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Investments
 6 Months Ended
Jun. 30, 2016
Investments, Debt and Equity Securities [Abstract]  
Investments
Investments

a) Fixed maturities
 
June 30, 2016
Amortized
Cost

 
Gross
Unrealized
Appreciation

 
Gross
Unrealized
Depreciation

 
Fair
Value

 
OTTI Recognized
in AOCI

(in millions of U.S. dollars)
 
 
 
 
Available for sale
 
 
 
 
 
 
 
 
 
U.S. Treasury and agency
$
2,595

 
$
103

 
$
—

 
$
2,698

 
$
—

Foreign
21,633

 
916

 
(69
)
 
22,480

 
(13
)
Corporate securities
21,714

 
846

 
(125
)
 
22,435

 
(16
)
Mortgage-backed securities
12,369

 
400

 
(5
)
 
12,764

 
(1
)
States, municipalities, and political subdivisions
19,125

 
454

 
(5
)
 
19,574

 
—

 
$
77,436

 
$
2,719

 
$
(204
)
 
$
79,951

 
$
(30
)
Held to maturity
 
 
 
 
 
 
 
 
 
U.S. Treasury and agency
$
686

 
$
30

 
$
—

 
$
716

 
$
—

Foreign
730

 
44

 
(1
)
 
773

 
—

Corporate securities
2,882

 
137

 
(4
)
 
3,015

 
—

Mortgage-backed securities
1,600

 
77

 
(1
)
 
1,676

 
—

States, municipalities, and political subdivisions
5,192

 
209

 
—

 
5,401

 
—

 
$
11,090

 
$
497

 
$
(6
)
 
$
11,581

 
$
—


December 31, 2015
Amortized
Cost

 
Gross
Unrealized
Appreciation

 
Gross
Unrealized
Depreciation

 
Fair
Value

 
OTTI Recognized
in AOCI

(in millions of U.S. dollars)
 
 
 
 
Available for sale
 
 
 
 
 
 
 
 
 
U.S. Treasury and agency
$
2,481

 
$
52

 
$
(5
)
 
$
2,528

 
$
—

Foreign
13,190

 
468

 
(213
)
 
13,445

 
(13
)
Corporate securities
15,028

 
355

 
(454
)
 
14,929

 
(28
)
Mortgage-backed securities
9,827

 
183

 
(52
)
 
9,958

 
(1
)
States, municipalities, and political subdivisions
2,623

 
110

 
(6
)
 
2,727

 
—

 
$
43,149

 
$
1,168

 
$
(730
)
 
$
43,587

 
$
(42
)
Held to maturity
 
 
 
 
 
 
 
 
 
U.S. Treasury and agency
$
733

 
$
13

 
$
(1
)
 
$
745

 
$
—

Foreign
763

 
30

 
(8
)
 
785

 
—

Corporate securities
3,054

 
57

 
(55
)
 
3,056

 
—

Mortgage-backed securities
1,707

 
38

 
(2
)
 
1,743

 
—

States, municipalities, and political subdivisions
2,173

 
52

 
(2
)
 
2,223

 
—

 
$
8,430

 
$
190

 
$
(68
)
 
$
8,552

 
$
—



As discussed in Note 3 c), if a credit loss is incurred on an impaired fixed maturity, an OTTI is considered to have occurred and the portion of the impairment not related to credit losses (non-credit OTTI) is recognized in OCI. Included in the “OTTI Recognized in AOCI” columns above are the cumulative amounts of non-credit OTTI recognized in OCI adjusted for subsequent sales, maturities, and redemptions. OTTI recognized in AOCI does not include the impact of subsequent changes in fair value of the related securities. In periods subsequent to a recognition of OTTI in OCI, changes in the fair value of the related fixed maturities are reflected in Unrealized appreciation (depreciation) in the Consolidated statement of shareholders’ equity. For the three and six months ended June 30, 2016, $21 million and $44 million, respectively, of net unrealized appreciation related to such securities is included in OCI. For the three and six months ended June 30, 2015, nil and $4 million, respectively, of net unrealized appreciation related to such securities is included in OCI. At June 30, 2016 and December 31, 2015, AOCI included cumulative net unrealized depreciation of $3 million and $35 million, respectively, related to securities remaining in the investment portfolio for which a non-credit OTTI was recognized.

