Travelers 2008 Annual Report Download - page 232

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. INCOME TAXES (Continued)
The net deferred tax asset comprises the tax effects of temporary differences related to the
following assets and liabilities:
(at December 31, in millions) 2008 2007
Deferred tax assets
Claims and claim adjustment expense reserves ...................... $1,217 $1,352
Unearned premium reserves ................................... 663 661
Investments ............................................... 105 —
Other .................................................... 769 700
Total gross deferred tax assets ............................... 2,754 2,713
Less valuation allowance .................................... —36
Net deferred tax assets .................................... 2,754 2,677
Deferred tax liabilities
Deferred acquisition costs ..................................... 575 578
Investments ............................................... —704
Internally-developed software ................................... 100 77
Other .................................................... 114 111
Total gross deferred tax liabilities ............................ 789 1,470
Total deferred income taxes ................................ $1,965 $1,207
If the Company determines that any of its deferred tax assets will not result in future tax benefits,
a valuation allowance must be established for the portion of these assets that are not expected to be
realized. The net decreases in the valuation allowance for deferred tax assets were $36 million and
$46 million at December 31, 2008 and 2007, respectively, relating in each year to foreign operations.
Based upon a review of the Company’s anticipated future taxable income, and also including all other
available evidence, both positive and negative, the Company’s management concluded that it is more
likely than not that the net deferred tax assets will be realized.
For tax return purposes, as of December 31, 2008, the Company had net operating loss (NOL)
carryforwards on a regular tax basis and an alternative minimum tax (AMT) basis of approximately
$81 million and $47 million, respectively. These NOL carryforwards expire, if unused, in 2017 and 2018.
The amount and timing of realizing the benefit of NOL carryforwards depends on future taxable
income and limitations imposed by tax laws. The benefit of the NOL carryforward has been recognized
in the consolidated financial statements.
U.S. income taxes have not been provided on $317 million of the Company’s foreign operations’
undistributed earnings as of December 31, 2008, as such earnings are intended to be permanently
reinvested in those operations. Furthermore, any taxes paid to foreign governments on these earnings
may be used as credits against the U.S. tax on any dividend distributions from such earnings.
The Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in
Income Taxes, on January 1, 2007. The adoption of FIN 48 did not have a material effect on the
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