Travelers 2013 Annual Report Download - page 130

The following table summarizes the composition of the Company’s reinsurance recoverables:
(at December 31, in millions) 2013 2012
Gross reinsurance recoverables on paid and unpaid claims and
claim adjustment expenses ............................ $4,707 $ 5,256
Allowance for uncollectible reinsurance .................... (239) (258)
Net reinsurance recoverables ........................... 4,468 4,998
Mandatory pools and associations ........................ 1,897 2,549
Structured settlements ................................ 3,348 3,165
Total reinsurance recoverables .......................... $9,713 $10,712
The $530 million decline in net reinsurance recoverables from December 31, 2012 primarily
reflected the impacts of (i) cash collections, including commutation agreements and (ii) net favorable
prior year reserve development, partially offset by (iii) the acquisition of Dominion. As a result of the
acquisition of Dominion, total reinsurance recoverables increased by $352 million at November 1, 2013.
The $652 million decline in mandatory pools and associations from December 31, 2012 primarily
reflected catastrophe-related collections and, to a lesser extent the impact of the sale of renewal rights,
in connection with the Company’s National Flood Insurance Program business.
The following table presents the Company’s top five reinsurer groups by reinsurance recoverable at
December 31, 2013 (in millions). Also included is the A.M. Best rating of each reinsurer group at
February 13, 2014:
Reinsurance
Reinsurer Group Recoverable A.M. Best Rating of Group’s Predominant Reinsurer
Munich Re Group .................. $525 A+ second highest of 16 ratings
Swiss Re Group .................... 491 A+ second highest of 16 ratings
Alleghany Group ................... 254 A third highest of 16 ratings
XL Capital Group .................. 242 A third highest of 16 ratings
NKSJ Holdings Inc. Group ............ 242 A+ second highest of 16 ratings
At December 31, 2013, the Company held $1.37 billion of collateral in the form of letters of credit,
funds and trust agreements held to fully or partially collateralize certain reinsurance recoverables.
For a discussion of a pending reinsurance dispute pertaining to a portion of the Company’s
reinsurance recoverable from the Munich Re Group in the foregoing table, see note 16 of notes to the
consolidated financial statements.
Included in reinsurance recoverables are amounts related to structured settlements, which are
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 the
Company did not receive a release from the claimant, the amount due from the life insurance company
related to the structured settlement is included in the Company’s consolidated balance sheet as a
reinsurance recoverable and the related claim cost is included in the liability for claims and claim
adjustment expense reserves, as the Company retains the contingent liability to the claimant. If it is
expected that the life insurance company is not able to pay, the Company would recognize an
impairment of the related reinsurance recoverable if, and to the extent, the purchased annuities are not
covered by state guaranty associations. In the event that the life insurance company fails to make the
required annuity payments, the Company would be required to make such payments. The following
table presents the Company’s top five groups by structured settlements at December 31, 2013 (in
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