Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

		
þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934	

For the Quarterly Period Ended March 31, 2015  

OR

		
¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934	

For the Transition Period from             to             
Commission File No. 1-11778

ACE LIMITED
(Exact name of registrant as specified in its charter)

	
		
Switzerland	98-0091805	
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)	

Baerengasse 32
Zurich, Switzerland CH-8001
(Address of principal executive offices) (Zip Code)
+41 (0)43 456 76 00
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES  þ                                                   NO   ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
YES  þ                                                  NO   ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

							
Large accelerated filer þ	 	 	 	 	 	Accelerated filer  ¨	
Non-accelerated filer ¨	(Do not check if a smaller reporting company)	Smaller reporting company  ¨	

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES  ¨                                                 NO   þ
The number of registrant’s Common Shares (CHF 24.15 par value) outstanding as of April 15, 2015 was 326,592,412 .

Table of Contents

ACE LIMITED
INDEX TO FORM 10-Q

	
				
 	 	 	Page	
Part I.	FINANCIAL INFORMATION	 	
Item 1.	Financial Statements:	 	
 	Consolidated Balance Sheets (Unaudited) March 31, 2015 and December 31, 2014	3	
 	Consolidated Statements of Operations and Comprehensive Income (Unaudited)
Three Months Ended March 31, 2015 and 2014	4	
 	Consolidated Statements of Shareholders' Equity (Unaudited)
Three Months Ended March 31, 2015 and 2014	5	
 	Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended March 31, 2015 and 2014	6	
 	Notes to Consolidated Financial Statements (Unaudited)	 	
 	Note 1.	General	7	
 	Note 2.	Acquisitions	7	
 	Note 3.	Investments	8	
 	Note 4.	Fair value measurements	13	
 	Note 5.	Assumed life reinsurance programs involving minimum benefit guarantees under variable annuity contracts	22	
 	Note 6.	Debt	22	
 	Note 7.	Commitments, contingencies, and guarantees	22	
 	Note 8.	Shareholders’ equity	26	
 	Note 9.	Share-based compensation	27	
 	Note 10.	Segment information	27	
 	Note 11.	Earnings per share	29	
 	Note 12.	Information provided in connection with outstanding debt of subsidiaries	30	
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	35	
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	64	
Item 4.	Controls and Procedures	66	
 	 	 	
Part II.	OTHER INFORMATION	 	
Item 1.	Legal Proceedings	67	
Item 1A.	Risk Factors	67	
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds and Issuer Repurchases of Equity Securities	67	
Item 6.	Exhibits	67	

2

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PART I FINANCIAL INFORMATION

	

ITEM 1. Financial Statements

CONSOLIDATED BALANCE SHEETS (Unaudited)
ACE Limited and Subsidiaries

								
 	March 31		 	December 31		
(in millions of U.S. dollars, except share and per share data)	2015		 	2014		
Assets	 	 	 	
Investments	 	 	 	
Fixed maturities available for sale, at fair value (amortized cost – $48,384 and $47,826)	$	50,410		 	$	49,395		
    (includes hybrid financial instruments of $284 and $274)								
Fixed maturities held to maturity, at amortized cost (fair value – $7,307 and $7,589)	6,982		 	7,331		
Equity securities, at fair value (cost – $447 and $440)	536		 	510		
Short-term investments, at fair value and amortized cost	2,536		 	2,322		
Other investments (cost – $3,096 and $2,999)	3,430		 	3,346		
Total investments	63,894		 	62,904		
Cash	948		 	655		
Securities lending collateral	1,033		 	1,330		
Accrued investment income	530		 	552		
Insurance and reinsurance balances receivable	5,026		 	5,426		
Reinsurance recoverable on losses and loss expenses	11,588		 	11,992		
Reinsurance recoverable on policy benefits	215		 	217		
Deferred policy acquisition costs	2,683		 	2,601		
Value of business acquired	440		 	466		
Goodwill and other intangible assets	5,516		 	5,724		
Prepaid reinsurance premiums	1,981		 	2,026		
Deferred tax assets	224		 	295		
Investments in partially-owned insurance companies	590		 	504		
Other assets	3,730		 	3,556		
Total assets	$	98,398		 	$	98,248		
Liabilities	 	 	 	
Unpaid losses and loss expenses	$	37,326		 	$	38,315		
Unearned premiums	8,182		 	8,222		
Future policy benefits	4,744		 	4,754		
Insurance and reinsurance balances payable	4,198		 	4,095		
Securities lending payable	1,034		 	1,331		
Accounts payable, accrued expenses, and other liabilities	6,194		 	5,726		
Short-term debt	2,552		 	2,552		
Long-term debt	4,157		 	3,357		
Trust preferred securities	309		 	309		
Total liabilities	68,696		 	68,661		
Commitments and contingencies		 		
Shareholders’ equity	 	 	 	
Common Shares (CHF 24.15 and CHF 24.77 par value; 342,832,412 shares issued; 327,084,762 and 328,659,686 shares outstanding)	7,833		 	8,055		
Common Shares in treasury (15,747,650 and 14,172,726 shares)	(1,645	)	 	(1,448	)	
Additional paid-in capital	5,037		 	5,145		
Retained earnings	17,325		 	16,644		
Accumulated other comprehensive income (AOCI)	1,152		 	1,191		
Total shareholders’ equity	29,702		 	29,587		
Total liabilities and shareholders’ equity	$	98,398		 	$	98,248		
See accompanying notes to the consolidated financial statements

3

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CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (Unaudited)
ACE Limited and Subsidiaries

	
								
 	Three Months Ended	 	
 	March 31	 	
(in millions of U.S. dollars, except per share data)	2015		 	2014		
Revenues	 	 	 	
Net premiums written	$	4,076		 	$	4,185		
Increase in unearned premiums	(149	)	 	(215	)	
Net premiums earned	3,927		 	3,970		
Net investment income	551		 	553		
Net realized gains (losses):	 	 	 	
Other-than-temporary impairment (OTTI) losses gross	(13	)	 	(12	)	
Portion of OTTI losses recognized in other comprehensive income (OCI)	—		 	1		
Net OTTI losses recognized in income	(13	)	 	(11	)	
Net realized gains (losses) excluding OTTI losses	(76	)	 	(93	)	
Total net realized gains (losses) (includes $(3) and $6 reclassified from AOCI)	(89	)	 	(104	)	
Total revenues	4,389		 	4,419		
Expenses	 	 	 	
Losses and loss expenses	2,122		 	2,161		
Policy benefits	142		 	114		
Policy acquisition costs	707		 	728		
Administrative expenses	554		 	535		
Interest expense	68		 	71		
Other (income) expense	(5	)	 	(17	)	
Total expenses	3,588		 	3,592		
Income before income tax	801		 	827		
Income tax expense (benefit) (includes $4 and $(3) on reclassified unrealized gains and losses)	120		 	93		
Net income	$	681		 	$	734		
Other comprehensive income (loss)	 	 	 	
Unrealized appreciation	$	441		 	$	519		
Reclassification adjustment for net realized (gains) losses included in net income	3		 	(6	)	
 	444		 	513		
Change in:	 	 	 	
Cumulative translation adjustment	(421	)	 	(33	)	
Pension liability	13		 	(8	)	
Other comprehensive income, before income tax	36		 	472		
Income tax expense related to OCI items	(75	)	 	(98	)	
Other comprehensive income (loss)	(39	)	 	374		
Comprehensive income	$	642		 	$	1,108		
Earnings per share	 	 	 	
Basic earnings per share	$	2.08		 	$	2.16		
Diluted earnings per share	$	2.05		 	$	2.14		
See accompanying notes to the consolidated financial statements

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CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)
ACE Limited and Subsidiaries

	
								
 	Three Months Ended	 	
 	March 31	 	
(in millions of U.S. dollars)	2015		 	2014		
Common Shares	 	 	 	
Balance – beginning of period	$	8,055		 	$	8,899		
Dividends declared on Common Shares – par value reduction	(222	)	 	(175	)	
Balance – end of period	7,833		 	8,724		
Common Shares in treasury	 	 	 	
Balance – beginning of period	(1,448	)	 	(255	)	
Common Shares repurchased	(340	)	 	(332	)	
Net shares redeemed under employee share-based compensation plans	143		 	144		
Balance – end of period	(1,645	)	 	(443	)	
Additional paid-in capital	 	 	 	
Balance – beginning of period	5,145		 	5,238		
Net shares redeemed under employee share-based compensation plans	(153	)	 	(154	)	
Exercise of stock options	(18	)	 	(18	)	
Share-based compensation expense and other	63		 	52		
Funding of dividends declared to Retained earnings	—		 	(81	)	
Balance – end of period	5,037		 	5,037		
Retained earnings	 	 	 	
Balance – beginning of period	16,644		 	13,791		
Net income	681		 	734		
Funding of dividends declared from Additional paid-in capital	—		 	81		
Dividends declared on Common Shares	—		 	(81	)	
Balance – end of period	17,325		 	14,525		
Accumulated other comprehensive income	 	 	 	
Net unrealized appreciation on investments	 	 	 	
Balance – beginning of period	1,851		 	1,174		
Change in period, before reclassification from AOCI, net of income tax expense of $(87) and $(90)	354		 	429		
Amounts reclassified from AOCI, net of income tax benefit (expense) of $4 and $(3)	7		 	(9	)	
Change in period, net of income tax expense of $(83) and $(93)	361		 	420		
Balance – end of period	2,212		 	1,594		
Cumulative translation adjustment	 	 	 	
Balance – beginning of period	(581	)	 	63		
Change in period, net of income tax benefit (expense) of $11 and $(8)	(410	)	 	(41	)	
Balance – end of period	(991	)	 	22		
Pension liability adjustment	 	 	 	
Balance – beginning of period	(79	)	 	(85	)	
Change in period, net of income tax benefit (expense) of $(3) and $3	10		 	(5	)	
Balance – end of period	(69	)	 	(90	)	
Accumulated other comprehensive income	1,152		 	1,526		
Total shareholders’ equity	$	29,702		 	$	29,369		
See accompanying notes to the consolidated financial statements

5

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CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
ACE Limited and Subsidiaries

	
								
 	Three Months Ended	 	
 	March 31	 	
(in millions of U.S. dollars)	2015		 	2014		
Cash flows from operating activities	 	 	 	
Net income	$	681		 	$	734		
Adjustments to reconcile net income to net cash flows from operating activities		 		
Net realized (gains) losses	89		 	104		
Amortization of premiums/discounts on fixed maturities	36		 	53		
Deferred income taxes	7		 	—		
Unpaid losses and loss expenses	(320	)	 	(598	)	
Unearned premiums	212		 	270		
Future policy benefits	48		 	56		
Insurance and reinsurance balances payable	158		 	112		
Accounts payable, accrued expenses, and other liabilities	(46	)	 	(64	)	
Income taxes payable	20		 	15		
Insurance and reinsurance balances receivable	240		 	264		
Reinsurance recoverable on losses and loss expenses	185		 	478		
Reinsurance recoverable on policy benefits	2		 	(2	)	
Deferred policy acquisition costs	(128	)	 	(99	)	
Prepaid reinsurance premiums	(32	)	 	(52	)	
Other	(77	)	 	(21	)	
Net cash flows from operating activities	1,075		 	1,250		
Cash flows from investing activities	 	 	 	
Purchases of fixed maturities available for sale	(4,305	)	 	(3,522	)	
Purchases of to be announced mortgage-backed securities	(31	)	 	—		
Purchases of fixed maturities held to maturity	(21	)	 	(30	)	
Purchases of equity securities	(39	)	 	(37	)	
Sales of fixed maturities available for sale	2,002		 	2,208		
Sales of equity securities	28		 	27		
Maturities and redemptions of fixed maturities available for sale	1,481		 	1,550		
Maturities and redemptions of fixed maturities held to maturity	324		 	212		
Net change in short-term investments	(255	)	 	(765	)	
Net derivative instruments settlements	(51	)	 	(96	)	
Other	(153	)	 	(50	)	
Net cash flows used for investing activities	(1,020	)	 	(503	)	
Cash flows from financing activities	 	 	 	
Dividends paid on Common Shares	(214	)	 	(214	)	
Common Shares repurchased	(347	)	 	(335	)	
Proceeds from issuance of long-term debt	800		 	—		
Proceeds from issuance of short-term debt	477		 	426		
Repayment of short-term debt	(477	)	 	(426	)	
Proceeds from share-based compensation plans, including windfall tax benefits	39		 	40		
Policyholder contract deposits	101		 	51		
Policyholder contract withdrawals	(40	)	 	(14	)	
Other	(6	)	 	—		
Net cash flows from (used for) financing activities	333		 	(472	)	
Effect of foreign currency rate changes on cash and cash equivalents	(95	)	 	(7	)	
Net increase in cash	293		 	268		
Cash – beginning of period	655		 	579		
Cash – end of period	$	948		 	$	847		
Supplemental cash flow information	 	 	 	
Taxes paid	$	96		 	$	60		
Interest paid	$	48		 	$	51		
See accompanying notes to the consolidated financial statements

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
ACE Limited and Subsidiaries

1 . General

a) Basis of presentation
ACE Limited is a holding company incorporated in Zurich, Switzerland. ACE Limited, through its subsidiaries, provides a broad range of insurance and reinsurance products to insureds worldwide. ACE operates through five business segments: Insurance – North American P&C, Insurance – North American Agriculture, Insurance – Overseas General, Global Reinsurance, and Life. Refer to Note 10 for additional information.

The interim unaudited consolidated financial statements, which include the accounts of ACE Limited and its subsidiaries (collectively, ACE, we, us, or our), have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) and, in the opinion of management, reflect all adjustments (consisting of normally recurring accruals) necessary for a fair statement of the results and financial position for such periods. All significant intercompany accounts and transactions, including internal reinsurance transactions, have been eliminated.

The results of operations and cash flows for any interim period are not necessarily indicative of the results for the full year. These consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in our 2014 Form 10-K.

b) Accounting guidance not yet adopted

Presentation of Debt Issuance Costs
In April 2015, the Financial Accounting Standards Board issued new guidance related to the accounting for debt issuance costs.  The new guidance requires presentation of debt issuance costs in the balance sheet as a deduction from the carrying amount of the related debt liability instead of a deferred charge.  The new guidance requires retrospective adoption and is effective for interim and annual reporting periods beginning after December 15, 2015, with early adoption permitted. The adoption of this guidance will not have any effect on our results of operations and financial condition.

2 . Acquisitions

Large Corporate Account P&C Insurance Business of Itaú Seguros, S.A. (Itaú Seguros)
On October 31, 2014, we expanded our presence in Brazil with the acquisition of the large corporate account property and casualty (P&C) insurance business of Itaú Seguros, Brazil's leading carrier for that business, for $610 million in cash, subject to a working capital adjustment under the purchase agreement expected to be finalized in the second quarter of 2015. This acquisition generated $449 million of goodwill, attributable to expected growth and profitability, none of which is currently deductible for income tax purposes, and other intangible assets of $60 million , primarily related to renewal rights, based on ACE’s preliminary purchase price allocation. Goodwill may become deductible for income tax purposes under Brazilian tax law if this acquired entity is merged with certain ACE legal entities.  

The Siam Commercial Samaggi Insurance PCL (Samaggi)
We and our local partner acquired 60.86 percent of Samaggi, a general insurance company in Thailand, from Siam Commercial Bank on April 28, 2014, and subsequently acquired an additional 32.17 percent ownership, through a mandatory tender offer, which expired on June 17, 2014. The purchase price for 93.03 percent of the company was $ 176 million in cash. This acquisition expands our presence in Thailand and Southeast Asia.

The acquisition generated $ 46 million of goodwill, attributable to expected growth and profitability, none of which is expected to be deductible for income tax purposes, and other intangible assets of $ 80 million based on ACE’s preliminary purchase price allocation.  The other intangible assets primarily relate to a bancassurance agreement.

Goodwill and other intangible assets arising from the acquisitions described above are included in our Insurance – Overseas General segment. The consolidated financial statements include results of acquired businesses from the acquisition dates.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited)
ACE Limited and Subsidiaries

Fireman's Fund Insurance Company High Net Worth Personal Lines Insurance Business in the U.S. (Fireman's Fund)
On April 1, 2015, we acquired the Fireman's Fund Insurance Company high net worth personal lines insurance business in the U.S., which included the renewal rights for new and existing business and reinsurance of all existing reserves, from Allianz of America, Inc. for $365 million in cash. The acquisition expands our position as one of the largest high net worth personal lines insurers in the U.S. The Fireman’s Fund business is being integrated into our existing high net worth personal lines business, ACE Private Risk Services, which offers a broad range of coverage including homeowners, automobile, umbrella and excess liability, collectibles and yachts.
 
3 . Investments

a) Fixed maturities

	
																				
March 31, 2015	Amortized
Cost		 	Gross
Unrealized
Appreciation		 	Gross
Unrealized
Depreciation		 	Fair
Value		 	OTTI Recognized
in AOCI		
(in millions of U.S. dollars)			 			 			 			 			
Available for sale	 	 	 	 	 	 	 	 	 	
U.S. Treasury and agency	$	2,793		 	$	98		 	$	(2	)	 	$	2,889		 	$	—		
Foreign	14,262		 	761		 	(76	)	 	14,947		 	—		
Corporate securities	17,259		 	834		 	(94	)	 	17,999		 	(6	)	
Mortgage-backed securities	10,459		 	362		 	(13	)	 	10,808		 	(1	)	
States, municipalities, and political subdivisions	3,611		 	160		 	(4	)	 	3,767		 	—		
 	$	48,384		 	$	2,215		 	$	(189	)	 	$	50,410		 	$	(7	)	
Held to maturity	 	 	 	 	 	 	 	 	 	
U.S. Treasury and agency	$	756		 	$	24		 	$	—		 	$	780		 	$	—		
Foreign	816		 	57		 	—		 	873		 	—		
Corporate securities	2,249		 	122		 	—		 	2,371		 	—		
Mortgage-backed securities	1,907		 	77		 	(1	)	 	1,983		 	—		
States, municipalities, and political subdivisions	1,254		 	47		 	(1	)	 	1,300		 	—		
 	$	6,982		 	$	327		 	$	(2	)	 	$	7,307		 	$	—		

	
																				
December 31, 2014	Amortized
Cost		 	Gross
Unrealized
Appreciation		 	Gross
Unrealized
Depreciation		 	Fair
Value		 	OTTI Recognized
in AOCI		
(in millions of U.S. dollars)			 			 			 			 			
Available for sale	 	 	 	 	 	 	 	 	 	
U.S. Treasury and agency	$	2,741		 	$	87		 	$	(8	)	 	$	2,820		 	$	—		
Foreign	14,703		 	629		 	(90	)	 	15,242		 	—		
Corporate securities	16,897		 	704		 	(170	)	 	17,431		 	(7	)	
Mortgage-backed securities	10,011		 	304		 	(29	)	 	10,286		 	(1	)	
States, municipalities, and political subdivisions	3,474		 	147		 	(5	)	 	3,616		 	—		
 	$	47,826		 	$	1,871		 	$	(302	)	 	$	49,395		 	$	(8	)	
Held to maturity	 	 	 	 	 	 	 	 	 	
U.S. Treasury and agency	$	832		 	$	20		 	$	(2	)	 	$	850		 	$	—		
Foreign	916		 	47		 	—		 	963		 	—		
Corporate securities	2,323		 	102		 	(2	)	 	2,423		 	—		
Mortgage-backed securities	1,983		 	57		 	(1	)	 	2,039		 	—		
States, municipalities, and political subdivisions	1,277		 	40		 	(3	)	 	1,314		 	—		
 	$	7,331		 	$	266		 	$	(8	)	 	$	7,589		 	$	—		

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited)
ACE Limited and Subsidiaries

As discussed in Note 3 d), if a credit loss is incurred on an impaired fixed maturity, an OTTI is considered to have occurred and the portion of the impairment not related to credit losses (non-credit OTTI) is recognized in OCI. Included in the “OTTI Recognized in AOCI” columns above are the cumulative amounts of non-credit OTTI recognized in OCI adjusted for subsequent sales, maturities, and redemptions. OTTI recognized in AOCI does not include the impact of subsequent changes in fair value of the related securities. In periods subsequent to a recognition of OTTI in OCI, changes in the fair value of the related fixed maturities are reflected in Unrealized appreciation (depreciation) in the consolidated statement of shareholders’ equity. For both the three months ended March 31, 2015 and 2014, $4 million of net unrealized appreciation related to such securities is included in OCI. At March 31, 2015 and December 31, 2014 , AOCI included cumulative net unrealized depreciation of $2 million and $3 million, respectively, related to securities remaining in the investment portfolio for which ACE has recognized a non-credit OTTI.

Mortgage-backed securities (MBS) issued by U.S. government agencies are combined with all other to be announced mortgage derivatives held (refer to Note 7 a) (iv)) and are included in the category, “Mortgage-backed securities”. Approximately 82 percent and 83 percent of the total mortgage-backed securities at March 31, 2015 and December 31, 2014 , respectively, are represented by investments in U.S. government agency bonds. The remainder of the mortgage exposure consists of collateralized mortgage obligations and non-government mortgage-backed securities, the majority of which provide a planned structure for principal and interest payments and carry a rating of AAA by the major credit rating agencies.

The following table presents fixed maturities by contractual maturity:

																
 	 	 	March 31		 	 	 	December 31		
 	 	 	2015		 	 	 	2014		
(in millions of U.S. dollars)	Amortized Cost		 	Fair Value		 	Amortized Cost		 	Fair Value		
Available for sale	 	 	 	 	 	 	 	
Due in 1 year or less	$	2,021		 	$	2,042		 	$	2,187		 	$	2,206		
Due after 1 year through 5 years	16,209		 	16,735		 	15,444		 	15,857		
Due after 5 years through 10 years	15,047		 	15,649		 	15,663		 	16,089		
Due after 10 years	4,648		 	5,176		 	4,521		 	4,957		
 	37,925		 	39,602		 	37,815		 	39,109		
Mortgage-backed securities	10,459		 	10,808		 	10,011		 	10,286		
 	$	48,384		 	$	50,410		 	$	47,826		 	$	49,395		
Held to maturity	 	 	 	 	 	 	 	
Due in 1 year or less	$	318		 	$	321		 	$	353		 	$	355		
Due after 1 year through 5 years	2,594		 	2,706		 	2,603		 	2,693		
Due after 5 years through 10 years	1,214		 	1,270		 	1,439		 	1,489		
Due after 10 years	949		 	1,027		 	953		 	1,013		
 	5,075		 	5,324		 	5,348		 	5,550		
Mortgage-backed securities	1,907		 	1,983		 	1,983		 	2,039		
 	$	6,982		 	$	7,307		 	$	7,331		 	$	7,589		

Expected maturities could differ from contractual maturities because borrowers may have the right to call or prepay obligations, with or without call or prepayment penalties. 

b) Equity securities

								
 	March 31			December 31		
(in millions of U.S. dollars)	2015			2014		
Cost	$	447		 	$	440		
Gross unrealized appreciation	99		 	83		
Gross unrealized depreciation	(10	)	 	(13	)	
Fair value	$	536		 	$	510		

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ACE Limited and Subsidiaries

c) Investments in partially-owned insurance companies
On March 27, 2015 and April 14, 2015, we paid approximately $ 70 million and $ 20 million , respectively, to acquire 11.3 percent of the common equity of ABR Reinsurance Capital Holdings Ltd. and warrants to acquire 0.5 percent of additional equity.  ABR Reinsurance Capital Holdings Ltd., is the parent company of ABR Reinsurance Ltd. (ABR Re), an innovative, independent reinsurance company. Through long-term arrangements, ACE will be the sole source of reinsurance risks ceded to ABR Re, and BlackRock, Inc. will be ABR Re’s exclusive investment management service provider. As an investor, ACE is expected to benefit from underwriting profit generated by ABR Re’s reinsuring a wide range of ACE’s primary insurance business and the income and capital appreciation BlackRock, Inc. seeks to deliver through its investment management services. Our minority ownership interest will be accounted for under the equity method of accounting.

d) Net realized gains (losses)
In accordance with guidance related to the recognition and presentation of OTTI, when an impairment related to a fixed maturity has occurred, OTTI is required to be recorded in Net income if management has the intent to sell the security or it is more likely than not that we will be required to sell the security before the recovery of its amortized cost. Further, in cases where we do not intend to sell the security and it is more likely than not that we will not be required to sell the security, ACE must evaluate the security to determine the portion of the impairment, if any, related to credit losses. If a credit loss is incurred, an OTTI is considered to have occurred and any portion of the OTTI related to credit losses must be reflected in Net income while the portion of OTTI related to all other factors is recognized in OCI. For fixed maturities held to maturity, OTTI recognized in OCI is accreted from AOCI to the amortized cost of the fixed maturity prospectively over the remaining term of the securities.

