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Fair Values of Financial Instruments
12 Months Ended
Dec. 31, 2014
Fair Value Disclosures [Abstract]  
Fair Values of Financial Instruments

(14)  Fair Values of Financial Instruments

(a)  Fair values of financial instruments are determined by management using valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Fair values are generally measured using quoted prices in active markets for identical assets or liabilities or other inputs, such as quoted prices for similar assets or liabilities, that are observable, either directly or indirectly. In those instances where observable inputs are not available, fair values are measured using unobservable inputs for the asset or liability. Unobservable inputs reflect the Corporation’s own assumptions about the assumptions that market participants would use in pricing the asset or liability and are developed based on the best information available in the circumstances. Fair value estimates derived from unobservable inputs are affected by the assumptions used, including the discount rates and the estimated amounts and timing of future cash flows. The derived fair value estimates cannot be substantiated by comparison to independent markets and are not necessarily indicative of the amounts that would be realized in a current market exchange. Certain financial instruments, particularly insurance contracts, are excluded from fair value disclosure requirements.

The methods and assumptions used to estimate the fair values of financial instruments are as follows:

(i)  The carrying value of short term investments approximates fair value due to the short maturities of these investments.

(ii)  Fair values of fixed maturities are determined by management, utilizing prices obtained from a third party, nationally recognized pricing service or, in the case of securities for which prices are not provided by a pricing service, from third party brokers. For fixed maturities that have quoted prices in active markets, market quotations are provided. For fixed maturities that do not trade on a daily basis, the pricing service and brokers provide fair value estimates using a variety of inputs including, but not limited to, benchmark yields, reported trades, broker/dealer quotes, issuer spreads, bids, offers, reference data, prepayment rates and measures of volatility. Management reviews on an ongoing basis the reasonableness of the methodologies used by the relevant pricing service and brokers. In addition, management, using the prices received for the securities from the pricing service and brokers, determines the aggregate portfolio price performance and reviews it against applicable indices. If management believes that significant discrepancies exist, it will discuss these with the relevant pricing service or broker to resolve the discrepancies.

(iii)  Fair values of equity securities are determined by management, utilizing quoted market prices.

(iv)  Fair values of long term debt issued by Chubb are determined by management, utilizing prices obtained from a third party, nationally recognized pricing service.

 

The carrying values and fair values of financial instruments were as follows:

 

     December 31  
     2014        2013  
     Carrying
Value
       Fair
Value
       Carrying
Value
       Fair
Value
 
     (in millions)  

Assets

                 

Invested assets

                 

Short term investments

   $ 1,318         $ 1,318         $ 2,114         $ 2,114   

Fixed maturities (Note 2)

     38,780           38,780           37,091           37,091   

Equity securities

     1,964           1,964           1,810           1,810   

Liabilities

                 

Long term debt (Note 6)

     3,300           4,013           3,300           3,806   

At December 31, 2014 and 2013, a pricing service provided fair value amounts for approximately 99% of the Corporation’s fixed maturities. The prices obtained from a pricing service and brokers generally are non-binding, but are reflective of current market transactions in the applicable financial instruments.

At December 31, 2014 and 2013, the Corporation held an insignificant amount of financial instruments in its investment portfolio for which a lack of market liquidity impacted the determination of fair value.

The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels as follows:

 

Level 1 —  

Unadjusted quoted prices in active markets for identical financial instruments.

Level 2 —   Other inputs that are observable for the financial instrument, either directly or indirectly.
Level 3 —  

Significant unobservable inputs.

The fair value of financial instruments categorized based upon the lowest level of input that was significant to the fair value measurement was as follows:

 

     December 31, 2014  
     Level 1      Level 2      Level 3      Total  
     (in millions)  

Assets

           

Short term investments

   $ 206       $ 1,112       $       $ 1,318   
  

 

 

    

 

 

    

 

 

    

 

 

 

Fixed maturities

           

Tax exempt

             19,769         3         19,772   
  

 

 

    

 

 

    

 

 

    

 

 

 

Taxable

           

U.S. government and government agency and authority obligations

             2,007                 2,007   

Corporate bonds

             8,912         116         9,028   

Foreign government and government agency obligations

             6,663         9         6,672   

Residential mortgage-backed securities

             210         1         211   

Commercial mortgage-backed securities

             1,090                 1,090   
  

 

 

    

 

 

    

 

 

    

 

 

 
             18,882         126         19,008   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total fixed maturities

             38,651         129         38,780   
  

 

