Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2015
OR

¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from to
Commission File No. 1-11778

ACE LIMITED
(Exact name of registrant as specified in its charter)

Switzerland | 98-0091805
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.)

Baerengasse 32
Zurich, Switzerland CH-8001
(Address of principal executive offices) (Zip Code)
+41 (0)43 456 76 00
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES þ NO ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
YES þ NO ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer þ |  |  |  |  |  | Accelerated filer ¨
Non-accelerated filer ¨ | (Do not check if a smaller reporting company) | Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES ¨ NO þ
The number of registrant’s Common Shares (CHF 24.15 par value) outstanding as of July 20, 2015 was 323,805,010.

Table of Contents
ACE LIMITED
INDEX TO FORM 10-Q

|  |  | Page
Part I. | FINANCIAL INFORMATION |
Item 1. | Financial Statements: |
| Consolidated Balance Sheets (Unaudited) June 30, 2015 and December 31, 2014 | 3
| Consolidated Statements of Operations and Comprehensive Income (Unaudited) Three and Six Months Ended June 30, 2015 and 2014 | 4
| Consolidated Statements of Shareholders' Equity (Unaudited) Six Months Ended June 30, 2015 and 2014 | 5
| Consolidated Statements of Cash Flows (Unaudited) Six Months Ended June 30, 2015 and 2014 | 6
| Notes to Consolidated Financial Statements (Unaudited) |
| Note 1. | General | 7
| Note 2. | Acquisitions | 7
| Note 3. | Investments | 8
| Note 4. | Fair value measurements | 14
| Note 5. | Assumed life reinsurance programs involving minimum benefit guarantees under variable annuity contracts | 24
| Note 6. | Debt | 24
| Note 7. | Commitments, contingencies, and guarantees | 24
| Note 8. | Shareholders’ equity | 29
| Note 9. | Share-based compensation | 30
| Note 10. | Segment information | 30
| Note 11. | Earnings per share | 34
| Note 12. | Information provided in connection with outstanding debt of subsidiaries | 34
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 41
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 76
Item 4. | Controls and Procedures | 79
Part II. | OTHER INFORMATION |
Item 1. | Legal Proceedings | 79
Item 1A. | Risk Factors | 79
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds and Issuer Repurchases of Equity Securities | 81
Item 6. | Exhibits | 81

2

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PART I FINANCIAL INFORMATION

ITEM 1. Financial Statements

CONSOLIDATED BALANCE SHEETS (Unaudited)
ACE Limited and Subsidiaries

| June 30 |  |  | December 31 |
(in millions of U.S. dollars, except share and per share data) | 2015 |  |  | 2014 |
Assets |  |  |
Investments |  |  |
Fixed maturities available for sale, at fair value (amortized cost – $47,599 and $47,826) | $ | 48,701 |  |  | $ | 49,395 |
(includes hybrid financial instruments of $282 and $274)
Fixed maturities held to maturity, at amortized cost (fair value – $8,805 and $7,589) | 8,676 |  |  | 7,331 |
Equity securities, at fair value (cost – $433 and $440) | 498 |  |  | 510 |
Short-term investments, at fair value and amortized cost | 2,062 |  |  | 2,322 |
Other investments (cost – $2,989 and $2,999) | 3,328 |  |  | 3,346 |
Total investments | 63,265 |  |  | 62,904 |
Cash | 790 |  |  | 655 |
Securities lending collateral | 1,080 |  |  | 1,330 |
Accrued investment income | 534 |  |  | 552 |
Insurance and reinsurance balances receivable | 5,757 |  |  | 5,426 |
Reinsurance recoverable on losses and loss expenses | 11,775 |  |  | 11,992 |
Reinsurance recoverable on policy benefits | 203 |  |  | 217 |
Deferred policy acquisition costs | 2,806 |  |  | 2,601 |
Value of business acquired | 434 |  |  | 466 |
Goodwill and other intangible assets | 5,969 |  |  | 5,724 |
Prepaid reinsurance premiums | 2,238 |  |  | 2,026 |
Deferred tax assets | 285 |  |  | 295 |
Investments in partially-owned insurance companies | 638 |  |  | 504 |
Other assets | 4,066 |  |  | 3,556 |
Total assets | $ | 99,840 |  |  | $ | 98,248 |
Liabilities |  |  |
Unpaid losses and loss expenses | $ | 38,230 |  |  | $ | 38,315 |
Unearned premiums | 8,879 |  |  | 8,222 |
Future policy benefits | 4,835 |  |  | 4,754 |
Insurance and reinsurance balances payable | 4,602 |  |  | 4,095 |
Securities lending payable | 1,081 |  |  | 1,331 |
Accounts payable, accrued expenses, and other liabilities | 6,090 |  |  | 5,726 |
Short-term debt | 2,102 |  |  | 2,552 |
Long-term debt | 4,157 |  |  | 3,357 |
Trust preferred securities | 309 |  |  | 309 |
Total liabilities | 70,285 |  |  | 68,661 |
Commitments and contingencies |  |  |
Shareholders’ equity |  |  |
Common Shares (CHF 24.15 and CHF 24.77 par value; 342,832,412 shares issued; 323,814,281 and 328,659,686 shares outstanding) | 7,833 |  |  | 8,055 |
Common Shares in treasury (19,018,131 and 14,172,726 shares) | (1,999 | ) |  | (1,448 | )
Additional paid-in capital | 4,847 |  |  | 5,145 |
Retained earnings | 18,267 |  |  | 16,644 |
Accumulated other comprehensive income (AOCI) | 607 |  |  | 1,191 |
Total shareholders’ equity | 29,555 |  |  | 29,587 |
Total liabilities and shareholders’ equity | $ | 99,840 |  |  | $ | 98,248 |

See accompanying notes to the consolidated financial statements
3

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CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (Unaudited)
ACE Limited and Subsidiaries

| Three Months Ended |  |  | Six Months Ended |
| June 30 |  |  | June 30 |
(in millions of U.S. dollars, except per share data) | 2015 |  |  | 2014 |  |  | 2015 |  |  | 2014 |
Revenues |  |  |  |  |  |  |
Net premiums written | $ | 4,784 |  |  | $ | 4,559 |  |  | $ | 8,860 |  |  | $ | 8,744 |
Increase in unearned premiums | (424 | ) |  | (227 | ) |  | (573 | ) |  | (442 | )
Net premiums earned | 4,360 |  |  | 4,332 |  |  | 8,287 |  |  | 8,302 |
Net investment income | 562 |  |  | 556 |  |  | 1,113 |  |  | 1,109 |
Net realized gains (losses): |  |  |  |  |  |  |
Other-than-temporary impairment (OTTI) losses gross | (14 | ) |  | (13 | ) |  | (27 | ) |  | (25 | )
Portion of OTTI losses recognized in other comprehensive income (OCI) | 6 |  |  | 1 |  |  | 6 |  |  | 2 |
Net OTTI losses recognized in income | (8 | ) |  | (12 | ) |  | (21 | ) |  | (23 | )
Net realized gains (losses) excluding OTTI losses | 134 |  |  | (61 | ) |  | 58 |  |  | (154 | )
Total net realized gains (losses) (includes $34, $21, $31, and $27 reclassified from AOCI) | 126 |  |  | (73 | ) |  | 37 |  |  | (177 | )
Total revenues | 5,048 |  |  | 4,815 |  |  | 9,437 |  |  | 9,234 |
Expenses |  |  |  |  |  |  |
Losses and loss expenses | 2,417 |  |  | 2,388 |  |  | 4,539 |  |  | 4,549 |
Policy benefits | 153 |  |  | 144 |  |  | 295 |  |  | 258 |
Policy acquisition costs | 727 |  |  | 758 |  |  | 1,434 |  |  | 1,486 |
Administrative expenses | 578 |  |  | 566 |  |  | 1,132 |  |  | 1,101 |
Interest expense | 71 |  |  | 72 |  |  | 139 |  |  | 143 |
Other (income) expense | 17 |  |  | (25 | ) |  | 12 |  |  | (42 | )
Total expenses | 3,963 |  |  | 3,903 |  |  | 7,551 |  |  | 7,495 |
Income before income tax | 1,085 |  |  | 912 |  |  | 1,886 |  |  | 1,739 |
Income tax expense (includes $10, $5, $14, and $2 on reclassified unrealized gains) | 143 |  |  | 133 |  |  | 263 |  |  | 226 |
Net income | $ | 942 |  |  | $ | 779 |  |  | $ | 1,623 |  |  | $ | 1,513 |
Other comprehensive income (loss) |  |  |  |  |  |  |
Unrealized appreciation (depreciation) | $ | (816 | ) |  | $ | 589 |  |  | $ | (375 | ) |  | $ | 1,108 |
Reclassification adjustment for net realized gains included in net income | (34 | ) |  | (21 | ) |  | (31 | ) |  | (27 | )
| (850 | ) |  | 568 |  |  | (406 | ) |  | 1,081 |
Change in: |  |  |  |  |  |  |
Cumulative translation adjustment | 136 |  |  | 153 |  |  | (285 | ) |  | 120 |
Pension liability | (6 | ) |  | (5 | ) |  | 7 |  |  | (13 | )
Other comprehensive income (loss), before income tax | (720 | ) |  | 716 |  |  | (684 | ) |  | 1,188 |
Income tax (expense) benefit related to OCI items | 175 |  |  | (147 | ) |  | 100 |  |  | (245 | )
Other comprehensive income (loss) | (545 | ) |  | 569 |  |  | (584 | ) |  | 943 |
Comprehensive income | $ | 397 |  |  | $ | 1,348 |  |  | $ | 1,039 |  |  | $ | 2,456 |
Earnings per share |  |  |  |  |  |  |
Basic earnings per share | $ | 2.89 |  |  | $ | 2.30 |  |  | $ | 4.97 |  |  | $ | 4.47 |
Diluted earnings per share | $ | 2.86 |  |  | $ | 2.28 |  |  | $ | 4.91 |  |  | $ | 4.43 |

See accompanying notes to the consolidated financial statements
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CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)
ACE Limited and Subsidiaries

| Six Months Ended |
| June 30 |
(in millions of U.S. dollars) | 2015 |  |  | 2014 |
Common Shares |  |  |
Balance – beginning of period | $ | 8,055 |  |  | $ | 8,899 |
Dividends declared on Common Shares – par value reduction | (222 | ) |  | (398 | )
Balance – end of period | 7,833 |  |  | 8,501 |
Common Shares in treasury |  |  |
Balance – beginning of period | (1,448 | ) |  | (255 | )
Common Shares repurchased | (734 | ) |  | (569 | )
Net shares redeemed under employee share-based compensation plans | 183 |  |  | 194 |
Balance – end of period | (1,999 | ) |  | (630 | )
Additional paid-in capital |  |  |
Balance – beginning of period | 5,145 |  |  | 5,238 |
Net shares redeemed under employee share-based compensation plans | (163 | ) |  | (169 | )
Exercise of stock options | (29 | ) |  | (33 | )
Share-based compensation expense and other | 111 |  |  | 100 |
Funding of dividends declared to Retained earnings | (217 | ) |  | (81 | )
Balance – end of period | 4,847 |  |  | 5,055 |
Retained earnings |  |  |
Balance – beginning of period | 16,644 |  |  | 13,791 |
Net income | 1,623 |  |  | 1,513 |
Funding of dividends declared from Additional paid-in capital | 217 |  |  | 81 |
Dividends declared on Common Shares | (217 | ) |  | (81 | )
Balance – end of period | 18,267 |  |  | 15,304 |
Accumulated other comprehensive income |  |  |
Net unrealized appreciation on investments |  |  |
Balance – beginning of period | 1,851 |  |  | 1,174 |
Change in period, before reclassification from AOCI, net of income tax benefit (expense) of $81 and $(210) | (294 | ) |  | 898 |
Amounts reclassified from AOCI, net of income tax benefit of $14 and $2 | (17 | ) |  | (25 | )
Change in period, net of income tax benefit (expense) of $95 and $(208) | (311 | ) |  | 873 |
Balance – end of period | 1,540 |  |  | 2,047 |
Cumulative translation adjustment |  |  |
Balance – beginning of period | (581 | ) |  | 63 |
Change in period, net of income tax benefit (expense) of $7 and $(42) | (278 | ) |  | 78 |
Balance – end of period | (859 | ) |  | 141 |
Pension liability adjustment |  |  |
Balance – beginning of period | (79 | ) |  | (85 | )
Change in period, net of income tax benefit (expense) of $(2) and $5 | 5 |  |  | (8 | )
Balance – end of period | (74 | ) |  | (93 | )
Accumulated other comprehensive income | 607 |  |  | 2,095 |
Total shareholders’ equity | $ | 29,555 |  |  | $ | 30,325 |

See accompanying notes to the consolidated financial statements
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CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
ACE Limited and Subsidiaries

| Six Months Ended |
| June 30 |
(in millions of U.S. dollars) | 2015 |  |  | 2014 |
Cash flows from operating activities |  |  |
Net income | $ | 1,623 |  |  | $ | 1,513 |
Adjustments to reconcile net income to net cash flows from operating activities |  |  |
Net realized (gains) losses | (37 | ) |  | 177 |
Amortization of premiums/discounts on fixed maturities | 71 |  |  | 115 |
Deferred income taxes | 108 |  |  | 117 |
Unpaid losses and loss expenses | (87 | ) |  | (493 | )
Unearned premiums | 420 |  |  | 594 |
Future policy benefits | 114 |  |  | 139 |
Insurance and reinsurance balances payable | 532 |  |  | 142 |
Accounts payable, accrued expenses, and other liabilities | 48 |  |  | 37 |
Income taxes payable | (120 | ) |  | (56 | )
Insurance and reinsurance balances receivable | (332 | ) |  | (244 | )
Reinsurance recoverable on losses and loss expenses | 55 |  |  | 546 |
Reinsurance recoverable on policy benefits | 16 |  |  | (14 | )
Deferred policy acquisition costs | (236 | ) |  | (228 | )
Prepaid reinsurance premiums | (261 | ) |  | (171 | )
Other | (23 | ) |  | (78 | )
Net cash flows from operating activities | 1,891 |  |  | 2,096 |
Cash flows from investing activities |  |  |
Purchases of fixed maturities available for sale | (9,179 | ) |  | (7,960 | )
Purchases of to be announced mortgage-backed securities | (31 | ) |  | — |
Purchases of fixed maturities held to maturity | (24 | ) |  | (129 | )
Purchases of equity securities | (70 | ) |  | (64 | )
Sales of fixed maturities available for sale | 3,611 |  |  | 3,842 |
Sales of to be announced mortgage-backed securities | 31 |  |  | — |
Sales of equity securities | 102 |  |  | 45 |
Maturities and redemptions of fixed maturities available for sale | 3,691 |  |  | 3,163 |
Maturities and redemptions of fixed maturities held to maturity | 470 |  |  | 414 |
Net change in short-term investments | 228 |  |  | (295 | )
Net derivative instruments settlements | (33 | ) |  | (185 | )
Acquisition of subsidiaries (net of cash acquired of $620 and $4) | 255 |  |  | (172 | )
Other | (71 | ) |  | (118 | )
Net cash flows used for investing activities | (1,020 | ) |  | (1,459 | )
Cash flows from financing activities |  |  |
Dividends paid on Common Shares | (427 | ) |  | (428 | )
Common Shares repurchased | (750 | ) |  | (557 | )
Proceeds from issuance of long-term debt | 800 |  |  | 699 |
Proceeds from issuance of short-term debt | 1,327 |  |  | 977 |
Repayment of long-term debt | (450 | ) |  | (500 | )
Repayment of short-term debt | (1,327 | ) |  | (977 | )
Proceeds from share-based compensation plans, including windfall tax benefits | 46 |  |  | 75 |
Policyholder contract deposits | 235 |  |  | 125 |
Policyholder contract withdrawals | (107 | ) |  | (33 | )
Other | (6 | ) |  | (6 | )
Net cash flows used for financing activities | (659 | ) |  | (625 | )
Effect of foreign currency rate changes on cash and cash equivalents | (77 | ) |  | 3 |
Net increase in cash | 135 |  |  | 15 |
Cash – beginning of period | 655 |  |  | 579 |
Cash – end of period | $ | 790 |  |  | $ | 594 |
Supplemental cash flow information |  |  |
Taxes paid | $ | 263 |  |  | $ | 148 |
Interest paid | $ | 127 |  |  | $ | 134 |

See accompanying notes to the consolidated financial statements
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
ACE Limited and Subsidiaries
1. General
a) Basis of presentation
ACE Limited is a holding company incorporated in Zurich, Switzerland. ACE Limited, through its subsidiaries, provides a broad range of insurance and reinsurance products to insureds worldwide. ACE operates through five business segments: Insurance – North American P&C, Insurance – North American Agriculture, Insurance – Overseas General, Global Reinsurance, and Life. Refer to Note 10 for additional information.
The interim unaudited consolidated financial statements, which include the accounts of ACE Limited and its subsidiaries (collectively, ACE, we, us, or our), have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) and, in the opinion of management, reflect all adjustments (consisting of normally recurring accruals) necessary for a fair statement of the results and financial position for such periods. All significant intercompany accounts and transactions, including internal reinsurance transactions, have been eliminated.
The results of operations and cash flows for any interim period are not necessarily indicative of the results for the full year. These consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in our 2014 Form 10-K.
b) Accounting guidance not yet adopted
Presentation of Debt Issuance Costs
In April 2015, the Financial Accounting Standards Board issued new guidance related to the accounting for debt issuance costs. The new guidance requires presentation of debt issuance costs in the balance sheet as a deduction from the carrying amount of the related debt liability instead of a deferred charge. The new guidance requires retrospective adoption and is effective for interim and annual reporting periods beginning after December 15, 2015, with early adoption permitted. The adoption of this guidance will not have any effect on our results of operations and financial condition.
2. Acquisitions
Fireman's Fund Insurance Company High Net Worth Personal Lines Insurance Business in the U.S. (Fireman's Fund)
On April 1, 2015, we acquired the Fireman's Fund Insurance Company high net worth personal lines insurance business in the U.S., which included the renewal rights for new and existing business and reinsurance of all existing reserves for $365 million in cash. We acquired assets with a fair value of $749 million, consisting primarily of cash of $620 million and insurance and reinsurance balances receivable of $128 million. We assumed liabilities with a fair value of $858 million, consisting primarily of unpaid losses and loss expenses of $402 million and unearned premiums of $428 million. This acquisition generated $208 million of goodwill, attributable to expected growth and profitability, all of which is expected to be deductible for income tax purposes, and other intangible assets of $266 million, primarily related to renewal rights, based on ACE’s preliminary purchase price allocation. The acquisition expands our position in the high net worth personal lines insurers in the U.S. The Fireman’s Fund business integrates into our existing high net worth personal lines business, ACE Private Risk Services, which offers a broad range of coverage including homeowners, automobile, umbrella and excess liability, collectibles and yachts. Goodwill and other intangible assets arising from this acquisition are included in our Insurance – North American P&C segment.
Large Corporate Account P&C Insurance Business of Itaú Seguros, S.A. (Itaú Seguros)
On October 31, 2014, we expanded our presence in Brazil with the acquisition of the large corporate account property and casualty (P&C) insurance business of Itaú Seguros, Brazil's leading carrier for that business, for $610 million in cash, subject to a working capital adjustment under the purchase agreement expected to be finalized in the third quarter of 2015. This acquisition generated $449 million of goodwill, attributable to expected growth and profitability, none of which is currently deductible for income tax purposes, and other intangible a s sets of $60 million, primarily related to renewal rights, based on ACE’s preliminary purchase price allocation. Goodwill may become deductible for income tax purposes under Brazilian tax law if this acquired entity is merged with certain ACE legal entities.
The Siam Commercial Samaggi Insurance PCL (Samaggi)
We and our local partner acquired 60.86 percent of Samaggi, a general insurance company in Thailand, from Siam Commercial Bank on April 28, 2014, and subsequently acquired an additional 32.17 percent ownership, through a mandatory tender offer, which expired on June 17, 2014. The purchase price for 93.03 percent of the company was $176 million in cash. This acquisition expands our presence in Thailand and Southeast Asia.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited)
ACE Limited and Subsidiaries
The acquisition generated $46 million of goodwill, attributable to expected growth and profitability, none of which is expected to be deductible for income tax purposes, and other intangible assets of $80 million based on ACE’s purchase price allocation. The other intangible assets primarily relate to a bancassurance agreement.
Goodwill and other intangible assets arising from the acquisitions of Itaú Seguros and Samaggi are included in our Insurance – Overseas General segment.
The consolidated financial statements include results of acquired businesses from the acquisition dates.
To be acquired
The Chubb Corporation (Chubb)
On June 30, 2015, we entered into a definitive agreement to acquire Chubb, a leading provider of middle-market commercial, specialty, surety, and personal insurance. Under the terms of the merger agreement, when the transaction closes Chubb will be merged with a newly-formed subsidiary of ACE and Chubb shareholders will receive for each share of Chubb stock an aggregate $62.93 in cash and 0.6019 shares of ACE stock. Based on the closing price of ACE stock on June 30, 2015 of $101.68 per share, the purchase price would be approximately $28.3 billion in cash and newly issued stock, and the former Chubb shareholders would own approximately 137 million shares, or 30 percent, of the combined company's outstanding shares.
The merger agreement provides that following the close of the transaction (i) the acquired businesses will continue to operate under the Chubb names as they do now; (ii) we will change the name of ACE Limited to assume the Chubb name at our parent company level, and (iii) the combined company will transition to operate under the Chubb name globally.
We intend to finance the cash portion of the transaction through a combination of $9 billion sourced from various ACE and Chubb companies plus $5.3 billion of senior notes with a range of maturities to be determined. The transaction is expected to close during the first quarter of 2016, subject to approval by ACE and Chubb shareholders, the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and insurance and other antitrust regulatory approvals.
3. Investments
a) Transfers of securities
During April 2015, we transferred securities, considered essential holdings in a diversified portfolio, with a total fair value of $1.9 billion from Fixed maturities available for sale to Fixed maturities held to maturity. These securities, which we have the intent and ability to hold to maturity, were transferred given the growth in ACE’s investment portfolio over the last several years, as well as continued efforts to manage the diversification of our global portfolio. The net unrealized appreciation at the date of the transfer continues to be reported in the carrying value of the transferred investments and is amortized through OCI over the remaining life of the securities using the effective interest method in a manner consistent with the amortization of any premium or discount. This transfer represents a non-cash transaction and does not impact the consolidated statements of cash flows.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited)
ACE Limited and Subsidiaries
b) Fixed maturities

June 30, 2015 | 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 | $ | 2,743 |  |  | $ | 67 |  |  | $ | (5 | ) |  | $ | 2,805 |  |  | $ | — |
Foreign | 14,739 |  |  | 529 |  |  | (112 | ) |  | 15,156 |  |  | (5 | )
Corporate securities | 16,515 |  |  | 534 |  |  | (171 | ) |  | 16,878 |  |  | (6 | )
Mortgage-backed securities | 10,607 |  |  | 237 |  |  | (60 | ) |  | 10,784 |  |  | (1 | )
States, municipalities, and political subdivisions | 2,995 |  |  | 97 |  |  | (14 | ) |  | 3,078 |  |  | — |
| $ | 47,599 |  |  | $ | 1,464 |  |  | $ | (362 | ) |  | $ | 48,701 |  |  | $ | (12 | )
Held to maturity |  |  |  |  |  |  |  |  |
U.S. Treasury and agency | $ | 743 |  |  | $ | 16 |  |  | $ | (1 | ) |  | $ | 758 |  |  | $ | — |
Foreign | 808 |  |  | 39 |  |  | (4 | ) |  | 843 |  |  | — |
Corporate securities | 3,113 |  |  | 72 |  |  | (56 | ) |  | 3,129 |  |  | — |
Mortgage-backed securities | 1,828 |  |  | 50 |  |  | (1 | ) |  | 1,877 |  |  | — |
States, municipalities, and political subdivisions | 2,184 |  |  | 32 |  |  | (18 | ) |  | 2,198 |  |  | — |
| $ | 8,676 |  |  | $ | 209 |  |  | $ | (80 | ) |  | $ | 8,805 |  |  | $ | — |

December 31, 2014 | 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 | $ | 2,741 |  |  | $ | 87 |  |  | $ | (8 | ) |  | $ | 2,820 |  |  | $ | — |
Foreign | 14,703 |  |  | 629 |  |  | (90 | ) |  | 15,242 |  |  | — |
Corporate securities | 16,897 |  |  | 704 |  |  | (170 | ) |  | 17,431 |  |  | (7 | )
Mortgage-backed securities | 10,011 |  |  | 304 |  |  | (29 | ) |  | 10,286 |  |  | (1 | )
States, municipalities, and political subdivisions | 3,474 |  |  | 147 |  |  | (5 | ) |  | 3,616 |  |  | — |
| $ | 47,826 |  |  | $ | 1,871 |  |  | $ | (302 | ) |  | $ | 49,395 |  |  | $ | (8 | )
Held to maturity |  |  |  |  |  |  |  |  |
U.S. Treasury and agency | $ | 832 |  |  | $ | 20 |  |  | $ | (2 | ) |  | $ | 850 |  |  | $ | — |
Foreign | 916 |  |  | 47 |  |  | — |  |  | 963 |  |  | — |
Corporate securities | 2,323 |  |  | 102 |  |  | (2 | ) |  | 2,423 |  |  | — |
Mortgage-backed securities | 1,983 |  |  | 57 |  |  | (1 | ) |  | 2,039 |  |  | — |
States, municipalities, and political subdivisions | 1,277 |  |  | 40 |  |  | (3 | ) |  | 1,314 |  |  | — |
| $ | 7,331 |  |  | $ | 266 |  |  | $ | (8 | ) |  | $ | 7,589 |  |  | $ | — |

As discussed in Note 3 e), if a credit loss is incurred 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 are the cumulative amounts 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, 2015, nil and $4 million, respectively, of net unrealized appreciation related to such securities is included in OCI. For the three and six months ended June 30, 2014, $1 million and $5 million, respectively, of net unrealized appreciation related to such securities is included in OCI. At June 30, 2015 and December 31, 2014, AOCI included
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ACE Limited and Subsidiaries
cumulative net unrealized depreciation of $7 million and $3 million, respectively, related to securities remaining in the investment portfolio for which ACE has recognized a non-credit OTTI.
Mortgage-backed securities (MBS) issued by U.S. government agencies are combined with all other to be announced mortgage derivatives held (refer to Note 7 c) (iv)) and are included in the category, “Mortgage-backed securities”. Approximately 80 percent and 83 percent of the total mortgage-backed securities at June 30, 2015 and December 31, 2014, respectively, are represented by investments in U.S. government agency bonds. The remainder of the mortgage exposure consists of collateralized mortgage obligations and non-government 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:

|  |  | June 30 |  |  |  |  | December 31 |
|  |  | 2015 |  |  |  |  | 2014 |
(in millions of U.S. dollars) | Amortized Cost |  |  | Fair Value |  |  | Amortized Cost |  |  | Fair Value |
Available for sale |  |  |  |  |  |  |
Due in 1 year or less | $ | 1,906 |  |  | $ | 1,925 |  |  | $ | 2,187 |  |  | $ | 2,206 |
Due after 1 year through 5 years | 16,377 |  |  | 16,808 |  |  | 15,444 |  |  | 15,857 |
Due after 5 years through 10 years | 14,321 |  |  | 14,549 |  |  | 15,663 |  |  | 16,089 |
Due after 10 years | 4,388 |  |  | 4,635 |  |  | 4,521 |  |  | 4,957 |
| 36,992 |  |  | 37,917 |  |  | 37,815 |  |  | 39,109 |
Mortgage-backed securities | 10,607 |  |  | 10,784 |  |  | 10,011 |  |  | 10,286 |
| $ | 47,599 |  |  | $ | 48,701 |  |  | $ | 47,826 |  |  | $ | 49,395 |
Held to maturity |  |  |  |  |  |  |
Due in 1 year or less | $ | 377 |  |  | $ | 381 |  |  | $ | 353 |  |  | $ | 355 |
Due after 1 year through 5 years | 2,589 |  |  | 2,685 |  |  | 2,603 |  |  | 2,693 |
Due after 5 years through 10 years | 2,351 |  |  | 2,351 |  |  | 1,439 |  |  | 1,489 |
Due after 10 years | 1,531 |  |  | 1,511 |  |  | 953 |  |  | 1,013 |
| 6,848 |  |  | 6,928 |  |  | 5,348 |  |  | 5,550 |
Mortgage-backed securities | 1,828 |  |  | 1,877 |  |  | 1,983 |  |  | 2,039 |
| $ | 8,676 |  |  | $ | 8,805 |  |  | $ | 7,331 |  |  | $ | 7,589 |

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.
c) Equity securities

| June 30 |  |  | December 31 |
(in millions of U.S. dollars) | 2015 |  |  | 2014 |
Cost | $ | 433 |  |  | $ | 440 |
Gross unrealized appreciation | 77 |  |  | 83 |
Gross unrealized depreciation | (12 | ) |  | (13 | )
Fair value | $ | 498 |  |  | $ | 510 |

d) Investments in partially-owned insurance companies
On March 27, 2015 and April 14, 2015, we paid $70 million and $20 million, respectively, to acquire 11.3 percent of the common equity of ABR Reinsurance Capital Holdings Ltd. and warrants to acquire 0.5 percent of additional equity. ABR Reinsurance Capital Holdings Ltd., is the parent company of ABR Reinsurance Ltd. (ABR Re), an independent reinsurance company. Through long-term arrangements, ACE will be the sole source of reinsurance risks ceded to ABR Re, and BlackRock, Inc. will be ABR Re’s exclusive investment management service provider. As an investor, ACE is expected to benefit from underwriting profit generated by ABR Re’s reinsuring a wide range of ACE’s primary insurance business and the income and
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ACE Limited and Subsidiaries
capital appreciation BlackRock, Inc. seeks to deliver through its investment management services. In addition, ACE’s long-term arrangements with BlackRock, Inc. include a fee sharing arrangement in which ACE and BlackRock, Inc. will be entitled to an equal share of the aggregate amount of certain fees, including underwriting and investment management performance related fees.
ABR Re is a variable interest entity; however, ACE is not the primary beneficiary and does not consolidate ABR Re because ACE does not have the power to control and direct ABR Re’s most significant activities, including investing and underwriting. Our minority ownership interest is accounted for under the equity method of accounting. ACE cedes premiums to ABR Re and recognizes the associated commissions. For both the three and six months ended June 30, 2015, ACE ceded reinsurance premiums of $35 million and recognized ceded commissions of $11 million. At June 30, 2015, the amount of Reinsurance recoverable on losses and loss expenses was $5 million and the amount of ceded reinsurance premium payable included in Insurance and reinsurance balances payable in the consolidated balance sheet was $18 million.
e) Net realized gains (losses)
In accordance with guidance related to the recognition and presentation of OTTI, when an impairment 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 incurred, 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.
For all non-fixed maturities, OTTI is evaluated based on the following:

• | the amount of time a security has been in a loss position and the magnitude of the loss position;

• | the period in which cost is expected to be recovered, if at all, based on various criteria including economic conditions and other issuer-specific developments; and

• | ACE’s ability and intent to hold the security to the expected recovery period.

