Travelers 2005 Annual Report Download - page 108

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Following are the pretax realized losses on investments sold during the year ended December 31,
2005:
(in millions) Loss Fair Value
Fixed maturities ............................................. $118 $ 3,274
Equity securities ............................................. 9 166
Other...................................................... 18 242
Total....................................................... $145 $ 3,682
Resulting purchases and sales of investments are based on cash requirements, the characteristics of
the insurance liabilities and current market conditions. The Company identifies investments to be sold to
achieve its primary investment goals of assuring the Company’s ability to meet policyholder obligations as
well as to optimize investment returns, given these obligations.
OUTLOOK
The Company’s strategic objective is to enhance its position as a consistently profitable market leader
and a cost-effective provider of property and casualty insurance in the United States. A variety of factors
continue to affect the property and casualty insurance market and the Company’s core business outlook for
2006, including increasingly competitive conditions throughout the majority of markets served by the
Company’s business segments, loss cost trends (including medical inflation and auto loss costs), asbestos-
related developments and rising reinsurance and litigation costs.
The Company expects property casualty market conditions to continue to be competitive throughout
2006. Relative to 2005, within the Commercial and Specialty segments, the Company expects renewal price
changes to increase and terms, conditions and insured values to improve for exposures susceptible to
catastrophe losses, such as coastal property and oil and gas-related exposures, while renewal price changes
for non-catastrophe exposures are expected to be subject to modest declines. Also relative to 2005, within
the Personal segment, the Company expects renewal price changes in the automobile market to remain
relatively stable or decline modestly, while the homeowners market is expected to remain relatively stable.
The Company expects that the trend of increased severity and frequency of storms experienced in
2005 and 2004 will continue into 2006. Given the increased severity and frequency of storms, the Company
is reassessing its definition of and exposure to coastal risks, as well as the impact, if any, on its reinsurance
program. Accordingly, the Company is reviewing its pricing, exposures, return thresholds and terms and
conditions it offers in coastal areas. In part as a result of the severity and frequency of storms in 2005 and
2004, the Company expects the cost of reinsurance to increase, and there may be reduced availability of
reinsurance coverage. To the extent that the Company is not able to reflect the potentially increased costs
of increased severity and frequency of storms or reinsurance in its pricing, the Company’s results of
operations will be adversely impacted. In particular, in the Personal segment, the Company expects a delay
in its ability to increase pricing to offset these potentially increased costs since the Company cannot
increase rates to the extentnecessary without the approval of the regulatory authorities of certain states.
Also, particularly in light of the frequency and severity of storms in the past two years, rating agencies may
increase their capital requirements for the Company.
With respect to non-catastrophe claim frequency, the industry has experienced unprecedented low
levels over the last several years, a trend that the Company does not expect to change materially in 2006.
The Company expects severity trend, the other component of loss trend, to continue to remain stable for
non-catastrophe claims. Nevertheless, with continued pressure on pricing, it is possible that margins will
contract in certain parts of the Company’s business in 2006.