Travelers 2012 Annual Report Download - page 127

by structured settlements at December 31, 2012 (in millions). Also included is the A.M. Best rating of
the Company’s predominant insurer from each insurer group at February 19, 2013:
Structured
Group Settlements A.M. Best Rating of Group’s Predominant Insurer
Fidelity & Guaranty Life Group ........... $981 B++ fifth highest of 16 ratings
MetLife Group ....................... 474 A+ second highest of 16 ratings
Genworth Financial Group .............. 437 A third highest of 16 ratings
Symetra Financial Group ................ 256 A third highest of 16 ratings
John Hancock Group .................. 190 A+ second highest of 16 ratings
Reinsurance companies and life insurance companies have been negatively impacted by turbulent
economic conditions, significant catastrophe events and investment portfolio challenges in recent years.
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 (such as the number and value of vehicles or properties insured). 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 a
number of recent periods 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 has undertaken 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 also
include other initiatives, such as reducing operating expenses and acquisition costs. These efforts may
not be successful and/or may result in lower retention and new business levels and therefore lower
business volumes. In particular, in the Agency Automobile line of business, the Company has
undertaken various actions to improve its underwriting margins, which have been negatively impacted
by various factors. If these actions are not effective, the Company may need to explore other actions or
initiatives to improve its competitive position and profitability in this line of business. Refer to
‘‘Part I—Item 1A—Risk Factors—The intense competition that we face could harm our ability to
maintain or increase our business volumes and our profitability’’ in this report.
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 price increases on renewal business
during 2013 that generally exceed loss cost trends. In the Business Insurance segment, the Company
expects that renewal premium changes during 2013 will be broadly consistent with the higher levels
115