ACE LTD, 10-Q filed on 10/31/2012
Quarterly Report
Document and Entity Information
9 Months Ended
Sep. 30, 2012
Oct. 17, 2012
Entity Information [Line Items]
 
 
Document Type
10-Q 
 
Amendment Flag
false 
 
Document Period End Date
Sep. 30, 2012 
 
Document Fiscal Year Focus
2012 
 
Document Fiscal Period Focus
Q3 
 
Trading Symbol
ACE 
 
Entity Registrant Name
ACE Ltd 
 
Entity Central Index Key
0000896159 
 
Current Fiscal Year End Date
--12-31 
 
Entity Filer Category
Large Accelerated Filer 
 
Entity Common Stock, Shares Outstanding
 
339,808,296 
Consolidated Balance Sheets (USD $)
In Millions, unless otherwise specified
Sep. 30, 2012
Dec. 31, 2011
Assets
 
 
Fixed maturities available for sale, at fair value (amortized cost - $43,758 and $40,450) (includes hybrid financial instruments of $410 and $357)
$ 46,504 
$ 41,967 
Fixed maturities held to maturity, at amortized cost (fair value - $7,879 and $8,605)
7,493 
8,447 
Equity securities, at fair value (cost - $741 and $671)
770 
647 
Short-term investments, at fair value and amortized cost
2,429 
2,301 
Other investments (cost - $2,385 and $2,112)
2,621 
2,314 
Total investments
59,817 
55,676 
Cash
690 1
614 
Securities lending collateral
2,039 
1,375 
Accrued investment income
564 
547 
Insurance and reinsurance balances receivable
5,288 
4,387 
Reinsurance recoverable on losses and loss expenses
11,857 
12,389 
Reinsurance recoverable on policy benefits
246 
249 
Deferred policy acquisition costs
1,793 
1,548 
Value of business acquired
632 
676 
Goodwill and other intangible assets
4,990 
4,799 
Prepaid reinsurance premiums
1,613 
1,541 
Deferred tax assets
344 
673 
Investments in partially-owned insurance companies (cost - $352 and $345)
354 
352 
Other assets
3,281 
2,495 
Total assets
93,508 
87,321 
Liabilities
 
 
Unpaid losses and loss expenses
38,200 
37,477 
Unearned premiums
7,068 
6,334 
Future policy benefits
4,414 
4,274 
Insurance and reinsurance balances payable
3,448 
3,542 
Deposit liabilities
804 
663 
Securities lending payable
2,044 
1,385 
Payable for securities purchased
733 
287 
Accounts payable, accrued expenses, and other liabilities
4,542 
3,948 
Income taxes payable
221 
159 
Short-term debt
1,402 
1,251 
Long-term debt
3,360 
3,360 
Trust preferred securities
309 
309 
Total liabilities
66,545 
62,989 
Commitments and contingencies
   
   
Shareholders' equity
 
 
Common Shares (CHF 29.34 and CHF 30.27 par value; 342,832,412 shares issued; 339,735,109 and 336,927,276 shares outstanding)
9,759 
10,095 
Common Shares in treasury (3,097,303 and 5,905,136 shares)
(187)
(327)
Additional paid-in capital
5,109 
5,326 
Retained earnings
9,268 
7,327 
Accumulated other comprehensive income (AOCI)
3,014 
1,911 
Total shareholders' equity
26,963 
24,332 
Total liabilities and shareholders' equity
$ 93,508 
$ 87,321 
Consolidated Balance Sheets (Parenthetical)
In Millions, except Share data, unless otherwise specified
Sep. 30, 2012
USD ($)
Sep. 30, 2012
CHF
Dec. 31, 2011
USD ($)
Dec. 31, 2011
CHF
Fixed maturities available for sale, at amortized cost
$ 43,758 
 
$ 40,450 
 
Fixed maturities available for sale, hybrid financial instruments
410 
 
357 
 
Fixed maturities held to maturity, at amortized cost
7,879 
 
8,605 
 
Equity securities, at cost
741 
 
671 
 
Other investments, cost
2,385 
 
2,112 
 
Investments in partially-owned insurance companies, cost
$ 352 
 
$ 345 
 
Common Shares, par value
 
 29.34 
 
 30.27 
Common Shares, shares issued
342,832,412 
342,832,412 
342,832,412 
342,832,412 
Common Shares, shares outstanding
339,735,109 
339,735,109 
336,927,276 
336,927,276 
Common Shares in treasury, shares
3,097,303 
3,097,303 
5,905,136 
5,905,136 
Consolidated Statements Of Operations and Comprehensive Income (USD $)
In Millions, except Per Share data, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Sep. 30, 2012
Sep. 30, 2011
Revenues
 
 
 
 
Net premiums written
$ 4,716 
$ 4,343 
$ 12,418 
$ 11,742 
Change in unearned premiums
(51)
147 
(589)
(186)
Net premiums earned
4,665 
4,490 
11,829 
11,556 
Net investment income
533 
564 
1,614 
1,677 
Net realized gains (losses):
 
 
 
 
Other-than-temporary impairment (OTTI) losses gross
(10)
(31)
(30)
(45)
Portion of OTTI losses recognized in other comprehensive income (OCI)
 
11 
 
13 
Net OTTI losses recognized in income
(10)
(20)
(30)
(32)
Net realized gains (losses) excluding OTTI losses
(50)
(740)
(164)
(846)
Total net realized gains (losses)
(60)
(760)
(194)
(878)
Total revenues
5,138 
4,294 
13,249 
12,355 
Expenses
 
 
 
 
Losses and loss expenses
3,047 
2,745 
6,970 
7,234 
Policy benefits
130 
83 
379 
282 
Policy acquisition costs
609 
669 
1,810 
1,840 
Administrative expenses
519 
520 
1,543 
1,537 
Interest expense
63 
62 
187 
187 
Other (income) expense
(17)
89 
14 
88 
Total expenses
4,351 
4,168 
10,903 
11,168 
Income before income tax
787 
126 
2,346 
1,187 
Income tax expense
147 
165 
405 
382 
Net income (loss)
640 
(39)
1,941 
805 
Other comprehensive income (loss)
 
 
 
 
Unrealized appreciation
731 
22 
1,369 
391 
Reclassification adjustment for net realized gains included in net income
(56)
(18)
(147)
(152)
Other comprehensive income (loss)
675 
4 
1,222 
239 
Change in:
 
 
 
 
Cumulative translation adjustment
190 
(152)
162 
149 
Pension liability
(4)
3 
(5)
(2)
Other comprehensive income, before income tax
861 
(145)
1,379 
386 
Income tax expense related to OCI items
(185)
(5)
(276)
(141)
Other comprehensive income (loss)
676 
(150)
1,103 
245 
Comprehensive income (loss)
$ 1,316 
$ (189)
$ 3,044 
$ 1,050 
Earnings per share
 
 
 
 
Basic earnings per share (US$ per share)
$ 1.88 
$ (0.11)
$ 5.71 
$ 2.38 
Diluted earnings per share (US$ per share)
$ 1.86 
$ (0.11)
$ 5.67 
$ 2.36 
Consolidated Statements Of Shareholders' Equity (USD $)
In Millions
Total
Common Stock [Member]
Treasury Stock [Member]
Additional Paid-in Capital [Member]
Retained Earnings [Member]
Deferred Compensation, Share-based Payments [Member]
Accumulated Net Unrealized Investment Gain (Loss) [Member]
Accumulated Translation Adjustment [Member]
Accumulated Defined Benefit Plans Adjustment [Member]
Accumulated Other Comprehensive Income (Loss) [Member]
Common Shares Issued To Employee Trust [Member]
Cumulative effect of adjustment resulting from adoption of new accounting guidance at Dec. 31, 2010
 
 
 
 
$ (139)
 
 
 
 
 
 
Balance - beginning of period at Dec. 31, 2010
 
10,161 
(330)
5,623 
5,926 
2 
1,399 
262 
(67)
 
(2)
Change in period, net of income tax expense of $(234) and $(112)
 
 
 
 
 
 
127 
 
 
 
 
Change in period, net of income tax benefit (expense) of $(44) and $(30)
 
 
 
 
 
 
 
119 
 
 
 
Change in period, net of income tax benefit of $2 and $1
 
 
 
 
 
 
 
 
(1)
 
 
Dividends declared on Common Shares-par value reduction
 
113 
 
 
 
 
 
 
 
 
 
Common Shares issued in treasury, net of net shares redeemed under employee share-based compensation plans
 
 
80 
 
 
 
 
 
 
 
 
Net shares redeemed under employee share-based compensation plans
 
 
 
(111)
 
 
 
 
 
 
 
Exercise of stock options
 
47 
 
26 
 
 
 
 
 
 
 
Share-based compensation expense and other
 
 
 
103 
 
 
 
 
 
 
 
Funding of dividends declared from Additional paid-in capital
 
 
 
236 
(236)
 
 
 
 
 
 
Net income (loss)
805 
 
 
 
805 
 
 
 
 
 
 
Dividends declared on Common Shares
 
 
 
 
(236)
 
 
 
 
 
 
Balance - end of period at Sep. 30, 2011
23,581 
10,095 
(350)
5,405 
6,592 
2 
1,526 
381 
(68)
1,839 
(2)
Cumulative effect of adjustment resulting from adoption of new accounting guidance at Jun. 30, 2011
 
 
 
 
 
 
 
 
 
 
 
Common Shares repurchased
 
 
(100)
 
 
 
 
 
 
 
 
Net income (loss)
(39)
 
 
 
 
 
 
 
 
 
 
Balance - end of period at Sep. 30, 2011
23,581 
 
(350)
 
 
2 
 
 
 
1,839 
(2)
Balance - beginning of period at Dec. 31, 2011
24,332 
10,095 
(327)
5,326 
7,327 
 
1,715 
258 
(62)
 
 
Change in period, net of income tax expense of $(234) and $(112)
 
 
 
 
 
 
988 
 
 
 
 
Change in period, net of income tax benefit (expense) of $(44) and $(30)
 
 
 
 
 
 
 
118 
 
 
 
Change in period, net of income tax benefit of $2 and $1
 
 
 
 
 
 
 
 
(3)
 
 
Dividends declared on Common Shares-par value reduction
 
336 
 
 
 
 
 
 
 
 
 
Common Shares repurchased
 
 
(7)
 
 
 
 
 
 
 
 
Common Shares issued in treasury, net of net shares redeemed under employee share-based compensation plans
 
 
147 
 
 
 
 
 
 
 
 
Net shares redeemed under employee share-based compensation plans
 
 
 
(102)
 
 
 
 
 
 
 
Exercise of stock options
 
 
 
(8)
 
 
 
 
 
 
 
Share-based compensation expense and other
 
 
 
93 
 
 
 
 
 
 
 
Funding of dividends declared from Additional paid-in capital
 
 
 
200 
(200)
 
 
 
 
 
 
Net income (loss)
1,941 
 
 
 
1,941 
 
 
 
 
 
 
Dividends declared on Common Shares
 
 
 
 
(200)
 
 
 
 
 
 
Balance - end of period at Sep. 30, 2012
$ 26,963 
$ 9,759 
$ (187)
$ 5,109 
$ 9,268 
 
$ 2,703 
$ 376 
$ (65)
$ 3,014 
 
Consolidated Statements Of Shareholders' Equity (Parenthetical) (USD $)
In Millions, unless otherwise specified
9 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Net unrealized appreciation on investments, Change in period, income tax (expense) benefit
$ (234)
$ (112)
Cumulative translation adjustment, Change in period, income tax(expense) benefit
(44)
(30)
Pension liability adjustment, Change in period, income tax (expense) benefit
$ 2 
$ 1 
Consolidated Statements Of Cash Flows (USD $)
In Millions, unless otherwise specified
9 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Cash flows from operating activities
 
 
Net income (loss)
$ 1,941 
$ 805 
Adjustments to reconcile net income to net cash flows from operating activities
 
 
Net realized (gains) losses
194 
878 
Amortization of premiums/discounts on fixed maturities
161 
105 
Deferred income taxes
46 
3 
Unpaid losses and loss expenses
430 
826 
Unearned premiums
708 
232 
Future policy benefits
109 
51 
Insurance and reinsurance balances payable
(174)
158 
Accounts payable, accrued expenses, and other liabilities
252 
508 
Income taxes payable
44 
74 
Insurance and reinsurance balances receivable
(828)
(1,103)
Reinsurance recoverable on losses and loss expenses
606 
133 
Reinsurance recoverable on policy benefits
47 
26 
Deferred policy acquisition costs
(260)
(139)
Prepaid reinsurance premiums
(115)
(52)
Other
(136)
493 
Net cash flows from operating activities
3,025 
2,998 
Cash flows from investing activities
 
 
Purchases of fixed maturities available for sale
(17,348)
(18,783)
Purchases of to be announced mortgage-backed securities
(308)
(785)
Purchases of fixed maturities held to maturity
(217)
(285)
Purchases of equity securities
(114)
(289)
Sales of fixed maturities available for sale
11,058 
13,567 
Sales of to be announced mortgage-backed securities
297 
756 
Sales of equity securities
57 
364 
Maturities and redemptions of fixed maturities available for sale
3,596 
2,603 
Maturities and redemptions of fixed maturities held to maturity
1,092 
966 
Net derivative instruments settlements
(358)
67 
Acquisition of subsidiaries (net of cash acquired of $8 and $81)
(98)
(394)
Other
(339)
(317)
Net cash flows from (used for) investing activities
(2,682)
(2,530)
Cash flows from financing activities
 
 
Dividends paid on Common Shares
(484)
(342)
Common Shares repurchased
(11)
(168)
Proceeds from issuance of short-term debt
2,083 
3,985 
Repayment of short-term debt
(1,932)
(4,035)
Proceeds from share-based compensation plans
73 
82 
Net cash flows (used for) from financing activities
(271)
(478)
Effect of foreign currency rate changes on cash and cash equivalents
4 
4 
Net (decrease) increase in cash
76 
(6)
Cash - beginning of period
614 
772 1
Cash - end of period
690 2
766 1
Supplemental cash flow information
 
 
Taxes paid
323 
306 
Interest paid
$ 156 
$ 151 
Consolidated Statements Of Cash Flows (Parenthetical) (USD $)
In Millions, unless otherwise specified
9 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Acquisition of subsidiaries, cash acquired
$ 8 
$ 81 
General
General
General
a) Basis of presentation
ACE Limited is a holding company incorporated in Zurich, Switzerland. ACE Limited, through its various subsidiaries, provides a broad range of insurance and reinsurance products to insureds worldwide. ACE operates through the following business segments: Insurance – North American, Insurance – Overseas General, Global Reinsurance, and Life. Refer to Note 9 for additional information.
The interim unaudited consolidated financial statements, which include the accounts of ACE 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 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 2011 Form 10-K.
Effective January 1, 2012, we retrospectively adopted new accounting guidance for costs associated with acquiring or renewing insurance contracts. Under the new guidance, the definition of acquisition costs was modified to specify that a cost must be directly related to the successful acquisition of a new or renewal insurance contract in order to be deferred. Prior year amounts contained in these consolidated financial statements have been adjusted to reflect the impact of retrospective adjustments as a result of applying this new accounting guidance.
b) Deferred policy acquisition costs and value of business acquired (VOBA)
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. A VOBA intangible asset is established upon the acquisition of blocks of long duration contracts and represents the present value of estimated net cash flows for the contracts in force at the time of the acquisition. Acquisition costs and VOBA, collectively policy acquisition costs, are deferred and amortized. Policy acquisition costs on property and casualty (P&C) contracts are generally amortized ratably over the period in which premiums are earned. Policy acquisition costs on long duration contracts are amortized over the estimated life of the contracts, generally in proportion to premium revenue recognized. Policy acquisition costs are reviewed to determine if they are recoverable from future income, including investment income. Unrecoverable costs are expensed in the period identified.
Advertising costs are expensed as incurred except for direct-response campaigns that meet the criteria of the new guidance, principally related to accident and health (A&H) business produced by the Insurance – Overseas General segment, which are deferred and recognized as a component of policy acquisition costs. For individual direct-response marketing campaigns that we can demonstrate have specifically resulted in incremental sales to customers and such sales have probable future economic benefits, incremental costs directly related to the marketing campaigns are capitalized. Deferred marketing costs are reviewed regularly for recoverability from future income, including investment income, and amortized in proportion to premium revenue recognized, primarily over a ten year period.
c) Accounting guidance adopted
Accounting for costs associated with acquiring or renewing insurance contracts
In October 2010, the Financial Accounting Standards Board (FASB) issued new guidance related to the accounting for costs associated with acquiring or renewing insurance contracts. Under the new guidance, the definition of acquisition costs was modified to specify that a cost must be directly related to the successful acquisition of a new or renewal insurance contract in order to be deferred. We adopted this guidance retrospectively effective January 1, 2012 and reduced Retained earnings as of January 1, 2011 by $139 million which represents the cumulative effect of adjustment resulting from adoption of new accounting guidance. We adjusted prior year amounts contained in these consolidated financial statements to reflect the effect of adjustment from adoption of new accounting guidance including reducing Deferred policy acquisition costs and Retained earnings by $213 million and $181 million, respectively, as of December 31, 2011. The reduction to Deferred policy acquisition costs is primarily due to lower deferrals associated with unsuccessful efforts. We also reduced Net income by $8 million, or $0.02 per share, and $30 million, or $0.09 per share, for the three and nine months ended September 30, 2011, respectively.
Fair value measurements
In May 2011, the FASB issued new guidance on fair value measurements to revise the wording used to describe the requirements for measuring fair value and for disclosing information about fair value measurements. The guidance is not necessarily intended to result in a significant change in the application of the current requirements. Instead, it is intended to clarify the intended application of existing fair value measurement requirements. It also changes certain principles or requirements for measuring fair value and disclosing information about fair value measurements. We adopted this guidance prospectively effective January 1, 2012. The application of this guidance resulted in additional fair value measurements disclosures only and did not impact our financial condition or results of operations.

d) Subsequent event

In late October 2012, superstorm Sandy made landfall in the United States.  Given its recent occurrence and the limited information available, we cannot estimate at this time the amount of any possible losses from this event. The impact of this event will be reflected in our fourth quarter 2012 results.
Acquisitions
Acquisitions
Acquisitions

On June 13, 2012, we announced that we and our local partner had signed a definitive agreement to acquire PT Asuransi Jaya Proteksi (JaPro), one of Indonesia's leading general insurers. On September 18, 2012, we acquired 80 percent of JaPro and our local partner expects to complete the purchase of the remaining 20 percent, subject to regulatory approvals and other closing conditions, by the end of 2012. The total purchase price is expected to be approximately $95 million in cash. The information needed to complete the purchase price allocation is preliminary and will be adjusted as further information becomes available during the measurement period. JaPro operates under our Insurance – Overseas General segment.

On September 12, 2012, we announced that we reached a definitive agreement to acquire Fianzas Monterrey, a leading surety lines company in Mexico offering administrative performance bonds primarily to clients in the construction and industrial sectors, for approximately $285 million in cash. This transaction, which is subject to regulatory approvals and other customary closing conditions, is expected to be completed during the first quarter of 2013.

On October 18, 2012, we announced that we reached a definitive agreement to acquire ABA Seguros, a property and casualty insurer in Mexico that provides automobile, homeowners, and small business coverages. We expect to pay approximately $865 million in cash for this transaction, subject to adjustment for dividends paid between signing and closing. This transaction, which is subject to regulatory approvals and other customary closing conditions, is expected to be completed in the first half of 2013.
Prior year acquisitions
We acquired New York Life’s Korea operations on February 1, 2011 and New York Life’s Hong Kong operations on April 1, 2011 for approximately $450 million in cash. These acquired businesses operate under our Life segment, expand our presence in the North Asia market and complement our life insurance business established in that region. In 2012, we finalized purchase price allocations resulting in $91 million of goodwill, none of which is expected to be deductible for income tax purposes, and $163 million of intangible assets. The most significant intangible asset is VOBA.
We acquired Penn Millers Holding Corporation (PMHC) on November 30, 2011 for approximately $107 million in cash. PMHC’s primary insurance subsidiary, Penn Millers Insurance Company, is a well-established underwriter in the agribusiness market since 1887. PMHC operates under our Insurance – North American segment.
We acquired Rio Guayas Compania de Seguros y Reaseguros (Rio Guayas), a general insurance company in Ecuador on December 28, 2011. Rio Guayas sells a range of insurance products, including auto, life, property, and A&H. The acquisition of Rio Guayas expands our capabilities in terms of geography, products, and distribution. Rio Guayas operates under our Insurance – Overseas General segment.
Investments
Investments
Investments
a) Fixed maturities
The following tables present the amortized cost and fair value of fixed maturities and related OTTI recognized in AOCI:
 
 
September 30, 2012
 
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
$
3,357

 
$
197

 
$
—

 
$
3,554

 
$
—

Foreign
13,241

 
750

 
(24
)
 
13,967

 
(1
)
Corporate securities
14,677

 
1,192

 
(36
)
 
15,833

 
(12
)
Mortgage-backed securities
10,227

 
545

 
(36
)
 
10,736

 
(88
)
States, municipalities, and political subdivisions
2,256

 
159

 
(1
)
 
2,414

 
—

 
$
43,758

 
$
2,843

 
$
(97
)
 
$
46,504

 
$
(101
)
Held to maturity
 
 
 
 
 
 
 
 
 
U.S. Treasury and agency
$
1,084

 
$
45

 
$
—

 
$
1,129

 
$
—

Foreign
919

 
52

 
(1
)
 
970

 
—

Corporate securities
2,182

 
140

 
—

 
2,322

 
—

Mortgage-backed securities
2,222

 
108

 
—

 
2,330

 
—

States, municipalities, and political subdivisions
1,086

 
46

 
(4
)
 
1,128

 
—

 
$
7,493

 
$
391

 
$
(5
)
 
$
7,879

 
$
—

 
 
 
 
 
 
 
 
 
 
 
December 31, 2011
 
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
$
2,774

 
$
186

 
$
—

 
$
2,960

 
$
—

Foreign
12,025

 
475

 
(99
)
 
12,401

 
(2
)
Corporate securities
14,055

 
773

 
(135
)
 
14,693

 
(22
)
Mortgage-backed securities
9,979

 
397

 
(175
)
 
10,201

 
(151
)
States, municipalities, and political subdivisions
1,617

 
96

 
(1
)
 
1,712

 
—

 
$
40,450

 
$
1,927

 
$
(410
)
 
$
41,967

 
$
(175
)
Held to maturity
 
 
 
 
 
 
 
 
 
U.S. Treasury and agency
$
1,078

 
$
48

 
$
—

 
$
1,126

 
$
—

Foreign
935

 
18

 
(23
)
 
930

 
—

Corporate securities
2,338

 
44

 
(45
)
 
2,337

 
—

Mortgage-backed securities
2,949

 
90

 
(3
)
 
3,036

 
—

States, municipalities, and political subdivisions
1,147

 
32

 
(3
)
 
1,176

 
—

 
$
8,447

 
$
232

 
$
(74
)
 
$
8,605

 
$
—


 
As discussed in Note 3 c), if a credit loss is indicated 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 the three and nine months ended September 30, 2012, $46 million and $130 million, respectively, of net unrealized appreciation related to such securities is included in OCI. For the three and nine months ended September 30, 2011, $30 million and $38 million, respectively, of net unrealized depreciation related to such securities is included in OCI. At September 30, 2012 and December 31, 2011, AOCI includes net unrealized depreciation of $28 million and $155 million, respectively, related to securities remaining in the investment portfolio at those dates 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 6 a) (iv)) and are included in the category, “Mortgage-backed securities”. Approximately 86 percent and 84 percent of the total mortgage-backed securities at September 30, 2012 and December 31, 2011, 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:
 
 
September 30, 2012
 
December 31, 2011
 
Amortized
Cost
 
Fair
Value
 
Amortized
Cost
 
Fair
Value
 
(in millions of U.S. dollars)
Available for sale
 
 
 
 
 
 
 
Due in 1 year or less
$
2,210

 
$
2,231

 
$
2,321

 
$
2,349

Due after 1 year through 5 years
12,591

 
13,174

 
12,325

 
12,722

Due after 5 years through 10 years
14,699

 
15,852

 
12,379

 
12,995

Due after 10 years
4,031

 
4,511

 
3,446

 
3,700

 
33,531

 
35,768

 
30,471

 
31,766

Mortgage-backed securities
10,227

 
10,736

 
9,979

 
10,201

 
$
43,758

 
$
46,504

 
$
40,450

 
$
41,967

Held to maturity
 
 
 
 
 
 
 
Due in 1 year or less
$
676

 
$
681

 
$
393

 
$
396

Due after 1 year through 5 years
1,839

 
1,914

 
2,062

 
2,090

Due after 5 years through 10 years
2,118

 
2,272

 
2,376

 
2,399

Due after 10 years
638

 
682

 
667

 
684

 
5,271

 
5,549

 
5,498

 
5,569

Mortgage-backed securities
2,222

 
2,330

 
2,949

 
3,036

 
$
7,493

 
$
7,879

 
$
8,447

 
$
8,605


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
The following table presents the cost and fair value of equity securities:
 
 
September 30

December 31
 
2012

2011
 
(in millions of U.S. dollars)
Cost
$
741

 
$
671

Gross unrealized appreciation
34

 
18

Gross unrealized depreciation
(5
)
 
(42
)
Fair value
$
770

 
$
647


c) 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 indicated, 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 impaired.
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. We develop these estimates using information based on market observable data, issuer-specific information, and credit ratings. ACE developed its default assumption by using 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. We believe that use of a default assumption in excess of the historical mean is reasonable in light of current market conditions.
For the three and nine months ended September 30, 2012, credit losses recognized in net income for corporate securities were $5 million and $9 million, respectively. For the three and nine months ended September 30, 2011, credit losses recognized in net income for corporate securities were $4 million.
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 and nine months ended September 30, 2012, credit losses recognized in net income for mortgage-backed securities were $2 million and $5 million, respectively. For the three and nine months ended September 30, 2011, credit losses recognized in net income for mortgage-backed securities were $5 million and $8 million, respectively.
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

Nine Months Ended
 
September 30

September 30
 
2012
 
2011
 
2012
 
2011
 
(in millions of U.S. dollars)
Fixed maturities:
 
 
 
 
 
 
 
OTTI on fixed maturities, gross
$
(10
)
 
$
(30
)
 
$
(18
)
 
$
(41
)
OTTI on fixed maturities recognized in OCI (pre-tax)
—

 
11

 
—

 
13

OTTI on fixed maturities, net
(10
)
 
(19
)
 
(18
)
 
(28
)
Gross realized gains excluding OTTI
71

 
92

 
287

 
309

Gross realized losses excluding OTTI
(14
)
 
(53
)
 
(120
)
 
(138
)
Total fixed maturities
47

 
20

 
149

 
143

Equity securities:
 
 
 
 
 
 
 
OTTI on equity securities
—

 
(1
)
 
(5
)
 
(1
)
Gross realized gains excluding OTTI
3

 
—

 
5

 
12

Gross realized losses excluding OTTI
(1
)
 
(1
)
 
(2
)
 
(2
)
Total equity securities
2

 
(2
)
 
(2
)
 
9

OTTI on other investments
—

 
—

 
(7
)
 
(3
)
Foreign exchange gains (losses)
(50
)
 
20

 
(64
)
 
(89
)
Investment and embedded derivative instruments
4

 
(89
)
 
(3
)
 
(157
)
Fair value adjustments on insurance derivative
83

 
(926
)
 
44

 
(925
)
S&P put options and futures
(147
)
 
220

 
(308
)
 
152

Other derivative instruments
—

 
2

 
(4
)
 
(1
)
Other
1

 
(5
)
 
1

 
(7
)
Net realized gains (losses)
$
(60
)
 
$
(760
)
 
$
(194
)
 
$
(878
)

 
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
 
Nine Months Ended
 
September 30
 
September 30
 
2012
 
2011
 
2012
 
2011
 
(in millions of U.S. dollars)
Balance of credit losses related to securities still held – beginning of period
$
47

 
$
94

 
$
74

 
$
137

Additions where no OTTI was previously recorded
1

 
6

 
3

 
8

Additions where an OTTI was previously recorded
6

 
3

 
11

 
4

Reductions for securities sold during the period
(4
)
 
(24
)
 
(38
)
 
(70
)
Balance of credit losses related to securities still held – end of period
$
50

 
$
79

 
$
50

 
$
79

 
 
 
 
 
 
 
 

d) Gross unrealized loss
At September 30, 2012, there were 1,473 fixed maturities out of a total of 23,322 fixed maturities in an unrealized loss position. The largest single unrealized loss in the fixed maturities was $4 million. There were approximately 68 equity securities out of a total of 197 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 September 30, 2012 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. Equity securities in an unrealized loss position include foreign fixed income securities held in a commingled fund structure 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
 
Fair Value
 
Gross
Unrealized
Loss
 
Fair Value
 
Gross
Unrealized
Loss
 
Fair Value
 
Gross
Unrealized
Loss
 
(in millions of U.S. dollars)
September 30, 2012
 
 
 
 
 
 
 
 
 
 
 
Foreign
$
839

 
$
(14.8
)
 
$
186

 
$
(9.7
)
 
$
1,025

 
$
(24.5
)
Corporate securities
663

 
(20.1
)
 
