Travelers 2015 Annual Report Download - page 9

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.
•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, 2015, contractholder payables on
unpaid losses within the deductible layer of large deductible policies and the associated receivables
were each approximately $4.37 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 $88 million at December 31, 2015. Significant
collateral, primarily letters of credit and, to a lesser extent, cash collateral, trusts or surety bonds, 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
•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
benefits and vocational rehabilitation benefits. The Company emphasizes managed care cost
containment strategies, which involve employers, employees and care providers in a cooperative
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