Travelers 2013 Annual Report Download - page 248

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. PENSION PLANS, RETIREMENT BENEFITS AND SAVINGS PLANS (Continued)
The assumptions made for the Company’s foreign pension and postretirement benefit plans are not
materially different from those of the Company’s U.S. qualified domestic pension plan and the
postretirement benefit plan.
Plan Assets
The U.S. qualified domestic pension plan assets are invested for the exclusive benefit of the plan
participants and beneficiaries and are intended, over time, to satisfy the benefit obligations under the
plan. Risk tolerance is established through consideration of plan liabilities, plan funded status and
corporate financial position. The asset mix guidelines have been established and are reviewed quarterly.
These guidelines are intended to serve as tools to facilitate the investment of plan assets to maximize
long-term total return and the ongoing oversight of the plan’s investment performance. Investment risk
is measured and monitored on an ongoing basis through daily and monthly investment portfolio
reviews, annual liability measurements and periodic asset/liability studies.
The Company’s overall investment strategy for the U.S. qualified domestic pension plan is to
achieve a mix of approximately 85% to 90% of investments for long-term growth and 10% to 15% for
near-term benefit payments with a wide diversification of asset types, fund strategies and fund
managers. The current target allocations for plan assets are 55% to 65% equity securities and 20% to
40% fixed income securities, with the remainder allocated to short-term securities. Equity securities
primarily include investments in large, medium and small-cap companies primarily located in the
United States. Fixed income securities include corporate bonds of companies from diversified
industries, mortgage-backed securities, U.S. Treasury securities and debt securities issued by foreign
governments. Other investments include two private equity funds held by the Company’s qualified
defined benefit pension plan. One private equity fund is focused on financial companies, and the other
is focused on real estate-related investments.
Assets of the Company’s foreign pension plans are not significant.
Fair Value Measurement—Pension Plans and Other Postretirement Benefit Assets
For a discussion of the methods employed by the Company to measure the fair value of invested
assets, see note 4. The following discussion of fair value measurements applies exclusively to the
Company’s pension plans and other postretirement benefit assets.
Fair value estimates for equity and bond mutual funds held by the pension plans reflect prices
received from an external pricing service that are based on observable market transactions. These
estimates are included in Level 1.
Short-term securities are carried at fair value which approximates cost plus accrued interest or
amortized discount. The fair value or market value of these is periodically compared to this amortized
cost and is based on significant observable inputs as determined by an external pricing service.
Accordingly, the estimates of fair value for such short-term securities, other than U.S. Treasury
securities and money market mutual funds, provided by an external pricing service are included in the
amount disclosed in Level 2 of the hierarchy. The estimated fair value of U.S. Treasury securities and
money market mutual funds is included in the amount disclosed in Level 1 as the estimates are based
on unadjusted market prices.
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