Travelers 2013 Annual Report Download - page 186

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 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,
applicable coverage defenses and other relevant factors. Amounts deemed to be uncollectible, including
amounts due from known insolvent reinsurers, are written off against the allowance for estimated
uncollectible reinsurance recoverables. Any subsequent collections of amounts previously written off are
reported as part of claims and claim adjustment expenses. The Company evaluates and monitors the
financial condition of its reinsurers under voluntary reinsurance arrangements to minimize its exposure
to significant losses from reinsurer insolvencies.
Deferred Acquisition Costs
Incremental direct costs of acquired new and renewal insurance contracts, consisting of
commissions (other than contingent commissions) and premium-related taxes, are capitalized and
charged to expense pro rata over the contract periods in which the related premiums are earned.
Deferred acquisition costs are reviewed to determine if they are recoverable from future income and, if
not, are charged to expense. Future investment income attributable to related premiums is taken into
account in measuring the recoverability of the carrying value of this asset. All other acquisition
expenses are charged to operations as incurred.
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