Each quarter, securities in an unrealized loss position (impaired securities), including fixed maturities, securities lending collateral, equity securities, and other investments, are reviewed to identify impaired securities to be specifically evaluated for a potential OTTI.

For all non-fixed maturities, OTTI is evaluated based on the following:

•	the amount of time a security has been in a loss position and the magnitude of the loss position;	
		
•	the period in which cost is expected to be recovered, if at all, based on various criteria including economic conditions and other issuer-specific developments; and	
		
•	ACE’s ability and intent to hold the security to the expected recovery period.	

As a general rule, we also consider that equity securities in an unrealized loss position for twelve consecutive months are other than temporarily impaired. For mutual funds included in equity securities in our consolidated balance sheet, we employ analysis similar to fixed maturities, when applicable.

We review each fixed maturity in an unrealized loss position to assess whether the security is a candidate for credit loss. Specifically, we consider credit rating, market price, and issuer-specific financial information, among other factors, to assess the likelihood of collection of all principal and interest as contractually due. Securities for which we determine that credit loss is likely are subjected to further analysis to estimate the credit loss recognized in Net income, if any. In general, credit loss recognized in Net income equals the difference between the security’s amortized cost and the net present value of its projected future cash flows discounted at the effective interest rate implicit in the debt security. All significant assumptions used in determining credit losses are subject to change as market conditions evolve.

Projected cash flows for corporate securities (principally senior unsecured bonds) are driven primarily by assumptions regarding probability of default and also the timing and amount of recoveries associated with defaults. ACE developed projected cash flows for corporate securities using market observable data, issuer-specific information, and credit ratings. We use historical default data by Moody’s Investors Service (Moody’s) rating category to calculate a 1-in-100 year probability of default, which results in a default assumption in excess of the historical mean default rate. Consistent with management's approach, ACE assumed a 32 percent recovery rate (the par value of a defaulted security that will be recovered) across all rating categories rather than using Moody's historical mean recovery rate of 42 percent. We believe that use of a default assumption in excess of the historical mean is conservative in light of current market conditions.

For both the three months ended March 31, 2015 and 2014, credit losses recognized in Net income for corporate securities were $4 million .

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ACE Limited and Subsidiaries

For mortgage-backed securities, credit impairment is assessed using a cash flow model that estimates the cash flows on the underlying mortgages, using the security-specific collateral and transaction structure. The model estimates cash flows from the underlying mortgage loans and distributes those cash flows to various tranches of securities, considering the transaction structure and any subordination and credit enhancements that exist in that structure. The cash flow model incorporates actual cash flows on the mortgage-backed securities through the current period and then projects the remaining cash flows using a number of assumptions, including default rates, prepayment rates, and loss severity rates (the par value of a defaulted security that will not be recovered) on foreclosed properties.

For the three months ended March 31, 2015 and 2014 , there were no credit losses recognized in Net income for mortgage-backed securities.
The following table presents the Net realized gains (losses) and the losses included in Net realized gains (losses) and OCI as a result of conditions which caused us to conclude the decline in fair value of certain investments was “other-than-temporary”:

								
 	Three Months Ended	 	
 	March 31	 	
(in millions of U.S. dollars)	2015		 	2014		
Fixed maturities:	 	 	 	
OTTI on fixed maturities, gross	$	(13	)	 	$	(6	)	
OTTI on fixed maturities recognized in OCI (pre-tax)	—		 	1		
OTTI on fixed maturities, net	(13	)	 	(5	)	
Gross realized gains excluding OTTI	44		 	36		
Gross realized losses excluding OTTI	(35	)	 	(20	)	
Total fixed maturities	(4	)	 	11		
Equity securities:	 	 	 	
OTTI on equity securities	—		 	(6	)	
Gross realized gains excluding OTTI	3		 	2		
Gross realized losses excluding OTTI	(2	)	 	(1	)	
Total equity securities	1		 	(5	)	
OTTI on other investments	—		 	—		
Foreign exchange losses	(31	)	 	(9	)	
Investment and embedded derivative instruments	1		 	(25	)	
Fair value adjustments on insurance derivative	(45	)	 	(48	)	
S&P put options and futures	(12	)	 	(19	)	
Other derivative instruments	—		 	(2	)	
Other	1		 	(7	)	
Net realized gains (losses)	$	(89	)	 	$	(104	)	
 
The following table presents a roll-forward of pre-tax credit losses related to fixed maturities for which a portion of OTTI was recognized in OCI:  

								
 	Three Months Ended	 	
 	March 31	 	
(in millions of U.S. dollars)	2015		 	2014		
Balance of credit losses related to securities still held – beginning of period	$	28		 	$	37		
Additions where no OTTI was previously recorded	3		 	2		
Additions where an OTTI was previously recorded	1		 	2		
Reductions for securities sold during the period	(10	)	 	(6	)	
Balance of credit losses related to securities still held – end of period	$	22		 	$	35		

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ACE Limited and Subsidiaries

e) Gross unrealized loss
At March 31, 2015 , there were 3,313 fixed maturities out of a total of 33,429 fixed maturities in an unrealized loss position. The largest single unrealized loss in the fixed maturities was $3 million . There were 78 equity securities out of a total of 306 equity securities in an unrealized loss position. The largest single unrealized loss in the equity securities was $1 million . Fixed maturities in an unrealized loss position at March 31, 2015 , comprised both investment grade and below investment grade securities for which fair value declined primarily due to widening credit spreads since the date of purchase.

The following tables present, for all securities in an unrealized loss position (including securities on loan), the aggregate fair value and gross unrealized loss by length of time the security has continuously been in an unrealized loss position:

																								
 	0 – 12 Months	 	 	Over 12 Months	 	 	Total	 	
March 31, 2015	Fair Value		 	Gross
Unrealized
Loss		 	Fair Value		 	Gross
Unrealized
Loss		 	Fair Value		 	Gross
Unrealized
Loss		
(in millions of U.S. dollars)			 			 			 			 			 			
U.S. Treasury and agency	$	443		 	$	(1	)	 	$	141		 	$	(1	)	 	$	584		 	$	(2	)	
Foreign	1,747		 	(64	)	 	317		 	(12	)	 	2,064		 	(76	)	
Corporate securities	2,140		 	(79	)	 	500		 	(15	)	 	2,640		 	(94	)	
Mortgage-backed securities	1,301		 	(6	)	 	560		 	(8	)	 	1,861		 	(14	)	
States, municipalities, and political subdivisions	462		 	(3	)	 	89		 	(2	)	 	551		 	(5	)	
Total fixed maturities	6,093		 	(153	)	 	1,607		 	(38	)	 	7,700		 	(191	)	
Equity securities	68		 	(10	)	 	—		 	—		 	68		 	(10	)	
Other investments	92		 	(6	)	 	—		 	—		 	92		 	(6	)	
Total	$	6,253		 	$	(169	)	 	$	1,607		 	$	(38	)	 	$	7,860		 	$	(207	)	

	
																								
 	0 – 12 Months	 	 	Over 12 Months	 	 	Total	 	
December 31, 2014	Fair Value		 	Gross
Unrealized
Loss		 	Fair Value		 	Gross
Unrealized
Loss		 	Fair Value		 	Gross
Unrealized
Loss		
(in millions of U.S. dollars)			 			 			 			 			 			
U.S. Treasury and agency	$	350		 	$	(1	)	 	$	666		 	$	(9	)	 	$	1,016		 	$	(10	)	
Foreign	2,262		 	(75	)	 	375		 	(15	)	 	2,637		 	(90	)	
Corporate securities	4,684		 	(150	)	 	738		 	(22	)	 	5,422		 	(172	)	
Mortgage-backed securities	704		 	(2	)	 	1,663		 	(28	)	 	2,367		 	(30	)	
States, municipalities, and political subdivisions	458		 	(3	)	 	490		 	(5	)	 	948		 	(8	)	
Total fixed maturities	8,458		 	(231	)	 	3,932		 	(79	)	 	12,390		 	(310	)	
Equity securities	101		 	(13	)	 	—		 	—		 	101		 	(13	)	
Total	$	8,559		 	$	(244	)	 	$	3,932		 	$	(79	)	 	$	12,491		 	$	(323	)	

f) Restricted assets
ACE is required to maintain assets on deposit with various regulatory authorities to support its insurance and reinsurance operations. These requirements are generally promulgated in the statutory regulations of the individual jurisdictions. The assets on deposit are available to settle insurance and reinsurance liabilities. ACE is also required to restrict assets pledged under repurchase agreements, which represent ACE's agreement to sell securities and repurchase them at a future date for a predetermined price. We also use trust funds in certain large reinsurance transactions where the trust funds are set up for the benefit of the ceding companies and generally take the place of letter of credit (LOC) requirements. We also have investments in segregated portfolios primarily to provide collateral or guarantees for LOC and derivative transactions. Included in restricted assets at March 31, 2015 and December 31, 2014 , are investments, primarily fixed maturities, totaling $16.5 billion and $16.3 billion, respectively, and cash of $102 million and $117 million, respectively.

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ACE Limited and Subsidiaries

The following table presents the components of restricted assets: 

								
 	March 31		 	December 31		
(in millions of U.S. dollars)	2015		 	2014		
Trust funds	$	11,132		 	$	10,838		
Deposits with non-U.S. regulatory authorities	2,296		 	2,305		
Assets pledged under repurchase agreements	1,459		 	1,431		
Deposits with U.S. regulatory authorities	1,336		 	1,345		
Other pledged assets	446		 	457		
 	$	16,669		 	$	16,376		
g) Transfers of securities
During April 2015, we transferred securities, considered essential holdings in a diversified portfolio, with a total fair value of approximately $ 1.8 billion from Fixed maturities available for sale to Fixed maturities held to maturity. These securities, which we have the intent and ability to hold to maturity, will be transferred given the growth in ACE’s investment portfolio over the last several years, as well as continued efforts to manage the diversification of our global portfolio. The net unrealized appreciation at the date of the transfer will be reported in the carrying value of the transferred investments and will be amortized through OCI over the remaining life of the securities using the effective interest method in a manner consistent with the amortization of any premium or discount. This transfer represents a non-cash transaction and will not impact the Consolidated Statements of Cash Flows.

4 . Fair value measurements

a ) Fair value hierarchy
Fair value of financial assets and financial liabilities is estimated based on the framework established in the fair value accounting guidance. The guidance defines fair value as the price to sell an asset or transfer a liability (an exit price) in an orderly transaction between market participants and establishes a three-level valuation hierarchy based on the reliability of the inputs. The fair value hierarchy gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data.
 
The three levels of the hierarchy are as follows:

•	Level 1 – Unadjusted quoted prices for identical assets or liabilities in active markets;	
		
•	Level 2 – Includes, among other items, inputs other than quoted prices that are observable for the asset or liability such as	
interest rates and yield curves, quoted prices for similar assets and liabilities in active markets, and quoted prices for identical or similar assets and liabilities in markets that are not active; and
		
•	Level 3 – Inputs that are unobservable and reflect management’s judgments about assumptions that market participants	
would use in pricing an asset or liability.

We categorize financial instruments within the valuation hierarchy at the balance sheet date based upon the lowest level of inputs that are significant to the fair value measurement. Accordingly, transfers between levels within the valuation hierarchy occur when there are significant changes to the inputs, such as increases or decreases in market activity, changes to the availability of current prices, changes to the transparency to underlying inputs, and whether there are significant variances in quoted prices. Transfers in and/or out of any level are assumed to occur at the end of the period.

We use pricing services to obtain fair value measurements for the majority of our investment securities. Based on management’s understanding of the methodologies used, these pricing services only produce an estimate of fair value if there is observable market information that would allow them to make a fair value estimate. Based on our understanding of the market inputs used by the pricing services, all applicable investments have been valued in accordance with GAAP. We do not adjust prices obtained from pricing services. The following is a description of the valuation techniques and inputs used to determine fair values for financial instruments carried at fair value, as well as the general classification of such financial instruments pursuant to the valuation hierarchy.

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ACE Limited and Subsidiaries

Fixed maturities
We use pricing services to estimate fair value measurements for the majority of our fixed maturities. The pricing services use market quotations for fixed maturities that have quoted prices in active markets; such securities are classified within Level 1. For fixed maturities other than U.S. Treasury securities that generally do not trade on a daily basis, the pricing services prepare estimates of fair value measurements using their pricing applications, which include available relevant market information, benchmark curves, benchmarking of like securities, sector groupings, and matrix pricing. Additional valuation factors that can be taken into account are nominal spreads, dollar basis, and liquidity adjustments. The pricing services evaluate each asset class based on relevant market and credit information, perceived market movements, and sector news. The market inputs used in the pricing evaluation, listed in the approximate order of priority include: benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, reference data, and industry and economic events. The extent of the use of each input is dependent on the asset class and the market conditions. Given the asset class, the priority of the use of inputs may change, or some market inputs may not be relevant. Additionally, fixed maturities valuation is more subjective when markets are less liquid due to the lack of market based inputs (i.e., stale pricing), which may increase the potential that an investment's estimated fair value is not reflective of the price at which an actual transaction would occur. The overwhelming majority of fixed maturities are classified within Level 2 because the most significant inputs used in the pricing techniques are observable. For a small number of fixed maturities, we obtain a single broker quote (typically from a market maker). Due to the disclaimers on the quotes that indicate that the price is indicative only, we include these fair value estimates in Level 3. 

Equity securities
Equity securities with active markets are classified within Level 1 as fair values are based on quoted market prices. For equity securities in markets which are less active, fair values are based on market valuations and are classified within Level 2. Equity securities for which pricing is unobservable are classified within Level 3.

Short-term investments
Short-term investments, which comprise securities due to mature within one year of the date of purchase that are traded in active markets, are classified within Level 1 as fair values are based on quoted market prices. Securities such as commercial paper and discount notes are classified within Level 2 because these securities are typically not actively traded due to their approaching maturity and, as such, their cost approximates fair value. Short-term investments for which pricing is unobservable are classified within Level 3.

Other investments
Fair values for the majority of Other investments including investments in partially-owned investment companies, investment funds, and limited partnerships are based on their respective net asset values or equivalent (NAV). The majority of these investments, for which NAV was used as a practical expedient to measure fair value, are classified within Level 3 because either ACE will never have the contractual option to redeem the investments or will not have the contractual option to redeem the investments in the near term. The remainder of such investments is classified within Level 2. Certain of our long-duration contracts are supported by assets that do not qualify for separate account reporting under GAAP. These assets comprise mutual funds classified within Level 1 in the valuation hierarchy on the same basis as other equity securities traded in active markets. Other investments also includes equity securities and fixed maturities held in rabbi trusts maintained by ACE for deferred compensation plans, which are classified within the valuation hierarchy on the same basis as other equity securities and fixed maturities.

Securities lending collateral
The underlying assets included in Securities lending collateral in the consolidated balance sheets are fixed maturities which are classified in the valuation hierarchy on the same basis as other fixed maturities. Excluded from the valuation hierarchy is the corresponding liability related to ACE’s obligation to return the collateral plus interest as it is reported at contract value and not fair value in the consolidated balance sheets.

Investment derivative instruments
Actively traded investment derivative instruments, including futures, options, and forward contracts are classified within Level 1 as fair values are based on quoted market prices. The fair value of cross-currency swaps are based on market valuations and are classified within Level 2. Investment derivative instruments are recorded in either Other assets or Accounts payable, accrued expenses, and other liabilities in the consolidated balance sheets.

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ACE Limited and Subsidiaries

Other derivative instruments
We maintain positions in other derivative instruments including exchange-traded equity futures contracts and option contracts designed to limit exposure to a severe equity market decline, which would cause an increase in expected claims and, therefore, an increase in reserves for our guaranteed minimum death benefits (GMDB) and guaranteed living benefits (GLB) reinsurance business. Our position in exchange-traded equity futures contracts is classified within Level 1. The fair value of the majority of the remaining positions in other derivative instruments is based on significant observable inputs including equity security and interest rate indices. Accordingly, these are classified within Level 2. Other derivative instruments based on unobservable inputs are classified within Level 3. Other derivative instruments are recorded in either Other assets or Accounts payable, accrued expenses, and other liabilities in the consolidated balance sheets.

Separate account assets
Separate account assets represent segregated funds where investment risks are borne by the customers, except to the extent of certain guarantees made by ACE. Separate account assets comprise mutual funds classified within Level 1 in the valuation hierarchy on the same basis as other equity securities traded in active markets. Separate account assets also include fixed maturities classified within Level 2 because the most significant inputs used in the pricing techniques are observable. Excluded from the valuation hierarchy are the corresponding liabilities as they are reported at contract value and not fair value in the consolidated balance sheets. Separate account assets are recorded in Other assets in the consolidated balance sheets.

Guaranteed living benefits
The GLB arises from life reinsurance programs covering living benefit guarantees whereby we assume the risk of guaranteed minimum income benefits (GMIB) and guaranteed minimum accumulation benefits (GMAB) associated with variable annuity contracts. GLB’s are recorded in Accounts payable, accrued expenses, and other liabilities and Future policy benefits in the consolidated balance sheets. For GLB reinsurance, ACE estimates fair value using an internal valuation model which includes current market information and estimates of policyholder behavior. All of the treaties contain claim limits, which are factored into the valuation model. The fair value depends on a number of factors, including interest rates, equity markets, credit risk, current account value, market volatility, expected annuitization rates, and other policyholder behavior and changes in policyholder mortality.

The most significant policyholder behavior assumptions include lapse rates and the GMIB annuitization rates. Assumptions regarding lapse rates and GMIB annuitization rates differ by treaty, but the underlying methodologies to determine rates applied to each treaty are comparable.

A lapse rate is the percentage of in-force policies surrendered in a given calendar year. All else equal, as lapse rates increase, ultimate claim payments will decrease.

GMIB annuitization rate is the percentage of policies for which the policyholder will elect to annuitize using the guaranteed benefit provided under the GMIB. All else equal, as GMIB annuitization rates increase, ultimate claim payments will increase, subject to treaty claim limits.

The effect of changes in key market factors on assumed lapse and annuitization rates reflect emerging trends using data available from cedants. For treaties with limited experience, rates are established in line with data received from other ceding companies adjusted, as appropriate, with industry estimates. The model and related assumptions are regularly re-evaluated by management and enhanced, as appropriate, based upon additional experience obtained related to policyholder behavior and availability of updated information such as market conditions, market participant assumptions, and demographics of in-force annuities. Because of the significant use of unobservable inputs including policyholder behavior, GLB reinsurance is classified within Level 3. During the three months ended March 31, 2015 , no material changes were made to actuarial or behavioral assumptions. We made minor technical refinements to the model with an unfavorable net income impact of approximately $ 400 thousand and $ 3 million for the three months ended March 31, 2015 and 2014, respectively. For detailed information on our lapse and annuitization rate assumptions, refer to Note 4 to the Consolidated Financial Statements of our 2014 Form 10-K.

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ACE Limited and Subsidiaries

Financial instruments measured at fair value on a recurring basis, by valuation hierarchy 

																
March 31, 2015	Level 1		 	Level 2		 	Level 3		 	Total		
(in millions of U.S. dollars)			 			 			 			
Assets:	 	 	 	 	 	 	 	
Fixed maturities available for sale	 	 	 	 	 	 	 	
U.S. Treasury and agency	$	1,747		 	$	1,142		 	$	—		 	$	2,889		
Foreign	—		 	14,925		 	22		 	14,947		
Corporate securities	—		 	17,832		 	167		 	17,999		
Mortgage-backed securities	—		 	10,775		 	33		 	10,808		
States, municipalities, and political subdivisions	—		 	3,767		 	—		 	3,767		
 	1,747		 	48,441		 	222		 	50,410		
Equity securities	518		 	16		 	2		 	536		
Short-term investments	1,469		 	1,067		 	—		 	2,536		
Other investments	364		 	277		 	2,789		 	3,430		
Securities lending collateral	—		 	1,033		 	—		 	1,033		
Investment derivative instruments	21		 	—		 	—		 	21		
Other derivative instruments	—		 	1		 	—		 	1		
Separate account assets	1,488		 	86		 	—		 	1,574		
Total assets measured at fair value	$	5,607		 	$	50,921		 	$	3,013		 	$	59,541		
Liabilities:	 	 	 	 	 	 	 	
Investment derivative instruments	$	25		 	$	—		 	$	—		 	$	25		
Other derivative instruments	3		 	—		 	4		 	7		
GLB (1)	—		 	—		 	451		 	451		
Total liabilities measured at fair value	$	28		 	$	—		 	$	455		 	$	483		
		
(1)  	Our GLB reinsurance product meets the definition of a derivative instrument for accounting purposes and is accordingly carried at fair value. Excluded from the table above is the portion of the GLB derivative liability classified as Future policy benefits in the consolidated balance sheets. Refer to Note 5 for additional information.	

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ACE Limited and Subsidiaries

 

																
December 31, 2014	Level 1		 	Level 2		 	Level 3		 	Total		
(in millions of U.S. dollars)			 			 			 			
Assets:	 	 	 	 	 	 	 	
Fixed maturities available for sale	 	 	 	 	 	 	 	
U.S. Treasury and agency	$	1,680		 	$	1,140		 	$	—		 	$	2,820		
Foreign	—		 	15,220		 	22		 	15,242		
Corporate securities	—		 	17,244		 	187		 	17,431		
Mortgage-backed securities	—		 	10,271		 	15		 	10,286		
States, municipalities, and political subdivisions	—		 	3,616		 	—		 	3,616		
 	1,680		 	47,491		 	224		 	49,395		
Equity securities	492		 	16		 	2		 	510		
Short-term investments	1,183		 	1,139		 	—		 	2,322		
Other investments	370		 	257		 	2,719		 	3,346		
Securities lending collateral	—		 	1,330		 	—		 	1,330		
Investment derivative instruments	18		 	—		 	—		 	18		
Other derivative instruments	—		 	2		 	—		 	2		
Separate account assets	1,400		 	90		 	—		 	1,490		
Total assets measured at fair value	$	5,143		 	$	50,325		 	$	2,945		 	$	58,413		
Liabilities:	 	 	 	 	 	 	 	
Investment derivative instruments	$	36		 	$	—		 	$	—		 	$	36		
Other derivative instruments	21		 	—		 	4		 	25		
GLB (1)	—		 	—		 	406		 	406		
Total liabilities measured at fair value	$	57		 	$	—		 	$	410		 	$	467		
		
(1)  	Our GLB reinsurance product meets the definition of a derivative instrument for accounting purposes and is accordingly carried at fair value. Excluded from the table above is the portion of the GLB derivative liability classified as Future policy benefits in the consolidated balance sheets. Refer to Note 5 for additional information.	

There were no transfers between Level 1 and Level 2 for the three months ended March 31, 2015 and 2014.

Fair value of alternative investments
Included in Other investments in the fair value hierarchy are investment funds, limited partnerships, and partially-owned investment companies measured at fair value using NAV as a practical expedient. At March 31, 2015 and December 31, 2014 , there were no probable or pending sales related to any of the investments measured at fair value using NAV. 

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ACE Limited and Subsidiaries

The following table presents, by investment category, the expected liquidation period, fair value, and maximum future funding commitments of alternative investments:

																		
 	 	 	 	 	March 31		 	 	 	December 31		
 	Expected
Liquidation
Period of Underlying Assets	 	 	 	2015		 	 	 	2014		
(in millions of U.S. dollars)			Fair
Value		 	Maximum
Future Funding
Commitments		 	Fair
Value		 	Maximum
Future Funding
Commitments		
Financial	5 to 9 Years	 	$	298		 	$	130		 	$	282		 	$	145		
Real Assets	3 to 7 Years	 	478		 	193		 	464		 	214		
Distressed	5 to 9 Years	 	251		 	249		 	232		 	175		
Private Credit	3 to 7 Years	 	303		 	181		 	299		 	190		
Traditional	3 to 9 Years	 	910		 	239		 	895		 	285		
Vintage	1 to 2 Years	 	9		 	—		 	11		 	1		
Investment funds	Not Applicable	 	383		 	—		 	378		 	—		
 	 	 	$	2,632		 	$	992		 	$	2,561		 	$	1,010		

In the first quarter of 2015, we redefined and regrouped certain alternative investment categories to better align with our management approach. The prior year amounts have been reclassified to conform to the current year presentation. Included in all categories in the above table except for Investment funds are investments for which ACE will never have the contractual option to redeem but receives distributions based on the liquidation of the underlying assets. Further, for all categories except for Investment funds, ACE does not have the ability to sell or transfer the investments without the consent from the general partner of individual funds.

