Travelers 2003 Annual Report Download - page 121

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. INSURANCE CLAIMS RESERVES, Continued
In 2003, estimated claims and claim adjustment expenses for claims arising in prior years was a net unfavorable
development of $390.0 million. This included $548.7 million of net unfavorable development which impacted
results of operations, primarily due to unfavorable development of $521.1 million related to reserve
strengthening at Gulf Insurance, a majority-owned subsidiary that writes specialty insurance. Claims arising in
prior years for 2003 also included unfavorable development of $115.0 million related to American Equity, an
operation that was placed in run-off in the second quarter of 2002 and $59.8 million related to environmental
claims. This was partially offset by net favorable development in other Commercial Lines businesses, principally
property coverages, in which Travelers has experienced lower non-catastrophe-related claim frequency. In
addition, Personal Lines had a $162.0 million net prior year reserve development benefit in 2003 principally due
to continued reduced levels of non-catastrophe claim frequency in both homeowners and non-bodily injury
automobile businesses and a $50.0 million reduction in reserves held related to the terrorist attack on September
11, 2001. In 2003, estimated claims and claim adjustment expenses for claims arising in prior years included
$42.4 million of net favorable loss development on Commercial Lines loss sensitive policies in various lines;
however, since the business to which it relates is subject to premium adjustments, there is no impact on results of
operations. For each of the years ended December 31, 2003, 2002 and 2001, changes in allocations between
policy years of loss adjustment expenses, pursuant to regulatory reporting requirements, are included in claims
and claim adjustment expenses for claims arising in prior years and did not impact results of operations.
In 2002, estimated claims and claim adjustment expenses for claims arising in prior years was a net unfavorable
development of $3.031 billion. This included $3.132 billion of net unfavorable development which impacted
results of operations primarily due to unfavorable development of $2.945 billion related to asbestos. Claims
arising in prior years for 2002 also included unfavorable development of $150.1 million related to environmental
claims and favorable development of $100.1 million related to cumulative injury claims. In addition, estimated
claims and claim adjustment expenses for claims arising in prior years included net unfavorable development,
primarily related to certain Commercial Lines coverages, predominantly in assumed reinsurance specialty
businesses, partially offset by favorable development in Commercial Lines workers’ compensation and Personal
Lines automobile. In 2002, estimated claims and claim adjustment expenses for claims arising in prior years
included $71.2 million of net favorable loss development on Commercial Lines loss sensitive policies in various
lines; however, since the business to which it relates is subject to premium adjustments, there is no impact on
results of operations.
In 2001, estimated claims and claim adjustment expenses for claims arising in prior years was a net favorable
development of $41.0 million which included $14.4 million of net favorable development which impacted
results of operations, primarily related to certain Commercial Lines coverages. The $14.4 million includes
favorable development in commercial multi-peril and other claim adjustment expenses partially offset by
unfavorable development in general liability, commercial auto liability and specialty businesses. Included in the
net unfavorable development in Commercial Lines general liability was $188.8 million for asbestos claims and
$45.7 million for environmental claims partly reduced by favorable development of $44.9 million for cumulative
injury claims. In addition, estimated claims and claim adjustment expenses for claims arising in prior years
included net favorable loss development of $43.0 million on Commercial Lines loss sensitive policies in various
lines; however, since the business to which it relates is subject to premium adjustments, there is no impact on
results of operations.
The claims and claim adjustment expense reserves included $3.267 billion and $3.790 billion for asbestos and
environmental-related claims, net of reinsurance, at December 31, 2003 and 2002, respectively.