CHUBB LIMITED The following is a discussion of our results of operations, financial condition, and liquidity and capital resources as of and for the three and six months endedJune 30, 2020 . All comparisons in this discussion are to the corresponding prior year period unless otherwise indicated. All dollar amounts are rounded. However, percent changes and ratios are calculated using whole dollars. Accordingly, calculations using rounded dollars may differ. Our results of operations and cash flows for any interim period are not necessarily indicative of our results for the full year. This discussion should be read in conjunction with our consolidated financial statements and related notes and our Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year endedDecember 31, 2019 (2019 Form 10-K). Other Information We routinely post important information for investors on our website (investors.chubb.com). We use this website as a means of disclosing material, non-public information and for complying with our disclosure obligations underSecurities and Exchange Commission (SEC) Regulation FD (Fair Disclosure). Accordingly, investors should monitor the Investor Information portion of our website, in addition to following our press releases,SEC filings, public conference calls, and webcasts. The information contained on, or that may be accessed through, our website is not incorporated by reference into, and is not a part of, this report. MD&A Index
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Forward-Looking Statements 47 Overview 49 Financial Highlights 49 Consolidated Operating Results 50 Segment Operating Results 56 Net Realized and Unrealized Gains (Losses) 67 Effective Income Tax Rate 69 Non-GAAP Reconciliation 69 Other Income and Expense 76 Amortization of Purchased Intangibles and Other Amortization 76 Net Investment Income 78 Investments 78 Critical Accounting Estimates 82 Unpaid Losses and Loss Expenses 82 Asbestos and Environmental (A&E) 82 Fair Value Measurements 82 Catastrophe Management 83 Natural Catastrophe Property Reinsurance Program 84 Liquidity 85 Capital Resources 86
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Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. Any written or oral statements made by us or on
our behalf may include forward-looking statements that reflect our current views
with respect to future events and financial performance. These forward-looking
statements are subject to certain risks, uncertainties, and other factors that
could, should potential events occur, cause actual results to differ materially
from such statements. These risks, uncertainties, and other factors, which are
described in more detail elsewhere herein and in other documents we file with
the U.S. Securities and Exchange Commission (SEC), include but are not limited
to:
•losses arising out of natural or man-made catastrophes such as hurricanes,
typhoons, earthquakes, floods, climate change (including effects on weather
patterns; greenhouse gases; sea, land and air temperatures; sea levels; and rain
and snow), nuclear accidents, pandemics (including COVID-19), or terrorism which
could be affected by:
•the number of insureds and ceding companies affected;
•the amount and timing of losses actually incurred and reported by insureds;
•the impact of these losses on our reinsurers and the amount and timing of
reinsurance recoverable actually received;
•the cost of building materials and labor to reconstruct properties or to
perform environmental remediation following a catastrophic event; and
•complex coverage and regulatory issues such as whether losses occurred from
storm surge or flooding and related lawsuits;
•actions that rating agencies may take from time to time, such as financial
strength or credit ratings downgrades or placing these ratings on credit watch
negative or the equivalent;
•the ability to collect reinsurance recoverable, credit developments of
reinsurers, and any delays with respect thereto and changes in the cost,
quality, or availability of reinsurance;
•actual loss experience from insured or reinsured events and the timing of claim
payments;
•actual claims may exceed our best estimate of ultimate insurance losses
incurred through June 30, 2020 resulting directly from the COVID-19 pandemic and
consequent economic crises; our COVID-19 related reserve at June 30, 2020 could
change including as a result of, among other things, the impact of legislative
or regulatory actions taken in response to COVID-19;
•the continued impact of COVID-19 and related risks, including from
shelter-in-place orders, unemployment, and the financial market volatility,
could continue to adversely impact our results, including premiums written and
investment income;
•the uncertainties of the loss-reserving and claims-settlement processes,
including the difficulties associated with assessing environmental damage and
asbestos-related latent injuries, the impact of aggregate-policy-coverage
limits, the impact of bankruptcy protection sought by various asbestos producers
and other related businesses, and the timing of loss payments;
•changes to our assessment as to whether it is more likely than not that we will
be required to sell, or have the intent to sell, available for sale fixed
maturity investments before their anticipated recovery;
•infection rates and severity of pandemics, including COVID-19, and their
effects on our business operations and claims activity, and any adverse impact
to our insureds, brokers, agents, and employees;
•developments in global financial markets, including changes in interest rates,
stock markets, and other financial markets, increased government involvement or
intervention in the financial services industry, the cost and availability of
financing, and foreign currency exchange rate fluctuations (which we refer to in
this report as foreign exchange and foreign currency exchange), which could
affect our statement of operations, investment portfolio, financial condition,
and financing plans;
•general economic and business conditions resulting from volatility in the stock
and credit markets and the depth and duration of potential recession;
•global political conditions, the occurrence of any terrorist attacks, including
any nuclear, radiological, biological, or chemical events, or the outbreak and
effects of war, and possible business disruption or economic contraction that
may result from such events;
•the potential impact of the United Kingdom's vote to withdraw from the European
Union , including political, regulatory, social, and economic uncertainty and
market and exchange rate volatility;
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Table of Contents •judicial decisions and rulings, new theories of liability, legal tactics, and settlement terms; •the effects of public company bankruptcies and/or accounting restatements, as well as disclosures by and investigations of public companies relating to possible accounting irregularities, and other corporate governance issues, including the effects of such events on: •the capital markets; •the markets for directors and officers (D&O) and errors and omissions (E&O) insurance; and •claims and litigation arising out of such disclosures or practices by other companies; •uncertainties relating to governmental, legislative and regulatory policies, developments, actions, investigations, and treaties, which, among other things, could subject us to insurance regulation or taxation in additional jurisdictions or affect our current operations; •the effects of data privacy or cyber laws or regulation on our current or future business; •the actual amount of new and renewal business, market acceptance of our products, and risks associated with the introduction of new products and services and entering new markets, including regulatory constraints on exit strategies; •the competitive environment in which we operate, including trends in pricing or in policy terms and conditions, which may differ from our projections and changes in market conditions that could render our business strategies ineffective or obsolete; •acquisitions made by us performing differently than expected, our failure to realize anticipated expense-related efficiencies or growth from acquisitions, the impact of acquisitions on our pre-existing organization, or announced acquisitions not closing; •risks and uncertainties relating to our planned purchases of additional interests inHuatai Insurance Group Company Limited (Huatai Group ), including our ability to receive Chinese insurance regulatory approval and complete the purchases; •risks associated with being a Swiss corporation, including reduced flexibility with respect to certain aspects of capital management and the potential for additional regulatory burdens; •the potential impact from government-mandated insurance coverage for acts of terrorism; •the availability of borrowings and letters of credit under our credit facilities; •the adequacy of collateral supporting funded high deductible programs; •changes in the distribution or placement of risks due to increased consolidation of insurance and reinsurance brokers; •material differences between actual and expected assessments for guaranty funds and mandatory pooling arrangements; •the effects of investigations into market practices in the property and casualty (P&C) industry; •changing rates of inflation and other economic conditions, for example, recession; •the amount of dividends received from subsidiaries; •loss of the services of any of our executive officers without suitable replacements being recruited in a reasonable time frame; •the ability of our technology resources, including information systems and security, to perform as anticipated such as with respect to preventing material information technology failures or third-party infiltrations or hacking resulting in consequences adverse to Chubb or its customers or partners; •the ability of our company to increase use of data analytics and technology as part of our business strategy and adapt to new technologies; and •management's response to these factors and actual events (including, but not limited to, those described above). The words "believe," "anticipate," "estimate," "project," "should," "plan," "expect," "intend," "hope," "feel," "foresee," "will likely result," or "will continue," and variations thereof and similar expressions, identify forward-looking statements. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. We undertake no obligation to publicly update or review any forward-looking statements, whether as a result of new information, future events or otherwise.
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Overview
Chubb Limited is the Swiss-incorporated holding company of the Chubb Group of
Companies . Chubb Limited , which is headquartered in Zurich, Switzerland , and its
direct and indirect subsidiaries (collectively, the Chubb Group of Companies ,
Chubb, we, us, or our) are a global insurance and reinsurance organization,
serving the needs of a diverse group of clients worldwide. At June 30, 2020 , we
had total assets of $181 billion and shareholders' equity of $55 billion . Chubb
was incorporated in 1985 at which time it opened its first business office in
Bermuda and continues to maintain operations in Bermuda . We operate through six
business segments: North America Commercial P&C Insurance , North America
Personal P&C Insurance , North America Agricultural Insurance , Overseas General
Insurance , Global Reinsurance, and Life Insurance. For more information on our
segments refer to "Segment Information" under Item 1 in our 2019 Form 10-K.
Financial Highlights for the Three Months Ended
•The COVID-19 global pandemic and related economic conditions adversely impacted our results of operations and growth this quarter, including: •Net premiums written in the quarter were reduced by adjustments on in-force policies of$160 million in theNorth America Commercial P&C Insurance and$24 million in theOverseas General Insurance segments, principally impacting our workers' compensation and commercial casualty lines. In addition, there were automobile return premiums of$7 million in theNorth America Personal P&C Insurance segment. These items reduced consolidated and P&C net premiums written growth by 2.3 and 2.5 percentage points, respectively. •Net catastrophe losses included a COVID-19 charge of$1,365 million pre-tax, with$723 million in short-tail lines, and$642 million in long-tail lines. The short-tail losses were generated primarily from entertainment and commercial property-related business interruption, surety, and accident and health (A&H) products including travel insurance products. The long-tail losses were related to liability insurance products (directors and officers, employment practices, professional liability, etc.), workers' compensation, political risk and trade credits. Substantially all of the charges for liability and credit-related insurance products are included in the incurred but not reported reserves. These COVID-19 losses added 18.2 percentage points to the P&C combined ratio.
•Net investment income was adversely impacted by lower reinvestment rates on new and reinvested assets, and lower rates on floating rate obligations.
•Net loss was$(331) million and included$1,157 million after tax of COVID-19 losses. •Pre-tax net catastrophe losses included$1,365 million related to COVID-19 global pandemic described above,$312 million of natural catastrophe losses, primarily attributable to severe weather-related events in theU.S. , as well as civil unrest-related losses in theU.S. of$130 million . •Total pre-tax and after-tax unfavorable prior period development were$75 million (1.0 percentage point of the combined ratio) and$52 million , respectively, compared with favorable prior period development of$188 million (2.6 percentage points of the combined ratio) and$152 million , respectively, in the prior year period. The current quarter included$259 million pre-tax, or$205 million after tax, forU.S. child molestation claims, predominantly reviver statute-related. •Consolidated net premiums written were$8.4 billion , up 0.1 percent, or 1.9 percent in constant dollars. P&C net premiums written were$7.7 billion , down 0.4 percent, or up 1.4 percent in constant dollars. Excluding the impact of COVID-19, P&C net premiums written were up 3.9 percent in constant dollars. This comprises 9.1 percent positive growth globally in commercial P&C lines and 6.3 percent negative growth in consumer lines, which includes A&H, travel and personal lines. •The P&C combined ratio was 112.3% compared with 90.1% prior year, including catastrophe losses of 23.9 percentage points compared with 3.8 percentage points prior year. The P&C current accident year combined ratio excluding catastrophe losses was 87.4% compared with 88.9% prior year. •Operating cash flow was$1,985 million compared with$1,386 million in the prior year period. Refer to the Liquidity section for additional information on our cash flows. 49
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Table of Contents Outlook During the quarter, we recognized a pre-tax COVID-19 charge of$1.4 billion , representing our best estimate of the ultimate insurance losses incurred throughJune 30, 2020 that are directly attributable to the pandemic and the related economic crises. The use of historical experience and current activity resulted in our best estimate of losses we believe have been incurred as ofJune 30, 2020 . Actual claims and other legislative and other economic factors, including changes in our regulatory environment, could change this estimate in future quarters. Additionally, the contraction in the economy resulted in the recognition of a charge of$191 million in net premiums written from lower exposure and return premiums. The current economic environment, including a decline in interest rates among other things, also adversely impacted our net investment income for the quarter. The economic contraction may continue to have an impact in future quarters. Consolidated Operating Results - Three and Six Months EndedJune 30, 2020 and 2019 Three Months Ended Six Months Ended June 30 % Change June 30 % Change (in millions of U.S. dollars, except YTD-20 vs. for percentages) 2020 2019 Q-20 vs. Q-19 2020 2019 YTD-19 Net premiums written$ 8,355 $ 8,343 0.1 %$ 16,332 $ 15,656 4.3 % Net premiums earned 8,128 7,891 3.0 % 15,922 15,028 5.9 % Net investment income 827 859 (3.8) % 1,688 1,695 (0.4) % Net realized gains (losses) 30 (223) NM (928) (320) 190.2 % Total revenues 8,985 8,527 5.4 % 16,682 16,403 1.7 % Losses and loss expenses 6,577 4,715 39.5 % 11,062 8,813 25.5 % Policy benefits 223 161 38.7 % 352 357 (1.5) % Policy acquisition costs 1,593 1,544 3.2 % 3,208 3,008 6.6 % Administrative expenses 727 758 (4.0) % 1,468 1,468 -
Interest expense 128 140 (8.8) % 260 280 (7.0) % Other (income) expense 58 (230) NM 113 (269) NM Amortization of purchased intangibles 72 77 (6.6) % 145 153 (5.3) % Chubb integration expenses - 4 NM - 7 NM Total expenses 9,378 7,169 30.8 % 16,608 13,817 20.2 % Income (loss) before income tax (393) 1,358 NM 74 2,586 (97.1) % Income tax expense (benefit) (62) 208 NM 153 396 (61.4) % Net income (loss)$ (331) $ 1,150 NM$ (79) $ 2,190 NM Net premiums written - constantdollars (1) 1.9 % 5.5 % NM - not meaningful (1) On a constant-dollar basis. Amounts are calculated by translating prior period results using the same local currency exchange rates as the comparable current period. Net Premiums Written Net premiums written reflect the premiums we retain after purchasing reinsurance protection. For the three and six months endedJune 30, 2020 , consolidated net premiums written increased$12 million and$676 million , or$155 million and$844 million , respectively, on a constant-dollar basis, reflecting growth across most segments. The growth in net premiums written was depressed by economic contraction resulting from the COVID-19 pandemic including$184 million of exposure adjustments on in-force policies and$7 million of premium returned to insureds. •Net premiums written in ourNorth America Commercial P&C Insurance segment increased$186 million , or 5.3 percent, and$487 million , or 7.5 percent, for the three and six months endedJune 30, 2020 , respectively. Growth in net premiums written reflected positive rate increases, strong renewal retention and new business written across a number of
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Table of Contents retail and wholesale lines, including property, financial lines, excess casualty, and commercial multiple peril. Net premiums written also benefited from new business written in large risk casualty, which included a year-over-year increase of$68 million and$82 million in large structured transactions written for the three and six months endedJune 30, 2020 , respectively. The growth in net premiums written described above was depressed by economic contraction resulting from the COVID-19 pandemic, including$160 million of exposure adjustments on in-force policies, which reduced net premiums written by 4.5 percentage points and 2.5 percentage points for the three and six months endedJune 30, 2020 , respectively, and lower renewal exposures and new business market limitations that impacted several lines of business, including A&H, surety, large corporate accounts, entertainment, hospitality, retail, and construction. •Net premiums written in ourNorth America Personal P&C Insurance segment increased$18 million , or 1.4 percent, and$69 million , or 2.9 percent, for the three and six months endedJune 30, 2020 , respectively, primarily due to rate increases and high account retention across most lines. This growth was partially offset by$7 million in automobile premium returned to insureds as a result of reduced exposure related to the conditions caused by the COVID-19 pandemic, which impacted growth by 0.6 percentage points and 0.5 percentage points, respectively. •Net premiums written in ourNorth America Agricultural Insurance segment decreased$5 million , or 1.1 percent, for the three months endedJune 30, 2020 primarily due to MPCI premiums reflecting lower rates that were impacted by year-over-year commodity price declines, partially offset by growth in our Chubb Agribusiness unit. Net premiums written increased$22 million , or 3.8 percent, for the six months endedJune 30, 2020 due to the year-over-year increase in MPCI premiums reflecting less premiums returned to theU.S. government under the premium-sharing formulas and the factors noted above. Under the MPCI premium-sharing formulas, we retained more premiums on the 2019 crop year due to higher than expected losses for that year. Net premiums written in the first half of 2019 was lower due to higher cessions to theU.S. government reflecting the more profitable 2018 crop year. •Net premiums written in ourOverseas General Insurance segment decreased$237 million , or$109 million on a constant dollar basis, for the three months endedJune 30, 2020 , due to the impact of the COVID-19 pandemic which negatively impacted several lines, mainly in personal lines and A&H, resulting from less travel volume and lower exposures. Net premiums written were depressed by economic contraction resulting from the COVID-19 pandemic including$24 million of exposure adjustments on in-force policies and a lower percentage of net premiums written inLatin America . For the six months endedJune 30, 2020 , net premiums written decreased$34 million , or increased$122 million on a constant dollar basis, as the decrease during the quarter was offset by P&C lines growth due to new business, retention, and positive rate increases. •Net premiums written in our Global Reinsurance segment increased$10 million and$26 million , or$11 million and$26 million on a constant-dollar basis, for the three and six months endedJune 30, 2020 , respectively, primarily due to positive rate increases in catastrophe lines and new business written in casualty lines, partially offset by increased ceded retrocessions. In addition, the prior year had unfavorable premium adjustments which lowered premium in 2019. •Net premiums written in our Life Insurance segment increased$40 million and$106 million , or$49 million and$114 million on a constant-dollar basis, for the three and six months endedJune 30, 2020 , respectively, primarily reflecting growth inLatin America , principally driven by our expanded presence inChile , and Asian international life operations, partially offset by a decline in ourNorth America Combined Insurance business.
