Travelers 2013 Annual Report Download - page 99

2011. Factors contributing to net favorable prior year reserve development are discussed in more detail
in note 7 of notes to the Company’s consolidated financial statements.
Amortization of Deferred Acquisition Expenses
Amortization of deferred acquisition costs in 2013 was $1.91 billion, $29 million or 2% higher than
in 2012. Amortization of deferred acquisition costs in 2012 was $1.88 billion, $69 million or 4% higher
than in 2011. The increases in both 2013 and 2012 were generally consistent with the increases in
earned premiums compared to the respective prior year.
General and Administrative Expenses
General and administrative expenses in 2013 were $2.05 billion, $32 million or 2% higher than in
2012, as increases in employee- and technology-related costs were partially offset by a reduction in
assessments from certain states. General and administrative expenses in 2012 were $2.02 billion,
$76 million or 4% higher than in 2011, primarily driven by increases in employee- and technology-
related costs.
Income Tax Expense
Income tax expense in 2013 was $740 million, $201 million or 37% higher than in 2012, primarily
reflecting the impacts of a $684 million increase in underwriting margins (including the impact of
decreases in catastrophe losses and net favorable prior year reserve development), partially offset by
lower net investment income and a reduction in income tax expense of $43 million resulting from the
resolution of prior year tax matters in 2013.
Income tax expense in 2012 was $539 million, $405 million higher than in 2011, primarily reflecting
the impacts of an $836 million increase in underwriting margins (including the impact of a decrease in
catastrophes and an increase in net favorable prior year reserve development), an increase in net
investment income from non-fixed maturity investments and a reduction in income tax expense of
$76 million resulting from the resolution of prior year tax matters in 2011.
GAAP Combined Ratios
The GAAP combined ratio of 91.9% in 2013 was 5.5 points lower than the GAAP combined ratio
of 97.4% in 2012.
The loss and loss adjustment expense ratio of 61.2% in 2013 was 4.7 points lower than the loss and
loss adjustment expense ratio of 65.9% in 2012. Catastrophe losses in 2013 and 2012 accounted for
2.4 points and 6.8 points, respectively, of the loss and loss adjustment expense ratio. Net favorable prior
year reserve development in 2013 and 2012 provided 2.7 points and 4.0 points of benefit, respectively,
to the loss and loss adjustment expense ratio. The 2013 underlying loss and loss adjustment expense
ratio was 1.6 points lower than the 2012 ratio on the same basis, reflecting the improvement in
underlying underwriting margins discussed in the ‘‘Overview’’ section above, partially offset by the
impact of a change in business mix due to an increase in longer-tail loss-sensitive business in the
National Accounts business group.
The underwriting expense ratio of 30.7% in 2013 was 0.8 points lower than the 2012 underwriting
expense ratio of 31.5%. The decrease in 2013 primarily reflected the impact of growth in earned
premiums.
The GAAP combined ratio of 97.4% in 2012 was 7.3 points lower than the GAAP combined ratio
of 104.7% in 2011.
89