Travelers 2009 Annual Report Download - page 128

environment and employment rates, may continue to be weak. If weak economic conditions persist or
deteriorate, low levels of economic activity could impact exposure changes at renewal and our ability to
write business at acceptable rates. Additionally, such low levels of economic activity could adversely
impact audit premium adjustments, policy endorsements and mid-term cancellations after policies are
written. All of the foregoing, in turn, could adversely impact net written premiums in 2010. Since
earned premiums lag net written premiums, earned premiums could be adversely impacted in 2010 and
into 2011.
Underwriting Gain/Loss. The anticipated impact of competitive market conditions and general
economic conditions on the Company’s earned premiums, as discussed above, coupled with an expected
modest increase in loss costs, will likely result in modestly reduced underwriting profitability during
2010, as compared with 2009. In addition, the Company’s direct to consumer initiative in the Personal
Insurance segment, discussed above, while intended to enhance the Company’s long-term ability to
compete successfully in a consumer-driven marketplace, is expected to remain unprofitable for a
number of years as this book of business grows and matures.
In recent periods, the Company has experienced net favorable prior year reserve development,
driven by better than expected loss experience in all of the Company’s segments for prior loss years. If
better than expected loss experience continues, the Company may recognize additional net favorable
prior year reserve development in 2010. However, better than expected loss experience may not
continue or may reverse, in which case the Company may recognize no favorable prior year reserve
development or unfavorable prior year reserve development in future periods. The ongoing review of
prior year claim and claim adjustment expense reserves, or other changes in current period
circumstances, may result in the Company revising current year loss estimates upward or downward in
future periods.
Catastrophe losses are inherently unpredictable from year to year, and the Company’s results of
operations would be adversely impacted by a significant increase in such losses in 2010.
Investments. The Company expects to continue to focus its investment strategy on maintaining a
high-quality investment portfolio and a relatively low average effective duration. The Company’s
invested assets at December 31, 2009 totaled $74.97 billion, of which 94% was invested in fixed
maturity and short-term securities, with the remaining 6% invested in equity securities, real estate,
private equity limited partnerships, hedge funds, and real estate partnerships.
Net investment income is a material contributor to the Company’s results of operations. While
investment returns are difficult to predict and inherently uncertain, in 2010 the Company expects
investment returns for its fixed maturity investment portfolio to be generally consistent with recent
periods, and returns for its short-term and non-fixed maturity investment portfolios to remain
challenged. Short-term interest rates are expected to remain at or near historically low levels. The
Company expects investment income in its non-fixed maturity investment portfolio to improve from
2009 levels, which were negative. However, if general economic conditions and/or capital market
conditions deteriorate in 2010, the Company could also experience a reduction in net investment
income and/or significant realized investment losses, including impairments.
Capital Position. The Company believes it has a strong capital position and expects to continue its
common share repurchase program in 2010 as part of its continuing efforts to maximize shareholder
value. During 2010, the Company expects to repurchase between $3.5 billion and $4.0 billion of its
common shares under its share repurchase authorization. The actual amount of share repurchases may
be materially less and will depend on a variety of factors, including the Company’s earnings, corporate
and regulatory requirements, share price, catastrophe losses, strategic initiatives and other market
conditions.
The Company had a net after-tax unrealized investment gain of $1.67 billion in its fixed maturity
investment portfolio at December 31, 2009. While the Company does not attempt to predict future
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