Company Quick10K Filing
Quick10K
Chubb
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$142.65 458 $65,320
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-06-13 Other Events, Exhibits
8-K 2019-05-16 Shareholder Vote
8-K 2019-04-30 Earnings, Exhibits
8-K 2019-02-05 Earnings, Exhibits
8-K 2019-01-18 Earnings, Exhibits
8-K 2018-12-03 Regulation FD
8-K 2018-10-23 Earnings, Exhibits
8-K 2018-10-10 Earnings, Exhibits
8-K 2018-10-09 Exhibits
8-K 2018-07-24 Earnings, Exhibits
8-K 2018-05-17 Amend Bylaw, Shareholder Vote, Exhibits
8-K 2018-04-24 Earnings, Exhibits
8-K 2018-04-03 Earnings, Exhibits
8-K 2018-03-06 Other Events, Exhibits
8-K 2018-01-30 Earnings, Exhibits
IT Gartner 13,780
FL Foot Locker 6,390
CLH Clean Harbors 3,900
TRK Speedway Motorsports 755
FDUS Fidus Investment 396
NAT Nordic American Tankers 307
TYME Tyme Technologies 190
REED Reed's 124
CWBC Community West Bancshares 86
COIL Citadel Exploration 0
CB 2019-03-31
Part I Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds and Issuer Repurchases of Equity Securities
Item 6. Exhibits
EX-31.1 cb-3312019xex311.htm
EX-31.2 cb-3312019xex312.htm
EX-32.1 cb-3312019xex321.htm
EX-32.2 cb-3312019xex322.htm

Chubb Earnings 2019-03-31

CB 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 cb-33119x10q.htm 10-Q Document

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2019
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from             to             
Commission File No. 1-11778

CHUBB LIMITED
(Exact name of registrant as specified in its charter)
Switzerland
98-0091805
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
Baerengasse 32
Zurich, Switzerland CH-8001
(Address of principal executive offices) (Zip Code)
+41 (0)43 456 76 00
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES þ                                                 NO  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
YES þ                                                 NO  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” "smaller reporting company," and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ
 
 
 
 
 
Accelerated filer ¨
Non-accelerated filer ¨
 
Smaller reporting company ¨
 
 
 
 
 
 
Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES ¨                                                NO  þ
 
 
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Shares, par value CHF 24.15 per share
CB
New York Stock Exchange
 
 
 
The number of registrant’s Common Shares (CHF 24.15 par value) outstanding as of April 18, 2019 was 457,870,731.



CHUBB LIMITED
INDEX TO FORM 10-Q



 
 
 
 
 
Part I.
FINANCIAL INFORMATION
Page
Item 1.
 
 
 
 
 
 
 
 
Note 1.
 
Note 2.
 
Note 3.
 
Note 4.
 
Note 5.
 
Note 6.
 
Note 7.
 
Note 8.
 
Note 9.
 
Note 10.
 
Note 11.
Item 2.
Item 3.
Item 4.
 
 
 
Part II.
OTHER INFORMATION
 
Item 1.
Item 1A.
Item 2.
Item 6.



2


PART I FINANCIAL INFORMATION

ITEM 1. Financial Statements
CONSOLIDATED BALANCE SHEETS (Unaudited)
Chubb Limited and Subsidiaries
 
March 31

 
December 31

(in millions of U.S. dollars, except share and per share data)
2019

 
2018

Assets
 
 
 
Investments
 
 
 
Fixed maturities available for sale, at fair value (amortized cost – $79,624 and $79,323) (includes hybrid financial instruments of $8 and $9)
$
80,663

 
$
78,470

Fixed maturities held to maturity, at amortized cost (fair value – $13,240 and $13,259)
13,136

 
13,435

Equity securities, at fair value and cost
821

 
770

Short-term investments, at fair value and amortized cost
3,078

 
3,016

Other investments, at fair value and cost
5,562

 
5,277

Total investments
103,260

 
100,968

Cash
1,271

 
1,247

Restricted cash
122

 
93

Securities lending collateral
1,861

 
1,926

Accrued investment income
870

 
883

Insurance and reinsurance balances receivable
9,826

 
10,075

Reinsurance recoverable on losses and loss expenses
16,137

 
15,993

Reinsurance recoverable on policy benefits
203

 
202

Deferred policy acquisition costs
5,008

 
4,922

Value of business acquired
289

 
295

Goodwill
15,328

 
15,271

Other intangible assets
6,091

 
6,143

Prepaid reinsurance premiums
2,698

 
2,544

Investments in partially-owned insurance companies
708

 
678

Other assets
7,675

 
6,531

Total assets
$
171,347

 
$
167,771

Liabilities
 
 
 
Unpaid losses and loss expenses
$
63,143

 
$
62,960

Unearned premiums
15,909

 
15,532

Future policy benefits
5,552

 
5,506

Insurance and reinsurance balances payable
6,469

 
6,437

Securities lending payable
1,861

 
1,926

Accounts payable, accrued expenses, and other liabilities
11,210

 
10,472

Deferred tax liabilities
541

 
304

Repurchase agreements
1,419

 
1,418

Short-term debt
509

 
509

Long-term debt
12,071

 
12,087

Trust preferred securities
308

 
308

Total liabilities
118,992

 
117,459

Commitments and contingencies

 

Shareholders’ equity
 
 
 
Common Shares (CHF 24.15 par value; 479,783,864 shares issued; 458,179,205 and 459,203,378 shares outstanding)
11,121

 
11,121

Common Shares in treasury (21,604,659 and 20,580,486 shares)
(2,775
)
 
(2,618
)
Additional paid-in capital
12,051

 
12,557

Retained earnings
32,728

 
31,700

Accumulated other comprehensive income (loss) (AOCI)
(770
)
 
(2,448
)
Total shareholders’ equity
52,355

 
50,312

Total liabilities and shareholders’ equity
$
171,347

 
$
167,771

See accompanying notes to the consolidated financial statements


3




CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (Unaudited)
Chubb Limited and Subsidiaries

 
Three Months Ended
 
 
March 31
 
(in millions of U.S. dollars, except per share data)
2019

 
2018

Revenues
 
 
 
Net premiums written
$
7,313

 
$
7,104

Increase in unearned premiums
(176
)
 
(77
)
Net premiums earned
7,137

 
7,027

Net investment income
836

 
806

Net realized gains (losses):
 
