Travelers 2009 Annual Report Download - page 247

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. PENSION PLANS, RETIREMENT BENEFITS AND SAVINGS PLANS (Continued)
diversification of asset types, fund strategies and fund managers. The current target allocations for plan
assets are 55% to 75% equity securities and 20% to 40% fixed income securities. Equity securities
primarily include investments in large, medium and small-cap companies primarily located in the
United States. Fixed income securities include corporate bonds of companies from diversified
industries, mortgage-backed securities and U.S. Treasuries. Other types of investments include a hedge
fund of funds and private equity funds that follow several different strategies.
Equity securities include 797,600 shares of the Company’s common stock with a market value of
$40 million at December 31, 2009.
Fair Value Measurement—Pension Plans and Other Postretirement Benefit Assets
For a discussion of the methods employed by the Company to measure the fair value of invested
assets, see note 4. The following discussion of fair value measurements apply exclusively to the
Company’s pension plans and other postretirement benefit assets.
Short-term securities are carried at fair value which approximates cost plus accrued interest or
amortized discount. The fair value or market value of these is periodically compared to this amortized
cost and is based on significant observable inputs as determined by an external pricing service.
Accordingly, the estimates of fair value for such short-term securities, other than U.S. Treasury
securities and money market mutual funds, provided by an external pricing service are included in the
amount disclosed in Level 2 of the hierarchy. The estimated fair value of U.S. Treasury securities and
money market mutual funds is included in the amount disclosed in Level 1 as the estimates are based
on unadjusted market prices.
The Plan holds investments in partnerships with a fair value estimate determined by an external
fund manager based on recent filings, operating results, balance sheet stability, growth and other
business and market sector fundamentals. Due to the significant unobservable inputs in these
valuations, the Plan includes the total fair value estimate for the partnerships in the amount disclosed
in Level 3.
The group annuity contract is recorded at fair value, which approximates the cost basis. The cost
basis is measured by the amount of funds contributed, increased for investment income credited and
reduced for benefits paid and expenses charged. Due to the significant unobservable inputs in this
valuation, the Plan includes the total fair value estimate for the group annuity contract in the amount
disclosed in Level 3.
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