Travelers 2009 Annual Report Download - page 184

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(at December 31, 2009) Prime Alt-A Sub-Prime
Voluntary prepayment rates . . . . . . . . . . . . . . . . . . . . . . . . . 2% - 15% 1% - 8% 1% - 6%
Percentage of remaining pool liquidated due to defaults . . . . 5% - 55% 23% - 75% 31% - 90%
Loss severity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35% - 60% 50% - 75% 70% - 80%
Changes in Intent to Sell Temporarily Impaired Assets
The Company may, from time to time, sell invested assets subsequent to the balance sheet date
that it did not intend to sell at the balance sheet date. Conversely, the Company may not sell invested
assets that it asserted that it intended to sell at the balance sheet date. Such changes in intent are
generally due to events occurring subsequent to the balance sheet date. The types of events that may
result in a change in intent include, but are not limited to, significant changes in the economic facts
and circumstances related to the invested asset (e.g., a downgrade or upgrade from a rating agency),
significant unforeseen changes in liquidity needs, or changes in tax laws or the regulatory environment.
Real Estate Investments
On at least an annual basis, the Company obtains independent appraisals for substantially all of its
real estate investments. In addition, the carrying value of all real estate property is reviewed for
impairment on a quarterly basis or when events or changes in circumstances indicate that the carrying
amount may not be recoverable. The review for impairment considers the valuation from the
independent appraisal, when applicable, and incorporates an estimate of the undiscounted cash flows
expected to result from the use and eventual disposition of the real estate property. An impairment loss
is recognized if the expected future undiscounted cash flows are less than the carrying value of the real
estate property. The impairment loss is the amount by which the carrying amount exceeds fair value.
Other Investments
Investments in Private Equity Limited Partnerships, Hedge Funds and Real Estate Partnerships
Included in other investments are private equity limited partnerships, 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 the year
through discussions with the managers/general partners. If the Company becomes aware of an
impairment of a partnership’s investments at the balance sheet date prior to receiving the partnership’s
financial statements, it will recognize an impairment by recording a reduction in the carrying value of
the partnership with a corresponding charge to net investment income.
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, 2009 and 2008.
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