Travelers 2003 Annual Report Download - page 62

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TRANSACTIONS WITH FORMER AFFILIATES
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 and 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, was not significant to Travelers results of
operations or financial condition.
See note 16 of notes to Travelers consolidated financial statements for a description of these and other intercompany
arrangements and transactions between Travelers and Citigroup.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is a measure of a company’s ability to generate sufficient cash flows to meet the short- and long-term cash
requirements of its business operations. The liquidity requirements of Travelers business have been met primarily by
funds generated from operations, asset maturities and income received on investments. Cash provided from these
sources is used primarily for claims and claim adjustment expense payments and operating expenses. Catastrophe
claims, the timing and amount of which are inherently unpredictable, may create increased liquidity requirements. The
timing and amount of reinsurance recoveries may be affected by reinsurer solvency and increasingly by reinsurance
coverage disputes. Additionally, recent increases in asbestos-related claim payments, as well as potential judgments
and settlements arising out of litigation, may also result in increased liquidity requirements. In the opinion of
Travelers management, Travelers future liquidity needs will be met from all of the above sources.
Net cash flows provided by operating activities totaled $3.833 billion, $2.926 billion and $1.219 billion in 2003, 2002
and 2001, respectively. The 2003 net cash flows provided by operating activities benefited from premium rate
increases, the receipt of $360.7 million from Citigroup related to recoveries under the asbestos indemnification
agreement and $530.9 million of federal income taxes refunded from Travelers net operating loss carryback. The 2002
net cash flows provided by operating activities also benefited significantly from premium rate increases compared to
2001.