Travelers 2011 Annual Report Download - page 88

Amortization of Deferred Acquisition Costs
The amortization of deferred acquisition costs in 2011 was $3.88 billion, $74 million, or 2%, higher
than in 2010. The amortization of deferred acquisition costs in 2010 was $3.80 billion, virtually level
with the 2009 total. Changes in the amortization of deferred acquisition costs in both 2011 and 2010
were generally consistent with the changes in earned premiums as compared with the respective prior
year.
General and Administrative Expenses
General and administrative expenses in 2011 were $3.56 billion, $150 million, or 4%, higher than
in 2010. The increase in 2011 was primarily due to a higher level of state assessment expenses in the
Business Insurance segment, increases in employee- and technology-related costs to enhance operations
and support future business growth in the Financial, Professional & International Insurance segment
and costs associated with the Company’s direct to consumer initiative in the Personal Insurance
segment.
General and administrative expenses in 2010 were $3.41 billion, $40 million, or 1%, higher than in
2009. The 2009 total included a reduction of $87 million in the estimate of property windpool
assessments due to a decline in estimated insurance industry losses related to Hurricane Ike. Excluding
that adjustment in 2009, general and administrative expenses in 2010 were $47 million, or 1%, lower
than in 2009. The decline was concentrated in the Business Insurance segment, and was largely offset
by higher expenses in the Personal Insurance segment resulting from the Company’s direct to consumer
initiative and in the Financial, Professional & International Insurance segment due to employee- and
technology-related costs to enhance operations and support future business growth.
Hurricane-related property windpool assessments are levied on insurers periodically by state-
created insurance and windstorm insurance entities such as Citizens Property Insurance Corporation in
Florida, Louisiana Citizens Property Insurance Corporation and the Texas Windstorm Insurance
Association. These assessments are levied on the insurers writing business in those states to fund the
operating deficits of such entities during periods of significant storm activity. Hurricane-related
assessments are reported as a component of ‘‘General and Administrative Expenses’’ as the amounts
paid to such entities are not insured losses of the Company.
Interest Expense
Interest expense in 2011, 2010 and 2009 was $386 million, $388 million and $382 million,
respectively. The increase in 2010 over 2009 primarily reflected a higher average level of debt
outstanding in 2010.
Effective Tax Rate
The Company’s effective tax rate was (5%), 25% and 23% in 2011, 2010 and 2009, respectively.
The Company’s income tax benefit of $74 million in 2011 primarily reflected the impact of tax-exempt
investment income on the calculation of the Company’s income tax provision. In addition, the income
tax benefit in 2011 included the $104 million benefit resulting from the favorable resolution of various
prior year tax matters recorded in the first quarter of 2011. The effective tax rate in 2009 also benefited
from the favorable resolution of prior year tax matters. Excluding that benefit in 2009, the effective tax
rates in 2010 and 2009 were virtually level.
GAAP Combined Ratios
The consolidated GAAP combined ratio of 105.1% in 2011 was 11.9 points higher than the
consolidated GAAP combined ratio of 93.2% in 2010.
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