Travelers 2007 Annual Report Download - page 172

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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.
Net Investment Income
Investment income from fixed maturities and mortgage loans is recognized based on the constant
effective yield method including estimated principal repayments, if any. The effective yield used to
determine amortization for fixed maturities subject to prepayment risk (e.g., asset-backed, loan-backed
and structured securities) is recalculated and adjusted periodically based upon actual historical and/or
projected future cash flows, which are obtained from a widely-accepted securities data provider. The
adjustments to the yield for highly rated prepayable fixed maturities are accounted for using the
retrospective method. The adjustments to the yield for non-highly rated prepayable fixed maturities are
accounted for using the prospective method. Dividends on equity securities are recognized in income
when declared. Rental income on real estate is recognized on a straight-line basis over the lease term.
See note 3 for further discussion. Net investment income also includes changes in equity of investments
in partnerships, joint ventures and limited liability companies.
Accrual of income is suspended on fixed maturities or mortgage loans that are in default, or on
which it is likely that future payments will not be made as scheduled. Interest income on investments in
default is recognized only when payments are received. Investments included in the consolidated
balance sheet that were not income-producing for the preceding 12 months were not material.
Investment Gains and Losses
Net realized investment gains and losses are included as a component of pretax revenues based
upon specific identification of the investments sold on the trade date. Included in net realized
investment gains (losses) are other-than-temporary impairment losses on invested assets as described in
the ‘‘Investment Impairment’’ section above.
Reinsurance Recoverables
Amounts recoverable from reinsurers are estimated in a manner consistent with the associated
claim liability. The Company reports its reinsurance recoverables net of an allowance for estimated
uncollectible reinsurance recoverables. The allowance is based upon the Company’s ongoing review of
amounts outstanding, length of collection periods, changes in reinsurer credit standing, disputes,
applicable coverage defenses and other relevant factors. Amounts deemed to be uncollectible, including
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