Chubb Ltd 10-Q

ITEM 1. Financial Statements CONSOLIDATED BALANCE SHEETS (Unaudited) Chubb Limited and Subsidiaries September 30 December 31 (in millions of U.S. dollars, except share and per share data) 2021 2020 Assets Investments Fixed maturities available for sale, at fair value, net of valuation allowance - $ 12 and $ 20 (amortized cost – $ 89,335 and $ 85,188 ) $ 92,685 $ 90,699 Fixed maturities held to maturity, at amortized cost, net of valuation allowance - $ 35 and $ 44 (fair value – $ 11,119 and $ 12,510 ) 10,515 11,653 Equity securities, at fair value 4,557 4,027 Short-term investments, at fair value (amortized cost – $ 3,529 and $ 4,349 ) 3,529 4,345 Other investments, at fair value 10,843 7,945 Total investments 122,129 118,669 Cash 1,620 1,747 Restricted cash 176 89 Securities lending collateral 2,368 1,844 Accrued investment income 825 867 Insurance and reinsurance balances receivable, net of valuation allowance - $ 42 and $ 44 11,723 10,480 Reinsurance recoverable on losses and loss expenses, net of valuation allowance - $ 325 and $ 314 16,648 15,592 Reinsurance recoverable on policy benefits 206 206 Deferred policy acquisition costs 5,532 5,402 Value of business acquired 245 263 Goodwill 15,387 15,400 Other intangible assets 5,578 5,811 Prepaid reinsurance premiums 3,092 2,769 Investments in partially-owned insurance companies 3,006 2,813 Other assets 10,519 8,822 Total assets $ 199,054 $ 190,774 Liabilities Unpaid losses and loss expenses $ 72,631 $ 67,811 Unearned premiums 19,519 17,652 Future policy benefits 5,890 5,713 Insurance and reinsurance balances payable 7,104 6,708 Securities lending payable 2,368 1,844 Accounts payable, accrued expenses, and other liabilities 15,470 14,052 Deferred tax liabilities 217 892 Repurchase agreements 1,406 1,405 Long-term debt 14,823 14,948 Trust preferred securities 308 308 Total liabilities 139,736 131,333 Commitments and contingencies (refer to Note 7) Shareholders’ equity Common Shares (CHF 24.15 par value; 474,021,114 and 477,605,264 shares issued; 430,876,252 and 450,732,625 shares outstanding) 10,985 11,064 Common Shares in treasury ( 43,144,862 and 26,872,639 shares) ( 6,621 ) ( 3,644 ) Additional paid-in capital 8,752 9,815 Retained earnings 45,224 39,337 Accumulated other comprehensive income (AOCI) 978 2,869 Total shareholders’ equity 59,318 59,441 Total liabilities and shareholders’ equity $ 199,054 $ 190,774 See accompanying notes to the consolidated financial statements 3 Table of Contents CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (Unaudited) Chubb Limited and Subsidiaries Three Months Ended Nine Months Ended September 30 September 30 (in millions of U.S. dollars, except per share data) 2021 2020 2021 2020 Revenues Net premiums written $ 10,510 $ 9,078 $ 28,718 $ 25,410 Increase in unearned premiums ( 510 ) ( 313 ) ( 1,684 ) ( 723 ) Net premiums earned 10,000 8,765 27,034 24,687 Net investment income 866 840 2,613 2,528 Net realized gains (losses) (includes $( 10 ), $ 49 , $ 26 , and $( 303 ) reclassified from AOCI) ( 21 ) ( 141 ) 833 ( 1,069 ) Total revenues 10,845 9,464 30,480 26,146 Expenses Losses and loss expenses 6,629 5,835 16,688 16,897 Policy benefits 151 198 503 550 Policy acquisition costs 1,778 1,645 5,141 4,853 Administrative expenses 806 733 2,325 2,201 Interest expense 122 130 366 390 Other (income) expense ( 763 ) ( 485 ) ( 2,030 ) ( 372 ) Amortization of purchased intangibles 71 72 216 217 Total expenses 8,794 8,128 23,209 24,736 Income before income tax 2,051 1,336 7,271 1,410 Income tax expense (includes $( 3 ), $ 7 , $( 5 ), and $( 35 ) on unrealized gains and losses reclassified from AOCI) 218 142 873 295 Net income $ 1,833 $ 1,194 $ 6,398 $ 1,115 Other comprehensive income (loss) Unrealized appreciation (depreciation) $ ( 564 ) $ 687 $ ( 2,151 ) $ 1,456 Reclassification adjustment for net realized (gains) losses included in net income 10 ( 49 ) ( 26 ) 303 ( 554 ) 638 ( 2,177 ) 1,759 Change in: Cumulative foreign currency translation adjustment ( 414 ) 246 ( 84 ) ( 168 ) Postretirement benefit liability adjustment 4 ( 23 ) ( 33 ) ( 59 ) Other comprehensive income (loss), before income tax ( 964 ) 861 ( 2,294 ) 1,532 Income tax (expense) benefit related to OCI items 120 ( 103 ) 403 ( 295 ) Other comprehensive income (loss) ( 844 ) 758 ( 1,891 ) 1,237 Comprehensive income $ 989 $ 1,952 $ 4,507 $ 2,352 Earnings per share Basic earnings per share $ 4.21 $ 2.64 $ 14.42 $ 2.47 Diluted earnings per share $ 4.18 $ 2.63 $ 14.33 $ 2.46 See accompanying notes to the consolidated financial statements 4 Table of Contents CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited) Chubb Limited and Subsidiaries Three Months Ended Nine Months Ended September 30 September 30 (in millions of U.S. dollars) 2021 2020 2021 2020 Common Shares Balance – beginning of period $ 11,064 $ 11,121 $ 11,064 $ 11,121 Cancellation of treasury shares ( 79 ) ( 57 ) ( 79 ) ( 57 ) Balance – end of period 10,985 11,064 10,985 11,064 Common Shares in treasury Balance – beginning of period ( 5,772 ) ( 3,866 ) ( 3,644 ) ( 3,754 ) Common Shares repurchased ( 1,516 ) — ( 3,956 ) ( 326 ) Cancellation of treasury shares 590 323 590 323 Net shares issued under employee share-based compensation plans 77 2 389 216 Balance – end of period ( 6,621 ) ( 3,541 ) ( 6,621 ) ( 3,541 ) Additional paid-in capital Balance – beginning of period 9,046 10,416 9,815 11,203 Net shares issued under employee share-based compensation plans ( 2 ) ( 6 ) ( 184 ) ( 195 ) Exercise of stock options ( 15 ) ( 1 ) ( 45 ) ( 30 ) Share-based compensation expense 69 59 216 183 Funding of dividends declared to Retained earnings ( 346 ) ( 353 ) ( 1,050 ) ( 1,046 ) Balance – end of period 8,752 10,115 8,752 10,115 Retained earnings Balance – beginning of period 43,902 35,991 39,337 36,142 Cumulative effect of adoption of accounting guidance — — — ( 72 ) Balance – beginning of period, as adjusted 43,902 35,991 39,337 36,070 Net income 1,833 1,194 6,398 1,115 Cancellation of treasury shares ( 511 ) ( 266 ) ( 511 ) ( 266 ) Funding of dividends declared from Additional paid-in capital 346 353 1,050 1,046 Dividends declared on Common Shares ( 346 ) ( 353 ) ( 1,050 ) ( 1,046 ) Balance – end of period 45,224 36,919 45,224 36,919 Accumulated other comprehensive income Net unrealized appreciation (depreciation) on investments Balance – beginning of period 3,342 3,424 4,673 2,543 Change in period, before reclassification from AOCI, net of income tax (expense) benefit of $ 101 , $( 102 ), $ 395 and $( 300 ) ( 463 ) 585 ( 1,756 ) 1,156 Amounts reclassified from AOCI, net of income tax (expense) benefit of $( 3 ), $ 7 , $( 5 ), $( 35 ) 7 ( 42 ) ( 31 ) 268 Change in period, net of income tax (expense) benefit of $ 98 , $( 95 ), $ 390 and $( 335 ) ( 456 ) 543 ( 1,787 ) 1,424 Balance – end of period 2,886 3,967 2,886 3,967 Cumulative foreign currency translation adjustment Balance – beginning of period ( 1,323 ) ( 2,313 ) ( 1,637 ) ( 1,939 ) Change in period, net of income tax (expense) benefit of $ 23 , $( 13 ), $ 7 and $ 27 ( 391 ) 233 ( 77 ) ( 141 ) Balance – end of period ( 1,714 ) ( 2,080 ) ( 1,714 ) ( 2,080 ) Postretirement benefit liability adjustment Balance – beginning of period ( 197 ) ( 13 ) ( 167 ) 15 Change in period, net of income tax (expense) benefit of $( 1 ), $ 5 , $ 6 and $ 13 3 ( 18 ) ( 27 ) ( 46 ) Balance – end of period ( 194 ) ( 31 ) ( 194 ) ( 31 ) Accumulated other comprehensive income 978 1,856 978 1,856 Total shareholders’ equity $ 59,318 $ 56,413 $ 59,318 $ 56,413 See accompanying notes to the consolidated financial statements 5 Table of Contents CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Chubb Limited and Subsidiaries Nine Months Ended September 30 (in millions of U.S. dollars) 2021 2020 Cash flows from operating activities Net income $ 6,398 $ 1,115 Adjustments to reconcile net income to net cash flows from operating activities Net realized (gains) losses ( 833 ) 1,069 Amortization of premiums/discounts on fixed maturities 242 280 Amortization of purchased intangibles 216 217 Deferred income taxes ( 268 ) ( 287 ) Unpaid losses and loss expenses 4,907 5,112 Unearned premiums 2,032 881 Future policy benefits 163 138 Insurance and reinsurance balances payable 408 280 Accounts payable, accrued expenses, and other liabilities 45 190 Income taxes payable 212 ( 95 ) Insurance and reinsurance balances receivable ( 1,257 ) ( 324 ) Reinsurance recoverable ( 1,071 ) ( 496 ) Deferred policy acquisition costs ( 208 ) ( 77 ) Other ( 2,437 ) ( 762 ) Net cash flows from operating activities 8,549 7,241 Cash flows from investing activities Purchases of fixed maturities available for sale ( 23,028 ) ( 20,793 ) Purchases of fixed maturities held to maturity ( 434 ) ( 42 ) Purchases of equity securities ( 799 ) ( 3,622 ) Sales of fixed maturities available for sale 5,225 9,537 Sales of equity securities 750 1,526 Maturities and redemptions of fixed maturities available for sale 13,710 8,709 Maturities and redemptions of fixed maturities held to maturity 1,488 841 Net change in short-term investments 809 ( 434 ) Net derivative instruments settlements ( 66 ) ( 74 ) Private equity contributions ( 1,872 ) ( 1,056 ) Private equity distributions 891 588 Payment, including deposit, for Huatai Group interest ( 208 ) ( 1,557 ) Other ( 217 ) ( 352 ) Net cash flows used for investing activities ( 3,751 ) ( 6,729 ) Cash flows from financing activities Dividends paid on Common Shares ( 1,056 ) ( 1,035 ) Common Shares repurchased ( 3,941 ) ( 333 ) Proceeds from issuance of long-term debt — 988 Proceeds from issuance of repurchase agreements 1,405 1,402 Repayment of repurchase agreements ( 1,405 ) ( 1,402 ) Proceeds from share-based compensation plans 239 77 Policyholder contract deposits and other 365 322 Policyholder contract withdrawals and other ( 331 ) ( 253 ) Other ( 81 ) — Net cash flows used for financing activities ( 4,805 ) ( 234 ) Effect of foreign currency rate changes on cash and restricted cash ( 33 ) ( 51 ) Net increase (decrease) in cash and restricted cash ( 40 ) 227 Cash and restricted cash – beginning of period 1,836 1,646 Cash and restricted cash – end of period $ 1,796 $ 1,873 Supplemental cash flow information Taxes paid $ 931 $ 668 Interest paid $ 316 $ 323 See accompanying notes to the consolidated financial statements 6 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Chubb Limited and Subsidiaries 1. General a) Basis of presentation Chubb Limited is a holding company incorporated in Zurich, Switzerland. Chubb Limited, through its subsidiaries, provides a broad range of insurance and reinsurance products to insureds worldwide. Our results are reported through the following business segments: North America Commercial P&C Insurance, North America Personal P&C Insurance, North America Agricultural Insurance, Overseas General Insurance, Global Reinsurance, and Life Insurance. Refer to Note 12 for additional information. The interim unaudited consolidated financial statements, which include the accounts of Chubb Limited and its subsidiaries (collectively, Chubb, we, us, or our), have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) and, in the opinion of management, reflect all adjustments necessary for a fair statement of the results and financial position for such periods. All significant intercompany accounts and transactions, including internal reinsurance transactions, have been eliminated. The results of operations and cash flows for any interim period are not necessarily indicative of the results for the full year. These consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in our 2020 Form 10-K. b) Restricted cash Restricted cash in the Consolidated balance sheets represents amounts held for the benefit of third parties and is legally or contractually restricted as to withdrawal or usage. Amounts include deposits with U.S. and non-U.S. regulatory authorities, trust funds set up for the benefit of ceding companies, and amounts pledged as collateral to meet financing arrangements. The following table provides a reconciliation of cash and restricted cash reported within the Consolidated balance sheets that total to the amounts shown in the Consolidated statements of cash flows: September 30 December 31 (in millions of U.S. dollars) 2021 2020 Cash $ 1,620 $ 1,747 Restricted cash 176 89 Total cash and restricted cash shown in the Consolidated statements of cash flows $ 1,796 $ 1,836 c) Goodwill During the nine months ended September 30, 2021, Goodwill decreased $ 13 million, reflecting the impact of foreign exchange. d) Accounting guidance not yet adopted Targeted Improvements to the Accounting for Long-Duration Contracts In August 2018, the FASB issued guidance to improve the existing recognition, measurement, presentation, and disclosure requirements for long-duration contracts issued by an insurance entity. The amendments in this update require more frequent updating of assumptions and a standardized discount rate for the future policy benefit liability, a requirement to use the fair value measurement model for policies with market risk benefits, simplified amortization of deferred acquisition costs, and enhanced disclosures. This standard will be effective in the first quarter of 2023 with early adoption permitted. We are currently assessing the effect of adopting this guidance on our financial condition and results of operations. We will be better able to quantify the effect of adopting this standard as we progress in our implementation process and draw nearer to the date of adoption. 