THE TRAVELERS COMPANIES, INC.

385 Washington Street, St. Paul, MN 55102

Telephone (651) 310-7911

March __, 2007

Dear Fellow Shareholders:

Please join us for our Annual Meeting of Shareholders on Tuesday, May 1, 2007, at 10:30 a.m. (Central Daylight Time) at our office at 385 Washington Street, Saint Paul, Minnesota, 55102.

The enclosed Notice of Annual Meeting of Shareholders and Proxy Statement describe the business to be conducted at the meeting. We also will report on matters of current interest to our shareholders.

Your vote is important. Whether you own a few shares or many, and whether or not you plan to attend the Annual Meeting in person, it is important that your shares be represented and voted at the meeting. You may vote your shares by proxy on the internet, by telephone, or by completing, signing and promptly returning the proxy card in the envelope provided. If you do not vote by the internet, telephone or mail, you may vote in person at the Annual Meeting.

Thank you for your continued support of Travelers.

PROXY VOTING METHODS

If at the close of business on March 5, 2007, you were a shareholder of record or held shares through a Travelers benefit or compensation plan or a broker or bank, you may vote your shares by proxy through the internet, by telephone, or by mail, or you may vote in person at the Annual Meeting. To reduce our administrative and postage costs, please vote through the internet or by telephone, both of which are available 24 hours a day. You may revoke your proxies at the times and in the manners described on page 4 of the Proxy Statement. If you are a shareholder of record or hold shares through a broker or bank and are voting by proxy, your vote must be received by 11:59 p.m. (Eastern Daylight Time) on April 30, 2007 to be counted.

Please note, if you hold shares through a Travelers benefit or compensation plan, your vote must be received by 11:59 p.m. (Eastern Daylight Time) on April 27, 2007. Those votes cannot be changed or revoked after that time, and those shares cannot be voted in person at the Annual Meeting.

To vote by proxy:

BY INTERNET

·       Go to the website at www.proxyvote.com, 24 hours a day, seven days a week.

·       Have your proxy card in hand when you access the website and follow the instructions to obtain your records and to create an electronic voting instruction form.

BY TELEPHONE

·       From a touch-tone telephone, call the toll-free number printed on your proxy card or electronic notification, 24 hours a day, seven days a week.

·       Have your proxy card in hand when you call and then follow the simple recorded instructions.

BY MAIL

·       Mark your selections on the proxy card.

·       Date and sign your name exactly as it appears on your proxy card.

·       Mail the proxy card in the enclosed postage-paid envelope.

·       Mailed proxy cards must be received no later than April 30, 2007 to be counted before the Annual Meeting unless they are voting shares held through a Travelers benefit or compensation plan, in which case they must be received no later than April 27, 2007 to be counted before the Annual Meeting.

YOUR VOTE IS IMPORTANT. THANK YOU FOR VOTING.

THE TRAVELERS COMPANIES, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

This Notice of Annual Meeting, Proxy Statement and accompanying proxy card
are being distributed on or about March 23, 2007.

TABLE OF CONTENTS

TABLE OF CONTENTS (Continued)

THE TRAVELERS COMPANIES, INC.

385 Washington Street
Saint Paul, Minnesota 55102
Telephone: 651-310-7911

PROXY STATEMENT
Annual Meeting of Shareholders
May 1, 2007
10:30 a.m. (Central Daylight Time)

Effective February 26, 2007, the Company’s Board of Directors elected to change the name of The St. Paul Travelers Companies, Inc. to The Travelers Companies, Inc. (the “Company” or “Travelers”) and, accordingly, changed the Company’s ticker symbol on the New York Stock Exchange to “TRV.”

We are providing these proxy materials in connection with the solicitation by the Company’s Board of Directors of proxies to be voted at our Annual Meeting of Shareholders to be held on May 1, 2007 (“Annual Meeting”), and at any adjournment of the Annual Meeting. Directors, officers and other Company employees also may solicit proxies by telephone or otherwise. Brokers and other nominees will be requested to solicit proxies or authorizations from beneficial owners and will be reimbursed for their reasonable expenses.

GENERAL INFORMATION

What am I voting on?

There are three proposals scheduled to be voted on at the meeting:

·       Election of 13 directors;

·       Ratification of the appointment of KPMG LLP as our independent registered public accounting firm for 2007; and

·       Approval of an amendment to our articles of incorporation to require a majority vote for the election of directors.

Who is entitled to vote?

Shareholders as of the close of business on March 5, 2007  may vote at the Annual Meeting. As of that date, there were 671,177,082 shares of common stock and 383,335 shares of Series B convertible preferred stock outstanding. The holders of common stock and Series B convertible preferred stock vote as one class on all matters at the Annual Meeting. Each share of Series B convertible preferred stock is entitled to eight votes. You have one vote for each share of common stock you held as of the close of business on the Record Date, including shares:

·       Held directly in your name as “shareholder of record” (also referred to as “registered shareholder”);

·       Held for you in an account with a broker, bank or other nominee (shares held in “street name”). Street name holders generally cannot vote their shares directly and instead must instruct the brokerage firm, bank or nominee how to vote their shares;

·       Credited to your account in our 401(k) Savings Plan; and

·       Held for you by us as restricted shares (whether vested or non-vested) under any of our stock incentive plans.

What constitutes a quorum?

A majority of the aggregate voting power of the shares of common stock and Series B convertible preferred stock entitled to vote, present or represented by proxy, constitutes a quorum for the Annual Meeting. Abstentions are counted as present and entitled to vote for purposes of determining a quorum. Shares represented by “broker non-votes” (see below) also are counted as present and entitled to vote for purposes of determining a quorum. On the Record Date, 671,177,082 shares of our common stock and 383,335 shares of our Series B convertible preferred stock were outstanding. Each share of common stock is entitled to one vote, and each share of Series B convertible preferred stock is entitled to eight votes. Therefore, a total of 674,243,762 votes are eligible to be cast at the Annual Meeting. Cumulative voting in the election of directors is not permitted.

How many votes are required to approve each proposal?

Directors are elected by a plurality vote, although our Board of Directors has adopted a governance guideline requiring any director nominee who does not receive a majority of the votes cast “FOR” his or her election, to tender his or her resignation to the Nominating and Governance Committee for consideration. Proposal 3, regarding approval of an amendment to our articles of incorporation to provide for a majority vote standard for director elections, will not affect the vote standard required for the nominees for election at the 2007 Annual Meeting. Each of the other proposals requires the affirmative vote of the greater of (1) a majority of the votes represented in person or by proxy at the Annual Meeting and entitled to vote and (2) a majority of the voting power of the minimum number of shares entitled to vote that would constitute a quorum at the Annual Meeting.

How are votes counted?

You may vote either “FOR” or “WITHHOLD” for each of the nominees for the Board of Directors. You may vote “FOR,” “AGAINST” or “ABSTAIN” on each of the other proposals. Votes withheld for the election of directors will have no impact on the election of directors. If you abstain from voting on any of the other proposals, it has the same effect on the vote as a vote against the proposal. A broker non-vote with respect to any of the other proposals is not deemed to be present in person or by proxy for the purpose of determining whether a proposal has been approved and, therefore, will have no effect in determining whether the proposal has been approved. If you just sign and submit your proxy card without voting instructions, your shares will be voted “FOR” each director nominee and “FOR” the other proposals as recommended by the Board. Voting instructions are being provided separately to current and former employees who hold shares through any of our benefit or compensation plans.

What is a broker non-vote?

If you hold your shares in street name and do not provide voting instructions to your broker, your shares will not be voted on any proposal on which your broker does not have discretionary authority to vote (a “broker non-vote”). Shares held by brokers who do not have discretionary authority to vote on a particular matter and who have not received voting instructions from their customers are not counted or deemed to be present or represented for the purpose of determining whether shareholders have approved that matter, but they are counted as present for the purpose of determining a quorum at the Annual Meeting.

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Who will count the vote?

Representatives of ADP Investor Communication Services will tabulate the votes, and representatives of IVS Associates will act as inspectors of election.

How does the Board recommend that I vote?

Our Board recommends that you vote your shares:

·       “FOR” each of the nominees to the Board;

·       “FOR” the ratification of the appointment of KPMG LLP as our independent registered public accounting firm for 2007; and

·       “FOR” the amendment of our articles of incorporation to require a majority vote for the election of directors.

How do I vote my shares without attending the Annual Meeting?

If you are a shareholder of record or hold shares through one of our benefit or compensation plans, you may vote by granting a proxy. For shares held in street name, you may vote by submitting voting instructions to your broker or nominee. In all circumstances, you may vote:

·       By Internet or Telephone—If you have internet or telephone access, you may submit your proxy by following the voting instructions on the proxy card. If you vote by internet or telephone, you do not need to return your proxy card.

·       By Mail—You may vote by mail by signing and dating your proxy card and mailing it in the envelope provided. You should sign your name exactly as it appears on the proxy card. If you are signing in a representative capacity (for example, as guardian, executor, trustee, custodian, attorney or officer of a corporation), you should indicate your name and title or capacity.

Internet and telephone voting facilities will close at 11:59 p.m. (Eastern Daylight Time) on April 30, 2007 for the voting of shares held by shareholders of record or held in street name and at 11:59 p.m. (Eastern Daylight Time) on April 27, 2007 for the voting of shares held by current and former employees through a Company benefit or compensation plan.

Mailed proxy cards with respect to shares held of record or in street name must be received no later than April 30, 2007.

Mailed proxy cards with respect to shares held by current and former employees through a Company benefit or compensation plan must be received no later than April 27, 2007.

How do I vote my shares in person at the Annual Meeting?

First, you must satisfy the requirements for admission to the Annual Meeting (see below). Then, if you are a shareholder of record and prefer to vote your shares at the Annual Meeting, you must bring the enclosed proxy card or proof of identification. You may vote shares held in street name at the Annual Meeting only if you obtain a signed proxy from the record holder (broker or other nominee) giving you the right to vote the shares.

Even if you plan to attend the Annual Meeting, we encourage you to vote in advance by internet, telephone or proxy card so that your vote will be counted even if you later were to decide not to attend the Annual Meeting.

Shares held by current and former employees through a Company benefit or compensation plan cannot be voted in person at the Annual Meeting.

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What does it mean if I receive more than one proxy card?

It generally means you hold shares registered in more than one account. To ensure that all your shares are voted, please sign and return each proxy card or, if you vote by internet or telephone, vote once for each proxy card you receive.

May I change my vote or revoke my proxy?

Yes. Whether you have voted by mail, internet or telephone, if you are a shareholder of record or hold shares in street name, you may change your vote and revoke your proxy by:

·       Sending a written statement to that effect to our Corporate Secretary or to any other corporate officer of the Company, provided such statement is received no later than April 30, 2007;

·       Voting again by internet or telephone at a later time before the closing of those voting facilities at 11:59 p.m. (Eastern Daylight Time) on April 30, 2007;

·       Submitting a properly signed proxy card with a later date that is received no later than April 30, 2007; or

·       Attending the Annual Meeting, revoking your proxy and voting in person.

If you are a current or former employee and hold shares through a Travelers benefit or compensation plan, you may change your vote and revoke your proxy by any of the first three methods listed above if you do so no later than 11:59 p.m. (Eastern Daylight Time) on April 27, 2007. You cannot, however, revoke or change your proxy with respect to shares held through a Company benefit or compensation plan after that date, and you cannot vote those shares in person at the Annual Meeting.

Do I need a ticket to be admitted to the Annual Meeting?

