above.
Combined Ratio
The loss and loss expense ratio decreased 5.4 percentage points in 2020, reflecting a more average crop loss year in 2020. In addition, the current year had lower underlying losses in our Chubb Agribusiness unit, partially offset by lower favorable prior period development. The CAY loss ratio excluding catastrophe losses decreased 9.8 percentage points in 2020 reflecting the factors described above.
The policy acquisition cost ratio increased 2.1 percentage points in 2020, primarily due to higher agent profit sharing commission in the current year as a result of higher underwriting margin.
Overseas General Insurance
Overseas General Insurance segment comprises Chubb International and Chubb Global Markets (CGM). Chubb International comprises our international commercial P&C traditional and specialty lines serving large corporations, middle market and small customers; A&H and traditional and specialty personal lines business serving local territories outside the U.S., Bermuda, and Canada. CGM, our London-based international commercial P&C excess and surplus lines business, includes Lloyd's of London (Lloyd's) Syndicate 2488. Chubb provides funds at Lloyd's to support underwriting by Syndicate 2488 which is managed by Chubb Underwriting Agencies Limited.
% Change
(in millions of U.S. dollars, except for percentages) 2020 2019 2018 2020 vs. 2019 2019 vs. 2018
Net premiums written $ 9,335 $ 9,262 $ 8,902 0.8 % 4.0 %
Net premiums written - constant dollars 2.9 % 8.4 %
Net premiums earned 9,285 8,882 8,612 4.5 % 3.1 %
Losses and loss expenses 5,255 4,606 4,429 14.1 % 4.0 %
Policy acquisition costs 2,568 2,501 2,346 2.7 % 6.6 %
Administrative expenses 1,034 1,033 1,014 0.1 % 1.9 %
Underwriting income 428 742 823 (42.4) % (9.8) %
Net investment income 534 588 622 (9.2) % (5.3) %
Other (income) expense 13 12 3 4.5 % NM
Amortization of purchased intangibles 45 45 41 - 8.3 %
Segment income $ 904 $ 1,273 $ 1,401 (29.0) % (9.2) %
Loss and loss expense ratio:
CAY loss ratio excluding catastrophe losses 50.7 % 51.2 % 51.5 % (0.5) pts (0.3) pts
Catastrophe losses 7.5 % 1.8 % 2.4 % 5.7 pts (0.6) pts
Prior period development (1.6) % (1.1) % (2.5) % (0.5) pts 1.4 pts
Loss and loss expense ratio 56.6 % 51.9 % 51.4 % 4.7 pts 0.5 pts
Policy acquisition cost ratio 27.7 % 28.1 % 27.2 % (0.4) pts 0.9 pts
Administrative expense ratio 11.1 % 11.6 % 11.8 % (0.5) pts (0.2) pts
Combined ratio 95.4 % 91.6 % 90.4 % 3.8 pts 1.2 pts
NM - not meaningful
Catastrophe Losses and Prior Period Development
(in millions of U.S. dollars) 2020 2019 2018
Catastrophe losses (excludes reinstatement premiums) $ 690 $ 152 $ 206
Favorable prior period development $ 150 $ 92 $ 212
Refer to the tables on pages 50 - 51 for detail of catastrophe losses and Note 7 to the Consolidated Financial Statements for detail on prior period development.
Net Premiums Written by Region
% Change
(in millions of U.S. dollars, except for percentages) 2020 2019 2018 C$ 2019
2020 vs. 2019 C$ 2020 vs. 2019 2019 vs. 2018
Region
Europe $ 4,099 $ 3,631 $ 3,508 $ 3,655 12.9 % 12.1 % 3.5 %
Latin America 1,928 2,277 2,181 2,066 (15.3) % (6.7) % 4.4 %
Asia 2,965 3,021 2,884 3,022 (1.9) % (1.9) % 4.7 %
Other (1)
343 333 329 329 3.2 % 4.2 % 1.1 %
Net premiums written $ 9,335 $ 9,262 $ 8,902 $ 9,072 0.8 % 2.9 % 4.0 %
% of Total 2019
% of Total 2018
% of Total
Region
Europe 43 % 38 % 39 %
Latin America 21 % 25 % 25 %
Asia 32 % 33 % 32 %
Other (1)
4 % 4 % 4 %
Net premiums written 100 % 100 % 100 %
(1) Comprises Combined International, Eurasia and Africa region, and other international.
Premiums
Net premiums written increased $73 million in 2020, or $263 million on a constant-dollar basis, reflecting growth in commercial P&C lines of 10.8 percent across all regions resulting from new business, retention, and positive rate increases, partially offset by a decline in consumer lines of 6.4 percent. Net premiums written in 2020 were depressed by economic contraction resulting from the COVID-19 pandemic including $24 million of exposure adjustments on in-force policies, and lower premiums in several lines, mainly in consumer lines in Latin America, primarily automobile, and A&H in Asia, resulting from less travel volume and lower exposures.
Net premiums earned increased $403 million in 2020, or $575 million on a constant-dollar basis, reflecting the increase in net premiums written as described above and in 2019.
Combined Ratio
The loss and loss expense ratio increased 4.7 percentage points in 2020 due to higher catastrophe losses, primarily related to the COVID-19 pandemic. The CAY loss ratio excluding catastrophe losses decreased 0.5 percentage points in 2020 primarily due to a decrease in the underlying loss ratio from earned rate changes modestly above loss cost trends and a benefit from lower current accident year losses resulting from a decrease in exposures due to the COVID-19 pandemic, partially offset by lower premiums earned from A&H lines in Latin America and Asia, which have a lower loss ratio.
The policy acquisition cost ratio decreased 0.4 percentage points in 2020 primarily due to a change in the mix of business, including less premiums earned from A&H lines that have a lower acquisition cost ratio, reflecting the impact of the COVID-19 pandemic.
The administrative expense ratio decreased 0.5 percentage points in 2020 primarily due to lower business expenses from continued expense management control, including during the COVID-19 pandemic, and the favorable impact of higher net premiums earned in the current year.
Global Reinsurance
The Global Reinsurance segment represents our reinsurance operations comprising Chubb Tempest Re Bermuda, Chubb Tempest Re USA, Chubb Tempest Re International, and Chubb Tempest Re Canada. Global Reinsurance markets its reinsurance products worldwide primarily through reinsurance brokers under the Chubb Tempest Re brand name and provides a broad range of traditional and non-traditional reinsurance coverage to a diverse array of primary P&C companies.
% Change
(in millions of U.S. dollars, except for percentages) 2020 2019 2018 2020 vs. 2019 2019 vs. 2018
Net premiums written $ 731 $ 649 $ 671 12.6 % (3.2) %
Net premiums written - constant dollars 12.1 % (1.7) %
Net premiums earned 698 654 670 6.7 % (2.3) %
Losses and loss expenses 435 352 479 23.5 % (26.5) %
Policy acquisition costs 174 169 162 3.0 % 4.2 %
Administrative expenses 37 35 41 5.2 % (12.7) %
Underwriting income (loss) 52 98 (12) (46.8) % NM
Net investment income 307 279 289 10.1 % (3.7) %
Other (income) expense 2 1 - NM NM
Segment income $ 357 $ 376 $ 277 (5.0) % 35.7 %
Loss and loss expense ratio:
CAY loss ratio excluding catastrophe losses 49.1 % 50.6 % 50.5 % (1.5) pts 0.1 pts
Catastrophe losses 17.0 % 7.6 % 29.2 % 9.4 pts (21.6) pts
Prior period development (3.8) % (4.3) % (8.1) % 0.5 pts 3.8 pts
Loss and loss expense ratio 62.3 % 53.9 % 71.6 % 8.4 pts (17.7) pts
Policy acquisition cost ratio 24.9 % 25.7 % 24.2 % (0.8) pts 1.5 pts
Administrative expense ratio 5.3 % 5.4 % 6.0 % (0.1) pts (0.6) pts
Combined ratio 92.5 % 85.0 % 101.8 % 7.5 pts (16.8) pts
NM - not meaningful
Catastrophe Losses and Prior Period Development
(in millions of U.S dollars) 2020 2019 2018
Catastrophe losses (excludes reinstatement premiums) $ 123 $ 51 $ 205
Favorable prior period development $ 29 $ 29 $ 50
Refer to the tables on pages 50 - 51 for detail of catastrophe losses and Note 7 to the Consolidated Financial Statements for detail on prior period development.
Premiums
Net premiums written increased $82 million in 2020 primarily from new business in casualty lines, rate increases in property catastrophe lines and favorable premium adjustments. Net premiums earned increased $44 million in 2020 reflecting the increase in net premiums written described above.
Combined Ratio
The loss and loss expense ratio increased 8.4 percentage points in 2020 primarily due to higher catastrophe losses.
The CAY loss ratio excluding catastrophe losses decreased 1.5 percentage points in 2020 primarily from a shift in mix of business towards catastrophe lines which have a lower loss ratio.
The policy acquisition cost ratio decreased 0.8 percentage points in 2020 primarily due to a shift in mix of business towards lines which have lower acquisition costs and favorable expense adjustments on prior period development.
Life Insurance
The Life Insurance segment comprises Chubb's international life operations, Chubb Tempest Life Re (Chubb Life Re), and the North American supplemental A&H and life business of Combined Insurance. We assess the performance of our life business based on Life Insurance 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.
% Change
(in millions of U.S. dollars, except for percentages) 2020 2019 2018 2020 vs. 2019 2019 vs. 2018
Net premiums written $ 2,514 $ 2,392 $ 2,270 5.1 % 5.3 %
Net premiums written - constant dollars 5.6 % 6.4 %
Net premiums earned 2,482 2,343 2,218 5.9 % 5.6 %
Losses and loss expenses 724 757 766 (4.4) % (1.1) %
Policy benefits 726 696 628 4.3 % 10.8 %
Policy acquisition costs 766 620 557 23.6 % 11.2 %
Administrative expenses 320 323 310 (1.0) % 4.5 %
Net investment income 385 373 341 3.3 % 9.2 %
Life Insurance underwriting income 331 320 298 3.6 % 6.9 %
Other (income) expense (74) (48) (12) 53.1 % NM
Amortization of purchased intangibles 4 2 2 100.0 % -
Segment income $ 401 $ 366 $ 308 9.8 % 18.6 %
NM - not meaningful
Premiums
Net premiums written increased $122 million in 2020, or $134 million on a constant-dollar basis, primarily reflecting growth in our international life operations of 23.4 percent, principally driven by our expanded presence in Chile and growth in Asia, partially offset by a decline in our North America Combined Insurance business of 6.1 percent.
Deposits
The following table presents deposits collected on universal life and investment contracts:
% Change
(in millions of U.S. dollars, except for percentages) 2020 2019 2018 2020 vs. 2019 C$ 2020 vs. 2019 2019 vs. 2018
Deposits collected on universal life and investment contracts $ 1,559 $ 1,463 $ 1,538 6.5 % 3.7 % (4.9) %
Deposits collected on universal life and investment contracts (life deposits) are not reflected as revenues in our Consolidated statements of operations in accordance with GAAP. New life deposits are an important component of production, and although they do not significantly affect current period income from operations, they are key to our efforts to grow our business. Life deposits collected increased $96 million, or $56 million on a constant-dollar basis, in 2020, due to growth in Taiwan that more than offset the declines in other Asian markets, principally Hong Kong and Korea, as a result of competitive market conditions and the impact of the COVID-19 pandemic.
Life Insurance underwriting income and Segment income
Life Insurance underwriting income increased $11 million in 2020, primarily due to a favorable reserve development in the current year which more than offset COVID-19 related losses of $24 million. Segment income increased $35 million primarily due to higher life insurance underwriting income and $26 million of higher other income, principally due to our share of net income from our investment in Huatai Life, our partially-owned life insurance entity in China.
Corporate
Corporate results primarily include the results of our non-insurance companies, income and expenses not attributable to reportable segments and loss and loss expenses of asbestos and environmental (A&E) liabilities and certain other non-A&E run-off exposures.
% Change
(in millions of U.S. dollars, except for percentages) 2020 2019 2018 2020 vs. 2019 2019 vs. 2018
Losses and loss expenses $ 435 $ 158 $ 53 176.4 % 203.0 %
Administrative expenses 303 319 295 (5.0) % 8.1 %
Underwriting loss 738 477 348 54.8 % 36.6 %
Net investment income (loss) (87) (125) (209) (30.8) % (40.5) %
Interest expense 516 552 641 (6.4) % (13.9) %
Net realized gains (losses) (499) (522) (649) (4.6) % (19.7) %
Other (income) expense (791) (459) (406) 72.7 % 12.6 %
Amortization of purchased intangibles 203 218 255 (6.9) % (14.3) %
Chubb integration expenses - 23 59 NM (61.7) %
Income tax expense 629 795 695 (20.8) % 14.4 %
Net loss $ (1,881) $ (2,253) $ (2,450) (16.5) % (8.1) %
NM - not meaningful
Losses and loss expenses were primarily from adverse development relating to our Brandywine asbestos and environmental exposures, non-A&E run-off casualty exposure, including workers' compensation, and unallocated loss adjustment expenses of the A&E claims operations. Losses and loss expenses in 2020 included unfavorable prior period development of $254 million for U.S. child molestation claims, predominantly reviver statute-related. Refer to Note 7 of the Consolidated Financial Statements for further information.
