Travelers 2005 Annual Report Download - page 183

THE ST. PAUL TRAVELERS COMPANIES, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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9. INSURANCE CLAIMS RESERVES (Continued)
In the Personal segment, net favorable prior year reserve development in 2004 was $378 million,
driven by lower than expected frequency of non-catastrophe homeowners’ losses, as well as a reduction in
the frequency and severity of losses in the automobile line of business.
In 2003, net unfavorable prior year reserve development included in estimated claims and claim
adjustment expenses totaled $390million. That amount included $549 million of net unfavorable
development impacting the Company’s results of operations that primarily resulted from $521 million of
reserve strengthening at Gulf Insurance Company, a subsidiary that wrote specialty insurance prior to
being placed in runoff in 2004. The net 2003 total also included unfavorable development related to
American Equity, an operation that was placed in run-off in the second quarter of 2002, and environmental
claims.
Those charges were partially offset by net favorable development in other Commercial businesses,
principally property coverages, in which the Company experienced lower non-catastrophe-related claim
frequency. In 2003, estimated claims and claim adjustment expenses for claims arising in prior years
included $42 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 addition, Personal recorded $162 million in net favorable prior year reserve development in 2003
principally due to lower than expected non-catastrophe claim frequency in both homeowners and non-
bodily injury automobile businesses, and a $50 million reduction in reserves held related to the terrorist
attack on September 11, 2001.
For each of the years ended December 31, 2005, 2004 and 2003, changes in allocations between
accident 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.
Asbestos and Environmental Reserves
At December 31, 2005 and 2004, the Company’s claims and claim adjustment expense reserves
included $4.79 billion and $4.57 billion, respectively, for asbestos and environmental-related claims, net of
reinsurance.
It is difficult to estimate the reserves for asbestos and environmental-related claims due to the
vagaries of court coverage decisions, plaintiffs’ expanded theories of liability, the risks inherent in complex
litigation and other uncertainties, including without limitation, those whichare set forth below.
Asbestos Reserves. Because each policyholder presents different liability and coverage issues, the
Company generally reviews the asbestos exposure presented by each policyholder on a policyholder-by-
policyholder basis. In the course of this review, the Company considers, among other factors: available
insurance coverage, including the role of any umbrella or excess insurance the Company has issued to the
policyholder; limits and deductibles; an analysis of each policyholder’s potential liability; the jurisdictions
involved; past and anticipated future claim activity and loss development on pending claims; past
settlement values of similar claims; allocated claim adjustment expense; potential role of other insurance;
the role, if any, of non-asbestos claims or potential non-asbestos claims in any resolution process; and
applicable coverage defenses or determinations, if any, including the determination as to whether or not an