Travelers 2007 Annual Report Download - page 95

Financial, Professional & International Insurance
Results of the Company’s Financial, Professional & International Insurance segment were as
follows:
(for the year ended December 31, in millions) 2007 2006 2005
Revenues:
Earned premiums ............................ $3,384 $3,321 $3,197
Net investment income ........................ 494 429 360
Fee income ................................. ——1
Other revenues .............................. 29 26 20
Total revenues ............................... $3,907 $3,776 $3,578
Total claims and expenses ........................ $2,981 $2,968 $2,961
Operating income .............................. $ 675 $ 609 $ 391
Loss and loss adjustment expense ratio .............. 50.8% 53.7% 56.8%
Underwriting expense ratio ....................... 36.8 35.3 35.7
GAAP combined ratio ......................... 87.6% 89.0% 92.5%
Overview
In March 2007, the Company completed the sale of Afianzadora Insurgentes, which accounted for
$25 million, $78 million and $78 million of net written premiums for the years ended December 31,
2007, 2006 and 2005, respectively. The impact of this transaction was not material to the Company’s
results of operations or financial position.
Operating income of $675 million in 2007 was $66 million, or 11%, higher than operating income
of $609 million in 2006, primarily driven by an increase in net favorable prior year reserve
development, higher net investment income and favorable current accident year results. These factors
were partially offset by an increase in general and administrative expenses and non-catastrophe losses
incurred in the United Kingdom related to flooding. Net favorable prior year reserve development
totaled $93 million in 2007, compared with $14 million in 2006.
Operating income of $609 million in 2006 increased by $218 million, or 56%, over 2005. The
improvement was driven by the absence of catastrophe losses in 2006, an increase in net investment
income and growth in business volume, partially offset by a decline in net favorable prior year reserve
development and an increase in general and administrative expenses. Operating income in 2006 also
benefited from favorable tax impacts from businesses outside of the United States, including an
$18 million benefit associated with the then pending sale of Afianzadora Insurgentes. No catastrophe
losses were incurred in 2006, whereas results in 2005 included $191 million in catastrophe costs. Net
favorable prior year reserve development totaled $14 million in 2006, compared with $72 million in
2005.
Earned Premiums
Earned premiums in 2007 were slightly higher than in 2006. Adjusting for the sale of Afianzadora
Insurgentes in both years, earned premiums in 2007 grew 3% over 2006. Earned premium growth was
concentrated in the International group, driven by the favorable impact of foreign currency rates of
exchange and growth in business volume over the preceding twelve months. Earned premium growth in
2007 also benefited from adjustments to prior year premium estimates for the Company’s operations at
Lloyd’s.
Earned premiums in 2006 increased $124 million, or 4%, over 2005, primarily driven by growth in
Bond & Financial Products. In addition, earned premiums in 2005 were reduced by $33 million of
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