Travelers 2013 Annual Report Download - page 218

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. GOODWILL AND OTHER INTANGIBLE ASSETS (Continued)
Gross
Carrying Accumulated
(at December 31, 2012, in millions) Amount Amortization Net
Intangibles subject to amortization
Customer-related ......................................... $455 $383 $ 72
Fair value adjustment on claims and claim adjustment expense reserves
and reinsurance recoverables(2) ............................. 191 98 93
Total intangible assets subject to amortization ................... 646 481 165
Intangible assets not subject to amortization ..................... 216 — 216
Total other intangible assets ................................ $862 $481 $381
(1) Customer-related intangibles of $5 million were recorded in connection with the acquisition of
Dominion in 2013.
(2) Fair value adjustments of $5 million and $191 million were recorded in connection with the
acquisition of Dominion in 2013 and in connection with the merger of The St. Paul
Companies, Inc. and Travelers Property Casualty Corp. in 2004, respectively, and were based on
management’s estimate of nominal claims and claim adjustment expense reserves and reinsurance
recoverables. The method used calculated a risk adjustment to a risk-free discounted reserve that
would, if reserves ran off as expected, produce results that yielded the assumed cost-of-capital on
the capital supporting the loss reserves. The fair value adjustments are reported as other intangible
assets on the consolidated balance sheet, and the amounts measured in accordance with the
acquirer’s accounting policies for insurance contracts have been reported as part of the claims and
claim adjustment expense reserves and reinsurance recoverables. The intangible assets are being
recognized into income over the expected payment pattern. Because the time value of money and
the risk adjustment (cost of capital) components of the intangible assets run off at different rates,
the amount recognized in income may be a net benefit in some periods and a net expense in other
periods. Additionally, $5 million of contract-related intangibles were recorded related to operating
leases in connection with the acquisition of Dominion in 2013.
(3) Intangible assets not subject to amortization of $1 million were recorded in connection with the
acquisition of Dominion in 2013.
The following presents a summary of the Company’s amortization expense for other intangible
assets by major asset class:
(for the year ended December 31, in millions) 2013 2012 2011
Customer-related ................................................. $31 $33 $47
Fair value adjustment on claims and claim adjustment expense reserves, reinsurance
recoverables and other contract-related intangibles ....................... 15 19 22
Total amortization expense ......................................... $46 $52 $69
Intangible asset amortization expense is estimated to be $47 million in 2014, $27 million in 2015,
$10 million in 2016, $9 million in 2017 and $8 million in 2018.
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