Dan Frey
Executive Vice President and Chief Financial Officer at Travelers Companies
Thank you, Alan. Core income for the third quarter was $526 million and core return on equity was 7.9%. On a year-to-date basis, core ROE is a healthy 10.9%. Our after-tax underlying underwriting gain of $478 million was once again very strong. We generated the record earned premium and reported an underlying combined ratio of 92.5%. In both Business Insurance and Bond & Specialty, the underlying combined ratios were particularly good and improved from the prior year quarter. While in personal insurance, the underlying combined ratio was elevated. Greg, Jeff and Michael will provide more detail on each segments results in a few minutes.
The expense ratio for the quarter of 28.1% was our best ever quarterly result, having improved 1.3 points from last year's third quarter. As a reminder, the expense ratio has improved even as we continued to increase our significant investment in strategic initiatives with the improvement driven by our focus on productivity and efficiency coupled with strong top line growth.
In our earnings call last quarter we told you that we expected the expense ratio to be around 29% for the full year. And with the year-to-date expense ratio at 28.7%, it looks like we'll do a little better than 29%. Our third quarter results include $512 million of pre-tax catastrophe losses with $326 million related to hurricane Ian. We hold ourselves accountable for managing our cat exposures over time. And Ian is another illustration of our industry leading expertise.
As you heard from Alan, based on available industry estimates for Ian, Travelers share of losses looks to be well below our weighted average market share in the affected states. The investments we've made in talent, technology and sophisticated peril-by-peril modeling are paying off in terms of risk selection, pricing segmentation, risk mitigation, and our industry leading claim response capabilities.
Regarding cat losses and reinsurance on a year-to-date basis through September 30th, we've accumulated $1.4 billion of qualifying losses toward the aggregate retention of $2 billion on our property aggregate catastrophe XOL treaty. A couple of additional comments on reinsurance. Based on what we're hearing from the reinsurance community, it sounds like the market is in for higher pricing and capacity constraints. In terms of primary carriers, that's going to impact some much more than others.
For two reasons, we would expect to be less impacted than others. First, as a disciplined gross line underwriter, we just don't buy that much reinsurance compared to many others. Second, we have a long track record of strong underwriting performance, consistently outperforming the industry. The upshot of those factors is that we generally expect to be able to obtain the reinsurance coverage we need at acceptable prices. Also, because we're less reliant on reinsurance, we should be less affected by price increases and capacity constraints. With less of an impact on our cost structure, we should have the option to expand our margin advantage or to reflect that cost advantage in our pricing, making us more competitive for attractive new business opportunities.
Turning to prior year reserve development, we had total net favorable development of $20 million pre-tax in the third quarter. In Business Insurance net unfavorable PYD of $61 million was driven by a $212 million charge related to our annual asbestos review, largely offset by better than expected loss experienced in workers comp across a number of accident years, as well as favorable development in property.
In Bond & Specialty net favorable PYD of $63 million was driven by better than expected results in fidelity and surety as well as the management liability book. Personal Insurance had $18 million of net favorable PYD with modest movements in both auto and home.
One additional comment on asbestos. Loss activity and the level of deaths related to mesothelioma did moderate somewhat in the most recent data available for review, but not to the degree we had projected. Nonetheless, the long-term trend is that mesothelioma mortality rates are declining. After tax net investment income decreased by 22% from the prior year quarter to $505 million.
As expected, returns in our non-fixed income portfolio were below last year's excellent results. Although we were pleased that the alternative portfolio generated positive income, despite the significant downturn in the broader equity markets. Fixed maturity NII was higher than in the prior year quarter, reflecting both the higher level of invested assets and the impact of higher yields.
With interest rates having moved higher during the third quarter, we are again raising our outlook for fixed income NII, including earnings from short term securities to approximately $500 million after tax in the fourth quarter, and approximately $540 million on average per quarter in 2023, with an estimated $515 million in the first quarter, growing to an estimated $570 million in the fourth quarter. New money rates as of September 30th, were about a 150 basis points higher than what is embedded in the portfolio. And with rates having moved up again in October, that difference is now around 200 basis points.
As it relates to our non-fixed income investments. Let me take this opportunity to remind you that results for our private equities, real estate partnerships and hedge funds are generally reported to us on a one-quarter lag. Since our non-fixed income returns tend to directionally follow the broader equity markets, we expect the downturn experienced by the broader market in the third quarter to impact our fourth quarter results.
Turning to Capital Management, operating cash flows for the quarter of $2.5 billion were again very strong, all our capital ratios were at or better than our target levels, and we ended the quarter with holding company liquidity of more than $1.4 billion. Interest rates increased and spreads continued to widen during the quarter and as a result, our net unrealized investment loss increased from $3.8 billion after tax at June 30 to $6.3 billion after tax at September 30.
As we've discussed in prior quarters, the changes in unrealized investment gains and losses generally do not impact how we manage our investment portfolio. We regularly hold fixed income investments to maturity, the quality of our fixed income portfolio is as always very high. And changes in unrealized gains and losses have little impact on the expected cash flow from those investments, our statutory surplus or regulatory capital requirements.
Adjusted book value per share, which excludes net unrealized investment gains and losses was $111.90 at quarter end, up 2% from year-end and up 7% from a year-ago. We returned $722 million of capital to our shareholders this quarter, comprising share repurchases of $501 million and dividends of $221 million. We have approximately $2.5 billion of capacity remaining under the most recent share repurchase authorization from our Board of Directors.
To sum it all up, we had another very good quarter in light of the impact from Ian, but strong premium growth in all three segments, terrific underlying underwriting profitability in our commercial businesses, and further improvement to our outlook for fixed income NII.
All of that, combined with another quarter of progress on important strategic initiatives has us well positioned to continue to grow at attractive returns.
And with that, I'll turn the call over to Greg for discussion of Business Insurance.
