Audit Committee

All members of the Audit Committee are “independent”, consistent with our Governance Guidelines and the NYSE listing standards applicable to boards of directors in general and audit committees in particular. In addition, the Board has determined that the members of the Audit Committee meet the financial literacy and expertise requirements of the NYSE. The Board also has determined that Mr. Dasburg’s experience with KPMG Peat Marwick from 1973 to 1980, his service as a KPMG Tax Partner from 1978 to 1980, his experience as Chief Financial Officer of Marriott Corporation, as Chief Executive Officer of Northwest Airlines, Burger King Corporation and ASTAR and his service on the audit committees of other public companies qualify him as an audit committee financial expert, and he has been so designated.

The duties and responsibilities of the Audit Committee are set forth in its charter, which may be found at www.travelers.com under For Investors: Corporate Governance: Committee Charters: Audit Committee, and include the following:

With respect to our reporting and disclosure matters, the duties and responsibilities of the Audit Committee include reviewing our audited financial statements and recommending to the Board that they be included in our Annual Report on Form 10-K in accordance with applicable rules and regulations of the SEC.

Compensation Committee

All members of the Compensation Committee are “independent” as defined by our Governance Guidelines and the NYSE listing standards. In addition, all members of the Compensation Committee qualify as “non-employee directors” for purposes of Rule 16b-3 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and as “outside directors” for purposes of Section 162(m) (“Section 162(m)”) of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”). The Compensation Committee has a charter, which may be found at www.travelers.com under For Investors: Corporate Governance: Committee Charters: Compensation Committee.

Duties and Responsibilities

With respect to general compensation matters, the duties and responsibilities of the Compensation Committee include the following:

With respect to our reporting and disclosure matters, the duties and responsibilities of the Compensation Committee include reviewing and recommending the Compensation Discussion and Analysis to the Board for inclusion in our annual proxy statement and Annual Report on Form 10-K in accordance with applicable rules and regulations of the SEC.

Establishment of Annual Bonus and Equity Award Pools

As discussed more fully below under the caption “Executive Compensation—Compensation Discussion and Analysis—Compensation Determination Process”, the Compensation Committee sets executive compensation policy for the Company as a whole.

Pursuant to its charter, the Compensation Committee considered recommendations from the CEO regarding total compensation for each of the other executive officers named in the Summary Compensation Table on page 46 (together with the CEO, the “named executive officers”) and other officers.

During 2010, the Compensation Committee took those actions required under Section 162(m) in order for performance-based compensation to be fully deductible by the Company for income tax purposes.

The Compensation Committee approves the individual salary, annual bonus and equity awards for the Committee Approved Officers. In addition, the Compensation Committee approves the aggregate annual bonuses and all equity awards to employees who are not Committee Approved Officers.

Delegation of Authority with Respect to “Off-Cycle” Equity Grants

The Compensation Committee also has delegated limited authority to the Chairman and CEO to make certain “off-cycle” equity grants outside of the annual equity grant process to employees and new hires who are not Committee Approved Officers. The delegation is subject to maximum grant date values of equity that can be granted to any one person. These grants can only be made on the grant dates established by our Governance Guidelines for “off-cycle” equity awards. Our Governance Guidelines are available on our website at www.travelers.com under For Investors: Corporate Governance: Governance Documents: Governance Guidelines. Any awards made “off-cycle” are reported to the Compensation Committee at the next regularly scheduled meeting following such awards.

Compensation Consultant

The Compensation Committee has the authority under its charter to retain outside consultants or advisors, as it deems necessary or advisable. In accordance with this authority, the Compensation Committee has engaged Frederic W. Cook & Co. (“F. W. Cook”) as its independent outside compensation consultant to provide it with objective and expert analyses, advice and information with respect to executive compensation.

Neither F. W. Cook nor any of its affiliates maintains any other direct or indirect business relationships with the Company or any of its affiliates. All executive compensation services provided by F. W. Cook are conducted under the direction or authority of the Compensation Committee, and all work performed by F. W. Cook must be pre-approved by the Compensation Committee or the Chair of the Compensation Committee.

F. W. Cook also advises the Nominating and Governance Committee with respect to director compensation.

As requested by the Compensation Committee, in 2010, F. W. Cook’s services to the Compensation Committee included, among other things:

An F. W. Cook representative participated in each of the six Compensation Committee meetings in 2010.

In 2010 and 2009, we paid F. W. Cook $151,340 and $118,942, respectively, for services to the Compensation Committee and the Nominating and Governance Committee. In 2010 and 2009, the Company paid $91,650 and $86,615, respectively, to certain other compensation consultants retained by management to provide broad-based compensation surveys. Such other consultants retained by management did not have any role in determining or recommending the amount or form of executive or director compensation.

In addition to the independent, outside compensation consultant discussed above, our corporate staff (including Finance, Human Resources and Legal staff members) supports the Compensation Committee in its work. Other than the CEO (with respect to compensation for the other executive officers) and the President and Chief Operating Officer and Chief Financial Officer (with respect to executive officers that report to them), no executive

officer determines or recommends to the Compensation Committee the amount or form of executive compensation paid to another executive officer.

Executive Committee

The Board has granted to the Executive Committee, subject to certain limitations set forth in its charter, the broad responsibility of exercising the authority of the Board in the oversight of our business during the intervals between Board meetings. The Executive Committee meets only as necessary. The duties and responsibilities of the Executive Committee are set forth in its charter, which may be found at www.travelers.com under For Investors: Corporate Governance: Committee Charters: Executive Committee.

Investment and Capital Markets Committee

The Investment and Capital Markets Committee assists the Board in exercising its oversight of the Company’s management of its investment portfolios (including credit risk monitoring) and certain financial affairs of the Company (including capital management, such as dividend policy and actions, stock splits, repurchases of stock or other securities, financing arrangements, debt and equity financing and liquidity).

The Investment and Capital Markets Committee also reviews and either approves, or recommends appropriate Board action with respect to, among other matters, the issuance of securities, the establishment of bank lines of credit and certain purchases and dispositions of real property, capital expenditures and acquisitions and divestitures of assets.

The Investment and Capital Markets Committee’s charter can be found at www.travelers.com under For Investors: Corporate Governance: Committee Charters: Investment and Capital Markets Committee.

Nominating and Governance Committee

Each member of the Nominating and Governance Committee is “independent”, consistent with our Governance Guidelines and the NYSE listing standards. The duties and responsibilities of the Nominating and Governance Committee are set forth in its charter, which may be found at www.travelers.com under For Investors: Corporate Governance: Committee Charters: Nominating and Governance Committee, and include the following:

Risk Committee

The purpose of the Risk Committee is to assist the Board in exercising its oversight of our operational activities and the identification and review of those risks that could have a material impact on us. The duties and responsibilities of the Risk Committee are set forth in its charter, which may be found at www.travelers.com under For Investors: Corporate Governance: Committee Charters: Risk Committee, and include oversight of management’s risk management activities in the following areas:

GOVERNANCE OF YOUR COMPANY

Our Governance Guidelines, which include our categorical standards of director independence, our Code of Business Conduct and Ethics, Board Committee charters and other corporate governance information are available on the Corporate Governance page of the “For Investors” section on our website at www.travelers.com. Certain of the significant corporate governance practices that the Board has implemented are described further below.

Governance Guidelines

Our commitment to good corporate governance is reflected in our Governance Guidelines, which describe the Board’s views on a wide range of governance topics. These Governance Guidelines are reviewed annually by the Nominating and Governance Committee and, to the extent deemed appropriate in light of emerging practices, revised accordingly, upon recommendation to and approval by the full Board.

Code of Business Conduct and Ethics

We maintain a Code of Business Conduct and Ethics (the “Code of Conduct”), which is applicable to all of our directors, officers and employees, including our CEO, Chief Financial Officer, Controller and other senior financial officers. The Code of Conduct sets forth our policies and expectations on a number of topics, including conflicts of interest, compliance with laws, use of our assets and business ethics.

The Code of Conduct may be found on our website at www.travelers.com under For Investors: Corporate Governance: Code of Conduct.

Our Chief Compliance Officer is responsible for overseeing compliance with the Code of Conduct as part of fulfilling his responsibility for overseeing our compliance functions throughout the organization. Our Chief Compliance Officer also assists in the communication of the Code of Conduct and oversees employee education regarding its requirements, including online compliance training. All employees are required to certify periodically as to

their familiarity and compliance with the Code of Conduct.

Significant Governance Practices

Ethics Helpline

We maintain an Ethics Helpline through which employees can report integrity concerns or seek guidance regarding a policy or procedure. The Ethics Helpline is serviced by an independent company, is available 7 days a week, 24 hours a day and can be accessed by any employee through a toll-free number. Employees may also access the helpline system and report integrity concerns via the Web. In either case, employees can report integrity concerns anonymously. We maintain a formal no retaliation policy that prohibits retaliation or discipline against an employee who raises an ethical concern in good faith. Once a complaint is alleged, the report is forwarded to our Chief Compliance Officer who is responsible for oversight of the helpline. Our Chief Compliance Officer coordinates with management and outside resources, as appropriate, to investigate the matter, and any ethical or compliance-related issues will not be closed until they have been addressed to his satisfaction. The Audit Committee receives quarterly summaries of matters reported through the Ethics Helpline. In addition, any matter reported to the Chief Compliance Officer that involves accounting, internal control or audit matters, or any fraud involving persons with a significant role in our internal controls, is required to be reported promptly to the Audit Committee.

Compliance Policy Review

Under the oversight of the Audit Committee, we have established a Company-wide compliance function, with a view to ensuring compliance with evolving laws, regulations and policies and to encourage and reinforce ongoing ethical and lawful business conduct. The compliance function, through our Chief Compliance Officer, meets regularly with members of senior management that oversee the activities of the Chief Compliance Officer. Together, this group oversees the implementation of the various compliance initiatives and functions in each of the business units and seeks to promote better coordination and effectiveness through corporate compliance policies and initiatives, program design and promotion of a culture of compliance. Training is a key element of this program, and we provide global, computer-based compliance training, supplemented with focused in-person sessions.

Director Stock Ownership

The Board believes its non-management directors should accumulate and retain certain levels of ownership of our equity securities to align the interests of the non-management directors and the shareholders. Accordingly, the Board has established an ownership target for each non-management director equal to four times the director’s most recent annual deferred stock award. Each new director is expected to meet or exceed this target within four years of his or her initial election to the Board, provided that, if the annual deferred stock award for any of such four years is less than the most recent annual deferred stock award, such director is expected to meet or exceed the target within five years of his or her election to the Board. All of our current non-management directors, other than Ms. Higgins and Messrs. Beller and Killingsworth, each of whom was elected to our Board for the first time in May 2007, and Mr. Shepard who was elected to our Board in December 2009, have achieved stock ownership levels in excess of the amount required. Directors receive over 50% of their annual compensation in the form of deferred stock units. The shares underlying these units are not distributed to a director until at least six months after the director leaves the Board. Accordingly, all of our non-management directors hold equity interests that they cannot sell for so long as they serve on the Board and at least six months afterwards.

Director Age Limit

The Governance Guidelines provide generally that no person who will have reached the age of 72 on or before the date of the next annual shareholders’ meeting will be nominated for election at that meeting.

Under special circumstances, with the approval of the Board, exceptions can be made to this policy. The Board believes, however, that exceptions to this policy should not be commonplace and should be based upon the needs of the Company and the individual attributes of the director.

Director Nominations

Process and Criteria Generally

Pursuant to our Governance Guidelines, the Nominating and Governance Committee is responsible for recommending to the Board nominees for election for director, and the Board is responsible for selecting nominees for election.

As required by our Governance Guidelines, the Board, based on the Nominating and Governance

Committee’s recommendation, selects nominees after considering the following criteria:

The evaluation of these criteria involves the exercise of careful business judgment. Accordingly, although the Nominating and Governance Committee and the Board at a minimum assess each candidate’s ability to satisfy any applicable legal requirements or listing standards, his or her strength of character, judgment, working style, specific areas of expertise and his or her ability and willingness to commit adequate time to Board and committee matters, they do not have fixed qualifications that are applicable to all director candidates. The Board seeks to ensure that the Board is composed of members whose particular expertise, qualifications, attributes and skills, when taken together, allow the Board to satisfy its oversight responsibilities effectively.

