Chubb Ltd 10-Q

ITEM 1. Financial Statements CONSOLIDATED BALANCE SHEETS (Unaudited) Chubb Limited and Subsidiaries September 30 December 31 (in millions of U.S. dollars, except share and per share data) 2020 2019 Assets Investments Fixed maturities available for sale, at fair value, net of valuation allowance - $ 34 at September 30, 2020 (amortized cost – $ 85,201 and $ 82,580 ) $ 89,852 $ 85,488 Fixed maturities held to maturity, at amortized cost, net of valuation allowance - $ 45 at September 30, 2020 (fair value – $ 12,473 and $ 13,005 ) 11,651 12,581 Equity securities, at fair value 3,088 812 Short-term investments, at fair value (amortized cost – $ 4,662 and $ 4,291 ) 4,660 4,291 Other investments, at fair value 6,796 6,062 Total investments 116,047 109,234 Cash 1,707 1,537 Restricted cash 166 109 Securities lending collateral 1,851 994 Accrued investment income 862 867 Insurance and reinsurance balances receivable 10,588 10,357 Reinsurance recoverable on losses and loss expenses, net of valuation allowance – $ 320 and $ 316 15,670 15,181 Reinsurance recoverable on policy benefits 203 197 Deferred policy acquisition costs 5,275 5,242 Value of business acquired 286 306 Goodwill 15,254 15,296 Other intangible assets 5,849 6,063 Prepaid reinsurance premiums 2,760 2,647 Investments in partially-owned insurance companies 2,534 1,332 Other assets 8,734 7,581 Total assets $ 187,786 $ 176,943 Liabilities Unpaid losses and loss expenses $ 67,905 $ 62,690 Unearned premiums 17,502 16,771 Future policy benefits 5,955 5,814 Insurance and reinsurance balances payable 6,420 6,184 Securities lending payable 1,851 994 Accounts payable, accrued expenses, and other liabilities 13,074 11,773 Deferred tax liabilities 815 804 Repurchase agreements 1,413 1,416 Short-term debt 1,300 1,299 Long-term debt 14,830 13,559 Trust preferred securities 308 308 Total liabilities 131,373 121,612 Commitments and contingencies (refer to Note 8) Shareholders’ equity Common Shares (CHF 24.15 par value; 477,605,264 and 479,783,864 shares issued; 451,376,194 and 451,971,567 shares outstanding) 11,064 11,121 Common Shares in treasury ( 26,229,070 and 27,812,297 shares) ( 3,541 ) ( 3,754 ) Additional paid-in capital 10,115 11,203 Retained earnings 36,919 36,142 Accumulated other comprehensive income (AOCI) 1,856 619 Total shareholders’ equity 56,413 55,331 Total liabilities and shareholders’ equity $ 187,786 $ 176,943 See accompanying notes to the consolidated financial statements 3 Table of Contents CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (Unaudited) Chubb Limited and Subsidiaries Three Months Ended Nine Months Ended September 30 September 30 (in millions of U.S. dollars, except per share data) 2020 2019 2020 2019 Revenues Net premiums written $ 9,078 $ 8,622 $ 25,410 $ 24,278 Increase in unearned premiums ( 313 ) ( 295 ) ( 723 ) ( 923 ) Net premiums earned 8,765 8,327 24,687 23,355 Net investment income 840 873 2,528 2,568 Net realized gains (losses): Other-than-temporary impairment (OTTI) losses gross — ( 54 ) — ( 81 ) Portion of OTTI losses recognized in other comprehensive income (OCI) — 30 — 31 Net OTTI losses recognized in income — ( 24 ) — ( 50 ) Net realized gains (losses) excluding OTTI losses ( 141 ) ( 131 ) ( 1,069 ) ( 425 ) Total net realized gains (losses) (includes $ 49 , $( 11 ), $( 303 ), and $( 43 ) r eclassified from AOCI) ( 141 ) ( 155 ) ( 1,069 ) ( 475 ) Total revenues 9,464 9,045 26,146 25,448 Expenses Losses and loss expenses 5,835 5,052 16,897 13,865 Policy benefits 198 158 550 515 Policy acquisition costs 1,645 1,603 4,853 4,611 Administrative expenses 733 752 2,201 2,220 Interest expense 130 138 390 418 Other (income) expense ( 485 ) ( 57 ) ( 372 ) ( 326 ) Amortization of purchased intangibles 72 76 217 229 Chubb integration expenses — 2 — 9 Total expenses 8,128 7,724 24,736 21,541 Income before income tax 1,336 1,321 1,410 3,907 Income tax expense (includes $ 7 , nil , $( 35 ), and $( 2 ) on reclassified unrealized gains and losses) 142 230 295 626 Net income $ 1,194 $ 1,091 $ 1,115 $ 3,281 Other comprehensive income Unrealized appreciation $ 687 $ 694 $ 1,456 $ 3,791 Reclassification adjustment for net realized (gains) losses included in net income ( 49 ) 11 303 43 638 705 1,759 3,834 Change in: Cumulative foreign currency translation adjustment 246 ( 193 ) ( 168 ) ( 143 ) Postretirement benefit liability adjustment ( 23 ) ( 17 ) ( 59 ) ( 62 ) Other comprehensive income, before income tax 861 495 1,532 3,629 Income tax expense related to OCI items ( 103 ) ( 113 ) ( 295 ) ( 660 ) Other comprehensive income 758 382 1,237 2,969 Comprehensive income $ 1,952 $ 1,473 $ 2,352 $ 6,250 Earnings per share Basic earnings per share $ 2.64 $ 2.40 $ 2.47 $ 7.18 Diluted earnings per share $ 2.63 $ 2.38 $ 2.46 $ 7.13 See accompanying notes to the consolidated financial statements 4 Table of Contents CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited) Chubb Limited and Subsidiaries Three Months Ended Nine Months Ended September 30 September 30 (in millions of U.S. dollars) 2020 2019 2020 2019 Common Shares Balance – beginning of period $ 11,121 $ 11,121 $ 11,121 $ 11,121 Cancellation of treasury shares ( 57 ) — ( 57 ) — Balance – end of period 11,064 11,121 11,064 11,121 Common Shares in treasury Balance – beginning of period ( 3,866 ) ( 3,093 ) ( 3,754 ) ( 2,618 ) Common Shares repurchased — ( 478 ) ( 326 ) ( 1,221 ) Cancellation of treasury shares 323 — 323 — Net shares issued under employee share-based compensation plans 2 67 216 335 Balance – end of period ( 3,541 ) ( 3,504 ) ( 3,541 ) ( 3,504 ) Additional paid-in capital Balance – beginning of period 10,416 11,757 11,203 12,557 Net shares issued under employee share-based compensation plans ( 6 ) 6 ( 195 ) ( 184 ) Exercise of stock options ( 1 ) ( 17 ) ( 30 ) ( 65 ) Share-based compensation expense 59 60 183 177 Funding of dividends declared to Retained earnings ( 353 ) ( 341 ) ( 1,046 ) ( 1,020 ) Balance – end of period 10,115 11,465 10,115 11,465 Retained earnings Balance – beginning of period 35,991 33,878 36,142 31,700 Cumulative effect of adoption of accounting guidance (refer to Note 1) — — ( 72 ) ( 12 ) Balance – beginning of period, as adjusted 35,991 33,878 36,070 31,688 Net income 1,194 1,091 1,115 3,281 Cancellation of treasury shares ( 266 ) — ( 266 ) — Funding of dividends declared from Additional paid-in capital 353 341 1,046 1,020 Dividends declared on Common Shares ( 353 ) ( 341 ) ( 1,046 ) ( 1,020 ) Balance – end of period 36,919 34,969 36,919 34,969 Accumulated other comprehensive income Net unrealized appreciation (depreciation) on investments Balance – beginning of period 3,424 2,033 2,543 ( 545 ) Change in period, before reclassification from AOCI, net of income tax expense of $( 102 ), $( 125 ), $( 300 ) and $( 674 ) 585 569 1,156 3,117 Amounts reclassified from AOCI, net of income tax (expense) benefit of $ 7 , nil , $( 35 ) and $( 2 ) ( 42 ) 11 268 41 Change in period, net of income tax expense of $( 95 ), $( 125 ), $( 335 ) and $( 676 ) 543 580 1,424 3,158 Balance – end of period 3,967 2,613 3,967 2,613 Cumulative foreign currency translation adjustment Balance – beginning of period ( 2,313 ) ( 1,931 ) ( 1,939 ) ( 1,976 ) Change in period, net of income tax (expense) benefit of $( 13 ), $ 8 , $ 27 and $ 3 233 ( 185 ) ( 141 ) ( 140 ) Balance – end of period ( 2,080 ) ( 2,116 ) ( 2,080 ) ( 2,116 ) Postretirement benefit liability adjustment Balance – beginning of period ( 13 ) 37 15 73 Change in period, net of income tax benefit of $ 5 , $ 4 , $ 13 and $ 13 ( 18 ) ( 13 ) ( 46 ) ( 49 ) Balance – end of period ( 31 ) 24 ( 31 ) 24 Accumulated other comprehensive income 1,856 521 1,856 521 Total shareholders’ equity $ 56,413 $ 54,572 $ 56,413 $ 54,572 See accompanying notes to the consolidated financial statements 5 Table of Contents CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Chubb Limited and Subsidiaries Nine Months Ended September 30 (in millions of U.S. dollars) 2020 2019 Cash flows from operating activities Net income $ 1,115 $ 3,281 Adjustments to reconcile net income to net cash flows from operating activities Net realized (gains) losses 1,069 475 Amortization of premiums/discounts on fixed maturities 280 294 Amortization of purchased intangibles 217 229 Deferred income taxes ( 287 ) ( 178 ) Unpaid losses and loss expenses 5,112 277 Unearned premiums 881 1,061 Future policy benefits 138 148 Insurance and reinsurance balances payable 280 ( 114 ) Accounts payable, accrued expenses, and other liabilities 190 ( 6 ) Income taxes payable ( 95 ) 83 Insurance and reinsurance balances receivable ( 324 ) ( 371 ) Reinsurance recoverable ( 496 ) 426 Deferred policy acquisition costs ( 77 ) ( 266 ) Other ( 762 ) ( 426 ) Net cash flows from operating activities 7,241 4,913 Cash flows from investing activities Purchases of fixed maturities available for sale ( 20,793 ) ( 19,778 ) Purchases of fixed maturities held to maturity ( 42 ) ( 143 ) Purchases of equity securities ( 3,622 ) ( 466 ) Sales of fixed maturities available for sale 9,537 10,430 Sales of to be announced mortgage-backed securities — 6 Sales of equity securities 1,526 577 Maturities and redemptions of fixed maturities available for sale 8,709 6,390 Maturities and redemptions of fixed maturities held to maturity 841 814 Net change in short-term investments ( 434 ) 202 Net derivative instruments settlements ( 74 ) ( 647 ) Private equity contributions ( 1,056 ) ( 1,093 ) Private equity distributions 588 973 Net deposit paid on share acquisition ( 503 ) — Payment for Huatai Group interest ( 1,054 ) ( 329 ) Other ( 352 ) ( 497 ) Net cash flows used for investing activities ( 6,729 ) ( 3,561 ) Cash flows from financing activities Dividends paid on Common Shares ( 1,035 ) ( 1,014 ) Common Shares repurchased ( 333 ) ( 1,203 ) Proceeds from issuance of long-term debt 988 1,286 Repayment of long-term debt — ( 501 ) Proceeds from issuance of repurchase agreements 1,402 2,394 Repayment of repurchase agreements ( 1,402 ) ( 2,396 ) Proceeds from share-based compensation plans 77 155 Policyholder contract deposits 322 376 Policyholder contract withdrawals ( 253 ) ( 221 ) Net cash flows used for financing activities ( 234 ) ( 1,124 ) Effect of foreign currency rate changes on cash and restricted cash ( 51 ) 21 Net increase in cash and restricted cash 227 249 Cash and restricted cash – beginning of period 1,646 1,340 Cash and restricted cash – end of period $ 1,873 $ 1,589 Supplemental cash flow information Taxes paid $ 668 $ 733 Interest paid $ 323 $ 327 See accompanying notes to the consolidated financial statements 6 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Chubb Limited and Subsidiaries 1. General a) Basis of presentation Chubb Limited is a holding company incorporated in Zurich, Switzerland. Chubb Limited, through its subsidiaries, provides a broad range of insurance and reinsurance products to insureds worldwide. Our results are reported through the following business segments: North America Commercial P&C Insurance, North America Personal P&C Insurance, North America Agricultural Insurance, Overseas General Insurance, Global Reinsurance, and Life Insurance. Refer to Note 12 for additional information. The interim unaudited consolidated financial statements, which include the accounts of Chubb Limited and its subsidiaries (collectively, Chubb, 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 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 2019 Form 10-K. b) Restricted cash Restricted cash in the Consolidated balance sheets represents amounts held for the benefit of third parties and is legally or contractually restricted as to withdrawal or usage. Amounts include deposits with U.S. and non-U.S. regulatory authorities, trust funds set up for the benefit of ceding companies, and amounts pledged as collateral to meet financing arrangements. The following table provides a reconciliation of cash and restricted cash reported within the Consolidated balance sheets that total to the amounts shown in the Consolidated statements of cash flows: September 30 December 31 (in millions of U.S. dollars) 2020 2019 Cash $ 1,707 $ 1,537 Restricted cash 166 109 Total cash and restricted cash shown in the Consolidated statements of cash flows $ 1,873 $ 1,646 c) Goodwill During the nine months ended September 30, 2020, Goodwill decreased $ 42 million, primarily reflecting the impact of foreign exchange. d) Accounting guidance adopted in 2020 Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments Effective January 1, 2020, we adopted, on a modified retrospective basis, new guidance on the accounting for credit losses of financial instruments that are measured at amortized cost, including held to maturity securities, and reinsurance recoverables, by applying an approach based on the current expected credit losses (CECL). The estimate of expected credit losses considers historical information, current information, as well as reasonable and supportable forecasts, including estimates of prepayments. In addition, the guidance also replaced the current available for sale (AFS) security other-than-temporary impairment model by requiring an estimate of the expected credit loss (ECL) only when the fair value is below the amortized cost of the asset. The length of time the fair value of an AFS security has been below its amortized cost no longer impacts the determination of whether a potential credit loss exists. The AFS security model also requires the use of a valuation allowance as compared to the previous practice of writing down the asset. In 2020, we recognized a cumulative effect adjustment and decreased beginning retained earnings by $ 79 million pre-tax, or $ 72 million after-tax, principally related to the valuation allowance for credit losses. We also adopted the required disclosures within Note 3 Investments and Note 5 Reinsurance. Results for reporting periods prior to January 1, 2020 are presented in accordance with the previous guidance. 