The Chubb Management Discusses Q4 2013 Results - Earnings Call Transcript

Jan.31.14 | About: The Chubb (CB)

The Chubb (NYSE:CB)

Q4 2013 Earnings Call

January 30, 2014 5:00 pm ET

Executives

John D. Finnegan - Chairman, Chief Executive Officer, President and Chairman of Executive Committee

Paul J. Krump - Executive Vice President and President of Personal Lines & Claims

Dino E. Robusto - Executive Vice President and President of Commercial and Specialty Lines

Richard G. Spiro - Chief Financial Officer and Executive Vice President

Analysts

Amit Kumar - Macquarie Research

Michael Zaremski - Crédit Suisse AG, Research Division

Jay Gelb - Barclays Capital, Research Division

Josh Stirling - Sanford C. Bernstein & Co., LLC., Research Division

Gregory Locraft - Morgan Stanley, Research Division

Michael Nannizzi - Goldman Sachs Group Inc., Research Division

Vinay Misquith - Evercore Partners Inc., Research Division

Meyer Shields - Keefe, Bruyette, & Woods, Inc., Research Division

Jay Adam Cohen - BofA Merrill Lynch, Research Division

John Frank Thomas

Ian Gutterman - Balyasny Asset Management L.P.

Operator

Good day, everyone, and welcome to the Chubb Corporation's Fourth Quarter 2013 Earnings Conference Call. Today's conference is being recorded.

Before we begin, Chubb has asked me to make a few following statements. In order to help you understand Chubb, its industry and its results, members of Chubb's management team will include in today's presentation forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. It is possible that actual results might differ from estimates and forecasts that Chubb's management team makes today. Additional information regarding factors that could cause such differences appears in Chubb's filings with the Securities and Exchange Commission.

In prepared remarks and responses to questions during today's presentation, Chubb's management may refer to financial measures that are not derived from Generally Accepted Accounting Principles, or GAAP. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures and related information are provided in the press release and the financial supplement for the fourth quarter 2013, which are available on the Investors section of Chubb's website at www.chubb.com.

Please, also note that no portion of this conference call may be reproduced or rebroadcast in any form without Chubb's prior written consent. Replays of this webcast will be available through February 28, 2014. Those listening after January 30, 2014, should, please, note that the information and forecast provided in this recording will not necessarily be updated, and it is possible that the information will no longer be current.

Now I will turn the call over to Mr. Finnegan.

John D. Finnegan

Thank you for joining us. Chubb had an excellent fourth quarter and a year of record operating earnings per share of $8.03 and record net income per share of $9.04. These strong results reflect our successful segmentation strategy and related underwriting execution, which have enabled us to both improve the overall quality of our book and achieve margin expansion as earned rate increases continued to exceed our long-term loss cost trends in all 3 business units.

Our combined ratio for the quarter was 85.5 compared to 111.2 in the fourth quarter of 2012. The impact of catastrophe losses in the 2013 fourth quarter was 2.1 points compared to 29.7 points in the fourth quarter a year ago due to Storm Sandy. On an x cat basis, our combined ratio was 83.4 compared to 81.5 in the fourth quarter of 2012.

Fourth quarter operating income per share for 2013 was $2.07, and net income per share was $2.24 while the impact of catastrophes on both operating and net income was $0.17 per share. Premiums worldwide for the quarter were up 4%. In the U.S., the market remained firm during the quarter. Rates were up 6% for commercial and 8% for professional liability. Renewal change for Personal Lines was up 6%.

For our business outside the U.S., which accounted for about 1/4 of our total net written premiums, we secured commercial and professional liability rate increases in the low single digits. GAAP book value per share at year end was $64.83, up 7% compared to year end 2012 and up 4% from September 30. Our capital position remains strong as evidenced by the new $1.5 billion share repurchase program we announced today.

As you saw in our press release, we have provided 2014 operating income per share guidance of $7.10 to $7.40. This assumes 5 points of catastrophe losses, which is 1 point higher than the assumed 4 points of catastrophe losses in our initial operating income per share guidance for 2013 to take into account anticipated higher than usual catastrophe losses in the first quarter of 2014.

Ricky will have more to say about guidance as well as our capital management activities. As in the past, Paul will provide detail today on CCI and CSI while Dino will discuss CPI and claims. In light of the new responsibilities that we announced in October beginning with our next conference call, Dino will be reporting on CCI and CSI while Paul will be reporting on CPI and claims. And I'll turn it over to Paul.

Paul J. Krump

Thanks, John. Chubb Commercial Insurance and Chubb's Specialty Insurance had outstanding performance in the fourth quarter capping off a terrific year for both. Starting with CCI, fourth quarter net written premiums were up 4% to $1.3 billion. Growth for CCI was 3% excluding the impact of currency and the effect of Storm Sandy's reinsurance reinstatement premiums had on the fourth quarter of 2012. CCI's fourth quarter combined ratio was 89 in 2013 compared to 118.7 in 2012. The impact of catastrophe losses accounted for 0.6 points of the combined ratio compared to 36.8 points in the year-ago fourth quarter. Excluding the impact of catastrophes, CCI's fourth quarter combined ratio was 88.4 in 2013 versus 81.9 in 2012 with the difference largely attributable to a greater amount of favorable reserve development in the year-ago quarter.

CCI's average renewal rate in the U.S. increased 6% in the fourth quarter. This compares to 7% in the third quarter of 2013 and 8% in the fourth quarter of 2012. This was the 11th consecutive quarter in which CCI secured rate increases in the U.S.

CCI achieved rate increases in every line of business. It was led by general liability and commercial automobile; followed by property, package, umbrella/excess and workers' compensation. Furthermore, we secured renewal rate increases on 80% of the portfolio while having decreases on only 10%.

Over the past few years, we have been working hard to improve the quality of our book of business. This has entailed our driving differentiated rate increases, aggressively calling the poorest-performing segments, disproportionately retaining the best performers and writing the bulk of new business in lines where we believe we are the most rate adequate. This combination of pricing and underwriting actions has resulted in less premium volume in our lowest-performing groups where the rate need is the highest, and more premium volume in our best-performing groups where the rate need is lower. Mathematically, that results in a better-performing overall book of business that has less rate need to achieve adequacy, and that is exactly what we have achieved.

In short, the slight decline in rate increases that we've experienced in the last 2 quarters is consistent with how we have chosen to execute our pricing and retention strategy at the individual account level versus any significant change in the competitive landscape.

As our book approaches rate adequacy, we'd expect the size of rate increases to decline. That said, during the fourth quarter, we did see signs in the U.S. of increased competition in certain lines, most notably, large commercial property programs. Because of the increased property competition in the fourth quarter in the U.S., we chose to walk away from more renewals and to trim our participation on larger property programs. Although these actions nudged our property retention a bit lower, we maintained our disciplined approach to pricing each risk and still secured property renewal rate increases consistent with the renewal rate increases we were able to achieve for our overall CCI book.

