Travelers 2007 Annual Report Download - page 66

downturn or recession. As a result, our exposure to any of the above credit risks could materially and
adversely affect our results of operations.
The insurance industry and we are the subject of a number of investigations by state and federal
authorities in the United States. We cannot predict the outcome of these investigations or the impact
on our business practices or financial results. As part of ongoing, industry-wide investigations, we
have received subpoenas and written requests for information from government agencies and
authorities, including from the Attorneys General of numerous states, various states’ insurance and
business regulators and the Securities and Exchange Commission. The areas of pending inquiry
addressed to us include our relationship with brokers and agents and our involvement with
‘‘non-traditional’’ insurance and reinsurance products. We may receive additional subpoenas and
requests for information with respect to these or other areas from government agencies or authorities.
We are cooperating with these subpoenas and requests for information. For further information, see
‘‘Item 3—Legal Proceedings’’.
It would be premature to reach any conclusions as to the likely outcome of these matters or the
impact on our business or financial results. Potential outcomes could include enforcement proceedings
or settlements resulting in fines, penalties and/or changes in business practices that could materially and
adversely affect our results of operations. In addition, these investigations may result in changes in laws
and regulations affecting the industry in general which could, in turn, also materially and adversely
affect our results of operations.
Our businesses are heavily regulated and changes in regulation may reduce our profitability and
limit our growth. We are extensively regulated and supervised in the jurisdictions in which we conduct
business, including licensing and supervision by government regulatory agencies in such jurisdictions.
This regulatory system is generally designed to protect the interests of policyholders, and not
necessarily the interests of insurers, their shareholders and other investors. This regulatory system also
addresses authorization for lines of business, capital and surplus requirements, limitations on the types
and amounts of certain investments, underwriting limitations, transactions with affiliates, dividend
limitations, changes in control, premium rates and a variety of other financial and non-financial
components of an insurer’s business.
In recent years, the state insurance regulatory framework has come under increased federal
scrutiny, and some state legislatures have considered or enacted laws that may alter or increase state
authority to regulate insurance companies and insurance holding companies. Further, the National
Association of Insurance Commissioners (NAIC) and state insurance regulators continually reexamine
existing laws and regulations, specifically focusing on modifications to holding company regulations,
interpretations of existing laws and the development of new laws and regulations. In addition, Congress
and some federal agencies from time to time investigate the current condition of insurance regulation
in the United States to determine whether to impose federal or national regulation or to allow an
optional federal charter, similar to the option available to most banks. We cannot predict the effect any
proposed or future legislation or NAIC initiatives may have on the conduct of our business.
Although the United States federal government does not directly regulate the insurance business,
changes in federal legislation, regulation and/or administrative policies in several areas, including
changes in financial services regulation (e.g., the repeal of the McCarran-Ferguson Act) and federal
taxation, can significantly harm the insurance industry, including us.
Insurance laws or regulations that are adopted or amended may be more restrictive than current
laws or regulations and may result in lower revenues and/or higher costs and thus could materially and
adversely affect our results of operations.
A downgrade in our claims-paying and financial strength ratings could adversely impact our
business volumes, adversely impact our ability to access the capital markets and increase our
borrowing costs. Claims-paying and financial strength ratings have become increasingly important to
an insurer’s competitive position. Rating agencies review their ratings periodically, and our current
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