Travelers 2005 Annual Report Download - page 139
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127
The sensitivity analysis model used by the Company produces a loss in fair value of market sensitive
instruments of approximately $2.2 billionand $2.1billion based on a 100 basis point increase in interest
rates as of December 31, 2005 and 2004, respectively.
The loss estimates do not take into account the impact of possible interventions that the Company
might reasonably undertake in order to mitigate or avoid losses that would result from emerging interest
rate trends. In addition, the loss value only reflects the impact of an interest rate increase on the fair value
of the Company’s financial instruments. As a result, the loss value excludes a significant portion of the
Company’s consolidated balance sheet, which if included in the sensitivity analysismodel, would mitigate
the impact of the loss in fair value associated with a 100 basis point increase in interest rates.
Foreign Currency Exchange Rate Risk
The Company uses fair values of investment securities to measure its potential loss from foreign
denominated investments. A hypothetical 10% reduction in value offoreign denominated investments is
used to estimate the impact on the market value of the foreign denominated holdings. The potential loss is
reduced by foreign currency forward transactions that are used to hedge a portion of the Company’s
exposure to foreign currencies. The Company’s analysis indicates that a hypothetical 10% reduction in the
value of foreign denominated investments would be expected to produce a loss in fair value of
approximately $374 million and $438 million atDecember 31, 2005 and 2004, respectively.