All members of the Audit Committee are “independent”, consistent with our Governance Guidelines and the NYSE listing standards and SEC rules 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 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: Governance Documents: Audit Committee Charter; and include the following:

With respect to 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.

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 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: Governance Documents: Compensation Committee Charter.

Duties and Responsibilities

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

With respect to reporting and disclosure matters, the duties and responsibilities of the Compensation Committee include reviewing and discussing the Compensation Discussion and Analysis with management and authorizing its 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

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.

The Compensation Committee considered recommendations from the CEO regarding compensation for each of the other executive officers named in the Summary Compensation Table on page 55 (together with the CEO, the “named executive officers”) and other officers.

During 2014, 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.

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

The Compensation Committee has delegated limited authority to the CEO to make “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 grants made “off-cycle” are reported to the Compensation Committee at the next regularly scheduled quarterly 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. 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. 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. In December 2014, the Compensation Committee evaluated whether any work provided by its Compensation Committee consultant raised any conflict of interest and determined that it did not.

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

As requested by the Compensation Committee, in 2014, F. W. Cook’s services to the Compensation Committee included, among other things:

An F. W. Cook representative participated in each of the five Compensation Committee meetings in 2014.

In 2014 and 2013, we paid F. W. Cook $200,453 and $160,817, respectively, for services to the

Compensation Committee and the Nominating and Governance Committee.

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 all other executive officers) and other executive officers (with respect to executive officers who 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.

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 in order to provide a degree of flexibility and ability to respond to time-sensitive business and legal matters. 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: Governance Documents: Executive Committee Charter.

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 duties and responsibilities of the Investment and Capital Markets Committee are set forth in its charter, which may be found at www.travelers.com under For Investors: Corporate Governance: Governance Documents: Investment and Capital Markets Committee Charter.

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:

Governance Documents: Nominating and Governance Committee Charter, and include the following:

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: Governance Documents: Risk Committee Charter, and include oversight of management’s risk management activities in the following areas:

Our Governance Guidelines, our Code of Business Conduct and Ethics, Board Committee charters and other corporate governance information are available under Governance Documents on the Corporate

Governance page of the “For Investors” section on our website at www.travelers.com. Corporate governance practices that the Board has implemented are described further below.

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.

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 her 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 through the use of global, computer-based training, supplemented with focused in person sessions where appropriate. All employees and directors are required to certify annually that they have reviewed, understand and agree to comply with the contents of the Code of Conduct.

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 seven days a week, 24 hours a day and can be accessed by individuals through a toll-free number. Employees may also access the helpline system and report integrity concerns via the Internet. In either case, employees can report concerns anonymously. We maintain a formal no retaliation policy that prohibits retaliation against, or discipline of, 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 her 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.

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. Our Chief Compliance Officer meets regularly with members of senior management to oversee the implementation of various compliance initiatives and

functions in each of the business units and to promote better coordination and effectiveness through

corporate compliance policies and initiatives, program design and promotion of a culture of compliance.

The Board believes its non-management directors should accumulate and retain a level 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 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.

The Governance Guidelines provide that no person who will have reached the age of 74 on or before the date of the next annual shareholders’ meeting will be nominated for election at that meeting without an express waiver by the Board.

The Board believes that waivers of this policy should not be automatic and should be based upon the needs of the Company and the individual attributes of the director.

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:

·     personal qualities and characteristics, accomplishments and reputation in the business community;

·     current knowledge and contacts in the communities in which the Company does business and in the Company’s industry or other industries relevant to the Company’s business;

·     ability and willingness to commit adequate time to Board and committee matters;

·     the fit of the individual’s skill and personality with those of other directors and potential directors in

building a Board that is effective, collegial and responsive to the needs of the Company; and

·     diversity of viewpoints, background, experience and other demographics.

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 specific minimum 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.

In considering the 12 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 and considered, among other factors:

·     each nominee’s experiences, qualifications, attributes and skills, in light of the Governance Guidelines’ criteria for nomination discussed above, including the specific skills identified by the Board as relevant to the Company;

·     the contributions of those directors recommended for re-election in the context of the Board self-evaluation process and other needs of the Board;

·     the tenure of individual directors;

·     the mix of long-serving and new directors on the Board; and

·     the specific needs of the Company given its business and industry.

With respect to the individual and overall tenure of Board members, the Board and Nominating and Governance Committee:

·     noted that the Company’s industry is one where a long-term perspective is critical and a historical perspective on risk is important, and, accordingly, the Company benefits from having longstanding directors serve on the Board, including in leadership positions;

·     considered the years of experience directors have had working together on the Board; and

·     considered that more than 50% of the independent directors have joined the Board since mid-2007, including two new directors in the last three years.

