We are very pleased to report first quarter core income $699 million or $2.73 per diluted share, both up from the prior-year quarter, despite our highest ever level of first quarter catastrophe losses.
Underlying underwriting income of $735 million pre-tax was nearly 25% higher than in the prior-year quarter driven by an increase in net earned premiums to $7.4 billion and an underlying combined ratio, which improved almost 2 points to an excellent 89.5%.
Turning to investments, our high-quality investment portfolio continued to perform well, generating net investment income of $590 million after-tax for the quarter, up 14% from the prior-year quarter.
These results together with our strong balance sheet enabled us to grow adjusted book value per share by 9% over the past year after making important investments in our business and returning excess capital to shareholders.
During the quarter we returned $613 million of excess capital to shareholders, including $397 million through share repurchases.
In recognition of our strong financial position and confidence in our business, I'm pleased to share that our board of directors declared a 4% increase in our quarterly cash dividend to $0.88 per share, marking 17 consecutive years of dividend increases, with a compound annual growth rate of 9% over that period.
Our board also authorized an additional $5 billion of share repurchases.
During the quarter, we grew net written premiums by 2% to $7.5 billion.
In Business Insurance, renewal premium change increased to 9.2%; its highest level since 2013 and 4 points higher than the prior year quarter, while retention remained strong.
Bond & Specialty Insurance, net written premiums increased by 9%, driven by a renewal premium change of nearly 11% in our management liability business, while retention remained strong.
Net written premiums increased by nearly 7%, driven by renewal premium change of almost 8% in our homeowners business and strong retention and new business in both auto and home.
New business for both auto and home combined was up 17% compared to the prior year quarter, which is the ninth consecutive quarter of double-digit growth in new business, demonstrating the ongoing success of our product, distribution, and customer initiatives.
Core income for the first quarter was $699 million, up from $676 million in the prior year quarter, and core return on equity was 11.1%.
The increase in core income resulted primarily from a higher level of net favorable prior year reserve development, improved underlying underwriting results, and increased net investment income, largely offset by a much higher level of catastrophe losses.
Our first quarter results include $835 million of pre-tax cat losses, an all-time high for our first quarter cats and an increase of $502 million compared to last year's first quarter.
This quarter's cats include $703 million from the February winter storms which impacted Texas and a number of other states.
Prior year reserve development, for which I'll provide more detail shortly, was net favorable $317 million pre-tax in the quarter.
Our pre-tax underlying underwriting gain of $735 million was 24% higher than in the prior year quarter, reflecting higher levels of earned premium and an underlying combined ratio, which improved by 1.8 points from a year ago to 89.5%.
After-tax net investment income increased by 14% from the prior year quarter to $590 million as higher returns in our non-fixed income portfolio were partially offset by the impact of the expected decline in fixed income yields.
Consistent with our comments on the fourth quarter earnings call and in our 10-K, we continue to expect that for the remainder of 2021, fixed income NII, including earnings from short-term securities, will be between $420 million and $430 million per quarter after-tax.
Total net favorability of $317 million pre-tax in the quarter included a $72 million benefit from a subrogation settlement with Southern California Edison related to the Woolsey fire of 2018.
$62 million of that benefit was recorded in Personal Insurance with the remainder recorded in Business Insurance.
Regarding reinsurance, as discussed during our fourth quarter results call, we renewed our underlying property aggregate catastrophe XOL Treaty for 2021 providing aggregate coverage of $350 million, part of $500 million of losses [Indecipherable] an aggregate retention of $1.9 billion.
Through March 31st, we have accumulated $915 million of qualifying losses toward the aggregate retention.
Operating cash flows for the quarter of $1.2 billion were again very strong.
All our capital ratios were at or better than target levels, and we ended the quarter with holding company liquidity of approximately $1.8 billion.
Our net unrealized investment gain decreased from $4.1 billion after-tax at year end to $2.8 billion after-tax at March 31st as interest rates rose during the quarter.
Adjusted book value per share, which excludes unrealized investment gains and losses, was $101.21 at quarter end, up 2% from year end and up 9% from a year ago.
We returned $613 million of capital to our shareholders this quarter comprising share repurchases of $397 million and dividends of $216 million.
Following this quarter's share repurchase activity, we had a little more than $800 million remaining under the previously authorized repurchase program.
In order to provide the appropriate capital management flexibility and reflecting its confidence in our business, the board authorized an additional $5 billion for share repurchases.
And as Alan also mentioned, our board authorized an increase in the quarterly dividend to $0.88 per share.
Business Insurance produced $317 million of segment income for the first quarter, a 10 increase over the first quarter of 2020 driven by higher levels of underlying underwriting income, net favorable prior year reserve development, and net investment income, which more than offset higher catastrophe losses.
