Travelers 2008 Annual Report Download - page 93

GAAP Combined Ratio
The loss and loss adjustment expense ratio in 2008 of 57.7% was 0.6 points higher than the
comparable 2007 ratio of 57.1%. The cost of catastrophes accounted for 5.7 points of the loss and loss
adjustment expense ratio in 2008, compared with no impact from catastrophes in 2007. Net favorable
prior year reserve development provided 10.0 point and 2.6 point benefits to the loss and loss
adjustment expense ratio in 2008 and 2007, respectively. The 2008 loss and loss adjustment expense
ratio adjusted for the cost of catastrophes and prior year reserve development was 2.3 points higher
than the 2007 ratio on the same basis, reflecting the impact of competitive market conditions on pricing
over the preceding twelve months and loss cost trends, as well as a small increase in the number of
large property losses.
The loss and loss adjustment expense ratio of 57.1% in 2007 was 3.2 points lower than the
comparable 2006 ratio of 60.3%. In 2007, net favorable prior year reserve development provided a 2.6
point benefit to the loss and loss adjustment expense ratio, whereas the 2006 loss and loss adjustment
expense ratio included a 0.2 point benefit from net favorable prior year reserve development. Adjusting
for the impact of prior year reserve development in both years, the loss and loss adjustment expense
ratio in 2007 was 0.8 points better than the comparable 2006 ratio, reflecting favorable current accident
year results in 2007.
The underwriting expense ratio of 32.5% in 2008 was 1.8 points higher than the comparable 2007
ratio of 30.7%. The 2008 expense ratio included a 0.6 point impact of the hurricane-related
assessments, whereas the 2007 ratio included a 0.7 point benefit from the implementation of the new
fixed agent compensation program described in the ‘‘Consolidated Overview’’ section herein. Adjusting
for these factors in both years, the adjusted 2008 expense ratio was 0.5 points higher than the adjusted
expense ratio for 2007, primarily reflecting continued investments to support business growth and
product development, the impact of a decline in the rate of earned premium growth relative to expense
growth, and declines in fee income. A portion of fee income is accounted for as a reduction of
expenses for purposes of calculating the expense ratio.
The underwriting expense ratio of 30.7% in 2007, which included a 0.7 point benefit resulting from
the implementation of the new fixed agent compensation program, was 0.1 points higher than the 2006
ratio, reflecting the increases in general and administrative expenses described above, and the impact of
a decline in fee income.
Written Premiums
The Business Insurance segment’s gross and net written premiums by market were as follows:
Gross Written Premiums
(for the year ended December 31, in millions) 2008 2007 2006
Select Accounts ............................. $ 2,804 $ 2,774 $ 2,733
Commercial Accounts ........................ 2,729 2,740 2,613
National Accounts ........................... 1,577 1,859 2,169
Industry-Focused Underwriting .................. 2,485 2,380 2,279
Target Risk Underwriting ...................... 2,029 2,182 2,187
Specialized Distribution ....................... 954 1,033 1,036
Total Business Insurance Core ................ 12,578 12,968 13,017
Business Insurance Other ...................... 249 30
Total Business Insurance .................... $12,580 $13,017 $13,047
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