Travelers 2006 Annual Report Download - page 161

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
149
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of The Travelers Companies, Inc.
(together with its subsidiaries, the Company). On April 1, 2004, Travelers Property Casualty Corp. (TPC)
merged with a subsidiary of The St. Paul Companies, Inc. (SPC), as a result of which TPC became a
wholly-owned subsidiary of The St. Paul Travelers Companies, Inc. For accounting purposes, this
transaction was accounted for as a reverse acquisition with TPC treated as the accounting acquirer.
Accordingly, this transaction was accounted for as a purchase business combination, using TPC’s historical
financial information and applyingfair value estimates to the acquired assets, liabilities and commitments
of SPC as ofApril 1, 2004. Beginning on April 1, 2004, the results of operations andfinancial condition of
SPC were consolidated with TPC’s results of operations and financial condition. Accordingly, all financial
information presented herein for the twelve months ended December 31, 2006 and 2005 reflects the
consolidated accounts of SPC and TPC. The financial information presented herein for the twelve months
endedDecember 31, 2004 reflects only the accounts ofTPC for the three months ended March 31, 2004
and the consolidated accounts of SPC and TPC for the nine months ended December 31, 2004. As
described in Note 23, on February 26, 2007, the Company changed its name to The Travelers
Companies, Inc.
The preparation of the consolidated financial statements in conformity with U.S. generally accepted
accounting principles (GAAP) requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenues and claims and expenses
during the reporting period. Actual results could differfrom those estimates. Certain reclassifications have
been made to prior years’ financial statements to conform to the current year’s presentation, including
reclassifications related to the realignment of the Company’s reportable business segments described in the
“Nature of Operations” section of this note. All material intercompany transactions and balances have
been eliminated.
Adoption of New Accounting Standards
Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of
FASB Statements No. 87, 88, 106 and 132(R)
In September2006, the Financial AccountingStandards Board (FASB) issued Statementof Financial
Accounting Standards No. 158, Employers’ Accounting for Defined Benefit Pension and Other
Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and132(R) (FAS 158). FAS158
requires an employer to recognize the funded status of a benefit plan as an asset or liability in its statement
of financial position, measured as the difference between plan assets at fair value and the benefit
obligation, and to recognize as a component of accumulated other changes inequity from nonowner
sources, net of tax, actuarial gains or losses andprior service costs or credits that arise during theperiod
but which are not recognized as components of net periodic benefit cost pursuant to FASB Statement
No. 87, Employers’ Accounting for Pensions (FAS 87), or FASB Statement No. 106, Employers’
Accounting for Postretirement Benefits Other Than Pensions (FAS 106). The provisions of FAS 87 and
FAS 106 continue to apply in measuring plan assets and benefit obligations, as of the date of the fiscal
year-end statement of financial position, and in determining the amount of net periodic benefit cost. The
provisions of FAS 158 were effective for fiscal years ending after December 15, 2006 and are not to be