Underwriting results

  • 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.

Business Insurance net written premiums of $12.233 billion, a record full year level, increased 3%, primarily driven by continued increases in renewal rate change. Retention rates remained strong, while new business volumes increased modestly from the prior year. Net written premiums also benefited from positive exposure change at renewal and positive audit premiums, although at lower levels than the prior year.

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,
2013 2012 Change 2013 2012

Change
 
Underwriting gain $ 140 $ 88 $ 52 $ 499 $ 476 $ 23

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 )
 
Other 7 5 2 22 26 (4 )
           
Operating income before income taxes 248 188 60 893 897 (4 )
Income tax expense   77     57     20     245     255     (10 )
Operating income $ 171   $ 131   $ 40   $ 648   $ 642   $ 6  

 

 
                                                                 
 
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 %
International   492     294   67   1,279     1,057   21
Total $ 1,043   $ 808   29 % $ 3,309   $ 2,981   11 %
                                                                                               
 

Fourth Quarter 2013 Results

(All comparisons vs. fourth quarter 2012, unless noted otherwise)

Operating income of $171 million after-tax increased $40 million or 31%, primarily reflecting improved underwriting results driven by lower catastrophe losses and higher net favorable prior year reserve development.

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