Administrative expenses decreased $16 million in 2020, primarily due to lower employee benefit-related expenses, and lower travel-related costs relating to the COVID-19 pandemic.
Refer to the respective sections that follow for a discussion of Net realized gains (losses), Net investment income, Other (income) expense, Amortization of purchased intangibles, and Income tax expense.
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, net of valuation allowance.
The effect of market movements on our fixed maturities portfolio impacts Net income (through Net realized gains (losses)) when securities are sold, when we write down an asset, or when we record a change to the valuation allowance for expected credit losses. For a further discussion related to how we assess the valuation allowance for expected credit losses and the related impact on Net income, refer to Note 1 e) to the Consolidated Financial Statements. Additionally, Net income is impacted through the reporting of changes in the fair value of equity securities, private equity funds where we own less than three percent, and derivatives, including financial futures, options, swaps, and GLB reinsurance. Changes in unrealized appreciation and depreciation on available for sale securities, resulting from the revaluation of securities held, changes in cumulative foreign currency translation adjustment, and unrealized postretirement benefit obligations liability adjustment, are reported as separate components of Accumulated other comprehensive income in Shareholders’ equity in the Consolidated balance sheets.
The following table presents our net realized and unrealized gains (losses):
Year Ended December 31
2020 2019 2018
(in millions of U.S. dollars) Net
Realized
Gains
(Losses)
Net
Unrealized
Gains
(Losses) Net
Impact Net
Realized
Gains
(Losses) Net
Unrealized
Gains
(Losses) Net
Impact Net
Realized
Gains
(Losses)
Fixed maturities $ (281) $ 2,604 $ 2,323 $ (31) $ 3,738 $ 3,707 $ (302)
Fixed income and equity derivatives 81 - 81 (435) - (435) (75)
Public equity
Sales 455 - 455 58 - 58 70
Mark-to-market 131 - 131 46 - 46 (129)
Private equity (less than 3 percent ownership)
Sales - - - (5) - (5) 121
Mark-to-market (32) - (32) (15) - (15) (126)
Total investment portfolio
354 2,604 2,958 (382) 3,738 3,356 (441)
Variable annuity reinsurance derivative transactions, net of applicable hedges
(310) - (310) (142) - (142) (252)
Other derivatives 1 - 1 (8) - (8) (3)
Foreign exchange (483) 306 (177) 7 13 20 131
Other (1)
(60) (244) (304) (5) (79) (84) (87)
Net gains (losses), pre-tax $ (498) $ 2,666 $ 2,168 $ (530) $ 3,672 $ 3,142 $ (652)
(1) Net unrealized gains (losses) includes our postretirement programs of $(232) million, $(76) million, and $(321) million for the years ended December 31, 2020, 2019, and 2018, respectively.
The $2,958 million gain in our investment portfolio was principally a result of narrowing of credit spreads in our corporate bond portfolio and a decline in interest rates, partially offset by $170 million of impairments for securities we intended to sell, and securities written to market entering default.
The realized losses relating to the variable annuity reinsurance derivative transactions in 2020 and 2019 reflected an increase in the fair value of GLB liabilities due to lower interest rates and changes made to our valuation model relating to policyholder behavior, partially offset by higher global equity markets. Included in the realized loss are derivative instruments that decrease in fair value when the S&P 500 index increases. During the years ended December 31, 2020 and 2019, we experienced realized losses of $108 million and $138 million respectively, related to these derivative instruments.
Effective income tax rate
Our effective income tax rate was 15.1 percent in both 2020 and 2019 and 14.9 percent in 2018. Our effective income tax rate reflects a mix of income or losses in jurisdictions with a wide range of tax rates, permanent differences between U.S. GAAP and local tax laws, and the impact of discrete items. A change in the geographic mix of earnings could impact our effective tax rate. The effective income tax rate in 2020 was impacted by the higher level of catastrophe losses, principally COVID-19, and lower realized losses compared to the prior year.
The 2017 Tax Cuts and Jobs Act (2017 Tax Act) included provisions for Global Intangible Low-Taxed Income (GILTI) under which taxes may be imposed on income of U.S.-owned foreign subsidiaries and for a Base Erosion and Anti-Abuse Tax (BEAT) under which our U.S. companies could be subject to additional tax as a result, among other things, of certain payments to affiliated non-U.S. companies. There remain substantial uncertainties in the interpretation of GILTI and BEAT and portions of the formal guidance issued to date are still in part in proposed form. Finalization of the proposed guidance, and changes to the interpretations and assumptions related to these provisions may impact amounts recorded with respect to the international provisions of the 2017 Tax Act, which may be material in the period the adjustment is recorded. Refer to Note 8 to the Consolidated Financial Statements for additional information.
Non-GAAP Reconciliation
In presenting our results, we included and discussed certain non-GAAP measures. These non-GAAP measures, which may be defined differently by other companies, are important for an understanding of our overall results of operations and financial condition. However, they should not be viewed as a substitute for measures determined in accordance with generally accepted accounting principles (GAAP).
Book value per common share, is shareholders’ equity divided by the shares outstanding. Tangible book value per common share, is shareholders’ equity less goodwill and other intangible assets, net of tax, divided by the shares outstanding. We believe that goodwill and other intangible assets are not indicative of our underlying insurance results or trends and make book value comparisons to less acquisitive peer companies less meaningful. The calculation of tangible book value per share does not consider the embedded goodwill attributable to our investments in partially-owned insurance companies until we attain majority ownership and consolidate.
We provide financial measures, including net premiums written, net premiums earned, and underwriting income on a constant-dollar basis. We believe it is useful to evaluate the trends in our results exclusive of the effect of fluctuations in exchange rates between the U.S. dollar and the currencies in which our international business is transacted, as these exchange rates could fluctuate significantly between periods and distort the analysis of trends. The impact is determined by assuming constant foreign exchange rates between periods by translating prior period results using the same local currency exchange rates as the comparable current period.
P&C performance metrics comprise consolidated operating results (including Corporate) and exclude the operating results of the Life Insurance segment. We believe that these measures are useful and meaningful to investors as they are used by management to assess the company’s P&C operations which are the most economically similar. We exclude the Life Insurance segment because the results of this business do not always correlate with the results of our P&C operations.
P&C combined ratio is the sum of the loss and loss expense ratio, policy acquisition cost ratio and the administrative expense ratio excluding the life business and including the realized gains and losses on the crop derivatives. These derivatives were purchased to provide economic benefit, in a manner similar to reinsurance protection, in the event that a significant decline in commodity pricing impacts underwriting results. We view gains and losses on these derivatives as part of the results of our underwriting operations.
CAY P&C combined ratio excluding catastrophe losses (CATs) excludes CATs and prior period development (PPD) from the P&C combined ratio. We exclude CATs as they are not predictable as to timing and amount and PPD as these unexpected loss developments on historical reserves are not indicative of our current underwriting performance. The combined ratio numerator is adjusted to exclude CATs, net premiums earned adjustments on PPD, prior period expense adjustments and reinstatement premiums on PPD, and the denominator is adjusted to exclude net premiums earned adjustments on PPD and reinstatement premiums on CATs and PPD. In periods where there are adjustments on loss sensitive policies, these adjustments are excluded from PPD and net premiums earned when calculating the ratios. We believe this measure provides a better evaluation of our underwriting performance and enhances the understanding of the trends in our P&C business that may be obscured by these items. This measure is commonly reported among our peer companies and allows for a better comparison.
Reinstatement premiums are additional premiums paid on certain reinsurance agreements in order to reinstate coverage that had been exhausted by loss occurrences. The reinstatement premium amount is typically a pro rata portion of the original ceded premium paid based on how much of the reinsurance limit had been exhausted.
Net premiums earned adjustments within PPD are adjustments to the initial premium earned on retrospectively rated policies based on actual claim experience that develops after the policy period ends. The premium adjustments correlate to the prior period loss development on these same policies and are fully earned in the period the adjustments are recorded.
Prior period expense adjustments typically relate to adjustable commission reserves or policyholder dividend reserves based on actual claim experience that develops after the policy period ends. The expense adjustments correlate to the prior period loss development on these same policies.
The following tables present the calculation of combined ratio, as reported for each segment to P&C combined ratio, adjusted for catastrophe losses (CATs) and PPD:
North America Commercial P&C Insurance North America Personal P&C Insurance North America Agricultural Insurance Overseas General Insurance Global
Reinsurance Corporate Total P&C
For the Year Ended
December 31, 2020
(in millions of U.S. dollars except for ratios)
Numerator
Losses and loss expenses A $ 10,129 $ 3,187 $ 1,544 $ 5,255 $ 435 $ 435 $ 20,985
Catastrophe losses and related adjustments
Catastrophe losses, net of related adjustments (1,871) (534) (36) (705) (113) - (3,259)
Reinstatement premiums collected (expensed) on catastrophe losses (3) (1) (1) (15) 10 - (10)
Catastrophe losses, gross of related adjustments (1,868) (533) (35) (690) (123) - (3,249)
PPD and related adjustments
PPD, net of related adjustments - favorable (unfavorable) 702 (63) 10 150 29 (433) 395
Net premiums earned adjustments on PPD - unfavorable (favorable) 32 - 3 - - - 35
Expense adjustments - unfavorable (favorable) (1) - 6 - (2) - 3
PPD reinstatement premiums - unfavorable (favorable) - (18) - - (1) - (19)
PPD, gross of related adjustments - favorable (unfavorable) 733 (81) 19 150 26 (433) 414
CAY loss and loss expense ex CATs B $ 8,994 $ 2,573 $ 1,528 $ 4,715 $ 338 $ 2 $ 18,150
Policy acquisition costs and administrative expenses
Policy acquisition costs and administrative expenses C $ 2,948 $ 1,244 $ 132 $ 3,602 $ 211 $ 303 $ 8,440
Expense adjustments - favorable (unfavorable) 1 - (6) - 2 - (3)
Policy acquisition costs and administrative expenses, adjusted D $ 2,949 $ 1,244 $ 126 $ 3,602 $ 213 $ 303 $ 8,437
Denominator
Net premiums earned E $ 13,964 $ 4,866 $ 1,822 $ 9,285 $ 698 $ 30,635
Reinstatement premiums (collected) expensed on catastrophe losses 3 1 1 15 (10) 10
Net premiums earned adjustments on PPD - unfavorable (favorable) 32 - 3 - - 35
PPD reinstatement premiums - unfavorable (favorable) - (18) - - (1) (19)
Net premiums earned excluding adjustments F $ 13,999 $ 4,849 $ 1,826 $ 9,300 $ 687 $ 30,661
P&C Combined ratio
Loss and loss expense ratio A/E 72.5 % 65.5 % 84.7 % 56.6 % 62.3 % 68.5 %
Policy acquisition cost and administrative expense ratio C/E 21.2 % 25.6 % 7.3 % 38.8 % 30.2 % 27.6 %
P&C Combined ratio 93.7 % 91.1 % 92.0 % 95.4 % 92.5 % 96.1 %
CAY P&C Combined ratio ex CATs
Loss and loss expense ratio, adjusted B/F 64.2 % 53.1 % 83.7 % 50.7 % 49.1 % 59.2 %
Policy acquisition cost and administrative expense ratio, adjusted D/F 21.1 % 25.6 % 6.8 % 38.7 % 31.0 % 27.5 %
CAY P&C Combined ratio ex CATs 85.3 % 78.7 % 90.5 % 89.4 % 80.1 % 86.7 %
Combined ratio
Combined ratio 96.1 %
Add: impact of gains and losses on crop derivatives -
P&C Combined ratio 96.1 %
Note: The ratios above are calculated using whole U.S. dollars. Accordingly, calculations using rounded amounts may differ. Letters A, B, C, D, E and F included in the table are references for calculating the ratios above.