You will need an admission ticket or proof of ownership to enter the Annual Meeting. An admission ticket is attached to your proxy card if you hold shares directly in your name as a shareholder of record. If you plan to attend the Annual Meeting, please vote your proxy but keep the admission ticket and bring it with you to the Annual Meeting.

If your shares are held beneficially in the name of a bank, broker or other holder of record and you wish to be admitted to attend the Annual Meeting, you must present proof of your ownership of The Travelers Companies, Inc. stock, such as a bank or brokerage account statement. If you would prefer to obtain an admission ticket in advance, kindly send your written request, along with proof of your ownership of Travelers stock, to:

Travelers
Shareholder Relations Department
One Tower Square
Hartford, CT  06183

Do I also need to present identification to be admitted to the Annual Meeting?

Yes, all shareholders must present a form of personal identification in order to be admitted to the Annual Meeting.

No cameras, recording equipment, electronic devices, large bags, briefcases or packages will be permitted in the Annual Meeting.

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Could other matters be decided at the Annual Meeting?

At the date this Proxy Statement went to press, we did not know of any matters to be raised at the Annual Meeting other than those referred to in this Proxy Statement.

If other matters are properly presented at the Annual Meeting for consideration, the persons named in your proxy card, if you are a shareholder of record, will have the discretion to vote on those matters for you.

Who will pay for the cost of this proxy solicitation?

We will pay the cost of soliciting proxies. Proxies may be solicited on our behalf by directors, officers or employees (for no additional compensation) in person or by telephone, electronic transmission and facsimile transmission. We have hired Morrow & Co. to distribute and solicit proxies. We will pay Morrow & Co. a fee of $14,000, plus reasonable expenses, for these services.

ITEM 1—ELECTION OF DIRECTORS

There are currently 11 members of the Board of Directors (the “Board”). On February 7, 2007, the Board, upon recommendation of its Nominating and Governance Committee, unanimously nominated 10 of those directors for re-election to the Board at the Annual Meeting. That Committee also nominated the following three new candidates for election to the Board:  Mr. Alan L. Beller, Ms. Patricia L. Higgins and Mr. Cleve L. Killingsworth, Jr. Mr. Leslie B. Disharoon, who currently serves as a director, has reached the Board’s mandatory retirement age and therefore is not available to stand for re-election. We thank Mr. Disharoon for his thoughtful counsel and numerous contributions over the years to both the Company and to Travelers Property Casualty Corp. (“TPC”) before the April 1, 2004 merger that formed the Company (the “Merger”).

The directors elected at the Annual Meeting will hold office until the 2008 annual meeting of shareholders and until their successors are duly elected and qualified. Unless otherwise instructed, the persons named in the accompanying proxy form (the “proxyholders”) intend to vote the proxies held by them for the election of the 13 nominees named below. The proxies cannot be voted for more than 13 candidates for director. If any of the 13 nominees ceases to be a candidate for election by the time of the Annual Meeting (a contingency which the Board does not expect to occur), such proxies may be voted by the proxyholders in accordance with the recommendation of the Board.

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NOMINEES FOR ELECTION AS DIRECTORS

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NOMINEES FOR ELECTION AS DIRECTORS

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NOMINEES FOR ELECTION AS DIRECTORS

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NOMINEES FOR ELECTION AS DIRECTORS

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NOMINEES FOR ELECTION AS DIRECTORS

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NOMINEES FOR ELECTION AS DIRECTORS

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NOMINEES FOR ELECTION AS DIRECTORS

                         Prior to becoming directors of the Company on April 1, 2004, the following individuals were directors of Travelers Property Casualty Corp. from the dates indicated until the Merger:  Mr. Lipp, since December 2001; Ms. McGarvie, since July 2003; and Ms. Thomsen, since September 2002.

                         Certain information about our Audit Committee and Audit Committee financial expert is provided under “Board of Directors Information—Committees of the Board and Meetings—Audit Committee” and incorporated by reference in this section.

THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE “FOR” THE
ELECTION OF EACH OF THE NOMINEES NAMED ABOVE.

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BOARD OF DIRECTORS INFORMATION

Committees Of The Board And Meetings

There are six standing committees of the Board: the Audit Committee, the Compensation Committee, the Executive Committee, the Investment and Capital Markets Committee, the Nominating and Governance Committee and the Risk Committee.

The Board has adopted a written charter for each of the Committees, copies of which are posted on our website at www.travelers.com under “Investors: Corporate Governance: Committee Charters.” A shareholder also may request a copy of these materials in print, without charge, by contacting the Corporate Secretary at The Travelers Companies, Inc., 385 Washington Street, St. Paul, MN 55102. Each Committee reviews its charter annually and presents recommendations to the Nominating and Governance Committee and the Board as well as any recommended amendments for consideration and approval.

The following table summarizes the current membership of the Board and of each of its Committees, as well as the number of times the Board and each Committee met during 2006.

(1)                 Mr. Graev was elected a member of the Executive Committee on February 7, 2007.

Each director attended 90% or more of the total number of meetings of the Board and of the Committees on which the director served.

Audit Committee

The Board has determined that all members of the Committee are “independent,” as defined by our Governance Guidelines, the New York Stock Exchange (“NYSE”) listing standards applicable to audit committees and the Board in general and Section 301 of the Sarbanes-Oxley Act of 2002, and that the members of the Committee meet the independence and financial literacy and expertise requirements of the NYSE. The Board also has determined that Mr. Dasburg’s experience with KPMG Peat Marwick from 1973 to 1980 and 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 Air Cargo, Inc., and his service on the audit committees of other public companies, all 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 Investors:  Corporate Governance Committee Charters: Audit Committee Charter, and include the following:

·       serve as an independent and objective body to carry out the responsibilities and

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duties delegated to it by the Board, including its oversight of our financial reporting principles and policies and internal controls and procedures;

·       select our independent registered public accounting firm and review and evaluate its qualifications, performance and independence;

·       review and pre-approve the audit and non-audit services and proposed fees of the independent registered public accounting firm;

·       review reports and other communications between management and the independent registered public accounting firm with respect to that firm’s evaluation of the design and operation of internal controls; and

·       review and evaluate the work of our internal audit unit.

Compensation Committee

The Board has determined that all members of the Compensation Committee are “independent”, as defined by our Governance Guidelines and the NYSE listing standards, and that all members of the Committee qualify as “non-employee directors” for purposes of Rule 16b-3 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Compensation Committee assists the Board in carrying out its responsibilities with respect to our compensation matters. The Compensation Committee has a charter, which may be found at www.travelers.com under Investors: Corporate Governance: Committee Charters: Compensation Committee Charter.

Duties and Responsibilities

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

·       setting the performance goals and objectives for our senior management team, which includes the Chief Executive Officer (the “CEO”) and the other 17 most senior members of management (collectively, the “Management Committee”);

·       reviewing the performance and approving the salaries and incentive compensation of the CEO and each of his direct management reports;

·       approving policies with respect to perquisites of the CEO and other members of  the Management Committee;

·       approving and monitoring compliance with stock ownership guidelines applicable to the CEO and other members of management;

·       developing our executive compensation philosophy and objectives;

·       reviewing the operation of our overall compensation program to evaluate its objectives and execution and recommending to the Board amendments to our compensation programs to better conform them with the established compensation objectives;

·       reviewing, approving and amending, or recommending to the Board for approval, all new equity compensation plans and any amendments to existing plans, and administration of such plans;

·       recommending to the Board the approval of nonequity compensation and benefit programs determined by the Committee to be appropriate;

·       reviewing our regulatory compliance with respect to compensation matters;

·       reviewing and approving employment and severance contracts for the CEO and other members of management;

·       reviewing and approving stock option, restricted stock, performance share and similar stock-based grants to the CEO, all executives who report directly to him and all other officers subject to Section 16 of the Exchange Act; and

·       preparing Compensation Committee reports to the full Board.

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With respect to our reporting and disclosure matters, the duties and responsibilities of the Compensation Committee include:

·       reviewing and recommending to the Board, for inclusion in our annual proxy statement, the Compensation Discussion and Analysis; and

·       providing the Board with a Compensation Committee Report for inclusion in our annual proxy statement and annual report on Form 10-K in accordance with applicable rules and regulations of the Securities and Exchange Commission (the “SEC”).

Establishment of Annual Bonus and Equity Award Pools

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

Pursuant to its charter, the Compensation Committee has delegated its authority to an Executive Compensation Subcommittee (the “Subcommittee”) with respect to compensation actions for the CEO, the other named executive officers (the “NEOs”) whose compensation is reported in this Proxy Statement in the table below under “Tabular Executive Compensation Disclosure—Summary Compensation” (the “Summary Compensation Table”), our other executive officers as defined in the Exchange Act, and the other members of the Management Committee. The Subcommittee considers recommendations from the CEO regarding total compensation for each of the other NEOs and certain other senior executives who report to the CEO.

Although the Board has determined that all members of the Compensation Committee are independent, as defined by our Governance Guidelines and the NYSE listing standards, one member of the Committee does not qualify as an “outside director” for purposes of Section 162(m) of the Internal Revenue Code of 1986 (“Section 162(m)”). Therefore, the Board established the Subcommittee to take the actions required under Section 162(m) in order for certain compensation to be deductible by the Company for income tax purposes. All other decisions related to our compensation policies are made by the Compensation Committee acting as a group.

The Compensation Committee does not review individual compensation decisions with respect to executives who are not members of the Management Committee. The Compensation Committee, however, does approve the aggregate annual bonus and equity awards that are paid and approves the individual salary, annual bonus and equity awards for members of the Management Committee.

Delegation of authority with respect to “off-cycle” equity grants

The Compensation Committee has also delegated limited authority to the Chairman and CEO to make certain “off-cycle” equity grants outside of the annual equity grant process to executives who are not members of the Management Committee. These grants are limited to a certain maximum number of restricted stock units and options to purchase shares of common stock to any one person in connection with new hires, retention awards and promotions, and can only be made on the grant dates each month established by Compensation Committee resolution for “off-cycle” equity awards. Any awards made “off-cycle” are reported to the Compensation Committee at the next regularly scheduled meeting following such award.

Compensation Consultant

Our corporate staff (including Finance, Human Resources and Legal staff members) supports the Compensation Committee in its work and no executive officers (other than the CEO, with respect to compensation for each of the other NEOs and the other members of the Management Committee) determine or recommend the amount or form of executive or director compensation. In addition, the Compensation Committee has the authority under its charter to retain outside consultants or advisors, as it

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

Cook maintains no other direct or indirect business relationships with the Company. All executive compensation services provided by Cook are conducted under the direction or authority of the Compensation Committee and all work performed by Cook must be pre-approved by the Chair of the Compensation Committee.

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

As requested by the Compensation Committee, in 2006, Cook’s services to the Compensation Committee included:

·       preparing comparative analyses of executive compensation levels and elements at peer group companies, including an assessment of the competitive environment for executive talent and competitive position and cost;

·       evaluating changes to various incentive plans, including our long-term incentive programs and related recapture / forfeiture provisions;

·       reviewing and advising the Committee with respect to certain Company-favorable amendments proposed by the CEO to his pre-existing employment contract with the Company;

·       designing and reviewing compensation analyses for each of the NEOs, including the CEO, for use by the Compensation Committee in making compensation decisions for performance year 2006; and

·       advising the Compensation Committee in connection with the preparation of certain of the information included in this Proxy Statement.

A Cook representative participated in three of the six Compensation Committee and Subcommittee meetings in 2006 (either in person or telephonically).

