(1) Net income includes $31 million, $72 million and $93 million of realized investment gains in 2000, 1999 and 1998, respectively.
Claims and expenses were $9.041 billion in 2000 compared to $8.657 billion in 1999. The increase in claims and expenses in 2000 was primarily the result of increased loss cost trends, lower favorable prior-year reserve development and increased claims related to the growth in premiums, including the impact of the ongoing business associated with the Reliance Surety acquisition and the new business associated with the acquisition of the renewal rights for the Reliance Middle Market and Frontier businesses. These factors were partially offset by lower catastrophe losses, the 1999 charge related to curtailing the sale of TRAVELERS SECURE(R) products, a reduction in general and administrative expenses and a decrease in interest expense due to debt repayments. Results for 2000 and 1999 reflected benefits resulting from legislative actions that changed the manner in which certain states finance their workers' compensation second injury funds, principally in the states of New York and Pennsylvania. Claims and expenses of $8.657 billion in 1999 increased $43 million from 1998. This increase was primarily the result of higher claims associated with the growth in premiums in Personal Lines, higher catastrophe losses principally due to Hurricane Floyd, higher loss ratios in the TRAVELERS SECURE(R) program, the TRAVELERS SECURE(R) charge and lower favorable prior-year reserve development in Personal Lines, mostly offset by favorable prior-year reserve development and lower weather-related losses in Commercial Lines, the benefit related to the legislative actions in New York and Pennsylvania that changed the manner in which these states finance their workers' compensation second-injury funds, and a reduction in operating
gains. The decrease in fee income in 1999 was the result of the depopulation of involuntary pools serviced by the Company.
Historically, the Company's experience has indicated that insureds with potentially significant environmental and asbestos exposures may often have potential cumulative injury other than asbestos (CIOTA) exposures or CIOTA claims pending with the Company. Due to this experience and the fact that settlement agreements with insureds may extinguish the Company's obligations for all claims, including environmental, asbestos and CIOTA, the Company evaluates and considers the environmental and asbestos reserves in conjunction with the CIOTA reserve.
TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (In millions)
Interest rate swaps, currency swaps, options, forward contracts and financial futures were not significant at December 31, 2000 and 1999. See note 12.
The Company is comprised of two business segments: Commercial Lines and Personal Lines. See note 3.
The Company carries an allowance for uncollectible reinsurance which is not allocated to any specific proceedings or disputes, whether for financial impairments or coverage defenses. Including this allowance, in the opinion of the Company's management, the net receivable from reinsurance contracts is appropriately stated.
The claims and claim adjustment expense reserves included $1.4 billion and $1.5 billion for asbestos and environmental-related claims net of reinsurance at December 31, 2000 and 1999, respectively.
The reserving methodology for asbestos includes an evaluation of the asbestos exposure presented by each insured. The following factors are evaluated: available insurance coverage including the role of any umbrella or excess insurance issued by the Company to the insured; limits and deductibles; an analysis of each insured's potential liability; jurisdictional involvement; past and anticipated future claim activity; past settlement values of similar claims; allocated claim adjustment expense; potential role of other insurance; the role, if any, of non-asbestos claims or potential non-asbestos claims in any resolution process; and applicable coverage defenses or determinations, if any, including the determination as to whether an asbestos claim is a products/completed operations or non-products/operations claim and the available coverage, if any, for such a claim. Once the gross ultimate exposure for indemnity and allocated claim adjustment expense is determined for each insured by each policy year, a ceded reinsurance projection is calculated based on any applicable facultative and treaty reinsurance, as well as past ceded experience. Adjustments to the ceded projections also occur due to actual ceded claim experience and reinsurance collections.
In the event that the consolidated return develops an alternative minimum tax (AMT), each company with an AMT on a separate company basis will be allocated a portion of the consolidated AMT. Settlement of the AMT will be made in the same manner and timing as the regular tax. If the AMT is available as a credit against the regular tax, each subsidiary remitting the AMT may establish a receivable from TIGI. The receivable will be paid as the credit is utilized on the consolidated return or at the end of the federal statutory carryforward period for operating losses.
COMMON STOCK On April 20, 2000, TIGI completed a cash tender offer to purchase all of the outstanding shares of Class A Common Stock of TPC at a price of $41.95 per share. TIGI also established a wholly-owned subsidiary of TIGI which effected a merger pursuant to which TPC became a wholly-owned subsidiary of TIGI. Upon the merger of the new subsidiary into TPC, all previously outstanding shares of Class B Common Stock were converted to shares of Class A Common Stock and all resulting outstanding shares of Class A Common Stock of TPC became authorized and unissued shares and the 1,000 shares of Common Stock of the new subsidiary (held by TIGI) were exchanged for 1,000 shares of Class A Common Stock of TPC.
Changes in each component of Accumulated Other Changes in Equity from Nonowner Sources were as follows:
The Company monitors creditworthiness of counterparties to these financial instruments by using criteria of acceptable risk that are consistent with on-balance-sheet financial instruments. The controls include credit approvals, limits and other monitoring procedures.