Travelers 2009 Annual Report Download - page 255

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15. CONTINGENCIES, COMMITMENTS AND GUARANTEES (Continued)
The Company previously reported that it sought guidance from the Division of Corporation
Finance of the SEC with respect to the appropriate purchase accounting treatment for certain second
quarter 2004 adjustments totaling $1.63 billion. See ‘‘Management’s Discussion and Analysis of
Financial Condition and Results of Operations—Other Matters.’’ After discussion with the staff of the
Division of Corporate Finance and the Company’s independent auditors, the Company continues to
believe that its accounting treatment for these adjustments is appropriate. On May 3, 2006, the
Company received a letter from the Division of Enforcement of the SEC advising the Company that it
is conducting an inquiry relating to the second quarter 2004 adjustments and the April 1, 2004 merger
of SPC and TPC. The Company cooperated with the requests for information.
Other Commitments and Guarantees
Commitments
Investment Commitments—The Company has unfunded commitments to private equity limited
partnerships and real estate partnerships in which it invests. These commitments were $1.32 billion and
$1.56 billion at December 31, 2009 and 2008, respectively.
SPC’s Sale of Minet—In May 1997, SPC completed the sale of its insurance brokerage operation,
Minet, to Aon Corporation. SPC agreed to indemnify Aon against any future claims for professional
liability and other specified events that occurred or existed prior to the sale. The Company assumed
obligations related to this indemnification upon consummation of the merger. The Company monitors
its exposure under these claims on a regular basis. The Company believes reserves for reported claims
are adequate, but it does not have information on unreported claims to estimate a range of additional
liability. From 1997 to 2004, SPC purchased insurance to cover a portion of its exposure to such claims.
Under the sale agreement, SPC also committed to acquire a minimum level of reinsurance
brokerage services from Aon through May 16, 2012. That commitment requires the Company to make
a contractual payment to Aon to the extent such minimum level of service is not acquired. The
maximum annual amount payable to Aon for such services and any such contractual payment related to
that commitment is $20 million in 2010 and 2011, and $4 million in 2012.
Guarantees
The Company has contingent obligations for guarantees related to letters of credit, issuance of
debt securities, certain investments and various indemnifications, including those related to the sale of
business entities. The Company also provides standard indemnifications to service providers in the
normal course of business. The indemnification clauses are often standard contractual terms. Certain of
these guarantees and indemnifications have no stated or notional amounts or limitation to the
maximum potential future payments, and, accordingly, the Company is unable to develop an estimate
of the maximum potential payments for such arrangements.
In the ordinary course of selling business entities to third parties, the Company has agreed to
indemnify purchasers for losses arising out of breaches of representations and warranties with respect
to the business entities being sold, covenants and obligations of the Company and/or its subsidiaries
following the closing, and in certain cases obligations arising from undisclosed liabilities, adverse
reserve development, imposition of additional taxes due to either a change in the tax law or an adverse
interpretation of the tax law, or certain named litigation. Such indemnification provisions generally
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