Travelers 2003 Annual Report Download - page 91

89
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of Travelers Property Casualty Corp. (TPC) and its
subsidiaries (collectively, Travelers). Certain reclassifications have been made to prior years’ financial
statements to conform to the current year’s presentation. Significant intercompany transactions and balances
have been eliminated.
The preparation of the consolidated financial statements in conformity with accounting principles generally
accepted in the United States of America (GAAP) requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date
of the consolidated financial statements and the reported amounts of revenues and claims and expenses during
the reporting period. Actual results could differ from those estimates.
TPC was reorganized in connection with its initial public offering (IPO) on March 21, 2002. Pursuant to the
reorganization, which was completed on March 19, 2002, TPC’s consolidated financial statements have been
adjusted to exclude the accounts of certain formerly wholly-owned TPC subsidiaries, principally The Travelers
Insurance Company (TIC) and its subsidiaries (U.S. life insurance operations), certain other wholly-owned
noninsurance subsidiaries of TPC and substantially all of TPC’s assets and certain liabilities not related to the
property casualty business.
On March 21, 2002, TPC issued 231 million shares of its class A common stock in an IPO, representing
approximately 23% of TPC’s common equity. After the IPO, Citigroup Inc. (together with its consolidated
subsidiaries, Citigroup) beneficially owned all of the 500 million shares of TPC’s outstanding class B common
stock, each share of which is entitled to seven votes, and 269 million shares of TPC’s class A common stock, each
share of which is entitled to one vote, representing at the time 94% of the combined voting power of all classes of
TPC’s voting securities and 77% of the equity interest in TPC. Concurrent with the IPO, TPC issued $892.5 million
aggregate principal amount of 4.5% convertible junior subordinated notes, which mature on April 15, 2032. The
IPO and the offering of the convertible notes are collectively referred to as the offerings. During the first quarter of
2002, TPC paid three dividends of $1.000 billion, $3.700 billion and $395.0 million, aggregating $5.095 billion,
which were each in the form of notes payable to Citigroup. The proceeds of the offerings were used to prepay the
$395.0 million note and substantially prepay the $3.700 billion note. On December 31, 2002, the $1.000 billion note
payable was repaid in its entirety.
In conjunction with the corporate reorganization and the offerings described above, 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 has fully utilized the total benefit available under the agreement. For the year ended December 31,
2002, revenues include $520.0 million from Citigroup under this agreement. At December 31, 2002, other assets
included a $360.7 million receivable from Citigroup under this agreement, which was received during the first
quarter of 2003. 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.