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Investments
 12 Months Ended
Dec. 31, 2016
Investments, Debt and Equity Securities [Abstract]  
Investments
Investments

a) Fixed maturities
December 31, 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
$
2,883

 
$
32

 
$
(45
)
 
$
2,870

 
$
—

Foreign
20,929

 
636

 
(125
)
 
21,440

 
(5
)
Corporate securities
23,736

 
580

 
(167
)
 
24,149

 
(8
)
Mortgage-backed securities
14,066

 
135

 
(194
)
 
14,007

 
(1
)
States, municipalities, and political subdivisions
17,922

 
72

 
(345
)
 
17,649

 
—

 
$
79,536

 
$
1,455

 
$
(876
)
 
$
80,115

 
$
(14
)
Held to maturity
 
 
 
 
 
 
 
 
 
U.S. Treasury and agency
$
655

 
$
9

 
$
(3
)
 
$
661

 
$
—

Foreign
640

 
28

 
(1
)
 
667

 
—

Corporate securities
2,771

 
50

 
(26
)
 
2,795

 
—

Mortgage-backed securities
1,393

 
35

 
—

 
1,428

 
—

States, municipalities, and political subdivisions
5,185

 
26

 
(92
)
 
5,119

 
—

 
$
10,644

 
$
148

 
$
(122
)
 
$
10,670

 
$
—



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 Net unrealized appreciation on investments in the Consolidated statement of shareholders' equity. For the years ended December 31, 2016 and 2015, $62 million of net unrealized appreciation and $15 million of net unrealized depreciation, respectively, related to such securities is included in OCI. At December 31, 2016 and 2015, AOCI included cumulative net unrealized appreciation of $10 million and net unrealized depreciation of $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 10 c) (iv)) and are included in the category, “Mortgage-backed securities”. Approximately 81 percent of the total mortgage-backed securities at both December 31, 2016 and 2015, 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:
 
December 31
 
 
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
$
3,892

 
$
3,913

 
$
1,856

 
$
1,865

Due after 1 year through 5 years
24,027

 
24,429

 
14,936

 
15,104

Due after 5 years through 10 years
27,262

 
27,379

 
12,258

 
12,173

Due after 10 years
10,289

 
10,387

 
4,272

 
4,487

 
65,470

 
66,108

 
33,322

 
33,629

Mortgage-backed securities
14,066

 
14,007

 
9,827

 
9,958

 
$
79,536

 
$
80,115

 
$
43,149

 
$
43,587

Held to maturity
 
 
 
 
 
 
 
Due in 1 year or less
$
430

 
$
435

 
$
492

 
$
495

Due after 1 year through 5 years
2,646

 
2,691

 
2,443

 
2,517

Due after 5 years through 10 years
2,969

 
2,944

 
2,292

 
2,313

Due after 10 years
3,206

 
3,172

 
1,496

 
1,484

 
9,251

 
9,242

 
6,723

 
6,809

Mortgage-backed securities
1,393

 
1,428

 
1,707

 
1,743

 
$
10,644

 
$
10,670

 
$
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
 
December 31


December 31

(in millions of U.S. dollars)
2016


2015

Cost
$
706

 
$
441

Gross unrealized appreciation
129

 
74

Gross unrealized depreciation
(21
)
 
(18
)
Fair value
$
814

 
$
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, we 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 sheets, we employ analysis similar to fixed maturities, when applicable.

Evaluation of potential credit losses related to fixed maturities
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.

U.S. Treasury and agency obligations (including agency mortgage-backed securities); foreign government obligations; and states, municipalities, and political subdivisions obligations
U.S. Treasury and agency obligations (including agency mortgage-backed securities); foreign government obligations; and states, municipalities, and political subdivisions obligations represent $725 million of gross unrealized loss at December 31, 2016. These securities were evaluated for credit loss primarily using qualitative assessments of the likelihood of credit loss considering credit rating of the issuers and level of credit enhancement, if any. We concluded that the high level of creditworthiness of the issuers coupled with credit enhancement, where applicable, supports recognizing no credit loss in Net income.

