Net income available to common shareholders of $495 million, or $4.05 per share basic and $4.00 per diluted share
Aggregate pre-tax net losses (net of related reinstatement premiums) of $105 million for other notable events of 2012 (including the impact of severe drought conditions on U.S. crops, Hurricane Isaac and first and second quarter U.S. weather events)
Senior leadership transition in the second quarter resulted in separation payments and accelerated and incremental share-based compensation expenses totaling $34 million
Repurchased 9.4 million common shares for total cost of $318 million; remaining authorization under the repurchase program approved by our Board of Directors of $634 million at February 21, 2013
Operating income (loss) is a non-GAAP financial measure as defined in SEC Regulation G. See ‘Non-GAAP Financial Measures’ for reconciliation to nearest GAAP financial measure (net income available to common shareholders).
During each period presented, we realized net investment gains largely due to the sale of fixed maturities. Other-than-temporary impairment ("OTTI") charges were $24 million, $16 million and $18 million in 2012, 2011 and 2010, respectively.
2012 versus 2011: Gross premiums written growth was driven by a $188 million increase in our insurance segment, attributable to a number of lines of business, with the most significant increases emanating from professional lines, liability and accident & health. Growth in professional lines was driven by geographic expansion (including our European operations) and newer initiatives, with an improving rate environment also contributing. Select new business opportunities, primarily in our U.S. excess and surplus lines umbrella business, drove the increase in liability business; rate increases also contributed. Finally, our recently established accident & health line continued to generate new business.
2011 versus 2010: Our new accident & health line was the primary driver of the 11% increase in gross premiums written in our insurance segment. Geographic expansion and new business initiatives also contributed to the increase. Gross premiums written growth for our reinsurance segment was primarily driven by proportional motor reinsurance business, with the primary contributing factors being increases on renewal and new business. Gross premiums written for trade credit and bond reinsurance business also increased.
Excluding accident & health, gross premiums written growth was 4% and was largely attributable to geographic expansion and certain newer business lines, including renewable energy and design professionals & environmental liability. Geographic expansion (including our Australian and Canadian operations) contributed to the increases in property and professional lines, with the design professionals & environmental liability initiative also contributing to growth in professional lines. Our renewable energy business relates to both onshore and offshore exposures, with growth thus pertaining to the property and marine lines, respectively.
The following table provides gross premiums written by line of business for the periods indicated:
Acquisition Cost Ratio: The increases in the reinsurance segment’s acquisition cost ratios were driven by changes in business mix.
General and Administrative Expense Ratio: General and administrative expense increased in 2012, driven by performance-based compensation expenses and staffing increases.
Includes restricted cash and cash equivalents of $91 million and $101 million for 2012 and 2011, respectively.
At December 31, 2012, our corporate debt portfolio, including short duration high yield securities, had a weighted average credit rating of BBB (2011: BBB+) and a duration of 2.9 years (2011: 3.1 years). The decline in the weighted average credit rating for the portfolio in 2012 was largely due to the increase in our allocation to short duration high yield corporate debt securities.
Concurrent with the closing of the Series C preferred share issuance, we redeemed six million of our previously outstanding Series A preferred shares at the $25.00 per share redemption price, for a total redemption of $150 million. Following this redemption, four million Series A preferred shares, representing $100 million in aggregate liquidation preference, remain outstanding.
recognition of adverse development in some instances. Prior to the fourth quarter of 2012 (see additional details below), we did not recognize any favorable loss emergence. As a result, during each of the past three years, we recognized net adverse development for our liability insurance business in light of unfavorable loss emergence for certain reserving class and accident year combinations.
Actual default rates at November 30, 2012 for our CLO - Equities varied from 0.2% to 4.5% (November 30, 2011: 0.2% to 1.8%) on the remaining underlying collateral. While, on average, these default rates are much lower than our default rate assumptions noted above, we remain cautious on this favorable development given the continuing global economic uncertainty. Due to the use of significant unobservable inputs in our discounted cash flow model, we continue to classify the CLO - Equities as Level 3.
Our investments in CMBS are diversified and highly rated, with a weighted average estimated subordination percentage of 30% at December 31, 2012 (2011: 25%). Based on discounted cash flows at December 31, 2012, the current level of subordination is sufficient to cover the estimated loan losses on the underlying collateral of the CMBS.
(1) Judgmentally determined based on limited trades of similar securities observed in the secondary markets.
The CLO - Equities market continues to be mostly inactive with only a small number of transactions being observed in the market and fewer still involving transactions in our CLO - Equities. Accordingly, we continue to rely on the use of our internal discounted cash flow model (income approach) to estimate fair value of CLO - Equities. Of the significant inputs into this model, the default and loss severity rates are the most judgmental unobservable market inputs to which the valuation of CLO - Equities is most sensitive. A significant increase (decrease) in either of these significant inputs in isolation would result in lower (higher) fair value estimates for our CLO - Equities and, in general, a change in default rate assumptions will be accompanied by a directionally similar change in loss severity rate assumptions. Collateral spreads and estimated maturity dates are less judgmental inputs as they are based on the historical average of actual spreads and the weighted average life of the current underlying portfolios, respectively. A significant increase (decrease) in either of these significant inputs in isolation would result in higher (lower) fair value estimates for our CLO - Equities. In general, these inputs have no significant interrelationship with each other or with default and loss severity rates.
Our provision for unrecoverable reinsurance was $16 million at December 31, 2012 (2011: $18 million). At December 31, 2012, 98.8% (2011: 98.6%) of our gross reinsurance recoverables were collectible from reinsurers rated A- or better by A.M. Best.
With respect to our reinsurance recoverable balances, we are exposed to the risk of a reinsurer failing to meet its obligations under coverage we have purchased. To mitigate this risk, all reinsurance coverage we purchase is subject to requirements established by our Reinsurance Security Committee. This Committee maintains a list of approved reinsurers, performs credit
The collateral manager of four of our CLOs is Blackstone Debt Advisors L.P., who is entitled to management fees payable by the collateralized obligations in the ordinary course of business. We also have investments in two hedge funds and one credit fund managed by Blackstone Alternative Asset Management, LP, who is entitled to management fees in the ordinary course of business. On June 30, 2012, Blackstone Group ceased to be a related party. In the six months ended June 30, 2012, total management fees to the Blackstone Group were $1 million (full years 2011: $2 million; 2010: $2 million). Subsequent to June 30, 2012, Blackstone Group continues to provide the same services under the same terms.