In 2006, we paid Cook $121,980 for services to both the Compensation Committee and the Nominating and Governance Committee, and the Company paid $77,142 to certain other compensation consultants retained by management for the cost of broad-based compensation surveys acquired. The consultants retained by management did not have any role in determining or recommending the amount or form of executive or director compensation.

Recent Actions and Initiatives

The Compensation Committee recognizes the importance of maintaining sound principles for the development and administration of compensation and benefit programs and has taken steps to enhance its ability to carry out its responsibilities. In addition to fulfilling its duties and obligations pursuant to its charter, in 2006 the Compensation Committee undertook the following measures:

·       an aggregate competitive compensation analysis, in which compensation elements were compared to the market to determine whether there was a surplus or shortfall, either in total, or at various levels of responsibility within the organization;

·       the establishment and implementation of the Performance Share Plan and the discontinuation of the CAP Share Program in 2006 (see below under “Compensation Discussion and Analysis—Compensation Elements—Stock-Based Long-Term Incentives”); and

·       the reduction and/or harmonization of certain severance benefits at different levels of service and/or responsibility.

Executive Committee

The Board has granted to the Executive Committee, subject to certain limitations set forth in its charter, the broad responsibility of having and

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exercising the authority of the Board in the oversight of our business during the intervals between meetings of the Board.

The Executive Committee meets only as necessary.

Investment and Capital Markets Committee

The Investment and Capital Markets Committee assists the Board in exercising its oversight of management’s investment of our investment portfolio and certain financial affairs of the Company, including its financial structure with respect to our debt and equity financing, dividend policy and actions, stock splits, repurchases of stock or other securities, capital needs and financing agreements.

The 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 Committee’s charter sets forth the Board’s delegations of certain transactional authority to the Committee and to certain members of management.

Nominating and Governance Committee

The Board has determined that each member of the Nominating and Governance Committee is “independent” as defined by our Governance Guidelines and the NYSE listing standards.

The functions of the Nominating and Governance Committee are set forth in its charter and include:

·                    the identification and selection of director candidates for election or re-election to the Board;

·                    the identification and selection of directors for appointment to serve on the committees of the Board;

·                    the establishment of criteria for the selection of candidates to serve on the Board;

·                    the recommendation of adjustments, from time to time, to the size of the Board or of any Board committee;

·                    the establishment of procedures for the evaluation of Board and director performance;

·                    the periodic review and related recommended changes to the Board’s director compensation programs and policies;

·                    the establishment and periodic review of our Governance Guidelines and standards for determining the independence of directors and the absence of material relationships between the Company and a director;

·                    an annual review of succession plans for our senior management;

·                    the review and approval or ratification of all related person transactions under our Related Person Transaction Policy; and

·                    the recommendation to the Board of any guidelines for the removal of directors, as it determines appropriate.

Risk Committee

The purpose of the Risk Committee is to assist the Board in exercising its oversight of our operational activities and the identification and review of those risks that could have a material impact on us.

As set forth in its charter, the functions of the Risk Committee are to review and advise the Board regarding our strategies, processes and controls pertaining to:

·                    the underwriting of insurance;

·                    the settlement of claims;

·                    the management of catastrophe exposure;

·                    the retention of insured risk and appropriate levels of reinsurance;

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·                    our enterprise risk management program; and

·                    our business continuity and crisis management and our business operations.

GOVERNANCE OF YOUR COMPANY

Our Governance Guidelines, Code of Business Conduct and Ethics, Board Committee charters and other corporate governance information are available on the Corporate Governance page of the Investors section on our website at www.travelers.com. Any shareholder also may request them in print, without charge, by contacting the Corporate Secretary at The Travelers Companies, Inc., 385 Washington Street, St. Paul, MN  55102.

Governance Guidelines

Our commitment to good corporate governance is reflected in our Governance Guidelines, which describe the Board’s views on a wide range of governance topics. These Governance Guidelines, which are included as Annex A to this Proxy Statement (the “Governance Guidelines”), are reviewed regularly 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.

Certain of the significant corporate governance practices that the Board has implemented are described further below.

Code of Business Conduct and Ethics

We maintain a Code of Business Conduct and Ethics (the “Code of Conduct”), which is applicable to all of our directors, officers and employees, including our Chief Executive Officer, Chief Financial Officer, Controller and other senior financial officers. This 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 Nominating and Governance Committee regularly reviews the Code of Conduct and proposes any amendments that it deems appropriate to the full Board for consideration. The Code of Conduct may be found on our website at www.travelers.com under Investors: Corporate Governance: Code of Business Conduct and Ethics.

Significant Governance Practices

Ethics Hotline

We have maintained an Ethics Hotline since May 2003 by which employees can report integrity concerns or seek guidance regarding a policy or procedure. The Ethics Hotline is serviced by an independent company and is available 7 days a week, 24 hours a day. The hotline has a toll free number for U.S. based employees, as well as a toll-free international number for employees based outside the U.S. Employees who contact the Ethics Hotline may choose to remain anonymous. The Company maintains a formal no retaliation policy that prohibits retaliation or discipline against an employee who raises an ethical concern in good faith. Once a complaint is alleged, the report is forwarded to our Chief Compliance Officer who is responsible for oversight of the hotline. The Chief Compliance Officer coordinates with appropriate management and outside resources to investigate the matter, and the issue will not be closed until it has been addressed to his satisfaction. 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 reported promptly to the Audit Committee.

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Our Chief Compliance Officer oversees adherence to the Code of Conduct in addition to overseeing our compliance functions throughout the businesses.

The Chief Compliance Officer assists in the broad communication of the Code of Conduct, oversees employee education regarding its requirements, including online compliance training, and ensures certification by all employees as to their familiarity and compliance with the Code of Conduct.

Business Practices Committee

In November 2005, we also designated an individual as both our Business Conduct Officer and Chair of our Business Practices Committee. This individual is responsible for overseeing our Producer Protocol, which is a guide for all employees with underwriting responsibilities and for those employees having direct contact with our agents and brokers. In addition, we implemented a helpline to respond to employee questions relating to interactions with agents and brokers.

Compliance Policy and Review Board

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 continuously encourage and reinforce ethical and lawful business conduct. Our Chief Compliance Officer, working with the Business Conduct Officer and the Compliance Policy and Review Board, which is comprised of members of senior management and oversees the activities of the Chief Compliance Officer, supplements the various compliance initiatives and functions in each of the business units and seeks to provide better coordination and effectiveness through corporate compliance policies and initiatives, program design, prevention and promotion of a culture of compliance. Training is a key element of this program, and we provide global, computer-based compliance training, supplemented with focused in-person sessions.

Director Stock Ownership

The Board believes its directors should hold meaningful equity ownership positions in the Company, so as to reinforce the alignment of the interests of the non-management directors and the shareholders. To this end, in 2006 the Board increased our common stock ownership targets for each non-management director to Company equity interests with a value of $500,000, up from $200,000 in 2005. Each new director is expected to meet or exceed this target within four years of his or her initial election to the Board. All of our current directors have achieved stock ownership levels in excess of the amount required.

Further, in 2006 the Board discontinued granting stock options to non-management directors. This equity component of non-management directors’ compensation was replaced with deferred stock units that are not distributable until after a director retires from or no longer serves on the Board.

Director Age Limit

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

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

Director Nomination Process

The Nominating and Governance Committee weighs the independence, skills, characteristics and experience of potential candidates for election to the Board and recommends nominees for director to the full Board for election. In considering candidates for the Board, the Nominating and Governance Committee assesses the overall composition of the Board taking into account its representation of skills, backgrounds, diversity and contacts in the insurance industry or other

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industries relevant to our business. As the application of these factors involves the exercise of judgment, the Nominating and Governance Committee does not have a standard set of fixed qualifications that is applicable to all director candidates, although the Committee does at a minimum assess each candidate’s ability to satisfy any applicable legal requirements or listing standards, his or her strength of character, judgment and specific areas of expertise, and his or her ability and willingness to commit adequate time to Board and Committee matters.

In identifying prospective director candidates, the Nominating and Governance Committee seeks 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 utilizes the same criteria for evaluating candidates regardless of the source of the referral. When considering director candidates, the Nominating and Governance Committee seeks individuals with backgrounds and qualities that, when combined with those of our incumbent directors, provide a blend of skills and experience to further enhance the Board’s effectiveness.

In connection with its annual recommendation of a slate of nominees, the Committee also assesses the contributions of those directors recommended for re-election in the context of the Board evaluation process and other perceived needs of the Board.

In 2006, this process resulted in the Committee’s recommendation to the Board, and the Board’s nomination, of the three new and 10 incumbent directors proposed for election by you at the upcoming annual meeting of shareholders.

Ms. Higgins and Messrs. Beller and Killingsworth were recommended as nominees by the CEO and certain non-management directors, and, in addition, Ms. Higgins and Mr. Killingsworth were recommended by a third-party search firm.

The Nominating and Governance Committee will consider director candidates submitted 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., 385 Washington Street, Saint Paul, Minnesota 55102. All proposals for nomination received by the Corporate Secretary will be presented to the Nominating and Governance Committee for its consideration.

Annual Meeting of Shareholders

We encourage and expect all of the directors to attend each annual meeting of shareholders. To that end, and to the extent reasonably practicable, we regularly schedule a meeting of the Board on the same day as the annual meeting of shareholders. All but two of our directors were present at the 2006 annual meeting of our shareholders.

Director Independence and Independence Determinations

Under the Governance Guidelines and NYSE rules, a director is not independent if he or she (1) has a direct or indirect material relationship with the Company or (2) otherwise does not 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 are set forth on page A - 5 under “Director Independence” in our Governance Guidelines, which 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 determination to the full Board.

In the event a director has a relationship with the Company that is not addressed by the independence guidelines, the independent

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members of the Board determine whether such relationship is material.

The Governance Guidelines require that no less than three-fourths of the members of the Board and three-fourths of the members of each standing committee of the Board be independent, and that no more than two members of the Board may concurrently serve as officers of the Company.

The Board has determined that all of its non-employee directors and all of the persons proposed for election at the upcoming annual meeting of shareholders are independent, except for Mr. Robert Lipp, who served as an executive officer of the Company until September 2005 and our Chairman, Chief Executive Officer and President, Mr. Jay Fishman, who is an employee of the Company and therefore is not independent under the Governance Guidelines or the NYSE rules.

In reaching its determination that Dr. Glen Nelson is an independent director, the Board considered the fact that in 2006 the Company paid an aggregate of $218,480 to Regent Aviation, an aviation services company wholly-owned through a trust of which Dr. Nelson is the sole beneficiary. These payments were made under the terms of a long-term contract between us and Regent Aviation. Under this contract, we lease the land for our hangar in St. Paul, Minnesota, purchase aircraft fuel at highly competitive rates and obtain catering and other related services. This 27-year contract was negotiated in the ordinary course of business and signed in 1998, at least three years before Dr. Nelson’s trust acquired Regent Aviation (or its predecessor company). The Board deems the terms of the contract to be in the interests of the Company and its shareholders and has noted that our payments to Regent Aviation in 2006 represent approximately 1% of Regent’s 2006 revenues. In light of the above, the Board does not consider this relationship between the Company and Regent Aviation to be material to the Company, to Regent Aviation or to Dr. Nelson.

Approximately 82% of the directors on the Board, as currently composed, are independent and if all of the director nominees are elected or re-elected to the Board, approximately 85% of the directors on the Board will be independent.

In making its independence determinations, the Board considered and reviewed the various commercial, charitable and employment transactions and relationships identified to it 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.

