10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2012

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from             to             

Commission File No. 1-11778

ACE LIMITED

(Exact name of registrant as specified in its charter)

Switzerland	98-0091805
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

Baerengasse 32

Zurich, Switzerland CH-8001

(Address of principal executive offices) (Zip Code)

+41 (0)43 456 76 00

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

                                                         YES   x                                                 NO  ¨

Indicate by checkmark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

                                                         YES  x                                                 NO  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  x Accelerated filer  ¨ Non-accelerated filer  ¨ Smaller reporting company  ¨

                                                 (Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

                                                         YES   ¨                                                 NO  x

The number of registrant’s Common Shares (CHF 29.79 par value) outstanding as of July 18, 2012 was 339,092,347.

ACE LIMITED

INDEX TO FORM 10-Q

			Page No.
Part I.	FINANCIAL INFORMATION
Item 1.	Financial Statements:
	Consolidated Balance Sheets (Unaudited) June 30, 2012 and December 31, 2011			3
	Consolidated Statements of Operations and Comprehensive Income (Unaudited) Three and Six Months Ended June 30, 2012 and 2011			4
	Consolidated Statements of Shareholders’ Equity (Unaudited) Six Months Ended June 30, 2012 and 2011			5
	Consolidated Statements of Cash Flows (Unaudited) Six Months Ended June 30, 2012 and 2011			7
	Notes to Consolidated Financial Statements (Unaudited)
	Note 1.	Summary of significant accounting policies		8
	Note 2.	Acquisitions		9
	Note 3.	Investments		10
	Note 4.	Fair value measurements		15
	Note 5.	Assumed life reinsurance programs involving minimum benefit guarantees under annuity contracts		26
	Note 6.	Commitments, contingencies, and guarantees		29
	Note 7.	Shareholders’ equity		35
	Note 8.	Share-based compensation		36
	Note 9.	Segment information		36
	Note 10.	Earnings per share		40
	Note 11.	Information provided in connection with outstanding debt of subsidiaries		41
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations			47
Item 3.	Quantitative and Qualitative Disclosures About Market Risk			86
Item 4.	Controls and Procedures			92
Part II.	OTHER INFORMATION
Item 1.	Legal Proceedings			93
Item 1A.	Risk Factors			93
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds and Issuer Repurchases of Equity Securities			93
Item 6.	Exhibits			93

2

PART I FINANCIAL INFORMATION

Item  1. Financial Statements

ACE LIMITED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

	June 30 2012			December 31 2011
	(in millions of U.S. dollars, except share and per share data)
Assets
Investments
Fixed maturities available for sale, at fair value (amortized cost – $42,316 and $40,450) (includes hybrid financial instruments of $381 and $357)	$	44,386		$	41,967
Fixed maturities held to maturity, at amortized cost (fair value – $8,062 and $8,605)		7,782			8,447
Equity securities, at fair value (cost – $724 and $671)		729			647
Short-term investments, at fair value and amortized cost		2,260			2,301
Other investments (cost – $2,297 and $2,112)		2,524			2,314
Total investments		57,681			55,676
Cash		617			614
Securities lending collateral		2,247			1,375
Accrued investment income		542			547
Insurance and reinsurance balances receivable		4,985			4,387
Reinsurance recoverable on losses and loss expenses		11,752			12,389
Reinsurance recoverable on policy benefits		257			249
Deferred policy acquisition costs		1,710			1,548
Value of business acquired		637			676
Goodwill and other intangible assets		4,826			4,799
Prepaid reinsurance premiums		1,775			1,541
Deferred tax assets		557			673
Investments in partially-owned insurance companies (cost – $333 and $345)		339			352
Other assets		2,776			2,495
Total assets	$	90,701		$	87,321
Liabilities
Unpaid losses and loss expenses	$	36,850		$	37,477
Unearned premiums		7,044			6,334
Future policy benefits		4,436			4,274
Insurance and reinsurance balances payable		3,490			3,542
Deposit liabilities		687			663
Securities lending payable		2,253			1,385
Payable for securities purchased		692			287
Accounts payable, accrued expenses, and other liabilities		4,255			3,948
Income taxes payable		162			159
Short-term debt		1,401			1,251
Long-term debt		3,360			3,360
Trust preferred securities		309			309
Total liabilities		64,939			62,989
Commitments and contingencies
Shareholders’ equity
Common Shares (CHF 29.79 and CHF 30.27 par value; 342,832,412 shares issued; 339,060,885 and 336,927,276 shares outstanding)		9,927			10,095
Common Shares in treasury (3,771,527 and 5,905,136 shares)		(206	)		(327	)
Additional paid-in capital		5,075			5,326
Retained earnings		8,628			7,327
Accumulated other comprehensive income (AOCI)		2,338			1,911
Total shareholders’ equity		25,762			24,332
Total liabilities and shareholders’ equity	$	90,701		$	87,321

See accompanying notes to consolidated financial statements

3

ACE LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Unaudited)

	Three Months Ended June  30						Six Months Ended June 30
	2012			2011			2012			2011
	(in millions of U.S. dollars, except per share data)
Revenues
Net premiums written	$	4,130		$	3,953		$	7,702		$	7,399
Change in unearned premiums		(347	)		(196	)		(538	)		(333	)
Net premiums earned		3,783			3,757			7,164			7,066
Net investment income		537			569			1,081			1,113
Net realized gains (losses):
Other-than-temporary impairment (OTTI) losses gross		(10	)		(9	)		(20	)		(14	)
Portion of OTTI losses recognized in other comprehensive income (OCI)		—			1			—			2
Net OTTI losses recognized in income		(10	)		(8	)		(20	)		(12	)
Net realized gains (losses) excluding OTTI losses		(384	)		(65	)		(114	)		(106	)
Total net realized gains (losses)		(394	)		(73	)		(134	)		(118	)
Total revenues		3,926			4,253			8,111			8,061
Expenses
Losses and loss expenses		2,119			2,226			3,923			4,489
Policy benefits		102			108			249			199
Policy acquisition costs		619			612			1,201			1,171
Administrative expenses		514			518			1,024			1,017
Interest expense		62			62			124			125
Other (income) expense		34			12			31			(1	)
Total expenses		3,450			3,538			6,552			7,000
Income before income tax		476			715			1,559			1,061
Income tax expense		148			121			258			217
Net income	$	328		$	594		$	1,301		$	844
Other comprehensive income
Unrealized appreciation	$	313		$	303		$	638		$	369
Reclassification adjustment for net realized gains included in net income		(58	)		(78	)		(91	)		(134	)
		255			225			547			235
Change in:
Cumulative translation adjustment		(116	)		69			(28	)		301
Pension liability		1			1			(1	)		(5	)
Other comprehensive income, before income tax		140			295			518			531
Income tax expense related to OCI items		(11	)		(88	)		(91	)		(136	)
Other comprehensive income		129			207			427			395
Comprehensive income	$	457		$	801		$	1,728		$	1,239
Earnings per share
Basic earnings per share	$	0.96		$	1.75		$	3.83		$	2.50
Diluted earnings per share	$	0.96		$	1.74		$	3.80		$	2.48

See accompanying notes to consolidated financial statements

4

ACE LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited)

	Six Months Ended June 30
	2012			2011
	(in millions of U.S. dollars)
Common Shares
Balance – beginning of period	$	10,095		$	10,161
Exercise of stock options		—			50
Dividends declared on Common Shares-par value reduction		(168	)		(113	)
Balance – end of period		9,927			10,098
Common Shares in treasury
Balance – beginning of period		(327	)		(330	)
Common Shares repurchased		(7	)		—
Common Shares issued in treasury, net of net shares redeemed under employee share-based compensation plans		128			80
Balance – end of period		(206	)		(250	)
Additional paid-in capital
Balance – beginning of period		5,326			5,623
Net shares redeemed under employee share-based compensation plans		(100	)		(111	)
Exercise of stock options		(12	)		20
Share-based compensation expense and other		61			71
Funding of dividends declared to Retained earnings		(200	)		(119	)
Balance – end of period		5,075			5,484
Retained earnings
Balance – beginning of period, as reported		7,327			5,926
Cumulative effect of adjustment resulting from adoption of new accounting guidance		—			(139	)
Balance – beginning of period, as adjusted		7,327			5,787
Net income		1,301			844
Funding of dividends declared from Additional paid-in capital		200			119
Dividends declared on Common Shares		(200	)		(119	)
Balance – end of period		8,628			6,631
Deferred compensation obligation
Balance – beginning and end of period	$	—		$	2

See accompanying notes to consolidated financial statements

5

ACE LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (continued)

(Unaudited)

	Six Months Ended June 30
	2012			2011
	(in millions of U.S. dollars)
Accumulated other comprehensive income
Net unrealized appreciation on investments
Balance – beginning of period	$	1,715		$	1,399
Change in period, net of income tax expense of $(96) and $(60)		451			175
Balance – end of period		2,166			1,574
Cumulative translation adjustment
Balance – beginning of period		258			262
Change in period, net of income tax benefit (expense) of $5 and $(77)		(23	)		224
Balance – end of period		235			486
Pension liability adjustment
Balance – beginning of period		(62	)		(67	)
Change in period, net of income tax benefit of nil and $1		(1	)		(4	)
Balance – end of period		(63	)		(71	)
Accumulated other comprehensive income		2,338			1,989
Common Shares issued to employee trust
Balance – beginning and end of period		—			(2	)
Total shareholders’ equity	$	25,762		$	23,952

See accompanying notes to consolidated financial statements

6

ACE LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Six Months Ended June 30
	2012			2011
	(in millions of U.S. dollars)
Cash flows from operating activities
Net income	$	1,301		$	844
Adjustments to reconcile net income to net cash flows from operating activities
Net realized (gains) losses		134			118
Amortization of premiums/discounts on fixed maturities		103			63
Deferred income taxes		1			45
Unpaid losses and loss expenses		(644	)		1,001
Unearned premiums		780			478
Future policy benefits		54			37
Insurance and reinsurance balances payable		(60	)		449
Accounts payable, accrued expenses, and other liabilities		(9	)		3
Income taxes payable		—			(91	)
Insurance and reinsurance balances receivable		(551	)		(578	)
Reinsurance recoverable on losses and loss expenses		626			(296	)
Reinsurance recoverable on policy benefits		48			29
Deferred policy acquisition costs		(159	)		(137	)
Prepaid reinsurance premiums		(283	)		(156	)
Other		42			254
Net cash flows from operating activities		1,383			2,063
Cash flows from investing activities
Purchases of fixed maturities available for sale		(11,522	)		(13,041	)
Purchases of to be announced mortgage-backed securities		(165	)		(642	)
Purchases of fixed maturities held to maturity		(136	)		(234	)
Purchases of equity securities		(93	)		(170	)
Sales of fixed maturities available for sale		7,840			9,346
Sales of to be announced mortgage-backed securities		192			639
Sales of equity securities		33			347
Maturities and redemptions of fixed maturities available for sale		2,280			1,758
Maturities and redemptions of fixed maturities held to maturity		739			656
Net derivative instruments settlements		(133	)		(46	)
Acquisition of subsidiaries (net of cash acquired of $95 in 2011)		(30	)		(380	)
Other		(255	)		(132	)
Net cash flows used for investing activities		(1,250	)		(1,899	)
Cash flows from financing activities
Dividends paid on Common Shares		(318	)		(223	)
Common Shares repurchased		(11	)		(68	)
Proceeds from issuance of short-term debt		1,532			3,311
Repayment of short-term debt		(1,381	)		(3,211	)
Proceeds from share-based compensation plans		55			76
Net cash flows used for financing activities		(123	)		(115	)
Effect of foreign currency rate changes on cash and cash equivalents		(7	)		12
Net increase in cash		3			61
Cash – beginning of period		614			772
Cash – end of period	$	617		$	833
Supplemental cash flow information
Taxes paid	$	259		$	265
Interest paid	$	119		$	112

See accompanying notes to consolidated financial statements

7

ACE LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Summary of significant accounting policies

a) Basis of presentation

ACE Limited is a holding company incorporated in Zurich, Switzerland. ACE Limited, through its various subsidiaries, provides a broad range of insurance and reinsurance products to insureds worldwide. ACE operates through the following business segments: Insurance – North American, Insurance – Overseas General, Global Reinsurance, and Life. Refer to Note 9 for additional information.

The interim unaudited consolidated financial statements, which include the accounts of ACE and its subsidiaries (collectively, ACE, we, us, or our), have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) and, in the opinion of management, reflect all adjustments (consisting of normally recurring accruals) necessary for a fair statement of the results and financial position for such periods. All significant intercompany accounts and transactions have been eliminated.

The results of operations and cash flows for any interim period are not necessarily indicative of the results for the full year. These consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in our 2011 Form 10-K.

Effective January 1, 2012, we retrospectively adopted new accounting guidance for costs associated with acquiring or renewing insurance contracts. Under the new guidance, the definition of acquisition costs was modified to specify that a cost must be directly related to the successful acquisition of a new or renewal insurance contract in order to be deferred. Prior year amounts contained in these consolidated financial statements have been adjusted to reflect the impact of retrospective adjustments as a result of applying this new accounting guidance.

b) Deferred policy acquisition costs and value of business acquired (VOBA)

Policy acquisition costs consist of commissions, premium taxes, and certain underwriting costs related directly to the successful acquisition of a new or renewal insurance contract. A VOBA intangible asset is established upon the acquisition of blocks of long duration contracts and represents the present value of estimated net cash flows for the contracts in force at the time of the acquisition. Acquisition costs and VOBA, collectively policy acquisition costs, are deferred and amortized. Policy acquisition costs on property and casualty (P&C) contracts are generally amortized ratably over the period in which premiums are earned. Policy acquisition costs on long duration contracts are amortized over the estimated life of the contracts, generally in proportion to premium revenue recognized. Policy acquisition costs are reviewed to determine if they are recoverable from future income, including investment income. Unrecoverable costs are expensed in the period identified.

Advertising costs are expensed as incurred except for direct-response campaigns that meet the criteria of the new guidance, principally related to accident and health (A&H) business produced by the Insurance – Overseas General segment, which are deferred and recognized as a component of policy acquisition costs. For individual direct-response marketing campaigns that we can demonstrate have specifically resulted in incremental sales to customers and such sales have probable future economic benefits, incremental costs directly related to the marketing campaigns are capitalized. Deferred marketing costs are reviewed regularly for recoverability from future income, including investment income, and amortized in proportion to premium revenue recognized, primarily over a ten year period.

8

ACE LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

(Unaudited)

c) Accounting guidance adopted

Accounting for costs associated with acquiring or renewing insurance contracts

In October 2010, the Financial Accounting Standards Board (FASB) issued new guidance related to the accounting for costs associated with acquiring or renewing insurance contracts. Under the new guidance, the definition of acquisition costs was modified to specify that a cost must be directly related to the successful acquisition of a new or renewal insurance contract in order to be deferred. We adopted this guidance retrospectively effective January 1, 2012 and reduced Retained earnings as of January 1, 2011 by $139 million which represents the cumulative effect of adjustment resulting from adoption of new accounting guidance. We adjusted prior year amounts contained in these consolidated financial statements to reflect the effect of adjustment from adoption of new accounting guidance including reducing Deferred policy acquisition costs and Retained earnings by $213 million and $181 million, respectively, as of December 31, 2011. The reduction to Deferred policy acquisition costs is primarily due to lower deferrals associated with unsuccessful efforts. We also reduced Net income by $12 million, or $0.03 per share, and $22 million, or $0.06 per share, for the three and six months ended June 30, 2011, respectively.

Fair value measurements

In May 2011, the FASB issued new guidance on fair value measurements to revise the wording used to describe the requirements for measuring fair value and for disclosing information about fair value measurements. The guidance is not necessarily intended to result in a significant change in the application of the current requirements. Instead, it is intended to clarify the intended application of existing fair value measurement requirements. It also changes certain principles or requirements for measuring fair value and disclosing information about fair value measurements. We adopted this guidance prospectively effective January 1, 2012. The application of this guidance resulted in additional fair value measurements disclosures only and did not impact our financial condition or results of operations.

2. Acquisitions

On June 13, 2012, we announced that we and our local partner had signed a definitive agreement to acquire PT Asuransi Jaya Proteksi (JaPro), one of Indonesia’s leading general insurers. This transaction, which is subject to regulatory approvals and other closing conditions, is expected to be completed by the end of 2012.

We acquired New York Life’s Korea operations on February 1, 2011 and New York Life’s Hong Kong operations on April 1, 2011 for approximately $450 million in cash. These acquired businesses operate under our Life segment, expand our presence in the North Asia market and complement our life insurance business established in that region. In 2012, we finalized purchase price allocations resulting in $91 million of goodwill, none of which is expected to be deductible for income tax purposes, and $163 million of intangible assets. The most significant intangible asset is VOBA.

We acquired Penn Millers Holding Corporation (PMHC) on November 30, 2011 for approximately $107 million in cash. PMHC’s primary insurance subsidiary, Penn Millers Insurance Company, is a well-established underwriter in the agribusiness market since 1887. PMHC operates under our Insurance – North American segment.

We acquired Rio Guayas Compania de Seguros y Reaseguros (Rio Guayas), a general insurance company in Ecuador on December 28, 2011. Rio Guayas sells a range of insurance products, including auto, life, property, and A&H. The acquisition of Rio Guayas expands our capabilities in terms of geography, products, and distribution. Rio Guayas operates under our Insurance – Overseas General segment.

9

ACE LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

(Unaudited)

3. Investments

a) Fixed maturities

The following tables present the amortized cost and fair value of fixed maturities and related OTTI recognized in AOCI:

	June 30, 2012
	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	$	3,106	$	188	$	—		$	3,294	$	—
Foreign		12,745		571		(48	)		13,268		(1	)
Corporate securities		14,432		938		(71	)		15,299		(12	)
Mortgage-backed securities		9,815		446		(80	)		10,181		(93	)
States, municipalities, and political subdivisions		2,218		128		(2	)		2,344		—
	$	42,316	$	2,271	$	(201	)	$	44,386	$	(106	)
Held to maturity
U.S. Treasury and agency	$	1,091	$	45	$	—		$	1,136	$	—
Foreign		921		32		(4	)		949		—
Corporate securities		2,207		82		(7	)		2,282		—
Mortgage-backed securities		2,448		98		(2	)		2,544		—
States, municipalities, and political subdivisions		1,115		40		(4	)		1,151		—
	$	7,782	$	297	$	(17	)	$	8,062	$	—
	December 31, 2011
	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	$	2,774	$	186	$	—		$	2,960	$	—
Foreign		12,025		475		(99	)		12,401		(2	)
Corporate securities		14,055		773		(135	)		14,693		(22	)
Mortgage-backed securities		9,979		397		(175	)		10,201		(151	)
States, municipalities, and political subdivisions		1,617		96		(1	)		1,712		—
	$	40,450	$	1,927	$	(410	)	$	41,967	$	(175	)
Held to maturity
U.S. Treasury and agency	$	1,078	$	48	$	—		$	1,126	$	—
Foreign		935		18		(23	)		930		—
Corporate securities		2,338		44		(45	)		2,337		—
Mortgage-backed securities		2,949		90		(3	)		3,036		—
States, municipalities, and political subdivisions		1,147		32		(3	)		1,176		—
	$	8,447	$	232	$	(74	)	$	8,605	$	—

10

ACE LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

(Unaudited)

As discussed in Note 3 c), if a credit loss is indicated 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, 2012, $16 million and $84 million, respectively, of net unrealized appreciation related to such securities is included in OCI. For the three and six months ended June 30, 2011, $25 million and $8 million, respectively, of net unrealized depreciation related to such securities is included in OCI. At June 30, 2012 and December 31, 2011, AOCI includes net unrealized depreciation of $74 million and $155 million, respectively, related to securities remaining in the investment portfolio at those dates for which ACE has recognized a non-credit OTTI.

Mortgage-backed securities (MBS) issued by U.S. government agencies are combined with all other to be announced mortgage derivatives held (refer to Note 6 a) (iv)) and are included in the category, “Mortgage-backed securities”. Approximately 86 percent and 84 percent of the total mortgage-backed securities at June 30, 2012 and December 31, 2011, 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, 2012				December 31, 2011
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(in millions of U.S. dollars)
Available for sale
Due in 1 year or less	$	2,299	$	2,329	$	2,321	$	2,349
Due after 1 year through 5 years		12,330		12,802		12,325		12,722
Due after 5 years through 10 years		13,839		14,694		12,379		12,995
Due after 10 years		4,033		4,380		3,446		3,700
		32,501		34,205		30,471		31,766
Mortgage-backed securities		9,815		10,181		9,979		10,201
	$	42,316	$	44,386	$	40,450	$	41,967
Held to maturity
Due in 1 year or less	$	669	$	676	$	393	$	396
Due after 1 year through 5 years		1,811		1,858		2,062		2,090
Due after 5 years through 10 years		2,202		2,296		2,376		2,399
Due after 10 years		652		688		667		684
		5,334		5,518		5,498		5,569
Mortgage-backed securities		2,448		2,544		2,949		3,036
	$	7,782	$	8,062	$	8,447	$	8,605

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.

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(Unaudited)

b) Equity securities

The following table presents the cost and fair value of equity securities:

	June 30 2012			December 31 2011
	(in millions of U.S. dollars)
Cost	$	724		$	671
Gross unrealized appreciation		29			18
Gross unrealized depreciation		(24	)		(42	)
Fair value	$	729		$	647

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, ACE must evaluate the security to determine the portion of the impairment, if any, related to credit losses. If a credit loss is indicated, 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

• ACE’s 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 impaired.

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.

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(Unaudited)

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. We develop these estimates using information based on market observable data, issuer-specific information, and credit ratings. ACE developed its default assumption by using 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. We believe that use of a default assumption in excess of the historical mean is reasonable in light of current market conditions.

For the three and six months ended June 30, 2012, credit losses recognized in net income for corporate securities were $1 million and $4 million, respectively. There were no credit losses recognized in net income for corporate securities in 2011.

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, 2012, credit losses recognized in net income for mortgage-backed securities were nil and $3 million, respectively. For the three and six months ended June 30, 2011, credit losses recognized in net income for mortgage-backed securities were $2 million and $3 million, respectively.

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 June  30						Six Months Ended June  30
	2012			2011			2012			2011
	(in millions of U.S. dollars)
Fixed maturities:
OTTI on fixed maturities, gross	$	(1	)	$	(6	)	$	(8	)	$	(11	)
OTTI on fixed maturities recognized in OCI (pre-tax)		—			1			—			2
OTTI on fixed maturities, net		(1	)		(5	)		(8	)		(9	)
Gross realized gains excluding OTTI		104			108			216			217
Gross realized losses excluding OTTI		(35	)		(29	)		(106	)		(85	)
Total fixed maturities		68			74			102			123
Equity securities:
OTTI on equity securities		(4	)		—			(5	)		—
Gross realized gains excluding OTTI		—			4			2			12
Gross realized losses excluding OTTI		(1	)		—			(1	)		(1	)
Total equity securities		(5	)		4			(4	)		11
OTTI on other investments		(5	)		(3	)		(7	)		(3	)
Foreign exchange losses		(9	)		(30	)		(14	)		(109	)
Investment and embedded derivative instruments		(49	)		(48	)		(7	)		(68	)
Fair value adjustments on insurance derivative		(467	)		(70	)		(39	)		1
S&P put options and futures		70			3			(161	)		(68	)
Other derivative instruments		1			(2	)		(4	)		(3	)
Other		2			(1	)		—			(2	)
Net realized gains (losses)	$	(394	)	$	(73	)	$	(134	)	$	(118	)

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

(Unaudited)

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
	2012			2011			2012			2011
	(in millions of U.S. dollars)
Balance of credit losses related to securities still held – beginning of period	$	55		$	96		$	74		$	137
Additions where no OTTI was previously recorded		1			2			2			2
Additions where an OTTI was previously recorded		—			—			5			1
Reductions for securities sold during the period		(9	)		(4	)		(34	)		(46	)
Balance of credit losses related to securities still held – end of period	$	47		$	94		$	47		$	94

d) Gross unrealized loss

At June 30, 2012, there were 2,574 fixed maturities out of a total of 22,842 fixed maturities in an unrealized loss position. The largest single unrealized loss in the fixed maturities was $6 million. There were approximately 81 equity securities out of a total of 191 equity securities in an unrealized loss position. The largest single unrealized loss in the equity securities was $19 million. Fixed maturities in an unrealized loss position at June 30, 2012 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. Equity securities in an unrealized loss position include foreign fixed income securities held in a commingled fund structure 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
	Fair Value		Gross Unrealized Loss			Fair Value		Gross Unrealized Loss			Fair Value		Gross Unrealized Loss
	(in millions of U.S. dollars)
June 30, 2012
Foreign	$	1,231	$	(34.4	)	$	350	$	(18.0	)	$	1,581	$	(52.4	)
Corporate securities		1,800		(57.2	)		331		(21.2	)		2,131		(78.4	)
Mortgage-backed securities		280		(1.9	)		437		(80.2	)		717		(82.1	)
States, municipalities, and political subdivisions		289		(2.2	)		57		(3.3	)		346		(5.5	)
Total fixed maturities		3,600		(95.7	)		1,175		(122.7	)		4,775		(218.4	)
Equity securities		511		(24.0	)		—		—			511		(24.0	)
Other investments		69		(6.6	)		—		—			69		(6.6	)
Total	$	4,180	$	(126.3	)	$	1,175	$	(122.7	)	$	5,355	$	(249.0	)

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

(Unaudited)

	0 – 12 Months					Over 12 Months					Total
	Fair Value		Gross Unrealized Loss			Fair Value		Gross Unrealized Loss			Fair Value		Gross Unrealized Loss
	(in millions of U.S. dollars)
December 31, 2011
Foreign	$	1,801	$	(82.2	)	$	529	$	(40.0	)	$	2,330	$	(122.2	)
Corporate securities		3,084		(148.2	)		268		(32.2	)		3,352		(180.4	)
Mortgage-backed securities		440		(7.5	)		586		(170.2	)		1,026		(177.7	)
States, municipalities, and political subdivisions		30		(0.4	)		98		(3.5	)		128		(3.9	)
Total fixed maturities		5,355		(238.3	)		1,481		(245.9	)		6,836		(484.2	)
Equity securities		484		(42.3	)		—		—			484		(42.3	)
Other investments		88		(8.3	)		—		—			88		(8.3	)
Total	$	5,927	$	(288.9	)	$	1,481	$	(245.9	)	$	7,408	$	(534.8	)

e) Restricted assets

ACE 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. ACE is also required to restrict assets pledged under reverse 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 LOCs and derivative transactions. Included in restricted assets at June 30, 2012 and December 31, 2011, are fixed maturities and short-term investments totaling $15.9 billion and $14.9 billion, respectively, and cash of $246 million and $179 million, respectively.

The following table presents the components of restricted assets:

	June 30 2012		December 31 2011
	(in millions of U.S. dollars)
Trust funds	$	10,807	$	9,940
Deposits with non-U.S. regulatory authorities		2,141		2,240
Deposits with U.S. regulatory authorities		1,340		1,307
Assets pledged under reverse repurchase agreements		1,401		1,251
Other pledged assets		480		364
	$	16,169	$	15,102

4. Fair value measurements

a) Fair value hierarchy

Fair value of financial assets and financial liabilities is estimated based on the framework established in the fair value accounting guidance. The guidance defines fair value as the price to sell an asset or transfer a liability in an orderly transaction between market participants and establishes a three-level valuation hierarchy in which inputs into valuation techniques used to measure fair value are classified. The fair value hierarchy gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

(Unaudited)

The three levels of the hierarchy are as follows:

• Level 1 – Unadjusted quoted prices for identical assets or liabilities in active markets;

• Level 2 – Includes, among other items, inputs other than quoted prices that are observable for the asset or liability such as interest rates and yield curves, quoted prices for similar assets and liabilities in active markets, and quoted prices for identical or similar assets and liabilities in markets that are not active; and

• Level 3 – Inputs that are unobservable and reflect management’s judgments about assumptions that market participants would use in pricing an asset or liability.

We categorize financial instruments within the valuation hierarchy at the balance sheet date based upon the lowest level of inputs that are significant to the fair value measurement. Accordingly, transfers between levels within the valuation hierarchy occur when there are significant changes to the inputs, such as increases or decreases in market activity, changes to the availability of current prices, changes to the transparency to underlying inputs, and whether there are significant variances in quoted prices. Transfers in and/or out of any level are assumed to occur at the end of the period.

We use one or more pricing services to obtain fair value measurements for the majority of the investment securities we hold. Based on management’s understanding of the methodologies used, these pricing services only produce an estimate of fair value if there is observable market information that would allow them to make a fair value estimate. Based on our understanding of the market inputs used by the pricing services, all applicable investments have been valued in accordance with GAAP. We do not typically adjust prices obtained from pricing services. The following is a description of the valuation techniques and inputs used to determine fair values for financial instruments carried at fair value, as well as the general classification of such financial instruments pursuant to the valuation hierarchy.

Fixed maturities

We use pricing services to estimate fair value measurements for the majority of our fixed maturities. The pricing services use market quotations for fixed maturities that have quoted prices in active markets; such securities are classified within Level 1. For fixed maturities other than U.S. Treasury securities that generally do not trade on a daily basis, the pricing services prepare estimates of fair value measurements using their pricing applications, which include available relevant market information, benchmark curves, benchmarking of like securities, sector groupings, and matrix pricing. Additional valuation factors that can be taken into account are nominal spreads, dollar basis, and liquidity adjustments. The pricing services evaluate each asset class based on relevant market and credit information, perceived market movements, and sector news. The market inputs used in the pricing evaluation, listed in the approximate order of priority include: benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, reference data, and industry and economic events. The extent of the use of each input is dependent on the asset class and the market conditions. Given the asset class, the priority of the use of inputs may change or some market inputs may not be relevant. Additionally, the valuation of fixed maturity investments is more subjective when markets are less liquid due to the lack of market based inputs (i.e., stale pricing), which may increase the potential that the estimated fair value of an investment is not reflective of the price at which an actual transaction would occur. The overwhelming majority of fixed maturities are classified within Level 2 because the most significant inputs used in the pricing techniques are observable. For a small number of fixed maturities, we obtain a quote from a broker (typically a market maker). Due to the disclaimers on the quotes that indicate that the price is indicative only, we include these fair value estimates in Level 3.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

(Unaudited)

Equity securities

Equity securities with active markets are classified within Level 1 as fair values are based on quoted market prices. For non-public equity securities, fair values are based on market valuations and are classified within Level 2. Equity securities for which pricing is unobservable are classified within Level 3.

Short-term investments

Short-term investments, which comprise securities due to mature within one year of the date of purchase that are traded in active markets, are classified within Level 1 as fair values are based on quoted market prices. Securities such as commercial paper and discount notes are classified within Level 2 because these securities are typically not actively traded due to their approaching maturity and, as such, their cost approximates fair value.

Other investments

Fair values for the majority of Other investments including investments in partially-owned investment companies, investment funds, and limited partnerships are based on their respective net asset values or equivalent (NAV). The majority of these investments, for which NAV was used as a practical expedient to measure fair value, are classified within Level 3 because either ACE will never have the contractual option to redeem the investments or will not have the contractual option to redeem the investments in the near term. The remainder of such investments is classified within Level 2. Certain of our long duration contracts have assets that do not qualify for separate account reporting under GAAP. These assets comprise mutual funds classified within Level 1 in the valuation hierarchy on the same basis as other equity securities traded in active markets. Other investments also includes equity securities and fixed maturities held in rabbi trusts maintained by ACE for deferred compensation plans, which are classified within the valuation hierarchy on the same basis as other equity securities and fixed maturities.

Securities lending collateral

The underlying assets included in Securities lending collateral in the consolidated balance sheets are fixed maturities which are classified in the valuation hierarchy on the same basis as other fixed maturities. Excluded from the valuation hierarchy is the corresponding liability related to ACE’s obligation to return the collateral plus interest as it is reported at contract value and not fair value on the consolidated balance sheets.

Investment derivative instruments

Actively traded investment derivative instruments, including futures, options, and exchange-traded forward contracts are classified within Level 1 as fair values are based on quoted market prices. The fair value of cross-currency swaps are based on market valuations and are classified within Level 2. Investment derivative instruments are recorded in Accounts payable, accrued expenses, and other liabilities in the consolidated balance sheets.

Other derivative instruments

We maintain positions in other derivative instruments including exchange-traded equity futures contracts and option contracts designed to limit exposure to a severe equity market decline, which would cause an increase in expected claims and, therefore, reserves for our guaranteed minimum death benefits (GMDB) and guaranteed living benefits (GLB) reinsurance business. Our position in exchange-traded equity futures contracts is classified within Level 1. The fair value of the majority of the remaining positions in other derivative instruments is based on significant observable inputs including equity security and interest rate indices. Accordingly, these are classified within Level 2. Our position in credit default swaps is typically included within Level 3. Other derivative instruments are recorded in Accounts payable, accrued expenses, and other liabilities in the consolidated balance sheets.

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ACE LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

(Unaudited)

Separate account assets

Separate account assets represent segregated funds where investment risks are borne by the customers, except to the extent of certain guarantees made by ACE. Separate account assets comprise mutual funds classified in the valuation hierarchy on the same basis as other equity securities traded in active markets and are classified within Level 1. Separate account assets also include fixed maturities classified within Level 2 because the most significant inputs used in the pricing techniques are observable. Excluded from the valuation hierarchy are the corresponding liabilities as they are reported at contract value and not fair value in the consolidated balance sheets. Separate account assets are recorded in Other assets in the consolidated balance sheets.

Guaranteed living benefits

The GLB arises from life reinsurance programs covering living benefit guarantees whereby we assume the risk of guaranteed minimum income benefits (GMIB) and guaranteed minimum accumulation benefits (GMAB) associated with variable annuity contracts. GLB’s are recorded in Accounts payable, accrued expenses, and other liabilities and Future policy benefits in the consolidated balance sheets. For GLB reinsurance, ACE estimates fair value using an internal valuation model which includes current market information and estimates of policyholder behavior. All of the treaties contain claim limits, which are factored into the valuation model. The fair value depends on a number of inputs, including changes in interest rates, changes in equity markets, credit risk, current account value, changes in market volatility, expected annuitization rates, changes in policyholder behavior, and changes in policyholder mortality.

The most significant policyholder behavior assumptions include lapse rates and the GMIB annuitization rates. Assumptions regarding lapse rates and GMIB annuitization rates differ by treaty but the underlying methodologies to determine rates applied to each treaty are comparable. The assumptions regarding lapse and GMIB annuitization rates determined for each treaty are based on a dynamic calculation that uses several underlying factors.

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 (ranging from about 1 percent to 6 percent per annum) during the surrender charge period of the GMIB contract, followed by a “spike” lapse rate (ranging from about 10 percent to 30 percent per annum) in the year immediately following the surrender charge period, and then reverting to an ultimate lapse rate (generally around 10 percent per annum), 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) by multiplying the base lapse rate by a factor ranging from 15 percent to 75 percent. Additional lapses due to partial withdrawals and older policyholders with tax-qualified contracts (due to required minimum distributions) are also included.

The GMIB annuitization rate is the percentage of policies for which the policyholder will elect to annuitize using the guaranteed benefit provided under the GMIB. All else equal, as GMIB annuitization rates increase, ultimate claim payments will increase, subject to treaty claim limits. In general ACE assumes that GMIB annuitization rates will be higher for policies with more valuable guarantees (policies with guaranteed values far in excess of their account values). In addition, we also assume that GMIB annuitization rates are higher in the first year immediately following the waiting period (the first year the policies are eligible to annuitize using the GMIB) in comparison to all subsequent years. We do not yet have a robust set of annuitization experience because most of our clients’ policyholders are not yet eligible to annuitize using the GMIB. However, for certain clients representing approximately 36 percent of the total GMIB guaranteed value there are several years of annuitization experience. For these clients the annuitization function reflects the actual experience and has a maximum annuitization rate per annum of 8 percent (a higher maximum applies in the first year a policy is

18

ACE LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

(Unaudited)

eligible to annuitize using the GMIB—it is over 13 percent). For most clients, there is not a credible amount of observable relevant behavior data and so we use a weighted-average (with a heavier weighting on the observed experience noted previously) of three different annuitization functions with maximum annuitization rates per annum of 8 percent, 12 percent, and 30 percent, respectively (with significantly higher rates in the first year a policy is eligible to annuitize using the GMIB). The GMIB reinsurance treaties include claim limits to protect ACE in the event that actual annuitization behavior is significantly higher than expected.

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 in line with data received from other ceding companies adjusted, as appropriate, with industry estimates. The model and related assumptions are continuously re-evaluated by management and enhanced, as appropriate, based upon additional experience obtained related to policyholder behavior and availability of more information, such as market conditions, market participant assumptions, and demographics of in-force annuities. During the three and six months ended June 30, 2012, no material changes were made to actuarial or behavioral assumptions.

We view the variable annuity reinsurance business as having a similar risk profile to that of catastrophe reinsurance, with the probability of a cumulative long-term economic net loss relatively small at the time of pricing. However, adverse changes in market factors and policyholder behavior will have an adverse impact on net income, which may be material. Because of the significant use of unobservable inputs including policyholder behavior, GLB reinsurance is classified within Level 3.

The following tables present, by valuation hierarchy, the financial instruments measured at fair value on a recurring basis:

	Level 1			Level 2		Level 3		Total
	(in millions of U.S. dollars)
June 30, 2012
Assets:
Fixed maturities available for sale
U.S. Treasury and agency	$1,884			$	1,406	$	4	$	3,294
Foreign		204			13,044		20		13,268
Corporate securities		20			15,142		137		15,299
Mortgage-backed securities		—			10,154		27		10,181
States, municipalities, and political subdivisions		—			2,343		1		2,344
		2,108			42,089		189		44,386
Equity securities		713			4		12		729
Short-term investments		1,322			938		—		2,260
Other investments		230			247		2,047		2,524
Securities lending collateral		—			2,247		—		2,247
Investment derivative instruments		(4	)		—		—		(4	)
Other derivative instruments		(85	)		41		1		(43	)
Separate account assets		830			59		—		889
Total assets measured at fair value	$5,114			$	45,625	$	2,249	$	52,988
Liabilities:
GLB(1)	$—			$	—	$	1,354	$	1,354

⁽¹⁾  Our GLB reinsurance product meets the definition of a derivative instrument for accounting purposes and is accordingly carried at fair value. Excluded from the table above is the portion of the GLB derivative liability classified as Future policy benefits in the consolidated balance sheets. Refer to Note 5 for additional information.

19

ACE LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

(Unaudited)

	Level 1			Level 2		Level 3		Total
	(in millions of U.S. dollars)
December 31, 2011
Assets:
Fixed maturities available for sale
U.S. Treasury and agency	$	1,691		$	1,264	$	5	$	2,960
Foreign		212			12,156		33		12,401
Corporate securities		20			14,539		134		14,693
Mortgage-backed securities		—			10,173		28		10,201
States, municipalities, and political subdivisions		—			1,711		1		1,712
		1,923			39,843		201		41,967
Equity securities		632			2		13		647
Short-term investments		1,246			1,055		—		2,301
Other investments		208			229		1,877		2,314
Securities lending collateral		—			1,375		—		1,375
Investment derivative instruments		10			—		—		10
Other derivative instruments		(16	)		54		3		41
Separate account assets		607			53		—		660
Total assets measured at fair value	$	4,610		$	42,611	$	2,094	$	49,315
Liabilities:
GLB(1)	$	—		$	—	$	1,319	$	1,319

⁽¹⁾  Our GLB reinsurance product meets the definition of a derivative instrument for accounting purposes and is accordingly carried at fair value. Excluded from the table above is the portion of the GLB derivative liability classified as Future policy benefits in the consolidated balance sheets. Refer to Note 5 for additional information.

The transfers between Level 1 and Level 2 during the three and six months ended June 30, 2012 and 2011 were not material.

Fair value of alternative investments

Included in Other investments in the fair value hierarchy at June 30, 2012 and December 31, 2011 are investment funds, limited partnerships, and partially-owned investment companies measured at fair value using NAV as a practical expedient. At June 30, 2012 and December 31, 2011, there were no probable or pending sales related to any of the investments measured at fair value using NAV.

20

ACE LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

(Unaudited)

The following table presents, by investment category, the expected liquidation period, fair value, and maximum future funding commitments of alternative investments:

	Expected Liquidation Period		June 30, 2012				December 31, 2011
			Fair Value		Maximum Future Funding Commitments		Fair Value		Maximum Future Funding Commitments
			(in millions of U.S. dollars)
Financial		5 to 9 Years	$	206	$	127	$	205	$	141
Real estate		3 to 9 Years		289		95		270		96
Distressed		6 to 9 Years		188		149		182		57
Mezzanine		6 to 9 Years		271		297		195		282
Traditional		3 to 8 Years		621		515		565		200
Vintage		1 to 3 Years		17		1		18		1
Investment funds		Not Applicable		383		—		378		—
			$	1,975	$	1,184	$	1,813	$	777

Included in all categories in the above table except for Investment funds are investments for which ACE will never have the contractual option to redeem but receives distributions based on the liquidation of the underlying assets. Included in the “Expected Liquidation Period” column above is the range in years over which ACE expects the majority of underlying assets in the respective categories to be liquidated. Further, for all categories except for Investment funds, ACE does not have the ability to sell or transfer the investments without the consent from the general partner of individual funds.

Financial

Financial consists of investments in private equity funds targeting financial services companies such as financial institutions and insurance services around the world.

Real estate

Real estate consists of investments in private equity funds targeting global distress opportunities, value added U.S. properties, and global mezzanine debt securities in the commercial real estate market.

Distressed

Distressed consists of investments in private equity funds targeting distressed debt/credit and equity opportunities in the U.S.

Mezzanine

Mezzanine consists of investments in private equity funds targeting private mezzanine debt of large-cap and mid-cap companies in the U.S. and worldwide.

Traditional

Traditional consists of investments in private equity funds employing traditional private equity investment strategies such as buyout and venture with different geographical focuses including Brazil, Asia, Europe, and the U.S.

21

ACE LIMITED AND SUBSIDIARIES

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(Unaudited)

Vintage

Vintage consists of investments in private equity funds made before 2002 and where the funds’ commitment periods had already expired.

Investment funds

ACE’s investment funds employ various investment strategies such as long/short equity and arbitrage/distressed. Included in this category are investments for which ACE 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 ACE 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 ACE 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, ACE 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 ACE’s investment within several months of the notification. Notice periods for redemption of the investment funds range between 5 and 120 days. ACE can redeem its investment funds without consent from the investment fund managers.

Level 3 financial instruments

The fair value of assets and liabilities measured at fair value using significant unobservable inputs (Level 3) consist of various inputs and assumptions that management makes when determining the fair value. Management analyzes changes in fair value measurements classified within Level 3 by comparing pricing and returns of our investments to benchmarks, including month-over-month movements, investment credit spreads, interest rate movements, and credit quality of securities.

The following table presents the significant unobservable inputs used in the Level 3 liability valuations. Excluded from the table below are inputs used to fair value Level 3 assets which are based on single broker quotes or net asset value and contain no quantitative unobservable inputs developed by management.

(in millions of U.S. dollars)	Fair Value at June 30, 2012	Valuation Technique		Significant Unobservable Inputs	Ranges
GLB(1)	$1,354		Actuarial model	Lapse rate		1% - 30%
				Annuitization rate		0% - 50%

⁽¹⁾  Discussion of the most significant inputs used in the fair value measurement of GLB and the sensitivity of those assumptions is included within Note 5 Guaranteed living benefits.

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(Unaudited)

The following tables present a reconciliation of the beginning and ending balances of financial instruments measured at fair value using significant unobservable inputs (Level 3):

	Three Months Ended June 30, 2012
	Assets																							Liabilities
	Available-for-Sale Debt Securities															Equity securities		Other investments			Other derivative instruments			GLB(1)
	U.S. Treasury and Agency			Foreign			Corporate securities			MBS			States, municipalities, and political subdivisions
				(in millions of U.S. dollars)
Balance- Beginning of Period	$	—		$	49		$	117		$	19		$	1		$	10	$	1,954		$	(1	)	$	863
Transfers into Level 3		5			1			28			12			1			—		—			—			—
Transfers out of Level 3		—			—			(2	)		(3	)		—			—		—			—			—
Change in Net Unrealized Gains (Losses) included in OCI		—			—			1			—			—			—		16			—			—
Net Realized Gains/Losses		—			—			(1	)		—			—			—		(5	)		(1	)		491
Purchases		—			6			5			—			—			2		132			3			—
Sales		—			(35	)		(7	)		—			—			—		—			—			—
Settlements		(1	)		(1	)		(4	)		(1	)		(1	)		—		(50	)		—			—
Balance-End of Period	$	4		$	20		$	137		$	27		$	1		$	12	$	2,047		$	1		$	1,354
Net Realized Gains/Losses Attributable to Changes in Fair Value at the Balance Sheet Date	$	—		$	—		$	—		$	—		$	—		$	—	$	(5	)	$	—		$	491

⁽¹⁾  Our GLB reinsurance product meets the definition of a derivative instrument for accounting purposes and is accordingly carried at fair value. Excluded from the table above is the portion of the GLB derivative liability classified as Future policy benefits in the consolidated balance sheets. Refer to Note 5 for additional information.

	Three Months Ended June 30, 2011
	Assets																			Liabilities
	Available-for-Sale Debt Securities											Equity securities			Other investments			Other derivative instruments		GLB(1)
	Foreign			Corporate securities			MBS			States, municipalities, and political subdivisions
	(in millions of U.S. dollars)
Balance- Beginning of Period	$	26		$	113		$	81		$	1	$	10		$	1,564		$	4	$	449
Transfers into Level 3		5			29			3			—		—			—			—		—
Transfers out of Level 3		(6	)		—			(35	)		—		—			—			—		—
Change in Net Unrealized Gains (Losses) included in OCI		—			—			—			—		—			9			—		—
Net Realized Gains/Losses		1			(1	)		—			—		2			(3	)		—		75
Purchases		5			3			—			—		2			243			—		—
Sales		(2	)		(1	)		(12	)		—		(4	)		(55	)		—		—
Settlements		(2	)		(1	)		(3	)		—		—			(78	)		—		—
Balance-End of Period	$	27		$	142		$	34		$	1	$	10		$	1,680		$	4	$	524
Net Realized Gains/Losses Attributable to Changes in Fair Value at the Balance Sheet Date	$	—		$	—		$	—		$	—	$	—		$	(3	)	$	—	$	75

⁽¹⁾  Our GLB reinsurance product meets the definition of a derivative instrument for accounting purposes and is accordingly carried at fair value. Excluded from the table above is the portion of the GLB derivative liability classified as Future policy benefits in the consolidated balance sheets. The liability for GLB reinsurance was $676 million at June 30, 2011, and $596 million at March 31, 2011, which includes a fair value derivative adjustment of $524 million and $449 million, respectively.

23

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

(Unaudited)

	Six Months Ended June 30, 2012
	Assets																								Liabilities
	Available-for-Sale Debt Securities															Equity securities			Other investments			Other derivative instruments			GLB(1)
	U.S. Treasury and Agency			Foreign			Corporate securities			MBS			States, municipalities, and political subdivisions
				(in millions of U.S. dollars)
Balance-Beginning of Period	$	5		$	33		$	134		$	28		$	1		$	13		$	1,877		$	3		$	1,319
Transfers into Level 3		—			1			28			12			1			—			—			—			—
Transfers out of Level 3		—			(1	)		(9	)		(15	)		—			—			—			—			—
Change in Net Unrealized Gains (Losses) included in OCI		—			—			3			—			—			1			24			—			—
Net Realized Gains/Losses		—			—			(1	)		—			—			—			(7	)		(4	)		35
Purchases		—			40			8			4			—			3			245			3			—
Sales		—			(52	)		(15	)		—			—			(5	)		(1	)		—			—
Settlements		(1	)		(1	)		(11	)		(2	)		(1	)		—			(91	)		(1	)		—
Balance-End of Period	$	4		$	20		$	137		$	27		$	1		$	12		$	2,047		$	1		$	1,354
Net Realized Gains/Losses Attributable to Changes in Fair Value at the Balance Sheet Date	$	—		$	—		$	—		$	—		$	—		$	—		$	(7	)	$	(1	)	$	35

⁽¹⁾  Our GLB reinsurance product meets the definition of a derivative instrument for accounting purposes and is accordingly carried at fair value. Excluded from the table above is the portion of the GLB derivative liability classified as Future policy benefits in the consolidated balance sheets. Refer to Note 5 for additional information.

	Six Months Ended June 30, 2011
	Assets																					Liabilities
	Available-for-Sale Debt Securities												Equity securities			Other investments			Other derivative instruments			GLB(1)
	Foreign			Corporate securities			MBS			States, municipalities, and political subdivisions
	(in millions of U.S. dollars)
Balance- Beginning of Period	$	26		$	115		$	39		$	2		$	13		$	1,432		$	4		$	507
Transfers into Level 3		9			34			4			—			—			—			—			—
Transfers out of Level 3		(7	)		(4	)		(35	)		—			—			—			—			—
Change in Net Unrealized Gains (Losses) included in OCI		(1	)		1			—			—			(1	)		51			—			—
Net Realized Gains/Losses		1			(2	)		—			—			4			(3	)		1			17
Purchases		5			22			46			—			2			333			—			—
Sales		(3	)		(20	)		(15	)		—			(8	)		(55	)		—			—
Settlements		(3	)		(4	)		(5	)		(1	)		—			(78	)		(1	)		—
Balance-End of Period	$	27		$	142		$	34		$	1		$	10		$	1,680		$	4		$	524
Net Realized Gains/Losses Attributable to Changes in Fair Value at the Balance Sheet Date	$	—		$	—		$	—		$	—		$	—		$	(3	)	$	1		$	17

⁽¹⁾  Our GLB reinsurance product meets the definition of a derivative instrument for accounting purposes and is accordingly carried at fair value. Excluded from the table above is the portion of the GLB derivative liability classified as Future policy benefits in the consolidated balance sheets. The liability for GLB reinsurance was $676 million at June 30, 2011, and $648 million at December 31, 2010, which includes a fair value derivative adjustment of $524 million and $507 million, respectively.

24

ACE LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

(Unaudited)

b) Financial instruments disclosed, but not measured, at fair value

ACE uses various financial instruments in the normal course of its business. Our insurance contracts are excluded from fair value of financial instruments accounting guidance, and therefore, are not included in the amounts discussed below.

The carrying values of cash, other assets, other liabilities, and other financial instruments not included below approximated their fair values.

Investments in partially-owned insurance companies

Fair values for investments in partially-owned insurance companies are based on ACE’s share of the net assets based on the financial statements provided by those companies.

Short- and long-term debt and trust preferred securities

Where practical, fair values for short-term debt, long-term debt, and trust preferred securities are estimated using discounted cash flow calculations based principally on observable inputs including incremental borrowing rates, which reflect ACE’s credit rating, for similar types of borrowings with maturities consistent with those remaining for the debt being valued.

The following table presents carrying values and fair values of financial instruments not measured at fair value:

	June 30, 2012				December 31, 2011
	Carrying Value		Fair Value		Carrying Value		Fair Value
	(in millions of U.S. dollars)
Assets:
Fixed maturities held to maturity
U.S. Treasury and agency	$	1,091	$	1,136	$	1,078	$	1,126
Foreign		921		949		935		930
Corporate securities		2,207		2,282		2,338		2,337
Mortgage-backed securities		2,448		2,544		2,949		3,036
States, municipalities, and political subdivisions		1,115		1,151		1,147		1,176
		7,782		8,062		8,447		8,605
Partially-owned insurance companies		339		339		352		352
Total assets	$	8,121	$	8,401	$	8,799	$	8,957
Liabilities:
Short-term debt	$	1,401	$	1,401	$	1,251	$	1,251
Long-term debt		3,360		3,918		3,360		3,823
Trust preferred securities		309		422		309		404
Total liabilities	$	5,070	$	5,741	$	4,920	$	5,478

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ACE LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

(Unaudited)

The following table presents, by valuation hierarchy, the financial instruments not measured at fair value:

	Level 1		Level 2		Level 3		Total
	(in millions of U.S. dollars)
June 30, 2012
Assets:
Fixed maturities held to maturity
U.S. Treasury and agency	$601		$	528	$	7	$	1,136
Foreign		—		949		—		949
Corporate securities		—		2,266		16		2,282
Mortgage-backed securities		—		2,544		—		2,544
States, municipalities, and political subdivisions		—		1,151		—		1,151
		601		7,438		23		8,062
Partially-owned insurance companies		—		—		339		339
Total assets	$601		$	7,438	$	362	$	8,401
Liabilities:
Short-term debt	$—		$	1,401	$	—	$	1,401
Long-term debt		—		3,918		—		3,918
Trust preferred securities		—		422		—		422
Total liabilities	$—		$	5,741	$	—	$	5,741

5. Assumed life reinsurance programs involving minimum benefit guarantees under 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.

	Three Months Ended June  30						Six Months Ended June  30
	2012			2011			2012			2011
	(in millions of U.S. dollars)
GMDB
Net premiums earned	$	21		$	25		$	44		$	51
Policy benefits and other reserve adjustments	$	12		$	21		$	39		$	43
GLB
Net premiums earned	$	40		$	41		$	81		$	82
Policy benefits and other reserve adjustments		16			6			23			12
Net realized gains (losses)		(494	)		(75	)		(34	)		(17	)
(Loss) gain recognized in income	$	(470	)	$	(40	)	$	24		$	53
Net cash received	$	38		$	40		$	79		$	81
Net increase in liability	$	(508	)	$	(80	)	$	(55	)	$	(28	)

At June 30, 2012, reported liabilities for GMDB and GLB reinsurance were $117 million and $1.6 billion, respectively, compared with $138 million and $1.5 billion, respectively, at December 31, 2011. The reported liability for GLB reinsurance of $1.6 billion at June 30, 2012, and $1.5 billion at December 31, 2011, includes a fair value derivative adjustment of $1.4 billion and $1.3 billion, respectively. Included in Net realized gains (losses) in the table above are gains (losses) related to foreign exchange and other fair value derivative adjustments. 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’

26

ACE LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

(Unaudited)

account values, and assumptions regarding future policyholder behavior. These models and the related assumptions are continually reviewed by management and enhanced, as appropriate, based upon improvements in modeling assumptions and availability of more information, such as market conditions and demographics of in-force annuities.

Variable Annuity Net Amount at Risk

(i) Reinsurance covering the GMDB risk only

At June 30, 2012 and December 31, 2011, the net amount at risk from reinsurance programs covering the GMDB risk only was $1.5 billion and $1.8 billion, respectively.

For reinsurance programs covering the GMDB risk only, the net amount at risk is defined as the present value of future claim payments under the following assumptions:

• policy account values and guaranteed values are fixed at the valuation date (June 30, 2012 and December 31, 2011, respectively);

• there are no lapses or withdrawals;

• mortality according to 100 percent of the Annuity 2000 mortality table;

• future claims are discounted in line with the discounting assumption used in the calculation of the benefit reserve averaging between 1.0 and 2.0 percent; and

• reinsurance coverage ends at the earlier of the maturity of the underlying variable annuity policy or the reinsurance treaty.

The total claim amount payable on reinsurance programs covering the GMDB risk only, if all the cedants’ policyholders were to die immediately at June 30, 2012 was approximately $442 million. This takes into account all applicable reinsurance treaty claim limits.

(ii) Reinsurance covering the GLB risk only

At June 30, 2012 and December 31, 2011, the net amount at risk from reinsurance programs covering the GLB risk only was $442 million and $380 million, respectively.

For reinsurance programs covering the GLB risk only, the net amount at risk is defined as the present value of future claim payments under the following assumptions:

• policy account values and guaranteed values are fixed at the valuation date (June 30, 2012 and December 31, 2011, respectively);

• there are no deaths, lapses, or withdrawals;

• policyholders annuitize at a frequency most disadvantageous to ACE (in other words, annuitization at a level that maximizes claims taking into account the treaty limits) under the terms of the reinsurance contracts;

• for annuitizing policyholders, the GMIB claim is calculated using interest rates in line with those used in calculating the reserve;

• future claims are discounted in line with the discounting assumption used in the calculation of the benefit reserve averaging between 3.0 and 4.0 percent; and

• reinsurance coverage ends at the earlier of the maturity of the underlying variable annuity policy or the reinsurance treaty.

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ACE LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

(Unaudited)

(iii) Reinsurance covering both the GMDB and GLB risks on the same underlying policyholders

At June 30, 2012 and December 31, 2011, the GMDB net amount at risk from reinsurance programs covering both the GMDB and GLB risks on the same underlying policyholders was $160 million and $182 million, respectively.

At June 30, 2012 and December 31, 2011, the GLB net amount at risk from reinsurance programs covering both the GMDB and GLB risks on the same underlying policyholders was $934 million and $998 million, respectively.

These net amounts at risk reflect the interaction between the two types of benefits on any single policyholder (eliminating double-counting), and therefore the net amounts at risk should be considered additive.

For reinsurance programs covering both the GMDB and GLB risks on the same underlying policyholders, the net amount at risk is defined as the present value of future claim payments under the following assumptions:

• policy account values and guaranteed values are fixed at the valuation date (June 30, 2012 and December 31, 2011, respectively);

• there are no lapses, or withdrawals;

• mortality according to 100 percent of the Annuity 2000 mortality table;

• policyholders annuitize at a frequency most disadvantageous to ACE (in other words, annuitization at a level that maximizes claims taking into account the treaty limits) under the terms of the reinsurance contracts;

• for annuitizing policyholders, the GMIB claim is calculated using interest rates in line with those used in calculating the reserve;

• future claims are discounted in line with the discounting assumption used in the calculation of the benefit reserve averaging between 1.0 and 2.0 percent; and

• reinsurance coverage ends at the earlier of the maturity of the underlying variable annuity policy or the reinsurance treaty.

