Travelers 2015 Annual Report Download - page 206

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. REINSURANCE (Continued)
Security and the Attorney General of the United States. The annual aggregate industry loss minimum
under the program is $120 million for 2016, but will increase over the life of the program to
$200 million by December 31, 2020. The program excludes from participation the following types of
insurance: Federal crop insurance, private mortgage insurance, financial guaranty insurance, medical
malpractice insurance, health or life insurance, flood insurance, reinsurance, commercial automobile,
professional liability (other than directors and officers’), surety, burglary and theft, and farm-owners
multi-peril. In the case of a war declared by Congress, only workers’ compensation losses are covered
by the program. All commercial property and casualty insurers licensed in the United States are
generally required to participate in the program. Under the program, a participating insurer, in
exchange for making terrorism insurance available, is entitled to be reimbursed by the Federal
Government for 84% of subject losses in 2016, after an insurer deductible, subject to an annual cap.
This reimbursement percentage will decrease over the remaining five-year life of the program to 80%
of subject losses by December 31, 2020.
The deductible for any calendar year is equal to 20% of the insurer’s direct earned premiums for
covered lines for the preceding calendar year. The Company’s estimated deductible under the program
is $2.43 billion for 2016. The annual cap limits the amount of aggregate subject losses for all
participating insurers to $100 billion. Once subject losses have reached the $100 billion aggregate
during a program year, participating insurers will not be liable under the program for additional
covered terrorism losses for that program year. There have been no terrorism-related losses that have
triggered program coverage since the program was established. Since the law is untested, there is
substantial uncertainty as to how it will be applied if an act of terrorism is certified under the program.
It is also possible that future legislative action could change or eliminate the program. Further, given
the unpredictable frequency and severity of terrorism losses, as well as the limited terrorism coverage in
the Company’s own reinsurance program, future losses from acts of terrorism, particularly involving
nuclear, biological, chemical or radiological events, could be material to the Company’s operating
results, financial position and/or liquidity in future periods. In addition, the Company may not have
sufficient resources to respond to claims arising from a high frequency of high severity natural
catastrophes and/or of man-made catastrophic events involving conventional means. While the
Company seeks to manage its exposure to man-made catastrophic events involving conventional means,
the Company may not have sufficient resources to respond to claims arising out of one or more
man-made catastrophic events involving nuclear, biological, chemical or radiological means.
6. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
The following table presents the carrying amount of the Company’s goodwill by segment:
(at December 31, in millions) 2015 2014
Business and International Insurance(1) .................................. $2,439 $2,477
Bond & Specialty Insurance .......................................... 496 496
Personal Insurance ................................................. 612 612
Other .......................................................... 26 26
Total ......................................................... $3,573 $3,611
(1) Includes goodwill associated with the Company’s international business which is subject to the
impact of changes in foreign currency exchange rates.
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