Travelers 2011 Annual Report Download - page 127

by structured settlements at December 31, 2011 (in millions). Also included is the A.M. Best rating of
the Company’s predominant insurer from each insurer group at February 16, 2012:
Structured
Group Settlements A.M. Best Rating of Group’s Predominant Insurer
Fidelity & Guaranty Life(1) .............. $1,007 B++ fifth highest of 16 ratings
MetLife ............................ 488 A+ second highest of 16 ratings
Genworth ........................... 449 A third highest of 16 ratings
Symetra ............................ 264 A third highest of 16 ratings
ING Group ......................... 222 A third highest of 16 ratings
(1) Fidelity & Guaranty Life was previously a subsidiary of Old Mutual U.S. Life Holdings, Inc. prior
to being sold by its U.K. parent company to Harbinger Group Inc. and being renamed.
Reinsurance companies and life insurance companies continued to be negatively impacted by
turbulent economic conditions, significant catastrophe events and investment portfolio challenges during
2011. 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 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.
Given the possibility that more active weather patterns such as the Company experienced in 2011
and 2010 may continue, as well as the possibility that interest rates may remain low for some period of
time, along with the current level of profitability in certain of its product lines, the Company is
undertaking efforts to improve its underwriting margins. These efforts include seeking improved rates,
as well as improved terms and conditions on many of its insurance products, and may also include
other initiatives, such as reducing operating expenses and acquisition costs. These efforts may not be
successful and may result in lower retention and new business levels and therefore lower business
volumes. Nonetheless, the Company currently expects retention levels (the amount of expiring premium
that renews, before the impact of renewal premium changes) will remain strong relative to historical
experience. The Company also expects to continue to achieve renewal price increases during 2012. In
the Business Insurance segment, the Company expects a continued increase in renewal premium
changes, including increases in both of its components of rate changes and, subject to the economic
uncertainties described below, insured exposures, during 2012, compared with 2011. In the Financial,
Professional & International Insurance segment, the Company expects that renewal premium changes,
primarily due to the insured exposure component, will modestly improve during 2012 compared with
2011. In the Personal Insurance segment, the Company expects both Agency Automobile and Agency
Homeowners and Other renewal premium changes during 2012 will remain positive and will be slightly
higher than in 2011 based on the Company’s actions to file for rate increases. The need for state
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