Market risk benefits

12 Months Ended

Dec. 31, 2023

Our reinsurance programs covering variable annuity guarantees, comprising guaranteed living benefits (GLB) and guaranteed minimum death benefits (GMDB), meet the definition of Market risk benefits (MRB). The following table presents a roll-forward of MRB:


	For the Years Ended December 31
(in millions of U.S. dollars)	2023		2022		2021
Balance – beginning of period	$	800	$	812	$	1,163
Balance, beginning of period, before effect of changes in the instrument-specific credit risk	776		755		1,079



Interest rate changes	26		(568)		(157)
Effect of changes in equity markets	(195)		513		(223)
Effect of changes in volatilities	20		27		(65)
Actual policyholder behavior different from expected behavior	18		(13)		42
Effect of changes in future expected policyholder behavior	89		40		24

Effect of timing and all other	15		22		55
Balance, end of period, before effect of changes in the instrument-specific credit risk	$	749	$	776	$	755
Effect of changes in the instrument-specific credit risk	22		24		57
Balance – end of period	$	771	$	800	$	812
Weighted-average age of policyholders (years)	74		73		72
Net amount at risk (1)	$	1,872	$	2,508	$	1,759

(1)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, and reinsurance coverage ends at the earlier of the maturity of the underlying variable annuity policy or the reinsurance treaty. No withdrawals, lapses, and mortality improvements are assumed in the projection. GLB-related risks contain conservative mortality and annuitization assumptions.

Excluded from the table above are MRB gains (losses) of $(334) million, $106 million, and $(232) million for the years ended December 31, 2023, 2022, and 2021, respectively, reported in the Consolidated statements of operations, relating to the market risk benefits' economic hedge and other net cash flows. There is no reinsurance recoverable associated with our liability for MRB.

In the third quarter of 2023, we completed a review of policyholder behavior related to annuitizations, partial withdrawals, lapses, and mortality for our variable annuity reinsurance business.

•As annuitization and partial withdrawal experience continued to emerge, we refined our assumptions for an additional year of data. The annuitization assumption updates included treaty-based and age-based behavior, as well as a refresh of our annuitization rates which depend on the value of the guarantees. These refinements resulted in a net increase of approximately $92 million to the MRB fair value, recognized as a Market risk benefits loss.

•We also refined our lapse and mortality assumptions based on additional emerging experience. The changes had an insignificant impact on the MRB fair value.

For MRB, Chubb estimates fair value using an internal valuation model which includes a number of factors including interest rates, equity markets, credit risk, current account value, market volatility, expected annuitization rates and other policyholder behavior, and changes in policyholder mortality. All reinsurance treaties contain claim limits, which are also factored into the valuation model.

Valuation Technique

Significant Unobservable Inputs

December 31, 2023

December 31, 2022

December 31, 2021

Ranges

Weighted Average(1)

Ranges

Weighted Average(1)

Ranges

Weighted Average(1)

MRB (1)

Actuarial model

Lapse rate

0.5% – 30.0%

4.0

0.5% – 30.4%

3.5

0.5% – 31.5%

4.8

Annuitization rate

0% – 100%

4.5

0% – 100%

4.4

0% – 100%

3.6

(1)The weighted-average lapse and annuitization rates are determined by weighting each treaty's rates by the MRB contract's fair value.

The most significant policyholder behavior assumptions include lapse rates for MRBs, and GLB annuitization rates. Assumptions regarding lapse rates and GLB annuitization rates differ by treaty, but the underlying methodologies to determine rates applied to each treaty are comparable.

A lapse rate is the percentage of in-force policies surrendered in a given calendar year. All else equal, as lapse rates increase, ultimate claim payments will decrease. In general, the base lapse function assumes low lapse rates during the surrender charge period, followed by a "spike" lapse rate in the year immediately following the surrender charge period, and then reverting to an ultimate lapse rate, typically over a 2-year period. This base rate is adjusted downward for policies with more valuable guarantees (policies with guaranteed values far in excess of their account values). Partial withdrawals and the impact of older policyholders with tax-qualified contracts (due to required minimum distributions) are also reflected in our modeling.

The GLB annuitization rate is the percentage of policies for which the policyholder will elect to annuitize using the guaranteed benefit provided under the GLB. All else equal, as GLB annuitization rates increase, ultimate claim payments will increase, subject to treaty claim limits. All GLB reinsurance treaties include claim limits to protect Chubb in the event that actual annuitization behavior is significantly higher than expected. In general, Chubb assumes that GLB annuitization rates will be higher for policies with more valuable guarantees (policies with guaranteed values far in excess of their account values). Chubb also assumes that GLB annuitization rates increase as policyholders get older. In addition, it is also assumed that GLB annuitization rates are higher in the first year immediately following the waiting period (the first year the policies are eligible to annuitize using the GLB) in comparison to all subsequent years. Chubb does not yet have fully credible annuitization experience for all clients.

The effect of changes in key market factors on assumed lapse and annuitization rates reflect emerging trends using data available from cedants. For treaties with limited experience, rates are established by blending the experience with data received from other ceding companies. The model and related assumptions are regularly re-evaluated by management and enhanced, as appropriate, based upon additional experience obtained related to policyholder behavior and availability of updated information such as market conditions, market participant assumptions, and demographics of in-force annuities.