The total claim amount payable on reinsurance programs covering both the GMDB and GLB risks on the same underlying policyholders, if all of the cedants’ policyholders were to die immediately at June 30, 2012 was approximately $1.0 billion. This takes into account all applicable reinsurance treaty claim limits. Although there would be an increase in death claims resulting from 100 percent immediate mortality of all policyholders, the GLB claims would be zero.

The average attained age of all policyholders under sections i), ii), and iii) above, weighted by the guaranteed value of each reinsured policy, is approximately 67 years.

28

ACE LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

(Unaudited)

6. Commitments, contingencies, and guarantees

a) Derivative instruments

Derivative instruments employed

ACE maintains positions in derivative instruments such as futures, options, swaps, and foreign currency forward contracts for which the primary purposes are to manage duration and foreign currency exposure, yield enhancement, or to obtain an exposure to a particular financial market. Along with convertible bonds and to be announced mortgage-backed securities (TBA), discussed below, these are the most numerous and frequent derivative transactions.

ACE maintains positions in convertible bond investments that contain embedded derivatives. In addition, we purchase TBAs as part of our investing activities. These securities are included within the fixed maturities available for sale (FM AFS) portfolio.

Under reinsurance programs covering GLBs, ACE assumes the risk of GLBs, including GMIB and GMAB, associated with variable annuity contracts. The GMIB risk is triggered if, at the time the contract holder elects to convert the accumulated account value to a periodic payment stream (annuitize), the accumulated account value is not sufficient to provide a guaranteed minimum level of monthly income. The GMAB risk is triggered if, at contract maturity, the contract holder’s account value is less than a guaranteed minimum value. The GLB reinsurance product meets the definition of a derivative instrument. Benefit reserves in respect of GLBs are classified as Future policy benefits (FPB) while the fair value derivative adjustment is classified within Accounts payable, accrued expenses, and other liabilities (AP). ACE also maintains positions in exchange-traded equity futures contracts and options on equity market indices to limit equity exposure in the GMDB and GLB blocks of business.

In relation to certain debt issuances, ACE, from time to time, has entered into interest rate swap transactions for the purpose of either fixing or reducing borrowing costs. Although the use of these interest rate swaps has the economic effect of fixing or reducing borrowing costs on a net basis, gross interest expense on the related debt issuances is included in Interest expense while the settlements related to the interest rate swaps are reflected in Net realized gains (losses) in the consolidated statements of operations. At June 30, 2012, ACE had no in-force interest rate swaps.

ACE buys credit default swaps to mitigate global credit risk exposure, primarily related to reinsurance recoverables.

All derivative instruments are carried at fair value with changes in fair value recorded in Net realized gains (losses) in the consolidated statements of operations. None of the derivative instruments are designated as hedges for accounting purposes.

29

ACE LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

(Unaudited)

The following table presents the balance sheet locations, fair values in an asset or (liability) position, and notional values/payment provisions of our derivative instruments:

			June 30, 2012					December 31, 2011
	Consolidated Balance Sheet Location		Fair Value			Notional Value/ Payment Provision		Fair Value			Notional Value/ Payment Provision
			(in millions of U.S. dollars)
Investment and embedded derivative instruments
Foreign currency forward contracts		AP	$	(4	)	$	771	$	7		$	674
Cross-currency swaps		AP		—			50		—			—
Futures contracts on money market instruments		AP		3			2,077		7			10,476
Futures contracts on notes and bonds		AP		(3	)		802		(4	)		1,055
Options on money market instruments		AP		—			3,030		—			292
Convertible bonds		FM AFS		381			364		357			353
TBAs		FM AFS		34			32		60			56
			$	411		$	7,126	$	427		$	12,906
Other derivative instruments
Futures contracts on equities(1)		AP	$	(85	)	$	2,125	$	(16	)	$	1,367
Options on equity market indices(1)		AP		41			250		54			250
Credit default swaps		AP		1			50		3			350
Other		AP		—			6		—			6
			$	(43	)	$	2,431	$	41		$	1,973
GLB(2)		AP/FPB	$	(1,560	)	$	1,376	$	(1,505	)	$	1,378

⁽¹⁾  Related to GMDB and GLB blocks of business.

⁽²⁾  Includes both future policy benefits reserves and fair value derivative adjustment. Refer to Note 5 for additional information. Note that the payment provision related to GLB is the net amount at risk. The concept of a notional value does not apply to the GLB reinsurance contracts.

The following table presents net realized gains (losses) related to derivative instrument activity in the consolidated statements of operations:

	Three Months Ended						Six Months Ended
	June 30						June 30
	2012			2011			2012			2011
	(in millions of U.S. dollars)
Investment and embedded derivative instruments
Foreign currency forward contracts	$	8		$	(3	)	$	1		$	(18	)
All other futures contracts and options		(45	)		(24	)		(20	)		(27	)
Convertible bonds		(12	)		(21	)		12			(22	)
TBAs		—			—			—			(1	)
Total investment and embedded derivative instruments	$	(49	)	$	(48	)	$	(7	)	$	(68	)
GLB and other derivative instruments
GLB(1)	$	(467	)	$	(70	)	$	(39	)	$	1
Futures contracts on equities(2)		65			—			(148	)		(63	)
Options on equity market indices(2)		5			3			(13	)		(5	)
Credit default swaps		1			(2	)		(4	)		(3	)
Total GLB and other derivative instruments	$	(396	)	$	(69	)	$	(204	)	$	(70	)
	$	(445	)	$	(117	)	$	(211	)	$	(138	)

⁽¹⁾  Excludes foreign exchange gains (losses) related to GLB.

⁽²⁾  Related to GMDB and GLB blocks of business.

30

ACE LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

(Unaudited)

Derivative instrument objectives

(i) Foreign currency exposure management

A foreign currency forward contract (forward) is an agreement between participants to exchange specific foreign currencies at a future date. ACE uses forwards to minimize the effect of fluctuating foreign currencies.

(ii) Duration management and market exposure

Futures

Futures contracts give the holder the right and obligation to participate in market movements, determined by the index or underlying security on which the futures contract is based. Settlement is made daily in cash by an amount equal to the change in value of the futures contract times a multiplier that scales the size of the contract. Exchange-traded futures contracts on money market instruments, notes and bonds are used in fixed maturity portfolios to more efficiently manage duration, as substitutes for ownership of the money market instruments, bonds and notes without significantly increasing the risk in the portfolio. Investments in futures contracts may be made only to the extent that there are assets under management not otherwise committed.

Exchange-traded equity futures contracts are used to limit exposure to a severe equity market decline, which would cause an increase in expected claims and therefore, reserves for GMDB and GLB reinsurance business.

Options

An option contract conveys to the holder the right, but not the obligation, to purchase or sell a specified amount or value of an underlying security at a fixed price. Option contracts are used in the investment portfolio as protection against unexpected shifts in interest rates, which would affect the duration of the fixed maturity portfolio. By using options in the portfolio, the overall interest rate sensitivity of the portfolio can be reduced. Option contracts may also be used as an alternative to futures contracts in the synthetic strategy as described above.

Another use for option contracts is to limit exposure to a severe equity market decline, which would cause an increase in expected claims and therefore, reserves for GMDB and GLB reinsurance business.

The price of an option is influenced by the underlying security, expected volatility, time to expiration, and supply and demand.

The credit risk associated with the above derivative financial instruments relates to the potential for non-performance by counterparties. Although non-performance is not anticipated, in order to minimize the risk of loss, management monitors the creditworthiness of its counterparties and obtains collateral. The performance of exchange-traded instruments is guaranteed by the exchange on which they trade. For non-exchange-traded instruments, the counterparties are principally banks which must meet certain criteria according to our investment guidelines.

Cross-currency swaps

We use cross-currency swaps to manage specific foreign currency denominated investments. These swaps enable us to reduce the duration gap between assets and liabilities by more closely matching the liabilities with the maturities of the underlying bonds.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

(Unaudited)

Interest rate swaps

We use interest rate swaps related to certain debt issuances for the purpose of either fixing and/or reducing borrowing costs.

Credit default swaps

A credit default swap is a bilateral contract under which two counterparties agree to isolate and separately trade the credit risk of at least one third-party reference entity. Under a credit default swap agreement, a protection buyer pays a periodic fee to a protection seller in exchange for a contingent payment by the seller upon a credit event (such as a default or failure to pay) related to the reference entity. When a credit event is triggered, the protection seller pays the protection buyer the difference between the fair value of assets and the principal amount. We have purchased a credit default swap to mitigate our global credit risk exposure to one of our reinsurers.

(iii) Convertible security investments

A convertible bond is a debt instrument that can be converted into a predetermined amount of the issuer’s equity at certain times prior to the bond’s maturity. The convertible option is an embedded derivative within the fixed maturity host instruments which are classified in the investment portfolio as available for sale. ACE purchases convertible bonds for their total return and not specifically for the conversion feature.

(iv) TBA

By acquiring a TBA, we make a commitment to purchase a future issuance of mortgage-backed securities. For the period between purchase of the TBA and issuance of the underlying security, we account for our position as a derivative in the consolidated financial statements. ACE purchases TBAs both for their total return and for the flexibility they provide related to our mortgage-backed security strategy.

(v) GLB

Under the GLB program, as the assuming entity, ACE is obligated to provide coverage until the expiration or maturity of the underlying annuities. Premiums received under the reinsurance treaties are classified as premium. Expected losses allocated to premiums received are classified as Future policy benefits and valued similar to GMDB reinsurance. Other changes in fair value, principally arising from changes in expected losses allocated to expected future premiums, are classified as Net realized gains (losses). Fair value represents management’s estimate of exit price and thus, includes a risk margin. We may recognize a realized loss for other changes in fair value due to adverse changes in the capital markets (e.g., declining interest rates and/or declining equity markets) and changes in actual or estimated future policyholder behavior (e.g., increased annuitization or decreased lapse rates) although we expect the business to be profitable. We believe this presentation provides the most meaningful disclosure of changes in the underlying risk within the GLB reinsurance programs for a given reporting period.

b) Other investments

At June 30, 2012, included in Other investments in the consolidated balance sheet are investments in limited partnerships and partially-owned investment companies with a carrying value of $1,592 million. In connection with these investments, we have commitments that may require funding of up to $1,184 million over the next several years.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

(Unaudited)

c) Taxation

In April 2012, ACE reached final settlement with the Internal Revenue Service (IRS) Appeals Division regarding several issues raised by the IRS Examination Division in its federal tax returns for 2005, 2006 and 2007. The settlement of these issues had no net impact on our results of operations. In addition, the IRS completed its field examination of ACE’s federal tax returns for 2008 and 2009 during June 2012. No material adjustments resulted from this examination. It is reasonably possible that over the next twelve months, the amount of unrecognized tax benefits may change resulting from the re-evaluation of unrecognized tax benefits arising from examinations of taxing authorities and the closing of tax statutes of limitations. With few exceptions, ACE is no longer subject to state and local or non-U.S. income tax examinations for years before 2005.

d) Legal proceedings

(i) Claims and other litigation

Our insurance subsidiaries are subject to claims litigation involving disputed interpretations of policy coverages and, in some jurisdictions, direct actions by allegedly-injured persons seeking damages from policyholders. These lawsuits, involving claims on policies issued by our subsidiaries which are typical to the insurance industry in general and in the normal course of business, are considered in our loss and loss expense reserves. In addition to claims litigation, we are subject to lawsuits and regulatory actions in the normal course of business that do not arise from or directly relate to claims on insurance policies. This category of business litigation typically involves, among other things, allegations of underwriting errors or misconduct, employment claims, regulatory activity, or disputes arising from our business ventures. In the opinion of management, our ultimate liability for these matters is not likely to have a material adverse effect on our consolidated financial condition, although it is possible that the effect could be material to our consolidated results of operations for an individual reporting period.

(ii) Business practices litigation

ACE Limited, ACE INA Holdings Inc., and ACE USA, Inc., along with a number of other insurers and brokers, were named in a series of federal putative nationwide class actions brought by insurance policyholders. The Judicial Panel on Multidistrict Litigation (JPML) consolidated these cases in the District of New Jersey. On August 1, 2005, plaintiffs in the New Jersey consolidated proceedings filed two consolidated amended complaints – one concerning commercial insurance and the other concerning employee benefit plans. The employee benefit plans litigation against ACE Limited has been dismissed.

In the commercial insurance complaint, the plaintiffs named ACE Limited, ACE INA Holdings Inc., ACE USA, Inc., ACE American Insurance Co., Illinois Union Insurance Co., and Indemnity Insurance Co. of North America. They allege that certain brokers and insurers, including certain ACE entities, conspired to increase premiums and allocate customers through the use of “B” quotes and contingent commissions. In addition, they allege that the broker defendants received additional income by improperly placing their clients’ business with insurers through related wholesale entities that acted as intermediaries between brokers and insurers. Plaintiffs also allege that broker defendants tied the purchase of primary insurance to the placement of such coverage with reinsurance carriers through the broker defendants’ reinsurance broker subsidiaries. The complaint asserts the following causes of action against the ACE defendants: Federal Racketeer Influenced and Corrupt Organizations Act (RICO), federal antitrust law, state antitrust law, aiding and abetting breach of fiduciary duty, and unjust enrichment.

In 2006 and 2007, the Court dismissed plaintiffs’ first two attempts to properly plead a case without prejudice and permitted plaintiffs one final opportunity to re-plead. The amended complaint, filed on May 22, 2007, purported to add several new ACE defendants: ACE Group Holdings, Inc., ACE US Holdings, Inc., Westchester

33

ACE LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

(Unaudited)

Fire Insurance Company, INA Corporation, INA Financial Corporation, INA Holdings Corporation, ACE Property and Casualty Insurance Company, and Pacific Employers Insurance Company. Plaintiffs also added a new antitrust claim against Marsh, the ACE defendants, and other insurers based on the same allegations as the other claims but limited to excess casualty insurance. In 2007, the Court granted defendants’ motions to dismiss plaintiffs’ antitrust and RICO claims with prejudice. The Court also declined to exercise supplemental jurisdiction over plaintiffs’ state law claims and dismissed those claims without prejudice. Plaintiffs appealed to the United States Court of Appeals for the Third Circuit. On August 16, 2010, the Third Circuit affirmed, in part, and vacated, in part, the District Court’s previous dismissals with instructions for further briefing at the District Court on remand. Defendants renewed their motions consistent with the Third Circuit’s instructions. On June 28, 2011, the District Court administratively terminated defendants’ motions without prejudice to re-file after adjudication of issues related to a proposed class settlement involving a number of other parties and stayed the case. On October 17, 2011 the Court lifted the stay and indicated that it will issue a new scheduling order in the coming months. On April 30, 2012 the Court entered a discovery scheduling order; discovery is ongoing.

As of July 31, 2012, plaintiffs have not specified an amount of alleged damages and the Court has not decided defendants’ renewed motions to dismiss. The Court has also not determined if this case may proceed as a class action and has, therefore, not determined the size or scope of any class. As a result, ACE is unable to reasonably estimate the potential loss or range of losses, if any, arising from this litigation.

There are a number of federal actions brought by policyholders based on allegations similar to the allegations in the consolidated federal actions that were filed in, or transferred to, the United States District Court for the District of New Jersey for coordination (“tag-along cases”). On October 17, 2011 the Court lifted the stay and indicated that it will issue a new scheduling order. On April 30, 2012 the Court entered a discovery scheduling order; discovery is ongoing.

• New Cingular Wireless Headquarters LLC et al. v. Marsh & McLennan Companies, Inc. et al. (Case No. 06-5120; D.N.J.), was originally filed in the Northern District of Georgia on April 4, 2006. ACE Limited, ACE American Ins. Co., ACE USA, Inc., ACE Bermuda Insurance Ltd., Illinois Union Ins. Co., Pacific Employers Ins. Co., and Lloyd’s of London Syndicate 2488 AGM, along with a number of other insurers and brokers, are named.

• Avery Dennison Corp. v. Marsh & McLennan Companies, Inc. et al. (Case No. 07-00757; D.N.J.) was filed on February 13, 2007. ACE Limited, ACE INA Holdings Inc., ACE USA, Inc., and ACE American Insurance Co., along with a number of other insurers and brokers, are named.

• Henley Management Co., Inc. et al. v. Marsh, Inc. et al. (Case No. 07-2389; D.N.J.) was filed on May 27, 2007. ACE USA, Inc., along with a number of other insurers and Marsh, Inc., are named.

• Sears, Roebuck & Co. et al. v. Marsh & McLennan Companies, Inc. et al. (Case No. 07-2535; D.N.J.) was originally filed in the Northern District of Georgia on October 12, 2007. ACE American Insurance Co., ACE Bermuda Insurance Ltd., and Westchester Surplus Lines Insurance Co., along with a number of other insurers and brokers, are named.

• Lincoln Adventures LLC et al. v. Those Certain Underwriters at Lloyd’s, London Members of Syndicates 0033 et al. (Case No. 07-60991; D.N.J.) was originally filed in the Southern District of Florida on July 13, 2007. Supreme Auto Transport LLC et al. v. Certain Underwriters of Lloyd’s of London, et al. (Case No. 07-6703; D.N.J.) (Supreme Auto) was originally filed in the Southern District of New York on July 25, 2007. Lloyd’s of London Syndicate 2488 AGM, along with a number of other Lloyd’s of London Syndicates and various brokers, are named in both actions. The allegations in these putative class-action lawsuits are similar to the allegations in the consolidated federal actions identified above, although these lawsuits focus on alleged conduct within the London insurance market. On May 29, 2012 the Supreme Auto case was voluntarily dismissed without prejudice by the plaintiffs.

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ACE LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

(Unaudited)

As of July 31, 2012, plaintiffs have not specified an amount of alleged damages in any of the remaining tag-along cases. The proceedings in the tag-along cases were stayed at a very early stage, before the ACE defendants could challenge the sufficiency of the claims with, for example, motions to dismiss. Also, the scope of the tag-along cases, in large part, will be affected by the outcome of the Multidistrict Litigation Court’s decision on defendants’ renewed motions to dismiss. As a result, ACE is unable to reasonably estimate the potential loss or range of losses, if any, arising from these litigations.

In addition to the related federal cases, there are two state cases with allegations similar to those in the consolidated federal actions described above:

• Van Emden Management Corporation v. Marsh & McLennan Companies, Inc., et al. (Case No. 05-0066A; Superior Court of Massachusetts), a class action in Massachusetts, was filed on January 13, 2005. Illinois Union Insurance Company is named. The Van Emden case has been stayed pending resolution of the consolidated proceedings in the District of New Jersey or until further order of the Court.

As of July 31, 2012, plaintiffs have not specified an amount of alleged damages in this case. The proceedings were stayed at a very early stage, before Illinois Union could challenge the sufficiency of the claims with, for example, a motion to dismiss. As a result, ACE is unable to reasonably estimate the potential loss or range of losses, if any, arising from this litigation.

• State of Ohio, ex. rel. Marc E. Dann, Attorney General v. American Int’l Group, Inc. et al. (Case No. 07-633857; Court of Common Pleas in Cuyahoga County, Ohio) is an Ohio state action filed by the Ohio Attorney General on August 24, 2007. ACE INA Holdings Inc., ACE American Insurance Co., ACE Property & Casualty Insurance Co., Insurance Company of North America, and Westchester Fire Insurance Co., along with a number of other insurance companies and Marsh, are named. In December 2011 the ACE parties agreed to settle the case for $1.97 million. On December 27, 2011 the case was voluntarily dismissed with prejudice.

In all of the lawsuits described above, except where specifically noted, plaintiffs seek compensatory and in some cases special damages without specifying an amount. As a result, ACE cannot at this time estimate its potential costs related to these legal matters and, accordingly, no liability for compensatory damages has been established in the consolidated financial statements.

ACE’s ultimate liability for these matters is not likely to have a material adverse effect on ACE’s consolidated financial condition, although it is possible that the effect could be material to ACE’s consolidated results of operations for an individual reporting period.

7. Shareholders’ equity

All of ACE’s Common Shares are authorized under Swiss corporate law. Though the par value of Common Shares is stated in Swiss francs, ACE continues to use U.S. dollars as its reporting currency for preparing the consolidated financial statements. Under Swiss corporate law, dividends, including distributions through a reduction in par value (par value distributions) or from legal reserves, must be declared by ACE in Swiss francs though dividend payments are made by ACE in U.S. dollars. At our May 2011 annual general meeting, our shareholders approved a dividend for the following year, payable in four quarterly installments after the May 2011 annual general meeting from our capital contributions reserves (Additional paid-in capital), a subaccount of legal reserves. At our May 2012 annual general meeting, our shareholders approved a dividend for the following year, payable in four quarterly installments after the May 2012 annual general meeting in the form of a distribution by way of a par value reduction. We have determined this procedure is more appropriate for us at this

35

ACE LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

(Unaudited)

time due to current Swiss law. For the three and six months ended June 30, 2012, dividends per Common Share amounted to CHF 0.48 ($0.49) and CHF 1.01 ($1.08), including a par value reduction of CHF 0.48 per Common Share that had the effect of reducing par value per Common Share to CHF 29.79. Dividends for the six months ended June 30, 2012 included a $0.12 per Common Share increase (approved by our shareholders at the January 9, 2012 extraordinary general meeting) to the third and fourth installments of the dividend approved at the May 2011 annual general meeting.

For the three and six months ended June 30, 2011, dividends per Common Share amounted to CHF 0.29 ($0.35) and CHF 0.59 ($0.68), including a par value reduction of CHF 0.30 per Common Share.

Common Shares in treasury are used principally for issuance upon the exercise of employee stock options, grants of restricted stock, and purchases under the Employee Stock Purchase Plan (ESPP). At June 30, 2012, 3,771,527 Common Shares remain in treasury after net shares redeemed under employee share-based compensation plans.

ACE Limited securities repurchase authorization

In August 2011, the Board of Directors authorized the repurchase of up to $303 million of ACE’s Common Shares through December 31, 2012. The amount authorized in August 2011 was in addition to the $197 million balance remaining under a $600 million share repurchase program approved in November 2010. These authorizations were granted to allow ACE to repurchase Common Shares to partially offset potential dilution from the exercise of stock options and the granting of restricted stock under share-based compensation plans. Such repurchases may be made in the open market, in privately negotiated transactions, block trades, accelerated repurchases and/or through option or other forward transactions. In January 2012, ACE repurchased an additional 100,000 Common Shares for a cost of $7 million. At June 30, 2012, $461 million in share repurchase authorization remained through December 31, 2012 pursuant to the November 2010 and August 2011 Board authorizations.

8. Share-based compensation

The ACE Limited 2004 Long-Term Incentive Plan (the 2004 LTIP) provides for grants of both incentive and non-qualified stock options principally at an option price per share equal to the fair value of ACE’s Common Shares on the date of grant. Stock options are generally granted with a 3-year vesting period and a 10-year term. The stock options vest in equal annual installments over the respective vesting period, which is also the requisite service period. On February 23, 2012, ACE granted 1,452,605 stock options with a weighted-average grant date fair value of $15.58 each. The fair value of the options issued is estimated on the date of grant using the Black-Scholes option pricing model.

The 2004 LTIP also provides for grants of restricted stock and restricted stock units. ACE generally grants restricted stock and restricted stock units with a 4-year vesting period, based on a graded vesting schedule. The restricted stock is granted at market close price on the day of grant. On February 23, 2012, ACE granted 1,462,230 restricted stock awards and 255,850 restricted stock units to employees and officers of ACE and its subsidiaries with a grant date fair value of $73.35 each. Each restricted stock unit represents our obligation to deliver to the holder one Common Share upon vesting.

9. Segment information

ACE operates through the following business segments: Insurance – North American, Insurance – Overseas General, Global Reinsurance, and Life. These segments distribute their products through various forms of brokers, agencies, and direct marketing programs. All business segments have established relationships with reinsurance intermediaries.

36

ACE LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

(Unaudited)

For segment reporting purposes, certain items have been presented in a different manner than in the consolidated financial statements. Management uses underwriting income as the main measure of segment performance. ACE calculates underwriting income by subtracting Losses and loss expenses, Policy benefits, Policy acquisition costs, and Administrative expenses from Net premiums earned. For the Life business, management also includes Net investment income and (Gains) losses from fair value changes in separate account assets that do not qualify for separate account reporting as components of underwriting income. For example, for the three months ended June 30, 2012, Life underwriting income of $103 million includes Net investment income of $62 million and (Gains) losses from fair value changes in separate account assets of $14 million.

Effective January 1, 2012, we reclassified prior year segment operating results in order to conform to certain organizational realignments. These realignments resulted in a transfer of operating revenue and underwriting results of our international direct-marketed and credit life businesses from the Insurance – Overseas General segment to the Life segment. These realignments have no impact on consolidated operating results; however, prior year amounts contained in these consolidated financial statements have been adjusted to conform to the current year presentation.

The following tables present the operations by segment:

Statement of Operations by Segment

For the Three Months Ended June 30, 2012

(in millions of U.S. dollars)

	Insurance – North American		Insurance – Overseas General		Global Reinsurance			Life			Corporate and Other			ACE Consolidated
Net premiums written	$	1,860	$	1,475	$	309		$	486		$	—		$	4,130
Net premiums earned		1,652		1,420		237			474			—			3,783
Losses and loss expenses		1,163		703		102			151			—			2,119
Policy benefits		—		—		—			102			—			102
Policy acquisition costs		157		332		42			88			—			619
Administrative expenses		153		233		13			78			37			514
Underwriting income (loss)		179		152		80			55			(37	)		429
Net investment income		271		128		70			62			6			537
Net realized gains (losses) including OTTI		18		26		(17	)		(421	)		—			(394	)
Interest expense		3		1		1			3			54			62
Other (income) expense:
(Gains) losses from fair value changes in separate account assets		—		—		—			14			—			14
Other		10		6		3			5			(4	)		20
Income tax expense (benefit)		107		51		—			19			(29	)		148
Net income (loss)	$	348	$	248	$	129		$	(345	)	$	(52	)	$	328

37

ACE LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

(Unaudited)

Statement of Operations by Segment

For the Three Months Ended June 30, 2011

(in millions of U.S. dollars)

	Insurance – North American		Insurance – Overseas General			Global Reinsurance			Life			Corporate and Other			ACE Consolidated
Net premiums written	$	1,735	$	1,443		$	282		$	493		$	—		$	3,953
Net premiums earned		1,604		1,415			254			484			—			3,757
Losses and loss expenses		1,233		721			112			159			1			2,226
Policy benefits		—		—			—			108			—			108
Policy acquisition costs		145		335			47			85			—			612
Administrative expenses		147		239			14			78			40			518
Underwriting income (loss)		79		120			81			54			(41	)		293
Net investment income		300		137			71			60			1			569
Net realized gains (losses) including OTTI		21		(10	)		(14	)		(68	)		(2	)		(73	)
Interest expense		3		1			1			3			54			62
Other (income) expense		3		(5	)		1			11			2			12
Income tax expense (benefit)		95		39			8			14			(35	)		121
Net income (loss)	$	299	$	212		$	128		$	18		$	(63	)	$	594

Statement of Operations by Segment

For the Six Months Ended June 30, 2012

(in millions of U.S. dollars)

	Insurance – North American		Insurance – Overseas General		Global Reinsurance			Life			Corporate and Other			ACE Consolidated
Net premiums written	$	3,153	$	3,003	$	572		$	974		$	—		$	7,702
Net premiums earned		2,939		2,811		467			947			—			7,164
Losses and loss expenses		2,012		1,408		204			299			—			3,923
Policy benefits		—		—		—			249			—			249
Policy acquisition costs		284		667		85			164			1			1,201
Administrative expenses		300		462		25			156			81			1,024
Underwriting income (loss)		343		274		153			79			(82	)		767
Net investment income		545		259		141			123			13			1,081
Net realized gains (losses) including OTTI		17		46		(4	)		(190	)		(3	)		(134	)
Interest expense		6		2		2			6			108			124
Other (income) expense:
(Gains) losses from fair value changes in separate account assets		—		—		—			(4	)		—			(4	)
Other		9		6		(2	)		14			8			35
Income tax expense (benefit)		198		89		6			30			(65	)		258
Net income (loss)	$	692	$	482	$	284		$	(34	)	$	(123	)	$	1,301

38

ACE LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

(Unaudited)

Statement of Operations by Segment

For the Six Months Ended June 30, 2011

(in millions of U.S. dollars)

	Insurance – North American			Insurance – Overseas General			Global Reinsurance			Life			Corporate and Other			ACE Consolidated
Net premiums written	$	3,020		$	2,853		$	597		$	929		$	—		$	7,399
Net premiums earned		2,950			2,693			514			909			—			7,066
Losses and loss expenses		2,227			1,573			391			297			1			4,489
Policy benefits		—			—			—			199			—			199
Policy acquisition costs		281			636			93			161			—			1,171
Administrative expenses		295			462			26			152			82			1,017
Underwriting income (loss)		147			22			4			100			(83	)		190
Net investment income		595			268			143			106			1			1,113
Net realized gains (losses) including OTTI		10			(19	)		(27	)		(81	)		(1	)		(118	)
Interest expense		7			2			1			6			109			125
Other (income) expense		(13	)		(7	)		(5	)		17			7			(1	)
Income tax expense (benefit)		184			56			18			28			(69	)		217
Net income (loss)	$	574		$	220		$	106		$	74		$	(130	)	$	844

Underwriting assets are reviewed in total by management for purposes of decision-making. Other than goodwill, ACE does not allocate assets to its segments.

The following table presents the net premiums earned for each segment by product:

	Property & All Other		Casualty		Life, Accident & Health		ACE Consolidated
	(in millions of U.S. dollars)
For the Three Months Ended June 30, 2012
Insurance – North American	$	731	$	828	$	93	$	1,652
Insurance – Overseas General		552		338		530		1,420
Global Reinsurance		114		123		—		237
Life		—		—		474		474
	$	1,397	$	1,289	$	1,097	$	3,783
For the Three Months Ended June 30, 2011
Insurance – North American	$	648	$	865	$	91	$	1,604
Insurance – Overseas General		533		348		534		1,415
Global Reinsurance		115		139		—		254
Life		—		—		484		484
	$	1,296	$	1,352	$	1,109	$	3,757

39

ACE LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

(Unaudited)

	Property & All Other		Casualty		Life, Accident & Health		ACE Consolidated
	(in millions of U.S. dollars)
For the Six Months Ended June 30, 2012
Insurance – North American	$	1,112	$	1,645	$	182	$	2,939
Insurance – Overseas General		1,090		671		1,050		2,811
Global Reinsurance		224		243		—		467
Life		—		—		947		947
	$	2,426	$	2,559	$	2,179	$	7,164
For the Six Months Ended June 30, 2011
Insurance – North American	$	1,018	$	1,755	$	177	$	2,950
Insurance – Overseas General		964		690		1,039		2,693
Global Reinsurance		227		287		—		514
Life		—		—		909		909
	$	2,209	$	2,732	$	2,125	$	7,066

10. Earnings per share

The following table presents the computation of basic and diluted earnings per share:

	Three Months Ended				Six Months Ended
	June 30				June 30
	2012		2011		2012		2011
	(in millions of U.S. dollars, except share and per share data)
Numerator:
Net income	$	328	$	594	$	1,301	$	844
Denominator for basic earnings per share:
Weighted-average shares outstanding		339,766,067		338,920,580		339,164,449		338,021,487
Denominator for diluted earnings per share:
Share-based compensation plans		2,907,971		2,768,388		3,006,950		2,596,909
Adjusted weighted-average shares outstanding and assumed conversions		342,674,038		341,688,968		342,171,399		340,618,396
Basic earnings per share	$	0.96	$	1.75	$	3.83	$	2.50
Diluted earnings per share	$	0.96	$	1.74	$	3.80	$	2.48

Excluded from adjusted weighted-average shares outstanding and assumed conversions is the impact of securities that would have been anti-dilutive during the respective periods. For the three months ended June 30, 2012 and 2011, the potential anti-dilutive share conversions were 1,471,035 shares and 1,212 shares, respectively. The potential anti-dilutive share conversions for the six months ended June 30, 2012 and 2011 were 1,051,182 shares and 81,718 shares, respectively.

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ACE LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

(Unaudited)

11. Information provided in connection with outstanding debt of subsidiaries

The following tables present condensed consolidating financial information at June 30, 2012 and December 31, 2011, and for the three and six months ended June 30, 2012 and 2011, for ACE Limited (the Parent Guarantor) and ACE INA Holdings Inc. (the Subsidiary Issuer). The Subsidiary Issuer is an indirect 100 percent-owned subsidiary of the Parent Guarantor. Investments in subsidiaries are accounted for by the Parent Guarantor under the equity method for purposes of the supplemental consolidating presentation. Earnings of subsidiaries are reflected in the Parent Guarantor’s investment accounts and earnings. The Parent Guarantor fully and unconditionally guarantees certain of the debt of the Subsidiary Issuer. Condensed consolidating financial information of the Subsidiary Issuer is presented on a consolidated basis and consists principally of the net assets, results of operations, and cash flows of operating insurance company subsidiaries.

Condensed Consolidating Balance Sheet at June 30, 2012

(in millions of U.S. dollars)

	ACE Limited (Parent Guarantor)			ACE INA Holdings Inc. (Subsidiary Issuer)		Other ACE Limited Subsidiaries and Eliminations(1)			Consolidating Adjustments(2)			ACE Limited Consolidated
Assets
Investments	$36			$	29,670	$	27,975		$	—		$	57,681
Cash(3)		(30	)		508		139			—			617
Insurance and reinsurance balances receivable		—			4,409		576			—			4,985
Reinsurance recoverable on losses and loss expenses		—			16,432		(4,680	)		—			11,752
Reinsurance recoverable on policy benefits		—			1,181		(924	)		—			257
Value of business acquired		—			637		—			—			637
Goodwill and other intangible assets		—			4,274		552			—			4,826
Investments in subsidiaries		25,660			—		—			(25,660	)		—
Due from subsidiaries and affiliates, net		327			—		—			(327	)		—
Other assets		7			7,678		2,261			—			9,946
Total assets	$26,000			$	64,789	$	25,899		$	(25,987	)	$	90,701
Liabilities
Unpaid losses and loss expenses	$—			$	30,321	$	6,529		$	—		$	36,850
Unearned premiums		—			5,916		1,128			—			7,044
Future policy benefits		—			3,845		591			—			4,436
Due to subsidiaries and affiliates, net		—			604		(277	)		(327	)		—
Short-term debt		—			851		550			—			1,401
Long-term debt		—			3,360		—			—			3,360
Trust preferred securities		—			309		—			—			309
Other liabilities		238			8,255		3,046			—			11,539
Total liabilities		238			53,461		11,567			(327	)		64,939
Total shareholders’ equity		25,762			11,328		14,332			(25,660	)		25,762
Total liabilities and shareholders’ equity	$26,000			$	64,789	$	25,899		$	(25,987	)	$	90,701

⁽¹⁾ Includes all other subsidiaries of ACE Limited and intercompany eliminations.

⁽²⁾  Includes ACE Limited parent company eliminations.

⁽³⁾ ACE maintains two notional multicurrency cash pools (Pools) with a third-party bank. Various ACE entities participate in one or the other of the Pools, pursuant to which credit and debit balances in individual ACE accounts are translated daily into a single currency and pooled on a notional basis. Individual ACE entities are permitted to overdraw on their individual accounts provided the overall Pool balances do not fall below zero. At June 30, 2012, the cash balance of one or more entities was negative; however, the overall Pool balances were positive.

41

ACE LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

(Unaudited)

Condensed Consolidating Balance Sheet at December 31, 2011

(in millions of U.S. dollars)

	ACE Limited (Parent Guarantor)		ACE INA Holdings Inc. (Subsidiary Issuer)		Other ACE Limited Subsidiaries and Eliminations(1)			Consolidating Adjustments(2)			ACE Limited Consolidated
Assets
Investments	$33		$	28,848	$	26,795		$	—		$	55,676
Cash		106		382		126			—			614
Insurance and reinsurance balances receivable		—		3,944		443			—			4,387
Reinsurance recoverable on losses and loss expenses		—		17,146		(4,757	)		—			12,389
Reinsurance recoverable on policy benefits		—		941		(692	)		—			249
Value of business acquired		—		676		—			—			676
Goodwill and other intangible assets		—		4,248		551			—			4,799
Investments in subsidiaries		23,871		—		—			(23,871	)		—
Due from subsidiaries and affiliates, net		498		—		—			(498	)		—
Other assets		8		7,018		1,505			—			8,531
Total assets	$24,516		$	63,203	$	23,971		$	(24,369	)	$	87,321
Liabilities
Unpaid losses and loss expenses	$—		$	30,837	$	6,640		$	—		$	37,477
Unearned premiums		—		5,416		918			—			6,334
Future policy benefits		—		3,673		601			—			4,274
Due to subsidiaries and affiliates, net		—		316		182			(498	)		—
Short-term debt		—		850		401			—			1,251
Long-term debt		—		3,360		—			—			3,360
Trust preferred securities		—		309		—			—			309
Other liabilities		184		7,769		2,031			—			9,984
Total liabilities		184		52,530		10,773			(498	)		62,989
Total shareholders’ equity		24,332		10,673		13,198			(23,871	)		24,332
Total liabilities and shareholders’ equity	$24,516		$	63,203	$	23,971		$	(24,369	)	$	87,321

⁽¹⁾  Includes all other subsidiaries of ACE Limited and intercompany eliminations.

⁽²⁾  Includes ACE Limited parent company eliminations.

42

ACE LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

(Unaudited)

Condensed Consolidating Statement of Operations

For the Three Months Ended June 30, 2012

(in millions of U.S. dollars)

	ACE Limited (Parent Guarantor)			ACE INA Holdings Inc. (Subsidiary Issuer)		Other ACE Limited Subsidiaries and Eliminations(1)			Consolidating Adjustments(2)			ACE Limited Consolidated
Net premiums written	$	—		$	2,327	$	1,803		$	—		$	4,130
Net premiums earned		—			2,196		1,587			—			3,783
Net investment income		1			257		279			—			537
Equity in earnings of subsidiaries		301			—		—			(301	)		—
Net realized gains (losses) including OTTI		2			34		(430	)		—			(394	)
Losses and loss expenses		—			1,325		794			—			2,119
Policy benefits		—			54		48			—			102
Policy acquisition costs and administrative expenses		14			656		463			—			1,133
Interest (income) expense		(8	)		58		12			—			62
Other (income) expense		(33	)		9		58			—			34
Income tax expense		3			119		26			—			148
Net income	$	328		$	266	$	35		$	(301	)	$	328
Comprehensive income (loss)	$	457		$	323	$	(22	)	$	(301	)	$	457

Condensed Consolidating Statement of Operations

For the Three Months Ended June 30, 2011

(in millions of U.S. dollars)

	ACE Limited (Parent Guarantor)			ACE INA Holdings Inc. (Subsidiary Issuer)		Other ACE Limited Subsidiaries and Eliminations(1)			Consolidating Adjustments(2)			ACE Limited Consolidated
Net premiums written	$	—		$	2,306	$	1,647		$	—		$	3,953
Net premiums earned		—			2,225		1,532			—			3,757
Net investment income		—			282		287			—			569
Equity in earnings of subsidiaries		566			—		—			(566	)		—
Net realized gains (losses) including OTTI		(1	)		17		(89	)		—			(73	)
Losses and loss expenses		—			1,438		788			—			2,226
Policy benefits		—			59		49			—			108
Policy acquisition costs and administrative expenses		18			620		492			—			1,130
Interest (income) expense		(10	)		66		6			—			62
Other (income) expense		(40	)		23		29			—			12
Income tax expense		3			109		9			—			121
Net income	$	594		$	209	$	357		$	(566	)	$	594
Comprehensive income	$	801		$	382	$	184		$	(566	)	$	801

⁽¹⁾  Includes all other subsidiaries of ACE Limited and intercompany eliminations.

⁽²⁾  Includes ACE Limited parent company eliminations.

43

ACE LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

(Unaudited)

Condensed Consolidating Statement of Operations

For the Six Months Ended June 30, 2012

(in millions of U.S. dollars)

	ACE Limited (Parent Guarantor)			ACE INA Holdings Inc. (Subsidiary Issuer)		Other ACE Limited Subsidiaries and Eliminations(1)			Consolidating Adjustments(2)			ACE Limited Consolidated
Net premiums written	$	—		$	4,425	$	3,277		$	—		$	7,702
Net premiums earned		—			4,148		3,016			—			7,164
Net investment income		1			522		558			—			1,081
Equity in earnings of subsidiaries		1,229			—		—			(1,229	)		—
Net realized gains (losses) including OTTI		22			60		(216	)		—			(134	)
Losses and loss expenses		—			2,507		1,416			—			3,923
Policy benefits		—			140		109			—			249
Policy acquisition costs and administrative expenses		26			1,296		903			—			2,225
Interest (income) expense		(17	)		124		17			—			124
Other (income) expense		(63	)		34		60			—			31
Income tax expense		5			204		49			—			258
Net income	$	1,301		$	425	$	804		$	(1,229	)	$	1,301
Comprehensive income	$	1,728		$	610	$	619		$	(1,229	)	$	1,728

Condensed Consolidating Statement of Operations

For the Six Months Ended June 30, 2011

(in millions of U.S. dollars)

	ACE Limited (Parent Guarantor)			ACE INA Holdings Inc. (Subsidiary Issuer)		Other ACE Limited Subsidiaries and Eliminations(1)			Consolidating Adjustments(2)			ACE Limited Consolidated
Net premiums written	$	—		$	4,329	$	3,070		$	—		$	7,399
Net premiums earned		—			4,163		2,903			—			7,066
Net investment income		1			544		568			—			1,113
Equity in earnings of subsidiaries		805			—		—			(805	)		—
Net realized gains (losses) including OTTI		(2	)		4		(120	)		—			(118	)
Losses and loss expenses		—			2,739		1,750			—			4,489
Policy benefits		—			99		100			—			199
Policy acquisition costs and administrative expenses		36			1,208		944			—			2,188
Interest (income) expense		(18	)		133		10			—			125
Other (income) expense		(62	)		36		25			—			(1	)
Income tax expense		4			177		36			—			217
Net income	$	844		$	319	$	486		$	(805	)	$	844
Comprehensive income	$	1,239		$	592	$	213		$	(805	)	$	1,239

⁽¹⁾  Includes all other subsidiaries of ACE Limited and intercompany eliminations.

⁽²⁾  Includes ACE Limited parent company eliminations.

44

ACE LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

(Unaudited)

Condensed Consolidating Statement of Cash Flows

For the Six Months Ended June 30, 2012

(in millions of U.S. dollars)

	ACE Limited (Parent Guarantor)			ACE INA Holdings Inc. (Subsidiary Issuer)			Other ACE Limited Subsidiaries and Eliminations(1)			Consolidating Adjustments(2)			ACE Limited Consolidated
Net cash flows from operating activities	$	49		$	540		$	794		$	—		$	1,383
Cash flows from investing activities
Purchases of fixed maturities available for sale		—			(5,614	)		(6,073	)		—			(11,687	)
Purchases of fixed maturities held to maturity		—			(134	)		(2	)		—			(136	)
Purchases of equity securities		—			(57	)		(36	)		—			(93	)
Sales of fixed maturities available for sale		—			3,750			4,282			—			8,032
Sales of equity securities		—			28			5			—			33
Maturities and redemptions of fixed maturities available for sale		—			1,158			1,122			—			2,280
Maturities and redemptions of fixed maturities held to maturity		—			527			212			—			739
Net derivative instruments settlements		(1	)		(6	)		(126	)		—			(133	)
Advances from (to) affiliates		131			—			—			(131	)		—
Acquisition of subsidiaries		—			(30	)		—			—			(30	)
Capital contribution to subsidiary		—			—			(90	)		90			—
Other		—			(140	)		(115	)		—			(255	)
Net cash flows from (used for) investing activities		130			(518	)		(821	)		(41	)		(1,250	)
Cash flows from financing activities
Dividends paid on Common Shares		(318	)		—			—			—			(318	)
Common Shares repurchased		—			—			(11	)		—			(11	)
Net proceeds from issuance of short-term debt		—			—			151			—			151
Proceeds from share-based compensation plans		3			—			52			—			55
Advances (to) from affiliates		—			23			(154	)		131			—
Capital contribution from subsidiary		—			90			—			(90	)		—
Net cash flows (used for) from financing activities		(315	)		113			38			41			(123	)
Effect of foreign currency rate changes on cash and cash equivalents		—			(9	)		2			—			(7	)
Net increase (decrease) in cash		(136	)		126			13			—			3
Cash – beginning of period		106			382			126			—			614
Cash – end of period(3)	$(30)			$	508		$	139		$	—		$	617

⁽¹⁾ Includes all other subsidiaries of ACE Limited and intercompany eliminations.

⁽²⁾  Includes ACE Limited parent company eliminations.

⁽³⁾  ACE maintains two notional multi-currency cash pools (Pools) with a third-party bank. Various ACE entities participate in one or the other of the Pools, pursuant to which credit and debit balances in individual ACE accounts are translated daily into a single currency and pooled on a notional basis. Individual ACE entities are permitted to overdraw on their individual accounts provided the overall Pool balances do not fall below zero. At June 30, 2012 one or more entities was negative; however, the overall Pool balances were positive.

45

ACE LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

(Unaudited)

Condensed Consolidating Statement of Cash Flows

For the Six Months Ended June 30, 2011

(in millions of U.S. dollars)

	ACE Limited (Parent Guarantor)			ACE INA Holdings Inc. (Subsidiary Issuer)			Other ACE Limited Subsidiaries and Eliminations(1)			Consolidating Adjustments(2)			ACE Limited Consolidated
Net cash flows from operating activities	$	623		$	677		$	1,443		$	(680	)	$	2,063
Cash flows from investing activities
Purchases of fixed maturities available for sale		—			(6,330	)		(7,353	)		—			(13,683	)
Purchases of fixed maturities held to maturity		—			(233	)		(1	)		—			(234	)
Purchases of equity securities		—			(138	)		(32	)		—			(170	)
Sales of fixed maturities available for sale		8			5,022			4,955			—			9,985
Sales of equity securities		—			332			15			—			347
Maturities and redemptions of fixed maturities available for sale		—			847			911			—			1,758
Maturities and redemptions of fixed maturities held to maturity		—			475			181			—			656
Net derivative instruments settlements		(1	)		(7	)		(38	)		—			(46	)
Capital contribution to subsidiary		(385	)		—			—			385			—
Advances from (to) affiliates		(291	)		—			—			291			—
Acquisition of subsidiaries (net of cash acquired of $95)		—			(343	)		(37	)		—			(380	)
Other		—			(449	)		317			—			(132	)
Net cash flows used for investing activities		(669	)		(824	)		(1,082	)		676			(1,899	)
Cash flows from financing activities
Dividends paid on Common Shares		(223	)		—			—			—			(223	)
Common Shares repurchased		—			—			(68	)		—			(68	)
Net proceeds from (repayments) issuance of short-term debt		(300	)		—			400			—			100
Proceeds from share-based compensation plans		76			—			—			—			76
Advances from (to) affiliates		—			226			65			(291	)		—
Dividends to parent company		—			—			(680	)		680			—
Capital contribution from parent		—			—			385			(385	)		—
Net cash flows (used for) from financing activities		(447	)		226			102			4			(115	)
Effect of foreign currency rate changes on cash and cash equivalents		—			12			—			—			12
Net (decrease) increase in cash		(493	)		91			463			—			61
Cash – beginning of period(3)		308			573			(109	)		—			772
Cash – end of period(3)	$(185)			$	664		$	354		$	—		$	833

⁽¹⁾  Includes all other subsidiaries of ACE Limited and intercompany eliminations.

⁽²⁾  Includes ACE Limited parent company eliminations.

⁽³⁾  ACE maintains two notional multi-currency cash pools (Pools) with a third-party bank. Various ACE entities participate in one or the other of the Pools, pursuant to which credit and debit balances in individual ACE accounts are translated daily into a single currency and pooled on a notional basis. Individual ACE entities are permitted to overdraw on their individual accounts provided the overall Pool balances do not fall below zero. At June 30, 2011 and December 31, 2010, the cash balance of one or more entities was negative; however, the overall Pool balances were positive.

46

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following is a discussion of our results of operations, financial condition, and liquidity and capital resources as of and for the three and six months ended June 30, 2012.

All comparisons in this discussion are to the corresponding prior year periods unless otherwise indicated.

Our results of operations and cash flows for any interim period are not necessarily indicative of our results for the full year. This discussion should be read in conjunction with our consolidated financial statements and related notes and our Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2011 (2011 Form 10-K).

Effective January 1, 2012, we retrospectively adopted new accounting guidance for costs associated with acquiring or renewing insurance contracts. Under the new guidance, the definition of acquisition costs was modified to specify that a cost must be directly related to the successful acquisition of a new or renewal insurance contract in order to be deferred. Prior year amounts and ratios contained in these consolidated financial statements have been adjusted to reflect the impact of retrospective adjustments as a result of applying this new accounting guidance.

In addition, effective January 1, 2012, we reclassified prior year segment operating results in order to conform to certain organizational realignments. These realignments resulted in a transfer of operating revenue and underwriting results of our international direct-marketed and credit life businesses from the Insurance – Overseas General segment to the Life segment. These realignments have no impact on consolidated operating results; however, prior year amounts and underwriting ratios contained in these consolidated financial statements have been adjusted to conform to the current year presentation.

MD&A Index	Page No.
Forward-Looking Statements		48
Overview		50
Financial Highlights		50
Consolidated Operating Results		51
Prior Period Development		55
Segment Operating Results		58
Other Income and Expense Items		66
Net Investment Income		66
Net Realized and Unrealized Gains (Losses)		67
Investments		69
Critical Accounting Estimates		76
Reinsurance Recoverable on Ceded Reinsurance		76
Unpaid Losses and Loss Expenses		76
Asbestos and Environmental (A&E) and Other Run-off Liabilities		77
Fair Value Measurements		77
Guaranteed Living Benefits (GLB) Derivatives		78
Catastrophe Management		82
Natural Catastrophe Property Reinsurance Program		83
Crop Insurance		83
Liquidity		83
Capital Resources		85
Recent Accounting Pronouncements		86

47

Forward-Looking Statements

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. Any written or oral statements made by us or on our behalf may include forward-looking statements that reflect our current views with respect to future events and financial performance. These forward-looking statements are subject to certain risks, uncertainties, and other factors that could, should potential events occur, cause actual results to differ materially from such statements. These risks, uncertainties, and other factors (which are described in more detail elsewhere herein and in other documents we file with the SEC) include but are not limited to:

• developments in global financial markets, including changes in interest rates, stock markets, and other financial markets, increased government involvement or intervention in the financial services industry, the cost and availability of financing, and foreign currency exchange rate fluctuations (which we refer to in this report as foreign exchange and foreign currency exchange), which could affect our statement of operations, investment portfolio, financial position, and financing plans;

• general economic and business conditions resulting from volatility in the stock and credit markets and the depth and duration of recession;

• losses arising out of natural or man-made catastrophes such as hurricanes, typhoons, earthquakes, floods, climate change (including effects on weather patterns, greenhouse gases, sea, land and air temperatures, sea levels, rain and snow), nuclear accidents or terrorism which could be affected by:

• the number of insureds and ceding companies affected;

• the amount and timing of losses actually incurred and reported by insureds;

• the impact of these losses on our reinsurers and the amount and timing of reinsurance recoverable actually received;

• the cost of building materials and labor to reconstruct properties or to perform environmental remediation following a catastrophic event; and

• complex coverage and regulatory issues such as whether losses occurred from storm surge or flooding and related lawsuits;

• actions that rating agencies may take from time to time, such as financial strength or credit ratings downgrades or placing these ratings on credit watch negative or the equivalent;

• global political conditions, the occurrence of any terrorist attacks, including any nuclear, radiological, biological, or chemical events, or the outbreak and effects of war, and possible business disruption or economic contraction that may result from such events;

• the ability to collect reinsurance recoverable, credit developments of reinsurers, and any delays with respect thereto and changes in the cost, quality, or availability of reinsurance;

• actual loss experience from insured or reinsured events and the timing of claim payments;

• the uncertainties of the loss-reserving and claims-settlement processes, including the difficulties associated with assessing environmental damage and asbestos-related latent injuries, the impact of aggregate-policy-coverage limits, and the impact of bankruptcy protection sought by various asbestos producers and other related businesses and the timing of loss payments;

• changes to our assessment as to whether it is more likely than not that we will be required to sell, or have the intent to sell, available for sale fixed maturities before their anticipated recovery;

• infection rates and severity of pandemics and their effects on our business operations and claims activity;

• judicial decisions and rulings, new theories of liability, legal tactics, and settlement terms;

48

• the effects of public company bankruptcies and/or accounting restatements, as well as disclosures by and investigations of public companies relating to possible accounting irregularities, and other corporate governance issues, including the effects of such events on:

• the capital markets;

• the markets for directors and officers (D&O) and errors and omissions (E&O) insurance; and

• claims and litigation arising out of such disclosures or practices by other companies;

• uncertainties relating to governmental, legislative and regulatory policies, developments, actions, investigations and treaties, which, among other things, could subject us to insurance regulation or taxation in additional jurisdictions or affect our current operations;

• the actual amount of new and renewal business, market acceptance of our products, and risks associated with the introduction of new products and services and entering new markets, including regulatory constraints on exit strategies;

• the competitive environment in which we operate, including trends in pricing or in policy terms and conditions, which may differ from our projections and changes in market conditions that could render our business strategies ineffective or obsolete;

• acquisitions made by us performing differently than expected, our failure to realize anticipated expense-related efficiencies or growth from acquisitions, the impact of acquisitions on our pre-existing organization or announced acquisitions not closing;

• risks associated with being a Swiss corporation, including reduced flexibility with respect to certain aspects of capital management and the potential for additional regulatory burdens;

• the potential impact from government-mandated insurance coverage for acts of terrorism;

• the availability of borrowings and letters of credit under our credit facilities;

• the adequacy of collateral supporting funded high deductible programs;

• changes in the distribution or placement of risks due to increased consolidation of insurance and reinsurance brokers;

• material differences between actual and expected assessments for guaranty funds and mandatory pooling arrangements;

• the effects of investigations into market practices in the property and casualty (P&C) industry;

• changing rates of inflation and other economic conditions, for example, recession;

• the amount of dividends received from subsidiaries;

• loss of the services of any of our executive officers without suitable replacements being recruited in a reasonable time frame;

• the ability of our technology resources to perform as anticipated; and

• management’s response to these factors and actual events (including, but not limited to, those described above).

The words “believe,” “anticipate,” “estimate,” “project,” “should,” “plan,” “expect,” “intend,” “hope,” “feel,” “foresee,” “will likely result,” or “will continue,” and variations thereof and similar expressions, identify forward-looking statements. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. We undertake no obligation to publicly update or review any forward-looking statements, whether as a result of new information, future events or otherwise.

49

Overview

ACE Limited is the Swiss-incorporated holding company of the ACE Group of Companies. ACE opened its business office in Bermuda in 1985 and continues to maintain operations in Bermuda. ACE, which is headquartered in Zurich, Switzerland, and its direct and indirect subsidiaries, is a global insurance and reinsurance organization, serving the needs of a diverse group of clients around the world. We are predominantly a global property and casualty insurance company with both a commercial and specialty product orientation. We offer commercial insurance, specialty products and accident and health (A&H) solutions and are expanding our personal lines and international life insurance businesses. As we have grown, we have developed products and diversified our offerings to meet the needs of our customers. At June 30, 2012, ACE had total assets of $91 billion and shareholders’ equity of $26 billion.

We operate through the following business segments: Insurance – North American, Insurance—Overseas General, Global Reinsurance, and Life.

The Insurance – North American segment includes retail divisions ACE USA (including ACE Canada), ACE Commercial Risk Services and ACE Private Risk Services; our wholesale and specialty divisions ACE Westchester, ACE Agriculture and ACE Bermuda; and various run-off operations, including Brandywine Holdings Corporation (Brandywine). Our retail products range from commercial lines with service offerings such as risk management, loss control and engineering programs, and specialty commercial P&C and A&H to personal lines homeowners, automobiles, liability, valuable articles and marine coverages. Our wholesale and specialty products include excess and surplus property, professional liability, inland marine, specialty property, specialty casualty, political risk, and comprehensive multiple-peril crop and hail insurance products.

The Insurance – Overseas General segment comprises ACE International, our retail business serving territories outside the U.S., Bermuda, and Canada; the international A&H and life business of Combined Insurance (Combined); and the wholesale insurance business of ACE Global Markets. ACE International has a presence in major developed markets and growing economies serving multinational clients and local customers. A significant amount of our global business is with local companies, offering traditional and specialty P&C products including D&O and professional liability, specialty personal lines, and energy products. Our international A&H business primarily focuses on personal accident and supplemental medical. ACE Global Markets offers specialty products including aviation, marine, financial lines, energy, and political risk.

The Global Reinsurance segment represents our reinsurance operations, comprising ACE Tempest Re Bermuda, ACE Tempest Re USA, ACE Tempest Re International, ACE Tempest Re Canada, and the reinsurance operation of ACE Global Markets. Global Reinsurance provides solutions for customers ranging from small commercial insureds to multinational ceding companies. Global Reinsurance offers products such as property and workers’ compensation catastrophe, D&O, professional liability, specialty casualty and specialty property.

