By now you should have all received our annual report with the audited financial results for 2012. With your strong support, our surplus rose by $50 million to a new high of $1.1 billion after earned continuity credits of $34 million. We've now recovered all of the surplus we lost in the financial crisis of 2008. Gross written premiums also reached a new high of $1.245 billion due largely to growth in our property writings and AEGIS London. Our overall combined ratio was 108% but that included some surprise developments of $120 million on pre-1986 pollution claims. Without that change, our combined ratio would have been 93%. That reflects good performance across all our business lines except excess liability, which continues to be our loss leader. We must continue to improve our underwriting results there, particularly given the low return investment environment.
Our first quarter (unaudited) 2013 results were favorable with surplus growing by another $20 million. Our premium revenues were about $45 million less than we had hoped but this is due mostly to a rebalancing of the portfolio of risks written by AEGIS London as we redeploy their capacity to more profitable classes of business. We expect to recover this shortfall as the year progresses. Our overall losses for the first quarter were slightly better than expected by $5 million. Finally, we are pleased with the 1.4% total return we earned in the first quarter which was 50 basis points ahead of plan and drove our surplus growth.
We use our continuity credit programs to help maintain a balance between the lowest long-term cost of risk for members and the financial strength of the mutual. We work closely with our members and brokers to collect enough premium to fund the losses of the membership, promote measured surplus growth and maintain our financial strength ratings. With a long-term history of solid financial results, we've been able to maintain this balance and return more than $1.1 billion to our eligible members in credits of one kind or another.
Our overall financial results were positive in 2014 and our flagship excess liability business is better balanced than it has been in many years thanks to member and broker support of the premium adjustments needed to align premium with losses. However, the five-year combined ratio for excess liability remains relatively high at 125%, and the five-year combined ratio for our property business is 119%. Based on these ratios, and the relatively modest level of income generated by our investment portfolio in a period of low interest rates, the Board of Directors believes it will be prudent to manage the continuity credit programs for the 2015 − 2016 year as follows:
In addition to the decisions made regarding the property and AEGIS London lines, the Board approved a change in methodology for calculating property and London credits to align them with the same method of calculation for D&O and excess liability continuity credits by basing the credits on life-to-date premiums. This will increase the level of credits distributed to eligible members by removing the previously applied loss experience limitations.
Our D&O underwriting results have remained steady in recent years, and the contribution to surplus continues to be positive. Based on these positive trends, the D&O credit will be raised from its current level of 2% to 3% for the 2015 − 2016 year.
The continuity credit for excess liability will remain suspended for the time being. While underwriting results have improved of late, we will continue to monitor the trend for another year before reassessing the reinstatement of a credit.
The property credit will remain at $2 million based on another year of unfavorable property underwriting results, the persistently high five-year combined ratio mentioned above and large losses incurred in 2014.
The AEGIS London credit will remain unchanged at $1.0 million.
We are pleased to provide an ongoing level of credits and we know you recognize and appreciate the need to manage the credits in the context of the mutual’s overall financial results. The specific details that describe the individual credit amounts and how they can be applied to future renewals for your D&O and AEGIS London renewals will be mailed within the next few weeks. Those eligible for the member property credits will receive their notices later this summer. If you have any questions about the credit programs, or the new calculation methodology for property and AEGIS London, please contact George Keefe, Senior Vice President – Member Relations, by e-mailor at 201.508.2797.
We are pleased to introduce new cyber coverage and services through AEGIS London for all types of AEGIS member companies, including electric and natural gas utilities, renewable energy facilities, oil and gas E&P companies, water utilities, and transmission and distribution companies. The policy provides a $15 million limit in combination with a range of loss control services that will assist members with data loss, privacy breach and reputation management. For more information, please contact George Keefe by e-mail or phone at 201.508.2797, or Rick Welsh, Head of Cyber at AEGIS London, by e-mail or phone at 011.44.207.265.2100.
Registration will open in mid-May for PHC 2013, which will be held Monday, July 29 to Thursday, August 1, at the Baltimore Marriott Waterfront in Baltimore, Maryland.