As mentioned above, the Nominating and Governance Committee and the Board include diversity of “viewpoints, background, experience and other demographics” as one of several criteria that they consider in connection with selecting candidates for the Board. While neither the Board nor the Nominating and Governance Committee has a formal diversity policy, one of many factors that the Board and the Nominating and Governance Committee carefully considers is the importance to the Company of racial and gender diversity in board composition. Moreover, when considering director candidates, the Nominating and Governance Committee and the Board seek individuals with backgrounds and qualities that, when combined with those of our incumbent directors, enhance the Board’s effectiveness and, as required by the Governance Guidelines, result in the Board having “a broad range of skills, expertise, industry knowledge, diversity of opinion

and contacts relevant to the Company’s business”. As part of its annual self-evaluation, the Board assesses and confirms compliance with this Governance Guideline.

In identifying prospective director candidates for the Board, the Nominating and Governance Committee may seek referrals from other members of the Board, management, shareholders and other sources. The Nominating and Governance Committee also may, but need not, retain a professional search firm in order to assist it in these efforts. The Nominating and Governance Committee and the Board utilize the same criteria for evaluating candidates regardless of the source of the referral.

The Nominating and Governance Committee will consider director candidates recommended by shareholders. Shareholders wishing to propose a candidate for consideration may do so by submitting the proposed candidate’s full name and address, résumé and biographical information to the attention of the Corporate Secretary, The Travelers Companies, Inc., 485 Lexington Avenue, New York, New York 10017. All recommendations for nomination received by the Corporate Secretary that satisfy our bylaw requirements relating to such director nominations will be presented to the Nominating and Governance Committee for its consideration.

Specific Considerations Regarding 2011 Directors and Nominees

In considering the 11 director nominees named in this Proxy Statement and proposed for election by you at the Annual Meeting, the Nominating and Governance Committee and the Board evaluated each nominee’s experiences, qualifications, attributes and skills, in light of the Governance Guidelines’ criteria for nomination discussed above. The Board and the Nominating and Governance Committee also considered the years of experience many directors have had working together on the Board, as well as the contributions of those directors recommended for re-election in the context of the Board self-evaluation process and other perceived needs of the Board.

The Board and the Nominating and Governance Committee, in considering each nominee, principally focused on the background and experiences of the nominee, as described in the biographies appearing on pages 6 through 10 of this Proxy Statement. The Board and the Nominating and Governance Committee considered that each nominee has experience serving in senior positions with significant responsibility, where each has gained valuable expertise in a number of areas relevant to the Company and its

business. The Board and the Nominating and Governance Committee also considered that a number of directors have gained valuable experience and skills through serving as a director of other public and private companies. Specifically, among other things:

Annual Meeting of Shareholders

We encourage and expect all of the directors to attend each annual meeting of shareholders. All of our directors were present at the 2010 annual meeting of our shareholders.

Director Independence and Independence Determinations

Under our Governance Guidelines and NYSE rules, a director is not independent unless the Board affirmatively determines that he or she does not have a direct or indirect material relationship with the Company. In addition, the director must meet the bright-line test for independence set forth by the NYSE rules.

The Board has established categorical standards of director independence to assist it in making independence determinations. These standards, which are included in our Governance Guidelines and may be found on our website at www.travelers.com under For Investors: Corporate Governance: Governance Documents: Governance Guidelines, set forth certain relationships between the Company and the directors and their immediate family members, or entities with

which they are affiliated, that the Board, in its judgment, has determined to be material or immaterial in assessing a director’s independence. The Nominating and Governance Committee annually reviews the independence of all directors and reports its determinations to the full Board.

In the event a director has a relationship with the Company that is relevant to his or her independence and is not addressed by the categorical independence standards, the independent members of the Board determine in their judgment whether such relationship is material.

Our Governance Guidelines require that: (1) no less than three-fourths of the members of the Board be independent; (2) all members of the Audit Committee, the Compensation Committee and the Nominating and Governance Committee be independent; (3) three-fourths of the members of each other standing committee of the Board (other than the Executive Committee) be independent; and (4) no more than two members of the Board may concurrently serve as officers of the Company.

The Board has determined that all of its directors and all of the persons proposed for election at the Annual Meeting are independent, other than our Chairman and Chief Executive Officer, Mr. Jay Fishman, who is an employee of the Company. Consequently, approximately 92% of the directors on the Board are independent.

In making its independence determinations, the Board considered and reviewed the various commercial, charitable and employment transactions and relationships known to the Board (including those identified through annual directors’ questionnaires) that exist between us and our subsidiaries and the entities with which certain of our directors or members of their immediate families are, or have been, affiliated. Specifically, the Board’s independence determinations included reviewing (1) charitable contributions to a non-profit organization where Ms. Janet Dolan serves as a director (but not as an executive officer or employee) and (2) membership dues, project funding, event sponsorship and research fees paid to a trade association and affiliated entities where Mr. Donald Shepard serves as a director (but not as an executive officer or employee). Payments to each organization constituted less than 1% of such organization’s annual consolidated gross revenues during its last completed fiscal year and were below the thresholds set forth under our categorical standards of director independence.

The Board determined that none of the transactions or relationships identified were material or affected the independence of such directors under either the Company’s Governance Guidelines or the applicable NYSE rules.

Dating and Pricing of Equity Grants

The Board has adopted a Governance Guideline establishing fixed grant dates for the award of “off-cycle” equity grants, so as to avoid the appearance that equity grant dates have been established with a view to benefiting grantees due to the timing of material public announcements. Our Governance Guidelines are available on our website at www.travelers.com under For Investors: Corporate Governance: Governance Documents: Governance Guidelines.

In addition, to further ensure the integrity of our equity awards process, the Compensation Committee requires that the exercise price of all stock options granted, and the fair value of all equity awards made, must be determined by reference to the closing price for a share of our common stock on the NYSE on the date of any such grant or award. Under the Amended and Restated 2004 Stock Incentive Plan, the Compensation Committee may not take any action with respect to any stock option that would be treated as a “repricing” of such stock option, unless such action is approved by the Company’s shareholders in accordance with applicable rules of the NYSE.

Transactions with Related Persons and Certain Control Persons—Related Person Transaction Approval

The Board has adopted a written Related Person Transaction Policy to assist it in reviewing, approving and ratifying related person transactions and to assist us in the preparation of related disclosures required by the SEC. This Related Person Transaction Policy supplements our other policies that may apply to transactions with related persons, such as the Board’s Governance Guidelines and our Code of Conduct.

The Related Person Transaction Policy provides that all related person transactions covered by the Policy are prohibited, unless approved or ratified by the Board or by the Nominating and Governance Committee. Our directors and executive officers are required to provide prompt and detailed notice of any potential Related Person Transaction (as defined in the Policy) to the Corporate Secretary, who in turn must promptly forward such notice and information to the Chairperson of the Nominating and Governance Committee and to our counsel for analysis, to

determine whether the particular transaction constitutes a Related Person Transaction requiring compliance with the Policy. The analysis and recommendation of counsel are then presented to the Nominating and Governance Committee for consideration at its next regular meeting.

In reviewing Related Person Transactions for approval or ratification, the Nominating and Governance Committee will consider the relevant facts and circumstances, including:

The Nominating and Governance Committee will not approve or ratify a Related Person Transaction unless, after considering all relevant information, it has determined that the transaction is in, or is not inconsistent with, the best interests of the Company and our shareholders.

Generally, the Related Person Transaction Policy applies to any current or proposed transaction in which:

A copy of our Related Person Transaction Policy is available on our website at www.travelers.com under For Investors: Corporate Governance: Governance Documents: Related Person Transaction Policy.

Employment Relationships

We employ approximately 32,000 employees, approximately 7,000 of whom work in and around Hartford, Connecticut. We employ several employees in the Hartford area who are related to the executive officers identified below:

Third-Party Transactions

We engage several thousand law firms, nationally and internationally, to represent us and/or our insureds in connection with, among other things, corporate, litigation, regulatory, insurance coverage and claim matters. In 2010, we engaged several law firms with partners related to the executive officer or director identified below:

·  In its Schedule 13G filed on February 11, 2011, State Street Corporation, through its affiliates noted on its Schedule 13G (“State Street”), reported that it beneficially owned greater than 5% of the outstanding voting securities of the Company as of December 31, 2010. Accordingly, State Street is a “related person” under the Related Person Transaction Policy. An affiliate of State Street provides investment management services to the Company’s 401(k) Savings Plan (the “401(k) Plan”). The participants in the 401(k) Plan paid approximately $304,000 in management fees to State Street in 2010. The investment management agreement was entered into on an arm’s-length basis. Additionally, from time-to-time, State Street has entered into insurance policies with Travelers. All of these transactions are entered into in the ordinary course of business on substantially the same terms as those offered to other customers. In 2010, State Street paid premiums of approximately $1.26 million for such policies.

·  Fidelity Management Trust Company (“Fidelity”) holds 100% of the outstanding shares of the Company’s Series B convertible preferred stock as trustee under the 401(k) Plan. Accordingly, Fidelity is a “related person” under the Related Person Transaction Policy. In November 2009, the Company entered into an agreement on an arm’s-length basis with an affiliate of Fidelity under which such affiliate will serve as the administrator of the Company’s equity compensation programs. Pursuant to the agreement, the Company will pay Fidelity approximately $1,500,000 for stock plan administration services over the five year term of the contract. An affiliate of Fidelity has also provided 401(k) plan recordkeeping services to the Company since 1998. The current contract for 401(k) recordkeeping services has been in place since 2005 and has been updated from time to time. The Company paid Fidelity approximately $1,105,000 for 401(k) plan recordkeeping services in 2010. Each of these arrangements has been entered into on an arm’s-length basis.

·  Mr. William Bloom served as an executive officer of the Company until July 2010, at which time he joined EXLService Holdings, Inc. (“EXL”). The Company engaged EXL for business process outsourcing in 2006 and has had an agreement with EXL since that time. In 2010, the Company paid approximately $34.7 million to EXL for services under this agreement. The agreement with EXL was entered into in the ordinary course of business and on an arm’s-length basis.

In addition to the Related Person Transaction Policy, our Code of Conduct requires that all employees, officers and directors avoid any situation that involves or appears to involve a conflict of interest between their personal and professional relationships. Our Audit Committee provides oversight regarding compliance with our Code of Conduct and discusses any apparent conflicts of interest with senior management. The Code of Conduct also requires that all employees seek approval from both our General Counsel and our Chief Compliance Officer prior to accepting a position as a director or officer of any unaffiliated for-profit company or organization.

Governance Structure of the Board—Lead Director

Mr. Fishman serves as Chairman of the Board as well as Chief Executive Officer, and Mr. Dasburg currently serves as our Lead Director. This leadership structure has been in place since 2006. Our Governance Guidelines provide for the position of Lead Director whenever the Chairman of the Board is also the Chief Executive Officer or is a director who does not otherwise qualify as an independent director. Under the Governance Guidelines, the Lead Director is responsible for coordinating the efforts of the independent and non-management directors “in the interest of ensuring that objective judgment is brought to bear on sensitive issues involving the management of the Company and, in particular, the performance of senior management”. Among other things, the Lead Director has the authority to:

·  convene, set the agendas for and chair regular executive sessions of the independent directors;

·  convene meetings of the independent directors as he deems necessary;

·  provide direction to the Chairman regarding the meeting schedules, information to be sent to the Board and input regarding meeting agenda items;

·  act as a liaison between and among directors, committee chairs, the Chairman and senior management;

·  receive and review correspondence sent to the Company’s office addressed to the Board and to determine appropriate responses if any; and

·  recommend to the Board the retention of consultants and advisors who directly report to the Board, without consulting or obtaining the advance authorization of any officer of the Company.

