Travelers 2014 Annual Report Download - page 32

Table of Contents
REGULATION
U.S. State and Federal Regulation
TRV's domestic insurance subsidiaries are collectively licensed to transact insurance business in all U.S. states, the District of Columbia,
Guam, Puerto Rico and the U.S. Virgin Islands and are subject to regulation in the various states and jurisdictions in which they transact business.
The extent of regulation varies, but generally derives from statutes that delegate regulatory, supervisory and administrative authority to a
department of insurance in each state. The regulation, supervision and administration relate, among other things, to standards of solvency that
must be met and maintained, the licensing of insurers and their agents, the nature of and limitations on investments, premium rates, restrictions on
the size of risks that may be insured under a single policy, reserves and provisions for unearned premiums, losses and other obligations, deposits
of securities for the benefit of policyholders, approval of policy forms and the regulation of market conduct, including the use of credit information
in underwriting as well as other underwriting and claims practices. In addition, many states have enacted variations of competitive ratemaking laws,
which allow insurers to set certain premium rates for certain classes of insurance without having to obtain the prior approval of the state insurance
department. State insurance departments also conduct periodic examinations of the financial condition and market conduct of insurance companies
and require the filing of financial and other reports on a quarterly and annual basis.
State insurance regulation continues to evolve in response to the changing economic and business environment as well as efforts by
regulators internationally to develop a consistent approach to regulations. While the U.S. federal government has not historically regulated the
insurance business, in 2010, the Dodd
- Frank Wall Street Reform and Consumer Protection Act established a Federal Insurance Office (the FIO)
within the U.S. Department of the Treasury. While the FIO has limited regulatory authority, it has been active in the discussions to develop
international regulatory standards for the insurance industry. In response to these international efforts, the state insurance regulators, through the
National Association of Insurance Commissioners, are working with the Federal Reserve and FIO to consider and develop changes to the U.S.
regulatory framework. These changes are evidenced by the recent incorporation of supervisory colleges into the U.S. regulatory framework. A
supervisory college is a forum of the regulators having jurisdictional authority over a holding company's various insurance subsidiaries, including
foreign insurance subsidiaries, convened to meet with the insurer's executive management, to evaluate the insurer from both a group
- wide and
legal
- entity basis. Some of the items evaluated during the colleges include the insurer's business strategies, enterprise risk management and
corporate governance. The state of Connecticut is the lead regulator for TRV and conducts the supervisory colleges for the Company.
Insurance Regulation Concerning Dividends from Insurance Subsidiaries. TRV's principal domestic insurance subsidiaries are domiciled in
the state of Connecticut. The Connecticut insurance holding company laws require notice to, and approval by, the state insurance commissioner
for the declaration or payment of any dividend from an insurance subsidiary that, together with other distributions made within the preceding
twelve months, exceeds the greater of 10% of the insurance subsidiary's statutory capital and surplus as of the preceding December 31, or the
insurance subsidiary's net income for the twelve
- month period ending the preceding December 31, in each case determined in accordance with
statutory accounting practices and by state regulation. This declaration or payment is further limited by adjusted unassigned surplus, as
determined in accordance with statutory accounting practices.
The insurance holding company laws of other states in which TRV's domestic insurance subsidiaries are domiciled generally contain similar,
although in some instances somewhat more restrictive, limitations on the payment of dividends.
Rate and Rule Approvals. TRV's domestic insurance subsidiaries are subject to each state's laws and regulations regarding rate and rule
approvals. The applicable laws and regulations are used by
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