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Investments
 3 Months Ended
Mar. 31, 2020
Investments, Debt and Equity Securities [Abstract]  
Investments Investments

a) Fixed maturities
Effective January 1, 2020, we adopted new accounting guidance that requires a valuation allowance for credit losses to be established for fixed maturity securities classified as held to maturity (HTM) or available for sale (AFS). For information on accounting policies applicable to periods prior to January 1, 2020, refer to the 2019 Form 10-K.
March 31, 2020
Amortized
Cost

 
Valuation Allowance

 
Gross
Unrealized
Appreciation

 
Gross
Unrealized
Depreciation

 
Fair
Value

 
 
(in millions of U.S. dollars)
 
 
 
Available for sale
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury and agency
$
2,773

 
$
—

 
$
240

 
$
—

 
$
3,013

 


Foreign
22,615

 
(44
)
 
850

 
(577
)
 
22,844

 


Corporate securities
31,530

 
(132
)
 
644

 
(1,374
)
 
30,668

 


Mortgage-backed securities
17,073

 
—

 
864

 
(52
)
 
17,885

 


States, municipalities, and political subdivisions
6,968

 
—

 
169

 
(17
)
 
7,120

 


 
$
80,959

 
$
(176
)
 
$
2,767

 
$
(2,020
)
 
$
81,530

 


 
Amortized
Cost

 
Valuation Allowance

 
Net Carrying Value

 
Gross
Unrealized
Appreciation

 
Gross
Unrealized
Depreciation

 
Fair
Value

 
 
 
 
Held to maturity
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury and agency
$
1,208

 
$
—

 
$
1,208

 
$
75

 
$
—

 
$
1,283

Foreign
1,294

 
(7
)
 
1,287

 
63

 
(7
)
 
1,343

Corporate securities
2,272

 
(36
)
 
2,236

 
113

 
(27
)
 
2,322

Mortgage-backed securities
2,266

 
(1
)
 
2,265

 
106

 
(4
)
 
2,367

States, municipalities, and political subdivisions
5,030

 
(1
)
 
5,029

 
130

 
(3
)
 
5,156

 
$
12,070

 
$
(45
)
 
$
12,025

 
$
487

 
$
(41
)
 
$
12,471


December 31, 2019
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
$
3,188

 
$
96

 
$
(1
)
 
$
3,283

 
$
—

Foreign
22,670

 
1,099

 
(62
)
 
23,707

 
(25
)
Corporate securities
30,689

 
1,180

 
(78
)
 
31,791

 
(5
)
Mortgage-backed securities
18,712

 
494

 
(14
)
 
19,192

 
—

States, municipalities, and political subdivisions
7,321

 
205

 
(11
)
 
7,515

 
—

 
$
82,580

 
$
3,074

 
$
(166
)
 
$
85,488

 
$
(30
)
Held to maturity
 
 
 
 
 
 
 
 
 
U.S. Treasury and agency
$
1,318

 
$
29

 
$
—

 
$
1,347

 
$
—

Foreign
1,423

 
62

 
—

 
1,485

 
—

Corporate securities
2,349

 
121

 
(2
)
 
2,468

 
—

Mortgage-backed securities
2,331

 
65

 
—

 
2,396

 
—

States, municipalities, and political subdivisions
5,160

 
150

 
(1
)
 
5,309

 
—

 
$
12,581

 
$
427

 
$
(3
)
 
$
13,005

 
$
—



Management evaluates CECL for all HTM securities each quarter. U.S. Treasury and agency securities and U.S. government agency mortgage-backed securities are assumed to have no risk of non-payment and therefore are excluded from the CECL evaluation. The remaining HTM securities are evaluated for potential credit loss on a collective pool basis. We elected to pool
HTM securities by 1) external credit rating and 2) time to maturity (duration). These characteristics are the most representative of similar risk characteristics within our portfolio. Chubb will pool HTM securities and calculate an expected credit loss for each pool using Moody’s corporate bond default average, corporate bond recovery rate, and an economic cycle multiplier. The multiplier is based on the leading economic index and will adjust the average default frequency for a forward-looking economic outlook. Prior to the adoption of this guidance, HTM securities were evaluated individually for other-than-temporary impairment.