Mortgage-backed securities (MBS) issued by U.S. government agencies are combined with all other to be announced mortgage derivatives held (refer to Note 8 c) (iv)) and are included in the category, “Mortgage-backed securities.” Approximately 79 percent and 81 percent of the total mortgage-backed securities at June 30, 2016 and December 31, 2015, respectively, are represented by investments in U.S. government agency bonds. The remainder of the mortgage exposure consists of collateralized mortgage obligations and non-government mortgage-backed securities, the majority of which provide a planned structure for principal and interest payments and carry a rating of AAA by the major credit rating agencies.

The following table presents fixed maturities by contractual maturity:
 
 
 
June 30

 
 
 
December 31

 
 
 
2016

 
 
 
2015

(in millions of U.S. dollars)
Amortized Cost

 
Fair Value

 
Amortized Cost

 
Fair Value

Available for sale
 
 
 
 
 
 
 
Due in 1 year or less
$
3,485

 
$
3,501

 
$
1,856

 
$
1,865

Due after 1 year through 5 years
25,540

 
26,174

 
14,936

 
15,104

Due after 5 years through 10 years
25,905

 
26,685

 
12,258

 
12,173

Due after 10 years
10,137

 
10,827

 
4,272

 
4,487

 
65,067

 
67,187

 
33,322

 
33,629

Mortgage-backed securities
12,369

 
12,764

 
9,827

 
9,958

 
$
77,436

 
$
79,951

 
$
43,149

 
$
43,587

Held to maturity
 
 
 
 
 
 
 
Due in 1 year or less
$
368

 
$
372

 
$
492

 
$
495

Due after 1 year through 5 years
2,614

 
2,716

 
2,443

 
2,517

Due after 5 years through 10 years
2,942

 
3,063

 
2,292

 
2,313

Due after 10 years
3,566

 
3,754

 
1,496

 
1,484

 
9,490

 
9,905

 
6,723

 
6,809

Mortgage-backed securities
1,600

 
1,676

 
1,707

 
1,743

 
$
11,090

 
$
11,581

 
$
8,430

 
$
8,552



Expected maturities could differ from contractual maturities because borrowers may have the right to call or prepay obligations, with or without call or prepayment penalties. 

b) Equity securities

June 30


December 31

(in millions of U.S. dollars)
2016


2015

Cost
$
703

 
$
441

Gross unrealized appreciation
103

 
74

Gross unrealized depreciation
(19
)
 
(18
)
Fair value
$
787

 
$
497



c) Net realized gains (losses)
In accordance with guidance related to the recognition and presentation of OTTI, when an impairment related to a fixed maturity has occurred, OTTI is required to be recorded in Net income if management has the intent to sell the security or it is more likely than not that we will be required to sell the security before the recovery of its amortized cost. Further, in cases where we do not intend to sell the security and it is more likely than not that we will not be required to sell the security, Chubb must evaluate the security to determine the portion of the impairment, if any, related to credit losses. If a credit loss is incurred, an OTTI is considered to have occurred and any portion of the OTTI related to credit losses must be reflected in Net income while the portion of OTTI related to all other factors is recognized in OCI. For fixed maturities held to maturity, OTTI recognized in OCI is accreted from AOCI to the amortized cost of the fixed maturity prospectively over the remaining term of the securities.

Each quarter, securities in an unrealized loss position (impaired securities), including fixed maturities, securities lending collateral, equity securities, and other investments, are reviewed to identify impaired securities to be specifically evaluated for a potential OTTI.

For all non-fixed maturities, OTTI is evaluated based on the following:

•
the amount of time a security has been in a loss position and the magnitude of the loss position;
•
the period in which cost is expected to be recovered, if at all, based on various criteria including economic conditions and other issuer-specific developments; and
•
Our ability and intent to hold the security to the expected recovery period.

As a general rule, we also consider that equity securities in an unrealized loss position for twelve consecutive months are other than temporarily impaired. For mutual funds included in equity securities in our consolidated balance sheet, we employ analysis similar to fixed maturities, when applicable.

We review each fixed maturity in an unrealized loss position to assess whether the security is a candidate for credit loss. Specifically, we consider credit rating, market price, and issuer-specific financial information, among other factors, to assess the likelihood of collection of all principal and interest as contractually due. Securities for which we determine that credit loss is likely are subjected to further analysis to estimate the credit loss recognized in Net income, if any. In general, credit loss recognized in Net income equals the difference between the security’s amortized cost and the net present value of its projected future cash flows discounted at the effective interest rate implicit in the debt security. All significant assumptions used in determining credit losses are subject to change as market conditions evolve.

