Travelers 2008 Annual Report Download - page 126

factors were partially offset by an increase in tax payments resulting from higher profitability, expenses
related to increased business volume and continued expenditures to support business growth and
product development, and higher interest payments.
Investing Activities
Net cash flows used in investing activities totaled $162 million, $2.53 billion and $3.06 billion in
2008, 2007 and 2006, respectively. Fixed maturity securities accounted for the majority of investment
purchases in all three years.
The Company’s consolidated total investments at December 31, 2008 declined $4.08 billion from
year-end 2007, reflecting the $2.12 billion of common share repurchases made during 2008, a
$1.19 billion pretax decline in the unrealized appreciation of investments since year-end 2007 (to an
unrealized loss position at December 31, 2008), the sale of Unionamerica and dividends to
shareholders, partially offset by investment purchases resulting from strong cash flows from operations.
The net unrealized loss position at December 31, 2008 reflected the impact of rising interest rates on
longer-dated fixed maturity securities primarily due to the widening of credit spreads generally.
The Company’s management of the duration of the fixed maturity investment portfolio generally
produces a duration that exceeds the estimated duration of the Company’s net insurance liabilities. The
average duration of fixed maturities and short-term securities was 4.2 and 4.0 at December 31, 2008
and 2007, respectively.
The primary goals of the Company’s asset liability management process are to satisfy the insurance
liabilities, manage the interest rate risk embedded in those insurance liabilities and maintain sufficient
liquidity to cover fluctuations in projected liability cash flows. Generally, the expected principal and
interest payments produced by the Company’s fixed maturity portfolio adequately fund the estimated
runoff of the Company’s insurance reserves. Although this is not an exact cash flow match in each
period, the substantial degree by which the market value of the fixed maturity portfolio exceeds the
expected present value of the net insurance liabilities, as well as the positive cash flow from newly sold
policies and the large amount of high quality liquid bonds, provide assurance of the Company’s ability
to fund the payment of claims without having to sell illiquid assets or access credit facilities.
Financing Activities
Net cash flows used in financing activities totaled $2.87 billion, $2.95 billion and $1.59 billion in
2008, 2007 and 2006, respectively. The 2008 total primarily reflected common share repurchases, the
repayment of debt and dividends to shareholders, partially offset by the net proceeds from debt
issuances and employee stock option exercises. The 2007 and 2006 totals primarily reflected common
share repurchases, the early redemption of debt, the repayment of maturing debt and dividends to
shareholders, partially offset by the issuance of debt and proceeds from employee stock option
exercises.
Debt Transactions.
2008. On March 15, 2008, the Company’s $400 million, 3.75% senior notes matured and were
fully paid. On May 13, 2008, the Company issued $500 million aggregate principal amount of 5.80%
senior notes that will mature on May 15, 2018. The net proceeds of the issuance, after original issuance
discount and the deduction of underwriting expenses and commissions and other expenses, totaled
approximately $496 million. Interest on the senior notes is payable semi-annually on May 15 and
November 15, commencing November 15, 2008. The senior notes are redeemable in whole at any time
or in part from time to time, at the Company’s option, at a redemption price equal to the greater of
(a) 100% of the principal amount of senior notes to be redeemed or (b) the sum of the present values
of the remaining scheduled payments of principal and interest on the senior notes to be redeemed
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