195

 
(15.5
)
 
858

 
(35.6
)
Mortgage-backed securities
225

 
(1.3
)
 
412

 
(35.0
)
 
637

 
(36.3
)
States, municipalities, and political subdivisions
29

 
(1.3
)
 
59

 
(4.0
)
 
88

 
(5.3
)
Total fixed maturities
1,756

 
(37.5
)
 
852

 
(64.2
)
 
2,608

 
(101.7
)
Equity securities
543

 
(5.4
)
 
—

 
—

 
543

 
(5.4
)
Other investments
113

 
(6.3
)
 
—

 
—

 
113

 
(6.3
)
Total
$
2,412

 
$
(49.2
)
 
$
852

 
$
(64.2
)
 
$
3,264

 
$
(113.4
)
 
 
0 – 12 Months
 
Over 12 Months
 
Total
 
Fair Value
 
Gross
Unrealized
Loss
 
Fair Value
 
Gross
Unrealized
Loss
 
Fair Value
 
Gross
Unrealized
Loss
 
(in millions of U.S. dollars)
December 31, 2011
 
 
 
 
 
 
 
 
 
 
 
Foreign
$
1,801

 
$
(82.2
)
 
$
529

 
$
(40.0
)
 
$
2,330

 
$
(122.2
)
Corporate securities
3,084

 
(148.2
)
 
268

 
(32.2
)
 
3,352

 
(180.4
)
Mortgage-backed securities
440

 
(7.5
)
 
586

 
(170.2
)
 
1,026

 
(177.7
)
States, municipalities, and political subdivisions
30

 
(0.4
)
 
98

 
(3.5
)
 
128

 
(3.9
)
Total fixed maturities
5,355

 
(238.3
)
 
1,481

 
(245.9
)
 
6,836

 
(484.2
)
Equity securities
484

 
(42.3
)
 
—

 
—

 
484

 
(42.3
)
Other investments
88

 
(8.3
)
 
—

 
—

 
88

 
(8.3
)
Total
$
5,927

 
$
(288.9
)
 
$
1,481

 
$
(245.9
)
 
$
7,408

 
$
(534.8
)

e) 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 reverse repurchase agreements. 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 LOCs and derivative transactions. Included in restricted assets at September 30, 2012 and December 31, 2011, are fixed maturities and short-term investments totaling $16.3 billion and $14.9 billion, respectively, and cash of $116 million and $179 million, respectively.
The following table presents the components of restricted assets:
 
 
September 30
 
December 31
 
2012
 
2011
 
(in millions of U.S. dollars)
Trust funds
$
11,149

 
$
9,940

Deposits with non-U.S. regulatory authorities
2,120

 
2,240

Assets pledged under reverse repurchase agreements
1,402

 
1,251

Deposits with U.S. regulatory authorities
1,325

 
1,307

Other pledged assets
390

 
364

 
$
16,386

 
$
15,102

Fair value measurements
Fair value measurements
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 in an orderly transaction between market participants and establishes a three-level valuation hierarchy in which inputs into valuation techniques used to measure fair value are classified. 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 one or more pricing services to obtain fair value measurements for the majority of the investment securities we hold. 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 typically adjust prices obtained from pricing services. The following is a description of the valuation techniques and inputs used to determine fair values for financial instruments carried at fair value, as well as the general classification of such financial instruments pursuant to the valuation hierarchy.
Fixed maturities
We use pricing services to estimate fair value measurements for the majority of our fixed maturities. The pricing services use market quotations for fixed maturities that have quoted prices in active markets; such securities are classified within Level 1. For fixed maturities other than U.S. Treasury securities that generally do not trade on a daily basis, the pricing services prepare estimates of fair value measurements using their pricing applications, 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, the valuation of fixed maturity investments 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 the estimated fair value of an investment 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 quote from a broker (typically 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 non-public equity securities, 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.
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 have 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 on the consolidated balance sheets.
Investment derivative instruments
Actively traded investment derivative instruments, including futures, options, and exchange-traded 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 Accounts payable, accrued expenses, and other liabilities in the consolidated balance sheets.
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, 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. Our position in credit default swaps is typically included within Level 3. Other derivative instruments are recorded in 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 in the valuation hierarchy on the same basis as other equity securities traded in active markets and are classified within Level 1. 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 inputs, including changes in interest rates, changes in equity markets, credit risk, current account value, changes in market volatility, expected annuitization rates, changes in 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. The assumptions regarding lapse and GMIB annuitization rates determined for each treaty are based on a dynamic calculation that uses several underlying factors.
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. In general, the base lapse function assumes low lapse rates (ranging from about 1 percent to 6 percent per annum) during the surrender charge period of the GMIB contract, followed by a “spike” lapse rate (ranging from about 10 percent to 30 percent per annum) in the year immediately following the surrender charge period, and then reverting to an ultimate lapse rate (generally around 10 percent per annum), typically over a 2-year period. This base rate is adjusted downward for policies with more valuable guarantees (policies with guaranteed values far in excess of their account values) by multiplying the base lapse rate by a factor ranging from 15 percent to 75 percent. Additional lapses due to partial withdrawals and older policyholders with tax-qualified contracts (due to required minimum distributions) are also included.
The GMIB annuitization rate is the percentage of policies for which the policyholder will elect to annuitize using the guaranteed benefit provided under the GMIB. All else equal, as GMIB annuitization rates increase, ultimate claim payments will increase, subject to treaty claim limits. In general ACE assumes that GMIB annuitization rates will be higher for policies with more valuable guarantees (policies with guaranteed values far in excess of their account values). In addition, we also assume that GMIB annuitization rates are higher in the first year immediately following the waiting period (the first year the policies are eligible to annuitize using the GMIB) in comparison to all subsequent years. We do not yet have a robust set of annuitization experience because most of our clients’ policyholders are not yet eligible to annuitize using the GMIB. However, for certain clients representing approximately 36 percent of the total GMIB guaranteed value there are several years of annuitization experience. For these clients the annuitization function reflects the actual experience and has a maximum annuitization rate per annum of 8 percent (a higher maximum applies in the first year a policy is eligible to annuitize using the GMIB—it is over 13 percent). For most clients, there is not a credible amount of observable relevant behavior data and so we use a weighted-average (with a heavier weighting on the observed experience noted previously) of three different annuitization functions with maximum annuitization rates per annum of 8 percent, 12 percent, and 30 percent, respectively (with significantly higher rates in the first year a policy is eligible to annuitize using the GMIB). The GMIB reinsurance treaties include claim limits to protect ACE in the event that actual annuitization behavior is significantly higher than expected.
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 continuously re-evaluated by management and enhanced, as appropriate, based upon additional experience obtained related to policyholder behavior and availability of more information, such as market conditions, market participant assumptions, and demographics of in-force annuities. During the three and nine months ended September 30, 2012, no material changes were made to actuarial or behavioral assumptions. We made minor technical refinements to the model with a favorable net income impact of approximately $21 million for the three and nine months ended September 30, 2012.
We view the variable annuity reinsurance business as having a similar risk profile to that of catastrophe reinsurance, with the probability of a cumulative long-term economic net loss relatively small at the time of pricing. However, adverse changes in market factors and policyholder behavior will have an adverse impact on net income, which may be material. Because of the significant use of unobservable inputs including policyholder behavior, GLB reinsurance is classified within Level 3.
The following tables present, by valuation hierarchy, the financial instruments measured at fair value on a recurring basis:
 
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(in millions of U.S. dollars)
September 30, 2012
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
Fixed maturities available for sale
 
 
 
 
 
 
 
U.S. Treasury and agency
$
1,991

 
$
1,563

 
$
—

 
$
3,554

Foreign
204

 
13,738

 
25

 
13,967

Corporate securities
19

 
15,684

 
130

 
15,833

Mortgage-backed securities
—

 
10,707

 
29

 
10,736

States, municipalities, and political subdivisions
—

 
2,413

 
1

 
2,414

 
2,214

 
44,105

 
185

 
46,504

Equity securities
761

 
5

 
4

 
770

Short-term investments
1,561

 
868

 
—

 
2,429

Other investments
248

 
195

 
2,178

 
2,621

Securities lending collateral
—

 
2,039

 
—

 
2,039

Investment derivative instruments
(3
)
 
—

 
—

 
(3
)
Other derivative instruments
6

 
32

 
—

 
38

Separate account assets
1,024

 
61

 
—

 
1,085

Total assets measured at fair value
$
5,811

 
$
47,305

 
$
2,367

 
$
55,483

Liabilities:
 
 
 
 
 
 
 
GLB(1)
$
—

 
$
—

 
$
1,279

 
$
1,279

____________________ 
(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.

 
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(in millions of U.S. dollars)
December 31, 2011
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
Fixed maturities available for sale
 
 
 
 
 
 
 
U.S. Treasury and agency
$
1,691

 
$
1,264

 
$
5

 
$
2,960

Foreign
212

 
12,156

 
33

 
12,401

Corporate securities
20

 
14,539

 
134

 
14,693

Mortgage-backed securities
—

 
10,173

 
28

 
10,201

States, municipalities, and political subdivisions
—

 
1,711

 
1

 
1,712

 
1,923

 
39,843

 
201

 
41,967

Equity securities
632

 
2

 
13

 
647

Short-term investments
1,246

 
1,055

 
—

 
2,301

Other investments
208

 
229

 
1,877

 
2,314

Securities lending collateral
—

 
1,375

 
—

 
1,375

Investment derivative instruments
10

 
—

 
—

 
10

Other derivative instruments
(16
)
 
54

 
3

 
41

Separate account assets
607

 
53

 
—

 
660

Total assets measured at fair value
$
4,610

 
$
42,611

 
$
2,094

 
$
49,315

Liabilities:
 
 
 
 
 
 
 
GLB(1)
$
—

 
$
—

 
$
1,319

 
$
1,319

____________________ 
(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.
The transfers between Level 1 and Level 2 during the three and nine months ended September 30, 2012 and 2011 were not material.
Fair value of alternative investments
Included in Other investments in the fair value hierarchy at September 30, 2012 and December 31, 2011 are investment funds, limited partnerships, and partially-owned investment companies measured at fair value using NAV as a practical expedient. At September 30, 2012 and December 31, 2011, there were no probable or pending sales related to any of the investments measured at fair value using NAV. 
The following table presents, by investment category, the expected liquidation period, fair value, and maximum future funding commitments of alternative investments:
 
 
Expected
Liquidation
Period
 
September 30, 2012
 
December 31, 2011
 
Fair
Value
 
Maximum
Future
Funding
Commitments
 
Fair
Value
 
Maximum
Future
Funding
Commitments
 
 
 
(in millions of U.S. dollars)
Financial
5 to 9 Years
 
$
210

 
$
124

 
$
205

 
$
141

Real estate
3 to 9 Years
 
323

 
66

 
270

 
96

Distressed
6 to 9 Years
 
189

 
142

 
182

 
57

Mezzanine
6 to 9 Years
 
269

 
294

 
195

 
282

Traditional
3 to 8 Years
 
647

 
541

 
565

 
200

Vintage
1 to 3 Years
 
16

 
1

 
18

 
1

Investment funds
Not Applicable
 
389

 
—

 
378

 
—

 
 
 
$
2,043

 
$
1,168

 
$
1,813

 
$
777


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. Included in the “Expected Liquidation Period” column above is the range in years over which ACE expects the majority of underlying assets in the respective categories to be liquidated. 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.
Financial
Financial consists of investments in private equity funds targeting financial services companies such as financial institutions and insurance services around the world.
Real estate
Real estate consists of investments in private equity funds targeting global distress opportunities, value added U.S. properties, and global mezzanine debt securities in the commercial real estate market.
Distressed
Distressed consists of investments in private equity funds targeting distressed debt/credit and equity opportunities in the U.S.
Mezzanine
Mezzanine consists of investments in private equity funds targeting private mezzanine debt of large-cap and mid-cap companies in the U.S. and worldwide.
Traditional
Traditional consists of investments in private equity funds employing traditional private equity investment strategies such as buyout and venture with different geographical focuses including Brazil, Asia, Europe, and the U.S.
Vintage
Vintage consists of investments in private equity funds 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 value 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 the 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.
The following table presents the significant unobservable inputs used in the Level 3 liability valuations. Excluded from the table below are inputs used to fair value 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)
Fair Value at
September 30,
2012
 
Valuation
Technique
 
Significant
Unobservable Inputs
 
Ranges
GLB(1)
$
1,279

 
Actuarial model
 
Lapse rate
 
1% - 30%
 
 
 
 
 
Annuitization rate
 
0% - 50%
____________________ 
(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):
 
 
Three Months Ended September 30, 2012
 
Assets
 
Liabilities
 
Available-for-Sale Debt Securities
 
Equity
securities
 
Other
investments
 
Other
derivative
instruments
 
GLB(1)
 
U.S.
Treasury
and
Agency
 
Foreign
 
Corporate
securities
 
MBS
 
States,
municipalities,
and political
subdivisions
 
 
 
 
(in millions of U.S. dollars)
Balance-Beginning of Period
$
4

 
$
20

 
$
137

 
$
27

 
$
1

 
$
12

 
$
2,047

 
$
1

 
$
1,354

Transfers into Level 3
—

 
5

 
5

 
10

 
—

 
2

 
53

 
—

 
—

Transfers out of Level 3
(4
)
 
(6
)
 
(26
)
 
—

 
—

 
(10
)
 
—

 
—

 
—

Change in Net Unrealized Gains (Losses) included in OCI
—

 
—

 
3

 
—

 
—

 
(1
)
 
13

 
—

 
—

Net Realized Gains/Losses
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(75
)
Purchases
—

 
6

 
11

 
—

 
—

 
1

 
121

 
—

 
—

Sales
—

 
—

 
—

 
(7
)
 
—

 
—

 
(5
)
 
—

 
—

Settlements
—

 
—

 
—

 
(1
)
 
—

 
—

 
(51
)
 
(1
)
 
—

Balance-End of Period
$
—

 
$
25

 
$
130

 
$
29

 
$
1

 
$
4

 
$
2,178

 
$
—

 
$
1,279

Net Realized Gains/Losses Attributable to Changes in Fair Value at the Balance Sheet Date
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
(75
)
____________________ 
(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.
  
Three Months Ended September 30, 2011
 
Assets
 
Liabilities
 
Available-for-Sale Debt Securities
 
Equity
securities
 
Other
investments
 
Other
derivative
instruments
 
GLB(1)
 
Foreign
 
Corporate
securities
 
MBS
 
States,
municipalities,
and political
subdivisions
 
 
(in millions of U.S. dollars)
Balance-Beginning of Period
$
27

 
$
142

 
$
34

 
$
1

 
$
10

 
$
1,680

 
$
4

 
$
524

Transfers into Level 3
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Transfers out of Level 3
(11
)
 
—

 
(13
)
 
—

 
—

 
—

 
—

 
—

Change in Net Unrealized Gains (Losses) included in OCI
—

 
(6
)
 
—

 
—

 
—

 
59

 
—

 
—

Net Realized Gains/Losses
(1
)
 
—

 
—

 
—

 
—

 
(1
)
 
5

 
952

Purchases
1

 
1

 
—

 
—

 
—

 
85

 
—

 
—

Sales
—

 
(3
)
 
(2
)
 
—

 
—

 
—

 
—

 
—

Settlements
—

 
(9
)
 
(1
)
 
—

 
—

 
(58
)
 
(1
)
 
—

Balance-End of Period
$
16

 
$
125

 
$
18

 
$
1

 
$
10

 
$
1,765

 
$
8

 
$
1,476

Net Realized Gains/Losses Attributable to Changes in Fair Value at the Balance Sheet Date
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
(1
)
 
$
4

 
$
952

____________________ 
(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 $1,635 million at September 30, 2011, and $676 million at June 30, 2011, which includes a fair value derivative adjustment of $1,476 million and $524 million, respectively.
 
 
Nine Months Ended September 30, 2012
 
Assets
 
Liabilities
 
Available-for-Sale Debt Securities
 
Equity
securities
 
Other
investments
 
Other
derivative
instruments
 
GLB(1)
 
U.S.
Treasury
and
Agency
 
Foreign
 
Corporate
securities
 
MBS
 
States,
municipalities,
and political
subdivisions
 
 
 
 
(in millions of U.S. dollars)
Balance-Beginning of Period
$
5

 
$
33

 
$
134

 
$
28

 
$
1

 
$
13

 
$
1,877

 
$
3

 
$
1,319

Transfers into Level 3
—

 
6

 
33

 
22

 
1

 
2

 
53

 
—

 
—

Transfers out of Level 3
(4
)
 
(7
)
 
(35
)
 
(15
)
 
—

 
(10
)
 
—

 
—

 
—

Change in Net Unrealized Gains (Losses) included in OCI
—

 
—

 
6

 
—

 
—

 
—

 
37

 
—

 
—

Net Realized Gains/Losses
—

 
—

 
(1
)
 
—

 
—

 
—

 
(7
)
 
(4
)
 
(40
)
Purchases
—

 
46

 
19

 
4

 
—

 
4

 
366

 
3

 
—

Sales
—

 
(52
)
 
(15
)
 
(7
)
 
—

 
(5
)
 
(6
)
 
—

 
—

Settlements
(1
)
 
(1
)
 
(11
)
 
(3
)
 
(1
)
 
—

 
(142
)
 
(2
)
 
—

Balance-End of Period
$
—

 
$
25

 
$
130

 
$
29

 
$
1

 
$
4

 
$
2,178

 
$
—

 
$
1,279

Net Realized Gains/Losses Attributable to Changes in Fair Value at the Balance Sheet Date
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
(7
)
 
$
—

 
$
(40
)
____________________ 
(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.
 
Nine Months Ended September 30, 2011
 
Assets
 
Liabilities
 
Available-for-Sale Debt Securities
 
Equity
securities
 
Other
investments
 
Other
derivative
instruments
 
GLB(1)
 
Foreign
 
Corporate
securities
 
MBS
 
States,
municipalities,
and political
subdivisions
 
 
(in millions of U.S. dollars)
Balance-Beginning of Period
$
26

 
$
115

 
$
39

 
$
2

 
$
13

 
$
1,432

 
$
4

 
$
507

Transfers into Level 3
9

 
34

 
4

 
—

 
—

 
—

 
—

 
—

Transfers out of Level 3
(18
)
 
(4
)
 
(48
)
 
—

 
—

 
—

 
—

 
—

Change in Net Unrealized Gains (Losses) included in OCI
(1
)
 
(5
)
 
—

 
—

 
(1
)
 
110

 
—

 
—

Net Realized Gains/Losses
—

 
(2
)
 
—

 
—

 
4

 
(4
)
 
6

 
969

Purchases
6

 
23

 
46

 
—

 
2

 
418

 
—

 
—

Sales
(3
)
 
(23
)
 
(17
)
 
—

 
(8
)
 
(55
)
 
—

 
—

Settlements
(3
)
 
(13
)
 
(6
)
 
(1
)
 
—

 
(136
)
 
(2
)
 
—

Balance-End of Period
$
16

 
$
125

 
$
18

 
$
1

 
$
10

 
$
1,765

 
$
8

 
$
1,476

Net Realized Gains/Losses Attributable to Changes in Fair Value at the Balance Sheet Date
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
(4
)
 
$
4

 
$
969

____________________ 
(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 $1,635 million at September 30, 2011, and $648 million at December 31, 2010, which includes a fair value derivative adjustment of $1,476 million and $507 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.
The following table presents carrying values and fair values of financial instruments not measured at fair value:
 
 
September 30, 2012
 
December 31, 2011
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
 
Fair
Value
Assets:
(in millions of U.S. dollars)
Fixed maturities held to maturity
 
 
 
 
 
 
 
U.S. Treasury and agency
$
1,084

 
$
1,129

 
$
1,078

 
$
1,126

Foreign
919

 
970

 
935

 
930

Corporate securities
2,182

 
2,322

 
2,338

 
2,337

Mortgage-backed securities
2,222

 
2,330

 
2,949

 
3,036

States, municipalities, and political subdivisions
1,086

 
1,128

 
1,147

 
1,176

 
7,493

 
7,879

 
8,447

 
8,605

Partially-owned insurance companies
354

 
354

 
352

 
352

Total assets
$
7,847

 
$
8,233

 
$
8,799

 
$
8,957

Liabilities:
 
 
 
 
 
 
 
Short-term debt
$
1,402

 
$
1,402

 
$
1,251

 
$
1,251

Long-term debt
3,360

 
3,964

 
3,360

 
3,823

Trust preferred securities
309

 
459

 
309

 
404

Total liabilities
$
5,071

 
$
5,825

 
$
4,920

 
$
5,478


 
The following table presents, by valuation hierarchy, the financial instruments not measured at fair value:
 
  
Level 1
 
Level 2
 
Level 3
 
Total
September 30, 2012
(in millions of U.S. dollars)
Assets:
 
 
 
 
 
 
 
Fixed maturities held to maturity
 
 
 
 
 
 
 
U.S. Treasury and agency
$
615

 
$
514

 
$
—

 
$
1,129

Foreign
—

 
970

 
—

 
970

Corporate securities
—

 
2,306

 
16

 
2,322

Mortgage-backed securities
—

 
2,330

 
—

 
2,330

States, municipalities, and political subdivisions
—

 
1,128

 
—

 
1,128

 
615

 
7,248

 
16

 
7,879

Partially-owned insurance companies
—

 
—

 
354

 
354

Total assets
$
615

 
$
7,248

 
$
370

 
$
8,233

Liabilities:
 
 
 
 
 
 
 
Short-term debt
$
—

 
$
1,402

 
$
—

 
$
1,402

Long-term debt
—

 
3,964

 
—

 
3,964

Trust preferred securities
—

 
459

 
—

 
459

Total liabilities
$
—

 
$
5,825

 
$
—

 
$
5,825

Assumed life reinsurance programs involving minimum benefit guarantees under annuity contracts
Assumed life reinsurance programs involving minimum benefit guarantees under annuity contracts
Assumed life reinsurance programs involving minimum benefit guarantees under 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
 
Nine Months Ended
 
September 30
 
September 30
 
2012
 
2011
 
2012
 
2011
 
(in millions of U.S. dollars)
GMDB
 
 
 
 
 
 
 
Net premiums earned
$
20

 
$
24

 
$
64

 
$
75

Policy benefits and other reserve adjustments
$
22

 
$
20

 
$
61

 
$
63

GLB
 
 
 
 
 
 
 
Net premiums earned
$
40

 
$
40

 
$
121

 
$
122

Policy benefits and other reserve adjustments
7

 
7

 
30

 
19

Net realized gains (losses)
75

 
(952
)
 
41

 
(969
)
Gain (loss) recognized in income
$
108

 
$
(919
)
 
$
132

 
$
(866
)
Net cash received
$
35

 
$
40

 
$
114

 
$
121

Net (increase) decrease in liability
$
73

 
$
(959
)
 
$
18

 
$
(987
)

At September 30, 2012, reported liabilities for GMDB and GLB reinsurance were $114 million and $1.5 billion, respectively, compared with $138 million and $1.5 billion, respectively, at December 31, 2011. The reported liability for GLB reinsurance at September 30, 2012 and December 31, 2011 of $1.5 billion includes a fair value derivative adjustment of $1.3 billion. Included in Net realized gains (losses) in the table above are gains (losses) related to foreign exchange and other fair value derivative adjustments. 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 continually reviewed by management and enhanced, as appropriate, based upon improvements in modeling assumptions and availability of more information, such as market conditions and demographics of in-force annuities.
Variable Annuity Net Amount at Risk
(i) Reinsurance covering the GMDB risk only
At September 30, 2012 and December 31, 2011, the net amount at risk from reinsurance programs covering the GMDB risk only was $1.4 billion and $1.8 billion, respectively.
For reinsurance programs covering the GMDB risk only, the net amount at risk is defined as the present value of future claim payments under the following assumptions:
•
policy account values and guaranteed values are fixed at the valuation date (September 30, 2012 and December 31, 2011, respectively);
•
there are no lapses or withdrawals;
•
mortality according to 100 percent of the Annuity 2000 mortality table;
•
future claims are discounted in line with the discounting assumption used in the calculation of the benefit reserve averaging between 1.0 percent and 2.0 percent; and
•
reinsurance coverage ends at the earlier of the maturity of the underlying variable annuity policy or the reinsurance treaty.
The total claim amount payable on reinsurance programs covering the GMDB risk only, if all the cedants’ policyholders were to die immediately at September 30, 2012 was approximately $486 million. This takes into account all applicable reinsurance treaty claim limits.
(ii) Reinsurance covering the GLB risk only
At September 30, 2012 and December 31, 2011, the net amount at risk from reinsurance programs covering the GLB risk only was $382 million and $380 million, respectively.
For reinsurance programs covering the GLB risk only, the net amount at risk is defined as the present value of future claim payments under the following assumptions:
•
policy account values and guaranteed values are fixed at the valuation date (September 30, 2012 and December 31, 2011, respectively);
•
there are no deaths, lapses, or withdrawals;
•
policyholders annuitize at a frequency most disadvantageous to ACE (in other words, annuitization at a level that maximizes claims taking into account the treaty limits) under the terms of the reinsurance contracts;
•
for annuitizing policyholders, the GMIB claim is calculated using interest rates in line with those used in calculating the reserve;
•
future claims are discounted in line with the discounting assumption used in the calculation of the benefit reserve averaging between 3.5 percent and 4.5 percent; and
•
reinsurance coverage ends at the earlier of the maturity of the underlying variable annuity policy or the reinsurance treaty. 
(iii) Reinsurance covering both the GMDB and GLB risks on the same underlying policyholders
At September 30, 2012 and December 31, 2011, the GMDB net amount at risk from reinsurance programs covering both the GMDB and GLB risks on the same underlying policyholders was $137 million and $182 million, respectively.
At September 30, 2012 and December 31, 2011, the GLB net amount at risk from reinsurance programs covering both the GMDB and GLB risks on the same underlying policyholders was $825 million and $998 million, respectively.
These net amounts at risk reflect the interaction between the two types of benefits on any single policyholder (eliminating double-counting), and therefore the net amounts at risk should be considered additive.
For reinsurance programs covering both the GMDB and GLB risks on the same underlying policyholders, the net amount at risk is defined as the present value of future claim payments under the following assumptions:
•
policy account values and guaranteed values are fixed at the valuation date (September 30, 2012 and December 31, 2011, respectively);
•
there are no lapses, or withdrawals;
•
mortality according to 100 percent of the Annuity 2000 mortality table;
•
policyholders annuitize at a frequency most disadvantageous to ACE (in other words, annuitization at a level that maximizes claims taking into account the treaty limits) under the terms of the reinsurance contracts;
•
for annuitizing policyholders, the GMIB claim is calculated using interest rates in line with those used in calculating the reserve;
•
future claims are discounted in line with the discounting assumption used in the calculation of the benefit reserve averaging between 1.0 percent and 2.0 percent; and
•
reinsurance coverage ends at the earlier of the maturity of the underlying variable annuity policy or the reinsurance treaty.
The total claim amount payable on reinsurance programs covering both the GMDB and GLB risks on the same underlying policyholders, if all of the cedants’ policyholders were to die immediately at September 30, 2012 was approximately $885 million. This takes into account all applicable reinsurance treaty claim limits. Although there would be an increase in death claims resulting from 100 percent immediate mortality of all policyholders, the GLB claims would be zero.
The average attained age of all policyholders under sections i), ii), and iii) above, weighted by the guaranteed value of each reinsured policy, is approximately 68 years.
Commitments, contingencies, and guarantees
Commitments, contingencies, and guarantees
Commitments, contingencies, and guarantees
a) Derivative instruments
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. Along with convertible bonds and to be announced mortgage-backed securities (TBA), discussed below, these are the most numerous and frequent derivative transactions.
ACE maintains positions in convertible bond investments that contain embedded derivatives. In addition, we purchase TBAs as part of our investing activities. These securities are included within the fixed maturities available for sale (FM AFS) portfolio.
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 Accounts payable, accrued expenses, and other liabilities (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.
In relation to certain debt issuances, ACE, from time to time, enters into interest rate swap transactions for the purpose of either fixing or reducing borrowing costs. Although the use of these interest rate swaps has the economic effect of fixing or reducing borrowing costs on a net basis, gross interest expense on the related debt issuances is included in Interest expense while the settlements related to the interest rate swaps are reflected in Net realized gains (losses) in the consolidated statements of operations. At September 30, 2012, ACE had no in-force interest rate swaps.
ACE, from time to time, buys credit default swaps to mitigate global credit risk exposure, primarily related to reinsurance recoverables. At September 30, 2012, ACE had no in-force credit default swaps.
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 in an asset or (liability) position, and notional values/payment provisions of our derivative instruments:
 
 
 
 
September 30, 2012
 
December 31, 2011
 
Consolidated
Balance
Sheet
Location
 
Fair
Value
 
Notional
Value/
Payment
Provision
 
Fair
Value
 
Notional
Value/
Payment
Provision
 
 
 
(in millions of U.S. dollars)
Investment and embedded derivative instruments
 
 
 
 
 
 
 
 
 
Foreign currency forward contracts
AP
 
$
(6
)
 
$
841

 
$
7

 
$
674

Cross-currency swaps
AP
 
—

 
50

 
—

 
—

Futures contracts on money market instruments
AP
 
3

 
2,200

 
7

 
10,476

Futures contracts on notes and bonds
AP
 
—

 
931

 
(4
)
 
