Travelers 2009 Annual Report Download - page 188

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
account is closed, a reinsurance contract (the ‘‘reinsurance to close’’ or RITC) is entered into with a
subsequent year of account (normally the following year of account) in consideration for which all
subsequent underwriting transactions resulting from the closing year and all previous years reinsured
therein are brought forward to (accepted by) the subsequent year of account.
The amount of the assets received in an RITC is equal to the accepted claims including incurred
but not reported (IBNR) claims and is undiscounted for the time value of money. Accordingly, there is
no gain or loss at the time the assets and liabilities are acquired and recognized by the subsequent year
of account. In addition, there is no impact on reported premiums and losses as a result of an RITC
transaction.
Fee Income
Fee income includes servicing fees from carriers and revenues from large deductible policies and
service contracts and is recognized pro rata over the contract or policy periods.
Other Revenues
Other revenues include revenues from premium installment charges, which are recognized as
collected, revenues of noninsurance subsidiaries other than fee income and gains and losses on
dispositions of assets and redemption of debt, and other miscellaneous revenues.
Income Taxes
The Company recognizes deferred income tax assets and liabilities for the expected future tax
effects attributable to temporary differences between the financial statement and tax return bases of
assets and liabilities, based on enacted tax rates and other provisions of the tax law. The effect of a
change in tax laws or rates on deferred tax assets and liabilities is recognized in income in the period in
which such change is enacted. Deferred tax assets are reduced by a valuation allowance if it is more
likely than not that all or some portion of the deferred tax assets will not be realized.
Foreign Currency Translation
The Company assigns functional currencies to its foreign operations, which are generally the
currencies of the local operating environment. Foreign currency amounts are remeasured to the
functional currency, and the resulting foreign exchange gains or losses are reflected in earnings.
Functional currency amounts are then translated into U.S. dollars. The change in unrealized foreign
currency translation gain or loss during the year, net of tax, is a component of accumulated other
changes in equity from nonowner sources. The foreign currency remeasurement and translation are
calculated using current exchange rates for items reported in the balance sheets and average exchange
rates for items recorded in earnings.
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