Travelers 2007 Annual Report Download - page 241

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15. CONTINGENCIES, COMMITMENTS AND GUARANTEES (Continued)
Guarantees
The Company has certain contingent obligations for guarantees related to letters of credit, issuance
of debt securities, certain investments and third party loans related to certain investments, and various
indemnifications related to the sale of business entities. The Company also provides standard
indemnifications to service providers in the normal course of business. The indemnification clauses are
often standard contractual terms.
At December 31, 2007, the aggregate amount of the Company’s obligation for guarantees of
certain investments and third party loans related to certain investments that are quantifiable was
$58 million.
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, imposition of additional taxes due to either a change in the tax law or an adverse
interpretation of the tax law, 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,
2007, the aggregate amount of the Company’s obligation for those indemnifications that are
quantifiable related to sales of business entities was $1.86 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, 2007 was
$193 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 carrying value of this
obligation as of December 31, 2007 was $59 million, which was included in ‘‘Other Liabilities’’ on the
Company’s consolidated balance sheet.
16. NONCASH INVESTING AND FINANCING ACTIVITIES
There were no significant noncash financing or investing activities during the years ended
December 31, 2007 and 2006.
In 2005, the Company remarketed senior notes that were originally issued in 2002, resetting the
interest rate from 5.25% to 5.01%. There were no other significant noncash financing or investing
activities during the year ended December 31, 2005.
17. DISCONTINUED OPERATIONS
In 2005, the Company completed the divestiture of its 78% equity interest in Nuveen Investments,
which constituted its Asset Management segment, through a series of transactions. The divestiture
resulted in net pretax cash proceeds of $2.40 billion. In 2005, the Company recorded a pretax gain on
disposal of $345 million ($224 million after-tax), and a net operating loss from discontinued operations
of $663 million, consisting primarily of $710 million of tax expense which resulted from the difference
between the tax basis and the GAAP carrying value of the Company’s investment in Nuveen
Investments, partially offset by the Company’s share of Nuveen Investments’ net income for 2005.
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