Travelers 2008 Annual Report Download - page 210

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. REINSURANCE (Continued)
agreements. The Company employs dedicated specialists and strategies to manage reinsurance
collections and disputes.
The Company is also required to participate in various involuntary reinsurance arrangements
through assumed reinsurance, principally with regard to residual market mechanisms in workers’
compensation and automobile insurance. The Company provides services for several of these
involuntary arrangements (‘‘mandatory pools and associations’’) under which it writes such residual
market business directly, then cedes 100% of this business to the mandatory pool. Such servicing
arrangements are arranged to mitigate credit risk to the Company, as any ceded balances are jointly
backed by all the pool members.
The Company utilizes a general catastrophe reinsurance treaty with unaffiliated reinsurers to
manage its exposure to losses resulting from catastrophes. In addition to the coverage provided under
this treaty, the Company also utilizes a catastrophe bond program, as well as a Northeast catastrophe
reinsurance treaty, to protect against losses resulting from catastrophes in the Northeastern United
States.
Certain of the assumed reinsurance contracts that the Company has entered into with
non-affiliated companies on an excess of loss basis do not transfer insurance risk. These contracts,
which totaled $46 million and $165 million at December 31, 2008 and 2007, respectively, are accounted
for using deposit accounting and are included in other liabilities in the consolidated balance sheet.
The following is a summary of reinsurance financial data reflected in the consolidated statement of
income:
(for the year ended December 31, in millions) 2008 2007 2006
Written premiums
Direct ................................................. $23,469 $23,824 $23,635
Assumed ............................................... 368 374 404
Ceded ................................................. (2,154) (2,580) (2,889)
Total net written premiums ................................ $21,683 $21,618 $21,150
Earned premiums
Direct ................................................. $23,516 $24,000 $23,280
Assumed ............................................... 386 180 478
Ceded ................................................. (2,323) (2,710) (2,998)
Total net earned premiums ................................ $21,579 $21,470 $20,760
Percentage of assumed earned premiums to net earned premiums ..... 1.8% 0.8% 2.3%
Ceded claims and claim adjustment expenses incurred .............. $ 1,605 $ 1,299 $ 2,158
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