Travelers 2007 Annual Report Download - page 164

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection with Modifications
or Exchanges of Insurance Contracts
In September 2005, the Accounting Standards Executive Committee (AcSEC) issued Statement of
Position 05-1, Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection with
Modifications or Exchanges of Insurance Contracts (SOP 05-1). SOP 05-1 provides guidance on
accounting by insurance enterprises for deferred acquisition costs on internal replacements of insurance
and investment contracts other than those specifically described in Statement of Financial Accounting
Standards No. 97, Accounting and Reporting by Insurance Enterprises for Certain Long-Duration Contracts
and for Realized Gains and Losses from the Sale of Investments. SOP 05-1 defines an internal
replacement as a modification in product benefits, features, rights, or coverages that occurs upon the
exchange of a contract for a new contract, the amendment, endorsement, or rider to a contract, or the
election of a feature or coverage within a contract. The adoption of SOP 05-1 effective January 1, 2007
did not have a material effect on the Company’s results of operations, financial position or liquidity.
Endorsement Split-Dollar Life Insurance Arrangements
In September 2006, FASB issued Emerging Issues Task Force Issue No. 06-4, Accounting for
Deferred 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. EITF 06-4 is effective January 1, 2008, with earlier
adoption permitted. The early adoption of EITF 06-4 effective January 1, 2007 did not have a material
effect on the Company’s results of operations, financial position or liquidity.
Accounting for Corporate-Owned Life Insurance
In September 2006, the FASB issued Emerging Issues Task Force Issue No. 06-5, Accounting for
Purchase of Life Insurance—Determining the Amount That Could Be Realized in Accordance with FASB
Technical Bulletin No 85-4 (EITF 06-5). EITF 06-5 provides additional guidance on determining the
amount that can be realized under a corporate-owned life insurance contract (that is, converted to
cash) based upon how the contract is assumed to be hypothetically settled. The adoption of EITF 06-5
effective January 1, 2007 did not have a material effect on the Company’s results of operations,
financial position or liquidity.
Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of
FASB Statements No. 87, 88, 106 and 132(R)
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 158,
Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of
FASB Statements No. 87, 88, 106 and 132(R) (FAS 158). FAS 158 requires an employer to recognize the
funded status of a benefit plan as an asset or liability in its statement of financial position, measured as
the difference between plan assets at fair value and the benefit obligation, and to recognize as a
component of accumulated other changes in equity from nonowner sources, net of tax, actuarial gains
or losses and prior service costs or credits that arise during the period but which are not recognized as
components of net periodic benefit cost pursuant to FASB Statement No. 87, Employers’ Accounting for
Pensions (FAS 87), or FASB Statement No. 106, Employers’ Accounting for Postretirement Benefits Other
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