UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2007

or

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                   to                    

Commission file number 001-10898

The Travelers Companies, Inc.

(Exact name of registrant as specified in its charter)

 

385 Washington Street,

St. Paul, MN 55102

(Address of principal executive offices) (Zip Code)

(651) 310-7911

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes x    No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (Check one):

Large accelerated filer    x

Accelerated filer    o

Non-accelerated filer    o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o    No x

The number of shares of the Registrant’s Common Stock, without par value, outstanding at July 19, 2007 was 656,515,649.

The Travelers Companies, Inc.

Quarterly Report on Form 10-Q

For Quarterly Period Ended June 30, 2007

TABLE OF CONTENTS

				Page
		Part I – Financial Information
Item 1.		Financial Statements:
		Consolidated Statement of Income (Unaudited) – Three Months and Six Months Ended June 30, 2007 and 2006		3
		Consolidated Balance Sheet – June 30, 2007 (Unaudited) and December 31, 2006		4
		Consolidated Statement of Changes in Shareholders’ Equity (Unaudited) – Six Months Ended June 30, 2007 and 2006		5
		Consolidated Statement of Cash Flows (Unaudited) – Six Months Ended June 30, 2007 and 2006		6
		Notes to Consolidated Financial Statements (Unaudited)		7
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		40
Item 3.		Quantitative and Qualitative Disclosures About Market Risk		78
Item 4.		Controls and Procedures		79
		Part II – Other Information
Item 1.		Legal Proceedings		79
Item 1A.		Risk Factors		86
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds		86
Item 3.		Defaults Upon Senior Securities		86
Item 4.		Submission of Matters to a Vote of Security Holders		86
Item 5.		Other Information		86
Item 6.		Exhibits		86
		SIGNATURES		87
		EXHIBIT INDEX		88

 

2

Item 1.  FINANCIAL STATEMENTS

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF INCOME (Unaudited)

(in millions, except per share data)

		Three Months Ended June 30,						Six Months Ended June 30,
		2007			2006			2007			2006
Revenues
Premiums		$	5,327		$	5,181		$	10,622		$	10,172
Net investment income		990			874			1,950			1,749
Fee income		127			153			247			303
Net realized investment gains		128			10			142			4
Other revenues		1			37			39			77
Total revenues		6,573			6,255			13,000			12,305
Claims and expenses
Claims and claim adjustment expenses		3,096			3,153			6,285			6,195
Amortization of deferred acquisition costs		915			814			1,784			1,614
General and administrative expenses		836			866			1,669			1,660
Interest expense		85			78			161			154
Total claims and expenses		4,932			4,911			9,899			9,623
Income before income taxes		1,641			1,344			3,101			2,682
Income tax expense		387			374			761			706
Net income		$	1,254		$	970		$	2,340		$	1,976
Net income per share
Basic		$	1.90		$	1.40		$	3.52		$	2.85
Diluted		$	1.86		$	1.36		$	3.41		$	2.76
Weighted average number of common shares outstanding
Basic		658.6			691.8			664.2			692.0
Diluted		676.0			720.4			688.6			720.6

 

See notes to consolidated financial statements (unaudited).

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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

(in millions)

		June 30, 2007			December 31, 2006
		(Unaudited)
Assets
Fixed maturities, available for sale at fair value (including $1,666 and $1,674 subject to securities lending) (amortized cost $63,912 and $62,244)		$	63,321		$	62,666
Equity securities, at fair value (cost $432 and $436)		464			473
Real estate		867			793
Short-term securities		4,480			4,938
Other investments		3,225			3,398
Total investments		72,357			72,268
Cash		562			459
Investment income accrued		862			827
Premiums receivable		6,489			6,181
Reinsurance recoverables		16,734			17,820
Ceded unearned premiums		1,341			1,243
Deferred acquisition costs		1,797			1,615
Deferred tax asset		1,700			1,536
Contractholder receivables		6,737			6,554
Goodwill		3,366			3,438
Other intangible assets		884			764
Other assets		2,532			2,587
Total assets		$	115,361		$	115,292
Liabilities
Claims and claim adjustment expense reserves		$	58,504		$	59,288
Unearned premium reserves		11,459			11,228
Contractholder payables		6,737			6,554
Payables for reinsurance premiums		784			685
Debt		6,733			5,760
Other liabilities		5,822			6,642
Total liabilities		90,039			90,157
Shareholders’ equity
Preferred Stock Savings Plan—convertible preferred stock (0.4 shares issued and outstanding at both dates)		119			129
Common stock (1,750.0 shares authorized; 657.0 and 678.3 shares issued and outstanding)		18,839			18,530
Retained earnings		9,228			7,253
Accumulated other changes in equity from nonowner sources		(220		)	452
Treasury stock, at cost (51.8 and 25.2 shares)		(2,644		)	(1,229		)
Total shareholders’ equity		25,322			25,135
Total liabilities and shareholders’ equity		$	115,361		$	115,292

 

See notes to consolidated financial statements (unaudited).