As I noted earlier, CCI as a whole achieved average U.S. renewal rate increases of 6%, which is a couple of points above our long-term loss trend. Rate increases above the loss-cost trend should lead to margin expansion, especially on a book where aggressive action has improved its quality. Therefore, we are pleased with the renewal rate increases we've achieved, and we are not surprised that they have slowed a bit.

CCI's fourth quarter U.S. renewal retention was 83% compared to 85% in the third quarter and 83% in the corresponding year-earlier quarter. In CCI markets outside of the U.S., average renewal rates were in the low single digits. The amount of the increases varied slightly by region, but they were very consistent with what CCI experienced throughout 2013. CCI's new to lost business ratio in the U.S. was 0.7:1 compared to 0.9:1 in the third quarter of 2013 and 0.7:1 in the year-ago fourth quarter. For the full year, CCI's net written premiums increased 2% to $5.3 billion. The combined ratio was 86.5 in 2013 versus 99 in 2012. The impact of catastrophes accounted for 2.1 points in 2013 compared to 11.4 points in 2012. Excluding the impact of cats, CCI's combined ratio for the year improved 3.2 points to 84.4 in 2013 from 87.6 in 2012, reflecting earned rate increases, underwriting discipline and some good fortune.

Moving to Chubb Specialty Insurance. Net written premiums increased 2% in the fourth quarter to $705 million. The CSI combined ratio improved 6.6 points to an outstanding 81.9 from 88.5 in the fourth quarter of 2012. For the professional liability portion of CSI, net written premiums were up 2% to $627 million. This increase is largely attributable to our decision not to renew our professional liability reinsurance treaty. The combined ratio for professional liability improved to 85.9 from 93.7 in the year-ago quarter.

We are very pleased that the average renewal rate increase for professional lines in the U.S. was 8% in the fourth quarter of 2013. For perspective, this is the same as the increase we obtained in the third quarter and compares to 9% in the year-ago fourth quarter. The fourth quarter of 2013 was the ninth consecutive quarter of professional liability renewal rate increases in the U.S. and the sixth consecutive quarter that professional liability rate increases ranged from 8% to 9%.

Each of our professional liability lines of business in the United States achieved renewal rate increases in the fourth quarter. Increases were led by EPL, private company D&O and not-for-profit D&O followed by crime, E&O, fiduciary and public D&O. As in CCI, we continue to differentiate our rate and retention actions based on the performance of each line of business and each policy. We secured rate increases on more than 80% of renewed policies across all professional liability lines of business while fewer than 10% had decreases. As with CCI, rate increases were highest for our least adequately priced tranche of policies and lowest for our most adequately priced tranche. This customized approach to pricing, we believe enhances the overall quality of the portfolio.

In markets outside the U.S., average renewal rate increases for professional liability in the fourth quarter were consistent with the third quarter, rising by low single digits. Renewal retention for professional liability in the U.S. in the fourth quarter was 84%, down 2 points from the third quarter but up 3 points from the fourth quarter of 2012. Retention was the highest for our best-performing policies and lowest for our worst-performing, again, improving the overall quality of our book of business. The new-to-lost business ratio for professional liability in the fourth quarter was 0.8:1, unchanged from the third quarter as the slight decline in retention was offset by more new business growth.

Turning to the surety portion of our CSI book. Net written premiums in the fourth quarter were up 4% to $78 million, and the combined ratio was 53.9. For the full year 2013, CSI net written premiums increased 3% to $2.6 billion, and the combined ratio was an outstanding 84.3 compared to 91.3 in 2012. Professional liability premiums increased 2% to $2.3 billion, and the combined ratio was 89.3 versus 96.7 in 2012. Surety premiums for the year increased 6% to $314 million, and the combined ratio was a superb 47.2 versus 51.4 in 2012.

And with that, I will turn it over to Dino, who will review our personal lines results as well as corporate-wide claims.

Dino E. Robusto

Thanks, Paul, and good evening, everyone. Chubb Personal Insurance net written premiums increased 6% in the fourth quarter to $1.1 billion. CPI premiums were up 3% excluding Storm Sandy reinsurance reinstatement premiums. CPI produced a combined ratio of 83.5 compared to 117.9 in the corresponding quarter last year. The impact of catastrophes for the quarter was 5.3 percentage points in 2013, whereas in the fourth quarter of 2012, the impact of cats was 40.1 points, mostly from Storm Sandy. CPI's x cat combined ratio for the quarter was 78.2 in 2013, similar to our result of 77.8 in the fourth quarter a year ago.

Homeowners premiums were up 6% for the quarter. They were up 2% excluding Storm Sandy reinsurance reinstatement premiums. The homeowners combined ratio was 75.8 compared to 131.3 in the corresponding quarter of 2012.

The impact of cats accounted for 8.5 points of the homeowners' combined ratio in the fourth quarter of 2013 compared to 62 points in the fourth quarter of 2012. Excluding the impact of catastrophes, the homeowners combined ratio improved 2 points to 67.3 from 69.3 in the corresponding quarter of 2012. Also encouraging is that homeowners policy retention remained steady in the United States with the fourth quarter at 90% even as we continued to achieve strong renewal price increases in the quarter.

Homeowners new business premiums in the U.S. were up 8% over the fourth quarter of 2012. Personal auto premiums for the fourth quarter of 2013 increased 2%, and the combined ratio was 93.9 compared to 97.1 in the fourth quarter of 2012. Personal auto policy retention in the U.S. was 89%, consistent with the last 6 quarters. Personal auto new business premiums in the U.S. were up 6% over the fourth quarter of 2012.

In other personal lines, premiums were up 9%, reflecting strong growth in our accident business, and the combined ratio was 96.8%.

Turning now to full year results. CPI's net written premiums in 2013 increased 5% to $4.3 billion. CPI produced a combined ratio of 87, including a 7.2-point impact of catastrophes compared to a combined ratio of 94.4, including 13.7 points of catastrophes in 2012.

Excluding the impact of catastrophes, CPI's combined ratio for the full year improved to 79.8 in 2013 from 80.7 in 2012. For all of 2013, homeowners premiums were up 4%. The homeowners combined ratio was 82.3, including an 11.5-point impact from catastrophes compared to a combined ratio of 94.2 in 2012, including a 21-point impact from catastrophes. Excluding the impact of catastrophes, the homeowners combined ratio for the full year improved 2.4 points to 70.8 in 2013 from 73.2 in 2012.

Personal auto premiums increased 6% in 2013 to $731 million, and the combined ratio was 94.8 compared to 93.4 in 2012. Other Personal lines premiums for the full year rose 6% to $929 million, and the combined ratio was 94.8.