The Lead Director is elected from among the independent directors by secret ballot of the independent directors, and no person may serve in such role for more than five consecutive years. A more complete description of the role of the Lead Director is set forth in our Governance Guidelines which are available on our website at www.travelers.com. The Board believes that its current leadership structure is appropriate for the Company at this time. The Board believes that the responsibilities of the Lead Director help to assure appropriate oversight of Company management by the Board and optimal functioning of the Board. The effectiveness of the Lead Director is enhanced by the Board’s independent character. The Board annually reviews the independence of our directors and has determined that 10 of the 11 directors nominated for re-election are independent. See “Director Independence and Independence Determinations” on page 18 of this Proxy Statement. Each of the Compensation Committee, Audit Committee, Risk Committee, Nominating and Governance Committee and Investment and Capital Markets Committee is comprised solely of independent directors. In addition, at each in-person Board meeting, the non-management directors are scheduled to meet in executive session with the Lead Director presiding at such meetings.

Finally, as described in more detail under “Specific Considerations Regarding 2011 Directors and Nominees”, the Lead Director and the independent directors have substantial experience with public company management and governance, in general, and the Company, in particular. At the same time, the combined role of Chairman and Chief Executive Officer, in the case of the Company, means that the Chair of the Board has longstanding experience with property and casualty

insurance and ongoing executive responsibility for the Company. In the Board’s view, this enables the Board to better understand the Company and work with management to enhance shareholder value. In the Board’s view, this also enables it to better fulfill its risk oversight responsibilities, as described below. In addition, this enables the Chief Executive Officer to effectively communicate the Board’s view to management thereby ensuring a common purpose.

In summary, the Board believes the appropriate leadership structure depends on the opportunities and challenges facing a company at a given time and that a one-size-fits-all approach to corporate governance, with a mandated independent Chair, would deprive the Company of benefits of its current leadership structure and would not result in better governance or oversight.

Executive Sessions

Executive sessions, which are meetings of the non-management members of the Board, are regularly scheduled throughout the year. Each of the committees also meet regularly in executive session.

Board and Committee Evaluations

Every year, the Board and each of its Committees evaluate and discuss their respective performance and effectiveness, as required by the Governance Guidelines. These evaluations cover a wide range of topics, including but not limited to, the fulfillment of the Board and Committee responsibilities identified in the Governance Guidelines and Committee charters, which are posted on our website at www.travelers.com under For Investors: Corporate Governance.

Communications with the Board

As described on our website at www.travelers.com, interested parties, including shareholders, who wish to communicate with a member or members of the Board, including the Chairman of the Nominating and Governance Committee, the non-employee directors as a group, the Lead Director or the Audit Committee, may do so by addressing their correspondence as follows: if intended for the full Board or one or more non-employee directors, to the Lead Director; if intended for the Lead Director, to Mr. John Dasburg; and if intended for the Audit Committee, to the Chairman of the Audit Committee. All such correspondence should be sent to the following address: c/o Corporate Secretary, The Travelers Companies, Inc., 385 Washington Street, Saint Paul,

Minnesota 55102. The office of the Corporate Secretary will forward all such correspondence to the appropriate person or persons.

Board’s Role in Risk Management; Enterprise Risk Management

Enterprise Risk Management is a company-wide initiative that involves the Board and management identifying, assessing and managing risks that could affect our ability to fulfill our business objectives or execute our corporate strategy. Our Enterprise Risk Management activities involve the identification and assessment of a broad range of risks and the development of plans to mitigate their effects. The Risk Committee and the other committees of the Board, as well as our separate management-level enterprise risk and underwriting risk committees, are key elements of our enterprise risk management structure and help to establish and reinforce our strong culture of risk management. For example, having both a Board Risk Committee that oversees operational risks and the Company’s Enterprise Risk Management activities, and a management-level enterprise risk committee that reports regularly to the Board Risk Committee, enables a high degree of coordination between management and the Board. We describe our Enterprise Risk Management function in more detail in our Annual Report on Form 10-K, under “Business—Enterprise Risk Management”. We also discuss the alignment of our executive compensation with our risk management under “Compensation Discussion and Analysis—Risk Management and Compensation” on page 30 of this Proxy Statement.

While the Risk Committee has oversight responsibility generally for our Enterprise Risk Management activities, the Board has allocated and delegated risk oversight responsibility to various committees of the Board in accordance with the following principles:

·  The Audit Committee is responsible for oversight of risks related to integrity of financial statements, including oversight of financial reporting principles and policies and internal controls, and oversight of the process for establishing insurance reserves.

·  The Risk Committee is responsible for oversight of risks related to business operations, including insurance underwriting and claims, reinsurance, catastrophe risk, credit risk in insurance operations, information technology and business continuity plans.

·  The Compensation Committee is responsible for oversight of risks related to compensation programs, including formulation, administration and regulatory compliance.

·  The Investment and Capital Markets Committee is responsible for oversight of risks in the Company’s investment portfolio (including valuation and credit risks), capital structure, financing arrangements and liquidity.

·  The Nominating and Governance Committee is responsible for oversight of risks related to corporate governance matters, including succession planning, director independence and related person transactions.

·  Each committee is responsible for monitoring reputational risk to the extent arising out of its allocated subject matter.

As a result, each Committee charter contains specific risk oversight functions delegated by the Board, consistent with the principles set forth above. In that way, risk oversight responsibilities are shared by all Committees of the Board and do not rest entirely with the Risk Committee. Further, we believe that allocating responsibility to a committee with relevant knowledge and experience improves the oversight of risk. Charters are available on the Company’s website at www.travelers.com under For Investors: Corporate Governance: Committee Charters, and responsibilities are summarized under “Board of Directors Information—Committees of the Board and Meetings” on page 11 of this Proxy Statement.

The allocation of risk oversight responsibility may change, from time to time, based on the evolving needs of the Company. On at least an annual basis, the Board reviews significant risks that management, through its Enterprise Risk Management efforts, has identified and then evaluates, and may change, the allocation among the various Committees of oversight responsibility for each identified risk. Further, each Committee periodically reports to the Board on its risk oversight activities. In addition, the Board has adopted a practice that at least annually, the Company’s chief risk officer will conduct a review of the interrelationships of risks and report the results to the Risk Committee and the Board. These reports and reviews are intended to inform the Board’s annual evaluation of the allocation of risk oversight responsibility.

ITEM 2—RATIFICATION OF INDEPENDENT

REGISTERED PUBLIC ACCOUNTING FIRM

The Audit Committee has selected KPMG LLP to serve as our independent registered public accounting firm for 2011.

Although ratification is not required by our bylaws or otherwise, the Board is submitting the selection of KPMG to our shareholders for ratification because we value our shareholders’ views on the Company’s independent registered public accounting firm. If our shareholders fail to ratify the selection, it will be considered notice to the Board and the Audit Committee to consider the selection of a different firm. Even if the selection is ratified, the Audit Committee in its discretion may select a different independent registered public accounting firm at any time during the year if it determines that such a change would be in the best interests of the Company and our shareholders.

Representatives of KPMG will be present at the Annual Meeting to answer questions. They also will have the opportunity to make a statement if they desire to do so.

The shares represented by your proxy will be voted “FOR” the ratification of the selection of KPMG unless you specify otherwise. KPMG has served as the independent registered public accounting firm of the Company (including The St. Paul Companies, Inc. (“St. Paul”) and its subsidiaries prior to its merger with Travelers Property Casualty Corp. (“TPC”) that formed the Company (the “Merger”)) since 1968 and of TPC and its predecessors from December 1993 until the Merger.

Audit and Non-Audit Fees

In connection with the audit of the 2010 financial statements, we entered into an agreement with KPMG which set forth the terms by which KPMG would perform audit services for the Company.

The following table presents fees for professional services rendered by KPMG for the audit of our financial statements for 2010 and 2009 and fees billed for other services rendered by KPMG for those periods:

(1)     Fees paid were for audits of financial statements, reviews of quarterly financial statements and

related reports and reviews of registration statements and certain periodic reports filed with the SEC.

(2)    Services primarily consisted of audits of employee benefit plans and reports on internal controls not required by applicable regulations.

(3)    Tax fees related primarily to tax return preparation and assistance services and occasionally to domestic and international tax planning.

The Audit Committee of the Board considered whether providing the non-audit services shown in this table was compatible with maintaining KPMG’s independence and concluded that it was.

Consistent with SEC policies regarding auditor independence and the Audit Committee’s charter, the Audit Committee has responsibility for appointing, setting compensation for and reviewing the performance of the independent registered public accounting firm. In exercising this responsibility, the Audit Committee preapproves all audit and permitted non-audit services provided by the independent registered public accounting firm. Each year, the Audit Committee approves an annual budget for such permitted non-audit services and requires the independent registered public accounting firm and management to report actual fees versus the budget periodically throughout the year. The Audit Committee has authorized our Chief Auditor to approve KPMG’s commencement of work on permitted services within that budget, although the Chair of the Audit Committee must approve any permitted non-audit service within the budget if the expected cost for that service exceeds $100,000. During the year, circumstances may arise that make it necessary to engage the independent registered public accounting firm for additional services that would exceed the initial budget. The Audit Committee has delegated the authority to the Chair of the Audit Committee to review such circumstances and to grant approval when appropriate. All such approvals are then reported by the Audit Committee Chair to the full Audit Committee at its next meeting.

YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE RATIFICATION OF KPMG AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2011.

Report of the Audit Committee

The Audit Committee operates pursuant to a charter which is reviewed annually by the Audit Committee. Additionally, a brief description of the primary responsibilities of the Audit Committee is included in “Board of Directors Information—Audit Committee” on page 11 of this Proxy Statement. Under the Audit Committee charter, management is responsible for the preparation, presentation and integrity of the Company’s financial statements, the application of accounting and financial reporting principles and internal controls and procedures designed to assure compliance with accounting standards and applicable laws and regulations. The independent registered public accounting firm is responsible for auditing the Company’s financial statements and expressing an opinion as to their conformity with accounting principles generally accepted in the United States of America. In addition, the independent registered public accounting firm is responsible for auditing and expressing an opinion on the Company’s internal controls over financial reporting.

In the performance of its oversight function, the Audit Committee reviewed and discussed the audited financial statements of the Company with management and with the independent registered public accounting firm. The Audit Committee also discussed with the

independent registered public accounting firm the matters required to be discussed by the statement on Auditing Standards No. 61, as amended (AICPA, Professional Standards, Vol. 1. AU section 380), as adopted by the Public Company Accounting Oversight Board in Rule 3200T. In addition, the Audit Committee received the written disclosures and the letter from the independent registered public accounting firm required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent registered public accounting firm’s communications with the Audit Committee concerning independence, and discussed with the independent registered public accounting firm their independence.

Based upon the review and discussions described in the preceding paragraph, the Audit Committee recommended to the Board that the audited financial statements of the Company be included in the Annual Report on Form 10-K for the year ended December 31, 2010 filed with the SEC.

Submitted by the Audit Committee of the Company’s Board of Directors:

ITEM 3—NON-BINDING VOTE ON EXECUTIVE COMPENSATION

As a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”), shareholders are entitled to vote to approve the compensation of our named executive officers as disclosed on pages 28 through 63 of this Proxy Statement. While the Board intends to consider carefully the results of this vote, the final vote is advisory only and will not be binding on the Company or the Board.

The language of the resolution is as follows:

RESOLVED, that the compensation paid to the Company’s named executive officers, as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables and related narrative discussion, is hereby APPROVED.

As described in those sections, including the Compensation Discussion and Analysis, our executive compensation programs include the following elements, consistent with our longtime philosophy:

·  A substantial majority of named executive officer compensation is performance-based. 94% of 2010 total direct compensation (that is, salary, bonus and equity) for the CEO was performance-based, and 87% of the average 2010 total direct compensation for the other named executive officers was performance-based. In addition, more than 40% of the average total direct compensation for the named executive officers consisted of equity-based awards, in the form of performance shares and stock options, which incentivize long-term performance and only vest after three years. Consistent with the foregoing, our compensation program de-emphasizes other non-performance-based elements of compensation like pension benefits and perquisites.

·  Performance-based compensation is linked to the achievement of our short- and long-term financial and strategic objectives. In particular, annual bonuses and payouts on performance shares depend, in large part, on management’s ability to develop and execute financial and operational plans consistent with our targeted returns on equity over time. Because return on equity is a function of both income and shareholders’ equity, it reflects the quality and profitability of our underwriting and investing activities and the strength of our capital management; as a result, using return on

equity as a performance measure for compensation aligns compensation with the creation of shareholder value.

