Travelers 2010 Annual Report Download - page 184

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Homeowners policies are available for dwellings, condominiums, mobile homes and rental property
contents. Protection against losses to dwellings and contents from a wide variety of perils (excluding
flooding) is included in these policies, as well as coverage for liability arising from ownership or
occupancy.
2. SEGMENT INFORMATION
The Company is organized into three reportable business segments: Business Insurance; Financial,
Professional & International Insurance; and Personal Insurance. The accounting policies used to
generate the following segment data are the same as those described in the Summary of Significant
Accounting Policies in note 1.
Except as described below for certain legal entities, the Company allocates its invested assets and
the related net investment income to its reportable business segments. Pretax net investment income is
allocated based upon an investable funds concept, which takes into account liabilities (net of
non-invested assets) and appropriate capital considerations for each segment. For investable funds, a
benchmark investment yield is developed that reflects the estimated duration of the loss reserves’ future
cash flows, the interest rate environment at the time the losses were incurred and A+ rated corporate
debt instrument yields. For capital, a benchmark investment yield is developed that reflects the average
yield on the total investment portfolio. The benchmark investment yields are applied to each segment’s
investable funds and capital, respectively, to produce a total notional investment income by segment.
The Company’s actual net investment income is allocated to each segment in proportion to the
respective segment’s notional investment income to total notional investment income. There are certain
legal entities within the Company that are dedicated to specific reportable business segments. The
invested assets and related net investment income from these legal entities are reported in the
applicable business segment and are not allocated among the other business segments.
The cost of the Company’s catastrophe treaty program is included in the Company’s ceded
premiums and is allocated among reportable business segments based on an estimate of actual market
reinsurance pricing using expected losses calculated by the Company’s catastrophe model, adjusted for
any experience adjustments.
172