7 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited) Chubb Limited and Subsidiaries Accounting guidance not yet adopted Effects of Reference Rate Reform on Financial Reporting In March 2020, the FASB issued guidance which provides optional expedients and exceptions for applying GAAP to investments, derivatives, or other transactions that reference the London Interbank Offered Rate (LIBOR) or another reference rate expected to be discontinued because of reference rate reform. Along with the optional expedients, the amendments include a general principle that permits an entity to consider contract modifications due to reference reform to be an event that does not require contract re-measurement at the modification date or reassessment of a previous accounting determination. Additionally, a company may make a one-time election to sell, transfer, or both sell and transfer debt securities classified as held to maturity that reference a rate affected by reference rate reform and that were classified as held to maturity before January 1, 2020. This standard may be elected over time through December 31, 2022 as reference rate reform activities occur. We are currently assessing the effect of adopting this guidance on our financial condition and results of operations. Targeted Improvements to the Accounting for Long-Duration Contracts In August 2018, the FASB issued guidance to improve the existing recognition, measurement, presentation, and disclosure requirements for long-duration contracts issued by an insurance entity. The amendments in this update require more frequent updating of assumptions and a standardized discount rate for the future policy benefit liability, a requirement to use the fair value measurement model for policies with market risk benefits, simplified amortization of deferred acquisition costs, and enhanced disclosures. This standard will be effective in the first quarter of 2023 with early adoption permitted. We are currently assessing the effect of adopting this guidance on our financial condition and results of operations. We will be better able to quantify the effect of adopting this standard as we progress in our implementation process and draw nearer to the date of adoption. Refer to the 2019 Form 10-K for information on additional accounting guidance not yet adopted. 2. Acquisitions Huatai Group Chubb maintains a direct investment in Huatai Insurance Group Company Limited (Huatai Group). Huatai Group is the parent company of, and owns 100 percent of, Huatai Property & Casualty Insurance Co., Ltd. (Huatai P&C) and approximately 80 percent of Huatai Life Insurance Co., Ltd. (Huatai Life) (collectively, Huatai). In 2019, Chubb entered into agreements to acquire an additional 22.4 percent ownership in Huatai Group for approximately $ 1.55 billion through two separate purchases, a 15.3 percent ownership interest for approximately $ 1.1 billion and a 7.1 percent ownership interest for approximately $ 493 million. On July 13, 2020, we acquired the 15.3 percent ownership interest. The purchase of the additional 7.1 percent ownership interest is contingent upon important conditions that are expected to be completed by the end of 2021. In connection with these purchase agreements, in January 2020, we paid collateralized deposits totaling $ 1.55 billion to the selling shareholders. Transactions relating to the deposits are recorded within investing activities on the Consolidated statement of cash flows. As of September 30, 2020, Chubb's aggregate ownership interest in Huatai Group was 46.2 percent. Chubb applies the equity method of accounting to its investment in Huatai Group by recording its share of net income or loss in Other (income) expense in the Consolidated statements of operations. At September 30, 2020, the total carrying value of our investment in Huatai was approximately $ 2.4 billion, including approximately $ 1.3 billion attributable to goodwill. Upon completion of the 7.1 percent purchase, which will result in majority ownership of Huatai Group, Chubb is expected to obtain control of Huatai Group, Huatai P&C and Huatai Life. At that time, Chubb is expected to apply consolidation accounting and discontinue the application of the equity method of accounting. 8 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited) Chubb Limited and Subsidiaries 3. 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 $ — 9 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited) Chubb Limited and Subsidiaries 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. 10 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited) Chubb Limited and Subsidiaries 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 ) 11 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited) Chubb Limited and Subsidiaries 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. 12 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited) Chubb Limited and Subsidiaries 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 ) 13 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited) Chubb Limited and Subsidiaries 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. 14 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited) Chubb Limited and Subsidiaries 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 15 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited) Chubb Limited and Subsidiaries 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. We use pricing services to obtain fair value measurements for the majority of our investment securities. Based on management’s understanding of the methodologies used, these pricing services only produce an estimate of fair value if there is observable market information that would allow them to make a fair value estimate. Based on our understanding of the market inputs used by the pricing services, all applicable investments have been valued in accordance with GAAP. We do not adjust prices obtained from pricing services. The following is a description of the valuation techniques and inputs used to determine fair values for financial instruments carried at fair value, as well as the general classification of such financial instruments pursuant to the valuation hierarchy. Fixed maturities We use pricing services to estimate fair value measurements for the majority of our fixed maturities. The pricing services use market quotations for fixed maturities that have quoted prices in active markets; such securities are classified within Level 1. For fixed maturities other than U.S. Treasury securities that generally do not trade on a daily basis, the pricing services prepare estimates of fair value measurements using their pricing applications, which include available relevant market information, benchmark curves, benchmarking of like securities, sector groupings, and matrix pricing. Additional valuation factors that can be taken into account are nominal spreads, dollar basis, and liquidity adjustments. The pricing services evaluate each asset class based on relevant market and credit information, perceived market movements, and sector news. The market inputs used in the pricing evaluation, listed in the approximate order of priority include: benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, reference data, and industry and economic events. The extent of the use of each input is dependent on the asset class and the market conditions. Given the asset class, the priority of the use of inputs may change, or some market inputs may not be relevant. Additionally, fixed maturities valuation is more subjective when markets are less liquid due to the lack of market based inputs (i.e., stale pricing), which may increase the potential that an investment's estimated fair value is not reflective of the price at which an actual transaction would occur. The overwhelming majority of fixed maturities are classified within Level 2 because the most significant inputs used in the pricing techniques are observable. For a small number of fixed maturities, we obtain a 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 16 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited) Chubb Limited and Subsidiaries 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) and are excluded from the fair value hierarchy table below. 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 classified within Level 1, and fixed maturities, classified within Level 2, held in rabbi trusts maintained by Chubb for deferred compensation plans and supplemental retirement plans and are classified within the valuation hierarchy on the same basis as other equity securities and fixed maturities. Other investments for which pricing is unobservable are classified within Level 3. 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 Chubb’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 and interest rate swaps is based on market valuations and is classified within Level 2. Investment derivative instruments are recorded in either Other assets or Accounts payable, accrued expenses, and other liabilities in the Consolidated balance sheets. Other derivative instruments We maintain positions in exchange-traded equity futures 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 positions in exchange-traded equity futures contracts are 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 Chubb. 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) 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, Chubb 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. Because of the significant use of unobservable inputs including policyholder behavior, GLB reinsurance is classified within Level 3. 17 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited) Chubb Limited and Subsidiaries Financial instruments measured at fair value on a recurring basis, by valuation hierarchy September 30, 2020 Level 1 Level 2 Level 3 Total (in millions of U.S. dollars) Assets: Fixed maturities available for sale U.S. Treasury / Agency $ 2,264 $ 527 $ — $ 2,791 Non-U.S. — 24,788 494 25,282 Corporate and asset-backed securities — 33,853 1,445 35,298 Mortgage-backed securities — 19,276 61 19,337 Municipal — 7,144 — 7,144 2,264 85,588 2,000 89,852 Equity securities 3,022 — 66 3,088 Short-term investments 3,270 1,383 7 4,660 Other investments (1) 374 403 10 787 Securities lending collateral — 1,851 — 1,851 Investment derivative instruments 24 — — 24 Other derivative instruments 3 — — 3 Separate account assets 3,535 123 — 3,658 Total assets measured at fair value (1) $ 12,492 $ 89,348 $ 2,083 $ 103,923 Liabilities: Investment derivative instruments $ 77 $ — $ — $ 77 GLB (2) — — 882 882 Total liabilities measured at fair value $ 77 $ — $ 882 $ 959 (1) Excluded from the table above are partially-owned investments, investment funds, and limited partnerships of $ 5,694 million, policy loans of $ 225 million and other investments of $ 90 million at September 30, 2020 measured using NAV as a practical expedient. (2) Our GLB reinsurance product meets the definition of a derivative instrument for accounting purposes and is accordingly carried at fair value. Excluded from the table above is the portion of the GLB derivative liability classified as Future policy benefits in the Consolidated balance sheets. 