7 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited) Chubb Limited and Subsidiaries 2. Acquisitions Cigna’s Life and Accident and Health (A&H) Insurance Business in Asia-Pacific Markets On October 7, 2021, we entered into a definitive agreement to acquire the life and non-life insurance companies that house the personal accident, supplemental health and life insurance business of Cigna in seven Asia-Pacific markets, including Korea, Taiwan, New Zealand, Thailand, Hong Kong and Indonesia and its interest in a joint venture in Turkey, for $ 5.75 billion in cash. The transaction is expected to be completed in 2022. The timing of completion is subject to required regulatory approvals and customary closing conditions. Huatai Group Chubb maintains a direct investment in Huatai Insurance Group Co., Ltd. (Huatai Group). Huatai Group is the parent company of, and owns 100 percent of, Huatai Property & Casualty Insurance Co., Ltd. (Huatai P&C), approximately 80 percent of Huatai Life Insurance Co., Ltd. (Huatai Life), and approximately 82 percent of Huatai Asset Management Co., Ltd. (collectively, Huatai). Huatai Group's insurance operations have more than 600 branches and 17 million customers in China. In November 2020, we completed the purchase of an incremental 0.9 percent ownership interest in Huatai Group for approximately $ 65 million, which was paid in January 2021. As of September 30, 2021, Chubb's aggregate ownership interest in Huatai Group was approximately 47.1 percent. Chubb applies the equity method of accounting to its investment in Huatai Group by recording its share of net income or loss in Other (income) expense in the Consolidated statements of operations. In 2019, Chubb entered into an agreement to acquire an additional 7.1 percent ownership interest in Huatai Group. In July 2021, Chubb signed an agreement of intent to purchase an additional 6.4 percent ownership interest in Huatai Group. In connection with the agreement, Chubb paid a deposit of approximately $ 143 million. The purchase of the additional ownership interests is contingent upon important conditions. As Chubb’s ownership interest increases, we will continue to evaluate the appropriateness of consolidation accounting in accordance with the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 810, Consolidation , and other applicable regulations. 3. Investments a) Fixed maturities September 30, 2021 Amortized Cost Valuation Allowance Gross Unrealized Appreciation Gross Unrealized Depreciation Fair Value (in millions of U.S. dollars) Available for sale U.S. Treasury / Agency $ 2,172 $ — $ 120 $ ( 5 ) $ 2,287 Non-U.S. 24,988 ( 6 ) 1,139 ( 194 ) 25,927 Corporate and asset-backed securities 37,283 ( 6 ) 1,596 ( 157 ) 38,716 Mortgage-backed securities 19,333 — 695 ( 65 ) 19,963 Municipal 5,559 — 236 ( 3 ) 5,792 $ 89,335 $ ( 12 ) $ 3,786 $ ( 424 ) $ 92,685 Amortized Cost Valuation Allowance Net Carrying Value Gross Unrealized Appreciation Gross Unrealized Depreciation Fair Value Held to maturity U.S. Treasury / Agency $ 1,209 $ — $ 1,209 $ 38 $ — $ 1,247 Non-U.S. 1,259 ( 5 ) 1,254 76 — 1,330 Corporate and asset-backed securities 2,079 ( 28 ) 2,051 209 — 2,260 Mortgage-backed securities 1,771 ( 1 ) 1,770 99 ( 1 ) 1,868 Municipal 4,232 ( 1 ) 4,231 183 — 4,414 $ 10,550 $ ( 35 ) $ 10,515 $ 605 $ ( 1 ) $ 11,119 8 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited) Chubb Limited and Subsidiaries December 31, 2020 Amortized Cost Valuation Allowance Gross Unrealized Appreciation Gross Unrealized Depreciation Fair Value (in millions of U.S. dollars) Available for sale U.S. Treasury / Agency $ 2,471 $ — $ 199 $ — $ 2,670 Non-U.S. 24,594 ( 6 ) 1,808 ( 42 ) 26,354 Corporate and asset-backed securities 34,095 ( 14 ) 2,322 ( 72 ) 36,331 Mortgage-backed securities 17,456 — 1,022 ( 8 ) 18,470 Municipal 6,572 — 304 ( 2 ) 6,874 $ 85,188 $ ( 20 ) $ 5,655 $ ( 124 ) $ 90,699 Amortized Cost Valuation Allowance Net Carrying Value Gross Unrealized Appreciation Gross Unrealized Depreciation Fair Value Held to maturity U.S. Treasury / Agency $ 1,392 $ — $ 1,392 $ 60 $ — $ 1,452 Non-U.S. 1,295 ( 7 ) 1,288 118 ( 1 ) 1,405 Corporate and asset-backed securities 2,185 ( 35 ) 2,150 288 — 2,438 Mortgage-backed securities 2,000 ( 1 ) 1,999 148 ( 1 ) 2,146 Municipal 4,825 ( 1 ) 4,824 245 — 5,069 $ 11,697 $ ( 44 ) $ 11,653 $ 859 $ ( 2 ) $ 12,510 The following table presents the amortized cost of our Held to Maturity (HTM) securities according to S&P rating: September 30, 2021 December 31, 2020 (in millions of U.S. dollars, except for percentages) Amortized cost % of Total Amortized cost % of Total AAA $ 2,216 21 % $ 2,511 22 % AA 5,479 52 % 6,193 53 % A 2,011 19 % 2,138 18 % BBB 815 8 % 826 7 % BB 28 — % 28 — % Other 1 — % 1 — % Total $ 10,550 100 % $ 11,697 100 % 9 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited) Chubb Limited and Subsidiaries The following table presents fixed maturities by contractual maturity: September 30 December 31 2021 2020 (in millions of U.S. dollars) Net Carrying Value Fair Value Net Carrying Value Fair Value Available for sale Due in 1 year or less $ 4,568 $ 4,568 $ 4,760 $ 4,760 Due after 1 year through 5 years 25,747 25,747 26,227 26,227 Due after 5 years through 10 years 28,117 28,117 27,232 27,232 Due after 10 years 14,290 14,290 14,010 14,010 72,722 72,722 72,229 72,229 Mortgage-backed securities 19,963 19,963 18,470 18,470 $ 92,685 $ 92,685 $ 90,699 $ 90,699 Held to maturity Due in 1 year or less $ 947 $ 954 $ 1,231 $ 1,240 Due after 1 year through 5 years 3,666 3,792 3,592 3,760 Due after 5 years through 10 years 2,498 2,627 3,029 3,228 Due after 10 years 1,634 1,878 1,802 2,136 8,745 9,251 9,654 10,364 Mortgage-backed securities 1,770 1,868 1,999 2,146 $ 10,515 $ 11,119 $ 11,653 $ 12,510 Expected maturities could differ from contractual maturities because borrowers may have the right to call or prepay obligations, with or without call or prepayment penalties. b) Gross unrealized loss Fixed maturities in an unrealized loss position at September 30, 2021 comprised both investment grade and below investment grade securities for which fair value declined primarily due to widening credit spreads since the date of purchase. The following tables present, for Available for Sale (AFS) fixed maturities in an unrealized loss position (including securities on loan) that are not deemed to have expected credit losses, the aggregate fair value and gross unrealized loss by length of time the security has continuously been in an unrealized loss position: 0 – 12 Months Over 12 Months Total September 30, 2021 Fair Value Gross Unrealized Loss Fair Value Gross Unrealized Loss Fair Value Gross Unrealized Loss (in millions of U.S. dollars) U.S. Treasury / Agency $ 231 $ ( 5 ) $ — $ — $ 231 $ ( 5 ) Non-U.S. 5,704 ( 147 ) 780 ( 40 ) 6,484 ( 187 ) Corporate and asset-backed securities 6,686 ( 124 ) 662 ( 20 ) 7,348 ( 144 ) Mortgage-backed securities 5,948 ( 61 ) 157 ( 4 ) 6,105 ( 65 ) Municipal 239 ( 2 ) 8 ( 1 ) 247 ( 3 ) Total AFS fixed maturities $ 18,808 $ ( 339 ) $ 1,607 $ ( 65 ) $ 20,415 $ ( 404 ) 10 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited) Chubb Limited and Subsidiaries 0 – 12 Months Over 12 Months Total December 31, 2020 Fair Value Gross Unrealized Loss Fair Value Gross Unrealized Loss Fair Value Gross Unrealized Loss (in millions of U.S. dollars) Non-U.S. $ 1,628 $ ( 35 ) $ 114 $ ( 5 ) $ 1,742 $ ( 40 ) Corporate and asset-backed securities 2,212 ( 33 ) 593 ( 14 ) 2,805 ( 47 ) Mortgage-backed securities 875 ( 6 ) 35 ( 2 ) 910 ( 8 ) Municipal 40 ( 1 ) 16 ( 1 ) 56 ( 2 ) Total AFS fixed maturities $ 4,755 $ ( 75 ) $ 758 $ ( 22 ) $ 5,513 $ ( 97 ) c) Net realized gains (losses) The following table presents the components of Net realized gains (losses): Three Months Ended Nine Months Ended September 30 September 30 (in millions of U.S. dollars) 2021 2020 2021 2020 Fixed maturities: Gross realized gains $ 27 $ 50 $ 120 $ 195 Gross realized losses ( 27 ) ( 32 ) ( 99 ) ( 331 ) Net (provision for) recovery of expected credit losses 1 42 17 ( 4 ) Impairment (1) ( 11 ) ( 11 ) ( 12 ) ( 163 ) Total fixed maturities $ ( 10 ) $ 49 $ 26 $ ( 303 ) Equity securities ( 42 ) — 475 119 Other investments 11 31 111 ( 71 ) Foreign exchange 106 ( 222 ) 85 ( 351 ) Investment and embedded derivative instruments ( 9 ) 9 9 38 Fair value adjustments on insurance derivative ( 59 ) 46 252 ( 426 ) S&P futures ( 4 ) ( 52 ) ( 112 ) ( 30 ) Other derivative instruments ( 10 ) 1 ( 8 ) ( 2 ) Other ( 4 ) ( 3 ) ( 5 ) ( 43 ) Net realized gains (losses) (pre-tax) $ ( 21 ) $ ( 141 ) $ 833 $ ( 1,069 ) (1) Relates to certain securities we intended to sell and securities written to market entering default. Realized gains and losses from Equity securities and Other investments from the table above include sales of securities and unrealized gains and losses from fair value changes as follows: Three Months Ended September 30 2021 2020 (in millions of U.S. dollars) Equity Securities Other Investments Total Equity Securities Other Investments Total Net gains (losses) recognized during the period $ ( 42 ) $ 11 $ ( 31 ) $ — $ 31 $ 31 Less: Net gains recognized from sales of securities 19 — 19 34 — 34 Unrealized gains (losses) recognized for securities still held at reporting date $ ( 61 ) $ 11 $ ( 50 ) $ ( 34 ) $ 31 $ ( 3 ) 11 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited) Chubb Limited and Subsidiaries Nine Months Ended September 30 2021 2020 (in millions of U.S. dollars) Equity Securities Other Investments Total Equity Securities Other Investments Total Net gains (losses) recognized during the period $ 475 $ 111 $ 586 $ 119 $ ( 71 ) $ 48 Less: Net gains recognized from sales of securities 109 — 109 197 — 197 Unrealized gains (losses) recognized for securities still held at reporting date $ 366 $ 111 $ 477 $ ( 78 ) $ ( 71 ) $ ( 149 ) The following table presents a roll-forward of valuation allowance for expected credit losses on fixed maturities: Three Months Ended Nine Months Ended September 30 September 30 (in millions of U.S. dollars) 2021 2020 2021 2020 Available for sale Valuation allowance for expected credit losses - beginning of period $ 11 $ 69 $ 20 $ — Impact of adoption of new accounting guidance — — — 25 Provision for expected credit loss 3 5 8 183 Initial allowance for purchased securities with credit deterioration — — — 5 Write-offs charged against the expected credit loss — — — ( 5 ) Recovery of expected credit loss ( 2 ) ( 40 ) ( 16 ) ( 174 ) Valuation allowance for expected credit losses - end of period $ 12 $ 34 $ 12 $ 34 Held to maturity Valuation allowance for expected credit losses - beginning of period $ 37 $ 51 $ 44 $ — Impact of adoption of new accounting guidance — — — 44 Provision for expected credit loss — 2 — 9 Recovery of expected credit loss ( 2 ) ( 8 ) ( 9 ) ( 8 ) Valuation allowance for expected credit losses - end of period $ 35 $ 45 $ 35 $ 45 12 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited) Chubb Limited and Subsidiaries d) Alternative investments Alternative investments include partially-owned investment companies, investment funds, and limited partnerships measured at fair value using net asset value (NAV) as a practical expedient. The following table presents, by investment category, the expected liquidation period, fair value, and maximum future funding commitments of alternative investments: September 30 December 31 Expected Liquidation Period of Underlying Assets 2021 2020 (in millions of U.S. dollars) Fair Value Maximum Future Funding Commitments Fair Value Maximum Future Funding Commitments Financial 2 to 10 Years $ 1,064 $ 309 $ 673 $ 237 Real Assets 2 to 11 Years 1,092 772 805 598 Distressed 2 to 8 Years 568 813 358 970 Private Credit 3 to 8 Years 82 279 88 270 Traditional 2 to 14 Years 6,616 4,958 4,519 1,125 Vintage 1 to 2 Years 64 — 73 — Investment funds Not Applicable 282 — 254 — $ 9,768 $ 7,131 $ 6,770 $ 3,200 Included in all categories in the above table, except for Investment funds, are investments for which Chubb will never have the contractual option to redeem but receives distributions based on the liquidation of the underlying assets. Further, for all categories except for Investment funds, Chubb does not have the ability to sell or transfer the investments without the consent from the general partner of individual funds. Investment Category: Consists of investments in private equity funds: Financial targeting financial services companies, such as financial institutions and insurance services worldwide Real Assets targeting investments related to hard, physical assets, such as real estate, infrastructure and natural resources Distressed targeting distressed corporate debt/credit and equity opportunities in the U.S. Private Credit targeting privately originated corporate debt investments, including senior secured loans and subordinated bonds Traditional employing traditional private equity investment strategies, such as buyout and growth equity globally Vintage funds where the initial fund term has expired Investment funds employ various investment strategies, such as long/short equity and arbitrage/distressed. Included in this category are investments for which Chubb has the option to redeem at agreed upon value as described in each investment fund’s subscription agreement. Depending on the terms of the various subscription agreements, investment fund investments may be redeemed monthly, quarterly, semi-annually, or annually. If Chubb wishes to redeem an investment fund investment, it must first determine if the investment fund is still in a lock-up period (a time when Chubb cannot redeem its investment so that the investment fund manager has time to build the portfolio). If the investment fund is no longer in its lock-up period, Chubb must then notify the investment fund manager of its intention to redeem by the notification date prescribed by the subscription agreement. Subsequent to notification, the investment fund can redeem Chubb’s investment within several months of the notification. Notice periods for redemption of the investment funds are up to 270 days. Chubb can redeem its investment funds without consent from the investment fund managers. e) Restricted assets Chubb is required to maintain assets on deposit with various regulatory authorities to support its insurance and reinsurance operations. These requirements are generally promulgated in the statutory regulations of the individual jurisdictions. The assets on deposit are available to settle insurance and reinsurance liabilities. Chubb is also required to restrict assets pledged under repurchase agreements, which represent Chubb's agreement to sell securities and