			
Investment Category	 	Consists of investments in private equity funds:	
Financial	 	targeting financial services companies such as financial institutions and insurance services worldwide	
Real Assets	 	targeting investments related to hard physical assets such as real estate, infrastructure and natural resources	
Distressed	 	targeting distressed corporate debt/credit and equity opportunities in the U.S.	
Private Credit	 	targeting privately originated corporate debt investments including senior secured loans and subordinated bonds	
Traditional	 	employing traditional private equity investment strategies such as buyout and growth equity globally	
Vintage	 	made before 2002 and where the funds’ commitment periods had already expired	

Investment funds
ACE’s investment funds employ various investment strategies such as long/short equity and arbitrage/distressed. Included in this category are investments for which ACE has the option to redeem at agreed upon value as described in each investment fund’s subscription agreement. Depending on the terms of the various subscription agreements, investment fund investments may be redeemed monthly, quarterly, semi-annually, or annually. If ACE wishes to redeem an investment fund investment, it must first determine if the investment fund is still in a lock-up period (a time when ACE cannot redeem its investment so that the investment fund manager has time to build the portfolio). If the investment fund is no longer in its lock-up period, ACE must then notify the investment fund manager of its intention to redeem by the notification date prescribed by the subscription agreement. Subsequent to notification, the investment fund can redeem ACE’s investment within several months of the notification. Notice periods for redemption of the investment funds range between 5 and 120 days. ACE can redeem its investment funds without consent from the investment fund managers.

Level 3 financial instruments
The fair values of assets and liabilities measured at fair value using significant unobservable inputs (Level 3) consist of various inputs and assumptions that management makes when determining fair value. Management analyzes changes in fair value measurements classified within Level 3 by comparing pricing and returns of our investments to benchmarks, including month-over-month movements, investment credit spreads, interest rate movements, and credit quality of securities.

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ACE Limited and Subsidiaries

The following table presents the significant unobservable inputs used in the Level 3 liability valuations. Excluded from the table below are inputs used to determine the fair value of Level 3 assets which are based on single broker quotes or net asset value and contain no quantitative unobservable inputs developed by management. 

														
(in millions of U.S. dollars, except for percentages)	Fair Value	 	Valuation
Technique	 	Significant
Unobservable Inputs	 	Ranges	
	March 31, 2015		 	December 31, 2014		 		 		 		
GLB (1)	$	451		 	$	406		 	Actuarial model	 	Lapse rate	 	1% – 30%	
 	 	 	 	 	 	 	Annuitization rate	 	0% – 55%	
		
(1)  	Discussion of the most significant inputs used in the fair value measurement of GLB and the sensitivity of those assumptions is included within Note 4 a) Guaranteed living benefits.	

The following tables present a reconciliation of the beginning and ending balances of financial instruments measured at fair value using significant unobservable inputs (Level 3): 

																										
 	Assets	 	 	 	Liabilities		
Three Months Ended	Available-for-Sale Debt Securities	 	 	Equity
securities		Other
investments		 	Other
derivative
instruments		GLB (1)		
March 31, 2015	Foreign		 	Corporate
securities		 	MBS		 					 					
(in millions of U.S. dollars)			 			 			 					 					
Balance–Beginning of Period	$	22		 	$	187		 	$	15		 	$	2		$	2,719		 	$	4		$	406		
Transfers into Level 3	—		 	1		 	—		 	—		—		 	—		—		
Transfers out of Level 3	—		 	—		 	—		 	—		—		 	—		—		
Change in Net Unrealized Gains (Losses) included in OCI	—		 	3		 	—		 	—		(20	)	 	—		—		
Net Realized Gains/Losses	—		 	(3	)	 	—		 	—		—		 	—		45		
Purchases	1		 	8		 	18		 	—		147		 	—		—		
Sales	(1	)	 	(3	)	 	—		 	—		—		 	—		—		
Settlements	—		 	(26	)	 	—		 	—		(57	)	 	—		—		
Balance–End of Period	$	22		 	$	167		 	$	33		 	$	2		$	2,789		 	$	4		$	451		
Net Realized Gains/Losses Attributable to Changes in Fair Value at the Balance Sheet Date	$	—		 	$	(2	)	 	$	—		 	$	—		$	—		 	$	—		$	45		
		
(1)  	Our GLB reinsurance product meets the definition of a derivative instrument for accounting purposes and is accordingly carried at fair value. Excluded from the table above is the portion of the GLB derivative liability classified as Future policy benefits in the consolidated balance sheets. Refer to Note 5 for additional information.	

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ACE Limited and Subsidiaries

	
																												
  	Assets	 	 	Liabilities		
Three Months Ended	Available-for-Sale Debt Securities	 	 	Equity
securities		 	Short-term investments		 	Other
investments		 	GLB (1)		
March 31, 2014	Foreign		 	Corporate
securities		 	MBS		 			 			 			 			
(in millions of U.S. dollars)			 			 			 			 			 			 			
Balance–Beginning of Period	$	44		 	$	166		 	$	8		 	$	4		 	$	7		 	$	2,440		 	$	193		
Transfers into Level 3	—		 	4		 	—		 	—		 	—		 	—		 	—		
Transfers out of Level 3	(18	)	 	(22	)	 	—		 	(2	)	 	(7	)	 	—		 	—		
Change in Net Unrealized Gains (Losses) included in OCI	(1	)	 	—		 	—		 	1		 	—		 	41		 	—		
Net Realized Gains/Losses	—		 	—		 	—		 	—		 	—		 	—		 	50		
Purchases	2		 	15		 	—		 	1		 	—		 	200		 	—		
Sales	(1	)	 	(6	)	 	—		 	(2	)	 	—		 	(1	)	 	—		
Settlements	—		 	(6	)	 	—		 	—		 	—		 	(69	)	 	—		
Balance–End of Period	$	26		 	$	151		 	$	8		 	$	2		 	$	—		 	$	2,611		 	$	243		
Net Realized Gains/Losses Attributable to Changes in Fair Value at the Balance Sheet Date	$	—		 	$	—		 	$	—		 	$	—		 	$	—		 	$	—		 	$	50		
		
(1)  	Our GLB reinsurance product meets the definition of a derivative instrument for accounting purposes and is accordingly carried at fair value. Excluded from the table above is the portion of the GLB derivative liability classified as Future policy benefits in the consolidated balance sheets. The liability for GLB reinsurance was $483 million at March 31, 2014 , and $427 million at December 31, 2013, which includes a fair value derivative adjustment of $243 million and $193 million, respectively.	

b) Financial instruments disclosed, but not measured, at fair value
ACE uses various financial instruments in the normal course of its business. Our insurance contracts are excluded from fair value of financial instruments accounting guidance, and therefore, are not included in the amounts discussed below.

The carrying values of cash, other assets, other liabilities, and other financial instruments not included below approximated their fair values.

Investments in partially-owned insurance companies
Fair values for investments in partially-owned insurance companies are based on ACE’s share of the net assets based on the financial statements provided by those companies.

Short- and long-term debt and trust preferred securities
Where practical, fair values for short-term debt, long-term debt, and trust preferred securities are estimated using discounted cash flow calculations based principally on observable inputs including incremental borrowing rates, which reflect ACE’s credit rating, for similar types of borrowings with maturities consistent with those remaining for the debt being valued.

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ACE Limited and Subsidiaries

The following tables present fair value, by valuation hierarchy, and carrying value of the financial instruments not measured at fair value: 

																				
March 31, 2015	Fair Value	 	 	Carrying Value		
(in millions of U.S. dollars)	Level 1		 	Level 2		 	Level 3		 	Total		 			
Assets:	 	 	 	 	 	 	 	 	 	
Fixed maturities held to maturity	 	 	 	 	 	 	 	 	 	
U.S. Treasury and agency	$	590		 	$	190		 	$	—		 	$	780		 	$	756		
Foreign	—		 	873		 	—		 	873		 	816		
Corporate securities	—		 	2,357		 	14		 	2,371		 	2,249		
Mortgage-backed securities	—		 	1,983		 	—		 	1,983		 	1,907		
States, municipalities, and political subdivisions	—		 	1,300		 	—		 	1,300		 	1,254		
 	590		 	6,703		 	14		 	7,307		 	6,982		
Partially-owned insurance companies	—		 	—		 	590		 	590		 	590		
Total assets	$	590		 	$	6,703		 	$	604		 	$	7,897		 	$	7,572		
Liabilities:	 	 	 	 	 	 	 	 	 	
Short-term debt	$	—		 	$	2,563		 	$	—		 	$	2,563		 	$	2,552		
Long-term debt	—		 	4,575		 	—		 	4,575		 	4,157		
Trust preferred securities	—		 	465		 	—		 	465		 	309		
Total liabilities	$	—		 	$	7,603		 	$	—		 	$	7,603		 	$	7,018		

	
																				
December 31, 2014	Fair Value	 	 	Carrying Value		
(in millions of U.S. dollars)	Level 1		 	Level 2		 	Level 3		 	Total		 			
Assets:	 	 	 	 	 	 	 	 	 	
Fixed maturities held to maturity	 	 	 	 	 	 	 	 	 	
U.S. Treasury and agency	$	659		 	$	191		 	$	—		 	$	850		 	$	832		
Foreign	—		 	963		 	—		 	963		 	916		
Corporate securities	—		 	2,408		 	15		 	2,423		 	2,323		
Mortgage-backed securities	—		 	2,039		 	—		 	2,039		 	1,983		
States, municipalities, and political subdivisions	—		 	1,314		 	—		 	1,314		 	1,277		
 	659		 	6,915		 	15		 	7,589		 	7,331		
Partially-owned insurance companies	—		 	—		 	504		 	504		 	504		
Total assets	$	659		 	$	6,915		 	$	519		 	$	8,093		 	$	7,835		
Liabilities:	 	 	 	 	 	 	 	 	 	
Short-term debt	$	—		 	$	2,571		 	$	—		 	$	2,571		 	$	2,552		
Long-term debt	—		 	3,690		 	—		 	3,690		 	3,357		
Trust preferred securities	—		 	462		 	—		 	462		 	309		
Total liabilities	$	—		 	$	6,723		 	$	—		 	$	6,723		 	$	6,218		

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ACE Limited and Subsidiaries

5 . Assumed life reinsurance programs involving minimum benefit guarantees under variable annuity contracts

The following table presents income and expenses relating to GMDB and GLB reinsurance. GLBs include GMIBs as well as some GMABs originating in Japan.

								
 	Three Months Ended	 	
 	March 31	 	
(in millions of U.S. dollars)	2015		 	2014		
GMDB	 	 	 	
Net premiums earned	$	16		 	$	19		
Policy benefits and other reserve adjustments	$	9		 	$	15		
GLB	 	 	 	
Net premiums earned	$	32		 	$	36		
Policy benefits and other reserve adjustments	12		 	9		
Net realized gains (losses)	(45	)	 	(50	)	
Loss recognized in Net income	$	(25	)	 	$	(23	)	
Less: Net cash received	28		 	33		
Net increase in liability	$	(53	)	 	$	(56	)	

Net realized gains (losses) in the table above include gains (losses) related to foreign exchange and fair value adjustments on insurance derivatives and exclude gains (losses) on S&P put options and futures held to partially offset the risk in the GLB reinsurance portfolio. Refer to Note 7 for additional information.

At March 31, 2015 and December 31, 2014, the reported liability for GMDB reinsurance was $112 million and $111 million , respectively. At March 31, 2015 and December 31, 2014, the reported liability for GLB reinsurance was $716 million and $663 million, respectively, which includes a fair value derivative adjustment of $ 451 million and $406 million, respectively. Reported liabilities for both GMDB and GLB reinsurance are determined using internal valuation models. Such valuations require considerable judgment and are subject to significant uncertainty. The valuation of these products is subject to fluctuations arising from, among other factors, changes in interest rates, changes in equity markets, changes in credit markets, changes in the allocation of the investments underlying annuitants’ account values, and assumptions regarding future policyholder behavior. These models and the related assumptions are regularly reviewed by management and enhanced, as appropriate, based upon improvements in modeling assumptions and availability of updated information, such as market conditions and demographics of in-force annuities.

6 . Debt

In March 2015, ACE INA Holdings Inc. issued $800 million of 3.15 percent senior notes due March 2025. These senior notes are redeemable at any time at ACE INA Holdings Inc.'s option subject to a “make-whole” premium (the present value of the remaining principal and interest discounted at the applicable U.S. Treasury rate plus 0.15 percent). The notes are also redeemable at par plus accrued and unpaid interest in the event of certain changes in tax law. These notes do not have the benefit of any sinking fund.  These senior unsecured notes are guaranteed on a senior basis by ACE Limited and they rank equally with all of ACE's other senior obligations.  They also contain customary limitations on lien provisions as well as customary events of default provisions which, if breached, could result in the accelerated maturity of such senior debt.

7 . Commitments, contingencies, and guarantees

a) Derivative instruments
Foreign currency management
As a global company, ACE entities transact business in multiple currencies. Our policy is to generally match assets, liabilities and required capital for each individual jurisdiction in local currency, which would include the use of derivatives discussed below. We do not hedge our net asset non-USD capital positions, however we do consider hedging for planned cross border transactions.

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ACE Limited and Subsidiaries

Derivative instruments employed
ACE maintains positions in derivative instruments such as futures, options, swaps, and foreign currency forward contracts for which the primary purposes are to manage duration and foreign currency exposure, yield enhancement, or to obtain an exposure to a particular financial market. ACE also maintains positions in convertible securities that contain embedded derivatives. Investment derivative instruments are recorded in either Other assets (OA) or Accounts payable, accrued expenses, and other liabilities (AP), convertible bonds are recorded in Fixed maturities available for sale (FM AFS) and convertible equity securities are recorded in Equity securities (ES) in the consolidated balance sheets. These are the most numerous and frequent derivative transactions.

In addition, ACE from time to time purchases to be announced mortgage-backed securities (TBAs) as part of its investing activities.

Under reinsurance programs covering GLBs, ACE assumes the risk of GLBs, including GMIB and GMAB, associated with variable annuity contracts. The GMIB risk is triggered if, at the time the contract holder elects to convert the accumulated account value to a periodic payment stream (annuitize), the accumulated account value is not sufficient to provide a guaranteed minimum level of monthly income. The GMAB risk is triggered if, at contract maturity, the contract holder’s account value is less than a guaranteed minimum value. The GLB reinsurance product meets the definition of a derivative instrument. Benefit reserves in respect of GLBs are classified as Future policy benefits (FPB) while the fair value derivative adjustment is classified within AP. ACE also maintains positions in exchange-traded equity futures contracts and options on equity market indices to limit equity exposure in the GMDB and GLB blocks of business.

All derivative instruments are carried at fair value with changes in fair value recorded in Net realized gains (losses) in the consolidated statements of operations. None of the derivative instruments are designated as hedges for accounting purposes.

The following table presents the balance sheet locations, fair values of derivative instruments in an asset or (liability) position, and notional values/payment provisions of our derivative instruments:

																										
 	 	 	 	 	March 31, 2015	 	 	 	 	December 31, 2014	 	
 	Consolidated
Balance Sheet
Location	 	Fair Value	 	 	Notional
Value/
Payment
Provision		 	Fair Value	 	 	Notional
Value/
Payment
Provision		
(in millions of U.S. dollars)		 	Derivative Asset		 	Derivative (Liability)		 			 	Derivative Asset		 	Derivative (Liability)		 			
Investment and embedded derivative instruments	 	 	 	 	 	 	 	 	 	 	 	 	 	
Foreign currency forward contracts	OA / (AP)	 	$	15		 	$	(8	)	 	$	1,160		 	$	12		 	$	(7	)	 	$	1,329		
Cross-currency swaps	OA / (AP)	 	—		 	—		 	95		 	—		 	—		 	95		
Futures contracts on money market instruments	OA / (AP)	 	1		 	(1	)	 	4,355		 	—		 	—		 	2,467		
Options/Futures contracts on notes and bonds	OA / (AP)	 	5		 	(16	)	 	1,276		 	6		 	(29	)	 	1,636		
Convertible securities (1)	FM AFS / ES	 	298		 	—		 	272		 	291		 	—		 	267		
TBAs	FM AFS	 	31		 	—		 	30		 	—		 	—		 	—		
 	 	 	$	350		 	$	(25	)	 	$	7,188		 	$	309		 	$	(36	)	 	$	5,794		
Other derivative instruments	 	 	 	 	 	 	 	 	 	 	 	 	 	
Futures contracts on equities  (2)	OA / (AP)	 	$	—		 	$	(3	)	 	$	1,340		 	$	—		 	$	(21	)	 	$	1,384		
Options on equity market indices  (2)	OA / (AP)	 	1		 	—		 	250		 	2		 	—		 	250		
Other	OA / (AP)	 	—		 	(4	)	 	10		 	—		 	(4	)	 	10		
 	 	 	$	1		 	$	(7	)	 	$	1,600		 	$	2		 	$	(25	)	 	$	1,644		
GLB (3)	(AP) / (FPB)	 	$	—		 	$	(716	)	 	$	748		 	$	—		 	$	(663	)	 	$	675		
		
(1)  	Includes fair value of embedded derivatives.	
		
(2)  	Related to GMDB and GLB blocks of business.	
		
(3)  	Includes both future policy benefits reserves and fair value derivative adjustment. Refer to Note 5 for additional information. Note that the payment provision related to GLB is the net amount at risk. The concept of a notional value does not apply to the GLB reinsurance contracts.	

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ACE Limited and Subsidiaries

At March 31, 2015 and December 31, 2014, derivative liabilities of $4 million and $34 million , respectively, included in the table above were subject to a master netting agreement. The remaining derivatives included in the table above were not subject to a master netting agreement. 

ACE participates in a securities lending program operated by a third-party banking institution whereby certain assets are loaned to qualified borrowers and from which we earn an incremental return. At March 31, 2015 and December 31, 2014, our securities lending payable was $1,034 million and $1,331 million, respectively, and our securities lending collateral was $1,033 million and $1,330 million, respectively. The securities lending collateral can only be accessed in the event that the institution borrowing the securities is in default under the lending agreement. An indemnification agreement with the lending agent protects us in the event a borrower becomes insolvent or fails to return any of the securities on loan. At both March 31, 2015 and December 31, 2014, our repurchase agreement obligations of $1,402 million were fully collateralized. In contrast to securities lending programs, the use of cash received is not restricted for the repurchase obligations.

The following table presents net realized gains (losses) related to derivative instrument activity in the consolidated statements of operations:

								
 	Three Months Ended	 	
 	March 31	 	
(in millions of U.S. dollars)	2015		 	2014		
Investment and embedded derivative instruments	 	 	 	
Foreign currency forward contracts	$	25		 	$	(3	)	
All other futures contracts and options	(29	)	 	(22	)	
Convertible securities (1)	5		 	—		
Total investment and embedded derivative instruments	$	1		 	$	(25	)	
GLB and other derivative instruments	 	 	 	
GLB (2)	$	(45	)	 	$	(48	)	
Futures contracts on equities (3)	(11	)	 	(17	)	
Options on equity market indices (3)	(1	)	 	(2	)	
Other	—		 	(2	)	
Total GLB and other derivative instruments	$	(57	)	 	$	(69	)	
 	$	(56	)	 	$	(94	)	
		
(1)  	Includes embedded derivatives.	
		
(2)  	Excludes foreign exchange gains (losses) related to GLB.	
		
(3)  	Related to GMDB and GLB blocks of business.	

Derivative instrument objectives

(i) Foreign currency exposure management
A foreign currency forward contract (forward) is an agreement between participants to exchange specific foreign currencies at a future date. ACE uses forwards to minimize the effect of fluctuating foreign currencies as discussed above.

(ii) Duration management and market exposure
Futures
Futures contracts give the holder the right and obligation to participate in market movements, determined by the index or underlying security on which the futures contract is based. Settlement is made daily in cash by an amount equal to the change in value of the futures contract times a multiplier that scales the size of the contract. Exchange-traded futures contracts on money market instruments, notes and bonds are used in fixed maturity portfolios to more efficiently manage duration, as substitutes for ownership of the money market instruments, bonds and notes without significantly increasing the risk in the portfolio. Investments in futures contracts may be made only to the extent that there are assets under management not otherwise committed.

Exchange-traded equity futures contracts are used to limit exposure to a severe equity market decline, which would cause an increase in expected claims and therefore, an increase in reserves for GMDB and GLB reinsurance business.

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ACE Limited and Subsidiaries

Options
An option contract conveys to the holder the right, but not the obligation, to purchase or sell a specified amount or value of an underlying security at a fixed price. Option contracts are used in the investment portfolio as protection against unexpected shifts in interest rates, which would affect the duration of the fixed maturity portfolio. By using options in the portfolio, the overall interest rate sensitivity of the portfolio can be reduced. Option contracts may also be used as an alternative to futures contracts in the synthetic strategy as described above.

Another use for option contracts is to limit exposure to a severe equity market decline, which would cause an increase in expected claims and therefore, an increase in reserves for GMDB and GLB reinsurance business.

The price of an option is influenced by the underlying security, expected volatility, time to expiration, and supply and demand.

The credit risk associated with the above derivative financial instruments relates to the potential for non-performance by counterparties. Although non-performance is not anticipated, in order to minimize the risk of loss, management monitors the creditworthiness of its counterparties and obtains collateral. The performance of exchange-traded instruments is guaranteed by the exchange on which they trade. For non-exchange-traded instruments, the counterparties are principally banks which must meet certain criteria according to our investment guidelines.

Cross-currency swaps
Cross-currency swaps are agreements under which two counterparties exchange interest payments and principal denominated in different currencies at a future date.  We use cross-currency swaps to reduce the foreign currency and interest rate risk by converting cash flows back into local currency.  We invest in foreign currency denominated investments to improve credit diversification and also to obtain better duration matching to our liabilities that is limited in the local currency market.

Other
Included within Other are derivatives intended to reduce potential losses which may arise from certain exposures in our insurance business.  The economic benefit provided by these derivatives is similar to purchased reinsurance.  For example, ACE may enter into crop derivative contracts to protect underwriting results in the event of a significant decline in commodity prices. Also included within Other are certain life insurance products that meet the definition of a derivative instrument for accounting purposes. 

(iii) Convertible security investments
A convertible security is a debt instrument or preferred stock that can be converted into a predetermined amount of the issuer’s equity. The convertible option is an embedded derivative within the host instruments which are classified in the investment portfolio as either available for sale or as an equity security. ACE purchases convertible securities for their total return and not specifically for the conversion feature.

(iv) TBA
By acquiring TBAs, we make a commitment to purchase a future issuance of mortgage-backed securities. For the period between purchase of the TBAs and issuance of the underlying security, we account for our position as a derivative in the consolidated financial statements. ACE purchases TBAs both for their total return and for the flexibility they provide related to our mortgage-backed security strategy.

(v) GLB
Under the GLB program, as the assuming entity, ACE is obligated to provide coverage until the expiration or maturity of the underlying deferred annuity contracts or the expiry of the reinsurance treaty. Premiums received under the reinsurance treaties are classified as premium. Expected losses allocated to premiums received are classified as Future policy benefits and valued similar to GMDB reinsurance. Other changes in fair value, principally arising from changes in expected losses allocated to expected future premiums, are classified as Net realized gains (losses). Fair value represents management’s estimate of an exit price and thus, includes a risk margin. We may recognize a realized loss for other changes in fair value due to adverse changes in the capital markets (e.g., declining interest rates and/or declining equity markets) and changes in actual or estimated future policyholder behavior (e.g., increased annuitization or decreased lapse rates) although we expect the business to be profitable. We believe this presentation provides the most meaningful disclosure of changes in the underlying risk within the GLB reinsurance programs for a given reporting period.

