Chubb Ltd 10-Q

ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following is a discussion of our results of operations, financial condition, and liquidity and capital resources as of and for the three months ended March 31, 2021. All comparisons in this discussion are to the corresponding prior year period unless otherwise indicated. All dollar amounts are rounded. However, percent changes and ratios are calculated using whole dollars. Accordingly, calculations using rounded dollars may differ. Our results of operations and cash flows for any interim period are not necessarily indicative of our results for the full year. This discussion should be read in conjunction with our consolidated financial statements and related notes and our Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2020 (2020 Form 10-K). Other Information We routinely post important information for investors on our website (investors.chubb.com). We use this website as a means of disclosing material, non-public information and for complying with our disclosure obligations under Securities and Exchange Commission (SEC) Regulation FD (Fair Disclosure). Accordingly, investors should monitor the Investor Information portion of our website, in addition to following our press releases, SEC filings, public conference calls, and webcasts. The information contained on, or that may be accessed through, our website is not incorporated by reference into, and is not a part of, this report. MD&A Index Page Forward-Looking Statements 36 Overview 37 Financial Highlights 37 Consolidated Operating Results 38 Segment Operating Results 42 Net Realized and Unrealized Gains (Losses) 51 Effective Income Tax Rate 52 Non-GAAP Reconciliation 53 Other Income and Expense 56 Amortization of Purchased Intangibles and Other Amortization 56 Net Investment Income 58 Investments 58 Critical Accounting Estimates 62 Unpaid Losses and Loss Expenses 62 Asbestos and Environmental (A&E) 62 Fair Value Measurements 62 Catastrophe Management 63 Natural Catastrophe Property Reinsurance Program 64 Liquidity 65 Capital Resources 66 35 Table of Contents Forward-Looking Statements The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. Any written or oral statements made by us or on our behalf may include forward-looking statements that reflect our current views with respect to future events and financial performance. The words “believe,” “anticipate,” “estimate,” “project,” “should,” “plan,” “expect,” “intend,” “hope,” “feel,” “foresee,” “will likely result,” “will continue,” and variations thereof and similar expressions, identify forward-looking statements. These forward-looking statements are subject to certain risks, uncertainties, and other factors that could, should potential events occur, cause actual results to differ materially from such statements. These risks, uncertainties, and other factors, which are described in more detail elsewhere herein and in other documents we file with the U.S. Securities and Exchange Commission (SEC), include but are not limited to: • actual amount of new and renewal business, premium rates, underwriting margins, market acceptance of our products, and risks associated with the introduction of new products and services and entering new markets; the competitive environment in which we operate, including trends in pricing or in policy terms and conditions, which may differ from our projections and changes in market conditions that could render our business strategies ineffective or obsolete; • losses arising out of natural or man-made catastrophes; actual loss experience from insured or reinsured events and the timing of claim payments; the uncertainties of the loss-reserving and claims-settlement processes, including the difficulties associated with assessing environmental damage and asbestos-related latent injuries, the impact of aggregate-policy-coverage limits, the impact of bankruptcy protection sought by various asbestos producers and other related businesses, and the timing of loss payments; • infection rates and severity of COVID-19 and related risks, and their effects on our business operations and claims activity, and any adverse impact to our insureds, brokers, agents, and employees; actual claims may exceed our best estimate of ultimate insurance losses incurred through March 31, 2021 which could change including as a result of, among other things, the impact of legislative or regulatory actions taken in response to COVID-19; • changes in the distribution or placement of risks due to increased consolidation of insurance and reinsurance brokers; material differences between actual and expected assessments for guaranty funds and mandatory pooling arrangements; the ability to collect reinsurance recoverable, credit developments of reinsurers, and any delays with respect thereto and changes in the cost, quality, or availability of reinsurance; • uncertainties relating to governmental, legislative and regulatory policies, developments, actions, investigations, and treaties; judicial decisions and rulings, new theories of liability, legal tactics, and settlement terms; the effects of data privacy or cyber laws or regulation; global political conditions and possible business disruption or economic contraction that may result from such events; • developments in global financial markets, including changes in interest rates, stock markets, and other financial markets; increased government involvement or intervention in the financial services industry; the cost and availability of financing, and foreign currency exchange rate fluctuations; changing rates of inflation; and other general economic and business conditions, including the depth and duration of potential recession; • the availability of borrowings and letters of credit under our credit facilities; the adequacy of collateral supporting funded high deductible programs; the amount of dividends received from subsidiaries; • changes to our assessment as to whether it is more likely than not that we will be required to sell, or have the intent to sell, available for sale fixed maturity investments before their anticipated recovery; • actions that rating agencies may take from time to time, such as financial strength or credit ratings downgrades or placing these ratings on credit watch negative or the equivalent; • the effects of public company bankruptcies and accounting restatements, as well as disclosures by and investigations of public companies relating to possible accounting irregularities, and other corporate governance issues; • acquisitions made performing differently than expected, our failure to realize anticipated expense-related efficiencies or growth from acquisitions, the impact of acquisitions on our pre-existing organization, or announced acquisitions not closing; risks and uncertainties relating to our planned purchases of additional interests in Huatai Insurance Group Co., Ltd. (Huatai Group), including our ability to receive Chinese insurance regulatory approval and complete the purchases; • risks associated with being a Swiss corporation, including reduced flexibility with respect to certain aspects of capital management and the potential for additional regulatory burdens; share repurchase plans and share cancellations; • loss of the services of any of our executive officers without suitable replacements being recruited in a reasonable time frame; 36 Table of Contents • the ability of our technology resources, including information systems and security, to perform as anticipated such as with respect to preventing material information technology failures or third-party infiltrations or hacking resulting in consequences adverse to Chubb or its customers or partners; the ability of our company to increase use of data analytics and technology as part of our business strategy and adapt to new technologies; and • management’s response to these factors and actual events (including, but not limited to, those described above). You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. We undertake no obligation to publicly update or review any forward-looking statements, whether as a result of new information, future events or otherwise. Overview Chubb Limited is the Swiss-incorporated holding company of the Chubb Group of Companies. Chubb Limited, which is headquartered in Zurich, Switzerland, and its direct and indirect subsidiaries (collectively, the Chubb Group of Companies, Chubb, we, us, or our) are a global insurance and reinsurance organization, serving the needs of a diverse group of clients worldwide. At March 31, 2021, we had total assets of $192 billion and shareholders’ equity of $59 billion. Chubb was incorporated in 1985 at which time it opened its first business office in Bermuda and continues to maintain operations in Bermuda. We operate 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. For more information on our segments refer to “Segment Information” under Item 1 in our 2020 Form 10-K. Financial Highlights for the Three Months Ended March 31, 2021 • Net income was $2.3 billion compared with $252 million in the prior year period. • Total P&C pre-tax and after-tax catastrophe losses were $700 million (9.1 percentage points of the combined ratio) and $570 million, respectively, compared with $237 million (3.3 percentage points of the combined ratio) and $199 million, respectively, in the prior year period. The current quarter included $657 million of winter storm losses in the U.S. • Total pre-tax and after-tax favorable prior period development were $192 million (2.5 percentage points of the combined ratio) and $156 million, respectively, compared with $118 million (1.7 percentage points of the combined ratio) and $94 million, respectively, in the prior year period. • The P&C combined ratio was 91.8 percent compared with 89.1 percent in the prior year period. P&C current accident year combined ratio excluding catastrophe losses was 85.2 percent compared with 87.5 percent in the prior year period. • Consolidated net premiums written were $8.7 billion, up 8.6 percent, or 7.0 percent in constant dollars. P&C net premiums written were $8.0 billion, up 9.7 percent, or up 8.1 percent in constant dollars, comprising 15.6 percent positive growth in commercial P&C lines and 2.5 percent negative growth in consumer lines. • Consolidated net premiums earned were $8.2 billion, up 5.5 percent, or 4.2 percent in constant dollars. P&C net premiums earned increased 6.5 percent, comprising positive growth of 11.3 percent in commercial P&C lines and negative growth of 2.8 percent in consumer lines. • Operating cash flow was $2,105 million compared with $1,712 million in the prior year period. Refer to the Liquidity section for additional information on our cash flows. • Net investment income was $863 million compared with $861 million in the prior year period. • Share repurchases totaled $519 million during the quarter at an average purchase price of $166.75 per share. 37 Table of Contents Consolidated Operating Results – Three Months Ended March 31, 2021 and 2020 Three Months Ended March 31 % Change (in millions of U.S. dollars, except for percentages) 2021 2020 Q-21 vs. Q-20 Net premiums written $ 8,662 $ 7,977 8.6 % Net premiums written - constant dollars (1) 7.0 % Net premiums earned 8,221 7,794 5.5 % Net investment income 863 861 0.2 % Net realized gains (losses) 887 (958) NM Total revenues 9,971 7,697 29.5 % Losses and loss expenses 5,053 4,485 12.7 % Policy benefits 167 129 29.3 % Policy acquisition costs 1,665 1,615 3.1 % Administrative expenses 744 741 0.4 % Interest expense 122 132 (7.6) % Other (income) expense (490) 55 NM Amortization of purchased intangibles 72 73 (1.4) % Total expenses 7,333 7,230 1.4 % Income before income tax 2,638 467 NM Income tax expense 338 215 57.0 % Net income $ 2,300 $ 252 NM NM – not meaningful (1) On a constant-dollar basis. Amounts are calculated by translating prior period results using the same local currency exchange rates as the comparable current period. 