Travelers 2004 Annual Report Download - page 136

THE ST. PAUL TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
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 equal to the difference
between fair value and carrying value.
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. The Company evaluates and
monitors the financial condition of its reinsurers under voluntary reinsurance arrangements 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, the Company is
obligated to pay the claimant for the full amount of the claim. The Company 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.
Goodwill and Intangible Assets
The Company adopted FAS 141 and FAS 142 effective January 1, 2002. Upon adoption of FAS 141 and
FAS 142, the Company stopped amortizing goodwill. Instead, goodwill is tested for impairment at least annually
using a two-step process. The first step is performed to identify potential impairment and, if necessary, the
second step is performed for the purpose of measuring the amount of impairment, if any. Indefinite-lived
intangible assets are tested for impairment at least annually. Impairment is recognized only if the carrying
amount of the intangible asset exceeds its fair value.
Other intangible assets that are not deemed to have an indefinite useful life continue to be amortized over
their useful lives. The carrying amount of intangible assets that are not deemed to have an indefinite useful life is
regularly reviewed for indicators of impairments in value in accordance with FAS 144. Impairment is recognized
only if the carrying amount of the intangible asset is not recoverable from its undiscounted cash flows and is
measured as the difference between the carrying amount and the fair value of the asset.
Claims and Claim Adjustment Expense Reserves
Claims and claim adjustment expense reserves represent estimated provisions for both reported and
unreported claims incurred and related expenses. The reserves are adjusted regularly based upon experience.
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