“After-tax operating income was $688 million or $2.01 per share. While the drought conditions in the U.S. severely impacted our crop insurance business and reduced operating income by $0.28 per share, as a total company we delivered outstanding underwriting results as demonstrated by a P&C combined ratio of 92% and produced an operating ROE of 11.5%. Moreover, book value grew 4.7% in the quarter and is now up about 11% for the year.
“Premium revenue growth in the quarter was the strongest so far this year with total company net premiums written up 8.6%, or 11.1% when adjusted for the impact of foreign exchange. We continue to benefit from the favorable P&C pricing trend in North America, where we recorded strong double-digit premium growth, and internationally, excluding the impact of foreign exchange, we also registered good growth across a broad spectrum of property and casualty, accident and health, and personal lines businesses, particularly in Asia and Latin America.
“In the last 60 days, we closed an acquisition in Indonesia and announced two separate acquisitions that will significantly enhance our presence and capabilities in Mexico. We are optimistic about our future growth opportunities in these two exciting countries as well as globally. We believe that with our exceptional positioning, growing capabilities and strong balance sheet, our strategic options are accelerating.”
Operating highlights for the quarter ended September 30, 2012, were as follows: (1)
- Total company net premiums written increased 8.6% and 11.1% on a constant-dollar basis.
- P&C net premiums written increased 9.6% and 12.3% on a constant-dollar basis.
- P&C underwriting income was $335 million compared with $391 million in 2011.
- The P&C combined ratio was 92.0% compared with 90.2% last year.
- Favorable prior period development pre-tax was $236 million, representing 5.7 percentage points of the combined ratio, compared with $194 million last year.
- The current accident year P&C combined ratio excluding catastrophe losses and crop insurance results was 90.5% compared with 91.9% last year.
- The net adverse impact included in crop insurance underwriting results due to the drought in the U.S. was $147 million pre-tax and $97 million after-tax. Crop insurance losses represented 7.4 percentage points of the P&C combined ratio. No net profit or loss is expected on this business in the fourth quarter related to the 2012 crop year. The combined ratio for crop insurance was 114% for the quarter and is expected to be approximately 104% for the full year.
- Total pre-tax and after-tax catastrophe losses including reinstatement premiums were $53 million and $41 million, respectively, compared with $121 million and $86 million, respectively, in 2011.
- The P&C expense ratio for the quarter was 23.1% compared with 25.3% last year.
- Operating cash flow was $1.6 billion for the quarter.
- Net loss reserves increased $1.2 billion in the quarter.
- Net investment income for the quarter decreased 5.6% to $533 million due to lower reinvestment rates and the negative impact of foreign exchange, partially offset by higher distributions from private equity funds.
- Net realized and unrealized gains pre-tax from the investment portfolio totaled $754 million primarily from lower yields on investment-grade and high yield bonds. Net realized losses from derivative accounting related to variable annuity reinsurance were $64 million.
- Foreign exchange had a positive impact increasing book value by $94 million in the quarter.
- Operating return on equity was 11.5% for the quarter (2) and 12.1% for the year. Return on equity computed using net income was 9.7% for the quarter and 10.1% for the year.
- Book value per share (2) increased 4.4% to $79.36 from $75.98 at June 30, 2012, and increased 9.9% from $72.22 at December 31, 2011. (3)
- Tangible book value per share (2) increased 4.7% to $64.67 from $61.75 at June 30, 2012, and increased 11.6% from $57.97 at December 31, 2011.
- Insurance-North American: Net premiums written increased 14.9%. Excluding the company’s agriculture business, which includes crop insurance, net premiums written increased 20.3%. The combined ratio was 97.8% compared with 94.2% last year. The current accident year combined ratio excluding catastrophe losses and crop results was 88.9% compared with 91.4% last year.
- Insurance-Overseas General: Net premiums written decreased 1.0%. On a constant-dollar basis, net premiums written increased 5.5%. The combined ratio was 82.7% compared with 85.6% last year. The current accident year combined ratio excluding catastrophe losses was 91.9% compared with 92.9% last year.
- Global Reinsurance: Net premiums written increased 22.2%. Adjusted for a one-time transaction, net premiums written increased 7.3% and 8.0% on a constant-dollar basis. The combined ratio was 72.7% compared with 65.4% last year. The current accident year combined ratio excluding catastrophe losses and the one-time transaction was 72.5% compared with 74.1% last year.
- Life: Operating income was $87 million compared with $80 million last year.