Travelers 2010 Annual Report Download - page 131

Line of Credit Agreement. On June 10, 2010, the Company entered into a three-year, $1.0 billion
revolving credit agreement with a syndicate of financial institutions, replacing its five-year, $1.0 billion
credit agreement that expired on that date. Pursuant to the credit agreement covenants, the Company
must maintain a minimum consolidated net worth (generally defined as shareholders’ equity plus
certain trust preferred and mandatorily convertible securities, reduced for goodwill and other intangible
assets) of $14.35 billion. The Company must also maintain a ratio of total debt to the sum of total debt
plus consolidated net worth of not greater than 0.40 to 1.00. In addition, the credit agreement contains
other customary restrictive covenants as well as certain customary events of default, including with
respect to a change in control, which is defined to include the acquisition of 35% or more of the
Company’s voting stock and certain changes in the composition of the Company’s board of directors.
At December 31, 2010, the Company was in compliance with these covenants. Generally, the cost of
borrowing under this agreement will range from LIBOR plus 100 basis points to LIBOR plus 175 basis
points depending on the Company’s credit ratings. At December 31, 2010, that cost would have been
LIBOR plus 125 basis points had there been any amounts outstanding under the credit agreement. This
line of credit also supports the Company’s commercial paper program.
Shelf Registration. In December 2008, the Company filed with the Securities and Exchange
Commission a universal shelf registration statement for the potential offering and sale of securities. The
Company may offer these securities from time to time at prices and on other terms to be determined
at the time of offering. During 2010 and 2009, the Company issued securities with a principal amount
of $1.25 billion and $500 million, respectively, under the shelf registration statement.
Share Repurchase Authorization. At December 31, 2010, the Company had $1.51 billion of
capacity remaining under its share repurchase authorization approved by the board of directors. In
January 2011, the board of directors approved a share repurchase authorization that added an
additional $5 billion of repurchase capacity to the $1.51 billion of capacity that remained at
December 31, 2010.
Contractual Obligations
The following table summarizes, as of December 31, 2010, the Company’s future payments under
contractual obligations and estimated claims and claim-related payments. The table excludes short-term
obligations and includes only liabilities at December 31, 2010 that are expected to be settled in cash.
The table below includes the amount and estimated future timing of claims and claim related
payments. The amounts do not represent the exact liability, but instead represent estimates, generally
utilizing actuarial projections techniques, at a given accounting date. These estimates include
expectations of what the ultimate settlement and administration of claims will cost based on the
Company’s assessment of facts and circumstances then known, review of historical settlement patterns,
estimates of trends in claims severity, frequency, legal theories of liability and other factors. Variables in
the reserve estimation process can be affected by both internal and external events, such as changes in
claims handling procedures, economic inflation or deflation, legal trends and legislative changes. Many
of these items are not directly quantifiable, particularly on a prospective basis. Additionally, there may
be significant reporting lags between the occurrence of the policyholder event and the time it is actually
reported to the insurer. The future cash flows related to the items contained in the table below
required estimation of both amount (including severity considerations) and timing. Amount and timing
are frequently estimated separately. An estimation of both amount and timing of future cash flows
related to claims and claim related payments is generally reliable only in the aggregate with some
unavoidable estimation uncertainty.
The contractual obligations related to debt, operating leases, purchase obligations, long-term
unfunded investment commitments, estimated claims and claim-related payments (gross of the
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