Federal and Foreign Income Tax

12 Months Ended

Dec. 31, 2012

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
	2012		2011		2010
	(in millions)
Income tax expense
Current tax
United States	$	276	$	260	$	436
Foreign		143		236		242
Deferred tax, principally United States		32		25		136
	$	451	$	521	$	814
Federal and foreign income taxes paid	$	472	$	598	$	500

(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
	2012						2011						2010
	Amount			% of Pre-Tax Income			Amount			% of Pre-Tax Income			Amount			% of Pre-Tax Income
	(in millions)
Income before federal and foreign income tax	$	1,996					$	2,199					$	2,988
Tax at statutory federal income tax rate	$	699			35.0	%	$	770			35.0	%	$	1,046			35.0	%
Tax exempt interest income		(233	)		(11.7	)		(243	)		(11.0	)		(241	)		(8.1	)
Other, net		(15	)		(.7	)		(6	)		(.3	)		9			.3
Federal and foreign income tax	$	451			22.6	%	$	521			23.7	%	$	814			27.2	%

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

	December 31
	2012		2011
	(in millions)
Deferred income tax assets
Unpaid losses and loss expenses	$	605	$	632
Unearned premiums		341		339
Foreign tax credits		870		853
Employee compensation		119		116
Postretirement benefits		324		293
Other-than-temporary impairment losses		294		286
Total		2,553		2,519
Deferred income tax liabilities
Deferred policy acquisition costs		341		341
Unremitted earnings of foreign subsidiaries		951		894
Unrealized appreciation of investments		1,084		934
Other invested assets		225		235
Other, net		114		117
Total		2,715		2,521
Net deferred income tax liability	$	162	$	2

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 $12 million and $11 million was recorded at December 31, 2012 and 2011, 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 2014. 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.