Travelers 2007 Annual Report Download - page 149

Real Estate
Fair value is established at the time of acquisition by internal analysis or external appraisers, using
discounted cash flow analyses and other acceptable techniques. The Company had no real estate held
for sale at December 31, 2007 or 2006.
Other Investments
The Company’s investment portfolio includes non-publicly traded investments, such as venture
capital investments (as discussed below), private equity limited partnerships, joint ventures, other
limited partnerships, certain fixed income and equity securities, and stock purchase warrants of a
publicly-traded company. The Company uses the equity method of accounting for joint ventures and
limited partnerships. 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 recent financial information, available market data, and management judgment.
Venture Capital Investments
In May 2007, the Company completed the bundled sale of a substantial portion of its venture
capital portfolio. Prior to the sale, these venture capital investments were consolidated in the
Company’s financial statements. The Company’s venture capital investments are generally non-publicly
traded instruments in early-stage companies and, historically, have a holding period of four to seven
years. These investments are primarily in the health care, software and computer services, and
networking and information technologies infrastructures industries. 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. The
external 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 or declined 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.
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