Travelers 2005 Annual Report Download - page 155

THE ST. PAUL TRAVELERS COMPANIES, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
143
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont inued)
services based on type of customer, how the business is marketed, and the manner in which the business is
underwritten.
Beginning in the second quarter of 2005, the National Accounts underwriting group includes the
Company’s Discover Re operation. Discover Re’s results were reclassified to the Commercial segment
from the Specialty segment to align the segment reporting structure with the manner in which the
Company’s business is managed after changes in the Company’s management structure in 2005. Prior
period amounts were restated to reflect the reclassification of Discover Re.
Invested and other assets and net investment income (NII) of historical TPC had been specifically
identified by reporting segment prior to the merger. Beginning in the second quarter of 2004, the Company
developed a methodology to allocate NII and invested assets to the identified segments. This methodology
allocates pretax NII based upon an investable funds concept, which takes into account liabilities (net of
non-invested assets) and appropriate capital considerations for each segment. The investment yield for
investable funds reflects the duration of the loss reserves’ future cashflows, the interest rate environment
at the time the losses were incurred and A+ rated corporate debt instruments. This duration yield is
compared to the average portfolio yield and a new average yield is determined. It is this average yield that
is used in the calculation ofNII oninvestable funds. Yields are updated annually. Invested assets are
allocated to segments in proportion to the pretax allocation of NII. It is not practicable to apply this
methodology to historical businesses and, as such, actual (versus allocated) NII is included in revenues and
operating income of the restated segments for periods prior to the merger. The Company believes that the
differences are not significant to a comparison with the new segment presentation. It is also not practicable
to present total assets for restated Commercial and Specialty segments for periods prior to the merger.
The specific business segments are as follows:
Commercial
The Commercial segment offers a broad array of property and casualty insurance and insurance-
related services to its clients. Commercial is organized into the following three marketing and underwriting
groups, each of which focuses on a particular client base and which collectively comprise Commercial’s
core operations:
•Commercial Accounts serves primarily mid-sized businesses for casualty products and large and mid-
sized businesses for property products. In addition to the traditional middle market, Commercial
Accounts includes seven units dedicated to unique business needs.
•Select Accounts serves small businesses and offers commercial multi-peril, property, general liability,
commercial auto and workers’ compensation insurance.
•National Accounts comprises three distinct business units. The largest provides casualty products
and services to large companies, with particular emphasis on workers’ compensation, general
liability and automobile liability. National Accounts also includes the commercial residual market
business, which primarily offers workers’ compensation products and services to the involuntary
market. National Accounts also includes Discover Re, which provides unbundled property and
casualty insurance products to insureds who utilize programs such as self-insurance, collateralized
deductibles and captive reinsurers.