The Chubb's CEO Discusses Q4 2011 Results - Earnings Call Transcript

| About: Chubb Ltd (CB)

The Chubb (NYSE:CB)

Q4 2011 Earnings Call

January 26, 2012 5:00 pm ET

Executives

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

Dino E. Robusto - Executive Vice President and President of Personal Lines & Claims

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

Paul J. Krump - Executive Vice President and President of Commercial and Specialty Lines

Analysts

Matthew G. Heimermann - JP Morgan Chase & Co, Research Division

Michael Nannizzi - Goldman Sachs Group Inc., Research Division

Jay Gelb - Barclays Capital, Research Division

Ian Gutterman

Adam Klauber - William Blair & Company L.L.C., Research Division

Joshua D. Shanker - Deutsche Bank AG, Research Division

Gregory Locraft - Morgan Stanley, Research Division

Meyer Shields - Stifel, Nicolaus & Co., Inc., Research Division

Vinay Misquith - Evercore Partners Inc., Research Division

Michael Zaremski - Crédit Suisse AG, Research Division

Steve R. Labbe - Janney Montgomery Scott LLC, Research Division

Amit Kumar - Macquarie Research

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

Jay A. Cohen - BofA Merrill Lynch, Research Division

Keith F. Walsh - Citigroup Inc, Research Division

Operator

Good day, everyone and welcome to The Chubb Corporation's Fourth Quarter 2011 Earnings Conference Call. Today's call is being recorded.

Before we begin, Chubb has asked me to make the 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 might make today. Additional information regarding factors that could cause such differences appears in Chubb's filings with the Securities and Exchange Commission.

In the prepared remarks and responses to questions during today's presentation of Chubb's fourth quarter 2011 financial results, 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 financial measures calculated and presented in accordance with GAAP and related information is provided in the press release and the financial supplement for the fourth quarter 2011, 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 the prior written consent of Chubb. Replays of this webcast will be available through February 24, 2012. Those listening after January 26, 2012 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. We have strong results in the fourth quarter and after experiencing record catastrophe losses in the first 9 months, I'm happy to say that we had a much lower level of cats this quarter. Given the continued weakness in the global economy and low-interest rates, we're especially pleased that we produced $452 million of net income for the quarter. Operating income per share was $1.63 and annualized operating ROE was 13.1% for the quarter. Net income per share was $1.60 and annualized ROE was 11%. Net written premiums for the fourth quarter were up 4%, reflecting rate improvements in all 3 of our business units. We continue to see sustained momentum in the standard commercial rate increases that we've been discussing for the last few quarters. And in professional liability, we secured rate increases for the first time in 2 years. We also obtained rate increases in Personal lines. Nevertheless, our marketplace is still very competitive and we remain steadfastly focused on writing profitable business.

GAAP book value per share at 2011 year end was $57.15, up 2% compared to the end of the third quarter, and up 9% compared to year end 2010. Our capital position is strong and Ricky will talk about capital management including the new share repurchase program we announced today. As you saw in our press release, we provided operating income per share guidance for 2012 of $5.30 to $5.70. We'll have more to say later on guidance as well as our full-year results.

And now, Paul will discuss the performance of Chubb's commercial and specialty insurance operations and provide some market color.

Paul J. Krump

Thanks, John. At Chubb Commercial Insurance, net written premiums for the fourth quarter were up 8% to $1.2 billion. The combined ratio was 93.2 versus 93.5 in the fourth quarter of 2010. Excluding the impact of catastrophes, CCI's fourth quarter combined ratio was 93.6 compared to 91 in the fourth quarter of 2010, driven largely by higher losses in property. For the full year, the impact of catastrophes accounted for 10.5 percentage points of CCI's combined ratio in 2011, compared to 5.4 points in 2010.

We are pleased that CCI's average United States renewal rates were up 6% in the fourth quarter. Rate momentum continue to build as evidenced by the fact that the fourth quarter's 6% compares to the 4% we reported in the third quarter, 2% in the second quarter and flat in the first quarter. Retention for the fourth quarter was 85%, the same as in the third quarter. The new to lost business ratio was 1.1:1, slightly higher than the third quarter and a little lower than the average for the year. Even more encouraging is the fact that CCI's secured United States renewal rate increases in each line of business in the fourth quarter. Monoline property rates increased the most, reaching the double-digit mark, followed in order by general liability, worker's compensation, excess umbrella, package, commercial automobile, boiler and marine. Also indicative of the improving pricing environment is that only about 10% of the CCI business we renewed in the fourth quarter received a rate decrease, compared to about 50% in the fourth quarter of 2010.

On the flip side, in the fourth quarter of 2011, we secured rate increases on 70% of the renewed business, compared to 30% in the fourth quarter of 2010. In markets outside of the United States, CCI obtained renewal rate increases in Canada as well as continued increases in countries that experienced recent catastrophes such as Japan, New Zealand and Australia. Rates in Europe continued to be flat.

Turning to CSI, net written premiums for professional liability were down 2% in the fourth quarter of 2011 to $648 million, and the combined ratio was 96.1 compared to 88.7 in the fourth quarter of 2010. Based on our year-end analysis, we raised our estimate for the professional liability combined ratio in accident year 2011. The increase was primarily in the crime and employment practices liability classes, which have been adversely affected by the economic downturn. As you know, the crime class is inherently lumpy and in the fourth quarter, we experienced some heavy, large loss activity in accident year 2011. We also made modest increases to our accident year 2011 estimates in public D&O, reflecting the rising cost of merger and acquisition objection claims.

In the quarter, the overall professional liability accident year 2011 results therefore reflect a modest underwriting loss, which was more than offset by continued favorable development on prior accident years. For the full year, accident year 2011 for professional liability is at about an underwriting break even and our calendar year results benefited from significant favorable development.

With respect to the rate environment, we are pleased that average renewal rates for professional liability in the United States turned positive in the fourth quarter, averaging 1%. For perspective, that positive 1% compares to the negative 1% we reported in the third quarter, negative 2% in the second quarter and negative 3% in the first quarter of 2011. The last time we obtained positive rate increases in the United States for professional liability was 2009 when there was a fair amount of market disruption in the wake of the financial crisis. Prior to that, rates had not increased since the first quarter of 2004.

CSI renewal retention was 85% in the fourth quarter, a decline from the 89% we've reported in the third quarter of 2011. We believe the trade-off of retention for rate was a good one made even better as we carefully called our least attractive business. The new to lost business ratio was 0.7:1 in the fourth quarter, down from 1.3:1 in the third quarter, as we took an especially disciplined underwriting and pricing approach to new business.

