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Fair value measurements

9 Months Ended

Sep. 30, 2023

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 (an exit price) in an orderly transaction between market participants and establishes a three-level valuation hierarchy based on the reliability of the inputs. 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.

We use pricing services to obtain fair value measurements for the majority of our investment securities. 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 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 or pricing models, 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, fixed maturities valuation is more subjective when markets are less liquid due to the lack of market based inputs (i.e., stale pricing) and may require the use of models to be priced. The lack of market based inputs may increase the potential that an investment's estimated fair value 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 single broker quote (typically from 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 equity securities in markets which are less active, 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. Short-term investments for which pricing is unobservable are classified within Level 3.

Private equities

Fair values for the majority of Private equities including investments in partially-owned investment companies, investment funds, and limited partnerships are based on their respective NAV and are excluded from the fair value hierarchy table below.

Other investments

Certain of our long-duration contracts are supported by 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 principally include fixed maturities carried at fair value with changes in fair value recorded through the Consolidated statements of operations. These fixed maturities principally relate to the acquired Huatai investment portfolio and are classified within Level 2. Also included are life insurance policies collateralizing investments held in rabbi trusts maintained by Chubb for deferred compensation plans and supplemental retirement plans. These policies are carried at cash surrender value and are classified in the valuation hierarchy within Level 2.

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 Chubb’s obligation to return the collateral plus interest as it is reported at contract value and not fair value in the Consolidated balance sheets.

Investment derivatives

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

Derivatives designated as hedging instruments

Certain of our derivatives are cross-currency swaps designated as fair value and net investment hedging instruments. The fair value of cross-currency swaps and interest rate swaps is based on market valuations and is classified within Level 2. Investment derivative instruments are recorded in either Other assets or Accounts payable, accrued expenses, and other liabilities in the Consolidated balance sheets.

Other derivative instruments

We maintain positions in exchange-traded equity futures contracts designed to limit exposure to a severe equity market decline, which would cause an increase in expected claims and, therefore, an increase in market risk benefits (MRB) reserves and our MRB reinsurance business. Our positions in exchange-traded equity futures contracts are 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. Other derivative instruments based on unobservable inputs are classified within Level 3. Other derivative instruments are recorded in either Other assets or 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 Chubb. Separate account assets principally comprise mutual funds classified within Level 1 in the valuation hierarchy on the same basis as other equity securities traded in active markets. 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.

Financial instruments measured at fair value on a recurring basis, by valuation hierarchy


September 30, 2023	Level 1		Level 2		Level 3		Total
(in millions of U.S. dollars)
Assets:
Fixed maturities available for sale
U.S. Treasury / Agency	$	3,084	$	597	$	—	$	3,681
Non-U.S.	—		32,084		633		32,717
Corporate and asset-backed securities	—		38,286		2,569		40,855
Mortgage-backed securities	—		19,580		25		19,605
Municipal	—		2,908		—		2,908
	3,084		93,455		3,227		99,766

Equity securities	3,310		—		85		3,395
Short-term investments	2,546		2,906		2		5,454
Other investments (1)	569		4,364		—		4,933
Securities lending collateral	—		1,469		—		1,469
Investment derivatives	42		—		—		42
Derivatives designated as hedging instruments	—		48		—		48
Other derivative instruments	53		—		—		53
Separate account assets	5,217		89		—		5,306
Total assets measured at fair value (1)(2)	$	14,821	$	102,331	$	3,314	$	120,466
Liabilities:
Investment derivatives	$	168	$	—	$	—	$	168
Derivatives designated as hedging instruments	—		68		—		68
Other derivative instruments	—		4		—		4
Market risk benefits (3)	—		—		770		770
Total liabilities measured at fair value	$	168	$	72	$	770	$	1,010

(1)Excluded from the table above are policy loans of $603 million, and other investments of $47 million at September 30, 2023, measured using NAV as a practical expedient.

(2)Excluded from the table above are partially-owned investments, investment funds, and limited partnerships of $13,362 million at September 30, 2023, measured using NAV as a practical expedient.

(3)Refer to Note 11 for additional information on Market risk benefits.


