Travelers 2011 Annual Report Download - page 177

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
likely than not that the fair value of a reporting unit is less than its carrying value, including goodwill.
If an entity determines that it is more likely than not, it must perform an impairment test.
The first step of the impairment test involves 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 must be performed to measure the amount of goodwill impairment,
if any. In the second step, the implied fair value of the reporting unit’s goodwill is determined in the
same manner as goodwill is measured in a business combination (i.e., by measuring the fair value of the
reporting unit’s assets, liabilities and unrecognized intangible assets and determining the remaining
amount ascribed to goodwill) and comparing the amount of the implied goodwill to 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 the excess.
The updated guidance is effective for the quarter ending March 31, 2012. The adoption of this
guidance is not expected to have a material effect on the Company’s 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, charged or
credited 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 taxes, charged or credited directly to accumulated other
changes in equity from nonowner sources.
Real Estate Investments
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
are depreciated on a straight-line basis over the shorter of the expected useful life of the building or
39 years. Real estate held for sale is carried at lower of cost or fair value, less estimated cost to sell.
Short-term Securities
Short-term securities have an original maturity of less than one year and are carried at amortized
cost, which approximates fair value.
Other Investments
Investments in Private Equity Limited Partnerships, Hedge Funds and Real Estate Partnerships
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