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Investments | 9 Months Ended
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Sep. 30, 2020
Investments, Debt and Equity Securities [Abstract] |
Investments | Investments a) Fixed maturities Effective January 1, 2020, we adopted new accounting guidance that requires a valuation allowance for credit losses to be established for fixed maturity securities classified as held to maturity (HTM) or available for sale (AFS). For information on accounting policies applicable to periods prior to January 1, 2020, refer to the 2019 Form 10-K.
September 30, 2020 | Amortized Cost |  | Valuation Allowance |  | Gross Unrealized Appreciation |  | Gross Unrealized Depreciation |  | Fair Value |  |  |
(in millions of U.S. dollars) |  |  |  |
Available for sale |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury / Agency | $ | 2,564 |  |  | $ | — |  |  | $ | 227 |  |  | $ | — |  |  | $ | 2,791 |  |  |  |
Non-U.S. | 23,858 |  |  | (9) |  |  | 1,548 |  |  | (115) |  |  | 25,282 |  |  |  |
Corporate and asset-backed securities | 33,661 |  |  | (25) |  |  | 1,895 |  |  | (233) |  |  | 35,298 |  |  |  |
Mortgage-backed securities | 18,272 |  |  | — |  |  | 1,078 |  |  | (13) |  |  | 19,337 |  |  |  |
Municipal | 6,846 |  |  | — |  |  | 302 |  |  | (4) |  |  | 7,144 |  |  |  |
| $ | 85,201 |  |  | $ | (34) |  |  | $ | 5,050 |  |  | $ | (365) |  |  | $ | 89,852 |  |  |  |
| Amortized Cost |  | Valuation Allowance |  | Net Carrying Value |  | Gross Unrealized Appreciation |  | Gross Unrealized Depreciation |  | Fair Value |
Held to maturity |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury / Agency | $ | 1,240 |  |  | $ | — |  |  | $ | 1,240 |  |  | $ | 69 |  |  | $ | — |  |  | $ | 1,309 |  |
Non-U.S. | 1,273 |  |  | (7) |  |  | 1,266 |  |  | 109 |  |  | (1) |  |  | 1,374 |  |
Corporate and asset-backed securities | 2,204 |  |  | (36) |  |  | 2,168 |  |  | 252 |  |  | (6) |  |  | 2,414 |  |
Mortgage-backed securities | 2,104 |  |  | (1) |  |  | 2,103 |  |  | 152 |  |  | (2) |  |  | 2,253 |  |
Municipal | 4,875 |  |  | (1) |  |  | 4,874 |  |  | 249 |  |  | — |  |  | 5,123 |  |
| $ | 11,696 |  |  | $ | (45) |  |  | $ | 11,651 |  |  | $ | 831 |  |  | $ | (9) |  |  | $ | 12,473 |  |
December 31, 2019 | 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 / Agency | $ | 3,188 |  |  | $ | 96 |  |  | $ | (1) |  |  | $ | 3,283 |  |  | $ | — |
Non-U.S. | 22,670 |  |  | 1,099 |  |  | (62) |  |  | 23,707 |  |  | (25) |
Corporate and asset-backed securities | 30,689 |  |  | 1,180 |  |  | (78) |  |  | 31,791 |  |  | (5) |
Mortgage-backed securities | 18,712 |  |  | 494 |  |  | (14) |  |  | 19,192 |  |  | — |
Municipal | 7,321 |  |  | 205 |  |  | (11) |  |  | 7,515 |  |  | — |
| $ | 82,580 |  |  | $ | 3,074 |  |  | $ | (166) |  |  | $ | 85,488 |  |  | $ | (30) |
Held to maturity |  |  |  |  |  |  |  |  |
U.S. Treasury / Agency | $ | 1,318 |  |  | $ | 29 |  |  | $ | — |  |  | $ | 1,347 |  |  | $ | — |
Non-U.S. | 1,423 |  |  | 62 |  |  | — |  |  | 1,485 |  |  | — |
Corporate and asset-backed securities | 2,349 |  |  | 121 |  |  | (2) |  |  | 2,468 |  |  | — |
Mortgage-backed securities | 2,331 |  |  | 65 |  |  | — |  |  | 2,396 |  |  | — |
Municipal | 5,160 |  |  | 150 |  |  | (1) |  |  | 5,309 |  |  | — |
| $ | 12,581 |  |  | $ | 427 |  |  | $ | (3) |  |  | $ | 13,005 |  |  | $ | — |
Management evaluates CECL for all HTM securities each quarter. U.S. Treasury and agency securities and U.S. government agency mortgage-backed securities are assumed to have no risk of non-payment and therefore are excluded from the CECL evaluation. The remaining HTM securities are evaluated for potential credit loss on a collective pool basis. We elected to pool HTM securities by 1) external credit rating and 2) time to maturity (duration). These characteristics are the most representative of similar risk characteristics within our portfolio. Chubb pools HTM securities and calculates an expected credit loss for each pool using Moody’s corporate bond default average, corporate bond recovery rate, and an economic cycle multiplier. The multiplier is based on the leading economic index and adjusts the average default frequency for a forward-looking economic outlook. Prior to the adoption of this guidance, HTM securities were evaluated individually for other-than-temporary impairment (OTTI). Management monitors the credit quality of HTM securities through the review of external credit ratings on a quarterly basis. The following table presents the amortized cost of our HTM securities according to S&P rating:
