Travelers 2013 Annual Report Download - page 61

Item 1A. RISK FACTORS
You should carefully consider the following risks and all of the other information set forth in this
report, including our consolidated financial statements and the notes thereto.
Catastrophe losses could materially and adversely affect our results of operations, our financial
position and/or liquidity, and could adversely impact our ratings, our ability to raise capital and the
availability and cost of reinsurance. Our property and casualty insurance operations expose us to
claims arising out of catastrophes. Catastrophes can be caused by various natural events, including,
among others, hurricanes, tornadoes and other windstorms, earthquakes, hail, wildfires, severe winter
weather, floods, tsunamis and volcanic eruptions. Catastrophes can also be man-made, such as a
terrorist attack (including those involving nuclear, biological, chemical or radiological events),
explosions, infrastructure failures or a consequence of political instability. The geographic distribution
of our business subjects us to catastrophe exposures in the United States, which include, but are not
limited to: hurricanes from Maine through Texas; tornadoes throughout the Central, Mid-Atlantic and
Southeastern regions of the United States; earthquakes in California, the New Madrid region and the
Pacific Northwest region of North America; wildfires, particularly in the Southwest; and terrorism in
major cities in the United States. In addition, our international operations subject us to catastrophe
exposures in Canada, the United Kingdom and the Republic of Ireland, as well as to a variety of
world-wide catastrophe exposures through our Lloyd’s operations, and in Brazil through our joint
venture investment.
The incidence and severity of catastrophes are inherently unpredictable, and it is possible that both
the frequency and severity of natural and man-made catastrophic events could increase. Severe weather
events over the last several years have underscored the unpredictability of future climate trends, and
potentially changing climate conditions could add to the frequency and severity of natural disasters and
create additional uncertainty as to future trends and exposures. For example, over the last decade,
hurricane activity has impacted areas further inland than previously experienced, thus expanding the
Company’s potential for losses from hurricanes. Additionally, both the frequency and severity of
tornado and hail storms in the United States have been greater in recent years. Moreover, we could
experience more than one highly severe catastrophic event in any given period.
All of the catastrophe modeling tools that we use, or that we rely on from outside parties, to help
manage certain of our catastrophe exposures are based on assumptions and judgments that are subject
to error and mis-estimation and may produce estimates that are materially different than actual results.
In addition, compared to models for hurricanes, models for earthquakes are less reliable due to there
being a more limited number of significant historical events to analyze, while models for tornadoes and
hail storms are newer and may be even less reliable due to the highly random geographic nature and
size of these events. As a result, models for earthquakes and especially for tornado and hail storms may
have even greater difficulty predicting risks and estimating losses. Further, changes in climate
conditions could cause our underlying modeling data to be less predictive, thus limiting our ability to
effectively evaluate and manage catastrophe risk. See ‘‘We may be adversely affected if our pricing and
capital models provide materially different indications than actual results’’ below as well as ‘‘Item 7—
Management’s Discussion and Analysis of Financial Condition and Results of Operations—Catastrophe
Modeling’’ and ‘‘—Changing Climate Conditions.’’
The extent of losses from a catastrophe is a function of both the total amount of insured exposure
in the area affected by the event and the severity of the event. Increases in the value and geographic
concentration of insured property and the effects of inflation could increase the severity of claims from
catastrophic events in the future. For example, the specific geographic location impacted by tornadoes
is inherently random and unpredictable and the specific location impacted by a tornado may or may
not be highly populated and may or may not have a high concentration of our insured exposures.
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