Travelers 2012 Annual Report Download - page 176

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of The Travelers Companies, Inc.
(together with its subsidiaries, the Company). The preparation of the consolidated financial statements
in conformity with U.S. generally accepted accounting principles (GAAP) requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the consolidated financial statements and the reported
amounts of revenues and claims and expenses during the reporting period. Actual results could differ
from those estimates. Certain reclassifications have been made to the 2011 and 2010 financial
statements to conform to the 2012 presentation. All material intercompany transactions and balances
have been eliminated.
Adoption of Accounting Standards Updates
Testing Indefinite-Lived Intangible Assets for Impairment
In July 2012, the Financial Accounting Standards Board (FASB) issued updated guidance regarding
the impairment test applicable to indefinite-lived intangible assets that is similar to the impairment
guidance applicable to goodwill. Under the updated guidance, an entity may assess qualitative factors
(such as changes in management, key personnel, strategy, key technology or customers) that may
impact the fair value of the indefinite-lived intangible asset and lead to the determination that it is
more likely than not that the fair value of the asset is less than its carrying value. If an entity
determines that it is more likely than not that the fair value of the intangible asset is less than its
carrying value, an impairment test must be performed. The impairment test requires an entity to
calculate the estimated fair value of the indefinite-lived intangible asset. If the carrying value of the
indefinite-lived intangible asset exceeds its estimated fair value, an impairment loss is recognized in an
amount equal to the excess.
The updated guidance is effective for the quarter ending March 31, 2013, but early adoption was
permitted. The Company adopted the updated guidance effective December 31, 2012, and such
adoption did not have any effect on the Company’s results of operations, financial position or liquidity.
Testing of Goodwill
In September 2011, the FASB issued updated guidance that modifies the manner in which the
two-step impairment test of goodwill is applied. Under the updated guidance, an entity may assess
qualitative factors (such as changes in management, key personnel, strategy, key technology or
customers) that may impact a reporting unit’s fair value and lead to the determination that it is more
likely than not that the reporting unit’s fair value is less than its carrying value, including goodwill. If
an entity determines that it is more likely than not that a reporting unit’s fair value is less than its
carrying value, an impairment test must be performed. The impairment test requires an entity to
calculate the implied fair value of the reporting unit’s goodwill in the same manner that goodwill is
measured in a business combination. If the carrying value of the reporting unit’s goodwill exceeds the
implied fair value of that goodwill, an impairment loss is recognized in an amount equal to the excess.
The updated guidance was effective for the quarter ending March 31, 2012. The adoption of this
guidance did not have any effect on the Company’s results of operations, financial position or liquidity.
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