Travelers 2009 Annual Report Download - page 180

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
disclosures are required about a company’s involvement in variable interest entities and an ongoing
assessment of whether a company is the primary beneficiary.
The guidance is effective for all variable interest entities owned on or formed after January 1,
2010. The Company does not expect that the provisions of the guidance will have a material effect on
its results of operations, financial position or liquidity.
Accounting Policies
Investments
Fixed Maturity and Equity Securities
Fixed maturities include bonds, notes and redeemable preferred stocks. Fixed maturities, including
instruments subject to securities lending agreements, are classified as available for sale and are
reported at fair value, with unrealized investment gains and losses, net of income taxes, credited or
charged directly to accumulated other changes in equity from nonowner sources. Equity securities,
which include public common and non-redeemable preferred stocks, are classified as available for sale
with changes in fair value, net of income tax, charged or credited directly to accumulated other changes
in equity from nonowner sources.
Real Estate
The Company’s real estate investments include warehouses, office buildings and other commercial
land and properties that are directly owned. 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 cost less accumulated depreciation. Buildings
are depreciated on a straight-line basis over the shorter of the expected useful life of the building or
39 years. Real estate held for sale is carried at lower of cost or fair value, less estimated cost to sell.
Short-term Securities
Short-term securities have an original maturity of less than one year and are carried at amortized
cost, which approximates fair value.
Other Investments
Investments in Private Equity Limited Partnerships, Hedge Funds and Real Estate Partnerships
The Company uses the equity method of accounting for private equity limited partnerships, hedge
funds and real estate partnerships. 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
168