Travelers 2008 Annual Report Download - page 173

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
that is not a forced liquidation or distressed sale at the measurement date. The adoption of FSP
FAS 157-3 in the third quarter did not have a material effect on the Company’s results of operations,
financial position or liquidity.
Impairment of Structured Securities
In January 2009, the FASB issued FASB Staff Position (FSP) EITF 99-20-1, Amendments to the
Impairment Guidance of EITF Issue No. 99-20 (FSP EITF 99-20-1), which is effective for interim and
annual periods ending after December 15, 2008. FSP EITF 99-20-1 amends EITF 99-20, Recognition of
Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests That Continue to
Be Held by a Transferor in Securitized Financial Assets (EITF 99-20), to align the impairment guidance
in EITF 99-20 with the impairment guidance in FAS 115, Accounting for Certain Investments in Debt
and Equity Securities. FSP EITF 99-20-1 amends the cash flows model used to analyze an
other-than-temporary impairment under EITF 99-20 by replacing the market participant view with
management’s assumption of whether it is probable that there is an adverse change in the estimated
cash flows. The adoption of FSP EITF 99-20-1 in the fourth quarter did not have a material effect on
the Company’s results of operations, financial position or liquidity.
Fair Value Option for Financial Assets and Financial Liabilities
In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The Fair
Value Option for Financial Assets and Financial Liabilities—Including an Amendment of FASB Statement
No. 115 (FAS 159). FAS 159 permits an entity to irrevocably elect fair value on a contract-by-contract
basis for new assets or liabilities within the scope of FAS 159 as the initial and subsequent
measurement attribute for those financial assets and liabilities and certain other items including
property and casualty insurance contracts. Entities electing the fair value option would be required to
recognize changes in fair value in earnings and to expense up-front costs and fees associated with the
item for which the fair value option is elected. Entities electing the fair value option are required to
distinguish on the face of the statement of financial position the fair value of assets and liabilities for
which the fair value option has been elected, and similar assets and liabilities measured using another
measurement attribute. An entity can accomplish this by either reporting the fair value and
non-fair-value carrying amounts as separate line items or aggregating those amounts and disclosing
parenthetically the amount of fair value included in the aggregate amount.
FAS 159 was effective for fiscal years beginning after November 15, 2007. Upon adoption, an entity
is permitted to elect the fair value option irrevocably for any existing asset or liability within the scope
of the standard. The adjustment to reflect the difference between the fair value and the carrying
amount would be accounted for as a cumulative-effect adjustment to retained earnings as of the date of
initial adoption. Retrospective application would not be permitted. The Company did not elect the fair
value option for any of the assets and liabilities currently held upon its adoption of FAS 159 effective
January 1, 2008. Therefore, FAS 159 did not have an impact on the Company’s results of operations,
financial position or liquidity at adoption.
Collateral Assignment Split-Dollar Life Insurance Arrangements
In March 2007, the FASB issued Emerging Issues Task Force Issue No. 06-10, Accounting for
Deferred Compensation and Postretirement Benefit Aspects of Collateral Assignment Split-Dollar Life
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