These questionnaires, which all directors and director nominees are required to complete, are reviewed by our counsel and presented to the Nominating and Governance Committee and to the Board. In addition, our counsel requests that our insurance operations staff compile a list of all insurance written by our insurance operations for directors and any of their affiliated entities, indicating any premiums paid to us with respect to such insurance coverage for the prior year. All such insurance transactions are presented to the Board for their evaluation and discussion. The Board has determined that any amounts due with respect to insurance transactions with directors and their affiliated entities are subject to “usual trade terms” and are transactions conducted in the ordinary course of business.

The Board determined that none of the transactions or relationships identified was material or affected the independence of such directors under either the Company’s Governance Guidelines or the applicable NYSE rules. In reaching its conclusion, the Board also considered the transactions disclosed under “Transactions with Related Persons And Certain Control Persons – Related Person Transaction Approval.”

Equity Grant Dates

The backdating of stock option grants at certain public companies generated considerable attention in 2006. As a result, we reviewed our established equity-granting practices and confirmed that they are designed and function effectively so as to avoid any backdating of equity awards. In 2006, the Board adopted a Govern

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ance Guideline establishing fixed grant dates for the award of “off-cycle” equity grants, so as to ensure that no equity grant dates are established with a view to benefiting grantees from the timing of material public announcements. Our Governance Guidelines are available in Annex A hereto, as well as on our website at www.travelers.com under Investors: Corporate Governance: Governance Guidelines.

Fair Market Value of Equity Grants

To further ensure the integrity of our equity awards process, in 2006 the Compensation Committee resolved that beginning January 1, 2007, the exercise price of all stock options granted and the value of all equity awards made, must be determined by reference to the closing price for a share of Travelers common stock on the New York Stock Exchange on the date of any such grant or award. Until January 1, 2007, the exercise price of our stock options and the value of our equity awards were determined by reference to the closing price of our common stock on the business day immediately preceding the date of grant. For further discussion see “Compensation Discussion and Analysis—Stock-Based Long-Term Incentives” below.

Transactions With Related Persons And Certain Control Persons – Related Person Transaction Approval

In December 2006, the Board adopted a written Related Person Transaction Policy (the “Related Person Policy”) to assist the Board 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 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 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 purported 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 does constitute 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, including the NYSE rules, or Rule 10A-3 of the Exchange Act if serving on the Audit Committee; (2) status as an outside director under Section 162(m); or (3) status as a “non-employee director” under Rule 16b-3 of the Exchange Act if serving 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, our best interests and the best interests of our shareholders.

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The following transactions are not subject to the Related Person Policy:

·       ordinary course transactions not exceeding $120,000;

·       transactions related solely to the related person’s interest as a director, trustee or officer of a non-profit  organization that receives donations from us that are made under our matching program as made available on the same terms to all of our employees; and

·       director compensation arrangements approved by the Board.

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

The Nominating and Governance Committee reviewed each of the Related Person Transactions discussed below, and after considering all of their relevant facts and circumstances, ratified them for 2006.

Employment Relationships

We employ approximately 33,000 employees, approximately 6,000 of whom work in and around Hartford, Connecticut. In 2006, we employed several employees in the Hartford area who are related to the executive officers identified below:

·       Mr. Joseph P. Lacher is Executive Vice President—Personal Insurance for the Company. His brother, Mr. Christopher Lacher, and his sister-in-law, Ms. Meghan Lacher, have been employed by the Company since 2003. In 2006, their combined total compensation, including salary, bonuses, equity awards and other benefits totalled approximately $220,000. Their compensation is commensurate with that of their peers.

·       Mr. Brian W. MacLean is the Executive Vice 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. In 2006, their combined total compensation, including salary, bonuses, equity awards and other benefits totalled approximately $130,000. Their compensation is commensurate with that of their peers.

Third-Party Transactions

We engage several thousand law firms, nationally and internationally, to represent us and/or our insureds in connection with, among other things, corporate, litigation, regulatory, insurance coverage and claim matters. The selection and retention of our outside counsel is overseen by our Executive Vice President and General Counsel. In 2006, we engaged several law firms with partners related to the executive officer or director identified below:

·       Mr. Robert Lipp is a director of the Company. His step-son, Mr. Joseph Berman, is a partner in the law firm Berman & Dowell. In 2006, the Company paid this firm $168,905 in legal fees and disbursements. We engage this firm, from time to time in the ordinary course of our business, on an arm’s length basis.

Mr. Lipp’s step-daughter’s husband, Mr. Alan Schnitzer, has been a corporate partner for seven years in the law firm Simpson Thacher & Bartlett LLP (“STB”), which has provided legal services to the Company (and prior to the Merger, to TPC) for more than 20 years. In 2006, the Company paid STB approximately $13 million for legal fees and disbursements related to work in which, STB has informed us, Mr. Schnitzer participated in providing legal services. A substantial portion of those fees relate to litigation, regulatory and similar matters overseen on a day-to-day basis by another partner in the firm. In addition, in 2006 the Company paid STB approximately $29 million for fees and disbursements with respect to other litigation and insurance coverage matters in which, STB has informed us, Mr. Schnitzer did not participate in providing legal services. We engage STB in the ordinary course of our

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business, on an arm’s length basis, and although the relationship between Messrs. Lipp and Schnitzer is not one explicitly required to be reviewed under the terms of our Related Person Transaction Policy, the Company’s Nominating and Governance Committee considered and ratified for 2006, and approved for 2007, our  engagement of STB.

·       Ms. Doreen Spadorcia is Executive Vice President—Claim Services. Her husband, Mr. Richard Cavo, is a partner in the law firm Litchfield Cavo LLP. In 2006, we paid this firm $3,046,199 in legal fees and disbursements for work performed by Mr. Cavo and several of his partners and associates. The Litchfield Cavo firm has been an approved firm of the Company for more than eight years and is retained by the Company, from time to time in the ordinary course of business, on an arm’s length basis. Ms. Spadorcia has been in her present role since 2005. Since assuming her current role, Ms. Spadorcia has explicitly recused herself from any involvement with respect to our retention of, or payments to, this law firm.

All of the above-mentioned Related Person Transactions were also approved by the Nominating and Governance Committee with respect to any such payments that may be made to those Related Persons in 2007.

In addition to the Related Person 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 reviews and discusses any apparent conflicts of interest with senior management. The Code of Conduct also requires that all employees seek approval from both their senior officer and our Chief Compliance Officer prior to accepting a position as a director of any unaffiliated for-profit company or organization.

Each director and executive officer is required to complete a detailed questionnaire designed to elicit information pertaining to any business or other transaction that such director, officer, members of their immediate families and any entity with which any of them is affiliated may have had with us and any of our affiliates during the previous year. The responses to those questionnaires are reviewed by Company counsel, who present a summary of the matters identified in them to the Nominating and Governance Committee and the Board for review at their next meetings.

Under our Governance Guidelines and NYSE rules, the Board determines annually, based on all of the relevant facts and circumstances, whether each director satisfies the criteria for NYSE independence and periodically evaluates Related Person Transactions involving directors in connection with such process. See “Director Independence and Independence Determinations,” which is incorporated by reference in this section.

The transactions and relationships described above were each reviewed and considered in the course of the Board’s annual review and determination of director independence, and were re-reviewed in February 2007 and, ratified and approved under our Related Person Policy.

Lead Director

In November 2006, the Board established the position of Lead Director, who is to be elected by and from among the independent directors. The Lead Director acts when the Chairman of the Board is also the Chief Executive Officer or is a director who does not otherwise qualify as an independent director under the Governance Guidelines. Among other responsibilities, the Lead Director presides over executive sessions of the independent and non-management directors, provides input to the Chairman with respect to Board agendas and acts as a liaison between and among directors, Committee chairs, the Chairman and senior management. The Lead Director is elected by secret ballot and no person may serve in such role for more than five consecutive years. A more complete description of the role of the Lead Director is set forth in our Governance Guidelines which are appended as Annex A hereto and on our website at www.travelers.com.

In November 2006, Mr. Dasburg was elected our Lead Director. Prior to November 2006, the

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Chairman of the Nominating and Governance Committee presided over executive sessions of the independent and non-management directors.

Executive Sessions

Executive sessions (i.e., meetings of the non-employee members of the Board, including those who may not be independent) are regularly scheduled throughout the year. In addition, at least once a year, the independent directors meet in a private session that excludes management and any non-employee directors who are not independent. The Audit, Compensation and Nominating and Governance Committees also meet regularly in executive session.

Board and Committee Evaluations

Every year, the Board and each of its Committees evaluate their respective performances and effectiveness, as required by the Governance Guidelines. This year, to enhance the evaluation process and solicit greater in-depth feedback, the Board retained independent outside counsel with corporate governance expertise to conduct the self-evaluation process with respect to 2006 Board and Committee performance. This independent advisor met with each of the Board members to solicit his or her views on a wide range of topics, including but not limited to, the fulfillment of their Board and Committee responsibilities identified in the Governance Guidelines and Committee charters on our website at www.travelers.com/investors/corporategovernance. Following those meetings, this advisor delivered his report to the full Board and, together with the Chairman of the Nominating and Governance Committee and the Lead Director, moderated an in-depth discussion of the feedback obtained. Following the discussions, the Board identified a number of areas for focus in 2007 to further enhance Board and Committee effectiveness over the next year.

Shareholder Communications

As described on our website at www.travelers.com, shareholders and other interested parties 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, to the Chairman of the Board; if intended for one or more non-employee directors, to the Chairman of the Nominating and Governance Committee; 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: Corporate Secretary, The Travelers Companies, Inc., 385 Washington Street, St. Paul, Minnesota 55102. The office of the Corporate Secretary will forward all such correspondence to the appropriate person or persons.

Enterprise Risk Management

Under the oversight of the Risk and Audit Committees, Enterprise Risk Management is a company-wide initiative that involves the Board and management in 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.

Certain Litigation Matters

Two derivative actions have been brought in the United States District Court for the District of Minnesota against all of our current Directors and certain of our former Directors, naming us as a nominal defendant: Rowe v. Fishman, et al. (Oct. 22, 2004) and Clark v. Fishman, et al. (Nov. 18, 2004). These actions assert state law claims in connection with our alleged failure to make disclosure regarding the value of our loss reserves, the way we compensate brokers, and our allegedly improper use of finite reinsurance products. The parties entered into a Stipulation and Agreement of Compromise, Settlement, and Release resolving these matters on November 1, 2006, which is subject to court approval. Under Minnesota law, we indemnify our officers and directors in respect of these lawsuits and other lawsuits arising out of alleged similar facts and circumstances. We retained special counsel, who

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determined that the directors were entitled to advances of their costs of defense under the Minnesota Business Corporation Act. Accordingly, we have advanced officers and directors attorneys’ fees and other expenses they may have incurred in defending Rowe v. Fishman, et al. and Clark v. Fishman, et al. We advanced approximately $273,267 in 2006.

ITEM 2—RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Audit Committee has selected KPMG LLP to serve as our independent registered public accounting firm for 2007.

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 as notice to the Board of Directors and the Audit Committee to consider the selection of a different firm. Even if the selection is ratified, the Audit Committee in its discretion may select a different independent registered public accounting firm at any time during the year if it determines that such a change would be in the best interests of the Company and our shareholders.

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

The shares represented by your proxy will be voted for the ratification of the selection of KPMG unless you specify otherwise. KPMG has served as the independent registered public accounting firm of the Company (including St. Paul and its subsidiaries prior to the Merger) since 1968 and of Travelers and its predecessors from December 1993 until the Merger.

