Travelers 2009 Annual Report Download - page 186

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
of its reporting units and compares it to their carrying value, including goodwill. If the carrying values
of the reporting units exceed their fair value, the amount of the impairment is calculated and goodwill
is adjusted accordingly.
The Company uses a discounted cash flow model to estimate the fair value of its reporting units.
The discounted cash flow model is an income approach to valuation that is based on a detailed cash
flow analysis for deriving a current fair value of reporting units and is representative of the Company’s
reporting units’ current and expected future financial performance. Other indefinite-lived intangible
assets held by the Company are also reviewed for impairment on at least an annual basis. The
classification of the asset as indefinite-lived is reassessed, and an impairment is recognized if the
carrying amount of the asset exceeds its fair value.
Intangible assets that are deemed to have a finite useful life are amortized over their useful lives.
The carrying amount of intangible assets with a finite useful life is regularly reviewed for indicators of
impairment in value. Impairment is recognized only if the carrying amount of the intangible asset is not
recoverable from its undiscounted cash flows and is measured as the difference between the carrying
amount and the fair value of the asset.
The Company’s review did not result in an impairment of its indefinite-lived or finite-lived
intangible assets for the years ended December 31, 2009, 2008 and 2007.
Claims and Claim Adjustment Expense Reserves
Claims and claim adjustment expense reserves represent estimates for unpaid reported and
unreported claims incurred and related expenses. The reserves are adjusted regularly based upon
experience. Included in the claims and claim adjustment expense reserves in the consolidated balance
sheet are certain reserves discounted to the present value of estimated future payments. The liabilities
for losses for most long-term disability payments under workers’ compensation insurance and workers’
compensation excess insurance, which totaled $2.16 billion and $2.25 billion at December 31, 2009 and
2008, respectively, were discounted using a rate of 5% at both December 31, 2009 and 2008.
The Company performs a continuing review of its claims and claim adjustment expense reserves,
including its reserving techniques and its reinsurance. The reserves are also reviewed regularly by
qualified actuaries employed by the Company. These reserves represent the estimated ultimate cost of
all unpaid claims and claim adjustment expenses. Since the reserves are based on estimates, the
ultimate liability may be more or less than such reserves. The effects of changes in such estimated
reserves are included in the results of operations in the period in which the estimates are changed.
Such changes in estimates could occur in a future period and may be material to the Company’s results
of operations and financial position in such period.
Other Liabilities
Included in other liabilities in the consolidated balance sheet is the Company’s estimate of its
liability for guaranty fund and other insurance-related assessments. The liability for expected state
guaranty fund and other premium-based assessments is recognized as the Company writes or becomes
obligated to write or renew the premiums on which the assessments are expected to be based. The
liability for loss-based assessments is recognized as the related losses are incurred. At December 31,
2009 and 2008, the Company had a liability of $293 million and $375 million, respectively, for guaranty
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