Travelers 2014 Annual Report Download - page 179

Table of Contents
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
collateral held by the third
- party custodian or the obligation to return the collateral. The loaned securities remain a recorded asset of the Company.
The Company accepts only cash as collateral for securities on loan and restricts the manner in which that cash is invested.
Reinsurance Recoverables
Amounts recoverable from reinsurers are estimated in a manner consistent with the associated claim liability. The Company reports its
reinsurance recoverables net of an allowance for estimated uncollectible reinsurance recoverables. The allowance is based upon the Company's
ongoing review of amounts outstanding, length of collection periods, changes in reinsurer credit standing, disputes, applicable coverage defenses
and other relevant factors. Amounts deemed to be uncollectible, including amounts due from known insolvent reinsurers, are written off against the
allowance for estimated uncollectible reinsurance recoverables. Any subsequent collections of amounts previously written off are reported as part
of claims and claim adjustment expenses. The Company evaluates and monitors the financial condition of its reinsurers under voluntary
reinsurance arrangements to minimize its exposure to significant losses from reinsurer insolvencies.
Deferred Acquisition Costs
Incremental direct costs of acquired, new and renewal insurance contracts, consisting of commissions (other than contingent commissions)
and premium
- related taxes, are capitalized and charged to expense pro rata over the contract periods in which the related premiums are earned.
Deferred acquisition costs are reviewed to determine if they are recoverable from future income and, if not, are charged to expense. Future
investment income attributable to related premiums is taken into account in measuring the recoverability of the carrying value of this asset. All
other acquisition expenses are charged to operations as incurred.
Contractholder Receivables and Payables
Under certain workers' compensation insurance contracts with deductible features, the Company is obligated to pay the claimant for the full
amount of the claim. The Company is subsequently reimbursed by the policyholder for the deductible amount. These amounts are included on a
gross basis in the consolidated balance sheet in contractholder payables and contractholder receivables, respectively.
Goodwill and Other Intangible Assets
The Company performs a review, on at least an annual basis, of goodwill held by the reporting units which are the Company's three operating
and reportable segments: Business and International Insurance; Bond & Specialty Insurance; and Personal Insurance. The Company estimates the
fair value of its reporting units and compares it to their carrying value, including goodwill. If the carrying values of the reporting units were to
exceed their fair value, the amount of the impairment would be calculated and goodwill adjusted accordingly.
The Company uses a discounted cash flow model to estimate the fair value of its reporting units. The discounted cash flow model is an income
approach to valuation that is based on a detailed cash flow analysis for deriving a current fair value of reporting units and is representative of the
Company's reporting units' current and expected future financial performance. The discount rate assumptions
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