Travelers 2005 Annual Report Download - page 152

THE ST. PAUL TRAVELERS COMPANIES, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
140
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont inued)
amounts to be paid. The liability accrued for policyholder dividends totaled $30 million and $28 million at
December 31, 2005 and 2004, 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 impact of any permitted accounting practices on
statutory surplus of the Company is not material.
Premiumsand 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.
Other Revenues
Other revenues include revenues from premium installment charges, which are recognized as
collected, revenues of noninsurance subsidiaries other than fee income and gains and losses on dispositions
of assets and other miscellaneous revenues.
Income Taxes
The Company recognizes deferred income tax assets and liabilities for the expected future tax effects
attributable to temporary differences between the financial statement and tax return bases of assets and
liabilities, based on enacted tax rates and other provisions of the tax law. The effect of a change in tax laws
or rates on deferred tax assets and liabilities is recognized in income in the period in whichsuch change is
enacted. Deferred tax assets are reduced by a valuation allowance if it is more likely than not that all or
some portion of the deferred tax assets will not be realized.