Travelers 2007 Annual Report Download - page 173

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
amounts due from known insolvent reinsurers, are written off against the allowance for estimated
uncollectible reinsurance recoverables. Any subsequent collections of amounts previously written off are
reported as part of claims and claim adjustment expenses. The Company evaluates and monitors the
financial condition of its reinsurers under voluntary reinsurance arrangements to minimize its exposure
to significant losses from reinsurer insolvencies.
Deferred Acquisition Costs
Amounts which vary with and are primarily related to the production of new insurance contracts,
primarily commissions and premium-related taxes, are deferred and amortized pro rata over the
contract periods in which the related premiums are earned. Deferred acquisition costs are reviewed to
determine if they are recoverable from future income and, if not, are charged to expense. Future
investment income attributable to related premiums is taken into account in measuring the
recoverability of the carrying value of this asset. All other acquisition expenses are charged to
operations as incurred.
Contractholder Receivables and Payables
Under certain workers’ compensation insurance contracts with deductible features, the Company is
obligated to pay the claimant for the full amount of the claim. The Company is subsequently
reimbursed by the policyholder for the deductible amount. These amounts are included on a gross basis
in the consolidated balance sheet in contractholder payables and contractholder receivables,
respectively.
Goodwill and Other Intangible Assets
A review is performed on at least an annual basis of goodwill held by the reporting units, which
are the Company’s three operating and reportable segments: Business Insurance; Financial,
Professional & International Insurance; and Personal Insurance.
The impairment test is a two-step process. The first step is to identify any potential impairment
using a multiple-of-earnings approach to estimate the fair value of the reporting units. The fair values
of the reporting units are then compared to their carrying value, including goodwill. If the carrying
amounts of the reporting units exceed their fair value, a second step is performed to measure the
amount of impairment, if any.
Other intangible assets that are deemed to have a finite useful life are amortized over their useful
lives. The carrying amount of intangible assets that are deemed to have a finite useful life is regularly
reviewed for indicators of impairments in value. Impairment is recognized only if the carrying amount
of the intangible asset is not recoverable from its undiscounted cash flows and is measured as the
difference between the carrying amount and the fair value of the asset.
Other indefinite-lived intangible assets held by the Company are also reviewed at least annually for
impairment. The classification of these assets as indefinite-lived is reassessed and an impairment is
recognized if the carrying amount of the indefinite-lived intangible asset exceeds its fair value.
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