18 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited) Chubb Limited and Subsidiaries December 31, 2019 Level 1 Level 2 Level 3 Total (in millions of U.S. dollars) Assets: Fixed maturities available for sale U.S. Treasury / Agency $ 2,664 $ 619 $ — $ 3,283 Non-U.S. — 23,258 449 23,707 Corporate and asset-backed securities — 30,340 1,451 31,791 Mortgage-backed securities — 19,132 60 19,192 Municipal — 7,515 — 7,515 2,664 80,864 1,960 85,488 Equity securities 728 15 69 812 Short-term investments 2,803 1,482 6 4,291 Other investments (1) 412 377 10 799 Securities lending collateral — 994 — 994 Investment derivative instruments 24 — — 24 Other derivative instruments 2 — — 2 Separate account assets 3,437 136 — 3,573 Total assets measured at fair value (1) $ 10,070 $ 83,868 $ 2,045 $ 95,983 Liabilities: Investment derivative instruments $ 93 $ — $ — $ 93 Other derivative instruments 13 — — 13 GLB (2) — — 456 456 Total liabilities measured at fair value $ 106 $ — $ 456 $ 562 (1) Excluded from the table above are partially-owned investments, investment funds, and limited partnerships of $ 4,921 million and other investments of $ 95 million at December 31, 2019 measured using NAV as a practical expedient. (2) Our GLB reinsurance product meets the definition of a derivative instrument for accounting purposes and is accordingly carried at fair value. Excluded from the table above is the portion of the GLB derivative liability classified as Future policy benefits in the Consolidated balance sheets. Level 3 financial instruments 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 and contain no quantitative unobservable inputs developed by management. The majority of our fixed maturities classified as Level 3 used external pricing when markets are less liquid due to the lack of market inputs (i.e., stale pricing, broker quotes). (in millions of U.S. dollars, except for percentages) Fair Value Valuation Technique Significant Unobservable Inputs Ranges Weighted Average (1) September 30, 2020 December 31, 2019 GLB (1) $ 882 $ 456 Actuarial model Lapse rate 3 % – 34 % 4.7 % Annuitization rate 0 % – 52 % 4.0 % (1) The weighted average lapse and annuitization rates are determined by weighting each treaty's rates by the GLB contracts fair value. 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. 19 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited) Chubb Limited and Subsidiaries The 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. For the three and nine months ended September 30, 2020 and 2019, no material 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 2019 Form 10-K. 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 September 30, 2020 (in millions of U.S. dollars) Available-for-Sale Debt Securities Equity securities Short-term investments Other investments GLB (1) Non-U.S. Corporate and asset-backed securities MBS Balance – beginning of period $ 469 $ 1,369 $ 60 $ 64 $ 2 $ 10 $ 928 Transfers into Level 3 — 1 — — — — — Transfers out of Level 3 — ( 1 ) — — — — — Change in Net Unrealized Gains (Losses) in OCI 21 13 — — ( 1 ) — — Net Realized Gains/Losses 1 3 — 2 — — ( 46 ) Purchases 41 194 2 3 7 — — Sales ( 19 ) ( 80 ) — ( 3 ) — — — Settlements ( 19 ) ( 54 ) ( 1 ) — ( 1 ) — — Balance – end of period $ 494 $ 1,445 $ 61 $ 66 $ 7 $ 10 $ 882 Net Realized Gains/Losses Attributable to Changes in Fair Value at the Balance Sheet Date $ — $ 3 $ — $ 2 $ — $ — $ ( 46 ) Change in Net Unrealized Gains/Losses included in OCI at the Balance sheet date $ 20 $ 12 $ — $ — $ ( 1 ) $ — $ — (1) Our GLB reinsurance product meets the definition of a derivative instrument for accounting purposes and is accordingly carried at fair value. Excluded from the table above is the portion of the GLB derivative liability classified as Future policy benefits in the Consolidated balance sheets. The liability for GLB reinsurance was $ 1,318 million at September 30, 2020, and $ 1,372 million at June 30, 2020, which includes a fair value derivative adjustment of $ 882 million and $ 928 million, respectivel y. 20 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited) Chubb Limited and Subsidiaries Assets Liabilities Three Months Ended September 30, 2019 (in millions of U.S. dollars) Available-for-Sale Debt Securities Equity securities Short-term investments Other investments GLB (1) Non-U.S. Corporate and asset-backed securities MBS Balance – beginning of period $ 371 $ 1,359 $ 76 $ 56 $ 4 $ 11 $ 403 Transfers into Level 3 — 1 — — — — — Change in Net Unrealized Gains/Losses in OCI, including foreign exchange ( 8 ) ( 4 ) — ( 1 ) — — — Net Realized Gains/Losses — — — ( 1 ) — — 106 Purchases 68 176 1 5 2 — — Sales ( 35 ) ( 18 ) — ( 3 ) — — — Settlements ( 3 ) ( 64 ) — — — ( 1 ) — Balance – end of period $ 393 $ 1,450 $ 77 $ 56 $ 6 $ 10 $ 509 Net Realized Gains/Losses Attributable to Changes in Fair Value at the Balance Sheet Date $ — $ — $ — $ ( 1 ) $ — $ — $ 106 (1) Our GLB reinsurance product meets the definition of a derivative instrument for accounting purposes and is accordingly carried at fair value. Excluded from the table above is the portion of the GLB derivative liability classified as Future policy benefits in the Consolidated balance sheets. The liability for GLB reinsurance was $ 935 million at September 30, 2019, and $ 815 million at June 30, 2019, which includes a fair value derivative adjustment of $ 509 million and $ 403 million, respectively . Assets Liabilities Available-for-Sale Debt Securities Equity securities Short-term investments Other investments GLB (1) Nine Months Ended September 30, 2020 (in millions of U.S. dollars) Non-U.S. Corporate and asset-backed securities MBS Balance – beginning of period $ 449 $ 1,451 $ 60 $ 69 $ 6 $ 10 $ 456 Transfers into Level 3 — 92 — — — — — Transfers out of Level 3 ( 16 ) ( 73 ) — — — — — Change in Net Unrealized Gains (Losses) in OCI, including foreign exchange 1 ( 31 ) — — ( 1 ) — — Net Realized Gains/Losses ( 2 ) ( 23 ) — ( 1 ) — — 426 Purchases 190 416 2 14 9 — — Sales ( 81 ) ( 147 ) — ( 16 ) — — — Settlements ( 47 ) ( 240 ) ( 1 ) — ( 7 ) — — Balance – end of period $ 494 $ 1,445 $ 61 $ 66 $ 7 $ 10 $ 882 Net Realized Gains/Losses Attributable to Changes in Fair Value at the Balance Sheet Date $ — $ ( 6 ) $ — $ 1 $ — $ — $ 426 Change in Net Unrealized Gains/Losses included in OCI at the Balance sheet date $ — $ ( 25 ) $ — $ — $ ( 1 ) $ — $ — (1) Our GLB reinsurance product meets the definition of a derivative instrument for accounting purposes and is accordingly carried at fair value. Excluded from the table above is the portion of the GLB derivative liability classified as Future policy benefits in the Consolidated balance sheets. The liability for GLB reinsurance was $ 1,318 million at September 30, 2020, and $ 897 million at December 31, 2019, which includes a fair value derivative adjustment of $ 882 million and $ 456 million, respectively. 21 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited) Chubb Limited and Subsidiaries Assets Liabilities Available-for-Sale Debt Securities Equity securities Short-term investments Other investments GLB (1) Nine Months Ended September 30, 2019 (in millions of U.S. dollars) Non-U.S. Corporate and asset-backed securities MBS Balance – beginning of period $ 345 $ 1,299 $ 61 $ 57 $ 1 $ 11 $ 452 Transfers into Level 3 3 16 — — — — — Transfers out of Level 3 ( 15 ) — — — — — — Change in Net Unrealized Gains/Losses in OCI, including foreign exchange ( 2 ) 1 — 1 — — — Net Realized Gains/Losses ( 1 ) — — ( 4 ) — — 57 Purchases 164 425 19 19 6 — — Sales ( 54 ) ( 91 ) ( 1 ) ( 17 ) — — — Settlements ( 47 ) ( 200 ) ( 2 ) — ( 1 ) ( 1 ) — Balance – end of period $ 393 $ 1,450 $ 77 $ 56 $ 6 $ 10 $ 509 Net Realized Gains/Losses Attributable to Changes in Fair Value at the Balance Sheet Date $ — $ ( 1 ) $ — $ ( 3 ) $ — $ — $ 57 (1) Our GLB reinsurance product meets the definition of a derivative instrument for accounting purposes and is accordingly carried at fair value. Excluded from the table above is the portion of the GLB derivative liability classified as Future policy benefits in the Consolidated balance sheets. The liability for GLB reinsurance was $ 935 million at September 30, 2019, and $ 861 million at December 31, 2018, which includes a fair value derivative adjustment of $ 509 million and $ 452 million, respectively. b) Financial instruments disclosed, but not measured, at fair value Chubb 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. Refer to the 2019 Form 10-K for information on the fair value methods and assumptions for investments in partially-owned insurance companies, short-term and long-term debt, repurchase agreements, and trust-preferred securities. 22 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited) Chubb Limited and Subsidiaries The following tables present fair value, by valuation hierarchy, and carrying value of the financial instruments not measured at fair value: September 30, 2020 Fair Value Net Carrying Value (in millions of U.S. dollars) Level 1 Level 2 Level 3 Total Assets: Fixed maturities held to maturity U.S. Treasury / Agency $ 1,251 $ 58 $ — $ 1,309 $ 1,240 Non-U.S. — 1,374 — 1,374 1,266 Corporate and asset-backed securities — 2,414 — 2,414 2,168 Mortgage-backed securities — 2,253 — 2,253 2,103 Municipal — 5,123 — 5,123 4,874 Total assets $ 1,251 $ 11,222 $ — $ 12,473 $ 11,651 Liabilities: Repurchase agreements $ — $ 1,413 $ — $ 1,413 $ 1,413 Short-term debt — 1,302 — 1,302 1,300 Long-term debt — 16,995 — 16,995 14,830 Trust preferred securities — 462 — 462 308 Total liabilities $ — $ 20,172 $ — $ 20,172 $ 17,851 December 31, 2019 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 / Agency $ 1,292 $ 55 $ — $ 1,347 $ 1,318 Non-U.S. — 1,485 — 1,485 1,423 Corporate and asset-backed securities — 2,436 32 2,468 2,349 Mortgage-backed securities — 2,396 — 2,396 2,331 Municipal — 5,309 — 5,309 5,160 Total assets $ 1,292 $ 11,681 $ 32 $ 13,005 $ 12,581 Liabilities: Repurchase agreements $ — $ 1,416 $ — $ 1,416 $ 1,416 Short-term debt — 1,307 — 1,307 1,299 Long-term debt — 15,048 — 15,048 13,559 Trust preferred securities — 467 — 467 308 Total liabilities $ — $ 18,238 $ — $ 18,238 $ 16,582 23 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited) Chubb Limited and Subsidiaries 5. Reinsurance Reinsurance recoverable on ceded reinsurance September 30, 2020 December 31, 2019 (in millions of U.S. dollars) Net Reinsurance Recoverable (1) Valuation allowance Net Reinsurance Recoverable (1) Valuation allowance Reinsurance recoverable on unpaid losses and loss expenses $ 14,767 $ 255 $ 14,181 $ 240 Reinsurance recoverable on paid losses and loss expenses 903 65 1,000 76 Reinsurance recoverable on losses and loss expenses $ 15,670 $ 320 $ 15,181 $ 316 Reinsurance recoverable on policy benefits $ 203 $ 4 $ 197 $ 4 (1) Net of valuation allowance for uncollectible reinsurance. The increase in reinsurance recoverable on losses and loss expenses was primarily due to catastrophe losses. 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 valuation allowance for uncollectible reinsurance is required principally due to the potential failure of reinsurers to indemnify Chubb, primarily because of disputes under reinsurance contracts and insolvencies. We have established a valuation allowance for amounts estimated to be uncollectible on both unpaid and paid losses as well as future policy benefits. Management evaluates the need for a valuation allowance for uncollectible reinsurance recoverable using current and historical factors, and forecasts each quarter. These factors include a review of active and run-off lines of business, review of reinsurer financial strength ratings, and review of our largest reinsurers. The evaluation of the valuation allowance includes several judgments including certain aspects of the allocation of reinsurance recoverable on incurred but not reported (IBNR) claims by reinsurer and a default analysis to estimate uncollectible reinsurance. The primary components of the default analysis are reinsurance recoverable balances by reinsurer, net of collateral, and default factors used to determine the portion of a reinsurer's balance deemed uncollectible. Default factors require considerable judgment and are determined using principally the current financial strength rating, or rating equivalent, of each reinsurer. Changes in the valuation allowance for uncollectible reinsurance recoverables are recorded in Losses and loss expenses in the Consolidated statements of operations. For additional information, refer to Note 1 d) to the Consolidated Financial Statements of our 2019 Form 10-K. The evaluation of the valuation allowance at December 31, 2019 was consistent with the new accounting guidance adopted January 1, 2020, therefore, there was no material change to the valuation allowance upon adoption. The following table presents a roll-forward of valuation allowance for uncollectible reinsurance related to Reinsurance recoverable on loss and loss expenses: Nine Months Ended September 30 (in millions of U.S. dollars) 2020 Reinsurance recoverable Valuation allowance for uncollectible reinsurance - beginning of period $ 316 Provision for uncollectible reinsurance 21 Write-offs charged against the valuation allowance ( 19 ) Foreign exchange revaluation 2 Valuation allowance for uncollectible reinsurance - end of period $ 320 24 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited) Chubb Limited and Subsidiaries 6. Unpaid losses and loss expenses The following table presents a reconciliation of beginning and ending Unpaid losses and loss expenses: Nine Months Ended September 30 (in millions of U.S. dollars) 2020 2019 Gross unpaid losses and loss expenses – beginning of period $ 62,690 $ 62,960 Reinsurance recoverable on unpaid losses - beginning of period (1) ( 14,181 ) ( 14,689 ) Net unpaid losses and loss expenses – beginning of period 48,509 48,271 Net losses and loss expenses incurred in respect of losses occurring in: Current year 17,109 14,484 Prior years (2) ( 212 ) ( 619 ) Total 16,897 13,865 Net losses and loss expenses paid in respect of losses occurring in: Current year 4,766 4,920 Prior years 7,597 8,374 Total 12,363 13,294 Foreign currency revaluation and other 95 ( 162 ) Net unpaid losses and loss expenses – end of period 53,138 48,680 Reinsurance recoverable on unpaid losses (1) 14,767 14,332 Gross unpaid losses and loss expenses – end of period $ 67,905 $ 63,012 (1) Net of valuation allowance for uncollectible reinsurance. (2) Relates to prior period loss reserve development only and excludes prior period development related to reinstatement premiums, expense adjustments and earned premiums totaling $ 23 million and $ 60 million for the nine months ended September 30, 2020 and 2019, respectively. Gross and net unpaid losses and loss expenses increased $ 5,215 million and $ 4,629 million, respectively, for the nine months ended September 30, 2020, driven by catastrophe losses incurred, an increase in underlying exposure due to premium growth, and reduced payment activity due to the economic slowdown related to the COVID-19 pandemic. Prior Period Development Prior period development (PPD) 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. 