In light of the foregoing, the Board and the Nominating and Governance Committee concluded that there was an appropriate mix of long-serving and new directors.

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 9 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:

·  With respect to Mr. Beller, the Board and the Nominating and Governance Committee considered in particular his senior-level public service and his significant experience and expertise in the areas of law, corporate governance and financial, accounting and auditing regulation.

·  With respect to Mr. Dasburg, the Board and the Nominating and Governance Committee considered in particular his experience as a public company CEO and his significant experience and expertise in areas of management, accounting and finance.

·  With respect to Ms. Dolan, the Board and the Nominating and Governance Committee considered in particular her experience as a public company CEO and her significant experience and expertise in management and in legal and compliance matters.

·  With respect to Mr. Duberstein, the Board and the Nominating and Governance Committee considered in particular his experience both in the highest levels of the U.S. government and as an outside strategic corporate advisor and his significant experience and expertise in public policy, public affairs, government relations and corporate governance.

·  With respect to Mr. Fishman, the Board and the Nominating and Governance Committee considered his experience as CEO of the Company and his significant experience and expertise in property and casualty insurance, management and finance.

·  With respect to Ms. Higgins, the Board and the Nominating and Governance Committee considered in particular her experience as a public company Chief Information Officer and her significant experience and expertise in management as well as information technology strategy and operations.

·  With respect to Mr. Hodgson, the Board and the Nominating and Governance Committee considered his experience as a public company President and COO and his significant experience and expertise in management, business operations and finance.

·  With respect to Mr. Kane, the Board and the Nominating and Governance Committee considered in particular his experience as an audit partner of a registered public accounting firm and his significant experience and expertise in financial controls, financial reporting, management and the insurance industry.

·  With respect to Mr. Killingsworth, the Board and the Nominating and Governance Committee considered in particular his experience as a health insurance CEO and his significant experience and expertise in management, insurance and regulation.

·  With respect to Mr. Ruegger, the Board and the Nominating and Governance Committee considered in particular his experience as the leader of a large international corporate law firm and his significant experience and expertise in mergers and acquisitions and other corporate transactional matters, as well as risk management.

·  With respect to Mr. Shepard, the Board and the Nominating and Governance Committee considered in particular his experience as a public insurance company CEO and his significant experience and expertise in management and international business.

·  With respect to Ms. Thomsen, the Board and the Nominating and Governance Committee considered in particular her experience as a General Partner of a venture capital firm and her significant experience and expertise in investments, finance and the development of emerging businesses.

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) all members of the Audit Committee, the Compensation Committee and the Nominating and Governance Committee be independent; and (2) 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 membership dues, contributions 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 the organization constituted less than 1% of such organization’s consolidated gross revenues during its last completed fiscal year and were below the thresholds set forth under our categorical standards of director independence. Additionally, the Board reviewed the amount paid by the Company to Simpson Thacher, the law firm in which Mr. Pete Ruegger previously was a partner and served as Chairman until his retirement in 2013. In particular, the Board considered that Mr. Ruegger is no longer a partner of, or employed by, Simpson Thacher and had not worked on Company matters for several years prior to leaving Simpson Thacher. In addition, payments by the Company to Simpson Thacher in 2014 represented less than 2% of the consolidated gross revenues of Simpson Thacher during its last completed fiscal year and were below the thresholds set forth under our categorical standards of director independence.

The Board determined that the transactions identified were not material and did not affect the independence of such director under either the Company’s Governance Guidelines or the applicable NYSE rules.

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 Company’s stock plans, 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.

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 commercial reasonableness of the terms;

·                  the benefit (or lack thereof) to us;

·                  opportunity costs of alternate transactions;

·           the materiality and character of the related person’s interest, including any actual or perceived conflicts of interest; and

·           with respect to a non-employee director or nominee, whether the transaction would compromise the director’s (1) independence under the Board’s Governance Guidelines, the NYSE rules (including those applicable to committee service) and Rule 10A-3 of the Exchange Act, if such non- employee director serves on the Audit Committee, (2) status as an outside director under Section 162(m), if such non- employee director serves on the Compensation Committee, or (3) status as a “non-employee director” under Rule 16b-3 of the Exchange Act, if such non-employee director serves on the Compensation Committee.

