Travelers 2015 Annual Report Download - page 31

including TRV’s domestic insurance subsidiaries, to bear a portion of the loss suffered by some
claimants because of the insolvency of other insurers. Many states also have laws that establish second-
injury funds to provide compensation to injured employees for aggravation of a prior condition or
injury.
TRV’s domestic insurance subsidiaries are also required to participate in various involuntary
assigned risk pools, principally involving workers’ compensation, automobile insurance, property
windpools in states prone to property damage from hurricanes and FAIR plans, as well as automobile
assigned risk plans the results of which are not pooled with other carriers, which provide various
insurance coverages to individuals or other entities that otherwise are unable to purchase that coverage
in the voluntary market.
Assessments may include any charge mandated by statute or regulatory authority that is related
directly or indirectly to underwriting activities. Examples of such mechanisms include, but are not
limited to, the Florida Hurricane Catastrophe Fund, Florida Citizens Property Insurance Corporation,
National Workers’ Compensation Reinsurance Pool, various workers’ compensation related funds
(e.g., the New York Special Disability Fund), North Carolina Beach Plan, Louisiana Citizens Property
Insurance Corporation, and the Texas Windstorm Insurance Association. Amounts payable or paid as a
result of arrangements that are in substance reinsurance, including certain involuntary pools where
insurers are required to assume premiums and losses from those pools, are accounted for as
reinsurance (e.g., National Workers’ Compensation Reinsurance Pool, North Carolina Beach Plan).
Amounts related to assessments from arrangements that are not reinsurance are reported as a
component of ‘‘General and Administrative Expenses,’’ such as the New York Special Disability Fund.
For additional information concerning assessments for guaranty funds and second-injury funds and
other mandatory assigned risk and reinsurance agreements including state-funding mechanisms, see
‘‘Item 1A—Risk Factors.’’
Insurance Regulatory Information System. The National Association of Insurance Commissioners
(NAIC) developed the Insurance Regulatory Information System (IRIS) to help state regulators
identify companies that may require regulatory attention. Financial examiners review annual financial
statements and the results of key financial ratios based on year-end data with the goal of identifying
insurers that appear to require immediate regulatory attention. Each ratio has an established ‘‘usual
range’’ of results. A ratio result falling outside the usual range, however, is not necessarily considered
adverse; rather, unusual values are used as part of the regulatory early monitoring system. Furthermore,
in some years, it may not be unusual for financially sound companies to have several ratios with results
outside the usual ranges. Generally, an insurance company may become subject to regulatory scrutiny
or, depending on the company’s financial condition, regulatory action if certain of its key IRIS ratios
fall outside the usual ranges and the insurer’s financial condition is trending downward.
Based on preliminary 2015 IRIS ratios calculated by the Company for its lead domestic insurance
subsidiaries, The Travelers Indemnity Company had results outside the normal range for one IRIS ratio
due to the size of their investments in certain non-fixed maturity securities, while Travelers Casualty
and Surety Company had results outside the normal range for one IRIS ratio due to the amount of
dividends received from its subsidiaries. These same subsidiaries had results outside the normal range
for these same ratios in 2014. Additionally, St. Paul Fire and Marine Insurance Company had results
outside the normal range for one IRIS ratio due to the size of their investments in certain non-fixed
maturity securities in 2014.
Management does not anticipate regulatory action as a result of the 2015 IRIS ratio results for the
lead insurance subsidiaries or their insurance subsidiaries. In all instances in prior years, regulators
have been satisfied upon follow-up that no regulatory action was required.
Risk-Based Capital (RBC) Requirements. The NAIC has an RBC requirement for most property
and casualty insurance companies, which determines minimum capital requirements and is intended to
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