Travelers 2003 Annual Report Download - page 43

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41
RESULTS OF OPERATIONS BY SEGMENT
Commercial Lines
Commercial Lines operating income (loss) was as follows:
(for the year ended December 31, in millions) 2003 2002 2001
O
p
eratin
g
income (loss) $ 1,295.0 $
(
125.8
)
$ 752.2
The 2003 operating income of $1.295 billion compared to an operating loss of $(125.8) million in 2002. The 2003
operating income reflected the continuing favorable, but moderating, rate environment in excess of loss cost trends and
increased business volumes. Catastrophe losses of $67.4 million, net of reinsurance and after tax, compared to no
catastrophes in 2002. The 2003 operating income contained no asbestos charges compared to $1.394 billion of
unfavorable prior year reserve development related to asbestos in 2002, net of the benefit from the Citigroup
indemnification agreement. Commercial Lines had a non-asbestos-related prior year reserve development charge of
$447.2 million ($688.0 pretax) in 2003 compared to a $112.2 million charge ($172.7 million pretax) in 2002. The
most significant component of the 2003 prior year reserve development charge was $338.7 million of charges ($521.1
million pretax) related to reserve strengthening at Gulf. Reserve strengthening at Gulf primarily related to a line of
business that insured the residual values of leased vehicles and that was placed in runoff in late 2001 and the resolution
of a residual value claim dispute. Reserves for certain other business lines at Gulf were also strengthened as was its
allowance for uncollectible reinsurance recoverables. In addition to these Gulf charges, there was additional other
Commercial Lines net unfavorable prior year reserve development of $108.5 million which included a $74.8 million
charge associated with American Equity and a $38.9 million increase in environmental reserves. Net investment
income of $1.152 billion in 2003 was $28.6 million higher than 2002 due to higher average invested assets from strong
operating cash flows along with higher returns in Travelers arbitrage fund investments, partially offset by slightly
lower returns in private equity investments and the impact of shortening the fixed maturity portfolio duration.
Operating loss of $(125.8) million for 2002 compared to operating income of $752.2 million in 2001. The 2002
operating loss reflected the benefit of the favorable premium rate environment in excess of loss cost trends and
increased business volumes. Operating loss in 2002 was favorably impacted by no catastrophe losses compared to
$470.5 million of catastrophe losses in 2001, including $447.9 million related to the terrorist attack on September 11,
2001. The 2002 prior year reserve development included the $1.394 billion charge related to asbestos discussed above
compared to an asbestos-related charge of $122.7 million in 2001. Commercial Lines also had a non-asbestos-related
prior year reserve development charge of $112.2 million ($172.7 pretax) in 2002 compared to a $141.2 million benefit
($217.2 million pretax) in 2001. Despite the benefit of higher average invested assets resulting from strong cash flows
from underwriting, net investment income of $1.123 billion was $69.5 million lower than 2001 due to reduced returns
in Travelers public equity investments and the lower interest rate environment. The 2002 operating loss also reflects
the elimination of goodwill amortization.
Commercial Lines revenues were as follows:
(for the year ended December 31, in millions) 2003 2002 2001
Earned
p
remiums $ 7,722.8 $ 6,801.2 $ 5,447.0
N
et investment income 1,506.9 1,495.3 1,616.3
Fee income 560.0 454.9 347.4
Recoveries from former affiliate - 520.0 -
Other revenues 40.7 32.1 41.4
Commercial Lines revenues $ 9,830.4 $ 9,303.5 $ 7,452.1