Travelers 2008 Annual Report Download - page 180

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Investment Impairments
The Company recognizes an impairment loss when an invested asset’s value declines below cost,
adjusted for accretion, amortization and previous other-than-temporary impairments (new cost basis),
and it is determined that the decline is other-than-temporary. Some of the factors considered in
evaluating whether a decline in fair value is other-than-temporary include: (1) the Company’s ability
and intent to retain the investment for a period of time sufficient to allow for an anticipated recovery
in value; (2) the recoverability of principal and interest for fixed maturity securities, or cost for equity
securities; (3) the length of time and extent to which the fair value has been less than amortized cost
for fixed maturity securities, or cost for equity securities; and (4) the financial condition, near-term and
long-term prospects for the issuer, including the relevant industry conditions and trends, and
implications of rating agency actions and offering prices. When the Company determines that an
invested asset is other-than-temporarily impaired, the invested asset is written down to fair value, and
the amount of the impairment is included in earnings as a realized investment loss. The fair value then
becomes the new cost basis of the investment, and any subsequent recoveries in fair value, other than
amounts accreted to the expected recovery amount, are recognized at disposition. Due to the subjective
nature of the Company’s analysis and estimates of fair value along with the judgment that must be
applied in the analysis, it is possible that the Company could reach a different conclusion whether or
not to impair a security if it had access to additional information about the investee. Additionally, it is
possible that the investee’s ability to meet future contractual obligations may be different than what the
Company determined during its analysis, which may lead to a different impairment conclusion in future
periods.
The Company recognizes a realized loss when impairment is deemed to be other-than-temporary
even if a decision to sell an invested asset has not been made. When the Company has decided to sell
a temporarily impaired available-for-sale invested asset and the Company does not expect the fair value
of the invested asset to fully recover prior to the expected time of sale, the invested asset is deemed to
be other-than-temporarily impaired in the period in which the decision to sell is made.
The Company’s process for identifying and reviewing invested assets for impairments during any
quarter includes the following:
• Identification and evaluation of investments that have possible indications of
other-than-temporary impairment, which includes an analysis of all investments with gross
unrealized investment losses that have fair values less than 80% of cost;
• Review and evaluation of external and internal portfolio managers’ recommendations for
other-than-temporary impairments of any other investments based on the investee’s current
financial condition, liquidity, near-term recovery prospects, the outlook for the business sectors
in which the investee operates and other factors (in addition to reviewing investments with an
estimated fair value of less than 80% of cost);
• Consideration of evidential matter, including an evaluation of factors or triggers that may or may
not cause individual investments to qualify as having other-than-temporary impairments; and
• Determination of the status of each analyzed investment as other-than-temporary or not, with
documentation of the rationale for the decision.
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