Travelers 2015 Annual Report Download - page 70

the Company’s businesses across the European Union. Under Solvency II, it is possible that the U.S.
parent of a European Union subsidiary could be subject to certain Solvency II requirements if the
regulator determines that the subsidiary’s capital position is dependent on the parent company and the
U.S. company is not already subject to regulations deemed ‘‘equivalent’’ to Solvency II. In addition,
regulators in countries where the Company has operations are working with the International
Association of Insurance Supervisors (IAIS) (and with the NAIC, the Federal Reserve and FIO in the
U.S.) to consider changes to insurance company supervision, including group supervision and group
capital requirements.
In July 2013, the IAIS published a methodology for identifying ‘‘global systemically important
insurers’’ (G-SIIs) and high level policy measures that will apply to the G-SIIs. The methodology and
measures were endorsed by the Financial Stability Board (FSB) created by the G-20. Using the IAIS
methodology, the FSB, working with national authorities and the IAIS, identified nine insurers that
they designated as G-SIIs. The IAIS is working on the policy measures which include higher capital
requirements and enhanced supervision. The Company has not been designated as a G-SII by the FSB;
however, the FSB updates the list annually, and it is possible that the methodologies could be amended
or interpreted differently in the future and the Company could be named as a G-SII.
The IAIS also is in the process of developing the Common Framework for the Supervision of
Internationally Active Insurance Groups (Comframe). The IAIS released a Consultation Draft in
October 2013, which may lead to similar policy measures as those being developed for G-SIIs, including
group supervision and an Insurance Capital Standard (i.e., global group capital requirement). The IAIS
revised the Comframe guidance based on comments received and is currently in the process of field
testing many of the requirements. The Company would be considered an Internationally Active
Insurance Group under the current Consultation Draft. It is possible that Comframe, if adopted, could
lead to enhanced supervision and higher capital standards on a global basis if the IAIS, the NAIC and
the individual states adopt the proposed or similar provisions.
While it is not yet known how or if these actions will impact us, such regulation could result in
increased costs of compliance, increased disclosure and less flexibility in our capital management, and
could adversely impact our results of operations and limit our growth.
Loss of or significant restrictions on the use of particular types of underwriting criteria, such as
credit scoring, or other data or methodologies, in the pricing and underwriting of our products could
reduce our future profitability. Our underwriting profitability depends in large part on our ability to
competitively price our products at a level that will adequately compensate us for the risks assumed. As
a result, risk selection and pricing through the application of actuarially sound and segmented
underwriting criteria is critical. However, laws or regulations, or judicial or administrative findings,
could significantly curtail the use of particular types of underwriting criteria. For example, we may use
credit scoring as a factor in pricing decisions where allowed by state law. Some consumer groups and/or
regulators have alleged that the use of credit scoring violates the law by discriminating against persons
belonging to a protected class and are calling for the prohibition or restrictions on the use of credit
scoring in underwriting and pricing. A variety of other underwriting criteria and other data or
methodologies used in personal and commercial insurance have been and continue to be criticized by
regulators, government agencies, consumer groups or individuals on similar or other grounds. Resulting
regulatory actions or litigation could result in negative publicity and/or generate adverse rules or
findings, such as curtailing the use of important underwriting criteria, or other data or methodologies,
each of which could adversely affect our future profitability.
Acquisitions and integration of acquired businesses may result in operating difficulties and other
unintended consequences. From time to time we may investigate and pursue acquisition opportunities
if we believe that such opportunities are consistent with our long-term objectives and that the potential
rewards of an acquisition justify the risks. The process of integrating an acquired company or business
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