Reinsurance

a) Consolidated reinsurance

ACE purchases reinsurance to manage various exposures including catastrophe risks. Although reinsurance agreements contractually obligate ACE's reinsurers to reimburse it for the agreed-upon portion of its gross paid losses, they do not discharge ACE's primary liability. The amounts for net premiums written and net premiums earned in the consolidated statements of operations are net of reinsurance. The following table presents direct, assumed, and ceded premiums:



	Years Ended December 31
(in millions of U.S. dollars)	2013			2012			2011
Premiums written
Direct	$	19,212		$	18,144		$	17,626
Assumed		3,616			3,449			3,205
Ceded		(5,803	)		(5,518	)		(5,459	)
Net	$	17,025		$	16,075		$	15,372
Premiums earned
Direct	$	18,856		$	17,802		$	17,534
Assumed		3,479			3,302			3,349
Ceded		(5,722	)		(5,427	)		(5,496	)
Net	$	16,613		$	15,677		$	15,387

For the years ended December 31, 2013, 2012, and 2011, reinsurance recoveries on losses and loss expenses incurred were $3.1 billion, $4.3 billion, and $3.3 billion, respectively.

b) Reinsurance recoverable on ceded reinsurance



	December 31			December 31
(in millions of U.S. dollars)	2013			2012
Reinsurance recoverable on unpaid losses and loss expenses ⁽¹⁾		$	10,612		$	11,399
Reinsurance recoverable on paid losses and loss expenses ⁽¹⁾		615			679
Net reinsurance recoverable on losses and loss expenses		$	11,227		$	12,078


⁽¹⁾	Net of a provision for uncollectible reinsurance.

We evaluate the financial condition of our reinsurers and potential reinsurers on a regular basis and also monitor concentrations of credit risk with reinsurers. The provision for uncollectible reinsurance is required principally due to the potential failure of reinsurers to indemnify ACE, primarily because of disputes under reinsurance contracts and insolvencies. We have established provisions for amounts estimated to be uncollectible. At December 31, 2013 and 2012, we recorded a provision for uncollectible reinsurance of $390 million and $439 million, respectively.

The following tables present a listing, at December 31, 2013, of the categories of ACE's reinsurers. The first category, largest reinsurers, represents all groups of reinsurers where the gross recoverable exceeds one percent of ACE's total shareholders' equity. The provision for uncollectible reinsurance for the largest reinsurers, other reinsurers rated A- or better, and other reinsurers with ratings lower than A- is principally based on an analysis of the credit quality of the reinsurer and collateral balances. Other pools and government agencies include amounts backed by certain state and federal agencies. In certain states, insurance companies are required by law to participate in these pools. Structured settlements include annuities purchased from life insurance companies to settle claims. Since we retain the ultimate liability in the event that the life company fails to pay, we reflect the amount as a liability and a recoverable/receivable for GAAP purposes. Captives include companies established and owned by our insurance clients to assume a significant portion of their direct insurance risk from ACE (they are structured to allow clients to self-insure a portion of their insurance risk). It is generally our policy to obtain collateral equal to expected losses. Where appropriate, exceptions are granted but only with review and approval at a senior officer level. The final category, Other, includes amounts recoverable that are in dispute or are from companies that are in supervision, rehabilitation, or liquidation. We establish the provision for uncollectible reinsurance in this category based on a case-by-case analysis of individual situations including the merits of the underlying matter, credit and collateral analysis, and consideration of our collection experience in similar situations.



(in millions of U.S. dollars, except percentages)	2013			Provision			% of Gross
Categories
Largest reinsurers		$	5,117		$	78	1.5	%
Other reinsurers balances rated A- or better		2,901			36		1.2	%
Other reinsurers balances with ratings lower than A- or not rated		587			103		17.5	%
Other pools and government agencies		338			21		6.2	%
Structured settlements		577			12		2.1	%
Captives		1,762			14		0.8	%
Other		335			126		37.6	%
Total		$	11,617		$	390	3.4	%



Largest Reinsurers
Alleghany Corp (Transatlantic)	Lloyd's of London	Swiss Re Group
Berkshire Hathaway Insurance Group	Munich Re Group	XL Capital Group
HDI Group (Hanover Re)	Partner Re Group

c) Assumed life reinsurance programs involving minimum benefit guarantees under annuity contracts

The following table presents income and expenses relating to GMDB and GLB reinsurance. GLBs include GMIBs as well as some GMABs originating in Japan.



