Travelers 2012 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 product returns and 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, 2012:
% of
State Total
California .................................................. 10.1%
New York ................................................. 9.8
Texas ..................................................... 7.3
Pennsylvania ................................................ 5.1
Florida ................................................... 4.5
Illinois .................................................... 4.0
New Jersey ................................................ 3.9
Massachusetts .............................................. 3.4
Georgia ................................................... 3.1
All other domestic(1) ......................................... 44.8
Total domestic ............................................. 96.0
International ............................................... 4.0
Consolidated total .......................................... 100.0%
(1) No other single state accounted for 3.0% or more of the total direct written premiums
written in 2012 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 proprietary and third-party 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
new and existing business. These underwriting actions on new and existing business include tightened
underwriting standards, selective price increases and changes to 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 Modeling’’ and ‘‘—Changing Climate Conditions.’’
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