repurchase them at a future date for a predetermined price. We use trust funds in certain large reinsurance transactions where the trust funds are set up for the benefit of the ceding companies and generally take the place of letter of credit (LOC) requirements. We have investments in segregated portfolios primarily to provide collateral or guarantees for LOC and derivative transactions. Included in restricted assets at 13 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited) Chubb Limited and Subsidiaries September 30, 2021 and December 31, 2020 are investments, primarily fixed maturities, totaling $ 18.82 billion and $ 19.61 billion, respectively, and cash of $ 176 million and $ 89 million, respectively. The following table presents the components of restricted assets: September 30 December 31 (in millions of U.S. dollars) 2021 2020 Trust funds $ 11,669 $ 12,305 Deposits with U.S. regulatory authorities 2,418 2,438 Deposits with non-U.S. regulatory authorities 2,858 2,905 Assets pledged under repurchase agreements 1,425 1,462 Other pledged assets 632 584 Total $ 19,002 $ 19,694 4. Fair value measurements a) Fair value hierarchy Fair value of financial assets and financial liabilities is estimated based on the framework established in the fair value accounting guidance. The guidance defines fair value as the price to sell an asset or transfer a liability (an exit price) in an orderly transaction between market participants and establishes a three-level valuation hierarchy based on the reliability of the inputs. The fair value hierarchy gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data. The three levels of the hierarchy are as follows: • Level 1 – Unadjusted quoted prices for identical assets or liabilities in active markets; • Level 2 – Includes, among other items, inputs other than quoted prices that are observable for the asset or liability such as interest rates and yield curves, quoted prices for similar assets and liabilities in active markets, and quoted prices for identical or similar assets and liabilities in markets that are not active; and • Level 3 – Inputs that are unobservable and reflect management’s judgments about assumptions that market participants would use in pricing an asset or liability. We categorize financial instruments within the valuation hierarchy at the balance sheet date based upon the lowest level of inputs that are significant to the fair value measurement. We use pricing services to obtain fair value measurements for the majority of our investment securities. Based on management’s understanding of the methodologies used, these pricing services only produce an estimate of fair value if there is observable market information that would allow them to make a fair value estimate. Based on our understanding of the market inputs used by the pricing services, all applicable investments have been valued in accordance with GAAP. We do not adjust prices obtained from pricing services. The following is a description of the valuation techniques and inputs used to determine fair values for financial instruments carried at fair value, as well as the general classification of such financial instruments pursuant to the valuation hierarchy. Fixed maturities We use pricing services to estimate fair value measurements for the majority of our fixed maturities. The pricing services use market quotations for fixed maturities that have quoted prices in active markets; such securities are classified within Level 1. For fixed maturities other than U.S. Treasury securities that generally do not trade on a daily basis, the pricing services prepare estimates of fair value measurements using their pricing applications or pricing models, which include available relevant market information, benchmark curves, benchmarking of like securities, sector groupings, and matrix pricing. Additional valuation factors that can be taken into account are nominal spreads, dollar basis, and liquidity adjustments. The pricing services evaluate each asset class based on relevant market and credit information, perceived market movements, and sector news. The market inputs used in the pricing evaluation, listed in the approximate order of priority include: benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, reference data, and industry and economic events. The extent of the use of each input is dependent on the asset class and the market conditions. Given the asset class, the priority of the use of inputs may change, or some market inputs may not be relevant. Additionally, fixed maturities valuation is more subjective when markets are less liquid due to the lack of market based inputs (i.e., stale pricing) and may require the use of models to be priced. The lack of market based inputs may increase the potential that an investment's 14 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited) Chubb Limited and Subsidiaries estimated fair value is not reflective of the price at which an actual transaction would occur. The overwhelming majority of fixed maturities are classified within Level 2 because the most significant inputs used in the pricing techniques are observable. For a small number of fixed maturities, we obtain a single broker quote (typically from a market maker). Due to the disclaimers on the quotes that indicate that the price is indicative only, we include these fair value estimates in Level 3. Equity securities Equity securities with active markets are classified within Level 1 as fair values are based on quoted market prices. For equity securities in markets which are less active, fair values are based on market valuations and are classified within Level 2. Equity securities for which pricing is unobservable are classified within Level 3. Short-term investments Short-term investments, which comprise securities due to mature within one year of the date of purchase that are traded in active markets, are classified within Level 1 as fair values are based on quoted market prices. Securities such as commercial paper and discount notes are classified within Level 2 because these securities are typically not actively traded due to their approaching maturity, and as such, their cost approximates fair value. Short-term investments for which pricing is unobservable are classified within Level 3. Other investments Fair values for the majority of Other investments including investments in partially-owned investment companies, investment funds, and limited partnerships are based on their respective net asset values or equivalent (NAV) and are excluded from the fair value hierarchy table below. Certain of our long-duration contracts are supported by assets that do not qualify for separate account reporting under GAAP. These assets comprise mutual funds, classified within Level 1 in the valuation hierarchy on the same basis as other equity securities traded in active markets. Other investments also include equity securities, classified within Level 1 and fixed maturities, classified within Level 2, held in rabbi trusts maintained by Chubb for deferred compensation plans and supplemental retirement plans and are classified within the valuation hierarchy on the same basis as other equity securities and fixed maturities. Securities lending collateral The underlying assets included in Securities lending collateral in the Consolidated balance sheets are fixed maturities which are classified in the valuation hierarchy on the same basis as other fixed maturities. Excluded from the valuation hierarchy is the corresponding liability related to Chubb’s obligation to return the collateral plus interest as it is reported at contract value and not fair value in the Consolidated balance sheets. Investment derivative instruments Actively traded investment derivative instruments, including futures, options, and forward contracts are classified within Level 1 as fair values are based on quoted market prices. The fair value of cross-currency swaps and interest rate swaps is based on market valuations and is classified within Level 2. Investment derivative instruments are recorded in either Other assets or Accounts payable, accrued expenses, and other liabilities in the Consolidated balance sheets. Other derivative instruments We maintain positions in exchange-traded equity futures contracts designed to limit exposure to a severe equity market decline, which would cause an increase in expected claims and, therefore, an increase in future policy benefit reserves for our guaranteed minimum death benefits (GMDB) and an increase in the fair value liability for our guaranteed living benefits (GLB) reinsurance business. Our positions in exchange-traded equity futures contracts are classified within Level 1. The fair value of the majority of the remaining positions in other derivative instruments is based on significant observable inputs including equity security and interest rate indices. Accordingly, these are classified within Level 2. Other derivative instruments based on unobservable inputs are classified within Level 3. Other derivative instruments are recorded in either Other assets or Accounts payable, accrued expenses, and other liabilities in the Consolidated balance sheets. Separate account assets Separate account assets represent segregated funds where investment risks are borne by the customers, except to the extent of certain guarantees made by Chubb. Separate account assets comprise mutual funds classified within Level 1 in the valuation hierarchy on the same basis as other equity securities traded in active markets. Separate account assets also include fixed maturities classified within Level 2 because the most significant inputs used in the pricing techniques are observable. Excluded from the valuation hierarchy are the corresponding liabilities as they are reported at contract value and not fair value in the Consolidated balance sheets. Separate account assets are recorded in Other assets in the Consolidated balance sheets. 15 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited) Chubb Limited and Subsidiaries Guaranteed living benefits The GLB arises from life reinsurance programs covering living benefit guarantees whereby we assume the risk of guaranteed minimum income benefits (GMIB) associated with variable annuity contracts. GLB’s are recorded in Accounts payable, accrued expenses, and other liabilities in the Consolidated balance sheets. For GLB reinsurance, Chubb estimates fair value using an internal valuation model which includes current market information and estimates of policyholder behavior. All of the treaties contain claim limits, which are factored into the valuation model. The fair value depends on a number of factors, including interest rates, equity markets, credit risk, current account value, market volatility, expected annuitization rates and other policyholder behavior, and changes in policyholder mortality. Because of the significant use of unobservable inputs including policyholder behavior, GLB reinsurance is classified within Level 3. Financial instruments measured at fair value on a recurring basis, by valuation hierarchy September 30, 2021 Level 1 Level 2 Level 3 Total (in millions of U.S. dollars) Assets: Fixed maturities available for sale U.S. Treasury / Agency $ 1,786 $ 501 $ — $ 2,287 Non-U.S. — 25,267 660 25,927 Corporate and asset-backed securities — 36,857 1,859 38,716 Mortgage-backed securities — 19,910 53 19,963 Municipal — 5,792 — 5,792 1,786 88,327 2,572 92,685 Equity securities 4,478 — 79 4,557 Short-term investments 2,012 1,507 10 3,529 Other investments (1) 292 468 — 760 Securities lending collateral — 2,368 — 2,368 Investment derivative instruments 97 — — 97 Other derivative instruments 35 — — 35 Separate account assets 5,225 105 — 5,330 Total assets measured at fair value (1) $ 13,925 $ 92,775 $ 2,661 $ 109,361 Liabilities: Investment derivative instruments $ 111 $ — $ — $ 111 GLB (2) — — 818 818 Total liabilities measured at fair value $ 111 $ — $ 818 $ 929 (1) Excluded from the table above are partially-owned investments, investment funds, and limited partnerships of $ 9,768 million, policy loans of $ 235 million and other investments of $ 80 million at September 30, 2021 measured using NAV as a practical expedient. (2) Our GLB reinsurance product meets the definition of a derivative instrument for accounting purposes and is accordingly carried at fair value. 16 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited) Chubb Limited and Subsidiaries December 31, 2020 Level 1 Level 2 Level 3 Total (in millions of U.S. dollars) Assets: Fixed maturities available for sale U.S. Treasury / Agency $ 2,148 $ 522 $ — $ 2,670 Non-U.S. — 25,808 546 26,354 Corporate and asset-backed securities — 34,758 1,573 36,331 Mortgage-backed securities — 18,410 60 18,470 Municipal — 6,874 — 6,874 2,148 86,372 2,179 90,699 Equity securities 3,954 — 73 4,027 Short-term investments 2,866 1,474 5 4,345 Other investments (1) 434 438 10 882 Securities lending collateral — 1,844 — 1,844 Investment derivative instruments 35 — — 35 Separate account assets 4,264 124 — 4,388 Total assets measured at fair value (1) $ 13,701 $ 90,252 $ 2,267 $ 106,220 Liabilities: Investment derivative instruments $ 52 $ — $ — $ 52 Other derivative instruments 17 — — 17 GLB (2) — — 1,089 1,089 Total liabilities measured at fair value $ 69 $ — $ 1,089 $ 1,158 (1) Excluded from the table above are partially-owned investments, investment funds, and limited partnerships of $ 6,770 million, policy loans of $ 233 million and other investments of $ 60 million at December 31, 2020 measured using NAV as a practical expedient. (2) Our GLB reinsurance product meets the definition of a derivative instrument for accounting purposes and is accordingly carried at fair value. Level 3 financial instruments The following table presents the significant unobservable inputs used in the Level 3 liability valuations. Excluded from the table below are inputs used to determine the fair value of Level 3 assets which are based on single broker quotes and contain no quantitative unobservable inputs developed by management. The majority of our fixed maturities classified as Level 3 used external pricing when markets are less liquid due to the lack of market inputs (i.e., stale pricing, broker quotes). (in millions of U.S. dollars, except for percentages) Fair Value Valuation Technique Significant Unobservable Inputs Ranges Weighted Average (1) September 30, 2021 December 31, 2020 GLB (1) $ 818 $ 1,089 Actuarial model Lapse rate 3 % – 34 % 4.6 % Annuitization rate 0 % – 100 % 3.5 % (1) The weighted average lapse and annuitization rates are determined by weighting each treaty's rates by the GLB contracts fair value. The most significant policyholder behavior assumptions include lapse rates and the GMIB annuitization rates. Assumptions regarding lapse rates and GMIB annuitization rates differ by treaty, but the underlying methodologies to determine rates applied to each treaty are comparable. A lapse rate is the percentage of in-force policies surrendered in a given calendar year. All else equal, as lapse rates increase, ultimate claim payments will decrease. The GMIB annuitization rate is the percentage of policies for which the policyholder will elect to annuitize using the guaranteed benefit provided under the GMIB. All else equal, as GMIB annuitization rates increase, ultimate claim payments will increase, subject to treaty claim limits. 