September 30, 2020 |
(in millions of U.S. dollars) | Amortized cost |  | % of Total
AAA | $ | 2,542 |  |  | 22 | %
AA | 6,239 |  |  | 53 | %
A | 2,072 |  |  | 18 | %
BBB | 821 |  |  | 7 | %
BB | 21 |  |  | — | %
Other | 1 |  |  | — | %
Total | $ | 11,696 |  |  | 100 | %
Management evaluates expected credit losses (ECL) for AFS securities when fair value is below amortized cost. AFS securities are evaluated for potential credit loss on an individual security level but the evaluation may use assumptions consistent with expectations of credit losses for a group of similar securities. If management has the intent to sell or is required to sell the security before recovery, the entire impairment loss will be recorded through income to Net realized gains (losses). If management does not have the intent to sell or is not required to sell the security before recovery, an allowance for credit losses is established and the portion of loss that relates to credit losses is recorded in income to Net realized gains (losses) and the portion of loss that relates to non-credit loss is recorded in Other comprehensive income. Examples of criteria that are collectively evaluated to determine if a credit loss has occurred include the following: •The extent to which the fair value is less than amortized cost; •Adverse conditions related to the security, industry, or geographic area; •Downgrades in the security's credit rating by a rating agency; and •Failure of the issuer to make scheduled principal or interest payments AFS securities that meet any one of the criteria included above are subject to a discounted cash flow analysis by comparing the present value of expected future cash flows with the amortized cost basis. If the present value of expected future cash flows is less than the amortized cost, a credit loss exists and an allowance for credit losses is then recognized. If the present value of expected future cash flows is equal to or greater than the amortized cost basis, management will conclude an expected credit loss does not exist. We elected to not measure an allowance for accrued investment income as uncollectible balances are written off in a timely manner, typically 30 to 45 days after uncollected balances are due. The following table presents fixed maturities by contractual maturity:
|  |  | September 30 |  |  |  | December 31
|  |  | 2020 |  |  |  | 2019
(in millions of U.S. dollars) | Net Carrying Value |  | Fair Value |  | Amortized Cost |  | Fair Value
Available for sale |  |  |  |  |  |  |
Due in 1 year or less | $ | 4,703 |  |  | $ | 4,703 |  |  | $ | 3,951 |  |  | $ | 3,973 |
Due after 1 year through 5 years | 26,319 |  |  | 26,319 |  |  | 27,142 |  |  | 27,720 |
Due after 5 years through 10 years | 26,456 |  |  | 26,456 |  |  | 23,901 |  |  | 24,874 |
Due after 10 years | 13,037 |  |  | 13,037 |  |  | 8,874 |  |  | 9,729 |
| 70,515 |  |  | 70,515 |  |  | 63,868 |  |  | 66,296 |
Mortgage-backed securities | 19,337 |  |  | 19,337 |  |  | 18,712 |  |  | 19,192 |
| $ | 89,852 |  |  | $ | 89,852 |  |  | $ | 82,580 |  |  | $ | 85,488 |
Held to maturity |  |  |  |  |  |  |
Due in 1 year or less | $ | 1,045 |  |  | $ | 1,056 |  |  | $ | 478 |  |  | $ | 479 |
Due after 1 year through 5 years | 3,501 |  |  | 3,667 |  |  | 3,869 |  |  | 3,940 |
Due after 5 years through 10 years | 3,119 |  |  | 3,315 |  |  | 3,756 |  |  | 3,883 |
