Travelers 2007 Annual Report Download - page 147

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 9% 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 based upon 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. From time to time, the Company considers the commutation of
reinsurance contracts. Changes in estimated reinsurance recoverables and commutation activity could
result in additional income statement charges. Total reinsurance recoverables at December 31, 2007
declined by $2.18 billion from the same date in 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 allowance for uncollectible reinsurance at
December 31, 2007 declined by $85 million from the same date in 2006, generally due to settlement
activity and commutations.
Recoverables attributable to structured settlements relate primarily to personal injury claims, for
which the Company has purchased annuities and remains contingently liable in the event 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.
135