Turning now to claims for Chubb overall. The impact of catastrophes in the fourth quarter of 2013 was 2.1 percentage points of the combined ratio, or $65 million before tax, including $20 million from cat events earlier in 2013 partially offset by $6 million, a favorable development from cat events prior to 2013.

The impact of catastrophes for all of 2013 was 3.4 points of the combined ratio, or $412 million before tax, reflecting $24 million of favorable reserve development from cat events that occurred in prior years.

A word on customer satisfaction. I'm very pleased to report that our U.S. Personal lines' customers' survey feedback on closed claims indicates a 97% highly satisfied rating for homeowners and 96% for personal auto for both the fourth quarter and the full year. Highly satisfied is the highest possible rating on the survey.

Before I turn it over to Ricky, let me make a few observations on the severe winter weather in the United States since the new year began. To date, weather has resulted in 2 declared catastrophes related to the freezing and winter storms that occurred in 19 states between January 3 and January 8. Both cats entailed freezing, ice, snow and wind, with the majority of our losses related to water damage from frozen burst pipes. As indicated in our press release, our preliminary estimate at this time for the combined effect of these 2 catastrophes to range of $150 million to $200 million dollars before tax. As we all know, the severe winter weather did not end on January 8. Unusually cold temperatures have plagued large sections of the country since then, resulting in additional losses. Since these conditions have not been classified as a catastrophe, we expect our non-cat weather-related losses in January 2014 to also be above average, whereas we enjoyed the low average non-cat weather-related losses in the first quarter of 2013.

And now I'll turn it over to Ricky, who will review our financial results in more detail.

Richard G. Spiro

Thanks, Dino. Looking first at our fourth quarter operating results. We had strong underwriting income of $430 million in the quarter. For the full year, underwriting income was $1.7 billion. Property and casualty investment income after tax was down 4% to $284 million due once again to lower reinvestment rates in both our domestic and international fixed maturity portfolios. As a reminder, unlike some of our competitors, we do not include our share of the change in the net equity of our alternative investments and property and casualty investment income. We include it in net realized investment gains and losses.

Net income was higher than operating income in the quarter due to net realized investment gains before tax of $67 million, or $0.17 per share after tax, of which $0.09 per share came from our alternative investments.

For comparison, in the fourth quarter of 2012, we had net realized investment gains before tax of $90 million, or $0.22 per share after tax, including $0.07 per share from alternative investments. Unrealized appreciation before tax at December 31, 2013, was $1.9 billion. For comparison, at year end 2012, unrealized appreciation before tax was $3.1 billion. The decline in unrealized appreciation in 2013 largely reflects the increase in interest rates that occurred during the year.

The total carrying value of our consolidated investment portfolio was $42.6 billion as of December 31, 2013. The composition of our portfolio remains largely unchanged from the prior quarter. The average duration of our fixed maturity portfolio is 3.9 years, and the average credit rating is Aa3. We continue to have excellent liquidity at the holding company. At December 31, 2013, our holding company portfolio had $2 billion of investments, including approximately $865 million of short-term investments.

Book value per share under GAAP at December 31, 2013, was $64.83 compared to $60.45 at year end 2012, an increase of 7%. Adjusted book value per share, which we calculate with available for sale fixed maturities at amortized costs, was $61.86 compared to $53.80 at 2012 year end, an increase of 15%.

As for loss reserves, we estimate that we had favorable development in the fourth quarter of 2013 on prior year reserves by SBU as follows: in CPI, we had about $25 million; CCI had about $35 million; CSI had about $55 million; and reinsurance assumed had none, bringing our total favorable development to about $115 million for the quarter. This represents a favorable impact on the fourth quarter combined ratio of about 4 points overall.

For comparison, in the fourth quarter of 2012, we had about $205 million of favorable development for the company overall, including $40 million in CPI, $105 million in CCI, $50 million in CSI and $10 million in reinsurance assumed. The favorable impact on the combined ratio in the fourth quarter of 2012 was about 7 points overall.

For the fourth quarter 2013, our x cat accident year combined ratio was 87 compared to 88.4 in last year's fourth quarter, an improvement of 1.4 points. Favorable development for the full year 2013 totaled about $710 million and had a favorable impact on the combined ratio of approximately 6 points compared to $615 million in 2012 and a favorable impact on the combined ratio of 5 points. For the full year 2013, our x cat accident year combined ratio was 88.4 compared to 90.6 in 2012, an improvement of 2.2 points.

During the fourth quarter of 2013, our loss reserves decreased by $275 million, including a decrease of $256 million for the insurance business and a decrease of $19 million for the reinsurance assumed business, which is in runoff. The impact of catastrophes decreased reserves by about $140 million, and the impact of currency translation on loss reserves during the quarter was insignificant.

Turning now to capital management. During the fourth quarter, we repurchased approximately 3.5 million shares at an aggregate cost of $325 million. The average cost of our repurchases in the quarter was $93.72 per share. For the full year 2013, we repurchased 14.9 million shares at an aggregate cost of $1.3 billion and an average cost of $87.33 per share.

As of December 31, 2013, there was approximately $107 million remaining under our January 2013 repurchase program, which we completed this month.

As we announced today, our Board of Directors has authorized a new $1.5 billion share repurchase program. We intend to complete this new program by the end of January 2015 subject to market conditions and other factors.

As you saw in our press release, our guidance for 2014 operating income per share is a range of $7.10 to $7.40. I'd like to make a few comments regarding the assumptions behind our guidance, starting with our cat assumption. Our preliminary estimate of losses from the 2 catastrophes in early January is $150 million to $200 million before tax, or $0.39 to $0.52 per share after tax. This alone would translate into roughly 6 points on our first quarter combined ratio. Given that we have 2 months left in the quarter, it is reasonable to assume that there may be additional losses from catastrophes in the quarter. In light of these higher than normal first quarter catastrophe losses, our 2014 full year earnings guidance includes an annual catastrophe load of 5 points, which is 1 point higher than the annual catastrophe assumption included in our initial earnings guidance last year. For those who would like to make a higher or lower cat assumption, the impact of each percentage point of catastrophe losses on 2014 operating income per share is approximately $0.33.

Our calendar year 2014 guidance also contemplates an increase in non-cat weather-related losses compared to the lower than average non-cat weather-related losses we experienced in both the first quarter a year ago and in all of 2013.

As Dino noted, we continued to incur additional losses from the winter freeze conditions which followed the 2 January catastrophes. These conditions have not been classified as catastrophes, and we expect that they will result in higher than normal January non-cat weather-related losses.