As a general rule, we also consider that equity securities in an unrealized loss position for twelve consecutive months are other than temporarily impaired. For mutual funds included in equity securities in our consolidated balance sheet, we employ analysis similar to fixed maturities, when applicable.
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. ACE developed projected cash flows for corporate securities using market observable data, issuer-specific information, and credit ratings. We use 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. Consistent with management's approach, ACE assumed a 32 percent recovery rate (the par value of a defaulted security that will be recovered) across all rating categories rather than using Moody's historical mean recovery rate of 42 percent. We believe that use of a default assumption in excess of the historical mean is conservative in light of current market conditions.
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ACE Limited and Subsidiaries
For the three and six months ended June 30, 2015, credit losses recognized in Net income for corporate securities were $5 million and $9 million, respectively. For the three and six months ended June 30, 2014 credit losses recognized in Net income for corporate securities were $6 million and $10 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.
For the three and six months ended June 30, 2015 and 2014, there were no credit losses recognized in Net income for mortgage-backed securities.
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 us to conclude the decline in fair value of certain investments was “other-than-temporary”:

| Three Months Ended |  | Six Months Ended |
| June 30 |  | June 30 |
(in millions of U.S. dollars) | 2015 |  |  | 2014 |  | 2015 |  |  | 2014 |
Fixed maturities: |  |  |  |  |  |
OTTI on fixed maturities, gross | $ | (13 | ) |  | $ | (9 | ) | $ | (26 | ) |  | $ | (15 | )
OTTI on fixed maturities recognized in OCI (pre-tax) | 6 |  |  | 1 |  | 6 |  |  | 2 |
OTTI on fixed maturities, net | (7 | ) |  | (8 | ) | (20 | ) |  | (13 | )
Gross realized gains excluding OTTI | 28 |  |  | 54 |  | 72 |  |  | 90 |
Gross realized losses excluding OTTI | (16 | ) |  | (26 | ) | (51 | ) |  | (46 | )
Total fixed maturities | 5 |  |  | 20 |  | 1 |  |  | 31 |
Equity securities: |  |  |  |  |  |
OTTI on equity securities | (1 | ) |  | (1 | ) | (1 | ) |  | (7 | )
Gross realized gains excluding OTTI | 30 |  |  | 2 |  | 33 |  |  | 4 |
Gross realized losses excluding OTTI | — |  |  | — |  | (2 | ) |  | (1 | )
Total equity securities | 29 |  |  | 1 |  | 30 |  |  | (4 | )
OTTI on other investments | — |  |  | (3 | ) | — |  |  | (3 | )
Foreign exchange losses | (40 | ) |  | (14 | ) | (71 | ) |  | (23 | )
Investment and embedded derivative instruments | 27 |  |  | (15 | ) | 28 |  |  | (40 | )
Fair value adjustments on insurance derivative | 104 |  |  | 2 |  | 59 |  |  | (46 | )
S&P put options and futures | (2 | ) |  | (72 | ) | (14 | ) |  | (91 | )
Other derivative instruments | (1 | ) |  | 9 |  | (1 | ) |  | 7 |
Other | 4 |  |  | (1 | ) | 5 |  |  | (8 | )
Net realized gains (losses) | $ | 126 |  |  | $ | (73 | ) | $ | 37 |  |  | $ | (177 | )

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ACE Limited and Subsidiaries
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 |
(in millions of U.S. dollars) | 2015 |  |  | 2014 |  | 2015 |  |  | 2014 |
Balance of credit losses related to securities still held – beginning of period | $ | 22 |  |  | $ | 35 |  | $ | 28 |  |  | $ | 37 |
Additions where no OTTI was previously recorded | 4 |  |  | 5 |  | 7 |  |  | 7 |
Additions where an OTTI was previously recorded | 1 |  |  | 1 |  | 2 |  |  | 3 |
Reductions for securities sold during the period | (4 | ) |  | (17 | ) | (14 | ) |  | (23 | )
Balance of credit losses related to securities still held – end of period | $ | 23 |  |  | $ | 24 |  | $ | 23 |  |  | $ | 24 |

f) Gross unrealized loss
At June 30, 2015, there were 7,253 fixed maturities out of a total of 26,933 fixed maturities in an unrealized loss position. The largest single unrealized loss in the fixed maturities was $5 million. There were 99 equity securities out of a total of 271 equity securities in an unrealized loss position. The largest single unrealized loss in the equity securities was $1 million. Fixed maturities in an unrealized loss position at June 30, 2015, 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 |
June 30, 2015 | Fair Value |  |  | Gross Unrealized Loss |  |  | Fair Value |  |  | Gross Unrealized Loss |  |  | Fair Value |  |  | Gross Unrealized Loss |
(in millions of U.S. dollars) |  |  |  |  |
U.S. Treasury and agency | $ | 693 |  |  | $ | (5 | ) |  | $ | 137 |  |  | $ | (1 | ) |  | $ | 830 |  |  | $ | (6 | )
Foreign | 3,867 |  |  | (104 | ) |  | 273 |  |  | (12 | ) |  | 4,140 |  |  | (116 | )
Corporate securities | 6,361 |  |  | (195 | ) |  | 520 |  |  | (32 | ) |  | 6,881 |  |  | (227 | )
Mortgage-backed securities | 3,430 |  |  | (46 | ) |  | 495 |  |  | (15 | ) |  | 3,925 |  |  | (61 | )
States, municipalities, and political subdivisions | 2,215 |  |  | (30 | ) |  | 87 |  |  | (2 | ) |  | 2,302 |  |  | (32 | )
Total fixed maturities | 16,566 |  |  | (380 | ) |  | 1,512 |  |  | (62 | ) |  | 18,078 |  |  | (442 | )
Equity securities | 80 |  |  | (12 | ) |  | — |  |  | — |  |  | 80 |  |  | (12 | )
Other investments | 33 |  |  | (2 | ) |  | — |  |  | — |  |  | 33 |  |  | (2 | )
Total | $ | 16,679 |  |  | $ | (394 | ) |  | $ | 1,512 |  |  | $ | (62 | ) |  | $ | 18,191 |  |  | $ | (456 | )

| 0 – 12 Months |  |  | Over 12 Months |  |  | Total |
December 31, 2014 | Fair Value |  |  | Gross Unrealized Loss |  |  | Fair Value |  |  | Gross Unrealized Loss |  |  | Fair Value |  |  | Gross Unrealized Loss |
(in millions of U.S. dollars) |  |  |  |  |
U.S. Treasury and agency | $ | 350 |  |  | $ | (1 | ) |  | $ | 666 |  |  | $ | (9 | ) |  | $ | 1,016 |  |  | $ | (10 | )
Foreign | 2,262 |  |  | (75 | ) |  | 375 |  |  | (15 | ) |  | 2,637 |  |  | (90 | )
Corporate securities | 4,684 |  |  | (150 | ) |  | 738 |  |  | (22 | ) |  | 5,422 |  |  | (172 | )
Mortgage-backed securities | 704 |  |  | (2 | ) |  | 1,663 |  |  | (28 | ) |  | 2,367 |  |  | (30 | )
States, municipalities, and political subdivisions | 458 |  |  | (3 | ) |  | 490 |  |  | (5 | ) |  | 948 |  |  | (8 | )
Total fixed maturities | 8,458 |  |  | (231 | ) |  | 3,932 |  |  | (79 | ) |  | 12,390 |  |  | (310 | )
Equity securities | 101 |  |  | (13 | ) |  | — |  |  | — |  |  | 101 |  |  | (13 | )
Total | $ | 8,559 |  |  | $ | (244 | ) |  | $ | 3,932 |  |  | $ | (79 | ) |  | $ | 12,491 |  |  | $ | (323 | )

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ACE Limited and Subsidiaries
g) Restricted assets
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. ACE is also required to restrict assets pledged under repurchase agreements, which represent ACE's agreement to sell securities and repurchase them at a future date for a predetermined price. 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 LOC and derivative transactions. Included in restricted assets at June 30, 2015 and December 31, 2014, are investments, primarily fixed maturities, totaling $16.5 billion and $16.3 billion, respectively, and cash of $80 million and $117 million, respectively.
The following table presents the components of restricted assets:

| June 30 |  |  | December 31 |
(in millions of U.S. dollars) | 2015 |  |  | 2014 |
Trust funds | $ | 11,085 |  |  | $ | 10,838 |
Deposits with non-U.S. regulatory authorities | 2,263 |  |  | 2,305 |
Assets pledged under repurchase agreements | 1,458 |  |  | 1,431 |
Deposits with U.S. regulatory authorities | 1,327 |  |  | 1,345 |
Other pledged assets | 398 |  |  | 457 |
| $ | 16,531 |  |  | $ | 16,376 |

4. 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.
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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 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.
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 include 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.
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ACE Limited and Subsidiaries
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, an increase in 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 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 ACE. Separate account assets 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. 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 factors, including interest rates, equity markets, credit risk, current account value, market volatility, expected annuitization rates, and other 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.
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 updated information such as market conditions, market participant assumptions, and demographics of in-force annuities. Because of the significant use of unobservable inputs including policyholder behavior, GLB reinsurance is classified within Level 3. For the three and six months ended June 30, 2015 and 2014, no material technical refinements were made to the model. For detailed information on our lapse and annuitization rate assumptions, refer to Note 4 to the Consolidated Financial Statements of our 2014 Form 10-K.
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ACE Limited and Subsidiaries
Financial instruments measured at fair value on a recurring basis, by valuation hierarchy

June 30, 2015 | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
(in millions of U.S. dollars) |  |  |
Assets: |  |  |  |  |  |  |
Fixed maturities available for sale |  |  |  |  |  |  |
U.S. Treasury and agency | $ | 1,741 |  |  | $ | 1,064 |  |  | $ | — |  |  | $ | 2,805 |
Foreign | — |  |  | 15,100 |  |  | 56 |  |  | 15,156 |
Corporate securities | — |  |  | 16,711 |  |  | 167 |  |  | 16,878 |
Mortgage-backed securities | — |  |  | 10,729 |  |  | 55 |  |  | 10,784 |
States, municipalities, and political subdivisions | — |  |  | 3,078 |  |  | — |  |  | 3,078 |
| 1,741 |  |  | 46,682 |  |  | 278 |  |  | 48,701 |
Equity securities | 483 |  |  | 13 |  |  | 2 |  |  | 498 |
Short-term investments | 1,108 |  |  | 954 |  |  | — |  |  | 2,062 |
Other investments | 370 |  |  | 279 |  |  | 2,679 |  |  | 3,328 |
Securities lending collateral | — |  |  | 1,080 |  |  | — |  |  | 1,080 |
Investment derivative instruments | 16 |  |  | — |  |  | — |  |  | 16 |
Other derivative instruments | 23 |  |  | — |  |  | — |  |  | 23 |
Separate account assets | 1,567 |  |  | 84 |  |  | — |  |  | 1,651 |
Total assets measured at fair value | $ | 5,308 |  |  | $ | 49,092 |  |  | $ | 2,959 |  |  | $ | 57,359 |
Liabilities: |  |  |  |  |  |  |
Investment derivative instruments | $ | 15 |  |  | $ | — |  |  | $ | — |  |  | $ | 15 |
Other derivative instruments | — |  |  | — |  |  | 3 |  |  | 3 |
GLB(1) | — |  |  | — |  |  | 347 |  |  | 347 |
Total liabilities measured at fair value | $ | 15 |  |  | $ | — |  |  | $ | 350 |  |  | $ | 365 |

(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 liability classified as Future policy benefits in the consolidated balance sheets. Refer to Note 5 for additional information.

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ACE Limited and Subsidiaries

December 31, 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 | $ | 1,680 |  |  | $ | 1,140 |  |  | $ | — |  |  | $ | 2,820 |
Foreign | — |  |  | 15,220 |  |  | 22 |  |  | 15,242 |
Corporate securities | — |  |  | 17,244 |  |  | 187 |  |  | 17,431 |
Mortgage-backed securities | — |  |  | 10,271 |  |  | 15 |  |  | 10,286 |
States, municipalities, and political subdivisions | — |  |  | 3,616 |  |  | — |  |  | 3,616 |
| 1,680 |  |  | 47,491 |  |  | 224 |  |  | 49,395 |
Equity securities | 492 |  |  | 16 |  |  | 2 |  |  | 510 |
Short-term investments | 1,183 |  |  | 1,139 |  |  | — |  |  | 2,322 |
Other investments | 370 |  |  | 257 |  |  | 2,719 |  |  | 3,346 |
Securities lending collateral | — |  |  | 1,330 |  |  | — |  |  | 1,330 |
Investment derivative instruments | 18 |  |  | — |  |  | — |  |  | 18 |
Other derivative instruments | — |  |  | 2 |  |  | — |  |  | 2 |
Separate account assets | 1,400 |  |  | 90 |  |  | — |  |  | 1,490 |
Total assets measured at fair value | $ | 5,143 |  |  | $ | 50,325 |  |  | $ | 2,945 |  |  | $ | 58,413 |
Liabilities: |  |  |  |  |  |  |
Investment derivative instruments | $ | 36 |  |  | $ | — |  |  | $ | — |  |  | $ | 36 |
Other derivative instruments | 21 |  |  | — |  |  | 4 |  |  | 25 |
GLB(1) | — |  |  | — |  |  | 406 |  |  | 406 |
Total liabilities measured at fair value | $ | 57 |  |  | $ | — |  |  | $ | 410 |  |  | $ | 467 |

(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 liability classified as Future policy benefits in the consolidated balance sheets. Refer to Note 5 for additional information.

There were no transfers between Level 1 and Level 2 for the three and six months ended June 30, 2015 and 2014.
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.
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ACE Limited and Subsidiaries
The following table presents, by investment category, the expected liquidation period, fair value, and maximum future funding commitments of alternative investments:

|  |  |  |  | June 30 |  |  |  |  | December 31 |
| Expected Liquidation Period of Underlying Assets |  |  |  | 2015 |  |  |  |  | 2014 |
(in millions of U.S. dollars) | Fair Value |  |  | Maximum Future Funding Commitments |  |  | Fair Value |  |  | Maximum Future Funding Commitments |
Financial | 5 to 9 Years |  | $ | 306 |  |  | $ | 124 |  |  | $ | 282 |  |  | $ | 145 |
Real Assets | 3 to 7 Years |  | 460 |  |  | 177 |  |  | 451 |  |  | 210 |
Distressed | 5 to 9 Years |  | 242 |  |  | 252 |  |  | 232 |  |  | 175 |
Private Credit | 3 to 7 Years |  | 291 |  |  | 234 |  |  | 299 |  |  | 190 |
Traditional | 3 to 9 Years |  | 897 |  |  | 224 |  |  | 908 |  |  | 289 |
Vintage | 1 to 2 Years |  | 16 |  |  | — |  |  | 11 |  |  | 1 |
Investment funds | Not Applicable |  | 306 |  |  | — |  |  | 378 |  |  | — |
|  |  | $ | 2,518 |  |  | $ | 1,011 |  |  | $ | 2,561 |  |  | $ | 1,010 |

In 2015, we redefined and regrouped certain alternative investment categories to better align with our management approach. The prior year amounts have been reclassified to conform to the current year presentation. 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 Assets |  | targeting investments related to hard physical assets such as real estate, infrastructure and natural resources
Distressed |  | targeting distressed corporate debt/credit and equity opportunities in the U.S.
Private Credit |  | targeting privately originated corporate debt investments including senior secured loans and subordinated bonds
Traditional |  | employing traditional private equity investment strategies such as buyout and growth equity globally
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.
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ACE Limited and Subsidiaries
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
June 30, 2015 |  |  | December 31, 2014 |  |  |  |
GLB(1) | $ | 347 |  |  | $ | 406 |  |  | 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 |  |  | Other derivative instruments |  | GLB(1) |
June 30, 2015 | Foreign |  |  | Corporate securities |  |  | MBS |  |  |
(in millions of U.S. dollars) |  |  |  |
Balance–Beginning of Period | $ | 22 |  |  | $ | 167 |  |  | $ | 33 |  |  | $ | 2 |  | $ | 2,789 |  |  | $ | 4 |  | $ | 451 |
Transfers into Level 3 | 28 |  |  | 12 |  |  | — |  |  | — |  | — |  |  | — |  | — |
Transfers out of Level 3 | — |  |  | — |  |  | — |  |  | — |  | — |  |  | — |  | — |
Change in Net Unrealized Gains (Losses) included in OCI | (2 | ) |  | (3 | ) |  | — |  |  | — |  | 6 |  |  | — |  | — |
Included in earnings: |  |  |  |  |  |  |  |  |  |  |
Net Realized Gains/Losses | — |  |  | — |  |  | — |  |  | (1 | ) | 11 |  |  | (1 | ) | (104 | )
Other income (expense) | — |  |  | — |  |  | — |  |  | — |  | 18 |  |  | — |  | — |
Purchases | 8 |  |  | 8 |  |  | 23 |  |  | 1 |  | 52 |  |  | — |  | — |
Sales | — |  |  | (2 | ) |  | — |  |  | — |  | (25 | ) |  | — |  | — |
Settlements | — |  |  | (15 | ) |  | (1 | ) |  | — |  | (172 | ) |  | — |  | — |
Balance–End of Period | $ | 56 |  |  | $ | 167 |  |  | $ | 55 |  |  | $ | 2 |  | $ | 2,679 |  |  | $ | 3 |  | $ | 347 |
Net Realized Gains/Losses Attributable to Changes in Fair Value at the Balance Sheet Date | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | (1 | ) | $ | — |  |  | $ | (1 | ) | $ | (104 | )

(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 liability classified as Future policy benefits in the consolidated balance sheets. Refer to Note 5 for additional information.

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ACE Limited and Subsidiaries

| Assets |  |  | Liabilities |
Three Months Ended | Available-for-Sale Debt Securities |  |  | Equity securities |  |  | Other investments |  |  | GLB(1) |
June 30, 2014 | Foreign |  |  | Corporate securities |  |  | MBS |  |  |  |
(in millions of U.S. dollars) |  |  |  |  |
Balance–Beginning of Period | $ | 26 |  |  | $ | 151 |  |  | $ | 8 |  |  | $ | 2 |  |  | $ | 2,611 |  |  | $ | 243 |
Transfers into Level 3 | 2 |  |  | 26 |  |  | — |  |  | — |  |  | — |  |  | — |
Transfers out of Level 3 | (16 | ) |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Change in Net Unrealized Gains (Losses) included in OCI | — |  |  | 2 |  |  | — |  |  | — |  |  | 7 |  |  | — |
Included in earnings: |  |  |  |  |  |  |  |  |  |  |
Net Realized Gains/Losses | 1 |  |  | — |  |  | — |  |  | — |  |  | (3 | ) |  | (2 | )
Other income (expense) | — |  |  | — |  |  | — |  |  | — |  |  | 43 |  |  | — |
Purchases | — |  |  | 30 |  |  | — |  |  | — |  |  | 109 |  |  | — |
Sales | (1 | ) |  | (2 | ) |  | — |  |  | — |  |  | (2 | ) |  | — |
Settlements | — |  |  | (3 | ) |  | (1 | ) |  | — |  |  | (125 | ) |  | — |
Balance–End of Period | $ | 12 |  |  | $ | 204 |  |  | $ | 7 |  |  | $ | 2 |  |  | $ | 2,640 |  |  | $ | 241 |
Net Realized Gains/Losses Attributable to Changes in Fair Value at the Balance Sheet Date | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | (3 | ) |  | $ | (2 | )

(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 liability classified as Future policy benefits in the consolidated balance sheets. The liability for GLB reinsurance was $486 million at June 30, 2014, and $483 million at March 31, 2014, which includes a fair value derivative adjustment of $241 million and $243 million, respectively.

|  |  |  |  |  |  |  | Assets |  |  |  | Liabilities |
Six Months Ended | Available-for-Sale Debt Securities |  |  | Equity securities |  | Other investments |  |  | Other derivative instruments |  | GLB(1) |
June 30, 2015 | Foreign |  |  | Corporate securities |  |  | MBS |  |  |
(in millions of U.S. dollars) |  |  |  |
Balance–Beginning of Period | $ | 22 |  |  | $ | 187 |  |  | $ | 15 |  |  | $ | 2 |  | $ | 2,719 |  |  | 4 |  | $ | 406 |
Transfers into Level 3 | 28 |  |  | 13 |  |  | — |  |  | — |  | — |  |  | — |  | — |
Transfers out of Level 3 | — |  |  | — |  |  | — |  |  | — |  | — |  |  | — |  | — |
Change in Net Unrealized Gains (Losses) included in OCI | (2 | ) |  | — |  |  | — |  |  | — |  | (14 | ) |  | — |  | — |
Included in earnings: |  |  |  |  |  |  |  |  |  |  |
Net Realized Gains/Losses | — |  |  | (3 | ) |  | — |  |  | (1 | ) | 11 |  |  | (1 | ) | (59 | )
Other income (expense) | — |  |  | — |  |  | — |  |  | — |  | 40 |  |  | — |  | — |
Purchases | 9 |  |  | 16 |  |  | 41 |  |  | 1 |  | 177 |  |  | — |  | — |
Sales | (1 | ) |  | (5 | ) |  | — |  |  | — |  | (25 | ) |  | — |  | — |
Settlements | — |  |  | (41 | ) |  | (1 | ) |  | — |  | (229 | ) |  | — |  | — |
Balance–End of Period | $ | 56 |  |  | $ | 167 |  |  | $ | 55 |  |  | $ | 2 |  | $ | 2,679 |  |  | $ | 3 |  | $ | 347 |
Net Realized Gains/Losses Attributable to Changes in Fair Value at the Balance Sheet Date | $ | — |  |  | $ | (2 | ) |  | $ | — |  |  | $ | (1 | ) | $ | — |  |  | $ | (1 | ) | $ | (59 | )

(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 liability classified as Future policy benefits in the consolidated balance sheets. Refer to Note 5 for additional information.

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ACE Limited and Subsidiaries

| Assets |  |  | Liabilities |
Six Months Ended | Available-for-Sale Debt Securities |  |  |  |  | Short-term investments |  |  | Other investments |  |  | GLB(1) |
June 30, 2014 | Foreign |  |  | Corporate securities |  |  | MBS |  |  | Equity securities |  |  |  |
(in millions of U.S. dollars) |  |  |  |  |  |
Balance–Beginning of Period | $ | 44 |  |  | $ | 166 |  |  | $ | 8 |  |  | $ | 4 |  |  | $ | 7 |  |  | $ | 2,440 |  |  | $ | 193 |
Transfers into Level 3 | 2 |  |  | 30 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Transfers out of Level 3 | (34 | ) |  | (22 | ) |  | — |  |  | (2 | ) |  | (7 | ) |  | — |  |  | — |
Change in Net Unrealized Gains (Losses) included in OCI | (1 | ) |  | 2 |  |  | — |  |  | 1 |  |  | — |  |  | 48 |  |  | — |
Included in earnings: |  |  |  |  |  |  |  |  |  |  |  |  |
Net Realized Gains/Losses | 1 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (3 | ) |  | 48 |
Other income (expense) | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 104 |  |  | — |
Purchases | 2 |  |  | 45 |  |  | — |  |  | 1 |  |  | — |  |  | 248 |  |  | — |
Sales | (2 | ) |  | (8 | ) |  | — |  |  | (2 | ) |  | — |  |  | (3 | ) |  | — |
Settlements | — |  |  | (9 | ) |  | (1 | ) |  | — |  |  | — |  |  | (194 | ) |  | — |
Balance–End of Period | $ | 12 |  |  | $ | 204 |  |  | $ | 7 |  |  | $ | 2 |  |  | $ | — |  |  | $ | 2,640 |  |  | $ | 241 |
Net Realized Gains/Losses Attributable to Changes in Fair Value at the Balance Sheet Date | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | (3 | ) |  | $ | 48 |

(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 liability classified as Future policy benefits in the consolidated balance sheets. The liability for GLB reinsurance was $486 million at June 30, 2014 and $427 million at December 31, 2013, which includes a fair value derivative adjustment of $241 million and $193 million, 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.
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ACE Limited and Subsidiaries
The following tables present fair value, by valuation hierarchy, and carrying value of the financial instruments not measured at fair value:

June 30, 2015 | 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 | $ | 583 |  |  | $ | 175 |  |  | $ | — |  |  | $ | 758 |  |  | $ | 743 |
Foreign | — |  |  | 843 |  |  | — |  |  | 843 |  |  | 808 |
Corporate securities | — |  |  | 3,115 |  |  | 14 |  |  | 3,129 |  |  | 3,113 |
Mortgage-backed securities | — |  |  | 1,877 |  |  | — |  |  | 1,877 |  |  | 1,828 |
States, municipalities, and political subdivisions | — |  |  | 2,198 |  |  | — |  |  | 2,198 |  |  | 2,184 |
| 583 |  |  | 8,208 |  |  | 14 |  |  | 8,805 |  |  | 8,676 |
Partially-owned insurance companies | — |  |  | — |  |  | 638 |  |  | 638 |  |  | 638 |
Total assets | $ | 583 |  |  | $ | 8,208 |  |  | $ | 652 |  |  | $ | 9,443 |  |  | $ | 9,314 |
Liabilities: |  |  |  |  |  |  |  |  |
Short-term debt | $ | — |  |  | $ | 2,107 |  |  | $ | — |  |  | $ | 2,107 |  |  | $ | 2,102 |
Long-term debt | — |  |  | 4,383 |  |  | — |  |  | 4,383 |  |  | 4,157 |
Trust preferred securities | — |  |  | 457 |  |  | — |  |  | 457 |  |  | 309 |
Total liabilities | $ | — |  |  | $ | 6,947 |  |  | $ | — |  |  | $ | 6,947 |  |  | $ | 6,568 |

December 31, 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 | $ | 659 |  |  | $ | 191 |  |  | $ | — |  |  | $ | 850 |  |  | $ | 832 |
Foreign | — |  |  | 963 |  |  | — |  |  | 963 |  |  | 916 |
Corporate securities | — |  |  | 2,408 |  |  | 15 |  |  | 2,423 |  |  | 2,323 |
Mortgage-backed securities | — |  |  | 2,039 |  |  | — |  |  | 2,039 |  |  | 1,983 |
States, municipalities, and political subdivisions | — |  |  | 1,314 |  |  | — |  |  | 1,314 |  |  | 1,277 |
| 659 |  |  | 6,915 |  |  | 15 |  |  | 7,589 |  |  | 7,331 |
Partially-owned insurance companies | — |  |  | — |  |  | 504 |  |  | 504 |  |  | 504 |
Total assets | $ | 659 |  |  | $ | 6,915 |  |  | $ | 519 |  |  | $ | 8,093 |  |  | $ | 7,835 |
Liabilities: |  |  |  |  |  |  |  |  |
Short-term debt | $ | — |  |  | $ | 2,571 |  |  | $ | — |  |  | $ | 2,571 |  |  | $ | 2,552 |
Long-term debt | — |  |  | 3,690 |  |  | — |  |  | 3,690 |  |  | 3,357 |
Trust preferred securities | — |  |  | 462 |  |  | — |  |  | 462 |  |  | 309 |
Total liabilities | $ | — |  |  | $ | 6,723 |  |  | $ | — |  |  | $ | 6,723 |  |  | $ | 6,218 |

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited)
ACE Limited and Subsidiaries
5. Assumed life reinsurance programs involving minimum benefit guarantees under variable annuity contracts
The following table presents income and expenses relating to GMDB and GLB reinsurance. GLBs include GMIBs as well as some GMABs originating in Japan.

| Three Months Ended |  |  | Six Months Ended |
| June 30 |  |  | June 30 |
(in millions of U.S. dollars) | 2015 |  |  | 2014 |  |  | 2015 |  |  | 2014 |
GMDB |  |  |  |  |  |  |
Net premiums earned | $ | 16 |  |  | $ | 18 |  |  | $ | 32 |  |  | $ | 37 |
Policy benefits and other reserve adjustments | $ | 11 |  |  | $ | 13 |  |  | $ | 20 |  |  | $ | 28 |
GLB |  |  |  |  |  |  |
Net premiums earned | $ | 30 |  |  | $ | 34 |  |  | $ | 62 |  |  | $ | 70 |
Policy benefits and other reserve adjustments | 7 |  |  | 10 |  |  | 19 |  |  | 19 |
Net realized gains (losses) | 104 |  |  | 2 |  |  | 59 |  |  | (48 | )
Gain recognized in Net income | $ | 127 |  |  | $ | 26 |  |  | $ | 102 |  |  | $ | 3 |
Less: Net cash received | 26 |  |  | 29 |  |  | 54 |  |  | 62 |
Net (increase) decrease in liability | $ | 101 |  |  | $ | (3 | ) |  | $ | 48 |  |  | $ | (59 | )

Net realized gains (losses) in the table above include gains (losses) related to foreign exchange and fair value adjustments on insurance derivatives and exclude gains (losses) on S&P put options and futures held to partially offset the risk in the GLB reinsurance portfolio. Refer to Note 7 for additional information.
At June 30, 2015 and December 31, 2014, the reported liability for GMDB reinsurance was $114 million and $111 million, respectively. At June 30, 2015 and December 31, 2014, the reported liability for GLB reinsurance was $615 million and $663 million, respectively, which includes a fair value derivative adjustment of $347 million and $406 million, respectively. Reported liabilities for both GMDB and GLB reinsurance are determined using internal valuation models. Such valuations require considerable judgment and are subject to significant uncertainty. The valuation of these products is subject to fluctuations arising from, among other factors, changes in interest rates, changes in equity markets, changes in credit markets, changes in the allocation of the investments underlying annuitants’ account values, and assumptions regarding future policyholder behavior. These models and the related assumptions are regularly reviewed by management and enhanced, as appropriate, based upon improvements in modeling assumptions and availability of updated information, such as market conditions and demographics of in-force annuities.
6. Debt
In March 2015, ACE INA Holdings Inc. issued $800 million of 3.15 percent senior notes due March 2025. These senior notes are redeemable at any time at ACE INA Holdings Inc.'s option subject to a “make-whole” premium (the present value of the remaining principal and interest discounted at the applicable U.S. Treasury rate plus 0.15 percent). The notes are also redeemable at par plus accrued and unpaid interest in the event of certain changes in tax law. These notes do not have the benefit of any sinking fund. These senior unsecured notes are guaranteed on a senior basis by ACE Limited and they rank equally with all of ACE's other senior obligations. They also contain customary limitations on lien provisions as well as customary events of default provisions which, if breached, could result in the accelerated maturity of such senior debt.
In May 2015, ACE INA Holdings Inc.'s $450 million of 5.6 percent senior notes matured and were fully paid.
7. Commitments, contingencies, and guarantees
a) Derivative instruments
Foreign currency management
As a global company, ACE entities transact business in multiple currencies. Our policy is to generally match assets, liabilities and required capital for each individual jurisdiction in local currency, which would include the use of derivatives discussed below. We do not hedge our net asset non-USD capital positions, however we do consider hedging for planned cross border transactions.
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Derivative instruments employed
ACE maintains positions in derivative instruments such as futures, options, swaps, and foreign currency forward contracts for which the primary purposes are to manage duration and foreign currency exposure, yield enhancement, or to obtain an exposure to a particular financial market. ACE also maintains positions in convertible securities that contain embedded derivatives. Investment derivative instruments are recorded in either Other assets (OA) or Accounts payable, accrued expenses, and other liabilities (AP), convertible bonds are recorded in Fixed maturities available for sale (FM AFS) and convertible equity securities are recorded in Equity securities (ES) in the consolidated balance sheets. These are the most numerous and frequent derivative transactions.
In addition, ACE from time to time purchases to be announced mortgage-backed securities (TBAs) as part of its investing activities.
Under reinsurance programs covering GLBs, ACE assumes the risk of GLBs, including GMIB and GMAB, associated with variable annuity contracts. The GMIB risk is triggered if, at the time the contract holder elects to convert the accumulated account value to a periodic payment stream (annuitize), the accumulated account value is not sufficient to provide a guaranteed minimum level of monthly income. The GMAB risk is triggered if, at contract maturity, the contract holder’s account value is less than a guaranteed minimum value. The GLB reinsurance product meets the definition of a derivative instrument. Benefit reserves in respect of GLBs are classified as Future policy benefits (FPB) while the fair value derivative adjustment is classified within AP. ACE also maintains positions in exchange-traded equity futures contracts and options on equity market indices to limit equity exposure in the GMDB and GLB blocks of business.
All derivative instruments are carried at fair value with changes in fair value recorded in Net realized gains (losses) in the consolidated statements of operations. None of the derivative instruments are designated as hedges for accounting purposes.
The following table presents the balance sheet locations, fair values of derivative instruments in an asset or (liability) position, and notional values/payment provisions of our derivative instruments:

|  |  |  |  | June 30, 2015 |  |  |  |  | December 31, 2014 |
| Consolidated Balance Sheet Location |  | Fair Value |  |  | Notional Value/ Payment Provision |  |  | Fair Value |  |  | Notional Value/ Payment Provision |
(in millions of U.S. dollars) |  | Derivative Asset |  |  | Derivative (Liability) |  |  |  | Derivative Asset |  |  | Derivative (Liability) |  |
Investment and embedded derivative instruments |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency forward contracts | OA / (AP) |  | $ | 6 |  |  | $ | (13 | ) |  | $ | 1,309 |  |  | $ | 12 |  |  | $ | (7 | ) |  | $ | 1,329 |
Cross-currency swaps | OA / (AP) |  | — |  |  | — |  |  | 95 |  |  | — |  |  | — |  |  | 95 |
Futures contracts on money market instruments | OA / (AP) |  | 1 |  |  | (1 | ) |  | 4,355 |  |  | — |  |  | — |  |  | 2,467 |
Options/Futures contracts on notes and bonds | OA / (AP) |  | 9 |  |  | (1 | ) |  | 920 |  |  | 6 |  |  | (29 | ) |  | 1,636 |
Convertible securities(1) | FM AFS / ES |  | 292 |  |  | — |  |  | 277 |  |  | 291 |  |  | — |  |  | 267 |
|  |  | $ | 308 |  |  | $ | (15 | ) |  | $ | 6,956 |  |  | $ | 309 |  |  | $ | (36 | ) |  | $ | 5,794 |
Other derivative instruments |  |  |  |  |  |  |  |  |  |  |  |  |
Futures contracts on equities (2) | OA / (AP) |  | $ | 16 |  |  | $ | — |  |  | $ | 1,286 |  |  | $ | — |  |  | $ | (21 | ) |  | $ | 1,384 |
Options on equity market indices (2) | OA / (AP) |  | — |  |  | — |  |  | 250 |  |  | 2 |  |  | — |  |  | 250 |
Other | OA / (AP) |  | 7 |  |  | (3 | ) |  | 401 |  |  | — |  |  | (4 | ) |  | 10 |
|  |  | $ | 23 |  |  | $ | (3 | ) |  | $ | 1,937 |  |  | $ | 2 |  |  | $ | (25 | ) |  | $ | 1,644 |
GLB(3) | (AP) / (FPB) |  | $ | — |  |  | $ | (615 | ) |  | $ | 786 |  |  | $ | — |  |  | $ | (663 | ) |  | $ | 675 |

(1) | Includes fair value of embedded derivatives.

(2) | Related to GMDB and GLB blocks of business.

(3) | Includes both future policy benefits reserves and fair value derivative adjustment. Refer to Note 5 for additional information. Note that the payment provision related to GLB is the net amount at risk. The concept of a notional value does not apply to the GLB reinsurance contracts.

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At June 30, 2015 and December 31, 2014, derivative liabilities of $19 million and $34 million, respectively, included in the table above were subject to a master netting agreement. The remaining derivatives included in the table above were not subject to a master netting agreement.
b) Secured borrowings
ACE participates in a securities lending program operated by a third-party banking institution whereby certain assets are loaned to qualified borrowers and from which we earn an incremental return. At June 30, 2015 and December 31, 2014, our securities lending collateral was $1,080 million and $1,330 million, respectively, and our securities lending payable, reflecting our obligation to return the collateral plus interest, was $1,081 million and $1,331 million, respectively. At June 30, 2015 the securities lending collateral held by ACE on overnight and continuous securities lending contracts comprised $526 million of Cash, $477 million of Foreign securities, $74 million of U.S. Treasury and agency securities and $3 million of Corporate securities. The carrying value of the securities lending collateral held is $1 million lower than the securities lending payable due to accrued interest recorded in the securities lending payable. The securities lending collateral can only be drawn down by ACE in the event that the institution borrowing the securities is in default under the lending agreement. An indemnification agreement with the lending agent protects us in the event a borrower becomes insolvent or fails to return any of the securities on loan. The collateral is recorded in Securities lending collateral and the liability is recorded in Securities lending payable in the consolidated balance sheets.
At both June 30, 2015 and December 31, 2014, our repurchase agreement obligations of $1,402 million were fully collateralized. In contrast to securities lending programs, the use of cash received is not restricted for the repurchase obligations. The fair value of the underlying securities sold remains in Fixed maturities available for sale and Equity securities and the repurchase agreement obligation is recorded in Short-term debt in the consolidated balance sheets.
The following table presents the carrying value of collateral pledged under repurchase agreements by investment category and maturity date of the underlying agreements:

| Remaining contractual maturity |
June 30, 2015 | 30 - 90 Days |  |  | Greater than 90 Days |  |  | Total |
(in millions of U.S. dollars) |  |
Collateral pledged under repurchase agreements: |  |  |  |  |
Cash | $ | — |  |  | $ | 5 |  |  | $ | 5 |
U.S. Treasury and agency | 62 |  |  | 176 |  |  | 238 |
Mortgage-backed securities | 86 |  |  | 1,129 |  |  | 1,215 |
| $ | 148 |  |  | $ | 1,310 |  |  | $ | 1,458 |
Gross amount of recognized liabilities for repurchase agreements |  |  |  |  | $ | 1,402 |
Difference(1) |  |  |  |  | $ | 56 |

(1) | Per the repurchase agreements, the amount of collateral posted is required to exceed the amount of gross liability.

