Travelers 2009 Annual Report Download - page 105

premium increases. Earned premiums of $6.97 billion in 2008 increased $167 million, or 2%, over
earned premiums of $6.80 billion in 2007. Adjusting for the sale of Mendota in 2007, earned premiums
in 2008 increased 3% over 2007. The increase reflected continued strong business retention rates and
new business volume, coupled with continued renewal price increases.
Net Investment Income
Refer to the ‘‘Net Investment Income’’ section of ‘‘Consolidated Results of Operations’’ herein for
a discussion of the change in the Company’s net investment income in 2009 and 2008 as compared with
the prior year.
Claims and Expenses
In 2009, claims and claim adjustment expenses of $4.62 billion were slightly higher than in 2008, as
the impacts of loss cost trends and increased business volume were largely offset by the decline in the
cost of catastrophes. The cost of catastrophes included in claims and claim adjustment expenses in 2009
totaled $278 million, compared with $541 million in 2008. Catastrophe losses in 2009 primarily resulted
from several wind and hail storms, as well as flooding. Catastrophe losses in 2008 primarily resulted
from Hurricanes Ike and Gustav, as well as tornado, wind and hail storms in various regions of the
United States throughout the year. Net favorable prior year reserve development in 2009 totaled
$135 million, compared with $143 million in 2008. Net favorable prior year reserve development in
2009 primarily reflected favorable loss experience related to Hurricanes Ike and Katrina, as well as the
2007 California wildfires.
Claims and claim adjustment expenses in 2008 totaled $4.62 billion, an increase of $629 million, or
16%, over 2007, primarily reflecting a significant increase in the cost of catastrophes, non-catastrophe
weather related losses in the Homeowners and Other product line, the impact of loss cost trends and
increased business volume. The cost of catastrophes included in claims and claim adjustment expenses
in 2008 totaled $541 million, compared with $163 million in 2007. Catastrophe losses in 2008 primarily
resulted from Hurricanes Ike and Gustav, as well as tornado, wind and hail storms in various regions of
the United States throughout the year. Net favorable prior year reserve development in 2008 and 2007
totaled $143 million and $152 million, respectively. The 2008 net favorable prior year reserve
development was primarily driven by favorable loss experience related to Hurricane Katrina, and better
than expected loss experience from recent accident years for the Homeowners and Other product line.
This improvement was driven in part by claim initiatives as well as better than expected outcomes on
2007 catastrophe-related claims. In addition, the Homeowners and Other product line experienced
improvement in older accident years for the umbrella line as well as favorable experience from accident
year 2007 for allied coverages due to less than expected claim activity. Net favorable prior year reserve
development in 2007 of $152 million was driven by better than expected automobile loss experience due
in part to claim initiatives and fewer than expected late reported homeowners’ claims related to
non-catastrophe weather events that occurred in the fourth quarter of 2006. In addition, a portion of
net favorable prior year reserve development in the Homeowners and Other line of business in 2007
was attributable to a decrease in the number of claims due to changes in the marketplace, including
higher deductibles and fewer small-dollar claims.
The amortization of deferred acquisition costs totaled $1.42 billion in 2009, compared with
$1.41 billion in 2008, consistent with earned premium levels in both years.
The amortization of deferred acquisition costs totaled $1.41 billion in 2008, compared with
$1.31 billion in 2007. The growth in amortization costs in 2008 primarily reflected the higher level of
amortized commission expense in 2008 resulting from the Company’s implementation of a new fixed
agent compensation program in 2007, as well as an increase in business volume.
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