38 Table of Contents Net Premiums Written Three Months Ended March 31 % Change (in millions of U.S. dollars, except for percentages) 2021 2020 Q-21 vs. Q-20 C$ Q-21 vs. Q-20 Commercial casualty $ 1,649 $ 1,341 23.0 % 21.4 % Workers' compensation 563 586 (4.0) % (4.0) % Professional liability 1,090 912 19.6 % 17.4 % Surety 158 150 5.5 % 7.8 % Commercial multiple peril (1) 263 241 9.4 % 9.4 % Property and other short-tail lines 1,594 1,334 19.5 % 16.1 % Total Commercial P&C lines 5,317 4,564 16.5 % 14.8 % Agriculture 183 157 16.5 % 16.5 % Personal automobile 387 441 (12.4) % (10.6) % Personal homeowners 775 773 0.3 % (0.1) % Personal other 468 418 11.9 % 8.1 % Total Personal lines 1,630 1,632 (0.1) % (0.7) % Total Property and Casualty lines 7,130 6,353 12.2 % 10.9 % Global A&H lines (2) 982 1,067 (8.0) % (10.4) % Reinsurance lines 207 218 (5.1) % (6.2) % Life 343 339 1.3 % (0.1) % Total consolidated $ 8,662 $ 7,977 8.6 % 7.0 % (1) Commercial multiple peril represents retail package business (property and general liability). (2) For purposes of this schedule only, A&H results from our Combined North America and International businesses, normally included in the Life Insurance and Overseas General Insurance segments, respectively, as well as the A&H results of our North America Commercial P&C segment, are included in Global A&H lines above. The increase in net premiums written for the three months ended March 31, 2021 reflects growth across most lines of business, partially offset by the adverse impact of the economic contraction resulting from the COVID-19 pandemic. • The growth in commercial casualty was due to new business and positive rate increases across all regions. • Workers' compensation experienced lower renewal business in North America reflecting reduced exposures primarily from the COVID-19 pandemic. • The increase in professional liability was due to new business and positive rate increases primarily in North America and Europe. • Commercial multiple peril increased due to higher renewal business and positive rate increases in North America. • Property and other short-tail lines increased due to positive rate increases in Asia, North America and Europe, as well as new business in North America and Europe. • Personal lines was unfavorably impacted by a decline in automobile lines in North America and Latin America reflecting reduced exposures from the impact of the COVID-19 pandemic and in homeowners lines from reinstatement premiums related to the 2021 winter storm losses in the U.S. Excluding the reinstatement premiums, personal lines increased globally reflecting strong renewal retention in homeowners and recreational marine lines, primarily in the U.S., and in specialty lines, primarily outside the U.S. • Global A&H lines decreased due to declines in Asia and Latin America, principally from less travel volume due to the COVID-19 pandemic, and in our North American Combined Insurance supplemental A&H program. • Life insurance reflects growth in our international life operations, principally from new business written in Taiwan, Vietnam and Chile, which was offset by the Chubb Life Re business that has no new business written. For additional information on net premiums written, refer to the segment results discussions. 39 Table of Contents Net Premiums Earned Net premiums earned for short-duration contracts, typically P&C contracts, generally reflect the portion of net premiums written that was recorded as revenues for the period as the exposure periods expire. Net premiums earned for long-duration contracts, typically traditional life contracts, generally are recognized as earned when due from policyholders. For the three months ended March 31, 2021, net premiums earned increased $427 million, or $330 million on a constant-dollar basis, comprising 10.1 percent positive growth in commercial P&C lines and 4.7 percent negative growth in consumer lines on a constant-dollar basis. Catastrophe Losses and Prior Period Development We generally define catastrophe loss events consistent with the definition of the Property Claims Service (PCS) for events in the U.S. and Canada. PCS defines a catastrophe as an event that causes damage of $25 million or more in insured losses and affects a significant number of insureds. For events outside of the U.S. and Canada, we generally use a similar definition. We also define losses from certain pandemics, such as COVID-19, as a catastrophe loss. Prior period development includes adjustments relating to either profit commission reserves or policyholder dividend reserves based on actual claim experience that develops after the policy period ends. The expense adjustments correlate to the prior period loss development on these same policies. Refer to the Non-GAAP Reconciliation section for further information on reinstatement premiums on catastrophe losses and adjustments to prior period development. Three Months Ended March 31 (in millions of U.S. dollars) 2021 2020 Catastrophe losses $ 700 $ 237 Favorable prior period development $ 192 $ 118 Catastrophe losses through March 31, 2021 and 2020 were primarily from the following events: • 2021: Winter storm losses in the U.S. and other severe weather-related events in the U.S. and internationally. • 2020: Global weather-related events of $224 million (including Tornado in Nashville, Tennessee and other severe weather-related events in the U.S., storms in Australia, Australia wildfires, and other international weather-related events); and COVID-19 pandemic claims of $13 million. 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. Pre-tax net favorable PPD for the three months ended March 31, 2021 was $192 million, with 19 percent in long-tail lines, principally from accident years 2017 and prior, and 81 percent in short-tail lines, primarily in accident and health, surety, and homeowners lines. Pre-tax net favorable PPD for the three months ended March 31, 2020 was $118 million, with 28 percent in long-tail lines, principally from accident years 2016 and prior, and 72 percent in short-tail lines. Favorable development for the three months ended March 31, 2020 included a $14 million benefit from crop insurance. Refer to the prior period development discussion in Footnote 6 to the Consolidated Financial Statements for additional information. 40 Table of Contents P&C Combined Ratio In evaluating our segments excluding Life Insurance financial performance, we use the P&C combined ratio. We calculate this ratio by dividing the respective expense amounts by net premiums earned. We do not calculate this ratio for the Life Insurance segment as we do not use this measure to monitor or manage that segment. A P&C combined ratio under 100 percent indicates underwriting income, and a combined ratio exceeding 100 percent indicates underwriting loss. Three Months Ended March 31 2021 2020 Loss and loss expense ratio CAY loss ratio excluding catastrophe losses 57.2 % 58.2 % Catastrophe losses 9.1 % 3.3 % Prior period development (2.6) % (1.7) % Loss and loss expense ratio 63.7 % 59.8 % Policy acquisition cost ratio 19.5 % 20.0 % Administrative expense ratio 8.6 % 9.3 % P&C Combined ratio 91.8 % 89.1 % The loss and loss expense ratio increased 3.9 percentage points for the three months ended March 31, 2021 due to higher catastrophe losses, partially offset by higher favorable prior period development. The CAY loss ratio excluding catastrophe losses decreased 1.0 percentage point for the three months ended March 31, 2021 due to margin improvements coming from earned rate exceeding loss cost trends. The policy acquisition cost ratio decreased 0.5 percentage points for the three months ended March 31, 2021 primarily due to a change in the mix of business, including less premiums earned from consumer A&H lines that have a higher acquisition cost ratio and higher premiums earned from commercial P&C lines that have a lower acquisition cost ratio. The administrative expense ratio decreased 0.7 percentage points for the three months ended March 31, 2021 primarily due to lower expenses during the COVID-19 pandemic, reduced pension obligations reflecting favorable market conditions, and the favorable impact of higher net premiums earned. Policy benefits Policy benefits represent losses on contracts classified as long-duration and generally include accident and supplemental health products, term and whole life products, endowment products, and annuities. Refer to the Life Insurance segment operating results section for further discussion. For the three months ended March 31, 2021 and 2020, Policy benefits were $167 million and $129 million, respectively, which included separate account liabilities (gains) losses of $4 million and $(56) million, respectively. The offsetting movements of these liabilities are recorded in Other (income) expense on the Consolidated statements of operations. Excluding the separate account gains and losses, Policy benefits were $163 million and $185 million for the three months ended March 31, 2021 and 2020, respectively, reflecting a decline in our North America Combined Insurance and Chubb Life Re business, partially offset by growth in International Life operations. Refer to the respective sections that follow for a discussion of Net investment income, Other (income) expense, Net realized gains (losses), Amortization of purchased intangibles, and Income tax expense. 41 Table of Contents Segment Operating Results – Three Months Ended March 31, 2021 and 2020 We operate 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. For more information on our segments refer to “Segment Information” under Item 1 in our 2020 Form 10-K. North America Commercial P&C Insurance The North America Commercial P&C Insurance segment comprises operations that provide property and casualty (P&C) and accident & health (A&H) insurance and services to large, middle market, and small commercial businesses in the U.S., Canada, and Bermuda. This segment includes our North America Major Accounts and Specialty Insurance division (large corporate accounts and wholesale business), and the North America Commercial Insurance division (principally middle market and small commercial accounts). Three Months Ended March 31 % Change (in millions of U.S. dollars, except for percentages) 2021 2020 Q-21 vs. Q-20 Net premiums written $ 3,664 $ 3,252 12.7 % Net premiums earned 3,674 3,376 8.8 % Losses and loss expenses 2,560 2,181 17.4 % Policy acquisition costs 514 492 4.4 % Administrative expenses 254 259 (1.5) % Underwriting income 346 444 (22.1) % Net investment income 540 525 2.9 % Other (income) expense 2 6 (52.2) % Segment income $ 884 $ 963 (8.3) % Loss and loss expense ratio: CAY loss ratio excluding catastrophe losses 63.4 % 64.2 % (0.8) pts Catastrophe losses 9.9 % 3.5 % 6.4 pts Prior period development (3.6) % (3.1) % (0.5) pts Loss and loss expense ratio 69.7 % 64.6 % 5.1 pts Policy acquisition cost ratio 14.0 % 14.6 % (0.6) pts Administrative expense ratio 6.9 % 7.6 % (0.7) pts Combined ratio 90.6 % 86.8 % 3.8 pts 42 Table of Contents Catastrophe Losses and Prior Period Development Three Months Ended March 31 (in millions of U.S. dollars) 2021 2020 Catastrophe losses $ 362 $ 118 Favorable prior period development $ 127 $ 105 Catastrophe