Travelers 2013 Annual Report Download - page 180

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 2012 and 2011 financial
statements to conform to the 2013 presentation. All material intercompany transactions and balances
have been eliminated.
On November 1, 2013, the Company acquired all of the issued and outstanding shares of
Dominion for an aggregate purchase price of approximately $1.034 billion. Dominion primarily markets
personal lines and small commercial insurance business in Canada. At the acquisition date, the
Company recorded at fair value $3.91 billion of assets acquired and $2.88 billion of liabilities assumed
as part of purchase accounting, including $16 million of identifiable intangible assets and $273 million
of goodwill. The operating income and the amount of assets acquired from Dominion were included in
the Company’s Financial, Professional & International Insurance segment effective at the acquisition
date. The unearned premium reserve related to the acquired insurance and reinsurance contracts was
carried over and included in the Company’s unearned premium reserve. Premium revenue from the
acquired business will be recognized on a pro rata basis beginning with the acquisition date over the
remaining policy terms in accordance with the Company’s accounting policy. The Company recognized
an intangible asset for the value of business acquired (VOBA) of $76 million at the acquisition date.
VOBA represents the present value of future gross profits of the business acquired from Dominion, is
reported as part of the Company’s deferred acquisition costs, and will be amortized in proportion to
the premium revenue recognized from the acquired business.
Adoption of Accounting Standards Updates
Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income
In February 2013, the Financial Accounting Standards Board (FASB) issued updated guidance to
improve the reporting of reclassifications out of accumulated other comprehensive income. The
guidance requires an entity to present, either on the face of the statement of income or in the notes,
separately for each component of comprehensive income, the current period reclassifications out of
accumulated other comprehensive income by the respective line items of net income affected by the
reclassification.
The updated guidance was effective prospectively for reporting periods beginning after
December 15, 2012. The Company adopted the updated guidance effective March 31, 2013, and such
adoption did not have any effect on the Company’s results of operations, financial position or liquidity.
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