 
 
Other-than-temporary impairment (OTTI) losses gross
(13
)
 
(1
)
Portion of OTTI losses recognized in other comprehensive income (OCI)

 

Net OTTI losses recognized in income
(13
)
 
(1
)
Net realized gains (losses) excluding OTTI losses
(84
)
 
(1
)
Total net realized gains (losses) (includes $(44) and $(23) reclassified from AOCI)
(97
)
 
(2
)
Total revenues
7,876

 
7,831

Expenses
 
 
 
Losses and loss expenses
4,098

 
4,102

Policy benefits
196

 
151

Policy acquisition costs
1,464

 
1,464

Administrative expenses
710

 
692

Interest expense
140

 
157

Other (income) expense
(39
)
 
(47
)
Amortization of purchased intangibles
76

 
85

Chubb integration expenses
3

 
10

Total expenses
6,648

 
6,614

Income before income tax
1,228

 
1,217

Income tax expense (benefit) (includes $(6) and $(3) on reclassified unrealized losses)
188

 
135

Net income
$
1,040

 
$
1,082

Other comprehensive income (loss)
 
 
 
Unrealized appreciation (depreciation)
$
1,845

 
$
(1,234
)
Reclassification adjustment for net realized (gains) losses included in net income
44

 
23

 
1,889

 
(1,211
)
Change in:
 
 
 
Cumulative foreign currency translation adjustment
147

 
397

Postretirement benefit liability adjustment
(27
)
 
(23
)
Other comprehensive income (loss), before income tax
2,009

 
(837
)
Income tax (expense) benefit related to OCI items
(331
)
 
208

Other comprehensive income (loss)
1,678

 
(629
)
Comprehensive income
$
2,718

 
$
453

Earnings per share
 
 
 
Basic earnings per share
$
2.27

 
$
2.32

Diluted earnings per share
$
2.25

 
$
2.30

See accompanying notes to the consolidated financial statements


4


CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)
Chubb Limited and Subsidiaries

 
Three Months Ended
 
 
March 31
 
(in millions of U.S. dollars)
2019

 
2018

Common Shares
 
 
 
Balance – beginning and end of period
$
11,121

 
$
11,121

Common Shares in treasury
 
 
 
Balance – beginning of period
(2,618
)
 
(1,944
)
Common Shares repurchased
(367
)
 

Net shares redeemed under employee share-based compensation plans
210

 
217

Balance – end of period
(2,775
)
 
(1,727
)
Additional paid-in capital
 
 
 
Balance – beginning of period
12,557

 
13,978

Net shares redeemed under employee share-based compensation plans
(191
)
 
(262
)
Exercise of stock options
(34
)
 
(16
)
Share-based compensation expense
54

 
62

Funding of dividends declared to Retained earnings
(335
)
 
(332
)
Balance – end of period
12,051

 
13,430

Retained earnings
 
 
 
Balance – beginning of period
31,700

 
27,474

Cumulative effect of adoption of accounting guidance (refer to Note 1)
(12
)
 
409

Balance – beginning of period, as adjusted
31,688

 
27,883

Net income
1,040

 
1,082

Funding of dividends declared from Additional paid-in capital
335

 
332

Dividends declared on Common Shares
(335
)
 
(332
)
Balance – end of period
32,728


28,965

Accumulated other comprehensive income (loss)
 
 
 
Net unrealized appreciation on investments
 
 
 
Balance – beginning of period
(545
)
 
1,450

Cumulative effect of adoption of accounting guidance

 
(416
)
Balance – beginning of period, as adjusted
(545
)
 
1,034

Change in period, before reclassification from AOCI, net of income tax
    benefit (expense) of $(324) and $226
1,521

 
(1,008
)
Amounts reclassified from AOCI, net of income tax expense of $(6) and $(3)
38

 
20

Change in period, net of income tax benefit (expense) of $(330) and $223
1,559

 
(988
)
Balance – end of period
1,014

 
46

Cumulative foreign currency translation adjustment
 
 
 
Balance – beginning of period
(1,976
)
 
(1,187
)
Change in period, net of income tax expense of $(7) and $(19)
140

 
378

Balance – end of period
(1,836
)
 
(809
)
Postretirement benefit liability adjustment
 
 
 
Balance – beginning of period
73

 
280

Change in period, net of income tax benefit of $6 and $4
(21
)
 
(19
)
Balance – end of period
52

 
261

Accumulated other comprehensive income (loss)
(770
)
 
(502
)
Total shareholders’ equity
$
52,355

 
$
51,287

See accompanying notes to the consolidated financial statements


5




CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Chubb Limited and Subsidiaries


 
Three Months Ended March 31
 
(in millions of U.S. dollars)
2019

 
2018

Cash flows from operating activities
 
 
 
Net income
$
1,040

 
$
1,082

Adjustments to reconcile net income to net cash flows from operating activities

 

Net realized (gains) losses
97

 
2

Amortization of premiums/discounts on fixed maturities
118

 
155

Amortization of purchased intangibles
76

 
85

Deferred income taxes
(76
)
 
(2
)
Unpaid losses and loss expenses
62

 
(420
)
Unearned premiums
274

 
111

Future policy benefits
41

 
58

Insurance and reinsurance balances payable
13

 
250

Accounts payable, accrued expenses, and other liabilities
(502
)
 
(724
)
Income taxes payable
266

 
88

Insurance and reinsurance balances receivable
278

 
(174
)
Reinsurance recoverable
(97
)
 
141

Deferred policy acquisition costs
(63
)
 
(75
)
Other
(205
)
 
(26
)
Net cash flows from operating activities
1,322

 
551

Cash flows from investing activities
 
 
 
Purchases of fixed maturities available for sale
(5,561
)
 
(5,972
)
Purchases of fixed maturities held to maturity
(1
)
 
(162
)
Purchases of equity securities
(49
)
 
(55
)
Sales of fixed maturities available for sale
3,287

 
2,562

Sales of to be announced mortgage-backed securities
6

 

Sales of equity securities
60

 
40

Maturities and redemptions of fixed maturities available for sale
1,831

 
1,865

Maturities and redemptions of fixed maturities held to maturity
280

 
255

Net change in short-term investments
(39
)
 
731

Net derivative instruments settlements
(358
)
 
39

Private equity contributions
(410
)
 
(353
)
Private equity distributions
368

 
201

Other
(87
)
 