1,055

Options on money market instruments
AP
 
—

 
3,030

 
—

 
292

Options on notes and bonds futures
AP
 
—

 
56

 
—

 
—

Convertible bonds
FM AFS
 
410

 
378

 
357

 
353

TBAs
FM AFS
 
75

 
71

 
60

 
56

 
 
 
$
482

 
$
7,557

 
$
427

 
$
12,906

Other derivative instruments
 
 
 
 
 
 
 
 
 
Futures contracts on equities(1)
AP
 
$
6

 
$
2,342

 
$
(16
)
 
$
1,367

Options on equity market indices(1)
AP
 
32

 
250

 
54

 
250

Credit default swaps
AP
 
—

 
—

 
3

 
350

Other
AP
 
—

 
6

 
—

 
6

 
 
 
$
38

 
$
2,598

 
$
41

 
$
1,973

GLB(2)
AP/FPB
 
$
(1,487
)
 
$
1,207

 
$
(1,505
)
 
$
1,378

____________________ 
(1) 
Related to GMDB and GLB blocks of business.
(2) 
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.
The following table presents net realized gains (losses) related to derivative instrument activity in the consolidated statements of operations:
 
 
Three Months Ended
 
Nine Months Ended
 
September 30
 
September 30
 
2012
 
2011
 
2012
 
2011
 
(in millions of U.S. dollars)
Investment and embedded derivative instruments
 
 
 
 
 
 
 
Foreign currency forward contracts
$
(9
)
 
$
15

 
$
(8
)
 
$
(3
)
All other futures contracts and options
—

 
(64
)
 
(20
)
 
(91
)
Convertible bonds
12

 
(41
)
 
24

 
(63
)
TBAs
1

 
1

 
1

 
—

Total investment and embedded derivative instruments
$
4

 
$
(89
)
 
$
(3
)
 
$
(157
)
GLB and other derivative instruments
 
 
 
 
 
 
 
GLB(1)
$
83

 
$
(926
)
 
$
44

 
$
(925
)
Futures contracts on equities(2)
(138
)
 
197

 
(286
)
 
134

Options on equity market indices(2)
(9
)
 
23

 
(22
)
 
18

Credit default swaps
—

 
2

 
(4
)
 
(1
)
Total GLB and other derivative instruments
$
(64
)
 
$
(704
)
 
$
(268
)
 
$
(774
)
 
$
(60
)
 
$
(793
)
 
$
(271
)
 
$
(931
)
 ____________________
(1) 
Excludes foreign exchange gains (losses) related to GLB.
(2) 
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.
(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, reserves for GMDB and GLB reinsurance business.
Options
An option contract conveys to the holder the right, but not the obligation, to purchase or sell a specified amount or value of an underlying security at a fixed price. Option contracts are used in 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, 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
We use cross-currency swaps to manage specific foreign currency denominated investments. These swaps enable us to reduce the duration gap between assets and liabilities by more closely matching the liabilities with the maturities of the underlying bonds. 
Interest rate swaps
We use interest rate swaps related to certain debt issuances for the purpose of either fixing and/or reducing borrowing costs.
Credit default swaps
A credit default swap is a bilateral contract under which two counterparties agree to isolate and separately trade the credit risk of at least one third-party reference entity. Under a credit default swap agreement, a protection buyer pays a periodic fee to a protection seller in exchange for a contingent payment by the seller upon a credit event (such as a default or failure to pay) related to the reference entity. When a credit event is triggered, the protection seller pays the protection buyer the difference between the fair value of assets and the principal amount.
(iii) Convertible security investments
A convertible bond is a debt instrument that can be converted into a predetermined amount of the issuer’s equity at certain times prior to the bond’s maturity. The convertible option is an embedded derivative within the fixed maturity host instruments which are classified in the investment portfolio as available for sale. ACE purchases convertible bonds for their total return and not specifically for the conversion feature.
(iv) TBA
By acquiring a TBA, we make a commitment to purchase a future issuance of mortgage-backed securities. For the period between purchase of the TBA 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 annuities. 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 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.
b) Other investments
At September 30, 2012, included in Other investments in the consolidated balance sheet are investments in limited partnerships and partially-owned investment companies with a carrying value of $1,654 million. In connection with these investments, we have commitments that may require funding of up to $1,168 million over the next several years. 
c) Taxation
In April 2012, ACE reached final settlement with the Internal Revenue Service (IRS) Appeals Division regarding several issues raised by the IRS Examination Division in its federal tax returns for 2005, 2006 and 2007. The settlement of these issues had no net impact on our results of operations. In addition, the IRS completed its field examination of ACE’s federal tax returns for 2008 and 2009 during June 2012. No material adjustments resulted from this examination. 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 and the closing of tax statutes of limitations. 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
(i) Claims and other litigation
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 is not likely to have a material adverse effect on our consolidated financial condition, although it is possible that the effect could be material to our consolidated results of operations for an individual reporting period.
(ii) Business practices litigation
ACE Limited, ACE INA Holdings Inc., and ACE USA, Inc., along with a number of other insurers and brokers, were named in a series of federal putative nationwide class actions brought by insurance policyholders. The Judicial Panel on Multidistrict Litigation (JPML) consolidated these cases in the District of New Jersey. On August 1, 2005, plaintiffs in the New Jersey consolidated proceedings filed two consolidated amended complaints – one concerning commercial insurance and the other concerning employee benefit plans. The employee benefit plans litigation against ACE Limited has been dismissed.
In the commercial insurance complaint, the plaintiffs named ACE Limited, ACE INA Holdings Inc., ACE USA, Inc., ACE American Insurance Co., Illinois Union Insurance Co., and Indemnity Insurance Co. of North America. They allege that certain brokers and insurers, including certain ACE entities, conspired to increase premiums and allocate customers through the use of “B” quotes and contingent commissions. In addition, they allege that the broker defendants received additional income by improperly placing their clients’ business with insurers through related wholesale entities that acted as intermediaries between brokers and insurers. Plaintiffs also allege that broker defendants tied the purchase of primary insurance to the placement of such coverage with reinsurance carriers through the broker defendants’ reinsurance broker subsidiaries. The complaint asserts the following causes of action against the ACE defendants: Federal Racketeer Influenced and Corrupt Organizations Act (RICO), federal antitrust law, state antitrust law, aiding and abetting breach of fiduciary duty, and unjust enrichment.
In 2006 and 2007, the Court dismissed plaintiffs’ first two attempts to properly plead a case without prejudice and permitted plaintiffs one final opportunity to re-plead. The amended complaint, filed on May 22, 2007, purported to add several new ACE defendants: ACE Group Holdings, Inc., ACE US Holdings, Inc., Westchester Fire Insurance Company, INA Corporation, INA Financial Corporation, INA Holdings Corporation, ACE Property and Casualty Insurance Company, and Pacific Employers Insurance Company. Plaintiffs also added a new antitrust claim against Marsh, the ACE defendants, and other insurers based on the same allegations as the other claims but limited to excess casualty insurance. In 2007, the Court granted defendants’ motions to dismiss plaintiffs’ antitrust and RICO claims with prejudice. The Court also declined to exercise supplemental jurisdiction over plaintiffs’ state law claims and dismissed those claims without prejudice. Plaintiffs appealed to the United States Court of Appeals for the Third Circuit. On August 16, 2010, the Third Circuit affirmed, in part, and vacated, in part, the District Court’s previous dismissals with instructions for further briefing at the District Court on remand. Defendants renewed their motions consistent with the Third Circuit’s instructions. On June 28, 2011 the District Court administratively terminated defendants’ motions without prejudice to re-file after adjudication of issues related to a proposed class settlement involving a number of other parties and stayed the case. On October 17, 2011, the Court lifted the stay and, shortly thereafter, entered an order permitting defendants to re-file their motions to dismiss.  Defendants did so on October 21, 2011.  On April 30, 2012 the Court entered a discovery scheduling order.  On May 31, 2012, the Court once again administratively terminated defendants' motions to dismiss.  On September 25, 2012, at defendants' urging, the Court ordered that the defendants' motions to dismiss would be reinstated.
As of October 30, 2012, plaintiffs have not specified an amount of alleged damages and the Court has not decided defendants’ renewed motions to dismiss. The Court has also not determined if this case may proceed as a class action and has, therefore, not determined the size or scope of any class. As a result, ACE is unable to reasonably estimate the potential loss or range of losses, if any, arising from this litigation.
There are a number of federal actions brought by policyholders based on allegations similar to the allegations in the consolidated federal actions that were filed in, or transferred to, the United States District Court for the District of New Jersey for coordination (“tag-along cases”). On October 17, 2011 the Court lifted the stay and on April 30, 2012 the Court entered a discovery scheduling order.  On September 25, 2012, at defendants' urging, the Court ordered the tag-along plaintiffs to file their final complaints.  The tag-along defendants will now be permitted to file threshold motions against those complaints in November 2012.  Discovery is ongoing.
•
New Cingular Wireless Headquarters LLC et al. v. Marsh & McLennan Companies, Inc. et al. (Case No. 06-5120; D.N.J.), was originally filed in the Northern District of Georgia on April 4, 2006. ACE Limited, ACE American Ins. Co., ACE USA, Inc., ACE Bermuda Insurance Ltd., Illinois Union Ins. Co., Pacific Employers Ins. Co., and Lloyd’s of London Syndicate 2488 AGM, along with a number of other insurers and brokers, are named.
•
Avery Dennison Corp. v. Marsh & McLennan Companies, Inc. et al. (Case No. 07-00757; D.N.J.) was filed on February 13, 2007. ACE Limited, ACE INA Holdings Inc., ACE USA, Inc., and ACE American Insurance Co., along with a number of other insurers and brokers, are named.
•
Henley Management Co., Inc. et al. v. Marsh, Inc. et al. (Case No. 07-2389; D.N.J.) was filed on May 27, 2007. ACE USA, Inc., along with a number of other insurers and Marsh, Inc., are named.
•
Sears, Roebuck & Co. et al. v. Marsh & McLennan Companies, Inc. et al. (Case No. 07-2535; D.N.J.) was originally filed in the Northern District of Georgia on October 12, 2007. ACE American Insurance Co., ACE Bermuda Insurance Ltd., and Westchester Surplus Lines Insurance Co., along with a number of other insurers and brokers, are named.
•
Lincoln Adventures LLC et al. v. Those Certain Underwriters at Lloyd’s, London Members of Syndicates 0033 et al. (Case No. 07-60991; D.N.J.) was originally filed in the Southern District of Florida on July 13, 2007. Supreme Auto Transport LLC et al. v. Certain Underwriters of Lloyd’s of London, et al. (Case No. 07-6703; D.N.J.) (Supreme Auto) was originally filed in the Southern District of New York on July 25, 2007. Lloyd’s of London Syndicate 2488 AGM, along with a number of other Lloyd’s of London Syndicates and various brokers, are named in both actions. The allegations in these putative class-action lawsuits are similar to the allegations in the consolidated federal actions identified above, although these lawsuits focus on alleged conduct within the London insurance market. On May 29, 2012 the Supreme Auto case was voluntarily dismissed without prejudice by the plaintiffs.
As of October 30, 2012, plaintiffs have not specified an amount of alleged damages in any of the remaining tag-along cases. The proceedings in the tag-along cases were stayed at a very early stage, before the ACE defendants could challenge the sufficiency of the claims with, for example, motions to dismiss. Also, the scope of the tag-along cases, in large part, will be affected by the outcome of the Multidistrict Litigation Court’s decision on defendants’ renewed motions to dismiss. As a result, ACE is unable to reasonably estimate the potential loss or range of losses, if any, arising from these litigations.
In addition to the related federal cases, there are two state cases with allegations similar to those in the consolidated federal actions described above:
•
Van Emden Management Corporation v. Marsh & McLennan Companies, Inc., et al. (Case No. 05-0066A; Superior Court of Massachusetts), a class action in Massachusetts, was filed on January 13, 2005. Illinois Union Insurance Company is named. The Van Emden case has been stayed pending resolution of the consolidated proceedings in the District of New Jersey or until further order of the Court.
As of October 30, 2012, plaintiffs have not specified an amount of alleged damages in this case. The proceedings were stayed at a very early stage, before Illinois Union could challenge the sufficiency of the claims with, for example, a motion to dismiss. As a result, ACE is unable to reasonably estimate the potential loss or range of losses, if any, arising from this litigation.
•
State of Ohio, ex. rel. Marc E. Dann, Attorney General v. American Int’l Group, Inc. et al. (Case No. 07-633857; Court of Common Pleas in Cuyahoga County, Ohio) is an Ohio state action filed by the Ohio Attorney General on August 24, 2007. ACE INA Holdings Inc., ACE American Insurance Co., ACE Property & Casualty Insurance Co., Insurance Company of North America, and Westchester Fire Insurance Co., along with a number of other insurance companies and Marsh, are named. In December 2011 the ACE parties agreed to settle the case for $1.97 million. On December 27, 2011 the case was voluntarily dismissed with prejudice.
In all of the lawsuits described above, except where specifically noted, plaintiffs seek compensatory and in some cases special damages without specifying an amount. As a result, ACE cannot at this time estimate its potential costs related to these legal matters and, accordingly, no liability for compensatory damages has been established in the consolidated financial statements.
ACE’s ultimate liability for these matters is not likely to have a material adverse effect on ACE’s consolidated financial condition, although it is possible that the effect could be material to ACE’s consolidated results of operations for an individual reporting period.
Shareholders' equity
Shareholders' equity
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 the consolidated financial statements. Under Swiss corporate law, dividends, including distributions through a reduction in par value (par value distributions) or from legal reserves, must be declared by ACE in Swiss francs though dividend payments are made by ACE in U.S. dollars. At our May 2011 annual general meeting, our shareholders approved a dividend for the following year, payable in four quarterly installments after the May 2011 annual general meeting from our capital contribution reserves (Additional paid-in capital), a subaccount of legal reserves. At our May 2012 annual general meeting, our shareholders approved a dividend for the following year, payable in four quarterly installments after the May 2012 annual general meeting in the form of a distribution by way of a par value reduction. We have determined this procedure is more appropriate for us at this time due to current Swiss law. For the three and nine months ended September 30, 2012, dividends per Common Share amounted to CHF 0.45 ($0.49) and CHF 1.46 ($1.57), including a par value reduction of CHF 0.93 per Common Share that had the effect of reducing par value per Common Share to CHF 29.34 at September 30, 2012. Dividends for the nine months ended September 30, 2012 included a $0.12 per Common Share increase (approved by our shareholders at the January 9, 2012 extraordinary general meeting) to the third and fourth installments of the dividend approved at the May 2011 annual general meeting.
For the three and nine months ended September 30, 2011, dividends per Common Share amounted to CHF 0.31 ($0.35) and CHF 0.90 ($1.03), including a par value reduction of CHF 0.30 per Common Share.
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 September 30, 2012, 3,097,303 Common Shares remain in treasury after net shares redeemed under employee share-based compensation plans.
ACE Limited securities repurchase authorization
In August 2011, the Board of Directors authorized the repurchase of up to $303 million of ACE’s Common Shares through December 31, 2012. The amount authorized in August 2011 was in addition to the $197 million balance remaining under a $600 million share repurchase program approved in November 2010. These authorizations were granted to allow ACE to repurchase Common Shares to partially offset potential dilution from the exercise of stock options and the granting of restricted stock under share-based compensation plans. Such repurchases may be made in the open market, in privately negotiated transactions, block trades, accelerated repurchases and/or through option or other forward transactions. In January 2012, ACE repurchased an additional 100,000 Common Shares for a cost of $7 million. At September 30, 2012, $461 million in share repurchase authorization remained through December 31, 2012 pursuant to the November 2010 and August 2011 Board authorizations.
Share-based compensation
Share-based compensation
Share-based compensation
The ACE Limited 2004 Long-Term Incentive Plan (the 2004 LTIP) provides for grants of both incentive and non-qualified stock options principally at an option price per share equal to the fair value of ACE’s Common Shares on the date of grant. Stock options are generally granted with a 3-year vesting period and a 10-year term. The stock options vest in equal annual installments over the respective vesting period, which is also the requisite service period. On February 23, 2012, ACE granted 1,452,605 stock options with a weighted-average grant date fair value of $15.58 each. The fair value of the options issued is estimated on the date of grant using the Black-Scholes option pricing model.
The 2004 LTIP also provides for 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 day of grant. On February 23, 2012, ACE granted 1,462,230 restricted stock awards and 255,850 restricted stock units to employees and officers of ACE and its subsidiaries with a grant date fair value of $73.35 each. Each restricted stock unit represents our obligation to deliver to the holder one Common Share upon vesting.
Segment information
Segment information
Segment information
ACE operates through the following business segments: Insurance – North American, 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.
For segment reporting purposes, certain items have been presented in a different manner 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 Life business, management also includes Net investment income and (Gains) losses from fair value changes in separate account assets that do not qualify for separate account reporting as components of underwriting income. For example, for the three months ended September 30, 2012, Life underwriting income of $102 million includes Net investment income of $63 million and (Gains) losses from fair value changes in separate account assets of $(14) million.
Effective January 1, 2012, we reclassified prior year segment operating results in order to conform to certain organizational realignments. These realignments resulted in a transfer of operating revenue and underwriting results of our international direct-marketed and credit life businesses from the Insurance – Overseas General segment to the Life segment. These realignments have no impact on consolidated operating results; however, prior year amounts contained in these consolidated financial statements have been adjusted to conform to the current year presentation.
The following tables present the operations by segment:
Statement of Operations by Segment
For the Three Months Ended September 30, 2012
(in millions of U.S. dollars)
 
 
Insurance –
North
American
 
Insurance –
Overseas
General
 
Global
Reinsurance
 
Life
 
Corporate
and Other
 
ACE
Consolidated
Net premiums written
$
2,537

 
$
1,384

 
$
307

 
$
488

 
$
—

 
$
4,716

Net premiums earned
2,472

 
1,432

 
281

 
480

 
—

 
4,665

Losses and loss expenses
2,110

 
622

 
151

 
164

 
—

 
3,047

Policy benefits
—

 
—

 
—

 
130

 
—

 
130

Policy acquisition costs
160

 
329

 
40

 
80

 
—

 
609

Administrative expenses
148

 
234

 
13

 
81

 
43

 
519

Underwriting income (loss)
54

 
247

 
77

 
25

 
(43
)
 
360

Net investment income
263

 
127

 
72

 
63

 
8

 
533

Net realized gains (losses) including OTTI
(1
)
 
13

 
(2
)
 
(71
)
 
1

 
(60
)
Interest expense
3

 
2

 
1

 
3

 
54

 
63

Other (income) expense:
 
 
 
 
 
 
 
 
 
 
 
(Gains) losses from fair value changes in separate account assets
—

 
—

 
—

 
(14
)
 
—

 
(14
)
Other
(5
)
 
(3
)
 
(5
)
 
—

 
10

 
(3
)
Income tax expense (benefit)
81

 
77

 
11

 
14

 
(36
)
 
147

Net income (loss)
$
237

 
$
311

 
$
140

 
$
14

 
$
(62
)
 
$
640



 
Statement of Operations by Segment
For the Three Months Ended September 30, 2011
(in millions of U.S. dollars)
 
 
Insurance –
North
American
 
Insurance –
Overseas
General
 
Global
Reinsurance
 
Life
 
Corporate
and Other
 
ACE
Consolidated
Net premiums written
$
2,207

 
$
1,398

 
$
250

 
$
488

 
$
—

 
$
4,343

Net premiums earned
2,299

 
1,471

 
240

 
480

 
—

 
4,490

Losses and loss expenses
1,838

 
671

 
94

 
142

 
—

 
2,745

Policy benefits
—

 
—

 
—

 
83

 
—

 
83

Policy acquisition costs
174

 
353

 
50

 
92

 
—

 
669

Administrative expenses
153

 
236

 
12

 
81

 
38

 
520

Underwriting income (loss)
134

 
211

 
84

 
82

 
(38
)
 
473

Net investment income
291

 
138

 
70

 
60

 
5

 
564

Net realized gains (losses) including OTTI
(2
)
 
1

 
(29
)
 
(732
)
 
2

 
(760
)
Interest expense
4

 
2

 
—

 
3

 
53

 
62

Other (income) expense
 
 
 
 
 
 
 
 
 
 
 
(Gains) losses from fair value changes in separate account assets
—

 
—

 
—

 
39

 
—

 
39

Other
21

 
10

 
7

 
10

 
2

 
50

Income tax expense (benefit)
120

 
56

 
7

 
13

 
(31
)
 
165

Net income (loss)
$
278

 
$
282

 
$
111

 
$
(655
)
 
$
(55
)
 
$
(39
)
Statement of Operations by Segment
For the Nine Months Ended September 30, 2012
(in millions of U.S. dollars)
 
 
Insurance –
North
American
 
Insurance –
Overseas
General
 
Global
Reinsurance
 
Life
 
Corporate
and Other
 
ACE
Consolidated
Net premiums written
$
5,690

 
$
4,387

 
$
879

 
$
1,462

 
$
—

 
$
12,418

Net premiums earned
5,411

 
4,243

 
748

 
1,427

 
—

 
11,829

Losses and loss expenses
4,122

 
2,030

 
355

 
463

 
—

 
6,970

Policy benefits
—

 
—

 
—

 
379

 
—

 
379

Policy acquisition costs
444

 
996

 
125

 
244

 
1

 
1,810

Administrative expenses
448

 
696

 
38

 
237

 
124

 
1,543

Underwriting income (loss)
397

 
521

 
230

 
104

 
(125
)
 
1,127

Net investment income
808

 
386

 
213

 
186

 
21

 
1,614

Net realized gains (losses) including OTTI
16

 
59

 
(6
)
 
(261
)
 
(2
)
 
(194
)
Interest expense
9

 
4

 
3

 
9

 
162

 
187

Other (income) expense:
 
 
 
 
 
 
 
 
 
 
 
(Gains) losses from fair value changes in separate account assets
—

 
—

 
—

 
(18
)
 
—

 
(18
)
Other
4

 
3

 
(7
)
 
14

 
18

 
32

Income tax expense (benefit)
279

 
166

 
17

 
44

 
(101
)
 
405

Net income (loss)
$
929

 
$
793

 
$
424

 
$
(20
)
 
$
(185
)
 
$
1,941



 
Statement of Operations by Segment
For the Nine Months Ended September 30, 2011
(in millions of U.S. dollars)
 
 
Insurance –
North
American
 
Insurance –
Overseas
General
 
Global
Reinsurance
 
Life
 
Corporate
and Other
 
ACE
Consolidated
Net premiums written
$
5,227

 
$
4,251

 
$
847

 
$
1,417

 
$
—

 
$
11,742

Net premiums earned
5,249

 
4,164

 
754

 
1,389

 
—

 
11,556

Losses and loss expenses
4,065

 
2,244

 
485

 
439

 
1

 
7,234

Policy benefits
—

 
—

 
—

 
282

 
—

 
282

Policy acquisition costs
455

 
989

 
143

 
253

 
—

 
1,840

Administrative expenses
448

 
698

 
38

 
233

 
120

 
1,537

Underwriting income (loss)
281

 
233

 
88

 
182

 
(121
)
 
663

Net investment income
886

 
406

 
213

 
166

 
6

 
1,677

Net realized gains (losses) including OTTI
8

 
(18
)
 
(56
)
 
(813
)
 
1

 
(878
)
Interest expense
11

 
4

 
1

 
9

 
162

 
187

Other (income) expense
 
 
 
 
 
 
 
 
 
 
 
(Gains) losses from fair value changes in separate account assets
—

 
—

 
—

 
39

 
—

 
39

Other
8

 
3

 
2

 
27

 
9

 
49

Income tax expense (benefit)
304

 
112

 
25

 
41

 
(100
)
 
382

Net income (loss)
$
852

 
$
502

 
$
217

 
$
(581
)
 
$
(185
)
 
$
805


Underwriting assets are reviewed in total by management for purposes of decision-making. Other than goodwill, ACE does not allocate assets to its segments.
The following table presents the net premiums earned for each segment by product:
 
 
Property &
All Other
 
Casualty
 
Life,
Accident &
Health
 
ACE
Consolidated
 
(in millions of U.S. dollars)
For the Three Months Ended September 30, 2012
 
 
 
 
Insurance – North American
$
1,519

 
$
860

 
$
93

 
$
2,472

Insurance – Overseas General
547

 
356

 
529

 
1,432

Global Reinsurance
131

 
150

 
—

 
281

Life
—

 
—

 
480

 
480

 
$
2,197

 
$
1,366

 
$
1,102

 
$
4,665

For the Three Months Ended September 30, 2011
 
 
 
 
 
 
 
Insurance – North American
$
1,395

 
$
815

 
$
89

 
$
2,299

Insurance – Overseas General
553

 
366

 
552

 
1,471

Global Reinsurance
118

 
122

 
—

 
240

Life
—

 
—

 
480

 
480

 
$
2,066

 
$
1,303

 
$
1,121

 
$
4,490


 
 
Property &
All Other
 
Casualty
 
Life,
Accident &
Health
 
ACE
Consolidated
 
(in millions of U.S. dollars)
For the Nine Months Ended September 30, 2012
 
 
 
 
 
 
 
Insurance – North American
$
2,631

 
$
2,505

 
$
275

 
$
5,411

Insurance – Overseas General
1,637

 
1,027

 
1,579

 
4,243

Global Reinsurance
355

 
393

 
—

 
748

Life
—

 
—

 
1,427

 
1,427

 
$
4,623

 
$
3,925

 
$
3,281

 
$
11,829

For the Nine Months Ended September 30, 2011
 
 
 
 
 
 
 
Insurance – North American
$
2,413

 
$
2,570

 
$
266

 
$
5,249

Insurance – Overseas General
1,517

 
1,056

 
1,591

 
4,164

Global Reinsurance
345

 
409

 
—

 
754

Life
—

 
—

 
1,389

 
1,389

 
$
4,275

 
$
4,035

 
$
3,246

 
$
11,556

Earnings per share
Earnings per share
Earnings per share
The following table presents the computation of basic and diluted earnings per share:
 
 
Three Months Ended
 
Nine Months Ended
 
September 30
 
September 30
 
2012
 
2011
 
2012
 
2011
 
(in millions of U.S. dollars, except share and per share data)
Numerator:
 
 
 
 
 
 
 
Net income (loss)
$
640

 
$
(39
)
 
$
1,941

 
$
805

Denominator:
 
 
 
 
 
 
 
Denominator for basic earnings per share:
 
 
 
 
 
 
 
Weighted-average shares outstanding
340,207,037

 
338,385,734

 
339,523,388

 
338,139,477

Denominator for diluted earnings per share:
 
 
 
 

 

Share-based compensation plans
2,665,676

 
—

 
2,831,798

 
2,733,434

Adjusted weighted-average shares outstanding and assumed conversions
342,872,713

 
338,385,734

 
342,355,186

 
340,872,911

Basic earnings per share
$
1.88

 
$
(0.11
)
 
$
5.71

 
$
2.38

Diluted earnings per share
$
1.86

 
$
(0.11
)
 
$
5.67

 
$
2.36


Excluded from adjusted weighted-average shares outstanding and assumed conversions is the impact of securities that would have been anti-dilutive during the respective periods. For the three months ended September 30, 2012 and 2011, the potential anti-dilutive share conversions were 1,449,610 shares and 2,295,260 shares, respectively. The potential anti-dilutive share conversions for the nine months ended September 30, 2012 and 2011 were 1,193,839 shares and 223,987 shares, respectively.
Information provided in connection with outstanding debt of subsidiaries
Information provided in connection with outstanding debt of subsidiaries
Information provided in connection with outstanding debt of subsidiaries
The following tables present condensed consolidating financial information at September 30, 2012 and December 31, 2011, and for the three and nine months ended September 30, 2012 and 2011, for ACE Limited (the Parent Guarantor) and ACE INA Holdings Inc. (the Subsidiary Issuer). The Subsidiary Issuer is an indirect 100 percent-owned subsidiary of the Parent Guarantor. Investments in subsidiaries are accounted for by the Parent Guarantor under the equity method for purposes of the supplemental consolidating presentation. Earnings of subsidiaries are reflected in the Parent Guarantor’s investment accounts and earnings. The Parent Guarantor fully and unconditionally guarantees certain of the debt of the Subsidiary Issuer. Condensed consolidating financial information of the Subsidiary Issuer is presented on a consolidated basis and consists principally of the net assets, results of operations, and cash flows of operating insurance company subsidiaries.

