Travelers 2014 Annual Report Download - page 10

Table of Contents
and specialized retail agents, including on a brokerage and delegated authority underwriting basis. These brokers, wholesale agents,
program managers and specialized retail agents operate in certain markets in the U.S. that are not typically served by the Company's
appointed retail agents, or they maintain certain affinity arrangements in specialized market segments. The wholesale excess and
surplus lines market, which is characterized by the absence of rate and form regulation, allows for more flexibility to write certain
classes of business. In working with agents or program managers on a brokerage basis, Specialized Distribution underwrites the
business and sets the premium level. In working with agents or program managers with delegated underwriting authority, the agents
produce and underwrite business subject to underwriting guidelines that have been specifically designed for each facility or
program.
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International distributes its products, principally through brokers, in each of the countries in which it operates. International also
writes business at Lloyd's, where its products are distributed through Lloyd's wholesale and retail brokers. By virtue of Lloyd's
worldwide licenses, the Business and International Insurance segment has access to international markets across the world.
Pricing and Underwriting
Business and International Insurance utilizes underwriting, claims, engineering, actuarial and product development disciplines for particular
industries, in conjunction with extensive amounts of proprietary data gathered and analyzed over many years, to facilitate its risk selection process
and develop pricing parameters. The Company utilizes both standard industry forms and proprietary forms for the insurance policies it issues.
A portion of business in this segment, particularly in National Accounts and Construction, is written with large deductible insurance policies.
Under workers' compensation insurance contracts with deductible features, the Company is obligated to pay the claimant the full amount of the
claim. The Company is subsequently reimbursed by the contractholder for the deductible amount and is subject to credit risk until such
reimbursement is made. At December 31, 2014, contractholder payables on unpaid losses within the deductible layer of large deductible policies
and the associated receivables were each approximately $4.36 billion. Business and International Insurance also utilizes retrospectively rated
policies for another portion of the business, primarily for workers' compensation coverage. Although the retrospectively rated feature of the policy
substantially reduces insurance risk for the Company, it introduces additional credit risk to the Company. Premium receivables from holders of
retrospectively rated policies totaled approximately $89 million at December 31, 2014. Significant collateral, primarily letters of credit and, to a lesser
extent, cash collateral or trusts, is generally obtained for large deductible plans and/or retrospectively rated policies that provide for deferred
collection of deductible recoveries and/or ultimate premiums. The amount of collateral requested is predicated upon the creditworthiness of the
customer and the nature of the insured risks. Business and International Insurance continually monitors the credit exposure on individual accounts
and the adequacy of collateral. For additional information concerning credit risk in certain of the Company's businesses, see "Item 1A—
Risk
Factors—We are exposed to credit risk in certain of our business and investment operations including reinsurance or structured settlements."
Product Lines
The Business and International Insurance segment writes the following types of coverages:
Domestic
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Workers' Compensation. Provides coverage for employers for specified benefits payable under state or federal law for workplace
injuries to employees. There are typically four types of benefits payable under workers' compensation policies: medical benefits,
disability benefits, death
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