December 31, 2022	Level 1		Level 2		Level 3		Total
(in millions of U.S. dollars)
Assets:
Fixed maturities available for sale
U.S. Treasury / Agency	$	2,100	$	526	$	—	$	2,626
Non-U.S.	—		25,344		564		25,908
Corporate and asset-backed securities	—		34,506		2,449		36,955
Mortgage-backed securities	—		15,840		11		15,851
Municipal	—		3,880		—		3,880
	2,100		80,096		3,024		85,220
Equity securities	737		—		90		827
Short-term investments	3,108		1,849		3		4,960
Other investments (1)	552		399		—		951
Securities lending collateral	—		1,523		—		1,523
Investment derivative instruments	82		—		—		82
Derivatives designated as hedging instruments	—		17		—		17
Other derivative instruments	33		—		—		33
Separate account assets	5,101		89		—		5,190
Total assets measured at fair value (1)(2)	$	11,713	$	83,973	$	3,117	$	98,803
Liabilities:
Investment derivatives	$	139	$	—	$	—	$	139
Derivatives designated as hedging instruments	—		53		—		53
Market risk benefits (3)	—		—		800		800

Total liabilities measured at fair value	$	139	$	53	$	800	$	992

(1)Excluded from the table above are policy loans of $343 million and other investments of $47 million at December 31, 2022, measured using NAV as a practical expedient.

(2)Excluded from the table above are partially-owned investments, investment funds, and limited partnerships of $12,355 million at December 31, 2022, measured using NAV as a practical expedient.

(3)Refer to Note 11 for additional information on Market risk benefits.

Level 3 financial instruments

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). Excluded from the following tables is the reconciliation of Market risk benefits, refer to Note 11 for additional information:



Three Months Ended September 30, 2023 (in millions of U.S. dollars)	Available-for-Sale Debt Securities						Equity securities	Short-term investments
	Non-U.S.		Corporate and asset- backed securities		Mortgage-backed securities

Balance, beginning of period	$	649	$	2,524	$	10		$	86	$	3
Transfers into Level 3	—		—		—			—		—
Transfers out of Level 3	(22)		(10)		—			—		—
Change in Net Unrealized Gains/Losses in OCI	(6)		6		—			—		—
Net Realized Gains/Losses	(2)		(4)		—			—		—
Purchases	46		158		16			4		—
Sales	(17)		(40)		—			(5)		(1)
Settlements	(15)		(65)		(1)			—		—

Balance, end of period	$	633	$	2,569	$	25		$	85	$	2
Net Realized Gains/Losses Attributable to Changes in Fair Value at the Balance Sheet date	$	(1)	$	(4)	$	—		$	—	$	—
Change in Net Unrealized Gains/Losses included in OCI at the Balance Sheet date	$	(8)	$	4	$	—		$	—	$	—



Three Months Ended September 30, 2022 (in millions of U.S. dollars)		Available-for-Sale Debt Securities								Equity securities		Short-term investments
	Non-U.S.			Corporate and asset- backed securities			Mortgage-backed securities

Balance, beginning of period		$	549		$	2,261		$	19	$	81	$	9
Transfers into Level 3		—			2			—		—		—
Transfers out of Level 3		—			(4)			—		—		—
Change in Net Unrealized Gains/Losses in OCI		(34)			(16)			—		—		—

Net Realized Gains/Losses		(4)			(9)			—		3		(1)

Purchases		39			164			4		3		1
Sales		(19)			(8)			—		(4)		—
Settlements		(25)			(94)			(4)		—		(6)

Balance, end of period		$	506		$	2,296		$	19	$	83	$	3
Net Realized Gains/Losses Attributable to Changes in Fair Value at the Balance Sheet date		$	(1)		$	(3)		$	—	$	3	$	(1)
Change in Net Unrealized Gains/Losses included in OCI at the Balance Sheet date		$	(35)		$	(19)		$	—	$	—	$	—



Nine Months Ended September 30, 2023 (in millions of U.S. dollars)	Available-for-Sale Debt Securities						Equity securities	Short-term investments
	Non-U.S.		Corporate and asset- backed securities		Mortgage-backed securities

