Travelers 2007 Annual Report Download - page 151

have the intent to hold the security. Equity securities are other-than-temporarily impaired when it
becomes apparent that the Company will not recover its cost over the expected holding period.
Further, for securities expected to be sold, an other-than-temporary impairment charge is
recognized if the Company does not expect the fair value of a security to recover prior to the expected
date of sale. Additionally, for certain securitized financial assets with contractual cash flows (including
asset-backed securities), the Company periodically updates its best estimate of cash flows over the life
of the security. If management determines that the fair value of a securitized financial asset is less than
its carrying amount and there has been a decrease in the present value of the estimated cash flows
since the last revised estimate, considering both timing and amount, then an other-than-temporary
impairment is recognized.
Real Estate Investments
The carrying value of a real estate property is reviewed for impairment when events or changes in
circumstances indicate that the carrying amount may not be recoverable. The review for impairment
includes an estimate of the undiscounted cash flows expected to result from the use and eventual
disposition of the real estate property. An impairment loss is recognized if the expected future
undiscounted cash flows are less than the carrying value of the real estate property. The impairment
loss is measured as the amount by which the carrying amount exceeds fair value.
Other Investments
Mortgage Loans
A mortgage loan is considered impaired when it is probable that the Company will be unable to
collect principal and interest amounts due. For mortgage loans that are determined to be impaired, a
reserve is established for the difference between the amortized cost and fair market value of the
underlying collateral. In estimating fair value, the Company uses interest rates reflecting the current
real estate financing market returns. Impaired loans were not material at December 31, 2007 and 2006.
Venture Capital Investments and Non-Publicly Traded Investments
Venture capital investments and non-publicly traded investments are reviewed quarterly for
other-than-temporary impairment by the external fund manager and the Company’s portfolio managers.
An impairment loss is recognized if, based on the specific facts and circumstances, it is probable that
the Company will not be able to recover all of the cost of an individual holding.
Other Investments Excluding Venture Capital Investments
Included in other investments are partnership investments and investments in limited liability
companies (together ‘‘partnerships’’) that generally report investments on their balance sheet at fair
value. The partnership investments include private equity investments and investments in hedge funds.
The managers/general partners of the private equity partnerships provide financial information
quarterly which is generally available to investors, including the Company, within three to six months
following the date of the reporting period. The hedge funds provide financial information monthly
which is available to investors within one month following the date of the reporting period. The
Company reviews these investments for impairment no less frequently than quarterly and monitors the
performance throughout the year through discussions with the managers/general partners. If the
Company becomes aware of an other-than-temporary impairment of a partnership investment at the
balance sheet date prior to receiving financial information, it will record an impairment charge
consistent with the Company’s impairment policy.
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