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:

·           the Company was or is to be a participant;

·           the amount involved exceeds $120,000; and

·           any related person had or will have a direct or indirect material interest.

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.

We employ approximately 30,200 employees, approximately 7,300 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:

·      Mr. Brian MacLean is President and Chief Operating Officer of the Company. His daughter,

Ms. Erin Cha, and his son-in-law, Mr. Junghwan Cha, have been employed by the Company since 2005 and 2009, respectively. In 2014, their combined total compensation, including salary, bonuses, equity awards and other benefits, totaled approximately $279,000. Their compensation is commensurate with that of their peers.

·      Mr. William Cunningham was Executive Vice President—Business Insurance until July 2014. His brother, Gregg T. Cunningham, has been employed by the Company since 2001. In 2014, his total

compensation, including salary, bonus, equity awards and other benefits, totaled approximately $518,000. His compensation is commensurate with that of his peers.

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 2014, we engaged several law firms with partners or former partners related to the executive officers identified below:

·                  Mr. Alan Schnitzer is Vice Chairman and Chief Executive Officer, Business and International Insurance. Mr. Schnitzer’s brother-in-law, Mr. Joseph Berman, is of counsel and a former partner in the law firm Looney & Grossman. In 2014, the Company paid approximately $309,000 in legal fees and disbursements to Looney & Grossman. We engage this firm from time to time in the ordinary course of our business and on an arm’s-length basis. Mr. Schnitzer has explicitly recused himself from any involvement with respect to our retention of, or payments to, this law firm.

·           Ms. Doreen Spadorcia is Vice Chairman and Chief Executive Officer, Personal Insurance and Bond & Specialty Insurance. Her husband, Mr. Richard Cavo, is a partner in the law firm Litchfield Cavo LLP. In 2014, we paid this firm approximately $17.8 million in legal fees and disbursements for work performed by the firm. Litchfield Cavo LLP has been an approved firm of the Company for more than ten years and is retained by the Company from time to time in the ordinary course of business and on an arm’s-length basis. Ms. Spadorcia has explicitly recused herself from any involvement with respect to our retention of, or payments to, this law firm.

From time to time, institutional investors, such as large investment management firms, mutual fund management organizations and other financial organizations become beneficial owners (through aggregation of holdings of their affiliates) of 5% or more of a class of voting securities of the Company and, as a result, are considered a “related person” under the Related Person Transaction Policy. These organizations may provide services to the Company or its benefit plans. In addition, the Company may provide insurance coverage to these organizations. In

2014, the following transactions occurred with investors who reported beneficial ownership of 5% or more of the Company’s voting securities:

·           In 2014, the Company had investments of approximately $634,000 in funds sponsored by an affiliate of BlackRock, Inc. (“BlackRock”). Separately, the Company’s pension plan had investments of approximately $46,000 in a fund sponsored by BlackRock, which investment was made in 2005. The investments were entered into on an arm’s-length basis. In 2014, BlackRock paid premiums of approximately $1.7 million for insurance policies with Travelers in the ordinary course of business and on substantially the same terms as those offered to other customers.

·           An affiliate of State Street Corporation (“State Street”) provides investment management services to the Company’s 401(k) Savings Plan. The participants in the 401(k) Savings Plan paid approximately $329,000 in management fees to State Street in 2014. The investment management agreement was entered into on an arm’s-length basis. In 2014, State Street paid premiums of approximately $561,000 for insurance policies with Travelers in the ordinary course of business and on substantially the same terms as those offered to other customers.

·           An affiliate of The Vanguard Group (“Vanguard”) provides investment management services to the Company’s 401(k) Savings Plan and the qualified and non-qualified pension plans. The participants in the 401(k) Savings Plan and the Company paid approximately $1.0 million and $866,000, respectively, in management fees to Vanguard in 2014. The investment management agreements were entered into on an arm’s-length basis. In 2014, Vanguard paid premiums of approximately $2.0 million for insurance policies with Travelers in the ordinary course of business and on substantially the same terms as those offered to other customers.

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.

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. Mr. Fishman serves as Chairman of the Board as well as Chief Executive Officer, and Mr. Dasburg currently serves as our Lead Director. The position of Lead Director has been in place since 2006. In accordance with our 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 independent directors elect the Lead Director from among the independent directors. 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 11 of the 12 director nominees 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-employee directors are scheduled to meet in executive session with the Lead Director presiding at such meetings.

Finally, as described in more detail under “Director Nominations—Specific Considerations Regarding 2015 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 the benefits of its current leadership structure and would not result in better governance or oversight.