North America Commercial P&C Insurance North America Personal P&C Insurance North America Agricultural Insurance Overseas General Insurance Global
Reinsurance Corporate Total P&C
For the Year Ended
December 31, 2019
(in millions of U.S. dollars except for ratios)
Numerator
Losses and loss expenses A $ 8,206 $ 3,043 $ 1,616 $ 4,606 $ 352 $ 158 $ 17,981
Catastrophe losses and related adjustments
Catastrophe losses, net of related adjustments (421) (554) (8) (156) (48) - (1,187)
Reinstatement premiums collected (expensed) on catastrophe losses - (11) - (4) 3 - (12)
Catastrophe losses, gross of related adjustments (421) (543) (8) (152) (51) - (1,175)
PPD and related adjustments
PPD, net of related adjustments - favorable (unfavorable) 649 95 80 92 29 (153) 792
Net premiums earned adjustments on PPD - unfavorable (favorable) 38 - 36 - 1 - 75
Expense adjustments - unfavorable (favorable) (3) - (13) - (1) - (17)
PPD reinstatement premiums - unfavorable (favorable) (1) (4) - 1 (1) - (5)
PPD, gross of related adjustments - favorable (unfavorable) 683 91 103 93 28 (153) 845
CAY loss and loss expense ex CATs B $ 8,468 $ 2,591 $ 1,711 $ 4,547 $ 329 $ 5 $ 17,651
Policy acquisition costs and administrative expenses
Policy acquisition costs and administrative expenses C $ 2,859 $ 1,234 $ 90 $ 3,534 $ 204 $ 319 $ 8,240
Expense adjustments - favorable (unfavorable) 3 - 13 - 1 - 17
Policy acquisition costs and administrative expenses, adjusted D $ 2,862 $ 1,234 $ 103 $ 3,534 $ 205 $ 319 $ 8,257
Denominator
Net premiums earned E $ 12,922 $ 4,694 $ 1,795 $ 8,882 $ 654 $ 28,947
Reinstatement premiums (collected) expensed on catastrophe losses - 11 - 4 (3) 12
Net premiums earned adjustments on PPD - unfavorable (favorable) 38 - 36 - 1 75
PPD reinstatement premiums - unfavorable (favorable) (1) (4) - 1 (1) (5)
Net premiums earned excluding adjustments F $ 12,959 $ 4,701 $ 1,831 $ 8,887 $ 651 $ 29,029
P&C Combined ratio
Loss and loss expense ratio A/E 63.5 % 64.8 % 90.1 % 51.9 % 53.9 % 62.1 %
Policy acquisition cost and administrative expense ratio C/E 22.1 % 26.3 % 5.0 % 39.7 % 31.1 % 28.5 %
P&C Combined ratio 85.6 % 91.1 % 95.1 % 91.6 % 85.0 % 90.6 %
CAY P&C Combined ratio ex CATs
Loss and loss expense ratio, adjusted B/F 65.3 % 55.1 % 93.5 % 51.2 % 50.6 % 60.8 %
Policy acquisition cost and administrative expense ratio, adjusted D/F 22.1 % 26.3 % 5.6 % 39.7 % 31.5 % 28.4 %
CAY P&C Combined ratio ex CATs 87.4 % 81.4 % 99.1 % 90.9 % 82.1 % 89.2 %
Combined ratio
Combined ratio 90.6 %
Add: impact of gains and losses on crop derivatives -
P&C Combined ratio 90.6 %
Note: The ratios above are calculated using whole U.S. dollars. Accordingly, calculations using rounded amounts may differ. Letters A, B, C, D, E and F included in the table are references for calculating the ratios above.
North America Commercial P&C Insurance North America Personal P&C Insurance North America Agricultural Insurance Overseas General Insurance Global
Reinsurance Corporate Total P&C
For the Year Ended
December 31, 2018
(in millions of U.S. dollars except for ratios)
Numerator
Losses and loss expenses A $ 8,000 $ 3,229 $ 1,114 $ 4,429 $ 479 $ 53 $ 17,304
Catastrophe losses and related adjustments
Catastrophe losses, net of related adjustments (579) (637) (21) (206) (183) - (1,626)
Reinstatement premiums collected (expensed) on catastrophe losses - (26) - - 22 - (4)
Catastrophe losses, gross of related adjustments (579) (611) (21) (206) (205) - (1,622)
PPD and related adjustments
PPD, net of related adjustments - favorable (unfavorable) 610 (41) 110 212 50 (45) 896
Net premiums earned adjustments on PPD - unfavorable (favorable) 29 - 40 - 8 - 77
Expense adjustments - unfavorable (favorable) 7 - (10) - (1) - (4)
PPD reinstatement premiums - unfavorable (favorable) 7 1 - 4 - - 12
PPD, gross of related adjustments - favorable (unfavorable) 653 (40) 140 216 57 (45) 981
CAY loss and loss expense ex CATs B $ 8,074 $ 2,578 $ 1,233 $ 4,439 $ 331 $ 8 $ 16,663
Policy acquisition costs and administrative expenses
Policy acquisition costs and administrative expenses C $ 2,795 $ 1,208 $ 70 $ 3,360 $ 203 $ 295 $ 7,931
Expense adjustments - favorable (unfavorable) (7) - 10 - 1 - 4
Policy acquisition costs and administrative expenses, adjusted D $ 2,788 $ 1,208 $ 80 $ 3,360 $ 204 $ 295 $ 7,935
Denominator
Net premiums earned E $ 12,402 $ 4,593 $ 1,569 $ 8,612 $ 670 $ 27,846
Reinstatement premiums (collected) expensed on catastrophe losses - 26 - - (22) 4
Net premiums earned adjustments on PPD - unfavorable (favorable) 29 - 40 - 8 77
PPD reinstatement premiums - unfavorable (favorable) 7 1 - 4 - 12
Net premiums earned excluding adjustments F $ 12,438 $ 4,620 $ 1,609 $ 8,616 $ 656 $ 27,939
P&C Combined ratio
Loss and loss expense ratio A/E 64.5 % 70.3 % 71.0 % 51.4 % 71.6 % 62.1 %
Policy acquisition cost and administrative expense ratio C/E 22.5 % 26.3 % 4.5 % 39.0 % 30.2 % 28.5 %
P&C Combined ratio 87.0 % 96.6 % 75.5 % 90.4 % 101.8 % 90.6 %
CAY P&C Combined ratio ex CATs
Loss and loss expense ratio, adjusted B/F 64.9 % 55.8 % 76.7 % 51.5 % 50.5 % 59.6 %
Policy acquisition cost and administrative expense ratio, adjusted D/F 22.4 % 26.1 % 4.9 % 39.0 % 31.1 % 28.4 %
CAY P&C Combined ratio ex CATs 87.3 % 81.9 % 81.6 % 90.5 % 81.6 % 88.0 %
Combined ratio
Combined ratio 90.6 %
Add: impact of gains and losses on crop derivatives -
P&C Combined ratio 90.6 %
Note: The ratios above are calculated using whole U.S. dollars. Accordingly, calculations using rounded amounts may differ. Letters A, B, C, D, E and F included in the table are references for calculating the ratios above.
Net Investment Income
(in millions of U.S. dollars, except for percentages) 2020 2019 2018
Average invested assets $ 109,766 $ 104,074 $ 101,453
Net investment income (1)
$ 3,375 $ 3,426 $ 3,305
Yield on average invested assets 3.1 % 3.3 % 3.3 %
Market yield on fixed maturities 1.7 % 2.7 % 3.7 %
(1)Includes $116 million, $161 million and $248 million of amortization expense related to the fair value adjustment of acquired invested assets related to the Chubb Corp acquisition in 2020, 2019 and 2018, respectively.
Net investment income is influenced by a number of factors including the amounts and timing of inward and outward cash flows, the level of interest rates, and changes in overall asset allocation. Net investment income decreased 1.5 percent in 2020 compared with 2019, primarily due to lower reinvestment rates on new and reinvested assets, partially offset by higher average invested assets, higher dividends on public equities, and an increase in income from corporate bonds called before maturity. Refer to Note 1 e) to the Consolidated Financial Statements for additional information.
For private equities where we own less than three percent, investment income is included within Net investment income in the table above. For private equities where we own more than three percent, investment income is included within Other income (expense) in the Consolidated statements of operations. Excluded from Net investment income is the mark-to-market movement for private equities, which is recorded within either Other income (expense) or Net realized gains (losses) based on our percentage of ownership. The total mark-to-market movement for private equities excluded from Net investment income was as follows:
(in millions of U.S. dollars) 2020 2019 2018
Total mark-to-market gain on private equity, pre-tax $ 714 $ 449 $ 298
Amortization of Purchased Intangibles and Other Amortization
Amortization expense related to purchased intangibles was $290 million, $305 million, and $339 million for the years ended December 31, 2020, 2019, and 2018, respectively, and principally relates to the Chubb Corp acquisition. The amortization of purchased intangibles expense in 2021 is expected to be $286 million, or approximately $72 million each quarter. Refer to Note 6 to the Consolidated Financial Statements under Item 8 for more information.
Reduction of deferred tax liability associated with intangible assets related to Other intangible assets (excluding the fair value adjustment on Unpaid losses and loss expense)
At December 31, 2020, the deferred tax liability associated with the Other intangible assets (excluding the fair value adjustment on Unpaid losses and loss expenses) was $1,295 million.
The following table presents at December 31, 2020, the expected reduction to the deferred tax liability associated with Other intangible assets (which reduces as agency distribution relationships and renewal rights, and other intangible assets amortize), at current foreign currency exchange rates for the next five years:
For the Years Ending December 31
(in millions of U.S. dollars) Reduction to deferred tax liability associated with intangible assets
2021 $ 68
2022 67
2023 61
2024 56
2025 52
Total $ 304
Amortization of the fair value adjustment on acquired invested assets and assumed long-term debt
The following table presents at December 31, 2020, the expected amortization expense of the fair value adjustment on acquired invested assets, at current foreign currency exchange rates, and the expected amortization benefit from the fair value adjustment on assumed long-term debt for the next five years:
Amortization (expense) benefit of the fair value adjustment on
For the Years Ending December 31
(in millions of U.S. dollars) Acquired invested assets (1)
Assumed long-term debt (2)
2021 $ (110) $ 21
2022 (103) 21
2023 - 21
2024 - 21
2025 - 21
Total $ (213) $ 105
(1) Recorded as a reduction to Net investment income in the Consolidated statements of operations.
(2) Recorded as a reduction to Interest expense in the Consolidated statements of operations.
The estimate of amortization expense of the fair value adjustment on acquired invested assets could vary materially based on current market conditions, bond calls, overall duration of the acquired investment portfolio, and foreign exchange.
Investments
Our investment portfolio is invested primarily in publicly traded, investment grade, fixed income securities with an average credit quality of A/Aa as rated by the independent investment rating services Standard and Poor’s (S&P)/ Moody’s Investors Service (Moody’s). The portfolio is externally managed by independent, professional investment managers and is broadly diversified across geographies, sectors, and issuers. Other investments principally comprise direct investments, investment funds, and limited partnerships. We hold no collateralized debt obligations in our investment portfolio, and we provide no credit default protection. We have long-standing global credit limits for our entire portfolio across the organization. Exposures are aggregated, monitored, and actively managed by our Global Credit Committee, comprising senior executives, including our Chief Financial Officer, our Chief Risk Officer, our Chief Investment Officer, and our Treasurer. We also have well-established, strict contractual investment rules requiring managers to maintain highly diversified exposures to individual issuers and closely monitor investment manager compliance with portfolio guidelines.
The average duration of our fixed income securities, including the effect of options and swaps, was 4.0 years and 3.8 years at December 31, 2020 and 2019, respectively. We estimate that a 100 basis point (bps) increase in interest rates would reduce the valuation of our fixed income portfolio by approximately $4.3 billion at December 31, 2020.
We established credit loss valuation allowances as a result of our adoption of guidance on Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments (CECL) on January 1, 2020. The COVID-19 global pandemic and related economic conditions adversely impacted our investment portfolio in the first half of the year. This adverse impact was mitigated by the overall high credit quality of the portfolio and the stabilization of the valuation of securities due to measures announced by the U.S. Federal Reserve, including programs to support corporate and asset backed securities. Overall, the valuation allowance decreased in 2020. Refer to Notes 1 and 3 to the Consolidated Financial Statements for additional information on expected credit losses.
The following table shows the fair value and cost/amortized cost, net of valuation allowance, of our invested assets:
December 31, 2020 December 31, 2019
(in millions of U.S. dollars) Fair
Value Cost/
Amortized
Cost, Net Fair
Value Cost/
Amortized
Cost
Fixed maturities available for sale $ 90,699 $ 85,168 $ 85,488 $ 82,580
Fixed maturities held to maturity 12,510 11,653 13,005 12,581
Short-term investments 4,345 4,349 4,291 4,291
107,554 101,170 102,784 99,452
Equity securities 4,027 4,027 812 812
Other investments 7,945 7,945 6,062 6,062
Total investments $ 119,526 $ 113,142 $ 109,658 $ 106,326
The fair value of our total investments increased $9.9 billion during the year ended December 31, 2020, primarily due to the investing of operating cash flow and unrealized appreciation. This increase was partially offset by the payment of $1.6 billion, including collateralized deposits, to acquire additional ownership interest in Huatai Group, the payments of dividends on our Common Shares, and share repurchases.
The following tables present the fair value of our fixed maturities and short-term investments at December 31, 2020 and 2019. The first table lists investments according to type and the second according to S&P credit rating:
December 31, 2020 December 31, 2019
(in millions of U.S. dollars, except for percentages) Fair Value % of Total Fair Value % of Total
U.S. Treasury / Agency $ 4,122 4 % $ 4,630 5 %
Corporate and asset-backed securities 38,769 36 % 34,259 33 %
Mortgage-backed securities 20,616 19 % 21,588 21 %
Municipal 11,943 11 % 12,824 12 %
Non-U.S. 27,759 26 % 25,192 25 %
Short-term investments 4,345 4 % 4,291 4 %
Total $ 107,554 100 % $ 102,784 100 %
AAA $ 15,622 15 % $ 15,714 15 %
AA 36,125 33 % 37,504 37 %
A 19,712 18 % 19,236 19 %
BBB 17,542 16 % 13,650 13 %
BB 9,699 9 % 9,474 9 %
B 8,267 8 % 6,897 7 %
Other 587 1 % 309 -
Total $ 107,554 100 % $ 102,784 100 %
Corporate and asset-backed securities
The following table presents our 10 largest global exposures to corporate bonds by fair value at December 31, 2020:
(in millions of U.S. dollars) Fair Value
Wells Fargo & Co $ 764
Bank of America Corp 689
JP Morgan Chase & Co 646
Comcast Corp 528
Morgan Stanley 466
Citigroup Inc 443
Verizon Communications Inc 418
AT&T Inc 415
Goldman Sachs Group Inc 405
HSBC Holdings Plc 387
Mortgage-backed securities
The following table shows the fair value and amortized cost, net of valuation allowance, of our mortgage-backed securities:
S&P Credit Rating Fair Value Amortized Cost, Net
December 31, 2020
(in millions of U.S. dollars) AAA AA A BBB BB and
below Total Total
Agency residential mortgage-backed (RMBS)
$ 126 $ 16,886 $ - $ - $ - $ 17,012 $ 16,032
Non-agency RMBS 123 39 84 20 10 276 272
Commercial mortgage-backed securities 2,878 284 151 12 3 3,328 3,151
Total mortgage-backed securities $ 3,127 $ 17,209 $ 235 $ 32 $ 13 $ 20,616 $ 19,455
Municipal
As part of our overall investment strategy, we may invest in states, municipalities, and other political subdivisions fixed maturity securities (Municipal). We apply the same investment selection process described previously to our Municipal investments. The portfolio is highly diversified primarily in state general obligation bonds and essential service revenue bonds including education and utilities (water, power, and sewers).
