Travelers 2013 Annual Report Download - page 44

Risk-Based Capital (RBC) Requirements. The NAIC has an RBC requirement for most property
and casualty insurance companies. The RBC requirement determines minimum capital requirements
and is intended to raise the level of protection for policyholder obligations. Under laws adopted by
individual states, insurers having total adjusted capital less than that required by the RBC calculation
will be subject to varying degrees of regulatory action, depending on the level of capital inadequacy.
The formulas have not been designed to differentiate among adequately capitalized companies that
operate with levels of capital above the RBC requirement. Therefore, it is inappropriate and ineffective
to use the formulas to rate or to rank these companies. At December 31, 2013, all of TRV’s domestic
insurance subsidiaries had total adjusted capital in excess of the RBC requirement.
Investment Regulation. Insurance company investments must comply with applicable laws and
regulations which prescribe the kind, quality and concentration of investments. In general, these laws
and regulations permit investments in federal, state and municipal obligations, corporate bonds,
preferred and common equity securities, mortgage loans, real estate and certain other investments,
subject to specified limits and certain other qualifications. At December 31, 2013, the Company was in
compliance with these laws and regulations.
International Regulation
TRV’s insurance subsidiaries based in Canada and the Canadian branch of one of the Company’s
U.S. insurance subsidiaries are regulated by the Office of the Superintendent of Financial Institutions
under provisions of the Insurance Companies Act. These Canadian subsidiaries and the Canadian
branch are also subject to provincial insurance legislation which regulates pricing, underwriting,
coverage and claim conduct, in varying degrees by province and by product line.
TRV’s insurance subsidiaries based in the United Kingdom are regulated by two regulatory bodies,
The Prudential Regulation Authority (PRA) and The Financial Conduct Authority (FCA). The PRA’s
primary objective is to promote the safety and soundness of insurers for the protection of policyholders,
while the FCA has three operational objectives: (i) to secure an appropriate degree of protection for
consumers, (ii) to protect and enhance the integrity of the UK financial system, and (iii) to promote
effective competition in the interests of consumers. TRV’s insurance operations in the Republic of
Ireland are conducted through the Irish branch of Travelers Insurance Company Limited which is
regulated by the Insurance Supervision Departments of the Central Bank of Ireland (as to conduct)
and also by the PRA.
TRV’s managing agency (Travelers Syndicate Management Ltd.) of its Lloyd’s syndicate (Travelers
Syndicate 5000) is also regulated by the PRA and the FCA, which have delegated certain regulatory
responsibilities to the Council of Lloyd’s. Travelers Syndicate 5000 is able to write business in over 75
jurisdictions throughout the world by virtue of Lloyd’s international licenses. In each such jurisdiction,
the policies written by Travelers Syndicate Management Ltd., as part of Lloyd’s, are subject to the laws
and insurance regulation of that jurisdiction. Travelers Underwriting Agency Limited, which as an
insurance intermediary is regulated by the FCA, produces insurance business for Travelers
Syndicate 5000.
A TRV subsidiary, Travelers Casualty and Surety Company, has a representative office in China.
The representative office is regulated by the China Insurance Regulatory Commission. A TRV
subsidiary, TCI Global Services, Inc., has a liaison office in India. Insurance business in India is
regulated by the Insurance Regulatory and Development Authority. TRV has a 49.5% investment in
JMalucelli, a joint venture holding company in Brazil. JMalucelli’s subsidiaries operate in the insurance
and reinsurance business in Brazil and are regulated by the Superintendencia de Seguros Privados.
Regulators in these jurisdictions require insurance companies to maintain certain levels of capital
depending on, among other things, the type and amount of insurance policies in force.
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