Travelers 2011 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 associated with producing, issuing and servicing
business and managing claims, the time value of money related to the expected loss and expense cash
flows, and a reasonable allowance for profit that considers the capital needed to support the Company’s
business. The Company has a disciplined approach to underwriting and risk management that over the
long-term emphasizes profitable growth rather than premium volume or market share. The Company’s
insurance subsidiaries are subject to state laws and regulations regarding rate and policy form
approvals. The applicable state laws and regulations establish standards in certain lines of business 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, 2011:
% of
State Total
California .................................................. 10.1%
New York ................................................. 9.7
Texas ..................................................... 7.2
Pennsylvania ................................................ 5.1
Florida ................................................... 4.6
Illinois .................................................... 4.0
New Jersey ................................................ 3.8
Massachusetts .............................................. 3.5
Georgia ................................................... 3.1
All other domestic(1) ......................................... 44.3
Total domestic ............................................. 95.4
International ............................................... 4.6
Consolidated total .......................................... 100.0%
(1) No other single state accounted for 3.0% or more of the total direct written premiums
written in 2011 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 uses various analyses and methods,
including sophisticated computer modeling processes, to continually monitor and analyze underwriting
risks of business in natural catastrophe-prone areas and target risk areas for conventional terrorist
attacks (defined as attacks other than nuclear, biological, chemical or radiological events). The
Company relies, in part, upon this analysis to make underwriting decisions designed to manage its
exposure on catastrophe-exposed business. For example, the Company has limited the writing of new
property and homeowners business in some markets and has selectively taken underwriting actions on
existing business. These underwriting actions include tightened underwriting standards, selective price
increases and deductibles specific to hurricane-, tornado-, wind- and hail-prone areas. See ‘‘Item 7—
Management’s Discussion and Analysis of Financial Condition and Results of Operations—Catastrophe
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