Non-U.S.
Our exposure to the Euro results primarily from Chubb European Group SE which is headquartered in France and offers a broad range of coverages throughout the European Union, Central, and Eastern Europe. Chubb primarily invests in Euro denominated investments to support its local currency insurance obligations and required capital levels. Chubb’s local currency investment portfolios have strict contractual investment guidelines requiring managers to maintain a high quality and diversified portfolio to both sector and individual issuers. Investment portfolios are monitored daily to ensure investment manager compliance with portfolio guidelines.
Our non-U.S. investment grade fixed income portfolios are currency-matched with the insurance liabilities of our non-U.S. operations. The average credit quality of our non-U.S. fixed income securities is A and 48 percent of our holdings are rated AAA or guaranteed by governments or quasi-government agencies. Within the context of these investment portfolios, our government and corporate bond holdings are highly diversified across industries and geographies. Issuer limits are based on credit rating (AA-two percent, A-one percent, BBB-0.5 percent of the total portfolio) and are monitored daily via an internal compliance system. We manage our indirect exposure using the same credit rating based investment approach. Accordingly, we do not believe our indirect exposure is material.
The following table summarizes the fair value and amortized cost, net of valuation allowance, of our non-U.S. fixed income portfolio by country/sovereign for non-U.S. government securities at December 31, 2020:
(in millions of U.S. dollars) Fair Value Amortized Cost, Net
Republic of Korea $ 1,085 $ 976
Canada 992 950
United Kingdom 907 870
Province of Ontario 728 686
Kingdom of Thailand 637 544
United Mexican States 558 534
Province of Quebec 530 493
Federative Republic of Brazil 509 496
Commonwealth of Australia 471 423
Socialist Republic of Vietnam 394 267
Other Non-U.S. Government Securities
5,744 5,335
Total $ 12,555 $ 11,574
The following table summarizes the fair value and amortized cost, net of valuation allowance, of our non-U.S. fixed income portfolio by country/sovereign for non-U.S. corporate securities at December 31, 2020:
(in millions of U.S. dollars) Fair Value Amortized Cost, Net
United Kingdom $ 2,422 $ 2,274
Canada 1,834 1,723
United States (1)
1,240 1,172
France 1,183 1,109
Australia 916 857
Netherlands 634 593
Germany 625 589
Japan 602 576
Switzerland 560 514
China 459 435
Other Non-U.S. Corporate Securities 4,729 4,460
Total $ 15,204 $ 14,302
(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, 2020, our corporate fixed income investment portfolio included below-investment grade and non-rated securities which, in total, comprised approximately 15 percent of our fixed income portfolio. Our below-investment grade and non-rated portfolio includes over 1,400 issuers, with the greatest single exposure being $176 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. Fourteen external investment managers are responsible for high-yield security selection and portfolio construction. Our high-yield managers have a conservative approach to credit selection and very low historical default experience. Holdings are highly diversified across industries and generally subject to a 1.5 percent issuer limit as a percentage of high-yield allocation. We monitor position limits daily through an internal compliance system. Derivative and structured securities (e.g., credit default swaps and collateralized loan obligations) are not permitted in the high-yield portfolio.
Asbestos and Environmental (A&E)
Asbestos and environmental (A&E) reserving considerations
For asbestos, Chubb faces claims relating to policies issued to manufacturers, distributors, installers, and other parties in the chain of commerce for asbestos and products containing asbestos. Claimants will generally allege damages across an extended time period which may coincide with multiple policies covering a wide range of time periods for a single insured.
Environmental claims present exposure for remediation and defense costs associated with the contamination of property as a result of pollution.
The following table presents count information for asbestos claims by causative agent and environmental claims by account, for direct policies only:
Asbestos (by causative agent) Environmental (by account)
2020 2019 2020 2019
Open at beginning of year 1,724 1,838 1,217 1,361
Newly reported/reopened 192 173 130 140
Closed or otherwise disposed 193 287 113 284
Open at end of year 1,723 1,724 1,234 1,217
Survival ratios are calculated by dividing the asbestos or environmental loss and allocated loss adjustment expense (ALAE) reserves by the average asbestos or environmental loss and ALAE payments for the three most recent calendar years (3-year survival ratio). The 3-year survival ratios for gross and net Asbestos loss and ALAE reserves were 5.9 years and 6.3 years, respectively. The 3-year survival ratios for gross and net Environmental loss and ALAE reserves were 4.9 years and 25.5 years, respectively. The net 3-year survival ratios were impacted by favorable reinsurance settlements in 2018. Excluding the settlements, the 3-year survival ratio for net Asbestos loss and ALAE reserves and net Environmental loss and ALAE reserves were 6.0 years and 5.2 years, respectively. The survival ratios provide only a very rough depiction of reserves and are significantly impacted by a number of factors such as aggressive settlement practices, variations in gross to ceded relationships within the asbestos or environmental claims, and levels of coverage provided. Therefore, we urge caution in using these very simplistic ratios to gauge reserve adequacy.
Catastrophe Management
We actively monitor and manage our catastrophe risk accumulation around the world, including setting risk limits based on probable maximum loss (PML) and purchasing catastrophe reinsurance. The table below presents our modeled pre-tax estimates of natural catastrophe PML, net of reinsurance, at December 31, 2020, for Worldwide, U.S. hurricane and California earthquake events, based on our in-force portfolio at October 1, 2020 and reflecting the April 1, 2020 reinsurance program (see Natural Catastrophe Property Reinsurance Program section) as well as inuring reinsurance protection coverages. According to the model, for the 1-in-100 return period scenario, there is a one percent chance that our pre-tax annual aggregate losses incurred in any year from U.S. hurricane events could be in excess of $2,725 million (or 4.6 percent of our total shareholders’ equity at December 31, 2020). These estimates assume that reinsurance recoverable is fully collectible.
Modeled Net Probable Maximum Loss (PML) Pre-tax
Worldwide (1)
U.S. Hurricane (2)
California Earthquake (3)
Annual Aggregate Annual Aggregate Single Occurrence
(in millions of U.S. dollars, except for percentages) Chubb % of Total
Shareholders’
Equity Chubb % of Total
Shareholders’
Equity Chubb % of Total
Shareholders’
Equity
1-in-10 $ 1,880 3.2 % $ 1,099 1.8 % $ 142 0.2 %
1-in-100 $ 3,982 6.7 % $ 2,725 4.6 % $ 1,302 2.2 %
1-in-250 $ 6,604 11.1 % $ 4,918 8.3 % $ 1,475 2.5 %
(1) Worldwide losses are comprised of losses arising only from hurricanes, typhoons, convective storms and earthquakes and do not include “non-modeled” perils such as wildfire and flood.
(2) U.S. Hurricane losses include losses from wind and storm-surge and exclude rainfall.
(3) California earthquakes include fire-following perils.
The above estimates of Chubb’s loss profile are inherently uncertain for many reasons, including the following:
•While the use of third-party catastrophe modeling packages to simulate potential hurricane and earthquake losses is prevalent within the insurance industry, the models are reliant upon significant meteorology, seismology, and engineering assumptions to estimate catastrophe losses. In particular, modeled catastrophe events are not always a representation of actual events and ensuing additional loss potential;
•There is no universal standard in the preparation of insured data for use in the models, the running of the modeling software and interpretation of loss output. These loss estimates do not represent our potential maximum exposures and it is highly likely that our actual incurred losses would vary materially from the modeled estimates;
•The potential effects of climate change add to modeling complexity; and
•Changing climate conditions could impact our exposure to natural catastrophe risks, including U.S. hurricane. Published studies by leading government, academic and professional organizations predict an increase in the expected annual frequency of Atlantic-basin hurricanes and sea level rise through the end of the century over observed historical averages. These studies contemplate expected multi-decadal impacts of climate change on sea surface temperatures, sea levels and other factors contributing to the frequency and intensity of hurricanes. Based on preliminary stress tests conducted against the Chubb portfolio, the impacts of climate change are not expected to materially impact our reported U.S. hurricane PML over the next 12 months. These tests reflect current exposures only and excludes potential mitigating factors, such as changes to building codes, public or private risk mitigation, regulation and public policy.
Natural Catastrophe Property Reinsurance Program
Chubb’s core property catastrophe reinsurance program provides protection against natural catastrophes impacting its primary property operations (i.e., excluding our Global Reinsurance and Life Insurance segments).
We regularly review our reinsurance protection and corresponding property catastrophe exposures. This may or may not lead to the purchase of additional reinsurance prior to a program’s renewal date. In addition, prior to each renewal date, we consider how much, if any, coverage we intend to buy and we may make material changes to the current structure in light of various factors, including modeled PML assessment at various return periods, reinsurance pricing, our risk tolerance and exposures, and various other structuring considerations.
Chubb renewed its Global Property Catastrophe Reinsurance Program for our North American and International operations effective April 1, 2020 through March 31, 2021, with no material changes in coverage from the expiring program. The program consists of three layers in excess of losses retained by Chubb on a per occurrence basis. In addition, Chubb also renewed its terrorism coverage (excluding nuclear, biological, chemical and radiation coverage, with an inclusion of coverage for biological and chemical coverage for personal lines) for the United States from April 1, 2020 through March 31, 2021 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.
Loss Location Layer of Loss Comments Notes
United States
(excluding Alaska and Hawaii) $0 million -
$1.0 billion
Losses retained by Chubb (a)
United States
(excluding Alaska and Hawaii) $1.0 billion -
$1.15 billion
All natural perils and terrorism (b)
United States
(excluding Alaska and Hawaii) $1.15 billion -
$2.15 billion
All natural perils and terrorism (c)
United States
(excluding Alaska and Hawaii) $2.15 billion -
$3.5 billion
All natural perils and terrorism (d)
International
(including Alaska and Hawaii) $0 million -
$175 million
Losses retained by Chubb (a)
International
(including Alaska and Hawaii) $175 million -
$1.175 billion
All natural perils and terrorism (c)
Alaska, Hawaii, and Canada $1.175 billion -
$2.525 billion
All natural perils and terrorism (d)
(a) Ultimate retention will depend upon the nature of the loss and the interplay between the underlying per risk programs and certain other catastrophe programs purchased by individual business units. These other catastrophe programs have the potential to reduce our effective retention below the stated levels.
(b) These coverages are partially placed with Reinsurers.
(c) These coverages are both part of the same Second layer within the Global Catastrophe Program and are fully placed with Reinsurers.
(d) These coverages are both part of the same Third layer within the Global Catastrophe Program and are fully placed with Reinsurers.
Political Risk and Credit Insurance
Political risk insurance is a specialized coverage that provides clients with protection against unexpected, catastrophic political or macroeconomic events, primarily in emerging markets. We participate in this market through our Bermuda based wholly-owned subsidiary Sovereign Risk Insurance Ltd. (Sovereign), and through a unit of our London-based CGM operation. Chubb is one of the world's leading underwriters of political risk and credit insurance, has a global portfolio spread across more than 150 countries and is also a member of The Berne Union. Our clients include financial institutions, national export credit agencies, leading multilateral agencies, private equity firms and multinational corporations. CGM writes political risk and credit insurance business out of underwriting offices in London, United Kingdom; Hamburg, Germany; Sao Paulo, Brazil; Singapore; Tokyo, Japan; and in the U.S. in the following locations: Chicago, New York, Los Angeles and Washington, D.C.
Our political risk insurance products provide protection to commercial lenders against defaults on cross border loans, covers investors against equity losses, and protects exporters against defaults on contracts. Commercial lenders, our largest client segment, are covered for missed scheduled loan repayments due to acts of confiscation, expropriation or nationalization by the host government, currency inconvertibility or exchange transfer restrictions, or war or other acts of political violence. In addition, in the case of loans to government-owned entities or loans that have a government guarantee, political risk policies cover scheduled payments against risks of non-payment or non-honoring of government guarantees. Private equity investors and corporations cover their equity investments against financial losses, such as expropriatory events, inability to repatriate dividends, and physical damage to their operations caused by covered political risk events. Our export contracts product provides coverage for both exporters and their financing banks against the risk of contract frustration due to government actions, including non-payment by governmental entities.
CGM's credit insurance businesses cover losses due to insolvency, protracted default, and political risk perils including export and license cancellation. Our credit insurance product provides coverage to larger companies that have sophisticated credit risk management systems, with exposure to multiple customers and that have the ability to self-insure losses up to a certain level through excess of loss coverage. It also provides coverage to trade finance banks, exporters, and trading companies, with exposure to trade-related financing instruments. CGM also has limited capacity for Specialist Credit insurance products which provide coverage for project finance and working capital loans for large corporations and banks.
