15. Segment information

ACE operates through the following business segments, certain of which represent the aggregation of distinct operating segments: Insurance – North American, Insurance – Overseas General, Global Reinsurance, and Life. These segments distribute their products through various forms of brokers, agencies, and direct marketing programs. All business segments have established relationships with reinsurance intermediaries.

The Insurance – North American segment comprises the operations in the U.S., Canada, and Bermuda. This segment includes the operations of ACE USA (including ACE Canada), ACE Bermuda, ACE Commercial Risk Services, ACE Private Risk Services, ACE Westchester, ACE Agriculture, and various run-off operations. ACE USA is the North American retail operating division which provides a broad array of P&C, A&H, and risk management products and services to a diverse group of commercial and non-commercial enterprises and consumers. ACE Bermuda provides commercial insurance products on an excess basis mainly to a global client base targeting Fortune 1000 companies, covering exposures that are generally low in frequency and high in severity. ACE Commercial Risk Services addresses the insurance needs of small to mid-sized businesses in North America by delivering an array of specialty product solutions for targeted industries that lend themselves to technology-assisted underwriting. ACE Private Risk Services provides personal lines coverages for high net worth individuals and families in North America. ACE Westchester specializes in the North American wholesale distribution of excess and surplus P&C, environmental, professional and inland marine products. ACE Agriculture provides comprehensive Multi-Peril Crop Insurance and crop/hail insurance protection to customers throughout the U.S. and Canada through Rain and Hail and Agribusiness insurance through Penn Millers Insurance Company. The run-off operations include Brandywine, Commercial Insurance Services, residual market workers' compensation business, pools and syndicates not attributable to a single business group, and other exited lines of business. Run-off operations do not actively sell insurance products, but are responsible for the management of existing policies and settlement of related claims.

The Insurance – Overseas General segment comprises ACE International, our global retail insurance operations, the wholesale insurance business of ACE Global Markets, and the international A&H and life business of Combined Insurance. ACE International is our retail business serving territories outside the U.S., Bermuda, and Canada, and maintains a presence in every major insurance market in the world and is organized geographically along product lines that provide dedicated underwriting focus to customers. ACE International has four regions of operations: ACE Europe, ACE Asia Pacific, ACE Far East, and ACE Latin America. Companies within the Insurance – Overseas General segment write a variety of insurance products including P&C, professional lines (D&O and E&O), marine, energy, aviation, political risk, specialty consumer-oriented products, and A&H (principally accident and supplemental health). ACE Global Markets, our London-based excess and surplus lines business, includes Lloyd's Syndicate 2488, offers products through its parallel distribution network via ACE European Group Limited (AEGL) and Lloyd's Syndicate 2488. ACE provides funds at Lloyd's to support underwriting by Syndicate 2488, which is managed by ACE Underwriting Agencies Limited. ACE Global Markets utilizes Syndicate 2488 to underwrite P&C business on a global basis through Lloyd's worldwide licenses. ACE Global Markets utilizes AEGL to underwrite similar classes of business through its network of U.K. and European licenses, and in the U.S. where it is eligible to write excess and surplus lines business. The reinsurance operation of ACE Global Markets is included in the Global Reinsurance segment. Combined Insurance distributes a wide range of supplemental accident and health products.

The Global Reinsurance segment represents ACE's reinsurance operations comprising ACE Tempest Re Bermuda, ACE Tempest Re USA, ACE Tempest Re International, and ACE Tempest Re Canada. These divisions provide a broad range of property catastrophe, casualty, and property reinsurance coverages to a diverse array of primary P&C insurers. The Global Reinsurance segment also includes ACE Global Markets' reinsurance operations.

The Life segment includes ACE's international life operations (ACE Life), ACE Tempest Life Re (ACE Life Re), and the North American supplemental A&H and life business of Combined Insurance. ACE Life provides a broad portfolio of protection and savings products including whole life, endowment plans, individual term life, group term life, group medical, personal accident, universal life and unit linked contracts through multiple distribution channels primarily in emerging markets, including Egypt, Indonesia, Taiwan, Thailand, Vietnam, the United Arab Emirates, throughout Latin America, selectively in Europe, as well as China through a partially-owned insurance company. ACE Life also includes the newly acquired business of New York Life's Korea operations and Hong Kong operations which expands our presence in the North Asia market and complements our life insurance business established in that region. ACE Life Re helps clients (ceding companies) manage mortality, morbidity, and lapse risks embedded in their books of business. ACE Life Re's core business is a Bermuda-based operation which provides reinsurance to primary life insurers, focusing on guarantees included in certain fixed and variable annuity products and also on more traditional mortality reinsurance protection. ACE Life Re's U.S.-based traditional life reinsurance operation was discontinued for new business in January 2010. Since 2007, ACE Life Re has not quoted on new opportunities in the variable annuity reinsurance marketplace. Combined Insurance distributes specialty individual accident and supplemental health and life insurance products targeted to middle income consumers in the U.S. and Canada.

Corporate and Other (Corporate) includes ACE Limited, ACE Group Management and Holdings Ltd., ACE INA Holdings, Inc., and intercompany eliminations. Losses and loss expenses arise in connection with the commutation of ceded reinsurance contracts that result from a differential between the consideration received from reinsurers and the related reduction of reinsurance recoverable, principally related to the time value of money. Due to our initiatives to reduce reinsurance recoverable balances and thereby encourage such commutations, losses recognized in connection with the commutation of ceded reinsurance contracts are generally not considered when assessing segment performance and, accordingly, are directly allocated to Corporate. ACE also eliminates the impact of intersegment loss portfolio transfer transactions which are not reflected in the results within the statements of operations by segment.