17 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited) Chubb Limited and Subsidiaries The effect of changes in key market factors on assumed lapse and annuitization rates reflect emerging trends using data available from cedants. For treaties with limited experience, rates are established in line with data received from other ceding companies adjusted, as appropriate, with industry estimates. The model and related assumptions are regularly re-evaluated by management and enhanced, as appropriate, based upon additional experience obtained related to policyholder behavior and availability of updated information such as market conditions, market participant assumptions, and demographics of in-force annuities. For the three and nine months ended September 30, 2021 and 2020, no material refinements were made to the model. For detailed information on our lapse and annuitization rate assumptions, refer to Note 4 to the Consolidated Financial Statements of our 2020 Form 10-K. The following tables present a reconciliation of the beginning and ending balances of financial instruments measured at fair value using significant unobservable inputs (Level 3): Assets Liabilities Three Months Ended September 30, 2021 (in millions of U.S. dollars) Available-for-Sale Debt Securities Equity securities Short-term investments Other investments GLB (1) Non-U.S. Corporate and asset- backed securities Mortgage-backed securities Balance, beginning of period $ 642 $ 1,688 $ 47 $ 78 $ 3 $ 10 $ 760 Transfers into Level 3 22 45 — — — — — Transfers out of Level 3 — — — — — ( 10 ) — Change in Net Unrealized Gains/Losses in OCI ( 15 ) 2 — — — — — Net Realized Gains/Losses ( 3 ) — — 1 — — 59 Purchases 60 272 17 4 7 — — Sales ( 19 ) ( 13 ) — ( 4 ) — — — Settlements ( 27 ) ( 135 ) ( 11 ) — — — — Other — — — — — — ( 1 ) Balance, end of period $ 660 $ 1,859 $ 53 $ 79 $ 10 $ — $ 818 Net Realized Gains/Losses Attributable to Changes in Fair Value at the balance sheet date $ — $ — $ — $ ( 1 ) $ — $ — $ 59 Change in Net Unrealized Gains/Losses included in OCI at the balance sheet date $ ( 15 ) $ — $ — $ — $ — $ — $ — (1) Our GLB reinsurance product meets the definition of a derivative instrument for accounting purposes and is accordingly carried at fair value. 18 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited) Chubb Limited and Subsidiaries Assets Liabilities Three Months Ended September 30, 2020 (in millions of U.S. dollars) Available-for-Sale Debt Securities Equity securities Short-term investments Other investments GLB (1) Non-U.S. Corporate and asset- backed securities Mortgage-backed securities Balance, beginning of period $ 469 $ 1,369 $ 60 $ 64 $ 2 $ 10 $ 1,372 Transfers into Level 3 — 1 — — — — — Transfers out of Level 3 — ( 1 ) — — — — — Change in Net Unrealized Gains/Losses in OCI 21 13 — — ( 1 ) — — Net Realized Gains/Losses 1 3 — 2 — — ( 46 ) Purchases 41 194 2 3 7 — — Sales ( 19 ) ( 80 ) — ( 3 ) — — — Settlements ( 19 ) ( 54 ) ( 1 ) — ( 1 ) — — Other — — — — — — ( 8 ) Balance, end of period $ 494 $ 1,445 $ 61 $ 66 $ 7 $ 10 $ 1,318 Net Realized Gains/Losses Attributable to Changes in Fair Value at the balance sheet date $ — $ 3 $ — $ 2 $ — $ — $ ( 46 ) Change in Net Unrealized Gains/Losses included in OCI at the balance sheet date $ 20 $ 12 $ — $ — $ ( 1 ) $ — $ — (1) Our GLB reinsurance product meets the definition of a derivative instrument for accounting purposes and is accordingly carried at fair value. 19 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited) Chubb Limited and Subsidiaries Assets Liabilities Nine Months Ended September 30, 2021 (in millions of U.S. dollars) Available-for-Sale Debt Securities Equity securities Short-term investments Other investments GLB (1) Non-U.S. Corporate and asset- backed securities Mortgage-backed securities Balance, beginning of period $ 546 $ 1,573 $ 60 $ 73 $ 5 $ 10 $ 1,089 Transfers into Level 3 22 91 — — — — — Transfers out of Level 3 ( 10 ) ( 3 ) — — — ( 10 ) — Change in Net Unrealized Gains/Losses in OCI ( 2 ) 14 — — — — — Net Realized Gains/Losses — 3 — 8 — — ( 252 ) Purchases 235 681 18 11 10 — — Sales ( 35 ) ( 88 ) ( 1 ) ( 13 ) — — — Settlements ( 96 ) ( 412 ) ( 24 ) — ( 5 ) — — Other — — — — — — ( 19 ) Balance, end of period $ 660 $ 1,859 $ 53 $ 79 $ 10 $ — $ 818 Net Realized Gains/Losses Attributable to Changes in Fair Value at the balance sheet date $ — $ 3 $ — $ 5 $ — $ — $ ( 252 ) Change in Net Unrealized Gains/Losses included in OCI at the balance sheet date $ 2 $ 17 $ — $ — $ — $ — $ — (1) Our GLB reinsurance product meets the definition of a derivative instrument for accounting purposes and is accordingly carried at fair value. 20 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited) Chubb Limited and Subsidiaries Assets Liabilities Nine Months Ended September 30, 2020 (in millions of U.S. dollars) Available-for-Sale Debt Securities Equity securities Short-term investments Other investments GLB (1) Non-U.S. Corporate and asset- backed securities Mortgage-backed securities Balance, beginning of period $ 449 $ 1,451 $ 60 $ 69 $ 6 $ 10 $ 897 Transfers into Level 3 — 92 — — — — — Transfers out of Level 3 ( 16 ) ( 73 ) — — — — — Change in Net Unrealized Gains/Losses in OCI 1 ( 31 ) — — ( 1 ) — — Net Realized Gains/Losses ( 2 ) ( 23 ) — ( 1 ) — — 426 Purchases 190 416 2 14 9 — — Sales ( 81 ) ( 147 ) — ( 16 ) — — — Settlements ( 47 ) ( 240 ) ( 1 ) — ( 7 ) — — Other — — — — — — ( 5 ) Balance, end of period $ 494 $ 1,445 $ 61 $ 66 $ 7 $ 10 $ 1,318 Net Realized Gains/Losses Attributable to Changes in Fair Value at the balance sheet date $ — $ ( 6 ) $ — $ 1 $ — $ — $ 426 Change in Net Unrealized Gains/Losses included in OCI at the balance sheet date $ — $ ( 25 ) $ — $ — $ ( 1 ) $ — $ — (1) Our GLB reinsurance product meets the definition of a derivative instrument for accounting purposes and is accordingly carried at fair value. b) Financial instruments disclosed, but not measured, at fair value Chubb uses various financial instruments in the normal course of its business. Our insurance contracts are excluded from fair value of financial instruments accounting guidance, and therefore, are not included in the amounts discussed below. The carrying values of cash, other assets, other liabilities, and other financial instruments not included below approximated their fair values. Refer to the 2020 Form 10-K for information on the fair value methods and assumptions for investments in partially-owned insurance companies, short-term and long-term debt, repurchase agreements, and trust-preferred securities. 21 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited) Chubb Limited and Subsidiaries The following tables present fair value, by valuation hierarchy, and carrying value of the financial instruments not measured at fair value: September 30, 2021 Fair Value Net Carrying Value (in millions of U.S. dollars) Level 1 Level 2 Level 3 Total Assets: Fixed maturities held to maturity U.S. Treasury / Agency $ 1,195 $ 52 $ — $ 1,247 $ 1,209 Non-U.S. — 1,330 — 1,330 1,254 Corporate and asset-backed securities — 2,260 — 2,260 2,051 Mortgage-backed securities — 1,868 — 1,868 1,770 Municipal — 4,414 — 4,414 4,231 Total assets $ 1,195 $ 9,924 $ — $ 11,119 $ 10,515 Liabilities: Repurchase agreements $ — $ 1,406 $ — $ 1,406 $ 1,406 Long-term debt — 16,648 — 16,648 14,823 Trust preferred securities — 465 — 465 308 Total liabilities $ — $ 18,519 $ — $ 18,519 $ 16,537 December 31, 2020 Fair Value Net Carrying Value (in millions of U.S. dollars) Level 1 Level 2 Level 3 Total Assets: Fixed maturities held to maturity U.S. Treasury / Agency $ 1,395 $ 57 $ — $ 1,452 $ 1,392 Non-U.S. — 1,405 — 1,405 1,288 Corporate and asset-backed securities — 2,438 — 2,438 2,150 Mortgage-backed securities — 2,146 — 2,146 1,999 Municipal — 5,069 — 5,069 4,824 Total assets $ 1,395 $ 11,115 $ — $ 12,510 $ 11,653 Liabilities: Repurchase agreements $ — $ 1,405 $ — $ 1,405 $ 1,405 Long-term debt — 17,487 — 17,487 14,948 Trust preferred securities — 473 — 473 308 Total liabilities $ — $ 19,365 $ — $ 19,365 $ 16,661 5. Reinsurance Reinsurance recoverable on ceded reinsurance September 30, 2021 December 31, 2020 (in millions of U.S. dollars) Net Reinsurance Recoverable (1) Valuation allowance Net Reinsurance Recoverable (1) Valuation allowance Reinsurance recoverable on unpaid losses and loss expenses $ 15,550 $ 269 $ 14,647 $ 257 Reinsurance recoverable on paid losses and loss expenses 1,098 56 945 57 Reinsurance recoverable on losses and loss expenses $ 16,648 $ 325 $ 15,592 $ 314 Reinsurance recoverable on policy benefits $ 206 $ 4 $ 206 $ 5 (1) Net of valuation allowance for uncollectible reinsurance. The increase in reinsurance recoverable on losses and loss expenses was primarily due to higher underlying ceded exposures due to premium growth, unfavorable prior period development in certain lines, crop activity, and catastrophe losses. 22 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited) Chubb Limited and Subsidiaries The following table presents a roll-forward of valuation allowance for uncollectible reinsurance related to Reinsurance recoverable on loss and loss expenses: Nine Months Ended September 30 (in millions of U.S. dollars) 2021 2020 Valuation allowance for uncollectible reinsurance - beginning of period $ 314 $ 316 Provision for uncollectible reinsurance 16 21 Write-offs charged against the valuation allowance ( 4 ) ( 19 ) Foreign exchange revaluation ( 1 ) 2 Valuation allowance for uncollectible reinsurance - end of period $ 325 $ 320 For additional information, refer to Note 1 d) to the Consolidated Financial Statements of our 2020 Form 10-K. 6. Unpaid losses and loss expenses The following table presents a reconciliation of beginning and ending Unpaid losses and loss expenses: Nine Months Ended September 30 (in millions of U.S. dollars) 2021 2020 Gross unpaid losses and loss expenses – beginning of period $ 67,811 $ 62,690 Reinsurance recoverable on unpaid losses – beginning of period (1) ( 14,647 ) ( 14,181 ) Net unpaid losses and loss expenses – beginning of period 53,164 48,509 Net losses and loss expenses incurred in respect of losses occurring in: Current year 17,556 17,109 Prior years (2) ( 868 ) ( 212 ) Total 16,688 16,897 Net losses and loss expenses paid in respect of losses occurring in: Current year 4,771 4,766 Prior years 7,922 7,597 Total 12,693 12,363 Foreign currency revaluation and other ( 78 ) 95 Net unpaid losses and loss expenses – end of period 57,081 53,138 Reinsurance recoverable on unpaid losses (1) 15,550 14,767 Gross unpaid losses and loss expenses – end of period $ 72,631 $ 67,905 (1) Net of valuation allowance for uncollectible reinsurance. (2) Relates to prior period loss reserve development only and excludes prior period development related to reinstatement premiums, expense adjustments and earned premiums totaling $ 87 million and $ 23 million for the nine months ended September 30, 2021 and 2020, respectively. Gross and net unpaid losses and loss expenses increased $ 4,820 million and $ 3,917 million, respectively, for the nine months ended September 30, 2021, driven by an increase in underlying exposure due to premium growth, crop activity, and net catastrophe losses incurred, partially offset by favorable prior period development. 