v2.4.0.8

Fair value measurements | 9 Months Ended
--- | ---
Sep. 30, 2014
Fair Value Disclosures [Abstract] |
Fair value measurements | Fair value measurements 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. Accordingly, transfers between levels within the valuation hierarchy occur when there are significant changes to the inputs, such as increases or decreases in market activity, changes to the availability of current prices, changes to the transparency to underlying inputs, and whether there are significant variances in quoted prices. Transfers in and/or out of any level are assumed to occur at the end of the period. 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, 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), which 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 quote from a broker (typically 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. Other investments Fair values for the majority of Other investments including investments in partially-owned investment companies, investment funds, and limited partnerships are based on their respective net asset values or equivalent (NAV). The majority of these investments, for which NAV was used as a practical expedient to measure fair value, are classified within Level 3 because either ACE will never have the contractual option to redeem the investments or will not have the contractual option to redeem the investments in the near term. The remainder of such investments is classified within Level 2. 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 also includes equity securities and fixed maturities held in rabbi trusts maintained by ACE for deferred compensation plans, which are classified within the valuation hierarchy on the same basis as other equity securities and fixed maturities. 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 ACE’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 derivative instruments 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 are based on market valuations and are 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 other derivative instruments including exchange-traded equity futures contracts and option contracts designed to limit exposure to a severe equity market decline, which would cause an increase in expected claims and, therefore, reserves for our guaranteed minimum death benefits (GMDB) and guaranteed living benefits (GLB) reinsurance business. Our position in exchange-traded equity futures contracts is 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 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 ACE. Separate account assets comprise mutual funds classified in the valuation hierarchy on the same basis as other equity securities traded in active markets and are classified within Level 1. 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. Separate account assets are recorded in Other assets in the consolidated balance sheets. Guaranteed living benefits The GLB arises from life reinsurance programs covering living benefit guarantees whereby we assume the risk of guaranteed minimum income benefits (GMIB) and guaranteed minimum accumulation benefits (GMAB) associated with variable annuity contracts. GLB’s are recorded in Accounts payable, accrued expenses, and other liabilities and Future policy benefits in the consolidated balance sheets. For GLB reinsurance, ACE estimates fair value using an internal valuation model which includes current market information and estimates of policyholder behavior. All of the treaties contain claim limits, which are factored into the valuation model. The fair value depends on a number of inputs, including changes in interest rates, changes in equity markets, credit risk, current account value, changes in market volatility, expected annuitization rates, changes in policyholder behavior, and changes in policyholder mortality. The most significant policyholder behavior assumptions include lapse rates and the GMIB annuitization rates. Assumptions regarding lapse rates and GMIB annuitization rates differ by treaty, but the underlying methodologies to determine rates applied to each treaty are comparable. The assumptions regarding lapse