Travelers 2015 Annual Report Download - page 178

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
determined during its reviews for each year that its other indefinite-lived intangible assets and finite-
lived intangible assets were not impaired.
Claims and Claim Adjustment Expense Reserves
Claims and claim adjustment expense reserves represent estimates for the ultimate cost of unpaid
reported and unreported claims incurred and related expenses. The reserves are adjusted regularly
based upon experience. Included in the claims and claim adjustment expense reserves in the
consolidated balance sheet are certain reserves discounted to the present value of estimated future
payments. The liabilities for losses for most long-term disability and annuity claim payments, primarily
arising from workers’ compensation insurance and workers’ compensation excess insurance policies,
were discounted using a rate of 5% at both December 31, 2015 and 2014. These discounted reserves
totaled $2.13 billion and $2.01 billion at December 31, 2015 and 2014, respectively.
The Company performs a continuing review of its claims and claim adjustment expense reserves,
including its reserving techniques and the impact of reinsurance. The reserves are also reviewed
regularly by qualified actuaries employed by the Company. Since the reserves are based on estimates,
the ultimate liability may be more or less than such reserves. The effects of changes in such estimated
reserves are included in the results of operations in the period in which the estimates are changed.
Such changes in estimates could occur in a future period and may be material to the Company’s results
of operations and financial position in such period.
Other Liabilities
Included in other liabilities in the consolidated balance sheet is the Company’s estimate of its
liability for guaranty fund and other insurance-related assessments. The liability for expected state
guaranty fund and other premium-based assessments is recognized as the Company writes or becomes
obligated to write or renew the premiums on which the assessments are expected to be based. The
liability for loss-based assessments is recognized as the related losses are incurred. At December 31,
2015 and 2014, the Company had a liability of $241 million and $245 million, respectively, for guaranty
fund and other insurance-related assessments and related recoverables of $18 million and $15 million,
respectively. The liability for such assessments and the related recoverables are not discounted for the
time value of money. The loss-based assessments are expected to be paid over a period ranging from
one year to the life expectancy of certain workers’ compensation claimants and the recoveries are
expected to occur over the same period of time.
Also included in other liabilities is an accrual for policyholder dividends. Certain insurance
contracts, primarily workers’ compensation, are participating whereby dividends are paid to
policyholders in accordance with contract provisions. Net written premiums for participating dividend
policies were approximately 2%, 1% and 1% of total net written premiums for the years ended
December 31, 2015, 2014 and 2013, respectively. Policyholder dividends are accrued against earnings
using best available estimates of amounts to be paid. The liability accrued for policyholder dividends
totaled $57 million and $54 million at December 31, 2015 and 2014, respectively.
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