Travelers 2005 Annual Report Download - page 104

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The following table displays activity for environmental losses and loss expenses and reserves:
(at and for the year ended December 31, in millions) 2005 2004 2003
Beginning reserves:
Direct............................................... $ 7 25 $331 $448
Ceded............................................... (84) (41 ) (62 )
Net ................................................. 641 290 386
Reserves acquired:
Direct............................................... —271 —
Ceded............................................... —(58) —
Net ................................................. —213 —
Incurred losses and loss expenses:
Direct ............................................... 17 323 59
Ceded............................................... 13 (33 ) —
Net ................................................. 30 290 59
Losses paid:
Direct ............................................... 248 200 176
Ceded............................................... (2) (48 ) (21 )
Net ................................................. 246 152 155
Ending reserves:
Direct............................................... 494 725 331
Ceded............................................... (69) (84 ) (41 )
Net ................................................. $ 4 25 $641 $290
UNCERTAINTY REGARDING ADEQUACY OFASBESTOS 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, 2005 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 complex 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 and environmental claims in a manner
inconsistent with the Company’s previous assessment of these claims, the number and outcome of direct
actions against the Company and future developments pertaining to the Company’s ability to recover
reinsurance for asbestos and environmental claims. In addition, the Company’s asbestos-related claims and
claim adjustment expense experience has been impacted by the exhaustion or unavailability due to
insolvency of other insurance sources potentially available to policyholders along with the insolvency or
bankruptcy of other defendants. It is also not possible to predict changes in the legal and legislative
environment and their impact on the future development of asbestos and environmental claims. This
development will be affected by future court decisions and interpretations, as well as changes in applicable
legislation, including legislation related to asbestos reform. It is also difficult to predict the ultimate
outcome of large coverage disputes until settlement negotiations near completion and significant legal
questions are resolved or, failing settlement, until the dispute is adjudicated. This is particularly the case