We have implemented structural features in our policies in order to control potential losses within the political risk and credit insurance businesses. These include basic loss sharing features such as 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 mitigate losses and to agree on recovery strategies if a claim does materialize. We have the option to pay claims over the original loan repayment schedule, rather than in a lump sum, in order to provide insureds and the insurer additional time to remedy problems and work towards full recoveries. It is important to note that political risk and credit policies are named peril conditional insurance contracts, not financial guarantees, and claims are only paid after conditions and warranties are fulfilled. Political risk and credit insurance policies do not cover currency devaluations, bond defaults, movements in overseas equity markets, transactions deemed illegal, situations where corruption or misrepresentation has occurred, or debt that is not legally enforceable. In addition to assessing and mitigating potential exposure on a policy-by-policy basis, we also have specific risk management measures in place to manage overall exposure and risk. These measures include placing country, credit, and individual transaction limits based on country risk and credit ratings, combined single loss limits on multi-country policies, the use of quota share and excess of loss reinsurance protection as well as quarterly modeling and stress-testing of the portfolio. We have a dedicated Country and Credit Risk management team that are responsible for the portfolio.
Crop Insurance
We are, and have been since the 1980s, one of the leading writers of crop insurance in the U.S. and have conducted that business through a managing general agent subsidiary of Rain and Hail. We provide protection throughout the U.S. on a variety of crops and are therefore geographically diversified, which reduces the risk of exposure to a single event or a heavy accumulation of losses in any one region. Our crop insurance business comprises two components - Multiple Peril Crop Insurance (MPCI) and crop-hail insurance.
The MPCI program, offered in conjunction with the U.S. Department of Agriculture’s Risk Management Agency (RMA), is a federal subsidized insurance program that covers revenue shortfalls or production losses due to natural causes such as drought, excessive moisture, hail, wind, freeze, insects, and disease. These revenue products are defined as providing both commodity price and yield coverages. Policies are available for various crops in different areas of the U.S. and generally have deductibles generally ranging from 10 percent to 50 percent of the insured's risk. The USDA's Risk Management Agency (RMA) sets the policy terms and conditions, rates and forms, and is also responsible for setting compliance standards. As a participant in the MPCI program, we report all details of policies to the RMA and are party to a Standard Reinsurance Agreement (SRA). The SRA sets out the relationship between private insurance companies and the Federal Crop Insurance Corporation (FCIC) concerning the terms and conditions regarding the risks each will bear including the pro-rata and state stop-loss provisions, which allows companies to limit the exposure of any one state or group of states on their underwriting results. In addition to the pro-rata and excess of loss reinsurance protections inherent in the SRA, we also purchase third-party proportional and stop-loss reinsurance
for our MPCI business to reduce our exposure. We may also enter into crop derivative contracts to further manage our risk exposure.
Each year the RMA issues a final SRA for the subsequent reinsurance year (i.e., the 2021 SRA covers the 2021 reinsurance year from July 1, 2020 through June 30, 2021). There were no significant changes in the terms and conditions from the 2020 SRA and therefore, the new SRA does not impact Chubb's outlook on the crop program relative to 2021.
We recognize net premiums written as soon as estimable on our MPCI business, which is generally when we receive acreage reports from the policyholders on the various crops throughout the U.S. This allows us to best determine the premium associated with the liability that is being planted. The MPCI program has specific timeframes as to when producers must report acreage to us and in certain cases, the reporting occurs after the close of the respective reinsurance year. Once the net premium written has been recorded, the premium is then earned over the growing season for the crops. A majority of the crops that are covered in the program are typically subject to the SRA in effect at the beginning of the year. Given the major crops covered in the program, we typically see a substantial written and earned premium impact in the second and third quarters.
The pricing of MPCI premium is determined using a number of factors including commodity prices and related volatility (i.e., both impact the amount of premium we can charge to the policyholder). For example, in most states, the pricing for the MPCI revenue product for corn (i.e., insurance coverage for lower than expected crop revenue in a given season) includes a factor based on the average commodity price in February. If corn commodity prices are higher in February, compared to the February price in the prior year, and all other factors are the same, the increase in price will increase the corn premium year-over-year. Pricing is also impacted by volatility factors, which measure the likelihood commodity prices will fluctuate over the crop year. For example, if volatility is set at a higher rate compared to the prior year, and all other factors are the same, the premium charged to the policyholder will be higher year-over-year for the same level of coverage.
Losses incurred on the MPCI business are determined using both commodity price and crop yield. With respect to commodity price, there are two important periods on a large portion of the business: The month of February when the initial premium base is set, and the month of October when the final harvest price is set. If the price declines from February to October, with yield remaining at normal levels, the policyholder may be eligible to recover on the policy. However, in most cases there are deductibles on these policies, therefore, the impact of a decline in price would have to exceed the deductible before a policyholder would be eligible to recover.
We evaluate our MPCI business at an aggregate level and the combination of all of our insured crops (both winter and summer) go into our underwriting gain or loss estimate in any given year. Typically, we do not have enough information on the harvest prices or crop yield outputs to quantify the preliminary estimated impact to our underwriting results until the fourth quarter.
Our crop-hail program is a private offering. Premium is earned on the crop-hail program over the coverage period of the policy. Given the very short nature of the growing season, most crop-hail business is typically written in the second and third quarters and the recognition of earned premium is also more heavily concentrated during this timeframe. We use industry data to develop our own rates and forms for the coverage offered. The policy primarily protects farmers against yield reduction caused by hail and/or fire, and related costs such as transit to storage. We offer various deductibles to allow the grower to partially self-insure for a reduced premium cost. We limit our crop-hail exposures through the use of township liability limits and third-party reinsurance on our net retained hail business.
Liquidity
Liquidity is a measure of a company's ability to generate cash flows sufficient to meet short-term and long-term cash requirements. As a holding company, Chubb Limited possesses assets that consist primarily of the stock of its subsidiaries and other investments. In addition to net investment income, Chubb Limited's cash flows depend primarily on dividends and other statutorily permissible payments. Historically, dividends and other statutorily permitted payments have come primarily from Chubb's Bermuda-based operating subsidiaries, which we refer to as our Bermuda subsidiaries. Our consolidated sources of funds consist primarily of net premiums written, fees, net investment income, and proceeds from sales and maturities of investments. Funds are used at our various companies primarily to pay claims, operating expenses, and dividends; to service debt; to purchase investments; and to fund acquisitions.
We anticipate that positive cash flows from operations (underwriting activities and investment income) should be sufficient to cover cash outflows under most loss scenarios for the near term. Should the need arise, we generally have access to capital
markets and available credit facilities. Refer to “Credit Facilities” below for additional information. Our access to funds under the existing credit facility is dependent on the ability of the bank that is a party to the facility to meet its funding commitments. Should our existing credit provider experience financial difficulty, we may be required to replace credit sources, possibly in a difficult market. If we cannot obtain adequate capital or sources of credit on favorable terms, on a timely basis, or at all, our business, operating results, and financial condition could be adversely affected. To date, we have not experienced difficulty accessing our credit facility.
To further ensure the sufficiency of funds to settle unforeseen claims, we hold certain invested assets in cash and short-term investments. In addition, for certain insurance, reinsurance, or deposit contracts that tend to have relatively large and reasonably predictable cash outflows, we attempt to establish dedicated portfolios of assets that are duration-matched with the related liabilities. With respect to the duration of our overall investment portfolio, we manage asset durations to both maximize return given current market conditions and provide sufficient liquidity to cover future loss payments. At December 31, 2020, the average duration of our fixed maturities (4.0 years) is less than the average expected duration of our insurance liabilities (4.7 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 2020, we were able to meet all our obligations, including the payments of dividends on our Common Shares, with our net cash flows.
We assess which subsidiaries to draw dividends from based on a number of factors. Considerations such as regulatory and legal restrictions as well as the subsidiary's financial condition are paramount to the dividend decision. Chubb Limited received dividends of $1.9 billion and $200 million from its Bermuda subsidiaries in 2020 and 2019, respectively. Chubb Limited also received cash dividends of $110 million and non-cash dividends of $734 million from a Swiss subsidiary in 2020. There were no dividends received in 2019.
The payment of any dividends from CGM or its subsidiaries is subject to applicable U.K. insurance laws and regulations. In addition, the release of funds by Syndicate 2488 to subsidiaries of CGM is subject to regulations promulgated by the Society of Lloyd's. Chubb Limited received no dividends from CGM in 2020 and 2019.
The U.S. insurance subsidiaries of Chubb INA Holdings Inc. (Chubb INA) may pay dividends, without prior regulatory approval, subject to restrictions set out in state law of the subsidiary's domicile (or, if applicable, commercial domicile). Chubb INA's international subsidiaries are also subject to insurance laws and regulations particular to the countries in which the subsidiaries operate. These laws and regulations sometimes include restrictions that limit the amount of dividends payable without prior approval of regulatory insurance authorities. Chubb Limited received no dividends from Chubb INA in 2020 and 2019. Debt issued by Chubb INA is serviced by statutorily permissible distributions by Chubb INA's insurance subsidiaries to Chubb INA as well as other group resources. Chubb INA received dividends of $1.2 billion and $3.7 billion from its subsidiaries in 2020 and 2019, respectively. At December 31, 2020, the amount of dividends available to be paid to Chubb INA in 2021 from its subsidiaries without prior approval of insurance regulatory authorities totals $2.7 billion.
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 2020, 2019, and 2018.
Operating cash flows reflect Net income for each period, adjusted for non-cash items and changes in working capital.
Operating cash flows were $9.8 billion in 2020, compared to $6.3 billion and $5.5 billion in 2019 and 2018, respectively. Operating cash flow increased $3.5 billion in 2020 compared to 2019, principally reflecting higher premiums collected and reduced payment activity due to the economic slowdown related to COVID-19 pandemic.
Cash used for investing was $7.5 billion in 2020, compared to $5.9 billion and $2.9 billion in 2019 and 2018, respectively. The current year included payment, including a deposit, of $1.6 billion for the purchase of an additional 16.2 percent ownership in Huatai Group. This compares to the prior year purchase of an additional 10.9 percent ownership interest in Huatai Group for $580 million. Refer to Note 2 to the Consolidated Financial Statements for additional information. In addition, the current year included higher private equity contributions, net of distributions received, of $1.1 billion.
Cash used for financing was $2.1 billion in 2020, compared to $151 million and $2.0 billion in 2019 and 2018, respectively. Cash used for financing was higher by $1.9 billion in 2020 compared to 2019 primarily due to lower net proceeds from the issuance of long-term debt (net of repayments) of $2.6 billion, partially offset by fewer shares repurchased in the current year. Refer to Note 11 to the Consolidated Financial Statements for additional information on share repurchases.
Both internal and external forces influence our financial condition, results of operations, and cash flows. Claim settlements, premium levels, and investment returns may be impacted by changing rates of inflation and other economic conditions. In many cases, significant periods of time, ranging up to several years or more, may lapse between the occurrence of an insured loss, the reporting of the loss to us, and the settlement of the liability for that loss.
We use repurchase agreements as a low-cost funding alternative. At December 31, 2020, there were $1.4 billion in repurchase agreements outstanding with various maturities over the next eight months.
In addition to cash from operations, routine sales of investments, and financing arrangements, we have agreements with a third-party bank provider which implemented two international multi-currency notional cash pooling programs to enhance cash management efficiency during periods of short-term timing mismatches between expected inflows and outflows of cash by currency. The programs allow us to optimize investment income by avoiding portfolio disruption. In each program, participating Chubb entities establish deposit accounts in different currencies with the bank provider. Each day the credit or debit balances in every account are notionally translated into a single currency (U.S. dollars) and then notionally pooled. The bank extends overdraft credit to all participating Chubb entities as needed, provided that the overall notionally pooled balance of all accounts in each pool at the end of each day is at least zero. Actual cash balances are not physically converted and are not commingled between legal entities. Chubb entities may incur overdraft balances as a means to address short-term liquidity needs. Any overdraft balances incurred under this program by a Chubb entity would be guaranteed by Chubb Limited (up to $300 million in the aggregate). Our syndicated letter of credit facility allows for same day drawings to fund a net pool overdraft should participating Chubb entities withdraw contributed funds from the pool.
Capital Resources
Capital resources consist of funds deployed or available to be deployed to support our business operations.
December 31 December 31
(in millions of U.S. dollars, except for percentages) 2020 2019
Short-term debt $ - $ 1,299
Long-term debt 14,948 13,559
Total financial debt 14,948 14,858
Trust preferred securities 308 308
Total shareholders’ equity 59,441 55,331
Total capitalization $ 74,697 $ 70,497
Ratio of financial debt to total capitalization 20.0 % 21.1 %
Ratio of financial debt plus trust preferred securities to total capitalization 20.4 % 21.5 %
Repurchase agreements are excluded from the table above and are disclosed separately from short-term debt in the Consolidated balance sheets. The repurchase agreements are collateralized borrowings where we maintain the right and ability to redeem the collateral on short notice, unlike short-term debt which comprises the current maturities of our long-term debt instruments.
On September 17, 2020, Chubb INA issued $1.0 billion of 1.375 percent senior notes due September 2030. Chubb INA's $1.3 billion of 2.3 percent senior notes due November 2020 was paid upon maturity. Refer to Note 9 to the Consolidated Financial Statements for details about the debt issued and debt redeemed.
