Taxation

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Taxation

Taxation

Under Swiss law through December 31, 2022, a resident company is subject to income tax at the federal, cantonal, and communal levels that is levied on net worldwide income. Income attributable to permanent establishments or real estate located abroad is excluded from the Swiss tax base. Furthermore, participation relief (i.e., tax relief) is granted to Chubb Limited at the federal, cantonal, and communal level for qualifying dividend income. Chubb Limited is subject to an annual cantonal and communal capital tax on the taxable equity of Chubb Limited in Switzerland.

Chubb has two Swiss operating subsidiaries, an insurance company, Chubb Insurance (Switzerland) Limited and a reinsurance company, Chubb Reinsurance (Switzerland) Limited. Both are subject to federal, cantonal, and communal income tax and to annual cantonal and communal capital tax.

Under current Bermuda law, Chubb Limited and its Bermuda subsidiaries are not required to pay any taxes on income or capital gains. If a Bermuda law were enacted that would impose taxes on income or capital gains, Chubb Limited and the Bermuda subsidiaries have received written assurances from the Minister of Finance in Bermuda that would exempt such companies from Bermudian taxation until March 2035.

Income from Chubb's operations at Lloyd's is subject to United Kingdom (U.K.) corporation income taxes. Lloyd's is required to pay U.S. income tax on U.S. connected income written by Lloyd's syndicates. Lloyd's has a closing agreement with the Internal Revenue Service (IRS) whereby the amount of tax due on this business is calculated by Lloyd's and remitted directly to the IRS. These amounts are then charged to the accounts of Chubb's Corporate Members in proportion to their participation in the relevant syndicates. Chubb's Corporate Members are subject to this arrangement but, as U.K. domiciled companies, will receive U.K. corporation tax credits for any U.S. income tax incurred up to the value of the equivalent U.K. corporation income tax charge on this income.

Chubb Group Holdings and its respective subsidiaries are subject to income taxes imposed by U.S. authorities and file a consolidated U.S. Federal income tax return. Should Chubb Group Holdings pay a dividend to Chubb Limited, withholding taxes would apply. Currently, however, no withholding taxes are accrued with respect to such un-remitted earnings as management has no intention of remitting these earnings. Similarly, no taxes have been provided on the un-remitted earnings of certain foreign subsidiaries (Chubb Life Insurance Hong Kong Limited and Chubb Life Insurance Korea Company Ltd.) as management has no intention of remitting these earnings. The cumulative amount that would be subject to withholding tax, if distributed, as well as the determination of the associated tax liability are not practicable to compute; however, such amount would be material.

Certain international operations of Chubb are also subject to income taxes imposed by the jurisdictions in which they operate.

Chubb's domestic operations are in Switzerland, the jurisdiction where we are legally organized, incorporated, and registered. As a result of Swiss federal tax reform which was effective in 2020, the tax rate changed from 7.83 percent to 21.2 percent. The tax rate further changed to 19.7 percent for 2021 and 2022 due to changes in Cantonal tax rates.

The following table presents pre-tax income and the related provision for income taxes:

	Year Ended December 31
(in millions of U.S. dollars)	2022		2021		2020
Pre-tax income:
Switzerland	$	234	$	349	$	350
Outside Switzerland	6,334		9,467		3,812
Total pre-tax income	$	6,568	$	9,816	$	4,162
Provision for income taxes
Current tax expense:
Switzerland	$	15	$	65	$	52
Outside Switzerland	1,066		1,294		876
Total current tax expense	1,081		1,359		928
Deferred tax expense (benefit):
Switzerland	34		(15)		2
Outside Switzerland	140		(67)		(301)
Total deferred tax expense (benefit)	174		(82)		(299)
Provision for income taxes	$	1,255	$	1,277	$	629

The most significant jurisdictions contributing to the overall taxation of Chubb are calculated using the following rates in 2022: Switzerland 19.7 percent, U.S. 21.0 percent, U.K. 19.0 percent, and Bermuda 0.0 percent.

