Travelers 2014 Annual Report Download - page 67

Table of Contents
Even if we are not subject to additional regulation by the federal government, significant financial sector regulatory reform, including the
Dodd
- Frank Act, could have a significant impact on us. For example, regulatory reform could have an unexpected impact on our rights as a creditor
or on our competitive position. In particular, the Dodd
- Frank Act authorizes assessments to pay for the resolution of systemically important
financial institutions that have become insolvent. We (as a financial company with more than $50 billion in assets) could be assessed, and,
although any such assessment is required to be risk weighted (i.e., riskier firms pay more), such costs could be material to us and are not currently
estimable.
Other potential changes in U.S. federal legislation, regulation and/or administrative policies, including the potential repeal of the McCarran
-
Ferguson Act (which exempts insurance from most federal regulation) and potential changes in federal taxation, could also significantly harm the
insurance industry, including us.
A downgrade in our claims - paying and financial strength ratings could adversely impact our business volumes, adversely impact our ability
to access the capital markets and increase our borrowing costs. Claims - paying and financial strength ratings are important to an insurer's
competitive position. Rating agencies periodically review insurers' ratings and change their ratings criteria; therefore, our current ratings may not
be maintained in the future. A downgrade in one or more of our ratings could negatively impact our business volumes because demand for certain
of our products may be reduced, particularly because many customers may require that we maintain minimum ratings to enter into or renew
business with us. Additionally, we may find it more difficult to access the capital markets and we may incur higher borrowing costs. If significant
losses, including, but not limited to, those resulting from one or more major catastrophes, or significant reserve additions or significant investment
losses were to cause our capital position to deteriorate significantly, or if one or more rating agencies substantially increase their capital
requirements, we may need to raise equity capital in the future (which we may not be able to do at a reasonable cost or at all, especially at a time of
financial market disruption) in order to maintain our ratings or limit the extent of a downgrade. A continued trend of more frequent and severe
weather
- related catastrophes or a prolonged financial market disruption or economic downturn may lead rating agencies to substantially increase
their capital requirements. See also "During or following a period of financial market disruption or economic downturn, our business could be
materially and adversely affected." For further discussion about our ratings, see, "Item 1—Business—Ratings."
The inability of our insurance subsidiaries to pay dividends to our holding company in sufficient amounts would harm our ability to meet our
obligations, pay future shareholder dividends or make future share repurchases. Our holding company relies on dividends from our U.S.
insurance subsidiaries to meet our obligations for payment of interest and principal on outstanding debt, to pay dividends to shareholders, to make
contributions to our qualified domestic pension plan, to pay other corporate expenses and to make share repurchases. The ability of our insurance
subsidiaries to pay dividends to our holding company in the future will depend on their statutory capital and surplus, earnings and regulatory
restrictions.
We are subject to state insurance regulation as an insurance holding company system. Our U.S. insurance subsidiaries are subject to various
regulatory restrictions that limit the maximum amount of dividends available to be paid to their parent without prior approval of insurance
regulatory authorities. In a time of prolonged economic downturn or otherwise, insurance regulators may choose to further restrict the ability of
insurance subsidiaries to make payments to their parent companies. The ability of our insurance subsidiaries to pay dividends to our holding
company is also restricted by regulations that set standards of solvency that must be met and maintained.
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