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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)

(in millions)

For the six months ended June 30,		2007			2006
Convertible preferred stock—savings plan
Balance, beginning of year		$	129		$	153
Redemptions during period		(10		)	(13		)
Total preferred shareholders’ equity		119			140
Common stock
Balance, beginning of year		18,530			18,096
Employee share-based compensation		178			75
Conversion of convertible notes		36			—
Compensation amortization under share-based plans and other		95			88
Balance, end of period		18,839			18,259
Retained earnings
Balance, beginning of year		7,253			3,750
Net income		2,340			1,976
Dividends		(368		)	(343		)
Minority interest and other		3			(1		)
Balance, end of period		9,228			5,382
Accumulated other changes in equity from nonowner sources, net of tax
Balance, beginning of year		452			351
Change in net unrealized gain on investment securities		(716		)	(804		)
Net change in unrealized foreign currency translation and other changes		44			47
Balance, end of period		(220		)	(406		)
Treasury stock (at cost)
Balance, beginning of year		(1,229		)	(47		)
Reacquired under share repurchase program		(1,347		)	(250		)
Reacquired related to employee share-based compensation plans		(68		)	(26		)
Balance, end of period		(2,644		)	(323		)
Total common shareholders’ equity		25,203			22,912
Total shareholders’ equity		$	25,322		$	23,052
Common shares outstanding
Balance, beginning of year		678.3			693.4
Shares acquired – share repurchase program		(25.3		)	(5.6		)
Net shares issued under employee share-based compensation plans		3.3			3.6
Shares issued pursuant to conversion of convertible notes		0.7			—
Balance, end of period		657.0			691.4
Summary of changes in equity from nonowner sources
Net income		$	2,340		$	1,976
Other changes in equity from nonowner sources, net of tax		(672		)	(757		)
Total changes in equity from nonowner sources		$	1,668		$	1,219

 

See notes to consolidated financial statements (unaudited).

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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)

(in millions)

For the six months ended June 30,		2007			2006
Cash flows from operating activities
Net income		$	2,340		$	1,976
Adjustments to reconcile net income to net cash provided by operating activities:
Net realized investment gains		(142		)	(4		)
Depreciation and amortization		408			394
Deferred federal income tax expense		181			203
Amortization of deferred policy acquisition costs		1,784			1,614
Equity income from other investments		(372		)	(274		)
Premiums receivable		(351		)	(248		)
Reinsurance recoverables		1,079			1,006
Deferred acquisition costs		(1,991		)	(1,710		)
Claims and claim adjustment expense reserves		(605		)	(1,646		)
Unearned premium reserves		335			375
Trading account activities		(4		)	6
Excess tax benefits from share-based payment arrangements		(20		)	(6		)
Other		(718		)	(275		)
Net cash provided by operating activities		1,924			1,411
Cash flows from investing activities
Proceeds from maturities of fixed maturities		2,564			2,650
Proceeds from sales of investments:
Fixed maturities		1,538			3,174
Equity securities		56			126
Other investments		931			512
Purchases of investments:
Fixed maturities		(6,013		)	(8,049		)
Equity securities		(55		)	(64		)
Real estate		(53		)	(14		)
Other investments		(371		)	(363		)
Net sales (purchases) of short-term securities		304			(93		)
Securities transactions in course of settlement		54			509
Other		(210		)	(122		)
Net cash used in investing activities		(1,255		)	(1,734		)
Cash flows from financing activities
Payment of debt		(1,468		)	(4		)
Issuance of debt		2,461			786
Dividends to shareholders		(368		)	(343		)
Issuance of common stock – employee share options		160			58
Treasury shares acquired – share repurchase program		(1,335		)	(230		)
Treasury shares acquired – net employee share-based compensation		(38		)	(17		)
Excess tax benefits from share-based payment arrangements		20			6
Other		—			1
Net cash provided by (used in) financing activities		(568		)	257
Effect of exchange rate changes on cash		2			3
Net increase (decrease) in cash		103			(63		)
Cash at beginning of period		459			337
Cash at end of period		$	562		$	274
Supplemental disclosure of cash flow information
Income taxes paid		$	786		$	253
Interest paid		$	161		$	164

 

See notes to consolidated financial statements (unaudited).

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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1.                       BASIS OF PRESENTATION AND ACCOUNTING POLICIES

Basis of Presentation

The interim consolidated financial statements include the accounts of The Travelers Companies, Inc. (together with its subsidiaries, the Company). These financial statements are prepared in conformity with U.S. generally accepted accounting principles (GAAP) and are unaudited.  In the opinion of the Company’s management, all adjustments necessary for a fair presentation have been reflected.  Certain financial information that is normally included in annual financial statements prepared in accordance with GAAP, but that is not required for interim reporting purposes, has been omitted.  Certain reclassifications have been made to the 2006 financial statements to conform to the 2007 presentation.  This includes a reclassification of certain contractholder receivables and payables in the consolidated balance sheet, which had previously been reported on a net basis, to a gross basis, consistent with the Company’s accounting policy.  The accompanying interim consolidated financial statements and related notes should be read in conjunction with the Company’s consolidated financial statements and related notes included in the Company’s 2006 Annual Report on Form 10-K/A.

Effective February 26, 2007, The St. Paul Travelers Companies, Inc. amended its articles of incorporation to change its name to The Travelers Companies, Inc. and, effective the same day, amended its bylaws to reflect the name change.

Adoption of New Accounting Standards

Accounting for Uncertainty in Income Taxes

In July 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes - an Interpretation of FASB Statement No. 109 (FIN 48).  FIN 48 is intended to clarify the accounting for uncertainty in income taxes recognized in a company’s financial statements and prescribes the recognition and measurement of a tax position taken or expected to be taken in a tax return.  FIN 48 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

Under FIN 48, evaluation of a tax position is a two-step process.  The first step is to determine whether it is more-likely-than-not that a tax position will be sustained upon examination, including the resolution of any related appeals or litigation based on the technical merits of that position.  The second step is to measure a tax position that meets the more-likely-than-not threshold to determine the amount of benefit to be recognized in the financial statements.  A tax position that meets the more-likely-than-not recognition threshold shall initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information.

Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent period in which the threshold is met.  Previously recognized tax positions that no longer meet the more-likely-than-not criteria should be de-recognized in the first subsequent financial reporting period in which the threshold is no longer met.

The adoption of FIN 48 at January 1, 2007 did not have a material effect on the Company’s financial position.

