Chubb Ltd 10-Q

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk Refer to Item 7A included in our 2023 Form 10-K. 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. We occasionally engage in hedging activity for planned cross border transactions. For an estimated impact of foreign currency movement on our net assets denominated in non-U.S. currencies, refer to Item 7A in our 2023 Form 10-K. This information will be updated and disclosed in interim filings if our net assets in non-U.S. currencies change materially from the December 31, 2023, balances disclosed in the 2023 Form 10-K. Reinsurance of market risk benefits Chubb views its MRB reinsurance business as having a similar risk profile to that of catastrophe reinsurance, with the probability of long-term economic loss relatively small at the time of pricing. Adverse changes in market factors and policyholder behavior will have an impact on both MRB gains (losses) and net income. When evaluating these risks, we expect to be compensated for taking both the risk of a cumulative long-term economic net loss, as well as the short-term accounting variations caused by these market movements. Therefore, we evaluate this business in terms of its long-term economic risk and reward. The tables below are estimates of the sensitivities to instantaneous changes in economic inputs (e.g., equity shock, interest rate shock etc.) at September 30, 2024, for both the fair value of the MRB liability (FVL) and the fair value of specific derivative instruments held (hedge value) to partially offset the risk in the MRB reinsurance portfolio. The following assumptions should be considered when using the below tables: • Equity shocks impact all global equity markets equally • Our liabilities are sensitive to global equity markets in the following proportions: 80 percent—90 percent U.S. equity, and 10 percent—20 percent international equity. • Our current hedge portfolio is sensitive only to U.S. equity markets. • We would suggest using the S&P 500 index as a proxy for U.S. equity, and the MSCI EAFE index as a proxy for international equity. • Interest rate shocks assume a parallel shift in the U.S. yield curve • Our liabilities are also sensitive to global interest rates at various points on the yield curve, mainly the U.S. Treasury curve in the following proportions: up to 15 percent short-term rates (maturing in less than 5 years), 15 percent—30 percent medium-term rates (maturing between 5 years and 10 years, inclusive), and 65 percent—80 percent long-term rates (maturing beyond 10 years). 91 Table of Contents • A change in AA-rated credit spreads impacts the rate used to discount cash flows in the fair value model. AA-rated credit spreads are a proxy for both our own credit spreads and the credit spreads of the ceding insurers. • The hedge sensitivity is from September 30, 2024, market levels and only applicable to the equity and interest rate sensitivities table below. • The sensitivities do not scale linearly and may be proportionally greater for larger movements in the market factors. Actual sensitivity of our net income may differ from those disclosed in the tables below due to fluctuations in short-term market movements. Sensitivities to equity and interest rate movements (in millions of U.S. dollars) Worldwide Equity Shock Interest Rate Shock +10% Flat -10% -20% -30% -40% +100 bps (Increase)/decrease in FVL $ 291 $ 194 $ 78 $ (65) $ (245) $ (478) Increase/(decrease) in hedge value (99) — 99 198 297 397 Increase/(decrease) in net income $ 192 $ 194 $ 177 $ 133 $ 52 $ (81) Flat (Increase)/decrease in FVL $ 114 $ — $ (136) $ (302) $ (512) $ (774) Increase/(decrease) in hedge value (99) — 99 198 297 397 Increase/(decrease) in net income $ 15 $ — $ (37) $ (104) $ (215) $ (377) -100 bps (Increase)/decrease in FVL $ (105) $ (238) $ (396) $ (586) $ (825) $ (1,113) Increase/(decrease) in hedge value (99) — 99 198 297 397 Increase/(decrease) in net income $ (204) $ (238) $ (297) $ (388) $ (528) $ (716) Sensitivities to Other Economic Variables AA-rated Credit Spreads Interest Rate Volatility Equity Volatility (in millions of U.S. dollars) +100 bps -100 bps +2% -2% +2% -2% (Increase)/decrease in FVL $ 54 $ (61) $ (1) $ 1 $ (19) $ 18 Increase/(decrease) in net income $ 54 $ (61) $ (1) $ 1 $ (19) $ 18 Market Risk Benefits Net Amount at Risk All our MRB reinsurance treaties include annual or aggregate claim limits and many include an aggregate deductible which limit the net amount at risk under these programs. The tables below present the net amount at risk at September 30, 2024, following an immediate change in equity market levels, assuming all global equity markets are impacted equally. a) Reinsurance covering the GMDB risk only Equity Shock (in millions of U.S. dollars) +20 % Flat -20 % -40 % -60 % -80 % GMDB net amount at risk $ 215 $ 213 $ 349 $ 624 $ 639 $ 520 Claims at 100% immediate mortality 130 137 147 138 127 112 The treaty limits function as a ceiling as equity markets fall. As the shocks in the table above become incrementally more negative, the impacts begin to drop due to the specific nature of these claim limits, many of which are annual claim limits calculated as a percentage of the reinsured account value. There is also an impact due to a portion of the reinsurance under which claims are positively correlated to equity markets (claims decrease as equity markets fall). 92 Table of Contents b) Reinsurance covering the GLB risk only Equity Shock (in millions of U.S. dollars) +20 % Flat -20 % -40 % -60 % -80 % GLB net amount at risk $ 745 $ 975 $ 1,339 $ 1,851 $ 2,155 $ 2,418 The treaty limits cause the net amount at risk to increase at a declining rate as equity markets fall. c) Reinsurance covering both the GMDB and GLB risks on the same underlying policyholders Equity Shock (in millions of U.S. dollars) +20 % Flat -20 % -40 % -60 % -80 % GMDB net amount at risk $ 35 $ 41 $ 50 $ 60 $ 69 $ 75 GLB net amount at risk 296 366 461 579 695 736 Claims at 100% immediate mortality 26 26 25 25 25 25 The treaty limits cause the GMDB and GLB net amount at risk to increase at a declining rate as equity markets fall.