Travelers 2013 Annual Report Download - page 43

business or withdrawing from that state, and they allow insurers to cancel or non-renew certain policies
only for certain specified reasons.
Assessments for Guaranty Funds and Second-Injury Funds and Other Mandatory Pooling and
Reinsurance Arrangements. Virtually all states require insurers licensed to do business in their state,
including TRV’s domestic insurance subsidiaries, to bear a portion of the loss suffered by some
claimants because of the insolvency of other insurers. Many states also have laws that establish second-
injury funds to provide compensation to injured employees for aggravation of a prior condition or
injury.
TRV’s domestic insurance subsidiaries are also required to participate in various involuntary
assigned risk pools, principally involving workers’ compensation, automobile insurance, property
windpools in states prone to property damage from hurricanes, and FAIR plans, which provide various
insurance coverages to individuals or other entities that otherwise are unable to purchase that coverage
in the voluntary market.
Assessments may include any charge mandated by statute or regulatory authority that is related
directly or indirectly to underwriting activities. Examples of such mechanisms include, but are not
limited to, the Florida Hurricane Catastrophe Fund, Florida Citizens Property Insurance Corporation,
National Workers’ Compensation Reinsurance Pool, North Carolina Beach Plan, Louisiana Citizens
Property Insurance Corporation, and the Texas Windstorm Insurance Association. Amounts payable or
paid as a result of arrangements that are in substance reinsurance, including certain involuntary pools
where insurers are required to assume premiums and losses from those pools, are accounted for as
reinsurance (e.g., National Workers’ Compensation Reinsurance Pool, North Carolina Beach Plan).
Amounts related to assessments from arrangements that are not reinsurance are reported as a
component of ‘‘General and Administrative Expenses.’’ For additional information concerning
assessments for guaranty funds and second-injury funds and other mandatory pooling and reinsurance
agreements including state-funding mechanisms, see ‘‘Item 1A—Risk Factors.’’
Insurance Regulatory Information System. The National Association of Insurance Commissioners
(NAIC) developed the Insurance Regulatory Information System (IRIS) to help state regulators
identify companies that may require special attention. Financial examiners review annual statements
and key financial ratios based on year-end data. These ratios assist state insurance departments in
executing their statutory mandate to oversee the financial condition of insurance companies. Each ratio
has an established ‘‘usual range’’ of results. A ratio result falling outside the usual range of IRIS ratios,
however, is not considered a failing result; rather, unusual values are viewed as part of the regulatory
early monitoring system. Furthermore, in some years, it may not be unusual for financially sound
companies to have several ratios with results outside the usual ranges. Generally, an insurance company
will become subject to regulatory scrutiny if it falls outside the usual ranges of four or more of the
ratios.
Based on preliminary 2013 IRIS ratios calculated by the Company for its lead domestic insurance
subsidiaries, The Travelers Indemnity Company and St. Paul Fire and Marine Insurance Company had
results outside the normal range for one IRIS ratio due to the size of their investments in certain
non-fixed maturity securities. Travelers Casualty and Surety Company had results outside the normal
range for one IRIS ratio due to the amount of dividends received from its subsidiaries.
In 2012, The Travelers Indemnity Company and St. Paul Fire and Marine Insurance Company had
results outside the normal range for one IRIS ratio due to the size of their investments in certain
non-fixed maturity securities.
Management does not anticipate regulatory action as a result of the 2013 IRIS ratio results for the
lead insurance subsidiaries or their insurance subsidiaries. In all instances in prior years, regulators
have been satisfied upon follow-up that no regulatory action was required.
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