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, and agriculture. 25 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited) Chubb Limited and Subsidiaries The following table summarizes (favorable) and adverse PPD by segment. Three Months Ended September 30 Nine Months Ended September 30 (in millions of U.S. dollars) Long-tail Short-tail Total Long-tail Short-tail Total 2020 North America Commercial P&C Insurance $ ( 255 ) $ 55 $ ( 200 ) $ ( 439 ) $ ( 12 ) $ ( 451 ) North America Personal P&C Insurance — 48 48 — 48 48 North America Agricultural Insurance — 18 18 — 4 4 Overseas General Insurance ( 71 ) 11 ( 60 ) ( 72 ) ( 28 ) ( 100 ) Global Reinsurance ( 6 ) — ( 6 ) ( 25 ) ( 4 ) ( 29 ) Corporate 54 — 54 339 — 339 Total $ ( 278 ) $ 132 $ ( 146 ) $ ( 197 ) $ 8 $ ( 189 ) 2019 North America Commercial P&C Insurance $ ( 197 ) $ 88 $ ( 109 ) $ ( 468 ) $ 43 $ ( 425 ) North America Personal P&C Insurance — ( 62 ) ( 62 ) — ( 88 ) ( 88 ) North America Agricultural Insurance — 18 18 — ( 43 ) ( 43 ) Overseas General Insurance ( 66 ) 41 ( 25 ) ( 66 ) 17 ( 49 ) Global Reinsurance ( 25 ) — ( 25 ) ( 59 ) 26 ( 33 ) Corporate 36 — 36 79 — 79 Total $ ( 252 ) $ 85 $ ( 167 ) $ ( 514 ) $ ( 45 ) $ ( 559 ) 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 lines and short-tail business for each segment and Corporate comprises numerous favorable and adverse movements across a number of lines and accident years, none of which is significant individually or in the aggregate. North America Commercial P&C Insurance 2020 For the three months ended September 30, 2020, net favorable PPD was $ 200 million, which was the net result of several underlying favorable and adverse movements, and was driven by the following principal changes: • Net favorable development of $ 255 million in long-tail business, primarily from: • Net favorable development of $ 155 million in workers' compensation business mainly impacting accident years 2016 and prior, driven by lower than expected paid and reported loss activity, and related updates to loss development factors, partly offset by adverse development in accident year 2019; • Net favorable development of $ 47 million in commercial excess and umbrella portfolios, driven by accident years 2014 and prior, and accident year 2019. The 2014 and prior development was a function of lower than expected paid and reported loss activity. The development on the 2019 accident year relates to three large policies covering specific perils, which expired in the quarter, with no covered events occurring; • Net favorable development of $ 41 million on large multi-line prospective deals in the 2016 and prior accident years, due to lower than expected reported loss activity. These structured deals typically cover large clients for multiple product lines and with varying loss limitations; this development is net of premium returns of $ 26 million tied to the loss performance of the particular deals; • Net favorable development of $ 40 million in our foreign casualty business, mainly in accident year 2016, due to lower than expected reported loss activity, partly offset by a large loss in accident year 2017; and • Net adverse development of $ 29 million in assumed general liability and excess lines mainly in accident years 2016 and prior due to higher than expected reported loss activity. 26 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited) Chubb Limited and Subsidiaries • Net adverse development of $ 55 million in short-tail business, primarily from: • Net adverse development of $ 35 million in our property portfolios, due to adverse non-catastrophe loss development mainly in accident year 2019, partially offset by favorable catastrophe-driven loss experience; and • Net adverse development of $ 21 million in our marine portfolios, mainly impacting the 2019 accident year, driven by higher than expected non-catastrophe loss development. For the nine months ended September 30, 2020, net favorable PPD was $ 451 million, which was the net result of several underlying favorable and adverse movements, and was driven by the following principal changes: • Net favorable development of $ 439 million in long-tail business, primarily from: • Net favorable development of $ 337 million in our workers’ compensation lines. This included favorable development of $ 62 million related to our annual assessment of multi-claimant events including industrial accidents, in the 2019 accident year. 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. This favorable development in accident year 2019 was partially offset by some higher than expected activity from other claims. The remaining overall favorable development was mainly in accident years 2016 and prior, driven by lower than expected loss experience and related updates to loss development factors; • Net favorable development of $ 66 million in professional liability (errors & omissions and cyber risk), driven by accident years 2016 and prior, which experienced lower than expected loss emergence; • Net favorable development of $ 43 million in voluntary environmental lines, in accident years 2016 and prior, due to lower than expected emergence and a related updates to loss development factors; • Net favorable development of $ 41 million on large multi-line prospective deals due to the same factors experienced for the three months ended September 30, 2020, as described above; • Net favorable development of $ 40 million in our foreign casualty businesses due to the same factors experienced for the three months ended September 30, 2020, as described above; • Net adverse development of $ 75 million in commercial automobile liability, mainly in high deductible and excess portfolios, driven by adverse paid and reported loss experience and related updates to loss development factors, mainly in accident years 2015 through 2019; and • Net adverse development of $ 5 million for U.S. child molestation claims, predominantly reviver statute-related. • Net favorable development of $ 12 million in short-tail business due to the same factors experienced for the three months ended September 30, 2020, as described above, which was offset by: • Net favorable development of $ 37 million, in accident & health, mainly in accident years 2018 and 2019, driven by lower than expected paid loss emergence; and • Net favorable development of $ 31 million in surety, driven by accident year 2018, where loss emergence was lower than expected. 2019 For the three months ended September 30, 2019, net favorable PPD was $ 109 million, which was the net result of several underlying favorable and adverse movements, and was driven by the following principal changes: 27 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited) Chubb Limited and Subsidiaries • Net favorable development of $ 197 million in long-tail business, primarily from: • Net favorable development of $ 94 million in workers' compensation business mainly impacting accident years 2015 and prior, driven by lower than expected paid and reported loss activity, and related improvements in loss development factors; • Net favorable development of $ 39 million in our foreign casualty business, impacting accident years 2015 and prior, driven by reported loss activity that was generally lower than expected; • Net favorable development of $ 36 million on large multi-line prospective deals in the 2015 and prior accident years, due to lower than expected reported loss activity. These structured deals typically cover large clients for multiple product lines and with varying loss limitations; this development is net of premium returns of $ 34 million tied to the loss performance of the particular deals; and • Net favorable development of $ 32 million in U.S. commercial excess and umbrella portfolios, mainly in accident years 2013 and prior, driven by lower paid and reported loss activity relative to prior expectations as well as an increase in weighting towards experience-based methods, partly offset by modestly adverse development in more recent accident years, mainly in 2018, due to higher than expected large loss activity. • Net adverse development of $ 88 million in short-tail business, primarily in our property and marine portfolios from: • Net adverse development excluding catastrophes of $ 116 million, with adverse development of $ 154 million across our retail, wholesale, and program distribution channels in accident year 2018, primarily due to a higher than expected severity of non-catastrophe claims, partly offset by favorable development of $ 38 million in 2017 and prior accident years on non-catastrophe claims; and • Net favorable catastrophe development of $ 27 million. There was $ 41 million of favorable development on the 2017 and 2018 natural catastrophes, mostly in 2017, partly offset by some adverse development on older catastrophe events. For the nine months ended September 30, 2019, net favorable PPD was $ 425 million, which was the net result of several underlying favorable and adverse movements, and was driven by the following principal changes: • Net favorable development of $ 468 million in long-tail business, primarily from: • Net favorable development of $ 294 million in our workers’ compensation lines. This included favorable development of $ 61 million related to our annual assessment of multi-claimant events including industrial accidents, in the 2018 accident year. 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. This development in accident year 2018 was partially offset by some higher than expected activity from other claims and from involuntary pools. The remaining overall favorable development was mainly in accident years 2015 and prior, generally driven by lower than expected loss experience and related updates to loss development factors; • Net favorable development of $ 63 million in U.S. commercial excess and umbrella portfolios due to the same factors experienced for the three months ended September 30, 2019, as described above with a similar result of favorable development in older accident years, partly offset by some adverse development in several of the more recent prior accident years which led to reserve strengthening in those years; • Net favorable development of $ 53 million in professional liability (errors & omissions and cyber), mainly in the 2015 and prior accident years where case activity was less than expected, partially offset by adverse development in the 2016 accident year, which was driven by several large adverse claim developments; • Net favorable development of $ 39 million in our foreign casualty business due to the same factors experienced for the three months ended September 30, 2019, as described above; • Net favorable development of $ 36 million on large multi-line prospective deals due to the same factors experienced for the three months ended September 30, 2019, as described above; and 28 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited) Chubb Limited and Subsidiaries • Net adverse development of $ 31 million in automobile liability, driven by adverse paid and reported loss experience mainly in accident years 2014 through 2018. • Net adverse development of $ 43 million in short-tail business due to the same factors experienced for the three months ended September 30, 2019, as described above, which was partly offset by favorable development of $ 49 million in surety business, mainly in the 2017 accident year, driven by lower than expected reported loss activity. North America Personal P&C Insurance 2020 For the three and nine months ended September 30, 2020, net adverse PPD was $ 48 million, which was the net result of several underlying favorable and adverse movements, and was driven by the following principal changes: • Net adverse development of $ 69 million in our homeowners lines, including valuables, mainly in accident years 2017 through 2019 due to higher than expected non-catastrophe loss emergence and adverse development arising from natural catastrophes in accident years 2017 and 2018; and • Net favorable development of $ 22 million in our personal excess lines, driven by favorable development mainly in the 2017 accident year, partly offset by adverse development in accident year 2019. 