Travelers 2011 Annual Report Download - page 231

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. INCOME TAXES (Continued)
The net deferred tax asset comprises the tax effects of temporary differences related to the
following assets and liabilities:
(at December 31, in millions) 2011 2010
Deferred tax assets
Claims and claim adjustment expense reserves ...................... $ 936 $ 996
Unearned premium reserves ................................... 680 662
Other .................................................... 844 713
Total gross deferred tax assets ................................ 2,460 2,371
Deferred tax liabilities
Deferred acquisition costs ..................................... 585 575
Investments ............................................... 1,650 1,128
Internally developed software .................................. 128 122
Other .................................................... 90 53
Total gross deferred tax liabilities .............................. 2,453 1,878
Total deferred taxes ........................................ $7$ 493
If the Company determines that any of its deferred tax assets will not result in future tax benefits,
a valuation allowance must be established for the portion of these assets that are not expected to be
realized. Based upon a review of the Company’s anticipated future taxable income, and also including
all other available evidence, both positive and negative, the Company’s management concluded that it
is more likely than not that the gross deferred tax assets will be realized.
For tax return purposes, as of December 31, 2011, the Company had net operating loss (NOL)
carryforwards on a regular tax basis and an alternative minimum tax (AMT) basis of approximately
$59 million and $14 million, respectively. These NOL carryforwards expire, if unused, in 2018. In
addition, the Company has AMT credit carryforwards of $95 million which are available to reduce
future federal regular income taxes over an indefinite period. The amount and timing of realizing the
benefits of NOL and AMT credit carryforwards depend on future taxable income and limitations
imposed by tax laws. The benefits of the NOL and AMT credit carryforwards have been recognized in
the consolidated financial statements and are included in net deferred tax assets.
U.S. income taxes have not been recognized on $649 million of the Company’s foreign operations’
undistributed earnings as of December 31, 2011, as such earnings are intended to be permanently
reinvested in those operations. Furthermore, any taxes paid to foreign governments on these earnings
may be used as credits against the U.S. tax on any dividend distributions from such earnings.
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