and GMIB annuitization rates determined for each treaty are based on a dynamic calculation that uses several underlying factors. A lapse rate is the percentage of in-force policies surrendered in a given calendar year. All else equal, as lapse rates increase, ultimate claim payments will decrease. GMIB annuitization rate is the percentage of policies for which the policyholder will elect to annuitize using the guaranteed benefit provided under the GMIB. All else equal, as GMIB annuitization rates increase, ultimate claim payments will increase, subject to treaty claim limits. The effect of changes in key market factors on assumed lapse and annuitization rates reflect emerging trends using data available from cedants. For treaties with limited experience, rates are established in line with data received from other ceding companies adjusted, as appropriate, with industry estimates. The model and related assumptions are regularly re-evaluated by management and enhanced, as appropriate, based upon additional experience obtained related to policyholder behavior and availability of more information, such as market conditions, market participant assumptions, and demographics of in-force annuities. During the three and nine months ended September 30, 2014, no material changes were made to actuarial or behavioral assumptions. We made minor technical refinements to the model with an unfavorable net income impact of approximately nil and $2 million for the three and nine months ended September 30, 2014, respectively. For detailed information on our lapse and annuitization rate assumptions, refer to Note 4 to the Consolidated Financial Statements of our 2013 Form 10-K. We view the variable annuity reinsurance business as having a similar risk profile to that of catastrophe reinsurance, with the probability of a cumulative long-term economic net loss relatively small at the time of pricing. However, adverse changes in market factors and policyholder behavior will have an adverse impact on net income, which may be material. Because of the significant use of unobservable inputs including policyholder behavior, GLB reinsurance is classified within Level 3. The following tables present, by valuation hierarchy, the financial instruments measured at fair value on a recurring basis:
September 30, 2014 | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
(in millions of U.S. dollars) |  |  |
Assets: |  |  |  |  |  |  |
Fixed maturities available for sale |  |  |  |  |  |  |
U.S. Treasury and agency | $ | 1,490 |  |  | $ | 1,188 |  |  | $ | — |  |  | $ | 2,678 |
Foreign | 202 |  |  | 15,017 |  |  | 12 |  |  | 15,231 |
Corporate securities | — |  |  | 17,130 |  |  | 208 |  |  | 17,338 |
Mortgage-backed securities | — |  |  | 10,309 |  |  | 15 |  |  | 10,324 |
States, municipalities, and political subdivisions | — |  |  | 3,577 |  |  | — |  |  | 3,577 |
| 1,692 |  |  | 47,221 |  |  | 235 |  |  | 49,148 |
Equity securities | 520 |  |  | 24 |  |  | 2 |  |  | 546 |
Short-term investments | 1,253 |  |  | 1,500 |  |  | — |  |  | 2,753 |
Other investments | 336 |  |  | 252 |  |  | 2,671 |  |  | 3,259 |
Securities lending collateral | — |  |  | 1,440 |  |  | — |  |  | 1,440 |
Investment derivative instruments | 23 |  |  | — |  |  | — |  |  | 23 |
Other derivative instruments | 11 |  |  | 2 |  |  | — |  |  | 13 |
Separate account assets | 1,389 |  |  | 90 |  |  | — |  |  | 1,479 |
Total assets measured at fair value | $ | 5,224 |  |  | $ | 50,529 |  |  | $ | 2,908 |  |  | $ | 58,661 |
Liabilities: |  |  |  |  |  |  |
Investment derivative instruments | $ | 5 |  |  | $ | — |  |  | $ | — |  |  | $ | 5 |
Other derivative instruments | — |  |  | 2 |  |  | — |  |  | 2 |
GLB(1) | — |  |  | — |  |  | 317 |  |  | 317 |
Total liabilities measured at fair value | $ | 5 |  |  | $ | 2 |  |  | $ | 317 |  |  | $ | 324 |
(1) | Our GLB reinsurance product meets the definition of a derivative instrument for accounting purposes and is accordingly carried at fair value. Excluded from the table above is the portion of the GLB derivative liability classified as Future policy benefits in the consolidated balance sheets. Refer to Note 5 for additional information.
