Travelers 2012 Annual Report Download - page 97

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) 2012 2011 2010
Revenues:
Earned premiums ........................... $3,045 $3,174 $3,317
Net investment income ........................ 395 414 439
Fee income ................................ 112
Other revenues ............................. 26 26 27
Total revenues .............................. $3,467 $3,615 $3,785
Total claims and expenses ....................... $2,570 $2,738 $2,920
Operating income ............................. $ 642 $ 647 $ 620
Loss and loss adjustment expense ratio .............. 42.8% 46.4% 50.9%
Underwriting expense ratio ...................... 41.3 39.4 36.8
GAAP combined ratio ........................ 84.1% 85.8% 87.7%
Overview
Operating income in 2012 was $642 million, $5 million or 1% lower than operating income in
2011. The decline in operating income in 2012 compared with 2011 primarily reflected the pretax
declines in net favorable prior year reserve development and net investment income, largely offset by
higher underlying underwriting margins resulting from the pretax impact of (i) lower levels of what the
Company defines as large losses and (ii) earned pricing that exceeded loss cost trends, partially offset
by (iii) the impact of lower business volumes. The effective tax rate in 2012 increased slightly from the
prior year, reflecting the impact of a $14 million benefit in 2011 resulting from the favorable resolution
of various prior year tax matters. Net favorable prior year reserve development in 2012 was
$298 million, compared with $360 million in 2011. Catastrophe losses in 2012 were $50 million,
compared with $55 million in 2011.
Operating income in 2011 was $647 million, $27 million or 4% higher than operating income in
2010. The improvement in operating income in 2011 compared with 2010 primarily reflected a pretax
increase in underwriting margins, partially offset by a pretax decline in net investment income. The
increase in underwriting margins was driven by the pretax impact of (i) higher net favorable prior year
reserve development and (ii) declines in catastrophe and non-catastrophe weather-related losses,
partially offset by the impact of (i) lower business volume, (ii) higher general and administrative
expenses and (iii) a higher level of large losses. The effective tax rate in 2011 decreased slightly from
the prior year, reflecting the impact of a $14 million benefit in 2011 resulting from the favorable
resolution of various prior year tax matters. 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.
Revenues
Earned Premiums
Earned premiums in 2012 were $3.05 billion, $129 million or 4% lower than in 2011, primarily
reflecting the impact of 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), the impact of the
termination of an exclusive broker relationship in the Republic of Ireland, the Company’s withdrawal
from personal insurance business in the Republic of Ireland, competitive market conditions and, to a
lesser extent, foreign currency rates of exchange.
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