Travelers 2005 Annual Report Download - page 135

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•the regulatory, economic, or technological environment has changed in a way that is expected to
adversely affect the investee’s profitability.
Factors affecting on-going financial condition:
•factors that raise doubts about the investee’s ability to continue as a going concern, such as negative
cash flows from operations, working-capital deficiencies, investment advisors’ recommendations, or
non-compliance with regulatory capital requirements or debt covenants;
•a secondary equity offering at a price substantially lower than the holder’s cost;
•a breach of a covenantor the failure to service debt; and
•fraud within the company.
For fixed maturity and equity investments, factors that may indicate that a decline in value is not other-
than-temporary include the following:
•the securities owned continue to generate reasonable earnings and dividends, despite a general
stock market decline;
•bond interest or preferred stock dividend rate (on cost) is lower than rates for similar securities
issued currently but quality of investment is not adversely affected;
•the investment is performing as expected and is current on all expected payments;
•specific, recognizable, short-term factors have affected the market value; and
•financial condition, market share,backlog and other key statistics indicate growth.
Real Estate Investments
The carrying values of real estate properties are reviewed for impairment when events or changes in
circumstances indicate that the carrying amount may not be recoverable. The review for impairment
includes an estimate of the undiscounted cash flows expected to result from the use and eventual
disposition of the real estate property. An impairment loss is recognized if the expected future
undiscounted cash flows are less than the carrying value of the real estate property.
Venture Capital Investments
Other investments include venture capital investments, which are generally non-publicly traded
instruments, consisting of early-stage companies and, historically, having a holding period of four to seven
years. These investments have primarily been made in the health care, software and computer services, and
networking and information technologies infrastructures industries. The Company typically is involved
withventure capital companies early in their formation, as they are developing anddetermining the
viability of, and market demand for, their product. Generally the Company does not expect these venture
capital companies to record revenues in the early stages of their development, which can often take three
to four years, and does not generally expect them to become profitable for an even longer period of time.
With respect to the Company’s valuation of such non-publicly traded venture capital investments, on a
quarterly basis, portfolio managers as well as an internal valuation committee review and consider a variety
of factors in determining the potential for loss impairment. Factors considered include the following:
•the issuer’s most recent financing event;
•an analysis of whether fundamental deterioration has occurred;
•whether or not the issuer’s progress has been substantially less than expected;