CNA performed extremely well in the third quarter with core income up 23% year-over-year despite the elevated catastrophe activity.
In the third quarter, core income was $237 million or $0.87 per share, driven by improved underlying underwriting performance and favorable Life & Group results.
Net income for the quarter was $256 million or $0.94 per share.
Gross written premium, excluding our captive business grew by 10% this quarter, fueled by excellent new business growth and continued strong price increases.
Earned rate was 11% in the quarter, and written rate was 8%, which remains well above loss cost trends and which we believe portends continued progress toward building margin as the written premium earns in over a third renewal cycle in 2022.
The all-in combined ratio was 100% this quarter, about a point lower than the third quarter of 2020, which included elevated catastrophes in both periods.
In the third quarter of 2021, pre-tax catastrophe losses were $178 million or 9.2 points of the combined ratio, which included $114 million for Hurricane Ida.
The P&C underlying combined ratio was 91.1%, a 1.5 point improvement over last year's third quarter results.
After adjusting for the impacts of COVID in last year's third quarter, the improvement in our underlying combined ratio is actually 2.1 points.
The underlying loss ratio in the third quarter of 2021 was 60.2%, which is down 0.3 points compared to the third quarter of 2020.
Excluding the impacts of COVID in the prior year quarter, the underlying loss ratio improved by 0.9 points, and the decrease reflects our prudent acknowledgment of margin improvement.
As I've mentioned before, we increased our loss cost trends about 2 points over the last couple of years and classes impacted by social inflation.
This quarter, we increased our loss cost trends in property lines about 2 points because of the supply chain shortages, which have increased the cost of material and labor and don't look like they will revert back lower anytime soon.
This change pushed up our overall P&C loss cost trends marginally, and are now above 5%.
During the third quarter, earned rates are running close to 11%.
So, earned rate is exceeding loss cost trend by about 6 points.
Applying that to a 60% loss ratio should portend about 3 points of improvement in the quarter.
We have reflected about 1 point of improvement in the underlying loss ratio in the third quarter.
The underlying combined ratio for Specialty was 89.6%, a 0.9 point improvement compared to last year, entirely from an improvement in the underlying loss ratio, while the expense ratio was comparable to the third quarter of 2020.
The all-in combined ratio was 88.2%, a 1.3 point improvement compared to the third quarter of 2020.
The all-in combined ratio for Commercial was 111.6% including 18.6 points of Cat compared to 111.3% in last year's third quarter including 17 points of Cat.
The underlying combined ratio for Commercial was 92.5%, which is the lowest on record and it's 1.2 points lower compared to last year and 2.3 points lower, excluding the COVID frequency impacts that reduced the loss ratio in 2020.
The underlying loss ratio improved by 0.4 points, excluding the COVID frequency impacts last year, while the expense ratio improved by 2 points.
The underlying combined ratio for international improved by four full points to a record low of 91%.
This reflects at 2.8 point improvement in the expense ratio and a 1.2 point improvement in the underlying loss ratio, which was 58.9% in the quarter.
The all-in combined ratio of 95.5% compared to 98.1% in the third quarter of 2020, reflects the success of our reunderwriting strategy.
As indicated earlier, our P&C operations had 10% growth in gross written premiums ex-captive which was 2 points above what we achieved in the first half of 2021 and 1 point above full year 2020.
Our growth in the quarter was fueled by strong new business growth of 24% and written rate of 8%, while retention was stable at 81%.
Net written premium growth for P&C was plus 5% for the quarter, up 4 points over the first half of the year.
Our specialty gross written premium growth ex-captive was plus 10%, driven by excellent new business growth of 40%, concentrated in affinity programs and management liability in continued strong rate of 9%.
This is our fifth consecutive quarter of double-digit growth in specialty notwithstanding that our retention in the third quarter was down about 5 points to 80%.
In Commercial, our gross written premiums ex-captives grew 10% in the quarter, representing an 8 point improvement over the second quarter's growth.
Commercial new business growth grew by 21% in the quarter with all segments contributing and retention increased 3 points to 83% compared to last quarter and rates increased 6%.
Although rates moderated in certain segments like national accounts, where rate increases were lower by 3 points, we still achieved a very strong 13% increase in the quarter, which is well above loss cost trends.
Our middle market rates were lower by 1 point this quarter, but we had a 7 point increase in retention to 84%.
We also achieved 2 points of exposure increase in Commercial in the quarter from higher payroll and sales compared to the third quarter of 2020.
Our international gross written premium growth was 16% for the quarter or 11% excluding currency fluctuation.
We continue to achieve strong rate in International at 13%, consistent with the second quarter.
Retentions have improved each quarter this year and stand at 79% in the quarter, up from 77% last quarter and 74% in the first quarter.
For P&C overall, prior period development was favorable by 0.3 points on the combined ratio.