Potential risks exist in our secured borrowing transactions due to market conditions and counterparty exposure. With collateral that we pledge, there is a risk that the collateral may not be returned at the expiration of the agreement. If the counterparty fails to return the collateral, ACE will have free use of the borrowed funds until our collateral is returned. In addition, we may encounter the risk that ACE may not be able to renew outstanding borrowings with a new term or with an existing counterparty due to market conditions including a decrease in demand as well as more restrictive terms from banks due to increased regulatory and capital constraints. Should this condition occur, ACE may seek alternative borrowing sources or reduce borrowings. Additionally, increased margins and collateral requirements due to market conditions would increase our restricted assets as we are required to provide additional collateral to support the transaction.
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The following table presents net realized gains (losses) related to derivative instrument activity in the consolidated statements of operations:

| Three Months Ended |  | Six Months Ended |
| June 30 |  | June 30 |
(in millions of U.S. dollars) | 2015 |  |  | 2014 |  | 2015 |  |  | 2014 |
Investment and embedded derivative instruments |  |  |  |  |  |
Foreign currency forward contracts | $ | (10 | ) |  | $ | (1 | ) | $ | 15 |  |  | $ | (4 | )
All other futures contracts and options | 42 |  |  | (18 | ) | 13 |  |  | (40 | )
Convertible securities(1) | (5 | ) |  | 4 |  | — |  |  | 4 |
Total investment and embedded derivative instruments | $ | 27 |  |  | $ | (15 | ) | $ | 28 |  |  | $ | (40 | )
GLB and other derivative instruments |  |  |  |  |  |
GLB(2) | $ | 104 |  |  | $ | 2 |  | $ | 59 |  |  | $ | (46 | )
Futures contracts on equities(3) | (2 | ) |  | (71 | ) | (13 | ) |  | (88 | )
Options on equity market indices(3) | — |  |  | (1 | ) | (1 | ) |  | (3 | )
Other | (1 | ) |  | 9 |  | (1 | ) |  | 7 |
Total GLB and other derivative instruments | $ | 101 |  |  | $ | (61 | ) | $ | 44 |  |  | $ | (130 | )
| $ | 128 |  |  | $ | (76 | ) | $ | 72 |  |  | $ | (170 | )

(1) | Includes embedded derivatives.

(2) | Excludes foreign exchange gains (losses) related to GLB.

(3) | Related to GMDB and GLB blocks of business.

c) Derivative instrument objectives
(i) Foreign currency exposure management
A foreign currency forward contract (forward) is an agreement between participants to exchange specific foreign currencies at a future date. ACE uses forwards to minimize the effect of fluctuating foreign currencies as discussed above.
(ii) Duration management and market exposure
Futures
Futures contracts give the holder the right and obligation to participate in market movements, determined by the index or underlying security on which the futures contract is based. Settlement is made daily in cash by an amount equal to the change in value of the futures contract times a multiplier that scales the size of the contract. Exchange-traded futures contracts on money market instruments, notes and bonds are used in fixed maturity portfolios to more efficiently manage duration, as substitutes for ownership of the money market instruments, bonds and notes without significantly increasing the risk in the portfolio. Investments in futures contracts may be made only to the extent that there are assets under management not otherwise committed.
Exchange-traded equity futures contracts are used to limit exposure to a severe equity market decline, which would cause an increase in expected claims and therefore, an increase in reserves for GMDB and GLB reinsurance business.
Options
An option contract conveys to the holder the right, but not the obligation, to purchase or sell a specified amount or value of an underlying security at a fixed price. Option contracts are used in the investment portfolio as protection against unexpected shifts in interest rates, which would affect the duration of the fixed maturity portfolio. By using options in the portfolio, the overall interest rate sensitivity of the portfolio can be reduced. Option contracts may also be used as an alternative to futures contracts in the synthetic strategy as described above.
Another use for option contracts is to limit exposure to a severe equity market decline, which would cause an increase in expected claims and therefore, an increase in reserves for GMDB and GLB reinsurance business.
The price of an option is influenced by the underlying security, expected volatility, time to expiration, and supply and demand.
The credit risk associated with the above derivative financial instruments relates to the potential for non-performance by counterparties. Although non-performance is not anticipated, in order to minimize the risk of loss, management monitors the creditworthiness of its counterparties and obtains collateral. The performance of exchange-traded instruments is guaranteed by
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the exchange on which they trade. For non-exchange-traded instruments, the counterparties are principally banks which must meet certain criteria according to our investment guidelines.
Cross-currency swaps
Cross-currency swaps are agreements under which two counterparties exchange interest payments and principal denominated in different currencies at a future date. We use cross-currency swaps to reduce the foreign currency and interest rate risk by converting cash flows back into local currency. We invest in foreign currency denominated investments to improve credit diversification and also to obtain better duration matching to our liabilities that is limited in the local currency market.
Other
Included within Other are derivatives intended to reduce potential losses which may arise from certain exposures in our insurance business. The economic benefit provided by these derivatives is similar to purchased reinsurance. For example, ACE may enter into crop derivative contracts to protect underwriting results in the event of a significant decline in commodity prices. Also included within Other are certain life insurance products that meet the definition of a derivative instrument for accounting purposes.
(iii) Convertible security investments
A convertible security is a debt instrument or preferred stock that can be converted into a predetermined amount of the issuer’s equity. The convertible option is an embedded derivative within the host instruments which are classified in the investment portfolio as either available for sale or as an equity security. ACE purchases convertible securities for their total return and not specifically for the conversion feature.
(iv) TBA
By acquiring TBAs, we make a commitment to purchase a future issuance of mortgage-backed securities. For the period between purchase of the TBAs and issuance of the underlying security, we account for our position as a derivative in the consolidated financial statements. ACE purchases TBAs both for their total return and for the flexibility they provide related to our mortgage-backed security strategy.
(v) GLB
Under the GLB program, as the assuming entity, ACE is obligated to provide coverage until the expiration or maturity of the underlying deferred annuity contracts or the expiry of the reinsurance treaty. Premiums received under the reinsurance treaties are classified as premium. Expected losses allocated to premiums received are classified as Future policy benefits and valued similar to GMDB reinsurance. Other changes in fair value, principally arising from changes in expected losses allocated to expected future premiums, are classified as Net realized gains (losses). Fair value represents management’s estimate of an exit price and thus, includes a risk margin. We may recognize a realized loss for other changes in fair value due to adverse changes in the capital markets (e.g., declining interest rates and/or declining equity markets) and changes in actual or estimated future policyholder behavior (e.g., increased annuitization or decreased lapse rates) although we expect the business to be profitable. We believe this presentation provides the most meaningful disclosure of changes in the underlying risk within the GLB reinsurance programs for a given reporting period.
d) Other investments
At June 30, 2015, included in Other investments in the consolidated balance sheet are investments in limited partnerships and partially-owned investment companies with a carrying value of $2.2 billion. In connection with these investments, we have commitments that may require funding of up to $1.0 billion over the next several years.
e) Taxation
At June 30, 2015, $23 million of unrecognized tax benefits remains outstanding. It is reasonably possible that over the next twelve months, the amount of unrecognized tax benefits may change resulting from the re-evaluation of unrecognized tax benefits arising from examinations of taxing authorities. With few exceptions, ACE is no longer subject to state and local or non-U.S. income tax examinations for years before 2005.
f) Legal proceedings
Our insurance subsidiaries are subject to claims litigation involving disputed interpretations of policy coverages and, in some jurisdictions, direct actions by allegedly-injured persons seeking damages from policyholders. These lawsuits, involving claims on policies issued by our subsidiaries which are typical to the insurance industry in general and in the normal course of business, are considered in our loss and loss expense reserves. In addition to claims litigation, we are subject to lawsuits and regulatory actions in the normal course of business that do not arise from or directly relate to claims on insurance policies. This
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ACE Limited and Subsidiaries
category of business litigation typically involves, among other things, allegations of underwriting errors or misconduct, employment claims, regulatory activity, or disputes arising from our business ventures. In the opinion of management, our ultimate liability for these matters could be, but we believe is not likely to be, material to our consolidated financial condition and results of operations.
8. Shareholders’ equity
All of ACE’s Common Shares are authorized under Swiss corporate law. Though the par value of Common Shares is stated in Swiss francs, ACE continues to use U.S. dollars as its reporting currency for preparing consolidated financial statements. Under Swiss corporate law, dividends, including distributions through a reduction in par value (par value reduction) or from legal reserves, must be stated in Swiss francs though dividend payments are made by ACE in U.S. dollars.
At our May 2013 annual general meeting, our shareholders approved an annual dividend for the following year of $2.04 per share, payable in four quarterly installments of $0.51 per share after the annual general meeting in the form of a distribution by way of a par value reduction. At the January 10, 2014 extraordinary general meeting, our shareholders approved a resolution to increase our quarterly dividend from $0.51 per share to $0.63 per share for the final two quarterly installments (made on January 31, 2014 and April 17, 2014) that had been earlier approved at our 2013 annual general meeting. The $0.12 per share increase for each installment was distributed from capital contribution reserves (Additional paid-in capital), a subaccount of legal reserves, and transferred to free reserves (Retained earnings) for payment, while the existing $0.51 per share was distributed by way of a par value reduction.
At our May 2014 annual general meeting, our shareholders approved an annual dividend for the following year of $2.60 per share, payable in four quarterly installments of $0.65 per share after the annual general meeting in the form of a distribution by way of a par value reduction.
At our May 2015 annual general meeting, our shareholders approved an annual dividend for the following year of up to $2.68 per share, expected to be paid in four quarterly installments of $0.67 per share after the annual general meeting. This dividend will be distributed from capital contribution reserves and transferred to free reserves for payment. The Board of Directors (Board) will determine the record and payment dates at which the annual dividend may be paid, and is authorized to abstain (in whole or in part) from distributing a dividend in its discretion, until the date of the 2016 annual general meeting.
The following table presents dividend distributions per Common Share in Swiss francs (CHF) and U.S. dollars (USD):

| Three Months Ended |  |  | Six Months Ended |
| June 30 |  |  | June 30 |
| 2015 |  |  | 2014 |  |  | 2015 |  |  | 2014 |
CHF |  |  | USD |  |  | CHF |  |  | USD |  |  | CHF |  |  | USD |  |  | CHF |  |  | USD |
Dividends – par value reduction | — |  |  | $ |  |  |  | 0.58 |  |  | $ | 0.65 |  |  | 0.62 |  |  | $ | 0.65 |  |  | 1.03 |  |  | $ | 1.16 |
Dividends – distributed from capital contribution reserves | 0.62 |  |  | 0.67 |  |  | — |  |  | — |  |  | 0.62 |  |  | 0.67 |  |  | 0.20 |  |  | 0.24 |
Total dividend distributions per common share | 0.62 |  |  | $ | 0.67 |  |  | 0.58 |  |  | $ | 0.65 |  |  | 1.24 |  |  | $ | 1.32 |  |  | 1.23 |  |  | $ | 1.40 |

Par value reductions have been reflected as such through Common Shares in the consolidated statements of shareholders' equity and had the effect of reducing par value per Common Share to CHF 24.15 at June 30, 2015.
Common Shares in treasury are used principally for issuance upon the exercise of employee stock options, grants of restricted stock, and purchases under the Employee Stock Purchase Plan (ESPP). At June 30, 2015, 19,018,131 Common Shares remain in treasury after net shares redeemed under employee share-based compensation plans.
ACE Limited securities repurchase authorization
In November 2014, the Board announced authorization of a share repurchase program of $1.5 billion of ACE's Common Shares for the period January 1, 2015 through December 31, 2015 to replace the November 2013 authorization when it expired on December 31, 2014.
In November 2013, the Board announced authorization of a share repurchase program of up to $2.0 billion of ACE's Common Shares through December 31, 2014.
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The following table presents repurchases of ACE's Common Shares conducted in a series of open market transactions under the Board authorizations:

(in millions of U.S. dollars, except share data) | Three Months Ended June 30 |  |  | Six Months Ended June 30 |
2015 |  |  | 2014 |  |  | 2015 |  |  | 2014 |
Number of shares repurchased | 3,650,200 |  |  | 2,306,000 |  |  | 6,677,663 |  |  | 5,793,882 |
Cost of shares repurchased | $ | 394 |  |  | $ | 237 |  |  | $ | 734 |  |  | $ | 569 |
Repurchase authorization remaining at end of period | $ | 766 |  |  | $ | 1,374 |  |  | $ | 766 |  |  | $ | 1,374 |

9. Share-based compensation
The ACE Limited 2004 Long-Term Incentive Plan (the 2004 LTIP) permits grants of both incentive and non-qualified stock options principally at an option price per share equal to the grant date fair value of ACE’s Common Shares. Stock options are generally granted with a 3-year vesting period and a 10-year term. Stock options typically vest in equal annual installments over the vesting period, which is also the requisite service period. On February 26, 2015, ACE granted 1,891,195 stock options with a weighted-average grant date fair value of $18.49 each. The fair value of the options issued is estimated on the grant date using the Black-Scholes option pricing model.
The 2004 LTIP also permits grants of restricted stock and restricted stock units. ACE generally grants restricted stock and restricted stock units with a 4-year vesting period, based on a graded vesting schedule. The restricted stock is granted at market close price on the grant date. On February 26, 2015, ACE granted 1,278,250 restricted stock awards and 290,475 restricted stock units to employees and officers with a grant date fair value of $114.78 each. Each restricted stock unit represents our obligation to deliver to the holder one Common Share upon vesting.
10. Segment information
ACE operates through five business segments: Insurance – North American P&C, Insurance – North American Agriculture, 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.
Corporate includes the results of ACE’s non-insurance subsidiaries, including ACE Limited, ACE Group Management and Holdings Ltd., and ACE INA Holdings, Inc. Corporate results consist primarily of interest expense, corporate staff expenses and other expenses not attributable to specific reportable segments, and intersegment eliminations.
For segment reporting purposes, certain items have been presented in a different manner below 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 Insurance – North American Agriculture segment, management includes gains and losses on crop derivatives as a component of underwriting income. For example, for the three months ended June 30, 2015, underwriting income in our Insurance – North American Agriculture segment was $21 million. This amount includes $2 million of realized losses related to crop derivatives which are included in Net realized gains (losses) below. For the Life segment, management includes Net investment income and (Gains) losses from fair value changes in separate account assets that do not qualify for separate account reporting under GAAP as components of Life underwriting income. For example, for the three months ended June 30, 2015, Life underwriting income of $77 million includes Net investment income of $66 million and gains from fair value changes in separate account assets of $6 million.
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The following tables present the Statement of Operations by segment:

For the Three Months Ended June 30, 2015 | Insurance – North American P&C |  |  | Insurance – North American Agriculture |  |  | Insurance – Overseas General |  |  | Global Reinsurance |  |  | Life |  |  | Corporate |  |  | ACE Consolidated |
(in millions of U.S. dollars) |  |  |  |  |
Net premiums written | $ | 1,975 |  |  | $ | 379 |  |  | $ | 1,669 |  |  | $ | 261 |  |  | $ | 500 |  |  | $ | — |  |  | $ | 4,784 |
Net premiums earned | 1,688 |  |  | 321 |  |  | 1,644 |  |  | 220 |  |  | 487 |  |  | — |  |  | 4,360 |
Losses and loss expenses | 1,120 |  |  | 271 |  |  | 816 |  |  | 72 |  |  | 137 |  |  | 1 |  |  | 2,417 |
Policy benefits | — |  |  | — |  |  | — |  |  | — |  |  | 153 |  |  | — |  |  | 153 |
Policy acquisition costs | 130 |  |  | 23 |  |  | 396 |  |  | 60 |  |  | 118 |  |  | — |  |  | 727 |
Administrative expenses | 189 |  |  | 4 |  |  | 254 |  |  | 13 |  |  | 74 |  |  | 44 |  |  | 578 |
Underwriting income (loss) | 249 |  |  | 23 |  |  | 178 |  |  | 75 |  |  | 5 |  |  | (45 | ) |  | 485 |
Net investment income | 269 |  |  | 6 |  |  | 139 |  |  | 79 |  |  | 66 |  |  | 3 |  |  | 562 |
Net realized gains (losses) including OTTI | — |  |  | (2 | ) |  | 13 |  |  | 5 |  |  | 103 |  |  | 7 |  |  | 126 |
Interest expense | 2 |  |  | — |  |  | 1 |  |  | 1 |  |  | 2 |  |  | 65 |  |  | 71 |
Other (income) expense: |  |  |  |  |  |  |  |  |  |  |  |  |
(Gains) losses from fair value changes in separate account assets | — |  |  | — |  |  | — |  |  | — |  |  | (6 | ) |  | — |  |  | (6 | )
Other | 23 |  |  | 8 |  |  | 8 |  |  | (3 | ) |  | (17 | ) |  | 4 |  |  | 23 |
Income tax expense (benefit) | 89 |  |  | 4 |  |  | 69 |  |  | 7 |  |  | 10 |  |  | (36 | ) |  | 143 |
Net income (loss) | $ | 404 |  |  | $ | 15 |  |  | $ | 252 |  |  | $ | 154 |  |  | $ | 185 |  |  | $ | (68 | ) |  | $ | 942 |

For the Three Months Ended June 30, 2014 | Insurance – North American P&C |  |  | Insurance – North American Agriculture |  |  | Insurance – Overseas General |  |  | Global Reinsurance |  |  | Life |  |  | Corporate |  |  | ACE Consolidated |
(in millions of U.S. dollars) |  |  |  |  |
Net premiums written | $ | 1,635 |  |  | $ | 388 |  |  | $ | 1,760 |  |  | $ | 278 |  |  | $ | 498 |  |  | $ | — |  |  | $ | 4,559 |
Net premiums earned | 1,542 |  |  | 330 |  |  | 1,709 |  |  | 261 |  |  | 490 |  |  | — |  |  | 4,332 |
Losses and loss expenses | 1,016 |  |  | 287 |  |  | 830 |  |  | 109 |  |  | 146 |  |  | — |  |  | 2,388 |
Policy benefits | — |  |  | — |  |  | — |  |  | — |  |  | 144 |  |  | — |  |  | 144 |
Policy acquisition costs | 152 |  |  | 23 |  |  | 402 |  |  | 60 |  |  | 121 |  |  | — |  |  | 758 |
Administrative expenses | 175 |  |  | 1 |  |  | 256 |  |  | 14 |  |  | 73 |  |  | 47 |  |  | 566 |
Underwriting income (loss) | 199 |  |  | 19 |  |  | 221 |  |  | 78 |  |  | 6 |  |  | (47 | ) |  | 476 |
Net investment income | 265 |  |  | 6 |  |  | 136 |  |  | 80 |  |  | 66 |  |  | 3 |  |  | 556 |
Net realized gains (losses) including OTTI | (11 | ) |  | 8 |  |  | 14 |  |  | (15 | ) |  | (72 | ) |  | 3 |  |  | (73 | )
Interest expense | 2 |  |  | — |  |  | 1 |  |  | 2 |  |  | 3 |  |  | 64 |  |  | 72 |
Other (income) expense: |  |  |  |  |  |  |  |  |  |  |  |  |
(Gains) losses from fair value changes in separate account assets | — |  |  | — |  |  | — |  |  | — |  |  | (17 | ) |  | — |  |  | (17 | )
Other | (24 | ) |  | 9 |  |  | 8 |  |  | (10 | ) |  | 4 |  |  | 5 |  |  | (8 | )
Income tax expense (benefit) | 91 |  |  | 5 |  |  | 55 |  |  | 10 |  |  | 12 |  |  | (40 | ) |  | 133 |
Net income (loss) | $ | 384 |  |  | $ | 19 |  |  | $ | 307 |  |  | $ | 141 |  |  | $ | (2 | ) |  | $ | (70 | ) |  | $ | 779 |

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited)
ACE Limited and Subsidiaries

For the Six Months Ended June 30, 2015 | Insurance – North American P&C |  |  | Insurance – North American Agriculture |  |  | Insurance – Overseas General |  |  | Global Reinsurance |  |  | Life |  |  | Corporate |  |  | ACE Consolidated |
(in millions of U.S. dollars) |  |  |  |  |
Net premiums written | $ | 3,405 |  |  | $ | 467 |  |  | $ | 3,463 |  |  | $ | 534 |  |  | $ | 991 |  |  | $ | — |  |  | $ | 8,860 |
Net premiums earned | 3,214 |  |  | 385 |  |  | 3,281 |  |  | 446 |  |  | 961 |  |  | — |  |  | 8,287 |
Losses and loss expenses | 2,155 |  |  | 293 |  |  | 1,630 |  |  | 171 |  |  | 289 |  |  | 1 |  |  | 4,539 |
Policy benefits | — |  |  | — |  |  | — |  |  | — |  |  | 295 |  |  | — |  |  | 295 |
Policy acquisition costs | 291 |  |  | 19 |  |  | 785 |  |  | 114 |  |  | 225 |  |  | — |  |  | 1,434 |
Administrative expenses | 360 |  |  | 3 |  |  | 510 |  |  | 25 |  |  | 147 |  |  | 87 |  |  | 1,132 |
Underwriting income (loss) | 408 |  |  | 70 |  |  | 356 |  |  | 136 |  |  | 5 |  |  | (88 | ) |  | 887 |
Net investment income | 532 |  |  | 12 |  |  | 277 |  |  | 154 |  |  | 132 |  |  | 6 |  |  | 1,113 |
Net realized gains (losses) including OTTI | (6 | ) |  | (2 | ) |  | 3 |  |  | (6 | ) |  | 44 |  |  | 4 |  |  | 37 |
Interest expense | 4 |  |  | — |  |  | 2 |  |  | 2 |  |  | 3 |  |  | 128 |  |  | 139 |
Other (income) expense: |  |  |  |  |  |  |  |  |  |  |  |  |
(Gains) losses from fair value changes in separate account assets | — |  |  | — |  |  | — |  |  | — |  |  | (17 | ) |  | — |  |  | (17 | )
Other | 16 |  |  | 16 |  |  | 25 |  |  | (8 | ) |  | (29 | ) |  | 9 |  |  | 29 |
Income tax expense (benefit) | 169 |  |  | 14 |  |  | 121 |  |  | 15 |  |  | 19 |  |  | (75 | ) |  | 263 |
Net income (loss) | $ | 745 |  |  | $ | 50 |  |  | $ | 488 |  |  | $ | 275 |  |  | $ | 205 |  |  | $ | (140 | ) |  | $ | 1,623 |

For the Six Months Ended June 30, 2014 | Insurance – North American P&C |  |  | Insurance – North American Agriculture |  |  | Insurance – Overseas General |  |  | Global Reinsurance |  |  | Life |  |  | Corporate |  |  | ACE Consolidated |
(in millions of U.S. dollars) |  |  |  |  |
Net premiums written | $ | 3,053 |  |  | $ | 582 |  |  | $ | 3,531 |  |  | $ | 586 |  |  | $ | 992 |  |  | $ | — |  |  | $ | 8,744 |
Net premiums earned | 3,029 |  |  | 433 |  |  | 3,321 |  |  | 545 |  |  | 974 |  |  | — |  |  | 8,302 |
Losses and loss expenses | 1,956 |  |  | 413 |  |  | 1,647 |  |  | 235 |  |  | 297 |  |  | 1 |  |  | 4,549 |
Policy benefits | — |  |  | — |  |  | — |  |  | — |  |  | 258 |  |  | — |  |  | 258 |
Policy acquisition costs | 311 |  |  | 28 |  |  | 788 |  |  | 127 |  |  | 232 |  |  | — |  |  | 1,486 |
Administrative expenses | 336 |  |  | 2 |  |  | 506 |  |  | 28 |  |  | 141 |  |  | 88 |  |  | 1,101 |
Underwriting income (loss) | 426 |  |  | (10 | ) |  | 380 |  |  | 155 |  |  | 46 |  |  | (89 | ) |  | 908 |
Net investment income | 535 |  |  | 13 |  |  | 268 |  |  | 157 |  |  | 130 |  |  | 6 |  |  | 1,109 |
Net realized gains (losses) including OTTI | (20 | ) |  | 6 |  |  | 4 |  |  | (23 | ) |  | (148 | ) |  | 4 |  |  | (177 | )
Interest expense | 5 |  |  | — |  |  | 2 |  |  | 3 |  |  | 6 |  |  | 127 |  |  | 143 |
Other (income) expense: |  |  |  |  |  |  |  |  |  |  |  |  |
(Gains) losses from fair value changes in separate account assets | — |  |  | — |  |  | — |  |  | — |  |  | (11 | ) |  | — |  |  | (11 | )
Other | (44 | ) |  | 17 |  |  | 2 |  |  | (29 | ) |  | 11 |  |  | 12 |  |  | (31 | )
Income tax expense (benefit) | 174 |  |  | (2 | ) |  | 92 |  |  | 20 |  |  | 22 |  |  | (80 | ) |  | 226 |
Net income (loss) | $ | 806 |  |  | $ | (6 | ) |  | $ | 556 |  |  | $ | 295 |  |  | $ | — |  |  | $ | (138 | ) |  | $ | 1,513 |

Underwriting assets are reviewed in total by management for purposes of decision-making. Other than goodwill and other intangible assets, ACE does not allocate assets to its segments.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited)
ACE Limited and Subsidiaries
The following table presents net premiums earned for each segment by product:

(in millions of U.S. dollars) | Property & All Other |  |  | Casualty |  |  | Life, Accident & Health |  |  | ACE Consolidated |
For the Three Months Ended June 30, 2015 |  |  |
Insurance – North American P&C | $ | 507 |  |  | $ | 1,079 |  |  | $ | 102 |  |  | $ | 1,688 |
Insurance – North American Agriculture | 321 |  |  | — |  |  | — |  |  | 321 |
Insurance – Overseas General | 729 |  |  | 391 |  |  | 524 |  |  | 1,644 |
Global Reinsurance | 102 |  |  | 118 |  |  | — |  |  | 220 |
Life | — |  |  | — |  |  | 487 |  |  | 487 |
| $ | 1,659 |  |  | $ | 1,588 |  |  | $ | 1,113 |  |  | $ | 4,360 |
For the Three Months Ended June 30, 2014 |  |  |  |  |  |  |
Insurance – North American P&C | $ | 423 |  |  | $ | 1,018 |  |  | $ | 101 |  |  | $ | 1,542 |
Insurance – North American Agriculture | 330 |  |  | — |  |  | — |  |  | 330 |
Insurance – Overseas General | 727 |  |  | 395 |  |  | 587 |  |  | 1,709 |
Global Reinsurance | 132 |  |  | 129 |  |  | — |  |  | 261 |
Life | — |  |  | — |  |  | 490 |  |  | 490 |
| $ | 1,612 |  |  | $ | 1,542 |  |  | $ | 1,178 |  |  | $ | 4,332 |
(in millions of U.S. dollars) | Property & All Other |  |  | Casualty |  |  | Life, Accident & Health |  |  | ACE Consolidated |
For the Six Months Ended June 30, 2015 |  |  |
Insurance – North American P&C | $ | 917 |  |  | $ | 2,094 |  |  | $ | 203 |  |  | $ | 3,214 |
Insurance – North American Agriculture | 385 |  |  | — |  |  | — |  |  | 385 |
Insurance – Overseas General | 1,457 |  |  | 773 |  |  | 1,051 |  |  | 3,281 |
Global Reinsurance | 219 |  |  | 227 |  |  | — |  |  | 446 |
Life | — |  |  | — |  |  | 961 |  |  | 961 |
| $ | 2,978 |  |  | $ | 3,094 |  |  | $ | 2,215 |  |  | $ | 8,287 |
For the Six Months Ended June 30, 2014 |  |  |  |  |  |  |
Insurance – North American P&C | $ | 828 |  |  | $ | 1,999 |  |  | $ | 202 |  |  | $ | 3,029 |
Insurance – North American Agriculture | 433 |  |  | — |  |  | — |  |  | 433 |
Insurance – Overseas General | 1,420 |  |  | 764 |  |  | 1,137 |  |  | 3,321 |
Global Reinsurance | 286 |  |  | 259 |  |  | — |  |  | 545 |
Life | — |  |  | — |  |  | 974 |  |  | 974 |
| $ | 2,967 |  |  | $ | 3,022 |  |  | $ | 2,313 |  |  | $ | 8,302 |

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited)
ACE Limited and Subsidiaries
11. Earnings per share

| Three Months Ended |  |  | Six Months Ended |
| June 30 |  |  | June 30 |
(in millions of U.S. dollars, except share and per share data) | 2015 |  |  | 2014 |  |  | 2015 |  |  | 2014 |
Numerator: |  |  |  |  |  |  |
Net income | $ | 942 |  |  | $ | 779 |  |  | $ | 1,623 |  |  | $ | 1,513 |
Denominator: |  |  |  |  |  |  |
Denominator for basic earnings per share: |  |  |  |  |  |  |
Weighted-average shares outstanding | 325,463,196 |  |  | 337,846,228 |  |  | 326,795,838 |  |  | 338,353,260 |
Denominator for diluted earnings per share: |  |  |  |  |  |  |
Share-based compensation plans | 3,222,562 |  |  | 3,286,359 |  |  | 3,373,809 |  |  | 3,267,499 |
Weighted-average shares outstanding and assumed conversions | 328,685,758 |  |  | 341,132,587 |  |  | 330,169,647 |  |  | 341,620,759 |
Basic earnings per share | $ | 2.89 |  |  | $ | 2.30 |  |  | $ | 4.97 |  |  | $ | 4.47 |
Diluted earnings per share | $ | 2.86 |  |  | $ | 2.28 |  |  | $ | 4.91 |  |  | $ | 4.43 |
Potential anti-dilutive share conversions | 1,934,454 |  |  | 1,778,040 |  |  | 1,306,817 |  |  | 1,220,731 |

Excluded from weighted-average shares outstanding and assumed conversions is the impact of securities that would have been anti-dilutive during the respective periods.
12. Information provided in connection with outstanding debt of subsidiaries
The following tables present condensed consolidating financial information at June 30, 2015 and December 31, 2014, and for the three and six months ended June 30, 2015 and 2014 for ACE Limited (Parent Guarantor) and ACE INA Holdings Inc. (Subsidiary Issuer). The Subsidiary Issuer is an indirect 100 percent-owned subsidiary of the Parent Guarantor. The Parent Guarantor fully and unconditionally guarantees certain of the debt of the Subsidiary Issuer. Condensed consolidating financial information of the Parent Guarantor and Subsidiary Issuer are presented on the equity method of accounting. The revenues and expenses and cash flows of the subsidiaries of the Subsidiary Issuer are presented in the Other ACE Limited Subsidiaries column on a combined basis.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited)
ACE Limited and Subsidiaries
Condensed Consolidating Balance Sheet at June 30, 2015

(in millions of U.S. dollars) | ACE Limited (Parent Guarantor) |  |  | ACE INA Holdings Inc. (Subsidiary Issuer) |  |  | Other ACE Limited Subsidiaries |  |  | Consolidating Adjustments and Eliminations |  |  | ACE Limited Consolidated |
Assets |  |  |  |  |  |  |  |  |
Investments | $ | 32 |  |  | $ | 35 |  |  | $ | 63,198 |  |  | $ | — |  |  | $ | 63,265 |
Cash(1) | 1 |  |  | 3 |  |  | 1,209 |  |  | (423 | ) |  | 790 |
Insurance and reinsurance balances receivable | — |  |  | — |  |  | 6,726 |  |  | (969 | ) |  | 5,757 |
Reinsurance recoverable on losses and loss expenses | — |  |  | — |  |  | 20,619 |  |  | (8,844 | ) |  | 11,775 |
Reinsurance recoverable on policy benefits | — |  |  | — |  |  | 1,192 |  |  | (989 | ) |  | 203 |
Value of business acquired | — |  |  | — |  |  | 434 |  |  | — |  |  | 434 |
Goodwill and other intangible assets | — |  |  | — |  |  | 5,969 |  |  | — |  |  | 5,969 |
Investments in subsidiaries | 29,806 |  |  | 18,747 |  |  | — |  |  | (48,553 | ) |  | — |
Due from subsidiaries and affiliates, net | 370 |  |  | — |  |  | — |  |  | (370 | ) |  | — |
Other assets | 5 |  |  | 381 |  |  | 15,026 |  |  | (3,765 | ) |  | 11,647 |
Total assets | $ | 30,214 |  |  | $ | 19,166 |  |  | $ | 114,373 |  |  | $ | (63,913 | ) |  | $ | 99,840 |
Liabilities |  |  |  |  |  |  |  |  |
Unpaid losses and loss expenses | $ | — |  |  | $ | — |  |  | $ | 46,596 |  |  | $ | (8,366 | ) |  | $ | 38,230 |
Unearned premiums | — |  |  | — |  |  | 10,718 |  |  | (1,839 | ) |  | 8,879 |
Future policy benefits | — |  |  | — |  |  | 5,824 |  |  | (989 | ) |  | 4,835 |
Due to subsidiaries and affiliates, net | — |  |  | 245 |  |  | 125 |  |  | (370 | ) |  | — |
Affiliated notional cash pooling programs(1) | 386 |  |  | 37 |  |  | — |  |  | (423 | ) |  | — |
Short-term debt | — |  |  | 700 |  |  | 1,402 |  |  | — |  |  | 2,102 |
Long-term debt | — |  |  | 4,145 |  |  | 12 |  |  | — |  |  | 4,157 |
Trust preferred securities | — |  |  | 309 |  |  | — |  |  | — |  |  | 309 |
Other liabilities | 273 |  |  | 1,499 |  |  | 13,374 |  |  | (3,373 | ) |  | 11,773 |
Total liabilities | 659 |  |  | 6,935 |  |  | 78,051 |  |  | (15,360 | ) |  | 70,285 |
Total shareholders’ equity | 29,555 |  |  | 12,231 |  |  | 36,322 |  |  | (48,553 | ) |  | 29,555 |
Total liabilities and shareholders’ equity | $ | 30,214 |  |  | $ | 19,166 |  |  | $ | 114,373 |  |  | $ | (63,913 | ) |  | $ | 99,840 |

