Travelers 2011 Annual Report Download - page 71

Even if we are not subject to additional regulation by the federal government, significant financial
sector regulatory reform, including the Dodd-Frank Act, could have a significant impact on us. For
example, regulatory reform could have an unexpected impact on our rights as a creditor or on our
competitive position. In particular, the Dodd-Frank Act authorizes assessments to pay for the resolution
of systemically important financial institutions that have become insolvent. We (as a financial company
with more than $50 billion in assets) could be assessed, and, although any such assessment is required
to be risk weighted (i.e., riskier firms pay more), such costs could be material to us and are not
currently estimable.
Other potential changes in U.S. federal legislation, regulation and/or administrative policies,
including the potential repeal of the McCarran-Ferguson Act and potential changes in federal taxation,
could also significantly harm the insurance industry, including us.
A downgrade in our claims-paying and financial strength ratings could adversely impact our
business volumes, adversely impact our ability to access the capital markets and increase our
borrowing costs. Claims-paying and financial strength ratings are important to an insurer’s competitive
position. Rating agencies review insurers’ ratings periodically, and change their ratings criteria
periodically, and therefore our current ratings may not be maintained in the future. A downgrade in
one or more of our ratings could negatively impact our business volumes because demand for certain of
our products may be reduced, particularly because many customers may require that we maintain
minimum ratings to enter into or renew business with us. Additionally, we may find it more difficult to
access the capital markets and we may incur higher borrowing costs. If significant losses, including, but
not limited to, those resulting from one or more major catastrophes, or significant reserve additions or
significant investment losses were to cause our capital position to deteriorate significantly, or if one or
more rating agencies substantially increase their capital requirements, we may need to raise equity
capital in the future (which we may not be able to do at a reasonable cost or at all) in order to
maintain our ratings or limit the extent of a downgrade. A continued trend of more frequent and
severe weather-related catastrophes or a prolonged economic downturn may lead rating agencies to
substantially increase their capital requirements. For further discussion about our ratings, see,
‘‘Item 1—Business—Ratings.’’
The inability of our insurance subsidiaries to pay dividends to our holding company in sufficient
amounts would harm our ability to meet our obligations, pay future shareholder dividends or make
future share repurchases. Our holding company relies on dividends from our insurance subsidiaries to
meet our obligations for payment of interest and principal on outstanding debt, to pay dividends to
shareholders, to make contributions to our qualified domestic pension plan, to pay other corporate
expenses and to make share repurchases. The ability of our insurance subsidiaries to pay dividends to
our holding company in the future will depend on their statutory surplus, earnings and regulatory
restrictions.
We are subject to regulation by some states as an insurance holding company system. Our
insurance subsidiaries are subject to various regulatory restrictions that limit the maximum amount of
dividends available to be paid to their parent without prior approval of insurance regulatory authorities.
In a time of prolonged economic downturn or otherwise, regulators may choose to further restrict the
ability of insurance subsidiaries to make payments to their parent companies. The ability of our
insurance subsidiaries to pay dividends to our holding company is also restricted by regulations that set
standards of solvency that must be met and maintained.
The inability of our insurance subsidiaries to pay dividends to our holding company in an amount
sufficient to meet our debt service obligations and other cash requirements could harm our ability to
meet our obligations, to pay future shareholder dividends and to make share repurchases.
Disruptions to our relationships with our independent agents and brokers could adversely affect
us. We market our insurance products primarily through independent agents and brokers. An
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