23 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited) Chubb Limited and Subsidiaries Prior Period Development Prior period development (PPD) arises from changes to loss estimates recognized in the current year that relate to loss events that occurred in previous calendar years and excludes the effect of losses from the development of earned premium from previous accident years. Long-tail lines include lines such as workers' compensation, general liability, and professional liability; while short-tail lines include lines such as most property lines, energy, personal accident, and agriculture. The following table summarizes (favorable) and adverse PPD by segment. Three Months Ended September 30 Nine Months Ended September 30 (in millions of U.S. dollars) Long-tail Short-tail Total Long-tail Short-tail Total 2021 North America Commercial P&C Insurance $ ( 101 ) $ ( 56 ) $ ( 157 ) $ ( 243 ) $ ( 197 ) $ ( 440 ) North America Personal P&C Insurance — ( 182 ) ( 182 ) — ( 266 ) ( 266 ) North America Agricultural Insurance — 7 7 — 5 5 Overseas General Insurance ( 13 ) ( 15 ) ( 28 ) ( 8 ) ( 201 ) ( 209 ) Global Reinsurance ( 4 ) — ( 4 ) ( 26 ) 15 ( 11 ) Corporate 43 — 43 140 — 140 Total $ ( 75 ) $ ( 246 ) $ ( 321 ) $ ( 137 ) $ ( 644 ) $ ( 781 ) 2020 North America Commercial P&C Insurance $ ( 255 ) $ 55 $ ( 200 ) $ ( 439 ) $ ( 12 ) $ ( 451 ) North America Personal P&C Insurance — 48 48 — 48 48 North America Agricultural Insurance — 18 18 — 4 4 Overseas General Insurance ( 71 ) 11 ( 60 ) ( 72 ) ( 28 ) ( 100 ) Global Reinsurance ( 6 ) — ( 6 ) ( 25 ) ( 4 ) ( 29 ) Corporate 54 — 54 339 — 339 Total $ ( 278 ) $ 132 $ ( 146 ) $ ( 197 ) $ 8 $ ( 189 ) Significant prior period movements by segment, principally driven by reserve reviews completed during each respective period, are discussed in more detail below. The remaining net development for long-tail lines and short-tail business for each segment and Corporate comprises numerous favorable and adverse movements across a number of lines and accident years, none of which is significant individually or in the aggregate. North America Commercial P&C Insurance 2021 For the three months ended September 30, 2021, net favorable PPD was $ 157 million, which was the net result of several underlying favorable and adverse movements, and was driven by the following principal changes: • Net favorable development of $ 101 million in long-tail business, primarily from: • Net favorable development of $ 97 million in our workers' compensation business mainly impacting accident years 2016 and prior, driven by lower than expected loss experience, and related improvements in loss development factors; • Net favorable development of $ 36 million on large multi-line prospective deals in the 2017 and prior accident years, due to lower than expected reported loss activity. These structured deals typically cover large clients for multiple product lines and with varying loss limitations; this development is net of premium returns of $ 46 million tied to the loss performance of the particular deals; and • Net adverse development of $ 31 million in commercial excess and umbrella portfolios, mainly in accident years 2018 and 2019, driven by higher than expected reported loss activity. 24 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited) Chubb Limited and Subsidiaries • Net favorable development of $ 56 million in short-tail business, primarily from: • Net favorable development of $ 54 million in our property and marine portfolios, mainly in accident years 2019 and 2020, which experienced lower than expected loss development on catastrophe and non-catastrophe losses. For the nine months ended September 30, 2021, net favorable PPD was $ 440 million, which was the net result of several underlying favorable and adverse movements, and was driven by the following principal changes: • Net favorable development of $ 243 million in long-tail business, primarily from: • Net favorable development of $ 255 million in our workers’ compensation business. This included favorable development of $ 36 million related to our annual assessment of multi-claimant events including industrial accidents, in the 2020 accident year. Consistent with prior years, we reviewed these potential exposures after the close of the accident year to allow for late reporting or identification of significant losses. The remaining overall favorable development was mainly in accident years 2016 and prior, driven by lower than expected loss experience and related improvements to loss development factors; • Net favorable development of $ 51 million in professional liability (errors & omissions and cyber), driven by accident years 2016 and 2017, from lower than expected emergence, partly offset by higher than expected development in accident year 2019; • Net favorable development of $ 40 million in voluntary environmental lines, driven by accident years 2017 and prior, from lower than expected emergence, partly offset by higher than expected development in accident year 2019; • Net favorable development of $ 37 million in general liability portfolios, driven by lower than expected paid and reported case incurred activity in accident years 2017 and prior, partly offset by higher than expected reported case incurred activity in accident years 2018 and 2019; • Net favorable development of $ 36 million on large multi-line prospective deals due to the same factors experienced for the three months ended September 30, 2021, as described above; • Net adverse development of $ 26 million in high deductible general liability coverages, driven by higher than expected loss severities, mainly impacting accident years 2016 through 2020, partly offset by favorable loss development in older accident years; • Net adverse development of $ 74 million in commercial automobile liability, driven by adverse reported loss experience, mainly impacting accident years 2017 and 2019; and • Net adverse development of $ 74 million in commercial excess and umbrella portfolios, with accident years 2016 through 2019 experiencing higher than expected reported loss activity, partly offset by lower than expected emergence in accident years 2015 and prior. • Net favorable development of $ 197 million in short-tail business, primarily from: • Net favorable development of $ 89 million in surety, mainly in accident years 2018 through 2020, driven by lower than expected loss emergence; • Net favorable development of $ 83 million in property and marine coverages mainly in accident years 2019 and 2020, driven by lower than expected loss development; • Net favorable development of $ 46 million in accident and health, mainly in accident years 2019 and 2020, where loss emergence was lower than expected; and 25 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited) Chubb Limited and Subsidiaries • Net adverse development of $ 41 million in first-party cyber risk, driven by accident years 2019 and 2020, which experienced higher than expected loss development as well as heightened frequency and severity. 2020 For the three months ended September 30, 2020, net favorable PPD was $ 200 million, which was the net result of several underlying favorable and adverse movements, and was driven by the following principal changes: • Net favorable development of $ 255 million in long-tail business, primarily from: • Net favorable development of $ 155 million in workers' compensation business mainly impacting accident years 2016 and prior, driven by lower than expected paid and reported loss activity, and related updates to loss development factors, partly offset by adverse development in accident year 2019; • Net favorable development of $ 47 million in commercial excess and umbrella portfolios, driven by accident years 2014 and prior, and accident year 2019. The 2014 and prior development was a function of lower than expected paid and reported loss activity. The development on the 2019 accident year relates to three large policies covering specific perils, which expired in the quarter, with no covered events occurring; • Net favorable development of $ 41 million on large multi-line prospective deals in the 2016 and prior accident years, due to lower than expected reported loss activity. These structured deals typically cover large clients for multiple product lines and with varying loss limitations; this development is net of premium returns of $ 26 million tied to the loss performance of the particular deals; • Net favorable development of $ 40 million in our foreign casualty business, mainly in accident year 2016, due to lower than expected reported loss activity, partly offset by a large loss in accident year 2017; and • Net adverse development of $ 29 million in assumed general liability and excess lines mainly in accident years 2016 and prior due to higher than expected reported loss activity. • Net adverse development of $ 55 million in short-tail business, primarily from: • Net adverse development of $ 35 million in our property portfolios, due to adverse non-catastrophe loss development mainly in accident year 2019, partially offset by favorable catastrophe-driven loss experience; and • Net adverse development of $ 21 million in our marine portfolios, mainly impacting the 2019 accident year, driven by higher than expected non-catastrophe loss development. For the nine months ended September 30, 2020, net favorable PPD was $ 451 million, which was the net result of several underlying favorable and adverse movements, and was driven by the following principal changes: • Net favorable development of $ 439 million in long-tail business, primarily from: • Net favorable development of $ 337 million in workers’ compensation lines. This included favorable development of $ 62 million related to our annual assessment of multi-claimant events including industrial accidents, in the 2019 accident year. Consistent with prior years, we reviewed these potential exposures after the close of the accident year to allow for late reporting or identification of significant losses. This favorable development in accident year 2019 was partially offset by some higher than expected activity from other claims. The remaining overall favorable development was mainly in accident years 2016 and prior, driven by lower than expected loss experience and related updates to loss development factors; • Net favorable development of $ 66 million in professional liability (errors & omissions and cyber risk), driven by accident years 2016 and prior, which experienced lower than expected loss emergence; • Net favorable development of $ 43 million in voluntary environmental lines, in accident years 2016 and prior, due to lower than expected emergence and a related updates to loss development factors; 26 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited) Chubb Limited and Subsidiaries • Net favorable development of $ 41 million on large multi-line prospective deals due to the same factors experienced for the three months ended September 30, 2020, as described above; • Net favorable development of $ 40 million in our foreign casualty businesses due to the same factors experienced for the three months ended September 30, 2020, as described above; • Net adverse development of $ 75 million in commercial automobile liability, mainly in high deductible and excess portfolios, driven by adverse paid and reported loss experience and related updates to loss development factors, mainly in accident years 2015 through 2019; and • Net adverse development of $ 5 million for U.S. child molestation claims, predominantly reviver statute-related. • Net favorable development of $ 12 million in short-tail business due to the same factors experienced for the three months ended September 30, 2020, as described above, which was offset by: • Net favorable development of $ 37 million, in accident and health, mainly in accident years 2018 and 2019, driven by lower than expected paid loss emergence; and • Net favorable development of $ 31 million in surety, driven by accident year 2018, where loss emergence was lower than expected. North America Personal P&C Insurance 2021 For the three months ended September 30, 2021, net favorable PPD was $ 182 million, driven by favorable development of $ 176 million in homeowners, including valuables, mainly in accident year 2020, which experienced better than expected non-catastrophe loss development. For the nine months ended September 30, 2021, net favorable PPD was $ 266 million, driven by favorable development of $ 216 million in homeowners, including valuables, due to the same factors experienced for the three months ended September 30, 2021 as described above and a favorable $ 43 million in automobile, predominantly from better than expected frequency results in accident year 2020 for physical damage coverages. 2020 For the three and nine months ended September 30, 2020, net adverse PPD was $ 48 million, which was the net result of several underlying favorable and adverse movements, and was driven by the following principal changes: • Net adverse development of $ 69 million in our homeowners lines, including valuables, mainly in accident years 2017 through 2019 due to higher than expected non-catastrophe loss emergence and adverse development arising from natural catastrophes in accident years 2017 and 2018; and • Net favorable development of $ 22 million in our personal excess lines, driven by favorable development mainly in the 2017 accident year, partly offset by adverse development in accident year 2019. Overseas General Insurance 2021 For the three months ended September 30, 2021, net favorable PPD was $ 28 million, which was the net result of several underlying favorable and adverse movements, and was driven by the following principal changes: • Net favorable development of $ 15 million in short-tail business, primarily from favorable claim development in surety in accident years 2018 through 2020. • Net favorable development of $ 13 million in long-tail business, primarily from: • Net favorable development of $ 72 million in casualty lines, including favorable development of $ 97 million in accident years 2017 and prior, due to lower than expected loss emergence across primary and excess lines in Continental Europe and U.K., partially offset by adverse development of $ 25 million in accident years 2018 through 2020, primarily due to higher than expected loss development and corresponding changes in loss development patterns on business in Asia Pacific; 27 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited) Chubb Limited and Subsidiaries • Net favorable development of $ 24 million in other long tail lines including Environmental and Political Risks, primarily in accident years 2017 and prior; and • Net adverse development of $ 84 million in financial lines, with adverse development primarily in accident years 2011 through 2020 in Directors and Officers (D&O) on specific claims in Australia, and U.K., and adverse professional indemnity development, including medical malpractice, in various regions. For the nine months ended September 30, 2021, net favorable PPD was $ 209 million, primarily from: • Net favorable development of $ 201 million in short-tail business, primarily from: • Net favorable development of $ 55 million in accident and health lines, mainly due to favorable loss development across all regions in accident years 2019 and 2020; • Net favorable development of $ 54 million in property lines, in accident years 2019 and 2020, including a $ 21 million favorable reduction in COVID-19 estimates in accident year 2020. The remaining favorable development was across most regions in accident years 2019 and 2020; and • Net favorable development of $ 35 million in marine lines in accident years 2018 through 2020, driven by favorable loss development, specific claim reductions, and salvage and subrogation recoveries in Continental Europe and Asia Pacific. 