2019 For the three months ended September 30, 2019, net favorable PPD was $ 62 million, which was the net result of several underlying favorable and adverse movements, and was driven by the following principal changes: • Net favorable development of $ 36 million in our homeowners lines, including valuables, mainly in accident year 2018. Non-catastrophe loss emergence was generally lower than expected in recent accident years. Losses arising from accident year 2017 natural catastrophes developed adversely; however, this was mostly offset by favorable development on the 2018 catastrophe events; and • Net favorable development of $ 26 million in our personal excess lines primarily impacting the 2016 accident year, due to lower than expected loss emergence and an increase in weighting towards experience-based methods, partly offset by adverse emergence in accident year 2015. For the nine months ended September 30, 2019, net favorable PPD was $ 88 million, which was the net result of several underlying favorable and adverse movements, and was driven by the following principal changes: • Net favorable claim development of $ 132 million on the 2017 and 2018 natural catastrophes for all lines; • Net favorable development of $ 26 million in our personal excess lines due to the same factors experienced for the three months ended September 30, 2019, as described above; and • Net adverse development of $ 82 million in our homeowners lines, including valuables, arising from non-catastrophe loss emergence, mainly in the 2018 accident year. North America Agricultural Insurance 2020 For the three and nine months ended September 30, 2020, net adverse PPD was $ 18 million and $ 4 million, respectively. 2019 For the three months ended September 30, 2019, net adverse PPD was $ 18 million. For the nine months ended September 30, 2019, net favorable PPD was $ 43 million, which is the net of the adverse activity noted above and favorable claim development in our Multiple Peril Crop Insurance (MPCI) business, which was due to better than expected crop yield results in certain states at the prior year-end period (i.e., 2019 results based on crop yield results at year-end 2018). 29 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited) Chubb Limited and Subsidiaries Overseas General Insurance 2020 For the three months ended September 30, 2020, net favorable PPD was $ 60 million, which was the net result of several underlying favorable and adverse movements, and was driven by the following principal changes: • Net favorable development of $ 71 million in long-tail business, primarily from: • Net favorable development of $ 94 million in casualty lines, including favorable development of $ 143 million in accident years 2016 and prior, due to lower than expected loss emergence across primary and excess lines in Continental Europe, U.K., and Asia Pacific, partially offset by adverse development of $ 49 million in accident years 2017 through 2019, primarily due to adverse large loss experience in the U.K. and Asia Pacific; • Net favorable development of $ 22 million in political risks, driven by benign loss experience in 2018 and 2019; and • Net adverse development of $ 57 million in financial lines, with adverse development of $ 125 million in accident years 2016 through 2019, primarily due to adverse large loss experience in Directors and Officers (D&O) in the U.K. and Asia Pacific. This was partially offset by favorable development of $ 68 million in accident years 2015 and prior, primarily from favorable case-specific settlements within Continental Europe and Asia Pacific financial institutions. For the nine months ended September 30, 2020, net favorable PPD was $ 100 million, which was the net result of several underlying favorable and adverse movements and was driven by the following principal changes: • Net favorable development of $ 72 million in long-tail lines due to the same factors experienced for the three months ended September 30, 2020 described above; and • Net favorable development of $ 28 million in short-tail business, including $ 22 million in marine lines across all regions mainly in accident years 2017 and 2018. 2019 For the three months ended September 30, 2019, net favorable PPD was $ 25 million, which was the net result of several underlying favorable and adverse movements, and was driven by the following principal changes: • Net favorable development of $ 66 million in long-tail business, primarily from: • Net favorable development of $ 101 million in casualty lines, including favorable development of $ 123 million in accident years 2015 and prior, due to lower than expected loss emergence mainly across primary lines in Continental Europe, U.K., and Asia Pacific, partially offset by adverse development of $ 22 million in accident years 2016 through 2018, primarily due to adverse attritional and large loss experience in Continental Europe; and • Net adverse development of $ 50 million in financial lines, with favorable development of $ 75 million in accident years 2015 and prior, due to lower than expected loss emergence across most regions in D&O and Professional Indemnity, which was more than offset by adverse development of $ 125 million in accident years 2016 through 2018, primarily due to adverse large loss experience in D&O in the U.K. and Asia Pacific. • Net adverse development of $ 41 million in short-tail business, primarily due to net adverse development of $ 27 million in Surety, driven by adverse large loss experience across Continental Europe and Latin America in accident years 2017 and 2018. For the nine months ended September 30, 2019, net favorable PPD was $ 49 million, which was the net result of several underlying favorable and adverse movements, and was driven by net favorable development of $ 66 million in long-tail lines due to the same factors experienced for the three months ended September 30, 2019 described above. 30 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited) Chubb Limited and Subsidiaries Global Reinsurance 2020 For the three and nine months ended September 30, 2020, net favorable PPD was $ 6 million and $ 29 million, respectively, which was the net result of several underlying favorable and adverse movements, none of which is significant individually or in the aggregate. 2019 For the three months ended September 30, 2019, net favorable PPD was $ 25 million, in long-tail business, primarily from professional liability, medical malpractice, and workers' compensation lines primarily from treaty years 2013 and prior principally due to lower than expected loss emergence. For the nine months ended September 30, 2019, net favorable PPD was $ 33 million, which was the net result of several underlying favorable and adverse movements, and was driven by the following principal changes: • Net favorable development of $ 59 million in long-tail business, primarily in our casualty, professional liability, medical malpractice, and workers’ compensation lines primarily from treaty years 2013 and prior principally due to lower than expected loss emergence; and • Net adverse development of $ 26 million in short-tail business, which included $ 37 million of adverse development primarily on 2017 and 2018 natural catastrophe events. Corporate 2020 For the three months ended September 30, 2020, net adverse development was $ 54 million, driven principally by development in environmental liabilities of $ 35 million due to certain case specific incurred activity. For the nine months ended September 30, 2020 net adverse development was $ 339 million, driven by adverse development of $ 254 million for U.S. child molestation claims, predominantly reviver statute-related, as well as the adverse development noted above regarding environmental liabilities. The remainder of the adverse development was driven by increased claim costs on a limited number of non-A&E run-off casualty and workers’ compensation exposures, and charges relating to unallocated loss adjustment expenses due to run-off operating expenses. 2019 For the three months ended September 30, 2019, net adverse development was $ 36 million, driven principally by adverse development in environmental liabilities of $ 27 million due to case specific settlements and higher than expected remediation expense and defense costs, generally impacting larger modeled accounts. For the nine months ended September 30, 2019, net adverse development was $ 79 million, driven principally by adverse development on non A&E run-off casualty exposures, including workers' compensation, and by the adverse development in environmental liabilities as described above. The net adverse development also included charges relating to unallocated loss adjustment expenses due to run-off operating expenses of $ 28 million. 7. Debt On September 17, 2020, Chubb INA Holdings Inc. (Chubb INA) issued $ 1 billion of 1.375 percent senior notes due September 2030. These senior notes are redeemable at any time at Chubb INA's option subject to a “make-whole” premium (the present value of the remaining principal and interest discounted at the applicable comparable government bond 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 Chubb and they rank equally with all of Chubb'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. 8. Commitments, contingencies, and guarantees a) Derivative instruments Foreign currency management As a global company, Chubb entities transact business in multiple currencies. Our policy is to generally match assets, liabilities, 31 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited) Chubb Limited and Subsidiaries 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-U.S. dollar capital positions; however, we do consider economic hedging for planned cross border transactions. Derivative instruments employed Chubb 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. Chubb 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, Chubb purchases to be announced mortgage-backed securities (TBAs) as part of its investing activities. Under reinsurance programs covering GLBs, Chubb assumes the risk of GLBs (principally GMIB) 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 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. Chubb also generally maintains positions in exchange-traded equity futures contracts on equity market indices to limit equity exposure in the GMDB and GLB book 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: September 30, 2020 December 31, 2019 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) $ 12 $ ( 73 ) $ 2,550 $ 11 $ ( 78 ) $ 2,579 Options/Futures contracts on notes, bonds, and equities OA / (AP) 12 ( 3 ) 1,457 13 ( 15 ) 1,615 Convertible securities (1) FM AFS / ES 9 — 11 4 — 5 $ 33 $ ( 76 ) $ 4,018 $ 28 $ ( 93 ) $ 4,199 Other derivative instruments: Futures contracts on equities (2) OA / (AP) $ — $ ( 1 ) $ 648 $ — $ ( 13 ) $ 613 Other OA / (AP) 3 — 113 2 — 63 $ 3 $ ( 1 ) $ 761 $ 2 $ ( 13 ) $ 676 GLB (3) (AP) / (FPB) $ — $ ( 1,318 ) $ 2,071 $ — $ ( 897 ) $ 1,510 (1) Includes fair value of embedded derivatives. (2) Related to GMDB and GLB book of business. (3) Includes both future policy benefits reserves of $ 436 million and $ 441 million and fair value derivative adjustment of $ 882 million and $ 456 million at September 30, 2020 and December 31, 2019, respectively. 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. At September 30, 2020 and December 31, 2019, net derivative liabilities of $ 45 million and $ 75 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. 32 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited) Chubb Limited and Subsidiaries The following table presents net realized gains (losses) related to derivative instrument activity in the Consolidated statements of operations: Three Months Ended Nine Months Ended September 30 September 30 (in millions of U.S. dollars) 2020 2019 2020 2019 Investment and embedded derivative instruments: Foreign currency forward contracts $ — $ ( 20 ) $ 53 $ ( 57 ) Interest rate swaps — ( 55 ) — ( 270 ) All other futures contracts, options, and equities 9 ( 22 ) ( 15 ) ( 83 ) Convertible securities (1) — — — 2 Total investment and embedded derivative instruments $ 9 $ ( 97 ) $ 38 $ ( 408 ) GLB and other derivative instruments: GLB (2) $ 46 $ ( 106 ) $ ( 426 ) $ ( 57 ) Futures contracts on equities (3) ( 52 ) ( 6 ) ( 30 ) ( 89 ) Other 1 ( 14 ) ( 2 ) ( 8 ) Total GLB and other derivative instruments $ ( 5 ) $ ( 126 ) $ ( 458 ) $ ( 154 ) $ 4 $ ( 223 ) $ ( 420 ) $ ( 562 ) (1) Includes embedded derivatives. (2) Excludes foreign exchange gains (losses) related to GLB. (3) Related to GMDB and GLB book of business. b) Derivative instrument objectives (i) Foreign currency exposure management A foreign currency forward contract (forward) is an agreement between participants to exchange specific currencies at a future date. Chubb 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 our 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. 