Travelers 2004 Annual Report Download - page 89

coverage litigation between the policyholder and the Company and the willingness of the policyholder and the
Company to negotiate, if appropriate, a resolution of any dispute pertaining to these claims. Because these factors
vary from claim-to-claim and policyholder-by-policyholder, the Company cannot provide a meaningful average
of the duration of an environmental claim. However, based upon the Company’s experience in resolving these
claims, the duration may vary from months to several years.
The Company’s review of policyholders tendering claims for the first time has indicated that they are lower
in severity. These policyholders generally present smaller exposures, have fewer sites and are lower tier
defendants. Further, regulatory agencies are utilizing risk-based analysis and more efficient clean-up
technologies. However, the Company has experienced an increase in the anticipated settlement amounts of
certain matters as well as an increase in loss adjustment expenses.
The following table displays activity for environmental losses and loss expenses and reserves:
(at and for the year ended December 31, in millions) 2004 2003 2002
Beginning reserves:
Direct ................................................................ $331 $448 $479
Ceded ................................................................ (41) (62) (83)
Net .................................................................. 290 386 396
Reserves acquired:
Direct ................................................................ 271 ——
Ceded ................................................................ (58) ——
Net .................................................................. 213 ——
Incurred losses and loss expenses:
Direct ................................................................ 323 59 154
Ceded ................................................................ (33) — (3)
Net .................................................................. 290 59 151
Losses paid:
Direct ................................................................ 200 176 185
Ceded ................................................................ (48) (21) (24)
Net .................................................................. 152 155 161
Ending reserves:
Direct ................................................................ 725 331 448
Ceded ................................................................ (84) (41) (62)
Net .................................................................. $641 $290 $386
UNCERTAINTY REGARDING ADEQUACY OF ASBESTOS AND ENVIRONMENTAL RESERVES
As a result of the processes and procedures described above, management believes that the reserves carried
for asbestos and environmental claims at December 31, 2004 are appropriately established based upon known
facts, current law and management’s judgment. However, the uncertainties surrounding the final resolution of
these claims continue, and it is difficult to determine the ultimate exposure for asbestos and environmental claims
and related litigation. As a result, these reserves are subject to revision as new information becomes available and
as claims develop. The continuing uncertainties include, without limitation, the risks and lack of predictability
inherent in major litigation, any impact from the bankruptcy protection sought by various asbestos producers and
other asbestos defendants, a further increase or decrease in asbestos and environmental claims which cannot now
be anticipated, the role of any umbrella or excess policies the Company has issued, the resolution or adjudication
of some disputes pertaining to the amount of available coverage for asbestos claims in a manner inconsistent with
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