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b) Other investments
At March 31, 2015 , included in Other investments in the consolidated balance sheet are investments in limited partnerships and partially-owned investment companies with a carrying value of $2.2 billion. In connection with these investments, we have commitments that may require funding of up to $992 million over the next several years. 

c) Taxation
At March 31, 2015 , $23 million of unrecognized tax benefits remains outstanding. It is reasonably possible that over the next twelve months, the amount of unrecognized tax benefits may change resulting from the re-evaluation of unrecognized tax benefits arising from examinations of taxing authorities. With few exceptions, ACE is no longer subject to state and local or non-U.S. income tax examinations for years before 2005.

d) Legal proceedings
Our insurance subsidiaries are subject to claims litigation involving disputed interpretations of policy coverages and, in some jurisdictions, direct actions by allegedly-injured persons seeking damages from policyholders. These lawsuits, involving claims on policies issued by our subsidiaries which are typical to the insurance industry in general and in the normal course of business, are considered in our loss and loss expense reserves. In addition to claims litigation, we are subject to lawsuits and regulatory actions in the normal course of business that do not arise from or directly relate to claims on insurance policies. This category of business litigation typically involves, among other things, allegations of underwriting errors or misconduct, employment claims, regulatory activity, or disputes arising from our business ventures. In the opinion of management, our ultimate liability for these matters could be, but we believe is not likely to be, material to our consolidated financial condition and results of operations.

8 . Shareholders’ equity

All of ACE’s Common Shares are authorized under Swiss corporate law. Though the par value of Common Shares is stated in Swiss francs, ACE continues to use U.S. dollars as its reporting currency for preparing consolidated financial statements. Under Swiss corporate law, dividends, including distributions through a reduction in par value (par value reduction) or from legal reserves, must be stated in Swiss francs though dividend payments are made by ACE in U.S. dollars.

At our May 2013 annual general meeting, our shareholders approved an annual dividend for the following year of $2.04 per share, payable in four quarterly installments of $ 0.51 per share after the annual general meeting in the form of a distribution by way of a par value reduction. At the January 10, 2014 extraordinary general meeting, our shareholders approved a resolution to increase our quarterly dividend from $ 0.51 per share to $0.63 per share for the final two quarterly installments (made on January 31, 2014 and April 17, 2014) that had been earlier approved at our 2013 annual general meeting. The $0.12 per share increase for each installment was distributed from capital contribution reserves (Additional paid-in capital), a subaccount of legal reserves, and transferred to free reserves (Retained earnings) for payment, while the existing $ 0.51 per share was distributed by way of a par value reduction.

At our May 2014 annual general meeting, our shareholders approved an annual dividend for the following year of $2.60 per share, payable in four quarterly installments of $0.65 per share after the annual general meeting in the form of a distribution by way of a par value reduction.

The following table presents dividend distributions per Common Share in Swiss francs (CHF) and U.S. dollars (USD):

														
 	Three Months Ended	 	
 	March 31	 	
 	2015	 	 	2014	 	
	CHF		 	USD		 	CHF		 	USD		
Dividends – par value reduction	0.62		 	$	0.65		 	0.45		 	$	0.51		
Dividends –  distributed from capital contribution reserves	—		 	—		 	0.20		 	0.24		
Total dividend distributions per common share	0.62		 	$	0.65		 	0.65		 	$	0.75		

Par value reductions have been reflected as such through Common Shares in the consolidated statements of shareholders' equity and had the effect of reducing par value per Common Share to CHF 24.15 at March 31, 2015 .

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ACE Limited and Subsidiaries

Common Shares in treasury are used principally for issuance upon the exercise of employee stock options, grants of restricted stock, and purchases under the Employee Stock Purchase Plan (ESPP). At March 31, 2015 , 15,747,650 Common Shares remain in treasury after net shares redeemed under employee share-based compensation plans.

ACE Limited securities repurchase authorization
On November 21, 2013, the Board of Directors (Board) announced authorization of a share repurchase program of up to $ 2.0 billion of ACE's Common Shares through December 31, 2014.

On November 24, 2014, the Board announced authorization of a share repurchase program of $1.5 billion of ACE's Common Shares for the period January 1, 2015 through December 31, 2015 to replace the November 2013 authorization when it expired on December 31, 2014.

The following table presents repurchases of ACE's Common Shares conducted in a series of open market transactions under the Board authorizations:

												
(in millions of U.S. dollars, except share data)	Three Months Ended
 March 31	 	 	April 1, 2015 through April 28, 2015		
	2015		 	2014		 			
Number of shares repurchased	3,027,463		 	3,487,882		 	1,351,820		
Dollar value of shares repurchased	$	340		 	$	332		 	$	149		
Repurchase authorization remaining at end of period	$	1,160		 	$	1,612		 	$	1,011		

9 . Share-based compensation

The ACE Limited 2004 Long-Term Incentive Plan (the 2004 LTIP) permits grants of both incentive and non-qualified stock options principally at an option price per share equal to the grant date fair value of ACE’s Common Shares. Stock options are generally granted with a 3-year vesting period and a 10-year term. Stock options typically vest in equal annual installments over the vesting period, which is also the requisite service period. On February 26, 2015 , ACE granted 1,891,195 stock options with a weighted-average grant date fair value of $18.49 each. The fair value of the options issued is estimated on the grant date using the Black-Scholes option pricing model.

The 2004 LTIP also permits grants of restricted stock and restricted stock units. ACE generally grants restricted stock and restricted stock units with a 4-year vesting period, based on a graded vesting schedule. The restricted stock is granted at market close price on the grant date. On February 26, 2015 , ACE granted 1,278,250 restricted stock awards and 290,475 restricted stock units to employees and officers with a grant date fair value of $114.78 each. Each restricted stock unit represents our obligation to deliver to the holder one Common Share upon vesting.

10 . Segment information

ACE operates through five business segments: Insurance – North American P&C, Insurance – North American Agriculture, Insurance – Overseas General, Global Reinsurance, and Life. These segments distribute their products through various forms of brokers, agencies, and direct marketing programs. All business segments have established relationships with reinsurance intermediaries.

Corporate includes the results of ACE’s non-insurance subsidiaries, including ACE Limited, ACE Group Management and Holdings Ltd., and ACE INA Holdings, Inc.  Corporate results consist primarily of interest expense, corporate staff expenses and other expenses not attributable to specific reportable segments, and intersegment eliminations.

For segment reporting purposes, certain items have been presented in a different manner below than in the consolidated financial statements. Management uses underwriting income as the main measure of segment performance. ACE calculates underwriting income by subtracting Losses and loss expenses, Policy benefits, Policy acquisition costs, and Administrative expenses from Net premiums earned. For the Insurance – North American Agriculture segment, management includes gains and losses on crop derivatives as a component of underwriting income. For example, for the three months ended March 31, 2014 , underwriting loss in our Insurance – North American Agriculture segment was $31 million . This amount includes $2 million of realized losses related to crop derivatives which are included in Net realized gains (losses) below. For the Life segment, management includes Net investment income and (Gains) losses from fair value changes in separate account assets that do not

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ACE Limited and Subsidiaries

qualify for separate account reporting under GAAP as components of Life underwriting income. For example, for the three months ended March 31, 2015 , Life underwriting income of $ 77 million includes Net investment income of $ 66 million and gains from fair value changes in separate account assets of $ 11 million.

The following tables present the Statement of Operations by segment: 

																												
For the Three Months Ended March 31, 2015	Insurance – North American P&C		 	Insurance – North American Agriculture		 	Insurance –
Overseas
General		 	Global
Reinsurance		 	Life		 	Corporate		 	ACE
Consolidated		
(in millions of U.S. dollars)						 			 			 			 			 			
Net premiums written	$	1,430		 	$	88		 	$	1,794		 	$	273		 	$	491		 	$	—		 	$	4,076		
Net premiums earned	1,526		 	64		 	1,637		 	226		 	474		 	—		 	3,927		
Losses and loss expenses	1,035		 	22		 	814		 	99		 	152		 	—		 	2,122		
Policy benefits	—		 	—		 	—		 	—		 	142		 	—		 	142		
Policy acquisition costs	161		 	(4	)	 	389		 	54		 	107		 	—		 	707		
Administrative expenses	171		 	(1	)	 	256		 	12		 	73		 	43		 	554		
Underwriting income (loss)	159		 	47		 	178		 	61		 	—		 	(43	)	 	402		
Net investment income	263		 	6		 	138		 	75		 	66		 	3		 	551		
Net realized gains (losses) including OTTI	(6	)	 	—		 	(10	)	 	(11	)	 	(59	)	 	(3	)	 	(89	)	
Interest expense	2		 	—		 	1		 	1		 	1		 	63		 	68		
Other (income) expense:	 	 	 	 	 	 	 	 	 	 	 	 	 	
(Gains) losses from fair value changes in separate account assets	—		 	—		 	—		 	—		 	(11	)	 	—		 	(11	)	
Other	(7	)	 	8		 	17		 	(5	)	 	(12	)	 	5		 	6		
Income tax expense (benefit)	80		 	10		 	52		 	8		 	9		 	(39	)	 	120		
Net income (loss)	$	341		 	$	35		 	$	236		 	$	121		 	$	20		 	$	(72	)	 	$	681		

	
																												
For the Three Months Ended March 31, 2014	Insurance – North American P&C		 	Insurance – North American Agriculture		 	Insurance –
Overseas
General		 	Global
Reinsurance		 	Life		 	Corporate		 	ACE
Consolidated		
(in millions of U.S. dollars)			 			 			 			 			 			 			
Net premiums written	$	1,418		 	$	194		 	$	1,771		 	$	308		 	$	494		 	$	—		 	$	4,185		
Net premiums earned	1,487		 	103		 	1,612		 	284		 	484		 	—		 	3,970		
Losses and loss expenses	940		 	126		 	817		 	126		 	151		 	1		 	2,161		
Policy benefits	—		 	—		 	—		 	—		 	114		 	—		 	114		
Policy acquisition costs	159		 	5		 	386		 	67		 	111		 	—		 	728		
Administrative expenses	161		 	1		 	250		 	14		 	68		 	41		 	535		
Underwriting income (loss)	227		 	(29	)	 	159		 	77		 	40		 	(42	)	 	432		
Net investment income	270		 	7		 	132		 	77		 	64		 	3		 	553		
Net realized gains (losses) including OTTI	(9	)	 	(2	)	 	(10	)	 	(8	)	 	(76	)	 	1		 	(104	)	
Interest expense	3		 	—		 	1		 	1		 	3		 	63		 	71		
Other (income) expense:	 	 	 	 	 	 	 	 	 	 	 	 	 	
(Gains) losses from fair value changes in separate account assets	—		 	—		 	—		 	—		 	6		 	—		 	6		
Other	(20	)	 	8		 	(6	)	 	(19	)	 	7		 	7		 	(23	)	
Income tax expense (benefit)	83		 	(7	)	 	37		 	10		 	10		 	(40	)	 	93		
Net income (loss)	$	422		 	$	(25	)	 	$	249		 	$	154		 	$	2		 	$	(68	)	 	$	734		

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ACE Limited and Subsidiaries

Underwriting assets are reviewed in total by management for purposes of decision-making. Other than goodwill and other intangible assets, ACE does not allocate assets to its segments.

The following table presents net premiums earned for each segment by product:

																
(in millions of U.S. dollars)	Property &
All Other		 	Casualty		 	Life,
Accident &
Health		 	ACE
Consolidated		
For the Three Months Ended March 31, 2015			 			 			 			
Insurance – North American P&C	$	410		 	$	1,015		 	$	101		 	$	1,526		
Insurance – North American Agriculture	64		 	—		 	—		 	64		
Insurance – Overseas General	728		 	382		 	527		 	1,637		
Global Reinsurance	117		 	109		 	—		 	226		
Life	—		 	—		 	474		 	474		
 	$	1,319		 	$	1,506		 	$	1,102		 	$	3,927		
For the Three Months Ended March 31, 2014	 	 	 	 	 	 	 	
Insurance – North American P&C	$	405		 	$	981		 	$	101		 	$	1,487		
Insurance – North American Agriculture	103		 	—		 	—		 	103		
Insurance – Overseas General	693		 	369		 	550		 	1,612		
Global Reinsurance	154		 	130		 	—		 	284		
Life	—		 	—		 	484		 	484		
 	$	1,355		 	$	1,480		 	$	1,135		 	$	3,970		

11 . Earnings per share

									
 	Three Months Ended	 	 	
 	March 31	 	 	
(in millions of U.S. dollars, except share and per share data)	2015		 	2014		 	
Numerator:	 	 	 	 	
Net income	$	681		 	$	734		 	
Denominator:	 	 	 	 	
Denominator for basic earnings per share:	 	 	 	 	
Weighted-average shares outstanding	328,212,376		 	338,869,562		 	
Denominator for diluted earnings per share:	 	 	 	 	
Share-based compensation plans	3,480,344		 	3,171,174		 	
Weighted-average shares outstanding and assumed conversions	331,692,720		 	342,040,736		 	
Basic earnings per share	$	2.08		 	$	2.16		 	
Diluted earnings per share	$	2.05		 	$	2.14		 	
Potential anti-dilutive share conversions	715,148		 	657,182		 	

Excluded from weighted-average shares outstanding and assumed conversions is the impact of securities that would have been anti-dilutive during the respective periods.

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ACE Limited and Subsidiaries

12 . Information provided in connection with outstanding debt of subsidiaries

The following tables present condensed consolidating financial information at March 31, 2015 and December 31, 2014 , and for the three months ended March 31, 2015 and 2014 for ACE Limited (Parent Guarantor) and ACE INA Holdings Inc. (Subsidiary Issuer). The Subsidiary Issuer is an indirect 100 percent-owned subsidiary of the Parent Guarantor. The Parent Guarantor fully and unconditionally guarantees certain of the debt of the Subsidiary Issuer. Condensed consolidating financial information of the Parent Guarantor and Subsidiary Issuer are presented on the equity method of accounting. The revenues and expenses and cash flows of the subsidiaries of the Subsidiary Issuer are presented in the Other ACE Limited Subsidiaries column on a combined basis.

Condensed Consolidating Balance Sheet at March 31, 2015 

																				
(in millions of U.S. dollars)	ACE
Limited
(Parent
Guarantor)		 	ACE INA
Holdings Inc.
(Subsidiary
Issuer)		 	Other ACE
Limited
Subsidiaries		 	Consolidating
Adjustments and Eliminations		 	ACE Limited
Consolidated		
Assets	 	 	 	 	 	 	 	 	 	
Investments	$	31		 	$	10		 	$	63,853		 	$	—		 	$	63,894		
Cash (1)	2		 	366		 	658		 	(78	)	 	948		
Insurance and reinsurance balances receivable	—		 	—		 	5,746		 	(720	)	 	5,026		
Reinsurance recoverable on losses and loss expenses	—		 	—		 	20,292		 	(8,704	)	 	11,588		
Reinsurance recoverable on policy benefits	—		 	—		 	1,171		 	(956	)	 	215		
Value of business acquired	—		 	—		 	440		 	—		 	440		
Goodwill and other intangible assets	—		 	—		 	5,516		 	—		 	5,516		
Investments in subsidiaries	29,798		 	18,767		 	—		 	(48,565	)	 	—		
Due from subsidiaries and affiliates, net	233		 	—		 	—		 	(233	)	 	—		
Other assets	4		 	291		 	14,088		 	(3,612	)	 	10,771		
Total assets	$	30,068		 	$	19,434		 	$	111,764		 	$	(62,868	)	 	$	98,398		
Liabilities	 	 	 	 	 	 	 	 	 	
Unpaid losses and loss expenses	$	—		 	$	—		 	$	45,518		 	$	(8,192	)	 	$	37,326		
Unearned premiums	—		 	—		 	9,912		 	(1,730	)	 	8,182		
Future policy benefits	—		 	—		 	5,700		 	(956	)	 	4,744		
Due to subsidiaries and affiliates, net	—		 	103		 	130		 	(233	)	 	—		
Affiliated notional cash pooling programs (1)	78		 	—		 	—		 	(78	)	 	—		
Short-term debt	—		 	1,150		 	1,402		 	—		 	2,552		
Long-term debt	—		 	4,145		 	12		 	—		 	4,157		
Trust preferred securities	—		 	309		 	—		 	—		 	309		
Other liabilities	288		 	1,434		 	12,818		 	(3,114	)	 	11,426		
Total liabilities	366		 	7,141		 	75,492		 	(14,303	)	 	68,696		
Total shareholders’ equity	29,702		 	12,293		 	36,272		 	(48,565	)	 	29,702		
Total liabilities and shareholders’ equity	$	30,068		 	$	19,434		 	$	111,764		 	$	(62,868	)	 	$	98,398		
		
(1)  	ACE maintains two notional multicurrency cash pools (Pools) with a third-party bank. Various ACE entities participate in one or the other of the Pools, pursuant to which credit and debit balances in individual ACE accounts are translated daily into a single currency and pooled on a notional basis. Individual ACE entities are permitted to overdraw on their individual accounts provided the overall Pool balances do not fall below zero. At March 31, 2015 , the cash balance of one or more entities was negative; however, the overall Pool balances were positive.	

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ACE Limited and Subsidiaries

Condensed Consolidating Balance Sheet at December 31, 2014

																				
(in millions of U.S. dollars)	ACE
Limited
(Parent
Guarantor)		 	ACE INA
Holdings Inc.
(Subsidiary
Issuer)		 	Other ACE
Limited
Subsidiaries		 	Consolidating
Adjustments and Eliminations		 	ACE Limited
Consolidated		
Assets	 	 	 	 	 	 	 	 	 	
Investments	$	30		 	$	225		 	$	62,649		 	$	—		 	$	62,904		
Cash (1)	—		 	1		 	1,209		 	(555	)	 	655		
Insurance and reinsurance balances receivable	—		 	—		 	6,178		 	(752	)	 	5,426		
Reinsurance recoverable on losses and loss expenses	—		 	—		 	20,992		 	(9,000	)	 	11,992		
Reinsurance recoverable on policy benefits	—		 	—		 	1,194		 	(977	)	 	217		
Value of business acquired	—		 	—		 	466		 	—		 	466		
Goodwill and other intangible assets	—		 	—		 	5,724		 	—		 	5,724		
Investments in subsidiaries	29,497		 	18,762		 	—		 	(48,259	)	 	—		
Due from subsidiaries and affiliates, net	583		 	—		 	—		 	(583	)	 	—		
Other assets	4		 	295		 	14,196		 	(3,631	)	 	10,864		
Total assets	$	30,114		 	$	19,283		 	$	112,608		 	$	(63,757	)	 	$	98,248		
Liabilities	 	 	 	 	 	 	 	 	 	
Unpaid losses and loss expenses	$	—		 	$	—		 	$	46,770		 	$	(8,455	)	 	$	38,315		
Unearned premiums	—		 	—		 	9,958		 	(1,736	)	 	8,222		
Future policy benefits	—		 	—		 	5,731		 	(977	)	 	4,754		
Due to subsidiaries and affiliates, net	—		 	422		 	161		 	(583	)	 	—		
Affiliated notional cash pooling programs (1)	246		 	309		 	—		 	(555	)	 	—		
Short-term debt	—		 	1,150		 	1,402		 	—		 	2,552		
Long-term debt	—		 	3,345		 	12		 	—		 	3,357		
Trust preferred securities	—		 	309		 	—		 	—		 	309		
Other liabilities	281		 	1,404		 	12,659		 	(3,192	)	 	11,152		
Total liabilities	527		 	6,939		 	76,693		 	(15,498	)	 	68,661		
Total shareholders’ equity	29,587		 	12,344		 	35,915		 	(48,259	)	 	29,587		
Total liabilities and shareholders’ equity	$	30,114		 	$	19,283		 	$	112,608		 	$	(63,757	)	 	$	98,248		
		
(1)  	ACE maintains two notional multicurrency cash pools (Pools) with a third-party bank. Various ACE entities participate in one or the other of the Pools, pursuant to which credit and debit balances in individual ACE accounts are translated daily into a single currency and pooled on a notional basis. Individual ACE entities are permitted to overdraw on their individual accounts provided the overall Pool balances do not fall below zero. At December 31, 2014 , the cash balance of one or more entities was negative; however, the overall Pool balances were positive.	

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ACE Limited and Subsidiaries

Condensed Consolidating Statements of Operations and Comprehensive Income

																				
For the Three Months Ended March 31, 2015	ACE
Limited
(Parent
Guarantor)		 	ACE INA
Holdings Inc.
(Subsidiary
Issuer)		 	Other ACE
Limited
Subsidiaries		 	Consolidating
Adjustments and Eliminations		 	ACE
Limited
Consolidated		
(in millions of U.S. dollars)			 			 			 			 			
Net premiums written	$	—		 	$	—		 	$	4,076		 	$	—		 	$	4,076		
Net premiums earned	—		 	—		 	3,927		 	—		 	3,927		
Net investment income	1		 	1		 	549		 	—		 	551		
Equity in earnings of subsidiaries	648		 	204		 	—		 	(852	)	 	—		
Net realized gains (losses) including OTTI	—		 	—		 	(89	)	 	—		 	(89	)	
Losses and loss expenses	—		 	—		 	2,122		 	—		 	2,122		
Policy benefits	—		 	—		 	142		 	—		 	142		
Policy acquisition costs and administrative expenses	14		 	6		 	1,241		 	—		 	1,261		
Interest (income) expense	(8	)	 	69		 	7		 	—		 	68		
Other (income) expense	(41	)	 	(3	)	 	39		 	—		 	(5	)	
Income tax expense (benefit)	3		 	(26	)	 	143		 	—		 	120		
Net income	$	681		 	$	159		 	$	693		 	$	(852	)	 	$	681		
Comprehensive income	$	642		 	$	24		 	$	654		 	$	(678	)	 	$	642		

Condensed Consolidating Statements of Operations and Comprehensive Income

																				
For the Three Months Ended March 31, 2014	ACE
Limited
(Parent
Guarantor)		 	ACE INA
Holdings Inc.
(Subsidiary
Issuer)		 	Other ACE
Limited
Subsidiaries		 	Consolidating
Adjustments and Eliminations		 	ACE
Limited
Consolidated		
(in millions of U.S. dollars)			 			 			 			 			
Net premiums written	$	—		 	$	—		 	$	4,185		 	$	—		 	$	4,185		
Net premiums earned	—		 	—		 	3,970		 	—		 	3,970		
Net investment income	—		 	—		 	553		 	—		 	553		
Equity in earnings of subsidiaries	702		 	180		 	—		 	(882	)	 	—		
Net realized gains (losses) including OTTI	—		 	(1	)	 	(103	)	 	—		 	(104	)	
Losses and loss expenses	—		 	—		 	2,161		 	—		 	2,161		
Policy benefits	—		 	—		 	114		 	—		 	114		
Policy acquisition costs and administrative expenses	17		 	6		 	1,240		 	—		 	1,263		
Interest (income) expense	(10	)	 	71		 	10		 	—		 	71		
Other (income) expense	(42	)	 	14		 	11		 	—		 	(17	)	
Income tax expense (benefit)	3		 	(30	)	 	120		 	—		 	93		
Net income	$	734		 	$	118		 	$	764		 	$	(882	)	 	$	734		
Comprehensive income	$	1,108		 	$	266		 	$	1,138		 	$	(1,404	)	 	$	1,108		

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ACE Limited and Subsidiaries

Condensed Consolidating Statement of Cash Flows

																				
Three Months Ended March 31, 2015	ACE
Limited
(Parent
Guarantor)		 	ACE INA
Holdings Inc.
(Subsidiary
Issuer)		 	Other ACE
Limited
Subsidiaries		 	Consolidating
Adjustments and Eliminations		 	ACE
Limited
Consolidated		
(in millions of U.S. dollars)			 			 			 			 			
Net cash flows from operating activities	$	48		 	$	4		 	$	1,023		 	$	—		 	$	1,075		
Cash flows from investing activities	 	 	 	 	 	 	 	 	 	
Purchases of fixed maturities available for sale	—		 	—		 	(4,336	)	 	—		 	(4,336	)	
Purchases of fixed maturities held to maturity	—		 	—		 	(21	)	 	—		 	(21	)	
Purchases of equity securities	—		 	—		 	(39	)	 	—		 	(39	)	
Sales of fixed maturities available for sale	—		 	—		 	2,002		 	—		 	2,002		
Sales of equity securities	—		 	—		 	28		 	—		 	28		
Maturities and redemptions of fixed maturities available for sale	—		 	—		 	1,481		 	—		 	1,481		
Maturities and redemptions of fixed maturities held to maturity	—		 	—		 	324		 	—		 	324		
Net change in short-term investments	—		 	216		 	(471	)	 	—		 	(255	)	
Net derivative instruments settlements	—		 	—		 	(51	)	 	—		 	(51	)	
Other	—		 	—		 	(153	)	 	—		 	(153	)	
Net cash flows from (used for) investing activities	—		 	216		 	(1,236	)	 	—		 	(1,020	)	
Cash flows from financing activities	 	 	 	 	 	 	 	 	 	
Dividends paid on Common Shares	(214	)	 	—		 	—		 	—		 	(214	)	
Common Shares repurchased	—		 	—		 	(347	)	 	—		 	(347	)	
Proceeds from issuance of long-term debt	—		 	800		 	—		 	—		 	800		
Proceeds from issuance of short-term debt	—		 	—		 	477		 	—		 	477		
Repayment of short-term debt	—		 	—		 	(477	)	 	—		 	(477	)	
Proceeds from share-based compensation plans, including windfall tax benefits	—		 	—		 	39		 	—		 	39		
Advances (to) from affiliates	336		 	(340	)	 	4		 	—		 	—		
Net payments to affiliated notional cash pooling programs (1)	(168	)	 	(309	)	 	—		 	477		 	—		
Policyholder contract deposits	—		 	—		 	101		 	—		 	101		
Policyholder contract withdrawals	—		 	—		 	(40	)	 	—		 	(40	)	
Other	—		 	(6	)	 	—		 	—		 	(6	)	
Net cash flows (used for) from financing activities	(46	)	 	145		 	(243	)	 	477		 	333		
Effect of foreign currency rate changes on cash and cash equivalents	—		 	—		 	(95	)	 	—		 	(95	)	
Net increase (decrease) in cash	2		 	365		 	(551	)	 	477		 	293		
Cash – beginning of period (1)	—		 	1		 	1,209		 	(555	)	 	655		
Cash – end of period (1)	$	2		 	$	366		 	$	658		 	$	(78	)	 	$	948		
		
(1)  	ACE maintains two notional multicurrency cash pools (Pools) with a third-party bank. Various ACE entities participate in one or the other of the Pools, pursuant to which credit and debit balances in individual ACE accounts are translated daily into a single currency and pooled on a notional basis. Individual ACE entities are permitted to overdraw on their individual accounts provided the overall Pool balances do not fall below zero. At March 31, 2015 and December 31, 2014, the cash balance of one or more entities was negative; however, the overall Pool balances were positive.	

