Travelers 2009 Annual Report Download - page 14

Pricing and Underwriting
Pricing of the Company’s property and casualty insurance products is generally developed based
upon an estimation of expected losses, the expenses of producing, issuing and servicing business and
managing claims, the time value of money associated with such loss and expense cash flows, and a
reasonable allowance for profit. The Company has a disciplined approach to underwriting and risk
management that emphasizes profitable growth rather than premium volume or market share. The
Company’s insurance subsidiaries are subject to each state’s laws and regulations regarding rate and
policy form approvals. The applicable state laws and regulations establish standards to ensure that rates
are not excessive, inadequate, unfairly discriminatory, or used to engage in unfair price competition.
The Company’s ability to increase rates and the relative timing of the process are dependent upon each
respective state’s requirements, as well as the competitive market environment.
Geographic Distribution
The following table shows the geographic distribution of the Company’s consolidated direct written
premiums for the year ended December 31, 2009:
% of
State Total
New York ................................................. 9.6%
California.................................................. 9.3
Texas..................................................... 7.5
Pennsylvania................................................ 5.1
Florida ................................................... 4.3
New Jersey ................................................ 4.0
Illinois.................................................... 3.7
Massachusetts .............................................. 3.7
Georgia................................................... 3.2
All other domestic(1) ......................................... 43.2
Total domestic............................................. 93.6
International ............................................... 6.4
Consolidated total.......................................... 100.0%
(1) No other single state accounted for 3.0% or more of the total direct written premiums
written in 2009 by the Company’s domestic operations.
Catastrophe Exposure
The wide geographic distribution of the Company’s property and casualty insurance operations
exposes it to claims arising out of catastrophes. The Company continually monitors its exposure to
natural and man-made peril catastrophic losses and attempts to manage such exposure. The Company
uses various analyses and methods, including sophisticated computer modeling techniques, to analyze
underwriting risks of business in natural catastrophe prone areas and target risk areas for conventional
terrorism. The Company relies, in part, upon this analysis to make underwriting decisions designed to
manage its exposure on catastrophe-exposed business. The Company limits the writing of new property
and homeowners business, and each of the Company’s reportable business segments have selectively
taken underwriting action on existing business in some markets. In addition, in recent years, each
segment has also tightened underwriting standards, implemented price increases in some catastrophe-
prone areas and put in place deductibles specific to hurricane-, wind- and hail-prone areas. See
‘‘Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—
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