Non-employee members of the Board regularly meet in executive session with no members of management

present. Each of the committees also meets regularly in executive session.

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: Governance Documents.

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 such correspondence as appropriate.

In addition to the general correspondence process above, the Nominating and Governance Committee oversees a shareholder engagement program relating to the Company’s governance and compensation practices. Under this program, which started more

than four years ago, at the direction of the Nominating and Governance Committee, management reaches out to the Company’s largest shareholders at least once each year to facilitate a dialogue regarding governance and compensation matters. Management reports on the resulting conversations with those investors to the Nominating and Governance Committee and also, as appropriate, to the Compensation Committee. As noted under “2014 Shareholder Advisory Vote on Executive Compensation” in the Compensation Discussion and Analysis (“CD&A”) section of this proxy statement, in 2014, the Company received feedback from shareholders representing in excess of 35% of the Company’s outstanding shares. In a number of cases, the shareholder engagement program has encouraged changes to the Company’s practices. For example last year, as discussed on page 47, based in part on investor input, the Compensation Committee raised the Return on Equity thresholds for vesting of performance shares and enhanced the disclosure in the CD&A. In addition, our CEO voluntarily agreed to relinquish certain rights under his employment agreement.

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 below under “Risk Management and Compensation”.

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 with respect to compensation matters.

·           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.

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. The Board 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, at least annually, the Company’s chief risk officer conducts a review of the interrelationships of risks and reports 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.

Our compensation structure is intended to encourage a careful balance of risk and reward, both on an individual risk basis and in the aggregate on a Company-wide basis, and promote a long-term perspective.

As discussed in more detail under “Compensation Discussion and Analysis” in this Proxy Statement, 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 material factor in 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 generally do not vest until three years after the award), our significant executive stock ownership requirements 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 the last five years, including 2014, 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 executives 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, we believe that our executives are not

incentivized to employ disproportionately risky growth strategies.

Furthermore, the Compensation Committee’s independent 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.

The Audit Committee is responsible for the appointment, compensation, retention and oversight of the independent registered public accounting firm retained to audit the Company’s financial statements. The Audit Committee has selected KPMG LLP (“KPMG”) to serve as our independent registered public accounting firm for 2015.

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.

KPMG has continuously 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.

As part of the evaluation of its independent registered public accounting firm, the Audit Committee periodically considers whether there should be a regular rotation of the independent registered public accounting firm. In addition, in conjunction with the mandated rotation of the independent registered public accounting firm’s lead engagement partner, the Audit Committee and the Audit Committee Chairman are directly involved in the selection of KPMG’s lead engagement partner. The Audit Committee and the Board of Directors believe that the continued retention of KPMG to serve as the Company’s independent registered public accounting firm is in the best interests of the Company and its shareholders.

Representatives of KPMG are expected to be present at the Annual Meeting. They also will have the opportunity to make a statement if they desire to do so and are expected to be available to respond to appropriate questions.

In connection with the audit of the 2014 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 2014 and 2013 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, actuarial attestations 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 compliance related services.

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 such permitted services within that budget, although the Chair of the Audit Committee must approve any such 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 RECOMMENDS THAT YOU VOTE “FOR” THE RATIFICATION OF KPMG AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2015.

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 under the heading “Board of Directors Information—Audit Committee” in 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 U.S. generally accepted accounting principles. 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 applicable standards adopted by the Public Company Accounting Oversight Board. 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, 2014 filed with the SEC.

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

The Company is requesting that shareholders vote, on a non-binding basis, to approve the compensation of our named executive officers as disclosed on pages 29 - 72. The Company currently intends to hold such votes annually. The next such vote will be held at the Company’s 2016 Annual Meeting of Shareholders. While the Board intends to consider carefully the results of this vote, the final vote is advisory only and is not 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 this Proxy Statement, our executive compensation programs are structured consistent with our longstanding pay-for-performance philosophy and utilize performance measures that are intended to align compensation with the creation of shareholder value and to reinforce a long- term perspective. Among other things:

Highlights of 2014 Achievements

In 2014, the Company again substantially increased its underwriting profits and, for the second consecutive year, achieved both record net and operating income per share* and a return on equity of 14.6% and an operating return on equity* of 15.5%. Net and operating income per share, as well as operating return on equity, significantly exceeded the goals in the Company’s 2014 financial plan, which was approved by the Board prior to the start of the year. In addition, notwithstanding catastrophe losses that exceeded catastrophe losses in 2013 by over $100 million (pre-tax), net income of approximately $3.7 billion and operating income* of approximately $3.6 billion produced per share income that, in each case, increased approximately 10% or more from 2013 results.

