Travelers 2010 Annual Report Download - page 162

The sensitivity analysis model used by the Company produces a loss in fair value of market
sensitive instruments of approximately $2.00 billion and $2.34 billion based on a 100 basis point
increase in interest rates at December 31, 2010 and 2009, respectively.
The loss estimates do not take into account the impact of possible interventions that the Company
might reasonably undertake in order to mitigate or avoid losses that would result from emerging
interest rate trends. In addition, the loss value only reflects the impact of an interest rate increase on
the fair value of the Company’s financial instruments.
Foreign Currency Exchange Rate Risk
The Company uses fair values of investment securities to measure its potential loss from foreign
denominated investments. A hypothetical 10% reduction in value of foreign denominated investments is
used to estimate the impact on the market value of the foreign denominated holdings. The Company’s
analysis indicates that a hypothetical 10% reduction in the value of foreign denominated investments
would be expected to produce a loss in fair value of approximately $434 million and $431 million at
December 31, 2010 and 2009, respectively.
At December 31, 2010, The Company had a definitive agreement to commence a joint venture
with J. Malucelli, through the acquisition of approximately 43% of J. Malucelli’s common stock. The
purchase price for this acquisition will be R$625 million Brazilian Reais (the U.S. dollar equivalent of
which will depend on the exchange rate at closing) plus an amount based on a Brazilian inter-bank
lending rate (CDI) from January 1, 2011 through the closing date of the transaction. In order to reduce
its exposure to a significant strengthening of the Brazilian Reais prior to the closing of the transaction,
the Company entered into a foreign currency option contract on February 7, 2011 in the notional
amount of R$635 million which expires on March 31, 2011.
150