Travelers 2015 Annual Report Download - page 105

of asbestos and environmental claims. This environment could be affected by changes in applicable
legislation and future court and regulatory decisions and interpretations, including the outcome of legal
challenges to legislative and/or judicial reforms establishing medical criteria for the pursuit of asbestos
claims. It is also difficult to predict the ultimate outcome of complex coverage disputes until settlement
negotiations near completion and significant legal questions are resolved or, failing settlement, until the
dispute is adjudicated. This is particularly the case with policyholders in bankruptcy where negotiations
often involve a large number of claimants and other parties and require court approval to be effective.
As part of its continuing analysis of asbestos and environmental reserves, the Company continues to
study the implications of these and other developments.
Because of the uncertainties set forth above, additional liabilities may arise for amounts in excess
of the Company’s current reserves. In addition, the Company’s estimate of claims and claim adjustment
expenses may change. These additional liabilities or increases in estimates, or a range of either, cannot
now be reasonably estimated and could result in income statement charges that could be material to
the Company’s operating results in future periods.
INVESTMENT PORTFOLIO
The Company’s invested assets at December 31, 2015 were $70.47 billion, of which 93% was
invested in fixed maturity and short-term investments, 1% in equity securities, 1% in real estate
investments and 5% in other investments. Because the primary purpose of the investment portfolio is
to fund future claims payments, the Company employs a conservative investment philosophy. A
significant majority of funds available for investment are deployed in a widely diversified portfolio of
high quality, liquid, taxable U.S. government, tax-exempt U.S. municipal and taxable corporate and U.S.
agency mortgage-backed bonds.
The carrying value of the Company’s fixed maturity portfolio at December 31, 2015 was
$60.66 billion. The Company closely monitors the duration of its fixed maturity investments, and
investment purchases and sales are executed with the objective of having adequate funds available to
satisfy the Company’s insurance and debt obligations. The weighted average credit quality of the
Company’s fixed maturity portfolio, both including and excluding U.S. Treasury securities, was ‘‘Aa2’’ at
both December 31, 2015 and 2014. Below investment grade securities represented 2.8% and 3.0% of
the total fixed maturity investment portfolio at December 31, 2015 and 2014, respectively. The average
effective duration of fixed maturities and short-term securities was 3.9 (4.2 excluding short-term
securities) at December 31, 2015 and 3.5 (3.7 excluding short-term securities) at December 31, 2014.
105