losses through March 31, 2021 and 2020 were primarily from the following events: • 2021: Winter storm losses and other severe weather-related events in the U.S. • 2020: Nashville, Tennessee tornado and other severe weather-related events in the U.S. Refer to the prior period development discussion in Note 6 to the Consolidated Financial Statements for additional information. Premiums Net premiums written increased $412 million, or 12.7 percent, for the three months ended March 31, 2021 comprising positive growth of 14.7 percent in commercial P&C lines and negative growth of 18.5 percent in consumer lines. The growth in commercial P&C lines reflects positive rate increases, net of exposure declines, and growth in new business written across a number of retail and wholesale lines, including financial lines, property, excess casualty, and large risk casualty. This was partially offset by lower new business and exposure declines in A&H, impacting our consumer lines. Net premiums earned increased $298 million, or 8.8 percent, for the three months ended March 31, 2021, reflecting the growth in net premiums written described above. Combined Ratio The loss and loss expense ratio increased 5.1 percentage points for the three months ended March 31, 2021, primarily due to higher catastrophe losses, partially offset by higher favorable prior period development. The CAY loss ratio excluding catastrophe losses decreased 0.8 percentage points for the three months ended March 31, 2021 primarily due to margin improvements coming from earned rate exceeding loss cost trends. The policy acquisition cost ratio decreased 0.6 percentage points for the three months ended March 31, 2021 primarily due to a change in mix of business towards lines that have a lower acquisition cost ratio. The administrative expense ratio decreased 0.7 percentage points for the three months ended March 31, 2021, primarily due to continued expense management and the shutdown associated with the COVID-19 pandemic, as well as reduced pension obligations reflecting favorable market conditions. 43 Table of Contents North America Personal P&C Insurance The North America Personal P&C Insurance segment comprises operations that provide high net worth personal lines products, including homeowners and complementary products such as valuable articles, excess liability, automobile, and recreational marine insurance and services in the U.S. and Canada. Three Months Ended March 31 % Change (in millions of U.S. dollars, except for percentages) 2021 2020 Q-21 vs. Q-20 Net premiums written $ 1,098 $ 1,107 (0.8) % Net premiums earned 1,184 1,200 (1.3) % Losses and loss expenses 819 683 19.8 % Policy acquisition costs 247 245 1.0 % Administrative expenses 60 68 (12.0) % Underwriting income 58 204 (71.6) % Net investment income 65 66 (2.4) % Other (income) expense 1 2 (49.4) % Amortization of purchased intangibles 3 3 — Segment income $ 119 $ 265 (55.2) % Loss and loss expense ratio: CAY loss ratio excluding catastrophe losses 53.2 % 55.1 % (1.9) pts Catastrophe losses 19.3 % 1.8 % 17.5 pts Prior period development (3.3) % 0.1 % (3.4) pts Loss and loss expense ratio 69.2 % 57.0 % 12.2 pts Policy acquisition cost ratio 20.9 % 20.4 % 0.5 pts Administrative expense ratio 5.0 % 5.6 % (0.6) pts Combined ratio 95.1 % 83.0 % 12.1 pts Catastrophe Losses and Prior Period Development Three Months Ended March 31 (in millions of U.S. dollars) 2021 2020 Catastrophe losses $ 240 $ 21 Favorable (unfavorable) prior period development $ 40 $ (1) Catastrophe losses through March 31, 2021 were primarily from winter storm losses and other severe weather-related events in the U.S. Refer to the prior period development discussion in Note 6 to the Consolidated Financial Statements for additional information. Premiums Net premiums written decreased $9 million, or 0.8 percent, for the three months ended March 31, 2021, primarily due to the unfavorable impact of reinstatement premiums of $23 million related to 2021 winter storm losses and automobile return premiums as mandated by certain states due to the slowdown in miles driven as a result of the COVID-19 pandemic. This decrease was partially offset by strong renewal retention, principally in homeowners and recreational marine lines. Net premiums earned decreased $16 million, or 1.3 percent, for the three months ended March 31, 2021, reflecting the decline in net premiums written described above. 44 Table of Contents Combined Ratio The loss and loss expense ratio increased 12.2 percentage points for the three months ended March 31, 2021, primarily due to higher catastrophe losses, partially offset by favorable prior period development. The CAY loss ratio excluding catastrophe losses decreased 1.9 percentage points reflecting a favorable year-over-year loss ratio improvement in automobile, due to lower claim frequency, and in homeowners as earned rate exceeded loss cost trends. The policy acquisition cost ratio increased 0.5 percentage points for the three months ended March 31, 2021, primarily due to the unfavorable impact of reinstatement premiums on net premiums earned. The administrative expense ratio decreased 0.6 percentage points for the three months ended March 31, 2021, primarily due to continued expense management and the shutdown associated with the COVID-19 pandemic, as well as reduced pension obligations reflecting favorable market conditions. North America Agricultural Insurance The North America Agricultural Insurance segment comprises our North American based businesses that provide a variety of coverages in the U.S. and Canada including crop insurance, primarily Multiple Peril Crop Insurance (MPCI) and crop-hail through Rain and Hail Insurance Service, Inc. (Rain and Hail) as well as farm and ranch and specialty P&C commercial insurance products and services through our Chubb Agribusiness unit. Three Months Ended March 31 % Change (in millions of U.S. dollars, except for percentages) 2021 2020 Q-21 vs. Q-20 Net premiums written $ 183 $ 157 16.5 % Net premiums earned 110 94 16.7 % Losses and loss expenses 85 65 30.0 % Policy acquisition costs 12 11 12.4 % Administrative expenses 3 4 (23.8) % Underwriting income 10 14 (30.2) % Net investment income 7 9 (18.5) % Amortization of purchased intangibles 7 7 — Segment income $ 10 $ 16 (36.0) % Loss and loss expense ratio: CAY loss ratio excluding catastrophe losses 71.2 % 76.2 % (5.0) pts Catastrophe losses 7.4 % 8.9 % (1.5) pts Prior period development (1.1) % (15.5) % 14.4 pts Loss and loss expense ratio 77.5 % 69.6 % 7.9 pts Policy acquisition cost ratio 10.7 % 11.1 % (0.4) pts Administrative expense ratio 2.7 % 4.1 % (1.4) pts Combined ratio 90.9 % 84.8 % 6.1 pts 45 Table of Contents Catastrophe Losses and Prior Period Development Three Months Ended March 31 (in millions of U.S. dollars) 2021 2020 Catastrophe losses $ 8 $ 8 Favorable prior period development $ 2 $ 14 Catastrophe losses through March 31, 2021 and 2020 were primarily from severe weather-related events in the U.S. in Chubb Agribusiness. Refer to the prior period development discussion in Note 6 to the Consolidated Financial Statements for additional information. For the three months ended March 31, 2021, net favorable prior period development comprised a $2 million increase in net premiums earned related to the MPCI profit and loss calculation formula. For the three months ended March 31, 2020, net favorable prior period development was $14 million which included $17 million of favorable incurred losses due to lower than expected MPCI losses for the 2019 crop year, partially offset by a $3 million decrease in net premiums earned related to the MPCI profit and loss calculation formula. Premiums Net premiums written increased $26 million, or 16.5 percent, for the three months ended March 31, 2021, due to policy count growth and higher commodity prices in our MPCI business, and strong new business growth in Chubb Agribusiness. Net premiums earned increased $16 million, or 16.7 percent, for the three months ended March 31, 2021, reflecting the growth in net premiums written described above. Combined Ratio The loss and loss expense ratio increased 7.9 percentage points for the three months ended March 31, 2021, primarily due to lower favorable prior period development. The CAY loss ratio excluding catastrophe losses decreased 5.0 percentage points due to higher premiums earned from Chubb Agribusiness, which has a lower loss ratio, the favorable year-over-year impact of our crop derivatives, and lower underlying losses in Chubb Agribusiness. The policy acquisition cost ratio decreased 0.4 percentage points for the three months ended March 31, 2021, primarily due to the favorable impact of higher net premiums earned. The administrative expense ratio decreased 1.4 percentage points for the three months ended March 31, 2021, primarily due to continued expense management and the shutdown associated with the COVID-19 pandemic and the favorable impact of higher net premiums earned. 46 Table of Contents Overseas General Insurance Overseas General Insurance segment comprises Chubb International and Chubb Global Markets (CGM). Chubb International comprises our international commercial P&C traditional and specialty lines serving large corporations, middle market and small customers; A&H and traditional and specialty personal lines business serving local territories outside the U.S., Bermuda, and Canada. CGM, our London-based international commercial P&C excess and surplus lines business, includes Lloyd's of London (Lloyd's) Syndicate 2488. Chubb provides funds at Lloyd's to support underwriting by Syndicate 2488 which is managed by Chubb Underwriting Agencies Limited. Three Months Ended March 31 % Change (in millions of U.S. dollars, except for percentages) 2021 2020 Q-21 vs. Q-20 Net premiums written $ 2,890 $ 2,598 11.2 % Net premiums written - constant dollars 7.1 % Net premiums earned 2,478 2,307 7.4 % Losses and loss expenses 1,263 1,258 0.4 % Policy acquisition costs 668 642 4.1 % Administrative expenses 266 258 3.0 % Underwriting income 281 149 88.3 % Net investment income 141 145 (2.6) % Other (income) expense 1 4 (78.8) % Amortization of purchased intangibles 12 12 — Segment income $ 409 $ 278 47.0 % Loss and loss expense ratio: CAY loss ratio excluding catastrophe losses 49.9 % 50.8 % (0.9) pts Catastrophe losses 2.1 % 3.8 % (1.7) pts Prior period development (1.0) % (0.1) % (0.9) pts Loss and loss expense ratio 51.0 % 54.5 % (3.5) pts Policy acquisition cost ratio 27.0 % 27.8 % (0.8) pts Administrative expense ratio 10.7 % 11.2 % (0.5) pts Combined ratio 88.7 % 93.5 % (4.8) pts Catastrophe Losses and Prior Period Development Three Months Ended March 31 (in millions of U.S. dollars) 2021 2020 Catastrophe losses $ 50 $ 90 Favorable prior period development $ 25 $ 4 Catastrophe losses through March 31, 2021 and 2020 were primarily from the following events: • 2021: Winter storm losses in the U.S. and International weather-related events • 2020: Storms in Australia, Australia wildfires, and other international weather-related events; and COVID-19 pandemic claims of $13 million. Refer to the prior period development discussion in Note 6 to the Consolidated Financial Statements for additional information. 