We're hard at work on the conference agenda, which will include the annual management report, as well as sessions covering cyber risk, enterprise risk management, premium adequacy, and trends in member company losses. Bob Hartwig, President of The Insurance Information Institute, will join us again to present his popular overview of current economic and insurance market conditions, which always provides a useful context for other conference presentations and discussions.
The Baltimore Marriott Waterfront is situated directly on Baltimore's Inner Harbor, a beautiful and vibrant waterfront district, which has been dramatically revitalized over the past 20 years. Most of the city's best attractions are a quick walk or water taxi ride away, including Fort McHenry, where a battle during the War of 1812 inspired "The Star-Spangled Banner," Camden Yards, home to the Baltimore Orioles, and the National Aquarium, one of the most sophisticated and technologically advanced aquariums in the world. We'll post details of our tours when registration opens in mid-May, but Baltimore offers many activities in the summer months, includinghistoric tours, sporting events, Inner Harbor sightseeing cruises and the family favorite, paddleboats. The summer months are also the height of the season for world-famous Chesapeake Bay blue crabs, so bring your appetites.
We look forward to seeing you, your families and guests in Baltimore at PHC 2013!
Many of you will recall the policy limits survey we conducted four years ago in cooperation with The Edison Electric Institute (EEI). In addition to polling AEGIS member companies with electric operations, we conducted the survey across the entire membership to include members with natural gas, water and other types of operations. The response to the survey was strong and many members found the results useful in terms of setting appropriate limits and benchmarking their programs versus peer companies. The aggregated survey results for all electric and gas company respondents are still posted in the password-protected area of our website. The aggregated results for other company operation types are available upon request.
The new survey is designed to tell us how insurance buying practices have changed since the time of the last survey, and we've added some questions to determine the state of ERM at AEGIS member companies. Please watch your e-mail for further details and a link to the online survey. We plan to discuss the aggregated results in detail at the 2013 AEGIS Policyholders' Conference in July.
Please register now for the next AEGIS Claims Roundtable seminar – Litigation Involving Catastrophic Injuries – which will be held on Thursday, June 6 in East Rutherford and Thursday, June 13 in Chicago.
Utility companies are frequently faced with litigation arising from catastrophic injuries suffered by members of the public and company employees. These injuries can result from events such as electrical contacts, gas explosions and exposure to toxic substances. Resultant injuries, including severe burns, brain damage, paraplegia, quadriplegia and loss of limbs, can serve as a difficult backdrop for the defense. In catastrophic injury cases, there is often an overwhelming empathy factor. Yet such injury cases are defensible, and can be mitigated, if properly prepared, investigated, negotiated and presented to a jury. This panel will address the issues surrounding the successful defense of such cases. Attendees will gain a better understanding of major injury claim management and defense tactics.
As always, you're welcome to attend AEGIS Claims Roundtables in person or by videoconference, and Continuing Legal Education (CLE) credits are offered. For more information about the AEGIS Claims Roundtable program, please contact Jeff Schupack by e-mail or by phone at 201.508.2658.
Please save the date for the 2013 AEGIS Emergency Preparedness and Response Seminar, which will be held October 15 to 17 at the Westin Indianapolis.
Sponsored by AEGIS Loss Control, the seminar includes presentations by industry experts, consultants, and AEGIS member companies on a variety of topics that affect electric and natural gas systems during and following events such as wildfires, tornadoes, ice storms, earthquakes, floods and hurricanes. Issues regarding storm preparation, mutual aid, communications with emergency responders, the public and customers, nationwide utility disasters, and the lessons learned to improve emergency preparedness, along with new technology to assess storm damage, will be covered.
AEGIS member company personnel from risk management, operations, maintenance, engineering and claims, as well as AEGIS brokers, are encouraged to attend.
Registration and hotel reservations will open in August. The seminar registration fee is $495 per person, which covers all sessions and meals. In the meantime, please do not contact the hotel directly. We have reserved a block of rooms for the seminar and they will be available when reservations open.
If you have any questions about the program, please contact Scot Macomber, Manager – Loss Control Utility Operations, by e-mail or by phone at 201.508.2739. For questions regarding the hotel or other logistics, please contact Leah Convery by e-mail or by phone at 201.508.2872.