Travelers 2005 Annual Report Download - page 17

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insured program and, to a lesser extent, a retrospectively rated or a guaranteed cost insurance policy.
Through a network of field offices, the Company’s underwriting specialists work closely with national and
regional brokers to tailor insurance programs to meet clients’ needs. Workers’ compensation accounted for
approximately 76% of sales to National Accounts customers during2005, based on direct written
premiums and fees. National Accounts generated $405 million of fee income in 2005, excluding
commercial residual market business discussed below.
National Accounts also includes the Company’s commercial residual market business. The Company’s
commercial residual market business sells claims and policy management services to workers’
compensation and automobile assigned risk plans and to self-insurance pools throughout the United
States. The Company services approximately 36% of the total workers’ compensation assigned risk market.
The Company is one of only two servicing carriers that operate nationally. Assigned risk plan contracts
generated approximately $203 million infee income in 2005.
National Accounts also includes the Company’s Discover Re operation, which principally provides
commercial auto liability, general liability, workers’ compensation and property coverages. It serves retail
brokers and insureds who utilize programs such as self-insurance, collateralized deductibles and captive
reinsurers.
Commercial Other includes the Special Liability Group (which manages the Company’s asbestos and
environmental liabilities); the assumed reinsurance, health care, and certain international runoffand other
operations; and Gulf, which was placed into runoff during the second quarter of 2004. Certain business
previously written by Gulf is now being written in Commercial Accounts and in the Company’s Specialty
segment. Gulf provided specialty coverages including management and professional liability, excess and
surplus lines, environmental, umbrella and fidelity. Gulf also provided insurance products specifically
designed for financial institutions, the entertainment industry and sports organizations.
Pricing and Underwriting
Pricing levels for Commercial property and casualty insurance products are generally developed based
upon an expectation of estimated losses, the expenses of producing business and managing claims, and a
reasonable allowance for profit. Commercial has a disciplined approach to underwriting and risk
management that emphasizes profitable growth rather than premium volume or market share.
Commercial has developed an underwriting and pricing methodology that incorporates underwriting,
claims, engineering, actuarial and product development disciplines for particular industries. This approach
is designed to maintain high quality underwriting and pricing discipline. It utilizes proprietary data
gathered and analyzed with respect to its Commercial business over many years. The underwriters and
engineers use this information to assess and evaluate risks prior to quotation. This information provides
specialized knowledge about specific industry segments. This methodology enables Commercial to
streamline its risk selection process and develop pricing parameters that will not compromise
Commercial’s underwriting integrity.
For smaller businesses, Select Accounts uses a process based on industry classifications to allow agents
and field underwriting representatives to make underwriting and pricing decisions within predetermined
classifications, because underwriting criteria and pricing tend to be more standardized for these smaller
exposures.
A significant portion of Commercial business is written with large deductible insurance policies.
Under workers’ compensation insurance contracts with deductible features, the Company is obligated to
pay the claimant the full amount of the claim. The Company is subsequently reimbursed by the
contractholder for the deductible amount, and is subject to credit risk until such reimbursement is made.
At December 31, 2005, contractholder receivables and payables on unpaid losses associated with large