Management monitors the credit quality of HTM securities through the review of external credit ratings on a quarterly basis. The following table presents the amortized cost of our HTM securities according to S&P rating:
 
March 31, 2020
 
(in millions of U.S. dollars)
Amortized cost

 
% of Total

AAA
$
2,642

 
22
%
AA
6,608

 
55
%
A
2,371

 
20
%
BBB
422

 
3
%
BB
21

 
—
%
Other
6

 
—
%
Total
$
12,070

 
100
%


Management evaluates expected credit losses (ECL) for AFS securities when fair value is below amortized cost. AFS securities are evaluated for potential credit loss on an individual security level but the evaluation may use assumptions consistent with expectations of credit losses for a group of similar securities. If management has the intent to sell or will be required to sell the security before recovery, the entire impairment loss will be recorded through income to net realized gains and losses. If management does not have the intent to sell or will not be required to sell the security before recovery, an allowance for credit losses is established and the portion of loss that relates to credit losses is recorded in income to Net realized gains (losses) and the portion of loss that relates to non-credit loss is recorded in Other comprehensive income.

Examples of criteria that are collectively evaluated to determine if a credit loss has occurred include the following:
•
The extent to which the fair value is less than amortized cost;
•
Adverse conditions related to the security, industry, or geographic area;
•
Downgrades in the security's credit rating by a rating agency; and
•
Failure of the issuer to make scheduled principal or interest payments

AFS securities that meet any one of the criteria included above will be subject to a discounted cash flow analysis by comparing the present value of expected future cash flows with the amortized cost basis. If the present value of expected future cash flows is less than the amortized cost, a credit loss exists and an allowance for credit losses will be recognized. If the present value of expected future cash flows is equal to or greater than the amortized cost basis, management will conclude an expected credit loss does not exist.

We elected to not measure an allowance for accrued investment income as uncollectible balances are written off in a timely manner, typically 30 to 45 days after uncollected balances are due.



The following table presents fixed maturities by contractual maturity:
 
 
 
March 31

 
 
 
December 31

 
 
 
2020

 
 
 
2019

(in millions of U.S. dollars)
Net Carrying Value

 
Fair Value

 
Amortized Cost

 
Fair Value

Available for sale
 
 
 
 
 
 
 
Due in 1 year or less
$
3,816

 
$
3,816

 
$
3,951

 
$
3,973

Due after 1 year through 5 years
25,837

 
25,837

 
27,142

 
27,720

Due after 5 years through 10 years
23,712

 
23,712

 
23,901

 
24,874

Due after 10 years
10,280

 
10,280

 
8,874

 
9,729

 
63,645

 
63,645

 
63,868

 
66,296

Mortgage-backed securities
17,885

 
17,885

 
18,712

 
19,192

 
$
81,530

 
$
81,530

 
$
82,580

 
$
85,488

Held to maturity
 
 
 
 
 
 
 
Due in 1 year or less
$
614

 
$
620

 
$
478

 
$
479

Due after 1 year through 5 years
3,695

 
3,775

 
3,869

 
3,940

Due after 5 years through 10 years
3,383

 
3,479

 
3,756

 
3,883

Due after 10 years
2,068

 
2,230

 
2,147

 
2,307

 
9,760

 
10,104

 
10,250

 
10,609

Mortgage-backed securities
2,265

 
2,367

 
2,331

 
2,396

 
$
12,025

 
$
12,471

 
$
12,581

 
$
13,005



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) Gross unrealized loss
Fixed maturities in an unrealized loss position at March 31, 2020 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 table presents, for AFS fixed maturities in an unrealized loss position (including securities on loan) that are not deemed to have credit losses, 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
 
March 31, 2020
Fair Value

 
Gross
Unrealized
Loss

 
Fair Value

 
Gross
Unrealized
Loss

 
Fair Value

 
Gross
Unrealized
Loss

(in millions of U.S. dollars)
 
 
 
 
 
Foreign
$
6,534

 
$
(376
)
 
$
132

 
$
(21
)
 
$
6,666

 
$
(397
)
Corporate securities
13,492

 
(858
)
 
448

 
(51
)
 
13,940

 
(909
)
Mortgage-backed securities
914

 
(48
)
 
36

 
(4
)
 
