Travelers 2011 Annual Report Download - page 123

catastrophe exposure. Accordingly, catastrophe estimates provided by different insurers may not be
comparable.
During the first quarter of 2011, a new version of a third-party proprietary computer model
utilized by the Company, as well as others in the insurance industry, to estimate potential aggregate
hurricane losses was released. After evaluating multiple third-party models and calibrating its own
historical loss experience and underwriting practices, the Company increased its estimated modeled
loss, using its own proprietary modeling processes, from a single U.S. hurricane by a range of 10% to
24%. For each modeled event, the percentage magnitude of the loss increase within this range will vary
based on this evaluation.
The tables below set forth the probabilities that estimated losses from a single event occurring in a
one-year timeframe will equal or exceed the indicated loss amounts (expressed in dollars and as a
percentage of the Company’s common equity), based on the current version of the proprietary
computer model utilized by the Company at December 31, 2011. For example, on the basis described
below the tables, the Company estimates that there is a one percent chance that the Company’s loss
from a single U.S. hurricane in a one-year timeframe would equal or exceed $1.4 billion, or 6% of the
Company’s common equity at December 31, 2011.
Dollars (in billions)
Single U.S.
Single U.S. and Canadian
Likelihood of Exceedance(1) Hurricane Earthquake
2.0% (1-in-50) ................................. $1.0 $0.5
1.0% (1-in-100) ................................. $1.4 $0.6
0.4% (1-in-250) ................................. $2.4 $0.9
0.1% (1-in-1,000) ............................... $5.4 $2.0
Percentage of
Common Equity(2)
Single U.S.
Single U.S. and Canadian
Likelihood of Exceedance Hurricane Earthquake
2.0% (1-in-50) ................................. 5% 2%
1.0% (1-in-100) ................................. 6% 3%
0.4% (1-in-250) ................................. 11% 4%
0.1% (1-in-1,000) ............................... 25% 9%
(1) An event that has, for example, a 2% likelihood of exceedance is sometimes described as
a ‘‘1-in-50 year event.’’ As noted above, however, the probabilities in the table represent
the likelihood of losses from a single event equaling or exceeding the indicated threshold
loss amount in a one-year timeframe, not over a multi-year timeframe. Also, because the
probabilities relate to a single event, the probabilities do not address the likelihood of
more than one event occurring in a particular period, and, therefore, the amounts do not
address potential aggregate catastrophe losses occurring in a one-year timeframe.
(2) The percentage of common equity is calculated by dividing (a) indicated loss amounts in
dollars by (b) total common equity excluding net unrealized investment gains and losses,
net of taxes. Net unrealized investment gains and losses can be significantly impacted by
both discretionary and other economic factors and are not necessarily indicative of
operating trends. Accordingly, the Company’s management uses the percentage of
common equity calculated on this basis as a metric to evaluate the potential impact of a
single hurricane or single earthquake on the Company’s financial position for purposes of
making underwriting and reinsurance decisions.
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