The total amount of unrecognized tax benefits as of January 1, 2007 was $339 million.  Included in that balance were $101 million of unrecognized tax benefits that, if recognized, would affect the annual effective tax rate and $175 million of tax positions for which the ultimate deductibility is certain, but for which there is uncertainty about the timing of deductibility.  The timing of such deductibility would not affect the annual effective tax rate.  The balance of unrecognized tax benefits at January 1, 2007 was comprised of $63 million of unrecognized tax benefits that, if recognized, would reduce goodwill.

The Company recognizes accrued interest and penalties, if any, related to unrecognized tax benefits in income taxes.  The Company had approximately $35 million for the payment of interest accrued at January 1, 2007.

7

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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

1.                                      BASIS OF PRESENTATION AND ACCOUNTING POLICIES, Continued

During the six months ended June 30, 2007, the Company effectively settled Internal Revenue Service (IRS) tax examinations for all years through December 31, 2004.  As a result, the Company recorded after-tax benefits of $58 million and $86 million in its consolidated statement of income for the three months and six months ended June 30, 2007, respectively.  In addition, $63 million of previously unrecognized tax benefits related to the IRS settlement were recognized through a reduction of goodwill during the second quarter of 2007.

The Company does not expect any significant changes to its liability for unrecognized tax benefits during the next twelve months.

In May 2007, the FASB issued FASB Staff Position (FSP) FIN 48-1, Definition of Settlement in FASB Interpretation No. 48 (FSP FIN 48-1). The FSP addresses whether it is appropriate for a company to recognize a previously unrecognized tax benefit when the only factor that has changed, since determining that a benefit should not be recognized, was the completion of an examination or audit by a taxing authority.  The FSP is effective January 1, 2007, the date of the Company’s initial adoption of FIN 48.  The adoption of FSP FIN 48-1 did not have a material effect on the Company’s results of operations, financial condition or liquidity.

Accounting for Certain Hybrid Financial Instruments

In February 2006, the FASB issued Statement of Financial Accounting Standards No. 155, Accounting for Certain Hybrid Financial Instruments - an amendment of FASB Statements No. 133 and 140 (FAS 155).  FAS 155 nullifies the guidance in the FASB’s Derivatives Implementation Group Issue D1 “Application of Statement 133 to Beneficial Interests in Securitized Assets”, which had deferred the bifurcation requirements of Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (FAS 133), for certain beneficial interests in securitized financial assets.  FAS 155 requires that beneficial interests in securitized financial assets be analyzed to determine whether they are freestanding derivatives or hybrid instruments that contain an embedded derivative requiring bifurcation.

FAS 155 permits entities to fair value any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation.  This election is on a contract-by-contract basis and is irrevocable.  Additionally, FAS 155 narrows the exception afforded to interest-only strips and principal-only strips from derivative accounting.   In addition, FAS 155 clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives and amends Statement of Financial Accounting Standards No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities - a replacement of FASB Statement 125, to eliminate the restriction on the passive derivative instruments a Qualifying Special Purpose Entity can hold.

FAS 155 is effective for all financial instruments acquired, issued or subject to a remeasurement (new basis) event occurring after the beginning of an entity’s fiscal year that begins after September 15, 2006.  At adoption, for contracts where the fair value option has been elected, any difference between the total carrying amount of the individual components of the existing bifurcated hybrid financial instrument and the fair value of the combined hybrid financial instrument should be recognized as a cumulative-effect adjustment to beginning retained earnings.

In January 2007, the FASB released Statement 133 Implementation Issue No. B40, Embedded Derivatives: Application of Paragraph 13(b) to Securitized Interests in Prepayable Financial Assets (B40).  B40 provides a limited scope exception from paragraph 13(b) of FAS 133 for securitized interests that contain only an embedded derivative that is tied to the prepayment risk of the underlying prepayable financial assets and if both of the following criteria are met: (a)  the investor does not control the right to accelerate the settlement, and (b) the securitized interest does not contain an embedded derivative for which bifurcation would be required other than an embedded derivative that results from embedded call options in the underlying financial assets.  B40 is effective upon the adoption of FAS 155, except for criterion (b) which is not applicable to securitized interests issued before June 30, 2007, and that only include embedded derivatives that have an extremely remote possibility of having greater than a trivial fair value during the life of the securitized interest.

The Company adopted FAS 155 effective January 1, 2007 and it did not elect the fair value option.  There was no cumulative effect upon adoption of FAS 155.

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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

1.                                      BASIS OF PRESENTATION AND ACCOUNTING POLICIES, Continued

Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection with Modifications or Exchanges of Insurance Contracts

In September 2005, the Accounting Standards Executive Committee (AcSEC) issued Statement of Position 05-1, Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection with Modifications or Exchanges of Insurance Contracts (SOP 05-1).  SOP 05-1 provides guidance on accounting by insurance enterprises for deferred acquisition costs on internal replacements of insurance and investment contracts other than those specifically described in Statement of Financial Accounting Standards No. 97, Accounting and Reporting by Insurance Enterprises for Certain Long-Duration Contracts and for Realized Gains and Losses from the Sale of Investments.  SOP 05-1 defines an internal replacement as a modification in product benefits, features, rights, or coverages that occurs by the exchange of a contract for a new contract, or by amendment, endorsement, or rider to a contract, or by the election of a feature or coverage within a contract.  The adoption of SOP 05-1 effective January 1, 2007 did not have a material effect on the Company’s results of operations, financial condition or liquidity.

Endorsement Split-Dollar Life Insurance Arrangements

In September 2006, FASB issued Emerging Issues Task Force Issue No. 06-4, Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements (EITF 06-4).  EITF 06-4 requires a company to recognize a liability and related compensation expense for endorsement split-dollar life insurance policies that provide a benefit to an employee that extends to postretirement periods.  EITF 06-4 is effective January 1, 2008, with earlier adoption permitted.  The early adoption of EITF 06-4 on January 1, 2007 did not have a material effect on the Company’s results of operations, financial condition or liquidity.