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Net Premiums Written By Line of Business
Three Months Ended Six Months Ended
June 30 June 30
C$ (1) % % Change C$ (1) %
(in millions of U.S. dollars, % Change Q-20 Change Q-20 YTD-20 vs. Change YTD-20
except for percentages) 2020 2019 vs. Q-19 C$ (1) 2019 vs. Q-19 2020 2019 YTD-19 C$ (1) 2019 vs. YTD-19
Commercial casualty $ 1,478 $ 1,472 0.4 % $ 1,461 1.2 % $ 2,819 $ 2,672 5.5 % $ 2,659 6.0 %
Workers' compensation (2) 467 482 (3.1) % 482 (3.1) % 1,053 1,075 (2.1) % 1,075 (2.1) %
Professional liability 997 909 9.7 % 895 11.4 % 1,909 1,695 12.6 % 1,678 13.7 %
Surety 117 156 (25.2) % 149 (21.5) % 267 308 (13.5) % 300 (11.0) %
Commercial multiple peril (3) 267 254 5.3 % 254 5.3 % 508 473 7.5 % 473 7.5 %
Property and other short-tail
lines 1,344 1,186 13.4 % 1,160 16.0 % 2,678 2,343 14.3 % 2,304 16.3 %
Total Commercial P&C 4,670 4,459 4.7 % 4,401 6.2 % 9,234 8,566 7.8 % 8,489 8.8 %
Agriculture 461 466 (1.1) % 466 (1.1) % 618 596 3.8 % 596 3.8 %
Personal automobile 353 473 (25.3) % 440 (19.7) % 794 894 (11.2) % 868 (8.5) %
Personal homeowners 980 968 1.3 % 963 1.7 % 1,753 1,711 2.5 % 1,706 2.7 %
Personal other 402 383 4.8 % 374 7.6 % 820 751 9.2 % 737 11.3 %
Total Personal lines 1,735 1,824 (4.9) % 1,777 (2.3) % 3,367 3,356 0.4 % 3,311 1.7 %
Total Property and Casualty lines 6,866 6,749 1.7 % 6,644 3.4 % 13,219 12,518 5.6 % 12,396 6.6 %
Global A&H lines (4) 951 1,130 (15.9) % 1,099 (13.5) % 2,018 2,203 (8.4) % 2,163 (6.7) %
Reinsurance lines 207 197 4.6 % 196 4.9 % 425 399 6.5 % 399 6.4 %
Life 331 267 24.2 % 261 27.0 % 670 536 25.1 % 530 26.5 %
Total consolidated $ 8,355 $ 8,343 0.1 % $ 8,200 1.9 % $ 16,332 $ 15,656 4.3 % $ 15,488 5.5 %
(1)On a constant-dollar basis. Amounts are calculated by translating prior
period results using the same local currency exchange rates as the comparable
current period.
(2)The three and six months ended June 30, 2020 includes $116 million related to
a structured transaction written in the quarter, that covers previously incurred
losses. This contributed 23.9% to the second quarter growth.
(3)Commercial multiple peril represents retail package business (property and
general liability).
(4)For purposes of this schedule only, A&H results from our Combined North
America and International businesses, normally included in the Life Insurance
and Overseas General Insurance segments, respectively, as well as the A&H
results of our North America Commercial P&C segment, are included in Global A&H
lines above.
The increase in net premiums written for the three and six months ended June 30,
2020 reflects growth across most lines of business, partially offset by the
adverse impact of the economic contraction resulting from the COVID-19 pandemic.
•The growth in commercial casualty was due to new business, positive rate
increases, and the year-over-year increase in large structured transactions in
North America , as well as growth in Asia , partially offset by the adverse impact
of the COVID-19 pandemic, including $58 million of exposure adjustments on
in-force policies which depressed growth by 4.0 percentage points and 2.2
percentage points, respectively.
•Workers' compensation was adversely impacted by market conditions and by the
adverse impact of the economic contraction resulting from COVID-19 pandemic,
including $121 million of exposure adjustments on in-force policies which
depressed growth by 25.1 percentage points and 11.3 percentage points,
respectively.
•The increase in professional liability was due to new business and positive
rate increases primarily in North America and Europe .
•Surety decreased primarily in North America as well as Latin America due to the
COVID-19 pandemic.
•Commercial multiple peril increased due to new business, higher renewal
retention, and positive rate increases in North America , partially offset by the
adverse impact of the economic contraction resulting from the COVID-19 pandemic,
including $5 million of exposure adjustments on in-force policies which
depressed growth by 2.0 percentage points and 1.1 percentage points,
respectively.
•Property and other short-tail lines increased due to new business and positive
rate increases primarily in North America and Europe .
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Table of Contents •Personal lines decreased for the three months endedJune 30, 2020 primarily due to the impact of the COVID-19 pandemic, which caused declines in automobile business inLatin America , as well as automobile premium returned to insureds as a result of reduced exposure inNorth America . The decrease was partially offset by positive rate increases inNorth America and growth inEurope , which contributed to the increase for the six months endedJune 30, 2020 . •Global A&H lines decreased due to declines inAsia andLatin America , principally from less travel volume due to COVID-19 pandemic, and in ourNorth American Combined Insurance supplemental A&H program. •The increase in Life was primarily driven by growth inLatin America , principally driven by our expanded presence inChile , and Asian international life operations. For additional information on net premiums written, refer to the segment results discussions. Net Premiums Earned Net premiums earned for short-duration contracts, typically P&C contracts, generally reflect the portion of net premiums written that was recorded as revenues for the period as the exposure periods expire. Net premiums earned for long-duration contracts, typically traditional life contracts, generally are recognized as earned when due from policyholders. For the three and six months endedJune 30, 2020 , net premiums earned increased$237 million and$894 million , reflecting the growth in net premiums written described above, including the impact of premiums that were fully earned when written (e.g., large structured transactions and audit and retrospective premium adjustments). On a constant-dollar basis, for the three and six months endedJune 30, 2020 , net premiums earned increased$374 million and$1,054 million , respectively. P&C Combined Ratio In evaluating our segments excluding Life Insurance financial performance, we use the P&C combined ratio, the loss and loss expense ratio, the policy acquisition cost ratio, and the administrative expense ratio. We calculate these ratios by dividing the respective expense amounts by net premiums earned. We do not calculate these ratios for the Life Insurance segment as we do not use these measures to monitor or manage that segment. The P&C combined ratio is determined by adding the loss and loss expense ratio, the policy acquisition cost ratio, and the administrative expense ratio. A P&C combined ratio under 100 percent indicates underwriting income, and a combined ratio exceeding 100 percent indicates underwriting loss. Three Months Ended Six Months Ended June 30 June 30 2020 2019 2020 2019 Loss and loss expense ratio 85.2 % 61.7 % 72.8 % 60.6 % Policy acquisition cost ratio 18.5 % 19.1 % 19.3 % 19.6 % Administrative expense ratio 8.6 % 9.3 % 8.9 % 9.4 % P&C Combined ratio 112.3 % 90.1 % 101.0 % 89.6 % The loss and loss expense ratio increased 23.5 percentage points and 12.2 percentage points for the three and six months endedJune 30, 2020 , respectively, principally due to higher catastrophe losses primarily related to COVID-19 pandemic claims of$1,349 million . In addition, the quarter-to-date period increased due to unfavorable prior period development in the current year quarter compared to favorable prior period development in the prior year quarter, while the year-to-date period increased due to lower favorable prior period development. The policy acquisition cost ratio decreased 0.6 percentage points and 0.3 percentage points for the three and six months endedJune 30, 2020 , respectively, primarily due to a change in mix of business towards lower acquisition cost ratio lines and the favorable impact of structured transactions of 0.2 percentage points and 0.1 percentage points, respectively, that generated minimal acquisition costs. The administrative expense ratio decreased 0.7 percentage points and 0.5 percentage points for the three and six months endedJune 30, 2020 , respectively, primarily due to lower business expenses, including travel-related costs, due to strong expense management control during the COVID-19 pandemic and the favorable impact of higher net premiums earned. Catastrophe Losses and PriorPeriod Development Catastrophe losses exclude reinstatement premiums which are additional premiums paid on certain reinsurance agreements in order to reinstate coverage that had been exhausted by loss occurrences. The reinstatement premium amount is typically a pro rata portion of the original ceded premium paid based on how much of the reinsurance limit had been exhausted. Prior period development is net of related adjustments which typically relate to either profit commission reserves or policyholder dividend reserves based on actual claim experience that develops after the policy period ends. The expense adjustments correlate to the
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prior period loss development on these same policies. Refer to the Non-GAAP Reconciliation section for further information on reinstatement premiums on catastrophe losses and adjustments to prior period development.
Three Months Ended Six Months Ended
June 30 June 30
(in millions of U.S. dollars) 2020 2019 2020 2019
Catastrophe losses (excludes reinstatement
premiums) (1) $ 1,787 $
275
(1) Three and six months ended
We generally define catastrophe loss events consistent with the definition of the Property Claims Service (PCS) for events in theU.S. andCanada . PCS defines a catastrophe as an event that causes damage of$25 million or more in insured losses and affects a significant number of insureds. For events outside of theU.S. andCanada , we generally use a similar definition. We also define losses from certain pandemics, such as COVID-19, as a catastrophe loss. Catastrophe Loss Charge by Event Three Months Ended June 30, 2020 North America North America North America (in millions ofU.S. Commercial P&C Personal P&C Agricultural Overseas General Total Total dollars) Insurance Insurance Insurance Insurance Global Reinsurance Life Insurance excluding RIPs RIPs expensed including RIPs Net losses COVID-19 $ 973 $ - $ -$ 360 $ 10 $ 6$ 1,349 $ (16) $ 1,365 U.S. Flooding, Hail, Tornadoes and Wind Events 179 109 6 2 3 - 299 (4) 303 Civil unrest 118 - - 12 - - 130 - 130 Other - - - 9 - - 9 - 9 Total$ 1,270 $ 109 $ 6 $ 383 $ 13 $ 6$ 1,787 RIPs expensed (3) (1) - (16) - - (20) Total before income tax$ 1,273 $ 110 $ 6 $ 399 $ 13 $ 6$ 1,807 Income tax benefit 297 Total after income tax$ 1,510
Catastrophe losses through
Pre-tax net adverse prior period development for the three months endedJune 30, 2020 was$75 million , including adverse development of$259 million forU.S. child molestation claims, predominantly reviver statute-related. Excluding the adverse development, we had favorable development of$184 million split approximately 79 percent long-tail lines, principally from accident years 2016 and prior, and 21 percent short-tail lines. Pre-tax net favorable prior period development for the six months endedJune 30, 2020 was$43 million , including adverse development of$259 million forU.S. child molestation claims as noted above. Excluding the adverse development, we had favorable development of$302 million split approximately 59 percent long-tail lines, principally from accident years 2016 and prior, and 41 percent short-tail lines. Pre-tax net favorable prior period development for the three months endedJune 30, 2019 was$188 million , including adverse development of$48 million related to the 2017 and 2018 catastrophe events and$25 million of adverse development related to our run-off non-A&E casualty exposures. The remaining net favorable development of$261 million comprises approximately 90 percent long-tail lines, including workers' compensation lines and from accident years 2015 and prior, and approximately 10 percent short-tail lines.
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Table of Contents Pre-tax net favorable prior period development for the six months endedJune 30, 2019 was$392 million , including$61 million favorable development related to the 2018 crop year loss estimates,$76 million favorable development related to the 2017 and 2018 catastrophe events, adverse development of$122 million principally in homeowners due to elevated non-catastrophe activity, and adverse development of$25 million of related to our run-off non-A&E casualty exposures. The remaining net favorable development of$402 million comprises approximately 70 percent long-tail lines, including workers' compensation lines and from accident years 2015 and prior, and approximately 30 percent short-tail lines.
Refer to the prior period development discussion in Footnote 6 to the Consolidated Financial Statements for additional information.
Current Accident Year (CAY) Loss Ratio excluding CATs and CAY P&C Combined Ratio
excluding CATs
The following table presents the impact of catastrophe losses and prior period
development on our loss and loss expense ratio. Refer to the Non-GAAP
Reconciliation section for additional information.