 Condensed Consolidating Balance Sheet at September 30, 2012
(in millions of U.S. dollars)

  
ACE
Limited
(Parent
Guarantor)
 
ACE INA
Holdings Inc.
(Subsidiary
Issuer)
 
Other ACE
Limited
Subsidiaries
and
Eliminations(1)
 
Consolidating
Adjustments(2)
 
ACE Limited
Consolidated
Assets
 
 
 
 
 
 
 
 
 
Investments
$
31

 
$
31,249

 
$
28,537

 
$
—

 
$
59,817

Cash(3)
(116
)
 
550

 
256

 
—

 
690

Insurance and reinsurance balances receivable
—

 
4,767

 
521

 
—

 
5,288

Reinsurance recoverable on losses and loss expenses
—

 
16,943

 
(5,086
)
 
—

 
11,857

Reinsurance recoverable on policy benefits
—

 
1,196

 
(950
)
 
—

 
246

Value of business acquired
—

 
628

 
4

 
—

 
632

Goodwill and other intangible assets
—

 
4,415

 
575

 
—

 
4,990

Investments in subsidiaries
26,998

 
—

 
—

 
(26,998
)
 
—

Due from subsidiaries and affiliates, net
270

 
—

 
—

 
(270
)
 
—

Other assets
16

 
7,711

 
2,261

 
—

 
9,988

Total assets
$
27,199

 
$
67,459

 
$
26,118

 
$
(27,268
)
 
$
93,508

 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
Unpaid losses and loss expenses
$
—

 
$
31,640

 
$
6,560

 
$
—

 
$
38,200

Unearned premiums
—

 
5,973

 
1,095

 
—

 
7,068

Future policy benefits
—

 
3,819

 
595

 
—

 
4,414

Due to subsidiaries and affiliates, net
—

 
584

 
(314
)
 
(270
)
 
—

Short-term debt
—

 
851

 
551

 
—

 
1,402

Long-term debt
—

 
3,360

 
—

 
—

 
3,360

Trust preferred securities
—

 
309

 
—

 
—

 
309

Other liabilities
236

 
8,992

 
2,564

 
—

 
11,792

Total liabilities
236

 
55,528

 
11,051

 
(270
)
 
66,545

Total shareholders’ equity
26,963

 
11,931

 
15,067

 
(26,998
)
 
26,963

Total liabilities and shareholders’ equity
$
27,199

 
$
67,459

 
$
26,118

 
$
(27,268
)
 
$
93,508

 ____________________
(1) 
Includes all other subsidiaries of ACE Limited and intercompany eliminations.
(2) 
Includes ACE Limited parent company eliminations.
(3) 
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 September 30, 2012, the cash balance of one or more entities was negative; however, the overall Pool balances were positive.

 




Condensed Consolidating Balance Sheet at December 31, 2011
(in millions of U.S. dollars)

  
ACE
Limited
(Parent
Guarantor)
 
ACE INA
Holdings Inc.
(Subsidiary
Issuer)
 
Other ACE
Limited
Subsidiaries
and
Eliminations(1)
 
Consolidating
Adjustments(2)
 
ACE Limited
Consolidated
Assets
 
 
 
 
 
 
 
 
 
Investments
$
33

 
$
28,848

 
$
26,795

 
$
—

 
$
55,676

Cash
106

 
382

 
126

 
—

 
614

Insurance and reinsurance balances receivable
—

 
3,944

 
443

 
—

 
4,387

Reinsurance recoverable on losses and loss expenses
—

 
17,146

 
(4,757
)
 
—

 
12,389

Reinsurance recoverable on policy benefits
—

 
941

 
(692
)
 
—

 
249

Value of business acquired
—

 
676

 
—

 
—

 
676

Goodwill and other intangible assets
—

 
4,248

 
551

 
—

 
4,799

Investments in subsidiaries
23,871

 
—

 
—

 
(23,871
)
 
—

Due from subsidiaries and affiliates, net
498

 
—

 
—

 
(498
)
 
—

Other assets
8

 
7,018

 
1,505

 
—

 
8,531

Total assets
$
24,516

 
$
63,203

 
$
23,971

 
$
(24,369
)
 
$
87,321

 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
Unpaid losses and loss expenses
$
—

 
$
30,837

 
$
6,640

 
$
—

 
$
37,477

Unearned premiums
—

 
5,416

 
918

 
—

 
6,334

Future policy benefits
—

 
3,673

 
601

 
—

 
4,274

Due to subsidiaries and affiliates, net
—

 
316

 
182

 
(498
)
 
—

Short-term debt
—

 
850

 
401

 
—

 
1,251

Long-term debt
—

 
3,360

 
—

 
—

 
3,360

Trust preferred securities
—

 
309

 
—

 
—

 
309

Other liabilities
184

 
7,769

 
2,031

 
—

 
9,984

Total liabilities
184

 
52,530

 
10,773

 
(498
)
 
62,989

Total shareholders’ equity
24,332

 
10,673

 
13,198

 
(23,871
)
 
24,332

Total liabilities and shareholders’ equity
$
24,516

 
$
63,203

 
$
23,971

 
$
(24,369
)
 
$
87,321

____________________ 
(1) 
Includes all other subsidiaries of ACE Limited and intercompany eliminations.
(2) 
Includes ACE Limited parent company eliminations.

Condensed Consolidating Statements of Operations and Comprehensive Income
For the Three Months Ended September 30, 2012
(in millions of U.S. dollars)

 
ACE
Limited
(Parent
Guarantor)
 
ACE INA
Holdings Inc.
(Subsidiary
Issuer)
 
Other ACE
Limited
Subsidiaries
and
Eliminations(1)
 
Consolidating
Adjustments (2)
 
ACE
Limited
Consolidated
Net premiums written
$
—

 
$
2,868

 
$
1,848

 
$
—

 
$
4,716

Net premiums earned
—

 
2,819

 
1,846

 
—

 
4,665

Net investment income
—

 
255

 
278

 
—

 
533

Equity in earnings of subsidiaries
616

 
—

 
—

 
(616
)
 
—

Net realized gains (losses) including OTTI
(4
)
 
11

 
(67
)
 
—

 
(60
)
Losses and loss expenses
—

 
1,977

 
1,070

 
—

 
3,047

Policy benefits
—

 
77

 
53

 
—

 
130

Policy acquisition costs and administrative expenses
16

 
587

 
525

 
—

 
1,128

Interest (income) expense
(8
)
 
67

 
4

 
—

 
63

Other (income) expense
(39
)
 
17

 
5

 
—

 
(17
)
Income tax expense
3

 
123

 
21

 
—

 
147

Net income
$
640

 
$
237

 
$
379

 
$
(616
)
 
$
640

Comprehensive income
$
1,316

 
$
593

 
$
23

 
$
(616
)
 
$
1,316


Condensed Consolidating Statements of Operations and Comprehensive Income
For the Three Months Ended September 30, 2011
(in millions of U.S. dollars)

 
ACE
Limited
(Parent
Guarantor)
 
ACE INA
Holdings Inc.
(Subsidiary
Issuer)
 
Other ACE
Limited
Subsidiaries
and
Eliminations(1)
 
Consolidating
Adjustments (2)
 
ACE
Limited
Consolidated
Net premiums written
$
—

 
$
2,581

 
$
1,762

 
$
—

 
$
4,343

Net premiums earned
—

 
2,700

 
1,790

 
—

 
4,490

Net investment income
—

 
281

 
283

 
—

 
564

Equity in earnings of subsidiaries
(63
)
 
—

 
—

 
63

 
—

Net realized gains (losses) including OTTI
2

 
28

 
(790
)
 
—

 
(760
)
Losses and loss expenses
—

 
1,782

 
963

 
—

 
2,745

Policy benefits
—

 
22

 
61

 
—

 
83

Policy acquisition costs and administrative expenses
14

 
631

 
544

 
—

 
1,189

Interest (income) expense
(9
)
 
66

 
5

 
—

 
62

Other (income) expense
(30
)
 
85

 
34

 
—

 
89

Income tax expense
3

 
146

 
16

 
—

 
165

Net income (loss)
$
(39
)
 
$
277

 
$
(340
)
 
$
63

 
$
(39
)
Comprehensive income (loss)
$
(189
)
 
$
355

 
$
(418
)
 
$
63

 
$
(189
)
 ____________________
(1) 
Includes all other subsidiaries of ACE Limited and intercompany eliminations.
(2) 
Includes ACE Limited parent company eliminations.

 Condensed Consolidating Statements of Operations and Comprehensive Income
For the Nine Months Ended September 30, 2012
(in millions of U.S. dollars) 

 
ACE
Limited
(Parent
Guarantor)
 
ACE INA
Holdings Inc.
(Subsidiary
Issuer)
 
Other ACE
Limited
Subsidiaries
and
Eliminations(1)
 
Consolidating
Adjustments (2)
 
ACE
Limited
Consolidated
Net premiums written
$
—

 
$
7,293

 
$
5,125

 
$
—

 
$
12,418

Net premiums earned
—

 
6,967

 
4,862

 
—

 
11,829

Net investment income
1

 
777

 
836

 
—

 
1,614

Equity in earnings of subsidiaries
1,845

 
—

 
—

 
(1,845
)
 
—

Net realized gains (losses) including OTTI
18

 
71

 
(283
)
 
—

 
(194
)
Losses and loss expenses
—

 
4,484

 
2,486

 
—

 
6,970

Policy benefits
—

 
217

 
162

 
—

 
379

Policy acquisition costs and administrative expenses
42

 
1,883

 
1,428

 
—

 
3,353

Interest (income) expense
(25
)
 
191

 
21

 
—

 
187

Other (income) expense
(102
)
 
51

 
65

 
—

 
14

Income tax expense
8

 
327

 
70

 
—

 
405

Net income
$
1,941

 
$
662

 
$
1,183

 
$
(1,845
)
 
$
1,941

Comprehensive income
$
3,044

 
$
1,203

 
$
642

 
$
(1,845
)
 
$
3,044


Condensed Consolidating Statements of Operations and Comprehensive Income
For the Nine Months Ended September 30, 2011
(in millions of U.S. dollars)

 
ACE
Limited
(Parent
Guarantor)
 
ACE INA
Holdings Inc.
(Subsidiary
Issuer)
 
Other ACE
Limited
Subsidiaries
and
Eliminations(1)
 
Consolidating
Adjustments (2)
 
ACE
Limited
Consolidated
Net premiums written
$
—

 
$
6,910

 
$
4,832

 
$
—

 
$
11,742

Net premiums earned
—

 
6,863

 
4,693

 
—

 
11,556

Net investment income
1

 
825

 
851

 
—

 
1,677

Equity in earnings of subsidiaries
742

 
—

 
—

 
(742
)
 
—

Net realized gains (losses) including OTTI
—

 
32

 
(910
)
 
—

 
(878
)
Losses and loss expenses
—

 
4,521

 
2,713

 
—

 
7,234

Policy benefits
—

 
121

 
161

 
—

 
282

Policy acquisition costs and administrative expenses
50

 
1,839

 
1,488

 
—

 
3,377

Interest (income) expense
(27
)
 
199

 
15

 
—

 
187

Other (income) expense
(92
)
 
121

 
59

 
—

 
88

Income tax expense
7

 
323

 
52

 
—

 
382

Net income
$
805

 
$
596

 
$
146

 
$
(742
)
 
$
805

Comprehensive income (loss)
$
1,050

 
$
947

 
$
(205
)
 
$
(742
)
 
$
1,050

 ____________________
(1) 
Includes all other subsidiaries of ACE Limited and intercompany eliminations.
(2) 
Includes ACE Limited parent company eliminations.
 
Condensed Consolidating Statement of Cash Flows
For the Nine Months Ended September 30, 2012
(in millions of U.S. dollars)  

 
ACE
Limited
(Parent
Guarantor)
 
ACE INA
Holdings Inc.
(Subsidiary
Issuer)
 
Other ACE
Limited
Subsidiaries
and
Eliminations(1)
 
Consolidating
Adjustments(2)
 
ACE
Limited
Consolidated
Net cash flows from operating activities
$
210

 
$
1,553

 
$
1,262

 
$
—

 
$
3,025

Cash flows from investing activities
 
 
 
 
 
 
 
 
 
Purchases of fixed maturities available for sale
—

 
(8,553
)
 
(9,103
)
 
—

 
(17,656
)
Purchases of fixed maturities held to maturity
—

 
(215
)
 
(2
)
 
—

 
(217
)
Purchases of equity securities
—

 
(65
)
 
(49
)
 
—

 
(114
)
Sales of fixed maturities available for
sale
—

 
5,154

 
6,201

 
—

 
11,355

Sales of equity securities
—

 
48

 
9

 
—

 
57

Maturities and redemptions of fixed maturities available for sale
—

 
1,757

 
1,839

 
—

 
3,596

Maturities and redemptions of fixed maturities held to maturity
—

 
798

 
294

 
—

 
1,092

Net derivative instruments settlements
(1
)
 
(10
)
 
(347
)
 
—

 
(358
)
Advances from (to) affiliates
36

 
—

 
—

 
(36
)
 
—

Acquisition of subsidiaries (net of cash acquired of $8)
—

 
(98
)
 
—

 
—

 
(98
)
Capital contribution to subsidiary
—

 
—

 
(90
)
 
90

 
—

Other
—

 
(279
)
 
(60
)
 
—

 
(339
)
Net cash flows from (used for) investing activities
35

 
(1,463
)
 
(1,308
)
 
54

 
(2,682
)
Cash flows from financing activities
 
 
 
 
 
 
 
 
 
Dividends paid on Common Shares
(484
)
 
—

 
—

 
—

 
(484
)
Common Shares repurchased
—

 
—

 
(11
)
 
—

 
(11
)
Net proceeds from issuance of short-term debt
—

 
1

 
150

 
—

 
151

Proceeds from share-based compensation plans
17

 
—

 
56

 
—

 
73

Advances (to) from affiliates
—

 
(10
)
 
(26
)
 
36

 
—

Capital contribution from subsidiary
—

 
90

 
—

 
(90
)
 
—

Net cash flows from (used for) financing activities
(467
)
 
81

 
169

 
(54
)
 
(271
)
Effect of foreign currency rate changes on cash and cash equivalents
—

 
(3
)
 
7

 
—

 
4

Net increase (decrease) in cash
(222
)
 
168

 
130

 
—

 
76

Cash – beginning of period
106

 
382

 
126

 
—

 
614

Cash – end of period(3)
$
(116
)
 
$
550

 
$
256

 
$
—

 
$
690

 ____________________
(1) 
Includes all other subsidiaries of ACE Limited and intercompany eliminations.
(2) 
Includes ACE Limited parent company eliminations.
(3) 
ACE maintains two notional multi-currency 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 September 30, 2012, the cash balance of one or more entities was negative; however, the overall Pool balances were positive.
Condensed Consolidating Statement of Cash Flows
For the Nine Months Ended September 30, 2011
(in millions of U.S. dollars)

 
ACE
Limited
(Parent
Guarantor)
 
ACE INA
Holdings Inc.
(Subsidiary
Issuer)
 
Other ACE
Limited
Subsidiaries
and
Eliminations(1)
 
Consolidating
Adjustments(2)
 
ACE
Limited
Consolidated
Net cash flows from operating activities
$
652

 
$
1,219

 
$
1,807

 
$
(680
)
 
$
2,998

Cash flows from investing activities
 
 
 
 
 
 
 
 
 
Purchases of fixed maturities available for sale
—

 
(9,434
)
 
(10,134
)
 
—

 
(19,568
)
Purchases of fixed maturities held to maturity
—

 
(282
)
 
(3
)
 
—

 
(285
)
Purchases of equity securities
—

 
(149
)
 
(140
)
 
—

 
(289
)
Sales of fixed maturities available for sale
7

 
7,366

 
6,950

 
—

 
14,323

Sales of equity securities
—

 
347

 
17

 
—

 
364

Maturities and redemptions of fixed maturities available for sale
—

 
1,234

 
1,369

 
—

 
2,603

Maturities and redemptions of fixed maturities held to maturity
—

 
724

 
242

 
—

 
966

Net derivative instruments settlements
(2
)
 
(19
)
 
88

 
—

 
67

Capital contribution to subsidiary
(385
)
 
—

 
—

 
385

 
—

Advances from (to) affiliates
(90
)
 
—

 
—

 
90

 
—

Acquisition of subsidiaries (net of cash acquired of $81)
—

 
(357
)
 
(37
)
 
—

 
(394
)
Other
—

 
(469
)
 
152

 
—

 
(317
)
Net cash flows used for investing activities
(470
)
 
(1,039
)
 
(1,496
)
 
475

 
(2,530
)
Cash flows from financing activities
 
 
 
 
 
 
 
 
 
Dividends paid on Common Shares
(342
)
 
—

 
—

 
—

 
(342
)
Common Shares repurchased
—

 
—

 
(168
)
 
—

 
(168
)
Net proceeds from (repayments) issuance of short-term debt
(300
)
 
(150
)
 
400

 
—

 
(50
)
Proceeds from share-based compensation plans
82

 
—

 
—

 
—

 
82

Advances from (to) affiliates
—

 
35

 
55

 
(90
)
 
—

Dividends to parent company
—

 
—

 
(680
)
 
680

 
—

Capital contribution from parent
—

 
—

 
385

 
(385
)
 
—

Net cash flows from (used for) financing activities
(560
)
 
(115
)
 
(8
)
 
205

 
(478
)
Effect of foreign currency rate changes on cash and cash equivalents
—

 
2

 
2

 
—

 
4

Net (decrease) increase in cash
(378
)
 
67

 
305

 
—

 
(6
)
Cash – beginning of period(3)
308

 
573

 
(109
)
 
—

 
772

Cash – end of period(3)
$
(70
)
 
$
640

 
$
196

 
$
—

 
$
766

____________________ 
(1) 
Includes all other subsidiaries of ACE Limited and intercompany eliminations.
(2) 
Includes ACE Limited parent company eliminations.
(3) 
ACE maintains two notional multi-currency 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 September 30, 2011 and December 31, 2010, the cash balance of one or more entities was negative; however, the overall Pool balances were positive.
General (Policies)
Basis of presentation 
ACE Limited is a holding company incorporated in Zurich, Switzerland. ACE Limited, through its various subsidiaries, provides a broad range of insurance and reinsurance products to insureds worldwide. ACE operates through the following business segments: Insurance – North American, Insurance – Overseas General, Global Reinsurance, and Life. Refer to Note 9 for additional information.
The interim unaudited consolidated financial statements, which include the accounts of ACE 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 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 2011 Form 10-K.
Effective January 1, 2012, we retrospectively adopted new accounting guidance for costs associated with acquiring or renewing insurance contracts. Under the new guidance, the definition of acquisition costs was modified to specify that a cost must be directly related to the successful acquisition of a new or renewal insurance contract in order to be deferred. Prior year amounts contained in these consolidated financial statements have been adjusted to reflect the impact of retrospective adjustments as a result of applying this new accounting guidance.
Deferred policy acquisition costs and value of business acquired (VOBA) 
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. A VOBA intangible asset is established upon the acquisition of blocks of long duration contracts and represents the present value of estimated net cash flows for the contracts in force at the time of the acquisition. Acquisition costs and VOBA, collectively policy acquisition costs, are deferred and amortized. Policy acquisition costs on property and casualty (P&C) contracts are generally amortized ratably over the period in which premiums are earned. Policy acquisition costs on long duration contracts are amortized over the estimated life of the contracts, generally in proportion to premium revenue recognized. Policy acquisition costs are reviewed to determine if they are recoverable from future income, including investment income. Unrecoverable costs are expensed in the period identified.
Advertising costs are expensed as incurred except for direct-response campaigns that meet the criteria of the new guidance, principally related to accident and health (A&H) business produced by the Insurance – Overseas General segment, which are deferred and recognized as a component of policy acquisition costs. For individual direct-response marketing campaigns that we can demonstrate have specifically resulted in incremental sales to customers and such sales have probable future economic benefits, incremental costs directly related to the marketing campaigns are capitalized. Deferred marketing costs are reviewed regularly for recoverability from future income, including investment income, and amortized in proportion to premium revenue recognized, primarily over a ten year period.
Investments (Tables)
Schedule Of Amortized Cost And Fair Value Of Fixed Maturities And Related OTTI Recognized In AOCI 
 
September 30, 2012
 
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
$
3,357

 
$
197

 
$
—

 
$
3,554

 
$
—

Foreign
13,241

 
750

 
(24
)
 
13,967

 
(1
)
Corporate securities
14,677

 
1,192

 
(36
)
 
15,833

 
(12
)
Mortgage-backed securities
10,227

 
545

 
(36
)
 
10,736

 
(88
)
States, municipalities, and political subdivisions
2,256

 
159

 
(1
)
 
2,414

 
—

 
$
43,758

 
$
2,843

 
$
(97
)
 
$
46,504

 
$
(101
)
Held to maturity
 
 
 
 
 
 
 
 
 
U.S. Treasury and agency
$
1,084

 
$
45

 
$
—

 
$
1,129

 
$
—

Foreign
919

 
52

 
(1
)
 
970

 
—

Corporate securities
2,182

 
140

 
—

 
2,322

 
—

Mortgage-backed securities
2,222

 
108

 
—

 
2,330

 
—

States, municipalities, and political subdivisions
1,086

 
46

 
(4
)
 
1,128

 
—

 
$
7,493

 
$
391

 
$
(5
)
 
$
7,879

 
$
—

 
 
 
 
 
 
 
 
 
 
 
December 31, 2011
 
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
$
2,774

 
$
186

 
$
—

 
$
2,960

 
$
—

Foreign
12,025

 
475

 
(99
)
 
12,401

 
(2
)
Corporate securities
14,055

 
773

 
(135
)
 
14,693

 
(22
)
Mortgage-backed securities
9,979

 
397

 
(175
)
 
10,201

 
(151
)
States, municipalities, and political subdivisions
1,617

 
96

 
(1
)
 
1,712

 
—

 
$
40,450

 
$
1,927

 
$
(410
)
 
$
41,967

 
$
(175
)
Held to maturity
 
 
 
 
 
 
 
 
 
U.S. Treasury and agency
$
1,078

 
$
48

 
$
—

 
$
1,126

 
$
—

Foreign
935

 
18

 
(23
)
 
930

 
—

Corporate securities
2,338

 
44

 
(45
)
 
2,337

 
—

Mortgage-backed securities
2,949

 
90

 
(3
)
 
3,036

 
—

States, municipalities, and political subdivisions
1,147

 
32

 
(3
)
 
1,176

 
—

 
$
8,447

 
$
232

 
$
(74
)
 
$
8,605

 
$
—

Schedule Of Fixed Maturities By Contractual Maturity 
 
September 30, 2012
 
December 31, 2011
 
Amortized
Cost
 
Fair
Value
 
Amortized
Cost
 
Fair
Value
 
(in millions of U.S. dollars)
Available for sale
 
 
 
 
 
 
 
Due in 1 year or less
$
2,210

 
$
2,231

 
$
2,321

 
$
2,349

Due after 1 year through 5 years
12,591

 
13,174

 
12,325

 
12,722

Due after 5 years through 10 years
14,699

 
15,852

 
12,379

 
12,995

Due after 10 years
4,031

 
4,511

 
3,446

 
3,700

 
33,531

 
35,768

 
30,471

 
31,766

Mortgage-backed securities
10,227

 
10,736

 
9,979

 
10,201

 
$
43,758

 
$
46,504

 
$
40,450

 
$
41,967

Held to maturity
 
 
 
 
 
 
 
Due in 1 year or less
$
676

 
$
681

 
$
393

 
$
396

Due after 1 year through 5 years
1,839

 
1,914

 
2,062

 
2,090

Due after 5 years through 10 years
2,118

 
2,272

 
2,376

 
2,399

Due after 10 years
638

 
682

 
667

 
684

 
5,271

 
5,549

 
5,498

 
5,569

Mortgage-backed securities
2,222

 
2,330

 
2,949

 
3,036

 
$
7,493

 
$
7,879

 
$
8,447

 
$
8,605

Schedule Of Cost And Fair Value Of Equity Securities 
 
September 30

December 31
 
2012

2011
 
(in millions of U.S. dollars)
Cost
$
741

 
$
671

Gross unrealized appreciation
34

 
18

Gross unrealized depreciation
(5
)
 
(42
)
Fair value
$
770

 
$
647

Schedule Of Net Realized Gains (Losses) And The Losses Included In Net Realized Gains (Losses) And OCI 
 
Three Months Ended

Nine Months Ended
 
September 30

September 30
 
2012
 
2011
 
2012
 
2011
 
(in millions of U.S. dollars)
Fixed maturities:
 
 
 
 
 
 
 
OTTI on fixed maturities, gross
$
(10
)
 
$
(30
)
 
$
(18
)
 
$
(41
)
OTTI on fixed maturities recognized in OCI (pre-tax)
—

 
11

 
—

 
13

OTTI on fixed maturities, net
(10
)
 
(19
)
 
(18
)
 
(28
)
Gross realized gains excluding OTTI
71

 
92

 
287

 
309

Gross realized losses excluding OTTI
(14
)
 
(53
)
 
(120
)
 
(138
)
Total fixed maturities
47

 
20

 
149

 
143

Equity securities:
 
 
 
 
 
 
 
OTTI on equity securities
—

 
(1
)
 
(5
)
 
(1
)
Gross realized gains excluding OTTI
3

 
—

 
5

 
12

Gross realized losses excluding OTTI
(1
)
 
(1
)
 
(2
)
 
(2
)
Total equity securities
2

 
(2
)
 
(2
)
 
9

OTTI on other investments
—

 
—

 
(7
)
 
(3
)
Foreign exchange gains (losses)
(50
)
 
20

 
(64
)
 
(89
)
Investment and embedded derivative instruments
4

 
(89
)
 
(3
)
 
(157
)
Fair value adjustments on insurance derivative
83

 
(926
)
 
44

 
(925
)
S&P put options and futures
(147
)
 
220

 
(308
)
 
152

Other derivative instruments
—

 
2

 
(4
)
 
(1
)
Other
1

 
(5
)
 
1

 
(7
)
Net realized gains (losses)
$
(60
)
 
$
(760
)
 
$
(194
)
 
$
(878
)
Schedule Of Roll-Forward Of Pre-Tax Credit Losses Related To Fixed Maturities For Which A Portion Of OTTI Was Recognized In OCI 
 
Three Months Ended
 
Nine Months Ended
 
September 30
 
September 30
 
2012
 
2011
 
2012
 
2011
 
(in millions of U.S. dollars)
Balance of credit losses related to securities still held – beginning of period
$
47

 
$
94

 
$
74

 
$
137

Additions where no OTTI was previously recorded
1

 
6

 
3

 
8

Additions where an OTTI was previously recorded
6

 
3

 
11

 
4

Reductions for securities sold during the period
(4
)
 
(24
)
 
(38
)
 
(70
)
Balance of credit losses related to securities still held – end of period
$
50

 
$
79

 
$
50

 
$
79

 
 
 
 
 
 
 
 
Schedule Of 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
 
Fair Value
 
Gross
Unrealized
Loss
 
Fair Value
 
Gross
Unrealized
Loss
 
Fair Value
 
Gross
Unrealized
Loss
 
(in millions of U.S. dollars)
September 30, 2012
 
 
 
 
 
 
 
 
 
 
 
Foreign
$
839

 
$
(14.8
)
 
$
186

 
$
(9.7
)
 
$
1,025

 
$
(24.5
)
Corporate securities
663

 
(20.1
)
 
195

 
(15.5
)
 
858

 
(35.6
)
Mortgage-backed securities
225

 
(1.3
)
 
412

 
(35.0
)
 
637

 
(36.3
)
States, municipalities, and political subdivisions
29

 
(1.3
)
 
59

 
(4.0
)
 
88

 
(5.3
)
Total fixed maturities
1,756

 
(37.5
)
 
852

 
(64.2
)
 
2,608

 
(101.7
)
Equity securities
543

 
(5.4
)
 
—

 
—

 
543

 
(5.4
)
Other investments
113

 
(6.3
)
 
—

 
—

 
113

 
(6.3
)
Total
$
2,412

 
$
(49.2
)
 
$
852

 
$
(64.2
)
 
$
3,264

 
$
(113.4
)
 
 
0 – 12 Months
 
Over 12 Months
 
Total
 
Fair Value
 
Gross
Unrealized
Loss
 
Fair Value
 
Gross
Unrealized
Loss
 
Fair Value
 
Gross
Unrealized
Loss
 
(in millions of U.S. dollars)
December 31, 2011
 
 
 
 
 
 
 
 
 
 
 
Foreign
$
1,801

 
$
(82.2
)
 
$
529

 
$
(40.0
)
 
$
2,330

 
$
(122.2
)
Corporate securities
3,084

 
(148.2
)
 
268

 
(32.2
)
 
3,352

 
(180.4
)
Mortgage-backed securities
440

 
(7.5
)
 
586

 
(170.2
)
 
1,026

 
(177.7
)
States, municipalities, and political subdivisions
30

 
(0.4
)
 
98

 
(3.5
)
 
128

 
(3.9
)
Total fixed maturities
5,355

 
(238.3
)
 
1,481

 
(245.9
)
 
6,836

 
(484.2
)
Equity securities
484

 
(42.3
)
 
—

 
—

 
484

 
(42.3
)
Other investments
88

 
(8.3
)
 
—

 
—

 
88

 
(8.3
)
Total
$
5,927

 
$
(288.9
)
 
$
1,481

 
$
(245.9
)
 
$
7,408

 
$
(534.8
)
Schedule Of Components Of Restricted Assets 
 
September 30
 
December 31
 
2012
 
2011
 
(in millions of U.S. dollars)
Trust funds
$
11,149

 
$
9,940

Deposits with non-U.S. regulatory authorities
2,120

 
2,240

Assets pledged under reverse repurchase agreements
1,402

 
1,251

Deposits with U.S. regulatory authorities
1,325

 
1,307

Other pledged assets
390

 
364

 
$
16,386

 
$
15,102

Fair value measurements (Tables)
Financial Instruments Measured At Fair Value On A Recurring Basis 
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(in millions of U.S. dollars)
September 30, 2012
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
Fixed maturities available for sale
 