Audit and Non-Audit Fees

In connection with the audit of the 2006 financial statements, we entered into an engagement agreement with KPMG which sets forth the terms by which KPMG will perform audit services for the Company. That agreement provides for alternative dispute resolution procedures and an exclusion of punitive damages.

The following table presents fees for professional services rendered by KPMG for the audit of our financial statements for 2006 and 2005 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, statutory reserve reporting services and reports on internal controls not required by applicable regulations.

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

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 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

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services and requires the independent registered public accounting firm and management to report actual fees versus the budget periodically throughout the year. The Audit Committee has authorized our chief auditor to approve KPMG’s commencement of work on permitted services within that budget, although the Chair of the Audit Committee must approve any permitted non-audit service within the budget if the expected cost for that service exceeds $100,000. During the year, circumstances may arise that make it necessary to engage the independent registered public accounting firm for additional services that would exceed the initial budget. The Audit Committee has delegated the authority to the Committee Chair 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.

Report of the Audit Committee

The role of the Audit Committee is to assist the Board in its oversight of our financial reporting process. The Board has determined that Mr. Dasburg is an “audit committee financial expert,” as defined in SEC rules. The Board based its determination on Mr. Dasburg’s professional experience, as previously described, and his service on the audit committees of other companies.

The Audit Committee operates pursuant to a charter which is reviewed annually by the Committee. Additionally, a brief description of the primary responsibilities of the Audit Committee is included in this Proxy Statement under the discussion of “Audit Committee.” Under the Audit Committee charter, our management is responsible for the preparation, presentation and integrity of our financial statements, the application of accounting and financial reporting principles and our 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 our financial statements and expressing an opinion as to their conformity with accounting principles generally accepted in the United States of America. In addition, the independent registered public accounting firm is responsible for auditing and expressing an opinion on the Company’s internal controls over financial reporting including an evaluation of management’s assessment of said controls.

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 Committee also discussed with the independent registered public accounting firm the matters required to be discussed by Statement on Auditing Standards No. 61, as amended, Communication with Audit Committees. In addition, the Audit Committee received the written disclosures from the independent registered public accounting firm required by Independence Standards Board Standard No. 1, Independence Discussions with Audit Committees and discussed with the independent registered public accounting firm their independence.

Based upon the review and discussions described in the preceding paragraph, our 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, 2006 filed with the SEC.

Your Board of Directors unanimously recommends that you vote FOR the ratification of KPMG as our independent registered public accounting firm for 2007.

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

John H. Dasburg (Chair)
Janet M. Dolan
Thomas R. Hodgson
Laurie J. Thomsen

ITEM 3—APPROVAL OF AMENDMENT TO ARTICLES OF INCORPORATION TO REQUIRE A MAJORITY VOTE FOR THE ELECTION OF DIRECTORS

The Board of Directors has approved, and recommends shareholder approval of, an amendment to our articles of incorporation to require that nominees for election as directors receive a majority of the votes cast in order to be elected to the Board.

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Currently, the members of our Board are elected by a plurality of the votes present in person or by proxy at a meeting. Minnesota law requires that, unless otherwise provided in the articles of incorporation, directors are elected by a plurality of the votes present in person or by proxy at a meeting. Although we have previously adopted a Governance Guideline requiring directors who do not receive a majority of the votes cast “for” the directors’ election to tender their resignation to the Nominating and Governance Committee, in order to effect an actual majority vote standard, we must amend our articles of incorporation to implement this standard.

The Nominating and Governance Committee and the Board believe that active shareholder participation in the election of directors is important to our Company and to effective corporate governance. In response to similar concerns, several public companies have recently approved charter amendments requiring a majority vote standard for the election of directors. The Board has carefully considered the arguments for and against a majority voting standard and concluded that its adoption will complement the Company’s existing governance policies and is consistent with our efforts to remain at the forefront of corporate governance best practices.

The amendment to the articles of incorporation operates as follows:

·       Subject to any rights, if any, of holders of any preferred stock of our Company, each director shall be elected at a meeting of shareholders by the vote of a majority of the votes cast with respect to the director.

·       However, in a contested election of directors in which the number of nominees exceeds the number of directors to be elected, the directors will continue to be elected by a plurality of the votes present in person or by proxy at the meeting.

·       For purposes of the majority voting standard, a majority of the votes cast means that the votes entitled to be cast by the holders of all the then outstanding shares of voting stock of the company that are voted “for” a director must exceed the shares voted “against” the director.

The amendment is effected by adding a new Article VII to the articles of incorporation. A full text of Article VII is included as Annex B to this Proxy Statement. If the amendment is approved by shareholders, it will be effective following the Annual Meeting.

As described above, we previously amended our Governance Guidelines to require directors who do not receive a majority of the votes cast “for” their election to tender their resignation to our Nominating and Governance Committee. Even if the amendment to the articles is approved, this Governance Guideline will continue to remain in effect so that an incumbent director who does not receive a majority of the votes cast “for” his or her election, but who, under Minnesota law, would nonetheless continue to serve until his or her successor is elected, will be required to tender his or her resignation to the Nominating and Governance Committee. The Board, taking into account the Nominating and Governance Committee’s recommendation, will act on the tendered resignation and publicly disclose its decision within 90 days after the date of the certification of the election results. The Nominating and Governance Committee may consider any factors or other information that it considers appropriate and relevant. Any director who has tendered his or her resignation will not participate in the deliberations with respect to his or her resignation. If the director’s resignation is not accepted by the Board, the director will continue to serve until the next annual meeting and until his or her successor is duly elected. If the director’s resignation is accepted by the Board, then the Board may fill any resulting vacancy or may decrease the size of the Board.

If the proposal to amend the articles is approved by our shareholders, the Governance Guideline described above will remain in effect, as amended, however, to conform the description of the calculation of the majority vote to the new provision in the articles.

Your Board of Directors unanimously recommends that you vote FOR the amendment of the articles of incorporation to require a majority of the votes cast for the election of directors.

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EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

The objectives of our executive compensation program, the process for determining the total compensation of the CEO and the other named executive officers for whom compensation is disclosed in the tables below (the CEO and these named executive officers, collectively, the “NEOs”), the elements of compensation included in that program and certain other matters related to the compensation of the CEO and the other NEOs are discussed and analyzed below.

Objectives of the Company’s Executive Compensation Program

The five primary objectives of our executive compensation program, which have been approved by the Compensation Committee, are described below.

Link the delivery of realized 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, hold management accountable for 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, effective management of risk, 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 position and responsibility. As such, the proportion of total compensation attributable to variable “at risk” elements 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 plan have the largest portion of their compensation tied to variable incentives, including equity-based compensation in which ultimate value is completely or partly dependent on changes in shareholder value.

Provide industry competitive compensation opportunities intended to attract, motivate and retain high-performing executive talent

Our overall compensation levels are targeted to attract and retain the best executives in the industry. The Compensation Committee believes that when the Company generally meets its performance goals and the CEO and NEOs individually contribute at superior levels to the Company’s performance, these executives’ total compensation should be set above the median of the compensation levels for equivalent positions in the Compensation Comparison Group discussed below. When the Company does not generally meet its performance goals, or the CEO or NEOs individually do not perform at superior levels, these executives’ total compensation should be at lesser levels.

Foster commonality of interest between management and shareholders by delivering a substantial portion of the total compensation opportunity through equity-based incentives and ensuring that executives accumulate meaningful stock ownership stakes over their tenure

The Compensation Committee believes that commonality of interest between executives and shareholders is achieved by delivering a significant portion of the total compensation in the form of stock-based programs. The principal components of stock-based compensation include stock options, performance shares and, until February 2006, restricted stock. In addition, senior executives are required to achieve certain stock ownership targets prior to selling any stock acquired upon the exercise of stock options or vesting of performance shares or restricted stock. The portion of total compensation attributable to stock-based programs and the expected level of executive stock ownership increases directly with increasingly higher levels of responsibility.

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

We make reasonable efforts to seek to maximize the tax deductibility of all elements of compensation. Section 162(m) prohibits us from deducting compensation in excess of $1 million paid to the

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CEO or to the other NEOs, unless certain requirements are met, including that such amounts be “performance-based” under the Section 162(m) rules.

The Compensation Committee regularly reviews the compensation plans in light of applicable tax provisions, including Section 162(m), and makes reasonable efforts, consistent with sound executive compensation principles and our needs, to seek to ensure that such compensation is deductible by us. The Compensation Committee may approve compensation that does not qualify for deduction where it is appropriate to do so in light of other competing interests and goals, such as the attraction and retention of key executive talent.

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 evaluates the accounting treatment, the aggregate economic costs and the cash flow implications of each compensation element to us and the expected 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.

Reflect established and evolving corporate governance “best practice” standards

The Compensation Committee, with the assistance of our Human Resources Department and the Compensation Consultant, stays abreast of current and developing corporate governance “best practices” with respect to executive compensation, and adjusts the various elements of the executive compensation program, from time to time, as it deems most appropriate.

Compensation Determination Process

As discussed more fully above under “Committees of the Board and Meetings—Compensation Committee,” the Compensation Committee is responsible for establishing our executive compensation program and setting our executive compensation objectives and policies. The Compensation Committee has delegated its authority to the Executive Compensation Subcommittee (the “Subcommittee”) with respect to compensation actions for the CEO and the other executive officers to ensure compliance with the requirements of Section 162(m) of the Internal Revenue Code of 1986 (the “Code”).

The CEO’s compensation is determined by the Subcommittee within the context of his employment agreement based on an annual assessment of the Company’s overall performance. The Subcommittee also considers a written self-assessment provided to it by the CEO and materials provided by Cook. The Subcommittee considers a variety of factors, including market-competitive compensation rates as well as Company and individual performance. The Subcommittee considers recommendations from the CEO and Cook regarding total compensation for each of the other NEOs and certain other senior executives, including all executives who report directly to the CEO. Other than a written self-assessment provided by the CEO to the Subcommittee, none of the NEOs is directly involved in the decision-making process related to his own compensation.

The Compensation Committee, with the assistance of Cook and the CEO (with reference to the other NEOs only), attempts to set the total compensation of our executives, including the CEO and the other NEOs, at levels that are competitive with equivalent positions at a select group of companies that the Compensation Committee believes to be an appropriate reference group (the “Compensation Comparison Group”). The Compensation Comparison Group includes our key competitors in the property and casualty insurance industry, as well as general financial services companies that have, on average, comparable revenue and/or market capitalization. Our revenues and market capitalization are generally consistent with the median of the Compensation Comparison Group.

In 2006, the Compensation Comparison Group consisted of:

·       ACE Ltd.,

·       Aetna, Inc.,

·       Allstate Corporation,

·       American Express,

·       American International Group,

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·       Chubb Corporation,

·       Hartford Financial Services Group,

·       MetLife Inc.,

·       Progressive Corporation,

·       Prudential Financial Inc.,

·       Safeco Corporation and

·       UnitedHealth Group Inc.

In January 2007, the Committee modified the group by replacing UnitedHealth Group with CIGNA and Manulife Financial.

The variety of factors, including Company and individual performance and market-competitive compensation rates, which are considered by the Committee in determining the compensation of the CEO and the other NEOs, are described below.

