Travelers 2003 Annual Report Download - page 100

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98
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
Securities Lending Payable and Dollar-Roll Repurchase Agreements
Travelers engages in securities lending activities from which it generates net investment income from the
lending of certain of its investments to other institutions for short periods of time. Travelers either receives cash
or marketable securities as collateral equal to at least the market value of the loaned securities plus accrued
interest. Collateral is marked to market daily. In those cases where cash collateral is received, Travelers
reinvests the collateral in a short-term investment pool, the loaned securities remain a recorded asset of Travelers
and a liability is recorded to recognize Travelers obligation to return the collateral at the end of the loan. Where
marketable securities have been received as collateral, the collateral is held by a third party custodian (tri-party
lending agreement), and Travelers has the right to access the collateral only in the event that the institution
borrowing Travelers securities is in default under the lending agreement. In those cases where marketable
securities are received as collateral, Travelers does not recognize the receipt of the collateral held by the third
party custodian or the obligation to return the collateral. The loaned securities remain a recorded asset of
Travelers.
Travelers also engages in dollar-roll repurchase activities from which it generates net investment income from
selling mortgage-backed securities and simultaneously agreeing to repurchase from the same party substantially
the same securities. Travelers invests the proceeds from the sale in a short-term investment pool, the sold
securities remain a recorded asset of Travelers and a liability is recorded to recognize Travelers obligation to
repurchase substantially the same securities at the end of a specified period.
Other Liabilities
Included in other liabilities in the consolidated balance sheet is Travelers estimate of its liability for guaranty
fund and other insurance-related assessments. The liability for expected state guaranty fund and other premium-
based assessments is recognized as Travelers writes or becomes obligated to write or renew the premiums on
which the assessments are expected to be based. The liability for loss-based assessments is recognized as the
related losses are incurred. At December 31, 2003 and 2002, Travelers had a liability of $180.3 million and
$171.1 million, respectively, for guaranty fund and other assessments and related recoveries of $15.1 million and
$14.3 million, respectively. The liability for such assessments and their related recoveries are not discounted for
the time value of money. The assessments are expected to be paid over a period ranging from one year to the
life expectancy of certain workers’ compensation claimants and the recoveries are expected to occur over the
same period of time.
Also included in other liabilities is an accrual for policyholder dividends. Certain insurance contracts, primarily
workers’ compensation, are participating whereby dividends are paid to policyholders in accordance with
contract provisions. Net written premiums for participating dividend policies were approximately 1%, 2% and
2% of total Travelers net written premiums for the years ended December 31, 2003, 2002 and 2001, respectively.
Policyholder dividends are accrued against earnings using best available estimates of amounts to be paid.
Policyholder dividends were $13.1 million, $14.4 million and $28.3 million for the years ended December 31,
2003, 2002 and 2001, respectively.
Statutory Accounting Practices
Travelers insurance subsidiaries, domiciled principally in the State of Connecticut, prepare statutory financial
statements in accordance with the accounting practices prescribed or permitted by the insurance departments of
the states of domicile. Prescribed statutory accounting practices are those practices that are incorporated directly
or by reference in state laws, regulations, and general administrative rules applicable to all insurance enterprises
domiciled in a particular state. Permitted statutory accounting practices include practices not prescribed by the
domiciliary state, but allowed by the domiciliary state regulatory authority. The impact of any permitted
accounting practices on statutory surplus of Travelers is not material.