 
 
 
 
 
 
U.S. Treasury and agency
$
1,991

 
$
1,563

 
$
—

 
$
3,554

Foreign
204

 
13,738

 
25

 
13,967

Corporate securities
19

 
15,684

 
130

 
15,833

Mortgage-backed securities
—

 
10,707

 
29

 
10,736

States, municipalities, and political subdivisions
—

 
2,413

 
1

 
2,414

 
2,214

 
44,105

 
185

 
46,504

Equity securities
761

 
5

 
4

 
770

Short-term investments
1,561

 
868

 
—

 
2,429

Other investments
248

 
195

 
2,178

 
2,621

Securities lending collateral
—

 
2,039

 
—

 
2,039

Investment derivative instruments
(3
)
 
—

 
—

 
(3
)
Other derivative instruments
6

 
32

 
—

 
38

Separate account assets
1,024

 
61

 
—

 
1,085

Total assets measured at fair value
$
5,811

 
$
47,305

 
$
2,367

 
$
55,483

Liabilities:
 
 
 
 
 
 
 
GLB(1)
$
—

 
$
—

 
$
1,279

 
$
1,279

____________________ 
(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.

 
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(in millions of U.S. dollars)
December 31, 2011
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
Fixed maturities available for sale
 
 
 
 
 
 
 
U.S. Treasury and agency
$
1,691

 
$
1,264

 
$
5

 
$
2,960

Foreign
212

 
12,156

 
33

 
12,401

Corporate securities
20

 
14,539

 
134

 
14,693

Mortgage-backed securities
—

 
10,173

 
28

 
10,201

States, municipalities, and political subdivisions
—

 
1,711

 
1

 
1,712

 
1,923

 
39,843

 
201

 
41,967

Equity securities
632

 
2

 
13

 
647

Short-term investments
1,246

 
1,055

 
—

 
2,301

Other investments
208

 
229

 
1,877

 
2,314

Securities lending collateral
—

 
1,375

 
—

 
1,375

Investment derivative instruments
10

 
—

 
—

 
10

Other derivative instruments
(16
)
 
54

 
3

 
41

Separate account assets
607

 
53

 
—

 
660

Total assets measured at fair value
$
4,610

 
$
42,611

 
$
2,094

 
$
49,315

Liabilities:
 
 
 
 
 
 
 
GLB(1)
$
—

 
$
—

 
$
1,319

 
$
1,319

____________________ 
(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.
Fair Value And Maximum Future Funding Commitments Related To Investments 
 
Expected
Liquidation
Period
 
September 30, 2012
 
December 31, 2011
 
Fair
Value
 
Maximum
Future
Funding
Commitments
 
Fair
Value
 
Maximum
Future
Funding
Commitments
 
 
 
(in millions of U.S. dollars)
Financial
5 to 9 Years
 
$
210

 
$
124

 
$
205

 
$
141

Real estate
3 to 9 Years
 
323

 
66

 
270

 
96

Distressed
6 to 9 Years
 
189

 
142

 
182

 
57

Mezzanine
6 to 9 Years
 
269

 
294

 
195

 
282

Traditional
3 to 8 Years
 
647

 
541

 
565

 
200

Vintage
1 to 3 Years
 
16

 
1

 
18

 
1

Investment funds
Not Applicable
 
389

 
—

 
378

 
—

 
 
 
$
2,043

 
$
1,168

 
$
1,813

 
$
777

Schedule Of Significant Unobservable Inputs Used In Level 3 Liability Valuations 
(in millions of U.S. dollars)
Fair Value at
September 30,
2012
 
Valuation
Technique
 
Significant
Unobservable Inputs
 
Ranges
GLB(1)
$
1,279

 
Actuarial model
 
Lapse rate
 
1% - 30%
 
 
 
 
 
Annuitization rate
 
0% - 50%
____________________ 
(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.
Financial Instruments Measured At Fair Value Using Significant Unobservable Inputs 
 
Three Months Ended September 30, 2012
 
Assets
 
Liabilities
 
Available-for-Sale Debt Securities
 
Equity
securities
 
Other
investments
 
Other
derivative
instruments
 
GLB(1)
 
U.S.
Treasury
and
Agency
 
Foreign
 
Corporate
securities
 
MBS
 
States,
municipalities,
and political
subdivisions
 
 
 
 
(in millions of U.S. dollars)
Balance-Beginning of Period
$
4

 
$
20

 
$
137

 
$
27

 
$
1

 
$
12

 
$
2,047

 
$
1

 
$
1,354

Transfers into Level 3
—

 
5

 
5

 
10

 
—

 
2

 
53

 
—

 
—

Transfers out of Level 3
(4
)
 
(6
)
 
(26
)
 
—

 
—

 
(10
)
 
—

 
—

 
—

Change in Net Unrealized Gains (Losses) included in OCI
—

 
—

 
3

 
—

 
—

 
(1
)
 
13

 
—

 
—

Net Realized Gains/Losses
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(75
)
Purchases
—

 
6

 
11

 
—

 
—

 
1

 
121

 
—

 
—

Sales
—

 
—

 
—

 
(7
)
 
—

 
—

 
(5
)
 
—

 
—

Settlements
—

 
—

 
—

 
(1
)
 
—

 
—

 
(51
)
 
(1
)
 
—

Balance-End of Period
$
—

 
$
25

 
$
130

 
$
29

 
$
1

 
$
4

 
$
2,178

 
$
—

 
$
1,279

Net Realized Gains/Losses Attributable to Changes in Fair Value at the Balance Sheet Date
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
(75
)
____________________ 
(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.
  
Three Months Ended September 30, 2011
 
Assets
 
Liabilities
 
Available-for-Sale Debt Securities
 
Equity
securities
 
Other
investments
 
Other
derivative
instruments
 
GLB(1)
 
Foreign
 
Corporate
securities
 
MBS
 
States,
municipalities,
and political
subdivisions
 
 
(in millions of U.S. dollars)
Balance-Beginning of Period
$
27

 
$
142

 
$
34

 
$
1

 
$
10

 
$
1,680

 
$
4

 
$
524

Transfers into Level 3
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Transfers out of Level 3
(11
)
 
—

 
(13
)
 
—

 
—

 
—

 
—

 
—

Change in Net Unrealized Gains (Losses) included in OCI
—

 
(6
)
 
—

 
—

 
—

 
59

 
—

 
—

Net Realized Gains/Losses
(1
)
 
—

 
—

 
—

 
—

 
(1
)
 
5

 
952

Purchases
1

 
1

 
—

 
—

 
—

 
85

 
—

 
—

Sales
—

 
(3
)
 
(2
)
 
—

 
—

 
—

 
—

 
—

Settlements
—

 
(9
)
 
(1
)
 
—

 
—

 
(58
)
 
(1
)
 
—

Balance-End of Period
$
16

 
$
125

 
$
18

 
$
1

 
$
10

 
$
1,765

 
$
8

 
$
1,476

Net Realized Gains/Losses Attributable to Changes in Fair Value at the Balance Sheet Date
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
(1
)
 
$
4

 
$
952

____________________ 
(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 $1,635 million at September 30, 2011, and $676 million at June 30, 2011, which includes a fair value derivative adjustment of $1,476 million and $524 million, respectively.
 
 
Nine Months Ended September 30, 2012
 
Assets
 
Liabilities
 
Available-for-Sale Debt Securities
 
Equity
securities
 
Other
investments
 
Other
derivative
instruments
 
GLB(1)
 
U.S.
Treasury
and
Agency
 
Foreign
 
Corporate
securities
 
MBS
 
States,
municipalities,
and political
subdivisions
 
 
 
 
(in millions of U.S. dollars)
Balance-Beginning of Period
$
5

 
$
33

 
$
134

 
$
28

 
$
1

 
$
13

 
$
1,877

 
$
3

 
$
1,319

Transfers into Level 3
—

 
6

 
33

 
22

 
1

 
2

 
53

 
—

 
—

Transfers out of Level 3
(4
)
 
(7
)
 
(35
)
 
(15
)
 
—

 
(10
)
 
—

 
—

 
—

Change in Net Unrealized Gains (Losses) included in OCI
—

 
—

 
6

 
—

 
—

 
—

 
37

 
—

 
—

Net Realized Gains/Losses
—

 
—

 
(1
)
 
—

 
—

 
—

 
(7
)
 
(4
)
 
(40
)
Purchases
—

 
46

 
19

 
4

 
—

 
4

 
366

 
3

 
—

Sales
—

 
(52
)
 
(15
)
 
(7
)
 
—

 
(5
)
 
(6
)
 
—

 
—

Settlements
(1
)
 
(1
)
 
(11
)
 
(3
)
 
(1
)
 
—

 
(142
)
 
(2
)
 
—

Balance-End of Period
$
—

 
$
25

 
$
130

 
$
29

 
$
1

 
$
4

 
$
2,178

 
$
—

 
$
1,279

Net Realized Gains/Losses Attributable to Changes in Fair Value at the Balance Sheet Date
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
(7
)
 
$
—

 
$
(40
)
____________________ 
(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.
 
Nine Months Ended September 30, 2011
 
Assets
 
Liabilities
 
Available-for-Sale Debt Securities
 
Equity
securities
 
Other
investments
 
Other
derivative
instruments
 
GLB(1)
 
Foreign
 
Corporate
securities
 
MBS
 
States,
municipalities,
and political
subdivisions
 
 
(in millions of U.S. dollars)
Balance-Beginning of Period
$
26

 
$
115

 
$
39

 
$
2

 
$
13

 
$
1,432

 
$
4

 
$
507

Transfers into Level 3
9

 
34

 
4

 
—

 
—

 
—

 
—

 
—

Transfers out of Level 3
(18
)
 
(4
)
 
(48
)
 
—

 
—

 
—

 
—

 
—

Change in Net Unrealized Gains (Losses) included in OCI
(1
)
 
(5
)
 
—

 
—

 
(1
)
 
110

 
—

 
—

Net Realized Gains/Losses
—

 
(2
)
 
—

 
—

 
4

 
(4
)
 
6

 
969

Purchases
6

 
23

 
46

 
—

 
2

 
418

 
—

 
—

Sales
(3
)
 
(23
)
 
(17
)
 
—

 
(8
)
 
(55
)
 
—

 
—

Settlements
(3
)
 
(13
)
 
(6
)
 
(1
)
 
—

 
(136
)
 
(2
)
 
—

Balance-End of Period
$
16

 
$
125

 
$
18

 
$
1

 
$
10

 
$
1,765

 
$
8

 
$
1,476

Net Realized Gains/Losses Attributable to Changes in Fair Value at the Balance Sheet Date
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
(4
)
 
$
4

 
$
969

____________________ 
(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 $1,635 million at September 30, 2011, and $648 million at December 31, 2010, which includes a fair value derivative adjustment of $1,476 million and $507 million, respectively. 
Carrying Values And Fair Values Of Financial Instruments Not Measured At Fair Value 
 
September 30, 2012
 
December 31, 2011
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
 
Fair
Value
Assets:
(in millions of U.S. dollars)
Fixed maturities held to maturity
 
 
 
 
 
 
 
U.S. Treasury and agency
$
1,084

 
$
1,129

 
$
1,078

 
$
1,126

Foreign
919

 
970

 
935

 
930

Corporate securities
2,182

 
2,322

 
2,338

 
2,337

Mortgage-backed securities
2,222

 
2,330

 
2,949

 
3,036

States, municipalities, and political subdivisions
1,086

 
1,128

 
1,147

 
1,176

 
7,493

 
7,879

 
8,447

 
8,605

Partially-owned insurance companies
354

 
354

 
352

 
352

Total assets
$
7,847

 
$
8,233

 
$
8,799

 
$
8,957

Liabilities:
 
 
 
 
 
 
 
Short-term debt
$
1,402

 
$
1,402

 
$
1,251

 
$
1,251

Long-term debt
3,360

 
3,964

 
3,360

 
3,823

Trust preferred securities
309

 
459

 
309

 
404

Total liabilities
$
5,071

 
$
5,825

 
$
4,920

 
$
5,478

Financial Instruments Not Carried At Fair Value 
  
Level 1
 
Level 2
 
Level 3
 
Total
September 30, 2012
(in millions of U.S. dollars)
Assets:
 
 
 
 
 
 
 
Fixed maturities held to maturity
 
 
 
 
 
 
 
U.S. Treasury and agency
$
615

 
$
514

 
$
—

 
$
1,129

Foreign
—

 
970

 
—

 
970

Corporate securities
—

 
2,306

 
16

 
2,322

Mortgage-backed securities
—

 
2,330

 
—

 
2,330

States, municipalities, and political subdivisions
—

 
1,128

 
—

 
1,128

 
615

 
7,248

 
16

 
7,879

Partially-owned insurance companies
—

 
—

 
354

 
354

Total assets
$
615

 
$
7,248

 
$
370

 
$
8,233

Liabilities:
 
 
 
 
 
 
 
Short-term debt
$
—

 
$
1,402

 
$
—

 
$
1,402

Long-term debt
—

 
3,964

 
—

 
3,964

Trust preferred securities
—

 
459

 
—

 
459

Total liabilities
$
—

 
$
5,825

 
$
—

 
$
5,825

Assumed life reinsurance programs involving minimum benefit guarantees under annuity contracts (Tables)
Schedule Of Guaranteed Minimum Death Benefits And Guaranteed Minimum Income Benefits Income And Expense
 
Three Months Ended
 
Nine Months Ended
 
September 30
 
September 30
 
2012
 
2011
 
2012
 
2011
 
(in millions of U.S. dollars)
GMDB
 
 
 
 
 
 
 
Net premiums earned
$
20

 
$
24

 
$
64

 
$
75

Policy benefits and other reserve adjustments
$
22

 
$
20

 
$
61

 
$
63

GLB
 
 
 
 
 
 
 
Net premiums earned
$
40

 
$
40

 
$
121

 
$
122

Policy benefits and other reserve adjustments
7

 
7

 
30

 
19

Net realized gains (losses)
75

 
(952
)
 
41

 
(969
)
Gain (loss) recognized in income
$
108

 
$
(919
)
 
$
132

 
$
(866
)
Net cash received
$
35

 
$
40

 
$
114

 
$
121

Net (increase) decrease in liability
$
73

 
$
(959
)
 
$
18

 
$
(987
)
Commitments, contingencies, and guarantees (Tables)
Balance Sheet Locations, Fair Values In An Asset Or (Liability) Position, And Notional Values/Payment Provisions Of Derivative Instruments 
 
 
 
September 30, 2012
 
December 31, 2011
 
Consolidated
Balance
Sheet
Location
 
Fair
Value
 
Notional
Value/
Payment
Provision
 
Fair
Value
 
Notional
Value/
Payment
Provision
 
 
 
(in millions of U.S. dollars)
Investment and embedded derivative instruments
 
 
 
 
 
 
 
 
 
Foreign currency forward contracts
AP
 
$
(6
)
 
$
841

 
$
7

 
$
674

Cross-currency swaps
AP
 
—

 
50

 
—

 
—

Futures contracts on money market instruments
AP
 
3

 
2,200

 
7

 
10,476

Futures contracts on notes and bonds
AP
 
—

 
931

 
(4
)
 
1,055

Options on money market instruments
AP
 
—

 
3,030

 
—

 
292

Options on notes and bonds futures
AP
 
—

 
56

 
—

 
—

Convertible bonds
FM AFS
 
410

 
378

 
357

 
353

TBAs
FM AFS
 
75

 
71

 
60

 
56

 
 
 
$
482

 
$
7,557

 
$
427

 
$
12,906

Other derivative instruments
 
 
 
 
 
 
 
 
 
Futures contracts on equities(1)
AP
 
$
6

 
$
2,342

 
$
(16
)
 
$
1,367

Options on equity market indices(1)
AP
 
32

 
250

 
54

 
250

Credit default swaps
AP
 
—

 
—

 
3

 
350

Other
AP
 
—

 
6

 
—

 
6

 
 
 
$
38

 
$
2,598

 
$
41

 
$
1,973

GLB(2)
AP/FPB
 
$
(1,487
)
 
$
1,207

 
$
(1,505
)
 
$
1,378

____________________ 
(1) 
Related to GMDB and GLB blocks of business.
(2) 
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.
Net Realized Gains (Losses) Of Derivative Instrument Activity In Consolidated Statement Of Operations 
 
Three Months Ended
 
Nine Months Ended
 
September 30
 
September 30
 
2012
 
2011
 
2012
 
2011
 
(in millions of U.S. dollars)
Investment and embedded derivative instruments
 
 
 
 
 
 
 
Foreign currency forward contracts
$
(9
)
 
$
15

 
$
(8
)
 
$
(3
)
All other futures contracts and options
—

 
(64
)
 
(20
)
 
(91
)
Convertible bonds
12

 
(41
)
 
24

 
(63
)
TBAs
1

 
1

 
1

 
—

Total investment and embedded derivative instruments
$
4

 
$
(89
)
 
$
(3
)
 
$
(157
)
GLB and other derivative instruments
 
 
 
 
 
 
 
GLB(1)
$
83

 
$
(926
)
 
$
44

 
$
(925
)
Futures contracts on equities(2)
(138
)
 
197

 
(286
)
 
134

Options on equity market indices(2)
(9
)
 
23

 
(22
)
 
18

Credit default swaps
—

 
2

 
(4
)
 
(1
)
Total GLB and other derivative instruments
$
(64
)
 
$
(704
)
 
$
(268
)
 
$
(774
)
 
$
(60
)
 
$
(793
)
 
$
(271
)
 
$
(931
)
 ____________________
(1) 
Excludes foreign exchange gains (losses) related to GLB.
(2) 
Related to GMDB and GLB blocks of business. 
Segment information (Tables)
Operations By Segment 
Statement of Operations by Segment
For the Three Months Ended September 30, 2012
(in millions of U.S. dollars)
 
 
Insurance –
North
American
 
Insurance –
Overseas
General
 
Global
Reinsurance
 
Life
 
Corporate
and Other
 
ACE
Consolidated
Net premiums written
$
2,537

 
$
1,384

 
$
307

 
$
488

 
$
—

 
$
4,716

Net premiums earned
2,472

 
1,432

 
281

 
480

 
—

 
4,665

Losses and loss expenses
2,110

 
622

 
151

 
164

 
—

 
3,047

Policy benefits
—

 
—

 
—

 
130

 
—

 
130

Policy acquisition costs
160

 
329

 
40

 
80

 
—

 
609

Administrative expenses
148

 
234

 
13

 
81

 
43

 
519

Underwriting income (loss)
54

 
247

 
77

 
25

 
(43
)
 
360

Net investment income
263

 
127

 
72

 
63

 
8

 
533

Net realized gains (losses) including OTTI
(1
)
 
13

 
(2
)
 
(71
)
 
1

 
(60
)
Interest expense
3

 
2

 
1

 
3

 
54

 
63

Other (income) expense:
 
 
 
 
 
 
 
 
 
 
 
(Gains) losses from fair value changes in separate account assets
—

 
—

 
—

 
(14
)
 
—

 
(14
)
Other
(5
)
 
(3
)
 
(5
)
 
—

 
10

 
(3
)
Income tax expense (benefit)
81

 
77

 
11

 
14

 
(36
)
 
147

Net income (loss)
$
237

 
$
311

 
$
140

 
$
14

 
$
(62
)
 
$
640



 
Statement of Operations by Segment
For the Three Months Ended September 30, 2011
(in millions of U.S. dollars)
 
 
Insurance –
North
American
 
Insurance –
Overseas
General
 
Global
Reinsurance
 
Life
 
Corporate
and Other
 
ACE
Consolidated
Net premiums written
$
2,207

 
$
1,398

 
$
250

 
$
488

 
$
—

 
$
4,343

Net premiums earned
2,299

 
1,471

 
240

 
480

 
—

 
4,490

Losses and loss expenses
1,838

 
671

 
94

 
142

 
—

 
2,745

Policy benefits
—

 
—

 
—

 
83

 
—

 
83

Policy acquisition costs
174

 
353

 
50

 
92

 
—

 
669

Administrative expenses
153

 
236

 
12

 
81

 
38

 
520

Underwriting income (loss)
134

 
211

 
84

 
82

 
(38
)
 
473

Net investment income
291

 
138

 
70

 
60

 
5

 
564

Net realized gains (losses) including OTTI
(2
)
 
1

 
(29
)
 
(732
)
 
2

 
(760
)
Interest expense
4

 
2

 
—

 
3

 
53

 
62

Other (income) expense
 
 
 
 
 
 
 
 
 
 
 
(Gains) losses from fair value changes in separate account assets
—

 
—

 
—

 
39

 
—

 
39

Other
21

 
10

 
7

 
10

 
2

 
50

Income tax expense (benefit)
120

 
56

 
7

 
13

 
(31
)
 
165

Net income (loss)
$
278

 
$
282

 
$
111

 
$
(655
)
 
$
(55
)
 
$
(39
)
Statement of Operations by Segment
For the Nine Months Ended September 30, 2012
(in millions of U.S. dollars)
 
 
Insurance –
North
American
 
Insurance –
Overseas
General
 
Global
Reinsurance
 
Life
 
Corporate
and Other
 
ACE
Consolidated
Net premiums written
$
5,690

 
$
4,387

 
$
879

 
$
1,462

 
$
—

 
$
12,418

Net premiums earned
5,411

 
4,243

 
748

 
1,427

 
—

 
11,829

Losses and loss expenses
4,122

 
2,030

 
355

 
463

 
—

 
6,970

Policy benefits
—

 
—

 
—

 
379

 
—

 
379

Policy acquisition costs
444

 
996

 
125

 
244

 
1

 
1,810

Administrative expenses
448

 
696

 
38

 
237

 
124

 
1,543

Underwriting income (loss)
397

 
521

 
230

 
104

 
(125
)
 
1,127

Net investment income
808

 
386

 
213

 
186

 
21

 
1,614

Net realized gains (losses) including OTTI
16

 
59

 
(6
)
 
(261
)
 
(2
)
 
(194
)
Interest expense
9

 
4

 
3

 
9

 
162

 
187

Other (income) expense:
 
 
 
 
 
 
 
 
 
 
 
(Gains) losses from fair value changes in separate account assets
—

 
—

 
—

 
(18
)
 
—

 
(18
)
Other
4

 
3

 
(7
)
 
14

 
18

 
32

Income tax expense (benefit)
279

 
166

 
17

 
44

 
(101
)
 
405

Net income (loss)
$
929

 
$
793

 
$
424

 
$
(20
)
 
$
(185
)
 
$
1,941



 
Statement of Operations by Segment
For the Nine Months Ended September 30, 2011
(in millions of U.S. dollars)
 
 
Insurance –
North
American
 
Insurance –
Overseas
General
 
Global
Reinsurance
 
Life
 
Corporate
and Other
 
ACE
Consolidated
Net premiums written
$
5,227

 
$
4,251

 
$
847

 
$
1,417

 
$
—

 
$
11,742

Net premiums earned
5,249

 
4,164

 
754

 
1,389

 
—

 
11,556

Losses and loss expenses
4,065

 
2,244

 
485

 
439

 
1

 
7,234

Policy benefits
—

 
—

 
—

 
282

 
—

 
282

Policy acquisition costs
455

 
989

 
143

 
253

 
—

 
1,840

Administrative expenses
448

 
698

 
38

 
233

 
120

 
1,537

Underwriting income (loss)
281

 
233

 
88

 
182

 
(121
)
 
663

Net investment income
886

 
406

 
213

 
166

 
6

 
1,677

Net realized gains (losses) including OTTI
8

 
(18
)
 
(56
)
 
(813
)
 
1

 
(878
)
Interest expense
11

 
4

 
1

 
9

 
162

 
187

Other (income) expense
 
 
 
 
 
 
 
 
 
 
 
(Gains) losses from fair value changes in separate account assets
—

 
—

 
—

 
39

 
—

 
39

Other
8

 
3

 
2

 
27

 
9

 
49

Income tax expense (benefit)
304

 
112

 
25

 
41

 
(100
)
 
382

Net income (loss)
$
852

 
$
502

 
$
217

 
$
(581
)
 
$
(185
)
 
$
805

Net Premiums Earned For Segment By Product 
 
Property &
All Other
 
Casualty
 
Life,
Accident &
Health
 
ACE
Consolidated
 
(in millions of U.S. dollars)
For the Three Months Ended September 30, 2012
 
 
 
 
Insurance – North American
$
1,519

 
$
860

 
$
93

 
$
2,472

Insurance – Overseas General
547

 
356

 
529

 
1,432

Global Reinsurance
131

 
150

 
—

 
281

Life
—

 
—

 
480

 
480

 
$
2,197

 
$
1,366

 
$
1,102

 
$
4,665

For the Three Months Ended September 30, 2011
 
 
 
 
 
 
 
Insurance – North American
$
1,395

 
$
815

 
$
89

 
$
2,299

Insurance – Overseas General
553

 
366

 
552

 
1,471

Global Reinsurance
118

 
122

 
—

 
240

Life
—

 
—

 
480

 
480

 
$
2,066

 
$
1,303

 
$
1,121

 
$
4,490


 
 
Property &
All Other
 
Casualty
 
Life,
Accident &
Health
 
ACE
Consolidated
 
(in millions of U.S. dollars)
For the Nine Months Ended September 30, 2012
 
 
 
 
 
 
 
Insurance – North American
$
2,631

 
$
2,505

 
$
275

 
$
5,411

Insurance – Overseas General
1,637

 
1,027

 
1,579

 
4,243

Global Reinsurance
355

 
393

 
—

 
748

Life
—

 
—

 
1,427

 
1,427

 
$
4,623

 
$
3,925

 
$
3,281

 
$
11,829

For the Nine Months Ended September 30, 2011
 
 
 
 
 
 
 
Insurance – North American
$
2,413

 
$
2,570

 
$
266

 
$
5,249

Insurance – Overseas General
1,517

 
1,056

 
1,591

 
4,164

Global Reinsurance
345

 
409

 
—

 
754

Life
—

 
—

 
1,389

 
1,389

 
$
4,275

 
$
4,035

 
$
3,246

 
$
11,556

Earnings per share (Tables)
Schedule Of Earnings Per Share, Basic And Diluted
 
Three Months Ended
 
Nine Months Ended
 
September 30
 
September 30
 
2012
 
2011
 
2012
 
2011
 
(in millions of U.S. dollars, except share and per share data)
Numerator:
 
 
 
 
 
 
 
Net income (loss)
$
640

 
$
(39
)
 
$
1,941

 
$
805

Denominator:
 
 
 
 
 
 
 
Denominator for basic earnings per share:
 
 
 
 
 
 
 
Weighted-average shares outstanding
340,207,037

 
338,385,734

 
339,523,388

 
338,139,477

Denominator for diluted earnings per share:
 
 
 
 

 

Share-based compensation plans
2,665,676

 
—

 
2,831,798

 
2,733,434

Adjusted weighted-average shares outstanding and assumed conversions
342,872,713

 
338,385,734

 
342,355,186

 
340,872,911

Basic earnings per share
$
1.88

 
$
(0.11
)
 
$
5.71

 
$
2.38

Diluted earnings per share
$
1.86

 
$
(0.11
)
 
$
5.67

 
$
2.36

Information provided in connection with outstanding debt of subsidiaries (Tables)
Condensed Consolidating Balance Sheet 

 Condensed Consolidating Balance Sheet at September 30, 2012
(in millions of U.S. dollars)

  
ACE
Limited
(Parent
Guarantor)
 
ACE INA
Holdings Inc.
(Subsidiary
Issuer)
 
Other ACE
Limited
Subsidiaries
and
Eliminations(1)
 
Consolidating
Adjustments(2)
 
ACE Limited
Consolidated
Assets
 
 
 
 
 
 
 
 
 
Investments
$
31

 
$
31,249

 
$
28,537

 
$
—

 
$
59,817

Cash(3)
(116
)
 
550

 
256

 
—

 
690

Insurance and reinsurance balances receivable
—

 
4,767

 
521

 
—

 
5,288

Reinsurance recoverable on losses and loss expenses
—

 
16,943

 
(5,086
)
 
—

 
11,857

Reinsurance recoverable on policy benefits
—

 
1,196

 
(950
)
 
—

 
246

Value of business acquired
—

 
628

 
4

 
—

 
632

Goodwill and other intangible assets
—

 
4,415

 
575

 
—

 
4,990

Investments in subsidiaries
26,998

 
—

 
—

 
(26,998
)
 
—

Due from subsidiaries and affiliates, net
270

 
—

 
—

 
(270
)
 
—

Other assets
16

 
7,711

 
2,261

 
—

 
9,988

Total assets
$
27,199

 
$
67,459

 
$
26,118

 
$
(27,268
)
 
$
93,508

 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
Unpaid losses and loss expenses
$
—

 
$
31,640

 
$
6,560

 
$
—

 
$
38,200

Unearned premiums
—

 
5,973

 
1,095

 
—

 
7,068

Future policy benefits
—

 
3,819

 
595

 
—

 
4,414

Due to subsidiaries and affiliates, net
—

 
584

 
(314
)
 
(270
)
 
—

Short-term debt
—

 
851

 
551

 
—

 
1,402

Long-term debt
—

 
3,360

 
—

 
—

 
3,360

Trust preferred securities
—

 
309

 
—

 
—

 
309

Other liabilities
236

 
8,992

 
2,564

 
—

 
11,792

Total liabilities
236

 
55,528

 
11,051

 
(270
)
 
66,545

Total shareholders’ equity
26,963

 
11,931

 
15,067

 
(26,998
)
 
26,963

Total liabilities and shareholders’ equity
$
27,199

 
$
67,459

 
$
26,118

 
$
(27,268
)
 
$
93,508

 ____________________
(1) 
Includes all other subsidiaries of ACE Limited and intercompany eliminations.
(2) 
Includes ACE Limited parent company eliminations.
(3) 
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 September 30, 2012, the cash balance of one or more entities was negative; however, the overall Pool balances were positive.

