Pension Plans, Retirement Benefits and Savings Plans

12 Months Ended

Dec. 31, 2011

Pension Plans, Retirement Benefits and Savings Plans disclosure

Pension Plans, Retirement Benefits and Savings Plans disclosure [Text Block]

13. PENSION PLANS, RETIREMENT BENEFITS AND SAVINGS PLANS

        The Company sponsors a qualified non-contributory defined benefit pension plan, which covers substantially all employees and provides benefits under a cash balance formula, except that employees satisfying certain age and service requirements remain covered by a prior final average pay formula. In addition, the Company sponsors a nonqualified defined benefit pension plan which covers certain highly-compensated employees and also sponsors a postretirement health and life insurance benefit plan for employees satisfying certain age and service requirements and for certain retirees.

Obligations and Funded Status

        The following tables summarize the funded status, obligations and amounts recognized in the consolidated balance sheet for the Company's benefit plans. The Company uses a December 31 measurement date for its pension and postretirement benefit plans.

	Qualified Domestic Pension Plan						Nonqualified and Foreign Pension Plans						Total
(at and for the year ended December 31, in millions)	2011			2010			2011			2010			2011			2010
Change in projected benefit obligation:
Benefit obligation at beginning of year	$	2,399		$	2,214		$	173		$	173		$	2,572		$	2,387
Benefits earned		93			91			5			5			98			96
Interest cost on benefit obligation		125			119			10			9			135			128
Actuarial loss		207			82			7			1			214			83
Benefits paid		(118	)		(107	)		(12	)		(13	)		(130	)		(120	)
Foreign currency exchange rate change		—			—			—			(2	)		—			(2	)
Benefit obligation at end of year	$	2,706		$	2,399		$	183		$	173		$	2,889		$	2,572
Change in plan assets:
Fair value of plan assets at beginning of year	$	2,342		$	2,180		$	83		$	78		$	2,425		$	2,258
Actual return on plan assets		5			234			3			7			8			241
Company contributions		185			35			12			13			197			48
Benefits paid		(118	)		(107	)		(12	)		(13	)		(130	)		(120	)
Foreign currency exchange rate change		—			—			—			(2	)		—			(2	)
Fair value of plan assets at end of year		2,414			2,342			86			83			2,500			2,425
Funded status of plan at end of year	$	(292	)	$	(57	)	$	(97	)	$	(90	)	$	(389	)	$	(147	)
Amounts recognized in the statement of financial position consist of:
Accrued under-funded benefit plan liabilities	$	(292	)	$	(57	)	$	(97	)	$	(90	)	$	(389	)	$	(147	)
Amounts recognized in accumulated other changes in equity from nonowner sources consist of:
Prior service benefit	$	—		$	—		$	—		$	—		$	—		$	—
Net actuarial loss		1,220			915			55			49			1,275			964
Total	$	1,220		$	915		$	55		$	49		$	1,275		$	964

	Postretirement Benefit Plans
(at and for the year ended December 31, in millions)	2011			2010
Change in projected benefit obligation:
Benefit obligation at beginning of year	$	254		$	264
Benefits earned		—			1
Interest cost on benefit obligation		13			14
Actuarial gain		(4	)		(8	)
Benefits paid		(17	)		(17	)
Benefit obligation at end of year	$	246		$	254
Change in plan assets:
Fair value of plan assets at beginning of year	$	20		$	20
Actual return on plan assets		1			1
Company contributions		15			16
Benefits paid		(17	)		(17	)
Fair value of plan assets at end of year		19			20
Funded status of plan at end of year	$	(227	)	$	(234	)
Amounts recognized in the statement of financial position consist of:
Accrued under-funded benefit plan liability	$	(227	)	$	(234	)
Amounts recognized in accumulated other changes in equity from nonowner sources consist of:
Net actuarial gain	$	(31	)	$	(27	)

        The total accumulated benefit obligation for the Company's defined benefit pension plans was $2.83 billion and $2.54 billion at December 31, 2011 and 2010, respectively. The Qualified Domestic Plan accounted for $2.65 billion and $2.37 billion of the total accumulated benefit obligation at December 31, 2011 and 2010, respectively, whereas the Nonqualified and Foreign Plans accounted for $0.18 billion and $0.17 billion of the total accumulated benefit obligation at December 31, 2011 and 2010, respectively.