	Years Ended December 31
(in millions of U.S. dollars)	2013		2012		2011
GMDB
Net premiums earned	$	77	$	85	$	98
Policy benefits and other reserve adjustments	$	73	$	60	$	59
GLB
Net premiums earned	$	149	$	160	$	163
Policy benefits and other reserve adjustments	27		61		47
Net realized gains (losses)	929		203		(812		)
Gain (loss) recognized in income	$	1,051	$	302	$	(696	)
Net cash received	$	126	$	149	$	161
Net (increase) decrease in liability	$	925	$	153	$	(857	)

At December 31, 2013, reported liabilities for GMDB and GLB reinsurance were $100 million and $427 million, respectively, compared with $90 million and $1.4 billion, respectively, at December 31, 2012. The reported liability for GLB reinsurance of $427 million at December 31, 2013, and $1.4 billion at December 31, 2012, includes a fair value derivative adjustment of$193 million and $1.1 billion, respectively. Included in Net realized gains (losses) in the table above are gains (losses) related to foreign exchange and other fair value derivative adjustments. Reported liabilities for both GMDB and GLB reinsurance are determined using internal valuation models. Such valuations require considerable judgment and are subject to significant uncertainty. The valuation of these products is subject to fluctuations arising from, among other factors, changes in interest rates, changes in equity markets, changes in credit markets, changes in the allocation of the investments underlying annuitants’ account values, and assumptions regarding future policyholder behavior. These models and the related assumptions are continually reviewed by management and enhanced, as appropriate, based upon improvements in modeling assumptions and availability of more information, such as market conditions and demographics of in-force annuities.

Variable Annuity Net Amount at Risk

(i) Reinsurance covering the GMDB risk only

At December 31, 2013 and 2012, the net amount at risk from reinsurance programs covering the GMDB risk only was $586 million and $1.3 billion, respectively.

For reinsurance programs covering the GMDB risk only, the net amount at risk is defined as the present value of future claim payments under the following assumptions:


•	policy account values and guaranteed values are fixed at the valuation date (December 31, 2013 and 2012, respectively);


•	there are no lapses or withdrawals;


•	mortality according to 100 percent of the Annuity 2000 mortality table;


•	future claims are discounted in line with the discounting assumption used in the calculation of the benefit reserve averaging between 2.0 percent and 3.0 percent; and


•	reinsurance coverage ends at the earlier of the maturity of the underlying variable annuity policy or the reinsurance treaty.

The total claim amount payable on reinsurance programs covering the GMDB risk only, if all the cedants’ policyholders were to die immediately at December 31, 2013 was approximately $668 million. This takes into account all applicable reinsurance treaty claim limits.

(ii) Reinsurance covering the GLB risk only

At December 31, 2013 and 2012, the net amount at risk from reinsurance programs covering the GLB risk only was $136 million and $445 million, respectively.

For reinsurance programs covering the GLB risk only, the net amount at risk is defined as the present value of future claim payments under the following assumptions:


•	policy account values and guaranteed values are fixed at the valuation date (December 31, 2013 and 2012, respectively);


•	there are no deaths, lapses, or withdrawals;


•	policyholders annuitize at a frequency most disadvantageous to ACE (in other words, annuitization at a level that maximizes claims taking into account the treaty limits) under the terms of the reinsurance contracts;


•	for annuitizing policyholders, the GMIB claim is calculated using interest rates in line with those used in calculating the reserve;


•	future claims are discounted in line with the discounting assumption used in the calculation of the benefit reserve averaging between 3.5 percent and 4.5 percent; and


•	reinsurance coverage ends at the earlier of the maturity of the underlying variable annuity policy or the reinsurance treaty.

(iii) Reinsurance covering both the GMDB and GLB risks on the same underlying policyholders

At December 31, 2013 and 2012, the GMDB net amount at risk from reinsurance programs covering both the GMDB and GLB risks on the same underlying policyholders was $73 million and $116 million, respectively.

At December 31, 2013 and 2012, the GLB net amount at risk from reinsurance programs covering both the GMDB and GLB risks on the same underlying policyholders was $141 million and $655 million, respectively.

These net amounts at risk reflect the interaction between the two types of benefits on any single policyholder (eliminating double-counting), and therefore the net amounts at risk should be considered additive.

For reinsurance programs covering both the GMDB and GLB risks on the same underlying policyholders, the net amount at risk is defined as the present value of future claim payments under the following assumptions:


•	policy account values and guaranteed values are fixed at the valuation date (December 31, 2013 and 2012, respectively);


•	there are no lapses, or withdrawals;


•	mortality according to 100 percent of the Annuity 2000 mortality table;


•	policyholders annuitize at a frequency most disadvantageous to ACE (in other words, annuitization at a level that maximizes claims taking into account the treaty limits) under the terms of the reinsurance contracts;


•	for annuitizing policyholders, the GMIB claim is calculated using interest rates in line with those used in calculating the reserve;


•	future claims are discounted in line with the discounting assumption used in the calculation of the benefit reserve averaging between 3.0 percent and 4.0 percent; and


•	reinsurance coverage ends at the earlier of the maturity of the underlying variable annuity policy or the reinsurance treaty.

The total claim amount payable on reinsurance programs covering both the GMDB and GLB risks on the same underlying policyholders, if all of the cedants’ policyholders were to die immediately at December 31, 2013 was approximately $84 million. This takes into account all applicable reinsurance treaty claim limits. Although there would be an increase in death claims resulting from 100 percent immediate mortality of all policyholders, the GLB claims would be zero.

The average attained age of all policyholders under sections i), ii), and iii) above, weighted by the guaranteed value of each reinsured policy, is approximately 68 years.