Travelers 2006 Annual Report Download - page 129

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severity of individual claims, the determination of occurrence date for a claim and reporting lags (the time
between the occurrence of the policyholder event and when it is actually reported to the insurer). Informed
judgment is applied throughout the process. The Company continually refines its loss reserve estimates in a
regular ongoing process as historical loss experience develops and additional claims are reported and
settled. The Company rigorously attempts to consider all significant facts and circumstances known at the
time loss reserves are established. Due to the inherent uncertainty underlying loss reserve estimates
including but not limited to the future settlement environment, final resolution of the estimated liability
will be different from that anticipated at the reporting date. Therefore, actual paid losses in the future may
yield a materially different amountthan currently reserved—favorable or unfavorable.
Becauseestablishment of loss reserves is an inherently uncertain process involving estimates, currently
established reserves may change. The Company reflects adjustments to reserves in the results of operations
in the period the estimates are changed.
There are also risks which impact the estimation of ultimate costs for catastrophes. For example, the
estimation of reserves related to hurricanes can be affected by the inability by the Company and its
insureds to access portions of the impacted areas, the complexity of factors contributing to the losses, the
legal and regulatory uncertainties and the nature of the information available to establish the reserves.
Complex factors include, but are not limited to, determining whether damage was caused by flooding
versus wind; evaluating general liability andpollution exposures; estimating additional living expenses; and
estimating the impact of demand surge, infrastructure disruption, fraud, theeffect of mold damage and
business interruption costs and reinsurance collectibility. The timing of a catastrophe’s occurrence, such as
at or near the end of a reporting period, can also affect the information available to us in estimating
reserves for that reporting period. The estimates related to catastrophes are adjusted as actual claims
emerge.
A portion of the Company’s loss reserves are for asbestos and environmental claims and related
litigation which totaled $4.47 billion at December 31, 2006. While the ongoing study of asbestos claims and
associated liabilities and of environmental claims considers theinconsistencies of court decisions as to
coverage, plaintiffs’ expanded theories of liability and the risks inherent in complex litigation and other
uncertainties, in the opinion of the Company’s management, it is possible that the outcome of the
continued uncertainties regarding these claims could result in liability in future periods that differs from
current reserves by an amount that could be material to the Company’s future operating results. See the
preceding discussion of “Asbestos Claims and Litigation” and “Environmental Claims and Litigation.”
Gross claims and claim adjustment expense reserves by product line were as follows:
2006 2005
(at December 31, in millions) Case IBNR TotalCase IBNR Total
General liability ..................... $ 7,555 $12,414 $ 1 9,969 $ 8,198 $12,251 $20,449
Property ............................ 1,612 978 2,590 1,987 1,050 3,037
Commercial multi-peril............... 1,940 2,693 4,633 2,448 2,901 5,349
Commercial automobile .............. 2,573 1,801 4,374 2,792 1,885 4,677
Workers’ compensation. .............. 9,142 6,33715,479 8,816 6,374 15,190
Fidelity and surety ................... 1,035 838 1,873 1,240 673 1,913
Personal automobile................. 1,505 1,092 2,597 1,470 1,138 2,608
Homeowners and personal—other ..... 481 706 1,187 709 987 1,696
International and other ............... 3,296 3,204 6,500 3,033 3,055 6,088
Property-casualty .................. 29,139 30,063 59,202 30,693 30,314 61,007
Accident and health .................. 76 10 86 74 9 83
Claims and claim adjustment
expense reserves................. $ 2 9,215 $30,073 $ 5 9,288 $30,767 $ 30,323 $ 61,090