These strong results reflected, in significant part, the continued successful execution of the Company’s long-term strategy to improve profitability and earn superior returns. Beginning in 2010 and continuing through 2014, the Company has taken a number of actions in response to the persistent low interest rate environment and the risk of continued high levels of severe weather in the United States. These actions have included: using the Company’s advanced data and analytics to selectively and actively increase premium rates on accounts up for renewal, particularly those not meeting our profitability thresholds, while at the same time retaining our most profitable business; improving terms and conditions; and tightening underwriting guidelines. As described further below, these actions have resulted in significantly improved underlying underwriting margin*, with 2014 after-tax underlying underwriting margin of $1.430 billion, twice what it was in 2010.

The Company achieved these 2014 results in spite of the difficult interest rate environment in which it continued to operate. Ten-year treasury rates declined throughout 2014 and, consistent with recent periods,

*    For a definition of these terms and a reconciliation to GAAP measures, see “Reconciliation of Non-GAAP Measures to GAAP Measures and Selected Definitions” on page 83.

were at or near historically low levels, resulting in a further reduction in interest income from the reinvestment of the Company’s maturing fixed income investments. Nevertheless, the Company’s success in increasing its underlying underwriting margin more than made up for this shortfall.

In assessing the Company’s performance, the Compensation Committee took into account the following strategic and operational achievements, among others:

·     the Company’s highly coordinated and effective execution of its business strategy, resulting in strong underwriting performance;

·     the Company’s strategic actions to respond to competitive changes in the personal auto insurance market, particularly the introduction—and marketplace success—of a new private passenger automobile product, Quantum Auto 2.0;

·     continued strong investment performance, especially in light of very low interest rates;

·     further implementation of a strategy seeking to selectively and thoughtfully improve the performance of the Company’s international business, including through the integration of the Company’s newly-acquired operations in Canada and the increased use of advanced data and analytics in the U.K.; and

·     continued effective and disciplined expense management and underwriting risk management.

In particular, the Committee noted that many of these strategic and operational achievements significantly contributed to the financial performance highlights described below.

Highlights of 2014 Financial Performance

The Company’s consistent and articulated financial strategy has been to create shareholder value and to earn a top tier operating return on equity by: (1) generating significant earnings; and (2) maintaining a balanced approach to capital management, including growing book value per share over time and returning to shareholders capital not needed to support the Company’s business. The Company strives to generate earnings from both its insurance operations and its investments, leveraging what it believes are its competitive advantages.

The Company continued to successfully execute its long-term financial strategy in 2014, as demonstrated by the following financial metrics.

·   Achieved Significantly Improved Profitability Through Active Use of Data and Analytics.  In 2014, the Company continued its strategy in its commercial insurance businesses of analyzing its business on an account-by-account or class-by-class basis using highly granular data and analytics with the objective of retaining its best performing business while seeking rate increases where needed. As a result, the Company continued to achieve significant rate increases, particularly on accounts not meeting profitability thresholds, and at the same time maintained strong retention levels. The execution of this strategy, which started in 2010, has resulted in improved pricing and underwriting profitability, as illustrated by the chart below of the most recent five years of our after-tax (1) “underwriting margin” or “underwriting gain (loss)” and (2) “underlying underwriting margin,” which is our “underwriting margin” excluding the impact of catastrophes and net favorable prior year reserve development.

·   Achieved a Superior Return on Equity.  In 2014, the Company produced a return on equity of 14.6% and an operating return on equity of 15.5%, the second consecutive year in which returns were at a mid-teens level. The Company’s 2014 return on equity exceeded approximately two-thirds of the property and casualty companies in our Compensation Comparison Group (described on pages 38 and 39 of this proxy statement). In addition, in contrast to the Company’s 2014 return on equity of 14.6%, the average return on equity for the domestic property and casualty industry in 2014 was approximately 7%, as estimated by the Insurance Information Institute. This outperformance continues a consistent trend for the Company, which started before the financial crisis. As demonstrated by the following chart, the Company’s return on equity has meaningfully exceeded the estimated average return for the industry in each of the past nine years.

Our compensation program, the objectives and structure of which have been stable over time, is designed to reinforce a long-term perspective and to align the interests of our executives with those of our shareholders. A long-term perspective is especially vital in the property and casualty insurance industry, where the periodic occurrence of catastrophes, changes in estimates of costs for claims and other economic conditions have historically produced results that vary significantly when measured year-to-year.

