Travelers 2010 Annual Report Download - page 84

Net investment income of $3.06 billion in 2010 was $283 million, or 10%, higher than in 2009.
Non-fixed maturity investments generated net investment income of $370 million in 2010, compared
with negative net investment income of $40 million in 2009. The increase in net investment income
from non-fixed maturity investments in 2010 reflected improved investment market conditions.
Investment income from fixed maturity investments in 2010 declined $112 million compared with 2009,
primarily resulting from lower long-term reinvestment yields available in the market, as well as a lower
average level of long-term fixed income invested assets that reflected the impact of the Company’s
common share repurchases. The average pretax yield on the total investment portfolio was 4.3% in
2010, compared with 3.8% in 2009, reflecting the improvement in non-fixed maturity investment
income.
Net investment income of $2.78 billion in 2009 was $16 million, or less than 1%, lower than in
2008, primarily resulting from a significant decline in short-term interest rates, a lower average level of
long-term fixed maturity invested assets and the unfavorable impact of foreign currency exchange rates.
Those factors were largely offset by improved returns from non-fixed maturity investments, which
generated negative net investment income of $40 million in 2009, compared with negative net
investment income of $222 million in 2008. The improved performance from non-fixed income
investments in 2009 reflected improving investment market conditions in the second half of the year.
The average pretax yield on the total investment portfolio was 3.8% in both 2009 and 2008.
Fee Income
The National Accounts market in the Business Insurance segment is the primary source of the
Company’s fee-based business. The declines in fee income in 2010 and 2009 compared with the
respective prior years are described in the Business Insurance segment discussion that follows.
Net Realized Investment Gains (Losses)
The following table sets forth information regarding the Company’s net realized investment gains
(losses).
(for the year ended December 31, in millions) 2010 2009 2008
Net Realized Investment Gains (Losses)
Other-than-temporary impairment losses:
Total gains (losses) ........................................... $7 $(323) $(420)
Non-credit component of impairments recognized in accumulated other
changes in equity from nonowner sources ......................... (33) 65 —
Other-than-temporary impairment losses .......................... (26) (258) (420)
Other net realized investment gains ................................. 290 275 5
Net realized investment gains (losses) ........................... $264 $ 17 $(415)
In the second quarter of 2009, the Company adopted updated accounting guidance that changed
the reporting of other-than-temporary impairments. See notes 1 and 3 of notes to the Company’s
consolidated financial statements for a discussion of the impact of the adoption.
Other-Than-Temporary Impairment Losses on Investments—In 2010, impairments included in net
income totaled $26 million. Impairments in the fixed maturity portfolio in 2010 totaled $13 million,
which included $5 million related to various issuers’ deteriorated financial position, $4 million of
impairments related to structured mortgage securities and $4 million related to fixed maturity
investments that the Company had the intent to sell. Impairments in 2010 also included $10 million
related to other investments and equity impairments of $3 million.
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