Projected cash flows for corporate securities (principally senior unsecured bonds) are driven primarily by assumptions regarding probability of default and also the timing and amount of recoveries associated with defaults. Chubb developed projected cash flows for corporate securities using market observable data, issuer-specific information, and credit ratings. We use historical default data by Moody’s Investors Service (Moody’s) rating category to calculate a 1-in-100 year probability of default, which results in a default assumption in excess of the historical mean default rate. Consistent with management's approach, Chubb assumed a 32 percent recovery rate (the par value of a defaulted security that will be recovered) across all rating categories rather than using Moody's historical mean recovery rate of 42 percent. We believe that use of a default assumption in excess of the historical mean is conservative in light of current market conditions.

For the three and six months ended June 30, 2016, credit losses recognized in Net income for corporate securities were $7 million and $24 million, respectively. For the three and six months ended June 30, 2015, credit losses recognized in Net income for corporate securities were $5 million and $9 million, respectively.

For mortgage-backed securities, credit impairment is assessed using a cash flow model that estimates the cash flows on the underlying mortgages, using the security-specific collateral and transaction structure. The model estimates cash flows from the underlying mortgage loans and distributes those cash flows to various tranches of securities, considering the transaction structure and any subordination and credit enhancements that exist in that structure. The cash flow model incorporates actual cash flows on the mortgage-backed securities through the current period and then projects the remaining cash flows using a number of assumptions, including default rates, prepayment rates, and loss severity rates (the par value of a defaulted security that will not be recovered) on foreclosed properties.

For the three and six months ended June 30, 2016 and 2015, there were no credit losses recognized in Net income for mortgage-backed securities.
The following table presents the Net realized gains (losses) and the losses included in Net realized gains (losses) and OCI as a result of conditions which caused us to conclude the decline in fair value of certain investments was “other-than-temporary”:
 
Three Months Ended
 
Six Months Ended
 
 
June 30
 
June 30
 
(in millions of U.S. dollars)
2016

 
2015

2016

 
2015

Fixed maturities:
 
 
 
 
 
 
OTTI on fixed maturities, gross
$
(11
)
 
$
(13
)
$
(78
)
 
$
(26
)
OTTI on fixed maturities recognized in OCI (pre-tax)
—

 
6

8

 
6

OTTI on fixed maturities, net
(11
)
 
(7
)
(70
)

(20
)
Gross realized gains excluding OTTI
37

 
28

102

 
72

Gross realized losses excluding OTTI
(19
)
 
(16
)
(215
)
 
(51
)
Total fixed maturities
7

 
5

(183
)

1

Equity securities:
 
 
 
 
 
 
OTTI on equity securities
(5
)
 
(1
)
(6
)
 
(1
)
Gross realized gains excluding OTTI
4

 
30

44

 
33

Gross realized losses excluding OTTI
(4
)
 
—

(5
)
 
(2
)
Total equity securities
(5
)
 
29

33


30

OTTI on other investments
—

 
—

(3
)
 
—

Foreign exchange gains (losses)
(22
)
 
(40
)
17

 
(71
)
Investment and embedded derivative instruments
(47
)
 
27

(86
)
 
28

Fair value adjustments on insurance derivative
(131
)
 
104

(359
)
 
59

S&P put options and futures
(28
)
 
(2
)
(43
)
 
(14
)
Other derivative instruments
—

 
(1
)
(2
)
 
(1
)
Other
10

 
4

16

 
5

Net realized gains (losses)
$
(216
)
 
$
126

$
(610
)

$
37


 
The following table presents a roll-forward of pre-tax credit losses related to fixed maturities for which a portion of OTTI was recognized in OCI: 
 
Three Months Ended
 
Six Months Ended
 
 
June 30
 
June 30
 
(in millions of U.S. dollars)
2016

 
2015

2016

 
2015

Balance of credit losses related to securities still held – beginning of period
$
57

 
$
22

$
53

 
$
28

Additions where no OTTI was previously recorded
1

 
4

12

 
7

Additions where an OTTI was previously recorded
6

 
1

12

 
2

Reductions for securities sold during the period
(13
)
 
(4
)
(26
)
 
(14
)
Balance of credit losses related to securities still held – end of period
$
51

 
$
23

$
51


$
23



d) Gross unrealized loss
At June 30, 2016, there were 4,157 fixed maturities out of a total of 30,835 fixed maturities in an unrealized loss position. The largest single unrealized loss in the fixed maturities was $4 million. There were 93 equity securities out of a total of 297 equity securities in an unrealized loss position. The largest single unrealized loss in the equity securities was $2 million. Fixed maturities in an unrealized loss position at June 30, 2016, comprised both investment grade and below investment grade securities for which fair value declined primarily due to widening credit spreads since the date of purchase.

