Travelers 2012 Annual Report Download - page 210

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. FAIR VALUE MEASUREMENTS (Continued)
The Company had no material assets or liabilities that were measured at fair value on a
non-recurring basis during the years ended December 31, 2012 and 2011.
Financial Instruments Disclosed, But Not Carried, At Fair Value
The Company uses various financial instruments in the normal course of its business. The
Company’s insurance contracts are excluded from fair value of financial instruments accounting
guidance and, therefore, are not included in the amounts discussed below. The following tables present
the carrying value and fair value of the Company’s financial assets and financial liabilities disclosed, but
not carried, at fair value at December 31, 2012 and 2011, and the level within the fair value hierarchy
at which such assets and liabilities are measured on a recurring basis.
Carrying Fair
(at December 31, 2012, in millions) Value Value Level 1 Level 2 Level 3
Financial assets:
Short-term securities .............. $3,483 $3,483 $1,448 $1,957 $78
Financial liabilities:
Debt .......................... $6,250 $7,715 $ — $7,715 $—
Commercial paper ................ $ 100 $ 100 — $ 100 —
Carrying Fair
(at December 31, 2011, in millions) Value Value Level 1 Level 2 Level 3
Financial assets:
Short-term securities .............. $3,594 $3,594 $2,472 $1,029 $93
Financial liabilities:
Debt .......................... $6,505 $7,583 $ — $7,583 $—
Commercial paper ................ $ 100 $ 100 — $ 100 —
The Company utilized a pricing service to estimate fair value for approximately 95% and 94% of
short-term securities at December 31, 2012 and 2011, respectively. A description of the process and
inputs used by the pricing service to estimate fair value is discussed in the ‘‘Fixed Maturities’’ section
above. Estimates of fair value for U.S. Treasury securities and money market funds are based on
market quotations received from the pricing service and are disclosed in Level 1 of the hierarchy. The
fair value of other short-term fixed maturity securities is estimated by the pricing service using
observable market inputs and is disclosed in Level 2 of the hierarchy. For short-term securities where
an estimate is not obtained from the pricing service, the carrying value approximates fair value and is
included in Level 3 of the hierarchy.
The Company utilized a pricing service to estimate fair value for 100% of its debt, including
commercial paper, at both December 31, 2012 and 2011. The pricing service utilizes market quotations
for debt that have quoted prices in active markets. Since fixed maturities other than U.S. Treasury
securities generally do not trade on a daily basis, the fair value estimates are based on market
observable inputs and disclosed at Level 2 in the hierarchy. For the small amount of the Company’s
debt securities for which a pricing service is not used, the Company utilizes pricing estimates from a
nationally recognized broker/dealer to estimate fair value. If estimates of fair value are unavailable
from the pricing service or the broker/dealer, the Company produces an estimate of fair value based on
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