Travelers 2006 Annual Report Download - page 167

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
155
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
standard. The adjustment to reflect the difference between the fair value and the carrying amount would
be accounted for as a cumulative-effect adjustment to retained earnings as of the date of initial adoption.
Retrospective application would not be permitted. The Company is currently evaluating the impact, if any,
of FAS 159 on its results of operations, financial condition and liquidity.
Accounting Policies
Investments
Fixed maturities include bonds,notes and redeemable preferred stocks. Fixed maturities, including
instruments subject to securities lending agreements, are classified as available for sale and are reported at
fair value, with unrealized investment gains and losses, net of income taxes, credited or charged directly to
accumulated other changes in equity from nonowner sources. Equity securities, which include common and
nonredeemable preferred stocks, are classified as available for sale with changes in fair value, net of
income tax, charged or credited directly to accumulated other changes in equity from nonowner sources.
The Company’s real estate investments include warehouses, office buildings and other commercial
land and properties that are directly owned. Real estate properties are carried at cost less accumulated
depreciation. Buildings are depreciated on a straight-line basis over the shorter of the expected useful life
of the building or 39 years. Accumulated depreciation on real estate held for investment purposes was $82
million and $48 million at December 31, 2006 and2005, respectively. Real estate held for sale is carried at
the lower of cost or fair value less estimated costs to sell.
Short-term securities, consisting primarily of money market instruments and other debt issues
purchased with a maturity of less than one year, are carried atamortized cost, which approximates fair
value.
Other investments include: venture capital investments, through direct ownership and limited
partnerships; private equity limited partnerships; joint ventures; other limited partnerships; mortgage loans
and trading securities. Certain venture capital investments that are controlled by the Company are
consolidated in the Company’s financial statements. The Companyuses theequity method of accounting
for joint ventures, limited partnerships and certain private equity securities. Mortgage loans are carried at
amortized cost. Trading securities are marked tomarket with the change in fair value recognized in net
investment income during the current period.
Valuation of Investments
Fixed Maturities and Equity Securities
Fixed maturities are valued based upon quoted market prices or dealer quotes, or if quoted market
prices or dealer quotes are notavailable, discounted expected cash flows using market rates commensurate
with the credit quality and maturity of the investment. Equity securities are valued based on quoted market
prices.