Travelers 2011 Annual Report Download - page 96

Financial, Professional & International Insurance
Results of the Company’s Financial, Professional & International Insurance segment were as
follows:
(for the year ended December 31, in millions) 2011 2010 2009
Revenues:
Earned premiums ............................ $3,174 $3,317 $3,333
Net investment income ........................ 414 439 452
Fee income ................................. 12—
Other revenues .............................. 26 27 27
Total revenues ............................... $3,615 $3,785 $3,812
Total claims and expenses ........................ $2,738 $2,920 $2,948
Operating income .............................. $ 647 $ 620 $ 642
Loss and loss adjustment expense ratio .............. 46.4% 50.9% 52.1%
Underwriting expense ratio ....................... 39.4 36.8 36.0
GAAP combined ratio ......................... 85.8% 87.7% 88.1%
Overview
Operating income of $647 million in 2011 was $27 million, or 4%, higher than operating income in
2010, primarily reflecting an increase in underwriting margins, partially offset by a decline in net
investment income. The increase in underwriting margins was driven by higher net favorable prior year
reserve development, declines in catastrophe and non-catastrophe weather-related losses and a
$14 million benefit resulting from the favorable resolution of various prior year tax matters, partially
offset by the impact of lower business volume, higher general and administrative expenses and a higher
level of what the Company defines as large losses. Net favorable prior year reserve development in
2011 was $360 million, compared with $259 million in 2010. Catastrophe losses in 2011 were
$55 million, compared with $82 million in 2010.
Operating income of $620 million in 2010 was $22 million, or 3%, lower than in 2009, primarily
driven by increases in catastrophe losses, non-catastrophe weather-related losses, and general and
administrative expenses, as well as lower business volumes, which were partially offset by an increase in
net favorable prior year reserve development. Net favorable prior year reserve development in 2010
and 2009 was $259 million and $168 million, respectively. Catastrophe losses in 2010 and 2009 were
$82 million and $3 million, respectively.
Revenues
Earned Premiums
Earned premiums of $3.17 billion in 2011 decreased by $143 million, or 4%, from 2010. The
decline primarily reflected the impact of the termination of an exclusive broker relationship in the
Republic of Ireland in the fourth quarter of 2010, lower construction surety premium volumes over the
preceding twelve months, intentional underwriting actions undertaken in the Company’s operations at
Lloyd’s intended to improve risk and reward (particularly in the catastrophe-exposed lines of business)
and competitive market conditions. Earned premiums in 2011 benefited slightly from the favorable
impact of foreign currency exchange rates. In addition, earned premiums in 2010 benefited from the
impact of a reduction in surety reinsurance costs associated with prior year reinsurance treaties.
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