Travelers 2013 Annual Report Download - page 83

Further, the laws of certain countries outside the United States may not adequately protect our
intellectual property rights. We may incur significant costs in our efforts to protect and enforce our
intellectual property, including the initiation of expensive and protracted litigation, and we may not
prevail. Any inability to enforce our intellectual property rights could have a material adverse effect on
our business and our ability to compete.
We may be subject to claims by third parties from time to time that our products, services and
technologies infringe on their intellectual property rights. In recent years, certain entities have acquired
patents in order to allege claims of infringement against companies, including in some cases us. Any
intellectual property infringement claims brought against us could cause us to spend significant time
and money to defend ourselves, regardless of the merits of the claims. If we are found to infringe on
any third-party intellectual property rights, it could result in reputational harm, payment of significant
monetary damages, payment of license fees (if licenses are even available to us, on reasonable terms or
otherwise) and/or substantial time and expense to redesign our products, services or technologies to
avoid the infringement. In addition, we use third-party software in some of our products, services and
technologies. If any of our software vendors or licensors are faced with infringement claims, we may
lose our ability to use such software until the dispute is resolved. If we cannot successfully redesign an
infringing product, service or technology (or procure a substitute version), this could have a material
adverse effect on our business and our ability to compete.
Changes to existing accounting standards may adversely impact our reported results. As a
U.S.-based SEC registrant, we are currently required to prepare our financial statements in accordance
with U.S. Generally Accepted Accounting Principles (US GAAP), as promulgated by the Financial
Accounting Standards Board (FASB), subject to the accounting-related rules and interpretations of the
Securities and Exchange Commission (SEC). During the last several years, the SEC has been evaluating
whether, when and how International Financial Reporting Standards (IFRS) should be incorporated
into the U.S. financial reporting system, including for companies such as us. The FASB and the
International Accounting Standards Board (IASB) have also embarked on a long-term project to
converge US GAAP and IFRS. In June 2012, the FASB issued a statement that indicated that based on
the nature and totality of differences between the FASB’s and IASB’s views, it is not likely that the two
Boards will achieve convergence on their joint project on the accounting for insurance contracts. The
FASB further noted that the FASB and IASB have very different perspectives on the project. In June
2013, each Board issued for comment exposure drafts on the accounting for insurance contracts that
have significant differences from the other board’s draft as well as from current US GAAP. Both
exposure drafts propose changes that, if ultimately adopted, could significantly impact the accounting by
insurers, including the Company, for premiums and unearned premium reserves, the liability for claims
and claims adjustment expenses, reinsurance, and deferred acquisition costs. The Boards are reviewing
the comments received on the exposure drafts and are expected to begin re-deliberations in the first
quarter of 2014. It is currently unclear what changes, if any, may be made to the accounting for
insurance contracts under US GAAP as a result of this project, and we are not able to predict whether
we will choose to, or be required to, adopt IFRS or how the adoption of IFRS (or the convergence of
US GAAP and IFRS, including the project on the accounting for insurance contracts) may impact our
financial statements in the future. Changes in accounting standards, particularly those that specifically
apply to insurance company operations, may impact the content and presentation of our reported
financial results and could cause increased volatility in reported earnings, resulting in other adverse
impacts on the Company’s ratings and cost of capital, and decrease the understandability of our
financial results as well as the comparability of our reported results with other insurers.
Changes in U.S. tax laws or in the tax laws of other jurisdictions in which we operate could
adversely impact us. Tax laws may change in ways that adversely impact us. For example, federal tax
legislation could be enacted to reduce the existing statutory U.S. federal corporate income tax rate
from 35%, which would, accordingly, reduce any U.S. deferred tax asset. The amount of any net
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