Our 2014 guidance of $7.10 to $7.40 also assumes that for the full year, net written premium growth will be 2% to 4%. We assume a continuation of current exchange rates resulting in no currency impact. We will have a combined ratio of 89 to 90, which includes the catastrophe loss assumption of 5 points. Property and casualty investment income after tax will decline 4% to 6%. And finally, our guidance assumes that we will have 245 million average diluted shares outstanding and that we will compete the new $1.5 billion share repurchase program on a pro rata monthly basis by the end of January 2015. At the midpoint of our guidance range, we have projected 2014 operating income per share at $7.25. This is $0.78 below actual 2013 operating income per share of $8.03. The difference between our 5-point cat assumption for 2014 versus actual cat losses of 3.4 points in 2013 accounts for roughly $0.50 of the $0.78 differential.

And now, I'll turn it back to John.

John D. Finnegan

Thanks, Ricky. Chubb had an excellent fourth quarter, posting the second-highest operating income per share in our history. We generated annualized GAAP and operating ROE in the quarter of 14.4% and enjoyed very strong book value growth of 4% from the prior quarter. These excellent fourth quarter results topped off a terrific year in which we achieved record operating and net income per share, driven largely by an 82.7 x cat combined ratio, 3 points better than 2012.

We continued to actively manage our capital in 2013 by returning $1.8 billion to our shareholders through a combination of share repurchases and dividends. Our continued commitment to capital management is demonstrated by the new $1.5 billion share repurchase program we announced today. Renewal rates improved in all 3 SBUs, with an average U.S. rate increases for the full year of 7% for standard commercial lines and 8% for professional liability. We also achieved average U.S. renewal rate increases of 6% for personal lines. A slight decline in renewal rate increases experienced in the fourth quarter in our overall commercial businesses largely reflects the growing rate adequacy in our book, and fourth quarter rate increases continued to exceed our longer-term loss-cost trends.

As Dino already discussed earlier, 2014 is off to a difficult start because of the severe weather we experienced in January. This has resulted in our increasing our cat assumption for the year with a corresponding reduction in our earnings guidance. Nonetheless, the $7.10 to $7.40 of operating earnings per share provided in our guidance for 2014 would, if achieved, represent the second-highest annual operating earnings per share in Chubb history.

With that, we'll be glad to take your questions.

Question-and-Answer Session

Operator

[Operator Instructions] We'll go first to Amit Kumar with Macquarie.

Amit Kumar - Macquarie Research

My first question relates to the discussion on increased competition on, I guess, the large commercial accounts. Can you sort of remind us firstly what the percentage of large accounts is as of CCI? And was this a handful of competitors? Or is this a more sort of pervasive development?

Paul J. Krump

Amit, it's Paul. Let me, first of all, tell you what we mean by large when we're talking about accounts. And by that, we're talking about premiums basically in excess of $1 million for the standard commercial lines. That portion of our portfolio is about 6% to 7%. Now that 6% to 7% includes for CCI property. It includes casualty, workers' comp, umbrella/excess, et cetera.

Amit Kumar - Macquarie Research

Got it. And the second piece on the competition?

Paul J. Krump

Yes, I would tell you that we have seen -- and again, the competition has just picked up a bit. But again, we're -- I want to emphasize to you that our property rates are still in line with our overall book. And we only saw retention come down just a tad. So I don't want to overplay that fact. There are a handful of programs, quite frankly, that we have participated on the past, that we just thought the rates came down too much, and we either just walked away from them or we cut our participation on them.

Amit Kumar - Macquarie Research

Got it. That's helpful. The only other question I have is under reserve releases [ph] in CCI, I understand the number fluctuates, and I think Q3 was $100 million or so. But if I look at sort of the trend line, should we be making something regarding the $25 [ph] million reserve releases? Are we sort of getting to the point where redundancies are sort of running out? Or am I oversimplifying this quarter's number?

Richard G. Spiro

Amit, it's Ricky. Why don't I attempt to give you some color on that? Compared to the earlier quarters in 2013, part of the reason why CCI's favorable development slowed down in the fourth quarter was due to a larger adverse impact from A&E losses that we incurred in the fourth quarter. Every year end, we do a detailed study on A&E, and we made an adjustment in the fourth quarter mainly on the environmental side. Another important component is the smaller favorable impact we experienced in the short-tail commercial property classes in the quarter. As we've discussed in the past, CCI has benefited from some remarkably good property results over the past several periods. Really, it began with the fourth quarter of '12. And some of that good fortune had been in the form of very strong, favorable prior-year development. And in the fourth quarter, we still had some favorable commercial property reserve development but not to the same magnitude. And then the final comment I'd make -- and I should point out that if you look at the full year 2013, CCI actually had almost $100 million more in favorable development in total than in the prior year. So still, it's a pretty good story.

Operator

We'll go next to Mike Zaremski with Crédit Suisse.

Michael Zaremski - Crédit Suisse AG, Research Division

On the net premium written guidance of plus 2 to 4, so if you guys, I think grew about 3% in 2013 in a fairly hard market, why should we expect the same? Or why do you guys expect roughly the same in a market where pricing seems to be trending down a little bit and apparently, retention levels are trending downwards a little bit as well? Maybe there's a reinsurance component there too we should be thinking about.

Paul J. Krump

First of all, I would tell you that I won't make the assumption that our retention is trending down. Just speaking -- again, just sticking with CCI for a minute because they did have retention come down a little bit in the fourth quarter. But for perspective over the last 10 quarters, CCI has traded in a retention range of 83 to 85. When it comes down or goes up in any quarter, it's really because we've probably won or retained or lost a couple of larger accounts. We commented on that specifically last quarter. In the third quarter, we retained a couple more. We said then not to read into that as a trend. But that said, I would suggest to you that as the book becomes more rate adequate, we will enjoy incrementally over time some improvement in the retention in the book of business. Likewise, I would suggest that we are finding better-priced business over time as well. Now we're being very careful to make certain that we're using the same underwriting discipline and looking to write it in market segments that we think are the most adequate and where we have real advantages around things like loss control and form and subject matter expertise. But we are seeing some opportunities in the marketplace, and we're actively going after them.

John D. Finnegan

Yes. Similarly, on personal lines, rate of retention was consistent in the fourth quarter as it was in the third quarter, and it was also consistent both for homeowners and for auto. And our pricing momentum has continued. It's our third year, and we continue to file mid-single-digit price increases. So steady as she goes in personal lines.

Paul J. Krump

And flipping back to the professional liability, I think you can see that in that book of business, the rate increases have been incredibly steady, right? For the last 6 quarters, they've been in that 8 to 9 range. I think that we're very active in that market. We got a great team, and they're looking for new business. Surety component, frankly, that's a lumpy business. You'll see that move around quarter-to-quarter [indiscernible] construction projects. But...

Michael Zaremski - Crédit Suisse AG, Research Division

Got it. Okay. Lastly, great color on January's weather losses. I guess is there a way for us to size up what the impact of non-cat weather could be in January? Like, what -- could it be half of what you showed in terms of the $150 million to $200 million? Could it $100 million? Or we're thinking small numbers?