(32
)
Net cash flows used for investing activities
(673
)
 
(881
)
Cash flows from financing activities
 
 
 
Dividends paid on Common Shares
(336
)
 
(330
)
Common Shares repurchased
(367
)
 
(29
)
Proceeds from issuance of long-term debt

 
2,175

Repayment of long-term debt


 
(300
)
Proceeds from issuance of repurchase agreements
471

 
408

Repayment of repurchase agreements
(470
)
 
(404
)
Proceeds from share-based compensation plans
35

 
34

Policyholder contract deposits
115

 
118

Policyholder contract withdrawals
(78
)
 
(105
)
Net cash flows (used for) from financing activities
(630
)
 
1,567

Effect of foreign currency rate changes on cash and restricted cash
34

 
25

Net increase in cash and restricted cash
53

 
1,262

Cash and restricted cash – beginning of period
1,340

 
851

Cash and restricted cash – end of period
$
1,393

 
$
2,113

Supplemental cash flow information
 
 
 
Taxes paid
$
14

 
$
93

Interest paid
$
85

 
$
82

See accompanying notes to the consolidated financial statements


6


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Chubb Limited and Subsidiaries



1. General
a) Basis of presentation
Chubb Limited is a holding company incorporated in Zurich, Switzerland. Chubb Limited, through its subsidiaries, provides a broad range of insurance and reinsurance products to insureds worldwide. Chubb operates through the following business segments: North America Commercial P&C Insurance, North America Personal P&C Insurance, North America Agricultural Insurance, Overseas General Insurance, Global Reinsurance, and Life Insurance. Refer to Note 9 for additional information.

The interim unaudited consolidated financial statements, which include the accounts of Chubb Limited and its subsidiaries (collectively, Chubb, we, us, or our), have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) and, in the opinion of management, reflect all adjustments (consisting of normally recurring accruals) necessary for a fair statement of the results and financial position for such periods. All significant intercompany accounts and transactions, including internal reinsurance transactions, have been eliminated.

The results of operations and cash flows for any interim period are not necessarily indicative of the results for the full year. These consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in our 2018 Form 10-K.

b) Restricted cash
Restricted cash in the Consolidated balance sheets represents amounts held for the benefit of third parties and is legally or contractually restricted as to withdrawal or usage. Amounts include deposits with U.S. and non-U.S. regulatory authorities, trust funds set up for the benefit of ceding companies, and amounts pledged as collateral to meet financing arrangements.

The following table provides a reconciliation of cash and restricted cash reported within the Consolidated balance sheets that total to the amounts shown in the Consolidated statements of cash flows:
 
March 31

 
December 31

(in millions of U.S. dollars)
2019

 
2018

Cash
$
1,271

 
$
1,247

Restricted cash
122

 
93

Total cash and restricted cash shown in the Consolidated statements of cash flows
$
1,393

 
$
1,340


c) Goodwill
During the three months ended March 31, 2019, Goodwill increased $57 million, primarily reflecting the impact of foreign exchange.

d) Accounting guidance adopted in 2019
Premium Amortization on Purchased Callable Debt Securities
Effective January 1, 2019, we adopted new accounting guidance on "Premium Amortization on Purchased Callable Debt Securities" for bonds held at a premium on a modified retrospective basis. The guidance requires the premium to be amortized to the earliest call date. As a result, we recorded a cumulative effect adjustment to decrease beginning retained earnings by $12 million after-tax ($15 million pre-tax). Securities held at a discount did not require an accounting change.

Lease Accounting
Effective for the quarter ended March 31, 2019, we adopted new lease accounting guidance and elected to utilize a modified retrospective approach which allowed us to initially apply the new lease standard at the adoption date and recognize a cumulative effect adjustment to the opening balance of retained earnings for 2019, with no adjustment to prior periods presented. The cumulative effect adjustment to the opening balance of retained earnings was zero. Our leases consist principally of real estate operating leases that are amortized on a straight-line basis over the term of the lease. The adoption of the updated guidance resulted in our recognizing a right-of-use asset of $608 million, which was recorded within Other assets, and a lease liability of $653 million, which was recorded within Accounts payable, accrued expenses, and other liabilities on the Consolidated balance sheet as well as de-recognizing the liability for deferred rent that was required under the previous guidance. The adoption of the new guidance did not have a material effect on our results of operations, financial condition or liquidity.

Refer to the 2018 Form 10-K for information on accounting guidance not yet adopted.


7




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited)
Chubb Limited and Subsidiaries


2. Investments

a) Fixed maturities
 
March 31, 2019
Amortized
Cost

 
Gross
Unrealized
Appreciation

 
Gross
Unrealized
Depreciation

 
Fair
Value

 
OTTI Recognized
in AOCI

(in millions of U.S. dollars)
 
 
 
 
Available for sale
 
 
 
 
 
 
 
 
 
U.S. Treasury and agency
$
3,760

 
$
50

 
$
(19
)
 
$
3,791

 
$

Foreign
21,796

 
658

 
(112
)
 
22,342

 

Corporate securities
27,519

 
476

 
(170
)
 
27,825

 
(5
)
Mortgage-backed securities
16,369

 
173

 
(112
)
 
16,430

 
(1
)
States, municipalities, and political subdivisions
10,180

 
123

 
(28
)
 
10,275

 

 
$
79,624

 
$
1,480

 
$
(441
)
 
$
80,663

 
$
(6
)
Held to maturity
 
 
 
 
 
 
 
 
 
U.S. Treasury and agency
$
1,144

 
$
11

 
$
(3
)
 
$
1,152

 
$

Foreign
1,503

 
34

 
(3
)
 
1,534

 

Corporate securities
2,543

 
30

 
(34
)
 
2,539

 

Mortgage-backed securities
2,484

 
16

 
(6
)
 
2,494

 

States, municipalities, and political subdivisions
5,462

 
67

 
(8
)
 
5,521

 

 
$
13,136

 
$
158

 
$
(54
)
 
$
13,240

 
$


December 31, 2018
Amortized
Cost

 
Gross
Unrealized
Appreciation

 
Gross
Unrealized
Depreciation

 
Fair
Value

 
OTTI Recognized
in AOCI

(in millions of U.S. dollars)
 
 
 
 
Available for sale
 
 
 
 
 
 
 
 
 
U.S. Treasury and agency
$
4,158

 
$
30

 
$
(43
)
 
