Travelers 2007 Annual Report Download - page 115

Kingdom, a reinsurer is permitted to transfer a reinsurance arrangement to another reinsurer, which
may be less creditworthy, without a counterparty’s consent, provided that the transfer has been
approved by the applicable regulatory and/or court authority.
The Company’s reinsurance recoverables totaled $15.64 billion at December 31, 2007, a decline of
$2.18 billion from year-end 2006, primarily reflecting significant collections on reinsurance recoverables,
including those related to prior year hurricane losses, operations in runoff (primarily Gulf) and various
commutation agreements.
The following presents the Company’s top five reinsurer groups, by reinsurance recoverables at
December 31, 2007 (in millions). Also included is the A.M. Best rating of each reinsurer group at
February 21, 2007:
Reinsurance
Reinsurer Group Recoverables A.M. Best Rating of Group’s Predominant Reinsurer
Swiss Re Group ...................... $1,266 A+ second highest of 16 ratings
Munich Re Group(1) .................. 994 A+ second highest of 16 ratings
Berkshire Hathaway Group ............. 591 A++ highest of 16 ratings
American International Group(2) ......... 553 A+ second highest of 16 ratings
XL Capital Group(3) .................. 511 A third highest of 16 ratings
(1) On January 30, 2008, A.M. Best upgraded the financial strength rating of Munich Reinsurance
America, Inc. from ‘‘A’’ to ‘‘A+.’’
(2) On February 14, 2008, A.M. Best placed the financial strength ratings of ‘‘A+’’ of most of
American International Group’s domestic property casualty subsidiaries and its 60% majority-
owned company, Transatlantic Holdings, Inc., under review with negative implications.
(3) On January 25, 2008, A.M. Best downgraded the financial strength rating of XL Capital Group to
‘‘A’’ from ‘‘A+.’’
At December 31, 2007, $3.0 billion of reinsurance recoverables were collateralized by letters of
credit, trust agreements and funds held.
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 and in
selected international markets. A variety of factors continue to affect the property and casualty
insurance market and the Company’s core business outlook for 2008, including competitive conditions
in the markets served by the Company’s business segments, loss cost trends, interest rate trends and the
investment environment.
Competition. The Company expects property casualty market conditions to continue to become
modestly more competitive in 2008, particularly for new business. The pricing environment for new
business generally has less of an impact on underwriting profitability than renewal price changes,
particularly in an environment of high retention rates, which the Company has experienced over the
past several years. In the Business Insurance and the Financial, Professional & International Insurance
segments, the Company expects renewal price changes in 2008 will modestly decline from their 2007
levels. In the Personal Insurance segment, the Company expects automobile and homeowners renewal
price changes will increase slightly compared to their 2007 levels. These expectations for the pricing
environment, when combined with expected modestly increased loss costs, will likely result in somewhat
reduced underwriting profitability in 2008 as compared to 2007.
103