Travelers 2006 Annual Report Download - page 163

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
151
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
which cost is recognized for awards granted to those who become retirement-eligible before the vesting
date will be from the grant date to the retirement-eligible date rather than to the vesting date. This
guidance is to be applied prospectively tonew or modified awards granted upon adoption of FAS 123R.
The adoption of FAS 123R at January 1, 2006 using modified prospective application didnot have a
materialeffect on the Company’s results of operations, financial condition or liquidity. See note 11.
Accounting Changes and Error Corrections
In May 2005, the FASB issued Statementof Financial Accounting Standards No. 154, Accounting
Changes and Error Corrections (FAS154), which replaced APB Opinion No. 20, Accounting Changes, and
FASB Statement of Financial Accounting Standards No. 3, Reporting Changes in Interim Financial
Statements. FAS 154 changed the requirements for the accounting for and reporting of a change in
accounting principle. It requires retrospective application to prior period financial statements of voluntary
changes in accounting principle and changes required by new accounting standardswhen the standarddoes
not include specific transition provisions, unless it is impracticable to do so. FAS154 was effective for
accounting changes and corrections of errors in fiscal years beginning after December 15, 2005. Early
adoption was permitted for accounting changes and corrections of errors made in fiscal years beginning
after June 1, 2005. It did not change the transition provisions of any existing accounting pronouncements,
including those that were in a transition phase as of December 15, 2005. The adoption of FAS 154 at
January 1, 2006 had no effect on the Company’s results of operations, financial condition or liquidity.
The Meaningof Other-Than-Temporary Impairment and Its Application to Certain Investments
In November 2005, the FASB issued FASB Staff Position (FSP) FAS 115-1 and FAS124-1, The
Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments. The FSP
addresses the determination as to when an investment is considered impaired, whether that impairmentis
other-than-temporary, and the measurement of animpairment loss. It requires the establishmentof a new
cost basis subsequent to the recognition of an other-than-temporary impairment and certain disclosures
about unrealized losses that have not been recognized as other-than-temporary impairments. The FSP is
effective for reporting periods beginning after December 15, 2005. The Company had previously
implemented these requirements. Therefore, the adoption of the FSP had no effect on the Company’s
results of operations, financial condition or liquidity.
American Jobs Creation Act—Repatriation of Foreign Earnings
On October 22, 2004, Congress enacted theAmerican Jobs Creation Act (AJCA) which provided a
temporary incentive for U.S. corporations to repatriate earnings previously reinvested in foreign
subsidiaries to obtain an 85% dividends received deduction. InDecember 2004, FSP No. 109-2, Accounting
and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation
Act of 2004 was issued. This FSP provides accounting and disclosure guidance on how to apply FASB
Statement ofFinancial AccountingStandards No. 109, Accounting for Income Taxes, to the repatriation
provision of the AJCA. In the fourth quarter of 2005, the Company approved a Domestic Reinvestment
Plan in accordance with the AJCA to repatriate foreignearnings prior to December 31, 2005. In
December 2005, the Company repatriated $158 million of cumulative foreign earnings invested outside of