A review of renewal rates by line of business in the fourth quarter for professional liability in the United States is encouraging. Importantly, rates for all 3 segments of our Directors and Officers liability book of business, those segments being public companies, private companies and not-for-profit entities, all experienced low single-digit increases. Regarding the renewal rates for our other professional liability lines of business, crime, employment practices liability and fiduciary were positive in the fourth quarter while financial fidelity and errors and omissions were flat.

Outside of the United States, the rate environment for professional liability remains unchanged in the fourth quarter with average rates down by low single digits.

Regarding the surety portion of our CSI book, net written premiums in the fourth quarter were up 6% to $88 million and the combined ratio was 47%.

And with that, I will turn it over to Dino, who will review Personal Lines and Claims.

Dino E. Robusto

Thanks, Paul, and good evening, everyone. Chubb Personal Insurance net written premiums increased 3% in the fourth quarter to $991 million. CPI produced a combined ratio of 86.9 compared to 83.7 in the corresponding quarter last year. The impact of catastrophes for the quarter was 1.6 points in 2011, whereas in the fourth quarter of 2010, the impact of cats was 1 point. For the full year, CPI produced a combined ratio of 98.3 including 13.1 percentage points of catastrophes, compared to a combined ratio of 91.5 including 10.2 points of catastrophes in 2010.

The large impact events in 2011 for CPI were Hurricane Irene, the tornadoes and wind storms in the U.S. and the flooding and cyclone in Australia. Homeowners premiums were up 3% for the quarter and the combined ratio was 82.3, compared to 78.8 in the corresponding quarter last year. Cat losses accounted for 3 points of the homeowners combined ratio in the fourth quarter of 2011 compared to 2 points in the fourth quarter of 2010. While cat losses were low in the quarter, we did experience relatively higher non-catastrophe weather-related water, wind and brushfire losses in the U.S. In the fourth quarter of 2011, non-cat weather-related losses in the U.S. accounted for about 6 points of the worldwide homeowners combined ratio, which is 3 points higher than the impact in the fourth quarter of 2010. For all of 2011, non-catastrophe weather-related losses in the U.S. accounted for about 8 points of the worldwide homeowners combined ratio, compared to an average of only 5 points over the prior 5 years.

In part, due to the recent heavy cat and non-cat weather-related losses, we are now filing for homeowners rate increases in the U.S., mostly in the 5% to 6% range, compared to earlier in 2011 when they were in the 3% to 4% range and we anticipate filing for additional rate increases as needed. Given the widespread rate taking in the general market, we do not think this will have a significant impact on our retention or our ability to attract new customers as evidenced by our experience in 2011.

Indeed, in the fourth quarter of 2011, homeowners in the U.S. had its 8th consecutive quarterly increase in policy count retention, ending the year with a U.S. homeowners retention rate of 91% nearly a point higher than a year earlier. Homeowners new business was also up increasing 8% for the year.

Personal auto premiums increased 1% and the combined ratio was 93.3. Like homeowners, personal auto policy count retention increased by 1 point from a year earlier to 89%.

In other Personal lines, premiums were up 4% driven largely by growth outside the United States. The combined ratio was 94.7. In short, we are very pleased with the performance of our Personal Lines business.

Turning now to claims. As John mentioned, the big story of the year was catastrophes, which accounted for 8.9 percentage points of the 2011 combined ratio for Chubb as a whole. Fortunately, the extraordinarily high level of catastrophe losses we experienced in each of the first 3 quarters of the year was not repeated in the fourth quarter. There were 4 cat events outside the U.S. during the fourth quarter. For the industry, the most noteworthy was the Thailand flooding, but that was not a major event for Chubb.

In the U.S., there were 2 cat events, the more significant of which was the late October snowstorm. Fourth quarter cat events represented about 2.5 points of our combined ratio but were partially offset by about 2 points of benefit from downward revisions of our estimated losses from catastrophes that occurred in the first 3 quarters of 2011.

On previous calls, I've spoken about how highly our customers rate our claim service. I can now give you numbers for all of 2011 including catastrophe claims. 97% of homeowner customers responding to our post claim surveys were highly satisfied with Chubb's service, which is the highest rating on the survey form. Given the plethora of cat events throughout most of this year, this is a result we are very proud of. One final word about claims, the number of new claims related to the credit crisis was insignificant throughout 2011 and losses are developing consistent with our expectations.

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 operating results, underwriting income was $284 million in the quarter, property and casualty investment income after tax was down 1% to $316 million in the quarter due primarily to the continued decline in reinvestment rates. Net income was lower than operating income in the quarter due to net realized investment losses before tax of $12 million or $0.03 per share after tax, largely driven by losses from our alternative investments. For comparison, in the fourth quarter of 2010, we had net realized investment gains before tax of $155 million or $0.33 per share after tax. Unrealized appreciation before tax at December 31, 2011 was $2.7 billion, an increase of approximately $400 million from the end of the third quarter. For comparison, at year-end 2010, unrealized appreciation before tax was $1.7 billion.

The total carrying value of our consolidated investment portfolio was $42.8 billion as of December 31, 2011. The composition of our portfolio remains largely unchanged from the prior quarter. The average duration of our fixed maturity portfolio is 3.7 years and the average credit rating is Aa2.

In light of the headlines surrounding Europe, I thought I would take this opportunity to give you an update on our international investment portfolio, which represented 24% of our total invested assets at December 31, 2011. Our international investment portfolio totaled $10.1 billion of which, $10 billion was invested in high-quality fixed maturity securities and short-term investments. The international fixed maturity portfolio had an average credit rating of Aa2 and was heavily concentrated in AAA rated sovereigns and supernationals. Our 5 largest sovereign exposures are Canada, the United Kingdom, Australia, Germany and Brazil, which accounted for 50% of our total international investment portfolio. At year-end, we had no exposure to sovereigns in Greece, Portugal, Ireland and Italy, and only $13 million of exposure in Spain. Our total exposure in the so called PIGS countries including non-sovereign was less than 2% of our international investment portfolio and less than 0.5% of our total invested assets.

We also continue to have excellent liquidity at the holding company. At December 31, 2011, our holding company portfolio had $2.2 billion of investments including $1 billion of short-term investments. This reflects the repayment of $400 million of senior notes that matured in November. Book value per share under GAAP, at December 31, 2011, was $57.15 compared to $52.24 at year end 2010, an increase of 9%. Adjusted book value per share, which we calculate with available for sale fixed maturities at amortized cost, was $51.38 compared to $49.05 at year end 2010. With respect to the changes in book value during the quarter, I'd like to point out that the positive impact of the increase in our unrealized gain position due to the decline in interest rates was approximately offset by the adverse impact of lower interest rates on the value of our pension liability.

