Travelers 2006 Annual Report Download - page 126

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(6) Represents estimated timing for fulfilling unfunded commitments for investments in real estate
partnerships, private equities andhedge funds.
(7)The amounts in “Claims and claim adjustment expenses” in the table above represent the estimated
timing of future payments for both reported and unreported claims incurred and related claim
adjustment expenses, gross of reinsurance recoverables.
The Company has entered into reinsurance agreements to protect itself from potential losses in excess
of the amount it is prepared to accept as described in Note 4 the notes to financial statements.
In order to qualify for reinsurance accounting, a reinsurance agreement must indemnify the insurer
from insurancerisk, i.e., the agreement must transfer amount and timing risk. Since the timing and
amount of cash inflows from such reinsurance agreements are directly related to the underlying
payment of claims and claim adjustment expenses bythe insurer, reinsurance receivables are
recognized ina manner consistent with the liabilities (the estimated liability for claims and claims
adjustment expense) relating to the underlying reinsured contracts. The presence of any feature that
can delay timely reimbursement of claims by a reinsurer results in the reinsurance contract being
accounted for as a deposit rather than reinsurance. (See below.) The assumptions used in estimating
the amount and timing of the reinsurance receivables are consistent with those used in estimating the
amount and timing of the related liabilities.
Reinsurance agreements that do not transfer both amountand timing risk are accounted for as
deposits and included in “Reinsurance contracts accounted for as deposits” in the table above.
The estimated future cash inflows from the Company’s reinsurance contracts that qualify for
reinsurance accounting are as follows:
(in millions) Total
Less than 1
Year
1-3
Years
3-5
Years
After 5
Years
Reinsurance receivables ................. $ 16,618$ 4 ,592 $ 5,088 $ 2,385 $ 4 ,553
The Company manages its business andevaluates its liabilities for claims and claim adjustment
expense on a net of reinsurance basis. The estimated cash flows on a net of reinsurance basis are as
follows:
(in millions) Total
Less than 1
Year
1-3
Years
3-5
Years
After 5
Years
Claims and claim adjustment expense, net...$ 43,739 $ 12,287 $ 13,715 $ 6,367 $ 11,370
For business underwritten by non-U.S. operations, future cash flows related to reported and
unreported claims incurred and related claim adjustment expenses were translated at the spot rate on
December 31, 2006.
The amounts reported in the table above and in the table of reinsurance receivables above are
presented on a nominal basis and have not been adjusted to reflect the time value of money.
Accordingly, the amounts above willdiffer from the Company’s balance sheet to theextent that the
liability for claims and claim adjustment expenses and the related reinsurance receivables have been
discounted in the balance sheet. (See note 1 of the financial statements.)
(8)Workers’ compensation large deductible policies provide third party coverage in which the Company
typically is responsible for paying the entire loss under such policies and then seeks reimbursement
from the insured for the deductible amount. “Claims from large deductible policies” represent the
estimated future payment for claims and claim related expenses belowthe deductible amount, net of
the estimated recovery of the deductible. The liability and the related deductible receivable for unpaid
claims are presented in the consolidated balance sheet as “contractholder payables” and