Three Months Ended Six Months Ended
June 30 June 30
2020 2019 2020 2019
Loss and loss expense ratio 85.2 % 61.7 % 72.8 % 60.6 %
Catastrophe losses (23.9) % (3.8) % (13.8) % (3.8) %
Prior period development (0.9) % 2.6 % 0.3 % 2.8 %
CAY loss ratio excluding catastrophe losses 60.4 % 60.5 % 59.3 % 59.6 %
The CAY loss ratio excluding CATs decreased 0.1 percentage points and 0.3
percentage points for the three and six months ended June 30, 2020 ,
respectively, primarily due to a decrease in the underlying loss ratio from
earned price changes modestly above loss trends, offset by the year-over-year
increase in structured transactions of 0.4 percentage points and 0.2 percentage
points, respectively.
CAY P&C Combined Ratio excluding Catastrophe Losses
Three Months Ended Six Months Ended
June 30 June 30
2020 2019 2020 2019
CAY Loss and loss expense ratio ex CATs 60.4 % 60.5 % 59.3 % 59.6 %
CAY Policy acquisition cost ratio ex CATs 18.4 % 19.1 % 19.3 % 19.6 %
CAY Administrative expense ratio ex CATs 8.6 % 9.3 % 8.9 % 9.5 %
CAY P&C combined ratio ex CATs 87.4 % 88.9 % 87.5 % 88.7 %
Policy benefits
Policy benefits represent losses on contracts classified as long-duration and
generally include accident and supplemental health products, term and whole life
products, endowment products, and annuities. Refer to the Life Insurance segment
operating results section for further discussion.
For the three months ended June 30, 2020 and 2019, Policy benefits were $223
million , and $161 million , respectively, which included separate account
liabilities (gains) losses of $40 million and $(3) million , respectively. The
offsetting movements of these liabilities are recorded in Other (income) expense
on the Consolidated statements of operations. Excluding the separate account
gains and losses, Policy benefits were $183 million and $164 million for the
three months ended June 30, 2020 and 2019, respectively, reflecting growth in
new business as described above and our expanded presence in Chile .
For the six months ended June 30, 2020 and 2019, Policy benefits were $352
million , and $357 million , respectively, which included separate account
liabilities (gains) losses of $(16) million and $27 million , respectively. The
offsetting movements of these liabilities are recorded in Other (income) expense
on the Consolidated statements of operations. Excluding the separate account
gains and losses, Policy benefits were $368 million and $330 million for the six
months ended June 30, 2020 and 2019, respectively, reflecting growth in new
business as described above and our expanded presence in Chile .
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Refer to the respective sections for a discussion of Net investment income, Other (income) expense, Net realized gains and losses, Amortization of purchased intangibles, and Income tax expense.
Segment Operating Results - Three and Six Months Ended
We operate through six business segments:North America Commercial P&C Insurance ,North America Personal P&C Insurance ,North America Agricultural Insurance ,Overseas General Insurance , Global Reinsurance, and Life Insurance. For more information on our segments refer to "Segment Information" under Item 1 in our 2019 Form 10-K. For segment reporting purposes, certain items are presented in a different manner than in the consolidated financial statements. Management uses underwriting income (loss) as the main measures of segment performance. For theNorth America Agricultural Insurance segment, management includes gains and losses on crop derivatives as a component of adjusted losses and loss expenses within underwriting income. For the Life Insurance segment, management includes the gains and losses on separate account assets that do not qualify for separate account reporting under GAAP as a component of Life Insurance underwriting income.
The North America Commercial P&C Insurance segment comprises operations that provide property and casualty (P&C) insurance and services to large, middle market, and small commercial businesses in theU.S. ,Canada , andBermuda . This segment includes ourNorth America Major Accounts andSpecialty Insurance division (large corporate accounts and wholesale business), and theNorth America Commercial Insurance division (principally middle market and small commercial accounts). Three Months Ended Six Months EndedJune 30 % ChangeJune 30 % Change (in millions of U.S. dollars, except for YTD-20 vs. percentages) 2020 2019 Q-20 vs. Q-19 2020 2019 YTD-19 Net premiums written$ 3,720 $ 3,534 5.3 %$ 6,972 $ 6,485 7.5 % Net premiums earned 3,595 3,390 6.1 % 6,971 6,475 7.7 % Losses and loss expenses 3,498 2,214 58.0 % 5,679 4,187 35.6 % Policy acquisition costs 471 459 2.6 % 963 918 4.9 % Administrative expenses 249 259 (3.3) % 508 499 1.9 % Underwriting income (loss) (623) 458 NM (179) 871 NM Net investment income 507 521 (2.9) % 1,023 1,031 (0.8) % Other (income) expense 4 2 47.3 % 1 (3) NM Segment income (loss)$ (120) $ 977 NM$ 843 $ 1,905 (55.8) % Loss and loss expense ratio 97.3 % 65.3 % 32.0 pts 81.5 % 64.7 % 16.8 pts Policy acquisition cost ratio 13.1 % 13.6 % (0.5) pts 13.8 % 14.1 % (0.3) pts Administrative expense ratio 6.9 % 7.6 % (0.7) pts 7.3 % 7.7 % (0.4) pts Combined ratio 117.3 % 86.5 % 30.8 pts 102.6 % 86.5 % 16.1 pts NM - not meaningful Premiums Net premiums written increased$186 million , or 5.3 percent, and$487 million , or 7.5 percent, for the three and six months endedJune 30, 2020 , respectively. Growth in net premiums written reflected positive rate increases, strong renewal retention and new business written across a number of retail and wholesale lines, including property, financial lines, excess casualty, and commercial multiple peril. Net premiums written also benefited from new business written in large risk casualty, which included a year-over-year increase of$68 million and$82 million in large structured transactions written for the three and six months endedJune 30, 2020 , respectively. The growth in net premiums written described above was depressed by economic contraction resulting from the COVID-19 pandemic, including$160 million of exposure adjustments on in-force policies, which reduced net premiums written by 4.5 percentage points and 2.5 percentage points for the three and six months endedJune 30, 2020 , respectively, and lower renewal exposures and new business market limitations that impacted several lines of business, including A&H, surety, large corporate accounts, entertainment, hospitality, retail, and construction.
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Table of Contents Net premiums earned increased$205 million , or 6.1 percent, and$496 million , or 7.7 percent, for the three and six months endedJune 30, 2020 , respectively, reflecting the growth in net premiums written, partially offset by$95 million of exposure adjustments on in-force policies from the COVID-19 pandemic described above.
The table below shows the impact of large structured transactions as well as other transactions that are fully earned when written (e.g., audit and retrospective premium adjustments).
Three Months Ended Six Months Ended
June 30 June 30
(in millions of U.S. dollars) 2020 2019 2020 2019
Net premiums fully earned when written $ 316 Combined Ratio The loss and loss expense ratio increased 32.0 percentage points and 16.8 percentage points for the three and six months endedJune 30, 2020 , respectively, primarily due to higher catastrophe losses, including losses related to COVID-19 pandemic claims, civil unrest in theU.S. , and higher natural catastrophes. These items were partially offset by a decrease in the underlying loss ratio from earned price changes modestly above loss trends.
The policy acquisition cost ratio decreased 0.5 percentage points and 0.3
percentage points for the three and six months ended
The administrative expense ratio decreased 0.7 percentage points and 0.4 percentage points for the three and six months endedJune 30, 2020 , respectively, due to lower business expenses, including travel-related costs, due to strong expense management control during the COVID-19 pandemic. Lower employee benefit-related expenses and the year-over-year increase in structured transactions of 0.1 percentage points for both periods, added to the decrease. This decrease is partially offset by lower net profit from our third-party claims administration business, ESIS, and normal inflationary increases. Catastrophe Losses and PriorPeriod Development Three Months Ended Six Months Ended June 30 June 30 (in millions of U.S. dollars) 2020 2019 2020 2019
Catastrophe losses (excludes reinstatement premiums)
$ 137 $ 1,388 $ 231 Favorable prior period development$ 146
Catastrophe losses throughJune 30, 2020 and 2019 were primarily from the following events: •2020: COVID-19 pandemic claims of$973 million , civil unrest in theU.S. of$118 million , and natural catastrophes includingNashville, Tennessee tornado and other severe weather-related events in theU.S. •2019: Winter-related storms and other severe weather-related events in theU.S. 57
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Refer to the prior period development discussion in Note 6 to the Consolidated
Financial Statements for additional information.
CAY Loss Ratio excluding Catastrophe Losses
Three Months Ended Six Months Ended
June 30 June 30
2020 2019 2020 2019
Loss and loss expense ratio 97.3 % 65.3 % 81.5 % 64.7 %
Catastrophe losses (35.4) % (4.0) % (20.0) % (3.6) %
Prior period development 4.2 % 5.4 % 3.7 % 4.8 %
CAY loss ratio excluding catastrophe losses 66.1 % 66.7 % 65.2 % 65.9 %
The CAY loss ratio excluding catastrophe losses decreased 0.6 percentage points
and 0.7 percentage points for the three and six months ended June 30, 2020 ,
respectively, primarily due to a decrease in the underlying loss ratio from
earned price changes modestly above loss trends. This decrease was partially
offset by the year-over-year increase in large structured transactions which
adversely impacted the current year loss ratio by 0.7 percentage points and 0.4
percentage points, respectively.
Three Months Ended Six Months Ended
June 30 % Change June 30 % Change
(in millions of U.S. dollars, except for YTD-20 vs.
percentages) 2020 2019 Q-20 vs. Q-19 2020 2019 YTD-19
Net premiums written $ 1,327 $ 1,309 1.4 % $ 2,434 $ 2,365 2.9 %
Net premiums earned 1,192 1,168 2.1 % 2,392 2,322 3.0 %
Losses and loss expenses 762 747 1.8 % 1,445 1,504 (4.0) %
Policy acquisition costs 231 237 (2.2) % 476 468 1.7 %
Administrative expenses 66 71 (6.8) % 134 139 (3.7) %
Underwriting income 133 113 18.5 % 337 211 59.6 %
Net investment income 65 64 1.3 % 131 128 2.5 %
Other (income) expense 1 1 - 3 1 253.5 %
Amortization of purchased intangibles 3 3 - 6 6 -
Segment income $ 194 $ 173 12.3 % $ 459 $ 332 38.3 %
Loss and loss expense ratio 63.8 % 64.0 % (0.2) pts 60.4 % 64.7 % (4.3) pts
Policy acquisition cost ratio 19.4 % 20.2 % (0.8) pts 19.9 % 20.2 % (0.3) pts
Administrative expense ratio 5.6 % 6.1 % (0.5) pts 5.6 % 6.0 % (0.4) pts
Combined ratio 88.8 % 90.3 % (1.5) pts 85.9 % 90.9 % (5.0) pts
Premiums
Net premiums written increased $18 million , or 1.4 percent, and $69 million , or
2.9 percent, for the three and six months ended June 30, 2020 , respectively,
primarily due to rate increases and high account retention across most lines.
This growth was partially offset by $7 million in automobile premium returned to
insureds as a result of reduced exposure related to the conditions caused by the
COVID-19 pandemic, which impacted growth by 0.6 percentage points and 0.5
percentage points, respectively.
Net premiums earned increased $24 million , or 2.1 percent, and $70 million , or
3.0 percent, for the three and six months ended June 30, 2020 , respectively,
reflecting the growth in net premiums written described above.
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Table of Contents Combined Ratio The loss and loss expense ratio decreased 0.2 percentage points and 4.3 percentage points for the three and six months endedJune 30, 2020 , respectively, primarily due to lower catastrophe losses and a decrease in the underlying loss ratio driven by earned price changes modestly above loss trends, partially offset by lower favorable prior period development. The policy acquisition cost ratio decreased 0.8 percentage points for the three months endedJune 30, 2020 primarily due to a favorable commission accrual adjustment in the current year. In 2019, a similar favorable accrual adjustment was recorded in the first quarter. Therefore, on a year-to-date basis, the policy acquisition cost ratio modestly decreased 0.3 percentage points. The administrative expense ratio decreased 0.5 percentage points and 0.4 percentage points for the three and six months endedJune 30, 2020 , respectively, primarily due to lower business expenses, including travel-related costs, due to strong expense management control during the COVID-19 pandemic, and lower employee benefit-related expenses, partially offset by normal inflationary increases.
Catastrophe Losses and Prior
Three Months Ended Six Months Ended
June 30 June 30
(in millions of U.S. dollars) 2020 2019 2020 2019
Catastrophe losses (excludes reinstatement premiums) $ 109 $ 117 $ 130 $ 246
Favorable prior period development $ 1
Catastrophe losses through
Refer to the prior period development discussion in Note 6 to the Consolidated
Financial Statements for additional information.
CAY Loss Ratio excluding Catastrophe Losses
Three Months Ended Six Months Ended
June 30 June 30
2020 2019 2020 2019
Loss and loss expense ratio 63.8 % 64.0 % 60.4 % 64.7 %
Catastrophe losses (9.2) % (10.1) % (5.5) % (10.6) %
Prior period development 0.1 % 1.4 % - 1.1 %
CAY loss ratio excluding catastrophe losses 54.7 % 55.3 % 54.9 % 55.2 %
The CAY loss ratio excluding catastrophe losses decreased 0.6 percentage points
and 0.3 percentage points for the three and six months ended June 30, 2020 ,
respectively, primarily due to a decrease in the underlying loss ratio driven by
earned price changes modestly above loss trends.
