Travelers 2008 Annual Report Download - page 133

(4) In connection with the sale of its insurance brokerage operations, the Company committed to
acquire brokerage services from the buyer through 2012. See note 15 of notes to the Company’s
consolidated financial statements.
(5) Includes commitments to vendors entered into in the ordinary course of business for goods and
services including office supplies, archival services, etc.
(6) Represents estimated timing for fulfilling unfunded commitments for private equity limited
partnerships, hedge funds, real estate partnerships, joint ventures and certain private equity
investments.
(7) The amounts in ‘‘Claims and claim adjustment expenses’’ in the table above represent the
estimated timing of future payments for both reported and unreported claims incurred and related
claim adjustment expenses, gross of reinsurance recoverables.
The Company has entered into reinsurance agreements to protect itself from potential losses in
excess of the amount it is prepared to accept as described in note 5 of notes to the Company’s
consolidated financial statements.
In order to qualify for reinsurance accounting, a reinsurance agreement must indemnify the insurer
from insurance risk, i.e., the agreement must transfer amount and timing risk. Since the timing and
amount of cash inflows from such reinsurance agreements are directly related to the underlying
payment of claims and claim adjustment expenses by the insurer, reinsurance receivables are
recognized in a manner consistent with the liabilities (the estimated liability for claims and claim
adjustment expenses) relating to the underlying reinsured contracts. The presence of any feature
that can delay timely reimbursement of claims by a reinsurer results in the reinsurance contract
being accounted for as a deposit rather than reinsurance. (See below.) The assumptions used in
estimating the amount and timing of the reinsurance receivables are consistent with those used in
estimating the amount and timing of the related liabilities.
Reinsurance agreements that do not transfer both amount and timing risk are accounted for as
deposits and included in ‘‘Reinsurance contracts accounted for as deposits’’ in the table above.
The estimated future cash inflows from the Company’s reinsurance contracts that qualify for
reinsurance accounting are as follows:
Less than 1-3 3-5 After
(in millions) Total 1 Year Years Years 5 Years
Reinsurance receivables ................. $13,553 $2,705 $3,448 $2,221 $5,179
The Company manages its business and evaluates its liabilities for claims and claim adjustment
expense on a net of reinsurance basis. The estimated cash flows on a net of reinsurance basis are
as follows:
Less than 1-3 3-5 After
(in millions) Total 1 Year Years Years 5 Years
Claims and claim adjustment expenses, net .$42,182 $9,157 $11,567 $6,882 $14,576
For business underwritten by non-U.S. operations, future cash flows related to reported and
unreported claims incurred and related claim adjustment expenses were translated at the spot rate
on December 31, 2008.
The amounts reported in the table above and in the table of reinsurance receivables above are
presented on a nominal basis and have not been adjusted to reflect the time value of money.
Accordingly, the amounts above will differ from the Company’s balance sheet to the extent that
the liability for claims and claim adjustment expenses and the related reinsurance receivables have
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