Travelers 2014 Annual Report Download - page 72

Table of Contents
controls, currency exchange limits, ownership limits and other restrictive or anti
- competitive governmental actions, which could have an adverse
effect on our business and our reputation. Following the completion of our acquisition of Dominion, a larger portion of our premiums from outside
of the United States are now comprised of premiums generated in Canada, a substantial portion of which consists of automobile premiums from the
province of Ontario, which is a highly regulated market. Our business activities outside the United States may also subject us to currency risk and,
in some markets, it may be difficult to effectively hedge that risk, or we may choose not to hedge that risk. In addition, in some markets, we may
invest as part of a joint venture with a local counterparty. Because our governance rights may be limited, we may not have control over the ability
of the joint venture to make certain decisions and/or mitigate risks it faces, and significant disagreements with a joint venture counterparty may
adversely impact our investment.
Our business activities outside the United States also subject us to additional domestic and foreign laws and regulations, including the
Foreign Corrupt Practices Act and similar laws in other countries that prohibit the making of improper payments to foreign officials. Although we
have policies and controls in place that are designed to ensure compliance with these laws, if those controls are ineffective and an employee or
intermediary fails to comply with applicable laws and regulations, we could suffer civil and criminal penalties and our business and our reputation
could be adversely affected. Some countries, particularly emerging economies, have laws and regulations that lack clarity and, even with local
expertise and effective controls, it can be difficult to determine the exact requirements of, and potential liability under, the local laws. For example, in
some jurisdictions, including Brazil, parties to a joint venture may, in some circumstances, have liability for some obligations of the venture, and
that liability may extend beyond the capital invested. Failure to comply with local laws in a particular market may result in substantial liability and
could have a significant and negative effect not only on our business in that market but also on our reputation generally.
In addition, competition for skilled employees in developing markets and other non
- U.S. locations may be intense. If we are not able to hire,
integrate, motivate and retain a sufficient number of employees with the knowledge and background necessary for our global businesses, those
businesses and our results of operations may be adversely affected.
New regulations outside of the United States, including in the European Union, could adversely impact our results of operations and limit our
growth. Insurance laws or regulations that are adopted or amended in jurisdictions outside the U.S. 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.
In particular, the European Union's executive body, the European Commission, is implementing new capital adequacy and risk management
regulations called Solvency II that would apply to the Company's businesses across the European Union. The implementation date of Solvency II
has been delayed until January 1, 2016, although some aspects, including governance guidelines, own risk assessments and regulatory reporting,
are being phased in before the full implementation date. Under Solvency II, it is possible that the U.S. parent of a European Union subsidiary could
be subject to certain Solvency II requirements if the regulator determines that the subsidiary's capital position is dependent on the parent company
and the U.S. company is not already subject to regulations deemed "equivalent" to Solvency II. In addition, regulators in countries where the
Company has operations are working with the International Association of Insurance Supervisors (IAIS) (and with the NAIC, the Federal Reserve
and FIO in the U.S.) to consider changes to insurance company supervision, including group supervision and group capital requirements.
In July 2013, the IAIS published a methodology for identifying "global systemically important insurers" (G
- SIIs) and high level policy
measures that will apply to the G
- SIIs. The methodology and measures were endorsed by the Financial Stability Board (FSB) created by the G - 20.
Using the IAIS
71