Travelers 2012 Annual Report Download - page 166

portfolio and underwriting results, among others, are forward looking, and the Company may also
make forward-looking statements about, among other things:
• its results of operations and financial condition (including, among other things, premium volume,
premium rates, net and operating income, investment income and performance, loss costs, return
on equity, and expected current returns and combined ratios);
• the sufficiency of the Company’s asbestos and other reserves;
• the impact of emerging claims issues as well as other insurance and non-insurance litigation;
• the cost and availability of reinsurance coverage;
• catastrophe losses;
• the impact of investment, economic and underwriting market conditions; and
• strategic initiatives.
The Company cautions investors that such statements are subject to risks and uncertainties, many
of which are difficult to predict and generally beyond the Company’s control, that could cause actual
results to differ materially from those expressed in, or implied or projected by, the forward-looking
information and statements.
For a discussion of some of the factors that could cause actual results to differ, see ‘‘Item 1A—
Risk Factors’’ and ‘‘Item 7—Management’s Discussion and Analysis of Financial Condition and Results
of Operations—Critical Accounting Estimates.’’
The Company’s forward-looking statements speak only as of the date of this report or as of the
date they are made, and the Company undertakes no obligation to update its forward-looking
statements.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISK
Market risk is the risk of loss arising from adverse changes in market rates and prices, such as
interest rates (inclusive of credit spreads), foreign currency exchange rates and other relevant market
rate or price changes. Market risk is directly influenced by the volatility and liquidity in the markets in
which the related underlying assets are traded. The following is a discussion of the Company’s primary
market risk exposures and how those exposures are managed as of December 31, 2012. The Company’s
market risk sensitive instruments, including derivatives, are primarily entered into for purposes other
than trading.
The carrying value of the Company’s investment portfolio at December 31, 2012 and 2011 was
$73.84 billion and $72.70 billion, respectively, of which 89% and 88% was invested in fixed maturity
securities, respectively. At both December 31, 2012 and 2011, approximately 6.2% of the Company’s
invested assets were denominated in foreign currencies. The Company’s exposure to equity price risk is
not significant. The Company has no direct commodity risk and is not a party to any credit default
swaps.
The primary market risks to the investment portfolio are interest rate risk and credit risk
associated with investments in fixed maturity securities. The portfolio duration relative to the liabilities’
duration is primarily managed through cash market transactions and treasury futures transactions. For
additional information regarding the Company’s investments, see notes 3 and 4 of notes to the
Company’s consolidated financial statements as well as the ‘‘Investment Portfolio’’ and ‘‘Outlook’’
sections of ‘‘Item 7—Management’s Discussion and Analysis of Financial Condition and Results of
Operations.’’
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