Travelers 2008 Annual Report Download - page 160

Real Estate Investments
On at least an annual basis, the Company obtains independent appraisals for substantially all of its
real estate investments. In addition, the carrying value of a real estate property is reviewed for
impairment on a quarterly basis or when events or changes in circumstances indicate that the carrying
amount may not be recoverable. The review for impairment considers the valuation from the
independent appraisal, when applicable, and incorporates an estimate of the undiscounted cash flows
expected to result from the use and eventual disposition of the real estate property. An impairment loss
is recognized if the expected future undiscounted cash flows are less than the carrying value of the real
estate property. The impairment loss is measured as the amount by which the carrying amount exceeds
fair value.
Other Investments
Mortgage Loans
A mortgage loan is considered impaired when it is probable that the Company will be unable to
collect principal and interest amounts due. For mortgage loans that are determined to be impaired, a
reserve is established for the difference between the amortized cost and the fair market value of the
underlying collateral. In estimating fair value, the Company uses interest rates reflecting the current
real estate financing market returns. The Company did not have any impaired mortgage loans at
December 31, 2008 and 2007.
Venture Capital Investments and Non-Public Common and Preferred Equity Securities
Externally managed venture capital investments and non-public common and preferred equity
securities are reviewed quarterly for other-than-temporary impairment by the external fund manager
and the Company’s portfolio managers. Internally managed venture capital investments and non-public
and preferred equity securities are reviewed quarterly by the Company’s portfolio managers. The
Company’s portfolio managers and the external fund manager review and consider a variety of factors
in determining the valuation of the investments and the potential for other-than-temporary
impairments. Factors considered include the following:
• The investee’s most recent financing events;
• An analysis of whether a fundamental deterioration or improvement has occurred;
• Whether the investee’s progress has been substantially more or less than expected;
• Whether or not the valuations have improved or declined significantly in the investee’s market
sector;
• Whether or not the external fund manager and the Company believe it is probable that the
investee will need financing within six months at a lower price than the Company’s carrying
value; and
• Whether or not the Company has the ability and intent to hold the investment for a period of
time sufficient to allow for recovery, enabling the Company to receive value equal to or greater
than its cost.
An impairment loss is recognized if, based on the specific facts and circumstances, it is probable
that the Company will not be able to recover all of its cost of an individual holding. The quarterly
valuation procedures described above are in addition to the portfolio managers’ ongoing responsibility
to frequently monitor developments affecting those invested assets, paying particular attention to events
that might give rise to impairment write-downs.
148