Travelers 2004 Annual Report Download - page 177

THE ST. PAUL TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
11. FEDERAL INCOME TAXES, Continued
The net deferred tax asset comprises the tax effects of temporary differences related to the following assets
and liabilities:
(at December 31, in millions) 2004 2003
Deferred tax assets
Claims and claim adjustment expense reserves ...................................... $1,751 $ 947
Net operating loss carryforward .................................................. 731 —
Unearned premium reserves ..................................................... 651 432
Other ....................................................................... 842 204
Total gross deferred tax asset ............................................ 3,975 1,583
Less valuation allowance ................................................... 128 —
Net deferred tax asset .................................................. 3,847 1,583
Deferred tax liabilities
Deferred acquisition costs ....................................................... 493 337
Investments .................................................................. 635 522
Intangible assets .............................................................. 381 —
Other ....................................................................... 327 46
Total gross deferred tax liabilities ......................................... 1,836 905
Total deferred income taxes ............................................. $2,011 $ 678
If the Company determines that any of its deferred tax assets will not result in future tax benefits, a
valuation allowance must be established for the portion of these assets that are not expected to be realized. The
net change in the valuation allowance for deferred tax assets was an increase of $128 million in 2004 relating to
foreign operations. Based predominantly upon a review of the Company’s anticipated future taxable income, but
also including all other available evidence, both positive and negative, the Company’s management concluded
that it is “more likely than not” that the net deferred tax assets will be realized.
At December 31, 2002, the Company had a net operating loss (NOL) carryforward of $1.39 billion. Under
the terms of the tax sharing agreement with Citigroup, the Company is entitled to carry operating losses back to
prior years upon receiving Citigroup’s consent. During the first quarter of 2003, the Company received
Citigroup’s consent and, as a result, the Company’s deferred tax asset was reduced by $487 million with a
corresponding reduction to the current federal income tax payable (included in other cash flows from operating
activities in the consolidated statement of cash flows). On June 9, 2003, the Company received a federal income
tax refund of $531 million, which included the utilization of the NOL carryforward.
For the period ending March 27, 2002, the Company was included in the consolidated federal income tax
return filed by Citigroup. Citigroup allocated federal income taxes to its subsidiaries on a separate return basis
adjusted for credits and other amounts required by the consolidation process. Any resulting liability was paid
currently to Citigroup. Any credit for losses was paid by Citigroup currently to the extent that such credits were
for tax benefits that have been utilized in the consolidated federal income tax return.
As of March 28, 2002, as a result of the IPO, the Company is no longer included in the Citigroup
consolidated federal income tax return. As of that date, the Company began filing its own consolidated federal
income tax return. The Company’s intercompany tax sharing agreement was amended to include the SPC
companies effective with their acquisition on April 1, 2004.
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