Travelers 2006 Annual Report Download - page 241

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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15. CONTINGENCIES, COMMITMENTS AND GUARANTEES (Continued)
questions and comments, the Company continues to believe thatits 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 consolidated statement of income, thereby increasingnet
income for the second quarter and full year 2004 and increasing shareholders’ equity at December 31,
2006, 2005 and 2004, ineach 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, 2006, 2005 and 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 of SPC and TPC. On May 3,
2006, the Company received a letter from the Division of Enforcement of the SEC (the “Division”)
advising the Company that it is conducting an inquiry relating to the second quarter 2004 adjustments and
the April 1, 2004 mergerof SPC and TPC. The Company is cooperating with the Division’s requests for
information.
Other Commitments and Guarantees
Commitments
Investment Commitments—The Company has long-term commitments to fund venture capital
investments through its subsidiary, St. Paul Venture Capital VI, LLC,throughnew and existing
partnerships and certain other venture capital entities. The Company’s total future estimated obligations
related to its venture capital investments were $87 million and $128 million at December 31, 2006 and
2005, respectively. The Company also has unfunded commitments to partnerships, joint ventures and
certain privateequity investments in which it invests. These additional commitments were $1.31 billion and
$803 million at December 31, 2006 and 2005, respectively.
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 paymentrelated to that commitment is $20 million.
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.
During 2006, the Company entered into construction loan and performance guarantees relating to an
investment in a real estate development joint venture. The maximumobligation for the guarantees was $55
million.