Certain statements in this document are “forward-looking statements” as that term is defined in the Private Securities Litigation Reform Act of 1995 (PSLRA). These forward-looking statements are made pursuant to the safe harbor provisions of the PSLRA and include statements regarding our loss reserve and reinsurance recoverable estimates; asbestos and toxic waste liabilities and related developments; the impact of the economy on our business; the impact of changes to our reinsurance program in 2012 and the cost of reinsurance in 2013; the adequacy of the rates at which we renewed and wrote new business; premium volume, pricing and competition in 2013; property and casualty investment income during 2013; cash flows generated by our fixed income investments; currency rate fluctuations; the repurchase of common stock under our share repurchase program; our capital adequacy and funding of liquidity needs; the funding and timing of loss payments; and the redemption of our capital securities. Forward-looking statements are made based upon management’s current expectations and beliefs concerning trends and future developments and their potential effects on us. These statements are not guarantees of future performance. Actual results may differ materially from those suggested by forward-looking statements as a result of risks and uncertainties, which include, among others, those discussed or identified from time to time in our public filings with the Securities and Exchange Commission and those associated with:
our capital position and/or capital adequacy levels required to maintain our existing ratings from independent rating agencies;
Underwriting results were profitable in 2012 and 2011, compared with highly profitable results in 2010. Our combined loss and expense ratio was 95.3% in 2012 and 2011 and 89.3% in 2010. The less profitable underwriting results in 2012 and 2011 compared to 2010 were primarily due to a substantially higher impact of catastrophes. The impact of catastrophes accounted for 9.6 percentage points of the combined ratio in 2012 compared with 8.9 percentage points in 2011 and 5.7 percentage points in 2010.
Average renewal rates for our personal insurance business in the United States were up slightly in 2012, driven by our homeowners business. In 2011, average renewal rates for our personal insurance business in the United States were close to flat compared with 2010.
In 2012, the net impact of all catastrophes was $1.1 billion, which represented 9.6 percentage points of the combined ratio. We incurred just under $1.1 billion of catastrophe losses and $53 million of related reinsurance reinstatement premium costs. The impact of catastrophes was $1.0 billion in 2011 and $634 million in 2010, which represented 8.9 percentage points and 5.7 percentage points,
Our expense ratio increased only slightly in 2012 and 2011 compared with the respective prior year. The increase in the expense ratio from 2010 to 2011 was due primarily to an increase in commissions on business written outside the United States partially offset by overhead expenses increasing at a lower rate than the rate of growth of premiums written. The increase in commissions outside the United States was due primarily to premium growth in classes of business with higher commission rates.
Our other personal business produced profitable results in each of the past three years, but more so in 2010. The less profitable results in 2012 and 2011 compared to 2010 reflected reduced profitability in the accident and health and excess liability components of this business. Results for our excess liability business, however, were highly profitable in all three years and benefited from favorable prior year loss development, particularly in 2010, as a result of better than expected loss trends. Our yacht business was also highly profitable in each of the past three years. Our accident and health business produced slightly profitable results in 2012 compared with breakeven results in 2011 and profitable results in 2010.
Loss development factor methods generally assume that the losses yet to emerge for an accident year are proportional to the paid or reported loss amounts observed so far. Historical patterns of the development of paid and reported losses by accident year can be predictive of the expected future patterns that are applied to current paid and reported losses to generate estimated ultimate losses by accident year.
During 2012, we experienced overall favorable prior year development of $614 million, which represented 2.9% of the net loss reserves as of December 31, 2011. This compares with favorable prior year development of $767 million during 2011, which represented 3.7% of the net loss reserves at December 31, 2010, and favorable prior year development of $746 million during 2010, which represented 3.6% of the net loss reserves at December 31, 2009. Such favorable development was reflected in operating results in these respective years.
We experienced favorable development of about $250 million in the aggregate in the personal and commercial liability classes. The most significant favorable development occurred in accident years 2006 to 2009, which more than offset adverse development in accident years 2002 and prior, which included $83 million of incurred losses related to asbestos and toxic waste claims. The overall frequency and severity of prior period liability claims were lower than expected and the effects of underwriting changes that affected these years have been more positive than expected, especially in the commercial excess liability class. These factors were reflected in the determination of the carried loss reserves for these classes at December 31, 2012.
We experienced favorable development of about $30 million in the personal automobile business due primarily to lower than expected frequency of prior year claims.
Chubb also has outstanding $1.0 billion of unsecured junior subordinated capital securities that will become due on April 15, 2037, the scheduled maturity date, but only to the extent that Chubb has received sufficient net proceeds from the sale of certain qualifying capital securities. Chubb must use its commercially reasonable efforts, subject to certain market disruption events, to sell enough qualifying capital securities to permit repayment of the capital securities on the scheduled maturity date or as soon thereafter as possible. Any remaining outstanding principal amount will be due on March 29, 2067, the final maturity date. The capital securities bear interest at a fixed rate of 6.375% through April 14, 2017. Thereafter, the capital securities will bear interest at a rate equal to the three-month LIBOR rate plus 2.25%. Subject to certain conditions, Chubb has the right to defer the payment of interest on the capital securities for a period not exceeding ten consecutive years. During any such period, interest will continue to accrue and Chubb generally may not declare or pay any dividends on or purchase any shares of its capital stock.
The net unrealized appreciation before tax of our fixed maturities and equity securities carried at fair value was $3.1 billion at December 31, 2012, $2.7 billion at December 31, 2011 and $1.7 billion at December 31, 2010. Such unrealized appreciation is reflected in accumulated other comprehensive income, net of applicable deferred income taxes.