December 31, 2013 | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
(in millions of U.S. dollars) |  |  |
Assets: |  |  |  |  |  |  |
Fixed maturities available for sale |  |  |  |  |  |  |
U.S. Treasury and agency | $ | 1,626 |  |  | $ | 1,323 |  |  | $ | — |  |  | $ | 2,949 |
Foreign | 223 |  |  | 14,324 |  |  | 44 |  |  | 14,591 |
Corporate securities | — |  |  | 17,304 |  |  | 166 |  |  | 17,470 |
Mortgage-backed securities | — |  |  | 10,886 |  |  | 8 |  |  | 10,894 |
States, municipalities, and political subdivisions | — |  |  | 3,350 |  |  | — |  |  | 3,350 |
| 1,849 |  |  | 47,187 |  |  | 218 |  |  | 49,254 |
Equity securities | 373 |  |  | 460 |  |  | 4 |  |  | 837 |
Short-term investments | 953 |  |  | 803 |  |  | 7 |  |  | 1,763 |
Other investments | 305 |  |  | 231 |  |  | 2,440 |  |  | 2,976 |
Securities lending collateral | — |  |  | 1,632 |  |  | — |  |  | 1,632 |
Investment derivative instruments | 19 |  |  | — |  |  | — |  |  | 19 |
Other derivative instruments | — |  |  | 6 |  |  | — |  |  | 6 |
Separate account assets | 1,145 |  |  | 81 |  |  | — |  |  | 1,226 |
Total assets measured at fair value | $ | 4,644 |  |  | $ | 50,400 |  |  | $ | 2,669 |  |  | $ | 57,713 |
Liabilities: |  |  |  |  |  |  |
Investment derivative instruments | $ | 6 |  |  | $ | — |  |  | $ | — |  |  | $ | 6 |
Other derivative instruments | 60 |  |  | 2 |  |  | — |  |  | 62 |
GLB(1) | — |  |  | — |  |  | 193 |  |  | 193 |
Total liabilities measured at fair value | $ | 66 |  |  | $ | 2 |  |  | $ | 193 |  |  | $ | 261 |
(1) | Our GLB reinsurance product meets the definition of a derivative instrument for accounting purposes and is accordingly carried at fair value. Excluded from the table above is the portion of the GLB derivative liability classified as Future policy benefits in the consolidated balance sheets. Refer to Note 5 for additional information.
The following table presents transfers of financial instruments between Level 1 and Level 2:
| Three Months Ended |  |  | Nine Months Ended |
| September 30 |  |  | September 30 |
(in millions of U.S. dollars) | 2014 |  |  | 2013 |  |  | 2014 |  |  | 2013 |
Transfers from Level 1 to Level 2 | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 19 |
Transfers from Level 2 to Level 1 | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Fair value of alternative investments Included in Other investments in the fair value hierarchy are investment funds, limited partnerships, and partially-owned investment companies measured at fair value using NAV as a practical expedient. At September 30, 2014 and December 31, 2013, there were no probable or pending sales related to any of the investments measured at fair value using NAV. The following table presents, by investment category, the expected liquidation period, fair value, and maximum future funding commitments of alternative investments:
|  |  |  |  | September 30 |  |  |  |  | December 31 |
| Expected Liquidation Period of Underlying Assets |  |  |  | 2014 |  |  |  |  | 2013 |
(in millions of U.S. dollars) | Fair Value |  |  | Maximum Future Funding Commitments |  |  | Fair Value |  |  | Maximum Future Funding Commitments |
Financial | 5 to 9 Years |  | $ | 266 |  |  | $ | 127 |  |  | $ | 256 |  |  | $ | 129 |
Real estate | 3 to 9 Years |  | 304 |  |  | 43 |  |  | 322 |  |  | 92 |
Distressed | 6 to 9 Years |  | 289 |  |  | 132 |  |  | 180 |  |  | 230 |
Mezzanine | 6 to 9 Years |  | 300 |  |  | 213 |  |  | 276 |  |  | 252 |
Traditional | 3 to 8 Years |  | 960 |  |  | 388 |  |  | 813 |  |  | 456 |
Vintage | 1 to 3 Years |  | 10 |  |  | — |  |  | 13 |  |  | — |
Investment funds | Not Applicable |  | 384 |  |  | — |  |  | 428 |  |  | — |
|  |  | $ | 2,513 |  |  | $ | 903 |  |  | $ | 2,288 |  |  | $ | 1,159 |
Included in all categories in the above table except for Investment funds are investments for which ACE will never have the contractual option to redeem but receives distributions based on the liquidation of the underlying assets. Further, for all categories except for Investment funds, ACE does not have the ability to sell or transfer the investments without the consent from the general partner of individual funds.
Investment Category |  | Consists of investments in private equity funds:
Financial |  | targeting financial services companies such as financial institutions and insurance services worldwide
Real estate |  | targeting global distress opportunities, value added U.S. properties, and global mezzanine debt securities in the commercial real estate market
Distressed |  | targeting distressed debt/credit and equity opportunities in the U.S.