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The North America Agricultural Insurance segment comprises our North American based businesses that provide a variety of coverages in theU.S. andCanada including crop insurance, primarilyMultiple Peril Crop Insurance (MPCI) and crop-hail throughRain and Hail Insurance Service, Inc. (Rain and Hail ) as well as farm and ranch and specialty P&C commercial insurance products and services through our Chubb Agribusiness unit. Three Months Ended Six Months EndedJune 30 % ChangeJune 30 % Change (in millions of U.S. dollars, except for YTD-20 vs. percentages) 2020 2019 Q-20 vs. Q-19 2020 2019 YTD-19 Net premiums written$ 461 $ 466 (1.1) %$ 618 $ 596 3.8 % Net premiums earned 376 378 (0.5) % 470 433 8.6 % Adjusted losses and loss expenses 313 309 0.9 % 378 283 33.3 % Policy acquisition costs 29 27 6.7 % 40 34 16.5 % Administrative expenses 3 4 4.9 % 7 5 55.8 % Underwriting income 31 38 (17.9) % 45 111 (59.2) % Net investment income 7 4 78.6 % 16 14 17.8 % Other (income) expense 1 1 - 1 1 - Amortization of purchased intangibles 6 7 (1.5) % 13 14 (2.1) % Segment income$ 31 $ 34 (9.3) %$ 47 $ 110 (57.0) % Loss and loss expense ratio 83.1 % 81.9 % 1.2 pts 80.4 % 65.5 % 14.9 pts Policy acquisition cost ratio 7.8 % 7.3 % 0.5 pts 8.5 % 7.9 % 0.6 pts Administrative expense ratio 0.9 % 0.9 % - pts 1.5 % 1.1 % 0.4 pts Combined ratio 91.8 % 90.1 % 1.7 pts 90.4 % 74.5 % 15.9 pts Premiums Net premiums written decreased$5 million , or 1.1 percent, for the three months endedJune 30, 2020 primarily due to MPCI premiums reflecting lower rates that were impacted by year-over-year commodity price declines, partially offset by growth in our Chubb Agribusiness unit. Net premiums written increased$22 million , or 3.8 percent, for the six months endedJune 30, 2020 due to the year-over-year increase in MPCI premiums reflecting less premiums returned to theU.S. government under the premium-sharing formulas and the factors noted above. Under the MPCI premium-sharing formulas, we retained more premiums on the 2019 crop year due to higher than expected losses for that year. Net premiums written in the first half of 2019 was lower due to higher cessions to theU.S. government reflecting the more profitable 2018 crop year. Net premiums earned decreased$2 million , or 0.5 percent, for the three months endedJune 30, 2020 . For the six months endedJune 30, 2020 , net premiums earned increased$37 million , or 8.6 percent, reflecting the growth in net premiums written described above. Combined Ratio The loss and loss expense ratio increased 1.2 percentage points for the three months endedJune 30, 2020 primarily due to higher catastrophe losses and higher underlying losses in our Chubb Agribusiness unit, and the year-over-year impact of crop derivative losses, partially offset by lower MPCI underwriting losses in the current year. For the six months endedJune 30, 2020 , the loss and loss expense ratio increased 14.9 percentage points primarily due to our MPCI business, reflecting lower favorable prior period development and the year-over-year impact of crop derivative losses, which were partially offset by lower MPCI underwriting losses in the current year; as well as in our Chubb Agribusiness unit reflecting higher catastrophe losses and higher underlying losses. The policy acquisition cost ratio increased 0.5 percentage points for the three months endedJune 30, 2020 primarily due to a modest shift in the mix of business towards our Agribusiness unit that has a higher policy acquisition cost ratio. The policy acquisition cost ratio increased 0.6 percentage points for the six months endedJune 30, 2020 primarily due to the year-over-year impact of higher earned premium retention as a result of the premium sharing formula under theU.S. government, which does not impact acquisition costs.
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Table of Contents The administrative expense ratio increased 0.4 percentage points for the six months endedJune 30, 2020 primarily due to normal operating expense and inflationary increases and a reduction in the current year Administrative and Operating (A&O) reimbursements related to the MPCI business we earned under the government program. Catastrophe Losses and PriorPeriod Development Three Months Ended Six Months Ended June 30 June 30 (in millions of U.S. dollars) 2020 2019 2020 2019
Catastrophe losses (excludes reinstatement premiums)
$ 2 $ 14 $ 4 Favorable prior period development $ -
$ -
Catastrophe losses through
Refer to the prior period development discussion in Note 6 to the Consolidated Financial Statements for additional information.
There was no prior period development for the three months endedJune 30, 2020 and 2019. For the six months endedJune 30, 2020 , net favorable prior period development was$14 million which included$17 million of favorable incurred losses due to lower than expected MPCI losses for the 2019 crop year, partially offset by a$3 million decrease in net premiums earned related to the MPCI profit and loss calculation formula. For the six months endedJune 30, 2019 , net favorable prior period development was$61 million which included$90 million of favorable incurred losses and$3 million of lower acquisition costs due to lower than expected MPCI losses for the 2018 crop year, partially offset by a$32 million decrease in net premiums earned related to the MPCI profit and loss calculation formula. CAY Loss Ratio excluding Catastrophe Losses Three Months Ended Six Months Ended June 30 June 30 2020 2019 2020 2019 Loss and loss expense ratio 83.1 %
81.9 % 80.4 % 65.5 %
Catastrophe losses (1.6) % (0.5) % (3.0) % (0.9) %
Prior period development - - 3.0 % 14.9 %
CAY loss ratio excluding catastrophe losses 81.5 % 81.4 % 80.4 % 79.5 %
The CAY loss ratio excluding catastrophe losses increased 0.9 percentage points
for the six months ended June 30, 2020 principally due to higher underlying
losses in our Chubb Agribusiness unit and the year-over-year impact of crop
derivative losses, partially offset by lower MPCI underwriting losses in the
current year.
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Table of ContentsOverseas General Insurance Overseas General Insurance segment comprisesChubb International and Chubb Global Markets (CGM).Chubb International comprises our international commercial P&C traditional and specialty lines serving large corporations, middle market and small customers; A&H and traditional and specialty personal lines business serving local territories outside theU.S. ,Bermuda , andCanada . CGM, ourLondon -based international commercial P&C excess and surplus lines business, includesLloyd's of London (Lloyd's) Syndicate 2488. Chubb provides funds at Lloyd's to support underwriting by Syndicate 2488 which is managed byChubb Underwriting Agencies Limited . Three Months Ended Six Months Ended June 30 % Change June 30 % Change (in millions of U.S. dollars, except for YTD-20 vs. percentages) 2020 2019 Q-20 vs. Q-19 2020 2019 YTD-19 Net premiums written$ 2,021 $ 2,258 (10.5) %$ 4,619 $ 4,653 (0.7) % Net premiums earned 2,194 2,225 (1.5) % 4,501 4,339 3.7 % Losses and loss expenses 1,485 1,125 31.9 % 2,743 2,231 22.9 % Policy acquisition costs 624 629 (0.9) % 1,266 1,225 3.3 % Administrative expenses 241 265 (9.3) % 499 514 (3.0) % Underwriting income (loss) (156) 206 NM (7) 369 NM Net investment income 124 151 (17.2) % 269 295 (8.7) % Other (income) expense 8 3 196.6 % 12 7 84.6 % Amortization of purchased intangibles 11 12 (10.4) % 23 23 - Segment income (loss)$ (51) $ 342 NM$ 227 $ 634 (64.1) % Net premiums written - constantdollars (1) (5.1) % 2.7 % Loss and loss expense ratio 67.7 % 50.6 % 17.1 pts 61.0 % 51.4 % 9.6 pts Policy acquisition cost ratio 28.4 % 28.3 % 0.1 pts 28.1 % 28.2 % (0.1) pts Administrative expense ratio 11.0 % 11.9 % (0.9) pts 11.1 % 11.9 % (0.8) pts Combined ratio 107.1 % 90.8 % 16.3 pts 100.2 % 91.5 % 8.7 pts NM - not meaningful Net Premiums Written by Region Three months ended June 30 (in millions ofU.S. dollars, except for percentages) 2020 2019C$ (1) Q-20 Region 2020 % of Total 2019 % of TotalC$ (1) 2019 Q-20 vs. Q-19 vs. Q-19 Europe$ 851 42 %$ 810 36 %$ 790 5.0 % 7.7 % Latin America 389 19 % 573 25 % 490 (32.2) % (20.8) % Asia 721 36 % 792 35 % 770 (9.0) % (6.3) % Other (2) 60 3 % 83 4 % 80 (27.1) % (24.6) % Net premiums written$ 2,021 100 %$ 2,258 100 %$ 2,130 (10.5) % (5.1) % Six months ended June 30 (in millions ofU.S. dollars, except for percentages) 2020 2019C$ (1) Y-20 Region 2020 % of Total 2019 % of TotalC$ (1) 2019Y-20 vs.Y-19 vs.Y-19 Europe$ 2,079 45 %$ 1,916 41 %$ 1,885 8.5 % 10.3 % Latin America 972 21 % 1,106 24 % 1,012 (12.1) % (4.0) % Asia 1,409 31 % 1,461 31 % 1,433 (3.6) % (1.7) % Other (2) 159 3 % 170 4 % 167 (6.6) % (4.8) % Net premiums written$ 4,619 100 %$ 4,653 100 %$ 4,497 (0.7) % 2.7 % (1) On a constant-dollar basis, amounts are calculated by translating prior period results using the same local currency exchange rates as the comparable current period. (2)Comprises Combined International , Eurasia andAfrica region, and other international.
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Table of Contents Premiums For the three months endedJune 30, 2020 , net premiums written decreased$237 million , or$109 million on a constant dollar basis, due to the impact of the COVID-19 pandemic which negatively impacted several lines, mainly in personal lines and A&H, resulting from less travel volume and lower exposures. Net premiums written were depressed by economic contraction resulting from the COVID-19 pandemic including$24 million of exposure adjustments on in-force policies and a lower percentage of net premiums written inLatin America . For the six months endedJune 30, 2020 , net premiums written decreased$34 million , or increased$122 million on a constant dollar basis, as the decrease during the quarter was offset by P&C lines growth due to new business, retention, and positive rate increases. For the three and six months endedJune 30, 2020 net premiums earned decreased$31 million , and increased$162 million , respectively. On a constant dollar basis, net premiums earned increased$89 million and$309 million , respectively, reflecting higher net premiums written in prior periods along with the increase premiums written for the six months endedJune 30, 2020 as described above. Combined Ratio The loss and loss expense ratio increased 17.1 percentage points and 9.6 percentage points for the three and six months endedJune 30, 2020 , respectively, primarily due to higher catastrophe losses, primarily related to the COVID-19 pandemic, along with lower premiums earned from A&H lines inLatin America andAsia , which carry a higher margin. These increases were partially offset by higher favorable prior period development. The administrative expense ratio decreased 0.9 percentage points and 0.8 percentage points for the three and six months endedJune 30, 2020 , respectively, primarily driven by lower employee-related expenses and travel expenses due to strong expense management and controls during the COVID-19 pandemic. Additionally, the six months endedJune 30, 2020 decreased due to the favorable impact of higher net premiums earned in the current year.
Catastrophe Losses and Prior
Three Months Ended Six Months Ended
June 30 June 30
(in millions of U.S. dollars) 2020 2019 2020 2019
Catastrophe losses (excludes reinstatement
premiums) $ 383 $ 9 $ 473 $ 34
Favorable prior period development $ 36 $ 20 $ 40 $ 24
Catastrophe losses through June 30, 2020 and 2019 were primarily from the
following events:
•2020: COVID-19 pandemic claims of $373 million , storms in Australia , Australia
wildfires, and other international weather-related events
•2019: Storms in Australia and other international weather-related events
Refer to the prior period development discussion in Note 6 to the Consolidated Financial Statements for additional information.
CAY Loss Ratio excluding Catastrophe Losses
Three Months Ended Six Months Ended
June 30 June 30
2020 2019 2020 2019
Loss and loss expense ratio 67.7 % 50.6 % 61.0 % 51.4 %
Catastrophe losses (17.8) % (0.4) % (10.7) % (0.8) %
Prior period development 1.7 % 0.9 % 0.9 % 0.6 %
CAY loss ratio excluding catastrophe losses 51.6 % 51.1 % 51.2 % 51.2 %
The CAY loss ratio excluding catastrophe losses increased 0.5 percentage points
for the three months ended June 30, 2020 due to lower premiums earned from A&H
lines in Latin America and Asia , which carry a higher margin.
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Table of Contents Global Reinsurance The Global Reinsurance segment represents our reinsurance operations comprising Chubb Tempest Re Bermuda,Chubb Tempest Re USA ,Chubb Tempest Re International , and Chubb Tempest Re Canada. Global Reinsurance markets its reinsurance products worldwide under the Chubb Tempest Re brand name and provides a broad range of traditional reinsurance coverage to a diverse array of primary P&C companies. Three Months Ended Six Months Ended June 30 % Change June 30 % Change (in millions of U.S. dollars, except YTD-20 vs. for percentages) 2020 2019 Q-20 vs. Q-19 2020 2019 YTD-19 Net premiums written$ 207 $ 197 4.6 %$ 425 $ 399 6.5 % Net premiums earned 163 159 2.9 % 349 327 6.8 % Losses and loss expenses 73 90 (16.2) % 160 166 (3.0) % Policy acquisition costs 42 42 (2.3) % 87 85 2.1 % Administrative expenses 9 7 17.7 % 19 17 7.7 % Underwriting income 39 20 95.5 % 83 59 41.0 % Net investment income 51 55 (6.2) % 105 111 (5.6) % Other (income) expense (8) (15) (43.3) % (23) (24) (2.2) % Segment income$ 98 $ 90 9.6 %$ 211 $ 194 8.9 % Net premiums written - constantdollars (1) 4.9 % 6.4 % Loss and loss expense ratio 45.5 % 55.9 % (10.4) pts 46.0 % 50.6 % (4.6) pts Policy acquisition cost ratio 25.5 % 26.9 % (1.4) pts 25.0 % 26.1 % (1.1) pts Administrative expense ratio 5.6 % 4.9 % 0.7 pts 5.3 % 5.4 % (0.1) pts Combined ratio 76.6 % 87.7 % (11.1) pts 76.3 % 82.1 % (5.8) pts
(1) On a constant-dollar basis. Amounts are calculated by translating prior period results using the same local currency rates as the comparable current period.
Premiums
For the three and six months endedJune 30, 2020 net premiums written increased$10 million and$26 million , respectively, or$11 million and$26 million on a constant-dollar basis, respectively, primarily due to positive rate increases in catastrophe lines and new business written in casualty lines, partially offset by increased ceded retrocessions. In addition, the prior year had unfavorable premium adjustments which lowered premium in 2019. For the three and six months endedJune 30, 2020 net premiums earned increased$4 million and$22 million , respectively, or$6 million and$23 million on a constant-dollar basis, principally reflecting the increase in net premiums written described above. Combined Ratio The loss and loss expense ratio decreased 10.4 percentage points and 4.6 percentage points for the three and six months endedJune 30, 2020 , respectively, primarily from higher favorable prior period development.
The policy acquisition cost ratio decreased 1.4 percentage points and 1.1
percentage points for the three and six months ended
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Catastrophe Losses and Prior
Three Months Ended Six Months Ended
June 30 June 30
(in millions of U.S dollars) 2020 2019 2020 2019
Catastrophe losses (excludes reinstatement
premiums) $ 13 $ 10 $ 13 $ 10
Favorable prior period development $ 16 $ - $ 23 $ 8
Catastrophe losses through June 30, 2020 and 2019 were primarily from the
following events:
•2020: COVID-19 pandemic claims of $10 million and severe weather-related events
in the U.S.
•2019: Severe weather-related events in the U.S. Refer to the prior period development discussion in Note 6 to the Consolidated Financial Statements for additional information.
CAY Loss Ratio excluding Catastrophe Losses
Three Months Ended Six Months Ended
June 30 June 30
2020 2019 2020 2019
Loss and loss expense ratio 45.5 % 55.9 % 46.0 % 50.6 %
Catastrophe losses (7.9) % (6.2) % (3.7) % (3.0) %
Prior period development 9.2 % - 6.4 % 2.5 %
CAY loss ratio excluding catastrophe losses 46.8 % 49.7 % 48.7 % 50.1 %
The CAY loss ratio excluding catastrophe losses decreased 2.9 percentage points
and 1.4 percentage points for the three and six months ended June 30, 2020 ,
respectively, primarily from a change in mix of business towards catastrophe
lines which have a higher margin.
