Travelers 2005 Annual Report Download - page 182

THE ST. PAUL TRAVELERS COMPANIES, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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9. INSURANCE CLAIMS RESERVES (Continued)
Prior Year Reserve Development
In 2005, estimated claims and claim adjustment expenses for claims arising in prior years totaled a net
$260 million, including $325 million of net unfavorable prior year reserve development impacting the
Company’s results of operations which excludes $59 million of accretion of discount. In 2005, estimated
claims and claim adjustment expenses for claims arising in prior years included $30 million of net favorable
loss development on Commercial loss sensitive policies in various lines; however, since the business to
which it relates was subject to premium adjustments, there was no impact on results of operations.
In the Commercial segment, net unfavorable prior year reserve development in 2005 was $694 million,
including $830 million to strengthen asbestos reserves and $30 million to strengthen environmental
reserves, which are discussed in more detail in the following “Asbestos and Environmental Reserves”
section.The remaining net favorable prior year reserve development of $166 million was driven by lower
than expected frequency and severity for both casualty and property-related lines of business in the
Commercial segment, partially offset by reserve strengthening for assumed reinsurance, which is in runoff.
The Specialty segment recorded net favorable prior year reserve development of $9 million in 2005,
driven by lower than expected severity for property-related exposures.
In the Personal segment, net favorable prior year reserve development in 2005 totaled $360 million,
driven by lower than expected frequency and severity of losses in the automobile line of business, as well as
a decline in the frequency of non-catastrophe homeowners’ losses.
In 2004, estimated claims and claim adjustment expenses for claims arising inprior years totaled a net
$2.40 billion, including $2.39 billion of net unfavorable prior year reserve development impacting the
Company’s results of operations, excluding $75 million of accretion of discount. Net unfavorable prior year
reserve development included $928 million to strengthen asbestos reserves, reserve adjustments related to
the merger of $500 million for construction and $300 million for surety, $290 million to strengthen
environmental reserves, $252 million related to a specific construction contractor, $113 million related to
the commutation of agreements with a major reinsurer, and other net reserving actions.
Primarily all of the asbestos and environmental charges in 2004 were recorded in the Commercial
segment and are discussed in more detail in the following “Asbestos and Environmental Reserves” section.
Also included in net unfavorable prior year reserve development in the Commercial segment in 2004 was
$38million related to the commutation of agreements with a major reinsurer along with a strengthening of
Gulf reserves, which was more than offset by other favorable prior year reserve development in core
Commercial operations due to lower than expected frequency of non-catastrophe related losses.
The Specialty segment recorded prior year reserve development of $1.43 billion in 2004, which
included the charges to strengthen construction and surety reserves referred to previously, as well as the
$252 million charge related to a specific construction contractor and $75 million related to the
commutation of agreements with a major reinsurer. Results in2004 also reflected $150 million of net
unfavorable prior year reserve development recorded in TPC’s Construction operation prior to the merger,
other reserve increases, and a charge to increase the allowance for estimated amounts due from a co-surety
on a specific construction contractor claim.