Travelers 2005 Annual Report Download - page 172

THE ST. PAUL TRAVELERS COMPANIES, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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6. INVESTMENTS (Continued)
The following securities are not consolidated:
•Mandatorily redeemable preferred securities of trusts holding solely the subordinated debentures of
the Company—These securities were issued by five separate trusts that were established for the sole
purpose of issuing the securities to investors, and are fully guaranteed by the Company. The debt
that the Company issued to these trusts is included in the “Debt” section of liabilities on the
Company’s consolidated balance sheet. That debt had a carrying value of $1.03 billion and $1.04
billion at December 31, 2005 and 2004, respectively.
Impairments
Fixed Maturities and Equity Securities
An investment in a fixed maturity or equity security which is available for sale is impaired if its fair
value falls below its book value and the decline is considered to be other-than-temporary. Factors
considered in determining whether a decline is other-than-temporary include the length of time and the
extent to which fair value has been below cost, the financial condition and near-term prospects of the
issuer, and the Company’s ability and intent to hold the investment for a period of time sufficient to allow
for any anticipated recovery.
Additionally, for certain securitized financial assets with contractual cash flows (including asset-
backed securities), FASB Emerging Issues Task Force (EITF) 99-20, Recognition of Interest Income and
Impairment on Purchased and Retained Beneficial Interests in Securitized Financial Assets, requires the
Company to periodically update its best estimate of cash flows over the life of the security. If management
determines that the fair value of its securitized financial asset is less than its carrying amount and there has
been a decrease in the present value of the estimated cash flows since the last revised estimate, considering
both timing and amount, then an other-than-temporary impairment is recognized.
A fixed maturity security is impaired if it is probable that the Company will not be able to collect all
amounts due under the security’s contractual terms. Equity securities are impaired when it becomes
apparent that the Company will not recover its cost over the expected holding period. Further, for
securities expected to be sold, an other-than-temporary impairment charge is recognized if the Company
does not expect the fair value of a security to recover prior to the expected date of sale.
The Company’s process for reviewing invested assets for impairments during any quarter includes the
following:
•identification and evaluation of investments which have possible indications of impairment;
•analysis of investments withgross unrealized investment losses that have fair values less than80%
of amortized cost during successive quarterly periods over a rolling one-year period;
•review of portfolio manager(s) recommendations for other-than-temporary impairments based on
the investee’s current financial condition, liquidity, near-term recovery prospects and other factors,
as well as consideration of other investments that were not recommended for other-than-temporary
impairments;