The Life segment includes our international life operations (ACE Life), ACE Tempest Life Re (ACE Life Re), and the North American supplemental A&H and life business of Combined Insurance. For more information on each of our segments refer to “Segment Information” in our 2011 Form 10-K.

On June 13, 2012, we announced that we and our local partner had signed a definitive agreement to acquire PT Asuransi Jaya Proteksi (JaPro), one of Indonesia’s leading general insurers. This transaction, which is subject to regulatory approvals and other closing conditions, is expected to be completed by the end of 2012.

Financial Highlights for the Three Months Ended June 30, 2012

• Total company net premiums written increased 4.5 percent. On a constant-dollar basis, total company net premiums written increased 6.5 percent.

• The P&C combined ratio was 88.7 percent compared with 92.7 percent in the prior year period.

• Favorable prior period development pre-tax was $113 million, representing 3.4 percentage points of the combined ratio, compared with $146 million in the prior year period.

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• Total pre-tax and after-tax catastrophe losses including reinstatement premiums were $55 million and $41 million, respectively, compared with $134 million and $101 million, respectively, in the prior year period.

• The current accident year combined ratio was 92.1 percent compared with 97.2 percent in the prior year period. Adjusting for catastrophe losses, current accident year combined ratio was 90.4 percent compared with 93.1 percent.

• The P&C expense ratio for the quarter was 29.2 percent compared with 29.6 percent in the prior year period.

• Operating cash flow was $811 million for the quarter.

• Net investment income for the quarter decreased six percent to $537 million due to lower yields on new investments and the negative impact of foreign exchange.

• Net realized losses from derivative accounting related to variable annuity reinsurance were $397 million.

Consolidated Operating Results – Three and Six Months Ended June 30, 2012 and 2011

	Three Months Ended June 30						% Change			Six Months Ended June 30						% Change
	2012			2011			Q-12 vs. Q-11			2012			2011			YTD-12 vs. YTD-11
	(in millions of U.S. dollars, except for percentages)
Net premiums written	$	4,130		$	3,953			4	%	$	7,702		$	7,399			4	%
Net premiums earned		3,783			3,757			1	%		7,164			7,066			1	%
Net investment income		537			569			(6	)%		1,081			1,113			(3	)%
Net realized gains (losses)		(394	)		(73	)		NM			(134	)		(118	)		(14	)%
Total revenues		3,926			4,253			(8	)%		8,111			8,061			1	%
Losses and loss expenses		2,119			2,226			(5	)%		3,923			4,489			(13	)%
Policy benefits		102			108			(6	)%		249			199			25	%
Policy acquisition costs		619			612			1	%		1,201			1,171			3	%
Administrative expenses		514			518			(1	)%		1,024			1,017			1	%
Interest expense		62			62			0	%		124			125			(1	)%
Other (income) expense		34			12			183	%		31			(1	)		NM
Total expenses		3,450			3,538			(2	)%		6,552			7,000			(6	)%
Income before income tax		476			715			(33	)%		1,559			1,061			47	%
Income tax expense		148			121			22	%		258			217			19	%
Net income	$	328		$	594			(45	)%	$	1,301		$	844			54	%
NM – not meaningful

The following table summarizes, by major product line, the approximate effect of changes in foreign currency exchange rates on the growth of net premiums written and earned for the periods indicated:

	Three Months Ended												Six Months Ended
	June 30, 2012												June 30, 2012
	P&C			Life			A&H			Total			P&C			Life			A&H			Total
Net premiums written:
Growth in original currency		7.8	%		2.1	%		3.5	%		6.5	%		5.6	%		15.1	%		2.7	%		5.5	%
Foreign exchange effect		(1.5	)%		(2.9	)%		(3.4	)%		(2.0	)%		(1.1	)%		(2.4	)%		(2.1	)%		(1.4	)%
Growth as reported in U.S. dollars		6.3	%		(0.8	)%		0.1	%		4.5	%		4.5	%		12.7	%		0.6	%		4.1	%
Net premiums earned:
Growth in original currency		3.2	%		0.0	%		2.7	%		2.9	%		2.1	%		13.4	%		2.7	%		2.9	%
Foreign exchange effect		(1.8	)%		(2.2	)%		(3.5	)%		(2.2	)%		(1.6	)%		(2.2	)%		(2.2	)%		(1.5	)%
Growth as reported in U.S. dollars		1.4	%		(2.2	)%		(0.8	)%		0.7	%		0.5	%		11.2	%		0.5	%		1.4	%

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Net premiums written, which reflect the premiums we retain after purchasing reinsurance protection, increased four percent in both the three and six months ended June 30, 2012. In our Insurance – North American segment, retail premiums grew primarily from new business opportunities, strong renewal retention, increases in rates and exposure basis. This growth was partially offset by our continued planned reductions in our U.S. general market risk transfer workers’ compensation business. The North American wholesale and specialty division grew from increases in property, casualty and inland marine lines, partially offset by lower agriculture premiums driven by reduced crop hail production. Our Insurance – Overseas General segment reported an increase in international retail premiums due to continued growth in our P&C and A&H lines of business. This growth was partially offset by decreases in certain retail A&H production in Combined’s United Kingdom (U.K.) and Ireland regions. Combined Insurance premiums continue to be hampered by the economic recession in its target markets. Additionally, Combined’s business in the U.K. and Ireland has been impacted by changes in the regulatory environment as regulators in these two countries have adopted a new stance regarding sales practices and customer service. This has resulted in a need for us to re-evaluate our sales model and to re-engineer our processes. We have put these two operations on a sales moratorium while continuing to renew and service in-force policyholders. We have decided to cease sales in our small Spanish branch indefinitely. We have received regulatory approval to integrate all European operations of Combined into our ACE European Group Limited subsidiary, incorporated in the U.K. We expect to seek regulatory approval to re-commence sales in the U.K. and Ireland in 2012. For the six months ended June 30, 2012, our Insurance – Overseas General segment also benefited from the favorable impact of reinstatement premiums expensed in the prior year related to first quarter 2011 catastrophe activity. Our Global Reinsurance segment reported an increase in net premiums written for the three months ended June 30, 2012 primarily due to improving pricing conditions in our U.S. property catastrophe business. For the six months ended June 30, 2012, this improvement was more than offset by competitive market conditions experienced in the first quarter as well as from a non-recurring loss portfolio transfer treaty written in the prior year. Our Life segment reported a slight decrease in net premiums written for the three months ended June 30, 2012 primarily driven by the run-off of our Life reinsurance variable annuity business and from lower A&H production. This decrease was offset by growth in our Life insurance business primarily in our Asian markets. For the six months ended June 30, 2012, our Life insurance business also benefited from prior year acquisitions.

Net premiums earned reflect the portion of net premiums written that were recorded as revenues for the period as the exposure periods expire. Net premiums earned increased one percent in both the three and six months ended June 30, 2012. Our Insurance-North American segment reported an increase in net premiums earned for the three months ended June 30, 2012 from growth in commercial and personal lines in our retail division and growth in commercial and agriculture lines in our wholesale and specialty division. This growth was partially offset by our continued planned reduction of our U.S. general market risk transfer workers’ compensation business and by lower premiums associated with a couple of large structured prospective risk management programs. Results for the six months ended June 30, 2012 were relatively flat. In our Insurance – Overseas General segment, results for the three months ended June 30, 2012 grew on a constant-dollar basis driven by continued strong written premium production in Latin American and Asia, though results reported in U.S. dollars were relatively flat. Results for the six months ended June 30, 2012 increased on both a constant-dollar and reported U.S. dollar basis from growth in retail P&C and A&H lines and from the favorable impact of reinstatement premiums expensed in the prior year. Our Global Reinsurance segment reported a decline in net premiums earned due to consecutive lower net premiums written in prior quarters and to the effect of a non-recurring loss portfolio transfer treaty written in the prior year. Our Life segment reported decreased net premiums earned for the three months ended June 30, 2012 due to the run off of our Life reinsurance variable annuity business and from lower A&H premiums due to the effects of the economy resulting in lower new business. Net premiums earned increased for the six months ended June 30, 2012 primarily from business generated from prior year acquisitions.

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The following table provides a consolidated breakdown of net premiums earned by line of business for the periods indicated:

	Three Months Ended						% Change			Six Months Ended						% Change
	June 30						Q-12 vs.			June 30						YTD-12 vs.
	2012			2011			Q-11			2012			2011			YTD-11
	(in millions of U.S. dollars, except for percentages)
Property and all other	$	1,013		$	940			8	%	$	1,983		$	1,775			12	%
Agriculture		384			356			8	%		443			434			2	%
Casualty		1,289			1,352			(5	)%		2,559			2,732			(6	)%
Subtotal		2,686			2,648			1	%		4,985			4,941			1	%
Personal accident (A&H)		871			878			(1	)%		1,723			1,715			0	%
Life		226			231			(2	)%		456			410			11	%
Net premiums earned	$	3,783		$	3,757			1	%	$	7,164		$	7,066			1	%
	2012 % of  total			2011 % of  total						2012 % of  total			2011 % of  total
Property and all other		27	%		25	%					28	%		25	%
Agriculture		10	%		9	%					6	%		6	%
Casualty		34	%		36	%					36	%		39	%
Subtotal		71	%		70	%					70	%		70	%
Personal accident (A&H)		23	%		23	%					24	%		24	%
Life		6	%		7	%					6	%		6	%
Net premiums earned		100	%		100	%					100	%		100	%

In evaluating our segments excluding Life, we use the combined ratio, the loss and loss expense ratio, the policy acquisition cost ratio, and the administrative expense ratio. We calculate these ratios by dividing the respective expense amounts by net premiums earned. We do not calculate these ratios for the Life segment as we do not use these measures to monitor or manage that segment. The combined ratio is determined by adding the loss and loss expense ratio, the policy acquisition cost ratio, and the administrative expense ratio. A combined ratio under 100 percent indicates underwriting income and a combined ratio exceeding 100 percent indicates underwriting loss.

The following table shows our consolidated loss and loss expense ratio, policy acquisition cost ratio, administrative expense ratio, and combined ratio for the periods indicated:

	Three Months Ended June  30						Six Months Ended June  30
	2012			2011			2012			2011
Loss and loss expense ratio		59.5	%		63.1	%		58.3	%		68.1	%
Policy acquisition cost ratio		16.1	%		16.1	%		16.7	%		16.3	%
Administrative expense ratio		13.1	%		13.5	%		13.9	%		14.1	%
Combined ratio		88.7	%		92.7	%		88.9	%		98.5	%

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The following table shows the impact of catastrophe losses and related reinstatement premiums and the impact of prior period development on our consolidated loss and loss expense ratio for the periods indicated:

	Three Months Ended						Six Months Ended
	June 30						June 30
	2012			2011			2012			2011
Loss and loss expense ratio, as reported		59.5	%		63.1	%		58.3	%		68.1	%
Catastrophe losses and related reinstatement premiums		(1.7	)%		(4.2	)%		(1.2	)%		(9.7	)%
Prior period development		3.4	%		4.5	%		3.3	%		3.9	%
Loss and loss expense ratio, adjusted		61.2	%		63.4	%		60.4	%		62.3	%

Total net pre-tax catastrophe losses, excluding related reinstatement premiums, were $55 million and $74 million for the three and six months ended June 30, 2012, compared with $142 million and $557 million for the prior year periods, respectively. Catastrophe losses through June 30, 2012 were primarily related to severe weather related events in the U.S. Catastrophe losses through June 30, 2011 included earthquakes in Japan and New Zealand, storms in Australia, and severe weather-related events in the U.S.

Prior period development arises from changes to loss estimates recognized in the current year that relate to loss reserves first reported in previous calendar years and excludes the effect of losses from the development of earned premium from previous accident years. We experienced net favorable prior period development of $113 million and $206 million for the three and six months ended June 30, 2012, respectively. This compares with net favorable prior period development of $146 million and $239 million in the prior year periods, respectively. Refer to “Prior Period Development” for additional information.

Net investment income for the three and six months ended June 30, 2012 was $537 million and $1.1 billion, compared with $569 million and $1.1 billion for the prior year periods, respectively. Refer to “Net Investment Income” and “Investments” for additional information.

Policy acquisition costs consist of commissions, premium taxes, and certain underwriting costs related directly to the successful acquisition of a new or renewal insurance contract. Administrative expenses include all other operating costs. Our policy acquisition cost ratio was flat for the three months ended June 30, 2012. Our policy acquisition cost ratio increased for the six months ended June 30, 2012 primarily from growth in personal lines and A&H business that carry a higher acquisition cost ratio as well as increased spending to support future growth opportunities in our Insurance – North America segment. This increase was partially offset by lower costs in our Global Reinsurance segment. Our administrative expense ratio decreased in the three and six months ended June 30, 2012 primarily driven by lower regulatory costs in the Insurance – Overseas General segment.

Our effective income tax rate, which we calculate as income tax expense divided by income before income tax, is dependent upon the mix of earnings from different jurisdictions with various tax rates. A change in the geographic mix of earnings would change the effective income tax rate. Our effective income tax rate was 31 percent and 17 percent for the three and six months ended June 30, 2012, respectively, compared with 17 percent and 20 percent for the prior year periods, respectively. The increase in our effective income tax rate for the three months ended June 30, 2012 was primarily due to net realized losses on derivatives generated in lower tax-paying jurisdictions during the current year period. The decrease in our effective income tax rate for the six months ended June 30, 2012 was primarily due to a smaller percentage of net realized losses on derivatives generated in lower tax-paying jurisdictions and a higher percentage of earnings being generated in lower tax-paying jurisdictions during the current year.

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Prior Period Development

The favorable prior period development of $113 million and $206 million during the three and six months ended June 30, 2012, respectively, was the net result of several underlying favorable and adverse movements. In the sections following the tables below, significant prior period movements within each reporting segment are discussed in more detail. Long-tail lines include lines such as workers’ compensation, general liability, and professional liability; while short-tail lines include lines such as most property lines, energy, personal accident, aviation, and marine (including associated liability-related exposures).

The following table summarizes (favorable) and adverse prior period development by segment:

Three Months Ended June 30	Long-tail			Short-tail			Total			% of net unpaid reserves*
	(in millions of U.S. dollars, except for percentages)
2012
Insurance – North American	$	(24	)	$	(35	)	$	(59	)		0.4	%
Insurance – Overseas General		—			(39	)		(39	)		0.5	%
Global Reinsurance		(15	)		—			(15	)		0.7	%
Total	$	(39	)	$	(74	)	$	(113	)		0.4	%
2011
Insurance – North American	$	(46	)	$	(25	)	$	(71	)		0.4	%
Insurance – Overseas General		—			(40	)		(40	)		0.5	%
Global Reinsurance		(35	)		—			(35	)		1.4	%
Total	$	(81	)	$	(65	)	$	(146	)		0.6	%

* Calculated based on the segment/total beginning of period net unpaid loss and loss expenses reserves.

Six Months Ended June 30	Long-tail			Short-tail			Total			% of net unpaid reserves*
	(in millions of U.S. dollars, except for percentages)
2012
Insurance – North American	$	(74	)	$	(45	)	$	(119	)		0.7	%
Insurance – Overseas General		—			(61	)		(61	)		0.8	%
Global Reinsurance		(16	)		(10	)		(26	)		1.1	%
Total	$	(90	)	$	(116	)	$	(206	)		0.8	%
2011
Insurance – North American	$	(38	)	$	(68	)	$	(106	)		0.7	%
Insurance – Overseas General		(1	)		(83	)		(84	)		1.2	%
Global Reinsurance		(43	)		(6	)		(49	)		2.2	%
Total	$	(82	)	$	(157	)	$	(239	)		0.9	%

* Calculated based on the segment/total beginning of period net unpaid loss and loss expenses reserves.

Insurance – North American

Insurance – North American’s operations experienced net favorable prior period development of $59 million in the three months ended June 30, 2012, which was the net result of several underlying favorable and adverse movements driven by the following principal changes:

• Net favorable development of $24 million on long-tail business, including:

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• Net favorable development of $38 million on our national accounts portfolios which consist of commercial auto liability, general liability, and workers’ compensation lines of business. This favorable development was the net impact of favorable and adverse movements, including:

• Favorable development of $41 million on the 2011 accident year related to our annual assessment of multi-claimant events including industrial accidents. Consistent with prior years, we reviewed these potential exposures after the close of the accident year to allow for late reporting or identification of significant losses.

• Favorable development of $34 million in the 2007 accident year, primarily in workers’ compensation. Loss activity through March 31, 2012 was lower than expected and was included in the review completed during the three months ended June 30, 2012, in which we have increased the weighting on experienced-based methods. The favorable development was the combined effect of this lower than expected incurred loss activity and our change in method weights.

• Adverse development of $37 million affecting the 2006 and prior accident years largely in workers’ compensation. The causes for this adverse movement were numerous and included large increases in a small number of claims, higher than expected loss activity in a few accident years, changes in our weighting of experience-based methods, and a refinement of our treatment of ceded reinsurance recoveries on a few select treaties due to information which became known since our prior review.

• Adverse development of $14 million in other long-tail business across a number of lines and accident years, none of which was significant individually or in the aggregate.

• Favorable development of $35 million on short-tail business, including:

• Favorable development of $23 million in our general aviation product lines (both hull and liability) affecting the 2009 and prior accident years. Actual paid and incurred loss activity continues to be lower than expected based on long term historical averages leading to a reduction in our estimate of ultimate losses; and

• Favorable development of $12 million in other short-tail business across a number of lines and accident years, none of which was significant individually or in the aggregate.

Insurance – North American experienced net favorable prior period development of $71 million in the three months ended June 30, 2011, which was the net result of several underlying favorable and adverse movements, driven by the following principal changes:

• Net favorable development of $46 million on long-tail business, including:

• Favorable development of $56 million on our national accounts portfolios which consist of commercial auto liability, general liability, and workers’ compensation lines of business. The favorable development was the net impact of favorable and adverse movements, including:

• Favorable development of $40 million on the 2010 accident year relating to our annual assessment of multi-claimant events including industrial accidents. Consistent with prior years, we reviewed these potential exposures after the close of the accident year to allow for late reporting or identification of significant losses.

• Favorable development of $41 million on the 2003 through 2006 accident years, primarily in workers’ compensation. Case activity in these portfolios, especially in our excess and high deductible products, has continued to be lower than expected. As these accident years matured, greater weight has been given to experience-based methods. The combination of this lower than expected activity and shift in weighting methodology have produced this favorable development.

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• Adverse development of $25 million on the 2002 and prior accident years, primarily in workers’ compensation. This adverse activity is due in part to data refinements and analysis relating to these accident periods.

• Adverse development of $10 million in other long-tail business across a number of lines and accident years, none of which was significant individually or in the aggregate.

• Favorable development of $25 million on short-tail business, including:

• Favorable development of $16 million in our general aviation product lines (both hull and liability) primarily for the 2008 accident year. Actual paid and incurred loss activity continues to be lower than expected based on long term historical averages leading to a reduction in our estimate of ultimate losses.

• Favorable development of $9 million in other short-tail business across a number of lines and accident years, none of which was significant individually or in the aggregate.

Insurance – Overseas General

Insurance – Overseas General experienced net favorable prior period development of $39 million in the three months ended June 30, 2012, which was the net result of several underlying favorable and adverse movements, driven by the following principal changes:

• There was no prior period development on long-tail business in the three months ended June 30, 2012.

• Net favorable development of $39 million on short-tail business, including:

• Favorable development of $20 million on wholesale marine business. Favorable loss emergence across much of the short-tail first party marine business in accident years 2010 and 2011 led to lower experienced-based indications. In addition, case reductions on specific claims in older accident years drove reserve releases.

• Net favorable development of $15 million on short-tail property and technical lines in Continental Europe, excluding catastrophes. Favorable loss emergence in the boiler and machinery (B&M) business, driven by better than expected loss activity on large accounts, primarily in accident years 2010 and 2011 drove most of the reserve release. Adverse movement in fire business in accident year 2011 driven by unfavorable loss emergence across the region mitigated the impact of the favorable B&M reserve release.

• Favorable development of $4 million in other short-tail business across a number of lines and accident years, none of which was significant individually or in the aggregate.

Insurance – Overseas General experienced net favorable prior period development of $40 million in the three months ended June 30, 2011, which was the net result of several underlying favorable and adverse movements, driven by the following principal changes:

• There was no prior period development on long-tail business in the three months ended June 30, 2011.

• Net favorable development of $40 million on short-tail business, including:

• Favorable development of $61 million in accident years 2009 and prior for property, technical, and marine lines. Given the short-tail nature of these lines and the additional credibility and maturity provided by the experience in the three months ended June 30, 2011, the observed favorable development led to lower experience-based indications that were recognized in the quarter.

• Adverse development of $31 million in accident year 2010 for property and technical lines. This indication was driven predominantly by individual large case reserve increases and higher claim estimates for the December 2010 Australian floods.

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• Favorable development of $10 million in other short-tail business across a number of lines and accident years, none of which was significant individually or in the aggregate.

Global Reinsurance

Global Reinsurance experienced net favorable prior period development of $15 million in the three months ended June 30, 2012, which was the net result of several underlying favorable and adverse movements, driven by the following principal changes:

• Net favorable development of $15 million on long-tail business, including:

• Favorable development of $36 million in the casualty line of business principally in treaty years 2007 and prior. Following the reserve studies completed in the three months ended June 30, 2012, we reflected a greater weighting towards experience-based methods. Since experience has tended to be generally favorable compared with assumptions, the changes resulted in the favorable development referenced above.

• Net adverse development of $18 million in the professional liability/D&O line of business. There was $26 million of adverse development related to treaty years 2006 to 2010 where the loss experience has been unfavorable recently due to higher than expected reported claims and greater reliance on experience-based methods. There was also favorable development of $8 million in treaty years 2004 and prior, where experience has tended to be generally more favorable.

• Adverse development of $3 million in other long-tail business across a number of treaty years, none of which was significant individually or in the aggregate.

• There was no prior period development on short-tail business in the three months ended June 30, 2012.

Global Reinsurance experienced net favorable prior period development of $35 million in the three months ended June 30, 2011, which was the net result of several underlying favorable and adverse movements, driven by the following principal changes:

• Net favorable development of $35 million on long-tail business, including:

• Favorable development of $27 million in the casualty line of business principally in treaty years 2002 to 2007. Following the reserve studies completed in the three months ended June 30, 2011, we reflected a greater weighting towards experience-based methods. Since experience has tended to be generally favorable compared with assumptions, the changes resulted in the favorable development referenced above.

• Favorable development of $13 million in the D&O line of business. $6 million relates to treaty years 2002 to 2004 where the loss experience has been generally more favorable than previously anticipated, while the remainder relates to treaty years 2006 to 2008, where the potential subprime exposure has not materialized into reported losses to the degree anticipated.

• Adverse development of $5 million in other long-tail business across a number of treaty years, none of which was significant individually or in the aggregate.

• There was no prior period development on short-tail business in the three months ended June 30, 2011.

Segment Operating Results – Three and Six Months Ended June 30, 2012 and 2011

The discussions that follow include tables that show our segment operating results for the three and six months ended June 30, 2012 and 2011.

We operate through the following business segments: Insurance – North American, Insurance – Overseas General, Global Reinsurance, and Life. For additional information on each of our segments refer to “Segment Information” in our 2011 Form 10-K.

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Insurance – North American

The Insurance – North American segment comprises our operations in the U.S., Canada, and Bermuda. This segment includes our retail divisions ACE USA (including ACE Canada), ACE Commercial Risk Services, and ACE Private Risk Services; our wholesale and specialty divisions ACE Westchester, ACE Agriculture and ACE Bermuda; and various run-off operations, including Brandywine Holdings Corporation (Brandywine).

	Three Months Ended						% Change			Six Months Ended						% Change
	June 30						Q-12 vs.			June 30						YTD-12 vs.
	2012			2011			Q-11			2012			2011			YTD-11
	(in millions of U.S. dollars, except for percentages)
Net premiums written	$	1,860		$	1,735			7	%	$	3,153		$	3,020			4	%
Net premiums earned		1,652			1,604			3	%		2,939			2,950			0	%
Losses and loss expenses		1,163			1,233			(6	)%		2,012			2,227			(10	)%
Policy acquisition costs		157			145			8	%		284			281			1	%
Administrative expenses		153			147			4	%		300			295			2	%
Underwriting income		179			79			127	%		343			147			133	%
Net investment income		271			300			(10	)%		545			595			(8	)%
Net realized gains (losses)		18			21			(14	)%		17			10			70	%
Interest expense		3			3			0	%		6			7			(14	)%
Other (income) expense		10			3			233	%		9			(13	)		NM
Income tax expense		107			95			13	%		198			184			8	%
Net income	$	348		$	299			16	%	$	692		$	574			21	%
Loss and loss expense ratio		70.4	%		76.9	%					68.5	%		75.5	%
Policy acquisition cost ratio		9.5	%		9.0	%					9.7	%		9.5	%
Administrative expense ratio		9.3	%		9.2	%					10.1	%		10.0	%
Combined ratio		89.2	%		95.1	%					88.3	%		95.0	%

Insurance – North American reported an increase in net premiums written of seven percent and four percent for the three and six months ended June 30, 2012, respectively. Our retail business grew as a result of several factors including rate increases, strong renewal retention, increased new business opportunities and higher exposure base. These factors contributed to growth in most of our businesses, primarily in property, inland marine, professional, risk management, specialty casualty, and A&H lines of business. In addition, we continued to generate higher personal lines production from homeowner and automobile business offered through ACE Private Risk Services. Growth in our retail division was partially offset by lower premiums in certain casualty and program business from adherence to our underwriting standards; in particular, we continued our planned reduction in our U.S. general market workers’ compensation business. Our wholesale and specialty division reported growth in property, casualty and inland marine lines. This growth was partially offset by reduced agriculture premiums from lower crop hail production. The overall decrease in agriculture premiums was partially offset by increased premiums from the November 2011 acquisition of Penn Millers Insurance Company (Penn Millers).

Insurance – North American reported a three percent increase in net premiums earned for the three months ended June 30, 2012. Net premiums earned for the six months ended June 30, 2012 was relatively flat. Net premiums earned increased for the three months ended June 30, 2012 due to growth in our retail division from higher premiums earned in our property, risk management, specialty casualty and A&H lines of business, along with growth in our personal lines business from continued expansion of the ACE Private Risk Services product offerings. These increases were partially offset by lower premiums associated with a couple of large structured prospective risk management programs and the continued planned reduction in our U.S. general market workers’ compensation business. Our wholesale and specialty division also generated higher premiums earned primarily in our agriculture business from the acquisition of Penn Millers in November 2011, as well as from higher premiums in wholesale property and inland marine lines. For the six months ended June 30, 2012, the growth in premiums from these retail and wholesale and specialty businesses was more than offset by the decline in premiums from our U.S. general market workers’ compensation business and a couple of large structured prospective risk management programs.

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The following two tables provide a line of business breakdown of Insurance – North American’s net premiums earned for the periods indicated:

	Three Months Ended						% Change			Six Months Ended						% Change
	June 30						Q-12 vs.			June 30						YTD-12 vs.
	2012			2011			Q-11			2012			2011			YTD-11
	(in millions of U.S. dollars, except for percentages)
Property and all other	$	347		$	292			19	%	$	669		$	584			15	%
Agriculture		384			356			8	%		443			434			2	%
Casualty		828			865			(4	)%		1,645			1,755			(6	)%
Personal accident (A&H)		93			91			2	%		182			177			3	%
Net premiums earned	$	1,652		$	1,604			3	%	$	2,939		$	2,950			(0	)%
	2012 % of Total			2011 % of Total						2012 % of Total			2011 % of Total
Property and all other		21	%		18	%					23	%		20	%
Agriculture		23	%		22	%					15	%		15	%
Casualty		50	%		54	%					56	%		59	%
Personal accident (A&H)		6	%		6	%					6	%		6	%
Net premiums earned		100	%		100	%					100	%		100	%

The following table shows the impact of catastrophe losses and related reinstatement premiums, and prior period development on our loss and loss expense ratio for the periods indicated:

	Three Months Ended						Six Months Ended
	June 30						June 30
	2012			2011			2012			2011
Loss and loss expense ratio, as reported		70.4	%		76.9	%		68.5	%		75.5	%
Catastrophe losses and related reinstatement premiums		(2.9	)%		(6.9	)%		(2.2	)%		(6.6	)%
Prior period development		3.6	%		4.4	%		4.0	%		3.6	%
Loss and loss expense ratio, adjusted		71.1	%		74.4	%		70.3	%		72.5	%

Insurance – North American’s net catastrophe losses, excluding reinstatement premiums, were $49 million and $65 million for the three and six months ended June 30, 2012, compared with $110 million and $186 million for the prior year periods, respectively. Catastrophe losses through June 30, 2012 were primarily related to severe weather-related events in the U.S. Catastrophe losses through June 30, 2011 were primarily related to severe weather-related events in the U.S., including flooding in the Midwest, and the earthquake in Japan. Insurance – North American experienced net favorable prior period development of $59 million and $119 million for the three and six months ended June 30, 2012, compared with net favorable prior period development of $71 million and $106 million in the prior year periods, respectively. Refer to “Prior Period Development” for additional information. The adjusted loss and loss expense ratio decreased for the three and six months ended June 30, 2012 primarily due to a reduction in the current accident year loss ratio for several of our property, casualty and professional lines where execution of detailed portfolio management plans has resulted in improved loss ratio performance.

Insurance – North American’s policy acquisition cost ratio increased for the three and six months ended June 30, 2012 due to growth in certain businesses, including personal lines and A&H that carry a higher acquisition rate than our other businesses, and increased spending for strategic initiatives to support future growth opportunities.

Insurance – North American’s administrative expense ratio increased slightly for the three and six months ended June 30, 2012 primarily due to increased spending required to support business growth primarily in our retail businesses, including ACE Private Risk Services, and growth in spending due to the Penn Millers acquisition.

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Insurance – Overseas General

The Insurance – Overseas General segment comprises ACE International, our retail business serving territories outside the U.S., Bermuda, and Canada; the international A&H and life business of Combined Insurance; and the wholesale insurance business of ACE Global Markets, our London-based excess and surplus lines business that includes Lloyd’s Syndicate 2488. The reinsurance operation of ACE Global Markets is included in the Global Reinsurance segment.

	Three Months Ended						% Change			Six Months Ended						% Change
	June 30						Q-12 vs. Q-11			June 30						YTD-12  vs. YTD-11
	2012			2011						2012			2011
	(in millions of U.S. dollars, except for percentages)
Net premiums written	$	1,475		$	1,443			2	%	$	3,003		$	2,853			5	%
Net premiums earned		1,420			1,415			0	%		2,811			2,693			4	%
Losses and loss expenses		703			721			(2	)%		1,408			1,573			(10	)%
Policy acquisition costs		332			335			(1	)%		667			636			5	%
Administrative expenses		233			239			(3	)%		462			462			0	%
Underwriting income		152			120			27	%		274			22			NM
Net investment income		128			137			(7	)%		259			268			(3	)%
Net realized gains (losses)		26			(10	)		NM			46			(19	)		NM
Interest expense		1			1			0	%		2			2			0	%
Other (income) expense		6			(5	)		NM			6			(7	)		NM
Income tax expense		51			39			31	%		89			56			59	%
Net income	$	248		$	212			17	%	$	482		$	220			119	%
Loss and loss expense ratio		49.6	%		51.0	%					50.1	%		58.4	%
Policy acquisition cost ratio		23.4	%		23.6	%					23.7	%		23.6	%
Administrative expense ratio		16.3	%		17.0	%					16.5	%		17.2	%
Combined ratio		89.3	%		91.6	%					90.3	%		99.2	%

Insurance – Overseas General conducts business internationally and in most major foreign currencies.

The following table summarizes by major product line the approximate effect of changes in foreign currency exchange rates on the growth of net premiums written and earned for the periods indicated:

	Three Months Ended									Six Months Ended
	June 30, 2012									June 30, 2012
	P&C			A&H			Total			P&C			A&H			Total
Net premiums written:
Growth in original currency		7.5	%		5.4	%		6.7	%		10.6	%		4.4	%		8.3	%
Foreign exchange effect		(4.4	)%		(4.9	)%		(4.5	)%		(3.0	)%		(3.1	)%		(3.1	)%
Growth as reported in U.S. dollars		3.1	%		0.5	%		2.2	%		7.6	%		1.3	%		5.2	%
Net premiums earned:
Growth in original currency		6.2	%		4.3	%		5.5	%		10.0	%		4.4	%		7.9	%
Foreign exchange effect		(5.1	)%		(5.3	)%		(5.2	)%		(3.5	)%		(3.4	)%		(3.5	)%
Growth as reported in U.S. dollars		1.1	%		(1.0	)%		0.3	%		6.5	%		1.0	%		4.4	%

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Insurance – Overseas General’s net premiums written increased two percent and five percent for the three and six months ended June 30, 2012, respectively. Retail P&C net premiums written increased due to new business opportunities and rate increases in Latin America, Asia, and Europe. In addition, A&H business continues to experience strong growth primarily in Asia and Latin America. For the six months ended June 30, 2012, net premiums written also benefited from favorable impact of reinstatement premiums expensed related to the first quarter 2011 catastrophe activity. Growth in the three and six months ended June 30, 2012 was partially offset by continued decreases in certain retail A&H business due to suspension of Combined sales in the U.K. and Ireland.

Insurance – Overseas General’s net premiums earned grew six percent in original currencies for the three months ended June 30, 2012, though growth in reported U.S. dollars was relatively flat. The constant-dollar growth was driven by continued strong written premium performance in Latin America and Asia Pacific. Net premiums earned grew eight percent in original currencies and four percent in reported U.S. dollars for the six months ended June 30, 2012, driven by growth noted in Latin America and Asia Pacific as well as reinstatement premiums expensed in the prior year period.

The following tables provide a line of business breakdown of Insurance – Overseas General’s net premiums earned for the periods indicated:

	Three Months Ended						% Change			Six Months Ended						% Change
	June 30						Q-12 vs.			June 30						YTD-12 vs.
	2012			2011			Q-11			2012			2011			YTD-11
	(in millions of U.S. dollars, except for percentages)
Property and all other	$	552		$	533			4	%	$	1,090		$	964			13	%
Casualty		338			348			(3	)%		671			690			(3	)%
Personal accident (A&H)		530			534			(1	)%		1,050			1,039			1	%
Net premiums earned	$	1,420		$	1,415			0	%	$	2,811		$	2,693			4	%
	Three Months Ended June 30									Six Months Ended June 30
	2012 % of Total			2011 % of Total						2012 % of Total			2011 % of Total
Property and all other		39	%		38	%					39	%		36	%
Casualty		24	%		24	%					24	%		26	%
Personal accident (A&H)		37	%		38	%					37	%		38	%
Net premiums earned		100	%		100	%					100	%		100	%

The following table shows the impact of catastrophe losses and related reinstatement premiums and prior period development on our loss and loss expense ratio for the periods indicated:

	Three Months Ended						Six Months Ended
	June 30						June 30
	2012			2011			2012			2011
Loss and loss expense ratio, as reported		49.6	%		51.0	%		50.1	%		58.4	%
Catastrophe losses and related reinstatement premiums		(0.4	)%		(0.6	)%		(0.2	)%		(8.4	)%
Prior period development		2.7	%		2.8	%		2.1	%		3.1	%
Loss and loss expense ratio, adjusted		51.9	%		53.2	%		52.0	%		53.1	%

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Net catastrophe losses, excluding reinstatement premiums, were $5 million and $7 million for the three and six months ended June 30, 2012, compared with $10 million and $197 million in the prior year, respectively. Catastrophe losses through June 30, 2012 were primarily as a result of flooding in the U.K. Catastrophe losses through June 30, 2011 included earthquakes in New Zealand and Japan and Australian storm events. Insurance – Overseas General experienced net favorable prior period development of $39 million and $61 million for the three and six months ended June 30, 2012 compared with $40 million and $84 million in the prior year periods, respectively. Refer to “Prior Period Development” for additional information. The adjusted loss and loss expense ratio decreased for the three and six months ended June 30, 2012 due to the reduction in the current accident year loss ratio across several lines of business in several regions.

Insurance – Overseas General’s policy acquisition cost ratio decreased slightly for the three months ended June 30, 2012. Insurance – Overseas General’s policy acquisition cost ratio remained relatively flat for the six months ended June 30, 2012.

Insurance – Overseas General’s administrative expense ratio decreased for the three and six months ended June 30, 2012 due to lower regulatory costs for Combined in the U.K. and Ireland.

Global Reinsurance

The Global Reinsurance segment represents our reinsurance operations comprising ACE Tempest Re Bermuda, ACE Tempest Re USA, ACE Tempest Re International, and ACE Tempest Re Canada. Global Reinsurance markets its reinsurance products worldwide under the ACE Tempest Re brand name and provides a broad range of coverage to a diverse array of primary P&C companies.

	Three Months Ended						% Change			Six Months Ended						% Change
	June 30						Q-12 vs.			June 30						YTD-12 vs.
	2012			2011			Q-11			2012			2011			YTD-11
	(in millions of U.S. dollars, except for percentages)
Net premiums written	$	309		$	282			9	%	$	572		$	597			(4	)%
Net premiums earned		237			254			(7	)%		467			514			(9	)%
Losses and loss expenses		102			112			(9	)%		204			391			(48	)%
Policy acquisition costs		42			47			(11	)%		85			93			(9	)%
Administrative expenses		13			14			(7	)%		25			26			(4	)%
Underwriting income		80			81			(1	)%		153			4			NM
Net investment income		70			71			(1	)%		141			143			(1	)%
Net realized gains (losses)		(17	)		(14	)		21	%		(4	)		(27	)		(85	)%
Interest expense		1			1			0	%		2			1			100	%
Other (income) expense		3			1			200	%		(2	)		(5	)		(60	)%
Income tax expense		—			8			NM			6			18			(67	)%
Net income	$	129		$	128			1	%	$	284		$	106			168	%
Loss and loss expense ratio		42.5	%		44.1	%					43.5	%		76.1	%
Policy acquisition cost ratio		17.8	%		18.5	%					18.3	%		18.1	%
Administrative expense ratio		5.8	%		5.3	%					5.3	%		4.9	%
Combined ratio		66.1	%		67.9	%					67.1	%		99.1	%

Global Reinsurance reported a nine percent increase and a four percent decrease in net premiums written for the three and six months ended June 30, 2012, respectively. The increase in the three months ended June 30, 2012 was primarily due to improving pricing conditions in our property catastrophe business. This improvement is more than offset in our six months ended June 30, 2012 results due to lower production in the three months ended March 31, 2012 from competitive market conditions, adherence to underwriting standards and a non-recurring loss portfolio transfer treaty written in the prior year.

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The following tables provide a line of business breakdown of Global Reinsurance’s net premiums earned for the periods indicated:

	Three Months Ended						% Change			Six Months Ended						% Change
	June 30						Q-12 vs.			June 30						YTD-12 vs.
	2012			2011			Q-11			2012			2011			YTD-11
	(in millions of U.S. dollars, except for percentages)
Property and all other	$	42		$	40			5	%	$	84		$	85			(1	)%
Casualty		123			139			(12	)%		243			287			(15	)%
Property catastrophe		72			75			(4	)%		140			142			(1	)%
Net premiums earned	$	237		$	254			(7	)%	$	467		$	514			(9	)%
	2012 % of Total			2011 % of Total						2012 % of Total			2011 % of Total
Property and all other		18	%		16	%					18	%		17	%
Casualty		52	%		54	%					52	%		56	%
Property catastrophe		30	%		30	%					30	%		27	%
Net premiums earned		100	%		100	%					100	%		100	%

Global Reinsurance reported a decrease in net premiums earned of seven percent and nine percent for the three and six months ended June 30, 2012, respectively, primarily due to consecutive annual net decreases in production resulting from competitive market conditions, particularly in casualty and other long-tail lines.

The following table shows the impact of catastrophe losses and related reinstatement premiums and prior period development on our loss and loss expense ratio for the periods indicated:

	Three Months Ended						Six Months Ended
	June 30						June 30
	2012			2011			2012			2011
Loss and loss expense ratio, as reported		42.5	%		44.1	%		43.5	%		76.1	%
Catastrophe losses and related reinstatement premiums		(0.7	)%		(8.0	)%		(0.5	)%		(33.5	)%
Prior period development		6.5	%		14.0	%		5.5	%		9.6	%
Loss and loss expense ratio, adjusted		48.3	%		50.1	%		48.5	%		52.2	%

Global Reinsurance recorded net catastrophe losses, excluding reinstatement premiums, of $1 million and $2 million for the three and six months ended June 30, 2012, compared with net catastrophe losses of $22 million and $174 million in the prior year periods, respectively. The catastrophe losses in the prior year were primarily related to earthquakes in Japan and New Zealand, natural catastrophes in Australia and severe weather related events in the U.S. Global Reinsurance experienced net favorable prior period development of $15 million and $26 million for the three and six months ended June 30, 2012, respectively. This compares with net favorable prior period development of $35 million and $49 million in the prior year periods, respectively. Refer to “Prior Period Development” for additional information. The adjusted loss and loss expense ratio decreased through June 30, 2012 primarily due to an increase in lower loss ratio property catastrophe business and the period over period impact of a loss portfolio transfer treaty written in the prior year.

Global Reinsurance’s policy acquisition cost ratio decreased for the three months ended June 30, 2012 and remained relatively flat for the six months ended June 30, 2012. Results for the three months ended June 30, 2012 reflected net favorable adjustments on loss sensitive contract provisions.

Global Reinsurance’s administrative expense ratio increased for the three and six months ended June 30, 2012 as a result of the decline in net premiums earned.

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Life

The Life segment includes our international life operations (ACE Life), ACE Tempest Life Re (ACE Life Re) and the North American supplemental A&H and life business of Combined Insurance. We assess the performance of our life business based on life underwriting income, which includes net investment income and (gains) losses from fair value changes in separate account assets that do not qualify for separate account reporting under GAAP.

	Three Months Ended						% Change			Six Months Ended						% Change
	June 30						Q-12 vs.			June 30						YTD-12 vs.
	2012			2011			Q-11			2012			2011			YTD-11
	(in millions of U.S. dollars, except for percentages)
Net premiums written	$486			$	493			(1	)%	$	974		$	929			5	%
Net premiums earned		474			484			(2	)%		947			909			4	%
Losses and loss expenses		151			159			(5	)%		299			297			1	%
Policy benefits		102			108			(6	)%		249			199			25	%
(Gains) losses from fair value changes in separate account assets(1)		14			—			NM			(4	)		—			NM
Policy acquisition costs		88			85			4	%		164			161			2	%
Administrative expenses		78			78			0	%		156			152			3	%
Net investment income		62			60			3	%		123			106			16	%
Life underwriting income		103			114			(10	)%		206			206			0	%
Net realized gains (losses)		(421	)		(68	)		NM			(190	)		(81	)		135	%
Interest expense		3			3			0	%		6			6			0	%
Other (income) expense(1)		5			11			(55	)%		14			17			(18	)%
Income tax expense		19			14			36	%		30			28			7	%
Net income	$	(345)		$	18			NM		$	(34	)	$	74			NM

⁽¹⁾  (Gains) losses from fair value changes in separate account assets that do not qualify for separate account reporting under GAAP are reclassified from Other (income) expense for purposes of presenting Life underwriting income.

The following table provides a line of business breakdown of Life net premiums written for the periods indicated:

	Three Months Ended				% Change			Six Months Ended				% Change
	June 30				Q-12 vs.			June 30				YTD-12 vs.
	2012		2011		Q-11			2012		2011		YTD-11
	(in millions of U.S. dollars, except for percentages)
Life reinsurance	$	76	$	85		(11	)%	$	161	$	174		(7	)%
Life insurance		166		159		4	%		326		258		26	%
A&H		244		249		(2	)%		487		497		(2	)%
Life net premiums written	$	486	$	493		(1	)%	$	974	$	929		5	%

Life insurance net premiums written increased for the three months ended June 30, 2012 due to overall growth in the business, primarily driven by our Asian markets. Net premiums written increased in the six months ended June 30, 2012 primarily due to prior year acquisitions. Life reinsurance net premiums written decreased for the three and six months ended June 30, 2012 because no new life reinsurance business is currently being written. A&H net premiums written decreased for the three and six months ended June 30, 2012 due to the continuing effects on the economy resulting in lower new business and renewals.

Net realized gains (losses), which are excluded from life underwriting income, relate primarily to the change in the net fair value of reported GLB reinsurance liabilities and changes in the fair value of derivatives used to

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partially offset the risk in the variable annuity guarantee portfolio. During the three months ended June 30, 2012, realized losses were associated with an increased value of GLB liabilities primarily due to falling equity levels and interest rates partially offset by an increase in the value of the derivative instruments, which increase in value when the S&P 500 index decreases. During the six months ended June 30, 2012, realized losses were associated with an increased value of GLB liabilities primarily due to falling interest rates and the unfavorable impact of discounting future claims for two fewer quarters partially offset by a decreased value of GLB liabilities due to rising equity levels. In addition, for the six months ended June 30, 2012, we experienced a decrease in the value of the derivative instruments, which decrease in value when the S&P 500 index increases.

Other Income and Expense Items

	Three Months Ended June 30						Six Months Ended June 30
	2012			2011			2012			2011
	(in millions of U.S. dollars)
(Gains) losses from fair value changes in separate account assets	$	14		$	—		$	(4	)	$	—
Amortization of intangible assets		12			7			24			14
Equity in net (income) loss of partially-owned entities		5			(6	)		(14	)		(36	)
Federal excise and capital taxes		5			4			9			9
Acquisition-related costs		1			—			3			3
Other		(3	)		7			13			9
Other (income) expense	$	34		$	12		$	31		$	(1	)

Other (income) expense includes (gains) losses from fair value changes in separate account assets that do not qualify for separate account reporting under GAAP. The offsetting movement in the separate account liabilities is included in Policy benefits in the consolidated statements of operations. Equity in net (income) loss of partially-owned entities includes our share of net (income) loss related to investment funds, limited partnerships, partially-owned investment companies, and partially-owned insurance companies. Certain federal excise and capital taxes incurred as a result of capital management initiatives are included in Other (income) expense in the consolidated statements of operations. As these are considered capital transactions, they are excluded from underwriting results.

Net Investment Income

	Three Months Ended June 30						Six Months Ended June 30
	2012			2011			2012			2011
	(in millions of U.S. dollars)
Fixed maturities	$	527		$	557		$	1,071		$	1,091
Short-term investments		9			12			18			24
Equity securities		9			10			17			18
Other		20			14			28			31
Gross investment income		565			593			1,134			1,164
Investment expenses		(28	)		(24	)		(53	)		(51	)
Net investment income	$	537		$	569		$	1,081		$	1,113

Net investment income is influenced by a number of factors including the amounts and timing of inward and outward cash flows, the level of interest rates, and changes in overall asset allocation. Net investment income decreased six percent and three percent for the three and six months ended June 30, 2012, respectively. The decline in net investment income was primarily due to lower yields on new investments and the negative impact of foreign exchange, partially offset by positive operating cash flows and a higher overall average invested asset base.

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The investment portfolio’s average market yield on fixed maturities was 2.8 percent and 3.4 percent at June 30, 2012 and 2011, respectively. Average market yield on fixed maturities represents the weighted average yield to maturity of our fixed income portfolio based on the market prices of the holdings at that date.

The yield on short-term investments reflects the global nature of our insurance operations (1.5 percent—2.0 percent yield). For example, yields on short-term investments in Malaysia, Korea, and Ecuador range from 2.7 percent—3.9 percent.

The yield on our equity securities portfolio is high relative to the yield on the S&P 500 Index because we classify our strategic emerging debt portfolio, which is a mutual fund, as equity (3.7 percent – 4.5 percent yield). The strategic emerging debt portfolio represents approximately 60 percent of our equity securities portfolio.

Net Realized and Unrealized Gains (Losses)

We take a long-term view with our investment strategy, and our investment managers manage our investment portfolio to maximize total return within certain specific guidelines designed to minimize risk. The majority of our investment portfolio is available for sale and reported at fair value. Our held to maturity investment portfolio is reported at amortized cost.

The effect of market movements on our available for sale investment portfolio impacts net income (through net realized gains (losses)) when securities are sold or when we record an Other-than-temporary impairment (OTTI) charge in net income. For a discussion related to how we assess OTTI for all of our investments, including credit-related OTTI, and the related impact on net income, refer to Note 3 c) to the consolidated financial statements. Additionally, net income is impacted through the reporting of changes in the fair value of derivatives, including financial futures, options, swaps, and GLB reinsurance. Changes in unrealized appreciation and depreciation on available for sale securities, which result from the revaluation of securities held, are reported as a separate component of Accumulated other comprehensive income in shareholders’ equity in the consolidated balance sheets.

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The following tables present our pre-tax net realized and unrealized gains (losses) as well as a breakdown of our OTTI and other net realized gains (losses) on investments for the periods indicated:

	Three Months Ended June 30, 2012									Three Months Ended June 30, 2011
	Net Realized Gains (Losses)			Net Unrealized Gains (Losses)			Net Impact			Net Realized Gains (Losses)			Net Unrealized Gains (Losses)		Net Impact
	(in millions of U.S. dollars)
Fixed maturities	$	68		$	251		$	319		$	74		$	202	$	276
Fixed income derivatives		(49	)		—			(49	)		(48	)		—		(48	)
Total fixed maturities		19			251			270			26			202		228
Public equity		(5	)		(9	)		(14	)		4			6		10
Other		(3	)		(3	)		(6	)		(4	)		3		(1	)
Subtotal		11			239			250			26			211		237
Derivatives
Fair value adjustment on insurance derivatives		(467	)		—			(467	)		(70	)		—		(70	)
S&P put option and futures		70			—			70			3			—		3
Fair value adjustment on other derivatives		1			—			1			(2	)		—		(2	)
Subtotal derivatives		(396	)		—			(396	)		(69	)		—		(69	)
Foreign exchange losses		(9	)		—			(9	)		(30	)		—		(30	)
Total gains (losses)	$	(394	)	$	239		$	(155	)	$	(73	)	$	211	$	138

	Six Months Ended June 30, 2012								Six Months Ended June 30, 2011
	Net Realized Gains (Losses)			Net Unrealized Gains (Losses)		Net Impact			Net Realized Gains (Losses)			Net Unrealized Gains (Losses)		Net Impact
	(in millions of U.S. dollars)
Fixed maturities	$	102		$	494	$	596		$	123		$	163	$	286
Fixed income derivatives		(7	)		—		(7	)		(68	)		—		(68	)
Total fixed maturities		95			494		589			55			163		218
Public equity		(4	)		29		25			11			8		19
Other		(7	)		1		(6	)		(5	)		6		1
Subtotal		84			524		608			61			177		238
Derivatives
Fair value adjustment on insurance derivatives		(39	)		—		(39	)		1			—		1
S&P put option and futures		(161	)		—		(161	)		(68	)		—		(68	)
Fair value adjustment on other derivatives		(4	)		—		(4	)		(3	)		—		(3	)
Subtotal derivatives		(204	)		—		(204	)		(70	)		—		(70	)
Foreign exchange losses		(14	)		—		(14	)		(109	)		—		(109	)
Total gains (losses)	$	(134	)	$	524	$	390		$	(118	)	$	177	$	59

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	Three Months Ended June 30, 2012									Three Months Ended June 30, 2011
	OTTI			Other Net Realized Gains (Losses)			Net Realized Gains (Losses)			OTTI			Other Net Realized Gains (Losses)			Net Realized Gains (Losses)
	(in millions of U.S. dollars)
Fixed maturities	$	(1	)	$	69		$	68		$	(5	)	$	79		$	74
Public equity		(4	)		(1	)		(5	)		—			4			4
Other		(5	)		2			(3	)		(3	)		(1	)		(4	)
Total	$	(10	)	$	70		$	60		$	(8	)	$	82		$	74
	Six Months Ended June 30, 2012									Six Months Ended June 30, 2011
	OTTI			Other Net Realized Gains (Losses)			Net Realized Gains (Losses)			OTTI			Other Net Realized Gains (Losses)			Net Realized Gains (Losses)
	(in millions of U.S. dollars)
Fixed maturities	$	(8	)	$	110		$	102		$	(9	)	$	132		$	123
Public equity		(5	)		1			(4	)		—			11			11
Other		(7	)		—			(7	)		(3	)		(2	)		(5	)
Total	$	(20	)	$	111		$	91		$	(12	)	$	141		$	129

Our net realized gains (losses) for the three and six months ended June 30, 2012, included write-downs of $10 million and $20 million, respectively, as a result of an other-than-temporary decline in fair value of certain securities. This compares with write-downs of $8 million and $12 million for the three and six months ended June 30, 2011, respectively.

At June 30, 2012, our investment portfolios held by U.S. legal entities included approximately $75 million of gross unrealized losses on fixed income investments. Our tax planning strategy related to these losses is based on our view that we will hold these fixed income investments until they recover their cost. As such, we have recognized a deferred tax asset of approximately $26 million related to these fixed income investments. This strategy allows us to recognize the associated deferred tax asset related to these fixed income investments as we do not believe these losses will ever be realized.

We engage in a securities lending program which involves lending investments to other institutions for short periods of time. ACE invests the collateral received in securities of high credit quality and liquidity, with the objective of maintaining a stable principal balance. Certain investments purchased with the securities lending collateral declined in value resulting in an unrealized loss of $6 million at June 30, 2012. The unrealized loss is attributable to fluctuations in market values of the underlying performing debt instruments held by the respective mutual funds, rather than default of a debt issuer. It is our view that the decline in value is temporary.

Investments

Our investment portfolio is invested primarily in publicly traded, investment grade fixed income securities with an average credit quality of A/Aa as rated by the independent investment rating services Standard and Poor’s (S&P)/ Moody’s Investors Service (Moody’s). The portfolio is externally managed by independent, professional investment managers and is broadly diversified across geographies, sectors, and issuers. Other investments principally comprise direct investments, investment funds, and limited partnerships. We hold no collateralized debt obligations or collateralized loan obligations in our investment portfolio and we provide no credit default protection. We have long-standing global credit limits for our entire portfolio across the organization. Exposures

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are aggregated, monitored, and actively managed by our Global Credit Committee, comprising senior executives, including our Chief Financial Officer, our Chief Risk Officer, our Chief Investment Officer, and our Treasurer. We also have well-established, strict contractual investment rules requiring managers to maintain highly diversified exposures to individual issuers and closely monitor investment manager compliance with portfolio guidelines.

The average duration of our fixed income securities, including the effect of options and swaps, was 3.8 years at June 30, 2012 and 3.7 years at December 31, 2011. We estimate that a 100 basis point (bps) increase in interest rates would reduce our book value by approximately $2.1 billion at June 30, 2012.

The following table shows the fair value and cost/amortized cost of our invested assets:

	June 30, 2012				December 31, 2011
	Fair Value		Cost/ Amortized Cost		Fair Value		Cost/ Amortized Cost
	(in millions of U.S. dollars)
Fixed maturities available for sale	$	44,386	$	42,316	$	41,967	$	40,450
Fixed maturities held to maturity		8,062		7,782		8,605		8,447
Short-term investments		2,260		2,260		2,301		2,301
		54,708		52,358		52,873		51,198
Equity securities		729		724		647		671
Other investments		2,524		2,297		2,314		2,112
Total investments	$	57,961	$	55,379	$	55,834	$	53,981

The fair value of our total investments increased $2.1 billion during the six months ended June 30, 2012, primarily due to the investing of operating cash flows and unrealized appreciation.

The following tables show the market value of our fixed maturities and short-term investments at June 30, 2012 and December 31, 2011. The first table lists investments according to type and the second according to S&P credit rating:

	June 30, 2012					December 31, 2011
	Market Value		Percentage of Total			Market Value		Percentage of Total
	(in millions of U.S. dollars, except for percentages)
Treasury	$	2,614		5	%	$	2,361		5	%
Agency		1,816		3	%		1,725		3	%
Corporate and asset-backed securities		17,581		32	%		17,030		32	%
Mortgage-backed securities		12,725		23	%		13,237		25	%
Municipal		3,495		7	%		2,888		6	%
Non-U.S.		14,217		26	%		13,331		25	%
Short-term investments		2,260		4	%		2,301		4	%
Total	$	54,708		100	%	$	52,873		100	%
AAA	$	9,132		17	%	$	9,284		18	%
AA		20,931		38	%		20,562		39	%
A		10,400		19	%		10,106		19	%
BBB		6,243		11	%		6,152		12	%
BB		4,298		8	%		3,755		7	%
B		3,217		6	%		2,428		4	%
Other		487		1	%		586		1	%
Total	$	54,708		100	%	$	52,873		100	%

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As part of our overall investment strategy, we may invest in states, municipalities, and other political subdivisions fixed maturity securities (Municipal). We apply the same investment selection process described previously to our Municipal investments. The portfolio is highly diversified primarily in state general obligation bonds and essential service revenue bonds including education and utilities (water, power, and sewers). As of June 30, 2012, one state, including political subdivisions and other municipal issuers within the state, represented approximately 17 percent of our Municipal investments. A majority of the single state exposure represents special revenue bonds. Over 68 percent of our Municipal investments carry an S&P rating of AA- or better and none carry fair values that reflect a significantly different risk compared to those ratings. These Municipal investments are split 42 percent and 58 percent between general obligation and special revenue bonds, respectively.

