Travelers 2005 Annual Report Download - page 150

THE ST. PAUL TRAVELERS COMPANIES, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
138
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont inued)
Reinsurance Recoverables
Amounts recoverable from reinsurers are estimated in a manner consistent with the associated claim
liability. Suchrecoverables 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 productionof new insurance contracts,
primarily commissions and premium-related 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 amountof 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
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 are amortized over their
useful lives. The carrying amount of intangible assets that are not deemed to havean indefiniteuseful life
is regularly reviewed for indicators of impairments in value. 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.
Claimsand Claim Adjustment Expense Reserves
Claims and claim adjustment expense reserves represent estimated provisionsfor both reported and
unreported claims incurred and related expenses. The reserves are adjusted regularly based upon
experience. Included in the claims and claim adjustment expense reserves in the consolidated balance
sheet are certain reserves discounted to the present value of estimated future payments. The liabilities for
losses for some long-term disability payments under workers’ compensation insurance and workers’
compensation excess insurance, which totaled $1.92 billion and $1.99 billion at December 31, 2005 and
2004, respectively, were discounted using a rate of 5% at December 31, 2005 and a range of rates from