Travelers 2011 Annual Report Download - page 68

• premiums charged, contract terms and conditions, products and services offered (including the
ability to design customized programs);
• ability to provide our products and services in a cost effective manner;
• perceived overall financial strength and corresponding ratings assigned by independent rating
agencies;
• reputation, experience and qualifications of employees;
• geographic scope of business;
• local presence; and
• ability to keep pace relative to our competitors with changes in technology and information
systems.
We may have difficulty in continuing to compete successfully on any of these bases in the future. If
competition limits our ability to retain existing business or write new business at adequate rates, our
results of operations could be materially and adversely affected. See ‘‘Competition’’ sections of the
discussion on business segments in ‘‘Item 1—Business.’’
We may not be able to collect all amounts due to us from reinsurers and reinsurance coverage
may not be available to us in the future at commercially reasonable rates or at all. Although the
reinsurer is liable to us to the extent of the ceded reinsurance, we remain liable as the direct insurer on
all risks reinsured. As a result, ceded reinsurance arrangements do not eliminate our obligation to pay
claims. Accordingly, we are subject to credit risk with respect to our ability to recover amounts due
from reinsurers.
In the past, certain reinsurers have ceased writing business and entered into runoff. Some of our
reinsurance claims may be disputed by the reinsurers, and we may ultimately receive partial or no
payment. This is a particular risk in the case of claims that relate to insurance policies written many
years ago, including those relating to asbestos and environmental claims. In addition, in a number of
jurisdictions, particularly the European Union and the United Kingdom, a reinsurer is permitted to
transfer a reinsurance arrangement to another reinsurer, which may be less creditworthy, without a
counterparty’s consent, provided that the transfer has been approved by the applicable regulatory
and/or court authority.
Included in reinsurance recoverables are certain amounts related to structured settlements.
Structured settlements comprise annuities purchased from various life insurance companies to settle
certain personal physical injury claims, of which workers’ compensation claims comprise a significant
portion. In cases where we did not receive a release from the claimant, the structured settlement is
included in reinsurance recoverables as we retain the contingent liability to the claimant. In the event
that the life insurance company fails to make the required annuity payments, we would be required to
make such payments if and to the extent not paid by state guaranty associations.
Many reinsurance companies and life insurance companies were negatively impacted by the
financial markets disruption and the economic downturn over the past several years. A number of these
companies, including certain of those with which we conduct business, were downgraded by various
rating agencies during this time period. For a discussion of our top reinsurance groups by reinsurance
recoverable and the top five groups by amount of structured settlements provided, see ‘‘Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations—Reinsurance
Recoverables.’’
The availability and cost of reinsurance are subject to prevailing market conditions, both in terms
of price and available capacity. The availability of reinsurance capacity can be impacted by general
economic conditions and conditions in the reinsurance market, such as the occurrence of significant
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