Capital Management

“Our $1.5 billion of cash flows from operating activities during the quarter were the highest level since the third quarter of 2007,” commented Jay S. Benet, Vice Chairman and Chief Financial Officer. “We repurchased 5.4 million shares for $350 million and dividends were $179 million, bringing the year-to-date total capital returned to shareholders to over $1.5 billion.”

At the end of the third quarter of 2012, shareholders’ equity was $25.905 billion, a 6 percent increase from the end of the prior year. Included in shareholders’ equity at the end of the third quarter of 2012 were after-tax net unrealized investment gains of $3.315 billion, compared to $2.871 billion at year-end 2011. Statutory surplus was $20.291 billion, up $1.117 billion from the beginning of the year. The company’s debt-to-capital ratio (excluding after-tax net unrealized investment gains) was 21.9 percent, well within its target range, and holding company liquidity was $2.042 billion.

The Board of Directors declared a quarterly dividend of $0.46 per common share. This dividend is payable December 31, 2012, to shareholders of record as of the close of business on December 10, 2012.

Business Insurance Segment Financial Results

“In Business Insurance, our strong results this quarter were driven in large part by lower weather-related losses and previously achieved rate gains,” commented Brian MacLean, President and Chief Operating Officer. “We continued to achieve broad based written rate increases across the segment, led by Workers’ Compensation and Commercial Auto, along with improved retentions. We are encouraged by our progress so far and plan on continuing this strategy."
($ in millions) Three Months Ended September 30,  
2012 2011 2012 2011  
Pre-tax After-tax  
Underwriting gain (loss) $ 187 $ (167 ) $ 117 $ (110 )

Underwriting gain (loss) includes:
Net favorable prior year reserve development 41 26 27 17
Catastrophes, net of reinsurance (50 ) (195 ) (33 ) (127 )
Net investment income 524 487 419 398
Other 9 8 7 6
Operating income $ 720   $ 328   $ 543   $ 294  
GAAP combined ratio 93.3 % 105.4 %

Impact on GAAP combined ratio
Net favorable prior year reserve development (1.4 ) pts (0.9 ) pts
Catastrophes, net of reinsurance 1.7 pts 6.8 pts

Operating income of $543 million after tax increased $249 million from the prior year quarter mostly due to a $227 million after-tax improvement in the underwriting results, reflecting higher underlying underwriting margins and lower catastrophe losses.

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