Travelers 2006 Annual Report Download - page 112

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significantly and are dependent upon a number of factors. These factors include, but are not limited to, the
cooperation of the policyholder in providing claim information, the pace of underlying litigation or claim
processes, the pace of coverage litigation between the policyholder and the Company and the willingness
of the policyholder and the Company to negotiate, if appropriate, a resolution of any dispute pertaining to
these claims. Because these factors vary from claim-to-claim and policyholder-by-policyholder, the
Company cannot provide a meaningful average of the duration of an environmental claim. However, based
upon the Company’s experience in resolvingthese claims, theduration may vary from months to several
years.
The Company has continued to experience a decline in the number of policyholders tendering claims
for the first time. These policyholders generally present smaller exposures, have fewer sites and are lower
tier defendants. Further, regulatory agencies are utilizing risk-based analysis and more efficient clean-up
technologies. However, the Company has experienced higher than expected defense and settlement costs.
These increases have been driven in part by adverse judicial developments in certain states regarding the
availability of coverage for environmental claims. As a result of these trends, the Company increased
environmental reserves by $120 million in 2006. In 2005, the Company recorded a pretax charge of
$30million, primarily for declaratory judgment costs. In 2004, the Company recorded a pretax charge of
$290 million due to revised estimates of costs related to settlement initiatives. The increases to
environmental reserves in each year were net of reinsurance.
Gross paid losses in 2006 and 2005 were $189 million and $248 million, respectively. TPC entered into
a significant settlement with one policyholder in 2005. TPC executed an agreement with this policyholder
which resolved all past, present and future hazardous waste and pollution property damage claims, and all
related past and pending bodily injury claims. In addition, TPC and this policyholder entered into a
coverage-in-place agreement which addressedthe handling and resolution of all future hazardous waste
and pollution bodily injury claims. Under the coverage-in-place agreement, TPC has no defense obligation,
and there is an overall cap with respect to any indemnity obligation that might be owed. The first two
payments related to this settlement were made during2005 and the final payment was made in the first
quarter of 2006.