Corporate securities
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.

The following table presents default assumptions by Moody's rating category (historical mean default rate provided for comparison):
Moody's Rating Category
1-in-100 Year Default Rate

 
Historical Mean Default Rate

Investment Grade:
 
 
 
Aaa-Baa
0.0–1.3%

 
0.0–0.3%

Below Investment Grade:
 
 
 
Ba
4.8
%
 
1.0
%
B
12.1
%
 
3.2
%
Caa-C
36.7
%
 
10.5
%


Application of the methodology and assumptions described above resulted in credit losses recognized in Net income for corporate securities of $30 million, $50 million, and $27 million for the years ended December 31, 2016, 2015, and 2014, respectively.

Mortgage-backed securities
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.

We develop specific assumptions using market data, where available, and include internal estimates as well as estimates published by rating agencies and other third-party sources. We project default rates by mortgage sector considering current underlying mortgage loan performance, generally assuming lower loss severity for Prime sector bonds versus ALT-A and Sub-prime bonds.

These estimates are extrapolated along a default timing curve to estimate the total lifetime pool default rate. Other assumptions used contemplate the actual collateral attributes, including geographic concentrations, rating agency loss projections, rating actions, and current market prices. If cash flow projections indicate that losses will exceed the credit enhancement for a given tranche, then we do not expect to recover our amortized cost basis, and we recognize an estimated credit loss in Net income.

For the year ended December 31, 2016, there were $1 million of credit losses recognized in Net income for mortgage-backed securities. For the years ended December 31, 2015 and 2014, 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” and the change in net unrealized appreciation (depreciation) of investments: 
 
Year Ended December 31
 
(in millions of U.S. dollars)
2016

 
2015

 
2014

Fixed maturities:
 
 
 
 
 
OTTI on fixed maturities, gross
$
(89
)
 
$
(142
)
 
$
(64
)
OTTI on fixed maturities recognized in OCI (pre-tax)
8

 
39

 
7

OTTI on fixed maturities, net
(81
)
 
(103
)
 
(57
)
Gross realized gains excluding OTTI
183

 
158

 
213

Gross realized losses excluding OTTI
(265
)
 
(235
)
 
(133
)
Total fixed maturities
(163
)
 
(180
)
 
23

Equity securities:
 
 
 
 
 
OTTI on equity securities
(8
)
 
(7
)
 
(8
)
Gross realized gains excluding OTTI
65

 
47

 
22

Gross realized losses excluding OTTI
(13
)
 
(11
)
 
(61
)
Total equity securities
44

 
29

 
(47
)
OTTI on other investments
(14
)
 
(2
)
 
(3
)
Foreign exchange gains (losses)
118

 
(80
)
 
(40
)
Investment and embedded derivative instruments
(33
)
 
32

 
(107
)
Fair value adjustments on insurance derivative
53

 
(203
)
 
(217
)
S&P put options and futures
(136
)
 
(10
)
 
(168
)
Other derivative instruments
(10
)
 
(12
)
 
50

Other
(4
)
 
6

 
2

Net realized gains (losses)
(145
)
 
(420
)
 
(507
)
Change in net unrealized appreciation (depreciation) on investments:
 
 
 
 
 
Fixed maturities available for sale
142

 
(1,119
)
 
734

Fixed maturities held to maturity
(59
)
 
43

 
(2
)
Equity securities
52

 
(17
)
 
77

Other
(51
)
 
(36
)
 
35

Income tax (expense) benefit
100

 
152

 
(167
)
Change in net unrealized appreciation (depreciation) on investments
184

 
(977
)
 
677

Total net realized gains (losses) and change in net unrealized appreciation (depreciation) on investments
$
39

 
$
(1,397
)
 
$
170


 
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: 
 