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Table of Contents Life InsuranceThe Life Insurance segment comprises Chubb's international life operations,Chubb Tempest Life Re (Chubb Life Re ), and the North American supplemental A&H and life business ofCombined Insurance . We assess the performance of our life business based on Life Insurance underwriting income, which includes Net investment income and (Gains) losses from fair value changes in separate account assets that do not qualify for separate account reporting under GAAP. Three Months Ended Six Months Ended June 30 % Change June 30 % Change (in millions of U.S. dollars, except for YTD-20 vs. percentages) 2020 2019 Q-20 vs. Q-19 2020 2019 YTD-19 Net premiums written$ 619 $ 579 7.0 %$ 1,264 $ 1,158 9.2 % Net premiums earned 608 571 6.5 % 1,239 1,132 9.5 % Losses and loss expenses 171 189 (9.6) % 373 391 (4.6) % Adjusted policy benefits 183 164 12.0 % 368 330 11.8 % Policy acquisition costs 196 150 30.9 % 376 278 35.4 % Administrative expenses 82 78 4.4 % 158 157 0.7 % Net investment income 95 97 (1.4) % 190 186 2.4 % Life Insurance underwriting income 71 87 (18.5) % 154 162 (5.3) % Other (income) expense (17) (10) 63.8 % (29) (20) 45.3 % Amortization of purchased intangibles 1 1 - 2 1 97.9 % Segment income$ 87 $ 96 (9.8) %$ 181 $ 181 - Net premiums written - constant dollars 8.5 % 9.9 % (1)
(1)On a constant-dollar basis. Amounts are calculated by translating prior period results using the same local currency rates as the comparable current period.
Premiums
For the three and six months endedJune 30, 2020 , net premiums written increased$40 million and$106 million , respectively or$49 million and$114 million on a constant-dollar basis, primarily reflecting growth inLatin America , principally driven by our expanded presence inChile , and Asian international life operations, partially offset by a decline in ourNorth America Combined Insurance business. Deposits The following table presents deposits collected on universal life and investment contracts: Three Months Ended Six Months EndedJune 30 % ChangeJune 30 % ChangeC$ (1) Y-20 vs.Y-19 C$ (1) (in millions ofU.S. dollars, Q-20 vs. Q-20 vs. Q-19Y-20 vs. except for percentages) 2020 2019 C$ (1) 2019 Q-19 2020 2019 C$ (1) 2019Y-19 Deposits collected on Universal life and investment contracts$ 309 $ 369 $ 372 (16.1) % (16.9) %$ 752 $ 690 $ 697 9.1 % 8.0 %
(1) On a constant-dollar basis. Amounts are calculated by translating prior period results using the same local currency exchange rates as the comparable current period.
Deposits collected on universal life and investment contracts (life deposits) are not reflected as revenues in our Consolidated statements of operations in accordance with GAAP. New life deposits are an important component of production, and although they do not significantly affect current period income from operations, they are key to our efforts to grow our business. Life deposits collected decreased for the three months endedJune 30, 2020 due to a decline inTaiwan driven by temporary bank branch closures because of the COVID-19 pandemic and competitive market conditions. Life deposits collected increased for the six months endedJune 30, 2020 as growth inTaiwan during the first quarter more than offset the decline in the second quarter.
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Table of Contents Life Insurance underwriting income and Segment income Life Insurance underwriting income decreased$16 million and$8 million for the three and six months endedJune 30, 2020 , respectively, primarily due to the impact of COVID-19 related catastrophe losses of$6 million and a decrease in underwriting income in our variable annuity business, which continues to decline as no new life reinsurance business is currently being written. Additionally, segment income included other income of$17 million and$29 million for the three and six months endedJune 30, 2020 , respectively, principally due to our share of net income fromHuatai Life , our partially-owned life insurance entity inChina . Corporate Corporate results primarily include the results of our non-insurance companies, income and expenses not attributable to reportable segments and loss and loss expenses of asbestos and environmental (A&E) liabilities and certain other non-A&E run-off exposures. Three Months Ended Six Months Ended June 30 % Change June 30 % Change (in millions of U.S. dollars, except for YTD-20 vs. percentages) 2020 2019 Q-20 vs. Q-19 2020 2019 YTD-19 Losses and loss expenses$ 276 $ 34 NM$ 287 $ 45 NM Administrative expenses 77 74 3.6 % 143 137 4.5 % Underwriting loss 353 108 228.6 % 430 182 136.8 % Net investment income (loss) (22) (33) (29.1) % (46) (70) (33.6) % Interest expense 128 140 (8.8) % 260 280 (7.0) % Net realized gains (losses) 31 (230) NM (925) (326) 183.4 % Other (income) expense 109 (215) NM 132 (204) NM Amortization of purchased intangibles 51 54 (7.5) % 101 109 (7.2) % Chubb integration expenses - 4 (100.0) % - 7 (100.0) % Income tax expense (benefit) (62) 208 NM 153 396 (61.4) % Net loss$ (570) $ (562) 1.4 %$ (2,047) $ (1,166) 75.6 % NM - not meaningful Losses and loss expenses increased$242 million for both the three and six months endedJune 30, 2020 reflecting unfavorable prior period development in the current quarter forU.S. child molestation claims, predominantly reviver statute-related. Losses in 2019 were primarily from unfavorable development related to non-A&E run-off casualty exposures, including workers' compensation, as well as unallocated loss adjustment expenses of the A&E claim operations. Administrative expenses increased$3 million and$6 million for the three and six months endedJune 30, 2020 , respectively, primarily due to the impact of the COVID-19 pandemic and higher legal expenses. Refer to the respective sections for a discussion of Net investment income, Net realized gains and losses, Other (income) expense, Amortization of purchased intangibles, and Income tax expense. Net Realized and Unrealized Gains (Losses) We take a long-term view with our investment strategy, and our investment managers manage our investment portfolio to maximize total return within certain specific guidelines designed to minimize risk. The majority of our investment portfolio is available for sale and reported at fair value. Our held to maturity investment portfolio is reported at amortized cost, net of valuation allowance. The effect of market movements on our fixed maturities portfolio impacts Net income (through Net realized gains (losses)) when securities are sold, when we write down an asset because we intend to sell the security, or when we record a change to the allowance for expected credit losses. For a further discussion related to how we assess the allowance for expected credit losses and the related impact on Net income, refer to Note 3 c) to the Consolidated Financial Statements. Additionally, Net income is
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impacted through the reporting of changes in the fair value of equity securities
and private equity securities where we own less than three percent and
derivatives, including financial futures, options, swaps, and GLB reinsurance.
Changes in unrealized appreciation and depreciation on available for sale
securities, resulting from the revaluation of securities held, changes in
cumulative foreign currency translation adjustment, and unrealized
postretirement benefit liability adjustment, are reported as separate components
of Accumulated other comprehensive income (loss) in Shareholders' equity in the
Consolidated balance sheets.
The following table presents our net realized and unrealized gains (losses):
Three Months Ended June 30, 2020 Three Months Ended June 30,
2019
Net Net Net Net
Realized Unrealized Realized Unrealized
Gains Gains Net Gains Gains Net
(in millions of U.S. dollars) (Losses) (Losses) Impact (Losses) (Losses) Impact
Fixed maturities $ (33) $ 3,281
14 - 14 (181) - (181)
Public equity
Sales 187 - 187 32 - 32
Mark-to-market (39) - (39) (27) - (27)
Private equity (less than 3 percent
ownership)
Mark-to-market (107) - (107) 30 - 30
Total investment portfolio 22 3,281 3,303 (134) 1,240 1,106
Variable annuity reinsurance derivative
transactions, net of applicable hedges 110 - 110 (85) - (85)
Other derivatives (1) - (1) 7 - 7
Foreign exchange (61) 445 384 (11) (97) (108)
Other (40) (22) (62) - (18) (18)
Net gains (losses), pre-tax $ 30 $ 3,704 $ 3,734 $ (223) $ 1,125 $ 902
Six Months Ended June 30, 2020 Six Months Ended June 30,
2019
Net Net Net Net
Realized Unrealized Realized Unrealized
Gains Gains Net Gains Gains Net
(in millions of U.S. dollars) (Losses) (Losses) Impact (Losses) (Losses) Impact
Fixed maturities $ (352) $ 1,121
29 - 29 (311) - (311)
Public equity
Sales 163 - 163 33 - 33
Mark-to-market (44) - (44) 30 - 30
Private equity (less than 3 percent
ownership)
Sales - - - (2) - (2)
Mark-to-market (102) - (102) (12) - (12)
Total investment portfolio (306) 1,121 815 (294) 3,129 2,835
Variable annuity reinsurance derivative
transactions, net of applicable hedges (450) - (450) (34) - (34)
Other derivatives (3) - (3) 6 - 6
Foreign exchange (129) (414) (543) 2 50 52
Other (40) (36) (76) - (45) (45)
Net gains (losses), pre-tax $ (928) $ 671 $ (257) $ (320) $ 3,134 $ 2,814
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Table of Contents Pre-tax net losses of$257 million for the six months endedJune 30, 2020 reflected the financial market volatility in the credit, equity and foreign exchange markets, driven by the impact of the COVID-19 global pandemic. The$815 million gain in our investment portfolio was principally a result of a decline in interest rates and a narrowing of credit spreads in the second quarter, partially offset by a$46 million realized loss related to expected credit losses of certain securities and$152 million of impairments for securities we intended to sell, and securities written to market entering default. The$543 million foreign exchange loss reflected the strengthening of theU.S. dollar against most major currencies. The$450 million realized loss in our variable annuity reinsurance portfolio was principally driven by lower interest rates and lower global equities markets, as discussed below. The variable annuity reinsurance derivative transactions consist of changes in the fair value of GLB liabilities and gain or losses on other derivative instruments we maintain that decrease in fair value when the S&P 500 index increases. The variable annuity reinsurance derivative transactions resulted in realized gains of$110 million for the three months endedJune 30, 2020 reflecting a net decrease in the fair value of the GLB liabilities of$213 million due to higher global equity markets, partially offset by a net realized loss of$103 million related to these other derivatives. For the six months endedJune 30, 2020 , the variable annuity reinsurance derivative transactions resulted in realized losses of$450 million reflecting a net increase in the fair value of the GLB liabilities of$472 million due to lower interest rates and lower global equity markets, partially offset by a net realized gain of$22 million related to these other derivatives. For the three months endedJune 30, 2019 , the variable annuity reinsurance derivative transactions resulted in realized losses of$85 million reflecting a net increase in the fair value of GLB liabilities of$65 million and a net realized loss of$20 million related to these other derivative instruments. The net increase in the fair value of GLB liabilities is due to lower interest rates, partially offset by higher global equity market levels. For the six months endedJune 30, 2019 , the variable annuity reinsurance derivative transactions resulted in realized losses of$34 million , reflecting a net realized loss of$83 million related to these other derivative instruments partially offset by a decrease in the fair value of GLB liabilities of$49 million . The net decrease in the fair value of GLB liabilities is due to higher global equity market levels partially offset by lower interest rates. Effective Income Tax Rate Our effective income tax rate reflects a mix of income or losses in jurisdictions with a wide range of tax rates, permanent differences between US GAAP and local tax laws, and the timing of recording discrete items. A change in the geographic mix of earnings could impact our effective tax rate. Our effective tax rate (ETR) for the three and six months endedJune 30, 2020 , was impacted by the high level of catastrophe losses, principally COVID-19, which resulted in an ETR for our tax benefit of 15.8 percent for the quarter and a year-to-date ETR on our tax expense of 206.8 percent. In addition the ETR for the six months endedJune 30, 2020 was impacted by a higher percentage of realized losses generated in lower tax jurisdictions. This compares to an ETR on our tax expense of 15.3 percent in both the prior year periods. Non-GAAP Reconciliation In presenting our results, we included and discussed certain non-GAAP measures. These non-GAAP measures, which may be defined differently by other companies, are important for an understanding of our overall results of operations and financial condition. However, they should not be viewed as a substitute for measures determined in accordance with generally accepted accounting principles (GAAP). We provide financial measures, including net premiums written, net premiums earned, and underwriting income on a constant-dollar basis. We believe it is useful to evaluate the trends in our results exclusive of the effect of fluctuations in exchange rates between theU.S. dollar and the currencies in which our international business is transacted, as these exchange rates could fluctuate significantly between periods and distort the analysis of trends. The impact is determined by assuming constant foreign exchange rates between periods by translating prior period results using the same local currency exchange rates as the comparable current period. Adjusted policy benefits include gains and losses from fair value changes in separate account assets, as well as the offsetting movement in separate account liabilities, for purposes of reporting Life Insurance underwriting income. 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
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liabilities as part of the results of our underwriting operations, and therefore these gains and losses are reclassified to adjusted policy benefits.
The following table presents a reconciliation of Policy benefits to Adjusted
policy benefits:
Three Months Ended Six Months Ended
June 30 June 30
(in millions of U.S. dollars) 2020 2019 2020 2019
Policy benefits $ 223 $ 161 $ 352 $ 357
Add: (Gains) losses from fair value changes in separate
account assets (40) 3 16 (27)
Adjusted policy benefits $ 183 $ 164 $ 368 $ 330
P&C performance metrics comprise consolidated operating results (including
Corporate) and exclude the operating results of the Life Insurance segment. We
believe that these measures are useful and meaningful to investors as they are
used by management to assess the company's P&C operations which are the most
economically similar. We exclude the Life Insurance segment because the results
of this business do not always correlate with the results of our P&C operations.
P&C combined ratio is the sum of the loss and loss expense ratio, policy
acquisition cost ratio and the administrative expense ratio excluding the life
business and including the realized gains and losses on the crop derivatives.
These derivatives were purchased to provide economic benefit, in a manner
similar to reinsurance protection, in the event that a significant decline in
commodity pricing impacts underwriting results. We view gains and losses on
these derivatives as part of the results of our underwriting operations.
CAY P&C combined ratio excluding catastrophe losses (CATs) excludes CATs and
prior period development (PPD) from the P&C combined ratio. We exclude CATs as
they are not predictable as to timing and amount and PPD as these unexpected
loss developments on historical reserves are not indicative of our current
underwriting performance. The combined ratio numerator is adjusted to exclude
CATs, net premiums earned adjustments on PPD, prior period expense adjustments
and reinstatement premiums on PPD, and the denominator is adjusted to exclude
net premiums earned adjustments on PPD and reinstatement premiums on CATs and
PPD. In periods where there are adjustments on loss sensitive policies, these
adjustments are excluded from PPD and net premiums earned when calculating the
ratios. We believe this measure provides a better evaluation of our underwriting
performance and enhances the understanding of the trends in our P&C business
that may be obscured by these items. This measure is commonly reported among our
peer companies and allows for a better comparison.
Reinstatement premiums are additional premiums paid on certain reinsurance
agreements in order to reinstate coverage that had been exhausted by loss
occurrences. The reinstatement premium amount is typically a pro rata portion of
the original ceded premium paid based on how much of the reinsurance limit had
been exhausted.