Accounting for Corporate-Owned Life Insurance

In September 2006, the FASB issued Emerging Issues Task Force Issue No. 06-5, Accounting for Purchase of Life Insurance – Determining the Amount That Could Be Realized in Accordance with FASB Technical Bulletin No 85-4 (EITF 06-5).  EITF 06-5 provides additional guidance on determining the amount that can be realized under a corporate-owned life insurance contract (that is, converted to cash) based upon how the contract is assumed to be hypothetically settled.  EITF 06-5 is effective for fiscal years beginning after December 15, 2006.  The adoption of EITF 06-5 did not have a material effect on the Company’s results of operations, financial condition or liquidity.

Accounting Standards Not Yet Adopted

Fair Value Measurements

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (FAS 157).  FAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosure about fair value measurements.  It applies to other pronouncements that require or permit fair value but does not require any new fair value measurements.  The statement defines fair value as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.”

FAS 157 establishes a fair value hierarchy to increase consistency and comparability in fair value measurements and disclosures.  The hierarchy is based on the inputs used in valuation and gives the highest priority to quoted prices in active markets.  The highest possible level should be used to measure fair value.

FAS 157 is effective for fiscal years beginning after November 15, 2007.  The Company does not expect the provisions of FAS 157 to have a material effect on its results of operations, financial condition or liquidity.

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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

1.                                      BASIS OF PRESENTATION AND ACCOUNTING POLICIES, Continued

Fair Value Option for Financial Assets and Financial Liabilities

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (FAS 159).  FAS 159 permits an entity to irrevocably elect fair value on a contract-by-contract basis as the initial and subsequent measurement attribute for many financial assets and liabilities and certain other items including property and casualty insurance contracts.  Entities electing the fair value option would be required to recognize changes in fair value in earnings and to expense up-front costs and fees associated with the item for which the fair value option is elected.  Entities electing the fair value option are required to distinguish on the face of the statement of financial position, the fair value of assets and liabilities for which the fair value option has been elected and similar assets and liabilities measured using another measurement attribute.  An entity can accomplish this by either reporting the fair value and non-fair-value carrying amounts as separate line items or aggregating those amounts and disclosing parenthetically the amount of fair value included in the aggregate amount.

FAS 159 is effective for fiscal years beginning after November 15, 2007.  Upon adoption, an entity is permitted to elect the fair value option irrevocably for any existing asset or liability within the scope of the standard.  The adjustment to reflect the difference between the fair value and the carrying amount would be accounted for as a cumulative-effect adjustment to retained earnings as of the date of initial adoption.  Retrospective application would not be permitted.  The Company does not intend to elect the fair value option for assets and liabilities currently held, and therefore FAS 159 will not have an impact on the Company’s results of operations, financial condition or liquidity.

Collateral Assignment Split-Dollar Life Insurance Arrangements

In March 2007, the FASB issued Emerging Issues Task Force Issue No. 06-10, Accounting for Deferred Compensation and Postretirement Benefit Aspects of Collateral Assignment Split-Dollar Life Insurance Arrangements (EITF 06-10).  EITF 06-10 provides guidance on the recognition and measurement of assets related to collateral assignment split-dollar life insurance arrangements.  EITF 06-10 is effective for fiscal years beginning after December 15, 2007.  The Company does not expect the provisions of EITF 06-10 to have a material effect on its results of operations, financial condition or liquidity.

Clarification of the Scope of the Audit and Accounting Guide Investment Companies and Accounting by Parent Companies and Equity Method Investors for Investments in Investment Companies

In June 2007, AcSEC issued Statement of Position 07-1, Clarification of the Scope of the Audit and Accounting Guide Investment Companies and Accounting by Parent Companies and Equity Method Investors for Investments in Investment Companies (SOP 07-1).  SOP 07-1 provides guidance in determining whether an entity is within the scope of the AICPA Audit and Accounting Guide Investment Companies.  It also addresses whether the specialized industry accounting of the Investment Company Audit Guide should be retained by a parent company in consolidation or by an equity method investor.  The Company is a passive equity method investor (i.e. does not have significant influence) in certain entities which are expected to adopt SOP 07-1.  Upon the adoption of SOP 07-1, the Company’s investment in these entities will be carried at fair value, and the change in fair value will be recorded as net investment income in the consolidated statement of income.  The provisions of SOP 07-1 are effective for fiscal years beginning on or after December 15, 2007.  The Company is in the process of determining the effect that SOP 07-1 may have on its results of operations, financial condition and liquidity.

Nature of Operations

The Company is organized into three reportable business segments: Business Insurance; Financial, Professional & International Insurance; and Personal Insurance.  These segments reflect the manner in which the Company’s businesses are managed and represent an aggregation of products and services based on type of customer, how the business is marketed, and the manner in which risks are underwritten.  The business segments are as follows:

Business Insurance

The Business Insurance segment offers a broad array of property and casualty insurance and insurance-related services to its clients primarily in the United States. Business Insurance is organized into the following six groups, which collectively comprise Business Insurance Core operations: Select Accounts, Commercial Accounts, National Accounts, Industry-Focused Underwriting, Target Risk Underwriting and Specialized Distribution.

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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

1.                                      BASIS OF PRESENTATION AND ACCOUNTING POLICIES, Continued

Business Insurance also includes the Special Liability Group (which manages the Company’s asbestos and environmental liabilities); the assumed reinsurance, health care, and certain international and other runoff operations; and policies written by the Company’s Gulf operation (Gulf), which was placed into runoff during the second quarter of 2004.  These are collectively referred to as Business Insurance Other.

