Travelers 2010 Annual Report Download - page 171

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The updated guidance is effective for periods ending after December 15, 2011. The adoption of
this guidance is not expected to have any impact on the Company’s results of operations, financial
position or liquidity.
Intangibles—Goodwill and Other
In December 2010, the FASB issued updated guidance that modifies the goodwill impairment test.
Under the updated guidance, goodwill is tested for impairment using a two-step process. The first step
is to identify potential impairments by comparing the estimated fair value of a reporting unit to its
carrying value, including goodwill. If the carrying value of a reporting unit exceeds the estimated fair
value, a second step is performed to measure the amount of impairment, if any. The second step is to
determine the implied fair value of the reporting unit’s goodwill, measured in the same manner as
goodwill is recognized in a business combination, and compare that amount with the carrying amount
of the goodwill. If the carrying value of the reporting unit goodwill exceeds the implied fair value of
that goodwill, an impairment loss is recognized in an amount equal to that excess.
The updated guidance requires that if the carrying amount of a reporting unit becomes zero or
negative, the second step of the impairment test must be performed when it is more likely than not
that a goodwill impairment loss exists. In considering whether it is more likely than not that an
impairment loss exists a company is required to evaluate qualitative factors, including the factors
presented in existing guidance that trigger an interim impairment test of goodwill (e.g. a significant
adverse change in business climate or an anticipated sale of a reporting unit). For public entities, the
provisions of the guidance are effective for annual and interim periods beginning after December 15,
2010. The Company does not expect that the provisions of the guidance will have a material effect on
its results of operations, financial position or liquidity.
Accounting Policies
Investments
Fixed Maturity and Equity Securities
Fixed maturities include bonds, notes and redeemable preferred stocks. Fixed maturities, including
instruments subject to securities lending agreements, are classified as available for sale and are
reported at fair value, with unrealized investment gains and losses, net of income taxes, credited or
charged directly to accumulated other changes in equity from nonowner sources. Equity securities,
which include public common and non-redeemable preferred stocks, are classified as available for sale
with changes in fair value, net of income tax, charged or credited directly to accumulated other changes
in equity from nonowner sources.
Real Estate
The Company’s real estate investments include warehouses, office buildings and other commercial
land and properties that are directly owned. Real estate is recorded on the purchase date at the
purchase price, which generally represents fair value, and is supported by internal analysis or external
appraisals, using discounted cash flow analyses and other acceptable valuation techniques. Real estate
held for investment purposes is subsequently carried at cost less accumulated depreciation. Buildings
159