Travelers 2011 Annual Report Download - page 251

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15. CONTINGENCIES, COMMITMENTS AND GUARANTEES (Continued)
in accordance with FASB Topic 450, Contingencies, and accordingly has not been recognized in the
Company’s consolidated financial statements.
In an unrelated action, The Travelers Indemnity Company is one of the Settlement Class plaintiffs
and a class member in a class action lawsuit captioned Safeco Insurance Company of America, et al. v.
American International Group, Inc. et al. (U.S. District Court, N.D. Ill.) in which the defendants are
alleged to have engaged in the under-reporting of workers’ compensation premium in connection with
a workers’ compensation reinsurance pool in which several subsidiaries of the Company participate. On
July 26, 2011, the court granted preliminary approval of a class settlement pursuant to which the
defendants agreed to pay $450 million to the class. The settlement includes a plan of allocation of the
settlement proceeds among the class members. On December 21, 2011, the court entered an order
granting final approval of the settlement. On January 19, 2012, three parties who objected to the
settlement filed notices of appeal from the court’s orders approving the settlement with the U.S. Court
of Appeals for the Seventh Circuit. The Company anticipates that its allocation from the settlement
fund, in the event the court’s approval of the class settlement is affirmed, will be approximately
$90 million. This amount is treated for accounting purposes as a gain contingency in accordance with
FASB Topic 450, Contingencies, and accordingly has not been recognized in the Company’s consolidated
financial statements.
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 $1.15 billion
and $1.26 billion at December 31, 2011 and 2010, respectively.
Guarantees
The Company has contingent obligations for guarantees related to certain investments, third-party
loans related to certain investments, certain insurance policy obligations of former insurance
subsidiaries, and various other 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. 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
$126 million at December 31, 2011, approximately $63 million of which is indemnified by a third party.
The maximum amount of the Company’s obligation related to the guarantee of certain insurance policy
obligations of a former insurance subsidiary was $480 million at December 31, 2011, all of which is
indemnified by 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
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