47 Table of Contents Net Premiums Written by Region Three months ended March 31 (in millions of U.S. dollars, except for percentages) 2021 2021 % of Total 2020 2020 % of Total C$ 2020 Q-21 vs. Q-20 C$ Q-21 vs. Q-20 Region Europe $ 1,516 52 % $ 1,228 47 % $ 1,313 23.4 % 15.4 % Latin America 537 19 % 583 22 % 557 (8.0) % (3.7) % Asia 761 26 % 688 27 % 727 10.6 % 4.6 % Other (1) 76 3 % 99 4 % 100 (22.5) % (23.2) % Net premiums written $ 2,890 100 % $ 2,598 100 % $ 2,697 11.2 % 7.1 % (1) Comprises Combined International, Eurasia and Africa region, and other international. Premiums Net premiums written increased $292 million, or $193 million on a constant-dollar basis, for the three months ended March 31, 2021, reflecting growth in commercial P&C lines of 15.2 percent, primarily in Europe and Asia, most notably in casualty, resulting from new business and positive rate increases. Net premiums written also reflected a decline in consumer lines of 4.2 percent, primarily automobile in Latin America, and A&H in Asia, resulting from less travel volume and lower exposures, partially offset by personal lines growth in Europe, principally in specialty personal lines. Net premiums earned increased $171 million, or $89 million on a constant-dollar basis, for the three months ended March 31, 2021, reflecting the increase in net premiums written described above. Combined Ratio The loss and loss expense ratio decreased 3.5 percentage points for the three months ended March 31, 2021, primarily due to lower catastrophe losses and higher favorable prior period development. The CAY loss ratio excluding catastrophe losses decreased 0.9 percentage points primarily due to margin improvements coming from earned rates exceeding loss cost trends and a benefit from lower current accident year losses resulting from a decrease in exposures due to the COVID-19 pandemic. The decrease was partially offset by lower premiums earned from A&H lines which have a lower loss ratio. The policy acquisition cost ratio decreased 0.8 percentage points for the three months ended March 31, 2021, primarily due to a change in the mix of business, including less premiums earned from consumer A&H lines that have a higher acquisition cost ratio and higher premiums earned from commercial P&C lines that have a lower acquisition cost ratio . The administrative expense ratio decreased 0.5 percentage points for the three months ended March 31, 2021, primarily due to the favorable impact of higher net premiums earned. 48 Table of Contents Global Reinsurance The Global Reinsurance segment represents our reinsurance operations comprising Chubb Tempest Re Bermuda, Chubb Tempest Re USA, Chubb Tempest Re International, and Chubb Tempest Re Canada. Global Reinsurance markets its reinsurance products worldwide primarily through reinsurance brokers under the Chubb Tempest Re brand name and provides a broad range of traditional and non-traditional reinsurance coverage to a diverse array of primary P&C companies. Three Months Ended March 31 % Change (in millions of U.S. dollars, except for percentages) 2021 2020 Q-21 vs. Q-20 Net premiums written $ 207 $ 218 (5.1) % Net premiums written - constant dollars (6.2) % Net premiums earned 180 186 (3.3) % Losses and loss expenses 120 87 39.2 % Policy acquisition costs 45 45 — Administrative expenses 8 10 (14.8) % Underwriting income 7 44 (85.3) % Net investment income 70 69 2.0 % Segment income $ 77 $ 113 (32.2) % Loss and loss expense ratio: CAY loss ratio excluding catastrophe losses 48.3 % 50.4 % (2.1) pts Catastrophe losses 23.8 % — 23.8 pts Prior period development (5.2) % (3.9) % (1.3) pts Loss and loss expense ratio 66.9 % 46.5 % 20.4 pts Policy acquisition cost ratio 24.9 % 24.5 % 0.4 pts Administrative expense ratio 4.6 % 5.1 % (0.5) pts Combined ratio 96.4 % 76.1 % 20.3 pts Catastrophe Losses and Prior Period Development Three Months Ended March 31 (in millions of U.S dollars) 2021 2020 Catastrophe losses $ 40 $ — Favorable prior period development $ 7 $ 7 Catastrophe losses through March 31, 2021 were primarily from winter storm losses in the U.S. Refer to the prior period development discussion in Note 6 to the Consolidated Financial Statements for additional information. Premiums More new business was written in the three months ended March 31, 2021 compared to the prior year. However, net premiums written decreased $11 million for the three months ended March 31, 2021, mainly from timing of premium recognition associated with a change in the mix of business. Some treaties written in the prior year, for which premiums were recognized at the effective date, were not renewed and were offset by new business, for which premiums are recognized over the treaty term. For the three months ended March 31, 2021, net premiums earned decreased $6 million, reflecting the change in mix of business and the timing of premium recognition, as described above. 49 Table of Contents Combined Ratio The loss and loss expense ratio increased 20.4 percentage points for the three months ended March 31, 2021, primarily due to higher catastrophe losses. The CAY loss ratio excluding catastrophe losses decreased by 2.1 percentage points primarily from a shift in mix of business towards lines which have a lower loss ratio. The policy acquisition cost ratio increased 0.4 percentage points for the three months ended March 31, 2021, primarily due to higher commissions paid on proportional business. The administrative expense ratio decreased 0.5 percentage points for the three months ended March 31, 2021, primarily due to lower employee benefit-related expenses. Life Insurance The Life Insurance segment comprises Chubb's international life operations, Chubb Tempest Life Re (Chubb Life Re), and the North American supplemental A&H and life business of Combined Insurance. We assess the performance of our life business based on Life Insurance underwriting income, which includes Net investment income and (Gains) losses from fair value changes in separate account assets that do not qualify for separate account reporting under GAAP. Three Months Ended March 31 % Change (in millions of U.S. dollars, except for percentages) 2021 2020 Q-21 vs. Q-20 Net premiums written $ 620 $ 645 (3.8) % Net premiums written - constant dollars (4.7) % Net premiums earned 595 631 (5.7) % Losses and loss expenses 198 202 (1.7) % Policy benefits 163 185 (12.3) % Policy acquisition costs 179 180 (0.5) % Administrative expenses 82 76 7.7 % Net investment income 98 95 3.3 % Life Insurance underwriting income 71 83 (14.3) % Other (income) expense (34) (12) 190.3 % Amortization of purchased intangibles 1 1 — Segment income $ 104 $ 94 11.2 % Premiums Net premiums written decreased $25 million, or $31 million on a constant-dollar basis for the three months ended March 31, 2021. This decrease reflects the adverse impact of the COVID-19 pandemic on our North America Combined Insurance business of 9.4 percent, and a decline in our Chubb Life Re business which continues to decline as no new life reinsurance business is currently being written. These decreases were partially offset by growth in our International Life operations of 9.8 percent, principally in Asia, from new business in Taiwan and Vietnam, and Chile. Deposits The following table presents deposits collected on universal life and investment contracts: Three Months Ended March 31 % Change (in millions of U.S. dollars, except for percentages) 2021 2020 C$ 2020 Q-21 vs. Q-20 C$ Q-21 vs. Q-20 Deposits collected on Universal life and investment contracts $ 551 $ 443 $ 470 24.4 % 17.3 % 50 Table of Contents Deposits collected on universal life and investment contracts (life deposits) are not reflected as revenues in our Consolidated statements of operations in accordance with GAAP. New life deposits are an important component of production, and although they do not significantly affect current period income from operations, they are key to our efforts to grow our business. Life deposits collected increased $108 million for the three months ended March 31, 2021, primarily due to growth in Taiwan. Life Insurance underwriting income and Segment income Life Insurance underwriting income decreased $12 million for the three months ended March 31, 2021, primarily due to a one-time employee related benefit of $7 million in the prior year. Segment income increased $10 million for the three months ended March 31, 2021, as the decline in life insurance underwriting income was offset by higher other income, principally due to our share of net income from our investment in Huatai, our partially-owned insurance entity in China. Corporate Corporate results primarily include the results of our non-insurance companies, income and expenses not attributable to reportable segments and loss and loss expenses of asbestos and environmental (A&E) liabilities and certain other non-A&E run-off exposures. Three Months Ended March 31 % Change (in millions of U.S. dollars, except for percentages) 2021 2020 Q-21 vs. Q-20 Losses and loss expenses $ 9 $ 11 (22.9) % Administrative expenses 71 66 5.2 % Underwriting loss 80 77 1.2 % Net investment income (loss) (17) (24) (25.9) % Interest expense 122 132 (7.6) % Net realized gains (losses) 888 (956) NM Other (income) expense (415) 23 NM Amortization of purchased intangibles 49 50 (3.0) % Income tax expense 338 215 57.0 % Net income (loss) $ 697 $ (1,477) NM NM - not meaningful Administrative expenses increased $5 million for the three months ended March 31, 2021, primarily due to increased spending to support digital growth initiatives. Refer to the respective sections that follow for a discussion of Net realized gains (losses), Net investment income, Other (income) expense, Amortization of purchased intangibles, and Income tax expense. Net Realized and Unrealized Gains (Losses) We take a long-term view with our investment strategy, and our investment managers manage our investment portfolio to maximize total return within certain specific guidelines designed to minimize risk. The majority of our investment portfolio is available for sale and reported at fair value. Our held to maturity investment portfolio is reported at amortized cost, net of valuation allowance. The effect of market movements on our fixed maturities portfolio impacts Net income (through Net realized gains (losses)) when securities are sold, when we write down an asset, or when we record a change to the valuation allowance for expected credit losses. For a further discussion related to how we assess the valuation allowance for expected credit losses and the related impact on Net income, refer to Note 1 e) to the Consolidated Financial Statements in our 2020 Form 10-K. Additionally, Net income is impacted through the reporting of changes in the fair value of equity securities, private equity funds where we own less than three percent, and derivatives, including financial futures, options, swaps, and GLB reinsurance. Changes in unrealized appreciation and depreciation on available for sale securities, resulting from the revaluation of securities held, changes in 51 Table of Contents cumulative foreign currency translation adjustment, and unrealized postretirement benefit obligations liability adjustment, are reported as separate components of Accumulated other comprehensive income in Shareholders’ equity in the Consolidated balance sheets. The following table presents our net realized and unrealized gains (losses): Three Months Ended March 31 2021 2020 (in millions of U.S. dollars) Net Realized Gains (Losses) Net Unrealized Gains (Losses) Net Impact Net Realized Gains (Losses) Net Unrealized Gains (Losses) Net Impact Fixed maturities $ 24 $ (2,317) $ (2,293) $ (319) $ (2,160) $ (2,479) Fixed income and equity derivatives 109 — 109 15 — 15 Public equity Sales 45 — 45 (24) — (24) Mark-to-market 322 — 322 (5) — (5) Private equity (less than 3 percent ownership) Mark-to-market 38 — 38 5 — 5 Total investment portfolio 538 (2,317) (1,779) (328) (2,160) (2,488) Variable annuity reinsurance