Travelers 2003 Annual Report Download - page 37

Download and view the complete annual report

Please find page 37 of the 2003 Travelers annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 156

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149
  • 150
  • 151
  • 152
  • 153
  • 154
  • 155
  • 156

35
During March 2002, Travelers entered into an agreement with Citigroup (the Citigroup indemnification agreement)
which provided that in any year in which Travelers recorded additional asbestos-related income statement charges in
excess of $150.0 million, net of any reinsurance, Citigroup would pay to Travelers the amount of any such excess up to
a cumulative aggregate of $800.0 million, reduced by the tax effect of the highest applicable federal income tax rate.
During 2002, Travelers recorded $2.945 billion of asbestos incurred losses, net of reinsurance, and accordingly fully
utilized in 2002 the total benefit available under the agreement. For the year ended December 31, 2002, revenues
include $520.0 million from Citigroup under this agreement. Included in federal income taxes in the consolidated
statement of income is a tax benefit of $280.0 million related to the asbestos charge covered by the agreement. For
additional information see “– Asbestos Claims and Litigation.”
On February 28, 2002, Travelers sold CitiInsurance to other Citigroup affiliated companies for $402.6 million, its net book
value. Travelers applied $137.8 million of the proceeds from this sale to repay intercompany indebtedness to Citigroup. In
addition, Travelers purchased from Citigroup affiliated companies the premises located at One Tower Square, Hartford,
Connecticut and other properties for $68.2 million. Additionally, certain liabilities relating to employee benefit plans and
lease obligations were assigned and assumed by Citigroup affiliated companies. In connection with these assignments,
Travelers transferred $172.4 million and $87.8 million, respectively, to Citigroup affiliated companies.
Prior to the 2002 Citigroup Distribution, Travelers provided and purchased services to and from Citigroup affiliated
companies, including facilities management, banking and financial functions, benefit coverages, data processing services
and short-term investment pool management services. Charges for these shared services were allocated at cost. In
connection with the Citigroup Distribution, Travelers and Citigroup and its affiliates entered into a transition services
agreement for the provision of certain of these services, tradename and trademark and similar agreements related to the use
of trademarks, logos and tradenames in an amendment to the March 26, 2002 Intercompany Agreement with Citigroup.
During the first quarter of 2002, Citigroup provided investment advisory services on an allocated cost basis, consistent with
prior years. On August 6, 2002, Travelers entered into an investment management agreement, which has been applied
retroactively to April 1, 2002, with an affiliate of Citigroup whereby the affiliate of Citigroup is providing investment
advisory and administrative services to Travelers with respect to its entire investment portfolio for a period of two years
and at fees mutually agreed upon, including a component based on performance. Charges incurred related to this
agreement were $59.7 million for 2003 and $47.2 million for the period from April 1, 2002 through December 31, 2002.
This agreement terminates on March 31, 2004. Travelers intends to arrange an orderly transition of the investment
management and the associated accounting and administrative services to St. Paul Travelers following the merger with
SPC. Travelers and Citigroup also agreed upon the allocation or transfer of certain other liabilities and assets, and rights
and obligations in furtherance of the separation of operations and ownership as a result of the Citigroup Distribution. The
net effect of these allocations and transfers, in the opinion of management, were not significant to Travelers results of
operations or financial condition.
Other Transactions
During the third quarter of 2003, Travelers purchased from Royal & SunAlliance USA (RSA), an unaffiliated insurer,
the renewal rights to RSA’s commercial lines national accounts, middle market and marine businesses, and standard
and preferred personal lines businesses. Also during the third quarter of 2003, Travelers purchased from Atlantic
Mutual, an unaffiliated insurer, the renewal rights to the majority of Atlantic Mutual’s commercial lines inland marine
and ocean cargo businesses written by Atlantic Mutual’s Marine Division. The minimum purchase price for both
transactions, which has been paid, was $48.0 million. The final purchase price, which is currently estimated to be
$84.5 million, is dependent on the level of business renewed by Travelers.