Travelers 2010 Annual Report Download - page 124

millions). Also included is the A.M. Best rating of the Company’s predominant insurer from each
insurer group at February 17, 2011:
Structured
Group Settlements A.M. Best Rating of Group’s Predominant Insurer
Old Mutual ......................... $1,028 B++ fifth highest of 16 ratings
MetLife ............................ 508 A+ second highest of 16 ratings
Genworth ........................... 458 A third highest of 16 ratings
Symetra ............................ 272 A third highest of 16 ratings
ING Group ......................... 229 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 were 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 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 as well as general economic conditions,
which, particularly in the case of the Business Insurance segment, affect audit premium adjustments,
policy endorsements and mid-term cancellations. Net written premiums are also impacted by the
structure of reinsurance programs and related costs.
The Company expects retention levels (the amount of expiring premium that renews, before the
impact of renewal premium changes) will remain strong, generally consistent with recent periods. In the
Business Insurance segment, the Company expects a slightly improving trend in renewal premium
changes, including the components of rate changes and insured exposures, during 2011 compared with
2010. In the Financial, Professional & International Insurance segment, the Company expects that
renewal premium changes, including the components of rate changes and insured exposures, will not
meaningfully change during 2011 compared with 2010. In the Personal Insurance segment, the
Company expects that Agency Automobile renewal premium changes, while positive, will decrease
slightly in 2011 from levels in 2010. For its Agency Homeowners’ and Other business, the Company
expects renewal premium changes in 2011 will remain generally consistent with 2010.
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 2011
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 launched a new distribution channel in 2009 that markets personal insurance products
directly to consumers, which is expected to generate modest growth in premium volume for Personal
Insurance in 2011.
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