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Investments
 9 Months Ended
Sep. 30, 2018
Investments, Debt and Equity Securities [Abstract]  
Investments
Investments

a) Fixed maturities
 
September 30, 2018
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
$
4,137

 
$
13

 
$
(101
)
 
$
4,049

 
$
—

Foreign
21,280

 
374

 
(299
)
 
21,355

 
—

Corporate securities
24,905

 
248

 
(358
)
 
24,795

 
(6
)
Mortgage-backed securities
16,395

 
26

 
(523
)
 
15,898

 
(1
)
States, municipalities, and political subdivisions
11,920

 
42

 
(206
)
 
11,756

 
—

 
$
78,637

 
$
703

 
$
(1,487
)
 
$
77,853

 
$
(7
)
Held to maturity
 
 
 
 
 
 
 
 
 
U.S. Treasury and agency
$
1,112

 
$
6

 
$
(25
)
 
$
1,093

 
$
—

Foreign
1,601

 
10

 
(25
)
 
1,586

 
—

Corporate securities
2,658

 
11

 
(91
)
 
2,578

 
—

Mortgage-backed securities
2,574

 
4

 
(75
)
 
2,503

 
—

States, municipalities, and political subdivisions
5,618

 
10

 
(104
)
 
5,524

 
—

 
$
13,563

 
$
41

 
$
(320
)
 
$
13,284

 
$
—


December 31, 2017
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
$
3,701

 
$
32

 
$
(35
)
 
$
3,698

 
$
—

Foreign
20,514

 
622

 
(106
)
 
21,030

 
(1
)
Corporate securities
23,453

 
638

 
(95
)
 
23,996

 
(4
)
Mortgage-backed securities
15,279

 
111

 
(100
)
 
15,290

 
(1
)
States, municipalities, and political subdivisions
14,888

 
125

 
(88
)
 
14,925

 
—

 
$
77,835

 
$
1,528

 
$
(424
)
 
$
78,939

 
$
(6
)
Held to maturity
 
 
 
 
 
 
 
 
 
U.S. Treasury and agency
$
908

 
$
12

 
$
(5
)
 
$
915

 
$
—

Foreign
1,738

 
27

 
(8
)
 
1,757

 
—

Corporate securities
3,159

 
67

 
(7
)
 
3,219

 
—

Mortgage-backed securities
2,724

 
23

 
(5
)
 
2,742

 
—

States, municipalities, and political subdivisions
5,806

 
50

 
(15
)
 
5,841

 
—

 
$
14,335

 
$
179

 
$
(40
)
 
$
14,474

 
$
—



As discussed in Note 2 b), if a credit loss is incurred on an impaired fixed maturity, an OTTI is considered to have occurred and the portion of the impairment not related to credit losses (non-credit OTTI) is recognized in OCI. Included in the “OTTI Recognized in AOCI” columns above are the cumulative amounts of non-credit OTTI recognized in OCI adjusted for subsequent sales, maturities, and redemptions. OTTI recognized in AOCI does not include the impact of subsequent changes in fair value of the related securities. In periods subsequent to a recognition of OTTI in OCI, changes in the fair value of the related fixed maturities are reflected in Net unrealized appreciation on investments in the Consolidated statements of shareholders’ equity. For the three and nine months ended September 30, 2018, $2 million and $6 million, respectively, of net unrealized depreciation related to such securities is included in OCI. For the three and nine months ended September 30, 2017, $1 million of net unrealized appreciation and $2 million of net unrealized depreciation, respectively, related to such securities is included in OCI. At September 30, 2018 and December 31, 2017, AOCI included cumulative net unrealized appreciation of $1 million and $7 million, respectively, related to securities remaining in the investment portfolio for which a non-credit OTTI was recognized.