Our exposure to the Euro results primarily from ACE European Group which is headquartered in London and offers a broad range of coverages throughout the European Union, Central, and Eastern Europe. ACE primarily invests in Euro denominated investments to support its local currency insurance obligations and required capital levels. ACE’s local currency investment portfolios have strict contractual investment guidelines requiring managers to maintain a high quality and diversified portfolio to both sector and individual issuers. Investment portfolios are monitored daily to ensure investment manager compliance with portfolio guidelines.

Our non-U.S. investment grade fixed income portfolios are currency-matched with the insurance liabilities of our non-U.S. operations. We have 78 percent of our non-U.S. fixed income portfolio denominated in G7 currencies. The average credit quality of our non-U.S. fixed income securities is A and 54 percent of our holdings are rated AAA or guaranteed by governments or quasi-government agencies. Within the context of these investment portfolios, our government and corporate bond holdings are highly diversified across industries and geographies. Issuer limits are based on credit rating (AA—two percent, A—one percent, BBB—0.5 percent of the total portfolio) and are monitored on a daily basis by us via an internal compliance system. Because of this investment approach we do not have a direct exposure to troubled sovereign borrowers in Europe. We manage our indirect exposure using the same credit rating based investment approach. Accordingly, we do not believe our indirect exposure is material.

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The table below summarizes the market value and amortized cost of our non-U.S. fixed income portfolio by country/sovereign for non-U.S. government securities at June 30, 2012:

	Market Value		Amortized Cost
	(in millions of U.S. dollars)
United Kingdom	$	1,191	$	1,152
Canada		939		906
Republic of Korea		488		456
Germany		409		401
Japan		378		376
Province of Ontario		230		219
Federative Republic of Brazil		201		196
Kingdom of Thailand		160		156
Province of Quebec		157		146
Commonwealth of Australia		150		134
France		134		130
State of Queensland		132		123
Swiss Confederation		128		121
People’s Republic of China		120		117
Federation of Malaysia		117		116
United Mexican States		105		98
State of New South Wales		77		72
Taiwan		76		75
State of Victoria		60		56
Socialist Republic of Vietnam		54		50
Republic of Indonesia		50		49
Russian Federation		47		47
Republic of Colombia		40		39
Republic of Austria		40		39
Dominion of New Zealand		39		38
Other Non-U.S. Government(1)		734		707
Non-U.S. Government Securities		6,256		6,019
Eurozone Non-U.S. Corporate (excluding United Kingdom)(2)		2,369		2,304
Other Non-U.S. Corporate		5,592		5,344
Total	$14,217		$	13,667

⁽¹⁾  Includes investments in Spain and Italy of $0.4 million. There are no investments in Portugal, Ireland, or Greece. Our gross and net Eurozone Non-U.S. Government Securities exposure is the same.

⁽²⁾  Refer to the following table for further detail on Eurozone Non-U.S. Corporate Securities. Our gross and net Eurozone Non-U.S. Corporate Securities exposure is the same.

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The table below summarizes the market value and amortized cost of our Eurozone fixed income portfolio (excluding United Kingdom) by industry at June 30, 2012:

	Market Value by Industry										Amortized Cost
	Bank		Financial		Industrial		Utility		Total
	(in millions of U.S. dollars)
Netherlands	$	225	$	133	$	320	$	124	$	802	$	770
France		98		37		115		146		396		392
Germany		284		2		76		7		369		356
Luxembourg		11		2		243		95		351		347
Euro Supranational		197		—		—		—		197		189
Ireland		12		1		87		17		117		110
Spain		10		4		18		5		37		42
Italy		25		—		6		3		34		32
Austria		20		—		7		1		28		27
Finland		13		1		8		2		24		26
Belgium		—		—		12		1		13		12
Portugal		—		—		1		—		1		1
Eurozone Non-U.S. Corporate Securities	$	895	$	180	$	893	$	401	$	2,369	$	2,304

The table below summarizes the market value and amortized cost of the top 10 Eurozone bank exposures within our Eurozone fixed income portfolio (excluding United Kingdom) at June 30, 2012:

	Market Value		Amortized Cost
	(in millions of U.S. dollars)
European Investment Bank	$	166	$	160
KFW		156		150
Rabobank Nederland NV		109		104
Deutsche Bank AG		46		45
Bank Nederlandse Gemeenten		41		40
ABN AMRO Group NV		32		30
Nederlandse Waterschapsbank NV		28		27
Credit Agricole Groupe		27		27
BNP Paribas SA		25		24
Erste Abwicklungsanstalt		23		23

The table below summarizes the market value and amortized cost of the top 10 Eurozone corporate exposures within our Eurozone fixed income portfolio (excluding United Kingdom) at June 30, 2012:

	Market Value		Amortized Cost
	(in millions of U.S. dollars)
EDF SA	$	79	$	79
ING Groep NV		77		78
Intelsat SA		73		71
Deutsche Telekom AG		69		63
Royal Dutch Shell PLC		64		59
LyondellBasell Industries NV		55		51
France Telecom SA		41		39
Gazprom OAO		40		38
General Electric Co		38		35
Liberty Global Inc		38		35

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The table below summarizes our largest exposures to corporate bonds by market value at June 30, 2012:

	Market Value
	(in millions of U.S. dollars)
General Electric Co	$	430
JP Morgan Chase & Co		426
Citigroup Inc		350
Bank of America Corp		314
The Goldman Sachs Group Inc		307
Verizon Communications Inc		278
Morgan Stanley		267
AT&T INC		223
Wells Fargo & Co		203
HSBC Holdings Plc		197
Comcast Corp		164
Kraft Foods Inc		164
Lloyds Banking Group Plc		162
Royal Bank of Scotland Group Plc		156
Time Warner Cable Inc		138
Barclays Plc		136
ConocoPhillips		127
BP Plc		123
Pfizer Inc		121
UBS AG		121
American Express Co		120
Credit Suisse Group		116
Anheuser-Busch InBev NV		111
Rabobank Nederland NV		109
Enterprise Products Partners LP		105

Mortgage-backed securities

Additional details on the mortgage-backed component of our investment portfolio at June 30, 2012, are provided below:

Mortgage-backed securities

Market Value

(in millions of U.S. dollars)

	S&P Credit Rating
	AAA		AA		A		BBB		BB and below		Total
Mortgage-backed securities
Agency residential mortgage-backed (RMBS)	$	—	$	10,942	$	—	$	—	$	—	$	10,942
Non-agency RMBS		145		6		24		10		399		584
Commercial mortgage-backed		1,164		18		10		7		—		1,199
Total mortgage-backed securities	$	1,309	$	10,966	$	34	$	17	$	399	$	12,725

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Mortgage-backed securities

Amortized Cost

(in millions of U.S. dollars)

	S&P Credit Rating
	AAA		AA		A		BBB		BB and below		Total
Mortgage-backed securities
Agency RMBS	$	—	$	10,480	$	—	$	—	$	—	$	10,480
Non-agency RMBS		145		6		24		11		476		662
Commercial mortgage-backed		1,090		16		9		6		—		1,121
Total mortgage-backed securities	$	1,235	$	10,502	$	33	$	17	$	476	$	12,263

Our mortgage-backed securities are rated predominantly AA and comprise approximately 23 percent of our fixed income portfolio. This compares with a 32 percent mortgage-backed weighting in representative indices of the U.S. fixed income market at June 30, 2012. The minimum rating for our initial purchases of mortgage-backed securities is AA for agency mortgages and AAA for non-agency mortgages.

Agency RMBS represent securities which have been issued by Federal agencies (Government National Mortgage Association, Federal National Mortgage Association, and Federal Home Loan Mortgage Corporation) with implied or explicit government guarantees. These represent 95 percent of our total RMBS portfolio. Our non-agency RMBS are backed primarily by prime collateral and are broadly diversified in over 47,000 loans. This portfolio’s original loan-to-value ratio is approximately 67 percent with an average Fair Isaac Corporation (FICO) score of 730. With this conservative loan-to-value ratio and subordinated collateral of five percent, the cumulative 5-year foreclosure rate would have to rise to 15 percent from current levels before principal is significantly impaired. The foreclosure rate of our non-agency RMBS portfolio at June 30, 2012 was eight percent.

Our commercial mortgage-backed securities (CMBS) are rated predominantly AAA, broadly diversified with over 13,000 loans with 47 percent of the portfolio issued before 2006 and 38 percent issued after 2009. The average loan-to-value ratio is approximately 64 percent with a debt service coverage ratio in excess of 1.9 and weighted-average subordinated collateral of 30 percent. The cumulative foreclosure rate would have to rise to 42 percent before principal is impaired. The foreclosure rate for our CMBS portfolio at June 30, 2012 was approximately 2.3 percent.

Below-investment grade corporate fixed income portfolio

Below-investment grade securities have different characteristics than investment grade corporate debt securities. Risk of loss from default by the borrower is greater with below-investment grade securities. Below-investment grade securities are generally unsecured and are often subordinated to other creditors of the issuer. Also, issuers of below-investment grade securities usually have higher levels of debt and are more sensitive to adverse economic conditions, such as recession or increasing interest rates, than are investment grade issuers. At June 30, 2012, our corporate fixed income investment portfolio included below-investment grade and non-rated securities which, in total, comprised approximately 13 percent of our fixed income portfolio. Our below-investment grade and non-rated portfolio includes over 990 issuers, with the greatest single exposure being $95 million.

We manage high-yield bonds as a distinct and separate asset class from investment grade bonds. The allocation to high yield bonds is explicitly set by internal management and is targeted to securities in the upper tier of credit quality (BB/B). Our minimum rating for initial purchase is BB/B. Six external investment managers are responsible for high yield security selection and portfolio construction. Our high yield managers have a conservative approach to credit selection and very low historical default experience. Holdings are highly diversified across industries and subject to a 1.5 percent issuer limit as a percentage of high yield allocation. We monitor position limits daily through an internal compliance system. Derivative and structured securities (e.g., credit default swaps and collateralized loan obligations) are not permitted in the high-yield portfolio.

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Critical Accounting Estimates

As of June 30, 2012, with the exception noted below, there were no material changes to our critical accounting estimates. Refer to Note 1 to the consolidated financial statements for additional information. For full discussion of our critical accounting estimates, refer to Item 7 in our 2011 Form 10-K.

Effective January 1, 2012, we retrospectively adopted new accounting guidance for costs associated with acquiring or renewing insurance contracts. Under the new guidance, the definition of acquisition costs was modified to specify that a cost must be directly related to the successful acquisition of a new or renewal insurance contract in order to be deferred. Prior year amounts and ratios have been adjusted to reflect the impact of retrospective adjustments as a result of applying this new accounting guidance.

Reinsurance recoverable on ceded reinsurance

The following table shows a composition of our reinsurance recoverable for the periods indicated:

	June 30 2012		December 31 2011
	(in millions of U.S. dollars)
Reinsurance recoverable on unpaid losses and loss expenses, net of a provision for uncollectible reinsurance	$	10,986	$	11,602
Reinsurance recoverable on paid losses and loss expenses, net of a provision for uncollectible reinsurance		766		787
Net reinsurance recoverable on losses and loss expenses	$	11,752	$	12,389
Reinsurance recoverable on policy benefits	$	257	$	249

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 us, primarily because of disputes under reinsurance contracts and insolvencies. The provision for uncollectible reinsurance is based on a default analysis applied to gross reinsurance recoverables, net of approximately $2.8 billion of collateral at June 30, 2012 and December 31, 2011. The decrease in net reinsurance recoverable on losses and loss expenses was primarily due to collections relating to prior period catastrophe events and run-off operations.

Unpaid losses and loss expenses

As an insurance and reinsurance company, we are required by applicable laws and regulations and GAAP to establish loss and loss expense reserves for the estimated unpaid portion of the ultimate liability for losses and loss expenses under the terms of our policies and agreements with our insured and reinsured customers. The estimate of the liabilities includes provisions for claims that have been reported but are unpaid at the balance sheet date (case reserves) and for obligations on claims that have been incurred but not reported (IBNR) at the balance sheet date. IBNR may also include provisions to account for the possibility that reported claims may settle for amounts that differ from the established reserves. Loss reserves also include an estimate of expenses associated with processing and settling unpaid claims (loss expenses). At June 30, 2012, our gross unpaid loss and loss expense reserves were $36.9 billion and our net unpaid loss and loss expense reserves were $25.9 billion. With the exception of certain structured settlements, for which the timing and amount of future claim payments are reliably determinable, and certain reserves for unsettled claims that are discounted in statutory filings, our loss reserves are not discounted for the time value of money.

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The table below presents a roll-forward of our unpaid losses and loss expenses:

	Gross Losses			Reinsurance Recoverable(1)			Net Losses
	(in millions of U.S. dollars)
Balance at December 31, 2011	$	37,477		$	11,602		$	25,875
Losses and loss expenses incurred		5,212			1,289			3,923
Losses and loss expenses paid		(5,792	)		(1,824	)		(3,968	)
Other (including foreign exchange translation)		(47	)		(81	)		34
Balance at June 30, 2012	$	36,850		$	10,986		$	25,864

⁽¹⁾  Net of provision for uncollectible reinsurance

The process of establishing loss reserves for property and casualty claims can be complex and is subject to considerable uncertainty as it requires the use of informed estimates and judgments based on circumstances known at the date of accrual.

The following table shows our total reserves (including loss expense reserves) segregated between case reserves and IBNR reserves:

	June 30, 2012						December 31, 2011
	Gross		Ceded		Net		Gross		Ceded		Net
	(in millions of U.S. dollars)
Case reserves	$	16,590	$	5,340	$	11,250	$	17,143	$	5,681	$	11,462
IBNR reserves		20,260		5,646		14,614		20,334		5,921		14,413
Total	$	36,850	$	10,986	$	25,864	$	37,477	$	11,602	$	25,875

Asbestos and Environmental (A&E) and Other Run-off Liabilities

There was no unexpected A&E reserve activity during the six months ended June 30, 2012. Refer to our 2011 Form 10-K for additional information.

Fair value measurements

The accounting guidance on fair value measurements defines fair value as the price to sell an asset or transfer a liability in an orderly transaction between market participants and establishes a three-level valuation hierarchy in which inputs into valuation techniques used to measure fair value are classified.

The fair value hierarchy gives the highest priority to quoted prices in active markets (Level 1 inputs) and the lowest priority to unobservable data (Level 3 inputs). Inputs in Level 1 are unadjusted quoted prices for identical assets or liabilities in active markets. Level 2 includes inputs other than quoted prices included within Level 1 that are observable for assets or liabilities either directly or indirectly. Level 2 inputs include, among other items, quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, and inputs other than quoted prices that are observable for the asset or liability such as interest rates and yield curves. Level 3 inputs are unobservable and reflect our judgments about assumptions that market participants would use in pricing an asset or liability.

We categorize financial instruments within the valuation hierarchy at the balance sheet date based upon the lowest level of inputs that are significant to the fair value measurement. Accordingly, transfers between levels within the valuation hierarchy occur when there are significant changes to the inputs, such as increases or decreases in market activity, changes to the availability of current prices, changes to the transparency to underlying inputs, and whether there are significant variances in quoted prices. Transfers in and/or out of any level are assumed to occur at the end of the period.

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While we obtain values for the majority of the investment securities we hold from one or more pricing services, it is ultimately management’s responsibility to determine whether the values obtained and recorded in the financial statements are representative of fair value. We periodically update our understanding of the methodologies used by our pricing services in order to validate that the prices obtained from those services are consistent with the GAAP definition of fair value as an exit price. Based on our understanding of the methodologies, our pricing services only produce an estimate of fair value if there is observable market information that would allow them to make a fair value estimate. Based on our understanding of the market inputs used by our pricing services, all applicable investments have been valued in accordance with GAAP valuation principles. We have controls to review significant price changes and stale pricing, and to ensure that prices received from pricing services have been accurately reflected in the consolidated financial statements. We do not typically adjust prices obtained from pricing services.

Additionally, the valuation of fixed maturity investments is more subjective when markets are less liquid due to the lack of market based inputs (i.e., stale pricing), which may increase the potential that the estimated fair value of an investment is not reflective of the price at which an actual transaction would occur. For a small number of fixed maturities, we obtain a quote from a broker (typically a market maker). Due to the disclaimers on the quotes that indicate that the price is indicative only, we include these fair value estimates in Level 3.

At June 30, 2012, Level 3 assets represented four percent of assets that are measured at fair value and two percent of total assets. Level 3 liabilities represented 100 percent of liabilities that are measured at fair value and two percent of our total liabilities. During the three and six months ended June 30, 2012, we transferred $47 million and $42 million, respectively, into our Level 3 assets. During the three and six months ended June 30, 2012, we transferred $5 million and $25 million, respectively, out of our Level 3 assets. Refer to Note 4 to the consolidated financial statements for a description of the valuation techniques and inputs used to determine fair values for our financial instruments measured or disclosed at fair value by valuation hierarchy (Levels 1, 2, and 3) as well as a roll-forward of Level 3 financial instruments measured at fair value for the three and six months ended June 30, 2012 and 2011.

Guaranteed living benefits (GLB) derivatives

Under life reinsurance programs covering living benefit guarantees, we assumed the risk of GLBs associated with variable annuity (VA) contracts. We ceased writing this business in 2007. Our GLB reinsurance product meets the definition of a derivative for accounting purposes and is therefore carried at fair value. We believe that the most meaningful presentation of these derivatives is to reflect cash inflows or revenue as net premiums earned, and to record estimates of the average modeled value of future cash outflows as incurred losses. Accordingly, we recognize benefit reserves consistent with the accounting guidance related to accounting and reporting by insurance enterprises for certain non-traditional long-duration contracts and for separate accounts. Changes in the benefit reserves are reflected as Policy benefits expense, which is included in life underwriting income. The incremental difference between fair value and benefit reserves is reflected in Accounts payable, accrued expenses, and other liabilities in the consolidated balance sheet and related changes in fair value are reflected in Net realized gains (losses) in the consolidated statement of operations. We intend to hold these derivative contracts to maturity (i.e., the expiration of the underlying liabilities through lapse, annuitization, death, or expiration of the reinsurance contract). At maturity, the cumulative gains and losses will net to zero (excluding cumulative hedge gains or losses) because, over time, the insurance liability will be increased or decreased to equal our obligation. For a sensitivity discussion of the effect of changes in interest rates, equity indices, and other assumptions on the fair value of GLBs, and the resulting impact on our net income, refer to Item 3. Refer to our 2011 Form 10-K for additional information.

The fair value of GLB reinsurance is estimated using an internal valuation model, which includes current market information and estimates of policyholder behavior from the perspective of a theoretical market participant that would assume these liabilities. All of our treaties contain claim limits, which are factored into the valuation model. The fair value depends on a number of factors, including interest rates, current account value, market volatility, expected annuitization rates and other policyholder behavior, and changes in policyholder

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mortality. The model and related assumptions are continuously re-evaluated by management and enhanced, as appropriate, based upon additional experience obtained related to policyholder behavior and availability of more timely market information, such as market conditions and demographics of in-force annuities. Due to the inherent uncertainties of the assumptions used in the valuation models to determine the fair value of these derivative products, actual experience may differ from the estimates reflected in our Consolidated Financial Statements, and the differences may be material.

The most significant policyholder behavior assumptions include lapse rates and the guaranteed minimum income benefit (GMIB) annuitization rates. Assumptions regarding lapse rates and GMIB annuitization rates differ by treaty but the underlying methodologies to determine rates applied to each treaty are comparable. The assumptions regarding lapse and GMIB annuitization rates determined for each treaty are based on a dynamic calculation that uses several underlying factors.

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. Key factors affecting the lapse rate assumption include investment performance and policy duration. In general, the base lapse function assumes low lapse rates (ranging from about 1 percent to 6 percent per annum) during the surrender charge period of the variable annuity contract, followed by a “spike” lapse rate (ranging from about 10 percent to 30 percent per annum) in the year immediately following the surrender charge period, and then reverting to an ultimate lapse rate (generally around 10 percent per annum), typically over a 2-year period. This base rate is adjusted downward for policies with more valuable (more “in the money”) guarantees by multiplying the base lapse rate by a factor ranging from 15 percent to 75 percent. Additional lapses due to partial withdrawals and older policyholders with tax-qualified contracts (due to required minimum distributions) are also included.

The GMIB annuitization rate is the percentage of policies for which the policyholder will elect to annuitize using the guaranteed benefit provided under the GMIB. All else equal, as GMIB annuitization rates increase, ultimate claim payments will increase, subject to treaty claim limits. Key factors affecting the GMIB annuitization rate include investment performance and the level of interest rates after the GMIB waiting period, since these factors determine the value of the guarantee to the policyholder. In general, we assume that GMIB annuitization rates will be higher for policies with more valuable (more “in the money”) guarantees. In addition, we also assume that GMIB annuitization rates are higher in the first year immediately following the waiting period (the first year the policies are eligible to annuitize utilizing the GMIB) in comparison to all subsequent years. We do not yet have a robust set of annuitization experience because most of our clients’ policyholders are not yet eligible to annuitize utilizing the GMIB. However, for certain clients representing approximately 36 percent of the total GMIB guaranteed value there are several years of annuitization experience – for those clients the annuitization function reflects the actual experience and has a maximum annuitization rate per annum of 8 percent (a higher maximum applies in the first year a policy is eligible to annuitize utilizing the GMIB – it is over 13 percent). For most clients there is not a credible amount of observable relevant behavior data and so we use a weighted average (with a heavier weighting on the observed experience noted previously) of three different annuitization functions with maximum annuitization rates per annum of 8 percent, 12 percent, and 30 percent, respectively (with significantly higher rates in the first year a policy is eligible to annuitize utilizing the GMIB). As noted elsewhere, our GMIB reinsurance treaties include claim limits to protect us in the event that actual annuitization behavior is significantly higher than expected.

During the six months ended June 30, 2012, no material changes were made to actuarial or behavior assumptions.

During the three months ended June 30, 2012, realized losses of $491 million were associated with an increased value of GLB liabilities primarily due to falling equity levels and interest rates. During the six months ended June 30, 2012, realized losses of $35 million were associated with an increased value of GLB liabilities primarily due to falling interest rates and the unfavorable impact of discounting future claims for two fewer quarters. This excludes realized gains of $70 million and realized losses of $161 million during the three and six months ended June 30, 2012 on derivative hedge instruments held to partially offset the risk in the VA guarantee reinsurance

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portfolio. These derivatives do not receive hedge accounting treatment. Refer to the “Net Realized and Unrealized Gains (Losses)” section for a breakdown of the realized gains (losses) on GLB reinsurance and derivatives for the three and six months ended June 30, 2012 and 2011.

ACE Tempest Life Re employs a strategy to manage the financial market and policyholder behavior risks embedded in the reinsurance of VA guarantees. Risk management begins with underwriting a prospective client and guarantee design, with particular focus on protecting our position from policyholder options that, because of anti-selective behavior, could adversely impact our obligation.

A second layer of risk management is the structure of the reinsurance contracts. All VA guarantee reinsurance contracts include some form of annual or aggregate claim limit(s). The different categories of claim limits are described below:

• Reinsurance programs covering guaranteed minimum death benefits (GMDB) with an annual claim limit of 2 percent of account value. This category accounts for approximately 65 percent of the total reinsured GMDB guaranteed value. Approximately one percent of the guaranteed value in this category has additional reinsurance coverage for GLB.

• Reinsurance programs covering GMDB with claim limit(s) that are a function of the underlying guaranteed value. This category accounts for approximately 22 percent of the total reinsured GMDB guaranteed value. The annual claim limit expressed as a percentage of guaranteed value ranges from 0.4 percent to 2 percent. Approximately 71 percent of guaranteed value in this category is also subject to annual claim deductibles that range from 0.1 percent to 0.2 percent of guaranteed value (i.e., our reinsurance coverage would only pay total annual claims in excess of 0.1 percent to 0.2 percent of the total guaranteed value). Approximately 49 percent of guaranteed value in this category is also subject to an aggregate claim limit which was approximately $380 million as of June 30, 2012. Approximately 75 percent of guaranteed value in this category has additional reinsurance coverage for GLB.

• Reinsurance programs covering GMDB and guaranteed minimum accumulation benefits (GMAB). This category accounts for approximately 18 percent of the total reinsured GLB guaranteed value and 13 percent of the total reinsured GMDB guaranteed value. These reinsurance programs are quota-share agreements with the quota-share decreasing as the ratio of account value to guaranteed value decreases. The quota-share is 100 percent for ratios between 100 percent and 75 percent, 60 percent for additional losses on ratios between 75 percent and 45 percent, and 30 percent for further losses on ratios below 45 percent. Approximately 34 percent of guaranteed value in this category is also subject to a claim deductible of 8.8 percent of guaranteed value (i.e., our reinsurance coverage would only pay when the ratio of account value to guaranteed value is below 91.2 percent).

• Reinsurance programs covering GMIB with an annual claim limit. This category accounts for approximately 49 percent of the total reinsured GLB guaranteed value. The annual claim limit is 10 percent of guaranteed value on over 98 percent of the guaranteed value in this category. Additionally, reinsurance programs in this category have an annual annuitization limit that ranges between 17.5 percent and 30 percent with approximately 42 percent of guaranteed value subject to an annuitization limit of 20 percent or under, and the remaining 58 percent subject to an annuitization limit of 30 percent. Approximately 39 percent of guaranteed value in this category is also subject to minimum annuity conversion factors that limit the exposure to low interest rates. Approximately 42 percent of guaranteed value in this category has additional reinsurance coverage for GMDB.

• Reinsurance programs covering GMIB with aggregate claim limit. This category accounts for approximately 33 percent of the total reinsured GLB guaranteed value. The aggregate claim limit for reinsurance programs in this category is approximately $1.9 billion. Additionally, reinsurance programs in this category have an annual annuitization limit of 20 percent and approximately 56 percent of guaranteed value in this category is also subject to minimum annuity conversion factors that limit the exposure to low interest rates. Approximately 44 percent of guaranteed value in this category has additional reinsurance coverage for GMDB.

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A third layer of risk management is the hedging strategy which is focused on mitigating long-term economic losses at a portfolio level. ACE Tempest Life Re owned financial market instruments as part of the hedging strategy with a fair value of ($44) million and $38 million at June 30, 2012 and December 31, 2011, respectively. The instruments are substantially collateralized by our counterparties, on a daily basis.

We also limit the aggregate amount of variable annuity reinsurance guarantee risk we are willing to assume. The last substantive U.S. transaction was quoted in mid-2007 and the last transaction in Japan was quoted in late 2007. The aggregate number of policyholders is currently decreasing through policyholder withdrawals and deaths at a rate of 5 percent -10 percent annually.

Note that GLB claims cannot occur for any reinsured policy until it has reached the end of its “waiting period”. The vast majority of policies we reinsure reach the end of their “waiting periods” in 2013 or later, as shown in the table below.

Year of first payment eligibility	Percent of living benefit account values
June 30, 2012 and prior		2	%
Remainder of 2012		6	%
2013		23	%
2014		18	%
2015		5	%
2016		5	%
2017		19	%
2018		16	%
2019 and after		6	%
Total		100	%

The following table provides the historical cash flows under these policies for the periods indicated. The amounts represent accrued past premium received and claims paid, split by benefit type.

	Three Months Ended June 30					Six Months Ended June 30
	2012			2011		2012			2011
	(in millions of U.S. dollars)
Death Benefits (GMDB)
Premium	$	21		$	25	$	43		$	51
Less paid claims		26			23		52			49
Net	$	(5	)	$	2	$	(9	)	$	2
Living Benefits (Includes GMIB and GMAB)
Premium	$	40		$	41	$	80		$	82
Less paid claims		1			1		2			2
Net	$	39		$	40	$	78		$	80
Total VA Guaranteed Benefits
Premium	$	61		$	66	$	123		$	133
Less paid claims		27			24		54			51
Net	$	34		$	42	$	69		$	82

Death Benefits (GMDB)

For premiums and claims from VA contracts reinsuring GMDBs, at current market levels, we expect approximately $117 million of claims and $78 million of premium on death benefits over the next 12 months.

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GLB (includes GMIB and GMAB)

Our GLBs predominantly include premiums and claims from VA contracts reinsuring GMIB and GMAB. Substantially all of our living benefit reinsurance clients’ policyholders are currently ineligible to trigger a claim payment. The vast majority of these policyholders become eligible in years 2013 and beyond. At current market levels, we expect approximately $1 million of claims and $153 million of premium on living benefits over the next 12 months.

Collateral

In order for its U.S.-domiciled clients to obtain statutory reserve credit, ACE Tempest Life Re holds collateral on behalf of its clients in the form of qualified assets in trust or letters of credit, in an amount sufficient for them to obtain statutory reserve credit. The timing of the calculation and amount of the collateral varies by client according to the particulars of the reinsurance treaty and the statutory reserve guidelines of the client’s state of domicile.

Catastrophe management

We actively monitor our catastrophe risk accumulation around the world. The following modeled loss information reflects our in-force portfolio and reinsurance program at April 1, 2012.

The table below shows our modeled annual aggregate pre-tax probable maximum loss (PML), net of reinsurance, for 100-year and 250-year return periods for U.S. hurricanes and California earthquakes at June 30, 2012 and 2011. The table also shows ACE’s corresponding share of pre-tax industry losses for each of the return periods for U.S. hurricanes and California earthquakes at June 30, 2012. For example, according to the model, for the 1-in-100 return period scenario, there is a one percent chance that our losses incurred in any year from U.S. hurricanes could be in excess of $1.6 billion (or six percent of our total shareholders’ equity at June 30, 2012). We estimate that at such hypothetical loss levels, ACE’s share of aggregate industry losses would be approximately 1.0 percent.

	U.S. Hurricanes										California Earthquakes
	June 30, 2012								June 30, 2011		June 30, 2012								June 30, 2011
Modeled Annual Aggregate Net PML	ACE		% of Total Shareholders’ Equity			% of Industry			ACE		ACE		% of Total Shareholders’ Equity			% of Industry			ACE
	(in millions of U.S. dollars, except for percentages)
1-in-100	$	1,648		6	%		1.0	%	$	1,254	$	778		3	%		1.9	%	$	803
1-in-250	$	2,201		9	%		0.9	%	$	1,722	$	995		4	%		1.6	%	$	948

The modeling estimates of both ACE and industry loss levels are inherently uncertain owing to key assumptions. First, while the use of third-party catastrophe modeling packages to simulate potential hurricane and earthquake losses is prevalent within the insurance industry, the models are reliant upon significant meteorology, seismology, and engineering assumptions to estimate hurricane and earthquake losses. In particular, modeled hurricane and earthquake events are not always a representation of actual events and ensuing additional loss potential. Second, there is no universal standard in the preparation of insured data for use in the models and the running of the modeling software. Third, we are reliant upon third-party estimates of industry insured exposures and there is significant variation possible around the relationship between our loss and that of the industry following an event. Fourth, we assume that our reinsurance recoveries following an event are fully collectible. These loss estimates do not represent our potential maximum exposures and it is highly likely that our actual incurred losses would vary materially from the modeled estimates.

The above hurricane PMLs at June 30, 2012 reflect the findings from an in-depth review of hurricane risk during 2011, including assessment of the latest third-party hurricane models, implementation of the revised models through a multi-model framework for risk assessment, and custom model output adjustments to better reflect ACE’s underlying exposure profile. The June 2011 hurricane PMLs were based on the previous view of modeled risk.

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Natural catastrophe property reinsurance program

ACE’s core property catastrophe reinsurance program provides protection against natural catastrophes impacting its primary property operations (i.e., excluding our Global Reinsurance and Life segments) and consists of two separate towers.

We regularly review our reinsurance protection and corresponding property catastrophe exposures. This may or may not lead to the purchase of additional reinsurance prior to a program’s renewal date. In addition, prior to each renewal date, we consider how much, if any, coverage we intend to buy and we may make material changes to the current structure in light of various factors, including modeled PML assessment at various return periods, reinsurance pricing, our risk tolerance and exposures, and various other structuring considerations.

There were no significant changes to ACE’s coverage under its North American Core Program during the second quarter. However, the North American Calabash program expired June 15, 2012 without renewal. With respect to our International Property Catastrophe Program, we renewed the layers of reinsurance protection in excess of $150 million on our Core Program for the period from July 1, 2012 through June 30, 2013 with no significant change in coverage from the expiring program. Refer to our 2011 Form 10-K for additional information.

Crop insurance

ACE is one of the leading writers of crop insurance in the U.S. Our crop insurance business primarily comprises two components – Multiple Peril Crop Insurance (MPCI) and hail insurance. The MPCI program is a partnership with the U.S. Department of Agriculture (USDA), which sets the terms and conditions of the program under the annual Standard Reinsurance Agreement (SRA). Given the crops covered in the program, we typically see a substantial written and earned premium impact in the second and third quarters.

MPCI represents about 85 percent of our Agriculture net premiums written; however, this percentage may change as a result of, among other things, growth in our other non-MPCI agriculture lines and changes in commodity prices.

We purchase third party stop-loss reinsurance for our MPCI business to limit our exposure. The attachment point for this stop-loss reinsurance is based upon the ACE underwriting loss after the impact of the SRA risk sharing between ACE and the Federal Crop Insurance Corporation. The attachment point is approximately equal to a 104 percent combined ratio.

Given the drought conditions in the U.S. as of July 24, 2012, we expect we will incur approximately $68 million of additional after-tax losses, in the second half of 2012, for our MPCI business compared to what we contemplated as of April 2012 (when we publicly announced updated earnings guidance for the calendar year). The increased losses would result in a loss ratio increase of approximately five percentage points, i.e., 93 percent—94 percent combined ratio for the 2012 MPCI business. If the drought conditions worsen and continue until harvest (of covered crops), we believe our modeled worst case loss would be approximately an additional $200 million after-tax, in excess of the $68 million described above.

There were no changes to the SRA during the six months ended June 30, 2012. Refer to our 2011 Form 10-K for additional information.

In June 2012, the USDA’s Risk Management Agency (RMA) released the 2013 SRA for the 2013 reinsurance year (i.e., July 1, 2012 through June 30, 2013) that replaced the 2012 SRA. There were no significant changes in the terms and conditions.

Liquidity

We anticipate that positive cash flows from operations (underwriting activities and investment income) should be sufficient to cover cash outflows under most loss scenarios through 2012. In addition to cash from operations, we

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have agreements with a third party bank provider which implemented two international multi-currency notional cash pooling programs to enhance cash management efficiency during periods of short-term timing mismatches between expected inflows and outflows of cash by currency. The programs allow us to optimize investment income by avoiding portfolio disruption. Should the need arise, we generally have access to capital markets and available credit facilities. At June 30, 2012, our available credit lines totaled $2.4 billion and usage to support issued letters of credit was $1.5 billion. At July 31, 2012, usage to support issued letters of credit was $1.6 billion. Our access to funds under existing credit facilities is dependent on the ability of the banks that are parties to the facilities to meet their funding commitments. Our existing credit facilities have remaining terms expiring between 2012 and 2015 and require that we maintain certain financial covenants, all of which we met at June 30, 2012. Should any of our existing credit providers experience financial difficulty, we may be required to replace credit sources, possibly in a difficult market. There has also been recent consolidation in the banking industry which could lead to increased reliance on and exposure to particular institutions. If we cannot obtain adequate capital or sources of credit on favorable terms, on a timely basis or at all, our business, operating results, and financial condition could be adversely affected. To date, we have not experienced difficulty accessing any of our credit facilities. Refer to “Credit Facilities” in our 2011 Form 10-K.

The payments of dividends or other statutorily permissible distributions from our operating companies are subject to the laws and regulations applicable to each jurisdiction, as well as the need to maintain capital levels adequate to support the insurance and reinsurance operations, including financial strength ratings issued by independent rating agencies. During the six months ended June 30, 2012, we were able to meet all of our obligations, including the payments of dividends on our Common Shares, with our net cash flows.

We assess which subsidiaries to draw dividends from based on a number of factors. Considerations such as regulatory and legal restrictions as well as the subsidiary’s financial condition are paramount to the dividend decision. The legal restrictions on the payment of dividends from retained earnings by our Bermuda subsidiaries are currently satisfied by the share capital and additional paid-in capital of each of the Bermuda subsidiaries. ACE Limited received no dividends from its Bermuda subsidiaries during the six months ended June 30, 2012. ACE Limited received dividends of $500 million from its Bermuda subsidiaries during the six months ended June 30, 2011.

The payment of any dividends from ACE Global Markets or its subsidiaries is subject to applicable U.K. insurance laws and regulations. In addition, the release of funds by Syndicate 2488 to subsidiaries of ACE Global Markets is subject to regulations promulgated by the Society of Lloyd’s. The U.S. insurance subsidiaries of ACE INA may pay dividends, without prior regulatory approval, subject to restrictions set out in state law of the subsidiary’s domicile (or, if applicable, commercial domicile). ACE INA’s international subsidiaries are also subject to insurance laws and regulations particular to the countries in which the subsidiaries operate. These laws and regulations sometimes include restrictions that limit the amount of dividends payable without prior approval of regulatory insurance authorities. ACE Limited did not receive any dividends from ACE Global Markets or ACE INA during the six months ended June 30, 2012. ACE Limited received dividends of $180 million from ACE Global Markets during the six months ended June 30, 2011. ACE Limited received no dividends from ACE INA during the six months ended June 30, 2011. Debt issued by ACE INA is serviced by statutorily permissible distributions by ACE INA’s insurance subsidiaries to ACE INA as well as other group resources.

Cash Flows

Sources of liquidity include cash from operations, routine sales of investments, and financing arrangements. The following is a discussion of our cash flows for the six months ended June 30, 2012 and 2011.

Our consolidated net cash flows from operating activities were $1.4 billion in the six months ended June 30, 2012, compared with $2.1 billion. Net loss and loss expenses paid were $4.0 billion in the six months ended June 30, 2012, compared with $3.8 billion. Operating cash flows decreased in the six months ended June 30, 2012, primarily due to the $515 million unfavorable year over year impact of cash collateral movements related to a large 2011 insurance transaction. The receipt of $312 million cash collateral increased operating cash flows for the six months ended June 30, 2011 while the return of $203 million cash collateral reduced operating cash flows during 2012.

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Our consolidated net cash flows used for investing activities were $1.3 billion in the six months ended June 30, 2012, compared with $1.9 billion. Net investing activities for the indicated periods were related primarily to net purchases of fixed maturities.

Our consolidated net cash flows used for financing activities were $123 million in the six months ended June 30, 2012, compared with $115 million. Financing cash flows included $151 million of proceeds from issuance of short-term debt, net of repayments, compared with $100 million. Dividends paid on Common Shares were $318 million in the six months ended June 30, 2012, compared with $223 million.

Both internal and external forces influence our financial condition, results of operations, and cash flows. Claim settlements, premium levels, and investment returns may be impacted by changing rates of inflation and other economic conditions. In many cases, significant periods of time, ranging up to several years or more, may lapse between the occurrence of an insured loss, the reporting of the loss to us, and the settlement of the liability for that loss.

In the current low interest rate environment, we utilize reverse repurchase agreements as a low-cost alternative for short-term funding needs and to address short-term cash timing differences without disrupting our investment portfolio holdings. We subsequently settle these transactions with future operating cash flows. At June 30, 2012, there were $1.4 billion in reverse repurchase agreements outstanding.

Capital Resources

Capital resources consist of funds deployed or available to be deployed to support our business operations. The following table summarizes the components of our capital resources:

	June 30 2012			December 31 2011
	(in millions of U.S. dollars, except for percentages)
Short-term debt	$	1,401		$	1,251
Long-term debt		3,360			3,360
Total debt		4,761			4,611
Trust preferred securities		309			309
Total shareholders’ equity		25,762			24,332
Total capitalization	$	30,832		$	29,252
Ratio of debt to total capitalization		15.4	%		15.8	%
Ratio of debt plus trust preferred securities to total capitalization		16.4	%		16.8	%

The following table reports the significant movements in our shareholders’ equity:

	June 30, 2012
	(in millions of U.S. dollars)
Balance at December 31, 2011	$	24,332
Net income		1,301
Change in net unrealized appreciation on investments, net of tax		451
Dividends on Common Shares		(368	)
Exercise of stock options		48
Change in net cumulative translation, net of tax		(23	)
Repurchase of shares		(7	)
Other movements, net of tax		28
Balance at June 30, 2012	$	25,762

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During January 2012, we repurchased $7 million of Common Shares in a series of open market transactions under the August 2011 and November 2010 Board of Directors authorizations. At June 30, 2012, $461 million in share repurchase authorizations remained through December 31, 2012. At June 30, 2012 there were 3,771,527 Common Shares in treasury with a weighted average cost of $54.58 per share.

We generally maintain the ability to issue certain classes of debt and equity securities via an unlimited Securities and Exchange Commission (SEC) shelf registration which is renewed every three years. This allows us capital market access for refinancing as well as for unforeseen or opportunistic capital needs. Our current shelf registration on file with the SEC expires in December 2014.

Dividends

We have paid dividends each quarter since we became a public company in 1993. Under Swiss law, dividends must be stated in Swiss francs though dividend payments are made by ACE in U.S. dollars. Following ACE’s redomestication to Switzerland in July 2008 through March 2011, dividends were distributed by way of a par value reduction. At the May 2011 annual general meeting, our shareholders approved dividend distributions from capital contributions reserves (Additional paid-in capital) through the transfer of dividends from Additional paid-in capital to Retained earnings. At the May 2012 annual general meeting, our shareholders approved an annual dividend distribution for the following year by way of a par value reduction equal to $1.96 per share, or CHF 1.80 per share, calculated using the USD/CHF exchange rate as published in the Wall Street Journal on May 10, 2012.

The annual dividend is payable in four quarterly installments, with each installment equaling $0.49 per share, provided that the Swiss franc equivalent of that amount per share (based on the then-current USD/CHF exchange rate), taken together with the Swiss franc equivalents of all other installments of this annual dividend, will not exceed 150 percent of CHF 1.80 (the aggregate distribution cap). If the Swiss franc equivalent of an upcoming dividend installment would cause the aggregate distribution cap to be exceeded, then that dividend installment will be reduced to equal the Swiss franc amount remaining available under the aggregate distribution cap, and the U.S. dollar amount distributed for that installment will be the then-applicable U.S. dollar equivalent of the remaining Swiss franc amount.

The following table represents dividends paid per Common Share to shareholders of record on each of the following dates:

Shareholders of record as of:	Dividends paid as of:
January 10, 2012	January 31, 2012	$0.47 (CHF 0.44)
March 30, 2012	April 20, 2012	$0.47 (CHF 0.42)
July 31, 2012	August 21, 2012	$0.49 (CHF 0.48)

Recent accounting pronouncements

Refer to Note 1 to the consolidated financial statements for a discussion of new accounting pronouncements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Refer to Item 7A included in our 2011 Form 10-K.

Reinsurance of GMDB and GLB guarantees

Our net income is directly impacted by changes in the benefit reserves calculated in connection with the reinsurance of variable annuity guarantees, primarily GMDB and GLB. The benefit reserves are calculated in accordance with the guidance related to accounting and reporting by insurance enterprises for certain

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non-traditional long-duration contracts and for separate accounts. Changes in the benefit reserves are reflected as policy benefits expense, which is included in life underwriting income. In addition, our net income is directly impacted by the change in the fair value of the GLB liability (FVL), which is classified as a derivative for accounting purposes. The FVL established for a GLB reinsurance contract represents the difference between the fair value of the contract and the benefit reserves. Changes in the FVL, net of associated changes in the calculated benefit reserves, are reflected as realized gains or losses.

ACE views its variable annuity reinsurance business as having a similar risk profile to that of catastrophe reinsurance with the probability of long-term economic loss relatively small, at the time of pricing. Adverse changes in market factors and policyholder behavior will have an impact on both life underwriting income and net income. When evaluating these risks, we expect to be compensated for taking both the risk of a cumulative long-term economic net loss, as well as the short-term accounting variations caused by these market movements. Therefore, we evaluate this business in terms of its long-term economic risk and reward.

At June 30, 2012, management established benefit reserves based on the benefit ratio calculated using assumptions reflecting management’s best estimate of the future performance of the variable annuity line of business. Management exercises judgment in determining the extent to which short-term market movements impact the benefit reserves. The benefit reserves are based on the calculation of a long-term benefit ratio (or loss ratio) for the variable annuity guarantee reinsurance. Despite the long-term nature of the risk, the benefit ratio calculation is impacted by short-term market movements that may be judged by management to be temporary or transient. Management’s best estimate reflected a judgment that the equity markets will exhibit above average growth over the next several years. Management regularly examines both quantitative and qualitative analysis and for the quarter ended June 30, 2012, determined that no change to the benefit ratio was warranted. The benefit ratio used to establish the benefit reserves at June 30, 2012, has averaged less than 1/4 standard deviation from the calculated benefit ratios, averaging the periodic results from a 2-year rolling period ending June 30, 2012.

The guidance requires us to “regularly evaluate estimates used and adjust the liability balance… if actual experience or other evidence suggests that earlier assumptions should be revised.” ACE evaluates its estimates regularly and management uses judgment to determine the extent to which the assumptions underlying the benefit ratio calculation used to establish benefit reserves should be adjusted. The benefit ratio will be calculated based on management’s expectation for the short-term and long-term performance of the variable annuity guarantee liability. Management’s quantitative analysis includes a review of the differential between the benefit ratio used at the most recent valuation date and the benefit ratio calculated on subsequent dates. The differential is measured in terms of the standard deviation of the distribution of benefit ratios (reflecting 1,000 stochastic scenarios) calculated on subsequent dates.

The benefit reserves and FVL calculations are directly affected by market factors, including equity levels, interest rate levels, credit risk, and implied volatilities, as well as policyholder behaviors, such as annuitization and lapse rates. The tables below assume no changes to the benefit ratio used to establish the benefit reserves at June 30, 2012 and show the sensitivity, at June 30, 2012, of the FVL associated with the variable annuity guarantee reinsurance portfolio. In addition, the tables below show the sensitivity of the fair value of specific derivative instruments held (hedge value) to partially offset the risk in the variable annuity guarantee reinsurance portfolio. The tables below are estimates of the sensitivities to instantaneous changes in economic inputs or actuarial assumptions.

The tables below do not reflect the expected quarterly run rate of net income generated by the variable annuity guarantee reinsurance portfolio if markets remain unchanged during the period. All else equal, if markets remain unchanged during the period, the Gross FVL will increase, resulting in a realized loss. The realized loss occurs primarily because, during the period, we will collect premium while paying little or no claims on our GLB reinsurance (since most policies are not eligible to annuitize until 2013 or later). This increases the Gross FVL because future premiums are lower by the amount collected in the quarter, and also because future claims are

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discounted for a shorter period. We refer to this increase in Gross FVL as “timing effect”. The unfavorable impact of timing effect on our Gross FVL in a quarter is not reflected in the sensitivity tables below. For this reason, when using the tables below to estimate the sensitivity of Gross FVL in the third quarter to various changes, it is necessary to assume an additional $30 million to $60 million increase in Gross FVL and realized losses. However, the majority of this realized loss is offset by the positive quarterly run rate of life underwriting income generated by the variable annuity guarantee reinsurance portfolio if markets remain unchanged during the period, with little or no impact to Net income. Note that both the timing effect and the quarterly run rate of life underwriting income change over time as the book ages.

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		Worldwide Equity Shock
Interest Rate Shock		+10%			Flat			-10%			-20%			-30%			-40%
		(in millions of U.S. dollars)
+100 bps	(Increase)/decrease in Gross FVL	$	650		$	394		$	80		$	(287	)	$	(701	)	$	(1,158	)
	Increase/(decrease) in hedge value		(233	)		(4	)		227			460			696			935
	Increase/(decrease) in net income	$	417		$	390		$	307		$	173		$	(5	)	$	(223	)
Flat	(Increase)/decrease in Gross FVL	$	326		$	—		$	(380	)	$	(808	)	$	(1,277	)	$	(1,776	)
	Increase/(decrease) in hedge value		(230	)		—			232			466			703			942
	Increase/(decrease) in net income	$	96		$	—		$	(148	)	$	(342	)	$	(574	)	$	(834	)
-100 bps	(Increase)/decrease in Gross FVL	$	(157	)	$	(547	)	$	(990	)	$	(1,473	)	$	(1,982	)	$	(2,505	)
	Increase/(decrease) in hedge value		(226	)		5			237			472			709			949
	Increase/(decrease) in net income	$	(383	)	$	(542	)	$	(753	)	$	(1,001	)	$	(1,273	)	$	(1,556	)
		AA-rated						Interest Rate						Equity
Sensitivities to Other Economic Variables		Credit Spreads						Volatility						Volatility
		+100			-100			+2%			-2%			+2%			-2%
		(in millions of U.S. dollars)
(Increase)/decrease in Gross FVL		$	169		$	(169	)	$	(3	)	$	—		$	(23	)	$	21
Increase/(decrease) in hedge value			—			—			—			—			3			(3	)
Increase/(decrease) in net income		$	169		$	(169	)	$	(3	)	$	—		$	(20	)	$	18
Sensitivities to Actuarial Assumptions		Mortality
		+20%			+10%			-10%			-20%
		(in millions of U.S. dollars)
(Increase)/decrease in Gross FVL		$	38		$	19		$	(20	)	$	(40	)
Increase/(decrease) in hedge value			—			—			—			—
Increase/(decrease) in net income		$	38		$	19		$	(20	)	$	(40	)
		Lapses
		+50%			+25%			-25%			-50%
		(in millions of U.S. dollars)
(Increase)/decrease in Gross FVL		$	410		$	222		$	(262	)	$	(574	)
Increase/(decrease) in hedge value			—			—			—			—
Increase/(decrease) in net income		$	410		$	222		$	(262	)	$	(574	)
		Annuitization
		+50%			+25%			-25%			-50%
		(in millions of U.S. dollars)
(Increase)/decrease in Gross FVL		$	(347	)	$	(199	)	$	254		$	565
Increase/(decrease) in hedge value			—			—			—			—
Increase/(decrease) in net income		$	(347	)	$	(199	)	$	254		$	565

The above tables assume equity shocks impact all global equity markets equally and that the interest rate shock is a parallel shift in the U.S. yield curve. Our liabilities are sensitive to global equity markets in the following proportions: 70 percent—80 percent U.S. equity, 10 percent—20 percent international equity ex-Japan, 5 percent—15 percent Japan equity. Our current hedge portfolio is sensitive to global equity markets in the following proportions: 100 percent U.S. equity. We would suggest using the S&P 500 index as a proxy for U.S. equity, the MSCI EAFE index as a proxy for international equity, and the TOPIX as a proxy for Japan equity.

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Our liabilities are also sensitive to global interest rates at various points on the yield curve, mainly the U.S. Treasury curve in the following proportions: 5 percent—15 percent short-term rates (maturing in less than 5 years), 20 percent—30 percent medium-term rates (maturing between 5 years and 10 years, inclusive), and 60 percent—70 percent long-term rates (maturing beyond 10 years). A change in AA-rated credit spreads (AA-rated credit spreads are a proxy for both our own credit spreads and the credit spreads of the ceding insurers) impacts the rate used to discount cash flows in the fair value model. The hedge sensitivity is from June 30, 2012 market levels.

The above sensitivities are not directly additive because changes in one factor will affect the sensitivity to changes in other factors. Also, the sensitivities do not scale linearly and may be proportionally greater for larger movements in the market factors. Sensitivities may also vary due to foreign exchange rate fluctuations. The calculation of the FVL is based on internal models that include assumptions regarding future policyholder behavior, including lapse, annuitization, and asset allocation. These assumptions impact both the absolute level of the FVL as well as the sensitivities to changes in market factors shown above. Additionally, actual sensitivity of our net income may differ from those disclosed in the tables above due to differences between short-term market movements and management judgment regarding the long-term assumptions implicit in our benefit ratios. Furthermore, the sensitivities above could vary by multiples of the sensitivities in the tables above.

Variable Annuity Net Amount at Risk

a) Reinsurance covering the GMDB risk only

The table below shows the net amount at risk at June 30, 2012 following an immediate change in equity market levels, assuming all global equity markets are impacted equally.

	Equity Shock
	+20%		Flat		-20%		-40%		-60%		-80%
	(in million of U.S. dollars, except percentages)
GMDB net amount at risk	$	1,289	$	1,537	$	2,185	$	2,463	$	2,345	$	2,125
Claims at 100% immediate mortality		699		442		349		332		307		277

At June 30, 2012 and December 31, 2011 the net amount at risk from reinsurance programs covering the GMDB risk only was $1.5 billion and $1.8 billion, respectively.

For reinsurance programs covering the GMDB risk only, the net amount at risk is defined as the present value of future claim payments under the following assumptions:

• policy account values and guaranteed values are fixed at the valuation date (June 30, 2012 and December 31, 2011, respectively);

• there are no lapses or withdrawals;

• mortality according to 100 percent of the Annuity 2000 mortality table;

• future claims are discounted in line with the discounting assumption used in the calculation of the benefit reserve averaging between 1.0 and 2.0 percent; and

• reinsurance coverage ends at the earlier of the maturity of the underlying variable annuity policy or the reinsurance treaty.

The total claim amount payable on reinsurance programs covering the GMDB risk only, if all the cedants’ policyholders were to die immediately at June 30, 2012 was approximately $442 million. This takes into account all applicable reinsurance treaty claim limits.

In addition, the table shows the total claim amount payable on reinsurance programs covering the GMDB risk only, if all of the cedants’ policyholders were to die immediately at June 30, 2012. This takes into account all applicable reinsurance treaty claim limits.

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The treaty claim limits function as a ceiling on the net amount at risk as equity markets fall. In addition, the claims payable if all of the policyholders were to die immediately declines as equity markets fall due to the specific nature of these claim limits, many of which are annual claim limits calculated as a percentage of the reinsured account value. There is also some impact due to a small portion of the GMDB reinsurance under which claims are positively correlated to equity markets (claims decrease as equity markets fall).

b) Reinsurance covering the GLB risk only

The table below shows the net amount at risk at June 30, 2012 following an immediate change in equity market levels, assuming all global equity markets are impacted equally.

	Equity Shock
	+20%		Flat		-20%		-40%		-60%		-80%
	(in million of U.S. dollars, except percentages)
GLB net amount at risk	$	156	$	442	$	1,086	$	1,871	$	2,437	$	2,549

At June 30, 2012 and December 31, 2011, the net amount at risk from reinsurance programs covering the GLB risk only was $442 million and $380 million, respectively.

For reinsurance programs covering the GLB risk only, the net amount at risk is defined as the present value of future claim payments under the following assumptions:

• policy account values and guaranteed values are fixed at the valuation date (June 30, 2012 and December 31, 2011, respectively);

• there are no deaths, lapses, or withdrawals;

• policyholders annuitize at a frequency most disadvantageous to ACE (in other words, annuitization at a level that maximizes claims taking into account the treaty limits) under the terms of the reinsurance contracts;

• for annuitizing policyholders, the GMIB claim is calculated using interest rates in line with those used in calculating the reserve;

• future claims are discounted in line with the discounting assumption used in the calculation of the benefit reserve averaging between 3.0 and 4.0 percent; and

• reinsurance coverage ends at the earlier of the maturity of the underlying variable annuity policy or the reinsurance treaty.

The treaty claim limits cause the net amount at risk to increase at a declining rate as equity markets fall.

c) Reinsurance covering both the GMDB and GLB risks on the same underlying policyholders

The table below shows the net amount at risk at June 30, 2012 following an immediate change in equity market levels, assuming all global equity markets are impacted equally.

	Equity Shock
	+20%		Flat		-20%		-40%		-60%		-80%
	(in million of U.S. dollars, except percentages)
GMDB net amount at risk	$	107	$	160	$	212	$	261	$	317	$	368
GLB net amount at risk		515		934		1,490		2,089		2,577		2,857
Claims at 100% immediate mortality		597		1,000		1,216		1,403		1,588		1,772

At June 30, 2012 and December 31, 2011, the GMDB net amount at risk from reinsurance programs covering both the GMDB and GLB risks on the same underlying policyholders was $160 million and $182 million, respectively.

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At June 30, 2012 and December 31, 2011, the GLB net amount at risk from reinsurance programs covering both the GMDB and GLB risks on the same underlying policyholders was $934 million and $998 million, respectively.

These net amounts at risk reflect the interaction between the two types of benefits on any single policyholder (eliminating double-counting), and therefore the net amounts at risk should be considered additive.

In addition, the table shows the total claim amount payable on reinsurance programs covering both the GMDB and GLB risks on the same underlying policyholders, if all of the cedants’ policyholders were to die immediately at June 30, 2012. This takes into account all applicable reinsurance treaty claim limits. Although this calculation shows an increase in death claims resulting from 100 percent immediate mortality of all policyholders, the GLB claims would be zero in this scenario.

For reinsurance programs covering both the GMDB and GLB risks on the same underlying policyholders, the net amount at risk is defined as the present value of future claim payments under the following assumptions:

• policy account values and guaranteed values are fixed at the valuation date (June 30, 2012 and December 31, 2011, respectively);

• there are no lapses, or withdrawals;

• mortality according to 100 percent of the Annuity 2000 mortality table;

• policyholders annuitize at a frequency most disadvantageous to ACE (in other words, annuitization at a level that maximizes claims taking into account the treaty limits) under the terms of the reinsurance contracts;

• for annuitizing policyholders, the GMIB claim is calculated using interest rates in line with those used in calculating the reserve;

• future claims are discounted in line with the discounting assumption used in the calculation of the benefit reserve averaging between 1.0 and 2.0 percent; and

• reinsurance coverage ends at the earlier of the maturity of the underlying variable annuity policy or the reinsurance treaty.