Consistent with the Company’s longstanding pay-for-performance philosophy, 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 set at superior levels compared to the compensation levels for equivalent positions in our 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 lower levels. In addition, to a greater extent than many of the companies included in our Compensation Comparison Group, a substantial majority of the ultimate value of our named executive officer compensation is driven by performance as measured by operating results and/or changes in shareholder value over time.

With respect to its 2014 compensation decisions, the Compensation Committee concluded that, based on the achievements discussed above, among other factors, the Company and the named executive officers had performed at superior levels on both an absolute and relative-to-peer basis. The Compensation Committee took into account that the Company’s strong 2014 results were driven in significant part by the proactive steps taken by management over the past several years to improve profitability. In addition, the Committee noted the Company’s strong total return to shareholders, particularly over the long-term, and the Company’s performance meaningfully in excess of applicable targets in its 2014 financial plan.

In assessing 2014 results, the Compensation Committee contrasted the Company’s financial results in 2014 with those in 2013, years in which overall earnings were generally similar, operating return on

equity was the same and there were no catastrophe losses from hurricanes. The Company’s earnings per share in 2014 were significantly higher than in 2013, due in large part to: (1) the favorable impact of the Company’s capital management through its share repurchase program; and (2) higher underlying underwriting margin. Based on the foregoing comparisons, the Compensation Committee concluded that the Company’s 2014 performance generally equaled or exceeded its performance in 2013.

Considering all of these factors, in February 2015, the Compensation Committee decided to award variable compensation (annual bonus and long-term stock incentives) for the 2014 performance year that was comparable to 2013 compensation. In recognition of our superior comparative performance during 2014 and over time relative to market indices and the Compensation Comparison Group, this was also intended to position total direct compensation for the CEO and the other named executive officers as a group significantly above the median (in the top quartile) of the Compensation Comparison Group (based on 2013 compensation data, the most recent year for which public information was available).

Relationship between CEO Compensation and Relative Performance over the Last Seven Years of Available Data

The following chart demonstrates the Company’s performance as compared to the other companies in its Compensation Comparison Group over the seven-year period ended December 31, 2014 based on a number of different metrics that the Compensation Committee believes are relevant to consider in assessing performance over time. While the Committee considers both absolute and relative performance in respect of all of these metrics, no one metric is conclusive, especially given that differences in industry, business mix and capital structure can impact comparability.

The chart also shows our CEO’s total compensation compared to total compensation paid to the CEOs of our Compensation Comparison Group for the seven-year period from 2007 through 2013, the most recent seven years for which comparative compensation information was available when the Compensation Committee approved this report.

The Compensation Committee viewed seven years as a relevant measurement period because the starting point would be prior to the most disruptive year of the financial crisis, and, thus, comparisons would be more meaningful for evaluating sustained performance over the long-term.

For purposes of this chart, “total compensation” reflects total compensation as reported in the summary compensation tables in the Company’s and the peer group’s proxy statements prepared for the relevant years. “Return of Capital” is the cumulative amount of dollars spent on share repurchases and cash dividend payments over the specified time period. For a definition of some of the other terms used in the chart below, see “Reconciliation of Non-GAAP Measures to GAAP Measures and Selected Definitions” on page 83 of this Proxy Statement.

The Compensation Committee has approved the following five primary objectives of our executive compensation program.

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, the ultimate value of which is completely or partly dependent on changes in stock price and operating return on equity.

In evaluating the Company’s overall performance, the Compensation Committee recognizes that our business is subject to events outside of management’s control, including natural and man-made catastrophic events, and takes those events into account when awarding compensation. The Compensation Committee believes that, while the impact of catastrophes in any given year can produce significant volatility, management should be focused on achieving the Company’s long-term strategic goals. As a result, although the Compensation Committee believes that the impact of catastrophes on the Company’s financial results should be reflected in its executive compensation decisions, the Compensation Committee does not believe it is appropriate for compensation levels to be subject to as much volatility year-to-year as may be caused by actual catastrophes.

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

Our overall compensation levels are designed to attract and retain the best executives in light of the competition for executive talent. 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 set at superior levels compared to the compensation levels for equivalent positions in our 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 lower 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 talent.

