Travelers 2014 Annual Report Download - page 118

Table of Contents
achieve its primary investment goals of assuring the Company's ability to meet policyholder obligations as well as to optimize investment returns,
given these obligations.
CATASTROPHE MODELING
The Company uses various analyses and methods, including proprietary and third
- party computer modeling processes, to analyze
catastrophic events and the risks associated with them. The Company uses these analyses and methods to make underwriting and reinsurance
decisions designed to manage its exposure to catastrophic events. There are no industry
- standard methodologies or assumptions for projecting
catastrophe exposure. Accordingly, catastrophe estimates provided by different insurers may not be comparable.
The Company actively monitors and evaluates changes in third
- party models and, when necessary, calibrates the catastrophe risk model
estimates delivered via its own proprietary modeling processes. The Company considers historical loss experience, recent events, underwriting
practices, market share analyses, external scientific analysis and various other factors to account for non
- modeled losses to refine its proprietary
view of catastrophe risk. These proprietary models are continually updated as new information emerges.
The tables below set forth the probabilities that estimated losses, comprising claims and allocated claim adjustment expenses (but excluding
unallocated claim adjustment expenses), from a single event occurring in a one
- year timeframe will equal or exceed the indicated loss amounts
(expressed in dollars and as a percentage of the Company's common equity), based on the current version of the proprietary and third
- party
computer models utilized by the Company at December 31, 2014. For example, on the basis described below the tables, the Company estimates that
there is a one percent chance that the Company's loss from a single U.S. hurricane in a one
- year timeframe would equal or exceed $1.3 billion, or 6%
of the Company's common equity at December 31, 2014.
117
Dollars (in billions)
Likelihood of Exceedance(1)
Single U.S.
Hurricane
Single U.S.
and Canadian
Earthquake
2.0% (1 - in - 50)
$
1.0
$
0.5
1.0% (1 - in - 100)
$
1.3
$
0.6
0.4% (1 - in - 250)
$
1.9
$
0.9
0.1% (1 - in - 1,000)
$
3.6
$
1.5
Percentage of
Common Equity(2)
Likelihood of Exceedance
Single U.S.
Hurricane
Single U.S.
and Canadian
Earthquake
2.0% (1 - in - 50)
5
%
2
%
1.0% (1 - in - 100)
6
%
2
%
0.4% (1 - in - 250)
8
%
4
%
0.1% (1 - in - 1,000)
16
%
7
%
(1) An event that has, for example, a 2% likelihood of exceedance is sometimes described as a "1 - in - 50 year event." As
noted above, however, the probabilities in the table represent the likelihood of losses from a single event equaling or
exceeding the indicated threshold loss amount in a one
- year timeframe, not over a multi - year timeframe. Also, because
the probabilities relate to a single event, the probabilities do not address the likelihood of more than one event
occurring in a particular period, and, therefore, the amounts do not address potential aggregate catastrophe losses
occurring in a one - year timeframe.