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 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. 33 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited) Chubb Limited and Subsidiaries Interest rate swaps An interest rate swap is a contract between two counterparties in which interest payments are made based on a notional principal amount, which itself is never paid or received. Under the terms of an interest rate swap, one counterparty makes interest payments based on a fixed interest rate and the other counterparty’s payments are based on a floating rate. Interest rate swap contracts are used occasionally in our investment portfolio as protection against unexpected shifts in interest rates, which would affect the fair value of the fixed maturity portfolio. By using interest rate swaps in the portfolio, the overall duration or interest rate sensitivity of the portfolio can be impacted. 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, Chubb may enter into crop derivative contracts to protect underwriting results in the event of a significant decline in commodity prices. (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. Chubb 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. Chubb 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, Chubb 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 arise principally from changes in expected losses allocated to expected future premiums. 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 U.S. and/or international 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. To mitigate adverse changes in the capital markets, we maintain positions in exchange-traded equity futures contracts, as noted under section "(ii) Futures" above. These futures increase in fair value when the S&P 500 index decreases (and decrease in fair value when the S&P 500 index increases). The net impact of gains or losses related to changes in fair value of the GLB liability and the exchange-traded equity futures are included in Net realized gains (losses). c) Securities lending and secured borrowings Chubb 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. The securities lending collateral can only be drawn down by Chubb 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. 34 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited) Chubb Limited and Subsidiaries The following table presents the carrying value of collateral held under securities lending agreements by investment category and remaining contractual maturity of the underlying agreements: Remaining contractual maturity September 30, 2020 December 31, 2019 (in millions of U.S. dollars) Overnight and Continuous Collateral held under securities lending agreements: Cash $ 615 $ 346 U.S. Treasury / Agency 101 6 Non-U.S. 1,047 595 Corporate and asset-backed securities 44 5 Mortgage-backed securities — 18 Equity securities 44 24 $ 1,851 $ 994 Gross amount of recognized liability for securities lending payable $ 1,851 $ 994 At September 30, 2020 and December 31, 2019, our repurchase agreement obligations of $ 1,413 million and $ 1,416 million, respectively, 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 the repurchase agreement obligation is recorded in Repurchase agreements in the Consolidated balance sheets. The following table presents the carrying value of collateral pledged under repurchase agreements by investment category and remaining contractual maturity of the underlying agreements: Remaining contractual maturity September 30, 2020 December 31, 2019 Up to 30 Days 30-90 Days Greater than 90 Days Total Up to 30 Days 30-90 Days Greater than 90 Days Total (in millions of U.S. dollars) Collateral pledged under repurchase agreements: Cash $ 4 $ — $ — $ 4 $ 2 $ — $ — $ 2 U.S. Treasury / Agency 4 — 102 106 107 — — 107 Mortgage-backed securities 390 462 471 1,323 399 476 480 1,355 $ 398 $ 462 $ 573 $ 1,433 $ 508 $ 476 $ 480 $ 1,464 Gross amount of recognized liabilities for repurchase agreements $ 1,413 $ 1,416 Difference (1) $ 20 $ 48 (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, Chubb will have free use of the borrowed funds until our collateral is returned. In addition, we may encounter the risk that Chubb 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, Chubb 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. d) Fixed maturities At September 30, 2020, we have commitments to purchase fixed income securities of $ 695 million over the next several years. 35 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited) Chubb Limited and Subsidiaries e) Other investments At September 30, 2020 included in Other investments in the Consolidated balance sheet are investments in limited partnerships and partially-owned investment companies with a carrying value of $ 5.5 billion. In connection with these investments, we have commitments that may require funding of up to $ 3.3 billion over the next several years. At December 31, 2019, these investments had a carrying value of $4.7 billion with a commitment that may require funding of up to $3.3 billion. f) Income taxes At September 30, 2020, $ 50 million of unrecognized tax benefits remain out standing. It is reasonably possible that over the next twelve months, that the amount of unrecognized tax benefits may change resulting from the re-evaluation of unrecognized tax benefits arising from examinations by taxing authorities, settlements and the lapses of statutes of limitations. The IRS commenced its field examination of Chubb’s federal income tax returns for tax years 2016, 2017, and 2018 during July 2020. With few exceptions, Chubb is no longer subject to income tax examinations for years before 2010 . g) 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 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. h) Leases At September 30, 2020 and December 31, 2019, the right-of-use asset was $ 470 million and $ 551 million, respectively, and is recorded within Other assets on the Consolidated balance sheets. At September 30, 2020 and December 31, 2019, the lease liability was $ 517 million and $ 603 million, respectively, and is recorded within Accounts payable, accrued expenses, and other liabilities on the Consolidated balance sheets. These leases consist principally of real estate operating leases that are amortized on a straight-line basis over the term of the lease. 9. Shareholders’ equity All of Chubb’s Common Shares are authorized under Swiss corporate law. Though the par value of Common Shares is stated in Swiss francs, Chubb 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 Chubb in U.S. dollars. At September 30, 2020, our Common Shares had a par value of CHF 24.15 per share. At our May 2019 and 2018 annual general meetings, our shareholders approved annual dividends for the following year of up to $ 3.00 per share and $ 2.92 per share, respectively, which were paid in four quarterly installments of $ 0.75 per share and $ 0.73 per share, respectively, at dates determined by the Board of Directors (Board) after the annual general meetings by way of a distribution from capital contribution reserves, transferred to free reserves for payment. At our May 2020 annual general meeting, our shareholders approved an annual dividend for the following year of up to $ 3.12 per share, expected to be paid in four quarterly installments of $ 0.78 per share after the general meeting by way of distribution from capital contribution reserves, transferred to free reserves for payment. The Board will determine the record and payment dates at which the annual dividend may be paid until the date of the 2021 annual general meeting, and is authorized to abstain from distributing a dividend at its discretion. The following table presents dividend distributions per Common Share in Swiss francs (CHF) and U.S. dollars (USD): Three Months Ended Nine Months Ended September 30 September 30 2020 2019 2020 2019 CHF USD CHF USD CHF USD CHF USD Total dividend distributions per common share 0.71 $ 0.78 0.73 $ 0.75 2.18 $ 2.31 2.20 $ 2.23 36 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited) Chubb Limited and Subsidiaries 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 our May 2020 annual general meeting, our shareholders approved the cancellation of 2,178,600 shares purchased under our share repurchase program during the period beginning September 23, 2019 and ending December 31, 2019. The capital reduction by cancellation of shares was subject to publication requirements and a two-month waiting period in accordance with Swiss law and became effective August 3, 2020. At September 30, 2020, 26,229,070 Common Shares remain in treasury after share repurchases, share cancellations, and 1,670,777 net shares issued under employee share-based compensation plans. Chubb Limited securities repurchase authorizations In December 2018, the Board authorized the repurchase of up to $ 1.5 billion of Chubb's Common Shares from December 1, 2018 through December 31, 2019. In November 2019, the Board authorized the repurchase of up to $ 1.5 billion of Chubb's Common Shares from November 21, 2019 through December 31, 2020. We suspended share repurchase activity during the second and third quarters of 2020, given the economic environment. Subsequently, we resumed share repurchases on October 29, 2020 as disclosed below. The following table presents repurchases of Chubb's Common Shares conducted in a series of open market transactions under the Board authorizations: Three Months Ended Nine Months Ended October 1, 2020 through October 29, 2020 September 30 September 30 (in millions of U.S. dollars, except share data) 2020 2019 2020 2019 Number of shares repurchased — 3,079,618 2,266,150 8,417,838 52,500 Cost of shares repurchased $ — $ 478 $ 326 $ 1,221 $ 7 Repurchase authorization remaining at end of period $ 1,124 $ 258 $ 1,124 $ 258 $ 1,117 10. Share-based compensation The Chubb Limited 2016 Long-Term Incentive Plan (the 2016 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 Chubb'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 respective vesting period, which is also the requisite service period. On February 27, 2020, Chubb granted 1,957,505 stock options with a weighted-average grant date fair value of $ 19.89 each. The fair value of the options issued is estimated on the grant date using the Black-Scholes option pricing model. The 2016 LTIP also permits grants of service-based restricted stock and restricted stock units as well as performance-based restricted stock awards. Chubb generally grants service-based restricted stock and restricted stock units with a 4 -year vesting period, based on a graded vesting schedule. Beginning in 2017, the performance-based restricted stock awards granted comprise target awards and premium awards that cliff vest at the end of a 3 -year performance period based on both tangible book value (shareholders' equity less goodwill and intangible assets, net of tax) per share growth and P&C combined ratio compared to a defined group of peer companies. Premium awards are subject to an additional vesting provision based on total shareholder return compared to our peer group. The restricted stock is granted at market close price on the grant date. On February 27, 2020, Chubb granted 1,002,341 service-based restricted stock awards, 344,501 service-based restricted stock units, and 203,533 performance-based stock awards to employees and officers with a grant date fair value of $ 150.11 each. Each restricted stock unit represents our obligation to deliver to the holder one Common Share upon vesting. 