Travelers 2012 Annual Report Download - page 253

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
16. CONTINGENCIES, COMMITMENTS AND GUARANTEES (Continued)
settlement proceeds among the class members. On December 21, 2011, the court entered an order
granting final approval of the settlement, and on February 28, 2012, the district court issued a written
opinion regarding its approval of the settlement. On March 27, 2012, three parties who objected to the
settlement appealed the court’s orders approving the settlement to the U.S. Court of Appeals for the
Seventh Circuit. On January 11, 2013, all parties, including the three parties who had objected to the
settlement, filed a Stipulation of Dismissal indicating that there were no longer any objections to the
settlement. All parties are awaiting an order from the Seventh Circuit in response to the Stipulation of
Dismissal. The Company anticipates that its allocation from the settlement fund, in the event the
settlement becomes final, 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 will
be recognized in the Company’s consolidated financial statements during the period in which it is
received by the Company.
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 $1.27 billion
and $1.15 billion at December 31, 2012 and 2011, respectively.
Guarantees
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
interpretation of the tax law, or certain named litigation. Such indemnification provisions generally
survive for periods ranging from seven years following the applicable closing date to the expiration of
the relevant statutes of limitations, although, in some cases, there may be other agreed upon term
limitations or no term limitations. Certain of these contingent obligations are subject to deductibles
which have to be incurred by the obligee before the Company is obligated to make payments. The
maximum amount of the Company’s contingent obligation for indemnifications related to the sale of
business entities that are quantifiable was $471 million at December 31, 2012, of which $9 million was
recognized on the balance sheet at that date.
The Company also 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. 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 $129 million at December 31, 2012, approximately
$63 million of which is indemnified by a third party. The maximum amount of the Company’s
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