Travelers 2006 Annual Report Download - page 104

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industry and internal initiatives to fight fraud in several states caused a decrease in the total number of
claims, as well as a change in the historicalloss development patterns.
General and administrative expenses totaled $804 million in 2006, an increase of $139 million, or 21%,
over the 2005 total of $665 million. The increase in expenses over2005 reflected increased business
volume, the segment’s continued investments to support business growth and product development, legal
expenses related to investigations of various business practices by certain governmental agencies, and the
segment’s share of costs associated with the Company’s national advertising campaign. The 2005 total
included $25 million of catastrophe-related assessments. In2005, general and administrative expenses were
$129 million higher than the 2004 total of $536 million, primarily reflecting business growth, investments to
support business growth and the catastrophe-related assessments.
GAAP Combined Ratio
The loss and loss adjustment expense ratio of 54.8% in 2006 was 7.4 points lower than the comparable
2005 ratio of62.2%. The 2006 ratio included a 1.6point impact of catastrophe losses and a 5.5 point
benefit from net favorable prior year reserve development. The 2005 loss and loss adjustment expense
ratio included a 9.3 point impact of catastrophe losses and a 6.0 point benefit from net favorable prior year
reserve development. Excluding those factors from both years, the loss and loss adjustment expense ratio
in 2006 was slightly lower than the comparable 2005 ratio, reflecting continued favorable trends in current
accident year loss experience. The loss and loss adjustment expense ratio in 2004 included a 3.4 point
impact from catastrophe losses and a 6.8 point benefit from net favorable prior year reserve development.
Excluding the impact of these factors in both 2005 and2004, the2005 loss and loss adjustment expense
ratio improved over the 2004 ratio, reflecting better current accident year loss experience.
The underwriting expense ratio of 28.3% in2006 was 1.4 points higher than the 2005 expense ratio of
26.9%, primarily reflecting the impact of the increaseingeneral and administrative expenses described
above, and a slight increasein commission expenses. In 2005, reinstatement premiums relatedto
catastrophe losses reduced earned premium volume by $21 million, and catastrophe-related assessments
from various insurance pools increased taxes, licenses and fees by $25 million. These factors combined to
result in a 0.5 point unfavorable impact on the Personal Insurance segment’s2005 underwriting expense
ratio.
The 2.0 point increase in the underwriting expense ratio in 2005 compared with 2004 reflected an
increase in commission expenses, other insurance expenses, and taxes, licenses and fees, and the 0.5 point
impact of reinstatement premiums and catastrophe-related assessments described above. The increase in
commissions reflected a changing product mix and higher agent profit sharing expenses. The increase in
other insurance expenses reflected the impact of process re-engineering investments and investments in
personnel, technology and infrastructure to support business growth and product development.
Written Premiums
The Personal Insurance segment’s gross and net written premiums by product line were as follows:
Gross Written Premiums
(for the year ended December 31, in millions) 2006 2005 2004
Automobile......................................... $ 3 ,731 $3,526 $3,470
Homeowners and Other.............................. 3,280 2,948 2,641
Total Personal Insurance........................... $7,011 $6,474 $6,111