Travelers 2006 Annual Report Download - page 113

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The following table displays activity for environmental losses and loss expenses and reserves:
(at and forthe year ended December 31, in millions)2006 2005 2004
Beginning reserves:
Direct ................................................................ $ 4 94 $ 7 25 $331
Ceded................................................................ (69 )(84 ) (41)
Net.................................................................. 425 641 290
Reserves acquired:
Direct ................................................................ — — 271
Ceded................................................................ — — (58)
Net.................................................................. — — 213
Incurred losses and loss expenses:
Direct ................................................................ 108 17 323
Ceded................................................................ 12 13 (33)
Net.................................................................. 120 30 290
Losses paid:
Direct ................................................................ 189 248 200
Ceded................................................................ (62 )(2 ) (48)
Net.................................................................. 127 246 152
Ending reserves:
Direct ................................................................ 413 494 725
Ceded................................................................ 5 (69 ) (84)
Net.................................................................. $ 4 18 $ 4 25 $641
UNCERTAINTY REGARDING ADEQUACY OF ASBESTOS AND ENVIRONMENTAL RESERVES
As a result of the processes and procedures described above, management believes that the reserves
carried for asbestos and environmental claims at December 31, 2006 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 difficult 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 beyond that which is 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 and environmental 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 claims and
claim adjustment expense experience has been impacted by the exhaustion or unavailability due to
insolvency of other insurance sources potentially available to policyholders along with the insolvency or
bankruptcy of other defendants, although the Company has noted a recent decrease in the number and
volatility of asbestos-related bankruptcies. It is also not possible to predict changes in the legal and
legislative environment and their impact on the future development of asbestosand environmental claims.
This development will be affected by future court decisions and interpretations, as well as changes in
applicable legislation, including legislation related to asbestos reform. 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 thedispute isadjudicated. This is particularly the