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued (Unaudited)
ACE Limited and Subsidiaries

Condensed Consolidating Statement of Cash Flows

																				
Three Months Ended March 31, 2014	ACE
Limited
(Parent
Guarantor)		 	ACE INA
Holdings Inc.
(Subsidiary
Issuer)		 	Other ACE
Limited
Subsidiaries		 	Consolidating
Adjustments and Eliminations		 	ACE
Limited
Consolidated		
(in millions of U.S. dollars)			 			 			 			 			
Net cash flows from (used for) operating activities	$	57		 	$	(13	)	 	$	1,206		 	$	—		 	$	1,250		
Cash flows from investing activities	 	 	 	 	 	 	 	 	 	
Purchases of fixed maturities available for sale	—		 	—		 	(3,522	)	 	—		 	(3,522	)	
Purchases of fixed maturities held to maturity	—		 	—		 	(30	)	 	—		 	(30	)	
Purchases of equity securities	—		 	—		 	(37	)	 	—		 	(37	)	
Sales of fixed maturities available for sale	—		 	—		 	2,208		 	—		 	2,208		
Sales of equity securities	—		 	—		 	27		 	—		 	27		
Maturities and redemptions of fixed maturities available for sale	—		 	—		 	1,550		 	—		 	1,550		
Maturities and redemptions of fixed maturities held to maturity	—		 	—		 	212		 	—		 	212		
Net change in short-term investments	—		 	(8	)	 	(757	)	 	—		 	(765	)	
Net derivative instruments settlements	—		 	(9	)	 	(87	)	 	—		 	(96	)	
Other	—		 	(3	)	 	(47	)	 	—		 	(50	)	
Net cash flows used for investing activities	—		 	(20	)	 	(483	)	 	—		 	(503	)	
Cash flows from financing activities	 	 	 	 	 	 	 	 	 	
Dividends paid on Common Shares	(214	)	 	—		 	—		 	—		 	(214	)	
Common Shares repurchased	—		 	—		 	(335	)	 	—		 	(335	)	
Proceeds from issuance of short-term debt	—		 	—		 	426		 	—		 	426		
Repayment of short-term debt	—		 	—		 	(426	)	 	—		 	(426	)	
Proceeds from share-based compensation plans, including windfall tax benefits	—		 	—		 	40		 	—		 	40		
Advances (to) from affiliates	367		 	(367	)	 	—		 	—		 	—		
Net proceeds from (payments to) affiliated notional cash pooling programs (1)	(185	)	 	385		 	—		 	(200	)	 	—		
Policyholder contract deposits	—		 	—		 	51		 	—		 	51		
Policyholder contract withdrawals	—		 	—		 	(14	)	 	—		 	(14	)	
Net cash flows (used for) from financing activities	(32	)	 	18		 	(258	)	 	(200	)	 	(472	)	
Effect of foreign currency rate changes on cash and cash equivalents	—		 	—		 	(7	)	 	—		 	(7	)	
Net increase (decrease) in cash	25		 	(15	)	 	458		 	(200	)	 	268		
Cash – beginning of period (1)	—		 	16		 	748		 	(185	)	 	579		
Cash – end of period (1)	$	25		 	$	1		 	$	1,206		 	$	(385	)	 	$	847		
		
(1)  	ACE maintains two notional multicurrency cash pools (Pools) with a third-party bank. Various ACE entities participate in one or the other of the Pools, pursuant to which credit and debit balances in individual ACE accounts are translated daily into a single currency and pooled on a notional basis. Individual ACE entities are permitted to overdraw on their individual accounts provided the overall Pool balances do not fall below zero. At March 31, 2014 and December 31, 2013, the cash balance of one or more entities was negative; however, the overall Pool balances were positive.	

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ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following is a discussion of our results of operations, financial condition, and liquidity and capital resources as of and for the three months ended March 31, 2015 .

All comparisons in this discussion are to the corresponding prior year periods unless otherwise indicated.

Our results of operations and cash flows for any interim period are not necessarily indicative of our results for the full year. This discussion should be read in conjunction with our consolidated financial statements and related notes and our Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2014 ( 2014 Form 10-K).

Other Information
We routinely post important information for investors on our website (www.acegroup.com) under the Investor Information section. We use this website as a means of disclosing material, non-public information and for complying with our disclosure obligations under Securities and Exchange Commission (SEC) Regulation FD (Fair Disclosure). Accordingly, investors should monitor the Investor Information portion of our website, in addition to following our press releases, SEC filings, public conference calls, and webcasts. The information contained on, or that may be accessed through, our website is not incorporated by reference into, and is not a part of, this report.

		
MD&A Index	Page	
Forward-Looking Statements	36	
Overview	38	
Financial Highlights	38	
Consolidated Operating Results	39	
Prior Period Development	42	
Segment Operating Results	44	
Other Income and Expense Items	51	
Net Investment Income	52	
Net Realized and Unrealized Gains (Losses)	53	
Investments	53	
Critical Accounting Estimates	57	
Reinsurance Recoverable on Ceded Reinsurance	57	
Unpaid Losses and Loss Expenses	57	
Asbestos and Environmental (A&E)	58	
Fair Value Measurements	58	
Assumed Reinsurance Programs Involving Minimum Benefit Guarantees under Variable Annuity Contracts	58	
Catastrophe Management	60	
Natural Catastrophe Property Reinsurance Program	60	
Crop Insurance	61	
Liquidity	62	
Capital Resources	63	

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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, 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;	
		
•	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 and their effects on our business operations and claims activity;	
		
•	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;	
		
•	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;	

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•	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 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 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 ACE or its customers or partners; 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
ACE Limited is the Swiss-incorporated holding company of the ACE Group of Companies. ACE Limited, which is headquartered in Zurich, Switzerland, and its direct and indirect subsidiaries (collectively, the ACE Group of Companies, ACE, we, us, or our) are a global insurance and reinsurance organization, serving the needs of a diverse group of clients worldwide. At March 31, 2015 , we had total assets of $98 billion and shareholders’ equity of $30 billion . ACE opened its first business office in Bermuda, in 1985, and continues to maintain operations in Bermuda.

We operate through five business segments: Insurance – North American P&C, Insurance – North American Agriculture, Insurance – Overseas General, Global Reinsurance, and Life. For more information on our segments refer to “Segment Information” in our 2014 Form 10-K.

We have grown our business through increased premium volume, expansion of product offerings and geographic reach, and acquisitions of other companies. The Insurance – Overseas General segment has recently expanded its operations through the following acquisitions:

•	The large corporate account property and casualty (P&C) insurance business of Itaú Seguros (Itaú Seguros) (October 31, 2014); and	
		
•	The Siam Commercial Samaggi Insurance PCL (Samaggi) (we and our local partner acquired 60.86 percent ownership on April 28, 2014, and subsequently acquired an additional 32.17 percent ownership through a mandatory tender offer, which expired on June 17, 2014).	

The consolidated financial statements include results of acquired businesses from the acquisition dates. Refer to Note 2 to the Consolidated Financial Statements for additional information on our acquisitions.

	

Financial Highlights for the Three Months Ended March 31, 2015

•	Total company net premiums written decreased 2.6 percent primarily reflecting the adverse impact of foreign exchange. On a constant-dollar basis total company net premiums written increased 1.8 percent.	
		
•	The combined ratio was 88.4 percent compared with 88.8 percent in the prior year.	
		
•	The current accident year combined ratio excluding catastrophe losses was 89.3 percent compared with 88.9 percent in the prior year. The prior year ratio benefited by 0.6 percentage points from favorable premium-related items from the prior year that did not repeat totaling $25 million in our Insurance – North American P&C segment.	
		
•	The P&C expense ratio was 31.3 percent compared with 31.1 percent in the prior year.	
		
•	Total pre-tax and after-tax catastrophe losses including reinstatement premiums were $51 million (1.5 percentage points of the combined ratio) and $40 million, respectively, compared with $53 million (1.5 percentage points of the combined ratio) and $43 million, respectively, in the prior year.	
		
•	Favorable prior period development pre-tax and after-tax were $83 million (2.4 percentage points of the combined ratio) and $67 million, respectively, compared with $62 million (1.6 percentage points of the combined ratio) and $63 million, respectively, in the prior year.	
		
•	Underwriting income in our Insurance - Overseas General segment increased $19 million on an as-reported basis, or $33 million on a constant-dollar basis.	
		
•	Operating cash flow was $1.1 billion for the quarter.	
		
•	Net investment income was $551 million compared with $553 million in the prior year. This quarter was adversely impacted by foreign exchange of $7 million.	
		
•	Net income was $681 million compared with $734 million in the prior year.	
		
•	Unfavorable foreign currency movement reduced shareholders' equity by $441 million in the quarter, comprising $410 million of unrealized losses and $31 million of realized losses.	
		
•	Share repurchases totaled $340 million, or approximately 3.0 million shares, in the quarter.	

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Consolidated Operating Results – Three Months Ended March 31, 2015 and 2014

											
 	Three Months Ended	 	 	 	
 	March 31	 	 	% Change		
(in millions of U.S. dollars, except for percentages)	2015		 	2014		 	Q-15 vs.
Q-14		
Net premiums written	$	4,076		 	$	4,185		 	(2.6	)%	
Net premiums earned	3,927		 	3,970		 	(1.1	)%	
Net investment income	551		 	553		 	(0.4	)%	
Net realized gains (losses)	(89	)	 	(104	)	 	(14.4	)%	
Total revenues	4,389		 	4,419		 	(0.7	)%	
Losses and loss expenses	2,122		 	2,161		 	(1.8	)%	
Policy benefits	142		 	114		 	24.6	 %	
Policy acquisition costs	707		 	728		 	(2.9	)%	
Administrative expenses	554		 	535		 	3.6	 %	
Interest expense	68		 	71		 	(4.2	)%	
Other (income) expense	(5	)	 	(17	)	 	(70.6	)%	
Total expenses	3,588		 	3,592		 	(0.1	)%	
Income before income tax	801		 	827		 	(3.1	)%	
Income tax expense	120		 	93		 	29.0	 %	
Net income	$	681		 	$	734		 	(7.2	)%	
NM – not meaningful	 	 	 	 	 	

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The following tables present a breakdown of consolidated net premiums written for the periods indicated:

											
 	Three Months Ended	 	 	 	
 	March 31	 	 	% Change		
(in millions of U.S. dollars, except for percentages)	2015		 	2014		 	Q-15 vs.
Q-14		
Commercial P&C (retail and wholesale)	$	2,011		 	$	2,009		 	0.1	 %	
Personal and small commercial lines	575		 	510		 	12.5	 %	
Reinsurance	273		 	308		 	(11.4	)%	
Property, casualty, and all other	2,859		 	2,827		 	1.1	 %	
Agriculture	88		 	194		 	(54.6	)%	
Personal accident (A&H)	890		 	917		 	(3.0	)%	
Life	239		 	247		 	(3.1	)%	
Total consolidated	$	4,076		 	$	4,185		 	(2.6	)%	
Total consolidated - constant dollars (C$)  (1)	 	 	$	4,004		 	1.8	 %	
 	 	 	 	 	 	
 	2015
% of Total		 	2014
% of Total		 	 	
Commercial P&C (retail and wholesale)	49	%	 	48	%	 	 	
Personal and small commercial lines	14	%	 	12	%	 	 	
Reinsurance	7	%	 	8	%	 	 	
Property, casualty, and all other	70	%	 	68	%	 	 	
Agriculture	2	%	 	4	%	 	 	
Personal accident (A&H)	22	%	 	22	%	 	 	
Life	6	%	 	6	%	 	 	
Total consolidated	100	%	 	100	%	 	 	

(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.	

Net premiums written reflect the premiums we retain after purchasing reinsurance protection. Consolidated net premiums written decreased 2.6 percent for the three months ended March 31, 2015, primarily reflecting the adverse impact of foreign exchange. On a constant-dollar basis, net premiums written increased 1.8 percent, or $72 million, driven by the following:

•	Net premiums written in our Insurance – Overseas General segment increased $177 million in constant dollars reflecting organic growth in our retail operations in personal lines from strong renewal retention and new business writings, and in P&C product lines, driven by new business writings. Included in the increase in net premiums written were contributions from the acquisitions of Itaú Seguros in October 2014 and Samaggi in April 2014, which added $102 million of premiums.	
		
•	Net premiums written in our Insurance – North American P&C segment increased $16 million in constant dollars due to growth from new business written in our Commercial Risk Services (CRS), personal lines divisions and in our wholesale casualty business. This growth was tempered by a modest decline in our ACE USA retail division driven by the cancellation of a large defense base act account in our foreign casualty business unit, partially offset by growth in our risk management, surety and casualty risk businesses due to new business and strong renewals. The prior year was favorably impacted by a total of $25 million of premium-related items that did not repeat, which includes $16 million due to lower excess of loss premiums ceded under our 2014 catastrophe reinsurance program and a $9 million favorable settlement related to prior year state premium assessments.	
		
•	Net premiums written in our Life segment increased $12 million in constant dollars primarily in our Life insurance business in Asia.	
		
•	Net premiums written in our Global Reinsurance segment decreased $27 million in constant dollars primarily due to lower production from competitive market conditions, partially offset by new business written, primarily in our U.S. automobile business.	

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•	Net premiums written in our Insurance – North American Agriculture segment decreased $106 million primarily due to lower premium retention as a result of the premium-sharing formulas with the U.S. government, a positive adjustment in 2014 to the prior year premium estimates and lower commodity prices in 2015.	

Net premiums earned for short-duration contracts, typically P&C contracts, generally reflect the portion of net premiums written that were 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. Net premiums earned decreased 1.1 percent for the three months ended March 31, 2015 primarily reflecting the adverse impact of foreign exchange. On a constant-dollar basis, net premiums earned increased 3.2 percent for the three months ended March 31, 2015, primarily due to the factors described above, partially offset by the impact of the non-renewal of a workers' compensation treaty in our Global Reinsurance segment in the third quarter of 2014, which resulted in a $20 million decrease in net premiums earned in the first quarter of 2015.

In evaluating our segments excluding Life, we use the 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 segment as we do not use these measures to monitor or manage that segment. The combined ratio is determined by adding the loss and loss expense ratio, the policy acquisition cost ratio, and the administrative expense ratio. A combined ratio under 100 percent indicates underwriting income, and a combined ratio exceeding 100 percent indicates underwriting loss.

The following table presents the components of GAAP combined ratio:

						
 	Three Months Ended	 	
 	March 31	 	
 	2015		 	2014		
Loss and loss expense ratio	57.1	%	 	57.7	%	
Policy acquisition cost ratio	17.4	%	 	17.7	%	
Administrative expense ratio	13.9	%	 	13.4	%	
GAAP combined ratio	88.4	%	 	88.8	%	

The following table presents the impact of catastrophe losses and related reinstatement premiums and prior period reserve development on our consolidated loss and loss expense ratio, including losses on crop derivatives: 

						
 	Three Months Ended	 	
 	March 31	 	
 	2015		 	2014		
Loss and loss expense ratio, including losses on crop derivatives (nil in 2015 and $2 million in 2014)	57.1	 %	 	57.7	 %	
Catastrophe losses and related reinstatement premiums	(1.5	)%	 	(1.5	)%	
Prior period development	2.5	 %	 	1.3	 %	
Loss and loss expense ratio, adjusted	58.1	 %	 	57.5	 %	
Total net pre-tax catastrophe losses, excluding related reinstatement premiums, were $ 51 million for the three months ended March 31, 2015 , compared with $53 million in the prior year. Catastrophe losses through March 31, 2015 were primarily related to severe weather-related events in the U.S. and Asia. Catastrophe losses in the prior year were primarily related to severe weather-related events in the U.S. and Japan, and flooding in Europe. The adjusted loss and loss expense ratio increased for the three months ended March 31, 2015 primarily due to a change in the mix of business towards higher loss ratio products, primarily within our risk management business, and higher net premiums earned in the prior year reflecting the non-recurring premium items described above, which reduced the prior year loss ratio in our Insurance – North American P&C segment. Partially offsetting this increase was the non-renewal of the workers' compensation treaty in our Global Reinsurance segment as described above, which had a higher loss ratio.
Prior period development arises from changes to loss estimates recognized in the current year that relate to loss events that occurred in previous calendar years and excludes the effect of losses from the development of earned premium from previous accident years. We experienced net favorable prior period development of $ 83 million and $62 million for the three months ended March 31, 2015 and 2014, respectively. Refer to “Prior Period Development” for additional information.

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Net investment income for the three months ended March 31, 2015 was $551 million compared with $553 million for the prior year. Refer to “Net Investment Income” and “Investments” for additional information.

Policy acquisition costs consist of commissions, premium taxes, and certain underwriting costs related directly to the successful acquisition of a new or renewal insurance contract. Our policy acquisition cost ratio decreased for the three months ended March 31, 2015 primarily due to lower agent profit sharing commission accruals and higher ceded commission benefits on third-party reinsurance in our Insurance – North American Agriculture segment. In addition, the policy acquisition cost ratio decreased due to the normal impact of initial year purchase accounting adjustments related to our acquisitions in our Insurance – Overseas General segment. As a result of purchase accounting requirements, the unearned premiums at the date of purchase related to the businesses acquired are recognized over the remaining coverage period with no expense for the associated historical acquisition costs that were incurred to underwrite those policies.

Our administrative expense ratio increased for the three months ended March 31, 2015 primarily due to increased spending to support growth.

Our effective income tax rate, which we calculate as income tax expense divided by income before income tax, is dependent upon the mix of earnings from different jurisdictions with various tax rates. A change in the geographic mix of earnings would change the effective income tax rate. Our effective income tax rate was 15.0 percent and 11.3 percent for the three months ended March 31, 2015 and 2014, respectively. The increase in effective tax rate was primarily due to a higher percentage of earnings being generated in higher tax paying jurisdictions. The lower tax rates attributed to our foreign operations primarily reflects lower corporate tax rates that prevail outside of the U.S. During the three months ended March 31, 2015, approximately 66 percent of our total pre-tax income was tax effected based on these lower rates. The significant jurisdictions outside of the U.S. include the U.K., Switzerland, and Bermuda with effective federal income tax rates in those countries of 21.0 percent, 7.83 percent, and 0.0 percent, respectively.

Prior Period Development
The following tables summarize (favorable) and adverse prior period development (PPD) by segment. Long-tail lines include lines such as workers' compensation, general liability, and professional liability; while short-tail lines include lines such as most property lines, energy, personal accident, aviation, marine (including associated liability-related exposures) and agriculture. Significant prior period movements by segment, principally driven by reserve reviews completed during each respective period, are discussed in more detail below. The remaining net development for long-tail and short-tail business for each segment comprises numerous favorable and adverse movements across a number of lines and accident years, none of which is significant individually or in the aggregate.

															
Three Months Ended March 31	Long-tail    		 	Short-tail		 	Total		 	% of net
unpaid
reserves (1)		
(in millions of U.S. dollars, except for percentages)			 			 			 			
2015	 	 	 	 	 	 	 	
Insurance – North American P&C	$	(17	)	 	$	(4	)	 	$	(21	)	 	0.1	%	
Insurance – North American Agriculture	—		 	(33	)	 	(33	)	 	5.7	%	
Insurance – Overseas General	—		 	(24	)	 	(24	)	 	0.3	%	
Global Reinsurance	(1	)	 	(4	)	 	(5	)	 	0.3	%	
Total	$	(18	)	 	$	(65	)	 	$	(83	)	 	0.3	%	
2014	 	 	 	 	 	 	 	
Insurance – North American P&C	$	(61	)	 	$	(7	)	 	$	(68	)	 	0.4	%	
Insurance – North American Agriculture	—		 	38		 	38		 	7.5	%	
Insurance – Overseas General	1		 	(24	)	 	(23	)	 	0.3	%	
Global Reinsurance	1		 	(10	)	 	(9	)	 	0.4	%	
Total	$	(59	)	 	$	(3	)	 	$	(62	)	 	0.2	%	
 	 	 	 	 	 	 	 	
(1)  Calculated based on the segment's total beginning of period net unpaid loss and loss expenses reserves.	

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Insurance – North American P&C
For the three months ended March 31, 2015 , net favorable PPD was $21 million, which was the net result of several underlying favorable and adverse movements, primarily related to favorable development of $24 million in our surety business, due to favorable claim emergence from the 2013 accident year.

For the three months ended March 31, 2014 , net favorable PPD was $68 million, which was the net result of several underlying favorable and adverse movements, driven by the following principal changes:

•	Net favorable development of $61 million in long-tail business, primarily from:	

•	Favorable development of $67 million in our excess casualty and umbrella businesses. Resolution in the first quarter of a disputed matter on an individual claim led to a release of $42 million from the 2003 accident year, and lower than expected reported activity across a number of years drove the remaining improvement;	

•	Adverse development of $31 million in our workers’ compensation lines, mainly driven by increased estimates on a number of severe injuries in our construction business from the 2009 and 2012 accident years; and	

•	Favorable development of $26 million in our surety business, primarily from favorable claim emergence from the 2012 accident year.	

Insurance – North American Agriculture
For the three months ended March 31, 2015 , net favorable PPD was $33 million. Actual claim development in the three months ended March 31, 2015 for the 2014 crop year for the Multiple Peril Crop Insurance (MPCI) business was favorable due to better than expected crop yield results in certain states at year-end 2014.

For the three months ended March 31, 2014, net adverse PPD was $38 million. Actual claim development in the three months ended March 31, 2014 for the 2013 crop year for MPCI business was adverse due to worse than expected crop yield results in certain states at year-end 2013.

Insurance – Overseas General
For the three months ended March 31, 2015 and 2014, net favorable PPD was $24 million and $23 million, respectively, which were the net result of several underlying favorable and adverse movements, none of which was significant individually or in the aggregate.

Global Reinsurance
For the three months ended March 31, 2015 and 2014, net favorable PPD was $5 million and $9 million, respectively, which were the net result of several underlying favorable and adverse movements across a number of long-tail and short-tail lines and across a number of treaty years, none of which was significant individually or in the aggregate.

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Segment Operating Results – Three Months Ended March 31, 2015 and 2014
We operate through five business segments: Insurance – North American P&C, Insurance – North American Agriculture, Insurance – Overseas General, Global Reinsurance, and Life. For additional information on our segments refer to “Segment Information” in our 2014 Form 10-K under Item 1. The discussions that follow include tables that show our segment operating results for the three months ended March 31, 2015 and 2014 .

Insurance – North American

Insurance – North American P&C
The Insurance – North American P&C segment comprises our operations in the U.S., Canada, and Bermuda. This segment includes our retail divisions: ACE USA (including ACE Canada), ACE Commercial Risk Services (CRS), and ACE Private Risk Services; our wholesale and specialty divisions: ACE Westchester and ACE Bermuda; and various run-off operations, including Brandywine Holdings Corporation (Brandywine). 

