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

FORM 10-K
þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2013
OR
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from             to              
Commission File No. 1-11778

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

			
Switzerland	 	98-0091805	
(State or other jurisdiction of incorporation or organization)	 	(I.R.S. Employer Identification No.)	
Baerengasse 32
Zurich, Switzerland CH-8001
(Address of principal executive offices) (Zip Code)
+41 (0)43 456 76 00
(Registrant’s telephone number, including area code)

			
 	 	 	
Securities registered pursuant to Section 12(b) of the Act:	
Title of each class	 	Name of each exchange on which registered	
Common Shares, par value CHF 27.04 per share	 	New York Stock Exchange	
 	 	 	
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
YES þ  NO ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
YES ¨  NO þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES þ  NO ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES þ  NO ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference into Part III of this Form 10-K or any amendment to this Form 10-K. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. 

							
Large accelerated filer   þ	 	 	 	 	 	Accelerated filer ¨  	
Non-accelerated filer   ¨	(Do not check if a smaller reporting company)	 	Smaller reporting company  ¨  	
  
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES ¨  NO þ
The aggregate market value of voting stock held by non-affiliates as of June 28, 2013 (the last business day of the registrant's most recently completed second fiscal quarter), was approximately $ 30 billion. For the purposes of this computation, shares held by directors and officers of the registrant have been excluded. Such exclusion is not intended, nor shall it be deemed, to be an admission that such persons are affiliates of the registrant.
As of February 14, 2014 there were 336,657,376 Common Shares par value CHF 27.04 of the registrant outstanding.

					
Documents Incorporated by Reference	
Certain portions of the registrant's definitive proxy statement relating to its 2014 Annual General Meeting of Shareholders are incorporated by reference into Part III of this report.

Table of Contents

ACE LIMITED INDEX TO 10-K

	
				
PART I	 	Page	
ITEM 1.	Business	2	
ITEM 1A.	Risk Factors	19	
ITEM 1B.	Unresolved Staff Comments	29	
ITEM 2.	Properties	29	
ITEM 3.	Legal Proceedings	29	
ITEM 4.	Mine Safety Disclosure s	29	
 	 	 	
PART II	 	 	
ITEM 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	30	
ITEM 6.	Selected Financial Data	32	
ITEM 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33	
ITEM 7A.	Quantitative and Qualitative Disclosures About Market Risk	84	
ITEM 8.	Financial Statements and Supplementary Data	89	
ITEM 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	89	
ITEM 9A.	Controls and Procedures	89	
ITEM 9B.	Other Information 	89	
 	 	 	
PART III	 	 	
ITEM 10.	Directors, Executive Officers and Corporate Governance	90	
ITEM 11.	Executive Compensation	90	
ITEM 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	90	
ITEM 13.	Certain Relationships and Related Transactions, and Director Independence	91	
ITEM 14.	Principal Accounting Fees and Services	91	
 	 	 	
PART IV	 	 	
ITEM 15.	Exhibits, Financial Statements Schedules	92	

Table of Contents

PART I

ITEM 1. Business
____________________________________________________________________________________________________________
General
ACE Limited is the Swiss-incorporated holding company of the ACE Group of Companies. ACE Limited, which is headquartered in Zurich, Switzerland, and its direct and indirect subsidiaries (collectively, the ACE Group of Companies, ACE, we, us, or our) are a global insurance and reinsurance organization, serving the needs of a diverse group of clients worldwide. At December 31, 2013 , we had total assets of $ 95 billion and shareholders’ equity of $ 29 billion. ACE opened its first business office in Bermuda in 1985 and continues to maintain operations in Bermuda.

We offer commercial insurance products and service offerings such as risk management programs, loss control and engineering and complex claims management. We provide specialized insurance products ranging from Directors & Officers (D&O) and professional liability to various specialty-casualty and umbrella and excess casualty lines to niche areas such as aviation and energy. We also offer personal lines insurance coverage including homeowners, automobile, valuables, umbrella liability, and recreational marine products. In addition, we supply personal accident, supplemental health, and life insurance to individuals in select countries. We have grown our business through increased premium volume, expansion of product offerings and geographic reach, and acquisition of other companies. During 2013, we acquired Fianzas Monterrey, a leading surety lines company in Mexico offering administrative performance bonds primarily to clients in the construction and industrial sectors and ABA Seguros, a property and casualty insurer in Mexico that provides automobile, homeowners, and small business coverages. These businesses operate under our Insurance – Overseas General segment and the consolidated financial statements include the results of these businesses from the acquisition date. Refer to Note 2 to the Consolidated Financial Statements for additional information on our acquisitions.

At December 31, 2013 , we employed approximately 20,000 people. We believe that employee relations are satisfactory.

We make available free of charge through our website (www.acegroup.com, under Investor Information / SEC - Section 16 Filings) our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports, if any, filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after they have been electronically filed with or furnished to the U.S. Securities and Exchange Commission (SEC). Also available through our website (under Investor Information / Corporate Governance) are our Corporate Governance Guidelines, Code of Conduct, and Charters for the Committees of our Board of Directors (the Board). Printed documents are available by contacting our Investor Relations Department (Telephone: +1 (441) 299-9283,
E-mail: investorrelations@acegroup.com).

We also use our website as a means of disclosing material, non-public information and for complying with our disclosure obligations under SEC Regulation FD (Fair Disclosure). Accordingly, investors should monitor the Investor Information portion of our website, in addition to following our press releases, SEC filings, and public conference calls and webcasts. The information contained on, or that may be accessed through, our website is not incorporated by reference into, and is not a part of, this report. The public may also read and copy any materials ACE files with the SEC at the SEC's Public Reference Room at 100 F Street, NE, Washington, DC 20549 or by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.
____________________________________________________________________________________________________________
Customers
For most commercial lines of business we offer, insureds typically use the services of an insurance broker or agent. An insurance broker acts as an agent for the insureds, offering advice on the types and amount of insurance to purchase and also assisting in the negotiation of price and terms and conditions. We obtain business from the local and major international insurance brokers and typically pay a commission to brokers for any business accepted and bound. Loss of all or a substantial portion of the business provided by one or more of these brokers could have a material adverse effect on our business. In our opinion, no material part of our business is dependent upon a single insured or group of insureds. We do not believe that the loss of any one insured would have a material adverse effect on our financial condition or results of operations, and no one insured or group of affiliated insureds account for as much as 10 percent of our total revenues.

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____________________________________________________________________________________________________________
Competition
Competition in the insurance and reinsurance marketplace is substantial. Competitors include other stock companies, mutual companies, alternative risk sharing groups (such as group captives and catastrophe pools), and other underwriting organizations. Competitors sell through various distribution channels and business models, across a broad array of product lines, and with a high level of variation regarding geographic, marketing, and customer segmentation. We compete for business not only on the basis of price but also on the basis of availability of coverage desired by customers and quality of service. Our ability to compete is dependent on a number of factors, particularly our ability to maintain the appropriate financial strength ratings as assigned by independent rating agencies. Our broad market capabilities in personal, commercial, specialty, and A&H lines made available by our underwriting expertise, business infrastructure, and global presence, define our competitive advantage. Our strong balance sheet is attractive to businesses, and our strong capital position and global platform affords us opportunities for growth not available to smaller, less diversified insurance companies. Refer to “Segment Information” for competitive environment by segment.
____________________________________________________________________________________________________________
Trademarks and Trade Names
Various trademarks and trade names we use protect names of certain products and services we offer and are important to the extent they provide goodwill and name recognition in the insurance industry. We use commercially reasonable efforts to protect these proprietary rights, including various trade secret and trademark laws. One or more of the trademarks and trade names could be material to our ability to sell our products and services. We have taken appropriate steps to protect our ownership of key names, and we believe it is unlikely that anyone would be able to prevent us from using names in places or circumstances material to our operations.
____________________________________________________________________________________________________________
Segment Information
We operate through five business segments. The following table presents net premiums earned (NPE) by segment:

																						
Years Ended December 31
(in millions of U.S. dollars)	 	2013 Net Premiums Earned		 	% of Total		 	2012 Net Premiums Earned		 	% of Total		 	2011 Net Premiums Earned		 	% of Total		
Insurance – North American P&C	 	$	5,721		 	34	%	 	$	5,147		 	33	%	 	$	4,969		 	32	%	
Insurance – North American Agriculture	 	1,678		 	10	%	 	1,872		 	12	%	 	1,942		 	13	%	
Insurance – Overseas General	 	6,333		 	38	%	 	5,740		 	37	%	 	5,614		 	36	%	
Global Reinsurance	 	976		 	6	%	 	1,002		 	6	%	 	1,003		 	7	%	
Life	 	1,905		 	12	%	 	1,916		 	12	%	 	1,859		 	12	%	
   Total	 	$	16,613		 	100	%	 	$	15,677		 	100	%	 	$	15,387		 	100	%	

Effective January 1, 2013, the former Insurance – North American segment is presented in two distinct reportable segments:
Insurance – North American P&C and Insurance – North American Agriculture. Prior year amounts contained in this report have
been adjusted to conform to the new segment presentation.

Additional financial information about our segments, including net premiums earned by geographic region, is included in
Note 15 to the Consolidated Financial Statements.

Insurance – North American P&C ( 34 percent of 2013 Consolidated NPE)

Overview
The Insurance – North American P&C segment comprises operations in the U.S., Canada, and Bermuda. This segment includes:

•	Our retail divisions: ACE USA (including ACE Canada), ACE Commercial Risk Services, and ACE Private Risk Services	
		
•	Our wholesale and specialty divisions: ACE Westchester and ACE Bermuda	
		
•	Various run-off operations, including Brandywine Holdings Corporation (Brandywine)	

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Products and Distribution
ACE USA, the segment's largest operation, represented approximately 70 percent of Insurance – North American P&C's net premiums earned in 2013 . ACE USA provides a broad array of traditional and specialty P&C, A&H, and risk management products and services to a diverse group of North American commercial and non-commercial enterprises and consumers. ACE USA distributes its insurance products primarily through a limited number of retail brokers. In addition to using brokers, certain products are also distributed through general agents, independent agents, managing general agents (MGA), managing general underwriters, alliances, affinity groups, and direct marketing operations. Products and services offered include property, general liability, umbrella and excess liability, workers' compensation, commercial marine, automobile liability, professional lines D&O and errors and omissions (E&O), surety, medical liability, environmental, inland marine, aerospace, A&H coverages, as well as claims and risk management products and services.

ACE USA's on-going operations are organized into the following distinct business units each offering specialized products and services targeted at specific niche markets:
		
•	ACE Risk Management offers a wide range of customized casualty products designed to help mid-size to large insureds, including national accounts, address the significant costs of financing and managing risk for workers’ compensation, general liability and automobile liability coverages. Within ACE Risk Management, ACE Financial Solutions (AFS) underwrites assumed loss portfolio transfer (LPT) contracts in which insured loss events have occurred prior to the inception of the contract. AFS LPTs involve sufficient risk transfer to be accounted for as insurance contracts. LPT contracts can cause significant variances to premiums, losses and loss expenses, and expense ratios in the periods in which they are written.	
		
•	ACE Foreign Casualty provides products which insure specific global operating risks of U.S.-based multinational companies and include deductible programs, captive programs, and paid or incurred loss retrospective plans for U.S.-based insured's foreign operations.	
		
•	ACE North America Property & Specialty Lines provide products and services including primary, quota share and excess all-risk insurance, risk management programs and services, commercial and inland marine products, and aerospace products.	
		
•	ACE Casualty Risk key coverages include umbrella and excess liability, environmental risk, and casualty programs for commercial construction related projects.	
		
•	ACE Professional Risk provides management liability and professional liability (D&O and E&O) products.	
		
•	ACE Surety offers a wide variety of surety products and specializes in underwriting both commercial and contract bonds and has the capacity for bond issuance on an international basis.	
		
•	ACE Canada (ACE USA's Canadian operations) offers a broad range of P&C products as well as life and A&H coverages.	
		
•	ACE Accident & Health products include employee benefit plans, occupational accident, student accident, and worldwide travel accident and global medical programs. With respect to products that include supplemental medical and hospital indemnity coverages, we typically pay fixed amounts for claims and are therefore insulated from rising health care costs. ACE Accident & Health also provides specialty personal lines products, including credit card enhancement programs (identity theft, rental car collision damage waiver, trip travel, and purchase protection benefits) distributed through affinity groups.	
		
•	ACE Medical Risk offers a wide range of specialty liability products for the health care industry through licensed excess and surplus lines brokers. Products include primary coverages for professional liability and general liability for selected types of medical facilities, excess/umbrella liability for medical facilities, primary and excess coverages for products liability for biotechnology and specialty pharmaceutical companies, and liability insurance for human clinical trials.	
		
•	ESIS Inc. (ESIS), ACE USA's in-house third-party claims administrator, performs claims management and risk control services for domestic and international organizations as well as for the Insurance – North American P&C segment. ESIS services include comprehensive medical managed care, integrated disability services, pre-loss control and risk management, and health, safety and environmental consulting, and salvage and subrogation and health care recovery services. The net results for ESIS are included in Insurance – North American P&C's administrative expenses.	

ACE Commercial Risk Services offers a broad array of specialty product solutions for targeted industries that lend themselves to technology-assisted underwriting. Core products and services for small businesses include disaster protection, casualty insurance (including international casualty), environmental, inland marine, professional risk, medical risk, and claims and risk management services. Products are offered through wholesale, retail, program agent and alternative distribution channels. In addition, ACE Commercial Risk Services offers coverage for specialty programs through program agents.

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ACE Private Risk Services provides high-value personal lines coverages including homeowners, automobile, valuables, umbrella liability, and recreational marine insurance offered through independent regional agents and brokers.

ACE Westchester serves the market for business risks that tend to be hard to place due to unique or complex exposures. Products offered include wholesale excess and surplus lines property, casualty, environmental, professional liability, inland marine, and product recall coverages in North America.

ACE Bermuda, our original insurance company, provides commercial insurance products on an excess basis including excess liability, D&O, professional liability, property insurance, and political risk, the latter being written on a subscription basis by Sovereign Risk Insurance Ltd. (Sovereign), a wholly-owned managing agent. ACE Bermuda offers these products primarily through the Bermuda offices of major, internationally recognized insurance brokers.

The run-off operations do not actively sell insurance products, but are responsible for the management of certain existing policies and settlement of related claims.

Competitive Environment
ACE USA and ACE Westchester compete against a number of large, national carriers as well as regional competitors and other entities offering risk alternatives such as self-insured retentions and captive programs. The markets in which we compete are subject to significant cycles of fluctuating capacity and wide disparities in price adequacy. We strive to offer superior service, which we believe has differentiated us from our competitors. The ACE USA and ACE Westchester operations pursue a specialist strategy and focus on market opportunities where we can compete effectively based on service levels and product design, while still achieving an adequate level of profitability. A competitive advantage is also achieved through ACE USA's innovative product offerings and our ability to provide multiple products to a single client due to our nationwide local presence. An additional competitive strength of all our domestic commercial units is the ability to deliver global products and coverage to customers in concert with our Insurance – Overseas General segment. ACE USA has grown, in part, from the leveraging of cross-marketing opportunities with our other operations to take advantage of our organization's global presence. ACE Bermuda competes against international commercial carriers writing business on an excess of loss basis. ACE Commercial Risk Services competes against numerous insurance companies ranging from large national carriers to small and mid-size insurers who provide specialty coverages and standard P&C products. ACE Private Risk Services competes against insurance companies of varying sizes that sell products through various distribution channels, including through the Internet.

Insurance – North American Agriculture ( 10 percent of 2013 Consolidated NPE)

Overview
The Insurance – North American Agriculture segment comprises Rain and Hail Insurance Service, Inc. (Rain and Hail) and ACE Agribusiness.

Products and Distribution
The Insurance – North American Agriculture segment comprises Rain and Hail, which provides comprehensive Multiple Peril Crop Insurance (MPCI) and crop-hail insurance, and ACE Agribusiness, which offers farm and ranch coverages as well as specialty P&C coverages for companies that manufacture, process and distribute agriculture products. The MPCI program is offered in conjunction with the U.S. Department of Agriculture (USDA). The USDA's Risk Management Agency (RMA) sets the policy terms and conditions, rates and forms, and is also responsible for setting compliance standards. As a participating company, we report all details of policies underwritten to the RMA and are party to a Standard Reinsurance Agreement (SRA). The SRA sets out the relationship between private insurance companies and the Federal Crop Insurance Corporation (FCIC) concerning the terms and conditions regarding the risks each will bear including the pro-rata and state stop-loss provisions which allow companies to limit the exposure of any one state or group of states on their underwriting results. In addition to the pro-rata and excess of loss reinsurance protections inherent in the SRA, we also purchase third-party proportional and stop-loss reinsurance for our MPCI business to reduce our exposure. For additional information, refer to “Crop Insurance”, under Item 7.

Competitive Environment
Rain and Hail primarily operates in a federally regulated program where all approved providers offer the same product forms and rates through independent and/or captive agents. ACE Agribusiness competes against both national and regional competitors offering specialty P&C insurance coverages to companies that manufacture, process, and distribute agricultural products.

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Insurance – Overseas General ( 38 percent of 2013 Consolidated NPE)

Overview
The Insurance – Overseas General segment comprises ACE International and ACE Global Markets (AGM). ACE International comprises our retail commercial P&C, A&H, and personal lines businesses serving territories outside the U.S., Bermuda, and Canada, and the international supplemental A&H business of Combined Insurance. AGM, our London-based international specialty and excess and surplus lines business, includes Lloyd's of London (Lloyd's) Syndicate 2488 (Syndicate 2488), a wholly-owned ACE syndicate. ACE provides funds at Lloyd's to support underwriting by Syndicate 2488, which is managed by ACE Underwriting Agencies Limited and has an underwriting capacity of £350 million for 2014. The reinsurance operation of AGM is included in the Global Reinsurance segment.

Products and Distribution
ACE International maintains a presence in every major insurance market in the world and is organized geographically along product lines as follows: ACE Europe, ACE Asia Pacific, ACE Far East, and ACE Latin America. Products offered include P&C, A&H, specialty coverages, and personal lines insurance products and services. During 2013, ACE International enhanced its P&C offerings through the acquisition of ABA Seguros and expanded its global franchise in the surety business and enhanced its commercial lines and personal accident insurance business through the acquisition of Fianzas Monterrey. ACE International's P&C business is generally written, on both a direct and assumed basis, through major international, regional, and local brokers and agents. Certain ACE Europe branded products are also offered via an e-commerce platform, ACE Online, that allows brokers to quote, bind, and issue specialty policies online. Property insurance products include traditional commercial fire coverage as well as energy industry-related, marine, construction, and other technical coverages. Principal casualty products are commercial primary and excess casualty, environmental, and general liability. A&H and other consumer lines products are distributed through brokers, agents, direct marketing programs, and sponsor relationships. ACE International specialty coverages include D&O, professional indemnity, energy, aviation, political risk, and specialty personal lines products. The A&H operations primarily offer personal accident and supplemental medical coverages including accidental death, business/holiday travel, specified disease, disability, medical and hospital indemnity, and income protection. We are not in the primary health care business. With respect to our supplemental medical and hospital indemnity products, we typically pay fixed amounts for claims and are therefore largely insulated from the direct impact of rising health care costs. ACE International's personal lines operations provide specialty products and services designed to meet the needs of specific target markets and include property damage, automobile, homeowners, and personal liability.

Combined Insurance uses an international sales force to distribute a wide range of supplemental A&H products including personal accident, short-term disability, critical conditions and cancer aid, and hospital confinement/recovery. Most of these products are primarily fixed-indemnity obligations and are not subject directly to escalating medical cost inflation.

AGM offers products through its parallel distribution network via ACE European Group Limited (AEGL) and Syndicate 2488. AGM uses Syndicate 2488 to underwrite P&C business on a global basis through Lloyd's worldwide licenses. AGM uses AEGL to underwrite similar classes of business through its network of U.K. and European licenses, and in the U.S. where it is eligible to write excess and surplus lines business. Factors influencing the decision to place business with Syndicate 2488 or AEGL include licensing eligibilities, capitalization requirements, and client/broker preference. All business underwritten by AGM is accessed through registered brokers. The main lines of business include aviation, property, energy, professional lines, marine, political risk, and A&H.

Competitive Environment
ACE International's primary competitors include U.S.-based companies with global operations, as well as non-U.S. global carriers and indigenous companies in regional and local markets. For the A&H lines of business, including those offered by Combined Insurance, locally-based competitors include financial institutions and bank-owned insurance subsidiaries. Our international operations have the distinct advantage of being part of one of the few international insurance groups with a global network of licensed companies able to write policies on a locally admitted basis. The principal competitive factors that affect the international operations are underwriting expertise and pricing, relative operating efficiency, product differentiation, producer relations, and the quality of policyholder services. A competitive strength of our international operations is our global network and breadth of insurance programs, which assist individuals and business organizations to meet their risk management objectives, while also giving us the advantage of accessing local technical expertise, accomplishing a spread of risk, and offering a global network to service multinational accounts.

AGM is one of the preeminent international specialty insurers in London and is an established lead underwriter on a significant portion of the risks it underwrites for all lines of business. This leadership position allows AGM to set the policy terms and

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conditions of many of the policies written. All lines of business face competition, depending on the business class, from Lloyd's syndicates, the London market, and other major international insurers and reinsurers. Competition for international risks is also seen from domestic insurers in the country of origin of the insured. AGM differentiates itself from competitors through long standing experience in its product lines, its multiple insurance entities (Syndicate 2488 and AEGL), and the quality of its underwriting and claims service.

Global Reinsurance ( 6 percent of 2013 Consolidated NPE)

Overview
The Global Reinsurance segment represents ACE's reinsurance operations comprising ACE Tempest Re Bermuda, ACE Tempest Re USA, ACE Tempest Re International, and ACE Tempest Re Canada. The Global Reinsurance segment also includes AGM's reinsurance operations. Global Reinsurance markets reinsurance products worldwide under the ACE Tempest Re brand name and provides solutions for small to mid-sized clients and multinational ceding companies including licensed reinsurance capabilities, property and workers' compensation catastrophe, loss-warranty, stop-loss cover, marine and aviation programs.

Products and Distribution
Global Reinsurance services clients globally through its major units. Major international brokers submit business to one or more of these units' underwriting teams who have built strong relationships with both key brokers and clients by providing a responsive, client-focused approach to risk assessment and pricing.

ACE Tempest Re Bermuda principally provides property catastrophe reinsurance on an excess of loss basis globally to insurers of commercial and personal property. Property catastrophe reinsurance is on an occurrence basis and protects a ceding company against an accumulation of losses covered by its issued insurance policies, arising from a common event or occurrence. ACE Tempest Re Bermuda underwrites reinsurance principally on an excess of loss basis, meaning that its exposure only arises after the ceding company's accumulated losses have exceeded the attachment point of the reinsurance policy. ACE Tempest Re Bermuda also writes other types of reinsurance on a limited basis for selected clients. Examples include proportional property where the reinsurer shares a proportional part of the premiums and losses of the ceding company and per risk excess of loss treaty reinsurance where coverage applies on a per risk basis rather than per event or aggregate basis, together with casualty and specialty lines (catastrophe workers' compensation, crop and terrorism). ACE Tempest Re Bermuda's business is produced through reinsurance intermediaries.

ACE Tempest Re USA writes all lines of traditional and specialty P&C reinsurance, and surety and fidelity reinsurance for the North American market, principally on a treaty basis, with a focus on writing property per risk and casualty reinsurance. ACE Tempest Re USA underwrites reinsurance on both a proportional and excess of loss basis. This unit's diversified portfolio is produced through reinsurance intermediaries.

ACE Tempest Re International provides traditional and specialty P&C reinsurance to insurance companies worldwide, with emphasis on non-U.S. and Canadian risks. ACE Tempest Re International writes all lines of traditional and specialty reinsurance including property risk and property catastrophe, casualty, marine, aviation, and specialty through our London- and Zurich-based divisions. The London-based divisions of ACE Tempest Re International focus on the development of business sourced through London market brokers and, consequently, write a diverse book of international business using Syndicate 2488 and AEGL. The Zurich-based division focuses on providing reinsurance to continental European insurers via continental European brokers. ACE Tempest Re International also includes our Shanghai, China office which provides reinsurance coverage for Chinese-based risks and our Sao Paulo, Brazil office which provides reinsurance for Brazilian-based risks. ACE Tempest Re International underwrites reinsurance on both a proportional and excess of loss basis.

ACE Tempest Re Canada offers a full array of traditional and specialty P&C reinsurance to the Canadian market, including casualty, property risk and property catastrophe. ACE Tempest Re Canada provides coverage through its Canadian company platform and also offers clients access to Syndicate 2488. ACE Tempest Re Canada underwrites reinsurance on both a proportional and excess of loss basis.

Competitive Environment
The Global Reinsurance segment competes worldwide with major U.S. and non-U.S. reinsurers as well as reinsurance departments of numerous multi-line insurance organizations. In addition, over the last several years, capital markets participants have developed financial products intended to compete with traditional reinsurance. In addition, government sponsored or backed catastrophe funds can affect demand for reinsurance. Global Reinsurance is considered a lead reinsurer and is typically involved in the negotiation and quotation of the terms and conditions of the majority of the contracts in which it

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participates. Global Reinsurance competes effectively in P&C markets worldwide because of its strong capital position, analytical capabilities and quality customer service, the leading role it plays in setting the terms, pricing, and conditions in negotiating contracts, and its customized approach to risk selection. The key competitors in our markets vary by geographic region and product line. An advantage of our international platform is that we are able to change our mix of business in response to changes in competitive conditions in the territories in which we operate. Our geographic reach is also sought by multinational ceding companies since all of our offices, with the exception of Bermuda, provide local reinsurance license capabilities which benefit our clients in dealing with country regulators.

Life ( 12 percent of 2013 Consolidated NPE)

Overview
The Life segment comprises ACE's international life operations (ACE Life), ACE Tempest Life Re (ACE Life Re), and the North American supplemental A&H and life business of Combined Insurance.

Products and Distribution
ACE Life provides individual life and group benefit insurance primarily in emerging markets, including Egypt, Hong Kong, Indonesia, South Korea, Taiwan, Thailand, and Vietnam; also throughout Latin America; selectively in Europe; and in China through a non-consolidated joint venture insurance company. ACE Life offers a broad portfolio of protection and savings products including whole life, endowment plans, individual term life, group term life, group medical, personal accident, credit life, universal life, and unit linked contracts. The policies written by ACE Life generally provide funds to beneficiaries of insureds after death and/or protection and/or savings benefits while the contract owner is living. ACE Life sells to consumers through a variety of distribution channels including agency, bancassurance, worksite marketing, retailers, brokers, and direct to consumer marketing. We continue to expand ACE Life with a focus on opportunities in emerging markets that we believe will result in strong and sustainable operating profits as well as a favorable return on capital commitments over time. Our dedicated agency distribution channel, whereby agents sell ACE Life products exclusively, enables us to maintain direct contact with the individual consumer, promote quality sales practices, and exercise greater control over the future of the business. We have developed a substantial sales force of agents principally located in our Asia-Pacific countries. ACE also maintains approximately 35.8 percent direct and indirect ownership interest in Huatai Life Insurance Co., Ltd. (Huatai Life), which commenced operations in 2005 and has since grown to become one of the largest life insurance foreign joint ventures in China. Huatai Life offers a broad portfolio of insurance products through a variety of distribution channels including approximately 265 licensed sales locations in 13 Chinese provinces.

ACE Life Re's core business is a Bermuda-based operation which provides reinsurance to primary life insurers, focusing on guarantees included in certain fixed and variable annuity products and also on more traditional mortality reinsurance protection. ACE Life Re's U.S.-based traditional life reinsurance operation was discontinued for new business in January 2010. Since 2007, ACE Life Re has not quoted on new opportunities in the variable annuity reinsurance marketplace and our focus has been on successfully managing the current portfolio of risk, both in the aggregate and on a contract basis. This business is managed with a long-term perspective and short-term earnings volatility is expected.

Combined Insurance distributes specialty supplemental A&H and life insurance products targeted to middle income consumers and businesses in the U.S. and Canada. Combined Insurance's substantial North American sales force distributes a wide range of supplemental accident and sickness insurance products, including personal accident, short-term disability, critical illness, Medicare supplement products, and hospital confinement/recovery. Most of these products are primarily fixed-indemnity benefit obligations and are not directly subject to escalating medical cost inflation.

Competitive Environment
ACE Life's competition differs by location but generally includes multinational insurers, and in some locations, local insurers, joint ventures, or state-owned insurers. ACE's financial strength and reputation as an entrepreneurial organization with a global presence gives ACE Life a strong base from which to compete. While ACE Life Re is not currently quoting on new opportunities in the variable annuity reinsurance marketplace, we continue to monitor developments in this market. Combined Insurance competes for A&H business in the U.S. against numerous A&H and life insurance companies across various industry segments.

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Underwriting
ACE is an underwriting company and we strive to emphasize quality of underwriting rather than volume of business or market share. Our underwriting strategy is to manage risk by employing consistent, disciplined pricing and risk selection. This, coupled with writing a number of less cyclical product lines, has helped us develop flexibility and stability of our business, and has allowed us to maintain a profitable book of business throughout market cycles. Clearly defined underwriting authorities, standards, and guidelines coupled with a strong underwriting audit function are in place in each of our local operations and global profit centers. Global product boards ensure consistency of approach and the establishment of best practices throughout the world. Our priority is to help ensure adherence to criteria for risk selection by maintaining high levels of experience and expertise in our underwriting staff. In addition, we employ a business review structure that helps ensure control of risk quality and conservative use of policy limits and terms and conditions. Underwriting discipline is at the heart of our operating philosophy.

Qualified actuaries in each region work closely with the underwriting teams to provide additional expertise in the underwriting process. We use sophisticated catastrophe loss and risk modeling techniques designed to ensure appropriate spread of risk and to analyze correlation of risk across different product lines and territories. This helps to ensure that losses are contained within our risk tolerance and appetite for individual product lines, businesses, and ACE as a whole. We also purchase reinsurance as a tool to diversify risk and limit the net loss potential of catastrophes and large or unusually hazardous risks. For additional information refer to “Reinsurance Protection”, below, “Insurance and Reinsurance Markets”, under Item 1A, “Catastrophe Management” and “Natural Catastrophe Property Reinsurance Program”, under Item 7, and Note 5 to the Consolidated Financial Statements, under Item 8.
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Reinsurance Protection
As part of our risk management strategy, we purchase reinsurance protection to mitigate our exposure to losses, including certain catastrophes, to a level consistent with our risk appetite. Although reinsurance agreements contractually obligate our reinsurers to reimburse us for an agreed-upon portion of our gross paid losses, reinsurance does not discharge our primary liability to our insureds and, thus, we ultimately remain liable for the gross direct losses. In certain countries, reinsurer selection is limited by local laws or regulations. In most countries there is more freedom of choice, and the counterparty is selected based upon its financial strength, claims settlement record, management, line of business expertise, and its price for assuming the risk transferred. In support of this process, we maintain an ACE authorized reinsurer list that stratifies these authorized reinsurers by classes of business and acceptable limits. This list is maintained by our Reinsurance Security Committee (RSC), a committee comprising senior management personnel and a dedicated reinsurer security team. Changes to the list are authorized by the RSC and recommended to the Chair of the Enterprise Risk Management Board. The reinsurers on the authorized list and potential new markets are regularly reviewed and the list may be modified following these reviews. In addition to the authorized list, there is a formal exception process that allows authorized reinsurance buyers to use reinsurers already on the authorized list for higher limits or different lines of business, for example, or other reinsurers not on the authorized list if their use is supported by compelling business reasons for a particular reinsurance program.

A separate policy and process exists for captive reinsurance companies. Generally, these reinsurance companies are established by our clients or our clients have an interest in them. It is generally our policy to obtain collateral equal to the expected losses that may be ceded to the captive. Where appropriate, exceptions to the collateral requirement are granted but only after senior management review. Specific collateral guidelines and an exception process are in place for ACE USA and Insurance – Overseas General, both of which have credit management units evaluating the captive's credit quality and that of their parent company. The credit management units, working with actuaries, determine reasonable exposure estimates (collateral calculations), ensure receipt of collateral in an acceptable form, and coordinate collateral adjustments as and when needed. Financial reviews and expected loss evaluations are performed annually for active captive accounts and as needed for run-off exposures. In addition to collateral, parental guarantees are often used to enhance the credit quality of the captive.

In general, we seek to place our reinsurance with highly rated companies with which we have a strong trading relationship. For additional information refer to “Catastrophe Management” and “Natural Catastrophe Property Reinsurance Program” under Item 7, and Note 5 to the Consolidated Financial Statements.

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Unpaid Losses and Loss Expenses
We establish reserves for unpaid losses and loss expenses, which are estimates of future payments on reported and unreported claims for losses and related expenses, with respect to insured events that have occurred. These reserves are recorded in Unpaid losses and loss expenses in the consolidated balance sheets. The process of establishing loss and loss expense reserves for P&C claims can be complex and is subject to considerable uncertainty as it requires the use of informed estimates and judgments based on circumstances known at the date of accrual. These estimates and judgments are based on numerous factors, and may be revised as additional experience and other data become available and are reviewed, as new or improved methodologies are developed, or as laws change. Internal actuaries regularly analyze the levels of loss and loss expense reserves, taking into consideration factors that may impact the ultimate settlement value of the unpaid losses and loss expenses. These analyses could result in future changes in the estimates of loss and loss expense reserves or reinsurance recoverables and any such changes would be reflected in our results of operations in the period in which the estimates are changed. Losses and loss expenses are charged to income as incurred. The reserve for unpaid losses and loss expenses represents the estimated ultimate losses and loss expenses less paid losses and loss expenses, and comprises case reserves and incurred but not reported (IBNR) loss reserves. With the exception of certain structured settlements, for which the timing and amount of future claim payments are reliably determinable, and certain reserves for unsettled claims that are discounted in statutory filings, our loss reserves are not discounted for the time value of money. In connection with such structured settlements and certain reserves for unsettled claims, we carried net discounted reserves of $106 million at December 31, 2013 .
During the loss settlement period, which can be many years in duration, additional facts regarding individual claims and trends often will become known. As these become apparent, case reserves may be adjusted by allocation from IBNR with or without any change in the overall reserve. In addition, the circumstances of individual claims or the application of statistical and actuarial methods to loss experience data may lead to the adjustment of the overall reserves upward or downward from time to time. Accordingly, the ultimate settlement of losses may be significantly greater than or less than reported loss and loss expense reserves.
We have considered asbestos and environmental (A&E) claims and claims expenses in establishing the liability for unpaid losses and loss expenses and have developed reserving methods which consider historical experience as well as incorporate new sources of data to estimate the ultimate losses arising from A&E exposures. The reserves for A&E claims and claims expenses represent management's best estimate of future loss and loss expense payments and recoveries that are expected to develop over the next several decades. We continuously monitor evolving case law and its effect on environmental and latent injury claims, we monitor A&E claims activity quarterly, and we perform a full reserve review annually.
For each product line, management, in conjunction with internal actuaries, develops a “best estimate” of the ultimate settlement value of the unpaid losses and loss expenses that it believes provides a reasonable estimate of the required reserve. We evaluate our estimates of reserves quarterly in light of developing information. While we are unable at this time to determine whether additional reserves may be necessary in the future, we believe that our reserves for unpaid losses and loss expenses are adequate at December 31, 2013 . Future additions to reserves, if needed, could have a material adverse effect upon our financial condition, results of operations, and cash flows. For additional information refer to “Critical Accounting Estimates – Unpaid losses and loss expenses”, under Item 7, and Note 7 to the Consolidated Financial Statements, under Item 8.
The “Analysis of Losses and Loss Expenses Development” table shown below presents, for each balance sheet date over the period 2003-2013, the gross and net loss and loss expense reserves recorded at the balance sheet date and subsequent net payments on the associated liabilities. The reserves represent the amount required for the estimated future settlement value of liabilities incurred at or prior to the balance sheet date and those estimates may change subsequent to the balance sheet date as new information emerges regarding the ultimate settlement value of the liability. Accordingly, the table also presents through December 31, 2013 , for each balance sheet date, the cumulative impact of subsequent valuations of the liabilities incurred at the original balance sheet date. The table is presented in accordance with SEC reporting requirements. This table should be interpreted with care by those not familiar with its format or those who are familiar with other triangulations arranged by origin year of loss such as accident or underwriting year rather than balance sheet date, as shown below. To clarify the interpretation of the table, we use the reserves established at December 31, 2003, in the following example.
The top two lines of the table show, for successive balance sheet dates, the gross and net unpaid losses and loss expenses recorded as provision for liabilities incurred at or prior to each balance sheet date. It can be seen that at December 31, 2003, a reserve of $14.7 billion, net of reinsurance, had been established.

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The upper (paid) triangulation shows the net amounts paid as of periods subsequent to the balance sheet date. Hence in the 2004 financial year, $2.9 billion of payments were made on liabilities contemplated in the December 31, 2003, reserve balance. At the end of the 2013 financial year, there were cumulative net payments of $11.3 billion on this block of liabilities.
The lower triangulation within the table shows the revised estimate of the net liability originally recorded at each balance sheet date as of the end of subsequent financial years. With the benefit of actual loss emergence and hindsight over the intervening period, the net liabilities incurred as of December 31, 2003, are now estimated to be $ 16.3 billion , rather than the original estimate of $ 14.7 billion . One of the key drivers of this change has been adverse development on latent claims that we categorize as A&E covered under the National Indemnity Company (NICO) reinsurance treaties. Of the cumulative deficiency of $ 1.6 billion recognized in the ten years since December 31, 2003, $ 0.4 billion relates to non-latent claims and $ 1.2 billion relates to latent claims. The deficiency of $1.6 billion was identified and recorded as follows: $547 million deficient in 2004, $247 million deficient in 2005, $264 million deficient in 2006, $283 million deficient in 2007, $71 million deficient in 2008, $92 million redundant in 2009, $29 million redundant in 2010, $25 million deficient in 2011, $151 million deficient in 2012, and $153 million deficient in 2013. This development subsequent to the balance sheet date of valuation is referred to as prior period development.
Importantly, the cumulative deficiency or redundancy for different balance sheet dates are not independent and, therefore, should not be added together. In the last financial year, we revised our estimate of the December 31, 2003, liabilities from $16.1 billion to $ 16.3 billion . This adverse development of $153 million is also included in each column to the right of the December 31, 2003, column to recognize that this additional amount was also required in the reserves established for each annual balance sheet date from December 31, 2004 to December 31, 2013 .
The loss development table shows that our original estimate of the net unpaid loss and loss expense requirement at December 31, 2012, of $26.5 billion has, with the benefit of actual loss emergence and hindsight, been revised to $ 26.0 billion at December 31, 2013 . This favorable movement of $ 530 million reflects prior period development and is the net result of a number of underlying movements both favorable and adverse. The key underlying movements are discussed in more detail in Note 7 to the Consolidated Financial Statements under Item 8.
The bottom lines of the table show the re-estimated amount of previously recorded gross liabilities at December 31, 2013 , together with the change in reinsurance recoverable. Similar to the net liabilities, the cumulative redundancy or deficiency on the gross liability is the difference between the gross liability originally recorded and the re-estimated gross liability at December 31, 2013 . For example, with respect to the gross unpaid loss and loss expenses of $27.1 billion for December 31, 2003, this gross liability was re-estimated to be $31.6 billion at December 31, 2013 , resulting in the cumulative deficiency on the gross liability originally recorded for the 2003 balance sheet year of $4.6 billion. This deficiency relates primarily to U.S. liabilities, including A&E liabilities for 1996 and prior. The gross deficiency results in a net deficiency of $1.6 billion after consideration of substantial reinsurance coverage that reduces the gross loss; approximately $1.6 billion was covered by reinsurance placed when the risks were originally written and $1.3 billion and $110 million of the remaining insurance coverage has been ceded under the Brandywine NICO Agreement and Westchester NICO Agreement, respectively.
We do not consider it appropriate to extrapolate future deficiencies or redundancies based upon the table, as conditions and trends that have affected development of the liability in the past may not necessarily recur in the future. We believe that our current estimates of net liabilities appropriately reflect our current knowledge of the business profile and the prevailing market, social, legal, and economic conditions while giving due consideration to historical trends and volatility evidenced in our markets over the longer term. The key issues and considerations involved in establishing our estimate of the net liabilities are discussed in more detail within the “Critical Accounting Estimates – Unpaid losses and loss expenses” section of Item 7.
The Unpaid losses and loss expense information for acquired businesses has been included in the table from the acquisition date forward:
		
•	Combined Insurance (April 1, 2008);	
		
•	Jerneh Insurance Berhad (December 1, 2010);	
		
•	Rain and Hail (we acquired all of the outstanding common stock not previously owned by us on December 28, 2010);	
		
•	Penn Millers Holding Corporation (November 30, 2011);	
		
•	Rio Guayas Compania de Seguros y Reaseguros (December 28, 2011);	
		
•	PT Asuransi Jaya Proteski (we acquired 80 percent on September 18, 2012 and our local partner acquired the remaining 20 percent on January 3, 2013);	
		
•	Fianzas Monterrey (April 1, 2013); and	
		
•	ABA Seguros (May 2, 2013).	

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Analysis of Losses and Loss Expenses Development	
 	Years Ended December 31	
(in millions of U.S. dollars)	2003		2004		2005		2006		2007		2008		2009		2010		2011		2012		2013		
Gross unpaid losses	$	27,083		$	31,483		$	35,055		$	35,517		$	37,112		$	37,176		$	37,783		$	37,391		$	37,477		$	37,946		$	37,443		
Net unpaid losses	14,674		17,517		20,458		22,008		23,592		24,241		25,038		25,242		25,875		26,547		26,831		
Net paid losses (cumulative) as of:	 	 	 	 	 	 	 	 	
1 year later	2,855		3,293		3,711		4,038		3,628		4,455		4,724		4,657		4,894		5,035		 	
2 years later	4,878		5,483		6,487		6,356		6,092		7,526		7,510		7,281		7,714		 	 	
3 years later	6,427		7,222		7,998		8,062		8,393		9,690		9,404		9,424		 	 	 	
4 years later	7,819		8,066		9,269		9,748		9,949		11,114		11,097		 	 	 	 	
5 years later	8,416		8,920		10,597		10,826		10,951		12,502		 	 	 	 	 	
6 years later	9,049		9,810		11,428		11,496		11,985		 	 	 	 	 	 	
7 years later	9,781		10,478		11,957		12,312		 	 	 	 	 	 	 	
8 years later	10,332		10,859		12,664		 	 	 	 	 	 	 	 	
9 years later	10,647		11,462		 	 	 	 	 	 	 	 	 	
10 years later	11,255		 	 	 	 	 	 	 	 	 	 	
Net liability re-estimated as of:	 	 	 	 	 	 	 	 	
End of year	14,674		17,517		20,458		22,008		23,592		24,241		25,038		25,242		25,875		26,547		26,831		
1 year later	15,221		17,603		20,446		21,791		22,778		23,653		24,481		24,686		25,396		26,017		 	
2 years later	15,468		17,651		20,366		21,188		22,158		23,127		23,801		24,167		24,887		 	 	
3 years later	15,732		17,629		19,926		20,650		21,596		22,576		23,363		23,690		 	 	 	
4 years later	16,015		17,509		19,589		20,080		21,037		22,184		22,955		 	 	 	 	
5 years later	16,086		17,276		19,258		19,618		20,773		21,913		 	 	 	 	 	
6 years later	15,994		17,116		19,136		19,584		20,760		 	 	 	 	 	 	
7 years later	15,965		17,061		19,180		19,684		 	 	 	 	 	 	 	
8 years later	15,990		17,167		19,329		 	 	 	 	 	 	 	 	
9 years later	16,141		17,354		 	 	 	 	 	 	 	 	 	
10 years later	16,294		 	 	 	 	 	 	 	 	 	 	
Cumulative redundancy/ (deficiency) on net unpaid losses	(1,620	)	163		1,129		2,324		2,832		2,328		2,083		1,552		988		530		 	
Cumulative deficiency related to A&E	(1,247	)	(782	)	(782	)	(730	)	(701	)	(650	)	(567	)	(463	)	(364	)	(194	)	 	
Cumulative redundancy/ (deficiency) excluding A&E	(373	)	945		1,911		3,054		3,533		2,978		2,650		2,015		1,352		724		 	
Gross unpaid losses	27,083		31,483		35,055		35,517		37,112		37,176		37,783		37,391		37,477		37,946		37,443		
Reinsurance recoverable on unpaid losses	12,409		13,966		14,597		13,509		13,520		12,935		12,745		12,149		11,602		11,399		10,612		
Net unpaid losses	14,674		17,517		20,458		22,008		23,592		24,241		25,038		25,242		25,875		26,547		26,831		
Gross liability re-estimated	31,649		32,348		33,508		32,872		33,414		34,240		34,903		34,898		35,890		36,996		 	
Reinsurance recoverable on unpaid losses	15,355		14,994		14,179		13,188		12,654		12,327		11,948		11,208		11,003		10,979		 	
Net liability re-estimated	16,294		17,354		19,329		19,684		20,760		21,913		22,955		23,690		24,887		26,017		 	
Cumulative redundancy/ (deficiency) on gross unpaid losses	$	(4,566	)	$	(865	)	$	1,547		$	2,645		$	3,698		$	2,936		$	2,880		$	2,493		$	1,587		$	950		 	
The reference to “losses” in the table above refers to losses and loss expenses.

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Reconciliation of Unpaid Losses and Loss Expenses
Net losses and loss expenses incurred for 2013 were $ 9.3 billion , compared with $9.7 billion in 2012 , and $9.5 billion in 2011 which includes $ 530 million , $479 million, and $556 million of net favorable prior period development (PPD), respectively. Refer to Note 7 to the Consolidated Financial Statements under Item 8 for a reconciliation of Unpaid losses and loss expenses and for additional information on PPD.
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Investments
Our objective is to maximize investment income and total return while ensuring an appropriate level of liquidity and investment quality and diversification. As such, ACE's investment portfolio is invested primarily in investment-grade fixed-income securities as measured by the major rating agencies. We do not allow leverage or complex credit structures in our investment portfolio.

The critical aspects of the investment process are controlled by ACE Asset Management, an indirect wholly-owned subsidiary of ACE. These aspects include asset allocation, portfolio and guideline design, risk management and oversight of external asset managers. In this regard, ACE Asset Management:

•	conducts formal asset allocation modeling for each of the ACE subsidiaries, providing formal recommendations for the portfolio's structure;	
		
•	establishes recommended investment guidelines that are appropriate to the prescribed asset allocation targets;	
		
•	provides the analysis, evaluation, and selection of our external investment advisors;	
		
•	establishes and develops investment-related analytics to enhance portfolio engineering and risk control;	
		
•	monitors and aggregates the correlated risk of the overall investment portfolio; and	
		
•	provides governance over the investment process for each of our operating companies to ensure consistency of approach and adherence to investment guidelines.	

Under our guidance and direction, external asset managers conduct security and sector selection and transaction execution. Use of multiple managers benefits ACE in several ways – it provides us with operational and cost efficiencies, diversity of styles and approaches, innovations in investment research and credit and risk management, all of which enhance the risk adjusted returns of our portfolios.

ACE Asset Management determines the investment portfolio's allowable, targeted asset allocation and ranges for each of the segments. These asset allocation targets are derived from sophisticated asset and liability modeling that measures correlated histories of returns and volatility of returns. Allowable investment classes are further refined through analysis of our operating environment, including expected volatility of cash flows, potential impact on our capital position, as well as regulatory and rating agency considerations.

The Board has established a Risk & Finance Committee which helps execute the Board's supervisory responsibilities pertaining to enterprise risk management including investment risk. Under the overall supervision of the Risk & Finance Committee, ACE's governance over investment management is rigorous and ongoing. Among its responsibilities, the Risk & Finance Committee of the Board:

•	reviews and approves asset allocation targets and investment policy to ensure that it is consistent with our overall goals, strategies, and objectives;	
		
•	reviews and approves investment guidelines to ensure that appropriate levels of portfolio liquidity, credit quality, diversification, and volatility are maintained; and	
		
•	systematically reviews the portfolio's exposures including any potential violations of investment guidelines.	

We have long-standing global credit limits for our entire portfolio across the organization and for individual obligors. Exposures are aggregated, monitored, and actively managed by our Global Credit Committee, comprising senior executives, including our Chief Financial Officer, our Chief Risk Officer, our Chief Investment Officer, and our Treasurer.

Within the guidelines and asset allocation parameters established by the Risk & Finance Committee, individual investment committees of the segments determine tactical asset allocation. Additionally, these committees review all investment-related activity that affects their operating company, including the selection of outside investment advisors, proposed asset allocation changes, and the systematic review of investment guidelines.

For additional information regarding the investment portfolio, including breakdowns of the sector and maturity distributions, refer to Note 3 to the Consolidated Financial Statements, under Item 8.

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Regulation
Our insurance and reinsurance subsidiaries conduct business globally, including in all 50 states of the United States and the District of Columbia. Our businesses in each of these jurisdictions are subject to varying degrees of regulation and supervision. The laws and regulations of the jurisdictions in which our insurance and reinsurance subsidiaries are domiciled require among other things that these subsidiaries maintain minimum levels of statutory capital, surplus, and liquidity, meet solvency standards, and submit to periodic examinations of their financial condition. The complex regulatory environments in which ACE operates are subject to change and are regularly monitored.

Group Supervision
In September 2012, pursuant to recently enacted legislation passed in the state of Pennsylvania, U.S., based on the Model Insurance Holding Company System Regulatory Act (model law) adopted by the National Association of Insurance Commissioners (NAIC), the Pennsylvania Insurance Department (Department), in consultation with other insurance regulatory bodies that oversee ACE's insurance activities, convened the first ACE Group Supervisory College (College). Regulators from approximately 15 jurisdictions worldwide were invited to participate in the College, the purpose of which was to initiate establishment of, and to clarify the membership, participation, functionality, and ongoing activities in, the College with respect to group-wide supervision of ACE. Representatives from approximately ten jurisdictions attended the College in Philadelphia, Pennsylvania, during which the supervisors reviewed, without adverse comment, information on our group governance, risk assessment and management, capital adequacy, and material intercompany transactions. On October 19, 2012, the Department, in cooperation with the other supervisory college regulators, published a notice of its determination that it is the appropriate group-wide supervisor for ACE. In December 2013, the Department circulated an invitation to various regulators to participate in ACE’s next College to be held in Philadelphia, Pennsylvania in September 2014.

The following is an overview discussion of regulations for our operations in Switzerland, the U.S., Bermuda, and other international locations.

Swiss Operations
The Swiss Financial Market Supervisory Authority (FINMA), has the discretion to supervise ACE on a group-wide basis. However, FINMA issued a letter to us in January 2013 acknowledging the Department's assumption of group supervision over us.

In 2008, we formed ACE Insurance (Switzerland) Limited which offers property and casualty insurance to Swiss companies, A&H insurance to individuals as well as reinsurance predominantly in Continental Europe. We have also formed a reinsurance subsidiary named ACE Reinsurance (Switzerland) Limited, which we operate as primarily a provider of reinsurance to ACE entities. Both companies are licensed and governed by FINMA.

U.S. Operations
Our U.S. insurance subsidiaries are subject to extensive regulation and supervision by the states in which they do business. The laws of the various states establish departments of insurance with broad authority to regulate, among other things: the standards of solvency that must be met and maintained, the licensing of insurers and their producers, approval of policy forms and rates, the nature of and limitations on investments, restrictions on the size of the risks which may be insured under a single policy, deposits of securities for the benefit of policyholders, requirements for the acceptability of reinsurers, periodic examinations of the affairs of insurance companies, the form and content of reports of financial condition required to be filed, and the adequacy of reserves for unearned premiums, losses, and other purposes.

Our U.S. insurance subsidiaries are required to file detailed annual and quarterly reports with state insurance regulators. In addition, our U.S. insurance subsidiaries' operations and financial records are subject to examination at regular intervals by state regulators.
  
All states have enacted legislation that regulates insurance holding companies. This legislation provides that each insurance company in the system is required to register with the insurance department of its state of domicile and furnish information concerning the operations of companies within the holding company system that may materially affect the operations, management, or financial condition of the insurers within the system. All transactions within a holding company system must be fair and equitable. Notice to the insurance departments is required prior to the consummation of transactions affecting the ownership or control of an insurer and of certain material transactions between an insurer and an entity in its holding company system. In addition, certain transactions may not be consummated without the department's prior approval.

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Statutory surplus is an important measure used by the regulators and rating agencies to assess our U.S. insurance subsidiaries' ability to support business operations and provide dividend capacity. Our U.S. insurance subsidiaries are subject to various state statutory and regulatory restrictions that limit the amount of dividends that may be paid without prior approval from regulatory authorities. These restrictions differ by state, but are generally based on calculations incorporating statutory surplus, statutory net income, and/or investment income.

The NAIC has a risk-based capital requirement for P&C insurance companies. This risk-based capital formula is used by many state regulatory authorities to identify insurance companies that may be undercapitalized and which merit further regulatory attention. These requirements are designed to monitor capital adequacy using a formula that prescribes a series of risk measurements to determine a minimum capital amount for an insurance company, based on the profile of the individual company. The ratio of a company's actual policyholder surplus to its minimum capital requirement will determine whether any state regulatory action is required. There are progressive risk-based capital failure levels that trigger more stringent regulatory action. If an insurer's policyholders' surplus falls below the Mandatory Control Level (70 percent of the Authorized Control Level, as defined by the NAIC), the relevant insurance commissioner is required to place the insurer under regulatory control.

However, an insurance commissioner may allow a P&C company operating below the Mandatory Control Level that is writing no business and is running off its existing business to continue its run-off. Brandywine is running off its liabilities consistent with the terms of an order issued by the Insurance Commissioner of Pennsylvania. This includes periodic reporting obligations to the Department.

Government intervention has also occurred in the insurance and reinsurance markets in relation to terrorism coverage in the U.S. (and through industry initiatives in other countries). The U.S. Terrorism Risk Insurance Act (TRIA), which was enacted in 2002 to ensure the availability of insurance coverage for certain types of terrorist acts in the U.S., was extended in 2007 for seven years, through December 31, 2014, and applies to certain of our operations.

From time to time, ACE and its subsidiaries and affiliates receive inquiries from state agencies and attorneys general, with which we generally comply, seeking information concerning business practices, such as underwriting and non-traditional or loss mitigation insurance products. Moreover, many recent factors, such as consequences of and reactions to industry and economic conditions and focus on domestic issues, have contributed to the potential for change in the legal and regulatory framework applicable to ACE's U.S. operations and businesses. We cannot assure that changes in laws or investigative or enforcement activities in the various states in the U.S. will not have a material adverse impact on our financial condition, results of operations, or business practices.

Bermuda Operations
The Insurance Act 1978 of Bermuda and related regulations, as amended (the Insurance Act), regulates the insurance business of our Bermuda insurance subsidiaries and provides that no person may carry on any insurance business in or from within Bermuda unless registered as an insurer by the Bermuda Monetary Authority (BMA). The Insurance Act imposes solvency and liquidity standards and auditing and reporting requirements on Bermuda insurance companies and grants the BMA powers to supervise, investigate, and intervene in the affairs of insurance companies. Our Bermuda domiciled insurance subsidiaries must prepare annual statutory financial statements and file them with the BMA, and certain subsidiaries must file audited annual financial statements prepared in accordance with accounting principles generally accepted in the U.S. (GAAP), International Financial Reporting Standards (IFRS), or any such other generally accepted accounting principles as the BMA may recognize. These audited financials are made public by the BMA. The Insurance Act prescribes rules for the preparation and content of the statutory financial statements that requires ACE subsidiaries to give detailed information and analyses regarding premiums, claims, reinsurance, and investments.

In 2008, the BMA issued the Insurance Amendment Act 2008 that established new risk-based regulatory capital adequacy and solvency margin requirements for Bermuda insurers. Under the new regulatory framework, the BMA has promulgated the Insurance Order 2008 which, among other things, mandates that a Class 4 insurer's Enhanced Capital Requirement (ECR) be calculated by either (a) the BMA model, or (b) an internal capital model which the BMA has approved for use for this purpose. ACE's Bermuda Class 4 insurance subsidiaries use the BMA model in calculating their solvency requirements. In 2011, the BMA issued the Insurance Amendment Rules 2011 and the Insurance Rules 2011. The Insurance Amendment Rules 2011 amend the Order for Class 4 companies issued in 2008 and the Insurance Rules 2011 require that as of December 31, 2011, Class E (long-term business) companies and Class 3A (general business) companies follow similar rules as those set out above for Class 4 companies.

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The risk-based regulatory capital adequacy and solvency margin regime provides a risk-based capital model, termed the Bermuda Solvency Capital Requirement (BSCR), as a tool to assist the BMA both in measuring risk and in determining appropriate levels of capitalization. The BSCR employs a standard mathematical model that correlates the risk underwritten by Bermuda insurers to their capital. The BSCR framework applies a standard measurement format to the risk associated with an insurer's assets, liabilities, and premiums, including a formula to take account of catastrophe risk exposure. In order to minimize the risk of a shortfall in capital arising from an unexpected adverse deviation and in moving towards the implementation of a risk based capital approach, the BMA has established a threshold capital level, (termed the Target Capital Level (TCL)), set at 120 percent of ECR, that serves as an early warning tool for the BMA and failure to maintain statutory capital at least equal to the TCL will likely result in increased BMA regulatory oversight.

Under the Insurance Act, Class 4 insurers are prohibited from declaring or paying any dividends of more than 25 percent of total statutory capital and surplus, as shown in its previous financial year statutory balance sheet, unless at least seven days before payment of the dividends, it files with the BMA an affidavit that it will continue to meet its required solvency margins. In addition, Class 4, 3A, and E insurers must obtain the BMA's prior approval before reducing total statutory capital, as shown in its previous financial year statutory balance sheet, by 15 percent or more. Furthermore, under the Companies Act, the Bermuda insurance subsidiaries may only declare and pay a dividend from retained earnings, and a dividend or distribution from contributed surplus if it has no reasonable grounds for believing that it is, or would after the payment be, unable to pay its liabilities as they become due, or if the realizable value of its assets would not be less than the aggregate of its liabilities and its issued share capital and share premium accounts.

Other International Operations
The extent of insurance regulation varies significantly among the countries in which the non-U.S. ACE operations conduct business. While each country imposes licensing, solvency, auditing, and financial reporting requirements, the type and extent of the requirements differ substantially. For example:
		
•	in some countries, insurers are required to prepare and file quarterly financial reports, and in others, only annual reports;	
		
•	some regulators require intermediaries to be involved in the sale of insurance products, whereas other regulators permit direct sales contact between the insurer and the customer;	
		
•	the extent of restrictions imposed upon an insurer's use of local and offshore reinsurance vary;	
		
•	policy form filing and rate regulation vary by country;	
		
•	the frequency of contact and periodic on-site examinations by insurance authorities differ by country; and	
		
•	regulatory requirements relating to insurer dividend policies vary by country.	

Significant variations can also be found in the size, structure, and resources of the local regulatory departments that oversee insurance activities. Certain regulators prefer close relationships with all subject insurers and others operate a risk-based approach.

ACE operates in some countries through subsidiaries and in some countries through branches of subsidiaries. Local capital requirements applicable to a subsidiary generally include its branches. Certain ACE companies are jointly owned with local companies to comply with legal requirements for local ownership. Other legal requirements include discretionary licensing procedures, compulsory cessions of reinsurance, local retention of funds and records, data privacy and protection program requirements, and foreign exchange controls. ACE's international companies are also subject to multinational application of certain U.S. laws.

There are various regulatory bodies and initiatives that impact ACE in multiple international jurisdictions and the potential for significant impact on ACE could be heightened as a result of recent industry and economic developments. In particular, the European Union's (EU) executive body, the European Commission, is implementing new capital adequacy and risk management regulations for the European insurance industry, known as Solvency II, which aims to establish a revised set of EU-wide capital requirements and risk management standards that will replace the current Solvency I requirements. The Solvency II requirements are expected to be effective January 1, 2016.

Under Solvency II, it is possible that a U.S. domiciled parent company of a subsidiary domiciled in the EU could be subject to certain requirements if determined by the regulator that its subsidiary's capital position is dependent on the U.S. parent company that is not subject to requirements deemed to be ''equivalent'' to Solvency II. While it is not certain how or if these

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actions will impact ACE, we do not currently expect that our capital management strategies, results of operations, and financial condition will be materially affected by the Solvency II requirements.
____________________________________________________________________________________________________________
Enterprise Risk Management
As an insurer, ACE is in the business of profitably managing risk for its customers. Since risk management must permeate an organization conducting a global insurance business, we have an established Enterprise Risk Management (ERM) framework that is integrated into management of our businesses and is led by ACE's senior management. As a result, ERM is a part of the day-to-day management of ACE and its operations.
Our global ERM framework is broadly multi-disciplinary and its objectives include:

•	External Risks : identify, analyze, quantify, and where possible, mitigate significant external risks that could hamper achievement of corporate business objectives;	
		
•	Exposure Accumulations : identify and quantify the accumulation of exposure to individual counterparties, products or industry sectors, particularly those that extend across or correlate between business units or divisions;	
		
•	Risk Modeling : develop and use various analytical tools, metrics and processes (including economic capital) that enable the application of a consistent set of risk/return decisions globally;	
		
•	Governance : establish and coordinate risk guidelines that reflect the corporate appetite for risk, monitor exposure accumulations relative to established guidelines, and ensure effective internal risk management communication up to management and the Board, down to the various business units and legal entities, and across the firm; and	
		
•	Disclosure : develop protocols and processes for risk-related disclosure internally as well as externally to rating agencies, regulators, shareholders and analysts.	

ACE's Enterprise Risk Management Board (ERMB) reports to and assists the Chief Executive Officer in the oversight and review of the ERM framework which covers the processes and guidelines used to manage insurance risk, financial risk, strategic risk, and operational risk. The ERMB is chaired by ACE's Chief Risk Officer and Chief Actuary. The ERMB meets at least monthly, and is comprised of ACE's most senior executives, in addition to the Chair, including the Chief Executive Officer, Chief Financial Officer, Chief Investment Officer, Chief Claims Officer, General Counsel, Chairman for Insurance – North America, Chairman for ACE Overseas General, and our Chairman for Global Reinsurance.

Various sources, including the Enterprise Risk Unit (ERU) and Product Boards, provide support to the ERMB. The ERU is responsible for the collation and analysis of two types of information. First, external information that provides insight to the ERMB on risks that might significantly impact ACE's key objectives and second, internal risk aggregations from its business writings and other activities such as investments. The ERU is independent of the operating units and reports to our Chief Risk Officer and Chief Actuary. The Product Boards exist to provide oversight for products that we offer globally. A Product Board currently exists for each of the following products; property/energy, marine, casualty, professional lines, aviation, employer liability, environmental, medical, surety and political risk. Each Product Board is responsible for ensuring consistency in underwriting and pricing standards, identification of emerging issues, and guidelines for relevant accumulations.

ACE's Chief Risk Officer and Chief Actuary also reports to the Board's Risk & Finance Committee, which helps execute the Board's supervisory responsibilities pertaining to ERM. The role of the Risk & Finance Committee includes evaluation of the integrity and effectiveness of our ERM procedures, systems, and information; governance on major policy decisions pertaining to risk aggregation and minimization; and assessment of our major decisions and preparedness levels pertaining to perceived material risks. The Audit Committee meets annually and on an as needed basis with the Risk & Finance Committee in order to exercise its duties under New York Stock Exchange Rules.
Others within the ERM structure contribute toward accomplishing ACE's ERM objectives, including regional management, Internal Audit, Compliance, external consultants, and managers of our internal control processes and procedures.
____________________________________________________________________________________________________________
Tax Matters

Refer to “Risk Factors”, under Item 1A and Note 1 n ) and Note 8 to the Consolidated Financial Statements.

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EXECUTIVE OFFICERS OF THE REGISTRANT

			
Name	Age	Position	
Evan G. Greenberg	59	Chairman, President, Chief Executive Officer, and Director	
John W. Keogh	49	Vice Chairman, Chief Operating Officer; Chairman, ACE Overseas General	
Philip V. Bancroft	54	Chief Financial Officer	
John J. Lupica	48	Vice Chairman; Chairman, Insurance – North America	
Joseph F. Wayland	56	General Counsel and Secretary	
Sean Ringsted	50	Chief Risk Officer and Chief Actuary	
Timothy A. Boroughs	64	Chief Investment Officer	

Evan G. Greenberg has been a director of ACE Limited since August 2002. Mr. Greenberg was elected Chairman of the Board of Directors in May 2007. Mr. Greenberg became a director of The Coca-Cola Company in February 2011. Mr. Greenberg was appointed to the position of President and Chief Executive Officer of ACE Limited in May 2004, and in June 2003, was appointed President and Chief Operating Officer of ACE Limited. Mr. Greenberg was appointed to the position of Chief Executive Officer of ACE Overseas General in April 2002. He joined ACE as Vice Chairman, ACE Limited, and Chief Executive Officer of ACE Tempest Re in November 2001. Prior to joining ACE, Mr. Greenberg was most recently President and Chief Operating Officer of American International Group (AIG), a position he held from 1997 until 2000.

John W. Keogh was appointed Chief Operating Officer of ACE Limited in July 2011 and Vice Chairman of ACE Limited and ACE Group Holdings in August 2010. Mr. Keogh joined ACE as Chief Executive Officer of ACE Overseas General in April 2006 and became Chairman of ACE Overseas General in August 2010. Prior to joining ACE, Mr. Keogh served as Senior Vice President, Domestic General Insurance of AIG, and President and Chief Executive Officer of National Union Fire Insurance Company, AIG's member company that specializes in D&O and fiduciary liability coverages. Mr. Keogh joined AIG in 1986. He served in a number of other senior positions there including as Executive Vice President of AIG's Domestic Brokerage Group and as President and Chief Operating Officer of AIG's Lexington Insurance Company unit.  

Philip V. Bancroft was appointed Chief Financial Officer of ACE Limited in January 2002. For nearly 20 years, Mr. Bancroft worked for PricewaterhouseCoopers LLP. Prior to joining ACE, he served as partner-in-charge of the New York Regional Insurance Practice. Mr. Bancroft had been a partner with PricewaterhouseCoopers LLP for ten years.

John J. Lupica was appointed Vice Chairman of ACE Limited and ACE Group Holdings in November 2013 and Chairman, Insurance – North America, in July 2011. Mr. Lupica had been Chief Operating Officer, Insurance – North America, since 2010 and President of ACE USA since 2006. He also previously served as Division President of ACE Professional Risk and ACE USA Regional Operations. Mr. Lupica joined ACE USA as Executive Vice President of Professional Risk in 2000. Prior to joining ACE, he served as Senior Vice President for Munich-American Risk Partners, Inc. He also held various management positions at AIG.

Joseph F. Wayland was appointed General Counsel and Secretary of ACE Limited in July 2013.  Mr. Wayland joined ACE from the law firm of Simpson Thacher & Bartlett LLP, where he was a partner since 1994. From 2010 to 2012, he served in the United States Department of Justice, first as Deputy Assistant Attorney General of the Antitrust Division, and was later appointed as the Acting Assistant Attorney General in charge of that division.

Sean Ringsted was appointed Chief Risk Officer and Chief Actuary of ACE Limited in November 2008. Mr. Ringsted’s previous roles at ACE include Chief Actuary for ACE Group from 2004 to 2008, Executive Vice President and Chief Risk Officer for ACE Tempest Re from 2002 to 2004, and Senior Vice President and Chief Actuary for ACE Tempest Re from 1998 to 2002. Prior to joining ACE, Mr. Ringsted was a consultant at Tillinghast-Towers Perrin.

Timothy A. Boroughs was appointed Chief Investment Officer of ACE Group in June 2000. Prior to joining ACE, Mr. Boroughs was Director of Fixed Income at Tudor Investment Corporation from 1997 to 2000, and Managing Partner and Director of Global Leveraged Investment Activity at Fischer Francis Trees & Watts from 1976 to 1997.

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ITEM 1A. Risk Factors

Factors that could have a material impact on our results of operations or financial condition are outlined below. Additional risks not presently known to us or that we currently deem insignificant may also impair our business or results of operations as they become known facts or as facts and circumstances change. Any of the risks described below could result in a significant or material adverse effect on our results of operations or financial condition.

Business

Our results of operations or financial condition could be adversely affected by the occurrence of natural and man-made disasters.
We have substantial exposure to losses resulting from natural disasters, man-made catastrophes, and other catastrophic events. This could impact a variety of our businesses, including both commercial and personal lines products. Catastrophes can be caused by various events, including hurricanes, typhoons, earthquakes, hailstorms, drought, explosions, severe winter weather, fires, war, acts of terrorism, nuclear accidents, political instability, and other natural or man-made disasters, including a global or other wide-impact pandemic or a significant cyber breach. The incidence and severity of catastrophes are inherently unpredictable and our losses from catastrophes could be substantial. In addition, climate conditions may be changing, primarily through changes in global temperatures, which may increase the frequency and severity of natural catastrophes and the resulting losses in the future. We cannot predict the impact that changing climate conditions, if any, may have on our results of operations or our financial condition. Additionally, we cannot predict how legal, regulatory and/or social responses to concerns around global climate change may impact our business. The occurrence of claims from catastrophic events could result in substantial volatility in our results of operations or financial condition for any fiscal quarter or year. Increases in the values and concentrations of insured property may also increase the severity of these occurrences in the future. Although we attempt to manage our exposure to such events through the use of underwriting controls and the purchase of third-party reinsurance, catastrophic events are inherently unpredictable and the actual nature of such events when they occur could be more frequent or severe than contemplated in our pricing and risk management expectations. As a result, the occurrence of one or more catastrophic events could have an adverse effect on our results of operations or financial condition.

If actual claims exceed our loss reserves, our financial results could be adversely affected.
Our results of operations and financial condition depend upon our ability to accurately assess the potential losses associated with the risks that we insure and reinsure. We establish reserves for unpaid losses and loss expenses, which are estimates of future payments of reported and unreported claims for losses and related expenses, with respect to insured events that have occurred at or prior to the date of the balance sheet. The process of establishing reserves can be highly complex and is subject to considerable variability as it requires the use of informed estimates and judgments.

We have actuarial staff in each of our segments who analyze insurance reserves and regularly evaluate the levels of loss reserves. Any such evaluations could result in future changes in estimates of losses or reinsurance recoverables and would be reflected in our results of operations in the period in which the estimates are changed. Losses and loss expenses are charged to income as incurred. During the loss settlement period, which can be many years in duration for some of our lines of business, additional facts regarding individual claims and trends often will become known which may result in a change in overall reserves. In addition, application of statistical and actuarial methods may require the adjustment of overall reserves upward or downward from time to time.

Included in our liabilities for losses and loss expenses are liabilities for latent claims such as A&E. At December 31, 2013 , these A&E liabilities represented approximately 4.9 percent of our liabilities for losses and loss expenses. These claims are principally related to claims arising from remediation costs associated with hazardous waste sites and bodily-injury claims related to exposure to asbestos products and environmental hazards. The estimation of these liabilities is subject to many complex variables including: the current legal environment; specific settlements that may be used as precedents to settle future claims; assumptions regarding trends with respect to claim severity and the frequency of higher severity claims; assumptions regarding the ability to allocate liability among defendants (including bankruptcy trusts) and other insurers; the ability of a claimant to bring a claim in a state in which they have no residency or exposure; the ability of a policyholder to claim the right to non-products coverage; whether high-level excess policies have the potential to be accessed given the policyholder's claim trends and liability situation; payments to unimpaired claimants; and, the potential liability of peripheral defendants.

Accordingly, the ultimate settlement of losses, arising from either latent or non-latent causes (e.g., greater than anticipated inflation), may be significantly greater or less than the loss and loss expense reserves held at the date of the balance sheet.

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If our loss reserves are determined to be inadequate, we may be required to increase loss reserves at the time of the determination and our net income and/or capital could be reduced.

The effects of emerging claim and coverage issues on our business are uncertain.
As industry practices and legislative, regulatory, judicial, social, financial, technology and other environmental conditions change, unexpected and unintended issues related to claims and coverage may emerge. These issues may adversely affect our business by either extending coverage beyond our underwriting intent or by increasing the frequency and severity of claims. In some instances, these changes may not become apparent until some time after we have issued insurance or reinsurance contracts that are affected by the changes. As a result, the full extent of liability under our insurance or reinsurance contracts may not be known for many years after a contract is issued.

The failure of any of the loss limitation methods we employ could have an adverse effect on our results of operations or financial condition.
We seek to manage our loss exposure by maintaining a disciplined underwriting process throughout our insurance operations. We also look to limit our loss exposure by writing a number of our insurance and reinsurance contracts on an excess of loss basis. Excess of loss insurance and reinsurance indemnifies the insured against losses in excess of a specified amount. In addition, we limit program size for each client and purchase third-party reinsurance for our own account. In the case of our assumed proportional reinsurance treaties, we seek per occurrence limitations or loss and loss expense ratio caps to limit the impact of losses ceded by the client. In proportional reinsurance, the reinsurer shares a proportional part of the premiums and losses of the reinsured. We also seek to limit our loss exposure by geographic diversification. Geographic zone limitations involve significant underwriting judgments, including the determination of the area of the zones and the inclusion of a particular policy within a particular zone's limits. Various provisions of our policies, such as limitations or exclusions from coverage or choice of forum negotiated to limit our risks, may not be enforceable in the manner we intend. As a result, one or more catastrophic or other events could result in claims that substantially exceed our expectations, which could have an adverse effect on our results of operations or financial condition.

We may be unable to purchase reinsurance, and if we successfully purchase reinsurance, we are subject to the possibility of non-payment.
We purchase reinsurance to protect against catastrophes, to increase the amount of protection we can provide our clients, and as part of our overall risk management strategy.   Our reinsurance business also purchases some retrocessional protection which allows a reinsurer to cede to another company all or part of the reinsurance originally assumed by the reinsurer. A reinsurer's or retrocessionaire's insolvency or inability or unwillingness to make timely payments under the terms of its reinsurance agreement with us could have an adverse effect on us because we remain liable to the insured. From time to time, market conditions have limited, and in some cases have prevented, insurers and reinsurers from obtaining the types and amounts of reinsurance or retrocessional reinsurance that they consider adequate for their business needs.

There is no guarantee our desired amounts of reinsurance or retrocessional reinsurance will be available in the marketplace in the future. In addition to capacity risk, the remaining capacity may not be on terms we deem appropriate or acceptable or with companies with whom we want to do business.  Finally, we face some degree of counterparty risk whenever we purchase reinsurance or retrocessional reinsurance. Consequently, the insolvency, inability, or unwillingness of any of our present or future reinsurers to make timely payments to us under the terms of our reinsurance or retrocessional agreements could have an adverse effect on us. At December 31, 2013 , we had $11.2 billion of reinsurance recoverables, net of reserves for uncollectible recoverables.

Certain of our subsidiaries are liable for A&E and other exposures they have reinsured to our inactive run-off company Century Indemnity Company (Century). At December 31, 2013 , the aggregate reinsurance balances ceded by our active subsidiaries to Century were approximately $929 million . Should Century's loss reserves experience adverse development in the future and should Century be placed into rehabilitation or liquidation, the reinsurance recoverables due from Century to its affiliates would be payable only after the payment in full of certain expenses and liabilities, including administrative expenses and direct policy liabilities. Thus, the intercompany reinsurance recoverables would be at risk to the extent of the shortage of assets remaining to pay these recoverables. While we believe the intercompany reinsurance recoverables from Century are not impaired at this time, we cannot assure that adverse development with respect to Century's loss reserves, if manifested, will not result in Century's insolvency, which could result in our recognizing a loss to the extent of any uncollectible reinsurance from Century. This could have an adverse effect on our results of operations or financial condition.

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Our net income may be volatile because certain products sold by our Life business expose us to reserve and fair value liability changes that are directly affected by market and other factors and assumptions.
Our pricing, establishment of reserves for future policy benefits and valuation of life insurance and annuity products, including reinsurance programs, are based upon various assumptions, including but not limited to market changes, mortality rates, morbidity rates, and policyholder behavior.  The process of establishing reserves for future policy benefits relies on our ability to accurately estimate insured events that have not yet occurred but that are expected to occur in future periods.  Significant deviations in actual experience from assumptions used for pricing and for reserves for future policy benefits could have an adverse effect on the profitability of our products and our business.

Under reinsurance programs covering variable annuity guarantees, we assumed the risk of guaranteed minimum death benefits (GMDB) and guaranteed living benefits (GLB) associated with variable annuity contracts. We ceased writing this business in 2007. Our net income is directly impacted by changes in the reserves calculated in connection with the reinsurance of GMDB and GLB liabilities. In addition, our net income is directly impacted by the change in the fair value of the GLB liability. Reported liabilities for both GMDB and GLB reinsurance are determined using internal valuation models which require considerable judgment and are subject to significant uncertainty. Refer to the “Critical Accounting Estimates – Guaranteed living benefits (GLB) derivatives”, under Item 7 and “Quantitative and Qualitative Disclosures about Market Risk – Reinsurance of GLB and GMDB guarantees”, under Item 7A for additional information on the assumptions used in this program. We view our variable annuity reinsurance business as having a similar risk profile to that of catastrophe reinsurance, with the probability of long-term economic loss relatively small at the time of pricing. Adverse changes in market factors and policyholder behavior will have an impact on both life underwriting income and net income.

A failure in our operational systems or infrastructure or those of third parties could disrupt business, damage our reputation, and cause losses.
Our operations rely on the secure processing, storage, and transmission of confidential and other information, including in our computer systems and networks. Our business depends on effective information security and systems and the integrity and timeliness of the data our information systems use to run our business. Our ability to adequately price products and services, to establish reserves, to provide effective, efficient and secure service to our customers, to value our investments and to timely and accurately report our financial results also depends significantly on the integrity of the data we maintain, including that within our information systems, as well as data in third-party service provider systems. Although we have implemented administrative and technical controls and take protective actions to reduce the risk of cyber incidents and protect our information technology, and we endeavor to modify such procedures as circumstances warrant, such measures may be insufficient to prevent unauthorized access, computer viruses, malware or other malicious code or cyber-attack, catastrophic events, system failures and disruptions and other events that could have security consequences (each, a Security Event). Like other global companies, we have from time to time experienced Security Events, none of which had a material adverse impact on our business, results of operations or financial condition. If additional Security Events occur, these events may jeopardize ACE's or its clients' or counterparties' confidential and other information processed and stored within ACE, and transmitted through its computer systems and networks, or otherwise cause interruptions or malfunctions in ACE's, its clients', its counterparties', or third parties' operations, or result in data loss which could result in significant losses or reputational damage. ACE may be required to expend significant additional resources to modify our protective measures or to investigate and remediate vulnerabilities or other exposures, and we may be subject to litigation and financial losses that are either not insured against or not fully covered by insurance maintained.

Despite the contingency plans and facilities we have in place, our ability to conduct business may be adversely affected by a disruption of the infrastructure that supports our business in the communities in which we are located, or of outsourced services or functions. This may include a disruption involving electrical, communications, transportation, or other services used by ACE. If a disruption occurs in one location and ACE employees in that location are unable to occupy our offices and conduct business or communicate with or travel to other locations, our ability to service and interact with clients may suffer and we may not be able to successfully implement contingency plans that depend on communication or travel.

Our exposure to counterparties in various industries, our reliance on brokers, and certain of our policies may subject us to credit risk.
We have exposure to counterparties through reinsurance and in various industries, including banks, hedge funds and other investment vehicles, and derivative transactions that expose us to credit risk in the event our counterparty fails to perform its obligations. We also have exposure to financial institutions in the form of secured and unsecured debt instruments and equity securities.

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In accordance with industry practice, we generally pay amounts owed on claims to brokers who, in turn, remit these amounts to the insured or ceding insurer. Although the law is unsettled and depends upon the facts and circumstances of the particular case, in some jurisdictions, if a broker fails to make such a payment, we might remain liable to the insured or ceding insurer for the deficiency. Conversely, in certain jurisdictions, if the brokers do not remit premiums paid for these policies over to us, these premiums might be considered to have been paid and the insured or ceding insurer will no longer be liable to us for those amounts, whether or not we have actually received the premiums from the broker. Consequently, we assume a degree of credit risk associated with brokers with whom we transact business. However, due to the unsettled and fact-specific nature of the law, we are unable to quantify our exposure to this risk. To date, we have not experienced any material losses related to these credit risks.

Under the terms of certain high-deductible policies which we offer, such as workers’ compensation and general liability, our customers are responsible to reimburse us for an agreed-upon dollar amount per claim. In nearly all cases we are required under such policies to pay covered claims first, and then seek reimbursement for amounts within the applicable deductible from our customers. This obligation subjects us to credit risk from these customers. While we generally seek to mitigate this risk through collateral agreements and maintain a provision for uncollectible accounts associated with this credit exposure, an increased inability of customers to reimburse us in this context could have an adverse effect on our financial condition and results of operations. In addition, a lack of credit available to our customers could impact our ability to collateralize this risk to our satisfaction, which in turn, could reduce the amount of high-deductible policies we could offer.

The integration of acquired companies may not be as successful as we anticipate.
Acquisitions involve numerous risks, including operational, strategic, financial, accounting, legal and tax risks such as potential liabilities associated with the acquired business. Difficulties in integrating an acquired company may result in the acquired company performing differently than we expected or in our failure to realize anticipated expense-related efficiencies. Our existing businesses could also be negatively impacted by acquisitions. In addition, goodwill and intangible assets recorded in connection with insurance company acquisitions may be impaired if premium growth, underwriting profitability, agency retention and policy persistency, among other factors, differ from expectations.

There is also the potential that proposed acquisitions that have been publicly announced will not be consummated, even if a definitive agreement has been signed by the parties. If an agreement is terminated before closing, the result would be that our proposed acquisition would not occur, which could, among other things, expose us to damages or liability and adversely impact our stock price and future operations. 

We use analytical models to assist our decision making in key areas such as underwriting, claims, reserving, and catastrophe risks but actual results could differ materially from the model outputs and related analyses.
We employ various modeling techniques (e.g., scenarios, predictive, stochastic and/or forecasting) and data analytics to analyze and estimate exposures, loss trends and other risks associated with our assets and liabilities. We use the modeled outputs and related analyses to assist us in decision-making (e.g., underwriting, pricing, claims, reserving, reinsurance, and catastrophe risk) and to maintain competitive advantage. The modeled outputs and related analyses are subject to various assumptions, uncertainties, model errors and the inherent limitations of any statistical analysis, including the use of historical internal and industry data. Consequently, actual results may differ materially from our modeled results. If, based upon these models or other factors, we misprice our products or underestimate the frequency and/or severity of loss events, or overestimate the risks we are exposed to, new business growth and retention of our existing business may be adversely affected which could have a material adverse effect on our results of operations or financial condition.

U.S. and global economic and financial industry events and their consequences could harm our business, our liquidity and financial condition, and our stock price.
The consequences of adverse global market and economic conditions may affect (among other aspects of our business) the demand for and claims made under our products, the ability of customers, counterparties, and others to establish or maintain their relationships with us, our ability to access and efficiently use internal and external capital resources, the availability of reinsurance protection, the risks we assume under reinsurance programs covering variable annuity guarantees, and our investment performance. Volatility in the U.S. and other securities markets may adversely affect our stock price.

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Financial Strength and Debt Ratings

A decline in our financial strength ratings could affect our standing among brokers and customers and cause our premiums and earnings to decrease. A decline in our debt ratings could increase our borrowing costs and impact our ability to access capital markets.    
Ratings are an important factor in establishing the competitive position of insurance and reinsurance companies. The objective of these rating systems is to provide an opinion of an insurer's financial strength and ability to meet ongoing obligations to its policyholders. A ratings downgrade could result in a substantial loss of business as insureds, ceding companies, and brokers move to other insurers and reinsurers with higher ratings. If one or more of our debt ratings were downgraded, we could also incur higher borrowing costs, and our ability to access the capital markets could be impacted. Additionally, we could be required to post collateral or be faced with the cancellation of policies and resulting premium in certain circumstances. We cannot give any assurance regarding whether or to what extent any of the rating agencies may downgrade our ratings in the future.

