Travelers 2011 Annual Report Download - page 183

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
of its reporting units and compares it to their carrying value, including goodwill. If the carrying values
of the reporting units were to exceed their fair value, the amount of the impairment would be
calculated and goodwill adjusted accordingly.
The Company uses a discounted cash flow model to estimate the fair value of its reporting units.
The discounted cash flow model is an income approach to valuation that is based on a detailed cash
flow analysis for deriving a current fair value of reporting units and is representative of the Company’s
reporting units’ current and expected future financial performance. Other indefinite-lived intangible
assets held by the Company are also reviewed for impairment on at least an annual basis. The
classification of the asset as indefinite-lived is reassessed and an impairment is recognized if the
carrying amount of the asset exceeds its fair value.
Intangible assets that are deemed to have a finite useful life are amortized over their useful lives.
The carrying amount of intangible assets with a finite useful life is regularly reviewed for indicators of
impairment in value. Impairment is recognized only if the carrying amount of the intangible asset is not
recoverable from its undiscounted cash flows and is measured as the difference between the carrying
amount and the fair value of the asset.
The Company’s review did not result in an impairment of its goodwill, other indefinite-lived
intangibles or finite-lived intangible assets, and none of the Company’s reporting units had a reasonable
risk of failing the initial impairment test for the years ended December 31, 2011, 2010 and 2009.
Claims and Claim Adjustment Expense Reserves
Claims and claim adjustment expense reserves represent estimates for the ultimate cost of unpaid
reported and unreported claims incurred and related expenses. The reserves are adjusted regularly
based upon experience. Included in the claims and claim adjustment expense reserves in the
consolidated balance sheet are certain reserves discounted to the present value of estimated future
payments. The liabilities for losses for most long-term disability and annuity claim payments, primarily
arising from workers’ compensation insurance and workers’ compensation excess insurance policies,
were discounted using a rate of 5% at both December 31, 2011 and 2010. These discounted reserves
totaled $2.20 billion and $2.09 billion at December 31, 2011 and 2010, respectively.
The Company performs a continuing review of its claims and claim adjustment expense reserves,
including its reserving techniques and its reinsurance. The reserves are also reviewed regularly by
qualified actuaries employed by the Company. 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,
2011 and 2010, the Company had a liability of $293 million and $294 million, respectively, for guaranty
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