Financial, Professional & International Insurance

The Financial, Professional & International Insurance segment includes surety and financial liability coverages, which require a primarily credit-based underwriting process, as well as property and casualty products that are primarily marketed on an international basis.  The segment includes the Bond & Financial Products group, as well as the International and Lloyd’s group.

In March 2007, the Company completed the sale of its Mexican surety subsidiary, Afianzadora Insurgentes, S.A. de C.V., which accounted for $6 million and $25 million of net written premiums in the second quarter and first six months of 2007, respectively, and $15 million and $38 million of net written premiums in the second quarter and first six months of 2006, respectively.  Written premiums recorded in the second quarter of 2007 subsequent to the completion of the sale reflected the impact of the one-month reporting lag for this operation.  The impact of this transaction was not material to the Company’s results of operations or financial condition.

Personal Insurance

The Personal Insurance segment writes virtually all types of property and casualty insurance covering personal risks. The primary coverages in Personal Insurance are automobile and homeowners insurance sold to individuals.

In April 2007, the Company completed the sale of its subsidiary, Mendota Insurance Company, and its wholly-owned subsidiaries, Mendakota Insurance Company and Mendota Insurance Agency, Inc.  These subsidiaries primarily offered nonstandard automobile coverage and accounted for $0 and $49 million of net written premiums in the second quarter and first six months of 2007, respectively, and $46 million and $98 million of net written premiums in the second quarter and first six months of 2006, respectively.  The sale was not material to the Company’s results of operations or financial condition.

11

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

2.                 SEGMENT INFORMATION

(for the three months  ended June 30,  in millions)		Business Insurance			Financial,  Professional &  International  Insurance			Personal Insurance			Total Reportable Segments
202007 Revenues
Premiums		$	2,802		$	844		$	1,681		$	5,327
Net investment income		717			125			148			990
Fee income		127			—			—			127
Other revenues		10			6			21			37
Total operating revenues (1)		$	3,656		$	975		$	1,850		$	6,481
Operating income (1)		$	805		$	152		$	276		$	1,233
2006 Revenues
Premiums		$	2,715		$	839		$	1,627		$	5,181
Net investment income		635			102			137			874
Fee income		153			—			—			153
Other revenues		9			6			22			37
Total operating revenues (1)		$	3,512		$	947		$	1,786		$	6,245
Operating income (1)		$	655		$	149		$	203		$	1,007

 

(for the six months  ended June 30,  in millions)		Business Insurance			Financial, Professional & International Insurance			Personal Insurance			Total Reportable Segments
2007 Revenues
Premiums		$	5,565		$	1,688		$	3,369		$	10,622
Net investment income		1,411			246			293			1,950
Fee income		247			—			—			247
Other revenues		14			11			45			70
Total operating revenues (1)		$	7,237		$	1,945		$	3,707		$	12,889
Operating income (1)		$	1,483		$	308		$	542		$	2,333
2006 Revenues
Premiums		$	5,358		$	1,627		$	3,187		$	10,172
Net investment income		1,271			205			271			1,747
Fee income		303			—			—			303
Other revenues		16			11			46			73
Total operating revenues (1)		$	6,948		$	1,843		$	3,504		$	12,295
Operating income (1)		$	1,306		$	290		$	443		$	2,039

 

(1)                   Operating revenues exclude net realized investment gains (losses). Operating income equals net income excluding the after-tax impact of net realized investment gains (losses).

12

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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

2.                       SEGMENT INFORMATION, Continued

Business Segment Reconciliations

		Three Months Ended June 30,						Six Months Ended June 30,
(in millions)		2007			2006			2007			2006
Revenue reconciliation
Earned premiums:
Business Insurance:
Commercial multi-peril		$	770		$	762		$	1,530		$	1,504
Workers’ compensation		549			515			1,082			1,017
Commercial automobile		509			500			1,016			978
Property		499			477			980			928
General liability		472			447			927			915
Other		3			14			30			16
Total Business Insurance		2,802			2,715			5,565			5,358
Financial, Professional & International Insurance:
General liability		242			251			484			498
Fidelity and surety		268			277			538			537
International		300			283			600			534
Other		34			28			66			58
Total Financial, Professional & International Insurance		844			839			1,688			1,627
Personal Insurance:
Automobile		912			910			1,851			1,782
Homeowners and other		769			717			1,518			1,405
Total Personal Insurance		1,681			1,627			3,369			3,187
Total earned premiums		5,327			5,181			10,622			10,172
Net investment income		990			874			1,950			1,747
Fee income		127			153			247			303
Other revenues		37			37			70			73
Total operating revenues for reportable segments		6,481			6,245			12,889			12,295
Interest Expense and Other		(36		)	—			(31		)	6
Net realized investment gains		128			10			142			4
Total consolidated revenues		$	6,573		$	6,255		$	13,000		$	12,305
Income reconciliation, net of tax
Total operating income for reportable segments		$	1,233		$	1,007		$	2,333		$	2,039
Interest Expense and Other		(66		)	(48		)	(88		)	(69		)
Total operating income		1,167			959			$	2,245		$	1,970
Net realized investment gains		87			11			95			6
Total consolidated net income		$	1,254		$	970		$	2,340		$	1,976

 

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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

2.                       SEGMENT INFORMATION, Continued

(in millions)		June 30, 2007			December 31, 2006
Asset reconciliation:
Business Insurance		$	87,594		$	88,171
Financial, Professional & International Insurance		13,710			13,265
Personal Insurance		13,355			13,294
Total assets for reportable segments		114,659			114,730
Other assets (1)		702			562
Total consolidated assets		$	115,361		$	115,292

 

(1)                   The primary components of other assets in 2007 were intangible assets and accrued over-funded benefit plan assets.  The primary components of other assets in 2006 were accrued over-funded benefit plan assets and deferred taxes.