Loss of Key Executives

We could be adversely affected by the loss of one or more key executives or by an inability to attract and retain qualified personnel.
Our success depends on our ability to retain the services of our existing key executives and to attract and retain additional qualified personnel in the future. The loss of the services of any of our key executives or the inability to hire and retain other highly qualified personnel in the future could adversely affect our ability to conduct or grow our business. This risk may be particularly acute for us relative to some of our competitors because some of our senior executives work in countries where they are not citizens and work permit and immigration issues could adversely affect the ability to retain or hire key persons. We do not maintain key person life insurance policies with respect to our employees.

Loss of Business Provided by Brokers

Since we depend on a few brokers for a large portion of our revenues, loss of business provided by any one of them could adversely affect us.
We market our insurance and reinsurance worldwide primarily through insurance and reinsurance brokers. Marsh, Inc. and its affiliates provided approximately 11 percent of our gross premiums written in 2013 . Loss of all or a substantial portion of the business provided by one or more of these brokers could have an adverse effect on our business.

Liquidity and Investments

Our investment performance may affect our financial results and ability to conduct business.
Our investment assets are invested by professional investment management firms under the direction of our management team in accordance with investment guidelines approved by the Risk & Finance Committee of the Board of Directors. Although our investment guidelines stress diversification of risks and conservation of principal and liquidity, our investments are subject to market risks and risks inherent in individual securities. Interest rates are highly sensitive to many factors, including inflation, monetary and fiscal policies, and domestic and international political conditions. The volatility of our losses may force us to liquidate securities, which may cause us to incur capital losses. Realized and unrealized losses in our investment portfolio would generally reduce our book value, and if significant, can affect our ability to conduct business.

Volatility in interest rates could impact the performance of our investment portfolio which could have an adverse effect on our investment income and operating results. Although we take measures to manage the risks of investing in a changing interest rate environment, we may not be able to effectively mitigate interest rate sensitivity. Our mitigation efforts include maintaining a high quality portfolio of primarily fixed income investments with a relatively short duration to reduce the effect of interest rate changes on book value. A significant increase in interest rates would generally have an adverse effect on our book value. Our life insurance investments typically focus on longer duration bonds to better match the obligations of this business.  For the life business, policyholder behavior may be influenced by changing interest rate conditions and require a rebalancing of duration to effectively manage our asset/liability position.

Our fixed income portfolio is primarily invested in high quality, investment-grade securities. A smaller portion of the portfolio, approximately 16 percent at December 31, 2013 , is invested in below investment-grade securities. These securities, which pay a higher rate of interest, also have a higher degree of credit or default risk and may also be less liquid in times of economic

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weakness or market disruptions. While we have put in place procedures to monitor the credit risk and liquidity of our invested assets, it is possible that, in periods of economic weakness (such as recession), we may experience credit or default losses in our portfolio, which could adversely affect our results of operations and financial condition.

As a part of our ongoing analysis of our investment portfolio, we are required to assess whether the debt and equity securities we hold for which we have recorded an unrealized loss have been “other-than-temporarily impaired” under GAAP, which implies an inability to recover the full economic benefits of these securities. Refer to Note 3 to the Consolidated Financial Statements for additional information. This analysis requires a high degree of judgment and requires us to make certain assessments about the potential for recovery of the assets we hold. Declines in relevant stock and other financial markets, and other factors impacting the value of our investments, could result in impairments and could adversely affect our net income and other financial results.

We may require additional capital or financing sources in the future, which may not be available or may be available only on unfavorable terms.
Our future capital and financing requirements depend on many factors, including our ability to write new business successfully and to establish premium rates and reserves at levels sufficient to cover losses, as well as our investment performance. We may need to raise additional funds through financings or access funds through existing or new credit facilities or through short-term repurchase agreements. We also from time to time seek to refinance debt or credit as amounts become due or commitments expire. Any equity or debt financing or refinancing, if available at all, may be on terms that are not favorable to us. In the case of equity financings, dilution to our shareholders could result, and in any case, such securities may have rights, preferences, and privileges that are senior to those of our Common Shares.  Our access to funds under existing credit facilities is dependent on the ability of the banks that are parties to the facilities to meet their funding commitments. If we cannot obtain adequate capital or sources of credit on favorable terms, or at all, we could be forced to use assets otherwise available for our business operations, and our business, results of operations, and financial condition could be adversely affected.

We may be required to post additional collateral because of changes in our reinsurance liabilities to regulated insurance companies, or because of regulatory changes that affect our companies.
If our reinsurance liabilities increase, we may be required to post additional collateral for insurance company clients.  In addition, regulatory changes sometimes affect our obligations to post collateral.  The need to post this additional collateral, if significant enough, may require us to sell investments at a loss in order to provide securities of suitable credit quality or otherwise secure adequate capital at an unattractive cost.  This could adversely impact our net income and liquidity and capital resources.

Exchange Rates

Our operating results and shareholders' equity may be adversely affected by currency fluctuations.
Our reporting currency is the U.S. dollar. In general, we match assets and liabilities in local currencies. Where possible, capital levels in local currencies are limited to satisfy minimum regulatory requirements and to support local insurance operations. The principal currencies creating foreign exchange risk are the British pound sterling, the euro, the yen, the Mexican peso, the Canadian dollar, and the Australian dollar. At December 31, 2013 , approximately 24.1 percent of our net assets were denominated in foreign currencies. We may experience losses resulting from fluctuations in the values of non-U.S. currencies, which could adversely impact our results of operations and financial condition.

Regulatory and Other Governmental Developments

The regulatory and political regimes under which we operate, and their volatility, could have an adverse effect on our business.
Our insurance and reinsurance subsidiaries conduct business globally. Our businesses in each jurisdiction are subject to varying degrees of regulation and supervision. The laws and regulations of the jurisdictions in which our insurance and reinsurance subsidiaries are domiciled require, among other things, maintenance of minimum levels of statutory capital, surplus, and liquidity; various solvency standards; and periodic examinations of subsidiaries' financial condition. In some jurisdictions, laws and regulations also restrict payments of dividends and reductions of capital. Applicable statutes, regulations, and policies may also restrict the ability of these subsidiaries to write insurance and reinsurance policies, to make certain investments, and to distribute funds. The purpose of insurance laws and regulations generally is to protect policyholders and ceding insurance companies, not our shareholders. For example, some jurisdictions have enacted various consumer protection laws that make it more burdensome for insurance companies to sell policies and interact with customers in personal lines businesses. Failure to

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comply with such regulations can lead to significant penalties and reputational injury. Also, governmental support of individual competitors can lead to increased pricing pressure and a distortion of market dynamics.

The insurance industry is affected by political, judicial, and legal developments that may create new and expanded regulations and theories of liability. The current economic climate and the recent financial crisis present additional uncertainties and risks relating to increased regulation and the potential for increased involvement of the U.S. and other governments in the financial services industry.

In addition, various legislative initiatives may impact the conduct of our business. For example, in the U.S., Congress may make changes in, or fail to renew the terrorism risk insurance program, which could have adverse effects on our business.

Regulators in countries where we have operations are working with the International Association of Insurance Supervisors (IAIS) to consider changes to insurance company supervision, including with respect to group supervision and solvency requirements. The IAIS is developing a common framework to supervise internationally active insurance groups, known as Com Frame. As part of Com Frame, the IAIS has announced plans to develop an international capital standard for insurance groups. The details of Com Frame including this global capital standard and its applicability to ACE is uncertain at this time. In addition, the European Union (EU) is implementing a new capital and risk management regime known as Solvency II that would apply to our businesses across the EU, effective January 1, 2016. ACE businesses are also subject to the requirements of the Swiss Financial Market Supervisory Authority (FINMA) whose regulations include Swiss Solvency Tests. There are also Risk Based Capital Requirements in the U.S. which are also subject to revision in response to global developments. While it is not certain how or if these actions will impact ACE, we do not currently expect that our capital management strategies, results of operations and financial condition will be materially affected by these regulatory changes.

In the event or absence of changes in applicable laws and regulations in particular jurisdictions, we may from time to time face challenges, or changes in approach to oversight of our business from insurance or other regulators, including challenges resulting from requiring the use of information technology that cannot be quickly adjusted to address new regulatory requirements.

We may not be able to comply fully with, or obtain appropriate exemptions from, applicable statutes and regulations and any changes thereto, which could have an adverse effect on our business. Failure to comply with or to obtain appropriate authorizations and/or exemptions under any applicable laws and regulations could result in restrictions on our ability to do business or undertake activities that are regulated in one or more of the jurisdictions in which we conduct business and could subject us to fines and other sanctions.

Our operations in developing nations expose us to political developments that could have an adverse effect on our business, liquidity, results of operations, and financial condition.
Our international operations include operations in various developing nations. Both current and future foreign operations could be adversely affected by unfavorable political developments including law changes, tax changes, regulatory restrictions, government leadership changes and nationalization of our operations without compensation. Adverse actions in any one country could have an adverse effect on our business, liquidity, results of operations, and financial condition depending on the magnitude of the events and our net financial exposure at that time in that country.

Company Structure

Our ability to pay dividends and to make payments on indebtedness may be constrained by our holding company structure.
ACE Limited is a holding company and does not have any significant operations or assets other than its ownership of the shares of its operating insurance and reinsurance subsidiaries. Dividends and other permitted distributions from our insurance subsidiaries are our primary source of funds to meet ongoing cash requirements, including any future debt service payments and other expenses, and to pay dividends to our shareholders. Some of our insurance subsidiaries are subject to significant regulatory restrictions limiting their ability to declare and pay dividends. The inability of our insurance subsidiaries to pay dividends in an amount sufficient to enable us to meet our cash requirements at the holding company level could have an adverse effect on our operations and our ability to pay dividends to our shareholders and/or meet our debt service obligations.

ACE Limited is a Swiss company; it may be difficult to enforce judgments against it or its directors and executive officers.
ACE Limited is incorporated pursuant to the laws of Switzerland. In addition, certain of our directors and officers reside outside the U.S. and all or a substantial portion of our assets and the assets of such persons are located in jurisdictions outside the U.S. As such, it may be difficult or impossible to effect service of process within the U.S. upon those persons or to recover

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against us or them on judgments of U.S. courts, including judgments predicated upon civil liability provisions of the U.S. federal securities laws.

ACE has been advised by its Swiss counsel that there is doubt as to whether the courts in Switzerland would enforce:

•	judgments of U.S. courts based upon the civil liability provisions of the U.S. federal securities laws obtained in actions against it or its directors and officers, who reside outside the U.S.; or	
		
•	original actions brought in Switzerland against these persons or ACE predicated solely upon U.S. federal securities laws.	

ACE has also been advised by its Swiss counsel that there is no treaty in effect between the U.S. and Switzerland providing for this enforcement and there are grounds upon which Swiss courts may not enforce judgments of U.S. courts. Some remedies available under the laws of U.S. jurisdictions, including some remedies available under the U.S. federal securities laws, would not be allowed in Swiss courts as contrary to that nation's public policy.

As a result of the increase in par value of our shares that occurred in connection with our redomestication from the Cayman Islands to Switzerland in July 2008, we have less flexibility with respect to certain aspects of capital management than previously.

As of December 31, 2013 , the par value of our Common Shares is CHF 27.04 per share. Under Swiss law, we generally may not issue registered shares below their par value. In the event there is a need to raise common equity capital at a time when the trading price of our registered shares is below our par value, we will need to obtain approval of our shareholders to decrease the par value of our registered shares. We cannot assure that we would be able to obtain such shareholder approval. Furthermore, obtaining shareholder approval would require filing a preliminary proxy statement with the SEC and convening a meeting of shareholders which would delay any capital raising plans. Furthermore, any reduction in par value would decrease our ability to pay dividends as a repayment of share capital which is not subject to Swiss withholding tax. See “Taxation — Shareholders may be subject to Swiss withholding taxes on the payment of dividends” for additional information.

Insurance and Reinsurance Markets

Competition in the insurance and reinsurance markets could reduce our margins.
Insurance and reinsurance markets are highly competitive. We compete on an international and regional basis with major U.S., Bermuda, European, and other international insurers and reinsurers and with underwriting syndicates, some of which have greater financial, marketing, and management resources than we do. We also compete with new companies that continue to be formed to enter the insurance and reinsurance markets. In addition, capital market participants have created alternative products that are intended to compete with reinsurance products. Increased competition could result in fewer submissions, lower premium rates, and less favorable policy terms and conditions, which could reduce our profit margins and adversely impact our net income and book value.

Insurance and reinsurance markets are historically cyclical, and we expect to experience periods with excess underwriting capacity and unfavorable premium rates.
The insurance and reinsurance markets have historically been cyclical, characterized by periods of intense price competition due to excessive underwriting capacity as well as periods when shortages of capacity permitted favorable premium levels. An increase in premium levels is often offset by an increasing supply of insurance and reinsurance capacity, either by capital provided by new entrants or by the commitment of additional capital by existing insurers or reinsurers, which may cause prices to decrease. Any of these factors could lead to a significant reduction in premium rates, less favorable policy terms, and fewer submissions for our underwriting services. In addition to these considerations, changes in the frequency and severity of losses suffered by insureds and insurers may affect the cycles of the insurance and reinsurance markets significantly, as could periods of economic weakness (such as recession).

Charter Documents and Applicable Law

There are provisions in our charter documents that may reduce the voting rights and diminish the value of our Common Shares.
Our Articles of Association generally provide that shareholders have one vote for each Common Share held by them and are entitled to vote at all meetings of shareholders. However, the voting rights exercisable by a shareholder may be limited so that certain persons or groups are not deemed to hold 10 percent or more of the voting power conferred by our Common Shares. Moreover, these provisions could have the effect of reducing the voting power of some shareholders who would not otherwise be

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subject to the limitation by virtue of their direct share ownership. Our Board of Directors may refuse to register holders of shares as shareholders with voting rights based on certain grounds, including if the holder would, directly or indirectly, formally, constructively or beneficially own (as described in Articles 8 and 14 of our Articles of Association) or otherwise control voting rights with respect to 10 percent or more of the registered share capital recorded in the commercial register. In addition, the Board of Directors shall reject entry of holders of registered shares as shareholders with voting rights in the share register or shall decide on their deregistration when the acquirer or shareholder upon request does not expressly state that she/he has acquired or holds the shares in her/his own name and for her/his account.

Applicable laws may make it difficult to effect a change of control of our company.
Before a person can acquire control of a U.S. insurance company, prior written approval must be obtained from the insurance commissioner of the state where the domestic insurer is domiciled. Prior to granting approval of an application to acquire control of a domestic insurer, the state insurance commissioner will consider such factors as the financial strength of the applicant, the integrity and management of the applicant's Board of Directors and executive officers, the acquirer's plans for the future operations of the domestic insurer, and any anti-competitive results that may arise from the consummation of the acquisition of control. Generally, state statutes provide that control over a domestic insurer is presumed to exist if any person, directly or indirectly, owns, controls, holds with the power to vote, or holds proxies representing 10 percent or more of the voting securities of the domestic insurer. Because a person acquiring 10 percent or more of our Common Shares would indirectly control the same percentage of the stock of our U.S. insurance subsidiaries, the insurance change of control laws of various U.S. jurisdictions would likely apply to such a transaction. Laws of other jurisdictions in which one or more of our existing subsidiaries are, or a future subsidiary may be, organized or domiciled may contain similar restrictions on the acquisition of control of ACE.

While our Articles of Association limit the voting power of any shareholder to less than 10 percent, we cannot assure that the applicable regulatory body would agree that a shareholder who owned 10 percent or more of our Common Shares did not, because of the limitation on the voting power of such shares, control the applicable insurance subsidiary.

These laws may discourage potential acquisition proposals and may delay, deter, or prevent a change of control of ACE, including transactions that some or all of our shareholders might consider to be desirable.

Shareholder voting requirements under Swiss law may limit ACE's flexibility with respect to certain aspects of capital management .
Swiss law allows our shareholders to authorize share capital which can be issued by the Board of Directors without shareholder approval but this authorization must be renewed by the shareholders every two years. Swiss law also does not provide as much flexibility in the various terms that can attach to different classes of stock as permitted in other jurisdictions. Swiss law also reserves for approval by shareholders many corporate actions over which the Board of Directors previously had authority. For example, dividends must be approved by shareholders. While we do not believe that Swiss law requirements relating to our capital management will have an adverse effect on ACE, we cannot assure that situations will not arise where such flexibility would have provided substantial benefits to our shareholders.

Taxation

We may be subject to U.S. tax and Bermuda tax which may have an adverse effect on our results of operations and shareholder investment.
ACE Limited and our non-U.S. subsidiaries operate in a manner so that none of these companies should be subject to U.S. tax (other than U.S. excise tax on insurance and reinsurance premium income attributable to insuring or reinsuring U.S. risks and U.S. withholding tax on some types of U.S. source investment income), because none of these companies should be treated as engaged in a trade or business within the U.S. However, because there is considerable uncertainty as to the activities that constitute being engaged in a trade or business within the U.S., we cannot be certain that the Internal Revenue Service (IRS) will not contend successfully that ACE Limited or its non-U.S. subsidiaries are engaged in a trade or business in the U.S. If ACE Limited or any of its non-U.S. subsidiaries were considered to be engaged in a trade or business in the U.S., such entity could be subject to U.S. corporate income and branch profits taxes on the portion of its earnings effectively connected to such U.S. business, in which case our results of operations and our shareholders' investments could be adversely affected.

The Bermuda Minister of Finance, under the Exempted Undertakings Tax Protection Act 1966 of Bermuda, as amended, has given ACE Limited and its Bermuda insurance subsidiaries a written assurance that if any legislation is enacted in Bermuda that would impose tax computed on profits or income, or computed on any capital asset, gain, or appreciation, or any tax in the nature of estate duty or inheritance tax, then the imposition of any such tax would not be applicable to those companies or any

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of their respective operations, shares, debentures, or other obligations until March 31, 2035, except insofar as such tax would apply to persons ordinarily resident in Bermuda or is payable by us in respect of real property owned or leased by us in Bermuda. We cannot be certain that we will not be subject to any Bermuda tax after March 31, 2035.

Shareholders may be subject to Swiss withholding taxes on the payment of dividends.
Our dividends are generally subject to a Swiss withholding tax at a rate of 35 percent; however, payment of a dividend in the form of a par value reduction or qualifying capital contribution reserves reduction is not subject to Swiss withholding tax. We have previously obtained shareholder approval for dividends to be paid in such form. We currently intend to recommend to shareholders that they annually approve the payment of dividends in such form but we cannot assure that our shareholders will continue to approve a reduction in such form each year or that we will be able to meet the other legal requirements for a reduction in par value, or that Swiss withholding tax rules will not be changed in the future. We estimate we would be able to pay dividends in such form, and thus exempt from Swiss withholding tax until 2023-2028. This range may vary depending upon changes in annual dividends, special dividends, fluctuations in U.S. dollar/Swiss franc exchange rates, changes in par value or qualifying capital contribution reserves or changes or new interpretations to Swiss tax law or regulations.

Under certain circumstances, U. S. shareholders may be subject to adverse U.S. federal income tax consequences.
Under certain circumstances, a U.S. person who owns 10 percent or more of the voting power of a foreign corporation that is a “controlled foreign corporation” (CFC) (a foreign corporation in which 10 percent U.S. shareholders own more than 50 percent of the voting power or value of the stock of a foreign corporation or more than 25 percent of certain foreign insurance corporations) for an uninterrupted period of 30 days or more during a taxable year must include in gross income for U.S. federal income tax purposes such "10 percent U.S. Shareholder's" pro rata share of the CFC's "subpart F income". We believe that because of the dispersion of our share ownership, provisions in our organizational documents that limit voting power, and other factors, no U.S. person or U.S. partnership who acquires shares of ACE Limited directly or indirectly through one or more foreign entities should be required to include our subpart F income in income under the CFC rules of U.S. tax law. It is possible, however, that the IRS could challenge the effectiveness of these provisions and that a court could sustain such a challenge, in which case the investment could be adversely affected if 10 percent or more of ACE Limited's stock is owned.

Separately, any U.S. persons who hold shares may be subject to U.S. federal income taxation at ordinary income tax rates on their proportionate share of our Related Person Insurance Income (RPII). If the RPII of any of our non-U.S. insurance subsidiaries (each a "Non-U.S. Insurance Subsidiary") were to equal or exceed 20 percent of that company's gross insurance income in any taxable year and direct or indirect insureds (and persons related to those insureds) own directly or indirectly through foreign entities 20 percent or more of the voting power or value of ACE Limited, then a U.S. person who owns any shares of ACE Limited (directly or indirectly through foreign entities) on the last day of the taxable year would be required to include in his or her income for U.S. federal income tax purposes such person's pro rata share of such company's RPII for the entire taxable year. In addition, any RPII that is includible in the income of a U.S. tax-exempt organization may be treated as unrelated business taxable income. We believe that the gross RPII of each Non-U.S. Insurance Subsidiary did not in prior years of operation and is not expected in the foreseeable future to equal or exceed 20 percent of each such company's gross insurance income. Likewise, we do not expect the direct or indirect insureds of each Non-U.S. Insurance Subsidiary (and persons related to such insureds) to directly or indirectly own 20 percent or more of either the voting power or value of our shares. However, we cannot be certain that this will be the case because some of the factors which determine the extent of RPII may be beyond our control. If these thresholds are met or exceeded by an affected U.S. person, their investment could be adversely affected.

A U.S. tax-exempt organization may recognize unrelated business taxable income if a portion of our insurance income is allocated to the organization. This generally would be the case if either we are a CFC and the tax-exempt shareholder is a 10 percent U.S. shareholder or there is RPII, certain exceptions do not apply, and the tax-exempt organization, directly or indirectly through foreign entities, owns any shares of ACE Limited. Although we do not believe that any U.S. tax-exempt organization should be allocated such insurance income, we cannot be certain that this will be the case. Potential U.S. tax-exempt investors are advised to consult their tax advisors.

U.S. persons who hold shares will be subject to adverse tax consequences if we are considered to be a Passive Foreign Investment Company (PFIC) for U.S. federal income tax purposes.
If ACE Limited is considered a PFIC for U.S. federal income tax purposes, a U.S. person who holds ACE Limited shares will be subject to adverse U.S. federal income tax consequences in which case their investment could be adversely affected. In addition, if ACE Limited were considered a PFIC, upon the death of any U.S. individual owning shares, such individual's heirs or estate would not be entitled to a "step-up" in the basis of the shares which might otherwise be available under U.S. federal income tax laws. We believe that we are not, have not been, and currently do not expect to become, a PFIC for U.S. federal income tax purposes. We cannot assure, however, that we will not be deemed a PFIC by the IRS. While there are currently no

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regulations regarding the application of the PFIC provisions to an insurance company, new regulations or pronouncements interpreting or clarifying these rules may be forthcoming. We cannot predict what impact, if any, such guidance would have on an investor that is subject to U.S. federal income taxation.

The Organization for Economic Cooperation and Development (OECD) and the European Union (EU) are considering measures that might encourage countries to increase our taxes.
The OECD has published an action plan to address base erosion and profit shifting (BEPS) impacting its member countries and other jurisdictions. It is possible that jurisdictions in which we do business could react to the BEPS initiative or their own concerns by enacting tax legislation that could adversely affect us or our shareholders.

A number of multilateral organizations, including the EU and the OECD have, in recent years, expressed concern about some countries not participating in adequate tax information exchange arrangements and have threatened those that do not agree to cooperate with punitive sanctions by member countries. It is as yet unclear what all of these sanctions might be, which countries might adopt them, and when or if they might be imposed. We cannot assure, however, that the Tax Information Exchange Agreements (TIEAs) that have been or will be entered into by Switzerland and Bermuda will be sufficient to preclude all of the sanctions described above, which, if ultimately adopted, could adversely affect us or our shareholders.

Changes in tax law could adversely affect an investment in our shares.
Legislation is periodically introduced in the U.S. Congress intended to eliminate some perceived tax advantages of companies (including insurance companies) that have legal domiciles outside the U.S. but have certain U.S. connections. It is possible that such legislation or other legislation could be enacted in the future that could have an adverse impact on us or our shareholders.

Similarly, jurisdictions outside the U.S. in which we do business could enact tax legislation in the future that could have an adverse impact on us or our shareholders.

ITEM 1B. Unresolved Staff Comments

There are currently no unresolved SEC staff comments regarding our periodic or current reports.

ITEM 2. Properties

We maintain office facilities around the world including in North America, Europe (including our principal executive offices in Switzerland), Bermuda, Latin America, Asia Pacific, and the Far East. Most of our office facilities are leased, although we own major facilities in Hamilton, Bermuda and Philadelphia, U.S. Management considers its office facilities suitable and adequate for the current level of operations.

ITEM 3. Legal Proceedings

The information required with respect to Item 3 is included in Note 10 e) to the Consolidated Financial Statements, which is hereby incorporated herein by reference.

ITEM 4. Mine Safety Disclosures

Item not applicable.

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PART II

ITEM 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Repurchases of Equity Securities

Our Common Shares, with a current par value of CHF 27.04 per share, have been listed on the New York Stock Exchange since March 25, 1993.

Quarterly Stock Information
The following table sets forth the high and low closing sales prices of our Common Shares per fiscal quarter, as reported on the New York Stock Exchange Composite Tape, and cash dividends on Common Shares:

																													
 	 	2013	 	2012	
 	 	 	 	 	 	Dividends	 	 	 	 	 	Dividends	
Quarter Ending	 	High		 	Low		 	USD		 	CHF	 	High		 	Low		 	USD		 	CHF	
March 31	 	$	89.06		 	$	79.99		 	$	0.49			0.46	 	$	74.21		 	$	68.98		 	$	0.59		(2)  	0.53	
June 30	 	$	92.67		 	$	85.79		 	$	0.51		 	0.48	 	$	77.00		 	$	70.00		 	$	0.49		 	0.48	
September 30	 	$	95.58		 	$	87.72		 	$	0.51		 	0.46	 	$	77.04		 	$	69.17		 	$	0.49		 	0.45	
December 31	 	$	103.53		 	$	91.01		 	$	0.51		(1)  	0.45	 	$	81.70		 	$	76.10		 	$	0.49		 	0.45	
		
(1)  	On January 10, 2014, our shareholders approved an increase to our dividend from $0.51 per share to $0.63 per share for the final two quarterly installments that had been earlier approved at our 2013 annual general meeting. The $0.12 per share increase was to be distributed from capital contribution reserves while the $0.51 per share was to be distributed by way of a par value reduction in accordance with the May 2013 resolution. The above $0.51 per share and the $0.12 per share increase applicable to that installment were paid on January 31, 2014.	
		
(2)  	On January 9, 2012, ACE's shareholders approved a dividend resolution that increased the quarterly dividend installments from $0.35 to $0.47 per share for the quarters ended December 31, 2011 and March 31, 2012.  Due to the timing of the approval, the $0.12 per share increase related to the quarter ended December 31, 2011 installment is included in the quarter ended March 31, 2012 dividend amount.	

We have paid dividends each quarter since we became a public company in 1993. Following ACE's redomestication to Switzerland our dividends have been distributed primarily by way of a par value reduction. During 2011 and 2012, certain dividends were distributed from capital contribution reserves (Additional paid-in capital) through the transfer of dividends from Additional paid-in capital to Retained earnings, which method was also used to pay the dividend increase approved by shareholders on January 10, 2014.

ACE Limited is a holding company whose principal sources of income are investment income and dividends from its operating subsidiaries. The ability of the operating subsidiaries to pay dividends to us and our ability to pay dividends to our shareholders are each subject to legal and regulatory restrictions. The recommendation and payment of future dividends will be based on the determination of the Board of Directors and will be dependent upon shareholder approval, profits and financial requirements of ACE and other factors, including legal restrictions on the payment of dividends and such other factors as the Board of Directors deems relevant. Refer to Item 1A and Item 7 for additional information.

The last reported sale price of the Common Shares on the New York Stock Exchange Composite Tape on February 14, 2014 was $96.97 .

The number of record holders of Common Shares as of February 14, 2014 was 4,245 . This is not the actual number of beneficial owners of ACE's Common Shares since most of our shareholders hold their shares through a stockbroker, bank or other nominee rather than directly in their own name.

Refer to Item 12 for information relating to compensation plans under which equity securities are authorized for issuance.

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Issuer's Repurchases of Equity Securities

											
Period	Total Number of Shares Purchased (1)		 	Average Price Paid per Share	 	Total Number of Shares Purchased as Part of Publicly Announced Plan (2)		 	Approximate Dollar Value of Shares that May Yet be Purchased Under the Plan (3)	
October 1 through October 31	1,179		 	$96.50	 	—		 	 $228 million	
November 1 through November 30	3,832		 	$92.13	 	—		 	$2,000 million	
December 1 through December 31	598,095		 	$99.93	 	564,911		 	$1,943 million	
Total	603,106		 	 	 	 	 	 	
		
(1)  	This column primarily represents open market share repurchases. Other activity during the three months ended December 31, 2013 is related to the surrender to ACE of Common Shares to satisfy tax withholding obligations in connection with the vesting of restricted stock issued to employees and the exercising of options by employees.	
		
(2)  	The aggregate value of shares purchased in the three months ended December 31, 2013 as part of the publicly announced plan was $57 million.	
		
(3)  	Refer to Note 11 to the consolidated financial statements for more information on the ACE Limited securities repurchase authorization. In November 2013, our Board of Directors (Board) authorized the repurchase of up to $2 billion of ACE's Common Shares through December 31, 2014. This authorization replaced the previous authorizations made by the Board that expired on December 31, 2013. The $1.94 billion of remaining authorizations at December 31, 2013 expire on December 31, 2014. For the period January 1, 2014 through February 27, 2014, we repurchased 3,437,082 Common Shares for a total of $326 million in a series of open market transactions. As of February 27, 2014, $1.62 billion in share repurchase authorizations remained through December 31, 2014.	

Performance Graph
Set forth below is a line graph comparing the dollar change in the cumulative total shareholder return on ACE's Common Shares from December 31, 2008 , through December 31, 2013 , as compared to the cumulative total return of the Standard & Poor's 500 Stock Index and the cumulative total return of the Standard & Poor's Property-Casualty Insurance Index. The cumulative total shareholder return is a concept used to compare the performance of a company's stock over time and is the ratio of the stock price change plus the cumulative amount of dividends over the specified time period (assuming dividend reinvestment), to the stock price at the beginning of the time period. The chart depicts the value on December 31, 2009 , 2010 , 2011 , 2012 , and 2013 , of a $100 investment made on December 31, 2008 , with all dividends reinvested.

	
							
 	12/31/2008	12/31/2009	12/31/2010	12/31/2011	12/31/2012	12/31/2013	
ACE Limited	$100	$98	$124	$142	$167	$220	
S&P 500 index	$100	$126	$145	$148	$172	$228	
S&P 500 P&C index	$100	$112	$122	$122	$146	$202	

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ITEM 6. Selected Financial Data

																				
(in millions, except per share data and percentages)	2013		 	2012		 	2011		 	2010		 	2009		
Operations data:	 	 	 	 	 	 	 	 	 	
Net premiums earned – excluding Life segment	$	14,708		 	$	13,761		 	$	13,528		 	$	11,875		 	$	11,710		
Net premiums earned – Life segment	1,905		 	1,916		 	1,859		 	1,629		 	1,530		
Total net premiums earned	16,613		 	15,677		 	15,387		 	13,504		 	13,240		
Net investment income	2,144		 	2,181		 	2,242		 	2,070		 	2,031		
Losses and loss expenses	9,348		 	9,653		 	9,520		 	7,579		 	7,422		
Policy benefits	515		 	521		 	401		 	357		 	325		
Policy acquisition costs and administrative expenses	4,870		 	4,542		 	4,540		 	4,218		 	3,966		
Net income	3,758		 	2,706		 	1,540		 	3,085		 	2,523		
Weighted-average shares outstanding – diluted	344		 	343		 	341		 	341		 	338		
Diluted earnings per share	$	10.92		 	$	7.89		 	$	4.52		 	$	9.04		 	$	7.47		
Balance sheet data (at end of period):	 	 	 	 	 	 	 	 	 	
Total investments	$	60,928		 	$	60,264		 	$	55,676		 	$	51,407		 	$	46,515		
Total assets	94,510		 	92,545		 	87,321		 	83,216		 	77,864		
Net unpaid losses and loss expenses	26,831		 	26,547		 	25,875		 	25,242		 	25,038		
Net future policy benefits	4,397		 	4,229		 	4,025		 	2,825		 	2,710		
Long-term debt	3,807		 	3,360		 	3,360		 	3,358		 	3,158		
Trust preferred securities	309		 	309		 	309		 	309		 	309		
Total liabilities	65,685		 	65,014		 	62,989		 	60,381		 	58,313		
Shareholders' equity	28,825		 	27,531		 	24,332		 	22,835		 	19,551		
Book value per share	$	84.83		 	$	80.90		 	$	72.22		 	$	68.17		 	$	58.10		
Selected data:	 	 	 	 	 	 	 	 	 	
Loss and loss expense ratio  (1)	59.6	%	 	65.7	%	 	66.0	%	 	59.4	%	 	58.9	%	
Underwriting and administrative expense ratio  (2)	28.4	%	 	28.2	%	 	28.7	%	 	30.9	%	 	29.4	%	
Combined ratio  (3)	88.0	%	 	93.9	%	 	94.7	%	 	90.3	%	 	88.3	%	
Net loss reserves to capital and surplus ratio  (4)	108.3	%	 	111.8	%	 	122.9	%	 	122.9	%	 	141.9	%	
Cash dividends per share (5)	$	2.02		 	$	2.06		 	$	1.38		 	$	1.30		 	$	1.19		
		
(1)  	The loss and loss expense ratio is calculated by dividing Losses and loss expenses, excluding the Life segment, by Net premiums earned – excluding Life segment. Losses and loss expenses for the Life segment were $ 582 million , $611 million , $593 million , $528 million , and $532 million for the years ended December 31, 2013 , 2012 , 2011 , 2010 , and 2009 , respectively.	
		
(2)  	The underwriting and administrative expense ratio is calculated by dividing the Policy acquisition costs and administrative expenses, excluding the Life segment, by Net premiums earned – excluding Life segment. Policy acquisition costs and administrative expenses for the Life segment were $ 701 million , $ 662 million , $ 656 million , $ 552 million , and $525 million for the years ended December 31, 2013 , 2012 , 2011 , 2010 , and 2009 , respectively.	
		
(3)  	The combined ratio is the sum of loss and loss expense ratio and the underwriting and administrative expense ratio.	
		
(4)  	The net loss reserves to capital and surplus ratio is calculated by dividing the sum of the Net unpaid losses and loss expenses and Net future policy benefits by Shareholders' equity.	
		
(5)  	Cash dividends per share in 2012 includes a $0.12 per share increase related to the fourth quarter 2011 dividend installment approved by shareholders on January 9, 2012.	

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ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following is a discussion of our results of operations, financial condition, and liquidity and capital resources as of and for the year ended December 31, 2013 . This discussion should be read in conjunction with the consolidated financial statements and related Notes, under Item 8 of this Form 10-K.

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

Effective January 1, 2013, the former Insurance – North American segment is presented in two distinct reportable segments:
Insurance – North American P&C and Insurance – North American Agriculture. Prior year amounts contained in this report have been adjusted to conform to the new segment presentation.

	
		
MD&A Index	Page	
Forward-Looking Statements	34	
Overview	36	
Financial Highlights	37	
Critical Accounting Estimates	37	
Consolidated Operating Results	55	
Prior Period Development	59	
Segment Operating Results	60	
Net Investment Income	69	
Net Realized and Unrealized Gains (Losses)	70	
Other Income and Expense Items	71	
Investments	71	
Reinsurance Recoverable on Ceded Reinsurance	75	
Asbestos and Environmental (A&E) and Other Run-off Liabilities	75	
Catastrophe Management	76	
Natural Catastrophe Property Reinsurance Program	77	
Political Risk, Trade Credit, and Structured Trade Credit	79	
Crop Insurance	79	
Liquidity	79	
Capital Resources	81	
Contractual Obligations and Commitments	82	
Credit Facilities	84	
Ratings	84	

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_____________________________________________________________________________________________________________________
Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. Any written or oral statements made by us or on our behalf may include forward-looking statements that reflect our current views with respect to future events and financial performance. These forward-looking statements are subject to certain risks, uncertainties, and other factors that could, should potential events occur, cause actual results to differ materially from such statements. These risks, uncertainties, and other factors, which are described in more detail elsewhere herein and in other documents we file with the U.S. Securities and Exchange Commission (SEC), include but are not limited to:
		
•	developments in global financial markets, including changes in interest rates, stock markets, and other financial markets, increased government involvement or intervention in the financial services industry, the cost and availability of financing, and foreign currency exchange rate fluctuations (which we refer to in this report as foreign exchange and foreign currency exchange), which could affect our statement of operations, investment portfolio, financial condition, and financing plans;	
		
•	general economic and business conditions resulting from volatility in the stock and credit markets and the depth and duration of potential recession;	
		
•	losses arising out of natural or man-made catastrophes such as hurricanes, typhoons, earthquakes, floods, climate change (including effects on weather patterns; greenhouse gases; sea; land and air temperatures; sea levels; and rain and snow), nuclear accidents, or terrorism which could be affected by:	
		
•	the number of insureds and ceding companies affected;	
		
•	the amount and timing of losses actually incurred and reported by insureds;	
		
•	the impact of these losses on our reinsurers and the amount and timing of reinsurance recoverable actually received;	
		
•	the cost of building materials and labor to reconstruct properties or to perform environmental remediation following a catastrophic event; and	
		
•	complex coverage and regulatory issues such as whether losses occurred from storm surge or flooding and related lawsuits;	
		
•	actions that rating agencies may take from time to time, such as financial strength or credit ratings downgrades or placing these ratings on credit watch negative or the equivalent;	
		
•	global political conditions, the occurrence of any terrorist attacks, including any nuclear, radiological, biological, or chemical events, or the outbreak and effects of war, and possible business disruption or economic contraction that may result from such events;	
		
•	the ability to collect reinsurance recoverable, credit developments of reinsurers, and any delays with respect thereto and changes in the cost, quality, or availability of reinsurance;	
		
•	actual loss experience from insured or reinsured events and the timing of claim payments;	
		
•	the uncertainties of the loss-reserving and claims-settlement processes, including the difficulties associated with assessing environmental damage and asbestos-related latent injuries, the impact of aggregate-policy-coverage limits, the impact of bankruptcy protection sought by various asbestos producers and other related businesses, and the timing of loss payments;	
		
•	changes to our assessment as to whether it is more likely than not that we will be required to sell, or have the intent to sell, available for sale fixed maturity investments before their anticipated recovery;	
		
•	infection rates and severity of pandemics and their effects on our business operations and claims activity;	
		
•	judicial decisions and rulings, new theories of liability, legal tactics, and settlement terms;	
		
•	the effects of public company bankruptcies and/or accounting restatements, as well as disclosures by and investigations of public companies relating to possible accounting irregularities, and other corporate governance issues, including the effects of such events on:	
		
•	the capital markets;	
		
•	the markets for directors and officers (D&O) and errors and omissions (E&O) insurance; and	
		
•	claims and litigation arising out of such disclosures or practices by other companies;	

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•	uncertainties relating to governmental, legislative and regulatory policies, developments, actions, investigations, and treaties, which, among other things, could subject us to insurance regulation or taxation in additional jurisdictions or affect our current operations;	
		
•	the actual amount of new and renewal business, market acceptance of our products, and risks associated with the introduction of new products and services and entering new markets, including regulatory constraints on exit strategies;	
		
•	the competitive environment in which we operate, including trends in pricing or in policy terms and conditions, which may differ from our projections and changes in market conditions that could render our business strategies ineffective or obsolete;	
		
•	acquisitions made by us performing differently than expected, our failure to realize anticipated expense-related efficiencies or growth from acquisitions, the impact of acquisitions on our pre-existing organization, or announced acquisitions not closing;	
		
•	risks associated with being a Swiss corporation, including reduced flexibility with respect to certain aspects of capital management and the potential for additional regulatory burdens;	
		
•	the potential impact from government-mandated insurance coverage for acts of terrorism;	
		
•	the availability of borrowings and letters of credit under our credit facilities;	
		
•	the adequacy of collateral supporting funded high deductible programs;	
		
•	changes in the distribution or placement of risks due to increased consolidation of insurance and reinsurance brokers;	
		
•	material differences between actual and expected assessments for guaranty funds and mandatory pooling arrangements;	
		
•	the effects of investigations into market practices in the property and casualty (P&C) industry;	
		
•	changing rates of inflation and other economic conditions, for example, recession;	
		
•	the amount of dividends received from subsidiaries;	
		
•	loss of the services of any of our executive officers without suitable replacements being recruited in a reasonable time frame;	
		
•	the ability of our technology resources, including information systems and security, to perform as anticipated; and	
		
•	management’s response to these factors and actual events (including, but not limited to, those described above).	
The words “believe,” “anticipate,” “estimate,” “project,” “should,” “plan,” “expect,” “intend,” “hope,” “feel,” “foresee,” “will likely result,” or “will continue,” and variations thereof and similar expressions, identify forward-looking statements. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. We undertake no obligation to publicly update or review any forward-looking statements, whether as a result of new information, future events or otherwise.

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_____________________________________________________________________________________________________________________
Overview
We operate through five business segments: Insurance – North American P&C, Insurance – North American Agriculture, Insurance – Overseas General, Global Reinsurance, and Life. For additional information refer to “Segment Information” under Item 1.

We have grown our business through increased premium volume, expansion of product offerings and geographic reach, and acquisition of other companies. Acquisitions in 2013, 2012, and 2011 are as follows:
		
•	Insurance – Overseas General:	
		
•	acquired ABA Seguros on May 2, 2013;	
		
•	acquired Fianzas Monterrey on April 1, 2013; and	
		
•	acquired 80 percent of PT Asuransi Jaya Proteksi (JaPro) on September 18, 2012, and our local partner acquired the remaining 20 percent on January 3, 2013.	
		
•	Insurance – North American Agriculture : acquired Penn Millers Holding Corporation (PMHC) on November 30, 2011.	
		
•	Life : acquired New York Life's Korea operations on February 1, 2011; and acquired New York Life's Hong Kong operations on April 1, 2011.	

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

Our product and geographic diversification differentiates us from the vast majority of our competitors and has been a source of stability during periods of industry volatility. Our long-term business strategy focuses on sustained growth in book value achieved through a combination of underwriting and investment income. By doing so, we provide value to our clients and shareholders through use of our substantial capital base in the insurance and reinsurance markets.

We are organized along a profit center structure by line of business and territory that does not necessarily correspond to corporate legal entities. Profit centers can access various legal entities, subject to licensing and other regulatory rules. Profit centers are expected to generate underwriting income and appropriate risk-adjusted returns. Our corporate structure has facilitated the development of management talent by giving each profit center's senior management team the necessary autonomy within underwriting authorities to make operating decisions and create products and coverages needed by its target customer base. We are focused on delivering underwriting profit and strive to achieve underwriting income by only writing policies which we believe adequately compensate us for the risk we accept.

Our insurance and reinsurance operations generate gross revenues from two principal sources: premiums and investment income. Cash flow is generated from premiums collected and investment income received less paid losses and loss expenses, policy acquisition costs, and administrative expenses. Invested assets are substantially held in liquid, investment grade fixed income securities of relatively short duration. Claims payments in any short-term period are highly unpredictable due to the random nature of loss events and the timing of claims awards or settlements. The value of investments held to pay future claims is subject to market forces such as the level of interest rates, stock market volatility, and credit events such as corporate defaults. The actual cost of claims is also volatile based on loss trends, inflation rates, court awards, and catastrophes. We believe that our cash balance, our highly liquid investments, credit facilities, and reinsurance protection provide sufficient liquidity to meet unforeseen claim demands that might occur in the year ahead. Refer to “Liquidity” and “Capital Resources” for additional information.

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_____________________________________________________________________________________________________________________
Financial Highlights for the Year Ended December 31, 2013

•	Net income increased 38.9 percent to a record $3.8 billion.	
		
•	Total company net premiums written increased 5.9 percent, or 6.9 percent on a constant-dollar basis.	
		
•	P&C combined ratio was 88.0 percent compared with 93.9 percent in 2012.	
		
•	The current accident year P&C combined ratio excluding catastrophe losses was 90.0 percent compared with 92.8 percent in 2012.	
		
•	Favorable prior period development was $530 million, representing 3.7 percentage points of the combined ratio. This compares to favorable prior period development of $479 million in 2012, representing 3.5 percentage points of the combined ratio.	
		
•	Total pre-tax and after-tax catastrophe losses including reinstatement premiums were $227 million and $197 million, respectively, compared with $638 million and $495 million, respectively, in 2012.	
		
•	Operating cash flow was $4.0 billion for both 2013 and 2012.	
		
•	Net investment income decreased 1.7 percent to $2.1 billion.	

We finished the year more diversified in terms of product and geography, increasing our presence in areas such as the U.S., Asia and Latin America that present opportunity for future growth. Net premiums written for personal lines were up in 2013 and we believe our personal lines business is poised to continue its substantial growth globally. Our global reinsurance net premiums written declined slightly in 2013 as we maintained underwriting discipline in an environment of flat-to-declining rates and increasing competition. We do not expect to achieve near-term growth given the soft conditions in the reinsurance market. However, ACE is a substantial buyer of reinsurance and we believe that the softening reinsurance market will benefit ACE in terms of pricing and improved terms that will positively impact our future financial results. While our A&H insurance business grew globally, our Combined Insurance (Combined) business was down for the year. However, for our core Combined business, agent manpower counts in North America and new sales are higher and we expect those factors will translate into net premium growth at Combined in 2014. Looking forward, we expect to have a good year in 2014 as we continue to take advantage of the many growth opportunities we see around the globe including in the U.S.

Recently, our shareholders approved a 24 percent increase in the dividend on our Common Shares which is consistent with our long-term commitment for a strong dividend. We also announced a plan to target the repurchase of up to $1.5 billion of our shares (with $2.0 billion of authority in total) in 2014 as we have built up sufficient capital flexibility for both opportunity and risk such that we can return additional capital surplus we generate in 2014 via share repurchase without impacting our growth capability.

_____________________________________________________________________________________________________________________
Critical Accounting Estimates
Our consolidated financial statements include amounts that, either by their nature or due to requirements of generally accepted accounting principles in the U.S. (GAAP), are determined using best estimates and assumptions. While we believe that the amounts included in our consolidated financial statements reflect our best judgment, actual amounts could ultimately materially differ from those currently presented. We believe the items that require the most subjective and complex estimates are:

•	unpaid loss and loss expense reserves, including long-tail asbestos and environmental (A&E) reserves;	
		
•	future policy benefits reserves;	
		
•	the valuation of value of business acquired (VOBA) and amortization of deferred policy acquisition costs and VOBA;	
		
•	the assessment of risk transfer for certain structured insurance and reinsurance contracts;	
		
•	reinsurance recoverable, including a provision for uncollectible reinsurance;	
		
•	the valuation of our investment portfolio and assessment of other-than-temporary impairments (OTTI);	
		
•	the valuation of deferred tax assets;	
		
•	the valuation of derivative instruments related to guaranteed living benefits (GLB); and	
		
•	the valuation of goodwill.	

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We believe our accounting policies for these items are of critical importance to our consolidated financial statements. The following discussion provides more information regarding the estimates and assumptions required to arrive at these amounts and should be read in conjunction with the sections entitled: Prior Period Development, Asbestos and Environmental (A&E) and Other Run-off Liabilities, Reinsurance Recoverable on Ceded Reinsurance, Investments, Net Realized and Unrealized Gains (Losses), and Other (Income) and Expense Items.

Unpaid losses and loss expenses
As an insurance and reinsurance company, we are required by applicable laws and regulations and GAAP to establish loss and loss expense reserves for the estimated unpaid portion of the ultimate liability for losses and loss expenses under the terms of our policies and agreements with our insured and reinsured customers. At December 31, 2013 , our gross unpaid loss and loss expense reserves were $37.4 billion and our net unpaid loss and loss expense reserves were $26.8 billion. With the exception of certain structured settlements, for which the timing and amount of future claim payments are reliably determinable, and certain reserves for unsettled claims that are discounted in statutory filings, our loss reserves are not discounted for the time value of money. In connection with such structured settlements and certain reserves for unsettled claims, we carried net discounted reserves of $106 million at December 31, 2013 and $105 million at December 31, 2012 .

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

																								
 	December 31, 2013	 	 	December 31, 2012	 	
(in millions of U.S. dollars)	Gross
Losses		 	Reinsurance
Recoverable (1)		 	Net
Losses		 	Gross
Losses		 	Reinsurance
Recoverable (1)		 	Net
Losses		
Balance, beginning of year	$	37,946		 	$	11,399		 	$	26,547		 	$	37,477		 	$	11,602		 	$	25,875		
Losses and loss expenses incurred	12,429		 	3,081		 	9,348		 	13,927		 	4,274		 	9,653		
Losses and loss expenses paid	(12,785	)	 	(3,808	)	 	(8,977	)	 	(13,783	)	 	(4,564	)	 	(9,219	)	
Other (including foreign exchange translation)	(246	)	 	(73	)	 	(173	)	 	311		 	87		 	224		
Losses and loss expenses acquired	99		 	13		 	86		 	14		 	—		 	14		
Balance, end of year	$	37,443		 	$	10,612		 	$	26,831		 	$	37,946		 	$	11,399		 	$	26,547		
		
(1)  	Net of provision for uncollectible reinsurance.	
The estimate of the liabilities includes provisions for claims that have been reported but are unpaid at the balance sheet date (case reserves) and for obligations on claims that have been incurred but not reported (IBNR) at the balance sheet date. IBNR may also include provisions to account for the possibility that reported claims may settle for amounts that differ from the established case reserves. Loss reserves also include an estimate of expenses associated with processing and settling unpaid claims (loss expenses).

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The following table segregates loss reserves by three broad line of business groupings: property and all other, casualty, and A&H (or personal accident). In the table, loss expenses are defined to include unallocated and allocated loss adjustment expenses. 

																										
 	 	 	December 31, 2013	 	 	December 31, 2012	 	
(in millions of U.S. dollars)	 	Gross		 	Ceded		 	Net		 	Gross		 	Ceded		 	Net		
Property and all other	 	 	 	 	 	 	 	 	 	 	 	 	
 	Case reserves	 	$	2,862		 	$	998		 	$	1,864		 	$	3,274		 	$	1,551		 	$	1,723		
 	Loss expenses	 	222		 	59		 	163		 	191		 	39		 	152		
 	IBNR reserves	 	2,098		 	714		 	1,384		 	2,511		 	1,007		 	1,504		
 	Subtotal	 	5,182		 	1,771		 	3,411		 	5,976		 	2,597		 	3,379		
Casualty	 	 	 	 	 	 	 	 	 	 	 	 	
 	Case reserves	 	9,023		 	2,271		 	6,752		 	9,017		 	2,366		 	6,651		
 	Loss expenses	 	3,907		 	1,341		 	2,566		 	3,821		 	1,337		 	2,484		
 	IBNR reserves	 	18,172		 	4,872		 	13,300		 	17,973		 	4,743		 	13,230		
 	Subtotal	 	31,102		 	8,484		 	22,618		 	30,811		 	8,446		 	22,365		
A&H	 	 	 	 	 	 	 	 	 	 	 	 	
 	Case reserves	 	514		 	113		 	401		 	471		 	105		 	366		
 	Loss expenses	 	30		 	8		 	22		 	30		 	8		 	22		
 	IBNR reserves	 	615		 	236		 	379		 	658		 	243		 	415		
 	Subtotal	 	1,159		 	357		 	802		 	1,159		 	356		 	803		
Total	 	 	 	 	 	 	 	 	 	 	 	 	
 	Case reserves	 	12,399		 	3,382		 	9,017		 	12,762		 	4,022		 	8,740		
 	Loss expenses	 	4,159		 	1,408		 	2,751		 	4,042		 	1,384		 	2,658		
 	IBNR reserves	 	20,885		 	5,822		 	15,063		 	21,142		 	5,993		 	15,149		
 	Total	 	$	37,443		 	$	10,612		 	$	26,831		 	$	37,946		 	$	11,399		 	$	26,547		

The process of establishing loss reserves for property and casualty claims can be complex and is subject to considerable uncertainty as it requires the use of informed estimates and judgments based on circumstances underlying the insured loss known at the date of accrual. For example, the reserves established for high excess casualty claims, asbestos and environmental claims, claims from major catastrophic events or for our various product lines each require different assumptions and judgments to be made. Necessary judgments are based on numerous factors and may be revised as additional experience and other data become available and are reviewed, as new or improved methods are developed, or as laws change. Hence, ultimate loss payments may differ from the estimate of the ultimate liabilities made at the balance sheet date. Changes to our previous estimates of prior period loss reserves impact the reported calendar year underwriting results, adversely if our estimates increase and favorably if our estimates decrease. The potential for variation in loss reserves is impacted by numerous factors, which we discuss below. In particular, these considerations differ markedly depending upon whether case or IBNR reserves are being established. Reserves for casualty lines are particularly uncertain given the lengthy reporting patterns and corresponding need for IBNR.

Case reserves for those claims reported by insureds or ceding companies to us prior to the balance sheet date, and where we have sufficient information, are determined by our claims personnel as appropriate based on the circumstances of the claim(s), standard claim handling practices, and professional judgment. Furthermore, for our assumed reinsurance operation, Global Reinsurance, an additional case reserve may be established above the amount notified by the ceding company if the notified case reserve is judged to be insufficient by Global Reinsurance's claims department (refer to the Assumed reinsurance section below).

In respect of IBNR reserves, and those claims that have been incurred but not reported prior to the balance sheet date, there is, by definition, limited actual information to form the case reserve estimate and reliance is placed upon historical loss experience and actuarial methods to project the ultimate loss obligations and the corresponding amount of IBNR. IBNR reserve estimates are generally calculated by first projecting the ultimate amount of losses for a product line and subtracting paid losses and case reserves for reported claims. The judgments involved in projecting the ultimate losses may pertain to the use and interpretation of various standard actuarial reserving methods that place reliance on the extrapolation of actual historical data, loss

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development patterns, and industry data as appropriate. The estimate of the required IBNR reserve also requires judgment by actuaries and management to reflect the impact of more contemporary and subjective factors, both qualitative and quantitative. Among some of these factors that might be considered are changes in business mix or volume, changes in ceded reinsurance structures, changes in claims handling practices, reported and projected loss trends, inflation, the legal environment, and the terms and conditions of the contracts sold to our insured parties.

Determining management's best estimate
Our recorded reserves represent management's best estimate of the provision for unpaid claims as of the balance sheet date. Management's best estimate is developed after collaboration with actuarial, underwriting, claims, legal, and finance departments and culminates with the input of reserve committees. Each business unit reserve committee includes the participation of the relevant parties from actuarial, finance, claims, and unit senior management and has the responsibility for finalizing and approving the estimate to be used as management's best estimate. Reserves are further reviewed by ACE's Chief Actuary and senior management. The objective of such a process is to determine a single estimate that we believe represents a better estimate than any other. Such an estimate is viewed by management to be the best estimate of ultimate loss settlements.

This estimate is generally based on a combination of exposure and experience based actuarial methods (described below) and other considerations such as claims reviews, reinsurance recovery assumptions and/or input from other subject matter experts such as underwriting. Exposure-based methods are most commonly used on relatively immature origin years while experience-based methods provide a view based on the projection of loss experience that has emerged as of the valuation date. Greater reliance is placed upon experience-based methods as the pool of emerging loss experience grows and where it is deemed sufficiently credible and reliable as the basis for the estimate. In comparing the held reserve for any given origin year to the actuarial projections of loss experience, judgment is required as to the extent of credibility to be assigned to the underlying loss experience and the uncertainties associated with its statistical projection. Examples of factors that impact such judgments include, but are not limited to, the following:

•	nature and complexity of underlying coverage provided and net limits of exposure provided;	
		
•	segmentation of data to provide sufficient homogeneity and credibility for loss projection methods;	
		
•	extent of internal historical loss data, and industry information where required;	
		
•	historical variability of actual loss emergence compared with expected loss emergence;	
		
•	extent of emerged loss experience relative to the remaining expected period of loss emergence;	
		
•	rate monitor information for new and renewal business;	
		
•	facts and circumstances of large claims;	
		
•	impact of applicable reinsurance recoveries; and	
		
•	nature and extent of underlying assumptions.	
Management does not build in any specific provision for uncertainty.
We do not calculate ranges of loss reserve estimates for our individual loss reserve studies, given the lack of robust statistical approaches and the limited usefulness for such information in decision making. Determining such ranges is a complex and uncertain process, and such ranges generally do not capture the potential changes in external and internal circumstances between the balance sheet date and the final settlement date that may impact the ultimate value of loss. While we believe that our recorded reserves are reasonable and represent management's best estimate for each product line as of the current valuation date, future changes to our view of the ultimate liabilities are possible. A five percent change in our net loss reserves equates to $1.3 billion and represents five percent of shareholders' equity at December 31, 2013. Historically our reserves, at times, have developed in excess of 10 percent of recorded amounts. Refer to “Analysis of Losses and Loss Expenses Development”, under Item 1, for a summary of historical volatility between estimated loss reserves and ultimate loss settlements.

We have actuarial staff within each of our business units who analyze loss reserves and regularly project estimates of ultimate losses and the corresponding indications of the required IBNR reserve. Note that losses include loss expenses for the purposes of this discussion. We perform an actuarial reserve review for each product line at least once a year. At the conclusion of each review, we establish an actuarial central estimate. The process to select the actuarial central estimate, when more than one

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estimate is available, may differ across product lines. For example, an actuary may base the central estimate on loss projections developed using an incurred loss development approach instead of a paid loss development approach when reported losses are viewed to be a more credible indication of the ultimate loss compared with paid losses. The availability of estimates for different projection techniques will depend upon the product line, the underwriting circumstances, and the maturity of the loss emergence. For a well-established product line with sufficient volume and history and low volatility, the actuarial central estimate may be drawn from a weighting of paid and reported loss development and/or Bornhuetter-Ferguson methods (described below). However, for a new long-tail product line for which we have limited data and experience, a rapidly growing line, or an established line with volatile experience, the emerging loss experience may not have sufficient credibility to allow selection of loss development or Bornhuetter-Ferguson methods and reliance may be placed upon the expected loss ratio method (described below) until the experience matures and becomes credible.

Typically, for each product line, one or more standard actuarial reserving methods may be used to estimate ultimate losses and loss expenses, and from these estimates, a single actuarial central estimate is selected. Exceptions to the use of standard actuarial projection methods occur for individual claims of significance that require complex legal, claims, and actuarial analysis and judgment (for example, A&E account projections or high excess casualty/professional lines accounts in litigation) or for product lines where the nature of the claims experience and/or availability of the data prevent application of such standard methods. In addition, claims arising from certain catastrophic events require evaluations that do not utilize standard actuarial loss projection methods but are based upon our exposure at the time of the event and the circumstances of the catastrophe and its post-event impact.

In addition to the annual loss reserve studies performed for each product line, we review the emergence of actual losses relative to expectations for most product lines each quarter. If warranted from findings in loss emergence tests, we may alter the timing of our product line reserve studies. Finally, loss reserve studies are performed annually by external third-parties and the findings are used to test the reasonableness of our internal findings.

Standard actuarial reserving methods
Standard actuarial reserving methods include, but are not limited to, expected loss ratio, paid and reported loss development, and Bornhuetter-Ferguson methods. A general description of these methods is provided below. In the subsequent discussion on short- and long-tail business, reference is also made, where appropriate, to how consideration in method selection impacted 2013 results. In addition to these standard methods, depending upon the product line characteristics and available data we may use other recognized actuarial methods and approaches. To ensure that the projections of future loss emergence based on historical loss development patterns are representative of the underlying business, historical loss and premium data is required to be of sufficient homogeneity and credibility. For example, to improve data homogeneity, we may subdivide product line data further by similar risk attribute (e.g., geography, coverage such as property versus liability exposure, or elements of program structure such as attachments or limits), project ultimate losses for these homogeneous groups and then combine the results to provide the overall product line estimate. The premium and loss data are aggregated by origin year (e.g., the year in which the losses were incurred - “accident year” or “report year”) and annual or quarterly development periods. Implicit in the standard actuarial methods that we generally utilize is the need for two fundamental assumptions: first, the pattern by which losses are expected to emerge over time for each origin year, and second the expected loss ratio for each origin year.

The expected loss ratio for any particular origin year is selected after consideration of a number of factors, including historical loss ratios adjusted for rate changes, premium and loss trends, industry benchmarks, the results of policy level loss modeling at the time of underwriting, and other more subjective considerations for the product line (e.g., terms and conditions) and external environment as noted above. The expected loss ratio for a given origin year is initially established at the start of the origin year as part of the planning process. This analysis is performed in conjunction with underwriters and management. The expected loss ratio method arrives at an ultimate loss estimate by multiplying the expected ultimate loss ratio by the corresponding premium base. This method is most commonly used as the basis for the actuarial central estimate for immature origin periods on product lines where the actual paid or reported loss experience is not yet deemed sufficiently credible to serve as the principal basis for the selection of ultimate losses. The expected loss ratio for a given origin year may be modified over time if the underlying assumptions such as the assessment of prior year loss ratios, loss trend, rate changes, actual claims, or other information differ from the original assumptions.

Our selected paid and reported development patterns provide a benchmark against which the actual emerging loss experience can be monitored. Where possible, development patterns are selected based on historical loss emergence by origin year with appropriate allowance for changes in business mix, claims handling process, or ceded reinsurance that are likely to lead to a discernible difference between the rate of historical and future loss emergence. For product lines where the historical data is viewed to have low statistical credibility, the selected development patterns also reflect relevant industry benchmarks and/or

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experience from similar product lines written elsewhere within ACE. This most commonly occurs for relatively new product lines that have limited historical data or for high severity/low frequency portfolios where our historical experience exhibits considerable volatility and/or lacks credibility. The paid and reported loss development methods convert the selected loss emergence pattern to a set of multiplicative factors which are then applied to actual paid or reported losses to arrive at an estimate of ultimate losses for each period. Due to their multiplicative nature, the paid and reported loss development methods will leverage differences between actual and expected loss emergence. These methods tend to be utilized for more mature origin periods and for those portfolios where the loss emergence has been relatively consistent over time.

The Bornhuetter-Ferguson method is essentially a combination of the expected loss ratio method and the loss development method, where the loss development method is given more weight as the origin year matures. This approach allows a logical transition between the expected loss ratio method which is generally utilized at earlier maturities and the loss development methods which are typically utilized at later maturities. We usually apply this method using reported loss data although paid data may be used.

The applicability of actuarial methods will also be impacted by the attachment point of the policy or contract with the insured or ceding company. In the case of low attachment points typical of primary insurance or working layer reinsurance, the experience tends to be more frequency driven. For these product types, standard actuarial methods are generally applicable in determining loss reserve levels given sufficient history and credible loss experience (although still subject to the same limitations and uncertainties described elsewhere in this section, for example, changing inflationary or legal environments). In the case of high attachment points typical of excess insurance or excess of loss reinsurance, the experience tends to be severity driven, as only a loss of significant size will enter the layer. For these product lines, it typically takes longer for loss experience to gain credibility, which adds uncertainty to the estimates derived from standard actuarial methods. For products such as our assumed reinsurance business, we typically supplement the standard actuarial methods with an analysis of each contract's terms, original pricing information, subsequent internal and external analyses of the ongoing contracts, market exposures and history, and qualitative input from claims managers. This approach is also used for structured or unique contracts.

Short-tail and long-tail business
The time period between the date of loss occurrence and the final payment date of the ensuing claim(s) is referred to as the “claim-tail”. The following is a discussion of specific reserving considerations for both short-tail and long-tail product lines. In this section, we reference the nature of recent prior period development to give a high-level understanding of how these considerations translate through the reserving process into financial decisions. Refer to Note 7 to the Consolidated Financial Statements for additional information on prior period development.

Short-tail business
Short-tail business generally describes product lines for which losses are typically known and paid shortly after the loss actually occurs. This would include, for example, most property, personal accident, aviation hull, and automobile physical damage policies that we write. There are some exceptions on certain product lines or events (e.g., major hurricanes or earthquakes) where the event has occurred, but the final settlement amount is highly uncertain and not known with certainty for a potentially lengthy period. Due to the short reporting and development pattern for these product lines, the uncertainty associated with our estimate of ultimate losses for any particular accident period diminishes relatively quickly as actual loss experience emerges. We typically assign credibility to methods that incorporate actual loss emergence, such as the paid and reported loss development and Bornhuetter-Ferguson methods, sooner than would be the case for long-tail lines at a similar stage of development for a given origin year. The reserving process for short-tail losses arising from catastrophic events typically involves an assessment by the claims department, in conjunction with underwriters and actuaries, of our exposure and estimated losses immediately following an event and then subsequent revisions of the estimated losses as our insureds provide updated actual loss information.

For the 2013 origin year, loss reserves for short-tail lines were typically established for the non-catastrophe exposures using a combination of the initial expected loss ratio method (see above) and loss development methods that incorporate actual loss emergence. As the year progressed, we also adjusted these reserves for non-catastrophe large loss activity that we considered to be greater or less than the assumptions used to establish the initial expected loss ratio. Catastrophe activity was relatively low in 2013 and accordingly the judgments and uncertainties used to establish reserves for incurred catastrophe events were correspondingly less complex. For our short-tail businesses taken as a whole, overall loss trend assumptions did not differ significantly relative to prior years.

In terms of prior accident years, the bulk of the changes made in the 2013 calendar year arose from origin years 2009 through 2012. Specifically, the Insurance – North American P&C, Insurance – North American Agriculture, Insurance – Overseas

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General, and Global Reinsurance segments experienced $106 million, $13 million, $172 million, and $31 million of favorable prior period development, respectively, primarily due to lower than anticipated loss emergence rather than any significant changes to underlying actuarial assumptions such as loss development patterns. In the Insurance – North American P&C, Insurance – Overseas General, and Global Reinsurance segments, these prior period movements were primarily the result of changes to the ultimate loss estimates for origin years 2009 through 2012. In the Insurance – North American Agriculture segment, the prior period movements were primarily the result of changes to the ultimate loss estimates for origin year 2011.

Long-tail business
Long-tail business describes lines of business for which specific losses may not be known/reported for some period and for which claims can take significant time to settle/close. This includes most casualty lines such as general liability, D&O, and workers' compensation. There are various factors contributing to the uncertainty and volatility of long-tail business. Among these are:

•	The nature and complexity of underlying coverage provided and net limits of exposure provided;	
		
•	Our historical loss data and experience is sometimes too immature and lacking in credibility to rely upon for reserving purposes. Where this is the case, in our reserve analysis we may utilize industry loss ratios or industry benchmark development patterns that we believe reflect the nature and coverage of the underwritten business and its future development, where available. For such product lines, actual loss experience may differ from industry loss statistics as well as loss experience for previous underwriting years;	
		
•	The considerable inherent uncertainty around loss trends, claims inflation (e.g., medical and judicial) and underlying economic conditions;	
		
•	The inherent uncertainty of the estimated duration of the paid and reported loss development patterns beyond the historical record requires that professional judgment be used in the determination of the length of the patterns based on the historical data and other information;	
		
•	The inherent uncertainty of assuming that historical paid and reported loss development patterns for older origin years will be representative of subsequent loss emergence on recent origin years. For example, changes over time in the processes and procedures for establishing case reserves can distort reported loss development patterns or changes in ceded reinsurance structures by origin year can alter the development of paid and reported losses;	
		
•	Loss reserve analyses typically require loss or other data be grouped by common characteristics in some manner. If data from two combined lines of business exhibit different characteristics, such as loss payment patterns, the credibility of the reserve estimate could be affected. Additionally, since casualty lines of business can have significant intricacies in the terms and conditions afforded to the insured, there is an inherent risk as to the homogeneity of the underlying data used in performing reserve analyses; and	
		
•	The applicability of the price change data used to estimate ultimate loss ratios for most recent origin years.	
As can be seen from the above, various factors are considered when determining appropriate data, assumptions, and methods used to establish the loss reserve estimates for long-tail product lines. These factors may also vary by origin year for given product lines. The derivation of loss development patterns from data and the selection of a tail factor to project ultimate losses from actual loss emergence require considerable judgment, particularly with respect to the extent to which historical loss experience is relied upon to support changes in key reserving assumptions. Examples of the relationship between changes in historical loss experience and key reserving assumptions are provided below.

For those long-tail product lines that are less claim frequency and more claim severity oriented, such as professional lines and high excess casualty, we placed more reliance upon expert legal and claims review of the specific circumstances underlying reported cases rather than loss development patterns. Where appropriate, we then supplemented this with loss development and Bornhuetter-Ferguson approaches to provide for claims that have been reported but are too immature to develop individual claims estimates and also to provide for pure IBNR. The assumptions used for these lines of business are updated over time to reflect new claim and legal advice judged to be of significance.

For origin year 2013, loss reserves were typically established through the application of individual product line expected loss ratios, as discussed earlier. Our assumptions on loss trend and development patterns reflect reliance on our historical loss data provided the length and volume of history and homogeneity afford credibility. For those lines where our internal historical experience lacks credibility, we may place reliance upon the latest benchmark patterns (where available) from external industry bodies such as Insurance Services Office (ISO) or the National Council on Compensation Insurance, Inc. (NCCI). In such cases,

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the assumptions used to project ultimate loss estimates will not fully reflect our own actual loss experience until our data is deemed sufficiently credible. We note that industry patterns are not always available to match the nature of the business being written; this issue is particularly problematic for non-U.S. exposed lines. Given the underlying volatility of the long-tail product lines and the lengthy period required for full paid and reported loss emergence, we typically assign little to no credibility to actual loss emergence that is lower than expected in the early development periods. Accordingly, we generally used the expected loss ratio method for the 2013 and immediately preceding origin years to establish reserves by product line. We monitor actual paid and reported loss emergence relative to expected loss emergence for most individual product lines.
As described earlier, the process to develop origin year 2013 reserves for our long-tail casualty business relies on key assumptions like expected rate change and loss trend. When estimating the ultimate loss levels for these prior origin years for the major long-tail lines in Insurance – North American P&C, Insurance – Overseas General, and Global Reinsurance no changes of significance were made to the loss development patterns, however, we have revised historical loss and exposure trend assumptions on more mature years to reflect emerged frequency and severity trends observed in both our internal data and available industry data. In general, this has resulted in lower historical loss trend assumptions for those years. While we have not assumed that these lower loss trends have continued on more recent years, we have reflected this information in the process to derive expected loss ratio assumptions from historical data adjusted to 2013 origin year levels.

For long-tail portfolios where actual loss emergence in calendar year 2013 was lower than expected for the more recent origin years, the deviation was not typically seen as sufficiently credible, particularly given the volatility and lengthy period for full loss emergence, to fully reflect in our booked ultimate loss selections or the actuarial assumptions underlying the reserve reviews. However, for certain product lines with early loss emergence on more recent origin years that was greater than expected, we did respond since we believe that such adverse emergence is generally significant relative to the loss emergence pattern assumptions (e.g., origin years 2011 and 2012 for casualty and financial lines in Insurance – Overseas General). Such judgments were made with due consideration to the factors impacting reserve uncertainty as discussed above. The reserve actions that we took in 2013 are discussed further below and in Note 7 to the Consolidated Financial Statements.

For more mature origin years, typically 2009 and prior, we gave meaningful weight to indicated ultimates derived from methods that rely on the paid and reported loss development patterns based on our own historical experience where sufficient credibility was deemed to exist. As noted previously, this is consistent with our practice of allowing favorable loss emergence sufficient time to be reliably established before assigning it full credibility.

The prior period development in 2013 for long-tail lines of business comprised several main components. First, we experienced favorable prior period development on a number of product lines where actual loss emergence was lower than expected and/or increased weighting was given to experience-based methods as relevant origin years mature (typically 2009 and prior). In particular, this included retail D&O, medical risk operations, and umbrella and excess casualty product lines in Insurance – North American P&C ($183 million favorable) principally in origin years 2007 and 2008, casualty and financial lines in Insurance – Overseas General for origin years 2009 and prior ($198 million favorable), and origin years 2007 and prior for long-tail product lines in Global Reinsurance ($71 million favorable). Second, we recorded adverse reserve actions in response to development on specific large claims. Third, we experienced adverse development from Insurance – North American P&C inactive product lines including Westchester and Brandywine run-off operations ($193 million). The causes for the Westchester and Brandywine operations are described further below.

Sensitivity to underlying assumptions
While we believe that our reserve for unpaid losses and loss expenses at December 31, 2013, is adequate, new information or emerging trends that differ from our assumptions may lead to future development of losses and loss expenses that is significantly greater or less than the recorded reserve, which could have a material effect on future operating results. As noted previously, our best estimate of required loss reserves for most portfolios is judgmentally selected for each origin year after considering the results from any number of reserving methods and is not a purely mechanical process. Therefore, it is difficult to convey, in a simple and quantitative manner, the impact that a change to a single assumption will have on our best estimate. In the examples below, we attempt to give an indication of the potential impact by isolating a single change for a specific reserving method that would be pertinent in establishing the best estimate for the product line described. We consider each of the following sensitivity analyses to represent a reasonably likely deviation in the underlying assumption.

Insurance – North American P&C
Given the long reporting and paid development patterns for workers' compensation business, the development factors used to project actual current losses to ultimate losses for the company's current exposure requires considerable judgment that could be material to consolidated loss and loss expense reserves. Specifically, adjusting ground up ultimate losses by a one percent

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change in the tail factor (i.e., 1.04 changed to either 1.05 or 1.03) would cause a change of approximately $397 million, either positive or negative, for the projected net loss and loss expense reserves. This represents an impact of 9.7 percent relative to recorded net loss and loss expense reserves of approximately $4.1 billion.

The reserve portfolio for our ACE Bermuda operations contains exposure to predominantly high excess liability coverage on an occurrence-first-reported basis (typically with attachment points in excess of $325 million and gross limits of up to $150 million) and D&O and other professional liability coverage on a claims-made basis (typically with attachment points in excess of $125 million and gross limits of up to $75 million). Due to the layer of exposure covered, the expected frequency for this book is very low. As a result of the low frequency/high severity nature of the book, a small difference in the actual vs. expected claim frequency, either positive or negative, could result in a material change to the projected ultimate loss if such change in claim frequency was related to a policy where close to maximum limits were deployed.

Insurance – North American Agriculture
Approximately 75 percent of the reserves for this segment are from the crop related lines, which all have short payout patterns, with the majority of the liabilities expected to be resolved in the ensuing twelve months. Reserves for our Multiple Peril Crop Insurance (MPCI) product are set on a case-by-case basis and our aggregate exposure is subject to state level risk sharing formulae. The majority of the development risk arises out of the accuracy of case reserve estimates. We do not view our Agriculture reserves as substantially influenced by the general assumptions and risks underlying more typical P&C reserve estimates.

Insurance – Overseas General
Certain long-tail lines, such as casualty and professional lines, are particularly susceptible to changes in loss trend and claim inflation.  Heightened perceptions of tort and settlement awards around the world are increasing the demand for these products as well as contributing to the uncertainty in the reserving estimates.  Our reserving methods rely on loss development patterns estimated from historical data and while we attempt to adjust such factors for known changes in the current tort environment, it is possible that such factors may not entirely reflect all recent trends in tort environments.  For example, when applying the reported loss development method, the lengthening of our selected loss development patterns by six months would increase reserve estimates on long-tail casualty and professional lines for accident years 2011 and prior by approximately $285 million. This represents an impact of 11.6 percent relative to recorded net loss and loss expense reserves of approximately $2.5 billion.

Global Reinsurance
Typically, there is inherent uncertainty around the length of paid and reported development patterns, especially for certain casualty lines such as excess workers' compensation or general liability, which may take up to 30 years to fully develop.  This uncertainty is accentuated by the need to supplement client development patterns with industry development patterns due to the sometimes low credibility of the data. The underlying source and selection of the final development patterns can thus have a significant impact on the selected ultimate net losses and loss expenses. For example, a 20 percent shortening or lengthening of the development patterns used for U.S. long-tail lines would cause the loss reserve estimate derived by the reported Bornhuetter-Ferguson method for these lines to change by approximately $400 million. This represents an impact of 32 percent relative to recorded net loss and loss expense reserves of approximately $1.25 billion.

Assumed reinsurance
At December 31, 2013 , net unpaid losses and loss expenses for the Global Reinsurance segment aggregated to $2.2 billion, consisting of $938 million of case reserves and $1.2 billion of IBNR. In comparison, at December 31, 2012 , net unpaid losses and loss expenses for the Global Reinsurance segment aggregated to $2.4 billion, consisting of $930 million of case reserves and $1.5 billion of IBNR.

For catastrophe business, we principally estimate unpaid losses and loss expenses on an event basis by considering various sources of information, including specific loss estimates reported by our cedants, ceding company and overall industry loss estimates reported by our brokers, and our internal data regarding reinsured exposures related to the geographical location of the event. Our internal data analysis enables us to establish catastrophe reserves for known events with more certainty at an earlier date than would be the case if we solely relied on reports from third parties to determine carried reserves.

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For our casualty reinsurance business, we generally rely on ceding companies to report claims and then use that data as a key input to estimate unpaid losses and loss expenses. Due to the reliance on claims information reported by ceding companies, as well as other factors, the estimation of unpaid losses and loss expenses for assumed reinsurance includes certain risks and uncertainties that are unique relative to our direct insurance business. These include, but are not necessarily limited to, the following:

•	The reported claims information could be inaccurate;	

•	Typically, a lag exists between the reporting of a loss event to a ceding company and its reporting to us as a reinsurance claim. The use of a broker to transmit financial information from a ceding company to us increases the reporting lag. Because most of our reinsurance business is produced by brokers, ceding companies generally first submit claim and other financial information to brokers, who then report the proportionate share of such information to each reinsurer of a particular treaty. The reporting lag generally results in a longer period of time between the date a claim is incurred and the date a claim is reported compared with direct insurance operations. Therefore, the risk of delayed recognition of loss reserve development is higher for assumed reinsurance than for direct insurance lines; and	

•	The historical claims data for a particular reinsurance contract can be limited relative to our insurance business in that there may be less historical information available. Further, for certain coverages or products, such as excess of loss contracts, there may be relatively few expected claims in a particular year so the actual number of claims may be susceptible to significant variability. In such cases, the actuary often relies on industry data from several recognized sources.	

We mitigate the above risks in several ways. In addition to routine analytical reviews of ceding company reports to ensure reported claims information appears reasonable, we perform regular underwriting and claims audits of certain ceding companies to ensure reported claims information is accurate, complete, and timely. As appropriate, audit findings are used to adjust claims in the reserving process. We also use our knowledge of the historical development of losses from individual ceding companies to adjust the level of adequacy we believe exists in the reported ceded losses.

On occasion, there will be differences between our carried loss reserves and unearned premium reserves and the amount of loss reserves and unearned premium reserves reported by the ceding companies.  This is due to the fact that we receive consistent and timely information from ceding companies only with respect to case reserves.  For IBNR, we use historical experience and other statistical information, depending on the type of business, to estimate the ultimate loss.  We estimate our unearned premium reserve by applying estimated earning patterns to net premiums written for each treaty based upon that treaty's coverage basis (i.e., risks attaching or losses occurring).  At December 31, 2013 , the case reserves reported to us by our ceding companies were $913 million, compared with the $938 million we recorded.  Our policy is to post additional case reserves in addition to the amounts reported by our cedants when our evaluation of the ultimate value of a reported claim is different than the evaluation of that claim by our cedant.

Within the Insurance – North American P&C segment, we also have exposure to certain liability reinsurance lines that have been in run-off since 1994. Unpaid losses and loss expenses relating to this run-off reinsurance business resides within the Brandywine Division of our Insurance – North American P&C segment. Most of the remaining unpaid loss and loss expense reserves for the run-off reinsurance business relate to A&E claims. Refer to the “Asbestos and Environmental (A&E) and other run-off liabilities” section for additional information.

Asbestos and environmental reserves
Included in our liabilities for losses and loss expenses are amounts for A&E (A&E liabilities). The A&E liabilities principally relate to claims arising from bodily-injury claims related to asbestos products and remediation costs associated with hazardous waste sites. The estimation of our A&E liabilities is particularly sensitive to future changes in the legal, social, and economic environment. We have not assumed any such future changes in setting the value of our A&E liabilities, which include provisions for both reported and IBNR claims.

There are many complex variables that we consider when estimating the reserves for our inventory of asbestos accounts and these variables may directly impact the predicted outcome. We believe the most significant variables relating to our A&E liabilities include the current legal environment; specific settlements that may be used as precedents to settle future claims; assumptions regarding trends with respect to claim severity and the frequency of higher severity claims; assumptions regarding the ability to allocate liability among defendants (including bankruptcy trusts) and other insurers; the ability of a claimant to bring a claim in a state in which they have no residency or exposure; the ability of a policyholder to claim the right to

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unaggregated coverage; whether high-level excess policies have the potential to be accessed given the policyholder's claim trends and liability situation; payments to unimpaired claimants; and, the potential liability of peripheral defendants. Based on the policies, the facts, the law, and a careful analysis of the impact that these factors will likely have on any given account, we estimate the potential liability for indemnity, policyholder defense costs, and coverage litigation expense.
The results in asbestos cases announced by other carriers or defendants may well have little or no relevance to us because coverage exposures are highly dependent upon the specific facts of individual coverage and resolution status of disputes among carriers, policyholders, and claimants.

For additional information refer to the “Asbestos and Environmental (A&E) and Other Run-off Liabilities” section and to Note 7 to the Consolidated Financial Statements.

Future policy benefits reserves
We issue contracts in our Insurance – Overseas General and Life segments that are classified as long-duration.  These contracts generally include accident and supplemental health products, term and whole life products, endowment products, and annuities.  In accordance with GAAP, we establish reserves for contracts determined to be long-duration based on approved actuarial methods that include assumptions related to expenses, mortality, morbidity, persistency, and investment yields with a factor for adverse deviation.  These assumptions are “locked in” at the inception of the contract, meaning we use our original assumptions throughout the life of the policy and do not subsequently modify them unless we deem the reserves to be inadequate.  The future policy benefits reserves balance is regularly evaluated for a premium deficiency.  If experience is less favorable than assumptions, additional liabilities may be required, resulting in a charge to policyholder benefits and claims.

Valuation of value of business acquired (VOBA) and amortization of deferred policy acquisition costs and VOBA
As part of the acquisition of businesses that sell long-duration contracts, such as life products, we established an intangible asset related to VOBA, which represented the fair value of the future profits of the in-force contracts.  The valuation of VOBA at the time of acquisition is derived from similar assumptions to those used to establish the associated future policy benefits reserves.  The most significant input in this calculation is the discount rate used to arrive at the present value of the net cash flows.  We amortize deferred policy acquisition costs associated with long-duration contracts and VOBA (collectively policy acquisition costs) over the estimated life of the contracts, generally in proportion to premium revenue recognized. For non-traditional long-duration contracts, we amortize policy acquisition costs over the expected life of the contracts in proportion to estimates of expected gross profits. The estimated life is established at the inception of the contracts or upon acquisition and is based on current persistency assumptions.  Policy acquisition costs, which consist of commissions, premium taxes, and certain underwriting costs related directly to the successful acquisition of a new or renewal insurance contract, are reviewed to determine if they are recoverable from future income, including investment income. Unrecoverable costs are expensed in the period identified.

