Travelers 2014 Annual Report Download - page 66

Table of Contents
group capital requirement that would be applied to an IAIG in addition to the current legal entity capital requirements imposed by state insurance
regulators. In response to ComFrame, the NAIC is developing a model law that would allow state insurance regulators in the U.S. to be designated
as group
- wide supervisors for U.S. based IAIGs. Additionally, the NAIC is developing a group capital standard that would be applied to U.S.
based insurance groups. These regulatory developments could increase the amount of capital that the Company is required to have and could
result in the Company being subject to increased regulatory requirements.
In a time of financial uncertainty or a prolonged economic downturn or otherwise, regulators may choose to adopt more restrictive insurance
laws and regulations. For example, insurance regulators may choose to restrict the ability of insurance subsidiaries to make payments to their
parent companies or reject rate increases due to the economic environment. The state insurance regulators may also increase the statutory capital
and surplus requirements for our insurance subsidiaries. In addition, state tax laws that specifically impact the insurance industry, such as premium
taxes or other taxes, may be enacted or changed by states to raise revenues.
State laws or regulations that are adopted or amended may be more restrictive than current laws or regulations and may result in lower
revenues and/or higher costs of compliance and thus could materially and adversely affect our results of operations and limit our growth.
Changes in federal regulation could impose significant burdens on us and otherwise adversely impact our results. 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 (the
Dodd
- Frank Act) established a Federal Insurance Office (the FIO) within the U.S. Department of the Treasury. The FIO has limited regulatory
authority and is empowered to gather data and information regarding the insurance industry and insurers. In December 2013, the FIO released a
report recommending ways to modernize and improve the system of insurance regulation in the United States. While the report did not recommend
full federal regulation of insurance, it did suggest an expanded federal role in some circumstances. In addition, the report suggested that Congress
should consider direct federal involvement to fill regulatory gaps identified in the report, should those gaps persist, for example, by considering
either establishing a federal coordinating body or a direct regulator of select aspects of the industry, such as large complex institutions or
institutions that seek a federal charter, if a law is passed to allow a federal charter. It is not clear as to the extent, if any, the report will lead to
regulatory changes or how any such changes would impact the Company.
The Dodd
- Frank Act also gives the Federal Reserve supervisory authority over a number of nonbank financial services holding companies,
including insurance companies, if they are designated by a two
- thirds vote of a Financial Stability Oversight Council (the FSOC) as "systemically
important financial institutions" (SIFI). The FSOC, chaired by the Secretary of the Treasury, is a group of federal financial regulators, a state
insurance regulator and an independent insurance expert. The FSOC considers companies for designation as a SIFI annually and finalized its first
set of SIFI designations in 2013. The Company, based upon the FSOC's rules and interpretive guidance, has not been designated as a SIFI.
Nonetheless, it is possible that the Council may change its rules or interpretations in the future and conclude that we are a SIFI. If we were
designated as a SIFI, the Federal Reserve's supervisory authority could include the ability to impose heightened financial regulation and could
impact requirements regarding our capital, liquidity and leverage as well as our business and investment conduct. As a result of the foregoing, the
Dodd
- Frank Act, or other additional federal regulation that is adopted in the future, could impose significant burdens on us, including impacting
the ways in which we conduct our business, increasing compliance costs and duplicating state regulation, and could result in a competitive
disadvantage, particularly relative to other insurers that may not be subject to the same level of regulation. Changes in the U.S. regulatory
framework could impact the overall competitive environment by imposing additional burdens on us and allowing other competitors not subject to
these same burdens to enter or expand their insurance businesses.
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