The underwriting results in the current quarter reflected a GAAP combined ratio of 115.2 percent, as compared to 99.8 percent in the prior year quarter. This increase of 15.4 points in the combined ratio was primarily due to higher catastrophe losses (26.4 points), partially offset by higher underlying underwriting margins (9.5 points) and higher net favorable prior year reserve development (1.5 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 catastrophe and non-catastrophe losses incurred in 2011 and in the umbrella line of business for accident years 2008-2011.

The current quarter underlying GAAP combined ratio was 86.9 percent, as compared to 96.4 percent in the prior year quarter. This improvement of 9.5 points was primarily due to lower non-weather related property losses, lower non-catastrophe weather-related losses and earned rate increases exceeding loss cost trends.

Personal Insurance net written premiums of $1.793 billion decreased 3 percent from the prior year quarter primarily due to lower new business volumes, largely as a result of the company’s pricing strategy, increasing deductibles and other profitability improvement initiatives.

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 $822 million decreased 6 percent from the prior year quarter.
  • Policies in force decreased 9 percent from the prior year quarter.
  • Renewal premium change remained positive and continued to increase from recent quarters.
  • Retention rates remained strong and generally consistent with recent quarters.
  • New business volumes decreased from the prior year quarter.

Agency Homeowners & Other
  • Net written premiums of $934 million decreased 1 percent from the prior year quarter.
  • Policies in force decreased 7 percent from the prior year quarter.
  • Renewal premium change remained positive and continued to increase from recent quarters.
  • Retention rates remained very strong and consistent with recent quarters.
  • New business volumes decreased from the prior year quarter.

Full Year 2012 Consolidated Financial Results
 
($ in millions)   Twelve Months Ended December 31,
2012   2011   2012   2011
Pre-tax After-tax
 
Underwriting gain (loss) $ 507 $ (1,266 ) $ 296 $ (745 )

Underwriting gain (loss) includes :
Net favorable prior year reserve development 940 715 622 473
Catastrophes, net of reinsurance (1,862 ) (2,562 ) (1,214 ) (1,669 )
Resolution of prior year tax matters 100
 
Net investment income 2,889 2,879 2,316 2,330
 
Other, including interest expense (281 ) (316 ) (171 ) (195 )

Other also includes :
Resolution of prior year tax matters 4
       
Operating income 3,115 1,297 2,441 1,390
Net realized investment gains   51     55     32     36  
Income before income taxes $ 3,166   $ 1,352  
Net income $ 2,473   $ 1,426  
                         
 
GAAP combined ratio 97.1 % 105.1 %
 

GAAP combined ratio excluding incremental impact of direct to consumer initiative

 
96.3 % 104.2 %
 

Impact on GAAP combined ratio
Net favorable prior year reserve development (4.2 ) pts (3.2 ) pts
Catastrophes, net of reinsurance 8.3 pts 11.6 pts
 

Operating income of $2.441 billion after-tax increased $1.051 billion from the prior year mostly due to a $1.041 billion after-tax improvement in underwriting results, reflecting the after-tax impact of lower catastrophe losses, higher underlying underwriting margins and higher net favorable prior year reserve development.

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