Risk transfer
In the ordinary course of business, we both purchase (or cede) and sell (or assume) reinsurance protection. We discontinued the purchase of all finite risk reinsurance contracts, as a matter of policy, in 2002. For both ceded and assumed reinsurance, risk transfer requirements must be met in order to use reinsurance accounting, principally resulting in the recognition of cash flows under the contract as premiums and losses. If risk transfer requirements are not met, a contract is to be accounted for as a deposit, typically resulting in the recognition of cash flows under the contract through a deposit asset or liability and not as revenue or expense. To meet risk transfer requirements, a reinsurance contract must include both insurance risk, consisting of underwriting and timing risk, and a reasonable possibility of a significant loss for the assuming entity. We also apply similar risk transfer requirements to determine whether certain commercial insurance contracts should be accounted for as insurance or a deposit. Contracts that include fixed premium (i.e., premium not subject to adjustment based on loss experience under the contract) for fixed coverage generally transfer risk and do not require judgment.

Reinsurance and insurance contracts that include both significant risk sharing provisions, such as adjustments to premiums or loss coverage based on loss experience, and relatively low policy limits, as evidenced by a high proportion of maximum premium assessments to loss limits, can require considerable judgment to determine whether or not risk transfer requirements are met. For such contracts, often referred to as finite or structured products, we require that risk transfer be specifically assessed for each contract by developing expected cash flow analyses at contract inception. To support risk transfer, the cash flow analyses must demonstrate that a significant loss is reasonably possible, such as a scenario in which the ratio of the net present value of losses divided by the net present value of premiums equals or exceeds 110 percent. For purposes of cash flow analyses, we generally use a risk-free rate of return consistent with the expected average duration of loss payments. In

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addition, to support insurance risk, we must prove the reinsurer's risk of loss varies with that of the reinsured and/or support various scenarios under which the assuming entity can recognize a significant loss.

To ensure risk transfer requirements are routinely assessed, qualitative and quantitative risk transfer analyses and memoranda supporting risk transfer are developed by underwriters for all structured products. We have established protocols for structured products that include criteria triggering an accounting review of the contract prior to quoting. If any criterion is triggered, a contract must be reviewed by a committee established by each of our segments with reporting oversight, including peer review, from our global Structured Transaction Review Committee.

With respect to ceded reinsurance, we entered into a few multi-year excess of loss retrospectively-rated contracts, principally in 2002. These contracts primarily provided severity protection for specific product divisions. Because traditional one-year reinsurance coverage had become relatively costly, these contracts were generally entered in order to secure a more cost-effective reinsurance program. All of these contracts transferred risk and were accounted for as reinsurance. In addition, we maintain a few aggregate excess of loss reinsurance contracts that were principally entered into prior to 2003, such as the National Indemnity Company (NICO) contracts referred to in the section entitled, “Asbestos and Environmental (A&E) and Other Run-off Liabilities”. We have not purchased any other retroactive ceded reinsurance contracts since 1999.

With respect to assumed reinsurance and insurance contracts, products giving rise to judgments regarding risk transfer were primarily sold by our financial solutions business. Although we have significantly curtailed writing financial solutions business, several contracts remain in-force and principally include multi-year retrospectively-rated contracts and loss portfolio transfers. Because transfer of insurance risk is generally a primary client motivation for purchasing these products, relatively few insurance and reinsurance contracts have historically been written for which we concluded that risk transfer criteria had not been met. For certain insurance contracts that have been reported as deposits, the insured desired to self-insure a risk but was required, legally or otherwise, to purchase insurance so that claimants would be protected by a licensed insurance company in the event of non-payment from the insured.

Reinsurance recoverable
Reinsurance recoverable includes balances due to us from reinsurance companies for paid and unpaid losses and loss expenses and is presented net of a provision for uncollectible reinsurance. The provision for uncollectible reinsurance is determined based upon a review of the financial condition of the reinsurers and other factors. Ceded reinsurance contracts do not relieve our primary obligation to our policyholders. Consequently, an exposure exists with respect to reinsurance recoverable to the extent that any reinsurer is unable or unwilling to meet its obligations or disputes the liabilities assumed under the reinsurance contracts. We determine the reinsurance recoverable on unpaid losses and loss expenses using actuarial estimates as well as a determination of our ability to cede unpaid losses and loss expenses under existing reinsurance contracts.

The recognition of a reinsurance recoverable asset requires two key judgments. The first judgment involves our estimation based on the amount of gross reserves and the percentage of that amount which may be ceded to reinsurers. Ceded IBNR, which is a major component of the reinsurance recoverable on unpaid losses and loss expenses, is generally developed as part of our loss reserving process and, consequently, its estimation is subject to similar risks and uncertainties as the estimation of gross IBNR (refer to “Critical Accounting Estimates – Unpaid losses and loss expenses”). The second judgment involves our estimate of the amount of the reinsurance recoverable balance that we may ultimately be unable to recover from reinsurers due to insolvency, contractual dispute, or for other reasons. Estimated uncollectible amounts are reflected in a provision that reduces the reinsurance recoverable asset and, in turn, shareholders' equity. Changes in the provision for uncollectible reinsurance are reflected in net income.

Although the obligation of individual reinsurers to pay their reinsurance obligations is based on specific contract provisions, the collectability of such amounts requires estimation by management. The majority of the recoverable balance will not be due for collection until sometime in the future, and the duration of our recoverables may be longer than the duration of our direct exposures. Over this period of time, economic conditions and operational performance of a particular reinsurer may impact their ability to meet these obligations and while they may continue to acknowledge their contractual obligation to do so, they may not have the financial resources or willingness to fully meet their obligation to us.

To estimate the provision for uncollectible reinsurance, the reinsurance recoverable must first be determined for each reinsurer. This determination is based on a process rather than an estimate, although an element of judgment must be applied. As part of the process, ceded IBNR is allocated to reinsurance contracts because ceded IBNR is not generally calculated on a contract by contract basis. The allocations are generally based on premiums ceded under reinsurance contracts, adjusted for actual loss experience and historical relationships between gross and ceded losses. If actual premium and loss experience vary materially

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from historical experience, the allocation of reinsurance recoverable by reinsurer will be reviewed and may change. While such change is unlikely to result in a large percentage change in the provision for uncollectible reinsurance, it could, nevertheless, have a material effect on our net income in the period recorded.

Generally, we use a default analysis to estimate uncollectible reinsurance. The primary components of the default analysis are reinsurance recoverable balances by reinsurer, net of collateral, and default factors used to estimate the probability that the reinsurer may be unable to meet its future obligations in full. The definition of collateral for this purpose requires some judgment and is generally limited to assets held in an ACE-only beneficiary trust, letters of credit, and liabilities held by us with the same legal entity for which we believe there is a right of offset. We do not currently include multi-beneficiary trusts. However, we have several reinsurers that have established multi-beneficiary trusts for which certain of our companies are beneficiaries. The determination of the default factor is principally based on the financial strength rating of the reinsurer and a corresponding default factor applicable to the financial strength rating. Default factors require considerable judgment and are determined using the current financial strength rating, or rating equivalent, of each reinsurer as well as other key considerations and assumptions. Significant considerations and assumptions include, but are not necessarily limited to, the following:

•	For reinsurers that maintain a financial strength rating from a major rating agency, and for which recoverable balances are considered representative of the larger population (i.e., default probabilities are consistent with similarly rated reinsurers and payment durations conform to averages), the judgment exercised by management to determine the provision for uncollectible reinsurance of each reinsurer is typically limited because the financial rating is based on a published source and the default factor we apply is based on a historical default factor of a major rating agency applicable to the particular rating class. Default factors applied for financial ratings of AAA, AA, A, BBB, BB, B, and CCC, are 0.8 percent, 1.2 percent, 1.7 percent, 4.9 percent, 19.6 percent, 34.0 percent, and 62.2 percent, respectively. Because our model is predicated on the historical default factors of a major rating agency, we do not generally consider alternative factors. However, when a recoverable is expected to be paid in a brief period of time by a highly-rated reinsurer, such as certain property catastrophe claims, a default factor may not be applied;	
		
•	For balances recoverable from reinsurers that are both unrated by a major rating agency and for which management is unable to determine a credible rating equivalent based on a parent or affiliated company, we may determine a rating equivalent based on our analysis of the reinsurer that considers an assessment of the creditworthiness of the particular entity, industry benchmarks, or other factors as considered appropriate. We then apply the applicable default factor for that rating class. For balances recoverable from unrated reinsurers for which our ceded reserve is below a certain threshold, we generally apply a default factor of 34.0 percent;	
		
•	For balances recoverable from reinsurers that are either insolvent or under regulatory supervision, we establish a default factor and resulting provision for uncollectible reinsurance based on specific facts and circumstances surrounding each company. Upon initial notification of an insolvency, we generally recognize expense for a substantial portion of all balances outstanding, net of collateral, through a combination of write-offs of recoverable balances and increases to the provision for uncollectible reinsurance. When regulatory action is taken on a reinsurer, we generally recognize a default factor by estimating an expected recovery on all balances outstanding, net of collateral. When sufficient credible information becomes available, we adjust the provision for uncollectible reinsurance by establishing a default factor pursuant to information received; and	
		
•	For captives and other recoverables, management determines the provision for uncollectible reinsurance based on the specific facts and circumstances.	

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The following table summarizes reinsurance recoverables and the provision for uncollectible reinsurance for each type of recoverable balance at December 31, 2013 :

														
 	 	 	Gross Reinsurance Recoverables on Losses and Loss Expenses		 	Recoverables (net of Usable Collateral)		 	 	
 	 	 			 			 	Provision for Uncollectible Reinsurance		
(in millions of U.S. dollars)	 	 			 			 			
Type	 	 	
Reinsurers with credit ratings	 	 	$	8,572		 	$	7,806		 	$	206		
Reinsurers not rated	 	 	245		 	214		 	60		
Reinsurers under supervision and insolvent reinsurers	 	 	110		 	108		 	65		
Captives	 	 	1,762		 	223		 	14		
Other - structured settlements and pools	 	 	928		 	927		 	45		
Total	 	 	$	11,617		 	$	9,278		 	$	390		

At December 31, 2013 , the use of different assumptions within our approach could have a material effect on the provision for uncollectible reinsurance. To the extent the creditworthiness of our reinsurers were to deteriorate due to an adverse event affecting the reinsurance industry, such as a large number of major catastrophes, actual uncollectible amounts could be significantly greater than our provision for uncollectible reinsurance. Such an event could have a material adverse effect on our financial condition, results of operations, and our liquidity. Given the various considerations used to estimate our uncollectible provision, we cannot precisely quantify the effect a specific industry event may have on the provision for uncollectible reinsurance. However, based on the composition (particularly the average credit quality) of the reinsurance recoverable balance at December 31, 2013 , we estimate that a ratings downgrade of one notch for all rated reinsurers (i.e., from A to A- or A- to BBB+) could increase our provision for uncollectible reinsurance by approximately $72 million or approximately 0.6 percent of the gross reinsurance recoverable balance, assuming no other changes relevant to the calculation. While a ratings downgrade would result in an increase in our provision for uncollectible reinsurance and a charge to earnings in that period, a downgrade in and of itself does not imply that we will be unable to collect all of the ceded reinsurance recoverable from the reinsurers in question. Refer to Note 5 to the Consolidated Financial Statements for additional information.

Other-than-temporary impairments (OTTI)
Each quarter, we review securities in an unrealized loss position (impaired securities), including fixed maturities, securities lending collateral, equity securities, and other investments, to identify impaired securities to be specifically evaluated for a potential OTTI. Because our investment portfolio is the largest component of consolidated assets and a multiple of shareholders' equity, OTTI could be material to our financial condition and results of operations. Refer to Note 3 c ) to the Consolidated Financial Statements for a description of the OTTI process.

Deferred tax assets
Many of our insurance businesses operate in income tax-paying jurisdictions. Our deferred tax assets and liabilities primarily result from temporary differences between the amounts recorded in our consolidated financial statements and the tax basis of our assets and liabilities.  We determine deferred tax assets and liabilities separately for each tax-paying component (an individual entity or group of entities that is consolidated for tax purposes) in each tax jurisdiction. The realization of deferred tax assets depends upon the existence of sufficient taxable income within the carryback or carryforward periods under the tax law in the applicable tax jurisdiction.

At December 31, 2013 , our net deferred tax asset was $ 616 million. Refer to Note 8 to the Consolidated Financial Statements for additional information. At each balance sheet date, management assesses the need to establish a valuation allowance that reduces deferred tax assets when it is more likely than not that all, or some portion, of the deferred tax assets will not be realized.  The valuation allowance is based on all available information including projections of future taxable income from each tax-paying component in each tax jurisdiction, principally derived from business plans and available tax planning strategies.  Projections of future taxable income incorporate several assumptions of future business and operations that are apt to differ from actual experience. The valuation allowance is also based on maintaining our ability and intent to hold our U.S. available for sale fixed maturities to recovery. If our assumptions and estimates that resulted in our forecast of future taxable income for each tax-paying component prove to be incorrect, or future market events occur that prevent our ability to hold our U.S. fixed maturities to recovery, an additional valuation allowance could become necessary, which could have a material adverse effect on our financial condition, results of operations, and liquidity.  At December 31, 2013 , the valuation allowance of $64 million

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(including $24 million with respect to foreign tax credits) reflects management's assessment that it is more likely than not that a portion of the deferred tax asset will not be realized due to the inability of certain foreign subsidiaries to generate sufficient taxable income and the inability of ACE Group Holdings and its subsidiaries to use foreign tax credits.

Fair value measurements
Accounting guidance defines fair value as the price to sell an asset or transfer a liability (an exit price) in an orderly transaction between market participants and establishes a three-level valuation hierarchy based on the reliability of the inputs.

The fair value hierarchy gives the highest priority to quoted prices in active markets (Level 1 inputs) and the lowest priority to unobservable data (Level 3 inputs):

•	Level 1 inputs are unadjusted quoted prices for identical assets or liabilities in active markets.	

•	Level 2 includes inputs other than quoted prices included within Level 1 that are observable for assets or liabilities either directly or indirectly. Level 2 inputs include, among other items, quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, and inputs other than quoted prices that are observable for the asset or liability such as interest rates and yield curves.	

•	Level 3 inputs are unobservable and reflect our 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.

While we obtain values for the majority of our investment securities from pricing services, it is ultimately our responsibility to determine whether the values recorded in the financial statements are representative of fair value. We periodically update our understanding of the methodologies used by our pricing services in order to validate that the prices obtained from those services are consistent with the GAAP definition of fair value as an exit price. Based on our understanding of the methodologies, our 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 our pricing services, all applicable investments have been valued in accordance with GAAP valuation principles. We have controls to review significant price changes and stale pricing, and to ensure that prices received from pricing services have been accurately reflected in the consolidated financial statements. We do not adjust prices obtained from pricing services.

Additionally, fixed maturities valuation is more subjective when markets are less liquid due to the lack of market based inputs (i.e., stale pricing), which may increase the potential that an investment's estimated fair value is not reflective of the price at which an actual transaction would occur. 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.

Level 3 assets represented five percent and four percent of assets measured at fair value at December 31, 2013 and 2012, respectively, and three percent of total assets at both December 31, 2013 and 2012. Level 3 liabilities represented 74 percent and 100 percent of liabilities measured at fair value at December 31, 2013 and 2012, respectively, and less than one percent and two percent of our total liabilities at December 31, 2013 and 2012, respectively. During 2013 , 2012 and 2011, we transferred assets of $99 million, $164 million and $55 million, respectively, into Level 3 assets from other levels of the
valuation hierarchy. During 2013 , 2012 and 2011, we transferred assets of $88 million, $110 million and $70 million, respectively, out of Level 3 assets to other levels of the valuation hierarchy. Refer to Note 4 to the Consolidated Financial Statements for a description of the valuation techniques and inputs used to determine fair values of financial instruments measured or disclosed at fair value by valuation hierarchy (Levels 1, 2, and 3) as well as a roll-forward of Level 3 financial instruments measured at fair value for the years ended December 31, 2013 , 2012 , and 2011 .

Guaranteed living benefits (GLB) derivatives
Under life reinsurance programs covering living benefit guarantees, we assumed the risk of GLBs associated with variable annuity (VA) contracts. We ceased writing this business in 2007. Our GLB reinsurance product meets the definition of a derivative for accounting purposes and is therefore carried at fair value. We believe that the most meaningful presentation of these derivatives is to reflect cash inflows or revenue as net premiums earned, and to record estimates of the average modeled value of future cash outflows as incurred losses. Accordingly, we recognize benefit reserves consistent with the accounting guidance related to accounting and reporting by insurance enterprises for certain non-traditional long-duration contracts and for separate accounts. Changes in the benefit reserves are reflected as Policy benefits expense, which is included in life underwriting income. The incremental difference between fair value and benefit reserves is reflected in Accounts payable, accrued expenses, and other liabilities in the consolidated balance sheets and related changes in fair value are reflected in Net realized gains (losses) in the consolidated statement of operations. We intend to hold these derivative contracts to maturity (i.e., the expiration of the underlying liabilities through lapse, annuitization, death, or expiration of the reinsurance contract). To partially offset the risk in the VA guarantee reinsurance portfolio, we invest in derivative hedge instruments. At maturity, the cumulative gains and losses will net to zero (excluding cumulative hedge gains or losses) because, over time, the insurance liability will be increased or decreased to equal our obligation. For a sensitivity discussion of the effect of changes in interest rates, equity indices, and other assumptions on the fair value of GLBs, and the resulting impact on our net income, refer to Item 7A. For further description of this product and related accounting treatment, refer to Note 1 j ) to the Consolidated Financial Statements.

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The fair value of GLB reinsurance is estimated using an internal valuation model, which includes current market information and estimates of policyholder behavior from the perspective of a theoretical market participant that would assume these liabilities. All of our treaties contain claim limits, which are factored into the valuation model. The fair value depends on a number of factors, including interest rates, current account value, market volatility, expected annuitization rates and other policyholder behavior, and changes in policyholder mortality. 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 timely market information, such as market conditions and demographics of in-force annuities. Due to the inherent uncertainties of the assumptions used in the valuation models to determine the fair value of these derivative products, actual experience may differ from the estimates reflected in our consolidated financial statements, and the differences may be material. For further information on the estimates and assumptions used in determining the fair value of GLB reinsurance, refer to Note 4 to the Consolidated Financial Statements.

ACE Tempest Life Re employs a strategy to manage the financial market and policyholder behavior risks embedded in the reinsurance of VA guarantees. Risk management begins with underwriting a prospective client and guarantee design, with particular focus on protecting our position from policyholder options that, because of anti-selective behavior, could adversely impact our obligation.

A second layer of risk management is the structure of the reinsurance contracts. All VA guarantee reinsurance contracts include some form of annual or aggregate claim limit(s). The different categories of claim limits are described below:
		
•	Reinsurance programs covering guaranteed minimum death benefits (GMDB) with an annual claim limit of two percent of account value. This category accounts for approximately 60 percent of the total reinsured GMDB guaranteed value. Approximately two percent of the guaranteed value in this category has additional reinsurance coverage for GLB.	
		
•	Reinsurance programs covering GMDB with claim limit(s) that are a function of the underlying guaranteed value. This category accounts for approximately 25 percent of the total reinsured GMDB guaranteed value. The annual claim limit expressed as a percentage of guaranteed value ranges from 0.4 percent to 2 percent. Approximately 65 percent of guaranteed value in this category is also subject to annual claim deductibles that range from 0.1 percent to 0.2 percent of guaranteed value (i.e., our reinsurance coverage would only pay total annual claims in excess of 0.1 percent to 0.2 percent of the total guaranteed value). Approximately 45 percent of guaranteed value in this category is also subject to an aggregate claim limit which was approximately $ 383 million as of December 31, 2013 . Approximately 75 percent of guaranteed value in this category has additional reinsurance coverage for GLB.	
		
•	Reinsurance programs covering GMDB and guaranteed minimum accumulation benefits (GMAB). This category accounts for approximately 15 percent of the total reinsured GLB guaranteed value and 15 percent of the total reinsured GMDB guaranteed value. These reinsurance programs are quota-share agreements with the quota-share decreasing as the ratio of account value to guaranteed value decreases. The quota-share is 100 percent for ratios between 100 percent and 75 percent, 60 percent for additional losses on ratios between 75 percent and 45 percent, and 30 percent for further losses on ratios below 45 percent. Approximately 35 percent of guaranteed value in this category is also subject to a claim deductible of 8.8 percent of guaranteed value (i.e., our reinsurance coverage would only pay when the ratio of account value to guaranteed value is below 91.2 percent).	
		
•	Reinsurance programs covering GMIB with an annual claim limit. This category accounts for approximately 55 percent of the total reinsured GLB guaranteed value. The annual claim limit is 10 percent of guaranteed value on over 95 percent of the guaranteed value in this category. Additionally, reinsurance programs in this category have an annual annuitization limit that ranges between 17.5 percent and 30 percent with approximately 45 percent of guaranteed value subject to an annuitization limit of 20 percent or under, and the remaining 55 percent subject to an annuitization limit of 30 percent. Approximately 41 percent of guaranteed value in this category is also subject to minimum annuity conversion factors that limit the exposure to low interest rates. Approximately 45 percent of guaranteed value in this category has additional reinsurance coverage for GMDB.	
		
•	Reinsurance programs covering GMIB with aggregate claim limit. This category accounts for approximately 30 percent of the total reinsured GLB guaranteed value. The aggregate claim limit for reinsurance programs in this category is approximately $ 1.9 billion. Additionally, reinsurance programs in this category have an annual annuitization limit of 20 percent and approximately 60 percent of guaranteed value in this category is also subject to minimum annuity conversion factors that limit the exposure to low interest rates. Approximately 40 percent of guaranteed value in this category has additional reinsurance coverage for GMDB.	

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A third layer of risk management is the hedging strategy which looks to mitigate both long-term economic loss over time as well as dampen income statement volatility. ACE Tempest Life Re owned financial market instruments as part of the hedging strategy with a fair value (liability) asset of $(54) million and $ 24 million at December 31, 2013 and 2012 , respectively. The instruments are substantially collateralized by our counterparties, on a daily basis.

We also limit the aggregate amount of variable annuity reinsurance guarantee risk we are willing to assume. The last substantive U.S. transaction was quoted in mid-2007 and the last transaction in Japan was quoted in late 2007. The aggregate number of policyholders is currently decreasing through policyholder withdrawals, annuitizations, and deaths at a rate of 7 percent to 15 percent per annum.

Note that GLB claims cannot occur for any reinsured policy until it has reached the end of its “waiting period”. The majority of policies we reinsure reach the end of their “waiting periods” in 2014 or later, as shown in the table below.

			
Year of first payment eligibility	Percent of living benefit
account values		
2013 and prior	29	%	
2014	19	%	
2015	6	%	
2016	6	%	
2017	19	%	
2018	14	%	
2019	5	%	
2020 and after	2	%	
Total	100	%	

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

									
(in millions of U.S. dollars)	 	2013		 	2012		
Death Benefits (GMDB)	 	 	 	 	
Premium	 	$	77		 	$	84		
Less paid claims	 	63		 	99		
Net	 	$	14		 	$	(15	)	
Living Benefits (Includes GMIB and GMAB)	 	 	 	 	
Premium	 	$	149		 	$	160		
Less paid claims	 	23		 	11		
Net	 	$	126		 	$	149		
Total VA Guaranteed Benefits	 	 	 	 	
Premium	 	$	226		 	$	244		
Less paid claims	 	86		 	110		
Net	 	$	140		 	$	134		

Death Benefits (GMDB)
For premiums and claims from VA contracts reinsuring GMDBs, at current market levels, we expect approximately $ 39 million of claims and $ 69 million of premium on death benefits over the next 12 months.

GLB (includes GMIB and GMAB)
Our GLBs predominantly include premiums and claims from VA contracts reinsuring GMIB and GMAB. More than 70 percent of our living benefit reinsurance clients' policyholders, measured by account value, are currently ineligible to trigger a claim payment. At current market levels, we expect approximately $4 million of claims and $136 million of premium on living benefits over the next 12 months.

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

Goodwill impairment
Goodwill, which represents the excess of acquisition cost over the estimated fair value of net assets acquired, was $4.6 billion and $4.3 billion at December 31, 2013 and 2012 , respectively. During 2013 , our goodwill balance increased by approximately 7 percent , primarily due to acquisitions. Goodwill is not amortized but is subject to a periodic evaluation for impairment at least annually, or earlier if there are any indications of possible impairment. Impairment is tested at the reporting unit level. Goodwill is assigned to applicable reporting units of acquired entities at acquisition. The most significant reporting units are:
		
•	New York Life's Korea operations and Hong Kong operations acquired in 2011;	
		
•	Rain and Hail Insurance Service, Inc. (Rain and Hail) acquired in 2010;	
		
•	North American division of Combined Insurance acquired in 2008;	
		
•	Domestic and International divisions of ACE INA acquired in 1999, including subsequent international acquisitions; and	
		
•	ACE Tempest Re's businesses acquired in 1996 and 1998.	

The impairment evaluation first uses a qualitative assessment to determine whether it is more likely than not (i.e., more than a 50 percent probability) that the fair value of a reporting unit is greater than its carrying amount. If a reporting unit fails this qualitative assessment, a quantitative analysis is then used. The quantitative analysis is a two-step process in which an initial assessment for potential impairment is performed and, if a potential impairment is present, the amount of impairment is measured and recorded.

Other reporting units from smaller acquisitions are also assessed annually. Based on our impairment testing for 2013 , we determined no impairment was required and none of our reporting units were at risk for impairment.

In assessing the fair value of a reporting unit, we make assumptions and estimates about the profitability attributable to our reporting units, including:

•	short-term and long-term growth rates; and	
		
•	estimated cost of equity and changes in long-term risk-free interest rates.	
If our assumptions and estimates made in assessing the fair value of acquired entities change, we could be required to write-down the carrying value of goodwill which could be material to our results of operations in the period the charge is taken.

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_____________________________________________________________________________________________________________________
Consolidated Operating Results – Years Ended December 31, 2013 , 2012 , and 2011

																		
 	 	 	 	 	% Change	
(in millions of U.S. dollars, except for percentages)	2013		 	2012		 	2011		 	2013 vs. 2012		 	2012 vs. 2011		
Net premiums written	$	17,025		 	$	16,075		 	$	15,372		 	5.9	 %	 	4.6	 %	
Net premiums earned	16,613		 	15,677		 	15,387		 	6.0	 %	 	1.9	 %	
Net investment income	2,144		 	2,181		 	2,242		 	(1.7	)%	 	(2.8	)%	
Net realized gains (losses)	504		 	78		 	(795	)	 	NM		 	NM		
Total revenues	19,261		 	17,936		 	16,834		 	7.4	 %	 	6.5	 %	
Losses and loss expenses	9,348		 	9,653		 	9,520		 	(3.2	)%	 	1.4	 %	
Policy benefits	515		 	521		 	401		 	(1.2	)%	 	29.9	 %	
Policy acquisition costs	2,659		 	2,446		 	2,472		 	8.7	 %	 	(1.1	)%	
Administrative expenses	2,211		 	2,096		 	2,068		 	5.5	 %	 	1.4	 %	
Interest expense	275		 	250		 	250		 	10.0	 %	 	—		
Other (income) expense	15		 	(6	)	 	81		 	NM		 	NM		
Total expenses	15,023		 	14,960		 	14,792		 	0.4	 %	 	1.1	 %	
Income before income tax	4,238		 	2,976		 	2,042		 	42.4	 %	 	45.7	 %	
Income tax expense	480		 	270		 	502		 	77.8	 %	 	(46.2	)%	
Net income	$	3,758		 	$	2,706		 	$	1,540		 	38.9	 %	 	75.6	 %	
NM – not meaningful	 	 	 	 	 	 	 	 	 	

The following table presents the approximate effect of changes in foreign currency exchange rates on the growth of net premiums written and earned: 

									
 	2013		 	2012		 	2011		
Net premiums written:	 	 	 	 	 	
Growth in original currency	6.9	 %	 	6.0	 %	 	10.0	%	
Foreign exchange effect	(1.0	)%	 	(1.4	)%	 	2.1	%	
Growth as reported in U.S. dollars	5.9	 %	 	4.6	 %	 	12.1	%	
Net premiums earned:	 	 	 	 	 	
Growth in original currency	6.9	 %	 	3.4	 %	 	11.4	%	
Foreign exchange effect	(0.9	)%	 	(1.5	)%	 	2.5	%	
Growth as reported in U.S. dollars	6.0	 %	 	1.9	 %	 	13.9	%	

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The following table presents a line of business breakdown of consolidated net premiums written:

																		
 	 	 	 	 	% Change	
(in millions of U.S. dollars, except for percentages)	2013		 	2012		 	2011		 	2013 vs. 2012		 	2012 vs. 2011		
Retail P&C	$	6,277		 	$	5,735		 	$	5,257		 	9.5	 %	 	9.1	 %	
Wholesale	1,610		 	1,502		 	1,437		 	7.2	 %	 	4.5	 %	
Personal lines	1,593		 	1,196		 	1,067		 	33.2	 %	 	12.1	 %	
Small commercial	316		 	258		 	278		 	22.5	 %	 	(7.2	)%	
Reinsurance	991		 	1,025		 	979		 	(3.3	)%	 	4.7	 %	
Property, casualty and all other	10,787		 	9,716		 	9,018		 	11.0	 %	 	7.7	 %	
Agriculture	1,627		 	1,859		 	1,951		 	(12.5	)%	 	(4.7	)%	
Personal accident (A&H)	3,655		 	3,532		 	3,486		 	3.5	 %	 	1.3	 %	
Life	956		 	968		 	917		 	(1.2	)%	 	5.6	 %	
   Total consolidated	$	17,025		 	$	16,075		 	$	15,372		 	5.9	 %	 	4.6	 %	

Net premiums written reflect the premiums we retain after purchasing reinsurance protection. Net premiums written increased in 2013 due to higher net premiums written in our Insurance – Overseas General segment driven by strong performance in our retail operations in all product lines – P&C, A&H, and personal lines. The acquisitions of ABA Seguros in May 2013 and Fianzas Monterrey in April 2013 (Mexican Acquisitions), and Jaya Proteksi in September 2012 also added to premium growth. Growth in net premiums written was adversely impacted by foreign exchange. Our Insurance – North American P&C segment also reported increases in net premiums written in our retail division from growth across a broad range of our product portfolio including our risk management business, specialty casualty, professional, property, and A&H lines of business reflecting rate increases, exposure changes, strong renewal retention, and new business. This increase was partially offset by lower net written premiums in our Insurance – North American Agriculture segment due to lower premium retention in our MPCI program. Retention for the current year was lower due to the purchase of proportional reinsurance on the MPCI business for the 2013 crop year, which is in addition to the excess of loss reinsurance coverage historically purchased. Our Global Reinsurance segment also reported a decrease in net premiums written due to a non-recurring LPT treaty written in the prior year and increased property catastrophe cessions.

Net premiums written increased in 2012 in our Insurance – North American P&C segment retail division reflecting rate increases in most lines, strong renewal retention, and new business. In addition, there was good growth in many lines of business which include our risk management and personal lines businesses. This growth was partially offset by lower premiums in certain casualty and program business from adherence to our underwriting standards; in particular, we continued our planned reduction in our U.S. general market workers' compensation business. Net premiums written in our wholesale and specialty division increased primarily from growth in many excess and surplus property, casualty, and professional lines where we benefited from rate increases, strong renewal retention, and new business. Net premiums written increased in our Insurance – Overseas General segment driven by growth in our retail operations in all major product lines – P&C, A&H and personal lines. Growth in our P&C and A&H lines was primarily driven by strong results in both Latin America and Asia. In addition, P&C growth benefited from the impact of reinstatement premiums expensed in 2011. New business opportunities in Latin America, Asia, and Europe drove the growth in personal lines. Growth in net premiums written for 2012 was adversely impacted by foreign exchange. Net premiums written increased in our Life segment primarily due to growth in our Asian markets. Net premiums written increased in our Global Reinsurance segment primarily due to treaty business written in the year, improved pricing conditions in our property catastrophe business, and growth in our U.S. automobile business. This growth was partially offset by lower production in the first quarter of 2012 from competitive market conditions, adherence to underwriting standards, and an LPT treaty written in 2011. The increase in net premiums written in 2012 was partially offset by lower net premiums written in our Insurance – North American Agriculture segment from lower MPCI production.

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Net premiums earned for short-duration contracts, typically P&C contracts, generally reflect the portion of net premiums written that were recorded as revenues for the period as the exposure periods expire. Net premiums earned for long-duration contracts, typically traditional life contracts, generally are recognized as earned when due from policyholders. Net premiums earned increased in 2013 in our Insurance – Overseas General segment driven by the acquisitions and strong performance in all product lines as described above. Our Insurance – North American P&C segment also reported increases in net premiums earned from higher net premiums written as described above. This increase was partially offset by lower net premiums earned in our Insurance – North American Agriculture and Global Reinsurance segments from lower net premiums written as described above.

Net premiums earned increased in 2012 in our Insurance – Overseas General segment via strong performances in our retail operations in Latin America and Asia, as well as the favorable impact of reinstatement premiums expensed in 2011. This result was partially offset by the unfavorable impact of foreign exchange. Our Insurance – North American P&C segment also reported increases in net premiums earned from higher net premiums written as described above. Net premiums earned increased in our Life segment primarily due to growth in our Asian markets. Net premiums earned were flat in our Global Reinsurance segment and decreased in our Insurance – North American Agriculture segment from lower net premiums written as described above.

Net investment income was $2.1 billion for 2013 and $2.2 billion for both 2012 and 2011. Refer to “Net Investment Income” and “Investments” for additional information.

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

The following table presents our calendar year consolidated loss and loss expense ratio, policy acquisition cost ratio, administrative expense ratio, and combined ratio:

									
 	2013		 	2012		 	2011		
Loss and loss expense ratio	59.6	%	 	65.7	%	 	66.0	%	
Policy acquisition cost ratio	15.7	%	 	15.3	%	 	15.8	%	
Administrative expense ratio	12.7	%	 	12.9	%	 	12.9	%	
Combined ratio	88.0	%	 	93.9	%	 	94.7	%	

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

									
 	2013		 	2012		 	2011		
Loss and loss expense ratio, as reported	59.6	 %	 	65.7	 %	 	66.0	 %	
Catastrophe losses and related reinstatement premiums	(1.5	)%	 	(4.6	)%	 	(6.5	)%	
Prior period development	3.7	 %	 	3.5	 %	 	4.1	 %	
Loss and loss expense ratio, adjusted	61.8	 %	 	64.6	 %	 	63.6	 %	

Total net pre-tax catastrophe losses, excluding reinstatement premiums, were $ 230 million in 2013, compared with $633 million in 2012 and $ 859 million in 2011. Catastrophe losses in 2013 were primarily from flooding in Canada and Australia and severe weather-related events in the U.S. Catastrophe losses in 2012 were primarily from Superstorm Sandy, Hurricane Isaac, other severe weather-related events in the U.S. and Canada, and flooding in the U.K. Catastrophe losses in 2011 were primarily from earthquakes in Japan and New Zealand, flooding in Thailand, storms in Australia, and other severe weather-related events in the U.S. including Hurricane Irene. The adjusted loss and loss expense ratio decreased in 2013 primarily due to U.S. drought conditions in the prior year which unfavorably impacted the 2012 ratio.

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Prior period development arises from changes to loss estimates recognized in the current year that relate to loss reserves first reported in previous calendar years and excludes the effect of losses from the development of earned premium from previous accident years. We experienced $ 530 million of net favorable prior period development in 2013, which includes an asbestos and environmental (A&E) and other run-off charge of $166 million, compared with net favorable prior period development of $ 479 million in 2012, which includes an A&E and other run-off charge of $140 million, and $ 556 million in 2011. Refer to “Prior Period Development” for additional information.

Policy acquisition costs consist of commissions, premium taxes, and certain underwriting costs related directly to the successful acquisition of a new or renewal insurance contract. Administrative expenses include all other operating costs. Our policy acquisition cost ratio increased in 2013 primarily due to a decrease in net premiums earned and higher agent commissions in our Insurance – North American Agriculture segment's MPCI business. The prior year ratio was favorably impacted by higher premium retention and lower agent commissions in the MPCI business caused by the drought conditions in the U.S. This increase was partially offset by a lower policy acquisition cost ratio in our Insurance – Overseas General segment primarily due to the Mexican Acquisitions. Our policy acquisition cost ratio decreased in 2012 primarily due to lower profit sharing commission expenses in our Insurance – North American Agriculture segment reflecting high losses in the crop insurance business and from a favorable change in the mix of business in our Insurance – Overseas General segment. This favorable impact was offset by growth in certain businesses, including personal lines and A&H that carry a higher acquisition rate than our other businesses.

Our administrative expense ratio decreased in 2013 primarily due to the favorable impact of a $29 million legal settlement in the current year and growth in net premiums earned that outpaced the growth in administrative expenses in our Insurance – North American P&C segment. This favorable impact was offset by a decrease in our Insurance – North American Agriculture segment's net premiums earned as well as the impact of lower Administrative and Operating expense (A&O) reimbursements in our MPCI business. Our administrative expense ratio was flat in 2012 as the increase in spending to support growth, primarily in our Insurance – North American P&C segment and our Latin America and Asia regions within our Insurance – Overseas General segment, was offset by lower regulatory costs for Combined in the U.K. and Ireland.

Our effective income tax rate, which we calculate as income tax expense divided by income before income tax, is dependent upon the mix of earnings from different jurisdictions with various tax rates. A change in the geographic mix of earnings would change the effective income tax rate. Our effective income tax rate was 11.3 percent in 2013, compared with 9.1 percent and 24.6 percent in 2012 and 2011, respectively. The effective income tax rate in 2013 is higher compared to 2012 due to a favorable resolution in 2012 of various tax matters and the closing of statutes of limitations of $124 million which lowered the 2012 effective tax rate. Partially offsetting the increase in the 2013 effective tax rate was the impact of both net realized gains on derivatives and a higher percentage of earnings being generated in lower tax paying jurisdictions during the current year. The decrease in our effective income tax rate in 2012 compared to 2011 was due to the favorable resolution of various prior years' tax matters and the closing of statutes of limitations and a higher percentage of earnings generated in lower tax-paying jurisdictions, and a decrease in the amount of net realized losses on derivatives generated in lower tax-paying jurisdictions.

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_____________________________________________________________________________________________________________________
Prior Period Development

	
															
Years Ended December 31
(in millions of U.S. dollars, except for percentages)	Long-tail    		 	Short-tail    		 	Total		 	% of net unpaid
reserves (1)		
2013	 	 	 	 	 	 	 	
Insurance – North American P&C – active	$	(221	)	 	$	(106	)	 	$	(327	)	 	2.1	%	
Insurance – North American P&C – run-off (2)	193		 	—		 	193		 	1.2	%	
Insurance – North American Agriculture	—		 	(13	)	 	(13	)	 	4.0	%	
Insurance – Overseas General	(127	)	 	(172	)	 	(299	)	 	3.8	%	
Global Reinsurance	(53	)	 	(31	)	 	(84	)	 	3.6	%	
Total	$	(208	)	 	$	(322	)	 	$	(530	)	 	2.0	%	
2012	 	 	 	 	 	 	 	
Insurance – North American P&C – active	$	(245	)	 	$	(103	)	 	$	(348	)	 	2.2	%	
Insurance – North American P&C – run-off (2)	168		 	—		 	168		 	1.1	%	
Insurance – North American Agriculture	—		 	(12	)	 	(12	)	 	2.6	%	
Insurance – Overseas General	(121	)	 	(105	)	 	(226	)	 	3.1	%	
Global Reinsurance	(32	)	 	(29	)	 	(61	)	 	2.7	%	
Total	$	(230	)	 	$	(249	)	 	$	(479	)	 	1.9	%	
2011	 	 	 	 	 	 	 	
Insurance – North American P&C – active	$	(186	)	 	$	(103	)	 	$	(289	)	 	1.8	%	
Insurance – North American P&C – run-off (2)	102		 	—		 	102		 	0.6	%	
Insurance – North American Agriculture	—		 	(8	)	 	(8	)	 	5.2	%	
Insurance – Overseas General	(154	)	 	(136	)	 	(290	)	 	4.2	%	
Global Reinsurance	(58	)	 	(13	)	 	(71	)	 	3.1	%	
Total	$	(296	)	 	$	(260	)	 	$	(556	)	 	2.2	%	
		
(1)  	Calculated based on the segment's total beginning of period net unpaid loss and loss expenses reserves.	
		
(2)  	Brandywine Holdings and Westchester Specialty operations in respect of 1996 and prior years.	

For a discussion of significant prior period movements by segment, refer to Note 7 to the Consolidated Financial Statements.

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_____________________________________________________________________________________________________________________
Segment Operating Results – Years Ended December 31, 2013 , 2012 , and 2011 

We operate through five business segments: Insurance – North American P&C, Insurance – North American Agriculture, Insurance – Overseas General, Global Reinsurance, and Life. For additional information refer to “Segment Information” under Item 1. The discussions that follow include tables that show our segment operating results for the years ended December 31, 2013 , 2012 , and 2011 .

Insurance – North American

Insurance – North American P&C

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

																		
 	 	 	 	 	 	 	% Change	
(in millions of U.S. dollars, except for percentages)	2013		 	2012		 	2011		 	2013 vs. 2012		 	2012 vs. 2011		
Net premiums written	$	5,915		 	$	5,349		 	$	4,900		 	10.6	 %	 	9.2	 %	
Net premiums earned	5,721		 	5,147		 	4,969		 	11.1	 %	 	3.6	 %	
Losses and loss expenses	3,776		 	3,715		 	3,577		 	1.6	 %	 	3.9	 %	
Policy acquisition costs	597		 	558		 	532		 	7.0	 %	 	4.9	 %	
Administrative expenses	601		 	608		 	598		 	(1.2	)%	 	1.7	 %	
Underwriting income	747		 	266		 	262		 	180.8	 %	 	1.5	 %	
Net investment income	1,021		 	1,066		 	1,148		 	(4.2	)%	 	(7.1	)%	
Net realized gains (losses)	72		 	41		 	28		 	75.6	 %	 	46.4	 %	
Interest expense	5		 	12		 	13		 	(58.3	)%	 	(7.7	)%	
Other (income) expense	(58	)	 	(41	)	 	(13	)	 	41.5%		 	215.4%		
Income tax expense	347		 	229		 	344		 	51.5	 %	 	(33.4	)%	
Net income	$	1,546		 	$	1,173		 	$	1,094		 	31.8	 %	 	7.2	 %	
Loss and loss expense ratio	66.0	%	 	72.2	%	 	72.0	%	 	 	 	 	
Policy acquisition cost ratio	10.4	%	 	10.8	%	 	10.7	%	 	 	 	 	
Administrative expense ratio	10.5	%	 	11.8	%	 	12.0	%	 	 	 	 	
Combined ratio	86.9	%	 	94.8	%	 	94.7	%	 	 	 	 	

Net premiums written increased in 2013 in our retail division from growth across a broad range of our product portfolio including our risk management business, specialty casualty, professional, property, and A&H lines of business reflecting rate increases, exposure changes, strong renewal retention, and new business. In addition, we grew net premiums written in our Commercial Risk Services division, primarily professional lines and programs, and our personal lines division, primarily in the homeowners, automobile, and umbrella business offered through ACE Private Risk Services. Our wholesale and specialty division contributed to the increase in net premiums written due to higher production from our property, casualty, and professional lines of business.

Net premiums written increased in 2012 in our retail division reflecting rate increases in most lines, strong renewal retention, and new business. Growth in our retail division was due to higher production from a broad array of products including our primary casualty and risk management businesses, property, A&H, a range of specialty casualty products, and professional risk lines of business. In addition, we continued to generate higher personal lines production including higher premiums in the homeowners and automobile business offered through ACE Private Risk Services. Growth in our retail division was partially offset by lower premiums in certain casualty and program business from adherence to our underwriting standards; in particular, we continued our planned reduction in our U.S. general market workers' compensation business. Our wholesale and specialty division contributed to the increase from growth in many excess and surplus property, casualty, and professional lines where we benefited from rate increases, strong renewal retention, and new business.

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Net premiums earned increased in 2013 and 2012 primarily due to the increase in net premiums written as described above. In both years, growth in net premiums earned for the retail division was partially offset by lower earned premiums from our program business.

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

																		
 	 	 	 	 	 	% Change	
(in millions of U.S. dollars, except for percentages)	2013		 	2012		 	2011		 	2013 vs. 2012		 	2012 vs. 2011		
Property and all other	$	1,489		 	$	1,370		 	$	1,232		 	8.7	%	 	11.2	%	
Casualty	3,847		 	3,406		 	3,380		 	12.9	%	 	0.8	%	
Personal accident (A&H)	385		 	371		 	357		 	3.8	%	 	3.9	%	
Net premiums earned	$	5,721		 	$	5,147		 	$	4,969		 	11.1	%	 	3.6	%	
 	 	 	 	 	 	 	 	 	 	
 	2013
% of Total		 	2012
% of Total		 	2011
% of Total		 	 	 	 	
Property and all other	26	%	 	27	%	 	25	%	 	 	 	 	
Casualty	67	%	 	66	%	 	68	%	 	 	 	 	
Personal accident (A&H)	7	%	 	7	%	 	7	%	 	 	 	 	
Net premiums earned	100	%	 	100	%	 	100	%	 	 	 	 	

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

									
 	2013		 	2012		 	2011		
Loss and loss expense ratio, as reported	66.0	 %	 	72.2	 %	 	72.0	 %	
Catastrophe losses and related reinstatement premiums	(1.7	)%	 	(8.5	)%	 	(6.4	)%	
Prior period development	2.5	 %	 	3.7	 %	 	3.8	 %	
Loss and loss expense ratio, adjusted	66.8	 %	 	67.4	 %	 	69.4	 %	

Net pre-tax catastrophe losses, excluding reinstatement premiums, were $ 94 million in 2013, compared with $ 430 million in 2012 and $ 314 million in 2011. Catastrophe losses in 2013 were primarily from flooding in Canada and severe weather-related events in the U.S. Catastrophe losses in 2012 were primarily from Superstorm Sandy, Hurricane Isaac, and other severe weather-related events in the U.S. and Canada. Catastrophe losses in 2011 were from severe weather-related events in the U.S., including Hurricane Irene and flooding, as well as exposure from the Japan earthquake and the flooding in Thailand. Net favorable prior period development was $ 134 million in 2013, compared with $ 180 million in 2012 and $ 187 million in 2011. Refer to the “Prior Period Development” section for additional information. In 2013, the adjusted loss and loss expense ratio benefited from lower loss ratios in several of our lines where execution of detailed portfolio management plans has resulted in improved current accident year loss ratio performance. Partially offsetting the improvement in current accident year loss ratio performance is higher premiums from assumed loss portfolio programs, which is written at a higher loss ratio than other lines of business. The adjusted loss and loss expense ratio decreased in 2012 primarily due to a reduction in the current accident year loss ratio for several of our lines where execution of detailed portfolio management plans has resulted in improved loss ratio performance.

The policy acquisition cost ratio decreased in 2013 primarily due to growth in certain businesses which incur lower acquisition expenses. The policy acquisition cost increased slightly in 2012 due to growth in certain businesses, including personal lines and A&H that carry a higher acquisition rate than our other businesses, and increased spending for strategic initiatives to support future growth opportunities.

The administrative expense ratio decreased in 2013 primarily due to the favorable impact of a $29 million legal settlement in the current year and growth in net premiums earned that outpaced the growth in administrative expenses. The administrative expense ratio decreased in 2012 as the growth in net premiums earned outpaced the growth in administrative expenses. In both 2013 and 2012, we increased spending to support growth, primarily in our retail businesses, including ACE Private Risk Services and our wholesale and specialty business.

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Insurance – North American Agriculture

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

																		
 	 	 	 	 	 	 	% Change	
(in millions of U.S. dollars, except for percentages)	2013		 	2012		 	2011		 	2013 vs. 2012		 	2012 vs. 2011		
Net premiums written	$	1,627		 	$	1,859		 	$	1,951		 	(12.5	)%	 	(4.7	)%	
Net premiums earned	1,678		 	1,872		 	1,942		 	(10.4	)%	 	(3.6	)%	
Losses and loss expenses  (1)	1,525		 	1,911		 	1,699		 	(20.2	)%	 	12.5	 %	
Policy acquisition costs	53		 	28		 	80		 	89.3	 %	 	(65.0	)%	
Administrative expenses	11		 	(7	)	 	(6	)	 	NM		 	16.7%		
Underwriting income (loss)	89		 	(60	)	 	169		 	NM		 	NM		
Net investment income	26		 	25		 	22		 	4.0	 %	 	13.6	 %	
Net realized gains (losses) (1)	2		 	1		 	6		 	100.0	 %	 	(83.3	)%	
Interest expense	1		 	—		 	2		 	NM		 	NM		
Other (income) expense	32		 	32		 	18		 	—		 	77.8	 %	
Income tax expense (benefit)	20		 	(29	)	 	51		 	NM		 	NM		
Net income (loss)	$	64		 	$	(37	)	 	$	126		 	NM		 	NM		
Loss and loss expense ratio	90.9	%	 	102.1	 %	 	87.5	 %	 	 	 	 	
Policy acquisition cost ratio	3.2	%	 	1.5	 %	 	4.1	 %	 	 	 	 	
Administrative expense ratio	0.6	%	 	(0.4	)%	 	(0.3	)%	 	 	 	 	
Combined ratio	94.7	%	 	103.2	 %	 	91.3	 %	 	 	 	 	
		
(1)	Losses from fair value changes on crop derivatives are reclassified from Net realized gains (losses) to Losses and loss expenses for purposes of presenting Insurance - North American Agriculture underwriting income. Refer to Note 10 to the consolidated financial statements for more information on these derivatives.	

Net premiums written decreased in 2013 primarily due to lower premium retention in our MPCI program. Retention for the current year was lower due to the purchase of proportional reinsurance on the MPCI business for the 2013 crop year, which is in addition to the excess of loss reinsurance coverage historically purchased.

Net premiums written decreased in 2012 due to lower MPCI production reflecting lower commodity prices, most notably for major spring crops including corn and soybeans, and related volatility in these prices; as well as lower premiums from true-up adjustments for prior years estimated premiums. This decrease was partially offset by higher net premiums written due to increased premium retention primarily reflecting lower premium cessions to the federal government, and growth in our Agribusiness products reflecting the November 2011 acquisition of Penn Millers.

Net premiums earned decreased in 2013 and 2012 primarily due to lower net premiums written as described above.

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

									
 	2013		 	2012		 	2011		
Loss and loss expense ratio, as reported	90.9	 %	 	102.1	 %	 	87.5	 %	
Catastrophe losses and related reinstatement premiums	(0.4	)%	 	(0.6	)%	 	(1.7	)%	
Prior period development	0.8	 %	 	0.7	 %	 	0.4	 %	
Loss and loss expense ratio, adjusted	91.3	 %	 	102.2	 %	 	86.2	 %	

Net pre-tax catastrophe losses, excluding reinstatement premiums, were $ 7 million in 2013, compared with $ 11 million in 2012 and $ 33 million in 2011. Net favorable prior period development was $ 13 million in 2013, compared with $ 12 million in 2012 and $ 8 million in 2011. Refer to the “Prior Period Development” section for additional information. The adjusted loss

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and loss expense ratio for 2013 reflects higher losses resulting from lower commodity prices at the time of harvest as compared to the original base price used at the time the insurance contract is sold. Despite this increase, the adjusted loss and loss expense ratio for 2013 declined over the prior year because last year was adversely impacted by the U.S. drought. The adjusted loss and loss expense ratio increased in 2012 reflecting the impact of the U.S. drought on our MPCI business.

The policy acquisition cost ratio increased in 2013 primarily due to lower agent commission accruals in 2012, partially offset by the cede commission benefit from the proportional reinsurance purchase on the 2013 crop year. The U.S. drought significantly impacted the profitability of the MPCI business in 2012, and in years when the MPCI program is in an unprofitable position as defined in the SRA agent profit share commissions are not paid. The increase for 2013 also reflects a $14 million benefit in 2012 reflecting a revision in estimated agent profit share commissions for the prior year's MPCI business. The policy acquisition cost ratio decreased in 2012 from the impacts of the U.S. drought and the $14 million benefit as discussed above.

The administrative expense ratio increased in 2013 primarily due to higher Administrative and Operating expense (A&O) reimbursements on the MPCI business in the prior year mainly due to additional reimbursements earned for high loss ratio states and underserved states. Under the SRA with the federal government, ACE receives additional expense reimbursements when losses in individual states exceed a specified threshold. For 2012 and 2011, a portion of the A&O reimbursement included reimbursement of certain costs for claims handling, which are reported in Losses and loss expenses. In 2012, the administrative expenses also included a $6 million benefit for a revision in the prior year's estimate of staff related costs. The administrative expense ratio was relatively flat in 2012 as an increase in the A&O expense reimbursements from the federal government were offset by a decrease in net premiums earned.

Insurance – Overseas General

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

																		
 	 	 	 	 	 	 	% Change	
(in millions of U.S dollars, except for percentages)	2013		 	2012		 	2011		 	2013 vs. 2012		 	2012 vs. 2011		
Net premiums written	$	6,520		 	$	5,863		 	$	5,629		 	11.2	 %	 	4.2	 %	
Net premiums earned	6,333		 	5,740		 	5,614		 	10.3	 %	 	2.2	 %	
Losses and loss expenses	3,062		 	2,862		 	3,029		 	7.0	 %	 	(5.5	)%	
Policy acquisition costs	1,453		 	1,353		 	1,335		 	7.4	 %	 	1.3	 %	
Administrative expenses	1,008		 	935		 	939		 	7.8	 %	 	(0.4	)%	
Underwriting income	810		 	590		 	311		 	37.3	 %	 	89.7	 %	
Net investment income	539		 	521		 	546		 	3.5	 %	 	(4.6	)%	
Net realized gains (losses)	18		 	103		 	33		 	(82.5	)%	 	212.1	 %	
Interest expense	5		 	5		 	5		 	—		 	—		
Other (income) expense	39		 	3		 	—		 	NM		 	NM		
Income tax expense	222		 	133		 	164		 	66.9	 %	 	(18.9	)%	
Net income	$	1,101		 	$	1,073		 	$	721		 	2.6	 %	 	48.8	 %	
Loss and loss expense ratio	48.4	%	 	49.8	%	 	54.0	%	 	 	 	 	
Policy acquisition cost ratio	22.9	%	 	23.6	%	 	23.8	%	 	 	 	 	
Administrative expense ratio	15.9	%	 	16.3	%	 	16.7	%	 	 	 	 	
Combined ratio	87.2	%	 	89.7	%	 	94.5	%	 	 	 	 	

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Insurance – Overseas General conducts business internationally and in most major foreign currencies. The following table presents by major product line the approximate effect of changes in foreign currency exchange rates on the growth of net premiums written and earned:

															
 	2013	 	 	2012		 	2011		
 	P&C		 	A&H		 	Total		 	Total		 	Total		
Net premiums written:	 	 	 	 	 	 	 	 	 	
Growth in original currency	18.1	 %	 	6.2	 %	 	13.7	 %	 	7.7	 %	 	4.1	%	
Foreign exchange effect	(3.1	)%	 	(1.6	)%	 	(2.5	)%	 	(3.5	)%	 	4.4	%	
Growth as reported in U.S. dollars	15.0	 %	 	4.6	 %	 	11.2	 %	 	4.2	 %	 	8.5	%	
Net premiums earned:	 	 	 	 	 	 	 	 	 	
Growth in original currency	17.7	 %	 	4.2	 %	 	12.7	 %	 	6.0	 %	 	3.9	%	
Foreign exchange effect	(2.9	)%	 	(1.5	)%	 	(2.4	)%	 	(3.8	)%	 	5.1	%	
Growth as reported in U.S. dollars	14.8	 %	 	2.7	 %	 	10.3	 %	 	2.2	 %	 	9.0	%	

Net premiums written increased in 2013 driven by strong performance in our retail operations and from acquisitions. Growth was reported in our retail operations in all product lines – P&C, A&H, and personal lines. P&C growth was reported across all regions of our retail operations, driven by strong renewal retention and improved new business writings. A&H growth was primarily driven by strong results in Asia and Latin America. Personal lines growth reflected new business opportunities in Europe, Latin America, and Asia. In addition, the acquisitions of ABA Seguros in May 2013, Fianzas Monterrey in April 2013, and Jaya Proteksi in September 2012, added $407 million of growth to premiums. The unfavorable impact of foreign exchange partially offset this growth.

Net premiums written increased in 2012 driven by growth in our retail operations in all major product lines – P&C, A&H, and personal lines. Growth in our P&C and A&H lines was primarily driven by strong results in both Latin America and Asia. A&H growth was partially offset by declines in Combined Insurance's European business. In addition, P&C growth benefited from the impact of reinstatement premiums expensed in 2011. New business opportunities in Latin America, Asia, and Europe drove the growth in personal lines. Growth in net premiums written for 2012 was adversely impacted by foreign exchange.

Net premiums earned increased in 2013 driven by the acquisitions described above, which generated $389 million of net premiums earned, and strong performance in all regions and product lines. This growth was partially offset by the unfavorable impact of foreign exchange. Net premiums earned increased in 2012 via strong performances in our retail operations in Latin America and Asia, as well as the favorable impact of reinstatement premiums expensed in 2011. This result was partially offset by the unfavorable impact of foreign exchange.

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The following two tables present a line of business and regional breakdown of Insurance – Overseas General net premiums earned:

																		
 	 	 	 	 	 	 	% Change	
(in millions of U.S. dollars, except for percentages)	2013		 	2012		 	2011		 	2013 vs. 2012		 	2012 vs. 2011		
Line of Business	 	 	 	 	 	 	 	 	 	
Property and all other	$	2,672		 	$	2,236		 	$	2,080		 	19.5	 %	 	7.5	 %	
Casualty	1,479		 	1,379		 	1,415		 	7.3	 %	 	(2.5	)%	
Personal accident (A&H)	2,182		 	2,125		 	2,119		 	2.7	 %	 	0.3	 %	
Net premiums earned	$	6,333		 	$	5,740		 	$	5,614		 	10.3	 %	 	2.2	 %	
Region	 	 	 	 	 	 	 	 	 	
Europe	$	2,385		 	$	2,253		 	$	2,293		 	5.9	 %	 	(1.7	)%	
Asia Pacific	1,383		 	1,244		 	1,115		 	11.2	 %	 	11.6	 %	
Far East	458		 	525		 	519		 	(12.8	)%	 	1.2	 %	
Latin America	1,434		 	1,054		 	972		 	36.1	 %	 	8.4	 %	
 	5,660		 	5,076		 	4,899		 	11.5	 %	 	3.6	 %	
ACE Global Markets	673		 	664		 	715		 	1.4	 %	 	(7.1	)%	
Net premiums earned	$	6,333		 	$	5,740		 	$	5,614		 	10.3	 %	 	2.2	 %	
 	 	 	 	 	 	 	 	 	 	
 	2013
% of Total		 	2012
% of Total		 	2011
% of Total		 	 		 	 		
Line of Business	 	 	 	 	 	 	 	 	 	
Property and all other	42	%	 	39	%	 	37	%	 	 	 	 	
Casualty	23	%	 	24	%	 	25	%	 	 	 	 	
Personal accident (A&H)	35	%	 	37	%	 	38	%	 	 	 	 	
Net premiums earned	100	%	 	100	%	 	100	%	 	 	 	 	
Region	 	 	 	 	 	 	 	 	 	
Europe	38	%	 	39	%	 	41	%	 	 	 	 	
Asia Pacific	22	%	 	22	%	 	20	%	 	 	 	 	
Far East	7	%	 	9	%	 	9	%	 	 	 	 	
Latin America	23	%	 	18	%	 	17	%	 	 	 	 	
 	90	%	 	88	%	 	87	%	 	 	 	 	
ACE Global Markets	10	%	 	12	%	 	13	%	 	 	 	 	
Net premiums earned	100	%	 	100	%	 	100	%	 	 	 	 	

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

									
 	2013		 	2012		 	2011		
Loss and loss expense ratio, as reported	48.4	 %	 	49.8	 %	 	54.0	 %	
Catastrophe losses and related reinstatement premiums	(1.4	)%	 	(1.4	)%	 	(6.3	)%	
Prior period development	4.7	 %	 	4.0	 %	 	5.2	 %	
Loss and loss expense ratio, adjusted	51.7	 %	 	52.4	 %	 	52.9	 %	

Net pre-tax catastrophe losses, excluding reinstatement premiums, were $ 88 million in 2013, compared with $ 76 million in 2012 and $ 329 million in 2011. Catastrophe losses in 2013 were primarily related to flooding in Australia, Europe, and Canada, as well as hurricanes in Latin America, and the earthquake in New Zealand. Catastrophe losses in 2012 were primarily from Superstorm Sandy, Hurricane Isaac, and flooding in the U.K. Catastrophe losses in 2011 included flooding in Thailand,

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earthquakes in New Zealand and Japan, and storms in the U.S. and Australia. Net favorable prior period development was $ 299 million in 2013, compared with $ 226 million in 2012 and $ 290 million in 2011. Refer to the “Prior Period Development” section for additional information. The adjusted loss ratio decreased in 2013 due primarily to large property losses in the prior year which unfavorably impacted the prior year ratio. The adjusted loss ratio decreased in 2012 primarily due to the reduction of current accident year losses in our retail operations.

The policy acquisition ratio decreased in 2013 primarily due to the Mexican Acquisitions. As a result of purchase accounting requirements, the unearned premiums at the date of purchase related to the Mexican Acquisitions are recognized over the remaining coverage period with no expense for the associated historical acquisition costs that were incurred to underwrite those policies. The policy acquisition cost ratio decreased in 2012 due to lower A&H costs, a favorable change in the mix of business, and the favorable impact of reinstatement premiums expensed in 2011.

The administrative expense ratio decreased in 2013 due to the favorable impact of foreign exchange, the acquisitions described above, which generate lower administrative expenses than our other businesses, as well as growth in net premiums earned that outpaced the growth in administrative expenses and lower A&H regulatory fees paid in Europe. The administrative expense ratio decreased in 2012 primarily due to lower A&H regulatory fees paid in Europe and the favorable impact of reinstatement premiums expensed in 2011.

Global Reinsurance

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

																		
 	 	 	 	 	% Change	
(in millions of U.S. dollars, except for percentages)	2013		 	2012		 	2011		 	2013 vs. 2012		 	2012 vs. 2011		
Net premiums written	$	991		 	$	1,025		 	$	979		 	(3.3	)%	 	4.7	 %	
Net premiums earned	976		 	1,002		 	1,003		 	(2.6	)%	 	—		
Losses and loss expenses	396		 	553		 	621		 	(28.4	)%	 	(11.0	)%	
Policy acquisition costs	197		 	172		 	185		 	14.5	 %	 	(7.0	)%	
Administrative expenses	50		 	51		 	52		 	(2.0	)%	 	(1.9	)%	
Underwriting income	333		 	226		 	145		 	47.3	 %	 	55.9	 %	
Net investment income	280		 	290		 	287		 	(3.4	)%	 	1.0	 %	
Net realized gains (losses)	53		 	6		 	(50	)	 	NM		 	NM		
Interest expense	5		 	4		 	2		 	25.0	 %	 	100.0%		
Other (income) expense	(19	)	 	(15	)	 	(1	)	 	26.7%		 	NM		
Income tax expense	36		 	15		 	30		 	140.0	 %	 	(50.0	)%	
Net income	$	644		 	$	518		 	$	351		 	24.3	 %	 	47.6	 %	
Loss and loss expense ratio	40.5	%	 	55.2	%	 	62.0	%	 	 	 	 	
Policy acquisition cost ratio	20.3	%	 	17.1	%	 	18.4	%	 	 	 	 	
Administrative expense ratio	5.1	%	 	5.2	%	 	5.2	%	 	 	 	 	
Combined ratio	65.9	%	 	77.5	%	 	85.6	%	 	 	 	 	

Net premiums written decreased in 2013 due to a non-recurring LPT treaty written in the prior year, increased property catastrophe cessions to a sidecar, Altair Re, and lower catastrophe reinstatement premiums. This decrease was substantially offset by strong renewal retention and new business written, primarily in our U.S. property and U.S. automobile lines of business. Net premiums written increased in 2012 due to U.S. property treaties written in the year, improved pricing conditions in our property catastrophe business, and growth in our U.S. automobile lines of business, partially offset by lower production in the first quarter of 2012 from competitive market conditions, adherence to underwriting standards, and an LPT treaty written in 2011.

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Net premiums earned decreased in 2013 due to a non-recurring LPT treaty written in the prior year, which was fully earned when written and, to a lesser extent, the higher property catastrophe cessions noted above. This decrease was partially offset by higher net premiums earned in our U.S. property lines due to higher premiums written in the current and prior years. Net premiums earned were flat in 2012 as a result of competitive market conditions.

The following tables present a line of business breakdown of Global Reinsurance net premiums earned:

																		
 	 	 	 	 	% Change	
(in millions of U.S. dollars, except for percentages)	2013		 	2012		 	2011		 	2013 vs. 2012		 	2012 vs. 2011		
Property and all other	$	253		 	$	194		 	$	177		 	30.4	 %	 	9.6	 %	
Casualty	433		 	507		 	545		 	(14.6	)%	 	(7.0	)%	
Property catastrophe	290		 	301		 	281		 	(3.7	)%	 	7.1	 %	
Net premiums earned	$	976		 	$	1,002		 	$	1,003		 	(2.6	)%	 	—		
 	 	 	 	 	 	 	 	 	 	
 	2013
% of Total		 	2012
% of Total		 	2011
% of Total		 	 		 	 		
Property and all other	26	%	 	19	%	 	18	%	 	 	 	 	
Casualty	44	%	 	51	%	 	54	%	 	 	 	 	
Property catastrophe	30	%	 	30	%	 	28	%	 	 	 	 	
Net premiums earned	100	%	 	100	%	 	100	%	 	 	 	 	

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

	
									
 	2013		 	2012		 	2011		
Loss and loss expense ratio, as reported	40.5	 %	 	55.2	 %	 	62.0	 %	
Catastrophe losses and related reinstatement premiums	(4.0	)%	 	(11.1	)%	 	(18.0	)%	
Prior period development	9.1	 %	 	6.3	 %	 	7.7	 %	
Loss and loss expense ratio, adjusted	45.6	 %	 	50.4	 %	 	51.7	 %	

Net pre-tax catastrophe losses, excluding reinstatement premiums, were $ 41 million in 2013, compared with $ 116 million in 2012 and $ 183 million in 2011. Catastrophe losses in 2013 were primarily from flooding in Canada and Europe. Catastrophe losses in 2012 were primarily from Superstorm Sandy, Hurricane Isaac, and other North American weather-related events. Catastrophe losses in 2011 were primarily from earthquakes in Japan and New Zealand, and weather-related events in the U.S. Net favorable prior period development was $ 84 million in 2013, compared with $ 61 million in 2012 and $ 71 million in 2011 (2013, 2012 and 2011 are net of $8 million, $4 million, and $13 million, respectively, of unfavorable premium adjustments to loss sensitive treaties). Refer to the “Prior Period Development” section for additional information. The adjusted loss and loss expense ratio decreased in 2013 primarily due to the LPT treaty written in 2012, which unfavorably impacted the 2012 ratio. In addition, the adjusted loss and loss expense ratio decreased due to favorable current accident year loss experience and a change in the mix of business towards lower loss ratio products. The adjusted loss and loss expense ratio decreased in 2012 due to an increase in lower loss ratio property catastrophe business and from the favorable impact of an LPT treaty written in 2011, which unfavorably impacted the 2011 ratio. This decrease was partially offset by the unfavorable impact of the LPT treaty written in 2012 and unfavorable current accident year loss experience.

The policy acquisition cost ratio increased in 2013 due to a change in the mix of business towards products that have a higher acquisition cost ratio as well as the LPT treaty written in the prior year, which did not generate acquisition costs. The policy acquisition cost ratio decreased in 2012 from the impact of an LPT treaty, which did not generate acquisition costs, favorable profit commission accruals on the catastrophe retrocession contract, and net favorable adjustments on loss sensitive contract provisions.

The administrative expense ratio remained relatively flat in 2013 as lower administrative expenses were offset by a decrease in net premiums earned. The administrative expense ratio was flat in 2012.

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Life

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

																		
 	 	 	 	 	% Change	
(in millions of U.S. dollars, except for percentages)	2013		 	2012		 	2011		 	2013 vs. 2012		 	2012 vs. 2011		
Net premiums written	$	1,972		 	$	1,979		 	$	1,913		 	(0.4	)%	 	3.4	 %	
Net premiums earned	1,905		 	1,916		 	1,859		 	(0.6	)%	 	3.1	 %	
Losses and loss expenses	582		 	611		 	593		 	(4.7	)%	 	3.0	 %	
Policy benefits	515		 	521		 	401		 	(1.2	)%	 	29.9	 %	
(Gains) losses from fair value changes in separate account assets (1)	(16	)	 	(29	)	 	36		 	 (44.8)%		 	NM		
Policy acquisition costs	358		 	334		 	339		 	7.2	 %	 	(1.5	)%	
Administrative expenses	343		 	328		 	317		 	4.6	 %	 	3.5	 %	
Net investment income	251		 	251		 	226		 	—		 	11.1	 %	
Life underwriting income	374		 	402		 	399		 	(7.0	)%	 	0.8	 %	
Net realized gains (losses)	360		 	(72	)	 	(806	)	 	NM		 	 (91.1)%		
Interest expense	15		 	12		 	11		 	25.0	 %	 	9.1%		
Other (income) expense (1)	13		 	25		 	26		 	(48.0	)%	 	(3.8	)%	
Income tax expense	34		 	58		 	50		 	(41.4	)%	 	16.0	 %	
Net income (loss)	$	672		 	$	235		 	$	(494	)	 	186.0%		 	NM		

(1)	(Gains) losses from fair value changes in separate account assets that do not qualify for separate account reporting under GAAP are reclassified from Other (income) expense for purposes of presenting Life underwriting income.	

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

																		
 	 	 	 	 	% Change	
(in millions of U.S. dollars, except for percentages)	2013		 	2012		 	2011		 	2013 vs. 2012		 	2012 vs. 2011		
A&H	$	1,016		 	$	1,011		 	$	996		 	0.5	 %	 	1.5	 %	
Life insurance	672		 	654		 	573		 	2.8	 %	 	14.1	 %	
Life reinsurance	284		 	314		 	344		 	(9.6	)%	 	(8.7	)%	
Net premiums written (excludes deposits below)	$	1,972		 	$	1,979		 	$	1,913		 	(0.4	)%	 	3.4	 %	
 	 	 	 	 	 	 	 	 	 	
Deposits collected on universal life and investment contracts	$	821		 	$	611		 	$	503		 	34.4	 %	 	21.5	 %	

A&H net premiums written increased slightly in 2013 as growth in certain program business and improved new business production was substantially offset by the non-renewal of several large accounts. A&H net premiums written increased in 2012 due to a catch-up in premium registrations and growth in certain program business, partially offset by decreases in net premiums written due to the continuing effects on the economy resulting in lower new business and renewals. Life insurance net premiums written increased in 2013 and 2012 primarily due to growth in our Asian markets. Life reinsurance net premiums written decreased in 2013 and 2012 because there is no new life reinsurance business currently being written.

Deposits collected on universal life and investment contracts (life deposits) are not reflected as revenues in our consolidated statements of operations in accordance with GAAP. New life deposits are an important component of production and key to our efforts to grow our business. Although life deposits do not significantly affect current period income from operations, they are an important indicator of future profitability. The increase in life deposits collected in 2013 and 2012 is primarily due to growth in our Asian markets.

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Net realized gains (losses), which are excluded from Life underwriting income, relate primarily to the change in the net fair value of reported GLB reinsurance liabilities and changes in the fair value of derivatives used to partially offset the risk in the variable annuity guarantee portfolio. During 2013, realized gains of $929 million were associated with a net decrease in the value of GLB liabilities; this decrease was primarily due to rising equity levels, higher interest rates, a $92 million realized gain related to an out-of-period adjustment for an error in a market valuation model, and a weakening yen, partially offset by an increased value of GLB liabilities due to the net unfavorable impact of changes in lapse and annuitization assumptions and also discounting future claims for one less year. We evaluated the quantitative and qualitative aspects of the out-of-period adjustment and concluded that the impact of recognizing this adjustment is not material to the consolidated financial statements and all prior period consolidated financial statements.

During the fourth quarter of 2013, we completed an in-depth review of actual policyholder lapse and annuitization behavior by treaty for our variable annuity reinsurance business. As a greater percentage of our clients’ policyholders have reached the ultimate lapse rate period and have become eligible to annuitize in the past year, we determined that experience was credible enough to warrant a more robust evaluation of our assumptions compared to actual experience. As a result of our review, we made several adjustments to our lapse assumption, the most significant of which was a reduction in lapses for most large, in-the-money, GMIB policies. The change in lapse assumption increased the fair value of GLB liabilities and generated a realized loss of $104 million. We also made several adjustments to our annuitization assumption, which generally lowered the utilization rate for most clients, while raising it for one client. The change in annuitization assumption decreased the fair value of GLB liabilities and generated a realized gain of $64 million. We will continue to monitor actual policyholder behavior against our assumptions and make adjustments as appropriate.

During 2012, realized gains of $203 million were associated with a net decrease in the value of GLB liabilities; this decrease was primarily due to rising equity levels and a weakening yen, partially offset by an increased value of GLB liabilities due to falling interest rates and the unfavorable impact of discounting future claims for one less year. During 2011, realized losses of $812 million were associated with a net increase in the value of GLB liabilities due to falling interest rates, falling international equity markets, and the unfavorable impact of discounting future claims for one less year. In addition, we experienced realized losses of $579 million, $297 million, and $4 million in 2013, 2012, and 2011, respectively, due to a decrease in the value of derivative instruments, which decrease in value when the S&P 500 index increases.

____________________________________________________________________________________________________________
Net Investment Income

												
 	Years Ended December 31	 	
(in millions of U.S. dollars)	2013		 	2012		 	2011		
Fixed maturities	$	2,093		 	$	2,134		 	$	2,196		
Short-term investments	29		 	28		 	43		
Equity securities	37		 	34		 	36		
Other	105		 	104		 	62		
Gross investment income	2,264		 	2,300		 	2,337		
Investment expenses	(120	)	 	(119	)	 	(95	)	
Net investment income	$	2,144		 	$	2,181		 	$	2,242		

Net investment income is influenced by a number of factors including the amounts and timing of inward and outward cash flows, the level of interest rates, and changes in overall asset allocation. Net investment income decreased 1.7 percent in 2013 compared with 2012 primarily due to lower reinvestment rates in our fixed income portfolio, offset by a higher overall invested asset base. Net investment income decreased 2.8 percent in 2012 compared with 2011 primarily due to lower reinvestment rates, higher investment expenses, and the negative impact of foreign exchange, partially offset by positive operating cash flows, higher private equity fund distributions, and the income benefit of an insurance contract classified as a deposit.

The investment portfolio’s average market yield on fixed maturities was 3.0 percent , 2.3 percent, and 3.1 percent at December 31, 2013 , 2012 , and 2011 , respectively. Average market yield on fixed maturities represents the weighted average yield to maturity of our fixed income portfolio based on the market prices of the holdings at that date.

The 1.3 percent yield on short-term investments reflects the global nature of our insurance operations. For example, yields on short-term investments in Malaysia, China, Indonesia, and Ecuador range from 3.0 percent to 7.5 percent .

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The 4.6 percent yield on our equity securities portfolio is high relative to the yield on the S&P 500 Index because of dividends on preferred equity securities and because we classify our strategic emerging debt portfolio, which is a mutual fund, as equity. Year to date, the preferred equity securities and strategic emerging debt portfolio represent 76 percent of the gross equity securities investment income.

The following table shows the return on average invested assets:

												
 	Years Ended December 31	 	
(in millions of U.S. dollars, except for percentages)	2013		 	2012		 	2011		
Average invested assets	$	58,574		 	$	55,665		 	$	52,093		
Net investment income	$	2,144		 	$	2,181		 	$	2,242		
Return on average invested assets	3.7	%	 	3.9	%	 	4.3	%	

____________________________________________________________________________________________________________
Net Realized and Unrealized Gains (Losses)

We take a long-term view with our investment strategy, and our investment managers manage our investment portfolio to maximize total return within certain specific guidelines designed to minimize risk. The majority of our investment portfolio is available for sale and reported at fair value. Our held to maturity investment portfolio is reported at amortized cost.
The effect of market movements on our available for sale investment portfolio impacts Net income (through Net realized gains (losses)) when securities are sold or when we record an Other-than-temporary impairment (OTTI) charge in Net income. For a discussion related to how we assess OTTI for all of our investments, including credit-related OTTI, and the related impact on Net income, refer to Note 3 c) to the Consolidated Financial Statements. Additionally, Net income is impacted through the reporting of changes in the fair value of derivatives, including financial futures, options, swaps, and GLB reinsurance. Changes in unrealized appreciation and depreciation on available for sale securities, which result from the revaluation of securities held, are reported as a separate component of Accumulated other comprehensive income in Shareholders’ equity in the consolidated balance sheets.

The following table presents our pre-tax net realized and unrealized gains (losses) on investments: 

																								
 	Year Ended December 31, 2013	 		Year Ended December 31, 2012	 	
(in millions of U.S. dollars)	Net
Realized
Gains
(Losses) (1)		 	Net
Unrealized
Gains
(Losses)		 	Net
Impact		 	Net
Realized
Gains
(Losses) (1)		 	Net
Unrealized
Gains
(Losses)		 	Net
Impact		
Fixed maturities	$	90		 	$	(1,880	)	 	$	(1,790	)	 	$	230		 	$	1,005		 	$	1,235		
Fixed income derivatives	78		 	—		 	78		 	(6	)	 	—		 	(6	)	
Total fixed maturities	168		 	(1,880	)	 	(1,712	)	 	224		 	1,005		 	1,229		
Public equity	15		 	(41	)	 	(26	)	 	4		 	61		 	65		
Private equity	(2	)	 	51		 	49		 	(7	)	 	49		 	42		
Other	(3	)	 	3		 	—		 	3		 	5		 	8		
Subtotal	178		 	(1,867	)	 	(1,689	)	 	224		 	1,120		 	1,344		
Derivatives	 	 	 	 	 	 	 	 	 	 	 	
Fair value adjustment on insurance derivatives	878		 	—		 	878		 	171		 	—		 	171		
S&P put option and futures	(579	)	 	—		 	(579	)	 	(297	)	 	—		 	(297	)	
Fair value adjustment on other derivatives	(2	)	 	—		 	(2	)	 	(4	)	 	—		 	(4	)	
Subtotal derivatives	297		 	—		 	297		 	(130	)	 	—		 	(130	)	
Foreign exchange gains (losses)	29		 	—		 	29		 	(16	)	 	—		 	(16	)	
Total gains (losses)	$	504		 	$	(1,867	)	 	$	(1,363	)	 	$	78		 	$	1,120		 	$	1,198		
		
(1)	For the year ended December 31, 2013 , other-than-temporary impairments include $18 million for fixed maturities, $2 million for private equity, and $2 million for public equity. For the year ended December 31, 2012 , other-than-temporary impairments include $25 million for fixed maturities, $7 million for private equity, and $5 million for public equity.	

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At December 31, 2013 , our investment portfolios held by U.S. legal entities included approximately $ 253 million of gross unrealized losses on fixed income investments. Our tax planning strategy related to these losses is based on our view that we will hold these fixed income investments until they recover their cost. As such, we have recognized a deferred tax asset of approximately $ 89 million related to these fixed income investments. This strategy allows us to recognize the associated deferred tax asset related to these fixed income investments as we do not believe these losses will ever be realized.

We engage in a securities lending program which involves lending investments from time to time to other institutions for short periods. ACE invests the collateral received in securities of high credit quality and liquidity, with the objective of maintaining a stable principal balance. Certain investments purchased with the securities lending collateral declined in value resulting in an unrealized loss of $ 1 million at December 31, 2013 . The unrealized loss is attributable to fluctuations in market values of the underlying performing debt instruments held by the respective mutual funds, rather than default of a debt issuer. It is our view that the decline in value is temporary.

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Other Income and Expense Items

Other (income) expense was $15 million in 2013 compared with $(6) million and $81 million in 2012 and 2011, respectively. Refer to Note 14 to the Consolidated Financial Statements for the components of Other (income) expense.

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Investments

Our investment portfolio is invested primarily in publicly traded, investment grade, fixed income securities with an average credit quality of A/Aa as rated by the independent investment rating services Standard and Poor’s (S&P)/ Moody’s Investors Service (Moody’s). The portfolio is externally managed by independent, professional investment managers and is broadly diversified across geographies, sectors, and issuers. Other investments principally comprise direct investments, investment funds, and limited partnerships. We hold no collateralized debt obligations or collateralized loan obligations in our investment portfolio, and we provide no credit default protection. We have long-standing global credit limits for our entire portfolio across the organization. Exposures are aggregated, monitored, and actively managed by our Global Credit Committee, comprising senior executives, including our Chief Financial Officer, our Chief Risk Officer, our Chief Investment Officer, and our Treasurer. We also have well-established, strict contractual investment rules requiring managers to maintain highly diversified exposures to individual issuers and closely monitor investment manager compliance with portfolio guidelines.

The average duration of our fixed income securities, including the effect of options and swaps, was 4.0 years and 3.9 years at December 31, 2013 and 2012 , respectively. We estimate that a 100 basis point (bps) increase in interest rates would reduce the valuation of our fixed income portfolio by approximately $2.3 billion at December 31, 2013 .

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

																
 	December 31, 2013	 	 	December 31, 2012	 	
(in millions of U.S. dollars)	Fair
Value		 	Cost/
Amortized
Cost		 	Fair
Value		 	Cost/
Amortized
Cost		
Fixed maturities available for sale	$	49,254		 	$	48,406		 	$	47,306		 	$	44,666		
Fixed maturities held to maturity	6,263		 	6,098		 	7,633		 	7,270		
Short-term investments	1,763		 	1,763		 	2,228		 	2,228		
 	57,280		 	56,267		 	57,167		 	54,164		
Equity securities	837		 	841		 	744		 	707		
Other investments	2,976		 	2,671		 	2,716		 	2,465		
Total investments	$	61,093		 	$	59,779		 	$	60,627		 	$	57,336		

The fair value of our total investments increased $466 million during the year ended December 31, 2013 , primarily due to the investing of operating cash flows, partially offset by the negative impact of rising interest rates on the valuation of our portfolio and unfavorable foreign exchange.

