Travelers 2007 Annual Report Download - page 197

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. GOODWILL AND OTHER INTANGIBLE ASSETS (Continued)
management’s estimate of nominal claims and claim expense reserves and reinsurance recoverables
(after adjusting for conformity with the acquirer’s accounting policy on discounting of workers’
compensation reserves), expected payment patterns, the April 1, 2004 U.S. Treasury spot rate yield
curve, a leverage ratio assumption (reserves to statutory surplus), and a cost of capital expressed as
a spread over risk-free rates. The method used calculates a risk adjustment to a risk-free
discounted reserve that will, if reserves run off as expected, produce results that yield the assumed
cost-of-capital on the capital supporting the loss reserves. The fair value adjustment is reported as
an intangible asset on the consolidated balance sheet, and the amounts measured in accordance
with the acquirer’s accounting policies for insurance contracts are reported as part of the claims
and claim adjustment expense reserves and reinsurance recoverables. The intangible asset will be
recognized into income over the expected payment pattern. Because the time value of money and
the risk adjustment (cost of capital) components of the intangible asset run off at different rates,
the amount recognized in income may be a net benefit in some periods and a net expense in other
periods.
(2) In 2007, the Company acquired certain trademarks, service marks and logos.
The following presents a summary of the Company’s amortization expense for intangible assets by
major asset class:
(for the year ended December 31, in millions) 2007 2006 2005
Customer-related ............................................... $118 $134 $151
Marketing-related ............................................... —310
Fair value adjustment on claims and claim adjustment expense reserves and
reinsurance recoverables ........................................ 28 16 (12)
Total amortization expense ....................................... $146 $153 $149
Intangible asset amortization expense is estimated to be $126 million in 2008, $100 million in 2009,
$86 million in 2010, $69 million in 2011 and $52 million in 2012.
6. INSURANCE CLAIM RESERVES
Claims and claim adjustment expense reserves were as follows:
(at December 31, in millions) 2007 2006
Property-casualty ................................................. $57,619 $59,202
Accident and health .............................................. 81 86
Total ........................................................ $57,700 $59,288
185