Due after 10 years | 1,883 |  |  | 2,182 |  |  | 2,147 |  |  | 2,307 |
| 9,548 |  |  | 10,220 |  |  | 10,250 |  |  | 10,609 |
Mortgage-backed securities | 2,103 |  |  | 2,253 |  |  | 2,331 |  |  | 2,396 |
| $ | 11,651 |  |  | $ | 12,473 |  |  | $ | 12,581 |  |  | $ | 13,005 |
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. b) Gross unrealized loss Fixed maturities in an unrealized loss position at September 30, 2020 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 table presents, for AFS fixed maturities in an unrealized loss position (including securities on loan) that are not deemed to have credit losses, 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
September 30, 2020 | Fair Value |  | Gross Unrealized Loss |  | Fair Value |  | Gross Unrealized Loss |  | Fair Value |  | Gross Unrealized Loss
(in millions of U.S. dollars) |  |  |  |  |
Non-U.S. | $ | 2,848 |  |  | $ | (89) |  |  | $ | 122 |  |  | $ | (14) |  |  | $ | 2,970 |  |  | $ | (103) |
Corporate and asset-backed securities | 6,149 |  |  | (145) |  |  | 721 |  |  | (41) |  |  | 6,870 |  |  | (186) |
Mortgage-backed securities | 1,481 |  |  | (11) |  |  | 26 |  |  | (2) |  |  | 1,507 |  |  | (13) |
Municipal | 190 |  |  | (2) |  |  | 54 |  |  | (2) |  |  | 244 |  |  | (4) |
Total AFS fixed maturities | $ | 10,668 |  |  | $ | (247) |  |  | $ | 923 |  |  | $ | (59) |  |  | $ | 11,591 |  |  | $ | (306) |
The following table presents, 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
December 31, 2019 | Fair Value |  | Gross Unrealized Loss |  | Fair Value |  | Gross Unrealized Loss |  | Fair Value |  | Gross Unrealized Loss
(in millions of U.S. dollars) |  |  |  |  |
U.S. Treasury / Agency | $ | 234 |  |  | $ | (1) |  |  | $ | 339 |  |  | $ | — |  |  | $ | 573 |  |  | $ | (1) |
Non-U.S. | 1,846 |  |  | (34) |  |  | 802 |  |  | (28) |  |  | 2,648 |  |  | (62) |
Corporate and asset-backed securities | 2,121 |  |  | (40) |  |  | 988 |  |  | (40) |  |  | 3,109 |  |  | (80) |
Mortgage-backed securities | 1,174 |  |  | (6) |  |  | 932 |  |  | (8) |  |  | 2,106 |  |  | (14) |
Municipal | 188 |  |  | — |  |  | 276 |  |  | (12) |  |  | 464 |  |  | (12) |
Total fixed maturities | $ | 5,563 |  |  | $ | (81) |  |  | $ | 3,337 |  |  | $ | (88) |  |  | $ | 8,900 |  |  | $ | (169) |
c) Net realized gains (losses) Management reviews credit losses and the valuation allowance for expected credit losses each quarter. When all or a portion of a fixed maturity security is identified to be uncollectible and written off, the valuation allowance for expected credit losses is reduced by the same amount. In general, a security is considered uncollectible no later than when all efforts to collect contractual cash flows have been exhausted. Below are considerations for when a security may be deemed uncollectible: •We have sufficient information to determine that the issuer of the security is insolvent; •We receive notice that the issuer of the security has filed for bankruptcy, and the collectability is expected to be adversely impacted by the bankruptcy; •The issuer of a security has violated multiple debt covenants; •Amounts have been past due for a specified period of time with no response from the issuer; •A significant deterioration in the value of the collateral has occurred; •We have received correspondence from the issuer of the security indicating that it doesn’t intend to pay the contractual principal and interest. Projected cash flows are driven primarily by assumptions regarding probability of default and also the timing and amount of recoveries associated with defaults. Chubb developed the projected cash flows using market data, issuer-specific information, and credit ratings. In combination with contractual cash flows and the use of historical default and recovery data by Moody’s Investors Service (Moody’s) rating category we generate expected cash flows using the average cumulative issuer-weighted global default rates by letter rating. The following table presents the components of Net realized gains (losses):
