Travelers 2014 Annual Report Download - page 115

Table of Contents
guaranteed by or fully collateralized by securities issued by GNMA, FNMA or FHLMC. The average credit rating of the $725 million and
$790 million of non - guaranteed CMO holdings at December 31, 2014 and 2013, respectively, was "Ba1" and "Ba3," respectively. The average credit
rating of all of the above securities was "Aa3" and "A1" at December 31, 2014 and 2013, respectively.
The Company makes investments in residential CMOs that are either guaranteed by GNMA, FNMA or FHLMC, or if not guaranteed, are senior
or super
- senior positions within their respective securitizations. Both guaranteed and non - guaranteed residential CMOs allocate the distribution of
payments from the underlying mortgages among different classes of bondholders. In addition, non
- guaranteed residential CMOs provide
structures that allocate the impact of credit losses to different classes of bondholders. Senior and super
- senior CMOs are protected, to varying
degrees, from credit losses as those losses are initially allocated to subordinated bondholders. The Company's investment strategy is to purchase
CMO tranches that are expected to offer the most favorable return given the Company's assessment of associated risks. The Company does not
purchase residual interests in CMOs.
Alternative Documentation Mortgages and Sub
- Prime Mortgages
At December 31, 2014 and 2013, the Company's fixed maturity investment portfolio included CMOs backed by alternative documentation
mortgages and asset
- backed securities collateralized by sub - prime mortgages with a collective fair value of $252 million and $293 million,
respectively (comprising less than 1% of the Company's total fixed maturity investments at both dates). The Company defines sub - prime mortgage -
backed securities as investments in which the underlying loans primarily exhibit one or more of the following characteristics: low FICO scores,
above
- prime interest rates, high loan - to - value ratios or high debt - to - income ratios. Alternative documentation securitizations are those in which the
underlying loans primarily meet the government
- sponsored entities' requirements for credit score but do not meet the government - sponsored
entities' guidelines for documentation, property type, debt and loan
- to - value ratios. The average credit rating on these securities and obligations
held by the Company was"Ba2" at both December 31, 2014 and 2013. The Company does not believe this portfolio exposes it to a material adverse
impact on its results of operations, financial position or liquidity, due to the portfolio's relatively small size.
Commercial Mortgage
- Backed Securities and Project Loans
At December 31, 2014 and 2013, the Company held commercial mortgage
- backed securities (including FHA project loans) of $715 million and
$475 million, respectively. The average credit rating on these securities held by the Company was "Aaa" at both December 31, 2014 and 2013. The
Company does not believe this portfolio exposes it to a material adverse impact on its results of operations, financial position or liquidity, due to
the portfolio's relatively small size and the underlying credit strength of these securities.
Equity Securities Available for Sale, Real Estate and Short
- Term Investments
See note 1 of notes to the Company's consolidated financial statements for further information about these invested asset classes.
Other Investments
The Company also invests much smaller amounts in equity securities, real estate, private equity limited partnerships, hedge funds, and real
estate partnerships and joint ventures. These asset classes have historically provided a higher return than the Company's fixed maturity
investments but are subject to more volatility. At December 31, 2014 and 2013, the carrying value of the Company's other investments was
$3.59 billion and $3.44 billion, respectively.
114