Travelers 2014 Annual Report Download - page 161

Table of Contents
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, 2014. 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, 2014 and 2013 was $73.26 billion and $73.16 billion, respectively, of
which 87% was invested in fixed maturity securities at both dates. At December 31, 2014 and 2013, approximately 8.7% and 9.3%, respectively, 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 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."
The primary market risk for all of the Company's debt is interest rate risk at the time of refinancing. The Company monitors the interest rate
environment and evaluates refinancing opportunities as maturity dates approach. For additional information regarding the Company's debt see
note 8 of notes to the Company's consolidated financial statements as well as the "Liquidity and Capital Resources" section of "Item 7—
Management's Discussion and Analysis of Financial Condition and Results of Operations."
The Company's foreign exchange market risk exposure is concentrated in the Company's invested assets, insurance reserves and shareholders'
equity denominated in foreign currencies. Cash flows from the Company's foreign operations are the primary source of funds for the purchase of
investments denominated in foreign currencies. The Company purchases these investments primarily to fund insurance reserves and other
liabilities denominated in the same currency, effectively reducing its foreign currency exchange rate exposure. Invested assets denominated in the
Canadian dollar comprised approximately 5.2% and 5.5% of the total invested assets at December 31, 2014 and 2013, respectively. Invested assets
denominated in the British Pound Sterling comprised approximately 2.2%
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