| Three Months Ended |  | Nine Months Ended
| September 30 |  | September 30
(in millions of U.S. dollars) | 2020 |  | 2019 |  | 2020 |  | 2019
Fixed maturities: |  |  |  |  |  |  |
OTTI on fixed maturities, gross | $ | — |  |  | $ | (54) |  |  | $ | — |  |  | $ | (81) |
OTTI on fixed maturities recognized in OCI (pre-tax) | — |  |  | 30 |  |  | — |  |  | 31 |
OTTI on fixed maturities, net | — |  |  | (24) |  |  | — |  |  | (50) |
Gross realized gains excluding OTTI | 50 |  |  | 70 |  |  | 195 |  |  | 153 |
Gross realized losses excluding OTTI | (32) |  |  | (57) |  |  | (331) |  |  | (146) |
Provision for expected credit losses | 42 |  |  | — |  |  | (4) |  |  | — |
Impairment (1) | (11) |  |  | — |  |  | (163) |  |  | — |
Total fixed maturities | 49 |  |  | (11) |  |  | (303) |  |  | (43) |
Equity securities | — |  |  | 3 |  |  | 119 |  |  | 66 |
Other investments | 31 |  |  | (4) |  |  | (71) |  |  | (18) |
Foreign exchange gains (losses) | (222) |  |  | 84 |  |  | (351) |  |  | 86 |
Investment and embedded derivative instruments | 9 |  |  | (97) |  |  | 38 |  |  | (408) |
Fair value adjustments on insurance derivative | 46 |  |  | (106) |  |  | (426) |  |  | (57) |
S&P futures | (52) |  |  | (6) |  |  | (30) |  |  | (89) |
Other derivative instruments | 1 |  |  | (14) |  |  | (2) |  |  | (8) |
Other | (3) |  |  | (4) |  |  | (43) |  |  | (4) |
Net realized gains (losses) (pre-tax) | $ | (141) |  |  | $ | (155) |  |  | $ | (1,069) |  |  | $ | (475) |
(1)Relates to certain securities we intended to sell and securities written to market entering default. Realized gains and losses from Equity securities and Other investments from the table above include sales of securities and unrealized gains and losses from fair value changes as follows:
|  |  | Three Months Ended
|  |  | September 30
| 2020 |  | 2019
(in millions of U.S. dollars) | Equity Securities |  | Other Investments |  | Total |  | Equity Securities |  | Other Investments |  | Total
Net gains (losses) recognized during the period | $ | — |  |  | $ | 31 |  |  | $ | 31 |  |  | $ | 3 |  |  | $ | (4) |  |  | $ | (1) |
Less: Net gains (losses) recognized from sales of securities | 34 |  |  | — |  |  | 34 |  |  | 24 |  |  | (2) |  |  | 22 |
Unrealized gains (losses) recognized for securities still held at reporting date | $ | (34) |  |  | $ | 31 |  |  | $ | (3) |  |  | $ | (21) |  |  | $ | (2) |  |  | $ | (23) |
|  |  | Nine Months Ended
|  |  | September 30
| 2020 |  | 2019
(in millions of U.S. dollars) | Equity Securities |  | Other Investments |  | Total |  | Equity Securities |  | Other Investments |  | Total
Net gains (losses) recognized during the period | $ | 119 |  |  | $ | (71) |  |  | $ | 48 |  |  | $ | 66 |  |  | $ | (18) |  |  | $ | 48 |
Less: Net gains (losses) recognized from sales of securities | 197 |  |  | — |  |  | 197 |  |  | 57 |  |  | (4) |  |  | 53 |
Unrealized gains (losses) recognized for securities still held at reporting date | $ | (78) |  |  | $ | (71) |  |  | $ | (149) |  |  | $ | 9 |  |  | $ | (14) |  |  | $ | (5) |
The following table presents a roll-forward of valuation allowance for expected credit losses on fixed maturities:
| Three Months Ended |  | Nine Months Ended
| September 30 |  | September 30
(in millions of U.S. dollars) | 2020 |  | 2020
Available for sale |  |  |
Valuation allowance for expected credit losses - beginning of period | $ | 69 |  |  | $ | — |
Impact of adoption of new accounting guidance | — |  |  | 25 |
Provision for expected credit loss | 5 |  |  | 183 |
Initial allowance for purchased securities with credit deterioration | — |  |  | 5 |
Write-offs charged against the expected credit loss | — |  |  | (5) |
Recovery of expected credit loss | (40) |  |  | (174) |
Valuation allowance for expected credit losses - end of period | $ | 34 |  |  | $ | 34 |
Held to maturity |  |  |
Valuation allowance for expected credit losses - beginning of period | $ | 51 |  |  | $ | — |
