Travelers 2015 Annual Report Download - page 237

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. PENSION PLANS, RETIREMENT BENEFITS AND SAVINGS PLANS (Continued)
considered the historical returns of equity and fixed maturity markets in conjunction with prevailing
economic and financial market conditions.
As an indicator of sensitivity, increasing the assumed health care cost trend rate by 1% would have
increased the accumulated postretirement benefit obligation by $25 million at December 31, 2015, and
the aggregate of the service and interest cost components of net postretirement benefit expense by
$1 million for the year ended December 31, 2015. Decreasing the assumed health care cost trend rate
by 1% would have decreased the accumulated postretirement benefit obligation at December 31, 2015
by $21 million and the aggregate of the service and interest cost components of net postretirement
benefit expense by $1 million for the year ended December 31, 2015.
The assumptions made for the Company’s foreign pension and foreign postretirement benefit plans
are not materially different from those of the Company’s qualified domestic pension plan and the
domestic postretirement benefit plan.
Plan Assets
The qualified domestic pension plan assets are invested for the exclusive benefit of the plan
participants and beneficiaries and are intended, over time, to satisfy the benefit obligations under the
plan. Risk tolerance is established through consideration of plan liabilities, plan funded status and
corporate financial position. The asset mix guidelines have been established and are reviewed quarterly.
These guidelines are intended to serve as tools to facilitate the investment of plan assets to maximize
long-term total return and the ongoing oversight of the plan’s investment performance. Investment risk
is measured and monitored on an ongoing basis through daily and monthly investment portfolio
reviews, annual liability measurements and periodic asset/liability studies.
The Company’s overall investment strategy for the qualified domestic pension plan is to achieve a
mix of approximately 85% to 90% of investments for long-term growth and 10% to 15% for near-term
benefit payments with a diversification of asset types, fund strategies and fund managers. The current
target allocations for plan assets are 55% to 65% equity securities and 20% to 40% fixed income
securities, with the remainder allocated to short-term securities. Equity securities primarily include
investments in large, medium and small-cap companies primarily located in the United States. Fixed
income securities include corporate bonds of companies from diversified industries, mortgage-backed
securities, U.S. Treasury securities and debt securities issued by foreign governments. Other investments
include two private equity funds held by the Company’s qualified defined benefit pension plan. One
private equity fund is focused on financial companies, and the other is focused on real estate-related
investments.
Assets of the Company’s foreign pension plans are not significant.
Fair Value Measurement—Pension Plans and Other Postretirement Benefit Assets
For a discussion of the methods employed by the Company to measure the fair value of invested
assets, see note 4. The following discussion of fair value measurements applies exclusively to the
Company’s pension plans and other postretirement benefit assets.
Fair value estimates for equity and bond mutual funds held by the pension plans reflect prices
received from an external pricing service that are based on observable market transactions. These
estimates are included in Level 1.
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