Mezzanine |  | targeting private mezzanine debt of large-cap and mid-cap companies in the U.S. and worldwide
Traditional |  | employing traditional private equity investment strategies such as buyout and venture with different geographical focuses including Brazil, Asia, Europe, and the U.S.
Vintage |  | made before 2002 and where the funds’ commitment periods had already expired
Investment funds ACE’s investment funds employ various investment strategies such as long/short equity and arbitrage/distressed. Included in this category are investments for which ACE has the option to redeem at agreed upon value as described in each investment fund’s subscription agreement. Depending on the terms of the various subscription agreements, investment fund investments may be redeemed monthly, quarterly, semi-annually, or annually. If ACE wishes to redeem an investment fund investment, it must first determine if the investment fund is still in a lock-up period (a time when ACE cannot redeem its investment so that the investment fund manager has time to build the portfolio). If the investment fund is no longer in its lock-up period, ACE must then notify the investment fund manager of its intention to redeem by the notification date prescribed by the subscription agreement. Subsequent to notification, the investment fund can redeem ACE’s investment within several months of the notification. Notice periods for redemption of the investment funds range between 5 and 120 days. ACE can redeem its investment funds without consent from the investment fund managers. Level 3 financial instruments The fair values of assets and liabilities measured at fair value using significant unobservable inputs (Level 3) consist of various inputs and assumptions that management makes when determining fair value. Management analyzes changes in fair value measurements classified within Level 3 by comparing pricing and returns of our investments to benchmarks, including month-over-month movements, investment credit spreads, interest rate movements, and credit quality of securities. The following table presents the significant unobservable inputs used in the Level 3 liability valuations. Excluded from the table below are inputs used to determine the fair value of Level 3 assets which are based on single broker quotes or net asset value and contain no quantitative unobservable inputs developed by management.
(in millions of U.S. dollars, except for percentages) | Fair Value |  | Valuation Technique |  | Significant Unobservable Inputs |  | Ranges
September 30, 2014 |  |  | December 31, 2013 |  |  |  |
GLB(1) | $ | 317 |  |  | $ | 193 |  |  | Actuarial model |  | Lapse rate |  | 1% – 30%
|  |  |  |  |  |  | Annuitization rate |  | 0% – 55%
(1) | Discussion of the most significant inputs used in the fair value measurement of GLB and the sensitivity of those assumptions is included within Note 4 a) Guaranteed living benefits.
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):
| Assets |  |  | Liabilities |
Three Months Ended | Available-for-Sale Debt Securities |  |  | Equity securities |  |  | Other investments |  |  | GLB(1) |
September 30, 2014 | Foreign |  |  | Corporate securities |  |  | MBS |  |  |
(in millions of U.S. dollars) |  |  |  |
Balance–Beginning of Period | $ | 12 |  |  | $ | 204 |  |  | $ | 7 |  |  | $ | 2 |  |  | $ | 2,640 |  |  | $ | 241 |
Transfers into Level 3 | 1 |  |  | 5 |  |  | — |  |  | — |  |  | — |  |  | — |
Transfers out of Level 3 | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Change in Net Unrealized Gains (Losses) included in OCI | — |  |  | (1 | ) |  | — |  |  | — |  |  | (8 | ) |  | — |
Net Realized Gains/Losses | — |  |  | 2 |  |  | — |  |  | — |  |  | — |  |  | 76 |
Purchases | — |  |  | 20 |  |  | 8 |  |  | — |  |  | 170 |  |  | — |
Sales | (1 | ) |  | (9 | ) |  | — |  |  | — |  |  | (3 | ) |  | — |
Settlements | — |  |  | (13 | ) |  | — |  |  | — |  |  | (128 | ) |  | — |
Balance–End of Period | $ | 12 |  |  | $ | 208 |  |  | $ | 15 |  |  | $ | 2 |  |  | $ | 2,671 |  |  | $ | 317 |
Net Realized Gains/Losses Attributable to Changes in Fair Value at the Balance Sheet Date | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 76 |
(1) | Our GLB reinsurance product meets the definition of a derivative instrument for accounting purposes and is accordingly carried at fair value. Excluded from the table above is the portion of the GLB derivative liability classified as Future policy benefits in the consolidated balance sheets. Refer to Note 5 for additional information.
