The underwriting results in the current quarter reflected a GAAP combined ratio of 103.5 percent, as compared to 95.8 percent in the prior year quarter. This increase of 7.7 points in the combined ratio resulted from higher catastrophe losses (14.2 points), partially offset by higher underlying underwriting margins (4.2 points) and higher net favorable prior year reserve development (2.3 points). Net favorable prior year reserve development in the current quarter primarily resulted from better than expected loss experience related to 2011 catastrophes as well as lower than expected claim department expenses.

The current quarter underlying GAAP combined ratio was 92.8 percent, as compared to 97.0 percent in the prior year quarter. This improvement of 4.2 points primarily resulted from earned rate increases exceeding loss cost trends.

Business Insurance net written premiums of $2.784 billion in the current quarter increased 6 percent from the prior year quarter primarily driven by continued increases in renewal rate change. Retention rates remained strong, and new business volumes increased slightly from the prior year quarter. Net written premiums also benefited from continued positive exposure change at renewal, as well as a modestly higher level of positive audit premiums compared to the prior year quarter.

Select Accounts
  • Net written premiums of $657 million increased 1 percent from the prior year quarter primarily due to higher renewal premium change.
  • Renewal premium change was positive and driven by continued strong renewal rate change.
  • Retention rates increased from the prior year quarter driven by higher retention rates for larger accounts.
  • New business volumes decreased from the prior year quarter.

Commercial Accounts
  • Net written premiums of $718 million increased 8 percent from the prior year quarter primarily due to higher renewal premium change.
  • Renewal premium change was positive and driven by continued strong renewal rate change.
  • Retention rates remained at a high level and increased from the prior year quarter.
  • New business volumes increased significantly from the prior year quarter.

Other Business Insurance

Includes Industry-Focused Underwriting, Target Risk Underwriting and Specialized Distribution
  • Net written premiums of $1.166 billion increased 6 percent from the prior year quarter primarily due to higher renewal premium change.
  • Renewal premium change was positive and driven by continued strong renewal rate change.
  • Retention rates remained at a high level and increased from the prior year quarter.
  • New business volumes decreased slightly from the prior year quarter.

National Accounts
  • Net written premiums of $244 million increased 18 percent from the prior year quarter due to higher new business volumes and increased renewal premium change driven by payroll exposure growth, as well as favorable prior year audit and retro premium. In addition, growing workers’ compensation residual market pools contributed to our premium growth.

Financial, Professional & International Insurance Segment Financial Results

“In Financial, Professional & International Insurance, we continued to see favorable trends in the underlying combined ratio in both our Management Liability and International businesses,” commented MacLean. “The underlying combined ratio improved by 2.6 points quarter over quarter driven by a 4.3 point improvement in the underlying loss ratio. Net written premiums in the segment increased 2% in the quarter, primarily driven by a 6% increase in net written premiums in the International business. Written rate in the Management Liability business improved to almost 8% in the quarter, driving an overall rate increase of 4% in the segment.”
 
       
($ in millions) Three Months Ended December 31,
2012 2011 2012 2011
Pre-tax

After-tax
 
Underwriting gain $ 88 $ 97 $ 50 $ 63

Underwriting gain includes :
Net favorable prior year reserve development 69 72 46 48
Catastrophes, net of reinsurance (45 ) (17 ) (34 ) (13 )
 
Net investment income 95 102 77 85
 
Other 5 7 4 4
       
Operating income $ 188   $ 206   $ 131   $ 152  
                       
 
GAAP combined ratio 88.3 % 87.3 %
 

Impact on GAAP combined ratio
Net favorable prior year reserve development (9.1 ) pts (9.0 ) pts
Catastrophes, net of reinsurance 5.9 pts 2.2 pts
                                 

Operating income of $131 million after-tax decreased $21 million from the prior year quarter mostly due to a $13 million after-tax decrease in the underwriting gain, reflecting the after-tax impact of higher catastrophe losses that were partially offset by higher underlying underwriting margins.

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