Year Ended December 31
 
(in millions of U.S. dollars)
2016

 
2015

 
2014

Balance of credit losses related to securities still held – beginning of year
$
53

 
$
28

 
$
37

Additions where no OTTI was previously recorded
17

 
41

 
22

Additions where an OTTI was previously recorded
14

 
9

 
5

Reductions for securities sold during the period
(49
)
 
(25
)
 
(36
)
Balance of credit losses related to securities still held – end of year
$
35

 
$
53

 
$
28


d) Other investments
 
 
 
December 31

 
 
 
December 31

 
 
 
2016

 
 
 
2015

(in millions of U.S. dollars)
Fair Value

 
Cost

 
Fair Value

 
Cost

Investment funds
$
251

 
$
126

 
$
269

 
$
138

Limited partnerships
730

 
607

 
709

 
542

Partially-owned investment companies
2,645

 
2,645

 
1,498

 
1,498

Life insurance policies
248

 
248

 
222

 
222

Policy loans
209

 
209

 
184

 
184

Trading securities
296

 
295

 
284

 
284

Other
140

 
140

 
125

 
125

Total
$
4,519

 
$
4,270

 
$
3,291

 
$
2,993



Investment funds include one highly diversified fund investment as well as several direct funds that employ a variety of investment styles such as long/short equity and arbitrage/distressed. Included in limited partnerships and partially-owned investment companies are 143 individual limited partnerships covering a broad range of investment strategies including large cap buyouts, specialist buyouts, growth capital, distressed, mezzanine, real estate, and co-investments. The underlying portfolio consists of various public and private debt and equity securities of publicly traded and privately held companies and real estate assets. The underlying investments across various partnerships, geographies, industries, asset types, and investment strategies provide risk diversification within the limited partnership portfolio and the overall investment portfolio. Trading securities comprise $271 million of mutual funds supported by assets that do not qualify for separate account reporting under GAAP at December 31, 2016 compared with $257 million at December 31, 2015. Trading securities also includes assets held in rabbi trusts of $14 million of equity securities and $11 million of fixed maturities at December 31, 2016, compared with $20 million of equity securities and $7 million of fixed maturities at December 31, 2015.

e) Investments in partially-owned insurance companies
In 2015, we paid $90 million to acquire 11.3 percent of the common equity of ABR Reinsurance Capital Holdings Ltd. and warrants to acquire 0.5 percent of additional equity. ABR Reinsurance Capital Holdings Ltd., is the parent company of ABR Reinsurance Ltd. (ABR Re), an independent reinsurance company. Through long-term arrangements, Chubb will be the sole source of reinsurance risks ceded to ABR Re, and BlackRock, Inc. will be ABR Re’s exclusive investment management service provider. As an investor, Chubb is expected to benefit from underwriting profit generated by ABR Re’s reinsuring a wide range of Chubb’s primary insurance business and the income and capital appreciation BlackRock, Inc. seeks to deliver through its investment management services. In addition, Chubb has entered into an arrangement with BlackRock, Inc. under which both Chubb and BlackRock, Inc. will be entitled to an equal share of the aggregate amount of certain fees, including underwriting and investment management performance related fees, in connection with their respective reinsurance and investment management arrangements with ABR Re.

ABR Re is a variable interest entity; however, Chubb is not the primary beneficiary and does not consolidate ABR Re because Chubb does not have the power to control and direct ABR Re’s most significant activities, including investing and underwriting. Our minority ownership interest is accounted for under the equity method of accounting. Chubb cedes premiums to ABR Re and recognizes the associated commissions. At December 31, 2016 and 2015, Chubb ceded reinsurance premiums of $288 million and $115 million, respectively, and recognized ceded commissions of $66 million and $30 million, respectively. At December 31, 2016 and 2015, the amount of Reinsurance recoverable on losses and loss expenses was $148 million and $82 million, respectively, and the amount of ceded reinsurance premium payable included in Insurance and reinsurance balances payable in the Consolidated balance sheet was $53 million and $6 million, respectively.