The treaty limits control the increase in the GMDB net amount at risk as equity markets fall. The GMDB net amount at risk continues to grow as equity markets fall because most of these reinsurance treaties do not have annual claim limits calculated as a percentage of the underlying account value.

The treaty limits cause the GLB net amount at risk to increase at a declining rate as equity markets fall.

Item 4. Controls and Procedures

ACE’s management, with the participation of ACE’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of ACE’s disclosure controls and procedures as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934 as of June 30, 2012. Based upon that evaluation, ACE’s Chief Executive Officer and Chief Financial Officer concluded that ACE’s disclosure controls and procedures are effective in allowing information required to be disclosed in reports filed under the Securities and Exchange Act of 1934 to be recorded, processed, summarized, and reported within time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to ACE’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

There has been no change in ACE’s internal controls over financial reporting during the three months ended June 30, 2012, that has materially affected, or is reasonably likely to materially affect, ACE’s internal controls over financial reporting.

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ACE LIMITED

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

The information required with respect to this item is included in Note 6 d) to the consolidated financial statements which is hereby incorporated herein by reference.

Item 1A. Risk Factors

Refer to “Risk Factors” under Item 1A of Part I of our 2011 Form 10-K. There have been no material changes to the risk factors disclosed in Part I, Item 1A of our 2011 Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds and Issuer Repurchases of Equity Securities

The following table provides information with respect to purchases by ACE of its Common Shares during the three months ended June 30, 2012:

Issuer’s Repurchases of Equity Securities

Period	Total Number of Shares Purchased(1)		Average Price Paid per Share		Approximate Dollar Value of Shares that May Yet be Purchased Under the Board Repurchase Authorization(2)
April 1 through April 30		7,339	$	73.74	$	461 million
May 1 through May 31		94,433	$	75.33	$	461 million
June 1 through June 30		1,701	$	71.17	$	461 million
Total		103,473

⁽¹⁾  This column includes activity related to the surrender to ACE of Common Shares to satisfy tax withholding obligations in connection with the vesting of restricted stock issued to employees and the exercising of options by employees.

⁽²⁾ Refer to Note 7 to the Consolidated Financial Statements for more information on the ACE Limited securities repurchase authorization. The $461 million of remaining authorizations expire December  31, 2012.

Item 6. Exhibits

Refer to the Exhibit Index.

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ACE LIMITED

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	ACE LIMITED
	(Registrant)
August 1, 2012	/S/ EVAN G. GREENBERG
	Evan G. Greenberg
	Chairman, President and Chief Executive Officer
August 1, 2012	/S/ PHILIP V. BANCROFT
	Philip V. Bancroft
	Chief Financial Officer

94

		Incorporated by Reference
Exhibit Number	Exhibit Description	Form		Original Number		Date Filed		Filed Herewith
3.1	Articles of Association of the Company, as amended		8-K		3.1		May 22, 2012
3.2	Articles of Association of the Company, as amended and restated		8-K		3		July 31, 2012
4.1	Articles of Association of the Company, as amended		8-K		4.1		May 22, 2012
4.2	Articles of Association of the Company, as amended and restated		8-K		4		July 31, 2012
10.1*	ACE Limited Employee Stock Purchase Plan, as amended through the Fourth Amendment		8-K		10.1		May 22, 2012
31.1	Certification Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002								X
31.2	Certification Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002								X
32.1	Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002								X
32.2	Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002								X
101.1	The following financial information from ACE Limited’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012 formatted in XBRL: (i) Consolidated Balance Sheets at June 30, 2012, and December 31, 2011; (ii) Consolidated Statements of Operations and Comprehensive Income for the three months and six months ended June 30, 2012 and 2011; (iii) Consolidated Statements of Shareholders’ Equity for the six months ended June 30, 2012 and 2011; (iv) Consolidated Statements of Cash Flows for the six months ended June 30, 2012 and 2011; and (v) Notes to Consolidated Financial Statements								X

* Management Contract or Compensation Plan

95

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO

SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002

I, Evan G. Greenberg, certify that:

1) I have reviewed this quarterly report on Form 10-Q of ACE Limited;

2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4) The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5) The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:    August 1, 2012

/s/ Evan G. Greenberg

Evan G. Greenberg

Chairman, President and Chief

Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO

SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002

I, Philip V. Bancroft, certify that:

1) I have reviewed this quarterly report on Form 10-Q of ACE Limited;

2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4) The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5) The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:    August 1, 2012

/s/ Philip V. Bancroft

Philip V. Bancroft

Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATIONS PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The undersigned officer of ACE Limited (the Corporation) hereby certifies that the Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, fully complies with the applicable reporting requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a)) and that the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Corporation.

Dated: August 1, 2012	/s/ Evan G. Greenberg
	Evan G. Greenberg Chairman, President and Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATIONS PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The undersigned officer of ACE Limited (the Corporation) hereby certifies that the Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, fully complies with the applicable reporting requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a)) and that the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Corporation.

Dated: August 1, 2012	/s/ Philip V. Bancroft
	Philip V. Bancroft
	Chief Financial Officer

XML

Fair Value Measurements (Financial Instruments Measured At Fair Value On Recurring Basis) (Detail) (USD $) In Millions, unless otherwise specified	Jun. 30, 2012		Dec. 31, 2011
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items]
Fixed maturities available for sale at fair value	$ 44,386		$ 41,967
Equity securities, at fair value (cost - $724 and $671)	729		647
Short-term investments	2,260		2,301
Other investments	2,524		2,314
Securities lending collateral	2,247		1,375
Investment derivative instruments	(4)		10
Other derivative instruments	(43)		41
Separate account assets	889		660
Total assets measured at fair value	52,988		49,315
GLB	1,354	[1]	1,319	[1]
U.S. Treasury And Agency [Member]
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items]
Fixed maturities available for sale at fair value	3,294		2,960
Foreign [Member]
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items]
Fixed maturities available for sale at fair value	13,268		12,401
Corporate Securities [Member]
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items]
Fixed maturities available for sale at fair value	15,299		14,693
Mortgage Backed-Securities [Member]
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items]
Fixed maturities available for sale at fair value	10,181		10,201
States, Municipalities, And Political Subdivisions [Member]
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items]
Fixed maturities available for sale at fair value	2,344		1,712
Fair Value, Inputs, Level 1 [Member]
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items]
Fixed maturities available for sale at fair value	2,108		1,923
Equity securities, at fair value (cost - $724 and $671)	713		632
Short-term investments	1,322		1,246
Other investments	230		208
Investment derivative instruments	(4)		10
Other derivative instruments	(85)		(16)
Separate account assets	830		607
Total assets measured at fair value	5,114		4,610
Fair Value, Inputs, Level 1 [Member] | U.S. Treasury And Agency [Member]
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items]
Fixed maturities available for sale at fair value	1,884		1,691
Fair Value, Inputs, Level 1 [Member] | Foreign [Member]
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items]
Fixed maturities available for sale at fair value	204		212
Fair Value, Inputs, Level 1 [Member] | Corporate Securities [Member]
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items]
Fixed maturities available for sale at fair value	20		20
Fair Value, Inputs, Level 1 [Member] | Mortgage Backed-Securities [Member]
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items]
Fixed maturities available for sale at fair value
Fair Value, Inputs, Level 2 [Member]
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items]
Fixed maturities available for sale at fair value	42,089		39,843
Equity securities, at fair value (cost - $724 and $671)	4		2
Short-term investments	938		1,055
Other investments	247		229
Securities lending collateral	2,247		1,375
Other derivative instruments	41		54
Separate account assets	59		53
Total assets measured at fair value	45,625		42,611
Fair Value, Inputs, Level 2 [Member] | U.S. Treasury And Agency [Member]
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items]
Fixed maturities available for sale at fair value	1,406		1,264
Fair Value, Inputs, Level 2 [Member] | Foreign [Member]
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items]
Fixed maturities available for sale at fair value	13,044		12,156
Fair Value, Inputs, Level 2 [Member] | Corporate Securities [Member]
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items]
Fixed maturities available for sale at fair value	15,142		14,539
Fair Value, Inputs, Level 2 [Member] | Mortgage Backed-Securities [Member]
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items]
Fixed maturities available for sale at fair value	10,154		10,173
Fair Value, Inputs, Level 2 [Member] | States, Municipalities, And Political Subdivisions [Member]
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items]
Fixed maturities available for sale at fair value	2,343		1,711
Fair Value, Inputs, Level 3 [Member]
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items]
Fixed maturities available for sale at fair value	189		201
Equity securities, at fair value (cost - $724 and $671)	12		13
Other investments	2,047		1,877
Other derivative instruments	1		3
Total assets measured at fair value	2,249		2,094
GLB	1,354	[1]	1,319	[1]
Fair Value, Inputs, Level 3 [Member] | U.S. Treasury And Agency [Member]
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items]
Fixed maturities available for sale at fair value	4		5
Fair Value, Inputs, Level 3 [Member] | Foreign [Member]
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items]
Fixed maturities available for sale at fair value	20		33
Fair Value, Inputs, Level 3 [Member] | Corporate Securities [Member]
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items]
Fixed maturities available for sale at fair value	137		134
Fair Value, Inputs, Level 3 [Member] | Mortgage Backed-Securities [Member]
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items]
Fixed maturities available for sale at fair value	27		28
Fair Value, Inputs, Level 3 [Member] | States, Municipalities, And Political Subdivisions [Member]
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items]
Fixed maturities available for sale at fair value	$ 1		$ 1

[1] Our GLB reinsurance product meets the definition of a derivative instrument for accounting purposes and is accordingly carried at fair value. Excluded from the table above is the portion of the GLB derivative liability classified as Future policy benefits in the consolidated balance sheets. Refer to Note 5 for additional information.

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Earnings Per Share (Detail) (USD $) In Millions, except Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Earnings Per Share [Line Items]
Net income	$ 328	$ 594	$ 1,301	$ 844
Weighted-average shares outstanding	339,766,067	338,920,580	339,164,449	338,021,487
Share-based compensation plans	2,907,971	2,768,388	3,006,950	2,596,909
Adjusted weighted-average shares outstanding and assumed conversions	342,674,038	341,688,968	342,171,399	340,618,396
Basic earnings per share	$ 0.96	$ 1.75	$ 3.83	$ 2.50
Diluted earnings per share	$ 0.96	$ 1.74	$ 3.80	$ 2.48
Anti-dilutive share conversions	1,471,035	1,212	1,051,182	81,718

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Commitments, Contingencies, And Guarantees (Net Realized Gains (Losses) Of Derivative Instrument Activity In Consolidated Statement Of Operations) (Detail) (USD $) In Millions, unless otherwise specified	3 Months Ended				6 Months Ended
	Jun. 30, 2012		Jun. 30, 2011		Jun. 30, 2012		Jun. 30, 2011
Commitments Contingencies And Guarantees [Line Items]
Net realized gains (losses)	$ (445)		$ (117)		$ (211)		$ (138)
Foreign Exchange Future [Member]
Commitments Contingencies And Guarantees [Line Items]
Net realized gains (losses)	8		(3)		1		(18)
All Other Futures Contracts And Options [Member]
Commitments Contingencies And Guarantees [Line Items]
Net realized gains (losses)	(45)		(24)		(20)		(27)
Convertibles and Bonds with Warrants Attached [Member]
Commitments Contingencies And Guarantees [Line Items]
Net realized gains (losses)	(12)		(21)		12		(22)
Dollar Rolls [Member]
Commitments Contingencies And Guarantees [Line Items]
Net realized gains (losses)							(1)
Investment And Embedded Derivative Instruments [Member]
Commitments Contingencies And Guarantees [Line Items]
Net realized gains (losses)	(49)		(48)		(7)		(68)
Guaranteed Living Benefits [Member]
Commitments Contingencies And Guarantees [Line Items]
Net realized gains (losses)	(467)	[1]	(70)	[1]	(39)	[1]	1	[1]
Single-Stock Future [Member]
Commitments Contingencies And Guarantees [Line Items]
Net realized gains (losses)	65	[2]			(148)	[2]	(63)	[2]
Options On Equity Market Indices [Member]
Commitments Contingencies And Guarantees [Line Items]
Net realized gains (losses)	5	[2]	3	[2]	(13)	[2]	(5)	[2]
Credit Default Swap [Member]
Commitments Contingencies And Guarantees [Line Items]
Net realized gains (losses)	1		(2)		(4)		(3)
Guaranteed Living Benefit And Other Derivative Instruments [Member]
Commitments Contingencies And Guarantees [Line Items]
Net realized gains (losses)	$ (396)		$ (69)		$ (204)		$ (70)

[1] Excludes foreign exchange gains (losses) related to GLB.

[2] Related to GMDB and GLB blocks of business.

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Information Provided In Connection With Outstanding Debt Of Subsidiaries (Condensed Consolidating Balance Sheet) (Detail) (USD $) In Millions, unless otherwise specified	Jun. 30, 2012		Dec. 31, 2011		Jun. 30, 2011		Dec. 31, 2010
Condensed Financial Statements, Captions [Line Items]
Investments	$ 57,681		$ 55,676
Cash	617	[1],[2]	614		833	[3]	772	[3]
Insurance and reinsurance balances receivable	4,985		4,387
Reinsurance recoverable on losses and loss expenses	11,752		12,389
Reinsurance recoverable on policy benefits	257		249
Value of business acquired	637		676
Goodwill and other intangible assets	4,826		4,799
Other assets	9,946		8,531
Total assets	90,701		87,321
Unpaid losses and loss expenses	36,850		37,477
Unearned premiums	7,044		6,334
Future policy benefits	4,436		4,274
Short-term debt	1,401		1,251
Long-term debt	3,360		3,360
Trust preferred securities	309		309
Other liabilities	11,539		9,984
Total liabilities	64,939		62,989
Total shareholders' equity	25,762		24,332		23,952
Total liabilities and shareholders' equity	90,701		87,321
Parent Company [Member]
Condensed Financial Statements, Captions [Line Items]
Investments	36		33
Cash	(30)	[1],[2]	106		(185)	[3]	308	[3]
Investments in subsidiaries	25,660		23,871
Due from subsidiaries and affiliates, net	327		498
Other assets	7		8
Total assets	26,000		24,516
Other liabilities	238		184
Total liabilities	238		184
Total shareholders' equity	25,762		24,332
Total liabilities and shareholders' equity	26,000		24,516
Guarantor Subsidiaries [Member]
Condensed Financial Statements, Captions [Line Items]
Investments	29,670		28,848
Cash	508	[1],[2]	382		664	[3]	573	[3]
Insurance and reinsurance balances receivable	4,409		3,944
Reinsurance recoverable on losses and loss expenses	16,432		17,146
Reinsurance recoverable on policy benefits	1,181		941
Value of business acquired	637		676
Goodwill and other intangible assets	4,274		4,248
Other assets	7,678		7,018
Total assets	64,789		63,203
Unpaid losses and loss expenses	30,321		30,837
Unearned premiums	5,916		5,416
Future policy benefits	3,845		3,673
Due to subsidiaries and affiliates, net	604		316
Short-term debt	851		850
Long-term debt	3,360		3,360
Trust preferred securities	309		309
Other liabilities	8,255		7,769
Total liabilities	53,461		52,530
Total shareholders' equity	11,328		10,673
Total liabilities and shareholders' equity	64,789		63,203
Other ACE Limited Subsidiaries And Eliminations [Member]
Condensed Financial Statements, Captions [Line Items]
Investments	27,975	[4]	26,795	[4]
Cash	139	[1],[2],[4]	126	[4]	354	[3],[4]	(109)	[3],[4]
Insurance and reinsurance balances receivable	576	[4]	443	[4]
Reinsurance recoverable on losses and loss expenses	(4,680)	[4]	(4,757)	[4]
Reinsurance recoverable on policy benefits	(924)	[4]	(692)	[4]
Goodwill and other intangible assets	552	[4]	551	[4]
Other assets	2,261	[4]	1,505	[4]
Total assets	25,899	[4]	23,971	[4]
Unpaid losses and loss expenses	6,529	[4]	6,640	[4]
Unearned premiums	1,128	[4]	918	[4]
Future policy benefits	591	[4]	601	[4]
Due to subsidiaries and affiliates, net	(277)	[4]	182	[4]
Short-term debt	550	[4]	401	[4]
Other liabilities	3,046	[4]	2,031	[4]
Total liabilities	11,567	[4]	10,773	[4]
Total shareholders' equity	14,332	[4]	13,198	[4]
Total liabilities and shareholders' equity	25,899	[4]	23,971	[4]
Consolidation, Eliminations [Member]
Condensed Financial Statements, Captions [Line Items]
Investments in subsidiaries	(25,660)	[5]	(23,871)	[5]
Due from subsidiaries and affiliates, net	(327)	[5]	(498)	[5]
Total assets	(25,987)	[5]	(24,369)	[5]
Due to subsidiaries and affiliates, net	(327)	[5]	(498)	[5]
Total liabilities	(327)	[5]	(498)	[5]
Total shareholders' equity	(25,660)	[5]	(23,871)	[5]
Total liabilities and shareholders' equity	$ (25,987)	[5]	$ (24,369)	[5]

[1] ACE maintains two notional multicurrency cash pools (Pools) with a third-party bank. Various ACE entities participate in one or the other of the Pools, pursuant to which credit and debit balances in individual ACE accounts are translated daily into a single currency and pooled on a notional basis. Individual ACE entities are permitted to overdraw on their individual accounts provided the overall Pool balances do not fall below zero. At June 30, 2012, the cash balance of one or more entities was negative; however, the overall Pool balances were positive.

[2] ACE maintains two notional multi-currency cash pools (Pools) with a third-party bank. Various ACE entities participate in one or the other of the Pools, pursuant to which credit and debit balances in individual ACE accounts are translated daily into a single currency and pooled on a notional basis. Individual ACE entities are permitted to overdraw on their individual accounts provided the overall Pool balances do not fall below zero. At June 30, 2012 one or more entities was negative; however, the overall Pool balances were positive.

[3] ACE maintains two notional multi-currency cash pools (Pools) with a third-party bank. Various ACE entities participate in one or the other of the Pools, pursuant to which credit and debit balances in individual ACE accounts are translated daily into a single currency and pooled on a notional basis. Individual ACE entities are permitted to overdraw on their individual accounts provided the overall Pool balances do not fall below zero. At June 30, 2011 and December 31, 2010, the cash balance of one or more entities was negative; however, the overall Pool balances were positive.

[4] Includes all other subsidiaries of ACE Limited and intercompany eliminations.

[5] Includes ACE Limited parent company eliminations.

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Assumed Life Reinsurance Programs Involving Minimum Benefit Guarantees Under Annuity Contracts (Narrative) (Detail) (USD $) In Millions, unless otherwise specified								3 Months Ended
	Jun. 30, 2012 Guaranteed Minimum Death Benefit [Member]	Dec. 31, 2011 Guaranteed Minimum Death Benefit [Member]	Jun. 30, 2012 Guaranteed Minimum Income Benefit [Member]	Dec. 31, 2011 Guaranteed Minimum Income Benefit [Member]	Jun. 30, 2011 Guaranteed Minimum Income Benefit [Member]	Mar. 31, 2011 Guaranteed Minimum Income Benefit [Member]	Dec. 31, 2010 Guaranteed Minimum Income Benefit [Member]	Jun. 30, 2012 Guaranteed Minimum Deaths Benefits And Guaranteed Living Benefits [Member]	Dec. 31, 2011 Guaranteed Minimum Deaths Benefits And Guaranteed Living Benefits [Member]	Jun. 30, 2012 Guaranteed Living Benefits [Member]	Dec. 31, 2011 Guaranteed Living Benefits [Member]
Guaranteed Minimum Benefits [Line Items]
Reported liabilities	$ 117	$ 138	$ 1,600	$ 1,500	$ 676	$ 596	$ 648
Fair value derivative adjustment in liability			1,400	1,300	524	449	507
Net amount at risk	1,500	1,800								442	380
Percent of Annuity 2000 mortality table used for mortality assumption	100.00%							100.00%
Discounting assumption used in the calculation of the benefit reserve averaging - lower range	1.00%							1.00%		3.00%
Discounting assumption used in the calculation of the benefit reserve averaging - upper range	2.00%							2.00%		4.00%
Total claim amount payable, if all of the Company's cedants' policyholders covered were to die immediately	442.0							1,000.0
GMBD net amount of risk								160	182
GLB net amount of risk								$ 934	$ 998
Average attained age of all policyholders under all benefits reinsured, years								67 years

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Investments (Schedule Of Cost And Fair Value Of Equity Securities) (Detail) (USD $) In Millions, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Investment [Line Items]
Cost	$ 724	$ 671
Gross unrealized appreciation	29	18
Gross unrealized depreciation	(24)	(42)
Fair value	$ 729	$ 647

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Information Provided In Connection With Outstanding Debt Of Subsidiaries (Condensed Consolidating Statement Of Cash Flows) (Detail) (USD $) In Millions, unless otherwise specified	6 Months Ended
	Jun. 30, 2012		Jun. 30, 2011
Information Provided In Connection With Outstanding Debt Of Subsidiaries [Line Items]
Net cash flows from operating activities	$ 1,383		$ 2,063
Purchases of fixed maturities available for sale	(11,687)		(13,683)
Purchases of fixed maturities held to maturity	(136)		(234)
Purchases of equity securities	(93)		(170)
Sales of fixed maturities available for sale	8,032		9,985
Sales of equity securities	33		347
Maturities and redemptions of fixed maturities available for sale	2,280		1,758
Maturities and redemptions of fixed maturities held to maturity	739		656
Net derivative instruments settlements	(133)		(46)
Acquisition of subsidiaries	(30)		(380)
Other	(255)		(132)
Net cash flows from (used for) investing activities	(1,250)		(1,899)
Dividends paid on Common Shares	(318)		(223)
Common Shares repurchased	(11)		(68)
Net proceeds from (repayments) issuance of short-term debt	151		100
Proceeds from share-based compensation plans	55		76
Net cash flows (used for) from financing activities	(123)		(115)
Effect of foreign currency rate changes on cash and cash equivalents	(7)		12
Net (decrease) increase in cash	3		61
Cash - beginning of period	614		772	[1]
Cash - end of period	617	[2],[3]	833	[1]
Parent Company [Member]
Information Provided In Connection With Outstanding Debt Of Subsidiaries [Line Items]
Net cash flows from operating activities	49		623
Sales of fixed maturities available for sale			8
Net derivative instruments settlements	(1)		(1)
Capital contribution to subsidiary			(385)
Advances from (to) affiliates	131		(291)
Net cash flows from (used for) investing activities	130		(669)
Dividends paid on Common Shares	(318)		(223)
Net proceeds from (repayments) issuance of short-term debt			(300)
Proceeds from share-based compensation plans	3		76
Net cash flows (used for) from financing activities	(315)		(447)
Net (decrease) increase in cash	(136)		(493)
Cash - beginning of period	106		308	[1]
Cash - end of period	(30)	[2],[3]	(185)	[1]
Guarantor Subsidiaries [Member]
Information Provided In Connection With Outstanding Debt Of Subsidiaries [Line Items]
Net cash flows from operating activities	540		677
Purchases of fixed maturities available for sale	(5,614)		(6,330)
Purchases of fixed maturities held to maturity	(134)		(233)
Purchases of equity securities	(57)		(138)
Sales of fixed maturities available for sale	3,750		5,022
Sales of equity securities	28		332
Maturities and redemptions of fixed maturities available for sale	1,158		847
Maturities and redemptions of fixed maturities held to maturity	527		475
Net derivative instruments settlements	(6)		(7)
Acquisition of subsidiaries	(30)		(343)
Other	(140)		(449)
Net cash flows from (used for) investing activities	(518)		(824)
Advances (to) from affiliates	23		226
Capital contribution from subsidiary	90
Net cash flows (used for) from financing activities	113		226
Effect of foreign currency rate changes on cash and cash equivalents	(9)		12
Net (decrease) increase in cash	126		91
Cash - beginning of period	382		573	[1]
Cash - end of period	508	[2],[3]	664	[1]
Other ACE Limited Subsidiaries And Eliminations [Member]
Information Provided In Connection With Outstanding Debt Of Subsidiaries [Line Items]
Net cash flows from operating activities	794	[4]	1,443	[4]
Purchases of fixed maturities available for sale	(6,073)	[4]	(7,353)	[4]
Purchases of fixed maturities held to maturity	(2)	[4]	(1)	[4]
Purchases of equity securities	(36)	[4]	(32)	[4]
Sales of fixed maturities available for sale	4,282	[4]	4,955	[4]
Sales of equity securities	5	[4]	15	[4]
Maturities and redemptions of fixed maturities available for sale	1,122	[4]	911	[4]
Maturities and redemptions of fixed maturities held to maturity	212	[4]	181	[4]
Net derivative instruments settlements	(126)	[4]	(38)	[4]
Capital contribution to subsidiary	(90)	[4]
Acquisition of subsidiaries			(37)	[4]
Other	(115)	[4]	317	[4]
Net cash flows from (used for) investing activities	(821)	[4]	(1,082)	[4]
Common Shares repurchased	(11)	[4]	(68)	[4]
Net proceeds from (repayments) issuance of short-term debt	151	[4]	400	[4]
Proceeds from share-based compensation plans	52	[4]
Advances (to) from affiliates	(154)	[4]	65	[4]
Dividends to parent company			(680)	[4]
Capital contribution from parent			385	[4]
Net cash flows (used for) from financing activities	38	[4]	102	[4]
Effect of foreign currency rate changes on cash and cash equivalents	2	[4]
Net (decrease) increase in cash	13	[4]	463	[4]
Cash - beginning of period	126	[4]	(109)	[1],[4]
Cash - end of period	139	[2],[3],[4]	354	[1],[4]
Consolidation, Eliminations [Member]
Information Provided In Connection With Outstanding Debt Of Subsidiaries [Line Items]
Net cash flows from operating activities			(680)	[5]
Capital contribution to subsidiary	90	[5]	385	[5]
Advances from (to) affiliates	(131)	[5]	291	[5]
Net cash flows from (used for) investing activities	(41)	[5]	676	[5]
Advances (to) from affiliates	131	[5]	(291)	[5]
Dividends to parent company			680	[5]
Capital contribution from subsidiary	(90)	[5]
Capital contribution from parent			(385)	[5]
Net cash flows (used for) from financing activities	$ 41	[5]	$ 4	[5]

[1] ACE maintains two notional multi-currency cash pools (Pools) with a third-party bank. Various ACE entities participate in one or the other of the Pools, pursuant to which credit and debit balances in individual ACE accounts are translated daily into a single currency and pooled on a notional basis. Individual ACE entities are permitted to overdraw on their individual accounts provided the overall Pool balances do not fall below zero. At June 30, 2011 and December 31, 2010, the cash balance of one or more entities was negative; however, the overall Pool balances were positive.

[2] ACE maintains two notional multicurrency cash pools (Pools) with a third-party bank. Various ACE entities participate in one or the other of the Pools, pursuant to which credit and debit balances in individual ACE accounts are translated daily into a single currency and pooled on a notional basis. Individual ACE entities are permitted to overdraw on their individual accounts provided the overall Pool balances do not fall below zero. At June 30, 2012, the cash balance of one or more entities was negative; however, the overall Pool balances were positive.

[3] ACE maintains two notional multi-currency cash pools (Pools) with a third-party bank. Various ACE entities participate in one or the other of the Pools, pursuant to which credit and debit balances in individual ACE accounts are translated daily into a single currency and pooled on a notional basis. Individual ACE entities are permitted to overdraw on their individual accounts provided the overall Pool balances do not fall below zero. At June 30, 2012 one or more entities was negative; however, the overall Pool balances were positive.

[4] Includes all other subsidiaries of ACE Limited and intercompany eliminations.

[5] Includes ACE Limited parent company eliminations.

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Segment information (Tables)

6 Months Ended

Jun. 30, 2012

Operations By Segment

Statement of Operations by Segment

For the Three Months Ended June 30, 2012

(in millions of U.S. dollars)

	Insurance – North American		Insurance – Overseas General		Global Reinsurance			Life			Corporate and Other			ACE Consolidated
Net premiums written	$	1,860	$	1,475	$	309		$	486		$	—		$	4,130
Net premiums earned		1,652		1,420		237			474			—			3,783
Losses and loss expenses		1,163		703		102			151			—			2,119
Policy benefits		—		—		—			102			—			102
Policy acquisition costs		157		332		42			88			—			619
Administrative expenses		153		233		13			78			37			514
Underwriting income (loss)		179		152		80			55			(37	)		429
Net investment income		271		128		70			62			6			537
Net realized gains (losses) including OTTI		18		26		(17	)		(421	)		—			(394	)
Interest expense		3		1		1			3			54			62
Other (income) expense:
(Gains) losses from fair value changes in separate account assets		—		—		—			14			—			14
Other		10		6		3			5			(4	)		20
Income tax expense (benefit)		107		51		—			19			(29	)		148
Net income (loss)	$	348	$	248	$	129		$	(345	)	$	(52	)	$	328

Statement of Operations by Segment

For the Three Months Ended June 30, 2011

(in millions of U.S. dollars)

	Insurance – North American		Insurance – Overseas General			Global Reinsurance			Life			Corporate and Other			ACE Consolidated
Net premiums written	$	1,735	$	1,443		$	282		$	493		$	—		$	3,953
Net premiums earned		1,604		1,415			254			484			—			3,757
Losses and loss expenses		1,233		721			112			159			1			2,226
Policy benefits		—		—			—			108			—			108
Policy acquisition costs		145		335			47			85			—			612
Administrative expenses		147		239			14			78			40			518
Underwriting income (loss)		79		120			81			54			(41	)		293
Net investment income		300		137			71			60			1			569
Net realized gains (losses) including OTTI		21		(10	)		(14	)		(68	)		(2	)		(73	)
Interest expense		3		1			1			3			54			62
Other (income) expense		3		(5	)		1			11			2			12
Income tax expense (benefit)		95		39			8			14			(35	)		121
Net income (loss)	$	299	$	212		$	128		$	18		$	(63	)	$	594

Statement of Operations by Segment

For the Six Months Ended June 30, 2012

(in millions of U.S. dollars)

	Insurance – North American		Insurance – Overseas General		Global Reinsurance			Life			Corporate and Other			ACE Consolidated
Net premiums written	$	3,153	$	3,003	$	572		$	974		$	—		$	7,702
Net premiums earned		2,939		2,811		467			947			—			7,164
Losses and loss expenses		2,012		1,408		204			299			—			3,923
Policy benefits		—		—		—			249			—			249
Policy acquisition costs		284		667		85			164			1			1,201
Administrative expenses		300		462		25			156			81			1,024
Underwriting income (loss)		343		274		153			79			(82	)		767
Net investment income		545		259		141			123			13			1,081
Net realized gains (losses) including OTTI		17		46		(4	)		(190	)		(3	)		(134	)
Interest expense		6		2		2			6			108			124
Other (income) expense:
(Gains) losses from fair value changes in separate account assets		—		—		—			(4	)		—			(4	)
Other		9		6		(2	)		14			8			35
Income tax expense (benefit)		198		89		6			30			(65	)		258
Net income (loss)	$	692	$	482	$	284		$	(34	)	$	(123	)	$	1,301

Statement of Operations by Segment

For the Six Months Ended June 30, 2011

(in millions of U.S. dollars)

	Insurance – North American			Insurance – Overseas General			Global Reinsurance			Life			Corporate and Other			ACE Consolidated
Net premiums written	$	3,020		$	2,853		$	597		$	929		$	—		$	7,399
Net premiums earned		2,950			2,693			514			909			—			7,066
Losses and loss expenses		2,227			1,573			391			297			1			4,489
Policy benefits		—			—			—			199			—			199
Policy acquisition costs		281			636			93			161			—			1,171
Administrative expenses		295			462			26			152			82			1,017
Underwriting income (loss)		147			22			4			100			(83	)		190
Net investment income		595			268			143			106			1			1,113
Net realized gains (losses) including OTTI		10			(19	)		(27	)		(81	)		(1	)		(118	)
Interest expense		7			2			1			6			109			125
Other (income) expense		(13	)		(7	)		(5	)		17			7			(1	)
Income tax expense (benefit)		184			56			18			28			(69	)		217
Net income (loss)	$	574		$	220		$	106		$	74		$	(130	)	$	844

Net Premiums Earned For Segment By Product

	Property & All Other		Casualty		Life, Accident & Health		ACE Consolidated
	(in millions of U.S. dollars)
For the Three Months Ended June 30, 2012
Insurance – North American	$	731	$	828	$	93	$	1,652
Insurance – Overseas General		552		338		530		1,420
Global Reinsurance		114		123		—		237
Life		—		—		474		474
	$	1,397	$	1,289	$	1,097	$	3,783
For the Three Months Ended June 30, 2011
Insurance – North American	$	648	$	865	$	91	$	1,604
Insurance – Overseas General		533		348		534		1,415
Global Reinsurance		115		139		—		254
Life		—		—		484		484
	$	1,296	$	1,352	$	1,109	$	3,757

	Property & All Other		Casualty		Life, Accident & Health		ACE Consolidated
	(in millions of U.S. dollars)
For the Six Months Ended June 30, 2012
Insurance – North American	$	1,112	$	1,645	$	182	$	2,939
Insurance – Overseas General		1,090		671		1,050		2,811
Global Reinsurance		224		243		—		467
Life		—		—		947		947
	$	2,426	$	2,559	$	2,179	$	7,164
For the Six Months Ended June 30, 2011
Insurance – North American	$	1,018	$	1,755	$	177	$	2,950
Insurance – Overseas General		964		690		1,039		2,693
Global Reinsurance		227		287		—		514
Life		—		—		909		909
	$	2,209	$	2,732	$	2,125	$	7,066

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Shareholders' Equity (Detail) In Millions, except Share data, unless otherwise specified	1 Months Ended			3 Months Ended				6 Months Ended
	Jan. 31, 2012 USD ($)	Aug. 31, 2011 USD ($)	Nov. 30, 2010 USD ($)	Jun. 30, 2012 USD ($)	Jun. 30, 2012 CHF	Jun. 30, 2011 USD ($)	Jun. 30, 2011 CHF	Jun. 30, 2012 USD ($)	Jun. 30, 2012 CHF	Jun. 30, 2011 USD ($)	Jun. 30, 2011 CHF	Dec. 31, 2011 CHF
Stockholders' Equity [Line Items]
Dividends declared per common share				$ 0.49	0.48	$ 0.35	0.29	$ 1.08	1.01	$ 0.68	0.59
Par value reduction per common share					0.48		0.30		0.48		0.30
Common Shares, par value					29.79				29.79			30.27
Common Share dividend increase approved by shareholders in January 2012								$ 0.12
Common Shares in treasury, shares				3,771,527	3,771,527			3,771,527	3,771,527			5,905,136
Stock repurchase program, authorized amount		$ 303	$ 600
Share repurchase authorization remains		197						461
Repurchase of outstanding common shares, shares	100,000
Transaction cost	$ 7

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Fair Value Measurements (Financial Instruments Measured At Fair Value Using Significant Unobservable Inputs) (Detail) (USD $) In Millions, unless otherwise specified	3 Months Ended				6 Months Ended
	Jun. 30, 2012		Jun. 30, 2011		Jun. 30, 2012		Jun. 30, 2011		Dec. 31, 2011	Mar. 31, 2011	Dec. 31, 2010
Equity Securities [Member]
Schedule Of Fair Value Measurements [Line Items]
Balance- Beginning of Period, Assets	$ 10		$ 10		$ 13		$ 13
Transfers into Level 3
Transfers out of Level 3
Change in Net Unrealized Gains (Losses) included in OCI, Assets					1		(1)
Net Realized Gains/Losses			2				4
Purchases	2		2		3		2
Sales			(4)		(5)		(8)
Settlements
Balance-End of Period	12		10		12		10
Net Realized Gains/Losses Attributable to Changes in Fair Value at the Balance Sheet Date
Other Long-term Investments [Member]
Schedule Of Fair Value Measurements [Line Items]
Balance- Beginning of Period, Assets	1,954		1,564		1,877		1,432
Transfers into Level 3
Transfers out of Level 3
Change in Net Unrealized Gains (Losses) included in OCI, Assets	16		9		24		51
Net Realized Gains/Losses	(5)		(3)		(7)		(3)
Purchases	132		243		245		333
Sales			(55)		(1)		(55)
Settlements	(50)		(78)		(91)		(78)
Balance-End of Period	2,047		1,680		2,047		1,680
Net Realized Gains/Losses Attributable to Changes in Fair Value at the Balance Sheet Date	(5)		(3)		(7)		(3)
Other Derivative Instruments [Member]
Schedule Of Fair Value Measurements [Line Items]
Balance- Beginning of Period, Assets	(1)				3		4			4
Transfers into Level 3
Transfers out of Level 3
Change in Net Unrealized Gains (Losses) included in OCI, Assets
Net Realized Gains/Losses	(1)				(4)		1
Purchases	3				3
Sales
Settlements					(1)		(1)
Balance-End of Period	1		4		1		4			4
Net Realized Gains/Losses Attributable to Changes in Fair Value at the Balance Sheet Date					(1)		1
Available-for-sale Securities [Member] | U.S. Treasury And Agency [Member]
Schedule Of Fair Value Measurements [Line Items]
Balance- Beginning of Period, Assets					5
Transfers into Level 3	5
Transfers out of Level 3
Change in Net Unrealized Gains (Losses) included in OCI, Assets
Net Realized Gains/Losses
Purchases
Sales
Settlements	(1)				(1)
Balance-End of Period	4				4
Net Realized Gains/Losses Attributable to Changes in Fair Value at the Balance Sheet Date
Available-for-sale Securities [Member] | Foreign [Member]
Schedule Of Fair Value Measurements [Line Items]
Balance- Beginning of Period, Assets	49		26		33		26
Transfers into Level 3	1		5		1		9
Transfers out of Level 3			(6)		(1)		(7)
Change in Net Unrealized Gains (Losses) included in OCI, Assets							(1)
Net Realized Gains/Losses			1				1
Purchases	6		5		40		5
Sales	(35)		(2)		(52)		(3)
Settlements	(1)		(2)		(1)		(3)
Balance-End of Period	20		27		20		27
Net Realized Gains/Losses Attributable to Changes in Fair Value at the Balance Sheet Date
Available-for-sale Securities [Member] | Corporate Securities [Member]
Schedule Of Fair Value Measurements [Line Items]
Balance- Beginning of Period, Assets	117		113		134		115
Transfers into Level 3	28		29		28		34
Transfers out of Level 3	(2)				(9)		(4)
Change in Net Unrealized Gains (Losses) included in OCI, Assets	1				3		1
Net Realized Gains/Losses	(1)		(1)		(1)		(2)
Purchases	5		3		8		22
Sales	(7)		(1)		(15)		(20)
Settlements	(4)		(1)		(11)		(4)
Balance-End of Period	137		142		137		142
Net Realized Gains/Losses Attributable to Changes in Fair Value at the Balance Sheet Date
Available-for-sale Securities [Member] | Mortgage Backed-Securities [Member]
Schedule Of Fair Value Measurements [Line Items]
Balance- Beginning of Period, Assets	19		81		28		39
Transfers into Level 3	12		3		12		4
Transfers out of Level 3	(3)		(35)		(15)		(35)
Change in Net Unrealized Gains (Losses) included in OCI, Assets
Net Realized Gains/Losses
Purchases					4		46
Sales			(12)				(15)
Settlements	(1)		(3)		(2)		(5)
Balance-End of Period	27		34		27		34
Net Realized Gains/Losses Attributable to Changes in Fair Value at the Balance Sheet Date
Available-for-sale Securities [Member] | States, Municipalities, And Political Subdivisions [Member]
Schedule Of Fair Value Measurements [Line Items]
Balance- Beginning of Period, Assets	1				1		2			1
Transfers into Level 3	1				1
Transfers out of Level 3
Change in Net Unrealized Gains (Losses) included in OCI, Assets
Net Realized Gains/Losses
Purchases
Sales
Settlements	(1)				(1)		(1)
Balance-End of Period	1		1		1		1			1
Net Realized Gains/Losses Attributable to Changes in Fair Value at the Balance Sheet Date
Guaranteed Minimum Income Benefit [Member]
Schedule Of Fair Value Measurements [Line Items]
Balance- Beginning of Period, Assets	863	[1]	449	[2]	1,319	[1]	507	[3]
Transfers into Level 3		[1]		[2]
Transfers out of Level 3		[1]		[2]
Change in Net Unrealized Gains (Losses) included in OCI, Assets		[1]		[2]
Net Realized Gains/Losses	491	[1]	75	[2]	35	[1]	17	[3]
Purchases		[1]		[2]
Sales		[1]		[2]
Settlements		[1]		[2]
Balance-End of Period	1,354	[1]	524	[2],[3]	1,354	[1]	524	[2],[3]
Net Realized Gains/Losses Attributable to Changes in Fair Value at the Balance Sheet Date	491	[1]	75	[2]	35	[1]	17	[3]
Reported liabilities	1,600		676		1,600		676		1,500	596	648
Guaranteed minimum benefits fair value derivative adjustment in liability	$ 1,400		$ 524		$ 1,400		$ 524		$ 1,300	$ 449	$ 507

[1] Our GLB reinsurance product meets the definition of a derivative instrument for accounting purposes and is accordingly carried at fair value. Excluded from the table above is the portion of the GLB derivative liability classified as Future policy benefits in the consolidated balance sheets. Refer to Note 5 for additional information.

[2] Discussion of the most significant inputs used in the fair value measurement of GLB and the sensitivity of those assumptions is included within Note 5 Guaranteed living benefits.

[3] Our GLB reinsurance product meets the definition of a derivative instrument for accounting purposes and is accordingly carried at fair value. Excluded from the table above is the portion of the GLB derivative liability classified as Future policy benefits in the consolidated balance sheets. The liability for GLB reinsurance was $676 million at June 30, 2011, and $648 million at December 31, 2010, which includes a fair value derivative adjustment of $524 million and $507 million, respectively.

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Investments (Schedule Of Components Of Restricted Assets) (Detail) (USD $) In Millions, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Investment [Line Items]
Trust funds	$ 10,807	$ 9,940
Deposits with non-U.S. regulatory authorities	2,141	2,240
Deposits with U.S. regulatory authorities	1,340	1,307
Assets pledged under reverse repurchase agreements	1,401	1,251
Other pledged assets	480	364
Total restricted assets	$ 16,169	$ 15,102

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Segment Information (Operations By Segment) (Detail) (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Segment Reporting Information [Line Items]
Net investment income	$ 537	$ 569	$ 1,081	$ 1,113
(Gains) losses from fair value changes in separate account assets	14		(4)
Net premiums written	4,130	3,953	7,702	7,399
Net premiums earned	3,783	3,757	7,164	7,066
Losses and loss expenses	2,119	2,226	3,923	4,489
Policy benefits	102	108	249	199
Policy acquisition costs	619	612	1,201	1,171
Administrative expenses	514	518	1,024	1,017
Underwriting income (loss)	429	293	767	190
Net realized gains (losses) including OTTI	(394)	(73)	(134)	(118)
Interest expense	62	62	124	125
Other	20		35
Income tax expense (benefit)	148	121	258	217
Net income (loss)	328	594	1,301	844
Other (income) expense	34	12	31	(1)
Insurance - North American [Member]
Segment Reporting Information [Line Items]
Net investment income	271	300	545	595
Net premiums written	1,860	1,735	3,153	3,020
Net premiums earned	1,652	1,604	2,939	2,950
Losses and loss expenses	1,163	1,233	2,012	2,227
Policy acquisition costs	157	145	284	281
Administrative expenses	153	147	300	295
Underwriting income (loss)	179	79	343	147
Net realized gains (losses) including OTTI	18	21	17	10
Interest expense	3	3	6	7
Other	10		9
Income tax expense (benefit)	107	95	198	184
Net income (loss)	348	299	692	574
Other (income) expense		3		(13)
Insurance - Overseas General [Member]
Segment Reporting Information [Line Items]
Net investment income	128	137	259	268
Net premiums written	1,475	1,443	3,003	2,853
Net premiums earned	1,420	1,415	2,811	2,693
Losses and loss expenses	703	721	1,408	1,573
Policy acquisition costs	332	335	667	636
Administrative expenses	233	239	462	462
Underwriting income (loss)	152	120	274	22
Net realized gains (losses) including OTTI	26	(10)	46	(19)
Interest expense	1	1	2	2
Other	6		6
Income tax expense (benefit)	51	39	89	56
Net income (loss)	248	212	482	220
Other (income) expense		(5)		(7)
Global Reinsurance [Member]
Segment Reporting Information [Line Items]
Net investment income	70	71	141	143
Net premiums written	309	282	572	597
Net premiums earned	237	254	467	514
Losses and loss expenses	102	112	204	391
Policy acquisition costs	42	47	85	93
Administrative expenses	13	14	25	26
Underwriting income (loss)	80	81	153	4
Net realized gains (losses) including OTTI	(17)	(14)	(4)	(27)
Interest expense	1	1	2	1
Other	3		(2)
Income tax expense (benefit)		8	6	18
Net income (loss)	129	128	284	106
Other (income) expense		1		(5)
Life [Member]
Segment Reporting Information [Line Items]
Management underwriting income loss Insurance	103
Net investment income	62	60	123	106
(Gains) losses from fair value changes in separate account assets	14		(4)
Net premiums written	486	493	974	929
Net premiums earned	474	484	947	909
Losses and loss expenses	151	159	299	297
Policy benefits	102	108	249	199
Policy acquisition costs	88	85	164	161
Administrative expenses	78	78	156	152
Underwriting income (loss)	55	54	79	100
Net realized gains (losses) including OTTI	(421)	(68)	(190)	(81)
Interest expense	3	3	6	6
Other	5		14
Income tax expense (benefit)	19	14	30	28
Net income (loss)	(345)	18	(34)	74
Other (income) expense		11		17
Corporate And Other [Member]
Segment Reporting Information [Line Items]
Net investment income	6	1	13	1
Losses and loss expenses		1		1
Policy acquisition costs			1
Administrative expenses	37	40	81	82
Underwriting income (loss)	(37)	(41)	(82)	(83)
Net realized gains (losses) including OTTI		(2)	(3)	(1)
Interest expense	54	54	108	109
Other	(4)		8
Income tax expense (benefit)	(29)	(35)	(65)	(69)
Net income (loss)	(52)	(63)	(123)	(130)
Other (income) expense		$ 2		$ 7

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Commitments, Contingencies, And Guarantees (Balance Sheet Locations, Fair Values In Asset Or (Liability) Position, And Notional Values/Payment Provisions Of Derivative Instruments) (Detail) (USD $) In Millions, unless otherwise specified	Jun. 30, 2012		Dec. 31, 2011
Investment And Embedded Derivative Instruments [Member]
Derivatives, Fair Value [Line Items]
Fair Value	$ 411		$ 427
Notional Value/Payment Provision	7,126		12,906
Other Derivative Instruments [Member]
Derivatives, Fair Value [Line Items]
Fair Value	(43)		41
Notional Value/Payment Provision	2,431		1,973
Accounts Payable, Accrued Expenses, And Other Liabilities [Member] | Foreign Exchange Future [Member]
Derivatives, Fair Value [Line Items]
Fair Value	(4)		7
Notional Value/Payment Provision	771		674
Accounts Payable, Accrued Expenses, And Other Liabilities [Member] | Cross Currency Swap [Member]
Derivatives, Fair Value [Line Items]
Notional Value/Payment Provision	50
Accounts Payable, Accrued Expenses, And Other Liabilities [Member] | Futures Contracts On Money Market Instruments [Member]
Derivatives, Fair Value [Line Items]
Fair Value	3		7
Notional Value/Payment Provision	2,077		10,476
Accounts Payable, Accrued Expenses, And Other Liabilities [Member] | Future [Member]
Derivatives, Fair Value [Line Items]
Fair Value	(3)		(4)
Notional Value/Payment Provision	802		1,055
Accounts Payable, Accrued Expenses, And Other Liabilities [Member] | Options On Money Market Instruments [Member]
Derivatives, Fair Value [Line Items]
Notional Value/Payment Provision	3,030		292
Accounts Payable, Accrued Expenses, And Other Liabilities [Member] | Single-Stock Future [Member]
Derivatives, Fair Value [Line Items]
Fair Value	(85)	[1]	(16)	[1]
Notional Value/Payment Provision	2,125	[1]	1,367	[1]
Accounts Payable, Accrued Expenses, And Other Liabilities [Member] | Options On Equity Market Indices [Member]
Derivatives, Fair Value [Line Items]
Fair Value	41	[1]	54	[1]
Notional Value/Payment Provision	250	[1]	250	[1]
Accounts Payable, Accrued Expenses, And Other Liabilities [Member] | Credit Default Swap [Member]
Derivatives, Fair Value [Line Items]
Fair Value	1		3
Notional Value/Payment Provision	50		350
Accounts Payable, Accrued Expenses, And Other Liabilities [Member] | Other [Member]
Derivatives, Fair Value [Line Items]
Notional Value/Payment Provision	6		6
Fixed Maturities Available For Sale [Member] | Convertibles and Bonds with Warrants Attached [Member]
Derivatives, Fair Value [Line Items]
Fair Value	381		357
Notional Value/Payment Provision	364		353
Fixed Maturities Available For Sale [Member] | Dollar Rolls [Member]
Derivatives, Fair Value [Line Items]
Fair Value	34		60
Notional Value/Payment Provision	32		56
Accounts Payable Future Policy Benefits [Member] | Guaranteed Living Benefits [Member]
Derivatives, Fair Value [Line Items]
Fair Value	(1,560)	[2]	(1,505)	[2]
Notional Value/Payment Provision	$ 1,376	[2]	$ 1,378	[2]

[1] Related to GMDB and GLB blocks of business.

[2] (2) Includes both future policy benefits reserves and fair value derivative adjustment. Refer to Note 5 for additional information. Note that the payment provision related to GLB is the net amount at risk. The concept of a notional value does not apply to the GLB reinsurance contracts.

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Summary of significant accounting policies

6 Months Ended

Jun. 30, 2012

Summary of significant accounting policies

1. Summary of significant accounting policies

a) Basis of presentation

ACE Limited is a holding company incorporated in Zurich, Switzerland. ACE Limited, through its various subsidiaries, provides a broad range of insurance and reinsurance products to insureds worldwide. ACE operates through the following business segments: Insurance – North American, Insurance – Overseas General, Global Reinsurance, and Life. Refer to Note 9 for additional information.

The interim unaudited consolidated financial statements, which include the accounts of ACE and its subsidiaries (collectively, ACE, we, us, or our), have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) and, in the opinion of management, reflect all adjustments (consisting of normally recurring accruals) necessary for a fair statement of the results and financial position for such periods. All significant intercompany accounts and transactions have been eliminated.

The results of operations and cash flows for any interim period are not necessarily indicative of the results for the full year. These consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in our 2011 Form 10-K.

Effective January 1, 2012, we retrospectively adopted new accounting guidance for costs associated with acquiring or renewing insurance contracts. Under the new guidance, the definition of acquisition costs was modified to specify that a cost must be directly related to the successful acquisition of a new or renewal insurance contract in order to be deferred. Prior year amounts contained in these consolidated financial statements have been adjusted to reflect the impact of retrospective adjustments as a result of applying this new accounting guidance.

b) Deferred policy acquisition costs and value of business acquired (VOBA)

Policy acquisition costs consist of commissions, premium taxes, and certain underwriting costs related directly to the successful acquisition of a new or renewal insurance contract. A VOBA intangible asset is established upon the acquisition of blocks of long duration contracts and represents the present value of estimated net cash flows for the contracts in force at the time of the acquisition. Acquisition costs and VOBA, collectively policy acquisition costs, are deferred and amortized. Policy acquisition costs on property and casualty (P&C) contracts are generally amortized ratably over the period in which premiums are earned. Policy acquisition costs on long duration contracts are amortized over the estimated life of the contracts, generally in proportion to premium revenue recognized. Policy acquisition costs are reviewed to determine if they are recoverable from future income, including investment income. Unrecoverable costs are expensed in the period identified.

Advertising costs are expensed as incurred except for direct-response campaigns that meet the criteria of the new guidance, principally related to accident and health (A&H) business produced by the Insurance – Overseas General segment, which are deferred and recognized as a component of policy acquisition costs. For individual direct-response marketing campaigns that we can demonstrate have specifically resulted in incremental sales to customers and such sales have probable future economic benefits, incremental costs directly related to the marketing campaigns are capitalized. Deferred marketing costs are reviewed regularly for recoverability from future income, including investment income, and amortized in proportion to premium revenue recognized, primarily over a ten year period.

c) Accounting guidance adopted

Accounting for costs associated with acquiring or renewing insurance contracts

In October 2010, the Financial Accounting Standards Board (FASB) issued new guidance related to the accounting for costs associated with acquiring or renewing insurance contracts. Under the new guidance, the definition of acquisition costs was modified to specify that a cost must be directly related to the successful acquisition of a new or renewal insurance contract in order to be deferred. We adopted this guidance retrospectively effective January 1, 2012 and reduced Retained earnings as of January 1, 2011 by $139 million which represents the cumulative effect of adjustment resulting from adoption of new accounting guidance. We adjusted prior year amounts contained in these consolidated financial statements to reflect the effect of adjustment from adoption of new accounting guidance including reducing Deferred policy acquisition costs and Retained earnings by $213 million and $181 million, respectively, as of December 31, 2011. The reduction to Deferred policy acquisition costs is primarily due to lower deferrals associated with unsuccessful efforts. We also reduced Net income by $12 million, or $0.03 per share, and $22 million, or $0.06 per share, for the three and six months ended June 30, 2011, respectively.

Fair value measurements

In May 2011, the FASB issued new guidance on fair value measurements to revise the wording used to describe the requirements for measuring fair value and for disclosing information about fair value measurements. The guidance is not necessarily intended to result in a significant change in the application of the current requirements. Instead, it is intended to clarify the intended application of existing fair value measurement requirements. It also changes certain principles or requirements for measuring fair value and disclosing information about fair value measurements. We adopted this guidance prospectively effective January 1, 2012. The application of this guidance resulted in additional fair value measurements disclosures only and did not impact our financial condition or results of operations.

