Travelers 2008 Annual Report Download - page 199

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. INVESTMENTS (Continued)
Other Investments
Other investments include private equity limited partnerships, hedge funds, real estate
partnerships, joint ventures, non-public common and preferred equity securities, mortgage loans,
venture capital investments and trading securities.
In 2007, the Company completed the bundled sale of a substantial portion of its venture capital
portfolio for total net proceeds of $397 million, which are included on the consolidated statement of
cash flows in ‘‘proceeds from sales of other investments.’’ The sale resulted in the realization of
$81 million of previously unrealized pretax net investment gains that had been recorded as a
component of accumulated other changes in equity from nonowner sources.
Variable Interest Entities (VIEs)
The following entities are consolidated:
• Municipal Trusts—The Company owns interests in various municipal trusts that were formed for
the purpose of allowing more flexibility to generate investment income in a manner consistent
with the Company’s investment objectives and tax position. At December 31, 2008 and 2007,
there were 24 and 31 such trusts, respectively, which held a combined total of $277 million and
$355 million, respectively, in municipal securities, of which $32 million and $44 million,
respectively, were owned by outside investors. The net carrying value of the trusts owned by the
Company at December 31, 2008 and 2007 was $245 million and $311 million, respectively.
The Company has a significant interest in the following VIE, which is not consolidated because the
Company is not considered to be the primary beneficiary:
• Camperdown UK Limited, which SPC sold in December 2003—The Company’s variable interest
resulted 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 maximum amount of this indemnification
obligation is $125 million. The carrying value of this obligation at December 31, 2008 and 2007
was $23 million and $59 million, respectively.
The Company has other significant interests in VIEs, including private equity funds and real estate
entities. Neither the carrying amounts nor the unfunded commitments related to these entities are
material.
The following securities are not consolidated:
• Mandatorily redeemable preferred securities of trusts holding solely the subordinated debentures
of the Company—These securities were issued by three separate trusts that were established for
the sole purpose of issuing the securities to investors and are fully guaranteed by the Company.
The subordinated debt that the Company issued to these trusts is included in the ‘‘Debt’’ section
of liabilities on the Company’s consolidated balance sheet. That debt had a carrying value of
$309 million and $310 million at December 31, 2008 and 2007, respectively.
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