Travelers 2011 Annual Report Download - page 43

A ratio result falling outside the usual range of IRIS ratios, however, is not considered a failing result;
rather, unusual values are viewed as part of the regulatory early monitoring system. Furthermore, in
some years, it may not be unusual for financially sound companies to have several ratios with results
outside the usual ranges. Generally, an insurance company will become subject to regulatory scrutiny if
it falls outside the usual ranges of four or more of the ratios.
Based on preliminary 2011 IRIS ratios calculated by the Company for its lead insurance
subsidiaries, The Travelers Indemnity Company and St. Paul Fire and Marine Insurance Company had
results outside the normal range for one IRIS ratio due to the size of their investments in non-fixed
maturity securities. Travelers Casualty and Surety Company and The Standard Fire Insurance Company
had results outside the normal range for two IRIS ratios due to the amount of dividends paid to their
respective parent. Additionally, Travelers Casualty and Surety Company had results outside the normal
range for one IRIS ratio due to the amount of dividends received from its subsidiaries.
In 2010, the following lead insurance subsidiaries had results outside the normal range due to the
actions taken by the Company during 2010 to dividend excess capital to the holding company: The
Travelers Indemnity Company had results outside the normal range for one IRIS ratio due to the
amount of dividends received from its subsidiaries and for three IRIS ratios due to the amount of
dividends paid to its parent; Travelers Casualty and Surety Company and The Standard Fire Insurance
Company had results outside the normal range for one IRIS ratio due to the amount of dividends
received from their subsidiaries and for two IRIS ratios due to the amount of dividends paid to their
parent; and St. Paul Fire and Marine Insurance Company had results outside the normal range for
three IRIS ratios due to the amount of dividends paid to its parent.
Management does not anticipate regulatory action as a result of the 2011 IRIS ratio results for the
lead insurance subsidiaries or their insurance subsidiaries. In all instances in prior years, regulators
have been satisfied upon follow-up that no regulatory action was required.
Risk-Based Capital (RBC) Requirements. The NAIC has an RBC requirement for most property
and casualty insurance companies. The RBC requirement determines minimum capital requirements
and is intended to raise the level of protection for policyholder obligations. Under laws adopted by
individual states, insurers having total adjusted capital less than that required by the RBC calculation
will be subject to varying degrees of regulatory action, depending on the level of capital inadequacy.
The formulas have not been designed to differentiate among adequately capitalized companies that
operate with levels of capital above the RBC requirement. Therefore, it is inappropriate and ineffective
to use the formulas to rate or to rank these companies. At December 31, 2011, all of TRV’s insurance
subsidiaries had total adjusted capital in excess of the RBC requirement.
Investment Regulation. Insurance company investments must comply with applicable laws and
regulations which prescribe the kind, quality and concentration of investments. In general, these laws
and regulations permit investments in federal, state and municipal obligations, corporate bonds,
preferred and common equity securities, mortgage loans, real estate and certain other investments,
subject to specified limits and certain other qualifications. At December 31, 2011, the Company was in
compliance with these laws and regulations.
International Regulation
TRV’s insurance underwriting subsidiaries based in the United Kingdom, Travelers Insurance
Company Limited and Travelers Casualty and Surety Company of Europe Limited, are regulated by the
Financial Services Authority (FSA). The FSA’s principal objectives are to maintain market confidence,
promote public understanding of the financial system, protect consumers, and fight financial crime.
TRV’s managing agency (Travelers Syndicate Management Ltd.) of its Lloyd’s syndicate is also
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