Travelers 2004 Annual Report Download - page 117

Reinsurance Recoverables
The following table summarizes the composition of the Company’s reinsurance recoverable assets:
(at December 31, in millions) 2004 2003
Gross reinsurance recoverables on paid and unpaid claims and claim adjustment
expenses ................................................................ $13,367 $ 6,946
Allowance for uncollectible reinsurance .......................................... (751) (387)
Net reinsurance recoverables ................................................. 12,616 6,559
Mandatory pools and associations .............................................. 2,497 2,204
Structured settlements ........................................................ 3,941 2,411
Total reinsurance recoverables ............................................... $19,054 $11,174
Amounts recoverable from reinsurers are estimated in a manner consistent with the claim liability associated
with the reinsured business. The Company evaluates and monitors the financial condition of its reinsurers under
voluntary reinsurance arrangements to minimize its exposure to significant losses from reinsurer insolvencies. In
addition, in the ordinary course of business, the Company may become involved in coverage disputes with its
reinsurers. Some of these disputes could result in lawsuits and arbitrations brought by or against the reinsurers to
determine the Company’s rights and obligations under the various reinsurance agreements. The Company
employs dedicated specialists and aggressive strategies to manage reinsurance collections and disputes.
The Company reports its reinsurance recoverables net of an allowance for estimated uncollectible
reinsurance recoverables. The allowance is based upon the Company’s ongoing review of amounts outstanding,
length of collection periods, changes in reinsurer credit standing, disputes, applicable coverage defenses, and
other relevant factors. Accordingly, the establishment of reinsurance recoverables and the related allowance for
uncollectible reinsurance recoverables is also an inherently uncertain process involving estimates. Changes in
these estimates could result in additional income statement charges. The increase in the allowance for
uncollectible reinsurance in 2004 was $364 million, $256 million of which was merger-related and $108 million
of which resulted from the Company’s ongoing review process described above.
The following presents the Company’s top five reinsurers, except Lloyd’s of London (Lloyd’s), which is
discussed in more detail below, by reinsurance recoverable at December 31, 2004 (in millions):
Reinsurer
Reinsurance
Recoverable A.M. Best Rating of Reinsurer
American Re-Insurance Company ....................... $1,198 A third highest of 16 ratings
General Reinsurance Corporation ....................... 826 A++ highest of 16 ratings
XL Reinsurance America Inc. .......................... 613 A+ second highest of 16 ratings
Transatlantic Reinsurance Company ..................... 604 A+ second highest of 16 ratings
Swiss Reinsurance America Corporation ................. 493 A+ second highest of 16 ratings
As of December 31, 2004, the Company had reinsurance recoverables from syndicates at Lloyd’s of $738
million. In 1996, Lloyd’s restructured its operations with respect to claims for years prior to 1993 and reinsured
these into Equitas Limited, which is currently unrated. Approximately $90 million of the Company’s Lloyd’s
reinsurance recoverable at December 31, 2004 relates to Equitas liabilities. The remaining recoverables of $648
million are from the continuing market of Lloyd’s, which is rated A (third highest of 16 ratings) by A.M. Best.
During the first quarter of 2004, TPC entered into an agreement to settle all current and future reinsurance claims
against certain underwriters at Lloyd’s reinsured by Equitas. Under terms of this settlement, the Company
received $245 million, resolving approximately $255 million of TPC’s net claim balances from Equitas. Virtually
all of the $90 million reinsurance recoverables relating to Equitas remaining at December 31, 2004 relate to SPC.
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