Travelers 2011 Annual Report Download - page 27

transactions for compliance with the company’s underwriting and pricing programs. All online business
is subject to consultative review by Personal Insurance’s in-house underwriters, and audits are
conducted by an internal peer review team across all of the Company’s independent agency-generated
business on a systematic sampling basis.
Insurers writing personal lines property and casualty policies may be unable to increase prices until
some time after the costs associated with coverage have increased, primarily because of state insurance
rate regulation. The pace at which an insurer can change rates in response to increased costs depends,
in part, on whether the applicable state law requires prior approval of rate increases or notification to
the regulator either before or after a rate change is imposed. In states with prior approval laws, rates
must be approved by the regulator before being used by the insurer. In states having ‘‘file-and-use’’
laws, the insurer must file rate changes with the regulator, but does not need to wait for approval
before using the new rates. A ‘‘use-and-file’’ law requires an insurer to file rates within a period of time
after the insurer begins using the new rate. Approximately one-half of the states require prior approval
of most rate changes. The Company’s ability or willingness to raise prices, modify underwriting terms or
reduce exposure to certain geographies may be limited due to considerations of public policy, the
evolving political environment, changes in the general economic climate and/or social responsibilities.
The Company also may choose to write business it might not otherwise write for strategic purposes,
such as improving access to other underwriting opportunities.
Product Lines
The primary coverages in Personal Insurance are personal automobile and homeowners and other
insurance sold to individuals. Personal Insurance had approximately 7.8 million active policies
(e.g., policies-in-force) at December 31, 2011.
The Personal Insurance segment writes the following types of coverages:
•Personal Automobile provides coverage for liability to others for both bodily injury and property
damage, uninsured motorist protection, and for physical damage to an insured’s own vehicle
from collision. In addition, many states require policies to provide first-party personal injury
protection, frequently referred to as no-fault coverage.
•Homeowners and Other provides protection against losses to dwellings and contents from a
variety of perils (excluding flooding) as well as coverage for personal liability. The Company
writes homeowners insurance for dwellings, condominiums and tenants, and rental properties.
The Company writes coverage for boats and yachts and valuable personal items such as jewelry,
and also writes coverages for umbrella liability, identity fraud, and weddings and special events.
Net Retention Policy
The following discussion reflects the Company’s retention policy with respect to the Personal
Insurance segment as of January 1, 2012. The Company generally retains its primary personal auto
exposures in their entirety. For personal property insurance, there is an $8.0 million maximum retention
per risk. Personal Insurance retains the first $10.0 million of umbrella policies and purchases facultative
reinsurance for limits over $10.0 million. The Company utilizes facultative reinsurance to provide
additional limits capacity or to reduce retentions on an individual risk basis. The Company may also
retain amounts greater than those described herein based upon the individual characteristics of the risk.
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