Travelers 2014 Annual Report Download - page 174

Table of Contents
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity
In November 2014, the FASB issued updated guidance to clarify when the separation of certain embedded derivative features in a hybrid
financial instrument that is issued in the form of a share is required. That is, an entity will continue to evaluate whether the economic characteristics
and risks of the embedded derivative feature are clearly and closely related to those of the host contract. Specifically, the amendments clarify that
an entity should consider all relevant terms and features, including the embedded derivative feature being evaluated for bifurcation, in evaluating
the nature of the host contract. Furthermore, the amendments clarify that no single term or feature would necessarily determine the economic
characteristics and risks of the host contract. Rather, the nature of the host contract depends upon the economic characteristics and risks of the
entire hybrid financial instrument.
The updated guidance is effective for reporting periods beginning after December 15, 2015. Early adoption is permitted. The adoption of this
guidance is not expected to have a material effect on the Company's results of operations, financial position or liquidity.
Accounting Policies
Investments
Fixed Maturity and Equity Securities
Fixed maturities include bonds, notes and redeemable preferred stocks. Fixed maturities, including instruments subject to securities lending
agreements, are classified as available for sale and are reported at fair value, with unrealized investment gains and losses, net of income taxes,
charged or credited directly to other comprehensive income. Equity securities, which include public common and non
- redeemable preferred stocks,
are classified as available for sale with changes in fair value, net of income taxes, charged or credited directly to other comprehensive income.
Real Estate Investments
The Company's real estate investments include warehouses, office buildings and other commercial land and properties that are directly owned.
Real estate is recorded on the purchase date at the purchase price, which generally represents fair value, and is supported by internal analysis or
external appraisals that use discounted cash flow analyses and other acceptable valuation techniques. Real estate held for investment purposes is
subsequently carried at cost less accumulated depreciation.
Buildings are depreciated on a straight
- line basis over the shorter of the expected useful life of the building or 39 years. Real estate held for
sale is carried at lower of cost or fair value, less estimated costs to sell.
Short
- term Securities
Short - term securities have an original maturity of less than one year and are carried at amortized cost, which approximates fair value.
Other Investments
Investments in Private Equity Limited Partnerships, Hedge Funds and Real Estate Partnerships
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