Travelers 2011 Annual Report Download - page 175

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of The Travelers Companies, Inc.
(together with its subsidiaries, the Company). The preparation of the consolidated financial statements
in conformity with U.S. generally accepted accounting principles (GAAP) requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the consolidated financial statements and the reported
amounts of revenues and claims and expenses during the reporting period. Actual results could differ
from those estimates. Certain reclassifications have been made to the 2010 and 2009 financial
statements to conform to the 2011 presentation. All material intercompany transactions and balances
have been eliminated.
Adoption of Accounting Standards Updates
Creditors’ Evaluation of Whether a Restructuring is a Troubled Debt Restructuring
In April 2011, the FASB issued updated guidance to clarify whether a modification or restructuring
of a receivable is considered a troubled debt restructuring, i.e., whether the creditor has granted a
concession and whether the debtor is experiencing financial difficulties. A modification or restructuring
that is considered a troubled debt restructuring will result in the creditor having to account for the
receivable as being impaired and will also result in additional disclosure of the creditors’ troubled debt
restructuring activities. The provisions of the guidance were effective for the quarter ended
September 30, 2011 on a retrospective basis to the beginning of the year. The adoption of this guidance
did not have any effect on the Company’s results of operations, financial position or liquidity.
Other-Than-Temporary Impairments
In April 2009, the FASB issued updated guidance, which provides clarification that an
other-than-temporary impairment is recognized when an entity has the intent to sell a debt security or
when it is more likely than not that an entity will be required to sell the debt security before its
anticipated recovery in value.
Additionally, the guidance changes the presentation and amount of other-than-temporary
impairment losses recognized in the income statement for instances in which the Company does not
intend to sell a debt security, or it is more likely than not that the Company will not be required to sell
a debt security prior to the anticipated recovery of its remaining cost basis. The Company separates the
credit loss component of the impairment from the amount related to all other factors and reports the
credit loss component in net realized investment gains (losses). The impairment related to all other
factors is reported in ‘‘accumulated other changes in equity from nonowner sources.’’
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.
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