 




Condensed Consolidating Balance Sheet at December 31, 2011
(in millions of U.S. dollars)

  
ACE
Limited
(Parent
Guarantor)
 
ACE INA
Holdings Inc.
(Subsidiary
Issuer)
 
Other ACE
Limited
Subsidiaries
and
Eliminations(1)
 
Consolidating
Adjustments(2)
 
ACE Limited
Consolidated
Assets
 
 
 
 
 
 
 
 
 
Investments
$
33

 
$
28,848

 
$
26,795

 
$
—

 
$
55,676

Cash
106

 
382

 
126

 
—

 
614

Insurance and reinsurance balances receivable
—

 
3,944

 
443

 
—

 
4,387

Reinsurance recoverable on losses and loss expenses
—

 
17,146

 
(4,757
)
 
—

 
12,389

Reinsurance recoverable on policy benefits
—

 
941

 
(692
)
 
—

 
249

Value of business acquired
—

 
676

 
—

 
—

 
676

Goodwill and other intangible assets
—

 
4,248

 
551

 
—

 
4,799

Investments in subsidiaries
23,871

 
—

 
—

 
(23,871
)
 
—

Due from subsidiaries and affiliates, net
498

 
—

 
—

 
(498
)
 
—

Other assets
8

 
7,018

 
1,505

 
—

 
8,531

Total assets
$
24,516

 
$
63,203

 
$
23,971

 
$
(24,369
)
 
$
87,321

 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
Unpaid losses and loss expenses
$
—

 
$
30,837

 
$
6,640

 
$
—

 
$
37,477

Unearned premiums
—

 
5,416

 
918

 
—

 
6,334

Future policy benefits
—

 
3,673

 
601

 
—

 
4,274

Due to subsidiaries and affiliates, net
—

 
316

 
182

 
(498
)
 
—

Short-term debt
—

 
850

 
401

 
—

 
1,251

Long-term debt
—

 
3,360

 
—

 
—

 
3,360

Trust preferred securities
—

 
309

 
—

 
—

 
309

Other liabilities
184

 
7,769

 
2,031

 
—

 
9,984

Total liabilities
184

 
52,530

 
10,773

 
(498
)
 
62,989

Total shareholders’ equity
24,332

 
10,673

 
13,198

 
(23,871
)
 
24,332

Total liabilities and shareholders’ equity
$
24,516

 
$
63,203

 
$
23,971

 
$
(24,369
)
 
$
87,321

____________________ 
(1) 
Includes all other subsidiaries of ACE Limited and intercompany eliminations.
(2) 
Includes ACE Limited parent company eliminations.
Condensed Consolidating Statement Of Operations and Comprehensive Income 
Condensed Consolidating Statements of Operations and Comprehensive Income
For the Three Months Ended September 30, 2012
(in millions of U.S. dollars)

 
ACE
Limited
(Parent
Guarantor)
 
ACE INA
Holdings Inc.
(Subsidiary
Issuer)
 
Other ACE
Limited
Subsidiaries
and
Eliminations(1)
 
Consolidating
Adjustments (2)
 
ACE
Limited
Consolidated
Net premiums written
$
—

 
$
2,868

 
$
1,848

 
$
—

 
$
4,716

Net premiums earned
—

 
2,819

 
1,846

 
—

 
4,665

Net investment income
—

 
255

 
278

 
—

 
533

Equity in earnings of subsidiaries
616

 
—

 
—

 
(616
)
 
—

Net realized gains (losses) including OTTI
(4
)
 
11

 
(67
)
 
—

 
(60
)
Losses and loss expenses
—

 
1,977

 
1,070

 
—

 
3,047

Policy benefits
—

 
77

 
53

 
—

 
130

Policy acquisition costs and administrative expenses
16

 
587

 
525

 
—

 
1,128

Interest (income) expense
(8
)
 
67

 
4

 
—

 
63

Other (income) expense
(39
)
 
17

 
5

 
—

 
(17
)
Income tax expense
3

 
123

 
21

 
—

 
147

Net income
$
640

 
$
237

 
$
379

 
$
(616
)
 
$
640

Comprehensive income
$
1,316

 
$
593

 
$
23

 
$
(616
)
 
$
1,316


Condensed Consolidating Statements of Operations and Comprehensive Income
For the Three Months Ended September 30, 2011
(in millions of U.S. dollars)

 
ACE
Limited
(Parent
Guarantor)
 
ACE INA
Holdings Inc.
(Subsidiary
Issuer)
 
Other ACE
Limited
Subsidiaries
and
Eliminations(1)
 
Consolidating
Adjustments (2)
 
ACE
Limited
Consolidated
Net premiums written
$
—

 
$
2,581

 
$
1,762

 
$
—

 
$
4,343

Net premiums earned
—

 
2,700

 
1,790

 
—

 
4,490

Net investment income
—

 
281

 
283

 
—

 
564

Equity in earnings of subsidiaries
(63
)
 
—

 
—

 
63

 
—

Net realized gains (losses) including OTTI
2

 
28

 
(790
)
 
—

 
(760
)
Losses and loss expenses
—

 
1,782

 
963

 
—

 
2,745

Policy benefits
—

 
22

 
61

 
—

 
83

Policy acquisition costs and administrative expenses
14

 
631

 
544

 
—

 
1,189

Interest (income) expense
(9
)
 
66

 
5

 
—

 
62

Other (income) expense
(30
)
 
85

 
34

 
—

 
89

Income tax expense
3

 
146

 
16

 
—

 
165

Net income (loss)
$
(39
)
 
$
277

 
$
(340
)
 
$
63

 
$
(39
)
Comprehensive income (loss)
$
(189
)
 
$
355

 
$
(418
)
 
$
63

 
$
(189
)
 ____________________
(1) 
Includes all other subsidiaries of ACE Limited and intercompany eliminations.
(2) 
Includes ACE Limited parent company eliminations.

 Condensed Consolidating Statements of Operations and Comprehensive Income
For the Nine Months Ended September 30, 2012
(in millions of U.S. dollars) 

 
ACE
Limited
(Parent
Guarantor)
 
ACE INA
Holdings Inc.
(Subsidiary
Issuer)
 
Other ACE
Limited
Subsidiaries
and
Eliminations(1)
 
Consolidating
Adjustments (2)
 
ACE
Limited
Consolidated
Net premiums written
$
—

 
$
7,293

 
$
5,125

 
$
—

 
$
12,418

Net premiums earned
—

 
6,967

 
4,862

 
—

 
11,829

Net investment income
1

 
777

 
836

 
—

 
1,614

Equity in earnings of subsidiaries
1,845

 
—

 
—

 
(1,845
)
 
—

Net realized gains (losses) including OTTI
18

 
71

 
(283
)
 
—

 
(194
)
Losses and loss expenses
—

 
4,484

 
2,486

 
—

 
6,970

Policy benefits
—

 
217

 
162

 
—

 
379

Policy acquisition costs and administrative expenses
42

 
1,883

 
1,428

 
—

 
3,353

Interest (income) expense
(25
)
 
191

 
21

 
—

 
187

Other (income) expense
(102
)
 
51

 
65

 
—

 
14

Income tax expense
8

 
327

 
70

 
—

 
405

Net income
$
1,941

 
$
662

 
$
1,183

 
$
(1,845
)
 
$
1,941

Comprehensive income
$
3,044

 
$
1,203

 
$
642

 
$
(1,845
)
 
$
3,044


Condensed Consolidating Statements of Operations and Comprehensive Income
For the Nine Months Ended September 30, 2011
(in millions of U.S. dollars)

 
ACE
Limited
(Parent
Guarantor)
 
ACE INA
Holdings Inc.
(Subsidiary
Issuer)
 
Other ACE
Limited
Subsidiaries
and
Eliminations(1)
 
Consolidating
Adjustments (2)
 
ACE
Limited
Consolidated
Net premiums written
$
—

 
$
6,910

 
$
4,832

 
$
—

 
$
11,742

Net premiums earned
—

 
6,863

 
4,693

 
—

 
11,556

Net investment income
1

 
825

 
851

 
—

 
1,677

Equity in earnings of subsidiaries
742

 
—

 
—

 
(742
)
 
—

Net realized gains (losses) including OTTI
—

 
32

 
(910
)
 
—

 
(878
)
Losses and loss expenses
—

 
4,521

 
2,713

 
—

 
7,234

Policy benefits
—

 
121

 
161

 
—

 
282

Policy acquisition costs and administrative expenses
50

 
1,839

 
1,488

 
—

 
3,377

Interest (income) expense
(27
)
 
199

 
15

 
—

 
187

Other (income) expense
(92
)
 
121

 
59

 
—

 
88

Income tax expense
7

 
323

 
52

 
—

 
382

Net income
$
805

 
$
596

 
$
146

 
$
(742
)
 
$
805

Comprehensive income (loss)
$
1,050

 
$
947

 
$
(205
)
 
$
(742
)
 
$
1,050

 ____________________
(1) 
Includes all other subsidiaries of ACE Limited and intercompany eliminations.
(2) 
Includes ACE Limited parent company eliminations.
Condensed Consolidating Statement of Cash Flows 
Condensed Consolidating Statement of Cash Flows
For the Nine Months Ended September 30, 2012
(in millions of U.S. dollars)  

 
ACE
Limited
(Parent
Guarantor)
 
ACE INA
Holdings Inc.
(Subsidiary
Issuer)
 
Other ACE
Limited
Subsidiaries
and
Eliminations(1)
 
Consolidating
Adjustments(2)
 
ACE
Limited
Consolidated
Net cash flows from operating activities
$
210

 
$
1,553

 
$
1,262

 
$
—

 
$
3,025

Cash flows from investing activities
 
 
 
 
 
 
 
 
 
Purchases of fixed maturities available for sale
—

 
(8,553
)
 
(9,103
)
 
—

 
(17,656
)
Purchases of fixed maturities held to maturity
—

 
(215
)
 
(2
)
 
—

 
(217
)
Purchases of equity securities
—

 
(65
)
 
(49
)
 
—

 
(114
)
Sales of fixed maturities available for
sale
—

 
5,154

 
6,201

 
—

 
11,355

Sales of equity securities
—

 
48

 
9

 
—

 
57

Maturities and redemptions of fixed maturities available for sale
—

 
1,757

 
1,839

 
—

 
3,596

Maturities and redemptions of fixed maturities held to maturity
—

 
798

 
294

 
—

 
1,092

Net derivative instruments settlements
(1
)
 
(10
)
 
(347
)
 
—

 
(358
)
Advances from (to) affiliates
36

 
—

 
—

 
(36
)
 
—

Acquisition of subsidiaries (net of cash acquired of $8)
—

 
(98
)
 
—

 
—

 
(98
)
Capital contribution to subsidiary
—

 
—

 
(90
)
 
90

 
—

Other
—

 
(279
)
 
(60
)
 
—

 
(339
)
Net cash flows from (used for) investing activities
35

 
(1,463
)
 
(1,308
)
 
54

 
(2,682
)
Cash flows from financing activities
 
 
 
 
 
 
 
 
 
Dividends paid on Common Shares
(484
)
 
—

 
—

 
—

 
(484
)
Common Shares repurchased
—

 
—

 
(11
)
 
—

 
(11
)
Net proceeds from issuance of short-term debt
—

 
1

 
150

 
—

 
151

Proceeds from share-based compensation plans
17

 
—

 
56

 
—

 
73

Advances (to) from affiliates
—

 
(10
)
 
(26
)
 
36

 
—

Capital contribution from subsidiary
—

 
90

 
—

 
(90
)
 
—

Net cash flows from (used for) financing activities
(467
)
 
81

 
169

 
(54
)
 
(271
)
Effect of foreign currency rate changes on cash and cash equivalents
—

 
(3
)
 
7

 
—

 
4

Net increase (decrease) in cash
(222
)
 
168

 
130

 
—

 
76

Cash – beginning of period
106

 
382

 
126

 
—

 
614

Cash – end of period(3)
$
(116
)
 
$
550

 
$
256

 
$
—

 
$
690

 ____________________
(1) 
Includes all other subsidiaries of ACE Limited and intercompany eliminations.
(2) 
Includes ACE Limited parent company eliminations.
(3) 
ACE maintains two notional multi-currency 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 September 30, 2012, the cash balance of one or more entities was negative; however, the overall Pool balances were positive.
Condensed Consolidating Statement of Cash Flows
For the Nine Months Ended September 30, 2011
(in millions of U.S. dollars)

 
ACE
Limited
(Parent
Guarantor)
 
ACE INA
Holdings Inc.
(Subsidiary
Issuer)
 
Other ACE
Limited
Subsidiaries
and
Eliminations(1)
 
Consolidating
Adjustments(2)
 
ACE
Limited
Consolidated
Net cash flows from operating activities
$
652

 
$
1,219

 
$
1,807

 
$
(680
)
 
$
2,998

Cash flows from investing activities
 
 
 
 
 
 
 
 
 
Purchases of fixed maturities available for sale
—

 
(9,434
)
 
(10,134
)
 
—

 
(19,568
)
Purchases of fixed maturities held to maturity
—

 
(282
)
 
(3
)
 
—

 
(285
)
Purchases of equity securities
—

 
(149
)
 
(140
)
 
—

 
(289
)
Sales of fixed maturities available for sale
7

 
7,366

 
6,950

 
—

 
14,323

Sales of equity securities
—

 
347

 
17

 
—

 
364

Maturities and redemptions of fixed maturities available for sale
—

 
1,234

 
1,369

 
—

 
2,603

Maturities and redemptions of fixed maturities held to maturity
—

 
724

 
242

 
—

 
966

Net derivative instruments settlements
(2
)
 
(19
)
 
88

 
—

 
67

Capital contribution to subsidiary
(385
)
 
—

 
—

 
385

 
—

Advances from (to) affiliates
(90
)
 
—

 
—

 
90

 
—

Acquisition of subsidiaries (net of cash acquired of $81)
—

 
(357
)
 
(37
)
 
—

 
(394
)
Other
—

 
(469
)
 
152

 
—

 
(317
)
Net cash flows used for investing activities
(470
)
 
(1,039
)
 
(1,496
)
 
475

 
(2,530
)
Cash flows from financing activities
 
 
 
 
 
 
 
 
 
Dividends paid on Common Shares
(342
)
 
—

 
—

 
—

 
(342
)
Common Shares repurchased
—

 
—

 
(168
)
 
—

 
(168
)
Net proceeds from (repayments) issuance of short-term debt
(300
)
 
(150
)
 
400

 
—

 
(50
)
Proceeds from share-based compensation plans
82

 
—

 
—

 
—

 
82

Advances from (to) affiliates
—

 
35

 
55

 
(90
)
 
—

Dividends to parent company
—

 
—

 
(680
)
 
680

 
—

Capital contribution from parent
—

 
—

 
385

 
(385
)
 
—

Net cash flows from (used for) financing activities
(560
)
 
(115
)
 
(8
)
 
205

 
(478
)
Effect of foreign currency rate changes on cash and cash equivalents
—

 
2

 
2

 
—

 
4

Net (decrease) increase in cash
(378
)
 
67

 
305

 
—

 
(6
)
Cash – beginning of period(3)
308

 
573

 
(109
)
 
—

 
772

Cash – end of period(3)
$
(70
)
 
$
640

 
$
196

 
$
—

 
$
766

____________________ 
(1) 
Includes all other subsidiaries of ACE Limited and intercompany eliminations.
(2) 
Includes ACE Limited parent company eliminations.
(3) 
ACE maintains two notional multi-currency 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 September 30, 2011 and December 31, 2010, the cash balance of one or more entities was negative; however, the overall Pool balances were positive.
General (Narrative) (Detail) (USD $)
In Millions, except Per Share data, unless otherwise specified
3 Months Ended 9 Months Ended 12 Months Ended
Sep. 30, 2011
Sep. 30, 2011
Dec. 31, 2011
Deferred Policy Acquisition Costs [Member]
Dec. 31, 2011
Retained Earnings [Member]
Dec. 31, 2010
Retained Earnings [Member]
General [Line Items]
 
 
 
 
 
New Accounting Pronouncement or Change in Accounting Principle, Cumulative Effect of Change on Equity or Net Assets
 
 
 
 
$ 139 
Cumulative effect of change in accounting principle
$ 8 
$ 30 
$ 213 
$ 181 
 
New accounting pronouncement effect of change on earnings per share
$ 0.02 
$ 0.09 
 
 
 
Acquisitions (Detail) (USD $)
In Millions, unless otherwise specified
Sep. 18, 2012
PT Asuransi Jaya Proteksi (JaPro) [Member]
Sep. 12, 2012
Fianzas Monterrey [Member]
Oct. 18, 2012
ABA Seguros [Member]
Sep. 30, 2012
New York Life Korea And Hong Kong [Member]
Sep. 30, 2012
Penn Millers Holding Corporation [Member]
Business Acquisition [Line Items]
 
 
 
 
 
Percentage of business acquired
80.00% 
 
 
 
 
Remaining percentage of business expected to be acquired
20.00% 
 
 
 
 
Acquisition purchase price
$ 95 
$ 285 
$ 865 
$ 450 
$ 107 
Goodwill generated in acquisitions
 
 
 
91 
 
Goodwill expected to be deductible for income tax
 
 
 
0 
 
Other intangible assets generated in acquisition
 
 
 
$ 163 
 
Investments (Narrative) (Detail) (USD $)
3 Months Ended 9 Months Ended
Sep. 30, 2012
Security
Sep. 30, 2011
Sep. 30, 2012
Security
Sep. 30, 2011
Dec. 31, 2011
Investment [Line Items]
 
 
 
 
 
Net unrealized appreciation (depreciation) included in OCI
$ 46,000,000 
$ 30,000,000 
$ 130,000,000 
$ 38,000,000 
 
Net unrealized depreciation included in AOCI
28,000,000 
 
28,000,000 
 
155,000,000 
Percentage of mortgage-backed securities represented by investments in US government agency bonds
86.00% 
 
86.00% 
 
84.00% 
Credit losses recognized in net income for corporate securities
5,000,000 
4,000,000 
9,000,000 
4,000,000 
 
Credit losses recognized in net income for mortgage-backed securities
2,000,000 
5,000,000 
5,000,000 
8,000,000 
 
Number of fixed maturities in an unrealized loss position
1,473 
 
1,473 
 
 
Total number of fixed maturities
23,322 
 
23,322 
 
 
Largest single unrealized loss in the fixed maturities
4,000,000 
 
4,000,000 
 
 
Number of equity securities in an unrealized loss position
68 
 
68 
 
 
Total number of equity securities
197 
 
197 
 
 
Largest single unrealized loss in the equity securities
1,000,000 
 
1,000,000 
 
 
Restricted assets in fixed maturities and short-term investments
16,300,000,000 
 
16,300,000,000 
 
14,900,000,000 
Restricted assets in cash
$ 116,000,000 
 
$ 116,000,000 
 
$ 179,000,000 
Investments (Schedule Of Fixed Maturities By Contractual Maturity) (Detail) (USD $)
In Millions, unless otherwise specified
Sep. 30, 2012
Dec. 31, 2011
Investment [Line Items]
 
 
Available for sale, Due in 1 year or less, Amortized Cost
$ 2,210 
$ 2,321 
Available for sale, Due after 1 year through 5 years, Amortized Cost
12,591 
12,325 
Available for sale, Due after 5 years though 10 years, Amortized Cost
14,699 
12,379 
Available for sale, Due after 10 years, Amortized Cost
4,031 
3,446 
Available for sale, Subtotal, Amortized Cost
33,531 
30,471 
Available for sale, Mortgage-backed securities, Amortized Cost
10,227 
9,979 
Available for sale, Amortized Cost
43,758 
40,450 
Available for sale, Fair Value
46,504 
41,967 
Held to maturity, Due in 1 year or less, Amortized Cost
676 
393 
Held to maturity, Due after 1 year through 5 years, Amortized Cost
1,839 
2,062 
Held to maturity, Due after 5 years through 10 years, Amortized Cost
2,118 
2,376 
Held to maturity, Due after 10 years, Amortized Cost
638 
667 
Held to maturity, Subtotal, Amortized Cost
5,271 
5,498 
Held to maturity, Mortgage backed securities, Amortized Cost
2,222 
2,949 
Available for sale, Due in 1 year or less, Fair Value
2,231 
2,349 
Available for sale, Due after 1 year through 5 years, Fair Value
13,174 
12,722 
Available for sale, Due after 5 years through 10 years, Fair Value
15,852 
12,995 
Available for sale, Due after 10 years, Fair Value
4,511 
3,700 
Available for sale, Subtotal, Fair Value
35,768 
31,766 
Available for sale, Mortgage backed securities, Fair Value
10,736 
10,201 
Held to maturity, Due in 1 year or less, Fair Value
681 
396 
Held to maturity, Due after 1 year through 5, Fair Value
1,914 
2,090 
Held to maturity, Due after 5 years through 10 years, Fair Value
2,272 
2,399 
Held to maturity, Due after 10 years, Fair Value
682 
684 
Held to maturity, Subtotal, Fair Value
5,549 
5,569 
Held to maturity, Mortgage backed securities, Fair Value
2,330 
3,036 
Held-to-maturity Securities
7,493 
8,447 
Held to maturity, Fair Value
7,879 
8,605 
Collateralized Mortgage Backed Securities [Member]
 
 
Investment [Line Items]
 
 
Available for sale, Fair Value
10,736 
10,201 
Held-to-maturity Securities
2,222 
2,949 
Held to maturity, Fair Value
$ 2,330 
$ 3,036 
Investments (Schedule Of Cost And Fair Value Of Equity Securities) (Detail) (USD $)
In Millions, unless otherwise specified
Sep. 30, 2012
Dec. 31, 2011
Investment [Line Items]
 
 
Cost
$ 741 
$ 671 
Gross unrealized appreciation
34 
18 
Gross unrealized depreciation
(5)
(42)
Fair value
$ 770 
$ 647 
Investments (Net Realized Gains (Losses) And Losses Included In Net Realized Gains (Losses) And Other Comprehensive Income) (Detail) (USD $)
In Millions, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Sep. 30, 2012
Sep. 30, 2011
Investment [Line Items]
 
 
 
 
OTTI on fixed maturities, gross
$ (10)
$ (30)
$ (18)
$ (41)
OTTI on fixed maturities recognized in OCI (pre-tax)
 
11 
 
13 
OTTI on fixed maturities, net
(10)
(19)
(18)
(28)
Fixed maturities, Gross realized gains excluding OTTI
71 
92 
287 
309 
Fixed maturities, Gross realized losses excluding OTTI
(14)
(53)
(120)
(138)
Total fixed maturities
47 
20 
149 
143 
OTTI on equity securities
0 
(1)
(5)
(1)
Equity securities, Gross realized gains excluding OTTI
3 
0 
5 
12 
Equity securities, Gross realized losses excluding OTTI
(1)
(1)
(2)
(2)
Total equity securities
2 
(2)
(2)
9 
OTTI on other investments
0 
0 
(7)
(3)
Foreign exchange losses
(50)
20 
(64)
(89)
Investment and embedded derivative instruments
4 
(89)
(3)
(157)
Fair value adjustments on insurance derivative
83 
(926)
44 
(925)
S&P put options and futures
(147)
220 
(308)
152 
Other derivative instruments
0 
2 
(4)
(1)
Other
1 
(5)
1 
(7)
Total net realized gains (losses)
$ (60)
$ (760)
$ (194)
$ (878)
Investments (Aggregate Fair Value And Gross Unrealized Loss By Length Of Time Security Has Continuously Been In Unrealized Loss Position) (Detail) (USD $)
In Millions, unless otherwise specified
Sep. 30, 2012
Dec. 31, 2011
Investment [Line Items]
 
 
Investment securities, Unrealized loss position, 0-12 Months, Fair Value
$ 2,412 
$ 5,927 
Investment securities, Unrealized loss position, 0-12 Months, Gross Unrealized Loss
(49.2)
(288.9)
Investment securities, Unrealized loss position, Over 12 Months, Fair Value
852 
1,481 
Investment securities, Unrealized loss position, Over 12 Months, Gross Unrealized Loss
(64.2)
(245.9)
Investment securities, Unrealized loss position, Total Fair Value
3,264 
7,408 
Investment securities, Unrealized loss position, Total Gross Unrealized Loss
(113.4)
(534.8)
Foreign Government Debt Securities [Member]
 
 
Investment [Line Items]
 
 
Investment securities, Unrealized loss position, 0-12 Months, Fair Value
839 
1,801 
Investment securities, Unrealized loss position, 0-12 Months, Gross Unrealized Loss
(14.8)
(82.2)
Investment securities, Unrealized loss position, Over 12 Months, Fair Value
186 
529 
Investment securities, Unrealized loss position, Over 12 Months, Gross Unrealized Loss
(9.7)
(40.0)
Investment securities, Unrealized loss position, Total Fair Value
1,025 
2,330 
Investment securities, Unrealized loss position, Total Gross Unrealized Loss
(24.5)
(122.2)
Corporate Securities [Member]
 
 
Investment [Line Items]
 
 
Investment securities, Unrealized loss position, 0-12 Months, Fair Value
663 
3,084 
Investment securities, Unrealized loss position, 0-12 Months, Gross Unrealized Loss
(20.1)
(148.2)
Investment securities, Unrealized loss position, Over 12 Months, Fair Value
195 
268 
Investment securities, Unrealized loss position, Over 12 Months, Gross Unrealized Loss
(15.5)
(32.2)
Investment securities, Unrealized loss position, Total Fair Value
858 
3,352 
Investment securities, Unrealized loss position, Total Gross Unrealized Loss
(35.6)
(180.4)
Collateralized Mortgage Backed Securities [Member]
 
 
Investment [Line Items]
 
 
Investment securities, Unrealized loss position, 0-12 Months, Fair Value
225 
440 
Investment securities, Unrealized loss position, 0-12 Months, Gross Unrealized Loss
(1.3)
(7.5)
Investment securities, Unrealized loss position, Over 12 Months, Fair Value
412 
586 
Investment securities, Unrealized loss position, Over 12 Months, Gross Unrealized Loss
(35.0)
(170.2)
Investment securities, Unrealized loss position, Total Fair Value
637 
1,026 
Investment securities, Unrealized loss position, Total Gross Unrealized Loss
(36.3)
(177.7)
US States and Political Subdivisions Debt Securities [Member]
 
 
Investment [Line Items]
 
 
Investment securities, Unrealized loss position, 0-12 Months, Fair Value
29 
30 
Investment securities, Unrealized loss position, 0-12 Months, Gross Unrealized Loss
(1.3)
(0.4)
Investment securities, Unrealized loss position, Over 12 Months, Fair Value
59 
98 
Investment securities, Unrealized loss position, Over 12 Months, Gross Unrealized Loss
(4.0)
(3.5)
Investment securities, Unrealized loss position, Total Fair Value
88 
128 
Investment securities, Unrealized loss position, Total Gross Unrealized Loss
(5.3)
(3.9)
Fixed Maturities [Member]
 
 
Investment [Line Items]
 
 
Investment securities, Unrealized loss position, 0-12 Months, Fair Value
1,756 
5,355 
Investment securities, Unrealized loss position, 0-12 Months, Gross Unrealized Loss
(37.5)
(238.3)
Investment securities, Unrealized loss position, Over 12 Months, Fair Value
852 
1,481 
Investment securities, Unrealized loss position, Over 12 Months, Gross Unrealized Loss
(64.2)
(245.9)
Investment securities, Unrealized loss position, Total Fair Value
2,608 
6,836 
Investment securities, Unrealized loss position, Total Gross Unrealized Loss
(101.7)
(484.2)
Equity Securities [Member]
 
 
Investment [Line Items]
 
 
Investment securities, Unrealized loss position, 0-12 Months, Fair Value
543 
484 
Investment securities, Unrealized loss position, 0-12 Months, Gross Unrealized Loss
(5.4)
(42.3)
Investment securities, Unrealized loss position, Total Fair Value
543 
484 
Investment securities, Unrealized loss position, Total Gross Unrealized Loss
(5.4)
(42.3)
Other Long-term Investments [Member]
 
 
Investment [Line Items]
 
 
Investment securities, Unrealized loss position, 0-12 Months, Fair Value
113 
88 
Investment securities, Unrealized loss position, 0-12 Months, Gross Unrealized Loss
(6.3)
(8.3)
Investment securities, Unrealized loss position, Total Fair Value
113 
88 
Investment securities, Unrealized loss position, Total Gross Unrealized Loss
$ (6.3)
$ (8.3)
Investments (Schedule Of Components Of Restricted Assets) (Detail) (USD $)
In Millions, unless otherwise specified
Sep. 30, 2012
Dec. 31, 2011
Investment [Line Items]
 