The following table presents a reconciliation of the difference between the provision for income taxes and the expected tax provision at the Swiss statutory income tax rate:

	Year Ended December 31
(in millions of U.S. dollars)	2022		2021		2020
Expected tax provision at Swiss statutory tax rate	$	1,291	$	1,934	$	880
Permanent differences:
Taxes on earnings subject to rate other than Swiss statutory rate	(244)		(740)		(337)
Net withholding taxes	75		78		67
Other	133		5		19
Provision for income taxes	$	1,255	$	1,277	$	629

The following table presents the components of net deferred tax assets and liabilities:

	December 31
(in millions of U.S. dollars)	2022		2021
Deferred tax assets:
Loss reserve discount	$	1,001	$	950
Unearned premiums reserve	417		544
Foreign tax credits	76		156
Loss carry-forwards	104		139
Investments	57		—
Unrealized depreciation on investments	1,387		—
Depreciation	126		190
Other	175		296
Total deferred tax assets	3,343		2,275
Valuation allowance	916		92
Deferred tax assets, net of valuation allowance	2,427		2,183
Deferred tax liabilities:
Deferred policy acquisition costs	276		679
Other intangible assets, including VOBA	2,194		1,268
Un-remitted foreign earnings	249		121
Investments	—		144
Unrealized appreciation on investments	—		360
Total deferred tax liabilities	2,719		2,572
Net deferred tax liabilities	$	(292)	$	(389)

The valuation allowance of $916 million and $92 million at December 31, 2022 and 2021, respectively, reflects management's assessment, based on available information, that it is more likely than not that a portion of the deferred tax assets will not be realized due to the inability of certain subsidiaries to generate sufficient taxable income. Adjustments to the valuation allowance are made when there is a change in management's assessment of the amount of deferred tax assets that are realizable.

For the year ended December 31, 2022, the tax benefit on certain unrealized losses in our investment portfolio was reduced by a valuation allowance of $815 million necessary due to limitations on the utilization of these losses. As part of evaluating whether it was more likely than not that we could realize the tax benefit of these losses, we considered realized gains, carryback ability and available tax planning strategies.

At December 31, 2022, Chubb has net operating loss carry-forwards of $346 million which, if unused, will expire starting in 2023, and a foreign tax credit carry-forward in the amount of $76 million which, if unused, will expire starting in 2028.

The following table presents a reconciliation of the beginning and ending amount of gross unrecognized tax benefits:

	Year Ended December 31
(in millions of U.S. dollars)	2022		2021
Balance, beginning of year	$	64	$	76
Additions based on tax positions related to prior years	4		7
Reductions for settlements with taxing authorities	(1)		(19)
Balance, end of year	$	67	$	64

At December 31, 2022 and 2021, the gross unrecognized tax benefits of $67 million and $64 million, respectively, can be reduced by $21 million and $26 million, respectively, associated with foreign tax credits. The net amounts of $46 million and $38 million at December 31, 2022 and 2021, respectively, if recognized, would favorably affect the effective tax rate. It is reasonably possible that over the next twelve months, that the amount of unrecognized tax benefits may change further resulting

from the re-evaluation of unrecognized tax benefits arising from examinations by taxing authorities and the lapses of statutes of limitations.

Chubb recognizes accruals for interest and penalties, if any, related to unrecognized tax benefits in Income tax expense in the Consolidated statements of operations. Tax-related interest expense and penalties reported in the Consolidated statements of operations were $4 million, $1 million, and $8 million at December 31, 2022, 2021, and 2020, respectively. Liabilities for tax-related interest and penalties in our Consolidated balance sheets were $18 million and $14 million at December 31, 2022 and 2021, respectively.

In March 2017, the IRS commenced its field examination of Chubb Group Holdings’ U.S. Federal income tax returns for 2014 and 2015 which is still ongoing. In July 2020, the IRS commenced its field examination of Chubb Group Holdings' U.S. Federal income tax returns for 2016, 2017 and 2018 which is also still ongoing. No material adjustments have been proposed by the IRS for any year under examination. As a multinational company, we also have examinations under way in non-US jurisdictions. With few exceptions, Chubb is no longer subject to income tax examinations for years prior to 2012.

The following table summarizes tax years open for examination by major income tax jurisdiction:

At December 31, 2022
Australia	2016	-	2022
Brazil	2016	-	2022
Canada	2012	-	2022
France	2021	-	2022
Germany	2016	-	2022
Italy	2019	-	2022
Korea (1)	2017	-	2022
Mexico	2016	-	2022
Spain	2012	-	2022
Switzerland	2018	-	2022
United Kingdom	2015	-	2022
United States	2014	-	2022

(1)     Includes an examination for a pre-acquisition period subject to indemnification by Cigna Corp.