Travelers 2011 Annual Report Download - page 213

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. GOODWILL AND OTHER INTANGIBLE ASSETS (Continued)
Other Intangible Assets
The following presents a summary of the Company’s other intangible assets by major asset class at
December 31, 2011 and 2010:
Gross
Carrying Accumulated
(at December 31, 2011, in millions) Amount Amortization Net
Intangibles subject to amortization
Customer-related ......................................... $ 935 $830 $105
Fair value adjustment on claims and claim adjustment expense reserves
and reinsurance recoverables(1) ............................. 191 79 112
Total intangible assets subject to amortization ................... 1,126 909 217
Intangible assets not subject to amortization ..................... 216 — 216
Total other intangible assets ................................ $1,342 $909 $433
Gross
Carrying Accumulated
(at December 31, 2010, in millions) Amount Amortization Net
Intangibles subject to amortization
Customer-related ......................................... $ 935 $783 $152
Fair value adjustment on claims and claim adjustment expense reserves
and reinsurance recoverables(1) ............................. 191 57 134
Total intangible assets subject to amortization ................... 1,126 840 286
Intangible assets not subject to amortization ..................... 216 — 216
Total other intangible assets ................................ $1,342 $840 $502
(1) The fair value adjustment of $191 million was recorded in connection with the merger of The
St. Paul Companies, Inc. and Travelers Property Casualty Corp. in 2004 and was based on
management’s estimate of nominal claims and claim adjustment expense reserves and reinsurance
recoverables (after adjusting for conformity with the acquirer’s accounting policy on discounting of
workers’ compensation reserves), expected payment patterns, the April 1, 2004 U.S. Treasury spot
rate yield curve, a leverage ratio assumption (reserves to statutory surplus), and a cost of capital
expressed as a spread over risk-free rates. The method used calculates a risk adjustment to a
risk-free discounted reserve that will, if reserves run off as expected, produce results that yield the
assumed cost-of-capital on the capital supporting the loss reserves. The fair value adjustment is
reported as an other intangible asset on the consolidated balance sheet, and the amounts measured
in accordance with the acquirer’s accounting policies for insurance contracts are reported as part
of the claims and claim adjustment expense reserves and reinsurance recoverables. The intangible
asset will be recognized into income over the expected payment pattern. Because the time value of
money and the risk adjustment (cost of capital) components of the intangible asset run off at
different rates, the amount recognized in income may be a net benefit in some periods and a net
expense in other periods.
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