·  Consistent with our pay-for-performance philosophy, compensation has often increased or decreased significantly from year to year, based on results. For example, 2010 performance year bonuses for named executive officers were on average 13.4% lower than prior year bonuses, as the Compensation Committee concluded that total compensation should reflect not only outstanding individual and Company performance but should also take into account the decline in net income and return on equity that resulted from a number of factors, particularly significant increases in catastrophe losses that impacted the Company and the property and casualty industry.

Our “2010 Overview” in the Compensation Discussion and Analysis section highlights the strong results, on an absolute and relative basis, that led the Compensation Committee to make its 2010 compensation decisions. As it did last year, the Committee set total compensation for named executive officers as a group at what it believes will approximate the 75th percentile of the Compensation Comparison Group (as described in the Compensation Discussion and Analysis). The strong results included the following:

·  In 2010, we generated significant net income and net income per diluted share. In 2010, we recorded net income per diluted share of $6.62, the second highest in our history, and $3.216 billion of net income, the second highest of the 11 companies in our Compensation Comparison Group.

·  Our return on equity over time has been significant and consistent with our goals. From January 1, 2005 through December 31, 2010, we achieved an average annual operating return on equity of 14.1% and an average annual return on equity of 13.5%, which we believe is consistent with being able to achieve our financial goal of a mid-teens return on equity over time.

·  We have generated leading total returns to shareholders over time. Our five-year total return to shareholders (measured as the change in stock price over the five-year period ending December 31, 2010 plus the cumulative amount of dividends, assuming dividend reinvestment) was higher than the returns of all of our Compensation Comparison Group, and our three-year total return to shareholders

(for the period ending December 31, 2010) was higher than the returns of 10 of the 11 members of that group.

We believe that our strong performance, not only in 2010 but over the past few years, resulted in large measure from the successful execution of our long-term strategy over a multi-year time period and the careful balance of risk and reward. Further, we believe that our executive compensation program encourages and rewards a long-term focus.

YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR” APPROVAL OF THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS.

ITEM 4—NON-BINDING VOTE ON THE FREQUENCY OF FUTURE VOTES ON EXECUTIVE COMPENSATION

As a result of the Dodd-Frank Act, shareholders are also entitled to indicate their preference as to how frequently they would like to cast a non-binding vote on the compensation of our named executive officers. Shareholders may indicate whether they would prefer such vote occur every one, two or three years. While the Board intends to consider carefully the results of this vote, the vote is advisory only and will not be binding on the Company or the Board.

The Board of Directors believes that a non-binding vote on executive compensation every three years is more appropriate for the Company and its shareholders based on a number of considerations, including the following:

·  A consistent approach to compensation allows our executives to focus on executing long-term strategy. To encourage a long-term focus in an industry where results can be cyclical and volatile, the objectives and structure of the Company’s executive compensation

program should not and do not change frequently. An advisory vote on compensation every three years, rather than a shorter cycle, is consistent with a compensation philosophy that is intended to be stable and reward performance over time.

·  A significant portion of the compensation paid to our named executive officers is intended to link their compensation with performance over a three-year period. Our long-term incentive awards, which during the past three years constituted more than 40% of the average total direct compensation for our named executive officers, do not vest until three years after grant. Moreover, the vesting percentage for performance shares is based on adjusted returns on equity over a three-year performance period.

·  A three-year cycle allows for thoughtful evaluation of compensation and consideration and implementation of changes. A three-year cycle will provide shareholders with greater opportunity to evaluate the effectiveness of the Company’s short-term and long-term incentive programs in driving performance over time, and to share their views with the Company regarding its executive compensation program. The longer cycle will also give the Board increased time to consider that input and implement any changes thoughtfully and effectively. A shorter cycle does not allow for the same degree of consideration and thoughtful implementation.

YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR EVERY “THREE YEARS” WITH RESPECT TO THE FREQUENCY OF NON-BINDING SHAREHOLDER VOTES TO APPROVE EXECUTIVE COMPENSATION.

EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

This section of the Proxy Statement explains our compensation philosophy and describes how our compensation programs are designed and operate with respect to our named executive officers for whom compensation is disclosed in the tables below.

2010 Overview

In 2010, Travelers and its competitors continued to face a challenging business environment that was impacted by the disruption in the economy and financial markets that began in 2008 and continued, with somewhat moderated severity, through 2010. This business environment significantly affected underwriting and investment income.

·  Although the U.S. experienced some growth in gross domestic product after the steepest decline in gross domestic product since 1982, unemployment remained at high levels. Continued lower levels of economic activity resulted in reduced insured exposures of policyholders as compared to prior years. Further, economic conditions made it difficult for property and casualty companies to increase premium rates for business insurance.

·  In addition, yields on fixed-income securities fell to their lowest levels in decades. In particular, short-term yields remained exceptionally low throughout 2010, which significantly and adversely impacted investment income. Further, for much of 2010, challenging, although somewhat improved, conditions persisted for our non-fixed income portfolio.

In addition to the difficult economic and insurance market conditions, the insurance industry, including Travelers, was impacted by significant catastrophe losses in 2010. For example, in 2010 there were 81 federally declared disaster areas in the U.S. resulting from catastrophes, a new record. Our catastrophe losses in 2010 were more than twice the level of the prior year.

Despite the challenging business environment and significant catastrophe losses, we continued to perform strongly, both on an absolute and a relative basis, as evidenced by the following:

For definitions of return on equity and operating return on equity used in this Proxy Statement and reconciliations of these measures, see “Reconciliation of Non-GAAP Measures to GAAP Measures” on page 71 of this Proxy Statement.

·  Generated Significant Net Income and Return on Equity.  In 2010, we recorded net income per diluted share of $6.62, the second highest in our history, and $3.216 billion of net income, the second highest in our “Compensation Comparison Group”, the 11 companies that the Compensation Committee believes to be an appropriate reference group for our compensation practices. Net income per diluted share in 2010 was 5% higher than in 2009 and 38% higher than in 2008. Return on equity in 2010 substantially exceeded our business plan and, in light of operating conditions, we believe our performance was consistent with being able to achieve our financial goal of a mid-teens return on equity over time.

·  Increased Book Value per Share and Returned Significant Excess Capital to our Shareholders.  During 2010, we increased our book value per share by 11%, after returning to shareholders approximately $5 billion through share repurchases and $670 million through dividends. From the beginning of 2008 to the end of 2010, our book value per share increased by approximately 38%, a greater percentage than eight of the 11 companies in our Compensation Comparison Group. During the same period, four of the 11 companies in our Compensation Comparison Group had decreases in their book value per share. We were able to accomplish this strong book value per share growth while returning more capital to our shareholders through share repurchases and dividends, as a percentage of market capitalization, than any member of the Compensation Comparison Group over the last three years.

·  Total Return to Shareholders over Three-Year and Five-Year Periods Higher than Virtually All of Peer Group.  From the beginning of 2008 to the end of 2010, we generated a higher total return to shareholders (measured as the change in the stock price plus the cumulative amount of dividends, assuming dividend reinvestment) than 10 of the 11 companies in our Compensation Comparison Group. Our five-year total return to shareholders ranks first among our Compensation Comparison Group.

·  Continued Strong Financial Condition.  All of our financial strength indicators were at or

better than our target levels as of December 31, 2010, including our debt-to-capital ratio. During 2010, AM Best upgraded our senior debt ratings from “a-” to “a”. Rating agencies downgraded the financial strength, debt ratings or outlook of five of the members of our Compensation Comparison Group during 2010. Between 2008 and 2010, all of our financial strength and debt ratings were affirmed or (in the case of AM Best’s debt ratings in 2010 and Moody’s financial strength and debt ratings in 2008) upgraded. In contrast, between 2008 and 2010, nine members of our Compensation Comparison Group had their financial strength, debt ratings or outlook downgraded.

·  Increased Market Share.  For the fourth consecutive year, in 2010, we increased our business and personal insurance net written premiums at a higher rate than the average increase of the companies in our property and casualty insurance competitor peer group (as defined under “Performance-Based Annual Cash Bonus” below).

We believe that our strong 2010 performance resulted in large measure from the successful execution of our long-term strategy over a multi-year time period. As previously disclosed, we aspire to achieve a return on equity in the mid-teens over time. We believe that this goal is consistent with our careful balance of risk and reward and encourages a long-term perspective. This goal also recognizes the historic cyclicality of our business resulting from general economic conditions, the investment environment and pricing in the insurance industry, as well as the variability in our financial results from period to period. The variability in our business is due in large part to the periodic occurrence of catastrophes and the fact that claim and claim adjustment expenses develop over time, particularly in longer tail insurance lines, and may result in prior year reserve development. From 2005 (the first full year after the merger between St. Paul and TPC that formed the Company) through December 31, 2010, we achieved an average annual operating return on equity of 14.1% and an average annual return on equity of 13.5%, which we believe is consistent with being able to achieve our return on equity goals over time.

As part of our longstanding philosophy of pay for performance, the Compensation Committee believes that, when we and our named executive officers perform at superior levels, total compensation for these executive officers should be above the median of the compensation levels for equivalent positions in the Compensation Comparison Group.

Specifically, in determining the amount of performance-based compensation paid to our named executive officers, the Compensation Committee considered, among other things:

·  Our strong performance in light of the challenging environment in which we operated and our performance as compared to the companies in our Compensation Comparison Group, including as described above under “2010 Overview”.

·  That, while performance was strong on both an absolute and relative basis as described above, net income declined 11%, as compared to the prior year, and return on equity was 12.1%, as compared to 13.5% in the prior year. In evaluating these results, the Compensation Committee considered the impact of catastrophe losses, which were more than twice 2009 levels. If such losses had remained at 2009 levels, the Company’s net income and return on equity would not have declined. The Compensation Committee also noted that the property and casualty industry broadly faced similar challenging conditions.

Based on the considerations discussed above, the Compensation Committee concluded that the Company’s results were in the top tier of the Compensation Comparison Group and that the named executive officers performed at superior levels. In addition, the Compensation Committee concluded that our named executive officers should receive total compensation for performance year 2010 that would reward them for outstanding individual and Company performance, but would also take into account the catastrophe losses and other factors that led the Company to have a decline in net income and return on equity as compared to 2009.

Because the Compensation Committee believed that overall 2010 performance was strong as described above, the Compensation Committee, based on the advice of its compensation consultant, made 2010 performance-based compensation decisions generally by starting with 2009 compensation levels. In doing this, the Compensation Committee utilized an analysis showing that the named executive officers’ total compensation in the prior year approximated the 75th percentile of our Compensation Comparison Group (which was the Committee’s intent when it awarded that compensation). The Compensation Committee also considered guidance provided by its compensation consultant that, because the difficult

operating environment and catastrophe losses would likely impact earnings for property casualty companies in the Compensation Comparison Group, the 75th percentile for total compensation would likely be lower this year than in the prior year—thus a downward adjustment to compensation was appropriate.

Accordingly, in February 2011, the Compensation Committee made the following compensation decisions with respect to the named executive officers’ 2010 performance:

·  The annual cash bonus paid to the CEO, and the average annual cash bonus paid to the other named executive officers as a group, decreased by 16.7% and 11.5%, respectively.

·  The stock-based long-term incentive compensation awarded to the CEO declined by 18% from 2009. The stock-based long-term compensation awarded to the other named executive officers was generally unchanged from 2009.

In addition, the Compensation Committee decided not to change the named executive officer’s base salary levels for 2011.

Risk Management and Compensation

The Compensation Committee believes that our stable performance over time is attributable in part to our strong culture of risk management. The Risk Committee and the other committees of the Board, as well as our separate management-level enterprise risk and underwriting risk committees, are key elements of our enterprise risk management structure. Our compensation structure is designed to reinforce this culture. The Compensation Committee believes that our compensation structure encourages a careful balance of risk and reward, both on an individual risk basis and in the aggregate on a Company-wide basis, and promotes a long-term perspective.

As discussed in more detail below, consistent with our goal of achieving a return on equity in the mid-teens over time, the Compensation Committee selected adjusted operating return on equity as the quantitative performance measure for the performance share portion of our stock-based long-term incentive program and as a component for determining amounts paid under our annual bonus program. Because operating return on equity is a function of both operating income and shareholders’ equity, it encourages senior executives, as well as other employees with management responsibility, to focus on a variety of performance objectives that are important for creating shareholder value, including the

quality and profitability of our underwriting and investing activities and capital management.