Net premiums earned adjustments within PPD are adjustments to the initial
premium earned on retrospectively rated policies based on actual claim
experience that develops after the policy period ends. The premium adjustments
correlate to the prior period loss development on these same policies and are
fully earned in the period the adjustments are recorded.
Prior period expense adjustments typically relate to adjustable commission
reserves or policyholder dividend reserves based on actual claim experience that
develops after the policy period ends. The expense adjustments correlate to the
prior period loss development on these same policies.
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For this disclosure purpose, the normalized level of CATs, or expected level of
CATs, is not intended to represent a probability weighted expectation for the
company but rather to represent management's view of what might be more typical
for a given period, based on various factors, including historical experience,
seasonal patterns, and consideration of both modeled CATs (e.g., windstorm and
earthquake) as well as non-modeled CATs (e.g., wildfires, floods and freeze).
The following table presents CATs above (below) expected level and the impact on
the combined ratio:
Three Months Ended Six Months Ended
June 30 June 30
(in millions of
2020 2019 2020 2019
Actual level of CATs - pre-tax $ 1,807 $ 275 $ 2,044 $ 525
Less: Expected level of CATs - pre-tax 284 241 508 447
CATs above expected level - pre-tax $ 1,523 $ 34 $ 1,536 $ 78
Adverse impact of CATs above an expected level on
combined ratio 20.1 % 0.5 % 10.4 % 0.6 %
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Table of Contents The following tables present the calculation of combined ratio, as reported for each segment to P&C combined ratio, adjusted for catastrophe losses (CATs) and PPD: Three Months Ended June 30, 2020 North America North America (in millions of U.S. dollars except Commercial P&C Personal P&C North America Overseas General Global for ratios) Insurance InsuranceAgricultural Insurance Insurance Reinsurance Corporate Total P&C Numerator Losses and loss expenses Losses and loss expenses$ 3,498 $ 762 $ 312$ 1,485 $ 73 $ 276 $ 6,406 Realized (gains) losses on crop derivatives - - 1 - - - 1 Adjusted losses and loss expenses A$ 3,498 $ 762 $ 313$ 1,485 $ 73 $ 276 $ 6,407 Catastrophe losses and related adjustments Catastrophe losses, net of related adjustments (1,273) (110) (6) (399) (13) - (1,801) Reinstatement premiums collected (expensed) on catastrophe losses (3) (1) - (16) - - (20) Catastrophe losses, gross of related adjustments (1,270) (109) (6) (383) (13) - (1,781) PPD and related adjustments PPD, net of related adjustments - favorable (unfavorable) 146 1 - 36 16 (274) (75) Net premiums earned adjustments on PPD - unfavorable (favorable) 4 - - - - - 4 Expense adjustments - unfavorable (favorable) 1 - - - - - 1 PPD reinstatement premiums - unfavorable (favorable) - - - - (1) - (1) PPD, gross of related adjustments - favorable (unfavorable) 151 1 - 36 15 (274) (71) CAY loss and loss expense ex CATs B$ 2,379 $ 654 $ 307$ 1,138 $ 75 $ 2 $ 4,555 Policy acquisition costs and administrative expenses Policy acquisition costs and administrative expenses C $ 720$ 297 $ 32$ 865 $ 51 $ 77 $ 2,042 Expense adjustments - favorable (unfavorable) (1) - - - - - (1) Policy acquisition costs and administrative expenses, adjusted D $ 719$ 297 $ 32$ 865 $ 51 $ 77 $ 2,041 Denominator Net premiums earned E$ 3,595 $ 1,192 $ 376$ 2,194 $ 163 $ 7,520 Reinstatement premiums (collected) expensed on catastrophe losses 3 1 - 16 - 20 Net premiums earned adjustments on PPD - unfavorable (favorable) 4 - - - - 4 PPD reinstatement premiums - unfavorable (favorable) - - - - (1) (1) Net premiums earned excluding adjustments F$ 3,602 $ 1,193 $ 376$ 2,210 $ 162 $ 7,543 P&C Combined ratio Loss and loss expense ratio A/E 97.3 % 63.8 % 83.1 % 67.7 % 45.5 % 85.2 % Policy acquisition cost and administrative expense ratio C/E 20.0 % 25.0 % 8.7 % 39.4 % 31.1 % 27.1 % P&C Combined ratio 117.3 % 88.8 % 91.8 % 107.1 % 76.6 % 112.3 % CAY P&C Combined ratio ex CATs Loss and loss expense ratio, adjusted B/F 66.1 % 54.7 % 81.5 % 51.6 % 46.8 % 60.4 % Policy acquisition cost and administrative expense ratio, adjusted D/F 19.9 % 24.9 % 8.7 % 39.1 % 31.4 % 27.0 % CAY P&C Combined ratio ex CATs 86.0 % 79.6 % 90.2 % 90.7 % 78.2 % 87.4 % Combined ratio Combined ratio 112.3 % Add: impact of gains and losses on crop derivatives - P&C Combined ratio 112.3 %
Note: The ratios above are calculated using whole
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Table of Contents Three Months Ended June 30, 2019 North America North America (in millions of U.S. dollars except Commercial P&C Personal P&C North America Overseas General for ratios) Insurance InsuranceAgricultural Insurance Insurance Global Reinsurance Corporate Total P&C Numerator Losses and loss expenses Losses and loss expenses$ 2,214 $ 747 $ 316$ 1,125 $ 90$ 34 $ 4,526 Realized (gains) losses on crop derivatives - - (7) - - - (7) Adjusted losses and loss expenses A$ 2,214 $ 747 $ 309$ 1,125 $ 90$ 34 $ 4,519 Catastrophe losses and related adjustments Catastrophe losses, net of related adjustments (137) (117) (2) (9) (10) - (275) Reinstatement premiums collected (expensed) on catastrophe losses - - - - - - - Catastrophe losses, gross of related adjustments (137) (117) (2) (9) (10) - (275) PPD and related adjustments PPD, net of related adjustments - favorable (unfavorable) 185 16 - 20 - (33) 188 Net premiums earned adjustments on PPD - unfavorable (favorable) (3) - - - - - (3) Expense adjustments - unfavorable (favorable) (2) - - - - - (2) PPD, gross of related adjustments - favorable (unfavorable) 180 16 - 20 - (33) 183 CAY loss and loss expense ex CATs B$ 2,257 $ 646 $ 307$ 1,136 $ 80$ 1 $ 4,427 Policy acquisition costs and administrative expenses Policy acquisition costs and administrative expenses C $ 718$ 308 $ 31$ 894 $ 49$ 74 $ 2,074 Expense adjustments - favorable (unfavorable) 2 - - - - - 2 Policy acquisition costs and administrative expenses, adjusted D $ 720$ 308 $ 31$ 894 $ 49$ 74 $ 2,076 Denominator Net premiums earned E$ 3,390 $ 1,168 $ 378$ 2,225 $ 159$ 7,320 Net premiums earned adjustments on PPD - unfavorable (favorable) (3) - - - - (3) Net premiums earned excluding adjustments F$ 3,387 $ 1,168 $ 378$ 2,225 $ 159$ 7,317 P&C Combined ratio Loss and loss expense ratio A/E 65.3 % 64.0 % 81.9 % 50.6 % 55.9 % 61.7 % Policy acquisition cost and administrative expense ratioC/E 21.2 % 26.3 % 8.2 % 40.2 % 31.8 % 28.4 % P&C Combined ratio 86.5 % 90.3 % 90.1 % 90.8 % 87.7 % 90.1 % CAY P&C Combined ratio ex CATs Loss and loss expense ratio, adjusted B/F 66.7 % 55.3 % 81.4 % 51.1 % 49.7 % 60.5 % Policy acquisition cost and administrative expense ratio, adjusted D/F 21.2 % 26.4 % 8.2 % 40.1 % 32.0 % 28.4 % CAY P&C Combined ratio ex CATs 87.9 % 81.7 % 89.6 % 91.2 % 81.7 % 88.9 % Combined ratio Combined ratio 90.2 % Add: impact of gains and losses on crop derivatives (0.1) % P&C Combined ratio 90.1 %
Note: The ratios above are calculated using whole
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Table of Contents Six Months Ended June 30, 2020 North America North America (in millions of U.S. dollars except Commercial P&C Personal P&C North America Overseas General for ratios) Insurance InsuranceAgricultural Insurance Insurance Global Reinsurance Corporate Total P&C Numerator Losses and loss expenses Losses and loss expenses$ 5,679 $ 1,445 $ 375$ 2,743 $ 160$ 287 $ 10,689 Realized (gains) losses on crop derivatives - - 3 - - - 3 Adjusted losses and loss expenses A$ 5,679 $ 1,445 $ 378$ 2,743 $ 160$ 287 $ 10,692 Catastrophe losses and related adjustments Catastrophe losses, net of related adjustments (1,391) (131) (14) (489) (13) - (2,038) Reinstatement premiums collected (expensed) on catastrophe losses (3) (1) - (16) - - (20) Catastrophe losses, gross of related adjustments (1,388) (130) (14) (473) (13) - (2,018) PPD and related adjustments PPD, net of related adjustments - favorable (unfavorable) 251 - 14 40 23 (285) 43 Net premiums earned adjustments on PPD - unfavorable (favorable) 4 - 3 - - - 7 PPD reinstatement premiums - unfavorable (favorable) - - - - (1) - (1) PPD, gross of related adjustments - favorable (unfavorable) 255 - 17 40 22 (285) 49 CAY loss and loss expense ex CATs B$ 4,546 $ 1,315 $ 381$ 2,310 $ 169$ 2 $ 8,723 Policy acquisition costs and administrative expenses Policy acquisition costs and administrative expenses C$ 1,471 $ 610 $ 47$ 1,765 $ 106$ 143 $ 4,142 Expense adjustments - favorable (unfavorable) - - - - - - - Policy acquisition costs and administrative expenses, adjusted D$ 1,471 $ 610 $ 47$ 1,765 $ 106$ 143 $ 4,142 Denominator Net premiums earned E$ 6,971 $ 2,392 $ 470$ 4,501 $ 349$ 14,683 Reinstatement premiums (collected) expensed on catastrophe losses 3 1 - 16 - 20 Net premiums earned adjustments on PPD - unfavorable (favorable) 4 - 3 - - 7 PPD reinstatement premiums - unfavorable (favorable) - - - - (1) (1) Net premiums earned excluding adjustments F$ 6,978 $ 2,393 $ 473$ 4,517 $ 348$ 14,709 P&C Combined ratio Loss and loss expense ratio A/E 81.5 % 60.4 % 80.4 % 61.0 % 46.0 % 72.8 % Policy acquisition cost and administrative expense ratioC/E 21.1 % 25.5 % 10.0 % 39.2 % 30.3 % 28.2 % P&C Combined ratio 102.6 % 85.9 % 90.4 % 100.2 % 76.3 % 101.0 % CAY P&C Combined ratio ex CATs Loss and loss expense ratio, adjusted B/F 65.2 % 54.9 % 80.4 % 51.2 % 48.7 % 59.3 % Policy acquisition cost and administrative expense ratio, adjusted D/F 21.0 % 25.5 % 10.0 % 39.0 % 30.5 % 28.2 % CAY P&C Combined ratio ex CATs 86.2 % 80.4 % 90.4 % 90.2 % 79.2 % 87.5 % Combined ratio Combined ratio 101.0 % Add: impact of gains and losses on crop derivatives - P&C Combined ratio 101.0 %
Note: The ratios above are calculated using whole
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Table of Contents Six Months Ended June 30, 2019 North America North America (in millions of U.S. dollars except Commercial P&C Personal P&C North America Overseas General Global for ratios) Insurance InsuranceAgricultural Insurance Insurance Reinsurance Corporate Total P&C Numerator Losses and loss expenses Losses and loss expenses$ 4,187 $ 1,504 $ 289$ 2,231 $ 166 $ 45 $ 8,422 Realized (gains) losses on crop derivatives - - (6) - - - (6) Adjusted losses and loss expenses A$ 4,187 $ 1,504 $ 283$ 2,231 $ 166 $ 45 $ 8,416 Catastrophe losses and related adjustments Catastrophe losses, net of related adjustments (231) (246) (4) (34) (10) - (525) Reinstatement premiums collected (expensed) on catastrophe losses - - - - - - - Catastrophe losses, gross of related adjustments (231) (246) (4) (34) (10) - (525) PPD and related adjustments PPD, net of related adjustments - favorable (unfavorable) 316 26 61 24 8 (43) 392 Net premiums earned adjustments on PPD - unfavorable (favorable) (1) - 32 - - - 31 Expense adjustments - unfavorable (favorable) (6) - (3) - - - (9) PPD reinstatement premiums - unfavorable (favorable) - (3) - - - - (3) PPD, gross of related adjustments - favorable (unfavorable) 309 23 90 24 8 (43) 411 CAY loss and loss expense ex CATs B$ 4,265 $ 1,281 $ 369$ 2,221 $ 164 $ 2 $ 8,302 Policy acquisition costs and administrative expenses Policy acquisition costs and administrative expenses C$ 1,417 $ 607 $ 39$ 1,739 $ 102 $ 137 $ 4,041 Expense adjustments - favorable (unfavorable) 6 - 3 - - - 9 Policy acquisition costs and administrative expenses, adjusted D$ 1,423 $ 607 $ 42$ 1,739 $ 102 $ 137 $ 4,050 Denominator Net premiums earned E$ 6,475 $ 2,322 $ 433$ 4,339 $ 327 $ 13,896 Net premiums earned adjustments on PPD - unfavorable (favorable) (1) - 32 - - 31 PPD reinstatement premiums - unfavorable (favorable) - (3) - - - (3) Net premiums earned excluding adjustments F$ 6,474 $ 2,319 $ 465$ 4,339 $ 327 $ 13,924 P&C Combined ratio Loss and loss expense ratio A/E 64.7 % 64.7 % 65.5 % 51.4 % 50.6 % 60.6 % Policy acquisition cost and administrative expense ratio C/E 21.8 % 26.2 % 9.0 % 40.1 % 31.5 % 29.0 % P&C Combined ratio 86.5 % 90.9 % 74.5 % 91.5 % 82.1 % 89.6 % CAY P&C Combined ratio ex CATs Loss and loss expense ratio, adjusted B/F 65.9 % 55.2 % 79.5 % 51.2 % 50.1 % 59.6 % Policy acquisition cost and administrative expense ratio, adjusted D/F 21.9 % 26.2 % 9.0 % 40.1 % 31.5 % 29.1 % CAY P&C Combined ratio ex CATs 87.8 % 81.4 % 88.5 % 91.3 % 81.6 % 88.7 % Combined ratio Combined ratio 89.6 % Add: impact of gains and losses on crop derivatives - P&C Combined ratio 89.6 %
Note: The ratios above are calculated using whole
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Other Income and Expense
Three Months Ended Six Months Ended
June 30 June 30
(in millions of U.S. dollars) 2020 2019 2020 2019
Equity in net income (loss) of partially-owned
entities (1) $ (73)
40 (3) (16) 27
Federal excise and capital taxes (6) (6) (12) (12)
Other (19) (11) (41) (18)
Total $ (58) $ 230 $ (113) $ 269
(1) Equity in net income (loss) of partially-owned entities includes $31
million and $49 million attributable to our investments in Huatai (Huatai Group ,
Huatai P&C, and Huatai Life ) for the three and six months ended June 30, 2020 ,
respectively, compared to $18 million and $29 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 related to
partially-owned investment companies (private equity) and partially-owned
insurance companies. Also included in Other income and expense are gains
(losses) from fair value changes in separate account assets that do not qualify
for separate account reporting under GAAP. The offsetting movement in the
separate account liabilities is included in Policy benefits in the Consolidated
statements of operations. Certain federal excise and capital taxes incurred as a
result of capital management initiatives are included in Other income and
expense as these are considered capital transactions and are excluded from
underwriting results.
