Travelers 2012 Annual Report Download - page 87

favorable prior year reserve development. Partially offsetting these pretax improvements were their
related tax expense. The effective tax rate in 2012 increased from the prior year due to interest on
municipal bonds, which is effectively taxed at a rate that is lower than the corporate tax rate of 35%,
comprising a lower percentage of pretax income. Net income in 2011 benefited from a reduction in
income tax expense of $104 million resulting from the favorable resolution of various prior year tax
matters. Catastrophe losses in 2012 were $1.86 billion, compared with $2.56 billion in 2011. Net
favorable prior year reserve development in 2012 was $940 million, compared with $715 million in
2011.
Diluted net income per share in 2011 was $3.36, a decrease of 49% from diluted net income per
share of $6.62 in 2010. Net income in 2011 was $1.43 billion, a decrease of 56% from net income of
$3.22 billion in 2010. The lower rate of decline in diluted net income per share reflected the impact of
common share repurchases. The decline in net income in 2011 compared with 2010 primarily reflected
the pretax impact of (i) a significant increase in catastrophe losses, (ii) lower net favorable prior year
reserve development, (iii) lower underlying underwriting margins related to earned pricing and loss cost
trends and higher non-catastrophe weather-related losses, (iv) lower net investment income and
(v) lower net realized investment gains. Partially offsetting these pretax declines were their related tax
benefit. The effective tax rate in 2011 decreased from the prior year due to interest on municipal
bonds, which is effectively taxed at a rate that is lower than the corporate tax rate of 35%, comprising
a higher percentage of pretax income. These factors were partially offset by a $104 million benefit
resulting from the favorable resolution of various prior year tax matters. Catastrophe losses in 2011 and
2010 were $2.56 billion and $1.11 billion, respectively. Net favorable prior year reserve development in
2011 and 2010 was $715 million and $1.25 billion, respectively.
Revenues
Earned Premiums
Earned premiums in 2012 were $22.36 billion, $267 million or 1% higher than in 2011. In the
Business Insurance segment, earned premiums in 2012 increased by 3% over 2011. In the Financial,
Professional & International Insurance segment, earned premiums in 2012 decreased by 4% from 2011.
In the Personal Insurance segment, earned premiums in 2012 increased by less than 1% over 2011.
Earned premiums in 2011 were $22.09 billion, $658 million or 3% higher than in 2010. In the
Business Insurance segment, earned premiums in 2011 increased by 5% over 2010. In the Financial,
Professional & International Insurance segment, earned premiums in 2011 decreased by 4% from 2010.
In the Personal Insurance segment, earned premiums in 2011 increased by 3% over 2010.
Factors contributing to the changes in earned premiums in each segment in 2012 and 2011
compared with the respective prior year are discussed in more detail in the segment discussions that
follow.
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