In addition, the long-term nature of our stock-based incentive awards (which do not vest until three-years after the award), our significant executive stock ownership requirements (described below) and the fact that more than 40% of our named executive officers’ compensation in the aggregate was in the form of long-term, stock-based incentives in each of 2008, 2009 and 2010, all encourage prudent enterprise risk management and discourage excessive risk taking to achieve short-term gains. Moreover, neither the long-term incentive awards nor annual bonuses require growth in revenues or earnings in order for our executives to be rewarded, and none of our employees are paid based on a formulaic percentage of revenues or profits. As a result of this and the mix of short- and long-term performance criteria, the Compensation Committee believes that our executives are not incentivized to employ disproportionately risky growth strategies.

Furthermore, the Compensation Committee’s compensation consultant evaluates and advises the Compensation Committee as to the design and risk implications of our incentive plans and other aspects of our compensation programs to ensure that the mix of compensation, the balance of performance metrics and the overall compensation framework all support our short- and long-term objectives.

Objectives of Our Executive Compensation Program

The following five primary objectives of our executive compensation program have been approved by the Compensation Committee.

1.    Link compensation to the achievement of our short- and long-term financial and strategic objectives

The Compensation Committee believes that a properly structured compensation system should measure and reward performance on multiple bases. To ensure an appropriate degree of balance in the program, the compensation system is designed to measure short- and long-term financial and operating performance, the efficiency with which capital is employed in the business, the effective management of risk, the achievement of strategic initiatives and the individual performance of each executive.

The Compensation Committee further believes that an executive’s total compensation opportunity should be commensurate with his or her position and level of responsibility. Accordingly, the proportion of total compensation that is performance-based increases with successively higher levels of responsibility. Thus,

the senior-most executives who are responsible for the development and execution of our strategic and financial plans have the largest portion of their compensation tied to performance-based incentives, including equity-based compensation, where the ultimate value is completely or partly dependent on changes in stock price and return on equity.

2.    Provide competitive compensation opportunities to attract, retain and motivate high-performing executive talent

Our overall compensation levels are targeted to attract and retain the best executives in light of the competition for executive talent. While the CEO’s salary, which has not changed since 2001, approximates the 25th percentile, the Compensation Committee generally targets base salary for executive officers, including the named executive officers, at the 50th percentile for equivalent positions at the Compensation Comparison Group. In addition, the Compensation Committee believes that, when we generally exceed our performance goals and the named executive officers individually perform at superior levels in achieving that performance, total compensation for these executive officers should be above the median of the compensation levels for equivalent positions in the Compensation Comparison Group. When we do not generally exceed our performance goals or the named executive officers individually do not perform at superior levels, total compensation for these executives should be set at lesser levels.

The Compensation Committee may also take into account other relevant facts and circumstances in awarding compensation in order to attract, retain and motivate high-performing executive talent.

In determining compensation levels in 2010, the Compensation Committee focused on total compensation (which includes other elements of compensation such as pension and perquisites in addition to base salary, annual cash bonus and stock-based long-term incentives) because it believes that total compensation is a better measure of comparability. The Company’s compensation program de-emphasizes pension and perquisites.

3.    Align the interests of management and shareholders by paying a substantial portion of total compensation in equity-based incentives and ensuring that executives accumulate meaningful stock ownership stakes over their tenure

The Compensation Committee believes that the interests of executives and shareholders should be aligned. Accordingly, a

significant portion of the total compensation for the named executive officers is in the form of stock-based compensation. The components of stock-based compensation granted to the named executive officers in 2010 and 2011 were stock options and performance shares. In addition, as discussed below, senior executives are expected to achieve specified stock ownership targets prior to selling any stock acquired upon the exercise of stock options or the vesting of performance shares or restricted stock units. The portion of total compensation attributable to stock-based programs, and the expected level of executive stock ownership, increases with successively higher levels of responsibility.

4.   Maximize, to the extent equitable and practicable, the financial efficiency of the overall compensation program from tax, accounting, cash flow and share dilution perspectives

We make reasonable efforts to maximize the tax deductibility of all elements of compensation. Section 162(m) of the Internal Revenue Code prohibits us from deducting compensation in excess of $1 million paid to most of the named executive officers, unless specified requirements are met, including that such amounts be considered “qualified performance-based compensation” under Section 162(m).

However, the Compensation Committee, in its discretion, may approve compensation that does not qualify for a deduction under Section 162(m) if it determines that it is appropriate to do so in light of other competing interests and goals, such as the attraction and retention of key executives.

As part of the process of approving the initial design of incentive plans, or any subsequent modifications made to such plans, and determining awards under the plans, the Compensation Committee also evaluates the aggregate economic costs of such compensation, the expected accounting treatment and the impact on our financial results. The Compensation Committee attempts to balance the various financial implications of each program to ensure that the system is as efficient as possible and that unnecessary costs are avoided.

5.    Reflect established and evolving corporate governance standards

The Compensation Committee, with the assistance of our Human Resources Department and the Committee’s compensation consultant, stays abreast of current and developing corporate governance standards and trends with respect to executive compensation and adjusts the various elements of our executive compensation program, from time to time, as it deems appropriate.

Compensation Determination Process

The Compensation Committee is responsible for setting our executive compensation objectives and policies, establishing our executive compensation program consistent with those objectives and policies and determining the compensation for our CEO and members of our Management Committee who are executive officers or direct reports of the CEO. Determining the appropriate level of executive compensation is not an exact science or a formulaic process and involves careful deliberation and business judgment. As described more fully below, in determining executive compensation, the Compensation Committee reviews all components of the named executive officers’ compensation and takes into account a number of variables. The Compensation Committee also receives and considers the advice of its compensation consultant.

The CEO’s compensation was determined by the Compensation Committee based on the prior year’s compensation levels adjusted to reflect the Compensation Committee’s assessment of our overall performance and the individual performance of the CEO during 2010. The Compensation Committee also reviewed the most recent publicly available comparable compensation data (that is, 2009 performance year compensation) for the Compensation Comparison Group.

With respect to compensation for the other named executive officers, the Compensation Committee generally considers a variety of factors, including Company and individual performance, prior year compensation levels, the recommendations of the CEO and comparable compensation data for the Compensation Comparison Group.

Compensation Comparison Group

The Compensation Comparison Group consisted of the following companies in the property and casualty insurance business:

·         ACE Ltd.

·         Allstate Corporation

·         Chubb Corporation

·         Hartford Financial Services Group

·         Progressive Corporation

The Compensation Comparison Group also included the following general financial services and life and health insurance companies:

·         Aetna, Inc.

·         American Express

·         CIGNA Corporation

·         Manulife Financial Corporation

·         MetLife Inc.

·         Prudential Financial Inc.

The Compensation Comparison Group includes (1) our key competitors in the property and casualty insurance industry and (2) general financial services and life and health insurance companies. We regard these general financial services and life and health insurance companies as potential competition for executive talent. The Compensation Comparison Group did not change from the prior year. The Compensation Committee noted that the most current compensation data available for the Compensation Comparison Group was for the 2009 performance year, when a number of members of the Compensation Comparison Group experienced significant financial distress and a decrease in compensation levels.

The factors considered by the Compensation Committee in determining the total compensation of the named executive officers are described below.

Compensation Elements

We deliver executive compensation through a combination of base salary and performance-based compensation consisting of annual cash bonus and stock-based, long-term incentive awards. We also provide benefits and limited perquisites. Total direct compensation for a performance year consists of base salary, along with annual cash bonuses paid and stock-based long-term incentive awards granted to our named executive officers in February of each year with respect to the performance in the prior year.

Total Direct Compensation

The following table sets forth the composition of total direct compensation for the CEO and our other named executive officers for the 2010 performance year:

Base Salary

The Compensation Committee generally sets base salary for executive officers, including the named executive officers, at a level that is targeted at the 50th percentile for equivalent positions in the Compensation Comparison Group. This positioning is targeted because, among other things, it helps us to attract and retain high-quality talent and enables us to grant

the substantial majority of our named executive officers’ compensation in the form of variable performance-based compensation.

Individual salaries may range above or below the median based on a variety of factors, including the potential impact of the executive’s role at the Company, the terms of the executive’s employment agreement, if any, the experience the executive brings to the position and the performance and potential of the executive in his or her role. Base salaries are reviewed annually, and adjustments are made from time to time as the Compensation Committee deems appropriate to recognize performance, changes in duties and/or changes in the competitive marketplace.

Further, because salaries for named executive officers are typically changed infrequently, at the time the Compensation Committee increases the salaries of executives who have not received an increase in several years, such salaries on average may initially be somewhat higher than the 50th percentile indicated by the most recently available data on the basis that over time they are expected to approximate the 50th percentile.

In February 2010, the Compensation Committee increased the base salaries of the named executive officers other than the CEO and COO by $50,000 each and increased the base salary of the COO by $150,000. Such salary increases were effective April 1, 2010. The CEO’s base salary was not changed. For the COO, the increase in salary was intended to position him at approximately the 50th percentile of Chief Operating Officers in the Compensation Comparison Group and was based in part on the fact that the COO last received a salary increase in 2005.

In February 2011, the Compensation Committee decided not to change the base salaries of the named executive officers.

The CEO’s 2010 and 2011 base salary of $1,000,000 was at approximately the 25th percentile of the Compensation Comparison Group. The CEO’s base salary has not changed since he joined the Company in 2001.

Performance-Based Annual Cash Bonus

The named executive officers are eligible to earn annual cash bonuses under the Senior Executive Performance Plan, a plan approved by our shareholders in 2002. Annual bonuses are short-term compensation awards that are based upon the individual performance of each executive as well as that of the Company as a whole. These bonuses are intended to

motivate and promote the achievement of our operating performance objectives and strategic initiatives that are important to our success, as well as individual contributions toward those ends.

Description of Senior Executive Performance Plan. The Senior Executive Performance Plan is designed to comply with the “qualified performance-based compensation” requirements of Section 162(m) of the Internal Revenue Code and accordingly contains a formula that was approved by shareholders and was used to determine the maximum amount of annual bonus awards that could be paid to the named executive officers and be fully tax deductible. In addition, under the Senior Executive Performance Plan, the Compensation Committee sets the potential maximum award for each named executive officer as a percentage of the aggregate pool on an annual basis.

The bonus pool determined under the Senior Executive Performance Plan is not an expectation of the amount of bonuses that will actually be paid. Rather, the bonus pool and the maximum individual allocations established thereunder represent the maximum amount of bonus awards that the Compensation Committee may approve as “qualified performance-based compensation” for tax purposes pursuant to Section 162(m). Accordingly, the Compensation Committee may determine, in its discretion, not to grant bonuses. Alternatively, even if the target under the Senior Executive Performance Plan is not achieved and no bonus pool is available under the Senior Executive Performance Plan, the Compensation Committee could award bonuses to the named executive officers if, in the exercise of its business judgment, the Compensation Committee determines that they are warranted under the circumstances and in the best interest of the Company. In such a case, the bonuses would be awarded outside the Senior Executive Performance Plan and would not qualify as “performance-based compensation” under Section 162(m).

The formula in the Senior Executive Performance Plan provides generally that, if our return on equity (determined by dividing “after-tax operating earnings” (as defined) by total common shareholders’ equity as of the beginning of the fiscal year, adjusted to exclude net unrealized appreciation or depreciation of investments) is greater than 8%, then the pool available to pay bonuses will equal 1.5% of the after-tax operating earnings. The Senior Executive Performance Plan defines “after-tax operating earnings” as our net income from continuing operations for the performance period as reported in our financial statements for the performance period, adjusted to eliminate the after-tax effects of the following items:

Description of Performance-Year 2010 Bonuses Paid under the Senior Executive Performance Plan. Due to our substantial after-tax operating earnings in 2010, we achieved a return on equity, as defined under the Senior Executive Performance Plan, of 14.97%, which resulted in a pool of $57.21 million available for bonuses for the named executive officers that would be deductible under Section 162(m). For the 2010 performance period, the maximum percentage of the pool payable to each of the named executive officers was set at 35% for the CEO, 20% for the next most highly compensated named executive officer and 15% for the other named executive officers.

