Travelers 2015 Annual Report Download - page 168

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of The Travelers Companies, Inc.
(together with its subsidiaries, the Company). The preparation of the consolidated financial statements
in conformity with U.S. generally accepted accounting principles (GAAP) requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the consolidated financial statements and the reported
amounts of revenues and claims and expenses during the reporting period. Actual results could differ
from those estimates. Certain reclassifications have been made to the 2014 and 2013 financial
statements to conform to the 2015 presentation. All material intercompany transactions and balances
have been eliminated.
On November 1, 2013, the Company acquired all of the issued and outstanding shares of The
Dominion of Canada General Insurance Company (Dominion) for an aggregate purchase price of
approximately $1.035 billion. Dominion primarily markets personal lines and small commercial
insurance business in Canada. At the acquisition date, the Company recorded at fair value $3.91 billion
of assets acquired and $2.88 billion of liabilities assumed as part of purchase accounting, including
$16 million of identifiable intangible assets and $273 million of goodwill. Dominion is included in the
Company’s Business and International Insurance segment. The unearned premium reserve related to
the acquired insurance and reinsurance contracts was carried over and included in the Company’s
unearned premium reserve. Premium revenue from the acquired business is recognized on a pro rata
basis beginning with the acquisition date over the remaining policy terms in accordance with the
Company’s accounting policy. The Company recognized an intangible asset for the value of business
acquired (VOBA) of $76 million at the acquisition date. VOBA represented the present value of future
gross profits of the business acquired from Dominion, was reported as part of the Company’s deferred
acquisition costs, and was amortized in proportion to the premium revenue recognized from the
acquired business.
Adoption of Accounting Standards
Presentation of Financial Statements and Property, Plant, and Equipment: Reporting Discontinued
Operations and Disclosures of Disposals of Components of an Entity
In April 2014, the Financial Accounting Standards Board (FASB) issued revised guidance to
reduce diversity in practice for reporting discontinued operations. Under the previous guidance, any
component of an entity that was a reportable segment, an operating segment, a reporting unit, a
subsidiary or an asset group was eligible for discontinued operations presentation. The revised guidance
only allows disposals of components of an entity that represent a strategic shift (e.g., disposal of a
major geographical area, a major line of business, a major equity method investment or other major
parts of an entity) and that have a major effect on a reporting entity’s operations and financial results
to be reported as discontinued operations. The revised guidance also requires expanded disclosure in
the financial statements for discontinued operations as well as for disposals of significant components
of an entity that do not qualify for discontinued operations presentation. The updated guidance was
effective for the quarter ending March 31, 2015. The adoption of this guidance did not have any effect
on the Company’s results of operations, financial position or liquidity.
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