Travelers 2008 Annual Report Download - page 87

In addition, a decline in premiums ceded for catastrophe reinsurance contributed to net written
premium growth over 2006 in Business Insurance. In Financial, Professional & International Insurance,
net written premium growth of 4% (adjusted for the sale of Afianzadora Insurgentes) reflected the
favorable impact of foreign currency rates of exchange and strong business volume in construction
surety, in Canada and at Lloyd’s. Adjustments to prior year premium estimates for the Company’s
operations at Lloyd’s also contributed to the growth in net premium volume in 2007. Net written
premium growth of 4% in the Personal Insurance segment in 2007 (adjusted for the sale of Mendota)
was driven by continued strong retention rates and renewal price increases, partially offset by a decline
in new business volume, particularly for coastal coverages.
Claims and Expenses
Claims and Claim Adjustment Expenses
Claims and claim adjustment expenses totaled $12.99 billion in 2008, $596 million, or 5%, higher
than the 2007 total of $12.40 billion, primarily reflecting a significant increase in the cost of
catastrophes, an increase in the number of large losses that exceeded expectations, an increase in
non-catastrophe related weather losses in Personal Insurance and the impact of loss cost trends. These
factors were partially offset by an increase in net favorable prior year reserve development. The cost of
catastrophes included in claims and claim adjustment expenses in 2008 totaled $1.26 billion, primarily
resulting from Hurricanes Ike and Gustav, as well as wind, rain and hail storms in several regions of
the United States throughout the year. The cost of catastrophes in 2007 totaled $167 million, primarily
resulting from wildfires in California and several wind, rain and hail storms throughout the United
States. Net favorable prior year reserve development in 2008 totaled $1.54 billion, compared with
$546 million of net favorable prior year reserve development in 2007.
The Company’s three business segments each experienced net favorable prior year reserve
development in 2008. The majority of net favorable prior year reserve development occurred in the
Business Insurance segment and was driven by better than expected loss results primarily concentrated
in the general liability, commercial multi-peril, commercial property and commercial automobile
product lines, partially offset by increases in workers’ compensation reserves and $70 million and
$85 million increases in asbestos and environmental reserves, respectively (which are discussed in more
detail in the ‘‘Asbestos Claims and Litigation’’ and ‘‘Environmental Claims and Litigation’’ sections
herein). The Financial, Professional & International Insurance segment experienced favorable prior
year loss experience in the International group, particularly in the public and products liability (general
liability), professional indemnity (professional liability) and property lines of business in the United
Kingdom, the general liability line of business in Canada, and the Aviation and Property lines of
business at Lloyd’s. In the Personal Insurance segment, favorable prior year reserve development in
2008 was primarily driven by favorable loss experience related to Hurricane Katrina as well as better
than expected loss experience in certain lines of business within the Homeowners and Other product
line.
Each of the Company’s three business segments also 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.
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