Travelers 2006 Annual Report Download - page 147

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International and other book of business risk factors
Changes in policy provisions (e.g., deductibles, policy limits, endorsements, “claims made” language)
Changes in underwriting standards
Product mix (e.g., size of account, industries insured, jurisdiction mix)
Unanticipated changes in risk factors can affect reserves. As an indicator of the causal effect that a
change in one or more risk factors could have on reserves for International and other (excluding asbestos
and environmental), a 1% increase (decrease) in incremental paid loss development for each future
calendar year could result in a 1.3% increase (decrease) in loss reserves. International and other reserves
(excluding asbestos and environmental) represent approximately 10% of the Company’s total loss reserves.
International and other represents a combination of different product lines, some of which are in
runoff. Comparative historical information is not available for international product lines as insurers
domiciled outside of the U.S. do not file U.S. statutory reports. Comparative historical information on
runoff business is not indicative of reasonably possible one-year changes in the reserve estimate for this
mix of runoff business. Accordingly, the Company has not included comparative analyses for International
and other.
Reinsurance Recoverables
Amounts recoverable from reinsurers are estimated in a manner consistent with the associated claim
liability. 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 becomes 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 basedupon 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
allowance for uncollectible reinsurance at December 31, 2006 declined by $31 million from the same date
in 2005.
Recoverables attributable to structured settlements relate primarily to personal injury claims, for
which the Company has purchased annuities and remains contingently liable in theevent of a default by
the companies issuing the annuities. Recoverables attributable to mandatory pools and associations relate
primarily to workers’ compensation service business and have the obligation of the participating insurance
companies on a joint and several basis supporting these cessions.