As I mentioned on our last earnings call, and as we described in our most recent 10-Q, in the first quarter of 2012, we will adopt a new guidance related to the accounting for costs associated with acquiring or renewing insurance contracts. We expect that the financial impact of the adoption of this guidance will be consistent with our previous disclosures.

Turning to reserves, we estimate that we had favorable development in the fourth quarter of 2011 on prior year reserves by SBU as follows: In CPI, we had approximately $35 million, CCI had $90 million, CSI had $55 million and reinsurance assumed had $5 million. Bringing the total favorable development to approximately $185 million for the quarter. This represents a favorable impact on the fourth quarter combined ratio of about 6 points overall. For comparison, in the fourth quarter of 2010, we had about $145 million of favorable development for the company overall, including about $25 million in CPI, $50 million in CCI, $60 million in CSI and $10 million in reinsurance assumed. The favorable impact on the combined ratio in the fourth quarter of 2010 was about 5 points.

Favorable development for the full-year 2011 totaled about $765 million and had a favorable impact on the combined ratio of approximately 6.5 points.

During the fourth quarter, our loss reserves decreased by $455 million including a decrease of $435 million for the insurance business and a decrease of $20 million for the reinsurance assumed business, which is in runoff. The impact of catastrophes reduced reserves by about $320 million and the impact of currency fluctuation on loss reserves during the quarter resulted in a decrease in reserves of about $90 million.

Turning now to capital management. We repurchased 6 million shares at an aggregate cost of $396 million during the fourth quarter. The average cost of our repurchases was $66.10 per share. For the full-year 2011, we repurchased 27.6 million shares at an aggregate cost of $1.7 billion and an average cost of $62.30 per share. As of December 31, 2011, there were approximately 909,000 shares remaining under our December 2010 repurchase program. During January of this year, we repurchased all the remaining shares under this program at an average cost of $69.66 per share. Since December 2005, we have repurchased a total of 185 million shares at a total cost of almost $10 billion, representing approximately 45% of the outstanding shares. Earlier today, we announced the new $1.2 billion share repurchase program, which we intend to complete by the end of January 2013. Please note that unlike our previous share repurchase programs, which were expressed as a number of shares to be repurchased, our new program is based on the total dollar amount to be spent on repurchases. We believe that this approach is more common in the marketplace and provides more certainty around the ultimate size of the program. Going forward, we intend to announce any future share repurchase programs on a similar basis.

Before I turn it back to John, let me make a few additional comments regarding our 2012 guidance. We expect operating income per share for 2012 to be in the range of $5.30 to $5.70, which at the midpoint is $0.38 or 7% higher than our actual operating income per share for 2011. This guidance is based on our expectation that net written premium growth will be 2% to 4%. This assumes a negative 1% impact of foreign currency translation. We still have -- we will have a combined ratio of 93 to 95 for the year. Property and casualty investment income after tax will decline 3% to 5%. And finally, we're assuming 271 million average diluted shares outstanding for the year. Our guidance assumes 3.5 percentage points of catastrophe losses, the 2012 assumption is based on our long-term median annual cat loss of 3 percentage points, adjusted upward by 0.5 to reflect the higher catastrophe losses that we have experienced recently.

In terms of sensitivity, the impact of each percentage point of catastrophe losses in 2012 operating income per share is approximately $0.28.

And now I'll turn it back to John.

John D. Finnegan

Thanks, Ricky. Chubb performed well in 2012. Net income was about $1.7 billion, generating an ROE of 10.7% which is outstanding considering that we had more than $1 billion in pretax catastrophe losses and a historically low interest rate environment. This performance was the direct result of our profitable risk strategy, careful risk reselection, disciplined pricing and conservative investing.

Operating income per share was $5.12 despite a $2.30 per share impact of catastrophe losses. Operating ROE for the year was 10.4%. Our 2011 excellent year of cat combined ratio, which excludes prior period reserve development of catastrophes was a strong 93. Book value per share was up 9% for the full year. We continued to actively manage our capital by returning almost $2.2 billion to our shareholders through share repurchases and dividends. And rates improved throughout the year in all 3 SBUs with average U.S. renewal increases standard commercial reaching 6% on the fourth quarter and with professional liability rates turn you from negative to positive.

In summary, Chubb posted strong results in 2011 in the face of record catastrophe losses and a challenging macroeconomic and P&C industry environment. Looking ahead, our guidance is based on the view that 2012 should be a transition year for the industry. The good news is that the market continues to firm and we expect to see continued rate increases in 2012, which should improve industry margins albeit, on somewhat of a lagged basis that they earn out over time. On the other hand, the industry faces a number of offsetting profitability headwinds including low interest rates. In addition, most analysts foresee a decline in reserve releases for the industry from what have been a historically the high levels. The upshot is a combination of low reinvestment yields and less favorable development will continue to put pressure on the industry's reported 2012 calendar year results, even as insurance rates rise. However, if the current rate momentum continues as we expect it will. The industry should transition over the course of 2012 from margin contraction to margin expansion. At Chubb, we have strong capital position that enables us to return capital to shareholders and to take advantage of opportunities to grow profitably when such opportunities arise. While this is a cyclical industry, we think our superior underwriting, customer loyalty and conservative investing approach give us an edge that will enable us to continue to generate solid returns in whatever economic environment comes our way.

And with that, I'd be glad to take your questions.

Question-and-Answer Session

Operator

[Operator Instructions] We'll take our first question from Jay Gelb with Barclays Capital.

Jay Gelb - Barclays Capital, Research Division

Can you give us your perspective on the ability to push for faster rate increases in 2012 as we're getting 2 points of improvement on a linked quarter basis in 2011?

John D. Finnegan

What's the 2 points, Jay, you're talking out of improvement?

Jay Gelb - Barclays Capital, Research Division

Well, rate increases were flat in the First Quarter of 2011 and then they were up 2, 4, 6. Should we expect that pace to continue?

John D. Finnegan

I don't know about that, but I think we expect to have higher rate increases in all of 2012 than we have in the fourth quarter of 2011 on commercial. And we also have filed for rate increases in personal lines so that we will have higher rate increases in 2012 than 2011. And CSI, we're beginning to see some movement there. We're optimistic we'll see some rate improvement in 2012 but not the kind of levels that we see at CCI.

Jay Gelb - Barclays Capital, Research Division

Okay. So accelerating rate improvement in '12 versus 11?