37 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited) Chubb Limited and Subsidiaries 11. Postretirement benefits The components of net pension and other postretirement benefit costs (benefits) reflected in Net income in the Consolidated statements of operations were as follows: Pension Benefit Plans Other Postretirement Benefit Plans 2020 2019 2020 2019 Three Months Ended September 30 U.S. Plans Non-U.S. Plans U.S. Plans Non-U.S. Plans (in millions of U.S. dollars) Service cost $ — $ 1 $ 12 $ 3 $ — $ — Non-service cost: Interest cost 24 6 30 6 1 1 Expected return on plan assets ( 56 ) ( 11 ) ( 47 ) ( 11 ) ( 1 ) ( 1 ) Amortization of net actuarial loss — — — 1 — — Amortization of prior service cost — 1 — — ( 20 ) ( 20 ) Settlements 1 — 1 — — — Total non-service (benefit) cost ( 31 ) ( 4 ) ( 16 ) ( 4 ) ( 20 ) ( 20 ) Net periodic (benefit) cost $ ( 31 ) $ ( 3 ) $ ( 4 ) $ ( 1 ) $ ( 20 ) $ ( 20 ) Pension Benefit Plans Other Postretirement Benefit Plans 2020 2019 2020 2019 Nine Months Ended September 30 U.S. Plans Non-U.S. Plans U.S. Plans Non-U.S. Plans (in millions of U.S. dollars) Service cost $ — $ 3 $ 37 $ 8 $ — $ — Non-service cost: Interest cost 74 17 89 20 2 3 Expected return on plan assets ( 168 ) ( 32 ) ( 142 ) ( 33 ) ( 3 ) ( 3 ) Amortization of net actuarial loss — 1 — 2 — — Amortization of prior service cost — 1 — — ( 60 ) ( 60 ) Settlements 3 — 1 — — — Total non-service (benefit) cost ( 91 ) ( 13 ) ( 52 ) ( 11 ) ( 61 ) ( 60 ) Net periodic (benefit) cost $ ( 91 ) $ ( 10 ) $ ( 15 ) $ ( 3 ) $ ( 61 ) $ ( 60 ) 38 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited) Chubb Limited and Subsidiaries The line items in which the service and non-service cost components of net periodic (benefit) cost are included in the Consolidated statements of operations were as follows: Pension Benefit Plans Other Postretirement Benefit Plans Three Months Ended September 30 2020 2019 2020 2019 (in millions of U.S. dollars) Service cost: Losses and loss expenses $ — $ 2 $ — $ — Administrative expenses 1 13 — — Total service cost 1 15 — — Non-service cost: Losses and loss expenses ( 3 ) ( 1 ) ( 2 ) ( 2 ) Administrative expenses ( 32 ) ( 19 ) ( 18 ) ( 18 ) Total non-service (benefit) cost ( 35 ) ( 20 ) ( 20 ) ( 20 ) Net periodic (benefit) cost $ ( 34 ) $ ( 5 ) $ ( 20 ) $ ( 20 ) Pension Benefit Plans Other Postretirement Benefit Plans Nine Months Ended September 30 2020 2019 2020 2019 (in millions of U.S. dollars) Service cost: Losses and loss expenses $ — $ 5 $ — $ — Administrative expenses 3 40 — — Total service cost 3 45 — — Non-service cost: Losses and loss expenses ( 9 ) ( 5 ) ( 6 ) ( 6 ) Administrative expenses ( 95 ) ( 58 ) ( 55 ) ( 54 ) Total non-service (benefit) cost ( 104 ) ( 63 ) ( 61 ) ( 60 ) Net periodic (benefit) cost $ ( 101 ) $ ( 18 ) $ ( 61 ) $ ( 60 ) 39 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited) Chubb Limited and Subsidiaries 12. Segment information Chubb operates through six business segments: North America Commercial P&C Insurance, North America Personal P&C Insurance, North America Agricultural Insurance, Overseas General Insurance, Global Reinsurance, and Life Insurance. Corporate results primarily include income and expenses not attributable to reportable segments and losses and loss expenses of asbestos and environmental (A&E) liabilities and certain other non-A&E run-off exposures. Management uses underwriting income (loss) as the main measure of segment performance. Chubb calculates underwriting income (loss) by subtracting Losses and loss expenses, Policy benefits, Policy acquisition costs, and Administrative expenses from Net premiums earned. To calculate Segment income (loss), include Net investment income (loss), Other (income) expense, and Amortization expense of purchased intangibles. Certain items are presented in a different manner for segment reporting purposes than in the consolidated financial statements. These items are reconciled to the consolidated presentation in the Segment measure reclass column below. These items include: • Losses and loss expenses include 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, and therefore realized gains (losses) from these derivatives are reclassified to losses and loss expenses. • Policy benefits include gains and losses from fair value changes in separate account assets, as well as the offsetting movement in separate account liabilities. The gains and losses from fair value changes in separate account assets that do not qualify for separate account reporting under GAAP have been reclassified from Other (income) expense. We view gains and losses from fair value changes in both separate account assets and liabilities as part of the results of our underwriting operations, and therefore these gains and losses are reclassified to policy benefits. • Net investment income includes investment income reclassified from Other (income) expense related to partially-owned investment companies (private equity partnerships) where our ownership interest is in excess of three percent. We view investment income from these equity-method private equity partnerships as net investment income. The following tables present the Statement of Operations by segment: For the Three Months Ended September 30, 2020 (in millions of U.S. dollars) North America Commercial P&C Insurance North America Personal P&C Insurance North America Agricultural Insurance Overseas General Insurance Global Reinsurance Life Insurance Corporate Segment Measure Reclass Chubb Consolidated Net premiums written $ 3,778 $ 1,285 $ 986 $ 2,238 $ 181 $ 610 $ — $ — $ 9,078 Net premiums earned 3,456 1,231 971 2,337 171 599 — — 8,765 Losses and loss expenses 2,444 961 845 1,192 154 183 55 1 5,835 Policy benefits — — — — — 174 — 24 198 Policy acquisition costs 489 248 56 637 40 175 — — 1,645 Administrative expenses 243 65 5 260 9 80 71 — 733 Underwriting income (loss) 280 ( 43 ) 65 248 ( 32 ) ( 13 ) ( 126 ) ( 25 ) 354 Net investment income (loss) 510 64 7 130 85 95 ( 19 ) ( 32 ) 840 Other (income) expense 7 1 — 1 — ( 23 ) ( 415 ) ( 56 ) ( 485 ) Amortization expense of purchased intangibles — 2 7 10 — 1 52 — 72 Segment income $ 783 $ 18 $ 65 $ 367 $ 53 $ 104 $ 218 $ ( 1 ) $ 1,607 Net realized gains (losses) ( 142 ) 1 ( 141 ) Interest expense 130 — 130 Income tax expense 142 — 142 Net income (loss) $ ( 196 ) $ — $ 1,194 40 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited) Chubb Limited and Subsidiaries For the Three Months Ended September 30, 2019 (in millions of U.S. dollars) North America Commercial P&C Insurance North America Personal P&C Insurance North America Agricultural Insurance Overseas General Insurance Global Reinsurance Life Insurance Corporate Segment Measure Reclass Chubb Consolidated Net premiums written $ 3,452 $ 1,251 $ 938 $ 2,228 $ 141 $ 612 $ — $ — $ 8,622 Net premiums earned 3,185 1,187 941 2,256 160 598 — — 8,327 Losses and loss expenses 2,051 674 880 1,154 79 190 38 ( 14 ) 5,052 Policy benefits — — — — — 165 — ( 7 ) 158 Policy acquisition costs 459 240 56 630 42 176 — — 1,603 Administrative expenses 256 72 4 257 9 80 74 — 752 Underwriting income (loss) 419 201 1 215 30 ( 13 ) ( 112 ) 21 762 Net investment income (loss) 538 66 8 147 71 92 ( 28 ) ( 21 ) 873 Other (income) expense 5 1 — 2 — ( 17 ) ( 34 ) ( 14 ) ( 57 ) Amortization expense of purchased intangibles — 3 7 11 — 1 54 — 76 Segment income (loss) $ 952 $ 263 $ 2 $ 349 $ 101 $ 95 $ ( 160 ) $ 14 $ 1,616 Net realized gains (losses) including OTTI ( 141 ) ( 14 ) ( 155 ) Interest expense 138 — 138 Chubb integration expenses 2 — 2 Income tax expense 230 — 230 Net income (loss) $ ( 671 ) $ — $ 1,091 For the Nine Months Ended September 30, 2020 (in millions of U.S. dollars) North America Commercial P&C Insurance North America Personal P&C Insurance North America Agricultural Insurance Overseas General Insurance Global Reinsurance Life Insurance Corporate Segment Measure Reclass Chubb Consolidated Net premiums written $ 10,750 $ 3,719 $ 1,604 $ 6,857 $ 606 $ 1,874 $ — $ — $ 25,410 Net premiums earned 10,427 3,623 1,441 6,838 520 1,838 — — 24,687 Losses and loss expenses 8,123 2,406 1,223 3,935 314 556 342 ( 2 ) 16,897 Policy benefits — — — — — 542 — 8 550 Policy acquisition costs 1,452 724 96 1,903 127 551 — — 4,853 Administrative expenses 751 199 12 759 28 238 214 — 2,201 Underwriting income (loss) 101 294 110 241 51 ( 49 ) ( 556 ) ( 6 ) 186 Net investment income (loss) 1,544 195 23 396 214 285 ( 65 ) ( 64 ) 2,528 Other (income) expense 19 4 1 10 1 ( 52 ) ( 283 ) ( 72 ) ( 372 ) Amortization expense of purchased intangibles — 8 20 33 — 3 153 — 217 Segment income (loss) $ 1,626 $ 477 $ 112 $ 594 $ 264 $ 285 $ ( 491 ) $ 2 $ 2,869 Net realized gains (losses) ( 1,067 ) ( 2 ) ( 1,069 ) Interest expense 390 — 390 Income tax expense 295 — 295 Net income (loss) $ ( 2,243 ) $ — $ 1,115 41 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited) Chubb Limited and Subsidiaries For the Nine Months Ended September 30, 2019 (in millions of U.S. dollars) North America Commercial P&C Insurance North America Personal P&C Insurance North America Agricultural Insurance Overseas General Insurance Global Reinsurance Life Insurance Corporate Segment Measure Reclass Chubb Consolidated Net premiums written $ 9,937 $ 3,616 $ 1,534 $ 6,881 $ 540 $ 1,770 $ — $ — $ 24,278 Net premiums earned 9,660 3,509 1,374 6,595 487 1,730 — — 23,355 Losses and loss expenses 6,238 2,178 1,163 3,385 245 581 83 ( 8 ) 13,865 Policy benefits — — — — — 495 — 20 515 Policy acquisition costs 1,377 708 90 1,855 127 454 — — 4,611 Administrative expenses 755 211 9 771 26 237 211 — 2,220 Underwriting income (loss) 1,290 412 112 584 89 ( 37 ) ( 294 ) ( 12 ) 2,144 Net investment income (loss) 1,584 194 22 444 206 278 ( 98 ) ( 62 ) 2,568 Other (income) expense 17 2 1 11 — ( 37 ) ( 238 ) ( 82 ) ( 326 ) Amortization expense of purchased intangibles — 9 21 34 — 2 163 — 229 Segment income (loss) $ 2,857 $ 595 $ 112 $ 983 $ 295 $ 276 $ ( 317 ) $ 8 $ 4,809 Net realized gains (losses) including OTTI ( 467 ) ( 8 ) ( 475 ) Interest expense 418 — 418 Chubb integration expenses 9 — 9 Income tax expense 626 — 626 Net income (loss) $ ( 1,837 ) $ — $ 3,281 Underwriting assets are reviewed in total by management for purposes of decision-making. Other than Unpaid losses and loss expenses, Reinsurance recoverables, Goodwill and Other intangible assets, Chubb does not allocate assets to its segments. 13. Earnings per share Three Months Ended Nine Months Ended September 30 September 30 (in millions of U.S. dollars, except share and per share data) 2020 2019 2020 2019 Numerator: Net income $ 1,194 $ 1,091 $ 1,115 $ 3,281 Denominator: Denominator for basic earnings per share: Weighted-average shares outstanding 451,794,046 454,975,143 451,683,093 456,987,560 Denominator for diluted earnings per share: Share-based compensation plans 1,471,434 3,175,226 1,894,699 2,937,026 Weighted-average shares outstanding and assumed conversions 453,265,480 458,150,369 453,577,792 459,924,586 Basic earnings per share $ 2.64 $ 2.40 $ 2.47 $ 7.18 Diluted earnings per share $ 2.63 $ 2.38 $ 2.46 $ 7.13 Potential anti-dilutive share conversions 7,053,316 575,039 6,767,727 3,874,310 Excluded from weighted-average shares outstanding and assumed conversions is the impact of securities that would have been anti-dilutive during the respective periods. 42 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited) Chubb Limited and Subsidiaries 14. Information provided in connection with outstanding debt of subsidiaries The following tables present condensed consolidating financial information at September 30, 2020 and December 31, 2019, and for the three and nine months ended September 30, 2020 and 2019 for Chubb Limited (Parent Guarantor) and Chubb 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 Chubb Limited Subsidiaries column on a combined basis. Condensed Consolidating Balance Sheet at September 30, 2020 (in millions of U.S. dollars) Chubb Limited (Parent Guarantor) Chubb INA Holdings Inc. (Subsidiary Issuer) Other Chubb Limited Subsidiaries Consolidating Adjustments and Eliminations Chubb Limited Consolidated Assets Investments $ — $ 724 $ 115,323 $ — $ 116,047 Cash (1) 31 — 1,799 ( 123 ) 1,707 Restricted cash — — 166 — 166 Insurance and reinsurance balances receivable — — 13,684 ( 3,096 ) 10,588 Reinsurance recoverable on losses and loss expenses — — 25,482 ( 9,812 ) 15,670 Reinsurance recoverable on policy benefits — — 298 ( 95 ) 203 Value of business acquired — — 286 — 286 Goodwill and other intangible assets — — 21,103 — 21,103 Investments in subsidiaries 53,715 54,125 — ( 107,840 ) — Due from subsidiaries and affiliates, net 2,991 — 171 ( 3,162 ) — Other assets 8 391 23,459 ( 1,842 ) 22,016 Total assets $ 56,745 $ 55,240 $ 201,771 $ ( 125,970 ) $ 187,786 Liabilities Unpaid losses and loss expenses $ — $ — $ 77,467 $ ( 9,562 ) $ 67,905 Unearned premiums — — 18,695 ( 1,193 ) 17,502 Future policy benefits — — 6,050 ( 95 ) 5,955 Due to subsidiaries and affiliates, net — 3,162 — ( 3,162 ) — Affiliated notional cash pooling programs (1) — 123 — ( 123 ) — Repurchase agreements — — 1,413 — 1,413 Short-term debt — 1,300 — — 1,300 Long-term debt — 14,830 — — 14,830 Trust preferred securities — 308 — — 308 Other liabilities 332 1,374 24,449 ( 3,995 ) 22,160 Total liabilities 332 21,097 128,074 ( 18,130 ) 131,373 Total shareholders’ equity 56,413 34,143 73,697 ( 107,840 ) 56,413 Total liabilities and shareholders’ equity $ 56,745 $ 55,240 $ 201,771 $ ( 125,970 ) $ 187,786 (1) Chubb maintains two notional multicurrency cash pools (Pools) with a third-party bank. Various Chubb entities participate in one or the other of the Pools, pursuant to which credit and debit balances in individual Chubb accounts are translated daily into a single currency and pooled on a notional basis. Individual Chubb entities are permitted to overdraw on their individual accounts provided the overall Pool balances do not fall below zero. At September 30, 2020, the cash balance of one or more entities was negative; however, the overall Pool balances were positive. 