Mortgage-backed securities (MBS) issued by U.S. government agencies are combined with all other to be announced mortgage-backed securities (TBAs) held (refer to Note 6 b) (iv)) and are included in the category, “Mortgage-backed securities”. Approximately 82 percent and 83 percent of the total mortgage-backed securities at September 30, 2018 and December 31, 2017, 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:
 
 
 
September 30

 
 
 
December 31

 
 
 
2018

 
 
 
2017

(in millions of U.S. dollars)
Amortized Cost

 
Fair Value

 
Amortized Cost

 
Fair Value

Available for sale
 
 
 
 
 
 
 
Due in 1 year or less
$
3,736

 
$
3,742

 
$
3,164

 
$
3,182

Due after 1 year through 5 years
26,694

 
26,646

 
24,749

 
25,068

Due after 5 years through 10 years
23,638

 
23,325

 
25,388

 
25,704

Due after 10 years
8,174

 
8,242

 
9,255

 
9,695

 
62,242

 
61,955

 
62,556

 
63,649

Mortgage-backed securities
16,395

 
15,898

 
15,279

 
15,290

 
$
78,637

 
$
77,853

 
$
77,835

 
$
78,939

Held to maturity
 
 
 
 
 
 
 
Due in 1 year or less
$
567

 
$
569

 
$
743

 
$
746

Due after 1 year through 5 years
2,959

 
2,925

 
2,669

 
2,688

Due after 5 years through 10 years
4,507

 
4,400

 
4,744

 
4,756

Due after 10 years
2,956

 
2,887

 
3,455

 
3,542

 
10,989

 
10,781

 
11,611

 
11,732

Mortgage-backed securities
2,574

 
2,503

 
2,724

 
2,742

 
$
13,563

 
$
13,284

 
$
14,335

 
$
14,474



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) Net realized gains (losses)
In accordance with guidance related to the recognition and presentation of OTTI, when an impairment related to a fixed maturity has occurred, OTTI is required to be recorded in Net income if management has the intent to sell the security or it is more likely than not that we will be required to sell the security before the recovery of its amortized cost. Further, in cases where we do not intend to sell the security and it is more likely than not that we will not be required to sell the security, we must evaluate the security to determine the portion of the impairment, if any, related to credit losses. If a credit loss is incurred, an OTTI is considered to have occurred and any portion of the OTTI related to credit losses must be reflected in Net income while the portion of OTTI related to all other factors is recognized in OCI. For fixed maturities held to maturity, OTTI recognized in OCI is accreted from AOCI to the amortized cost of the fixed maturity prospectively over the remaining term of the securities.

Each quarter, securities in an unrealized loss position (impaired securities), including fixed maturities and securities lending collateral are reviewed to identify impaired securities to be specifically evaluated for a potential OTTI. Refer to the 2017 Form 10-K for information on our evaluation of OTTI for all non-fixed maturities prior to our adoption of new accounting guidance on financial instruments, effective January 1, 2018.

Evaluation of potential credit losses related to fixed maturities
We review each fixed maturity in an unrealized loss position to assess whether the security is a candidate for credit loss. Specifically, we consider credit rating, market price, and issuer-specific financial information, among other factors, to assess the likelihood of collection of all principal and interest as contractually due. Securities for which we determine that credit loss is likely are subjected to further analysis to estimate the credit loss recognized in Net income, if any. In general, credit loss recognized in Net income equals the difference between the security’s amortized cost and the net present value of its projected future cash flows discounted at the effective interest rate implicit in the debt security. All significant assumptions used in determining credit losses are subject to change as market conditions evolve.

Corporate securities
Projected cash flows for corporate securities (principally senior unsecured bonds) are driven primarily by assumptions regarding probability of default and also the timing and amount of recoveries associated with defaults. Chubb developed projected cash flows for corporate securities using market observable data, issuer-specific information, and credit ratings. We use historical default data by Moody’s Investors Service (Moody’s) rating category to calculate a 1-in-100 year probability of default, which results in a default assumption in excess of the historical mean default rate. Consistent with management's approach, Chubb assumed a 32 percent recovery rate (the par value of a defaulted security that will be recovered) across all rating categories rather than using Moody's historical mean recovery rate of 42 percent. We believe that use of a default assumption in excess of the historical mean is conservative.

For the three and nine months ended September 30, 2018, credit losses recognized in Net income for corporate securities were $8 million and $9 million, respectively. For the three and nine months ended September 30, 2017, credit losses recognized in Net income for corporate securities were $3 million and $5 million, respectively.

Mortgage-backed securities
For mortgage-backed securities, credit impairment is assessed using a cash flow model that estimates the cash flows on the underlying mortgages, using the security-specific collateral and transaction structure. The model estimates cash flows from the underlying mortgage loans and distributes those cash flows to various tranches of securities, considering the transaction structure and any subordination and credit enhancements that exist in that structure. The cash flow model incorporates actual cash flows on the mortgage-backed securities through the current period and then projects the remaining cash flows using a number of assumptions, including default rates, prepayment rates, and loss severity rates (the par value of a defaulted security that will not be recovered) on foreclosed properties.

