Travelers 2007 Annual Report Download - page 199

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. INSURANCE CLAIM RESERVES (Continued)
The fair value adjustments to the acquired claims and claim adjustment expense reserves and
reinsurance recoverables as of April 1, 2004, the merger date, are reported as other intangible assets
and are being amortized over the expected payout period of the acquired reserves.
Prior Year Reserve Development
The following disclosures regarding reserve development are on a ‘‘net of reinsurance’’ basis.
2007.
In 2007, estimated claims and claim adjustment expenses incurred included $672 million of net
favorable development for claims arising in prior years, including $546 million of net favorable prior
year reserve development impacting the Company’s results of operations, which excludes $60 million of
accretion of discount.
Business Insurance. Net favorable prior year reserve development totaled $301 million in 2007,
primarily driven by better than expected loss development for recent accident years in the commercial
multi-peril, general liability, commercial automobile and property product lines. The commercial multi-
peril and general liability product lines experienced better than anticipated loss development that was
attributable to several factors, including improved legal and judicial environments, as well as enhanced
risk control, underwriting and claim process initiatives. The commercial automobile product line
experienced better than expected loss development due to more favorable legal and judicial
environments, claim handling initiatives focused on the automobile line of insurance and improvements
in auto safety technology. The property product line experienced fewer than expected late reported
claims related to non-catastrophe weather events that occurred late in 2006, as well as better than
expected frequency and severity due in part to changes in the marketplace, such as higher deductibles
and lower policy limits. In addition, the property product line experienced better than expected large
loss outcomes which were partially attributable to favorable litigation resolutions. Net total prior year
development in 2007 included a $185 million increase to environmental reserves.
Financial, Professional & International Insurance. Net favorable prior year reserve development in
2007 totaled $93 million, primarily reflecting better than expected loss development in international
property, employers’ liability, professional indemnity and motor lines of business for recent accident
years, which was attributable to several factors, including enhanced pricing and underwriting strategies
throughout the international operations, and the favorable impact of legal and judicial reforms in
Ireland.
Personal Insurance. Net favorable prior year reserve development in 2007 totaled $152 million,
driven by better than expected automobile loss experience due in part to claim initiatives and fewer
than expected late reported homeowners’ claims related to non-catastrophe weather events that
occurred in the fourth quarter of 2006. In addition, a portion of net favorable prior year reserve
development in the Homeowners and Other line of business in 2007 was attributable to a decrease in
the number of claims due to changes in the marketplace, including higher deductibles and fewer small-
dollar claims.
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