We believe our financial strength provides us with the flexibility and capacity to obtain available funds externally through debt or equity financing on both a short-term and long-term basis. Our ability to access the capital markets is dependent on, among other things, market conditions and our perceived financial strength. We have accessed both the debt and equity markets from time to time. We generally maintain the ability to issue certain classes of debt and equity securities via an unlimited Securities and Exchange Commission (SEC) shelf registration which is renewed every three years. This allows us capital market access for refinancing as well as for unforeseen or opportunistic capital needs. In October 2018, we filed an unlimited shelf registration which allows us to issue certain classes of debt and equity. This shelf registration expires in October 2021.
Securities Repurchases
From time to time, we repurchase shares as part of our capital management program. The Board of Directors (Board) has authorized share repurchase programs as follows:
•$1.0 billion of Chubb Common Shares from January 1, 2018 through December 31, 2018
•$1.5 billion of Chubb Common Shares from December 1, 2018 through December 31, 2019
•$1.5 billion of Chubb Common Shares from November 21, 2019 through December 31, 2020
•$1.5 billion of Chubb Common Shares from November 19, 2020 through December 31, 2021
Subsequently, in February 2021, the Board approved an increase to the November 2020 share repurchase program of $1.0 billion to a total of $2.5 billion, effective through December 31, 2021.
Share repurchases may be made in the open market, in privately negotiated transactions, block trades, accelerated repurchases and/or through option or other forward transactions. In 2020, 2019, and 2018 we repurchased $516 million, $1.53 billion, and $1.02 billion, respectively, of Common Shares in a series of open market transactions under the Board share repurchase authorizations. On April 22, 2020, we suspended share repurchases, given the economic environment and to preserve capital for both risk and opportunity. Subsequently we announced and then resumed share repurchases on October 29, 2020. The $1.5 billion November 2019 authorization remained effective through December 31, 2020. Repurchases through December 31, 2020 were made under this authorization. For the period January 1 through February 24, 2021, we repurchased 1,971,000 Common Shares for a total of $327 million in a series of open market transactions under the share repurchase program authorized in November 2020. At February 24, 2021, $2.17 billion in share repurchase authorization remained through December 31, 2021.
Common Shares
Our Common Shares had a par value of CHF 24.15 each at December 31, 2020.
As of December 31, 2020, there were 26,872,639 Common Shares in treasury with a weighted average cost of $135.58 per share.
Under Swiss law, dividends must be stated in Swiss francs though dividend payments are made by Chubb in U.S. dollars.
At our May 2019 annual general meeting, our shareholders approved an annual dividend for the following year of up to $3.00 per share, which was paid in four quarterly installments of $0.75 per share at dates determined by the Board after the annual general meeting by way of distribution from capital contribution reserves, transferred to free reserves for payment.
At our May 2020 annual general meeting, our shareholders approved an annual dividend for the following year of up to $3.12 per share, expected to be paid in four quarterly installments of $0.78 per share after the annual general meeting by way of distribution from capital contribution reserves, transferred to free reserves for payment. The Board will determine the record and payment dates at which the annual dividend may be paid until the date of the 2021 annual general meeting, and is authorized to abstain from distributing a dividend at its discretion. The first three quarterly installments each of $0.78 per share, have been distributed by the Board as expected.
Dividend distributions on Common Shares amounted to CHF 2.89 ($3.09) per share for the year ended December 31, 2020. Refer to Note 11 to the Consolidated Financial Statements for additional information on our dividends.
Contractual Obligations and Commitments
The following table presents our future payments due by period under contractual obligations at December 31, 2020:
Payments Due By Period
2022 2024
(in millions of U.S. dollars) Total 2021 and 2023 and 2025 Thereafter
Payment amounts determinable from the respective contracts
Deposit liabilities (1)
$ 2,323 $ 34 $ 104 $ 148 $ 2,037
Purchase obligations (2)
470 240 230 - -
Investments, including Limited Partnerships (3)
3,805 1,429 1,713 459 204
Operating leases 550 150 219 106 75
Repurchase agreements 1,405 1,405 - - -
Long-term debt (4)
14,705 - 1,475 2,346 10,884
Trust preferred securities 309 - - - 309
Interest on debt obligations (4)
5,925 468 902 804 3,751
Total obligations in which payment amounts are determinable from the respective contracts
29,492 3,726 4,643 3,863 17,260
Payment amounts not determinable from the respective contracts
Estimated gross loss payments under insurance and reinsurance contracts
67,851 19,587 18,599 9,439 20,226
Estimated payments for future policy benefits and GLB 22,006 1,034 2,183 1,653 17,136
Total contractual obligations and commitments $ 119,349 $ 24,347 $ 25,425 $ 14,955 $ 54,622
(1)Refer to Note 1 k) to the Consolidated Financial Statements.
(2)Primarily comprises agreements with vendors to purchase system software administration and maintenance services, and audit fees.
(3)Funding commitment primarily related to limited partnerships. The timing of the payments of these commitments is uncertain and may differ from the estimated timing in the table.
(4)Subject to foreign exchange fluctuations on interest expense and principal.
The contractual obligations and commitments table excludes the following items:
•Pension obligations: Minimum funding requirements for our pension obligations are immaterial. Subsequent funding commitments are apt to vary due to many factors and are difficult to estimate at this time. Refer to Note 13 to the Consolidated Financial Statements for additional information.
•Liabilities for unrecognized tax benefits: The liability for unrecognized tax benefits, excluding interest and offsetting tax credits, was $76 million at December 31, 2020. At December 31, 2020, we had accrued $16 million in liabilities for income tax-related interest and penalties in our Consolidated balance sheet. Other than settlement of a liability in January 2021 for $23 million, including interest, we are unable to make a reliable estimate for the timing of cash settlement of these liabilities. Refer to Note 8 to the Consolidated Financial Statements for additional information.
We have no other significant contractual obligations or commitments not reflected in the table above. We do not have any off-balance sheet arrangements that are reasonably likely to have a material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources.
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, 2020, and do not take into account reinsurance recoverable. These estimated loss payments are inherently uncertain and the amount and timing of actual loss payments are likely to differ from these estimates and the differences could be material. Given the numerous factors and assumptions involved in both estimates of loss and loss expense reserves and related estimates as to the timing of future loss and loss expense payments in the table above, differences between actual and estimated loss payments will not necessarily indicate a commensurate change in ultimate loss estimates. The liability for Unpaid losses and loss expenses presented in our balance sheet is discounted for certain structured settlements, for which the timing and amount of future claim payments are reliably determinable, and certain reserves for unsettled claims. Our loss reserves are not discounted for the time value of money. Accordingly, the estimated amounts in the table exceed the liability for Unpaid losses and loss expenses presented in our balance sheet. Refer to Note 1 h) to the Consolidated Financial Statements for additional information.
Estimated payments for future policy benefits
We establish reserves for future policy benefits for life, long-term health, and annuity contracts. The amounts in the table are gross of fees or premiums due from the underlying contracts. The liability for Future policy benefits for life, long-term health, and annuity contracts presented in our balance sheet is discounted and reflected net of fees or premiums due from the underlying contracts. Accordingly, the estimated amounts in the table exceed the liability for Future policy benefits presented in our balance sheet. Payment amounts related to these reserves must be estimated and are not determinable from the contract. Due to the uncertainty with respect to the timing and amount of these payments, actual results could materially differ from the estimates in the table.
Credit Facilities
As our Bermuda subsidiaries are non-admitted insurers and reinsurers in the U.S., the terms of certain U.S. insurance and reinsurance contracts require them to provide collateral, which can be in the form of letters of credit (LOCs). LOCs may also be used for general corporate purposes.
Should the need arise, we generally have access to capital markets and to credit facilities with letter of credit capacity of $4.0 billion with a sub-limit of $1.9 billion for revolving credit. At December 31, 2020, our usage under these facilities was $1.7 billion in LOCs, of which $1.1 billion related to our variable annuity reinsurance program. Our access to credit under these facilities is dependent on the ability of the banks that are a party to the facilities to meet their funding commitments. Should the existing credit providers on these facilities 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 facilities or establishing additional facilities when needed.
In the event we are required to provide alternative security to clients, the security 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 facilities noted above require that we maintain certain financial covenants, all of which have been met at December 31, 2020. These covenants include:
(i)a minimum consolidated net worth of not less than $34.985 billion; and
(ii)a ratio of consolidated debt to total capitalization of not greater than 0.35 to 1.
At December 31, 2020, (a) the minimum consolidated net worth requirement under the covenant described in (i) above was $34.985 billion and our actual consolidated net worth as calculated under that covenant was $56.6 billion and (b) our ratio of debt to total capitalization, as calculated under the covenant which excludes the fair value adjustment of debt acquired through the Chubb Corp acquisition, was 0.20 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 Shareholder Resources/Rating Agency Ratings) also contains some information about our ratings, but such information on our website is not incorporated by reference into this report.
Financial strength ratings reflect the rating agencies' opinions of a company's claims paying ability. Independent ratings are one of the important factors that establish our competitive position in the insurance markets. The rating agencies consider many factors in determining the financial strength rating of an insurance company, including the relative level of statutory surplus necessary to support the business operations of the company. These ratings are based upon factors relevant to policyholders, agents, and intermediaries and are not directed toward the protection of investors. Such ratings are not recommendations to buy, sell, or hold securities.
Credit ratings assess a company's ability to make timely payments of principal and interest on its debt. It is possible that, in the future, one or more of the rating agencies may reduce our existing ratings. If one or more of our ratings were downgraded, we could incur higher borrowing costs, and our ability to access the capital markets could be impacted. In addition, our insurance and reinsurance operations could be adversely impacted by a downgrade in our financial strength ratings, including a possible reduction in demand for our products in certain markets. Also, we have insurance and reinsurance contracts which contain rating triggers. In the event the S&P or A.M. Best financial strength ratings of Chubb fall, we may be faced with the cancellation of premium or be required to post collateral on our underlying obligation associated with this premium. We estimate that at December 31, 2020, 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.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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 fixed maturities portfolio impacts Net income (through Net realized gains (losses)) when securities are sold, when we write down an asset, or when we record a change to the allowance for expected credit losses. 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, 2020 and 2019, our notional exposure to derivative instruments was $5.3 billion and $4.9 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, from time to time we 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, 2020. Our policies to address these risks in 2020 were not materially different from 2019. 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, 2020 and 2019, 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):
(in billions of U.S. dollars, except for percentages) 2020 2019
Fair value of fixed income portfolio $ 107.6 $ 102.8
Pre-tax impact of 100 bps increase in interest rates:
Decrease in dollars $ 4.3 $ 3.9
As a percentage of total fixed income portfolio at fair value 4.0 % 3.8 %
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, 2020 and 2019, 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):
(in millions of U.S. dollars, except for percentages) 2020 2019
Fair value of debt obligations, including repurchase agreements $ 19,365 $ 18,238
Pre-tax impact of 100 bps decrease in interest rates:
Increase in dollars $ 1,673 $ 1,570
As a percentage of total debt obligations at fair value 8.6 % 8.6 %
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 (liabilities) in non-U.S. currencies at December 31, 2020 and 2019:
2020 2019 2020 vs. 2019 % change in exchange rate per USD
(in millions of U.S. dollars, except for percentages) Value of
net assets (liabilities) Exchange
rate
per USD Value of
net assets (liabilities) Exchange
rate
per USD
Chinese yuan renminbi (CNY) $ 2,853 0.1532 $ 1,539 0.1436 6.7 %
Canadian dollar (CAD) 2,613 0.7858 2,220 0.7698 2.1 %
British pound sterling (GBP) 2,492 1.3670 2,024 1.3257 3.1 %
Australian dollar (AUD) 1,347 0.7694 1,100 0.7021 9.6 %
Mexican peso (MXN) 877 0.0502 942 0.0528 (5.0) %
Korean won (KRW) (x100) 781 0.0920 788 0.0865 6.4 %
Brazilian real (BRL) 747 0.1926 990 0.2485 (22.5) %
Japanese yen (JPY) 617 0.0097 432 0.0092 5.2 %
Thai baht (THB) 565 0.0334 606 0.0337 (0.8) %
Euro (EUR) (1)
(3,162) 1.2216 (3,129) 1.1213 8.9 %
Other foreign currencies 3,016 various 2,845 various NM
Value of net assets denominated in foreign currencies (2)
$ 12,746 $ 10,357
As a percentage of total net assets 21.4 % 18.7 %
Pre-tax decrease to Shareholders' equity of a hypothetical 10 percent strengthening of the USD $ 1,159 $ 942
NM - not meaningful
(1) Comprised Euro denominated debt of $5.2 billion, partially offset by net assets of $2.1 billion at December 31, 2020 and Euro denominated debt of $4.8 billion, partially offset by net assets of $1.7 billion at December 31, 2019.
(2) At December 31, 2020, net assets denominated in foreign currencies comprised approximately 46 percent goodwill and other intangible assets.
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 realized gains (losses) and net income for GLB and both Life Insurance underwriting income and net income for GMDB. 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.
For the GMDB reinsurance business, net income is directly impacted by changes in future policy benefit reserves. For the GLB reinsurance business, 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 calculation is 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, and policyholder mortality.