											
 	Three Months Ended	 	 	 	
 	March 31	 	 	% Change		
(in millions of U.S. dollars, except for percentages)	2015		 	2014		 	Q-15 vs.
Q-14		
Net premiums written	$	1,430		 	$	1,418		 	0.8	 %	
Net premiums earned	1,526		 	1,487		 	2.5	 %	
Losses and loss expenses	1,035		 	940		 	10.1	 %	
Policy acquisition costs	161		 	159		 	1.3	 %	
Administrative expenses	171		 	161		 	6.2	 %	
Underwriting income	159		 	227		 	(30.0	)%	
Net investment income	263		 	270		 	(2.6	)%	
Net realized gains (losses)	(6	)	 	(9	)	 	(33.3	)%	
Interest expense	2		 	3		 	(33.3	)%	
Other (income) expense	(7	)	 	(20	)	 	(65.0	)%	
Income tax expense	80		 	83		 	(3.6	)%	
Net income	$	341		 	$	422		 	(19.2	)%	
Loss and loss expense ratio	67.9	%	 	63.2	%	 	 	
Policy acquisition cost ratio	10.5	%	 	10.7	%	 	 	
Administrative expense ratio	11.2	%	 	10.8	%	 	 	
Combined ratio	89.6	%	 	84.7	%	 	 	
Net premiums written increased for the three months ended March 31, 2015 due to growth from new business written in our CRS division as well as growth in our personal lines division, specifically products offered by ACE Private Risk Services, and in our wholesale casualty business. This growth was tempered by a decline in net premiums written in our ACE USA retail division, reflecting the cancellation of a large defense base act account in our foreign casualty business unit, partially offset by growth in our risk management, surety and casualty risk businesses due to new business and strong renewals. The prior year was favorably impacted by a total of $25 million of premium-related items that did not repeat, which includes $16 million due to lower excess of loss premiums ceded under our 2014 catastrophe reinsurance program and a $9 million favorable settlement related to prior year state premium assessments.
Net premiums earned increased for the three months ended March 31, 2015 primarily due to the increase in net premiums written as described above.

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The following tables present a line of business breakdown of Insurance – North American P&C net premiums earned:

											
 	Three Months Ended	 	 	 	
 	March 31	 	 	% Change		
(in millions of U.S. dollars, except for percentages)	2015		 	2014		 	Q-15 vs.
Q-14		
Commercial P&C (retail and wholesale)	$	1,184		 	$	1,170		 	1.2	%	
Personal and small commercial lines	241		 	216		 	11.3	%	
Personal accident (A&H)	101		 	101		 	—		
Net premiums earned	$	1,526		 	$	1,487		 	2.5	%	
 	 	 	 	 	 	
 	2015
% of Total		 	2014
% of Total		 	 		
Commercial P&C (retail and wholesale)	78	%	 	79	%	 	 	
Personal and small commercial lines	16	%	 	14	%	 	 	
Personal accident (A&H)	6	%	 	7	%	 	 	
Net premiums earned	100	%	 	100	%	 	 	
The following table presents the impact of catastrophe losses and related reinstatement premiums and prior period reserve development on our loss and loss expense ratio:

						
 	Three Months Ended	 	
 	March 31	 	
 	2015		 	2014		
Loss and loss expense ratio, as reported	67.9	 %	 	63.2	 %	
Catastrophe losses and related reinstatement premiums	(3.0	)%	 	(2.2	)%	
Prior period development	1.4	 %	 	4.7	 %	
Loss and loss expense ratio, adjusted	66.3	 %	 	65.7	 %	
Net pre-tax catastrophe losses, excluding reinstatement premiums, were $ 45 million for the three months ended March 31, 2015 , compared with $32 million in the prior year. Catastrophe losses through March 31, 2015 and 2014 were primarily from severe weather-related events in the U.S. Net favorable prior period development was $ 21 million for the three months ended March 31, 2015 , compared with $ 68 million in the prior year. Refer to “Prior Period Development” for additional information. The adjusted loss and loss expense ratio increased for the three months ended March 31, 2015 due to a change in the mix of business towards higher loss ratio products, primarily within our risk management business, and higher net premiums earned in the prior year reflecting the non-recurring prior year premium items described above.

The policy acquisition cost ratio decreased slightly for the three months ended March 31, 2015 primarily due to a change in the mix of business towards products with lower acquisition cost ratios, primarily within our risk management business, which generally has lower acquisition costs which favorably impacted our policy acquisition cost ratio.
The administrative expense ratio was higher for the three months ended March 31, 2015, primarily due to an increase in spending to support growth across various businesses, primarily in our U.S. retail and new CRS Micro-business divisions.

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Insurance – North American Agriculture
The Insurance – North American Agriculture segment comprises our North American based businesses that provide a variety of coverages in the U.S. and Canada including crop insurance, primarily MPCI and crop-hail through Rain and Hail, as well as farm and ranch and specialty P&C commercial insurance products and services through our ACE Agribusiness unit.

											
 	Three Months Ended	 	 	 	
 	March 31	 	 	% Change		
(in millions of U.S. dollars, except for percentages)	2015		 	2014		 	Q-15 vs.
Q-14		
Net premiums written	$	88		 	$	194		 	(54.6	)%	
Net premiums earned	64		 	103		 	(37.2	)%	
Losses and loss expenses (1)	22		 	128		 	(82.8	)%	
Policy acquisition costs	(4	)	 	5		 	NM		
Administrative expenses	(1	)	 	1		 	NM		
Underwriting income (loss)	47		 	(31	)	 	NM		
Net investment income	6		 	7		 	(14.3	)%	
Other (income) expense	8		 	8		 	—		
Income tax expense (benefit)	10		 	(7	)	 	NM		
Net income (loss)	$	35		 	$	(25	)	 	NM		
Loss and loss expense ratio	33.3	 %	 	124.6	%	 	 	
Policy acquisition cost ratio	(6.0	)%	 	4.5	%	 	 	
Administrative expense ratio	(0.9	)%	 	1.2	%	 	 	
Combined ratio	26.4	 %	 	130.3	%	 	 	
		
(1)	(Gains) losses on crop derivatives are reclassified from Net realized gains (losses) to Losses and loss expenses for purposes of presenting Insurance – North American Agriculture underwriting income. Refer to Note 7 and Note 10 to the Consolidated Financial Statements for more information on these derivatives.	
Net premiums written decreased for the three months ended March 31, 2015 primarily due to lower premium retention as a result of the premium-sharing formulas with the U.S. government, a positive adjustment in 2014 to the prior year premium estimates and lower commodity prices in 2015. Under the government's crop insurance profit and loss calculation formula, we retained more premiums for the first quarter of 2014 as the 2013 crop year losses were higher.
Net premiums earned decreased for the three months ended March 31, 2015 primarily due to the factors described above.

The following table presents the impact of catastrophe losses and related reinstatement premiums and prior period reserve development on our loss and loss expense ratio:

						
 	Three Months Ended	 	
 	March 31	 	
 	2015		 	2014		
Loss and loss expense ratio, as reported	33.3	 %	 	124.6	 %	
Catastrophe losses and related reinstatement premiums	(1.1	)%	 	(0.7	)%	
Prior period development	51.0	 %	 	(45.6	)%	
Loss and loss expense ratio, adjusted	83.2	 %	 	78.3	 %	

Net pre-tax catastrophe losses, excluding reinstatement premiums, were $1 million for both the three months ended March 31, 2015 and 2014. For the three months ended March 31, 2015, net favorable prior period development was $33 million , which includes a decrease in incurred losses of $36 million for lower than expected MPCI losses for the 2014 crop year, as well as $3 million of unfavorable decrease in net premiums earned related to the government's crop insurance profit and loss calculation formula. For the three months ended March 31, 2014 net unfavorable prior period development was $38 million, which includes an increase in incurred losses of $75 million for higher than expected MPCI losses for the 2013 crop year, as well as $36 million of favorable increase in net premiums earned related to the government's crop insurance profit and loss calculation formula. Refer to “Prior Period Development” for additional information. The adjusted loss and loss expense ratio increased for

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the three months ended March 31, 2015 primarily due to higher loss adjustment expenses reflecting a revision in estimated claim handling costs, partially offset by losses on our crop derivatives of $2 million in the prior year.

The policy acquisition cost ratio decreased for the three months ended March 31, 2015 primarily due to lower agent profit sharing commission accruals and higher ceded commission benefits on third-party reinsurance.

The administrative expense ratio decreased for the three months ended March 31, 2015 due to higher Administrative and Operating expense (A&O) reimbursements on the MPCI business mainly due to additional reimbursements earned for underserved states as defined under the Standard Reinsurance Agreement (SRA) with the federal government related to the 2014 crop year.

Insurance – Overseas General
The Insurance – Overseas General segment comprises ACE International, ACE Global Markets (AGM), and the international supplemental A&H business of Combined Insurance. ACE International comprises our retail commercial P&C, A&H, and personal lines businesses serving territories outside the U.S., Bermuda, and Canada. AGM comprises the segment's London-based wholesale insurance business for excess and surplus lines; this includes Lloyd’s of London Syndicate 2488. The reinsurance operations of AGM are included in the Global Reinsurance segment.

												
 	Three Months Ended	 	 	 	 	
 	March 31	 	 	% Change		 	
(in millions of U.S. dollars, except for percentages)	2015		 	2014		 	Q-15 vs.
Q-14		 	
Net premiums written	$	1,794		 	$	1,771		 	1.3	 %	(1)  	
Net premiums earned	1,637		 	1,612		 	1.6	 %	 	
Losses and loss expenses	814		 	817		 	(0.4	)%	 	
Policy acquisition costs	389		 	386		 	0.8	 %	 	
Administrative expenses	256		 	250		 	2.4	 %	 	
Underwriting income	178		 	159		 	11.9	 %	(2)  	
Net investment income	138		 	132		 	4.5	 %	 	
Net realized gains (losses)	(10	)	 	(10	)	 	—		 	
Interest expense	1		 	1		 	—		 	
Other (income) expense	17		 	(6	)	 	NM		 	
Income tax expense	52		 	37		 	40.5	 %	 	
Net income	$	236		 	$	249		 	(5.2	)%	 	
Loss and loss expense ratio	49.7	%	 	50.7	%	 	 	 	
Policy acquisition cost ratio	23.8	%	 	23.9	%	 	 	 	
Administrative expense ratio	15.6	%	 	15.5	%	 	 	 	
Combined ratio	89.1	%	 	90.1	%	 	 	 	
		
(1)  	For the three months ended March 31, 2015 , net premiums written increased $ 177 million or 11.0% on a constant-dollar basis. Amounts are calculated by translating prior period results using the same local currency rates as the comparable current period. 	
		
(2)  	For the three months ended March 31, 2015 , underwriting income increased $19 million on an as-reported basis, or $33 million on a constant-dollar basis.	

Net premiums written increased for the three months ended March 31, 2015 on a constant-dollar basis reflecting organic growth in our retail operations in personal lines, from strong renewal retention and new business writings in most regions. Growth in P&C product lines was driven by new business writings in Asia. A&H growth in Asia was somewhat offset by declines in Europe and Latin America. Included in the increase in net premiums written were contributions from the acquisitions of Itaú Seguros in October 2014 and Samaggi in April 2014, which added $102 million of premiums. The impact of foreign exchange adversely impacted growth in the quarter on an as reported basis.
Net premiums earned increased for the three months ended March 31, 2015 on a constant-dollar basis as described above.

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Insurance – Overseas General conducts business internationally and in most major foreign currencies. The following tables present a line of business and regional breakdown of Insurance – Overseas General net premiums earned:

																								
 	Three Months Ended March 31	 	 	% Change	 	
(in millions of U.S. dollars, except for percentages)	2015		 	2015
% of Total		 	2014		 	2014
% of Total		 	C$ (1)
2014		 	Q-15 vs.
Q-14		 	C$ (1)
Q-15 vs.
Q-14		
Line of Business	 	 	 	 	 	 	 	 	 	 	 	 	 	
Commercial P&C (retail and wholesale)	$	779		 	48	%	 	$	763		 	47	%	 	$	707		 	2.1	 %	 	10.2	%	
Personal and small commercial lines	331		 	20	%	 	299		 	19	%	 	266		 	10.7	 %	 	24.4	%	
Personal accident (A&H)	527		 	32	%	 	550		 	34	%	 	499		 	(4.2	)%	 	5.6	%	
Net premiums earned	$	1,637		 	100	%	 	$	1,612		 	100	%	 	$	1,472		 	1.6	 %	 	11.2	%	
Region	 	 	 	 	 	 	 	 	 	 	 	 	 	
Europe / U.K. (2)	$	694		 	42	%	 	$	752		 	46	%	 	$	682		 	(7.7	)%	 	1.8	%	
Asia Pacific	407		 	25	%	 	349		 	22	%	 	332		 	16.6	 %	 	22.6	%	
Far East	94		 	6	%	 	107		 	7	%	 	93		 	(12.1	)%	 	1.1	%	
Latin America	442		 	27	%	 	404		 	25	%	 	365		 	9.4	 %	 	21.1	%	
Net premiums earned	$	1,637		 	100	%	 	$	1,612		 	100	%	 	$	1,472		 	1.6	 %	 	11.2	%	
(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. 
(2)  Europe/U.K. includes Eurasia and Africa region.

The following table presents the impact of catastrophe losses and related reinstatement premiums and prior period reserve development on our loss and loss expense ratio: 

						
 	Three Months Ended	 	
 	March 31	 	
 	2015		 	2014		
Loss and loss expense ratio, as reported	49.7	 %	 	50.7	 %	
Catastrophe losses and related reinstatement premiums	(0.3	)%	 	(1.1	)%	
Prior period development	1.5	 %	 	1.5	 %	
Loss and loss expense ratio, adjusted	50.9	 %	 	51.1	 %	

Net pre-tax catastrophe losses, excluding reinstatement premiums, were $ 5 million for the three months ended March 31, 2015 , compared with $17 million in the prior year. Catastrophe losses through March 31, 2015 were primarily related to severe storms in Asia. Catastrophe losses through March 31, 2014 were primarily related to flooding in Europe and severe storms in Japan. Net favorable prior period development was $24 million for the three months ended March 31, 2015 , compared with $23 million in the prior year. Refer to “Prior Period Development” for additional information. The adjusted loss and loss expense ratio decreased for the three months ended March 31, 2015 due primarily to underwriting actions on less profitable accounts, which improved loss ratios on several portfolios.

The policy acquisition cost ratio decreased for the three months ended March 31, 2015 primarily due to the normal impact of initial year purchase accounting adjustments related to our acquisitions. As a result of purchase accounting requirements, the unearned premiums at the date of purchase related to the businesses acquired are recognized over the remaining coverage period with no expense for the associated historical acquisition costs that were incurred to underwrite those policies.
The administrative expense ratio increased slightly for the three months ended March 31, 2015 .

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Global Reinsurance

The Global Reinsurance segment represents our reinsurance operations comprising ACE Tempest Re Bermuda, ACE Tempest Re USA, ACE Tempest Re International, and ACE Tempest Re Canada. Global Reinsurance markets its reinsurance products worldwide under the ACE Tempest Re brand name and provides a broad range of coverage to a diverse array of primary P&C companies.

											
 	Three Months Ended	 	 	 	
 	March 31	 	 	% Change		
(in millions of U.S. dollars, except for percentages)	2015		 	2014		 	Q-15 vs.
Q-14		
Net premiums written	$	273		 	$	308		 	(11.4	)%	
Net premiums earned	226		 	284		 	(20.6	)%	
Losses and loss expenses	99		 	126		 	(21.4	)%	
Policy acquisition costs	54		 	67		 	(19.4	)%	
Administrative expenses	12		 	14		 	(14.3	)%	
Underwriting income	61		 	77		 	(20.8	)%	
Net investment income	75		 	77		 	(2.6	)%	
Net realized gains (losses)	(11	)	 	(8	)	 	37.5	 %	
Interest expense	1		 	1		 	—		
Other (income) expense	(5	)	 	(19	)	 	(73.7	)%	
Income tax expense	8		 	10		 	(20.0	)%	
Net income	$	121		 	$	154		 	(21.4	)%	
Loss and loss expense ratio	43.6	%	 	44.4	%	 	 	
Policy acquisition cost ratio	24.0	%	 	23.5	%	 	 	
Administrative expense ratio	5.6	%	 	5.0	%	 	 	
Combined ratio	73.2	%	 	72.9	%	 	 	

Net premiums written declined for the three months ended March 31, 2015 as we maintained underwriting discipline in an environment of flat to declining rates and increasing competition, partially offset by new business written, primarily in our U.S. automobile business.
 
Net premiums earned decreased for the three months ended March 31, 2015 primarily due to the decrease in net premiums written as described above and the impact of the non-renewal of a workers' compensation treaty in the third quarter of 2014, which resulted in a $20 million decrease in net premiums earned in the first quarter of 2015.
The following tables present a line of business breakdown of Global Reinsurance net premiums earned:

											
 	Three Months Ended	 	 	 	
 	March 31	 	 	% Change		
(in millions of U.S. dollars, except for percentages)	2015		 	2014		 	Q-15 vs.
Q-14		
Property and all other	$	60		 	$	84		 	(28.6	)%	
Casualty	109		 	130		 	(16.2	)%	
Property catastrophe	57		 	70		 	(18.6	)%	
Net premiums earned	$	226		 	$	284		 	(20.6	)%	
 	 	 	 	 	 	
 	2015
% of Total		 	2014
% of Total		 	 		
Property and all other	27	%	 	29	%	 	 	
Casualty	48	%	 	46	%	 	 	
Property catastrophe	25	%	 	25	%	 	 	
Net premiums earned	100	%	 	100	%	 	 	

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The following table presents the impact of catastrophe losses and related reinstatement premiums and prior period reserve development on our loss and loss expense ratio:

						
 	Three Months Ended	 	
 	March 31	 	
 	2015		 	2014		
Loss and loss expense ratio, as reported	43.6	%	 	44.4	 %	
Catastrophe losses and related reinstatement premiums	—		 	(1.2	)%	
Prior period development	2.4	%	 	3.3	 %	
Loss and loss expense ratio, adjusted	46.0	%	 	46.5	 %	
Net pre-tax catastrophe losses, excluding reinstatement premiums, were nil for the three months ended March 31, 2015 , compared with $3 million in the prior year. Catastrophe losses through March 31, 2014 were related to severe storms in Japan. Net favorable prior period development was $5 million for the three months ended March 31, 2015 , compared with $9 million in the prior year. Refer to “Prior Period Development” for additional information. The adjusted loss and loss expense ratio decreased for the three months ended March 31, 2015 primarily due to the non-renewal of the workers' compensation treaty noted above, which had a higher loss ratio.

The policy acquisition cost ratio increased for the three months ended March 31, 2015 primarily due to the impact of the non-renewal of the workers' compensation treaty noted above, which incurred no acquisition costs. Partially offsetting this increase was a change in the mix of business towards products that have a lower policy acquisition cost ratio.

The administrative expense ratio increased for the three months ended March 31, 2015 primarily from lower net premiums earned including the non-renewal of the workers' compensation treaty noted above, which did not generate administrative expenses, partially offset by lower administrative expenses in the quarter.

Life
The Life segment includes our international life operations (ACE Life), ACE Tempest Life Re (ACE Life Re), and the North American supplemental A&H and life business of Combined Insurance. We assess the performance of our life business based on Life underwriting income, which includes Net investment income and (Gains) losses from fair value changes in separate account assets that do not qualify for separate account reporting under GAAP.

												
 	Three Months Ended	 	 	 	 	
 	March 31	 	 	% Change		 	
(in millions of U.S. dollars, except for percentages)	2015		 	2014		 	Q-15 vs.
Q-14		 	
Net premiums written	$	491		 	$	494		 	(0.6	)%	(1)  	
Net premiums earned	474		 	484		 	(1.9	)%	 	
Losses and loss expenses	152		 	151		 	0.7	 %	 	
Policy benefits	142		 	114		 	24.6	 %	 	
(Gains) losses from fair value changes in separate account assets (2)	(11	)	 	6		 	NM		 	
Policy acquisition costs	107		 	111		 	(3.6	)%	 	
Administrative expenses	73		 	68		 	7.4	 %	 	
Net investment income	66		 	64		 	3.1	 %	 	
Life underwriting income	77		 	98		 	(21.4	)%	 	
Net realized gains (losses)	(59	)	 	(76	)	 	 (22.4)%		 	
Interest expense	1		 	3		 	(66.7	)%	 	
Other (income) expense (2)	(12	)	 	7		 	NM		 	
Income tax expense	9		 	10		 	(10.0	)%	 	
Net income	$	20		 	$	2		 	NM		 	
		
(1)	For the three months ended March 31, 2015 , net premiums written increased $12 million or 2.4% on a constant-dollar basis. Amounts are calculated by translating prior period results using the same local currency rates as the comparable current period.	
		
(2)  	(Gains) losses from fair value changes in separate account assets that do not qualify for separate account reporting under GAAP are reclassified from Other (income) expense for purposes of presenting Life underwriting income.	

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The following table presents a line of business breakdown of Life net premiums written and deposits collected on universal life and investment contracts: 

											
 	Three Months Ended	 	 	 	
 	March 31	 	 	% Change		
(in millions of U.S. dollars, except for percentages)	2015		 	2014		 	Q-15 vs.
Q-14		
A&H  (1)	$	252		 	$	247		 	1.9	 %	
Life insurance	178		 	180		 	(1.0	)%	
Life reinsurance	61		 	67		 	(8.9	)%	
Net premiums written (excludes deposits below)	$	491		 	$	494		 	(0.6	)%	
 	 	 	 	 	 	
Deposits collected on universal life and investment contracts	$	209		 	$	162		 	29.0	 %	
(1) Includes the North American supplemental A&H and life business of Combined Insurance.
Life net premiums written remained relatively flat for the quarter as growth in this business was offset by the negative impact of foreign exchange. On a constant-dollar basis, life net premiums written increased 2.4 percent for the quarter. A&H net premiums written increased due to growth in our core distribution channels, primarily Combined Insurance's supplemental A&H individual and group sales. Our life insurance business grew primarily in Asia. Our life reinsurance business continues to decline as there is no new life reinsurance business currently being written.
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 key to our efforts to grow our business. Although life deposits do not significantly affect current period income from operations, they are an important indicator of growth. Life deposits collected for the three months ended March 31, 2015 increased compared to prior year due to growth in our Asian markets.
Net realized gains (losses), which are excluded from Life underwriting income, relate primarily to the change in the net fair value of reported GLB reinsurance liabilities and changes in the fair value of derivatives used to partially offset the risk in the variable annuity guarantee portfolio. During the three months ended March 31, 2015 realized losses of $45 million were associated with a net increase in the value of GLB liabilities; this increase was primarily due to lower interest rates and the unfavorable impact of discounting future claims for one fewer quarter, partially offset by rising global equity levels. In addition, we experienced realized losses of $12 million for the three months ended March 31, 2015 due to a decrease in the value of the derivative instruments, which decrease in value when the S&P 500 index increases.

	
Other Income and Expense Items	

								
 	Three Months Ended	 	
 	March 31	 	
(in millions of U. S. dollars)	2015		 	2014		
Amortization of intangible assets	$	30		 	$	21		
Equity in net (income) loss of partially-owned entities	(33	)	 	(55	)	
(Gains) losses from fair value changes in separate account assets	(11	)	 	6		
Federal excise and capital taxes	3		 	4		
Acquisition-related costs	2		 	4		
Other	4		 	3		
Other (income) expense	$	(5	)	 	$	(17	)	

Other (income) expense includes Amortization of intangible assets, which is higher in 2015 due primarily to the acquisitions of Itaú Seguros and Samaggi. Equity in net (income) loss of partially-owned entities includes our share of net (income) loss related to investment funds, limited partnerships, partially-owned investment companies, and partially-owned insurance companies. Also included in Other (income) 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) expense as these are considered capital transactions and are excluded from underwriting results.

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The following table presents, as of March 31, 2015 , the estimated pre-tax amortization expense related to intangible assets for the second through fourth quarters of 2015 and the next five years. On April 1, 2015, we completed the acquisition of the Fireman's Fund Insurance Company high net worth personal lines insurance business (Fireman's Fund). The additional expected amortization expense, not included in the table below, related to Fireman's Fund is $25 million for each of the second through fourth quarters of 2015.