| Assets |  |  | Liabilities |
Three Months Ended | Available-for-Sale Debt Securities |  |  | Equity securities |  |  | Short-term investments |  |  | Other investments |  |  | GLB(1) |
September 30, 2013 | Foreign |  |  | Corporate securities |  |  | MBS |  |  |  |  |
(in millions of U.S. dollars) |  |  |  |  |  |
Balance–Beginning of Period | $ | 48 |  |  | $ | 114 |  |  | $ | 9 |  |  | $ | 4 |  |  | $ | 9 |  |  | $ | 2,349 |  |  | $ | 652 |
Transfers into Level 3 | 1 |  |  | 12 |  |  | — |  |  | — |  |  | 1 |  |  | — |  |  | — |
Transfers out of Level 3 | (8 | ) |  | (1 | ) |  | — |  |  | — |  |  | (2 | ) |  | — |  |  | — |
Change in Net Unrealized Gains (Losses) included in OCI | 2 |  |  | (1 | ) |  | — |  |  | — |  |  | — |  |  | (1 | ) |  | — |
Net Realized Gains/Losses | — |  |  | (1 | ) |  | — |  |  | — |  |  | — |  |  | — |  |  | (138 | )
Purchases | 12 |  |  | 6 |  |  | — |  |  | — |  |  | — |  |  | 138 |  |  | — |
Sales | (13 | ) |  | (4 | ) |  | — |  |  | — |  |  | — |  |  | (1 | ) |  | — |
Settlements | — |  |  | (4 | ) |  | — |  |  | — |  |  | — |  |  | (96 | ) |  | — |
Balance–End of Period | $ | 42 |  |  | $ | 121 |  |  | $ | 9 |  |  | $ | 4 |  |  | $ | 8 |  |  | $ | 2,389 |  |  | $ | 514 |
Net Realized Gains/Losses Attributable to Changes in Fair Value at the Balance Sheet Date | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | (138 | )
(1) | Our GLB reinsurance product meets the definition of a derivative instrument for accounting purposes and is accordingly carried at fair value. Excluded from the table above is the portion of the GLB derivative liability classified as Future policy benefits in the consolidated balance sheets. The liability for GLB reinsurance was $746 million at September 30, 2013, and $880 million at June 30, 2013, which includes a fair value derivative adjustment of $514 million and $652 million, respectively.
| Assets |  |  | Liabilities |
Nine Months Ended | Available-for-Sale Debt Securities |  |  | Equity securities |  |  | Short-term investments |  |  | Other investments |  |  | GLB(1) |
September 30, 2014 | Foreign |  |  | Corporate securities |  |  | MBS |  |  |
(in millions of U.S. dollars) |  |  |  |
Balance–Beginning of Period | $ | 44 |  |  | $ | 166 |  |  | $ | 8 |  |  | $ | 4 |  |  | $ | 7 |  |  | $ | 2,440 |  |  | $ | 193 |
Transfers into Level 3 | 3 |  |  | 35 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Transfers out of Level 3 | (34 | ) |  | (22 | ) |  | — |  |  | (2 | ) |  | (7 | ) |  | — |  |  | — |
Change in Net Unrealized Gains (Losses) included in OCI | (1 | ) |  | 1 |  |  | — |  |  | 1 |  |  | — |  |  | 40 |  |  | — |
Net Realized Gains/Losses | 1 |  |  | 2 |  |  | — |  |  | — |  |  | — |  |  | (3 | ) |  | 124 |
Purchases | 2 |  |  | 65 |  |  | 8 |  |  | 1 |  |  | — |  |  | 522 |  |  | — |
Sales | (3 | ) |  | (17 | ) |  | — |  |  | (2 | ) |  | — |  |  | (6 | ) |  | — |
Settlements | — |  |  | (22 | ) |  | (1 | ) |  | — |  |  | — |  |  | (322 | ) |  | — |
Balance–End of Period | $ | 12 |  |  | $ | 208 |  |  | $ | 15 |  |  | $ | 2 |  |  | $ | — |  |  | $ | 2,671 |  |  | $ | 317 |
Net Realized Gains/Losses Attributable to Changes in Fair Value at the Balance Sheet Date | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | (3 | ) |  | $ | 124 |
(1) | Our GLB reinsurance product meets the definition of a derivative instrument for accounting purposes and is accordingly carried at fair value. Excluded from the table above is the portion of the GLB derivative liability classified as Future policy benefits in the consolidated balance sheets. Refer to Note 5 for additional information.
