| COMMERCIAL INSURANCE | ||||||||||||
| Three Months Ended September 30, |
||||||||||||
| ($ in millions) | 2016 | 2015 | Change | |||||||||
| Net premiums written | $ | 4,357 | $ | 5,275 | (17 | ) | % | |||||
| Net premiums earned | 4,495 | 5,040 | (11 | ) | ||||||||
| Underwriting loss | (236 | ) | (118 | ) | (100 | ) | ||||||
| Net investment income | 965 | 710 | 36 | |||||||||
| Pre-tax operating income | $ | 729 | $ | 592 | 23 | |||||||
| Underwriting ratios: | ||||||||||||
| Loss ratio | 77.7 | 72.8 | 4.9 | pts | ||||||||
| Catastrophe losses and reinstatement premiums | (5.7 | ) | (1.8 | ) | (3.9 | ) | ||||||
| Prior year development net of premium adjustments | (6.9 | ) | (3.5 | ) | (3.4 | ) | ||||||
| Net reserve discount charge | (0.3 | ) | (0.8 | ) | 0.5 | |||||||
| Accident year loss ratio, as adjusted | 64.8 | 66.7 | (1.9 | ) | ||||||||
| Acquisition ratio | 15.5 | 16.5 | (1.0 | ) | ||||||||
| General operating expense ratio | 12.1 | 13.0 | (0.9 | ) | ||||||||
| Expense ratio | 27.6 | 29.5 | (1.9 | ) | ||||||||
| Combined ratio | 105.3 | 102.3 | 3.0 | |||||||||
| Catastrophe losses and reinstatement premiums | (5.7 | ) | (1.8 | ) | (3.9 | ) | ||||||
| Prior year development net of premium adjustments | (6.9 | ) | (3.5 | ) | (3.4 | ) | ||||||
| Net reserve discount benefit (charge) | (0.3 | ) | (0.8 | ) | 0.5 | |||||||
| Accident year combined ratio, as adjusted | 92.4 | 96.2 | (3.8 | ) | ||||||||
| Catastrophe-related losses | $ | 253 | $ | 88 | 188 | % | ||||||
| Severe losses | 95 | 209 | (55 | ) | ||||||||
| Prior year unfavorable reserve development, | ||||||||||||
| net of reinsurance and premium adjustments | 306 | 186 | 65 | |||||||||
| Net reserve discount charge | 17 | 41 | (59 | ) | ||||||||
Commercial Insurance pre-tax operating income increased to $729 million, primarily reflecting the higher returns on alternative investment income, and an increase in the fair market value of assets accounted for under the fair value option, partially offset by an increase in underwriting loss in the current quarter driven by higher catastrophe losses and higher net adverse prior year loss reserve development. The current quarter loss ratio included net adverse prior year loss reserve development, net of return premiums of $306 million primarily from program business within Specialty, partially offset by favorable Property development. In addition, catastrophe losses increased to $253 million from $88 million in the prior-year quarter. Pre-tax operating income also benefited from an improvement in accident year losses, a lower net loss reserve discount charge and lower expenses.
The improvement in the accident year loss ratio, as adjusted, reflected the continued execution of our strategy to enhance risk selection, improve underwriting discipline and manage exposures, including the use of reinsurance, and lower overall severe losses. The accident year loss ratio, as adjusted, improved in Casualty, reflecting the non-renewal of certain underperforming classes of business, as well as the effect of reinsurance. Property improved due to lower severe losses. These declines in the accident year losses were partially offset by an increase in Specialty and competitive market conditions.
The expense ratio declined 1.9 points driven by decreases in both acquisition ratio and the general operating expense ratio. The acquisition ratio declined by 1.0 points, particularly in Casualty, primarily driven by lower net commission expenses reflecting the effect of reinsurance arrangements. The General operating expense ratio declined 0.9 points due to lower employee-related costs resulting from ongoing actions to streamline our management structure and general cost containment measures commenced in 2015.
In line with our planned portfolio optimization efforts, net premiums written decreased 17%. This decrease was primarily due to the continued execution of our strategy to enhance risk selection in our Casualty and Property product portfolios, the non-renewal of certain underperforming classes of business, the increased use of reinsurance, and adherence to our underwriting discipline in competitive market conditions.
With files from Businesswire