Because the amount of our after-tax operating earnings generated a larger bonus pool than was necessary for awarding bonuses consistent with the Compensation Committee’s objectives, the Compensation Committee, as it has done in prior years, exercised its discretion to award less than the maximum amount that could have been awarded under the Plan as “qualified performance-based compensation”. As discussed below, the Compensation Committee awarded a total of $17.4 million in bonuses to the named executive officers for the 2010 performance period.

In determining the actual annual bonuses awarded, the Compensation Committee applied its business judgment and considered a number of factors, including:

In determining these bonuses, the Compensation Committee also considered additional qualitative factors, such as:

With regard to CEO performance, the Compensation Committee also considered his development of management expertise, management depth and succession plans.

The achievement, or inability to achieve, any particular financial or operational measure in a given year neither guarantees nor precludes the payment of an award but is considered by the Compensation Committee as one of several factors in light of the other factors noted and any additional information available to it at the time, including, without limitation, market conditions in general. The Compensation Committee does not use a formula or assign any particular relative weighting to any performance measure. However, the Compensation Committee generally weighs financial performance (particularly return on equity) and comparable compensation information more heavily than other factors.

The Compensation Committee believes that a formulaic approach to compensation could result in unintended consequences and is not an appropriate substitute for the Compensation Committee’s thorough deliberation and business judgment. The Compensation Committee evaluates performance as a whole, and no specific financial or

operational measure, other than return on equity (as discussed below), is material on its own in setting compensation levels.

As one part of evaluating the foregoing factors for 2010, the Compensation Committee established in February 2010 the two specific executive management performance goals discussed below, and, in setting compensation for the 2010 performance year, considered management’s progress in achieving these specific goals.

1.                   Achieve 2010 financial objectives—return on equity

One of management’s important responsibilities is to produce an appropriate return on equity for our shareholders and to develop and execute financial and operational plans consistent with our financial goal of achieving a mid-teens return on equity over time. The Compensation Committee also recognizes, however, the historic cyclicality of our business and that there may be times when the return on equity achievable in a given year is greater than, or less than, a mid-teens level.

The Compensation Committee also understands that our business is subject to natural and man-made catastrophic events, as well as to various types of prior year reserve development. The Compensation Committee believes that, while the impact of catastrophes in any given year can produce significant volatility, management’s plan to manage volatility and earn a return on capital committed to insurance in catastrophe-prone areas must be long-term in nature.

During 2010, the Compensation Committee reviewed management’s progress in meeting a broad range of financial and operational metrics included in the financial plan approved by the Board at the end of the prior year. On a quarterly basis, the Compensation Committee evaluated the Company’s performance in respect of these metrics, including premium revenues, investment income, insurance losses, expense management and the resulting operating income. However, while the Compensation Committee evaluated a broad range of metrics quarterly, no one metric was material and the Compensation Committee evaluated such data in light of the goal of achieving a mid-teens return on equity over time. Accordingly, the Compensation Committee placed considerable importance on our return on equity (particularly operating return on equity), both on an as-reported basis and as adjusted to exclude the cost of catastrophes and prior year reserve development related to asbestos and environmental coverages. Prior period reserve developments related to asbestos and environmental coverages were excluded because, to a significant degree, they relate to policies that were written decades ago and, particularly in the case of asbestos, arise to a significant extent as

a result of court decisions and other trends that have attempted to expand insurance coverage far beyond what we believe to be the intent of the original parties. Accordingly, the financial impact is largely beyond the control of current management. In terms of evaluating the appropriateness of the return on equity for 2010 and for any other particular period, the Compensation Committee considers our return on equity relative to the Compensation Comparison Group and relative to our cost of equity.

When the Board approved our 2010 business plan, both management and the Board believed the plan to be reasonably difficult to achieve. That plan targeted an operating return on equity of 10.7% and an operating return on equity, adjusted to exclude catastrophes, of approximately 12.3%. The targeted returns reflected management’s expectation of continued margin compression from anticipated pricing and loss cost trends in 2010. We significantly exceeded both targets in 2010, with an operating return on equity of 12.5% and an operating return on equity, excluding catastrophes and prior year reserve development related to asbestos and environmental coverages, of 15.7%. These results reflected solid underwriting performance, including favorable prior year reserve development not related to asbestos and environmental matters. The results also reflected solid investment performance, particularly in our long-term fixed income portfolio and (given challenging but somewhat improving conditions) in our non-fixed income portfolio. Our short-term fixed income portfolio, however, continued to be adversely impacted by historically low interest rates. Finally, the results reflected the favorable impact of the Company’s capital management, particularly its share repurchase program, which increased in size in 2010.

2.                   Gain market share as appropriate for market conditions

The Compensation Committee also reviewed changes, in light of market conditions, in our net written premiums and compared that to the business plan in each of our business segments. The Compensation Committee also reviewed our annual net written premiums as compared to a peer group of competitors in the property and casualty insurance business (a larger group than just the property and casualty companies included in the Compensation Comparison Group), on both an aggregated peer group basis and individually. These competitors were:

·         ACE Ltd. (in North America)

·         Allstate Corporation

·         American International Group (in the U.S.)

·         Chubb Corporation

·         Cincinnati Financial Corporation

·         CNA Corporation

·         Hartford Financial Services Group

·         Liberty Mutual Group, Inc.

·         Progressive Corporation

·         XL Capital Ltd.

In 2010, for the fourth consecutive year, our net written premium changes were better than the average of the changes of our competitor peer group. As a result, we believe that we have expanded our share of the business and personal insurance markets to a greater degree than that peer group. Further, our 2010 net written premiums of $21.6 billion were only 4% lower than our business plan, notwithstanding the impact on insured exposures and pricing resulting from the challenging economic environment and insurance marketplace. Accordingly, the Compensation Committee believes that our level of net written premiums was generally consistent with our business plan in light of market conditions and our response to those conditions.

*    *    *

At its February 2011 meeting, the Compensation Committee considered the quantitative and qualitative factors described above and the substantial contributions made by the named executive officers in achieving the 2010 performance goals described above, including the performance of the Company relative to the Compensation Comparison Group. This included the strong absolute and relative performance described under “2010 Overview”. The Compensation Committee believed that all of the named executive officers individually performed at superior levels and contributed substantially to our results. The Compensation Committee also placed significant weight on the fact that the executive officers, including the named executive officers, were highly effective working as a team. The cash bonus for Mr. Fishman in particular recognizes his company and industry leadership, strategic vision and oversight of the successful implementation of the long-term strategy that distinguished the Company among financial services firms during the recent economic disruption; his ability to attract, retain and motivate a strong senior management team; and, more broadly, his cultivation of an effective corporate culture that prioritizes a proper balance of risk and reward. The cash bonus amounts for the other named executive

officers recognize their superior individual performances and the scope of their respective responsibilities. Notwithstanding the superior individual performance and top tier company performance in 2010, the cash bonus amounts reflect the fact that, while performance was strong, net income and return on equity declined from 2009 levels due to a number of factors, particularly the impact of catastrophe losses that were twice as high as in the prior year. They also reflect the advice of the Compensation Committee’s compensation consultant that, because the challenging operating environment and catastrophe losses would likely impact earnings for property casualty companies in the Compensation Comparison Group, total compensation for that group would likely be lower this year than in the prior year; thus a downward adjustment to named executive officer compensation was appropriate.

In light of the foregoing, the Compensation Committee determined in its judgment to award a cash bonus of $6.25 million to the CEO and, as set forth in more detail under “Total Direct Compensation for 2010”, an average cash bonus of $2.79 million to the other named executive officers. These bonuses were down 16.7% and 11.5%, respectively, from prior year bonuses.

Stock-Based Long-Term Incentives

As described below, in 2010, performance-based long-term compensation was awarded to the named executive officers in the form of stock options and performance shares. Our stock-based long-term incentive awards are designed to further our goals described under “Objectives of our Compensation Program”, including ensuring that our executive officers have a continuing stake in our long-term success and manage the business with a long-term risk-adjusted perspective.

At its February 2010 meeting, the Compensation Committee awarded the named executive officers (other than the CEO) annual stock-based long-term incentive grants equal to approximately $2.4 million on average. The Compensation Committee set the amount of such incentive grants in light of the Company’s and the named executive officers’ strong performance in 2009 and in order to position the total compensation of the named executive officers as a group in the top quartile of the Compensation Comparison Group.

At its February 2011 meeting, the Compensation Committee awarded the named executive officers (other than the CEO) annual stock-based long-term incentive grants equal to approximately $2.3 million on average. The Compensation

Committee set the amount of such incentive grants in light of the Company’s and the named executive officers’ strong performance in 2010 and in order to position the total compensation of the named executive officers as a group in what the Compensation Committee believes will be the top quartile of the Compensation Comparison Group for the 2010 performance year. The Compensation Committee also considered that the absolute grant date value of the grants, while approximately even with the prior year grants, was modestly lower as a percentage of base salary in effect at the time of grant. The Compensation Committee determined this was appropriate in light of the fact that net income and return on equity declined from 2009 levels and that such decline was due to a number of factors, particularly the impact of higher catastrophe losses.

At its February 2010 meeting, the Compensation Committee awarded the CEO stock-based long-term compensation with a grant date fair value equal to $11 million because it believed that such an award was appropriate in light of the CEO’s and the Company’s 2009 performance and the fact that such a grant would position his total compensation in the top quartile of the Compensation Comparison Group based on the most recent data available.

At its February 2011 meeting, the Compensation Committee awarded the CEO stock-based long-term incentive grants with a grant date fair value of $9 million, which was 18% lower than the prior year grant. The Compensation Committee believed that such an award was appropriate in light of his and the Company’s strong 2010 performance and in light of the Compensation Committee’s objective of continuing to pay total compensation for named executive officers as a group at what it believes will approximate the top quartile of the Compensation Comparison Group. They also believed it was appropriate to reduce the CEO’s equity grant from the prior year level in light of the fact that net income and return on equity declined from 2009 levels and that such decline was due to a number of factors, particularly the impact of higher catastrophe losses.

The value of stock-based long-term incentive awards at the time of vesting or exercise (in the case of stock options) may be greater than or less than the grant date fair value, depending upon our operating performance and changes in the value of our stock price. Unless otherwise noted, the grant date fair values of long-term incentive awards are computed in accordance with the accounting standards described in footnote 2 to the Summary Compensation Table on page 46.

As part of the Compensation Committee’s process of evaluating whether our aggregate stock-based long-term incentive awards represent reasonable grants of compensation, its compensation consultant conducts an annual review of the economic costs and potential share dilution of our stock-based compensation, as well as the economic costs and potential share dilution relative to the Compensation Comparison Group based upon the most recently available public information.

Based on the results of these reviews as well as our historic grant patterns, in February 2010 the Compensation Committee granted approximately $124.4 million in grant date fair value of annual equity awards to approximately 5,800 employees in respect of 2009 performance. Those awards fell within the budget established by the Compensation Committee for all equity incentive awards to our employees, including the named executive officers. The compensation consultant advised the Compensation Committee that the 2010 stock-based long-term incentive award budget of approximately $124.4 million fell within the range of the equity award practices of the Compensation Comparison Group based on the most recently available public information.

In February 2011, the Compensation Committee granted approximately $123.3 million in grant date fair value of annual equity awards to approximately 5,900 employees in respect of 2010 performance. The compensation consultant advised the Compensation Committee that the 2011 stock-based long-term incentive award level of approximately $123.3 million fell within the range of the equity award practices of the Compensation Comparison Group based on the most recently available public information.

The Compensation Committee, with advice from its compensation consultant, developed guidelines for the allocation of annual grants of equity compensation between stock options and performance shares. These allocations are intended to result in a mix of long-term incentives that is sufficiently performance-based and will result in (1) a large component of total compensation being variable and tied to the achievement of specific, multi-year operating performance objectives and (2) an appropriate portion being tied solely to changes in shareholder value. Under the guidelines, the mix of long-term incentives for the named executive officers is approximately 40% stock options and 60% performance shares, based on the grant date fair value of the awards. The mix of long-term incentive compensation reflects the Compensation Committee’s judgment as to the appropriate balance of these incentives to achieve its objectives. While the grant date fair values of equity awards granted to named

executive officers take into account both individual and Company performance, the mix of equity incentives does not. For details of the equity awards granted in calendar year 2010, refer to the “Tabular Executive Compensation Disclosure—Grants of Plan-Based Awards in 2010” on page 48.