The following tables present, for all securities in an unrealized loss position (including securities on loan), the aggregate fair value and gross unrealized loss by length of time the security has continuously been in an unrealized loss position:
 
0 – 12 Months
 
 
Over 12 Months
 
 
Total
 
June 30, 2016
Fair Value

 
Gross
Unrealized
Loss

 
Fair Value

 
Gross
Unrealized
Loss

 
Fair Value

 
Gross
Unrealized
Loss

(in millions of U.S. dollars)
 
 
 
 
 
Foreign
$
2,266

 
$
(27
)
 
$
673

 
$
(43
)
 
$
2,939

 
$
(70
)
Corporate securities
2,855

 
(61
)
 
1,047

 
(68
)
 
3,902

 
(129
)
Mortgage-backed securities
481

 
(3
)
 
414

 
(3
)
 
895

 
(6
)
States, municipalities, and political subdivisions
1,308

 
(4
)
 
60

 
(1
)
 
1,368

 
(5
)
Total fixed maturities
6,910

 
(95
)
 
2,194

 
(115
)
 
9,104

 
(210
)
Equity securities
186

 
(19
)
 
—

 
—

 
186

 
(19
)
Other investments
280

 
(27
)
 
—

 
—

 
280

 
(27
)
Total
$
7,376

 
$
(141
)
 
$
2,194

 
$
(115
)
 
$
9,570

 
$
(256
)
 
 
0 – 12 Months
 
 
Over 12 Months
 
 
Total
 
December 31, 2015
Fair Value

 
Gross
Unrealized
Loss

 
Fair Value

 
Gross
Unrealized
Loss

 
Fair Value

 
Gross
Unrealized
Loss

(in millions of U.S. dollars)
 
 
 
 
 
U.S. Treasury and agency
$
996

 
$
(5
)
 
$
153

 
$
(1
)
 
$
1,149

 
$
(6
)
Foreign
3,953

 
(148
)
 
436

 
(73
)
 
4,389

 
(221
)
Corporate securities
7,518

 
(371
)
 
738

 
(138
)
 
8,256

 
(509
)
Mortgage-backed securities
3,399

 
(42
)
 
516

 
(12
)
 
3,915

 
(54
)
States, municipalities, and political subdivisions
556

 
(6
)
 
42

 
(2
)
 
598

 
(8
)
Total fixed maturities
16,422

 
(572
)
 
1,885

 
(226
)
 
18,307

 
(798
)
Equity securities
131

 
(18
)
 
—

 
—

 
131

 
(18
)
Other investments
210

 
(11
)
 
—

 
—

 
210

 
(11
)
Total
$
16,763

 
$
(601
)
 
$
1,885

 
$
(226
)
 
$
18,648

 
$
(827
)


e) Restricted assets
Chubb is required to maintain assets on deposit with various regulatory authorities to support its insurance and reinsurance operations. These requirements are generally promulgated in the statutory regulations of the individual jurisdictions. The assets on deposit are available to settle insurance and reinsurance liabilities. Chubb is also required to restrict assets pledged under repurchase agreements, which represent Chubb's agreement to sell securities and repurchase them at a future date for a predetermined price. We also use trust funds in certain large reinsurance transactions where the trust funds are set up for the benefit of the ceding companies and generally take the place of letter of credit (LOC) requirements. We also have investments in segregated portfolios primarily to provide collateral or guarantees for LOC and derivative transactions. Included in restricted assets at June 30, 2016 and December 31, 2015, are investments, primarily fixed maturities, totaling $18.6 billion and $16.9 billion, respectively, and cash of $80 million and $110 million, respectively.
The following table presents the components of restricted assets:
 
June 30

 
December 31

(in millions of U.S. dollars)
2016

 
2015

Trust funds
$
12,271

 
$
11,862

Deposits with non-U.S. regulatory authorities
2,340

 
2,075

Deposits with U.S. regulatory authorities
2,241

 
1,242

Assets pledged under repurchase agreements
1,457

 
1,459

Other pledged assets
409

 
392

 
$
18,718

 
$
17,030