The following tables present the fair value and amortized cost of and the gross unrealized appreciation (depreciation) related to fixed maturities as well as related OTTI recognized in AOCI:

		June 30, 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		$	2,423	$	80	$	(8)	$	2,495	$	-
Foreign			12,341		389		(51)		12,679		(12)
Corporate securities			13,853		723		(63)		14,513		(14)
Mortgage-backed securities			9,932		259		(180)		10,011		(191)
States, municipalities, and political			1,313		36		(9)		1,340		-
	subdivisions		1,313		36		(9)		1,340		-
		$	39,862	$	1,487	$	(311)	$	41,038	$	(217)
Held to maturity
U.S. Treasury and agency		$	1,067	$	30	$	(5)	$	1,092	$	-
Foreign			1,051		1		(24)		1,028		-
Corporate securities			2,311		15		(34)		2,292		-
Mortgage-backed securities			3,414		69		(11)		3,472		-
States, municipalities, and political			1,190		10		(6)		1,194		-
	subdivisions		1,190		10		(6)		1,194		-
		$	9,033	$	125	$	(80)	$	9,078	$	-

		December 31, 2010
		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		$	2,904	$	74	$	(15)	$	2,963	$	-
Foreign			10,926		340		(80)		11,186		(28)
Corporate securities			12,902		754		(69)		13,587		(29)
Mortgage-backed securities			8,508		213		(205)		8,516		(228)
States, municipalities, and political			1,302		15		(30)		1,287		-
	subdivisions		1,302		15		(30)		1,287		-
		$	36,542	$	1,396	$	(399)	$	37,539	$	(285)
Held to maturity
U.S. Treasury and agency		$	1,105	$	32	$	(10)	$	1,127	$	-
Foreign			1,049		1		(37)		1,013		-
Corporate securities			2,361		12		(60)		2,313		-
Mortgage-backed securities			3,811		62		(27)		3,846		-
States, municipalities, and political			1,175		5		(18)		1,162		-
	subdivisions		1,175		5		(18)		1,162		-
		$	9,501	$	112	$	(152)	$	9,461	$	-

As discussed in Note 4 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 is the cumulative amount 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, 2011, $25 million and $8 million, respectively, of net unrealized depreciation related to such securities is included in OCI. For the three and six months ended June 30, 2010, $33 million and $96 million, respectively, of net unrealized appreciation related to such securities is included in OCI. At June 30, 2011 and December 31, 2010, AOCI includes net unrealized depreciation of $109 million and $99 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 issued by U.S. government agencies are combined with all other to be announced mortgage derivatives held (refer to Note 7 a) (iv)) and are included in the category, “Mortgage-backed securities”. Approximately 81 percent and 79 percent of the total mortgage-backed securities at June 30, 2011 and December 31, 2010, respectively, are represented by investments in U.S. government agency bonds. The remainder of the mortgage exposure consists of collateralized mortgage obligations and nongovernment 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. 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.

	June 30				December 31
	2011				2010
	Amortized Cost		Fair Value		Amortized Cost		Fair Value

	(in millions of U.S. dollars)
Available for sale; maturity period
Due in 1 year or less	$	2,046	$	2,074	$	1,846	$	1,985
Due after 1 year through 5 years		12,962		13,446		13,094		13,444
Due after 5 years through 10 years		11,468		11,972		10,276		10,782
Due after 10 years		3,454		3,535		2,818		2,812
		29,930		31,027		28,034		29,023
Mortgage-backed securities		9,932		10,011		8,508		8,516
	$	39,862	$	41,038	$	36,542	$	37,539

Held to maturity; maturity period
Due in 1 year or less	$	310	$	312	$	400	$	404
Due after 1 year through 5 years		2,127		2,163		1,983		2,010
Due after 5 years through 10 years		2,512		2,468		2,613		2,524
Due after 10 years		670		663		694		677
		5,619		5,606		5,690		5,615
Mortgage-backed securities		3,414		3,472		3,811		3,846
	$	9,033	$	9,078	$	9,501	$	9,461

The following table presents the fair value and cost of and gross unrealized appreciation (depreciation) related to equity securities:

In accordance with guidance related to the recognition and presentation of OTTI, when an OTTI 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.

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.

There were no credit losses recognized in net income for corporate securities in 2011. For the three and six months ended June 30, 2010, credit losses recognized in net income for corporate securities were nil and $1 million, respectively.

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.