        For pension plans with an accumulated benefit obligation in excess of plan assets, the aggregate projected benefit obligation was $2.88 billion and the aggregate accumulated benefit obligation was $2.82 billion at December 31, 2011. The fair value of plan assets for the above plans was $2.49 billion and $2.42 billion at December 31, 2011 and 2010, respectively.

        The Company has discretion regarding whether to provide additional funding and when to provide such funding to its qualified pension plan. In 2011 and 2010, the Company voluntarily made contributions totaling $185 million and $35 million, respectively, to the qualified pension plan. The Company has not determined whether or not additional funding will be made during 2012. There is no required contribution to the qualified pension plan during 2012.

        The following table summarizes the components of net periodic benefit cost and other amounts recognized in accumulated other changes in equity from nonowner sources related to the benefit plans for the years ended December 31, 2011, 2010 and 2009.

	Pension Plans									Postretirement Benefit Plans
(in millions)	2011			2010			2009			2011			2010			2009
Net Periodic Benefit Cost:
Service cost	$	98		$	96		$	80		$	—		$	1		$	1
Interest cost on benefit obligation		135			128			125			13			14			17
Expected return on plan assets		(182	)		(185	)		(176	)		(1	)		(1	)		(1	)
Amortization of unrecognized:
Prior service benefit		—			(3	)		(6	)		—			—			—
Net actuarial loss		76			60			22			—			—			—
Net benefit expense	$	127		$	96		$	45		$	12		$	14		$	17
Other Changes in Benefit Plan Assets and Benefit Obligations Recognized in Accumulated Other Changes in Equity from Nonowner Sources:
Prior service benefit	$	—		$	—		$	—		$	—		$	—		$	—
Net actuarial loss (gain)		388			27			147			(5	)		(8	)		(5	)
Amortization of prior service benefit		—			3			6			—			—			—
Amortization of net actuarial loss		(76	)		(60	)		(22	)		—			—			—
Total other changes recognized in accumulated other changes in equity from nonowner sources		312			(30	)		131			(5	)		(8	)		(5	)
Total other changes recognized in net benefit expense and accumulated other changes in equity from nonowner sources	$	439		$	66		$	176		$	7		$	6		$	12

        For the defined benefit pension plans, the estimated net actuarial loss that will be amortized from other changes in equity from nonowner sources into net periodic benefit cost over the next fiscal year is $89 million, and the estimated prior service benefit to be amortized over the next fiscal year is less than $1 million. For the postretirement benefit plans, the estimated net actuarial gain that will be amortized from other changes in equity from nonowner sources into net periodic benefit cost over the next fiscal year is less than $1 million, and there is no estimated prior service benefit or cost to be amortized over the next fiscal year.

Assumptions and Health Care Cost Trend Rate Sensitivity

(at and for the year ended December 31,)	2011			2010
Assumptions used to determine benefit obligations
Discount rate		4.90	%		5.37	%
Future compensation increase rate		4.00	%		4.00	%
Assumptions used to determine net periodic benefit cost
Discount rate		5.37	%		5.55	%
Expected long-term rate of return on pension plans' assets		8.00	%		8.00	%
Expected long-term rate of return on postretirement benefit plans' assets		5.00	%		5.00	%
Assumed health care cost trend rates
Following year		8.00	%		8.50	%
Rate to which the cost trend rate is assumed to decline (ultimate trend rate)		5.00	%		5.00	%
Year that the rate reaches the ultimate trend rate		2018			2018

        The discount rate assumption used to determine the benefit obligation was based on a yield-curve approach. Under this approach, a weighted average yield is determined from a hypothetical portfolio of high quality fixed maturity corporate bonds (rated Aa or higher) available at the year-end valuation date for which the timing and amount of cash outflows correspond with the timing and amount of the estimated benefit payouts of the Company's benefit plan.

