Travelers 2015 Annual Report Download - page 183

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THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
insurance for dwellings, condominiums and tenants, and rental properties. The Company also writes
coverage for boats and yachts and valuable personal items such as jewelry, and also writes coverages for
umbrella liability, identity fraud, and weddings and special events.
2. SEGMENT INFORMATION
The accounting policies used to prepare the segment reporting data for the Company’s three
reportable business segments are the same as those described in the Summary of Significant Accounting
Policies in note 1.
Except as described below for certain legal entities, the Company allocates its invested assets and
the related net investment income to its reportable business segments. Pretax net investment income is
allocated based upon an investable funds concept, which takes into account liabilities (net of non-
invested assets) and appropriate capital considerations for each segment. For investable funds, a
benchmark investment yield is developed that reflects the estimated duration of the loss reserves’ future
cash flows, the interest rate environment at the time the losses were incurred and A+ rated corporate
debt instrument yields. For capital, a benchmark investment yield is developed that reflects the average
yield on the total investment portfolio. The benchmark investment yields are applied to each segment’s
investable funds and capital, respectively, to produce a total notional investment income by segment.
The Company’s actual net investment income is allocated to each segment in proportion to the
respective segment’s notional investment income to total notional investment income. There are certain
legal entities within the Company that are dedicated to specific reportable business segments. The
invested assets and related net investment income from these legal entities are reported in the
applicable business segment and are not allocated among the other business segments.
The cost of the Company’s catastrophe treaty program is included in the Company’s ceded
premiums and is allocated among reportable business segments based on an estimate of actual market
reinsurance pricing using expected losses calculated by the Company’s catastrophe model, adjusted for
any experience adjustments.
183