Travelers 2007 Annual Report Download - page 230

Download and view the complete annual report

Please find page 230 of the 2007 Travelers annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 280

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149
  • 150
  • 151
  • 152
  • 153
  • 154
  • 155
  • 156
  • 157
  • 158
  • 159
  • 160
  • 161
  • 162
  • 163
  • 164
  • 165
  • 166
  • 167
  • 168
  • 169
  • 170
  • 171
  • 172
  • 173
  • 174
  • 175
  • 176
  • 177
  • 178
  • 179
  • 180
  • 181
  • 182
  • 183
  • 184
  • 185
  • 186
  • 187
  • 188
  • 189
  • 190
  • 191
  • 192
  • 193
  • 194
  • 195
  • 196
  • 197
  • 198
  • 199
  • 200
  • 201
  • 202
  • 203
  • 204
  • 205
  • 206
  • 207
  • 208
  • 209
  • 210
  • 211
  • 212
  • 213
  • 214
  • 215
  • 216
  • 217
  • 218
  • 219
  • 220
  • 221
  • 222
  • 223
  • 224
  • 225
  • 226
  • 227
  • 228
  • 229
  • 230
  • 231
  • 232
  • 233
  • 234
  • 235
  • 236
  • 237
  • 238
  • 239
  • 240
  • 241
  • 242
  • 243
  • 244
  • 245
  • 246
  • 247
  • 248
  • 249
  • 250
  • 251
  • 252
  • 253
  • 254
  • 255
  • 256
  • 257
  • 258
  • 259
  • 260
  • 261
  • 262
  • 263
  • 264
  • 265
  • 266
  • 267
  • 268
  • 269
  • 270
  • 271
  • 272
  • 273
  • 274
  • 275
  • 276
  • 277
  • 278
  • 279
  • 280

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. PENSION PLANS, RETIREMENT BENEFITS AND SAVINGS PLANS (Continued)
Assumptions and Health Care Cost Trend Rate Sensitivity
(at and for the year ended December 31,) 2007 2006
Assumptions used to determine benefit obligations
Discount rate ....................................................... 6.00% 6.00%
Future compensation increase rate ........................................ 4.00% 4.00%
Assumptions used to determine net periodic benefit cost
Discount rate ....................................................... 6.00% 5.75%
Expected long-term rate of return on pension plans’ assets ...................... 8.00% 8.00%
Expected long-term rate of return on postretirement benefit plans’ assets ........... 5.50% 5.50%
Assumed health care cost trend rates
Following year:
Medical (before age 65) ............................................. 7.00% 8.00%
Medical (age 65 and older) ........................................... 9.00% 10.00%
Rate to which the cost trend rate is assumed to decline (ultimate trend rate) ......... 5.00% 5.00%
Year that the rate reaches the ultimate trend rate:
Medical (before age 65) ............................................. 2010 2010
Medical (age 65 and older) ........................................... 2012 2012
The discount rate assumption used to determine the benefit obligation is based on the Moody’s Aa
Corporate Bond index increased by 25 basis points to reflect the long duration nature of the pension
obligation and adjusted to the nearest quarter rate. The discount rate is then back-tested by
comparison to a yield curve that reflects the hypothetical portfolio of high quality bonds (rated Aa or
higher by a recognized rating agency) for which the timing and amount of cash outflows approximates
the estimated payouts of the Plan.
In choosing the expected long-term rate of return, the Company’s Pension Plan Investment
Committee considered the historical returns of equity and fixed income markets in conjunction with
today’s economic and financial market conditions.
As an indicator of sensitivity, increasing the assumed health care cost trend rate by 1% would have
increased the accumulated postretirement benefit obligation by $23 million at December 31, 2007, and
the aggregate of the service and interest cost components of net postretirement benefit expense by
$1 million for the year ended December 31, 2007. Decreasing the assumed health care cost trend rate
by 1% would have decreased the accumulated postretirement benefit obligation at December 31, 2007
by $19 million and the aggregate of the service and interest cost components of net postretirement
benefit expense by $1 million for the year ended December 31, 2007.
218