Dino E. Robusto

Yes. It's too early. It's too early to really be able to tell. We do know, as we've indicated, rate non-cat weather-related losses in the first quarter of 2013 was a couple of points below the sort of 5-year average. So you know that was low. And obviously, this is some pretty severe weather, so we're going to see some additional ones. It's probably fair to assume it's going to be above it. But at this point, it's a little too early to tell. And clearly, the cold weather continues.

Operator

We'll go next to Jay Gelb with Barclays.

Jay Gelb - Barclays Capital, Research Division

I was wondering, first, what the benefit of -- on Chubb's top line and bottom line would be in 2014 from falling reinsurance rates?

Richard G. Spiro

Yes, it's Ricky. I don't think we can give you a specific number. Obviously, we read all the same articles and stories that you guys do about what's happened to the January 1 renewables. As you know, we don't renew our major cat treaties until April 1, so I think it would be premature for us to speculate as to what that would lead to. Obviously, declining reinsurance rates would be a good thing at the end of the day in terms of the overall cost of our program, but it's a little too early for us to comment.

Jay Gelb - Barclays Capital, Research Division

Okay. In the fourth quarter, the casualty line in CCI combined ratio went up to 103. What was that due to?

Paul J. Krump

This is Paul, Jay. I think the biggest driver here compared to the earlier quarters was the fact that we increased the current accident year loss ratio on casualty in the fourth quarter. That was primarily to recognize one very large unusual loss event in accident year 2013 that affected the general liability class. We also experienced a lesser amount of favorable prior-year reserve development in the fourth quarter as continued favorable development in the Excess classes was mostly offset by adverse development in the other casualty reserves, mainly related to our legacy asbestos and environmental exposures.

Jay Gelb - Barclays Capital, Research Division

Oh, so that environmental hit was in the casualty line?

Paul J. Krump

Yes. Correct.

Jay Gelb - Barclays Capital, Research Division

How much was that?

Richard G. Spiro

Environmental for the fourth quarter? Somewhere between $45 million, $50 million.

Dino E. Robusto

$40 million of environmental losses were incurred in the fourth quarter.

Jay Gelb - Barclays Capital, Research Division

So that impacted the PYD number and, obviously, the current year underwriting results?

Paul J. Krump

[indiscernible].

John D. Finnegan

It was adverse development.

Jay Gelb - Barclays Capital, Research Division

Yes. So -- all right. So it resulted in less reserve releases because of that, right? [indiscernible] $40 million?

John D. Finnegan

Correct. Correct.

Dino E. Robusto

Yes.

Jay Gelb - Barclays Capital, Research Division

Okay. And then, what -- Ricky, what level of interest rates would be needed for investment income to be unchanged as opposed to being down 4% to 6%?

Richard G. Spiro

That's a hard one. I don't know if I can give you a number. I will tell you that obviously, as the portfolios has been rolling over for the last couple of years, and as it continues to roll over, if interest rates stay sort of in the general range where they are now, I will continue to see a decline in investment income over the next couple of years. That decline should decrease. But as to what interest rate we would need to get to flat, I'm not sure I can answer that. It obviously depends a lot on the maturities and all the other things that go into calculating investment income.

John D. Finnegan

It really depends on, Jay, when. I mean, if you’re talking immediately -- if you got a 100 basis point improvement in interest rates, we roll over $5 billion of sold assets next year. Let's take a full year basis. Obviously, it only happens on a half-year basis, but that's $50 million; $50 million is probably about 4% of our investment income. So I mean -- I'm going to give you an idea. Now if you got 100 basis points in your whole portfolio, it'd be a lot bigger than that, but that takes a long time. But -- and you don't get 100 basis points in a day, of course, so it tends to move in. So -- I mean, over a couple of years, if you've got 50 or 100 basis points, you'd see a huge difference.

Jay Gelb - Barclays Capital, Research Division

Right. Okay. And then just a last one for Paul. You mentioned that in many areas, increasingly adequate rates, what's their -- what's to prevent the level of competition dramatically increasing as other competitors target that business?

Paul J. Krump

Well, Jay, I think, as we've said many times, there's a couple of -- I could make the case that the catastrophes in general are moving up, the low interest-rate environment that you just talked about. Yes, there's a lot of capital in the market, but I haven't seen yet where the industries' returns are that spectacular. So I guess, that would be something. But all I can tell you is what we've seen so far.

Operator

We'll go next to Josh Stirling with Sanford Bernstein.

Josh Stirling - Sanford C. Bernstein & Co., LLC., Research Division

I was wondering if we could talk a little more about the large account business, where you're giving us some sort of useful market color. I'm wondering if you'd give us just some more sort of flavor of what a typical program looks like that you're walking away from? I guess, first off, is it syndicated? Are your participating in the upper layers? Are you the lead? And sort of more at the product level and as the -- sort of what's driving the changes? It's sort of new competition coming in, or new approaches from other players in this market? Or is it basically just that the margin, people are a bit more price competitive and that's leading you guys to decide the -- price reductions? I'm sorry, I'll just ask, what are the price reductions on a typical account that you're seeing, that you're walking away from?

Paul J. Krump

Okay, Josh. Just so I can put this into some perspective, okay. We're really talking about large Monoline property that we experienced that in the fourth quarter. So you guys are always interested in color, so I didn't want to dodge that. We did see some of that. But we are not a large property writer, per se. We do participate occasionally. You'll see us on some real estate investment trust. You'll see us on some larger institutional-type property risk, universities, hospitals, et cetera. Yes, those are have been syndicated oftentimes, but that's a small portion of our book. So when I said we saw a tad bit more competition and a bit of retention drop, it was just that. We're talking just small incremental amounts. And yes, there's been 1 or 2 new players that has entered that market. They brought in some additional capacity. I think that we have seen the prices go down on a magnitude of anywhere from, say 5% to 15% on the deals. Now again, I said we are getting property rate increases on our average book that are in line with what we got for the 6% for the overall quarter. So it's pretty hard for underwriters to justify taking an account, even, if it's that good in giving up that type of a rate decrease if that gives you some additional color.

Josh Stirling - Sanford C. Bernstein & Co., LLC., Research Division

That's helpful. I guess, one other question, and I don't know if this is related or not. But one thing I noticed was you guys seemed to be shrinking the actual top line in your multi-peril product line over the past 1 or 2 quarters. And I'd always assumed that was sort of a midmarket package, where I would have thought there was -- I mean, I know you're getting pricing here, but I would have thought the market would be allowing you to sort of keep that more flat? And I'm just sort of wondering what the -- whether the market is actually getting more competitive there, too, or is it that -- or is this maybe a function of your re-underwriting or something?

