Travelers 2013 Annual Report Download - page 256

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
16. CONTINGENCIES, COMMITMENTS AND GUARANTEES (Continued)
$238 million of reinsurance recoverable plus interest amounting to $228 million as of that date. Interest
will continue to accrue at 9% until the claim is paid. The $238 million of reinsurance recoverable owed
to USF&G under the terms of the disputed reinsurance contract has been reported as part of
reinsurance recoverables in the Company’s consolidated balance sheet. The interest that would be owed
as part of any judgment ultimately entered in favor of USF&G 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.
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. 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 approving 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. On March 25, 2013, the Seventh Circuit dismissed the appeals. On April 16, 2013, the
Seventh Circuit issued its mandate returning the case to the district court for administration of the
settlement. Prior to receiving payment, the Company accounted for its anticipated allocation from the
settlement fund as a gain contingency in accordance with FASB Topic 450, Contingencies. On June 26,
2013, the Company received payment of approximately $91 million, comprising 98% of its allocation
from the settlement fund. On November 11, 2013, the Company received payment of approximately
$2 million, comprising the remaining 2% to be paid from the settlement fund. The combination of the
payments received in June and November 2013 totaling $93 million, less approximately $2 million
remitted to another insurer, resulted in a net gain of $91 million that is reported in ‘‘Other revenues’’
in the Company’s consolidated statement of income.
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 $1.52 billion
and $1.27 billion at December 31, 2013 and 2012, respectively.
Guarantees
In the ordinary course of selling businesses to third parties, the Company has agreed to indemnify
purchasers for losses arising out of breaches of representations and warranties with respect to the
businesses 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
and imposition of additional taxes due to either a change in the tax law or an adverse interpretation of
the tax law. Such indemnification provisions generally are applicable from the closing date to the
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