For the three and nine months ended September 30, 2018 and 2017, there were no credit losses recognized in Net income for mortgage-backed securities.
The following table presents the components of Net realized gains (losses):
 
Three Months Ended
 
 
Nine Months Ended
 
 
September 30
 
 
September 30
 
(in millions of U.S. dollars)
2018

 
2017

 
2018

 
2017

Fixed maturities:
 
 
 
 
 
 
 
OTTI on fixed maturities, gross
$
(14
)
 
$
(5
)
 
$
(19
)
 
$
(16
)
OTTI on fixed maturities recognized in OCI (pre-tax)
3

 
—

 
3

 
1

OTTI on fixed maturities, net
(11
)
 
(5
)
 
(16
)
 
(15
)
Gross realized gains excluding OTTI
64

 
30

 
229

 
109

Gross realized losses excluding OTTI
(91
)
 
(19
)
 
(355
)
 
(77
)
Total fixed maturities
(38
)
 
6

 
(142
)
 
17

Equity securities:
 
 
 
 
 
 
 
OTTI on equity securities
—

 
(1
)
 
—

 
(9
)
Gross realized gains excluding OTTI
48

 
6

 
63

 
21

Gross realized losses excluding OTTI
(13
)
 
(1
)
 
(41
)
 
(2
)
Total equity securities
35

 
4

 
22

 
10

OTTI on other investments
—

 
(2
)
 
—

 
(11
)
Other investments
5

 
—

 
23

 
—

Foreign exchange gains (losses)
39

 
15

 
102

 
10

Investment and embedded derivative instruments
37

 
(14
)
 
78

 
(24
)
Fair value adjustments on insurance derivative
54

 
54

 
133

 
265

S&P put options and futures
(100
)
 
(57
)
 
(122
)
 
(169
)
Other derivative instruments
(8
)
 
(5
)
 
2

 
(4
)
Other
(5
)
 
(11
)
 
(61
)
 
(10
)
Net realized gains (losses)
$
19

 
$
(10
)
 
$
35

 
$
84



Other net realized gains (losses) for the nine months ended September 30, 2018, included a $36 million loss from the extinguishment of debt as discussed in Note 5 and a $22 million loss related to lease impairments.

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
 
 
Nine Months Ended
 
 
September 30
 
 
September 30
 
(in millions of U.S. dollars)
2018

 
2017

 
2018

 
2017

Balance of credit losses related to securities still held – beginning of period
$
16

 
$
29

 
$
22

 
$
35

Additions where no OTTI was previously recorded
6

 
2

 
7

 
3

Additions where an OTTI was previously recorded
2

 
1

 
2

 
2

Reductions for securities sold during the period
(3
)
 
(7
)
 
(10
)
 
(15
)
Balance of credit losses related to securities still held – end of period
$
21

 
$
25

 
$
21

 
$
25



c) Equity securities and Other investments
Effective January 1, 2018, we adopted new accounting guidance that requires any changes in fair value of equity securities and other investments that are accounted for under the cost-method to be recognized immediately in realized gains and losses in net income. As a result, beginning on January 1, 2018, realized gains and losses from these investments include both sales of securities and unrealized gains and losses as follows:

 
Three Months Ended
 
 
Nine Months Ended
 
 
September 30, 2018
 
 
September 30, 2018
 
(in millions of U.S. dollars)
Equity Securities

 
Other Investments

 
Total

 
Equity Securities

 
Other Investments

 
Total

Net gains (losses) recognized during the period
$
35

 
$
5

 
$
40

 
$
22

 
$
23

 
$
45

Less: Net gains (losses) recognized from sales of securities
48

 
—

 
48

 
63

 
—

 
63

Unrealized gains (losses) recognized for securities still held at reporting date
$
(13
)
 
$
5

 
$
(8
)
 
$
(41
)
 
$
23

 
$
(18
)


At December 31, 2017, the cost, gross unrealized appreciation, gross unrealized depreciation, and fair value of equity securities was $737 million, $212 million, $12 million, and $937 million, respectively. At December 31, 2017, the net unrealized appreciation (depreciation) was recorded within accumulated other comprehensive income on the balance sheet.

d) Gross unrealized loss
At September 30, 2018, there were 17,978 fixed maturities out of a total of 31,196 fixed maturities in an unrealized loss position. The largest single unrealized loss in the fixed maturities was $13 million. Fixed maturities in an unrealized loss position at September 30, 2018, comprised both investment grade and below investment grade securities for which fair value declined primarily due to widening credit spreads since the date of purchase.

