Travelers 2012 Annual Report Download - page 182

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Other Investments
Investments in Private Equity Limited Partnerships, Hedge Funds and Real Estate Partnerships
Included in other investments are private equity limited partnerships, hedge funds and real estate
partnerships that generally report investments on their balance sheet at fair value and are accounted
for by the Company using the equity method of accounting. The Company reviews these investments
for impairment no less frequently than quarterly and monitors the performance throughout the year
through discussions with the managers/general partners. If the Company becomes aware of an
impairment of a partnership’s investments at the balance sheet date prior to receiving the partnership’s
financial statements, it will recognize an impairment by recording a reduction in the carrying value of
the partnership with a corresponding charge to net investment income.
Mortgage Loans
A mortgage loan is considered impaired when it is probable that the Company will be unable to
collect principal and interest amounts due. For mortgage loans that are determined to be impaired, a
reserve is established for the difference between the amortized cost and the fair value of the underlying
collateral. In estimating fair value, the Company uses interest rates reflecting the current real estate
financing market returns.
Changes in Intent to Sell Temporarily Impaired Assets
The Company may, from time to time, sell invested assets subsequent to the balance sheet date
that it did not intend to sell at the balance sheet date. Conversely, the Company may not sell invested
assets that it asserted that it intended to sell at the balance sheet date. Such changes in intent are
generally due to events occurring subsequent to the balance sheet date. The types of events that may
result in a change in intent include, but are not limited to, significant changes in the economic facts
and circumstances related to the invested asset (e.g., a downgrade or upgrade from a rating agency),
significant unforeseen changes in liquidity needs, or changes in tax laws or the regulatory environment.
Securities Lending
The Company has engaged in securities lending activities from which it generates net investment
income by lending certain of its investments to other institutions for short periods of time. Borrowers
of these securities provide collateral equal to at least 102% of the market value of the loaned securities
plus accrued interest. This collateral is held by a third-party custodian, and the Company has the right
to access the collateral only in the event that the institution borrowing the Company’s securities is in
default under the lending agreement. Therefore, the Company does not recognize the receipt of the
collateral held by the third-party custodian or the obligation to return the collateral. The loaned
securities remain a recorded asset of the Company. The Company accepts only cash as collateral for
securities on loan and restricts the manner in which that cash is invested.
Reinsurance Recoverables
Amounts recoverable from reinsurers are estimated in a manner consistent with the associated
claim liability. The Company reports its reinsurance recoverables net of an allowance for estimated
uncollectible reinsurance recoverables. The allowance is based upon the Company’s ongoing review of
amounts outstanding, length of collection periods, changes in reinsurer credit standing, disputes,
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