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)	2014			2013			2012
Premiums written
Direct	$	20,069		$	19,212		$	18,144
Assumed		3,321			3,616			3,449
Ceded		(5,591	)		(5,803	)		(5,518	)
Net	$	17,799		$	17,025		$	16,075
Premiums earned
Direct	$	19,555		$	18,856		$	17,802
Assumed		3,336			3,479			3,302
Ceded		(5,465	)		(5,722	)		(5,427	)
Net	$	17,426		$	16,613		$	15,677

For both years ended December 31, 2014 and 2013, reinsurance recoveries on losses and loss expenses incurred were $3.1 billion compared with $4.3 billion for the year ended December 31, 2012.

b) Reinsurance recoverable on ceded reinsurance



	December 31			December 31
(in millions of U.S. dollars)	2014			2013
Reinsurance recoverable on unpaid losses and loss expenses ⁽¹⁾		$	11,307		$	10,612
Reinsurance recoverable on paid losses and loss expenses ⁽¹⁾		685			615
Net reinsurance recoverable on losses and loss expenses		$	11,992		$	11,227


⁽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, 2014 and 2013, we recorded a provision for uncollectible reinsurance of $357 million and $390 million, respectively.

The following tables present a listing, at December 31, 2014, 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. Pools include amounts relating to both ACE’s voluntary pool participation, and ACE’s mandatory pool participation that is required by law in certain states. 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.



	December 31
(in millions of U.S. dollars, except for percentages)	2014			Provision			% of Gross
Categories
Largest reinsurers		$	6,141		$	79	1.3	%
Other reinsurers balances rated A- or better		2,537			38		1.5	%
Other reinsurers balances with ratings lower than A- or not rated		501			94		18.8	%
Pools		324			11		3.4	%
Structured settlements		557			12		2.2	%
Captives		1,986			23		1.2	%
Other		303			100		33.0	%
Total		$	12,349		$	357	2.9	%



Largest Reinsurers
Alleghany Corp	IRB Brasil Resseguros S.A. Group	Swiss Re Group
Berkshire Hathaway Insurance Group	Lloyd's of London	XL Capital Group
Everest Re Group	Munich Re Group
HDI Group (Hanover Re)	Partner Re Group

c) Assumed life reinsurance programs involving minimum benefit guarantees under variable 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)	2014			2013		2012
GMDB
Net premiums earned	$	71		$	77	$	85
Policy benefits and other reserve adjustments	$	50		$	73	$	60
GLB
Net premiums earned	$	138		$	149	$	160
Policy benefits and other reserve adjustments	36			27		61
Net realized gains (losses)	(213		)	929		203
Gain (loss) recognized in Net income	$	(111	)	$	1,051	$	302
Net cash received	$	125		$	126	$	149
Net (increase) decrease in liability	$	(236	)	$	925	$	153

Net realized gains (losses) in the table above include gains (losses) related to foreign exchange and fair value adjustments on insurance derivatives and exclude gains (losses) on S&P put options and futures held to partially offset the risk in the GLB reinsurance portfolio. Refer to Note 10 for additional information.

At December 31, 2014 and 2013, the reported liability for GMDB reinsurance was $111 million and $100 million, respectively. At December 31, 2014 and 2013, the reported liability for GLB reinsurance was $663 million and $427 million, respectively, which includes a fair value derivative adjustment of $406 million and $193 million, respectively. 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 regularly reviewed by management and enhanced, as appropriate, based upon improvements in modeling assumptions and availability of updated information, such as market conditions and demographics of in-force annuities.

Variable Annuity Net Amount at Risk

The net amount at risk is defined as the present value of future claim payments assuming policy account values and guaranteed values are fixed at the valuation date (December 31, 2014 and 2013, respectively) and reinsurance coverage ends at the earlier of the maturity of the underlying variable annuity policy or the reinsurance treaty. In addition, the following assumptions were used:



(in millions of U.S. dollars, except for percentages)		Net amount at risk
Reinsurance covering		2014		2013		2014 Future claims discount rate	Other assumptions	Total claims at 100% mortality at December 31, 2014⁽¹⁾
GMDB Risk Only		$	418	$	586	2.5% - 3.5%	No lapses or withdrawals	$	245
							Mortality according to 100% of the Annuity 2000 mortality table
GLB Risk Only		$	440	$	136	3.5% - 4.5%	No deaths, lapses or withdrawals	N/A
							Annuitization at a frequency most disadvantageous to ACE ⁽²⁾
							Claim calculated using interest rates in line with rates used to calculate reserve
Both Risks: ⁽³⁾	GMDB	$	76	$	73	3.5% - 4.5%	No lapses or withdrawals	$	19
							Mortality according to 100% of the Annuity 2000 mortality table
	GLB	$	235	$	141	3.5% - 4.5%	Annuitization at a frequency most disadvantageous to ACE ⁽²⁾	$	—
							Claim calculated using interest rates in line with rates used to calculate reserve

⁽¹⁾ Takes into account all applicable reinsurance treaty claim limits.

⁽²⁾ Annuitization at a level that maximizes claims taking into account the treaty limits.

⁽³⁾ Covering both the GMDB and GLB risks on the same underlying policyholders.

The average attained age of all policyholders for all risk categories above, weighted by the guaranteed value of each reinsured policy, is approximately 69 years.