Travelers 2015 Annual Report Download - page 34

Canada and the European Union, could adversely impact our results of operations and limit our
growth.’’
ENTERPRISE RISK MANAGEMENT
As a large property and casualty insurance enterprise, the Company is exposed to many risks.
These risks are a function of the environments within which the Company operates. Since certain risks
can be correlated with other risks, an event or a series of events can impact multiple areas of the
Company simultaneously and have a material effect on the Company’s results of operations, financial
position and/or liquidity. These exposures require an entity-wide view of risk and an understanding of
the potential impact on all aspects of the Company’s operations. It also requires the Company to
manage its risk-taking to be within its risk appetite in a prudent and balanced effort to create and
preserve value for all of the Company’s stakeholders. This approach to Company-wide risk evaluation
and management is commonly called Enterprise Risk Management (ERM). ERM activities involve
both the identification and assessment of a broad range of risks and the execution of synchronized
strategies to effectively manage such risks. Effective ERM also includes the determination of the
Company’s risk capital needs, which takes into account regulatory requirements and credit rating
considerations, in addition to economic and other factors.
ERM at the Company is an integral part of its business operations. All corporate leaders and the
board of directors are engaged in ERM. ERM involves risk-based analytics, as well as reporting and
feedback throughout the enterprise in support of the Company’s long-term financial strategies and
objectives.
The Company uses various methods, including proprietary and third-party computer modeling
processes, to continually monitor and analyze catastrophic events and the risks associated with them.
These analyses and methods are used in making underwriting and reinsurance decisions as part of
managing the Company’s exposure to catastrophic events. In addition to catastrophe modeling and
analysis, the Company also models and analyzes its exposure to other extreme events. The Company
also utilizes proprietary and third-party computer modeling processes to evaluate capital adequacy.
These analytical techniques are an integral component of the Company’s ERM process and further
support the Company’s long-term financial strategies and objectives.
In addition to the day-to-day ERM activities within the Company’s operations, key internal risk
management functions include, among others, the Management and Operating Committees (comprised
of the Company’s Chief Executive Officer and the other most senior members of management), the
Enterprise and Business Risk Committees of management, the Credit Committee, General Counsel, the
Chief Ethics and Compliance Officer, the Corporate Actuarial group, the Corporate Audit group, the
Corporate Controller group, the Accounting Policy group and the Enterprise Underwriting group,
among others. A senior executive team comprised of the Executive Vice President of ERM, the Chief
Risk Officer and the Chief Underwriting Officer oversees the ERM process. The mission of this team
is to facilitate risk assessment and to collaborate in implementing effective risk management strategies
throughout the Company. Another strategic ERM objective of this team includes working across the
Company to enhance effective and realistic risk modeling capabilities as part of the Company’s overall
effort to understand and manage its portfolio of risks to be within its risk appetite. Board oversight of
ERM is provided by the Risk Committee of the board of directors, which reviews the strategies,
processes and controls pertaining to the Company’s insurance operations and oversees the
implementation, execution and performance of the Company’s ERM program.
The Company’s ERM efforts build upon the foundation of an effective internal control
environment. ERM expands the internal control objectives of effective and efficient operations, reliable
financial reporting and compliance with applicable laws and regulations, to fostering, leading and
supporting an integrated, risk-based culture within the Company that focuses on value creation and
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