Travelers 2005 Annual Report Download - page 137

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OTHER UNCERTAINTIES
For a discussion of other risks and uncertainties that could impact the Company’s results of operations
or financial condition, see note 17 of notes to the Company’s consolidated financial statements and
“Item 1A—Risk Factors.”
FUTURE APPLICATION OF ACCOUNTING STANDARDS
See note 1 of notes to the Company’s consolidated financial statements for a discussion of recently
issued accounting pronouncements.
FORWARD-LOOKING STATEMENTS
This report may contain, and management may make, certain “forward-looking statements” within the
meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of
historical facts, may be forward-looking statements. Specifically, the Company may make forward-looking
statements about the Company’s results of operations (including, among others, premium volume, income
from continuing operations, net and operating income and return onequity), financial condition and
liquidity; the sufficiency of the Company’s asbestos and other reserves (including, among others, asbestos
claim payment patterns); the post-merger integration (including, among others, expense savings); the cost
and availability of reinsurance coverage; and strategic initiatives. Such statements are subject to risks and
uncertainties, many of which are difficult to predict and generally beyond the Company’s control, that
could cause actual results to differ materially from those expressed in, or implied or projected by, the
forward-looking information and statements.
For a discussion of some of the factors that could cause actual results to differ, see “Item 1A—Risk
Factors”.
The Company’s forward-looking statements speak only as of the date of this report or as of the date
they are made, and the Company undertakes no obligation to update its forward-looking statements.
Item 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUTMARKET RISK
MARKET RISK
Market risk isthe risk of loss arising from adverse changes in market rates and prices, such as interest
rates, foreign currency exchange rates, and other relevant market rate or price changes. Market risk is
directly influenced by the volatility and liquidity in the markets in which the related underlying assets are
traded. The following is a discussion of the Company’s primary market risk exposures and how those
exposures are managed as of December 31, 2005. The Company’s market risk sensitive instruments,
including derivatives, are primarily entered into for purposes other than trading.
The carrying value of the Company’s investment portfolio as of December 31, 2005 and 2004 was
$68.29 billion and $64.37 billion, respectively, of which 86% and 84% was invested in fixed maturity
securities, respectively. At December 31, 2005 and 2004, approximately 6% and 7%, respectively, of the
Company’s invested assets were denominated in foreign currencies. The Company’s exposure to equity
price risk is not significant. The Company has no direct commodity risk.
The primary market risk to the investment portfolio is interest rate risk associated with investments in
fixed maturity securities. The portfolio duration relative to the liabilities’ duration is primarily managed
through cash market transactions and treasury futures transactions.