3.                       INVESTMENTS

Fixed Maturities

The amortized cost and fair value of investments in fixed maturities classified as available-for-sale were as follows:

		Amortized		Gross Unrealized				Fair
(at June 30, 2007, in millions)		Cost		Gains		Losses		Value
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities		$                     7,329		$                                      30		$                               200		$                     7,159
U.S. Treasury securities and obligations of U.S. Government and government agencies and authorities		2,280		7		40		2,247
Obligations of states, municipalities and political subdivisions		37,844		275		410		37,709
Debt securities issued by foreign governments		1,471		2		19		1,454
All other corporate bonds		14,892		114		359		14,647
Redeemable preferred stock		96		13		4		105
Total		$              63,912		$                               441		$                     1,032		$              63,321

 

		Amortized			Gross Unrealized						Fair
(at December 31, 2006, in millions)		Cost			Gains			Losses			Value
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities		$                          7,665			$                                         52			$                                   128			$                          7,589
U.S. Treasury securities and obligations of U.S. Government and government agencies and authorities		2,736			13			31			2,718
Obligations of states, municipalities and political subdivisions		35,326			661			80			35,907
Debt securities issued by foreign governments		1,550			12			10			1,552
All other corporate bonds		14,866			165			247			14,784
Redeemable preferred stock		101			16			1			116
Total		$	62,244		$	919		$	497		$	62,666

 

Equity Securities

The cost and fair value of investments in equity securities were as follows:

				Gross Unrealized				Fair
(at June 30, 2007, in millions)		Cost		Gains		Losses		Value
Common stock		$                               111		$                                      29		$                                       —		$                               140
Non-redeemable preferred stock		321		11		8		324
Total		$                               432		$                                      40		$                                             8		$                               464

 

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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

3.                       INVESTMENTS, Continued

				Gross Unrealized				Fair
(at December 31, 2006, in millions)		Cost		Gains		Losses		Value
Common stock		$                                         88		$                                         27		$                                        —		$                                   115
Non-redeemable preferred stock		348		15		5		358
Total		$                                   436		$                                         42		$                                               5		$                                   473

 

Other Investments

Venture Capital

The cost and fair value of investments in venture capital were as follows:

				Gross Unrealized				Fair
(at June 30, 2007, in millions)		Cost		Gains		Losses		Value
Venture capital		$                                      68		$                                      16		$                                       —		$                                      84

 

				Gross Unrealized				Fair
(at December 31, 2006, in millions)		Cost		Gains		Losses		Value
Venture capital		$                                   392		$                                   109		$                                               1		$                                   500

 

In May 2007, the Company completed the bundled sale of a substantial portion of its venture capital portfolio for total net proceeds of $397 million, which are included on the consolidated statement of cash flow in “proceeds from sales of other investments.”  The sale resulted in the realization of $81 million pretax ($52 million after-tax) of previously unrealized net investment gains that had been recorded as a component of accumulated other changes in equity from nonowner sources.

Variable Interest Entities (VIEs)

The following entities are consolidated:

·                  Municipal Trusts—The Company owns interests in various municipal trusts that were formed to allow the Company to generate investment income in a manner consistent with its investment objectives and tax position.  As of June 30, 2007 and December 31, 2006, there were 33 and 35 such trusts, respectively, which held a combined total of $376 million and $391 million, respectively, in municipal securities, of which $65 million and $76 million, respectively, were owned by outside investors. The net carrying value of the trusts owned by the Company at June 30, 2007 and December 31, 2006 was $311 million and $315 million, respectively.

The Company has significant interests in the following VIEs, which are not consolidated because the Company is not considered to be the primary beneficiary:

·                  The Company has a significant variable interest in two real estate entities.  These investments have total assets of approximately $293 million and $305 million as of June 30, 2007 and December 31, 2006, respectively. The carrying value of the Company’s share of these investments was approximately $28 million at June 30, 2007 and $33 million at December 31, 2006. The Company has an unfunded commitment of $12 million associated with one of these funds. The Company’s exposure to loss is limited to the investment carrying amounts reported in the consolidated balance sheet and the unfunded commitment amount. The purpose of the Company’s involvement in these entities is to generate investment returns.

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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

3.                       INVESTMENTS, Continued

·                  The Company has a significant variable interest in Camperdown UK Limited, which the Company sold in December 2003. The Company’s variable interest resulted from an agreement to indemnify the purchaser in the event a specified reserve deficiency develops, a reserve-related foreign exchange impact occurs, or a foreign tax adjustment is imposed on a pre-sale reporting period. The maximum amount of this indemnification obligation is $188 million. The fair value of this obligation as of June 30, 2007 and December 31, 2006 was $67 million and $65 million, respectively.  See “Guarantees” section of note 11.

The Company has other significant interests in variable interest entities that are not material.

Unrealized Investment Losses

The following tables summarize, for all investment securities in an unrealized loss position at June 30, 2007 and December 31, 2006, the aggregate fair value and gross unrealized losses by length of time those investments have been continuously in an unrealized loss position.

