Travelers 2010 Annual Report Download - page 120

Following are the pretax realized losses on investments sold during the year ended December 31,
2010:
(in millions) Loss Fair Value
Fixed maturities ...................................... $11 $345
Equity securities ...................................... —8
Other .............................................. 11
Total .............................................. $12 $354
Purchases and sales of investments are based on cash requirements, the characteristics of the
insurance liabilities and current market conditions. The Company identifies investments to be sold to
achieve its primary investment goals of assuring the Company’s ability to meet policyholder obligations
as well as to optimize investment returns, given these obligations.
CATASTROPHE MODELING
The Company uses various analyses and methods, including computer modeling techniques, to
analyze catastrophic events and the risks associated with them. The Company uses these analyses and
methods to make underwriting and reinsurance decisions designed to manage its exposure to
catastrophic events.
In making underwriting and reinsurance decisions for hurricane and earthquake exposures, the
Company uses third-party proprietary computer modeling in an attempt to estimate the likelihood that
the loss from a single event occurring in a one-year timeframe will equal or exceed a particular
amount. The tables below set forth the estimated probabilities that losses from a single event occurring
in a one-year timeframe will equal or exceed the indicated loss amounts (expressed in dollars and as a
percentage of the Company’s common equity). For example, on the basis described below the tables,
the Company estimates that there is a one percent chance that the Company’s loss from a single U.S.
hurricane occurring in a one-year timeframe would equal or exceed $1.1 billion, or 5% of the
Company’s common equity at December 31, 2010.
Dollars (in billions)
Single U.S.
Single U.S. and Canadian
Likelihood of Exceedance(1) Hurricane Earthquake
2.0% (1-in-50) ................................. $0.9 $0.5
1.0% (1-in-100) ................................. $1.1 $0.6
0.4% (1-in-250) ................................. $2.0 $0.9
0.1% (1-in-1,000) ............................... $4.3 $2.0
Percentage of
Common Equity(2)
Single U.S.
Single U.S. and Canadian
Likelihood of Exceedance Hurricane Earthquake
2.0% (1-in-50) ................................. 4% 2%
1.0% (1-in-100) ................................. 5% 3%
0.4% (1-in-250) ................................. 9% 4%
0.1% (1-in-1,000) ............................... 18% 8%
(1) An event that has, for example, a 2% likelihood of exceedance is sometimes described as
a ‘‘1-in-50 year event.’’ As noted above, however, the probabilities in the table represent
the likelihood of losses from a single event equaling or exceeding the indicated threshold
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