Acquisitions

The Chubb Corporation

On January 14, 2016, we completed the acquisition of Chubb Corp, a leading provider of middle-market commercial, specialty, surety, and personal insurance for $29.5 billion, comprising $14.3 billion in cash and $15.2 billion in newly-issued stock, based on the Chubb Limited (formerly ACE Limited) closing price on the acquisition date. In addition, we assumed outstanding equity awards to employees and directors with an attributed value of approximately $323 million. The total consideration, including the assumption of equity awards, was $29.8 billion. We financed the cash portion of the transaction through a combination of $9.0 billion sourced from various Chubb Limited and Chubb Corp companies plus $5.3 billion of senior notes, which were issued in November 2015. Refer to Note 7 for additional information on the senior notes.

Upon completion of the merger, each Chubb Corp common share (other than shares held by certain legacy Chubb Corp employee benefit plans) was canceled and converted, in accordance with the procedures set forth in the merger agreement, into the right to receive (i) 0.6019 of a Chubb Limited common share and (ii) $62.93 in cash. In addition, replacement equity awards were issued by Chubb Limited to the holders of Chubb Corp's outstanding equity awards (stock options, restricted stock units, deferred stock units, deferred unit obligations, and performance units).

We believe the Chubb Corp acquisition is highly complementary to our existing business lines, distribution channels, customer segments, and underwriting skills. The Chubb Corp has a substantial presence in the U.S. with a broad variety of coverages serving large corporate and upper middle market accounts, middle market and small commercial accounts, and personal lines. Together we are one of the largest commercial insurers in the U.S. Internationally, where legacy ACE is a truly global insurer with extensive presence in 54 countries, Chubb Corp's operations in 25 markets are expected to add to our presence and capabilities and position us to better pursue important market opportunities globally. The combined company is a leader in a number of global specialty and traditional products such as professional lines, risk management, workers' compensation, accident and health (A&H), and other property and general casualty lines.

The table below details the purchase consideration and preliminary allocation of assets acquired and liabilities assumed. During the second quarter of 2016, we reassessed certain components of our preliminary estimates of assets acquired and liabilities assumed, including the net realizable value for Reinsurance recoverables on losses and loss expenses and Insurance and reinsurance balances receivables and certain components of the Deferred tax liabilities, which resulted in an adjustment to our preliminary estimates that increased Goodwill by $81 million. These estimates remain preliminary and are subject to adjustment. While they are not expected to be materially different than those shown, any material adjustments to the estimates will be reflected, retroactively, as of the date of the acquisition.




(in millions, except per share data)
Purchase consideration
Chubb Limited common shares
Chubb Corp common shares outstanding	228
Per share exchange ratio	0.6019
Common shares issued by Chubb Limited	137
Common share price of Chubb Limited at January 14, 2016	$	111.02
Fair value of common shares issued by Chubb Limited to common shareholders of Chubb Corp	$	15,204
Cash consideration
Chubb Corp common shares outstanding	228
Agreed cash price per share paid to common shareholders of Chubb Corp	$	62.93
Cash consideration paid by Chubb Limited to common shareholders of Chubb Corp	$	14,319
Stock-based awards
Fair value of equity awards issued ⁽¹⁾	$	323
Fair value of purchase consideration	$	29,846
Preliminary estimate of assets acquired and (liabilities) assumed
Cash	$	71
Investments	42,967
Accrued investment income	337
Insurance and reinsurance balances receivable	2,981
Reinsurance recoverable on losses and loss expenses	1,650
Indefinite lived intangible assets	2,860
Finite lived intangible assets	4,795
Prepaid reinsurance premiums	280
Other assets	863
Unpaid losses and loss expenses	(22,906		)
Unearned premium	(7,033		)
Insurance and reinsurance balances payable	(511		)
Accounts payable, accrued expenses, and other liabilities	(1,935		)
Deferred tax liabilities	(1,334		)
Long-term debt	(3,765		)
Total identifiable net assets acquired	19,320
Goodwill	10,526
Purchase price	$	29,846


⁽¹⁾	The estimated fair value of the replacement equity awards was $525 million, of which $323 million was attributed to service periods prior to the acquisition and was included in the purchase consideration. Refer to Note 10 for further information on these replacement equity awards.

Direct costs related to the Chubb Corp acquisition were expensed as incurred. Chubb integration expenses were $98 million and $246 million for the three and six months ended June 30, 2016, respectively, and include all internal and external costs directly related to the integration activities of the Chubb Corp acquisition, primarily personnel-related expenses, including severance and employee retention and relocation; consulting fees; and advisor fees.

We recognized goodwill of $10.5 billion, attributable to expected growth and profitability, none of which is expected to be deductible for income tax purposes, indefinite lived intangible assets of $2.9 billion and finite lived intangible assets of $4.8 billion, which will be amortized over their estimated useful lives, ranging from one to 24 years. Refer to Note 6 for additional information.

The following table summarizes the results of the acquired Chubb Corp operations since the acquisition date that have been included within our Consolidated statements of income:



(in millions of U.S. dollars)	Three Months Ended June 30, 2016		January 14, 2016 to June 30, 2016
Total revenues	$	2,745	$	5,232
Net income	$	326	$	581

The following table provides supplemental unaudited pro forma consolidated information for the three and six months ended June 30, 2016 and 2015, as if Chubb Corp had been acquired as of January 1, 2015. The unaudited pro forma consolidated financial statements are presented solely for informational purposes and are not necessarily indicative of the consolidated results of operations that might have been achieved had the transaction been completed as of the date indicated, nor are they meant to be indicative of any anticipated consolidated future results of operations that the combined company will experience after the transaction.



	Three Months Ended				Six Months Ended
	June 30				June 30
(in millions of U.S. dollars, except per share data)	2016		2015		2016		2015
Total revenues	$	7,915	$	8,378	$	15,237	$	16,073
Net income	$	712	$	1,199	$	1,246	$	2,158
Earnings per share
Basic earnings per share	$	1.52	$	2.57	$	2.67	$	4.62
Diluted earnings per share	$	1.51	$	2.55	$	2.65	$	4.57

Prior year acquisition

Fireman's Fund Insurance Company High Net Worth Personal Lines Insurance Business in the U.S. (Fireman's Fund)

On April 1, 2015, we acquired the Fireman's Fund Insurance Company high net worth personal lines insurance business in the U.S., which included the renewal rights for new and existing business and reinsurance of all existing reserves for $365 million in cash. We acquired assets with a fair value of $753 million, consisting primarily of cash of $629 million and insurance and reinsurance balances receivable of $124 million. We assumed liabilities with a fair value of $863 million, consisting primarily of unpaid losses and loss expenses of $417 million and unearned premiums of $428 million. This acquisition generated $196 million of goodwill, attributable to expected growth and profitability, all of which is expected to be deductible for income tax purposes, and other intangible assets of $278 million, primarily related to renewal rights, based on Chubb’s purchase price allocation. During the third quarter of 2015, we recorded an adjustment to the valuation of our other intangible assets. The acquisition expanded our position in the high net worth personal lines insurers in the U.S. The Fireman’s Fund business was integrated into our existing high net worth personal lines business, offering a broad range of coverage including homeowners, automobile, umbrella and excess liability, collectibles, and yachts. Goodwill and other intangible assets arising from this acquisition are included in our North America Personal P&C Insurance segment.

The consolidated financial statements include results of acquired businesses from the acquisition dates.