Travelers 2008 Annual Report Download - page 43

transact insurance business in all U.S. states, the District of Columbia, Guam, Puerto Rico, Bermuda
and the U.S. Virgin Islands.
Insurance Regulation Concerning Dividends. TRV’s principal insurance subsidiaries are domiciled
in the states of Connecticut and Minnesota. The insurance holding company laws of both states
applicable to TRV’s subsidiaries require notice to, and approval by, the state insurance commissioner
for the declaration or payment of any dividend, that together with other distributions made within the
preceding twelve months, exceeds the 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 accounting practices 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.
Rate and Rule Approvals. TRV’s insurance subsidiaries are subject to each state’s laws and
regulations regarding rate and rule approvals. The applicable laws and regulations are used by states to
establish standards to ensure that rates are not excessive, inadequate, unfairly discriminatory, or used to
engage in unfair price competition. An insurer’s ability to increase rates and the relative timing of the
process are dependent upon each respective state’s requirements.
Requirements for Exiting Geographic Markets and/or Canceling or Nonrenewing Policies. Several
states have laws and 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 laws and regulations typically require
prior notice, and in some instances insurance department approval, prior to discontinuing a line of
business or withdrawing from that state, and they allow insurers to cancel or non-renew certain policies
only for certain specified reasons.
Assessments for Guaranty Funds and Second-Injury Funds and Other Mandatory Pooling and
Reinsurance Arrangements. Virtually all states require insurers licensed to do business in their state,
including TRV’s insurance subsidiaries, to bear a portion of the loss suffered by some claimants
because of the insolvency of other insurers. Many states also have laws that established second-injury
funds to provide compensation to injured employees for aggravation of a prior condition or injury.
TRV’s insurance subsidiaries are also required to participate in various involuntary assigned risk
pools, principally involving workers’ compensation, automobile insurance, property windpools in states
prone to property damage from hurricanes, and FAIR plans, which provide various insurance coverages
to individuals or other entities that otherwise are unable to purchase that coverage in the voluntary
market.
Assessments may include any charge mandated by statute or regulatory authority that is related
directly or indirectly to underwriting activities. Examples of such mechanisms include, but are not
limited to, the Florida Hurricane Catastrophe Fund, Florida Citizens Property Insurance Corporation,
Louisiana Citizens Property Insurance Corporation and the Texas Windstorm Insurance Association.
Amounts payable or paid as a result of arrangements that are in substance reinsurance, including
certain involuntary pools where insurers are required to assume premiums and losses from those pools,
are accounted for as reinsurance (e.g., National Workers’ Compensation Reinsurance Pool). Amounts
related to assessments from arrangements that are not reinsurance are reported as a component of
‘‘General and Administrative Expenses.’’ For additional information concerning assessments for
guaranty funds and second-injury funds and other mandatory pooling and reinsurance agreements
including state-funding mechanisms, see ‘‘Item 1A—Risk Factors.’’
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