Travelers 2003 Annual Report Download - page 98

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
Real estate held for sale is carried at the lower of cost or fair value less estimated costs to sell. Fair value is
established at the time of acquisition by internal analysis or external appraisers, using discounted cash flow
analyses and other acceptable techniques. Thereafter, an impairment is taken if the carrying value of the
property exceeds its current fair value less estimated costs to sell.
Accrual of income is suspended on fixed maturities or mortgage loans that are in default, or on which it is likely
that future payments will not be made as scheduled. Interest income on investments in default is recognized
only as payment is received. Investments included in the consolidated balance sheet that were not income-
producing for the preceding 12 months were not significant.
Trading securities and related liabilities are normally held for periods of less than six months. These investments
are marked to market with the change recognized in net investment income during the current period.
Short-term securities, consisting primarily of money market instruments and other debt issues purchased with a
maturity of less than one year, are carried at amortized cost, which approximates fair value.
Other invested assets include certain private equity securities along with partnership investments and real estate
joint ventures and are accounted for on the equity method of accounting. Undistributed income is reported in net
investment income.
Investment Gains and Losses
Net realized investment gains and losses are included as a component of pretax revenues based upon specific
identification of the investments sold on the trade date. A decline in the value of a security below its amortized
cost basis is assessed to determine if the decline is other-than-temporary. If so, the security is deemed to be
impaired, and a charge is recorded in net realized investment gains and losses.
Reinsurance Recoverables
Amounts recoverable from reinsurers are estimated in a manner consistent with the claim liability associated
with the reinsured business. Such recoverables are reported net of an allowance for estimated uncollectible
reinsurance recoverables and amounts due from known reinsurer insolvencies. Travelers evaluates and monitors
the financial condition of its reinsurers under voluntary reinsurance arrangement to minimize its exposure to
significant losses from reinsurer insolvencies.
Deferred Acquisition Costs
Amounts which vary with and are primarily related to the production of new insurance contracts, primarily
commissions and premium taxes, are deferred and amortized pro rata over the contract periods in which the
related premiums are earned. Deferred acquisition costs are reviewed to determine if they are recoverable from
future income, and if not, are charged to expense. Future investment income attributable to related premiums is
taken into account in measuring the recoverability of the carrying value of this asset. All other acquisition
expenses are charged to operations as incurred.
Contractholder Receivables and Payables
Under certain workers’ compensation insurance contracts with deductible features, Travelers is obligated to pay
the claimant for the full amount of the claim. Travelers is subsequently reimbursed by the policyholder for the
deductible amount. These amounts are included on a gross basis in the consolidated balance sheet in
contractholder payables and contractholder receivables, respectively.