Setting Executive Compensation

To ensure that the overall pay mix is consistent with typical market practice and that the compensation of the CEO and the other NEOs is most heavily tied to individual and Company performance, these executives receive the highest portion of total annual compensation (i.e., salary plus bonus) in the form of performance-based annual bonuses. When performance is strong, bonuses and total annual cash compensation will exceed the 50th percentile. When performance is not strong, bonuses and total annual  cash compensation will be less than the 50th percentile. For performance year 2006, the CEO received approximately 85% of the sum of his 2006 salary and bonus (“total 2006 annual cash compensation”) in the form of a performance-based annual cash bonus under the Senior Executive Plan. The other NEOs received, on average, approximately 80% of their total 2006 annual cash compensation in the form of a performance-based annual bonus under the Senior Executive Plan.

Compensation Elements

We deliver executive compensation through a combination of salary, annual bonus, stock-based long-term incentives, benefits and perquisites.

Base Salary

Base salary serves as the foundation of the overall compensation system for the CEO and the other NEOs, and the grants, payouts and benefits under the equity-based compensation elements are generally tied to, or expressed as a percentage or multiple of, salary.

The Compensation Committee generally sets base salary for members of the Management Committee, including the NEOs, at a level that, in the aggregate, is targeted at the 50th percentile of the Compensation Comparison Group. Individual salaries may range above or below median based on a variety of factors, including the potential impact of the executive’s role at the Company, 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 as the Compensation Committee deems appropriate to recognize performance, expanded duties or changes in the competitive marketplace.

Base salaries in 2006 for the NEOs generally ranged from the 25th to the 75th percentile (i.e., base salaries higher than 25 to 75 percent of employees in comparable jobs at the companies in the Compensation Comparison Group).  The CEO’s 2006 base salary of $1,000,000 was competitive with the 25th percentile of the Compensation Comparison Group and is set forth in Mr. Fishman’s employment agreement as a minimum. The Committee has positioned Mr. Fishman’s compensation at this level in part to avoid, to the extent reasonable, loss of tax deductions under Section 162(m) and to ensure that a larger percentage of his total compensation opportunity is tied to variable, performance-based elements. A description of Mr. Fishman’s employment agreement is set forth in the narrative following the Summary Compensation Table.

Annual Bonuses

To ensure that short-term compensation is tied to the performance of each executive and the Company as a whole, the CEO and the other NEOs are eligible to earn bonuses under our shareholder-approved formula-based incentive plan adopted in 2002, the Senior Executive Performance Plan (the “Senior Executive Plan”).

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The Senior Executive Plan is intended to comply with the “performance-based” compensation requirements of Section 162(m) and thereby enable annual bonuses paid to the CEO and the other NEOs to be fully deductible by us. Under the Senior Executive Plan, a maximum pool for annual bonus awards is determined by a formula that was approved by shareholders. Notwithstanding the establishment of this bonus pool, the Subcommittee may determine, at its discretion, to grant no bonuses if it believes none are warranted.

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

·       net realized investment gains or losses in our fixed maturities and real estate portfolios;

·       extraordinary items and the cumulative effect of accounting changes as each is defined by U.S. generally accepted accounting principles (“GAAP”);

·       restructuring charges;

·       losses in our “core” businesses from officially designated catastrophes; and

·       underwriting results of our exited businesses placed into run-off (“non-core”).

Maximum awards for the CEO and each other NEO are set annually by the Subcommittee as a percentage of the aggregate pool determined using the formula described above. Under the terms of the Senior Executive Plan, however, no individual may receive more than 50% of the aggregate pool. At the beginning of, and for performance year 2006, the maximum percentage of the pool payable to each of the NEOs was set at 35% for the CEO, 25% for the next most highly compensated executive officer, 15% for the third and fourth most highly compensated executive officers, and 10% for the fifth most highly compensated executive officer.

At year-end, the Subcommittee determines whether the threshold level of ROE has been achieved, and if so, determines the maximum awards that could be paid for each of the CEO and the other NEOs. For the year ended December 31, 2006, we achieved an ROE under the Senior Executive Plan of 21.95% which resulted in a pool of $71.85 million available for the bonuses for the CEO and the other NEOs.

Notwithstanding the above calculation, the Subcommittee exercises absolute discretion to determine the actual awards, if any, paid to each NEO, including the CEO, under the Senior Executive Plan. In exercising this discretion the Subcommittee considers a number of factors, including the Company and/or business segment results relative to the various financial measures set forth in the Company’s 2006 Business Plan that was established and approved by the Board of Directors at the end of the prior fiscal year; compensation market practices as reflected by the Compensation Comparison Group; the performance of the executive; and past awards to the executive.  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 Subcommittee as one of several data points in light of the other factors noted and any additional information available to it at the time, including without limitation, market conditions in general. The Subcommittee also considers other qualitative factors, such as:

·       the strategic positioning of the Company or the applicable business segment;

·       the progress made on strategic and technology initiatives;

·       the identification and achievement of cost efficiencies (or, when appropriate, the

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maintenance of a business segment’s cost competitiveness;

·       the demonstration of leadership and innovation; and

·       the extent of accomplishment of business unit growth plans.

With regard to CEO performance, the Subcommittee also considers his development of management expertise, organizational bench strength and succession plans.

In addition, for 2006, the Subcommittee established and considered the five general executive management performance goals set forth below:

Improve our financial performance

One of management’s important responsibilities is to produce an appropriate return on capital for our shareholders, as measured by the Company’s operating return on equity and to develop and execute financial and operational plans to achieve our stated long-term aspiration of mid-teens operating return on equity for our shareholders.  The Subcommittee 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 Subcommittee also recognizes that the Company’s business is subject to natural and man-made catastrophic events, as well as to certain types of prior year reserve development, such as those related to asbestos and environmental coverages, resulting from judicial interpretations that may significantly broaden the intent of policies written decades ago.  The Subcommittee believes that while the impact of catastrophes in any given year can produce significant volatility, management’s plan to manage volatility and earn a return on capital committed to insurance in catastrophe-prone areas must be long-term in nature.

While the Subcommittee evaluates a broad range of financial and operating dynamics, including premium revenues, investment income, insurance losses, expense management and the resulting operating income, the Subcommittee places considerable importance on the Company’s operating return on equity, both on an as reported basis, and as adjusted to exclude the cost of catastrophes and certain prior year reserve development.

When the Board approved the Company’s 2006 Business Plan, both management and the Board believed it to be reasonably difficult to achieve.  Among other goals, that Plan targeted an operating return on equity, on an as reported basis, of approximately 14%, which the Company meaningfully exceeded with 2006 actual operating return on equity, on an as reported basis, of 17.9%.

Improve the competitive positioning of our property and casualty insurance business as measured by premiums written

The Subcommittee also reviewed improvement, subject to market conditions, in net and gross written premiums measured against the Business Plan in each of our business segments. The Subcommittee also reviewed our annual net and gross written premiums as compared to a peer group of competitors in the property and casualty insurance business, on both an aggregated peer group basis and individually. These competitors were:

·       Ace Ltd.,

·       Allstate Corporation,

·       American International Group,

·       Chubb Corporation,

·       Cincinnati Financial Corporation,

·       CNA Corporation,

·       Hartford Financial Services Group,

·       Progressive Corporation,

·       Safeco Corporation and

·       XL Capital Ltd.

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In 2006, our growth in net and gross written premiums as compared to 2005 generally outperformed our Business Plan and this competitor group.

Continue the completion of planned information systems conversions necessitated by the 2004 merger that formed the Company

We established target completion dates for conversion of pre-merger information systems to a unified platform. Substantially all systems conversions scheduled for completion in 2006 were completed on target.

Complete an analysis of our exposure to catastrophic risks and reposition our risk exposure policies

During 2006, in the aftermath of the major catastrophe losses in 2005 in the Gulf Coast region, we established a full-time Catastrophe Management Unit, which is comprised of a dedicated team of professionals who are responsible for directing the management of catastrophic risks and rewards posed by natural and man-made perils assumed by us and our business units. In addition, an executive review of catastrophe models and our process for estimating losses from catastrophes (other than earthquakes) was completed, and a risk/return analysis framework applicable to all perils, business units and geographies was developed and implemented. Finally, business strategies consistent with that risk/return framework with respect to hurricanes were implemented.

Analyze our executive bench strength and develop appropriate succession plans

In 2006, every business and major staff function of the Company conducted an annual talent assessment that included a succession plan, a description of business issues with talent implications, plans to address those issues, an assessment of individual performances and potential, and a discussion of diversity efforts. Those talent assessments were reviewed by the business or staff unit leader and higher levels of management, including the CEO, and actions to be taken were identified for follow-up. This process formed the basis for the senior level succession plan presented by the CEO to the Nominating and Governance Committee. This process is followed each year.

2006 performance versus objectives

When the Company generally meets its performance goals and the CEO and the other NEOs individually contribute at superior levels to the Company’s performance, these executives’ bonuses should be set above the median of the compensation range of the bonuses of equivalent positions in the Compensation Comparison Group described above. When the Company generally does not meet its performance goals or the CEO or other NEOs individually do not perform at superior levels, these executives’ bonuses should be at lesser levels.

At its February 6, 2007 meeting, in consideration of our results for the year and the substantial success of the CEO and other NEOs in achieving the 2006 performance goals described above, the Subcommittee awarded a cash bonus of $6,500,000 to the CEO (9% of the available pool) and total cash bonuses of $8,550,000 to the other NEOs (3% to each of the second and fifth most highly compensated executive officers, 4% to the third most highly compensated executive officer and 2% to the fourth most highly compensated executive officer.).

Stock-Based Long-Term Incentives

Long-term incentive grants are targeted at the 50th percentile of the Compensation Comparison Group identified above. The total ultimate value of long-term incentive awards, which will not be known until several years after the date on which they are granted, may be greater than or less than the 50th percentile, depending upon our performance and the performance of our stock price.

Long-term compensation was awarded to the CEO and the other NEOs in the form of stock options, restricted stock and performance shares in 2006 and as stock options and performance shares in 2007, each as described below. These stock-based long-term incentive awards are designed to ensure that (1) our executive officers have a continuing stake in the long-term success of the Company, (2) the total compensation realized by executives reflects our multi-year

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performance as measured by the efficient use of capital and changes in shareholder value, and (3) a large portion of the total compensation opportunity is earned over a multi-year period and is forfeitable in the event of termination of employment.

To ensure that aggregate long-term incentive awards are reasonable and sustainable, Cook conducts an annual review of stock usage rates and the resulting level of potential share dilution, as well as the economic costs of the aggregate program relative to the Compensation Comparison Group. Based in part on the results of these reviews, the Compensation Committee granted approximately $110 million in value of annual equity awards in 2006 to roughly 6,000 employees. Those awards were intended to establish a maximum aggregate value for all equity incentive awards to our employees, including those made by the Subcommittee to the CEO and the other NEOs in 2006. The Compensation Committee believed that the 2006 level reflected an appropriately conservative assessment of the market level of equity compensation for employees at companies in the Compensation Comparison Group. In February 2007, the Compensation Committee again authorized equity incentive awards with an aggregate maximum value of up to $110 million, and approximately $110 million in value of stock-based long-term incentives were granted to about 6,000 employees, including those made to the CEO and the other NEOs.

For the CEO and the other NEOs, individual long-term incentive grants are targeted at the 50th percentile of the Compensation Comparison group in order to provide a competitive long-term incentive opportunity. This approach enables us to attract and retain highly skilled executives and to establish a reasonable and sustainable level of aggregate potential expense. The actual value of equity awards, which in most cases will not be known for several years after the date on which they are granted, may be greater or less than the 50th percentile, depending upon our performance and the performance of our stock.