43 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited) Chubb Limited and Subsidiaries Condensed Consolidating Balance Sheet at December 31, 2019 (in millions of U.S. dollars) Chubb Limited (Parent Guarantor) Chubb INA Holdings Inc. (Subsidiary Issuer) Other Chubb Limited Subsidiaries Consolidating Adjustments and Eliminations Chubb Limited Consolidated Assets Investments $ — $ 1,013 $ 108,221 $ — $ 109,234 Cash (1) 2 442 1,093 — 1,537 Restricted cash — — 109 — 109 Insurance and reinsurance balances receivable — — 12,920 ( 2,563 ) 10,357 Reinsurance recoverable on losses and loss expenses — — 24,780 ( 9,599 ) 15,181 Reinsurance recoverable on policy benefits — — 292 ( 95 ) 197 Value of business acquired — — 306 — 306 Goodwill and other intangible assets — — 21,359 — 21,359 Investments in subsidiaries 50,853 52,076 — ( 102,929 ) — Due from subsidiaries and affiliates, net 4,776 — — ( 4,776 ) — Other assets 12 408 20,072 ( 1,829 ) 18,663 Total assets $ 55,643 $ 53,939 $ 189,152 $ ( 121,791 ) $ 176,943 Liabilities Unpaid losses and loss expenses $ — $ — $ 71,916 $ ( 9,226 ) $ 62,690 Unearned premiums — — 17,978 ( 1,207 ) 16,771 Future policy benefits — — 5,909 ( 95 ) 5,814 Due to subsidiaries and affiliates, net — 4,446 330 ( 4,776 ) — Repurchase agreements — — 1,416 — 1,416 Short-term debt — 1,298 1 — 1,299 Long-term debt — 13,559 — — 13,559 Trust preferred securities — 308 — — 308 Other liabilities 312 1,649 21,352 ( 3,558 ) 19,755 Total liabilities 312 21,260 118,902 ( 18,862 ) 121,612 Total shareholders’ equity 55,331 32,679 70,250 ( 102,929 ) 55,331 Total liabilities and shareholders’ equity $ 55,643 $ 53,939 $ 189,152 $ ( 121,791 ) $ 176,943 (1) Chubb maintains two notional multicurrency cash pools (Pools) with a third-party bank. Refer to the 2019 Form 10-K for additional information. 44 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited) Chubb Limited and Subsidiaries Condensed Consolidating Statements of Operations and Comprehensive Income (Loss) For the Three Months Ended September 30, 2020 Chubb Limited (Parent Guarantor) Chubb INA Holdings Inc. (Subsidiary Issuer) Other Chubb Limited Subsidiaries Consolidating Adjustments and Eliminations Chubb Limited Consolidated (in millions of U.S. dollars) Net premiums written $ — $ — $ 9,078 $ — $ 9,078 Net premiums earned — — 8,765 — 8,765 Net investment income — 1 839 — 840 Equity in earnings of subsidiaries 1,174 516 — ( 1,690 ) — Net realized gains (losses) 3 ( 192 ) 48 — ( 141 ) Losses and loss expenses — — 5,835 — 5,835 Policy benefits — — 198 — 198 Policy acquisition costs and administrative expenses 21 ( 33 ) 2,390 — 2,378 Interest (income) expense ( 34 ) 151 13 — 130 Other (income) expense ( 10 ) ( 2 ) ( 473 ) — ( 485 ) Amortization of purchased intangibles — — 72 — 72 Income tax expense (benefit) 6 ( 66 ) 202 — 142 Net income $ 1,194 $ 275 $ 1,415 $ ( 1,690 ) $ 1,194 Comprehensive income $ 1,952 $ 812 $ 2,180 $ ( 2,992 ) $ 1,952 Condensed Consolidating Statements of Operations and Comprehensive Income For the Three Months Ended September 30, 2019 Chubb Limited (Parent Guarantor) Chubb INA Holdings Inc. (Subsidiary Issuer) Other Chubb Limited Subsidiaries Consolidating Adjustments and Eliminations Chubb Limited Consolidated (in millions of U.S. dollars) Net premiums written $ — $ — $ 8,622 $ — $ 8,622 Net premiums earned — — 8,327 — 8,327 Net investment income 1 ( 3 ) 875 — 873 Equity in earnings of subsidiaries 1,053 824 — ( 1,877 ) — Net realized gains (losses) including OTTI ( 4 ) 68 ( 219 ) — ( 155 ) Losses and loss expenses — — 5,052 — 5,052 Policy benefits — — 158 — 158 Policy acquisition costs and administrative expenses 22 ( 5 ) 2,338 — 2,355 Interest (income) expense ( 59 ) 171 26 — 138 Other (income) expense ( 7 ) ( 3 ) ( 47 ) — ( 57 ) Amortization of purchased intangibles — — 76 — 76 Chubb integration expenses — — 2 — 2 Income tax expense (benefit) 3 ( 33 ) 260 — 230 Net income $ 1,091 $ 759 $ 1,118 $ ( 1,877 ) $ 1,091 Comprehensive income $ 1,473 $ 1,138 $ 1,517 $ ( 2,655 ) $ 1,473 45 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited) Chubb Limited and Subsidiaries Condensed Consolidating Statements of Operations and Comprehensive Income For the Nine Months Ended September 30, 2020 Chubb Limited (Parent Guarantor) Chubb INA Holdings Inc. (Subsidiary Issuer) Other Chubb Limited Subsidiaries Consolidating Adjustments and Eliminations Chubb Limited Consolidated (in millions of U.S. dollars) Net premiums written $ — $ — $ 25,410 $ — $ 25,410 Net premiums earned — — 24,687 — 24,687 Net investment income ( 2 ) 6 2,524 — 2,528 Equity in earnings of subsidiaries 1,064 838 — ( 1,902 ) — Net realized gains (losses) 5 ( 271 ) ( 803 ) — ( 1,069 ) Losses and loss expenses — — 16,897 — 16,897 Policy benefits — — 550 — 550 Policy acquisition costs and administrative expenses 66 ( 101 ) 7,089 — 7,054 Interest (income) expense ( 103 ) 448 45 — 390 Other (income) expense ( 27 ) 1 ( 346 ) — ( 372 ) Amortization of purchased intangibles — — 217 — 217 Income tax expense (benefit) 16 ( 125 ) 404 — 295 Net income $ 1,115 $ 350 $ 1,552 $ ( 1,902 ) $ 1,115 Comprehensive income $ 2,352 $ 1,484 $ 2,840 $ ( 4,324 ) $ 2,352 Condensed Consolidating Statements of Operations and Comprehensive Income For the Nine Months Ended September 30, 2019 Chubb Limited (Parent Guarantor) Chubb INA Holdings Inc. (Subsidiary Issuer) Other Chubb Limited Subsidiaries Consolidating Adjustments and Eliminations Chubb Limited Consolidated (in millions of U.S. dollars) Net premiums written $ — $ — $ 24,278 $ — $ 24,278 Net premiums earned — — 23,355 — 23,355 Net investment income 3 ( 13 ) 2,578 — 2,568 Equity in earnings of subsidiaries 3,147 2,345 — ( 5,492 ) — Net realized gains (losses) including OTTI 1 34 ( 510 ) — ( 475 ) Losses and loss expenses — — 13,865 — 13,865 Policy benefits — — 515 — 515 Policy acquisition costs and administrative expenses 64 ( 25 ) 6,792 — 6,831 Interest (income) expense ( 187 ) 536 69 — 418 Other (income) expense ( 19 ) 1 ( 308 ) — ( 326 ) Amortization of purchased intangibles — — 229 — 229 Chubb integration expenses — 2 7 — 9 Income tax expense (benefit) 12 ( 120 ) 734 — 626 Net income $ 3,281 $ 1,972 $ 3,520 $ ( 5,492 ) $ 3,281 Comprehensive income $ 6,250 $ 4,476 $ 6,486 $ ( 10,962 ) $ 6,250 46 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited) Chubb Limited and Subsidiaries Condensed Consolidating Statement of Cash Flows Nine Months Ended September 30, 2020 Chubb Limited (Parent Guarantor) Chubb INA Holdings Inc. (Subsidiary Issuer) Other Chubb Limited Subsidiaries Consolidating Adjustments and Eliminations Chubb Limited Consolidated (in millions of U.S. dollars) Net cash flows from (used for) operating activities $ 980 $ ( 363 ) $ 7,714 $ ( 1,090 ) $ 7,241 Cash flows from investing activities Purchases of fixed maturities available for sale — ( 38 ) ( 20,755 ) — ( 20,793 ) Purchases of fixed maturities held to maturity — — ( 42 ) — ( 42 ) Purchases of equity securities — — ( 3,622 ) — ( 3,622 ) Sales of fixed maturities available for sale — 9 9,528 — 9,537 Sales of equity securities — — 1,526 — 1,526 Maturities and redemptions of fixed maturities available for sale — 35 8,674 — 8,709 Maturities and redemptions of fixed maturities held to maturity — — 841 — 841 Net change in short-term investments — 256 ( 690 ) — ( 434 ) Net derivative instruments settlements — 66 ( 140 ) — ( 74 ) Private equity contributions — — ( 1,056 ) — ( 1,056 ) Private equity distributions — — 588 — 588 Net deposit paid on share acquisition — — ( 503 ) — ( 503 ) Payment for Huatai Group interest — — ( 1,054 ) — ( 1,054 ) Capital contribution ( 1,200 ) — — 1,200 — Other ( 2 ) ( 3 ) ( 347 ) — ( 352 ) Net cash flows from (used for) investing activities ( 1,202 ) 325 ( 7,052 ) 1,200 ( 6,729 ) Cash flows from financing activities Dividends paid on Common Shares ( 1,035 ) — — — ( 1,035 ) Common Shares repurchased ( 333 ) — — — ( 333 ) Proceeds from issuance of long-term debt — 988 — — 988 Proceeds from issuance of repurchase agreements — — 1,402 — 1,402 Repayment of repurchase agreements — — ( 1,402 ) — ( 1,402 ) Proceeds from share-based compensation plans — — 77 — 77 Dividend to parent company — — ( 1,090 ) 1,090 — Advances (to) from affiliates 1,621 ( 1,511 ) ( 110 ) — — Capital contribution — — 1,200 ( 1,200 ) — Net proceeds from (payments to) affiliated notional cash pooling programs (1) — 123 — ( 123 ) — Policyholder contract deposits — — 322 — 322 Policyholder contract withdrawals — — ( 253 ) — ( 253 ) Net cash flows from (used for) financing activities 253 ( 400 ) 146 ( 233 ) ( 234 ) Effect of foreign currency rate changes on cash and restricted cash ( 2 ) ( 4 ) ( 45 ) — ( 51 ) Net increase (decrease) in cash and restricted cash 29 ( 442 ) 763 ( 123 ) 227 Cash and restricted cash – beginning of period (1) 2 442 1,202 — 1,646 Cash and restricted cash – end of period (1) $ 31 $ — $ 1,965 $ ( 123 ) $ 1,873 (1) Chubb maintains two notional multicurrency cash pools (Pools) with a third-party bank. Various Chubb entities participate in one or the other of the Pools, pursuant to which credit and debit balances in individual Chubb accounts are translated daily into a single currency and pooled on a notional basis. Individual Chubb entities are permitted to overdraw on their individual accounts provided the overall Pool balances do not fall below zero. At September 30, 2020 and December 31, 2019, the cash balance of one or more entities was negative; however, the overall Pool balances were positive. 47 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited) Chubb Limited and Subsidiaries Condensed Consolidating Statement of Cash Flows Nine Months Ended September 30, 2019 Chubb Limited (Parent Guarantor) Chubb INA Holdings Inc. (Subsidiary Issuer) Other Chubb Limited Subsidiaries Consolidating Adjustments and Eliminations Chubb Limited Consolidated (in millions of U.S. dollars) Net cash flows from operating activities $ 421 $ 1,118 $ 5,234 $ ( 1,860 ) $ 4,913 Cash flows from investing activities Purchases of fixed maturities available for sale — ( 16 ) ( 19,762 ) — ( 19,778 ) Purchases of fixed maturities held to maturity — — ( 143 ) — ( 143 ) Purchases of equity securities — — ( 466 ) — ( 466 ) Sales of fixed maturities available for sale — 1 10,435 — 10,436 Sales of equity securities — — 577 — 577 Maturities and redemptions of fixed maturities available for sale — 18 6,372 — 6,390 Maturities and redemptions of fixed maturities held to maturity — — 814 — 814 Net change in short-term investments — ( 5 ) 207 — 202 Net derivative instruments settlements — ( 55 ) ( 592 ) — ( 647 ) Private equity contributions — — ( 1,093 ) — ( 1,093 ) Private equity distributions — — 973 — 973 Payment for Huatai Group interest — — ( 329 ) — ( 329 ) Capital contribution ( 1,000 ) ( 110 ) — 1,110 — Other — ( 10 ) ( 487 ) — ( 497 ) Net cash flows used for investing activities ( 1,000 ) ( 177 ) ( 3,494 ) 1,110 ( 3,561 ) Cash flows from financing activities Dividends paid on Common Shares ( 1,014 ) — — — ( 1,014 ) Common Shares repurchased — — ( 1,203 ) — ( 1,203 ) Proceeds from issuance of long-term debt — 1,286 — — 1,286 Repayment of long-term debt — ( 500 ) ( 1 ) — ( 501 ) Proceeds from issuance of repurchase agreements — — 2,394 — 2,394 Repayment of repurchase agreements — — ( 2,396 ) — ( 2,396 ) Proceeds from share-based compensation plans — — 155 — 155 Dividend to parent company — — ( 1,860 ) 1,860 — Advances (to) from affiliates 996 ( 1,715 ) 719 — — Capital contribution — — 1,110 ( 1,110 ) — Net proceeds from (payments to) affiliated notional cash pooling programs (1) 593 ( 15 ) — ( 578 ) — Policyholder contract deposits — — 376 — 376 Policyholder contract withdrawals — — ( 221 ) — ( 221 ) Net cash flows from (used for) financing activities 575 ( 944 ) ( 927 ) 172 ( 1,124 ) Effect of foreign currency rate changes on cash and restricted cash 5 1 15 — 21 Net increase (decrease) in cash and restricted cash 1 ( 2 ) 828 ( 578 ) 249 Cash and restricted cash – beginning of period (1) 1 2 1,989 ( 652 ) 1,340 Cash and restricted cash – end of period (1) $ 2 $ — $ 2,817 $ ( 1,230 ) $ 1,589 (1) Chubb maintains two notional multicurrency cash pools (Pools) with a third-party bank. Various Chubb entities participate in one or the other of the Pools, pursuant to which credit and debit balances in individual Chubb accounts are translated daily into a single currency and pooled on a notional basis. Individual Chubb entities are permitted to overdraw on their individual accounts provided the overall Pool balances do not fall below zero. At September 30, 2019 and December 31, 2018, the cash balance of one or more entities was negative; however, the overall Pool balances were positive. 48 Table of Contents