For segment reporting purposes, certain items have been presented in a different manner than in the consolidated financial statements. Management uses underwriting income as the main measure of segment performance. ACE calculates underwriting income by subtracting Losses and loss expenses, Policy benefits, Policy acquisition costs, and Administrative expenses from Net premiums earned. For the Life business, management also includes Net investment income and gains (losses) from separate account assets that do not qualify for separate account reporting as components of underwriting income. For the year ended December 31, 2011, Life underwriting income of $424 million includes net investment income of $224 million and Losses from separate account assets of $36 million.

The following tables present the operations by segment:

Statement of Operations by Segment

For the year ended December 31, 2011

(in millions of U.S. dollars)

Insurance –
North
American

Insurance –
Overseas
General

Global
Reinsurance

Life

Corporate
and Other

ACE
Consolidated

Net premiums written

6,851

5,756

979

1,786

–

15,372

Net premiums earned

6,911

5,737

1,003

1,736

–

15,387

Losses and loss expenses

5,276

3,073

621

549

9,520

Policy benefits

–

401

–

401

Policy acquisition costs

613

1,393

185

255

2,447

Administrative expenses

592

945

295

168

2,052

Underwriting income (loss)

430

326

145

236

(170

)

967

Net investment income

1,170

548

287

224

2,242

Net realized gains (losses) including OTTI

(50

)

(806

)

(795

)

Interest expense

217

250

Other (income) expense:

Losses from separate account assets

–

Other

–

)

Income tax expense (benefit)

394

169

(137

)

506

Net income (loss)

1,220

733

351

(461

)

(258

)

1,585

Statement of Operations by Segment


For the year ended December 31, 2010 (in millions of U.S. dollars)	Insurance – North American			Insurance – Overseas General			Global Reinsurance			Life			Corporate and Other			ACE Consolidated
Net premiums written	$	5,797		$	5,280		$	1,075		$	1,556		$	–		$	13,708
Net premiums earned		5,651			5,240			1,071			1,542			–			13,504
Losses and loss expenses		3,918			2,647			518			496			–			7,579
Policy benefits		–			4			–			353			–			357
Policy acquisition costs		625			1,251			204			257			–			2,337
Administrative expenses		561			840			55			228			174			1,858
Underwriting income (loss)		547			498			294			208			(174	)		1,373
Net investment income		1,138			475			288			172			(3	)		2,070
Net realized gains (losses) including OTTI		417			123			93			(192	)		(9	)		432
Interest expense		9			1			–			3			211			224
Other (income) expense		(22	)		(13	)		(23	)		20			22			(16	)
Income tax expense (benefit)		436			173			42			62			(154	)		559
Net income (loss)	$	1,679		$	935		$	656		$	103		$	(265	)	$	3,108

Statement of Operations by Segment


For the year ended December 31, 2009 (in millions of U.S. dollars)	Insurance – North American		Insurance – Overseas General			Global Reinsurance			Life			Corporate and Other			ACE Consolidated
Net premiums written	$	5,641	$	5,145		$	1,038		$	1,475		$	–		$	13,299
Net premiums earned		5,684		5,147			979			1,430			–			13,240
Losses and loss expenses		4,013		2,597			330			482			–			7,422
Policy benefits		–		4			–			321			–			325
Policy acquisition costs		517		1,202			195			216			–			2,130
Administrative expenses		572		783			55			243			158			1,811
Underwriting income (loss)		582		561			399			168			(158	)		1,552
Net investment income		1,094		479			278			176			4			2,031
Net realized gains (losses) including OTTI		10		(20	)		(17	)		(15	)		(154	)		(196	)
Interest expense		1		–			–			–			224			225
Other (income) expense		36		20			2			2			25			85
Income tax expense (benefit)		384		186			46			48			(136	)		528
Net income (loss)	$	1,265	$	814		$	612		$	279		$	(421	)	$	2,549

Underwriting assets are reviewed in total by management for purpose of decision-making. Other than goodwill, ACE does not allocate assets to its segments.

The following table presents the net premiums earned for each segment by product:


For the year ended December 31, 2011 (in millions of U.S. dollars)	Property & All Other		Casualty		Life, Accident & Health		ACE Consolidated
Insurance – North American	$	3,174	$	3,380	$	357	$	6,911
Insurance – Overseas General		2,080		1,415		2,242		5,737
Global Reinsurance		458		545		–		1,003
Life		–		–		1,736		1,736
	$	5,712	$	5,340	$	4,335	$	15,387

For the year ended December 31, 2010
Insurance – North American	$	1,578	$	3,777	$	296	$	5,651
Insurance – Overseas General		1,800		1,424		2,016		5,240
Global Reinsurance		520		551		–		1,071
Life		–		–		1,542		1,542
	$	3,898	$	5,752	$	3,854	$	13,504

For the year ended December 31, 2009
Insurance – North American	$	1,690	$	3,734	$	260	$	5,684
Insurance – Overseas General		1,787		1,420		1,940		5,147
Global Reinsurance		546		433		–		979
Life		–		–		1,430		1,430
	$	4,023	$	5,587	$	3,630	$	13,240

The following table presents ACE's net premiums earned by geographic region. Allocations have been made on the basis of location of risk:


Year ended	North America		Europe		Asia Pacific/Far East		Latin America
2011		61%		18%		14%		7%
2010		61%		20%		13%		6%
2009		63%		20%		12%		5%