derivative transactions, net of applicable hedges 275 — 275 (560) — (560) Other derivatives (1) — (1) (2) — (2) Foreign exchange 76 22 98 (68) (859) (927) Other (1) (28) (29) — (14) (14) Net gains (losses), pre-tax $ 887 $ (2,323) $ (1,436) $ (958) $ (3,033) $ (3,991) The $1,779 million loss in our investment portfolio was principally a result of a rise in fixed income yields during the quarter, partially offset by positive global equity returns. The variable annuity reinsurance derivative transactions consist of changes in the fair value of GLB liabilities and gain or losses on other derivative instruments we maintain that decrease in fair value when the S&P 500 index increases. The variable annuity reinsurance derivative transactions resulted in realized gains of $275 million for the three months ended March 31, 2021, reflecting a net decrease in the fair value of the GLB liabilities of $319 million due to higher interest rates and higher global equity markets, partially offset by a net realized loss of $44 million related to these other derivatives. For the three months ended March 31, 2020, the variable annuity reinsurance derivative transactions resulted in realized losses of $560 million, reflecting a net increase in the fair value of GLB liabilities of $685 million and a net realized gain of $125 million related to these other derivative instruments. The net increase in the fair value of GLB liabilities was principally due to lower global equity market levels. Effective Income Tax Rate Our effective tax rate for the three months ended March 31, 2021 was 12.8 percent compared to 46.0 percent in the prior year period. Our effective income tax rate reflects a mix of income or losses in jurisdictions with a wide range of tax rates, permanent differences between U.S. GAAP and local tax laws, and the impact of discrete items. A change in the geographic mix of earnings could impact our effective tax rate. The effective tax rate in the current year was lower compared to the prior year primarily due to the impact of realized gains generated in lower tax jurisdictions and a higher discrete tax benefit on employee benefit programs compared to the prior year that had realized losses. 52 Table of Contents Non-GAAP Reconciliation In presenting our results, we included and discussed certain non-GAAP measures. These non-GAAP measures, which may be defined differently by other companies, are important for an understanding of our overall results of operations and financial condition. However, they should not be viewed as a substitute for measures determined in accordance with generally accepted accounting principles (GAAP). Book value per common share, is shareholders’ equity divided by the shares outstanding. Tangible book value per common share, is shareholders’ equity less goodwill and other intangible assets, net of tax, divided by the shares outstanding. We believe that goodwill and other intangible assets are not indicative of our underlying insurance results or trends and make book value comparisons to less acquisitive peer companies less meaningful. The calculation of tangible book value per share does not consider the embedded goodwill attributable to our investments in partially-owned insurance companies until we attain majority ownership and consolidate . We provide financial measures, including net premiums written, net premiums earned, and underwriting income on a constant-dollar basis. We believe it is useful to evaluate the trends in our results exclusive of the effect of fluctuations in exchange rates between the U.S. dollar and the currencies in which our international business is transacted, as these exchange rates could fluctuate significantly between periods and distort the analysis of trends. The impact is determined by assuming constant foreign exchange rates between periods by translating prior period results using the same local currency exchange rates as the comparable current period. P&C performance metrics comprise consolidated operating results (including Corporate) and exclude the operating results of the Life Insurance segment. We believe that these measures are useful and meaningful to investors as they are used by management to assess the company’s P&C operations which are the most economically similar. We exclude the Life Insurance segment because the results of this business do not always correlate with the results of our P&C operations. P&C combined ratio is the sum of the loss and loss expense ratio, policy acquisition cost ratio and the administrative expense ratio excluding the life business and including the realized gains and losses on the 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. CAY P&C combined ratio excluding catastrophe losses (CATs) excludes CATs and prior period development (PPD) from the P&C combined ratio. We exclude CATs as they are not predictable as to timing and amount and PPD as these unexpected loss developments on historical reserves are not indicative of our current underwriting performance. The combined ratio numerator is adjusted to exclude CATs, net premiums earned adjustments on PPD, prior period expense adjustments and reinstatement premiums on PPD, and the denominator is adjusted to exclude net premiums earned adjustments on PPD and reinstatement premiums on CATs and PPD. In periods where there are adjustments on loss sensitive policies, these adjustments are excluded from PPD and net premiums earned when calculating the ratios. We believe this measure provides a better evaluation of our underwriting performance and enhances the understanding of the trends in our P&C business that may be obscured by these items. This measure is commonly reported among our peer companies and allows for a better comparison. Reinstatement premiums are additional premiums paid on certain reinsurance agreements in order to reinstate coverage that had been exhausted by loss occurrences. The reinstatement premium amount is typically a pro rata portion of the original ceded premium paid based on how much of the reinsurance limit had been exhausted. Net premiums earned adjustments within PPD are adjustments to the initial premium earned on retrospectively rated policies based on actual claim experience that develops after the policy period ends. The premium adjustments correlate to the prior period loss development on these same policies and are fully earned in the period the adjustments are recorded. Prior period expense adjustments typically relate to adjustable commission reserves or policyholder dividend reserves based on actual claim experience that develops after the policy period ends. The expense adjustments correlate to the prior period loss development on these same policies. 53 Table of Contents The following tables present the calculation of combined ratio, as reported for each segment to P&C combined ratio, adjusted for catastrophe losses (CATs) and PPD: North America Commercial P&C Insurance North America Personal P&C Insurance North America Agricultural Insurance Overseas General Insurance Global Reinsurance Corporate Total P&C Three Months Ended March 31, 2021 (in millions of U.S. dollars except for ratios) Numerator Losses and loss expenses A $ 2,560 $ 819 $ 85 $ 1,263 $ 120 $ 9 $ 4,856 Catastrophe losses and related adjustments Catastrophe losses, net of related adjustments (362) (240) (8) (50) (40) — (700) Reinstatement premiums collected (expensed) on catastrophe losses — (23) — — 5 — (18) Catastrophe losses, gross of related adjustments (362) (217) (8) (50) (45) — (682) PPD and related adjustments PPD, net of related adjustments - favorable (unfavorable) 127 40 2 25 7 (9) 192 Net premiums earned adjustments on PPD - unfavorable (favorable) — — (2) — — — (2) Expense adjustments - unfavorable (favorable) 3 — — — — — 3 PPD reinstatement premiums - unfavorable (favorable) — — — — 3 — 3 PPD, gross of related adjustments - favorable (unfavorable) 130 40 — 25 10 (9) 196 CAY loss and loss expense ex CATs B $ 2,328 $ 642 $ 77 $ 1,238 $ 85 $ — $ 4,370 Policy acquisition costs and administrative expenses Policy acquisition costs and administrative expenses C $ 768 $ 307 $ 15 $ 934 $ 53 $ 71 $ 2,148 Expense adjustments - favorable (unfavorable) (3) — — — — — (3) Policy acquisition costs and administrative expenses, adjusted D $ 765 $ 307 $ 15 $ 934 $ 53 $ 71 $ 2,145 Denominator Net premiums earned E $ 3,674 $ 1,184 $ 110 $ 2,478 $ 180 $ 7,626 Reinstatement premiums (collected) expensed on catastrophe losses — 23 — — (5) 18 Net premiums earned adjustments on PPD - unfavorable (favorable) — — (2) — — (2) PPD reinstatement premiums - unfavorable (favorable) — — — — 3 3 Net premiums earned excluding adjustments F $ 3,674 $ 1,207 $ 108 $ 2,478 $ 178 $ 7,645 P&C Combined ratio Loss and loss expense ratio A/E 69.7 % 69.2 % 77.5 % 51.0 % 66.9 % 63.7 % Policy acquisition cost and administrative expense ratio C/E 20.9 % 25.9 % 13.4 % 37.7 % 29.5 % 28.1 % P&C Combined ratio 90.6 % 95.1 % 90.9 % 88.7 % 96.4 % 91.8 % CAY P&C Combined ratio ex CATs Loss and loss expense ratio, adjusted B/F 63.4 % 53.2 % 71.2 % 49.9 % 48.3 % 57.2 % Policy acquisition cost and administrative expense ratio, adjusted D/F 20.8 % 25.4 % 13.5 % 37.7 % 29.7 % 28.0 % CAY P&C Combined ratio ex CATs 84.2 % 78.6 % 84.7 % 87.6 % 78.0 % 85.2 % Combined ratio Combined ratio 91.8 % Add: impact of gains and losses on crop derivatives — P&C Combined ratio 91.8 % Note: The ratios above are calculated using whole U.S. dollars. Accordingly, calculations using rounded amounts may differ. Letters A, B, C, D, E, and F included in the table are references for calculating the ratios above. 54 Table of Contents North America Commercial P&C Insurance North America Personal P&C Insurance North America Agricultural Insurance Overseas General Insurance Global Reinsurance Corporate Total P&C Three Months Ended March 31, 2020 (in millions of U.S. dollars except for ratios) Numerator Losses and loss expenses A $ 2,181 $ 683 $ 65 $ 1,258 $ 87 $ 11 $ 4,285 Catastrophe losses and related adjustments Catastrophe losses, net of related adjustments (118) (21) (8) (90) — — (237) Reinstatement premiums collected (expensed) on catastrophe losses — — — — — — — Catastrophe losses, gross of related adjustments (118) (21) (8) (90) — — (237) PPD and related adjustments PPD, net of related adjustments - favorable (unfavorable) 105 (1) 14 4 7 (11) 118 Net premiums earned adjustments on PPD - unfavorable (favorable) — — 3 — — — 3 Expense adjustments - unfavorable (favorable) (1) — — — — — (1) PPD, gross of related adjustments - favorable (unfavorable) 104 (1) 17 4 7 (11) 120 CAY loss and loss expense ex CATs B $ 2,167 $ 661 $ 74 $ 1,172 $ 94 $ — $ 4,168 Policy acquisition costs and administrative expenses Policy acquisition costs and administrative expenses C $ 751 $ 313 $ 15 $ 900 $ 55 $ 66 $ 2,100 Expense adjustments - favorable (unfavorable) 1 — — — — — 1 Policy acquisition costs and administrative expenses, adjusted D $ 752 $ 313 $ 15 $ 900 $ 55 $ 66 $ 2,101 Denominator Net premiums earned E $ 3,376 $ 1,200 $ 94 $ 2,307 $ 186 $ 7,163 Net premiums earned adjustments on PPD - unfavorable (favorable) — — 3 — — 3 Net premiums earned excluding adjustments F $ 3,376 $ 1,200 $ 97 $ 2,307 $ 186 $ 7,166 P&C Combined ratio Loss and loss expense ratio A/E 64.6 % 57.0 % 69.6 % 54.5 % 46.5 % 59.8 % Policy acquisition cost and administrative expense ratio C/E 22.2 % 26.0 % 15.2 % 39.0 % 29.6 % 29.3 % P&C Combined ratio 86.8 % 83.0 % 84.8 % 93.5 % 76.1 % 89.1 % CAY P&C Combined ratio ex CATs Loss and loss expense ratio, adjusted B/F 64.2 % 55.1 % 76.2 % 50.8 % 50.4 % 58.2 % Policy acquisition cost and administrative expense ratio, adjusted D/F 22.3 % 26.1 % 14.7 % 39.0 % 29.6 % 29.3 % CAY P&C Combined ratio ex CATs 86.5 % 81.2 % 90.9 % 89.8 % 80.0 % 87.5 % Combined ratio Combined ratio 89.1 % Add: impact of gains and losses on crop derivatives — P&C Combined ratio 89.1 % Note: The ratios above are calculated using whole U.S. dollars. Accordingly, calculations using rounded amounts may differ. Letters A, B, C, D, E, and F included in the table are references for calculating the ratios above. 