The following table presents Investments in partially-owned insurance companies:
 
December 31, 2016
 
 
December 31, 2015
 
 
 
(in millions of U.S. dollars, except for percentages)
Carrying Value

 
Issued
 Share
Capital

 
Ownership Percentage

 
Carrying Value

 
Issued Share Capital

 
Ownership Percentage

 
Domicile
Huatai Group
$
447

 
$
624

 
20
%
 
$
430

 
$
624

 
20
%
 
China
Huatai Life Insurance Company
99

 
428

 
20
%
 
107

 
428

 
20
%
 
China
Freisenbruch-Meyer
8

 
5

 
40
%
 
9

 
5

 
40
%
 
Bermuda
Chubb Arabia Cooperative Insurance Company
13

 
27

 
30
%
 
11

 
27

 
30
%
 
Saudi Arabia
Russian Reinsurance Company
2

 
4

 
23
%
 
2

 
4

 
23
%
 
Russia
ABR Reinsurance Ltd.
97

 
800

 
11
%
 
94

 
800

 
11
%
 
Bermuda
Total
$
666

 
$
1,888

 
 
 
$
653

 
$
1,888

 
 
 
 

Huatai Group and Huatai Life Insurance Company provide a range of P&C, life, and investment products.

f) Gross unrealized loss
At December 31, 2016, there were 11,078 fixed maturities out of a total of 31,955 fixed maturities in an unrealized loss position. The largest single unrealized loss in the fixed maturities was $7 million. There were 87 equity securities out of a total of 320 equity securities in an unrealized loss position. The largest single unrealized loss in the equity securities was $3 million. Fixed maturities in an unrealized loss position at December 31, 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
 
December 31, 2016
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
$
2,216

 
$
(48
)
 
$
—

 
$
—

 
$
2,216

 
$
(48
)
Foreign
5,918

 
(99
)
 
386

 
(27
)
 
6,304

 
(126
)
Corporate securities
7,021

 
(149
)
 
641

 
(44
)
 
7,662

 
(193
)
Mortgage-backed securities
8,638

 
(189
)
 
234

 
(5
)
 
8,872

 
(194
)
States, municipalities, and political subdivisions
19,448

 
(435
)
 
49

 
(2
)
 
19,497

 
(437
)
Total fixed maturities
43,241

 
(920
)
 
1,310

 
(78
)
 
44,551

 
(998
)
Equity securities
199

 
(21
)
 
—

 
—

 
199

 
(21
)
Other investments
201

 
(18
)
 
—

 
—

 
201

 
(18
)
Total
$
43,641

 
$
(959
)
 
$
1,310

 
$
(78
)
 
$
44,951

 
$
(1,037
)
 
 
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
)

g) Net investment income
 
Year Ended December 31
 
(in millions of U.S. dollars)
2016

 
2015

 
2014

Fixed maturities
$
2,779

 
$
2,157

 
$
2,199

Short-term investments
93

 
49

 
45

Equity securities
36

 
16

 
33

Other
98

 
86

 
94

Gross investment income
3,006

 
2,308

 
2,371

Investment expenses
(141
)
 
(114
)
 
(119
)
Net investment income
$
2,865

 
$
2,194

 
$
2,252


h) 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. 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 December 31, 2016 and 2015, are investments, primarily fixed maturities, totaling $20.1 billion and $16.9 billion, and cash of $103 million and $110 million, respectively.
The following table presents the components of restricted assets: 
 
December 31

 
December 31

(in millions of U.S. dollars)
2016

 
2015

Trust funds
$
13,880

 
$
11,862

Deposits with U.S. regulatory authorities
2,203

 
1,242

Deposits with non-U.S. regulatory authorities
2,191

 
2,075

Assets pledged under repurchase agreements
1,461

 
1,459

Other pledged assets
435

 
392

 
$
20,170

 
$
17,030