Travelers 2007 Annual Report Download - page 187

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. INVESTMENTS (Continued)
U.S. Treasury securities. The Company’s investment strategy is to purchase CMO tranches which offer
the most favorable return given the risks involved. One significant risk evaluated is prepayment
sensitivity. The Company does not purchase residual interests in CMOs.
At December 31, 2007 and 2006, the Company held CMOs classified as available for sale with a
fair value of $3.59 billion and $3.56 billion, respectively (excluding Commercial Mortgage-Backed
Securities of $935 million and $1.07 billion, respectively). Approximately 31% and 36% of the
Company’s CMO holdings are guaranteed by or fully collateralized by securities issued by GNMA,
FNMA or FHLMC at December 31, 2007 and 2006, respectively. In addition, the Company held
$3.79 billion and $4.36 billion of GNMA, FNMA, FHLMC or FHA mortgage-backed pass-through
securities classified as available for sale at December 31, 2007 and 2006, respectively. Virtually all of
these securities are rated Aaa.
At December 31, 2007 and 2006, the Company had $1.99 billion and $1.67 billion, respectively, of
securities on loan as part of a tri-party lending agreement.
Proceeds from sales of fixed maturities classified as available for sale were $7.32 billion,
$4.40 billion and $5.19 billion in 2007, 2006 and 2005, respectively. Gross gains of $76 million,
$95 million and $129 million and gross losses of $34 million, $121 million and $118 million were
realized on those sales in 2007, 2006 and 2005, respectively.
At December 31, 2007 and 2006, the Company’s insurance subsidiaries had $4.21 billion and
$4.44 billion, respectively, of securities on deposit at financial institutions in certain states pursuant to
the respective states’ insurance regulatory requirements.
The Company has certain subsidiaries that are required to hold investments in trust or in escrow.
In conjunction with its runoff reinsurance businesses, the Company held trust funds with a fair value of
$266 million and $298 million at December 31, 2007 and 2006, respectively. Funds deposited with third
parties to be used as collateral to secure various liabilities on behalf of insureds, cedants and other
creditors had a fair value of $108 million and $43 million at December 31, 2007 and 2006, respectively.
Other investments pledged as collateral securing outstanding letters of credit had a fair value of
$142 million and $253 million at December 31, 2007 and 2006, respectively. Investments held in escrow
in accordance with the terms of the ACandS settlement had a fair value of $454 million at
December 31, 2007. Upon fulfillment of all contingencies, the investments held in escrow will be
released to the trust created under ACandS’s plan of reorganization. See note 15.
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