Travelers 2010 Annual Report Download - page 159

• the sufficiency of the Company’s asbestos and other reserves (including, among other things,
asbestos claim payment patterns);
• the impact of emerging claims issues;
• the cost and availability of reinsurance coverage;
• catastrophe losses;
• the impact of investment, economic and underwriting market conditions;
• strategic initiatives; and
• the Company’s proposed joint venture with J. Malucelli Participa¸c˜ oes em Seguros e
Resseguros S.A.
The Company cautions investors that such statements are subject to risks and uncertainties, many
of which are difficult to predict and generally beyond the Company’s control, that could cause actual
results to differ materially from those expressed in, or implied or projected by, the forward-looking
information and statements.
For a discussion of some of the factors that could cause actual results to differ, see ‘‘Item 1A—
Risk Factors’’ and ‘‘Item 7—Management’s Discussion and Analysis of Financial Condition and Results
of Operations—Critical Accounting Estimates.’’
The Company’s forward-looking statements speak only as of the date of this report or as of the
date they are made, and the Company undertakes no obligation to update its forward-looking
statements.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISK
Market risk is the risk of loss arising from adverse changes in market rates and prices, such as
interest rates (inclusive of credit spreads), foreign currency exchange rates and other relevant market
rate or price changes. Market risk is directly influenced by the volatility and liquidity in the markets in
which the related underlying assets are traded. The following is a discussion of the Company’s primary
market risk exposures and how those exposures are managed as of December 31, 2010. The Company’s
market risk sensitive instruments, including derivatives, are primarily entered into for purposes other
than trading.
The carrying value of the Company’s investment portfolio at December 31, 2010 and 2009 was
$72.72 billion and $74.97 billion, respectively, of which 86% and 88% was invested in fixed maturity
securities, respectively. At December 31, 2010 and 2009, approximately 6.0% and 5.8%, respectively, of
the Company’s invested assets were denominated in foreign currencies. The Company’s exposure to
equity price risk is not significant. The Company has no direct commodity risk and is not a party to any
credit default swaps.
The primary market risks to the investment portfolio are interest rate risk and credit risk
associated with investments in fixed maturity securities. The portfolio duration relative to the liabilities’
duration is primarily managed through cash market transactions and treasury futures transactions.
At December 31, 2010 and 2009, the Company’s fixed maturity investment portfolio included
collateralized mortgage obligations backed by alternative documentation mortgages and asset-backed
securities collateralized by sub-prime mortgages with a collective fair value of $297 million and
$270 million, respectively (comprising approximately 0.5% and 0.4% of the Company’s total fixed
maturity investments, respectively). The disruption in secondary investment markets for mortgage-
backed securities provided the Company with the opportunity to selectively acquire additional
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