Travelers 2005 Annual Report Download - page 185

THE ST. PAUL TRAVELERS COMPANIES, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
173
9. INSURANCE CLAIMS RESERVES (Continued)
applicable law in each jurisdiction. Conventional actuarial techniques are not used to estimate these
reserves. In 2005, the Company recorded a pretax charge of $30 million, net of reinsurance, primarily for
declaratory judgment costs. In 2004, the Company recorded a pretax charge of $290 million, net of
reinsurance, to increase environmental reserves due to revised estimates of costs related to recent
settlement initiatives. Net environmental losses paid were $246 million, $152 million and $155 million for
the years ended December 31, 2005, 2004 and 2003, respectively.
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 presently not possible 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 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 loss and loss expense experience
has been impacted by the exhaustion or unavailability due to insolvency of other insurance 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 andinterpretations, as well as changes in applicable legislation. 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 with policyholders in bankruptcy where negotiations often involve a large number of claimants and
other parties and require court approval to be effective. As part of its continuing analysis of asbestos
reserves, which includes an annual ground-up review of asbestos policyholders, the Company continues to
study the implications of these and other developments.
Asbestos and Environmental Reserves.Because of the uncertainties set forth above, additional
liabilities may arise for amounts in excess of the current asbestos and environmental reserves. In addition,
the Company’s estimate of ultimate claims and claim adjustment expenses may change. These additional
liabilities or increases in estimates, or a range of either, cannot now be reasonably estimated and could
result in income statement charges that could be material to the Company’s results of operations and
financial condition in future periods.