$
4,145

 
$

Foreign
21,370

 
395

 
(349
)
 
21,416

 

Corporate securities
27,183

 
150

 
(750
)
 
26,583

 
(6
)
Mortgage-backed securities
15,758

 
66

 
(284
)
 
15,540

 
(1
)
States, municipalities, and political subdivisions
10,854

 
49

 
(117
)
 
10,786

 

 
$
79,323

 
$
690

 
$
(1,543
)
 
$
78,470

 
$
(7
)
Held to maturity
 
 
 
 
 
 
 
 
 
U.S. Treasury and agency
$
1,185

 
$
8

 
$
(11
)
 
$
1,182

 
$

Foreign
1,549

 
11

 
(18
)
 
1,542

 

Corporate securities
2,601

 
11

 
(104
)
 
2,508

 

Mortgage-backed securities
2,524

 
5

 
(43
)
 
2,486

 

States, municipalities, and political subdivisions
5,576

 
16

 
(51
)
 
5,541

 

 
$
13,435

 
$
51

 
$
(227
)
 
$
13,259

 
$


As discussed in Note 2 b), if a credit loss is incurred on an impaired fixed maturity, an OTTI is considered to have occurred and the portion of the impairment not related to credit losses (non-credit OTTI) is recognized in OCI. Included in the “OTTI Recognized in AOCI” columns above are the cumulative amounts of non-credit OTTI recognized in OCI adjusted for subsequent sales, maturities, and redemptions. OTTI recognized in AOCI does not include the impact of subsequent changes in fair value of the related securities. In periods subsequent to a recognition of OTTI in OCI, changes in the fair value of the related fixed maturities are reflected in Net unrealized appreciation on investments in the Consolidated statements of shareholders’ equity. For the three months ended March 31, 2019 and 2018, $9 million of net unrealized appreciation and $4 million of net unrealized depreciation, respectively, related to such securities are included in OCI. At March 31, 2019 and December 31,


8


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited)
Chubb Limited and Subsidiaries


2018, AOCI included cumulative net unrealized appreciation of $3 million and $1 million, respectively, related to securities remaining in the investment portfolio for which a non-credit OTTI was recognized.

Mortgage-backed securities (MBS) issued by U.S. government agencies are combined with all other to be announced mortgage-backed securities (TBAs) held (refer to Note 5 b) (iv)) and are included in the category, “Mortgage-backed securities”. Approximately 82 percent and 81 percent of the total mortgage-backed securities at March 31, 2019 and December 31, 2018, respectively, are represented by investments in U.S. government agency bonds. The remainder of the mortgage exposure consists of collateralized mortgage obligations and non-government mortgage-backed securities, the majority of which provide a planned structure for principal and interest payments and carry a rating of AAA by the major credit rating agencies.

The following table presents fixed maturities by contractual maturity:
 
 
 
March 31

 
 
 
December 31

 
 
 
2019

 
 
 
2018

(in millions of U.S. dollars)
Amortized Cost

 
Fair Value

 
Amortized Cost

 
Fair Value

Available for sale
 
 
 
 
 
 
 
Due in 1 year or less
$
3,776

 
$
3,785

 
$
3,569

 
$
3,568

Due after 1 year through 5 years
27,308

 
27,593

 
27,134

 
27,005

Due after 5 years through 10 years
23,367

 
23,690

 
24,095

 
23,543

Due after 10 years
8,804

 
9,165

 
8,767

 
8,814

 
63,255

 
64,233

 
63,565

 
62,930

Mortgage-backed securities
16,369

 
16,430

 
15,758

 
15,540

 
$
79,624

 
$
80,663

 
$
79,323

 
$
78,470

Held to maturity
 
 
 
 
 
 
 
Due in 1 year or less
$
614

 
$
616

 
$
536

 
$
537

Due after 1 year through 5 years
3,111

 
3,125

 
3,122

 
3,106

Due after 5 years through 10 years
4,246

 
4,287

 
4,468

 
4,407

Due after 10 years
2,681

 
2,718

 
2,785

 
2,723

 
10,652

 
10,746

 
10,911

 
10,773

Mortgage-backed securities
2,484

 
2,494

 
2,524

 
2,486

 
$
13,136

 
$
13,240

 
$
13,435

 
$
13,259


Expected maturities could differ from contractual maturities because borrowers may have the right to call or prepay obligations, with or without call or prepayment penalties. 

b) Net realized gains (losses)
In accordance with guidance related to the recognition and presentation of OTTI, when an impairment related to a fixed maturity has occurred, OTTI is required to be recorded in Net income if management has the intent to sell the security or it is more likely than not that we will be required to sell the security before the recovery of its amortized cost. Further, in cases where we do not intend to sell the security and it is more likely than not that we will not be required to sell the security, we must evaluate the security to determine the portion of the impairment, if any, related to credit losses. If a credit loss is incurred, an OTTI is considered to have occurred and any portion of the OTTI related to credit losses must be reflected in Net income while the portion of OTTI related to all other factors is recognized in OCI. For fixed maturities held to maturity, OTTI recognized in OCI is accreted from AOCI to the amortized cost of the fixed maturity prospectively over the remaining term of the securities.

Each quarter, securities in an unrealized loss position (impaired securities), including fixed maturities and securities lending collateral are reviewed to identify impaired securities to be specifically evaluated for a potential OTTI.

Evaluation of potential credit losses related to fixed maturities
We review each fixed maturity in an unrealized loss position to assess whether the security is a candidate for credit loss. Specifically, we consider credit rating, market price, and issuer-specific financial information, among other factors, to assess the likelihood of collection of all principal and interest as contractually due. Securities, for which we determine that credit loss is likely, are subjected to further analysis to estimate the credit loss recognized in Net income, if any. In general, credit loss


9




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited)
Chubb Limited and Subsidiaries


recognized in Net income equals the difference between the security’s amortized cost and the net present value of its projected future cash flows discounted at the effective interest rate implicit in the debt security. All significant assumptions used in determining credit losses are subject to change as market conditions evolve.

