Travelers 2011 Annual Report Download - page 202

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. INVESTMENTS (Continued)
Net Investment Income
(for the year ended December 31, in millions) 2011 2010 2009
Gross investment income (loss)
Fixed maturities ............................... $2,543 $2,710 $2,822
Equity securities ............................... 29 31 30
Short-term securities ............................ 12 13 27
Real estate ................................... 34 35 36
Other investments ............................. 292 304 (106)
Gross investment income ....................... 2,910 3,093 2,809
Investment expenses ............................ 31 34 33
Net investment income ........................ $2,879 $3,059 $2,776
Changes in net unrealized gains (losses) on investment securities that are included as a separate
component of accumulated other changes in equity from nonowner sources were as follows:
(at and for the year ended December 31, in millions) 2011 2010 2009
Change in net unrealized investment gains (losses)
Fixed maturities ............................... $1,588 $ 114 $2,830
Equity securities ............................... (2) 69 160
Other investments ............................. (14) (178) 87
1,572 5 3,077
Related tax expense ............................ 560 2 1,075
Change in net unrealized gain on investment securities . 1,012 3 2,002
Balance, beginning of year ....................... 1,859 1,856 (146)
Balance, end of year .......................... $2,871 $1,859 $1,856
Derivative Financial Instruments
The Company uses U.S. Treasury note futures transactions to modify the effective duration of
specific assets within the investment portfolio and enters into 90-day futures contracts on 2-year, 5-year,
10-year and 30-year U.S. Treasury notes which require a daily mark-to-market and settlement with the
broker. The notional value of the open U.S. Treasury futures contracts was $900 million and
$400 million at December 31, 2011 and 2010, respectively. Net realized investment gains in 2011, 2010
and 2009 included net losses of $62 million, net losses of $30 million and net gains of $23 million,
respectively, related to U.S. Treasury futures contracts.
In 2010 and 2009, the Company recorded net realized investment gains of $5 million and
$7 million, respectively, related to its holdings of six million stock purchase warrants of Platinum
Underwriters Holdings, Ltd., a publicly-held company. These warrants were not designated and did not
qualify for hedge accounting, and, as such, the mark-to-market changes in fair value were reflected in
net realized investment gains (losses). In October 2010, the Company sold these stock purchase
warrants for proceeds that approximated their carrying value at the date of sale.
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