Stock Options. All stock options are granted with an exercise price equal to the closing price of the underlying shares on the date of grant. Our annual award of stock options generally has an expiration date of ten years from the date of grant, vests 100% three years after the date of grant and does not accelerate upon a change of control. Under the 2004 Stock Incentive Plan, stock options cannot be “repriced” unless such repricing is approved by our shareholders.

The Compensation Committee’s annual option award to the CEO had a grant date fair value of $4.4 million for the February 2010 award and $3.6 million for the February 2011 award. The Compensation Committee’s annual option awards to the other named executive officers had an average grant date fair value of approximately $950,000 for the February 2010 awards and $927,500 for the February 2011 awards.

Performance Shares. Under our program for granting performance shares, we may grant performance shares to certain of our employees who hold positions of Vice President (or its equivalent) or above, including the named executive officers. These awards provide the recipient with the right to receive a variable number of shares of our common stock based upon our attainment of specified performance goals discussed below. The performance goals for performance share awards granted in 2010 are based upon our attaining various adjusted returns on equity over a three-year performance period commencing January 1, 2010 and ending December 31, 2012 (“Performance Period Return on Equity”). Performance Period Return on Equity is the average of the “Adjusted Return on Equity” for each of the three calendar years in the Performance Period Return on Equity. The “Adjusted Return on Equity” for each calendar year is determined by dividing “Adjusted Operating Income” by “Adjusted Shareholders’ Equity” for the year, as defined below.

“Adjusted Operating Income”, as defined in the Performance Share Awards Program, excludes the after-tax effects of:

and is then reduced by the after-tax dollar amount for expected “normal” catastrophe losses. In the first year of the performance period, such expected “normal” catastrophe losses are represented by a fixed amount set forth in the terms of the performance shares ($393 million for 2010). In the two subsequent years of the performance period, such fixed amount for catastrophes is adjusted up or down to generally reflect any increases or decreases, as the case may be, in written premiums in certain commercial and personal lines.

For performance share awards granted in February 2010 and February 2011, the Compensation Committee further adjusted “Adjusted Operating Income” to reduce Performance Period Return on Equity by an amount reflecting the historical level of credit losses (on an after-tax basis) associated with our fixed income investments. Due to the increased level of impairments experienced by financial services firms in the recent economic downturn, the Compensation Committee believes this reduction is appropriate because credit losses in our fixed income portfolio otherwise would not be reflected in adjusted operating income. Specifically, for performance share awards granted in February 2010 and February 2011, the annual reduction is determined by multiplying a fixed factor (expressed as 2.25 basis points) by the amortized cost of the fixed maturity investment portfolio at the beginning of each quarter during the relevant year in the performance period and adding such amounts (on an after-tax basis) for each year in the performance period.

“Adjusted Shareholders’ Equity” for each year in the performance period is defined in the Performance Share Awards Program as the sum of our total common shareholders’ equity, as reported on our balance sheet as of the beginning and end of the year (excluding net unrealized appreciation or depreciation of investments and adjusted as set

forth in the immediately following sentence), divided by two. In calculating Adjusted Shareholders’ Equity, our total common shareholders’ equity as of the beginning and end of the year is adjusted to remove the cumulative after-tax impact of the following items during the performance period: (1) discontinued operations and (2) the adjustments and reductions made in calculating Adjusted Operating Income.

The Compensation Committee selected Performance Period Return on Equity as the performance measure in the Performance Share Plan because the Compensation Committee believes it is the best measure of return to shareholders and efficient use of capital over a multi-year period. Because it is a function of both operating income and shareholders’ equity, Performance Period Return on Equity encourages senior executives to focus on a variety of multi-year performance metrics that are critical to our success, including the quality and profitability of our underwriting and investing activities and capital management.

The Compensation Committee seeks to establish the Performance Period Return on Equity standards such that 100% vesting requires a level of performance over the performance period that is expected to be in the top tier of the industry broadly. In considering what would constitute such top tier performance over a future three-year period, the Compensation Committee considers the recent and more historical trends in return on equity of the property and casualty insurance industry broadly, our Compensation Comparison Group and the Company, as well as current and expected underwriting and investment market conditions, our business plan and the company’s cost of equity capital.

In addition, in establishing the Performance Period Return on Equity shown in the charts below, the Compensation Committee also considered our financial goal of achieving a return on equity in the mid-teens over time and that such a return on equity would, in its view, be reasonably difficult to achieve.

The actual distribution of any portion of the performance shares granted in 2010 or 2011 is contingent upon our attaining Performance Period Return on Equity as indicated on the following charts. Performance falling between any of the identified points in the applicable chart below will result in an interpolated vesting (for example, for shares granted in 2010, a 14% Performance Period Return on Equity will yield a vesting of 115%).

Performance Shares: 2010-2012 Performance Period Return on Equity Standard

Because the performance shares are a long-term incentive intended to align a significant portion of our executives’ compensation with return on equity objectives over time, the Compensation Committee prefers to maintain consistency in the Performance Period Return on Equity standards. However, the Compensation Committee does from time to time make adjustments if it determines that there have been significant changes in the returns that it expects to constitute top tier performance.

The Compensation Committee believes that underwriting and investment market conditions are likely to adversely impact industry-wide returns in the near to medium term. In addition, as a result of lower levels of volatility in the Company’s stock price over the past few years and the reduction in the risk-free rate of return, the Company’s cost of equity capital has declined. Based on these two factors, the Compensation Committee believes that returns that qualify as top tier performance will be somewhat lower over the next several years as compared to recent years and, as a result, it believes that a downward adjustment to Performance Period Return on Equity standards would better balance potential payouts and relative performance. Accordingly, the Compensation Committee has reduced the Performance Period Return on Equity required for 100% vesting for the performance shares granted in February 2011 to 10% and made conforming changes to the returns required for vesting at less than 100%. However, to balance this change against the possibility that the named executive officers might be unduly rewarded in the event that market conditions turn out to be more favorable than expected, the Compensation Committee left unchanged the returns required for greater than 100% vesting and reduced the top vesting percentage from 150% to 130%. Once expectations for investment returns and insurance pricing return to more normal levels by historical standards, the Compensation Committee intends to revert back to Performance Period Return on Equity standards that are the same as or closer to those in the February 2010 grant.

Performance Shares: 2011-2013 Performance Period Return on Equity Standard

To support our recruitment and retention objectives and to encourage a long-term focus on our operations, the performance shares vest after the completion of the three-year performance period, subject to the participants’ continued employment and the satisfaction of the requisite performance goals. The program does not provide for accelerated vesting due to a change in control of the Company. However, the program provides for accelerated vesting and/or waiver of service requirements in the event of death or disability (and pro-rata vesting in the case of qualified retirement). Further, the CEO is entitled, under his employment agreement, to accelerated vesting in the event of a voluntary termination for “good reason” or an involuntary termination without “cause” (as defined). These provisions are described in more detail under “Tabular Executive Compensation Disclosure—Potential Payments to Named Executive Officers Upon Termination of Employment or Change in Control—Summary of Key Agreements—Mr. Fishman’s Employment Agreement”.

New performance share cycles commence annually and overlap one another, helping to foster strong retention and reduce the impact of the volatility in compensation associated with changes in our annual return on equity performance. Dividend equivalent shares are paid with respect to performance shares actually earned at the same vesting percentage as the underlying performance shares.

The Compensation Committee awarded the CEO $6.6 million in performance shares in February 2010 and $5.4 million in performance shares in February 2011. These grant date fair values were determined by multiplying the number of performance shares awarded, assuming 100% vesting, by the closing price of our common stock on the date of grant ($51.09 and $56.81 in 2010 and 2011, respectively). The Compensation Committee also awarded an average of approximately $1.43 million (determined as described above) in performance shares to each of

the named executive officers (other than the CEO) in 2010 and $1.39 million in 2011.

Total Direct Compensation for 2010
(Supplemental Table)

The following table shows the salary rate in effect at the end of 2010 and annual cash bonuses paid and equity awards granted to our named executive officers in February 2011 for the 2010 performance year.

Calculated on this basis, total direct compensation for the CEO and the other named executive officers as a group declined by 16.7% and 5.6%, respectively, from prior year levels.

This supplemental information has been included to provide investors with additional compensation information for the 2010 performance year and to better understand the actions of the Compensation Committee with respect to total direct compensation for the 2010 performance year. However, this supplemental information is not intended to be a substitute for the information provided in the Summary Compensation Table on page 46 required by the SEC’s disclosure rules.

The information contained in this Supplemental Table differs substantially from the 2010 compensation information contained in the Summary Compensation Table.

The Summary Compensation Table on page 46 discusses compensation information in a format required by the SEC. In the Summary Compensation Table, the stock awards and option awards columns for 2010 report the grant date fair value of the awards made in 2010 (that is, awards made in February 2010 in respect of the 2009 performance year) and do not include awards made in February 2011 in respect of the 2010 performance year. The Supplemental Table presented above includes the grant date fair value of equity grants made in February 2011 in respect of the 2010 performance year. Grant date fair value of equity awards is calculated in accordance with the guidance in Financial Accounting Standards Board (FASB) Accounting Standards Codification

(ASC) Topic 718—Stock Compensation (FASB ASC Topic 718), excluding the effect of estimated forfeitures.

The Summary Compensation Table also includes the value of reload options issued in connection with options exercised during 2008, 2009 and 2010, while the Supplemental Table does not include the value of such reload options. The Compensation Committee does not consider the value of a reload option as 2010 compensation because a reload option is a feature of original options granted as long-term compensation pursuant to reload programs that have been terminated, and such options are not currently a component of our executive compensation program.

Other Compensation

Pension Plans

We currently offer all of our employees a tax-qualified defined benefit plan with a cash-balance formula, with some “grandfathered” participants accruing benefits under a final average pay formula. Also, a number of employees and executives participate or have accrued benefits in other pension plans which are frozen as to new participants and/or new accruals. Under the cash balance formula, each enrolled employee has a hypothetical account balance that grows with interest and pay credits each year.

In addition, we sponsor a non-qualified excess benefit retirement plan that covers all employees whose tax-qualified plan benefit is limited by the Internal Revenue Code with respect to the amount of compensation that can be taken into account under a tax-qualified plan. The non-qualified plan makes up for the benefits that cannot be provided by the qualified plan as a result of those Internal Revenue Code limits by using the same cash-balance pension formula that applies under the qualified plan. The purpose of this plan is to ensure that employees who receive retirement benefits only through the qualified cash balance plan and employees whose qualified plan benefit is limited by the Internal Revenue Code are treated substantially the same.

The details of the existing plans are described more fully under “Tabular Executive Compensation Disclosure—Post-Employment Compensation—Pension Benefits” on page 54 of this Proxy Statement.

Deferred Compensation

We offer a tax-qualified 401(k) Plan to our employees and a non-qualified deferred compensation plan to those of our employees whose annual salary is at

least $150,000. Both plans are available to the named executive officers.

Employees may make pre-tax contributions to the 401(k) Plan up to the statutory maximum. In 2010, we matched each active participant’s contributions on a dollar for dollar basis up to the lesser of 5% of salary or $5,000 per year.

The non-qualified deferred compensation plan allows an employee with an annual salary of $150,000 or more to defer receipt of a portion of his or her salary and/or annual bonus until a future date or dates elected by the employee. This plan provides an additional vehicle for employees to save for retirement on a tax deferred basis. The deferred compensation plan is not funded by us and does not provide preferential rates of return. Participants have only an unsecured contractual commitment by us to pay amounts owed under that plan.

For further details, see “Tabular Executive Compensation Disclosure—Post-Employment Compensation—Non-Qualified Deferred Compensation for 2010” on page 56 of this Proxy Statement.

Other Benefits

We also provide certain other benefits described below to our named executive officers, which are not tied to any performance criteria. Rather, these benefits are intended to support objectives related to the attraction and retention of highly skilled executives and to ensure that they remain appropriately focused on their job responsibilities without unnecessary distraction.

