Travelers 2008 Annual Report Download - page 182

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 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.
Other Investments Excluding Venture Capital Investments and Non-Public Common and Preferred
Equity Securities
Included in other investments are private equity limited partnerships, investments in hedge funds
and real estate partnerships that generally report investments on their balance sheet at fair value and
are accounted for by the Company using the equity method of accounting. The Company reviews these
investments for impairment no less frequently than quarterly and monitors the performance throughout
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