950

 
(52
)
States, municipalities, and political subdivisions
637

 
(6
)
 
130

 
(11
)
 
767

 
(17
)
Total AFS fixed maturities
$
21,577

 
$
(1,288
)
 
$
746

 
$
(87
)
 
$
22,323

 
$
(1,375
)

The following table presents, 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, 2019
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
$
234

 
$
(1
)
 
$
339

 
$
—

 
$
573

 
$
(1
)
Foreign
1,846

 
(34
)
 
802

 
(28
)
 
2,648

 
(62
)
Corporate securities
2,121

 
(40
)
 
988

 
(40
)
 
3,109

 
(80
)
Mortgage-backed securities
1,174

 
(6
)
 
932

 
(8
)
 
2,106

 
(14
)
States, municipalities, and political subdivisions
188

 
—

 
276

 
(12
)
 
464

 
(12
)
Total fixed maturities
$
5,563

 
$
(81
)
 
$
3,337

 
$
(88
)
 
$
8,900

 
$
(169
)



c) Net realized gains (losses)

Management reviews credit losses and the valuation allowance for expected credit losses each quarter. When all or a portion of a fixed maturity security is identified to be uncollectible and written off, the valuation allowance for expected credit losses is reduced by the same amount. In general, a security is considered uncollectible no later than when all efforts to collect contractual cash flows have been exhausted. Below are considerations for when a security may be deemed uncollectible:

•
We have sufficient information to determine that the issuer of the security is insolvent;
•
We receive notice that the issuer of the security has filed for bankruptcy, and the collectability is expected to be adversely impacted by the bankruptcy;
•
The issuer of a security has violated multiple debt covenants;
•
Amounts have been past due for a specified period of time with no response from the issuer;
•
A significant deterioration in the value of the collateral has occurred;
•
We have received correspondence from the issuer of the security indicating that it doesn’t intend to pay the contractual principal and interest.

Projected cash flows are driven primarily by assumptions regarding probability of default and also the timing and amount of recoveries associated with defaults. Chubb developed the projected cash flows using market data, issuer-specific information, and credit ratings. In combination with contractual cash flows and the use of historical default and recovery data by Moody’s Investors Service (Moody’s) rating category we generate expected cash flows using the average cumulative issuer-weighted global default rates by letter rating.
The following table presents the components of Net realized gains (losses):
 
Three Months Ended
 
 
March 31
 
(in millions of U.S. dollars)
2020

 
2019

Fixed maturities:
 
 
 
OTTI on fixed maturities, gross and net
$
—

 
$
(13
)
Gross realized gains excluding OTTI
77

 
27

Gross realized losses excluding OTTI
(125
)
 
(58
)
Provision for expected credit losses
(150
)
 
—

Impairment (1)
(121
)
 
—

Total fixed maturities
$
(319
)
 
$
(44
)
Equity securities
(29
)
 
58

Other investments
5

 
(44
)
Foreign exchange gains (losses)
(68
)
 
13

Investment and embedded derivative instruments
15

 
(130
)
Fair value adjustments on insurance derivative
(685
)
 
114

S&P futures
125

 
(63
)
Other derivative instruments
(2
)
 
(1
)
Net realized gains (losses) (pre-tax)
$
(958
)
 
$
(97
)

(1) 
Related to our intent to sell certain securities.

Realized gains and losses from Equity securities and Other investments from the table above include sales of securities and unrealized gains and losses from fair value changes as follows:
 
 
 
Three Months Ended
 
 
 
 
March 31
 
 
2020
 
 
2019
 
(in millions of U.S. dollars)
Equity Securities

 
Other Investments

 
Total

 
Equity Securities

 
Other Investments

 
Total

Net gains (losses) recognized during the period
$
(29
)
 
$
5

 
$
(24
)
 
$
58

 
$
(44
)
 
$
14

Less: Net gains (losses) recognized from sales of securities
(24
)
 
—

 
(24
)
 
1

 
(2
)
 
(1
)
Unrealized gains (losses) recognized for securities still held at reporting date
$
(5
)
 
$
5

 
$
—

 
$
57

 
$
(42
)
 
$
15



The following table presents a roll-forward of valuation allowance for expected credit losses on fixed maturities:
 
