Travelers 2006 Annual Report Download - page 108

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activity. Net asbestos losses and expensespaid in 2006 were $469 million, compared with $399 million in
2005. The $70 million net increase is primarily the result of lower reinsurance billings in 2006.
Approximately 50% in 2006 and 42% in 2005 of total net paid losses related to policyholders with whom
the Company previously entered into settlement agreements limiting the Company’s liability. At
December 31, 2006, net asbestos reserves totaled $4.05billion, compared with $4.36 billion at
December 31, 2005.
The Company recorded pre-tax asbestos reserve additions of $155 million, $830 million and
$928 million in 2006, 2005 and2004, respectively, pursuant to the completion of the Company’s annual
ground-up asbestos exposure review, which included an analysis of exposure and claim payment patterns
by policyholder category, as well as recent settlements, policyholder bankruptcies, judicial rulings and
legislative actions. Approximately half of the $155 million 2006 pretax reserve adjustment was due to an
increase in the projected defense costs for ten policyholders. Additionally, $15 million of the pretax reserve
adjustment was attributable to a delay in the approval and expected payment of the previously announced
settlement with PPG Industries, Inc. as part of the Pittsburgh Corning bankruptcy reorganization plan. The
remainder of the reserve adjustment was primarily due to continued litigation activity against smaller,
peripheral defendants. The asbestos reserve addition in 2005 resulted, inpart, from higher than expected
defense costs due to increased trial activity for seriously impaired plaintiffs and prolonged litigation before
cases are settled or dismissed. The 2005 reserve addition also considered the January 2006 court decision
voiding, on procedural grounds, the previously rendered favorable arbitration decision in the ongoing
ACandS litigation (described in more detail in note 15). The asbestos reserve addition recorded in 2004
primarily resulted froman increase in litigation costs and activity surrounding peripheral defendants.
As in prior years, the2006 annual review considered active policyholders and litigation cases,
including cases challenging the applicability of aggregate limits on asbestos claims. Developing payment
trends among policyholders in the Home Office and Field Office as well as Assumed and International
categories were also analyzed. In 2006 the Home Office and Field Office categories, which account for the
vast majority of the number of policyholders, experienced an overall reduction in new claim filings as well
as in gross indemnity and defensepayments over prior years.
The Company has recently observed the following developments in the asbestos environment:
•the emergence of more stable payment trends for a greater proportion of policyholders;
•a decrease in the number of new claims received;
•a decrease in the number of large asbestos exposures reflecting additional settlement activity;
•a decrease in the number and volatility of asbestos-related bankruptcies; and
•the absence of new theories of liability or new classes of defendants.
While there remains uncertainty with respect to future exposure from asbestos claims, the Company
believes that the factors noted above have led to a reduction in the overall volatility associated with its
asbestos exposure.
As a result of these favorable changes in the asbestos environment, and particular in the emergence of
more stable payment patterns, beginningin 2007 the Company is now able to supplement the existing
annual in-depth process and the existing quarterly asbestos review process with additional aggregate
quarterly reserve analyses. These additional analyses provide the Company with an increased ability to
detect and respond to emerging trends, including reflecting any such trends, in its quarterly reserve
estimates.