55 Table of Contents Other Income and Expense Three Months Ended March 31 (in millions of U.S. dollars) 2021 2020 Equity in net income of partially-owned entities (1) $ 497 $ 29 Gains (losses) from fair value changes in separate account assets (2) 4 (56) Federal excise and capital taxes (5) (6) Other (6) (22) Total $ 490 $ (55) (1) Equity in net income of partially-owned entities includes $49 million and $18 million attributable to our investments in Huatai for the three months ended March 31, 2021 and 2020, respectively. (2) Related to gains (losses) from fair value changes in separate account assets that do not qualify for separate account reporting under GAAP. Other income and expense includes equity in net income of partially-owned entities, which includes our share of net income or loss, both underlying operating income and mark-to-market movement, related to partially-owned investment companies (private equity) and partially-owned insurance companies. Also included in Other income and expense are gains (losses) from fair value changes in separate account assets that do not qualify for separate account reporting under GAAP. The offsetting movement in the separate account liabilities is included in Policy benefits in the Consolidated statements of operations. Certain federal excise and capital taxes incurred as a result of capital management initiatives are included in Other income and expense as these are considered capital transactions and are excluded from underwriting results. Amortization of purchased intangibles and Other amortization Amortization expense of purchased intangibles was $72 million and $73 million for the three months ended March 31, 2021 and 2020, respectively, and principally relates to the Chubb Corp acquisition. The following table presents, as of March 31, 2021, the estimated pre-tax amortization expense (benefit) of purchased intangibles, at current foreign currency exchange rates, for the second through fourth quarters of 2021 and the next five years: Associated with the Chubb Corp Acquisition For the Years Ending December 31 (in millions of U.S. dollars) Agency distribution relationships and renewal rights Fair value adjustment on Unpaid losses and loss expenses Total (1) Other intangible assets (2) Total Amortization of purchased intangibles Second quarter of 2021 $ 54 $ (5) $ 49 $ 21 $ 70 Third quarter of 2021 54 (5) 49 23 72 Fourth quarter of 2021 54 (5) 49 23 72 2022 198 (14) 184 103 287 2023 179 (7) 172 97 269 2024 160 (6) 154 91 245 2025 145 (6) 139 89 228 2026 131 (6) 125 87 212 Total $ 975 $ (54) $ 921 $ 534 $ 1,455 (1) Recorded in Corporate. (2) Recorded in applicable segment(s) that acquired the intangible assets. 56 Table of Contents Reduction of deferred tax liability associated with intangible assets related to Other intangible assets (excluding the fair value adjustment on Unpaid losses and loss expense) At March 31, 2021, the deferred tax liability associated with Other intangible assets (excluding the fair value adjustment on Unpaid losses and loss expense) was $1,280 million. The following table presents, as of March 31, 2021, the expected reduction of the deferred tax liability associated with Other intangible assets (which reduces as agency distribution relationships and renewal rights, and other intangible assets amortize), at current foreign currency exchange rates, for the second through fourth quarters of 2021 and for the next five years: For the Years Ending December 31 (in millions of U.S. dollars) Reduction to deferred tax liability associated with intangible assets Second quarter of 2021 $ 17 Third quarter of 2021 17 Fourth quarter of 2021 17 2022 67 2023 62 2024 56 2025 52 2026 48 Total $ 336 Amortization of the fair value adjustment on acquired invested assets and assumed long-term debt The following table presents at March 31, 2021, the expected amortization expense of the fair value adjustment on acquired invested assets, at current foreign currency exchange rates, and the expected amortization benefit from the fair value adjustment on assumed long-term debt for the second through fourth quarters of 2021 and for the next five years: Amortization (expense) benefit of the fair value adjustment on For the Years Ending December 31 (in millions of U.S. dollars) Acquired invested assets (1) Assumed long-term debt (2) Second quarter of 2021 $ (30) $ 5 Third quarter of 2021 (28) 5 Fourth quarter of 2021 (27) 6 2022 (103) 21 2023 — 21 2024 — 21 2025 — 21 2026 — 21 Total $ (188) $ 121 (1) Recorded as a reduction to Net investment income in the Consolidated statements of operations. (2) Recorded as a reduction to Interest expense in the Consolidated statements of operations. The estimate of amortization expense of the fair value adjustment on acquired invested assets could vary materially based on current market conditions, bond calls, overall duration of the acquired investment portfolio, and foreign exchange. 57 Table of Contents Net Investment Income Three Months Ended March 31 (in millions of U.S. dollars) 2021 2020 Fixed maturities (1) $ 840 $ 851 Short-term investments 9 17 Other interest income 2 9 Equity securities 36 9 Other investments 23 20 Gross investment income (1) 910 906 Investment expenses (47) (45) Net investment income (1) $ 863 $ 861 (1) Includes amortization expense related to fair value adjustment of acquired invested assets related to the Chubb Corp acquisition $ (26) $ (32) Net investment income is influenced by a number of factors including the amounts and timing of inward and outward cash flows, the level of interest rates, and changes in overall asset allocation. Net investment income remained flat for the three months ended March 31, 2021 primarily as higher dividends on public equities were offset by lower interest received due to lower reinvestment rates on new and reinvested assets. For private equities where we own less than three percent, investment income is included within Net investment income in the table above. For private equities where we own more than three percent, investment income is included within Other income (expense) in the Consolidated statements of operations. Excluded from Net investment income is the mark-to-market movement for private equities, which is recorded within either Other income (expense) or Net realized gains (losses) based on our percentage of ownership. The total mark-to-market movement for private equities excluded from Net investment income was as follows: Three Months Ended March 31 (in millions of U.S. dollars) 2021 2020 Total mark-to-market gain (loss) on private equity, pre-tax $ 438 $ (7) Investments Our investment portfolio is invested primarily in publicly traded, investment grade, fixed income securities with an average credit quality of A/Aa as rated by the independent investment rating services Standard and Poor’s (S&P)/Moody’s Investors Service (Moody’s). The portfolio is externally managed by independent, professional investment managers and is broadly diversified across geographies, sectors, and issuers. Other investments principally comprise direct investments, investment funds, and limited partnerships. We hold no collateralized debt obligations in our investment portfolio, and we provide no credit default protection. We have long-standing global credit limits for our entire portfolio across the organization. Exposures are aggregated, monitored, and actively managed by our Global Credit Committee, comprising senior executives, including our Chief Financial Officer, our Chief Risk Officer, our Chief Investment Officer, and our Treasurer. We also have well-established, strict contractual investment rules requiring managers to maintain highly diversified exposures to individual issuers and closely monitor investment manager compliance with portfolio guidelines. The average duration of our fixed income securities, including the effect of options and swaps, was 4.3 years and 4.0 years at March 31, 2021 and December 31, 2020, respectively. We estimate that a 100 basis point (bps) increase in interest rates would reduce the valuation of our fixed income portfolio by approximately $4.6 billion at March 31, 2021. 58 Table of Contents The following table shows the fair value and cost/amortized cost, net of valuation allowance, of our invested assets: March 31, 2021 December 31, 2020 (in millions of U.S. dollars) Fair Value Cost/ Amortized Cost, Net Fair Value Cost/ Amortized Cost, Net Fixed maturities available for sale $ 91,071 $ 87,858 $ 90,699 $ 85,168 Fixed maturities held to maturity 11,752 11,132 12,510 11,653 Short-term investments 3,735 3,736 4,345 4,349 Fixed income securities 106,558 102,726 107,554 101,170 Equity securities 4,405 4,405 4,027 4,027 Other investments 8,636 8,636 7,945 7,945 Total investments $ 119,599 $ 115,767 $ 119,526 $ 113,142 The fair value of our total investments increased $73 million during the three months ended March 31, 2021 due to strong operating cash flow, positive equity market returns, and favorable foreign currency movement. This increase was partially offset by unrealized losses on fixed maturities due to an increase in interest rates during the quarter, payment of dividends on our Common Shares, and share repurchases. The following tables present the fair value of our fixed maturities and short-term investments at March 31, 2021 and December 31, 2020. The first table lists investments according to type and second according to S&P credit rating: March 31, 2021 December 31, 2020 (in millions of U.S. dollars, except for percentages) Fair Value % of Total Fair Value % of Total U.S. Treasury / Agency $ 3,724 3 % $ 4,122 4 % Corporate and asset-backed securities 38,711 36 % 38,769 36 % Mortgage-backed securities 21,434 20 % 20,616 19 % Municipal 11,437 11 % 11,943 11 % Non-U.S. 27,517 26 % 27,759 26 % Short-term investments 3,735 4 % 4,345 4 % Total $ 106,558 100 % $ 107,554 100 % AAA $ 15,462 15 % $ 15,622 15 % AA 35,930 33 % 36,125 33 % A 19,420 18 % 19,712 18 % BBB 17,214 16 % 17,542 16 % BB 9,308 9 % 9,699 9 % B 8,646 8 % 8,267 8 % Other 578 1 % 587 1 % Total $ 106,558 100 % $ 107,554 100 % 59 Table of Contents Corporate and asset-backed securities The following table presents our 10 largest global exposures to corporate bonds by fair value at March 31, 2021: (in millions of U.S. dollars) Fair Value Wells Fargo & Co $ 713 Bank of America Corp 646 JP Morgan Chase & Co 617 Verizon Communications Inc 532 Comcast Corp 508 Morgan Stanley 444 AT&T Inc 419 Citigroup Inc 412 Goldman Sachs Group Inc 394 HSBC Holdings Plc 367 Mortgage-backed securities The following table shows the fair value and amortized cost, net of valuation allowance, of our mortgage-backed securities: S&P Credit Rating Fair Value Amortized Cost, Net March 31, 2021 (in millions of U.S. dollars) AAA AA A BBB BB and below Total Total Agency residential mortgage-backed securities (RMBS) $ 118 $ 17,668 $ — $ — $ — $ 17,786 $ 17,156 Non-agency RMBS 193 38 98 34 8 371 368 Commercial mortgage-backed securities 2,862 280 130 2 3 3,277 3,151 Total mortgage-backed securities $ 3,173 $ 17,986 $ 228 $ 36 $ 11 $ 21,434 $ 20,675 Municipal As part of our overall