Travelers 2008 Annual Report Download - page 204

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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. INVESTMENTS (Continued)
The Company engaged in U.S. Treasury note futures transactions to modify the duration of specific
assets within the investment portfolio. The Company enters into 90-day futures contracts on 2-year,
5-year, 10-year and 30-year U.S. Treasury notes which require a daily mark-to-market settlement with
the broker. The notional value of the open U.S. Treasury futures contracts was $380 million and
$250 million at December 31, 2008 and 2007, respectively. These derivative instruments are not
designated and do not qualify as hedges under FAS 133 and as such the daily mark-to-market changes
in fair value are reflected in net realized investment gains (losses). Net realized investment gains
(losses) in 2008 and 2007 included net losses of $53 million and $8 million, respectively, related to U.S.
Treasury futures contracts which are settled daily.
The Company owns six million non-public stock purchase warrants of Platinum Underwriters
Holdings, Ltd., a publicly-held company. These warrants are not designated and do not qualify as
hedges under FAS 133 and as such the mark-to-market changes in fair value are reflected in net
realized investment gains (losses). In 2008 and 2007, the Company recorded net realized investment
gains of $10 million and $21 million, respectively, related to the Company’s holdings of stock purchase
warrants of Platinum Underwriters Holdings, Ltd.
The Company purchases investments that have embedded derivatives, primarily convertible debt
securities. These embedded derivatives are carried at fair value with changes in value reflected in net
realized investment gains (losses). Derivatives embedded in convertible debt securities are reported on
a combined basis with their host instrument and are classified as fixed maturity securities. In 2008 and
2007, the Company recorded net realized investment losses of $77 million and $23 million, respectively,
related to these embedded derivatives. The Company divested substantially all of its holdings in
convertible debt securities in 2008.
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