Travelers 2014 Annual Report Download - page 73

Table of Contents
methodology, the FSB, working with national authorities and the IAIS, identified nine insurers that they designated as G
- SIIs. The IAIS is working
on the policy measures which include higher capital requirements and enhanced supervision. The Company has not been designated as a G
- SII by
the FSB; however, the FSB updates the list annually, and it is possible that the methodologies could be amended or interpreted differently in the
future and the Company could be named as a G
- SII.
The IAIS also is in the process of developing the Common Framework for the Supervision of Internationally Active Insurance Groups
(Comframe). The IAIS released a Consultation Draft in October 2013, which may lead to similar policy measures as those being developed for G
-
SIIs, including group supervision and an Insurance Capital Standard (i.e., global group capital requirement). The IAIS revised the Comframe
guidance based on comments received and is currently in the process of field testing many of the requirements. The Company would be considered
an Internationally Active Insurance Group under the current Consultation Draft. It is possible that Comframe, if adopted, could lead to enhanced
supervision and higher capital standards on a global basis if the IAIS, the NAIC and the individual states adopt the proposed or similar provisions.
While it is not yet known how or if these actions will impact us, such regulation could result in increased costs of compliance, increased
disclosure and less flexibility in our capital management, and could adversely impact our results of operations and limit our growth.
Loss of or significant restrictions on the use of particular types of underwriting criteria, such as credit scoring, in the pricing and
underwriting of our products could reduce our future profitability. Our underwriting profitability depends in large part on our ability to
competitively price our products at a level that will adequately compensate us for the risks assumed. As a result, risk selection and pricing through
the application of actuarially sound and segmented underwriting criteria is critical. However, laws or regulations, or judicial or administrative
findings, could significantly curtail the use of particular types of underwriting criteria. For example, we may use credit scoring as a factor in pricing
decisions where allowed by state law. Some consumer groups and/or regulators have alleged that the use of credit scoring violates the law by
discriminating against persons belonging to a protected class and are calling for the prohibition or restrictions on the use of credit scoring in
underwriting and pricing. A variety of other underwriting criteria used in personal and commercial insurance have been and continue to be
criticized by regulators, government agencies, consumer groups or individuals on similar or other grounds. Resulting regulatory actions or
litigation could result in negative publicity and/or generate adverse rules or findings, such as curtailing the use of important underwriting criteria,
each of which could adversely affect our future profitability.
Acquisitions and integration of acquired businesses may result in operating difficulties and other unintended consequences.
From time to
time we may investigate and pursue acquisition opportunities if we believe that such opportunities are consistent with our long - term objectives
and that the potential rewards of an acquisition justify the risks. For example, in November 2013, we acquired Dominion and significantly expanded
our Canadian operations. The process of integrating an acquired company or business can be complex and costly, however, and may create
unforeseen operating difficulties and expenditures. For example, acquisitions may present significant risks, including:
•
the potential disruption of our ongoing business;
•
the ineffective integration of, or other difficulties with, underwriting, risk management, claims handling, information technology and
actuarial practices;
•
uncertainties related to an acquiree's reserve estimates and its design and operation of internal controls over financial reporting;
•
the diversion of management time and resources to acquisition integration challenges;
•
the loss of key employees;
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