Paul J. Krump

I would not say that we've seen the same uptick, if you will, in competition in multiple peril we saw in the large property portion of the book. I think that you hit on it. It's been our disciplined approach. We'd certainly -- we've been doing very well in multiple peril, and we're looking to grow that line faster. So keep to pushing on our underwriters to find more opportunities.

Josh Stirling - Sanford C. Bernstein & Co., LLC., Research Division

Okay, that's great. I'll queue off, but just one last thing. Your -- how would you guys characterize this as different from 10 years ago when we started seeing price -- sort of slowing momentum in maybe 2004 or '05?

Paul J. Krump

Okay, I guess I'll try to take a stab at that. I mean, I think what we saw was the trajectories were very different 10 years ago. I think that post-9/11, the type of increases that we were seeing, they were accelerating and they decelerated. This is a much different marketplace. People have very good metrics in their -- our competitors are trying to be very rational. I don't think reinsurance is driving it to the same degree that it had in the past. People's primary carriers, our primary competitors, have very strong balance sheets. I think they've got a lot better analytics as we do today, and people are trying to find niches where they have competitive advantages and compete there.

Richard G. Spiro

And I'd also add -- it's Ricky -- don't forget, we are in a much different investment income and interest rate environment today as well. So that also comes into play.

Operator

We'll go next to Greg Locraft with Morgan Stanley.

Gregory Locraft - Morgan Stanley, Research Division

I wanted to isolate on the combined ratio guidance for 2014. As I look at it, you just did an 86 on the year. You're starting guidance back then -- back a year ago was 89 to 91, so call it a 90. So you beat by 4 points. It wasn't cats. It was largely better underwriting elsewhere. If I look at the '14 guidance compared to really where you came in '13, we're losing kind of 1 point, 1.5 points on caps. I would assume -- I don't know if this level of reserve release can continue, but maybe we're losing a little there. But what I'm trying to understand is, is there maybe a point of non-cat creep that we're seeing? I mean I'm having a hard time getting to the midpoint of your starting combined ratio guidance. If you could help with the drivers, that would be appreciated.

Richard G. Spiro

Sure. Why don't I try to give you a little color to answer that question. So if you look at our guidance at the midpoint, if you do it on an x cat combined ratio basis, we'd be at 84.5, which is about a little less than 2 points higher than our 2013 x cat combined ratio. So just put cats to the side just on an x-cat basis. And as we've said in the past when we've determined our guidance, our calendar year guidance is based on a mix of scenarios, both with respect to performance by the individual business units and as it relates to current accident year results and potential prior year development. So therefore, the almost 2-point deterioration on our x cat combined ratio in '14 can be the result of higher x cat losses, lower prior period development as you pointed out, or a combination of the 2. As we discussed earlier, our 2013 results have benefited from x cat weather-related, large commercial property and homeowner fire losses, which have been well below our average levels over the past 5 years. So therefore, any reversion to historical averages would result in some deterioration in our x cat combined ratio. To this point, as I highlighted and Dino did as well in our earlier remarks, our 2014 guidance assumes higher x cat combined ratio due to the extreme cold weather that we've experienced so far in January. In addition, it's very difficult to predict favorable developments since this is a function of loss trends, but we have said in the past that we expect this favorable development to decline from what we view to be unsustainably high levels. I'll leave it to you to make your own assumptions regarding favorable development going forward. Hopefully, this gives you a little more color on our thought process. So it's a combination of the 2.

Gregory Locraft - Morgan Stanley, Research Division

Okay, great. That makes perfect sense. I guess more directly then, do you expect the rate of -- do you expect -- well, I guess my base case is that pricing is running in excess of loss trend. Is that true across the business lines? And if it's true, why wouldn't you see continued margin expansion? I fully appreciate that PPD and the x cat losses may come in a little higher year-over-year, but why would we all of a sudden hit the wall on margin expansion so quickly in 2014?

John D. Finnegan

Let me address that. I mean, margin expansion is not -- does not equate exactly to different movements in accident year results. I mean -- so let's take aside prior period development, you say. Margins -- you start -- because it's easy sort of to model, margin expansion is rates versus long-term cost trends. And we probably ran this year at 2 to 2.5 points of margin expansion. Now if I listen to the tone of the questions on the call, seems to suggest to me that most of you don't believe we'll run at the same levels next year, the industry won't run there. So make your own assumption. I think we'll still be very positive next year. But whether it be 2, 2.5 points, it's for you to judge. Then against that, you have other things. I mean, you have the short-term loss trends. I mean, the reason we did so well this year was just not margin expansion. That was 2 points. It was a lot of -- with a lot of a, underwriting, and b, good fortune. So for example, in homeowners non-cat-related weather, we ran 4.3% for the year, 5-year average of 5.8. There's 1.5 points. X cat fire loss ratio, 6.6 to 9.7. These are good things. Commercial property, large losses, significantly lower than prior periods. So these were all very positive things. So when you apply the margin expansion analysis, you can't apply -- you have to apply for the rate base period. You can't apply it to a base period that isn't necessarily in line with normal trends. What we do is we apply to -- so we take the yin and the yang. We take the margin expansion of the positive, and then look at, well, what will happen to these actual losses when we go forward? Now we don't really know that, except we were informed a little by the January events. But we can make assumptions. We find it's prudent to assume that you're not going to run 3 points over the x cat fire loss every year or 2 points under the non-cat-related whether loss. And then when you see January's cold freeze come in, you're really feeling like maybe you ought to be a little bit more conservative, a little bit more prudent. Well, that wipes out a lot -- if you have 2 points of margin expansion, doesn't take much of this stuff to kind of offset it. Now we're not saying the accident year won't be better. We have a lot of scenarios, and most of them, I think the accident year, perhaps it will be better? Who knows? I mean -- but it won't be as good as margin expansion. It could go either way. A lot depends on how these January storms turn out, how the non-cat-related weather there on the rest of the year, the fire losses. But we said we have to assume that they're going to revert more to the norm. I mean, you wouldn't allow someone to come over with a budget that assumes extraordinary, good performance based on luck for a long period of time. So we start there, and then of course you have prior-period development, and I don't know what'll run. I mean, I -- Ricky said we've been saying for a long time, we can't sustain it. I let him say it this time because I've been saying it for 8 years, and I've been wrong. But having said that -- I mean, I just don't know. I mean, if you were drawing, I mean, sort of a curve, you might say that 6 to 7 points might not be the middle of the curve every year going forward. It might be something different. So those are the trends. You're have -- you're right. You have likely margin expansion. As to whether that translates into better accident year assaults depends on a lot of good fortune. And as to whether that translates to better reported results depends on how prior-period development comes out.

Operator

We'll go next to Mike Nannizzi with Goldman Sachs.

Michael Nannizzi - Goldman Sachs Group Inc., Research Division

Ricky, could you talk about the years that drove the favorable development in specialty and CCI in particular?

