Travelers 2005 Annual Report Download - page 18

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deductible policies were each approximately $5.23 billion. Retrospectively rated policies are also used for
workers’ compensation coverage. Although the retrospectively rated feature of the policy substantially
reduces insurance risk for the Company, it introduces additional credit riskto the Company. Premium
receivables from holders of retrospectively rated policies totaled approximately $308 million at
December 31, 2005. Significant collateral, primarily letters of credit and, to a lesser extent cash collateral
and surety bonds, is generally requested for large deductible plans and/or retrospectively rated policies that
provide for deferred collection of deductible recoveries and/or ultimate premiums. The amount of
collateral requested is predicated upon the creditworthiness of the customer and the nature of the insured
risks. Commercial continually monitors the credit exposure on individual accounts and the adequacy of
collateral.
The Company continually monitors its exposure to natural and manmade peril catastrophic losses and
attempts to mitigate such exposure. The Company uses various analyses and methods, including
sophisticated computer modeling techniques, to analyze underwriting risks of business in hurricane-prone,
earthquake-prone and target risk areas. The Company relies upon this analysis to make underwriting
decisions designed to manage its exposure on catastrophe-exposed business. The Company also utilizes
reinsurance to manage its aggregate exposures to catastrophes. See “—Reinsurance.”
Product Lines
Commercial Multi-Peril provides a combination of property and liability coverage. Property insurance
covers damages such as those caused by fire, wind, hail, water, theft and vandalism, and protects businesses
from financial loss due to business interruption resulting from a covered loss. Liability coverage insures
businesses against third parties from accidents occurring on their premises or arising out of their
operations, such as injuries sustained from products sold.
Workers’ Compensationprovides coverage for employers for specified benefits payable under state or
federal law for workplace injuries to employees. There are typically four types of benefits payable under
workers’ compensation policies: medical benefits, disability benefits, death benefits and vocational
rehabilitation benefits. The Company emphasizes managed care cost containment strategies, which involve
employers, employees and care providers in a cooperative effort that focuses on the injured employee’s
early return to work, cost-effective quality care, and customer service in this market. The Company offers
the followingthree types of workers’ compensation products:
•guaranteed cost insurance products, in which policy premium charges are fixed for the period of
coverage and do not vary as a result of the insured’s loss experience;
•loss-sensitive insurance products, including large deductible and retrospectively rated policies, in
which fees or premiums are adjusted based on actual loss experience of the insured during the
policy period; and
•service programs, which are generally sold to the Company’s National Accounts customers, where
the Company receives fees rather than premiums for providing loss prevention, risk management,
and claim and benefit administration services to organizations under service agreements. The
Company also participates in state assigned risk pools as a servicing carrier and pool participant.
Commercial Automobile provides coverage for businesses against losses incurred from personal bodily
injury, bodily injury to third parties, property damage to an insured’s vehicle, and property damage to
other vehicles and other property resulting from the ownership, maintenance or use of automobiles and
trucks in a business.