Travelers 2013 Annual Report Download - page 32

General Catastrophe Reinsurance Treaty. The Company utilizes a general catastrophe reinsurance
treaty with unaffiliated reinsurers to help manage its exposure to losses resulting from catastrophes.
The general catastrophe reinsurance treaty covers the accumulation of net property losses arising out of
one occurrence. The treaty covers all of the Company’s exposures in the United States and Canada and
their possessions, and waters contiguous thereto, the Caribbean and Mexico. The treaty only provides
coverage for terrorism events in limited circumstances and excludes entirely losses arising from nuclear,
biological, chemical or radiological attacks.
The following table summarizes the Company’s coverage under its General Catastrophe
Reinsurance Treaty, effective for the period July 1, 2013 through June 30, 2014, as well as certain other
catastrophe-related coverages, other than coverage related to the General Catastrophe Aggregate
Excess-of-Loss Treaty which is described later in this section.
Layer of Loss Reinsurance Coverage In-Force
$0 - $1.5 billion ............ Loss 100% retained by the Company, except for certain
losses covered by the Earthquake Excess-of-Loss
Reinsurance Treaty as described below.
$1.5 billion - $2.25 billion ..... 53.3% ($400 million) of loss covered by treaty; 46.7%
($350 million) of loss retained by the Company.
Additionally, certain losses incurred in the Northeastern
United States are covered by the reinsurance agreements
related to the Catastrophe Bonds as described below.
Greater than $2.25 billion ..... 100% of loss retained by the Company, except for certain
losses incurred in the Northeastern United States, which
are covered by the reinsurance agreements related to the
Catastrophe Bonds and Northeast General Catastrophe
Reinsurance Treaty as described below.
Catastrophe Bonds. The Company has catastrophe protection through two indemnity reinsurance
agreements with Long Point Re III Ltd. (Long Point Re III), an independent Cayman Islands company
licensed as a Class B insurer in the Cayman Islands. The reinsurance agreements expire in June 2015
and May 2016, respectively. Both reinsurance agreements meet the requirements to be accounted for as
reinsurance in accordance with the guidance for reinsurance contracts. In connection with each
reinsurance agreement, Long Point Re III issued notes (generally referred to as ‘‘catastrophe bonds’’)
to investors in an amount equal to the full coverage provided under the respective reinsurance
agreement as described below.
On June 6, 2012, Long Point Re III completed an offering to unrelated investors of $250 million
aggregate principal amount of catastrophe bonds. In connection with the offering, the Company and
Long Point Re III entered into a three-year reinsurance agreement providing coverage to the Company
for certain losses from a hurricane in the northeastern United States. The business covered by the
reinsurance agreement comprises specified property and related coverages in the Company’s Personal
Insurance segment, and within the ‘‘Select Accounts’’ and the ‘‘Commercial Accounts’’ business groups
within the Company’s Business Insurance segment. Covered losses under the agreement are limited to
the following geographic locations: Connecticut, Delaware, District of Columbia, Maine, Maryland,
Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Virginia and
Vermont. The proceeds of the offering were deposited in a reinsurance trust account. The attachment
point, maximum limit and insurance percentage are reset annually to maintain modeled probabilities of
attachment and expected loss on the respective catastrophe bonds equal to the initial modeled
probabilities of attachment and expected loss. The attachment point, maximum limit and insurance
percentage were reset in April 2013. Accordingly, for the period May 1, 2013 through April 30, 2014,
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