In support of pay-for-performance objectives, the portion of total compensation delivered through stock-based long-term incentives increases directly with an executive’s role and responsibility. As such, the senior-most executives are held most accountable for achieving multi-year performance objectives and changes in shareholder value. Of the equity awarded to the CEO and other NEOs in February 2006, time-based restricted stock represented approximately 20% of total compensation, while performance shares and stock options repre-sented approximately 40% of total compensation. (Total compensation is the sum of base salary and cash bonus and grant date value of equity, each awarded in February 2006 for the 2005 performance year.) For details of these awards, refer to the narrative discussion below under “Tabular Executive Compensation Disclosure—Grants of Plan-Based Awards”.

The equity awarded in the form of performance shares and stock options in February 2007 for the CEO represented approximately 50% of total compensation, and approximately 45% of total compensation for the other NEOs. (Total compensation is the sum of base salary and cash bonus and grant date value of equity, each awarded in February 2007 for the 2006 performance year.)  In 2007, the CEO and other NEOs were awarded no time-based restricted stock.

The Compensation Committee, based in part on insights provided by Cook, developed guidelines for the allocations of equity compensation among stock options, restricted stock (excluding CAP Shares (defined below)) and performance shares. These allocations are intended to result in a mix of long-term incentives that is sufficiently performance-based and will ensure that a large component of total compensation is variable and tied to the achievement of specific, multi-year, operating performance objectives. In 2006, the mix of long-term incentives for the CEO and other NEOs, on average, was approximately 55% stock options, 20% restricted stock and 25% performance shares.

In recognition of the performance-based nature of performance shares and the ability to tie recognition of cost to the delivery of specific operating results, in 2006 the Compensation Committee decided to eliminate time-based restricted stock as an ongoing component of the annual long-term incentive award and increase

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the weighting on performance shares. The weighting between options and performance shares awarded in February 2007 was 40% options and 60% performance shares for the CEO and the other NEOs.

In order to more appropriately balance the costs and retention objectives of our long-term incentive program, the Compensation Committee decided that, beginning with awards granted on February 6, 2006, the stock options, restricted stock and performance share awards generally will vest in full three years after the date of grant.

Stock Options

Prior to January 1, 2007, stock options were granted with an exercise price equal to the closing price of the underlying shares on the business day immediately preceding the date of grant. As a result of the SEC’s establishment in 2006 of standardized option pricing disclosure, the Compensation Committee determined that, beginning January 1, 2007, all stock options will be granted with an exercise price equal to the closing price of the underlying shares on the date of grant. For details regarding vesting and expiration of our stock option grants, see the narrative discussion below following “Tabular Executive Compensation Disclosure—Grants of Plan-Based Awards in 2006.”  For a discussion of our predecessor companies’ reload option programs, see the “Narrative Supplement to the Summary Compensation Table and the Grants of Plan-Based Awards in 2006 Table—Reload Options” (below).

The Subcommittee’s annual option award to the CEO had a grant date value of $3,480,683 for the February 2006 award and $2,899,997 for the February 2007 award. The Subcommittee’s annual option awards to the other NEOs had an average grant date value of approximately $1,300,000 for the 2006 awards and approximately $875,000 for the 2007 awards. These values are computed in accordance with the Financial Accounting Standards Board Revised Statement of Financial Accounting Standards No. 123, Share-Based Payment (“FAS 123R”).

Performance Shares

Under our Performance Share Plan, which became effective beginning in 2006, we may make performance share awards to certain of our employees who hold positions of Vice President (or its equivalent) or above. These awards provide the recipient the right to earn shares of our common stock based upon our attainment of certain performance goals. The performance goals for performance share awards granted in 2006 are based on our adjusted return on equity over a three-year performance period (“Performance Period ROE”) commencing January 1, 2006 and ending December 31, 2008. Performance Period ROE is the three-year average “Adjusted ROE,” which is determined by dividing “Adjusted Operating Income” by “Adjusted Shareholders’ Equity”, as defined below.

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

·       certain losses from officially designated catastrophes;

·       asbestos and environmental reserve charges or releases;

·       net realized investment gains or losses in the fixed maturities and real estate portfolios;

·       extraordinary items;

·       the cumulative effect of accounting changes and federal income tax rate changes; and

·       restructuring charges, each as defined by GAAP, and each as reported in our financial statements (including accompanying footnotes and management’s discussion and analysis)

and is then reduced by a certain after-tax dollar amount for expected “normal” catastrophe losses for each calendar year in the performance period ($298 million for 2006).

“Adjusted Shareholders’ Equity” for each year in the performance period is defined in the plan as the sum of our total common stockholders’ equity, as reported in our balance sheet as of the beginning and end of the year (excluding net unrealized appreciation or depreciation of

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

The actual distribution of any portion of the performance shares is contingent on our attaining Performance Period ROE of at least 8%. As indicated on the following chart, if Performance Period ROE is 8%, then only 50% of the award will vest at the end of the three-year performance period; if Performance Period ROE is less than 8%, no part of the award will vest and so no distribution of common stock will occur. If Performance Period ROE is 12%, 100% of the award will vest and be distributed in shares of common stock at the end of the three-year performance period; if Performance Period ROE exceeds 12%, there is an opportunity for increased distributions as described in the table below. Performance that falls between any of the identified points below will result in an interpolated payout (e.g., 13.5% Performance Period ROE will yield a payout of 115% of target).

Performance Shares: Performance Period Return on Equity (ROE) Standard

The Subcommittee selected Performance Period ROE as the performance measure in the Performance Share Plan because it is the best measure of both the long-term return to shareholders and the efficiency of our employment of capital. The use of the Performance Period ROE encourages senior executives to focus on a variety of multi-year performance areas that are critical to our success, including the quality of our underwriting activities, our exposure to various types of risks, and the pricing of our products.

To support important recruitment and retention objectives and encourage a long-term focus on our operations, the performance shares vest in full after the completion of the three-year performance period. The program does not provide for accelerated vesting upon a change in control of the Company. New performance share cycles commence annually and overlap with one another, helping to foster strong retention and reduce the impact of the volatility in compensation associated with changes in our annual ROE performance. Dividend equivalent shares are accrued on the performance shares at the “target” Performance Period ROE, and will be adjusted up or down , as the case may be, at the end of the three-year performance period. Accumulated dividend equivalent shares vest in the same manner as the performance shares to which they relate.

The Subcommittee awarded the CEO $1,624,981 in performance shares in February 2006 and $4,350,009 in February 2007. Grant date target values were determined by multiplying the number of performance shares awarded at “target” by the closing stock price of the Company (1) on the day immediately prior to the date of grant in 2006 ($44.79) and (2) on the date of grant ($52.76) in 2007. The Subcommittee also awarded an average of approximately $600,000 (grant date target value, determined as described above) in performance shares to each of the NEOs (other than the CEO) in 2006 and approximately $1,300,000 in 2007.

CAP Shares

We previously maintained a Capital Accumulation Program (“CAP”) under which 25% of any annual bonus awarded to certain employees was delivered in the form of restricted shares that vested in full, based on continued service, after two years (“CAP Shares”). CAP Shares were

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awarded to employees at a 10% discount from the fair market value of our common stock on the date of grant (the “CAP Discount”). This CAP Discount took the form of additional restricted shares.

The Subcommittee awarded $1,388,759 (grant date value) in CAP Shares to the CEO in February 2006 and an average of approximately $460,000 (grant date value) to each of the other NEOs.

From the date of award of all CAP Shares, the recipient can vote the CAP Shares and receives cash dividends at the same times and amounts per share as all other holders of common stock.

In conjunction with the implementation of the Performance Share Plan, the Compensation Committee discontinued the CAP program following the February 2006 CAP awards. The Compensation Committee believes that the Performance Share Plan better supports our multi-year operating objectives and is more financially efficient to the Company since additional shares need not be granted to reflect a 10% discount.

Restricted Stock

As previously stated, the Subcommittee has discontinued the use of time-based restricted stock or restricted stock units as a component of the annual long-term equity awards to the CEO and the other NEOs in favor of larger performance share awards, beginning in 2007.

In February 2006, the Subcommittee awarded $1,156,254 (grant date value) in restricted stock (excluding CAP Shares) to the CEO and an average of approximately $430,000 (grant date value) to each of the other NEOs.

From the date of award of all shares of restricted stock, the recipient can vote the restricted shares and receives cash dividends at the same times and amounts per share as all shareholders of common stock.

Pension Plans

We currently offer to all of our employees, including the CEO and the other NEOs, a tax-qualified defined benefit plan with a cash-balance formula. While the majority of employees and executives participate in this cash-balance formula plan, a number of employees and executives participate or have accrued benefits in other grandfathered pension formulae that were offered by St. Paul and TPC prior to their merger to form the Company. Under the cash balance formula, each enrolled employee has a hypothetical account balance that grows with interest and pay credits each year.

In addition, we sponsor a non-qualified excess benefit retirement plan that covers all employees whose tax-qualified plan benefit is limited as a result of limitations imposed under the Code on the amount of compensation that can be counted under a tax-qualified plan or benefit that can be earned under a tax-qualified plan. The non-qualified plan makes up for the benefits lost under the qualified plan as a result of those Code limits, using the same cash balance pension formula as applies under the qualified plan.

The details of the existing plans are described more fully under “Tabular Executive Compensation Disclosure—Post-Employment Compensation—Pension Benefit” below.

Deferred Compensation

We offer a tax-qualified 401(k) plan to our employees and a non-qualified deferred compensation plan to those of our employees whose annual salary is at least $150,000. Both plans are available to the CEO and the other NEOs.

Employees may make pre-tax contributions to the 401(k) plan up to the statutory maximum. We will match contributions up to $5,000 on a dollar for dollar basis up to the lower of 5% of salary or $5,000 per year for each active participant.

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

For further details, see “Tabular Executive Compensation Disclosure—Post-Employment Compensation—Non-Qualified Deferred Compensation” below.

Other Compensation

We also provide certain other benefits described below to our executive officers, including the CEO and the other NEOs, that are not tied to any performance criteria and are intended to be part of a competitive compensation program. These benefits are intended to support objectives related to the attraction and retention of highly skilled executives and to ensure that they remain appropriately focused on their job responsibilities without unnecessary distraction.

Financial Counseling

The Compensation Committee believes it is important to provide financial counseling to senior executives to help them maximize the benefits they realize from the various elements of compensation described above and to ensure their compliance with tax and regulatory requirements. Additionally, the use of a single financial counseling firm by all of our senior executives helps our Human Resources Department improve senior executives’ understanding of the benefits that we offer. At December 31, 2006, 75% of our executives at or above the senior vice president level participated in this benefit. The cost to us of financial counseling benefits provided to the CEO and the other NEOs in 2006 is disclosed below under “Tabular Executive Compensation Disclosure-Summary Compensation Table.”

The incremental value of these services is based on the amounts billed to the Company.

Transportation

We have established a security policy in response to a security survey prepared by an outside consultant that analyzed security risks to our CEO based on a number of factors, including travel patterns and past security threats. This security policy is periodically reviewed by our outside security consultant, Control Risk. The last such review was performed in 2003, and the current review, which is well underway, is expected to be completed in the coming months.

Pursuant to this security policy, a Company car and driver are provided to the CEO for business and personal travel in the Hartford, New York City and St. Paul areas. The methodology that we use to value personal use of the Company car and driver in New York City as a perquisite calculates the incremental cost to us, which is the sum of the driver’s annual salary and benefits and all costs associated with the car. In Hartford and St. Paul, the incremental costs of personal trips are valued at the market value limousine rates for the area. In 2006, the total incremental cost of ground transportation provided to the CEO pursuant to our security policy was $164,055, excluding the tax gross-up (discussed below).

