Travelers 2012 Annual Report Download - page 128

attained in the fourth quarter of 2012 and will be driven by both positive renewal rate changes and,
subject to the economic uncertainties discussed below, growth in insured exposures. In the Financial,
Professional & International Insurance segment, the Company expects that renewal premium changes
will modestly improve during 2013 compared to the fourth quarter of 2012. With respect to
construction surety, the Company expects written premium volume to be broadly consistent with the
levels attained in 2012. In the Personal Insurance segment, the Company expects both Agency
Automobile and Agency Homeowners and Other renewal premium changes during 2013 will decline
slightly as compared to the fourth quarter of 2012, but are expected to remain positive and exceed
underlying loss cost trends, assuming weather patterns consistent with the Company’s expectations.
Renewal premium changes for both Agency Automobile and Agency Homeowners and Other in 2013
are expected to be driven by both positive renewal rate changes (based on the Company’s actions to
file for rate increases) and, subject to the economic uncertainties discussed below, growth in insured
exposures. The need for state regulatory approval for changes to personal property and casualty
insurance prices, as well as competitive market conditions, may impact the timing and extent of renewal
premium changes.
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.
Property and casualty insurance market conditions are expected to remain competitive during 2013 for
new business, not only in Business Insurance and Financial, Professional & International Insurance, but
especially in Personal Insurance, where price comparison technology used by agents and brokers,
sometimes referred to as ‘‘comparative raters,’’ has facilitated the process of generating multiple quotes,
and thereby increasing price comparison on new business and, increasingly, on renewal business. In
addition, the Company launched a new distribution channel in 2009 that markets personal insurance
products directly to consumers, which is expected to continue to generate modest growth in premium
volume for Personal Insurance during 2013.
Current economic conditions have been somewhat volatile, and there is increased uncertainty as to
whether the U.S. or the global economy will grow modestly, remain stagnant or enter a recession.
Economic growth experienced in 2011 and 2012 may or may not continue, or may continue at a slower
rate for an extended period of time. In addition, some economic conditions, such as the commercial
and residential real estate environment and employment rates, may continue to be weak. Future actions
or inactions of the United States government, including a failure to increase the government debt limit
or a shutdown of the federal government, could increase the actual or perceived risk that the U.S. may
not ultimately pay its obligations when due and may disrupt financial markets. Further, general
uncertainty regarding the U.S. Federal budget and taxes has added to the uncertainty regarding
economic conditions generally.
If weak economic conditions persist or deteriorate, the resulting low levels of economic activity
could impact exposure changes at renewal and the Company’s ability to write business at acceptable
rates. Additionally, 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 during 2013, and, since earned premiums lag net written
premiums, earned premiums could be adversely impacted following 2013.
Underwriting Gain/Loss. The Company’s underwriting gain/loss can be significantly impacted by
catastrophe losses and net favorable or unfavorable prior year reserve development, as well as
underlying underwriting margins.
Catastrophe and other weather-related losses are inherently unpredictable from period to period.
The Company experienced significant catastrophe and other weather-related losses in a number of
recent periods which adversely impacted its results of operations. The Company’s results of operations
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