- The GAAP combined ratio improved 14.6 points to 88.9% due to lower catastrophe losses (13.4 points) and higher underlying underwriting margins (1.3 points).
- Net favorable prior year reserve development primarily resulted from better than expected loss experience related to the general liability product line, which was concentrated in excess coverages for accident years 2006 through 2012, reflecting more favorable legal and judicial environments than what the company previously expected. Catastrophe losses primarily resulted from wind and hail storms in the Midwestern United States.
- The underlying GAAP combined ratio improved 1.3 points to 91.5%, primarily resulting from earned rate increases exceeding loss cost trends and a decrease in the expense ratio.
Business Insurance net written premiums of $2.873 billion increased 3% primarily driven by continued increases in renewal rate change. Retention rates remained strong and higher than recent quarters. New business volumes decreased modestly from the prior year quarter. Net written premiums also benefited from positive exposure change at renewal and positive audit premiums, both of which were slightly higher than the prior year quarter.
Full Year 2013 Results
(All comparisons vs. full year 2012, unless noted otherwise)Operating income of $2.329 billion after-tax increased $486 million or 26%, primarily reflecting improved underwriting results driven by lower catastrophe losses, a higher underlying underwriting gain, a $59 million after-tax ($91 million pre-tax) gain from the settlement of a legal proceeding and a $43 million benefit resulting from the resolution of prior year tax matters. These improvements were partially offset by lower net favorable prior year reserve development and lower net investment income. Underwriting results
- The GAAP combined ratio improved 5.5 points to 91.9% due to lower catastrophe losses (4.4 points) and higher underlying underwriting margins (2.4 points), partially offset by lower net favorable prior year reserve development (1.3 points).
- Net favorable prior year reserve development primarily resulted from better than expected loss experience related to the general liability product line for accident years 2012 and prior, the property product line for accident years 2010 through 2012 and the workers’ compensation product line for accident years 2008 and prior. Also included in net favorable prior year reserve development was a $42 million pre-tax ($27 million after-tax) charge that was precipitated by legislation in New York enacted in the first quarter 2013 related to the New York Fund for Reopened Cases for workers’ compensation. Catastrophe losses primarily resulted from tornado, wind and hail storms in several regions of the United States.
- The underlying GAAP combined ratio improved 2.4 points to 92.2%, primarily resulting from earned rate increases exceeding loss cost trends and a decrease in the expense ratio.
Financial, Professional & International Insurance Segment Financial Results
|($ in millions and pre-tax, unless noted otherwise)|
|Three Months Ended December 31,||Twelve Months Ended December 31,|
Underwriting gain includes:
|Net favorable prior year reserve development||102||69||33||306||298||8|
|Catastrophes, net of reinsurance||(10||)||(45||)||35||(56||)||(50||)||(6||)|
|Net investment income||101||95||6||372||395||(23||)|
|Operating income before income taxes||248||188||60||893||897||(4||)|
|Income tax expense||77||57||20||245||255||(10||)|
|GAAP combined ratio||85.0||%||88.3||%||(3.3||)||pts||84.3||%||84.1||%||0.2||pts|
Impact on GAAP combined ratio
|Net favorable prior year reserve development||(10.7||)||pts||(9.1||)||pts||(1.6||)||pts||(9.5||)||pts||(9.8||)||pts||0.3||pts|
|Catastrophes, net of reinsurance||1.0||pts||5.9||pts||(4.9||)||pts||1.8||pts||1.7||pts||0.1||pts|
|Underlying GAAP combined ratio||94.7||%||91.5||%||3.2||pts||92.0||%||92.2||%||(0.2||)||pts|
|Net written premiums by market|
|Bond & Financial Products||$||551||$||514||7||%||$||2,030||$||1,924||6||%|
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