Travelers 2013 Annual Report Download - page 247

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. PENSION PLANS, RETIREMENT BENEFITS AND SAVINGS PLANS (Continued)
income as part of net periodic benefit cost over the next fiscal year is $2 million, and the estimated
prior service benefit to be amortized over the next fiscal year is $3 million.
Assumptions and Health Care Cost Trend Rate Sensitivity
The following table summarizes assumptions used with regard to the Company’s U.S. qualified
domestic pension plan and the postretirement benefit plan.
(at and for the year ended December 31,) 2013 2012
Assumptions used to determine benefit obligations
Discount rate ....................................................... 4.96% 4.15%
Future compensation increase rate ........................................ 4.00% 4.00%
Assumptions used to determine net periodic benefit cost
Discount rate ....................................................... 4.15% 4.90%
Expected long-term rate of return on pension plans’ assets ...................... 7.50% 7.50%
Expected long-term rate of return on postretirement benefit plans’ assets ............ 4.00% 5.00%
Assumed health care cost trend rates
Following year:
Medical (before age 65) .............................................. 7.25% 7.50%
Medical (age 65 and older) ............................................ 6.75% 7.50%
Rate to which the cost trend rate is assumed to decline (ultimate trend rate): ......... 5.00% 5.00%
Year that the rate reaches the ultimate trend rate:
Medical (before age 65) .............................................. 2022 2018
Medical (age 65 and older) ............................................ 2020 2018
The discount rate assumption used to determine the benefit obligation was based on a yield-curve
approach. Under this approach, a weighted average yield is determined from a hypothetical portfolio of
high quality fixed maturity corporate bonds (rated Aa) available at the year-end valuation date for
which the timing and amount of cash outflows correspond with the timing and amount of the estimated
benefit payouts of the Company’s benefit plan.
In choosing the expected long-term rate of return on plan assets, the Company selected the rate
that was set as the return objective by the Company’s Benefit Plans Investment Committee, which had
considered the historical returns of equity and fixed maturity markets in conjunction with prevailing
economic and financial market conditions.
As an indicator of sensitivity, increasing the assumed health care cost trend rate by 1% would have
increased the accumulated postretirement benefit obligation by $20 million at December 31, 2013, and
the aggregate of the service and interest cost components of net postretirement benefit expense by
$1 million for the year ended December 31, 2013. Decreasing the assumed health care cost trend rate
by 1% would have decreased the accumulated postretirement benefit obligation at December 31, 2013
by $17 million and the aggregate of the service and interest cost components of net postretirement
benefit expense by $1 million for the year ended December 31, 2013.
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