Travelers 2007 Annual Report Download - page 90

$111 million of earned premiums in 2005. Earned premiums in 2005 were reduced by $67 million of
reinstatement premiums related to catastrophe losses.
Net Investment Income
Refer to the ‘‘Net Investment Income’’ section of the ‘‘Consolidated Results of Operations’’
discussion herein for a description of the factors contributing to the increase in the Company’s net
investment income in 2007 and 2006.
Fee Income
National Accounts is the primary source of fee income due to its service businesses, which include
claim and loss prevention services to large companies that choose to self-insure a portion of their
insurance risks, and claims and policy management services to workers’ compensation residual market
pools. The $83 million and $72 million declines in fee income in 2007 and 2006, respectively, primarily
resulted from lower serviced premium volume due to the depopulation of workers’ compensation
residual market pools, the impact of lower loss costs on fee income due to workers’ compensation
reforms, primarily in California, and lower new business volume due to increased competition.
Claims and Expenses
Claims and claim adjustment expenses in 2007 of $6.67 billion declined by $180 million, or 3%,
from the 2006 total of $6.85 billion, primarily reflecting an increase in net favorable prior year reserve
development and continued favorable current accident year results, partially offset by an increase in
business volume.
Net favorable prior year reserve development totaled $301 million in 2007, compared with
$21 million in 2006. The 2007 total 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. 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 reserve development in 2007 included a $185 million increase to
environmental reserves. The Company’s completion of its annual in-depth asbestos claim review in the
third quarter of 2007 and its quarterly asbestos reserve reviews throughout the year resulted in no
change to the Company’s asbestos reserves in 2007. (Refer to the ‘‘Asbestos Claims and Litigation’’ and
‘‘Environmental Claims and Litigation’’ sections herein for additional discussion.)
In 2006, net favorable prior year reserve development in the commercial multi-peril, general
liability, property and commercial automobile lines of business was largely offset by increases totaling
$275 million to asbestos and environmental reserves and reserve strengthening for assumed reinsurance
business in runoff. The commercial multi-peril and liability lines of business experienced better than
anticipated loss development in 2006 that was attributable to several factors, including improving legal
and judicial environments, as well as enhanced risk control, underwriting and claim process initiatives.
The favorable prior year reserve development in 2006 in the property line of business primarily
reflected less ‘‘demand surge’’ inflation than originally estimated for 2005 accident year non-catastrophe
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