Amortization of purchased intangibles and Other amortization
Amortization expense related to purchased intangibles was $72 million and $145
million for the three and six months ended June 30, 2020 , respectively, compared
with $77 million and $153 million , respectively, in the prior year periods and
principally relates to the Chubb Corp acquisition. The decrease in amortization
expense of purchased intangibles reflects lower intangible amortization expense
related to agency distribution relationships and renewal rights.
Amortization expense for the remainder of 2020 is expected to be
The following table presents, as ofJune 30, 2020 , the estimated pre-tax amortization expense (benefit) of purchased intangibles, at current foreign currency exchange rates, for the third and fourth quarters of 2020 and the next five years: Associated with the Chubb Corp Acquisition Fair value For the Years Ending adjustment on December 31 Agency distribution Unpaid losses Total (in millions of U.S. relationships and and loss Other intangible Amortization of dollars) renewal rights expenses Total (1) assets (2) purchased intangibles Third quarter of 2020 $ 59$ (9) $ 50 $ 22 $ 72 Fourth quarter of 2020 59 (9) 50 22 72 2021 214 (20) 194 86 280 2022 195 (14) 181 98 279 2023 176 (6) 170 92 262 2024 158 (5) 153 86 239 2025 144 (5) 139 85 224 Total $ 1,005$ (68) $ 937 $ 491$ 1,428 (1)Recorded in Corporate. (2)Recorded in applicable segment(s) that acquired the intangible assets.
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Table of Contents Reduction of deferred tax liability associated with intangible assets related to Other intangible assets (excluding the fair value adjustment on Unpaid losses and loss expense) AtJune 30, 2020 , the deferred tax liability associated with Other intangible assets (excluding the fair value adjustment on Unpaid losses and loss expense) was$1,310 million . The following table presents, as ofJune 30, 2020 , the expected reduction of the deferred tax liability associated with Other intangible assets (which reduces as agency distribution relationships and renewal rights and other intangible assets amortize), at current foreign currency exchange rates, for the third and fourth quarters of 2020 and for the next five years: Reduction to deferred tax liability For the Years Ending December 31 associated with (in millions of U.S. dollars) intangible assets Third quarter of 2020 $ 18 Fourth quarter of 2020 18 2021 67 2022 65 2023 60 2024 54 2025 50 Total $ 332 Amortization of the fair value adjustment on acquired invested assets and assumed long-term debt The following table presents atJune 30, 2020 , the expected amortization expense of the fair value adjustment on acquired invested assets, at current foreign currency exchange rates, and the expected amortization benefit from the amortization of the fair value adjustment on assumed long-term debt for the third and fourth quarters of 2020 and for the next five years:
Amortization (expense) benefit of the fair value
adjustment on
For the Years Ending December 31 Acquired invested Assumed long-term debt
(in millions of U.S. dollars) assets (1) (2)
Third quarter of 2020 $ (30) $ 5
Fourth quarter of 2020 (30) 6
2021 (110) 21
2022 (96) 21
2023 - 21
2024 - 21
2025 - 21
Total $ (266) $ 116
(1)Recorded as a reduction to Net investment income in the Consolidated
statements of operations.
(2)Recorded as a reduction to Interest expense in the Consolidated statements of
operations.
The estimate of amortization expense of the fair value adjustment on acquired
invested assets could vary materially based on current market conditions, bond
calls, overall duration of the acquired investment portfolio, and foreign
exchange.
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Net Investment Income
Three Months Ended Six Months Ended
June 30 June 30
(in millions of U.S. dollars) 2020 2019 2020 2019
Fixed maturities (1) $ 810 $ 851 $ 1,661 $ 1,671
Short-term investments 11 22 28 46
Other interest income 3 6 12 12
Equity securities 24 9 33 16
Other investments 21 15 41 37
Gross investment income 869 903 1,775 1,782
Investment expenses (42) (44) (87) (87)
Net investment income $ 827 $ (30) $ (43) $ (62) $ (89) Net investment income is influenced by a number of factors including the amounts and timing of inward and outward cash flows, the level of interest rates, and changes in overall asset allocation. Net investment income decreased 3.8 percent and 0.4 percent for the three and six months endedJune 30, 2020 , respectively, primarily due to lower reinvestment rates on new and reinvested assets, lower rates on floating rate obligations, and foreign exchange. The decrease for the six months endedJune 30, 2020 was partially offset by higher average invested assets. For private equities where we own less than three percent, investment income is included within Net investment income in the table above. For private equities where we own more than three percent, investment income is included within Other income (expense) in the Consolidated statements of operations. Excluded from Net investment income is the mark-to-market movement for private equities, which is recorded within either Other income (expense) or Net realized gains (losses) based on our percentage of ownership. The total mark-to-market movement for private equities excluded from Net investment income was as follows: Three Months Ended Six Months Ended June 30 June30 (in millions of U.S. dollars) 2020 2019 2020 2019 Total mark-to-market gain (loss) on private equity, pre-tax$ (200) $ 240 $ (207) $ 193 Investments Our investment portfolio is invested primarily in publicly traded, investment grade, fixed income securities with an average credit quality of A/Aa as rated by the independent investment rating services Standard and Poor's (S&P)/Moody's Investors Service (Moody's). The portfolio is externally managed by independent, professional investment managers and is broadly diversified across geographies, sectors, and issuers. Other investments principally comprise direct investments, investment funds, and limited partnerships. We hold no collateralized debt obligations in our investment portfolio, and we provide no credit default protection. We have long-standing global credit limits for our entire portfolio across the organization. Exposures are aggregated, monitored, and actively managed by our Global Credit Committee, comprising senior executives, including our Chief Financial Officer, ourChief Risk Officer , our Chief Investment Officer, and our Treasurer. We also have well-established, strict contractual investment rules requiring managers to maintain highly diversified exposures to individual issuers and closely monitor investment manager compliance with portfolio guidelines. The average duration of our fixed income securities, including the effect of options and swaps, was 4.0 years and 3.8 years atJune 30, 2020 andDecember 31, 2019 , respectively. We estimate that a 100 basis point (bps) increase in interest rates would reduce the valuation of our fixed income portfolio by approximately$4.1 billion atJune 30, 2020 . We established credit loss valuation allowances as a result of our adoption of guidance on Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments (CECL) onJanuary 1, 2020 and established a valuation allowance of
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Table of Contents$69 million . The COVID-19 global pandemic and related economic conditions adversely impacted our investment portfolio and resulted in an increase in our valuation allowance. This adverse impact was mitigated by the overall high credit quality of the portfolio and the stabilization of the valuation of investment grade securities due to measures announced by theU.S. Federal Reserve , including programs to support corporate and asset backed securities. Overall, the valuation allowance increased by$53 million for the six months endedJune 30, 2020 . Refer to Note 3 to the Consolidated Financial Statements for additional information on expected credit losses.
The following table shows the fair value and cost/amortized cost, net of valuation allowance, of our invested assets:
June 30, 2020 December 31, 2019
Cost/ Cost/
Fair Amortized Fair Amortized
(in millions of U.S. dollars) Value Cost, Net Value Cost
Fixed maturities available for sale $ 86,712 $ 82,671 $ 85,488 $ 82,580
Fixed maturities held to maturity 12,620 11,845 13,005 12,581
Short-term investments 4,003 4,002 4,291 4,291
103,335 98,518 102,784 99,452
Equity securities 2,394 2,394 812 812
Other investments 5,923 5,923 6,062 6,062
Total investments $ 111,652 $ 106,835 $ 109,658 $ 106,326
The fair value of our total investments increased $2.0 billion during the six
months ended June 30, 2020 , primarily due to the investing of operating cash
flows and unrealized appreciation. This increase was partially offset by the
payment of collateralized deposits for the purchase of additional ownership in
Huatai Group and unfavorable foreign exchange movement.
The following tables present the fair value of our fixed maturities and
short-term investments at June 30, 2020 and December 31, 2019 . The first table
lists investments according to type and second according to S&P credit rating:
June 30, 2020 December 31, 2019
Fair Fair
(in millions of U.S. dollars, except for percentages) Value % of Total Value % of Total
U.S. Treasury / Agency $ 4,190 4 % $ 4,630 5 %
Corporate and asset-backed securities 36,345 35 % 34,259 33 %
Mortgage-backed securities 20,529 20 % 21,588 21 %
Municipal 12,291 12 % 12,824 12 %
Non-U.S. 25,977 25 % 25,192 25 %
Short-term investments 4,003 4 % 4,291 4 %
Total $ 103,335 100 % $ 102,784 100 %
AAA $ 15,411 15 % $ 15,714 15 %
AA 35,600 35 % 37,504 37 %
A 19,703 19 % 19,236 19 %
BBB 15,690 15 % 13,650 13 %
BB 9,302 9 % 9,474 9 %
B 7,124 7 % 6,897 7 %
Other 505 - 309 -
Total $ 103,335 100 % $ 102,784 100 %
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Table of Contents Corporate and asset-backed securities The following table presents our 10 largest global exposures to corporate bonds by fair value atJune 30, 2020 : (in millions of U.S. dollars) Fair Value Wells Fargo & Co$ 765 Bank of America Corp 656 JP Morgan Chase & Co 639 Comcast Corp 485 Morgan Stanley 451 Citigroup Inc 440 HSBC Holdings Plc 406 Verizon Communications Inc 393 AT&T Inc 378 Goldman Sachs Group Inc 351 Mortgage-backed securities
The following table shows the fair value and amortized cost, net of valuation allowance, of our mortgage-backed securities:
Fair
S&P Credit Rating Value Amortized Cost, Net
June 30, 2020 BB and
(in millions of U.S. dollars) AAA AA A BBB below Total Total
Agency residential
mortgage-backed (RMBS) $ 127 $ 16,748 $ - $ - $ - $ 16,875 $ 15,825
Non-agency RMBS 155 34 73 13 9 284 283
Commercial mortgage-backed 2,935 287 135 11 2 3,370 3,245
Total mortgage-backed securities
$ 24 $ 11 $ 20,529 $ 19,353 Municipal As part of our overall investment strategy, we may invest in states, municipalities, and other political subdivisions fixed maturity securities (Municipal). We apply the same investment selection process described previously to our Municipal investments. The portfolio is highly diversified primarily in state general obligation bonds and essential service revenue bonds including education and utilities (water, power, and sewers).
Non-
Our exposure to the Euro results primarily from Chubb European Group SE which is headquartered inFrance and offers a broad range of coverages throughout theEuropean Union , Central, andEastern Europe . Chubb primarily invests in Euro denominated investments to support its local currency insurance obligations and required capital levels. Chubb's local currency investment portfolios have strict contractual investment guidelines requiring managers to maintain a high quality and diversified portfolio to both sector and individual issuers. Investment portfolios are monitored daily to ensure investment manager compliance with portfolio guidelines. Our non-U.S. investment grade fixed income portfolios are currency-matched with the insurance liabilities of our non-U.S. operations. The average credit quality of our non-U.S. fixed income securities is A and 48 percent of our holdings are ratedAAA or guaranteed by governments or quasi-government agencies. Within the context of these investment portfolios, our government and corporate bond holdings are highly diversified across industries and geographies. Issuer limits are based on credit rating (AA-two percent, A-one percent, BBB-0.5 percent of the total portfolio) and are monitored daily via an internal compliance system. We manage our indirect exposure using the same credit rating based investment approach. Accordingly, we do not believe our indirect exposure is material.
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Table of Contents The following table summarizes the fair value and amortized cost, net of valuation allowance, of our non-U.S. fixed income portfolio by country/sovereign for non-U.S. government securities atJune 30, 2020 : (in millions of U.S. dollars) Fair Value Amortized Cost, Net Republic of Korea$ 1,082 $ 954 Canada 876 831 United Kingdom 872 832 Province of Ontario 659 618 Kingdom of Thailand 616 527 Federative Republic of Brazil 569 550 Province of Quebec 525 487 United Mexican States 431 411 Commonwealth of Australia 402 351 Socialist Republic of Vietnam 373 264 Other Non-U.S. Government Securities 5,335 5,076 Total$ 11,740 $ 10,901
The following table summarizes the fair value and amortized cost, net of
valuation allowance, of our non-
(in millions of U.S. dollars) Fair Value Amortized
Cost, Net
United Kingdom $ 2,265 $ 2,171
Canada 1,807 1,739
France 1,149 1,097
United States (1) 1,047 1,026
Australia 875 834
Netherlands 625 595
Japan 606 583
Germany 538 518
Switzerland 536 498
China 430 412
Other Non-U.S. Corporate Securities 4,359
4,249
Total $ 14,237 $ 13,722
(1) The countries that are listed in the non-
Below-investment grade corporate fixed income portfolio Below-investment grade securities have different characteristics than investment grade corporate debt securities. Risk of loss from default by the borrower is greater with below-investment grade securities. Below-investment grade securities are generally unsecured and are often subordinated to other creditors of the issuer. Also, issuers of below-investment grade securities usually have higher levels of debt and are more sensitive to adverse economic conditions, such as recession or increasing interest rates, than investment grade issuers. AtJune 30, 2020 , our corporate fixed income investment portfolio included below-investment grade and non-rated securities which, in total, comprised approximately 14 percent of our fixed income portfolio. Our below-investment grade and non-rated portfolio includes over 1,300 issuers, with the greatest single exposure being$162 million . We manage high-yield bonds as a distinct and separate asset class from investment grade bonds. The allocation to high-yield bonds is explicitly set by internal management and is targeted to securities in the upper tier of credit quality (BB/B). Our minimum rating for initial purchase is BB/B. Fourteen external investment managers are responsible for high-yield security selection and portfolio construction. Our high-yield managers have a conservative approach to credit selection and very low historical default experience. Holdings are highly diversified across industries and generally subject to a 1.5 percent issuer limit
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as a percentage of high-yield allocation. We monitor position limits daily through an internal compliance system. Derivative and structured securities (e.g., credit default swaps and collateralized loan obligations) are not permitted in the high-yield portfolio.