(1) | ACE maintains two notional multicurrency cash pools (Pools) with a third-party bank. Various ACE entities participate in one or the other of the Pools, pursuant to which credit and debit balances in individual ACE accounts are translated daily into a single currency and pooled on a notional basis. Individual ACE entities are permitted to overdraw on their individual accounts provided the overall Pool balances do not fall below zero. At June 30, 2015, the cash balance of one or more entities was negative; however, the overall Pool balances were positive.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited)
ACE Limited and Subsidiaries
Condensed Consolidating Balance Sheet at December 31, 2014

(in millions of U.S. dollars) | ACE Limited (Parent Guarantor) |  |  | ACE INA Holdings Inc. (Subsidiary Issuer) |  |  | Other ACE Limited Subsidiaries |  |  | Consolidating Adjustments and Eliminations |  |  | ACE Limited Consolidated |
Assets |  |  |  |  |  |  |  |  |
Investments | $ | 30 |  |  | $ | 225 |  |  | $ | 62,649 |  |  | $ | — |  |  | $ | 62,904 |
Cash(1) | — |  |  | 1 |  |  | 1,209 |  |  | (555 | ) |  | 655 |
Insurance and reinsurance balances receivable | — |  |  | — |  |  | 6,178 |  |  | (752 | ) |  | 5,426 |
Reinsurance recoverable on losses and loss expenses | — |  |  | — |  |  | 20,992 |  |  | (9,000 | ) |  | 11,992 |
Reinsurance recoverable on policy benefits | — |  |  | — |  |  | 1,194 |  |  | (977 | ) |  | 217 |
Value of business acquired | — |  |  | — |  |  | 466 |  |  | — |  |  | 466 |
Goodwill and other intangible assets | — |  |  | — |  |  | 5,724 |  |  | — |  |  | 5,724 |
Investments in subsidiaries | 29,497 |  |  | 18,762 |  |  | — |  |  | (48,259 | ) |  | — |
Due from subsidiaries and affiliates, net | 583 |  |  | — |  |  | — |  |  | (583 | ) |  | — |
Other assets | 4 |  |  | 295 |  |  | 14,196 |  |  | (3,631 | ) |  | 10,864 |
Total assets | $ | 30,114 |  |  | $ | 19,283 |  |  | $ | 112,608 |  |  | $ | (63,757 | ) |  | $ | 98,248 |
Liabilities |  |  |  |  |  |  |  |  |
Unpaid losses and loss expenses | $ | — |  |  | $ | — |  |  | $ | 46,770 |  |  | $ | (8,455 | ) |  | $ | 38,315 |
Unearned premiums | — |  |  | — |  |  | 9,958 |  |  | (1,736 | ) |  | 8,222 |
Future policy benefits | — |  |  | — |  |  | 5,731 |  |  | (977 | ) |  | 4,754 |
Due to subsidiaries and affiliates, net | — |  |  | 422 |  |  | 161 |  |  | (583 | ) |  | — |
Affiliated notional cash pooling programs(1) | 246 |  |  | 309 |  |  | — |  |  | (555 | ) |  | — |
Short-term debt | — |  |  | 1,150 |  |  | 1,402 |  |  | — |  |  | 2,552 |
Long-term debt | — |  |  | 3,345 |  |  | 12 |  |  | — |  |  | 3,357 |
Trust preferred securities | — |  |  | 309 |  |  | — |  |  | — |  |  | 309 |
Other liabilities | 281 |  |  | 1,404 |  |  | 12,659 |  |  | (3,192 | ) |  | 11,152 |
Total liabilities | 527 |  |  | 6,939 |  |  | 76,693 |  |  | (15,498 | ) |  | 68,661 |
Total shareholders’ equity | 29,587 |  |  | 12,344 |  |  | 35,915 |  |  | (48,259 | ) |  | 29,587 |
Total liabilities and shareholders’ equity | $ | 30,114 |  |  | $ | 19,283 |  |  | $ | 112,608 |  |  | $ | (63,757 | ) |  | $ | 98,248 |

(1) | ACE maintains two notional multicurrency cash pools (Pools) with a third-party bank. Various ACE entities participate in one or the other of the Pools, pursuant to which credit and debit balances in individual ACE accounts are translated daily into a single currency and pooled on a notional basis. Individual ACE entities are permitted to overdraw on their individual accounts provided the overall Pool balances do not fall below zero. At December 31, 2014, the cash balance of one or more entities was negative; however, the overall Pool balances were positive.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited)
ACE Limited and Subsidiaries
Condensed Consolidating Statements of Operations and Comprehensive Income

For the Three Months Ended June 30, 2015 | ACE Limited (Parent Guarantor) |  |  | ACE INA Holdings Inc. (Subsidiary Issuer) |  |  | Other ACE Limited Subsidiaries |  |  | Consolidating Adjustments and Eliminations |  |  | ACE Limited Consolidated |
(in millions of U.S. dollars) |  |  |  |
Net premiums written | $ | — |  |  | $ | — |  |  | $ | 4,784 |  |  | $ | — |  |  | $ | 4,784 |
Net premiums earned | — |  |  | — |  |  | 4,360 |  |  | — |  |  | 4,360 |
Net investment income | — |  |  | — |  |  | 562 |  |  | — |  |  | 562 |
Equity in earnings of subsidiaries | 901 |  |  | 296 |  |  | — |  |  | (1,197 | ) |  | — |
Net realized gains (losses) including OTTI | — |  |  | (2 | ) |  | 128 |  |  | — |  |  | 126 |
Losses and loss expenses | — |  |  | — |  |  | 2,417 |  |  | — |  |  | 2,417 |
Policy benefits | — |  |  | — |  |  | 153 |  |  | — |  |  | 153 |
Policy acquisition costs and administrative expenses | 18 |  |  | 7 |  |  | 1,280 |  |  | — |  |  | 1,305 |
Interest (income) expense | (7 | ) |  | 69 |  |  | 9 |  |  | — |  |  | 71 |
Other (income) expense | (57 | ) |  | (4 | ) |  | 78 |  |  | — |  |  | 17 |
Income tax expense (benefit) | 5 |  |  | (27 | ) |  | 165 |  |  | — |  |  | 143 |
Net income | $ | 942 |  |  | $ | 249 |  |  | $ | 948 |  |  | $ | (1,197 | ) |  | $ | 942 |
Comprehensive income (loss) | $ | 397 |  |  | $ | (91 | ) |  | $ | 403 |  |  | $ | (312 | ) |  | $ | 397 |

Condensed Consolidating Statements of Operations and Comprehensive Income

For the Three Months Ended June 30, 2014 | ACE Limited (Parent Guarantor) |  |  | ACE INA Holdings Inc. (Subsidiary Issuer) |  |  | Other ACE Limited Subsidiaries |  |  | Consolidating Adjustments and Eliminations |  |  | ACE Limited Consolidated |
(in millions of U.S. dollars) |  |  |  |
Net premiums written | $ | — |  |  | $ | — |  |  | $ | 4,559 |  |  | $ | — |  |  | $ | 4,559 |
Net premiums earned | — |  |  | — |  |  | 4,332 |  |  | — |  |  | 4,332 |
Net investment income | 1 |  |  | 1 |  |  | 554 |  |  | — |  |  | 556 |
Equity in earnings of subsidiaries | 745 |  |  | 231 |  |  | — |  |  | (976 | ) |  | — |
Net realized gains (losses) including OTTI | — |  |  | 8 |  |  | (81 | ) |  | — |  |  | (73 | )
Losses and loss expenses | — |  |  | — |  |  | 2,388 |  |  | — |  |  | 2,388 |
Policy benefits | — |  |  | — |  |  | 144 |  |  | — |  |  | 144 |
Policy acquisition costs and administrative expenses | 22 |  |  | 8 |  |  | 1,294 |  |  | — |  |  | 1,324 |
Interest (income) expense | (9 | ) |  | 70 |  |  | 11 |  |  | — |  |  | 72 |
Other (income) expense | (50 | ) |  | 6 |  |  | 19 |  |  | — |  |  | (25 | )
Income tax expense (benefit) | 4 |  |  | (25 | ) |  | 154 |  |  | — |  |  | 133 |
Net income | $ | 779 |  |  | $ | 181 |  |  | $ | 795 |  |  | $ | (976 | ) |  | $ | 779 |
Comprehensive income | $ | 1,348 |  |  | $ | 511 |  |  | $ | 1,364 |  |  | $ | (1,875 | ) |  | $ | 1,348 |

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited)
ACE Limited and Subsidiaries
Condensed Consolidating Statements of Operations and Comprehensive Income

For the Six Months Ended June 30, 2015 | ACE Limited (Parent Guarantor) |  |  | ACE INA Holdings Inc. (Subsidiary Issuer) |  |  | Other ACE Limited Subsidiaries |  |  | Consolidating Adjustments and Eliminations |  |  | ACE Limited Consolidated |
(in millions of U.S. dollars) |  |  |  |
Net premiums written | $ | — |  |  | $ | — |  |  | $ | 8,860 |  |  | $ | — |  |  | $ | 8,860 |
Net premiums earned | — |  |  | — |  |  | 8,287 |  |  | — |  |  | 8,287 |
Net investment income | 1 |  |  | 1 |  |  | 1,111 |  |  | — |  |  | 1,113 |
Equity in earnings of subsidiaries | 1,549 |  |  | 500 |  |  | — |  |  | (2,049 | ) |  | — |
Net realized gains (losses) including OTTI | — |  |  | (2 | ) |  | 39 |  |  | — |  |  | 37 |
Losses and loss expenses | — |  |  | — |  |  | 4,539 |  |  | — |  |  | 4,539 |
Policy benefits | — |  |  | — |  |  | 295 |  |  | — |  |  | 295 |
Policy acquisition costs and administrative expenses | 32 |  |  | 13 |  |  | 2,521 |  |  | — |  |  | 2,566 |
Interest (income) expense | (15 | ) |  | 138 |  |  | 16 |  |  | — |  |  | 139 |
Other (income) expense | (98 | ) |  | (7 | ) |  | 117 |  |  | — |  |  | 12 |
Income tax expense (benefit) | 8 |  |  | (53 | ) |  | 308 |  |  | — |  |  | 263 |
Net income | $ | 1,623 |  |  | $ | 408 |  |  | $ | 1,641 |  |  | $ | (2,049 | ) |  | $ | 1,623 |
Comprehensive income (loss) | $ | 1,039 |  |  | $ | (67 | ) |  | $ | 1,057 |  |  | $ | (990 | ) |  | $ | 1,039 |

Condensed Consolidating Statements of Operations and Comprehensive Income

For the Six Months Ended June 30, 2014 | ACE Limited (Parent Guarantor) |  |  | ACE INA Holdings Inc. (Subsidiary Issuer) |  |  | Other ACE Limited Subsidiaries |  |  | Consolidating Adjustments and Eliminations |  |  | ACE Limited Consolidated |
(in millions of U.S. dollars) |  |  |  |
Net premiums written | $ | — |  |  | $ | — |  |  | $ | 8,744 |  |  | $ | — |  |  | $ | 8,744 |
Net premiums earned | — |  |  | — |  |  | 8,302 |  |  | — |  |  | 8,302 |
Net investment income | 1 |  |  | 1 |  |  | 1,107 |  |  | — |  |  | 1,109 |
Equity in earnings of subsidiaries | 1,447 |  |  | 411 |  |  | — |  |  | (1,858 | ) |  | — |
Net realized gains (losses) including OTTI | — |  |  | 7 |  |  | (184 | ) |  | — |  |  | (177 | )
Losses and loss expenses | — |  |  | — |  |  | 4,549 |  |  | — |  |  | 4,549 |
Policy benefits | — |  |  | — |  |  | 258 |  |  | — |  |  | 258 |
Policy acquisition costs and administrative expenses | 39 |  |  | 14 |  |  | 2,534 |  |  | — |  |  | 2,587 |
Interest (income) expense | (19 | ) |  | 141 |  |  | 21 |  |  | — |  |  | 143 |
Other (income) expense | (92 | ) |  | 20 |  |  | 30 |  |  | — |  |  | (42 | )
Income tax expense (benefit) | 7 |  |  | (55 | ) |  | 274 |  |  | — |  |  | 226 |
Net income | $ | 1,513 |  |  | $ | 299 |  |  | $ | 1,559 |  |  | $ | (1,858 | ) |  | $ | 1,513 |
Comprehensive income | $ | 2,456 |  |  | $ | 777 |  |  | $ | 2,502 |  |  | $ | (3,279 | ) |  | $ | 2,456 |

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited)
ACE Limited and Subsidiaries
Condensed Consolidating Statement of Cash Flows

For the Six Months Ended June 30, 2015 | ACE Limited (Parent Guarantor) |  |  | ACE INA Holdings Inc. (Subsidiary Issuer) |  |  | Other ACE Limited Subsidiaries |  |  | Consolidating Adjustments and Eliminations |  |  | ACE Limited Consolidated |
(in millions of U.S. dollars) |  |  |  |
Net cash flows from (used for) operating activities | $ | 65 |  |  | $ | (35 | ) |  | $ | 1,861 |  |  | $ | — |  |  | $ | 1,891 |
Cash flows from investing activities |  |  |  |  |  |  |  |  |
Purchases of fixed maturities available for sale | — |  |  | — |  |  | (9,210 | ) |  | — |  |  | (9,210 | )
Purchases of fixed maturities held to maturity | — |  |  | — |  |  | (24 | ) |  | — |  |  | (24 | )
Purchases of equity securities | — |  |  | — |  |  | (70 | ) |  | — |  |  | (70 | )
Sales of fixed maturities available for sale | — |  |  | — |  |  | 3,642 |  |  | — |  |  | 3,642 |
Sales of equity securities | — |  |  | — |  |  | 102 |  |  | — |  |  | 102 |
Maturities and redemptions of fixed maturities available for sale | — |  |  | — |  |  | 3,691 |  |  | — |  |  | 3,691 |
Maturities and redemptions of fixed maturities held to maturity | — |  |  | — |  |  | 470 |  |  | — |  |  | 470 |
Net change in short-term investments | — |  |  | 190 |  |  | 38 |  |  | — |  |  | 228 |
Net derivative instruments settlements | — |  |  | (9 | ) |  | (24 | ) |  | — |  |  | (33 | )
Acquisition of subsidiaries (net of cash acquired of $620) | — |  |  | — |  |  | 255 |  |  | — |  |  | 255 |
Other | — |  |  | (2 | ) |  | (69 | ) |  | — |  |  | (71 | )
Net cash flows from (used for) investing activities | — |  |  | 179 |  |  | (1,199 | ) |  | — |  |  | (1,020 | )
Cash flows from financing activities |  |  |  |  |  |  |  |  |
Dividends paid on Common Shares | (427 | ) |  | — |  |  | — |  |  | — |  |  | (427 | )
Common Shares repurchased | — |  |  | — |  |  | (750 | ) |  | — |  |  | (750 | )
Proceeds from issuance of long-term debt | — |  |  | 800 |  |  | — |  |  | — |  |  | 800 |
Proceeds from issuance of short-term debt | — |  |  | — |  |  | 1,327 |  |  | — |  |  | 1,327 |
Repayment of long-term debt | — |  |  | (450 | ) |  | — |  |  | — |  |  | (450 | )
Repayment of short-term debt | — |  |  | — |  |  | (1,327 | ) |  | — |  |  | (1,327 | )
Proceeds from share-based compensation plans, including windfall tax benefits | — |  |  | — |  |  | 46 |  |  | — |  |  | 46 |
Advances (to) from affiliates | 223 |  |  | (214 | ) |  | (9 | ) |  | — |  |  | — |
Net payments to affiliated notional cash pooling programs(1) | 140 |  |  | (272 | ) |  | — |  |  | 132 |  |  | — |
Policyholder contract deposits | — |  |  | — |  |  | 235 |  |  | — |  |  | 235 |
Policyholder contract withdrawals | — |  |  | — |  |  | (107 | ) |  | — |  |  | (107 | )
Other | — |  |  | (6 | ) |  | — |  |  | — |  |  | (6 | )
Net cash flows used for financing activities | (64 | ) |  | (142 | ) |  | (585 | ) |  | 132 |  |  | (659 | )
Effect of foreign currency rate changes on cash and cash equivalents | — |  |  | — |  |  | (77 | ) |  | — |  |  | (77 | )
Net increase in cash | 1 |  |  | 2 |  |  | — |  |  | 132 |  |  | 135 |
Cash – beginning of period(1) | — |  |  | 1 |  |  | 1,209 |  |  | (555 | ) |  | 655 |
Cash – end of period(1) | $ | 1 |  |  | $ | 3 |  |  | $ | 1,209 |  |  | $ | (423 | ) |  | $ | 790 |

(1) | ACE maintains two notional multicurrency cash pools (Pools) with a third-party bank. Various ACE entities participate in one or the other of the Pools, pursuant to which credit and debit balances in individual ACE accounts are translated daily into a single currency and pooled on a notional basis. Individual ACE entities are permitted to overdraw on their individual accounts provided the overall Pool balances do not fall below zero. At June 30, 2015 and December 31, 2014, the cash balance of one or more entities was negative; however, the overall Pool balances were positive.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited)
ACE Limited and Subsidiaries
Condensed Consolidating Statement of Cash Flows

For the Six Months Ended June 30, 2014 | ACE Limited (Parent Guarantor) |  |  | ACE INA Holdings Inc. (Subsidiary Issuer) |  |  | Other ACE Limited Subsidiaries |  |  | Consolidating Adjustments and Eliminations |  |  | ACE Limited Consolidated |
(in millions of U.S. dollars) |  |  |  |
Net cash flows from (used for) operating activities | $ | 83 |  |  | $ | (7 | ) |  | $ | 2,020 |  |  | $ | — |  |  | $ | 2,096 |
Cash flows from investing activities |  |  |  |  |  |  |  |  |
Purchases of fixed maturities available for sale | — |  |  | — |  |  | (7,963 | ) |  | 3 |  |  | (7,960 | )
Purchases of fixed maturities held to maturity | — |  |  | — |  |  | (129 | ) |  | — |  |  | (129 | )
Purchases of equity securities | — |  |  | — |  |  | (64 | ) |  | — |  |  | (64 | )
Sales of fixed maturities available for sale | — |  |  | — |  |  | 3,845 |  |  | (3 | ) |  | 3,842 |
Sales of equity securities | — |  |  | — |  |  | 45 |  |  | — |  |  | 45 |
Maturities and redemptions of fixed maturities available for sale | — |  |  | — |  |  | 3,163 |  |  | — |  |  | 3,163 |
Maturities and redemptions of fixed maturities held to maturity | — |  |  | — |  |  | 414 |  |  | — |  |  | 414 |
Net change in short-term investments | (1 | ) |  | (1 | ) |  | (293 | ) |  | — |  |  | (295 | )
Net derivative instruments settlements | — |  |  | (7 | ) |  | (178 | ) |  | — |  |  | (185 | )
Acquisition of subsidiaries (net of cash acquired of $4) | — |  |  | — |  |  | (172 | ) |  | — |  |  | (172 | )
Other | — |  |  | (3 | ) |  | (115 | ) |  | — |  |  | (118 | )
Net cash flows used for investing activities | (1 | ) |  | (11 | ) |  | (1,447 | ) |  | — |  |  | (1,459 | )
Cash flows from financing activities |  |  |  |  |  |  |  |  |
Dividends paid on Common Shares | (428 | ) |  | — |  |  | — |  |  | — |  |  | (428 | )
Common Shares repurchased | — |  |  | — |  |  | (557 | ) |  | — |  |  | (557 | )
Proceeds from issuance of long-term debt | — |  |  | 699 |  |  | — |  |  | — |  |  | 699 |
Proceeds from issuance of short-term debt | — |  |  | — |  |  | 977 |  |  | — |  |  | 977 |
Repayment of long-term debt | — |  |  | (500 | ) |  | — |  |  | — |  |  | (500 | )
Repayment of short-term debt | — |  |  | — |  |  | (977 | ) |  | — |  |  | (977 | )
Proceeds from share-based compensation plans, including windfall tax benefits | — |  |  | — |  |  | 75 |  |  | — |  |  | 75 |
Advances (to) from affiliates | 575 |  |  | (667 | ) |  | 92 |  |  | — |  |  | — |
Net proceeds from (payments to) affiliated notional cash pooling programs(1) | (185 | ) |  | 477 |  |  | — |  |  | (292 | ) |  | — |
Policyholder contract deposits | — |  |  | — |  |  | 125 |  |  | — |  |  | 125 |
Policyholder contract withdrawals | — |  |  | — |  |  | (33 | ) |  | — |  |  | (33 | )
Other | — |  |  | (6 | ) |  | — |  |  | — |  |  | (6 | )
Net cash flows (used for) from financing activities | (38 | ) |  | 3 |  |  | (298 | ) |  | (292 | ) |  | (625 | )
Effect of foreign currency rate changes on cash and cash equivalents | — |  |  | — |  |  | 3 |  |  | — |  |  | 3 |
Net increase (decrease) in cash | 44 |  |  | (15 | ) |  | 278 |  |  | (292 | ) |  | 15 |
Cash – beginning of period(1) | — |  |  | 16 |  |  | 748 |  |  | (185 | ) |  | 579 |
Cash – end of period(1) | $ | 44 |  |  | $ | 1 |  |  | $ | 1,026 |  |  | $ | (477 | ) |  | $ | 594 |

(1) | ACE maintains two notional multicurrency cash pools (Pools) with a third-party bank. Various ACE entities participate in one or the other of the Pools, pursuant to which credit and debit balances in individual ACE accounts are translated daily into a single currency and pooled on a notional basis. Individual ACE entities are permitted to overdraw on their individual accounts provided the overall Pool balances do not fall below zero. At June 30, 2014 and December 31, 2013, the cash balance of one or more entities was negative; however, the overall Pool balances were positive.

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ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following is a discussion of our results of operations, financial condition, and liquidity and capital resources as of and for the three and six months ended June 30, 2015.
All comparisons in this discussion are to the corresponding prior year periods unless otherwise indicated.
Our results of operations and cash flows for any interim period are not necessarily indicative of our results for the full year. This discussion should be read in conjunction with our consolidated financial statements and related notes and our Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2014 (2014 Form 10-K).
Other Information
We routinely post important information for investors on our website (www.acegroup.com) under the Investor Information section. We use this website as a means of disclosing material, non-public information and for complying with our disclosure obligations under Securities and Exchange Commission (SEC) Regulation FD (Fair Disclosure). Accordingly, investors should monitor the Investor Information portion of our website, in addition to following our press releases, SEC filings, public conference calls, and webcasts. The information contained on, or that may be accessed through, our website is not incorporated by reference into, and is not a part of, this report.

MD&A Index | Page
Forward-Looking Statements | 42
Overview | 43
Financial Highlights | 44
Consolidated Operating Results | 45
Prior Period Development | 49
Segment Operating Results | 53
Other Income and Expense Items | 62
Net Investment Income | 63
Net Realized and Unrealized Gains (Losses) | 64
Investments | 65
Critical Accounting Estimates | 69
Reinsurance Recoverable on Ceded Reinsurance | 69
Unpaid Losses and Loss Expenses | 69
Asbestos and Environmental (A&E) | 70
Fair Value Measurements | 70
Assumed Reinsurance Programs Involving Minimum Benefit Guarantees under Variable Annuity Contracts | 70
Catastrophe Management | 72
Natural Catastrophe Property Reinsurance Program | 72
Crop Insurance | 73
Liquidity | 74
Capital Resources | 75

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Forward-Looking Statements

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. Any written or oral statements made by us or on our behalf may include forward-looking statements that reflect our current views with respect to future events and financial performance. These forward-looking statements are subject to certain risks, uncertainties, and other factors that could, should potential events occur, cause actual results to differ materially from such statements. These risks, uncertainties, and other factors, which are described in more detail under Part II, Item 1A, under Risk Factors, starting on page 79 and elsewhere herein and in other documents we file with the U.S. Securities and Exchange Commission (SEC), include but are not limited to:

• | losses arising out of natural or man-made catastrophes such as hurricanes, typhoons, earthquakes, floods, climate change (including effects on weather patterns; greenhouse gases; sea; land and air temperatures; sea levels; and rain and snow), nuclear accidents, or terrorism which could be affected by:

• | the number of insureds and ceding companies affected;

• | the amount and timing of losses actually incurred and reported by insureds;

• | the impact of these losses on our reinsurers and the amount and timing of reinsurance recoverable actually received;

• | the cost of building materials and labor to reconstruct properties or to perform environmental remediation following a catastrophic event; and

• | complex coverage and regulatory issues such as whether losses occurred from storm surge or flooding and related lawsuits;

• | actions that rating agencies may take from time to time, such as financial strength or credit ratings downgrades or placing these ratings on credit watch negative or the equivalent;

• | the ability to collect reinsurance recoverable, credit developments of reinsurers, and any delays with respect thereto and changes in the cost, quality, or availability of reinsurance;

• | actual loss experience from insured or reinsured events and the timing of claim payments;

• | the uncertainties of the loss-reserving and claims-settlement processes, including the difficulties associated with assessing environmental damage and asbestos-related latent injuries, the impact of aggregate-policy-coverage limits, the impact of bankruptcy protection sought by various asbestos producers and other related businesses, and the timing of loss payments;

• | changes to our assessment as to whether it is more likely than not that we will be required to sell, or have the intent to sell, available for sale fixed maturity investments before their anticipated recovery;

• | infection rates and severity of pandemics and their effects on our business operations and claims activity;

• | developments in global financial markets, including changes in interest rates, stock markets, and other financial markets, increased government involvement or intervention in the financial services industry, the cost and availability of financing, and foreign currency exchange rate fluctuations (which we refer to in this report as foreign exchange and foreign currency exchange), which could affect our statement of operations, investment portfolio, financial condition, and financing plans;

• | general economic and business conditions resulting from volatility in the stock and credit markets and the depth and duration of potential recession;

• | global political conditions, the occurrence of any terrorist attacks, including any nuclear, radiological, biological, or chemical events, or the outbreak and effects of war, and possible business disruption or economic contraction that may result from such events;

• | judicial decisions and rulings, new theories of liability, legal tactics, and settlement terms;

• | the effects of public company bankruptcies and/or accounting restatements, as well as disclosures by and investigations of public companies relating to possible accounting irregularities, and other corporate governance issues, including the effects of such events on:

• | the capital markets;

• | the markets for directors and officers (D&O) and errors and omissions (E&O) insurance; and

• | claims and litigation arising out of such disclosures or practices by other companies;

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• | uncertainties relating to governmental, legislative and regulatory policies, developments, actions, investigations, and treaties, which, among other things, could subject us to insurance regulation or taxation in additional jurisdictions or affect our current operations;

• | the actual amount of new and renewal business, market acceptance of our products, and risks associated with the introduction of new products and services and entering new markets, including regulatory constraints on exit strategies;

• | the competitive environment in which we operate, including trends in pricing or in policy terms and conditions, which may differ from our projections and changes in market conditions that could render our business strategies ineffective or obsolete;

• | acquisitions made by us performing differently than expected, our failure to realize anticipated expense-related efficiencies or growth from acquisitions, the impact of acquisitions on our pre-existing organization, or announced acquisitions not closing;

• | risks and uncertainties relating to our planned acquisition of The Chubb Corporation (the Chubb Merger) including our ability to complete the Chubb Merger, the availability of favorable financing necessary to complete the Chubb Merger and our ability to successfully integrate the acquired company;

• | risks associated with being a Swiss corporation, including reduced flexibility with respect to certain aspects of capital management and the potential for additional regulatory burdens;

• | the potential impact from government-mandated insurance coverage for acts of terrorism;

• | the availability of borrowings and letters of credit under our credit facilities;

• | the adequacy of collateral supporting funded high deductible programs;

• | changes in the distribution or placement of risks due to increased consolidation of insurance and reinsurance brokers;

• | material differences between actual and expected assessments for guaranty funds and mandatory pooling arrangements;

• | the effects of investigations into market practices in the property and casualty (P&C) industry;

• | changing rates of inflation and other economic conditions, for example, recession;

• | the amount of dividends received from subsidiaries;

• | loss of the services of any of our executive officers without suitable replacements being recruited in a reasonable time frame;

• | the ability of our technology resources, including information systems and security, to perform as anticipated such as with respect to preventing material information technology failures or third-party infiltrations or hacking resulting in consequences adverse to ACE or its customers or partners; and

• | management’s response to these factors and actual events (including, but not limited to, those described above).

The words “believe,” “anticipate,” “estimate,” “project,” “should,” “plan,” “expect,” “intend,” “hope,” “feel,” “foresee,” “will likely result,” or “will continue,” and variations thereof and similar expressions, identify forward-looking statements. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. We undertake no obligation to publicly update or review any forward-looking statements, whether as a result of new information, future events, or otherwise.

Overview

ACE Limited is the Swiss-incorporated holding company of the ACE Group of Companies. ACE Limited, which is headquartered in Zurich, Switzerland, and its direct and indirect subsidiaries (collectively, the ACE Group of Companies, ACE, we, us, or our) are a global insurance and reinsurance organization, serving the needs of a diverse group of clients worldwide. At June 30, 2015, we had total assets of $100 billion and shareholders’ equity of $30 billion. ACE opened its first business office in Bermuda, in 1985, and continues to maintain operations in Bermuda.
We operate through five business segments: Insurance – North American P&C, Insurance – North American Agriculture, Insurance – Overseas General, Global Reinsurance, and Life. For more information on our segments refer to “Segment Information” in our 2014 Form 10-K.
We have grown our business through increased premium volume, expansion of product offerings and geographic reach, and acquisitions of other companies. The Insurance – North American P&C segment has recently expanded its operations through
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the acquisition of the Fireman's Fund Insurance Company high net worth personal lines insurance business in the U.S. (Fireman's Fund) on April 1, 2015.
The Insurance – Overseas General segment has recently expanded its operations through the following acquisitions:

• | The large corporate account property and casualty (P&C) insurance business of Itaú Seguros (Itaú Seguros) (October 31, 2014); and

• | The Siam Commercial Samaggi Insurance PCL (Samaggi) (we and our local partner acquired 60.86 percent ownership on April 28, 2014, and subsequently acquired an additional 32.17 percent ownership through a mandatory tender offer, which expired on June 17, 2014).

On June 30, 2015, we entered into a definitive agreement to acquire The Chubb Corporation (Chubb), a leading provider of middle-market commercial, specialty, surety, and personal insurance for approximately $28.3 billion in cash and stock. Together, ACE and Chubb is expected to be a global leader in commercial, specialty, and personal P&C insurance. We believe the combined company will have enhanced growth and earning power compared to the two companies on a stand-alone basis.
The consolidated financial statements include results of acquired businesses from the acquisition dates. Refer to Note 2 to the Consolidated Financial Statements for additional information on our acquisitions.

Financial Highlights for the Three Months Ended June 30, 2015

• | Net income was $942 million compared with $779 million in the prior year period.

• | Total company net premiums written increased 4.9 percent, or 10.8 percent on a constant-dollar basis. Net premiums written included $252 million from the transfer of the Fireman's Fund in-force business at the time of the transaction and will be non-recurring in 2016.

• | P&C combined ratio was 87.7 percent compared with 87.5 percent in the prior year period. The GAAP combined ratio was 87.6 percent compared with 87.7 percent in the prior year period.

• | The current accident year combined ratio excluding catastrophe losses was 88.4 percent compared with 88.7 percent in the prior year period.

• | The P&C expense ratio was 28.8 percent compared with 29.3 percent in the prior year period.

• | Total pre-tax and after-tax catastrophe losses including reinstatement premiums were $124 million (3.2 percentage points of the combined ratio) and $106 million, respectively, compared with $80 million (2.1 percentage points of the combined ratio) and $67 million, respectively, in the prior year period.

• | Favorable prior period development (PPD) pre-tax and after-tax were $153 million (3.9 percentage points of the combined ratio) and $128 million, respectively, compared with $126 million (3.3 percentage points of the combined ratio) and $106 million, respectively, in the prior year period.

• | Insurance – North American P&C underwriting income included a $49 million benefit related to the transfer of the Fireman's Fund in-force business at the time of the transaction and will be non-recurring in 2016. This benefit was partially offset by purchase accounting intangible amortization of $29 million included in other income (expense), resulting in a net $20 million pre-tax, or $15 million after-tax, increase in net income which will not recur in 2016.

• | Operating cash flow was $816 million for the quarter.

• | Net investment income was $562 million compared with $556 million in the prior year period. This quarter was negatively impacted by foreign currency movement of $11 million.

• | Unrealized losses in our investment portfolio, which resulted primarily from rising interest rates, reduced shareholders' equity by $672 million, after-tax. These unrealized losses, which are recorded to Accumulated other comprehensive income on the consolidated balance sheet, were partially offset by favorable foreign currency movement in the quarter and realized gains, primarily in our variable annuity reinsurance business.

• | Share repurchases totaled $394 million, or approximately 3.7 million shares, in the quarter. At this time, management has elected to discontinue share repurchases under the Board authorization in connection with the announced planned acquisition of Chubb.