		Less than 12 months				12 months or  longer				Total
(at June 30, 2007, in millions)		Fair  Value		Gross Unrealized Losses		Fair  Value		Gross Unrealized Losses		Fair Value		Gross Unrealized  Losses
Fixed maturities
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities		$            1,948		$                             35		$            3,883		$                      165		$            5,831		$                      200
U.S. Treasury securities and obligations of U.S. Government and government agencies and authorities		527		2		1,029		38		1,556		40
Obligations of states, municipalities and political subdivisions		19,328		304		3,851		106		23,179		410
Debt securities issued by foreign governments		758		8		739		11		1,497		19
All other corporate bonds		4,702		86		6,935		273		11,637		359
Redeemable preferred stock		23		1		4		3		27		4
Total fixed maturities		27,286		436		16,441		596		43,727		1,032
Equity securities
Common stock		—		—		—		—		—		—
Non-redeemable preferred stock		99		4		63		4		162		8
Total equity securities		99		4		63		4		162		8
Venture capital		—		—		—		—		—		—
Total		$     27,385		$                      440		$     16,504		$                      600		$     43,889		$            1,040

 

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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

3.                       INVESTMENTS, Continued

		Less than 12 months						12 months or  longer						Total
(at December 31, 2006, in millions)		Fair Value			Gross Unrealized  Losses			Fair Value			Gross Unrealized Losses			Fair Value			Gross Unrealized  Losses
Fixed maturities
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities		$	1,245		$	11		$	4,125		$	117		$	5,370		$	128
U.S. Treasury securities and obligations of U.S. Government and government agencies and authorities		1,014			2			964			29			1,978			31
Obligations of states, municipalities and political subdivisions		4,468			16			4,077			64			8,545			80
Debt securities issued by foreign governments		861			6			406			4			1,267			10
All other corporate bonds		3,690			36			6,325			211			10,015			247
Redeemable preferred stock		1			—			5			1			6			1
Total fixed maturities		11,279			71			15,902			426			27,181			497
Equity securities
Common stock		3			—			1			—			4			—
Non-redeemable preferred stock		50			1			53			4			103			5
Total equity securities		53			1			54			4			107			5
Venture capital		—			—			14			1			14			1
Total		$	11,332		$	72		$	15,970		$	431		$	27,302		$	503

 

Impairment charges included in net realized investment gains were as follows:

		Three Months Ended June 30,						Six Months Ended June 30,
		2007			2006			2007			2006
Fixed maturities		$	7		$	—		$	8		$	—
Equity securities		2			—			3			1
Venture capital		—			3			7			8
Other investments (excluding venture capital)		—			—			—			4
Total		$	9		$	3		$	18		$	13

 

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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

4.                       GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

The following table presents the carrying amount of the Company’s goodwill by segment at June 30, 2007 and December 31, 2006:

(in millions)		June 30, 2007			December 31,  2006
Business Insurance		$	2,168		$	2,168
Financial, Professional & International Insurance		555			551
Personal Insurance		613			613
Other		30			106
Total		$	3,366		$	3,438

 

During the six months ended June 30, 2007, the Company effectively settled IRS tax examinations for all years through December 31, 2004.  Previously unrecognized tax benefits of $63 million related to the IRS settlement were recognized through a reduction of goodwill during the second quarter of 2007.

Other Intangible Assets

The following presents a summary of the Company’s other intangible assets by major asset class as of June 30, 2007 and December 31, 2006:

(At June 30, 2007, in millions)		Gross Carrying Amount			Accumulated Amortization			Net
Intangibles subject to amortization
Customer-related		$	1,036		$	599		$	437
Fair value adjustment on claims and claim adjustment expense reserves and reinsurance recoverables (1)		191			(41		)	232
Total intangible assets subject to amortization		1,227			558			669
Intangible assets not subject to amortization (2)		215			—			215
Total other intangible assets		$	1,442		$	558		$	884

 

(At December 31 2006, in millions)		Gross Carrying Amount			Accumulated Amortization			Net
Intangibles subject to amortization
Customer-related		$	1,036		$	537		$	499
Fair value adjustment on claims and claim adjustment expense reserves and reinsurance recoverables (1)		191			(54		)	245
Total intangible assets subject to amortization		1,227			483			744
Intangible assets not subject to amortization		20			—			20
Total other intangible assets		$	1,247		$	483		$	764

 

(1)          The time value of money and the risk margin (cost of capital) components of the intangible asset run off at different rates, and, as such, the amount recognized in income may be a net benefit in some periods and a net expense in other periods.

(2)          During the first quarter of 2007, the Company acquired certain trademarks, service marks and logos.

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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

4.                       GOODWILL AND OTHER INTANGIBLE ASSETS, Continued

The following presents a summary of the Company’s amortization expense for intangible assets by major asset class:

		Three Months Ended June 30,						Six Months Ended June 30,
(In millions)		2007			2006			2007			2006
Customer-related		$	29		$	33		$	62		$	69
Marketing-related		—			—			—			3
Fair value adjustment on claims and claim adjustment expense reserves and reinsurance recoverables		7			3			13			6
Total amortization expense		$	36		$	36		$	75		$	78

 

Intangible asset amortization expense is estimated to be $71 million for the remainder of 2007, $126 million in 2008, $100 million in 2009, $86 million in 2010, $69 million in 2011 and $52 million in 2012.

5.                           DEBT

Redemption of Subordinated Debentures. On January 18, 2007, the Company redeemed $81 million of 8.47% subordinated debentures originally issued in 1997 and due January 10, 2027.  The debentures were redeemable by the Company on or after January 10, 2007.  In January 1997, USF&G Capital II, a business trust, issued $100 million of capital securities, the proceeds of which, along with $3 million in capital provided by the Company, were used to purchase the subordinated debentures issued by USF&G Corporation and subsequently assumed by the Company after the merger of The St. Paul Companies, Inc. (SPC) and Travelers Property Casualty Corp. (TPC).  During the period prior to redemption, the Company had repurchased and retired $22 million of the debentures in open market transactions.  Upon the Company’s redemption of the remaining $81 million of subordinated debentures in January 2007, USF&G Capital II in turn used the proceeds to redeem its remaining capital securities outstanding.  USF&G Capital II was then liquidated, and the Company received a $3 million distribution of capital.  The Company recorded a $3 million pretax gain on the redemption of the subordinated debentures, representing the remaining unamortized fair value adjustment recorded at the merger date, less the redemption premium paid.

