Travelers 2010 Annual Report Download - page 178

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
all unpaid claims and claim adjustment expenses. Since the reserves are based on estimates, the
ultimate liability may be more or less than such reserves. The effects of changes in such estimated
reserves are included in the results of operations in the period in which the estimates are changed.
Such changes in estimates could occur in a future period and may be material to the Company’s results
of operations and financial position in such period.
Other Liabilities
Included in other liabilities in the consolidated balance sheet is the Company’s estimate of its
liability for guaranty fund and other insurance-related assessments. The liability for expected state
guaranty fund and other premium-based assessments is recognized as the Company writes or becomes
obligated to write or renew the premiums on which the assessments are expected to be based. The
liability for loss-based assessments is recognized as the related losses are incurred. At December 31,
2010 and 2009, the Company had a liability of $235 million and $293 million, respectively, for guaranty
fund and other insurance-related assessments and related recoverables of $6 million at both dates. The
liability for such assessments and the related recoverables are not discounted for the time value of
money. The loss-based assessments are expected to be paid over a period ranging from one year to the
life expectancy of certain workers’ compensation claimants and the recoveries are expected to occur
over the same period of time.
Also included in other liabilities is an accrual for policyholder dividends. Certain insurance
contracts, primarily workers’ compensation, are participating whereby dividends are paid to
policyholders in accordance with contract provisions. Net written premiums for participating dividend
policies were approximately 1% of total Company net written premiums for each of the years ended
December 31, 2010, 2009 and 2008. Policyholder dividends are accrued against earnings using best
available estimates of amounts to be paid. The liability accrued for policyholder dividends totaled
$45 million and $46 million at December 31, 2010 and 2009, respectively.
Treasury Stock
Treasury stock represents the cost of common stock repurchased by the Company, which stock
represents authorized and unissued shares of the Company under the Minnesota Business Corporation
Act.
Statutory Accounting Practices
The Company’s insurance subsidiaries, domiciled principally in the state of Connecticut, prepare
statutory financial statements in accordance with the accounting practices prescribed or permitted by
the insurance departments of the states of domicile. Prescribed statutory accounting practices are those
practices that are incorporated directly or by reference in state laws, regulations, and general
administrative rules applicable to all insurance enterprises domiciled in a particular state. Permitted
statutory accounting practices include practices not prescribed by the domiciliary state, but allowed by
the domiciliary state regulatory authority. The impact of any permitted accounting practices on
statutory surplus of the Company is not material.
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