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The following tables present the market value of our fixed maturities and short-term investments at December 31, 2013 and 2012 . The first table lists investments according to type and the second according to S&P credit rating: 

														
 	December 31, 2013	 	 	December 31, 2012	 	
(in millions of U.S. dollars, except for percentages)	Market Value		 	% of Total		 	Market Value		 	% of Total		
Treasury	$	2,327		 	4	%	 	$	2,794		 	5	%	
Agency	1,454		 	3	%	 	2,024		 	4	%	
Corporate and asset-backed securities	19,475		 	34	%	 	18,983		 	33	%	
Mortgage-backed securities	12,273		 	21	%	 	12,589		 	22	%	
Municipal	4,500		 	8	%	 	3,872		 	7	%	
Non-U.S.	15,488		 	27	%	 	14,677		 	25	%	
Short-term investments	1,763		 	3	%	 	2,228		 	4	%	
Total	$	57,280		 	100	%	 	$	57,167		 	100	%	
AAA	$	8,677		 	15	%	 	$	9,285		 	16	%	
AA	21,520		 	38	%	 	22,014		 	39	%	
A	11,168		 	19	%	 	10,760		 	19	%	
BBB	7,193		 	12	%	 	6,591		 	12	%	
BB	4,418		 	8	%	 	4,146		 	7	%	
B	3,940		 	7	%	 	3,846		 	6	%	
Other	364		 	1	%	 	525		 	1	%	
Total	$	57,280		 	100	%	 	$	57,167		 	100	%	

Corporate and asset-backed securities
The following table presents our 10 largest global exposures to corporate bonds by market value at December 31, 2013 :

				
(in millions of U.S. dollars)	Market Value		
JP Morgan Chase & Co	$	504		
Goldman Sachs Group Inc	444		
General Electric Co	414		
Wells Fargo & Co	283		
Citigroup Inc	278		
Morgan Stanley	274		
Verizon Communications Inc	263		
Bank of America Corp	258		
HSBC Holdings Plc	224		
AT&T INC	198		

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Mortgage-backed securities

																											
 	S&P Credit Rating	 	 	 	
 	Market Value	 	Amortized Cost		
December 31, 2013 (in millions of U.S. dollars)	AAA		 	AA		 	A		 	BBB		 	BB and
below		 	Total		Total		
Agency residential mortgage-backed (RMBS)	$	—		 	$	10,141		 	$	—		 	$	—		 	$	—		 	$	10,141		$	10,155		
Non-agency RMBS	56		 	8		 	26		 	15		 	186		 	291		295		
Commercial mortgage-backed	1,811		 	13		 	10		 	7		 	—		 	1,841		1,828		
Total mortgage-backed securities	$	1,867		 	$	10,162		 	$	36		 	$	22		 	$	186		 	$	12,273		$	12,278		
Municipal
As part of our overall investment strategy, we may invest in states, municipalities, and other political subdivisions fixed maturity securities (Municipal). We apply the same investment selection process described previously to our Municipal investments. The portfolio is highly diversified primarily in state general obligation bonds and essential service revenue bonds including education and utilities (water, power, and sewers).
Non-U.S.
Our exposure to the Euro results primarily from ACE European Group which is headquartered in London and offers a broad range of coverages throughout the European Union, Central, and Eastern Europe. ACE primarily invests in Euro denominated investments to support its local currency insurance obligations and required capital levels. ACE’s local currency investment portfolios have strict contractual investment guidelines requiring managers to maintain a high quality and diversified portfolio to both sector and individual issuers. Investment portfolios are monitored daily to ensure investment manager compliance with portfolio guidelines.
Our non-U.S. investment grade fixed income portfolios are currency-matched with the insurance liabilities of our non-U.S. operations. The average credit quality of our non-U.S. fixed income securities is A and 53 percent of our holdings are rated AAA or guaranteed by governments or quasi-government agencies. Within the context of these investment portfolios, our government and corporate bond holdings are highly diversified across industries and geographies. Issuer limits are based on credit rating (AA— two percent, A— one percent, BBB— 0.5 percent of the total portfolio) and are monitored daily via an internal compliance system. Because of this investment approach we do not have a direct exposure to troubled sovereign borrowers in Europe. We manage our indirect exposure using the same credit rating based investment approach. Accordingly, we do not believe our indirect exposure is material.
The following table summarizes the market value and amortized cost of our non-U.S. fixed income portfolio by country/sovereign for non-U.S. government securities at December 31, 2013 : 

								
(in millions of U.S. dollars)	Market Value		 	Amortized Cost		
United Kingdom	$	1,225		 	$	1,242		
Republic of Korea	677		 	655		
Canada	566		 	561		
United Mexican States	472		 	474		
Germany	356		 	357		
Province of Ontario	337		 	332		
Japan	289		 	289		
Federative Republic of Brazil	259		 	260		
Kingdom of Thailand	252		 	253		
Province of Quebec	252		 	249		
Other Non-U.S. Government Securities  (1)	2,570		 	2,551		
Total	$	7,255		 	$	7,223		
		
(1)  	There are no investments in Portugal, Ireland, Italy, Greece or Spain.	

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The following table summarizes the market value and amortized cost of our non-U.S. fixed income portfolio by country/sovereign for non-U.S. corporate securities at December 31, 2013 : 

								
(in millions of U.S. dollars)	Market Value		 	Amortized Cost		
United Kingdom	$	1,474		 	$	1,409		
Canada	1,123		 	1,078		
Australia	671		 	654		
United States	593		 	571		
France	533		 	516		
Netherlands	488		 	473		
Germany	484		 	467		
Euro Supranational	237		 	232		
Switzerland	230		 	219		
Sweden	218		 	212		
Other Non-U.S. Corporate Securities	2,182		 	2,146		
Total	$	8,233		 	$	7,977		

The countries that are listed in the non-U.S. corporate fixed income portfolio above represent the ultimate parent company's country of risk. Non-U.S. corporate securities could be issued by foreign subsidiaries of U.S. corporations.

Below-investment grade corporate fixed income portfolio
Below-investment grade securities have different characteristics than investment grade corporate debt securities. Risk of loss from default by the borrower is greater with below-investment grade securities. Below-investment grade securities are generally unsecured and are often subordinated to other creditors of the issuer. Also, issuers of below-investment grade securities usually have higher levels of debt and are more sensitive to adverse economic conditions, such as recession or increasing interest rates, than are investment grade issuers. At December 31, 2013 , our corporate fixed income investment portfolio included below-investment grade and non-rated securities which, in total, comprised approximately 14 percent of our fixed income portfolio. Our below-investment grade and non-rated portfolio includes over 1,100 issuers, with the greatest single exposure being $101 million.

We manage high-yield bonds as a distinct and separate asset class from investment grade bonds. The allocation to high-yield bonds is explicitly set by internal management and is targeted to securities in the upper tier of credit quality (BB/B). Our minimum rating for initial purchase is BB/B. Six external investment managers are responsible for high-yield security selection and portfolio construction. Our high-yield managers have a conservative approach to credit selection and very low historical default experience. Holdings are highly diversified across industries and subject to a 1.5 percent issuer limit as a percentage of high-yield allocation. We monitor position limits daily through an internal compliance system. Derivative and structured securities (e.g., credit default swaps and collateralized loan obligations) are not permitted in the high-yield portfolio.

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Reinsurance Recoverable on Ceded Reinsurance

									
(in millions of U.S. dollars)	December 31 2013		 	December 31 2012		
Reinsurance recoverable on unpaid losses and loss expenses (1)	$	10,612		 	$	11,399		
Reinsurance recoverable on paid losses and loss expenses (1)	615		 	679		
Net reinsurance recoverable on losses and loss expenses	$	11,227		 	$	12,078		
Reinsurance recoverable on policy benefits	$	218		 	$	241		
		
(1)  	Net of a provision for uncollectible reinsurance.	

We evaluate the financial condition of our reinsurers and potential reinsurers on a regular basis and also monitor concentrations of credit risk with reinsurers. The provision for uncollectible reinsurance is required principally due to the potential failure of reinsurers to indemnify us, primarily because of disputes under reinsurance contracts and insolvencies. The provision for uncollectible reinsurance is based on a default analysis applied to gross reinsurance recoverables, net of approximately $2.3 billion and $2.5 billion of collateral at December 31, 2013 and 2012, respectively. The decrease in net reinsurance recoverable on losses and loss expenses was primarily due to lower MPCI losses, favorable PPD, collections relating to run-off operations, and lower natural catastrophe losses.

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Asbestos and Environmental (A&E) and Other Run-off Liabilities

Included in ACE's liabilities for losses and loss expenses are amounts for A&E liabilities. The A&E liabilities principally relate to claims arising from bodily-injury claims related to asbestos products and remediation costs associated with hazardous waste sites. The estimation of ACE's A&E liabilities is particularly sensitive to future changes in the legal, social, and economic environment. ACE has not assumed any such future changes in setting the value of our A&E reserves, which include provisions for both reported and IBNR claims. Refer to Note 7 to the Consolidated Financial Statements for additional information.

Reserving considerations
For asbestos, ACE faces claims relating to policies issued to manufacturers, distributors, installers, and other parties in the chain of commerce for asbestos and products containing asbestos. Claims can be filed by individual claimants or groups of claimants with the potential for hundreds of individual claimants at one time. Claimants will generally allege damages across an extended time period which may coincide with multiple policies covering a wide range of time periods for a single insured.

Environmental claims present exposure for remediation and defense costs associated with the contamination of property as a result of pollution. It is common, especially for larger defendants, to be named as a potentially responsible party at multiple sites.

The following table presents count information by account for asbestos and environmental claims, for direct policies only:

						
 	2013		 	2012		
Asbestos (by causative agent)	 	 	 	
Open at beginning of year	1,058		 	1,196		
Newly reported	69		 	65		
Closed or otherwise disposed	20		 	203		
Open at end of year	1,107		 	1,058		
 	 	 	 	
Environmental (by site)	 	 	 	
Open at beginning of year	3,390		 	3,733		
Newly reported	138		 	131		
Closed or otherwise disposed	189		 	474		
Open at end of year	3,339		 	3,390		

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Closed or otherwise disposed claims were significantly higher in 2012 due to a review of pending cases completed in 2012 prior to transferring claim handling responsibilities from a NICO subsidiary back to Century Indemnity Company. Refer to Note 7 to the Consolidated Financial Statements for additional information.

The following table presents our gross and net survival ratios for our A&E loss reserves and allocated loss adjustment expense (ALAE) reserves at December 31, 2013 and 2012 :

																								
 	2013 Survival Ratios	 	 	2012 Survival Ratios (1)	 	
 	3 Year	 	 	1 Year	 	 	3 Year	 	 	1 Year	 	
 	Gross		 	Net		 	Gross		 	Net		 	Gross		 	Net		 	Gross		 	Net		
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Asbestos	4.4		 	4.2		 	4.5		 	6.0		 	5.2		 	4.5		 	4.2		 	3.1		
Environmental	2.0		 	1.6		 	1.7		 	1.4		 	2.3		 	2.0		 	2.5		 	1.9		
Total	3.9		 	3.4		 	3.8		 	4.2		 	4.7		 	3.9		 	4.0		 	2.9		
		
(1)	2012 Survival Ratios have been adjusted to present claims in a manner consistent with balances disclosed at December 31, 2013.	

The net ratios reflect third-party reinsurance other than the aggregate excess reinsurance provided under the NICO contracts, which was exhausted on a paid basis in 2013. These survival ratios are calculated by dividing the asbestos or environmental loss and ALAE reserves by the average asbestos or environmental loss and ALAE payments for the three most recent calendar years (3 year survival ratio), and by asbestos or environmental loss and ALAE payments in the current year (1 year survival ratio). The survival ratios provide only a very rough depiction of reserves and are significantly impacted by a number of factors such as aggressive settlement practices, variations in gross to ceded relationships within the asbestos or environmental claims, and levels of coverage provided. We, therefore, urge caution in using these very simplistic ratios to gauge reserve adequacy and note that the 1 year survival ratios, particularly, are likely to move considerably from year to year for the reasons just described.

The 1 year asbestos net survival ratio increase in 2013 was primarily due to an increase in ceded billing transactions related to prior years gross paid loss activities. The 1 year and 3 year environmental net survival ratios decreased in 2013 primarily due to several large 2013 settlement payments.

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Catastrophe Management

We actively monitor our catastrophe risk accumulation around the world. The table below presents our modeled annual aggregate pre-tax probable maximum loss (PML), net of reinsurance, for 100-year and 250-year return periods for U.S. hurricanes and California earthquakes at December 31, 2013 and 2012 . The table also presents ACE’s corresponding share of pre-tax industry losses for each of the return periods for U.S. hurricanes and California earthquakes at December 31, 2013 and 2012 . For example, according to the model, for the 1-in-100 return period scenario, there is a one percent chance that our losses incurred in any year from U.S. hurricanes could be in excess of $2,235 million (or 7.8 percent of our total shareholders’ equity at December 31, 2013 ). We estimate that at such hypothetical loss levels, ACE’s share of aggregate industry losses would be approximately 1.3 percent.

																													
 	 	U.S. Hurricanes	 	California Earthquakes	
 	 	December 31	 	 	December 31		 	December 31	 	 	December 31		
 	 	2013	 	 	2012		 	2013	 	 	2012		
Modeled Annual
Aggregate Net PML	 	ACE	 	% of Total
Shareholders’
Equity	 	% of
Industry	 	ACE	 	ACE	 	% of Total
Shareholders’
Equity	 	% of
Industry	 	ACE	
 (in millions of U.S. dollars, except for percentages)	
1-in-100	 	$	2,235		 	7.8	%	 	1.3	%	 	$	1,726		 	$	722		 	2.5	%	 	1.8	%	 	$	818		
1-in-250	 	$	2,959		 	10.3	%	 	1.2	%	 	$	2,293		 	$	931		 	3.2	%	 	1.6	%	 	$	1,055		

The above modeled loss information reflects our in-force portfolio at October 1, 2013 and reinsurance program at January 1, 2014.

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The North American catastrophe reinsurance program was renewed on January 1, 2014 excluding Named Storm coverage in North America. Named Storm is defined as a storm or storm system that has been declared by the National Hurricane Center (NHC) to be a tropical cyclone, tropical storm or a hurricane and includes wind, gusts, hail, rain, tornadoes or cyclones related to such storm. As a result, we will maintain a gap in coverage from the official start of hurricane season on June 1, 2014 through June 30, 2014. However, we intend to purchase Named Storm coverage effective no later than July 1, 2014.

We use our in-force portfolio at October 1, 2013 as a proxy for modeling our PMLs under our 2014 reinsurance program. Since we excluded Named Storm coverage from our reinsurance program on January 1, 2014, our modeled PML for U.S. Hurricanes is higher on January 1, 2014 compared to January 1, 2013. The expected July 1, 2014 program is expected to result in a lower net PML for U.S. hurricane losses of $1,699 million and $2,284 million for 1-in-100 and 1-in-250 years, respectively.

The net PML for California earthquakes is lower in 2013 compared to 2012 due to an increase of $100 million in earthquake catastrophe coverage.

The modeling estimates of both ACE and industry loss levels are inherently uncertain owing to key assumptions. First, while the use of third-party catastrophe modeling packages to simulate potential hurricane and earthquake losses is prevalent within the insurance industry, the models are reliant upon significant meteorology, seismology, and engineering assumptions to estimate hurricane and earthquake losses. In particular, modeled hurricane and earthquake events are not always a representation of actual events and ensuing additional loss potential. Second, there is no universal standard in the preparation of insured data for use in the models and the running of the modeling software. Third, we are reliant upon third-party estimates of industry insured exposures and there is significant variation possible around the relationship between our loss and that of the industry following an event. Fourth, we assume that our reinsurance recoveries following an event are fully collectible. These loss estimates do not represent our potential maximum exposures and it is highly likely that our actual incurred losses would vary materially from the modeled estimates.

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Natural catastrophe property reinsurance program

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

We regularly review our reinsurance protection and corresponding property catastrophe exposures. This may or may not lead to the purchase of additional reinsurance prior to a program’s renewal date. In addition, prior to each renewal date, we consider how much, if any, coverage we intend to buy and we may make material changes to the current structure in light of various factors, including modeled PML assessment at various return periods, reinsurance pricing, our risk tolerance and exposures, and various other structuring considerations.

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The following table presents ACE's coverage under its General Catastrophe Treaty for both the North American and International towers, effective for the coverage periods indicated (all dollar amounts are approximate). With respect to Tower 1 – North American, our Core Program renewed on January 1, 2014, for a period of one year.  We renewed our program at a consistent limit level as the expiring program adding $100 million of earthquake coverage and excluding Named Storm in North America. We intend to purchase Named Storm coverage effective no later than July 1, 2014 at a level of coverage that we expect will be consistent with 2013. With respect to Tower 2 – International, we renewed the layers of reinsurance protection in excess of $150 million on our Core Program on July 1, 2013, for a period of one year. We expanded our all perils coverage from $250 million to $350 million (by expanding perils covered in what was historically the $300 million to $450 million layer) and eliminated the $500 million to $550 million layer of coverage. There is an additional $75 million global top layer that continues to sit above the International Property Catastrophe Program and the North American Core Program and now attaches at $500 million on our International Program. There were no other significant changes in coverage from the expiring program.

								
 	 	Loss Location	Coverage Period	Layer of Loss	Percentage Placed with Reinsurers	Comments	Notes	
Tower 1 – North American	 	 	 	 	
 	Core Program	 	 	 	 	
 	 	North America	100% retained	$0 million - $500 million	Not Applicable	Losses retained by ACE	(a)	
 	 	North America	January 2014 - December 2014	$500 million - $1.0 billion	100%	All perils, excluding Named Storm	 	
 	 	Global	January 2014 - December 2014	$1.0 billion - $1.275 billion	27%	All perils, excluding Named Storm; No reinstatement	(b)	
 	 	North America	January 2014 - December 2014	$1.0 billion - $1.275 billion	73%	All perils, excluding Named Storm; One reinstatement	 	
 	 	 	 	 	 	 	 	
(a)  Ultimate retention will depend upon the nature of the loss and the interplay between the underlying per risk programs and certain other catastrophe programs purchased by individual business units. These other catastrophe programs have the potential to reduce our effective retention below $500 million.	
 	 	 	 	 	 	 	 	
(b)  This layer covers both U.S. and International risks. As such, it may be exhausted in one region and not available in the other.	

								
 	 	Loss Location	Coverage Period	Layer of Loss	Percentage Placed with Reinsurers	Comments	Notes	
Tower 2 – International	
July 1, 2013 – June 30, 2014 Program (unless otherwise noted)	
 	Core Program	 	 	 	 	
 	 	International	100% retained	$0 million - $150 million	Not Applicable	Losses retained by ACE	(c)	
 	 	International (including Alaska and Hawaii)	July 2013 - June 2014	$150 million - $450 million	100%	One reinstatement	 	
 	 	International (including Alaska and Hawaii)	July 2013 - June 2014	$450 million - $500 million	100%	One reinstatement	 	
 	 	Global	January 2014 - December 2014	$500 million - $575 million	100%	No reinstatement
	(d)	
 	 	 	 	 	 	 	 	
(c)  Ultimate retention will depend upon the nature of the loss and the interplay between the underlying per risk programs, certain other catastrophe programs purchased by individual business units, and territories and regions around the world.	
 	 	 	 	 	 	 	 	
(d)  This layer covers both U.S. and International risks. As such, it may be exhausted in one region and not available in the other.	

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Political Risk, Trade Credit, and Structured Trade Credit

Political risk insurance is a specialized coverage that provides clients with protection against unexpected, catastrophic political or macroeconomic events, primarily in developing markets. We participate in this market through our wholly owned subsidiary Sovereign Risk Insurance Ltd. (Sovereign), and through a unit of our London-based AGM operation. Sovereign is one of the world's leading underwriters of political risk insurance and has a global portfolio spread across more than 100 countries. Its clients include financial institutions, national export credit agencies, leading multilateral agencies, and multinational corporations. AGM writes political risk, trade credit, and structured trade credit business out of underwriting offices in London, England; Hamburg, Germany; Sao Paulo, Brazil; Singapore; and New York, New York, Los Angeles, California, and Washington, D.C., in the U.S.

Our political risk insurance provides protection to commercial lenders against defaults on cross border loans, insulates investors against equity losses, and protects exporters against defaults on contracts. Commercial lenders, our largest client segment, are covered for missed scheduled loan repayments due to acts of confiscation, expropriation or nationalization by the host government, currency inconvertibility or exchange transfer restrictions, or war or other acts of political violence. In addition, in the case of loans to government-owned entities or loans that have a government guarantee, political risk policies cover scheduled payments against risks of non-payment or non-honoring of government guarantees. Equity investors and corporations receive similar coverage to that of lenders, except they are protected against financial losses, inability to repatriate dividends, and physical damage to their operations caused by covered events. Our export contracts protection provides coverage for both exporters and their financing banks against the risk of contract frustration due to government actions, including non-payment by government entities.

AGM's trade credit and structured trade credit businesses cover losses due to insolvency, protracted default, and political risk perils including export and license cancellation. It provides trade credit coverage to larger companies that have sophisticated credit risk management systems, with exposure to multiple customers and that have the ability to self-insure losses up to a certain level through excess of loss coverage. Its structured trade credit business provides coverage to trade finance banks, exporters, and trading companies, with exposure to trade-related financing instruments.

We have implemented structural features in our policies in order to control potential losses within the political risk, trade credit, and structured credit businesses. These include basic loss sharing features that include co-insurance and deductibles, and in the case of trade credit, the use of non-qualifying losses that drop smaller exposures deemed too difficult to assess. Ultimate loss severity is also limited by using waiting periods to enable the insurer and insured to agree on recovery strategies, and the subrogation of the rights of the lender/exporter to the insurer following a claim. We have the option to pay claims over the original loan payment schedule, rather than in a lump sum in order to provide insureds and the insurer additional time to remedy problems and work towards full recoveries. It is important to note that political risk, trade credit, and structured trade credit policies are named peril conditional contracts, not financial guarantees, and claims are only paid after conditions and warranties are fulfilled. Political risk, trade credit, and structured trade credit insurance do not cover currency devaluations, bond defaults, any form of derivatives, movements in overseas equity markets, transactions deemed illegal, or situations where corruption or misrepresentation has occurred, or debt that is not legally enforceable. In addition to assessing and mitigating potential exposure on a policy-by-policy basis, we also have specific risk management measures in place to manage overall exposure and risk. These measures include placing country and individual transaction limits based on country risk and credit ratings, combined single loss limits on multi-country policies, the use of reinsurance protection, and regular modeling and stress-testing of the portfolio.

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Crop insurance

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

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

Each year the RMA issues a final SRA for the subsequent reinsurance year. In June 2013, the RMA released the 2014 SRA which establishes the terms and conditions for the 2014 reinsurance year (i.e., July 1, 2013 through June 30, 2014) that replaced the 2013 SRA.  There were no significant changes in the terms and conditions.

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

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

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

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Liquidity
Liquidity is a measure of a company's ability to generate cash flows sufficient to meet short-term and long-term cash requirements. As a holding company, ACE Limited possesses assets that consist primarily of the stock of its subsidiaries and other investments. In addition to net investment income, ACE Limited's cash flows depend primarily on dividends or other statutorily permissible payments. Historically, these dividends and other payments have come from ACE's Bermuda-based operating subsidiaries, which we refer to as our Bermuda subsidiaries. Our consolidated sources of funds consist primarily of net premiums written, fees, net investment income, and proceeds from sales and maturities of investments. Funds are used at our various companies primarily to pay claims, operating expenses, and dividends and to service debt and purchase investments.

We anticipate that positive cash flows from operations (underwriting activities and investment income) should be sufficient to cover cash outflows under most loss scenarios for the near term. Should the need arise, we generally have access to capital markets and available credit facilities. Refer to “Credit Facilities” below for additional information. Our access to funds under existing credit facilities is dependent on the ability of the banks that are parties to the facilities to meet their funding commitments. Our existing credit facilities have remaining terms expiring between 2014 and 2017 and require that we maintain certain financial covenants, all of which we met at December 31, 2013 . Should any of our existing credit providers experience financial difficulty, we may be required to replace credit sources, possibly in a difficult market. If we cannot obtain adequate capital or sources of credit on favorable terms, on a timely basis, or at all, our business, operating results, and financial condition could be adversely affected. To date, we have not experienced difficulty accessing any of our credit facilities .

To further ensure the sufficiency of funds to settle unforeseen claims, we hold certain invested assets in cash and short-term investments. In addition, for certain insurance, reinsurance, or deposit contracts that tend to have relatively large and

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reasonably predictable cash outflows, we attempt to establish dedicated portfolios of assets that are duration-matched with the related liabilities. With respect to the duration of our overall investment portfolio, we manage asset durations to both maximize return given current market conditions and provide sufficient liquidity to cover future loss payments. All things being equal, in a low interest rate environment, the overall duration of our fixed maturities tends to be shorter and in a high interest rate environment, such duration tends to be longer. At December 31, 2013 , the average duration of our fixed maturities ( 4.0 years ) is less than the average expected duration of our insurance liabilities ( 4.5 years). The decrease in duration of our insurance liabilities (4.5 years in 2013 and 5.0 years in 2012) is principally due to increases in interest rates in 2013.

Despite our safeguards, if paid losses accelerate beyond our ability to fund such paid losses from current operating cash flows, we might need to either liquidate a portion of our investment portfolio or arrange for financing. Potential events causing such a liquidity strain could include several significant catastrophes occurring in a relatively short period of time, large uncollectible reinsurance recoverables on paid losses (as a result of coverage disputes, reinsurers' credit problems or decreases in the value of collateral supporting reinsurance recoverables) or increases in collateral postings under our variable annuity reinsurance business. Because each subsidiary focuses on a more limited number of specific product lines than is collectively available from the ACE Group of Companies, the mix of business tends to be less diverse at the subsidiary level. As a result, the probability of a liquidity strain, as described above, may be greater for individual subsidiaries than when liquidity is assessed on a consolidated basis. If such a liquidity strain were to occur in a subsidiary, we could be required to liquidate a portion of our investments, potentially at distressed prices, as well as be required to contribute capital to the particular subsidiary and/or curtail dividends from the subsidiary to support holding company operations.

The payment of dividends or other statutorily permissible distributions from our operating companies are subject to the laws and regulations applicable to each jurisdiction, as well as the need to maintain capital levels adequate to support the insurance and reinsurance operations, including financial strength ratings issued by independent rating agencies. During 2013 , we were able to meet all of our obligations, including the payments of dividends on our Common Shares, with our net cash flows.

We assess which subsidiaries to draw dividends from based on a number of factors. Considerations such as regulatory and legal restrictions as well as the subsidiary's financial condition are paramount to the dividend decision. ACE Limited received dividends of $ 825 million and $450 million from its Bermuda subsidiaries in 2013 and 2012 , respectively.

The payment of any dividends from AGM or its subsidiaries is subject to applicable U.K. insurance laws and regulations.  In addition, the release of funds by Syndicate 2488 to subsidiaries of AGM is subject to regulations promulgated by the Society of Lloyd's. ACE Limited received no dividends from AGM in 2013 and 2012 .

The U.S. insurance subsidiaries of ACE INA Holdings Inc. (ACE INA) may pay dividends, without prior regulatory approval, subject to restrictions set out in state law of the subsidiary's domicile (or, if applicable, commercial domicile). ACE INA's international subsidiaries are also subject to insurance laws and regulations particular to the countries in which the subsidiaries operate. These laws and regulations sometimes include restrictions that limit the amount of dividends payable without prior approval of regulatory insurance authorities. ACE Limited received no dividends from ACE INA in 2013 and 2012 . Debt issued by ACE INA is serviced by statutorily permissible distributions by ACE INA's insurance subsidiaries to ACE INA as well as other group resources. ACE INA received no dividends from its subsidiaries in 2013 and $300 million in 2012. As of December 31, 2013, the amount of dividends available to be paid to ACE INA in 2014 from its subsidiaries without prior approval of insurance regulatory authorities totals $1.1 billion.

Cash Flows
Our insurance and reinsurance operations provide liquidity in that premiums are received in advance, sometimes substantially in advance, of the time claims are paid. Generally, cash flows are affected by claim payments that, due to the nature of our operations, may comprise large loss payments on a limited number of claims and which can fluctuate significantly from period to period. The irregular timing of these loss payments can create significant variations in cash flows from operations between periods. Refer to “Contractual Obligations and Commitments” for our estimate of future claim payments by period. Sources of liquidity include cash from operations, routine sales of investments, and financing arrangements. The following is a discussion of our cash flows for 2013 , 2012 , and 2011 .

Operating cash flows reflect Net income for each period, adjusted for non-cash items and changes in working capital.

Cash flows from operations were $4.0 billion in both 2013 and 2012, compared with $3.5 billion in 2011 . Cash flows from operations in 2013 were comparable to 2012, as higher net premiums collected of $276 million and lower income taxes paid
of $220 million were offset by higher net losses paid of $287 million and higher expenses paid of $136 million. Cash flows from operations increased in 2012 compared with 2011, primarily due to higher net premiums collected of $752 million.

Cash used for investing was $4.4 billion in 2013 , compared with $3.4 billion and $ 3.0 billion in 2012 and 2011 , respectively, primarily related to net purchases of fixed maturities. Cash used for investing in 2013 was higher than the other periods primarily due to the acquisitions of ABA Seguros and Fianzas Monterrey of $977 million , compared to acquisitions in 2012 of $98 million , and in 2011 of $606 million .

Cash flows from financing were $391 million in 2013 , compared with cash flows used for financing of $550 million and $ 565 million in 2012 and 2011 , respectively. Financing cash flows in 2013 included $947 million of proceeds from the issuance of long-term debt, dividends paid on Common Shares of $517 million , and repurchases of Common Shares of $287 million . This compares to cash flows used for financing activities in 2012 and 2011 that primarily related to payments of dividends of $815 million and $459 million , respectively. Dividends paid on Common Shares of $ 517 million were lower in 2013 compared to $ 815 million in 2012 due to the accelerated payment of the fourth quarter 2012 dividend in December 2012, which would normally have been paid in the first quarter 2013.

Both internal and external forces influence our financial condition, results of operations, and cash flows. Claim settlements, premium levels, and investment returns may be impacted by changing rates of inflation and other economic conditions. In many cases, significant periods of time, ranging up to several years or more, may lapse between the occurrence of an insured loss, the reporting of the loss to us, and the settlement of the liability for that loss.

In the current low interest rate environment, we use repurchase agreements as a low-cost alternative for short-term funding needs and to address short-term cash timing differences without disrupting our investment portfolio holdings. At December 31, 2013 , there were $1.4 billion in repurchase agreements outstanding.

In addition to cash from operations, routine sales of investments, and financing arrangements, we have agreements with a third-party bank provider which implemented two international multi-currency notional cash pooling programs to enhance cash management efficiency during periods of short-term timing mismatches between expected inflows and outflows of cash by currency. The programs allow us to optimize investment income by avoiding portfolio disruption. In each program, participating ACE entities establish deposit accounts in different currencies with the bank provider. Each day the credit or debit balances in every account are notionally translated into a single currency (U.S. dollars) and then notionally pooled. The bank extends overdraft credit to all participating ACE entities as needed, provided that the overall notionally pooled balance of all accounts in each pool at the end of each day is at least zero. Actual cash balances are not physically converted and are not commingled between legal entities. ACE entities may incur overdraft balances as a means to address short-term liquidity needs. Any overdraft balances incurred under this program by an ACE entity would be guaranteed by ACE Limited (up to $300 million in the aggregate). Our syndicated letter of credit facility allows for same day drawings to fund a net pool overdraft should participating ACE entities withdraw contributed funds from the pool.

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

								
 	December 31		 	December 31		
(in millions of U.S. dollars, except for percentages)	2013		 	2012		
Short-term debt	$	1,901		 	$	1,401		
Long-term debt	3,807		 	3,360		
Total debt	5,708		 	4,761		
Trust preferred securities	309		 	309		
Total shareholders’ equity	28,825		 	27,531		
Total capitalization	$	34,842		 	$	32,601		
Ratio of debt to total capitalization	16.4	%	 	14.6	%	
Ratio of debt plus trust preferred securities to total capitalization	17.3	%	 	15.6	%	

In June 2013, we reclassified $500 million of 5.875 percent senior notes, due to mature on June 15, 2014, from Long-term debt to Short-term debt in the consolidated balance sheet. During 2013, we issued $950 million of senior notes. Our ratios of debt to total capitalization and debt plus trust preferred securities to total capitalization are higher in 2013 primarily due to the increase in long-term debt. For discussion of our debt outstanding, refer to Note 9 to the Consolidated Financial Statements.

We believe our financial strength provides us with the flexibility and capacity to obtain available funds externally through debt or equity financing on both a short-term and long-term basis. Our ability to access the capital markets is dependent on, among other things, market conditions and our perceived financial strength. We have accessed both the debt and equity markets from time to time. We generally maintain the ability to issue certain classes of debt and equity securities via an unlimited SEC shelf registration which is renewed every three years. This allows us capital market access for refinancing as well as for unforeseen or opportunistic capital needs. Our current shelf registration on file with the SEC expires in December 2014.

The following table presents the significant movements in our shareholders’ equity:

				
 	December 31		
 (in millions of U.S. dollars)	2013		
Balance at beginning of year	$	27,531		
Net income	3,758		
Net unrealized appreciation (depreciation) on investments, net of tax	(1,459	)	
Dividends on Common Shares	(692	)	
Repurchase of shares	(290	)	
Change in cumulative translation, net of tax	(276	)	
Share-based compensation expense	177		
Exercise of stock options	79		
Other movements, net of tax	(3	)	
Balance at end of year	$	28,825		

As part of our capital management program, in November 2013, our Board of Directors authorized the repurchase of up to $2.0 billion of ACE’s Common Shares through December 31, 2014, replacing the $228 million balance remaining under previous share repurchase program approvals. We repurchased $290 million, $7 million, and $132 million of Common Shares in a series of open market transactions in 2013, 2012, and 2011, respectively. As of December 31, 2013 , there were 3,038,477 Common Shares in treasury with a weighted average cost of $84.04 per share. For the period January 1, 2014 through February 27, 2014, we re purchased 3,437,082 Common Shares for a total of $326 million in a series of open market transactions. At February 27, 2014, $1.62 billion in share repurchase authorization remained throu gh December 31, 2014.

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Common Shares
Our Common Shares had a par value of CHF 27.04 each at December 31, 2013 .

Under Swiss law, dividends must be stated in Swiss francs though dividend payments are made by ACE in U.S. dollars. Following ACE's redomestication to Switzerland in July 2008 through March 2011, dividends have generally been distributed by way of a par value reduction.

Our annual dividend is payable in four quarterly installments. At the January 10, 2014 Extraordinary General Meeting, our shareholders approved a resolution to increase our quarterly dividend 24 percent from $0.51 per share to $0.63 per share for the payment made on January 31, 2014 and the payment to be made by the end of April 2014, with the $0.12 per share increase for each installment to be distributed from capital contribution reserves (and the $0.51 per share to be distributed by way of par value reduction).

Dividend distributions on Common Shares amounted to CHF 1.85 ( $2.02 ) per share for the year ended December 31, 2013 , paid through par value reductions.

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Contractual Obligations and Commitments

The following table presents our future payments due by period under contractual obligations at December 31, 2013:

																				
 	Payments Due By Period	
 	 	 	 	 	2015		 	2017		 	 	
(in millions of U.S. dollars)	Total			2014			and 2016			and 2018			Thereafter		
Payment amounts determinable from the respective contracts	 	 	 	 	 	 	 	 	 	
Deposit liabilities (1)	$	830		 	$	58		 	$	67		 	$	54		 	$	651		
Purchase obligations (2)	373		 	121		 	197		 	55		 	—		
Limited partnerships – funding commitments (3)	1,159		 	522		 	539		 	98		 	—		
Operating leases	534		 	106		 	185		 	119		 	124		
Short-term debt	1,901		 	1,901		 	—		 	—		 	—		
Long-term debt	3,812		 	—		 	1,152		 	802		 	1,858		
Trust preferred securities	309		 	—		 	—		 	—		 	309		
Interest on debt obligations	2,224		 	225		 	365		 	283		 	1,351		
Total obligations in which payment amounts are determinable from the respective contracts	11,142		 	2,933		 	2,505		 	1,411		 	4,293		
Payment amounts not determinable from the respective contracts	 	 	 	 	 	 	 	 	 	
Estimated gross loss payments under insurance and reinsurance contracts	37,507		 	8,797		 	9,679		 	5,576		 	13,455		
Estimated payments for future life and annuity policy benefits	11,767		 	329		 	748		 	690		 	10,000		
Total contractual obligations and commitments	$	60,416		 	$	12,059		 	$	12,932		 	$	7,677		 	$	27,748		
		
(1)  	Refer to Note 1 k) to the Consolidated Financial Statements.	
		
(2)  	Primarily comprise audit fees and agreements with vendors to purchase system software administration and maintenance services.	
		
(3)  	The timing of the payments of these commitments is uncertain and will differ from the estimated timing in the table.	

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The above table excludes the following items:

•	Pension obligations: Minimum funding requirements for our pension obligations are immaterial. Subsequent funding commitments are apt to vary due to many factors and are difficult to estimate at this time. Refer to Note 13 to the Consolidated Financial Statements for additional information.	

•	Liabilities for unrecognized tax benefits: The liability for unrecognized tax benefits, excluding interest, was $27 million at December 31, 2013 . We recognize accruals for interest and penalties, if any, related to unrecognized tax benefits in Income tax expense in the consolidated statements of operations. At December 31, 2013 , we had $11 million in liabilities for income tax-related interest and penalties in our consolidated balance sheets. We are unable to make a reasonably reliable estimate for the timing of cash settlement with respect to these liabilities. Refer to Note 8 to the Consolidated Financial Statements for additional information.	

We have no other significant contractual obligations or commitments not reflected in the table above. We do not have any off-balance sheet arrangements that are reasonably likely to have a material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources.

Estimated gross loss payments under insurance and reinsurance contracts
We are obligated to pay claims under insurance and reinsurance contracts for specified loss events covered under those contracts. Such loss payments represent our most significant future payment obligation as a P&C insurance and reinsurance company. In contrast to other contractual obligations, cash payments are not determinable from the terms specified within the contract. For example, we do not ultimately make a payment to our counterparty for many insurance and reinsurance contracts (i.e., when a loss event has not occurred) and if a payment is to be made, the amount and timing cannot be determined from the contract. In the table above, we estimate payments by period relating to our gross liability for unpaid losses and loss expenses included in the consolidated balance sheet at December 31, 2013 , and do not take into account reinsurance recoverable. These estimated loss payments are inherently uncertain and the amount and timing of actual loss payments are likely to differ from these estimates and the differences could be material. Given the numerous factors and assumptions involved in both estimates of loss and loss expense reserves and related estimates as to the timing of future loss and loss expense payments in the table above, differences between actual and estimated loss payments will not necessarily indicate a commensurate change in ultimate loss estimates. The liability for unpaid losses and loss expenses presented in our balance sheet is discounted for certain structured settlements for which the timing and amount of future claim payments are reliably determinable and certain reserves for unsettled claims that are discounted in statutory filings. Accordingly, the estimated amounts in the table exceed the liability for Unpaid losses and loss expenses presented in our balance sheet. Refer to Note 1 h) to the Consolidated Financial Statements for additional information.

Estimated payments for future life and annuity policy benefits
We establish reserves for future policy benefits for life and annuity contracts.  The amounts in the table are gross of fees or premiums due from the underlying contracts.  The liability for future policy benefits for life and annuity contracts presented in our balance sheet is discounted and reflected net of fees or premiums due from the underlying contracts. Accordingly, the estimated amounts in the table exceed the liability for future policy benefits for life and annuity contracts presented in our balance sheet. Payment amounts related to these reserves must be estimated and are not determinable from the contract. Due to the uncertainty with respect to the timing and amount of these payments, actual results could materially differ from the estimates in the table.

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Credit Facilities

As our Bermuda subsidiaries are non-admitted insurers and reinsurers in the U.S., the terms of certain U.S. insurance and reinsurance contracts require them to provide collateral, which can be in the form of letters of credit (LOCs). In addition, AGM is required to satisfy certain U.S. regulatory trust fund requirements which can be met by the issuance of LOCs. LOCs may also be used for general corporate purposes and to provide underwriting capacity as funds at Lloyd's.

The following table presents our main credit facilities by credit line, usage, and expiry date at December 31, 2013 :

										
(in millions of U.S. dollars)	Credit Line		 	Usage		 	Expiry Date	
Syndicated Letter of Credit Facility (1)	$	1,000		 	$	376		 	Nov. 2017	
Bilateral Letter of Credit Facility	500		 	500		 	June 2014	
Funds at Lloyd's Capital Facilities (2)	425		 	352		 	Dec. 2017	
Total	$	1,925		 	$	1,228		 	 	
		
(1)  	Guaranteed by ACE Limited. Provides up to $1 billion of availability (adjustable to $1.5 billion upon consent of the issuers) for LOCs, of which up to $300 million may be used for revolving loans.	
		
(2)  	Supports AGM underwriting capacity for Lloyd's Syndicate 2488.	

It is anticipated that our commercial facilities will be renewed on expiry but such renewals are subject to the availability of credit from banks utilized by ACE. In the event that such credit support is insufficient, we could be required to provide alternative security to clients. This could take the form of additional insurance trusts supported by our investment portfolio or funds withheld using our cash resources. The value of LOCs required is driven by, among other things, statutory liabilities reported by variable annuity guarantee reinsurance clients, loss development of existing reserves, the payment pattern of such reserves, the expansion of business, and loss experience of such business.

The facilities in the table above require that we maintain certain covenants, all of which have been met at December 31, 2013 . These covenants include:

(i)	Maintenance of a minimum consolidated net worth in an amount not less than the “Minimum Amount”. For the purpose of this calculation, the Minimum Amount is an amount equal to the sum of the base amount (currently $19.3 billion) plus 25 percent of consolidated net income for each fiscal quarter, ending after the date on which the current base amount became effective, plus 50 percent of any increase in consolidated net worth during the same period, attributable to the issuance of Common and Preferred Shares. The Minimum Amount is subject to an annual reset provision.	

(ii)	Maintenance of a maximum debt to total capitalization ratio of not greater than 0.35 to 1. Under this covenant, debt does not include trust preferred securities or mezzanine equity, except where the ratio of the sum of trust preferred securities and mezzanine equity to total capitalization is greater than 15 percent. In this circumstance, the amount greater than 15 percent would be included in the debt to total capitalization ratio.	

At December 31, 2013 , (a) the minimum consolidated net worth requirement under the covenant described in (i) above was $20.2 billion and our actual consolidated net worth as calculated under that covenant was $27.7 billion and (b) our ratio of debt to total capitalization was 0.164 to 1, which is below the maximum debt to total capitalization ratio of 0.35 to 1 as described in (ii) above.

Our failure to comply with the covenants under any credit facility would, subject to grace periods in the case of certain covenants, result in an event of default. This could require us to repay any outstanding borrowings or to cash collateralize LOCs under such facility. Our failure to repay material financial obligations, as well as our failure with respect to certain other events expressly identified, would result in an event of default under one or more of the facilities.

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Ratings

ACE Limited and its subsidiaries are assigned credit and financial strength (insurance) ratings from internationally recognized rating agencies, including S&P, A.M. Best, Moody's, and Fitch. The ratings issued on our companies by these agencies are announced publicly and are available directly from the agencies. Our Internet site (www.acegroup.com, under Investor Information) also contains some information about our ratings, but such information on our website is not incorporated by reference into this report.

Financial strength ratings reflect the rating agencies' opinions of a company's claims paying ability. Independent ratings are one of the important factors that establish our competitive position in the insurance markets. The rating agencies consider many factors in determining the financial strength rating of an insurance company, including the relative level of statutory surplus necessary to support the business operations of the company. These ratings are based upon factors relevant to policyholders, agents, and intermediaries and are not directed toward the protection of investors. Such ratings are not recommendations to buy, sell, or hold securities.

Credit ratings assess a company's ability to make timely payments of principal and interest on its debt.

It is possible that, in the future, one or more of the rating agencies may reduce our existing ratings. If one or more of our ratings were downgraded, we could incur higher borrowing costs, and our ability to access the capital markets could be impacted. In addition, our insurance and reinsurance operations could be adversely impacted by a downgrade in our financial strength ratings, including a possible reduction in demand for our products in certain markets. For example, the AGM capital facility requires that collateral be posted if the S&P public debt rating of ACE falls below BBB+. Also, we have insurance and reinsurance contracts which contain rating triggers. In the event the S&P or A.M. Best financial strength ratings of ACE fall, we may be faced with the cancellation of premium or be required to post collateral on our underlying obligation associated with this premium. We estimate that at December 31, 2013 , a one-notch downgrade of our S&P or A.M. Best financial strength ratings would result in an immaterial loss of premium or requirement for collateral to be posted.

ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk

Market Sensitive Instruments and Risk Management
Market risk represents the potential for loss due to adverse changes in the fair value of financial instruments. We are exposed to potential losses from various market risks including changes in interest rates, equity prices, and foreign currency exchange rates. Further, through writing the GLB and GMDB products, we are exposed to volatility in the equity and credit markets, as well as interest rates. Our investment portfolio consists primarily of fixed income securities, denominated in both U.S. dollars and foreign currencies, which are sensitive to changes in interest rates and foreign currency exchange rates. The majority of our fixed income portfolio is classified as available for sale. The effect of market movements on our available for sale investment portfolio impacts Net income (through Net realized gains (losses)) when securities are sold or when we record an OTTI charge in Net income. Changes in interest rates and foreign currency exchange rates will have an immediate effect on Shareholders' equity and Comprehensive income and in certain instances, Net income. From time to time, we also use derivative instruments such as futures, options, swaps, and foreign currency forward contracts to manage the duration of our investment portfolio and foreign currency exposures and also to obtain exposure to a particular financial market. At December 31, 2013 and 2012 , our notional exposure to derivative instruments was $8.2 billion and $7.1 billion , respectively. These instruments are recognized as assets or liabilities in our consolidated financial statements and are sensitive to changes in interest rates, foreign currency exchange rates, and equity security prices. As part of our investing activities, we from time to time purchase to be announced mortgage backed securities (TBAs). Changes in the fair value of TBAs are included in Net realized gains (losses) and therefore, have an immediate effect on both our Net income and Shareholders' equity.

We seek to mitigate market risk using a number of techniques, including maintaining and managing the assets and liabilities of our international operations consistent with the foreign currencies of the underlying insurance and reinsurance businesses, thereby limiting exchange rate risk to net assets denominated in foreign currencies.

The following is a discussion of our primary market risk exposures at December 31, 2013 . Our policies to address these risks in 2013 were not materially different from 2012 . We do not currently anticipate significant changes in our primary market risk exposures or in how those exposures are managed in future reporting periods based upon what is known or expected to be in effect in future reporting periods.

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Interest rate risk – fixed income portfolio and debt obligations
Our fixed income portfolio and debt obligations have exposure to interest rate risk. Changes in investment values attributable to interest rate changes are mitigated by corresponding and partially offsetting changes in the economic value of our insurance reserves and debt obligations. We monitor this exposure through periodic reviews of our asset and liability positions.

The following table presents the impact at December 31, 2013 and 2012 , on the fair value of our fixed income portfolio of a hypothetical increase in interest rates of 100 bps applied instantly across the U.S. yield curve (an immediate time horizon was used as this presents the worst case scenario):

									
(in billions of U.S. dollars, except for percentages)	2013		 	2012		
Fair value of fixed income portfolio	$	57.3		 	$	57.2		
Pre-tax impact of 100 bps increase in interest rates:	 	 	 	
 	In dollars	$	2.3		 	$	2.2		
 	As a percentage of total fixed income portfolio at fair value	4.0	%	 	3.9	%	

Changes in interest rates will have an immediate effect on Comprehensive income and Shareholders' equity but will not ordinarily have an immediate effect on Net income. Variations in market interest rates could produce significant changes in the timing of prepayments due to available prepayment options. For these reasons, actual results could differ from those reflected in the tables.

Although our debt and trust preferred securities (collectively referred to as debt obligations) are reported at amortized cost and not adjusted for fair value changes, changes in interest rates could have a material impact on their fair value, albeit there is no immediate impact on our consolidated financial statements.

The following table presents the impact at December 31, 2013 and 2012 , on the fair value of our debt obligations of a hypothetical decrease in interest rates of 100 bps applied instantly across the U.S. yield curve (an immediate time horizon was used as this presents the worst case scenario):

									
(in millions of U.S. dollars, except for percentages)	2013		 	2012		
Fair value of debt obligations	$	6,439		 	$	5,763		
Impact of 100 bps decrease in interest rates:	 	 	 	
 	In dollars	$	282		 	$	199		
 	As a percentage of total debt obligations at fair value	4.4	%	 	3.5	%	

Foreign currency exchange rate risk
Many of our non-U.S. companies maintain both assets and liabilities in local currencies. Therefore, foreign currency exchange rate risk is generally limited to net assets denominated in those foreign currencies. Foreign currency exchange rate risk is reviewed as part of our risk management process. Locally required capital levels are invested in home currencies in order to satisfy regulatory requirements and to support local insurance operations regardless of currency fluctuations. The principal currencies creating foreign currency exchange rate risk for us are the British pound sterling, the euro, the yen, the Mexican peso, the Canadian dollar, and the Australian dollar.

The following table presents more information on our exposure to foreign exchange rate risk at December 31, 2013 and 2012 :

								
(in millions of U.S. dollars, except for percentages)	2013		 	2012		
Fair value of net assets denominated in foreign currencies	$	6,943		 	$	5,212		
As a percentage of total net assets	24.1	%	 	18.9	%	
Pre-tax impact on shareholders' equity of a hypothetical 10 percent strengthening of the U.S. dollar	$	628		 	$	470		

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Reinsurance of GMDB and GLB guarantees
Net income is directly impacted by changes in benefit reserves calculated in connection with reinsurance of variable annuity guarantees, primarily GMDB and GLB. Benefit reserves are calculated in accordance with guidance related to accounting and reporting by insurance enterprises for certain non-traditional long-duration contracts and for separate accounts. Changes in benefit reserves are reflected as policy benefits expense, which is included in life underwriting income. In addition, net income is directly impacted by the change in the fair value of the GLB liability (FVL), which is classified as a derivative for accounting purposes. The FVL established for a GLB reinsurance contract represents the difference between the fair value of the contract and the benefit reserves. Changes in the FVL, net of associated changes in the calculated benefit reserves, are reflected as realized gains or losses.

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

At December 31, 2013 , management established benefit reserves based on the benefit ratio calculated using assumptions reflecting management’s best estimate of the future performance of the variable annuity line of business. Management exercises judgment in determining the extent to which short-term market movements impact the benefit reserves. The benefit reserves are based on the calculation of a long-term benefit ratio (or loss ratio) for the variable annuity guarantee reinsurance. Despite the long-term nature of the risk, the benefit ratio calculation is impacted by short-term market movements that may be judged by management to be temporary or transient. Management’s best estimate reflected a judgment that the equity markets will exhibit growth somewhat lower than historical average levels. Management regularly examines both quantitative and qualitative analysis and for the year ended December 31, 2013 , determined that no change to the benefit ratio was warranted.

The guidance requires us to “regularly evaluate estimates used and adjust the liability balance... if actual experience or other evidence suggests that earlier assumptions should be revised.” ACE evaluates its estimates regularly and management uses judgment to determine the extent to which assumptions underlying the benefit ratio calculation used to establish benefit reserves should be adjusted. The benefit ratio is calculated based on management’s expectation for the short-term and long-term performance of the variable annuity guarantee liability. Management’s quantitative analysis includes a review of the differential between the benefit ratio used at the most recent valuation date and the benefit ratio calculated on subsequent dates.

Benefit reserves and FVL calculations are directly affected by market factors, including equity levels, interest rate levels, credit risk, and implied volatilities, as well as policyholder behaviors, such as annuitization and lapse rates. The tables below assume no changes to the benefit ratio used to establish benefit reserves at December 31, 2013 and show the sensitivity, at December 31, 2013 , of the FVL associated with the variable annuity guarantee reinsurance portfolio. In addition, the tables below present the sensitivity of the fair value of specific derivative instruments held (hedge value) to partially offset the risk in the variable annuity guarantee reinsurance portfolio. The tables below are estimates of the sensitivities to instantaneous changes in economic inputs or actuarial assumptions.

The tables below do not reflect the expected quarterly run rate of net income generated by the variable annuity guarantee reinsurance portfolio if markets remain unchanged during the period. All else equal, if markets remain unchanged during the period, the Gross FVL will increase, resulting in a realized loss. The realized loss occurs primarily because, during the period, we will collect premium while paying little or no claims on our GLB reinsurance (since most policies are not eligible to annuitize until 2014 or later). This increases the Gross FVL because future premiums are lower by the amount collected in the quarter, and also because future claims are discounted for a shorter period. We refer to this increase in Gross FVL as “timing effect”. The unfavorable impact of timing effect on our Gross FVL in a quarter is not reflected in the sensitivity tables below. For this reason, when using the tables below to estimate the sensitivity of Gross FVL in the first quarter 2014 to various changes, it is necessary to assume an additional $15 million to $45 million increase in Gross FVL and realized losses. However, the impact to Net income is substantially mitigated because the majority of this realized loss is offset by the positive quarterly run rate of life underwriting income generated by the variable annuity guarantee reinsurance portfolio if markets remain unchanged during the period. Note that both the timing effect and the quarterly run rate of life underwriting income change over time as the book ages.

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Interest Rate Shock	Worldwide Equity Shock	
(in millions of U.S. dollars)	+10	%	 	Flat		 	-10	 %	 	-20	 %	 	-30	 %	 	-40	 %	
+100 bps	(Increase)/decrease in Gross FVL	$	244		 	$	141		 	$	12		 	$	(212	)	 	$	(534	)	 	$	(955	)	
 	Increase/(decrease) in hedge value	(143	)	 	6		 	156		 	308		 	466		 	629		
 	Increase/(decrease) in net income	$	101		 	$	147		 	$	168		 	$	96		 	$	(68	)	 	$	(326	)	
Flat	(Increase)/decrease in Gross FVL	$	146		 	$	—		 	$	(228	)	 	$	(540	)	 	$	(944	)	 	$	(1,436	)	
 	Increase/(decrease) in hedge value	(142	)	 	6		 	157		 	310		 	468		 	632		
 	Increase/(decrease) in net income	$	4		 	$	6		 	$	(71	)	 	$	(230	)	 	$	(476	)	 	$	(804	)	
-100 bps	(Increase)/decrease in Gross FVL	$	(49	)	 	$	(289	)	 	$	(595	)	 	$	(990	)	 	$	(1,472	)	 	$	(2,035	)	
 	Increase/(decrease) in hedge value	(142	)	 	7		 	158		 	312		 	470		 	635		
 	Increase/(decrease) in net income	$	(191	)	 	$	(282	)	 	$	(437	)	 	$	(678	)	 	$	(1,002	)	 	$	(1,400	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Sensitivities to Other Economic Variables	AA-rated Credit Spreads	 	 	 Interest Rate Volatility	 	 	 Equity Volatility	 	
(in millions of U.S. dollars)	+100		 	--100		 	+2	 %	 	-2	 %	 	+2	 %	 	-2	 %	
(Increase)/decrease in Gross FVL	$	39		 	$	(41	)	 	$	(1	)	 	$	—		 	$	(13	)	 	$	12		
Increase/(decrease) in hedge value	—		 	—		 	—		 	—		 	8		 	5		
Increase/(decrease) in net income	$	39		 	$	(41	)	 	$	(1	)	 	$	—		 	$	(5	)	 	$	17		
 	 	 	 	 	 	 	 	 	 	 	 	
Sensitivities to Actuarial Assumptions	 	 	 	 	Mortality	
(in millions of U.S. dollars)	 	 	 	 	+20	 %	 	+10	 %	 	-10	 %	 	-20	 %	
(Increase)/decrease in Gross FVL	 	 	 	 	$	15		 	$	8		 	$	(8	)	 	$	(16	)	
Increase/(decrease) in hedge value	 	 	 	 	—		 	—		 	—		 	—		
Increase/(decrease) in net income	 	 	 	 	$	15		 	$	8		 	$	(8	)	 	$	(16	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	Lapses	
(in millions of U.S. dollars)	 	 	 	 	+50	 %	 	+25	 %	 	-25	 %	 	-50	 %	
(Increase)/decrease in Gross FVL	 	 	 	 	$	129		 	$	76		 	$	(92	)	 	$	(198	)	
Increase/(decrease) in hedge value	 	 	 	 	—		 	—		 	—		 	—		
Increase/(decrease) in net income	 	 	 	 	$	129		 	$	76		 	$	(92	)	 	$	(198	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	Annuitization	
(in millions of U.S. dollars)	 	 	 	 	+50	 %	 	+25	 %	 	-25	 %	 	-50	 %	
(Increase)/decrease in Gross FVL	 	 	 	 	$	(192	)	 	$	(99	)	 	$	86		 	$	172		
Increase/(decrease) in hedge value	 	 	 	 	—		 	—		 	—		 	—		
Increase/(decrease) in net income	 	 	 	 	$	(192	)	 	$	(99	)	 	$	86		 	$	172		

The above tables assume equity shocks impact all global equity markets equally and that the interest rate shock is a parallel shift in the U.S. yield curve. Our liabilities are sensitive to global equity markets in the following proportions: 70 percent— 80 percent U.S. equity, 10 percent— 20 percent international equity ex-Japan, 5 percent— 15 percent Japan equity. Our current hedge portfolio is sensitive to global equity markets in the following proportions: 100 percent U.S. equity. We would suggest using the S&P 500 index as a proxy for U.S. equity, the MSCI EAFE index as a proxy for international equity, and the TOPIX as a proxy for Japan equity.

Our liabilities are also sensitive to global interest rates at various points on the yield curve, mainly the U.S. Treasury curve in the following proportions: 5 percent— 15 percent short-term rates (maturing in less than 5 years), 20 percent— 30 percent medium-term rates (maturing between 5 years and 10 years, inclusive), and 60 percent— 70 percent long-term rates (maturing beyond 10 years). A change in AA-rated credit spreads (AA-rated credit spreads are a proxy for both our own credit spreads and the credit spreads of the ceding insurers) impacts the rate used to discount cash flows in the fair value model. The hedge

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sensitivity is from December 31, 2013 market levels and includes the impact of adjustments to the hedge portfolio made subsequent to that date.

The above sensitivities are not directly additive because changes in one factor will affect the sensitivity to changes in other factors. Also, the sensitivities do not scale linearly and may be proportionally greater for larger movements in the market factors. Sensitivities may also vary due to foreign exchange rate fluctuations. The calculation of the FVL is based on internal models that include assumptions regarding future policyholder behavior, including lapse, annuitization, and asset allocation. These assumptions impact both the absolute level of the FVL as well as the sensitivities to changes in market factors shown above. Additionally, actual sensitivity of our net income may differ from those disclosed in the tables above due to differences between short-term market movements and management judgment regarding the long-term assumptions implicit in our benefit ratios. Furthermore, the sensitivities above could vary by multiples of the sensitivities in the tables above.

Variable annuity net amount at risk

The tables below present the net amount at risk at December 31, 2013 following an immediate change in equity market levels, assuming all global equity markets are impacted equally. For further information on the net amount at risk, refer to Note 5 to the Consolidated Financial Statements.

a) Reinsurance covering the GMDB risk only

																								
 	Equity Shock	
(in millions of U.S. dollars, except percentages)	+20	%	 	Flat		 	-20	 %	 	-40	 %	 	-60	 %	 	-80	 %	
GMDB net amount at risk	$	396		 	$	586		 	$	1,066		 	$	1,778		 	$	1,846		 	$	1,584		
Claims at 100% immediate mortality	815		 	668		 	399		 	298		 	267		 	240		

The treaty claim limits function as a ceiling on the net amount at risk as equity markets fall. In addition, the claims payable if all of the policyholders were to die immediately declines as equity markets fall due to the specific nature of these claim limits, many of which are annual claim limits calculated as a percentage of the reinsured account value. There is also some impact due to a small portion of the GMDB reinsurance under which claims are positively correlated to equity markets (claims decrease as equity markets fall).

b) Reinsurance covering the GLB risk only

																								
 	Equity Shock	
(in millions of U.S. dollars, except percentages)	+20	%	 	Flat		 	-20	 %	 	-40	 %	 	-60	 %	 	-80	 %	
GLB net amount at risk	$	51		 	$	136		 	$	589		 	$	1,523		 	$	2,439		 	$	2,775		
The treaty claim limits cause the net amount at risk to increase at a declining rate as equity markets fall.
c) Reinsurance covering both the GMDB and GLB risks on the same underlying policyholders

																								
 	Equity Shock	
 (in millions of U.S. dollars, except percentages)	+20	%	 	Flat		 	-20	 %	 	-40	 %	 	-60	 %	 	-80	 %	
GMDB net amount at risk	$	46		 	$	73		 	$	113		 	$	154		 	$	190		 	$	220		
GLB net amount at risk	48		 	141		 	493		 	1,114		 	1,771		 	2,292		
Claims at 100% immediate mortality	21		 	84		 	401		 	655		 	864		 	1,059		
The treaty limits control the increase in the GMDB net amount at risk as equity markets fall. The GMDB net amount at risk continues to grow as equity markets fall because most of these reinsurance treaties do not have annual claim limits calculated as a percentage of the underlying account value.
The treaty limits cause the GLB net amount at risk to increase at a declining rate as equity markets fall.

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ITEM 8. Financial Statements and Supplementary Data

The financial statements and supplementary data are included in this Form 10-K commencing on page F-1.

ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Not applicable.

ITEM 9A. Controls and Procedures

ACE’s management, with the participation of ACE’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of ACE’s disclosure controls and procedures as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934 as of December 31, 2013 . Based upon that evaluation, ACE’s Chief Executive Officer and Chief Financial Officer concluded that ACE’s disclosure controls and procedures are effective in allowing information required to be disclosed in reports filed under the Securities and Exchange Act of 1934 to be recorded, processed, summarized, and reported within time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to ACE’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

There has been no change in ACE’s internal controls over financial reporting during the three months ended December 31, 2013 that has materially affected, or is reasonably likely to materially affect, ACE’s internal controls over financial reporting. ACE's management report on internal control over financial reporting is included on page F-3 and PricewaterhouseCoopers LLP's audit report is included on page F-4.

ITEM 9B. Other Information

Item not applicable.

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PART III

ITEM 10. Directors, Executive Officers and Corporate Governance

Information pertaining to this item is incorporated by reference to the sections entitled “Election of Directors”, “Corporate Governance - Director Independence and Other Information,” “Corporate Governance - Did Our Officers and Directors Comply with Section 16(a) Beneficial Ownership Reporting in 2013 ?”, “Corporate Governance - How Are Directors Nominated?”, and “Corporate Governance - The Committees of the Board - The Audit Committee” of the definitive proxy statement for the 2014 Annual General Meeting of Shareholders which will be filed with the SEC not later than 120 days after the close of the fiscal year pursuant to regulation 14A. Also incorporated herein by reference is the text under the caption “Executive Officers of the Registrant” appearing at the end of Part I Item 1. of the Annual Report on Form 10-K.

Code of Ethics
ACE has adopted a Code of Conduct, which sets forth standards by which all ACE employees, officers, and directors must abide as they work for ACE. ACE has posted this Code of Conduct on its Internet site (www.acegroup.com, under Investor Information / Corporate Governance / ACE Ethics Helpline / Integrity First: The ACE Code of Conduct). ACE intends to disclose on its Internet site any amendments to, or waivers from, its Code of Conduct that are required to be publicly disclosed pursuant to the rules of the SEC or the New York Stock Exchange.

ITEM 11. Executive Compensation

This item is incorporated by reference to the section entitled “Executive Compensation” of the definitive proxy statement for the 2014 Annual General Meeting of Shareholders which will be filed with the SEC not later than 120 days after the close of the fiscal year pursuant to Regulation 14A.

ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

								
Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants, and rights	 	Weighted-average exercise price of outstanding options, warrants, and rights		 	Number of securities remaining available for future issuance under equity compensation plans	
Equity compensation plans approved by security holders (1)	9,496,856	 	$	61.84		 	12,545,009	

(1) These totals include securities available for future issuance under the following plans:
(i) A CE Limited 2004 Long-Term Incentive Plan (the 2004 LTIP). A total of 38,600,000 Common Shares of ACE are authorized to be issued pursuant to awards made as options, stock appreciation rights, performance shares, performance units, restricted stock, and restricted stock units. The maximum number of shares that may be delivered to participants and their beneficiaries under the 2004 LTIP shall be equal to the sum of: (i) 38,600,000 shares; and (ii) any shares that are represented by awards granted under the ACE Limited 1995 Long-Term Incentive Plan, the ACE Limited 1995 Outside Directors Plan, the ACE Limited 1998 Long-Term Incentive Plan, and the ACE Limited 1999 Replacement Long-Term Incentive Plan (the Prior Plans) that are forfeited, expired, or are canceled after the effective date of the 2004 LTIP of February 25, 2004, without delivery of shares or which result in the forfeiture of the shares back to ACE to the extent that such shares would have been added back to the reserve under the terms of the applicable Prior Plan. As of December 31, 2013 , a total of 9,382,932 option awards are outstanding and 11,231,423 shares remain available for future issuance under this plan.

(ii) ACE Limited 1998 Long-Term Incentive Plan. This plan only remains in effect with respect to 113,924 option awards outstanding made pursuant to this plan. Future awards will be made pursuant to the 2004 LTIP.

(iii) Employee Stock Purchase Plan. A total of 4,500,000 shares are authorized for purchase at a discount. As of December 31, 2013, 1,313,586 shares remain available for future issuance under this plan.

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Additional information is incorporated by reference to the section entitled “Information About our Share Ownership” of the definitive proxy statement for the 2014 Annual General Meeting of Shareholders which will be filed with the SEC not later than 120 days after the close of the fiscal year pursuant to Regulation 14A.

ITEM 13. Certain Relationships and Related Transactions and Director Independence

This item is incorporated by reference to the sections entitled “Corporate Governance - What Is Our Related Party Transactions Approval Policy and What Procedures Do We Use to Implement It?”, “Corporate Governance - What Related Person Transactions Do We Have?”, and “Corporate Governance - Director Independence and Other Information” of the definitive proxy statement for the 2014 Annual General Meeting of Shareholders which will be filed with the SEC not later than 120 days after the close of the fiscal year pursuant to Regulation 14A.

ITEM 14. Principal Accounting Fees and Services

This item is incorporated by reference to the section entitled “Election of Auditors - Ratification of appointment of PricewaterhouseCoopers LLP (United States) as independent registered public accounting firm for purposes of United States securities law reporting for the year ending December 31, 2014” of the definitive proxy statement for the 2014 Annual General Meeting of Shareholders which will be filed with the SEC not later than 120 days after the close of the fiscal year pursuant to Regulation 14A.

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PART IV

ITEM 15. Exhibits, Financial Statement Schedules

(a) Financial Statements, Schedules, and Exhibits     

			
1.	Consolidated Financial Statements	Page	
–	Management's Responsibility for Financial Statements and Internal Control over Financial Reporting	F-3	
–	Report of Independent Registered Public Accounting Firm	F-4	
–	Consolidated Balance Sheets at December 31, 2013 and 201 2	F-5	
–	Consolidated Statements of Operations and Comprehensive Income for the years ended December 31, 2013, 2012, and 201 1	F-6	
–	Consolidated Statements of Shareholders' Equity for the years ended December 31, 2013, 2012, and 201 1	F-7	
–	Consolidated Statements of Cash Flows for the years ended December 31, 2013, 2012, and 201 1	F-8	
–	Notes to Consolidated Financial Statements	F-9	
2.	Financial Statement Schedules	 	
–	Schedule I - Summary of Investments - Other Than Investments in Related Parties	F-82	
–	Schedule II - Condensed Financial Information of Registrant (Parent Company Only)	F-83	
–	Schedule IV - Supplemental Information Concerning Reinsurance	F-86	
–	Schedule VI - Supplementary Information Concerning Property and Casualty Operations	F-87	

					
Other schedules have been omitted as they are not applicable to ACE, or the required information has been included in the Consolidated Financial Statements and related notes.	
3.	Exhibits	

											
 	 	 	 	 	 	Incorporated by Reference	 	 	
Exhibit Number	 	Exhibit Description	 	Form	 	Original Number	 	Date Filed	 	Filed Herewith	
3.1	 	Articles of Association of the Company, as amended and restated	 	8-K	 	3	 	December 13, 2013	 	 	
 	 	 	 	 	 	 	 	 	 	 	
3.2	 	Organizational Regulations of the Company, as amended and restated	 	8-K	 	3	 	August 16, 2013	 	 	
 	 	 	 	 	 	 	 	 	 	 	
4.1	 	Articles of Association of the Company, as amended and restated	 	8-K	 	4	 	December 13, 2013	 	 	
 	 	 	 	 	 	 	 	 	 	 	
4.2	 	Organizational Regulations of the Company, as amended and restated	 	8-K	 	4	 	August 16, 2013	 	 	
 	 	 	 	 	 	 	 	 	 	 	
4.3	 	Specimen share certificate representing Common Shares	 	8-K	 	4.3	 	July 18, 2008	 	 	
 	 	 	 	 	 	 	 	 	 	 	
4.4	 	Form of 2.6 percent Senior Notes due 2015	 	8-K	 	4.1	 	November 23, 2010	 	 	
 	 	 	 	 	 	 	 	 	 	 	
4.5	 	Indenture, dated March 15, 2002, between ACE Limited and Bank One Trust Company, N.A.	 	8-K	 	4.1	 	March 22, 2002	 	 	

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 	 	 	 	 	 	Incorporated by Reference	 	 	
Exhibit Number	 	Exhibit Description	 	Form	 	Original Number	 	Date Filed	 	Filed Herewith	
4.6	 	Senior Indenture, dated August 1, 1999, among ACE INA Holdings, Inc., ACE Limited and Bank One, N.A. (formerly The First National Bank of Chicago), as trustee	 	S-3/A	 	4.5	 	August 12, 1999	 	 	
 	 	 	 	 	 	 	 	 	 	 	
4.7	 	Indenture, dated November 30, 1999, among ACE INA Holdings, Inc. and Bank One Trust Company, N.A., as trustee	 	10-K	 	10.38	 	March 29, 2000	 	 	
 	 	 	 	 	 	 	 	 	 	 	
4.8	 	Indenture, dated December 1, 1999, among ACE INA Holdings, Inc., ACE Limited and Bank One Trust Company, National Association, as trustee	 	10-K	 	10.41	 	March 29, 2000	 	 	
 	 	 	 	 	 	 	 	 	 	 	
4.9	 	Amended and Restated Trust Agreement, dated March 31, 2000, among ACE INA Holdings, Inc., Bank One Trust Company, National Association, as property trustee, Bank One Delaware Inc., as Delaware trustee and the administrative trustees named therein	 	10-K	 	4.17	 	March 16, 2006	 	 	
 	 	 	 	 	 	 	 	 	 	 	
4.10	 	Common Securities Guarantee Agreement, dated March 31, 2000	 	10-K	 	4.18	 	March 16, 2006	 	 	
 	 	 	 	 	 	 	 	 	 	 	
4.11	 	Capital Securities Guarantee Agreement, dated March 31, 2000	 	10-K	 	4.19	 	March 16, 2006	 	 	
 	 	 	 	 	 	 	 	 	 	 	
4.12	 	Form of 2.70 percent Senior Notes due 2023	 	8-K	 	4.1	 	March 13, 2013	 	 	
 	 	 	 	 	 	 	 	 	 	 	
4.13	 	Form of 4.15 percent Senior Notes due 2043	 	8-K	 	4.2	 	March 13, 2013	 	 	
 	 	 	 	 	 	 	 	 	 	 	
4.14	 	First Supplemental Indenture dated as of March 13, 2013 to the Indenture dated as of August 1, 1999 among ACE INA Holdings, Inc., as Issuer, ACE Limited, as Guarantor, and The Bank of New York Mellon Trust Company, N.A., as Successor Trustee	 	8-K	 	4.3	 	March 13, 2013	 	 	
 	 	 	 	 	 	 	 	 	 	 	
10.1*	 	Form of Indemnification Agreement between the Company and individuals who became directors of the Company after the Company's redomestication to Switzerland	 	10-Q	 	10.1	 	August 6, 2010	 	 	
 	 	 	 	 	 	 	 	 	 	 	
10.2*	 	Second Amended and Restated Indemnification Agreement in the form executed between the Company and directors (except for Olivier Steimer) and/or officers	 	10-Q	 	10.1	 	August 7, 2007	 	 	
 	 	 	 	 	 	 	 	 	 	 	
10.3*	 	Indemnification agreement between the Company and Olivier Steimer, dated November 20, 2008	 	10-K	 	10.2	 	February 27, 2009	 	 	
 	 	 	 	 	 	 	 	 	 	 	
10.4	 	First Amendment dated as of November 21, 2012, to the Letter of credit facility agreements dated November 18, 2010, between ACE Limited and Lloyd's TSB Bank PLC	 	10-K	 	10.5	 	February 28, 2013	 	 	

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 	 	 	 	 	 	Incorporated by Reference	 	 	
Exhibit Number	 	Exhibit Description	 	Form	 	Original Number	 	Date Filed	 	Filed Herewith	
 	 	 	 	 	 	 	 	 	 	 	
10.5	 	Letter of credit facility agreements dated November 18, 2010, between ACE Limited and Lloyd's TSB Bank PLC	 	10-K	 	10.5	 	February 25, 2011	 	 	
 	 	 	 	 	 	 	 	 	 	 	
10.6	 	First Amendment dated as of November 21, 2012, to the Letter of credit facility agreements dated November 18, 2010, between ACE Limited and ING Bank N.V., London Branch	 	10-K	 	10.7	 	February 28, 2013	 	 	
 	 	 	 	 	 	 	 	 	 	 	
10.7	 	Letter of credit facility agreements dated November 18, 2010, between ACE Limited and ING Bank N.V., London Branch	 	10-K	 	10.6	 	February 25, 2011	 	 	
 	 	 	 	 	 	 	 	 	 	 	
10.8	 	First Amendment dated as of November 21, 2012, to the Letter of credit facility agreements dated November 18, 2010, between ACE Limited and The Bank of Tokyo-Mitsubishi UFJ, Ltd., New York Branch	 	10-K	 	10.9	 	February 28, 2013	 	 	
 	 	 	 	 	 	 	 	 	 	 	
10.9	 	Letter of credit facility agreements dated November 18, 2010, between ACE Limited and The Bank of Tokyo-Mitsubishi UFJ, Ltd., New York Branch	 	10-K	 	10.7	 	February 25, 2011	 	 	
 	 	 	 	 	 	 	 	 	 	 	
10.10	 	First Amendment dated as of November 21, 2012, to the Letter of credit facility agreements dated November 18, 2010, between ACE Limited and The Royal Bank of Scotland PLC	 	10-K	 	10.11	 	February 28, 2013	 	 	
 	 	 	 	 	 	 	 	 	 	 	
10.11	 	Letter of credit facility agreements dated November 18, 2010, between ACE Limited and The Royal Bank of Scotland PLC	 	10-K	 	10.8	 	February 25, 2011	 	 	
 	 	 	 	 	 	 	 	 	 	 	
10.12	 	Credit Agreement for $1,000,000,000 Senior Unsecured Letter of Credit Facility, dated as of November 6, 2012, among ACE Limited, and certain subsidiaries and Wells Fargo Bank, National Association as Administrative Agent, the Swingline Bank and an Issuing Bank	 	10-K	 	10.13	 	February 28, 2013	 	 	
 	 	 	 	 	 	 	 	 	 	 	
10.13*	 	Employment Terms dated October 29, 2001, between ACE Limited and Evan Greenberg	 	10-K	 	10.64	 	March 27, 2003	 	 	
 	 	 	 	 	 	 	 	 	 	 	
10.14*	 	Employment Terms dated November 2, 2001, between ACE Limited and Philip V. Bancroft	 	10-K	 	10.65	 	March 27, 2003	 	 	
 	 	 	 	 	 	 	 	 	 	 	
10.15*	 	Executive Severance Agreement between ACE Limited and Philip Bancroft, effective January 2, 2002	 	10-Q	 	10.1	 	May 10, 2004	 	 	
 	 	 	 	 	 	 	 	 	 	 	
10.16*	 	Letter Regarding Executive Severance between ACE Limited and Philip V. Bancroft	 	10-K	 	10.17	 	February 25, 2011	 	 	
 	 	 	 	 	 	 	 	 	 	 	
10.17*	 	Employment Terms dated April 10, 2006, between ACE and John Keogh	 	10-K	 	10.29	 	February 29, 2008	 	 	

94

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 	 	 	 	 	 	Incorporated by Reference	 	 	
Exhibit Number	 	Exhibit Description	 	Form	 	Original Number	 	Date Filed	 	Filed Herewith	
10.18*	 	Executive Severance Agreement between ACE and John Keogh	 	10-K	 	10.30	 	February 29, 2008	 	 	
 	 	 	 	 	 	 	 	 	 	 	
10.19*	 	ACE Limited Executive Severance Plan as amended effective May 18, 2011	 	10-K	 	10.21	 	February 24, 2012	 	 	
 	 	 	 	 	 	 	 	 	 	 	
10.20*	 	Form of employment agreement between the Company (or subsidiaries of the Company) and executive officers of the Company to allocate a percentage of aggregate salary to the Company (or subsidiaries of the Company)	 	8-K	 	10.1	 	July 16, 2008	 	 	
 	 	 	 	 	 	 	 	 	 	 	
10.21*	 	Description of Executive Officer Cash Compensation for 2011	 	10-Q	 	10.1	 	November 3, 2011	 	 	
 	 	 	 	 	 	 	 	 	 	 	
10.22*	 	Description of Directors Compensation	 	10-Q	 	10.2	 	November 3, 2011	 	 	
 	 	 	 	 	 	 	 	 	 	 	
10.23*	 	Description of Directors Compensation	 	10-Q	 	10.1	 	October 30, 2013	 	 	
 	 	 	 	 	 	 	 	 	 	 	
10.24*	 	ACE Limited Annual Performance Incentive Plan	  	S-1	 	10.13	 	January 21, 1993	 	 	
 	 	 	 	 	 	 	 	 	 	 	
10.25*	 	ACE Limited Elective Deferred Compensation Plan (as amended and restated effective January 1, 2005)	 	10-K	 	10.24	 	March 16, 2006	 	 	
 	 	 	 	 	 	 	 	 	 	 	
10.26*	 	ACE USA Officer Deferred Compensation Plan (as amended through January 1, 2001)	 	10-K	 	10.25	 	March 16, 2006	 	 	
 	 	 	 	 	 	 	 	 	 	 	
10.27*	 	ACE USA Officer Deferred Compensation Plan (as amended and restated effective January 1, 2011)	 	10-Q	 	10.7	 	October 30, 2013	 	 	
 	 	 	 	 	 	 	 	 	 	 	
10.28*	 	ACE USA Officer Deferred Compensation Plan (as amended and restated effective January 1, 2009)	 	10-K	 	10.36	 	February 27, 2009	 	 	
 	 	 	 	 	 	 	 	 	 	 	
10.29*	 	First Amendment to the Amended and Restated ACE USA Officers Deferred Compensation Plan	 	10-K	 	10.28	 	February 25, 2010	 	 	
 	 	 	 	 	 	 	 	 	 	 	
10.30*	 	Form of Swiss Mandatory Retirement Benefit Agreement (for Swiss-employed named executive officers)	 	10-Q	 	10.2	 	May 7, 2010	 	 	
 	 	 	 	 	 	 	 	 	 	 	
10.31*	 	ACE Limited Supplemental Retirement Plan (as amended and restated effective July 1, 2001)	 	10-Q	 	10.1	 	November 14, 2001	 	 	
 	 	 	 	 	 	 	 	 	
10.32*	 	ACE Limited Supplemental Retirement Plan (as amended and restated effective January 1, 2011)	 	10-Q	 	10.6	 	October 30, 2013	 	 	
 	 	 	 	 	 	 	 	 	 	 	
10.33*	 	Amendments to the ACE Limited Supplemental Retirement Plan and the ACE Limited Elective Deferred Compensation Plan	 	10-K	 	10.38	 	February 29, 2008	 	 	

95

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 	 	 	 	 	 	Incorporated by Reference	 	 	
Exhibit Number	 	Exhibit Description	 	Form	 	Original Number	 	Date Filed	 	Filed Herewith	
10.34*	 	ACE Limited Elective Deferred Compensation Plan (as amended and restated effective January 1, 2009)	 	10-K	 	10.39	 	February 27, 2009	 	 	
 	 	 	 	 	 	 	 	 	 	 	
10.35*	 	ACE Limited Elective Deferred Compensation Plan (as amended and restated effective January 1, 2011)	 	10-Q	 	10.5	 	October 30, 2013	 	 	
 	 	 	 	 	 	 	 	 	 	 	
10.36*	 	Deferred Compensation Plan amendments, effective January 1, 2009	 	10-K	 	10.40	 	February 27, 2009	 	 	
 	 	 	 	 	 	 	 	 	 	 	
10.37*	 	Amendment to the ACE Limited Supplemental Retirement Plan	 	10-K	 	10.39	 	February 29, 2008	 	 	
 	 	 	 	 	 	 	 	 	 	 	
10.38*	 	Amendment and restated ACE Limited Supplemental Retirement Plan, effective January 1, 2009	 	10-K	 	10.42	 	February 27, 2009	 	 	
 	 	 	 	 	 	 	 	 	 	 	
10.39*	 	ACE USA Supplemental Employee Retirement Savings Plan	 	10-Q	 	10.6	 	May 15, 2000	 	 	
 	 	 	 	 	 	 	 	 	 	 	
10.40*	 	ACE USA Supplemental Employee Retirement Savings Plan (as amended through the Second Amendment)	 	10-K	 	10.30	 	March 1, 2007	 	 	
 	 	 	 	 	 	 	 	 	 	 	
10.41*	 	ACE USA Supplemental Employee Retirement Savings Plan (as amended through the Third Amendment)	 	10-K	 	10.31	 	March 1, 2007	 	 	
 	 	 	 	 	 	 	 	 	 	 	
10.42*	 	ACE USA Supplemental Employee Retirement Savings Plan (as amended and restated)	 	10-K	 	10.46	 	February 27, 2009	 	 	
 	 	 	 	 	 	 	 	 	 	 	
10.43*	 	First Amendment to the Amended and Restated ACE USA Supplemental Employee Retirement Savings Plan	 	10-K	 	10.39	 	February 25, 2010	 	 	
 	 	 	 	 	 	 	 	 	 	 	
10.44*	 	The ACE Limited 1995 Outside Directors Plan (as amended through the Seventh Amendment)	 	10-Q	 	10.1	 	August 14, 2003	 	 	
 	 	 	 	 	 	 	 	 	 	 	
10.45*	 	ACE Limited 1998 Long-Term Incentive Plan (as amended through the Fourth Amendment)	 	10-K	 	10.34	 	March 1, 2007	 	 	
 	 	 	 	 	 	 	 	 	 	 	
10.46*	 	ACE Limited 2004 Long-Term Incentive Plan (as amended through the Fifth Amendment)	 	8-K	 	10	 	May 21, 2010	 	 	
 	 	 	 	 	 	 	 	 	 	 	
10.47*	 	ACE Limited 2004 Long-Term Incentive Plan (as amended through the Sixth Amendment)	 	8-K	 	10.1	 	May 20, 2013	 	 	
 	 	 	 	 	 	 	 	 	 	 	
10.48*	 	ACE Limited Rules of the Approved U.K. Stock Option Program	 	10-Q	 	10.2	 	February 13, 1998	 	 	
 	 	 	 	 	 	 	 	 	 	 	
10.49*	 	Form of Restricted Stock Award Terms under the ACE Limited 2004 Long-Term Incentive Plan	 	10-K	 	10.54	 	February 27, 2009	 	 	

96

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 	 	 	 	 	 	Incorporated by Reference	 	 	
Exhibit Number	 	Exhibit Description	 	Form	 	Original Number	 	Date Filed	 	Filed Herewith	
10.50*	 	Form of Restricted Stock Award Terms under the ACE Limited 2004 Long-Term Incentive Plan	 	10-K	 	10.55	 	February 27, 2009	 	 	
 	 	 	 	 	 	 	 	 	 	 	
10.51*	 	Director Restricted Stock Award Terms under the ACE Limited 2004 Long-Term Incentive Plan	 	10-Q	 	10.1	 	November 9, 2009	 	 	
 	 	 	 	 	 	 	 	 	 	 	
10.52*	 	Form of Restricted Stock Unit Award Terms under the ACE Limited 2004 Long-Term Incentive Plan	 	10-Q	 	10.1	 	May 8, 2008	 	 	
 	 	 	 	 	 	 	 	 	 	 	
10.53*	 	Form of Restricted Stock Unit Award Terms under the ACE Limited 2004 Long-Term Incentive Plan	 	10-Q	 	10.2	 	May 8, 2008	 	 	
 	 	 	 	 	 	 	 	 	 	 	
10.54*	 	Form of Restricted Stock Unit Award Terms under the ACE Limited 2004 Long-Term Incentive Plan	 	10-K	 	10.60	 	February 27, 2009	 	 	
 	 	 	 	 	 	 	 	 	 	 	
10.55*	 	Form of Restricted Stock Unit Award Terms under the ACE Limited 2004 Long-Term Incentive Plan	 	10-Q	 	10.2	 	October 30, 2013	 	 	
 	 	 	 	 	 	 	 	 	 	 	
10.56*	 	Form of Restricted Stock Unit Award Terms under the ACE Limited 2004 Long-Term Incentive Plan for Chief Executive Officer, Chief Financial Officer and the General Counsel

	 	 	 	 	 	 	 	X	
 	 	 	 	 	 	 	 	 	 	 	
10.57*	 	Form of Incentive Stock Option Terms under the ACE Limited 2004 Long-Term Incentive Plan	 	8-K	 	10.4	 	September 13, 2004	 	 	
 	 	 	 	 	 	 	 	 	 	 	
10.58*	 	Form of Incentive Stock Option Terms under the ACE Limited 2004 Long-Term Incentive Plan	 	10-Q	 	10.4	 	May 8, 2008	 	 	
 	 	 	 	 	 	 	 	 	 	 	
10.59*	 	Form of Incentive Stock Option Terms under the ACE Limited 2004 Long-Term Incentive Plan	 	10-K	 	10.63	 	February 27, 2009	 	 	
 	 	 	 	 	 	 	 	 	 	 	
10.60*	 	Form of Incentive Stock Option Terms under the ACE Limited 2004 Long-Term Incentive Plan	 	10-Q	 	10.3	 	October 30, 2013	 	 	
 	 	 	 	 	 	 	 	 	 	 	
10.61*	 	Form of Non-Qualified Stock Option Terms under the ACE Limited 2004 Long-Term Incentive Plan	 	8-K	 	10.5	 	September 13, 2004	 	 	
 	 	 	 	 	 	 	 	 	 	 	
10.62*	 	Form of Non-Qualified Stock Option Terms under the ACE Limited 2004 Long-Term Incentive Plan	 	10-Q	 	10.3	 	May 8, 2008	 	 	
 	 	 	 	 	 	 	 	 	 	 	
10.63*	 	Form of Non-Qualified Stock Option Terms under the ACE Limited 2004 Long-Term Incentive Plan	 	10-Q	 	10.4	 	October 30, 2013	 	 	
 	 	 	 	 	 	 	 	 	 	 	
10.64*	 	Form of Performance Based Restricted Stock Award Terms under the ACE Limited 2004 Long-Term Incentive Plan, as updated through May 4, 2006	 	10-Q	 	10.3	 	May 5, 2006	 	 	
 	 	 	 	 	 	 	 	 	 	 	
10.65*	 	Revised Form of Performance Based Restricted Stock Award Terms under the ACE Limited 2004 Long-Term Incentive Plan	 	10-Q	 	10.2	 	November 8, 2006	 	 	

97

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 	 	 	 	 	 	Incorporated by Reference	 	 	
Exhibit Number	 	Exhibit Description	 	Form	 	Original Number	 	Date Filed	 	Filed Herewith	
10.66*	 	Revised Form of Performance Based Restricted Stock Award Terms under The ACE Limited 2004 Long-Term Incentive Plan	 	10-K	 	10.65	 	February 25, 2011	 	 	
 	 	 	 	 	 	 	 	 	 	 	
10.67*	 	Form of Performance Based Restricted Stock Award Terms under the ACE Limited 2004 Long-Term Incentive Plan	 	 	 	 	 	 	 	X	
 	 	 	 	 	 	 	 	 	 	 	
10.68*	 	Form of Performance Based Restricted Stock Award Terms under the ACE Limited 2004 Long-Term Incentive Plan for Chief Executive Officer, Chief Financial Officer and the General Counsel	 	 	 	 	 	 	 	X	
 	 	 	 	 	 	 	 	 	 	 	
10.69*	 	Form of Restricted Stock Unit Award Terms (for outside directors) under the ACE Limited 2004 Long-Term Incentive Plan	 	10-Q	 	10.2	 	November 7, 2007	 	 	
 	 	 	 	 	 	 	 	 	 	 	
10.70*	 	Form of Restricted Stock Unit Award Terms (for outside directors) under the ACE Limited 2004 Long-Term Incentive Plan	 	10-Q	 	10.2	 	August 7, 2009	 	 	
10.71*	 	Form of Incentive Stock Option Terms under the ACE Limited 2004 Long-Term Incentive Plan for Messrs. Greenberg and Cusumano	 	10-Q	 	10.1	 	August 4, 2011	 	 	
 	 	 	 	 	 	 	 	 	 	 	
10.72*	 	Form of Non-Qualified Stock Option Terms under the ACE Limited 2004 Long-Term Incentive Plan for Messrs. Greenberg and Cusumano	 	10-Q	 	10.2	 	August 4, 2011	 	 	
 	 	 	 	 	 	 	 	 	 	 	
10.73*	 	Form of Restricted Stock Award Terms under the ACE Limited 2004 Long-Term Incentive Plan for Messrs. Greenberg and Cusumano	 	10-Q	 	10.3	 	August 4, 2011	 	 	
 	 	 	 	 	 	 	 	 	 	 	
10.74*	 	ACE Limited Employee Stock Purchase Plan, as amended	 	8-K	 	10.1	 	May 22, 2012	 	 	
 	 	 	 	 	 	 	 	 	 	 	
10.75*	 	Form of Performance Based Restricted Stock Award Terms under the ACE Limited 2004 Long-Term Incentive Plan for Messrs. Greenberg and Cusumano	 	10-K	 	10.72	 	February 24, 2012	 	 	
 	 	 	 	 	 	 	 	 	 	 	
10.76*	 	Separation and Release Agreement between the Company and Robert Cusumano, dated July 24, 2013	 	10-Q	 	10.8	 	October 30, 2013	 	 	
 	 	 	 	 	 	 	 	 	 	 	
10.77	 	Second Amended and Restated Credit Agreement for $500,000,000 dated as of November 8, 2007, among ACE Limited, certain subsidiaries, various lenders and J.P. Morgan Securities Inc. and Barclays Capital as joint lead arrangers and joint bookrunners	 	8-K	 	10.2	 	November 14, 2007	 	 	

98

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 	 	 	 	 	 	Incorporated by Reference	 	 	
Exhibit Number	 	Exhibit Description	 	Form	 	Original Number	 	Date Filed	 	Filed Herewith	
10.78	 	First Amendment and Waiver dated July 10, 2008, to the Second Amended and Restated Credit Agreement for $500,000,000 dated as of November 8, 2007, among ACE Limited, certain subsidiaries, various lenders and J.P. Morgan Securities Inc. and Barclays Capital as joint lead arrangers and joint bookrunners	 	8-K	 	10.6	 	July 16, 2008	 	 	
 	 	 	 	 	 	 	 	 	 	 	
10.79	 	Letter of Credit Agreement for $500,000,000, dated June 16, 2009, among ACE Limited, and Deutsche Bank, New York Branch	 	10-Q	 	10.1	 	August 7, 2009	 	 	
 	 	 	 	 	 	 	 	 	 	 	
12.1	 	Ratio of earnings to fixed charges	 	 	 	 	 	 	 	X	
 	 	 	 	 	 	 	 	 	 	 	
21.1	 	Subsidiaries of the Company	 	 	 	 	 	 	 	X	
 	 	 	 	 	 	 	 	 	 	 	
23.1	 	Consent of Independent Registered Public Accounting Firm	 	 	 	 	 	 	 	X	
 	 	 	 	 	 	 	 	 	 	 	
31.1	 	Certification Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002	 	 	 	 	 	 	 	X	
 	 	 	 	 	 	 	 	 	 	 	
31.2	 	Certification Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002	 	 	 	 	 	 	 	X	
 	 	 	 	 	 	 	 	 	 	 	
32.1	 	Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002	 	 	 	 	 	 	 	X	
 	 	 	 	 	 	 	 	 	 	 	
32.2	 	Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002	 	 	 	 	 	 	 	X	
 	 	 	 	 	 	 	 	 	 	 	
101	 	The following financial information from ACE Limited's Annual Report on Form 10-K for the year ended December 31, 2013, formatted in XBRL: (i)  Consolidated Balance Sheets at December 31, 2013 and 2012; (ii) Consolidated Statements of Operations and Comprehensive Income for the years ended December 31, 2013, 2012, and 2011; (iii) Consolidated Statements of Shareholders' Equity for the years ended December 31, 2013, 2012, and 2011; (iv) Consolidated Statements of Cash Flows for the years ended December 31, 2013, 2012, and 2011; and (v) Notes to the Consolidated Financial Statements	 	 	 	 	 	 	 	X	
* Management Contract or Compensation Plan	

99

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

ACE LIMITED

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

February 28, 2014

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

				
Signature	 	Title	Date	
 	 	 	 	
/s/ Evan G. Greenberg	 	President, Chairman, Chief Executive	February 28, 2014	
Evan G. Greenberg	 	Officer; Director	 	
 	 	 	 	
/s/ Philip V. Bancroft	 	Chief Financial Officer	February 28, 2014	
Philip V. Bancroft	 	(Principal Financial Officer)	 	
 	 	 	 	
/s/ Paul B. Medini	 	Chief Accounting Officer	February 28, 2014	
Paul B. Medini	 	(Principal Accounting Officer)		
 	 	 	 	
/s/ Michael G. Atieh	 	Director	February 28, 2014	
Michael G. Atieh	 	 		
 	 	 	 	
/s/ Mary A. Cirillo	 	Director	February 28, 2014	
Mary A. Cirillo	 	 		
 	 	 	 	
/s/ Michael P. Connors	 	Director	February 28, 2014	
Michael P. Connors	 	 		
 	 	 	 	
/s/ Robert M. Hernandez	 	Director	February 28, 2014	
Robert M. Hernandez	 	 		
 	 	 	 	
/s/ Peter Menikoff	 	Director	February 28, 2014	
Peter Menikoff	 	 		

100

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Signature	 	Title	Date	
 	 	 	 	
/s/ Leo F. Mullin	 	Director	February 28, 2014	
Leo F. Mullin	 	 	 	
 	 	 	 	
/s/ Thomas J. Neff	 	Director	February 28, 2014	
Thomas J. Neff	 	 		
 	 	 	 	
/s/ Robert Ripp	 	Director	February 28, 2014	
Robert Ripp	 	 		
 	 	 	 	
/s/ Eugene B. Shanks, Jr.	 	Director	February 28, 2014	
Eugene B. Shanks, Jr.	 	 		
 	 	 	 	
