Travelers 2014 Annual Report Download - page 65

Table of Contents
paid to us whether or not they are actually received by us. Consequently, we assume a degree of credit risk associated with amounts due from
independent agents and brokers.
To a large degree, the credit risk we face is a function of the economy; accordingly, we face a greater risk in an economic downturn. While we
attempt to manage the risks discussed above through underwriting and investment guidelines, collateral requirements and other oversight
mechanisms, our efforts may not be successful. For example, collateral obtained may subsequently have little or no value. As a result, our exposure
to the above credit risks could materially and adversely affect our results of operations.
Within the United States, our businesses are heavily regulated by the states in which we conduct business, including licensing and
supervision, and changes in regulation may reduce our profitability and limit our growth. These regulatory systems are generally designed to
protect the interests of policyholders, and not necessarily the interests of insurers, their shareholders and other investors. For example, to protect
policyholders whose insurance company becomes financially insolvent, guaranty funds have been established in all 50 states to pay the covered
claims of policyholders in the event of an insolvency of an insurer, subject to applicable state limits. The funding of guaranty funds is provided
through assessments levied against remaining insurers in the marketplace. As a result, the insolvency of one or more insurance companies could
result in additional assessments levied against us.
These regulatory systems also address authorization for lines of business, statutory capital and surplus requirements, limitations on the types
and amounts of certain investments, underwriting limitations, transactions with affiliates, dividend limitations, changes in control, premium rates
and a variety of other financial and non
- financial components of an insurer's business.
In recent years, the state insurance regulatory framework has come under increased scrutiny, and some state legislatures have considered or
enacted laws that may alter or increase state authority to regulate insurance companies and insurance holding companies. Further, the NAIC and
state insurance regulators continually re
- examine existing laws and regulations, specifically focusing on modifications to holding company
regulations, interpretations of existing laws and the development of new laws and regulations.
Included in these changes is an amendment to insurance holding company regulations that require insurers who are part of a holding company
system to file an enterprise risk report to provide the lead insurance regulator with a summary of the company's enterprise risk management (ERM)
framework including the material risks within the insurance holding company system that could pose risk to the insurance entities within the
holding company system. Beginning in 2015, insurers having premium volume above certain thresholds, including the Company, will also be
required to perform at least annually a self
- assessment of their current and future risks, including their likely future solvency position (known as an
own risk and solvency assessment or ORSA) and file a confidential report with the insurer's lead insurance regulator. The ORSA concept has two
primary goals, which are to foster an effective level of ERM at all insurers within the holding company system, and to provide a group wide
perspective on risk and capital as a supplement to the legal entity view. ORSA is now included in the International Association of Insurance
Supervisors (IAIS) standards and is in various stages of implementation in the United States, Europe, Canada, and other jurisdictions. It is possible
that, as a result of ORSA or other reasons, our states of domicile or other regulatory bodies will require changes in our ERM process or take other
regulatory actions that could limit our ability to write additional business or reduce our capital management flexibility. See "Enterprise Risk
Management" herein for further discussion of the Company's ERM.
The NAIC and state insurance regulators, as well as the Federal Reserve and Federal Insurance Office, are currently working with the IAIS to
develop a global common framework (ComFrame) for the supervision of internationally active insurance groups (IAIGs). If adopted, ComFrame
would require the designation of a group
- wide supervisor (regulator) for each IAIG and would impose a
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