John D. Finnegan

In '12 versus '11 but I wouldn't sequentially extrapolate every -- out every quarter so you get the 14% on the fourth, we're not willing to say that.

Jay Gelb - Barclays Capital, Research Division

That makes sense. And then on share buybacks, if you do roughly $1.2 billion in 2012, that would be down from $1.7 billion in 2011 and that $1.7 in 2011 matched up pretty well with net income for the year, so I was trying to get a sense why you think the pace of buyback should slow?

Richard G. Spiro

Sure. Well, the program we announced today is essentially in line. Actually, it slightly exceeds our projected 2012 earnings less shareholder dividend. We do not project out net income as part of our guidance. So operating income and net income are essentially the same in our guidance. And as such, we believe that it's a sizable program which appropriately balances the economic opportunities, the market with the retention of strong capital position. I think I'd also add in 2011, the size of our share repurchase was unusually large and that our share repurchase as you mentioned, did exceed net income less shareholder dividend by a fair amount and as we indicated at the time, we announced that program. The large size of the program was an opportunistic initiative prompted by historically low price-to-book value, which Chubb was then selling. So over the past year, the price of Chubb stock has risen and our price-to-book valuation has increased. On the other hand, our price-to-book valuation still remains below historical levels and interest rates are still very low, making alternative investments less attractive. Balancing all these considerations, we believe the appropriate level of buyback for 2012 is the $1.2 billion that we announced and it reflects our continued strong excess capital position and the attractive economic opportunities that we still perceive at our current stock price.

Jay Gelb - Barclays Capital, Research Division

Is there opportunity to increase the authorization if profits come in faster than what you're projecting?

Richard G. Spiro

We're not going to make any comments about future buybacks or any changes to the program at this point.

Operator

We'll take our next question from Josh Stirling with Sanford Bernstein.

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

Obviously, impressive performance in CCI in the quarter, the question -- the big question in my mind is does it -- you guys were able to increase pricing and units or at least, hold units flattish. I'm wondering how you characterize that dynamic in the market sort of what's allowing you to do that? Whether we should take that a sign as if like a class card market or for something else? And separately, there's clearly a disconnect in the D&O and professional liability market where you're trying to take pricing up but the market isn't letting you and you've taken written premiums down in your business to lost ratio. It sounds like it has come down pretty meaningfully, quarter-over-quarter and I'm wondering if you can talk about perhaps the different dynamic going on there?

Paul J. Krump

I think I'm following that Josh, it seems like there are a lot of questions kind of intertwined there. Clearly in the CSI world, there is more overall competition than we're seeing in the CCI arena. Particularly, from some new entrants, some people trying to take some excess positions and what we are doing is we're pushing rates very hard albeit, the 1% doesn't show it. I think you sense it when you see that our retention rate went down quarter-over-quarter from 89% to 85% in professional liability. Likewise, when you see the emphasis that we're putting on new business, the scrutiny that we're putting on new business in both CCI and CSI it's coming through. The stat that I gave in the prepared remarks was that professional liability had a new to lost ratio of 0.7:1 versus the 1.3:1. So we are anticipating on a go forward basis that we will push rates very hard and that there is an offset trade to retention and we're very mindful that new business does not perform as well as our renewal business does traditionally and therefore, we're putting a lot of extra scrutiny onto that new business in this marketplace.

John D. Finnegan

And perhaps, Paul, you also had a question on CCI so maybe you want to contrast that a little.

Paul J. Krump

Yes. In CCI, we had retention of 85% in both quarters. We had a very minor uptick in the new business in the fourth quarter. And the rates really varied, as I mentioned, by line of business. But we're putting a tremendous amount of effort into the new business. I think you can see in the numbers that we had some loss activity on non-cat basis and property and Marine. And we went back and analyzed that very carefully, and we had an uptick in the fourth quarter and losses from some new business that was written over the course of the last year. So again, it just reemphasized to us a couple of things. We need to push a lot of rate into that book of business and that's why in fact, you saw us take 10 points of rate. Likewise, we have to put a lot of scrutiny on the new business and we've tightened up our underwriting screens and our pricing screens to make certain that, that is taken care of.

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

If I could just ask one follow up on the CSI and I know you guys don't want to speculate about competitors, but would you presume that other -- that the market is generally sort of looking forward and sort of thinking about the loss ratio at the levels that you guys are recognizing that you've now taken some charges to take up the axe in your 2011 view in professional liability. Is that just something that maybe isn't -- that's driving the competition, people haven't yet figured that out?

Paul J. Krump

We certainly think that we've got decades of data and experience here. We're hearing a lot more rhetoric in the marketplace about other senior management teams taking a hard look at this issue that you've outlined. Sometimes, we see that translate into field action really quickly but overall, I think that we are encouraged by the trends that we saw and the momentum we saw across both CCI and CSI in the fourth quarter. Clearly, John outlined and we're all in agreement here that CSI needs a lot more rate and we are committed to keep pushing that.

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

You mentioned a lot more rate, I think I would love if you had any color on sort of by line, which you guys think, sort of reasonable rate targets for the industry would be?

Paul J. Krump

I'll just stick with professional for a second. The 1% that we've got as we turned the corner but that's clearly not enough to keep up with loss trends.

Operator

And we'll take our next question from Keith Walsh with Citi.

Keith F. Walsh - Citigroup Inc, Research Division

Just first on the net written premium guidance, why only 2% to 4%? I know you mentioned FX but if you're getting positive rates, not only positive rate but broader rate gains, what are the exposure assumptions within that guidance? It seems conservative and I've got a follow-up.

