Federal and Foreign Income Tax

12 Months Ended

Dec. 31, 2011

Federal and Foreign Income Tax [Abstract]

Federal and Foreign Income Tax

(8) Federal and Foreign Income Tax

(a) Income tax expense and taxes paid consisted of the following components:

	Years Ended December 31
	2011		2010		2009
	(in millions)
Income tax expense
Current tax
United States	$	260	$	436	$	532
Foreign		236		242		161
Deferred tax, principally United States		25		136		86
	$	521	$	814	$	779
Federal and foreign income taxes paid	$	598	$	500	$	720

(b) The effective income tax rate is different than the statutory federal corporate tax rate. The reasons for the different effective tax rate were as follows:

	Years Ended December 31
	2011						2010						2009
				% of						% of						% of
				Pre-Tax						Pre-Tax						Pre-Tax
	Amount			Income			Amount			Income			Amount			Income
	(in millions)
Income before federal and foreign income tax	$	2,199					$	2,988					$	2,962
Tax at statutory federal income tax rate	$	770			35.0	%	$	1,046			35.0	%	$	1,037			35.0	%
Tax exempt interest income		(243	)		(11.0	)		(241	)		(8.1	)		(239	)		(8.1	)
Other, net		(6	)		(.3	)		9			.3			(19	)		(.6	)
Federal and foreign income tax	$	521			23.7	%	$	814			27.2	%	$	779			26.3	%

(c) The tax effects of temporary differences that gave rise to deferred income tax assets and liabilities were as follows:

	December 31
	2011			2010
	(in millions)
Deferred income tax assets
Unpaid losses and loss expenses	$	632		$	643
Unearned premiums		339			334
Foreign tax credits		853			834
Employee compensation		116			125
Postretirement benefits		293			165
Other-than-temporary impairment losses		286			290
Total		2,519			2,391
Deferred income tax liabilities
Deferred policy acquisition costs		457			441
Unremitted earnings of foreign subsidiaries		925			936
Unrealized appreciation of investments		934			603
Other invested assets		235			212
Other, net		117			101
Total		2,668			2,293
Net deferred income tax asset (liability)	$	(149	)	$	98

Deferred income tax assets were established related to the expected future U.S. tax benefit of losses incurred by a foreign subsidiary of the Corporation. Realization of these deferred tax assets depends on the subsidiary’s ability to generate sufficient taxable income in future periods. A valuation allowance of $11 million and $7 million was recorded at December 31, 2011 and 2010, respectively, to reflect management’s assessment that the realization of a portion of the deferred tax assets is uncertain due to the inability of the foreign subsidiary to generate sufficient taxable income in the near term. Although realization of the remaining deferred tax assets is not assured, management believes it is more likely than not that such deferred tax assets will be realized.

(d) Chubb and its domestic subsidiaries file a consolidated federal income tax return with the U.S. Internal Revenue Service (IRS). The Corporation also files income tax returns with various state and foreign tax authorities. The U.S. income tax returns for years prior to 2007 are no longer subject to examination by the IRS. The examination of the U.S. income tax returns for 2007, 2008 and 2009 is expected to be completed in late 2012. Management does not anticipate any assessments for tax years that remain subject to examination that would have a material effect on the Corporation’s financial position or results of operations.