Travelers 2008 Annual Report Download - page 122

certain personal physical injury claims, of which workers’ compensation claims comprise a significant
portion. In cases where the Company did not receive a release from the claimant, the structured
settlement is included in reinsurance recoverables as the Company retains the contingent liability to the
claimant. In the event that the life insurance company fails to make the required annuity payments, the
Company would be required to make such payments. The following table presents the Company’s top
five groups by structured settlements at December 31, 2008 (in millions). Also included is the A.M.
Best rating of the Company’s predominant insurer from each insurer group at February 19, 2009:
Structured
Group Settlements A.M. Best Rating of Group’s Predominant Insurer
Old Mutual ......................... $1,075 A third highest of 16 ratings
MetLife ........................... 554 A+ second highest of 16 ratings
Genworth .......................... 485 A+ second highest of 16 ratings
Symetra ........................... 296 A third highest of 16 ratings
ING Group ......................... 242 A+ second highest of 16 ratings
Many reinsurance companies and life insurance companies have been negatively impacted by
deteriorating economic conditions, including unprecedented financial market disruption. A number of
such companies have been subjected to downgrades and/or negative outlook changes by various ratings
agencies, including those with which the Company conducts business. The Company considers these
factors in assessing the adequacy of its allowance for uncollectible amounts.
OUTLOOK
The Company’s 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 2009, including general economic conditions,
competitive conditions in the markets served by the Company’s business segments, loss cost trends,
interest rate trends and the investment environment.
General Economic Conditions. The United States and other countries around the world have been
experiencing deteriorating economic conditions, including unprecedented financial market disruption. If
this trend in economic conditions continues or deteriorates further in 2009, it could adversely affect the
Company’s results in future periods. During an economic downturn, demand for the Company’s
products may decrease, and credit risk associated with agents, customers, reinsurers and the Company’s
investment portfolio may be adversely impacted. In addition, in an inflationary environment, loss costs
may increase. Such costs may also increase in an economic downturn, due to an increase in fraudulent
reporting of claims, reduced maintenance of insured property or increased frequency of small claims.
Moreover, although the Company does not anticipate needing additional capital in the near term due
to the Company’s strong current financial position, financial market disruption may make it difficult for
the insurance industry generally, and the Company in particular, to raise additional capital, when
needed, on acceptable terms or at all. As discussed below, losses on the Company’s investment
portfolio may adversely impact the Company’s shareholders’ equity and statutory surplus. As further
discussed below, the interest rate environment and general economic conditions could further impact
the net investment income the Company is able to earn on both its fixed maturity investments and
other invested assets.
Competition. The Company expects property casualty insurance market conditions to continue to
be very competitive in 2009, particularly for new business. If the current disruption in the insurance
marketplace continues into 2009, there may be increased opportunity for new business, but competition
for that new business may also be significant. For example, competitors that are experiencing financial
difficulties may offer products at prices and on terms that are not consistent with the Company’s
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