Travelers 2005 Annual Report Download - page 34

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the writing of these risks. See “Item 7—Asbestos Claims and Litigation,” and “Environmental Claims and
Litigation.” General conditions and trends that have affected the development of these liabilities in the
past will not necessarily recur in the future.
Other factors that affect the data in the accompanying table include the discounting of certain
reserves, as discussed above, and the use of retrospectively rated insurance policies. For example, workers’
compensation indemnity reserves (tabular reserves) are discounted to reflect the time value of money.
Apparent deficiencies will continue to occur as the discount on these workers’ compensation reserves is
accreted at the appropriate interest rates. Also, a portion of National Accounts business is underwritten
with retrospectively rated insurance policies in which the ultimate loss experience is primarily borne by the
insured. For this business, increases in loss experience result in an increase in reserves and an offsetting
increase in amounts recoverable from insureds. Likewise, decreases in loss experience result in a decrease
in reserves and an offsetting decrease in amounts recoverable from these insureds. The amounts
recoverable on these retrospectively rated policies mitigate the impact of the cumulative deficiencies or
redundancies on the Company’s earnings but are not reflected in the accompanying table.
Because of these and other factors, it is difficult to develop a meaningful extrapolation of estimated
future redundancies or deficiencies in loss reserves from the data in the accompanying table.
The differences between the reserves, net of reinsurance, for claims and claim adjustment expenses
shown in the accompanyingtable, which is prepared in accordance U.S. generally accepted accounting
principles and those reported in the Company’s annual reports filed with insurance regulators, which are
prepared in accordance with statutory accounting practices, were $(296) million, $(282) million and $26
million for 2005, 2004 and 2003, respectively. The increase in the differences in 2005 and 2004 compared
with the difference in 2003 was primarily driven by the impact of a reinsurance contract which the
Company entered into in 2004 that provides coverage for prior accident years.