Richard G. Spiro

Sure. Or...

John D. Finnegan

Let's do the 2, the overall favorable development of the company. Basically, there's no great story here. That -- most of it came for 2007 through 2010, but a significant portion, maybe 20%, came from accident year 2012, and that's not long tail line. So that's due primarily to very favorable experience we enjoyed in the commercial property classes this year, which we've talked about. Accident year 2004 to 2012 were all favorable. Professional [indiscernible] '12 was very favorable.

Michael Nannizzi - Goldman Sachs Group Inc., Research Division

Was that Sandy? Was that -- somebody do this in the reversal of Sandy...

John D. Finnegan

Oh, no, no, no. It was just what we've been -- just some stuff I was just talking about, how we have low large losses in commercial property this year. A lot of that didn't go to the accident year. A lot of that went to prior period, too. And so we had very good prior period in 2012, especially in commercial property. In professional liability, it came from accident years 2010 and prior.

Michael Nannizzi - Goldman Sachs Group Inc., Research Division

Got it. And then I guess what would have to happen for you to really pursue more growth? I mean, is it -- when your profitability gets to a certain amount, I get it, you've got the prior year and the non-cat weather and lots of -- and cats and lots of moving parts. But is there a point at which you say, "Look, we're -- we've got a good baseline here. Let's go ahead and let's grow now because we're not going to be able to rely on these movements to grow earnings or to improve performance. So now we've got to grow." I mean, is there a point where you say that? Or is it -- I'm sure it's more complicated than that, but I'd love to get your...

John D. Finnegan

No, no, no. Sure, but we do it -- listen, what happens is that -- Paul was talking about that, we're achieving greater rate adequacy by line. Now the degree of rate adequacy drives what our pricing requirements are in the marketplace. You set your more rate adequate, you obviously are willing to take a different price in classes where you're not rate adequate. So you will effectively -- we will be pricing the product more for growth than for sheer profitability as we -- after we've achieved rate adequacy and you see that in more and more lines. So you'll effectively see that in our pricing of our product as we go forward. We won't turn on, though, a switch and say, "We're now a growth company." We'll do it through the pricing of our product based on an economic analysis of that product.

Michael Nannizzi - Goldman Sachs Group Inc., Research Division

So like -- so last year, you were 89 and 91. You came in -- obviously came in below that. And this year, you're kind of looking at 89 to 90. I mean, what would keep you from growing more than -- because it looks like -- I mean, if you're getting 5% rate or 6% rate or 8% rate, you're still -- you're growing top line less than rate. So just for attention, it doesn't seem like you're growing exposures that much, although the business seems like it's pretty adequate from a profitability perspective.

John D. Finnegan

Yes, you'd say that -- at the current levels we're riding, we might be running that accident year. At 4 points to cat, you might be saying we're running out at 10% to 12%. So I mean, we're getting -- probably not overall fully price adequate because really, from a pricing perspective, you'd have to load that with a little bit higher cats for volatility. But overall, book is reasonably good. And individual lines, some of them are very good. So that -- and we reflect in our pricing our economic perspective on all of those products. And as you get a little bit more price competitive, you obviously hope to grow the business some.

Operator

We'll go next to Vinay Misquith with Evercore.

Vinay Misquith - Evercore Partners Inc., Research Division

The first question is on the retentions and the new business. You saw that fall off sequentially. I just wanted to clarify whether that's purely related to the large commercial property that you saw? Or was it also because your pricing was maybe a tad higher than peers?

Paul J. Krump

Vinay, I think that -- just so I'm making certain that I'm following this. This is Paul. The -- again, the -- if you're talking about the retention in CCI, it was up in the third and down just a little bit in the fourth, and that was just really due to a couple of larger accounts that we either retained or -- in the third quarter, or we lost a couple extra in the fourth quarter. The retention overall for professional liability has been very, very steady. So -- but it's been up. If you're looking at it from fourth quarter to fourth quarter, then it's up in professional liability, and it's spot on for CCI when you look at fourth quarter to fourth quarter. So again, I'm just not certain I'm following. Are you talking sequential quarters? Are you talking...

Vinay Misquith - Evercore Partners Inc., Research Division

Oh, yes. Yes. sequential quarters, I think. Third quarter versus fourth quarter I guess. It was a slight deterioration.

Paul J. Krump

Yes. That's pretty much it. I mean, there are some people out in our field say that the fourth quarter tends to come down a little bit just because there's a little bit of the year-end push for some new business by some people, and the competition goes up a little bit. I've been around for 30-plus years. I don't know if I completely buy into that theory, but it's one thought. But you do see a little bit of movement between quarter-to-quarter.

Vinay Misquith - Evercore Partners Inc., Research Division

Okay, that's helpful. The second question is I also wanted to clarify the non-cat, where [indiscernible] guys are budgeting a more normal year this year versus last year. That's '14 versus '13. Do you have a number for how much you're increasing your non-cat losses meant for this year versus last year?

Richard G. Spiro

No, we can't give you a specific number. As I mentioned in -- answered to one of in the earlier questions, we do a whole bunch of scenarios when we come up with our guidance. So I can't give you one specific number.

Operator

We'll go next to Meyer Shields with KBW.

Meyer Shields - Keefe, Bruyette, & Woods, Inc., Research Division

Two quick questions on the personal auto side. First, when we look sequentially, the net written premium growth seems to have slowed pretty quickly. And second, on an x cat basis, it looks like we had more than 400 basis points of, pardon me, of higher x cat loss ratio movement year-over-year. I was wondering if you could talk about that a little.

Dino E. Robusto

Yes. Sure. It's Dino. I'll talk about the auto growth first. First of all, it continued to be strong in the United States as well as actually in most countries we write auto outside the U.S. But that currency translation really deteriorated meaningfully such that the overall positive growth outside U.S. on local currency actually ended up being negative when expressed in U.S. dollars. We also had a little less local currency growth in Brazil in reaction to some rate-taking efforts to improve the profitability of certain of our customer segments. But in general, we remain very pleased with our continued progress in growing auto as evidenced by the full year growth rate, which is 6%. And on the profitability on the x cat, it's really -- it's a combination of a few factors. The expense ratio is up over about 1 point, which is due primarily to higher costs in our Brazilian operation, which I've mentioned before where we continue to invest in our capabilities. It was a little less favorable development and a little higher current accident year loss ratio, but nothing on the loss side that really raised any major concern. Indeed, the full year result is actually in line with full year result of 2011 at about 93.2. So we remain very pleased with our auto performance, and we continue to drive our strategy, which, as I've mentioned before, is a cross-sell strategy to our homeowner customers in most of the jurisdictions around the world. And so you'll get a little bit of fluctuation quarter-to-quarter. But in general, very pleased with the results.