/s/ Theodore E. Shasta	 	Director	February 28, 2014	
Theodore E. Shasta	 	 		
 	 	 	 	
/s/ Olivier Steimer	 	Director	February 28, 2014	
Olivier Steimer	 	 		

101

Table of Contents

ACE LIMITED AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2013

F-1 

Table of Contents

ACE Limited
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	
			
 	 	Page	
Management's Responsibility for Financial Statements and Internal Control over Financial Reporting	F-3	
Report of Independent Registered Public Accounting Firm	F-4	
Consolidated Financial Statements	 	
Consolidated Balance Sheets	F-5	
Consolidated Statements of Operations and Comprehensive Income	F-6	
Consolidated Statements of Shareholders’ Equity	F-7	
Consolidated Statements of Cash Flows	F-8	
Notes to Consolidated Financial Statements 	 	
Note 1.	Summary of significant accounting policies	F-9	
Note 2.	Acquisitions	F-17	
Note 3.	Investments	F-18	
Note 4.	Fair value measurements	F-27	
Note 5.	Reinsurance	F-36	
Note 6.	Intangible assets	F-40	
Note 7.	Unpaid losses and loss expenses	F-41	
Note 8.	Taxation	F-49	
Note 9.	Debt	F-52	
Note 10.	Commitments, contingencies, and guarantees	F-53	
Note 11.	Shareholders' equity	F-57	
Note 12.	Share-based compensation	F-60	
Note 13.	Pension plans	F-63	
Note 14.	Other (income) expense	F-64	
Note 15.	Segment information	F-64	
Note 16.	Earnings per share	F-68	
Note 17.	Related party transactions	F-68	
Note 18.	Statutory financial information	F-69	
Note 19.	Information provided in connection with outstanding debt of subsidiaries	F-69	
Note 20.	Condensed unaudited quarterly financial data	F-81	
Financial Statement Schedules	 	
Schedule I	Summary of Investments - Other Than Investments in Related Parties	F-82	
Schedule II	Condensed Financial Information of Registrant	F-83	
Schedule IV	Supplemental Information Concerning Reinsurance	F-86	
Schedule VI	Supplementary Information Concerning Property and Casualty Operations	F-87	

F-2 

Table of Contents

MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS AND
INTERNAL CONTROL OVER FINANCIAL REPORTING

____________________________________________________________________________________________________________
Financial Statements
The consolidated financial statements of ACE Limited (ACE) were prepared by management, which is responsible for their reliability and objectivity. The statements have been prepared in conformity with accounting principles generally accepted in the United States of America and, as such, include amounts based on informed estimates and judgments of management. Financial information elsewhere in this annual report is consistent with that in the consolidated financial statements.

The Board of Directors (Board), operating through its Audit Committee, which is composed entirely of directors who are not officers or employees of ACE, provides oversight of the financial reporting process and safeguarding of assets against unauthorized acquisition, use or disposition. The Audit Committee annually recommends the appointment of an independent registered public accounting firm and submits its recommendation to the Board for approval.

The Audit Committee meets with management, the independent registered public accountants and the internal auditor; approves the overall scope of audit work and related fee arrangements; and reviews audit reports and findings. In addition, the independent registered public accountants and the internal auditor meet separately with the Audit Committee, without management representatives present, to discuss the results of their audits; the adequacy of ACE's internal control; the quality of its financial reporting; and the safeguarding of assets against unauthorized acquisition, use or disposition.

The consolidated financial statements have been audited by an independent registered public accounting firm, PricewaterhouseCoopers LLP, which has been given unrestricted access to all financial records and related data, including minutes of all meetings of the Board and committees of the Board. ACE believes that all representations made to our independent registered public accountants during their audits were valid and appropriate.
____________________________________________________________________________________________________________
Internal Control over Financial Reporting
The management of ACE is responsible for establishing and maintaining adequate internal control over financial reporting. Pursuant to the rules and regulations of the Securities and Exchange Commission, internal control over financial reporting is a process designed by, or under the supervision of our Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our consolidated financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

As of December 31, 2013 , management has evaluated the effectiveness of ACE's internal control over financial reporting based on the criteria for effective internal control over financial reporting established in “Internal Control - Integrated Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission in 1992. Based on this evaluation, we have concluded that ACE's internal control over financial reporting was effective as of December 31, 2013 .

PricewaterhouseCoopers LLP, the independent registered public accounting firm that audited the consolidated financial statements of ACE included in this Annual Report, has issued a report on the effectiveness of ACE's internal controls over financial reporting as of December 31, 2013 . The report, which expresses an unqualified opinion on the effectiveness of ACE's internal control over financial reporting as of December 31, 2013 , is included in this Item under “Report of Independent Registered Public Accounting Firm” and follows this statement.

	
			
/s/ Evan G. Greenberg	 	/s/ Philip V. Bancroft	
Evan G. Greenberg	 	Philip V. Bancroft	
Chairman, President and Chief Executive Officer	 	Chief Financial Officer	

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of ACE Limited:

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations and comprehensive income, shareholders' equity, and cash flows present fairly, in all material respects, the financial position of ACE Limited and its subsidiaries (the "Company") at December 31, 2013 and December 31, 2012, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2013 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedules listed in the index appearing under Item 15 (2) present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements and financial statement schedules, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in Internal Control Over Financial Reporting, appearing in Management's Responsibility for Financial Statements and Internal Control Over Financial Reporting. Our responsibility is to express opinions on these financial statements, on the financial statement schedules, and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

	
	
/s/ PricewaterhouseCoopers LLP	
PricewaterhouseCoopers LLP	
Philadelphia, Pennsylvania	
February 28, 2014	

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CONSOLIDATED BALANCE SHEETS
ACE Limited and Subsidiaries

	
										
 	 	 	December 31		 	December 31		
(in millions of U.S. dollars, except share and per share data)	2013		 	2012		
Assets	 	 	 	
Investments	 	 	 	
 	Fixed maturities available for sale, at fair value (amortized cost – $48,406 and $44,666)	$	49,254		 	$	47,306		
 	    (includes hybrid financial instruments of $302 and $309)	 	 	 	
 	Fixed maturities held to maturity, at amortized cost (fair value – $6,263 and $7,633)	6,098		 	7,270		
 	Equity securities, at fair value (cost – $841 and $707)	837		 	744		
 	Short-term investments, at fair value and amortized cost	1,763		 	2,228		
 	Other investments (cost – $2,671 and $2,465)	2,976		 	2,716		
 	 	Total investments	60,928		 	60,264		
Cash	579		 	615		
Securities lending collateral	1,632		 	1,791		
Accrued investment income	556		 	552		
Insurance and reinsurance balances receivable	5,026		 	4,147		
Reinsurance recoverable on losses and loss expenses	11,227		 	12,078		
Reinsurance recoverable on policy benefits	218		 	241		
Deferred policy acquisition costs	2,313		 	1,873		
Value of business acquired	536		 	614		
Goodwill and other intangible assets	5,404		 	4,975		
Prepaid reinsurance premiums	1,675		 	1,617		
Deferred tax assets	616		 	453		
Investments in partially-owned insurance companies (cost – $467 and $451)	470		 	454		
Other assets	3,330		 	2,871		
Total assets	$	94,510		 	$	92,545		
Liabilities	 	 	 	
Unpaid losses and loss expenses	$	37,443		 	$	37,946		
Unearned premiums	7,539		 	6,864		
Future policy benefits	4,615		 	4,470		
Insurance and reinsurance balances payable	3,628		 	3,472		
Securities lending payable	1,633		 	1,795		
Accounts payable, accrued expenses, and other liabilities	4,810		 	5,397		
Short-term debt	1,901		 	1,401		
Long-term debt	3,807		 	3,360		
Trust preferred securities	309		 	309		
Total liabilities	65,685		 	65,014		
Commitments and contingencies	 	 	 	
Shareholders’ equity	 	 	 	
Common Shares (CHF 27.04 and CHF 28.89 par value; 342,832,412 shares issued; 339,793,935 and 340,321,534 shares outstanding)	8,899		 	9,591		
Common Shares in treasury (3,038,477 and 2,510,878 shares)	(255	)	 	(159	)	
Additional paid-in capital	5,238		 	5,179		
Retained earnings	13,791		 	10,033		
Accumulated other comprehensive income (AOCI)	1,152		 	2,887		
Total shareholders’ equity	28,825		 	27,531		
Total liabilities and shareholders’ equity	$	94,510		 	$	92,545		
See accompanying notes to the consolidated financial statements

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CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
ACE Limited and Subsidiaries

	
												
For the years ended December 31, 2013, 2012 and 2011	 	
(in millions of U.S. dollars, except per share data)	2013		 	2012		 	2011		
Revenues	 	 	 	 	 	
Net premiums written	$	17,025		 	$	16,075		 	$	15,372		
(Increase) decrease in unearned premiums	(412	)	 	(398	)	 	15		
Net premiums earned	16,613		 	15,677		 	15,387		
Net investment income	2,144		 	2,181		 	2,242		
Net realized gains (losses):	 	 	 	 	 	
Other-than-temporary impairment (OTTI) losses gross	(22	)	 	(38	)	 	(65	)	
Portion of OTTI losses recognized in other comprehensive income (OCI)	—		 	1		 	15		
Net OTTI losses recognized in income	(22	)	 	(37	)	 	(50	)	
Net realized gains (losses) excluding OTTI losses	526		 	115		 	(745	)	
Total net realized gains (losses) (includes $105 of net unrealized gains reclassified from AOCI in 2013)	504		 	78		 	(795	)	
Total revenues	19,261		 	17,936		 	16,834		
Expenses	 	 	 	 	 	
Losses and loss expenses	9,348		 	9,653		 	9,520		
Policy benefits	515		 	521		 	401		
Policy acquisition costs	2,659		 	2,446		 	2,472		
Administrative expenses	2,211		 	2,096		 	2,068		
Interest expense	275		 	250		 	250		
Other (income) expense	15		 	(6	)	 	81		
Total expenses	15,023		 	14,960		 	14,792		
Income before income tax	4,238		 	2,976		 	2,042		
Income tax expense (includes $17 Income tax expense from reclassification of unrealized gains in 2013)	480		 	270		 	502		
Net income	$	3,758		 	$	2,706		 	$	1,540		
Other comprehensive income (loss)	 	 	 	 	 	
Unrealized appreciation (depreciation)	$	(1,762	)	 	$	1,350		 	$	646		
Reclassification adjustment for net realized gains included in net income	(105	)	 	(234	)	 	(173	)	
 	(1,867	)	 	1,116		 	473		
Change in:	 	 	 	 	 	
Cumulative translation adjustment	(339	)	 	116		 	(5	)	
Pension liability	—		 	(35	)	 	8		
Other comprehensive income (loss), before income tax	(2,206	)	 	1,197		 	476		
Income tax benefit (expense) related to OCI items	471		 	(221	)	 	(159	)	
Other comprehensive income (loss)	(1,735	)	 	976		 	317		
Comprehensive income	$	2,023		 	$	3,682		 	$	1,857		
Earnings per share	 	 	 	 	 	
Basic earnings per share	$	11.02		 	$	7.96		 	$	4.55		
Diluted earnings per share	$	10.92		 	$	7.89		 	$	4.52		
See accompanying notes to the consolidated financial statements

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CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
ACE Limited and Subsidiaries

	
												
For the years ended December 31, 2013, 2012 and 2011	 	
(in millions of U.S. dollars)	2013		 	2012		 	2011		
Common Shares	 	 	 	 	 	
Balance – beginning of year	$	9,591		 	$	10,095		 	$	10,161		
Exercise of stock options	—		 	—		 	47		
Dividends declared on Common Shares-par value reduction	(692	)	 	(504	)	 	(113	)	
Balance – end of year	8,899		 	9,591		 	10,095		
Common Shares in treasury	 	 	 	 	 	
Balance – beginning of year	(159	)	 	(327	)	 	(330	)	
Common Shares repurchased	(290	)	 	(7	)	 	(132	)	
Common Shares issued in treasury, net of net shares redeemed under employee share-based compensation plans	194		 	175		 	135		
Balance – end of year	(255	)	 	(159	)	 	(327	)	
Additional paid-in capital	 	 	 	 	 	
Balance – beginning of year	5,179		 	5,326		 	5,623		
Net shares redeemed under employee share-based compensation plans	(126	)	 	(93	)	 	(104	)	
Exercise of stock options	(42	)	 	(7	)	 	16		
Share-based compensation expense and other	191		 	135		 	139		
Funding of dividends declared to Retained earnings	—		 	(200	)	 	(354	)	
Tax benefit on share-based compensation expense	36		 	18		 	6		
Balance – end of year	5,238		 	5,179		 	5,326		
Retained earnings	 	 	 	 	 	
Balance – beginning of year	10,033		 	7,327		 	5,787		
Net income	3,758		 	2,706		 	1,540		
Funding of dividends declared from Additional paid-in capital	—		 	200		 	354		
Dividends declared on Common Shares	—		 	(200	)	 	(354	)	
Balance – end of year	13,791		 	10,033		 	7,327		
Deferred compensation obligation	 	 	 	 	 	
Balance – beginning of year	—		 	—		 	2		
Decrease to obligation	—		 	—		 	(2	)	
Balance – end of year	—		 	—		 	—		
Accumulated other comprehensive income	 	 	 	 	 	
Net unrealized appreciation on investments	 	 	 	 	 	
Balance – beginning of year	2,633		 	1,715		 	1,399		
Change in year, before reclassification from AOCI, net of income tax benefit of $391	(1,371	)	 	 	 	 	
Amounts reclassified from AOCI, net of income tax benefit of $17	(88	)	 	 	 	 	
Change in year, net of income tax benefit (expense) of $408, $(198), and $(157)	(1,459	)	 	918		 	316		
Balance – end of year	1,174		 	2,633		 	1,715		
Cumulative translation adjustment	 	 	 	 	 	
Balance – beginning of year	339		 	258		 	262		
Change in year, net of income tax benefit (expense) of $63, $(35) and $1	(276	)	 	81		 	(4	)	
Balance – end of year	63		 	339		 	258		
Pension liability adjustment	 	 	 	 	 	
Balance – beginning of year	(85	)	 	(62	)	 	(67	)	
Change in year, net of income tax benefit (expense) of nil, $12 and $(3)	—		 	(23	)	 	5		
Balance – end of year	(85	)	 	(85	)	 	(62	)	
Accumulated other comprehensive income	1,152		 	2,887		 	1,911		
Common Shares issued to employee trust	 	 	 	 	 	
Balance – beginning of year	—		 	—		 	(2	)	
Decrease in Common Shares	—		 	—		 	2		
Balance – end of year	—		 	—		 	—		
Total shareholders’ equity	$	28,825		 	$	27,531		 	$	24,332		
 
See accompanying notes to the consolidated financial statements

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CONSOLIDATED STATEMENTS OF CASH FLOWS
ACE Limited and Subsidiaries

	
												
For the years ended December 31, 2013, 2012, and 2011	 	
(in millions of U.S. dollars)	2013		 	2012		 	2011		
Cash flows from operating activities	 	 	 	 	 	
Net income	$	3,758		 	$	2,706		 	$	1,540		
Adjustments to reconcile net income to net cash flows from operating activities		 		 		
Net realized (gains) losses	(504	)	 	(78	)	 	795		
Amortization of premiums/discounts on fixed maturities	268		 	220		 	152		
Deferred income taxes	240		 	(7	)	 	15		
Unpaid losses and loss expenses	(365	)	 	203		 	43		
Unearned premiums	402		 	522		 	9		
Future policy benefits	191		 	158		 	78		
Insurance and reinsurance balances payable	176		 	(151	)	 	216		
Accounts payable, accrued expenses, and other liabilities	37		 	(42	)	 	39		
Income taxes payable	(45	)	 	(167	)	 	39		
Insurance and reinsurance balances receivable	(624	)	 	335		 	(217	)	
Reinsurance recoverable on losses and loss expenses	787		 	372		 	531		
Reinsurance recoverable on policy benefits	23		 	52		 	25		
Deferred policy acquisition costs	(503	)	 	(340	)	 	(122	)	
Prepaid reinsurance premiums	(31	)	 	(123	)	 	(34	)	
Other	212		 	335		 	361		
Net cash flows from operating activities	4,022		 	3,995		 	3,470		
Cash flows from investing activities	 	 	 	 		
Purchases of fixed maturities available for sale	(21,340	)	 	(23,572	)	 	(23,523	)	
Purchases of to be announced mortgage-backed securities	(58	)	 	(389	)	 	(755	)	
Purchases of fixed maturities held to maturity	(447	)	 	(388	)	 	(340	)	
Purchases of equity securities	(264	)	 	(135	)	 	(309	)	
Sales of fixed maturities available for sale	10,355		 	14,321		 	17,176		
Sales of to be announced mortgage-backed securities	58		 	448		 	795		
Sales of equity securities	142		 	119		 	376		
Maturities and redemptions of fixed maturities available for sale	6,941		 	5,523		 	3,720		
Maturities and redemptions of fixed maturities held to maturity	1,488		 	1,451		 	1,279		
Net change in short-term investments	524		 	117		 	(300	)	
Net derivative instruments settlements	(471	)	 	(281	)	 	(67	)	
Acquisition of subsidiaries (net of cash acquired of $38, $8, and $91)	(977	)	 	(98	)	 	(606	)	
Other	(393	)	 	(555	)	 	(482	)	
Net cash flows used for investing activities	(4,442	)	 	(3,439	)	 	(3,036	)	
Cash flows from financing activities	 	 	 	 	 	
Dividends paid on Common Shares	(517	)	 	(815	)	 	(459	)	
Common Shares repurchased	(287	)	 	(11	)	 	(195	)	
Proceeds from issuance of long-term debt	947		 	—		 	—		
Proceeds from issuance of short-term debt	2,572		 	2,933		 	5,238		
Repayment of short-term debt	(2,572	)	 	(2,783	)	 	(5,288	)	
Proceeds from share-based compensation plans, including windfall tax benefits	135		 	126		 	139		
Other	113		 	—		 	—		
Net cash flows from (used for) financing activities	391		 	(550	)	 	(565	)	
Effect of foreign currency rate changes on cash and cash equivalents	(7	)	 	(5	)	 	(27	)	
Net (decrease) increase in cash	(36	)	 	1		 	(158	)	
Cash – beginning of year	615		 	614		 	772		
Cash – end of year	$	579		 	$	615		 	$	614		
Supplemental cash flow information	 	 	 	 	 	
Taxes paid	$	218		 	$	438		 	$	460		
Interest paid	$	253		 	$	240		 	$	234		
See accompanying notes to the consolidated financial statements

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ACE Limited and Subsidiaries

1 . Summary of significant accounting policies

a) Basis of presentation
ACE Limited is a holding company incorporated in Zurich, Switzerland. ACE Limited, through its subsidiaries, provides a broad range of insurance and reinsurance products to insureds worldwide. ACE operates through five business segments: Insurance – North American P&C, Insurance – North American Agriculture, Insurance – Overseas General, Global Reinsurance, and Life. Refer to Note 15 for additional information.

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

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Amounts included in the consolidated financial statements reflect our best estimates and assumptions; actual amounts could differ materially from these estimates. ACE's principal estimates include:
		
•	unpaid loss and loss expense reserves, including long-tail asbestos and environmental (A&E) reserves;	
		
•	future policy benefits reserves;	
		
•	the valuation of value of business acquired (VOBA) and amortization of deferred policy acquisition costs and VOBA;	
		
•	reinsurance recoverable, including a provision for uncollectible reinsurance;	
		
•	the assessment of risk transfer for certain structured insurance and reinsurance contracts;	
		
•	the valuation of the investment portfolio and assessment of OTTI;	
		
•	the valuation of deferred tax assets;	
		
•	the valuation of derivative instruments related to guaranteed living benefits (GLB); and	
		
•	the valuation of goodwill.	

b) Premiums
Premiums are generally recognized as written upon inception of the policy. For multi-year policies for which premiums written are payable in annual installments, only the current annual premium is included as written at policy inception due to the ability of the insured/reinsured to commute or cancel coverage within the policy term. The remaining annual premiums are included as written at each successive anniversary date within the multi-year term.

For property and casualty (P&C) insurance and reinsurance products, premiums written are primarily earned on a pro-rata basis over the policy terms to which they relate. Unearned premiums represent the portion of premiums written applicable to the unexpired portion of the policies in force. For retrospectively-rated policies, written premiums are adjusted to reflect expected ultimate premiums consistent with changes to reported losses, or other measures of exposure as stated in the policy, and earned over the policy coverage period. For retrospectively-rated multi-year policies, premiums recognized in the current period are computed, using a with-and-without method, as the difference between the ceding enterprise's total contract costs before and after the experience under the contract at the reporting date. Accordingly, for retrospectively-rated multi-year policies, additional premiums are generally written and earned when losses are incurred.

Mandatory reinstatement premiums assessed on reinsurance policies are earned in the period of the loss event that gave rise to the reinstatement premiums.  All remaining unearned premiums are recognized over the remaining coverage period. 

Premiums from long-duration contracts such as certain traditional term life, whole life, endowment, and long-duration personal accident and health (A&H) policies are generally recognized as revenue when due from policyholders. Traditional life policies include those contracts with fixed and guaranteed premiums and benefits. Benefits and expenses are matched with income to result in the recognition of profit over the life of the contracts.

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

Retroactive loss portfolio transfer (LPT) contracts in which the insured loss events occurred prior to contract inception are evaluated to determine whether they meet criteria for reinsurance accounting. If reinsurance accounting is appropriate, written premiums are fully earned and corresponding losses and loss expenses recognized at contract inception. These contracts can cause significant variances in gross premiums written, net premiums written, net premiums earned, and net incurred losses in the years in which they are written. Reinsurance contracts sold not meeting criteria for reinsurance accounting are recorded using the deposit method as described below in Note 1 k ).

Reinsurance premiums assumed are based on information provided by ceding companies supplemented by our own estimates of premium when we have not received ceding company reports. Estimates are reviewed and adjustments are recorded in the period in which they are determined. Premiums are earned over the coverage terms of the related reinsurance contracts and range from one to three years.

c) Deferred policy acquisition costs and value of business acquired
Policy acquisition costs consist of commissions (direct and ceded), premium taxes, and certain underwriting costs related directly to the successful acquisition of new or renewal insurance contracts. A VOBA intangible asset is established upon the acquisition of blocks of long-duration contracts in a business combination and represents the present value of estimated net cash flows for the contracts in force at the acquisition date. Acquisition costs and VOBA, collectively policy acquisition costs, are deferred and amortized. Amortization is recorded in Policy acquisition costs in the consolidated statements of operations. Policy acquisition costs on P&C contracts are generally amortized ratably over the period in which premiums are earned. Policy acquisition costs on traditional long-duration contracts are amortized over the estimated life of the contracts, generally in proportion to premium revenue recognized. For non-traditional long-duration contracts, we amortize policy acquisition costs over the expected life of the contracts in proportion to expected gross profits.  The effect of changes in estimates of expected gross profits is reflected in the period the estimates are revised. Policy acquisition costs are reviewed to determine if they are recoverable from future income, including investment income. Unrecoverable policy acquisition costs are expensed in the period identified.

Advertising costs are expensed as incurred except for direct-response campaigns that qualify for cost deferral, principally related to 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, the expected economic future benefit period. The expected future benefit period is evaluated periodically based on historical results and adjusted prospectively. The amount of deferred marketing costs reported in Deferred policy acquisition costs in the consolidated balance sheets was $ 307 million and $ 274 million at December 31, 2013 and 2012 , respectively. Amortization expense for deferred marketing costs was $ 128 million, $ 119 million, and $ 128 million for the years ended December 31, 2013 , 2012 , and 2011 , respectively (2012 disclosure amount adjusted to present deferred marketing amortization costs in a manner consistent with the 2013 amount).

d) Reinsurance
ACE assumes and cedes reinsurance with other insurance companies to provide greater diversification of business and minimize the net loss potential arising from large risks. Ceded reinsurance contracts do not relieve ACE of its primary obligation to policyholders.

For both ceded and assumed reinsurance, risk transfer requirements must be met in order to account for a contract as reinsurance, principally resulting in the recognition of cash flows under the contract as premiums and losses. To meet risk transfer requirements, a reinsurance contract must include insurance risk, consisting of both underwriting and timing risk, and a reasonable possibility of a significant loss for the assuming entity. To assess risk transfer for certain contracts, ACE generally develops expected discounted cash flow analyses at contract inception. Deposit accounting is used for contracts that do not meet risk transfer requirements. Deposit accounting requires that consideration received or paid be recorded in the balance sheet as opposed to recording premiums written or losses incurred in the statement of operations. Non-refundable fees on deposit contracts are earned based on the terms of the contract described below in Note 1 k ).

Reinsurance recoverable includes balances due from reinsurance companies for paid and unpaid losses and loss expenses and policy benefits that will be recovered from reinsurers, based on contracts in force. The method for determining the reinsurance recoverable on unpaid losses and loss expenses incurred but not reported (IBNR) involves actuarial estimates consistent with

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

those used to establish the associated liability for unpaid losses and loss expenses as well as a determination of ACE's ability to cede unpaid losses and loss expenses under the terms of the reinsurance agreement.

Reinsurance recoverable is presented net of a provision for uncollectible reinsurance determined based upon a review of the financial condition of reinsurers and other factors. The provision for uncollectible reinsurance is based on an estimate of the reinsurance recoverable balance that will ultimately be unrecoverable due to reinsurer insolvency, a contractual dispute, or any other reason. The valuation of this provision includes several judgments including certain aspects of the allocation of reinsurance recoverable on IBNR claims by reinsurer and a default analysis to estimate uncollectible reinsurance. The primary components of the default analysis are reinsurance recoverable balances by reinsurer, net of collateral, and default factors used to determine the portion of a reinsurer's balance deemed uncollectible. The definition of collateral for this purpose requires some judgment and is generally limited to assets held in an ACE-only beneficiary trust, letters of credit, and liabilities held with the same legal entity for which ACE believes there is a contractual right of offset. The determination of the default factor is principally based on the financial strength rating of the reinsurer. Default factors require considerable judgment and are determined using the current financial strength rating, or rating equivalent, of each reinsurer as well as other key considerations and assumptions. The more significant considerations include, but are not necessarily limited to, the following:
		
•	For reinsurers that maintain a financial strength rating from a major rating agency, and for which recoverable balances are considered representative of the larger population (i.e., default probabilities are consistent with similarly rated reinsurers and payment durations conform to averages), the financial rating is based on a published source and the default factor is based on published default statistics of a major rating agency applicable to the reinsurer's particular rating class. When a recoverable is expected to be paid in a brief period of time by a highly rated reinsurer, such as certain property catastrophe claims, a default factor may not be applied;	
		
•	For balances recoverable from reinsurers that are both unrated by a major rating agency and for which management is unable to determine a credible rating equivalent based on a parent, affiliate, or peer company, we determine a rating equivalent based on an analysis of the reinsurer that considers an assessment of the creditworthiness of the particular entity, industry benchmarks, or other factors as considered appropriate. We then apply the applicable default factor for that rating class. For balances recoverable from unrated reinsurers for which the ceded reserve is below a certain threshold, we generally apply a default factor of 34 percent, consistent with published statistics of a major rating agency;	
		
•	For balances recoverable from reinsurers that are either insolvent or under regulatory supervision, we establish a default factor and resulting provision for uncollectible reinsurance based on reinsurer-specific facts and circumstances. Upon initial notification of an insolvency, we generally recognize an expense for a substantial portion of all balances outstanding, net of collateral, through a combination of write-offs of recoverable balances and increases to the provision for uncollectible reinsurance. When regulatory action is taken on a reinsurer, we generally recognize a default factor by estimating an expected recovery on all balances outstanding, net of collateral. When sufficient credible information becomes available, we adjust the provision for uncollectible reinsurance by establishing a default factor pursuant to information received; and	
		
•	For other recoverables, management determines the provision for uncollectible reinsurance based on the specific facts and circumstances.	

The methods used to determine the reinsurance recoverable balance and related provision for uncollectible reinsurance are regularly reviewed and updated, and any resulting adjustments are reflected in earnings in the period identified.

Prepaid reinsurance premiums represent the portion of premiums ceded to reinsurers applicable to the unexpired coverage terms of the reinsurance contracts in force.

The value of reinsurance business assumed of $ 27 million and $ 32 million at December 31, 2013 and 2012 , respectively, included in Other assets in the accompanying consolidated balance sheets, represents the excess of estimated ultimate value of the liabilities assumed under retroactive reinsurance contracts over consideration received. The value of reinsurance business assumed is amortized and recorded to losses and loss expenses based on the payment pattern of the losses assumed and ranges between 9 and 40 years. The unamortized value is reviewed regularly to determine if it is recoverable based upon the terms of the contract, estimated losses and loss expenses, and anticipated investment income. Unrecoverable amounts are expensed in the period identified.

e) Investments
Fixed maturities are classified as either available for sale or held to maturity. The available for sale portfolio is reported at fair value. The held to maturity portfolio includes securities for which we have the ability and intent to hold to maturity or redemption and is reported at amortized cost. Equity securities are classified as available for sale and are recorded at fair value.

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ACE Limited and Subsidiaries

Short-term investments comprise securities due to mature within one year of the date of purchase and are recorded at fair value which typically approximates cost. Short-term investments include certain cash and cash equivalents, which are part of investment portfolios under the management of external investment managers.

Other investments principally comprise life insurance policies, policy loans, trading securities, other direct equity investments, investment funds, and limited partnerships.
		
•	Life insurance policies are carried at policy cash surrender value.	
		
•	Policy loans are carried at outstanding balance.	
		
•	Trading securities are recorded on a trade date basis and carried at fair value. Unrealized gains and losses on trading securities are reflected in Net income.	
		
•	Other investments over which ACE can exercise significant influence are accounted for using the equity method.	
		
•	All other investments over which ACE cannot exercise significant influence are carried at fair value with changes in fair value recognized through OCI. For these investments, investment income and realized gains are recognized as related distributions are received.	
		
•	Partially-owned investment companies comprise entities in which we hold an ownership interest in excess of three percent. These investments as well as ACE's investments in investment funds where our ownership interest is in excess of three percent are accounted for under the equity method because ACE exerts significant influence. These investments apply investment company accounting to determine operating results, and ACE retains the investment company accounting in applying the equity method. This means that investment income, realized gains or losses, and unrealized gains or losses are included in the portion of equity earnings reflected in Other (income) expense.	

Investments in partially-owned insurance companies primarily represent direct investments in which ACE has significant influence and, as such, meet the requirements for equity accounting. We report our share of the net income or loss of the partially-owned insurance companies in Other (income) expense. Investments in partially-owned insurance companies over which ACE does not exert significant influence are carried at fair value with changes in fair value recognized through OCI.

Realized gains or losses on sales of investments are determined on a first-in, first-out basis. Unrealized appreciation (depreciation) on investments is included as a separate component of AOCI in Shareholders' equity. We regularly review our investments for OTTI. Refer to Note 3 for additional information.

With respect to securities where the decline in value is determined to be temporary and the security's value is not written down, a subsequent decision may be made to sell that security and realize a loss. Subsequent decisions on security sales are the result of changing or unforeseen facts and circumstances (i.e., arising from a large insured loss such as a catastrophe), deterioration of the creditworthiness of the issuer or its industry, or changes in regulatory requirements. We believe that subsequent decisions to sell such securities are consistent with the classification of the majority of the portfolio as available for sale.

We use derivative instruments including futures, options, swaps, and foreign currency forward contracts for the purpose of managing certain investment portfolio risks and exposures. Refer to Note 10 for additional information. Derivatives are reported at fair value and are recorded in the accompanying consolidated balance sheets in either Accounts payable, accrued expenses, and other liabilities or Other assets with changes in fair value included in Net realized gains (losses) in the consolidated statements of operations. Collateral held by brokers equal to a percentage of the total value of open futures contracts is included in the investment portfolio.

Net investment income includes interest and dividend income and amortization of fixed maturity market premiums and discounts and is net of investment management and custody fees. For mortgage-backed securities, and any other holdings for which there is a prepayment risk, prepayment assumptions are evaluated and revised as necessary. Any adjustments required due to the resultant change in effective yields and maturities are recognized prospectively. Prepayment fees or call premiums that are only payable when a security is called prior to its maturity are earned when received and reflected in Net investment income. 

ACE participates in a securities lending program operated by a third-party banking institution whereby certain assets are loaned to qualified borrowers and from which we earn an incremental return. Borrowers provide collateral, in the form of either cash or approved securities, of 102 percent of the fair value of the loaned securities.  Each security loan is deemed to be an overnight

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ACE Limited and Subsidiaries

transaction.  Cash collateral is invested in a collateral pool which is managed by the banking institution.  The collateral pool is subject to written investment guidelines with key objectives which include the safeguard of principal and adequate liquidity to meet anticipated redemptions. The fair value of the loaned securities is monitored on a daily basis, with additional collateral obtained or refunded as the fair value of the loaned securities changes. The collateral is held by the third-party banking institution, and the collateral can only be accessed in the event that the institution borrowing the securities is in default under the lending agreement. As a result of these restrictions, we consider our securities lending activities to be non-cash investing and financing activities. An indemnification agreement with the lending agent protects us in the event a borrower becomes insolvent or fails to return any of the securities on loan. The fair value of the securities on loan is included in fixed maturities and equity securities. The securities lending collateral is reported as a separate line in total assets with a related liability reflecting our obligation to return the collateral plus interest.

Similar to securities lending arrangements, securities sold under repurchase agreements, whereby ACE sells securities and repurchases them at a future date for a predetermined price, are accounted for as collateralized investments and borrowings and are recorded at the contractual repurchase amounts plus accrued interest. Assets to be repurchased are the same, or substantially the same, as the assets transferred and the transferor, through right of substitution, maintains the right and ability to redeem the collateral on short notice. The fair value of the underlying securities is included in fixed maturities and equity securities. In contrast to securities lending programs, the use of cash received is not restricted. We report the obligation to return the cash as Short-term debt in the consolidated balance sheets.

Refer to Note 4 for a discussion on the determination of fair value for ACE's various investment securities.

f) Cash
Cash includes cash on hand and deposits with an original maturity of three months or less at time of purchase. Cash held by external money managers is included in Short-term investments.

We have agreements with a third-party bank provider which implemented two international multi-currency notional cash pooling programs. In each program, participating ACE entities establish deposit accounts in different currencies with the bank provider and each day the credit or debit balances in every account are notionally translated into a single currency (U.S. dollars) and then notionally pooled. The bank extends overdraft credit to any participating ACE entity as needed, provided that the overall notionally-pooled balance of all accounts in each pool at the end of each day is at least zero. Actual cash balances are not physically converted and are not commingled between legal entities. Any overdraft balances incurred under this program by an ACE entity would be guaranteed by ACE Limited (up to $ 300 million in the aggregate). Our syndicated letter of credit facility allows for same day drawings to fund a net pool overdraft should participating ACE entities overdraw contributed funds from the pool.

g) Goodwill and other intangible assets
Goodwill represents the excess of the cost of acquisitions over the fair value of net assets acquired and is not amortized. Goodwill is assigned at acquisition to the applicable reporting unit of the acquired entities giving rise to the goodwill. Goodwill impairment tests are performed annually or more frequently if circumstances indicate a possible impairment.  For goodwill impairment testing, we use a qualitative assessment to determine whether it is more likely than not (i.e., more than a 50 percent probability) that the fair value of a reporting unit is greater than its carrying amount. If our assessment indicates less than a 50 percent probability that fair value exceeds carrying value, we quantitatively estimate a reporting unit's fair value. Goodwill recorded in connection with investments in partially-owned insurance companies is recorded in Investments in partially-owned insurance companies and is also measured for impairment annually.

Indefinite lived intangible assets are not subject to amortization. Finite lived intangible assets are amortized over their useful lives, generally ranging from 1 to 20 years. The amortization of finite lived intangible assets is reported in Other (income) expense in the consolidated statements of operations. Intangible assets are regularly reviewed for indicators of impairment. Impairment is recognized if the carrying amount is not recoverable from its undiscounted cash flows and is measured as the difference between the carrying amount and fair value.

h) Unpaid losses and loss expenses
A liability is established for the estimated unpaid losses and loss expenses under the terms of, and with respect to, ACE's policies and agreements. Similar to premiums that are recognized as revenues over the coverage period of the policy, a liability for unpaid losses and loss expenses is recognized as expense when insured events occur over the coverage period of the policy. This liability includes a provision for both reported claims (case reserves) and incurred but not reported claims (IBNR reserves). IBNR reserve estimates are generally calculated by first projecting the ultimate cost of all losses that have occurred (expected

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ACE Limited and Subsidiaries

losses), and then subtracting paid losses, case reserves, and loss expenses. The methods of determining such estimates and establishing the resulting liability are reviewed regularly and any adjustments are reflected in operations in the period in which they become known. Future developments may result in losses and loss expenses materially greater or less than recorded amounts.

Except for net loss and loss expense reserves of $ 54 million net of discount, held at December 31, 2013 , representing certain structured settlements for which the timing and amount of future claim payments are reliably determinable and $ 52 million, net of discount, of certain reserves for unsettled claims that are discounted in statutory filings, ACE does not discount its P&C loss reserves. This compares with reserves of $ 58 million for certain structured settlements and $ 47 million of certain reserves for unsettled claims at December 31, 2012 . Structured settlements represent contracts purchased from life insurance companies primarily to settle workers' compensation claims, where payments to the claimant by the life insurance company are expected to be made in the form of an annuity. ACE retains the liability to the claimant in the event that the life insurance company fails to pay. At December 31, 2013 , the gross liability due to claimants was $ 631 million, net of discount, and reinsurance recoverables due from the life insurance companies was $ 577 million, net of discount. For structured settlement contracts where payments are guaranteed regardless of claimant life expectancy, the amounts recoverable from the life insurance companies at December 31, 2013 are included in Other assets in the consolidated balance sheets, as they do not meet the requirements for reinsurance accounting.

Included in unpaid losses and loss expenses are liabilities for asbestos and environmental (A&E) claims and expenses. These unpaid losses and loss expenses are principally related to claims arising from remediation costs associated with hazardous waste sites and bodily-injury claims related to asbestos products and environmental hazards. The estimation of these liabilities is particularly sensitive to changes in the legal environment including specific settlements that may be used as precedents to settle future claims. However, ACE does not anticipate future changes in laws and regulations in setting its A&E reserve levels.

Prior period development arises from changes to loss estimates recognized in the current year that relate to loss reserves first reported in previous calendar years and excludes the effect of losses from the development of earned premiums from previous accident years.

For purposes of analysis and disclosure, management views prior period development to be changes in the nominal value of loss estimates from period to period, net of premium and profit commission adjustments on loss sensitive contracts. Prior period development generally excludes changes in loss estimates that do not arise from the emergence of claims, such as those related to uncollectible reinsurance, interest, unallocated loss adjustment expenses, or foreign currency. Accordingly, specific items excluded from prior period development include the following: gains/losses related to foreign currency remeasurement; losses recognized from the early termination or commutation of reinsurance agreements that principally relate to the time value of money; changes in the value of reinsurance business assumed reflected in losses incurred but principally related to the time value of money; and losses that arise from changes in estimates of earned premiums from prior accident years. Except for foreign currency remeasurement, which is included in Net realized gains (losses), these items are included in current year losses.

i) Future policy benefits
The valuation of long-duration contract reserves requires management to make estimates and assumptions regarding expenses, mortality, persistency, and investment yields. Estimates are primarily based on historical experience and information provided by ceding companies and include a margin for adverse deviation. Interest rates used in calculating reserves range from less than 1.0 percent to 6.5 percent and less than 1.0 percent to 4.5 percent at December 31, 2013 and 2012 , respectively. Actual results could differ materially from these estimates. Management monitors actual experience and where circumstances warrant, will revise assumptions and the related reserve estimates. Revisions are recorded in the period they are determined.

Certain of our long-duration contracts are supported by assets that do not qualify for separate account reporting under GAAP. These assets are classified as trading securities and reported in Other investments and the offsetting liabilities are reported in Future policy benefits in the consolidated balance sheets. Changes in the fair value of separate account assets that do not qualify for separate account reporting under GAAP are reported in Other income (expense) and the offsetting movements in the liabilities are included in Policy benefits in the consolidated statements of operations.

j ) Assumed reinsurance programs involving minimum benefit guarantees under annuity contracts
ACE reinsures various death and living benefit guarantees associated with variable annuities issued primarily in the United States and Japan. Each reinsurance treaty covers variable annuities written during a limited period, typically not exceeding two years. We generally receive a monthly premium during the accumulation phase of the covered annuities (in-force) based on a

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ACE Limited and Subsidiaries

percentage of either the underlying accumulated account values or the underlying accumulated guaranteed values. Depending on an annuitant's age, the accumulation phase can last many years. To limit our exposure under these programs, all reinsurance treaties include annual or aggregate claim limits and many include an aggregate deductible.

The guarantees which are payable on death, referred to as guaranteed minimum death benefits (GMDB), principally cover shortfalls between accumulated account value at the time of an annuitant's death and either i) an annuitant's total deposits; ii) an annuitant's total deposits plus a minimum annual return; or iii) the highest accumulated account value attained at any policy anniversary date. In addition, a death benefit may be based on a formula specified in the variable annuity contract that uses a percentage of the growth of the underlying contract value. Liabilities for GMDBs are based on cumulative assessments or premiums to date multiplied by a benefit ratio that is determined by estimating the present value of benefit payments and related adjustment expenses divided by the present value of cumulative assessment or expected premiums during the contract period.  

Under reinsurance programs covering GLBs, we assume the risk of guaranteed minimum income benefits (GMIB) and guaranteed minimum accumulation benefits (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. Our GLB reinsurance product meets the definition of a derivative for accounting purposes and is carried at fair value with changes in fair value recognized in income and classified as described below. As the assuming entity, we are obligated to provide coverage until the earlier of the expiration of the underlying guaranteed benefit or the treaty expiration date. Premiums received under the reinsurance treaties are classified as premium. Expected losses allocated to premiums received are classified as 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 (i.e., declining interest rates and/or declining equity markets) and changes in policyholder behavior (i.e., 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. Refer to Note 5 c ) for additional information.

k ) Deposit assets and liabilities
Deposit assets arise from ceded reinsurance contracts purchased that do not transfer significant underwriting or timing risk. Under deposit accounting, consideration received or paid, excluding non-refundable fees, is recorded as a deposit asset or liability in the balance sheet as opposed to recording premiums and losses in the statement of operations. Interest income on deposits, representing the consideration received or to be received in excess of cash payments related to the deposit contract, is earned based on an effective yield calculation. The calculation of the effective yield is based on the amount and timing of actual cash flows at the balance sheet date and the estimated amount and timing of future cash flows. The effective yield is recalculated periodically to reflect revised estimates of cash flows. When a change in the actual or estimated cash flows occurs, the resulting change to the carrying amount of the deposit asset is reported as income or expense. Deposit assets of $ 100 million and $ 138 million at December 31, 2013 and 2012 , respectively, are reflected in Other assets in the consolidated balance sheets and the accretion of deposit assets related to interest pursuant to the effective yield calculation is reflected in Net investment income in the consolidated statements of operations.

Non-refundable fees are earned based on contract terms. Non-refundable fees paid but unearned are reflected in Other assets in the consolidated balance sheets and earned fees are reflected in Other (income) expense in the consolidated statements of operations.

Deposit liabilities include reinsurance deposit liabilities of $ 131 million and $ 283 million and contract holder deposit funds of $ 699 million and $ 548 million at December 31, 2013 and 2012 , respectively. Deposit liabilities are reflected in Accounts payable, accrued expenses, and other liabilities in the consolidated balance sheets. The reinsurance deposit liabilities arise from contracts sold for which there is not a significant transfer of risk. At contract inception, the deposit liability equals net cash received. An accretion rate is established based on actuarial estimates whereby the deposit liability is increased to the estimated amount payable over the contract term. The deposit accretion rate is the rate of return required to fund expected future payment obligations. We periodically reassess the estimated ultimate liability and related expected rate of return. Changes to the deposit liability are generally reflected through Interest expense to reflect the cumulative effect of the period the contract has been in force, and by an adjustment to the future accretion rate of the liability over the remaining estimated contract term.

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ACE Limited and Subsidiaries

Contract holder deposit funds represent a liability for investment contracts sold that do not meet the definition of an insurance contract, and certain of these contracts are sold with a guaranteed rate of return. The liability equals accumulated policy account values, which consist of the deposit payments plus credited interest less withdrawals and amounts assessed through the end of the period.

l) Foreign currency remeasurement and translation
The functional currency for each of our foreign operations is generally the currency of the local operating environment. Transactions in currencies other than a foreign operation's functional currency are remeasured into the functional currency and the resulting foreign exchange gains and losses are reflected in Net realized gains (losses) in the consolidated statements of operations. Functional currency assets and liabilities are translated into the reporting currency, U.S. dollars, using period end exchange rates and the related translation adjustments are recorded as a separate component of AOCI. Functional statement of operations amounts expressed in functional currencies are translated using average exchange rates.

m) Administrative expenses
Administrative expenses generally include all operating costs other than policy acquisition costs. The Insurance – North American P&C segment manages and uses an in-house third-party claims administrator, ESIS Inc. (ESIS).  ESIS performs claims management and risk control services for domestic and international organizations that self-insure P&C exposures as well as internal P&C exposures.  The net operating results of ESIS are included within Administrative expenses in the consolidated statements of operations and were $ 25 million, $ 23 million, and $ 21 million for the years ended December 31, 2013 , 2012 , and 2011 , respectively.

n ) Income taxes
Income taxes have been recorded related to those operations subject to income taxes. Deferred tax assets and liabilities result from temporary differences between the amounts recorded in the consolidated financial statements and the tax basis of our assets and liabilities. Refer to Note 8 for additional information. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance against deferred tax assets is recorded if it is more likely than not that all, or some portion, of the benefits related to deferred tax assets will not be realized. The valuation allowance assessment considers tax planning strategies, where applicable.

We recognize uncertain tax positions deemed more likely than not of being sustained upon examination.  Recognized income tax positions are measured at the largest amount that is greater than 50 percent likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.

o) Earnings per share
Basic earnings per share is calculated using the weighted-average shares outstanding including participating securities with non-forfeitable rights to dividends such as unvested restricted stock. All potentially dilutive securities including stock options are excluded from the basic earnings per share calculation. In calculating diluted earnings per share, the weighted-average shares outstanding is increased to include all potentially dilutive securities. Basic and diluted earnings per share are calculated by dividing Net income by the applicable weighted-average number of shares outstanding during the year.

p) Cash flow information
Premiums received and losses paid associated with the GLB reinsurance products, which as discussed previously meet the definition of a derivative instrument for accounting purposes, are included within Cash flows from operating activities.  Cash flows, such as settlements and collateral requirements, associated with GLB and all other derivative instruments are included on a net basis within Cash flows from investing activities. Purchases, sales, and maturities of short-term investments are recorded on a net basis within Cash flows from investing activities.

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ACE Limited and Subsidiaries

q) Derivatives
ACE recognizes all derivatives at fair value in the consolidated balance sheets and participates in derivative instruments in two principal ways:

(i)  To sell protection to customers as an insurance or reinsurance contract that meets the definition of a derivative for accounting purposes .  For 2013 and 2012 , the reinsurance of GLBs was our primary product falling into this category; and
(ii) To mitigate financial risks, principally arising from investment holdings, products sold, or assets and liabilities held in foreign currencies. For these instruments, changes in assets or liabilities measured at fair value are recorded as realized gains or losses in the consolidated statement of operations.

We did not designate any derivatives as accounting hedges during 2013 , 2012 , or 2011 .

r) Share-based compensation
ACE measures and records compensation cost for all share-based payment awards at grant-date fair value. Compensation costs are recognized for share-based payment awards with only service conditions that have graded vesting schedules on a straight-line basis over the requisite service period for each separately vesting portion of the award as if the award was, in substance, multiple awards. Refer to Note 12 for additional information.

2 . Acquisitions

PT Asuransi Jaya Proteksi
We acquired 80 percent of PT Asuransi Jaya Proteksi (JaPro) on September 18, 2012 and our local partner acquired the remaining 20 percent on January 3, 2013. JaPro is one of Indonesia's leading general insurers offering personal lines and commercial coverages. This acquisition diversifies our existing business in Indonesia. The total purchase price for 100 percent of the company was approximately $107 million in cash. JaPro operates in our Insurance – Overseas General segment.

Fianzas Monterrey
On April 1, 2013, we acquired Fianzas Monterrey, a leading surety lines company in Mexico offering administrative performance bonds primarily to clients in the construction and industrial sectors, for approximately $293 million in cash. This acquisition expands our global franchise in the surety business and enhances our existing commercial lines and personal accident insurance business in Mexico.

The acquisition generated $135 million of goodwill, attributable to expected growth and profitability, none of which is expected to be deductible for income tax purposes, and other intangible assets of $73 million , based on ACE's purchase price allocation. The other intangible assets primarily relate to customer lists. Amortization of other intangible assets is included in Other (income) expense in the consolidated statements of operations. Goodwill and other intangible assets arising from this acquisition are included in the Insurance – Overseas General segment.

ABA Seguros
On May 2, 2013, we acquired ABA Seguros, a property and casualty insurer in Mexico that provides automobile, homeowners, and small business coverages for approximately $690 million in cash.

The acquisition generated $283 million of goodwill, attributable to expected growth and profitability, none of which is expected to be deductible for income tax purposes, and other intangible assets of $140 million based on ACE’s purchase price allocation. The other intangible assets primarily relate to distribution channels. Amortization of other intangible assets is included in Other (income) expense in the consolidated statements of operations. Goodwill and other intangible assets arising from this acquisition are included in the Insurance – Overseas General segment.

To be acquired after 2013
On January 12, 2014, we announced that we and our local partner have reached a conditional agreement to purchase a 60.9 percent ownership in The Siam Commercial Samaggi Insurance PCL (Samaggi), a general insurance company in Thailand, from Siam Commercial Bank.  This transaction, which is subject to approvals and other customary closing conditions, including Siam Commercial Bank shareholder approval, is expected to be completed in the second quarter of 2014.  On the closing of this transaction, in compliance with Thai regulations, we and our local partner will make a mandatory tender offer for the remaining 39.1 percent ownership of Samaggi on the same terms.  The implied purchase price for 100 percent of the company is approximately $185 million in cash.

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ACE Limited and Subsidiaries

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 in our Life segment, expand our presence in the North Asia market, and complement our life insurance business established in that region. The acquisition generated $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 (Penn Millers), is a well-established underwriter in the agribusiness market since 1887. PMHC operates in our Insurance – North American Agriculture segment.

We acquired Rio Guayas Compania de Seguros y Reaseguros (Rio Guayas), a general insurance company in Ecuador on December 28, 2011 for approximately $65 million in cash. Rio Guayas sells a range of insurance products, including automobile, life, property, and A&H. The acquisition of Rio Guayas helped expand our Latin America capabilities in terms of geography, products, and distribution. Rio Guayas operates in our Insurance – Overseas General segment.

The consolidated financial statements include results of acquired businesses from the acquisition dates.

3 . Investments

a) Fixed maturities

																				
December 31, 2013	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	$	2,946		 	$	62		 	$	(59	)	 	$	2,949		 	$	—		
Foreign	14,336		 	377		 	(122	)	 	14,591		 	—		
Corporate securities	16,825		 	777		 	(132	)	 	17,470		 	(6	)	
Mortgage-backed securities	10,937		 	184		 	(227	)	 	10,894		 	(34	)	
States, municipalities, and political subdivisions	3,362		 	65		 	(77	)	 	3,350		 	—		
 	$	48,406		 	$	1,465		 	$	(617	)	 	$	49,254		 	$	(40	)	
Held to maturity	 	 	 	 	 	 	 	 	 	
U.S. Treasury and agency	$	820		 	$	16		 	$	(4	)	 	$	832		 	$	—		
Foreign	864		 	33		 	—		 	897		 	—		
Corporate securities	1,922		 	83		 	—		 	2,005		 	—		
Mortgage-backed securities	1,341		 	39		 	(1	)	 	1,379		 	—		
States, municipalities, and political subdivisions	1,151		 	16		 	(17	)	 	1,150		 	—		
 	$	6,098		 	$	187		 	$	(22	)	 	$	6,263		 	$	—		

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ACE Limited and Subsidiaries

	
																				
December 31, 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	$	3,553		 	$	183		 	$	(1	)	 	$	3,735		 	$	—		
Foreign	13,016		 	711		 	(14	)	 	13,713		 	—		
Corporate securities	15,529		 	1,210		 	(31	)	 	16,708		 	(7	)	
Mortgage-backed securities	10,051		 	458		 	(36	)	 	10,473		 	(84	)	
States, municipalities, and political subdivisions	2,517		 	163		 	(3	)	 	2,677		 	—		
 	$	44,666		 	$	2,725		 	$	(85	)	 	$	47,306		 	$	(91	)	
Held to maturity	 	 	 	 	 	 	 	 	 	
U.S. Treasury and agency	$	1,044		 	$	39		 	$	—		 	$	1,083		 	$	—		
Foreign	910		 	54		 	—		 	964		 	—		
Corporate securities	2,133		 	142		 	—		 	2,275		 	—		
Mortgage-backed securities	2,028		 	88		 	—		 	2,116		 	—		
States, municipalities, and political subdivisions	1,155		 	44		 	(4	)	 	1,195		 	—		
 	$	7,270		 	$	367		 	$	(4	)	 	$	7,633		 	$	—		

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 years ended December 31, 2013 and 2012 , $ 25 million and $ 137 million of net unrealized appreciation, respectively, related to such securities is included in OCI. At December 31, 2013 and 2012 , AOCI includes cumulative net unrealized depreciation of $ 4 million and $ 25 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 10 a) (iv)) and are included in the category, “Mortgage-backed securities”. Approximately 83 percent and 85 percent , of the total mortgage-backed securities at December 31, 2013 and 2012 , 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.

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

The following table presents fixed maturities by contractual maturity:

																
 	December 31	 	 	December 31	 	
 	 	 	2013		 	 	 	2012		
(in millions of U.S. dollars)	Amortized Cost		 	Fair Value		 	Amortized Cost		 	Fair Value		
Available for sale	 	 	 	 	 	 	 	
Due in 1 year or less	$	2,387		 	$	2,411		 	$	1,887		 	$	1,906		
Due after 1 year through 5 years	14,139		 	14,602		 	13,411		 	14,010		
Due after 5 years through 10 years	16,200		 	16,535		 	15,032		 	16,153		
Due after 10 years	4,743		 	4,812		 	4,285		 	4,764		
 	37,469		 	38,360		 	34,615		 	36,833		
Mortgage-backed securities	10,937		 	10,894		 	10,051		 	10,473		
 	$	48,406		 	$	49,254		 	$	44,666		 	$	47,306		
Held to maturity	 	 	 	 	 	 	 	
Due in 1 year or less	$	401		 	$	405		 	$	656		 	$	659		
Due after 1 year through 5 years	2,284		 	2,363		 	1,870		 	1,950		
Due after 5 years through 10 years	1,686		 	1,723		 	2,119		 	2,267		
Due after 10 years	386		 	393		 	597		 	641		
 	4,757		 	4,884		 	5,242		 	5,517		
Mortgage-backed securities	1,341		 	1,379		 	2,028		 	2,116		
 	$	6,098		 	$	6,263		 	$	7,270		 	$	7,633		
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

								
 	December 31			December 31		
(in millions of U.S. dollars)	2013			2012		
Cost	$	841		 	$	707		
Gross unrealized appreciation	63		 	41		
Gross unrealized depreciation	(67	)	 	(4	)	
Fair value	$	837		 	$	744		
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.

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

For all non-fixed maturities, OTTI is evaluated based on the following:
		
•	the amount of time a security has been in a loss position and the magnitude of the loss position;	
		
•	the period in which cost is expected to be recovered, if at all, based on various criteria including economic conditions and other issuer-specific developments; and	
		
•	ACE’s ability and intent to hold the security to the expected recovery period.	
As a general rule, we also consider that equity securities in an unrealized loss position for twelve consecutive months are other than temporarily impaired.

Evaluation of potential credit losses related to fixed maturities
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.

U.S. Treasury and agency obligations (including agency mortgage-backed securities), foreign government obligations, and states, municipalities, and political subdivisions obligations
U.S. Treasury and agency obligations (including agency mortgage-backed securities), foreign government obligations, and states, municipalities, and political subdivisions obligations represent less than $ 425 million of gross unrealized loss at December 31, 2013 . These securities were evaluated for credit loss primarily using qualitative assessments of the likelihood of credit loss considering credit rating of the issuers and level of credit enhancement, if any. ACE concluded that the high level of creditworthiness of the issuers coupled with credit enhancement, where applicable, supports recognizing no credit loss in net income.

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

The following table presents default assumptions by Moody's rating category (historical mean default rate provided for comparison):

						
Moody's Rating Category	1-in-100 Year Default Rate		 	Historical Mean Default Rate		
Investment Grade:	 	 	 	
Aaa-Baa	0.0-1.4%		 	0.0-0.3%		
Below Investment Grade:	 	 	 	
Ba	4.9	%	 	1.1	%	
B	12.8	%	 	3.4	%	
Caa-C	53.2	%	 	13.8	%	
Application of the methodology and assumptions described above resulted in credit losses recognized in Net income for corporate securities of $ 11 million, $ 14 million, and $ 9 million for the years ended December 31, 2013 , 2012 , and 2011 , respectively.

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

Mortgage-backed securities
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.

ACE develops specific assumptions using market data, where available, and includes internal estimates as well as estimates published by rating agencies and other third-party sources. ACE projects default rates by mortgage sector considering current underlying mortgage loan performance, generally assuming lower loss severity for Prime sector bonds versus ALT-A and Sub-prime bonds.

These estimates are extrapolated along a default timing curve to estimate the total lifetime pool default rate. Other assumptions used contemplate the actual collateral attributes, including geographic concentrations, rating agency loss projections, rating actions, and current market prices. If cash flow projections indicate that losses will exceed the credit enhancement for a given tranche, then we do not expect to recover our amortized cost basis and we recognize an estimated credit loss in Net income.

Application of the methodology and assumptions described above resulted in credit losses recognized in Net income for mortgage-backed securities of $ 1 million, $ 6 million, and $ 11 million for the years ended December 31, 2013 , 2012 , and 2011 , respectively.

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

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” and the change in net unrealized appreciation (depreciation) of investments: 

												
 	Years Ended December 31	 	
(in millions of U.S. dollars)	2013		 	2012		 	2011		
Fixed maturities:	 	 	 	 	 	
OTTI on fixed maturities, gross	$	(18	)	 	$	(26	)	 	$	(61	)	
OTTI on fixed maturities recognized in OCI (pre-tax)	—		 	1		 	15		
OTTI on fixed maturities, net	(18	)	 	(25	)	 	(46	)	
Gross realized gains excluding OTTI	237		 	388		 	410		
Gross realized losses excluding OTTI	(129	)	 	(133	)	 	(200	)	
Total fixed maturities	90		 	230		 	164		
Equity securities:	 	 	 	 	 	
OTTI on equity securities	(2	)	 	(5	)	 	(1	)	
Gross realized gains excluding OTTI	21		 	11		 	15		
Gross realized losses excluding OTTI	(4	)	 	(2	)	 	(5	)	
Total equity securities	15		 	4		 	9		
OTTI on other investments	(2	)	 	(7	)	 	(3	)	
Foreign exchange gains (losses)	29		 	(16	)	 	(13	)	
Investment and embedded derivative instruments	78		 	(6	)	 	(143	)	
Fair value adjustments on insurance derivative	878		 	171		 	(779	)	
S&P put options and futures	(579	)	 	(297	)	 	(4	)	
Other derivative instruments	(2	)	 	(4	)	 	(4	)	
Other	(3	)	 	3		 	(22	)	
Net realized gains (losses)	504		 	78		 	(795	)	
Change in net unrealized appreciation (depreciation) on investments:	 	 	 	 	 	
Fixed maturities available for sale	(1,798	)	 	1,099		 	569		
Fixed maturities held to maturity	(82	)	 	(94	)	 	(89	)	
Equity securities	(41	)	 	61		 	(47	)	
Other	54		 	50		 	40		
Income tax (expense) benefit	408		 	(198	)	 	(157	)	
Change in net unrealized appreciation (depreciation) on investments	(1,459	)	 	918		 	316		
Total net realized gains (losses) and change in net unrealized appreciation (depreciation) on investments	$	(955	)	 	$	996		 	$	(479	)	

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

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: 

												
 	Years Ended December 31	 	
(in millions of U.S. dollars)	2013		 	2012		 	2011		
Balance of credit losses related to securities still held – beginning of year	$	43		 	$	74		 	$	137		
Additions where no OTTI was previously recorded	9		 	8		 	12		
Additions where an OTTI was previously recorded	3		 	12		 	8		
Reductions for securities sold during the period	(18	)	 	(51	)	 	(83	)	
Balance of credit losses related to securities still held – end of year	$	37		 	$	43		 	$	74		
d) Other investments

																
 	 	 	December 31		 	 	 	December 31		
 	 	 	2013		 	 	 	2012		
(in millions of U.S. dollars)	Fair Value		 	Cost		 	Fair Value		 	Cost		
Investment funds	$	428		 	$	278		 	$	395		 	$	278		
Limited partnerships	576		 	424		 	531		 	398		
Partially-owned investment companies	1,284		 	1,284		 	1,186		 	1,187		
Life insurance policies	180		 	180		 	148		 	148		
Policy loans	179		 	179		 	164		 	164		
Trading securities	276		 	273		 	243		 	242		
Other	53		 	53		 	49		 	48		
Total	$	2,976		 	$	2,671		 	$	2,716		 	$	2,465		

Investment funds include one highly diversified fund investment as well as several direct funds that employ a variety of investment styles such as long/short equity and arbitrage/distressed. Included in limited partnerships and partially-owned investment companies are 62 individual limited partnerships covering a broad range of investment strategies including large cap buyouts, specialist buyouts, growth capital, distressed, mezzanine, real estate, and co-investments. The underlying portfolio consists of various public and private debt and equity securities of publicly traded and privately held companies and real estate assets.  The underlying investments across various partnerships, geographies, industries, asset types, and investment strategies provide risk diversification within the limited partnership portfolio and the overall investment portfolio.  Trading securities comprise $ 246 million of mutual funds supported by assets that do not qualify for separate account reporting under GAAP at December 31, 2013 compared with $ 212 million at December 31, 2012 . Trading securities also includes assets held in rabbi trusts of $ 23 million of equity securities and $ 7 million of fixed maturities at December 31, 2013 , compared with $ 23 million of equity securities and $ 8 million of fixed maturities at December 31, 2012 .

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

e) Investments in partially-owned insurance companies

																								
 	December 31	 	 	December 31	 	 	 	
 	2013	 	 	2012	 	 	 	
(in millions of U.S. dollars, except percentages)	Carrying Value		 	Issued
 Share
Capital		 	Ownership Percentage		 	Carrying Value		 	Issued Share Capital		 	Ownership Percentage		 	Domicile	
Huatai Group	$	365		 	$	631		 	20.0	%	 	$	350		 	$	474		 	20.0	%	 	China	
Huatai Life Insurance Company	84		 	379		 	20.0	%	 	84		 	205		 	20.0	%	 	China	
Freisenbruch-Meyer	9		 	5		 	40.0	%	 	9		 	5		 	40.0	%	 	Bermuda	
ACE Cooperative Insurance Co. – Saudi Arabia	10		 	27		 	30.0	%	 	9		 	27		 	30.0	%	 	Saudi Arabia	
Russian Reinsurance Company	2		 	4		 	23.3	%	 	2		 	4		 	23.3	%	 	Russia	
Total	$	470		 	$	1,046		 	 	 	$	454		 	$	715		 	 	 	 	
Huatai Group and Huatai Life Insurance Company provide a range of P&C, life, and investment products.

f) Gross unrealized loss
At December 31, 2013 , there were 6,161 fixed maturities out of a total of 25,062 fixed maturities in an unrealized loss position. The largest single unrealized loss in the fixed maturities was $6 million. There were 71 equity securities out of a total of 185 equity securities in an unrealized loss position. The largest single unrealized loss in the equity securities was $58 million. Fixed maturities in an unrealized loss position at December 31, 2013 , 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 at December 31, 2013 , included 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	 	
December 31, 2013	Fair Value		 	Gross
Unrealized Loss		 	Fair Value		 	Gross
Unrealized Loss		 	Fair Value		 	Gross
Unrealized Loss		
(in millions of U.S. dollars)			 			 			 			 			 			
U.S. Treasury and agency	$	1,794		 	$	(57	)	 	$	31		 	$	(6	)	 	$	1,825		 	$	(63	)	
Foreign	4,621		 	(114	)	 	201		 	(8	)	 	4,822		 	(122	)	
Corporate securities	3,836		 	(118	)	 	194		 	(14	)	 	4,030		 	(132	)	
Mortgage-backed securities	5,248		 	(197	)	 	384		 	(31	)	 	5,632		 	(228	)	
States, municipalities, and political subdivisions	2,164		 	(90	)	 	84		 	(4	)	 	2,248		 	(94	)	
Total fixed maturities	17,663		 	(576	)	 	894		 	(63	)	 	18,557		 	(639	)	
Equity securities	498		 	(67	)	 	—		 	—		 	498		 	(67	)	
Other investments	67		 	(9	)	 	—		 	—		 	67		 	(9	)	
Total	$	18,228		 	$	(652	)	 	$	894		 	$	(63	)	 	$	19,122		 	$	(715	)	

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

	
																								
 	0 – 12 Months	 	 	Over 12 Months	 	 	Total	 	
December 31, 2012	Fair Value		 	Gross
Unrealized Loss		 	Fair Value		 	Gross
Unrealized Loss		 	Fair Value		 	Gross
Unrealized Loss		
(in millions of U.S. dollars)			 			 			 			 			 			
U.S. Treasury and agency	$	440		 	$	(1	)	 	$	—		 	$	—		 	$	440		 	$	(1	)	
Foreign	1,234		 	(8	)	 	88		 	(6	)	 	1,322		 	(14	)	
Corporate securities	1,026		 	(23	)	 	85		 	(8	)	 	1,111		 	(31	)	
Mortgage-backed securities	855		 	(4	)	 	356		 	(32	)	 	1,211		 	(36	)	
States, municipalities, and political subdivisions	316		 	(3	)	 	48		 	(4	)	 	364		 	(7	)	
Total fixed maturities	3,871		 	(39	)	 	577		 	(50	)	 	4,448		 	(89	)	
Equity securities	29		 	(4	)	 	—		 	—		 	29		 	(4	)	
Other investments	68		 	(5	)	 	—		 	—		 	68		 	(5	)	
Total	$	3,968		 	$	(48	)	 	$	577		 	$	(50	)	 	$	4,545		 	$	(98	)	
g) Net investment income

												
 	Years Ended December 31	 	
(in millions of U.S. dollars)	2013		 	2012		 	2011		
Fixed maturities	$	2,093		 	$	2,134		 	$	2,196		
Short-term investments	29		 	28		 	43		
Equity securities	37		 	34		 	36		
Other	105		 	104		 	62		
Gross investment income	2,264		 	2,300		 	2,337		
Investment expenses	(120	)	 	(119	)	 	(95	)	
Net investment income	$	2,144		 	$	2,181		 	$	2,242		
h) Restricted assets
ACE is required to maintain assets on deposit with various regulatory authorities to support its insurance and reinsurance operations. These requirements are generally promulgated in the statutory regulations of the individual jurisdictions. The assets on deposit are available to settle insurance and reinsurance liabilities. ACE is also required to restrict assets pledged under repurchase agreements. We also use trust funds in certain large reinsurance transactions where the trust funds are set up for the benefit of the ceding companies and generally take the place of letter of credit (LOC) requirements. We also have investments in segregated portfolios primarily to provide collateral or guarantees for LOC and derivative transactions. Included in restricted assets at December 31, 2013 and 2012 , are investments, primarily fixed maturities, totaling $16.3 billion and $16.6 billion, respectively, and cash of $162 million and $139 million, respectively.
The following table presents the components of restricted assets: 

								
 	December 31		 	December 31		
(in millions of U.S. dollars)	2013		 	2012		
Trust funds	$	11,315		 	$	11,389		
Deposits with non-U.S. regulatory authorities	1,970		 	2,133		
Assets pledged under repurchase agreements	1,435		 	1,401		
Deposits with U.S. regulatory authorities	1,334		 	1,338		
Other pledged assets	391		 	456		
 	$	16,445		 	$	16,717		

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

4 . Fair value measurements
a ) Fair value hierarchy
Fair value of financial assets and financial liabilities is estimated based on the framework established in the fair value accounting guidance. The guidance defines fair value as the price to sell an asset or transfer a liability (an exit price) in an orderly transaction between market participants and establishes a three-level valuation hierarchy based on the reliability of the inputs. The fair value hierarchy gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data.
 
The three levels of the hierarchy are as follows:
		
•	Level 1 – Unadjusted quoted prices for identical assets or liabilities in active markets;	
		
•	Level 2 – Includes, among other items, inputs other than quoted prices that are observable for the asset or liability such as interest rates and yield curves, quoted prices for similar assets and liabilities in active markets, and quoted prices for identical or similar assets and liabilities in markets that are not active; and	
		
•	Level 3 – Inputs that are unobservable and reflect management’s judgments about assumptions that market participants would use in pricing an asset or liability.	
We categorize financial instruments within the valuation hierarchy at the balance sheet date based upon the lowest level of inputs that are significant to the fair value measurement. Accordingly, transfers between levels within the valuation hierarchy occur when there are significant changes to the inputs, such as increases or decreases in market activity, changes to the availability of current prices, changes to the transparency to underlying inputs, and whether there are significant variances in quoted prices. Transfers in and/or out of any level are assumed to occur at the end of the period.

We use pricing services to obtain fair value measurements for the majority of our investment securities. Based on management’s understanding of the methodologies used, these pricing services only produce an estimate of fair value if there is observable market information that would allow them to make a fair value estimate. Based on our understanding of the market inputs used by the pricing services, all applicable investments have been valued in accordance with GAAP. We do not 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, fixed maturities valuation is more subjective when markets are less liquid due to the lack of market based inputs (i.e., stale pricing), which may increase the potential that an investment's estimated fair value is not reflective of the price at which an actual transaction would occur. The overwhelming majority of fixed maturities are classified within Level 2 because the most significant inputs used in the pricing techniques are observable. For a small number of fixed maturities, we obtain a 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 equity securities in markets which are less active, fair values are based on market valuations and are classified within Level 2. Equity securities for which pricing is unobservable are classified within Level 3.

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

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

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

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

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

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 either Other assets or Accounts payable, accrued expenses, and other liabilities in the consolidated balance sheets.

Separate account assets
Separate account assets represent segregated funds where investment risks are borne by the customers, except to the extent of certain guarantees made by ACE. Separate account assets comprise mutual funds classified 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.

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

Guaranteed living benefits
The GLB arises from life reinsurance programs covering living benefit guarantees whereby we assume the risk of guaranteed minimum income benefits (GMIB) 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 8 percent to 68 percent . Additional lapses due to partial withdrawals and older policyholders with tax-qualified contracts (due to required minimum distributions) are also included.

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. All GMIB reinsurance treaties include claim limits to protect ACE in the event that actual annuitization behavior is significantly higher than expected. 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 fully credible annuitization experience for all clients.

•	For clients representing about 37 percent of the total GMIB guaranteed value, we have credible annuitization experience for both the first year and also subsequent years of GMIB eligibility.  The annuitization function reflects the actual experience: the maximum annuitization rates for the first year of GMIB eligibility vary from 7 percent to 12 percent per annum; the maximum annuitization rates for subsequent years of GMIB eligibility vary from 7 percent to 10 percent per annum.	
		
•	For clients representing about 37 percent of the total GMIB guaranteed value, we have credible annuitization experience only for the first year of GMIB eligibility.  The annuitization function reflects the actual experience for the first year only: the maximum annuitization rates for the first year of GMIB eligibility vary from 14 percent to 55 percent per annum.  The annuitization function for subsequent years of GMIB eligibility is a weighted average (with a heavier weighting on credible experience from other clients) of three different annuitization functions with maximum per annum annuitization rates of 7 percent, 15 percent, and 30 percent.	
		
•	For clients representing about 26 percent of the total GMIB guaranteed value, we do not have any credible annuitization experience.  The annuitization function for the first year of GMIB eligibility is a weighted average (with a heavier weighting on credible observed experience from other clients) of three different annuitization functions with maximum per annum annuitization rates of 7 percent, 15 percent, and 55 percent.  For subsequent years of GMIB eligibility, these three functions have maximum per annum annuitization rates of 7 percent, 12 percent, and 30 percent.	

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.

