Travelers 2004 Annual Report Download - page 203

THE ST. PAUL TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
17. CONTINGENCIES, COMMITMENTS AND GUARANTEES, Continued
Guarantees
The Company has certain contingent obligations for guarantees related to agency loans and letters of credit,
issuance of debt securities, third party loans related to venture capital investments and various indemnifications
related to the sale of business entities.
In the ordinary course of selling business entities to third parties, the Company has agreed to indemnify
purchasers for losses arising out of breaches of representations and warranties with respect to the business
entities being sold, covenants and obligations of the Company and/or its subsidiaries following the close, and in
certain cases obligations arising from undisclosed liabilities, adverse reserve development, premium deficiencies
or certain named litigation. Such indemnification provisions generally survive for periods ranging from 12
months following the applicable closing date to the expiration of the relevant statutes of limitations, or in some
cases agreed upon term limitations. As of December 31, 2004, the aggregate amount of the Company’s
quantifiable indemnification obligations in effect for sales of business entities was $1.94 billion. Certain of these
contingent obligations are subject to deductibles which have to be incurred by the obligee before the Company is
obligated to make payments.
18. RELATED PARTY TRANSACTIONS
Prior to the Citigroup Distribution, TPC 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, TPC 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, TPC entered into an
investment management agreement, which was applied retroactively to April 1, 2002, with an affiliate of
Citigroup whereby the affiliate of Citigroup provided investment advisory and administrative services to TPC
with respect to its entire investment portfolio for a period of two years and at fees mutually agreed upon,
including a component based on investment performance. This agreement was modified and extended through
the first quarter of 2005. Charges incurred related to this agreement were $58 million for the year ended
December 31, 2004, $60 million for the year ended December 31, 2003 and $47 million for the period from April
1, 2002 through December 31, 2002. TPC 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 the Company’s results of operations or financial condition.
Included in revenues in the consolidated statement of income (loss) for 2002 was $520 million from the
Citigroup indemnification agreement.
In conjunction with the purchase of TIGHI’s outstanding shares in April 2000, TPC borrowed $2.20 billion
pursuant to a note agreement with Citigroup. This note was prepaid during 2002 following the offerings. Interest
expense included in the consolidated statement of income was $6 million in 2002.
The Company had notes payable to Citigroup of $700 million at December 31, 2002, which was repaid
during 2003. Interest expense included in the consolidated statement of income was $9 million and $18 million in
for the years ended December 31, 2003 and 2002, respectively.
At December 31, 2003, TPC had $15 million of securities pledged as collateral to Citigroup to support a
letter of credit facility for certain of TPC’s surety customers.
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