2020 For the three months ended September 30, 2020, net favorable PPD was $ 60 million, which was the net result of several underlying favorable and adverse movements, and was driven by the following principal changes: • Net favorable development of $ 71 million in long-tail business, primarily from: • Net favorable development of $ 94 million in casualty lines, including favorable development of $ 143 million in accident years 2016 and prior, due to lower than expected loss emergence across primary and excess lines in Continental Europe, U.K., and Asia Pacific, partially offset by adverse development of $ 49 million in accident years 2017 through 2019, primarily due to adverse large loss experience in the U.K. and Asia Pacific; • Net favorable development of $ 22 million in political risks, driven by benign loss experience in 2018 and 2019; and • Net adverse development of $ 57 million in financial lines, with adverse development of $ 125 million in accident years 2016 through 2019, primarily due to adverse large loss experience in D&O in the U.K. and Asia Pacific. This was partially offset by favorable development of $ 68 million in accident years 2015 and prior, primarily from favorable case-specific settlements within Continental Europe and Asia Pacific financial institutions. For the nine months ended September 30, 2020, net favorable PPD was $ 100 million, which was the net result of several underlying favorable and adverse movements and was driven by the following principal changes: • Net favorable development of $ 72 million in long-tail lines due to the same factors experienced for the three months ended September 30, 2020 described above; and • Net favorable development of $ 28 million in short-tail business, including $ 22 million in marine lines across all regions mainly in accident years 2017 and 2018. Global Reinsurance 2020 For the three and nine months ended September 30, 2020, net favorable PPD was $ 6 million and $ 29 million, respectively, which was the net result of several underlying favorable and adverse movements, none of which is significant individually or in the aggregate. 28 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited) Chubb Limited and Subsidiaries Corporate 2021 For the three months ended September 30, 2021, net adverse development was $ 43 million, driven principally by development in environmental liabilities of $ 33 million due to certain case specific incurred activity. For the nine months ended September 30, 2021, net adverse development was $ 140 million, driven by adverse development of $ 68 million for molestation claims, as well as the adverse development noted above regarding environmental liabilities. The remainder of the adverse development was driven by increased claim costs on non-A&E run-off workers’ compensation exposures, and charges relating to unallocated loss adjustment expenses incurred. 2020 For the three months ended September 30, 2020, net adverse development was $ 54 million, driven principally by development in environmental liabilities of $ 35 million due to certain case specific incurred activity. For the nine months ended September 30, 2020 net adverse development was $ 339 million, driven by adverse development of $ 254 million for U.S. child molestation claims, predominantly reviver statute-related, as well as the adverse development noted above regarding environmental liabilities. The remainder of the adverse development was driven by increased claim costs on a limited number of non-A&E run-off casualty and workers’ compensation exposures, and charges relating to unallocated loss adjustment expenses due to run-off operating expenses. 7. Commitments, contingencies, and guarantees a) Derivative instruments Foreign currency management As a global company, Chubb entities transact business in multiple currencies. Our policy is to generally match assets, liabilities, and required capital for each individual jurisdiction in local currency, which would include the use of derivatives discussed below. We do not hedge our net asset non-U.S. dollar capital positions; however, we do consider economic hedging for planned cross border transactions. Derivative instruments employed Chubb maintains positions in derivative instruments such as futures, options, swaps, and foreign currency forward contracts for which the primary purposes are to manage duration and foreign currency exposure, yield enhancement, or to obtain an exposure to a particular financial market. Chubb also maintains positions in convertible securities that contain embedded derivatives. Investment derivative instruments are recorded in either Other assets (OA) or Accounts payable, accrued expenses, and other liabilities (AP), convertible bonds are recorded in Fixed maturities available for sale (FM AFS), and convertible equity securities are recorded in Equity securities (ES) in the Consolidated balance sheets. These are the most numerous and frequent derivative transactions. In addition, Chubb purchases to be announced mortgage-backed securities (TBAs) as part of its investing activities. Under reinsurance programs covering GLBs, Chubb assumes the risk of GLBs, principally GMIB, associated with variable annuity contracts. The GMIB risk is triggered if, at the time the contract holder elects to convert the accumulated account value to a periodic payment stream (annuitize), the accumulated account value is not sufficient to provide a guaranteed minimum level of monthly income. The GLB reinsurance product meets the definition of a derivative instrument and is classified within AP. Chubb also generally maintains positions in exchange-traded equity futures contracts on equity market indices to limit equity exposure in the GMDB and GLB book of business. All derivative instruments are carried at fair value with changes in fair value recorded in Net realized gains (losses) in the Consolidated statements of operations. None of the derivative instruments are designated as hedges for accounting purposes. 29 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited) Chubb Limited and Subsidiaries The following table presents the balance sheet locations, fair values of derivative instruments in an asset or (liability) position, and notional values/payment provisions of our derivative instruments: September 30, 2021 December 31, 2020 Consolidated Balance Sheet Location Fair Value Notional Value/ Payment Provision Fair Value Notional Value/ Payment Provision (in millions of U.S. dollars) Derivative Asset Derivative (Liability) Derivative Asset Derivative (Liability) Investment and embedded derivative instruments: Foreign currency forward contracts OA / (AP) $ 22 $ ( 89 ) $ 4,235 $ 22 $ ( 49 ) $ 2,807 Options/Futures contracts on notes, bonds, and equities OA / (AP) 75 ( 22 ) 13,005 13 ( 3 ) 1,749 Convertible securities (1) FM AFS / ES 12 — 13 9 — 11 $ 109 $ ( 111 ) $ 17,253 $ 44 $ ( 52 ) $ 4,567 Other derivative instruments: Futures contracts on equities (2) OA / (AP) $ 35 $ — $ 867 $ — $ ( 17 ) $ 709 Other OA / (AP) — — 157 — — 16 $ 35 $ — $ 1,024 $ — $ ( 17 ) $ 725 GLB (3) (AP) $ — $ ( 818 ) $ 1,539 $ — $ ( 1,089 ) $ 1,658 (1) Includes fair value of embedded derivatives. (2) Related to GMDB and GLB book of business. (3) Note that the payment provision related to GLB is the net amount at risk. The concept of a notional value does not apply to the GLB reinsurance contracts. At September 30, 2021 and December 31, 2020, net derivative assets of $ 22 million and net derivative liabilities of $ 30 million, respectively, included in the table above were subject to a master netting agreement. The remaining derivatives included in the table above were not subject to a master netting agreement. The following table presents net realized gains (losses) related to derivative instrument activity in the Consolidated statements of operations: Three Months Ended Nine Months Ended September 30 September 30 (in millions of U.S. dollars) 2021 2020 2021 2020 Investment and embedded derivative instruments: Foreign currency forward contracts $ ( 15 ) $ — $ ( 37 ) $ 53 All other futures contracts, options, and equities 6 9 45 ( 15 ) Convertible securities (1) — — 1 — Total investment and embedded derivative instruments $ ( 9 ) $ 9 $ 9 $ 38 GLB and other derivative instruments: GLB $ ( 59 ) $ 46 $ 252 $ ( 426 ) Futures contracts on equities (2) ( 4 ) ( 52 ) ( 112 ) ( 30 ) Other ( 10 ) 1 ( 8 ) ( 2 ) Total GLB and other derivative instruments $ ( 73 ) $ ( 5 ) $ 132 $ ( 458 ) $ ( 82 ) $ 4 $ 141 $ ( 420 ) (1) Includes embedded derivatives. (2) Related to GMDB and GLB book of business. b) Derivative instrument objectives (i) Foreign currency exposure management A foreign currency forward contract (forward) is an agreement between participants to exchange specific currencies at a future date. Chubb uses forwards to minimize the effect of fluctuating foreign currencies as discussed above. 30 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited) Chubb Limited and Subsidiaries (ii) Duration management and market exposure Futures Futures contracts give the holder the right and obligation to participate in market movements, determined by the index or underlying security on which the futures contract is based. Settlement is made daily in cash by an amount equal to the change in value of the futures contract times a multiplier that scales the size of the contract. Exchange-traded futures contracts on money market instruments, notes, and bonds are used in fixed maturity portfolios to more efficiently manage duration, as substitutes for ownership of the money market instruments, bonds, and notes without significantly increasing the risk in the portfolio. Investments in futures contracts may be made only to the extent that there are assets under management not otherwise committed. Exchange-traded equity futures contracts are used to limit exposure to a severe equity market decline, which would cause an increase in expected claims and therefore, an increase in future policy benefit reserves for GMDB and an increase in the fair value liability for GLB reinsurance business. Options An option contract conveys to the holder the right, but not the obligation, to purchase or sell a specified amount or value of an underlying security at a fixed price. Option contracts are used in our investment portfolio as protection against unexpected shifts in interest rates, which would affect the duration of the fixed maturity portfolio. By using options in the portfolio, the overall interest rate sensitivity of the portfolio can be reduced. Option contracts may also be used as an alternative to futures contracts in the synthetic strategy as described above. The price of an option is influenced by the underlying security, expected volatility, time to expiration, and supply and demand. The credit risk associated with the above derivative financial instruments relates to the potential for non-performance by counterparties. Although non-performance is not anticipated, in order to minimize the risk of loss, management monitors the creditworthiness of its counterparties and obtains collateral. The performance of exchange-traded instruments is guaranteed by the exchange on which they trade. For non-exchange-traded instruments, the counterparties are principally banks which must meet certain criteria according to our investment guidelines. Interest rate swaps An interest rate swap is a contract between two counterparties in which interest payments are made based on a notional principal amount, which itself is never paid or received. Under the terms of an interest rate swap, one counterparty makes interest payments based on a fixed interest rate and the other counterparty’s payments are based on a floating rate. Interest rate swap contracts are used occasionally in our investment portfolio as protection against unexpected shifts in interest rates, which would affect the fair value of the fixed maturity portfolio. By using interest rate swaps in the portfolio, the overall duration or interest rate sensitivity of the portfolio can be impacted. Cross-currency swaps Cross-currency swaps are agreements under which two counterparties exchange interest payments and principal denominated in different currencies at a future date. We use cross-currency swaps to reduce the foreign currency and interest rate risk by converting cash flows back into local currency. We invest in foreign currency denominated investments to improve credit diversification and also to obtain better duration matching to our liabilities that is limited in the local currency market. Other Included within Other are derivatives intended to reduce potential losses which may arise from certain exposures in our insurance business. The economic benefit provided by these derivatives is similar to purchased reinsurance. For example, Chubb may enter into crop derivative contracts to protect underwriting results in the event of a significant decline in commodity prices. (iii) Convertible security investments A convertible security is a debt instrument or preferred stock that can be converted into a predetermined amount of the issuer’s equity. The convertible option is an embedded derivative within the host instruments which are classified in the investment portfolio as either available for sale or as an equity security. Chubb purchases convertible securities for their total return and not specifically for the conversion feature. 