Corporate securities
Projected cash flows for corporate securities (principally senior unsecured bonds) are driven primarily by assumptions regarding probability of default and also the timing and amount of recoveries associated with defaults. Chubb developed projected cash flows for corporate securities using market observable data, issuer-specific information, and credit ratings. We use historical default data by Moody’s Investors Service (Moody’s) rating category to calculate a 1-in-100 year probability of default, which results in a default assumption in excess of the historical mean default rate. Consistent with management's approach, Chubb assumed a 32 percent recovery rate (the par value of a defaulted security that will be recovered) across all rating categories rather than using Moody's historical mean recovery rate of 42 percent. We believe that use of a default assumption in excess of the historical mean is conservative.

For the three months ended March 31, 2019 and 2018, credit losses recognized in Net income for corporate securities were $6 million and nil, respectively.

Mortgage-backed securities
For mortgage-backed securities, credit impairment is assessed using a cash flow model that estimates the cash flows on the underlying mortgages, using the security-specific collateral and transaction structure. The model estimates cash flows from the underlying mortgage loans and distributes those cash flows to various tranches of securities, considering the transaction structure and any subordination and credit enhancements that exist in that structure. The cash flow model incorporates actual cash flows on the mortgage-backed securities through the current period and then projects the remaining cash flows using a number of assumptions, including default rates, prepayment rates, and loss severity rates (the par value of a defaulted security that will not be recovered) on foreclosed properties.

For the three months ended March 31, 2019 and 2018, there were no credit losses recognized in Net income for mortgage-backed securities.
































10


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited)
Chubb Limited and Subsidiaries


The following table presents the components of Net realized gains (losses):
 
Three Months Ended
 
 
March 31
 
(in millions of U.S. dollars)
2019

 
2018

Fixed maturities:
 
 
 
OTTI on fixed maturities, gross and net
$
(13
)
 
$
(1
)
Gross realized gains excluding OTTI
27

 
66

Gross realized losses excluding OTTI
(58
)
 
(88
)
Total fixed maturities
(44
)
 
(23
)
Equity securities:
 
 
 
Gross realized gains excluding OTTI
64

 
10

Gross realized losses excluding OTTI
(6
)
 
(21
)
Total equity securities
58

 
(11
)
Other investments
(44
)
 
29

Foreign exchange gains (losses)
13

 
(77
)
Investment and embedded derivative instruments
(130
)
 
17

Fair value adjustments on insurance derivative
114

 
38

S&P futures
(63
)
 
22

Other derivative instruments
(1
)
 
2

Other

 
1

Net realized gains (losses) (pre-tax)
$
(97
)
 
$
(2
)

The following table presents a roll-forward of pre-tax credit losses related to fixed maturities for which a portion of OTTI was recognized in OCI: 
 
Three Months Ended
 
 
March 31
 
(in millions of U.S. dollars)
2019

 
2018

Balance of credit losses related to securities still held – beginning of period
$
34

 
$
22

Additions where no OTTI was previously recorded
6

 

Reductions for securities sold during the period
(8
)
 
(7
)
Balance of credit losses related to securities still held – end of period
$
32

 
$
15


c) Equity securities and Other investments
The following table presents realized gains and losses from equity securities and other investments, including both sales of securities and unrealized gains and losses from changes in fair value:

 
 
 
 
 
 
 
Three Months Ended
 
 
 
 
March 31
 
 
2019
 
 
2018
 
(in millions of U.S. dollars)
Equity Securities

 
Other Investments

 
Total

 
Equity Securities

 
Other Investments

 
Total

Net gains (losses) recognized during the period
$
58

 
$
(44
)
 
$
14

 
$
(11
)
 
$
29

 
$
18

Less: Net gains (losses) recognized from sales of securities
1

 
(2
)
 
(1
)
 
10

 

 
10

Unrealized gains (losses) recognized for securities still held at reporting date
$
57

 
$
(42
)
 
$
15

 
$
(21
)
 
$
29

 
$
8



11




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited)
Chubb Limited and Subsidiaries



d) Gross unrealized loss
At March 31, 2019, there were 10,095 fixed maturities out of a total of 30,335 fixed maturities in an unrealized loss position. The largest single unrealized loss in the fixed maturities was $6 million. Fixed maturities in an unrealized loss position at March 31, 2019, comprised both investment grade and below investment grade securities for which fair value declined primarily due to widening credit spreads since the date of purchase.

The following tables present, for all securities in an unrealized loss position (including securities on loan), the aggregate fair value and gross unrealized loss by length of time the security has continuously been in an unrealized loss position:
 
0 – 12 Months
 
 
Over 12 Months
 
 
Total
 
March 31, 2019
Fair Value

 
Gross
Unrealized
Loss

 
Fair Value

 
Gross
Unrealized
Loss

 
Fair Value

 
Gross
Unrealized
Loss

(in millions of U.S. dollars)
 
 
 
 
 
U.S. Treasury and agency
$
68

 
$

 
$
2,298

 
$
(22
)
 
$
2,366

 
$
(22
)
Foreign
1,346

 
(26
)
 
4,228

 
(89
)
 
5,574

 
(115
)
Corporate securities
3,649

 
(62
)
 
6,206

 
(142
)
 
9,855

 
(204
)
Mortgage-backed securities
388

 
(1
)
 
8,974

 
(117
)
 
9,362

 
(118
)
States, municipalities, and political subdivisions
93

 

 
4,867

 
(36
)
 
4,960

 
(36
)
Total fixed maturities
$
5,544

 
$
(89
)
 
$
26,573

 
$
(406
)
 
$
32,117

 
$
(495
)
 
0 – 12 Months
 
 
Over 12 Months
 
 
Total
 
December 31, 2018
Fair Value

 
Gross
Unrealized
Loss

 
Fair Value

 
Gross
Unrealized
Loss

 
Fair Value

 
Gross
Unrealized
Loss

(in millions of U.S. dollars)
 
 
 
 
 
U.S. Treasury and agency
$
523

 
$
(4
)
 
$
2,859

 
$
(50
)
 
$
3,382

 
$
(54
)
Foreign
6,764

 
(208
)
 
5,349

 
(159
)
 
12,113

 
(367
)
Corporate securities
16,538

 
(599
)
 
4,873

 
(255
)
 
21,411

 
(854
)
Mortgage-backed securities
6,103

 
(98
)
 
6,913

 
(229
)
 
13,016

 
(327
)
States, municipalities, and political subdivisions
5,024

 
(44
)
 
7,768

 
(124
)
 
12,792

 
(168
)
Total fixed maturities
$
34,952

 
$
(953
)
 
$
27,762

 
$
(817
)
 