        In choosing the expected long-term rate of return on plan assets, the Company's Pension Plan Investment Committee 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, 2011, and the aggregate of the service and interest cost components of net postretirement benefit expense by $1 million for the year ended December 31, 2011. Decreasing the assumed health care cost trend rate by 1% would have decreased the accumulated postretirement benefit obligation at December 31, 2011 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, 2011.

Plan Assets

        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 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 wide 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 a hedge fund and two private equity funds held by the Company's qualified defined benefit pension plan. The hedge fund is a "fund of funds" that is multi-strategy. One private equity fund is focused on financial companies, and the other is focused on real estate-related investments.

        At December 31, 2010, equity securities included 797,600 shares of the Company's common stock with a market value of $44 million. In January 2011, the Company purchased these shares from the pension plan under the Company's share repurchase authorization for a total cost of approximately $45 million, the market value on that date.

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.

        Short-term securities are carried at fair value which approximates cost plus accrued interest or amortized discount. The fair value or market value of these is periodically compared to this amortized cost and is based on significant observable inputs as determined by an external pricing service. Accordingly, the estimates of fair value for such short-term securities, other than U.S. Treasury securities and money market mutual funds, provided by an external pricing service are included in the amount disclosed in Level 2 of the hierarchy. The estimated fair value of U.S. Treasury securities and money market mutual funds is included in the amount disclosed in Level 1 as the estimates are based on unadjusted market prices.

Fair Value Hierarchy—Pension Plans

        The following tables present the level within the fair value hierarchy at which the financial assets of the Company's pension plans are measured on a recurring basis at December 31, 2011 and 2010.

(at December 31, 2011, in millions)	Total		Level 1		Level 2		Level 3
Invested assets:
Fixed maturities
U.S. Treasury securities and obligations of U.S. government and government agencies and authorities	$	15	$	15	$	—	$	—
Debt securities issued by foreign governments		13		—		13		—
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities		14		—		12		2
All other corporate bonds		214		—		214		—
Total fixed maturities		256		15		239		2
Mutual funds
Equity mutual funds		932		932		—		—
Bond mutual funds		443		443		—		—
Total mutual funds		1,375		1,375		—		—
Equity securities		352		352		—		—
Other investments(1)		16		—		—		16
Cash and short-term securities
U.S. Treasury securities		141		141		—		—
Money market mutual funds		50		50		—		—
Other		310		12		298		—
Total cash and short-term securities		501		203		298		—
Total	$	2,500	$	1,945	$	537	$	18

(1)

The fair value estimates of the hedge fund and two private equity funds comprising these investments are determined by an external fund manager based on recent filings, operating results, balance sheet stability, growth and other business and market sector fundamentals. Due to the significant unobservable inputs in these valuations, the total fair value estimates are disclosed in Level 3.

(at December 31, 2010, in millions)	Total		Level 1		Level 2		Level 3
Invested assets:
Fixed maturities
U.S. Treasury securities and obligations of U.S. government and government agencies and authorities	$	41	$	41	$	—	$	—
Debt securities issued by foreign governments		9		—		9		—
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities		26		—		26
All other corporate bonds		109		—		109		—
Total fixed maturities		185		41		144		—
Mutual funds
Equity mutual funds		1,058		1,058		—		—
Bond mutual funds		411		411		—		—
Total mutual funds		1,469		1,469		—		—
Equity securities		390		390		—		—
Other investments(1)		18		—		—		18
Cash and short-term securities
U.S. Treasury securities		135		135		—		—
Money market mutual funds		15		15		—		—
Other		213		2		211		—
Total cash and short-term securities		363		152		211		—
Total	$	2,425	$	2,052	$	355	$	18

(1)

See footnote (1) in the foregoing table.