31 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited) Chubb Limited and Subsidiaries (iv) TBA By acquiring TBAs, we make a commitment to purchase a future issuance of mortgage-backed securities. For the period between purchase of the TBAs and issuance of the underlying security, we account for our position as a derivative in the Consolidated Financial Statements. Chubb purchases TBAs both for their total return and for the flexibility they provide related to our mortgage-backed security strategy. (v) GLB Under the GLB program, as the assuming entity, Chubb is obligated to provide coverage until the expiration or maturity of the underlying deferred annuity contracts or the expiry of the reinsurance treaty. The GLB is accounted for as a derivative and is recorded at fair value. Fair value represents management’s estimate of an exit price and thus, includes a risk margin. We may recognize a realized loss for other changes in fair value due to adverse changes in the capital markets (e.g., declining interest rates and/or declining U.S. and/or international equity markets) and changes in actual or estimated future policyholder behavior (e.g., increased annuitization or decreased lapse rates) although we expect the business to be profitable. To mitigate adverse changes in the capital markets, we maintain positions in exchange-traded equity futures contracts, as noted under section "(ii) Futures" above. These futures increase in fair value when the S&P 500 index decreases (and decrease in fair value when the S&P 500 index increases). The net impact of gains or losses related to changes in fair value of the GLB liability and the exchange-traded equity futures are included in Net realized gains (losses). c) Securities lending and secured borrowings Chubb participates in a securities lending program operated by a third-party banking institution whereby certain assets are loaned to qualified borrowers and from which we earn an incremental return. The securities lending collateral can only be drawn down by Chubb in the event that the institution borrowing the securities is in default under the lending agreement. An indemnification agreement with the lending agent protects us in the event a borrower becomes insolvent or fails to return any of the securities on loan. The collateral is recorded in Securities lending collateral and the liability is recorded in Securities lending payable in the Consolidated balance sheets. The following table presents the carrying value of collateral held under securities lending agreements by investment category and remaining contractual maturity of the underlying agreements: Remaining contractual maturity September 30, 2021 December 31, 2020 (in millions of U.S. dollars) Overnight and Continuous Collateral held under securities lending agreements: Cash $ 1,402 $ 551 U.S. Treasury / Agency 119 148 Non-U.S. 833 1,032 Corporate and asset-backed securities 11 30 Mortgage-backed securities 1 4 States, municipalities, and political subdivisions 1 — Equity securities 1 79 $ 2,368 $ 1,844 Gross amount of recognized liability for securities lending payable $ 2,368 $ 1,844 At September 30, 2021 and December 31, 2020, our repurchase agreement obligations of $ 1,406 million and $ 1,405 million, respectively, were fully collateralized. In contrast to securities lending programs, the use of cash received is not restricted for the repurchase obligations. The fair value of the underlying securities sold remains in Fixed maturities available for sale, and the repurchase agreement obligation is recorded in Repurchase agreements in the Consolidated balance sheets. 32 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited) Chubb Limited and Subsidiaries The following table presents the carrying value of collateral pledged under repurchase agreements by investment category and remaining contractual maturity of the underlying agreements: Remaining contractual maturity September 30, 2021 December 31, 2020 30-90 Days Greater than 90 Days Total 30-90 Days Greater than 90 Days Total (in millions of U.S. dollars) Collateral pledged under repurchase agreements: Cash $ — $ — $ — $ — $ 4 $ 4 U.S. Treasury / Agency — 104 104 — 106 106 Mortgage-backed securities 475 846 1,321 481 871 1,352 $ 475 $ 950 $ 1,425 $ 481 $ 981 $ 1,462 Gross amount of recognized liabilities for repurchase agreements $ 1,406 $ 1,405 Difference (1) $ 19 $ 57 (1) Per the repurchase agreements, the amount of collateral posted is required to exceed the amount of gross liability. Potential risks exist in our secured borrowing transactions due to market conditions and counterparty exposure. With collateral that we pledge, there is a risk that the collateral may not be returned at the expiration of the agreement. If the counterparty fails to return the collateral, Chubb will have free use of the borrowed funds until our collateral is returned. In addition, we may encounter the risk that Chubb may not be able to renew outstanding borrowings with a new term or with an existing counterparty due to market conditions including a decrease in demand as well as more restrictive terms from banks due to increased regulatory and capital constraints. Should this condition occur, Chubb may seek alternative borrowing sources or reduce borrowings. Additionally, increased margins and collateral requirements due to market conditions would increase our restricted assets as we are required to provide additional collateral to support the transaction. d) Fixed maturities At September 30, 2021, we have commitments to purchase fixed income securities of $ 825 million over the next several years. e) Other investments At September 30, 2021, included in Other investments in the Consolidated balance sheet are investments in limited partnerships and partially-owned investment companies with a carrying value of $ 9.5 billion. In connection with these investments, we have commitments that may require funding of up to $ 7.1 billion over the next several years. At December 31, 2020, these investments had a carrying value of $ 6.5 billion with a commitment that may require funding of up to $ 3.2 billion. f) Income taxes At September 30, 2021, $ 62 million of unrecognized tax benefits remain out standing. It is reasonably possible that over the next twelve months, that the amount of unrecognized tax benefits may change resulting from the re-evaluation of unrecognized tax benefits arising from examinations by taxing authorities, settlements and the lapses of statutes of limitations. With few exceptions, Chubb is no longer subject to income tax examinations for years before 2012 . g) Legal proceedings Our insurance subsidiaries are subject to claims litigation involving disputed interpretations of policy coverages and, in some jurisdictions, direct actions by allegedly-injured persons seeking damages from policyholders. These lawsuits, involving claims on policies issued by our subsidiaries which are typical to the insurance industry in general and in the normal course of business, are considered in our loss and loss expense reserves. In addition to claims litigation, we are subject to lawsuits and regulatory actions in the normal course of business that do not arise from or directly relate to claims on insurance policies. This category of business litigation typically involves, among other things, allegations of underwriting errors or misconduct, employment claims, regulatory activity, or disputes arising from our business ventures. In the opinion of management, our ultimate liability for these matters could be, but we believe is not likely to be, material to our consolidated financial condition and results of operations. 33 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited) Chubb Limited and Subsidiaries h) Leases At September 30, 2021 and December 31, 2020, the right-of-use asset was $ 434 million and $ 473 million, respectively, recorded within Other assets on the Consolidated balance sheets and the lease liability was $ 472 million and $ 517 million, respectively, which was recorded within Accounts payable, accrued expenses, and other liabilities on the Consolidated balance sheets. These leases consist principally of real estate operating leases that are amortized on a straight-line basis over the term of the lease, which expire at various dates. 8. Shareholders’ equity All of Chubb’s Common Shares are authorized under Swiss corporate law. Though the par value of Common Shares is stated in Swiss francs, Chubb continues to use U.S. dollars as its reporting currency for preparing the Consolidated Financial statements. Under Swiss corporate law, dividends, including distributions from legal reserves or through a reduction in par value (par value reduction), must be stated in Swiss francs though dividend payments are made by Chubb in U.S. dollars. At September 30, 2021, our Common Shares had a par value of CHF 24.15 per share. At our May 2021 annual general meeting, our shareholders approved an annual dividend for the following year of up to $ 3.20 per share, expected to be paid in four quarterly installments of $ 0.80 per share after the general meeting by way of distribution from capital contribution reserves, transferred to free reserves for payment. The Board of Directors (Board) will determine the record and payment dates at which the annual dividend may be paid until the date of the 2022 annual general meeting, and is authorized to abstain from distributing a dividend at its discretion. At our May 2020 and 2019 annual general meetings, our shareholders approved annual dividends for the following year of up to $ 3.12 per share and $ 3.00 per share, respectively, which were paid in four quarterly installments of $ 0.78 per share and $ 0.75 per share, respectively, at dates determined by the Board after the annual general meetings by way of a distribution from capital contribution reserves, transferred to free reserves for payment. The following table presents dividend distributions per Common Share in Swiss francs (CHF) and U.S. dollars (USD): Three Months Ended Nine Months Ended September 30 September 30 2021 2020 2021 2020 CHF USD CHF USD CHF USD CHF USD Total dividend distributions per common share 0.73 $ 0.80 0.71 $ 0.78 2.14 $ 2.38 2.18 $ 2.31 Increases in Common Shares in treasury are due to open market repurchases of Common Shares and the surrender of Common Shares to satisfy tax withholding obligations in connection with the vesting of restricted stock and the forfeiture of unvested restricted stock. Decreases in Common Shares in treasury are principally due to grants of restricted stock, exercises of stock options, purchases under the Employee Stock Purchase Plan (ESPP), and share cancellations. At our May 2021 annual general meeting, our shareholders approved the cancellation of 3,584,150 shares purchased under our share repurchase program during 2020. The capital reduction by cancellation of shares was subject to publication requirements and a two-month waiting period in accordance with Swiss law and became effective August 4, 2021. During the nine months ended September 30, 2021, 22,877,400 shares were repurchased, 3,584,150 shares were canceled, and 3,021,027 net shares were issued under employee share-based compensation plans. At September 30, 2021, 43,144,862 Common Shares remain in treasury. Chubb Limited securities repurchase authorizations The Board has authorized share repurchase programs as follows: • $ 1.5 billion of Chubb Common Shares from November 21, 2019 through December 31, 2020 • $ 1.5 billion of Chubb Common Shares from November 19, 2020 through December 31, 2021 In February 2021, the Board approved an increase to the November 2020 share repurchase program of $ 1.0 billion to a total of $ 2.5 billion, effective through December 31, 2021. On July 19, 2021, the Board authorized a one-time incremental share repurchase program of up to $ 5.0 billion through June 30, 2022. The $ 2.5 billion share repurchase authorization was used prior to the $ 5.0 billion share repurchase authorization. 34 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited) Chubb Limited and Subsidiaries The following table presents repurchases of Chubb's Common Shares conducted in a series of open market transactions under the Board authorizations: Three Months Ended Nine Months Ended October 1, 2021 through October 27, 2021 September 30 September 30 (in millions of U.S. dollars, except share data) 2021 2020 2021 2020 Number of shares repurchased 8,412,000 — 22,877,400 2,266,150 167,700 Cost of shares repurchased $ 1,516 $ — $ 3,956 $ 326 $ 29 Repurchase authorization remaining at end of period $ 3,551 $ 1,124 $ 3,551 $ 1,124 $ 3,522 9. Share-based compensation The Chubb Limited 2016 Long-Term Incentive Plan (the 2016 LTIP) permits grants of both incentive and non-qualified stock options principally at an option price per share equal to the grant date fair value of Chubb's Common Shares. Stock options are generally granted with a 3 -year vesting period and a 10 -year term. Stock options typically vest in equal annual installments over the respective vesting period, which is also the requisite service period. On February 25, 2021, Chubb granted 1,790,057 stock options with a weighted-average grant date fair value of $ 33.05 each. The fair value of the options issued is estimated on the grant date using the Black-Scholes option pricing model. The 2016 LTIP also permits grants of service-based restricted stock and restricted stock units as well as performance-based restricted stock awards. Chubb generally grants service-based restricted stock and restricted stock units with a 4 -year vesting period, based on a graded vesting schedule. Beginning in 2017, the performance-based restricted stock awards granted comprise target awards and premium awards that cliff vest at the end of a 3 -year performance period based on both tangible book value (shareholders' equity less goodwill and intangible assets, net of tax) per share growth and P&C combined ratio compared to a defined group of peer companies. Premium awards are subject to an additional vesting provision based on total shareholder return compared to our peer group. The restricted stock is granted at market close price on the grant date. On February 25, 2021, Chubb granted 848,762 service-based restricted stock awards, 324,142 service-based restricted stock units, and 284,766 performance-based stock awards to employees and officers with a grant date fair value of $ 164.94 each. Each