Travelers 2015 Annual Report Download - page 88

matters. Income tax expense in 2014 was $798 million, $40 million or 5% higher than in 2013, primarily
reflecting the impact of a $43 million reduction in income tax expense in 2013 resulting from the
resolution of prior year tax matters, partially offset by the $17 million decrease in income before
income taxes in 2014.
Combined Ratio
The combined ratio of 92.1% in 2015 was 1.0 point lower than the combined ratio of 93.1% in
2014.
The loss and loss adjustment expense ratio of 59.6% in 2015 was 2.0 points lower than the loss and
loss adjustment expense ratio of 61.6% in 2014. Catastrophe losses in 2015 and 2014 accounted for
1.7 points and 2.5 points, respectively, of the loss and loss adjustment expense ratio. Net favorable prior
year reserve development in 2015 and 2014 provided 2.8 points and 2.2 points of benefit, respectively,
to the loss and loss adjustment expense ratio. The 2015 underlying loss and loss adjustment expense
ratio was 0.6 points lower than the 2014 ratio on the same basis, primarily reflecting lower
non-catastrophe weather-related losses.
The underwriting expense ratio of 32.5% in 2015 was 1.0 point higher than the underwriting
expense ratio of 31.5% in 2014, primarily reflecting the impact of the 2014 reduction in the estimated
liability for state assessments to be paid by the Company related to workers’ compensation premiums
and the increase in general and administrative expenses discussed above.
The combined ratio of 93.1% in 2014 was 0.3 points higher than the combined ratio of 92.8% in
2013.
The loss and loss adjustment expense ratio of 61.6% in 2014 was 0.8 points higher than the loss
and loss adjustment expense ratio of 60.8% in 2013. Catastrophe losses in 2014 and 2013 accounted for
2.5 points of the loss and loss adjustment expense ratio in each year. Net favorable prior year reserve
development in 2014 and 2013 provided 2.2 points and 3.0 points of benefit, respectively, to the loss
and loss adjustment expense ratio. The underlying loss and loss adjustment expense ratio in 2014 was
comparable to the 2013 ratio on the same basis, as the impact of earned pricing that exceeded loss cost
trends was offset by higher non-catastrophe weather-related losses and a higher level of what the
Company defines as large losses.
The underwriting expense ratio of 31.5% in 2014 was 0.5 points lower than the underwriting
expense ratio of 32.0% in 2013, primarily reflecting the impact of an increase in earned premiums and
a reduction in the estimated liability for state assessments primarily related to workers’ compensation
premiums, partially offset by the increase in general and administrative expenses discussed above.
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