The underwriting gain in the current quarter reflected a GAAP combined ratio of 89.7 percent, as compared to 115.0 percent in the prior year quarter. This improvement of 25.3 points in the combined ratio was primarily due to lower catastrophe losses (19.2 points) and higher net favorable prior year reserve development (3.1 points). The net favorable prior year reserve development in the current quarter primarily resulted from better than expected loss experience in Homeowners & Other attributable to weather-related losses incurred in 2011 and in the umbrella product line for accident years 2007-2010.

The current quarter underlying underwriting gain, which excludes net favorable prior year reserve development and catastrophe losses, reflected a GAAP combined ratio of 91.0 percent, as compared to 94.0 percent in the prior year quarter. This improvement of 3.0 points was primarily due to lower non-catastrophe weather-related losses.

Personal Insurance net written premiums of $2.006 billion decreased 2 percent from the prior year quarter primarily due to lower new business volumes in Automobile.

Agency Automobile and Agency Homeowners & Other, as discussed below, represent business sold through agents, brokers and other intermediaries and exclude direct to consumer.

Agency Automobile
  • Net written premiums of $906 million decreased 4 percent from the prior year quarter.
  • Policies in force decreased 6 percent from the prior year quarter.
  • Renewal premium change remained positive and increased meaningfully from recent quarters.
  • Retention rates remained strong and generally consistent with recent quarters.
  • New business volumes were lower than the prior year quarter.

Agency Homeowners & Other
  • Net written premiums of $1.056 billion were consistent with the prior year quarter.
  • Policies in force decreased 4 percent from the prior year quarter.
  • Renewal premium change remained positive and increased modestly from recent quarters.
  • Retention rates remained very strong and generally consistent with recent quarters.
  • New business volumes were lower than the prior year quarter.
       

Year-to-Date 2012 Consolidated Financial Results
                               
 
($ in millions) Nine Months Ended September 30,  
2012 2011 2012 2011  
Pre-tax After-tax  
 
Underwriting gain (loss) $ 845 $ (1,453 ) $ 528 $ (860 )

Underwriting gain (loss) includes:
Net favorable prior year reserve development 718 589 476 390
Catastrophes, net of reinsurance (808 ) (2,460 ) (525 ) (1,601 )
Resolution of prior year tax matters 100
 
Net investment income 2,200 2,227 1,760 1,789
 
Other, including interest expense (202 ) (241 ) (125 ) (148 )

Other also includes:
Resolution of prior year tax matters 4
               
Operating income 2,843 533 2,163 781
Net realized investment gains   12     41     6     27  
Income before income taxes $ 2,855   $ 574  
Net income $ 2,169   $ 808  
                               
 
GAAP combined ratio 94.3 % 108.2 %
 

GAAP combined ratio excluding incremental impact of direct to consumer initiative
93.5 % 107.3 %
 

Impact on GAAP combined ratio
Net favorable prior year reserve development (4.3 ) pts (3.5 ) pts
Catastrophes, net of reinsurance 4.9 pts 14.9 pts
                                   
 

Operating income of $2.163 billion after tax increased $1.382 billion from the prior year period due to a $1.388 billion after-tax increase in underwriting results, reflecting lower catastrophe losses and higher underlying underwriting margins.

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