Travelers 2010 Annual Report Download - page 192

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. INVESTMENTS (Continued)
others, rental rates, length of lease period and improvements to the premises to be provided by the
landlord.
Proceeds from the sale of real estate investments totaled $10 million in 2010. Gross gains of
$3 million were realized on those sales and there were no gross losses. In 2009, there were no sales of
real estate investments. Proceeds from the sale of real estate investments totaled $25 million in 2008.
Gross gains of $2 million were realized on those sales and there were no gross losses. The Company
had no real estate held for sale at December 31, 2010 and 2009. Accumulated depreciation on real
estate held for investment purposes was $200 million and $170 million at December 31, 2010 and 2009,
respectively.
Future minimum rental income expected on operating leases relating to the Company’s real estate
properties is $104 million, $84 million, $67 million, $55 million, $41 million for 2011, 2012, 2013, 2014
and 2015, respectively, and $49 million for 2016 and thereafter.
Short-term Securities
The Company’s short-term securities consist of Aaa-rated registered money market funds, U.S.
Treasury securities and high-quality commercial paper (primarily A1/P1) with a combined average of
59 days to maturity at December 31, 2010. The amortized cost of these securities, which totaled
$5.62 billion and $4.85 billion at December 31, 2010 and 2009, respectively, approximated their fair
value.
Variable Interest Entities
Entities which do not have sufficient equity at risk to allow the entity to finance its activities
without additional financial support or in which the equity investors, as a group, do not have the
characteristic of a controlling financial interest are referred to as variable interest entities (VIE). A
VIE is consolidated by the variable interest holder that is determined to have the controlling financial
interest (primary beneficiary) as a result of having both the power to direct the activities of a VIE that
most significantly impact the VIE’s economic performance and the obligation to absorb losses or right
to receive benefits from the VIE that could potentially be significant to the VIE. The Company
determines whether it is the primary beneficiary of an entity subject to consolidation based on a
qualitative assessment of the VIE’s capital structure, contractual terms, nature of the VIE’s operations
and purpose and the Company’s relative exposure to the related risks of the VIE on the date it
becomes initially involved in the VIE. The Company reassesses its VIE determination with respect to
an entity on an ongoing basis.
The Company is involved in the normal course of business with VIEs primarily as a passive
investor in limited partner equity interests issued by third party VIEs. These include certain of the
Company’s investments in private equity limited partnerships, hedge funds and real estate partnerships
where the Company is not related to the general partner. These investments are generally accounted
for under the equity method and reported in the Company’s consolidated balance sheet as other
investments unless the Company is deemed the primary beneficiary. These equity interests generally
cannot be redeemed. Distributions from these investments are received by the Company as a result of
liquidation of the underlying investments of the funds and/or as income distribution. The Company’s
maximum exposure to loss with respect to these investments is limited to the investment carrying
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