We're particularly pleased with the underlying combined ratio of 93.7%, which improved by 3.6 points.
A little less than 2 points of that resulted from earned pricing that exceeded loss cost trends.
Turning to the top line, net written premiums were down 2% primarily due to lower net written premiums in the workers' compensation product line as a result of the impact of the pandemic on payrolls.
Renewal rate change remained strong at 8.4%, up 2.5 points from the first quarter of last year, while retention remained high at 83%.
As for the individual businesses, in select, renewal rate change increased to 4.5%, up almost 3 points from the first quarter of 2020.
Retention of 78% reflects deliberate execution as we pursue improved returns in certain segments of this business.
New business of $95 million was down $24 million from the prior year quarter, also driven by our focus on improving profitability as we remain disciplined around risk selection, underwriting, and pricing.
As an example, in previous quarters, we've highlighted our completely redesigned BOP 2.0 small commercial product, which includes industry-leading segmentation and a fast, easy quoting experience.
During the last three months, we rolled out the new product in an additional seven states, bringing the cumulative total to 30 states, representing approximately 60% of our CMP new business premium.
In middle market renewal rate change was strong at 9.1%, up almost 3 points from the first quarter of 2020, while retention remained high at 86%.
Additionally, we achieved positive rate of more than 80% of our accounts this quarter, a 10-point increase from the first quarter of last year.
New business was down $12 million driven by certain business units and geographies where returns are not meeting our thresholds.
Segment income was $137 million, an increase of 12% from the prior year quarter driven by an improved underlying underwriting margin and higher business volumes.
The underlying combined ratio of 84.2% improved by a 1.5 due to an improved expense ratio, primarily reflecting higher earned premiums.
Net written premiums grew 9% in the quarter, primarily reflecting strong management liability production.
In our management liability business, we are pleased that the renewal premium change remained near historic highs of nearly 11% while retention was a strong 87%.
Management liability new business for the quarter decreased $8 million, primarily reflecting our disciplined underwriting in this elevated risk environment.
Segment income was $314 million and net written premiums grew 7%.
The combined ratio of 90.3% rose about 2 points from the prior year quarter primarily due to higher levels of catastrophe losses, partially offset by higher net favorable prior year reserve development.
On an underlying basis, the combined ratio was a strong 85.4%.
Automobile delivered another very strong quarter with a combined ratio of 81.8%, an improvement of more than 9 points compared to the first quarter of 2020.
The improvement comprises 5 points of higher net prior year reserve development and an underlying combined ratio that is 4 points better than the prior year quarter.
In homeowners and other, the first quarter combined ratio of 99.4% increased by 15 points relative to the prior year quarter, driven by catastrophe losses of 22 points, up over 11 points, with most coming from the February winter storm and freeze events, and an 8 point increase in the underlying combined ratio primarily due to a comparison to unusually mild winter weather in the prior year quarter, along with about 2 points of elevated fire losses, many of which relate to extreme winter weather often resulting from the use of alternative heating sources.
The increases were partially offset by 5 points of higher net favorable prior reserve development, which included the subrogation benefits of the Woolsey wildfire that Dan mentioned.
Automobile net written premiums grew 3% with 14% growth in new business while retention remained strong at 84%.
We are very pleased with our ongoing balanced execution in this line which has resulted in 4% year-over-year policies in-force growth at attractive returns.
Homeowners and others delivered another strong quarter with net written premium growth of 12%.
New business was up 21% from the prior year quarter, retention remained strong at 85%, and renewal premium change was 7.7%.
Our ongoing new business success is driven by a combination of strategic investments and initiatives, including Quantum Home 2.0, IntelliDrive, and new and expanded partnerships and distribution relationships.

Summary:
We are very pleased to report first quarter core income $699 million or $2.73 per diluted share, both up from the prior-year quarter, despite our highest ever level of first quarter catastrophe losses.
In recognition of our strong financial position and confidence in our business, I'm pleased to share that our board of directors declared a 4% increase in our quarterly cash dividend to $0.88 per share, marking 17 consecutive years of dividend increases, with a compound annual growth rate of 9% over that period.
During the quarter, we grew net written premiums by 2% to $7.5 billion.
The increase in core income resulted primarily from a higher level of net favorable prior year reserve development, improved underlying underwriting results, and increased net investment income, largely offset by a much higher level of catastrophe losses.
Our first quarter results include $835 million of pre-tax cat losses, an all-time high for our first quarter cats and an increase of $502 million compared to last year's first quarter.
In order to provide the appropriate capital management flexibility and reflecting its confidence in our business, the board authorized an additional $5 billion for share repurchases.