Travelers 2013 Annual Report Download - page 216

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. REINSURANCE (Continued)
Attorney General of the United States. The annual aggregate industry loss minimum is $100 million
through 2014. The program excludes from participation the following types of insurance: Federal crop
insurance, private mortgage insurance, financial guaranty insurance, medical malpractice insurance,
health or life insurance, flood insurance, reinsurance, commercial automobile, professional liability
(other than directors and officers’), surety, burglary and theft, and farm-owners multi-peril. In the case
of a war declared by Congress, only workers’ compensation losses are covered by the program. All
commercial property and casualty insurers licensed in the United States are generally required to
participate in the program. Under the program, a participating insurer, in exchange for making
terrorism insurance available, is entitled to be reimbursed by the Federal Government for 85% of
subject losses, after an insurer deductible, subject to an annual cap.
The deductible for any calendar year is equal to 20% of the insurer’s direct earned premiums for
covered lines for the preceding calendar year. The Company’s estimated deductible under the program
is $2.35 billion for 2014. The annual cap limits the amount of aggregate subject losses for all
participating insurers to $100 billion. Once subject losses have reached the $100 billion aggregate
during a program year, participating insurers will not be liable under the program for additional
covered terrorism losses for that program year. There have been no terrorism-related losses that have
triggered program coverage since the program was established. Since the law is untested, there is
substantial uncertainty as to how it will be applied if an act of terrorism is certified under the program.
It is also possible that future legislative action could change the program. Further, given the
unpredictable frequency and severity of terrorism losses, as well as the limited terrorism coverage in the
Company’s own reinsurance program, future losses from acts of terrorism, particularly involving
nuclear, biological, chemical or radiological events, could be material to the Company’s operating
results, financial position and/or liquidity in future periods. In addition, the Company may not have
sufficient resources to respond to claims arising from a high frequency of high severity natural
catastrophes and/or of man-made catastrophic events involving conventional means. While the
Company seeks to manage its exposure to man-made catastrophic events involving conventional means,
the Company may not have sufficient resources to respond to claims arising out of one or more
man-made catastrophic events involving nuclear, biological, chemical or radiological means.
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