Travelers 2005 Annual Report Download - page 149

THE ST. PAUL TRAVELERS COMPANIES, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
137
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont inued)
The Company’s real estate investments include warehouses and office buildings and other commercial
land and properties that are directly owned. Real estate properties are carried at cost less accumulated
depreciation. Buildings are depreciated on a straight line basis over the shorter of the expected useful life
of the building or 39 years. Accumulated depreciation on real estate held for investment purposes was $48
million and $22 million at December 31, 2005 and 2004, respectively.
The carrying value 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.
Rental income is recognizedon a straight linebasis over the lease term. See note 6.
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, impairment is taken if the carrying value
of the property exceeds its currentfair value less estimated costs to sell. The Company had no real estate
held for sale at December 31, 2005 or 2004.
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-producingfor the preceding 12 months were not significant.
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 investments include:venture capital investments, through direct ownership and limited
partnerships; private equity limited partnerships; joint ventures, otherlimited partnerships, and trading
securities. Certain venture capital investments that are controlled by the Company are consolidated in the
Company’s financial statements. The Company uses the equity method of accounting for joint ventures,
limited partnerships and certain private equity securities. Undistributed income is reported in net
investment income. Trading securities are marked to market with the change in fair value recognized in net
investment income during the current period.
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.