Travelers 2007 Annual Report Download - page 86

new business volume increased. In Financial, Professional & International Insurance, written premium
growth in 2006 reflected strong business volume throughout the segment, and the absence of
catastrophe-related reinstatement premiums. Net written premium growth in the Personal Insurance
segment in 2006 reflected growth in new business volume, renewal price increases and continued strong
business retention rates, partially offset by the estimated impact of transitioning to six-month policy
terms in the second half of the year for a large portion of the Company’s multivariate pricing
Automobile product, and an increase in ceded premiums for catastrophe reinsurance.
Claims and Expenses
Claims and Claim Adjustment Expenses
Claims and claim adjustment expenses totaled $12.40 billion in 2007, $153 million, or 1%, higher
than the 2006 total of $12.24 billion. The 2007 total included $546 million of net favorable prior year
reserve development and $167 million of catastrophe losses, whereas the 2006 total included
$394 million of net favorable prior year reserve development and $103 million of catastrophe losses.
The Company’s three business segments each experienced net favorable prior year reserve
development in 2007. In Business Insurance, net favorable prior year reserve development was
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. Net total prior year
reserve development in 2007 in the Business Insurance segment included a $185 million increase to
environmental reserves. In the Financial, Professional & International Insurance segment, net favorable
prior year reserve development in 2007 primarily reflected better than expected loss development in
international property, employers’ liability, professional indemnity and motor lines of business for
recent accident years. In the Personal Insurance segment, net favorable prior year reserve development
in 2007 occurred in both the Automobile and Homeowners and Other lines of business. Factors
contributing to net favorable prior year reserve development in each segment are discussed in more
detail in the segment discussions that follow.
Net favorable prior year reserve development in 2006 was concentrated in the Personal Insurance
segment, primarily reflecting better than expected loss experience in the auto bodily injury and
non-catastrophe related Homeowners and Other lines of business, and a reduction in loss estimates for
the 2005 hurricanes. The Business Insurance segment also experienced net favorable prior year loss
experience in its ongoing operations in 2006, primarily in the commercial multi-peril, general liability,
property and commercial automobile lines of business. The favorable development in 2006 was partially
offset by increases to asbestos and environmental reserves, which are discussed in more detail in the
‘‘Asbestos Claims and Litigation’’ and ‘‘Environmental Claims and Litigation’’ sections herein. There
was also unfavorable prior year reserve development in runoff assumed reinsurance business in 2006.
Catastrophe losses of $167 million in 2007 primarily resulted from wildfires in California and
several wind, rain and hail storms throughout the United States. In 2006, catastrophe losses totaled
$103 million, all of which was incurred in the Personal Insurance segment and resulted from several
wind, rain, hail and snow storms in the United States throughout the year.
Claims and claim adjustment expenses totaled $12.24 billion in 2006, $2.68 billion less than the
2005 total of $14.93 billion. The 2006 total included $103 million of catastrophe losses and $394 million
of net favorable prior year reserve development, whereas the 2005 total included $2.03 billion of
catastrophe losses included in claims and claim adjustment expenses and $325 million of net
unfavorable prior year reserve development. Net favorable prior year reserve development in 2006 was
driven by the factors described above. In 2005, the net unfavorable prior year reserve development was
concentrated in the Business Insurance segment and was primarily driven by an increase to asbestos
reserves, which was partially offset by other, non-asbestos related net favorable prior year reserve
development in all three business segments.
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