Travelers 2014 Annual Report Download - page 208

Table of Contents
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. REINSURANCE (Continued)
In order for a loss to be covered under the program (subject losses), the loss must meet certain aggregate industry loss minimums and must be
the result of an event that is certified as an act of terrorism by the U.S. Secretary of the Treasury, in consultation with the Secretary of Homeland
Security and the Attorney General of the United States. The annual aggregate industry loss minimum under the reauthorized program is initially
$100 million for 2015, but will increase over the six - year life of the program to $200 million by December 31, 2020. The program excludes from
participation the following types of insurance: Federal crop insurance, private mortgage insurance, financial guaranty insurance, medical
malpractice insurance, health or life insurance, flood insurance, reinsurance, commercial automobile, professional liability (other than directors and
officers'), surety, burglary and theft, and farm
- owners multi - peril. In the case of a war declared by Congress, only workers' compensation losses are
covered by the program. All commercial property and casualty insurers licensed in the United States are generally required to participate in the
program. Under the reauthorized program, a participating insurer, in exchange for making terrorism insurance available, is initially entitled to be
reimbursed by the Federal Government for 85% of subject losses, after an insurer deductible, subject to an annual cap. This reimbursement
percentage will decrease over the six
- year life of the program to 80% of subject losses by December 31, 2020.
The deductible for any calendar year is equal to 20% of the insurer's direct earned premiums for covered lines for the preceding calendar year.
The Company's estimated deductible under the program is $2.38 billion for 2015. The annual cap limits the amount of aggregate subject losses for
all participating insurers to $100 billion. Once subject losses have reached the $100 billion aggregate during a program year, participating insurers
will not be liable under the program for additional covered terrorism losses for that program year. There have been no terrorism
- related losses that
have triggered program coverage since the program was established. Since the law is untested, there is substantial uncertainty as to how it will be
applied if an act of terrorism is certified under the program. It is also possible that future legislative action could change or eliminate the program.
Further, given the unpredictable frequency and severity of terrorism losses, as well as the limited terrorism coverage in the Company's own
reinsurance program, future losses from acts of terrorism, particularly involving nuclear, biological, chemical or radiological events, could be
material to the Company's operating results, financial position and/or liquidity in future periods. In addition, the Company may not have sufficient
resources to respond to claims arising from a high frequency of high severity natural catastrophes and/or of man
- made catastrophic events
involving conventional means. While the Company seeks to manage its exposure to man
- made catastrophic events involving conventional means,
the Company may not have sufficient resources to respond to claims arising out of one or more man
- made catastrophic events involving nuclear,
biological, chemical or radiological means.
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