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, 2020 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:
•Equity shocks impact all global equity markets equally
•Our liabilities are sensitive to global equity markets in the following proportions: 75 percent-85 percent U.S. equity, and 15 percent-25 percent international equity.
•Our current hedge portfolio is sensitive only to U.S. equity markets.
•We would suggest using the S&P 500 index as a proxy for U.S. equity, and the MSCI EAFE index as a proxy for international 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: 5 percent-15 percent short-term rates (maturing in less than 5 years), 15 percent-25 percent medium-term rates (maturing between 5 years and 10 years, inclusive), and 65 percent-75 percent long-term rates (maturing beyond 10 years).
•A change in AA-rated credit spreads impacts the rate used to discount cash flows in the fair value model. AA-rated credit spreads are a proxy for both our own credit spreads and the credit spreads of the ceding insurers.
•The hedge sensitivity is from December 31, 2020 market levels and only applicable to the equity and interest rate sensitivities table below.
•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 fluctuations in short-term market movements.
•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 FVL will increase, resulting in a realized loss. This realized loss occurs primarily because the guarantees provided in the underlying contracts continue to become more valuable even when markets remain unchanged. We refer to this increase in FVL as “timing effect”. The unfavorable impact of timing effect on our 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 FVL in the first quarter 2021 to various changes, it is necessary to assume an additional $5 million to $45 million increase in FVL and realized losses. Note that both the timing effect and the quarterly run rate impact to net income change over time as the book ages.
Sensitivities to equity and interest rate movements
(in millions of U.S. dollars) Worldwide Equity Shock
Interest Rate Shock +10 % Flat -10 % -20 % -30 % -40 %
+100 bps (Increase)/decrease in FVL $ 416 $ 277 $ 113 $ (81) $ (315) $ (603)
Increase/(decrease) in hedge value (73) - 73 145 218 290
Increase/(decrease) in net income $ 343 $ 277 $ 186 $ 64 $ (97) $ (313)
Flat (Increase)/decrease in FVL $ 160 $ - $ (188) $ (408) $ (672) $ (995)
Increase/(decrease) in hedge value (73) - 73 145 218 290
Increase/(decrease) in net income $ 87 $ - $ (115) $ (263) $ (454) $ (705)
-100 bps (Increase)/decrease in FVL $ (111) $ (291) $ (501) $ (749) $ (1,050) $ (1,412)
Increase/(decrease) in hedge value (73) - 73 145 218 290
Increase/(decrease) in net income $ (184) $ (291) $ (428) $ (604) $ (832) $ (1,122)
Sensitivities to Other Economic Variables AA-rated Credit Spreads Interest Rate Volatility Equity Volatility
(in millions of U.S. dollars) +100 bps -100 bps +2 % -2 % +2 % -2 %
(Increase)/decrease in FVL $ 86 $ (97) $ - $ - $ (13) $ 13
Increase/(decrease) in net income $ 86 $ (97) $ - $ - $ (13) $ 13
Sensitivities to Actuarial Assumptions Mortality
(in millions of U.S. dollars) +20 % +10 % -10 % -20 %
(Increase)/decrease in FVL $ 24 $ 12 $ (12) $ (25)
Increase/(decrease) in net income $ 24 $ 12 $ (12) $ (25)
Lapses
(in millions of U.S. dollars) +50 % +25 % -25 % -50 %
(Increase)/decrease in FVL $ 139 $ 73 $ (81) $ (170)
Increase/(decrease) in net income $ 139 $ 73 $ (81) $ (170)
Annuitization
(in millions of U.S. dollars) +50 % +25 % -25 % -50 %
(Increase)/decrease in FVL $ (492) $ (263) $ 302 $ 636
Increase/(decrease) in net income $ (492) $ (263) $ 302 $ 636
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, 2020 following an immediate change in equity market levels, assuming all global equity markets are impacted equally.
a) Reinsurance covering the GMDB risk only
Equity Shock
(in millions of U.S. dollars) +20 % Flat -20 % -40 % -60 % -80 %
GMDB net amount at risk $ 272 $ 257 $ 328 $ 699 $ 815 $ 703
Claims at 100% immediate mortality 157 166 179 166 147 128
The treaty claim limits function as a ceiling as equity markets fall. As the shocks in the table above become incrementally more negative, the impact on the NAR and claims at 100 percent mortality begin to drop 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
Equity Shock
(in millions of U.S. dollars) +20 % Flat -20 % -40 % -60 % -80 %
GLB net amount at risk $ 871 $ 1,249 $ 1,811 $ 2,415 $ 2,906 $ 3,266
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
Equity Shock
(in millions of U.S. dollars) +20 % Flat -20 % -40 % -60 % -80 %
GMDB net amount at risk $ 37 $ 45 $ 55 $ 67 $ 79 $ 89
GLB net amount at risk 309 409 542 704 873 982
Claims at 100% immediate mortality 36 35 35 35 35 35
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 increase 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.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 8. Financial Statements and Supplementary Data
The financial statements and supplementary data are included in this Form 10-K commencing on page.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.

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ITEM 9A. CONTROLS AND PROCEDURES
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, 2020. 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 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 have been no changes in Chubb's internal controls over financial reporting during the three months ended December 31, 2020 that have materially affected, or are 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 and PricewaterhouseCoopers LLP's audit report is included on pages,, and.

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ITEM 9B. OTHER INFORMATION
ITEM 9B. Other Information
Item not applicable.
PART III

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
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 - The Board of Directors - Director Nomination Process”, and “Corporate Governance - The Committees of the Board - Audit Committee” of the definitive proxy statement for the 2021 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 “Information about our Executive Officers” 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/Highlights and Governance Documents/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.

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ITEM 11. EXECUTIVE COMPENSATION
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 2021 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.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
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 9 - Approval of the Chubb Limited 2016 Long-Term Incentive Plan, as Amended and Restated - Explanation - Authorized Securities under Equity Compensation Plans" of the definitive proxy statement for the 2021 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.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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 Party Transactions Do We Have?”, and “Corporate Governance - The Board of Directors - Director Independence” of the definitive proxy statement for the 2021 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.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
ITEM 14. Principal Accounting Fees and Services
This item is incorporated by reference to the section entitled “Agenda Item 4 - Election of Auditors - 4.2 - 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 2021 Annual General Meeting of Shareholders which will be filed with the SEC not later than 120 days after the close of the fiscal year pursuant to Regulation 14A.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
ITEM 15. Exhibits, Financial Statement Schedules
(a)Financial Statements, Schedules, and Exhibits
Page
1. Consolidated Financial Statements
-
Management's Responsibility for Financial Statements and Internal Control over Financial Reporting
-
Report of Independent Registered Public Accounting Firm
-
Consolidated Balance Sheets at December 31, 2020 and 2019
-
Consolidated Statements of Operations and Comprehensive Income for the years ended December 31, 2020, 2019, and 2018
-
Consolidated Statements of Shareholders' Equity for the years ended December 31, 2020, 2019, and 2018
-
Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019, and 2018
-
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
-
Schedule I - Summary of Investments - Other Than Investments in Related Parties at December 31, 2020
-
Schedule II - Condensed Financial Information of Registrant (Parent Company Only) at December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019, and 2018
-
Schedule IV - Supplemental Information Concerning Reinsurance for the years ended December 31, 2020, 2019, and 2018
-
Schedule VI - Supplementary Information Concerning Property and Casualty Operations as of and for the years ended December 31, 2020, 2019, and 2018
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
Incorporated by Reference
Exhibit Number Exhibit Description Form Original Number Date Filed Filed Herewith
3.1
Articles of Association of the Company, as amended and restated
8-K 3.1 August 4, 2020
3.2
Organizational Regulations of the Company as amended
8-K 3.1 November 21, 2016
4.1
Articles of Association of the Company, as amended and restated
8-K 4.1 August 4, 2020
4.2
Organizational Regulations of the Company as amended
8-K 3.1 November 21, 2016
4.3
Specimen share certificate representing Common Shares
8-K 4.3 July 18, 2008
4.4
Indenture, dated March 15, 2002, between ACE Limited and Bank One Trust Company, N.A.
8-K 4.1 March 22, 2002
4.5
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
S-3
ASR 4.4 December 10, 2014
4.6
Indenture, dated November 30, 1999, among ACE INA Holdings, Inc. and Bank One Trust Company, N.A., as trustee
10-K 10.38 March 29, 2000
Incorporated by Reference
Exhibit Number Exhibit Description Form Original Number Date Filed Filed Herewith
4.7
Indenture, dated December 1, 1999, among ACE INA Holdings, Inc., ACE Limited and Bank One Trust Company, National Association, as trustee
10-K 10.41 March 29, 2000
4.8
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
10-K 4.17 March 16, 2006
4.9
Common Securities Guarantee Agreement, dated March 31, 2000
10-K 4.18 March 16, 2006
4.10
Capital Securities Guarantee Agreement, dated March 31, 2000
10-K 4.19 March 16, 2006
4.11
Form of 2.70 percent Senior Notes due 2023
8-K 4.1 March 13, 2013
4.12
Form of 4.15 percent Senior Notes due 2043
8-K 4.2 March 13, 2013
4.13
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
8-K 4.3 March 13, 2013
4.14
Form of 3.35 percent Senior Notes due 2024
8-K 4.1 May 27, 2014
4.15
Form of 3.150 percent Senior Notes due 2025
8-K 4.1 March 16, 2015
4.16
Form of 2.875 percent Senior Notes due 2022
8-K 4.2 November 3, 2015
4.17
Form of 3.35 percent Senior Notes due 2026
8-K 4.3 November 3, 2015
4.18
Form of 4.35 percent Senior Notes due 2045
8-K 4.4 November 3, 2015
4.19
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
8-K 4.1 January 15, 2016
4.20
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
8-K 4.2 January 15, 2016
4.21 Chubb Corp Senior Indenture (incorporated by reference to Exhibit 4(a) to Chubb Corp's Registration Statement on Form S-3 filed on October 27, 1989) (File No. 33-31796) S-3 4(a) October 27, 1989
4.22
Chubb Corp Junior Subordinated Indenture (incorporated by reference to Exhibit 4.1 to Chubb Corp's Current Report on Form 8-K filed on March 30, 2007) (File No. 001-08661)
8-K 4.1 March 30, 2007
4.23
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's Current Report on Form 8-K filed on March 30, 2007) (File No. 001-08661)
8-K 4.2 March 30, 2007
Incorporated by Reference
Exhibit Number Exhibit Description Form Original Number Date Filed Filed Herewith
4.24 Form of 6.80 percent Chubb Corp Debentures due 2031 (incorporated by reference to Exhibit 4(a) to Chubb Corp's Registration Statement on Form S-3 filed on October 27, 1989) (File No. 33-31796) S-3 4(a) October 27, 1989
4.25
Form of 6.00 percent Chubb Corp Senior Notes due 2037 (incorporated by reference to Exhibit 4.1 to Chubb Corp's Current Report on Form 8-K filed on May 11, 2007) (File No. 001-08661)
8-K 4.1 May 11, 2007
4.26
Form of 6.50 percent Chubb Corp Senior Notes due 2038 (incorporated by reference to Exhibit 4.2 to Chubb Corp's Current Report on Form 8-K filed on May 6, 2008) (File No. 001-08661)
8-K 4.2 May 6, 2008
4.27
Form of debenture for the 6.375 percent Chubb Corp DISCs (incorporated by reference to Exhibit 4.3 to Chubb Corp's Current Report on Form 8-K filed on March 30, 2007) (File No. 001-08661)
8-K 4.3 March 30, 2007
4.28
Procedures regarding the registration of shareholders in the share register of Chubb Limited
10-K 4.32 February 28, 2017
4.29
Form of Officer's Certificate related to the 1.550% Senior Notes due 2028 and 2.500% Senior Notes due 2038
8-K 4.1 March 6, 2018
4.30
Form of Global Note for the 1.550% Senior Notes due 2028
8-K 4.2 March 6, 2018
4.31
Form of Global Note for the 2.500% Senior Notes due 2038
8-K 4.3 March 6, 2018
4.32
