Travelers 2007 Annual Report Download - page 150

Investment Impairments
The Company recognizes an impairment loss when an invested asset’s value declines below cost,
adjusted for accretion, amortization and previous other-than-temporary impairments (new cost basis),
and the change is deemed to be other-than-temporary, or if it is determined that the Company will not
be able to recover all amounts due pursuant to the issuers’ contractual obligations prior to sale or
maturity. When the Company determines that an invested asset is other-than-temporarily impaired, the
invested asset is written down to fair value, and the amount of the impairment is included in earnings
as a realized investment loss. The fair value then becomes the new cost basis of the investment, and
any subsequent recoveries in fair value are recognized at disposition.
The Company recognizes a realized loss when impairment is deemed to be other-than-temporary
even if a decision to sell an invested asset has not been made. When the Company has decided to sell
a temporarily impaired available-for-sale invested asset and the Company does not expect the fair value
of the invested asset to fully recover prior to the expected time of sale, the invested asset is deemed to
be other-than-temporarily impaired in the period in which the decision to sell is made.
Factors considered in determining whether a decline is other-than-temporary include the length of
time and the extent to which fair value has been below cost, the financial condition and near-term
prospects of the issuer, and the Company’s ability and intent to hold the investment for a period of
time sufficient to allow for any anticipated recovery.
The Company’s process for reviewing invested assets for impairments during any quarter includes
the following:
• Identification and evaluation of investments that have possible indications of
other-than-temporary impairment, which includes an analysis of investments with gross
unrealized investment losses that have fair values less than 80% of cost for six consecutive
months or more;
• Review of portfolio manager(s) recommendations for other-than-temporary impairments based
on the investee’s current financial condition, liquidity, near-term recovery prospects and other
factors;
• Consideration of evidential matter, including an evaluation of factors or triggers that may cause
individual investments to qualify as having other-than-temporary impairments; and
• Determination of the status of each analyzed investment as other-than-temporary or not, with
documentation of the rationale for the decision.
Sales of Temporarily Impaired Invested Assets
The Company may, from time to time, sell invested assets subsequent to the balance sheet date
that were considered temporarily impaired at the balance sheet date. Such sales are generally due to
events occurring subsequent to the balance sheet date that result in a change in the Company’s intent
or ability to hold an invested asset. The types of events that may result in a sale include significant
changes in the economic facts and circumstances related to the invested asset, significant unforeseen
changes in the Company’s liquidity needs, or changes in tax laws or the regulatory environment.
Fixed Maturities and Equity Securities
An investment in a fixed maturity or equity security which is available for sale is impaired if its fair
value falls below its cost or new cost basis, and the decline is considered to be other-than-temporary. A
fixed maturity security is other-than-temporarily impaired if it is probable that the Company will not be
able to collect all amounts due under the security’s contractual terms or where the Company does not
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