$
62,714

 
$
(1,770
)

e) Restricted assets
Chubb is required to maintain assets on deposit with various regulatory authorities to support its insurance and reinsurance operations. These requirements are generally promulgated in the statutory regulations of the individual jurisdictions. The assets on deposit are available to settle insurance and reinsurance liabilities. Chubb is also required to restrict assets pledged under repurchase agreements, which represent Chubb's agreement to sell securities and repurchase them at a future date for a predetermined price. We use trust funds in certain large reinsurance transactions where the trust funds are set up for the benefit of the ceding companies and generally take the place of letter of credit (LOC) requirements. We have investments in segregated portfolios primarily to provide collateral or guarantees for LOC and derivative transactions. Included in restricted assets at March 31, 2019 and December 31, 2018 are investments, primarily fixed maturities, totaling $22.0 billion and $21.0 billion, respectively, and cash of $122 million and $93 million, respectively.
The following table presents the components of restricted assets:
 
March 31

 
December 31

(in millions of U.S. dollars)
2019

 
2018

Trust funds
$
13,943

 
$
13,988

Deposits with U.S. regulatory authorities
2,904

 
2,405

Deposits with non-U.S. regulatory authorities
2,851

 
2,531

Assets pledged under repurchase agreements
1,478

 
1,468

Other pledged assets
942

 
692

Total
$
22,118

 
$
21,084



12


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited)
Chubb Limited and Subsidiaries


3. Fair value measurements

a) Fair value hierarchy
Fair value of financial assets and financial liabilities is estimated based on the framework established in the fair value accounting guidance. The guidance defines fair value as the price to sell an asset or transfer a liability (an exit price) in an orderly transaction between market participants and establishes a three-level valuation hierarchy based on the reliability of the inputs. The fair value hierarchy gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data.

The three levels of the hierarchy are as follows:

Level 1 – Unadjusted quoted prices for identical assets or liabilities in active markets;
Level 2 – Includes, among other items, inputs other than quoted prices that are observable for the asset or liability such as
interest rates and yield curves, quoted prices for similar assets and liabilities in active markets, and quoted prices for identical or similar assets and liabilities in markets that are not active; and
Level 3 – Inputs that are unobservable and reflect management’s judgments about assumptions that market participants
would use in pricing an asset or liability.

We categorize financial instruments within the valuation hierarchy at the balance sheet date based upon the lowest level of inputs that are significant to the fair value measurement.

We use pricing services to obtain fair value measurements for the majority of our investment securities. Based on management’s understanding of the methodologies used, these pricing services only produce an estimate of fair value if there is observable market information that would allow them to make a fair value estimate. Based on our understanding of the market inputs used by the pricing services, all applicable investments have been valued in accordance with GAAP. We do not adjust prices obtained from pricing services. The following is a description of the valuation techniques and inputs used to determine fair values for financial instruments carried at fair value, as well as the general classification of such financial instruments pursuant to the valuation hierarchy.

Fixed maturities
We use pricing services to estimate fair value measurements for the majority of our fixed maturities. The pricing services use market quotations for fixed maturities that have quoted prices in active markets; such securities are classified within Level 1. For fixed maturities other than U.S. Treasury securities that generally do not trade on a daily basis, the pricing services prepare estimates of fair value measurements using their pricing applications, which include available relevant market information, benchmark curves, benchmarking of like securities, sector groupings, and matrix pricing. Additional valuation factors that can be taken into account are nominal spreads, dollar basis, and liquidity adjustments. The pricing services evaluate each asset class based on relevant market and credit information, perceived market movements, and sector news. The market inputs used in the pricing evaluation, listed in the approximate order of priority include: benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, reference data, and industry and economic events. The extent of the use of each input is dependent on the asset class and the market conditions. Given the asset class, the priority of the use of inputs may change, or some market inputs may not be relevant. Additionally, fixed maturities valuation is more subjective when markets are less liquid due to the lack of market based inputs (i.e., stale pricing), which may increase the potential that an investment's estimated fair value is not reflective of the price at which an actual transaction would occur. The overwhelming majority of fixed maturities are classified within Level 2 because the most significant inputs used in the pricing techniques are observable. For a small number of fixed maturities, we obtain a single broker quote (typically from a market maker). Due to the disclaimers on the quotes that indicate that the price is indicative only, we include these fair value estimates in Level 3. 

Equity securities
Equity securities with active markets are classified within Level 1 as fair values are based on quoted market prices. For equity securities in markets which are less active, fair values are based on market valuations and are classified within Level 2. Equity securities for which pricing is unobservable are classified within Level 3.

Short-term investments
Short-term investments, which comprise securities due to mature within one year of the date of purchase that are traded in active markets, are classified within Level 1 as fair values are based on quoted market prices. Securities such as commercial paper and discount notes are classified within Level 2 because these securities are typically not actively traded due to their


13




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited)
Chubb Limited and Subsidiaries


approaching maturity and, as such, their cost approximates fair value. Short-term investments for which pricing is unobservable are classified within Level 3.

Other investments
Fair values for the majority of Other investments including investments in partially-owned investment companies, investment funds, and limited partnerships are based on their respective net asset values or equivalent (NAV) and are excluded from the fair value hierarchy table below. Certain of our long-duration contracts are supported by assets that do not qualify for separate account reporting under GAAP. These assets comprise mutual funds classified within Level 1 in the valuation hierarchy on the same basis as other equity securities traded in active markets. Other investments also include equity securities classified within Level 1, and fixed maturities, classified within Level 2, held in rabbi trusts maintained by Chubb for deferred compensation plans and supplemental retirement plans and are classified within the valuation hierarchy on the same basis as other equity securities and fixed maturities. Other investments for which pricing is unobservable are classified within Level 3.

Securities lending collateral
The underlying assets included in Securities lending collateral in the Consolidated balance sheets are fixed maturities which are classified in the valuation hierarchy on the same basis as other fixed maturities. Excluded from the valuation hierarchy is the corresponding liability related to Chubb’s obligation to return the collateral plus interest as it is reported at contract value and not fair value in the Consolidated balance sheets.

Investment derivative instruments
Actively traded investment derivative instruments, including futures, options, and forward contracts are classified within Level 1 as fair values are based on quoted market prices. The fair value of cross-currency swaps and interest rate swaps is based on market valuations and is classified within Level 2. Investment derivative instruments are recorded in either Other assets or Accounts payable, accrued expenses, and other liabilities in the Consolidated balance sheets.