investment strategy, we may invest in states, municipalities, and other political subdivisions fixed maturity securities (Municipal). We apply the same investment selection process described previously to our Municipal investments. The portfolio is highly diversified primarily in state general obligation bonds and essential service revenue bonds including education and utilities (water, power, and sewers). Non-U.S. Our exposure to the Euro results primarily from Chubb European Group SE which is headquartered in France and offers a broad range of coverages throughout the European Union, Central, and Eastern Europe. Chubb primarily invests in Euro denominated investments to support its local currency insurance obligations and required capital levels. Chubb’s local currency investment portfolios have strict contractual investment guidelines requiring managers to maintain a high quality and diversified portfolio to both sector and individual issuers. Investment portfolios are monitored daily to ensure investment manager compliance with portfolio guidelines. Our non-U.S. investment grade fixed income portfolios are currency-matched with the insurance liabilities of our non-U.S. operations. The average credit quality of our non-U.S. fixed income securities is A and 48 percent of our holdings are rated AAA or guaranteed by governments or quasi-government agencies. Within the context of these investment portfolios, our government and corporate bond holdings are highly diversified across industries and geographies. Issuer limits are based on credit rating (AA—two percent, A—one percent, BBB—0.5 percent of the total portfolio) and are monitored daily via an internal compliance system. We manage our indirect exposure using the same credit rating based investment approach. Accordingly, we do not believe our indirect exposure is material. 60 Table of Contents The following table summarizes the fair value and amortized cost, net of valuation allowance, of our non-U.S. fixed income portfolio by country/sovereign for non-U.S. government securities at March 31, 2021: (in millions of U.S. dollars) Fair Value Amortized Cost, Net Republic of Korea $ 1,019 $ 941 Canada 1,019 1,001 United Kingdom 901 888 Province of Ontario 732 712 Kingdom of Thailand 593 543 United Mexican States 563 558 Province of Quebec 483 465 Federative Republic of Brazil 461 462 Commonwealth of Australia 461 447 Socialist Republic of Vietnam 407 279 Other Non-U.S. Government Securities 5,698 5,516 Total $ 12,337 $ 11,812 The following table summarizes the fair value and amortized cost, net of valuation allowance, of our non-U.S. fixed income portfolio by country/sovereign for non-U.S. corporate securities at March 31, 2021: (in millions of U.S. dollars) Fair Value Amortized Cost, Net United Kingdom $ 2,474 $ 2,377 Canada 1,876 1,806 United States (1) 1,218 1,168 France 1,177 1,122 Australia 875 837 Japan 667 652 Germany 623 597 Netherlands 580 556 Switzerland 565 539 China 433 419 Other Non-U.S. Corporate Securities 4,692 4,526 Total $ 15,180 $ 14,599 (1) The countries that are listed in the non-U.S. corporate fixed income portfolio above represent the ultimate parent company's country of risk. Non-U.S. corporate securities could be issued by foreign subsidiaries of U.S. corporations. Below-investment grade corporate fixed income portfolio Below-investment grade securities have different characteristics than investment grade corporate debt securities. Risk of loss from default by the borrower is greater with below-investment grade securities. Below-investment grade securities are generally unsecured and are often subordinated to other creditors of the issuer. Also, issuers of below-investment grade securities usually have higher levels of debt and are more sensitive to adverse economic conditions, such as recession or increasing interest rates, than investment grade issuers. At March 31, 2021, our corporate fixed income investment portfolio included below-investment grade and non-rated securities which, in total, comprised approximately 15 percent of our fixed income portfolio. Our below-investment grade and non-rated portfolio includes over 1,500 issuers, with the greatest single exposure being $172 million. We manage high-yield bonds as a distinct and separate asset class from investment grade bonds. The allocation to high-yield bonds is explicitly set by internal management and is targeted to securities in the upper tier of credit quality (BB/B). Our minimum rating for initial purchase is BB/B. Fourteen external investment managers are responsible for high-yield security selection and portfolio construction. Our high-yield managers have a conservative approach to credit selection and very low historical default experience. Holdings are highly diversified across industries and generally subject to a 1.5 percent issuer limit 61 Table of Contents as a percentage of high-yield allocation. We monitor position limits daily through an internal compliance system. Derivative and structured securities (e.g., credit default swaps and collateralized loan obligations) are not permitted in the high-yield portfolio. Critical Accounting Estimates As of March 31, 2021, there were no material changes to our critical accounting estimates. For a full discussion of our critical accounting estimates, refer to Item 7 in our 2020 Form 10-K. Unpaid losses and loss expenses As an insurance and reinsurance company, we are required by applicable laws and regulations and GAAP to establish loss and loss expense reserves for the estimated unpaid portion of the ultimate liability for losses and loss expenses under the terms of our policies and agreements with our insured and reinsured customers. With the exception of certain structured settlements, for which the timing and amount of future claim payments are reliably determinable, and certain reserves for unsettled claims, our loss reserves are not discounted for the time value of money. The following table presents a roll-forward of our unpaid losses and loss expenses: (in millions of U.S. dollars) Gross Losses Reinsurance Recoverable (1) Net Losses Balance at December 31, 2020 $ 67,811 $ 14,647 $ 53,164 Losses and loss expenses incurred 6,467 1,414 5,053 Losses and loss expenses paid (5,100) (1,207) (3,893) Other (including foreign exchange translation) 77 6 71 Balance at March 31, 2021 $ 69,255 $ 14,860 $ 54,395 (1) Net of valuation allowance for uncollectible reinsurance. The estimate of the liabilities includes provisions for claims that have been reported but are unpaid at the balance sheet date (case reserves) and for obligations on claims that have been incurred but not reported (IBNR) at the balance sheet date. IBNR may also include provisions to account for the possibility that reported claims may settle for amounts that differ from the established case reserves. Loss reserves also include an estimate of expenses associated with processing and settling unpaid claims (loss expenses). Refer to Note 6 to the Consolidated Financial Statements for a discussion on the changes in the loss reserves. Asbestos and Environmental (A&E) There was no significant A&E reserve activity during the three months ende d March 31, 2021. A&E reserves are included in Corporate. Refer to our 2020 Form 10-K for further information on our A&E exposures. Fair value measurements Accounting 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 (Level 1 inputs) and the lowest priority to unobservable data (Level 3 inputs). Level 2 includes inputs, other than quoted prices within Level 1, that are observable for assets or liabilities either directly or indirectly. Refer to Note 4 to the Consolidated Financial Statements for information on our fair value measurements. 62 Table of Contents Catastrophe Management We actively monitor and manage our catastrophe risk accumulation around the world, including setting risk limits based on probable maximum loss (PML) and purchasing catastrophe reinsurance. The table below presents our modeled pre-tax estimates of natural catastrophe PML, net of reinsurance, at March 31, 2021, for Worldwide, U.S. hurricane and California earthquake events, based on our in-force portfolio at January 1, 2021 and reflecting the April 1, 2021 reinsurance program (see Natural Catastrophe Property Reinsurance Program section) as well as inuring reinsurance protection coverages. According to the model, for the 1-in-100 return period scenario, there is a one percent chance that our pre-tax annual aggregate losses incurred in any year from U.S. hurricane events could be in excess of $2,707 million (or 4.6 percent of our total shareholders’ equity at March 31, 2021). These estimates assume that reinsurance recoverable is fully collectible. Modeled Net Probable Maximum Loss (PML) Pre-tax Worldwide (1) U.S. Hurricane (2) California Earthquake (3) Annual Aggregate Annual Aggregate Single Occurrence (in millions of U.S. dollars, except for percentages) Chubb % of Total Shareholders’ Equity Chubb % of Total Shareholders’ Equity Chubb % of Total Shareholders’ Equity 1-in-10 $ 1,879 3.2 % $ 1,092 1.8 % $ 140 0.2 % 1-in-100 $ 3,988 6.8 % $ 2,707 4.6 % $ 1,297 2.2 % 1-in-250 $ 6,655 11.3 % $ 4,905 8.3 % $ 1,469 2.5 % (1) Worldwide losses are comprised of losses arising only from hurricanes, typhoons, convective storms and earthquakes and do not include “non-modeled” perils such as wildfire and flood. (2) U.S. Hurricane losses include losses from wind and storm-surge and exclude rainfall. (3) California earthquakes include fire-following perils. The above estimates of Chubb’s loss profile are inherently uncertain for many reasons, including the following: • While the use of third-party catastrophe modeling packages to simulate potential hurricane and earthquake losses is prevalent within the insurance industry, the models are reliant upon significant meteorology, seismology, and engineering assumptions to estimate catastrophe losses. In particular, modeled catastrophe events are not always a representation of actual events and ensuing additional loss potential; • There is no universal standard in the preparation of insured data for use in the models, the running of the modeling software and interpretation of loss output. These loss estimates do not represent our potential maximum exposures and it is highly likely that our actual incurred losses would vary materially from the modeled estimates; • The potential effects of climate change add to modeling complexity; and • Changing climate conditions could impact our exposure to natural catastrophe risks, including U.S. hurricane. Published studies by leading government, academic and professional organizations predict an increase in the expected annual frequency of Atlantic-basin hurricanes and sea level rise through the end of the century over observed historical averages. These studies contemplate expected multi-decadal impacts of climate change on sea surface temperatures, sea levels and other factors contributing to the frequency and intensity of hurricanes. Based on preliminary stress tests conducted against the Chubb portfolio, the impacts of climate change are not expected to materially impact our reported U.S. hurricane PML over the next 12 months. These tests reflect current exposures only and exclude potential mitigating factors, such as changes to building codes, public or private risk mitigation, regulation and public policy. 