Travelers 2012 Annual Report Download - page 233

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. INCOME TAXES (Continued)
The net deferred tax asset (liability) comprises the tax effects of temporary differences related to
the following assets and liabilities:
(at December 31, in millions) 2012 2011
Deferred tax assets
Claims and claim adjustment expense reserves ................ $ 888 $ 936
Unearned premium reserves ............................. 689 680
Other ............................................. 741 844
Total gross deferred tax assets .......................... 2,318 2,460
Deferred tax liabilities
Deferred acquisition costs .............................. 590 585
Investments ......................................... 1,800 1,650
Internally developed software ............................ 134 128
Other ............................................. 132 90
Total gross deferred tax liabilities ....................... 2,656 2,453
Total deferred tax asset (liability) ....................... $ (338) $7
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, 2012, the Company had net operating loss (NOL)
carryforwards on a regular tax basis and an alternative minimum tax (AMT) basis of approximately
$37 million and $3 million, respectively. These NOL carryforwards expire, if unused, in 2018. In
addition, the Company has AMT credit carryforwards of $17 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 $755 million of the Company’s foreign operations’
undistributed earnings as of December 31, 2012, 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.
221