        The following table presents the changes in the Level 3 fair value category for the years ended December 31, 2011 and 2010.

	Other Investments
(at and for the year ended December 31, in millions)	2011			2010
Balance at beginning of year	$	18		$	17
Actual return on plan assets:
Relating to assets still held		(1	)		3
Relating to assets sold during the year		—			—
Purchases, sales, settlements and maturities:
Purchases		2			—
Sales		(1	)		(2	)
Settlements/maturities		—			—
Gross transfers into Level 3		—			—
Gross transfers out of Level 3		—			—
Balance at end of year	$	18		$	18

Other Postretirement Benefit Plan

        The Company's overall investment strategy is to achieve a mix of approximately 35% to 65% of investments for long-term growth and 35% to 60% for near-term insurance payments with a wide diversification of asset types, fund strategies and fund managers. The current target allocations for plan assets are 25% to 75% fixed income securities, with the remainder allocated to short-term securities. Fixed income securities include corporate bonds of companies from diversified industries, mortgage-backed securities and U.S. Treasuries.

Fair Value—Other Postretirement Benefit Plan

        The Company's other postretirement benefit plan had financial assets of $19 million and $20 million at December 31, 2011 and 2010, respectively, which are measured at fair value on a recurring basis. The assets are primarily short-term securities and corporate bonds, and categorized as level 2 in the fair value hierarchy.

Estimated Future Benefit Payments

        The following table presents the estimated benefits expected to be paid by the Company's pension and postretirement benefit plans for the next ten years (reflecting estimated future employee service), as well as the amounts of other postretirement benefits the Company expects to receive under the Medicare Part D drug subsidy over that time period:

	Benefits Expected to be Paid				Medicare Part D Drug Subsidy Expected to be Received
(in millions)	Pension Plans		Postretirement Benefit Plans
2012	$	166	$	19	$	3
2013		171		20		3
2014		185		21		3
2015		195		21		3
2016		208		21		3
2017 through 2021		1,154		102		17

Savings Plan

        The Company has a savings plan, The Travelers 401(k) Savings Plan (the Savings Plan), in which substantially all Company employees are eligible to participate. Under the Savings Plan, the Company matches employee contributions up to 5% of eligible pay, with a maximum annual match of $5,000 which becomes 100% vested after three years of service. For the year ended December 31, 2011, existing employees whose annual base salary on December 31, 2010 was $175,000 or more, and employees hired during 2011 at an annual base salary of $175,000 or more, were not eligible for the Company's matching contribution. The Company's matching contribution is made in cash and invested according to the employee's current investment elections. The Company's matching contribution can be reinvested at any time into any other investment option. The total expense related to the Savings Plan was $89 million, $93 million and $98 million for the years ended December 31, 2011, 2010 and 2009, respectively.

        Included in the Savings Plan are a legacy Savings Plus Plan (SPP) and a Stock Ownership Plan (SOP) in which substantially all employees who were hired by legacy SPC before April 1, 2004 were eligible to participate. In 2004 under the SPP, the Company matched 100% of employees' contributions up to a maximum of 6% of their salary. The match was in the form of preferred shares, to the extent available in the SOP, or in the Company's common shares. Also allocated to participants were preferred shares equal to the value of dividends on previously allocated shares. Each share of preferred stock paid a dividend of $11.72 annually and was convertible into eight shares of the Company's common stock. The SOP has no preferred shares available for future allocations. As described in more detail in note 9 above, all preferred shares outstanding on June 7, 2011 (190,083 shares) were converted into a total of 1.52 million shares of the Company's common stock.

        All common shares held by the Savings Plan are considered outstanding for diluted EPS computations and dividends paid on all shares are charged to retained earnings.