Travelers 2006 Annual Report Download - page 25

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Financial, Professional & International Insurance has developed an underwriting andpricing
methodology that incorporates dedicated underwriting, claims, engineering, actuarial and product
development disciplines. This approach is designed to maintain high quality underwriting and pricing
discipline, based on an in-depth knowledge of the specific account or industry issues. The underwriters use
proprietary data gathered and analyzed over many years to assess and evaluate risks prior to quotation,
and then use proprietary forms to tailor insurance coverage to insureds within the target markets. This
methodology enables Financial, Professional & International Insuranceto streamline its risk selection
process anddeveloppricing parameters that will not compromise its underwriting integrity.
The Company continually monitors its exposure to natural and manmade peril catastrophic losses and
attempts to mitigate such exposure. In order to reduce the Company’s exposure to catastrophe losses,
Financial, Professional & International Insurance limits the writing of new commercial property and
energy and marine business and selectively takes underwriting action on existing business in some markets.
In addition, underwriting standards have been tightened, price increases have been implemented in some
catastrophe-prone areas, and deductibles are in place in hurricane and wind and hail prone areas. The
Company uses various analyses and methods, including sophisticated computer modeling techniques, to
analyze underwriting risks of business inhurricane-prone, earthquake-prone and target risk areas. The
Company relies upon this analysis to make underwritingdecisions designed to manage its exposure on
catastrophe-exposed business. The Company also utilizesreinsurance to manageits aggregate exposures
to catastrophes. See “—Reinsurance.”
Product Lines
Fidelity and Surety provides fidelity insurance coverage, which protects an insured for loss due to
embezzlement or misappropriation of funds by an employee, and surety, which is a three-party agreement
whereby the insurer agreesto pay a third party or make complete an obligation in response to the default,
acts or omissions of an insured. Surety is generally provided for construction performance, legal matters
such as appeals, trustees in bankruptcy and probate and other performance bonds. In addition to the
business written in the United States, this product line includes surety business written in the following
subsidiaries of the Company: St. Paul Guarantee (Canada), Afianzadora Insurgentes (Mexico) andSt. Paul
Travelers Casualty and Surety Company of Europe (United Kingdom). The Company has reached a
definitive agreement to sellAfianzadora Insurgentes.
General Liability provides coverage for liability exposures including bodily injury and property
damage arising from products sold and general business operations. Specialized liability policies may also
include coverage for directors’ and officers’ liability arising in their official capacities, employment
practices liability insurance, fiduciary liability for trustees and sponsors of pension, health and welfare, and
other employee benefit plans, errors and omissions insurance for employees, agents, professionals and
others arising from acts or failures to act under specified circumstances, as well as umbrella and excess
insurance. Errors and omissions insurance for professionals (such as lawyers, accountants, doctors and
other health care providers) is sometimes also known as professional liability insurance.
International provides coverage through operations in the United Kingdom, Canada and the
Republic of Ireland, and at Lloyd’s. The coverage provided in those markets includes employers’ liability
(similar to workers’ compensation coverage in the United States), public and product liability (the
equivalent of general liability), professional indemnity (similar to professional liability coverage), motor
(similar to automobile coverage in the United States) and property. While the covered hazards may be
similar to those in the U.S. market, the different legal environments can make the product risks and
coverage terms potentially very different from those in the United States.
Other coverages include Property, Workers’ Compensation, Commercial Automobile and
Commercial Multi-Peril, which are described in more detail in the “Business Insurance” section of this
narrative.