				
For the Year Ending December 31
(in millions of U.S. dollars)	Amortization of intangible assets		
Second quarter of 2015	$	24		
Third quarter of 2015	21		
Fourth quarter of 2015	20		
2016	71		
2017	64		
2018	58		
2019	53		
2020	49		
Total	$	360		

	
	
Net Investment Income	

								
 	Three Months Ended	 	
 	March 31	 	
(in millions of U.S. dollars)	2015		 	2014		
Fixed maturities	$	542		 	$	544		
Short-term investments	13		 	8		
Equity securities	4		 	9		
Other investments	21		 	20		
Gross investment income	580		 	581		
Investment expenses	(29	)	 	(28	)	
Net investment income	$	551		 	$	553		

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 slightly for the three months ended March 31, 2015 , compared with the prior year. The decrease in net investment income was primarily due to the negative impact of foreign exchange and lower call activity in our corporate bond portfolio, partially offset by a higher overall invested asset base.

The investment portfolio’s average market yield on fixed maturities was 2.6 percent and 2.8 percent at March 31, 2015 and 2014 , respectively. Average market yield on fixed maturities represents the weighted average yield to maturity of our fixed income portfolio based on the market prices of the holdings at that date.

The 2.1 percent yield on short-term investments for the three months ended March 31, 2015 reflects the global nature of our insurance operations. For example, yields on short-term investments in Brazil, Indonesia, China, and Mexico range from 3.0 percent to 12.8 percent .

The 3.3 percent and 4.2 percent yield on our equity securities portfolio for the three months ended March 31, 2015 and 2014, respectively, reflects the yield on a global high dividend equity portfolio. The prior year also included dividends from an emerging debt portfolio, which was a mutual fund classified as equity. During the third quarter of 2014, however, we elected to exchange our interest in the emerging debt portfolio for direct ownership of certain of the underlying fixed maturities, and the remainder in cash. The emerging debt portfolio and the preferred equity securities represented 73 percent of the gross equity securities investment income for the three months ended March 31, 2014.

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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.

The effect of market movements on our available for sale investment portfolio impacts Net income (through Net realized gains (losses)) when securities are sold or when we record an Other-than-temporary impairment (OTTI) charge in Net income. For a discussion related to how we assess OTTI for all of our investments, including credit-related OTTI, and the related impact on Net income, refer to Note 3 d) to the Consolidated Financial Statements. Additionally, Net income is impacted through the reporting of changes in the fair value of 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 translation adjustment, and unrealized pension liability adjustment, are reported as separate components of Accumulated other comprehensive income in Shareholders’ equity in the consolidated balance sheets.

The following table presents our net realized and unrealized gains (losses): 

																								
 	Three Months Ended March 31, 2015	 	 	Three Months Ended March 31, 2014	 	
(in millions of U.S. dollars)	Net
Realized
Gains
(Losses)  (1)		 	Net
Unrealized
Gains
(Losses)		 	Net
Impact		 	Net
Realized
Gains
(Losses) (1)		 	Net
Unrealized
Gains
(Losses)		 	Net
Impact		
Fixed maturities	$	(4	)	 	$	438		 	$	434		 	$	11		 	$	461		 	$	472		
Fixed income derivatives	1		 	—		 	1		 	(25	)	 	—		 	(25	)	
Public equity	1		 	18		 	19		 	(5	)	 	10		 	5		
Private equity	—		 	(12	)	 	(12	)	 	—		 	42		 	42		
Total investment portfolio	(2	)	 	444		 	442		 	(19	)	 	513		 	494		
Variable annuity reinsurance derivative transactions, net of applicable hedges	(57	)	 	—		 	(57	)	 	(67	)	 	—		 	(67	)	
Other derivatives	—		 	—		 	—		 	(2	)	 	—		 	(2	)	
Foreign exchange	(31	)	 	(421	)	 	(452	)	 	(9	)	 	(33	)	 	(42	)	
Other	1		 	13		 	14		 	(7	)	 	(8	)	 	(15	)	
Net gains (losses) before tax	(89	)	 	36		 	(53	)	 	(104	)	 	472		 	368		
Income tax expense (benefit)	1		 	75		 	76		 	(8	)	 	98		 	90		
Net gains (losses)	$	(90	)	 	$	(39	)	 	$	(129	)	 	$	(96	)	 	$	374		 	$	278		
		
(1)  	For the three months ended March 31, 2015 , other-than-temporary impairments included $13 million for fixed maturities. For the three months ended March 31, 2014 , other-than-temporary impairments included $5 million for fixed maturities and $6 million for public equity.	

At March 31, 2015 , our investment portfolios held by U.S. legal entities included approximately $ 18 million of gross unrealized losses on fixed income investments. Our tax planning strategy related to these losses is based on our view that we will hold these fixed income investments until they recover their cost. As such, we have recognized a deferred tax asset of approximately $ 6 million related to these fixed income investments. This strategy allows us to recognize the associated deferred tax asset related to these fixed income investments as we do not believe these losses will ever be realized.

	
 	
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 or collateralized loan obligations in our investment portfolio, and we provide no credit default protection. We have long-standing global credit limits for our entire portfolio across the organization. Exposures are aggregated, monitored, and actively managed by our Global Credit Committee, comprising senior executives, including our Chief Financial Officer, our Chief Risk Officer, our Chief Investment Officer, and our Treasurer. We also

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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 3.9 years and 4.0 years at March 31, 2015 and December 31, 2014 , respectively. We estimate that a 100 basis point (bps) increase in interest rates would reduce the valuation of our fixed income portfolio by approximately $2.3 billion at March 31, 2015 .

The following table shows the fair value and cost/amortized cost of our invested assets:

																
 	March 31, 2015	 	 	December 31, 2014	 	
(in millions of U.S. dollars)	Fair
Value		 	Cost/
Amortized
Cost		 	Fair
Value		 	Cost/
Amortized
Cost		
Fixed maturities available for sale	$	50,410		 	$	48,384		 	$	49,395		 	$	47,826		
Fixed maturities held to maturity	7,307		 	6,982		 	7,589		 	7,331		
Short-term investments	2,536		 	2,536		 	2,322		 	2,322		
 	60,253		 	57,902		 	59,306		 	57,479		
Equity securities	536		 	447		 	510		 	440		
Other investments	3,430		 	3,096		 	3,346		 	2,999		
Total investments	$	64,219		 	$	61,445		 	$	63,162		 	$	60,918		

The fair value of our total investments increased $1.1 billion during the three months ended March 31, 2015 , primarily due to the investing of operating cash flows and proceeds from a debt issuance, partially offset by the impact of unfavorable foreign exchange.
The following tables present the market value of our fixed maturities and short-term investments at March 31, 2015 and December 31, 2014 . The first table lists investments according to type and second according to S&P credit rating: 

														
 	March 31, 2015	 	 	December 31, 2014	 	
(in millions of U.S. dollars, except for percentages)	Market
Value		 	% of Total		 	Market
Value		 	% of Total		
Treasury	$	2,448		 	4	%	 	$	2,448		 	4	%	
Agency	1,221		 	2	%	 	1,222		 	2	%	
Corporate and asset-backed securities	20,370		 	34	%	 	19,854		 	34	%	
Mortgage-backed securities	12,791		 	21	%	 	12,325		 	21	%	
Municipal	5,067		 	9	%	 	4,930		 	8	%	
Non-U.S.	15,820		 	26	%	 	16,205		 	27	%	
Short-term investments	2,536		 	4	%	 	2,322		 	4	%	
Total	$	60,253		 	100	%	 	$	59,306		 	100	%	
AAA	$	9,386		 	16	%	 	$	8,943		 	15	%	
AA	21,760		 	36	%	 	21,589		 	36	%	
A	11,712		 	19	%	 	11,625		 	20	%	
BBB	8,789		 	15	%	 	8,690		 	15	%	
BB	4,377		 	7	%	 	4,372		 	7	%	
B	4,054		 	7	%	 	3,916		 	7	%	
Other	175		 	—	%	 	171		 	—	%	
Total	$	60,253		 	100	%	 	$	59,306		 	100	%	

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Corporate and asset-backed securities
The following table presents our 10 largest global exposures to corporate bonds by market value at March 31, 2015 :  

				
(in millions of U.S. dollars)	Market Value		
JP Morgan Chase & Co	$	492		
General Electric Co	443		
Goldman Sachs Group Inc	344		
Wells Fargo & Co	266		
HSBC Holdings Plc	252		
Bank of America Corp	246		
Verizon Communications Inc	237		
Morgan Stanley	234		
AT&T Inc	215		
Citigroup Inc	215		

Mortgage-backed securities

																												
 	S&P Credit Rating	 	 	Market
 Value		 	Amortized Cost		
March 31, 2015 (in millions of U.S. dollars)	AAA		 	AA		 	A		 	BBB		 	BB and
below		 	Total		 	Total		
Agency residential mortgage-backed (RMBS)	$	—		 	$	10,524		 	$	—		 	$	—		 	$	—		 	$	10,524		 	$	10,146		
Non-agency RMBS	30		 	5		 	16		 	11		 	14		 	76		 	75		
Commercial mortgage-backed	2,163		 	14		 	11		 	3		 	—		 	2,191		 	2,145		
Total mortgage-backed securities	$	2,193		 	$	10,543		 	$	27		 	$	14		 	$	14		 	$	12,791		 	$	12,366		

Municipal
As part of our overall investment strategy, we may invest in states, municipalities, and other political subdivisions fixed maturity securities (Municipal). We apply the same investment selection process described previously to our Municipal investments. The portfolio is highly diversified primarily in state general obligation bonds and essential service revenue bonds including education and utilities (water, power, and sewers).

Non-U.S.
Our exposure to the Euro results primarily from ACE European Group which is headquartered in London and offers a broad range of coverages throughout the European Union, Central, and Eastern Europe. ACE primarily invests in Euro denominated investments to support its local currency insurance obligations and required capital levels. ACE’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 53 percent of our holdings are rated AAA or guaranteed by governments or quasi-government agencies. Within the context of these investment portfolios, our government and corporate bond holdings are highly diversified across industries and geographies. Issuer limits are based on credit rating (AA— two percent, A— one percent, BBB— 0.5 percent of the total portfolio) and are monitored daily via an internal compliance system. Because of this investment approach we do not have a direct exposure to troubled sovereign borrowers in Europe. 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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The following table summarizes the market value and amortized cost of our non-U.S. fixed income portfolio by country/sovereign for non-U.S. government securities at March 31, 2015 : 

								
(in millions of U.S. dollars)	Market Value		 	Amortized Cost		
United Kingdom	$	1,063		 	$	1,034		
Republic of Korea	822		 	709		
Federative Republic of Brazil	556		 	560		
United Mexican States	500		 	497		
Canada	455		 	435		
Kingdom of Thailand	435		 	413		
Province of Ontario	362		 	339		
Japan	257		 	257		
Province of Quebec	257		 	238		
Australia	183		 	162		
Other Non-U.S. Government Securities (1)	2,665		 	2,504		
Total	$	7,555		 	$	7,148		
		
(1)  	There are no investments in Portugal, Ireland, Italy, Greece or Spain.	

The following table summarizes the market value and amortized cost of our non-U.S. fixed income portfolio by country/sovereign for non-U.S. corporate securities at March 31, 2015 : 

								
(in millions of U.S. dollars)	Market Value		 	Amortized Cost		
United Kingdom	$	1,545		 	$	1,448		
Canada	1,034		 	990		
United States (1)	620		 	597		
Australia	547		 	530		
Netherlands	526		 	498		
France	517		 	492		
Germany	373		 	349		
Switzerland	306		 	294		
China	261		 	252		
Euro Supranational	251		 	239		
Other Non-U.S. Corporate Securities	2,285		 	2,241		
Total	$	8,265		 	$	7,930		
(1) The countries that are listed in the non-U.S. corporate fixed income portfolio above represent the ultimate parent company's country of risk. Non-U.S. corporate securities could be issued by foreign subsidiaries of U.S. corporations.

Below-investment grade corporate fixed income portfolio
Below-investment grade securities have different characteristics than investment grade corporate debt securities. Risk of loss from default by the borrower is greater with below-investment grade securities. Below-investment grade securities are generally unsecured and are often subordinated to other creditors of the issuer. Also, issuers of below-investment grade securities usually have higher levels of debt and are more sensitive to adverse economic conditions, such as recession or increasing interest rates, than investment grade issuers. At March 31, 2015 , our corporate fixed income investment portfolio included below-investment grade and non-rated securities which, in total, comprised approximately 13 percent of our fixed income portfolio. Our below-investment grade and non-rated portfolio includes over 1,200 issuers, with the greatest single exposure being $96 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. Six 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

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default experience. Holdings are highly diversified across industries and subject to a 1.5 percent issuer limit as a percentage of high-yield allocation. We monitor position limits daily through an internal compliance system. Derivative and structured securities (e.g., credit default swaps and collateralized loan obligations) are not permitted in the high-yield portfolio.

	
 	
Critical Accounting Estimates
As of March 31, 2015 , 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 2014 Form 10-K.

Reinsurance recoverable on ceded reinsurance

								
 	March 31		 	December 31		
(in millions of U.S. dollars)	2015		 	2014		
Reinsurance recoverable on unpaid losses and loss expenses (1)	$	10,987		 	$	11,307		
Reinsurance recoverable on paid losses and loss expenses   (1)	601		 	685		
Net reinsurance recoverable on losses and loss expenses	$	11,588		 	$	11,992		
Reinsurance recoverable on policy benefits	$	215		 	$	217		
		
(1)  	Net of provision for uncollectible reinsurance	

We evaluate the financial condition of our reinsurers and potential reinsurers on a regular basis and also monitor concentrations of credit risk with reinsurers. The provision for uncollectible reinsurance is required principally due to the potential failure of reinsurers to indemnify us, primarily because of disputes under reinsurance contracts and insolvencies. The provision for uncollectible reinsurance is based on a default analysis applied to gross reinsurance recoverables, net of approximately $ 2.4 billion of collateral at both March 31, 2015 and December 31, 2014 . The decrease in net reinsurance recoverable on losses and loss expenses was primarily due to the impact of unfavorable foreign exchange, crop activity, and favorable PPD.

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 that are discounted in statutory filings, our loss reserves are not discounted for the time value of money.

The following table presents a roll-forward of our unpaid losses and loss expenses:  

												
(in millions of U.S. dollars)	Gross
Losses		 	Reinsurance
Recoverable (1)		 	Net
Losses		
Balance at December 31, 2014	$	38,315		 	$	11,307		 	$	27,008		
Losses and loss expenses incurred	2,743		 	621		 	2,122		
Losses and loss expenses paid	(3,062	)	 	(744	)	 	(2,318	)	
Other (including foreign exchange translation)	(670	)	 	(197	)	 	(473	)	
Balance at March 31, 2015	$	37,326		 	$	10,987		 	$	26,339		
		
(1)  	Net of provision 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).

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The following table presents our total reserves segregated between case reserves (including loss expense reserves) and IBNR reserves: 

																								
 	March 31, 2015	 	 	December 31, 2014	 	
(in millions of U.S. dollars)	Gross		 	Ceded		 	Net		 	Gross		 	Ceded		 	Net		
Case reserves	$	16,564		 	$	5,212		 	$	11,352		 	$	17,723		 	$	5,667		 	$	12,056		
IBNR reserves	20,762		 	5,775		 	14,987		 	20,592		 	5,640		 	14,952		
Total	$	37,326		 	$	10,987		 	$	26,339		 	$	38,315		 	$	11,307		 	$	27,008		

Asbestos and Environmental (A&E)
There was no unexpected A&E reserve activity during the three months ended March 31, 2015 . Refer to our 2014 Form 10-K for additional information on A&E.

Fair value measurements
Refer to Note 4 to the Consolidated Financial Statements for information on our fair value measurements.

Assumed reinsurance programs involving minimum benefit guarantees under variable annuity contracts
ACE reinsures various death and living benefit guarantees associated with variable annuities issued primarily in the United States and Japan.

We ceased writing this business in 2007. Guarantees which are payable on death are referred to as guaranteed minimum death benefits (GMDB). Guarantees on living benefits (GLB) includes guaranteed minimum income benefits (GMIB) and guaranteed minimum accumulation benefits (GMAB). For further description of this product and related accounting treatment, refer to Note 1 to the Consolidated Financial Statements of our 2014 Form 10-K.

Guaranteed living benefits (GLB) derivatives
Our GLB reinsurance is classified as a derivative for accounting purposes and therefore carried at fair value. We believe that the most meaningful presentation of these GLB derivatives is as follows:

•	Estimates of the average modeled value of future cash outflows is recorded as incurred losses (i.e., benefit reserves). Cash inflows or revenue are reported as net premiums earned and changes in the benefit reserves are reflected as Policy benefits expense in the consolidated statement of operations, which is included in underwriting income.	
		
•	The incremental difference between the fair value of GLB reinsurance contracts and benefit reserves is reflected in Accounts payable, accrued expenses, and other liabilities in the consolidated balance sheets and related changes in fair value are reflected in Net realized gains (losses) in the consolidated statement of operations.	

Determination of GLB fair value
The fair value of GLB reinsurance is estimated using an internal valuation model, which includes current market information and estimates of policyholder behavior from the perspective of a theoretical market participant that would assume these liabilities. All of our treaties contain claim limits, which are factored into the valuation model. The fair value depends on a number of factors, including interest rates, equity markets, credit risk, current account value, market volatility, expected annuitization rates and other policyholder behavior, and changes in policyholder mortality. The model and related assumptions are regularly re-evaluated by management and enhanced, as appropriate, based upon additional experience obtained related to policyholder behavior and availability of more timely market information. Due to the inherent uncertainties of the assumptions used in the valuation models to determine the fair value of these derivative products, actual experience may differ materially from the estimates reflected in our consolidated financial statements.

We intend to hold these derivative contracts to maturity (i.e., the expiration of the underlying liabilities through lapse, annuitization, death, or expiration of the reinsurance contract). To partially offset the risk of changes in the fair value of GLB reinsurance contracts, we invest in derivative hedge instruments. At maturity, the cumulative realized gains and losses (excluding cumulative hedge gains or losses) from fair value changes of GLB reinsurance contracts will net to zero because, over time, the insurance liability will be increased or decreased to equal our obligation.

Determination of GLB and Guaranteed minimum death benefits (GMDB) benefit reserves
Management established benefit reserves based on a long-term benefit ratio (or loss ratio) calculated using assumptions reflecting management’s best estimate of the future short-term and long-term performance of the variable annuity line of

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business. Despite the long-term nature of the risk, the benefit ratio calculation is impacted by short-term market movements that may be judged by management to be transient. Management regularly examines both qualitative and quantitative analysis, including a review of the differential between the benefit ratio used at the most recent valuation date and the benefit ratio calculated on subsequent dates. Management regularly evaluates its estimates and uses judgment to determine the extent to which assumptions underlying the benefit ratio calculation should be adjusted. For the quarter ended March 31, 2015, management determined that no change to the benefit ratio was warranted.

For further information on the estimates and assumptions used in determining the fair value of GLB reinsurance, refer to Note 4 to the Consolidated Financial Statements of our 2014 Form 10-K. For a sensitivity discussion of the effect of changes in interest rates, equity indices, and other assumptions on the fair value of GLBs, and the resulting impact on our net income, refer to Item 3.

Risk Management
We employ a strategy to manage the financial market and policyholder behavior risks embedded in the reinsurance of variable annuity (VA) guarantees. Risk management begins with underwriting a prospective client and guarantee design, with particular focus on protecting our position from policyholder options that, because of anti-selective behavior, could adversely impact our obligation.

A second layer of risk management is the structure of the reinsurance contracts. All VA guarantee reinsurance contracts include some form of annual or aggregate claim limit(s). For further information on the different categories of claim limits, refer to "Guaranteed living benefits derivatives" in our 2014 Form 10-K under Item 7.

A third layer of risk management is the hedging strategy which looks to mitigate both long-term economic loss over time as well as dampen income statement volatility. We owned financial market instruments as part of the hedging strategy with a fair value liability of $ 2 million and $19 million at March 31, 2015 and December 31, 2014 , respectively. The instruments are substantially collateralized by our counterparties, on a daily basis.

We also limit the aggregate amount of variable annuity reinsurance guarantee risk we are willing to assume. The last substantive transactions were quoted in late 2007. The aggregate number of policyholders is currently decreasing through policyholder withdrawals, annuitizations, and deaths at a rate of 5 percent to 15 percent per annum.

Note that GLB claims cannot occur for any reinsured policy until it has reached the end of its “waiting period”. 50 percent of the policies we reinsure reached the end of their “waiting periods” prior to March 31, 2015, as shown in the table below.

			
Year of first payment eligibility	Percent of living benefit
account values		
March 31, 2015 and prior	50	%	
Remainder of 2015	4	%	
2016	7	%	
2017	19	%	
2018	12	%	
2019	2	%	
2020 and after	6	%	
Total	100	%	

The following table presents the historical cash flows under these policies for the periods indicated. The amounts represent accrued past premium received and claims paid, split by benefit type.

																				
 	Three Months Ended March 31	 	
(in millions of U.S. dollars)	2015	 	 	2014	 	
	GMDB		GLB		Total		 	GMDB		GLB		Total		
Premium received	$	16		$	31		$	47		 	$	19		$	36		$	55		
Less paid claims	8		3		11		 	11		3		14		
Net cash received	$	8		$	28		$	36		 	$	8		$	33		$	41		

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Collateral
ACE holds collateral on behalf of most of its clients in the form of qualified assets in trust or letters of credit, typically in an amount sufficient for the client to obtain statutory reserve credit for the reinsurance. The timing of the calculation and amount of the collateral varies by client according to the particulars of the reinsurance treaty and the statutory reserve guidelines of the client’s domicile.

	
 	
Catastrophe management

We actively monitor our catastrophe risk accumulation around the world. The table below presents our modeled annual aggregate pre-tax probable maximum loss (PML), net of reinsurance, for 100-year and 250-year return periods for U.S. hurricane and California earthquake at March 31, 2015 and 2014 . The table also presents ACE’s corresponding share of pre-tax industry losses for each of the return periods for U.S. hurricane and California earthquake. For example, according to the model, for the 1-in-100 return period scenario, there is a one percent chance that our losses incurred in any year from U.S. hurricane events could be in excess of $1,766 million (or 5.9 percent of our total shareholders’ equity at March 31, 2015 ). We estimate that at such hypothetical loss levels, ACE’s share of aggregate industry losses would be approximately 1.1 percent.

																													
 	 	Modeled Annual Aggregate Net PML	
 	 	U.S. Hurricane	 	California Earthquake	
 	 	 	 	March 31	 	 	 	March 31	 	 	 	March 31	 	 	 	March 31	
 	 	 	 	2015	 	 	 	2014	 	 	 	2015	 	 	 	2014	
(in millions of U.S. dollars, except for percentages)	 	ACE	 	% of Total
Shareholders’
Equity	 	% of
Industry	 	ACE	 	ACE	 	% of Total
Shareholders’
Equity	 	% of
Industry	 	ACE	
1-in-100	 	$	1,766		 	5.9	%	 	1.1	%	 	$	2,317		 	$	808		 	2.7	%	 	2.0	%	 	$	721		
1-in-250	 	$	2,430		 	8.2	%	 	1.1	%	 	$	3,022		 	$	1,044		 	3.5	%	 	1.7	%	 	$	953		

The above modeled loss information at March 31, 2015 reflects our in-force portfolio and reinsurance program at January 1, 2015. The modeling estimates at March 31, 2014 reflected our reinsurance program at January 1, 2014, which excluded Named Storm coverage in North America for the time period generally considered outside U.S. Hurricane season.  While this exclusion carried nominal risk, it impacted the point in time PML estimate in the prior year as the point in time estimate does not take into account the seasonality of hurricanes.  We had defined "Named Storm" as a storm or storm system that has been declared by the National Hurricane Center (NHC) to be a tropical cyclone, tropical storm or a hurricane and includes wind, gusts, hail, rain, tornadoes or cyclones related to such storm.  ACE established a new Global Property Catastrophe Program for our North American and International operations that provided global natural catastrophe and terrorism coverage that was effective as of July 1, 2014. As a result of the new reinsurance program, the modeled PML for U.S. hurricane at March 31, 2015 is lower compared to March 31, 2014.

The modeling estimates of both ACE and industry loss levels are inherently uncertain owing to key assumptions. First, 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 hurricane and earthquake losses. In particular, modeled hurricane and earthquake events are not always a representation of actual events and ensuing additional loss potential. Second, there is no universal standard in the preparation of insured data for use in the models and the running of the modeling software. Third, we are reliant upon third-party estimates of industry insured exposures and there is significant variation possible around the relationship between our loss and that of the industry following an event. Fourth, we assume that our reinsurance recoveries following an event are fully collectible. 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.

