Travelers Companies, INC. (NYSE: TRV) sells property & casualty insurance. The company is divided into three business segments: business insurance; financial, professional and international insurance; and personal insurance, with its business insurance accounting for the majority of its revenue at about 54% of sales. The company earns its revenue primarily through its sales of insurance premiums or premiums earned- approximately 88% of TRV's revenue is attributed to premiums earned. In 2008, Travelers earned $24.5 billion in revenue, 5.9% less than 2007 because of increases in claims expenses and lower earnings from its investments.
Like other insurance companies, Travelers relies on investing its premium revenue to create a pool of assets (known as "claims loss provision" ) which it can use to pay out future claims. However, the company's earnings from its investments dropped 26% in 2008 because of the 2008 Financial Crisis. In particular, Travelers' investments are vulnerable to fluctuations in interest rates because the value of TRV's numerous bonds decrease as interest rates rise. Additionally, Travelers is susceptible to the accuracy of its catastrophe models as incorrect estimates may result in inadequate premiums to fund the necessary claims expenses. However, its combined ratio of 85.9% in 2008 beat the 104.7% average combined ratio of the overall property & casualty insurance industry. This means that on average, TRV's competitors paid more in claims expenses than they earned in 2008 while Travelers performed close to the top of the industry.(Read more at Wikinvest )