Impact of adoption of new accounting guidance | — |  |  | 44 |
Provision for expected credit loss | 2 |  |  | 9 |
Recoveries of amounts previously written off | (8) |  |  | (8) |
Valuation allowance for expected credit losses - end of period | $ | 45 |  |  | $ | 45 |
Purchased Credit Deterioration (PCD) Securities During the nine months ended September 30, 2020, we purchased $108 million of securities with credit deterioration, categorized as available for sale, and assessed an allowance for credit losses of $5 million at acquisition. These PCD securities had a par value at acquisition of $144 million. Alternative investments Alternative investments include partially-owned investment companies, investment funds, and limited partnerships measured at fair value using their respective net asset values or equivalent (NAV) as a practical expedient. The following table presents, by investment category, the expected liquidation period, fair value, and maximum future funding commitments of alternative investments:
|  |  |  |  | September 30 |  |  |  | December 31
| Expected Liquidation Period of Underlying Assets |  |  |  | 2020 |  |  |  | 2019
(in millions of U.S. dollars) | Fair Value |  | Maximum Future Funding Commitments |  | Fair Value |  | Maximum Future Funding Commitments
Financial | 2 to 10 Years |  | $ | 579 |  |  | $ | 293 |  |  | $ | 611 |  |  | $ | 329 |
Real Assets | 2 to 11 Years |  | 724 |  |  | 704 |  |  | 712 |  |  | 422 |
Distressed | 2 to 8 Years |  | 252 |  |  | 573 |  |  | 263 |  |  | 80 |
Private Credit | 3 to 8 Years |  | 86 |  |  | 272 |  |  | 104 |  |  | 272 |
Traditional | 2 to 14 Years |  | 3,727 |  |  | 1,455 |  |  | 2,844 |  |  | 2,160 |
Vintage | 1 to 2 Years |  | 83 |  |  | — |  |  | 116 |  |  | — |
Investment funds | Not Applicable |  | 243 |  |  | — |  |  | 271 |  |  | — |
|  |  | $ | 5,694 |  |  | $ | 3,297 |  |  | $ | 4,921 |  |  | $ | 3,263 |
Included in all categories in the above table, except for Investment funds, are investments for which Chubb 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, Chubb 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 |  | funds where the initial fund term has expired
Investment funds employ various investment strategies, such as long/short equity and arbitrage/distressed. Included in this category are investments for which Chubb 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 Chubb 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 Chubb 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, Chubb 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 Chubb’s investment within several months of the notification. Notice periods for redemption of the investment funds range up to 270 days. Chubb can redeem its investment funds without consent from the investment fund managers. d) Restricted assets Chubb 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. Chubb is also required to restrict assets pledged under repurchase agreements, which represent Chubb's agreement to sell securities and repurchase them at a future date for a predetermined price. We 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 have investments in segregated portfolios primarily to provide collateral or guarantees for LOC and derivative transactions. Included in restricted assets at September 30, 2020 and December 31, 2019 are investments, primarily fixed maturities, totaling $20.0 billion and $21.0 billion, respectively, and cash of $166 million and $109 million, respectively. The following table presents the components of restricted assets:
| September 30 |  | December 31
(in millions of U.S. dollars) | 2020 |  | 2019
Trust funds | $ | 12,746 |  |  | $ | 14,004 |
Deposits with U.S. regulatory authorities | 2,448 |  |  | 2,466 |
Deposits with non-U.S. regulatory authorities | 2,957 |  |  | 2,709 |
Assets pledged under repurchase agreements | 1,433 |  |  | 1,464 |
Other pledged assets | 577 |  |  | 490 |
Total | $ | 20,161 |  |  | $ | 21,133 |

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