Travelers 2013 Annual Report Download - page 188

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
were discounted using a rate of 5% at both December 31, 2013 and 2012. These discounted reserves
totaled $2.21 billion and $2.01 billion at December 31, 2013 and 2012, respectively.
The Company performs a continuing review of its claims and claim adjustment expense reserves,
including its reserving techniques and its reinsurance. The reserves are also reviewed regularly by
qualified actuaries employed by the Company. Since the reserves are based on estimates, the ultimate
liability may be more or less than such reserves. The effects of changes in such estimated reserves are
included in the results of operations in the period in which the estimates are changed. Such changes in
estimates could occur in a future period and may be material to the Company’s results of operations
and financial position in such period.
Other Liabilities
Included in other liabilities in the consolidated balance sheet is the Company’s estimate of its
liability for guaranty fund and other insurance-related assessments. The liability for expected state
guaranty fund and other premium-based assessments is recognized as the Company writes or becomes
obligated to write or renew the premiums on which the assessments are expected to be based. The
liability for loss-based assessments is recognized as the related losses are incurred. At December 31,
2013 and 2012, the Company had a liability of $261 million and $297 million, respectively, for guaranty
fund and other insurance-related assessments and related recoverables of $14 million and $15 million,
respectively. The liability for such assessments and the related recoverables are not discounted for the
time value of money. The loss-based assessments are expected to be paid over a period ranging from
one year to the life expectancy of certain workers’ compensation claimants and the recoveries are
expected to occur over the same period of time.
Also included in other liabilities is an accrual for policyholder dividends. Certain insurance
contracts, primarily workers’ compensation, are participating whereby dividends are paid to
policyholders in accordance with contract provisions. Net written premiums for participating dividend
policies were approximately 1%, 2% and 1% of total net written premiums for the year ended
December 31, 2013, 2012 and 2011, respectively. Policyholder dividends are accrued against earnings
using best available estimates of amounts to be paid. The liability accrued for policyholder dividends
totaled $53 million and $59 million at December 31, 2013 and 2012, respectively.
Treasury Stock
The cost of common stock repurchased by the Company is reported as treasury stock and
represents authorized and unissued shares of the Company under the Minnesota Business Corporation
Act.
Statutory Accounting Practices
The Company’s U.S. insurance subsidiaries, domiciled principally in the state of Connecticut,
prepare statutory financial statements in accordance with the accounting practices prescribed or
permitted by the insurance departments of the states of domicile. Prescribed statutory accounting
practices are those practices that are incorporated directly or by reference in state laws, regulations,
and general administrative rules applicable to all insurance enterprises domiciled in a particular state.
Permitted statutory accounting practices include practices not prescribed by the domiciliary state, but
178