Credit losses recognized in net income for mortgage-backed securities for the three and six months ended June 30, 2011 were $2 million and $3 million, respectively. Credit losses recognized in net income for mortgage-backed securities for the three and six months ended June 30, 2010 were $5 million and $22 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 management to conclude the decline in fair value of certain investments was “other-than-temporary”:

	Three Months Ended				Six Months Ended
	June 30				June 30
	2011		2010		2011		2010

	(in millions of U.S. dollars)
Fixed maturities:
OTTI on fixed maturities, gross	$	(6)	$	(18)	$	(11)	$	(68)
OTTI on fixed maturities recognized in OCI (pre-tax)		1		13		2		45
OTTI on fixed maturities, net		(5)		(5)		(9)		(23)
Gross realized gains excluding OTTI		108		128		217		296
Gross realized losses excluding OTTI		(29)		(46)		(85)		(115)
Total fixed maturities		74		77		123		158

Equity securities:
Gross realized gains excluding OTTI		4		32		12		77
Gross realized losses excluding OTTI		-		-		(1)		-
Total equity securities		4		32		11		77

OTTI on other investments		(3)		(13)		(3)		(13)
Foreign exchange gains (losses)		(30)		61		(109)		52
Investment and embedded derivative instruments		(48)		5		(68)		24
Fair value adjustments on insurance derivative		(70)		(301)		1		(205)
S&P put options and futures		3		143		(68)		84
Other derivative instruments		(2)		4		(3)		(5)
Other		(1)		1		(2)		5
Net realized gains (losses)	$	(73)	$	9	$	(118)	$	177

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
	2011		2010		2011		2010

		(in millions of U.S. dollars)
Balance of credit losses related to securities still held- beginning of period	$	96	$	163	$	137	$	174
Additions where no OTTI was previously recorded		2		5		2		22
Additions where an OTTI was previously recorded		-		-		1		1
Reductions for securities sold during the period		(4)		(31)		(46)		(60)
Balance of credit losses related to securities still held- end of period	$	94	$	137	$	94	$	137

At June 30, 2011, there were 4,348 fixed maturities out of a total of 21,493 fixed maturities in an unrealized loss position. The largest single unrealized loss in the fixed maturities was $8 million. Fixed maturities in an unrealized loss position at June 30, 2011, 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
	Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss

June 30, 2011	(in millions of U.S. dollars)
U.S. Treasury and agency	$	551	$	(13.3)	$	-	$	-	$	551	$	(13.3)
Foreign		3,136		(60.7)		264		(14.1)		3,400		(74.8)
Corporate securities		3,709		(73.2)		152		(23.9)		3,861		(97.1)
Mortgage-backed securities		2,638		(35.1)		825		(155.4)		3,463		(190.5)
States, municipalities, and political subdivisions		663		(10.8)		62		(4.6)		725		(15.4)
Total fixed maturities		10,697		(193.1)		1,303		(198.0)		12,000		(391.1)
Equity securities		44		(3.3)		1		(0.4)		45		(3.7)
Other investments		19		(1.0)		-		-		19		(1.0)
Total	$	10,760	$	(197.4)	$	1,304	$	(198.4)	$	12,064	$	(395.8)

	0 – 12 Months				Over 12 Months				Total
	Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss

December 31, 2010	(in millions of U.S. dollars)
U.S. Treasury and agency	$	864	$	(24.6)	$	-	$	-	$	864	$	(24.6)
Foreign		4,409		(79.0)		312		(37.6)		4,721		(116.6)
Corporate securities		3,553		(85.1)		273		(43.9)		3,826		(129.0)
Mortgage-backed securities		3,904		(67.3)		1,031		(165.1)		4,935		(232.4)
States, municipalities, and political subdivisions		1,115		(36.2)		79		(11.9)		1,194		(48.1)
Total fixed maturities		13,845		(292.2)		1,695		(258.5)		15,540		(550.7)
Equity securities		45		(1.9)		1		(0.3)		46		(2.2)
Other investments		66		(8.7)		-		-		66		(8.7)
Total	$	13,956	$	(302.8)	$	1,696	$	(258.8)	$	15,652	$	(561.6)

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. 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, 2011 and December 31, 2010, are fixed maturities and short-term investments totaling $12.8 billion and $12.0 billion, respectively, and cash of $97 million and $104 million, respectively.

		June 30		December 31
		2011		2010
	(in millions of U.S. dollars)
Trust funds	$	9,143	$	8,200
Deposits with U.S. regulatory authorities		1,254		1,384
Deposits with non-U.S. regulatory authorities		2,264		2,289
Other pledged assets		273		190
	$	12,934	$	12,063