Travelers 2005 Annual Report Download - page 48

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•off-balance sheet risk arising from adverse experience from non-controlled assets, guarantees for
affiliates or other contingent liabilities and reserve and premium growth.
Under laws adopted by individual states, insurers having total adjusted capital less than that required
by the RBC calculation will be subject to varying degrees of regulatory action, depending on the level of
capital inadequacy.
The RBC law provides for four levels of regulatory action. The extent of regulatory interventionand
action increases as the level of surplus to RBC falls. The first level, the company action level as defined by
the NAIC, requires an insurer to submit a plan of corrective actions to the regulator if surplus falls below
200% of the RBC amount. The regulatory action level, as defined by the NAIC, requires an insurer to
submit a plan containing corrective actions and requires the relevant insurance commissioner to perform
an examination or other analysis and issue a corrective order if surplus falls below 150% of the RBC
amount. The authorized control level, as defined by the NAIC, authorizes the relevant insurance
commissioner to take whatever regulatory actions considered necessary to protect the best interest of the
policyholders and creditors of the insurer which may include the actions necessary to cause the insurer to
be placed under regulatory control, i.e., rehabilitation or liquidation, if surplus falls below 100% of the
RBC amount. The fourth action level is the mandatory control level as defined by the NAIC, which
requires the relevant insurance commissioner to place the insurer under regulatory control if surplus falls
below 70% of the RBC amount.
The formulas have not been designed to differentiate among adequately capitalized companies that
operate with higher levels of capital. Therefore, it is inappropriate and ineffective to use the formulas to
rate or to rank these companies. At December 31, 2005, all of the Company’s property and casualty
insurance subsidiaries had total adjusted capital in excess of amounts requiring company or regulatory
action at any prescribed RBC action level.
OTHER INFORMATION
General Business Factors
In the opinion of the Company’s management, no material part of the business of the Company and
its subsidiaries is dependent upona single customer or group of customers, the loss of any one of which
would have a materially adverse effect on the Company, and no one customer or group of affiliated
customers accounts for as much as 10% of the Company’s consolidated revenues.
Employees
At December 31, 2005, the Company had approximately 31,900 employees. The Company believes
that its employee relations are satisfactory. None of the Company’s employees are subject to collective
bargaining agreements.
Source of Funds
For a discussion of the Company’s sources of funds and maturities of the long-term debt of the
Company, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of
Operations—Liquidity and Capital Resources,” and note 10 of notes to the Company’s consolidated
financial statements.
Taxation
For a discussion of tax matters affecting the Company and its operations, see note 11 of notes to the
Company’s consolidated financial statements.