Form of Officer's Certificate related to the 0.875% Senior Notes due 2027 and 1.400% Senior Notes due 2031
8-K 4.1 June 17, 2019
4.33
Form of Global Note for the 0.875% Senior Notes due 2027
8-K 4.2 June 17, 2019
4.34
Form of Global Note for the 1.400% Senior Notes due 2031
8-K 4.3 June 17, 2019
4.35
Form of Officer’s Certificate related to the 0.300% Senior Notes due 2024 and 0.875% Senior Notes due 2029
8-K 4.1 December 5, 2019
4.36
Form of Global Note for the 0.300% Senior Notes due 2024
8-K 4.2 December 5, 2019
4.37
Form of Global Note for the 0.875% Senior Notes due 2029
8-K 4.3 December 5, 2019
4.38
Form of Officer's Certificate related to the 1.375% Senior Notes due 2030
8-K 4.1 September 17, 2020
4.39
Form of Global Note for the 1.375% Senior Notes due 2030
8-K 4.2 September 17, 2020
4.40
Description of the Registrant's Securities
X
10.1*
Form of Indemnification Agreement between the Company and the directors of the Company, dated August 13, 2015
10-K 10.1 February 26, 2016
Incorporated by Reference
Exhibit Number Exhibit Description Form Original Number Date Filed Filed Herewith
10.2
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
10-K 10.13 February 28, 2013
10.3*
Employment Terms dated October 29, 2001, between ACE Limited and Evan Greenberg
10-K 10.64 March 27, 2003
10.4*
Employment Terms dated November 2, 2001, between ACE Limited and Philip V. Bancroft
10-K 10.65 March 27, 2003
10.5*
Executive Severance Agreement between ACE Limited and Philip Bancroft, effective January 2, 2002
10-Q 10.1 May 10, 2004
10.6*
Letter Regarding Executive Severance between ACE Limited and Philip V. Bancroft
10-K 10.17 February 25, 2011
10.7*
Employment Terms dated April 10, 2006, between ACE and John Keogh
10-K 10.29 February 29, 2008
10.8*
Executive Severance Agreement between ACE and John Keogh
10-K 10.30 February 29, 2008
10.9*
ACE Limited Executive Severance Plan as amended effective May 18, 2011
10-K 10.21 February 24, 2012
10.10*
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)
8-K 10.1 July 16, 2008
10.11*
Outside Directors Compensation Parameters
10-K 10.11 February 27, 2020
10.12*
ACE Limited Elective Deferred Compensation Plan (as amended and restated effective January 1, 2005)
10-K 10.24 March 16, 2006
10.13*
ACE USA Officer Deferred Compensation Plan (as amended through January 1, 2001)
10-K 10.25 March 16, 2006
10.14*
ACE USA Officer Deferred Compensation Plan (as amended and restated effective January 1, 2011)
10-Q 10.7 October 30, 2013
10.15*
ACE USA Officer Deferred Compensation Plan (as amended and restated effective January 1, 2009)
10-K 10.36 February 27, 2009
10.16*
First Amendment to the Amended and Restated ACE USA Officers Deferred Compensation Plan
10-K 10.28 February 25, 2010
10.17*
Form of Swiss Mandatory Retirement Benefit Agreement (for Swiss-employed named executive officers)
10-Q 10.2 May 7, 2010
10.18*
ACE Limited Supplemental Retirement Plan (as amended and restated effective July 1, 2001)
10-Q 10.1 November 14, 2001
10.19*
ACE Limited Supplemental Retirement Plan (as amended and restated effective January 1, 2011)
10-Q 10.6 October 30, 2013
10.20*
Amendments to the ACE Limited Supplemental Retirement Plan and the ACE Limited Elective Deferred Compensation Plan
10-K 10.38 February 29, 2008
10.21*
ACE Limited Elective Deferred Compensation Plan (as amended and restated effective January 1, 2009)
10-K 10.39 February 27, 2009
Incorporated by Reference
Exhibit Number Exhibit Description Form Original Number Date Filed Filed Herewith
10.22*
ACE Limited Elective Deferred Compensation Plan (as amended and restated effective January 1, 2011)
10-Q 10.5 October 30, 2013
10.23*
Deferred Compensation Plan amendments, effective January 1, 2009
10-K 10.40 February 27, 2009
10.24*
Amendment to the ACE Limited Supplemental Retirement Plan
10-K 10.39 February 29, 2008
10.25*
Amendment and restated ACE Limited Supplemental Retirement Plan, effective January 1, 2009
10-K 10.42 February 27, 2009
10.26*
ACE USA Supplemental Employee Retirement Savings Plan (see exhibit 10.6 to Form 10-Q filed with the SEC on May 15, 2000)
10-Q 10.6 May 15, 2000
10.27*
ACE USA Supplemental Employee Retirement Savings Plan (as amended through the Second Amendment)
10-K 10.30 March 1, 2007
10.28*
ACE USA Supplemental Employee Retirement Savings Plan (as amended through the Third Amendment)
10-K 10.31 March 1, 2007
10.29*
ACE USA Supplemental Employee Retirement Savings Plan (as amended and restated)
10-K 10.46 February 27, 2009
10.30*
First Amendment to the Amended and Restated ACE USA Supplemental Employee Retirement Savings Plan
10-K 10.39 February 25, 2010
10.31*
The ACE Limited 1995 Outside Directors Plan (as amended through the Seventh Amendment)
10-Q 10.1 August 14, 2003
10.32*
ACE Limited 2004 Long-Term Incentive Plan (as amended through the Fifth Amendment)
8-K 10 May 21, 2010
10.33*
ACE Limited 2004 Long-Term Incentive Plan (as amended through the Sixth Amendment)
8-K 10.1 May 20, 2013
10.34*
ACE Limited Rules of the Approved U.K. Stock Option Program (see exhibit 10.2 to Form 10-Q filed with the SEC on February 13, 1998)
10-Q 10.2 February 13, 1998
10.35*
Director Restricted Stock Award Terms under the ACE Limited 2004 Long-Term Incentive Plan
10-Q 10.1 November 9, 2009
10.36*
Form of Incentive Stock Option Terms under the ACE Limited 2004 Long-Term Incentive Plan
8-K 10.4 September 13, 2004
10.37*
Form of Incentive Stock Option Terms under the ACE Limited 2004 Long-Term Incentive Plan
10-Q 10.4 May 8, 2008
10.38*
Form of Incentive Stock Option Terms under the ACE Limited 2004 Long-Term Incentive Plan
10-K 10.63 February 27, 2009
10.39*
Form of Incentive Stock Option Terms under the ACE Limited 2004 Long-Term Incentive Plan
10-Q 10.3 October 30, 2013
10.40*
Form of Non-Qualified Stock Option Terms under the ACE Limited 2004 Long-Term Incentive Plan
8-K 10.5 September 13, 2004
10.41*
Form of Non-Qualified Stock Option Terms under the ACE Limited 2004 Long-Term Incentive Plan
10-Q 10.3 May 8, 2008
Incorporated by Reference
Exhibit Number Exhibit Description Form Original Number Date Filed Filed Herewith
10.42*
Form of Non-Qualified Stock Option Terms under the ACE Limited 2004 Long-Term Incentive Plan
10-Q 10.4 October 30, 2013
10.43*
Form of Restricted Stock Unit Award Terms (for outside directors) under the ACE Limited 2004 Long-Term Incentive Plan
10-Q 10.2 November 7, 2007
10.44*
Form of Restricted Stock Unit Award Terms (for outside directors) under the ACE Limited 2004 Long-Term Incentive Plan
10-Q 10.2 August 7, 2009
10.45*
Form of Incentive Stock Option Terms under the ACE Limited 2004 Long-Term Incentive Plan for Messrs. Greenberg and Cusumano
10-Q 10.1 August 4, 2011
10.46*
Form of Non-Qualified Stock Option Terms under the ACE Limited 2004 Long-Term Incentive Plan for Messrs. Greenberg and Cusumano
10-Q 10.2 August 4, 2011
10.47*
ACE Limited Employee Stock Purchase Plan, as amended
8-K 10.1 May 22, 2012
10.48*
Form of Incentive Stock Option Terms under the ACE Limited 2004 Long-Term Incentive Plan for Swiss Executive Management
10-K 10.71 February 27, 2015
10.49*
Form of Non-Qualified Stock Option Terms under the ACE Limited 2004 Long-Term Incentive Plan for Swiss Executive Management
10-K 10.72 February 27, 2015
10.50*
Form of Executive Management Non-Competition Agreement
8-K 10.1 May 22, 2015
10.51
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
10-K 10.72 February 26, 2016
10.52*
Chubb Limited 2016 Long-Term Incentive Plan
S-8 4.4 May 26, 2016
10.53*
Form of Incentive Stock Option Terms under the Chubb Limited 2016 Long-Term Incentive Plan
10-Q 10.2 August 5, 2016
10.54*
Form of Restricted Stock Award Terms under the Chubb Limited 2016 Long-Term Incentive Plan
10-Q 10.3 August 5, 2016
10.55*
Form of Restricted Stock Unit Award Terms under the Chubb Limited 2016 Long-Term Incentive Plan
10-Q 10.4 August 5, 2016
10.56*
Form of Non-Qualified Stock Option Terms under the Chubb Limited 2016 Long-Term Incentive Plan
10-Q 10.5 August 5, 2016
10.57*
Form of Incentive Stock Option Terms under the Chubb Limited 2016 Long-Term Incentive Plan for Swiss Executive Management
10-Q 10.6 August 5, 2016
10.58*
Form of Restricted Stock Award Terms under the Chubb Limited 2016 Long-Term Incentive Plan for Swiss Executive Management
10-Q 10.7 August 5, 2016
10.59*
Form of Restricted Stock Unit Award Terms under the Chubb Limited 2016 Long-Term Incentive Plan for Swiss Executive Management
10-Q 10.8 August 5, 2016
Incorporated by Reference
Exhibit Number Exhibit Description Form Original Number Date Filed Filed Herewith
10.60*
Form of Non-Qualified Stock Option Terms under the Chubb Limited 2016 Long-Term Incentive Plan for Swiss Executive Management
10-Q 10.9 August 5, 2016
10.61*
Chubb Limited Employee Stock Purchase Plan, as amended and restated
S-8 4.4 May 25, 2017
10.62*
Director Restricted Stock Award Terms under the Chubb Limited 2016 Long-Term Incentive Plan
10-Q 10.1 August 3, 2017
10.63
Amended and Restated Credit Agreement for $1,000,000 Senior Unsecured Letter of Credit Facility, dated as of October 25, 2017, among Chubb Limited, and certain subsidiaries and Wells Fargo Bank, National Association as Administrative Agent, the Swingline Bank and an Issuing Bank
10-K 10.88 February 23, 2018
10.64*
Form of Incentive Stock Option Terms under the Chubb Limited 2016 Long-Term Incentive Plan for Executive Officers
10-K 10.89 February 23, 2018
10.65*
Form of Restricted Stock Award Terms under the Chubb Limited 2016 Long-Term Incentive Plan for Executive Officers
10-K 10.90 February 23, 2018
10.66*
Form of Non-Qualified Stock Option Terms under the Chubb Limited 2016 Long-Term Incentive Plan for Executive Officers
10-K 10.92 February 23, 2018
10.67*
Form of Restricted Stock Unit Award Terms under the Chubb Limited 2016 Long-Term Plan for Executive Officers
10-K 10.93 February 23, 2018
10.68*
Form of Incentive Stock Option Terms under the Chubb Limited 2016 Long-Term Incentive Plan for Swiss Executive Management
10-K 10.94 February 23, 2018
10.69*
Form of Non-Qualified Stock Option Terms under the Chubb Limited 2016 Long-Term Incentive Plan for Swiss Executive Management
10-K 10.95 February 23, 2018
10.70*
Form of Restricted Stock Award Terms under the Chubb Limited 2016 Long-Term Incentive Plan for Swiss Executive Management
10-K 10.96 February 23, 2018
10.71*
Form of Restricted Stock Unit Award Terms under the Chubb Limited 2016 Long-Term Incentive Plan for Swiss Executive Management
10-K 10.97 February 23, 2018
10.72*
Chubb Limited Clawback Policy
10-K 10.99 February 23, 2018
10.73*
The Chubb Corporation Key Employee Deferred Compensation Plan (2005)
8-K 10.9 March 9, 2005
10.74*
Amendment One to The Chubb Corporation Key Employee Deferred Compensation Plan (2005)
8-K 10.1 September 12, 2005
10.75*
Amendment No. 2 to The Chubb Corporation Key Employee Deferred Compensation Plan (2005)
10-K 10.20 March 2, 2009
10.76*
Amendment No. 3 to The Chubb Corporation Key Employee Deferred Compensation Plan (2005)
10-K 10.32 February 28, 2013
10.77*
Pension Excess Benefit Plan of The Chubb Corporation
X
10.78*
Amendment No. 2 to the Pension Excess Benefit Plan of The Chubb Corporation
X
10.79*
Amendment No. 3 to the Pension Excess Benefit Plan of The Chubb Corporation
X
Incorporated by Reference
Exhibit Number Exhibit Description Form Original Number Date Filed Filed Herewith
10.80*
Amendment No. 4 to the Pension Excess Benefit Plan of The Chubb Corporation
X
10.81*
Amendments to the Chubb U.S. Supplemental Employee Retirement Plan, the Chubb U.S. Deferred Compensation Plan, and Pension Excess Benefit Plan of The Chubb Corporation
X
10.82*
Form of Performance Based Restricted Stock Award Terms under the Chubb Limited 2016 Long-Term Incentive Plan for Swiss Executive Management
X
10.83*
Form of Performance Based Restricted Stock Award Terms under the Chubb Limited 2016 Long-Term Incentive Plan for Executive Officers
X
21.1
Subsidiaries of the Company
X
22.1
Guaranteed Securities
X
23.1
Consent of Independent Registered Public Accounting Firm
X
31.1
Certification Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002
X
31.2
Certification Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002
X
32.1
Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002
X
32.2
Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002
X
101 The following financial information from Chubb Limited's Annual Report on Form 10-K for the year ended December 31, 2020, formatted in Inline XBRL: (i) Consolidated Balance Sheets at December 31, 2020 and 2019; (ii) Consolidated Statements of Operations and Comprehensive Income for the years ended December 31, 2020, 2019, and 2018; (iii) Consolidated Statements of Shareholders' Equity for the years ended December 31, 2020, 2019, and 2018; (iv) Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019, and 2018; and (v) Notes to the Consolidated Financial Statements X
104 The Cover Page Interactive Data File formatted in Inline XBRL (The cover page XBRL tags are embedded in the Inline XBRL document and included in Exhibit 101)
* Management contract, compensatory plan or arrangement