There was no result in unlocking of the assumptions, which we believe is due to our continued prudent management of this run-off book and we now have $72 million of GAAP margin on the active life reserves.
The claim reserve review resulted in favorable development of $40 million on a pre-tax basis and Larry will have more detail on the Life & Group reserve analysis and our P&C prior period development.
As Dino highlighted, the 23% increase in core income for the third quarter produced a core ROE of 7.7%.
As a reminder, both blocks are closed with no new policies issued for individual since 2004, and no new group certificates since 2016.
As a result, the average attained age for the individual block is 80 years old and the group block is 67.
One clear result of our efforts is the 35% reduction in policy count since 2015, which is shown on the bottom left graph on Slide 12.
The key result is that we did not have an unlocking event, and we now have margin in our GAAP carried reserves of $72 million.
Recall, that last year we moved meaningfully on our assumption by lowering the normative risk free rate of 2.75% and increasing the gradient period for the risk free rate to rise to that level to ten years.
Taken together, the changes resulted in creating the $65 million of margin disclosed in the table.
We refined our claim severity assumptions, specifically those related to utilization rates in our group block, expected recovery rates and claim side as mixed, which together drove margin improvement of $205 million.
Of course, even a slight change in mortality rate applied against the entire tail of the portfolio will have a leveraged effect and these assumption changes resulted in margin deterioration of $233 million.
Regarding future premium rate increases, our actual rate achievement over the past year exceeded our assumption in last year's analysis, contributing $27 million to the favorable margin increase.
As you can see on Slide 13, the cumulative impact of these changes, including a slight margin improvement of $8 million from lowered operating expenses, resulted in a reserve margin of $72 million in our carried reserves, while continuing to use a prudent set of reserve assumptions.
The favorability, which flows through to our bottom line was a pre-tax benefit of $41 million -- $40 million or $31 million on an after-tax basis.
Our overall Life & Group segment produced core income of $41 million in the third quarter, which compares to a third quarter 2020 loss of $35 million.
In addition to the $31 million favorable impact from the annual long-term -- long-term care claims review that I just discussed, activity in the quarter contributed another $10 million to core income, as we had strong net investment income performance predominantly from our alternative investments portfolio.
Returning now to financial results, our third quarter 2021 pre-tax underlying underwriting profits increased 28% on a year-over-year basis, driven by the 6% growth in net written premium and a record low underlying combined ratio.
The third quarter 2021 expense ratio of 30.7% was 1.1 points lower than last year's third quarter.
Our Commercial and International segments drove the overall improvement, as commercial improved 1.9 points to 30.4% and International improved 2.8 points to 32.1%.
As this quarter's expense ratio reflected somewhat less investment, we believe a more appropriate expectation on run rate is 31%.
For the third quarter, overall P&C net prior period development impact on the combined ratio was 0.3 points favorable, compared to 0.4 points favorable in the prior year quarter.
Total pre-tax net investment income was $513 million in the third quarter compared with $517 million in the prior year quarter.
The results included income of $77 million from our limited partnership in common stock portfolios as compared to $71 million on these investments from the prior year quarter.
The year-over-year decrease reflects lower reinvestment yields due to the ongoing low interest rate environment with pre-tax effective yields on our fixed income holdings of 4.3% during the third quarter of 2021, compared to 4.5% during the third quarter of 2020.
However, our strong operating cash flows have fueled the higher investment base with the book value of the fixed income portfolio growing by $1.5 billion over the past year.
From a balance sheet perspective, the unrealized gain position of our fixed income portfolio was $4.8 billion at quarter-end, down from $5.1 billion at the end of the second quarter, reflecting a slightly higher interest rate environment.
Fixed income invested assets that support our P&C liabilities and Life & Group liabilities had effective duration of 5.1 years and 9.3 years respectively at quarter-end.
At quarter-end, shareholders' equity was $12.7 billion or $46.67 per share.
Shareholders' equity excluding accumulated other comprehensive income was $12.3 billion or $45.39 per share, an increase of 8% from year-end 2020 adjusting for dividends.
We have a conservative capital structure with a leverage ratio of 18% and continue to maintain capital above target levels in support of our ratings.
In the third quarter, operating cash flow was strong once again at $669 million.
In our P&C segments, the paid to incurred ratio was 0.75%, consistent with the last two quarters.
Finally, we are pleased to announce our regular quarterly dividend of $0.38 per share.

Summary:
In the third quarter, core income was $237 million or $0.87 per share, driven by improved underlying underwriting performance and favorable Life & Group results.
Net income for the quarter was $256 million or $0.94 per share.
At quarter-end, shareholders' equity was $12.7 billion or $46.67 per share.
Shareholders' equity excluding accumulated other comprehensive income was $12.3 billion or $45.39 per share, an increase of 8% from year-end 2020 adjusting for dividends.