Travelers 2011 Annual Report Download - page 242

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. PENSION PLANS, RETIREMENT BENEFITS AND SAVINGS PLANS (Continued)
diversification of asset types, fund strategies and fund managers. The current target allocations for plan
assets are 55% to 65% equity securities and 20% to 40% fixed income securities, with the remainder
allocated to short-term securities. Equity securities primarily include investments in large, medium and
small-cap companies primarily located in the United States. Fixed income securities include corporate
bonds of companies from diversified industries, mortgage-backed securities, U.S. Treasury securities and
debt securities issued by foreign governments. Other investments include a hedge fund and two private
equity funds held by the Company’s qualified defined benefit pension plan. The hedge fund is a ‘‘fund
of funds’’ that is multi-strategy. One private equity fund is focused on financial companies, and the
other is focused on real estate-related investments.
At December 31, 2010, equity securities included 797,600 shares of the Company’s common stock
with a market value of $44 million. In January 2011, the Company purchased these shares from the
pension plan under the Company’s share repurchase authorization for a total cost of approximately
$45 million, the market value on that date.
Fair Value Measurement—Pension Plans and Other Postretirement Benefit Assets
For a discussion of the methods employed by the Company to measure the fair value of invested
assets, see note 4. The following discussion of fair value measurements applies exclusively to the
Company’s pension plans and other postretirement benefit assets.
Fair value estimates for equity and bond mutual funds held by the pension plans reflect prices
received from an external pricing service that are based on observable market transactions. These
estimates are included in Level 1.
Short-term securities are carried at fair value which approximates cost plus accrued interest or
amortized discount. The fair value or market value of these is periodically compared to this amortized
cost and is based on significant observable inputs as determined by an external pricing service.
Accordingly, the estimates of fair value for such short-term securities, other than U.S. Treasury
securities and money market mutual funds, provided by an external pricing service are included in the
amount disclosed in Level 2 of the hierarchy. The estimated fair value of U.S. Treasury securities and
money market mutual funds is included in the amount disclosed in Level 1 as the estimates are based
on unadjusted market prices.
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