Travelers 2009 Annual Report Download - page 127

five groups by structured settlements at December 31, 2009 (in millions). Also included is the A.M.
Best rating of the Company’s predominant insurer from each insurer group at February 18, 2010:
Structured
Group Settlements A.M. Best Rating of Group’s Predominant Insurer
Old Mutual . . . . . . . . . . . . . . . . . . . . . . . . . $1,050 A- fourth highest of 16 ratings
MetLife . . . . . . . . . . . . . . . . . . . . . . . . . . . . 529 A+ second highest of 16 ratings
Genworth . . . . . . . . . . . . . . . . . . . . . . . . . . . 472 A third highest of 16 ratings
Symetra . . . . . . . . . . . . . . . . . . . . . . . . . . . . 286 A third highest of 16 ratings
ING Group . . . . . . . . . . . . . . . . . . . . . . . . . 235 A third highest of 16 ratings
Many reinsurance companies and life insurance companies were negatively impacted by turbulent
economic conditions during 2009 and 2008. 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 following discussion provides outlook information for certain key drivers of the Company’s
results of operations and capital position.
Premiums. The Company’s earned premiums are a function of net written premium volume. Net
written premiums comprise both renewal business and new business, including the impact of audit
premium adjustments, policy endorsements and mid-term cancellations, and are recognized as earned
premium over the life of the underlying policies. When business renews, the amount of net written
premiums associated with that business may increase or decrease (renewal premium change) as a result
of increases or decreases in rate and/or insured exposures, which the Company considers as a measure
of units of exposure. Net written premiums from both renewal and new business, and therefore earned
premiums, are impacted by competitive market conditions and general economic conditions.
The Company expects retention levels (the amount of expiring premium that renews, before the
impact of renewal premium changes) will remain high, generally consistent with recent periods, in each
of its business segments. In the Business Insurance and the Financial, Professional & International
Insurance segments, the Company expects renewal premium changes in 2010 will be similar to 2009
levels or modestly higher. With regard to the components comprising renewal premium changes, the
Company expects that positive rate changes during 2010 will be largely offset by a decline in insured
exposures. In the Personal Insurance segment, the Company expects that Agency Automobile renewal
premium changes, while positive, will decrease slightly in 2010 from 2009 levels. For its Agency
Homeowners’ and Other business, the Company expects renewal premium changes in 2010 will remain
generally consistent with 2009 levels.
The pricing environment for new business generally has less of an impact on underwriting
profitability than renewal rate changes, given the volume of new business relative to renewal business.
While property and casualty insurance market conditions are expected to remain competitive in 2010
for new business, the Company believes it is well-positioned to capitalize on new business opportunities
as agents, brokers and customers seek to place business with high-quality carriers. In addition, the
Company announced in 2009 that it launched a new distribution channel that markets personal
insurance products directly to consumers, which is expected to generate modest growth in premium
volume for Personal Insurance in 2010.
While economic conditions have recently improved and U.S. gross domestic product experienced
growth in the latter part of 2009, that trend may not continue and the U.S. economy may enter into a
‘‘double dip’’ recession. Further, if growth continues, it may be at a slow rate for an extended period of
time. In addition, other economic conditions, such as the commercial and residential real estate
115