Balance, beginning of period	$	564	$	2,449	$	11		$	90	$	3
Transfers into Level 3	21		3		—			—		—
Transfers out of Level 3	(22)		(23)		—			—		—
Change in Net Unrealized Gains/Losses in OCI	5		8		—			—		(1)
Net Realized Gains/Losses	(3)		(7)		—			(6)		—
Purchases	151		481		16			15		3
Sales	(52)		(70)		—			(14)		(3)
Settlements	(31)		(272)		(2)			—		—

Balance, end of period	$	633	$	2,569	$	25		$	85	$	2
Net Realized Gains/Losses Attributable to Changes in Fair Value at the Balance Sheet date	$	(1)	$	(6)	$	—		$	(6)	$	—
Change in Net Unrealized Gains/Losses included in OCI at the Balance Sheet date	$	1	$	2	$	—		$	—	$	—



Nine Months Ended September 30, 2022 (in millions of U.S. dollars)		Available-for-Sale Debt Securities								Equity securities		Short-term investments
	Non-U.S.			Corporate and asset- backed securities			Mortgage-backed securities

Balance, beginning of period		$	633		$	2,049		$	26	$	77	$	7
Transfers into Level 3		23			41			—		1		—
Transfers out of Level 3		(23)			(97)			(5)		—		—
Change in Net Unrealized Gains/Losses in OCI		(88)			(68)			—		—		—
Net Realized Gains/Losses		(6)			(9)			—		7		(1)

Purchases		108			658			4		6		8
Sales		(44)			(59)			—		(8)		—
Settlements		(97)			(219)			(6)		—		(11)

Balance, end of period		$	506		$	2,296		$	19	$	83	$	3
Net Realized Gains/Losses Attributable to Changes in Fair Value at the Balance Sheet date		$	(3)		$	(4)		$	—	$	6	$	(1)
Change in Net Unrealized Gains/Losses included in OCI at the Balance Sheet date		$	(89)		$	(71)		$	—	$	—	$	—

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

Chubb 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. Refer to the 2022 Form 10-K for information on the fair value methods and assumptions for investments in partially-owned insurance companies, short-term and long-term debt, repurchase agreements, and trust-preferred securities.

The following tables present fair value, by valuation hierarchy, and carrying value of the financial instruments not measured at fair value:


September 30, 2023	Fair Value								Net Carrying Value
(in millions of U.S. dollars)	Level 1		Level 2		Level 3		Total
Assets:
Private debt held-for-investment	$	—	$	—	$	2,389	$	2,389	$	2,401
Total assets	$	—	$	—	$	2,389	$	2,389	$	2,401
Liabilities:
Repurchase agreements	$	—	$	2,617	$	—	$	2,617	$	2,617
Short-term debt	—		688		—		688		700
Long-term debt	—		11,627		—		11,627		13,736
Trust preferred securities	—		362		—		362		308
Total liabilities	$	—	$	15,294	$	—	$	15,294	$	17,361

Private debt held-for-investment is related to Huatai and its consolidation. The fair value of Private debt held-for-investment is derived using a discounted cash flow approach, which includes an evaluation of forecasted contractual cash flows and yield curve information, among other loan characteristics and assumptions. These assumptions are derived from internal and third party sources. Since the valuation is derived from model-based techniques, Private debt held-for-investment is classified within Level 3 of the valuation hierarchy.


December 31, 2022	Fair Value								Net Carrying Value
(in millions of U.S. dollars)	Level 1		Level 2		Level 3		Total
Assets:
Fixed maturities held to maturity
U.S. Treasury / Agency	$	1,299	$	71	$	—	$	1,370	$	1,417
Non-U.S.	—		1,054		—		1,054		1,136
Corporate and asset-backed securities	—		1,580		—		1,580		1,705
Mortgage-backed securities	—		1,351		—		1,351		1,455
Municipal	—		3,084		—		3,084		3,135
Total assets	$	1,299	$	7,140	$	—	$	8,439	$	8,848
Liabilities:
Repurchase agreements	$	—	$	1,419	$	—	$	1,419	$	1,419
Short-term debt	—		473		—		473		475
Long-term debt	—		12,495		—		12,495		14,402
Trust preferred securities	—		383		—		383		308
Total liabilities	$	—	$	14,770	$	—	$	14,770	$	16,604

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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