Three Months Ended

 
March 31

(in millions of U.S. dollars)
2020

Available for sale
 
Valuation allowance for expected credit losses - beginning of period
$
—

Impact of adoption of new accounting guidance
25

Provision for expected credit loss
149

Initial allowance for purchased securities with credit deterioration
2

Valuation allowance for expected credit losses - end of period
$
176

Held to maturity
 
Valuation allowance for expected credit losses - beginning of period
$
—

Impact of adoption of new accounting guidance
44

Provision for expected credit loss
1

Valuation allowance for expected credit losses - end of period
$
45



Alternative investments
Alternative investments include partially-owned investment companies, investment funds, and limited partnerships measured at fair value using their respective net asset values or equivalent (NAV) as a practical expedient. The following table presents, by investment category, the expected liquidation period, fair value, and maximum future funding commitments of alternative investments:
 
 
 
 
 
March 31

 
 
 
December 31

 
Expected
Liquidation
Period of Underlying Assets
 
 
 
2020

 
 
 
2019

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

 
Maximum
Future Funding
Commitments

 
Fair
Value

 
Maximum
Future Funding
Commitments

Financial
2 to 10 Years
 
$
590

 
$
325

 
$
611

 
$
329

Real Assets
2 to 11 Years
 
721

 
414

 
712

 
422

Distressed
2 to 7 Years
 
262

 
67

 
263

 
80

Private Credit
3 to 8 Years
 
106

 
272

 
104

 
272

Traditional
2 to 14 Years
 
3,045

 
1,868

 
2,844

 
2,160

Vintage
1 to 2 Years
 
103

 
—

 
116

 
—

Investment funds
Not Applicable
 
264

 
—

 
271

 
—

 
 
 
$
5,091

 
$
2,946

 
$
4,921

 
$
3,263



Included in all categories in the above table, except for Investment funds, are investments for which Chubb will never have the contractual option to redeem but receives distributions based on the liquidation of the underlying assets. Further, for all categories except for Investment funds, Chubb does not have the ability to sell or transfer the investments without the consent from the general partner of individual funds.
Investment Category:
 
Consists of investments in private equity funds:
Financial
 
targeting financial services companies, such as financial institutions and insurance services worldwide
Real Assets
 
targeting investments related to hard, physical assets, such as real estate, infrastructure and natural resources
Distressed
 
targeting distressed corporate debt/credit and equity opportunities in the U.S.
Private Credit
 
targeting privately originated corporate debt investments, including senior secured loans and subordinated bonds
Traditional
 
employing traditional private equity investment strategies, such as buyout and growth equity globally
Vintage
 
funds where the initial fund term has expired

Investment funds employ various investment strategies, such as long/short equity and arbitrage/distressed. Included in this category are investments for which Chubb has the option to redeem at agreed upon value as described in each investment fund’s subscription agreement. Depending on the terms of the various subscription agreements, investment fund investments may be redeemed monthly, quarterly, semi-annually, or annually. If Chubb wishes to redeem an investment fund investment, it must first determine if the investment fund is still in a lock-up period (a time when Chubb cannot redeem its investment so that the investment fund manager has time to build the portfolio). If the investment fund is no longer in its lock-up period, Chubb must then notify the investment fund manager of its intention to redeem by the notification date prescribed by the subscription agreement. Subsequent to notification, the investment fund can redeem Chubb’s investment within several months of the notification. Notice periods for redemption of the investment funds range between 5 and 120 days. Chubb can redeem its investment funds without consent from the investment fund managers.

d) 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 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 have investments in segregated portfolios primarily to provide collateral or guarantees for LOC and derivative transactions. Included in restricted assets at March 31, 2020 and December 31, 2019 are investments, primarily fixed maturities, totaling $20.9 billion and $21.0 billion, respectively, and cash of $146 million and $109 million, respectively.
The following table presents the components of restricted assets:
 
March 31

 
December 31

(in millions of U.S. dollars)
2020

 
2019

Trust funds
$
13,974

 
$
14,004

Deposits with U.S. regulatory authorities
2,424

 
2,466

Deposits with non-U.S. regulatory authorities
2,669

 
2,709

Assets pledged under repurchase agreements
1,492

 
1,464

Other pledged assets
496

 
490

Total
$
21,055

 
$
21,133