restricted stock unit represents our obligation to deliver to the holder one Common Share upon vesting. In May 2021, our shareholders approved the Chubb Limited 2016 Long-Term Incentive Plan, as amended and restated (the Amended 2016 LTIP). Under the Amended 2016 LTIP, the number of Common Shares available for delivery increased by 13.4 million. This is in addition to any shares that remain available for delivery since the initial establishment of the 2016 LTIP, plus any shares covered by outstanding awards granted under the ACE Limited 2004 Long-Term Incentive Plan that are forfeited, expired or canceled after the effective date of the Amended 2016 LTIP. 35 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited) Chubb Limited and Subsidiaries 10. Postretirement benefits The components of net pension and other postretirement benefit costs (benefits) reflected in Net income in the Consolidated statements of operations were as follows: Pension Benefit Plans Other Postretirement Benefit Plans 2021 2020 2021 2020 Three Months Ended September 30 U.S. Plans Non-U.S. Plans U.S. Plans Non-U.S. Plans (in millions of U.S. dollars) Service cost $ — $ 1 $ — $ 1 $ 1 $ — Non-service cost (benefit): Interest cost 18 5 24 6 1 1 Expected return on plan assets ( 64 ) ( 10 ) ( 56 ) ( 11 ) ( 1 ) ( 1 ) Amortization of net actuarial loss — — — — — — Amortization of prior service cost (1) — — — 1 — ( 20 ) Settlements 1 — 1 — — — Total non-service cost (benefit) ( 45 ) ( 5 ) ( 31 ) ( 4 ) — ( 20 ) Net periodic benefit cost (benefit) $ ( 45 ) $ ( 4 ) $ ( 31 ) $ ( 3 ) $ 1 $ ( 20 ) (1) At June 30, 2021, the remaining prior service cost amortization related to the 2016 harmonization of our U.S. retirement program was fully amortized. Refer to Note 13 to the Consolidated Financial Statements of our 2020 Form 10-K for additional information. Pension Benefit Plans Other Postretirement Benefit Plans 2021 2020 2021 2020 Nine Months Ended September 30 U.S. Plans Non-U.S. Plans U.S. Plans Non-U.S. Plans (in millions of U.S. dollars) Service cost $ — $ 3 $ — $ 3 $ 1 $ — Non-service cost (benefit): Interest cost 53 14 74 17 1 2 Expected return on plan assets ( 191 ) ( 32 ) ( 168 ) ( 32 ) ( 1 ) ( 3 ) Amortization of net actuarial loss — 2 — 1 — — Amortization of prior service cost — — — 1 ( 26 ) ( 60 ) Settlements 1 — 3 — — — Total non-service cost (benefit) ( 137 ) ( 16 ) ( 91 ) ( 13 ) ( 26 ) ( 61 ) Net periodic benefit cost (benefit) $ ( 137 ) $ ( 13 ) $ ( 91 ) $ ( 10 ) $ ( 25 ) $ ( 61 ) 36 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited) Chubb Limited and Subsidiaries The line items in which the service cost and non-service cost (benefit) components of net periodic benefit cost (benefit) are included in the Consolidated statements of operations were as follows: Pension Benefit Plans Other Postretirement Benefit Plans Three Months Ended September 30 2021 2020 2021 2020 (in millions of U.S. dollars) Service cost: Losses and loss expenses $ — $ — $ — $ — Administrative expenses 1 1 1 — Total service cost 1 1 1 — Non-service cost (benefit): Losses and loss expenses ( 5 ) ( 3 ) — ( 2 ) Administrative expenses ( 45 ) ( 32 ) — ( 18 ) Total non-service cost (benefit) ( 50 ) ( 35 ) — ( 20 ) Net periodic benefit cost (benefit) $ ( 49 ) $ ( 34 ) $ 1 $ ( 20 ) Pension Benefit Plans Other Postretirement Benefit Plans Nine Months Ended September 30 2021 2020 2021 2020 (in millions of U.S. dollars) Service cost: Losses and loss expenses $ — $ — $ — $ — Administrative expenses 3 3 1 — Total service cost 3 3 1 — Non-service cost (benefit): Losses and loss expenses ( 14 ) ( 9 ) ( 3 ) ( 6 ) Administrative expenses ( 139 ) ( 95 ) ( 23 ) ( 55 ) Total non-service cost (benefit) ( 153 ) ( 104 ) ( 26 ) ( 61 ) Net periodic benefit cost (benefit) $ ( 150 ) $ ( 101 ) $ ( 25 ) $ ( 61 ) 37 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited) Chubb Limited and Subsidiaries 11. Other income and expense Three Months Ended Nine Months Ended September 30 September 30 (in millions of U.S. dollars) 2021 2020 2021 2020 Equity in net income (loss) of partially-owned entities (1) $ 802 $ 479 $ 2,073 $ 435 Gains (losses) from fair value changes in separate account assets (2) ( 24 ) 24 ( 5 ) 8 Federal excise and capital taxes ( 5 ) ( 4 ) ( 15 ) ( 16 ) Other ( 10 ) ( 14 ) ( 23 ) ( 55 ) Total $ 763 $ 485 $ 2,030 $ 372 (1) Principally comprises our share of operating income and mark-to-market movement on private equities where we hold more than three percent. Also includes net income from our investment in Huatai of $ 40 million and $ 144 million for the three and nine months ended September 30, 2021, respectively, compared to $ 37 million and $ 86 million, respectively, for the prior year periods. (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. Bad debt expense for uncollectible premiums is also included in Other income and expense. 12. Segment information Chubb operates through six business segments: North America Commercial P&C Insurance, North America Personal P&C Insurance, North America Agricultural Insurance, Overseas General Insurance, Global Reinsurance, and Life Insurance. Corporate results primarily include income and expenses not attributable to reportable segments and losses and loss expenses of asbestos and environmental (A&E) liabilities and certain other non-A&E run-off exposures. Management uses underwriting income (loss) as the basis for segment performance. Chubb calculates underwriting income (loss) by subtracting Losses and loss expenses, Policy benefits, Policy acquisition costs, and Administrative expenses from Net premiums earned. Our main measure of segment performance is Segment income (loss), which also includes Net investment income (loss), Other (income) expense, and Amortization of purchased intangibles acquired by the segment. We determined that this definition of segment income (loss) is appropriate and aligns with how the business is managed. We continue to evaluate our segments as our business continues to evolve and may further refine our segments and segment income (loss) measures. Certain items are presented in a different manner for segment reporting purposes than in the Consolidated Financial Statements. These items are reconciled to the consolidated presentation in the Segment measure reclass column below and include: • Losses and loss expenses include realized gains and losses on crop derivatives. These derivatives were purchased to provide economic benefit, in a manner similar to reinsurance protection, in the event that a significant decline in commodity pricing impacts underwriting results. We view gains and losses on these derivatives as part of the results of our underwriting operations, and therefore realized gains (losses) from these derivatives are reclassified to losses and loss expenses. • Policy benefits include gains and losses from fair value changes in separate account assets, as well as the offsetting movement in separate account liabilities. The gains and losses from fair value changes in separate account assets that do not qualify for separate account reporting under GAAP have been reclassified from Other (income) expense. We view gains and losses from fair value changes in both separate account assets and liabilities as part of the results of our underwriting operations, and therefore these gains and losses are reclassified to policy benefits. • Net investment income includes investment income reclassified from Other (income) expense related to partially-owned investment companies (private equity partnerships) where our ownership interest is in excess of three percent. We view investment income from these equity-method private equity partnerships as net investment income. 38 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited) Chubb Limited and Subsidiaries The following tables present the Statement of Operations by segment: For the Three Months Ended September 30, 2021 (in millions of U.S. dollars) North America Commercial P&C Insurance North America Personal P&C Insurance North America Agricultural Insurance Overseas General Insurance Global Reinsurance Life Insurance Corporate Segment Measure Reclass Chubb Consolidated Net premiums written $ 4,369 $ 1,300 $ 1,415 $ 2,596 $ 221 $ 609 $ — $ — $ 10,510 Net premiums earned 3,954 1,244 1,338 2,664 211 589 — — 10,000 Losses and loss expenses 2,754 846 1,138 1,487 192 179 43 ( 10 ) 6,629 Policy benefits — — — — — 175 — ( 24 ) 151 Policy acquisition costs 537 254 61 703 55 168 — — 1,778 Administrative expenses 273 73 4 266 9 82 99 — 806 Underwriting income (loss) 390 71 135 208 ( 45 ) ( 15 ) ( 142 ) 34 636 Net investment income (loss) 507 60 6 157 99 102 ( 10 ) ( 55 ) 866 Other (income) expense (1) 8 1 — — — ( 19 ) ( 722 ) ( 31 ) ( 763 ) Amortization expense of purchased intangibles — 2 7 11 — 2 49 — 71 Segment income $ 889 $ 128 $ 134 $ 354 $ 54 $ 104 $ 521 $ 10 $ 2,194 Net realized gains (losses) ( 11 ) ( 10 ) ( 21 ) Interest expense 122 — 122 Income tax expense 218 — 218 Net income $ 170 $ — $ 1,833 (1) Principally includes our share of operating income and market-to-market gains on private equities where we hold more than three percent. Refer to Note 11 for additional information. For the Three Months Ended September 30, 2020 (in millions of U.S. dollars) North America Commercial P&C Insurance North America Personal P&C Insurance North America Agricultural Insurance Overseas General Insurance Global Reinsurance Life Insurance Corporate Segment Measure Reclass Chubb Consolidated Net premiums written $ 3,778 $ 1,285 $ 986 $ 2,238 $ 181 $ 610 $ — $ — $ 9,078 Net premiums earned 3,456 1,231 971 2,337 171 599 — — 8,765 Losses and loss expenses 2,444 961 845 1,192 154 183 55 1 5,835 Policy benefits — — — — — 174 — 24 198 Policy acquisition costs 489 248 56 637 40 175 — — 1,645 Administrative expenses 243 65 5 260 9 80 71 — 733 Underwriting income (loss) 280 ( 43 ) 65 248 ( 32 ) ( 13 ) ( 126 ) ( 25 ) 354 Net investment income (loss) 510 64 7 130 85 95 ( 19 ) ( 32 ) 840 Other (income) expense 7 1 — 1 — ( 23 ) ( 415 ) ( 56 ) ( 485 ) Amortization expense of purchased intangibles — 2 7 10 — 1 52 — 72 Segment income $ 783 $ 18 $ 65 $ 367 $ 53 $ 104 $ 218 $ ( 1 ) $ 1,607 Net realized gains (losses) ( 142 ) 1 ( 141 ) Interest expense 130 — 130 Income tax expense 142 — 142 Net income (loss) $ ( 196 ) $ — $ 1,194 39 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited) Chubb Limited and Subsidiaries For the Nine Months Ended September 30, 2021 (in millions of U.S. dollars) North America Commercial P&C Insurance North America Personal P&C Insurance North America Agricultural Insurance Overseas General Insurance Global Reinsurance Life Insurance Corporate Segment Measure Reclass Chubb Consolidated Net premiums written $ 12,318 $ 3,761 $ 2,110 $ 7,983 $ 702 $ 1,844 $ — $ — $ 28,718 Net premiums earned 11,431 3,652 1,858 7,721 583 1,789 — — 27,034 Losses and loss expenses 7,740 2,341 1,554 3,936 422 562 141 ( 8 ) 16,688 Policy benefits — — — — — 508 — ( 5 ) 503 Policy acquisition costs 1,540 746 100 2,070 147 538 — — 5,141 Administrative expenses 772 200 10 811 27 247 258 — 2,325 Underwriting income (loss) 1,379 365 194 904 ( 13 ) ( 66 ) ( 399 ) 13 2,377 Net investment income (loss) 1,582 189 21 447 250 301 ( 42 ) ( 135 ) 2,613 Other (income) expense 24 ( 3 ) — 3 — ( 79 ) ( 1,845 ) ( 130 ) ( 2,030 ) Amortization expense of purchased intangibles — 8 20 36 — 4 148 — 216 Segment income $ 2,937 $ 549 $ 195 $ 1,312 $ 237 $ 310 $ 1,256 $ 8 $ 6,804 Net realized gains (losses) 841 ( 8 ) 833 Interest expense 366 — 366 Income tax expense 873 — 873 Net income $ 858 $ — $ 6,398 For the Nine Months Ended September 30, 2020 (in millions of U.S. dollars) North America Commercial P&C Insurance North America Personal P&C Insurance North America Agricultural Insurance Overseas General Insurance Global Reinsurance Life Insurance Corporate Segment Measure Reclass Chubb Consolidated Net premiums written $ 10,750 $ 3,719 $ 1,604 $ 6,857 $ 606 $ 1,874 $ — $ — $ 25,410 Net premiums earned 10,427 3,623 1,441 6,838 520 1,838 — — 24,687 Losses and loss expenses 8,123 2,406 1,223 3,935 314 556 342 ( 2 ) 16,897 Policy benefits — — — — — 542 — 8 550 Policy acquisition costs 1,452 724 96 1,903 127 551 — — 4,853 Administrative expenses 751 199 12 759 28 238 214 — 2,201 Underwriting income (loss) 101 294 110 241 51 ( 49 ) ( 556 ) ( 6 ) 186 Net investment income (loss) 1,544 195 23 396 214 285 ( 65 ) ( 64 ) 2,528 Other (income) expense 19 4 1 10 1 ( 52 ) ( 283 ) ( 72 ) ( 372 ) Amortization expense of purchased intangibles — 8 20 33 — 3 153 — 217 Segment income (loss) $ 1,626 $ 477 $ 112 $ 594 $ 264 $ 285 $ ( 491 ) $ 2 $ 2,869 Net realized gains (losses) ( 1,067 ) ( 2 ) ( 1,069 ) Interest expense 390 — 390 Income tax expense 295 — 295 Net income (loss) $ ( 2,243 ) $ — $ 1,115 Underwriting assets are reviewed in total by management for purposes of decision-making. Other than Unpaid losses and loss expenses, Future policy benefits, Reinsurance recoverables, Goodwill and Other intangible assets, Chubb does not allocate assets to its segments. 40 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited) Chubb Limited and Subsidiaries 13. Earnings per share Three Months Ended Nine Months Ended September 30 September 30 (in millions of U.S. dollars, except share and per share data) 2021 2020 2021 2020 Numerator: Net income $ 1,833 $ 1,194 $ 6,398 $ 1,115 Denominator: Denominator for basic earnings per share: Weighted-average shares outstanding 435,318,088 451,794,046 443,595,026 451,683,093 Denominator for diluted earnings per share: Share-based compensation plans 3,123,550 1,471,434 3,032,989 1,894,699 Weighted-average shares outstanding and assumed conversions 438,441,638 453,265,480 446,628,015 453,577,792 Basic earnings per share $ 4.21 $ 2.64 $ 14.42 $ 2.47 Diluted earnings per share $ 4.18 $ 2.63 $ 14.33 $ 2.46 Potential anti-dilutive share conversions 1,758,853 7,053,316 1,439,882 6,767,727 Excluded from weighted-average shares outstanding and assumed conversions is the impact of securities that would have been anti-dilutive during the respective periods. 41 Table of Contents