Travelers 2014 Annual Report Download - page 34

Table of Contents
results outside the normal range for one IRIS ratio due to the size of their investments in certain non
- fixed maturity securities. Travelers Casualty
and Surety Company had results outside the normal range for one IRIS ratio due to the amount of dividends received from its subsidiaries.
In 2013, The Travelers Indemnity Company and St. Paul Fire and Marine Insurance Company had results outside the normal range for one IRIS
ratio due to the size of their investments in certain non
- fixed maturity securities. Travelers Casualty and Surety Company had results outside the
normal range for one IRIS ratio due to the amount of dividends received from its subsidiaries.
Management does not anticipate regulatory action as a result of the 2014 IRIS ratio results for the lead insurance subsidiaries or their
insurance subsidiaries. In all instances in prior years, regulators have been satisfied upon follow
- up that no regulatory action was required.
Risk
- Based Capital (RBC) Requirements. The NAIC has an RBC requirement for most property and casualty insurance companies, which
determines minimum capital requirements and is intended to raise the level of protection for policyholder obligations. The Company's U.S.
insurance subsidiaries are subject to these NAIC RBC requirements based on laws that have been adopted by individual states. These
requirements subject insurers having policyholders' surplus less than that required by the RBC calculation to varying degrees of regulatory action,
depending on the level of capital inadequacy. Each of the Company's U.S. insurance subsidiaries had policyholders' surplus at December 31, 2014
significantly above the level at which any RBC regulatory action would occur.
While there is currently no group regulatory capital requirement in the United States, a comparison of an insurer's policyholders' surplus on a
combined basis to the legal entity NAIC RBC requirements on a combined basis can provide useful information regarding an insurance group's
overall capital adequacy in the U.S. The amount of policyholders' surplus held by the Company's U.S. insurance subsidiaries at December 31, 2014
determined on a combined basis significantly exceeded the level at which the subsidiaries would be subject to RBC regulatory action (company
action level) on a combined basis at that date.
The formulas have not been designed to differentiate among adequately capitalized companies that operate with levels of capital above the
RBC requirement. Therefore, it is inappropriate and ineffective to use the formulas to rate or to rank these companies.
Investment Regulation. Insurance company investments must comply with applicable laws and regulations which prescribe the kind, quality
and concentration of investments. In general, these laws and regulations permit investments in federal, state and municipal obligations, corporate
bonds, preferred and common equity securities, mortgage loans, real estate and certain other investments, subject to specified limits and certain
other qualifications. At December 31, 2014, the Company was in compliance with these laws and regulations.
International Regulation
TRV's insurance subsidiaries based in Canada and the Canadian branch of one of the Company's U.S. insurance subsidiaries are regulated by
the Office of the Superintendent of Financial Institutions under provisions of the Insurance Companies Act. These Canadian subsidiaries and the
Canadian branch are also subject to provincial insurance legislation which regulates pricing, underwriting, coverage and claim conduct, in varying
degrees by province and by product line.
TRV's insurance subsidiaries based in the United Kingdom are regulated by two regulatory bodies, The Prudential Regulation Authority (PRA)
and The Financial Conduct Authority (FCA). The PRA's primary objective is to promote the safety and soundness of insurers for the protection of
policyholders, while the FCA has three operational objectives: (i) to secure an appropriate degree of protection for consumers, (ii) to protect and
enhance the integrity of the UK financial system, and (iii) to promote effective competition in the interests of consumers. TRV's insurance
operations in the Republic of
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