| Assets |  |  | Liabilities |
Nine Months Ended | Available-for-Sale Debt Securities |  |  | Equity securities |  |  | Short-term investments |  | Other investments |  |  | GLB(1) |
September 30, 2013 | Foreign |  |  | Corporate securities |  |  | MBS |  |  |  |
(in millions of U.S. dollars) |  |  |  |  |
Balance–Beginning of Period | $ | 60 |  |  | $ | 102 |  |  | $ | 13 |  |  | $ | 3 |  |  | $ | — |  | $ | 2,252 |  |  | $ | 1,119 |
Transfers into Level 3 | 33 |  |  | 29 |  |  | — |  |  | 7 |  |  | 8 |  | — |  |  | — |
Transfers out of Level 3 | (49 | ) |  | (30 | ) |  | — |  |  | (1 | ) |  | (2 | ) | — |  |  | — |
Change in Net Unrealized Gains (Losses) included in OCI | (2 | ) |  | (1 | ) |  | — |  |  | (5 | ) |  | — |  | 34 |  |  | — |
Net Realized Gains/Losses | 1 |  |  | (2 | ) |  | — |  |  | 4 |  |  | — |  | (2 | ) |  | (605 | )
Purchases | 15 |  |  | 39 |  |  | — |  |  | 1 |  |  | 2 |  | 387 |  |  | — |
Sales | (15 | ) |  | (4 | ) |  | (3 | ) |  | (5 | ) |  | — |  | (10 | ) |  | — |
Settlements | (1 | ) |  | (12 | ) |  | (1 | ) |  | — |  |  | — |  | (272 | ) |  | — |
Balance–End of Period | $ | 42 |  |  | $ | 121 |  |  | $ | 9 |  |  | $ | 4 |  |  | $ | 8 |  | $ | 2,389 |  |  | $ | 514 |
Net Realized Gains/Losses Attributable to Changes in Fair Value at the Balance Sheet Date | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  | $ | (2 | ) |  | $ | (605 | )
(1) | Our GLB reinsurance product meets the definition of a derivative instrument for accounting purposes and is accordingly carried at fair value. Excluded from the table above is the portion of the GLB derivative liability classified as Future policy benefits in the consolidated balance sheets. The liability for GLB reinsurance was $746 million at September 30, 2013, and $1.4 billion at December 31, 2012, which includes a fair value derivative adjustment of $514 million and $1.1 billion, respectively.