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Consolidated Operating Results – Three and Six Months Ended June 30, 2015 and 2014

| Three Months Ended |  |  |  |  | Six Months Ended |  |  |
| June 30 |  |  | % Change |  |  | June 30 |  |  | % Change |
(in millions of U.S. dollars, except for percentages) | 2015 |  |  | 2014 |  |  | Q-15 vs. Q-14 |  |  | 2015 |  |  | 2014 |  |  | YTD-15 vs. YTD-14 |
Net premiums written | $ | 4,784 |  |  | $ | 4,559 |  |  | 4.9 | % |  | $ | 8,860 |  |  | $ | 8,744 |  |  | 1.3 | %
Net premiums earned | 4,360 |  |  | 4,332 |  |  | 0.7 | % |  | 8,287 |  |  | 8,302 |  |  | (0.2 | )%
Net investment income | 562 |  |  | 556 |  |  | 1.0 | % |  | 1,113 |  |  | 1,109 |  |  | 0.3 | %
Net realized gains (losses) | 126 |  |  | (73 | ) |  | NM |  |  | 37 |  |  | (177 | ) |  | NM |
Total revenues | 5,048 |  |  | 4,815 |  |  | 4.8 | % |  | 9,437 |  |  | 9,234 |  |  | 2.2 | %
Losses and loss expenses | 2,417 |  |  | 2,388 |  |  | 1.2 | % |  | 4,539 |  |  | 4,549 |  |  | (0.2 | )%
Policy benefits | 153 |  |  | 144 |  |  | 6.3 | % |  | 295 |  |  | 258 |  |  | 14.3 | %
Policy acquisition costs | 727 |  |  | 758 |  |  | (4.1 | )% |  | 1,434 |  |  | 1,486 |  |  | (3.5 | )%
Administrative expenses | 578 |  |  | 566 |  |  | 2.1 | % |  | 1,132 |  |  | 1,101 |  |  | 2.8 | %
Interest expense | 71 |  |  | 72 |  |  | (1.4 | )% |  | 139 |  |  | 143 |  |  | (2.8 | )%
Other (income) expense | 17 |  |  | (25 | ) |  | NM |  |  | 12 |  |  | (42 | ) |  | NM |
Total expenses | 3,963 |  |  | 3,903 |  |  | 1.5 | % |  | 7,551 |  |  | 7,495 |  |  | 0.7 | %
Income before income tax | 1,085 |  |  | 912 |  |  | 19.0 | % |  | 1,886 |  |  | 1,739 |  |  | 8.5 | %
Income tax expense | 143 |  |  | 133 |  |  | 7.5 | % |  | 263 |  |  | 226 |  |  | 16.4 | %
Net income | $ | 942 |  |  | $ | 779 |  |  | 20.8 | % |  | $ | 1,623 |  |  | $ | 1,513 |  |  | 7.2 | %
NM – not meaningful |  |  |  |  |  |  |  |  |  |  |

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The following tables present a breakdown of consolidated net premiums written for the periods indicated:

| Three Months Ended |  |  |  |  | Six Months Ended |  |  |
| June 30 |  |  | % Change |  |  | June 30 |  |  | % Change |
(in millions of U.S. dollars, except for percentages) | 2015 |  |  | 2014 |  |  | Q-15 vs. Q-14 |  |  | 2015 |  |  | 2014 |  |  | YTD-15 vs. YTD-14 |
Commercial P&C (retail and wholesale) | $ | 1,957 |  |  | $ | 2,067 |  |  | (5.4 | )% |  | $ | 3,968 |  |  | $ | 4,076 |  |  | (2.7 | )%
Personal and small commercial lines | 1,033 |  |  | 614 |  |  | 68.4 | % |  | 1,608 |  |  | 1,124 |  |  | 43.1 | %
Reinsurance | 261 |  |  | 278 |  |  | (5.9 | )% |  | 534 |  |  | 586 |  |  | (8.8 | )%
Property, casualty, and all other | 3,251 |  |  | 2,959 |  |  | 9.9 | % |  | 6,110 |  |  | 5,786 |  |  | 5.6 | %
Agriculture | 379 |  |  | 388 |  |  | (2.4 | )% |  | 467 |  |  | 582 |  |  | (19.8 | )%
Personal accident (A&H) | 909 |  |  | 961 |  |  | (5.2 | )% |  | 1,799 |  |  | 1,878 |  |  | (4.2 | )%
Life | 245 |  |  | 251 |  |  | (2.7 | )% |  | 484 |  |  | 498 |  |  | (2.9 | )%
Total consolidated | $ | 4,784 |  |  | $ | 4,559 |  |  | 4.9 | % |  | $ | 8,860 |  |  | $ | 8,744 |  |  | 1.3 | %
Total consolidated - constant dollars (C$) (1) |  |  | $ | 4,318 |  |  | 10.8 | % |  |  |  | $ | 8,322 |  |  | 6.5 | %
| 2015 % of Total |  |  | 2014 % of Total |  |  |  |  | 2015 % of Total |  |  | 2014 % of Total |  |  |
Commercial P&C (retail and wholesale) | 41 | % |  | 45 | % |  |  |  | 45 | % |  | 46 | % |  |
Personal and small commercial lines | 22 | % |  | 14 | % |  |  |  | 19 | % |  | 13 | % |  |
Reinsurance | 5 | % |  | 6 | % |  |  |  | 6 | % |  | 7 | % |  |
Property, casualty, and all other | 68 | % |  | 65 | % |  |  |  | 70 | % |  | 66 | % |  |
Agriculture | 8 | % |  | 8 | % |  |  |  | 5 | % |  | 7 | % |  |
Personal accident (A&H) | 19 | % |  | 21 | % |  |  |  | 20 | % |  | 21 | % |  |
Life | 5 | % |  | 6 | % |  |  |  | 5 | % |  | 6 | % |  |
Total consolidated | 100 | % |  | 100 | % |  |  |  | 100 | % |  | 100 | % |  |

(1) | On a constant-dollar basis. Amounts are calculated by translating prior period results using the same local currency rates as the comparable current period.

Net premiums written reflect the premiums we retain after purchasing reinsurance protection. Consolidated net premiums written increased 4.9 percent and 1.3 percent for the three and six months ended June 30, 2015, respectively. On a constant-dollar basis, net premiums written increased 10.8 percent ($466 million) and 6.5 percent ($538 million), respectively, driven by the following:

• | Net premiums written in our Insurance – North American P&C segment increased $349 million and $365 million in constant dollars for the three and six months ended June 30, 2015, respectively, primarily due to the acquisition of Fireman's Fund high net worth personal lines business in April 2015, which added $378 million of growth to premiums. Included in premiums is $252 million of non-recurring unearned premium reserves recognized as written premiums at the date of purchase. Excluding the Fireman’s Fund acquisition, net premiums written decreased 2.3 percent and 0.9 percent for the three and six months ended June 30, 2015, respectively, primarily due to declines in our retail and wholesale and specialty property divisions and in our retail casualty business reflecting a more competitive market and rate decreases. These declines were partially offset by growth primarily from new business written in our A&H, Commercial Risk Services (CRS), and personal lines divisions.

• | Net premiums written in our Insurance – Overseas General segment increased $118 million and $295 million in constant dollars for the three and six months ended June 30, 2015, respectively, reflecting organic growth across most operations, primarily in our retail operations in personal and P&C product lines from new business writings. Included in the increase in net premiums written were contributions from the acquisitions of Itaú Seguros in October 2014 and Samaggi in April 2014, which added $85 million and $187 million of premiums for the three and six months ended June 30, 2015, respectively.

• | Net premiums written in our Life segment increased $19 million and $31 million in constant dollars for the three and six months ended June 30, 2015, respectively, due to new business growth in our supplemental A&H businesses and our international life business, primarily in Asia.

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• | Net premiums written in our Global Reinsurance segment decreased $11 million and $38 million in constant dollars for the three and six months ended June 30, 2015, respectively, primarily due to lower production from competitive market conditions, partially offset by new business written, primarily in our U.S. automobile business.

• | Net premiums written in our Insurance – North American Agriculture segment decreased $9 million and $115 million for the three and six months ended June 30, 2015, respectively. The decrease in the quarter was due to lower commodity base prices used in our 2015 policy pricing, partially offset by an increase in estimated retention for the 2015 crop year. The decrease for the six months ended June 30, 2015 was primarily due to lower premium retention as a result of the premium-sharing formulas with the U.S. government, a non-recurring positive adjustment in 2014 to the premium estimates and lower commodity base prices used in our 2015 policy pricing.

Net premiums earned for short-duration contracts, typically P&C contracts, generally reflect the portion of net premiums written that were recorded as revenues for the period as the exposure periods expire. Net premiums earned for long-duration contracts, typically traditional life contracts, generally are recognized as earned when due from policyholders. Net premiums earned increased 0.7 percent for the three months ended June 30, 2015 and decreased 0.2 percent for the six months ended June 30, 2015, respectively, primarily reflecting the adverse impact of foreign exchange. On a constant-dollar basis, net premiums earned increased 6.5 percent and 4.9 percent for the three and six months ended June 30, 2015, respectively, primarily due to the same factors driving the increase in net premiums written as described above, partially offset by the impact of the non-renewal of a workers' compensation treaty in our Global Reinsurance segment in the third quarter of 2014, which resulted in a $19 million and $39 million decrease in net premiums earned for the three and six months ended June 30, 2015, respectively.
In evaluating our segments excluding Life, we use the combined ratio, the loss and loss expense ratio, the policy acquisition cost ratio, and the administrative expense ratio. We calculate these ratios by dividing the respective expense amounts by net premiums earned. We do not calculate these ratios for the Life segment as we do not use these measures to monitor or manage that segment. The combined ratio is determined by adding the loss and loss expense ratio, the policy acquisition cost ratio, and the administrative expense ratio. A combined ratio under 100 percent indicates underwriting income, and a combined ratio exceeding 100 percent indicates underwriting loss.
The following table presents the components of GAAP combined ratio as well as a reconciliation of GAAP combined ratio to P&C combined ratio. The P&C combined ratio is a non-GAAP financial measure and includes the impact of realized gains and losses on crop derivatives. These derivatives were purchased to provide economic benefit, in a manner similar to reinsurance protection, in the event that a significant decline in commodity pricing impacts underwriting results. We view gains and losses on these derivatives as part of the results of our underwriting operations.

| Three Months Ended |  |  | Six Months Ended |
| June 30 |  |  | June 30 |
| 2015 |  |  | 2014 |  |  | 2015 |  |  | 2014 |
Loss and loss expense ratio | 58.8 | % |  | 58.4 | % |  | 58.0 | % |  | 58.0 | %
Policy acquisition cost ratio | 15.7 | % |  | 16.6 | % |  | 16.5 | % |  | 17.1 | %
Administrative expense ratio | 13.1 | % |  | 12.7 | % |  | 13.5 | % |  | 13.1 | %
GAAP combined ratio | 87.6 | % |  | 87.7 | % |  | 88.0 | % |  | 88.2 | %
(Gains) losses on crop derivatives | 0.1 | % |  | (0.2 | )% |  | — |  |  | — |
P&C combined ratio | 87.7 | % |  | 87.5 | % |  | 88.0 | % |  | 88.2 | %

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The following table presents the impact of catastrophe losses and related reinstatement premiums and prior period reserve development on our consolidated loss and loss expense ratio, including losses on crop derivatives. Loss and loss expense ratio, adjusted is a non-GAAP financial measure. The loss ratio numerator includes adjusted losses and loss expenses adjusted to exclude catastrophe losses and PPD. The loss ratio denominator includes Net premiums earned adjusted to exclude the amount of reinstatement premiums (expensed) collected. In periods where there are adjustments on loss sensitive policies, these adjustments are excluded from PPD and net earned premiums when calculating this ratio. We believe that excluding the impact of catastrophe losses and PPD provides a better evaluation of our core underwriting performance and enhances the understanding of the trends in our property & casualty business that may be obscured by these items.

| Three Months Ended |  |  | Six Months Ended |
| June 30 |  |  | June 30 |
| 2015 |  |  | 2014 |  |  | 2015 |  |  | 2014 |
Loss and loss expense ratio, including (gains) losses on crop derivatives | 58.9 | % |  | 58.2 | % |  | 58.0 | % |  | 58.0 | %
Catastrophe losses and related reinstatement premiums | (3.2 | )% |  | (2.1 | )% |  | (2.4 | )% |  | (1.8 | )%
Prior period development | 4.0 | % |  | 3.3 | % |  | 3.3 | % |  | 2.4 | %
Loss and loss expense ratio, adjusted | 59.7 | % |  | 59.4 | % |  | 58.9 | % |  | 58.6 | %

Total net pre-tax catastrophe losses, excluding related reinstatement premiums, were $124 million and $175 million for the three and six months ended June 30, 2015, compared with $80 million and $133 million in the prior year periods, respectively. Catastrophe losses through June 30, 2015 were primarily related to severe weather-related events in the U.S. and Asia, a hailstorm in Australia, and flooding in Chile. Catastrophe losses in the prior year periods were primarily related to severe weather-related events in the U.S., Japan, and Australia, and flooding and hailstorms in Europe. The adjusted loss and loss expense ratio increased for the three and six months ended June 30, 2015 due to higher non-catastrophe large losses and higher net premiums earned in the prior year reflecting lower excess of loss premiums ceded under our 2014 catastrophe reinsurance programs, which reduced the prior year loss ratios in our Insurance – North American P&C segment, partially offset by the acquisition of Fireman's Fund personal lines whose business carries a lower loss ratio.
Prior period development arises from changes to loss estimates recognized in the current year that relate to loss events that occurred in previous calendar years and excludes the effect of losses from the development of earned premium from previous accident years. We experienced net favorable prior period development of $153 million and $236 million for the three and six months ended June 30, 2015, respectively. This compares with net favorable prior period development of $126 million and $188 million in the prior year periods, respectively. Refer to “Prior Period Development” for additional information.
Net investment income for the three and six months ended June 30, 2015 was $562 million and $1.1 billion compared with $556 million and $1.1 billion for the prior year periods, respectively. Refer to “Net Investment Income” and “Investments” for additional information.
Policy acquisition costs consist of commissions, premium taxes, and certain underwriting costs related directly to the successful acquisition of a new or renewal insurance contract. Our policy acquisition cost ratio decreased for the three and six months ended June 30, 2015 primarily due to the normal impact of initial year purchase accounting adjustments related to our acquisition of Fireman's Fund in our Insurance – North American P&C segment. The non-recurring UPR transfer, discussed in our Insurance – North American P&C segment, benefited the policy acquisition cost ratio by 1.3 percentage points for the three months ended June 30, 2015. As a result of purchase accounting requirements, the unearned premiums at the date of purchase related to the businesses acquired are recognized over the remaining coverage period with no expense for the associated historical acquisition costs that were incurred to underwrite those policies, thereby favorably impacting the policy acquisition cost ratio.
Our administrative expense ratio increased for the three and six months ended June 30, 2015 primarily due to increased spending to support growth and the acquisition of Fireman's Fund, which carries a higher administrative ratio than our other businesses.
Our effective income tax rate, which we calculate as income tax expense divided by income before income tax, is dependent upon the mix of earnings from different jurisdictions with various tax rates. A change in the geographic mix of earnings would change the effective income tax rate. Our effective income tax rate was 13.2 percent and 13.9 percent for the three and six months ended June 30, 2015, respectively. Our effective income tax rate was 14.6 percent and 13.0 percent for the three and
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six months ended June 30, 2014, respectively. The decrease in the effective rate for the three month period is primarily due to a higher percentage of realized gains being generated in lower tax paying jurisdictions partially offset by a lower percentage of operating earnings generated in lower tax paying jurisdictions. The increase in effective tax rate for the six month period was primarily due to a lower percentage of earnings being generated in lower tax paying jurisdictions. The lower tax rates attributed to our foreign operations primarily reflect the lower corporate tax rates that prevail outside of the U.S. During both the three and six months ended June 30, 2015, approximately 66 percent of our total pre-tax income was tax effected based on these lower rates compared with 68 percent and 70 percent for the three and six months ended June 30, 2014, respectively. The significant jurisdictions outside of the U.S. include the U.K., Switzerland, and Bermuda with effective federal income tax rates in those countries of 20.25 percent, 7.83 percent, and 0.0 percent, respectively.
Prior Period Development
The following tables summarize (favorable) and adverse prior period development (PPD) by segment. Long-tail lines include lines such as workers' compensation, general liability, and professional liability; while short-tail lines include lines such as most property lines, energy, personal accident, aviation, marine (including associated liability-related exposures) and agriculture. Significant prior period movements by segment, principally driven by reserve reviews completed during each respective period, are discussed in more detail below. The remaining net development for long-tail and short-tail business for each segment comprises numerous favorable and adverse movements across a number of lines and accident years, none of which is significant individually or in the aggregate.

Three Months Ended June 30 | Long-tail |  |  | Short-tail |  |  | Total |  |  | % of net unpaid reserves(1) |
(in millions of U.S. dollars, except for percentages) |  |  |
2015 |  |  |  |  |  |  |
Insurance – North American P&C | $ | (37 | ) |  | $ | (12 | ) |  | $ | (49 | ) |  | 0.3 | %
Insurance – North American Agriculture | — |  |  | — |  |  | — |  |  | — | %
Insurance – Overseas General | 1 |  |  | (69 | ) |  | (68 | ) |  | 0.9 | %
Global Reinsurance | (39 | ) |  | 3 |  |  | (36 | ) |  | 2.0 | %
Total | $ | (75 | ) |  | $ | (78 | ) |  | $ | (153 | ) |  | 0.6 | %
2014 |  |  |  |  |  |  |
Insurance – North American P&C | $ | (19 | ) |  | $ | (20 | ) |  | $ | (39 | ) |  | 0.2 | %
Insurance – North American Agriculture | — |  |  | — |  |  | — |  |  | — | %
Insurance – Overseas General | 3 |  |  | (66 | ) |  | (63 | ) |  | 0.8 | %
Global Reinsurance | (24 | ) |  | — |  |  | (24 | ) |  | 1.2 | %
Total | $ | (40 | ) |  | $ | (86 | ) |  | $ | (126 | ) |  | 0.5 | %
(1) Calculated based on the segment's total beginning of period net unpaid loss and loss expenses reserves.

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Six Months Ended June 30 | Long-tail |  |  | Short-tail |  |  | Total |  |  | % of net unpaid reserves(1) |
(in millions of U.S. dollars, except for percentages) |  |  |
2015 |  |  |  |  |  |  |
Insurance – North American P&C | $ | (54 | ) |  | $ | (16 | ) |  | $ | (70 | ) |  | 0.4 | %
Insurance – North American Agriculture | — |  |  | (33 | ) |  | (33 | ) |  | 5.7 | %
Insurance – Overseas General | 1 |  |  | (93 | ) |  | (92 | ) |  | 1.1 | %
Global Reinsurance | (40 | ) |  | (1 | ) |  | (41 | ) |  | 2.2 | %
Total | $ | (93 | ) |  | $ | (143 | ) |  | $ | (236 | ) |  | 0.9 | %
2014 |  |  |  |  |  |  |
Insurance – North American P&C | $ | (80 | ) |  | $ | (27 | ) |  | $ | (107 | ) |  | 0.7 | %
Insurance – North American Agriculture | — |  |  | 38 |  |  | 38 |  |  | 7.5 | %
Insurance – Overseas General | 4 |  |  | (90 | ) |  | (86 | ) |  | 1.0 | %
Global Reinsurance | (23 | ) |  | (10 | ) |  | (33 | ) |  | 1.5 | %
Total | $ | (99 | ) |  | $ | (89 | ) |  | $ | (188 | ) |  | 0.7 | %
(1) Calculated based on the segment's total beginning of period net unpaid loss and loss expenses reserves.

Insurance – North American P&C
2015
For the three months ended June 30, 2015, net favorable PPD was $49 million, which was the net result of several underlying favorable and adverse movements, driven by the following principal changes:

• | Net favorable development of $37 million in long-tail business, primarily from:

• | Net favorable development of $84 million in our national accounts portfolios which consist of commercial auto, general liability and workers' compensation lines of business. This favorable movement was the net impact of favorable and adverse movements, including:

• | Favorable development of $32 million in our auto liability excess lines primarily impacting the 2010 accident year, resulting from lower than expected loss emergence and an increase in weighting applied to experience-based methods;

• | Favorable development of $26 million in our general liability product lines primarily impacting the 2010 accident year, resulting from lower than expected loss emergence and an increase in weighting applied to experience-based methods; and

• | Net favorable development of $22 million in our workers' compensation lines with favorable development of $52 million in the 2014 accident year related to our annual assessment of multi-claimant events including industrial accidents. Consistent with prior years, we reviewed these potential exposures after the close of the accident year to allow for late reporting or identification of significant losses. Adverse development of $30 million impacting the 2009 and prior accident years, was due to a combination of claim-specific deteriorations and higher than expected loss emergence. There was additional adverse development in the 2014 accident year due to revised account-level estimates, which proved to be higher than our original aggregate book expectations.

• | Net adverse development of $47 million in our Brandywine run-off portfolios, principally in the general and products liability lines, impacting the 1995 and prior accident years, where loss activity has been higher than expected.

For the six months ended June 30, 2015, net favorable PPD was $70 million, which was the net result of several underlying favorable and adverse movements, driven by the following principal changes:

• | Net favorable development of $54 million in long-tail business, primarily from:

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• | Net favorable development of $84 million in our national accounts portfolios as described above;

• | Net adverse development of $56 million in our Brandywine run-off portfolios due to the same factors experienced for the three months ended June 30, 2015 as described above and including unallocated loss adjustment expenses; and

• | Favorable development of $24 million in our surety business due to lower than expected claims emergence primarily in the 2013 accident year.

2014
For the three months ended June 30, 2014, net favorable PPD was $39 million, which was the net result of several underlying favorable and adverse movements, driven by the following principal changes:

• | Net favorable development of $19 million in long-tail business, primarily from:

• | Net favorable development of $33 million in our workers' compensation lines primarily in the 2013 accident year related to our annual assessment of multi-claimant events including industrial accidents. Consistent with prior years, we reviewed these potential exposures after the close of the accident year to allow for late reporting or identification of significant losses;

• | Net favorable development of $21 million in our auto liability excess lines primarily impacting the 2009 accident year. Reported activity on loss and allocated loss expenses was lower than expected based on estimates from our prior review and original pricing assumptions; and

• | Net adverse development of $28 million in our Brandywine run-off portfolios, primarily in general and products liability lines, including unallocated loss adjustment expenses, impacting the 1996 and prior accident years. Loss activity was higher than expected in these portfolios.

• | Net favorable development of $20 million in short-tail business, with the notable driver being net favorable development of $14 million on wholesale property, primarily impacting the 2012 and 2013 accident years. Paid and reported loss activity was favorable relative to prior expectations, especially in our primary business, and in the development of losses arising from natural catastrophes.

For the six months ended June 30, 2014, net favorable PPD was $107 million, which was the net result of several underlying favorable and adverse movements, driven by the following principal changes:

• | Net favorable development of $80 million in long-tail business, primarily from:

• | Favorable development of $67 million in our excess casualty and umbrella businesses. Resolution of a disputed matter on an individual claim led to a release of $42 million in the 2003 accident year, and lower than expected reported activity across a number of years drove the remaining improvement;

• | Favorable development of $26 million in our surety business, primarily from favorable claim emergence in the 2012 accident year;

• | Net favorable development of $21 million in our auto liability excess lines primarily impacting the 2009 accident year due to the same factors experienced for the three months ended June 30, 2014 as described above; and

• | Net adverse development of $36 million in our Brandywine run-off portfolios, primarily in general and products liability lines, including unallocated loss adjustment expenses, impacting the 1996 and prior accident years due to the same factors experienced for the three months ended June 30, 2014 as described above.

• | Net favorable development of $27 million in short-tail business driven by net favorable development of $14 million on wholesale property, primarily impacting the 2012 and 2013 accident years, due to the same factors experienced for the three months ended June 30, 2014 as described above.

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Insurance – North American Agriculture
There was no PPD in the three months ended June 30, 2015 and 2014.
For the six months ended June 30, 2015, net favorable PPD was $33 million compared with net adverse PPD of $38 million in the prior year period. Actual claim development in the first quarter of 2015 for the 2014 crop year for the Multiple Peril Crop Insurance (MPCI) business was favorable due to better than expected crop yield results in certain states at year-end 2014. Actual claim development in the first quarter of 2014 for the 2013 crop year for the MPCI business was adverse due to worse than expected crop yield results in certain states at year-end 2013.
Insurance – Overseas General
2015
For the three months ended June 30, 2015, net favorable PPD was $68 million, which was the net result of several underlying favorable and adverse movements, driven by the following principal change:

• | Net favorable development of $69 million in short-tail business, primarily from property and marine lines. Favorable development on specific claims and an increase in weighting applied to experience-based methods in accident years 2013 and prior led to an $88 million reduction. Unfavorable large loss experience in accident year 2014 led to a $19 million increase.

For the six months ended June 30, 2015, net favorable PPD was $92 million, which was the net result of several underlying favorable and adverse movements, driven by the following principal changes:

• | Net favorable development of $93 million in short-tail business, primarily from:

• | Favorable development of $73 million primarily in property and marine lines due to the same factors experienced for the three months ended June 30, 2015 as described above; and

• | Favorable development of $20 million in consumer business mainly in Latin America and Asia Pacific, resulting from lower than expected loss emergence and an increase in weighting applied to experience-based methods in accident years 2012 and 2013.

2014
For the three months ended June 30, 2014, net favorable PPD was $63 million which was the net result of several underlying favorable and adverse movements, driven by the following principal change:

• | Favorable development of $66 million in short-tail business, primarily from the property (excluding technical lines) and marine lines. Favorable large loss experience in accident year 2013 led to a $36 million reduction. Favorable development on specific claims and additional credibility assigned to accident years 2012 and prior favorable indications led to a $28 million reduction.

For the six months ended June 30, 2014, net favorable PPD was $86 million due primarily to the same factors experienced for the three months ended June 30, 2014 as described above.
Global Reinsurance
2015
For the three and six months ended June 30, 2015, net favorable PPD was $36 million and $41 million, respectively, which were the net result of several underlying favorable and adverse movements across a number of long-tail and short-tail lines, driven by the following principal change:

• | Favorable development of $23 million in casualty lines primarily impacting treaty years 2009 and prior, principally resulting from lower than expected loss emergence combined with an increase in weighting applied to experience-based methods.

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2014
For the three and six months ended June 30, 2014, net favorable PPD was $24 million and $33 million, respectively, which were the net result of several underlying favorable and adverse movements across a number of lines and across a number of treaty years, none of which was significant individually or in the aggregate.

Segment Operating Results – Three and Six Months Ended June 30, 2015 and 2014

We operate through five business segments: Insurance – North American P&C, Insurance – North American Agriculture, Insurance – Overseas General, Global Reinsurance, and Life. For additional information on our segments refer to “Segment Information” in our 2014 Form 10-K under Item 1. The discussions that follow include tables that show our segment operating results for the three and six months ended June 30, 2015 and 2014.
Insurance – North American
Insurance – North American P&C
The Insurance – North American P&C segment comprises our operations in the U.S., Canada, and Bermuda. This segment includes our retail divisions: ACE USA (including ACE Canada), ACE Commercial Risk Services (CRS), and ACE Private Risk Services, which, commencing this quarter, includes the Fireman’s Fund high net worth personal lines business acquired effective April 1, 2015; our wholesale and specialty divisions: ACE Westchester and ACE Bermuda; and various run-off operations, including Brandywine Holdings Corporation (Brandywine).

| Three Months Ended |  |  |  |  | Six Months Ended |  |  |
| June 30 |  |  | % Change |  |  | June 30 |  |  | % Change |
(in millions of U.S. dollars, except for percentages) | 2015 |  |  | 2014 |  |  | Q-15 vs. Q-14 |  |  | 2015 |  |  | 2014 |  |  | YTD-15 vs. YTD-14 |
Net premiums written | $ | 1,975 |  |  | $ | 1,635 |  |  | 20.8 | % |  | $ | 3,405 |  |  | $ | 3,053 |  |  | 11.5 | %
Net premiums earned | 1,688 |  |  | 1,542 |  |  | 9.6 | % |  | 3,214 |  |  | 3,029 |  |  | 6.2 | %
Losses and loss expenses | 1,120 |  |  | 1,016 |  |  | 10.2 | % |  | 2,155 |  |  | 1,956 |  |  | 10.2 | %
Policy acquisition costs | 130 |  |  | 152 |  |  | (14.5 | )% |  | 291 |  |  | 311 |  |  | (6.4 | )%
Administrative expenses | 189 |  |  | 175 |  |  | 8.0 | % |  | 360 |  |  | 336 |  |  | 7.1 | %
Underwriting income | 249 |  |  | 199 |  |  | 25.1 | % |  | 408 |  |  | 426 |  |  | (4.2 | )%
Net investment income | 269 |  |  | 265 |  |  | 1.5 | % |  | 532 |  |  | 535 |  |  | (0.6 | )%
Net realized gains (losses) | — |  |  | (11 | ) |  | NM |  |  | (6 | ) |  | (20 | ) |  | (70.0 | )%
Interest expense | 2 |  |  | 2 |  |  | — |  |  | 4 |  |  | 5 |  |  | (20.0 | )%
Other (income) expense | 23 |  |  | (24 | ) |  | NM |  |  | 16 |  |  | (44 | ) |  | NM |
Income tax expense | 89 |  |  | 91 |  |  | (2.2 | )% |  | 169 |  |  | 174 |  |  | (2.9 | )%
Net income | $ | 404 |  |  | $ | 384 |  |  | 5.2 | % |  | $ | 745 |  |  | $ | 806 |  |  | (7.6 | )%
Loss and loss expense ratio | 66.3 | % |  | 66.0 | % |  |  |  | 67.0 | % |  | 64.6 | % |  |
Policy acquisition cost ratio | 7.7 | % |  | 9.8 | % |  |  |  | 9.1 | % |  | 10.3 | % |  |
Administrative expense ratio | 11.2 | % |  | 11.3 | % |  |  |  | 11.2 | % |  | 11.0 | % |  |
Combined ratio | 85.2 | % |  | 87.1 | % |  |  |  | 87.3 | % |  | 85.9 | % |  |

Net premiums written increased for the three and six months ended June 30, 2015, primarily due to the acquisition of Fireman's Fund high net worth personal lines business in April 2015, which added $378 million of growth to premiums. Excluding the Fireman’s Fund acquisition, net premiums written decreased 2.3 percent and 0.9 percent for the three and six months ended June 30, 2015, respectively, primarily due to declines in our retail and wholesale and specialty property divisions and in our retail casualty business reflecting a more competitive market and rate decreases. These declines were partially offset by growth in our A&H business; in our CRS division from new business written and strong renewals; as well as growth in our personal lines division, specifically products offered through ACE Private Risk Services. The prior year was favorably impacted from lower excess of loss premiums ceded under our 2014 catastrophe reinsurance program of $16 million and $32 million for the three and six months ended June 30, 2014, respectively. The impact of foreign exchange adversely impacted growth by $9 million and $14 million for the three and six months ended June 30, 2015, respectively.
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Net premiums written included $252 million of non-recurring unearned premium reserves (UPR) recognized as written premiums at the date of the Fireman’s Fund acquisition. Underwriting income included a $49 million benefit related to the initial UPR transfer as unearned premiums at the date of transfer are recognized over the remaining coverage period with no associated expense for the historical acquisition costs. These costs are eliminated in purchase accounting. This underwriting benefit was partially offset by the amortization of the intangible asset related to this UPR of $29 million for a pre-tax net income impact of $20 million ($15 million after-tax). The remaining expected net income benefit of $3 million ($4 million pre-tax) and $4 million ($6 million pre-tax) are expected to be earned in the third and fourth quarters of 2015, respectively. This expected net income benefit related to the initial UPR transfer comprises an expected underwriting income benefit of $33 million and $19 million, respectively, partially offset by the expected intangible asset amortization of $29 million and $13 million in the third and fourth quarters of 2015, respectively.
Net premiums earned increased for the three and six months ended June 30, 2015 primarily due to the same factors driving the increase in net premiums written as described above.
The following tables present a line of business breakdown of Insurance – North American P&C net premiums earned:

| Three Months Ended |  |  |  |  | Six Months Ended |  |  |
| June 30 |  |  | % Change |  |  | June 30 |  |  | % Change |
(in millions of U.S. dollars, except for percentages) | 2015 |  |  | 2014 |  |  | Q-15 vs. Q-14 |  |  | 2015 |  |  | 2014 |  |  | YTD-15 vs. YTD-14 |
Commercial P&C (retail and wholesale) | $ | 1,211 |  |  | $ | 1,215 |  |  | (0.3 | )% |  | $ | 2,395 |  |  | $ | 2,385 |  |  | 0.4 | %
Personal and small commercial lines | 375 |  |  | 226 |  |  | 66.1 | % |  | 616 |  |  | 442 |  |  | 39.3 | %
Personal accident (A&H) | 102 |  |  | 101 |  |  | 2.2 | % |  | 203 |  |  | 202 |  |  | 1.0 | %
Net premiums earned | $ | 1,688 |  |  | $ | 1,542 |  |  | 9.6 | % |  | $ | 3,214 |  |  | $ | 3,029 |  |  | 6.2 | %
| 2015 % of Total |  |  | 2014 % of Total |  |  |  |  |  | 2015 % of Total |  |  | 2014 % of Total |  |  |  |
Commercial P&C (retail and wholesale) | 72 | % |  | 79 | % |  |  |  | 75 | % |  | 78 | % |  |
Personal and small commercial lines | 22 | % |  | 15 | % |  |  |  | 19 | % |  | 15 | % |  |
Personal accident (A&H) | 6 | % |  | 6 | % |  |  |  | 6 | % |  | 7 | % |  |
Net premiums earned | 100 | % |  | 100 | % |  |  |  | 100 | % |  | 100 | % |  |

The following table presents the impact of catastrophe losses and related reinstatement premiums and prior period reserve development on our loss and loss expense ratio:

| Three Months Ended |  |  | Six Months Ended |
| June 30 |  |  | June 30 |
| 2015 |  |  | 2014 |  |  | 2015 |  |  | 2014 |
Loss and loss expense ratio, as reported | 66.3 | % |  | 66.0 | % |  | 67.0 | % |  | 64.6 | %
Catastrophe losses and related reinstatement premiums | (3.2 | )% |  | (2.4 | )% |  | (3.1 | )% |  | (2.3 | )%
Prior period development | 3.0 | % |  | 2.6 | % |  | 2.3 | % |  | 3.6 | %
Loss and loss expense ratio, adjusted | 66.1 | % |  | 66.2 | % |  | 66.2 | % |  | 65.9 | %

Net pre-tax catastrophe losses, excluding reinstatement premiums, were $54 million and $99 million for the three and six months ended June 30, 2015, compared with $36 million and $68 million in the prior year periods, respectively. Catastrophe losses through June 30, 2015 were primarily from severe weather-related events in the U.S. and civil unrest in Baltimore, Maryland. Catastrophe losses through June 30, 2014 were primarily from severe weather-related events in the U.S. and Australia. Net favorable prior period development was $49 million and $70 million for the three and six months ended June 30, 2015, compared with $39 million and $107 million in the prior year periods, respectively. Refer to “Prior Period Development” for additional information. The adjusted loss and loss expense ratio remained relatively flat for the three months ended June 30, 2015 and increased slightly for the six months ended June 30, 2015. For the three and six months ended June 30, 2015, the adjusted loss and loss expense ratio was favorably impacted by the acquisition of Fireman’s Fund personal lines whose business carries a lower loss ratio. Excluding the impact of the Fireman’s Fund acquisition, the loss and loss expense ratio increased for
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the three and six months ended June 30, 2015 due to higher non-catastrophe large losses and lower excess of loss premiums ceded in the prior year under our 2014 catastrophe reinsurance program described above.
The policy acquisition cost ratio decreased for the three and six months ended June 30, 2015, primarily due to the normal impact of initial year purchase accounting adjustments related to our Fireman's Fund acquisition. As a result of purchase accounting requirements, the unearned premiums at the date of purchase related to the businesses acquired are recognized over the remaining coverage period with no expense for the associated historical acquisition costs that were incurred to underwrite those policies, thereby favorably impacting the policy acquisition cost ratio. The non-recurring UPR transfer noted above benefited the policy acquisition cost ratio by 2.9 percentage points for the three months ended June 30, 2015. Excluding the Fireman’s Fund acquisition, the policy acquisition cost ratio increased 0.5 percentage points and 0.1 percentage points for the three and six months ended June 30, 2015, respectively, primarily due to a change in the mix of business.
The administrative expense ratio remained relatively flat for the three months ended June 30, 2015. For the six months ended June 30, 2015 the administrative expense ratio increased primarily due to the integration costs associated with the Fireman's Fund acquisition. Excluding the Fireman’s Fund acquisition, the administrative expense ratio decreased 0.3 percentage points for the three months ended June 30, 2015; and remained flat for the six months ended June 30, 2015, primarily due to a non-recurring expense adjustment of $5 million which unfavorably impacted the prior year ratios.
Insurance – North American Agriculture
The Insurance – North American Agriculture segment comprises our North American based businesses that provide a variety of coverages in the U.S. and Canada including crop insurance, primarily MPCI and crop-hail through Rain and Hail, as well as farm and ranch and specialty P&C commercial insurance products and services through our ACE Agribusiness unit.

| Three Months Ended |  |  |  |  | Six Months Ended |  |  |
| June 30 |  |  | % Change |  |  | June 30 |  |  | % Change |
(in millions of U.S. dollars, except for percentages) | 2015 |  |  | 2014 |  |  | Q-15 vs. Q-14 |  |  | 2015 |  |  | 2014 |  |  | YTD-15 vs. YTD-14 |
Net premiums written | $ | 379 |  |  | $ | 388 |  |  | (2.4 | )% |  | $ | 467 |  |  | $ | 582 |  |  | (19.8 | )%
Net premiums earned | 321 |  |  | 330 |  |  | (2.9 | )% |  | 385 |  |  | 433 |  |  | (11.0 | )%
Losses and loss expenses (1) | 273 |  |  | 279 |  |  | (2.2 | )% |  | 295 |  |  | 407 |  |  | (27.5 | )%
Policy acquisition costs | 23 |  |  | 23 |  |  | — |  |  | 19 |  |  | 28 |  |  | (32.1 | )%
Administrative expenses | 4 |  |  | 1 |  |  | 300.0 | % |  | 3 |  |  | 2 |  |  | 50.0 | %
Underwriting income (loss) | 21 |  |  | 27 |  |  | (22.2 | )% |  | 68 |  |  | (4 | ) |  | NM |
Net investment income | 6 |  |  | 6 |  |  | — |  |  | 12 |  |  | 13 |  |  | (7.7 | )%
Other (income) expense | 8 |  |  | 9 |  |  | (11.1 | )% |  | 16 |  |  | 17 |  |  | (5.9 | )%
Income tax expense (benefit) | 4 |  |  | 5 |  |  | (20.0 | )% |  | 14 |  |  | (2 | ) |  | NM |
Net income (loss) | $ | 15 |  |  | $ | 19 |  |  | (21.1 | )% |  | $ | 50 |  |  | $ | (6 | ) |  | NM |
Loss and loss expense ratio | 85.3 | % |  | 84.4 | % |  |  |  | 76.6 | % |  | 93.9 | % |  |
Policy acquisition cost ratio | 7.2 | % |  | 7.0 | % |  |  |  | 5.0 | % |  | 6.4 | % |  |
Administrative expense ratio | 1.1 | % |  | 0.4 | % |  |  |  | 0.7 | % |  | 0.6 | % |  |
Combined ratio | 93.6 | % |  | 91.8 | % |  |  |  | 82.3 | % |  | 100.9 | % |  |

(1) | (Gains) losses on crop derivatives were $2 million for the three and six months ended June 30, 2015 and $(8) million and $(6) million for the prior year periods, respectively. These (gains) losses are reclassified from Net realized gains (losses) to Losses and loss expenses for purposes of presenting Insurance – North American Agriculture underwriting income. Refer to Note 7 and Note 10 to the Consolidated Financial Statements for more information on these derivatives.