Personal Security

We have established a security policy in response to a study prepared by an outside consultant that analyzed security risks to our CEO based on a number of factors, including travel patterns and past security threats. This security policy is periodically reviewed by our outside security consultant. The last review was completed in 2010. Pursuant to this security policy, a Company car and driver or other ground transportation arrangements are provided to the CEO for business and some personal travel. The methodologies that we use to value the personal use of a dedicated Company car and driver and other ground transportation arrangements as a perquisite are described in footnote 6(a) to the “Summary Compensation Table” on page 47. In 2010, the total incremental cost for personal use of a Company car and driver and other ground transportation provided to the CEO pursuant to our security policy was $82,618.

The security policy also requires that the CEO use our aircraft for all business and personal air travel. The CEO reimburses us for all personal travel on our aircraft in an amount equal to the lesser of (1) the maximum amount legally payable under FAA regulations and (2) the incremental cost to us for each such flight.

Mr. Fishman is responsible for all taxes due on any income imputed to him in connection with his personal use of Company-provided transportation. Effective April 21, 2009, Mr. Fishman determined that he would not accept any reimbursements for taxes related to income imputed to him for his personal commuting expenses, notwithstanding the fact that he was entitled to such reimbursement under the terms of his employment agreement.

In addition, pursuant to the security policy described above, we provide our CEO with additional home security enhancements and other protections. The methodology that we use to value the incremental costs of providing additional home security enhancements and other protections to the CEO is the actual cost to us relating to the installation of home security and other equipment and the incremental cost to us with respect to any related expenses. In 2010, the total incremental cost of the additional home security enhancements and other protections for Mr. Fishman pursuant to our security policy was $11,596.

Other Transportation

We also on occasion provide transportation on Company aircraft for spouses or other family members of the named executive officers who accompany the named executive officers on trips related to our business but which spousal or other family travel, under SEC rules, may not be considered to be directly and integrally related to our business. Consistent with past practice, we reimburse the named executive officers for any tax liabilities incurred with respect to spousal travel only if such travel is considered directly and integrally related to business. In 2010, there was no incremental cost to us associated with spousal and other family travel that was not directly and integrally related to business.

Health Benefits; Treatment of Higher Paid and Lower Paid Employees

We subsidize health benefits more heavily for lower paid employees as compared to higher paid employees, such as the named executive officers. Accordingly, our higher paid employees pay a significantly higher percentage of the cost of their health benefits than our lower paid employees.

Table of Contents

Severance and Change in Control Agreements

The Compensation Committee believes that severance and, in certain circumstances, change in control arrangements are necessary to attract and retain the talent necessary for our long-term success. The Compensation Committee believes that our severance programs allow our executives to focus on duties at hand and provide security should their employment be terminated as a result of an involuntary termination without cause or a constructive discharge. Currently, all of our senior executives (other than the CEO) are covered by our severance plan.

Each of the named executive officers, other than Mr. Fishman, has entered into an agreement with us (which are discussed below under “Tabular Executive Compensation Disclosure—Potential Payments to Named Executive Officers Upon Termination of Employment or Change in Control—Summary of Key Agreements—Non-Solicitation and Non-Disclosure Agreements”), pursuant to which they are granted enhanced severance benefits in exchange for their agreement to non-solicitation and non-disclosure provisions. Under the terms of such agreements, these named executive officers are eligible to receive a severance benefit if they are involuntarily terminated due to a reduction in force or for reasons other than cause or if they are asked to take a substantial demotion. This benefit is equal to their total monthly cash compensation for 21 to 24 months, depending on their years of service with us, with the total monthly cash compensation equal to, at least, one-twelfth of the executive’s annual base salary in effect at the time of his termination plus the greater of (a) one-twelfth of the average of the executive’s two most recent cash payments under our annual incentive compensation plan or (b) one-twelfth of 125% of final annual base salary.

Mr. Fishman’s employment agreement, discussed at greater length below under “Tabular Executive Compensation Disclosure—Potential Payments to Named Executive Officers Upon Termination of Employment or Change in Control—Summary of Key Agreements—Mr. Fishman’s Employment Agreement”, contains severance benefits that are triggered under some circumstances, including some circumstances related to a change in control of the Company. The Compensation Committee believes that these arrangements are appropriate and consistent with similar provisions agreed to by members of our Compensation Comparison Group and their chief executive officers.

Non-Competition Agreements

In February 2010, following a review of existing arrangements governing the post-termination obligations of our senior executives, the Compensation

Committee determined that it would be in our best interest to require members of our Management Committee to enter into a non-competition agreement with us. All members of the Management Committee, including the named executive officers, have signed the agreement.

The agreement provides that, upon an executive’s termination of employment, we may elect to impose a six-month non-competition obligation upon the executive that would preclude the executive, subject to limited exceptions, from (1) performing services for or having any ownership interest in any entity or business unit that is primarily engaged in the property and casualty insurance business or (2) otherwise engaging in the property and casualty insurance business. This restriction will apply in the United States and any other country where we are physically present and engaged in the property and casualty insurance business as of the executive’s termination date.

If we elect to enforce the non-competition terms, and the executive complies with all of the obligations under the agreement, then the executive will be entitled to:

·                 receive a lump sum payment at the end of the six-month restricted period equal to the sum of (1) six months base salary plus (2) 50% of the executive’s average annual bonus for the prior two years plus (3) 50% of the aggregate grant date fair value of the executive’s average annual equity awards for the prior two years; and

·                 reimbursement for the cost of continuing health benefits on similar economic terms as in place immediately prior to the executive’s termination date during the six-month non-competition period or payment of an equivalent amount, payable at the end of the six-month restricted period.

Each signatory to such agreement received an award of restricted stock units with a grant date fair value of $10,000.

Stock Ownership Guidelines

We maintain an executive stock ownership policy pursuant to which executives are expected to accumulate and retain specified levels of ownership of our equity securities until termination of employment, so as to further align the interests of management and shareholders. The Compensation Committee developed this policy based in part on an analysis of policies instituted at our peer competitors. Under the policy, the CEO has a target ownership level established as the lesser of 150,000 shares or the

equivalent value of 500% of base salary. Vice chairmen and executive vice presidents have target ownership levels established as the lesser of 30,000 shares or the equivalent value of 300% of base salary, and senior vice presidents have target ownership levels established as the lesser of 5,000 shares or the equivalent value of 100% of base salary. Executives who have not achieved these levels of stock ownership are expected to retain the shares acquired upon exercising stock options or upon the vesting of restricted stock, restricted stock units or performance shares until the requirements are met.

The stock ownership levels of all persons subject to this policy are calculated on a quarterly basis. In determining an executive’s share ownership level, the following are included:

·                 100% of shares held directly by the executive;

·                 100% of shares held indirectly through our 401(k) Plan or deferred compensation plan;

·                 50% of unvested restricted shares, restricted stock units or performance shares (assuming 100% vesting of the performance shares); and

·                 a number of shares with a market value equal to 50% of any unrealized appreciation in stock options, whether vested or unvested.

As of December 31, 2010, each named executive officer had achieved a stock ownership level in excess of the applicable level set forth above.

We have a securities trading policy that sets forth guidelines and restrictions applicable to employees’ transactions involving our stock. Among other things, this policy prohibits our employees from engaging in short-term or speculative transactions involving our stock, including purchasing our stock on margin, short sales of our stock (that is, selling stock that is not owned and borrowing shares to make delivery), buying or selling puts, calls or other derivatives related to our stock and arbitrage trading or day trading of our stock.

Recapture/Forfeiture Provisions

Our Board has adopted a policy requiring the reimbursement and/or cancellation of all or a portion of any incentive cash bonus or equity-based incentive compensation awarded to members of the Management Committee or other Section 16 officers after February 1, 2010 where the Compensation Committee of the Board has determined that all of the following factors are present: (1) the award and/or payout thereof was predicated upon the achievement of certain financial results that were subsequently the

subject of a restatement, (2) the employee engaged in fraud or willful misconduct that was a significant contributing factor in causing the restatement and (3) a lower award and/or payout thereof would have been made to the employee based upon the restated financial results.

Incentive compensation will be granted subject to the policy that, in each such instance described above, the Company will, to the extent permitted by applicable law and subject to the discretion and approval of the Compensation Committee of the Board, taking into account such facts and circumstances as it deems appropriate, including the costs and benefits of doing so, seek to recover the employee’s cash incentive bonus award and/or equity-based incentive compensation paid or issued to the employee in excess of the amount that would have been paid or issued based on the restated financial results. If the Compensation Committee determines, however, that, after recovery of an excess amount from an employee, the employee is nonetheless unjustly enriched, it may seek recovery of more than such excess amount up to the entire amount of the incentive compensation.

In addition, under the terms of our executive performance share, restricted stock, restricted stock unit and stock option award agreements, in the event that the employment of an executive, including the named executive officers, is terminated for gross misconduct or for cause, as determined by the Compensation Committee, all outstanding vested and unvested awards are cancelled upon his or her termination.

Further, in connection with equity awards, the named executive officers and certain other senior executives are parties to an agreement that provides for the forfeiture of unexercised or unvested awards and the recapture by us of any compensatory value, including any amount included as compensation in the taxable income, that the former executive received or realized by way of payment, exercise or vesting during the period beginning 12 months prior to the date of termination of employment with us, and ending 12 months after the date of the termination of employment with us, if during the 12-month period following his or her termination, the executive:

(1)   fails to keep all confidential information strictly confidential;

(2)   uses confidential information to solicit or encourage any person or entity that is a client, customer, policyholder, vendor, consultant or agent of ours to discontinue business with us after accepting a position with a direct competitor;

(3)   is directly and personally involved in the negotiation or solicitation of the transfer of business away from us; or

(4)   solicits, hires or otherwise attempts to affect the employment of any person employed by us at any time during the last three months of the executive’s employment or thereafter, without our consent.

Timing and Pricing of Equity Grants

The Compensation Committee typically makes annual awards of equity at its meeting held in early February, which is set in advance as part of the Board’s annual calendar of scheduled meetings. The Compensation Committee has in the past, and may in the future, make limited grants of equity on other dates in order to retain key employees, to compensate an employee in connection with a promotion or to compensate newly hired executives for equity or other benefits lost upon termination of their previous employment or to otherwise induce them to join us. Pursuant to our Governance Guidelines, the Compensation Committee may make off-cycle equity grants only on previously determined dates in each calendar month, which will be either (1) the date of a regularly scheduled Board or Compensation Committee meeting, (2) the 15th day of the calendar month (or if the 15th is not a business day, the business day immediately preceding the 15th) or (3) in the case of grants in connection with new hires and/or promotions, on, or within 15 days of, the first day of employment or other personnel change. The grant date of equity grants to executives is the date of Compensation Committee approval. As discussed above, the exercise price of option grants is the closing market price of our common stock on the date of grant.

As discussed under “Board of Directors Information—Compensation Committee” on page 12, the Compensation Committee has delegated to the CEO, subject to the prior written consent of our Executive Vice President and General Counsel, the authority to make limited “off-cycle” grants to employees who are not Committee Approved Officers on pre-established grant dates, as determined by the Compensation Committee. For these grants, as discussed above, the grant date is the date of such approval, and the exercise price of all stock options is the closing market price of our common stock on the date of grant.

Under the 2004 Stock Incentive Plan, stock options cannot be “repriced” unless such repricing is approved by our shareholders. See “Governance of Your Company—Significant Governance Practices—Dating and Pricing of Equity Grants” on page 19 of this Proxy Statement.

We monitor and periodically review our equity grant policies to ensure compliance with plan rules and applicable law. We do not have a program, plan or practice to time our equity grants in coordination with the release of material, non-public information.

Compensation Committee Report

The Compensation Committee has discussed and reviewed the foregoing Compensation Discussion and Analysis with management. Based upon this review and discussion, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement and incorporated by reference into our Annual Report on Form 10-K.

Submitted by the Compensation Committee of the Company’s Board of Directors:

Lawrence G. Graev (Chair)

Kenneth M. Duberstein

Cleve L. Killingsworth, Jr.

Blythe J. McGarvie

Compensation Committee Interlocks

and Insider Participation