Travelers 2006 Annual Report Download - page 44

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entered into agreements with several of these states to resolve issues related to broker and agent
compensation. The Company discontinued paying contingent commissions on excess casualty andumbrella
business effective September 30, 2006. In addition, the Company discontinued paying contingent
commissions for homeowners multi-peril, private passenger automobile physical damage, private passenger
automobile no-fault, other private passenger automobile liability, boiler and machinery and financial
guaranty insurance lines effective January 1, 2007. The Company has developed alternative compensation
arrangements for these lines of business that compensate brokers and agents in a manner that
differentiates for business performance and is consistent with all applicable laws. Beginning January 1,
2007, the Company is offering an optional fixed commission program for most commercial insurance lines.
Insurance Regulation Concerning Dividends
TRV’s principal insurance subsidiaries are domiciled in the states of Connecticut and Minnesota. The
insuranceholding company laws of both states applicable to TRV’s subsidiaries require notice to,and
approval by, the state insurance commissioner for thedeclaration or payment of any dividend, that
together with other distributions made within the preceding twelve months, exceedsthe greater of 10% of
the insurer’s capital and surplus as of the preceding December 31, or the insurer’s net income for the
twelve-month period ending the preceding December 31, in each case determined in accordance with
statutory accountingpractices and by state regulation. This declaration or payment is further limited by
adjusted unassigned surplus, as determined in accordance with statutory accounting practices.
The insurance holding company laws of other states in which TRV’s insurance subsidiaries are
domiciled generally contain similar, although in some instances somewhat more restrictive, limitations on
the payment of dividends.
Premium Rate Approvals
TRV’s insurance subsidiaries are subject to each state’s regulations regarding premium rate approvals.
The applicable regulations are used by states to establish standards to ensure that rates arenot excessive,
inadequate, unfairly discriminatory, or used to engage in unfair price competition. An insurer’s ability to
increase premiums and the relative timing of the process, are dependent upon each respective state’s
requirements.
Requirements for Exiting Geographic Markets and/or Canceling orNonrenewing Policies
Several states have regulations which may impact the timing and/or the ability of an insurer to either
discontinue or substantially reduce its writings in that state. These regulations typically require prior
notice, and in some instances insurance department approval, prior to discontinuing a line of business or
withdrawing from that state.
Insurance Holding Company Statutes
As a holding company, TRV is not regulated as an insurance company. However, since TRV owns
capital stock in insurance subsidiaries, it is subject to state insurance holding company statutes, as well as
certain other laws, of each ofits insurance subsidiaries’ states of domicile. All holding company statutes, as
well as other laws, require disclosure and, in some instances, prior approval of material transactions
between an insurance company and an affiliate. The holding company statutes and other laws also require,
among other things,prior approvalof an acquisition of control of a domestic insurer, some transactions
between affiliates and the payment of extraordinary dividends or distributions.