Travelers 2010 Annual Report Download - page 248

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15. CONTINGENCIES, COMMITMENTS AND GUARANTEES (Continued)
Other Commitments and Guarantees
Commitments
Investment Commitments—The Company has unfunded commitments to private equity limited
partnerships and real estate partnerships in which it invests. These commitments totaled $1.26 billion
and $1.32 billion at December 31, 2010 and 2009, respectively. Additionally, in November 2010, an
indirect subsidiary of the Company entered into a definitive agreement to commence a joint venture
with J. Malucelli Participa¸c˜ oes em Seguros e Resseguros S.A, a Brazilian company (‘‘J. Malucelli’’),
through the acquisition of approximately 43% of J. Malucelli’s common stock. J. Malucelli is currently
the market leader in surety in Brazil based on market share. 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. At December 31, 2010, R$625 million Brazilian Reais was
equivalent to approximately $377 million in U.S. dollars. 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. The joint venture transaction is subject to customary closing conditions and
is expected to be finalized in the first half of 2011.
Guarantees
The Company has contingent obligations for guarantees related to letters of credit, issuance of
debt securities, certain investments, third-party loans related to certain investments and various
indemnifications, including those related to the sale of business entities. The Company also provides
standard indemnifications to service providers in the normal course of business. The indemnification
clauses are often standard contractual terms. Certain of these guarantees and indemnifications have no
stated or notional amounts or limitation to the maximum potential future payments, and, accordingly,
the Company is unable to develop an estimate of the maximum potential payments for such
arrangements. At December 31, 2010, the maximum amount of the Company’s obligation for
guarantees of certain investments and third-party loans related to certain investments that are
quantifiable was $84 million, approximately $40 million of which would be recoverable from a third
party.
In the ordinary course of selling business entities to third parties, the Company has agreed to
indemnify purchasers for losses arising out of breaches of representations and warranties with respect
to the business entities being sold, covenants and obligations of the Company and/or its subsidiaries
following the closing, and in certain cases obligations arising from undisclosed liabilities, adverse
reserve development, imposition of additional taxes due to either a change in the tax law or an adverse
interpretation of the tax law, or certain named litigation. Such indemnification provisions generally
survive for periods ranging from two years following the applicable closing date to the expiration of the
relevant statutes of limitations, although, in some cases, there may be other agreed upon term
limitations or no term limitations. Certain of these contingent obligations are subject to deductibles
which have to be incurred by the obligee before the Company is obligated to make payments. The
maximum amount of the Company’s contingent obligation for indemnifications related to the sale of
business entities that are quantifiable was $1.34 billion at December 31, 2010, of which $12 million was
recognized on the balance sheet at that date.
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