Travelers 2010 Annual Report Download - page 100

Earned Premiums
Earned premiums of $7.35 billion in 2010 were $232 million, or 3%, higher than in 2009. In 2009,
earned premiums of $7.12 billion were $147 million, or 2%, higher than in 2008. The increases in both
years reflected continued strong business retention rates and renewal premium increases, and growth in
new business volume during the preceding twelve months.
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 2010 and 2009 as compared with
the prior year.
Claims and Expenses
Claims and claim adjustment expenses in 2010 totaled $5.01 billion, an increase of $382 million, or
8%, over 2009. The total in 2010 reflected the significant increase in catastrophe losses, the reduction
in net favorable prior year reserve development and increased business volume, partially offset by a
decline in non-catastrophe weather-related losses and improved loss cost trends. Catastrophe losses in
2010 and 2009 totaled $594 million and $278 million, respectively. Catastrophe losses in 2010 resulted
from several severe wind and hail storms. Net favorable prior year reserve development in 2010 and
2009 totaled $87 million and $135 million, respectively. Net favorable prior year reserve development in
2010 was concentrated in the Homeowners and Other product line, primarily driven by favorable loss
development in the 2008 and prior accident years, primarily for the umbrella line of business, partially
offset by unfavorable loss development in the 2009 accident year for the homeowners line of business
that was driven by higher than anticipated late-reported claims related to storms in 2009.
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 significant
decline in catastrophe losses. Catastrophe losses 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 development related to Hurricanes Ike and Katrina, as well as
the 2007 California wildfires.
Net favorable prior year reserve development in 2008 was primarily driven by favorable loss
development related to Hurricane Katrina and better than expected loss development 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.
The amortization of deferred acquisition costs totaled $1.44 billion in 2010, compared with
$1.42 billion in 2009 and $1.41 billion in 2008. The increases in 2010 and 2009 over the preceding year
were consistent with earned premium increases in both years.
General and administrative expenses of $867 million in 2010 were $83 million higher than in 2009.
The total in 2009 reflected a $48 million reduction in the estimate of property windpool assessments
related to Hurricane Ike. Adjusting for the impact of the reduction in windpool assessments in 2009,
general and administrative expenses in 2010 increased $35 million, or 4%, over 2009, primarily
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