Travelers 2012 Annual Report Download - page 168

For debt, the change in fair value is determined by calculating hypothetical December 31, 2012 and
2011 ending prices based on yields adjusted to reflect a 100 basis point change, comparing such
hypothetical ending prices to actual ending prices, and multiplying the difference by the par or
securities outstanding.
The sensitivity analysis model used by the Company produces a loss in fair value of market
sensitive instruments of approximately $1.64 billion and $1.79 billion based on a 100 basis point
increase in interest rates at December 31, 2012 and 2011, respectively.
The loss estimates do not take into account the impact of possible interventions that the Company
might reasonably undertake in order to mitigate or avoid losses that would result from emerging
interest rate trends. In addition, the loss value only reflects the impact of an interest rate increase on
the fair value of the Company’s financial instruments.
Foreign Currency Exchange Rate Risk
The Company uses fair values of investment securities to measure its potential loss from foreign
denominated investments. A hypothetical 10% reduction in value of foreign denominated investments is
used to estimate the impact on the market value of the foreign denominated holdings. The Company’s
analysis indicates that a hypothetical 10% reduction in the value of foreign denominated investments
would be expected to produce a loss in fair value of approximately $459 million and $452 million at
December 31, 2012 and 2011, respectively.
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