63 Table of Contents Natural Catastrophe Property Reinsurance Program Chubb’s core property catastrophe reinsurance program provides protection against natural catastrophes impacting its primary property operations (i.e., excluding our Global Reinsurance and Life Insurance segments). We regularly review our reinsurance protection and corresponding property catastrophe exposures. This may or may not lead to the purchase of additional reinsurance prior to a program’s renewal date. In addition, prior to each renewal date, we consider how much, if any, coverage we intend to buy and we may make material changes to the current structure in light of various factors, including modeled PML assessment at various return periods, reinsurance pricing, our risk tolerance and exposures, and various other structuring considerations. Chubb renewed its Global Property Catastrophe Reinsurance Program for our North American and International operations effective April 1, 2021 through March 31, 2022, with an additional $100 million of limit for international loss occurrences compared to the expiring program. The program consists of three layers in excess of losses retained by Chubb on a per occurrence basis. In addition, Chubb also renewed its terrorism coverage (excluding nuclear, biological, chemical and radiation coverage, with an inclusion of coverage for biological and chemical coverage for personal lines) for the United States from April 1, 2021 through March 31, 2022 with the same limits and retention and percentage placed except that the majority of terrorism coverage is on an aggregate basis above our retentions without a reinstatement. Loss Location Layer of Loss Comments Notes United States (excluding Alaska and Hawaii) $0 million – $1.0 billion Losses retained by Chubb (a) United States (excluding Alaska and Hawaii) $1.0 billion – $1.15 billion All natural perils and terrorism (b) United States (excluding Alaska and Hawaii) $1.15 billion – $2.25 billion All natural perils and terrorism (c) United States (excluding Alaska and Hawaii) $2.25 billion – $3.5 billion All natural perils and terrorism (d) International (including Alaska and Hawaii) $0 million – $175 million Losses retained by Chubb (a) International (including Alaska and Hawaii) $175 million – $1.275 billion All natural perils and terrorism (c) Alaska, Hawaii, and Canada $1.275 billion – $2.525 billion All natural perils and terrorism (d) (a) Ultimate retention will depend upon the nature of the loss and the interplay between the underlying per risk programs and certain other catastrophe programs purchased by individual business units. These other catastrophe programs have the potential to reduce our effective retention below the stated levels. (b) These coverages are partially placed with Reinsurers. (c) These coverages are both part of the same Second layer within the Global Catastrophe Program and are fully placed with Reinsurers. (d) These coverages are both part of the same Third layer within the Global Catastrophe Program and are fully placed with Reinsurers. 64 Table of Contents Liquidity We anticipate that positive cash flows from operations (underwriting activities and investment income) should be sufficient to cover cash outflows under most loss scenarios for the near term. In addition to cash from operations, routine sales of investments, and financing arrangements, we have agreements with a third-party bank provider which implemented two international multi-currency notional cash pooling programs to enhance cash management efficiency during periods of short-term timing mismatches between expected inflows and outflows of cash by currency. The programs allow us to optimize investment income by avoiding portfolio disruption. Should the need arise, we generally have access to capital markets and to credit facilities with letter of credit capacity of $3.7 billion with a sub-limit of $1.9 billion for revolving credit. At March 31, 2021, our usage under these facilities was $1.4 billion in letters of credit. Our access to credit under these facilities is dependent on the ability of the banks that are a party to the facilities to meet their funding commitments. The facilities require that we maintain certain financial covenants, all of which we met at March 31, 2021. Should the existing credit providers on these facilities experience financial difficulty, we may be required to replace credit sources, possibly in a difficult market. If we cannot obtain adequate capital or sources of credit on favorable terms, on a timely basis, or at all, our business, operating results, and financial condition could be adversely affected. To date, we have not experienced difficulty accessing our credit facilities. The payment of dividends or other statutorily permissible distributions from our operating companies are subject to the laws and regulations applicable to each jurisdiction, as well as the need to maintain capital levels adequate to support the insurance and reinsurance operations, including financial strength ratings issued by independent rating agencies. During the three months ended March 31, 2021, we were able to meet all our obligations, including the payments of dividends on our Common Shares, with our net cash flows. We assess which subsidiaries to draw dividends from based on a number of factors. Considerations such as regulatory and legal restrictions as well as the subsidiary’s financial condition are paramount to the dividend decision. Chubb Limited received dividends of $740 million and nil from its Bermuda subsidiaries during the three months ended March 31, 2021 and 2020, respectively. The payment of any dividends from CGM or its subsidiaries is subject to applicable U.K. insurance laws and regulations. In addition, the release of funds by Syndicate 2488 to subsidiaries of CGM is subject to regulations promulgated by the Society of Lloyd’s. The U.S. insurance subsidiaries of Chubb INA Holdings Inc. (Chubb INA) may pay dividends, without prior regulatory approval, subject to restrictions set out in state law of the subsidiary’s domicile (or, if applicable, commercial domicile). Chubb INA’s international subsidiaries are also subject to insurance laws and regulations particular to the countries in which the subsidiaries operate. These laws and regulations sometimes include restrictions that limit the amount of dividends payable without prior approval of regulatory insurance authorities. Chubb Limited received no dividends from CGM or Chubb INA during the three months ended March 31, 2021 and 2020. Debt issued by Chubb INA is serviced by statutorily permissible distributions by Chubb INA’s insurance subsidiaries to Chubb INA as well as other group resources. Chubb INA received no dividends from its subsidiaries during the three months ended March 31, 2021 and 2020. Cash Flows Our sources of liquidity include cash from operations, routine sales of investments, and financing arrangements. The following is a discussion of our cash flows for the three months ended March 31, 2021 and 2020. Operating cash flows were $2.1 billion in the three months ended March 31, 2021, compared to $1.7 billion in the prior year period, an increase of $393 million, principally reflecting higher premiums collected and reduced payment activity, partially offset by higher catastrophe loss payments. Cash used for investing was $1.3 billion in the three months ended March 31, 2021, compared to $1.0 billion in the prior year period. Cash used in the current year related to net investments purchased, principally fixed maturities. Cash used in the prior year principally related to the incremental purchase of Huatai Group ownership interest of $1.6 billion, partially offset by net proceeds from sales of fixed maturities. Cash used for financing was $812 million in the three months ended March 31, 2021, compared to $645 million in the prior year period, an increase of $167 million principally from more shares repurchased in the current year. Both internal and external forces influence our financial condition, results of operations, and cash flows. Claim settlements, premium levels, and investment returns may be impacted by changing rates of inflation and other economic conditions. In many 65 Table of Contents cases, significant periods of time, ranging up to several years or more, may lapse between the occurrence of an insured loss, the reporting of the loss to us, and the settlement of the liability for that loss. We use repurchase agreements as a low-cost funding alternative. At March 31, 2021, there were $1.4 billion in repurchase agreements outstanding with various maturities over the next eight months. Capital Resources Capital resources consist of funds deployed or available to be deployed to support our business operations. March 31 December 31 (in millions of U.S. dollars, except for ratios) 2021 2020 Long-term debt $ 14,879 $ 14,948 Trust preferred securities 308 308 Total shareholders’ equity 59,076 59,441 Total capitalization $ 74,263 $ 74,697 Ratio of financial debt to total capitalization 20.0 % 20.0 % Ratio of financial debt plus trust preferred securities to total capitalization 20.4 % 20.4 % Repurchase agreements are excluded from the table above and are disclosed separately from short-term debt in the Consolidated balance sheets. The repurchase agreements are collateralized borrowings where we maintain the right and ability to redeem the collateral on short notice, unlike short-term debt which comprises the current maturities of our long-term debt instruments. For the three months ended March 31, 2021, we repurchased $519 million of Common Shares in a series of open market transactions under the Board of Directors (Board) share repurchase authorization. At March 31, 2021, there were 27,928,305 Common Shares in treasury with a weighted average cost of $139.68 per share, and $1.98 billion in share repurchase authorization remained through December 31, 2021. For the period April 1, 2021 through April 29, 2021, we repurchased 450,000 Common Shares for a total of $76 million in a series of open market transactions. At April 29, 2021, $1.91 billion in share repurchase authorization remained through December 31, 2021. We generally maintain the ability to issue certain classes of debt and equity securities via an unlimited Securities and Exchange Commission (SEC) shelf registration which is renewed every three years. This allows us capital market access for refinancing as well as for unforeseen or opportunistic capital needs. Dividends We have paid dividends each quarter since we became a public company in 1993. Under Swiss law, dividends must be stated in Swiss francs though dividend payments are made by Chubb in U.S. dollars. Refer to Note 8 to the Consolidated Financial Statements for a discussion of our dividend methodology. At our May 2020 annual general meeting, our shareholders approved an annual dividend for the following year of up to $3.12 per share, or CHF 3.01 per share, calculated using the USD/CHF exchange rate as published in the Wall Street Journal on May 20, 2020, expected to be paid in four quarterly installments of $0.78 per share after the general meeting by way of a distribution from capital contribution reserves, transferred to free reserves for payment. The Board determines 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 four quarterly installments each of $0.78 per share were distributed by the Board as expected. The annual dividend approved in May 2020 represented a $0.12 per share increase ($0.03 per quarter) over the prior year dividend. The following table represents dividends paid per Common Share to shareholders of record on each of the following dates: Shareholders of record as of: Dividends paid as of: December 18, 2020 January 8, 2021 $0.78 (CHF 0.71) March 19, 2021 April 9, 2021 $0.78 (CHF 0.70) 66 Table of Contents