Richard G. Spiro

Keith, it's Ricky. Let me -- first of all, we are certainly expecting given the commentary that you've heard this evening that the market's going to continue to firm and we hope to realize potentially higher rate increases in 2012. I'd like to point out that there are a number of factors as you rightly mentioned that contribute to our overall projections. So first, let me put it in our premium growth in perspective and you mentioned FX, that's part of it. Since about a quarter of our business comes from outside of the United States, currency movements have a meaningful impact on our growth and 2011 currency fluctuations had a positive impact on our overall premium growth of about 1 point and in contrast, as I just mentioned, our guidance assumes that will have a negative effect on growth of about 1 point in 2012. So if you look at it on x currency basis, we're expecting premium growth of 3% to 5% in 2012 compared to about 4% in '11 therefore in an x currency basis, we expect about the same level of growth in 2012 with in 2011. With that as background, the next question that you'd asked is why aren't we expecting to see more growth in 2012 given the higher rate environment? And I think to answer that question, several interrelated factors need to be understood. First, while we do expect to get a couple of points of higher rate increases in 2012 compared to the fourth quarter of 2011, these rate increases vary significantly by line of business and geography. So for example, in the fourth quarter, Paul mentioned that we achieved mid- single-digit rate increases in our standard commercial book in the U.S. but only flat rate increases in CCI in Europe. In addition, we probably averaged about 1 point of rate in our other 2 businesses in the U.S. So when you put all of the pieces together on a global basis, our total rate increase in the fourth quarter was probably closer to 2 points. So you can't just focus on the U.S. when you consider our worldwide growth rate. Second, as Paul just mentioned, as we continue to push for rate, we expect some trade-off between retention and new business levels in 2012 and we've taken this into account in our guidance. We are aggressively attempting to improve the profitability of our book through a combination of renewal rate increases and the calling of accounts and this will likely result in lower retention from the retention rates we ran in 2011 and this is a function of the market remaining competitive, very competitive especially with respect to professional liability and an ongoing effort on our part to trim or least profitable accounts. A similar and perhaps even more pronounced impact on our growth rate will most likely be seeing the amount of new business. Since this is traditionally less profitable business than renewals, we're going to be especially disciplined in terms of achieving our target returns and we're going to be very selective in terms of the new business that we're willing to write. We believe that these trade-offs make economic sense but it will dampen our growth in 2012. So hopefully that answers your question, Keith?

Keith F. Walsh - Citigroup Inc, Research Division

Yes, very, very helpful. And just a follow up on -- you touched on this earlier, but on CCI, you guys are getting good rate and you got excellent retention, probably better than most of the people in the industry. The question then I would ask would -- should you be getting more rate then? Is retention too high here? Can you talk about the philosophy here between retention and rate, understanding you managed to the bottom line, of course, for earnings?

John D. Finnegan

We try to get more rate each quarter. We test out the market and see what the market will accept, if the market continues to accept higher rate at similar retention levels. We'll definitely keep pushing. Our retention was off 2 points from the third quarter to the fourth quarter. You're looking year-over-year, but we have a couple of point decline. But sure, it encourages us to look for more rate. Yes.

Operator

Now we'll take our next question from Mike Zaremski with Credit Suisse.

Michael Zaremski - Crédit Suisse AG, Research Division

Could you give some color and maybe quantify the pension impact you touched on in the prepared remarks and I'll have a follow up.

Richard G. Spiro

The impact is about a negative $250 million impact in the fourth quarter related to the fact that as interest rates have moved down during the year. We had to lower our discount rate assumption for our pension fund. And as a result, we had roughly a $250 million negative impact. You'll see that show up when we file our year-end financials that will show up in the AOCI line.

Michael Zaremski - Crédit Suisse AG, Research Division

So would that be roughly -- you lowered discount rate by over a full percent?

Richard G. Spiro

No. We lowered it by about 75 basis points.

Michael Zaremski - Crédit Suisse AG, Research Division

And lastly, can you talk about workers comp profitability, any trends including reserve trends?

Paul J. Krump

Sure. Let me just kind of back up and put our workers comp in a little bit of perspective just given where we see. There's a lot of commentary in the marketplace and we're very much of a niche player, and it's not an overwhelming line for us like it is for a lot of carriers. We took 6 points of rate increase in the fourth quarter on our workers compensation book. Like we mentioned, with the overall book that was an improving trajectory over the course of the year, we've got a very solid book of workers compensation business. AM Best projects that the U.S. work comp industry will come in for the full-year 2011 at 121.5% combined ratio. That's really such a stark contrast of the 93.2% combined that we ran our workers compensation at in 2011. Dino, I don't know if you want to mention anything on the reserves in particular? But...

Dino E. Robusto

Well, I can talk a little bit about just the frequency of what we saw. I mean, just to pick up on Paul's point. Because it's only 2% market share, obviously our claim statistics is not be as stable as the industry. For the quarter, where comp new rising claim counts were up about 13%, mostly due to the increased volume of business that we've been writing. Increase in the quarter was also driven by medical-only claims, which are significantly less expensive than claims where the employees miss time from work. So that's a little bit on just the activity that we're seeing.

Richard G. Spiro

And if I can add something on the reserve side, the workers comp line actually updated slightly favorable overall, with no individual years particularly significant either way, although 2010 was very slightly adverse. So we feel pretty good about it.

Operator

And we'll go next to Greg Locraft with Morgan Stanley.

Gregory Locraft - Morgan Stanley, Research Division

Wanted to just get a better sense on the margin trajectory? So I think in that -- the commentary you mentioned that you do expect margins to begin to improve by the end of the year. I'm trying to tie that comment to guidance, which is, it's almost impossible to get to your guidance unless we assume pretty significant deterioration in margins all year long. So how should we be tying and improving margin against a 9-ROE guidance?

John D. Finnegan

Well, just to your last statement, Greg, our guidance implies about 4 points, so deterioration on our x cat combined ratio and that could come from a combination of lower favorable development and/or deteriorating accident year results. It could come from a combination of that. It's not based on a 4-point deterioration necessarily in accident results. But our margin, I think the margin issue it's complicated and the waters are often muddy. It's 2 points here. Are you getting more rate than your loss cost trends? And second, is there margin expansion in the accident year, which is a traditional profitability measure? And they are 2 different things. But let's walk through. Why don't we try a couple of different lines, but the one that you -- most people focus on is commercial because that's we're getting the rate improvement.

6% in the fourth quarter, 4% in the third, 2% in the second. To ask about where they get margin expansion, it's a difficult question because to answer with great position, it's a function of the accuracy of the assumptions related to future rates from loss trends. So let's take one loss trend benchmark, 2005 to 2010. Tremendously benign. Very low single-digit range. So that we always had no margin contraction despite the fact that rates were going down a point and a half a year. Now fourth quarter 2011, increased renewal rates of 6%. Man, they compared very favorably to those 2005 to 2010 loss rates. So, if like others, you may simplify the assumption that those like benign loss rates will continue into 2012, significant [indiscernible] expansion will occur very quickly at the current level of rate increases.