Meyer Shields - Keefe, Bruyette, & Woods, Inc., Research Division

Okay. In your target segment, are you seeing any ramp-up in competitiveness? Again, I'm talking personal auto domestically.

Dino E. Robusto

There's only a few players in the high net worth auto market. There's been -- there's maybe a little bit more competition, but the reality is we have a very specific niche. It's just a cross-sell strategy. We've invested in technology and analytics in our auto and our panorama auto pricing tool, which I've talked to you about before, and it's allowing us to bring a top-end bottom, top-end service at a relatively competitive price. We've managed to cross-sell about 30% of our homeowners. That's the good news. The good news? It's only 30%, which means we got a lot more. So in general, we see it as a positive opportunity and not really experiencing or getting into the competition that you sometimes see and talk about in auto with the large Monoline auto players, and that's not really our game.

Operator

We'll go next to Jay Cohen with Bank of America Merrill Lynch.

Jay Adam Cohen - BofA Merrill Lynch, Research Division

I'm wondering if someone could talk about the potential repercussions of this Halliburton case in the Supreme Court, which is challenging Basic versus Ferguson (sic) [Levinson]. Have you seen anything for your professional liability business?

Dino E. Robusto

It's Dino. Look, we clearly, we recognize that it has the potential to change securities class action landscape, and securities class actions has historically been the main driver of our most severe public D&O losses. But at this point, there's a number of potential outcomes in the case, and it's -- we're not going to be able to predict -- that we're not going to predict what we think is most likely. Obviously, we'll continue to watch the case closely. And when it's decided, we'll evaluate the decision and its potential impact on the public D&O. But there's several potential outcomes. It's early, and let's -- we'll all watch it.

Operator

We'll go next to John Thomas with William Blair.

John Frank Thomas

I would like to know what you're seeing in the workers' comp market? It's been one of the biggest growers for you over the past 3 years.

Paul J. Krump

Yes, this is Paul. I would tell you, we've been really very pleased with our workers' compensation. Much like Dino just talked about auto being a cross-sell to the homeowners, virtually all of our workers' comp is a cross-sell to a package or an overall account situation. And if you look at our combined ratios, they just really distinguished themselves versus the competition. So we've been pleased to find opportunities to grow that line. Quite frankly, in the past, there have been a number of competitors that underpriced that line severely as they had been reprofiling their book and getting more rate increases. Those customers have been coming to us because we handle the other lines of insurance and asking if we'd be interested in their workers' compensation because we know these clients and we were interested in quoting their workers' comp before. We're certainly interested in quoting it now, so we're happy to take advantage of those opportunities when they come our way.

John Frank Thomas

And then on your net written premium to equity leverage ratio, it's at 0.8 now. Do you have any plans to increase that in the future, possibly given that rate increases are declining and growth may not be there? Would you consider increasing the leverage to get ROE higher?

Richard G. Spiro

I don't have any particular plan to move that dramatically. We talked about the growth side earlier our thought there. We do share buybacks. We pay dividends, and we use that as a way to return capital to shareholders. I'm not sure any other -- there's anything else I would point to.

Operator

Our last question comes from Ian Gutterman with BAM.

Ian Gutterman - Balyasny Asset Management L.P.

First, can you give any more color on those 2 January cats? I know you said pipe damage and such. It just seems like an awfully high number for that. Is this a -- do you have any industry loss numbers? Or maybe, do you feel that you had an outsized loss? Because maybe there was a couple of really high-end homes that had severe damage. Or just any kind of way of helping us think about it.

Dino E. Robusto

I think it's a large amount essentially because the 2 severe winter weather catastrophes really impacted a large geographic area, 19 states, as I mentioned. In particular, the second declared cat, which had the much larger impact to us, if you recall, began its trek across the midsection of the country, then it moved south and it moved east. It went to states as far south as Mississippi and Georgia, and as far north as New York. And as [indiscernible] said, if you look at some of those -- the wind chill factors and the temperatures in some places down to minus 60, wind gusts at 45 miles an hour. So most of it is frozen burst pipes. You have some water infiltration, other leaks, some damage from snow load. I think just given the timing of our earnings release, I think we're one of the first to sort of comment it, but I think just based on the large geography that these 2 cats blanketed, I think it's safe to assume when all company personal and commercial losses are tallied up, these catastrophes are going to represent a substantial industry event.

Ian Gutterman - Balyasny Asset Management L.P.

Got it. That's helpful. And if I could move to professional lines real quick. The accident year looks like if I'm guessing right, coming up to about a 95, which is a big improvement. Anything unusual on that? Or is that pricing rolling through, and we should kind of expect a mid-90s going forward?

John D. Finnegan

Well, let's say that -- first of all, the reported number was about 7 points higher, a little bit of favorable development. But in the fourth quarter, we run 96 as an accident year versus 102. So we're very pleased with the 6-point improvement. And for the year, we're at 98 versus 103, so a 5-point improvement. Now the unusual part in the fourth quarter is professional liability has a seasonally low expense ratio in the fourth quarter, always does. So you look in that 2 or 3 points versus the average for the year. So I'd say you ought to be looking at it -- as a baseline case for 2013, the 98 for the year. The 98 to the 96 have the same loss ratio, it's just a different expense ratio. So one, we're tremendously happy with the progress from our rate increases, from our underwriting discipline, the actions we've taken. Had great movement, 67 points. That's a big movement but of course precipitated by an awfully bad starting point. I think that it was one of our focuses for the year, and we've done a good job in that area. Paul and the crew did an excellent job. I think we're running 98 now, which is a lot better than 103 last year. And if we continue to get the kind of rate increases we're looking at now and maintain our discipline, I'd expect an improvement again to the mid-90s next year. I don't think you'll see the same size of improvement because we're not coming off [indiscernible]. But I think it looks good for professional liability as we go into this year as long as the market holds up.

Ian Gutterman - Balyasny Asset Management L.P.

And the change in the reinsurance treaty, can you give us a sense how much of that impacts premiums? And I assume that's obviously going to impact the improvement in the combined ratio as well?

Paul J. Krump

Yes, this is Paul, Ian. Yes, I think that that's going to help us a little bit here. It was really in the FI space where there was a specific treaty there. And as John mentioned, we've done a tremendous amount of work over the last 3, 4 years cleaning up that book of business. So as we analyze how losses were flowing through and what we've done to the book of business, we just decided we didn't need that treaty anymore.

John D. Finnegan

It had a 2-point or so impact on premium growth in the quarter for professional liability, not for the corporation as a whole. As to what it says to combined ratio, well I guess we'll only know after we see what losses are and whether we should have kept the reinsurance or not.

Well, we think it will improve it a little, but we're not talking -- I mean, that's not going to be a huge factor, and again, depends where losses would have come up, so you never know till after the fact.

Thank you. Thanks for joining us, and have a good night.

Operator

This does conclude today's conference. Thank you for your participation.

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