Travelers 2007 Annual Report Download - page 45

Management does not anticipate regulatory action as a result of the 2007 IRIS ratio results. In all
instances in prior years, regulators have been satisfied upon follow-up that no regulatory action was
required. It is possible that similar results could occur in the future.
Risk-Based Capital (RBC) Requirements. The NAIC has an RBC requirement for most property
and casualty insurance companies. The RBC requirement determines minimum capital requirements
and is intended to raise the level of protection for policyholder obligations. 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 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, 2007, all of TRV’s insurance subsidiaries had
total adjusted capital in excess of the RBC requirement.
Investment Regulation. Insurance company investments must comply with applicable laws and
regulations which prescribe the kind, quality and concentration of investments. In general, these laws
and regulations permit investments in federal, state and municipal obligations, corporate bonds,
preferred and common equity securities, mortgage loans, real estate and certain other investments,
subject to specified limits and certain other qualifications.
International Regulation
TRV’s insurance underwriting subsidiaries based in the United Kingdom, Travelers Insurance
Company Limited and Travelers Casualty and Surety Company of Europe Limited, are regulated by the
Financial Services Authority (FSA). The FSA’s principal objectives are to maintain market confidence,
promote public understanding of the financial system, protect consumers, and to fight financial crime.
TRV’s managing agent (Travelers Syndicate Management Ltd.) of its Lloyd’s syndicate is also regulated
by the FSA, which has delegated certain regulatory responsibilities to the Council of Lloyd’s. Through
Lloyd’s, TRV is licensed to write business in over 70 countries throughout the world by virtue of
Lloyd’s international licenses. In each such country TRV is subject to the laws and insurance regulation
of that country. TRV’s Irish insurance operations are regulated by the Irish Financial Services
Regulatory Authority. In 2007, a TRV subsidiary, Travelers Casualty and Surety Company, established a
representative office in China. The representative office’s operations are regulated by the China
Insurance Regulatory Commission. In addition, in 2007, TRV’s Lloyd’s managing agency established a
service company in Singapore, the underwriting operations of which are regulated by the Monetary
Authority of Singapore.
In Canada, the conduct of TRV’s insurance business is regulated by the Office of the
Superintendent of Financial Institutions under provisions of the Insurance Companies Act, which
requires insurance companies to maintain certain levels of capital depending on the type and amount of
insurance policies in force.
TRV’s branch in runoff in Australia is regulated by the Australian Prudential Regulation Authority.
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 of its 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 approval of an acquisition of control of a domestic insurer,
some transactions between affiliates and the payment of extraordinary dividends or distributions.
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