Travelers 2015 Annual Report Download - page 177

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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
reflect the Company’s assessment of the risks inherent in the projected future cash flows and the
Company’s weighted-average cost of capital, and are compared against available market data for
reasonableness.
Other indefinite-lived intangible assets held by the Company are also reviewed for impairment on
at least an annual basis. The classification of the asset as indefinite-lived is reassessed and an
impairment is recognized if the carrying amount of the asset exceeds its fair value.
Intangible assets that are deemed to have a finite useful life are amortized over their useful lives.
The carrying amount of intangible assets with a finite useful life is regularly reviewed for indicators of
impairment in value. Impairment is recognized only if the carrying amount of the intangible asset is not
recoverable from its undiscounted cash flows and is measured as the difference between the carrying
amount and the fair value of the asset.
As a result of the reviews performed for the years ended December 31, 2015, 2014 and 2013, the
Company determined that the estimated fair value substantially exceeded the respective carrying value
of its reporting units for those years and that goodwill was not impaired. The Company also
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