On the other hand, it's probably fair to say that we will in some time experience the reverse of the more historical loss trend, as an area which is embedded in our budgeting process. In such a longer-term basis, the historical loss trends probably run in the low mid single-digit range, 3%, 4%, 5%. Thus if we were to see reversions to these higher loss cost trends this year, near-term margin expansion would be less at current rate levels. However, we expect the market to continue to firm and high single-digit rate increases in such CCI in the U.S. in 2012. If this proves accurate, rate increases would exceed even longer-term loss cost trends, such that we'd be experiencing significant pro forma economic margin expansion on the premiums written in CCI in 2012. So that's the business we write. If we get high single-digit increases under most scenarios, we should be getting rate increases that exceed loss trends. Now that requires again what you assume for the rate, and what you assume for the losses, but then you got to move the profit. You realize that this margin expansion does not flow through immediately to increase earnings. Rather, these rate increases are reflected in results only as they are earned out in the term for the underlying contract. That is over the next 4 to 5 quarters. Just to illustrate the point, our 2012 accident year results will be a function of the rates achieved in contracts entered into for the beginning of 2011 through the end of 2012. Our renewal rate increases averaged about 3% in 2011. Quarter [indiscernible] Achieved high single-digit rate increases in 2012 in our U.S. renewal book. The increase in our earned premium on our overall 2012 U.S. business would be about 5% to 6%, and closer to 4% to 5% on a worldwide basis, with the additional 3 points or so being recognized in earnings in 2013. So now, if you're at 4% to 5%, is it higher than loss trends? Well, it depends which loss trends you assume. But in 2012, I don't think you can look at significant margin expansion unless you believe we're going back to the 2005 to '10 benign environment. But I think that the continued rate increases and the range we are currently experiencing are going to [indiscernible] through longer-term margin expansion for CCI, but the magnitude of such expansion depended upon loss experienced with the size of rate increases next year. Because of the lag impact in our premium, however, the effect in our 2012 accident year results is likely be closer neutral. However, continued premium increases in the mid to high single-digits over the next year or 2 should result in significant margin expansion as we move into 2013. Now, having said all that, losses in any given year are rarely in line with the trends. So, for example, over the last few years, we've incurred significant amount of non-cat-related with the losses. Accordingly, it was difficult to forecast this stuff with any absolute precision. But there are a lot of variables involved, so I think momentum is moving it right way in CCI, but I think to some degree, some people are ahead of themselves in terms of how that's going to translate into improved earnings and margin expansion in your financial results in 2012. And our other 2 lines, CPI, we should see -- again we'd be obtaining rates for the end 2012 that will be exceeding any loss cost trends, but premium, probably closer again to neutral. CSI, probably it will be a challenge to get up to a loss cost trends so we could see some pressure on our accident year 2012 business versus 2011.

Gregory Locraft - Morgan Stanley, Research Division

And one thing, and you mentioned at the outset and certainly we do understand that reserve releases are components, that is very hard to call but I guess implicit in your answer is it's all about the core margin, that you don't see a break in the trend in terms of the way Chubb has been reserving and what's coming through for that line item?

John D. Finnegan

We don't project favorable development. We do it under a number of scenarios but I'd say this: 2 statements; one to the positive and maybe one to the negative. But the most scenario, the achievement of our 2012 guidance would require a continuation of some favorable development, albeit at lower levels than we ran in 2011. And as I said in the past few years, and have been proven wrong, it's hard to believe we can sustain 6 to 7 points of favorable development indefinitely.

Operator

And we'll go next to Vinay Misquith with Evercore.

Vinay Misquith - Evercore Partners Inc., Research Division

First question is on the margins. I'm looking at the accident year margins x cat and the loss ratio x cat. And that's up around 5.4% of fourth quarter this year over fourth quarter last year. And it seems to be coming from the Commercial lines and from the Personal lines. Just wondering what's happening in that?

John D. Finnegan

You're right. It's up 5 points in the fourth quarter of '10. It's coming from a mix business at 4 points in CPI of which about 3.5 points is due to higher homeowners non-cat weather-related losses, 5 points in CCI, driven by double-digit increase in property marine and modest increase in other classes. We had a significant large loss activity in the fourth quarter in property. And CCI has generally experienced some margin compression taking place before we've turned around rates. For the year, CCI is about 3 points higher than 2010. And about 6.5% increase in CSI reflected an increase in professional liability mainly to deterioration in current accident year estimates for crime, EPL and public D&O, especially as it relates to merger objections suits or M&A objections suits based on our year-end analysis. For the full accident year, CSI's is up about 2 points.

Vinay Misquith - Evercore Partners Inc., Research Division

So do you think that some part of the higher losses both in CPI and CSI are sort of one-time because of higher non-cat losses or do you expect that to continue next year?

John D. Finnegan

I would say that in CPI, that higher non-cat losses are something that hopefully don't recur. So we take some solace that we don't expect it to recur next year. I don't think we're really talking attributing much of the increase in CCI at a higher non-cat losses. I mean it may be a point or 2 in there but really it's some property marine, it's a lumpy class and we had some big losses in the fourth quarter. I don't think that's an ongoing trend. I could be proved wrong, but don't think it's an ongoing trend. But CCI is a good news. Of course, as we talked about it that we're getting -- there's rate increases in CCI so hopefully, it will offset any deterioration we're seeing here. CSI is more challenging. I mean I don't think 2 bad quarters don't make a trend, but losses have been up. Now Losses have been up in areas which are impacted by the economy. The good news is, no adverse development on the credit crisis or Madoff, but the areas that are affected by the economic downturn, employment practices liability, crime and fidelity, ponzi schemes related, fraud, and then public D&O as they say based on a lot of these merger objection suits. So we need some rate in CSI. Okay, I'll just leave it at that.

Vinay Misquith - Evercore Partners Inc., Research Division

My second question was on the personal order line. You've seen about 7% to 11% topline growth there. What happened this quarter and what do you think it's going to happen for '12?

Dino E. Robusto

Yes. We experienced some slowdown in our written premium growth outside the United States and it was mainly in Brazil. We had seen some more aggressive pricing in the market, some of which we view as irrational and probably likely short-lived given the short tailed nature in what is a real physical damage intensive market. We also experienced a little less favorable currency translation in the fourth quarter in relation to the full 2011 year. Now, notwithstanding the quarter's results, we did grow 7% for the year. So at any one point in time in auto, we're going to see in any one geography some additional competition or if we view it as irrational competition, then we'll just pull back and we'll let it play out. And so that's what we did in the fourth quarter.

Operator

And we'll go next to Josh Shanker with Deutsche Bank.

Joshua D. Shanker - Deutsche Bank AG, Research Division

Do you have any thoughts on accelerating loss trends from third quarter to fourth quarter, what you're seeing throughout your book of business?

Richard G. Spiro

I'll give you just a general comment on claim trends overall. Actually, they generally, they've been consistent with our trend assumptions. And if you exclude catastrophes, claim counts are up about 8% against the prior-year quarter and for the full year. Given our growth in various lines of business and really the non-spade of non-cat weather activities throughout the year that John mentioned, really the frequency trend is not alarming. Regarding severity, the trends obviously, they vary significantly by line of business because the various lines of business have different cost drivers. But here again, our claim cost severity increase are generally consistent with our longer-term trend assumptions of low to mid-single digits of severity increase in auto, mid-single-digit for the core property in general liability and mid up or single-digit for work comp and some excess lines. But generally in line with our longer-term trends.

