Travelers 2004 Annual Report Download - page 202

THE ST. PAUL TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
17. CONTINGENCIES, COMMITMENTS AND GUARANTEES, Continued
On July 23, 2004, the Company announced that it was seeking guidance from the staff of the Division of
Corporation Finance of the Securities Exchange Commission with respect to the appropriate purchase accounting
treatment for certain second quarter 2004 adjustments totaling $1.63 billion ($1.07 billion after-tax). The
Company recorded these adjustments as charges in its income statement in the second quarter of 2004. Through
an informal comment process, the staff of the Division of Corporation Finance has subsequently asked for further
information relating to these adjustments, and the dialogue is ongoing. Specifically, the staff has asked for
information concerning the Company’s adjustments to certain of SPC’s insurance reserves and reserves for
reinsurance recoverables and premiums due from policyholders, and how those adjustments may relate to SPC’s
reserves for periods prior to the merger. After reviewing the staff’s questions and comments, the Company
continues to believe that its accounting treatment for these adjustments is appropriate. If, however, the staff
disagrees, some or all of the adjustments being discussed may not be recorded as charges in the Company’s
income statement, thereby increasing net income for the second quarter and full year 2004 and increasing
shareholders’ equity at December 31, 2004, in each case by the approximate after-tax amount of the change. The
effect on tangible shareholders’ equity (adjusted for the effects of deferred taxes associated with goodwill and
intangible assets) at December 31, 2004 would not be material. Increases to goodwill and deferred tax liabilities
would be reflected on the Company’s balance sheet as of April 1, 2004, either due to purchase accounting or
adjustment of SPC’s reserves prior to the merger.
Other Commitments and Guarantees
Commitments
Venture Capital—The Company has long-term commitments to fund venture capital investments through its
subsidiary, St. Paul Venture Capital VI, LLC, through new and existing partnerships and certain other venture
capital entities. The Company’s total future estimated obligations related to its venture capital investments were
$289 million at December 31, 2004. In the normal course of business, the Company has unfunded commitments
to partnerships, joint ventures and certain private equity investments in which it invests. These additional
commitments were $483 million and $652 million at December 31, 2004 and 2003, respectively.
Nuveen Investments’ Acquisition—As of December 31, 2004, the Company’s asset management subsidiary,
Nuveen Investments, may be required to make additional payments of up to $120 million related to their
acquisition of Symphony Asset Management, LLC (Symphony), based on Symphony reaching specified
performance and growth targets.
SPC’s Sale of Minet—In May 1997, SPC completed the sale of its insurance brokerage operation, Minet, to
Aon Corporation. SPC agreed to indemnify Aon against any future claims for professional liability and other
specified events that occurred or existed prior to the sale. The Company assumed obligations related to this
indemnification upon consummation of the merger. The Company monitors its exposure under these claims on a
regular basis. The Company believes reserves for reported claims are adequate, but it does not have information
on unreported claims to estimate a range of additional liability. From 1997 to 2004, SPC purchased insurance to
cover a portion of its exposure to such claims. Under the sale agreement, SPC also committed to acquire a
minimum level of reinsurance brokerage services from Aon through 2012. That commitment requires the
Company to make a contractual payment to Aon to the extent such minimum level of service is not acquired. The
maximum annual amount payable to Aon for such services and any such contractual payment related to that
commitment is $20 million. SPC also had commitments under lease agreements through 2015 for vacated space
(included in lease commitment totals in note 15), as well as a commitment to make payments to a former Minet
executive. The Company assumed all obligations to these commitments upon consummation of the merger.
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