Travelers 2010 Annual Report Download - page 170

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
In addition to the changes in measurement and presentation, the disclosures related to
other-than-temporary impairments relating to debt securities are expanded, and all such disclosures are
required to be included in both interim and annual periods.
The guidance was effective for interim periods ending after June 15, 2009. The adoption of the
guidance on April 1, 2009 resulted in an increase in retained earnings of $71 million, which was offset
by a corresponding decrease in ‘‘accumulated other changes in equity from nonowner sources’’ of the
same amount.
As a result of adopting the guidance, the amounts of net investment income, net realized
investment losses from impairment charges and net income reported for the twelve months ended
December 31, 2009 were different than the amounts that would have been reported under the previous
accounting guidance. The guidance resulted in less net realized investment losses from impairments,
and accordingly, an increase in net income of approximately $65 million after-tax ($100 million pretax)
or $0.11 per share (basic and diluted) in 2009. That increase was partially offset by a slight decrease in
net investment income and, accordingly, net income, of less than $0.01 per share (basic and diluted)
due to a decrease in the accretion of the non-credit loss component of impaired securities to the
Company’s projection of expected value for the twelve months ended December 31, 2009.
Amendments to Accounting for Variable Interest Entities
In June 2009, the FASB issued updated guidance on the accounting for variable interest entities
that eliminates the concept of a qualifying special-purpose entity and the quantitative-based risks and
rewards calculation for determining which company, if any, has a controlling financial interest in a
variable interest entity. The updated guidance requires an analysis of whether a company has: (1) the
power to direct the activities of a variable interest entity that most significantly impact the entity’s
economic performance and (2) the obligation to absorb the losses that could potentially be significant
to the entity or the right to receive benefits from the entity that could potentially be significant to the
entity. An entity is required to be re-evaluated as a variable interest entity when the holders of the
equity investment at risk, as a group, lose the power from voting rights or similar rights to direct the
activities that most significantly impact the entity’s economic performance. Additional disclosures are
required about a company’s involvement in variable interest entities and an ongoing assessment of
whether a company is the primary beneficiary.
The updated guidance is effective for all variable interest entities owned on or formed after
January 1, 2010. The adoption of this guidance did not have any effect on the Company’s results of
operations, financial position or liquidity.
Accounting Standards Not Yet Adopted
Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts
In October 2010, the FASB issued updated guidance to address the diversity in practice for the
accounting for costs associated with acquiring or renewing insurance contracts. This guidance modifies
the definition of acquisition costs to specify that a cost must be directly related to the successful
acquisition of a new or renewal insurance contract in order to be deferred. If application of this
guidance would result in the capitalization of acquisition costs that had not previously been capitalized
by a reporting entity, the entity may elect not to capitalize those costs.
158