Travelers 2003 Annual Report Download - page 46

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Bond provides a variety of fidelity and surety bonds and executive liability coverages to clients of all sizes through
independent agents and brokers. Bond net written premiums increased $150.6 million or 24% in 2003. This increase
reflected a favorable premium rate environment and strong new business, principally in executive liability product
lines, which target middle and small market private accounts, partially offset by higher reinsurance costs. In addition,
the surety product lines benefited from higher premium rates in 2003. Bond net written premiums increased $39.7
million or 7% in 2002. The 2002 amount was reduced by $17.5 million due to a change in the Bond Executive
Liability excess of loss reinsurance treaty that was effective January 1, 2002. Excluding this reinsurance adjustment,
Bond net written premiums increased $133.1 million or 21% during 2003. In addition, the 2001 amount was increased
by $34.1 million due to the termination of the Master Bond Liability reinsurance treaty effective January 1, 2001.
Excluding both reinsurance adjustments, Bond net written premiums increased $91.3 million during 2002. This
increase reflected a favorable premium rate environment and strong production growth in executive liability product
lines. In addition, the surety product lines benefited from higher premium rates in 2002.
Gulf markets products to national, mid-sized and small customers and distributes them through both wholesale brokers
and retail agents and brokers throughout the United States with particular emphasis on management and professional
liability coverages and excess and surplus lines of insurance. Gulf net written premiums increased $83.4 million or
14% in 2003 as a result of significant rate increases across all classes of management liability products. Gulf net
written premiums decreased $28.8 million in 2002 due to Gulf’s decision to exit non-core businesses, including
assumed reinsurance, transportation, residual value and property, partially offset by increases in Gulf’s core specialty
lines.
Commercial Lines claims and expenses were as follows:
(for the year ended December 31, in millions) 2003 2002 2001
Claims and claim ad
j
ustment ex
p
enses $ 5,784.0 $ 7,932.1 $ 4,711.7
Amortization of deferred ac
q
uisition costs 1,182.9 1,072.8 864.9
Interest ex
p
ense 5.0 3.5 -
General and administrative ex
p
enses 1,207.4 1,031.0 932.2
Commercial Lines claims and expenses $ 8,179.3 $ 10,039.4 $ 6,508.8
Total claims and expenses decreased $1.860 billion or 19% in 2003 and increased $3.531 billion or 54% in 2002.
Claims and claim adjustment expenses decreased $2.148 billion or 27% in 2003 primarily due to lower unfavorable
prior year reserve development, partially offset by increased loss costs, growth in business volume and higher weather
related catastrophe losses. Catastrophe losses, net of reinsurance, were $103.8 million in 2003 compared to no
catastrophe losses in 2002. The 2003 catastrophe losses were primarily due to a severe winter storm in Colorado in the
first quarter, severe storms in the second quarter in a number of Southern and Midwestern states and Hurricane Isabel
in the third quarter. Unfavorable prior year reserve development included in claims and claim adjustment expenses
was $688.0 million in 2003 compared to $3.118 billion in 2002. The most significant component of 2003 prior year
development was Gulf reserve strengthening of $521.1 million. 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 $166.9 million which included a $115.0
million charge associated with American Equity and a $59.8 million increase in environmental reserves. Unfavorable
prior year reserve development in 2002 included $2.945 billion of asbestos-related charges (prior to the benefit related
to recoveries under the Citigroup indemnification agreement), compared to no asbestos incurrals in 2003. For
additional information see “– Asbestos Claims and Litigation”.