Critical Accounting Estimates
As of June 30, 2020 , there were no material changes to our critical accounting
estimates. For a full discussion of our critical accounting estimates, refer to
Item 7 in our 2019 Form 10-K.
Unpaid losses and loss expenses
As an insurance and reinsurance company, we are required by applicable laws and
regulations and GAAP to establish loss and loss expense reserves for the
estimated unpaid portion of the ultimate liability for losses and loss expenses
under the terms of our policies and agreements with our insured and reinsured
customers. With the exception of certain structured settlements, for which the
timing and amount of future claim payments are reliably determinable, and
certain reserves for unsettled claims, our loss reserves are not discounted for
the time value of money.
The following table presents a roll-forward of our unpaid losses and loss expenses:
Gross Reinsurance Net
(in millions of U.S. dollars) Losses Recoverable (1) Losses
Balance at December 31, 2019 $ 62,690 $ 14,181 $ 48,509
Losses and loss expenses incurred 13,394 2,332 11,062
Losses and loss expenses paid (10,219) (2,114) (8,105)
Other (including foreign exchange translation) (166) (38) (128)
Balance at June 30, 2020 $ 65,699 $ 14,361 $ 51,338 (1)Net of valuation allowance for uncollectible reinsurance.
The estimate of the liabilities includes provisions for claims that have been reported but are unpaid at the balance sheet date (case reserves) and for obligations on claims that have been incurred but not reported (IBNR) at the balance sheet date. IBNR may also include provisions to account for the possibility that reported claims may settle for amounts that differ from the established case reserves. Loss reserves also include an estimate of expenses associated with processing and settling unpaid claims (loss expenses).
Refer to Note 6 to the Consolidated Financial Statements for a discussion on the changes in the loss reserves.
Asbestos and Environmental (A&E) There was no significant A&E reserve activity during the three and six months endedJune 30, 2020 . A&E reserves are included in Corporate. Refer to our 2019 Form 10-K for further information on our A&E exposures. Fair value measurements Accounting guidance defines fair value as the price to sell an asset or transfer a liability (an exit price) in an orderly transaction between market participants and establishes a three-level valuation hierarchy based on the reliability of the inputs. The fair value hierarchy gives the highest priority to quoted prices in active markets (Level 1 inputs) and the lowest priority to unobservable data (Level 3 inputs). Level 2 includes inputs, other than quoted prices within Level 1, that are observable for assets or liabilities either directly or indirectly. Refer to Note 4 to the Consolidated Financial Statements for information on our fair value measurements.
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Catastrophe management
We actively monitor and manage our catastrophe risk accumulation around the
world such as setting risk limits based on probable maximum loss (PML) and
purchasing catastrophe reinsurance. The table below presents our modeled pre-tax
estimates of natural catastrophe PML, net of reinsurance, at June 30, 2020 , for
Worldwide, U.S. hurricane and California earthquake events, based on our
in-force portfolio at April 1, 2020 and reflecting the April 1, 2020 reinsurance
program (see Natural Catastrophe Property Reinsurance Program section) as well
as inuring reinsurance protection coverages. According to the model, for the
1-in-100 return period scenario, there is a one percent chance that our pre-tax
annual aggregate losses incurred in any year from U.S. hurricane events could be
in excess of $2,694 million (or 4.9 percent of our total shareholders' equity at
June 30, 2020 ). These estimates assume that reinsurance recoverable is fully
collectible.
Modeled Net Probable Maximum Loss (PML) Pre-tax
Worldwide (1) U.S. Hurricane (2) California Earthquake (3)
Annual Aggregate Annual Aggregate Single Occurrence
(in millions of U.S. % of Total % of Total % of Total
dollars, except for Shareholders' Shareholders' Shareholders'
percentages) Chubb Equity Chubb Equity Chubb Equity
1-in-10 $ 1,858 3.4 % $ 1,084 2.0 % $ 133 0.2 %
1-in-100 $ 3,866 7.1 % $ 2,694 4.9 % $ 1,306 2.4 %
1-in-250 $ 6,439 11.8 % $ 4,869 8.9 % $ 1,485 2.7 %
(1) Worldwide losses are comprised of losses arising only from hurricanes,
typhoons, convective storms and earthquakes and do not include "non-modeled"
perils such as wildfire and flood.
(2) U.S. Hurricane losses include losses from wind and storm-surge and exclude
rainfall.
(3) California earthquakes include fire-following perils.
The above estimates of Chubb's loss profile are inherently uncertain for many
reasons, including the following:
•While the use of third-party catastrophe modeling packages to simulate
potential hurricane and earthquake losses is prevalent within the insurance
industry, the models are reliant upon significant meteorology, seismology, and
engineering assumptions to estimate catastrophe losses. In particular, modeled
catastrophe events are not always a representation of actual events and ensuing
additional loss potential;
•There is no universal standard in the preparation of insured data for use in
the models, the running of the modeling software and interpretation of loss
output. These loss estimates do not represent our potential maximum exposures
and it is highly likely that our actual incurred losses would vary materially
from the modeled estimates; and
•The potential effects of climate change add to modeling complexity.
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Natural Catastrophe Property Reinsurance Program
Chubb's core property catastrophe reinsurance program provides protection
against natural catastrophes impacting its primary property operations (i.e.,
excluding our
We regularly review our reinsurance protection and corresponding property catastrophe exposures. This may or may not lead to the purchase of additional reinsurance prior to a program's renewal date. In addition, prior to each renewal date, we consider how much, if any, coverage we intend to buy and we may make material changes to the current structure in light of various factors, including modeled PML assessment at various return periods, reinsurance pricing, our risk tolerance and exposures, and various other structuring considerations. Chubb renewed its Global Property Catastrophe Reinsurance Program for our North American and International operations effectiveApril 1, 2020 throughMarch 31, 2021 , with no material changes in coverage from the expiring program. The program consists of three layers in excess of losses retained by Chubb on a per occurrence basis. In addition, Chubb also renewed its terrorism coverage (excluding nuclear, biological, chemical and radiation coverage, with an inclusion of coverage for biological and chemical coverage for personal lines) forthe United States fromApril 1, 2020 throughMarch 31, 2021 with the same limits and retention and percentage placed except that the majority of terrorism coverage is on an aggregate basis above our retentions without a reinstatement. Loss Location Layer of Loss Comments Notes United States$0 million - Losses retained by Chubb (a) (excluding Alaska and Hawaii)$1.0 billion United States$1.0 billion - All natural perils and terrorism (b) (excluding Alaska and Hawaii)$1.15 billion United States$1.15 billion - All natural perils and terrorism (c) (excluding Alaska and Hawaii)$2.15 billion United States$2.15 billion - All natural perils and terrorism (d) (excluding Alaska and Hawaii)$3.5 billion International$0 million - Losses retained by Chubb (a) (including Alaska and Hawaii)$175 million International$175 million - All natural perils and terrorism (c) (including Alaska and Hawaii)$1.175 billion Alaska, Hawaii, and Canada$1.175 billion - All natural perils and terrorism (d)$2.525 billion (a) Ultimate retention will depend upon the nature of the loss and the interplay between the underlying per risk programs and certain other catastrophe programs purchased by individual business units. These other catastrophe programs have the potential to reduce our effective retention below the stated levels. (b) These coverages are partially placed with Reinsurers. (c) These coverages are both part of the same Second layer within the Global Catastrophe Program and are fully placed with Reinsurers. (d) These coverages are both part of the same Third layer within the Global Catastrophe Program and are fully placed with Reinsurers.
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Liquidity
We anticipate that positive cash flows from operations (underwriting activities
and investment income) should be sufficient to cover cash outflows under most
loss scenarios for the near term. In addition to cash from operations, routine
sales of investments, and financing arrangements, we have agreements with a
third-party bank provider which implemented two international multi-currency
notional cash pooling programs to enhance cash management efficiency during
periods of short-term timing mismatches between expected inflows and outflows of
cash by currency. The programs allow us to optimize investment income by
avoiding portfolio disruption. Should the need arise, we generally have access
to capital markets and to credit facilities with letter of credit capacity of
$4.0 billion with a sub-limit of $1.9 billion for revolving credit. At June 30,
2020 , our usage under these facilities was $2.0 billion in letters of credit.
Our access to credit under these facilities is dependent on the ability of the
banks that are a party to the facilities to meet their funding commitments. The
facilities require that we maintain certain financial covenants, all of which we
met at June 30, 2020 . Should the existing credit providers on these facilities
experience financial difficulty, we may be required to replace credit sources,
possibly in a difficult market. If we cannot obtain adequate capital or sources
of credit on favorable terms, on a timely basis, or at all, our business,
operating results, and financial condition could be adversely affected. To date,
we have not experienced difficulty accessing our credit facilities.
The payment of dividends or other statutorily permissible distributions from our
operating companies are subject to the laws and regulations applicable to each
jurisdiction, as well as the need to maintain capital levels adequate to support
the insurance and reinsurance operations, including financial strength ratings
issued by independent rating agencies. During the six months ended June 30,
2020 , we were able to meet all our obligations, including the payments of
dividends on our Common Shares, with our net cash flows.
We assess which subsidiaries to draw dividends from based on a number of
factors. Considerations such as regulatory and legal restrictions as well as the
subsidiary's financial condition are paramount to the dividend decision. Chubb
Limited received dividends of nil and $200 million from its Bermuda subsidiaries
during the six months ended June 30, 2020 and 2019, respectively. Chubb Limited
also received dividends of $844 million from a Swiss subsidiary during the six
months ended June 30, 2020 .
The payment of any dividends from CGM or its subsidiaries is subject to
applicable U.K. insurance laws and regulations. In addition, the release of
funds by Syndicate 2488 to subsidiaries of CGM is subject to regulations
promulgated by the Society of Lloyd's . The U.S. insurance subsidiaries of Chubb
INA Holdings Inc. (Chubb INA ) may pay dividends, without prior regulatory
approval, subject to restrictions set out in state law of the subsidiary's
domicile (or, if applicable, commercial domicile). Chubb INA's international
subsidiaries are also subject to insurance laws and regulations particular to
the countries in which the subsidiaries operate. These laws and regulations
sometimes include restrictions that limit the amount of dividends payable
without prior approval of regulatory insurance authorities. Chubb Limited
received no dividends from CGM or Chubb INA during the six months ended June 30,
2020 and 2019. Debt issued by Chubb INA is serviced by statutorily permissible
distributions by Chubb INA's insurance subsidiaries to Chubb INA as well as
other group resources. Chubb INA received dividends of nil and $1.7 billion from
its subsidiaries during the six months ended June 30, 2020 and 2019,
respectively.
Cash Flows
Our sources of liquidity include cash from operations, routine sales of
investments, and financing arrangements. The following is a discussion of our
cash flows for the six months ended June 30, 2020 and 2019.
Operating cash flows were $3.7 billion in the six months ended June 30, 2020 ,
compared to $2.7 billion in the prior year period, an increase of $989 million ,
principally reflecting higher underwriting cash flows primarily due to higher
premiums collected.
Cash used for investing was $2.7 billion in the six months ended June 30, 2020 ,
compared to $2.3 billion in the prior year period. The current year included a
$1.55 billion deposit for the purchase of an additional 22.4 percent ownership
in Huatai Group , while the prior year included the purchase of an additional 6.2
percent ownership interest in Huatai Group for $329 million . In addition, the
current year had cash used of $993 million for net investments purchased,
excluding short-term, and derivative settlements, compared to cash used of $657
million in the prior year.
Cash used for financing was $898 million in the six months ended June 30, 2020 ,
compared to $431 million in the prior year period and was principally comprised
of share repurchases and dividends paid on Common Shares. Share repurchases were
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Both internal and external forces influence our financial condition, results of operations, and cash flows. Claim settlements, premium levels, and investment returns may be impacted by changing rates of inflation and other economic conditions. In many cases, significant periods of time, ranging up to several years or more, may lapse between the occurrence of an insured loss, the reporting of the loss to us, and the settlement of the liability for that loss. We use repurchase agreements as a funding alternative. AtJune 30, 2020 , there were$1.4 billion in repurchase agreements outstanding with various maturities over the next eight months. Capital Resources
Capital resources consist of funds deployed or available to be deployed to support our business operations.
June 30 December 31
(in millions of U.S. dollars, except for ratios) 2020 2019
Short-term debt $ 1,300 $ 1,299
Long-term debt 13,656 13,559
Total financial debt 14,956 14,858
Trust preferred securities 308 308
Total shareholders' equity 54,760 55,331
Total capitalization $ 70,024 $ 70,497
Ratio of financial debt to total capitalization 21.4 % 21.1 %
Ratio of financial debt plus trust preferred securities to total capitalization 21.8 %
21.5 %
Repurchase agreements are excluded from the table above and are disclosed
separately from short-term debt in the Consolidated balance sheets. The
repurchase agreements are collateralized borrowings where we maintain the right
and ability to redeem the collateral on short notice, unlike short-term debt
which comprises the current maturities of our long-term debt instruments.
For the six months ended June 30, 2020 , we repurchased $326 million of Common
Shares in a series of open market transactions under the Board of Directors
(Board) share repurchase authorization. At June 30, 2020 , there were 28,423,841
Common Shares in treasury with a weighted average cost of $136.01 per share, and
$1.12 billion in share repurchase authorization remained through December 31,
2020 . On April 22, 2020 , we announced that given the current economic
environment and to preserve capital for both risk and opportunity, we had
suspended share repurchases. Share repurchases may be resumed at any time, at
management's discretion. We did not engage in any share repurchase activity
during the three months ended June 30, 2020 .
We generally maintain the ability to issue certain classes of debt and equity
securities via an unlimited Securities and Exchange Commission (SEC) shelf
registration which is renewed every three years. This allows us capital market
access for refinancing as well as for unforeseen or opportunistic capital needs.
Dividends
We have paid dividends each quarter since we became a public company in 1993. Under Swiss law, dividends must be stated in Swiss francs though dividend payments are made by Chubb inU.S. dollars. Refer to Note 8 to the Consolidated Financial Statements for a discussion of our dividend methodology.
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Table of Contents At ourMay 2020 annual general meeting, our shareholders approved an annual dividend for the following year of up to$3.12 per share, orCHF 3.01 per share, calculated using the USD/CHF exchange rate as published in theWall Street Journal onMay 20, 2020 , expected to be paid in four quarterly installments of$0.78 per share after the general meeting by way of a distribution from capital contribution reserves, transferred to free reserves for payment. The Board determines the record and payment dates at which the annual dividend may be paid until the date of the 2021 annual general meeting, and is authorized to abstain from distributing a dividend at its discretion. The annual dividend approved inMay 2020 represented an$0.12 per share increase ($0.03 per quarter) over the prior year dividend. The following table represents dividends paid per Common Share to shareholders of record on each of the following dates: Shareholders of record as of: Dividends paid as of: December 20, 2019 January 10, 2020$0.75 (CHF 0.74 ) March 20, 2020 April 10, 2020$0.75 (CHF 0.72 ) June 19, 2020 July 10, 2020$0.78 (CHF 0.75 )
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