Net premiums written decreased for the three months ended June 30, 2015 due to lower commodity base prices used in our 2015 policy pricing, partially offset by an increase in estimated retention for the 2015 crop year. For the six months ended June 30, 2015, net premiums written decreased primarily due to lower premium retention as a result of the premium-sharing formulas with the U.S. government, a non-recurring positive adjustment in 2014 to the premium estimates. Under the government's crop insurance profit and loss calculation formula, we retained more premiums for the first quarter of 2014 as the 2013 crop year losses were higher. In addition, we experienced lower commodity base prices used in our 2015 policy pricing.
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Net premiums earned decreased for the three and six months ended June 30, 2015 primarily due to the same factors driving the decrease in net premiums written as described above
The following table presents the impact of catastrophe losses and related reinstatement premiums and prior period reserve development on our loss and loss expense ratio:

| Three Months Ended |  |  | Six Months Ended |
| June 30 |  |  | June 30 |
| 2015 |  |  | 2014 |  |  | 2015 |  |  | 2014 |
Loss and loss expense ratio, as reported | 85.3 | % |  | 84.4 | % |  | 76.6 | % |  | 93.9 | %
Catastrophe losses and related reinstatement premiums | (2.2 | )% |  | (2.6 | )% |  | (2.0 | )% |  | (2.2 | )%
Prior period development | — |  |  | — |  |  | 8.5 | % |  | (10.5 | )%
Loss and loss expense ratio, adjusted | 83.1 | % |  | 81.8 | % |  | 83.1 | % |  | 81.2 | %

Net pre-tax catastrophe losses, excluding reinstatement premiums, were $7 million and $8 million for the three and six months ended June 30, 2015, compared with $9 million and $10 million in the prior year periods, respectively. Net favorable prior period development was nil and $33 million for the three and six months ended June 30, 2015, respectively. For the six months ended June 30, 2015, the amount included a decrease in incurred losses of $36 million for lower than expected MPCI losses for the 2014 crop year, partially offset by a $3 million decrease in net premiums earned related to the government's crop insurance profit and loss calculation formula. Net unfavorable prior period development was nil and $38 million for the three and six months ended June 30, 2014, respectively. For the six months ended June 30, 2014, the amount included an increase in incurred losses of $75 million for higher than expected MPCI losses for the 2013 crop year, as well as $36 million of favorable increase in net premiums earned related to the government's crop insurance profit and loss calculation formula. Refer to “Prior Period Development” for additional information. The adjusted loss and loss expense ratio was higher for the six months ended June 30, 2015 reflecting a revision in estimated loss and claim handling costs.
The policy acquisition cost ratio increased slightly for the three months ended June 30, 2015. For the six months ended June 30, 2015, the policy acquisition cost ratio decreased primarily due to lower agent profit sharing commission accruals and a net higher ceded commission benefit on third-party reinsurance.
The administrative expense ratio increased for the three and six months ended June 30, 2015 primarily due to lower Administrative and Operating expense (A&O) reimbursements from the federal government on the MPCI business related to the 2015 crop year as well as increased spending to support growth. For the six months ended June 30, 2015, the increase in the administrative expense ratio was partially offset by higher A&O reimbursements on the MPCI business mainly due to additional reimbursements earned for underserved states as defined under the Standard Reinsurance Agreement (SRA) with the federal government related to the 2014 crop year.
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Insurance – Overseas General
The Insurance – Overseas General segment comprises ACE International, ACE Global Markets (AGM), and the international supplemental A&H business of Combined Insurance. ACE International comprises our retail commercial P&C, A&H, and personal lines businesses serving territories outside the U.S., Bermuda, and Canada. AGM comprises the segment's London-based wholesale insurance business for excess and surplus lines; this includes Lloyd’s of London Syndicate 2488. The reinsurance operations of AGM are included in the Global Reinsurance segment.

| Three Months Ended |  |  |  |  | Six Months Ended |  |  |
| June 30 |  |  | % Change |  |  | June 30 |  |  | % Change |
(in millions of U.S. dollars, except for percentages) | 2015 |  |  | 2014 |  |  | Q-15 vs. Q-14 |  |  | 2015 |  |  | 2014 |  |  | YTD-15 vs. YTD-14 |
Net premiums written (1) | $ | 1,669 |  |  | $ | 1,760 |  |  | (5.1 | )% |  | $ | 3,463 |  |  | $ | 3,531 |  |  | (1.9 | )%
Net premiums earned | 1,644 |  |  | 1,709 |  |  | (3.9 | )% |  | 3,281 |  |  | 3,321 |  |  | (1.2 | )%
Losses and loss expenses | 816 |  |  | 830 |  |  | (1.7 | )% |  | 1,630 |  |  | 1,647 |  |  | (1.0 | )%
Policy acquisition costs | 396 |  |  | 402 |  |  | (1.5 | )% |  | 785 |  |  | 788 |  |  | (0.4 | )%
Administrative expenses | 254 |  |  | 256 |  |  | (0.8 | )% |  | 510 |  |  | 506 |  |  | 0.8 | %
Underwriting income (2) | 178 |  |  | 221 |  |  | (19.5 | )% |  | 356 |  |  | 380 |  |  | (6.3 | )%
Net investment income | 139 |  |  | 136 |  |  | 2.2 | % |  | 277 |  |  | 268 |  |  | 3.4 | %
Net realized gains (losses) | 13 |  |  | 14 |  |  | (7.1 | )% |  | 3 |  |  | 4 |  |  | (25.0 | )%
Interest expense | 1 |  |  | 1 |  |  | — |  |  | 2 |  |  | 2 |  |  | — |
Other (income) expense | 8 |  |  | 8 |  |  | — |  |  | 25 |  |  | 2 |  |  | NM |
Income tax expense | 69 |  |  | 55 |  |  | 25.5 | % |  | 121 |  |  | 92 |  |  | 31.5 | %
Net income | $ | 252 |  |  | $ | 307 |  |  | (17.9 | )% |  | $ | 488 |  |  | $ | 556 |  |  | (12.2 | )%
Loss and loss expense ratio | 49.7 | % |  | 48.6 | % |  |  |  | 49.7 | % |  | 49.6 | % |  |
Policy acquisition cost ratio | 24.1 | % |  | 23.5 | % |  |  |  | 23.9 | % |  | 23.7 | % |  |
Administrative expense ratio | 15.4 | % |  | 15.0 | % |  |  |  | 15.5 | % |  | 15.3 | % |  |
Combined ratio | 89.2 | % |  | 87.1 | % |  |  |  | 89.1 | % |  | 88.6 | % |  |

(1) | For the three and six months ended June 30, 2015, net premiums written increased $118 million or 7.6% and $295 million or 9.3% on a constant-dollar basis, respectively. Amounts are calculated by translating prior period results using the same local currency rates as the comparable current period.

(2) | For the three and six months ended June 30, 2015, underwriting income decreased $20 million and increased $13 million on a constant-dollar basis, respectively. Amounts are calculated by translating prior period results using the same local currency rates as the comparable current period

Net premiums written decreased for the three and six months ended June 30, 2015, primarily reflecting the adverse impact of foreign exchange. On a constant-dollar basis, net premiums written increased for the three and six months ended June 30, 2015, reflecting organic growth across most operations, primarily in our retail operations in personal lines, from new business writings in most regions. Growth in P&C product lines was driven by new business writings in Latin America. Included in the increase in net premiums written were contributions from the acquisitions of Itaú Seguros in October 2014 and Samaggi in April 2014, which added $85 million and $187 million of premiums for the three and six months ended June 30, 2015, respectively.
Net premiums earned decreased for the three and six months ended June 30, 2015, primarily reflecting the adverse impact of foreign exchange. On a constant-dollar basis, net premiums earned increased for the three and six months ended June 30, 2015 primarily due to the same factors driving the increase in net premiums written as described above.
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Insurance – Overseas General conducts business internationally and in most major foreign currencies. The following tables present a line of business and regional breakdown of Insurance – Overseas General net premiums earned:

| Three Months Ended June 30 |  |  | % Change |
(in millions of U.S. dollars, except for percentages) | 2015 |  |  | 2015 % of Total |  |  | 2014 |  |  | 2014 % of Total |  |  | C$(1) 2014 |  |  | Q-15 vs. Q-14 |  |  | C$(1) Q-15 vs. Q-14 |
Line of Business |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial P&C (retail and wholesale) | $ | 784 |  |  | 48 | % |  | $ | 798 |  |  | 47 | % |  | $ | 715 |  |  | (1.8 | )% |  | 9.7 | %
Personal and small commercial lines | 336 |  |  | 20 | % |  | 324 |  |  | 19 | % |  | 276 |  |  | 3.7 | % |  | 21.7 | %
Personal accident (A&H) | 524 |  |  | 32 | % |  | 587 |  |  | 34 | % |  | 511 |  |  | (10.8 | )% |  | 2.7 | %
Net premiums earned | $ | 1,644 |  |  | 100 | % |  | $ | 1,709 |  |  | 100 | % |  | $ | 1,502 |  |  | (3.9 | )% |  | 9.4 | %
Region |  |  |  |  |  |  |  |  |  |  |  |  |
Europe / U.K. (2) | $ | 705 |  |  | 43 | % |  | $ | 801 |  |  | 47 | % |  | $ | 698 |  |  | (12.0 | )% |  | 1.0 | %
Asia Pacific | 403 |  |  | 24 | % |  | 389 |  |  | 23 | % |  | 359 |  |  | 3.6 | % |  | 12.3 | %
Far East | 93 |  |  | 6 | % |  | 107 |  |  | 6 | % |  | 91 |  |  | (13.1 | )% |  | 2.2 | %
Latin America | 443 |  |  | 27 | % |  | 412 |  |  | 24 | % |  | 354 |  |  | 7.5 | % |  | 25.1 | %
Net premiums earned | $ | 1,644 |  |  | 100 | % |  | $ | 1,709 |  |  | 100 | % |  | $ | 1,502 |  |  | (3.9 | )% |  | 9.4 | %

| Six Months Ended June 30 |  |  | % Change |
(in millions of U.S. dollars, except for percentages) | 2015 |  |  | 2015 % of Total |  |  | 2014 |  |  | 2014 % of Total |  |  | C$(1) 2014 |  |  | YTD-15 vs. YTD-14 |  |  | C$(1) YTD-15 vs. YTD-14 |
Line of Business |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial P&C (retail and wholesale) | $ | 1,563 |  |  | 48 | % |  | $ | 1,561 |  |  | 47 | % |  | $ | 1,422 |  |  | 0.1 | % |  | 9.9 | %
Personal and small commercial lines | 667 |  |  | 20 | % |  | 623 |  |  | 19 | % |  | 542 |  |  | 7.0 | % |  | 22.9 | %
Personal accident (A&H) | 1,051 |  |  | 32 | % |  | 1,137 |  |  | 34 | % |  | 1,010 |  |  | (7.6 | )% |  | 4.1 | %
Net premiums earned | $ | 3,281 |  |  | 100 | % |  | $ | 3,321 |  |  | 100 | % |  | $ | 2,974 |  |  | (1.2 | )% |  | 10.3 | %
Region |  |  |  |  |  |  |  |  |  |  |  |  |
Europe / U.K. (2) | $ | 1,399 |  |  | 42 | % |  | $ | 1,553 |  |  | 47 | % |  | $ | 1,380 |  |  | (9.9 | )% |  | 1.4 | %
Asia Pacific | 810 |  |  | 25 | % |  | 738 |  |  | 22 | % |  | 691 |  |  | 9.8 | % |  | 17.2 | %
Far East | 187 |  |  | 6 | % |  | 214 |  |  | 6 | % |  | 184 |  |  | (12.6 | )% |  | 1.6 | %
Latin America | 885 |  |  | 27 | % |  | 816 |  |  | 25 | % |  | 719 |  |  | 8.5 | % |  | 23.1 | %
Net premiums earned | $ | 3,281 |  |  | 100 | % |  | $ | 3,321 |  |  | 100 | % |  | $ | 2,974 |  |  | (1.2 | )% |  | 10.3 | %

(1) On a constant-dollar basis. Amounts are calculated by translating prior period results using the same local currency rates as the comparable current period.
(2) Europe/U.K. includes Eurasia and Africa region.
The following table presents the impact of catastrophe losses and related reinstatement premiums and prior period reserve development on our loss and loss expense ratio:

| Three Months Ended |  |  | Six Months Ended |
| June 30 |  |  | June 30 |
| 2015 |  |  | 2014 |  |  | 2015 |  |  | 2014 |
Loss and loss expense ratio, as reported | 49.7 | % |  | 48.6 | % |  | 49.7 | % |  | 49.6 | %
Catastrophe losses and related reinstatement premiums | (3.5 | )% |  | (1.5 | )% |  | (1.9 | )% |  | (1.3 | )%
Prior period development | 4.1 | % |  | 3.7 | % |  | 2.8 | % |  | 2.6 | %
Loss and loss expense ratio, adjusted | 50.3 | % |  | 50.8 | % |  | 50.6 | % |  | 50.9 | %

Net pre-tax catastrophe losses, excluding reinstatement premiums, were $58 million and $63 million for the three and six months ended June 30, 2015, compared with $26 million and $43 million in the prior year periods, respectively. Catastrophe losses through June 30, 2015 were primarily related to a hailstorm in Australia, flooding in Chile, and severe storms in Asia.
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Catastrophe losses through June 30, 2014 were primarily related to flooding in Europe and severe storms in Japan. Net favorable prior period development was $68 million and $92 million for the three and six months ended June 30, 2015, compared with $63 million and $86 million in the prior year periods, respectively. Refer to “Prior Period Development” for additional information. The adjusted loss and loss expense ratio decreased for the three and six months ended June 30, 2015 primarily due to a reduction in the current accident year loss ratio in A&H. For the six months ended June 30, 2015, the adjusted loss and loss expense ratio also decreased due to underwriting actions on less profitable accounts, which improved loss ratios on several portfolios.
The policy acquisition cost ratio increased for the three and six months ended June 30, 2015 primarily due to lower ceded commission benefits as a result of the non-renewal of an A&H external quota share treaty.
The administrative expense ratio increased for the three and six months ended June 30, 2015 due to increased investment in our business to support growth.
Global Reinsurance
The Global Reinsurance segment represents our reinsurance operations comprising ACE Tempest Re Bermuda, ACE Tempest Re USA, ACE Tempest Re International, and ACE Tempest Re Canada. Global Reinsurance markets its reinsurance products worldwide under the ACE Tempest Re brand name and provides a broad range of coverage to a diverse array of primary P&C companies.

| Three Months Ended |  |  |  |  | Six Months Ended |  |  |
| June 30 |  |  | % Change |  |  | June 30 |  |  | % Change |
(in millions of U.S. dollars, except for percentages) | 2015 |  |  | 2014 |  |  | Q-15 vs. Q-14 |  |  | 2015 |  |  | 2014 |  |  | YTD-15 vs. YTD-14 |
Net premiums written | $ | 261 |  |  | $ | 278 |  |  | (5.9 | )% |  | $ | 534 |  |  | $ | 586 |  |  | (8.8 | )%
Net premiums earned | 220 |  |  | 261 |  |  | (15.5 | )% |  | 446 |  |  | 545 |  |  | (18.1 | )%
Losses and loss expenses | 72 |  |  | 109 |  |  | (33.9 | )% |  | 171 |  |  | 235 |  |  | (27.2 | )%
Policy acquisition costs | 60 |  |  | 60 |  |  | — |  |  | 114 |  |  | 127 |  |  | (10.2 | )%
Administrative expenses | 13 |  |  | 14 |  |  | (7.1 | )% |  | 25 |  |  | 28 |  |  | (10.7 | )%
Underwriting income | 75 |  |  | 78 |  |  | (3.8 | )% |  | 136 |  |  | 155 |  |  | (12.3 | )%
Net investment income | 79 |  |  | 80 |  |  | (1.3 | )% |  | 154 |  |  | 157 |  |  | (1.9 | )%
Net realized gains (losses) | 5 |  |  | (15 | ) |  | NM |  |  | (6 | ) |  | (23 | ) |  | (73.9 | )%
Interest expense | 1 |  |  | 2 |  |  | (50.0 | )% |  | 2 |  |  | 3 |  |  | (33.3 | )%
Other (income) expense | (3 | ) |  | (10 | ) |  | (70.0 | )% |  | (8 | ) |  | (29 | ) |  | (72.4 | )%
Income tax expense | 7 |  |  | 10 |  |  | (30.0 | )% |  | 15 |  |  | 20 |  |  | (25.0 | )%
Net income | $ | 154 |  |  | $ | 141 |  |  | 9.2 | % |  | $ | 275 |  |  | $ | 295 |  |  | (6.8 | )%
Loss and loss expense ratio | 32.9 | % |  | 41.7 | % |  |  |  | 38.3 | % |  | 43.1 | % |  |
Policy acquisition cost ratio | 27.2 | % |  | 23.1 | % |  |  |  | 25.6 | % |  | 23.3 | % |  |
Administrative expense ratio | 5.6 | % |  | 5.1 | % |  |  |  | 5.6 | % |  | 5.1 | % |  |
Combined ratio | 65.7 | % |  | 69.9 | % |  |  |  | 69.5 | % |  | 71.5 | % |  |

Net premiums written declined for the three and six months ended June 30, 2015 as we maintained underwriting discipline in an environment of flat to declining rates and increasing competition, partially offset by new business written, primarily in our U.S. automobile business.
Net premiums earned decreased for the three and six months ended June 30, 2015 primarily due to the same factors driving the decrease in net premiums written as described above and the impact of the non-renewal of a workers' compensation treaty in the third quarter of 2014, which resulted in a $19 million and $39 million decrease in net premiums earned for the three and six months ended June 30, 2015, respectively.
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The following tables present a line of business breakdown of Global Reinsurance net premiums earned:

| Three Months Ended |  |  |  |  | Six Months Ended |  |  |
| June 30 |  |  | % Change |  |  | June 30 |  |  | % Change |
(in millions of U.S. dollars, except for percentages) | 2015 |  |  | 2014 |  |  | Q-15 vs. Q-14 |  |  | 2015 |  |  | 2014 |  |  | YTD -15 vs. YTD -14 |
Property and all other | $ | 48 |  |  | $ | 72 |  |  | (33.3 | )% |  | $ | 108 |  |  | $ | 156 |  |  | (30.8 | )%
Casualty | 118 |  |  | 129 |  |  | (8.5 | )% |  | 227 |  |  | 259 |  |  | (12.4 | )%
Property catastrophe | 54 |  |  | 60 |  |  | (10.0 | )% |  | 111 |  |  | 130 |  |  | (14.6 | )%
Net premiums earned | $ | 220 |  |  | $ | 261 |  |  | (15.5 | )% |  | $ | 446 |  |  | $ | 545 |  |  | (18.1 | )%
| 2015 % of Total |  |  | 2014 % of Total |  |  |  |  |  | 2015 % of Total |  |  | 2014 % of Total |  |  |  |
Property and all other | 22 | % |  | 28 | % |  |  |  | 24 | % |  | 29 | % |  |
Casualty | 53 | % |  | 49 | % |  |  |  | 51 | % |  | 47 | % |  |
Property catastrophe | 25 | % |  | 23 | % |  |  |  | 25 | % |  | 24 | % |  |
Net premiums earned | 100 | % |  | 100 | % |  |  |  | 100 | % |  | 100 | % |  |

The following table presents the impact of catastrophe losses and related reinstatement premiums and prior period reserve development on our loss and loss expense ratio:

| Three Months Ended |  |  | Six Months Ended |
| June 30 |  |  | June 30 |
| 2015 |  |  | 2014 |  |  | 2015 |  |  | 2014 |
Loss and loss expense ratio, as reported | 32.9 | % |  | 41.7 | % |  | 38.3 | % |  | 43.1 | %
Catastrophe losses and related reinstatement premiums | (2.3 | )% |  | (3.4 | )% |  | (1.1 | )% |  | (2.2 | )%
Prior period development | 16.1 | % |  | 8.9 | % |  | 9.1 | % |  | 5.9 | %
Loss and loss expense ratio, adjusted | 46.7 | % |  | 47.2 | % |  | 46.3 | % |  | 46.8 | %

Net pre-tax catastrophe losses, excluding reinstatement premiums, were $5 million for both the three and six months ended June 30, 2015, compared with $9 million and $12 million in the prior year periods, respectively. Catastrophe losses through June 30, 2015 were primarily related to severe weather related events in the U.S. Catastrophe losses through June 30, 2014 were related to severe storms in Japan, European hailstorms and severe weather related events in the U.S. Net favorable prior period development was $36 million and $41 million for the three and six months ended June 30, 2015, compared with $24 million and $33 million in the prior year periods, respectively. Refer to “Prior Period Development” for additional information. The adjusted loss and loss expense ratio decreased for the three and six months ended June 30, 2015 primarily due to the non-renewal of the workers' compensation treaty in the prior year noted above, which had a higher loss ratio. Partially offsetting this decrease was a change in the mix of business in the current year towards higher loss ratio products in the U.S. and higher non-catastrophe large losses.
The policy acquisition cost ratio increased for the three and six months ended June 30, 2015 primarily due to the impact of the non-renewal of the workers' compensation treaty noted above, which incurred no acquisition costs, and a change in the mix of business in the current year towards higher acquisition cost ratio proportional reinsurance products.
The administrative expense ratio increased for the three and six months ended June 30, 2015 primarily from lower net premiums earned including the non-renewal of the workers' compensation treaty noted above, which did not generate administrative expenses, partially offset by lower administrative expenses incurred in the current year.
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Life
The Life segment includes our 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. We assess the performance of our life business based on Life underwriting income, which includes Net investment income and (Gains) losses from fair value changes in separate account assets that do not qualify for separate account reporting under GAAP.

| Three Months Ended |  |  |  |  | Six Months Ended |  |  |
| June 30 |  |  | % Change |  |  | June 30 |  |  | % Change |
(in millions of U.S. dollars, except for percentages) | 2015 |  |  | 2014 |  |  | Q-15 vs. Q-14 |  |  | 2015 |  |  | 2014 |  |  | YTD-15 vs. YTD-14 |
Net premiums written | $ | 500 |  |  | $ | 498 |  |  | 0.3 | % |  | $ | 991 |  |  | $ | 992 |  |  | (0.1 | )%
Net premiums earned | 487 |  |  | 490 |  |  | (0.8 | )% |  | 961 |  |  | 974 |  |  | (1.4 | )%
Losses and loss expenses | 137 |  |  | 146 |  |  | (6.2 | )% |  | 289 |  |  | 297 |  |  | (2.7 | )%
Policy benefits | 153 |  |  | 144 |  |  | 6.3 | % |  | 295 |  |  | 258 |  |  | 14.3 | %
(Gains) losses from fair value changes in separate account assets (1) | (6 | ) |  | (17 | ) |  | (64.7 | )% |  | (17 | ) |  | (11 | ) |  | 54.5 | %
Policy acquisition costs | 118 |  |  | 121 |  |  | (2.5 | )% |  | 225 |  |  | 232 |  |  | (3.0 | )%
Administrative expenses | 74 |  |  | 73 |  |  | 1.4 | % |  | 147 |  |  | 141 |  |  | 4.3 | %
Net investment income | 66 |  |  | 66 |  |  | — |  |  | 132 |  |  | 130 |  |  | 1.5 | %
Life underwriting income | 77 |  |  | 89 |  |  | (13.5 | )% |  | 154 |  |  | 187 |  |  | (17.6 | )
Net realized gains (losses) | 103 |  |  | (72 | ) |  | NM |  |  | 44 |  |  | (148 | ) |  | NM |
Interest expense | 2 |  |  | 3 |  |  | (33.3 | )% |  | 3 |  |  | 6 |  |  | (50.0 | )%
Other (income) expense (1) | (17 | ) |  | 4 |  |  | NM |  |  | (29 | ) |  | 11 |  |  | NM |
Income tax expense | 10 |  |  | 12 |  |  | (16.7 | )% |  | 19 |  |  | 22 |  |  | (13.6 | )%
Net income | $ | 185 |  |  | $ | (2 | ) |  | NM |  |  | $ | 205 |  |  | $ | — |  |  | NM |

(1) | (Gains) losses from fair value changes in separate account assets that do not qualify for separate account reporting under GAAP are reclassified from Other (income) expense for purposes of presenting Life underwriting income.

The following table presents a line of business breakdown of Life net premiums written and deposits collected on universal life and investment contracts:

| Three Months Ended |  |  |  |  | Six Months Ended |  |  |
| June 30 |  |  | % Change |  |  | June 30 |  |  | % Change |
(in millions of U.S. dollars, except for percentages) | 2015 |  |  | 2014 |  |  | Q-15 vs. Q-14 |  |  | 2015 |  |  | 2014 |  |  | YTD-15 vs. YTD-14 |
A&H (1) | $ | 255 |  |  | $ | 247 |  |  | 3.5 | % |  | $ | 507 |  |  | $ | 494 |  |  | 2.7 | %
Life insurance | 187 |  |  | 186 |  |  | 0.4 | % |  | 365 |  |  | 366 |  |  | (0.3 | )%
Life reinsurance | 58 |  |  | 65 |  |  | (11.6 | )% |  | 119 |  |  | 132 |  |  | (10.2 | )%
Net premiums written (excludes deposits below) | $ | 500 |  |  | $ | 498 |  |  | 0.3 | % |  | $ | 991 |  |  | $ | 992 |  |  | (0.1 | )%
Deposits collected on universal life and investment contracts | $ | 263 |  |  | $ | 282 |  |  | (6.7 | )% |  | $ | 516 |  |  | $ | 484 |  |  | 6.6 | %

(1) Includes the North American supplemental A&H and life business of Combined Insurance.
Life net premiums written remained relatively flat for the three and six months ended June 30, 2015 as growth in this business was offset by the negative impact of foreign exchange. On a constant-dollar basis, life net premiums written increased $19 million, or 4.1 percent and $31 million, or 3.3 percent for the three and six months ended June 30, 2015, respectively. A&H net premiums written increased due to growth in our core distribution channels, primarily Combined Insurance's supplemental A&H individual and group sales. Our life insurance business grew primarily in Asia. Our life reinsurance business continues to decline as there is no new life reinsurance business currently being written.
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Life underwriting income decreased for the three months ended June 30, 2015, reflecting the net adverse impact after the commutation of a reinsurance agreement, and increased investment in our A&H business to support growth. In addition, for the six months ended June 30, 2015, a decrease in our life reinsurance business contributed to the decline as there is no new business being written since 2007. The prior year was favorably impacted by a one-time adjustment to certain life products in Asia. Foreign exchange adversely impacted underwriting income in both periods on an as reported basis.
Deposits collected on universal life and investment contracts (life deposits) are not reflected as revenues in our consolidated statements of operations in accordance with GAAP. New life deposits are an important component of production, and although they do not significantly affect current period income from operations they are key to our efforts to grow our business. Life deposits collected for the three months ended June 30, 2015 decreased compared to the prior year period due to a decline in Taiwan, driven by competitive market conditions, partially offset by growth in other Asian markets. For the six months ended June 30, 2015, the decline in Taiwan was more than offset by growth in other Asian markets.
Other (income) expense consists primarily of our share of net (income) loss related to partially-owned insurance companies. Other income of $17 million and $29 million for the three and six months ended June 30, 2015, respectively, primarily resulted from gains on sales of investments by our partially-owned insurance company in China.
During the three and six months ended June 30, 2015, realized gains of $104 million and $59 million, respectively, were associated with a net decrease in the fair value of GLB liabilities. These decreases were primarily due to higher interest rates partially offset by the unfavorable impact of discounting future claims for one and two fewer quarters, respectively. In addition, we experienced realized losses of $2 million and $14 million for the three and six months ended June 30, 2015, respectively, due to a decrease in the value of the derivative instruments, which decrease in value when the S&P 500 index increases.

Other Income and Expense Items

| Three Months Ended |  |  | Six Months Ended |
| June 30 |  |  | June 30 |
(in millions of U. S. dollars) | 2015 |  |  | 2014 |  |  | 2015 |  |  | 2014 |
Amortization of intangible assets | $ | 55 |  |  | $ | 30 |  |  | $ | 85 |  |  | $ | 51 |
Equity in net (income) loss of partially-owned entities | (40 | ) |  | (44 | ) |  | (73 | ) |  | (99 | )
(Gains) losses from fair value changes in separate account assets | (6 | ) |  | (17 | ) |  | (17 | ) |  | (11 | )
Federal excise and capital taxes | 5 |  |  | 5 |  |  | 8 |  |  | 9 |
Acquisition-related costs | 1 |  |  | 2 |  |  | 3 |  |  | 6 |
Other | 2 |  |  | (1 | ) |  | 6 |  |  | 2 |
Other (income) expense | $ | 17 |  |  | $ | (25 | ) |  | $ | 12 |  |  | $ | (42 | )

Other (income) expense includes Amortization of intangible assets, which is higher in 2015 due primarily to the acquisitions of Fireman's Fund, Itaú Seguros and Samaggi. Equity in net (income) loss of partially-owned entities includes our share of net (income) loss related to partially-owned investment companies (private equity) and partially-owned insurance companies. Also included in Other (income) expense are (Gains) losses from fair value changes in separate account assets that do not qualify for separate account reporting under GAAP. The offsetting movement in the separate account liabilities is included in Policy benefits in the consolidated statements of operations. Certain federal excise and capital taxes incurred as a result of capital management initiatives are included in Other (income) expense as these are considered capital transactions and are excluded from underwriting results.
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The following table presents, as of June 30, 2015, the estimated pre-tax amortization expense related to intangible assets for the third and fourth quarters of 2015 and the next five years.