Issuance of Junior Subordinated Debentures.  On March 12, 2007, the Company issued $1 billion aggregate principal amount of 6.25% fixed-to-floating rate junior subordinated debentures due March 15, 2067 for net proceeds of $986 million (after original issue discount and the deduction of underwriting expenses and commissions and other expenses).  The debentures were issued at a discount, resulting in an effective interest rate of 6.447%.  The debentures bear interest at an annual rate of 6.25% from the date of issuance to, but excluding, March 15, 2017, payable semi-annually in arrears on March 15 and September 15.  From and including March 15, 2017, the debentures will bear interest at an annual rate equal to three-month LIBOR plus 2.215%, payable quarterly on March 15, June 15, September 15 and December 15 of each year.  The Company has the right, on one or more occasions, to defer the payment of interest on the debentures.  The Company will not be required to settle deferred interest until it has deferred interest for five consecutive years or, if earlier, made a payment of current interest during a deferral period.  The Company may defer interest for up to ten consecutive years without giving rise to an event of default.  Deferred interest will accumulate additional interest at an annual rate equal to the annual interest rate then applicable to the debentures.

The debentures carry a 60-year final maturity and a scheduled maturity date in year thirty.  During the 180-day period ending not more than fifteen and not less than ten business days prior to the scheduled maturity date, the Company is required to use commercially reasonable efforts to sell enough qualifying capital securities, or at its option, common stock, qualifying warrants, mandatorily convertible preferred stock, debt exchangeable for common equity or debt exchangeable for preferred equity to permit repayment of the debentures at the scheduled maturity date.  If any debentures remain outstanding after the scheduled maturity date, the unpaid amount will remain outstanding until the Company has raised sufficient proceeds from

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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued

5.                       DEBT, Continued

the sale of qualifying capital securities, or at its option, common stock, qualifying warrants, mandatorily convertible preferred stock, debt exchangeable for common equity or debt exchangeable for preferred equity to permit the repayment in full of the debentures.  If there are remaining debentures at the final maturity date, the Company is required to redeem the debentures using any source of funds.  Qualifying capital securities are securities (other than common stock, qualifying warrants, mandatorily convertible preferred stock, debt exchangeable for common equity, and debt exchangeable for preferred equity) which generally are treated by the ratings agencies as having similar equity content to the debentures.

The Company can redeem the debentures at its option, in whole or in part, at any time on or after March 15, 2017 at a redemption price of 100% of the principal amount being redeemed plus accrued but unpaid interest.  The Company can redeem the debentures at its option, in whole only, prior to March 15, 2017 (a) in whole at any time or in part from time to time or (b) in whole, but not in part, in the event of certain tax or rating agency events relating to the debentures, at a redemption price equal to the greater of 100% of the principal amount being redeemed and the applicable make-whole amount, in each case plus any accrued and unpaid interest.

In connection with the offering of the debentures, the Company entered into a “replacement capital covenant” for the benefit of holders of one or more designated series of the Company’s indebtedness (which will initially be the 6.750% Senior Notes due 2036). Under the terms of the replacement capital covenant, if the Company redeems the debentures at any time prior to March 15, 2047, it can only do so with the proceeds of securities that are treated by the rating agencies as having similar equity content to the debentures.

Maturity of Senior Notes. On March 15, 2007, the Company’s $500 million, 5.75% senior notes matured and were fully paid.

Redemption of Convertible Notes. On April 18, 2007, the Company completed the redemption of its outstanding $893 million, 4.50% convertible junior subordinated notes due in 2032 (the notes). The notes were originally issued by Travelers Property Casualty Corp., and the Company assumed certain obligations relating to the notes pursuant to a Second Supplemental Indenture dated April 1, 2004. Each note had a principal amount of $25.00. The redemption price for each note was $25.5625 plus $0.009375 of accrued and unpaid interest.  Any note called for redemption could be surrendered for conversion into common stock before the close of business on April 17, 2007. Each note was convertible into 0.4684 shares of common stock of The Travelers Companies, Inc.  Holders of $36 million of the notes tendered their certificates in exchange for the issuance of 670,910 of the Company’s common shares.  The remaining $857 million of notes were redeemed for cash, along with accrued interest to the date of redemption.  The Company recorded a $39 million pretax loss ($25 million after-tax) in other revenues in the second quarter of 2007 related to the redemption, consisting of the redemption premium paid and the write-off of remaining unamortized issuance costs.

Senior Debt Issuance. On May 29, 2007, the Company issued $250 million aggregate principal amount of 5.375% senior notes due June 15, 2012 (the 2012 senior notes), $450 million aggregate principal amount of 5.750% senior notes due December 15, 2017 (the 2017 senior notes), and $800 million aggregate principal amount of 6.250% senior notes due June 15, 2037 (the 2037 senior notes).  The total net proceeds of these three senior note issuances, after original issuance discounts and the deduction of underwriting expenses and commissions and other expenses, were approximately $1.47 billion.  Interest on each of the senior note issuances is payable semi-annually on June 15 and December 15, commencing December 15, 2007.  Each series of senior notes is redeemable in whole at any time or in part from time to time, at the Company’s option, at a redemption price equal to the greater of (a) 100% of the principal amount of senior notes to be redeemed, or (b) the sum of the present values of the remaining scheduled payments of principal and interest on the senior notes to be redeemed (exclusive of interest accrued to the date of redemption) discounted to the date of redemption on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the then current Treasury Rate plus 12.5 basis points for the 2012 senior notes, 15 basis points for the 2017 senior notes and 20 basis points for the 2037 senior notes.

20