Travelers 2005 Annual Report Download - page 160

THE ST. PAUL TRAVELERS COMPANIES, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
148
2. MERGER (Continued)
Allocation of the PurchasePrice
The purchase price was allocated based on an estimate of the fair value of the assets acquired and
liabilities assumed as of April 1, 2004, as follows:
(in millions)
Net tangible assets(1)................................................................. $5,351
Total investments(2).................................................................. 423
Deferred policy acquisitioncosts(3).................................................... (100)
Deferred federal income taxes(4). ...................................................... 130
Goodwill(5) (8) ...................................................................... 1,030
Other intangible assets, including the fair value adjustment of claim and claim adjustment
expense reserves and reinsurance recoverables of$191(6) (7) (8) ......................... 726
Net assets ofdiscontinued operations(8)................................................ 2,143
Other assets(2). ...................................................................... (103)
Claims and claim adjustment expense reserves(3)........................................ (26)
Debt(2)............................................................................. (333)
Other liabilities(2).................................................................... (485)
Allocated purchase price .............................................................. $8,756
(1) Reflects SPC’s shareholders’ equity of $6,439 million, less SPC’s historical goodwill of $950 million
and intangible assets of $138 million.
(2) Represents adjustments for fair value.
(3) Represents certain adjustments to conform SPC’s accounting policies to those of TPC’s that affected
the purchase price allocation.
(4) Represents a deferred tax liability associated with adjustments to fair value of all assets and liabilities
included herein excluding goodwill, as this transaction is not treated as a purchase for tax purposes.
(5) Represents the excess of the purchase price (cost) over the amounts assigned to the assets acquired
and liabilities assumed. None of the goodwill is deductible for tax purposes. The decrease in goodwill
compared with that originally reported at the merger date was due to the adjustment related to
Nuveen Investments described in (8) below, as well as certain purchase accounting and tax
adjustments since the completion of the merger.
(6) Represents identified finite and indefinite life intangible assets, primarily customer-related insurance.
See note 4.
(7) An adjustment has been applied to SPC’s claims and claim adjustment expense reserves and
reinsurance recoverables at the acquisition date to estimate their fair value. The fair value adjustment
of $191 million was based on management’s estimate of nominal claim and claim expense reserves and
reinsurance recoverables (after adjusting for conformity with the acquirer’s accounting policy on
discounting of workers’ compensation reserves), expected payment patterns, the April 1, 2004 U.S.
Treasury spot rate yield curve, a leverage ratio assumption (reserves to statutory surplus), and a cost
of capital expressed as a spread over risk-free rates. The method used calculates a risk adjustment to a
risk-free discounted reserve that will, if reserves run off as expected, produce results that yield the