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

During the fourth quarter of 2013, we completed an in-depth review of actual policyholder lapse and annuitization behavior by treaty for our variable annuity reinsurance business. As a greater percentage of our clients’ policyholders have reached the ultimate lapse rate period and have become eligible to annuitize in the past year, we determined that experience was now credible enough to warrant a more robust evaluation of our assumptions compared to actual experience. As a result of our review, we made several adjustments to our lapse assumptions, the most significant of which was a reduction in lapses for most large, in-the-money, GMIB policies. The change in lapse assumptions increased the fair value of GLB liabilities and generated a realized loss of $104 million . We also made several adjustments to our annuitization assumptions, which generally lowered the utilization rates for most clients, while raising it for one client. The change in annuitization assumptions decreased the fair value of GLB liabilities and generated a realized gain of $64 million . We will continue to monitor actual policyholder behavior against our assumptions and make adjustments as appropriate. Also, during the fourth quarter of 2013, we realized a gain of $92 million related to an out-of-period adjustment for an error in a market valuation model. We evaluated the quantitative and qualitative aspects of this correction and concluded that the impact of recognizing this adjustment is not material to the consolidated financial statements and all prior period consolidated financial statements.
For the years ended December 31, 2013, 2012, and 2011, we made minor technical refinements to the model with a favorable net income impact of approximately $9 million , $49 million , and $14 million , respectively.
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: 

																
December 31, 2013	Level 1		 	Level 2		 	Level 3		 	Total		
(in millions of U.S. dollars)			 			 			 			
Assets:	 	 	 	 	 	 	 	
Fixed maturities available for sale	 	 	 	 	 	 	 	
U.S. Treasury and agency	$	1,626		 	$	1,323		 	$	—		 	$	2,949		
Foreign	223		 	14,324		 	44		 	14,591		
Corporate securities	—		 	17,304		 	166		 	17,470		
Mortgage-backed securities	—		 	10,886		 	8		 	10,894		
States, municipalities, and political subdivisions	—		 	3,350		 	—		 	3,350		
 	1,849		 	47,187		 	218		 	49,254		
Equity securities	373		 	460		 	4		 	837		
Short-term investments	953		 	803		 	7		 	1,763		
Other investments	305		 	231		 	2,440		 	2,976		
Securities lending collateral	—		 	1,632		 	—		 	1,632		
Investment derivative instruments	19		 	—		 	—		 	19		
Other derivative instruments	—		 	6		 	—		 	6		
Separate account assets	1,145		 	81		 	—		 	1,226		
Total assets measured at fair value	$	4,644		 	$	50,400		 	$	2,669		 	$	57,713		
Liabilities:	 	 	 	 	 	 	 	
Investment derivative instruments	$	6		 	$	—		 	$	—		 	$	6		
Other derivative instruments	60		 	2		 	—		 	62		
GLB (1)	—		 	—		 	193		 	193		
Total liabilities measured at fair value	$	66		 	$	2		 	$	193		 	$	261		
		
(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 c ) for additional information.	

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

	
																
December 31, 2012	Level 1		 	Level 2		 	Level 3		 	Total		
(in millions of U.S. dollars)			 			 			 			
Assets:	 	 	 	 	 	 	 	
Fixed maturities available for sale	 	 	 	 	 	 	 	
U.S. Treasury and agency	$	2,050		 	$	1,685		 	$	—		 	$	3,735		
Foreign	222		 	13,431		 	60		 	13,713		
Corporate securities	20		 	16,586		 	102		 	16,708		
Mortgage-backed securities	—		 	10,460		 	13		 	10,473		
States, municipalities, and political subdivisions	—		 	2,677		 	—		 	2,677		
 	2,292		 	44,839		 	175		 	47,306		
Equity securities	253		 	488		 	3		 	744		
Short-term investments	1,503		 	725		 	—		 	2,228		
Other investments	268		 	196		 	2,252		 	2,716		
Securities lending collateral	—		 	1,791		 	—		 	1,791		
Investment derivative instruments	11		 	—		 	—		 	11		
Other derivative instruments	(6	)	 	30		 	—		 	24		
Separate account assets	872		 	71		 	—		 	943		
Total assets measured at fair value	$	5,193		 	$	48,140		 	$	2,430		 	$	55,763		
Liabilities:	 	 	 	 	 	 	 	
GLB (1)	$	—		 	$	—		 	$	1,119		 	$	1,119		
		
(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 c ) for additional information.	
The transfers from Level 1 to Level 2 were $19 million and there were no transfers from Level 2 to Level 1 during the year ended December 31, 2013 . The transfers from Level 1 to Level 2 were $40 million and the transfers from Level 2 to Level 1 were $15 million during the year ended December 31, 2012 . The transfers between Level 1 and Level 2 during the year ended December 31, 2011 were not material.

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

Fair value of alternative investments
Included in Other investments in the fair value hierarchy at December 31, 2013 and 2012 are investment funds, limited partnerships, and partially-owned investment companies measured at fair value using NAV as a practical expedient. At December 31, 2013 , 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: 

																		
 	 	 	December 31	 	 	December 31	 	
 	 	 	2013	 	 	2012	 	
(in millions of U.S. dollars)	Expected
Liquidation
Period of Underlying Assets	 	Fair Value		 	Maximum
Future Funding
Commitments		 	Fair Value		 	Maximum
Future Funding
Commitments		
Financial	5 to 9 Years	 	$	256		 	$	129		 	$	225		 	$	111		
Real estate	3 to 9 Years	 	322		 	92		 	292		 	62		
Distressed	6 to 9 Years	 	180		 	230		 	192		 	152		
Mezzanine	6 to 9 Years	 	276		 	252		 	284		 	279		
Traditional	3 to 8 Years	 	813		 	456		 	711		 	587		
Vintage	1 to 3 Years	 	13		 	—		 	14		 	—		
Investment funds	Not Applicable	 	428		 	—		 	395		 	—		
 	 	 	$	2,288		 	$	1,159		 	$	2,113		 	$	1,191		
Included in all categories in the above table except for Investment funds are investments for which ACE will never have the contractual option to redeem but receives distributions based on the liquidation of the underlying assets. Further, for all categories except for Investment funds, ACE does not have the ability to sell or transfer the investments without the consent from the general partner of individual funds.

			
Investment Category	 	Consists of investments in private equity funds:	
Financial	 	targeting financial services companies such as financial institutions and insurance services worldwide	
Real estate	 	targeting global distress opportunities, value added U.S. properties, and global mezzanine debt securities in the commercial real estate market	
Distressed	 	targeting distressed debt/credit and equity opportunities in the U.S	
Mezzanine	 	targeting private mezzanine debt of large-cap and mid-cap companies in the U.S. and worldwide	
Traditional	 	employing traditional private equity investment strategies such as buyout and venture with different geographical focuses including Brazil, Asia, Europe, and the U.S.	
Vintage	 	made before 2002 and where the funds’ commitment periods had already expired	

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

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

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

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

											
(in millions of U.S. dollars, except for percentages)	Fair Value at
December 31, 2013		 	Valuation
Technique	 	Significant
Unobservable Inputs	 	Ranges	
GLB (1)	$	193		 	Actuarial model	 	Lapse rate	 	1% – 30%	
 	 	 	 	 	Annuitization rate	 	0% – 55%	
		
(1)  	Discussion of the most significant inputs used in the fair value measurement of GLB and the sensitivity of those assumptions is included within Note 4 a) Guaranteed living benefits.	
The following tables present a reconciliation of the beginning and ending balances of financial instruments measured at fair value using significant unobservable inputs (Level 3): 

																													
 	Assets	 	Liabilities		
 	Available-for-Sale Debt Securities	 	Equity
securities		 	Short-term investments		Other
investments		 	 	GLB (1)		
Year Ended December 31, 2013	Foreign		 	Corporate
securities		 	MBS		 	 												
(in millions of U.S. dollars)			 			 			 	 												
Balance, beginning of year	$	60		 	$	102		 	$	13		 	 	$	3		 	$	—		$	2,252		 	 	$	1,119		
Transfers into Level 3	36		 	47		 	—		 	 	8		 	8		—		 	 	—		
Transfers out of Level 3	(54	)	 	(31	)	 	—		 	 	(1	)	 	(2	)	—		 	 	—		
Change in Net Unrealized Gains (Losses) included in OCI	—		 	—		 	—		 	 	(6	)	 	—		45		 	 	—		
Net Realized Gains/Losses	1		 	(2	)	 	—		 	 	4		 	—		(2	)	 	 	(926	)	
Purchases	24		 	75		 	—		 	 	2		 	3		551		 	 	—		
Sales	(21	)	 	(7	)	 	(3	)	 	 	(6	)	 	(1	)	(10	)	 	 	—		
Settlements	(2	)	 	(18	)	 	(2	)	 	 	—		 	(1	)	(396	)	 	 	—		
Balance, end of year	$	44		 	$	166		 	$	8		 	 	$	4		 	$	7		$	2,440		 	 	$	193		
Net Realized Gains/Losses Attributable to Changes in Fair Value at the Balance Sheet Date	$	—		 	$	(2	)	 	$	—		 	 	$	—		 	$	—		$	(2	)	 	 	$	(926	)	
		
(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 c ) for additional information.	

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

	
																																				
 	Assets	 	 	Liabilities		
 	Available-for-Sale Debt Securities	 	 	Equity
securities		 	Other
investments		 	Other
derivative
instruments		 	GLB (1)		
Year Ended December 31, 2012	U.S.
Treasury
and
Agency		 	Foreign		 	Corporate
securities		 	MBS		 	States,
municipalities,
and political
subdivisions		 												
(in millions of U.S. dollars)			 			 			 			 			 			 			 			 			
Balance, beginning of year	$	5		 	$	33		 	$	134		 	$	28		 	$	1		 	$	13		 	$	1,877		 	$	3		 	$	1,319		
Transfers into Level 3	—		 	49		 	37		 	22		 	1		 	2		 	53		 	—		 	—		
Transfers out of Level 3	(4	)	 	(13	)	 	(46	)	 	(35	)	 	(1	)	 	(11	)	 	—		 	—		 	—		
Change in Net Unrealized Gains (Losses) included in OCI	—		 	(1	)	 	6		 	—		 	—		 	—		 	55		 	—		 	—		
Net Realized Gains/Losses	—		 	—		 	(1	)	 	—		 	—		 	—		 	(7	)	 	(4	)	 	(200	)	
Purchases	—		 	46		 	24		 	9		 	—		 	4		 	520		 	3		 	—		
Sales	—		 	(53	)	 	(19	)	 	(7	)	 	—		 	(5	)	 	(9	)	 	—		 	—		
Settlements	(1	)	 	(1	)	 	(33	)	 	(4	)	 	(1	)	 	—		 	(237	)	 	(2	)	 	—		
Balance, end of year	$	—		 	$	60		 	$	102		 	$	13		 	$	—		 	$	3		 	$	2,252		 	$	—		 	$	1,119		
Net Realized Gains/Losses Attributable to Changes in Fair Value at the Balance Sheet Date	$	—		 	$	—		 	$	—		 	$	—		 	$	—		 	$	—		 	$	(7	)	 	$	—		 	$	(200	)	
		
(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 $1.4 billion at December 31, 2012 and $1.5 billion at December 31, 2011 , which includes a fair value derivative adjustment of $1.1 billion and $1.3 billion , respectively. 	

	
																																				
 	 	 	Assets	 	 	Liabilities		
 	 	 	Available-for-Sale Debt Securities	 	 	 	 	 	 	 	 	GLB (1)		
Year Ended December 31, 2011	U.S.
Treasury
and
Agency		 	Foreign		 	Corporate
securities		 	MBS		 	States,
municipalities,
and political
subdivisions		 	Equity
securities			Other
investments			Other
derivative
instruments					
(in millions of U.S. dollars)			 			 			 			 			 			 			 			 			
Balance, beginning of year	$	—		 	$	26		 	$	115		 	$	39		 	$	2		 	$	13		 	$	1,432		 	$	4		 	$	507		
Transfers into Level 3	—		 	9		 	42		 	4		 	—		 	—		 	—		 	—		 	—		
Transfers out of Level 3	—		 	(18	)	 	(4	)	 	(48	)	 	—		 	—		 	—		 	—		 	—		
Change in Net Unrealized Gains (Losses) included in OCI	—		 	(1	)	 	(2	)	 	—		 	—		 	(1	)	 	93		 	—		 	—		
Net Realized Gains/Losses	—		 	—		 	(3	)	 	—		 	—		 	4		 	(3	)	 	2		 	812		
Purchased	5		 	23		 	32		 	59		 	—		 	5		 	602		 	—		 	—		
Sales	—		 	(3	)	 	(27	)	 	(17	)	 	—		 	(8	)	 	(55	)	 	—		 	—		
Settlements	—		 	(3	)	 	(19	)	 	(9	)	 	(1	)	 	—		 	(192	)	 	(3	)	 	—		
Balance, end of year	$	5		 	$	33		 	$	134		 	$	28		 	$	1		 	$	13		 	$	1,877		 	$	3		 	$	1,319		
Net Realized Gains/Losses Attributable to Changes in Fair Value at the Balance Sheet Date	$	—		 	$	—		 	$	—		 	$	—		 	$	—		 	$	—		 	$	(3	)	 	$	(1	)	 	$	812		
		
(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 $1.5 billion at December 31, 2011 and $648 million at December 31, 2010, which includes a fair value derivative adjustment of $1.3 billion and $507 million , respectively. 	

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

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

																			
December 31, 2013	Fair Value	 	Carrying Value		
(in millions of U.S. dollars)	Level 1		 	Level 2		 	Level 3		 	Total				
Assets:	 	 	 	 	 	 	 	 	
Fixed maturities held to maturity	 	 	 	 	 	 	 	 	
U.S. Treasury and agency	$	596		 	$	236		 	$	—		 	$	832		$	820		
Foreign	—		 	897		 	—		 	897		864		
Corporate securities	—		 	1,990		 	15		 	2,005		1,922		
Mortgage-backed securities	—		 	1,379		 	—		 	1,379		1,341		
States, municipalities, and political subdivisions	—		 	1,150		 	—		 	1,150		1,151		
 	596		 	5,652		 	15		 	6,263		6,098		
Partially-owned insurance companies	—		 	—		 	470		 	470		470		
Total assets	$	596		 	$	5,652		 	$	485		 	$	6,733		$	6,568		
Liabilities:	 	 	 	 	 	 	 	 	
Short-term debt	$	—		 	$	1,913		 	$	—		 	$	1,913		$	1,901		
Long-term debt	—		 	4,088		 	—		 	4,088		3,807		
Trust preferred securities	—		 	438		 	—		 	438		309		
Total liabilities	$	—		 	$	6,439		 	$	—		 	$	6,439		$	6,017		

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ACE Limited and Subsidiaries

	
																			
December 31, 2012	Fair Value	 	Carrying Value		
(in millions of U.S. dollars)	Level 1		 	Level 2		 	Level 3		 	Total				
Assets:	 	 	 	 	 	 	 	 	
Fixed maturities held to maturity	 	 	 	 	 	 	 	 	
U.S. Treasury and agency	$	619		 	$	464		 	$	—		 	$	1,083		$	1,044		
Foreign	—		 	964		 	—		 	964		910		
Corporate securities	—		 	2,257		 	18		 	2,275		2,133		
Mortgage-backed securities	—		 	2,116		 	—		 	2,116		2,028		
States, municipalities, and political subdivisions	—		 	1,195		 	—		 	1,195		1,155		
 	619		 	6,996		 	18		 	7,633		7,270		
Partially-owned insurance companies	—		 	—		 	454		 	454		454		
Total assets	$	619		 	$	6,996		 	$	472		 	$	8,087		$	7,724		
Liabilities:	 	 	 	 	 	 	 	 	
Short-term debt	$	—		 	$	1,401		 	$	—		 	$	1,401		$	1,401		
Long-term debt	—		 	3,916		 	—		 	3,916		3,360		
Trust preferred securities	—		 	446		 	—		 	446		309		
Total liabilities	$	—		 	$	5,763		 	$	—		 	$	5,763		$	5,070		

5 . Reinsurance

a) Consolidated reinsurance
ACE purchases reinsurance to manage various exposures including catastrophe risks. Although reinsurance agreements contractually obligate ACE's reinsurers to reimburse it for the agreed-upon portion of its gross paid losses, they do not discharge ACE's primary liability. The amounts for net premiums written and net premiums earned in the consolidated statements of operations are net of reinsurance. The following table presents direct, assumed, and ceded premiums:

												
 	Years Ended December 31	 	
(in millions of U.S. dollars)	2013	 	 	2012	 	 	2011	 	
Premiums written	 	 	 	 	 	 	
Direct	$	19,212		 	$	18,144		 	$	17,626		
Assumed	 	3,616		 	 	3,449		 	 	3,205		
Ceded	 	(5,803	)	 	 	(5,518	)	 	 	(5,459	)	
Net	$	17,025		 	$	16,075		 	$	15,372		
Premiums earned	 	 	 	 		 	 		
Direct	$	18,856		 	$	17,802		 	$	17,534		
Assumed	 	3,479		 	 	3,302		 	 	3,349		
Ceded	 	(5,722	)	 	 	(5,427	)	 	 	(5,496	)	
Net	$	16,613		 	$	15,677		 	$	15,387		

For the years ended December 31, 2013 , 2012 , and 2011 , reinsurance recoveries on losses and loss expenses incurred were $ 3.1 billion, $ 4.3 billion, and $ 3.3 billion, respectively.

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ACE Limited and Subsidiaries

b) Reinsurance recoverable on ceded reinsurance

											
 	 	December 31	 	 	December 31	 	
(in millions of U.S. dollars)	2013	 	 	2012	 	
Reinsurance recoverable on unpaid losses and loss expenses (1)	 	$	10,612		 	 	$	11,399		
Reinsurance recoverable on paid losses and loss expenses (1)	 	615		 	 	679		
Net reinsurance recoverable on losses and loss expenses	 	$	11,227		 	 	$	12,078		
		
(1)  	Net of a provision for uncollectible reinsurance.	

We evaluate the financial condition of our reinsurers and potential reinsurers on a regular basis and also monitor concentrations of credit risk with reinsurers. The provision for uncollectible reinsurance is required principally due to the potential failure of reinsurers to indemnify ACE, primarily because of disputes under reinsurance contracts and insolvencies. We have established provisions for amounts estimated to be uncollectible. At December 31, 2013 and 2012 , we recorded a provision for uncollectible reinsurance of $ 390 million and $ 439 million, respectively.

The following tables present a listing, at December 31, 2013 , of the categories of ACE's reinsurers. The first category, largest reinsurers, represents all groups of reinsurers where the gross recoverable exceeds one percent of ACE's total shareholders' equity. The provision for uncollectible reinsurance for the largest reinsurers, other reinsurers rated A- or better, and other reinsurers with ratings lower than A- is principally based on an analysis of the credit quality of the reinsurer and collateral balances. Other pools and government agencies include amounts backed by certain state and federal agencies. In certain states, insurance companies are required by law to participate in these pools. Structured settlements include annuities purchased from life insurance companies to settle claims. Since we retain the ultimate liability in the event that the life company fails to pay, we reflect the amount as a liability and a recoverable/receivable for GAAP purposes. Captives include companies established and owned by our insurance clients to assume a significant portion of their direct insurance risk from ACE (they are structured to allow clients to self-insure a portion of their insurance risk). It is generally our policy to obtain collateral equal to expected losses. Where appropriate, exceptions are granted but only with review and approval at a senior officer level. The final category, Other, includes amounts recoverable that are in dispute or are from companies that are in supervision, rehabilitation, or liquidation. We establish the provision for uncollectible reinsurance in this category based on a case-by-case analysis of individual situations including the merits of the underlying matter, credit and collateral analysis, and consideration of our collection experience in similar situations.

	
													
(in millions of U.S. dollars, except percentages)	2013	 	 	Provision	 	 	% of Gross		
Categories	 	
Largest reinsurers	 	$	5,117		 	 	$	78		 	1.5	%	
Other reinsurers balances rated A- or better	 	2,901		 	 	36		 	1.2	%	
Other reinsurers balances with ratings lower than A- or not rated	 	587		 	 	103		 	17.5	%	
Other pools and government agencies	 	338		 	 	21		 	6.2	%	
Structured settlements	 	577		 	 	12		 	2.1	%	
Captives	 	1,762		 	 	14		 	0.8	%	
Other	 	335		 	 	126		 	37.6	%	
Total	 	$	11,617		 	 	$	390		 	3.4	%	

	
				
Largest Reinsurers	 	 	 	
Alleghany Corp (Transatlantic)	Lloyd's of London	Swiss Re Group	
Berkshire Hathaway Insurance Group	Munich Re Group	XL Capital Group	
HDI Group (Hanover Re)	Partner Re Group	 	

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ACE Limited and Subsidiaries

c ) 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.

												
 	Years Ended December 31	 	
(in millions of U.S. dollars)	2013		 	2012		 	2011		
GMDB	 	 	 	 	 	
Net premiums earned	$	77		 	$	85		 	$	98		
Policy benefits and other reserve adjustments	$	73		 	$	60		 	$	59		
GLB	 	 	 	 	 	
Net premiums earned	$	149		 	$	160		 	$	163		
Policy benefits and other reserve adjustments	27		 	61		 	47		
Net realized gains (losses)	929		 	203		 	(812	)	
Gain (loss) recognized in income	$	1,051		 	$	302		 	$	(696	)	
Net cash received	$	126		 	$	149		 	$	161		
Net (increase) decrease in liability	$	925		 	$	153		 	$	(857	)	
At December 31, 2013 , reported liabilities for GMDB and GLB reinsurance were $100 million and $427 million, respectively, compared with $90 million and $1.4 billion, respectively, at December 31, 2012 . The reported liability for GLB reinsurance of $427 million at December 31, 2013 , and $ 1.4 billion at December 31, 2012 , includes a fair value derivative adjustment of $193 million and $ 1.1 billion, respectively. 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 December 31, 2013 and 2012 , the net amount at risk from reinsurance programs covering the GMDB risk only was $586 million and $1.3 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 ( December 31, 2013 and 2012 , 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 2.0 percent and 3.0 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 December 31, 2013 was approximately $668 million. This takes into account all applicable reinsurance treaty claim limits.

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ACE Limited and Subsidiaries

(ii) Reinsurance covering the GLB risk only
At December 31, 2013 and 2012 , the net amount at risk from reinsurance programs covering the GLB risk only was $136 million and $445 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 ( December 31, 2013 and 2012 , 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 December 31, 2013 and 2012 , the GMDB net amount at risk from reinsurance programs covering both the GMDB and GLB risks on the same underlying policyholders was $73 million and $116 million, respectively.

At December 31, 2013 and 2012 , the GLB net amount at risk from reinsurance programs covering both the GMDB and GLB risks on the same underlying policyholders was $141 million and $655 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 ( December 31, 2013 and 2012 , 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 3.0 percent and 4.0 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 December 31, 2013 was approximately $84 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.

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ACE Limited and Subsidiaries

6 . Intangible assets

Included in Goodwill and other intangible assets in the consolidated balance sheets at December 31, 2013 and 2012 , are goodwill of $ 4.6 billion and $ 4.3 billion, respectively, and other intangible assets of $ 801 million and $ 656 million, respectively.

The following table presents a roll-forward of Goodwill by segment:

																								
(in millions of U.S. dollars)	Insurance – North American
P&C		 	Insurance – North American Agriculture		 	Insurance – Overseas General		 	Global Reinsurance		 	Life		 	ACE Consolidated		
Balance at December 31, 2011	$	1,216		 	$	134		 	$	1,603		 	$	365		 	$	830		 	$	4,148		
Purchase price allocation adjustment	—		 	—		 	—		 	—		 	4		 	4		
Acquisition of JaPro	—		 	—		 	123		 	—		 	—		 	123		
Foreign exchange revaluation and other	3		 	—		 	38		 	—		 	3		 	44		
Balance at December 31, 2012	$	1,219		 	$	134			$	1,764		 	$	365		 	$	837		 	$	4,319		
Acquisition of Fianzas Monterrey	—		 	—		 	135		 	—		 	—		 	135		
Acquisition of ABA Seguros	—		 	—		 	283		 	—		 	—		 	283		
Foreign exchange revaluation and other	(4	)	 	—		 	(128	)	 	—		 	(2	)	 	(134	)	
Balance at December 31, 2013	$	1,215		 	$	134		 	$	2,054		 	$	365		 	$	835		 	$	4,603		

Included in other intangible assets at December 31, 2013 and 2012, are intangible assets subject to amortization of $ 695 million and $554 million , respectively, and intangible assets not subject to amortization of $ 106 million and $102 million , respectively. Intangible assets subject to amortization include agency relationships, software, client lists, renewal rights, and trademarks, primarily attributable to the acquisitions of Rain and Hail, Fianzas Monterrey, and ABA Seguros. The majority of the balance of intangible assets not subject to amortization relates to Lloyd's of London (Lloyd's) Syndicate 2488 (Syndicate 2488) capacity. Amortization expense related to other intangible assets amounted to $95 million , $ 51 million, and $ 29 million for the years ended December 31, 2013 , 2012 , and 2011 , respectively.

The following table presents a roll-forward of VOBA:

												
(in millions of U.S. dollars)	2013		 	2012		 	2011		
Balance, beginning of year	$	614		 	$	676		 	$	634		
Acquisition of New York Life's Korea operations and Hong Kong operations	—		 	—		 	151		
Amortization expense	(64	)	 	(82	)	 	(108	)	
Foreign exchange revaluation	(14	)	 	20		 	(1	)	
Balance, end of year	$	536		 	$	614		 	$	676		

The following table presents estimated amortization expense related to other intangible assets and VOBA for the next five years:

								
For the Year Ending December 31	Other intangible assets		 	VOBA		
(in millions of U.S. dollars)			 			
2014	$	81		 	$	55		
2015	62		 	50		
2016	55		 	45		
2017	52		 	40		
2018	49		 	35		
Total	$	299		 	$	225		

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ACE Limited and Subsidiaries

7 . Unpaid losses and loss expenses

ACE establishes reserves for the estimated unpaid ultimate liability for losses and loss expenses under the terms of its policies and agreements. Reserves include estimates for both claims that have been reported and for IBNR, and include estimates of expenses associated with processing and settling these claims. Reserves are recorded in Unpaid losses and loss expenses in the consolidated balance sheets. The process of establishing loss and loss expense reserves for P&C claims can be complex and is subject to considerable uncertainty as it requires the use of informed estimates and judgments. Our estimates and judgments may be revised as additional experience and other data become available and are reviewed, as new or improved methodologies are developed, or as laws change. We continually evaluate our estimate of reserves in light of developing information and in light of discussions and negotiations with our insureds. While we believe that our reserves for unpaid losses and loss expenses at December 31, 2013 are adequate, new information or trends may lead to future developments in ultimate losses and loss expenses significantly greater or less than the reserves provided. Any such revisions could result in future changes in estimates of losses or reinsurance recoverable and would be reflected in our results of operations in the period in which the estimates are changed.

The following table presents a reconciliation of unpaid losses and loss expenses:

															
 	Years Ended December 31	 	
(in millions of U.S. dollars)	2013	 	 	2012	 	 	2011	 	
Gross unpaid losses and loss expenses, beginning of year	 	$	37,946		 		$	37,477		 		$	37,391		
Reinsurance recoverable on unpaid losses (1)	 	(11,399	)	 	 	(11,602	)	 	 	(12,149	)	
Net unpaid losses and loss expenses, beginning of year	 	26,547		 	 	25,875		 	 	25,242		
Acquisition of subsidiaries	 	86		 	 	14		 	 	92		
Total	 	26,633		 	 	25,889		 	 	25,334		
Net losses and loss expenses incurred in respect of losses occurring in:	 	 	 	 	 	 	 	 	
Current year	 	9,878		 	 	10,132		 	 	10,076		
Prior years	 	(530	)	 	 	(479	)	 	 	(556	)	
Total	 	9,348		 	 	9,653		 	 	9,520		
Net losses and loss expenses paid in respect of losses occurring in:	 	 	 	 	 	 	 	 	
Current year	 	3,942		 	 	4,325		 	 	4,209		
Prior years	 	5,035		 	 	4,894		 	 	4,657		
Total	 	8,977		 	 	9,219		 	 	8,866		
Foreign currency revaluation and other	 	(173	)	 	 	224		 	 	(113	)	
Net unpaid losses and loss expenses, end of year	 	26,831		 	 	26,547		 	 	25,875		
Reinsurance recoverable on unpaid losses (1)	 	10,612		 	 	11,399		 	 	11,602		
Gross unpaid losses and loss expenses, end of year	 	$	37,443		 	 	$	37,946		 	 	$	37,477		
(1)  Net of provision for uncollectible reinsurance.	 	 	 	 	 	 	 	 	

Net losses and loss expenses incurred includes $ 530 million, $ 479 million, and $ 556 million, of net favorable prior period development in the years ended December 31, 2013 , 2012 , and 2011 , respectively. Long-tail lines include lines such as workers’ compensation, general liability, and professional liability; while short-tail lines include lines such as most property lines, energy, personal accident, aviation, marine (including associated liability-related exposures) and agriculture. Significant prior period movements by segment, principally driven by reserve reviews completed during each respective period, are discussed in more detail below. The remaining net development for long-tail and short-tail business for each segment comprises numerous favorable and adverse movements across a number of lines and accident years, none of which is significant individually or in the aggregate.

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ACE Limited and Subsidiaries

Insurance – North American P&C
Insurance – North American P&C's active operations experienced net favorable prior period development of $327 million in 2013 which was the net result of several underlying favorable and adverse movements driven by the following principal changes:

•	Net favorable development of $221 million in long-tail business, including:	

•	Favorable development of $72 million in our retail D&O portfolios, primarily impacting the 2008 and prior accident years. Favorable settlements on several large claims drove the favorable development in 2004 and prior accident years, while favorable action in 2008 is primarily due to an increase in weighting applied to experience-based and simulation methods;	

•	Favorable development of $63 million in our medical risk operations, primarily impacting the 2007 to 2009 accident years. Paid and reported loss activity for this business in these accident years continued to be lower than expected and we have increased our weighting applied to experience-based methods; and	

•	Favorable development of $50 million in our U.S. excess casualty and umbrella businesses primarily affecting the 2007 and prior accident years. Reported activity on loss and allocated loss adjustment expenses was lower than expected based on estimates from our prior review. In addition, increased weighting was applied to experience-based methods in the current review for these accident periods;	

•	Net favorable development of $28 million in our national accounts portfolios which consist of commercial auto, general liability and workers' compensation lines of business. This favorable movement was the net impact of favorable and adverse movements, including:	

•	Favorable development of $40 million related to our annual assessment of multi-claimant events including industrial accidents, impacting the 2012 accident year. Consistent with prior years, we reviewed these potential exposures after the close of the accident year to allow for late reporting or identification of significant losses;	

•	Adverse development of $40 million predominantly in workers' compensation, primarily impacting the 2006 and prior accident years. The development was a function of higher than expected reported loss activity, higher allocated loss adjustment expenses, as well as an increase in weighting applied to experience-based methods; and	

•	Net favorable development of $28 million across a number of lines and accident years, none of which was significant individually or in the aggregate.	

•	Favorable development of $25 million in our foreign casualty Controlled Master Program and Cash Flow portfolios affecting the 2009 and prior accident years. Paid and reported loss activity for this business in these accident years continued to be lower than expected and we have increased our weighting applied to experience-based methods;	

•	Favorable development of $106 million in short-tail business, primarily from:	

•	Net favorable development of $45 million in our wholesale property and inland marine portfolios, primarily in accident years 2010 to 2012, due to favorable case incurred emergence and favorable settlements of several large claims; and	

•	Favorable development of $29 million in our political risk business in the 2009 and 2010 accident years primarily due to favorable settlements of a few large claims;	

Insurance – North American P&C's run-off operations incurred adverse prior period development of $193 million in our Westchester and Brandywine run-off operations during 2013, which was the net result of adverse and favorable movements impacting accident years 1996 and prior, driven by the following principal changes:

•	Adverse development of $161 million related to the completion of the reserve reviews during 2013. The development primarily arose from case specific asbestos and environmental claims related to increased loss and defense cost payment activity and the costs associated with certain case settlements in 2013. Further, we experienced higher than expected paid loss and case reserve activity in our assumed reinsurance portfolio; and	

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ACE Limited and Subsidiaries

		
•	Adverse development of $27 million on unallocated loss adjustment expenses due to run-off operating expenses paid and incurred during 2013.	

Insurance – North American P&C's active operations experienced net favorable prior period development of $348 million in 2012 which was the net result of several underlying favorable and adverse movements driven by the following principal changes:

•	Net favorable development of $245 million in long-tail business, including:	

•	Favorable development of $73 million in a collection of portfolios of umbrella and excess casualty business, primarily affecting the 2007 and prior accident years. The favorable development was the function of both the continuation of the lower than expected reported loss activity in the period since our last review and an increase in weighting applied to experience-based methods, particularly for the 2006 accident year, as these accident periods matured;	

•	Favorable development of $67 million in our D&O portfolios primarily affecting the 2007 and prior accident years. Case loss activity was lower than expected during the 2012 calendar year, including reductions in our internal estimates of exposure on several potentially large claims. These reductions were a function of changes in account specific circumstances since our prior review;	

•	Favorable development of $57 million in our medical risk operations, primarily in the 2007 and prior accident years. Reported and paid loss activity for these accident years were lower than expected since our prior review; and	

•	Net favorable development of $39 million in our national accounts portfolios which consists of commercial auto liability, general liability, and workers' compensation lines of business. This favorable development was the net impact of favorable and adverse movements, including:	

•	Favorable development of $41 million in the 2011 accident year related to our annual assessment of multi-claimant events including industrial accidents. Consistent with prior years, we reviewed these potential exposures after the close of the accident year to allow for late reporting or identification of significant losses;	

•	Favorable development of $34 million in the 2007 accident year, primarily in workers' compensation. The favorable development was the combined effect of lower than expected incurred loss activity and an increase in weighting applied to experience-based methods; and	

•	Adverse development of $36 million affecting the 2006 and prior accident years largely in workers' compensation. The causes for this adverse movement were various and included adverse development on several specific large claims, higher than expected loss activity in certain accident years, an increase in weighting applied to experience-based methods, and a refinement of our treatment of ceded reinsurance recoveries on a few select treaties due to information which became known since our prior review.	

•	Favorable development of $103 million in short-tail business, primarily from:	

•	Favorable development of $88 million in our property, inland marine and commercial marine businesses primarily arising in the 2009 through 2011 accident years. Reported loss activity during the 2012 calendar was lower than expected, particularly in our high excess property portfolio; and	

•	Favorable development of $27 million in our aviation product lines, primarily general aviation hull and liability, affecting the 2009 and prior accident years. Actual paid and incurred loss activity were lower than expected based on long-term historical averages leading to a reduction in our estimate of ultimate losses.	

Insurance – North American P&C's run-off operations incurred net adverse prior period development of $168 million in our Westchester and Brandywine run-off operations during 2012, which was the net result of adverse and favorable movements impacting accident years 1996 and prior, driven by the following principal changes:

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ACE Limited and Subsidiaries

		
•	Adverse development of $150 million related to the completion of the reserve review during 2012. The development primarily arose from case specific asbestos and environmental claims related to increased loss and defense cost payment activity and the costs associated with certain case settlements made in 2012. Further, we experienced higher than expected paid loss and case reserve activity in our assumed reinsurance portfolio; and	

•	Adverse development of $18 million on unallocated loss adjustment expenses due to run-off operating expenses paid during 2012.	

Insurance – North American P&C active operations experienced net favorable prior period development of $289 million in 2011, representing 1.8 percent of its beginning of period net unpaid loss and loss expense reserves. Insurance – North American P&C run-off operations incurred net adverse prior period development of $102 million in 2011, representing 0.6 percent of its beginning of period net unpaid loss and loss expense reserves.

Insurance – North American Agriculture
Insurance – North American Agriculture experienced net favorable prior period development of $13 million, $12 million, and $8 million in 2013, 2012, and 2011, respectively, in short-tail business across a number of accident years, none of which was significant individually or in the aggregate.

Insurance – Overseas General
Insurance – Overseas General experienced net favorable prior period development of $299 million in 2013, which was the net result of several underlying favorable and adverse movements, driven by the following principal changes:

•	Net favorable development of $127 million in long-tail business, including:	

•	Favorable development of $92 million in casualty (primary and excess). Reserve reviews indicated favorable claim activity of $135 million in accident years 2009 and prior. These reviews reflected an increase in weighting applied to experience-based methods as these accident years continued to mature. Adverse development of $43 million in accident years 2010 to 2012 was primarily due to development in specific individual large claims and also in several accounts now exposed on an excess basis following adverse loss development of the underlying aggregate retention layer; and	

•	Net favorable development of $35 million in financial lines. Reserve reviews indicated favorable claim activity of $63 million in accident years 2009 and prior. These reviews reflected an increase in weighting applied to experience-based methods as these accident years continued to mature. Adverse development of $28 million in accident year 2012 was incurred due to notifications on specific large claims.	

•	Favorable development of $172 million in short-tail business, primarily from:	

•	Favorab le development of $104 million across property, technical lines and marine. Favorable development of $69 million in accident years 2010 to 2012 reflected lower than expected loss emergence. In addition, favorable development of $35 million in the property and marine liability lines in accident years 2009 and prior was primarily due to case specific developments;	

•	Favorable development of $39 million across accident and health and personal lines primarily reflected lower than expected loss emergence, primarily in accident years 2010 to 2012; and	

•	Favorable development of $29 million predominantly in the wholesale aviation business, primarily in accident years 2009 and prior, due to case specific developments.	

Insurance – Overseas General experienced net favorable prior period development of $226 million in 2012, which was the net result of several underlying favorable and adverse movements, driven by the following principal changes:

•	Net favorable development of $121 million in long-tail business, including:	

•	Favorable development of $150 million in casualty (primary and excess) and financial lines for accident years 2008 and prior. We recognized the impact of favorable loss emergence since the prior study and increased the weighting applied to experience-based methods; and	

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•	Adverse development of $29 million in casualty (mainly primary) and financial lines for accident years 2009 to 2011 in response to claims emergence primarily in 2011. The adverse development was driven by changes in case specific circumstances on several specific larger claims and, to a lesser extent, increased frequency trends in primary European casualty impacting accident year 2011.	

•	Favorable development of $105 million in short-tail business, including property, marine, A&H, and personal lines across multiple geographical regions, and in both retail and wholesale operations, principally as a result of lower than expected loss emergence, mostly in accident years 2009 and 2010.	
Insurance – Overseas General experienced net favorable prior period development of $290 million in 2011, representing 4.2 percent of the segment's beginning of period net unpaid loss and loss expense reserves.

Global Reinsurance
Global Reinsurance experienced net favorable prior period development of $84 million in 2013, which was the net result of several underlying favorable and adverse movements, driven by the following principal changes:

•	Net favorable development of $53 million in long-tail business, primarily including:	

•	Favorable development of $25 million in professional liability lines, primarily in treaty years 2008 and prior, reflected favorable paid and incurred loss trends and an increase in weighting applied to experience-based methods; and	

•	Favorable development of $20 million in medical malpractice business, principally in treaty years 2009 and prior, reflected favorable paid and incurred loss trends and an increase in weighting applied to experience-based methods.	

•	Net favorable development of $31 million in short-tail business, primarily in treaty years 2007 to 2012 across property lines (including property catastrophe), trade credit, marine, and surety principally as a result of lower than expected loss emergence.	

Global Reinsurance experienced net favorable prior period development of $61 million in 2012, which was the net result of several underlying favorable and adverse movements, driven by the following principal changes:

•	Favorable prior period development of $54 million in long-tail business primarily in treaty years 2008 and prior in casualty and medical malpractice lines. The lower loss estimates arose from a combination of favorable paid and incurred loss trends and increased weighting applied to experience-based methods; and	

•	Net favorable development of $29 million in short-tail business, primarily in treaty years 2010 and prior across property lines (including property catastrophe), trade credit, marine, and surety principally as a result of lower than expected loss emergence.	
Global Reinsurance experienced net favorable prior period development of $71 million in 2011, representing 3.1 percent of the segment's beginning of period net unpaid loss and loss expense reserves.
Asbestos and environmental (A&E) and other run-off liabilities
a) A&E liabilities
Included in liabilities for losses and loss expenses are amounts for A&E (A&E liabilities). The A&E liabilities principally relate to claims arising from bodily-injury claims related to asbestos products and remediation costs associated with hazardous waste sites. The estimation of A&E liabilities is particularly sensitive to future changes in the legal, social, and economic environments and legislative reforms. ACE has not assumed any such future changes in setting the value of its A&E reserves, which include provisions for both reported and IBNR claims. ACE's A&E reserves are not discounted for GAAP reporting.

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The following table presents a roll-forward of consolidated A&E loss reserves (excluding other run-off liabilities), allocated loss expense reserves for A&E exposures, and the provision for uncollectible paid and unpaid reinsurance recoverables:

																															
 	Asbestos	 	Environmental	 	Total	 	
(in millions of U.S. dollars)	Gross	 	 	Net	 	 	Gross	 	 	Net	 	 	Gross	 	 	Net	 	 	
Balance at December 31, 2012 (1)	 	$	1,886		 	 	$	970		 	 	$	194		 	 	$	136		 	 	$	2,080		 	 	$	1,106		 	
Incurred activity	 	125		 	 	96		 	 	119		 	 	75		 	 	244		 	 	171		(2)  	
Paid activity	 	(367	)	 	 	(140	)	 	 	(118	)	 	 	(86	)	 	 	(485	)	 	 	(226	)	 	
Balance at December 31, 2013	 	$	1,644		 	 	$	926		 	 	$	195		 	 	$	125		 	 	$	1,839		 	 	$	1,051		 	
		
(1)	Balances at December 31, 2012 have been adjusted to present claims in a manner consistent with balances disclosed at December 31, 2013.	
		
(2)  	Excludes unallocated loss expenses.	

The A&E net loss reserves including allocated loss expense reserves and provision for uncollectible reinsurance at December 31, 2013 , of $ 1.1 billion shown in the table above comprise $ 816 million in reserves in respect of Brandywine operations (see Brandywine run-off section below), $ 146 million of reserves held by Westchester Specialty (see Westchester Specialty section below), $ 79 million of reserves held by Insurance – Overseas General, $ 7 million of reserves held by ACE Bermuda, and $ 3 million of reserves held by Penn Millers. The incurred activity of $ 171 million is primarily the result of adverse activity in Brandywine and Westchester of $ 158 million and $ 14 million, respectively.

b) A&E and other run-off liabilities
The net figures in the above table (under A&E liabilities section) reflect third-party reinsurance other than reinsurance provided by National Indemnity Company (NICO) under two aggregate excess of loss contracts described below (collectively, the NICO contracts).  ACE excludes the NICO contracts as they cover non-A&E liabilities as well as A&E liabilities.  The split of coverage provided under the NICO contracts for A&E liabilities as compared to non-A&E liabilities is entirely dependent on the timing of the payment of the related claims. ACE's ability to make an estimate of this split is not practicable. ACE believes, instead, that the A&E discussion is best provided excluding the NICO contracts, while separately discussing the NICO contracts in relation to the total subject business, both A&E and other liabilities, covered by those contracts.  With certain exceptions, the NICO contracts provide coverage for the net incurred losses and allocated loss expenses within the limits of coverage and above ACE's retention levels.  These exceptions include losses arising from certain operations of Insurance – Overseas General and participation by ACE Bermuda as a co-reinsurer or retrocessionaire in the NICO contracts.

ACE's exposure to A&E claims principally arises out of liabilities acquired when it purchased Westchester Specialty in 1998 and CIGNA's P&C business in 1999 , with the larger exposure contained within the liabilities acquired in the CIGNA transaction. In 1996 , prior to ACE's acquisition of CIGNA's P&C business, the Pennsylvania Insurance Commissioner approved a plan to restructure INA Financial Corporation and its subsidiaries (the Restructuring) which included the division of Insurance Company of North America (INA) into two separate corporations that ACE acquired as part of the CIGNA P&C business:

(1) An active insurance company that retained the INA name and continued to write P&C business; and
(2) An inactive run-off company, now called Century Indemnity Company (Century).

As a result of the division, predominantly all A&E and certain other liabilities of INA were ascribed to Century and extinguished, as a matter of Pennsylvania law, as liabilities of INA.

As part of the Restructuring, most A&E liabilities of various U.S. affiliates of INA were reinsured to Century. Century and certain other run-off companies having A&E and other liabilities were contributed to Brandywine Holdings. ACE acquired Brandywine Holdings and its various subsidiaries as part of the 1999 acquisition of CIGNA's P&C business. For additional information, refer to “Brandywine Run-Off Entities” below.

During 2013 , we conducted our annual internal, ground-up review of our consolidated A&E liabilities as of December 31, 2012 . As a result of the internal review, we increased our gross unpaid losses and loss expenses in 2013 for the Brandywine operations, including A&E, by $ 277 million, while the net unpaid losses and loss expenses increased by $ 166 million. In addition, we increased gross unpaid losses and loss expenses for Westchester Specialty's A&E and other liabilities by $ 3 million, while the net unpaid losses and loss expenses increased by $ 5 million.

An internal review was also conducted during 2012 of consolidated A&E liabilities as of December 31, 2011 . As a result of that internal review, we increased gross unpaid losses and loss expenses in 2012 for the Brandywine operations, including

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ACE Limited and Subsidiaries

A&E, by $ 275 million while the net unpaid losses and loss expenses increased by $ 146 million. In addition, we increased gross unpaid losses and loss expenses for Westchester Specialty's A&E and other liabilities by $ 17 million, while the net unpaid losses and loss expenses increased by $ 4 million.

In 2012, in addition to our annual internal review, a team of external actuaries performed an evaluation as to the adequacy of Century's reserves. This external review was conducted in accordance with the Brandywine Restructuring Order, which requires that an independent actuarial review of Century's reserves be completed every two years. Management takes full responsibility for the estimation of its A&E liabilities.

Brandywine run-off – impact of NICO contracts on ACE's run-off liabilities
As part of the acquisition of CIGNA's P&C business, NICO provided $ 2.5 billion of reinsurance protection to Century on all Brandywine loss and allocated loss adjustment expense reserves and on the A&E reserves of various ACE INA insurance subsidiaries reinsured by Century (in each case, including uncollectible reinsurance). The benefits of this NICO contract (the Brandywine NICO Agreement) flowed to the other Brandywine companies and to the ACE INA insurance subsidiaries through agreements between those companies and Century. The Brandywine NICO Agreement was exhausted on an incurred basis in 2002 and on a paid basis in 2013.

The following table presents a roll-forward of net loss reserves, allocated loss expense reserves, and provision for uncollectible paid and unpaid reinsurance recoverables in respect of Brandywine operations only, including the impact of the Brandywine NICO Agreement:

																									
 	Brandywine	 	NICO Coverage	 	 	Net of NICO Coverage		 	
(in millions of U.S. dollars)	A&E	 	 	Other	 	(1)  	Total	 	 			 			 	
Balance at December 31, 2012	 	$	852		 	 	$	421		 	 	$	1,273		 	 	$	18		 	$	1,255		 	
Incurred activity	 	158		 	 	9		 	 	167		 	 	—		 	167		(2)  	
Paid activity	 	(194	)	 	 	(63	)	 	 	(257	)	 	 	(18	)	 	(239	)	 	
Balance at December 31, 2013	 	$	816		 	 	$	367		 	 	$	1,183		 	 	$	—		 	$	1,183		 	
		
(1)  	Other consists primarily of workers' compensation, non-A&E general liability losses, and provision for uncollectible reinsurance on non-A&E business.	
		
(2)  	Excludes $(1) million of unallocated loss expenses (benefits).	

The incurred activity of $ 167 million primarily relates to the internal reviews of consolidated A&E loss reserves.

Westchester Specialty – impact of NICO contracts on ACE's run-off liabilities
As part of the Westchester Specialty acquisition in 1998, NICO provided a 75 percent pro-rata share of $ 1 billion of reinsurance protection on losses and loss adjustment expenses incurred on or before December 31, 1996, in excess of a retention of $ 721 million. At December 31, 2013 , the remaining unused incurred limit under the NICO Agreement was $ 490 million, which is only available for losses and loss adjustment expenses.

The following table presents a roll-forward of net loss reserves, allocated loss expense reserves, and provision for uncollectible paid and unpaid reinsurance recoverables in respect of 1996 and prior Westchester Specialty operations only, including the impact of the Westchester NICO Agreement:

																										
 	Westchester Specialty	 	NICO Coverage	 	 	Net of NICO Coverage	 	 	
(in millions of U.S. dollars)	A&E	 	 	Other	 	 	Total	 	 			 			 	
Balance at December 31, 2012	 	$	151		 	 	$	44		 	 	$	195		 	 	$	158		 	 	$	37		 	
Incurred activity	 	14		 	 	(11	)	 	 	3		 	 	2		 	 	1		(1)  	
Paid activity	 	(19)		 	 	—		 	 	(19)		 	 	(19)		 	 	—		 	
Balance at December 31, 2013	 	$	146		 	 	$	33		 	 	$	179		 	 	$	141		 	 	$	38		 	
		
(1)	Excludes $4 million of unallocated loss expenses.	

The incurred activity of $ 1 million primarily relates to the internal reviews of consolidated A&E loss reserves.

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ACE Limited and Subsidiaries

Brandywine run-off entities
In addition to housing a significant portion of ACE's A&E exposure, the Brandywine operations include run-off liabilities related to various insurance and reinsurance businesses. ACE's Brandywine insurance companies are Century (a Pennsylvania insurer) and Century International Reinsurance Company Ltd., a Bermuda insurer (CIRC).  The Brandywine companies are direct or indirect subsidiaries of Brandywine Holdings.

The U.S.-based ACE INA companies assumed two contractual obligations in respect of the Brandywine operations in connection with the Restructuring: a dividend retention fund obligation and a surplus maintenance obligation in the form of the excess of loss (XOL) agreement.

INA Financial Corporation established and funded a dividend retention fund (the Dividend Retention Fund) consisting of $ 50  million plus investment earnings. Pursuant to an interpretation of the Brandywine Restructuring Order, the full balance of the Dividend Retention Fund was contributed to Century as of December 31, 2002 . Under the Restructuring Order, while any obligation to maintain the Dividend Retention Fund is in effect, to the extent dividends are paid by INA Holdings Corporation to its parent, INA Financial Corporation, and to the extent INA Financial Corporation then pays such dividends to INA Corporation, a portion of those dividends must be withheld to replenish the principal of the Dividend Retention Fund to $ 50 million. Effective January 28, 2011 , the Pennsylvania Insurance Department clarified the scope of the Dividend Retention Fund that capital contributions from the Dividend Retention Fund to Century shall not be required until the XOL Agreement has less than $ 200 million of capacity remaining on an incurred basis for statutory reporting purposes. The amount of the capital contribution shall be the lesser of the amount necessary to restore the XOL Agreement remaining capacity to $ 200 million or the Dividend Retention Fund balance. The Dividend Retention Fund may not be terminated without prior written approval from the Pennsylvania Insurance Commissioner.

In addition, an ACE INA insurance subsidiary provided reinsurance coverage to Century in the amount of $ 800 million under an XOL, triggered if the statutory capital and surplus of Century falls below $ 25 million or if Century lacks liquid assets with which to pay claims as they become due.

Effective December 31, 2004 , ACE INA Holdings contributed $ 100 million to Century in exchange for a surplus note. After giving effect to the contribution and issuance of the surplus note, the statutory surplus of Century at December 31, 2013 was $ 25 million and approximately $ 232 million in statutory-basis losses have been ceded to the XOL on an inception-to-date basis. Century reports the amount ceded under the XOL in accordance with statutory accounting principles, which differ from GAAP by, among other things, allowing Century to discount its liabilities, including certain asbestos related and environmental pollution liabilities and Century's reinsurance payable to active companies. For GAAP reporting purposes, intercompany reinsurance recoverables related to the XOL are eliminated upon consolidation.

While ACE believes it has no legal obligation to fund losses above the XOL limit of coverage, ACE's consolidated results would nevertheless continue to include any losses above the limit of coverage for so long as the Brandywine companies remain consolidated subsidiaries of ACE.

Uncertainties relating to ACE's ultimate Brandywine exposure
In addition to the Dividend Retention Fund and XOL commitments described above, certain ACE entities are primarily liable for asbestos, environmental, and other exposures that they have reinsured to Century. Accordingly, if Century were to become insolvent and ACE were to lose control of Century, some or all of the recoverables due to these ACE companies from Century could become uncollectible, yet those ACE entities would continue to be responsible to pay claims to their insureds or reinsureds. At December 31, 2013 and 2012 , the aggregate reinsurance balances ceded by the active ACE companies to Century were approximately $ 929 million and $ 958 million, respectively. At December 31, 2013 and 2012 , Century's carried gross reserves (including reserves ceded by the active ACE companies to Century) were $ 2.3 billion and $ 2.1 billion, respectively. ACE believes the intercompany reinsurance recoverables, which relate to liabilities payable over many years, are not impaired. Should Century's loss reserves experience adverse development in the future and should Century be placed into rehabilitation or liquidation, the reinsurance recoverables due from Century to its affiliates would be payable only after the payment in full of certain expenses and liabilities, including administrative expenses and direct policy liabilities. Thus, the intercompany reinsurance recoverables would be at risk to the extent of the shortage of assets remaining to pay these recoverables.

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8 . Taxation

Under Swiss law, a resident company is subject to income tax at the federal, cantonal, and communal levels that is levied on net worldwide income. Income attributable to permanent establishments or real estate located abroad is excluded from the Swiss tax base. ACE Limited is a holding company and, therefore, is exempt from cantonal and communal income tax. As a result, ACE Limited is subject to Swiss income tax only at the federal level. Furthermore, participation relief (i.e., tax relief) is granted to ACE Limited at the federal level for qualifying dividend income and capital gains related to the sale of qualifying participations (i.e., subsidiaries). It is expected that the participation relief will result in a full exemption of participation income from federal income tax. ACE Limited is resident in the Canton and City of Zurich and, as such, is subject to an annual cantonal and communal capital tax on the taxable equity of ACE Limited in Switzerland.

ACE has two Swiss operating subsidiaries resident in the Canton and City of Zurich, an insurance company, ACE Insurance (Switzerland) Limited, which, in turn, owns a reinsurance company, ACE Reinsurance (Switzerland) Limited. Both are subject to federal, cantonal, and communal income tax and to annual cantonal and communal capital tax.

Under current Bermuda law, ACE Limited and its Bermuda subsidiaries are not required to pay any taxes on income or capital gains. If a Bermuda law were enacted that would impose taxes on income or capital gains, ACE Limited and the Bermuda subsidiaries have received an undertaking from the Minister of Finance in Bermuda that would exempt such companies from Bermudian taxation until March 2035.

Income from ACE's operations at Lloyd's is subject to United Kingdom corporation taxes. Lloyd's is required to pay U.S. income tax on U.S. connected income (U.S. income) written by Lloyd's syndicates. Lloyd's has a closing agreement with the Internal Revenue Service (IRS) whereby the amount of tax due on this business is calculated by Lloyd's and remitted directly to the IRS. These amounts are then charged to the accounts of the Names/Corporate Members in proportion to their participation in the relevant syndicates. ACE's Corporate Members are subject to this arrangement but, as U.K. domiciled companies, will receive U.K. corporation tax credits for any U.S. income tax incurred up to the value of the equivalent U.K. corporation income tax charge on the U.S. income.

ACE Group Holdings and its respective subsidiaries are subject to income taxes imposed by U.S. authorities and file a consolidated U.S. tax return. Combined Insurance and its life subsidiary will file a separate consolidated U.S. tax return for tax years prior to 2014. Should ACE Group Holdings pay a dividend to ACE, withholding taxes would apply. Currently, however, no withholding taxes are accrued with respect to such un-remitted earnings as management has no intention of remitting these earnings. Similarly, no taxes have been provided on the un-remitted earnings of certain foreign subsidiaries as management has no intention of remitting these earnings. The cumulative amount that would be subject to withholding tax, if distributed, as well as the determination of the associated tax liability are not practicable to compute; however, such amount would be material to ACE. Certain international operations of ACE are also subject to income taxes imposed by the jurisdictions in which they operate.

ACE is not subject to income taxation other than as stated above.  There can be no assurance that there will not be changes in applicable laws, regulations, or treaties which might require ACE to change the way it operates or becomes subject to taxation.

ACE's domestic operations are in Switzerland, the jurisdiction where we are legally organized, incorporated, and registered. Domestic operations for the years ended December 31, 2013 , 2012 , and 2011 are not considered significant to the consolidated income before income taxes for the respective periods.

The following table presents the provision for income taxes:

												
 	Years Ended December 31	 	
(in millions of U.S. dollars)	2013		 	2012		 	2011		
Current tax expense	$	231		 	$	305		 	$	485		
Deferred tax expense (benefit)	249		 	(35	)	 	17		
Provision for income taxes	$	480		 	$	270		 	$	502		

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ACE Limited and Subsidiaries

The most significant jurisdictions contributing to the overall taxation of ACE are calculated using the following rates: Switzerland 7.83 percent , Bermuda 0.0 percent , U.S. 35.0 percent , and U.K. 23.25 percent . The following table presents a reconciliation of the difference between the provision for income taxes and the expected tax provision at the Swiss statutory income tax rate:

												
 	Years Ended December 31	 	
(in millions of U.S. dollars)	2013		 	2012		 	2011		
Expected tax provision at Swiss statutory tax rate	$	331		 	$	233		 	$	160		
Permanent differences:	 	 	 	 	 	
Taxes on earnings subject to rate other than Swiss statutory rate	124		 	129		 	323		
Tax-exempt interest and dividends received deduction, net of proration	(27	)	 	(24	)	 	(21	)	
Net withholding taxes	27		 	23		 	19		
Favorable resolution of prior years' tax matters and closing statutes of limitations	(5	)	 	(124	)	 	—		
Change in valuation allowance	4		 	4		 	(2	)	
Other	26		 	29		 	23		
Total provision for income taxes	$	480		 	$	270		 	$	502		

The following table presents the components of the net deferred tax assets:

								
 	December 31		 	December 31		
(in millions of U.S. dollars)	2013		 	2012		
Deferred tax assets:	 	 	 	
Loss reserve discount	$	807		 	$	849		
Unearned premiums reserve	93		 	98		
Foreign tax credits	1,236		 	1,131		
Investments	3		 	43		
Provision for uncollectible balances	78		 	110		
Loss carry-forwards	54		 	55		
Other	184		 	110		
Total deferred tax assets	2,455		 	2,396		
Deferred tax liabilities:	 	 	 	
Deferred policy acquisition costs	138		 	68		
VOBA and other intangible assets	351		 	379		
Un-remitted foreign earnings	982		 	795		
Unrealized appreciation on investments	210		 	586		
Other	94		 	59		
Total deferred tax liabilities	1,775		 	1,887		
Valuation allowance	64		 	56		
Net deferred tax assets	$	616		 	$	453		

The valuation allowance of $ 64 million at December 31, 2013 , and $ 56 million at December 31, 2012 , reflects management's assessment, based on available information, that it is more likely than not that a portion of the deferred tax assets will not be realized due to the inability of certain foreign subsidiaries to generate sufficient taxable income and the inability of ACE Group Holdings and its subsidiaries to use foreign tax credits. Adjustments to the valuation allowance are made when there is a change in management's assessment of the amount of deferred tax assets that are realizable.

At December 31, 2013 , ACE has net operating loss carry-forwards of $ 154 million which, if unused, will expire in the years 2014 through 2033, and a foreign tax credit carry-forward in the amount of $ 131 million which, if unused, will expire in the years 2015 through 2023.

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ACE Limited and Subsidiaries

The following table presents a reconciliation of the beginning and ending amount of gross unrecognized tax benefits:

								
 	December 31		 	December 31		
(in millions of U.S. dollars)	2013		 	2012		
Balance, beginning of year	$	26		 	$	134		
Additions based on tax provisions related to the current year	5		 	19		
Reductions for settlements with tax authorities	—		 	(16	)	
Reductions for the lapse of the applicable statutes of limitations	(4	)	 	(111	)	
Balance, end of year	$	27		 	$	26		

At December 31, 2013 and 2012, the total amount of unrecognized tax benefits that would affect the effective tax rate, if recognized, is $ 5 million and $8 million, respectively. At December 31, 2013 and 2012 , $ 22 million and $ 18 million, respectively, of unrecognized tax benefits would not affect the effective tax rate, if recognized, as the ultimate deductibility is highly certain but there is uncertainty about the timing of such deductibility. Because of the impact of deferred tax accounting, other than interest and penalties, an unfavorable resolution of these temporary items would not affect the effective tax rate but would accelerate the payment of cash to the taxing authority to an earlier period.

ACE recognizes accruals for interest and penalties, if any, related to unrecognized tax benefits in income tax expense in the consolidated statements of operations. Tax-related interest expense (income) and penalties reported in the consolidated statements of operations for the years ended December 31, 2013 , 2012 , and 2011 were $ (1) million, $ (8) million, and $ 3 million, respectively. At December 31, 2013 and 2012 , ACE recorded $ 11 million and $ 12 million, respectively, in liabilities for tax-related interest and penalties in our consolidated balance sheets.

In April 2012, ACE reached final settlement with the 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. During 2012, ACE recognized a $ 124 million benefit resulting from the favorable resolution of various prior years' tax matters and the closing of statutes of limitations. During 2013, ACE reduced the amount of unrecognized tax benefits by $5 million resulting from the closing of applicable statutes of limitations. 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.

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9 . Debt

										
 	December 31		 	December 31		 	 	
(in millions of U.S. dollars)	2013		 	2012		 	Early Redemption Option	
Short-term debt	 	 	 	 	 	
ACE INA $500 million 5.875% senior notes due June 2014
	$	500		 	$	—		 	Make-whole premium plus 0.20%	
Repurchase agreements (weighted average interest rate of 0.3% and 0.4%)	1,401		 	1,401		 	None	
Total short-term debt	$	1,901		 	$	1,401		 	 	
Long-term debt	 	 	 	 	 	
ACE INA senior notes:	 	 	 	 	 	
$500 million 5.875% due June 2014
	$	—		 	$	500		 	Make-whole premium plus 0.20%	
$450 million 5.6% due May 2015
	449		 	449		 	Make-whole premium plus 0.35%	
$700 million 2.6% due November 2015
	700		 	699		 	Make-whole premium plus 0.20%	
$500 million 5.7% due February 2017
	500		 	500		 	Make-whole premium plus 0.20%	
$300 million 5.8% due March 2018
	300		 	300		 	Make-whole premium plus 0.35%	
$500 million 5.9% due June 2019
	500		 	500		 	Make-whole premium plus 0.40%	
$475 million 2.7% due March 2023
	473		 	—		 	Make-whole premium plus 0.10%	
$300 million 6.7% due May 2036
	299		 	299		 	Make-whole premium plus 0.20%	
$475 million 4.15% due March 2043
	474		 	—		 	Make-whole premium plus 0.15%	
ACE INA $100 million 8.875% debentures due August 2029	100		 	100		 	None	
Other long-term debt (2.75% to 7.1% due December 2019 to September 2020)	12		 	13		 	None	
Total long-term debt	$	3,807		 	$	3,360		 	 	
Trust preferred securities	 	 	 	 	 	
ACE INA capital securities due April 2030	$	309		 	$	309		 	Redemption price (1)	
		
(1)  	Redemption price is equal to accrued and unpaid interest to the redemption date plus the greater of (i) 100 percent of the principal amount thereof, or (ii) sum of present value of scheduled payments of principal and interest on the debentures from the redemption date to April 1, 2030.	

a) Short-term debt
ACE has executed repurchase agreements with certain counterparties under which ACE agreed to sell securities and repurchase them at a future date for a predetermined price.

b) Long-term debt
In March 2013, ACE INA issued $475 million of 2.7 percent senior notes due March 2023 and $475 million of 4.15 percent senior notes due March 2043.

All of ACE INA’s senior notes are redeemable at any time at ACE INA's option subject to the provisions described above. A “make-whole premium” is the present value of the remaining principal and interest discounted at the applicable U.S. Treasury rate. The senior notes are also redeemable at par plus accrued and unpaid interest in the event of certain changes in tax law. The debentures, subject to certain exceptions, are not redeemable before maturity.

The senior notes and debentures do not have the benefit of any sinking fund. These senior unsecured notes and debentures are guaranteed on a senior basis by ACE Limited and they rank equally with all of ACE's other senior obligations. They also contain customary limitations on lien provisions as well as customary events of default provisions which, if breached, could result in the accelerated maturity of such senior debt.

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ACE Limited and Subsidiaries

c ) ACE INA capital securities
In March 2000, ACE Capital Trust II, a Delaware statutory business trust, publicly issued $ 300 million of 9.7 percent Capital Securities (the Capital Securities) due to mature in April 2030. At the same time, ACE INA purchased $ 9.2 million of common securities of ACE Capital Trust II. The sole assets of ACE Capital Trust II consist of $ 309 million principal amount of 9.7 percent Junior Subordinated Deferrable Interest Debentures (the Subordinated Debentures) issued by ACE INA due to mature in April 2030.

Distributions on the Capital Securities are payable semi-annually and may be deferred for up to ten consecutive semi-annual periods (but no later than April 1, 2030). Any deferred payments would accrue interest compounded semi-annually if ACE INA defers interest on the Subordinated Debentures. Interest on the Subordinated Debentures is payable semi-annually. ACE INA may defer such interest payments (but no later than April 1, 2030), with such deferred payments accruing interest compounded semi-annually. The Capital Securities and the ACE Capital Trust II Common Securities will be redeemed upon repayment of the Subordinated Debentures.

ACE Limited has guaranteed, on a subordinated basis, ACE INA's obligations under the Subordinated Debentures, and distributions and other payments due on the Capital Securities. These guarantees, when taken together with ACE's obligations under expense agreements entered into with ACE Capital Trust II, provide a full and unconditional guarantee of amounts due on the Capital Securities.

10 . 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. ACE also maintains positions in convertible bond investments that contain embedded derivatives. These are the most numerous and frequent derivative transactions.

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

Under reinsurance programs covering GLBs, ACE assumes the risk of GLBs, including GMIB and GMAB, associated with variable annuity contracts. The GMIB risk is triggered if, at the time the contract holder elects to convert the accumulated account value to a periodic payment stream (annuitize), the accumulated account value is not sufficient to provide a guaranteed minimum level of monthly income. The GMAB risk is triggered if, at contract maturity, the contract holder’s account value is less than a guaranteed minimum value. The GLB reinsurance product meets the definition of a derivative instrument. Benefit reserves in respect of GLBs are classified as Future policy benefits (FPB) while the fair value derivative adjustment is classified within 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 December 31, 2013 , 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 December 31, 2013 , 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.

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ACE Limited and Subsidiaries

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

																												
 	December 31, 2013	 	 	 	 	December 31, 2012	 	
 	Consolidated
Balance Sheet
Location (1)	 	Fair Value	 	 	Notional
Value/
Payment
Provision		 	Consolidated
Balance Sheet
Location	 	Fair Value	 	 	Notional
Value/
Payment
Provision		
 		 	Derivative Asset		 	Derivative (Liability)		 			 		 	Derivative Asset		 	Derivative (Liability)		 			
(in millions of U.S. dollars)		 			 			 			 		 			 			 			
Investment and embedded derivative instruments	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Foreign currency forward contracts	OA / (AP)	 	$	3		 	$	(4	)	 	$	1,202		 	AP	 	$	—		 	$	—		 	$	620		
Cross-currency swaps	OA / (AP)	 	—		 	—		 	50		 	AP	 	—		 	—		 	50		
Futures contracts on money market instruments	OA / (AP)	 	3		 	—		 	3,910		 	AP	 	1		 	—		 	2,710		
Futures contracts on notes and bonds	OA / (AP)	 	13		 	(2	)	 	871		 	AP	 	10		 	—		 	915		
Convertible bonds	FM AFS	 	302		 	—		 	254		 	FM AFS	 	309		 	—		 	279		
 	 	 	$	321		 	$	(6	)	 	$	6,287		 	 	 	$	320		 	$	—		 	$	4,574		
Other derivative instruments	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Futures contracts on equities (2)	OA / (AP)	 	$	—		 	$	(60	)	 	$	1,692		 	AP	 	$	—		 	$	(6	)	 	$	2,308		
Options on equity market indices (2)	OA / (AP)	 	6		 	—		 	250		 	AP	 	30		 	—		 	250		
Other	OA / (AP)	 	—		 	(2	)	 	8		 	AP	 	—		 	—		 	—		
 	 	 	$	6		 	$	(62	)	 	$	1,950		 	 	 	$	30		 	$	(6	)	 	$	2,558		
GLB (3)	(AP) / (FPB)	 	$	—		 	$	(427	)	 	$	277		 	AP / FPB	 	$	—		 	$	(1,352	)	 	$	1,100		
		
(1)	Other assets (OA), Fixed maturities available for sale (FM AFS)	
		
(2)  	Related to GMDB and GLB blocks of business.	
		
(3)  	Includes both future policy benefits reserves and fair value derivative adjustment. Refer to Note 5 c ) 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.	

On January 1, 2013, we adopted new accounting guidance that requires disclosure of financial instruments subject to a master netting agreement.  At December 31, 2013 and December 31, 2012 , derivative liabilities of $41 million and derivative assets of $35 million , respectively, included in the table above were subject to a master netting agreement.  The remaining derivatives included in the table above were not subject to a master netting agreement. 

At both December 31, 2013 and 2012 , our repurchase obligations of $1,401 million were fully collateralized.  At December 31, 2013 and 2012 , our securities lending payable was $1,633 million and $1,795 million , respectively, and our securities lending collateral was $1,632 million and $1,791 million , respectively.  The securities lending collateral can only be accessed in the event that the institution borrowing the securities is in default under the lending agreement.  An indemnification agreement with the lending agent protects us in the event a borrower becomes insolvent or fails to return any of the securities on loan.  In contrast to securities lending programs, the use of cash received is not restricted for the repurchase obligations.

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ACE Limited and Subsidiaries

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

												
 	Years Ended December 31	 	
(in millions of U.S. dollars)	2013		 	2012		 	2011		
Investment and embedded derivative instruments	 	 	 	 	 	
Foreign currency forward contracts	$	11		 	$	(9	)	 	$	6		
All other futures contracts and options	61		 	(22	)	 	(98	)	
Convertible bonds	6		 	25		 	(50	)	
TBAs	—		 	—		 	(1	)	
Total investment and embedded derivative instruments	$	78		 	$	(6	)	 	$	(143	)	
GLB and other derivative instruments	 	 	 	 	 	
GLB (1)	$	878		 	$	171		 	$	(779	)	
Futures contracts on equities (2)	(555	)	 	(273	)	 	(12	)	
Options on equity market indices (2)	(24	)	 	(24	)	 	8		
Other	(2	)	 	(4	)	 	(4	)	
Total GLB and other derivative instruments	$	297		 	$	(130	)	 	$	(787	)	
 	$	375		 	$	(136	)	 	$	(930	)	
		
(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

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ACE Limited and Subsidiaries

the exchange on which they trade. For non-exchange-traded instruments, the counterparties are principally banks which must meet certain criteria according to our investment guidelines.

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

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

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

(v) GLB
Under the GLB program, as the assuming entity, ACE is obligated to provide coverage until the expiration or maturity of the underlying deferred annuity contracts or the expiry of the reinsurance treaty. Premiums received under the reinsurance treaties are classified as premium. Expected losses allocated to premiums received are classified as Future policy benefits and valued similar to GMDB reinsurance. Other changes in fair value, principally arising from changes in expected losses allocated to expected future premiums, are classified as Net realized gains (losses). Fair value represents management’s estimate of 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) Concentrations of credit risk
Our investment portfolio is managed following prudent standards of diversification. Specific provisions limit the allowable holdings of a single issue and issuer. We believe that there are no significant concentrations of credit risk associated with our investments. Our three largest exposures by issuer at December 31, 2013 , were JP Morgan Chase & Co., Goldman Sachs Group Inc., and General Electric Company. Our largest exposure by industry at December 31, 2013 was financial services.

We market our insurance and reinsurance worldwide primarily through insurance and reinsurance brokers. We assume a degree of credit risk associated with brokers with whom we transact business. During both years ended December 31, 2013 and 2012, and in the year ended December 31, 2011, approximately 11 percent and 12 percent , respectively, of our gross premiums written were generated from or placed by Marsh, Inc. This entity is a large, well established company and there are no indications that it is financially troubled at December 31, 2013 . In addition, during the year ended December 31, 2011, approximately 10 percent of our gross premiums written were generated from or placed by Aon Corporation and its affiliates. No other broker and no one insured or reinsured accounted for more than 10 percent of gross premiums written in the years ended December 31, 2013 , 2012 , and 2011 .

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ACE Limited and Subsidiaries

c) Other investments
At December 31, 2013 , included in Other investments in the consolidated balance sheet are investments in limited partnerships and partially-owned investment companies with a carrying value of $1.9 billion. In connection with these investments, we have commitments that may require funding of up to $1.2 billion over the next several years. 

d) Letters of credit
We have a $ 1.0 billion unsecured operational LOC facility (adjustable to $ 1.5 billion upon consent of the issuers) expiring in November 2017. We are allowed to use up to $ 300 million of this LOC facility as an unsecured revolving credit facility. At December 31, 2013 , outstanding LOCs issued under this facility were $ 376 million. We also have a $ 500 million unsecured operational LOC facility expiring in June 2014. At December 31, 2013 , this facility was fully utilized.

To satisfy funding requirements of ACE's Lloyd's Syndicate 2488 through 2014, we have a series of four bilateral uncollateralized LOC facilities totaling $ 425 million. LOCs issued under these facilities will expire no earlier than December 2017. Usage of this facility at December 31, 2013 was $352 million .

These facilities require that ACE Limited and/or certain of its subsidiaries continue to maintain certain covenants. ACE Limited is also required to maintain a minimum consolidated net worth covenant and a maximum leverage covenant, which have been met at December 31, 2013 .

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

f) Lease commitments
We lease office space and equipment under operating leases which expire at various dates through 2033. Rent expense was $ 128 million, $ 112 million, and $ 114 million for the years ended December 31, 2013 , 2012 , and 2011 , respectively. Future minimum lease payments under the leases are expected to be as follows:

				
For the year ending December 31	
(in millions of U.S. dollars)	
2014	$	106		
2015	99		
2016	86		
2017	70		
2018	49		
Thereafter	124		
Total minimum future lease commitments	$	534		

11 . Shareholders’ equity

a) Common Shares
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, we are generally prohibited from issuing Common Shares below their par value. If there were a need to raise common equity at a time when the trading price of ACE's Common Shares is below par value, we would need in advance to obtain shareholder approval to decrease the par value of the Common Shares.

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ACE Limited and Subsidiaries

At our May 2012 and 2013 Annual General Meetings, our shareholders approved a dividend for the following years, respectively, payable in four quarterly installments after the annual general meetings in the form of a distribution by way of a par value reduction. At the January 10, 2014 Extraordinary General Meeting, our shareholders approved a resolution to increase our quarterly dividend from $0.51 per share to $0.63 per share for the final two quarterly installments (made on January 31, 2014 and the payment to be made by the end of April 2014) that had been earlier approved at our 2013 annual general meeting. The $0.12 per share increase for each installment will be distributed from capital contribution reserves while the existing $0.51 per share will be distributed by way of a par value reduction.

Under Swiss corporate law, dividends, including distributions through a reduction in par value (par value reduction), must be stated in Swiss francs though dividend payments are made by ACE in U.S. dollars. Dividend distributions following ACE's redomestication to Switzerland have generally been made by way of par value reduction (under the methods approved by our shareholders at our Annual General Meetings) and had the effect of reducing par value per Common Share each time a dividend was distributed. In light of a January 1, 2011 Swiss tax law change, we may also issue dividends without subjecting them to withholding tax by way of distributions from capital contribution reserves (Additional paid-in capital), a subaccount of legal reserves, and paid out of free reserves (Retained earnings). We employed this method of dividends during portions of 2011 and 2012, and to effect our dividend increase that was approved by shareholders on January 10, 2014 .

b) Shares issued, outstanding, authorized, and conditional

							
 	Years Ended December 31	 	
 	2013		2012		2011		
Shares issued, beginning of year	342,832,412		342,832,412		341,094,559		
Exercise of stock options	—		—		1,737,853		
Shares issued, end of year	342,832,412		342,832,412		342,832,412		
Common Shares in treasury, end of year (at cost)	(3,038,477	)	(2,510,878	)	(5,905,136	)	
Shares issued and outstanding, end of year	339,793,935		340,321,534		336,927,276		
Common Shares issued to employee trust	 	 	 	
Balance, beginning of year	(9,467	)	(9,467	)	(101,481	)	
Shares redeemed	—		—		92,014		
Balance, end of year	(9,467	)	(9,467	)	(9,467	)	

Prior to August 2011, exercises of stock options were satisfied through newly issued shares. From August 2011 onward, exercises of stock options were satisfied through Common Shares in treasury. Other decreases in Common Shares in treasury are principally due to grants of restricted stock, and purchases under the Employee Stock Purchase Plan (ESPP). Increases in Common Shares in treasury are due to open market repurchases of Common Shares and the surrender of Common Shares to satisfy tax withholding obligations in connection with the vesting of restricted stock and the forfeiture of unvested restricted stock.

For the years ended December 31, 2013 , 2012 , and 2011 , ACE repurchased 3,266,531 Common Shares, 100,000 Common Shares, and 2,058,860 Common Shares in a series of open market transactions, respectively. The cost of these shares, which were placed in treasury, totaled $290 million , $7 million , and $ 132 million for the years ended December 31, 2013 , 2012 , and 2011 , respectively. ACE repurchased these Common Shares to partially offset potential dilution from the exercise of stock options and the granting of restricted stock under share-based compensation plans as well as part of an overall capital management strategy.

Common Shares issued to employee trust are issued by ACE to a rabbi trust for deferred compensation obligations as discussed in Note 11 f) below.

Authorized share capital for general purposes
The ACE Limited Board of Directors (Board) has shareholder-approved authority as set forth in the Articles of Association to increase for general purposes ACE's share capital from time to time through May 16, 2014, by the issuance of up to 140,000,000 fully paid up Common Shares, with a par value equal to the par value of ACE's Common Shares as set forth in the Articles of Association at the time of any such issuance.

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ACE Limited and Subsidiaries

Conditional share capital for bonds and similar debt instruments
The share capital of ACE may be increased through the issuance of a maximum of 33,000,000 fully paid up Common Shares (with a par value of CHF 27.04 as of December 31, 2013) through the exercise of conversion and/or option or warrant rights granted in connection with bonds, notes, or similar instruments, issued or to be issued by ACE, including convertible debt instruments.

Conditional share capital for employee benefit plans
The share capital of ACE may be increased through the issuance of a maximum of 25,410,929 fully paid up Common Shares (with a par value of CHF 27.04 as of December 31, 2013) in connection with the exercise of option rights granted to any employee of ACE, and any consultant, director, or other person providing services to ACE.

c) ACE Limited securities repurchase authorization
On November 21, 2013 , the Board announced authorization of a share repurchase program of up to $2 billion of ACE's Common Shares through December 31, 2014.  This $2 billion authorization replaces the previous authorizations which had a remaining balance of $228 million and expired on December 31, 2013. 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. At December 31, 2013 , $1.94 billion in share repurchase authorization remained through December 31, 2014 pursuant to the Board authorization. For the period January 1, 2014 through February 27, 2014, ACE repurchased 3,437,082 Common Shares for a total of $326 million in a series of open market transactions. At February 27, 2014, $1.62 billion in share repurchase authorization remained through December 31, 2014.

d) General restrictions
The holders of the Common Shares are entitled to receive dividends as approved by the shareholders. Holders of Common Shares are allowed one vote per share provided that, if the controlled shares of any shareholder constitute ten percent or more of the outstanding Common Shares of ACE, only a fraction of the vote will be allowed so as not to exceed ten percent in aggregate. Entry of acquirers of Common Shares as shareholders with voting rights in the share register may be refused if it would confer voting rights with respect to ten percent or more of the registered share capital recorded in the commercial register.

e) Dividends
Refer to section a) above for a discussion on the methods of dividend payments. Dividend distributions on Common Shares amounted to CHF 1.85 ( $2.02 ) per Common Share (paid through par value reductions), CHF 1.91 ( $2.06 ) per Common Share (including par value reductions of CHF 1.38 per Common Share), and CHF 1.22 ( $1.38 ) per Common Share (including a par value reduction of CHF 0.30 per Common Share) for the years ended December 31, 2013, 2012, and 2011, respectively. Par value reductions have been reflected as such through Common Shares in the consolidated statements of shareholders' equity. The par value per Common Share at December 31, 2013 , was CHF 27.04 .

f) Deferred compensation obligation
ACE maintains rabbi trusts for deferred compensation plans principally for employees and former directors. The shares issued by ACE to the rabbi trusts in connection with deferrals of share compensation are classified in shareholders' equity and accounted for at historical cost in a manner similar to Common Shares in treasury. These shares are recorded in Common Shares issued to employee trust and the obligations are recorded in Deferred compensation obligation in the consolidated balance sheets. Changes in the fair value of the shares underlying the obligations are recorded in Accounts payable, accrued expenses, and other liabilities in the consolidated balance sheets and the related expense or income is recorded in Administrative expenses in the consolidated statements of operations.

The rabbi trusts also hold other assets, such as fixed maturities, equity securities, and life insurance policies. The assets of the rabbi trusts are consolidated with ACE's assets in the consolidated balance sheets. Assets held by the trust and the associated obligations are reported at fair value in Other investments and Accounts payable, accrued expenses, and other liabilities, respectively, in the consolidated balance sheets, with changes in fair value reflected as a corresponding increase or decrease to Other (income) expense in the consolidated statements of operations. However, life insurance policies assets and obligations are reported at cash surrender value.

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12 . Share-based compensation

ACE has share-based compensation plans which currently provide the Board the ability to grant awards of stock options, restricted stock, and restricted stock units to its employees, consultants, and members of the Board.

ACE principally issues restricted stock grants and stock options on a graded vesting schedule. ACE recognizes compensation cost for restricted stock and stock option grants with only service conditions that have a graded vesting schedule on a straight-line basis over the requisite service period for each separately vesting portion of the award as if the award was, in-substance, multiple awards. We incorporate an estimate of future forfeitures (6.5 percent assumption used for 2013, 2012, and 2011) into the determination of compensation cost for both grants of restricted stock and stock options.

During 2004, we established the ACE Limited 2004 Long-Term Incentive Plan (the 2004 LTIP), which replaced our prior incentive plans except for outstanding awards. The 2004 LTIP will continue in effect until terminated by the Board. Under the 2004 LTIP, Common Shares of ACE are authorized to be issued pursuant to awards made as stock options, stock appreciation rights, performance shares, performance units, 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. Each restricted stock unit represents our obligation to deliver to the holder one Common Share upon vesting.

In May 2013, our shareholders approved an increase of eight million shares authorized to be issued under the 2004 LTIP, bringing the total shares authorized (i.e., for grant since its inception) to the sum of: (i) 38,600,000 common shares; and (ii) any shares that are represented by awards granted under the prior plans that are forfeited, expired, or are canceled after the effective date of the 2004 LTIP, without delivery of shares or which result in the forfeiture of the shares back to ACE to the extent that such shares would have been added back to the reserve under the terms of the applicable prior plan. At December 31, 2013, a total of 11,231,423 shares remain available for future issuance under the 2004 LTIP.

In May 2012, our shareholders approved an increase of 1,500,000 shares authorized to be issued under the ESPP bringing the total shares authorized to 4,500,000 shares.  At December 31, 2013, a total of 1,313,586 shares remain available for issuance under the ESPP.

ACE generally issues Common Shares for the exercise of stock options, restricted stock, and purchases under the ESPP from un-issued reserved shares (conditional share capital) and Common Shares in treasury.

The following table presents pre-tax and after-tax share-based compensation expense:

												
 	Years Ended December 31	 	
(in millions of U.S. dollars)	2013		 	2012		 	2011		
Stock options and shares issued under ESPP:	 	 	 	 	 	
Pre-tax	$	24		 	$	22		 	$	23		
After-tax (1)	$	18		 	$	17		 	$	17		
Restricted stock:	 	 	 	 	 	
Pre-tax	$	153		 	$	109		 	$	108		
After-tax	$	89		 	$	64		 	$	70		
		
(1)  	Excludes windfall tax benefit for share-based compensation recognized as a direct adjustment to Additional paid-in capital of $36 million , $18 million and $6 million for the years ended December 31, 2013, 2012 and 2011, respectively.	

