Travelers 2014 Annual Report Download - page 182

Table of Contents
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Ceded premiums are charged to income over the applicable term of the various reinsurance contracts with third party reinsurers. Prepaid
reinsurance premiums represent the unexpired portion of premiums ceded to reinsurers and are reported as part of other assets.
Fee Income
Fee income includes servicing fees from carriers and revenues from large deductible policies and service contracts and is recognized pro rata
over the contract or policy periods.
Other Revenues
Other revenues include revenues from premium installment charges, which are recognized as collected, revenues of noninsurance subsidiaries
other than fee income and gains and losses on dispositions of assets and redemption of debt, and other miscellaneous revenues.
Income Taxes
The Company recognizes deferred income tax assets and liabilities for the expected future tax effects attributable to temporary differences
between the financial statement and tax return bases of assets and liabilities, based on enacted tax rates and other provisions of the tax law. The
effect of a change in tax laws or rates on deferred tax assets and liabilities is recognized in income in the period in which such change is enacted.
Deferred tax assets are reduced by a valuation allowance if it is more likely than not that all or some portion of the deferred tax assets will not be
realized.
Foreign Currency Translation
The Company assigns functional currencies to its foreign operations, which are generally the currencies of the local operating environment.
Foreign currency amounts are remeasured to the functional currency, and the resulting foreign exchange gains or losses are reflected in earnings.
Functional currency amounts are then translated into U.S. dollars. The foreign currency remeasurement and translation are calculated using current
exchange rates for items reported in the balance sheets and average exchange rates for items recorded in earnings. The change in unrealized foreign
currency translation gain or loss during the year, net of tax, is a component of other comprehensive income.
Share
- Based Compensation
The Company has an employee stock incentive compensation plan that permits grants of nonqualified stock options, incentive stock options,
stock appreciation rights, restricted stock, deferred stock, stock units, performance awards and other share
- based or share - denominated awards
with respect to the Company's common stock.
Compensation cost is measured based on the grant
- date fair value of an award, utilizing the assumptions discussed in note 13. Compensation
cost is recognized for financial reporting purposes over the period in which the employee is required to provide service in exchange for the award
(generally the vesting period). In connection with certain share
- based awards, participants are entitled to receive dividends during the vesting
period, either in cash or dividend equivalent shares, commensurate with the dividends paid to common shareholders. Dividends and dividend
equivalent shares on awards that are expected to vest are recorded in retained earnings. Dividends paid on awards
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