Travelers 2010 Annual Report Download - page 46

management is commonly called Enterprise Risk Management (ERM). ERM activities involve both the
identification and assessment of a broad range of risks and the execution of synchronized strategies to
effectively manage such risks. Effective ERM also includes the determination of the Company’s risk
capital needs, which takes into account regulatory requirements and credit rating considerations, in
addition to economic and other factors.
ERM at the Company is an integral part of business operations. All risk owners across all
functions, all corporate leaders and the board of directors are engaged in ERM. ERM involves
risk-based analytics, as well as reporting and feedback throughout the enterprise in support of the
Company’s long-term financial strategies and objectives.
The Company uses various methods, including sophisticated computer modeling techniques, to
analyze catastrophic events and the risks associated with them. These analyses and methods are used in
making underwriting and reinsurance decisions as part of managing the Company’s exposure to
catastrophic events. In addition to catastrophe modeling and analysis, the Company also models and
analyzes its exposure to other extreme events. These analytical techniques are an integral component of
the Company’s ERM process and further support the Company’s long-term financial strategies and
objectives.
In addition to the day-to-day ERM activities within the Company’s business units, other 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 Enterprise and
Underwriting Risk Committees of management, the Credit Committee, the Chief Compliance Officer,
the Business Conduct Officer, the Corporate Actuarial group, the Corporate Audit group, the
Accounting Policy group, the Enterprise Underwriting 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 effective risk management strategies throughout the Company. Another
strategic ERM objective of this executive includes working across the Company to enhance effective
and realistic risk modeling capabilities as part of the Company’s overall effort to understand and
manage its portfolio of risks to be within its risk appetite. Board oversight of ERM is provided by the
Risk Committee of the board of directors, which reviews the strategies, processes and controls
pertaining to the Company’s insurance operations and oversees the implementation, execution and
performance of the Company’s ERM program.
The Company’s ERM efforts build upon the foundation of an effective internal control
environment. ERM expands the internal control objectives of effective and efficient operations, reliable
financial reporting and compliance with applicable laws and regulations, to fostering, leading and
supporting an integrated, risk-based culture within the Company that focuses on value creation and
preservation. However, the Company can provide only reasonable, not absolute, assurance that these
objectives will be met. Further, the design of any risk management or control system must reflect the
fact that there are resource constraints, and the benefits must be considered relative to their costs. As a
result, the possibility of material financial loss remains in spite of the Company’s significant ERM
efforts. An investor should carefully consider the risks and all of the other information set forth in this
annual report, including the discussions included in ‘‘Item 1A—Risk Factors,’’ ‘‘Item 7A—Quantitative
and Qualitative Disclosures About Market Risk,’’ and ‘‘Item 8—Financial Statements and
Supplementary Data.’’
OTHER INFORMATION
Customer Concentration
In the opinion of the Company’s management, no material part of the business of the Company
and its subsidiaries is dependent upon a single customer or group of customers, the loss of any one of
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