Unrecognized compensation expense related to the unvested portion of ACE's employee share-based awards was $107 million at December 31, 2013 , and is expected to be recognized over a weighted-average period of approximately 1 year.

Stock options
ACE's 2004 LTIP permits grants of both incentive and non-qualified stock options principally at an option price per share equal to the grant date fair value of ACE's Common Shares. Stock options are generally granted with a 3-year vesting period and a 10-year term. Stock options vest in equal annual installments over the respective vesting period, which is also the requisite service period.

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ACE Limited and Subsidiaries

ACE's 2013 share-based compensation expense includes a portion of the cost related to the 2010 through 2013 stock option grants. Stock option fair value was estimated on the grant date using the Black-Scholes option-pricing model that uses the weighted-average assumptions noted below:

							
 	Years Ended December 31	 	
 	2013		2012		2011		
Dividend yield	2.4	%	2.7	%	2.2	%	
Expected volatility	27.8	%	29.8	%	28.8	%	
Risk-free interest rate	1.0	%	1.1	%	2.3	%	
Expected life	5.8 years		5.8 years		5.4 years		

The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. The expected life (estimated period of time from grant to exercise date) was estimated using the historical exercise behavior of employees. Expected volatility was calculated as a blend of (a) historical volatility based on daily closing prices over a period equal to the expected life assumption, (b) long-term historical volatility based on daily closing prices over the period from ACE's initial public trading date through the most recent quarter, and (c) implied volatility derived from ACE's publicly traded options.

The following table presents a roll-forward of ACE's stock options:

															
(Intrinsic Value in millions of U.S. dollars)	Number of Options		 	Weighted-Average Exercise Price		 	Weighted-Average Fair Value		 	Total Intrinsic Value		
Options outstanding, December 31, 2010	11,942,893		 	$	46.80		 	 	 	 	
Granted	1,649,824		 	$	62.68		 	$	14.67		 	 	
Exercised	(2,741,238	)	 	$	44.45		 	 	 	$	63		
Forfeited	(271,972	)	 	$	51.33		 	 	 	 	
Options outstanding, December 31, 2011	10,579,507		 	$	49.78		 	 	 	 	
Granted	1,462,103		 	$	73.36		 	$	15.58		 	 	
Exercised	(2,401,869	)	 	$	42.50		 	 	 	$	78		
Forfeited	(190,082	)	 	$	61.87		 	 	 	 	
Options outstanding, December 31, 2012	9,449,659		 	$	55.03		 	 	 	 	
Granted	1,821,063		 	$	85.41		 	$	17.29		 	 	
Exercised	(1,658,671	)	 	$	48.17		 	 	 	$	70		
Forfeited	(115,195	)	 	$	72.50		 	 	 	 	
Options outstanding, December 31, 2013	9,496,856		 	$	61.84		 	 	 	$	396		
Options exercisable, December 31, 2013	6,330,456		 	$	53.52		 	 	 	$	317		

The weighted-average remaining contractual term was 6.5 years for stock options outstanding and 4.8 years for stock options exercisable at December 31, 2013 . Cash received from the exercise of stock options for the year ended December 31, 2013 was $85 million .

Restricted stock and restricted stock units
Grants of restricted stock and restricted stock units granted under the 2004 LTIP typically have a 4-year vesting period, based on a graded vesting schedule. ACE also grants restricted stock awards to non-management directors which vest at the following year's annual general meeting. The restricted stock is granted at market close price on the grant date. Each restricted stock unit represents our obligation to deliver to the holder one Common Share upon vesting. ACE's 2013 share-based compensation expense includes a portion of the cost related to the restricted stock granted in the years 2009 through 2013.

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ACE Limited and Subsidiaries

The following table presents a roll-forward of our restricted stock awards. Included in the roll-forward below are 20,969 restricted stock awards, 25,669 restricted stock awards, and 32,660 restricted stock awards that were granted to non-management directors during the years ended December 31, 2013 , 2012 , and 2011 respectively:

							
 	Number of Restricted Stock		 	Weighted-Average Grant-Date Fair Value		
Unvested restricted stock, December 31, 2010	5,305,732		 	$	48.74		
Granted	1,808,745		 	$	60.01		
Vested	(1,929,189	)	 	$	50.82		
Forfeited	(333,798	)	 	$	47.46		
Unvested restricted stock, December 31, 2011	4,851,490		 	$	52.20		
Granted	1,589,178		 	$	73.46		
Vested	(1,923,385	)	 	$	52.71		
Forfeited	(262,436	)	 	$	58.40		
Unvested restricted stock, December 31, 2012	4,254,847		 	$	59.53		
Granted	1,544,485		 	$	86.07		
Vested	(1,951,494	)	 	$	57.44		
Forfeited	(139,651	)	 	$	67.72		
Unvested restricted stock, December 31, 2013	3,708,187		 	$	71.38		

During the years ended December 31, 2013 , 2012 , and 2011 , ACE awarded 271,004 restricted stock units, 262,549 restricted stock units, and 261,214 restricted stock units, respectively, to employees and officers each with a weighted-average grant date fair value per share of $85.44 , $73.41 , and $62.85 , respectively. At December 31, 2013 , there were 617,893 unvested restricted stock units.

Prior to 2009, ACE granted restricted stock units with a 1-year vesting period to non-management directors. Delivery of Common Shares on account of these restricted stock units to non-management directors is deferred until after the date of the non-management directors' termination from the Board. At December 31, 2013 , there were 196,622 deferred restricted stock units.

ESPP
The ESPP gives participating employees the right to purchase Common Shares through payroll deductions during consecutive subscription periods at a purchase price of 85 percent of the fair value of a Common Share on the exercise date (Purchase Price). Annual purchases by participants are limited to the number of whole shares that can be purchased by an amount equal to ten percent of the participant's compensation or $25,000, whichever is less. The ESPP has two six-month subscription periods each year, the first of which runs between January 1 and June 30 and the second of which runs between July 1 and December 31. The amounts collected from participants during a subscription period are used on the exercise date to purchase full shares of Common Shares. An exercise date is generally the last trading day of a subscription period. The number of shares purchased is equal to the total amount, at the exercise date, collected from the participants through payroll deductions for that subscription period, divided by the Purchase Price, rounded down to the next full share. Participants may withdraw from an offering before the exercise date and obtain a refund of amounts withheld through payroll deductions. Pursuant to the provisions of the ESPP, during the years ended December 31, 2013 , 2012 , and 2011 , employees paid $14 million , $ 13 million, and $ 12 million to purchase 175,437 shares, 198,244 shares, and 205,812 shares, respectively.

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ACE Limited and Subsidiaries

13 . Pension plans

ACE provides pension benefits to eligible employees and their dependents through various defined contribution plans and defined benefit plans sponsored by ACE. The defined contribution plans include a capital accumulation plan (401(k)) in the U.S. The defined benefit plans consist of various plans offered in certain jurisdictions primarily outside of the U.S. and Bermuda.

Defined contribution plans (including 401(k))
Under these plans, employees' contributions may be supplemented by ACE matching contributions based on the level of employee contribution. These contributions are invested at the election of each employee in one or more of several investment portfolios offered by a third-party investment advisor. Expenses for these plans totaled $111 million , $99 million , and $96 million for the years ended December 31, 2013 , 2012 , and 2011 , respectively.

Defined benefit plans
We maintain non-contributory defined benefit plans that cover certain employees, principally located in Europe, Asia, and Mexico. We also provide a defined benefit plan to certain U.S.-based employees as a result of our acquisition of Penn Millers in November 2011. We account for pension benefits using the accrual method. Benefits under these plans are based on employees' years of service and compensation during final years of service. All underlying defined benefit plans are subject to periodic actuarial valuation by qualified local actuarial firms using actuarial models in calculating the pension expense and liability for each plan. We use December 31 as the measurement date for our defined benefit pension plans.

Components of accrued pension liability (included in Accounts payable, accrued expenses, and other liabilities in the consolidated balance sheets):

							
 	December 31		December 31		
(in millions of U.S dollars)	2013	2012	
Fair value of plan assets	$	566		$	487		
Projected benefit obligation	591		531		
Accrued pension liability	$	25		$	44		

The defined benefit pension plan contribution for 2014 is expected to be $3 million . The estimated net actuarial loss for the defined benefit pension plans that will be amortized from AOCI into net benefit costs over the next year is $3 million .

Benefit payments were $26 million and $37 million for the years ended December 31, 2013 and 2012 , respectively. Benefit payments for the year ended December 31, 2012 included $12 million related to the full settlement of a defined benefit plan. Expected future payments are as follows:

				
For the year ending December 31	
(in millions of U.S dollars)	
2014	$	19		
2015	22		
2016	23		
2017	22		
2018	23		
2019-2023	129		

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ACE Limited and Subsidiaries

14 . Other (income) expense

												
 	Years Ended December 31	 	
(in millions of U.S. dollars)	2013		 	2012		 	2011		
Amortization of intangible assets	$	95		 	$	51		 	$	29		
Equity in net (income) loss of partially-owned entities	(119	)	 	(80	)	 	(32	)	
(Gains) losses from fair value changes in separate account assets	(16	)	 	(29	)	 	36		
Federal excise and capital taxes	24		 	22		 	20		
Acquisition-related costs	4		 	11		 	5		
Other	27		 	19		 	23		
Other (income) expense	$	15		 	$	(6	)	 	$	81		

Other (income) expense includes Amortization of intangible assets, which is higher in 2013 due primarily to the acquisitions of Fianzas Monterrey (completed April 1, 2013) and ABA Seguros (completed May 2, 2013). Equity in net (income) loss of partially-owned entities includes our share of net (income) loss related to investment funds, limited partnerships, partially-owned investment companies, and partially-owned insurance companies. Also included in Other (income) expense are (Gains) losses from fair value changes in separate account assets that do not qualify for separate account reporting under GAAP. The offsetting movement in the separate account liabilities is included in Policy benefits in the consolidated statements of operations. Certain federal excise and capital taxes incurred as a result of capital management initiatives are included in Other (income) expense as these are considered capital transactions and are excluded from underwriting results.

15 . Segment information

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

Effective January 1, 2013, the former Insurance – North American segment is presented in two distinct reportable segments:
Insurance – North American P&C and Insurance – North American Agriculture. Prior year amounts contained in this report have
been adjusted to conform to the new segment presentation.

The Insurance – North American P&C segment comprises our operations in the U.S., Canada, and Bermuda. This segment includes the operations of ACE USA (including ACE Canada), ACE Commercial Risk Services, ACE Private Risk Services, ACE Westchester, ACE Bermuda, and various run-off operations, including Brandywine. ACE USA is the North American retail operating division which provides a broad array of traditional and specialty P&C, A&H, and risk management products and services to a diverse group of North America commercial and non-commercial enterprises and consumers. ACE Commercial Risk Services addresses the insurance needs of small and mid-sized businesses in North America by delivering a broad array of specialty product solutions for targeted industries that lend themselves to technology-assisted underwriting. ACE Private Risk Services provides high-value personal lines coverages for high net worth individuals and families in North America. ACE Westchester focuses on the North American wholesale distribution of excess and surplus lines property, casualty, environmental, professional liability and inland marine products. ACE Bermuda provides commercial insurance products on an excess basis mainly to a global client base targeting Fortune 1000 companies and covering exposures that are generally low in frequency and high in severity. The run-off operations do not actively sell insurance products but are responsible for the management of certain existing policies and settlement of related claims.

The Insurance – North American Agriculture segment comprises our North American based businesses that provide a variety of coverages in the U.S. and Canada including crop insurance, primarily Multiple Peril Crop Insurance (MPCI) and crop-hail through Rain and Hail Insurance Services, Inc. as well as farm and ranch, and specialty P&C commercial insurance products and services through our ACE Agribusiness unit. The MPCI program is offered in conjunction with the U.S. Department of Agriculture.

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ACE Limited and Subsidiaries

The Insurance – Overseas General segment comprises ACE International and ACE Global Markets (AGM). ACE International comprises our retail commercial P&C, A&H, and personal lines businesses serving territories outside the U.S., Bermuda, and Canada, and the international supplemental A&H business of Combined Insurance. ACE International maintains a presence in every major insurance market in the world and is organized geographically along product lines that provide dedicated underwriting focus to customers. ACE International has four regions of operations: ACE Europe, ACE Asia Pacific, ACE Far East, and ACE Latin America. During 2013, ACE International expanded its operations with the acquisitions of ABA Seguros and Fianzas Monterrey in Mexico. Refer to Note 2 for additional information. Companies within the Insurance – Overseas General segment write a variety of insurance products including P&C, professional lines (directors and officers and errors and omissions), marine, energy, aviation, political risk, specialty consumer-oriented products, and A&H (principally accident and supplemental health). Combined Insurance distributes a wide range of supplemental A&H products. AGM, our London-based international specialty and excess and surplus lines business, includes Syndicate 2488, a wholly-owned ACE syndicate. AGM offers products through its parallel distribution network via ACE European Group Limited (AEGL) and Syndicate 2488. ACE provides funds at Lloyd's to support underwriting by Syndicate 2488, which is managed by ACE Underwriting Agencies Limited. AGM uses Syndicate 2488 to underwrite P&C business on a global basis through Lloyd's worldwide licenses. AGM uses AEGL to underwrite similar classes of business through its network of U.K. and European licenses, and in the U.S. where it is eligible to write excess and surplus lines business. The reinsurance operation of AGM is included in the Global Reinsurance segment.

The Global Reinsurance segment represents ACE's reinsurance operations comprising ACE Tempest Re Bermuda, ACE Tempest Re USA, ACE Tempest Re International, and ACE Tempest Re Canada. The Global Reinsurance segment also includes AGM's reinsurance operations. These divisions provide a broad range of traditional and specialty reinsurance products including property catastrophe, casualty, and property reinsurance coverages to a diverse array of primary P&C insurers.

The Life segment includes ACE's international life operations (ACE Life), ACE Tempest Life Re (ACE Life Re), and the North American supplemental A&H and life business of Combined Insurance. ACE Life provides a broad portfolio of protection and savings products including whole life, endowment plans, individual term life, group term life, group medical, personal accident, credit life, universal life and unit linked contracts through multiple distribution channels primarily in emerging markets including: Egypt, Hong Kong, Indonesia, South Korea, Taiwan, Thailand, and Vietnam; also throughout Latin America, selectively in Europe, and China through a non-consolidated joint venture insurance company. ACE Life Re helps clients (ceding companies) manage mortality, morbidity, and lapse risks embedded in their books of business. ACE Life Re's core business is a Bermuda-based operation which provides reinsurance to primary life insurers, focusing on guarantees included in certain fixed and variable annuity products and also on more traditional mortality reinsurance protection. ACE Life Re's U.S.-based traditional life reinsurance operation was discontinued for new business in January 2010 . Since 2007 , ACE Life Re has not quoted on new opportunities in the variable annuity reinsurance marketplace. Combined Insurance distributes specialty supplemental A&H and life insurance products targeted to middle income consumers and businesses in the U.S. and Canada.

Corporate includes ACE Limited, ACE Group Management and Holdings Ltd., ACE INA Holdings, Inc., and intercompany eliminations. Due to our initiatives to reduce reinsurance recoverable balances, losses recognized in connection with the commutation of ceded reinsurance contracts are generally not considered when assessing segment performance and, accordingly, are directly allocated to Corporate. Losses and loss expenses arise in connection with the commutation of ceded reinsurance contracts that result from a differential between the consideration received from reinsurers and the related reduction of reinsurance recoverable, principally related to the time value of money.
For segment reporting purposes, certain items have been presented in a different manner below than in the consolidated financial statements. Management uses underwriting income as the main measure of segment performance. ACE calculates underwriting income by subtracting Losses and loss expenses, Policy benefits, Policy acquisition costs, and Administrative expenses from Net premiums earned. For the Insurance – North American Agriculture segment, management includes gains and losses from fair value changes on crop derivatives as a component of underwriting income. For 2013, underwriting income in our Insurance – North American Agriculture segment was $89 million. This amount includes $1 million of realized losses related to crop derivatives which are included in Net realized gains (losses) below. For the Life segment, management includes Net investment income and (Gains) losses from fair value changes in separate account assets that do not qualify for separate account reporting under GAAP as components of Life underwriting income. For example, for 2013, Life underwriting income of $374 million includes Net investment income of $ 251 million and gains from fair value changes in separate account assets of $16 million.

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ACE Limited and Subsidiaries

The following tables present the Statement of Operations by segment:

																												
For the Year Ended December 31, 2013 (in millions of U.S. dollars)	Insurance –
North
American P&C		 	Insurance – North American Agriculture		 	Insurance –
Overseas
General		 	Global
Reinsurance		 	Life		 	Corporate		 	ACE
Consolidated		
Net premiums written	$	5,915		 	$	1,627		 	$	6,520		 	$	991		 	$	1,972		 	$	—		 	$	17,025		
Net premiums earned	5,721		 	1,678		 	6,333		 	976		 	1,905		 	—		 	16,613		
Losses and loss expenses	3,776		 	1,524		 	3,062		 	396		 	582		 	8		 	9,348		
Policy benefits	—		 	—		 	—		 	—		 	515		 	—		 	515		
Policy acquisition costs	597		 	53		 	1,453		 	197		 	358		 	1		 	2,659		
Administrative expenses	601		 	11		 	1,008		 	50		 	343		 	198		 	2,211		
Underwriting income (loss)	747		 	90		 	810		 	333		 	107		 	(207	)	 	1,880		
Net investment income	1,021		 	26		 	539		 	280		 	251		 	27		 	2,144		
Net realized gains (losses) including OTTI	72		 	1		 	18		 	53		 	360		 	—		 	504		
Interest expense	5		 	1		 	5		 	5		 	15		 	244		 	275		
Other (income) expense:	 	 	 	 	 	 	 	 	 	 	 	 	 	
(Gains) losses from fair value changes in separate account assets	—		 	—		 	—		 	—		 	(16	)	 	—		 	(16	)	
Other	(58	)	 	32		 	39		 	(19	)	 	13		 	24		 	31		
Income tax expense (benefit)	347		 	20		 	222		 	36		 	34		 	(179	)	 	480		
Net income (loss)	$	1,546		 	$	64		 	$	1,101		 	$	644		 	$	672		 	$	(269	)	 	$	3,758		

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

 

																												
For the Year Ended December 31, 2012
(in millions of U.S. dollars)	Insurance –
North
American P&C		 	Insurance – North American Agriculture		 	Insurance –
Overseas
General		 	Global
Reinsurance		 	Life		 	Corporate		 	ACE
Consolidated		
Net premiums written	$	5,349		 	$	1,859		 	$	5,863		 	$	1,025		 	$	1,979		 	$	—		 	$	16,075		
Net premiums earned	5,147		 	1,872		 	5,740		 	1,002		 	1,916		 	—		 	15,677		
Losses and loss expenses	3,715		 	1,911		 	2,862		 	553		 	611		 	1		 	9,653		
Policy benefits	—		 	—		 	—		 	—		 	521		 	—		 	521		
Policy acquisition costs	558		 	28		 	1,353		 	172		 	334		 	1		 	2,446		
Administrative expenses	608		 	(7	)	 	935		 	51		 	328		 	181		 	2,096		
Underwriting income (loss)	266		 	(60	)	 	590		 	226		 	122		 	(183	)	 	961		
Net investment income	1,066		 	25		 	521		 	290		 	251		 	28		 	2,181		
Net realized gains (losses) including OTTI	41		 	1		 	103		 	6		 	(72	)	 	(1	)	 	78		
Interest expense	12		 	—		 	5		 	4		 	12		 	217		 	250		
Other (income) expense:	 	 	 	 	 	 	 	 	 	 	 	 	 	
(Gains) losses from fair value changes in separate account assets	—		 	—		 	—		 	—		 	(29	)	 	—		 	(29	)	
Other	(41	)	 	32		 	3		 	(15	)	 	25		 	19		 	23		
Income tax expense (benefit)	229		 	(29	)	 	133		 	15		 	58		 	(136	)	 	270		
Net income (loss)	$	1,173		 	$	(37	)	 	$	1,073		 	$	518		 	$	235		 	$	(256	)	 	$	2,706		

	
																												
For the Year Ended December 31, 2011
(in millions of U.S. dollars)	Insurance –
North
American P&C		 	Insurance – North American Agriculture		 	Insurance –
Overseas
General		 	Global
Reinsurance		 	Life		 	Corporate		 	ACE
Consolidated		
Net premiums written	$	4,900		 	$	1,951		 	$	5,629		 	$	979		 	$	1,913		 	$	—		 	$	15,372		
Net premiums earned	4,969		 	1,942		 	5,614		 	1,003		 	1,859		 	—		 	15,387		
Losses and loss expenses	3,577		 	1,699		 	3,029		 	621		 	593		 	1		 	9,520		
Policy benefits	—		 	—		 	—		 	—		 	401		 	—		 	401		
Policy acquisition costs	532		 	80		 	1,335		 	185		 	339		 	1		 	2,472		
Administrative expenses	598		 	(6	)	 	939		 	52		 	317		 	168		 	2,068		
Underwriting income (loss)	262		 	169		 	311		 	145		 	209		 	(170	)	 	926		
Net investment income	1,148		 	22		 	546		 	287		 	226		 	13		 	2,242		
Net realized gains (losses) including OTTI	28		 	6		 	33		 	(50	)	 	(806	)	 	(6	)	 	(795	)	
Interest expense	13		 	2		 	5		 	2		 	11		 	217		 	250		
Other (income) expense:	 	 	 	 	 	 	 	 	 	 	 	 			
(Gains) losses from fair value changes in separate account assets	—		 	—		 	—		 	—		 	36		 	—		 	36		
Other	(13	)	 	18		 	—		 	(1	)	 	26		 	15		 	45		
Income tax expense (benefit)	344		 	51		 	164		 	30		 	50		 	(137)		 	502		
Net income (loss)	$	1,094		 	$	126		 	$	721		 	$	351		 	$	(494	)	 	$	(258	)	 	$	1,540		
Underwriting assets are reviewed in total by management for purposes of decision-making. Other than goodwill and other intangible assets, ACE does not allocate assets to its segments.

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ACE Limited and Subsidiaries

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

																
(in millions of U.S. dollars)	Property &
All Other		 	Casualty		 	Life,
Accident &
Health		 	ACE
Consolidated		
For the Year Ended December 31, 2013			 			 			 			
Insurance – North American P&C	$	1,489		 	$	3,847		 	$	385		 	$	5,721		
Insurance – North American Agriculture	1,678		 	—		 	—		 	1,678		
Insurance – Overseas General	2,672		 	1,479		 	2,182		 	6,333		
Global Reinsurance	543		 	433		 	—		 	976		
Life	—		 	—		 	1,905		 	1,905		
 	$	6,382		 	$	5,759		 	$	4,472		 	$	16,613		
For the Year Ended December 31, 2012	 	 	 	 	 	 	 	
Insurance – North American P&C	$	1,370		 	$	3,406		 	$	371		 	$	5,147		
Insurance – North American Agriculture	1,872		 	—		 	—		 	1,872		
Insurance – Overseas General	2,236		 	1,379		 	2,125		 	5,740		
Global Reinsurance	495		 	507		 	—		 	1,002		
Life	—		 	—		 	1,916		 	1,916		
 	$	5,973		 	$	5,292		 	$	4,412		 	$	15,677		
For the Year Ended December 31, 2011	 	 	 	 	 	 	 	
Insurance – North American P&C	$	1,232		 	$	3,380		 	$	357		 	$	4,969		
Insurance – North American Agriculture	1,942		 	—		 	—		 	1,942		
Insurance – Overseas General	2,080		 	1,415		 	2,119		 	5,614		
Global Reinsurance	458		 	545		 	—		 	1,003		
Life	—		 	—		 	1,859		 	1,859		
 	$	5,712		 	$	5,340		 	$	4,335		 	$	15,387		

The following table presents net premiums earned by geographic region. Allocations have been made on the basis of location of risk: 

													
 	 	North America		 	 	 	Asia
 Pacific/Far East		 	Latin America		
Years Ended	 			 	Europe		 			 			
2013	 	58	%	 	17	%	 	16	%	 	9	%	
2012	 	60	%	 	17	%	 	16	%	 	7	%	
2011	 	61	%	 	18	%	 	14	%	 	7	%	

16 . Earnings per share

												
 	Years Ended December 31	 	
 (in millions of U.S. dollars, except share and per share data)	2013		 	2012		 	2011		
Numerator:	 	 	 	 	 	
Net income	$	3,758		 	$	2,706		 	$	1,540		
Denominator:	 	 	 	 	 	
Denominator for basic earnings per share:	 	 	 	 	 	
Weighted-average shares outstanding	340,906,490		 	339,843,438		 	338,159,409		
Denominator for diluted earnings per share:	 	 	 	 	 	
Share-based compensation plans	3,241,085		 	2,903,512		 	2,620,815		
Weighted-average shares outstanding
      and assumed conversions	344,147,575		 	342,746,950		 	340,780,224		
Basic earnings per share	$	11.02		 	$	7.96		 	$	4.55		
Diluted earnings per share	$	10.92		 	$	7.89		 	$	4.52		
Potential anti-dilutive share conversions	1,031,297		 	896,591		 	111,326		

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

17 . Related party transactions

The ACE Foundation – Bermuda is an unconsolidated not-for-profit organization whose primary purpose is to fund charitable causes in Bermuda. The Trustees are principally ACE management. ACE maintains a non-interest bearing demand note receivable from the ACE Foundation – Bermuda (Borrower), the balance of which was $ 26 million and $ 27 million, at December 31, 2013 and 2012 , respectively. The receivable is included in Other assets in the consolidated balance sheets. The Borrower has used the related proceeds to finance investments in Bermuda real estate, some of which have been rented to ACE employees at rates established by independent, professional real estate appraisers. The Borrower uses income from the investments to both repay the note and to fund charitable activities. Accordingly, we report the demand note at the lower of its principal value or the fair value of assets held by the Borrower to repay the loan, including the real estate properties.

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

18 . Statutory financial information

Our subsidiaries file financial statements prepared in accordance with statutory accounting practices prescribed or permitted by insurance regulators. Statutory accounting differs from GAAP in the reporting of certain reinsurance contracts, investments, subsidiaries, acquisition expenses, fixed assets, deferred income taxes, and certain other items. Some jurisdictions impose complex regulatory requirements on insurance companies while other jurisdictions impose fewer requirements. In some jurisdictions, we must obtain licenses issued by governmental authorities to conduct local insurance business. These licenses may be subject to reserves and minimum capital and solvency tests. Jurisdictions may impose fines, censure, and/or criminal sanctions for violation of regulatory requirements. The 2013 amounts below are based on estimates.

ACE's insurance and reinsurance subsidiaries are subject to insurance laws and regulations in the jurisdictions in which they operate. These regulations include restrictions that limit the amount of dividends or other distributions, such as loans or cash advances, available to shareholders without prior approval of the local insurance regulatory authorities. The amount of dividends available to be paid in 2014 without prior approval totals $3.8 billion .

The statutory capital and surplus of our insurance subsidiaries met regulatory requirements for 2013 , 2012 , and 2011 . The minimum amounts of statutory capital and surplus necessary to satisfy regulatory requirements were $14.5 billion and $14.3 billion for December 31, 2013 and 2012 , respectively.

The combined statutory capital and surplus was $25.6 billion and $24.4 billion at December 31, 2013 and 2012, respectively. The combined statutory net income was $3.7 billion , $2.9 billion , and $1.9 billion for the years ended December 31, 2013, 2012, and 2011, respectively.

Several insurance subsidiaries follow accounting practices prescribed or permitted by the jurisdiction of domicile that differ from the applicable local statutory practice. The application of prescribed or permitted accounting practices does not have a material impact on ACE's statutory surplus and income. As prescribed by the Restructuring discussed previously in Note 7 , certain of our U.S. subsidiaries discount certain A&E liabilities, which increased statutory capital and surplus by approximately $ 158 million and $ 161 million at December 31, 2013 and 2012 , respectively.

19 . Information provided in connection with outstanding debt of subsidiaries

The following tables present condensed consolidating financial information at December 31, 2013 and December 31, 2012 , and for the years ended December 31, 2013 , 2012 , and 2011 for ACE Limited (Parent Guarantor) and ACE INA Holdings, Inc. (Subsidiary Issuer). The Subsidiary Issuer is an indirect 100 percent-owned subsidiary of the Parent Guarantor. The Parent Guarantor fully and unconditionally guarantees certain of the debt of the Subsidiary Issuer.

During the third quarter of 2013, we determined that the Subsidiary Issuer columns presented in the previously issued condensed consolidating financial information should be presented on the equity method of accounting rather than on a consolidated basis. Accordingly, we have revised the disclosure to correct the Condensed Consolidating Balance Sheet as of December 31, 2012, the Condensed Consolidating Statements of Operations and Comprehensive Income for the years ended December 31, 2012 and 2011, and the Condensed Consolidating Statements of Cash Flows for the years ended December 31, 2012 and 2011. As a result of this revision to the Subsidiary Issuer condensed consolidating financial information, the assets and liabilities, revenues and expenses, and cash flows of the subsidiaries of ACE INA Holdings, Inc. (Subsidiary Issuer) are now presented in the Other ACE Limited Subsidiaries column on a combined basis. In addition, we revised the Consolidating Adjustments and Eliminations column to correctly include all intercompany eliminations. Previously, this column reflected only ACE Limited parent company intercompany eliminations. We also revised the Condensed Consolidating Balance Sheet as of December 31, 2012 and Condensed Consolidating Statement of Cash Flows for the years ended December 31, 2012 and 2011 to correct the presentation of negative cash associated with our affiliated notional cash pooling programs (Pools). In addition, certain items in the Condensed Consolidating Statement of Cash Flows for the years ended December 31, 2012 and 2011 have been reclassified to conform to current period presentation. Also, the operating cash flows have been corrected to properly reflect certain intercompany transactions previously recorded in investing and financing cash flows for the years ended December 31, 2012 and 2011.

Total shareholders' equity and net income of the Subsidiary Issuer and Parent Guarantor were not impacted as a result of these revisions. The impact of the revisions was not material to the prior period consolidated financial statements taken as a whole. There was no impact on the consolidated amounts previously reported. The prior period condensed consolidating financial statements will be similarly revised as the information is presented in the first and second quarter Form 10-Q filings for 2014.

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

  

Condensed Consolidating Balance Sheet at December 31, 2013

																				
(in millions of U.S. dollars)	ACE Limited
(Parent
Guarantor)		 	ACE INA
Holdings Inc.
(Subsidiary
Issuer)		 	Other ACE
Limited
Subsidiaries		 	Consolidating
Adjustments and Eliminations		 	ACE Limited
Consolidated		
Assets	 	 	 	 	 	 	 	 	 	
Investments	$	32		 	$	10		 	$	60,886		 	$	—		 	$	60,928		
Cash (1)	—		 	16		 	748		 	(185	)	 	579		
Insurance and reinsurance balances receivable	—		 	—		 	5,835		 	(809	)	 	5,026		
Reinsurance recoverable on losses and loss expenses	—		 	—		 	20,057		 	(8,830	)	 	11,227		
Reinsurance recoverable on policy benefits	—		 	—		 	1,215		 	(997	)	 	218		
Value of business acquired	—		 	—		 	536		 	—		 	536		
Goodwill and other intangible assets	—		 	—		 	5,404		 	—		 	5,404		
Investments in subsidiaries	28,351		 	18,105		 	—		 	(46,456	)	 	—		
Due from subsidiaries and affiliates, net	844		 	—		 	—		 	(844	)	 	—		
Other assets	5		 	258		 	13,788		 	(3,459	)	 	10,592		
Total assets	$	29,232		 	$	18,389		 	$	108,469		 	$	(61,580	)	 	$	94,510		
Liabilities	 	 	 	 	 	 	 	 	 	
Unpaid losses and loss expenses	$	—		 	$	—		 	$	45,714		 	$	(8,271	)	 	$	37,443		
Unearned premiums	—		 	—		 	9,242		 	(1,703	)	 	7,539		
Future policy benefits	—		 	—		 	5,612		 	(997	)	 	4,615		
Due to (from) subsidiaries and affiliates, net	—		 	714		 	130		 	(844	)	 	—		
Affiliated notional cash pooling programs (1)	185		 	—		 	—		 	(185	)	 	—		
Short-term debt	—		 	500		 	1,401		 	—		 	1,901		
Long-term debt	—		 	3,795		 	12		 	—		 	3,807		
Trust preferred securities	—		 	309		 	—		 	—		 	309		
Other liabilities	222		 	1,318		 	11,655		 	(3,124	)	 	10,071		
Total liabilities	407		 	6,636		 	73,766		 	(15,124	)	 	65,685		
Total shareholders’ equity	28,825		 	11,753		 	34,703		 	(46,456	)	 	28,825		
Total liabilities and shareholders’ equity	$	29,232		 	$	18,389		 	$	108,469		 	$	(61,580	)	 	$	94,510		
		
(1)  	ACE maintains two notional multicurrency cash pools (Pools) with a third-party bank. Refer to Note 1f) for additional information. At December 31, 2013 , the cash balance of one or more entities was negative; however, the overall Pool balances were positive.	

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

Condensed Consolidating Balance Sheet at December 31, 2012 (Revised)

																				
(in millions of U.S. dollars)	ACE Limited
(Parent
Guarantor)		 	ACE INA
Holdings Inc.
(Subsidiary
Issuer)		 	Other ACE
Limited
Subsidiaries		 	Consolidating
Adjustments and Eliminations		 	ACE Limited
Consolidated		
Assets	 	 	 	 	 	 	 	 	 	
Investments	$	31		 	$	14		 	$	60,219		 	$	—		 	$	60,264		
Cash (1)	103		 	2		 	859		 	(349	)	 	615		
Insurance and reinsurance balances receivable	—		 	—		 	4,742		 	(595	)	 	4,147		
Reinsurance recoverable on losses and loss expenses	—		 	—		 	20,935		 	(8,857	)	 	12,078		
Reinsurance recoverable on policy benefits	—		 	—		 	1,229		 	(988	)	 	241		
Value of business acquired	—		 	—		 	614		 	—		 	614		
Goodwill and other intangible assets	—		 	—		 	4,975		 	—		 	4,975		
Investments in subsidiaries	27,251		 	17,016		 	—		 	(44,267	)	 	—		
Due from subsidiaries and affiliates, net	204		 	—		 	—		 	(204	)	 	—		
Other assets	13		 	210		 	11,304		 	(1,916	)	 	9,611		
Total assets	$	27,602		 	$	17,242		 	$	104,877		 	$	(57,176	)	 	$	92,545		
Liabilities	 	 	 	 	 	 	 	 	 	
Unpaid losses and loss expenses	$	—		 	$	—		 	$	46,109		 	$	(8,163	)	 	$	37,946		
Unearned premiums	—		 	—		 	8,248		 	(1,384	)	 	6,864		
Future policy benefits	—		 	—		 	5,458		 	(988	)	 	4,470		
Due to subsidiaries and affiliates, net	—		 	68		 	136		 	(204	)	 	—		
Affiliated notional cash pooling programs (1)	—		 	349		 	—		 	(349	)	 	—		
Short-term debt	—		 	—		 	1,401		 	—		 	1,401		
Long-term debt	—		 	3,347		 	13		 	—		 	3,360		
Trust preferred securities	—		 	309		 	—		 	—		 	309		
Other liabilities	71		 	1,195		 	11,219		 	(1,821	)	 	10,664		
Total liabilities	71		 	5,268		 	72,584		 	(12,909	)	 	65,014		
Total shareholders’ equity	27,531		 	11,974		 	32,293		 	(44,267	)	 	27,531		
Total liabilities and shareholders’ equity	$	27,602		 	$	17,242		 	$	104,877		 	$	(57,176	)	 	$	92,545		
		
(1)  	ACE maintains two notional multicurrency cash pools (Pools) with a third-party bank. Refer to Note 1f) for additional information. At December 31, 2012 , the cash balance of one or more entities was negative; however, the overall Pool balances were positive.	

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

Condensed Consolidating Balance Sheet at December 31, 2012 (As previously reported)

																				
(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		 	$	31,074		 	$	29,159		 	$	—		 	$	60,264		
Cash (3)	103		 	515		 	(3	)	 	—		 	615		
Insurance and reinsurance balances receivable	—		 	3,654		 	493		 	—		 	4,147		
Reinsurance recoverable on losses and loss expenses	—		 	17,232		 	(5,154	)	 	—		 	12,078		
Reinsurance recoverable on policy benefits	—		 	1,187		 	(946	)	 	—		 	241		
Value of business acquired	—		 	610		 	4		 	—		 	614		
Goodwill and other intangible assets	—		 	4,419		 	556		 	—		 	4,975		
Investments in subsidiaries	27,251		 	—		 	—		 	(27,251	)	 	—		
Due from subsidiaries and affiliates, net	204		 	—		 	—		 	(204	)	 	—		
Other assets	13		 	7,563		 	2,035		 	—		 	9,611		
Total assets	$	27,602		 	$	66,254		 	$	26,144		 	$	(27,455	)	 	$	92,545		
Liabilities	 	 	 	 	 	 	 	 	 	
Unpaid losses and loss expenses	$	—		 	$	31,356		 	$	6,590		 	$	—		 	$	37,946		
Unearned premiums	—		 	5,872		 	992		 	—		 	6,864		
Future policy benefits	—		 	3,876		 	594		 	—		 	4,470		
Due to (from) subsidiaries and affiliates, net	—		 	384		 	(180	)	 	(204	)	 	—		
Short-term debt	—		 	851		 	550		 	—		 	1,401		
Long-term debt	—		 	3,360		 	—		 	—		 	3,360		
Trust preferred securities	—		 	309		 	—		 	—		 	309		
Other liabilities	71		 	8,272		 	2,321		 	—		 	10,664		
Total liabilities	71		 	54,280		 	10,867		 	(204	)	 	65,014		
Total shareholders’ equity	27,531		 	11,974		 	15,277		 	(27,251	)	 	27,531		
Total liabilities and shareholders’ equity	$	27,602		 	$	66,254		 	$	26,144		 	$	(27,455	)	 	$	92,545		
		
(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. Refer to Note 1f) for additional information. At December 31, 2012 , the cash balance of one or more entities was negative; however, the overall Pool balances were positive.	

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

Condensed Consolidating Statements of Operations and Comprehensive Income

																				
For the Year Ended December 31, 2013	ACE Limited
(Parent
Guarantor)		 	ACE INA
Holdings Inc.
(Subsidiary
Issuer)		 	Other ACE
Limited
Subsidiaries		 	Consolidating
Adjustments and Eliminations		 	ACE Limited
Consolidated		
(in millions of U.S. dollars)			 			 			 			 			
Net premiums written	$	—		 	$	—		 	$	17,025		 	$	—		 	$	17,025		
Net premiums earned	—		 	—		 	16,613		 	—		 	16,613		
Net investment income	2		 	3		 	2,139		 	—		 	2,144		
Equity in earnings of subsidiaries	3,580		 	942		 	—		 	(4,522	)	 	—		
Net realized gains (losses) including OTTI	—		 	(2	)	 	506		 	—		 	504		
Losses and loss expenses	—		 	—		 	9,348		 	—		 	9,348		
Policy benefits	—		 	—		 	515		 	—		 	515		
Policy acquisition costs and administrative expenses	60		 	19		 	4,791		 	—		 	4,870		
Interest (income) expense	(32	)	 	270		 	37		 	—		 	275		
Other (income) expense	(221	)	 	27		 	209		 	—		 	15		
Income tax expense (benefit)	17		 	(108	)	 	571		 	—		 	480		
Net income	$	3,758		 	$	735		 	$	3,787		 	$	(4,522	)	 	$	3,758		
Comprehensive income	$	2,023		 	$	(230	)	 	$	2,051		 	$	(1,821	)	 	$	2,023		

Condensed Consolidating Statements of Operations and Comprehensive Income (Revised)

																				
For the Year Ended December 31, 2012	ACE Limited
(Parent
Guarantor)		 	ACE INA
Holdings Inc.
(Subsidiary
Issuer)		 	Other ACE
Limited
Subsidiaries		 	Consolidating
Adjustments and Eliminations		 	ACE Limited
Consolidated		
(in millions of U.S. dollars)			 			 			 			 			
Net premiums written	$	—		 	$	—		 	$	16,075		 	$	—		 	$	16,075		
Net premiums earned	—		 	—		 	15,677		 	—		 	15,677		
Net investment income	1		 	3		 	2,177		 	—		 	2,181		
Equity in earnings of subsidiaries	2,590		 	911		 	—		 	(3,501	)	 	—		
Net realized gains (losses) including OTTI	17		 	—		 	61		 	—		 	78		
Losses and loss expenses	—		 	—		 	9,653		 	—		 	9,653		
Policy benefits	—		 	—		 	521		 	—		 	521		
Policy acquisition costs and administrative expenses	62		 	28		 	4,452		 	—		 	4,542		
Interest (income) expense	(33	)	 	235		 	48		 	—		 	250		
Other (income) expense	(137	)	 	9		 	122		 	—		 	(6	)	
Income tax expense (benefit)	10		 	(110	)	 	370		 	—		 	270		
Net income	$	2,706		 	$	752		 	$	2,749		 	$	(3,501	)	 	$	2,706		
Comprehensive income	$	3,682		 	$	1,209		 	$	3,724		 	$	(4,933	)	 	$	3,682		

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

Condensed Consolidating Statements of Operations and Comprehensive Income (As previously reported)

																				
For the Year Ended December 31, 2012	ACE Limited
(Parent
Guarantor)		 	ACE INA
Holdings Inc.
(Subsidiary
Issuer)		 	Other ACE
Limited
Subsidiaries and
Eliminations (1)		 	Consolidating
Adjustments (2)		 	ACE Limited
Consolidated		
(in millions of U.S. dollars)			 			 			 			 			
Net premiums written	$	—		 	$	9,466		 	$	6,609		 	$	—		 	$	16,075		
Net premiums earned	—		 	9,194		 	6,483		 	—		 	15,677		
Net investment income	1		 	1,048		 	1,132		 	—		 	2,181		
Equity in earnings of subsidiaries	2,590		 	—		 	—		 	(2,590	)	 	—		
Net realized gains (losses) including OTTI	17		 	121		 	(60	)	 	—		 	78		
Losses and loss expenses	—		 	6,211		 	3,442		 	—		 	9,653		
Policy benefits	—		 	309		 	212		 	—		 	521		
Policy acquisition costs and administrative expenses	62		 	2,564		 	1,916		 	—		 	4,542		
Interest (income) expense	(33	)	 	257		 	26		 	—		 	250		
Other (income) expense	(137	)	 	77		 	54		 	—		 	(6	)	
Income tax expense	10		 	193		 	67		 	—		 	270		
Net income	$	2,706		 	$	752		 	$	1,838		 	$	(2,590	)	 	$	2,706		
Comprehensive income	$	3,682		 	$	1,209		 	$	1,381		 	$	(2,590	)	 	$	3,682		
		
(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 (Revised)

																				
For the Year Ended December 31, 2011	ACE Limited
(Parent
Guarantor)		 	ACE INA
Holdings Inc.
(Subsidiary
Issuer)		 	Other ACE
Limited
Subsidiaries		 	Consolidating
Adjustments and Eliminations		 	ACE Limited
Consolidated		
(in millions of U.S. dollars)			 			 			 			 			
Net premiums written	$	—		 	$	—		 	$	15,372		 	$	—		 	$	15,372		
Net premiums earned	—		 	—		 	15,387		 	—		 	15,387		
Net investment income	2		 	2		 	2,238		 	—		 	2,242		
Equity in earnings of subsidiaries	1,459		 	989		 	—		 	(2,448	)	 	—		
Net realized gains (losses) including OTTI	(4	)	 	—		 	(791	)	 	—		 	(795	)	
Losses and loss expenses	—		 	—		 	9,520		 	—		 	9,520		
Policy benefits	—		 	—		 	401		 	—		 	401		
Policy acquisition costs and administrative expenses	69		 	37		 	4,434		 	—		 	4,540		
Interest (income) expense	(37	)	 	266		 	21		 	—		 	250		
Other (income) expense	(125	)	 	21		 	185		 	—		 	81		
Income tax expense (benefit)	10		 	(103	)	 	595		 	—		 	502		
Net income	$	1,540		 	$	770		 	$	1,678		 	$	(2,448	)	 	$	1,540		
Comprehensive income	$	1,857		 	$	1,077		 	$	1,994		 	$	(3,071	)	 	$	1,857		

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

Condensed Consolidating Statements of Operations and Comprehensive Income (As previously reported)

																				
For the Year Ended December 31, 2011	ACE Limited
(Parent
Guarantor)		 	ACE INA
Holdings Inc.
(Subsidiary
Issuer)		 	Other ACE
Limited
Subsidiaries and
Eliminations (1)		 	Consolidating
Adjustments (2)		 	ACE Limited
Consolidated		
(in millions of U.S. dollars)			 			 			 			 			
Net premiums written	$	—		 	$	9,081		 	$	6,291		 	$	—		 	$	15,372		
Net premiums earned	—		 	9,082		 	6,305		 	—		 	15,387		
Net investment income	2		 	1,096		 	1,144		 	—		 	2,242		
Equity in earnings of subsidiaries	1,459		 	—		 	—		 	(1,459	)	 	—		
Net realized gains (losses) including OTTI	(4	)	 	62		 	(853	)	 	—		 	(795	)	
Losses and loss expenses	—		 	5,889		 	3,631		 	—		 	9,520		
Policy benefits	—		 	192		 	209		 	—		 	401		
Policy acquisition costs and administrative expenses	69		 	2,561		 	1,910		 	—		 	4,540		
Interest (income) expense	(37	)	 	267		 	20		 	—		 	250		
Other (income) expense	(125	)	 	143		 	63		 	—		 	81		
Income tax expense	10		 	418		 	74		 	—		 	502		
Net income	$	1,540		 	$	770		 	$	689		 	$	(1,459	)	 	$	1,540		
Comprehensive income	$	1,857		 	$	1,077		 	$	382		 	$	(1,459	)	 	$	1,857		
		
(1)  	Includes all other subsidiaries of ACE Limited and intercompany eliminations.	
		
(2)  	Includes ACE Limited parent company eliminations.	

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

Condensed Consolidating Statement of Cash Flows  

																				
For the Year Ended December 31, 2013	ACE Limited
(Parent
Guarantor)		 	ACE INA
Holdings Inc.
(Subsidiary
Issuer)		 	Other ACE
Limited
Subsidiaries		 	Consolidating
Adjustments and Eliminations		 	ACE Limited
Consolidated		
(in millions of U.S. dollars)			 			 			 			 			
Net cash flows from (used for) operating activities	$	970		 	$	(107	)	 	$	3,984		 	$	(825	)	 	$	4,022		
Cash flows from investing activities	 	 	 	 	 	 	 	 	 	
Purchases of fixed maturities available for sale	—		 	—		 	(21,504	)	 	106		 	(21,398	)	
Purchases of fixed maturities held to maturity	—		 	—		 	(447	)	 	—		 	(447	)	
Purchases of equity securities	—		 	—		 	(264	)	 	—		 	(264	)	
Sales of fixed maturities available for sale	—		 	—		 	10,519		 	(106	)	 	10,413		
Sales of equity securities	—		 	—		 	142		 	—		 	142		
Maturities and redemptions of fixed maturities available for sale	—		 	—		 	6,941		 	—		 	6,941		
Maturities and redemptions of fixed maturities held to maturity	—		 	—		 	1,488		 	—		 	1,488		
Net change in short-term investments	(1	)	 	4		 	521		 	—		 	524		
Net derivative instruments settlements	—		 	(1	)	 	(470	)	 	—		 	(471	)	
Acquisition of subsidiaries (net of cash acquired of $38)	—		 	—		 	(977	)	 	—		 	(977	)	
Capital contribution	(133	)	 	(1,097	)	 	—		 	1,230		 	—		
Other	—		 	(4	)	 	(389	)	 	—		 	(393	)	
Net cash flows used for investing activities	(134	)	 	(1,098	)	 	(4,440	)	 	1,230		 	(4,442	)	
Cash flows from financing activities	 	 	 	 	 	 	 	 	 	
Dividends paid on Common Shares	(517	)	 	—		 	—		 	—		 	(517	)	
Common Shares repurchased	—		 	—		 	(287	)	 	—		 	(287	)	
Net proceeds from issuance of long-term debt	—		 	947		 	—		 	—		 	947		
Proceeds from share-based compensation plans, including windfall tax benefits	14		 	—		 	121		 	—		 	135		
Advances (to) from affiliates	(621	)	 	621		 	—		 	—		 	—		
Dividends to parent company	—		 	—		 	(825	)	 	825		 	—		
Capital contribution	—		 	—		 	1,230		 	(1,230	)	 	—		
Net proceeds from (payments to) affiliated notional cash pooling programs (1)	185		 	(349	)	 	—		 	164		 	—		
Other	—		 	—		 	113		 	—		 	113		
Net cash flows (used for) from financing activities	(939	)	 	1,219		 	352		 	(241	)	 	391		
Effect of foreign currency rate changes on cash and cash equivalents	—		 	—		 	(7	)	 	—		 	(7	)	
Net (decrease) increase in cash	(103	)	 	14		 	(111	)	 	164		 	(36	)	
Cash – beginning of year (1)	103		 	2		 	859		 	(349	)	 	615		
Cash – end of year (1)	$	—		 	$	16		 	$	748		 	$	(185	)	 	$	579		
		
(1)  	ACE maintains two notional multi-currency cash pools (Pools) with a third-party bank. Refer to Note 1 f) for additional information. At December 31, 2013 and December 31, 2012 , the cash balance of one or more entities was negative; however, the overall Pool balances were positive.	

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

Condensed Consolidating Statement of Cash Flows (Revised)

																				
For the Year Ended December 31, 2012	ACE Limited
(Parent
Guarantor)		 	ACE INA
Holdings Inc.
(Subsidiary
Issuer)		 	Other ACE
Limited
Subsidiaries		 	Consolidating
Adjustments and Eliminations		 	ACE Limited
Consolidated		
(in millions of U.S. dollars)			 			 			 			 			
Net cash flows from operating activities	$	573		 	$	296		 	$	3,876		 	$	(750	)	 	$	3,995		
Cash flows from investing activities	 	 	 	 	 	 	 	 	 	
Purchases of fixed maturities available for sale	—		 	—		 	(24,076	)	 	115		 	(23,961	)	
Purchases of fixed maturities held to maturity	—		 	—		 	(388	)	 	—		 	(388	)	
Purchases of equity securities	—		 	—		 	(135	)	 	—		 	(135	)	
Sales of fixed maturities available for sale	—		 	—		 	14,884		 	(115	)	 	14,769		
Sales of equity securities	—		 	—		 	119		 	—		 	119		
Maturities and redemptions of fixed maturities available for sale	—		 	—		 	5,523		 	—		 	5,523		
Maturities and redemptions of fixed maturities held to maturity	—		 	—		 	1,451		 	—		 	1,451		
Net change in short-term investments	—		 	(4	)	 	121		 	—		 	117		
Net derivative instruments settlements	(1	)	 	—		 	(280	)	 	—		 	(281	)	
Capital contribution	—		 	(352	)	 	(90	)	 	442		 	—		
Acquisition of subsidiaries (net of cash acquired of $8)	—		 	—		 	(98	)	 	—		 	(98	)	
Other	—		 	(33	)	 	(522	)	 	—		 	(555	)	
Net cash flows used for investing activities	(1	)	 	(389	)	 	(3,491	)	 	442		 	(3,439	)	
Cash flows from financing activities	 	 	 	 	 	 	 	 	 	
Dividends paid on Common Shares	(815	)	 	—		 	—		 	—		 	(815	)	
Common Shares repurchased	—		 	—		 	(11	)	 	—		 	(11	)	
Net proceeds from issuance of short-term debt	—		 	—		 	150		 	—		 	150		
Proceeds from share-based compensation plans, including windfall tax benefits	34		 	—		 	92		 	—		 	126		
Advances from (to) affiliates	206		 	(201	)	 	(5	)	 	—		 	—		
Dividends to parent company	—		 	—		 	(750	)	 	750		 	—		
Capital contribution	—		 	90		 	352		 	(442	)	 	—		
Net proceeds from affiliated notional cash pooling programs (1)	—		 	201		 	—		 	(201	)	 	—		
Net cash flows (used for) from financing activities	(575	)	 	90		 	(172	)	 	107		 	(550	)	
Effect of foreign currency rate changes on cash and cash equivalents	—		 	—		 	(5	)	 	—		 	(5	)	
Net increase (decrease) in cash	(3	)	 	(3	)	 	208		 	(201	)	 	1		
Cash – beginning of year (1)	106		 	5		 	651		 	(148	)	 	614		
Cash – end of year (1)	$	103		 	$	2		 	$	859		 	$	(349	)	 	$	615		
		
(1)	ACE maintains two notional multi-currency cash pools (Pools) with a third-party bank. Refer to Note 1 f) for additional information. At December 31, 2012 and December 31, 2011 , the cash balance of one or more entities was negative; however, the overall Pool balances were positive.	

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

Condensed Consolidating Statement of Cash Flows (As previously reported)

																				
For the Year Ended December 31, 2012	ACE Limited
(Parent
Guarantor)		 	ACE INA
Holdings Inc.
(Subsidiary
Issuer)		 	Other ACE
Limited
Subsidiaries and
Eliminations (1)		 	Consolidating
Adjustments (2)		 	ACE Limited
Consolidated		
(in millions of U.S. dollars)			 			 			 			 			
Net cash flows from operating activities	$	781		 	$	1,744		 	$	1,920		 	$	(450	)	 	$	3,995		
Cash flows from investing activities	 	 	 	 	 	 	 	 	 	
Purchases of fixed maturities available for sale	—		 	(11,843	)	 	(12,001	)	 	—		 	(23,844	)	
Purchases of fixed maturities held to maturity	—		 	(384	)	 	(4	)	 	—		 	(388	)	
Purchases of equity securities	—		 	(70	)	 	(65	)	 	—		 	(135	)	
Sales of fixed maturities available for sale	—		 	7,347		 	7,422		 	—		 	14,769		
Sales of equity securities	—		 	59		 	60		 	—		 	119		
Maturities and redemptions of fixed maturities available for sale	—		 	2,759		 	2,764		 	—		 	5,523		
Maturities and redemptions of fixed maturities held to maturity	—		 	1,045		 	406		 	—		 	1,451		
Net derivative instruments settlements	(1	)	 	(6	)	 	(274	)	 	—		 	(281	)	
Capital contribution	—		 	—		 	(90	)	 	90		 	—		
Advances from (to) affiliates	(2	)	 	—		 	—		 	2		 	—		
Acquisition of subsidiaries (net of cash acquired of $8)	—		 	(111	)	 	13		 	—		 	(98	)	
Other	—		 	(395	)	 	(160	)	 	—		 	(555	)	
Net cash flows used for investing activities	(3	)	 	(1,599	)	 	(1,929	)	 	92		 	(3,439	)	
Cash flows from financing activities	 	 	 	 	 	 	 	 	 	
Dividends paid on Common Shares	(815	)	 	—		 	—		 	—		 	(815	)	
Common Shares repurchased	—		 	—		 	(11	)	 	—		 	(11	)	
Net proceeds from issuance of short-term debt	—		 	1		 	149		 	—		 	150		
Proceeds from share-based compensation plans, including windfall tax benefits	34		 	13		 	79		 	—		 	126		
Advances (to) from affiliates	—		 	(105	)	 	107		 	(2	)	 	—		
Dividends to parent company	—		 	—		 	(450	)	 	450		 	—		
Capital contribution	—		 	90		 	—		 	(90	)	 	—		
Net cash flows used for financing activities	(781	)	 	(1	)	 	(126	)	 	358		 	(550	)	
Effect of foreign currency rate changes on cash and cash equivalents	—		 	(11	)	 	6		 	—		 	(5	)	
Net increase (decrease) in cash	(3	)	 	133		 	(129	)	 	—		 	1		
Cash – beginning of year	106		 	382		 	126		 	—		 	614		
Cash – end of year (3)	$	103		 	$	515		 	$	(3	)	 	$	—		 	$	615		
		
(1)  	Includes all other subsidiaries of ACE Limited and intercompany eliminations.	
		
(2)  	Includes ACE Limited parent company eliminations and certain consolidating adjustments.	
		
(3)  	ACE maintains two notional multi-currency cash pools (Pools) with a third-party bank. Refer to Note 1 f) for additional information. At December 31, 2012 , the cash balance of one or more entities was negative; however, the overall Pool balances were positive.	

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

Condensed Consolidating Statement of Cash Flows (Revised)

																				
For the Year Ended December 31, 2011	ACE Limited
(Parent
Guarantor)		 	ACE INA
Holdings Inc.
(Subsidiary
Issuer)		 	Other ACE
Limited
Subsidiaries		 	Consolidating
Adjustments and Eliminations		 	ACE Limited
Consolidated		
(in millions of U.S. dollars)			 			 			 			 			
Net cash flows from operating activities	$	831		 	$	1,221		 	$	3,455		 	$	(2,037	)	 	$	3,470		
Cash flows from investing activities	 	 	 	 	 	 	 	 	 	
Purchases of fixed maturities available for sale	—		 	—		 	(24,601	)	 	323		 	(24,278	)	
Purchases of fixed maturities held to maturity	—		 	—		 	(340	)	 	—		 	(340	)	
Purchases of equity securities	—		 	—		 	(309	)	 	—		 	(309	)	
Sales of fixed maturities available for sale	—		 	—		 	18,294		 	(323	)	 	17,971		
Sales of equity securities	—		 	—		 	376		 	—		 	376		
Maturities and redemptions of fixed maturities available for sale	—		 	—		 	3,720		 	—		 	3,720		
Maturities and redemptions of fixed maturities held to maturity	—		 	—		 	1,279		 	—		 	1,279		
Net change in short-term investments	9		 	—		 	(309	)	 	—		 	(300	)	
Net derivative instruments settlements	(3	)	 	—		 	(64	)	 	—		 	(67	)	
Capital contribution	(385	)	 	(581	)	 	—		 	966		 	—		
Acquisition of subsidiaries (net of cash acquired of $91)	—		 	(76	)	 	(530	)	 	—		 	(606	)	
Other	—		 	(19	)	 	(463	)	 	—		 	(482	)	
Net cash flows used for investing activities	(379	)	 	(676	)	 	(2,947	)	 	966		 	(3,036	)	
Cash flows from financing activities	 	 	 	 	 	 	 	 	 	
Dividends paid on Common Shares	(459	)	 	—		 	—		 	—		 	(459	)	
Common Shares repurchased	—		 	—		 	(195	)	 	—		 	(195	)	
Net proceeds from issuance (repayments) of short-term debt	(300	)	 	—		 	250		 	—		 	(50	)	
Proceeds from share-based compensation plans, including windfall tax benefits	133		 	—		 	6		 	—		 	139		
Advances from (to) affiliates	(28	)	 	(721	)	 	749		 	—		 	—		
Dividends to parent company	—		 	—		 	(2,037	)	 	2,037		 	—		
Capital contribution	—		 	—		 	966		 	(966	)	 	—		
Net proceeds from affiliated notional cash pooling programs (1)	—		 	148		 	—		 	(148	)	 	—		
Net cash flows used for financing activities	(654	)	 	(573	)	 	(261	)	 	923		 	(565	)	
Effect of foreign currency rate changes on cash and cash equivalents	—		 	—		 	(27	)	 	—		 	(27	)	
Net increase (decrease) in cash	(202	)	 	(28	)	 	220		 	(148	)	 	(158	)	
Cash – beginning of year (1)	308		 	33		 	431		 	—		 	772		
Cash – end of year (1)	$	106		 	$	5		 	$	651		 	$	(148	)	 	$	614		
		
(1)	ACE maintains two notional multi-currency cash pools (Pools) with a third-party bank. Refer to Note 1 f) for additional information. At December 31, 2011 and December 31, 2010, the cash balance of one or more entities was negative; however, the overall Pool balances were positive.	

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

Condensed Consolidating Statement of Cash Flows (As previously reported)

																				
For the Year Ended December 31, 2011	ACE Limited
(Parent
Guarantor)		 	ACE INA
Holdings Inc.
(Subsidiary
Issuer)		 	Other ACE
Limited
Subsidiaries and
Eliminations (1)		 	Consolidating
Adjustments (2)		 	ACE Limited
Consolidated		
(in millions of U.S. dollars)			 			 			 			 			
Net cash flows from operating activities	$	762		 	$	1,053		 	$	2,395		 	$	(740	)	 	$	3,470		
Cash flows from investing activities	 	 	 	 	 	 	 	 	 	
Purchases of fixed maturities available for sale	—		 	(12,203	)	 	(12,375	)	 	—		 	(24,578	)	
Purchases of fixed maturities held to maturity	—		 	(338	)	 	(2	)	 	—		 	(340	)	
Purchases of equity securities	—		 	(157	)	 	(152	)	 	—		 	(309	)	
Sales of fixed maturities available for sale	9		 	9,718		 	8,244		 	—		 	17,971		
Sales of equity securities	—		 	354		 	22		 	—		 	376		
Maturities and redemptions of fixed maturities available for sale	—		 	1,784		 	1,936		 	—		 	3,720		
Maturities and redemptions of fixed maturities held to maturity	—		 	933		 	346		 	—		 	1,279		
Net derivative instruments settlements	(3	)	 	(24	)	 	(40	)	 	—		 	(67	)	
Capital contribution	(385	)	 	—		 	—		 	385		 	—		
Advances from (to) affiliates	41		 	—		 	—		 	(41	)	 	—		
Acquisition of subsidiaries (net of cash acquired of $91)	—		 	(569	)	 	(37	)	 	—		 	(606	)	
Other	—		 	(420	)	 	(62	)	 	—		 	(482	)	
Net cash flows used for investing activities	(338	)	 	(922	)	 	(2,120	)	 	344		 	(3,036	)	
Cash flows from financing activities	 	 	 	 	 	 	 	 	 	
Dividends paid on Common Shares	(459	)	 	—		 	—		 	—		 	(459	)	
Common Shares repurchased	—		 	—		 	(195	)	 	—		 	(195	)	
Net proceeds from (repayments) issuance of short-term debt	(300	)	 	(150	)	 	400		 	—		 	(50	)	
Net proceeds from share-based compensation plans, including windfall tax benefits	133		 	3		 	3		 	—		 	139		
Advances from (to) affiliates	—		 	(149	)	 	108		 	41		 	—		
Dividends to parent company	—		 	—		 	(740	)	 	740		 	—		
Capital contribution	—		 	—		 	385		 	(385	)	 	—		
Net cash flows used for financing activities	(626	)	 	(296	)	 	(39	)	 	396		 	(565	)	
Effect of foreign currency rate changes on cash and cash equivalents	—		 	(26	)	 	(1	)	 	—		 	(27	)	
Net increase (decrease) in cash	(202	)	 	(191	)	 	235		 	—		 	(158	)	
Cash – beginning of year (3)	308		 	573		 	(109	)	 	—		 	772		
Cash – end of year	$	106		 	$	382		 	$	126		 	$	—		 	$	614		
		
(1)	Includes all other subsidiaries of ACE Limited and intercompany eliminations.	
		
(2)	Includes ACE Limited parent company eliminations and certain consolidating adjustments.	
		
(3)	ACE maintains two notional multi-currency cash pools (Pools) with a third-party bank. Refer to Note 1 f) for additional information. At December 31, 2010, the cash balance of one or more entities was negative; however, the overall Pool balances were positive.	

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

20 . Condensed unaudited quarterly financial data

																	
 	Three Months Ended	 	 	
 	March 31		 	June 30		 	September 30		 	December 31		 	
(in millions of U.S. dollars, except per share data)	2013		 	2013		 	2013		 	2013		 	
Net premiums earned	$	3,573		 	$	4,067		 	$	4,610		 	$	4,363		 	
Net investment income	531		 	534		 	522		 	557		 	
Net realized gains (losses) including OTTI	206		 	104		 	40		 	154		(1)  	
Total revenues	$	4,310		 	$	4,705		 	$	5,172		 	$	5,074		 	
Losses and loss expenses	$	1,926		 	$	2,250		 	$	2,655		 	$	2,517		 	
Policy benefits	$	131		 	$	110		 	$	138		 	$	136		 	
Net income	$	953		 	$	891		 	$	916		 	$	998		 	
Basic earnings per share	$	2.80		 	$	2.61		 	$	2.68		 	$	2.93		 	
Diluted earnings per share	$	2.77		 	$	2.59		 	$	2.66		 	$	2.90		 	
		
(1)  	Includes a realized gain of $92 million for an out-of-period adjustment related to guaranteed living benefits. Refer to Note 4 a) for additional information.	

	
																
 	Three Months Ended	 	
 	March 31		 	June 30		 	September 30		 	December 31		
(in millions of U.S. dollars, except per share data)	2012		 	2012		 	2012		 	2012		
Net premiums earned	$	3,381		 	$	3,783		 	$	4,665		 	$	3,848		
Net investment income	544		 	537		 	533		 	567		
Net realized gains (losses) including OTTI	260		 	(394	)	 	(60	)	 	272		
Total revenues	$	4,185		 	$	3,926		 	$	5,138		 	$	4,687		
Losses and loss expenses	$	1,804		 	$	2,119		 	$	3,047		 	$	2,683		
Policy benefits	$	147		 	$	102		 	$	130		 	$	142		
Net income	$	973		 	$	328		 	$	640		 	$	765		
Basic earnings per share	$	2.87		 	$	0.96		 	$	1.88		 	$	2.24		
Diluted earnings per share	$	2.84		 	$	0.96		 	$	1.86		 	$	2.22		

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SCHEDULE I
ACE Limited and Subsidiaries

SUMMARY OF INVESTMENTS – OTHER THAN INVESTMENTS IN RELATED PARTIES

												
December 31, 2013
(in millions of U.S. dollars)	Cost or
Amortized Cost		 	Fair Value		 	Amount at Which Shown in the Balance Sheet		
Fixed maturities available for sale	 	 	 	 	 	
U.S. Treasury and agency	$	2,946		 	$	2,949		 	$	2,949		
Foreign	14,336		 	14,591		 	14,591		
Corporate securities	16,825		 	17,470		 	17,470		
Mortgage-backed securities	10,937		 	10,894		 	10,894		
States, municipalities, and political subdivisions	3,362		 	3,350		 	3,350		
Total fixed maturities available for sale	48,406		 	49,254		 	49,254		
Fixed maturities held to maturity	 	 	 	 	 	
U.S. Treasury and agency	820		 	832		 	820		
Foreign	864		 	897		 	864		
Corporate securities	1,922		 	2,005		 	1,922		
Mortgage-backed securities	1,341		 	1,379		 	1,341		
States, municipalities, and political subdivisions	1,151		 	1,150		 	1,151		
Total fixed maturities held to maturity	6,098		 	6,263		 	6,098		
Equity securities	 	 	 	 	 	
Industrial, miscellaneous, and all other	841		 	837		 	837		
Short-term investments	1,763		 	1,763		 	1,763		
Other investments	2,671		 	2,976		 	2,976		
 	4,434		 	4,739		 	4,739		
Total investments - other than investments in related parties	$	59,779		 	$	61,093		 	$	60,928		

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SCHEDULE II
ACE Limited and Subsidiaries

CONDENSED FINANCIAL INFORMATION OF REGISTRANT

BALANCE SHEETS (Parent Company Only)

								
 	December 31		 	December 31		
(in millions of U.S. dollars)	2013		 	2012		
Assets	 	 	 	
Investments in subsidiaries and affiliates on equity basis	$	28,351		 	$	27,251		
Short-term investments	2		 	1		
Other investments, at cost	30		 	30		
Total investments	28,383		 	27,282		
Cash	—		 	103		
Due from subsidiaries and affiliates, net	844		 	204		
Other assets	5		 	13		
Total assets	$	29,232		 	$	27,602		
Liabilities	 	 	 	
Affiliated notional cash pooling programs (1)	$	185		 	$	—		
Accounts payable, accrued expenses, and other liabilities	222		 	71		
Total liabilities	407		 	71		
Shareholders' equity	 	 	 	
Common Shares	8,899		 	9,591		
Common Shares in treasury	(255	)	 	(159	)	
Additional paid-in capital	5,238		 	5,179		
Retained earnings	13,791		 	10,033		
Accumulated other comprehensive income	1,152		 	2,887		
Total shareholders' equity	28,825		 	27,531		
Total liabilities and shareholders' equity	$	29,232		 	$	27,602		
 	 	 	 	
(1)  ACE maintains two notional multicurrency cash pools (Pools) with a third-party bank. Refer to Note 1f) for additional information. At December 31, 2013, the cash balance of one or more entities was negative; however, the overall Pool balances were positive.	
The condensed financial information should be read in conjunction with the consolidated financial statements and notes thereto.	

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SCHEDULE II (continued)
ACE Limited and Subsidiaries

CONDENSED FINANCIAL INFORMATION OF REGISTRANT

STATEMENTS OF OPERATIONS (Parent Company Only)

										
 	Years Ended December 31	 	
(in millions of U.S. dollars)	2013		2012		2011		
Revenues	 	 	 	
Investment income, including interest income	$	34		$	34		$	39		
Equity in net income of subsidiaries and affiliates	3,580		2,590		1,459		
Net realized gains (losses)	—		17		(4	)	
 	3,614		2,641		1,494		
Expenses	 	 	 	
Administrative and other (income) expense	(161	)	(75	)	(56	)	
Income tax expense	17		10		10		
 	(144	)	(65	)	(46	)	
Net income	$	3,758		$	2,706		$	1,540		
Comprehensive income	$	2,023		$	3,682		$	1,857		
 	 	 	 	
The condensed financial information should be read in conjunction with the consolidated financial statements and notes thereto.	

F-84 

Table of Contents

SCHEDULE II (continued)
ACE Limited and Subsidiaries

CONDENSED FINANCIAL INFORMATION OF REGISTRANT

STATEMENTS OF CASH FLOWS (Parent Company Only)

												
 	Years Ended December 31	 	
(in millions of U.S. dollars)	2013		 	2012 (1)		 	2011 (1)		
Net cash flows from operating activities (2)	$	970		 	$	573		 	$	831		
Cash flows from investing activities	 	 	 	 	 	
Net change in short-term investments	(1	)	 	—		 	9		
Net derivative instruments settlements	—		 	(1	)	 	(3)		
Capital contribution	(133	)	 	—		 	(385	)	
Net cash flows used for investing activities	(134	)	 	(1	)	 	(379	)	
Cash flows from financing activities	 	 	 	 	 	
Dividends paid on Common Shares	(517	)	 	(815	)	 	(459	)	
Net repayments of short-term debt	—		 	—		 	(300	)	
Proceeds from share-based compensation plans	14		 	34		 	133		
Advances (to) from affiliates	(621	)	 	206		 	(28	)	
Net proceeds from affiliated notional cash pooling programs (3)	185		 	—		 	—		
Net cash flows used for financing activities	(939	)	 	(575	)	 	(654	)	
Net decrease in cash	(103	)	 	(3	)	 	(202	)	
Cash – beginning of year	103		 	106		 	308		
Cash – end of year	$	—		 	$	103		 	$	106		
 	 	 	 	 	 	
(1)  Certain items in the Condensed Statements of Cash Flows for the years ended December 31, 2012 and 2011 have been revised. Refer to Note 19 to the Consolidated Financial Statements for additional information.	
(2)  Includes cash dividends received from subsidiaries of $825 million, $450 million, and $740 million in 2013, 2012, and 2011, respectively.	
(3) ACE maintains two notional multicurrency cash pools (Pools) with a third-party bank. Refer to Note 1f) for additional information. At December 31, 2013, the cash balance of one or more entities was negative; however, the overall Pool balances were positive.	
 	
The condensed financial information should be read in conjunction with the consolidated financial statements and notes thereto.	

F-85 

Table of Contents

SCHEDULE IV
ACE Limited and Subsidiaries

SUPPLEMENTAL INFORMATION CONCERNING REINSURANCE

																				
Premiums Earned	 	 	 	 	 	 	 	
For the years ended December 31, 2013, 2012, and 2011 (in millions of U.S. dollars, except for percentages)	 	Direct Amount		 	Ceded To Other Companies		 	Assumed From Other Companies		 	Net Amount		 	Percentage of Amount Assumed to Net		
2013	 	$	18,856		 	$	5,722		 	$	3,479		 	$	16,613		 	21	%	
2012	 	$	17,802		 	$	5,427		 	$	3,302		 	$	15,677		 	21	%	
2011	 	$	17,534		 	$	5,496		 	$	3,349		 	$	15,387		 	22	%	

F-86 

Table of Contents

SCHEDULE VI
ACE Limited and Subsidiaries

SUPPLEMENTARY INFORMATION CONCERNING PROPERTY AND CASUALTY OPERATIONS

																																										
As of and for the years ended December 31, 2013, 2012, and 2011 (in millions of U.S. dollars)	 	 	 	 	 	 	
 	 	Deferred Policy Acquisition Costs	 	 	Net Reserves for Unpaid Losses and Loss Expenses		 	Unearned Premiums		 	Net Premiums Earned		 	Net Investment Income		Net Losses and Loss Expenses Incurred Related to	 	 	Amortization of Deferred Policy Acquisition Costs		 	Net Paid Losses and Loss Expenses		 	Net Premiums Written		
 	 			 			 			 			 			 	Current Year		 	Prior Year		 			 			 			
2013	 	$	1,865	 	 	$	26,831		 	$	7,539		 	$	15,708		 	$	1,977		 	$	9,878		 	$	(530	)	 	$	2,447		 	$	8,977		 	$	16,069		
2012	 	$	1,757	 	 	$	26,547		 	$	6,864		 	$	14,764		 	$	2,018		 	$	10,132		 	$	(479	)	 	$	2,254		 	$	9,219		 	$	15,107		
2011	 	$	1,512	 	 	$	25,875		 	$	6,334		 	$	14,523		 	$	2,107		 	$	10,076		 	$	(556	)	 	$	2,291		 	$	8,866		 	$	14,455		

F-87 

Exhibit 10.56

For Awards for Chief Executive Officer, Chief Financial Officer and the General Counsel
[FOR USE WITH ELECTRONIC DELIVERY]
Restricted Stock Unit Award Terms
under the
ACE Limited 2004 Long-Term Incentive Plan
The Participant has been granted a Restricted Stock Unit Award by ACE Limited (the "Company") under the ACE Limited 2004 Long-Term Incentive Plan (the "Plan"). The Restricted Stock Unit Award shall be subject to the following Restricted Stock Unit Award Terms:
1. Terms of Award . Subject to the following Restricted Stock Unit Award Terms, the Participant has been granted the right to receive shares of Stock of the Company (“Units”) as of the Delivery Date. Each “Unit” represents the right to receive one share of Stock. The following words and phrases used in these Restricted Stock Unit Award Terms shall have the meanings set forth in this paragraph 1:

(a) The "Participant" is the individual recipient of the Restricted Stock Unit Award on the specified Grant Date.

(b) The "Grant Date" is [Insert the date] .

(c) The number of "Units" shall be that number of Units awarded to the Participant on the Grant Date as reflected in the corporate records and shown in the Record-Keeping System in the Participant’s individual account records.

(d) The “Delivery Date” shall be end of the Restricted Period with respect to the applicable Units.

However, notwithstanding the preceding sentence, if the Participant would be eligible to retire in accordance with paragraph 2(d) (determined without regard to clauses 9(i)(x) and (y)) on or at any time after the Grant Date and prior to the last day of the Restricted Period with respect to any Installment of Units as determined in accordance with the Vesting Schedule set forth in paragraph 2:

(i) The occurrence of a Change in Control Date of Termination shall be disregarded for purposes of determining the Delivery Date of such Installments.

(ii) The occurrence of a Long-Term Disability shall be disregarded for purposes of determining the Delivery Date of such Units; provided that this sentence shall not affect the vesting of the Units upon the occurrence of a Long-Term Disability in accordance with subparagraph 2(b).

(e) Other words and phrases used in these Restricted Stock Unit Award Terms are defined pursuant to paragraph 9 or elsewhere in these Restricted Stock Unit Award Terms.

2. Restricted Period . Subject to the limitations of these Restricted Stock Unit Award Terms, the "Restricted Period" for each Installment of Units shall begin on the Grant Date and end as described in the following schedule (the “Vesting Schedule”) (but only if the Date of Termination has not occurred before end of the Restricted Period):

		
VESTING SCHEDULE	
INSTALLMENT	RESTRICTED
PERIOD WILL
END ON:	
¼ of Restricted Stock Units	One year anniversary of the Grant Date	
¼ of Restricted Stock Units	Two year anniversary of the Grant Date	
¼ of Restricted Stock Units	Three year anniversary of the Grant Date	
¼ of Restricted Stock Units	Four year anniversary of the Grant Date	

The Restricted Period shall end prior to the date specified in the foregoing Vesting Schedule to the extent set forth below, with the exception of subparagraph (d):
(a) For Installments as to which the Restricted Period has not ended prior to the Date of Termination, the Restricted Period for such Installments shall end upon the Participant’s Date of Termination, if the Date of Termination occurs by reason of the Participant’s death.

(b) For Installments as to which the Restricted Period has not ended prior to the Date of Termination, the Restricted Period for such Installments shall end upon the Participant’s Date of Termination, if the Date of Termination occurs by reason of the Participant’s Long-Term Disability.

(c) If the Participant's Date of Termination is a Change in Control Date of Termination, then, for any Installments as to which the Restricted Period has not ended prior to the Participant’s Date of Termination, the Restricted Period for such Installments will end on the Change in Control Date of Termination; provided that if the Participant's Change in Control Date of Termination occurs within the 180-day period immediately preceding the date of a Change in Control, then the Restricted Period for all unvested Installments held by the Participant on the Date of Termination will end, and those Installments will vest on the date of a Change in Control.
 
(d)    For Installments as to which the Restricted Period has not ended prior to the Date of Termination, if the Date of Termination occurs by reason of the Participant’s Retirement, vesting shall continue pursuant to the Vesting Schedule following the Date of Termination as though the Participant continued to be employed through the end of the longest Restricted Period. Following the Date of Termination by reason of Retirement, the end of the Restricted Period for any Installment shall be determined in accordance with the Vesting Schedule.
3. Transfer and Forfeiture of Shares.  Except as otherwise determined by the Committee in its sole discretion, and subject to subparagraphs 2(c) and 2(d), the Participant shall forfeit the Units as of the Participant's Date of Termination, if such Date of Termination occurs prior to the end of the Restricted Period which applies to those Installments. If the Participant's Date of Termination has not occurred prior to the last day of the Restricted Period with respect to any Installment of the Units, then that Installment of Units shall be delivered to the Participant in the form of Stock free of all restrictions at or within 30 days after the Delivery Date; provided, however, if such delivery is contingent on the Participant's execution of a release in accordance with paragraph 9(i) and the applicable 30-day period begins in one taxable year and ends in a second taxable year, that Installment of Units shall be delivered in the second taxable year. After delivery of a share of Stock for a Unit, the Unit shall have no further force or effect. Notwithstanding anything to the contrary in any employment agreement between the Participant and the Company or a Subsidiary or any severance plan maintained by the Company or a Subsidiary in which the Participant participates, the Participate acknowledges and agrees that the the Installments of Units shall vest (and the Restricted Period shall end) only as provided by, and subject to the terms of, this Restricted Stock Unit Award.

4. Withholding . All deliveries and distributions under these Restricted Stock Unit Award Terms are subject to withholding of all applicable taxes. At the election of the Participant, and subject to such rules and limitations as may be established by the Committee from time to time, such withholding obligations may be satisfied through the surrender of shares of Stock which the Participant already owns, or to which the Participant is otherwise entitled under the Plan. Notwithstanding the foregoing, the Committee has the authority to make the necessary elections to ensure appropriate taxes are withheld.

5. Transferability . Except as otherwise provided by the Committee, the Restricted Stock Unit Award may not be sold, assigned, transferred, pledge or otherwise encumbered during the Restricted Period.

6. Dividends . The Participant shall be permitted to receive cash payments equal to the dividends and distributions paid on shares of Stock to the same extent as if each Unit was a share of Stock, and those shares were not subject to the restrictions imposed by these Restricted Stock Unit Award Terms and the Plan; provided, however, that no dividends or distributions shall be payable to or for the benefit of the Participant with respect to record dates for such dividends or distributions occurring on or after the date, if any, on which the Participant has received a share of Stock in exchange for a Unit or has forfeited the Units. Dividend payments made under this paragraph 6 with respect to any record date will be paid as soon as practicable after dividends with respect to that record date are paid on outstanding shares but in all events within the calendar year in which such dividends are paid to the holders of Stock.

7. Voting . The Participant shall not be a shareholder of record with respect to the Units and shall have no voting rights with respect to the Units during the Restricted Period.

2

8. Participant’s Rights to Shares . Prior to the delivery of shares of Stock which are to be delivered pursuant to these Restricted Stock Unit Award Terms,(a) the Participant shall not be treated as owner of the shares, shall not have any rights as a shareholder as to those shares, and shall have only a contractual right to receive them, unsecured by any assets of the Company or its subsidiaries; and (b) the Participant’s right to receive such shares will be subject to the adjustment provisions relating to mergers, reorganizations, and similar events set forth in the Plan.

9. Definitions . For purposes of these Restricted Stock Unit Award Terms, words and phrases shall be defined as follows:
(a) Cause . The term “Cause” shall mean - unless otherwise defined in an employment agreement between the Participant and the Company or Subsidiary - the occurrence of any of the following:

(i)  a conviction of the Participant with respect to a (x) felony or (y) a misdemeanor involving moral turpitude; or

(ii)  willful misconduct or gross negligence by the Participant resulting, in either case, in harm to the Company or any Subsidiary; or

(iii)  failure by the Participant to carry out the lawful and reasonable directions of the Board or the Participant’s immediate supervisor, as the case may be; or

(iv)  refusal to cooperate or non-cooperation by the Participant with any governmental regulatory authority; or

(v) fraud, embezzlement, theft or dishonesty by the Participant against the Company or any Subsidiary or a material violation by the Participant of a policy or procedure of the Company, resulting, in any case, in harm to the Company or any Subsidiary.

(b) Change in Control . The term "Change in Control" shall be defined as set forth in the Plan.

(c) Change in Control Date Termination . The term “Change in Control Date of Termination” means (A) the Participant's Date of Termination that occurs for any reason (including, without limitation, voluntary resignation of the Participant with or without Good Reason) during the first calendar month that begins on or after the six month anniversary of the date of a Change in Control or (B) the Participant’s Date of Termination that occurs because the Company and/or any of the Related Companies terminates the Participant’s employment with the Company and/or the Related Companies without Cause (other than due to death, a Long-Term Disability or a Retirement) or because the Participant terminates his or her employment for Good Reason, provided that such termination in accordance with this clause (B) occurs during the period commencing on the 180th day immediately preceding a Change in Control date and ending on the two year anniversary of such Change in Control date.
(d) Date of Termination . A Participant's "Date of Termination" means, with respect to an employee, the date on which the Participant's employment with the Company and Related Companies terminates for any reason, and with respect to a Director, the date immediately following the last day on which the Participant serves as a Director; provided that a Date of Termination shall not be deemed to occur by reason of a Participant's transfer of employment between the Company and a Related Company or between two Related Companies; further provided that a Date of Termination shall not be deemed to occur by reason of a Participant's cessation of service as a Director if immediately following such cessation of service the Participant becomes or continues to be employed by the Company or a Related Company, nor by reason of a Participant's termination of employment with the Company or a Related Company if immediately following such termination of employment the Participant becomes or continues to be a Director; and further provided that a Participant's employment shall not be considered terminated while the Participant is on a leave of absence from the Company or a Related Company approved by the Participant's employer.