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 2014 and 2015 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. Both the portion of total compensation attributable to stock-based programs and the expected level of executive stock ownership increase 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). The Compensation Committee may also 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 and dilutive impact to shareholders 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 independent 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. As a result of this process, the Compensation Committee has adopted the following practices, among others:

For a description of the duties of the Compensation Committee and its use of an independent compensation consultant, see “Board of Directors Information—Compensation Committee” on page 11 of this Proxy Statement.

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 that in general are of relatively similar size and complexity. We regard these general financial services and life and health insurance companies as potential competition for executive talent. The Compensation Comparison Group has not changed since 2009; however, the Compensation Committee reviews the composition of

our peer group annually to ensure that the companies constituting the peer group continue to provide meaningful and relevant compensation comparisons.

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.

As of December 31, 2014, the Company was in approximately the 45th percentile of the Compensation Comparison Group based on assets, the 36th percentile based on revenues and the 55th percentile based on market capitalization.

We deliver executive compensation through a combination of base salary and performance-based compensation consisting of an annual cash bonus and stock- based, long-term incentive awards. We also provide benefits and modest perquisites.

Total direct compensation for a performance year consists of base salary, annual cash bonuses earned and long-term stock-based incentive awards granted to our named executive officers in February of each year with respect to their performance in the prior year.

Consistent with recent years, the Compensation Committee has determined that the allocation of compensation between performance-based annual cash bonus and stock-based long-term incentives should be somewhat more heavily weighted towards cash bonus as compared to our Compensation Comparison Group. The Compensation Committee believes that this allocation is appropriate in light of the fact that a higher percentage of the named executive officers’ total compensation (and total direct compensation) is performance-based as compared to the peer average and peer median of the Compensation Comparison Group. In particular, unlike a number of other companies in our Compensation Comparison Group, equity awards made to the named executive officers are all performance- based. In addition, a smaller portion of our compensation opportunity is delivered through non-performance-based pension benefits and perquisites. Awards of stock-based compensation are in the form of stock options and performance shares. Because our performance shares only vest if adjusted return on equity thresholds are met, and because options provide value only if our stock price appreciates, the Compensation Committee believes that such compensation is all performance-based; that

is, the compensation awarded to our CEO and other named executive officers does not include awards, such as restricted stock, where compensation is earned solely due to the passage of time without regard to performance.

The following chart illustrates the mix of performance-based compensation to non-performance-based compensation of our CEO compared to the CEOs of our Compensation Comparison Group.

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 2014 performance year:

Base Salary

The Compensation Committee generally sets base salary for executive officers at a level that is intended to be on average at, or near, approximately the 50th percentile for equivalent positions in our 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 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 and for a period of time following such increases, be higher than the 50th percentile of our Compensation Comparison Group indicated by the most recently available data on the basis that over time the average is expected to be at, or near, approximately the 50th percentile.

In February 2015, the Compensation Committee did not make any changes to the base salaries for the named executive officers. The Committee last changed base salaries for Mr. Benet, Mr. Heyman and Mr. Schnitzer in April 2013 and for Mr. MacLean in July 2012. The base salary for the CEO has remained unchanged since 2001. For 2014, the base salaries paid to named executives as a group were at approximately the 70th percentile of our Compensation Comparison Group (but only approximately 6.7% more than the median dollar amount) based on the most recently available data as provided by the independent compensation consultant. The CEO’s 2014 base salary of $1,000,000 was at approximately the 10th percentile of our Compensation Comparison Group.

Performance-Based Annual Cash Bonus

The named executive officers are eligible to earn performance-based annual cash bonuses under the Senior Executive Performance Plan, a plan approved by our shareholders in 2002. The annual bonuses 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 and Maximum Pool

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 so that the annual bonus payments to named executive officers could be fully tax deductible. The Senior Executive Performance Plan contains a multi-metric formula that was approved by shareholders and that is used to determine the maximum amount of the annual bonus pool. The formula in the Senior Executive Performance Plan provides generally that, if our return on equity (determined by dividing (1) “after-tax operating earnings”, as defined in the Senior Executive Performance Plan, by (2) 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 as “qualified performance-based compensation” under Section 162(m) will equal 1.5% of our “after-tax operating earnings”.

Because the amount of our after-tax operating earnings can generate a larger bonus pool than necessary for awarding bonuses consistent with the Compensation Committee’s objectives, the Compensation Committee can exercise (and in the past has always exercised) its discretion to award less than the maximum amount that could have been awarded under the Plan as “qualified performance-based compensation”.

Performance-Year 2014 Bonuses Payable under the Senior Executive Performance Plan

As it has done in prior years, the Compensation Committee 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 $21.2 million in bonuses (being approximately 34% of the bonus pool under the Plan) to the named executive officers for the 2014 performance period.