 

    

 

 

    

 

 

    

 

 

 

Equity securities

     1,958                 6         1,964   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 2,164       $ 39,763       $ 135       $ 42,062   
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

           

Long term debt

   $       $ 4,013       $       $ 4,013   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     December 31, 2013  
     Level 1        Level 2        Level 3        Total  
     (in millions)  

Assets

                 

Short term investments

   $ 399         $ 1,715         $         $ 2,114   
  

 

 

      

 

 

      

 

 

      

 

 

 

Fixed maturities

                 

Tax exempt

               18,416           5           18,421   
  

 

 

      

 

 

      

 

 

      

 

 

 

Taxable

                 

U.S. government and government agency and authority obligations

               802                     802   

Corporate bonds

               9,179           135           9,314   

Foreign government and government agency obligations

               6,881           9           6,890   

Residential mortgage-backed securities

               293           6           299   

Commercial mortgage-backed securities

               1,345           20           1,365   
  

 

 

      

 

 

      

 

 

      

 

 

 
               18,500           170           18,670   
  

 

 

      

 

 

      

 

 

      

 

 

 

Total fixed maturities

               36,916           175           37,091   
  

 

 

      

 

 

      

 

 

      

 

 

 

Equity securities

     1,803                     7           1,810   
  

 

 

    

 

 

    

 

 

    

 

 

 
  

 

 

 

$2,202

 

  

    

 

 

 

$38,631

 

  

    

 

 

 

$182

 

  

    

 

 

 

$41,015

 

  

  

 

 

      

 

 

      

 

 

      

 

 

 

Liabilities

                 

Long term debt

  

 

$

 

 

  

    

 

$

 

3,806

 

  

    

 

$

 

 

  

    

 

$

 

3,806

 

  

  

 

 

      

 

 

      

 

 

      

 

 

 

(b)  The methods and assumptions used to estimate the fair value of the Corporation’s pension plan and other postretirement benefit plan assets, other than assets invested in pooled funds, are similar to the methods and assumptions used for the Corporation’s other financial instruments. The fair value of pooled funds is based on the net asset value of the funds.

Based on the fair value hierarchy, the fair value of the Corporation’s pension plan assets categorized based upon the lowest level of input that was significant to the fair value measurement was as follows:

 

     December 31, 2014  
     Level 1        Level 2        Level 3        Total  
     (in millions)  

Short term investments

   $         $ 48         $         $ 48   
  

 

 

      

 

 

      

 

 

      

 

 

 

Fixed maturities

                 

U.S. government and government agency and authority obligations

               209                     209   

Corporate bonds

               419                     419   

Foreign government and government agency obligations

               137                     137   

Mortgage-backed securities

               228                     228   
  

 

 

      

 

 

      

 

 

      

 

 

 

Total fixed maturities

               993                     993   
  

 

 

      

 

 

      

 

 

      

 

 

 

Equity securities

     629           1,221                     1,850   
  

 

 

      

 

 

      

 

 

      

 

 

 

Other assets

     28           20           7           55   
  

 

 

      

 

 

      

 

 

      

 

 

 
   $ 657         $ 2,282         $ 7         $ 2,946   
  

 

 

      

 

 

      

 

 

      

 

 

 

 

     December 31, 2013  
     Level 1        Level 2        Level 3        Total  
     (in millions)  

Short term investments

   $         $ 37         $         $ 37   
  

 

 

      

 

 

      

 

 

      

 

 

 

Fixed maturities

                 

U.S. government and government agency
and authority obligations

               224                     224   

Corporate bonds

               370           1           371   

Foreign government and government
agency obligations

               104                     104   

Mortgage-backed securities

               211           6           217   
  

 

 

      

 

 

      

 

 

      

 

 

 

Total fixed maturities

               909           7           916   
  

 

 

      

 

 

      

 

 

      

 

 

 

Equity securities

     573           1,145                     1,718   
  

 

 

      

 

 

      

 

 

      

 

 

 

Other assets

     21           14           11           46   
  

 

 

      

 

 

      

 

 

      

 

 

 
   $ 594         $ 2,105         $ 18         $ 2,717   
  

 

 

      

 

 

      

 

 

      

 

 

 

The fair value of the Corporation’s other postretirement benefit plan assets was $143 million and $130 million at December 31, 2014 and 2013, respectively. Based on the fair value hierarchy, the fair value of these assets was categorized as Level 1 based upon the lowest level of input that was significant to the fair value measurement.