Travelers 2006 Annual Report Download - page 166

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
154
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
not expected to have a material effect on the Company’s results of operations, financial condition or
liquidity.
Fair Value Measurements
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157,Fair
Value Measurements (FAS 157). FAS 157 defines fair value, establishes a framework for measuring fair
value andexpands disclosure about fair value measurements.It applies to other pronouncements that
require or permit fair value but does not require any new fair value measurements. The statement defines
fair value as “the price that would be received tosell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date.”
FAS 157 establishes a fair value hierarchy to increase consistency and comparability in fair value
measurements anddisclosures. The hierarchy is based on the inputs used in valuation and gives the highest
priority to quoted prices in active markets. Thehighest possible level should be used to measure fair value.
FAS 157 is effective for fiscal years beginning after November 15, 2007. The Company does not expect
the provisions of FAS157 to have a material effect on its results of operations, financial condition or
liquidity.
Endorsement Split-Dollar LifeInsurance Arrangements
In September 2006, FASB issued EmergingIssues Task Force Issue No. 06-4, Accounting forDeferred
Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements
(EITF 06-4). EITF 06-4 requires a company to recognize a liability and related compensation expense for
endorsement split-dollar life insurance policies that provide a benefit to an employee that extends to
postretirement periods. The provisions of EITF 06-4 are effective for fiscal years beginning after
December 15, 2006. The adoption of EITF 06-4 effective January 1, 2007 did not have a material effect on
the Company’s results of operations, financial condition or liquidity.
Fair Value Option
In February 2007, theFASB issued Statement of Financial Accounting Standards No. 159, The Fair
Value Option for Financial Assets and Financial Liabilities (FAS 159). FAS 159 permits an entity to
irrevocably elect fair value on a contract-by-contract basis as the initial and subsequent measurement
attribute for many financial assets and liabilities and certain other items including property andcasualty
insurance contracts. Entities electing the fair value option would be required to recognize changes in fair
value inearnings and to expense upfront cost and fees associated with the item for which the fair value
option is elected. Entities electing the fairvalue option are required to distinguish on the face of the
statement of financial position, the fair value of assets and liabilities for which the fair value option has
beenelected and similar assets and liabilities measured using another measurement attribute. An entity
can accomplish this by either reporting the fair value and non-fair-value carrying amounts as separate line
items or aggregate those amounts and disclose parenthetically the amount of fair value included in the
aggregate amount.
FAS 159 is effective for fiscal years beginning after November 15, 2007. Upon adoption, an entity is
permitted to elect the fair value option irrevocably for any existing asset or liability within the scope of the