b) Financial instruments disclosed, but not measured, at fair value ACE 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. Investments in partially-owned insurance companies Fair values for investments in partially-owned insurance companies are based on ACE’s share of the net assets based on the financial statements provided by those companies. Short- and long-term debt and trust preferred securities Where practical, fair values for short-term debt, long-term debt, and trust preferred securities are estimated using discounted cash flow calculations based principally on observable inputs including incremental borrowing rates, which reflect ACE’s credit rating, for similar types of borrowings with maturities consistent with those remaining for the debt being valued. The following tables present fair value, by valuation hierarchy, and carrying value of the financial instruments not measured at fair value:
September 30, 2014 | Fair Value |  |  | Carrying Value |
(in millions of U.S. dollars) | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |  |
Assets: |  |  |  |  |  |  |  |  |
Fixed maturities held to maturity |  |  |  |  |  |  |  |  |
U.S. Treasury and agency | $ | 625 |  |  | $ | 192 |  |  | $ | — |  |  | $ | 817 |  |  | $ | 804 |
Foreign | — |  |  | 978 |  |  | — |  |  | 978 |  |  | 937 |
Corporate securities | — |  |  | 2,510 |  |  | 15 |  |  | 2,525 |  |  | 2,443 |
Mortgage-backed securities | — |  |  | 2,130 |  |  | — |  |  | 2,130 |  |  | 2,087 |
States, municipalities, and political subdivisions | — |  |  | 1,313 |  |  | — |  |  | 1,313 |  |  | 1,277 |
| 625 |  |  | 7,123 |  |  | 15 |  |  | 7,763 |  |  | 7,548 |
Partially-owned insurance companies | — |  |  | — |  |  | 495 |  |  | 495 |  |  | 495 |
Total assets | $ | 625 |  |  | $ | 7,123 |  |  | $ | 510 |  |  | $ | 8,258 |  |  | $ | 8,043 |
Liabilities: |  |  |  |  |  |  |  |  |
Short-term debt | $ | — |  |  | $ | 1,864 |  |  | $ | — |  |  | $ | 1,864 |  |  | $ | 1,851 |
Long-term debt | — |  |  | 4,349 |  |  | — |  |  | 4,349 |  |  | 4,057 |
Trust preferred securities | — |  |  | 459 |  |  | — |  |  | 459 |  |  | 309 |
Total liabilities | $ | — |  |  | $ | 6,672 |  |  | $ | — |  |  | $ | 6,672 |  |  | $ | 6,217 |
December 31, 2013 | Fair Value |  |  | Carrying Value |
(in millions of U.S. dollars) | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |  |
Assets: |  |  |  |  |  |  |  |  |
Fixed maturities held to maturity |  |  |  |  |  |  |  |  |
U.S. Treasury and agency | $ | 596 |  |  | $ | 236 |  |  | $ | — |  |  | $ | 832 |  |  | $ | 820 |
Foreign | — |  |  | 897 |  |  | — |  |  | 897 |  |  | 864 |
Corporate securities | — |  |  | 1,990 |  |  | 15 |  |  | 2,005 |  |  | 1,922 |
Mortgage-backed securities | — |  |  | 1,379 |  |  | — |  |  | 1,379 |  |  | 1,341 |
States, municipalities, and political subdivisions | — |  |  | 1,150 |  |  | — |  |  | 1,150 |  |  | 1,151 |
| 596 |  |  | 5,652 |  |  | 15 |  |  | 6,263 |  |  | 6,098 |
Partially-owned insurance companies | — |  |  | — |  |  | 470 |  |  | 470 |  |  | 470 |
Total assets | $ | 596 |  |  | $ | 5,652 |  |  | $ | 485 |  |  | $ | 6,733 |  |  | $ | 6,568 |
Liabilities: |  |  |  |  |  |  |  |  |
Short-term debt | $ | — |  |  | $ | 1,913 |  |  | $ | — |  |  | $ | 1,913 |  |  | $ | 1,901 |
Long-term debt | — |  |  | 4,088 |  |  | — |  |  | 4,088 |  |  | 3,807 |
Trust preferred securities | — |  |  | 438 |  |  | — |  |  | 438 |  |  | 309 |
Total liabilities | $ | — |  |  | $ | 6,439 |  |  | $ | — |  |  | $ | 6,439 |  |  | $ | 6,017 |

X
- Details
Name: | us-gaap_FairValueDisclosuresAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- 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. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=35750535&loc=d3e13537-108611 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 10 -URI http://asc.fasb.org/extlink&oid=35750535&loc=d3e13433-108611 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 28 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14064-108612 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=36462937&loc=d3e19207-110258 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 30 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14172-108612 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 16 -URI http://asc.fasb.org/extlink&oid=35750535&loc=d3e13504-108611 + Details
Name: | us-gaap_FairValueDisclosuresTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration