Travelers 2007 Annual Report Download - page 46

Insurance Regulations Concerning Change of Control. Many state insurance regulatory laws contain
provisions that require advance approval by state agencies of any change in control of an insurance
company that is domiciled, or, in some cases, having substantial business that it is deemed to be
commercially domiciled, in that state.
The laws of many states also contain provisions requiring pre-notification to state agencies prior to
any change in control of a non-domestic insurance company admitted to transact business in that state.
While these pre-notification statutes do not authorize the state agency to disapprove the change of
control, they do authorize issuance of cease and desist orders with respect to the non-domestic insurer
if it is determined that some conditions, such as undue market concentration, would result from the
acquisition.
Any transactions that would constitute a change in control of any of TRV’s insurance subsidiaries
would generally require prior approval by the insurance departments of the states in which the
insurance subsidiaries are domiciled or commercially domiciled. They may also require pre-acquisition
notification in those states that have adopted pre-acquisition notification provisions and in which such
insurance subsidiaries are admitted to transact business.
One of TRV’s insurance subsidiaries and its operations at Lloyd’s are domiciled in the United
Kingdom. Insurers in the United Kingdom are subject to change of control restrictions in the Financial
Services and Markets Act of 2000 including approval of the Financial Services Authority. Some of
TRV’s other insurance subsidiaries are domiciled in, or authorized to conduct insurance business in,
Canada. Authorized insurers in Canada are subject to change of control restrictions in Section 407 of
the Insurance Companies Act, including approval of the Office of the Superintendent of Financial
Institutions.
These requirements may deter, delay or prevent transactions affecting the control of or the
ownership of common stock, including transactions that could be advantageous to TRV’s shareholders.
ENTERPRISE RISK MANAGEMENT
As a large property casualty insurance enterprise, the Company is exposed to many risks from
many different events. Some of these risk events can impact multiple areas of the Company
simultaneously, requiring an entity-wide view of risk events and their potential impact on all the various
areas of the Company. This approach to Company-wide risk evaluation and management is commonly
called Enterprise Risk Management (ERM). ERM activities involve both the identification and
assessment of a broad range of risks and the development of plans to mitigate the effects of such risks.
ERM at the Company has been operational for many years and incorporates risk-based reporting
and feedback among the various disciplines throughout the Company, including the underwriting, claim,
reinsurance, investment, legal, regulatory, actuarial and finance functions. Board oversight of the
Company’s ERM initiative is provided by the Risk Committee. Key internal risk management functions
include the Management Committee (comprised of the Company’s Chief Executive Officer and the
other most senior members of management), the Risk Committee of management, the Credit
Committee, the Chief Compliance Officer, the Business Conduct Officer, the Corporate Actuarial
group, the Internal Audit group, the Accounting Policy group and many others.
A senior executive oversees the ERM process. The mission of this executive is to facilitate risk
assessment and to collaborate in implementing risk management strategies. Another strategic objective
includes working across the Company to enhance risk modeling capabilities.
The Company’s ERM efforts build upon its foundation of internal control. It expands the internal
control objectives of effective and efficient operations, reliable financial reporting and compliance with
applicable laws and regulations, to develop an integrated, risk-based culture that focuses on value
creation and preservation. However, internal control systems and ERM can provide only reasonable,
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