Under the terms of his employment, the CEO is required to use the Company aircraft for all business and personal air travel and, until December 31, 2006, he also was required to reimburse us for any international personal travel on Company aircraft at the maximum amount legally payable for such flights under applicable FAA regulations (which was, however, not to exceed the then applicable first class rate for a comparable commercial flight).

At the request of the CEO, his employment contract was amended in December 2006 to provide that, beginning January 1, 2007, he will reimburse us for all personal domestic and international travel on Company aircraft at the

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maximum amount legally payable for each such flight under FAA regulations, which is an amount per flight equal to two times the fuel costs plus certain miscellaneous expenses that are specifically outlined in the FAA regulations. The CEO is also responsible for all taxes due on income imputed to him in connection with his personal use of Company transportation, other than taxes on certain business travel to the extent taxed as commuting costs and spousal travel related to our business, as to which he is reimbursed by us. We value personal use of the Company aircraft as a perquisite, based on the incremental cost to us of personal flights. Our calculation of incremental cost for the personal use of Company aircraft considers the increase in variable costs incurred as a result of a personal flight such as fuel, maintenance, labor, parts and avionics, and miscellaneous expenses such as landing and parking fees, crew travel and supplies. The incremental cost calculation does not consider fixed costs such as salaries, insurance and hangar costs which would have been incurred regardless of any personal use. In 2006, the total incremental cost of personal aircraft flights provided to the CEO pursuant to our security policy was $267,639, excluding tax gross-up (discussed below) and represented approximately 2% of the aggregate variable cost for all 2006 aircraft use.

We also on occasion provide transportation on Company aircraft for the other NEOs and their guests who accompany the NEOs on trips related to our business. We reimburse the NEOs for any tax liabilities incurred on associated imputed income. In 2006, the incremental cost of such transportation provided to the other NEOs’ and their guests was $5,254, excluding the tax gross-ups (discussed below).

Tax Gross-Up

We periodically reimburse executives for the tax cost of any imputed earnings associated with non-cash taxable executive benefits that are provided for business reasons, such as financial counseling and certain transportation services, as described above. This tax gross-up is provided to make such benefits tax-neutral when the taxable benefits are associated with the Company’s business or  in other cases to encourage employees to take advantage of them. Details as to the gross-up amounts provided for the CEO and the other NEOs are provided in the footnotes to the “All Other Compensation” column of the Summary Compensation Table.

Severance and Change in Control Agreements

The Compensation Committee believes that severance and, in selective circumstances, change in control arrangements are necessary to attract and retain the talent necessary for our long-term success. However, the Compensation Committee does not view our severance programs for executives as an additional element of compensation. Rather, the Compensation Committee believes that our severance programs allow our executives to focus on duties at hand and provide security should their employment be terminated through no fault of their own. Currently, all of our senior executives (other than the CEO) are covered by our severance plan.

Each of the NEOs, other than Mr. Fishman, have entered into agreements with the Company (which are discussed below under “Summary of Key Agreements—Non-Solicitation and Non-Disclosure Agreements”), pursuant to which they are granted enhanced severance benefits in exchange for their agreement to certain non-soliciation and non-disclosure provisions. The enhanced benefits provided by these agreements include (1) severence in the event any of the NEOs (other than Mr. Fishman) is asked to take a substantial demotion or is terminated for reasons other than “cause” (as defined in the agreements), (2) up to an additional three months of severance over that otherwise provided by the Company severance plan and (3) a guaranteed bonus component in the calculation of any severance amount paid.

The CEO’s employment agreement, discussed at greater length below under “Termination and Change in Control Provisions—Chief Executive Officer,” contains severance benefits that are triggered under certain circumstances, including certain circumstances related to a change in control of the Company. The Compensation Committee believes that these arrangements are

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appropriate and consistent with similar provisions agreed between our competitors and their chief executive officers. For a discussion of these severance and change in control agreements, see “Termination and Change in Control Provisions” below.

Stock Ownership Guidelines

We maintain an executive stock ownership policy pursuant to which executives are required to accumulate and retain certain levels of ownership of our equity securities until termination of employment, so as to further align the interests of management and shareholders. The Compensation Committee developed this policy based in part on analyses provided by its compensation consultant and after an analysis of policies instituted at our peer competitors. Under the policy, the CEO has a target ownership level established as the lesser of 150,000 shares or the equivalent value of 500% of base salary. Vice chairmen and executive vice presidents have target ownership levels established as the lesser of 30,000 shares or the equivalent value of 300% of base salary and senior vice presidents have target ownership levels established as the lesser of 5,000 shares or the equivalent value of 100% of base salary. Executives who have not achieved these levels of stock ownership are required to retain the shares acquired upon exercising stock options or upon the vesting of restricted stock or performance shares until the requirements are met.

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

·       shares held directly by the executive, 100%;

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

·       unvested restricted shares, 50%; and

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

The Compensation Committee also has determined that 50% of any unvested performance shares, based on a target level of performance, shall be taken into account in determining an executive’s share ownership level.

As of December 31, 2006, the CEO and each of the other NEOs had achieved stock ownership levels in excess of the applicable level set forth above.

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

Recapture/Forfeiture Provisions

Under the terms of our executive performance share, restricted stock and stock option award agreements, in the event that the employment of an executive, including the CEO and each of the other NEOs, is terminated for gross misconduct or for cause, as determined by the Compensation Committee, all outstanding vested and unvested awards are cancelled upon termination.

Further, in connection with equity awards, the CEO, the other NEOs and certain other senior executives have each signed a non-disclosure and non-solicitation agreement that provides for the recapture by us of the corresponding equity awards, as well as any amount included as compensation in the taxable income of the former executive that he or she received within twelve months prior to, or twelve months after, the date of the termination of employment with us, from any equity award that has already been paid, exercised or vested, if within the 12-month period following his or her termination the executive:

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

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(2)   uses confidential information to solicit or encourage any person or entity that is a client, customer, policyholder, vendor, consultant or agent of the Company to discontinue business with us;

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

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

Timing of Equity Grants

The Subcommittee typically makes annual awards of equity to the persons covered by its delegated authority once each year at the Compensation Committee meeting held in early February. Also, the Subcommittee has in the past, and may in the future, make limited grants of equity on other dates in order to retain key employees or to compensate newly hired executives for equity or other benefits lost upon termination of their previous employment or to otherwise induce them to join us. Beginning in 2006, the Subcommittee adopted a policy to only make off-cycle equity grants on previously determined dates in each calendar month, which will be either the date of a regularly scheduled Board or Compensation Committee meeting, or, if no meetings are scheduled for a particular month, the 15th of that month (or if the 15th is not a business day, the business day immediately preceding the 15th).The grant date of equity grants to executives is the date of Subcommittee approval. As discussed above, during 2006 and prior years, the exercise price of stock option grants was equal to the closing market price on the business day immediately preceding the date of grant. As of January 1, 2007, however, the exercise price of option grants will be the closing market price of our common stock on the date of grant.

As discussed under “Compensation Committee” above, the Compensation Committee has delegated to the CEO, subject to the prior written consent of the Company’s Executive Vice President and General Counsel, the authority to make limited “off-cycle” grants to executives who are not members of the Management Committee on pre-established grant dates, as determined by the Compensation Committee. For these grants, as discussed above, the grant date is the date of such approval and beginning January 1, 2007, the exercise price of all stock options is the closing market price of our common stock on the date of grant.

We monitor and periodically review our equity grant policies to ensure compliance with plan rules and applicable law. Our most recent review of grant policies was completed in August 2006. We do not have a program, plan or practice to time our equity grants in coordination with the release of material, non-public information.

COMPENSATION COMMITTEE REPORT

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

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

Leslie B. Disharoon (Chair)
Kenneth M. Duberstein
Lawrence G. Graev
Blythe J. McGarvie
Glen D. Nelson

Compensation Committee Interlocks and Insider Participation

None of the members of the Board who served on the Compensation Committee during 2006 was ever an officer or employee of the Company or of any of its subsidiaries.

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TABULAR EXECUTIVE COMPENSATION DISCLOSURE

SUMMARY COMPENSATION TABLE

(1)                 Includes regular base pay earnings for 2006.

(2)                 Amounts paid under the Company’s Senior Executive Plan are reported under the “Non-Equity Incentive Plan Compensation” column.

(3)                 The dollar amounts represent the compensation that was earned by the NEO and the cost recognized by the Company during 2006 related to awards of restricted stock, CAP shares and performance shares, as well as any special or off-cycle grants (where applicable). Compensation cost is initially measured based on the grant date fair value of an award, determined pursuant to FAS 123R (excluding estimate of forfeiture) utilizing assumptions discussed in Note 11 to our financial statements for the fiscal year ended December 31, 2006. Compensation cost is recognized for financial reporting purposes over the period in which the employee is required to provide service in exchange for the award (generally the vesting period).

From the date of award of all shares of restricted stock described, the recipient can vote the restricted shares and will receive cash dividends or dividend equivalents at the same times and amounts per share as all other holders of common stock. Dividends so paid are included in the “All Other Compensation” column above. Does not include accumulated dividend equivalent shares attributable to 2006 performance share awards. If accumulated dividend equivalent shares attributable to performance share awards for each executive were included, the following amounts would be added to the column totals:  for Mr. Fishman $53,962; for Mr. Benet $20,050; for Mr. Heyman $20,050; for Mr. MacLean $24,408; and for Mr. Liss $15,981.

For 2006, the amount reflected for Mr. Liss consists of the sum of the values (determined on the basis described above) of: (a) annual long-term compensation that was awarded to him in the form of restricted stock, CAP Shares and performance shares, (b) a special, restricted stock award made in January 2005 in partial settlement of Mr. Liss’s vested rights under the Amended and Restated Special Severance Policy adopted in February 1999 by the Board of Directors of The St. Paul Companies, Inc. (the “Special Severance Policy”) and (c) a retention award of restricted stock made in November 2005 and vesting on February 28, 2007.

(4)                 The dollar amounts represent the compensation that was earned by the NEO and the cost recognized by the Company during 2006 related to option awards. Compensation cost is initially measured based on the grant date fair value of an award, determined pursuant to FAS 123R (excluding estimate of forfeiture) utilizing assumptions discussed in Note 11 to our financial

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statements for the fiscal year ending December 31, 2006. Compensation cost is recognized for financial reporting purposes over the period in which the employee is required to provide service in exchange for the award (generally the vesting period). For a discussion of specific stock option awards, see “Tabular Executive Compensation Disclosure—Grants of Plan-Based Awards in 2006” below and the narrative discussion that follows.

For 2006, the amount reflected for Mr. Liss consists of the sum of the values (determined on the basis described above) of: (a) annual long-term compensation that was granted to him in the form of an option to purchase shares of the Company’s common stock (“Stock Option”) and (b) a special, Stock Option grant made in January 2005 in partial settlement of his vested rights under the Special Severance Policy.

(5)                 Reflects incentive compensation paid in 2007 for performance year 2006 under the Company’s Senior Executive Plan as discussed in the “Compensation Discussion and Analysis—Compensation Elements—Annual Bonuses” section.

(6)                 These amounts represent the aggregate change in actuarial present value of accumulated pension benefits over the Company’s last fiscal year, using the same pension plan measurement date used for financial statement reporting purposes. The Company does not provide any of its executives with any above-market preferential earnings on non-qualified deferred compensation.