 
Trust funds
$ 11,149 
$ 9,940 
Deposits with non-U.S. regulatory authorities
2,120 
2,240 
Deposits with U.S. regulatory authorities
1,325 
1,307 
Assets pledged under reverse repurchase agreements
1,402 
1,251 
Other pledged assets
390 
364 
Total restricted assets
$ 16,386 
$ 15,102 
Fair Value Measurements (Narrative) (Detail) (USD $)
In Millions, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2012
Year
Sep. 30, 2012
Year
Fair Value Measurements Of Financial Instruments [Line Items]
 
 
GLB - Lapse rate - lower range
1.00% 
1.00% 
GLB - Lapse rate - upper range
6.00% 
6.00% 
GLB - Spike lapse rate - lower range
10.00% 
10.00% 
GLB - Spike lapse rate - upper range
30.00% 
30.00% 
GLB - Ultimate lapse rate
10.00% 
10.00% 
GLB - Length of ultimate lapse rate period, years
2 
2 
GLB - Adjustment factor for valuable guarantees - lower
15.00% 
15.00% 
GLB - Adjustment factor for valuable guarantees - upper
75.00% 
75.00% 
Percent of GMIB guaranteed value that are represented by clients with several years of annuitization experience
36.00% 
36.00% 
GLB - Maximum annuitization rate
8.00% 
8.00% 
GLB - First year maximum annuitization rate
13.00% 
13.00% 
GLB - Weighted average maximum annuitization rate - rate 1
8.00% 
8.00% 
GLB - Weighted average maximum annuitization rate - rate 2
12.00% 
12.00% 
GLB - Weighted average maximum annuitization rate - rate 3
30.00% 
30.00% 
Guaranteed Living Benefits, Net Income Impact From Model Refinement
$ 21 
$ 21 
Redemption Notice Periods Lower Range [Member]
 
 
Fair Value Measurements Of Financial Instruments [Line Items]
 
 
Notice period for redemption for alternative investments investment funds, days
 
5 
Redemption Notice Periods Upper Range [Member]
 
 
Fair Value Measurements Of Financial Instruments [Line Items]
 
 
Notice period for redemption for alternative investments investment funds, days
 
120 
Fair Value Measurements (Financial Instruments Measured At Fair Value On Recurring Basis) (Detail) (USD $)
In Millions, unless otherwise specified
Sep. 30, 2012
Dec. 31, 2011
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items]
 
 
Fixed maturities available for sale at fair value
$ 46,504 
$ 41,967 
Equity securities, at fair value
770 
647 
Short-term investments
2,429 
2,301 
Other investments
2,621 
2,314 
Securities lending collateral
2,039 
1,375 
Investment derivative instruments
(3)
10 
Other derivative instruments
38 
41 
Separate account assets
1,085 
660 
Total assets measured at fair value
55,483 
49,315 
GLB
1,279 1
1,319 1
U.S. Treasury And Agency [Member]
 
 
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items]
 
 
Fixed maturities available for sale at fair value
3,554 
2,960 
Foreign [Member]
 
 
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items]
 
 
Fixed maturities available for sale at fair value
13,967 
12,401 
Corporate Securities [Member]
 
 
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items]
 
 
Fixed maturities available for sale at fair value
15,833 
14,693 
Mortgage Backed-Securities [Member]
 
 
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items]
 
 
Fixed maturities available for sale at fair value
10,736 
10,201 
States, Municipalities, And Political Subdivisions [Member]
 
 
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items]
 
 
Fixed maturities available for sale at fair value
2,414 
1,712 
Fair Value, Inputs, Level 1 [Member]
 
 
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items]
 
 
Fixed maturities available for sale at fair value
2,214 
1,923 
Equity securities, at fair value
761 
632 
Short-term investments
1,561 
1,246 
Other investments
248 
208 
Investment derivative instruments
(3)
10 
Other derivative instruments
6 
(16)
Separate account assets
1,024 
607 
Total assets measured at fair value
5,811 
4,610 
Fair Value, Inputs, Level 1 [Member] |
U.S. Treasury And Agency [Member]
 
 
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items]
 
 
Fixed maturities available for sale at fair value
1,991 
1,691 
Fair Value, Inputs, Level 1 [Member] |
Foreign [Member]
 
 
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items]
 
 
Fixed maturities available for sale at fair value
204 
212 
Fair Value, Inputs, Level 1 [Member] |
Corporate Securities [Member]
 
 
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items]
 
 
Fixed maturities available for sale at fair value
19 
20 
Fair Value, Inputs, Level 2 [Member]
 
 
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items]
 
 
Fixed maturities available for sale at fair value
44,105 
39,843 
Equity securities, at fair value
5 
2 
Short-term investments
868 
1,055 
Other investments
195 
229 
Securities lending collateral
2,039 
1,375 
Other derivative instruments
32 
54 
Separate account assets
61 
53 
Total assets measured at fair value
47,305 
42,611 
Fair Value, Inputs, Level 2 [Member] |
U.S. Treasury And Agency [Member]
 
 
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items]
 
 
Fixed maturities available for sale at fair value
1,563 
1,264 
Fair Value, Inputs, Level 2 [Member] |
Foreign [Member]
 
 
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items]
 
 
Fixed maturities available for sale at fair value
13,738 
12,156 
Fair Value, Inputs, Level 2 [Member] |
Corporate Securities [Member]
 
 
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items]
 
 
Fixed maturities available for sale at fair value
15,684 
14,539 
Fair Value, Inputs, Level 2 [Member] |
Mortgage Backed-Securities [Member]
 
 
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items]
 
 
Fixed maturities available for sale at fair value
10,707 
10,173 
Fair Value, Inputs, Level 2 [Member] |
States, Municipalities, And Political Subdivisions [Member]
 
 
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items]
 
 
Fixed maturities available for sale at fair value
2,413 
1,711 
Fair Value, Inputs, Level 3 [Member]
 
 
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items]
 
 
Fixed maturities available for sale at fair value
185 
201 
Equity securities, at fair value
4 
13 
Other investments
2,178 
1,877 
Other derivative instruments
0 
3 
Total assets measured at fair value
2,367 
2,094 
GLB
1,279 1
1,319 1
Fair Value, Inputs, Level 3 [Member] |
U.S. Treasury And Agency [Member]
 
 
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items]
 
 
Fixed maturities available for sale at fair value
0 
5 
Fair Value, Inputs, Level 3 [Member] |
Foreign [Member]
 
 
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items]
 
 
Fixed maturities available for sale at fair value
25 
33 
Fair Value, Inputs, Level 3 [Member] |
Corporate Securities [Member]
 
 
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items]
 
 
Fixed maturities available for sale at fair value
130 
134 
Fair Value, Inputs, Level 3 [Member] |
Mortgage Backed-Securities [Member]
 
 
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items]
 
 
Fixed maturities available for sale at fair value
29 
28 
Fair Value, Inputs, Level 3 [Member] |
States, Municipalities, And Political Subdivisions [Member]
 
 
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items]
 
 
Fixed maturities available for sale at fair value
$ 1 
$ 1 
Fair Value Measurements (Schedule Of Significant Unobservable Inputs Used In Level 3 Liability Valuations) (Detail) (USD $)
In Millions, unless otherwise specified
9 Months Ended
Sep. 30, 2012
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
 
Valuation Technique
Actuarial model 1
Minimum [Member]
 
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
 
Significant Unobservable Inputs Lapse rate
1.00% 1
Significant Unobservable Inputs Annuitization rate
0.00% 1
Maximum [Member]
 
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
 
Significant Unobservable Inputs Lapse rate
30.00% 1
Significant Unobservable Inputs Annuitization rate
50.00% 1
Guaranteed Minimum Income Benefit [Member]
 
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
 
Fair Value
$ 1,279 1
Fair Value Measurements (Financial Instruments Measured At Fair Value Using Significant Unobservable Inputs) (Detail) (USD $)
In Millions, unless otherwise specified
3 Months Ended 9 Months Ended 3 Months Ended 9 Months Ended 3 Months Ended 9 Months Ended 3 Months Ended 9 Months Ended 3 Months Ended 9 Months Ended 3 Months Ended 9 Months Ended 3 Months Ended 9 Months Ended 3 Months Ended 9 Months Ended
Sep. 30, 2012
Equity Securities [Member]
Sep. 30, 2012
Equity Securities [Member]
Sep. 30, 2011
Equity Securities [Member]
Jun. 30, 2011
Equity Securities [Member]
Sep. 30, 2012
Other Long-term Investments [Member]
Sep. 30, 2011
Other Long-term Investments [Member]
Sep. 30, 2012
Other Long-term Investments [Member]
Sep. 30, 2011
Other Long-term Investments [Member]
Sep. 30, 2012
Other Derivative Instruments [Member]
Sep. 30, 2011
Other Derivative Instruments [Member]
Sep. 30, 2012
Other Derivative Instruments [Member]
Sep. 30, 2011
Other Derivative Instruments [Member]
Sep. 30, 2012
Available-for-sale Securities [Member]
US Treasury and Government [Member]
Sep. 30, 2012
Available-for-sale Securities [Member]
US Treasury and Government [Member]
Sep. 30, 2012
Available-for-sale Securities [Member]
Foreign [Member]
Sep. 30, 2011
Available-for-sale Securities [Member]
Foreign [Member]
Sep. 30, 2012
Available-for-sale Securities [Member]
Foreign [Member]
Sep. 30, 2011
Available-for-sale Securities [Member]
Foreign [Member]
Sep. 30, 2012
Available-for-sale Securities [Member]
Corporate Debt Securities [Member]
Sep. 30, 2011
Available-for-sale Securities [Member]
Corporate Debt Securities [Member]
Sep. 30, 2012
Available-for-sale Securities [Member]
Corporate Debt Securities [Member]
Sep. 30, 2011
Available-for-sale Securities [Member]
Corporate Debt Securities [Member]
Sep. 30, 2012
Available-for-sale Securities [Member]
Mortgage Backed-Securities [Member]
Sep. 30, 2011
Available-for-sale Securities [Member]
Mortgage Backed-Securities [Member]
Sep. 30, 2012
Available-for-sale Securities [Member]
Mortgage Backed-Securities [Member]
Sep. 30, 2011
Available-for-sale Securities [Member]
Mortgage Backed-Securities [Member]
Sep. 30, 2012
Available-for-sale Securities [Member]
States, Municipalities, And Political Subdivisions [Member]
Sep. 30, 2011
Available-for-sale Securities [Member]
States, Municipalities, And Political Subdivisions [Member]
Jun. 30, 2012
Available-for-sale Securities [Member]
States, Municipalities, And Political Subdivisions [Member]
Jun. 30, 2011
Available-for-sale Securities [Member]
States, Municipalities, And Political Subdivisions [Member]
Sep. 30, 2012
Guaranteed Minimum Income Benefit [Member]
Sep. 30, 2011
Guaranteed Minimum Income Benefit [Member]
Sep. 30, 2012
Guaranteed Minimum Income Benefit [Member]
Sep. 30, 2011
Guaranteed Minimum Income Benefit [Member]
Dec. 31, 2011
Guaranteed Minimum Income Benefit [Member]
Jun. 30, 2011
Guaranteed Minimum Income Benefit [Member]
Dec. 31, 2010
Guaranteed Minimum Income Benefit [Member]
Schedule Of Fair Value Measurements [Line Items]
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance- Beginning of Period, Assets
$ 12 
$ 13 
$ 13 
$ 10 
$ 2,047 
$ 1,680 
$ 1,877 
$ 1,432 
$ 1 
$ 4 
$ 3 
$ 4 
$ 4 
$ 5 
$ 20 
$ 27 
$ 33 
$ 26 
$ 137 
$ 142 
$ 134 
$ 115 
$ 27 
$ 34 
$ 28 
$ 39 
$ 1 
$ 2 
$ 1 
$ 1 
 
 
 
 
 
 
 
Balance- Beginning of Period, Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1,354 1
524 2
1,319 1
507 
 1
 2
 
Transfers into Level 3, Assets
2 
2 
 
 
53 
 
53 
 
 
 
 
 
 
 
5 
 
6 
9 
5 
 
33 
34 
10 
 
22 
4 
1 
 
 
 
 
 
 
 
 
 
 
Transfers out of Level 3, Assets
(10)
(10)
 
 
 
 
 
 
 
 
 
 
(4)
(4)
(6)
(11)
7 
(18)
(26)
 
(35)
(4)
 
(13)
(15)
(48)
 
 
 
 
 
 
 
 
 
 
 
Change in Net Unrealized Gains (Losses) included in OCI, Assets
(1)
 
1 
 
13 
(59)
37 
(110)
 
 
 
 
 
 
 
 
 
1 
3 
6 
6 
5 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Realized Gains/Losses, Assets
 
 
4 
 
 
(1)
(7)
(4)
 
5 
(4)
6 
 
 
 
(1)
 
 
 
 
(1)
(2)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Realized Gains/Losses, Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(75)1
952 2
(40)1
969 3
 
 
 
Purchases, Assets
1 
4 
2 
 
121 
85 
366 
418 
 
 
3 
 
 
 
6 
1 
46 
6 
11 
1 
19 
23 
 
 
4 
46 
 
 
 
 
 
 
 
 
 
 
 
Sales, Assets
 
(5)
(8)
 
(5)
 
(6)
(55)
 
 
 
 
 
 
 
 
(52)
(3)
 
(3)
(15)
(23)
(7)
(2)
(7)
(17)
 
 
 
 
 
 
 
 
 
 
 
Settlements, Assets
 
 
 
 
(51)
(58)
(142)
(136)
(1)
(1)
(2)
(2)
 
(1)
 
 
(1)
(3)
 
(9)
(11)
(13)
(1)
(1)
(3)
(6)
(1)
(1)
 
 
 
 
0 
 
 
 
 
Balance-End of Period, Assets
4 
4 
10 
10 
2,178 
1,765 
2,178 
1,765 
0 
8 
0 
8 
0 
0 
25 
16 
25 
16 
130 
125 
130 
125 
29 
18 
29 
18 
1 
1 
1 
1 
 
 
 
 
 
 
 
Balance- End of Period, Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1,279 1
1,476 2
1,279 1
1,476 2
 1
 2
 
Net Realized Gains/Losses Attributable to Changes in Fair Value at the Balance Sheet Date, Assets
 
 
 
 
 
(1)
(7)
(4)
 
4 
 
4 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Realized Gains/Losses Attributable to Changes in Fair Value at the Balance Sheet Date, Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(75)
952 2
(40)1
969 3
 
 
 
Reported liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$ 1,500 
$ 1,635 
$ 1,500 
$ 1,635 
$ 1,500 
$ 676 
$ 648 
Fair Value Measurements (Carrying Values And Fair Values Of Financial Instruments Not Measured At Fair Value) (Detail) (USD $)
In Millions, unless otherwise specified
Sep. 30, 2012
Dec. 31, 2011
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
 
 
Total Fixed maturities held to maturity
$ 7,879 
 
Partially-owned insurance companies
354 
 
Total assets
8,233 
 
Short-term debt
1,402 
 
Long-term debt
3,964 
 
Trust preferred securities
459 
 
Total liabilities
5,825 
 
US Treasury and Government [Member]
 
 
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
 
 
Total Fixed maturities held to maturity
1,129 
 
Foreign [Member]
 
 
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
 
 
Total Fixed maturities held to maturity
970 
 
Corporate Debt Securities [Member]
 
 
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
 
 
Total Fixed maturities held to maturity
2,322 
 
Collateralized Mortgage Backed Securities [Member]
 
 
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
 
 
Total Fixed maturities held to maturity
2,330 
 
US States and Political Subdivisions Debt Securities [Member]
 
 
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
 
 
Total Fixed maturities held to maturity
1,128 
 
Financial Instruments Carrying Value [Member]
 
 
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
 
 
Total Fixed maturities held to maturity
7,493 
8,447 
Partially-owned insurance companies
354 
352 
Total assets
7,847 
8,799 
Short-term debt
1,402 
1,251 
Long-term debt
3,360 
3,360 
Trust preferred securities
309 
309 
Total liabilities
5,071 
4,920 
Financial Instruments Carrying Value [Member] |
US Treasury and Government [Member]
 
 
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
 
 
Total Fixed maturities held to maturity
1,084 
1,078 
Financial Instruments Carrying Value [Member] |
Foreign [Member]
 
 
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
 
 
Total Fixed maturities held to maturity
919 
935 
Financial Instruments Carrying Value [Member] |
Corporate Debt Securities [Member]
 
 
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
 
 
Total Fixed maturities held to maturity
2,182 
2,338 
Financial Instruments Carrying Value [Member] |
Collateralized Mortgage Backed Securities [Member]
 
 
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
 
 
Total Fixed maturities held to maturity
2,222 
2,949 
Financial Instruments Carrying Value [Member] |
US States and Political Subdivisions Debt Securities [Member]
 
 
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
 
 
Total Fixed maturities held to maturity
1,086 
1,147 
Financial Instruments Fair Value [Member]
 
 
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
 
 
Total Fixed maturities held to maturity
7,879 
8,605 
Partially-owned insurance companies
354 
352 
Total assets
8,233 
8,957 
Short-term debt
1,402 
1,251 
Long-term debt
3,964 
3,823 
Trust preferred securities
459 
404 
Total liabilities
5,825 
5,478 
Financial Instruments Fair Value [Member] |
US Treasury and Government [Member]
 
 
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
 
 
Total Fixed maturities held to maturity
1,129 
1,126 
Financial Instruments Fair Value [Member] |
Foreign [Member]
 
 
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
 
 
Total Fixed maturities held to maturity
970 
930 
Financial Instruments Fair Value [Member] |
Corporate Debt Securities [Member]
 
 
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
 
 
Total Fixed maturities held to maturity
2,322 
2,337 
Financial Instruments Fair Value [Member] |
Collateralized Mortgage Backed Securities [Member]
 
 
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
 
 
Total Fixed maturities held to maturity
2,330 
3,036 
Financial Instruments Fair Value [Member] |
US States and Political Subdivisions Debt Securities [Member]
 
 
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
 
 
Total Fixed maturities held to maturity
1,128 
1,176 
Fair Value, Inputs, Level 2 [Member]
 
 
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
 
 
Total Fixed maturities held to maturity
7,248 
 
Total assets
7,248 
 
Short-term debt
1,402 
 
Long-term debt
3,964 
 
Trust preferred securities
459 
 
Total liabilities
5,825 
 
Fair Value, Inputs, Level 2 [Member] |
US Treasury and Government [Member]
 
 
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
 
 
Total Fixed maturities held to maturity
514 
 
Fair Value, Inputs, Level 2 [Member] |
Foreign [Member]
 
 
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
 
 
Total Fixed maturities held to maturity
970 
 
Fair Value, Inputs, Level 2 [Member] |
Corporate Debt Securities [Member]
 
 
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
 
 
Total Fixed maturities held to maturity
2,306 
 
Fair Value, Inputs, Level 2 [Member] |
Collateralized Mortgage Backed Securities [Member]
 
 
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
 
 
Total Fixed maturities held to maturity
2,330 
 
Fair Value, Inputs, Level 2 [Member] |
US States and Political Subdivisions Debt Securities [Member]
 
 
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
 
 
Total Fixed maturities held to maturity
1,128 
 
Fair Value, Inputs, Level 3 [Member]
 
 
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
 
 
Total Fixed maturities held to maturity
16 
 
Partially-owned insurance companies
354 
 
Total assets
370 
 
Fair Value, Inputs, Level 3 [Member] |
US Treasury and Government [Member]
 
 
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
 
 
Total Fixed maturities held to maturity
0 
 
Fair Value, Inputs, Level 3 [Member] |
Corporate Debt Securities [Member]
 
 
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
 
 
Total Fixed maturities held to maturity
16 
 
Fair Value, Inputs, Level 1 [Member]
 
 
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
 
 
Total Fixed maturities held to maturity
615 
 
Total assets
615 
 
Fair Value, Inputs, Level 1 [Member] |
US Treasury and Government [Member]
 
 
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
 
 
Total Fixed maturities held to maturity
$ 615 
 
Fair Value Measurements (Financial Instruments Not Carried At Fair Value) (Detail) (USD $)
In Millions, unless otherwise specified
Sep. 30, 2012
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
 
Total Fixed maturities held to maturity
$ 7,879 
Partially-owned insurance companies
354 
Total assets
8,233 
Short-term debt
1,402 
Long-term debt
3,964 
Trust preferred securities
459 
Total liabilities
5,825 
Fair Value, Inputs, Level 1 [Member]
 
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
 
Total Fixed maturities held to maturity
615 
Total assets
615 
Fair Value, Inputs, Level 2 [Member]
 
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
 
Total Fixed maturities held to maturity
7,248 
Total assets
7,248 
Short-term debt
1,402 
Long-term debt
3,964 
Trust preferred securities
459 
Total liabilities
5,825 
Fair Value, Inputs, Level 3 [Member]
 
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
 
Total Fixed maturities held to maturity
16 
Partially-owned insurance companies
354 
Total assets
370 
U.S. Treasury And Agency [Member]
 
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
 
Total Fixed maturities held to maturity
1,129 
U.S. Treasury And Agency [Member] |
Fair Value, Inputs, Level 1 [Member]
 
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
 
Total Fixed maturities held to maturity
615 
U.S. Treasury And Agency [Member] |
Fair Value, Inputs, Level 2 [Member]
 
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
 
Total Fixed maturities held to maturity
514 
U.S. Treasury And Agency [Member] |
Fair Value, Inputs, Level 3 [Member]
 
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
 
Total Fixed maturities held to maturity
0 
Foreign [Member]
 
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
 
Total Fixed maturities held to maturity
970 
Foreign [Member] |
Fair Value, Inputs, Level 2 [Member]
 
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
 
Total Fixed maturities held to maturity
970 
Corporate Securities [Member]
 
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
 
Total Fixed maturities held to maturity
2,322 
Corporate Securities [Member] |
Fair Value, Inputs, Level 2 [Member]
 
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
 
Total Fixed maturities held to maturity
2,306 
Corporate Securities [Member] |
Fair Value, Inputs, Level 3 [Member]
 
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
 
Total Fixed maturities held to maturity
16 
Mortgage Backed-Securities [Member]
 
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
 
Total Fixed maturities held to maturity
2,330 
Mortgage Backed-Securities [Member] |
Fair Value, Inputs, Level 2 [Member]
 
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
 
Total Fixed maturities held to maturity
2,330 
States, Municipalities, And Political Subdivisions [Member]
 
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
 
Total Fixed maturities held to maturity
1,128 
States, Municipalities, And Political Subdivisions [Member] |
Fair Value, Inputs, Level 2 [Member]
 
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
 
Total Fixed maturities held to maturity
$ 1,128 
Assumed Life Reinsurance Programs Involving Minimum Benefit Guarantees Under Annuity Contracts (Schedule Of Guaranteed Minimum Benefits Income And Expense) (Detail) (USD $)
In Millions, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Sep. 30, 2012
Sep. 30, 2011
Guaranteed Minimum Benefits [Line Items]
 
 
 
 
Net premiums earned
$ 4,665 
$ 4,490 
$ 11,829 
$ 11,556 
Policy benefits and other reserve adjustments
130 
83 
379 
282 
Net realized gains (losses)
(60)
(760)
(194)
(878)
Guaranteed Minimum Death Benefit [Member]
 
 
 
 
Guaranteed Minimum Benefits [Line Items]
 
 
 
 
Net premiums earned
20 
24 
64 
75 
Policy benefits and other reserve adjustments
22 
20 
61 
63 
Guaranteed Minimum Income Benefit [Member]
 
 
 
 
Guaranteed Minimum Benefits [Line Items]
 
 
 
 
Net premiums earned
40 
40 
121 
122 
Policy benefits and other reserve adjustments
7 
7 
30 
19 
Net realized gains (losses)
75 
(952)
41 
(969)
(Loss) gain recognized in income
108 
(919)
132 
(866)
Net cash received
35 
40 
114 
121 
Net (increase) decrease in liability
$ 73 
$ (959)
$ 18 
$ (987)
Assumed Life Reinsurance Programs Involving Minimum Benefit Guarantees Under Annuity Contracts (Narrative) (Detail) (USD $)
9 Months Ended
Sep. 30, 2012
Sep. 30, 2012
Guaranteed Minimum Death Benefit [Member]
Dec. 31, 2011
Guaranteed Minimum Death Benefit [Member]
Sep. 30, 2012
Guaranteed Minimum Income Benefit [Member]
Dec. 31, 2011
Guaranteed Minimum Income Benefit [Member]
Sep. 30, 2011
Guaranteed Minimum Income Benefit [Member]
Jun. 30, 2011
Guaranteed Minimum Income Benefit [Member]
Dec. 31, 2010
Guaranteed Minimum Income Benefit [Member]
Sep. 30, 2012
Guaranteed Minimum Deaths Benefits And Guaranteed Living Benefits [Member]
Dec. 31, 2011
Guaranteed Minimum Deaths Benefits And Guaranteed Living Benefits [Member]
Sep. 30, 2012
Guaranteed Living Benefits [Member]
Dec. 31, 2011
Guaranteed Living Benefits [Member]
Guaranteed Minimum Benefits [Line Items]
 
 
 
 
 
 
 
 
 
 
 
 
Reported liabilities
 
$ 114,000,000 
$ 138,000,000 
$ 1,500,000,000 
$ 1,500,000,000 
$ 1,635,000,000 
$ 676,000,000 
$ 648,000,000 
 
 
 
 
Fair value derivative adjustment in liability
 
 
 
1,300,000,000 
 
 
 
 
 
 
 
 
Net amount at risk
 
1,400,000,000 
1,800,000,000 
 
 
 
 
 
 
 
382,000,000 
380,000,000 
Mortality percentage according to Annuity 2000 mortality table
 
100.00% 
 
 
 
 
 
 
 
 
 
 
Discounting assumption used in the calculation of the benefit reserve averaging - lower range
 
1.00% 
 
 
 
 
 
 
 
 
3.50% 
 
Discounting assumption used in the calculation of the benefit reserve averaging - upper range
 
2.00% 
 
 
 
 
 
 
 
 
4.50% 
 
Total claim amount payable, if all of the Company's cedants' policyholders covered were to die immediately
 
486,000,000 
 
 
 
 
 
 
885,000,000 
 
 
 
GMBD net amount of risk
 
 
 
 
 
 
 
 
137,000,000 
182,000,000 
 
 
GLB net amount of risk
 
 
 
 
 
 
 
 
$ 825,000,000 
$ 998,000,000 
 
 
Average attained age of all policyholders under all benefits reinsured, years
68 years 
 
 
 
 
 
 
 
 
 
 
 
Commitments, Contingencies, And Guarantees (Balance Sheet Locations, Fair Values In Asset Or (Liability) Position, And Notional Values/Payment Provisions Of Derivative Instruments) (Detail) (USD $)
In Millions, unless otherwise specified
Sep. 30, 2012
Dec. 31, 2011
Investment And Embedded Derivative Instruments [Member]
 
 
Derivatives, Fair Value [Line Items]
 
 
Fair Value
$ 482 
$ 427 
Notional Value/Payment Provision
7,557 
12,906 
Other Derivative Instruments [Member]
 
 
Derivatives, Fair Value [Line Items]
 
 
Fair Value
38 
41 
Notional Value/Payment Provision
2,598 
1,973 
Accounts Payable, Accrued Expenses, And Other Liabilities [Member] |
Foreign Exchange Future [Member]
 
 
Derivatives, Fair Value [Line Items]
 
 
Fair Value
(6)
7 
Notional Value/Payment Provision
841 
674 
Accounts Payable, Accrued Expenses, And Other Liabilities [Member] |
Cross Currency Swap [Member]
 
 
Derivatives, Fair Value [Line Items]
 
 
Notional Value/Payment Provision
50 
 
Accounts Payable, Accrued Expenses, And Other Liabilities [Member] |
Futures Contracts On Money Market Instruments [Member]
 
 
Derivatives, Fair Value [Line Items]
 
 
Fair Value
3 
7 
Notional Value/Payment Provision
2,200 
10,476 
Accounts Payable, Accrued Expenses, And Other Liabilities [Member] |
Futures contracts on notes and bonds [Member]
 
 
Derivatives, Fair Value [Line Items]
 
 
Fair Value
0 
(4)
Notional Value/Payment Provision
931 
1,055 
Accounts Payable, Accrued Expenses, And Other Liabilities [Member] |
Options On Money Market Instruments [Member]
 
 
Derivatives, Fair Value [Line Items]
 
 
Notional Value/Payment Provision
3,030 
292 
Accounts Payable, Accrued Expenses, And Other Liabilities [Member] |
Single-Stock Future [Member]
 
 
Derivatives, Fair Value [Line Items]
 
 
Fair Value
6 1
(16)1
Notional Value/Payment Provision
2,342 1
1,367 1
Accounts Payable, Accrued Expenses, And Other Liabilities [Member] |
Options On Equity Market Indices [Member]
 
 
Derivatives, Fair Value [Line Items]
 
 
Fair Value
32 1
54 1
Notional Value/Payment Provision
250 1
250 1
Accounts Payable, Accrued Expenses, And Other Liabilities [Member] |
Credit Default Swap [Member]
 
 
Derivatives, Fair Value [Line Items]
 
