ACE Ltd

The rules governing the EU Single Market (which is made up of the 27 other EU member states and to some extent, Iceland, Liechtenstein, and Norway (together, the European Economic Area or EEA)) require local risks to be underwritten by a local authorized insurer, an EEA authorized insurer or a non-local insurer with the benefit of an EU “passport”. As such, U.K. insurers (as well as EEA insurers operating as passported branches in the U.K., such as our French companies Chubb European Group SE and ACE Europe Life SE), are currently able to underwrite risks from the U.K. into EEA member states via a “passport”. If the withdrawal agreement in its current form is entered into, the U.K. will withdraw from the EU Single Market, in which case our passporting rights would be lost. In addition, there can be no assurance that there will be any agreement between the U.K. and the EU by the date on which the U.K. withdraws from the EU, by the end of any transitional period, or at all. In particular, the terms of the U.K.'s exit from the EU and the framework for future discussions on the terms of the U.K.'s relationship with the EU is subject to approval by the U.K. Parliament, which may not be given. As such, there is a possibility that the withdrawal agreement will not be approved by the U.K. Parliament, and that the U.K. will withdraw from the EU without any withdrawal agreement. In addition, any free trade agreement that is subsequently concluded between the U.K. and the EU may not maintain the passporting rights of U.K. insurers nor deem relevant U.K. regulations to be equivalent to those of the EU. In the event that, following the U.K.’s withdrawal from the EU, U.K. insurers are unable to access the EU Single Market via a passporting arrangement, a regulatory equivalence regime or other similar arrangement, such insurers may not be able to underwrite risks into EEA member states except through local branches incorporated in the EEA. Such branches might require local authorization, regulatory and prudential supervision, and capital to be deposited. As an EEA authorized insurer, Chubb will be able to continue to underwrite local risks across the EU Single Market. On July 24, 2018, the U.K. government legislated the Temporary Permissions Regime which allows U.K. branches of EEA authorized insurers to continue underwriting U.K. insurance business if the U.K. leaves the EU on March 29, 2019 without a withdrawal agreement, while the insurer seeks local authorization from the U.K. regulator, which might require local capital to be deposited. We have commenced implementation of plans to ensure that following the date of the U.K.'s exit from the EU, our French companies, Chubb European Group SE and ACE Europe Life SE, will be able to underwrite risks across the EEA via a "passport", and the U.K. branches of these companies will have the benefit of the U.K.'s Temporary Permissions Regime, allowing them to continue to carry on insurance business in the U.K. for the period of up to three years following the date of the U.K.'s exit from the EU or until the relevant entity obtains branch authorization from the Prudential Regulatory Authority. However, any change to the terms of the U.K.’s access to the EU Single Market following the withdrawal of the U.K. from the EU could still have a material adverse effect on our business, financial condition, and results of operations.

Effective January 1, 2019, we have redomiciled our European headquarters to France, with Paris being the principal office for our Continental European operations. We have a significant investment in France in both financial and human resources, as well as a large portfolio of commercial and consumer insurance business throughout the country. Following the anticipated withdrawal of the UK from the EU, we will continue to have a substantial presence in London in addition to its offices and operations across the UK and EU. Our primary aim is to ensure a seamless transition and to offer certainty and continuity of service for all our customers and business partners, regardless of location or the final outcome of the Brexit negotiations. Total costs incurred in 2018 related to our relocation of European insurance companies, and other Brexit related costs, were $11 million, and the expected costs for 2019 are projected to be immaterial.

The 2017 Tax Act included provisions for Global Intangible Low-Taxed Income (GILTI) under which taxes may be imposed on income of foreign subsidiaries and for a Base Erosion and Anti-Abuse Tax (BEAT) under which taxes may be imposed on certain payments to affiliated foreign companies. There remain substantial uncertainties in the interpretation of BEAT and GILTI and the formal guidance issued to date is still in proposed form. Finalization of the proposed guidance, and changes to the interpretations and assumptions of these provisions may impact amounts recorded with respect to the international provisions of the 2017 Tax Act, which may be material in the period the adjustment is recorded.

Losses incurred on the MPCI business are determined using both commodity price and crop yield. With respect to commodity price, there are two important periods on a large portion of the business: The month of February when the initial premium base is set, and the month of October when the final harvest price is set. If the price declines from February to October, with yield remaining at normal levels, the policyholder may be eligible to recover on the policy. However, in most cases there are deductibles on these policies, therefore, the impact of a decline in price would have to exceed the deductible before a policyholder would be eligible to recover.

Grants of restricted stock and restricted stock units awarded under both the 2004 LTIP and 2016 LTIP typically have a 4-year vesting period, subject to vesting as to one-quarter of the award each anniversary of grant. Restricted stock and restricted stock units are 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 addition, Chubb grants performance-based restricted stock to certain executives that vest based on certain performance criteria as compared to a defined group of peer companies. Performance-based stock awards comprise target awards and premium awards that cliff vest at the end of a 3-year performance period based on both our tangible book value (shareholders' equity less goodwill and intangible assets, net of tax) per share growth and P&C combined ratio compared to our peer group. Premium awards are subject to an additional vesting provision based on total shareholder return (TSR) compared to our peer group. Shares representing target awards and premium awards are issued when the awards are approved and are subject to forfeiture, if applicable performance criteria are not met at the end of the 3-year performance period. Prior to January 2017, performance-based restricted stock awards had a 4-year vesting period with the potential to vest as to a portion each year, and excluded the P&C combined ratio and TSR additional vesting criteria.