Travelers 2008 Annual Report Download - page 177

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Accounting Policies
Investments
Fixed Maturity and Equity Securities
Fixed maturities include bonds, notes and redeemable preferred stocks. Fixed maturities, including
instruments subject to securities lending agreements, are classified as available for sale and are
reported at fair value, with unrealized investment gains and losses, net of income taxes, credited or
charged directly to accumulated other changes in equity from nonowner sources. Equity securities,
which include public common and non-redeemable preferred stocks, are classified as available for sale
with changes in fair value, net of income tax, charged or credited directly to accumulated other changes
in equity from nonowner sources.
Real Estate
The Company’s real estate investments include warehouses, office buildings and other commercial
land and properties that are directly owned. Real estate is recorded on the purchase date at the
purchase price, which generally represents fair value, and is supported by internal analysis or external
appraisals, using discounted cash flow analyses and other acceptable valuation techniques. Real estate
held for investment purposes is subsequently carried at cost less accumulated depreciation. Buildings
are depreciated on a straight-line basis over the shorter of the expected useful life of the building or
39 years. Accumulated depreciation on real estate held for investment purposes was $140 million and
$111 million at December 31, 2008 and 2007, respectively. Real estate held for sale is carried at lower
of cost or fair value, less estimated cost to sell.
Short-term Securities
Short-term securities are carried at amortized cost. The Company’s short-term investments consist
mainly of high-quality commercial paper (primarily A1/P1) with an average of 39 days to maturity at
December 31, 2008. Additionally, it is the Company’s policy to not invest in structured products for its
short-term investments. The Company believes that there is insignificant credit risk in its short-term
portfolio and that amortized cost approximates fair value. The Company includes short-term
investments in its impairment monitoring to identify any credit issues.
Other Investments
Venture Capital Investments and Non-Public Common and Preferred Equity Securities
The Company holds venture capital investments and investments in non-public common and
preferred stocks that are classified as ‘‘available for sale,’’ with changes in fair value, net of income tax,
charged or credited directly to accumulated other changes in equity from nonowner sources. The fair
value estimate is determined either internally or by an external fund manager based on recent filings,
operating results, balance sheet stability, growth, and other business and market sector fundamentals.
The Company’s venture capital investments are generally non-publicly traded instruments in early-stage
companies and historically have a holding period of four to seven years. These investments are
primarily in the health care, software and computer services, and networking and information
technologies infrastructures industries. The underlying investments of these venture capital investments
are reported at fair value. The fair value of the venture capital investments is based on an estimate
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