Travelers 2008 Annual Report Download - page 112

near completion and significant legal questions are resolved or, failing settlement, until the dispute is
adjudicated. This is particularly the case with policyholders in bankruptcy where negotiations often
involve a large number of claimants and other parties and require court approval to be effective. As
part of its continuing analysis of asbestos and environmental reserves, the Company continues to study
the implications of these and other developments. (Also, see ‘‘Part I—Item 3, Legal Proceedings’’).
Because of the uncertainties set forth above, additional liabilities may arise for amounts in excess
of the current related reserves. In addition, the Company’s estimate of claims and claim adjustment
expenses may change. These additional liabilities or increases in estimates, or a range of either, cannot
now be reasonably estimated and could result in income statement charges that could be material to
the Company’s operating results in future periods.
INVESTMENT PORTFOLIO
The Company’s invested assets at December 31, 2008 totaled $70.74 billion, of which 94% was
invested in fixed maturity and short-term investments, 1% in equity securities, 1% in real estate and
4% in other investments. Because the primary purpose of the investment portfolio is to fund future
claims payments, the Company employs a conservative investment philosophy. A significant majority of
funds available for investment are deployed in a widely diversified portfolio of high quality, liquid
intermediate-term taxable U.S. government, tax-exempt U.S. municipal bonds, and taxable corporate
and U.S. agency mortgage-backed bonds.
The Company’s fixed maturity portfolio at December 31, 2008 totaled $61.28 billion. The Company
closely monitors the duration of its fixed maturity investments, and investment purchases and sales are
executed with the objective of having adequate funds available to satisfy the Company’s insurance and
debt obligations. The weighted average credit quality of the Company’s fixed maturity portfolio, both
including and excluding U.S. Treasury securities, was ‘‘Aa1’’ at December 31, 2008 and 2007. Below
investment grade securities represented 2.0% and 2.5% of the total fixed maturity investment portfolio
at December 31, 2008 and 2007, respectively. The average effective duration of the fixed maturity
portfolio, including short-term investments, was 4.2 and 4.0 (4.6 and 4.3 excluding short-term
investments), at December 31, 2008 and 2007, respectively.
The following table sets forth the Company’s combined fixed maturity investment portfolio rated
using external ratings agencies or by the Company when a public rating does not exist:
Carrying Percent of Total
(at December 31, 2008, in millions) Value Carrying Value
Quality Rating:
Aaa ....................................... $30,878 50.4%
Aa ........................................ 20,282 33.1
A......................................... 6,030 9.8
Baa ....................................... 2,883 4.7
Total investment grade .......................... 60,073 98.0
Below investment grade ......................... 1,202 2.0
Total fixed maturity investments ................... $61,275 100.0%
Included in the Company’s fixed maturity portfolio at December 31, 2008 were $1.52 billion of
debt securities issued by foreign governments and $12.79 billion of corporate fixed maturities and
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