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Fair Value Measurements (Carrying Values And Fair Values Of Financial Instruments Not Measured At Fair Value) (Detail) (USD $) In Millions, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Total Fixed maturities held to maturity	$ 8,062
Partially-owned insurance companies	339
Total assets	8,401
Short-term debt	1,401	1,251
Long-term debt	3,360	3,360
Trust preferred securities	309	309
Total liabilities	64,939	62,989
U.S. Treasury And Agency [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Total Fixed maturities held to maturity	1,136
Foreign [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Total Fixed maturities held to maturity	949
Corporate Securities [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Total Fixed maturities held to maturity	2,282
Mortgage Backed-Securities [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Total Fixed maturities held to maturity	2,544
States, Municipalities, And Political Subdivisions [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Total Fixed maturities held to maturity	1,151
Financial Instruments Carrying Value [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Total Fixed maturities held to maturity	7,782	8,447
Partially-owned insurance companies	339	352
Total assets	8,121	8,799
Short-term debt	1,401	1,251
Long-term debt	3,360	3,360
Trust preferred securities	309	309
Total liabilities	5,070	4,920
Financial Instruments Carrying Value [Member] | U.S. Treasury And Agency [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Total Fixed maturities held to maturity	1,091	1,078
Financial Instruments Carrying Value [Member] | Foreign [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Total Fixed maturities held to maturity	921	935
Financial Instruments Carrying Value [Member] | Corporate Securities [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Total Fixed maturities held to maturity	2,207	2,338
Financial Instruments Carrying Value [Member] | Mortgage Backed-Securities [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Total Fixed maturities held to maturity	2,448	2,949
Financial Instruments Carrying Value [Member] | States, Municipalities, And Political Subdivisions [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Total Fixed maturities held to maturity	1,115	1,147
Financial Instruments Fair Value [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Total Fixed maturities held to maturity	8,062	8,605
Partially-owned insurance companies	339	352
Total assets	8,401	8,957
Short-term debt	1,401	1,251
Long-term debt	3,918	3,823
Trust preferred securities	422	404
Total liabilities	5,741	5,478
Financial Instruments Fair Value [Member] | U.S. Treasury And Agency [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Total Fixed maturities held to maturity	1,136	1,126
Financial Instruments Fair Value [Member] | Foreign [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Total Fixed maturities held to maturity	949	930
Financial Instruments Fair Value [Member] | Corporate Securities [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Total Fixed maturities held to maturity	2,282	2,337
Financial Instruments Fair Value [Member] | Mortgage Backed-Securities [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Total Fixed maturities held to maturity	2,544	3,036
Financial Instruments Fair Value [Member] | States, Municipalities, And Political Subdivisions [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Total Fixed maturities held to maturity	$ 1,151	$ 1,176

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Acquisitions (Detail) (USD $) In Millions, unless otherwise specified	Jun. 30, 2011 New York Life Korea And Hong Kong [Member]	Nov. 30, 2011 Penn Millers Holding Corporation [Member]
Business Acquisition [Line Items]
Acquisition purchase price	$ 450	$ 107
Goodwill generated in acquisitions	91
Goodwill expected to be deductible for income tax	0
Other intangible assets generated in acquisition	$ 163

XML

Summary Of Significant Accounting Policies (Narrative) (Detail) (USD $) In Millions, except Per Share data, unless otherwise specified	3 Months Ended	6 Months Ended		12 Months Ended
	Jun. 30, 2011	Jun. 30, 2012 Year	Jun. 30, 2011	Dec. 31, 2011 Deferred Policy Acquisition Costs [Member]	Dec. 31, 2011 Retained Earnings [Member]	Dec. 31, 2010 Retained Earnings [Member]
Summary Of Significant Accounting Policies [Line Items]
Deferred marketing costs recoverability and amortized years		10
Effect Of Adjustment Of Adoption Of New Accounting Guidance						$ 139
Cumulative effect of change in accounting principle	$ 12		$ 22	$ 213	$ 181
New accounting pronouncement effect of change on earnings per share	$ 0.03		$ 0.06

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Information Provided In Connection With Outstanding Debt Of Subsidiaries (Condensed Consolidating Statement Of Operations) (Detail) (USD $) In Millions, unless otherwise specified	3 Months Ended				6 Months Ended
	Jun. 30, 2012		Jun. 30, 2011		Jun. 30, 2012	Jun. 30, 2011
Information Provided In Connection With Outstanding Debt Of Subsidiaries [Line Items]
Net premiums written	$ 4,130		$ 3,953		$ 7,702	$ 7,399
Net premiums earned	3,783		3,757		7,164	7,066
Net investment income	537		569		1,081	1,113
Net realized gains (losses) including OTTI	(394)		(73)		(134)	(118)
Losses and loss expenses	2,119		2,226		3,923	4,489
Policy benefits	102		108		249	199
Policy acquisition costs and administrative expenses	1,133		1,130		2,225	2,188
Interest (income) expense	62		62		124	125
Other (income) expense	34		12		31	(1)
Income tax expense	148		121		258	217
Net income	328		594		1,301	844
Comprehensive income	457		801		1,728	1,239
Parent Company [Member]
Information Provided In Connection With Outstanding Debt Of Subsidiaries [Line Items]
Net investment income	1				1	1
Equity in earnings of subsidiaries	301		566		1,229	805
Net realized gains (losses) including OTTI	2		(1)		22	(2)
Policy acquisition costs and administrative expenses	14		18		26	36
Interest (income) expense	(8)		(10)		(17)	(18)
Other (income) expense	(33)		(40)		(63)	(62)
Income tax expense	3		3		5	4
Net income	328		594		1,301	844
Comprehensive income	457		801		1,728	1,239
Guarantor Subsidiaries [Member]
Information Provided In Connection With Outstanding Debt Of Subsidiaries [Line Items]
Net premiums written	2,327		2,306		4,425	4,329
Net premiums earned	2,196		2,225		4,148	4,163
Net investment income	257		282		522	544
Net realized gains (losses) including OTTI	34		17		60	4
Losses and loss expenses	1,325		1,438		2,507	2,739
Policy benefits	54		59		140	99
Policy acquisition costs and administrative expenses	656		620		1,296	1,208
Interest (income) expense	58		66		124	133
Other (income) expense	9		23		34	36
Income tax expense	119		109		204	177
Net income	266		209		425	319
Comprehensive income	323		382		610	592
Other ACE Limited Subsidiaries And Eliminations [Member]
Information Provided In Connection With Outstanding Debt Of Subsidiaries [Line Items]
Net premiums written	1,803	[1]	1,647	[1]	3,277	3,070	[1]
Net premiums earned	1,587	[1]	1,532	[1]	3,016	2,903	[1]
Net investment income	279	[1]	287	[1]	558	568	[1]
Net realized gains (losses) including OTTI	(430)	[1]	(89)	[1]	(216)	(120)	[1]
Losses and loss expenses	794	[1]	788	[1]	1,416	1,750	[1]
Policy benefits	48	[1]	49	[1]	109	100	[1]
Policy acquisition costs and administrative expenses	463	[1]	492	[1]	903	944	[1]
Interest (income) expense	12	[1]	6	[1]	17	10	[1]
Other (income) expense	58	[1]	29	[1]	60	25	[1]
Income tax expense	26	[1]	9	[1]	49	36	[1]
Net income	35	[1]	357	[1]	804	486	[1]
Comprehensive income	(22)	[1]	184	[1]	619	213	[1]
Consolidation, Eliminations [Member]
Information Provided In Connection With Outstanding Debt Of Subsidiaries [Line Items]
Equity in earnings of subsidiaries	(301)	[2]	(566)	[2]	(1,229)	(805)	[2]
Net income	(301)	[2]	(566)	[2]	(1,229)	(805)	[2]
Comprehensive income	$ (301)	[2]	$ (566)	[2]	$ (1,229)	$ (805)	[2]

[1] Includes all other subsidiaries of ACE Limited and intercompany eliminations.

[2] Includes ACE Limited parent company eliminations.

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Fair Value Measurements (Financial Instruments Not Carried At Fair Value) (Detail) (USD $) In Millions, unless otherwise specified	Jun. 30, 2012
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Total Fixed maturities held to maturity	$ 8,062
Partially-owned insurance companies	339
Total assets	8,401
Short-term debt	1,401
Long-term debt	3,918
Trust preferred securities	422
Total liabilities	5,741
Fair Value, Inputs, Level 1 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Total Fixed maturities held to maturity	601
Total assets	601
Fair Value, Inputs, Level 2 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Total Fixed maturities held to maturity	7,438
Total assets	7,438
Short-term debt	1,401
Long-term debt	3,918
Trust preferred securities	422
Total liabilities	5,741
Fair Value, Inputs, Level 3 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Total Fixed maturities held to maturity	23
Partially-owned insurance companies	339
Total assets	362
U.S. Treasury And Agency [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Total Fixed maturities held to maturity	1,136
U.S. Treasury And Agency [Member] | Fair Value, Inputs, Level 1 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Total Fixed maturities held to maturity	601
U.S. Treasury And Agency [Member] | Fair Value, Inputs, Level 2 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Total Fixed maturities held to maturity	528
U.S. Treasury And Agency [Member] | Fair Value, Inputs, Level 3 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Total Fixed maturities held to maturity	7
Foreign [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Total Fixed maturities held to maturity	949
Foreign [Member] | Fair Value, Inputs, Level 2 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Total Fixed maturities held to maturity	949
Corporate Securities [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Total Fixed maturities held to maturity	2,282
Corporate Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Total Fixed maturities held to maturity	2,266
Corporate Securities [Member] | Fair Value, Inputs, Level 3 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Total Fixed maturities held to maturity	16
Mortgage Backed-Securities [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Total Fixed maturities held to maturity	2,544
Mortgage Backed-Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Total Fixed maturities held to maturity	2,544
States, Municipalities, And Political Subdivisions [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Total Fixed maturities held to maturity	1,151
States, Municipalities, And Political Subdivisions [Member] | Fair Value, Inputs, Level 2 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Total Fixed maturities held to maturity	$ 1,151

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Investments (Schedule Of Amortized Cost And Fair Value Of Fixed Maturities And Related Other-Than-Temporary Impairment Recognized In Accumulated Other Comprehensive Income) (Detail) (USD $) In Millions, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Investment [Line Items]
Held to maturity, Gross Unrealized Appreciation	$ 297	$ 232
Held to maturity, Gross Unrealized Depreciation	(17)	(74)
Held to maturity, Fair Value	8,062	8,605
Held to maturity, OTTI recognized in AOCI
Available for sale, Amortized Cost	42,316	40,450
Available for sale, Gross Unrealized Appreciation	2,271	1,927
Available for sale, Gross Unrealized Depreciation	(201)	(410)
Available for sale, Fair Value	44,386	41,967
Available for sale, OTTI recognized in AOCI	(106)	(175)
Held to maturity, Amortized Cost	7,782	8,447
U.S. Treasury And Agency [Member]
Investment [Line Items]
Held to maturity, Gross Unrealized Appreciation	45	48
Held to maturity, Fair Value	1,136	1,126
Held to maturity, OTTI recognized in AOCI
Available for sale, Amortized Cost	3,106	2,774
Available for sale, Gross Unrealized Appreciation	188	186
Available for sale, Fair Value	3,294	2,960
Held to maturity, Amortized Cost	1,091	1,078
Foreign [Member]
Investment [Line Items]
Held to maturity, Gross Unrealized Appreciation	32	18
Held to maturity, Gross Unrealized Depreciation	(4)	(23)
Held to maturity, Fair Value	949	930
Held to maturity, OTTI recognized in AOCI
Available for sale, Amortized Cost	12,745	12,025
Available for sale, Gross Unrealized Appreciation	571	475
Available for sale, Gross Unrealized Depreciation	(48)	(99)
Available for sale, Fair Value	13,268	12,401
Available for sale, OTTI recognized in AOCI	(1)	(2)
Held to maturity, Amortized Cost	921	935
Corporate Securities [Member]
Investment [Line Items]
Held to maturity, Gross Unrealized Appreciation	82	44
Held to maturity, Gross Unrealized Depreciation	(7)	(45)
Held to maturity, Fair Value	2,282	2,337
Held to maturity, OTTI recognized in AOCI
Available for sale, Amortized Cost	14,432	14,055
Available for sale, Gross Unrealized Appreciation	938	773
Available for sale, Gross Unrealized Depreciation	(71)	(135)
Available for sale, Fair Value	15,299	14,693
Available for sale, OTTI recognized in AOCI	(12)	(22)
Held to maturity, Amortized Cost	2,207	2,338
Mortgage Backed-Securities [Member]
Investment [Line Items]
Held to maturity, Gross Unrealized Appreciation	98	90
Held to maturity, Gross Unrealized Depreciation	(2)	(3)
Held to maturity, Fair Value	2,544	3,036
Held to maturity, OTTI recognized in AOCI
Available for sale, Amortized Cost	9,815	9,979
Available for sale, Gross Unrealized Appreciation	446	397
Available for sale, Gross Unrealized Depreciation	(80)	(175)
Available for sale, Fair Value	10,181	10,201
Available for sale, OTTI recognized in AOCI	(93)	(151)
Held to maturity, Amortized Cost	2,448	2,949
States, Municipalities, And Political Subdivisions [Member]
Investment [Line Items]
Held to maturity, Gross Unrealized Appreciation	40	32
Held to maturity, Gross Unrealized Depreciation	(4)	(3)
Held to maturity, Fair Value	1,151	1,176
Held to maturity, OTTI recognized in AOCI
Available for sale, Amortized Cost	2,218	1,617
Available for sale, Gross Unrealized Appreciation	128	96
Available for sale, Gross Unrealized Depreciation	(2)	(1)
Available for sale, Fair Value	2,344	1,712
Held to maturity, Amortized Cost	$ 1,115	$ 1,147

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Investments (Narrative) (Detail) (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012 Security	Jun. 30, 2011	Jun. 30, 2012 Security	Jun. 30, 2011	Dec. 31, 2011
Investment [Line Items]
Net unrealized appreciation (depreciation) included in OCI	$ 16	$ 25	$ 84	$ 8
Net unrealized depreciation included in AOCI	74		74		155
Percentage of mortgage-backed securities represented by investments in US government agency bonds	86.00%		86.00%		84.00%
Credit losses recognized in net income for corporate securities	1		4
Credit losses recognized in net income for mortgage-backed securities	0	2	3	3
Number of fixed maturities in an unrealized loss position	2,574		2,574
Total number of fixed maturities	22,842		22,842
Largest single unrealized loss in the fixed maturities	6		6
Number of equity securities in an unrealized loss position	81		81
Total number of equity securities	191		191
Largest single unrealized loss in the equity securities	19		19
Restricted assets in fixed maturities and short-term investments	15.9		15.9		14.9
Restricted assets in cash	$ 246		$ 246		$ 179

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Consolidated Statements Of Cash Flows (Parenthetical) (USD $) In Millions, unless otherwise specified	6 Months Ended
	Jun. 30, 2011
Acquisition of subsidiaries, cash acquired	$ 95

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Investments (Schedule Of Fixed Maturities By Contractual Maturity) (Detail) (USD $) In Millions, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Investment [Line Items]
Available for sale, Due in 1 year or less, Amortized Cost	$ 2,299	$ 2,321
Available for sale, Due after 1 year through 5 years, Amortized Cost	12,330	12,325
Available for sale, Due after 5 years though 10 years, Amortized Cost	13,839	12,379
Available for sale, Due after 10 years, Amortized Cost	4,033	3,446
Available for sale, Subtotal, Amortized Cost	32,501	30,471
Available for sale, Mortgage-backed securities, Amortized Cost	9,815	9,979
Available for sale, Amortized Cost	42,316	40,450
Held to maturity, Due in 1 year or less, Amortized Cost	669	393
Held to maturity, Due after 1 year through 5 years, Amortized Cost	1,811	2,062
Held to maturity, Due after 5 years through 10 years, Amortized Cost	2,202	2,376
Held to maturity, Due after 10 years, Amortized Cost	652	667
Held to maturity, Subtotal, Amortized Cost	5,334	5,498
Held to maturity, Mortgage backed securities, Amortized Cost	2,448	2,949
Held to maturity, Amortized Cost	7,782	8,447
Available for sale, Due in 1 year or less, Fair Value	2,329	2,349
Available for sale, Due after 1 year through 5 years, Fair Value	12,802	12,722
Available for sale, Due after 5 years through 10 years, Fair Value	14,694	12,995
Available for sale, Due after 10 years, Fair Value	4,380	3,700
Available for sale, Subtotal, Fair Value	34,205	31,766
Available for sale, Mortgage backed securities, Fair Value	10,181	10,201
Available for sale, Fair Value	44,386	41,967
Held to maturity, Due in 1 year or less, Fair Value	676	396
Held to maturity, Due after 1 year through 5, Fair Value	1,858	2,090
Held to maturity, Due after 5 years through 10 years, Fair Value	2,296	2,399
Held to maturity, Due after 10 years, Fair Value	688	684
Held to maturity, Subtotal, Fair Value	5,518	5,569
Held to maturity, Mortgage backed securities, Fair Value	2,544	3,036
Held to maturity, Fair Value	$ 8,062	$ 8,605

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Fair Value Measurements (Fair Value And Maximum Future Funding Commitments Related To Investments) (Detail) (USD $) In Millions, unless otherwise specified					6 Months Ended
	Jun. 30, 2012 Fair Value [Member]	Dec. 31, 2011 Fair Value [Member]	Jun. 30, 2012 Maximum Future Funding Commitments [Member]	Dec. 31, 2011 Maximum Future Funding Commitments [Member]	Jun. 30, 2012 Expected Liquidation Period Lower Range [Member] Year	Jun. 30, 2012 Expected Liquidation Period Upper Range [Member] Year
Fair Value And Maximum Future Funding Commitments Related To Investments [Line Items]
Financial	$ 206	$ 205	$ 127	$ 141
Real estate	289	270	95	96
Distressed	188	182	149	57
Mezzanine	271	195	297	282
Traditional	621	565	515	200
Vintage	17	18	1	1
Investment funds	383	378
Total of alternative investments	$ 1,975	$ 1,813	$ 1,184	$ 777
Liquidation period for financial alternative investments (in years)					5	9
Liquidation period for real estate alternative investments (in years)					3	9
Liquidation period for distressed alternative investments (in years)					6	9
Liquidation period for mezzanine alternative investments (in years)					6	9
Liquidation period for traditional alternative investments (in years)					3	8
Liquidation period for vintage alternative investments (in years)					1	3

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Segment Information (Net Premiums Earned For Segment By Product) (Detail) (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Segment Reporting Information [Line Items]
Property & All Other	$ 1,397	$ 1,296	$ 2,426	$ 2,209
Casualty	1,289	1,352	2,559	2,732
Life, Accident & Health	1,097	1,109	2,179	2,125
Net premiums earned	3,783	3,757	7,164	7,066
Insurance - North American [Member]
Segment Reporting Information [Line Items]
Property & All Other	731	648	1,112	1,018
Casualty	828	865	1,645	1,755
Life, Accident & Health	93	91	182	177
Net premiums earned	1,652	1,604	2,939	2,950
Insurance - Overseas General [Member]
Segment Reporting Information [Line Items]
Property & All Other	552	533	1,090	964
Casualty	338	348	671	690
Life, Accident & Health	530	534	1,050	1,039
Net premiums earned	1,420	1,415	2,811	2,693
Global Reinsurance [Member]
Segment Reporting Information [Line Items]
Property & All Other	114	115	224	227
Casualty	123	139	243	287
Net premiums earned	237	254	467	514
Life [Member]
Segment Reporting Information [Line Items]
Life, Accident & Health	474	484	947	909
Net premiums earned	$ 474	$ 484	$ 947	$ 909

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Consolidated Balance Sheets (USD $) In Millions, unless otherwise specified	Jun. 30, 2012		Dec. 31, 2011
Assets
Fixed maturities available for sale, at fair value (amortized cost - $42,316 and $40,450) (includes hybrid financial instruments of $381 and $357)	$ 44,386		$ 41,967
Fixed maturities held to maturity, at amortized cost (fair value - $8,062 and $8,605)	7,782		8,447
Equity securities, at fair value (cost - $724 and $671)	729		647
Short-term investments, at fair value and amortized cost	2,260		2,301
Other investments (cost - $2,297 and $2,112)	2,524		2,314
Total investments	57,681		55,676
Cash	617	[1],[2]	614
Securities lending collateral	2,247		1,375
Accrued investment income	542		547
Insurance and reinsurance balances receivable	4,985		4,387
Reinsurance recoverable on losses and loss expenses	11,752		12,389
Reinsurance recoverable on policy benefits	257		249
Deferred policy acquisition costs	1,710		1,548
Value of business acquired	637		676
Goodwill and other intangible assets	4,826		4,799
Prepaid reinsurance premiums	1,775		1,541
Deferred tax assets	557		673
Investments in partially-owned insurance companies (cost - $333 and $345)	339		352
Other assets	2,776		2,495
Total assets	90,701		87,321
Liabilities
Unpaid losses and loss expenses	36,850		37,477
Unearned premiums	7,044		6,334
Future policy benefits	4,436		4,274
Insurance and reinsurance balances payable	3,490		3,542
Deposit liabilities	687		663
Securities lending payable	2,253		1,385
Payable for securities purchased	692		287
Accounts payable, accrued expenses, and other liabilities	4,255		3,948
Income taxes payable	162		159
Short-term debt	1,401		1,251
Long-term debt	3,360		3,360
Trust preferred securities	309		309
Total liabilities	64,939		62,989
Commitments and contingencies
Shareholders' equity
Common Shares (CHF 29.79 and CHF 30.27 par value; 342,832,412 shares issued; 339,060,885 and 336,927,276 shares outstanding)	9,927		10,095
Common Shares in treasury (3,771,527 and 5,905,136 shares)	(206)		(327)
Additional paid-in capital	5,075		5,326
Retained earnings	8,628		7,327
Accumulated other comprehensive income (AOCI)	2,338		1,911
Total shareholders' equity	25,762		24,332
Total liabilities and shareholders' equity	$ 90,701		$ 87,321

[1] ACE maintains two notional multicurrency cash pools (Pools) with a third-party bank. Various ACE entities participate in one or the other of the Pools, pursuant to which credit and debit balances in individual ACE accounts are translated daily into a single currency and pooled on a notional basis. Individual ACE entities are permitted to overdraw on their individual accounts provided the overall Pool balances do not fall below zero. At June 30, 2012, the cash balance of one or more entities was negative; however, the overall Pool balances were positive.

[2] ACE maintains two notional multi-currency cash pools (Pools) with a third-party bank. Various ACE entities participate in one or the other of the Pools, pursuant to which credit and debit balances in individual ACE accounts are translated daily into a single currency and pooled on a notional basis. Individual ACE entities are permitted to overdraw on their individual accounts provided the overall Pool balances do not fall below zero. At June 30, 2012 one or more entities was negative; however, the overall Pool balances were positive.

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Assumed Life Reinsurance Programs Involving Minimum Benefit Guarantees Under Annuity Contracts (Schedule Of Guaranteed Minimum Benefits Income And Expense) (Detail) (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Guaranteed Minimum Benefits [Line Items]
Net premiums earned	$ 3,783	$ 3,757	$ 7,164	$ 7,066
Policy benefits and other reserve adjustments	102	108	249	199
Net realized gains (losses)	(394)	(73)	(134)	(118)
Guaranteed Minimum Death Benefit [Member]
Guaranteed Minimum Benefits [Line Items]
Net premiums earned	21	25	44	51
Policy benefits and other reserve adjustments	12	21	39	43
Guaranteed Minimum Income Benefit [Member]
Guaranteed Minimum Benefits [Line Items]
Net premiums earned	40	41	81	82
Policy benefits and other reserve adjustments	16	6	23	12
Net realized gains (losses)	(494)	(75)	(34)	(17)
(Loss) gain recognized in income	(470)	(40)	24	53
Net cash received	38	40	79	81
Net increase in liability	$ (508)	$ (80)	$ (55)	$ (28)

XML

Consolidated Statements Of Shareholders' Equity (Parenthetical) (USD $) In Millions, unless otherwise specified	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011
Net unrealized appreciation on investments, Change in period, income tax (expense) benefit	$ (96)	$ (60)
Cumulative translation adjustment, Change in period, income tax(expense) benefit	5	(77)
Pension liability adjustment, Change in period, income tax (expense) benefit		$ 1

XML

Investments (Roll-Forward Of Pre-Tax Credit Losses Related To Fixed Maturities For Which Portion Of Other-Than-Temporary Impairment Was Recognized In Other Comprehensive Income) (Detail) (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Investment [Line Items]
Balance of credit losses related to securities still held-beginning of period	$ 55	$ 96	$ 74	$ 137
Additions where no OTTI was previously recorded	1	2	2	2
Additions where an OTTI was previously recorded			5	1
Reductions for securities sold during the period	(9)	(4)	(34)	(46)
Balance of credit losses related to securities still held-end of period	$ 47	$ 94	$ 47	$ 94

XML

Fair value measurements (Tables)

6 Months Ended

Jun. 30, 2012

Financial Instruments Measured At Fair Value On A Recurring Basis

	Level 1			Level 2		Level 3		Total
	(in millions of U.S. dollars)
June 30, 2012
Assets:
Fixed maturities available for sale
U.S. Treasury and agency	$1,884			$	1,406	$	4	$	3,294
Foreign		204			13,044		20		13,268
Corporate securities		20			15,142		137		15,299
Mortgage-backed securities		—			10,154		27		10,181
States, municipalities, and political subdivisions		—			2,343		1		2,344
		2,108			42,089		189		44,386
Equity securities		713			4		12		729
Short-term investments		1,322			938		—		2,260
Other investments		230			247		2,047		2,524
Securities lending collateral		—			2,247		—		2,247
Investment derivative instruments		(4	)		—		—		(4	)
Other derivative instruments		(85	)		41		1		(43	)
Separate account assets		830			59		—		889
Total assets measured at fair value	$5,114			$	45,625	$	2,249	$	52,988
Liabilities:
GLB(1)	$—			$	—	$	1,354	$	1,354

⁽¹⁾  Our GLB reinsurance product meets the definition of a derivative instrument for accounting purposes and is accordingly carried at fair value. Excluded from the table above is the portion of the GLB derivative liability classified as Future policy benefits in the consolidated balance sheets. Refer to Note 5 for additional information.

	Level 1			Level 2		Level 3		Total
	(in millions of U.S. dollars)
December 31, 2011
Assets:
Fixed maturities available for sale
U.S. Treasury and agency	$	1,691		$	1,264	$	5	$	2,960
Foreign		212			12,156		33		12,401
Corporate securities		20			14,539		134		14,693
Mortgage-backed securities		—			10,173		28		10,201
States, municipalities, and political subdivisions		—			1,711		1		1,712
		1,923			39,843		201		41,967
Equity securities		632			2		13		647
Short-term investments		1,246			1,055		—		2,301
Other investments		208			229		1,877		2,314
Securities lending collateral		—			1,375		—		1,375
Investment derivative instruments		10			—		—		10
Other derivative instruments		(16	)		54		3		41
Separate account assets		607			53		—		660
Total assets measured at fair value	$	4,610		$	42,611	$	2,094	$	49,315
Liabilities:
GLB(1)	$	—		$	—	$	1,319	$	1,319

⁽¹⁾  Our GLB reinsurance product meets the definition of a derivative instrument for accounting purposes and is accordingly carried at fair value. Excluded from the table above is the portion of the GLB derivative liability classified as Future policy benefits in the consolidated balance sheets. Refer to Note 5 for additional information.

Fair Value And Maximum Future Funding Commitments Related To Investments

	Expected Liquidation Period		June 30, 2012				December 31, 2011
			Fair Value		Maximum Future Funding Commitments		Fair Value		Maximum Future Funding Commitments
			(in millions of U.S. dollars)
Financial		5 to 9 Years	$	206	$	127	$	205	$	141
Real estate		3 to 9 Years		289		95		270		96
Distressed		6 to 9 Years		188		149		182		57
Mezzanine		6 to 9 Years		271		297		195		282
Traditional		3 to 8 Years		621		515		565		200
Vintage		1 to 3 Years		17		1		18		1
Investment funds		Not Applicable		383		—		378		—
			$	1,975	$	1,184	$	1,813	$	777

Schedule Of Significant Unobservable Inputs Used In Level 3 Liability Valuations

(in millions of U.S. dollars)	Fair Value at June 30, 2012	Valuation Technique		Significant Unobservable Inputs	Ranges
GLB(1)	$1,354		Actuarial model	Lapse rate		1% - 30%
				Annuitization rate		0% - 50%

⁽¹⁾  Discussion of the most significant inputs used in the fair value measurement of GLB and the sensitivity of those assumptions is included within Note 5 Guaranteed living benefits.

Financial Instruments Measured At Fair Value Using Significant Unobservable Inputs

	Three Months Ended June 30, 2012
	Assets																							Liabilities
	Available-for-Sale Debt Securities															Equity securities		Other investments			Other derivative instruments			GLB(1)
	U.S. Treasury and Agency			Foreign			Corporate securities			MBS			States, municipalities, and political subdivisions
				(in millions of U.S. dollars)
Balance- Beginning of Period	$	—		$	49		$	117		$	19		$	1		$	10	$	1,954		$	(1	)	$	863
Transfers into Level 3		5			1			28			12			1			—		—			—			—
Transfers out of Level 3		—			—			(2	)		(3	)		—			—		—			—			—
Change in Net Unrealized Gains (Losses) included in OCI		—			—			1			—			—			—		16			—			—
Net Realized Gains/Losses		—			—			(1	)		—			—			—		(5	)		(1	)		491
Purchases		—			6			5			—			—			2		132			3			—
Sales		—			(35	)		(7	)		—			—			—		—			—			—
Settlements		(1	)		(1	)		(4	)		(1	)		(1	)		—		(50	)		—			—
Balance-End of Period	$	4		$	20		$	137		$	27		$	1		$	12	$	2,047		$	1		$	1,354
Net Realized Gains/Losses Attributable to Changes in Fair Value at the Balance Sheet Date	$	—		$	—		$	—		$	—		$	—		$	—	$	(5	)	$	—		$	491

⁽¹⁾  Our GLB reinsurance product meets the definition of a derivative instrument for accounting purposes and is accordingly carried at fair value. Excluded from the table above is the portion of the GLB derivative liability classified as Future policy benefits in the consolidated balance sheets. Refer to Note 5 for additional information.

	Three Months Ended June 30, 2011
	Assets																			Liabilities
	Available-for-Sale Debt Securities											Equity securities			Other investments			Other derivative instruments		GLB(1)
	Foreign			Corporate securities			MBS			States, municipalities, and political subdivisions
	(in millions of U.S. dollars)
Balance- Beginning of Period	$	26		$	113		$	81		$	1	$	10		$	1,564		$	4	$	449
Transfers into Level 3		5			29			3			—		—			—			—		—
Transfers out of Level 3		(6	)		—			(35	)		—		—			—			—		—
Change in Net Unrealized Gains (Losses) included in OCI		—			—			—			—		—			9			—		—
Net Realized Gains/Losses		1			(1	)		—			—		2			(3	)		—		75
Purchases		5			3			—			—		2			243			—		—
Sales		(2	)		(1	)		(12	)		—		(4	)		(55	)		—		—
Settlements		(2	)		(1	)		(3	)		—		—			(78	)		—		—
Balance-End of Period	$	27		$	142		$	34		$	1	$	10		$	1,680		$	4	$	524
Net Realized Gains/Losses Attributable to Changes in Fair Value at the Balance Sheet Date	$	—		$	—		$	—		$	—	$	—		$	(3	)	$	—	$	75

⁽¹⁾  Our GLB reinsurance product meets the definition of a derivative instrument for accounting purposes and is accordingly carried at fair value. Excluded from the table above is the portion of the GLB derivative liability classified as Future policy benefits in the consolidated balance sheets. The liability for GLB reinsurance was $676 million at June 30, 2011, and $596 million at March 31, 2011, which includes a fair value derivative adjustment of $524 million and $449 million, respectively.

	Six Months Ended June 30, 2012
	Assets																								Liabilities
	Available-for-Sale Debt Securities															Equity securities			Other investments			Other derivative instruments			GLB(1)
	U.S. Treasury and Agency			Foreign			Corporate securities			MBS			States, municipalities, and political subdivisions
				(in millions of U.S. dollars)
Balance-Beginning of Period	$	5		$	33		$	134		$	28		$	1		$	13		$	1,877		$	3		$	1,319
Transfers into Level 3		—			1			28			12			1			—			—			—			—
Transfers out of Level 3		—			(1	)		(9	)		(15	)		—			—			—			—			—
Change in Net Unrealized Gains (Losses) included in OCI		—			—			3			—			—			1			24			—			—
Net Realized Gains/Losses		—			—			(1	)		—			—			—			(7	)		(4	)		35
Purchases		—			40			8			4			—			3			245			3			—
Sales		—			(52	)		(15	)		—			—			(5	)		(1	)		—			—
Settlements		(1	)		(1	)		(11	)		(2	)		(1	)		—			(91	)		(1	)		—
Balance-End of Period	$	4		$	20		$	137		$	27		$	1		$	12		$	2,047		$	1		$	1,354
Net Realized Gains/Losses Attributable to Changes in Fair Value at the Balance Sheet Date	$	—		$	—		$	—		$	—		$	—		$	—		$	(7	)	$	(1	)	$	35

⁽¹⁾  Our GLB reinsurance product meets the definition of a derivative instrument for accounting purposes and is accordingly carried at fair value. Excluded from the table above is the portion of the GLB derivative liability classified as Future policy benefits in the consolidated balance sheets. Refer to Note 5 for additional information.

	Six Months Ended June 30, 2011
	Assets																					Liabilities
	Available-for-Sale Debt Securities												Equity securities			Other investments			Other derivative instruments			GLB(1)
	Foreign			Corporate securities			MBS			States, municipalities, and political subdivisions
	(in millions of U.S. dollars)
Balance- Beginning of Period	$	26		$	115		$	39		$	2		$	13		$	1,432		$	4		$	507
Transfers into Level 3		9			34			4			—			—			—			—			—
Transfers out of Level 3		(7	)		(4	)		(35	)		—			—			—			—			—
Change in Net Unrealized Gains (Losses) included in OCI		(1	)		1			—			—			(1	)		51			—			—
Net Realized Gains/Losses		1			(2	)		—			—			4			(3	)		1			17
Purchases		5			22			46			—			2			333			—			—
Sales		(3	)		(20	)		(15	)		—			(8	)		(55	)		—			—
Settlements		(3	)		(4	)		(5	)		(1	)		—			(78	)		(1	)		—
Balance-End of Period	$	27		$	142		$	34		$	1		$	10		$	1,680		$	4		$	524
Net Realized Gains/Losses Attributable to Changes in Fair Value at the Balance Sheet Date	$	—		$	—		$	—		$	—		$	—		$	(3	)	$	1		$	17

⁽¹⁾  Our GLB reinsurance product meets the definition of a derivative instrument for accounting purposes and is accordingly carried at fair value. Excluded from the table above is the portion of the GLB derivative liability classified as Future policy benefits in the consolidated balance sheets. The liability for GLB reinsurance was $676 million at June 30, 2011, and $648 million at December 31, 2010, which includes a fair value derivative adjustment of $524 million and $507 million, respectively.

Carrying Values And Fair Values Of Financial Instruments Not Measured At Fair Value

	June 30, 2012				December 31, 2011
	Carrying Value		Fair Value		Carrying Value		Fair Value
	(in millions of U.S. dollars)
Assets:
Fixed maturities held to maturity
U.S. Treasury and agency	$	1,091	$	1,136	$	1,078	$	1,126
Foreign		921		949		935		930
Corporate securities		2,207		2,282		2,338		2,337
Mortgage-backed securities		2,448		2,544		2,949		3,036
States, municipalities, and political subdivisions		1,115		1,151		1,147		1,176
		7,782		8,062		8,447		8,605
Partially-owned insurance companies		339		339		352		352
Total assets	$	8,121	$	8,401	$	8,799	$	8,957
Liabilities:
Short-term debt	$	1,401	$	1,401	$	1,251	$	1,251
Long-term debt		3,360		3,918		3,360		3,823
Trust preferred securities		309		422		309		404
Total liabilities	$	5,070	$	5,741	$	4,920	$	5,478

Financial Instruments Not Carried At Fair Value

	Level 1		Level 2		Level 3		Total
	(in millions of U.S. dollars)
June 30, 2012
Assets:
Fixed maturities held to maturity
U.S. Treasury and agency	$601		$	528	$	7	$	1,136
Foreign		—		949		—		949
Corporate securities		—		2,266		16		2,282
Mortgage-backed securities		—		2,544		—		2,544
States, municipalities, and political subdivisions		—		1,151		—		1,151
		601		7,438		23		8,062
Partially-owned insurance companies		—		—		339		339
Total assets	$601		$	7,438	$	362	$	8,401
Liabilities:
Short-term debt	$—		$	1,401	$	—	$	1,401
Long-term debt		—		3,918		—		3,918
Trust preferred securities		—		422		—		422
Total liabilities	$—		$	5,741	$	—	$	5,741

XML

Investments (Aggregate Fair Value And Gross Unrealized Loss By Length Of Time Security Has Continuously Been In Unrealized Loss Position) (Detail) (USD $) In Millions, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Investment [Line Items]
Investment securities, Unrealized loss position, 0-12 Months, Fair Value	$ 4,180	$ 5,927
Investment securities, Unrealized loss position, 0-12 Months, Gross Unrealized Loss	(126.3)	(288.9)
Investment securities, Unrealized loss position, Over 12 Months, Fair Value	1,175	1,481
Investment securities, Unrealized loss position, Over 12 Months, Gross Unrealized Loss	(122.7)	(245.9)
Investment securities, Unrealized loss position, Total Fair Value	5,355	7,408
Investment securities, Unrealized loss position, Total Gross Unrealized Loss	(249.0)	(534.8)
Foreign [Member]
Investment [Line Items]
Investment securities, Unrealized loss position, 0-12 Months, Fair Value	1,231	1,801
Investment securities, Unrealized loss position, 0-12 Months, Gross Unrealized Loss	(34.4)	(82.2)
Investment securities, Unrealized loss position, Over 12 Months, Fair Value	350	529
Investment securities, Unrealized loss position, Over 12 Months, Gross Unrealized Loss	(18.0)	(40.0)
Investment securities, Unrealized loss position, Total Fair Value	1,581	2,330
Investment securities, Unrealized loss position, Total Gross Unrealized Loss	(52.4)	(122.2)
Corporate Securities [Member]
Investment [Line Items]
Investment securities, Unrealized loss position, 0-12 Months, Fair Value	1,800	3,084
Investment securities, Unrealized loss position, 0-12 Months, Gross Unrealized Loss	(57.2)	(148.2)
Investment securities, Unrealized loss position, Over 12 Months, Fair Value	331	268
Investment securities, Unrealized loss position, Over 12 Months, Gross Unrealized Loss	(21.2)	(32.2)
Investment securities, Unrealized loss position, Total Fair Value	2,131	3,352
Investment securities, Unrealized loss position, Total Gross Unrealized Loss	(78.4)	(180.4)
Mortgage Backed-Securities [Member]
Investment [Line Items]
Investment securities, Unrealized loss position, 0-12 Months, Fair Value	280	440
Investment securities, Unrealized loss position, 0-12 Months, Gross Unrealized Loss	(1.9)	(7.5)
Investment securities, Unrealized loss position, Over 12 Months, Fair Value	437	586
Investment securities, Unrealized loss position, Over 12 Months, Gross Unrealized Loss	(80.2)	(170.2)
Investment securities, Unrealized loss position, Total Fair Value	717	1,026
Investment securities, Unrealized loss position, Total Gross Unrealized Loss	(82.1)	(177.7)
States, Municipalities, And Political Subdivisions [Member]
Investment [Line Items]
Investment securities, Unrealized loss position, 0-12 Months, Fair Value	289	30
Investment securities, Unrealized loss position, 0-12 Months, Gross Unrealized Loss	(2.2)	(0.4)
Investment securities, Unrealized loss position, Over 12 Months, Fair Value	57	98
Investment securities, Unrealized loss position, Over 12 Months, Gross Unrealized Loss	(3.3)	(3.5)
Investment securities, Unrealized loss position, Total Fair Value	346	128
Investment securities, Unrealized loss position, Total Gross Unrealized Loss	(5.5)	(3.9)
Fixed Maturities [Member]
Investment [Line Items]
Investment securities, Unrealized loss position, 0-12 Months, Fair Value	3,600	5,355
Investment securities, Unrealized loss position, 0-12 Months, Gross Unrealized Loss	(95.7)	(238.3)
Investment securities, Unrealized loss position, Over 12 Months, Fair Value	1,175	1,481
Investment securities, Unrealized loss position, Over 12 Months, Gross Unrealized Loss	(122.7)	(245.9)
Investment securities, Unrealized loss position, Total Fair Value	4,775	6,836
Investment securities, Unrealized loss position, Total Gross Unrealized Loss	(218.4)	(484.2)
Equity Securities [Member]
Investment [Line Items]
Investment securities, Unrealized loss position, 0-12 Months, Fair Value	511	484
Investment securities, Unrealized loss position, 0-12 Months, Gross Unrealized Loss	(24.0)	(42.3)
Investment securities, Unrealized loss position, Total Fair Value	511	484
Investment securities, Unrealized loss position, Total Gross Unrealized Loss	(24.0)	(42.3)
Other Long-term Investments [Member]
Investment [Line Items]
Investment securities, Unrealized loss position, 0-12 Months, Fair Value	69	88
Investment securities, Unrealized loss position, 0-12 Months, Gross Unrealized Loss	(6.6)	(8.3)
Investment securities, Unrealized loss position, Total Fair Value	69	88
Investment securities, Unrealized loss position, Total Gross Unrealized Loss	$ (6.6)	$ (8.3)

XML

Commitments, contingencies, and guarantees (Tables)

6 Months Ended

Jun. 30, 2012

Balance Sheet Locations, Fair Values In An Asset Or (Liability) Position, And Notional Values/Payment Provisions Of Derivative Instruments

			June 30, 2012					December 31, 2011
	Consolidated Balance Sheet Location		Fair Value			Notional Value/ Payment Provision		Fair Value			Notional Value/ Payment Provision
			(in millions of U.S. dollars)
Investment and embedded derivative instruments
Foreign currency forward contracts		AP	$	(4	)	$	771	$	7		$	674
Cross-currency swaps		AP		—			50		—			—
Futures contracts on money market instruments		AP		3			2,077		7			10,476
Futures contracts on notes and bonds		AP		(3	)		802		(4	)		1,055
Options on money market instruments		AP		—			3,030		—			292
Convertible bonds		FM AFS		381			364		357			353
TBAs		FM AFS		34			32		60			56
			$	411		$	7,126	$	427		$	12,906
Other derivative instruments
Futures contracts on equities(1)		AP	$	(85	)	$	2,125	$	(16	)	$	1,367
Options on equity market indices(1)		AP		41			250		54			250
Credit default swaps		AP		1			50		3			350
Other		AP		—			6		—			6
			$	(43	)	$	2,431	$	41		$	1,973
GLB(2)		AP/FPB	$	(1,560	)	$	1,376	$	(1,505	)	$	1,378

⁽¹⁾  Related to GMDB and GLB blocks of business.

⁽²⁾  Includes both future policy benefits reserves and fair value derivative adjustment. Refer to Note 5 for additional information. Note that the payment provision related to GLB is the net amount at risk. The concept of a notional value does not apply to the GLB reinsurance contracts.

Net Realized Gains (Losses) Of Derivative Instrument Activity In Consolidated Statement Of Operations

	Three Months Ended						Six Months Ended
	June 30						June 30
	2012			2011			2012			2011
	(in millions of U.S. dollars)
Investment and embedded derivative instruments
Foreign currency forward contracts	$	8		$	(3	)	$	1		$	(18	)
All other futures contracts and options		(45	)		(24	)		(20	)		(27	)
Convertible bonds		(12	)		(21	)		12			(22	)
TBAs		—			—			—			(1	)
Total investment and embedded derivative instruments	$	(49	)	$	(48	)	$	(7	)	$	(68	)
GLB and other derivative instruments
GLB(1)	$	(467	)	$	(70	)	$	(39	)	$	1
Futures contracts on equities(2)		65			—			(148	)		(63	)
Options on equity market indices(2)		5			3			(13	)		(5	)
Credit default swaps		1			(2	)		(4	)		(3	)
Total GLB and other derivative instruments	$	(396	)	$	(69	)	$	(204	)	$	(70	)
	$	(445	)	$	(117	)	$	(211	)	$	(138	)

⁽¹⁾  Excludes foreign exchange gains (losses) related to GLB.

⁽²⁾  Related to GMDB and GLB blocks of business.

XML

Consolidated Statements Of Cash Flows (USD $) In Millions, unless otherwise specified	6 Months Ended
	Jun. 30, 2012		Jun. 30, 2011
Cash flows from operating activities
Net income	$ 1,301		$ 844
Adjustments to reconcile net income to net cash flows from operating activities
Net realized (gains) losses	134		118
Amortization of premiums/discounts on fixed maturities	103		63
Deferred income taxes	1		45
Unpaid losses and loss expenses	(644)		1,001
Unearned premiums	780		478
Future policy benefits	54		37
Insurance and reinsurance balances payable	(60)		449
Accounts payable, accrued expenses, and other liabilities	(9)		3
Income taxes payable			(91)
Insurance and reinsurance balances receivable	(551)		(578)
Reinsurance recoverable on losses and loss expenses	626		(296)
Reinsurance recoverable on policy benefits	48		29
Deferred policy acquisition costs	(159)		(137)
Prepaid reinsurance premiums	(283)		(156)
Other	42		254
Net cash flows from operating activities	1,383		2,063
Cash flows from investing activities
Purchases of fixed maturities available for sale	(11,522)		(13,041)
Purchases of to be announced mortgage-backed securities	(165)		(642)
Purchases of fixed maturities held to maturity	(136)		(234)
Purchases of equity securities	(93)		(170)
Sales of fixed maturities available for sale	7,840		9,346
Sales of to be announced mortgage-backed securities	192		639
Sales of equity securities	33		347
Maturities and redemptions of fixed maturities available for sale	2,280		1,758
Maturities and redemptions of fixed maturities held to maturity	739		656
Net derivative instruments settlements	(133)		(46)
Acquisition of subsidiaries (net of cash acquired of $95 in 2011)	(30)		(380)
Other	(255)		(132)
Net cash flows from (used for) investing activities	(1,250)		(1,899)
Cash flows from financing activities
Dividends paid on Common Shares	(318)		(223)
Common Shares repurchased	(11)		(68)
Proceeds from issuance of short-term debt	1,532		3,311
Repayment of short-term debt	(1,381)		(3,211)
Proceeds from share-based compensation plans	55		76
Net cash flows (used for) from financing activities	(123)		(115)
Effect of foreign currency rate changes on cash and cash equivalents	(7)		12
Net increase in cash	3		61
Cash - beginning of period	614		772	[1]
Cash - end of period	617	[2],[3]	833	[1]
Supplemental cash flow information
Taxes paid	259		265
Interest paid	$ 119		$ 112

[1] ACE maintains two notional multi-currency cash pools (Pools) with a third-party bank. Various ACE entities participate in one or the other of the Pools, pursuant to which credit and debit balances in individual ACE accounts are translated daily into a single currency and pooled on a notional basis. Individual ACE entities are permitted to overdraw on their individual accounts provided the overall Pool balances do not fall below zero. At June 30, 2011 and December 31, 2010, the cash balance of one or more entities was negative; however, the overall Pool balances were positive.

[2] ACE maintains two notional multicurrency cash pools (Pools) with a third-party bank. Various ACE entities participate in one or the other of the Pools, pursuant to which credit and debit balances in individual ACE accounts are translated daily into a single currency and pooled on a notional basis. Individual ACE entities are permitted to overdraw on their individual accounts provided the overall Pool balances do not fall below zero. At June 30, 2012, the cash balance of one or more entities was negative; however, the overall Pool balances were positive.

[3] ACE maintains two notional multi-currency cash pools (Pools) with a third-party bank. Various ACE entities participate in one or the other of the Pools, pursuant to which credit and debit balances in individual ACE accounts are translated daily into a single currency and pooled on a notional basis. Individual ACE entities are permitted to overdraw on their individual accounts provided the overall Pool balances do not fall below zero. At June 30, 2012 one or more entities was negative; however, the overall Pool balances were positive.

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Consolidated Balance Sheets (Parenthetical) In Millions, except Share data, unless otherwise specified	Jun. 30, 2012 USD ($)	Jun. 30, 2012 CHF	Dec. 31, 2011 USD ($)	Dec. 31, 2011 CHF
Fixed maturities available for sale, at amortized cost	$ 42,316		$ 40,450
Fixed maturities available for sale, hybrid financial instruments	381		357
Fixed maturities held to maturity, at amortized cost	8,062		8,605
Equity securities, at cost	724		671
Other investments, cost	2,297		2,112
Investments in partially-owned insurance companies, cost	$ 333		$ 345
Common Shares, par value		29.79		30.27
Common Shares, shares issued	342,832,412	342,832,412	342,832,412	342,832,412
Common Shares, shares outstanding	339,060,885	339,060,885	336,927,276	336,927,276
Common Shares in treasury, shares	3,771,527	3,771,527	5,905,136	5,905,136

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Segment information

6 Months Ended

Jun. 30, 2012

Segment information

9. Segment information

ACE operates through the following business segments: Insurance – North American, Insurance – Overseas General, Global Reinsurance, and Life. These segments distribute their products through various forms of brokers, agencies, and direct marketing programs. All business segments have established relationships with reinsurance intermediaries.

For segment reporting purposes, certain items have been presented in a different manner than in the consolidated financial statements. Management uses underwriting income as the main measure of segment performance. ACE calculates underwriting income by subtracting Losses and loss expenses, Policy benefits, Policy acquisition costs, and Administrative expenses from Net premiums earned. For the Life business, management also includes Net investment income and (Gains) losses from fair value changes in separate account assets that do not qualify for separate account reporting as components of underwriting income. For example, for the three months ended June 30, 2012, Life underwriting income of $103 million includes Net investment income of $62 million and (Gains) losses from fair value changes in separate account assets of $14 million.

Effective January 1, 2012, we reclassified prior year segment operating results in order to conform to certain organizational realignments. These realignments resulted in a transfer of operating revenue and underwriting results of our international direct-marketed and credit life businesses from the Insurance – Overseas General segment to the Life segment. These realignments have no impact on consolidated operating results; however, prior year amounts contained in these consolidated financial statements have been adjusted to conform to the current year presentation.

The following tables present the operations by segment:

Statement of Operations by Segment

For the Three Months Ended June 30, 2012

(in millions of U.S. dollars)

	Insurance – North American		Insurance – Overseas General		Global Reinsurance			Life			Corporate and Other			ACE Consolidated
Net premiums written	$	1,860	$	1,475	$	309		$	486		$	—		$	4,130
Net premiums earned		1,652		1,420		237			474			—			3,783
Losses and loss expenses		1,163		703		102			151			—			2,119
Policy benefits		—		—		—			102			—			102
Policy acquisition costs		157		332		42			88			—			619
Administrative expenses		153		233		13			78			37			514
Underwriting income (loss)		179		152		80			55			(37	)		429
Net investment income		271		128		70			62			6			537
Net realized gains (losses) including OTTI		18		26		(17	)		(421	)		—			(394	)
Interest expense		3		1		1			3			54			62
Other (income) expense:
(Gains) losses from fair value changes in separate account assets		—		—		—			14			—			14
Other		10		6		3			5			(4	)		20
Income tax expense (benefit)		107		51		—			19			(29	)		148
Net income (loss)	$	348	$	248	$	129		$	(345	)	$	(52	)	$	328

Statement of Operations by Segment

For the Three Months Ended June 30, 2011

(in millions of U.S. dollars)

	Insurance – North American		Insurance – Overseas General			Global Reinsurance			Life			Corporate and Other			ACE Consolidated
Net premiums written	$	1,735	$	1,443		$	282		$	493		$	—		$	3,953
Net premiums earned		1,604		1,415			254			484			—			3,757
Losses and loss expenses		1,233		721			112			159			1			2,226
Policy benefits		—		—			—			108			—			108
Policy acquisition costs		145		335			47			85			—			612
Administrative expenses		147		239			14			78			40			518
Underwriting income (loss)		79		120			81			54			(41	)		293
Net investment income		300		137			71			60			1			569
Net realized gains (losses) including OTTI		21		(10	)		(14	)		(68	)		(2	)		(73	)
Interest expense		3		1			1			3			54			62
Other (income) expense		3		(5	)		1			11			2			12
Income tax expense (benefit)		95		39			8			14			(35	)		121
Net income (loss)	$	299	$	212		$	128		$	18		$	(63	)	$	594

Statement of Operations by Segment

For the Six Months Ended June 30, 2012

(in millions of U.S. dollars)

	Insurance – North American		Insurance – Overseas General		Global Reinsurance			Life			Corporate and Other			ACE Consolidated
Net premiums written	$	3,153	$	3,003	$	572		$	974		$	—		$	7,702
Net premiums earned		2,939		2,811		467			947			—			7,164
Losses and loss expenses		2,012		1,408		204			299			—			3,923
Policy benefits		—		—		—			249			—			249
Policy acquisition costs		284		667		85			164			1			1,201
Administrative expenses		300		462		25			156			81			1,024
Underwriting income (loss)		343		274		153			79			(82	)		767
Net investment income		545		259		141			123			13			1,081
Net realized gains (losses) including OTTI		17		46		(4	)		(190	)		(3	)		(134	)
Interest expense		6		2		2			6			108			124
Other (income) expense:
(Gains) losses from fair value changes in separate account assets		—		—		—			(4	)		—			(4	)
Other		9		6		(2	)		14			8			35
Income tax expense (benefit)		198		89		6			30			(65	)		258
Net income (loss)	$	692	$	482	$	284		$	(34	)	$	(123	)	$	1,301

Statement of Operations by Segment

For the Six Months Ended June 30, 2011

(in millions of U.S. dollars)

	Insurance – North American			Insurance – Overseas General			Global Reinsurance			Life			Corporate and Other			ACE Consolidated
Net premiums written	$	3,020		$	2,853		$	597		$	929		$	—		$	7,399
Net premiums earned		2,950			2,693			514			909			—			7,066
Losses and loss expenses		2,227			1,573			391			297			1			4,489
Policy benefits		—			—			—			199			—			199
Policy acquisition costs		281			636			93			161			—			1,171
Administrative expenses		295			462			26			152			82			1,017
Underwriting income (loss)		147			22			4			100			(83	)		190
Net investment income		595			268			143			106			1			1,113
Net realized gains (losses) including OTTI		10			(19	)		(27	)		(81	)		(1	)		(118	)
Interest expense		7			2			1			6			109			125
Other (income) expense		(13	)		(7	)		(5	)		17			7			(1	)
Income tax expense (benefit)		184			56			18			28			(69	)		217
Net income (loss)	$	574		$	220		$	106		$	74		$	(130	)	$	844

Underwriting assets are reviewed in total by management for purposes of decision-making. Other than goodwill, ACE does not allocate assets to its segments.

The following table presents the net premiums earned for each segment by product:

	Property & All Other		Casualty		Life, Accident & Health		ACE Consolidated
	(in millions of U.S. dollars)
For the Three Months Ended June 30, 2012
Insurance – North American	$	731	$	828	$	93	$	1,652
Insurance – Overseas General		552		338		530		1,420
Global Reinsurance		114		123		—		237
Life		—		—		474		474
	$	1,397	$	1,289	$	1,097	$	3,783
For the Three Months Ended June 30, 2011
Insurance – North American	$	648	$	865	$	91	$	1,604
Insurance – Overseas General		533		348		534		1,415
Global Reinsurance		115		139		—		254
Life		—		—		484		484
	$	1,296	$	1,352	$	1,109	$	3,757

	Property & All Other		Casualty		Life, Accident & Health		ACE Consolidated
	(in millions of U.S. dollars)
For the Six Months Ended June 30, 2012
Insurance – North American	$	1,112	$	1,645	$	182	$	2,939
Insurance – Overseas General		1,090		671		1,050		2,811
Global Reinsurance		224		243		—		467
Life		—		—		947		947
	$	2,426	$	2,559	$	2,179	$	7,164
For the Six Months Ended June 30, 2011
Insurance – North American	$	1,018	$	1,755	$	177	$	2,950
Insurance – Overseas General		964		690		1,039		2,693
Global Reinsurance		227		287		—		514
Life		—		—		909		909
	$	2,209	$	2,732	$	2,125	$	7,066

XML

Document and Entity Information	6 Months Ended
	Jun. 30, 2012	Jul. 18, 2012
Entity Information [Line Items]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2012
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q2
Trading Symbol	ACE
Entity Registrant Name	ACE Ltd
Entity Central Index Key	0000896159
Current Fiscal Year End Date	--12-31
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		339,092,347

XML

Earnings per share

6 Months Ended

Jun. 30, 2012

Earnings per share

10. Earnings per share

The following table presents the computation of basic and diluted earnings per share:

	Three Months Ended				Six Months Ended
	June 30				June 30
	2012		2011		2012		2011
	(in millions of U.S. dollars, except share and per share data)
Numerator:
Net income	$	328	$	594	$	1,301	$	844
Denominator for basic earnings per share:
Weighted-average shares outstanding		339,766,067		338,920,580		339,164,449		338,021,487
Denominator for diluted earnings per share:
Share-based compensation plans		2,907,971		2,768,388		3,006,950		2,596,909
Adjusted weighted-average shares outstanding and assumed conversions		342,674,038		341,688,968		342,171,399		340,618,396
Basic earnings per share	$	0.96	$	1.75	$	3.83	$	2.50
Diluted earnings per share	$	0.96	$	1.74	$	3.80	$	2.48

Excluded from adjusted weighted-average shares outstanding and assumed conversions is the impact of securities that would have been anti-dilutive during the respective periods. For the three months ended June 30, 2012 and 2011, the potential anti-dilutive share conversions were 1,471,035 shares and 1,212 shares, respectively. The potential anti-dilutive share conversions for the six months ended June 30, 2012 and 2011 were 1,051,182 shares and 81,718 shares, respectively.

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Consolidated Statements Of Operations and Comprehensive Income (USD $) In Millions, except Per Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Revenues
Net premiums written	$ 4,130	$ 3,953	$ 7,702	$ 7,399
Change in unearned premiums	(347)	(196)	(538)	(333)
Net premiums earned	3,783	3,757	7,164	7,066
Net investment income	537	569	1,081	1,113
Net realized gains (losses):
Other-than-temporary impairment (OTTI) losses gross	(10)	(9)	(20)	(14)
Portion of OTTI losses recognized in other comprehensive income (OCI)		1		2
Net OTTI losses recognized in income	(10)	(8)	(20)	(12)
Net realized gains (losses) excluding OTTI losses	(384)	(65)	(114)	(106)
Total net realized gains (losses)	(394)	(73)	(134)	(118)
Total revenues	3,926	4,253	8,111	8,061
Expenses
Losses and loss expenses	2,119	2,226	3,923	4,489
Policy benefits	102	108	249	199
Policy acquisition costs	619	612	1,201	1,171
Administrative expenses	514	518	1,024	1,017
Interest expense	62	62	124	125
Other (income) expense	34	12	31	(1)
Total expenses	3,450	3,538	6,552	7,000
Income before income tax	476	715	1,559	1,061
Income tax expense	148	121	258	217
Net income	328	594	1,301	844
Other comprehensive income
Unrealized appreciation	313	303	638	369
Reclassification adjustment for net realized gains included in net income	(58)	(78)	(91)	(134)
Subtotal	255	225	547	235
Change in:
Cumulative translation adjustment	(116)	69	(28)	301
Pension liability	1	1	(1)	(5)
Other comprehensive income, before income tax	140	295	518	531
Income tax expense related to OCI items	(11)	(88)	(91)	(136)
Other comprehensive income	129	207	427	395
Comprehensive income	$ 457	$ 801	$ 1,728	$ 1,239
Earnings per share
Basic earnings per share	$ 0.96	$ 1.75	$ 3.83	$ 2.50
Diluted earnings per share	$ 0.96	$ 1.74	$ 3.80	$ 2.48

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Fair value measurements

6 Months Ended

Jun. 30, 2012

Fair value measurements

4. Fair value measurements

a) Fair value hierarchy

Fair value of financial assets and financial liabilities is estimated based on the framework established in the fair value accounting guidance. The guidance defines fair value as the price to sell an asset or transfer a liability in an orderly transaction between market participants and establishes a three-level valuation hierarchy in which inputs into valuation techniques used to measure fair value are classified. The fair value hierarchy gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data.