For the Year Ending December 31 (in millions of U.S. dollars) | Amortization of intangible assets |
Third quarter of 2015 | $ | 42 |
Fourth quarter of 2015 | 33 |
2016 | 90 |
2017 | 80 |
2018 | 71 |
2019 | 65 |
2020 | 58 |
Total | $ | 439 |

Net Investment Income

| Three Months Ended |  | Six Months Ended |
| June 30 |  | June 30 |
(in millions of U.S. dollars) | 2015 |  |  | 2014 |  | 2015 |  |  | 2014 |
Fixed maturities | $ | 550 |  |  | $ | 541 |  | $ | 1,092 |  |  | $ | 1,085 |
Short-term investments | 10 |  |  | 10 |  | 23 |  |  | 18 |
Equity securities | 5 |  |  | 10 |  | 9 |  |  | 19 |
Other investments | 28 |  |  | 27 |  | 49 |  |  | 47 |
Gross investment income | 593 |  |  | 588 |  | 1,173 |  |  | 1,169 |
Investment expenses | (31 | ) |  | (32 | ) | (60 | ) |  | (60 | )
Net investment income | $ | 562 |  |  | $ | 556 |  | $ | 1,113 |  |  | $ | 1,109 |

Net investment income is influenced by a number of factors including the amounts and timing of inward and outward cash flows, the level of interest rates, and changes in overall asset allocation. Net investment income increased slightly for the three and six months ended June 30, 2015, compared with the prior year periods. The increase in net investment income was primarily due to a higher overall invested asset base and higher reinvestment rates, partially offset by the negative impact of foreign exchange.
The investment portfolio’s average market yield on fixed maturities was 2.9 percent and 2.6 percent at June 30, 2015 and 2014, respectively. Average market yield on fixed maturities represents the weighted average yield to maturity of our fixed income portfolio based on the market prices of the holdings at that date.
The 1.8 percent and 2.0 percent yield on short-term investments for the three and six months ended June 30, 2015, respectively, reflects the global nature of our insurance operations. For example, yields on short-term investments in Brazil, Mexico, Indonesia, and Ecuador range from 3.0 percent to 13.8 percent.
For the three and six months ended June 30, 2015, the yield on our equity securities portfolio was 3.5 percent and 3.4 percent, respectively, compared with 4.7 percent and 4.4 percent in the prior year periods, respectively, and reflects the yield on a global high dividend equity portfolio. The prior year also included dividends from an emerging debt portfolio, which was a mutual fund classified as equity. During the third quarter of 2014, however, we elected to exchange our interest in the emerging debt portfolio for direct ownership of certain of the underlying fixed maturities, and the remainder in cash. The emerging debt portfolio and the preferred equity securities represented 68 percent and 70 percent of the gross equity securities investment income for the three and six months ended June 30, 2014, respectively.
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Net Realized and Unrealized Gains (Losses)

We take a long-term view with our investment strategy, and our investment managers manage our investment portfolio to maximize total return within certain specific guidelines designed to minimize risk. The majority of our investment portfolio is available for sale and reported at fair value. Our held to maturity investment portfolio is reported at amortized cost.
The effect of market movements on our available for sale investment portfolio impacts Net income (through Net realized gains (losses)) when securities are sold or when we record an Other-than-temporary impairment (OTTI) charge in Net income. For a discussion related to how we assess OTTI for all of our investments, including credit-related OTTI, and the related impact on Net income, refer to Note 3 e) to the Consolidated Financial Statements. Additionally, Net income is impacted through the reporting of changes in the fair value of derivatives, including financial futures, options, swaps, and GLB reinsurance. Changes in unrealized appreciation and depreciation on available for sale securities resulting from the revaluation of securities held, changes in cumulative translation adjustment, and unrealized pension liability adjustment, are reported as separate components of Accumulated other comprehensive income in Shareholders’ equity in the consolidated balance sheets.
The following table presents our net realized and unrealized gains (losses):

| Three Months Ended June 30, 2015 |  |  | Three Months Ended June 30, 2014 |
(in millions of U.S. dollars) | Net Realized Gains (Losses) (1) |  |  | Net Unrealized Gains (Losses) |  |  | Net Impact |  |  | Net Realized Gains (Losses) (1) |  |  | Net Unrealized Gains (Losses) |  |  | Net Impact |
Fixed maturities | $ | 5 |  |  | $ | (832 | ) |  | $ | (827 | ) |  | $ | 20 |  |  | $ | 538 |  |  | $ | 558 |
Fixed income derivatives | 27 |  |  | — |  |  | 27 |  |  | (15 | ) |  | — |  |  | (15 | )
Public equity | 29 |  |  | (23 | ) |  | 6 |  |  | 1 |  |  | 24 |  |  | 25 |
Private equity | 11 |  |  | 5 |  |  | 16 |  |  | (3 | ) |  | 6 |  |  | 3 |
Total investment portfolio | 72 |  |  | (850 | ) |  | (778 | ) |  | 3 |  |  | 568 |  |  | 571 |
Variable annuity reinsurance derivative transactions, net of applicable hedges | 102 |  |  | — |  |  | 102 |  |  | (70 | ) |  | — |  |  | (70 | )
Other derivatives | (1 | ) |  | — |  |  | (1 | ) |  | 9 |  |  | — |  |  | 9 |
Foreign exchange | (40 | ) |  | 136 |  |  | 96 |  |  | (14 | ) |  | 153 |  |  | 139 |
Other | (7 | ) |  | (6 | ) |  | (13 | ) |  | (1 | ) |  | (5 | ) |  | (6 | )
Net gains (losses) before tax | 126 |  |  | (720 | ) |  | (594 | ) |  | (73 | ) |  | 716 |  |  | 643 |
Income tax expense (benefit) | 7 |  |  | (175 | ) |  | (168 | ) |  | 1 |  |  | 147 |  |  | 148 |
Net gains (losses) | $ | 119 |  |  | $ | (545 | ) |  | $ | (426 | ) |  | $ | (74 | ) |  | $ | 569 |  |  | $ | 495 |

(1) | For the three months ended June 30, 2015, other-than-temporary impairments included $7 million for fixed maturities and $1 million for public equity. For the three months ended June 30, 2014, other-than-temporary impairments included $8 million for fixed maturities, $3 million for private equity, and $1 million for public equity.

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| Six Months Ended June 30, 2015 |  |  | Six Months Ended June 30, 2014 |
(in millions of U.S. dollars) | Net Realized Gains (Losses) (1) |  |  | Net Unrealized Gains (Losses) |  |  | Net Impact |  |  | Net Realized Gains (Losses) (1) |  |  | Net Unrealized Gains (Losses) |  |  | Net Impact |
Fixed maturities | $ | 1 |  |  | $ | (393 | ) |  | $ | (392 | ) |  | $ | 31 |  |  | $ | 999 |  |  | $ | 1,030 |
Fixed income derivatives | 28 |  |  | — |  |  | 28 |  |  | (40 | ) |  | — |  |  | (40 | )
Public equity | 30 |  |  | (6 | ) |  | 24 |  |  | (4 | ) |  | 34 |  |  | 30 |
Private equity | 11 |  |  | (7 | ) |  | 4 |  |  | (3 | ) |  | 48 |  |  | 45 |
Total investment portfolio | 70 |  |  | (406 | ) |  | (336 | ) |  | (16 | ) |  | 1,081 |  |  | 1,065 |
Variable annuity reinsurance derivative transactions, net of applicable hedges | 45 |  |  | — |  |  | 45 |  |  | (137 | ) |  | — |  |  | (137 | )
Other derivatives | (1 | ) |  | — |  |  | (1 | ) |  | 7 |  |  | — |  |  | 7 |
Foreign exchange | (71 | ) |  | (285 | ) |  | (356 | ) |  | (23 | ) |  | 120 |  |  | 97 |
Other | (6 | ) |  | 7 |  |  | 1 |  |  | (8 | ) |  | (13 | ) |  | (21 | )
Net gains (losses) before tax | 37 |  |  | (684 | ) |  | (647 | ) |  | (177 | ) |  | 1,188 |  |  | 1,011 |
Income tax expense (benefit) | 8 |  |  | (100 | ) |  | (92 | ) |  | (7 | ) |  | 245 |  |  | 238 |
Net gains (losses) | $ | 29 |  |  | $ | (584 | ) |  | $ | (555 | ) |  | $ | (170 | ) |  | $ | 943 |  |  | $ | 773 |

(1) | For the six months ended June 30, 2015, other-than-temporary impairments included $20 million for fixed maturities and $1 million for public equity. For the six months ended June 30, 2014, other-than-temporary impairments included $13 million for fixed maturities, $3 million for private equity, and $7 million for public equity.

At June 30, 2015, our investment portfolios held by U.S. legal entities included approximately $70 million of gross unrealized losses on fixed income investments. Our tax planning strategy related to these losses is based on our view that we will hold these fixed income investments until they recover their cost. As such, we have recognized a deferred tax asset of approximately $24 million related to these fixed income investments. This strategy allows us to recognize the associated deferred tax asset related to these fixed income investments as we do not believe these losses will ever be realized.

Investments

Our investment portfolio is invested primarily in publicly traded, investment grade, fixed income securities with an average credit quality of A/Aa as rated by the independent investment rating services Standard and Poor’s (S&P)/ Moody’s Investors Service (Moody’s). The portfolio is externally managed by independent, professional investment managers and is broadly diversified across geographies, sectors, and issuers. Other investments principally comprise direct investments, investment funds, and limited partnerships. We hold no collateralized debt obligations or collateralized loan obligations in our investment portfolio, and we provide no credit default protection. We have long-standing global credit limits for our entire portfolio across the organization. Exposures are aggregated, monitored, and actively managed by our Global Credit Committee, comprising senior executives, including our Chief Financial Officer, our Chief Risk Officer, our Chief Investment Officer, and our Treasurer. We also have well-established, strict contractual investment rules requiring managers to maintain highly diversified exposures to individual issuers and closely monitor investment manager compliance with portfolio guidelines.
The average duration of our fixed income securities, including the effect of options and swaps, was 4.1 years and 4.0 years at June 30, 2015 and December 31, 2014, respectively. We estimate that a 100 basis point (bps) increase in interest rates would reduce the valuation of our fixed income portfolio by approximately $2.4 billion at June 30, 2015.
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The following table shows the fair value and cost/amortized cost of our invested assets:

| June 30, 2015 |  |  | December 31, 2014 |
(in millions of U.S. dollars) | Fair Value |  |  | Cost/ Amortized Cost |  |  | Fair Value |  |  | Cost/ Amortized Cost |
Fixed maturities available for sale | $ | 48,701 |  |  | $ | 47,599 |  |  | $ | 49,395 |  |  | $ | 47,826 |
Fixed maturities held to maturity | 8,805 |  |  | 8,676 |  |  | 7,589 |  |  | 7,331 |
Short-term investments | 2,062 |  |  | 2,062 |  |  | 2,322 |  |  | 2,322 |
| 59,568 |  |  | 58,337 |  |  | 59,306 |  |  | 57,479 |
Equity securities | 498 |  |  | 433 |  |  | 510 |  |  | 440 |
Other investments | 3,328 |  |  | 2,989 |  |  | 3,346 |  |  | 2,999 |
Total investments | $ | 63,394 |  |  | $ | 61,759 |  |  | $ | 63,162 |  |  | $ | 60,918 |

The fair value of our total investments increased $232 million during the six months ended June 30, 2015, primarily due to the investing of operating cash flows, offset by unrealized depreciation, share repurchases, and the unfavorable impact of foreign exchange.
The following tables present the market value of our fixed maturities and short-term investments at June 30, 2015 and December 31, 2014. The first table lists investments according to type and second according to S&P credit rating:

| June 30, 2015 |  |  | December 31, 2014 |
(in millions of U.S. dollars, except for percentages) | Market Value |  |  | % of Total |  |  | Market Value |  |  | % of Total |
Treasury | $ | 2,424 |  |  | 4 | % |  | $ | 2,448 |  |  | 4 | %
Agency | 1,139 |  |  | 2 | % |  | 1,222 |  |  | 2 | %
Corporate and asset-backed securities | 20,007 |  |  | 34 | % |  | 19,854 |  |  | 34 | %
Mortgage-backed securities | 12,661 |  |  | 21 | % |  | 12,325 |  |  | 21 | %
Municipal | 5,276 |  |  | 9 | % |  | 4,930 |  |  | 8 | %
Non-U.S. | 15,999 |  |  | 27 | % |  | 16,205 |  |  | 27 | %
Short-term investments | 2,062 |  |  | 3 | % |  | 2,322 |  |  | 4 | %
Total | $ | 59,568 |  |  | 100 | % |  | $ | 59,306 |  |  | 100 | %
AAA | $ | 9,320 |  |  | 16 | % |  | $ | 8,943 |  |  | 15 | %
AA | 21,294 |  |  | 36 | % |  | 21,589 |  |  | 36 | %
A | 11,568 |  |  | 19 | % |  | 11,625 |  |  | 20 | %
BBB | 8,806 |  |  | 15 | % |  | 8,690 |  |  | 15 | %
BB | 4,531 |  |  | 8 | % |  | 4,372 |  |  | 7 | %
B | 3,860 |  |  | 6 | % |  | 3,916 |  |  | 7 | %
Other | 189 |  |  | — | % |  | 171 |  |  | — | %
Total | $ | 59,568 |  |  | 100 | % |  | $ | 59,306 |  |  | 100 | %

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Corporate and asset-backed securities
The following table presents our 10 largest global exposures to corporate bonds by market value at June 30, 2015:

(in millions of U.S. dollars) | Market Value |
JP Morgan Chase & Co | $ | 472 |
General Electric Co | 443 |
Goldman Sachs Group Inc | 328 |
Wells Fargo & Co | 267 |
Bank of America Corp | 241 |
HSBC Holdings Plc | 236 |
Verizon Communications Inc | 228 |
Morgan Stanley | 227 |
AT&T INC | 209 |
Ford Motor Co | 206 |

Mortgage-backed securities

| S&P Credit Rating |  |  | Market Value |  |  | Amortized Cost |
June 30, 2015 (in millions of U.S. dollars) | AAA |  |  | AA |  |  | A |  |  | BBB |  |  | BB and below |  |  | Total |  |  | Total |
Agency residential mortgage-backed (RMBS) | $ | — |  |  | $ | 10,094 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 10,094 |  |  | $ | 9,878 |
Non-agency RMBS | 29 |  |  | 5 |  |  | 15 |  |  | 10 |  |  | 13 |  |  | 72 |  |  | 70 |
Commercial mortgage-backed | 2,468 |  |  | 13 |  |  | 11 |  |  | 3 |  |  | — |  |  | 2,495 |  |  | 2,487 |
Total mortgage-backed securities | $ | 2,497 |  |  | $ | 10,112 |  |  | $ | 26 |  |  | $ | 13 |  |  | $ | 13 |  |  | $ | 12,661 |  |  | $ | 12,435 |

Municipal
As part of our overall investment strategy, we may invest in states, municipalities, and other political subdivisions fixed maturity securities (Municipal). We apply the same investment selection process described previously to our Municipal investments. The portfolio is highly diversified primarily in state general obligation bonds and essential service revenue bonds including education and utilities (water, power, and sewers).
Non-U.S.
Our exposure to the Euro results primarily from ACE European Group which is headquartered in London and offers a broad range of coverages throughout the European Union, Central, and Eastern Europe. ACE primarily invests in Euro denominated investments to support its local currency insurance obligations and required capital levels. ACE’s local currency investment portfolios have strict contractual investment guidelines requiring managers to maintain a high quality and diversified portfolio to both sector and individual issuers. Investment portfolios are monitored daily to ensure investment manager compliance with portfolio guidelines.
Our non-U.S. investment grade fixed income portfolios are currency-matched with the insurance liabilities of our non-U.S. operations. The average credit quality of our non-U.S. fixed income securities is A and 53 percent of our holdings are rated AAA or guaranteed by governments or quasi-government agencies. Within the context of these investment portfolios, our government and corporate bond holdings are highly diversified across industries and geographies. Issuer limits are based on credit rating (AA—two percent, A—one percent, BBB—0.5 percent of the total portfolio) and are monitored daily via an internal compliance system. Because of this investment approach we do not have a direct exposure to troubled sovereign borrowers in Europe. We manage our indirect exposure using the same credit rating based investment approach. Accordingly, we do not believe our indirect exposure is material.
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The following table summarizes the market value and amortized cost of our non-U.S. fixed income portfolio by country/sovereign for non-U.S. government securities at June 30, 2015:

(in millions of U.S. dollars) | Market Value |  |  | Amortized Cost |
United Kingdom | $ | 1,082 |  |  | $ | 1,073 |
Republic of Korea | 915 |  |  | 826 |
Federative Republic of Brazil | 701 |  |  | 711 |
United Mexican States | 554 |  |  | 551 |
Canada | 481 |  |  | 464 |
Kingdom of Thailand | 375 |  |  | 360 |
Province of Ontario | 360 |  |  | 342 |
Province of Quebec | 255 |  |  | 241 |
Japan | 195 |  |  | 195 |
Australia | 187 |  |  | 175 |
Other Non-U.S. Government Securities(1) | 2,662 |  |  | 2,576 |
Total | $ | 7,767 |  |  | $ | 7,514 |

(1) | There are no investments in Portugal, Ireland, Italy, Greece or Spain.

The following table summarizes the market value and amortized cost of our non-U.S. fixed income portfolio by country/sovereign for non-U.S. corporate securities at June 30, 2015:

(in millions of U.S. dollars) | Market Value |  |  | Amortized Cost |
United Kingdom | $ | 1,523 |  |  | $ | 1,468 |
Canada | 1,017 |  |  | 988 |
United States(1) | 628 |  |  | 616 |
Australia | 548 |  |  | 536 |
France | 521 |  |  | 509 |
Netherlands | 516 |  |  | 500 |
Germany | 383 |  |  | 368 |
Switzerland | 309 |  |  | 300 |
China | 270 |  |  | 263 |
Hong Kong | 194 |  |  | 193 |
Other Non-U.S. Corporate Securities | 2,323 |  |  | 2,293 |
Total | $ | 8,232 |  |  | $ | 8,034 |

(1) The countries that are listed in the non-U.S. corporate fixed income portfolio above represent the ultimate parent company's country of risk. Non-U.S. corporate securities could be issued by foreign subsidiaries of U.S. corporations.
Below-investment grade corporate fixed income portfolio
Below-investment grade securities have different characteristics than investment grade corporate debt securities. Risk of loss from default by the borrower is greater with below-investment grade securities. Below-investment grade securities are generally unsecured and are often subordinated to other creditors of the issuer. Also, issuers of below-investment grade securities usually have higher levels of debt and are more sensitive to adverse economic conditions, such as recession or increasing interest rates, than investment grade issuers. At June 30, 2015, our corporate fixed income investment portfolio included below-investment grade and non-rated securities which, in total, comprised approximately 13 percent of our fixed income portfolio. Our below-investment grade and non-rated portfolio includes over 1,200 issuers, with the greatest single exposure being $92 million.
We manage high-yield bonds as a distinct and separate asset class from investment grade bonds. The allocation to high-yield bonds is explicitly set by internal management and is targeted to securities in the upper tier of credit quality (BB/B). Our minimum rating for initial purchase is BB/B. Six external investment managers are responsible for high-yield security selection and portfolio construction. Our high-yield managers have a conservative approach to credit selection and very low historical
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default experience. Holdings are highly diversified across industries and subject to a 1.5 percent issuer limit as a percentage of high-yield allocation. We monitor position limits daily through an internal compliance system. Derivative and structured securities (e.g., credit default swaps and collateralized loan obligations) are not permitted in the high-yield portfolio.

Critical Accounting Estimates

As of June 30, 2015, there were no material changes to our critical accounting estimates. For a full discussion of our critical accounting estimates, refer to Item 7 in our 2014 Form 10-K.
Reinsurance recoverable on ceded reinsurance

| June 30 |  |  | December 31 |
(in millions of U.S. dollars) | 2015 |  |  | 2014 |
Reinsurance recoverable on unpaid losses and loss expenses (1) | $ | 11,148 |  |  | $ | 11,307 |
Reinsurance recoverable on paid losses and loss expenses (1) | 627 |  |  | 685 |
Net reinsurance recoverable on losses and loss expenses | $ | 11,775 |  |  | $ | 11,992 |
Reinsurance recoverable on policy benefits | $ | 203 |  |  | $ | 217 |

(1) | Net of provision for uncollectible reinsurance

We evaluate the financial condition of our reinsurers and potential reinsurers on a regular basis and also monitor concentrations of credit risk with reinsurers. The provision for uncollectible reinsurance is required principally due to the potential failure of reinsurers to indemnify us, primarily because of disputes under reinsurance contracts and insolvencies. The provision for uncollectible reinsurance is based on a default analysis applied to gross reinsurance recoverables, net of approximately $2.5 billion and $2.4 billion of collateral at June 30, 2015 and December 31, 2014, respectively. The decrease in net reinsurance recoverable on losses and loss expenses was primarily due to favorable PPD and the impact of unfavorable foreign exchange.
Unpaid losses and loss expenses
As an insurance and reinsurance company, we are required by applicable laws and regulations and GAAP to establish loss and loss expense reserves for the estimated unpaid portion of the ultimate liability for losses and loss expenses under the terms of our policies and agreements with our insured and reinsured customers. With the exception of certain structured settlements, for which the timing and amount of future claim payments are reliably determinable, and certain reserves for unsettled claims that are discounted in statutory filings, our loss reserves are not discounted for the time value of money.
The following table presents a roll-forward of our unpaid losses and loss expenses:

(in millions of U.S. dollars) | Gross Losses |  |  | Reinsurance Recoverable(1) |  |  | Net Losses |
Balance at December 31, 2014 | $ | 38,315 |  |  | $ | 11,307 |  |  | $ | 27,008 |
Losses and loss expenses incurred | 5,808 |  |  | 1,269 |  |  | 4,539 |
Losses and loss expenses paid | (5,892 | ) |  | (1,291 | ) |  | (4,601 | )
Other (including foreign exchange translation) | (403 | ) |  | (137 | ) |  | (266 | )
Losses and loss expenses acquired | 402 |  |  | — |  |  | 402 |
Balance at June 30, 2015 | $ | 38,230 |  |  | $ | 11,148 |  |  | $ | 27,082 |

(1) | Net of provision for uncollectible reinsurance

The estimate of the liabilities includes provisions for claims that have been reported but are unpaid at the balance sheet date (case reserves) and for obligations on claims that have been incurred but not reported (IBNR) at the balance sheet date. IBNR may also include provisions to account for the possibility that reported claims may settle for amounts that differ from the established case reserves. Loss reserves also include an estimate of expenses associated with processing and settling unpaid claims (loss expenses).
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The following table presents our total reserves segregated between case reserves (including loss expense reserves) and IBNR reserves:

| June 30, 2015 |  |  | December 31, 2014 |
(in millions of U.S. dollars) | Gross |  |  | Ceded |  |  | Net |  |  | Gross |  |  | Ceded |  |  | Net |
Case reserves | $ | 16,898 |  |  | $ | 5,298 |  |  | $ | 11,600 |  |  | $ | 17,723 |  |  | $ | 5,667 |  |  | $ | 12,056 |
IBNR reserves | 21,332 |  |  | 5,850 |  |  | 15,482 |  |  | 20,592 |  |  | 5,640 |  |  | 14,952 |
Total | $ | 38,230 |  |  | $ | 11,148 |  |  | $ | 27,082 |  |  | $ | 38,315 |  |  | $ | 11,307 |  |  | $ | 27,008 |

Asbestos and Environmental (A&E)
There was no significant A&E reserve activity during the six months ended June 30, 2015. Refer to our 2014 Form 10-K for additional information on A&E.
Fair value measurements
Refer to Note 4 to the Consolidated Financial Statements for information on our fair value measurements.
Assumed reinsurance programs involving minimum benefit guarantees under variable annuity contracts
ACE reinsures various death and living benefit guarantees associated with variable annuities issued primarily in the United States and Japan.
We ceased writing this business in 2007. Guarantees which are payable on death are referred to as guaranteed minimum death benefits (GMDB). Guarantees on living benefits (GLB) includes guaranteed minimum income benefits (GMIB) and guaranteed minimum accumulation benefits (GMAB). For further description of this product and related accounting treatment, refer to Note 1 to the Consolidated Financial Statements of our 2014 Form 10-K.
Guaranteed living benefits (GLB) derivatives
Our GLB reinsurance is classified as a derivative for accounting purposes and therefore carried at fair value. We believe that the most meaningful presentation of these GLB derivatives is as follows:

• | Estimates of the average modeled value of future cash outflows is recorded as incurred losses (i.e., benefit reserves). Cash inflows or revenue are reported as net premiums earned and changes in the benefit reserves are reflected as Policy benefits expense in the consolidated statements of operations, which is included in underwriting income.

• | The incremental difference between the fair value of GLB reinsurance contracts and benefit reserves is reflected in Accounts payable, accrued expenses, and other liabilities in the consolidated balance sheets and related changes in fair value are reflected in Net realized gains (losses) in the consolidated statements of operations.

Determination of GLB fair value
The fair value of GLB reinsurance is estimated using an internal valuation model, which includes current market information and estimates of policyholder behavior from the perspective of a theoretical market participant that would assume these liabilities. All of our treaties contain claim limits, which are factored into the valuation model. The fair value depends on a number of factors, including interest rates, equity markets, credit risk, current account value, market volatility, expected annuitization rates and other policyholder behavior, and changes in policyholder mortality. 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 timely market information. Due to the inherent uncertainties of the assumptions used in the valuation models to determine the fair value of these derivative products, actual experience may differ materially from the estimates reflected in our consolidated financial statements.
We intend to hold these derivative contracts to maturity (i.e., the expiration of the underlying liabilities through lapse, annuitization, death, or expiration of the reinsurance contract). To partially offset the risk of changes in the fair value of GLB reinsurance contracts, we invest in derivative hedge instruments. At maturity, the cumulative realized gains and losses (excluding cumulative hedge gains or losses) from fair value changes of GLB reinsurance contracts will net to zero because, over time, the insurance liability will be increased or decreased to equal our obligation.
Determination of GLB and Guaranteed minimum death benefits (GMDB) benefit reserves
Management established benefit reserves based on a long-term benefit ratio (or loss ratio) calculated using assumptions reflecting management’s best estimate of the future short-term and long-term performance of the variable annuity line of
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business. Despite the long-term nature of the risk, the benefit ratio calculation is impacted by short-term market movements that may be judged by management to be transient. Management regularly examines both qualitative and quantitative analysis, including a review of the differential between the benefit ratio used at the most recent valuation date and the benefit ratio calculated on subsequent dates. Management regularly evaluates its estimates and uses judgment to determine the extent to which assumptions underlying the benefit ratio calculation should be adjusted. For the six months ended June 30, 2015 and 2014, management determined that no change to the benefit ratio was warranted.
For further information on the estimates and assumptions used in determining the fair value of GLB reinsurance, refer to Note 4 to the Consolidated Financial Statements of our 2014 Form 10-K. For a sensitivity discussion of the effect of changes in interest rates, equity indices, and other assumptions on the fair value of GLBs, and the resulting impact on our net income, refer to Item 3.
Risk Management
We employ a strategy to manage the financial market and policyholder behavior risks embedded in the reinsurance of variable annuity (VA) guarantees. Risk management begins with underwriting a prospective client and guarantee design, with particular focus on protecting our position from policyholder options that, because of anti-selective behavior, could adversely impact our obligation.
A second layer of risk management is the structure of the reinsurance contracts. All VA guarantee reinsurance contracts include some form of annual or aggregate claim limit(s). For further information on the different categories of claim limits, refer to "Guaranteed living benefits derivatives" in our 2014 Form 10-K under Item 7.
A third layer of risk management is the hedging strategy which looks to mitigate both long-term economic loss over time as well as dampen income statement volatility. We owned financial market instruments as part of the hedging strategy with a fair value asset (liability) of $16 million and $(19) million at June 30, 2015 and December 31, 2014, respectively. The instruments are substantially collateralized by our counterparties, on a daily basis.
We also limit the aggregate amount of variable annuity reinsurance guarantee risk we are willing to assume. The last substantive transactions were quoted in late 2007. The aggregate number of policyholders is currently decreasing through policyholder withdrawals, annuitizations, and deaths at a rate of 5 percent to 15 percent per annum.
Note that GLB claims cannot occur for any reinsured policy until it has reached the end of its “waiting period”. 52 percent of the policies we reinsure reached the end of their “waiting periods” prior to June 30, 2015, as shown in the table below.

Year of first payment eligibility | Percent of living benefit account values |
June 30, 2015 and prior | 52 | %
Remainder of 2015 | 3 | %
2016 | 7 | %
2017 | 19 | %
2018 | 11 | %
2019 | 2 | %
2020 and after | 6 | %
Total | 100 | %

The following table presents the historical cash flows under these policies for the periods indicated. The amounts represent accrued past premium received and claims paid, split by benefit type.

| Three Months Ended June 30 |  |  | Six Months Ended June 30 |
(in millions of U.S. dollars) | 2015 |  |  | 2014 |  |  | 2015 |  |  | 2014 |
GMDB |  | GLB |  | Total |  |  | GMDB |  | GLB |  | Total |  |  | GMDB |  | GLB |  | Total |  |  | GMDB |  | GLB |  | Total |
Premium received | $ | 16 |  | $ | 30 |  | $ | 46 |  |  | $ | 18 |  | $ | 35 |  | $ | 53 |  |  | $ | 32 |  | $ | 61 |  | $ | 93 |  |  | $ | 37 |  | $ | 70 |  | $ | 107 |
Less paid claims | 9 |  | 4 |  | 13 |  |  | 9 |  | 6 |  | 15 |  |  | 17 |  | 7 |  | 24 |  |  | 21 |  | 8 |  | 29 |
Net cash received | $ | 7 |  | $ | 26 |  | $ | 33 |  |  | $ | 9 |  | $ | 29 |  | $ | 38 |  |  | $ | 15 |  | $ | 54 |  | $ | 69 |  |  | $ | 16 |  | $ | 62 |  | $ | 78 |

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Collateral
ACE holds collateral on behalf of most of its clients in the form of qualified assets in trust or letters of credit, typically in an amount sufficient for the client to obtain statutory reserve credit for the reinsurance. The timing of the calculation and amount of the collateral varies by client according to the particulars of the reinsurance treaty and the statutory reserve guidelines of the client’s domicile.

Catastrophe management

We actively monitor our catastrophe risk accumulation around the world. The table below presents our modeled annual aggregate pre-tax probable maximum loss (PML), net of reinsurance, for 100-year and 250-year return periods for U.S. hurricane and California earthquake at June 30, 2015 and 2014. The table also presents ACE’s corresponding share of pre-tax industry losses for each of the return periods for U.S. hurricane and California earthquake. For example, according to the model, for the 1-in-100 return period scenario, there is a one percent chance that our losses incurred in any year from U.S. hurricane events could be in excess of $1,766 million (or 6.0 percent of our total shareholders’ equity at June 30, 2015). We estimate that at such hypothetical loss levels, ACE’s share of aggregate industry losses would be approximately 1.1 percent.

|  | Modeled Annual Aggregate Net PML
|  | U.S. Hurricane |  | California Earthquake
|  |  |  | June 30 |  |  |  | June 30 |  |  |  | June 30 |  |  |  | June 30
|  |  |  | 2015 |  |  |  | 2014 |  |  |  | 2015 |  |  |  | 2014
(in millions of U.S. dollars, except for percentages) |  | ACE |  | % of Total Shareholders’ Equity |  | % of Industry |  | ACE |  | ACE |  | % of Total Shareholders’ Equity |  | % of Industry |  | ACE
1-in-100 |  | $ | 1,766 |  |  | 6.0 | % |  | 1.1 | % |  | $ | 1,745 |  |  | $ | 769 |  |  | 2.6 | % |  | 2.0 | % |  | $ | 778 |
1-in-250 |  | $ | 2,452 |  |  | 8.3 | % |  | 1.1 | % |  | $ | 2,335 |  |  | $ | 1,063 |  |  | 3.6 | % |  | 1.8 | % |  | $ | 1,020 |

The above modeled loss information at June 30, 2015 reflects our in-force portfolio at April 1, 2015 and reinsurance program at July 1, 2015. This portfolio includes the addition of the Fireman's Fund high net worth personal lines business. Effective July 1, 2015, ACE renewed its Global Property Catastrophe Program for our North American and International operations that provides global natural catastrophe and terrorism coverage. Refer to "Natural catastrophe property reinsurance program" for additional information.
The modeling estimates of both ACE and industry loss levels are inherently uncertain owing to key assumptions. First, while the use of third-party catastrophe modeling packages to simulate potential hurricane and earthquake losses is prevalent within the insurance industry, the models are reliant upon significant meteorology, seismology, and engineering assumptions to estimate hurricane and earthquake losses. In particular, modeled hurricane and earthquake events are not always a representation of actual events and ensuing additional loss potential. Second, there is no universal standard in the preparation of insured data for use in the models and the running of the modeling software. Third, we are reliant upon third-party estimates of industry insured exposures and there is significant variation possible around the relationship between our loss and that of the industry following an event. Fourth, we assume that our reinsurance recoveries following an event are fully collectible. These loss estimates do not represent our potential maximum exposures and it is highly likely that our actual incurred losses would vary materially from the modeled estimates.

Natural Catastrophe Property Reinsurance Program

ACE’s core property catastrophe reinsurance program provides protection against natural catastrophes impacting its primary property operations (i.e., excluding our Global Reinsurance and Life segments).
We regularly review our reinsurance protection and corresponding property catastrophe exposures. This may or may not lead to the purchase of additional reinsurance prior to a program’s renewal date. In addition, prior to each renewal date, we consider how much, if any, coverage we intend to buy and we may make material changes to the current structure in light of various factors, including modeled PML assessment at various return periods, reinsurance pricing, our risk tolerance and exposures, and various other structuring considerations.
ACE purchases a Global Property Catastrophe Reinsurance Program for our North American and International operations. The program is effective July 1, 2015 through June 30, 2016, and consists of three layers in excess of losses retained by ACE. The program included an additional $200 million of coverage, and other applicable reinsurance, as a result of our acquisition of the Fireman's Fund high net worth personal lines business. Approximately 21 percent of the coverage was placed with reinsurers
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providing upfront collateral equal to the limit of their participation and without a reinstatement. The remaining coverage was placed without upfront collateral and with one additional reinstatement limit in the event of a natural peril loss. In addition, we also purchased terrorism coverage (excluding nuclear, biological, chemical and radiation coverage) for the United States from July 1, 2015 to June 30, 2016 with the same limits and retention and percentage placed except that the majority of terrorism coverage is on an aggregate basis above our retentions without a reinstatement. A majority of the program, excess of a $1 billion attachment point, also includes biological and chemical terrorism coverage for the personal lines exposures in those states that mandate such coverage.

