Travelers 2008 Annual Report Download - page 187

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Foreign Currency Translation
The Company assigns functional currencies to its foreign operations, which are generally the
currencies of the local operating environment. Foreign currency amounts are remeasured to the
functional currency, and the resulting foreign exchange gains or losses are reflected in earnings.
Functional currency amounts are then translated into U.S. dollars. The change in unrealized foreign
currency translation gain or loss during the year, net of tax, is a component of accumulated other
changes in equity from nonowner sources. The foreign currency remeasurement and translation are
calculated using current exchange rates for items reported in the balance sheets and average exchange
rates for items recorded in earnings.
Share-Based Compensation
The Company has an employee stock incentive compensation plan that permits grants of
nonqualified stock options, incentive stock options, stock appreciation rights, restricted stock, deferred
stock, stock units, performance awards and other stock-based or stock-denominated awards with respect
to the Company’s common stock.
Compensation cost is measured based on the grant-date fair value of an award, determined
pursuant to FAS 123R, Share-Based Payment, utilizing the assumptions discussed in note 12.
Compensation cost is recognized for financial reporting purposes over the period in which the
employee is required to provide service in exchange for the award (generally the vesting period). In
connection with certain share-based awards, participants are entitled to receive dividends during the
vesting period, either in cash or dividend equivalent shares, commensurate with the dividends paid to
common shareholders. Dividends and dividend equivalent shares on awards that are expected to vest
are recorded in retained earnings. Dividends paid in cash are presented in the ‘‘Dividends’’ caption of
retained earnings while dividend equivalent shares are presented in the ‘‘Other’’ caption of retained
earnings. Dividends on awards that are not expected to vest are not subject to forfeiture and are,
therefore, recorded as compensation expense.
Nature of Operations
The Company is organized into three reportable business segments: Business Insurance; Financial,
Professional & International Insurance; and Personal Insurance. These segments reflect the manner in
which the Company’s businesses are currently managed and represent an aggregation of products and
services based on type of customer, how the business is marketed and the manner in which risks are
underwritten.
The specific business segments are as follows:
Business Insurance
The Business Insurance segment offers a broad array of property and casualty insurance and
insurance-related services to its clients primarily in the United States. Business Insurance is organized
into the following six groups, which collectively comprise Business Insurance Core operations:
•Select Accounts serves small businesses for property and casualty products, including commercial
multi-peril, property, general liability, commercial auto and workers’ compensation insurance.
175