Travelers 2013 Annual Report Download - page 143

TRV is not dependent on dividends or other forms of repatriation from its foreign operations to
support its liquidity needs. The undistributed earnings of the Company’s foreign operations are not
material and are intended to be permanently reinvested in those operations.
TRV and its two non-insurance holding company subsidiaries received $2.90 billion of dividends in
2013, all of which was received from their U.S. insurance subsidiaries.
Pension and Other Postretirement Benefit Plans
The Company sponsors a qualified non-contributory defined benefit pension plan (the Qualified
Plan), which covers substantially all U.S. domestic employees and provides benefits primarily under a
cash balance formula. In addition, the Company sponsors: a nonqualified defined benefit pension plan
which covers certain highly-compensated employees, pension plans for employees of its foreign
subsidiaries, and a postretirement health and life insurance benefit plan for employees satisfying certain
age and service requirements and for certain retirees.
The Qualified Plan is subject to regulations under the Employee Retirement Income Act of 1974
as amended (ERISA), which requires plans to meet minimum standards of funding and requires such
plans to subscribe to plan termination insurance through the Pension Benefit Guaranty Corporation
(PBGC). The Company does not have a minimum funding requirement for the Qualified Plan for 2014
and does not anticipate having a minimum funding requirement in 2015. The Company has significant
discretion in making contributions above those necessary to satisfy the minimum funding requirements.
In 2013, there was no minimum funding requirement for the Qualified Plan, and the Company made
no voluntary contributions to the Qualified Plan. In 2012 and 2011, the Company voluntarily made
contributions totaling $217 million and $185 million, respectively, to the Qualified Plan. In determining
future contributions, the Company will consider the performance of the plan’s investment portfolio, the
effects of interest rates on the projected benefit obligation of the plan and the Company’s other capital
requirements. The Company has not determined whether or not additional voluntary funding will be
made in the 2014. However, the Company currently believes, subject to actual plan performance and
funded status at the time, that it may make voluntary pension contributions of approximately
$75 million to $100 million annually beginning in 2015 as well as over the following several years.
The Qualified Plan assets are managed to maximize long-term total return. The Company’s overall
strategy is to achieve a mix of approximately 85% to 90% of investments for long-term growth and
10% to 15% for near-term benefit payments with a wide diversification of asset types, fund strategies
and fund managers. The current target allocations for plan assets are 55% to 65% equity securities and
20% to 40% fixed income securities, with the remainder allocated to short-term securities. For 2014,
the Company plans to apply an expected long-term rate of return on plan assets of 7.50%, the same
rate as in 2013. The rates of return reflect the Company’s current expectations of long-term returns on
the plan’s invested assets, taking into account the current low level of long-term interest rates as well as
the Federal Reserve’s commentary in November 2013 regarding its expectation to maintain interest
rates at their current low levels until the national labor market is sufficiently strong. The Company’s
expected long-term rate of return on plan assets also contemplates a return to more normal levels of
long-term interest rates in the future.
For further discussion of the pension and other postretirement benefit plans, see note 14 of notes
to the consolidated financial statements.
Risk-Based Capital
The NAIC has Risk-Based Capital (RBC) requirements for property casualty companies to be
used as minimum capital requirements by the NAIC and states to identify companies that merit further
regulatory action. The formulas have not been designed to differentiate among adequately capitalized
companies that operate with levels of capital above the RBC requirements. Therefore, it is
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