Travelers 2012 Annual Report Download - page 69

In particular, in our Agency Automobile line of business, we have undertaken various actions to
improve our underwriting margins, which have been negatively impacted by various factors. These
factors include (i) changes in customer preferences and demand for direct distribution channels,
(ii) utilization of comparative rating technologies by agents, (iii) other technological changes, as
described above, and (iv) loss cost increases that have exceeded earned rate increases. If our strategies
to increase profitability through the actions described above are not effective, we may need to explore
other actions or initiatives to improve our competitive position and profitability in this line of business.
Overall, our competitive position in our various businesses is based on many factors, including but
not limited to our:
• ability to profitably price our business, retain existing customers and obtain new business;
• premiums charged, contract terms and conditions, products and services offered (including the
ability to design customized programs);
• agent, broker and client relationships;
• ability to keep pace relative to our competitors with changes in technology and information
systems;
• speed of claims payment;
• 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; and
• local presence.
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
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