Travelers 2010 Annual Report Download - page 169

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of The Travelers Companies, Inc.
(together with its subsidiaries, the Company). The preparation of the consolidated financial statements
in conformity with U.S. generally accepted accounting principles (GAAP) requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the consolidated financial statements and the reported
amounts of revenues and claims and expenses during the reporting period. Actual results could differ
from those estimates. Certain reclassifications have been made to the 2009 and 2008 financial
statements to conform to the 2010 presentation. All material intercompany transactions and balances
have been eliminated.
Adoption of Accounting Standards Updates
Participating Securities Granted in Share-Based Payment Transactions
In June 2008, the FASB issued updated guidance that addressed whether instruments granted in
share-based payment transactions are participating securities prior to vesting and, therefore, should be
included in the earnings allocation in computing earnings per share (EPS) under the ‘‘two-class
method.’’ Under the guidance, participating securities are re-defined to include unvested share-based
payment awards that contain non-forfeitable dividends or dividend equivalents as participating securities
to be included in the computation of EPS using the ‘‘two-class method.’’ Outstanding unvested
restricted stock and deferred stock units issued under employee compensation programs containing
such dividend participation features are considered participating securities subject to the ‘‘two-class
method’’ in computing EPS rather than the ‘‘treasury stock method.’’
The guidance was effective for financial statements issued for fiscal years beginning after
December 15, 2008 and for interim periods within those years. In accordance with the provisions of the
guidance, all prior-period basic and diluted EPS data presented were restated to reflect the
retrospective application of its computational guidance. The adoption of the guidance on January 1,
2009 did not have a material effect on the Company’s basic or diluted EPS.
Other-Than-Temporary Impairments
In April 2009, the FASB issued updated guidance, which provides clarification that an
other-than-temporary impairment is recognized when an entity has the intent to sell a debt security or
when it is more likely than not that an entity will be required to sell the debt security before its
anticipated recovery in value.
Additionally, the guidance changes the presentation and amount of other-than-temporary
impairment losses recognized in the income statement for instances in which the Company does not
intend to sell a debt security, or it is more likely than not that the Company will not be required to sell
a debt security prior to the anticipated recovery of its remaining cost basis. The Company separates the
credit loss component of the impairment from the amount related to all other factors and reports the
credit loss component in net realized investment gains (losses). The impairment related to all other
factors is reported in ‘‘accumulated other changes in equity from nonowner sources.’’
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