Other derivative instruments
We maintain positions in exchange-traded equity futures contracts designed to limit exposure to a severe equity market decline, which would cause an increase in expected claims and, therefore, an increase in reserves for our guaranteed minimum death benefits (GMDB) and guaranteed living benefits (GLB) reinsurance business. Our positions in exchange-traded equity futures contracts are classified within Level 1. The fair value of the majority of the remaining positions in other derivative instruments is based on significant observable inputs including equity security and interest rate indices. Accordingly, these are classified within Level 2. Other derivative instruments based on unobservable inputs are classified within Level 3. Other derivative instruments are recorded in either Other assets or Accounts payable, accrued expenses, and other liabilities in the Consolidated balance sheets.

Separate account assets
Separate account assets represent segregated funds where investment risks are borne by the customers, except to the extent of certain guarantees made by Chubb. Separate account assets comprise mutual funds classified within Level 1 in the valuation hierarchy on the same basis as other equity securities traded in active markets. Separate account assets also include fixed maturities classified within Level 2 because the most significant inputs used in the pricing techniques are observable. Excluded from the valuation hierarchy are the corresponding liabilities as they are reported at contract value and not fair value in the Consolidated balance sheets. Separate account assets are recorded in Other assets in the Consolidated balance sheets.

Guaranteed living benefits
The GLB arises from life reinsurance programs covering living benefit guarantees whereby we assume the risk of guaranteed minimum income benefits (GMIB) associated with variable annuity contracts. GLB’s are recorded in Accounts payable, accrued expenses, and other liabilities and Future policy benefits in the Consolidated balance sheets. For GLB reinsurance, Chubb estimates fair value using an internal valuation model which includes current market information and estimates of policyholder behavior. All of the treaties contain claim limits, which are factored into the valuation model. The fair value depends on a number of factors, including interest rates, equity markets, credit risk, current account value, market volatility, expected annuitization rates and other policyholder behavior, and changes in policyholder mortality.

The most significant policyholder behavior assumptions include lapse rates and the GMIB annuitization rates. Assumptions regarding lapse rates and GMIB annuitization rates differ by treaty, but the underlying methodologies to determine rates applied to each treaty are comparable.



14


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited)
Chubb Limited and Subsidiaries


A lapse rate is the percentage of in-force policies surrendered in a given calendar year. All else equal, as lapse rates increase, ultimate claim payments will decrease.

The GMIB annuitization rate is the percentage of policies for which the policyholder will elect to annuitize using the guaranteed benefit provided under the GMIB. All else equal, as GMIB annuitization rates increase, ultimate claim payments will increase, subject to treaty claim limits.

The effect of changes in key market factors on assumed lapse and annuitization rates reflect emerging trends using data available from cedants. For treaties with limited experience, rates are established in line with data received from other ceding companies adjusted, as appropriate, with industry estimates. The model and related assumptions are regularly re-evaluated by management and enhanced, as appropriate, based upon additional experience obtained related to policyholder behavior and availability of updated information such as market conditions, market participant assumptions, and demographics of in-force annuities. Because of the significant use of unobservable inputs including policyholder behavior, GLB reinsurance is classified within Level 3. For the three months ended March 31, 2019 and 2018, no material technical refinements were made to the model. For detailed information on our lapse and annuitization rate assumptions, refer to Note 3 to the Consolidated Financial Statements of our 2018 Form 10-K.

Financial instruments measured at fair value on a recurring basis, by valuation hierarchy
March 31, 2019
Level 1

 
Level 2

 
Level 3

 
Total

(in millions of U.S. dollars)
 
 
 
Assets:
 
 
 
 
 
 
 
Fixed maturities available for sale
 
 
 
 
 
 
 
U.S. Treasury and agency
$
3,168

 
$
623

 
$

 
$
3,791

Foreign

 
21,982

 
360

 
22,342

Corporate securities

 
26,483

 
1,342

 
27,825

Mortgage-backed securities

 
16,352

 
78

 
16,430

States, municipalities, and political subdivisions

 
10,275

 

 
10,275

 
3,168

 
75,715

 
1,780

 
80,663

Equity securities
766

 

 
55

 
821

Short-term investments
1,785

 
1,293

 

 
3,078

Other investments (1)
411

 
342

 
11

 
764

Securities lending collateral

 
1,861

 

 
1,861

Investment derivative instruments
15

 

 

 
15

Other derivative instruments
7

 

 

 
7

Separate account assets
2,991

 
139

 

 
3,130

Total assets measured at fair value (1)
$
9,143

 
$
79,350

 
$
1,846

 
$
90,339

Liabilities:
 
 
 
 
 
 
 
Investment derivative instruments
$
52

 
$
195

 
$

 
$
247

Other derivative instruments
12

 

 

 
12

GLB (2)

 

 
338

 
338

Total liabilities measured at fair value
$
64

 
$
195

 
$
338

 
$
597

(1) 
Excluded from the table above are partially-owned investments, investment funds, and limited partnerships of $4,464 million and other investments of $91 million at March 31, 2019 measured using NAV as a practical expedient.
(2) 
Our GLB reinsurance product meets the definition of a derivative instrument for accounting purposes and is accordingly carried at fair value. Excluded from the table above is the portion of the GLB derivative liability classified as Future policy benefits in the Consolidated balance sheets.


15




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited)
Chubb Limited and Subsidiaries


 
December 31, 2018
Level 1

 
Level 2

 
Level 3

 
Total

(in millions of U.S. dollars)
 
 
 
Assets:
 
 
 
 
 
 
 
Fixed maturities available for sale
 
 
 
 
 
 
 
U.S. Treasury and agency
$
3,400

 
$
745

 
$

 
$
4,145

Foreign

 
21,071

 
345

 
21,416

Corporate securities

 
25,284

 
1,299

 
26,583

Mortgage-backed securities

 
15,479

 
61

 
15,540

States, municipalities, and political subdivisions

 
10,786

 

 
10,786

 
3,400

 
73,365

 
1,705

 
78,470

Equity securities
713

 

 
57

 
770

Short-term investments
1,575

 
1,440

 
1

 
3,016

Other investments (1)
381

 
303

 
11

 
695

Securities lending collateral

 
1,926

 

 
1,926

Investment derivative instruments
28

 

 

 
28

Other derivative instruments
25

 

 

 
25

Separate account assets
2,686

 
137

 

 
2,823

Total assets measured at fair value (1)
$
8,808

 
$
77,171

 
$
1,774

 
$
87,753

Liabilities:
 
 
 
 
 
 
 
Investment derivative instruments
$
38

 
$
115

 
$

 
$
153

GLB (2)

 

 
452

 
452

Total liabilities measured at fair value
$
38

 
$
115

 
$
452

 
$
605

(1) 
Excluded from the table above are partially-owned investments, investment funds, and limited partnerships of $4,244 million and other investments of $95 million at December 31, 2018 measured using NAV as a practical expedient.
(2) 
Our GLB reinsurance product meets the definition of a derivative instrument for accounting purposes and is accordingly carried at fair value. Excluded from the table above is the portion of the GLB derivative liability classified as Future policy benefits in the Consolidated balance sheets.

