Travelers 2004 Annual Report Download - page 138

THE ST. PAUL TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
$31 million and $15 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%, 1%
and 2% of total Company net written premiums for the years ended December 31, 2004, 2003 and 2002,
respectively. Policyholder dividends are accrued against earnings using best available estimates of amounts to be
paid. The liability accrued for policyholder dividends totaled $28 million and $12 million at December 31, 2004
and 2003, respectively.
Statutory Accounting Practices
The Company’s insurance subsidiaries, domiciled principally in the states of Connecticut and Minnesota,
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 St. Paul
Fire and Marine Insurance Company (Fire and Marine) was granted a permitted practice in 2004 by the
Minnesota Department of Commerce regarding the valuation of certain investments in affiliated limited liability
companies, allowing it to value these investments based on their audited GAAP equity, which totaled $398
million as of December 31, 2004. It is not practicable to determine the impact on statutory surplus of this
permitted practice. The impact of any other permitted accounting practices on statutory surplus of the Company
is not material.
Premiums and Unearned Premium Reserves
Premiums are recognized as revenues pro rata over the policy period. Unearned premium reserves represent
the unexpired portion of policy premiums. Accrued retrospective premiums are included in premium balances
receivable. Premium balances receivable are reported net of an allowance for estimated uncollectible premium
amounts.
Ceded premiums are charged to income over the applicable term of the various reinsurance contracts with
third party reinsurers. Prepaid reinsurance premiums represent the unexpired portion of premiums ceded to
reinsurers and are reported as part of other assets.
Fee Income
Fee income includes servicing fees from carriers and revenues from large deductible policies and service
contracts and is recognized pro rata over the contract or policy periods.
Asset Management
As a result of the merger, the Company held a 79% interest in Nuveen Investments, Inc. (“Nuveen
Investments,” formerly The John Nuveen Company), at December 31, 2004. The Company consolidates
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