Travelers 2010 Annual Report Download - page 239

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. PENSION PLANS, RETIREMENT BENEFITS AND SAVINGS PLANS (Continued)
diversification of asset types, fund strategies and fund managers. The current target allocations for plan
assets are 55% to 65% equity securities and 20% to 40% fixed income securities. Equity securities
primarily include investments in large, medium and small-cap companies primarily located in the
United States. Fixed income securities include corporate bonds of companies from diversified
industries, mortgage-backed securities, U.S. Treasury securities and debt securities issued by foreign
governments. Other investments include a hedge fund and two private equity funds that follow several
different strategies.
Equity securities included 797,600 shares of the Company’s common stock with a market value of
$44 million at December 31, 2010. On January 28, 2011, the Company purchased these shares from the
pension plan under the Company’s share repurchase authorization for a total cost of approximately
$45 million, the market value on that date.
Fair Value Measurement—Pension Plans and Other Postretirement Benefit Assets
For a discussion of the methods employed by the Company to measure the fair value of invested
assets, see note 4. The following discussion of fair value measurements applies exclusively to the
Company’s pension plans and other postretirement benefit assets.
For the equity and bond mutual funds, the Plan receives prices from an external pricing service
that are based on observable market transactions, and includes these estimates in Level 1.
Short-term securities are carried at fair value which approximates cost plus accrued interest or
amortized discount. The fair value or market value of these is periodically compared to this amortized
cost and is based on significant observable inputs as determined by an external pricing service.
Accordingly, the estimates of fair value for such short-term securities, other than U.S. Treasury
securities and money market mutual funds, provided by an external pricing service are included in the
amount disclosed in Level 2 of the hierarchy. The estimated fair value of U.S. Treasury securities and
money market mutual funds is included in the amount disclosed in Level 1 as the estimates are based
on unadjusted market prices.
The Plan holds investments in a hedge fund and two private equity funds, with their fair value
estimates determined by an external fund manager based on recent filings, operating results, balance
sheet stability, growth and other business and market sector fundamentals. Due to the significant
unobservable inputs in these valuations, the Plan includes the total fair value estimate for the
partnerships in the amount disclosed in Level 3.
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