Operator

And we'll take our next question from Michael Nannizzi with Goldman Sachs.

Michael Nannizzi - Goldman Sachs Group Inc., Research Division

Just a couple of questions. On the professional liability book, can you talk about accident year development for the last few accident years, kind of where have those picks ended the year and how much of the current year pick is due to some of the items that you discussed in your commentary. I just have one follow up.

John D. Finnegan

Well, if you're talking about professional liability development in County in 2011. We had very positive professional liability development mostly from the accident year in 2006 or 2008. 2009 was relatively flat. 2010 was modestly adverse.

Michael Nannizzi - Goldman Sachs Group Inc., Research Division

Okay. And then for the current year, your -- looks like the accident year combined is some 90 -- looks about 98, I think that's right. How much of that is due to the items that you discussed in your commentary? So the lumpier losses related to recent credit in other events?

John D. Finnegan

That's not related to credit crisis. I mean that was developed very consistently. It's really -- it's tangential, although it's related to the economic crisis that might have flown out of that credit crisis with the economic downturn. Employment practices liability to expect with people out of work longer. That's up. Is it lumpy? Well, it's been with us a little while longer. I mean, unless the economy turns around. Crime and fidelity, with frauds and things, I'd say on that, that it's decreased but not as positively as our expectations were. But it's declined some. And not all of the stuff occurred in the fourth quarter. This business in the fourth quarter, you get a good fresh look at the reserves for the year and some of this isn't attributable all to the fourth quarter. It's an adjustment, the overall accident year takes place in the fourth quarter though. So we'll have to see whether it's a trend or not. I'll just remind people that we had incredibly benign loss trends for a long period of time, maybe 1%. It's not likely to continue, and in fact, it certainly is likely to continue if you're expecting mid to single-digit, high single-digit rate increases. They don't usually de-link like that.

Michael Nannizzi - Goldman Sachs Group Inc., Research Division

You mentioned Europe before, can you talk a little bit about how much of your book is Europe by segment and what are you anticipating from a pricing retention, new business standpoint as far as business out of Europe?

Paul J. Krump

Sure, this is Paul. I think we've talked about this in the past but about 26%, 27% of our book premium is generated outside the United States. That's a pretty even split across all 3 SBU's. So give or take a percentage point. As respect to where that business comes from, about 10 points of that 27 points is coming out of Europe, and then you can just take the remaining chunk and divide it by thirds and it's pretty evenly split between Canada, Latin America and Asia Pacific. As I mentioned, Canada is a little bit behind the United States, but we saw a nice pick up there, really across the CCI lines. A lot of moving parts over in Asia, quite frankly in New Zealand and Australia are moving. Australia is where we have the bulk of our Asia-Pac business. When you get down into Latin America, we saw a lot of movement earlier in the year, in Chile. And in fact over the last 2 renewal cycles given the last earthquake, we had rate increases on our small property book of business. But nonetheless, they went up over 100%. The other countries in Latin America are basically flat to up a little bit.

Michael Nannizzi - Goldman Sachs Group Inc., Research Division

Flavor of the European rate environment?

Paul J. Krump

Yes, flavor of the European rate environment. It's a better market for us in the U.K., in Ireland. We're starting to see some rate movement out of our Lloyd's syndicate. That's probably leading our European operations. The continent is flat. We saw a terrific amount of competition in the continent for the largest business. So the so-called risk management business came under more pressure in the fourth quarter, and we had to back away from several accounts, long-standing accounts just because the prices were going down. And we wouldn't follow them down.

Operator

Now we'll take our next question from Adam Klauber with William Blair.

Adam Klauber - William Blair & Company L.L.C., Research Division

Just real quick, a sort of follow up. Where is the development on the CCI? Is that more recent years or older years?

John D. Finnegan

Well, I'll give you this, the development overall, most of the favorable development in casualty in 2011 came from accident years 2005 to 2008. Accident years -- maybe put together 2009 and 2010 they aggregate slightly positively. CCI about the same, you think? I think generally CCI is so big that you wouldn't go, it wouldn't contradict that. It probably is generally consistent but not precisely. Those your CCI's had a lot of positive development.

Paul J. Krump

Coming out of the umbrella line.

Adam Klauber - William Blair & Company L.L.C., Research Division

And just one quick follow up, the loss ratio moving up in the casualty line, which products are, I guess, are doing worse than others?

John D. Finnegan

Loss ratio estimate. What number are you looking at, I'm sure that's different.

Adam Klauber - William Blair & Company L.L.C., Research Division

I'll check my numbers in the back.

Operator

And we'll take our next question from Matthew Heimermann with JPMorgan.

Matthew G. Heimermann - JP Morgan Chase & Co, Research Division

First question, just with respect to the rate increases you're getting, is there any response from customers yet in terms of either changing deductibles or limits versus or anything that would signal to you that your kind of ability to push prices is limited at this point?

Paul J. Krump

Matthew, this is Paul. We're really not seeing that. A lot of the producers worry, of course, that the economy is still on a fragile state, but as we push for rate, they clearly understand the economic case for rate. But they worry that their clients will buy less umbrella or take an inordinately large deductible to try to keep their costs under control. But we haven't really experienced that.

Matthew G. Heimermann - JP Morgan Chase & Co, Research Division

And then just for Ricky, I appreciate the comments you made in your intro with respect to the buybacks, but I guess one thing that strikes me is, is in fact fundamentals keep getting better and we kind of trough out at kind of the current earnings levels on accident base notwithstanding the fact that interest rates are still headwind. The current dividend payout is only about 30%, which from a trough earnings perspective seems awfully low to me. So with respect to your thoughts on capital allocation next year, is there any weight being given to the dividend?

Richard G. Spiro

Our dividend policy has always been that we think dividends are incredibly important and as you know we've increased that every year, I think for 29 years. When we next talk to our Board about dividends will consider are all the factors. I think, I don't think you should expect, though, that you're going to see our dividend payout increase dramatically. It's been relatively consistent and we don't always look at it, by the way, as a percent of earnings because earnings as you know in this business can be volatile so we often look at it as a percent, for example, of investment income and other financial measures as well. So I don't know that you should anticipate that you'll see a dramatic increase than payout ratio.

Operator

And we'll take our next question from Jay Cohen with Bank of America Merrill Lynch.