 
Fair Value
0 
3 
Notional Value/Payment Provision
0 
350 
Accounts Payable, Accrued Expenses, And Other Liabilities [Member] |
Other [Member]
 
 
Derivatives, Fair Value [Line Items]
 
 
Notional Value/Payment Provision
6 
6 
Accounts Payable, Accrued Expenses, And Other Liabilities [Member] |
Options On Notes and Bonds Futures [Member]
 
 
Derivatives, Fair Value [Line Items]
 
 
Notional Value/Payment Provision
56 
0 
Fixed Maturities Available For Sale [Member] |
Convertibles and Bonds with Warrants Attached [Member]
 
 
Derivatives, Fair Value [Line Items]
 
 
Fair Value
410 
357 
Notional Value/Payment Provision
378 
353 
Fixed Maturities Available For Sale [Member] |
Dollar Rolls [Member]
 
 
Derivatives, Fair Value [Line Items]
 
 
Fair Value
75 
60 
Notional Value/Payment Provision
71 
56 
Accounts Payable Future Policy Benefits [Member] |
Guaranteed Living Benefits [Member]
 
 
Derivatives, Fair Value [Line Items]
 
 
Fair Value
(1,487)2
(1,505)2
Notional Value/Payment Provision
$ 1,207 2
$ 1,378 2
Commitments, Contingencies, And Guarantees (Net Realized Gains (Losses) Of Derivative Instrument Activity In Consolidated Statement Of Operations) (Detail) (USD $)
In Millions, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Sep. 30, 2012
Sep. 30, 2011
Commitments Contingencies And Guarantees [Line Items]
 
 
 
 
Net realized gains (losses)
$ (60)
$ (793)
$ (271)
$ (931)
Foreign Exchange Future [Member]
 
 
 
 
Commitments Contingencies And Guarantees [Line Items]
 
 
 
 
Net realized gains (losses)
(9)
15 
(8)
(3)
All Other Futures Contracts And Options [Member]
 
 
 
 
Commitments Contingencies And Guarantees [Line Items]
 
 
 
 
Net realized gains (losses)
0 
(64)
(20)
(91)
Convertibles and Bonds with Warrants Attached [Member]
 
 
 
 
Commitments Contingencies And Guarantees [Line Items]
 
 
 
 
Net realized gains (losses)
12 
(41)
24 
(63)
Dollar Rolls [Member]
 
 
 
 
Commitments Contingencies And Guarantees [Line Items]
 
 
 
 
Net realized gains (losses)
1 
1 
1 
0 
Investment And Embedded Derivative Instruments [Member]
 
 
 
 
Commitments Contingencies And Guarantees [Line Items]
 
 
 
 
Net realized gains (losses)
4 
(89)
(3)
(157)
Guaranteed Living Benefits [Member]
 
 
 
 
Commitments Contingencies And Guarantees [Line Items]
 
 
 
 
Net realized gains (losses)
83 1
(926)1
44 1
(925)1
Single-Stock Future [Member]
 
 
 
 
Commitments Contingencies And Guarantees [Line Items]
 
 
 
 
Net realized gains (losses)
(138)2
197 
(286)2
134 2
Options On Equity Market Indices [Member]
 
 
 
 
Commitments Contingencies And Guarantees [Line Items]
 
 
 
 
Net realized gains (losses)
(9)2
23 2
(22)2
18 2
Credit Default Swap [Member]
 
 
 
 
Commitments Contingencies And Guarantees [Line Items]
 
 
 
 
Net realized gains (losses)
0 
2 
(4)
(1)
Guaranteed Living Benefit And Other Derivative Instruments [Member]
 
 
 
 
Commitments Contingencies And Guarantees [Line Items]
 
 
 
 
Net realized gains (losses)
$ (64)
$ (704)
$ (268)
$ (774)
Commitments, Contingencies, And Guarantees (Narrative) (Detail) (USD $)
In Millions, unless otherwise specified
12 Months Ended
Dec. 31, 2011
Sep. 30, 2012
Commitments Contingencies And Guarantees [Line Items]
 
 
Carrying value of limited partnerships and partially-owned investment companies included in other investments
 
$ 1,654 
Funding commitments relating to limited partnerships and partially-owned investment companies
 
1,168 
Case settlement
$ 1.97 
 
Shareholders' Equity (Detail)
In Millions, except Share data, unless otherwise specified
1 Months Ended 3 Months Ended 9 Months Ended
Jan. 31, 2012
USD ($)
Aug. 31, 2011
USD ($)
Nov. 30, 2010
USD ($)
Sep. 30, 2012
USD ($)
Sep. 30, 2012
CHF
Sep. 30, 2011
USD ($)
Sep. 30, 2011
CHF
Sep. 30, 2012
USD ($)
Sep. 30, 2012
CHF
Sep. 30, 2011
USD ($)
Sep. 30, 2011
CHF
Dec. 31, 2011
CHF
Stockholders' Equity [Line Items]
 
 
 
 
 
 
 
 
 
 
 
 
Dividends declared per common share
 
 
 
$ 0.49 
 0.45 
$ 0.35 
 0.31 
$ 1.57 
 1.46 
$ 1.03 
 0.90 
 
Par value reduction per common share
 
 
 
 
 0.93 
 
 0.30 
 
 0.93 
 
 0.30 
 
Common Shares, par value
 
 
 
 
 29.34 
 
 
 
 29.34 
 
 
 30.27 
Common Share dividend increase approved by shareholders in January 2012
 
 
 
 
 
 
 
$ 0.12 
 
 
 
 
Common Shares in treasury, shares
 
 
 
3,097,303 
3,097,303 
 
 
3,097,303 
3,097,303 
 
 
5,905,136 
Stock repurchase program, authorized amount
 
$ 303 
$ 600 
 
 
 
 
 
 
 
 
 
Share repurchase authorization remains
 
197 
 
 
 
 
 
0 
 
 
 
 
Repurchase of outstanding common shares, shares
100,000 
 
 
 
 
 
 
 
 
 
 
 
Share repurchase amount
$ 7 
 
 
 
 
 
 
 
 
 
 
 
Share-Based Compensation (Detail) (USD $)
9 Months Ended 0 Months Ended
Sep. 30, 2012
Feb. 23, 2012
Stock Options [Member]
Feb. 23, 2012
Restricted Stock [Member]
Feb. 23, 2012
Restricted Stock Units (RSUs) [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
 
 
 
 
Stock option vesting period in years
3 years 
 
 
 
Stock option term in years
10 years 
 
 
 
Stock options granted
 
1,452,605 
 
 
Weighted-average fair value for stock options granted
 
$ 15.58 
 
 
Restricted stock award and units vesting period in years
4 years 
 
 
 
Restricted stock awards granted to employees and officers of the company
 
 
1,462,230 
 
Restricted stock units awarded to employees and officers of the company
 
 
 
255,850 
Weighted average grant date fair value of awards except for options granted to employees and officers of the company
 
 
$ 73.35 
 
Segment Information (Operations By Segment) (Detail) (USD $)
In Millions, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Sep. 30, 2012
Sep. 30, 2011
Segment Reporting Information [Line Items]
 
 
 
 
Net investment income
$ 533 
$ 564 
$ 1,614 
$ 1,677 
(Gains) losses from fair value changes in separate account assets
(14)
39 
(18)
39 
Net premiums written
4,716 
4,343 
12,418 
11,742 
Net premiums earned
4,665 
4,490 
11,829 
11,556 
Losses and loss expenses
3,047 
2,745 
6,970 
7,234 
Policy benefits
130 
83 
379 
282 
Policy acquisition costs
609 
669 
1,810 
1,840 
Administrative expenses
519 
520 
1,543 
1,537 
Underwriting income (loss)
360 
473 
1,127 
663 
Net realized gains (losses) including OTTI
(60)
(760)
(194)
(878)
Interest expense
63 
62 
187 
187 
Other
(3)
50 
32 
49 
Income tax expense (benefit)
147 
165 
405 
382 
Net income (loss)
640 
(39)
1,941 
805 
Other (income) expense
(17)
89 
14 
88 
Insurance - North American [Member]
 
 
 
 
Segment Reporting Information [Line Items]
 
 
 
 
Net investment income
263 
291 
808 
886 
Net premiums written
2,537 
2,207 
5,690 
5,227 
Net premiums earned
2,472 
2,299 
5,411 
5,249 
Losses and loss expenses
2,110 
1,838 
4,122 
4,065 
Policy acquisition costs
160 
174 
444 
455 
Administrative expenses
148 
153 
448 
448 
Underwriting income (loss)
54 
134 
397 
281 
Net realized gains (losses) including OTTI
(1)
(2)
16 
8 
Interest expense
3 
4 
9 
11 
Other
(5)
21 
4 
8 
Income tax expense (benefit)
81 
120 
279 
304 
Net income (loss)
237 
278 
929 
852 
Insurance - Overseas General [Member]
 
 
 
 
Segment Reporting Information [Line Items]
 
 
 
 
Net investment income
127 
138 
386 
406 
Net premiums written
1,384 
1,398 
4,387 
4,251 
Net premiums earned
1,432 
1,471 
4,243 
4,164 
Losses and loss expenses
622 
671 
2,030 
2,244 
Policy acquisition costs
329 
353 
996 
989 
Administrative expenses
234 
236 
696 
698 
Underwriting income (loss)
247 
211 
521 
233 
Net realized gains (losses) including OTTI
13 
1 
59 
(18)
Interest expense
2 
2 
4 
4 
Other
(3)
10 
3 
3 
Income tax expense (benefit)
77 
56 
166 
112 
Net income (loss)
311 
282 
793 
502 
Global Reinsurance [Member]
 
 
 
 
Segment Reporting Information [Line Items]
 
 
 
 
Net investment income
72 
70 
213 
213 
Net premiums written
307 
250 
879 
847 
Net premiums earned
281 
240 
748 
754 
Losses and loss expenses
151 
94 
355 
485 
Policy acquisition costs
40 
50 
125 
143 
Administrative expenses
13 
12 
38 
38 
Underwriting income (loss)
77 
84 
230 
88 
Net realized gains (losses) including OTTI
(2)
(29)
(6)
(56)
Interest expense
1 
0 
3 
1 
Other
(5)
7 
(7)
2 
Income tax expense (benefit)
11 
7 
17 
25 
Net income (loss)
140 
111 
424 
217 
Life [Member]
 
 
 
 
Segment Reporting Information [Line Items]
 
 
 
 
Management underwriting income loss Insurance
102 
 
 
 
Net investment income
63 
60 
186 
166 
(Gains) losses from fair value changes in separate account assets
(14)
39 
(18)
39 
Net premiums written
488 
488 
1,462 
1,417 
Net premiums earned
480 
480 
1,427 
1,389 
Losses and loss expenses
164 
142 
463 
439 
Policy benefits
130 
83 
379 
282 
Policy acquisition costs
80 
92 
244 
253 
Administrative expenses
81 
81 
237 
233 
Underwriting income (loss)
25 
82 
104 
182 
Net realized gains (losses) including OTTI
(71)
(732)
(261)
(813)
Interest expense
3 
3 
9 
9 
Other
0 
10 
14 
27 
Income tax expense (benefit)
14 
13 
44 
41 
Net income (loss)
14 
(655)
(20)
(581)
Corporate And Other [Member]
 
 
 
 
Segment Reporting Information [Line Items]
 
 
 
 
Net investment income
8 
5 
21 
6 
Losses and loss expenses
 
0 
 
1 
Policy acquisition costs
 
 
1 
 
Administrative expenses
43 
38 
124 
120 
Underwriting income (loss)
(43)
(38)
(125)
(121)
Net realized gains (losses) including OTTI
1 
2 
(2)
1 
Interest expense
54 
53 
162 
162 
Other
10 
2 
18 
9 
Income tax expense (benefit)
(36)
(31)
(101)
(100)
Net income (loss)
$ (62)
$ (55)
$ (185)
$ (185)
Segment Information (Net Premiums Earned For Segment By Product) (Detail) (USD $)
In Millions, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Sep. 30, 2012
Sep. 30, 2011
Segment Reporting Information [Line Items]
 
 
 
 
Property & All Other
$ 2,197 
$ 2,066 
$ 4,623 
$ 4,275 
Casualty
1,366 
1,303 
3,925 
4,035 
Life, Accident & Health
1,102 
1,121 
3,281 
3,246 
Net premiums earned
4,665 
4,490 
11,829 
11,556 
Insurance - North American [Member]
 
 
 
 
Segment Reporting Information [Line Items]
 
 
 
 
Property & All Other
1,519 
1,395 
2,631 
2,413 
Casualty
860 
815 
2,505 
2,570 
Life, Accident & Health
93 
89 
275 
266 
Net premiums earned
2,472 
2,299 
5,411 
5,249 
Insurance - Overseas General [Member]
 
 
 
 
Segment Reporting Information [Line Items]
 
 
 
 
Property & All Other
547 
553 
1,637 
1,517 
Casualty
356 
366 
1,027 
1,056 
Life, Accident & Health
529 
552 
1,579 
1,591 
Net premiums earned
1,432 
1,471 
4,243 
4,164 
Global Reinsurance [Member]
 
 
 
 
Segment Reporting Information [Line Items]
 
 
 
 
Property & All Other
131 
118 
355 
345 
Casualty
150 
122 
393 
409 
Net premiums earned
281 
240 
748 
754 
Life [Member]
 
 
 
 
Segment Reporting Information [Line Items]
 
 
 
 
Life, Accident & Health
480 
480 
1,427 
1,389 
Net premiums earned
$ 480 
$ 480 
$ 1,427 
$ 1,389 
Earnings Per Share (Detail) (USD $)
In Millions, except Share data, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Sep. 30, 2012
Sep. 30, 2011
Earnings Per Share [Line Items]
 
 
 
 
Net income (loss)
$ 640 
$ (39)
$ 1,941 
$ 805 
Weighted-average shares outstanding
340,207,037 
338,385,734 
339,523,388 
338,139,477 
Share-based compensation plans
2,665,676 
0 
2,831,798 
2,733,434 
Adjusted weighted-average shares outstanding and assumed conversions
342,872,713 
338,385,734 
342,355,186 
340,872,911 
Basic earnings per share (US$ per share)
$ 1.88 
$ (0.11)
$ 5.71 
$ 2.38 
Diluted earnings per share (US$ per share)
$ 1.86 
$ (0.11)
$ 5.67 
$ 2.36 
Anti-dilutive share conversions
1,449,610 
2,295,260 
1,193,839 
223,987 
Information Provided In Connection With Outstanding Debt Of Subsidiaries (Condensed Consolidating Balance Sheet) (Detail) (USD $)
In Millions, unless otherwise specified
Sep. 30, 2012
Dec. 31, 2011
Sep. 30, 2011
Dec. 31, 2010
Condensed Financial Statements, Captions [Line Items]
 
 
 
 
Investments
$ 59,817 
$ 55,676 
 
 
Cash
690 1
614 
766 2
772 2
Insurance and reinsurance balances receivable
5,288 
4,387 
 
 
Reinsurance recoverable on losses and loss expenses
11,857 
12,389 
 
 
Reinsurance recoverable on policy benefits
246 
249 
 
 
Value of business acquired
632 
676 
 
 
Goodwill and other intangible assets
4,990 
4,799 
 
 
Other assets
9,988 
8,531 
 
 
Total assets
93,508 
87,321 
 
 
Unpaid losses and loss expenses
38,200 
37,477 
 
 
Unearned premiums
7,068 
6,334 
 
 
Future policy benefits
4,414 
4,274 
 
 
Short-term debt
1,402 
1,251 
 
 
Long-term debt
3,360 
3,360 
 
 
Trust preferred securities
309 
309 
 
 
Other liabilities
11,792 
9,984 
 
 
Total liabilities
66,545 
62,989 
 
 
Commitments and contingencies
   
   
 
 
Total shareholders' equity
26,963 
24,332 
23,581 
 
Total liabilities and shareholders' equity
93,508 
87,321 
 
 
Parent Company [Member]
 
 
 
 
Condensed Financial Statements, Captions [Line Items]
 
 
 
 
Investments
31 
33 
 
 
Cash
(116)1
106 
(70)2
308 2
Investments in subsidiaries
26,998 
23,871 
 
 
Due from subsidiaries and affiliates, net
270 
498 
 
 
Other assets
16 
8 
 
 
Total assets
27,199 
24,516 
 
 
Other liabilities
236 
184 
 
 
Total liabilities
236 
184 
 
 
Total shareholders' equity
26,963 
24,332 
 
 
Total liabilities and shareholders' equity
27,199 
24,516 
 
 
Guarantor Subsidiaries [Member]
 
 
 
 
Condensed Financial Statements, Captions [Line Items]
 
 
 
 
Investments
31,249 
28,848 
 
 
Cash
550 1
382 
640 2
573 2
Insurance and reinsurance balances receivable
4,767 
3,944 
 
 
Reinsurance recoverable on losses and loss expenses
16,943 
17,146 
 
 
Reinsurance recoverable on policy benefits
1,196 
941 
 
 
Value of business acquired
628 
676 
 
 
Goodwill and other intangible assets
4,415 
4,248 
 
 
Other assets
7,711 
7,018 
 
 
Total assets
67,459 
63,203 
 
 
Unpaid losses and loss expenses
31,640 
30,837 
 
 
Unearned premiums
5,973 
5,416 
 
 
Future policy benefits
3,819 
3,673 
 
 
Due to subsidiaries and affiliates, net
584 
316 
 
 
Short-term debt
851 
850 
 
 
Long-term debt
3,360 
3,360 
 
 
Trust preferred securities
309 
309 
 
 
Other liabilities
8,992 
7,769 
 
 
Total liabilities
55,528 
52,530 
 
 
Total shareholders' equity
11,931 
10,673 
 
 
Total liabilities and shareholders' equity
67,459 
63,203 
 
 
Other ACE Limited Subsidiaries And Eliminations [Member]
 
 
 
 
Condensed Financial Statements, Captions [Line Items]
 
 
 
 
Investments
28,537 3
26,795 3
 
 
Cash
256 1 3
126 3
196 2 3
(109)2 3
Insurance and reinsurance balances receivable
521 3
443 3
 
 
Reinsurance recoverable on losses and loss expenses
(5,086)3
(4,757)3
 
 
Reinsurance recoverable on policy benefits
(950)3
(692)3
 
 
Value of business acquired
4 
 
 
 
Goodwill and other intangible assets
575 3
551 3
 
 
Other assets
2,261 3
1,505 3
 
 
Total assets
26,118 3
23,971 3
 
 
Unpaid losses and loss expenses
6,560 3
6,640 3
 
 
Unearned premiums
1,095 3
918 3
 
 
Future policy benefits
595 3
601 3
 
 
Due to subsidiaries and affiliates, net
(314)3
182 3
 
 
Short-term debt
551 3
401 3
 
 
Other liabilities
2,564 3
2,031 3
 
 
Total liabilities
11,051 3
10,773 3
 
 
Total shareholders' equity
15,067 3
13,198 3
 
 
Total liabilities and shareholders' equity
26,118 
23,971 3
 
 
Consolidation, Eliminations [Member]
 
 
 
 
Condensed Financial Statements, Captions [Line Items]
 
 
 
 
Investments in subsidiaries
(26,998)4
(23,871)4
 
 
Due from subsidiaries and affiliates, net
(270)4
(498)4
 
 
Total assets
(27,268)4
(24,369)4
 
 
Due to subsidiaries and affiliates, net
(270)4
(498)4
 
 
Total liabilities
(270)4
(498)4
 
 
Total shareholders' equity
(26,998)4
(23,871)4
 
 
Total liabilities and shareholders' equity
$ (27,268)4
$ (24,369)4
 
 
Information Provided In Connection With Outstanding Debt Of Subsidiaries (Condensed Consolidating Statement Of Operations) (Detail) (USD $)
In Millions, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Sep. 30, 2012
Sep. 30, 2011
Information Provided In Connection With Outstanding Debt Of Subsidiaries [Line Items]
 
 
 
 
Net premiums written
$ 4,716 
$ 4,343 
$ 12,418 
$ 11,742 
Net premiums earned
4,665 
4,490 
11,829 
11,556 
Net investment income
533 
564 
1,614 
1,677 
Net realized gains (losses) including OTTI
(60)
(760)
(194)
(878)
Losses and loss expenses
3,047 
2,745 
6,970 
7,234 
Policy benefits
130 
83 
379 
282 
Policy acquisition costs and administrative expenses
1,128 
1,189 
3,353 
3,377 
Interest (income) expense
63 
62 
187 
187 
Other (income) expense
(17)
89 
14 
88 
Income tax expense
147 
165 
405 
382 
Net income (loss)
640 
(39)
1,941 
805 
Comprehensive income
1,316 
(189)
3,044 
1,050 
Parent Company [Member]
 
 
 
 
Information Provided In Connection With Outstanding Debt Of Subsidiaries [Line Items]
 
 
 
 
Net investment income
0 
 
1 
1 
Equity in earnings of subsidiaries
616 
(63)
1,845 
742 
Net realized gains (losses) including OTTI
(4)
2 
18 
0 
Policy acquisition costs and administrative expenses
16 
14 
42 
50 
Interest (income) expense
(8)
(9)
(25)
(27)
Other (income) expense
(39)
(30)
(102)
(92)
Income tax expense
3 
3 
8 
7 
Net income (loss)
640 
(39)
1,941 
805 
Comprehensive income
1,316 
(189)
3,044 
1,050 
Guarantor Subsidiaries [Member]
 
 
 
 
Information Provided In Connection With Outstanding Debt Of Subsidiaries [Line Items]
 
 
 
 
Net premiums written
2,868 
2,581 
7,293 
6,910 
Net premiums earned
2,819 
2,700 
6,967 
6,863 
Net investment income
255 
281 
777 
825 
Net realized gains (losses) including OTTI
11 
28 
71 
32 
Losses and loss expenses
1,977 
1,782 
4,484 
4,521 
Policy benefits
77 
22 
217 
121 
Policy acquisition costs and administrative expenses
587 
631 
1,883 
1,839 
Interest (income) expense
67 
66 
191 
199 
Other (income) expense
17 
85 
51 
121 
Income tax expense
123 
146 
327 
323 
Net income (loss)
237 
277 
662 
596 
Comprehensive income
593 
355 
1,203 
947 
Other ACE Limited Subsidiaries And Eliminations [Member]
 
 
 
 
Information Provided In Connection With Outstanding Debt Of Subsidiaries [Line Items]
 
 
 
 
Net premiums written
1,848 1
1,762 1
5,125 1
4,832 1
Net premiums earned
1,846 1
1,790 1
4,862 1
4,693 1
Net investment income
278 1
283 1
836 1
851 1
Net realized gains (losses) including OTTI
(67)1
(790)1
(283)1
(910)1
Losses and loss expenses
1,070 1
963 1
2,486 1
2,713 1
Policy benefits
53 1
61 1
162 1
161 1
Policy acquisition costs and administrative expenses
525 1
544 1
1,428 1
1,488 1
Interest (income) expense
4 1
5 1
21 1
15 1
Other (income) expense
5 1
34 1
65 1
59 1
Income tax expense
21 1
16 1
70 1
52 1
Net income (loss)
379 1
(340)1
1,183 1
146 1
Comprehensive income
23 1
(418)1
642 1
(205)1
Consolidation, Eliminations [Member]
 
 
 
 
Information Provided In Connection With Outstanding Debt Of Subsidiaries [Line Items]
 
 
 
 
Equity in earnings of subsidiaries
(616)2
63 2
(1,845)2
(742)2
Net income (loss)
(616)2
63 2
(1,845)2
(742)2
Comprehensive income
$ (616)2
$ 63 2
$ (1,845)2
$ (742)2
Information Provided In Connection With Outstanding Debt Of Subsidiaries (Condensed Consolidating Statement Of Cash Flows) (Detail) (USD $)
In Millions, unless otherwise specified
9 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Information Provided In Connection With Outstanding Debt Of Subsidiaries [Line Items]
 
 
Net cash flows from operating activities
$ 3,025 
$ 2,998 
Purchases of fixed maturities available for sale
(17,656)
(19,568)
Purchases of fixed maturities held to maturity
(217)
(285)
Purchases of equity securities
(114)
(289)
Sales of fixed maturities available for sale
11,355 
14,323 
Sales of equity securities
57 
364 
Maturities and redemptions of fixed maturities available for sale
3,596 
2,603 
Maturities and redemptions of fixed maturities held to maturity
1,092 
966 
Net derivative instruments settlements
(358)
67 
Acquisition of subsidiaries
(98)
(394)
Other
(339)
(317)
Net cash flows from (used for) investing activities
(2,682)
(2,530)
Dividends paid on Common Shares
(484)
(342)
Common Shares repurchased
(11)
(168)
Net proceeds from (repayments) issuance of short-term debt
151 
(50)
Proceeds from share-based compensation plans
73 
82 
Net cash flows (used for) from financing activities
(271)
(478)
Effect of foreign currency rate changes on cash and cash equivalents
4 
4 
Net (decrease) increase in cash
76 
(6)
Cash - beginning of period
614 
772 1
Cash - end of period
690 2
766 1
Parent Company [Member]
 
 
Information Provided In Connection With Outstanding Debt Of Subsidiaries [Line Items]
 
 
Net cash flows from operating activities
210 
652 
Sales of fixed maturities available for sale
 
7 
Net derivative instruments settlements
(1)
(2)
Capital contribution to subsidiary
 
(385)
Advances from (to) affiliates
36 
(90)
Net cash flows from (used for) investing activities
35 
(470)
Dividends paid on Common Shares
(484)
(342)
Net proceeds from (repayments) issuance of short-term debt
 
(300)
Proceeds from share-based compensation plans
17 
82 
Net cash flows (used for) from financing activities
(467)
(560)
Net (decrease) increase in cash
(222)
(378)
Cash - beginning of period
106 
308 1
Cash - end of period
(116)2
(70)1
Guarantor Subsidiaries [Member]
 
 
Information Provided In Connection With Outstanding Debt Of Subsidiaries [Line Items]
 
 
Net cash flows from operating activities
1,553 
1,219 
Purchases of fixed maturities available for sale
(8,553)
(9,434)
Purchases of fixed maturities held to maturity
(215)
(282)
Purchases of equity securities
(65)
(149)
Sales of fixed maturities available for sale
5,154 
7,366 
Sales of equity securities
48 
347 
Maturities and redemptions of fixed maturities available for sale
1,757 
1,234 
Maturities and redemptions of fixed maturities held to maturity
798 
724 
Net derivative instruments settlements
(10)
(19)
Acquisition of subsidiaries
(98)
(357)
Other
(279)
(469)
Net cash flows from (used for) investing activities
(1,463)
(1,039)
Net proceeds from (repayments) issuance of short-term debt
1 
(150)
Advances (to) from affiliates
(10)
35 
Capital contribution from subsidiary
90 
 
Net cash flows (used for) from financing activities
81 
(115)
Effect of foreign currency rate changes on cash and cash equivalents
(3)
2 
Net (decrease) increase in cash
168 
67 
Cash - beginning of period
382 
573 1
Cash - end of period
550 2
640 1
Other ACE Limited Subsidiaries And Eliminations [Member]
 
 
Information Provided In Connection With Outstanding Debt Of Subsidiaries [Line Items]
 
 
Net cash flows from operating activities
1,262 3
1,807 3
Purchases of fixed maturities available for sale
(9,103)3
(10,134)3
Purchases of fixed maturities held to maturity
(2)3
(3)3
Purchases of equity securities
(49)3
(140)3
Sales of fixed maturities available for sale
6,201 3
6,950 3
Sales of equity securities
9 3
17 3
Maturities and redemptions of fixed maturities available for sale
1,839 3
1,369 3
Maturities and redemptions of fixed maturities held to maturity
294 3
242 3
Net derivative instruments settlements
(347)3
88 3
Capital contribution to subsidiary
(90)3
 
Acquisition of subsidiaries
0 3
(37)3
Other
(60)3
152 3
Net cash flows from (used for) investing activities
(1,308)3
(1,496)3
Dividends paid on Common Shares
0 3
 
Common Shares repurchased
(11)3
(168)3
Net proceeds from (repayments) issuance of short-term debt
150 3
400 3
Proceeds from share-based compensation plans
56 3
 
Advances (to) from affiliates
(26)3
55 3
Dividends to parent company
 
(680)3
Capital contribution from subsidiary
0 3
 
Capital contribution from parent
 
385 3
Net cash flows (used for) from financing activities
169 3
(8)3
Effect of foreign currency rate changes on cash and cash equivalents
7 3
2 3
Net (decrease) increase in cash
130 3
305 3
Cash - beginning of period
126 3
(109)1 3
Cash - end of period
256 2 3
196 1 3
Consolidation, Eliminations [Member]
 
 
Information Provided In Connection With Outstanding Debt Of Subsidiaries [Line Items]
 
 
Net cash flows from operating activities
 
(680)4
Capital contribution to subsidiary
90 4
385 4
Advances from (to) affiliates
(36)4
90 4
Net cash flows from (used for) investing activities
54 4
475 4
Advances (to) from affiliates
36 4
(90)4
Dividends to parent company
 
680 4
Capital contribution from subsidiary
(90)4
 
Capital contribution from parent
 
(385)4
Net cash flows (used for) from financing activities
$ (54)4
$ 205 4