Travelers 2015 Annual Report Download - page 32

raise the level of protection for policyholder obligations. The Company’s U.S. insurance subsidiaries are
subject to these NAIC RBC requirements based on laws that have been adopted by individual states.
These requirements subject insurers having policyholders’ surplus less than that required by the RBC
calculation to varying degrees of regulatory action, depending on the level of capital inadequacy. Each
of the Company’s U.S. insurance subsidiaries had policyholders’ surplus at December 31, 2015
significantly above the level at which any RBC regulatory action would occur.
While there is currently no group regulatory capital requirement in the United States, a
comparison of an insurer’s policyholders’ surplus on a combined basis to the legal entity NAIC RBC
requirements on a combined basis can provide useful information regarding an insurance group’s
overall capital adequacy in the U.S. The amount of policyholders’ surplus held by the Company’s U.S.
insurance subsidiaries at December 31, 2015 determined on a combined basis significantly exceeded the
level at which the subsidiaries would be subject to RBC regulatory action (company action level) on a
combined basis at that date.
The formulas have not been designed to differentiate among adequately capitalized companies that
operate with levels of capital above the RBC requirement. Therefore, it is inappropriate and ineffective
to use the formulas to rate or to rank these companies.
Investment Regulation. Insurance company investments must comply with applicable laws and
regulations which prescribe the kind, quality and concentration of investments. In general, these laws
and regulations permit investments in federal, state and municipal obligations, corporate bonds,
preferred and common equity securities, mortgage loans, real estate and certain other investments,
subject to specified limits and certain other qualifications. At December 31, 2015, the Company was in
compliance with these laws and regulations.
International Regulation
TRV’s insurance subsidiaries based in Canada, and the Canadian branch of one of the Company’s
U.S. insurance subsidiaries, are regulated for solvency purposes by the Office of the Superintendent of
Financial Institutions under the provisions of the Insurance Companies Act (Canada). These Canadian
subsidiaries and the Canadian branch are also subject to Canadian provincial and territorial insurance
legislation which regulates market conduct, including pricing, underwriting, coverage and claim conduct,
in varying degrees by province/territory and by product line.
TRV’s insurance subsidiaries based in the United Kingdom are regulated by two regulatory bodies,
The Prudential Regulation Authority (PRA) and The Financial Conduct Authority (FCA). The PRA’s
primary objective is to promote the safety and soundness of insurers for the protection of policyholders,
while the FCA has three operational objectives: (i) to secure an appropriate degree of protection for
consumers, (ii) to protect and enhance the integrity of the UK financial system, and (iii) to promote
effective competition in the interests of consumers. TRV’s insurance operations in the Republic of
Ireland are conducted through the Irish branch of Travelers Insurance Company Limited which is
regulated by the Insurance Supervision Departments of the Central Bank of Ireland (as to conduct)
and also by the PRA.
TRV’s managing agency (Travelers Syndicate Management Ltd.) of its Lloyd’s syndicate
(Travelers Syndicate 5000) is also regulated by the PRA and the FCA, which have delegated certain
regulatory responsibilities to the Council of Lloyd’s. Travelers Syndicate 5000 is able to write business
in over 75 jurisdictions throughout the world by virtue of Lloyd’s international licenses. In each such
jurisdiction, the policies written by Travelers Syndicate Management Ltd., as part of Lloyd’s, are subject
to the laws and insurance regulations of that jurisdiction. Travelers Underwriting Agency Limited,
which as an insurance intermediary is regulated by the FCA, produces insurance business for Travelers
Syndicate 5000.
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