Travelers 2013 Annual Report Download - page 189

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
allowed by the domiciliary state regulatory authority. The impact of any permitted accounting practices
on policyholders’ surplus of the Company is not material.
The Company’s non-U.S. insurance subsidiaries file financial statements prepared in accordance
with the regulatory reporting requirements of their respective local jurisdiction.
Premiums and Unearned Premium Reserves
Premiums are recognized as revenues pro rata over the policy period. Unearned premium reserves
represent the unexpired portion of policy premiums. Accrued retrospective premiums are included in
premium balances receivable. Premium balances receivable are reported net of an allowance for
estimated uncollectible premium amounts.
Ceded premiums are charged to income over the applicable term of the various reinsurance
contracts with third party reinsurers. Prepaid reinsurance premiums represent the unexpired portion of
premiums ceded to reinsurers and are reported as part of other assets.
Fee Income
Fee income includes servicing fees from carriers and revenues from large deductible policies and
service contracts and is recognized pro rata over the contract or policy periods.
Other Revenues
Other revenues include revenues from premium installment charges, which are recognized as
collected, revenues of noninsurance subsidiaries other than fee income and gains and losses on
dispositions of assets and redemption of debt, and other miscellaneous revenues.
Income Taxes
The Company recognizes deferred income tax assets and liabilities for the expected future tax
effects attributable to temporary differences between the financial statement and tax return bases of
assets and liabilities, based on enacted tax rates and other provisions of the tax law. The effect of a
change in tax laws or rates on deferred tax assets and liabilities is recognized in income in the period in
which such change is enacted. Deferred tax assets are reduced by a valuation allowance if it is more
likely than not that all or some portion of the deferred tax assets will not be realized.
Foreign Currency Translation
The Company assigns functional currencies to its foreign operations, which are generally the
currencies of the local operating environment. Foreign currency amounts are remeasured to the
functional currency, and the resulting foreign exchange gains or losses are reflected in earnings.
Functional currency amounts are then translated into U.S. dollars. The foreign currency remeasurement
and translation are calculated using current exchange rates for items reported in the balance sheets and
average exchange rates for items recorded in earnings. The change in unrealized foreign currency
translation gain or loss during the year, net of tax, is a component of other comprehensive income.
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