Travelers 2015 Annual Report Download - page 207

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. GOODWILL AND OTHER INTANGIBLE ASSETS (Continued)
Other Intangible Assets
The following tables present a summary of the Company’s other intangible assets by major asset
class:
Gross
Carrying Accumulated
(at December 31, 2015, in millions) Amount Amortization Net
Subject to amortization(1) ................................... $210 $148 $ 62
Not subject to amortization .................................. 217 — 217
Total ................................................ $427 $148 $279
Gross
Carrying Accumulated
(at December 31, 2014, in millions) Amount Amortization Net
Subject to amortization(1) ................................... $669 $582 $ 87
Not subject to amortization .................................. 217 — 217
Total ................................................ $886 $582 $304
(1) Intangible assets subject to amortization are comprised of fair value adjustments on claims and
claim adjustment expense reserves, reinsurance recoverables and other contract and customer-
related intangibles. At December 31, 2014, the Company had certain customer-related intangibles
with a gross carrying amount of $460 million and accumulated amortization of $446 million which
became fully amortized during the second quarter of 2015. Fair value adjustments of $5 million
and $191 million were recorded in connection with the acquisition of Dominion in 2013 and in
connection with the merger of The St. Paul Companies, Inc. and Travelers Property Casualty Corp.
in 2004, respectively, and were based on management’s estimate of nominal claims and claim
adjustment expense reserves and reinsurance recoverables. The method used calculated a risk
adjustment to a risk-free discounted reserve that would, if reserves ran off as expected, produce
results that yielded the assumed cost-of-capital on the capital supporting the loss reserves. The fair
value adjustments are reported as other intangible assets on the consolidated balance sheet, and
the amounts measured in accordance with the acquirer’s accounting policies for insurance contracts
have been reported as part of the claims and claim adjustment expense reserves and reinsurance
recoverables. The intangible assets are being recognized into income over the expected payment
pattern. Because the time value of money and the risk adjustment (cost of capital) components of
the intangible assets run off at different rates, the amount recognized in income may be a net
benefit in some periods and a net expense in other periods. Additionally, $5 million of contract-
related intangibles were recorded related to operating leases in connection with the acquisition of
Dominion in 2013.
Amortization expense of intangible assets was $26 million, $46 million and $46 million for the
years ended December 31, 2015, 2014 and 2013, respectively. Intangible asset amortization expense is
estimated to be $11 million in 2016, $9 million in 2017, $8 million in 2018, $6 million in 2019 and
$5 million in 2020.
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