Travelers 2013 Annual Report Download - page 72

• 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 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 we did not receive a release from the claimant, the structured settlement is included in
reinsurance recoverables and the related claim cost is included in the liability for claims and claim
adjustment expense reserves, as we retain the contingent liability to the claimant. If it is expected that
the life insurance company is not able to pay, we 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,
we would be required to make such payments.
Many life insurance companies were negatively impacted by the financial markets disruption and
the economic downturn. A number of these companies, including certain of those with which we
conduct business or to which we otherwise have credit exposure, 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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