Travelers 2006 Annual Report Download - page 149

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and information technologies infrastructures industries. The Company typically is involved with venture
capital companies early in their formation, as theyare developing and determining the viability of, and
market demand for, their product. Generally, the Company does not expect these venture capital
companies to record revenues in the early stages of their development, which can often take three to four
years, and does not generally expect them to become profitable for an even longer period of time.
Certain venture capital investments that are controlled by the Company are consolidated in the
Company’s financial statements. The underlying investments of these venture capital investments are
reported at estimated fair value.The fair value of the venture capital investments is based on an estimate
determined by the external fund manager and reviewed by the Company for investments in which there is
no public market. Theexternal fund manager reviews such factors as recent filings, operating results,
balance sheet stability, growth, and other business and market sector fundamental statistics in estimating
fair values of specific investments.
With respect to the Company’s valuation of such non-publicly traded venture capital investments, on a
quarterly basis, the Company’s portfolio managers and the external fund manager review and consider a
variety of factors in determining the valuation of the investments and the potential for other-than-
temporary impairments. Factors considered include the following:
•The investee’s most recent financing events;
•An analysis of whether a fundamental deterioration or improvement has occurred;
•Whether the investee’s progress has been substantially more or less than expected;
•Whether or not the valuations have improved ordeclined significantly in the investee’s market
sector;
•Whether or not the external fund manager and the Company believe it is probable that the investee
will need financing within six months at a lower price than our carrying value; and
•Whether or not the Company has the ability and intent to hold the investment for a period of time
sufficient to allow for recovery, enabling it to receive value equal to or greater than our cost.
The quarterly valuation procedures described above are in addition to the portfolio managers’
ongoing responsibility to frequently monitor developments affecting those invested assets, paying
particular attention to events that might give rise to impairment write-downs.
Non-Publicly Traded Investments
The Company’s investment portfolio includes non-publicly traded investments, such as venture capital
investments (as discussed above), private equity limited partnerships, joint ventures, other limited
partnerships, and certain fixed income securities. The Company uses the equity method of accounting for
joint ventures, limited partnerships and certain private equity securities. Certain other private equity
investments, including venture capital investments are reported at estimated fair value.These non-publicly
traded securities are valued based on factors such as managementjudgment, recent financial information
and other market data.