The following tables present, for all securities in an unrealized loss position (including securities on loan), the aggregate fair value and gross unrealized loss by length of time the security has continuously been in an unrealized loss position:
 
0 – 12 Months
 
 
Over 12 Months
 
 
Total
 
September 30, 2018
Fair Value

 
Gross
Unrealized
Loss

 
Fair Value

 
Gross
Unrealized
Loss

 
Fair Value

 
Gross
Unrealized
Loss

(in millions of U.S. dollars)
 
 
 
 
 
U.S. Treasury and agency
$
2,775

 
$
(57
)
 
$
1,912

 
$
(69
)
 
$
4,687

 
$
(126
)
Foreign
8,760

 
(194
)
 
3,683

 
(130
)
 
12,443

 
(324
)
Corporate securities
14,323

 
(335
)
 
2,272

 
(114
)
 
16,595

 
(449
)
Mortgage-backed securities
12,575

 
(371
)
 
4,029

 
(227
)
 
16,604

 
(598
)
States, municipalities, and political subdivisions
12,328

 
(223
)
 
2,712

 
(87
)
 
15,040

 
(310
)
Total fixed maturities
$
50,761

 
$
(1,180
)
 
$
14,608

 
$
(627
)
 
$
65,369

 
$
(1,807
)
 
0 – 12 Months
 
 
Over 12 Months
 
 
Total
 
December 31, 2017
Fair Value

 
Gross
Unrealized
Loss

 
Fair Value

 
Gross
Unrealized
Loss

 
Fair Value

 
Gross
Unrealized
Loss

(in millions of U.S. dollars)
 
 
 
 
 
U.S. Treasury and agency
$
2,172

 
$
(14
)
 
$
1,249

 
$
(26
)
 
$
3,421

 
$
(40
)
Foreign
5,657

 
(65
)
 
1,693

 
(49
)
 
7,350

 
(114
)
Corporate securities
5,210

 
(56
)
 
1,332

 
(46
)
 
6,542

 
(102
)
Mortgage-backed securities
6,194

 
(31
)
 
3,209

 
(74
)
 
9,403

 
(105
)
States, municipalities, and political subdivisions
9,259

 
(71
)
 
1,402

 
(32
)
 
10,661

 
(103
)
Total fixed maturities
28,492

 
(237
)
 
8,885

 
(227
)
 
37,377

 
(464
)
Equity securities
115

 
(12
)
 
—

 
—

 
115

 
(12
)
Other investments
78

 
(8
)
 
—

 
—

 
78

 
(8
)
Total
$
28,685

 
$
(257
)
 
$
8,885

 
$
(227
)
 
$
37,570

 
$
(484
)


e) Restricted assets
Chubb is required to maintain assets on deposit with various regulatory authorities to support its insurance and reinsurance operations. These requirements are generally promulgated in the statutory regulations of the individual jurisdictions. The assets on deposit are available to settle insurance and reinsurance liabilities. Chubb is also required to restrict assets pledged under repurchase agreements, which represent Chubb's agreement to sell securities and repurchase them at a future date for a predetermined price. We also use trust funds in certain large reinsurance transactions where the trust funds are set up for the benefit of the ceding companies and generally take the place of letter of credit (LOC) requirements. We also have investments in segregated portfolios primarily to provide collateral or guarantees for LOC and derivative transactions. Included in restricted assets at September 30, 2018 and December 31, 2017 are investments, primarily fixed maturities, totaling $21.0 billion and $23.3 billion, respectively, and cash of $104 million and $123 million, respectively.
The following table presents the components of restricted assets:
 
September 30

 
December 31

(in millions of U.S. dollars)
2018

 
2017

Trust funds
$
14,324

 
$
17,011

Deposits with U.S. regulatory authorities
2,453

 
2,345

Deposits with non-U.S. regulatory authorities
2,201

 
2,250

Assets pledged under repurchase agreements
1,470

 
1,434

Other pledged assets
628

 
414

 
$
21,076

 
$
23,454