Factors Considered in Awarding 2014 Bonuses

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 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 market conditions in general. The Compensation Committee does not use a formula or assign any particular relative weighting to any performance measure. As discussed under “Use of Operating Return on Equity and Other Metrics” on page 35, the Compensation Committee believes that a formulaic approach to compensation is not appropriate in the property and casualty industry and is not an appropriate substitute for the Committee’s thorough deliberation and business judgment as it would not allow the Compensation Committee to assess the quality of the performance results and could result in negative unintended consequences. For example, a formulaic bonus plan tied to revenue growth (common metrics used in formulaic bonus plans) could create an incentive for management to relax the Company’s underwriting or investment standards to increase revenue and reported profit on a short-term basis, thereby driving higher short-term bonuses, but create excessive risk for shareholders over the longer term. This is of particular

concern in the property casualty insurance industry due to the fact that the “cost of goods sold” (i.e., the amount of insured losses) is not known at the time of sale and develops over time, in some cases many years.

However, as discussed below, the Compensation Committee generally weighs financial performance measures (particularly operating return on equity) and comparable compensation information more heavily than other factors. In particular, when assessing results, the Compensation Committee considers the Company’s overall financial performance relative to prior years’ performance, the business plan and the performance of industry peers.

2014 Financial Metrics, Including Operating Return on Equity Target

In evaluating the foregoing factors, the Compensation Committee reviewed management’s progress in meeting a broad range of financial and operational metrics included in the 2014 financial plan approved by the Board in December 2013. Of the various financial metrics evaluated by the Compensation Committee, the Committee considered operating return on equity to be the most important metric in its evaluation of the Company’s performance, and it reviewed other metrics in light of their contribution to the Company’s return on equity goals.

Operating Return on Equity Target.  The Compensation Committee established in February 2014 specific targets for both: (1) operating return on equity; and (2) operating return on equity adjusted to exclude catastrophes and prior year reserve development related to asbestos and environmental coverages.

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 operating 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 operating return on equity achievable in a given year is greater than, or less than, a mid-teens level. The targeted returns for 2014 reflected the expectation that interest rates would remain at historically low levels during the next several years. In addition, in evaluating the appropriateness of the targets set for return on equity, the Compensation Committee considers our return on equity relative to the Compensation Comparison Group and to the U.S.

property and casualty industry generally and relative to our estimated cost of equity capital. This relationship to industry returns, over time, is described in the chart on page 31. As a result, when the Board approved our 2014 business plan, both management and the Board believed the plan to be reasonably difficult to achieve.

Notably, the Company’s financial plan—and thus its targets—does not include any planned reserve development, positive or negative. The Company’s actuarial estimates always reflect management’s best estimates of ultimate loss as of the relevant date. As a result, when developing financial plans, the Company does not budget for, or target, prior year reserve development. In 2014, this, along with the plan assuming catastrophes at normalized levels, contributed to having targets in the 2014 plan that were somewhat lower than 2013 actual results, which included some positive reserve development and benefitted from a relatively low level of catastrophes. Targets in the 2014 plan, however, were meaningfully higher than targets in the 2013 plan.

In particular, the 2014 financial plan targeted: (1) an operating return on equity of 12.3%; and (2) an operating return on equity, adjusted to exclude catastrophes and prior year reserve development related to asbestos and environmental coverages, of approximately 14.9%. The adjustments to operating return on equity for prior year reserve developments related to asbestos and environmental coverages were made because, to a significant degree, those items 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.

For 2014, our results compared to our targets were as follows:

Other Financial Metrics.  The Senior Executive Performance Plan is a multiple metric plan. In determining annual cash bonuses to be paid to the named executive officers, the Compensation Committee evaluates the Company’s performance with respect to not only operating return on equity, but also a broad range of other financial metrics including, among other things, operating income and operating income per share and other metrics that contribute to those amounts, such as written and earned premiums, investment income, insurance losses and expense management. No one of these other financial metrics was individually material to 2014 compensation decisions.

The relevant targets were consistent with the 2014 financial plan approved by the Board at the end of 2013 and, in general, the Company’s performance substantially exceeded those targets. The following table shows 2014 performance compared to a number of the 2014 performance metrics contained in the Company’s financial plan and to 2013 actual results.

Reasons for Performance in Excess of Financial Targets.  The Compensation Committee believes that the Company’s performance in 2014, which was substantially in excess of applicable targets, reflected among other things: