Travelers 2006 Annual Report Download - page 242

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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15. CONTINGENCIES, COMMITMENTS AND GUARANTEES (Continued)
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
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, 2006, the aggregate amount of the
Company’s obligation for those indemnifications that are quantifiable related to sales of business entities
was $1.85 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. Included in the
indemnification obligations at December 31, 2006 was $187 million related to the Company’s variable
interest in Camperdown UK Limited, which SPC sold in December 2003. The Company’s variable interest
results from an agreement to indemnify the purchaser in the event a specified reserve deficiency develops,
a reserve-related foreign exchange impact occurs, or a foreign tax adjustment is imposed on a pre-sale
reporting period. The fair value of this obligation as of December 31, 2006 was $65 million, which was
included in “Other Liabilities” on the Company’s consolidated balance sheet.
16. RELATED PARTY TRANSACTIONS
Prior to Citigroup’s distribution to its stockholders of a portion of its ownership in TPC in
August 2002, TPC provided and purchased services to and from Citigroup affiliated companies, including
facilities management, banking and financial functions, benefit coverages, data processingservices, 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 Citigroupprovided 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, at which time it was terminated. Charges incurred related to
this agreement were$2 million and $58 million for the years ended December 31, 2005 and 2004,
respectively. TPC and Citigroup also agreed upon the allocationor 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.
In the ordinary course of business, the Company purchases and sells securities throughformerly
affiliated broker-dealers. These transactions are conducted on an arm’s-length basis. Commissions are not
paid for the purchase and sale of debt securities.