Jay A. Cohen - BofA Merrill Lynch, Research Division

I guess I wanted to focus a little bit on the CSI business because that seems the one area where there's been one of a share from a claim standpoint and annual response to the pressures there. And I'm wondering, how you're approaching that market? Are there, for example, particular lines of business we are mandating rate increases? What's your main message to your underwriters in the field?

Richard G. Spiro

I think it's probably easiest to, Jay, if we take it line by line. We mentioned employment practices liability. I think John laid a pretty understandable case with the increase in unemployment and a lot of people saying much longer from their jobs that we're seeing an uptick there. So what we're doing is we are trimming our book in the most difficult jurisdictions, we're pushing rate across the book and we're raising our deductibles. When it comes to fidelity, it is a lumpy business, but we see the economic backdrop impacting that book of business. So we're redoubling our efforts on the underwriting just making certain we have people being very careful about what is going on the book of business. As respects public D&O, and I'd just like to remind you that that's only 16% of our CSI book of business, we are concerned, as mentioned earlier, about merger and acquisition objection cases. At this point, we don't sit back and say that's a systemic event something like the Madoff situation. So it's something that we think we've got a build in to the overall pricing of our business and push deductibles higher at least on our private companies where you're seeing some securities actions in state court impacting the loss ratio. So it really varies by line and we're attacking it as aggressively as we can.

Operator

And we'll go to our next caller, Meyer Shields with Stifel, Nicolaus.

Meyer Shields - Stifel, Nicolaus & Co., Inc., Research Division

It seems a little atypical to me that we're seeing the standard Commercial lines harden faster than the Specialty lines just in contrast in historical precedent. I've been wondering whether that suggests there's just a knee-jerk reaction to bad weather or catastrophic losses and that's maybe less sustainable or do think that sooner or later we're going to have an even bigger reaction in the Professional lines?

John D. Finnegan

Hopefully the latter. I think that some of these lines like EPL you can safely say that all companies are being hit by the increases in these loss costs and people are going to have to get rate increases. Public D&O has been down so much. It's definitely going to new rate increases. There's going to be a great demand for increases. Now there is excess capacity so there's a tension there. But no, I think that people will be reporting incredibly high combined ratios if they don't get rates soon.

Operator

And we'll go next to Amit Kumar with Macquarie.

Amit Kumar - Macquarie Research

You're talking a lot about renewal pricing. I'm just wondering if you can go back to the new and renewal pricing Delta especially in CCI. And do you think that the gap has diminished meaningfully or you're still foresee some gap for 2012?

Richard G. Spiro

Well if I'm following it, the new to lost ratio was 1.1:1 in the fourth quarter. It came down a little bit throughout the year and we anticipate that coming down a little bit. But if you're talking about the pricing spread between new commercial business and renewal business, couple of thoughts, number one, the spread between new lines and the renewals is closing although it really wasn't all that large to begin with. The spread, obviously, depends on the line of business but what we do is we sit back and we try to match up what the new business is coming on at, what rate it’s at and how does that match up with a very similar existing block of customers. In some lines, we look at that on manual pricing, for others we actually have proprietary tools but we try to make certain that it is as tight as possible. The reality is, though that there is a hindsight bias to renewals performing much better. We have an opportunity to call the ones that are having unforeseen losses, likewise, we have the opportunity to loss control accounts and bring in engineers and risk mitigation factors happening, raise deductibles, that type of things. So even though that pricing spread is tight and getting tighter, we're still very mindful on how we underwrite the new business.

John D. Finnegan

Operator, we'll take 2 more calls.

Operator

At this time, we have one question remaining. That's from Ian Gutterman with Adage Capital.

Ian Gutterman

One question on professional liability and one for Ricky. On the PL, I noticed the pays really spiked this quarter, and I think that it's been a little bit higher than trend all year. Is that -- I guess I'm wondering is the increase pick due to something you're seeing on the quayside or is it being driven by the paid side or is it a combination of both?

John D. Finnegan

Well, the pay was up, I think the paids are one of the things that the actuaries take into account when they look at the reserve position.

Ian Gutterman

Are the paids more related to like the credit crisis claims finally getting paid out or just sort of a spike in the first-year paids?

John D. Finnegan

I wouldn't say a spike in first-year paids. Professional liability.

Paul J. Krump

And then CSI, it really was just a number of large old cases we resolved.

John D. Finnegan

It takes a long time, obviously, to pay out a lot of these cases so many of them are from prior years.

Ian Gutterman

And then Ricky, I guess first on NII, given the FED action yesterday that we're going to have short rates for even longer, can you remind us where your new money is versus portfolio yield and sort of how long it is before we hit breakeven on that?

Richard G. Spiro

We have roughly called $14 billion of maturities over the next 3 years. I think that's not split evenly but it's pretty close. Our current new money rates are anywhere depending on obviously, the different asset classes somewhere between, call it, 100 and 150 basis points below the maturing book yields.

Ian Gutterman

And so even within 3 years assuming new money stays here through 14 like the FED says, the portfolio yield will still be above today's new money?

Richard G. Spiro

Yes. I think so because we’re only, we have roughly $14 billion out of $36 billion maturing over that time.

Ian Gutterman

And then can you just --

Richard G. Spiro

I'm have done the break even after where you asked it.

Steve R. Labbe - Janney Montgomery Scott LLC, Research Division

The reason I thought is maybe it would be closer because obviously, 3 to 4 year duration in 3 years if rates aren't moved, that you should've gotten there but it sounds like maybe it takes longer.

Richard G. Spiro

Well, one thing to think that, that is the duration of the portfolio but we also on the Muni site, we tend to invest longer than that. So the duration of whole the portfolio is obviously, the 3.5 to 4 years. But the Muni piece is a little bit longer.

Ian Gutterman

Okay. And then why didn't you refinance the debt. Are you looking towards a different cat target than before? Do you just not need the capital?

Richard G. Spiro

We simply need the capital. So we decided it was -- we were better off paying down the debt and given ourselves some more financial flexibility and terms of our targeted debt to capital ratio, they're still within the same ranges that we talked about.

Steve R. Labbe - Janney Montgomery Scott LLC, Research Division

Okay. And target holding company? That $2 billion in cash. What can that go down to over time?

Richard G. Spiro

We're committed to keeping $1 billion at the holding company so that sort of, I guess, the low end of the number.

Operator

And at this time, there are no further questions. I'd like to turn the call back to Mr. Finnegan for any additional or closing remarks.

John D. Finnegan

Okay. Thank you very much. Have a good evening.

Operator

And that does conclude today's conference. We do thank you for your participation.

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