Travelers 2015 Annual Report Download - page 180

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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
that are not expected to vest as part of the Company’s forfeiture estimate are recorded as
compensation expense.
Nature of Operations
The Company is organized into three reportable business segments: Business and International
Insurance; Bond & Specialty Insurance; and Personal Insurance. These segments reflect the manner in
which the Company’s businesses are currently managed and represent the aggregation of products and
services based on the type of customer, how the business is marketed and the manner in which risks
are underwritten. The specific business segments are as follows:
Business and International Insurance
The Business and International Insurance segment offers a broad array of property and casualty
insurance and insurance related services to its clients, primarily in the United States and in Canada, as
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