Travelers 2014 Annual Report Download - page 33

Table of Contents
states to establish standards to ensure that rates are not excessive, inadequate, unfairly discriminatory or used to engage in unfair price
competition. An insurer's ability to increase rates and the relative timing of the process are dependent upon each respective state's requirements.
Requirements for Exiting Geographic Markets and/or Canceling or Nonrenewing Policies. Several states have laws and regulations which
may impact the timing and/or the ability of an insurer to either discontinue or substantially reduce its writings in that state. These laws and
regulations typically require prior notice, and in some instances insurance department approval, prior to discontinuing a line of business or
withdrawing from that state, and they allow insurers to cancel or non
- renew certain policies only for certain specified reasons.
Assessments for Guaranty Funds and Second
- Injury Funds and Other Mandatory Pooling and Reinsurance Arrangements. Virtually all
states require insurers licensed to do business in their state, including TRV's domestic insurance subsidiaries, to bear a portion of the loss suffered
by some claimants because of the insolvency of other insurers. Many states also have laws that establish second
- injury funds to provide
compensation to injured employees for aggravation of a prior condition or injury.
TRV's domestic insurance subsidiaries are also required to participate in various involuntary assigned risk pools, principally involving workers'
compensation, automobile insurance, property windpools in states prone to property damage from hurricanes and FAIR plans, which provide
various insurance coverages to individuals or other entities that otherwise are unable to purchase that coverage in the voluntary market.
Assessments may include any charge mandated by statute or regulatory authority that is related directly or indirectly to underwriting
activities. Examples of such mechanisms include, but are not limited to, the Florida Hurricane Catastrophe Fund, Florida Citizens Property Insurance
Corporation, National Workers' Compensation Reinsurance Pool, various workers' compensation related funds (e.g., the New York Special
Disability Fund), North Carolina Beach Plan, Louisiana Citizens Property Insurance Corporation, and the Texas Windstorm Insurance Association.
Amounts payable or paid as a result of arrangements that are in substance reinsurance, including certain involuntary pools where insurers are
required to assume premiums and losses from those pools, are accounted for as reinsurance (e.g., National Workers' Compensation Reinsurance
Pool, North Carolina Beach Plan). Amounts related to assessments from arrangements that are not reinsurance are reported as a component of
"General and Administrative Expenses," such as the New York Special Disability Fund. For additional information concerning assessments for
guaranty funds and second
- injury funds and other mandatory pooling and reinsurance agreements including state - funding mechanisms, see
"Item 1A—Risk Factors."
Insurance Regulatory Information System. The National Association of Insurance Commissioners (NAIC) developed the Insurance
Regulatory Information System (IRIS) to help state regulators identify companies that may require special attention. Financial examiners review
annual statements and key financial ratios based on year
- end data. These ratios assist state insurance departments in executing their statutory
mandate to oversee the financial condition of insurance companies. Each ratio has an established "usual range" of results. A ratio result falling
outside the usual range of IRIS ratios, however, is not considered a failing result; rather, unusual values are viewed as part of the regulatory early
monitoring system. Furthermore, in some years, it may not be unusual for financially sound companies to have several ratios with results outside
the usual ranges. Generally, an insurance company will become subject to regulatory scrutiny if it falls outside the usual ranges of four or more of
the ratios.
Based on preliminary 2014 IRIS ratios calculated by the Company for its lead domestic insurance subsidiaries, The Travelers Indemnity
Company and St. Paul Fire and Marine Insurance Company had
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