Travelers 2011 Annual Report Download - page 64

Federal and/or state tax legislation could be enacted in connection with deficit reduction or various
types of fundamental tax reform that would lessen or eliminate some or all of the tax advantages
currently benefiting us and could adversely affect the value of our investment portfolio.
Our investment portfolio includes: residential mortgage-backed securities; collateralized mortgage
obligations; pass-through securities and asset-backed securities collateralized by sub-prime mortgages;
commercial mortgage-backed securities; and wholly-owned real estate, real estate partnerships and
mortgage loans, all of which could be adversely impacted by further declines in real estate valuations
and/or financial market disruption. In addition, the potential for protracted disruption and/or
suspension of foreclosure practices could also impact the returns on certain of these portfolios.
We also invest a portion of our assets in equity securities, private equity limited partnerships,
hedge funds, and real estate partnerships, all of which are subject to greater volatility in their
investment returns than fixed maturity investments. General economic conditions, changes in applicable
tax laws and many other factors beyond our control can adversely affect the value of our non-fixed
maturity investments and the realization of net investment income, and/or result in realized investment
losses. As a result of these factors, we may realize reduced returns on these investments, incur losses
on sales of these investments and be required to write down the value of these investments, which
could reduce our net investment income and result in realized investment losses.
Our investment portfolio is also subject to increased valuation uncertainties when investment
markets are illiquid. The valuation of investments is more subjective when markets are illiquid, thereby
increasing the risk that the estimated fair value (i.e., the carrying amount) of the portion of the
investment portfolio that is carried at fair value as reflected in our financial statements is not reflective
of prices at which actual transactions could occur.
Because of the risks set forth above, the value of our investment portfolio could decrease, we
could experience reduced net investment income and we could experience realized and/or unrealized
investment losses, which could materially and adversely affect our results of operations, financial
position and/or liquidity.
Our business could be harmed because of our potential exposure to asbestos and environmental
claims and related litigation.
With regard to asbestos claims, we continue to receive a significant number of asbestos claims
from policyholders (including others seeking coverage under a policy). Factors underlying these claim
filings include intensive advertising by lawyers seeking asbestos claimants and the focus by plaintiffs on
previously peripheral defendants. The focus on these defendants is primarily the result of the number
of traditional asbestos defendants who have sought bankruptcy protection in previous years. The
bankruptcy of many traditional defendants has prompted plaintiffs to aggressively seek out potential
new defendants and has caused increased settlement demands against those policyholders who are not
in bankruptcy but who remain in the tort system. Currently, in many jurisdictions, those who allege very
serious injury and who can present credible medical evidence of their injuries are receiving priority trial
settings in the courts, while those who have not shown any credible disease manifestation are having
their hearing dates delayed or placed on an inactive docket. This trend of prioritizing claims involving
credible evidence of injuries, along with the focus on previously peripheral defendants, contributes to
the claims and claim adjustment expense payments experienced by us.
We also continue to be involved in coverage litigation concerning a number of policyholders, some
of whom have filed for bankruptcy, who in some instances have asserted that all or a portion of their
asbestos-related claims are not subject to aggregate limits on coverage. In these instances, policyholders
also may assert that each individual bodily injury claim should be treated as a separate occurrence
under the policy. It is difficult to predict whether these policyholders will be successful on both issues.
To the extent both issues are resolved in a policyholder’s favor and our other defenses are not
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