	
 	
Natural Catastrophe Property Reinsurance Program

ACE’s core property catastrophe reinsurance program provides protection against natural catastrophes impacting its primary property operations (i.e., excluding our Global Reinsurance and Life segments).

We regularly review our reinsurance protection and corresponding property catastrophe exposures. This may or may not lead to the purchase of additional reinsurance prior to a program’s renewal date. In addition, prior to each renewal date, we consider how much, if any, coverage we intend to buy and we may make material changes to the current structure in light of various

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factors, including modeled PML assessment at various return periods, reinsurance pricing, our risk tolerance and exposures, and various other structuring considerations.

There were no significant changes to ACE's coverage under its Global Catastrophe Program during the first quarter. Refer to “Natural Catastrophe Property Reinsurance Program” in our 2014 Form 10-K for additional information.

	
 	
Crop Insurance
We are, and have been since the 1980s, one of the leading writers of crop insurance in the U.S. and have conducted that business through a managing general agent subsidiary of Rain and Hail. We provide protection throughout the U.S. on a variety of crops and are therefore geographically diversified, which reduces the risk of exposure to a single event or a heavy accumulation of losses in any one region. Our crop insurance business comprises two components – Multiple Peril Crop Insurance (MPCI) and crop-hail insurance.

The MPCI program is offered in conjunction with the U.S. Department of Agriculture (USDA). The policies cover revenue shortfalls or production losses due to natural causes such as drought, excessive moisture, hail, wind, frost, insects, and disease. Generally, policies have deductibles ranging from 10 percent to 50 percent of the insured's risk. The USDA's Risk Management Agency (RMA) sets the policy terms and conditions, rates and forms, and is also responsible for setting compliance standards. As a participating company, we report all details of policies underwritten to the RMA and are party to a Standard Reinsurance Agreement (SRA). The SRA sets out the relationship between private insurance companies and the Federal Crop Insurance Corporation (FCIC) concerning the terms and conditions regarding the risks each will bear including the pro-rata and state stop-loss provisions which allows companies to limit the exposure of any one state or group of states on their underwriting results. In addition to the pro-rata and excess of loss reinsurance protections inherent in the SRA, we also purchase third-party proportional and stop-loss reinsurance for our MPCI business to reduce our exposure. We may also enter into crop derivative contracts to further manage our risk exposure.

Each year the RMA issues a final SRA for the subsequent reinsurance year. In June 2014, the RMA released the 2015 SRA which establishes the terms and conditions for the 2015 reinsurance year (i.e., July 1, 2014 through June 30, 2015) that replaced the 2014 SRA.  There were no significant changes in the terms and conditions.

On the MPCI business, we recognize net premiums written as soon as estimable, which is generally when we receive acreage reports from the policyholders on the various crops throughout the U.S. This allows us to best determine the premium associated with the liability that is being planted. The MPCI program has specific timeframes as to when producers must report acreage to us and in certain cases, the reporting occurs after the close of the respective reinsurance year. Once the net premium written has been recorded, the premium is then earned over the growing season for the crops. A majority of the crops that are covered in the program are typically subject to the SRA in effect at the beginning of the year. Given the major crops covered in the program, we typically see a substantial written and earned premium impact in the second and third quarters.

The pricing of MPCI premium is determined using a number of factors including commodity prices and related volatility. For instance, in most states the pricing for the MPCI Revenue Product for corn includes a factor that is based on the average price in February of the Chicago Board of Trade December corn futures. To the extent that the corn commodity prices are higher in February than they were in the previous February, and all other factors are the same, the increase in corn prices will increase the corn premium year over year.

Our crop-hail program is a private offering. Premium is earned on the crop-hail program over the coverage period of the policy. Given the very short nature of the growing season, most crop-hail business is typically written in the second and third quarters with the earned premium also more heavily occurring during this time frame. We use industry data to develop our own rates and forms for the coverage offered. The policy primarily protects farmers against yield reduction caused by hail and/or fire, and related costs such as transit to storage. We offer various deductibles to allow the grower to partially self-insure for a reduced premium cost. We limit our crop-hail exposures through the use of township liability limits and third-party proportional and stop-loss reinsurance on our net retained hail business.

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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 available credit facilities. At March 31, 2015 , our available credit line totaled $1.0 billion and usage of this credit line was $529 million . Our access to funds under an existing credit facility is dependent on the ability of the bank that is a party to the facility to meet its funding commitments. Our existing credit facility has a remaining term expiring in November 2017 and requires that we maintain certain financial covenants, all of which we met at March 31, 2015 . Should our existing credit provider 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 facility . Refer to “Credit Facilities” in our 2014 Form 10-K for additional information.

The payment of dividends or other statutorily permissible distributions from our operating companies are subject to the laws and regulations applicable to each jurisdiction, as well as the need to maintain capital levels adequate to support the insurance and reinsurance operations, including financial strength ratings issued by independent rating agencies. During the three months ended March 31, 2015 , we were able to meet all of 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. ACE Limited received no dividends from its Bermuda subsidiaries during the three months ended March 31, 2015 and 2014 .

The payment of any dividends from AGM 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 AGM is subject to regulations promulgated by the Society of Lloyd’s. The U.S. insurance subsidiaries of ACE INA Holdings Inc. (ACE 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). ACE 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. ACE Limited received no dividends from AGM or ACE INA during the three months ended March 31, 2015 and 2014 . Debt issued by ACE INA is serviced by statutorily permissible distributions by ACE INA’s insurance subsidiaries to ACE INA as well as other group resources. ACE INA received no dividends from its subsidiaries during the three months ended March 31, 2015 and 2014 .

Cash Flows
Our sources of liquidity include cash from operations, routine sales of investments, and financing arrangements. The following is a discussion of our cash flows for the three months ended March 31, 2015 and 2014 .

Operating cash flows were $1.08 billion in the three months ended March 31, 2015 , compared with $1.25 billion in the prior year, primarily due to higher net losses paid and higher income taxes paid.

Cash used for investing was $1.0 billion in the three months ended March 31, 2015 , compared with $503 million in the prior year. The increase in cash used for investing of $517 million was primarily due to higher net purchases in our investment portfolio of $459 million and in other investments of $103 million, including $70 million related to the purchase of our 11.3 percent ownership in ABR Re in March 2015.

Cash from financing was $333 million in the three months ended March 31, 2015 , compared with cash used for financing of $472 million in the prior year. The year-over-year change in financing cash flows of $805 million is primarily due to proceeds from the issuance of long-term debt of $800 million in March 2015.

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

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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.

In the current low interest rate environment, we use repurchase agreements as a low-cost alternative for short-term funding needs and to address short-term cash timing differences without disrupting our investment portfolio holdings. At March 31, 2015 , there were $1.4 billion in repurchase agreements outstanding.

	

Capital Resources
Capital resources consist of funds deployed or available to be deployed to support our business operations.

								
 	March 31		 	December 31		
(in millions of U.S. dollars, except for percentages)	2015		 	2014		
Short-term debt	$	2,552		 	$	2,552		
Long-term debt	4,157		 	3,357		
Total debt	6,709		 	5,909		
Trust preferred securities	309		 	309		
Total shareholders’ equity	29,702		 	29,587		
Total capitalization	$	36,720		 	$	35,805		
Ratio of debt to total capitalization	18.3	%	 	16.5	%	
Ratio of debt plus trust preferred securities to total capitalization	19.1	%	 	17.4	%	

In March 2015, we issued $800 million of 3.15 percent senior notes due May 2025. The proceeds from the debt issuance are expected to be used to repay at maturity $500 million of 5.7 percent senior notes due February 2017 and $300 million of 5.8 percent senior notes due March 2018.
 
For the three months ended March 31, 2015 and 2014, we repurchased $340 million and $332 million of Common Shares in a series of open market transactions under existing Board authorizations. As of March 31, 2015 , $ 1.16 billion in repurchase authorization remained through December 31, 2015. Refer to Note 8 to the Consolidated Financial Statements for additional information on the repurchase authorization. As of March 31, 2015 , there were 15,747,650 Common Shares in treasury with a weighted average cost of $104.43 per share. For the period April 1, 2015 through April 28, 2015, we repurchased 1,351,820 Common Shares for a total of $149 million in a series of open market transactions. As of April 28, 2015 $1.01 billion in share repurchase authorization remained through December 31, 2015.

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. Our current shelf registration on file with the SEC expires in December 2017.

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 ACE in U.S. dollars. Refer to Note 8 to the Consolidated Financial Statements for a discussion of our dividend methodology. At our May 2014 annual general meeting, our shareholders approved an annual dividend distribution for the following year by way of a par value reduction equal to $2.60 per share, or CHF 2.28 per share, calculated using the USD/CHF exchange rate as published in the Wall Street Journal on May 9, 2014. The annual dividend approved in May 2014 was paid in four quarterly installments, in accordance with the shareholder resolution.

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 17, 2014	 	January 15, 2015	 	$0.65 (CHF 0.63)	
March 31, 2015	 	April 21, 2015	 	$0.65 (CHF 0.62)	

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ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
Refer to Item 7A included in our 2014 Form 10-K.

Foreign currency management
As a global company, ACE entities transact business in multiple currencies. Our policy is to generally match assets, liabilities and required capital for each individual jurisdiction in local currency. We do not hedge our currency exposure to foreign currency net asset positions. We do consider hedging for planned cross border transactions.  For an estimated impact of foreign currency movement on our net assets denominated in non-U.S. currencies, refer to Item 7A in our 2014 Form 10-K.  This information will be updated and disclosed in interim filings if our net assets in non-U.S. currencies change materially from the December 31, 2014 balances disclosed in the 2014 Form 10-K.

Reinsurance of GMDB and GLB guarantees
ACE views its variable annuity reinsurance business as having a similar risk profile to that of catastrophe reinsurance with the probability of long-term economic loss relatively small, at the time of pricing. Adverse changes in market factors and policyholder behavior will have an impact on both life underwriting income and net income. When evaluating these risks, we expect to be compensated for taking both the risk of a cumulative long-term economic net loss, as well as the short-term accounting variations caused by these market movements. Therefore, we evaluate this business in terms of its long-term economic risk and reward.

Net income is directly impacted by changes in benefit reserves calculated in connection with reinsurance of variable annuity guarantees, primarily GMDB and GLB. In addition, net income is directly impacted by changes in the fair value of the GLB liability (FVL), which is classified as a derivative for accounting purposes. The FVL established for a GLB reinsurance contract represents the difference between the fair value of the contract and the benefit reserves. Benefit reserves and FVL calculations are directly affected by market factors, including equity levels, interest rate levels, credit risk, and implied volatilities, as well as policyholder behaviors, such as annuitization and lapse rates.

The tables below are estimates of the sensitivities to instantaneous changes in economic inputs (e.g., equity shock, interest rate shock etc.) or actuarial assumptions at March 31, 2015 of the FVL and of the fair value of specific derivative instruments held (hedge value) to partially offset the risk in the variable annuity guarantee reinsurance portfolio. The following assumptions should be considered when using the below tables:

•	No changes to the benefit ratio used to establish benefit reserves at March 31, 2015	

•	Equity shocks impact all global equity markets equally	
		
•	Our liabilities are sensitive to global equity markets in the following proportions: 70 percent— 80 percent U.S. equity, 10 percent— 20 percent international equity ex-Japan, up to 10 percent Japan equity.	
		
•	Our current hedge portfolio is sensitive to global equity markets in the following proportions: 100 percent U.S. equity.	
		
•	We would suggest using the S&P 500 index as a proxy for U.S. equity, the MSCI EAFE index as a proxy for international equity, and the TOPIX as a proxy for Japan equity.	

•	Interest rate shocks assume a parallel shift in the U.S. yield curve	
		
•	Our liabilities are also sensitive to global interest rates at various points on the yield curve, mainly the U.S. Treasury curve in the following proportions: up to 10 percent short-term rates (maturing in less than 5 years), 20 percent— 30 percent medium-term rates (maturing between 5 years and 10 years, inclusive), and 70 percent— 80 percent long-term rates (maturing beyond 10 years).	
		
•	A change in AA-rated credit spreads (AA-rated credit spreads are a proxy for both our own credit spreads and the credit spreads of the ceding insurers) impacts the rate used to discount cash flows in the fair value model.	

•	The sensitivities are not directly additive because changes in one factor will affect the sensitivity to changes in other factors. The sensitivities do not scale linearly and may be proportionally greater for larger movements in the market factors. The sensitivities may also vary due to foreign exchange rate fluctuations. The calculation of the FVL is based on internal models that include assumptions regarding future policyholder behavior, including lapse, annuitization, and asset allocation. These assumptions impact both the absolute level of the FVL as well as the sensitivities to changes in market factors shown below. Actual sensitivity of our net income may differ from those disclosed in the tables below due to differences between	

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short-term market movements and management judgment regarding the long-term assumptions implicit in our benefit ratios. Furthermore, the sensitivities below could vary by multiples of the sensitivities in the tables below.

•	In addition, the tables below do not reflect the expected quarterly run rate of net income generated by the variable annuity guarantee reinsurance portfolio if markets remain unchanged during the period. All else equal, if markets remain unchanged during the period, the Gross FVL will increase, resulting in a realized loss. The realized loss occurs primarily because, during the period, we will collect premium while paying little or no claims on our GLB reinsurance (since approximately 50 percent of policies are not eligible to annuitize until after March 31, 2015 ). This increases the Gross FVL because future premiums are lower by the amount collected in the quarter, and also because future claims are discounted for a shorter period. We refer to this increase in Gross FVL as “timing effect”. The unfavorable impact of timing effect on our Gross FVL in a quarter is not reflected in the sensitivity tables below. For this reason, when using the tables below to estimate the sensitivity of Gross FVL in the second quarter to various changes, it is necessary to assume an additional $5 million to $45 million increase in Gross FVL and realized losses. However, the impact to Net income is substantially mitigated because the majority of this realized loss is offset by the positive quarterly run rate of Life underwriting income generated by the variable annuity guarantee reinsurance portfolio if markets remain unchanged during the period. Note that both the timing effect and the quarterly run rate of Life underwriting income change over time as the book ages.	

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Interest Rate Shock	Worldwide Equity Shock	
(in millions of U.S. dollars)	+10%	 	Flat	 	-10%	 	-20%	 	-30%	 	-40%	
+100 bps	(Increase)/decrease in Gross FVL	$	413		 	$	281		 	$	64		 	$	(217	)	 	$	(579	)	 	$	(1,019	)	
 	Increase/(decrease) in hedge value	(134	)	 	—		 	135		 	271		 	412		 	559		
 	Increase/(decrease) in net income	$	279		 	$	281		 	$	199		 	$	54		 	$	(167	)	 	$	(460	)	
Flat	(Increase)/decrease in Gross FVL	$	198		 	$	—		 	$	(265	)	 	$	(607	)	 	$	(1,029	)	 	$	(1,521	)	
 	Increase/(decrease) in hedge value	(134	)	 	—		 	135		 	271		 	412		 	560		
 	Increase/(decrease) in net income	$	64		 	$	—		 	$	(130	)	 	$	(336	)	 	$	(617	)	 	$	(961	)	
-100 bps	(Increase)/decrease in Gross FVL	$	(121	)	 	$	(364	)	 	$	(685	)	 	$	(1,086	)	 	$	(1,558	)	 	$	(2,095	)	
 	Increase/(decrease) in hedge value	(134	)	 	—		 	135		 	271		 	412		 	561		
 	Increase/(decrease) in net income	$	(255	)	 	$	(364	)	 	$	(550	)	 	$	(815	)	 	$	(1,146	)	 	$	(1,534	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Sensitivities to Other Economic Variables	AA-rated Credit Spreads	 	 Interest Rate Volatility	 	 Equity Volatility	
(in millions of U.S. dollars)	+100 bps		 	-100 bps	 	+2%	 	-2%	 	+2%	 	-2%	
(Increase)/decrease in Gross FVL	$	64		 	$	(74	)	 	$	(2	)	 	$	—		 	$	(17	)	 	$	16		
Increase/(decrease) in hedge value	—		 	—		 	—		 	—		 	—		 	—		
Increase/(decrease) in net income	$	64		 	$	(74	)	 	$	(2	)	 	$	—		 	$	(17	)	 	$	16		
 	 	 	 	 	 	 	 	 	 	 	 	
Sensitivities to Actuarial Assumptions	 	 	 	 	Mortality	
(in millions of U.S. dollars)	 	 	 	 	+20%	 	+10%	 	-10%	 	-20%	
(Increase)/decrease in Gross FVL	 	 	 	 	$	24		 	$	12		 	$	(12	)	 	$	(25	)	
Increase/(decrease) in hedge value	 	 	 	 	—		 	—		 	—		 	—		
Increase/(decrease) in net income	 	 	 	 	$	24		 	$	12		 	$	(12	)	 	$	(25	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	Lapses	
(in millions of U.S. dollars)	 	 	 	 	+50%	 	+25%	 	-25%	 	-50%	
(Increase)/decrease in Gross FVL	 	 	 	 	$	220		 	$	122		 	$	(151	)	 	$	(327	)	
Increase/(decrease) in hedge value	 	 	 	 	—		 	—		 	—		 	—		
Increase/(decrease) in net income	 	 	 	 	$	220		 	$	122		 	$	(151	)	 	$	(327	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	Annuitization	
(in millions of U.S. dollars)	 	 	 	 	+50%	 	+25%	 	-25%	 	-50%	
(Increase)/decrease in Gross FVL	 	 	 	 	$	(294	)	 	$	(162	)	 	$	200		 	$	392		
Increase/(decrease) in hedge value	 	 	 	 	—		 	—		 	—		 	—		
Increase/(decrease) in net income	 	 	 	 	$	(294	)	 	$	(162	)	 	$	200		 	$	392		

	

ITEM 4. Controls and Procedures
ACE’s management, with the participation of ACE’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of ACE’s disclosure controls and procedures as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934 as of March 31, 2015 . Based upon that evaluation, ACE’s Chief Executive Officer and Chief Financial Officer concluded that ACE’s disclosure controls and procedures are effective in allowing information required to be disclosed in reports filed under the Securities and Exchange Act of 1934 to be recorded, processed, summarized, and reported within time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to ACE’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. In accordance with the SEC's published guidance, the disclosure controls and procedures of the large corporate account P&C business of Itaú Seguros, S.A. (Itaú Seguros), which was acquired on October 31, 2014, was excluded

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from our evaluation of the effectiveness of our disclosure controls and procedures as of March 31, 2015. As of and for the three months ended March 31, 2015, Itaú Seguros' assets represented approximately two percent of consolidated assets, revenues represented approximately two percent of consolidated revenues, and net income represented approximately one percent of consolidated net income.

There has been no change in ACE’s internal controls over financial reporting during the three months ended March 31, 2015 that has materially affected, or is reasonably likely to materially affect, ACE’s internal controls over financial reporting.

PART II OTHER INFORMATION

	
 	
ITEM 1. Legal Proceedings
The information required with respect to this item is included in Note 7 d) to the Consolidated Financial Statements which is hereby incorporated by reference.

	

ITEM 1A. Risk Factors

Refer to “Risk Factors” under Item 1A of Part I of our 2014 Form 10-K. There have been no material changes to the risk factors disclosed in Item 1A of Part I of our 2014 Form 10-K.

	

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds and Issuer Repurchases of Equity Securities

Issuer’s Repurchases of Equity Securities
The following table provides information with respect to purchases by ACE of its Common Shares during the three months ended March 31, 2015 :

														
Period	Total
Number of
Shares
Purchased (1)		 	Average Price Paid per Share		 	 Total Number of Shares Purchased as Part of Publicly Announced Plan (2)		 	Approximate
Dollar Value of 
Shares that May
Yet be Purchased 
Under the Plan (3)		
January 1 through January 31	967,306		 	$	111.72		 	965,375		 	$	1,392	 million	
February 1 through February 28	1,433,032		 	$	113.22		 	962,088		 	$	1,284	 million	
March 1 through March 31	1,102,842		 	$	112.68		 	1,100,000		 	$	1,160	 million	
Total	3,503,180		 	 	 	3,027,463		 	 	

(1)  	This column primarily represents open market share repurchases. Other activity is related to the surrender to ACE of Common Shares to satisfy tax withholding obligations in connection with the vesting of restricted stock issued to employees and the exercising of options by employees.	
(2) The aggregate value of shares purchased in the three months ended March 31, 2015 as part of the publicly announced plan was $340 million.
		
(3)  	Refer to Note 8 to the Consolidated Financial Statements for more information on the ACE Limited securities repurchase authorization. For the period April 1, 2015 through April 28, 2015, we repurchased 1,351,820 Common Shares for a total of $149 million in a series of open market transactions. At April 28, 2015, $1,011 million in share repurchase authorization remained through December 31, 2015.	

	

ITEM 6. Exhibits
Refer to the Exhibit Index.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		
 	ACE LIMITED	
 	(Registrant)	
 	 	
April 29, 2015	/s/ Evan G. Greenberg	
 	Evan G. Greenberg	
 	Chairman, President and Chief Executive Officer	
 	 	
April 29, 2015	/s/ Philip V. Bancroft	
 	Philip V. Bancroft	
 	Chief Financial Officer	

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Table of Contents

	
											
 	 	 	 	Incorporated by Reference	 	 	
Exhibit
Number	 	Exhibit Description	 	Form	 	Original
Number	 	Date Filed	 	Filed
Herewith	
3.1	 	Articles of Association of the Company, as amended and restated	 	8-K	 	3	 	March 31, 2015	 	 	
 	 	 	 	 	 	 	 	 	 	 	
4.1	 	Articles of Association of the Company, as amended and restated	 	8-K	 	4	 	March 31, 2015	 	 	
 	 	 	 	 	 	 	 	 	 	 	
4.2	 	Form of 3.150 percent Senior Notes due 2025	 	8-K	 	4.1	 	March 16, 2015	 	 	
 	 	 	 	 	 	 	 	 	 	 	
31.1	 	Certification Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002	 	 	 	 	 	 	 	X	
 	 	 	 	 	 	 	 	 	 	 	
31.2	 	Certification Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002	 	 	 	 	 	 	 	X	
 	 	 	 	 	 	 	 	 	 	 	
32.1	 	Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002	 	 	 	 	 	 	 	X	
 	 	 	 	 	 	 	 	 	 	 	
32.2	 	Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002	 	 	 	 	 	 	 	X	
 	 	 	 	 	 	 	 	 	 	 	
101.1	 	The following financial information from ACE Limited’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015 formatted in XBRL: (i) Consolidated Balance Sheets at March 31, 2015, and December 31, 2014; (ii) Consolidated Statements of Operations and Comprehensive Income for the three months ended March 31, 2015 and 2014; (iii) Consolidated Statements of Shareholders’ Equity for the three months ended March 31, 2015 and 2014; (iv) Consolidated Statements of Cash Flows for the three months ended March 31, 2015 and 2014; and (v) Notes to Consolidated Financial Statements	 	 	 	 	 	 	 	X	

69

Exhibit 31.1
CERTIFICATION PURSUANT TO
SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Evan G. Greenberg, certify that:

1)	I have reviewed this quarterly report on Form 10-Q of ACE Limited;	

2)	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;	

3)	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;	

4)	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:	
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5)	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):	
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: April 29, 2015

	
/s/ Evan G. Greenberg	
Evan G. Greenberg	
Chairman, President and Chief Executive Officer	

Exhibit 31.2
CERTIFICATION PURSUANT TO
SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Philip V. Bancroft, certify that:

1)	I have reviewed this quarterly report on Form 10-Q of ACE Limited;	

2)	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;	

3)	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;	

4)	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:	
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5)	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):	
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: April 29, 2015

	
/s/ Philip V. Bancroft	
Philip V. Bancroft	
Chief Financial Officer	

Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned officer of ACE Limited (the Corporation) hereby certifies that the Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015 , fully complies with the applicable reporting requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a)) and that the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Corporation.

		
Dated: April 29, 2015	/s/ Evan G. Greenberg	
 	Evan G. Greenberg
Chairman, President and Chief Executive Officer	

Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned officer of ACE Limited (the Corporation) hereby certifies that the Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015 , fully complies with the applicable reporting requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a)) and that the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Corporation.

		
Dated: April 29, 2015	/s/ Philip V. Bancroft	
 	Philip V. Bancroft	
 	Chief Financial Officer