Travelers 2009 Annual Report Download - page 163

Valuation of Investments Not Reported at Fair Value in Financial Statements
Short-term Securities
The Company’s short-term securities consist of Aaa-rated registered money market funds and
high-quality commercial paper (primarily A1/P1) with a combined average of 27 days to maturity at
December 31, 2009. It is the Company’s policy to not invest in structured products for its short-term
securities. 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 securities in its
impairment monitoring to identify any credit issues.
Real Estate
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 the Company’s cost, less accumulated depreciation.
Other Investments
The Company’s investment portfolio includes other investments not carried at fair value which
include private equity limited partnerships, hedge funds, real estate partnerships (together,
partnerships) and mortgage loans. The Company uses the equity method of accounting for its
investments in partnerships, and amortized cost is used for mortgage loans.
The partnerships and the hedge funds generally report investments on their balance sheet at fair
value. The financial statements prepared by the investee are received by the Company on a lag basis,
with the lag period generally dependent upon the type of underlying investments. The private equity
and real estate partnerships provide financial information quarterly which is generally available to
investors, including the Company, within three to six months following the date of the reporting period.
The hedge funds provide financial information monthly, which is generally available to investors within
one month following the date of the reporting period. The Company regularly requests financial
information from the partnerships prior to the receipt of the partnerships’ financial statements, and
records any material information obtained from these requests in the financial statements.
Investment Impairments
The Company conducts a periodic review to identify and evaluate invested assets having
other-than-temporary impairments. Some of the factors considered in identifying other-than-temporary
impairments include: (1) for fixed maturity investments, whether the Company intends to sell the
investment or whether it is more likely than not that the Company will be required to sell the
investment prior to an anticipated recovery in value; (2) for non-fixed maturity investments, the
Company’s ability and intent to retain the investment for a reasonable period of time sufficient to allow
for an anticipated recovery in value; (3) the likelihood of the recoverability of principal and interest for
fixed maturity securities (i.e., whether there is a credit loss), or cost for equity securities; (4) 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 (5) 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.
Reporting of Other-Than-Temporary Impairments
For fixed maturity investments that the Company does not intend to sell or for which it is more
likely than not that the Company would not be required to sell before an anticipated recovery in value,
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