(e) Director . The term "Director" means a member of the Board, who may or may not be an employee of the Company or a Related Company.

(f) Good Reason . The term “Good Reason” shall mean - unless otherwise defined in an in-force employment agreement between the Participant and the Company or Subsidiary - the occurrence of any of the following within the 60-day period preceding a Date of Termination without the Participant’s prior written consent:

3

(i)  a material adverse diminution of the Participant’s titles, authority, duties or responsibilities, or the assignment to the Participant of titles, authority, duties or responsibilities that are materially inconsistent with his or her titles, authority, duties and/or responsibilities in a manner materially adverse to the Participant; or
(ii)  a reduction in the Participant’s base salary or annual bonus opportunity (other than any reduction applicable to all similarly situated Executives generally); or

(iii) a failure of the Company to obtain the assumption in writing of its obligations under the Plan by any successor to all or substantially all of the assets of the Company within 45 days after a merger, consolidation, sale or similar transaction that qualifies as a Change in Control.

(g) Long-Term Disability . A Participant shall be considered to have a “Long-Term Disability” if the Participant is determined to be eligible for long-term disability benefits under the long-term disability plan in which the Participant participates and which is sponsored by the Company or a Related Company; or if the Participant does not participate in a long-term disability plan sponsored by the Company or a Related Company, then the Participant shall be considered to have a “Long-Term Disability” if the Committee determines, under standards comparable to those of the Company’s long-term disability plan, that the Participant would be eligible for long-term disability benefits if he or she participated in such plan.

(h) Record-Keeping System . The term “Record-Keeping System” means the record-keeping system developed and maintained by third parties contracted by the Company to keep records and facilitate Participant interfaces with respect to the Plan and awards granted thereunder.

(i)     Retirement . The term “Retirement” means the Participant’s Date of Termination that occurs on or after the Participant has both completed at least ten years of service with the Company or a Related Company and attained at least age 62; provided, however, that a Date of Termination will not be treated as a Retirement unless the Participant (x) has terminated employment in good standing with the Company or a Related Company, and (y) executes an agreement and release as required by the Company which will include, without limitation, a general release, and non-competition and non-solicitation provisions. A Participant shall be deemed to have executed a release as described in clause (y) above only if such release is returned by such time as is established by the Company; provided that to the extent benefits provided pursuant to the Plan would be considered to be provided under a nonqualified deferred compensation plan as that term is defined in Treas. Reg. §1.409A-1, such benefits shall be paid to the Participant only if the release is returned in time to permit the distribution of the benefits to satisfy the requirements of Code section 409A with respect to the time of payment.
10. Plan Definitions . Except where the context clearly implies or indicates the contrary, a word, term, or phrase used in the Plan is similarly used in these Restricted Stock Unit Award Terms.

11. Heirs and Successors . The Restricted Stock Unit Award Terms shall be binding upon, and inure to the benefit of, the Company and its successors and assigns, and upon any person acquiring, whether by merger, consolidation, purchase of assets or otherwise, all or substantially all of the Company's assets and business. If any benefits deliverable to the Participant under these Restricted Stock Unit Award Terms have not been delivered at the time of the Participant's death, such benefits shall be delivered to the Designated Beneficiary, in accordance with the provisions of these Restricted Stock Unit Award Terms and the Plan. The "Designated Beneficiary" shall be the beneficiary or beneficiaries designated by the Participant in a writing filed with the Committee in such form and at such time as the Committee shall require. If a deceased Participant fails to designate a beneficiary, or if the Designated Beneficiary does not survive the Participant, any rights that would have been exercisable by the Participant and any benefits distributable to the Participant shall be distributed to the legal representative of the estate of the Participant. If a deceased Participant designates a beneficiary and the Designated Beneficiary survives the Participant but dies before the complete distribution of benefits to the Designated Beneficiary under these Restricted Stock Unit Award Terms, then any benefits distributable to the Designated Beneficiary shall be distributed to the legal representative of the estate of the Designated Beneficiary.

12. Administration . The authority to manage and control the operation and administration of these Restricted Stock Unit Award Terms shall be vested in the Committee, and the Committee shall have all powers with respect to these Restricted Stock Unit Award Terms as it has with respect to the Plan. Any interpretation of these Restricted Stock Unit Award Terms by the Committee and any decision made by it with respect to these Restricted Stock Unit Award Terms are final and binding on all persons.

13. Plan and Corporate Records Govern . Notwithstanding anything in these Restricted Stock Unit Award Terms to the contrary, these Restricted Stock Unit Award Terms shall be subject to the terms of the Plan, a copy of which

4

may be obtained by the Participant from the office of the Secretary of the Company; and these Restricted Stock Unit Award Terms are subject to all interpretations, amendments, rules and regulations promulgated by the Committee from time to time pursuant to the Plan. Notwithstanding anything in the Restricted Stock Unit Award Terms to the contrary, in the event of any discrepancies between the corporate records regarding this award and the Record-Keeping System, the corporate records shall control.

14. Not An Employment Contract . The Restricted Stock Unit Award will not confer on the Participant any right with respect to continuance of employment or other service with the Company or any Related Company, nor will it interfere in any way with any right the Company or any Related Company would otherwise have to terminate or modify the terms of such Participant's employment or other service at any time.

15. Notices . Any written notices provided for in these Restricted Stock Unit Award Terms or the Plan shall be in writing and shall be deemed sufficiently given if either hand delivered or if sent by fax or overnight courier, or by postage paid first class mail. Notices sent by mail shall be deemed received three business days after mailing but in no event later than the date of actual receipt. Notices shall be directed, if to the Participant, at the Participant's address indicated by the Company's records, or if to the Company, at the Company's principal executive office.

16. Fractional Shares . In lieu of issuing a fraction of a share, resulting from an adjustment of the Restricted Stock Unit Award pursuant to paragraph 5.2(f) of the Plan or otherwise, the Company will be entitled to pay to the Participant an amount equal to the fair market value of such fractional share.

17. Amendment . The Restricted Stock Unit Award Terms may be amended in accordance with the provisions of the Plan, and may otherwise be amended by written agreement of the Participant and the Company without the consent of any other person.

18.     409A Compliance . These Restricted Stock Unit Award Terms are intended to be interpreted, operated, and administered in a manner so as not to subject the Participant to the assessment of additional taxes or interest under Code section 409A, and these Restricted Stock Unit Award Terms may be amended as the Company, in its sole discretion, determines is necessary and appropriate to avoid the application of any such taxes or interest.
IN WITNESS WHEREOF, the Company has caused these presents to be executed in its name and on its behalf, all as of the Grant Date.

ACE LIMITED

By:     ______________________________________
Its:     ______________________________________

I hereby agree to all the terms, restrictions and conditions set forth in the Agreement:

______________________________________
Participant

5

Exhibit 10.67

Performance Based Restricted Stock Award Terms
under the
ACE Limited 2004 Long-Term Incentive Plan
The Participant has been granted a Performance Based Restricted Stock Award by ACE Limited (the “Company”) under the ACE Limited 2004 Long-Term Incentive Plan (the “Plan”). The shares of Stock granted as Covered Performance Shares and Premium Performance Shares pursuant to this Performance Based Restricted Stock Award shall be subject to the following Performance Based Restricted Stock Award Terms:
1. Terms of Award . The following words and phrases used in these Performance Based Restricted Stock Award Terms shall have the meanings set forth in this paragraph 1:

(a)	The “Participant” is , who is the individual recipient of the Performance Based Restricted Stock Award on the specified Grant Date.	

(b)	The “Grant Date” is [ Insert Date ].	

(c)	The “Commencement Date” is [ Insert Date ].	

(d)	The number of “Covered Performance Shares” is , which is 50% [66% for Vice Chairman and Chief Operating Officer ] of that portion of the Participant’s annual Long-Term Incentive Award which is granted in the form of restricted shares for the year in which the Grant Date occurs, as reflected in the corporate records and shown in the Record-Keeping System in the Participant’s individual account records.	
		
(e)	The number of Premium Performance Shares is [ ] [number equal to the number of Covered Performance Shares.]	

Other words and phrases used in these Performance Based Restricted Stock Award Terms are defined pursuant to paragraph 11 or elsewhere in these Performance Based Restricted Stock Award Terms.
2. Restricted Period . Subject to the limitations of these Performance Based Restricted Stock Award Terms, the “Restricted Period” for each Installment of Covered Performance Shares of the Performance Based Restricted Stock Award shall begin on the Grant Date and end as described below (but only if the Date of Termination has not occurred before the end of the Restricted Period):

(a)	The Restricted Period shall end with respect to a number of the Covered Performance Shares determined by multiplying one quarter (1/4) of the Covered Performance Shares (the “First Installment”) by the applicable Performance Percentage on the later of the applicable Certification Date (as defined below) or the one-year anniversary of the Grant Date, if the Performance Goal has been fully or partially satisfied for the measurement period beginning on the Commencement Date and ending on the one-year anniversary of the Commencement Date (the “First Installment Primary Performance Measurement Period”). If the Performance Goal with respect to the First Installment Primary Performance Measurement Period has not been fully satisfied such that the applicable Performance Percentage did not equal 100% for the First Installment Primary Performance Measurement Period, then the Restricted Period for all or a portion of the First Installment shall end on the earliest of the two-year, three-year, or four-year anniversary of the Grant Date (or, if later than the anniversary of the Grant Date, on the applicable Certification Date) on which the Performance Goal has been fully or partially satisfied for the measurement period beginning on the Commencement Date and ending on the two-year, three-year, or four-year anniversary of the Commencement Date, as applicable (each, a “First Installment Secondary Performance Measurement Period”) and the Performance Percentage as measured over any First Installment Secondary Performance Measurement Period is greater than it was over the First Installment Primary Performance Measurement Period or any previous First Installment Secondary Performance Measurement Period. For any First Installment Secondary Performance Measurement Period pursuant to which the conditions of the previous sentence have been met, the Restricted Period shall end with respect to a number of the Covered Performance Shares determined by multiplying the number of shares in the First Installment by the applicable Performance Percentage for such First Installment Secondary Performance Measurement Period minus the greatest applicable Performance Percentage taken into account in any previous Performance Measurement Period for the First Installment on the later of the applicable Certification Date (as defined below) or the applicable anniversary of the Grant Date.	
		
(b)	The Restricted Period shall end with respect to a number of the Covered Performance Shares determined by multiplying one quarter (1/4) of the Covered Performance Shares (the “Second Installment”) by the applicable Performance Percentage on the later of the applicable Certification Date or the two-year anniversary of the Grant	

Date, if the Performance Goal has been fully or partially satisfied for the measurement period beginning on the one-year anniversary of the Commencement Date and ending on the two-year anniversary of the Commencement Date (the “Second Installment Primary Performance Measurement Period”). If the Performance Goal with respect to the Second Installment Primary Performance Measurement Period has not been fully satisfied such that the applicable Performance Percentage did not equal 100% for the Second Installment Primary Performance Measurement Period, then the Restricted Period for all or a portion of the Second Installment shall end on the earlier of the three-year anniversary or the four-year anniversary of the Grant Date (or, if later than the anniversary of the Grant Date, on the applicable Certification Date) on which the Performance Goal has been fully or partially satisfied for the measurement period beginning on the one-year anniversary of the Commencement Date and ending on the three-year or four-year anniversary date of the Commencement Date, as applicable (each, a “Second Installment Secondary Performance Measurement Period”) and the Performance Percentage as measured over any Second Installment Secondary Performance Measurement Period is greater than it was over the Second Installment Primary Performance Measurement Period or any previous Second Installment Secondary Performance Measurement Period. For any Second Installment Secondary Performance Measurement Period pursuant to which the conditions of the previous sentence have been met, the Restricted Period shall end with respect to a number of the Covered Performance Shares determined by multiplying the number of shares in the Second Installment by the applicable Performance Percentage for such Second Installment Secondary Performance Measurement Period minus the greatest applicable Performance Percentage taken into account in any previous Performance Measurement Period for the Second Installment on the later of the applicable Certification Date (as defined below) or the applicable anniversary of the Grant Date.

(c)	The Restricted Period shall end with respect to a number of the Covered Performance Shares determined by multiplying one quarter (1/4) of the Covered Performance Shares (the “Third Installment”) by the applicable Performance Percentage on the later of the applicable Certification Date or the three-year anniversary of the Grant Date, if the Performance Goal has been fully or partially satisfied for the measurement period beginning on the two-year anniversary of the Commencement Date and ending on the three-year anniversary of the Commencement Date (the “Third Installment Primary Performance Measurement Period”). If the Performance Goal with respect to the Third Installment Primary Performance Measurement Period has not been fully satisfied such that the applicable Performance Percentage did not equal 100% for the Third Installment Primary Performance Measurement Period, then the Restricted Period for all or a portion of the Third Installment shall end on the four-year anniversary of the Grant Date (or, if later than the anniversary of the Grant Date, on the applicable Certification Date) if the Performance Goal has been fully or partially satisfied for the measurement period beginning on the two-year anniversary of the Commencement Date and ending on the four-year anniversary of the Commencement Date (the “Third Installment Secondary Performance Measurement Period”) and the Performance Percentage as measured over the Third Installment Secondary Performance Measurement Period is greater than it was over the Third Installment Primary Performance Measurement Period. If, for the Third Installment Secondary Performance Measurement Period, the conditions of the previous sentence have been met, the Restricted Period shall end with respect to a number of the Covered Performance Shares determined by multiplying the number of shares in the Third Installment by the applicable Performance Percentage for such Third Installment Secondary Performance Measurement Period minus the applicable Performance Percentage taken into account for the Third Installment Primary Performance Measurement Period on the later of the applicable Certification Date (as defined below) or the applicable anniversary of the Grant Date.	

(d)	The Restricted Period shall end with respect to a number of the Covered Performance Shares determined by multiplying one quarter (1/4) of the Covered Performance Shares (the “Fourth Installment”) by the applicable Performance Percentage on the later of the applicable Certification Date or the four-year anniversary of the Grant Date, if the Performance Goal has been fully or partially satisfied for the measurement period beginning on the three-year anniversary of the Commencement Date and ending on the four-year anniversary of the Commencement Date (which measurement period shall be both the “Fourth Installment Primary Performance Measurement Period” and the “Fourth Installment Secondary Performance Measurement Period”).	

(e)	If the Cumulative Performance of the Company during the period beginning on the Commencement Date and ending on the four-year anniversary of the Commencement Date (the “Four-Year Performance Measurement Period”) is greater than the Cumulative Performance of 65% of the Peer Companies, the Restricted Period shall end for any Covered Performance Shares that have not previously vested in accordance with this paragraph 2 on the date the Committee certifies that the requisite Cumulative Performance has been achieved during the applicable Four-Year Performance Measurement Period (which date of certification is the “Cumulative Performance Certification Date”).	

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For the avoidance of doubt, the Restricted Period with respect to any Installment shall end only upon the Committee’s certification that the Performance Goal with respect to such Installment for the applicable Performance Measurement Period has been satisfied (which date of certification with respect to any Installment is the “Certification Date” applicable to such Installment).
3. Retirement . If the Participant’s Date of Termination occurs because of Retirement, then for any Covered Performance Shares and any Premium Performance Shares as to which the Restricted Period has not otherwise ended prior to the Date of Termination, the Participant shall become vested and the Restricted Period shall end for any Covered Performance Shares if and when the terms of paragraph 2 are satisfied with respect to such Covered Performance Shares and for any Premium Performance Shares if and when the terms of paragraph 6 are satisfied with respect to such Premium Performance Shares, in each case, determined as though the Participant had remained employed and the Date of Termination had not occurred prior to the end of any applicable Restricted Period for purposes of this Agreement.

4. Death, Long-Term Disability and Change in Control . Notwithstanding the provisions of paragraph 2, the Restricted Period for one or more Installments of Covered Performance Shares shall end prior to the date specified in the schedule set forth in paragraph 2 to the extent set forth below:

(a)	For Covered Performance Shares as to which the Restricted Period has not ended prior to the Date of Termination, the Restricted Period for such Covered Performance Shares shall end upon the Participant’s Date of Termination, and the Installments shall vest upon the Date of Termination, if the Date of Termination occurs by reason of the Participant’s death.	

(b)	For Covered Performance Shares as to which the Restricted Period has not ended prior to the Date of Termination, the Restricted Period for such Covered Performance Shares shall end upon the Participant’s Date of Termination, and the Installments shall vest upon the Date of Termination, if the Date of Termination occurs by reason of the Participant’s Long-Term Disability.	

(c)	For Covered Performance Shares as to which the Restricted Period has not ended prior to the date of a Change in Control, the Restricted Period for such Covered Performance Shares shall end upon a Change in Control, and the Covered Performance Shares shall vest upon the Change in Control, provided that such Change in Control occurs on or before the Date of Termination.	

5. Transfer and Forfeiture of Shares . The transfer and forfeiture of shares shall be subject to the following:

(a)	Except as provided in paragraphs 3 and 4 above, the Participant will be vested in any Covered Performance Shares if the Date of Termination has not occurred prior to the last day of the Restricted Period with respect to those shares and the requirements of paragraph 2 have been satisfied. Upon vesting at the end of such Restricted Period, those shares will be transferred to the Participant free of all restrictions.	

(b)	Except as otherwise determined by the Committee and as provided in paragraphs 3 and 4 above, the Participant shall forfeit any Covered Performance Shares as of the Date of Termination, if such Date of Termination occurs prior to vesting of those shares. Any Covered Performance Shares that have not vested as of the end of the Restricted Period that includes the Four-Year Performance Measurement Period shall be forfeited by the Participant as of the Cumulative Performance Certification Date.	

(c)	Notwithstanding anything to the contrary in any employment agreement between the Participant and the Company or a Subsidiary or any severance plan maintained by the Company or a Subsidiary in which the Participant participates, the Participate acknowledges and agrees that the Covered Performance Shares and Premium Performance Shares shall vest (and the Restricted Period shall end) only as provided by, and subject to the terms of, this Performance Based Restricted Stock Award.	

6. Premium Performance Shares . The vesting of the Premium Performance Shares under this paragraph 6 will be based on the Cumulative Performance of ACE Limited during the Four-Year Performance Measurement Period and will be determined as follows:
		
(a)	The Restricted Period shall end for the number of the Premium Performance Shares determined by multiplying the number of Covered Performance Shares that became vested pursuant to the terms of paragraph 2 by the Premium Award Performance Percentage (as determined below).	

(b)	The Premium Award Performance Percentage will be determined in accordance with the following schedule:	

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If the Cumulative Performance of ACE
Limited during the Four-Year Performance
Measurement Period:	The Premium Award
Performance Percentage will be:	
Does not exceed the 65th percentile of the
Cumulative Performance of the Peer Companies	0%	
Exceeds the 65th percentile, but does not exceed
the 75 th  percentile, of the Cumulative Performance
of the Peer Companies	50%, as increased to the extent, if any, provided pursuant to the following provisions of this paragraph (b)	
Exceeds the 75th percentile of the Cumulative Performance of the Peer Companies	100%	
If the Cumulative Performance of ACE Limited exceeds the 65th percentile but does not exceed the 75th percentile of the Cumulative Performance of the Peer Companies during the Four-Year Performance Measurement Period, then the Premium Award Performance Percentage will be a percentage between 50% and 100%, based on an interpolation of the ACE Limited Cumulative Performance falling between the 65th percentile and 75th percentile of the Cumulative Performance of the Peer Companies during the Four-Year Performance Measurement Period.	
		
(c)	Notwithstanding the foregoing provisions of this paragraph 6, the Participant shall vest in the number of Premium Performance Shares determined above on the later of the Cumulative Performance Certification Date or the four-year anniversary of the Grant Date, but only if the Committee certifies that the requisite Cumulative Performance has been achieved during the applicable Four-Year Performance Measurement Period on the Cumulative Performance Certification Date. Upon vesting at the end of such Restricted Period, those shares will be transferred to the Participant free of all restrictions. Except as provided in paragraph 3 for a Date of Termination that occurs because of Retirement, the Participant shall not be entitled to vesting of any Premium Performance Shares if the Date of Termination occurs before the later of the Cumulative Performance Certification Date or the four-year anniversary of the Grant Date for any reason.	

7. Withholding . All deliveries and distributions and the vesting of shares of stock under these Performance Based Restricted Stock Award Terms are subject to withholding of all applicable taxes. At the election of the Participant, and subject to such rules and limitations as may be established by the Committee from time to time, such withholding obligations may be satisfied through the surrender of shares of Stock which the Participant already owns, or to which the Participant is otherwise entitled under the Plan; provided, however, that such shares may be used to satisfy not more than the Company’s minimum statutory withholding obligation (based on minimum statutory withholding rates for Federal and state tax purposes, including payroll taxes, that are applicable to such supplemental taxable income).

8. Transferability . Except as otherwise provided by the Committee, awards under these Performance Based Restricted Stock Award Terms may not be sold, assigned, transferred, pledged or otherwise encumbered prior to vesting and delivery.

9. Dividends . Dividends paid with respect to the Covered Performance Shares and the Premium Performance Shares with respect to record dates on or after the Grant Date for such shares but prior to the end of the Restricted Period for such shares shall be accumulated and distributed to the Participant on the date that the Restricted Period ends with respect to the share pursuant to which such dividend was paid; provided, however that no dividends or distributions shall be payable to or for the benefit of the Participant with respect to record dates for such dividends or distributions for any Covered Performance Shares or Premium Performance Shares occurring on or after the date, if any, on which the Participant has forfeited those shares. Notwithstanding the foregoing, if the right to the payment of dividends with respect to a Covered Performance Share or a Premium Performance Share would otherwise constitute nonqualified deferred compensation subject to Section 457A of the Internal Revenue Code (“Code Section 457A”), then, (i) any dividends accumulated in relation to Covered Performance Shares and Premium Performance Shares as of the date that the right to receive such payments is no longer treated as subject to a substantial risk of forfeiture for purposes of Code Section 457A (the “457A Vesting Date”) shall be used to purchase additional Covered Performance Shares and Premium Performance Shares subject to the same vesting provisions of the original Covered Performance Shares and Premium Performance Shares to which such accumulated dividends relate and any remaining unused cash amounts that are not sufficient to purchase an additional share shall be distributed to the Participant and (ii) any dividends that are paid on or after the 457A Vesting Date but prior to the vesting of the Covered Performance Shares and Premium Performance Shares

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shall be used to purchase additional Covered Performance Shares and Premium Performance Shares subject to the same vesting provisions of the original Covered Performance Shares and Premium Performance Shares to which such dividends relate and any remaining unused cash amounts that are not sufficient to purchase an additional share shall be distributed to the Participant.

10. Voting . The Participant shall not be prevented from voting the Covered Performance Shares merely because those shares are subject to the restrictions imposed by these Performance Based Restricted Stock Award Terms and the Plan; provided, however, that the Participant shall not be entitled to vote Covered Performance Shares with respect to record dates for any Covered Performance Shares occurring on or after the date, if any, on which the Participant has forfeited those shares. The Participant acknowledges and agrees that he or she shall not be entitled to vote any Premium Performance Shares if the record date for entitlement to voting occurs prior to the date on which such shares become vested pursuant to paragraph 6.

11. Deposit of Performance Based Restricted Stock Award . Each certificate issued in respect of the Covered Performance Shares and Premium Performance Shares awarded under these Performance Based Restricted Stock Award Terms shall be registered in the name of the Participant and shall be deposited in a bank designated by the Committee.

12. Definitions . For purposes of these Performance Based Restricted Stock Award Terms, words and phrases shall be defined as follows:

(a)	Change in Control . The term “Change in Control” shall be defined as set forth in the Plan.	

(b)	Cumulative Performance . The term “Cumulative Performance” means, as to ACE Limited or the Peer Companies, the growth in tangible book value per common shares outstanding as reported under GAAP for ACE Limited or the Peer Companies during the Four-Year Performance Measurement Period beginning on the Commencement Date and ending on the fourth anniversary of the Commencement Date. The determination of the Cumulative Performance and its parameters is subject to rules established by the Committee within 90 days of the beginning of the Four-Year Performance Measurement Period. The Committee, in its discretion, may adjust the reported tangible book value for ACE Limited or the Peer Companies for any Four-Year Performance Measurement Period; provided, however, that no such adjustment may result in an increase in the number of Covered Performance Shares or Premium Performance Shares which vest (as described in paragraph 6) over the number of shares that would have otherwise vested had the reported tangible book value for either ACE Limited or the Peer Companies not been adjusted.	

(c)	Date of Termination . A Participant’s “Date of Termination” means, with respect to an employee, the date on which the Participant’s employment with the Company and the Subsidiaries terminates for any reason, and with respect to a Director, the date immediately following the last day on which the Participant serves as a Director; provided that a Date of Termination shall not be deemed to occur by reason of a Participant’s transfer of employment between the Company and a Subsidiary or between two Subsidiaries; further provided that a Date of Termination shall not be deemed to occur by reason of a Participant’s cessation of service as a Director if immediately following such cessation of service the Participant becomes or continues to be employed by the Company or a Subsidiary, nor by reason of a Participant’s termination of employment with the Company or a Subsidiary if immediately following such termination of employment the Participant becomes or continues to be a Director; and further provided that a Participant’s employment shall not be considered terminated while the Participant is on a leave of absence from the Company or a Subsidiary approved by the Participant’s employer.	

(d)	Director . The term “Director” means a member of the Board, who may or may not be an employee of the Company or a Subsidiary.	

(e)	Long-Term Disability . A Participant shall be considered to have a “Long-Term Disability” if the Participant is determined to be eligible for long-term disability benefits under the long-term disability plan in which the Participant participates and which is sponsored by the Company or a Subsidiary; or if the Participant does not participate in a long-term disability plan sponsored by the Company or a Subsidiary, then the Participant shall be considered to have a “Long-Term Disability” if the Committee determines, under standards comparable to those of the Company’s long-term disability plan, that the Participant would be eligible for long-term disability benefits if he or she participated in such plan.	

(f)	Peer Companies . The term “Peer Companies” means the companies which are in the ACE Financial Performance Peer Group as determined by the Committee within 90 days of the beginning of the applicable Performance Period and for which financial information is available for all year(s) in such Performance Measurement Period.	

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(g)	Performance Goal . The term “Performance Goal” for any Primary Performance Measurement Period or Secondary Performance Measurement Period means the achievement by ACE Limited of growth in tangible book value per common shares outstanding as reported under GAAP during such Performance Measurement Period, as compared to the growth in tangible book value per common shares outstanding as reported under GAAP during the same Performance Measurement Period by the Peer Companies. The determination of the Performance Goal and its parameters is subject to rules established by the Committee within 90 days of the beginning of the applicable Performance Measurement Period. The Committee, in its discretion, may adjust the reported tangible book value for ACE Limited or the Peer Companies for any Primary Performance Measurement Period or Secondary Performance Measurement Period; provided, however, that no such adjustment may result in an increase in the number of Covered Performance Shares which are earned and vested at the end of any such Performance Measurement Period over the number of Covered Performance Shares that would have been earned and vested had the reported tangible book value for either ACE Limited or the Peer Companies not been adjusted.	

(h)	Performance Measurement Period . The term “Performance Measurement Period” shall mean the Primary Performance Measurement Period or the Secondary Performance Measurement Period, as applicable, with respect to an Installment of Covered Performance Shares; and shall mean the Four-Year Performance Measurement Period with respect to the Covered Performance Shares as described in paragraph 2(e) and Premium Performance Shares as described in paragraph 6.	

(i)	Performance Percentage . The term “Performance Percentage” shall mean the applicable Performance Percentage determined based on the achievement of the Performance Goal over a Performance Measurement Period by ACE Limited as compared to the Peer Companies:	

		
If the Satisfaction of ACE
Limited of the Performance Goal during the applicable Performance Measurement Period:	The Performance Percentage will be:	
Does not exceed the 25th percentile of the
satisfaction of the Performance Goal of the Peer Companies	0%	
Exceeds the 25th percentile, but does not exceed
the 50th percentile, of the satisfaction of the Performance Goal of the Peer Companies	50%	
Exceeds the 50th percentile of the satisfaction of the Performance Goal of the Peer Companies	100%	

(j)	Retirement . The term “Retirement” means the Participant’s Date of Termination that occurs on or after the Participant has both completed at least ten years of service with the Company or a Subsidiary and attained at least age 62; provided, however, that a Date of Termination will not be treated as a Retirement unless the Participant (i) has terminated employment in good standing with the Company or a Subsidiary, and (ii) executes an agreement and release as required by the Company which will include, without limitation, a general release, and non-competition and non-solicitation provisions.  A Participant shall be deemed to have executed a release as described in clause (ii) above only if such release is returned by such time as is established by the Company; provided that to the extent benefits provided pursuant to the Plan would be considered to be provided under a nonqualified deferred compensation plan as that term is defined in Treas. Reg. §1.409A-1, such benefits shall be paid to the Participant only if the release is returned in time to permit the distribution of the benefits to satisfy the requirements of Section 409A of the Internal Revenue Code with respect to the time of payment.	

13. Plan Definitions . Except where the context clearly implies or indicates the contrary, a word, term, or phrase used in the Plan is similarly used in these Performance Based Restricted Stock Award Terms.
14. Heirs and Successors . These Performance Based Restricted Stock Terms shall be binding upon, and inure to the benefit of, the Company and its successors and assigns, and upon any person acquiring, whether by merger, consolidation, purchase of assets or otherwise, all or substantially all of the Company’s assets and business. If any benefits deliverable to the Participant under these Performance Based Restricted Stock Terms have not been delivered at the time of the Participant’s death, such benefits shall be delivered to the Designated Beneficiary, in accordance with the provisions of these Performance Based Restricted Stock Terms and the Plan. The “Designated Beneficiary” shall be the beneficiary or

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beneficiaries designated by the Participant in a writing filed with the Committee in such form and at such time as the Committee shall require. If a deceased Participant fails to designate a beneficiary, or if the Designated Beneficiary does not survive the Participant, any rights that would have been exercisable by the Participant and any benefits distributable to the Participant shall be distributed to the legal representative of the estate of the Participant. If a deceased Participant designates a beneficiary and the Designated Beneficiary survives the Participant but dies before the complete distribution of benefits to the Designated Beneficiary under these Performance Based Restricted Stock Terms, then any benefits distributable to the Designated Beneficiary shall be distributed to the legal representative of the estate of the Designated Beneficiary.

15. Administration . The authority to manage and control the operation and administration of these Performance Based Restricted Stock Award Terms shall be vested in the Committee, and the Committee shall have all powers with respect to these Performance Based Restricted Stock Award Terms as it has with respect to the Plan. Any interpretation of these Performance Based Restricted Stock Award Terms by the Committee and any decision made by it with respect to these Performance Based Restricted Stock Award Terms are final and binding on all persons.

16. Plan and Corporate Records Govern . Notwithstanding anything in these Performance Based Restricted Stock Award Terms to the contrary, these Performance Based Restricted Stock Award Terms shall be subject to the terms of the Plan, a copy of which may be obtained by the Participant from the office of the Secretary of the Company; and these Performance Based Restricted Stock Award Terms are subject to all interpretations, amendments, rules and regulations promulgated by the Committee from time to time pursuant to the Plan. Notwithstanding anything in the Performance Based Restricted Stock Terms to the contrary, in the event of any discrepancies between the corporate records regarding this award and the Record-Keeping System, the corporate records shall control.

17. Not An Employment Contract . The Performance Based Restricted Stock Award will not confer on the Participant any right with respect to continuance of employment or other service with the Company or any Subsidiary, nor will it interfere in any way with any right the Company or any Subsidiary would otherwise have to terminate or modify the terms of such Participant’s employment or other service at any time.

18. Notices . Any written notices provided for in these Performance Based Restricted Stock Award Terms or the Plan shall be in writing and shall be deemed sufficiently given if either hand delivered or if sent by fax or overnight courier, or by postage paid first class mail. Notices sent by mail shall be deemed received three business days after mailing but in no event later than the date of actual receipt. Notices shall be directed, if to the Participant, at the Participant’s address indicated by the Company’s records, or if to the Company, at the Company’s principal executive office.

19. Fractional Shares . In lieu of issuing a fraction of a share, resulting from an adjustment of the Performance Based Restricted Stock Award pursuant to paragraph 5.2(f) of the Plan or otherwise, the Company will be entitled to pay to the Participant an amount equal to the fair market value of such fractional share.

20. Amendment . These Performance Based Restricted Stock Award Terms may be amended in accordance with the provisions of the Plan, and may otherwise be amended by written agreement of the Participant and the Company without the consent of any other person.

IN WITNESS WHEREOF, the Company has caused these presents to be executed in its name and on its behalf, all as of the Grant Date.
ACE LIMITED

By:     ______________________________________
Its:     ______________________________________

I hereby agree to all the terms, restrictions and conditions set forth in the Agreement:
______________________________________
Participant

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Exhibit 10.68

For Awards for Chief Executive Officer, Chief Financial Officer and the General Counsel

Performance Based Restricted Stock Award Terms
under the
ACE Limited 2004 Long-Term Incentive Plan
The Participant has been granted a Performance Based Restricted Stock Award by ACE Limited (the “Company”) under the ACE Limited 2004 Long-Term Incentive Plan (the “Plan”). The shares of Stock granted as Covered Performance Shares and Premium Performance Shares pursuant to this Performance Based Restricted Stock Award shall be subject to the following Performance Based Restricted Stock Award Terms:
1. Terms of Award . The following words and phrases used in these Performance Based Restricted Stock Award Terms shall have the meanings set forth in this paragraph 1:

(a)	The “Participant” is , who is the individual recipient of the Performance Based Restricted Stock Award on the specified Grant Date.	

(b)	The “Grant Date” is [ Insert Date ].	

(c)	The “Commencement Date” is [ Insert Date ].	

(d)	The number of “Covered Performance Shares” is , which is 50% [75% for Chief Executive Officer] of that portion of the Participant’s annual Long-Term Incentive Award which is granted in the form of restricted shares for the year in which the Grant Date occurs, as reflected in the corporate records and shown in the Record-Keeping System in the Participant’s individual account records.	

(e)	The number of Premium Performance Shares is [ ] [number equal to the number of Covered Performance Shares.]	

Other words and phrases used in these Performance Based Restricted Stock Award Terms are defined pursuant to paragraph 11 or elsewhere in these Performance Based Restricted Stock Award Terms.
2. Restricted Period . Subject to the limitations of these Performance Based Restricted Stock Award Terms, the “Restricted Period” for each Installment of Covered Performance Shares of the Performance Based Restricted Stock Award shall begin on the Grant Date and end as described below (but only if the Date of Termination has not occurred before the end of the Restricted Period):

(a)	The Restricted Period shall end with respect to a number of the Covered Performance Shares determined by multiplying one quarter (1/4) of the Covered Performance Shares (the “First Installment”) by the applicable Performance Percentage on the later of the applicable Certification Date (as defined below) or the one-year anniversary of the Grant Date, if the Performance Goal has been fully or partially satisfied for the measurement period beginning on the Commencement Date and ending on the one-year anniversary of the Commencement Date (the “First Installment Primary Performance Measurement Period”). If the Performance Goal with respect to the First Installment Primary Performance Measurement Period has not been fully satisfied such that the applicable Performance Percentage did not equal 100% for the First Installment Primary Performance Measurement Period, then the Restricted Period for all or a portion of the First Installment shall end on the earliest of the two-year, three-year, or four-year anniversary of the Grant Date (or, if later than the anniversary of the Grant Date, on the applicable Certification Date) on which the Performance Goal has been fully or partially satisfied for the measurement period beginning on the Commencement Date and ending on the two-year, three-year, or four-year anniversary of the Commencement Date, as applicable (each, a “First Installment Secondary Performance Measurement Period”) and the Performance Percentage as measured over any First Installment Secondary Performance Measurement Period is greater than it was over the First Installment Primary Performance Measurement Period or any previous First Installment Secondary Performance Measurement Period. For any First Installment Secondary Performance Measurement Period pursuant to which the conditions of the previous sentence have been met, the Restricted Period shall end with respect to a number of the Covered Performance Shares determined by multiplying the number of shares in the First Installment by the applicable Performance Percentage for such First Installment Secondary Performance Measurement Period minus the greatest applicable Performance Percentage taken into account in any previous Performance Measurement Period for the First	

Installment on the later of the applicable Certification Date (as defined below) or the applicable anniversary of the Grant Date.

(b)	The Restricted Period shall end with respect to a number of the Covered Performance Shares determined by multiplying one quarter (1/4) of the Covered Performance Shares (the “Second Installment”) by the applicable Performance Percentage on the later of the applicable Certification Date or the two-year anniversary of the Grant Date, if the Performance Goal has been fully or partially satisfied for the measurement period beginning on the one-year anniversary of the Commencement Date and ending on the two-year anniversary of the Commencement Date (the “Second Installment Primary Performance Measurement Period”). If the Performance Goal with respect to the Second Installment Primary Performance Measurement Period has not been fully satisfied such that the applicable Performance Percentage did not equal 100% for the Second Installment Primary Performance Measurement Period, then the Restricted Period for all or a portion of the Second Installment shall end on the earlier of the three-year anniversary or the four-year anniversary of the Grant Date (or, if later than the anniversary of the Grant Date, on the applicable Certification Date) on which the Performance Goal has been fully or partially satisfied for the measurement period beginning on the one-year anniversary of the Commencement Date and ending on the three-year or four-year anniversary date of the Commencement Date, as applicable (each, a “Second Installment Secondary Performance Measurement Period”) and the Performance Percentage as measured over any Second Installment Secondary Performance Measurement Period is greater than it was over the Second Installment Primary Performance Measurement Period or any previous Second Installment Secondary Performance Measurement Period. For any Second Installment Secondary Performance Measurement Period pursuant to which the conditions of the previous sentence have been met, the Restricted Period shall end with respect to a number of the Covered Performance Shares determined by multiplying the number of shares in the Second Installment by the applicable Performance Percentage for such Second Installment Secondary Performance Measurement Period minus the greatest applicable Performance Percentage taken into account in any previous Performance Measurement Period for the Second Installment on the later of the applicable Certification Date (as defined below) or the applicable anniversary of the Grant Date.	

(c)	The Restricted Period shall end with respect to a number of the Covered Performance Shares determined by multiplying one quarter (1/4) of the Covered Performance Shares (the “Third Installment”) by the applicable Performance Percentage on the later of the applicable Certification Date or the three-year anniversary of the Grant Date, if the Performance Goal has been fully or partially satisfied for the measurement period beginning on the two-year anniversary of the Commencement Date and ending on the three-year anniversary of the Commencement Date (the “Third Installment Primary Performance Measurement Period”). If the Performance Goal with respect to the Third Installment Primary Performance Measurement Period has not been fully satisfied such that the applicable Performance Percentage did not equal 100% for the Third Installment Primary Performance Measurement Period, then the Restricted Period for all or a portion of the Third Installment shall end on the four-year anniversary of the Grant Date (or, if later than the anniversary of the Grant Date, on the applicable Certification Date) if the Performance Goal has been fully or partially satisfied for the measurement period beginning on the two-year anniversary of the Commencement Date and ending on the four-year anniversary of the Commencement Date (the “Third Installment Secondary Performance Measurement Period”) and the Performance Percentage as measured over the Third Installment Secondary Performance Measurement Period is greater than it was over the Third Installment Primary Performance Measurement Period. If, for the Third Installment Secondary Performance Measurement Period, the conditions of the previous sentence have been met, the Restricted Period shall end with respect to a number of the Covered Performance Shares determined by multiplying the number of shares in the Third Installment by the applicable Performance Percentage for such Third Installment Secondary Performance Measurement Period minus the applicable Performance Percentage taken into account for the Third Installment Primary Performance Measurement Period on the later of the applicable Certification Date (as defined below) or the applicable anniversary of the Grant Date.	

(d)	The Restricted Period shall end with respect to a number of the Covered Performance Shares determined by multiplying one quarter (1/4) of the Covered Performance Shares (the “Fourth Installment”) by the applicable Performance Percentage on the later of the applicable Certification Date or the four-year anniversary of the Grant Date, if the Performance Goal has been fully or partially satisfied for the measurement period beginning on the three-year anniversary of the Commencement Date and ending on the four-year anniversary of the Commencement Date (which measurement period shall be both the “Fourth Installment Primary Performance Measurement Period” and the “Fourth Installment Secondary Performance Measurement Period”).	

(e)	If the Cumulative Performance of the Company during the period beginning on the Commencement Date and ending on the four-year anniversary of the Commencement Date (the “Four-Year Performance Measurement Period”) is greater than the Cumulative Performance of 65% of the Peer Companies, the Restricted Period shall	

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end for any Covered Performance Shares that have not previously vested in accordance with this paragraph 2 on the date the Committee certifies that the requisite Cumulative Performance has been achieved during the applicable Four-Year Performance Measurement Period (which date of certification is the “Cumulative Performance Certification Date”).

For the avoidance of doubt, the Restricted Period with respect to any Installment shall end only upon the Committee’s certification that the Performance Goal with respect to such Installment for the applicable Performance Measurement Period has been satisfied (which date of certification with respect to any Installment is the “Certification Date” applicable to such Installment).
3. Retirement . If the Participant’s Date of Termination occurs because of Retirement, then for any Covered Performance Shares and any Premium Performance Shares as to which the Restricted Period has not otherwise ended prior to the Date of Termination, the Participant shall become vested and the Restricted Period shall end for any Covered Performance Shares if and when the terms of paragraph 2 are satisfied with respect to such Covered Performance Shares and for any Premium Performance Shares if and when the terms of paragraph 6 are satisfied with respect to such Premium Performance Shares, in each case, determined as though the Participant had remained employed and the Date of Termination had not occurred prior to the end of any applicable Restricted Period for purposes of this Agreement.

4. Death, Long-Term Disability and Change in Control . Notwithstanding the provisions of paragraph 2, the Restricted Period for one or more Installments of Covered Performance Shares shall end prior to the date specified in the schedule set forth in paragraph 2 to the extent set forth below:

(a)	For Covered Performance Shares as to which the Restricted Period has not ended prior to the Date of Termination, the Restricted Period for such Covered Performance Shares shall end upon the Participant’s Date of Termination, and the Installments shall vest upon the Date of Termination, if the Date of Termination occurs by reason of the Participant’s death.	

(b)	For Covered Performance Shares as to which the Restricted Period has not ended prior to the Date of Termination, the Restricted Period for such Covered Performance Shares shall end upon the Participant’s Date of Termination, and the Installments shall vest upon the Date of Termination, if the Date of Termination occurs by reason of the Participant’s Long-Term Disability.	

(c)	If the Participant's Date of Termination is a Change in Control Date of Termination, then, for Covered Performance Shares, if any, as to which the Restricted Period has not ended prior to the Participant’s Date of Termination, the Restricted Period for such Covered Performance Shares will end on the Change in Control Date of Termination; provided that if the Participant's Change in Control Date of Termination occurs within the 180-day period immediately preceding the date of a Change in Control, then the Restricted Period for all unvested Covered Performance Shares held by the Participant on the Date of Termination will end, and those Covered Performance Shares will vest on the date of a Change in Control.	

5. Transfer and Forfeiture of Shares . The transfer and forfeiture of shares shall be subject to the following:

(a)	Except as provided in paragraphs 3 and 4 above, the Participant will be vested in any Covered Performance Shares if the Date of Termination has not occurred prior to the last day of the Restricted Period with respect to those shares and the requirements of paragraph 2 have been satisfied. Upon vesting at the end of such Restricted Period, those shares will be transferred to the Participant free of all restrictions.	

(b)	Except as otherwise determined by the Committee and as provided in paragraphs 3 and 4 above, the Participant shall forfeit any Covered Performance Shares as of the Date of Termination, if such Date of Termination occurs prior to vesting of those shares. Any Covered Performance Shares that have not vested as of the end of the Restricted Period that includes the Four-Year Performance Measurement Period shall be forfeited by the Participant as of the Cumulative Performance Certification Date.	

(c)	Notwithstanding anything to the contrary in any employment agreement between the Participant and the Company or a Subsidiary or any severance plan maintained by the Company or a Subsidiary in which the Participant participates, the Participate acknowledges and agrees that the Covered Performance Shares and Premium Performance Shares shall vest (and the Restricted Period shall end) only as provided by, and subject to the terms of, this Performance Based Restricted Stock Award.	

3

6. Premium Performance Shares . The vesting of the Premium Performance Shares under this paragraph 6 will be based on the Cumulative Performance of ACE Limited during the Four-Year Performance Measurement Period and will be determined as follows:

(a)	The Restricted Period shall end for the number of the Premium Performance Shares determined by multiplying the number of Covered Performance Shares that became vested pursuant to the terms of paragraph 2 by the Premium Award Performance Percentage (as determined below).	

(b)	The Premium Award Performance Percentage will be determined in accordance with the following schedule:	

		
If the Cumulative Performance of ACE
Limited during the Four-Year Performance
Measurement Period:	The Premium Award
Performance Percentage will be:	
Does not exceed the 65th percentile of the
Cumulative Performance of the Peer Companies	0%	
Exceeds the 65th percentile, but does not exceed
the 75 th  percentile, of the Cumulative Performance
of the Peer Companies	50%, as increased to the extent, if any, provided pursuant to the following provisions of this paragraph (b)	
Exceeds the 75th percentile of the Cumulative Performance of the Peer Companies	100%	
If the Cumulative Performance of ACE Limited exceeds the 65th percentile but does not exceed the 75th percentile of the Cumulative Performance of the Peer Companies during the Four-Year Performance Measurement Period, then the Premium Award Performance Percentage will be a percentage between 50% and 100%, based on an interpolation of the ACE Limited Cumulative Performance falling between the 65th percentile and 75th percentile of the Cumulative Performance of the Peer Companies during the Four-Year Performance Measurement Period.	

(c)	Notwithstanding the foregoing provisions of this paragraph 6, the Participant shall vest in the number of Premium Performance Shares determined above on the later of the Cumulative Performance Certification Date or the four-year anniversary of the Grant Date, but only if the Committee certifies that the requisite Cumulative Performance has been achieved during the applicable Four-Year Performance Measurement Period on the Cumulative Performance Certification Date. Upon vesting at the end of such Restricted Period, those shares will be transferred to the Participant free of all restrictions. Except as provided in paragraph 3 for a Date of Termination that occurs because of Retirement, the Participant shall not be entitled to vesting of any Premium Performance Shares if the Date of Termination occurs before the later of the Cumulative Performance Certification Date or the four-year anniversary of the Grant Date for any reason.	

7. Withholding . All deliveries and distributions and the vesting of shares of stock under these Performance Based Restricted Stock Award Terms are subject to withholding of all applicable taxes. At the election of the Participant, and subject to such rules and limitations as may be established by the Committee from time to time, such withholding obligations may be satisfied through the surrender of shares of Stock which the Participant already owns, or to which the Participant is otherwise entitled under the Plan; provided, however, that such shares may be used to satisfy not more than the Company’s minimum statutory withholding obligation (based on minimum statutory withholding rates for Federal and state tax purposes, including payroll taxes, that are applicable to such supplemental taxable income).

8. Transferability . Except as otherwise provided by the Committee, awards under these Performance Based Restricted Stock Award Terms may not be sold, assigned, transferred, pledged or otherwise encumbered prior to vesting and delivery.

9. Dividends . Dividends paid with respect to the Covered Performance Shares and the Premium Performance Shares with respect to record dates on or after the Grant Date for such shares but prior to the end of the Restricted Period for such shares shall be accumulated and distributed to the Participant on the date that the Restricted Period ends with respect to the share pursuant to which such dividend was paid; provided, however that no dividends or distributions shall be payable to or for the benefit of the Participant with respect to record dates for such dividends or distributions for any Covered Performance Shares or Premium Performance Shares occurring on or after the date, if any, on

4

which the Participant has forfeited those shares. Notwithstanding the foregoing, if the right to the payment of dividends with respect to a Covered Performance Share or a Premium Performance Share would otherwise constitute nonqualified deferred compensation subject to Section 457A of the Internal Revenue Code (“Code Section 457A”), then, (i) any dividends accumulated in relation to Covered Performance Shares and Premium Performance Shares as of the date that the right to receive such payments is no longer treated as subject to a substantial risk of forfeiture for purposes of Code Section 457A (the “457A Vesting Date”) shall be used to purchase additional Covered Performance Shares and Premium Performance Shares subject to the same vesting provisions of the original Covered Performance Shares and Premium Performance Shares to which such accumulated dividends relate and any remaining unused cash amounts that are not sufficient to purchase an additional share shall be distributed to the Participant and (ii) any dividends that are paid on or after the 457A Vesting Date but prior to the vesting of the Covered Performance Shares and Premium Performance Shares shall be used to purchase additional Covered Performance Shares and Premium Performance Shares subject to the same vesting provisions of the original Covered Performance Shares and Premium Performance Shares to which such dividends relate and any remaining unused cash amounts that are not sufficient to purchase an additional share shall be distributed to the Participant.

10. Voting . The Participant shall not be prevented from voting the Covered Performance Shares merely because those shares are subject to the restrictions imposed by these Performance Based Restricted Stock Award Terms and the Plan; provided, however, that the Participant shall not be entitled to vote Covered Performance Shares with respect to record dates for any Covered Performance Shares occurring on or after the date, if any, on which the Participant has forfeited those shares. The Participant acknowledges and agrees that he or she shall not be entitled to vote any Premium Performance Shares if the record date for entitlement to voting occurs prior to the date on which such shares become vested pursuant to paragraph 6.

11. Deposit of Performance Based Restricted Stock Award . Each certificate issued in respect of the Covered Performance Shares and Premium Performance Shares awarded under these Performance Based Restricted Stock Award Terms shall be registered in the name of the Participant and shall be deposited in a bank designated by the Committee.

12. Definitions . For purposes of these Performance Based Restricted Stock Award Terms, words and phrases shall be defined as follows:

(a)	Cause . The term “Cause” shall mean - unless otherwise defined in an employment agreement between the Participant and the Company or Subsidiary - the occurrence of any of the following:	

(i)  a conviction of the Participant with respect to a (x) felony or (y) a misdemeanor involving moral turpitude; or

(ii)  willful misconduct or gross negligence by the Participant resulting, in either case, in harm to the Company or any Subsidiary; or

(iii)  failure by the Participant to carry out the lawful and reasonable directions of the Board or the Participant’s immediate supervisor, as the case may be; or

(iv)  refusal to cooperate or non-cooperation by the Participant with any governmental regulatory authority; or

(v)  fraud, embezzlement, theft or dishonesty by the Participant against the Company or any Subsidiary or a material violation by the Participant of a policy or procedure of the Company, resulting, in any case, in harm to the Company or any Subsidiary.

(b)	Change in Control . The term “Change in Control” shall be defined as set forth in the Plan.	

(c)	Change in Control Date Termination . The term “Change in Control Date of Termination” means (A) the Participant's Date of Termination that occurs for any reason (including, without limitation, voluntary resignation of the Participant with or without Good Reason) during the first calendar month that begins on or after the six month anniversary of the date of a Change in Control or (B) the Participant’s Date of Termination that occurs because the Company and/or any of the Related Companies terminates the Participant’s employment with the Company and/or the Related Companies without Cause (other than due to death, a Long-Term Disability or a Retirement) or because the Participant terminates his or her employment for Good Reason, provided that such termination in accordance with this clause (B) occurs during the period commencing on the 180th day immediately preceding a Change in Control date and ending on the two year anniversary of such Change in Control date.	

5

		
(d)	Cumulative Performance . The term “Cumulative Performance” means, as to ACE Limited or the Peer Companies, the growth in tangible book value per common shares outstanding as reported under GAAP for ACE Limited or the Peer Companies during the Four-Year Performance Measurement Period beginning on the Commencement Date and ending on the fourth anniversary of the Commencement Date. The determination of the Cumulative Performance and its parameters is subject to rules established by the Committee within 90 days of the beginning of the Four-Year Performance Measurement Period. The Committee, in its discretion, may adjust the reported tangible book value for ACE Limited or the Peer Companies for any Four-Year Performance Measurement Period; provided, however, that no such adjustment may result in an increase in the number of Covered Performance Shares or Premium Performance Shares which vest (as described in paragraph 6) over the number of shares that would have otherwise vested had the reported tangible book value for either ACE Limited or the Peer Companies not been adjusted.	

(e)	Date of Termination . A Participant’s “Date of Termination” means, with respect to an employee, the date on which the Participant’s employment with the Company and the Subsidiaries terminates for any reason, and with respect to a Director, the date immediately following the last day on which the Participant serves as a Director; provided that a Date of Termination shall not be deemed to occur by reason of a Participant’s transfer of employment between the Company and a Subsidiary or between two Subsidiaries; further provided that a Date of Termination shall not be deemed to occur by reason of a Participant’s cessation of service as a Director if immediately following such cessation of service the Participant becomes or continues to be employed by the Company or a Subsidiary, nor by reason of a Participant’s termination of employment with the Company or a Subsidiary if immediately following such termination of employment the Participant becomes or continues to be a Director; and further provided that a Participant’s employment shall not be considered terminated while the Participant is on a leave of absence from the Company or a Subsidiary approved by the Participant’s employer.	

(f)	Director . The term “Director” means a member of the Board, who may or may not be an employee of the Company or a Subsidiary.	

(g)	Good Reason . The term “Good Reason” shall mean - unless otherwise defined in an in-force employment agreement between the Participant and the Company or Subsidiary - the occurrence of any of the following within the 60-day period preceding a Date of Termination without the Participant’s prior written consent:	

(i)  a material adverse diminution of the Participant’s titles, authority, duties or responsibilities, or the assignment to the Participant of titles, authority, duties or responsibilities that are materially inconsistent with his or her titles, authority, duties and/or responsibilities in a manner materially adverse to the Participant; or

(ii)  a reduction in the Participant’s base salary or annual bonus opportunity (other than any reduction applicable to all similarly situated Executives generally); or

(iii)  a failure of the Company to obtain the assumption in writing of its obligations under the Plan by any successor to all or substantially all of the assets of the Company within 45 days after a merger, consolidation, sale or similar transaction that qualifies as a Change in Control.

(h)	Long-Term Disability . A Participant shall be considered to have a “Long-Term Disability” if the Participant is determined to be eligible for long-term disability benefits under the long-term disability plan in which the Participant participates and which is sponsored by the Company or a Subsidiary; or if the Participant does not participate in a long-term disability plan sponsored by the Company or a Subsidiary, then the Participant shall be considered to have a “Long-Term Disability” if the Committee determines, under standards comparable to those of the Company’s long-term disability plan, that the Participant would be eligible for long-term disability benefits if he or she participated in such plan.	

(i)	Peer Companies . The term “Peer Companies” means the companies which are in the ACE Financial Performance Peer Group as determined by the Committee within 90 days of the beginning of the applicable Performance Period and for which financial information is available for all year(s) in such Performance Measurement Period.	

(j)	Performance Goal . The term “Performance Goal” for any Primary Performance Measurement Period or Secondary Performance Measurement Period means the achievement by ACE Limited of growth in tangible book value per common shares outstanding as reported under GAAP during such Performance Measurement Period, as compared to the growth in tangible book value per common shares outstanding as reported under GAAP during the same Performance Measurement Period by the Peer Companies. The determination of the Performance Goal and its parameters is subject to rules established by the Committee within 90 days of the beginning of the applicable	

6

Performance Measurement Period. The Committee, in its discretion, may adjust the reported tangible book value for ACE Limited or the Peer Companies for any Primary Performance Measurement Period or Secondary Performance Measurement Period; provided, however, that no such adjustment may result in an increase in the number of Covered Performance Shares which are earned and vested at the end of any such Performance Measurement Period over the number of Covered Performance Shares that would have been earned and vested had the reported tangible book value for either ACE Limited or the Peer Companies not been adjusted.

(k)	Performance Measurement Period . The term “Performance Measurement Period” shall mean the Primary Performance Measurement Period or the Secondary Performance Measurement Period, as applicable, with respect to an Installment of Covered Performance Shares; and shall mean the Four-Year Performance Measurement Period with respect to the Covered Performance Shares as described in paragraph 2(e) and Premium Performance Shares as described in paragraph 6.	

(l)	Performance Percentage . The term “Performance Percentage” shall mean the applicable Performance Percentage determined based on the achievement of the Performance Goal over a Performance Measurement Period by ACE Limited as compared to the Peer Companies:	

		
If the Satisfaction of ACE
Limited of the Performance Goal during the applicable Performance Measurement Period:	The Performance Percentage will be:	
Does not exceed the 25th percentile of the
satisfaction of the Performance Goal of the Peer Companies	0%	
Exceeds the 25th percentile, but does not exceed
the 50th percentile, of the satisfaction of the Performance Goal of the Peer Companies	50%	
Exceeds the 50th percentile of the satisfaction of the Performance Goal of the Peer Companies	100%	

(m)	Retirement . The term “Retirement” means the Participant’s Date of Termination that occurs on or after the Participant has both completed at least ten years of service with the Company or a Subsidiary and attained at least age 62; provided, however, that a Date of Termination will not be treated as a Retirement unless the Participant (i) has terminated employment in good standing with the Company or a Subsidiary, and (ii) executes an agreement and release as required by the Company which will include, without limitation, a general release, and non-competition and non-solicitation provisions.  A Participant shall be deemed to have executed a release as described in clause (ii) above only if such release is returned by such time as is established by the Company; provided that to the extent benefits provided pursuant to the Plan would be considered to be provided under a nonqualified deferred compensation plan as that term is defined in Treas. Reg. §1.409A-1, such benefits shall be paid to the Participant only if the release is returned in time to permit the distribution of the benefits to satisfy the requirements of Section 409A of the Internal Revenue Code with respect to the time of payment.	

13. Plan Definitions . Except where the context clearly implies or indicates the contrary, a word, term, or phrase used in the Plan is similarly used in these Performance Based Restricted Stock Award Terms.

14. Heirs and Successors . These Performance Based Restricted Stock Terms shall be binding upon, and inure to the benefit of, the Company and its successors and assigns, and upon any person acquiring, whether by merger, consolidation, purchase of assets or otherwise, all or substantially all of the Company’s assets and business. If any benefits deliverable to the Participant under these Performance Based Restricted Stock Terms have not been delivered at the time of the Participant’s death, such benefits shall be delivered to the Designated Beneficiary, in accordance with the provisions of these Performance Based Restricted Stock Terms and the Plan. The “Designated Beneficiary” shall be the beneficiary or beneficiaries designated by the Participant in a writing filed with the Committee in such form and at such time as the Committee shall require. If a deceased Participant fails to designate a beneficiary, or if the Designated Beneficiary does not survive the Participant, any rights that would have been exercisable by the Participant and any benefits distributable to the Participant shall be distributed to the legal representative of the estate of the Participant. If a deceased Participant designates a beneficiary and the Designated Beneficiary survives the Participant but dies before the complete distribution of benefits to the Designated Beneficiary under these Performance Based Restricted Stock Terms, then any benefits

7

distributable to the Designated Beneficiary shall be distributed to the legal representative of the estate of the Designated Beneficiary.

15. Administration . The authority to manage and control the operation and administration of these Performance Based Restricted Stock Award Terms shall be vested in the Committee, and the Committee shall have all powers with respect to these Performance Based Restricted Stock Award Terms as it has with respect to the Plan. Any interpretation of these Performance Based Restricted Stock Award Terms by the Committee and any decision made by it with respect to these Performance Based Restricted Stock Award Terms are final and binding on all persons.

16. Plan and Corporate Records Govern . Notwithstanding anything in these Performance Based Restricted Stock Award Terms to the contrary, these Performance Based Restricted Stock Award Terms shall be subject to the terms of the Plan, a copy of which may be obtained by the Participant from the office of the Secretary of the Company; and these Performance Based Restricted Stock Award Terms are subject to all interpretations, amendments, rules and regulations promulgated by the Committee from time to time pursuant to the Plan. Notwithstanding anything in the Performance Based Restricted Stock Terms to the contrary, in the event of any discrepancies between the corporate records regarding this award and the Record-Keeping System, the corporate records shall control.

17. Not An Employment Contract . The Performance Based Restricted Stock Award will not confer on the Participant any right with respect to continuance of employment or other service with the Company or any Subsidiary, nor will it interfere in any way with any right the Company or any Subsidiary would otherwise have to terminate or modify the terms of such Participant’s employment or other service at any time.

18. Notices . Any written notices provided for in these Performance Based Restricted Stock Award Terms or the Plan shall be in writing and shall be deemed sufficiently given if either hand delivered or if sent by fax or overnight courier, or by postage paid first class mail. Notices sent by mail shall be deemed received three business days after mailing but in no event later than the date of actual receipt. Notices shall be directed, if to the Participant, at the Participant’s address indicated by the Company’s records, or if to the Company, at the Company’s principal executive office.

19. Fractional Shares . In lieu of issuing a fraction of a share, resulting from an adjustment of the Performance Based Restricted Stock Award pursuant to paragraph 5.2(f) of the Plan or otherwise, the Company will be entitled to pay to the Participant an amount equal to the fair market value of such fractional share.

20. Amendment . These Performance Based Restricted Stock Award Terms may be amended in accordance with the provisions of the Plan, and may otherwise be amended by written agreement of the Participant and the Company without the consent of any other person.

IN WITNESS WHEREOF, the Company has caused these presents to be executed in its name and on its behalf, all as of the Grant Date.
ACE LIMITED

By:     ______________________________________
Its:     ______________________________________

I hereby agree to all the terms, restrictions and conditions set forth in the Agreement:
______________________________________
Participant

8

Exhibit 12.1

ACE Limited
Ratio of Earnings to Fixed Charges

	
																				
 	Years Ended December 31	
(in millions of U.S. dollars, except ratios)	2013		 	2012		 	2011		 	2010		 	2009		
Net income	$	3,758		 	$	2,706		 	$	1,540		 	$	3,085		 	$	2,523		
Add:	 	 	 	 	 	 	 	 	 	
Provision for income taxes	480		 	270		 	502		 	553		 	521		
Fixed charges	318		 	287		 	288		 	251		 	253		
Earnings for computation	$	4,556		 	$	3,263		 	$	2,330		 	$	3,889		 	$	3,297		
Fixed charges	 	 	 	 	 	 	 	 	 	
Interest expense	$	275		 	$	250		 	$	250		 	$	224		 	$	225		
Portion of rental expense deemed to be interest	43		 	37		 	38		 	27		 	28		
Total fixed charges	$	318		 	$	287		 	$	288		 	$	251		 	$	253		
Ratio of earnings to fixed charges	14.4		 	11.4		 	8.1		 	15.5		 	13.0		

Note: ACE Limited recognizes accruals for interest and penalties, if any, related to unrecognized tax benefits in income tax expense (i.e., excluded from interest expense).

	
			
 Exhibit 21.1	  	Set forth below are subsidiaries of ACE and their respective jurisdiction of ownership and percentage ownership, in each case as of December 31, 2013. Each of the named subsidiaries is not necessarily a significant subsidiary as defined in Rule 1-02(w) of Regulation S-X, and ACE has several additional subsidiaries not named below. The unnamed subsidiaries, considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary at the end of the year covered by this report.	

	
			
Name	Jurisdiction of Organization	
Percentage
Ownership	
ACE Limited	Switzerland	Publicly held	
     ACE Insurance (Switzerland) Limited	Switzerland	100%	
         ACE Reinsurance (Switzerland) Limited	Switzerland	100%	
     ACE Group Management and Holdings Ltd.	Bermuda	100%	
         ACE Bermuda Insurance Ltd.	Bermuda	100%	
                  Paget Reinsurance Ltd.	Bermuda	100%	
                  ACE Capital Title Reinsurance Company
(EI# 06-1434264, NAIC# 50028, NY)	USA
(New York)	100%	
                  ACE Financial Solutions International, Ltd.	Bermuda	100%	
                  ACE Bermuda International Insurance (Ireland) Limited
(formerly ACE European Markets Insurance Limited)	Ireland	100%	
                  Corporate Officers & Directors Assurance Ltd.	Bermuda	100%	
                  Oasis Real Estate Company Ltd.	Bermuda	100%	
                  Sovereign Risk Insurance Limited	Bermuda	100%	
Sovereign Risk Insurance (Dubai) Limited	UAE (Dubai)	100%	
                  ACE Realty Holdings Limited	Bermuda	100%	
Oasis Investments Limited	Bermuda	33%
   67% (ACE Tempest Reinsurance Ltd.)	
Oasis Investments 2 Ltd.	Bermuda	33%
67% (ACE Tempest Reinsurance Ltd.)	
          ACE Global Markets Limited	England & Wales	100%	
                       ACE Group Holdings Limited	England & Wales	100%	
                            ACE Tarquin	England & Wales	100%	
                                     ACE Capital V Limited	England & Wales	100%	
                                     ACE Leadenhall Limited	England & Wales	100%	
                                                ACE Underwriting Agencies Limited	England & Wales	100%	
                       ACE London Group Limited	England & Wales	100%	
                            ACE Capital Limited	England & Wales	100%	
                            ACE Capital III Limited	England & Wales	100%	
                            ACE Capital IV Limited	England & Wales	100%	
                            ACE London Holdings Limited	England & Wales	100%	
                                     ACE Capital II Limited	England & Wales	100%	
                                     ACE London Investments Limited	England & Wales	100%	
                                               ACE London Aviation Limited	England & Wales	100%	
                                               ACE London Underwriting Limited	England & Wales	100%	
                                               ACE Underwriting Services Limited	England & Wales	100%	
                                     ACE London Services Limited	England & Wales	100%	

	
			
                           ACE Capital VI Limited	England & Wales	100%	
        ACE Services Limited	Cayman Islands	100%	
                   ACE Holdings (Gibraltar) Limited	Gibraltar	100%	
                           ACE Gibraltar Limited	Gibraltar	100%	
        Oasis Insurance Services Ltd.	Bermuda	100%	
        ACE Tempest Life Reinsurance Ltd.	Bermuda	100%	
                  ACE Europe Life Limited	England & Wales	100%	
                  ACE Tempest Reinsurance Ltd.	Bermuda	100%	
                           ACE Tempest Re Escritório de Representação no Brasil Ltda.	Brazil	99.999999%
0.000001% (ACE Tempest Life Reinsurance Ltd.)	
                           Oasis Investments Limited	Bermuda	67%
33% (ACE Bermuda Insurance Ltd.)	
                           Oasis Investments 2 Ltd.	Bermuda	67%
33% (ACE Bermuda Insurance Ltd.)	
    ACE Group Holdings, Inc.	USA (Delaware)	100%	
                  ACE (CR) Holdings	England & Wales	100%	
                           ACE Capital VII Limited	England & Wales	100%	
                           ACE (RGB) Holdings Limited	England & Wales	100%	
                                      ACE (CIDR) Limited	England & Wales	100%	
                                      Ridge Underwriting Agencies Limited	England & Wales	100%	
                  ACE Asset Management Inc.	USA (Delaware)	100%	
                  ACE Life Insurance Company	USA (Connecticut)	100%	
                  ACE INA Holdings Inc.	USA (Delaware)	80%
20% (ACE Limited)	
                           ACE Life Insurance Company Ltd.	Bermuda	100%	
                           Combined Insurance Company of America	USA
(Illinois)	100%	
                                     Combined Insurance Company of Europe Limited	Ireland	100%	
                                     Combined International Services, Ltd.	United Kingdom	100%	
                                     Combined Life Insurance Company of Australia, Ltd.	Australia	100%	
                                     Combined Life Insurance Company of New York	USA
(New York)	100%	
                                     Employee Benefit Communications, Inc.	USA
(Florida)	100%	
                                     VOL Properties Corporation	USA
(Delaware)	100%	
                           Huatai Insurance Group Company, Limited	China	5.8293%
9.7755% (ACE Tempest Reinsurance Ltd.)
4.3952% (ACE US Holdings, Inc.)	
                                   Huatai Life Insurance Company, Limited	China	79.4620%
20% (ACE INA Holdings Inc.)	
                            INA Corporation	USA (Pennsylvania)	100%	

	
			
                                     INA Tax Benefits Reporting, Inc.	USA (Delaware)	100%	
                                     INA Financial Corporation	USA (Delaware)	100%	
                                                Brandywine Holdings Corporation	USA (Delaware)	100%	
                                                         Cravens, Dargan & Company, Pacific Coast	USA (Delaware)	100%	
                                                         Century Indemnity Company
(EI# 06-6105395, NAIC #20710, PA)	USA (Pennsylvania)	100%	
                                                                  Century International Reinsurance Company Ltd.	Bermuda	100%	
                                                 INA Holdings Corporation	USA (Delaware)	100%	
                                                          INA International Holdings, LLC	USA (Delaware)	100%	
                                                         ACE INA Properties, Inc.	USA (Delaware)	100%	
                                                                  Conference Facilities, Inc.	USA (Pennsylvania)	100%	
                                                         INA Reinsurance Company, Ltd.	Bermuda	100%	
                                                         ACE INA Financial Institution Solutions, Inc.	USA (Delaware)	100%	
                                                         American Lenders Facilities, Inc.	USA (California)	100%	
                                                         ESIS, Inc.	USA (Pennsylvania)	100%	
                                                                 ESIS Canada Inc.	Canada (Ontario)	100%	
                                                                 ACE Environmental Health and Safety Consulting
(Shanghai) Company Limited	China	100%	
                                                                 ESIS Asia Pacific PTE. Ltd.	Singapore	100%	
                                                                              ESIS Academy PTE. Ltd.	Singapore	100%	
                                                                 Proclaim America, Inc.	USA (Texas)	51%	
                                                         NewMarkets Insurance Agency, Inc.	USA (Delaware)	100%	
                                                         ACE INA Excess and Surplus Insurance Services,
Inc.	USA (Pennsylvania)	100%	
                                                         ACE INA Excess and Surplus Insurance Services,
Inc.	USA (California)	100%	
                                                         ACE Financial Solutions, Inc.	USA (Delaware)	100%	
                                                         ACE Risk Solutions, Inc.	USA
(New York)	100%	
                                                         Indemnity Insurance Company of North America
(EI# 06-1016108, NAIC #43575, PA)	USA (Pennsylvania)	100%	
                                                         ACE American Insurance Company
(EI# 95-2371728, NAIC# 22667, PA)	USA (Pennsylvania)	100%	
                                                                    Penn Millers Holding Corporation	USA
(Pennsylvania)	100%	
                                                                              PMMHC Corp.	USA
(Pennsylvania)	100%	
Penn Millers Insurance Company
(EI# 24-0686200, NAIC #14982, PA)	USA
(Pennsylvania)	100%	
                                                                                                  Penn Millers Agency, Inc.	USA
(Pennsylvania)	100%	
                                                                  Pacific Employers Insurance Company
(EI# 95-1077060, NAIC# 22748, PA)	USA (Pennsylvania)	100%	
                                                                              Illinois Union Insurance Company
(EI# 36-2759195, NAIC #27960, IL)	USA (Illinois)	100%	
                                                                 Rain and Hail Insurance Service Incorporated	USA (Iowa)	100%	
                                                                              Agri General Insurance Company
(EI# 42-1204578, NAIC #42757, IA)	USA (Iowa)	100%	
                                                                                         Rain and Hail L.L.C.	USA (Iowa)	100%	
                                                                              Agri General Insurance Service, Inc.	USA (Iowa)	100%	
                                                                  Rain and Hail Insurance Service International, Inc.	USA (Iowa)	100%	
                                                                                         Rain and Hail Holding Corporation	Canada	100%	

	
			
Rain and Hail Insurance Service, Ltd.	Canada	100%	
                                                                                         Rain and Hail do Brasil, Ltda.	Brazil	100%	
                                                                                         Rain and Hail Insurance Service de
Mexico, S.A. de C.V.	Mexico	100%	
                                                                              Rain and Hail Financial, Inc.	USA (Iowa)	100%	
                                                         INAMAR Insurance Underwriting Agency, Inc.	USA (New Jersey)	100%	
                                                                  INAMAR Insurance Underwriting Agency, Inc. of Texas	USA (Texas)	100%	
                                                         Insurance Company of North America
(EI# 23-0723970, NAIC #22713, PA)	USA (Pennsylvania)	100%	
                                                         Bankers Standard Insurance Company
(EI# 59-1320184, NAIC #18279, PA)	USA (Pennsylvania)	100%	
                                                                  Bankers Standard Fire and Marine Company
(EI# 75-6014863, NAIC #20591, PA)	USA (Pennsylvania)	100%	
ACE Property and Casualty Insurance Company (EI# 06-0237820, NAIC, #20699, PA)	USA (Pennsylvania)	100%	
                                                                  ACE Fire Underwriters Insurance Company
(EI# 06-6032187, NAIC #20702, PA)	USA (Pennsylvania)	100%	
                                                                  Atlantic Employers Insurance Company
(EI# 23-2173820, NAIC #38938, NJ)	USA
(New Jersey)	100%	
                                                                  ACE Insurance Company of the Midwest
(EI# 06-0884361, NAIC #26417, IN)	USA (Indiana)	100%	
                                                                  ACE Tempest Re USA, LLC	USA (Connecticut)	100%	
                                                         ACE Structured Products, Inc.	USA (Delaware)	100%	
                                                                  Recovery Services International, Inc.	USA (Delaware)	100%	
                                     ACE INA International Holdings, Ltd.	USA (Delaware)	100%	
                                                  ACE Arabia Cooperative Insurance Company	Saudi Arabia	30%	
                                                  ACE Servicios, S.A.	Panama	100%	
                                                  ACE Life Insurance Company Ltd.	Bermuda	100%	
                                                  ACE Jerneh Insurance Berhad	Malaysia	100%	
                                                  FM HoldCo LLC	USA (Delaware)	100%	
ACE Fianzas Monterrey, S.A.	Mexico	99.95% .05% (AFIA Finance Corporation)	
Operadora FMA, S.A. de C.V.	Mexico	99.99% .01% (AFIA Finance Corporation)	
INACOMB S.A. de C.V.	Mexico	99.998%
0.002% (AFIA Finance Corporation)	
                                                 ACE Australia Holdings Pty Limited	Australia	100%	
                                                          ACE Insurance Limited	Australia	100%	
                                                 PT. ACE Life Assurance	Indonesia	98.21%	
                                                 ACE Life Insurance Company Limited	Vietnam	100%	
ACE Life Fund Management Company Limited	Vietnam	100%	
ACE Insurance Company Limited	Vietnam	100%	
                                                ACE Seguradora S.A.	Brazil	99.99%
.01% (AFIA Finance Corporation)	
                                                ACE Participações Ltda.	Brazil	99%
1% (AFIA Finance Corporation)	

	
			
                                                            ACE Resseguradora S.A.	Brazil	99.9908%
.0092% (ACE INA International Holdings, Ltd.)	
                                                 Servicios ACEINA, S.A. de C.V.	Mexico	99.9%
.1% (AFIA Finance Corporation)	
                                                 ACE Seguros S.A.	Argentina	96.063%
3.915% (AFIA Finance Corporation)	
                                                 ACE INA International Holdings Ltd. Agencia Chile	Chile	100%	
                                                            ACE Seguros de Vida S.A.	Chile	95%
5% (AFIA Finance Corporation Agencia en Chile)	
                                                            Ventas Personales Limitada	Chile	99%
1% (AFIA Finance Corporation Agencia en Chile)	
                                                            ACE Seguros S.A.	Chile	85.83%
8.00% (AFIA Finance Corporation, Agencia en Chile)
5.95% (AFIA Finance Corp. Chile Limitada)	
                                                            ACE Servicios Regionales Limitada	Chile	99% 1% (AFIA Finance Corporation Agencia en Chile)	
                                                PT ACE Jaya Proteksi	Indonesia	83% 17% (PT Adi Citra Mandiri)	
                                                        PT Jaya Proteksi Takaful	Indonesia	51%	
                                                        PT Jaya Prima Auto Center	Indonesia	75%	
                                               ACE INA Overseas Holdings, Inc.	USA (Delaware)	100%	
                                                         ACE European Holdings Limited	England & Wales	100%	
ACE European Group Limited	England & Wales	30.8723%
69.1277% (ACE Insurance S.A.- N.V.)
	
                                                                  ACE Insurance Management (DIFC) Limited	Dubai International Financial Centre	100%	
                                                                  ACE European Holdings No 2 Limited	England & Wales	100%	
                                                                           ACE Insurance S.A.-N.V.	Belgium	99.94923%
0.05076% (ACE INA International Holdings, Ltd.)	

	
			
                                                                                    ACE European Group Limited	England & Wales	69.1277%
30.8723% (ACE European Holdings Ltd.)	
                                                                     ACE Pension Trustee Limited	England & Wales	100%	
                                                          ACE Russia Investments Limited	England & Wales	100%	
                                                                 LLC ACE Life Insurance	Russia	100%	
                                                                 CJSC ACE Insurance Company	Russia	100%	
                                                ACE Seguradora S.A.	Macau	99.9897%	
                                                ACE Holdings Limited	Cayman Islands	100%	
                                                ACE Insurance Company Egypt S.A.E.	Egypt	98.014%
0.551% (ACE INA Services UK Ltd)
0.551% (ACE European Holdings Ltd)	
                                                ACE Life Insurance Company S.A.E.	Egypt	98.35%
0.98% (ACE Holdings Limited)
0.67% (AFIA Finance Corporation)	
                                                ACE INA Berhad	Malaysia	100%	
                                                ACE Seguros S.A.	Colombia	99.958%	
                                                ACE Seguros S.A.	Ecuador	99.98% .02% (AFIA Finance Corporation)	
                                                ACE Seguros S.A.	Mexico	99.99%. .01% (AFIA Finance Corporation)	
                                                ACE Seguros S.A.	Panama	100%	
                                                ACE Seguros S.A.
(formerly Altas Cumbres Compañía de Seguros de Vida )	Peru	99.99%
0.01% (AFIA Finance Corporation)	
                                                Eksupsiri Company Limited	Thailand	49%
50.99% Nam Ek)	
                                                         ACE Life Assurance Public Co. Ltd.	Thailand	75.01%
24.99% (Oriental Equity Holdings)	
                                                Nam Ek Company Limited	Thailand	49%	
                                                        Eksupsiri Company Limited	Thailand	50.99%
49% (AIIH)	
                                                        Siam Marketing & Analytics Company Limited	Thailand	50.99%
49% (ACE Asia Pacific Services Pte. Limited)	
                                                          Siam Liberty Insurance Broker Co., Ltd.	Thailand	74.8% (Nam Ek)
24.99% (AFIA Finance Corporation)	
                                                ACE Insurance Limited	South Africa	100%	
                                                ACE Insurance Limited	New Zealand	100%	
                                                ACE International Management Corporation	Pennsylvania	100%	

	
			
                                                Cover Direct, Inc.	USA (Delaware)	100%	
                                                          PT Adi Citra Mandiri	Indonesia	100%	
                                                          PT ACE Jaya Proteksi	Indonesia	17%	
                                                ACE INA G.B. Holdings, Ltd	USA (Delaware)	100%	
                                                         ACE INA Services U.K. Limited	United Kingdom	100%	
                                                Century Inversiones, S.A.	Panama	100%	
                                                ACE Arabia Insurance Company Limited B.S.C. (C)	Bahrain	50%	
                                                ACE Insurance Limited	Pakistan	100%	
                                                ACE INA Overseas Insurance Company Ltd.	Bermuda	100%	
                                                         ACE Canada Holdings, Inc.	USA (Delaware)	100%	
                                                                 INACAN Holdings Ltd.	Canada (Ontario)	100%	
                                                                       ACE INA Insurance	Canada	100%	
                                                                       ACE INA Life Insurance	Canada	100%	
                                                                       ACE Tempest Re Canada Inc.	Canada (Quebec)	100%	
                                                         ACE Insurance Limited	Singapore	100%	
                                                         ACE Insurance	Japan	100%	
                                                               ACE Chintai SSI	Japan	100%	
                                                               ACE Songai Service Kabushikigaisha	Japan	100%	
                                                         ACE Marketing Group, C.A.	Venezuela	100%	
                                                ACE Insurance Company
(EI# 66-0437305, NAIC #30953, PR)	Puerto Rico	100%	
                                                                 ACE Insurance Agency, Inc.	Puerto Rico	100%	
                                                ACE Insurance Limited	Hong Kong	99.99% .01% (ACE INA Overseas Ins. Co. Ltd)	
                                                ACE Alternative Risk Ltd.
(formerly ACE Risk Management International Ltd.)	Bermuda	100%	
                                                DELPANAMA S.A.	Panama	100%	
                                                INAMEX S.A.	Mexico	100%	
                                                Oriental Equity Holdings Limited	British Virgin Islands	100%	
                                                AFIA Finance Corporation	USA (Delaware)	100%	
                                                                AFIA Finance Corporation Agencia en Chile	Chile	100%	
                                                                AFIA Venezolana C.A.	Venezuela	100%	
                                                                ACE Servicios S.A.	Argentina	95% 5% (ACE INA Int'l Holdings)	
                                                                AFIA Finance Corp. Chile Limitada	Chile	98%
2% (ACE INA Int'l Holdings)	
                                                                Pembroke Reinsurance, Inc.	USA (Delaware)	100%	
                                                                RIYAD Insurance Co. Ltd.	Bermuda	80%	
 ACE Asia Pacific Services Pte. Ltd.
 (formerly Safire Private Limited)	Singapore	100%	
                                                                        ACE Asia Pacific Services Sdn Bhd	Malaysia	100%	
                                                AFIA (INA) Corporation, Limited	USA (Delaware)	100%	
                                                                AFIA	Unincorporated
Association	60%
40% AFIA (ACE)	
                                                AFIA (ACE) Corporation, Limited	USA (Delaware)	100%	
                                                INAVEN, C.A. “Venezuela”	Venezuela	100%	
                                                Ally Insurance Holdings LLC	USA (Delaware)	100%	

	
			
                                                               ABA Seguros, S.A. de C.V.	Mexico	99.89598%	
                                                                                ABA Servicios Corporativos, S.A. de C.V.	Mexico	99.998% .002% (ABA Garantias S.A. de C.V.)	
                                                               ABA Mexico Holdings LLC	USA (Delaware)	100%	
                                                                                ABA Garantias S.A. de C.V.	Mexico	99.99% .01% (AFIA Finance Corporation)	
 	 	 	
                  ACE US Holdings, Inc.	USA (Delaware)	100%	
                          ASI Administrative Services Inc.	Canada (Yukon)	100%	
                          Rhea International Marketing (L), Inc.	Malaysia	60%	
                          Westchester Fire Insurance Company
(EI# 92-0040526, NAIC# 10030, PA)
(F/K/A ACE Indemnity Insurance Company)	USA
(Pennsylvania)	100%	
                          Westchester Surplus Lines Insurance Company
(EI# 58-2139927, NAIC #10172, GA)	USA (Georgia)	100%	
                          Westchester Specialty Services, Inc.	USA (Florida)	100%	
                          Westchester Specialty Insurance Services, Inc.	USA (Nevada)	100%	

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-178505) and Form S-8 (Nos. 333-188949, 333-182062, 333-153239, 333-116532, 333-1404, 333-46301, 333-93867, 333-72301, 333-61038, 333-134504, and 333-168795) of ACE Limited of our report dated February 28, 2014 relating to the financial statements, financial statement schedules, and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.

/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
February 28, 2014

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

1)	I have reviewed this annual report on Form 10-K of ACE Limited;	

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

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

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

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

Date: February 28, 2014

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

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

1)	I have reviewed this annual report on Form 10-K of ACE Limited;	

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

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

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

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

Date: February 28, 2014

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

Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned officer of ACE Limited (the Corporation) hereby certifies that the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2013 , fully complies with the applicable reporting requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a)) and that the information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Corporation.

		
Dated: February 28, 2014	/s/ Evan G. Greenberg	
 	Evan G. Greenberg
Chairman, President and Chief Executive Officer	

Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned officer of ACE Limited (the Corporation) hereby certifies that the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2013 , fully complies with the applicable reporting requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a)) and that the information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Corporation.

		
Dated: February 28, 2014	/s/ Philip V. Bancroft	
 	Philip V. Bancroft	
 	Chief Financial Officer