The three levels of the hierarchy are as follows:

• Level 1 – Unadjusted quoted prices for identical assets or liabilities in active markets;

• Level 2 – Includes, among other items, inputs other than quoted prices that are observable for the asset or liability such as interest rates and yield curves, quoted prices for similar assets and liabilities in active markets, and quoted prices for identical or similar assets and liabilities in markets that are not active; and

• Level 3 – Inputs that are unobservable and reflect management’s judgments about assumptions that market participants would use in pricing an asset or liability.

We categorize financial instruments within the valuation hierarchy at the balance sheet date based upon the lowest level of inputs that are significant to the fair value measurement. Accordingly, transfers between levels within the valuation hierarchy occur when there are significant changes to the inputs, such as increases or decreases in market activity, changes to the availability of current prices, changes to the transparency to underlying inputs, and whether there are significant variances in quoted prices. Transfers in and/or out of any level are assumed to occur at the end of the period.

We use one or more pricing services to obtain fair value measurements for the majority of the investment securities we hold. Based on management’s understanding of the methodologies used, these pricing services only produce an estimate of fair value if there is observable market information that would allow them to make a fair value estimate. Based on our understanding of the market inputs used by the pricing services, all applicable investments have been valued in accordance with GAAP. We do not typically adjust prices obtained from pricing services. The following is a description of the valuation techniques and inputs used to determine fair values for financial instruments carried at fair value, as well as the general classification of such financial instruments pursuant to the valuation hierarchy.

Fixed maturities

We use pricing services to estimate fair value measurements for the majority of our fixed maturities. The pricing services use market quotations for fixed maturities that have quoted prices in active markets; such securities are classified within Level 1. For fixed maturities other than U.S. Treasury securities that generally do not trade on a daily basis, the pricing services prepare estimates of fair value measurements using their pricing applications, which include available relevant market information, benchmark curves, benchmarking of like securities, sector groupings, and matrix pricing. Additional valuation factors that can be taken into account are nominal spreads, dollar basis, and liquidity adjustments. The pricing services evaluate each asset class based on relevant market and credit information, perceived market movements, and sector news. The market inputs used in the pricing evaluation, listed in the approximate order of priority include: benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, reference data, and industry and economic events. The extent of the use of each input is dependent on the asset class and the market conditions. Given the asset class, the priority of the use of inputs may change or some market inputs may not be relevant. Additionally, the valuation of fixed maturity investments is more subjective when markets are less liquid due to the lack of market based inputs (i.e., stale pricing), which may increase the potential that the estimated fair value of an investment is not reflective of the price at which an actual transaction would occur. The overwhelming majority of fixed maturities are classified within Level 2 because the most significant inputs used in the pricing techniques are observable. For a small number of fixed maturities, we obtain a quote from a broker (typically a market maker). Due to the disclaimers on the quotes that indicate that the price is indicative only, we include these fair value estimates in Level 3.

Equity securities

Equity securities with active markets are classified within Level 1 as fair values are based on quoted market prices. For non-public equity securities, fair values are based on market valuations and are classified within Level 2. Equity securities for which pricing is unobservable are classified within Level 3.

Short-term investments

Short-term investments, which comprise securities due to mature within one year of the date of purchase that are traded in active markets, are classified within Level 1 as fair values are based on quoted market prices. Securities such as commercial paper and discount notes are classified within Level 2 because these securities are typically not actively traded due to their approaching maturity and, as such, their cost approximates fair value.

Other investments

Fair values for the majority of Other investments including investments in partially-owned investment companies, investment funds, and limited partnerships are based on their respective net asset values or equivalent (NAV). The majority of these investments, for which NAV was used as a practical expedient to measure fair value, are classified within Level 3 because either ACE will never have the contractual option to redeem the investments or will not have the contractual option to redeem the investments in the near term. The remainder of such investments is classified within Level 2. Certain of our long duration contracts have assets that do not qualify for separate account reporting under GAAP. These assets comprise mutual funds classified within Level 1 in the valuation hierarchy on the same basis as other equity securities traded in active markets. Other investments also includes equity securities and fixed maturities held in rabbi trusts maintained by ACE for deferred compensation plans, which are classified within the valuation hierarchy on the same basis as other equity securities and fixed maturities.

Securities lending collateral

The underlying assets included in Securities lending collateral in the consolidated balance sheets are fixed maturities which are classified in the valuation hierarchy on the same basis as other fixed maturities. Excluded from the valuation hierarchy is the corresponding liability related to ACE’s obligation to return the collateral plus interest as it is reported at contract value and not fair value on the consolidated balance sheets.

Investment derivative instruments

Actively traded investment derivative instruments, including futures, options, and exchange-traded forward contracts are classified within Level 1 as fair values are based on quoted market prices. The fair value of cross-currency swaps are based on market valuations and are classified within Level 2. Investment derivative instruments are recorded in Accounts payable, accrued expenses, and other liabilities in the consolidated balance sheets.

Other derivative instruments

We maintain positions in other derivative instruments including exchange-traded equity futures contracts and option contracts designed to limit exposure to a severe equity market decline, which would cause an increase in expected claims and, therefore, reserves for our guaranteed minimum death benefits (GMDB) and guaranteed living benefits (GLB) reinsurance business. Our position in exchange-traded equity futures contracts is classified within Level 1. The fair value of the majority of the remaining positions in other derivative instruments is based on significant observable inputs including equity security and interest rate indices. Accordingly, these are classified within Level 2. Our position in credit default swaps is typically included within Level 3. Other derivative instruments are recorded in Accounts payable, accrued expenses, and other liabilities in the consolidated balance sheets.

Separate account assets

Separate account assets represent segregated funds where investment risks are borne by the customers, except to the extent of certain guarantees made by ACE. Separate account assets comprise mutual funds classified in the valuation hierarchy on the same basis as other equity securities traded in active markets and are classified within Level 1. Separate account assets also include fixed maturities classified within Level 2 because the most significant inputs used in the pricing techniques are observable. Excluded from the valuation hierarchy are the corresponding liabilities as they are reported at contract value and not fair value in the consolidated balance sheets. Separate account assets are recorded in Other assets in the consolidated balance sheets.

Guaranteed living benefits

The GLB arises from life reinsurance programs covering living benefit guarantees whereby we assume the risk of guaranteed minimum income benefits (GMIB) and guaranteed minimum accumulation benefits (GMAB) associated with variable annuity contracts. GLB’s are recorded in Accounts payable, accrued expenses, and other liabilities and Future policy benefits in the consolidated balance sheets. For GLB reinsurance, ACE estimates fair value using an internal valuation model which includes current market information and estimates of policyholder behavior. All of the treaties contain claim limits, which are factored into the valuation model. The fair value depends on a number of inputs, including changes in interest rates, changes in equity markets, credit risk, current account value, changes in market volatility, expected annuitization rates, changes in policyholder behavior, and changes in policyholder mortality.

The most significant policyholder behavior assumptions include lapse rates and the GMIB annuitization rates. Assumptions regarding lapse rates and GMIB annuitization rates differ by treaty but the underlying methodologies to determine rates applied to each treaty are comparable. The assumptions regarding lapse and GMIB annuitization rates determined for each treaty are based on a dynamic calculation that uses several underlying factors.

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 (ranging from about 1 percent to 6 percent per annum) during the surrender charge period of the GMIB contract, followed by a “spike” lapse rate (ranging from about 10 percent to 30 percent per annum) in the year immediately following the surrender charge period, and then reverting to an ultimate lapse rate (generally around 10 percent per annum), 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) by multiplying the base lapse rate by a factor ranging from 15 percent to 75 percent. Additional lapses due to partial withdrawals and older policyholders with tax-qualified contracts (due to required minimum distributions) are also included.

The GMIB annuitization rate is the percentage of policies for which the policyholder will elect to annuitize using the guaranteed benefit provided under the GMIB. All else equal, as GMIB annuitization rates increase, ultimate claim payments will increase, subject to treaty claim limits. In general ACE assumes that GMIB annuitization rates will be higher for policies with more valuable guarantees (policies with guaranteed values far in excess of their account values). In addition, we also assume that GMIB annuitization rates are higher in the first year immediately following the waiting period (the first year the policies are eligible to annuitize using the GMIB) in comparison to all subsequent years. We do not yet have a robust set of annuitization experience because most of our clients’ policyholders are not yet eligible to annuitize using the GMIB. However, for certain clients representing approximately 36 percent of the total GMIB guaranteed value there are several years of annuitization experience. For these clients the annuitization function reflects the actual experience and has a maximum annuitization rate per annum of 8 percent (a higher maximum applies in the first year a policy is eligible to annuitize using the GMIB—it is over 13 percent). For most clients, there is not a credible amount of observable relevant behavior data and so we use a weighted-average (with a heavier weighting on the observed experience noted previously) of three different annuitization functions with maximum annuitization rates per annum of 8 percent, 12 percent, and 30 percent, respectively (with significantly higher rates in the first year a policy is eligible to annuitize using the GMIB). The GMIB reinsurance treaties include claim limits to protect ACE in the event that actual annuitization behavior is significantly higher than expected.

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 in line with data received from other ceding companies adjusted, as appropriate, with industry estimates. The model and related assumptions are continuously re-evaluated by management and enhanced, as appropriate, based upon additional experience obtained related to policyholder behavior and availability of more information, such as market conditions, market participant assumptions, and demographics of in-force annuities. During the three and six months ended June 30, 2012, no material changes were made to actuarial or behavioral assumptions.

We view the variable annuity reinsurance business as having a similar risk profile to that of catastrophe reinsurance, with the probability of a cumulative long-term economic net loss relatively small at the time of pricing. However, adverse changes in market factors and policyholder behavior will have an adverse impact on net income, which may be material. Because of the significant use of unobservable inputs including policyholder behavior, GLB reinsurance is classified within Level 3.

The following tables present, by valuation hierarchy, the financial instruments measured at fair value on a recurring basis:

	Level 1			Level 2		Level 3		Total
	(in millions of U.S. dollars)
June 30, 2012
Assets:
Fixed maturities available for sale
U.S. Treasury and agency	$1,884			$	1,406	$	4	$	3,294
Foreign		204			13,044		20		13,268
Corporate securities		20			15,142		137		15,299
Mortgage-backed securities		—			10,154		27		10,181
States, municipalities, and political subdivisions		—			2,343		1		2,344
		2,108			42,089		189		44,386
Equity securities		713			4		12		729
Short-term investments		1,322			938		—		2,260
Other investments		230			247		2,047		2,524
Securities lending collateral		—			2,247		—		2,247
Investment derivative instruments		(4	)		—		—		(4	)
Other derivative instruments		(85	)		41		1		(43	)
Separate account assets		830			59		—		889
Total assets measured at fair value	$5,114			$	45,625	$	2,249	$	52,988
Liabilities:
GLB(1)	$—			$	—	$	1,354	$	1,354

⁽¹⁾  Our GLB reinsurance product meets the definition of a derivative instrument for accounting purposes and is accordingly carried at fair value. Excluded from the table above is the portion of the GLB derivative liability classified as Future policy benefits in the consolidated balance sheets. Refer to Note 5 for additional information.

	Level 1			Level 2		Level 3		Total
	(in millions of U.S. dollars)
December 31, 2011
Assets:
Fixed maturities available for sale
U.S. Treasury and agency	$	1,691		$	1,264	$	5	$	2,960
Foreign		212			12,156		33		12,401
Corporate securities		20			14,539		134		14,693
Mortgage-backed securities		—			10,173		28		10,201
States, municipalities, and political subdivisions		—			1,711		1		1,712
		1,923			39,843		201		41,967
Equity securities		632			2		13		647
Short-term investments		1,246			1,055		—		2,301
Other investments		208			229		1,877		2,314
Securities lending collateral		—			1,375		—		1,375
Investment derivative instruments		10			—		—		10
Other derivative instruments		(16	)		54		3		41
Separate account assets		607			53		—		660
Total assets measured at fair value	$	4,610		$	42,611	$	2,094	$	49,315
Liabilities:
GLB(1)	$	—		$	—	$	1,319	$	1,319

⁽¹⁾  Our GLB reinsurance product meets the definition of a derivative instrument for accounting purposes and is accordingly carried at fair value. Excluded from the table above is the portion of the GLB derivative liability classified as Future policy benefits in the consolidated balance sheets. Refer to Note 5 for additional information.

The transfers between Level 1 and Level 2 during the three and six months ended June 30, 2012 and 2011 were not material.

Fair value of alternative investments

Included in Other investments in the fair value hierarchy at June 30, 2012 and December 31, 2011 are investment funds, limited partnerships, and partially-owned investment companies measured at fair value using NAV as a practical expedient. At June 30, 2012 and December 31, 2011, there were no probable or pending sales related to any of the investments measured at fair value using NAV.

The following table presents, by investment category, the expected liquidation period, fair value, and maximum future funding commitments of alternative investments:

	Expected Liquidation Period		June 30, 2012				December 31, 2011
			Fair Value		Maximum Future Funding Commitments		Fair Value		Maximum Future Funding Commitments
			(in millions of U.S. dollars)
Financial		5 to 9 Years	$	206	$	127	$	205	$	141
Real estate		3 to 9 Years		289		95		270		96
Distressed		6 to 9 Years		188		149		182		57
Mezzanine		6 to 9 Years		271		297		195		282
Traditional		3 to 8 Years		621		515		565		200
Vintage		1 to 3 Years		17		1		18		1
Investment funds		Not Applicable		383		—		378		—
			$	1,975	$	1,184	$	1,813	$	777

Included in all categories in the above table except for Investment funds are investments for which ACE will never have the contractual option to redeem but receives distributions based on the liquidation of the underlying assets. Included in the “Expected Liquidation Period” column above is the range in years over which ACE expects the majority of underlying assets in the respective categories to be liquidated. Further, for all categories except for Investment funds, ACE does not have the ability to sell or transfer the investments without the consent from the general partner of individual funds.

Financial

Financial consists of investments in private equity funds targeting financial services companies such as financial institutions and insurance services around the world.

Real estate

Real estate consists of investments in private equity funds targeting global distress opportunities, value added U.S. properties, and global mezzanine debt securities in the commercial real estate market.

Distressed

Distressed consists of investments in private equity funds targeting distressed debt/credit and equity opportunities in the U.S.

Mezzanine

Mezzanine consists of investments in private equity funds targeting private mezzanine debt of large-cap and mid-cap companies in the U.S. and worldwide.

Traditional

Traditional consists of investments in private equity funds employing traditional private equity investment strategies such as buyout and venture with different geographical focuses including Brazil, Asia, Europe, and the U.S.

Vintage

Vintage consists of investments in private equity funds made before 2002 and where the funds’ commitment periods had already expired.

Investment funds

ACE’s investment funds employ various investment strategies such as long/short equity and arbitrage/distressed. Included in this category are investments for which ACE 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 ACE 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 ACE 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, ACE 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 ACE’s investment within several months of the notification. Notice periods for redemption of the investment funds range between 5 and 120 days. ACE can redeem its investment funds without consent from the investment fund managers.

Level 3 financial instruments

The fair value of assets and liabilities measured at fair value using significant unobservable inputs (Level 3) consist of various inputs and assumptions that management makes when determining the fair value. Management analyzes changes in fair value measurements classified within Level 3 by comparing pricing and returns of our investments to benchmarks, including month-over-month movements, investment credit spreads, interest rate movements, and credit quality of securities.

The following table presents the significant unobservable inputs used in the Level 3 liability valuations. Excluded from the table below are inputs used to fair value Level 3 assets which are based on single broker quotes or net asset value and contain no quantitative unobservable inputs developed by management.

(in millions of U.S. dollars)	Fair Value at June 30, 2012	Valuation Technique		Significant Unobservable Inputs	Ranges
GLB(1)	$1,354		Actuarial model	Lapse rate		1% - 30%
				Annuitization rate		0% - 50%

⁽¹⁾  Discussion of the most significant inputs used in the fair value measurement of GLB and the sensitivity of those assumptions is included within Note 5 Guaranteed living benefits.

The following tables present a reconciliation of the beginning and ending balances of financial instruments measured at fair value using significant unobservable inputs (Level 3):

	Three Months Ended June 30, 2012
	Assets																							Liabilities
	Available-for-Sale Debt Securities															Equity securities		Other investments			Other derivative instruments			GLB(1)
	U.S. Treasury and Agency			Foreign			Corporate securities			MBS			States, municipalities, and political subdivisions
				(in millions of U.S. dollars)
Balance- Beginning of Period	$	—		$	49		$	117		$	19		$	1		$	10	$	1,954		$	(1	)	$	863
Transfers into Level 3		5			1			28			12			1			—		—			—			—
Transfers out of Level 3		—			—			(2	)		(3	)		—			—		—			—			—
Change in Net Unrealized Gains (Losses) included in OCI		—			—			1			—			—			—		16			—			—
Net Realized Gains/Losses		—			—			(1	)		—			—			—		(5	)		(1	)		491
Purchases		—			6			5			—			—			2		132			3			—
Sales		—			(35	)		(7	)		—			—			—		—			—			—
Settlements		(1	)		(1	)		(4	)		(1	)		(1	)		—		(50	)		—			—
Balance-End of Period	$	4		$	20		$	137		$	27		$	1		$	12	$	2,047		$	1		$	1,354
Net Realized Gains/Losses Attributable to Changes in Fair Value at the Balance Sheet Date	$	—		$	—		$	—		$	—		$	—		$	—	$	(5	)	$	—		$	491

⁽¹⁾  Our GLB reinsurance product meets the definition of a derivative instrument for accounting purposes and is accordingly carried at fair value. Excluded from the table above is the portion of the GLB derivative liability classified as Future policy benefits in the consolidated balance sheets. Refer to Note 5 for additional information.

	Three Months Ended June 30, 2011
	Assets																			Liabilities
	Available-for-Sale Debt Securities											Equity securities			Other investments			Other derivative instruments		GLB(1)
	Foreign			Corporate securities			MBS			States, municipalities, and political subdivisions
	(in millions of U.S. dollars)
Balance- Beginning of Period	$	26		$	113		$	81		$	1	$	10		$	1,564		$	4	$	449
Transfers into Level 3		5			29			3			—		—			—			—		—
Transfers out of Level 3		(6	)		—			(35	)		—		—			—			—		—
Change in Net Unrealized Gains (Losses) included in OCI		—			—			—			—		—			9			—		—
Net Realized Gains/Losses		1			(1	)		—			—		2			(3	)		—		75
Purchases		5			3			—			—		2			243			—		—
Sales		(2	)		(1	)		(12	)		—		(4	)		(55	)		—		—
Settlements		(2	)		(1	)		(3	)		—		—			(78	)		—		—
Balance-End of Period	$	27		$	142		$	34		$	1	$	10		$	1,680		$	4	$	524
Net Realized Gains/Losses Attributable to Changes in Fair Value at the Balance Sheet Date	$	—		$	—		$	—		$	—	$	—		$	(3	)	$	—	$	75

⁽¹⁾  Our GLB reinsurance product meets the definition of a derivative instrument for accounting purposes and is accordingly carried at fair value. Excluded from the table above is the portion of the GLB derivative liability classified as Future policy benefits in the consolidated balance sheets. The liability for GLB reinsurance was $676 million at June 30, 2011, and $596 million at March 31, 2011, which includes a fair value derivative adjustment of $524 million and $449 million, respectively.

	Six Months Ended June 30, 2012
	Assets																								Liabilities
	Available-for-Sale Debt Securities															Equity securities			Other investments			Other derivative instruments			GLB(1)
	U.S. Treasury and Agency			Foreign			Corporate securities			MBS			States, municipalities, and political subdivisions
				(in millions of U.S. dollars)
Balance-Beginning of Period	$	5		$	33		$	134		$	28		$	1		$	13		$	1,877		$	3		$	1,319
Transfers into Level 3		—			1			28			12			1			—			—			—			—
Transfers out of Level 3		—			(1	)		(9	)		(15	)		—			—			—			—			—
Change in Net Unrealized Gains (Losses) included in OCI		—			—			3			—			—			1			24			—			—
Net Realized Gains/Losses		—			—			(1	)		—			—			—			(7	)		(4	)		35
Purchases		—			40			8			4			—			3			245			3			—
Sales		—			(52	)		(15	)		—			—			(5	)		(1	)		—			—
Settlements		(1	)		(1	)		(11	)		(2	)		(1	)		—			(91	)		(1	)		—
Balance-End of Period	$	4		$	20		$	137		$	27		$	1		$	12		$	2,047		$	1		$	1,354
Net Realized Gains/Losses Attributable to Changes in Fair Value at the Balance Sheet Date	$	—		$	—		$	—		$	—		$	—		$	—		$	(7	)	$	(1	)	$	35

⁽¹⁾  Our GLB reinsurance product meets the definition of a derivative instrument for accounting purposes and is accordingly carried at fair value. Excluded from the table above is the portion of the GLB derivative liability classified as Future policy benefits in the consolidated balance sheets. Refer to Note 5 for additional information.

	Six Months Ended June 30, 2011
	Assets																					Liabilities
	Available-for-Sale Debt Securities												Equity securities			Other investments			Other derivative instruments			GLB(1)
	Foreign			Corporate securities			MBS			States, municipalities, and political subdivisions
	(in millions of U.S. dollars)
Balance- Beginning of Period	$	26		$	115		$	39		$	2		$	13		$	1,432		$	4		$	507
Transfers into Level 3		9			34			4			—			—			—			—			—
Transfers out of Level 3		(7	)		(4	)		(35	)		—			—			—			—			—
Change in Net Unrealized Gains (Losses) included in OCI		(1	)		1			—			—			(1	)		51			—			—
Net Realized Gains/Losses		1			(2	)		—			—			4			(3	)		1			17
Purchases		5			22			46			—			2			333			—			—
Sales		(3	)		(20	)		(15	)		—			(8	)		(55	)		—			—
Settlements		(3	)		(4	)		(5	)		(1	)		—			(78	)		(1	)		—
Balance-End of Period	$	27		$	142		$	34		$	1		$	10		$	1,680		$	4		$	524
Net Realized Gains/Losses Attributable to Changes in Fair Value at the Balance Sheet Date	$	—		$	—		$	—		$	—		$	—		$	(3	)	$	1		$	17

⁽¹⁾  Our GLB reinsurance product meets the definition of a derivative instrument for accounting purposes and is accordingly carried at fair value. Excluded from the table above is the portion of the GLB derivative liability classified as Future policy benefits in the consolidated balance sheets. The liability for GLB reinsurance was $676 million at June 30, 2011, and $648 million at December 31, 2010, which includes a fair value derivative adjustment of $524 million and $507 million, respectively.

b) Financial instruments disclosed, but not measured, at fair value

ACE uses various financial instruments in the normal course of its business. Our insurance contracts are excluded from fair value of financial instruments accounting guidance, and therefore, are not included in the amounts discussed below.

The carrying values of cash, other assets, other liabilities, and other financial instruments not included below approximated their fair values.

Investments in partially-owned insurance companies

Fair values for investments in partially-owned insurance companies are based on ACE’s share of the net assets based on the financial statements provided by those companies.

Short- and long-term debt and trust preferred securities

Where practical, fair values for short-term debt, long-term debt, and trust preferred securities are estimated using discounted cash flow calculations based principally on observable inputs including incremental borrowing rates, which reflect ACE’s credit rating, for similar types of borrowings with maturities consistent with those remaining for the debt being valued.

The following table presents carrying values and fair values of financial instruments not measured at fair value:

	June 30, 2012				December 31, 2011
	Carrying Value		Fair Value		Carrying Value		Fair Value
	(in millions of U.S. dollars)
Assets:
Fixed maturities held to maturity
U.S. Treasury and agency	$	1,091	$	1,136	$	1,078	$	1,126
Foreign		921		949		935		930
Corporate securities		2,207		2,282		2,338		2,337
Mortgage-backed securities		2,448		2,544		2,949		3,036
States, municipalities, and political subdivisions		1,115		1,151		1,147		1,176
		7,782		8,062		8,447		8,605
Partially-owned insurance companies		339		339		352		352
Total assets	$	8,121	$	8,401	$	8,799	$	8,957
Liabilities:
Short-term debt	$	1,401	$	1,401	$	1,251	$	1,251
Long-term debt		3,360		3,918		3,360		3,823
Trust preferred securities		309		422		309		404
Total liabilities	$	5,070	$	5,741	$	4,920	$	5,478

The following table presents, by valuation hierarchy, the financial instruments not measured at fair value:

	Level 1		Level 2		Level 3		Total
	(in millions of U.S. dollars)
June 30, 2012
Assets:
Fixed maturities held to maturity
U.S. Treasury and agency	$601		$	528	$	7	$	1,136
Foreign		—		949		—		949
Corporate securities		—		2,266		16		2,282
Mortgage-backed securities		—		2,544		—		2,544
States, municipalities, and political subdivisions		—		1,151		—		1,151
		601		7,438		23		8,062
Partially-owned insurance companies		—		—		339		339
Total assets	$601		$	7,438	$	362	$	8,401
Liabilities:
Short-term debt	$—		$	1,401	$	—	$	1,401
Long-term debt		—		3,918		—		3,918
Trust preferred securities		—		422		—		422
Total liabilities	$—		$	5,741	$	—	$	5,741

XML

Investments

6 Months Ended

Jun. 30, 2012

Investments

3. Investments

a) Fixed maturities

The following tables present the amortized cost and fair value of fixed maturities and related OTTI recognized in AOCI:

	June 30, 2012
	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	$	3,106	$	188	$	—		$	3,294	$	—
Foreign		12,745		571		(48	)		13,268		(1	)
Corporate securities		14,432		938		(71	)		15,299		(12	)
Mortgage-backed securities		9,815		446		(80	)		10,181		(93	)
States, municipalities, and political subdivisions		2,218		128		(2	)		2,344		—
	$	42,316	$	2,271	$	(201	)	$	44,386	$	(106	)
Held to maturity
U.S. Treasury and agency	$	1,091	$	45	$	—		$	1,136	$	—
Foreign		921		32		(4	)		949		—
Corporate securities		2,207		82		(7	)		2,282		—
Mortgage-backed securities		2,448		98		(2	)		2,544		—
States, municipalities, and political subdivisions		1,115		40		(4	)		1,151		—
	$	7,782	$	297	$	(17	)	$	8,062	$	—
	December 31, 2011
	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	$	2,774	$	186	$	—		$	2,960	$	—
Foreign		12,025		475		(99	)		12,401		(2	)
Corporate securities		14,055		773		(135	)		14,693		(22	)
Mortgage-backed securities		9,979		397		(175	)		10,201		(151	)
States, municipalities, and political subdivisions		1,617		96		(1	)		1,712		—
	$	40,450	$	1,927	$	(410	)	$	41,967	$	(175	)
Held to maturity
U.S. Treasury and agency	$	1,078	$	48	$	—		$	1,126	$	—
Foreign		935		18		(23	)		930		—
Corporate securities		2,338		44		(45	)		2,337		—
Mortgage-backed securities		2,949		90		(3	)		3,036		—
States, municipalities, and political subdivisions		1,147		32		(3	)		1,176		—
	$	8,447	$	232	$	(74	)	$	8,605	$	—

As discussed in Note 3 c), if a credit loss is indicated 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, 2012, $16 million and $84 million, respectively, of net unrealized appreciation related to such securities is included in OCI. For the three and six months ended June 30, 2011, $25 million and $8 million, respectively, of net unrealized depreciation related to such securities is included in OCI. At June 30, 2012 and December 31, 2011, AOCI includes net unrealized depreciation of $74 million and $155 million, respectively, related to securities remaining in the investment portfolio at those dates for which ACE has recognized a non-credit OTTI.

Mortgage-backed securities (MBS) issued by U.S. government agencies are combined with all other to be announced mortgage derivatives held (refer to Note 6 a) (iv)) and are included in the category, “Mortgage-backed securities”. Approximately 86 percent and 84 percent of the total mortgage-backed securities at June 30, 2012 and December 31, 2011, 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, 2012				December 31, 2011
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(in millions of U.S. dollars)
Available for sale
Due in 1 year or less	$	2,299	$	2,329	$	2,321	$	2,349
Due after 1 year through 5 years		12,330		12,802		12,325		12,722
Due after 5 years through 10 years		13,839		14,694		12,379		12,995
Due after 10 years		4,033		4,380		3,446		3,700
		32,501		34,205		30,471		31,766
Mortgage-backed securities		9,815		10,181		9,979		10,201
	$	42,316	$	44,386	$	40,450	$	41,967
Held to maturity
Due in 1 year or less	$	669	$	676	$	393	$	396
Due after 1 year through 5 years		1,811		1,858		2,062		2,090
Due after 5 years through 10 years		2,202		2,296		2,376		2,399
Due after 10 years		652		688		667		684
		5,334		5,518		5,498		5,569
Mortgage-backed securities		2,448		2,544		2,949		3,036
	$	7,782	$	8,062	$	8,447	$	8,605

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

The following table presents the cost and fair value of equity securities:

	June 30 2012			December 31 2011
	(in millions of U.S. dollars)
Cost	$	724		$	671
Gross unrealized appreciation		29			18
Gross unrealized depreciation		(24	)		(42	)
Fair value	$	729		$	647

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, ACE must evaluate the security to determine the portion of the impairment, if any, related to credit losses. If a credit loss is indicated, 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

• ACE’s 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 impaired.

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. We develop these estimates using information based on market observable data, issuer-specific information, and credit ratings. ACE developed its default assumption by using 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. We believe that use of a default assumption in excess of the historical mean is reasonable in light of current market conditions.

For the three and six months ended June 30, 2012, credit losses recognized in net income for corporate securities were $1 million and $4 million, respectively. There were no credit losses recognized in net income for corporate securities in 2011.

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, 2012, credit losses recognized in net income for mortgage-backed securities were nil and $3 million, respectively. For the three and six months ended June 30, 2011, credit losses recognized in net income for mortgage-backed securities were $2 million and $3 million, respectively.

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 June  30						Six Months Ended June  30
	2012			2011			2012			2011
	(in millions of U.S. dollars)
Fixed maturities:
OTTI on fixed maturities, gross	$	(1	)	$	(6	)	$	(8	)	$	(11	)
OTTI on fixed maturities recognized in OCI (pre-tax)		—			1			—			2
OTTI on fixed maturities, net		(1	)		(5	)		(8	)		(9	)
Gross realized gains excluding OTTI		104			108			216			217
Gross realized losses excluding OTTI		(35	)		(29	)		(106	)		(85	)
Total fixed maturities		68			74			102			123
Equity securities:
OTTI on equity securities		(4	)		—			(5	)		—
Gross realized gains excluding OTTI		—			4			2			12
Gross realized losses excluding OTTI		(1	)		—			(1	)		(1	)
Total equity securities		(5	)		4			(4	)		11
OTTI on other investments		(5	)		(3	)		(7	)		(3	)
Foreign exchange losses		(9	)		(30	)		(14	)		(109	)
Investment and embedded derivative instruments		(49	)		(48	)		(7	)		(68	)
Fair value adjustments on insurance derivative		(467	)		(70	)		(39	)		1
S&P put options and futures		70			3			(161	)		(68	)
Other derivative instruments		1			(2	)		(4	)		(3	)
Other		2			(1	)		—			(2	)
Net realized gains (losses)	$	(394	)	$	(73	)	$	(134	)	$	(118	)

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
	2012			2011			2012			2011
	(in millions of U.S. dollars)
Balance of credit losses related to securities still held – beginning of period	$	55		$	96		$	74		$	137
Additions where no OTTI was previously recorded		1			2			2			2
Additions where an OTTI was previously recorded		—			—			5			1
Reductions for securities sold during the period		(9	)		(4	)		(34	)		(46	)
Balance of credit losses related to securities still held – end of period	$	47		$	94		$	47		$	94

d) Gross unrealized loss

At June 30, 2012, there were 2,574 fixed maturities out of a total of 22,842 fixed maturities in an unrealized loss position. The largest single unrealized loss in the fixed maturities was $6 million. There were approximately 81 equity securities out of a total of 191 equity securities in an unrealized loss position. The largest single unrealized loss in the equity securities was $19 million. Fixed maturities in an unrealized loss position at June 30, 2012 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. Equity securities in an unrealized loss position include foreign fixed income securities held in a commingled fund structure 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
	Fair Value		Gross Unrealized Loss			Fair Value		Gross Unrealized Loss			Fair Value		Gross Unrealized Loss
	(in millions of U.S. dollars)
June 30, 2012
Foreign	$	1,231	$	(34.4	)	$	350	$	(18.0	)	$	1,581	$	(52.4	)
Corporate securities		1,800		(57.2	)		331		(21.2	)		2,131		(78.4	)
Mortgage-backed securities		280		(1.9	)		437		(80.2	)		717		(82.1	)
States, municipalities, and political subdivisions		289		(2.2	)		57		(3.3	)		346		(5.5	)
Total fixed maturities		3,600		(95.7	)		1,175		(122.7	)		4,775		(218.4	)
Equity securities		511		(24.0	)		—		—			511		(24.0	)
Other investments		69		(6.6	)		—		—			69		(6.6	)
Total	$	4,180	$	(126.3	)	$	1,175	$	(122.7	)	$	5,355	$	(249.0	)

	0 – 12 Months					Over 12 Months					Total
	Fair Value		Gross Unrealized Loss			Fair Value		Gross Unrealized Loss			Fair Value		Gross Unrealized Loss
	(in millions of U.S. dollars)
December 31, 2011
Foreign	$	1,801	$	(82.2	)	$	529	$	(40.0	)	$	2,330	$	(122.2	)
Corporate securities		3,084		(148.2	)		268		(32.2	)		3,352		(180.4	)
Mortgage-backed securities		440		(7.5	)		586		(170.2	)		1,026		(177.7	)
States, municipalities, and political subdivisions		30		(0.4	)		98		(3.5	)		128		(3.9	)
Total fixed maturities		5,355		(238.3	)		1,481		(245.9	)		6,836		(484.2	)
Equity securities		484		(42.3	)		—		—			484		(42.3	)
Other investments		88		(8.3	)		—		—			88		(8.3	)
Total	$	5,927	$	(288.9	)	$	1,481	$	(245.9	)	$	7,408	$	(534.8	)

e) Restricted assets

ACE 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. ACE is also required to restrict assets pledged under reverse 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 LOCs and derivative transactions. Included in restricted assets at June 30, 2012 and December 31, 2011, are fixed maturities and short-term investments totaling $15.9 billion and $14.9 billion, respectively, and cash of $246 million and $179 million, respectively.

The following table presents the components of restricted assets:

	June 30 2012		December 31 2011
	(in millions of U.S. dollars)
Trust funds	$	10,807	$	9,940
Deposits with non-U.S. regulatory authorities		2,141		2,240
Deposits with U.S. regulatory authorities		1,340		1,307
Assets pledged under reverse repurchase agreements		1,401		1,251
Other pledged assets		480		364
	$	16,169	$	15,102

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Assumed life reinsurance programs involving minimum benefit guarantees under annuity contracts (Tables)

6 Months Ended

Jun. 30, 2012

Schedule Of Guaranteed Minimum Death Benefits And Guaranteed Minimum Income Benefits Income And Expense

	Three Months Ended June  30						Six Months Ended June  30
	2012			2011			2012			2011
	(in millions of U.S. dollars)
GMDB
Net premiums earned	$	21		$	25		$	44		$	51
Policy benefits and other reserve adjustments	$	12		$	21		$	39		$	43
GLB
Net premiums earned	$	40		$	41		$	81		$	82
Policy benefits and other reserve adjustments		16			6			23			12
Net realized gains (losses)		(494	)		(75	)		(34	)		(17	)
(Loss) gain recognized in income	$	(470	)	$	(40	)	$	24		$	53
Net cash received	$	38		$	40		$	79		$	81
Net increase in liability	$	(508	)	$	(80	)	$	(55	)	$	(28	)

XML

Information provided in connection with outstanding debt of subsidiaries

6 Months Ended

Jun. 30, 2012

Information provided in connection with outstanding debt of subsidiaries

11. Information provided in connection with outstanding debt of subsidiaries

The following tables present condensed consolidating financial information at June 30, 2012 and December 31, 2011, and for the three and six months ended June 30, 2012 and 2011, for ACE Limited (the Parent Guarantor) and ACE INA Holdings Inc. (the Subsidiary Issuer). The Subsidiary Issuer is an indirect 100 percent-owned subsidiary of the Parent Guarantor. Investments in subsidiaries are accounted for by the Parent Guarantor under the equity method for purposes of the supplemental consolidating presentation. Earnings of subsidiaries are reflected in the Parent Guarantor’s investment accounts and earnings. The Parent Guarantor fully and unconditionally guarantees certain of the debt of the Subsidiary Issuer. Condensed consolidating financial information of the Subsidiary Issuer is presented on a consolidated basis and consists principally of the net assets, results of operations, and cash flows of operating insurance company subsidiaries.

Condensed Consolidating Balance Sheet at June 30, 2012

(in millions of U.S. dollars)

	ACE Limited (Parent Guarantor)			ACE INA Holdings Inc. (Subsidiary Issuer)		Other ACE Limited Subsidiaries and Eliminations(1)			Consolidating Adjustments(2)			ACE Limited Consolidated
Assets
Investments	$36			$	29,670	$	27,975		$	—		$	57,681
Cash(3)		(30	)		508		139			—			617
Insurance and reinsurance balances receivable		—			4,409		576			—			4,985
Reinsurance recoverable on losses and loss expenses		—			16,432		(4,680	)		—			11,752
Reinsurance recoverable on policy benefits		—			1,181		(924	)		—			257
Value of business acquired		—			637		—			—			637
Goodwill and other intangible assets		—			4,274		552			—			4,826
Investments in subsidiaries		25,660			—		—			(25,660	)		—
Due from subsidiaries and affiliates, net		327			—		—			(327	)		—
Other assets		7			7,678		2,261			—			9,946
Total assets	$26,000			$	64,789	$	25,899		$	(25,987	)	$	90,701
Liabilities
Unpaid losses and loss expenses	$—			$	30,321	$	6,529		$	—		$	36,850
Unearned premiums		—			5,916		1,128			—			7,044
Future policy benefits		—			3,845		591			—			4,436
Due to subsidiaries and affiliates, net		—			604		(277	)		(327	)		—
Short-term debt		—			851		550			—			1,401
Long-term debt		—			3,360		—			—			3,360
Trust preferred securities		—			309		—			—			309
Other liabilities		238			8,255		3,046			—			11,539
Total liabilities		238			53,461		11,567			(327	)		64,939
Total shareholders’ equity		25,762			11,328		14,332			(25,660	)		25,762
Total liabilities and shareholders’ equity	$26,000			$	64,789	$	25,899		$	(25,987	)	$	90,701

⁽¹⁾ Includes all other subsidiaries of ACE Limited and intercompany eliminations.

⁽²⁾  Includes ACE Limited parent company eliminations.

⁽³⁾ ACE maintains two notional multicurrency cash pools (Pools) with a third-party bank. Various ACE entities participate in one or the other of the Pools, pursuant to which credit and debit balances in individual ACE accounts are translated daily into a single currency and pooled on a notional basis. Individual ACE entities are permitted to overdraw on their individual accounts provided the overall Pool balances do not fall below zero. At June 30, 2012, the cash balance of one or more entities was negative; however, the overall Pool balances were positive.

Condensed Consolidating Balance Sheet at December 31, 2011

(in millions of U.S. dollars)

	ACE Limited (Parent Guarantor)		ACE INA Holdings Inc. (Subsidiary Issuer)		Other ACE Limited Subsidiaries and Eliminations(1)			Consolidating Adjustments(2)			ACE Limited Consolidated
Assets
Investments	$33		$	28,848	$	26,795		$	—		$	55,676
Cash		106		382		126			—			614
Insurance and reinsurance balances receivable		—		3,944		443			—			4,387
Reinsurance recoverable on losses and loss expenses		—		17,146		(4,757	)		—			12,389
Reinsurance recoverable on policy benefits		—		941		(692	)		—			249
Value of business acquired		—		676		—			—			676
Goodwill and other intangible assets		—		4,248		551			—			4,799
Investments in subsidiaries		23,871		—		—			(23,871	)		—
Due from subsidiaries and affiliates, net		498		—		—			(498	)		—
Other assets		8		7,018		1,505			—			8,531
Total assets	$24,516		$	63,203	$	23,971		$	(24,369	)	$	87,321
Liabilities
Unpaid losses and loss expenses	$—		$	30,837	$	6,640		$	—		$	37,477
Unearned premiums		—		5,416		918			—			6,334
Future policy benefits		—		3,673		601			—			4,274
Due to subsidiaries and affiliates, net		—		316		182			(498	)		—
Short-term debt		—		850		401			—			1,251
Long-term debt		—		3,360		—			—			3,360
Trust preferred securities		—		309		—			—			309
Other liabilities		184		7,769		2,031			—			9,984
Total liabilities		184		52,530		10,773			(498	)		62,989
Total shareholders’ equity		24,332		10,673		13,198			(23,871	)		24,332
Total liabilities and shareholders’ equity	$24,516		$	63,203	$	23,971		$	(24,369	)	$	87,321

⁽¹⁾  Includes all other subsidiaries of ACE Limited and intercompany eliminations.

⁽²⁾  Includes ACE Limited parent company eliminations.

Condensed Consolidating Statement of Operations

For the Three Months Ended June 30, 2012

(in millions of U.S. dollars)

	ACE Limited (Parent Guarantor)			ACE INA Holdings Inc. (Subsidiary Issuer)		Other ACE Limited Subsidiaries and Eliminations(1)			Consolidating Adjustments(2)			ACE Limited Consolidated
Net premiums written	$	—		$	2,327	$	1,803		$	—		$	4,130
Net premiums earned		—			2,196		1,587			—			3,783
Net investment income		1			257		279			—			537
Equity in earnings of subsidiaries		301			—		—			(301	)		—
Net realized gains (losses) including OTTI		2			34		(430	)		—			(394	)
Losses and loss expenses		—			1,325		794			—			2,119
Policy benefits		—			54		48			—			102
Policy acquisition costs and administrative expenses		14			656		463			—			1,133
Interest (income) expense		(8	)		58		12			—			62
Other (income) expense		(33	)		9		58			—			34
Income tax expense		3			119		26			—			148
Net income	$	328		$	266	$	35		$	(301	)	$	328
Comprehensive income (loss)	$	457		$	323	$	(22	)	$	(301	)	$	457

Condensed Consolidating Statement of Operations

For the Three Months Ended June 30, 2011

(in millions of U.S. dollars)

	ACE Limited (Parent Guarantor)			ACE INA Holdings Inc. (Subsidiary Issuer)		Other ACE Limited Subsidiaries and Eliminations(1)			Consolidating Adjustments(2)			ACE Limited Consolidated
Net premiums written	$	—		$	2,306	$	1,647		$	—		$	3,953
Net premiums earned		—			2,225		1,532			—			3,757
Net investment income		—			282		287			—			569
Equity in earnings of subsidiaries		566			—		—			(566	)		—
Net realized gains (losses) including OTTI		(1	)		17		(89	)		—			(73	)
Losses and loss expenses		—			1,438		788			—			2,226
Policy benefits		—			59		49			—			108
Policy acquisition costs and administrative expenses		18			620		492			—			1,130
Interest (income) expense		(10	)		66		6			—			62
Other (income) expense		(40	)		23		29			—			12
Income tax expense		3			109		9			—			121
Net income	$	594		$	209	$	357		$	(566	)	$	594
Comprehensive income	$	801		$	382	$	184		$	(566	)	$	801

⁽¹⁾  Includes all other subsidiaries of ACE Limited and intercompany eliminations.

⁽²⁾  Includes ACE Limited parent company eliminations.

Condensed Consolidating Statement of Operations

For the Six Months Ended June 30, 2012

(in millions of U.S. dollars)

	ACE Limited (Parent Guarantor)			ACE INA Holdings Inc. (Subsidiary Issuer)		Other ACE Limited Subsidiaries and Eliminations(1)			Consolidating Adjustments(2)			ACE Limited Consolidated
Net premiums written	$	—		$	4,425	$	3,277		$	—		$	7,702
Net premiums earned		—			4,148		3,016			—			7,164
Net investment income		1			522		558			—			1,081
Equity in earnings of subsidiaries		1,229			—		—			(1,229	)		—
Net realized gains (losses) including OTTI		22			60		(216	)		—			(134	)
Losses and loss expenses		—			2,507		1,416			—			3,923
Policy benefits		—			140		109			—			249
Policy acquisition costs and administrative expenses		26			1,296		903			—			2,225
Interest (income) expense		(17	)		124		17			—			124
Other (income) expense		(63	)		34		60			—			31
Income tax expense		5			204		49			—			258
Net income	$	1,301		$	425	$	804		$	(1,229	)	$	1,301
Comprehensive income	$	1,728		$	610	$	619		$	(1,229	)	$	1,728

Condensed Consolidating Statement of Operations

For the Six Months Ended June 30, 2011

(in millions of U.S. dollars)

	ACE Limited (Parent Guarantor)			ACE INA Holdings Inc. (Subsidiary Issuer)		Other ACE Limited Subsidiaries and Eliminations(1)			Consolidating Adjustments(2)			ACE Limited Consolidated
Net premiums written	$	—		$	4,329	$	3,070		$	—		$	7,399
Net premiums earned		—			4,163		2,903			—			7,066
Net investment income		1			544		568			—			1,113
Equity in earnings of subsidiaries		805			—		—			(805	)		—
Net realized gains (losses) including OTTI		(2	)		4		(120	)		—			(118	)
Losses and loss expenses		—			2,739		1,750			—			4,489
Policy benefits		—			99		100			—			199
Policy acquisition costs and administrative expenses		36			1,208		944			—			2,188
Interest (income) expense		(18	)		133		10			—			125
Other (income) expense		(62	)		36		25			—			(1	)
Income tax expense		4			177		36			—			217
Net income	$	844		$	319	$	486		$	(805	)	$	844
Comprehensive income	$	1,239		$	592	$	213		$	(805	)	$	1,239

⁽¹⁾  Includes all other subsidiaries of ACE Limited and intercompany eliminations.

⁽²⁾  Includes ACE Limited parent company eliminations.

Condensed Consolidating Statement of Cash Flows

For the Six Months Ended June 30, 2012

(in millions of U.S. dollars)

	ACE Limited (Parent Guarantor)			ACE INA Holdings Inc. (Subsidiary Issuer)			Other ACE Limited Subsidiaries and Eliminations(1)			Consolidating Adjustments(2)			ACE Limited Consolidated
Net cash flows from operating activities	$	49		$	540		$	794		$	—		$	1,383
Cash flows from investing activities
Purchases of fixed maturities available for sale		—			(5,614	)		(6,073	)		—			(11,687	)
Purchases of fixed maturities held to maturity		—			(134	)		(2	)		—			(136	)
Purchases of equity securities		—			(57	)		(36	)		—			(93	)
Sales of fixed maturities available for sale		—			3,750			4,282			—			8,032
Sales of equity securities		—			28			5			—			33
Maturities and redemptions of fixed maturities available for sale		—			1,158			1,122			—			2,280
Maturities and redemptions of fixed maturities held to maturity		—			527			212			—			739
Net derivative instruments settlements		(1	)		(6	)		(126	)		—			(133	)
Advances from (to) affiliates		131			—			—			(131	)		—
Acquisition of subsidiaries		—			(30	)		—			—			(30	)
Capital contribution to subsidiary		—			—			(90	)		90			—
Other		—			(140	)		(115	)		—			(255	)
Net cash flows from (used for) investing activities		130			(518	)		(821	)		(41	)		(1,250	)
Cash flows from financing activities
Dividends paid on Common Shares		(318	)		—			—			—			(318	)
Common Shares repurchased		—			—			(11	)		—			(11	)
Net proceeds from issuance of short-term debt		—			—			151			—			151
Proceeds from share-based compensation plans		3			—			52			—			55
Advances (to) from affiliates		—			23			(154	)		131			—
Capital contribution from subsidiary		—			90			—			(90	)		—
Net cash flows (used for) from financing activities		(315	)		113			38			41			(123	)
Effect of foreign currency rate changes on cash and cash equivalents		—			(9	)		2			—			(7	)
Net increase (decrease) in cash		(136	)		126			13			—			3
Cash – beginning of period		106			382			126			—			614
Cash – end of period(3)	$(30)			$	508		$	139		$	—		$	617

⁽¹⁾ Includes all other subsidiaries of ACE Limited and intercompany eliminations.

⁽²⁾  Includes ACE Limited parent company eliminations.

⁽³⁾  ACE maintains two notional multi-currency cash pools (Pools) with a third-party bank. Various ACE entities participate in one or the other of the Pools, pursuant to which credit and debit balances in individual ACE accounts are translated daily into a single currency and pooled on a notional basis. Individual ACE entities are permitted to overdraw on their individual accounts provided the overall Pool balances do not fall below zero. At June 30, 2012 one or more entities was negative; however, the overall Pool balances were positive.

Condensed Consolidating Statement of Cash Flows

For the Six Months Ended June 30, 2011

(in millions of U.S. dollars)

	ACE Limited (Parent Guarantor)			ACE INA Holdings Inc. (Subsidiary Issuer)			Other ACE Limited Subsidiaries and Eliminations(1)			Consolidating Adjustments(2)			ACE Limited Consolidated
Net cash flows from operating activities	$	623		$	677		$	1,443		$	(680	)	$	2,063
Cash flows from investing activities
Purchases of fixed maturities available for sale		—			(6,330	)		(7,353	)		—			(13,683	)
Purchases of fixed maturities held to maturity		—			(233	)		(1	)		—			(234	)
Purchases of equity securities		—			(138	)		(32	)		—			(170	)
Sales of fixed maturities available for sale		8			5,022			4,955			—			9,985
Sales of equity securities		—			332			15			—			347
Maturities and redemptions of fixed maturities available for sale		—			847			911			—			1,758
Maturities and redemptions of fixed maturities held to maturity		—			475			181			—			656
Net derivative instruments settlements		(1	)		(7	)		(38	)		—			(46	)
Capital contribution to subsidiary		(385	)		—			—			385			—
Advances from (to) affiliates		(291	)		—			—			291			—
Acquisition of subsidiaries (net of cash acquired of $95)		—			(343	)		(37	)		—			(380	)
Other		—			(449	)		317			—			(132	)
Net cash flows used for investing activities		(669	)		(824	)		(1,082	)		676			(1,899	)
Cash flows from financing activities
Dividends paid on Common Shares		(223	)		—			—			—			(223	)
Common Shares repurchased		—			—			(68	)		—			(68	)
Net proceeds from (repayments) issuance of short-term debt		(300	)		—			400			—			100
Proceeds from share-based compensation plans		76			—			—			—			76
Advances from (to) affiliates		—			226			65			(291	)		—
Dividends to parent company		—			—			(680	)		680			—
Capital contribution from parent		—			—			385			(385	)		—
Net cash flows (used for) from financing activities		(447	)		226			102			4			(115	)
Effect of foreign currency rate changes on cash and cash equivalents		—			12			—			—			12
Net (decrease) increase in cash		(493	)		91			463			—			61
Cash – beginning of period(3)		308			573			(109	)		—			772
Cash – end of period(3)	$(185)			$	664		$	354		$	—		$	833

⁽¹⁾  Includes all other subsidiaries of ACE Limited and intercompany eliminations.

⁽²⁾  Includes ACE Limited parent company eliminations.

⁽³⁾  ACE maintains two notional multi-currency cash pools (Pools) with a third-party bank. Various ACE entities participate in one or the other of the Pools, pursuant to which credit and debit balances in individual ACE accounts are translated daily into a single currency and pooled on a notional basis. Individual ACE entities are permitted to overdraw on their individual accounts provided the overall Pool balances do not fall below zero. At June 30, 2011 and December 31, 2010, the cash balance of one or more entities was negative; however, the overall Pool balances were positive.

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Shareholders' equity

6 Months Ended

Jun. 30, 2012

Shareholders' equity

7. Shareholders’ equity

All of ACE’s Common Shares are authorized under Swiss corporate law. Though the par value of Common Shares is stated in Swiss francs, ACE continues to use U.S. dollars as its reporting currency for preparing the consolidated financial statements. Under Swiss corporate law, dividends, including distributions through a reduction in par value (par value distributions) or from legal reserves, must be declared by ACE in Swiss francs though dividend payments are made by ACE in U.S. dollars. At our May 2011 annual general meeting, our shareholders approved a dividend for the following year, payable in four quarterly installments after the May 2011 annual general meeting from our capital contributions reserves (Additional paid-in capital), a subaccount of legal reserves. At our May 2012 annual general meeting, our shareholders approved a dividend for the following year, payable in four quarterly installments after the May 2012 annual general meeting in the form of a distribution by way of a par value reduction. We have determined this procedure is more appropriate for us at this time due to current Swiss law. For the three and six months ended June 30, 2012, dividends per Common Share amounted to CHF 0.48 ($0.49) and CHF 1.01 ($1.08), including a par value reduction of CHF 0.48 per Common Share that had the effect of reducing par value per Common Share to CHF 29.79. Dividends for the six months ended June 30, 2012 included a $0.12 per Common Share increase (approved by our shareholders at the January 9, 2012 extraordinary general meeting) to the third and fourth installments of the dividend approved at the May 2011 annual general meeting.

For the three and six months ended June 30, 2011, dividends per Common Share amounted to CHF 0.29 ($0.35) and CHF 0.59 ($0.68), including a par value reduction of CHF 0.30 per Common Share.

Common Shares in treasury are used principally for issuance upon the exercise of employee stock options, grants of restricted stock, and purchases under the Employee Stock Purchase Plan (ESPP). At June 30, 2012, 3,771,527 Common Shares remain in treasury after net shares redeemed under employee share-based compensation plans.

ACE Limited securities repurchase authorization

In August 2011, the Board of Directors authorized the repurchase of up to $303 million of ACE’s Common Shares through December 31, 2012. The amount authorized in August 2011 was in addition to the $197 million balance remaining under a $600 million share repurchase program approved in November 2010. These authorizations were granted to allow ACE to repurchase Common Shares to partially offset potential dilution from the exercise of stock options and the granting of restricted stock under share-based compensation plans. Such repurchases may be made in the open market, in privately negotiated transactions, block trades, accelerated repurchases and/or through option or other forward transactions. In January 2012, ACE repurchased an additional 100,000 Common Shares for a cost of $7 million. At June 30, 2012, $461 million in share repurchase authorization remained through December 31, 2012 pursuant to the November 2010 and August 2011 Board authorizations.

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Assumed life reinsurance programs involving minimum benefit guarantees under annuity contracts

6 Months Ended

Jun. 30, 2012

Assumed life reinsurance programs involving minimum benefit guarantees under annuity contracts

5. Assumed life reinsurance programs involving minimum benefit guarantees under 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.

	Three Months Ended June  30						Six Months Ended June  30
	2012			2011			2012			2011
	(in millions of U.S. dollars)
GMDB
Net premiums earned	$	21		$	25		$	44		$	51
Policy benefits and other reserve adjustments	$	12		$	21		$	39		$	43
GLB
Net premiums earned	$	40		$	41		$	81		$	82
Policy benefits and other reserve adjustments		16			6			23			12
Net realized gains (losses)		(494	)		(75	)		(34	)		(17	)
(Loss) gain recognized in income	$	(470	)	$	(40	)	$	24		$	53
Net cash received	$	38		$	40		$	79		$	81
Net increase in liability	$	(508	)	$	(80	)	$	(55	)	$	(28	)

At June 30, 2012, reported liabilities for GMDB and GLB reinsurance were $117 million and $1.6 billion, respectively, compared with $138 million and $1.5 billion, respectively, at December 31, 2011. The reported liability for GLB reinsurance of $1.6 billion at June 30, 2012, and $1.5 billion at December 31, 2011, includes a fair value derivative adjustment of $1.4 billion and $1.3 billion, respectively. Included in Net realized gains (losses) in the table above are gains (losses) related to foreign exchange and other fair value derivative adjustments. 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 continually reviewed by management and enhanced, as appropriate, based upon improvements in modeling assumptions and availability of more information, such as market conditions and demographics of in-force annuities.

Variable Annuity Net Amount at Risk

(i) Reinsurance covering the GMDB risk only

At June 30, 2012 and December 31, 2011, the net amount at risk from reinsurance programs covering the GMDB risk only was $1.5 billion and $1.8 billion, respectively.

For reinsurance programs covering the GMDB risk only, the net amount at risk is defined as the present value of future claim payments under the following assumptions:

• policy account values and guaranteed values are fixed at the valuation date (June 30, 2012 and December 31, 2011, respectively);

• there are no lapses or withdrawals;

• mortality according to 100 percent of the Annuity 2000 mortality table;

• future claims are discounted in line with the discounting assumption used in the calculation of the benefit reserve averaging between 1.0 and 2.0 percent; and

• reinsurance coverage ends at the earlier of the maturity of the underlying variable annuity policy or the reinsurance treaty.

The total claim amount payable on reinsurance programs covering the GMDB risk only, if all the cedants’ policyholders were to die immediately at June 30, 2012 was approximately $442 million. This takes into account all applicable reinsurance treaty claim limits.

(ii) Reinsurance covering the GLB risk only

At June 30, 2012 and December 31, 2011, the net amount at risk from reinsurance programs covering the GLB risk only was $442 million and $380 million, respectively.

For reinsurance programs covering the GLB risk only, the net amount at risk is defined as the present value of future claim payments under the following assumptions:

• policy account values and guaranteed values are fixed at the valuation date (June 30, 2012 and December 31, 2011, respectively);

• there are no deaths, lapses, or withdrawals;

• policyholders annuitize at a frequency most disadvantageous to ACE (in other words, annuitization at a level that maximizes claims taking into account the treaty limits) under the terms of the reinsurance contracts;

• for annuitizing policyholders, the GMIB claim is calculated using interest rates in line with those used in calculating the reserve;

• future claims are discounted in line with the discounting assumption used in the calculation of the benefit reserve averaging between 3.0 and 4.0 percent; and

• reinsurance coverage ends at the earlier of the maturity of the underlying variable annuity policy or the reinsurance treaty.