Fair value of alternative investments
Alternative investments include investment funds, limited partnerships, and partially-owned investment companies measured at fair value using NAV as a practical expedient. The following table presents, by investment category, the expected liquidation period, fair value, and maximum future funding commitments of alternative investments:
 
 
 
 
 
March 31

 
 
 
December 31

 
Expected
Liquidation
Period of Underlying Assets
 
 
 
2019

 
 
 
2018

(in millions of U.S. dollars)
Fair
Value

 
Maximum
Future Funding
Commitments

 
Fair
Value

 
Maximum
Future Funding
Commitments

Financial
2 to 9 Years
 
$
591

 
$
188

 
$
596

 
$
193

Real Assets
2 to 11 Years
 
762

 
449

 
704

 
362

Distressed
2 to 7 Years
 
263

 
98

 
296

 
105

Private Credit
3 to 8 Years
 
134

 
291

 
147

 
310

Traditional
2 to 14 Years
 
2,331

 
2,573

 
2,362

 
2,735

Vintage
1 to 2 Years
 
125

 
43

 
56

 

Investment funds
Not Applicable
 
258

 

 
83

 

 
 
 
$
4,464

 
$
3,642

 
$
4,244

 
$
3,705


Included in all categories in the above table, except for Investment funds, are investments for which Chubb will never have the contractual option to redeem but receives distributions based on the liquidation of the underlying assets. Further, for all categories except for Investment funds, Chubb does not have the ability to sell or transfer the investments without the consent from the general partner of individual funds.


16


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited)
Chubb Limited and Subsidiaries


Investment Category:
 
Consists of investments in private equity funds:
Financial
 
targeting financial services companies, such as financial institutions and insurance services worldwide
Real Assets
 
targeting investments related to hard, physical assets, such as real estate, infrastructure and natural resources
Distressed
 
targeting distressed corporate debt/credit and equity opportunities in the U.S.
Private Credit
 
targeting privately originated corporate debt investments, including senior secured loans and subordinated bonds
Traditional
 
employing traditional private equity investment strategies, such as buyout and growth equity globally
Vintage
 
funds where the initial fund term has expired

Investment funds
Chubb’s investment funds employ various investment strategies, such as long/short equity and arbitrage/distressed. Included in this category are investments for which Chubb has the option to redeem at agreed upon value as described in each investment fund’s subscription agreement. Depending on the terms of the various subscription agreements, investment fund investments may be redeemed monthly, quarterly, semi-annually, or annually. If Chubb wishes to redeem an investment fund investment, it must first determine if the investment fund is still in a lock-up period (a time when Chubb cannot redeem its investment so that the investment fund manager has time to build the portfolio). If the investment fund is no longer in its lock-up period, Chubb must then notify the investment fund manager of its intention to redeem by the notification date prescribed by the subscription agreement. Subsequent to notification, the investment fund can redeem Chubb’s investment within several months of the notification. Notice periods for redemption of the investment funds range between 5 and 120 days. Chubb can redeem its investment funds without consent from the investment fund managers.

Level 3 financial instruments
The following table presents the significant unobservable inputs used in the Level 3 liability valuations. Excluded from the table below are inputs used to determine the fair value of Level 3 assets which are based on single broker quotes and contain no quantitative unobservable inputs developed by management. The majority of our fixed maturities classified as Level 3 used external pricing when markets are less liquid due to the lack of market inputs (i.e., stale pricing, broker quotes).
(in millions of U.S. dollars, except for percentages)
Fair Value
 
 
Valuation
Technique
 
Significant
Unobservable Inputs
 
Ranges
March 31, 2019

 
December 31, 2018

 
 
 
GLB (1)
$
338

 
$
452

 
Actuarial model
 
Lapse rate
 
3% – 32%
 
 
 
 
 
 
 
Annuitization rate
 
0% – 42%
(1) 
Discussion of the most significant inputs used in the fair value measurement of GLB and the sensitivity of those assumptions is included within Note 3 a) Guaranteed living benefits.



17




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited)
Chubb Limited and Subsidiaries


The following tables present a reconciliation of the beginning and ending balances of financial instruments measured at fair value using significant unobservable inputs (Level 3):
 
Assets
 
Liabilities
 
Three Months Ended
Available-for-Sale Debt Securities
Equity
securities

 
Short-term investments

 
Other
investments

 
GLB (1)

March 31, 2019
Foreign

 
Corporate
securities

 
MBS

 
(in millions of U.S. dollars)
 
 
 
Balance – beginning of period
$
345

 
$
1,299

 
$
61

 
$
57

 
$
1

 
$
11

 
$
452

Transfers into Level 3
3

 
5

 

 

 

 

 

Transfers out of Level 3
(15
)
 

 

 

 

 

 

Change in Net Unrealized Gains (Losses) included in OCI, including foreign exchange
6

 
4

 

 
1

 

 

 

Net Realized Gains/Losses
(1
)
 
1

 

 
(2
)
 

 

 
(114
)
Purchases
53

 
128

 
18

 
9

 

 

 

Sales
(5
)
 
(37
)
 

 
(10
)
 

 

 

Settlements
(26
)
 
(58
)
 
(1
)
 

 
(1
)
 

 

Balance – end of period
$
360

 
$
1,342

 
$
78

 
$
55

 
$

 
$
11

 
$
338

Net Realized Gains/Losses Attributable to Changes in Fair Value at the Balance Sheet Date
$

 
$

 
$

 
$
(1
)
 
$

 
$

 
$