Travelers 2015 Annual Report Download - page 49

Item 1A. RISK FACTORS
You should carefully consider the following risks and all of the other information set forth in this
report, including our consolidated financial statements and the notes thereto.
Catastrophe losses could materially and adversely affect our results of operations, our financial
position and/or liquidity, and could adversely impact our ratings, our ability to raise capital and the
availability and cost of reinsurance. Our property and casualty insurance operations expose us to
claims arising out of catastrophes. Catastrophes can be caused by various natural events, including,
among others, hurricanes, tornadoes and other windstorms, earthquakes, hail, wildfires, severe winter
weather, floods, tsunamis, volcanic eruptions and other naturally-occurring events, such as solar flares.
Catastrophes can also be man-made, such as terrorist attacks and other intentionally destructive acts
including those involving nuclear, biological, chemical, radiological, cyber-attacks, explosions and
infrastructure failures. The geographic distribution of our business subjects us to catastrophe exposures
in the United States and Canada, which include, but are not limited to: hurricanes from Maine through
Texas; tornadoes throughout the Central, Mid-Atlantic and Southeastern regions of the United States;
earthquakes in California, the New Madrid region and the Pacific Northwest region of North America;
wildfires, particularly in western states and Canada; and terrorism in major cities in the United States.
In addition to our operations in the United States and Canada, our international operations subject us
to catastrophe exposures in the United Kingdom, the Republic of Ireland and Brazil as well as to a
variety of world-wide catastrophe exposures through our Lloyd’s operations.
The incidence and severity of catastrophes are inherently unpredictable, and it is possible that both
the frequency and severity of natural and man-made catastrophic events could increase. Severe weather
events over the last decade have underscored the unpredictability of future climate trends, and
potentially changing climate conditions could add to the frequency and severity of natural disasters and
create additional uncertainty as to future trends and exposures. For example, over the last decade,
hurricane activity has impacted areas further inland than previously experienced by us, and
demographic changes have resulted in larger populations in coastal areas which historically have been
subject to severe storms, thus expanding our potential for losses from hurricanes. Additionally, both the
frequency and severity of tornado and hail storms in the United States have been more volatile during
the last decade. Moreover, we could experience more than one severe catastrophic event in any given
period.
All of the catastrophe modeling tools that we use, or that we rely on from outside parties, to
evaluate certain of our catastrophe exposures are based on assumptions and judgments that are subject
to error and mis-estimation and may produce estimates that are materially different than actual results.
In addition, compared to models for hurricanes, models for earthquakes are less reliable due to there
being a more limited number of significant historical events to analyze, while models for tornadoes and
hail storms are newer and may be even less reliable due to the highly random geographic nature and
size of these events. As a result, models for earthquakes and tornado and hail storms may have even
greater difficulty predicting risks and estimating losses. Further, changes in climate conditions could
cause our underlying modeling data to be less predictive, thus limiting our ability to effectively evaluate
and manage catastrophe risk. As compared to natural catastrophes, modeling for man-made
catastrophes, such as terrorism, is even more difficult and less reliable, and for some events, such as
cyber-attacks, currently there are no reliable modeling techniques. See ‘‘We may be adversely affected if
our pricing and capital models provide materially different indications than actual results’’ below as well
as ‘‘Item 7—Management’s Discussion and Analysis of Financial Condition and Results of
Operations—Catastrophe Modeling’’ and ‘‘—Changing Climate Conditions.’’
The extent of losses from a catastrophe is a function of both the total amount of insured exposure
in the area affected by the event and the severity of the event. Increases in the value and geographic
concentration of insured property and the effects of inflation could increase the severity of claims from
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