(iii) Reinsurance covering both the GMDB and GLB risks on the same underlying policyholders

At June 30, 2012 and December 31, 2011, the GMDB net amount at risk from reinsurance programs covering both the GMDB and GLB risks on the same underlying policyholders was $160 million and $182 million, respectively.

At June 30, 2012 and December 31, 2011, the GLB net amount at risk from reinsurance programs covering both the GMDB and GLB risks on the same underlying policyholders was $934 million and $998 million, respectively.

These net amounts at risk reflect the interaction between the two types of benefits on any single policyholder (eliminating double-counting), and therefore the net amounts at risk should be considered additive.

For reinsurance programs covering both the GMDB and GLB risks on the same underlying policyholders, the net amount at risk is defined as the present value of future claim payments under the following assumptions:

• policy account values and guaranteed values are fixed at the valuation date (June 30, 2012 and December 31, 2011, respectively);

• there are no lapses, or withdrawals;

• mortality according to 100 percent of the Annuity 2000 mortality table;

• policyholders annuitize at a frequency most disadvantageous to ACE (in other words, annuitization at a level that maximizes claims taking into account the treaty limits) under the terms of the reinsurance contracts;

• for annuitizing policyholders, the GMIB claim is calculated using interest rates in line with those used in calculating the reserve;

• future claims are discounted in line with the discounting assumption used in the calculation of the benefit reserve averaging between 1.0 and 2.0 percent; and

• reinsurance coverage ends at the earlier of the maturity of the underlying variable annuity policy or the reinsurance treaty.

The total claim amount payable on reinsurance programs covering both the GMDB and GLB risks on the same underlying policyholders, if all of the cedants’ policyholders were to die immediately at June 30, 2012 was approximately $1.0 billion. This takes into account all applicable reinsurance treaty claim limits. Although there would be an increase in death claims resulting from 100 percent immediate mortality of all policyholders, the GLB claims would be zero.

The average attained age of all policyholders under sections i), ii), and iii) above, weighted by the guaranteed value of each reinsured policy, is approximately 67 years.

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Commitments, contingencies, and guarantees

6 Months Ended

Jun. 30, 2012

Commitments, contingencies, and guarantees

6. Commitments, contingencies, and guarantees

a) Derivative instruments

Derivative instruments employed

ACE maintains positions in derivative instruments such as futures, options, swaps, and foreign currency forward contracts for which the primary purposes are to manage duration and foreign currency exposure, yield enhancement, or to obtain an exposure to a particular financial market. Along with convertible bonds and to be announced mortgage-backed securities (TBA), discussed below, these are the most numerous and frequent derivative transactions.

ACE maintains positions in convertible bond investments that contain embedded derivatives. In addition, we purchase TBAs as part of our investing activities. These securities are included within the fixed maturities available for sale (FM AFS) portfolio.

Under reinsurance programs covering GLBs, ACE assumes the risk of GLBs, including GMIB and GMAB, associated with variable annuity contracts. The GMIB risk is triggered if, at the time the contract holder elects to convert the accumulated account value to a periodic payment stream (annuitize), the accumulated account value is not sufficient to provide a guaranteed minimum level of monthly income. The GMAB risk is triggered if, at contract maturity, the contract holder’s account value is less than a guaranteed minimum value. The GLB reinsurance product meets the definition of a derivative instrument. Benefit reserves in respect of GLBs are classified as Future policy benefits (FPB) while the fair value derivative adjustment is classified within Accounts payable, accrued expenses, and other liabilities (AP). ACE also maintains positions in exchange-traded equity futures contracts and options on equity market indices to limit equity exposure in the GMDB and GLB blocks of business.

In relation to certain debt issuances, ACE, from time to time, has entered into interest rate swap transactions for the purpose of either fixing or reducing borrowing costs. Although the use of these interest rate swaps has the economic effect of fixing or reducing borrowing costs on a net basis, gross interest expense on the related debt issuances is included in Interest expense while the settlements related to the interest rate swaps are reflected in Net realized gains (losses) in the consolidated statements of operations. At June 30, 2012, ACE had no in-force interest rate swaps.

ACE buys credit default swaps to mitigate global credit risk exposure, primarily related to reinsurance recoverables.

All derivative instruments are carried at fair value with changes in fair value recorded in Net realized gains (losses) in the consolidated statements of operations. None of the derivative instruments are designated as hedges for accounting purposes.

The following table presents the balance sheet locations, fair values in an asset or (liability) position, and notional values/payment provisions of our derivative instruments:

			June 30, 2012					December 31, 2011
	Consolidated Balance Sheet Location		Fair Value			Notional Value/ Payment Provision		Fair Value			Notional Value/ Payment Provision
			(in millions of U.S. dollars)
Investment and embedded derivative instruments
Foreign currency forward contracts		AP	$	(4	)	$	771	$	7		$	674
Cross-currency swaps		AP		—			50		—			—
Futures contracts on money market instruments		AP		3			2,077		7			10,476
Futures contracts on notes and bonds		AP		(3	)		802		(4	)		1,055
Options on money market instruments		AP		—			3,030		—			292
Convertible bonds		FM AFS		381			364		357			353
TBAs		FM AFS		34			32		60			56
			$	411		$	7,126	$	427		$	12,906
Other derivative instruments
Futures contracts on equities(1)		AP	$	(85	)	$	2,125	$	(16	)	$	1,367
Options on equity market indices(1)		AP		41			250		54			250
Credit default swaps		AP		1			50		3			350
Other		AP		—			6		—			6
			$	(43	)	$	2,431	$	41		$	1,973
GLB(2)		AP/FPB	$	(1,560	)	$	1,376	$	(1,505	)	$	1,378

⁽¹⁾  Related to GMDB and GLB blocks of business.

⁽²⁾  Includes both future policy benefits reserves and fair value derivative adjustment. Refer to Note 5 for additional information. Note that the payment provision related to GLB is the net amount at risk. The concept of a notional value does not apply to the GLB reinsurance contracts.

The following table presents net realized gains (losses) related to derivative instrument activity in the consolidated statements of operations:

	Three Months Ended						Six Months Ended
	June 30						June 30
	2012			2011			2012			2011
	(in millions of U.S. dollars)
Investment and embedded derivative instruments
Foreign currency forward contracts	$	8		$	(3	)	$	1		$	(18	)
All other futures contracts and options		(45	)		(24	)		(20	)		(27	)
Convertible bonds		(12	)		(21	)		12			(22	)
TBAs		—			—			—			(1	)
Total investment and embedded derivative instruments	$	(49	)	$	(48	)	$	(7	)	$	(68	)
GLB and other derivative instruments
GLB(1)	$	(467	)	$	(70	)	$	(39	)	$	1
Futures contracts on equities(2)		65			—			(148	)		(63	)
Options on equity market indices(2)		5			3			(13	)		(5	)
Credit default swaps		1			(2	)		(4	)		(3	)
Total GLB and other derivative instruments	$	(396	)	$	(69	)	$	(204	)	$	(70	)
	$	(445	)	$	(117	)	$	(211	)	$	(138	)

⁽¹⁾  Excludes foreign exchange gains (losses) related to GLB.

⁽²⁾  Related to GMDB and GLB blocks of business.

Derivative instrument objectives

(i) Foreign currency exposure management

A foreign currency forward contract (forward) is an agreement between participants to exchange specific foreign currencies at a future date. ACE uses forwards to minimize the effect of fluctuating foreign currencies.

(ii) Duration management and market exposure

Futures

Futures contracts give the holder the right and obligation to participate in market movements, determined by the index or underlying security on which the futures contract is based. Settlement is made daily in cash by an amount equal to the change in value of the futures contract times a multiplier that scales the size of the contract. Exchange-traded futures contracts on money market instruments, notes and bonds are used in fixed maturity portfolios to more efficiently manage duration, as substitutes for ownership of the money market instruments, bonds and notes without significantly increasing the risk in the portfolio. Investments in futures contracts may be made only to the extent that there are assets under management not otherwise committed.

Exchange-traded equity futures contracts are used to limit exposure to a severe equity market decline, which would cause an increase in expected claims and therefore, reserves for GMDB and GLB reinsurance business.

Options

An option contract conveys to the holder the right, but not the obligation, to purchase or sell a specified amount or value of an underlying security at a fixed price. Option contracts are used in the investment portfolio as protection against unexpected shifts in interest rates, which would affect the duration of the fixed maturity portfolio. By using options in the portfolio, the overall interest rate sensitivity of the portfolio can be reduced. Option contracts may also be used as an alternative to futures contracts in the synthetic strategy as described above.

Another use for option contracts is to limit exposure to a severe equity market decline, which would cause an increase in expected claims and therefore, reserves for GMDB and GLB reinsurance business.

The price of an option is influenced by the underlying security, expected volatility, time to expiration, and supply and demand.

The credit risk associated with the above derivative financial instruments relates to the potential for non-performance by counterparties. Although non-performance is not anticipated, in order to minimize the risk of loss, management monitors the creditworthiness of its counterparties and obtains collateral. The performance of exchange-traded instruments is guaranteed by the exchange on which they trade. For non-exchange-traded instruments, the counterparties are principally banks which must meet certain criteria according to our investment guidelines.

Cross-currency swaps

We use cross-currency swaps to manage specific foreign currency denominated investments. These swaps enable us to reduce the duration gap between assets and liabilities by more closely matching the liabilities with the maturities of the underlying bonds.

Interest rate swaps

We use interest rate swaps related to certain debt issuances for the purpose of either fixing and/or reducing borrowing costs.

Credit default swaps

A credit default swap is a bilateral contract under which two counterparties agree to isolate and separately trade the credit risk of at least one third-party reference entity. Under a credit default swap agreement, a protection buyer pays a periodic fee to a protection seller in exchange for a contingent payment by the seller upon a credit event (such as a default or failure to pay) related to the reference entity. When a credit event is triggered, the protection seller pays the protection buyer the difference between the fair value of assets and the principal amount. We have purchased a credit default swap to mitigate our global credit risk exposure to one of our reinsurers.

(iii) Convertible security investments

A convertible bond is a debt instrument that can be converted into a predetermined amount of the issuer’s equity at certain times prior to the bond’s maturity. The convertible option is an embedded derivative within the fixed maturity host instruments which are classified in the investment portfolio as available for sale. ACE purchases convertible bonds for their total return and not specifically for the conversion feature.

(iv) TBA

By acquiring a TBA, we make a commitment to purchase a future issuance of mortgage-backed securities. For the period between purchase of the TBA and issuance of the underlying security, we account for our position as a derivative in the consolidated financial statements. ACE purchases TBAs both for their total return and for the flexibility they provide related to our mortgage-backed security strategy.

(v) GLB

Under the GLB program, as the assuming entity, ACE is obligated to provide coverage until the expiration or maturity of the underlying annuities. Premiums received under the reinsurance treaties are classified as premium. Expected losses allocated to premiums received are classified as Future policy benefits and valued similar to GMDB reinsurance. Other changes in fair value, principally arising from changes in expected losses allocated to expected future premiums, are classified as Net realized gains (losses). Fair value represents management’s estimate of exit price and thus, includes a risk margin. We may recognize a realized loss for other changes in fair value due to adverse changes in the capital markets (e.g., declining interest rates and/or declining equity markets) and changes in actual or estimated future policyholder behavior (e.g., increased annuitization or decreased lapse rates) although we expect the business to be profitable. We believe this presentation provides the most meaningful disclosure of changes in the underlying risk within the GLB reinsurance programs for a given reporting period.

b) Other investments

At June 30, 2012, included in Other investments in the consolidated balance sheet are investments in limited partnerships and partially-owned investment companies with a carrying value of $1,592 million. In connection with these investments, we have commitments that may require funding of up to $1,184 million over the next several years.

c) Taxation

In April 2012, ACE reached final settlement with the Internal Revenue Service (IRS) Appeals Division regarding several issues raised by the IRS Examination Division in its federal tax returns for 2005, 2006 and 2007. The settlement of these issues had no net impact on our results of operations. In addition, the IRS completed its field examination of ACE’s federal tax returns for 2008 and 2009 during June 2012. No material adjustments resulted from this examination. It is reasonably possible that over the next twelve months, the amount of unrecognized tax benefits may change resulting from the re-evaluation of unrecognized tax benefits arising from examinations of taxing authorities and the closing of tax statutes of limitations. With few exceptions, ACE is no longer subject to state and local or non-U.S. income tax examinations for years before 2005.

d) Legal proceedings

(i) Claims and other litigation

Our insurance subsidiaries are subject to claims litigation involving disputed interpretations of policy coverages and, in some jurisdictions, direct actions by allegedly-injured persons seeking damages from policyholders. These lawsuits, involving claims on policies issued by our subsidiaries which are typical to the insurance industry in general and in the normal course of business, are considered in our loss and loss expense reserves. In addition to claims litigation, we are subject to lawsuits and regulatory actions in the normal course of business that do not arise from or directly relate to claims on insurance policies. This category of business litigation typically involves, among other things, allegations of underwriting errors or misconduct, employment claims, regulatory activity, or disputes arising from our business ventures. In the opinion of management, our ultimate liability for these matters is not likely to have a material adverse effect on our consolidated financial condition, although it is possible that the effect could be material to our consolidated results of operations for an individual reporting period.

(ii) Business practices litigation

ACE Limited, ACE INA Holdings Inc., and ACE USA, Inc., along with a number of other insurers and brokers, were named in a series of federal putative nationwide class actions brought by insurance policyholders. The Judicial Panel on Multidistrict Litigation (JPML) consolidated these cases in the District of New Jersey. On August 1, 2005, plaintiffs in the New Jersey consolidated proceedings filed two consolidated amended complaints – one concerning commercial insurance and the other concerning employee benefit plans. The employee benefit plans litigation against ACE Limited has been dismissed.

In the commercial insurance complaint, the plaintiffs named ACE Limited, ACE INA Holdings Inc., ACE USA, Inc., ACE American Insurance Co., Illinois Union Insurance Co., and Indemnity Insurance Co. of North America. They allege that certain brokers and insurers, including certain ACE entities, conspired to increase premiums and allocate customers through the use of “B” quotes and contingent commissions. In addition, they allege that the broker defendants received additional income by improperly placing their clients’ business with insurers through related wholesale entities that acted as intermediaries between brokers and insurers. Plaintiffs also allege that broker defendants tied the purchase of primary insurance to the placement of such coverage with reinsurance carriers through the broker defendants’ reinsurance broker subsidiaries. The complaint asserts the following causes of action against the ACE defendants: Federal Racketeer Influenced and Corrupt Organizations Act (RICO), federal antitrust law, state antitrust law, aiding and abetting breach of fiduciary duty, and unjust enrichment.

In 2006 and 2007, the Court dismissed plaintiffs’ first two attempts to properly plead a case without prejudice and permitted plaintiffs one final opportunity to re-plead. The amended complaint, filed on May 22, 2007, purported to add several new ACE defendants: ACE Group Holdings, Inc., ACE US Holdings, Inc., Westchester Fire Insurance Company, INA Corporation, INA Financial Corporation, INA Holdings Corporation, ACE Property and Casualty Insurance Company, and Pacific Employers Insurance Company. Plaintiffs also added a new antitrust claim against Marsh, the ACE defendants, and other insurers based on the same allegations as the other claims but limited to excess casualty insurance. In 2007, the Court granted defendants’ motions to dismiss plaintiffs’ antitrust and RICO claims with prejudice. The Court also declined to exercise supplemental jurisdiction over plaintiffs’ state law claims and dismissed those claims without prejudice. Plaintiffs appealed to the United States Court of Appeals for the Third Circuit. On August 16, 2010, the Third Circuit affirmed, in part, and vacated, in part, the District Court’s previous dismissals with instructions for further briefing at the District Court on remand. Defendants renewed their motions consistent with the Third Circuit’s instructions. On June 28, 2011, the District Court administratively terminated defendants’ motions without prejudice to re-file after adjudication of issues related to a proposed class settlement involving a number of other parties and stayed the case. On October 17, 2011 the Court lifted the stay and indicated that it will issue a new scheduling order in the coming months. On April 30, 2012 the Court entered a discovery scheduling order; discovery is ongoing.

As of July 31, 2012, plaintiffs have not specified an amount of alleged damages and the Court has not decided defendants’ renewed motions to dismiss. The Court has also not determined if this case may proceed as a class action and has, therefore, not determined the size or scope of any class. As a result, ACE is unable to reasonably estimate the potential loss or range of losses, if any, arising from this litigation.

There are a number of federal actions brought by policyholders based on allegations similar to the allegations in the consolidated federal actions that were filed in, or transferred to, the United States District Court for the District of New Jersey for coordination (“tag-along cases”). On October 17, 2011 the Court lifted the stay and indicated that it will issue a new scheduling order. On April 30, 2012 the Court entered a discovery scheduling order; discovery is ongoing.

• New Cingular Wireless Headquarters LLC et al. v. Marsh & McLennan Companies, Inc. et al. (Case No. 06-5120; D.N.J.), was originally filed in the Northern District of Georgia on April 4, 2006. ACE Limited, ACE American Ins. Co., ACE USA, Inc., ACE Bermuda Insurance Ltd., Illinois Union Ins. Co., Pacific Employers Ins. Co., and Lloyd’s of London Syndicate 2488 AGM, along with a number of other insurers and brokers, are named.

• Avery Dennison Corp. v. Marsh & McLennan Companies, Inc. et al. (Case No. 07-00757; D.N.J.) was filed on February 13, 2007. ACE Limited, ACE INA Holdings Inc., ACE USA, Inc., and ACE American Insurance Co., along with a number of other insurers and brokers, are named.

• Henley Management Co., Inc. et al. v. Marsh, Inc. et al. (Case No. 07-2389; D.N.J.) was filed on May 27, 2007. ACE USA, Inc., along with a number of other insurers and Marsh, Inc., are named.

• Sears, Roebuck & Co. et al. v. Marsh & McLennan Companies, Inc. et al. (Case No. 07-2535; D.N.J.) was originally filed in the Northern District of Georgia on October 12, 2007. ACE American Insurance Co., ACE Bermuda Insurance Ltd., and Westchester Surplus Lines Insurance Co., along with a number of other insurers and brokers, are named.

• Lincoln Adventures LLC et al. v. Those Certain Underwriters at Lloyd’s, London Members of Syndicates 0033 et al. (Case No. 07-60991; D.N.J.) was originally filed in the Southern District of Florida on July 13, 2007. Supreme Auto Transport LLC et al. v. Certain Underwriters of Lloyd’s of London, et al. (Case No. 07-6703; D.N.J.) (Supreme Auto) was originally filed in the Southern District of New York on July 25, 2007. Lloyd’s of London Syndicate 2488 AGM, along with a number of other Lloyd’s of London Syndicates and various brokers, are named in both actions. The allegations in these putative class-action lawsuits are similar to the allegations in the consolidated federal actions identified above, although these lawsuits focus on alleged conduct within the London insurance market. On May 29, 2012 the Supreme Auto case was voluntarily dismissed without prejudice by the plaintiffs.

As of July 31, 2012, plaintiffs have not specified an amount of alleged damages in any of the remaining tag-along cases. The proceedings in the tag-along cases were stayed at a very early stage, before the ACE defendants could challenge the sufficiency of the claims with, for example, motions to dismiss. Also, the scope of the tag-along cases, in large part, will be affected by the outcome of the Multidistrict Litigation Court’s decision on defendants’ renewed motions to dismiss. As a result, ACE is unable to reasonably estimate the potential loss or range of losses, if any, arising from these litigations.

In addition to the related federal cases, there are two state cases with allegations similar to those in the consolidated federal actions described above:

• Van Emden Management Corporation v. Marsh & McLennan Companies, Inc., et al. (Case No. 05-0066A; Superior Court of Massachusetts), a class action in Massachusetts, was filed on January 13, 2005. Illinois Union Insurance Company is named. The Van Emden case has been stayed pending resolution of the consolidated proceedings in the District of New Jersey or until further order of the Court.

As of July 31, 2012, plaintiffs have not specified an amount of alleged damages in this case. The proceedings were stayed at a very early stage, before Illinois Union could challenge the sufficiency of the claims with, for example, a motion to dismiss. As a result, ACE is unable to reasonably estimate the potential loss or range of losses, if any, arising from this litigation.

• State of Ohio, ex. rel. Marc E. Dann, Attorney General v. American Int’l Group, Inc. et al. (Case No. 07-633857; Court of Common Pleas in Cuyahoga County, Ohio) is an Ohio state action filed by the Ohio Attorney General on August 24, 2007. ACE INA Holdings Inc., ACE American Insurance Co., ACE Property & Casualty Insurance Co., Insurance Company of North America, and Westchester Fire Insurance Co., along with a number of other insurance companies and Marsh, are named. In December 2011 the ACE parties agreed to settle the case for $1.97 million. On December 27, 2011 the case was voluntarily dismissed with prejudice.

In all of the lawsuits described above, except where specifically noted, plaintiffs seek compensatory and in some cases special damages without specifying an amount. As a result, ACE cannot at this time estimate its potential costs related to these legal matters and, accordingly, no liability for compensatory damages has been established in the consolidated financial statements.

ACE’s ultimate liability for these matters is not likely to have a material adverse effect on ACE’s consolidated financial condition, although it is possible that the effect could be material to ACE’s consolidated results of operations for an individual reporting period.

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Share-based compensation

6 Months Ended

Jun. 30, 2012

Share-based compensation

8. Share-based compensation

The ACE Limited 2004 Long-Term Incentive Plan (the 2004 LTIP) provides for grants of both incentive and non-qualified stock options principally at an option price per share equal to the fair value of ACE’s Common Shares on the date of grant. Stock options are generally granted with a 3-year vesting period and a 10-year term. The stock options vest in equal annual installments over the respective vesting period, which is also the requisite service period. On February 23, 2012, ACE granted 1,452,605 stock options with a weighted-average grant date fair value of $15.58 each. The fair value of the options issued is estimated on the date of grant using the Black-Scholes option pricing model.

The 2004 LTIP also provides for grants of restricted stock and restricted stock units. ACE generally grants restricted stock and restricted stock units with a 4-year vesting period, based on a graded vesting schedule. The restricted stock is granted at market close price on the day of grant. On February 23, 2012, ACE granted 1,462,230 restricted stock awards and 255,850 restricted stock units to employees and officers of ACE and its subsidiaries with a grant date fair value of $73.35 each. Each restricted stock unit represents our obligation to deliver to the holder one Common Share upon vesting.

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Investments (Net Realized Gains (Losses) And Losses Included In Net Realized Gains (Losses) And Other Comprehensive Income) (Detail) (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Investment [Line Items]
OTTI on fixed maturities, gross	$ (1)	$ (6)	$ (8)	$ (11)
OTTI on fixed maturities recognized in OCI (pre-tax)		1		2
OTTI on fixed maturities, net	(1)	(5)	(8)	(9)
Fixed maturities, Gross realized gains excluding OTTI	104	108	216	217
Fixed maturities, Gross realized losses excluding OTTI	(35)	(29)	(106)	(85)
Total fixed maturities	68	74	102	123
OTTI on equity securities	(4)		(5)
Equity securities, Gross realized gains excluding OTTI		4	2	12
Equity securities, Gross realized losses excluding OTTI	(1)		(1)	(1)
Total equity securities	(5)	4	(4)	11
OTTI on other investments	(5)	(3)	(7)	(3)
Foreign exchange losses	(9)	(30)	(14)	(109)
Investment and embedded derivative instruments	(49)	(48)	(7)	(68)
Fair value adjustments on insurance derivative	(467)	(70)	(39)	1
S&P put options and futures	70	3	(161)	(68)
Other derivative instruments	1	(2)	(4)	(3)
Other	2	(1)		(2)
Total net realized gains (losses)	$ (394)	$ (73)	$ (134)	$ (118)

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Share-Based Compensation (Detail) (USD $)	0 Months Ended	6 Months Ended
	Feb. 23, 2012	Jun. 30, 2012 Year
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock options granted	1,452,605
Weighted-average fair value for stock options granted	$ 15.58
Stock Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based compensation arrangement by share-based payment award, award vesting period, years		3 years
Stock option term in years		10
Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Restricted stock award and units vesting period in years		4
Share-based Compensation Arrangement by Share-based Payment Award, Shares Issued in Period	1,462,230
Weighted average grant date fair value of awards except for options granted to employees and officers of the company	$ 73.35
Restricted Stock Units (RSUs) [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Restricted stock units awarded to employees, and officers of the company	255,850

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Investments (Tables)

6 Months Ended

Jun. 30, 2012

Schedule Of Amortized Cost And Fair Value Of Fixed Maturities And Related OTTI Recognized In AOCI

	June 30, 2012
	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	$	3,106	$	188	$	—		$	3,294	$	—
Foreign		12,745		571		(48	)		13,268		(1	)
Corporate securities		14,432		938		(71	)		15,299		(12	)
Mortgage-backed securities		9,815		446		(80	)		10,181		(93	)
States, municipalities, and political subdivisions		2,218		128		(2	)		2,344		—
	$	42,316	$	2,271	$	(201	)	$	44,386	$	(106	)
Held to maturity
U.S. Treasury and agency	$	1,091	$	45	$	—		$	1,136	$	—
Foreign		921		32		(4	)		949		—
Corporate securities		2,207		82		(7	)		2,282		—
Mortgage-backed securities		2,448		98		(2	)		2,544		—
States, municipalities, and political subdivisions		1,115		40		(4	)		1,151		—
	$	7,782	$	297	$	(17	)	$	8,062	$	—
	December 31, 2011
	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	$	2,774	$	186	$	—		$	2,960	$	—
Foreign		12,025		475		(99	)		12,401		(2	)
Corporate securities		14,055		773		(135	)		14,693		(22	)
Mortgage-backed securities		9,979		397		(175	)		10,201		(151	)
States, municipalities, and political subdivisions		1,617		96		(1	)		1,712		—
	$	40,450	$	1,927	$	(410	)	$	41,967	$	(175	)
Held to maturity
U.S. Treasury and agency	$	1,078	$	48	$	—		$	1,126	$	—
Foreign		935		18		(23	)		930		—
Corporate securities		2,338		44		(45	)		2,337		—
Mortgage-backed securities		2,949		90		(3	)		3,036		—
States, municipalities, and political subdivisions		1,147		32		(3	)		1,176		—
	$	8,447	$	232	$	(74	)	$	8,605	$	—

Schedule Of Fixed Maturities By Contractual Maturity

	June 30, 2012				December 31, 2011
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(in millions of U.S. dollars)
Available for sale
Due in 1 year or less	$	2,299	$	2,329	$	2,321	$	2,349
Due after 1 year through 5 years		12,330		12,802		12,325		12,722
Due after 5 years through 10 years		13,839		14,694		12,379		12,995
Due after 10 years		4,033		4,380		3,446		3,700
		32,501		34,205		30,471		31,766
Mortgage-backed securities		9,815		10,181		9,979		10,201
	$	42,316	$	44,386	$	40,450	$	41,967
Held to maturity
Due in 1 year or less	$	669	$	676	$	393	$	396
Due after 1 year through 5 years		1,811		1,858		2,062		2,090
Due after 5 years through 10 years		2,202		2,296		2,376		2,399
Due after 10 years		652		688		667		684
		5,334		5,518		5,498		5,569
Mortgage-backed securities		2,448		2,544		2,949		3,036
	$	7,782	$	8,062	$	8,447	$	8,605

Schedule Of Cost And Fair Value Of Equity Securities

	June 30 2012			December 31 2011
	(in millions of U.S. dollars)
Cost	$	724		$	671
Gross unrealized appreciation		29			18
Gross unrealized depreciation		(24	)		(42	)
Fair value	$	729		$	647

Schedule Of Net Realized Gains (Losses) And The Losses Included In Net Realized Gains (Losses) And OCI

	Three Months Ended June  30						Six Months Ended June  30
	2012			2011			2012			2011
	(in millions of U.S. dollars)
Fixed maturities:
OTTI on fixed maturities, gross	$	(1	)	$	(6	)	$	(8	)	$	(11	)
OTTI on fixed maturities recognized in OCI (pre-tax)		—			1			—			2
OTTI on fixed maturities, net		(1	)		(5	)		(8	)		(9	)
Gross realized gains excluding OTTI		104			108			216			217
Gross realized losses excluding OTTI		(35	)		(29	)		(106	)		(85	)
Total fixed maturities		68			74			102			123
Equity securities:
OTTI on equity securities		(4	)		—			(5	)		—
Gross realized gains excluding OTTI		—			4			2			12
Gross realized losses excluding OTTI		(1	)		—			(1	)		(1	)
Total equity securities		(5	)		4			(4	)		11
OTTI on other investments		(5	)		(3	)		(7	)		(3	)
Foreign exchange losses		(9	)		(30	)		(14	)		(109	)
Investment and embedded derivative instruments		(49	)		(48	)		(7	)		(68	)
Fair value adjustments on insurance derivative		(467	)		(70	)		(39	)		1
S&P put options and futures		70			3			(161	)		(68	)
Other derivative instruments		1			(2	)		(4	)		(3	)
Other		2			(1	)		—			(2	)
Net realized gains (losses)	$	(394	)	$	(73	)	$	(134	)	$	(118	)

Schedule Of 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
	2012			2011			2012			2011
	(in millions of U.S. dollars)
Balance of credit losses related to securities still held – beginning of period	$	55		$	96		$	74		$	137
Additions where no OTTI was previously recorded		1			2			2			2
Additions where an OTTI was previously recorded		—			—			5			1
Reductions for securities sold during the period		(9	)		(4	)		(34	)		(46	)
Balance of credit losses related to securities still held – end of period	$	47		$	94		$	47		$	94

Schedule Of 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
	Fair Value		Gross Unrealized Loss			Fair Value		Gross Unrealized Loss			Fair Value		Gross Unrealized Loss
	(in millions of U.S. dollars)
June 30, 2012
Foreign	$	1,231	$	(34.4	)	$	350	$	(18.0	)	$	1,581	$	(52.4	)
Corporate securities		1,800		(57.2	)		331		(21.2	)		2,131		(78.4	)
Mortgage-backed securities		280		(1.9	)		437		(80.2	)		717		(82.1	)
States, municipalities, and political subdivisions		289		(2.2	)		57		(3.3	)		346		(5.5	)
Total fixed maturities		3,600		(95.7	)		1,175		(122.7	)		4,775		(218.4	)
Equity securities		511		(24.0	)		—		—			511		(24.0	)
Other investments		69		(6.6	)		—		—			69		(6.6	)
Total	$	4,180	$	(126.3	)	$	1,175	$	(122.7	)	$	5,355	$	(249.0	)

	0 – 12 Months					Over 12 Months					Total
	Fair Value		Gross Unrealized Loss			Fair Value		Gross Unrealized Loss			Fair Value		Gross Unrealized Loss
	(in millions of U.S. dollars)
December 31, 2011
Foreign	$	1,801	$	(82.2	)	$	529	$	(40.0	)	$	2,330	$	(122.2	)
Corporate securities		3,084		(148.2	)		268		(32.2	)		3,352		(180.4	)
Mortgage-backed securities		440		(7.5	)		586		(170.2	)		1,026		(177.7	)
States, municipalities, and political subdivisions		30		(0.4	)		98		(3.5	)		128		(3.9	)
Total fixed maturities		5,355		(238.3	)		1,481		(245.9	)		6,836		(484.2	)
Equity securities		484		(42.3	)		—		—			484		(42.3	)
Other investments		88		(8.3	)		—		—			88		(8.3	)
Total	$	5,927	$	(288.9	)	$	1,481	$	(245.9	)	$	7,408	$	(534.8	)

Schedule Of Components Of Restricted Assets

	June 30 2012		December 31 2011
	(in millions of U.S. dollars)
Trust funds	$	10,807	$	9,940
Deposits with non-U.S. regulatory authorities		2,141		2,240
Deposits with U.S. regulatory authorities		1,340		1,307
Assets pledged under reverse repurchase agreements		1,401		1,251
Other pledged assets		480		364
	$	16,169	$	15,102

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Earnings per share (Tables)

6 Months Ended

Jun. 30, 2012

Schedule Of Earnings Per Share, Basic And Diluted

	Three Months Ended				Six Months Ended
	June 30				June 30
	2012		2011		2012		2011
	(in millions of U.S. dollars, except share and per share data)
Numerator:
Net income	$	328	$	594	$	1,301	$	844
Denominator for basic earnings per share:
Weighted-average shares outstanding		339,766,067		338,920,580		339,164,449		338,021,487
Denominator for diluted earnings per share:
Share-based compensation plans		2,907,971		2,768,388		3,006,950		2,596,909
Adjusted weighted-average shares outstanding and assumed conversions		342,674,038		341,688,968		342,171,399		340,618,396
Basic earnings per share	$	0.96	$	1.75	$	3.83	$	2.50
Diluted earnings per share	$	0.96	$	1.74	$	3.80	$	2.48

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Commitments, Contingencies, And Guarantees (Narrative) (Detail) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2011	Jun. 30, 2012
Commitments Contingencies And Guarantees [Line Items]
Carrying value of limited partnerships and partially-owned investment companies included in other investments		$ 1,592
Funding commitments relating to limited partnerships and partially-owned investment companies		1,184
Case settlement	$ 1.97

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Fair Value Measurements (Schedule Of Significant Unobservable Inputs Used In Level 3 Liability Valuations) (Detail) (Guaranteed Minimum Income Benefit [Member], USD $) In Millions, unless otherwise specified	6 Months Ended
	Jun. 30, 2012
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Fair Value	$ 1,354	[1]
Valuation Technique	Actuarial model	[1]
Minimum [Member]
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Significant Unobservable Inputs Lapse rate	1.00%
Significant Unobservable Inputs Annuitization rate	0.00%
Maximum [Member]
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Significant Unobservable Inputs Lapse rate	30.00%
Significant Unobservable Inputs Annuitization rate	50.00%

[1] Discussion of the most significant inputs used in the fair value measurement of GLB and the sensitivity of those assumptions is included within Note 5 Guaranteed living benefits.

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Consolidated Statements Of Shareholders' Equity (USD $) In Millions	Total	Common Stock [Member]	Treasury Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	Deferred Compensation, Share-based Payments [Member]	Accumulated Net Unrealized Investment Gain (Loss) [Member]	Accumulated Translation Adjustment [Member]	Accumulated Defined Benefit Plans Adjustment [Member]	Accumulated Other Comprehensive Income (Loss) [Member]	Common Shares Issued To Employee Trust [Member]
Cumulative effect of adjustment resulting from adoption of new accounting guidance at Dec. 31, 2010					$ (139)
Balance - beginning of period at Dec. 31, 2010		10,161	(330)	5,623	5,926	2	1,399	262	(67)		(2)
Balance - beginning of period at Dec. 31, 2010					5,787
Change in period, net of income tax expense of $(96) and $(60)							175
Change in period, net of income tax benefit (expense) of $5 and $(77)								224
Change in period, net of income tax benefit of nil and $1									(4)
Net shares redeemed under employee share-based compensation plans				(111)
Exercise of stock options		50		20
Common Shares issued in treasury, net of net shares redeemed under employee share-based compensation plans			80
Net income	844				844
Share-based compensation expense and other				71
Dividends declared on Common Shares-par value reduction		(113)
Funding of dividends declared from Additional paid-in capital				(119)	119
Dividends declared on Common Shares					(119)
Balance - end of period at Jun. 30, 2011	23,952	10,098	(250)	5,484	6,631		1,574	486	(71)	1,989
Balance - beginning of period at Dec. 31, 2011	24,332	10,095	(327)	5,326	7,327		1,715	258	(62)
Balance - beginning of period at Dec. 31, 2011					7,327
Change in period, net of income tax expense of $(96) and $(60)							451
Change in period, net of income tax benefit (expense) of $5 and $(77)								(23)
Change in period, net of income tax benefit of nil and $1									(1)
Net shares redeemed under employee share-based compensation plans				(100)
Common Shares repurchased			(7)
Exercise of stock options				(12)
Common Shares issued in treasury, net of net shares redeemed under employee share-based compensation plans			128
Net income	1,301				1,301
Share-based compensation expense and other				61
Dividends declared on Common Shares-par value reduction		(168)
Funding of dividends declared from Additional paid-in capital				(200)	200
Dividends declared on Common Shares					(200)
Balance - end of period at Jun. 30, 2012	$ 25,762	$ 9,927	$ (206)	$ 5,075	$ 8,628		$ 2,166	$ 235	$ (63)	$ 2,338

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Acquisitions

6 Months Ended

Jun. 30, 2012

Acquisitions

2. Acquisitions

On June 13, 2012, we announced that we and our local partner had signed a definitive agreement to acquire PT Asuransi Jaya Proteksi (JaPro), one of Indonesia’s leading general insurers. This transaction, which is subject to regulatory approvals and other closing conditions, is expected to be completed by the end of 2012.

We acquired New York Life’s Korea operations on February 1, 2011 and New York Life’s Hong Kong operations on April 1, 2011 for approximately $450 million in cash. These acquired businesses operate under our Life segment, expand our presence in the North Asia market and complement our life insurance business established in that region. In 2012, we finalized purchase price allocations resulting in $91 million of goodwill, none of which is expected to be deductible for income tax purposes, and $163 million of intangible assets. The most significant intangible asset is VOBA.

We acquired Penn Millers Holding Corporation (PMHC) on November 30, 2011 for approximately $107 million in cash. PMHC’s primary insurance subsidiary, Penn Millers Insurance Company, is a well-established underwriter in the agribusiness market since 1887. PMHC operates under our Insurance – North American segment.

We acquired Rio Guayas Compania de Seguros y Reaseguros (Rio Guayas), a general insurance company in Ecuador on December 28, 2011. Rio Guayas sells a range of insurance products, including auto, life, property, and A&H. The acquisition of Rio Guayas expands our capabilities in terms of geography, products, and distribution. Rio Guayas operates under our Insurance – Overseas General segment.

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Information provided in connection with outstanding debt of subsidiaries (Tables)

6 Months Ended

Jun. 30, 2012

Condensed Consolidating Balance Sheet

Condensed Consolidating Balance Sheet at June 30, 2012

(in millions of U.S. dollars)

	ACE Limited (Parent Guarantor)			ACE INA Holdings Inc. (Subsidiary Issuer)		Other ACE Limited Subsidiaries and Eliminations(1)			Consolidating Adjustments(2)			ACE Limited Consolidated
Assets
Investments	$36			$	29,670	$	27,975		$	—		$	57,681
Cash(3)		(30	)		508		139			—			617
Insurance and reinsurance balances receivable		—			4,409		576			—			4,985
Reinsurance recoverable on losses and loss expenses		—			16,432		(4,680	)		—			11,752
Reinsurance recoverable on policy benefits		—			1,181		(924	)		—			257
Value of business acquired		—			637		—			—			637
Goodwill and other intangible assets		—			4,274		552			—			4,826
Investments in subsidiaries		25,660			—		—			(25,660	)		—
Due from subsidiaries and affiliates, net		327			—		—			(327	)		—
Other assets		7			7,678		2,261			—			9,946
Total assets	$26,000			$	64,789	$	25,899		$	(25,987	)	$	90,701
Liabilities
Unpaid losses and loss expenses	$—			$	30,321	$	6,529		$	—		$	36,850
Unearned premiums		—			5,916		1,128			—			7,044
Future policy benefits		—			3,845		591			—			4,436
Due to subsidiaries and affiliates, net		—			604		(277	)		(327	)		—
Short-term debt		—			851		550			—			1,401
Long-term debt		—			3,360		—			—			3,360
Trust preferred securities		—			309		—			—			309
Other liabilities		238			8,255		3,046			—			11,539
Total liabilities		238			53,461		11,567			(327	)		64,939
Total shareholders’ equity		25,762			11,328		14,332			(25,660	)		25,762
Total liabilities and shareholders’ equity	$26,000			$	64,789	$	25,899		$	(25,987	)	$	90,701

⁽¹⁾ Includes all other subsidiaries of ACE Limited and intercompany eliminations.

⁽²⁾  Includes ACE Limited parent company eliminations.

⁽³⁾ ACE maintains two notional multicurrency cash pools (Pools) with a third-party bank. Various ACE entities participate in one or the other of the Pools, pursuant to which credit and debit balances in individual ACE accounts are translated daily into a single currency and pooled on a notional basis. Individual ACE entities are permitted to overdraw on their individual accounts provided the overall Pool balances do not fall below zero. At June 30, 2012, the cash balance of one or more entities was negative; however, the overall Pool balances were positive.

Condensed Consolidating Balance Sheet at December 31, 2011

(in millions of U.S. dollars)

	ACE Limited (Parent Guarantor)		ACE INA Holdings Inc. (Subsidiary Issuer)		Other ACE Limited Subsidiaries and Eliminations(1)			Consolidating Adjustments(2)			ACE Limited Consolidated
Assets
Investments	$33		$	28,848	$	26,795		$	—		$	55,676
Cash		106		382		126			—			614
Insurance and reinsurance balances receivable		—		3,944		443			—			4,387
Reinsurance recoverable on losses and loss expenses		—		17,146		(4,757	)		—			12,389
Reinsurance recoverable on policy benefits		—		941		(692	)		—			249
Value of business acquired		—		676		—			—			676
Goodwill and other intangible assets		—		4,248		551			—			4,799
Investments in subsidiaries		23,871		—		—			(23,871	)		—
Due from subsidiaries and affiliates, net		498		—		—			(498	)		—
Other assets		8		7,018		1,505			—			8,531
Total assets	$24,516		$	63,203	$	23,971		$	(24,369	)	$	87,321
Liabilities
Unpaid losses and loss expenses	$—		$	30,837	$	6,640		$	—		$	37,477
Unearned premiums		—		5,416		918			—			6,334
Future policy benefits		—		3,673		601			—			4,274
Due to subsidiaries and affiliates, net		—		316		182			(498	)		—
Short-term debt		—		850		401			—			1,251
Long-term debt		—		3,360		—			—			3,360
Trust preferred securities		—		309		—			—			309
Other liabilities		184		7,769		2,031			—			9,984
Total liabilities		184		52,530		10,773			(498	)		62,989
Total shareholders’ equity		24,332		10,673		13,198			(23,871	)		24,332
Total liabilities and shareholders’ equity	$24,516		$	63,203	$	23,971		$	(24,369	)	$	87,321

⁽¹⁾  Includes all other subsidiaries of ACE Limited and intercompany eliminations.

⁽²⁾  Includes ACE Limited parent company eliminations.

Condensed Consolidating Statement Of Operations

Condensed Consolidating Statement of Operations

For the Three Months Ended June 30, 2012

(in millions of U.S. dollars)

	ACE Limited (Parent Guarantor)			ACE INA Holdings Inc. (Subsidiary Issuer)		Other ACE Limited Subsidiaries and Eliminations(1)			Consolidating Adjustments(2)			ACE Limited Consolidated
Net premiums written	$	—		$	2,327	$	1,803		$	—		$	4,130
Net premiums earned		—			2,196		1,587			—			3,783
Net investment income		1			257		279			—			537
Equity in earnings of subsidiaries		301			—		—			(301	)		—
Net realized gains (losses) including OTTI		2			34		(430	)		—			(394	)
Losses and loss expenses		—			1,325		794			—			2,119
Policy benefits		—			54		48			—			102
Policy acquisition costs and administrative expenses		14			656		463			—			1,133
Interest (income) expense		(8	)		58		12			—			62
Other (income) expense		(33	)		9		58			—			34
Income tax expense		3			119		26			—			148
Net income	$	328		$	266	$	35		$	(301	)	$	328
Comprehensive income (loss)	$	457		$	323	$	(22	)	$	(301	)	$	457

Condensed Consolidating Statement of Operations

For the Three Months Ended June 30, 2011

(in millions of U.S. dollars)

	ACE Limited (Parent Guarantor)			ACE INA Holdings Inc. (Subsidiary Issuer)		Other ACE Limited Subsidiaries and Eliminations(1)			Consolidating Adjustments(2)			ACE Limited Consolidated
Net premiums written	$	—		$	2,306	$	1,647		$	—		$	3,953
Net premiums earned		—			2,225		1,532			—			3,757
Net investment income		—			282		287			—			569
Equity in earnings of subsidiaries		566			—		—			(566	)		—
Net realized gains (losses) including OTTI		(1	)		17		(89	)		—			(73	)
Losses and loss expenses		—			1,438		788			—			2,226
Policy benefits		—			59		49			—			108
Policy acquisition costs and administrative expenses		18			620		492			—			1,130
Interest (income) expense		(10	)		66		6			—			62
Other (income) expense		(40	)		23		29			—			12
Income tax expense		3			109		9			—			121
Net income	$	594		$	209	$	357		$	(566	)	$	594
Comprehensive income	$	801		$	382	$	184		$	(566	)	$	801

⁽¹⁾  Includes all other subsidiaries of ACE Limited and intercompany eliminations.

⁽²⁾  Includes ACE Limited parent company eliminations.

Condensed Consolidating Statement of Operations

For the Six Months Ended June 30, 2012

(in millions of U.S. dollars)

	ACE Limited (Parent Guarantor)			ACE INA Holdings Inc. (Subsidiary Issuer)		Other ACE Limited Subsidiaries and Eliminations(1)			Consolidating Adjustments(2)			ACE Limited Consolidated
Net premiums written	$	—		$	4,425	$	3,277		$	—		$	7,702
Net premiums earned		—			4,148		3,016			—			7,164
Net investment income		1			522		558			—			1,081
Equity in earnings of subsidiaries		1,229			—		—			(1,229	)		—
Net realized gains (losses) including OTTI		22			60		(216	)		—			(134	)
Losses and loss expenses		—			2,507		1,416			—			3,923
Policy benefits		—			140		109			—			249
Policy acquisition costs and administrative expenses		26			1,296		903			—			2,225
Interest (income) expense		(17	)		124		17			—			124
Other (income) expense		(63	)		34		60			—			31
Income tax expense		5			204		49			—			258
Net income	$	1,301		$	425	$	804		$	(1,229	)	$	1,301
Comprehensive income	$	1,728		$	610	$	619		$	(1,229	)	$	1,728

Condensed Consolidating Statement of Operations

For the Six Months Ended June 30, 2011

(in millions of U.S. dollars)

	ACE Limited (Parent Guarantor)			ACE INA Holdings Inc. (Subsidiary Issuer)		Other ACE Limited Subsidiaries and Eliminations(1)			Consolidating Adjustments(2)			ACE Limited Consolidated
Net premiums written	$	—		$	4,329	$	3,070		$	—		$	7,399
Net premiums earned		—			4,163		2,903			—			7,066
Net investment income		1			544		568			—			1,113
Equity in earnings of subsidiaries		805			—		—			(805	)		—
Net realized gains (losses) including OTTI		(2	)		4		(120	)		—			(118	)
Losses and loss expenses		—			2,739		1,750			—			4,489
Policy benefits		—			99		100			—			199
Policy acquisition costs and administrative expenses		36			1,208		944			—			2,188
Interest (income) expense		(18	)		133		10			—			125
Other (income) expense		(62	)		36		25			—			(1	)
Income tax expense		4			177		36			—			217
Net income	$	844		$	319	$	486		$	(805	)	$	844
Comprehensive income	$	1,239		$	592	$	213		$	(805	)	$	1,239

⁽¹⁾  Includes all other subsidiaries of ACE Limited and intercompany eliminations.

⁽²⁾  Includes ACE Limited parent company eliminations.

Information provided in connection with outstanding debt of subsidiaries

Condensed Consolidating Statement of Cash Flows

For the Six Months Ended June 30, 2012

(in millions of U.S. dollars)

	ACE Limited (Parent Guarantor)			ACE INA Holdings Inc. (Subsidiary Issuer)			Other ACE Limited Subsidiaries and Eliminations(1)			Consolidating Adjustments(2)			ACE Limited Consolidated
Net cash flows from operating activities	$	49		$	540		$	794		$	—		$	1,383
Cash flows from investing activities
Purchases of fixed maturities available for sale		—			(5,614	)		(6,073	)		—			(11,687	)
Purchases of fixed maturities held to maturity		—			(134	)		(2	)		—			(136	)
Purchases of equity securities		—			(57	)		(36	)		—			(93	)
Sales of fixed maturities available for sale		—			3,750			4,282			—			8,032
Sales of equity securities		—			28			5			—			33
Maturities and redemptions of fixed maturities available for sale		—			1,158			1,122			—			2,280
Maturities and redemptions of fixed maturities held to maturity		—			527			212			—			739
Net derivative instruments settlements		(1	)		(6	)		(126	)		—			(133	)
Advances from (to) affiliates		131			—			—			(131	)		—
Acquisition of subsidiaries		—			(30	)		—			—			(30	)
Capital contribution to subsidiary		—			—			(90	)		90			—
Other		—			(140	)		(115	)		—			(255	)
Net cash flows from (used for) investing activities		130			(518	)		(821	)		(41	)		(1,250	)
Cash flows from financing activities
Dividends paid on Common Shares		(318	)		—			—			—			(318	)
Common Shares repurchased		—			—			(11	)		—			(11	)
Net proceeds from issuance of short-term debt		—			—			151			—			151
Proceeds from share-based compensation plans		3			—			52			—			55
Advances (to) from affiliates		—			23			(154	)		131			—
Capital contribution from subsidiary		—			90			—			(90	)		—
Net cash flows (used for) from financing activities		(315	)		113			38			41			(123	)
Effect of foreign currency rate changes on cash and cash equivalents		—			(9	)		2			—			(7	)
Net increase (decrease) in cash		(136	)		126			13			—			3
Cash – beginning of period		106			382			126			—			614
Cash – end of period(3)	$(30)			$	508		$	139		$	—		$	617

⁽¹⁾ Includes all other subsidiaries of ACE Limited and intercompany eliminations.

⁽²⁾  Includes ACE Limited parent company eliminations.

⁽³⁾  ACE maintains two notional multi-currency cash pools (Pools) with a third-party bank. Various ACE entities participate in one or the other of the Pools, pursuant to which credit and debit balances in individual ACE accounts are translated daily into a single currency and pooled on a notional basis. Individual ACE entities are permitted to overdraw on their individual accounts provided the overall Pool balances do not fall below zero. At June 30, 2012 one or more entities was negative; however, the overall Pool balances were positive.

Condensed Consolidating Statement of Cash Flows

For the Six Months Ended June 30, 2011

(in millions of U.S. dollars)

	ACE Limited (Parent Guarantor)			ACE INA Holdings Inc. (Subsidiary Issuer)			Other ACE Limited Subsidiaries and Eliminations(1)			Consolidating Adjustments(2)			ACE Limited Consolidated
Net cash flows from operating activities	$	623		$	677		$	1,443		$	(680	)	$	2,063
Cash flows from investing activities
Purchases of fixed maturities available for sale		—			(6,330	)		(7,353	)		—			(13,683	)
Purchases of fixed maturities held to maturity		—			(233	)		(1	)		—			(234	)
Purchases of equity securities		—			(138	)		(32	)		—			(170	)
Sales of fixed maturities available for sale		8			5,022			4,955			—			9,985
Sales of equity securities		—			332			15			—			347
Maturities and redemptions of fixed maturities available for sale		—			847			911			—			1,758
Maturities and redemptions of fixed maturities held to maturity		—			475			181			—			656
Net derivative instruments settlements		(1	)		(7	)		(38	)		—			(46	)
Capital contribution to subsidiary		(385	)		—			—			385			—
Advances from (to) affiliates		(291	)		—			—			291			—
Acquisition of subsidiaries (net of cash acquired of $95)		—			(343	)		(37	)		—			(380	)
Other		—			(449	)		317			—			(132	)
Net cash flows used for investing activities		(669	)		(824	)		(1,082	)		676			(1,899	)
Cash flows from financing activities
Dividends paid on Common Shares		(223	)		—			—			—			(223	)
Common Shares repurchased		—			—			(68	)		—			(68	)
Net proceeds from (repayments) issuance of short-term debt		(300	)		—			400			—			100
Proceeds from share-based compensation plans		76			—			—			—			76
Advances from (to) affiliates		—			226			65			(291	)		—
Dividends to parent company		—			—			(680	)		680			—
Capital contribution from parent		—			—			385			(385	)		—
Net cash flows (used for) from financing activities		(447	)		226			102			4			(115	)
Effect of foreign currency rate changes on cash and cash equivalents		—			12			—			—			12
Net (decrease) increase in cash		(493	)		91			463			—			61
Cash – beginning of period(3)		308			573			(109	)		—			772
Cash – end of period(3)	$(185)			$	664		$	354		$	—		$	833

⁽¹⁾  Includes all other subsidiaries of ACE Limited and intercompany eliminations.

⁽²⁾  Includes ACE Limited parent company eliminations.

⁽³⁾  ACE maintains two notional multi-currency cash pools (Pools) with a third-party bank. Various ACE entities participate in one or the other of the Pools, pursuant to which credit and debit balances in individual ACE accounts are translated daily into a single currency and pooled on a notional basis. Individual ACE entities are permitted to overdraw on their individual accounts provided the overall Pool balances do not fall below zero. At June 30, 2011 and December 31, 2010, the cash balance of one or more entities was negative; however, the overall Pool balances were positive.

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Fair Value Measurements (Narrative) (Detail)	6 Months Ended
	Jun. 30, 2012 Day
Fair Value Measurements Of Financial Instruments [Line Items]
Minimum number of pricing services used to obtain fair value measurements for the majority of the investment securities held	1
The maximum maturity period in years to be classified as a short-term investment	1
GLB - Lapse rate - lower range	1.00%
GLB - Lapse rate - upper range	6.00%
GLB - Spike lapse rate - lower range	10.00%
GLB - Spike lapse rate - upper range	30.00%
GLB - Ultimate lapse rate	10.00%
GLB - Length of ultimate lapse rate period, years	2
GLB - Adjustment factor for valuable guarantees - lower	15.00%
GLB - Adjustment factor for valuable guarantees - upper	75.00%
Percent of GMIB guaranteed value that are represented by clients with several years of annuitization experience	36.00%
GLB - Maximum annuitization rate	8.00%
GLB - First year maximum annuitization rate	13.00%
GLB - Number of different annuitization functions used	3
GLB - Weighted average maximum annuitization rate - rate 1	8.00%
GLB - Weighted average maximum annuitization rate - rate 2	12.00%
GLB - Weighted average maximum annuitization rate - rate 3	30.00%
Redemption Notice Periods Lower Range [Member]
Fair Value Measurements Of Financial Instruments [Line Items]
Notice period for redemption for alternative investments investment funds, days	5
Redemption Notice Periods Upper Range [Member]
Fair Value Measurements Of Financial Instruments [Line Items]
Notice period for redemption for alternative investments investment funds, days	120

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Summary of significant accounting policies (Policies)

6 Months Ended

Jun. 30, 2012

Basis Of Presentation

ACE Limited is a holding company incorporated in Zurich, Switzerland. ACE Limited, through its various subsidiaries, provides a broad range of insurance and reinsurance products to insureds worldwide. ACE operates through the following business segments: Insurance – North American, Insurance – Overseas General, Global Reinsurance, and Life. Refer to Note 9 for additional information.

The interim unaudited consolidated financial statements, which include the accounts of ACE and its subsidiaries (collectively, ACE, we, us, or our), have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) and, in the opinion of management, reflect all adjustments (consisting of normally recurring accruals) necessary for a fair statement of the results and financial position for such periods. All significant intercompany accounts and transactions have been eliminated.

The results of operations and cash flows for any interim period are not necessarily indicative of the results for the full year. These consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in our 2011 Form 10-K.

Effective January 1, 2012, we retrospectively adopted new accounting guidance for costs associated with acquiring or renewing insurance contracts. Under the new guidance, the definition of acquisition costs was modified to specify that a cost must be directly related to the successful acquisition of a new or renewal insurance contract in order to be deferred. Prior year amounts contained in these consolidated financial statements have been adjusted to reflect the impact of retrospective adjustments as a result of applying this new accounting guidance.

Deferred Policy Acquisition Costs And Value Of Business Acquired (VOBA)

Policy acquisition costs consist of commissions, premium taxes, and certain underwriting costs related directly to the successful acquisition of a new or renewal insurance contract. A VOBA intangible asset is established upon the acquisition of blocks of long duration contracts and represents the present value of estimated net cash flows for the contracts in force at the time of the acquisition. Acquisition costs and VOBA, collectively policy acquisition costs, are deferred and amortized. Policy acquisition costs on property and casualty (P&C) contracts are generally amortized ratably over the period in which premiums are earned. Policy acquisition costs on long duration contracts are amortized over the estimated life of the contracts, generally in proportion to premium revenue recognized. Policy acquisition costs are reviewed to determine if they are recoverable from future income, including investment income. Unrecoverable costs are expensed in the period identified.

Advertising costs are expensed as incurred except for direct-response campaigns that meet the criteria of the new guidance, principally related to accident and health (A&H) business produced by the Insurance – Overseas General segment, which are deferred and recognized as a component of policy acquisition costs. For individual direct-response marketing campaigns that we can demonstrate have specifically resulted in incremental sales to customers and such sales have probable future economic benefits, incremental costs directly related to the marketing campaigns are capitalized. Deferred marketing costs are reviewed regularly for recoverability from future income, including investment income, and amortized in proportion to premium revenue recognized, primarily over a ten year period.