Travelers 2015 Annual Report Download - page 61

distribution channels for commercial business that may adversely impact product differentiation and
pricing. Access to greater levels of data and increased utilization of technology by agents and brokers
may also impact our relationship with them and our competitive position. Our efforts or their efforts
with respect to new products or alternate distribution channels, as well as changes in the way agents
and brokers utilize data and technology, could adversely impact our business relationship with
independent agents and brokers who currently market our products, resulting in a lower volume and/or
profitability of business generated from these sources.
We rely on internet applications for the marketing and sale of certain of our products, and we may
increasingly rely on internet applications and toll-free numbers for distribution. In some instances, our
agents and brokers are required to access separate business platforms to execute the sale of our
personal insurance or commercial insurance products. Should internet disruptions occur, or frustration
with our business platforms or distribution initiatives develop among our independent agents and
brokers, any resulting loss of business could materially and adversely affect our future business volume
and results of operations. See ‘‘If we experience difficulties with technology, data security and/or
outsourcing relationships, our ability to conduct our business could be negatively impacted’’ below.
Customers in the past have brought claims against us for the actions of our agents. Even with
proper controls in place, actual or alleged errors or inaccuracies by our agents could result in our
involvement in disputes, litigation or regulatory actions related to actions taken or not taken by our
agents.
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 amounts related to certain 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 beginning in 2008. 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
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