Loss Location |  | Layer of Loss |  | Comments | Notes
United States (excluding Alaska and Hawaii) |  | $0 million – $500 million |  | Losses retained by ACE | (a)
United States (excluding Alaska and Hawaii) |  | $500 million – $1.0 billion |  | All natural perils, and terrorism (excluding nuclear, biological, chemical and radiation) | (b)
United States (excluding Alaska and Hawaii) |  | $1.0 billion – $1.275 billion |  | All natural perils, and terrorism (excluding nuclear, biological, chemical and radiation - with biological and chemical covered for the personal lines exposures) | (c)
United States (excluding Alaska and Hawaii) |  | $1.275 billion – $1.475 billion |  | All natural perils, and terrorism (excluding nuclear, biological, chemical and radiation) | (d)
International (including Alaska and Hawaii) |  | $0 million – $125 million |  | Losses retained by ACE | (a)
International (including Alaska and Hawaii) |  | $125 million – $625 million |  | All natural perils, and terrorism (excluding nuclear, biological, chemical and radiation) | (b)
Alaska, Hawaii, and Canada |  | $625 million – $900 million |  | All natural perils, and terrorism (excluding nuclear, biological, chemical and radiation) | (c)
Alaska, Hawaii, and Canada |  | $925 million – $1.1 billion |  | All natural perils, and terrorism (excluding nuclear, biological, chemical and radiation) | (d)
(a) Ultimate retention will depend upon the nature of the loss and the interplay between the underlying per risk programs and certain other catastrophe programs purchased by individual business units. These other catastrophe programs have the potential to reduce our effective retention below the stated levels.
(b) These coverages are both part of the same Core layer within the Global Catastrophe Program and are approximately 90% placed with Reinsurers. As such, it may be exhausted in one region and not available in the other.
(c) These coverages are both part of the same Second layer within the Global Catastrophe Program and are approximately 98% placed with Reinsurers. As such, it may be exhausted in one region and not available in the other.
(d) These coverages are both part of the same Third layer within the Global Catastrophe Program and are 100% placed with Reinsurers. As such, it may be exhausted in one region and not available in the other.

Crop Insurance

We are, and have been since the 1980s, one of the leading writers of crop insurance in the U.S. and have conducted that business through a managing general agent subsidiary of Rain and Hail. We provide protection throughout the U.S. on a variety of crops and are therefore geographically diversified, which reduces the risk of exposure to a single event or a heavy accumulation of losses in any one region. Our crop insurance business comprises two components – Multiple Peril Crop Insurance (MPCI) and crop-hail insurance.
The MPCI program is offered in conjunction with the U.S. Department of Agriculture (USDA). The policies cover revenue shortfalls or production losses due to natural causes such as drought, excessive moisture, hail, wind, frost, insects, and disease. Generally, policies have deductibles ranging from 10 percent to 50 percent of the insured's risk. The USDA's Risk Management Agency (RMA) sets the policy terms and conditions, rates and forms, and is also responsible for setting compliance standards. As a participating company, we report all details of policies underwritten to the RMA and are party to a Standard Reinsurance Agreement (SRA). The SRA sets out the relationship between private insurance companies and the Federal Crop Insurance Corporation (FCIC) concerning the terms and conditions regarding the risks each will bear including the pro-rata and state stop-loss provisions which allows companies to limit the exposure of any one state or group of states on their underwriting results. In
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addition to the pro-rata and excess of loss reinsurance protections inherent in the SRA, we also purchase third-party proportional and stop-loss reinsurance for our MPCI business to reduce our exposure. We may also enter into crop derivative contracts to further manage our risk exposure.
Each year the RMA issues a final SRA for the subsequent reinsurance year. In June 2015, the RMA released the 2016 SRA which establishes the terms and conditions for the 2016 reinsurance year (i.e., July 1, 2015 through June 30, 2016) that replaced the 2015 SRA. There were no significant changes in the terms and conditions, and therefore the new SRA does not materially impact ACE's outlook on the crop program relative to 2016.
On the MPCI business, we recognize net premiums written as soon as estimable, which is generally when we receive acreage reports from the policyholders on the various crops throughout the U.S. This allows us to best determine the premium associated with the liability that is being planted. The MPCI program has specific timeframes as to when producers must report acreage to us and in certain cases, the reporting occurs after the close of the respective reinsurance year. Once the net premium written has been recorded, the premium is then earned over the growing season for the crops. A majority of the crops that are covered in the program are typically subject to the SRA in effect at the beginning of the year. Given the major crops covered in the program, we typically see a substantial written and earned premium impact in the second and third quarters.
The pricing of MPCI premium is determined using a number of factors including commodity prices and related volatility. For instance, in most states the pricing for the MPCI Revenue Product for corn includes a factor that is based on the average price in February of the Chicago Board of Trade December corn futures. To the extent that the corn commodity prices are higher in February than they were in the previous February, and all other factors are the same, the increase in corn prices will increase the corn premium year over year.
Our crop-hail program is a private offering. Premium is earned on the crop-hail program over the coverage period of the policy. Given the very short nature of the growing season, most crop-hail business is typically written in the second and third quarters with the earned premium also more heavily occurring during this time frame. We use industry data to develop our own rates and forms for the coverage offered. The policy primarily protects farmers against yield reduction caused by hail and/or fire, and related costs such as transit to storage. We offer various deductibles to allow the grower to partially self-insure for a reduced premium cost. We limit our crop-hail exposures through the use of township liability limits and third-party proportional and stop-loss reinsurance on our net retained hail business.

Liquidity

We anticipate that positive cash flows from operations (underwriting activities and investment income) should be sufficient to cover cash outflows under most loss scenarios for the near term. In addition to cash from operations, routine sales of investments, and financing arrangements, we have agreements with a third-party bank provider which implemented two international multi-currency notional cash pooling programs to enhance cash management efficiency during periods of short-term timing mismatches between expected inflows and outflows of cash by currency. The programs allow us to optimize investment income by avoiding portfolio disruption. Should the need arise, we generally have access to capital markets and an available credit facility. At June 30, 2015, our available credit line totaled $1.0 billion and usage of this credit line was $482 million. Our access to funds under an existing credit facility is dependent on the ability of the bank that is a party to the facility to meet its funding commitments. Our existing credit facility has a remaining term expiring in November 2017 and requires that we maintain certain financial covenants, all of which we met at June 30, 2015. Should our existing credit provider experience financial difficulty, we may be required to replace credit sources, possibly in a difficult market. If we cannot obtain adequate capital or sources of credit on favorable terms, on a timely basis, or at all, our business, operating results, and financial condition could be adversely affected. To date, we have not experienced difficulty accessing our credit facility. Refer to “Credit Facilities” in our 2014 Form 10-K for additional information.
The payment of dividends or other statutorily permissible distributions from our operating companies are subject to the laws and regulations applicable to each jurisdiction, as well as the need to maintain capital levels adequate to support the insurance and reinsurance operations, including financial strength ratings issued by independent rating agencies. During the six months ended June 30, 2015, we were able to meet all of our obligations, including the payments of dividends on our Common Shares, with our net cash flows.
We assess which subsidiaries to draw dividends from based on a number of factors. Considerations such as regulatory and legal restrictions as well as the subsidiary’s financial condition are paramount to the dividend decision. ACE Limited received dividends of $15 million and nil from its Bermuda subsidiaries during the six months ended June 30, 2015 and 2014, respectively.
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The payment of any dividends from AGM or its subsidiaries is subject to applicable U.K. insurance laws and regulations. In addition, the release of funds by Syndicate 2488 to subsidiaries of AGM is subject to regulations promulgated by the Society of Lloyd’s. The U.S. insurance subsidiaries of ACE INA Holdings Inc. (ACE INA) may pay dividends, without prior regulatory approval, subject to restrictions set out in state law of the subsidiary’s domicile (or, if applicable, commercial domicile). ACE INA’s international subsidiaries are also subject to insurance laws and regulations particular to the countries in which the subsidiaries operate. These laws and regulations sometimes include restrictions that limit the amount of dividends payable without prior approval of regulatory insurance authorities. ACE Limited received no dividends from AGM or ACE INA during the six months ended June 30, 2015 and 2014. Debt issued by ACE INA is serviced by statutorily permissible distributions by ACE INA’s insurance subsidiaries to ACE INA as well as other group resources. ACE INA received no dividends from its subsidiaries during the six months ended June 30, 2015 and 2014.
Cash Flows
Our sources of liquidity include cash from operations, routine sales of investments, and financing arrangements. The following is a discussion of our cash flows for the six months ended June 30, 2015 and 2014.
Operating cash flows were $1.89 billion in the six months ended June 30, 2015, compared with $2.10 billion in the prior year period, primarily due to higher net losses paid and higher income taxes paid, partially offset by higher net premiums collected.
Cash used for investing was $1.02 billion in the six months ended June 30, 2015, compared with $1.46 billion in the prior year period. The decrease in cash used for investing of $439 million was primarily due to the cash paid for the purchase of the Fireman's Fund of $365 million, which when netted with cash acquired of $620 million, resulted in a net $255 million cash inflow. This compares to a cash outflow of $172 million related to acquisitions in the prior year period.
Cash used for financing was $659 million in the six months ended June 30, 2015, compared with $625 million in the prior year period. The year-over-year increase in cash flows used for financing of $34 million is primarily due to higher share repurchases of $193 million in the current year, partially offset by an increase in proceeds from the issuance of long-term debt of $101 million and lower repayments of long-term debt of $50 million.
Both internal and external forces influence our financial condition, results of operations, and cash flows. Claim settlements, premium levels, and investment returns may be impacted by changing rates of inflation and other economic conditions. In many cases, significant periods of time, ranging up to several years or more, may lapse between the occurrence of an insured loss, the reporting of the loss to us, and the settlement of the liability for that loss.
In the current low interest rate environment, we use repurchase agreements as a low-cost alternative for short-term funding needs and to address short-term cash timing differences without disrupting our investment portfolio holdings. At June 30, 2015, there were $1.4 billion in repurchase agreements outstanding.

Capital Resources

Capital resources consist of funds deployed or available to be deployed to support our business operations.

| June 30 |  |  | December 31 |
(in millions of U.S. dollars, except for percentages) | 2015 |  |  | 2014 |
Short-term debt | $ | 2,102 |  |  | $ | 2,552 |
Long-term debt | 4,157 |  |  | 3,357 |
Total debt | 6,259 |  |  | 5,909 |
Trust preferred securities | 309 |  |  | 309 |
Total shareholders’ equity | 29,555 |  |  | 29,587 |
Total capitalization | $ | 36,123 |  |  | $ | 35,805 |
Ratio of debt to total capitalization | 17.3 | % |  | 16.5 | %
Ratio of debt plus trust preferred securities to total capitalization | 18.2 | % |  | 17.4 | %

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In March 2015, we issued $800 million of 3.15 percent senior notes due May 2025. The proceeds from the debt issuance are expected to be used to repay at maturity $500 million of 5.7 percent senior notes due February 2017 and $300 million of 5.8 percent senior notes due March 2018. In May 2015, ACE INA's $450 million of 5.6 percent senior notes matured and were fully paid.
For the six months ended June 30, 2015 and 2014, we repurchased $734 million and $569 million of Common Shares, respectively, in a series of open market transactions under existing Board of Directors (Board) authorizations. At June 30, 2015, $766 million in repurchase authorization remained through December 31, 2015. Refer to Note 8 to the Consolidated Financial Statements for additional information on the repurchase authorization. At this time, management has elected to discontinue share repurchases under the Board authorization in connection with the announced planned acquisition of Chubb. At June 30, 2015, there were 19,018,131 Common Shares in treasury with a weighted average cost of $105.13 per share.
On June 30, 2015, we entered into a definitive agreement to acquire Chubb for approximately $28.3 billion in cash and stock. ACE intends to finance the cash portion of this acquisition through a combination of $9 billion of ACE and Chubb cash plus $5.3 billion of senior notes with a range of maturities to be determined. Refer to Note 2 for additional information.
We generally maintain the ability to issue certain classes of debt and equity securities via an unlimited Securities and Exchange Commission (SEC) shelf registration which is renewed every three years. This allows us capital market access for refinancing as well as for unforeseen or opportunistic capital needs. Our current shelf registration on file with the SEC expires in December 2017.
Dividends
We have paid dividends each quarter since we became a public company in 1993. Under Swiss law, dividends must be stated in Swiss francs though dividend payments are made by ACE in U.S. dollars. Refer to Note 8 to the Consolidated Financial Statements for a discussion of our dividend methodology. At our May 2014 annual general meeting, our shareholders approved an annual dividend distribution for the following year by way of a par value reduction equal to $2.60 per share, or CHF 2.28 per share, calculated using the USD/CHF exchange rate as published in the Wall Street Journal on May 9, 2014. The annual dividend approved in May 2014 was paid in four quarterly installments, in accordance with the shareholder resolution.
At our May 2015 annual general meeting, our shareholders approved an annual dividend for the following year of up to $2.68 per share, or CHF 2.48 per share, calculated using the USD/CHF exchange rate as published in the Wall Street Journal on May 21, 2015, expected to be paid in four quarterly installments of $0.67 per share after the annual general meeting. This dividend will be distributed from capital contribution reserves (Additional paid-in capital) and transferred to free reserves (Retained earnings) for payment. The Board will determine the record and payment dates at which the annual dividend may be paid, and is authorized to abstain (in whole or in part) from distributing a dividend in its discretion, until the date of the 2016 annual general meeting.
The following table represents dividends paid per Common Share to shareholders of record on each of the following dates:

Shareholders of record as of: |  | Dividends paid as of: |  |
December 17, 2014 |  | January 15, 2015 |  | $0.65 (CHF 0.63)
March 31, 2015 |  | April 21, 2015 |  | $0.65 (CHF 0.62)
June 30, 2015 |  | July 21, 2015 |  | $0.67 (CHF 0.62)

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

Refer to Item 7A included in our 2014 Form 10-K.
Foreign currency management
As a global company, ACE entities transact business in multiple currencies. Our policy is to generally match assets, liabilities and required capital for each individual jurisdiction in local currency. We do not hedge our currency exposure to foreign currency net asset positions. We do consider hedging for planned cross border transactions. For an estimated impact of foreign currency movement on our net assets denominated in non-U.S. currencies, refer to Item 7A in our 2014 Form 10-K. This information will be updated and disclosed in interim filings if our net assets in non-U.S. currencies change materially from the December 31, 2014 balances disclosed in the 2014 Form 10-K.
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Reinsurance of GMDB and GLB guarantees
ACE views its variable annuity reinsurance business as having a similar risk profile to that of catastrophe reinsurance with the probability of long-term economic loss relatively small, at the time of pricing. Adverse changes in market factors and policyholder behavior will have an impact on both life underwriting income and net income. When evaluating these risks, we expect to be compensated for taking both the risk of a cumulative long-term economic net loss, as well as the short-term accounting variations caused by these market movements. Therefore, we evaluate this business in terms of its long-term economic risk and reward.
Net income is directly impacted by changes in benefit reserves calculated in connection with reinsurance of variable annuity guarantees, primarily GMDB and GLB. In addition, net income is directly impacted by changes in the fair value of the GLB liability (FVL), which is classified as a derivative for accounting purposes. The FVL established for a GLB reinsurance contract represents the difference between the fair value of the contract and the benefit reserves. Benefit reserves and FVL calculations are directly affected by market factors, including equity levels, interest rate levels, credit risk, and implied volatilities, as well as policyholder behaviors, such as annuitization and lapse rates.
The tables below are estimates of the sensitivities to instantaneous changes in economic inputs (e.g., equity shock, interest rate shock etc.) or actuarial assumptions at June 30, 2015 of the FVL and of the fair value of specific derivative instruments held (hedge value) to partially offset the risk in the variable annuity guarantee reinsurance portfolio. The following assumptions should be considered when using the below tables:

• | No changes to the benefit ratio used to establish benefit reserves at June 30, 2015

• | Equity shocks impact all global equity markets equally

• | Our liabilities are sensitive to global equity markets in the following proportions: 70 percent—80 percent U.S. equity, 10 percent—20 percent international equity ex-Japan, up to 10 percent Japan equity.

• | Our current hedge portfolio is sensitive to global equity markets in the following proportions: 100 percent U.S. equity.

• | We would suggest using the S&P 500 index as a proxy for U.S. equity, the MSCI EAFE index as a proxy for international equity, and the TOPIX as a proxy for Japan equity.

• | Interest rate shocks assume a parallel shift in the U.S. yield curve

• | Our liabilities are also sensitive to global interest rates at various points on the yield curve, mainly the U.S. Treasury curve in the following proportions: up to 10 percent short-term rates (maturing in less than 5 years), 20 percent—30 percent medium-term rates (maturing between 5 years and 10 years, inclusive), and 70 percent—80 percent long-term rates (maturing beyond 10 years).

• | A change in AA-rated credit spreads (AA-rated credit spreads are a proxy for both our own credit spreads and the credit spreads of the ceding insurers) impacts the rate used to discount cash flows in the fair value model.

• | The hedge sensitivity is from June 30, 2015 market levels and includes the impact of adjustments to the hedge portfolio made subsequent to that date.

• | The sensitivities are not directly additive because changes in one factor will affect the sensitivity to changes in other factors. The sensitivities do not scale linearly and may be proportionally greater for larger movements in the market factors. The sensitivities may also vary due to foreign exchange rate fluctuations. The calculation of the FVL is based on internal models that include assumptions regarding future policyholder behavior, including lapse, annuitization, and asset allocation. These assumptions impact both the absolute level of the FVL as well as the sensitivities to changes in market factors shown below. Actual sensitivity of our net income may differ from those disclosed in the tables below due to differences between short-term market movements and management judgment regarding the long-term assumptions implicit in our benefit ratios. Furthermore, the sensitivities below could vary by multiples of the sensitivities in the tables below.

• | In addition, the tables below do not reflect the expected quarterly run rate of net income generated by the variable annuity guarantee reinsurance portfolio if markets remain unchanged during the period. All else equal, if markets remain unchanged during the period, the Gross FVL will increase, resulting in a realized loss. The realized loss occurs primarily because, during the period, we will collect premium on the full population while only 52 percent of that population has become eligible to annuitize and generate a claim (since approximately 48 percent of policies are not eligible to annuitize until after June 30, 2015). This increases the Gross FVL because future premiums are lower by the amount collected in the quarter,

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and also because future claims are discounted for a shorter period. We refer to this increase in Gross FVL as “timing effect”. The unfavorable impact of timing effect on our Gross FVL in a quarter is not reflected in the sensitivity tables below. For this reason, when using the tables below to estimate the sensitivity of Gross FVL in the third quarter to various changes, it is necessary to assume an additional $5 million to $45 million increase in Gross FVL and realized losses. However, the impact to Net income is substantially mitigated because the majority of this realized loss is offset by the positive quarterly run rate of Life underwriting income generated by the variable annuity guarantee reinsurance portfolio if markets remain unchanged during the period. Note that both the timing effect and the quarterly run rate of Life underwriting income change over time as the book ages.

Interest Rate Shock | Worldwide Equity Shock
(in millions of U.S. dollars) | +10% |  | Flat |  | -10% |  | -20% |  | -30% |  | -40%
+100 bps | (Increase)/decrease in Gross FVL | $ | 354 |  |  | $ | 242 |  |  | $ | 52 |  |  | $ | (218 | ) |  | $ | (567 | ) |  | $ | (984 | )
| Increase/(decrease) in hedge value | (126 | ) |  | — |  |  | 127 |  |  | 254 |  |  | 385 |  |  | 524 |
| Increase/(decrease) in net income | $ | 228 |  |  | $ | 242 |  |  | $ | 179 |  |  | $ | 36 |  |  | $ | (182 | ) |  | $ | (460 | )
Flat | (Increase)/decrease in Gross FVL | $ | 183 |  |  | $ | — |  |  | $ | (259 | ) |  | $ | (591 | ) |  | $ | (993 | ) |  | $ | (1,460 | )
| Increase/(decrease) in hedge value | (126 | ) |  | — |  |  | 126 |  |  | 254 |  |  | 385 |  |  | 525 |
| Increase/(decrease) in net income | $ | 57 |  |  | $ | — |  |  | $ | (133 | ) |  | $ | (337 | ) |  | $ | (608 | ) |  | $ | (935 | )
-100 bps | (Increase)/decrease in Gross FVL | $ | (99 | ) |  | $ | (342 | ) |  | $ | (659 | ) |  | $ | (1,046 | ) |  | $ | (1,498 | ) |  | $ | (2,011 | )
| Increase/(decrease) in hedge value | (126 | ) |  | — |  |  | 126 |  |  | 254 |  |  | 385 |  |  | 525 |
| Increase/(decrease) in net income | $ | (225 | ) |  | $ | (342 | ) |  | $ | (533 | ) |  | $ | (792 | ) |  | $ | (1,113 | ) |  | $ | (1,486 | )
Sensitivities to Other Economic Variables | AA-rated Credit Spreads |  | Interest Rate Volatility |  | Equity Volatility
(in millions of U.S. dollars) | +100 bps |  |  | -100 bps |  | +2% |  | -2% |  | +2% |  | -2%
(Increase)/decrease in Gross FVL | $ | 51 |  |  | $ | (58 | ) |  | $ | (3 | ) |  | $ | — |  |  | $ | (16 | ) |  | $ | 14 |
Increase/(decrease) in hedge value | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Increase/(decrease) in net income | $ | 51 |  |  | $ | (58 | ) |  | $ | (3 | ) |  | $ | — |  |  | $ | (16 | ) |  | $ | 14 |
Sensitivities to Actuarial Assumptions |  |  |  |  | Mortality
(in millions of U.S. dollars) |  |  |  |  | +20% |  | +10% |  | -10% |  | -20%
(Increase)/decrease in Gross FVL |  |  |  |  | $ | 21 |  |  | $ | 10 |  |  | $ | (11 | ) |  | $ | (22 | )
Increase/(decrease) in hedge value |  |  |  |  | — |  |  | — |  |  | — |  |  | — |
Increase/(decrease) in net income |  |  |  |  | $ | 21 |  |  | $ | 10 |  |  | $ | (11 | ) |  | $ | (22 | )
|  |  |  |  |  | Lapses
(in millions of U.S. dollars) |  |  |  |  | +50% |  | +25% |  | -25% |  | -50%
(Increase)/decrease in Gross FVL |  |  |  |  | $ | 183 |  |  | $ | 101 |  |  | $ | (133 | ) |  | $ | (294 | )
Increase/(decrease) in hedge value |  |  |  |  | — |  |  | — |  |  | — |  |  | — |
Increase/(decrease) in net income |  |  |  |  | $ | 183 |  |  | $ | 101 |  |  | $ | (133 | ) |  | $ | (294 | )
|  |  |  |  |  | Annuitization
(in millions of U.S. dollars) |  |  |  |  | +50% |  | +25% |  | -25% |  | -50%
(Increase)/decrease in Gross FVL |  |  |  |  | $ | (282 | ) |  | $ | (152 | ) |  | $ | 175 |  |  | $ | 335 |
Increase/(decrease) in hedge value |  |  |  |  | — |  |  | — |  |  | — |  |  | — |
Increase/(decrease) in net income |  |  |  |  | $ | (282 | ) |  | $ | (152 | ) |  | $ | 175 |  |  | $ | 335 |

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ITEM 4. Controls and Procedures

ACE’s management, with the participation of ACE’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of ACE’s disclosure controls and procedures as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934 as of June 30, 2015. Based upon that evaluation, ACE’s Chief Executive Officer and Chief Financial Officer concluded that ACE’s disclosure controls and procedures are effective in allowing information required to be disclosed in reports filed under the Securities and Exchange Act of 1934 to be recorded, processed, summarized, and reported within time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to ACE’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. In accordance with the SEC's published guidance, the disclosure controls and procedures of the large corporate account P&C business of Itaú Seguros, S.A. (Itaú Seguros), which was acquired on October 31, 2014, was excluded from our evaluation of the effectiveness of our disclosure controls and procedures as of June 30, 2015. At June 30, 2015, Itaú Seguros' assets represented approximately two percent of consolidated assets. For the three and six months ended June 30, 2015, Itaú Seguros' revenues represented approximately one percent and two percent of consolidated revenues, respectively, and net income represented approximately two percent and one percent of consolidated net income, respectively.
There has been no change in ACE’s internal controls over financial reporting during the three months ended June 30, 2015 that has materially affected, or is reasonably likely to materially affect, ACE’s internal controls over financial reporting.
PART II OTHER INFORMATION

ITEM 1. Legal Proceedings

The information required with respect to this item is included in Note 7 f) to the Consolidated Financial Statements which is hereby incorporated by reference.

ITEM 1A. Risk Factors

The following supplements the risk factors that could have a material impact on our results of operations or financial condition as described under “Risk Factors” in Item 1A of Part I of our 2014 Form 10-K. The Risk Factors listed in our 2014 Form 10-K under the subheadings, "The integration of acquired companies may not be as successful as we anticipate." and "We may require additional capital or financing sources in the future, which may not be available or may be available only on unfavorable terms." are amended and restated to read in its entirety as set forth below.
The integration of acquired companies may not be as successful as we anticipate.
Acquisitions, such as our proposed acquisition of The Chubb Corporation (Chubb) through a merger (the Chubb Merger), involve numerous operational, strategic, financial, accounting, legal, tax and other risks; potential liabilities associated with the acquired businesses; and uncertainties related to design, operation and integration of acquired businesses’ internal controls over financial reporting. Difficulties in integrating an acquired company may result in the acquired company performing differently than we expected, in operational challenges or in our failure to realize anticipated expense-related efficiencies. Our existing businesses could also be negatively impacted by acquisitions. In addition, goodwill and intangible assets recorded in connection with insurance company acquisitions may be impaired if premium growth, underwriting profitability, agency retention and policy persistency, among other factors, differ from expectations.
There is also the potential that proposed acquisitions that have been publicly announced, such as our proposed Chubb Merger, will not be consummated, even if a definitive agreement has been signed by the parties. If an agreement is terminated before closing, the result would be that our proposed acquisition would not occur, which could, among other things, expose us to damages or liability and adversely impact our stock price and future operations.
Failure to complete the Chubb Merger could negatively impact the price of our Common Shares, as well as our future business and financial results.
The Agreement and Plan of Merger for the Chubb Merger (the Merger Agreement) contains a number of conditions that must be satisfied or waived prior to the completion of the Chubb Merger. We cannot assure that all of the conditions to the Chubb Merger will be so satisfied or waived. If the conditions to the Chubb Merger are not satisfied or waived, we may be unable to complete the Chubb Merger.
If the Chubb Merger is not completed, our ongoing business may be adversely affected as follows:
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• | we may experience negative reactions from the financial markets, including negative impacts on the market price of our Common Shares;

• | the manner in which brokers, insureds, cedants and other third parties perceive us may be negatively impacted, which in turn could affect our ability to compete for or write new business or obtain renewals in the marketplace;

• | we may experience negative reactions from employees; and

• | we will have expended time and resources that could otherwise have been spent on our existing business and the pursuit of other opportunities that could have been beneficial to us and our ongoing business and financial results may be adversely affected.

Whether or not the Chubb Merger is completed, shareholder lawsuits could be filed challenging the acquisition. If this occurs, even if the lawsuits are groundless and we ultimately prevail, we may incur substantial legal fees and expenses defending and/or settling these lawsuits and the Chubb Merger may be prevented or delayed.
Completion of the proposed acquisition is conditioned upon the approval by ACE Limited’s and Chubb’s shareholders and the receipt of certain governmental approvals, including, without limitation, insurance regulatory approvals and the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. Although each party has agreed to use respective reasonable best efforts to obtain the requisite shareholder and governmental approvals, we cannot assure that these approvals will be obtained and that the other conditions to closing will be satisfied. In addition, the governmental authorities from which the regulatory approvals are required may impose conditions on the completion of the proposed acquisition or require changes to the terms of the proposed acquisition. Each party’s obligation to consummate the Chubb Merger is subject to the condition that the required governmental approvals have been obtained without the imposition of a “Materially Burdensome Regulatory Condition” (as defined in the Merger Agreement).
Even if we complete the Chubb Merger, we may fail to realize all of the anticipated benefits of the proposed Chubb Merger.
The success of the proposed Chubb Merger will depend, in part, on our ability to realize the anticipated benefits and cost savings from combining our businesses. The anticipated benefits and cost savings of the proposed Chubb Merger may not be realized fully or at all, or may take longer to realize than expected or could have other adverse effects that we do not currently foresee. Some of the assumptions that we have made, such as the achievement of operating synergies, may not be realized. The integration process may, for each company, result in the loss of key employees, the disruption of ongoing businesses or inconsistencies in standards, controls, procedures and policies. There could be potential unknown liabilities and unforeseen expenses associated with the Chubb Merger that were not discovered in the course of performing due diligence.
We will require additional capital or financing sources in the future, including for the Chubb Merger, which may not be available or may be available only on unfavorable terms.
Our future capital and financing requirements depend on many factors, including our ability to write new business successfully and to establish premium rates and reserves at levels sufficient to cover losses, as well as our investment performance and capital expenditure obligations, including with respect to acquisitions. We may need to raise additional funds through financings or access funds through existing or new credit facilities or through short-term repurchase agreements. We also from time to time seek to refinance debt or credit as amounts become due or commitments expire. Any equity or debt financing or refinancing, if available at all, may be on terms that are not favorable to us. In the case of equity financings, dilution to our shareholders could result, and in any case, such securities may have rights, preferences, and privileges that are senior to those of our Common Shares. Our access to funds under existing credit facilities is dependent on the ability of the banks that are parties to the facilities to meet their funding commitments. If we cannot obtain adequate capital or sources of credit on favorable terms, or at all, we could be forced to use assets otherwise available for our business operations, and our business, results of operations, and financial condition could be adversely affected.
ACE is obligated to complete the Chubb Merger whether or not it has sufficient funds to pay the cash consideration under the Merger Agreement. ACE intends to pay the cash consideration using cash on hand, cash sourced from certain of its subsidiaries and Chubb and certain of Chubb’s subsidiaries and debt financing. The availability of cash at certain of ACE’s or Chubb’s subsidiaries may be subject to prior regulatory approvals, which may not be received in a timely fashion or at all. In addition, although ACE believes, based on current market conditions, that it will be able to complete the contemplated debt financing, ACE cannot provide assurances as to the ultimate cost or availability of financing for the Chubb Merger.
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ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds and Issuer Repurchases of Equity Securities

Issuer’s Repurchases of Equity Securities
The following table provides information with respect to purchases by ACE of its Common Shares during the three months ended June 30, 2015:

Period | Total Number of Shares Purchased(1) |  |  | Average Price Paid per Share |  |  | Total Number of Shares Purchased as Part of Publicly Announced Plan(2) |  |  | Approximate Dollar Value of Shares that May Yet be Purchased Under the Plan(3) |
April 1 through April 30 | 1,653,145 |  |  | $ | 109.42 |  |  | 1,651,820 |  |  | $ | 979 | million
May 1 through May 31 | 1,161,253 |  |  | $ | 107.79 |  |  | 1,098,380 |  |  | $ | 861 | million
June 1 through June 30 | 909,236 |  |  | $ | 105.25 |  |  | 900,000 |  |  | $ | 766 | million
Total | 3,723,634 |  |  |  |  | 3,650,200 |  |  |

(1) | This column primarily represents open market share repurchases. Other activity is related to the surrender to ACE of Common Shares to satisfy tax withholding obligations in connection with the vesting of restricted stock issued to employees and the exercising of options by employees.

(2) The aggregate value of shares purchased in the three months ended June 30, 2015 as part of the publicly announced plan was $394 million.

(3) | Refer to Note 8 to the Consolidated Financial Statements for more information on the ACE Limited securities repurchase authorization.

ITEM 6. Exhibits

Refer to the Exhibit Index.
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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

| ACE LIMITED
| (Registrant)
August 4, 2015 | /s/ Evan G. Greenberg
| Evan G. Greenberg
| Chairman, President and Chief Executive Officer
August 4, 2015 | /s/ Philip V. Bancroft
| Philip V. Bancroft
| Chief Financial Officer

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|  |  |  | Incorporated by Reference |  |
Exhibit Number |  | Exhibit Description |  | Form |  | Original Number |  | Date Filed |  | Filed Herewith
2.1 |  | Agreement and Plan of Merger, by and among ACE Limited, William Investment Holdings Corporation and The Chubb Corporation, dated as of June 30, 2015 |  | 8-K |  | 2.1 |  | July 7, 2015 |  |
3.1 |  | Articles of Association of the Company, as amended |  | 8-K |  | 3.1 |  | May 22, 2015 |  |
3.2 |  | Organizational Regulations of the company, as amended |  | 8-K |  | 3.2 |  | May 22, 2015 |  |
4.1 |  | Articles of Association of the Company, as amended |  | 8-K |  | 4.1 |  | May 22, 2015 |  |
4.2 |  | Organizational Regulations of the company, as amended |  | 8-K |  | 4.2 |  | May 22, 2015 |  |
10.1* |  | Form of Executive Management Non-Competition Agreement |  | 8-K |  | 10.1 |  | May 22, 2015 |  |
31.1 |  | Certification Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002 |  |  |  |  |  |  |  | X
31.2 |  | Certification Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002 |  |  |  |  |  |  |  | X
32.1 |  | Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002 |  |  |  |  |  |  |  | X
32.2 |  | Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002 |  |  |  |  |  |  |  | X
101.1 |  | The following financial information from ACE Limited’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 formatted in XBRL: (i) Consolidated Balance Sheets at June 30, 2015, and December 31, 2014; (ii) Consolidated Statements of Operations and Comprehensive Income for the three and six months ended June 30, 2015 and 2014; (iii) Consolidated Statements of Shareholders’ Equity for the six months ended June 30, 2015 and 2014; (iv) Consolidated Statements of Cash Flows for the six months ended June 30, 2015 and 2014; and (v) Notes to Consolidated Financial Statements |  |  |  |  |  |  |  | X

* Management Contract or Compensation Plan
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