Travelers 2014 Annual Report Download - page 176

Table of Contents
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
in the value. For fixed maturities where the Company expects a recovery in value, not necessarily to par, the constant effective yield method is
utilized, and the investment is amortized to the expected recovery amount.
Investment Gains and Losses
Net realized investment gains and losses are included as a component of pretax revenues based upon specific identification of the investments
sold on the trade date. Included in net realized investment gains (losses) are other
- than - temporary impairment losses on invested assets other than
those investments accounted for using the equity method of accounting as described in the "Investment Impairments" section that follows.
Investment Impairments
The Company conducts a periodic review to identify and evaluate invested assets having other
- than - temporary impairments. Some of the
factors considered in identifying other
- than - temporary impairments include: (1) for fixed maturity investments, whether the Company intends to sell
the investment or whether it is more likely than not that the Company will be required to sell the investment prior to an anticipated recovery in
value; (2) for non
- fixed maturity investments, the Company's ability and intent to retain the investment for a reasonable period of time sufficient to
allow for an anticipated recovery in value; (3) the likelihood of the recoverability of principal and interest for fixed maturity securities (i.e., whether
there is a credit loss) or cost for equity securities; (4) the length of time and extent to which the fair value has been less than amortized cost for fixed
maturity securities or cost for equity securities; and (5) the financial condition, near
- term and long - term prospects for the issuer, including the
relevant industry conditions and trends, and implications of rating agency actions and offering prices.
Other
- Than - Temporary Impairments of Fixed Maturities and Equity Securities
For fixed maturity investments that the Company does not intend to sell or for which it is more likely than not that the Company would not be
required to sell before an anticipated recovery in value, the Company separates the credit loss component of the impairment from the amount
related to all other factors and reports the credit loss component in net realized investment gains (losses). The impairment related to all other factors
is reported in other comprehensive income.
For equity securities (including public common and non
- redeemable preferred stock) and for fixed maturity investments the Company intends
to sell or for which it is more likely than not that the Company will be required to sell before an anticipated recovery in value, the full amount of the
impairment is included in net realized investment gains (losses).
Upon recognizing an other
- than - temporary impairment, the new cost basis of the investment is the previous amortized cost basis less the
other
- than - temporary impairment recognized in net realized investment gains (losses). The new cost basis is not adjusted for any subsequent
recoveries in fair value; however, for fixed maturity investments the difference between the new cost basis and the expected cash flows is accreted
on a quarterly basis to net investment income over the remaining expected life of the investment.
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