Travelers 2006 Annual Report Download - page 201

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
189
6. INSURANCE CLAIM RESERVES (Continued)
and fewer small-dollar claims. These changes also resulted in a change in thehistorical loss development
patterns.
2004.
In 2004, estimated claims and claim adjustment expenses for claims arising in prior years totaled a net
$2.40 billion, including $2.39 billion of net unfavorable prior year reserve development impacting the
Company’s results of operations, excluding $75 million of accretion of discount. Net unfavorable prior year
reserve development included $928 million to strengthen asbestos reserves, reserve adjustments related to
the merger of $500 million for construction and $300 million for surety, $290 million to strengthen
environmental reserves, $252 million related to a specific construction contractor, $113 million related to
the commutation of agreements with a majorreinsurer, and other net reserving actions.
Business Insurance. Net unfavorable prior year reserve development in 2004 totaled $2.03 billion,
which included the asbestos and environmental charges that arediscussed inmore detail in the following
“Asbestos and Environmental Reserves” section. Business Insurance results in 2004 also reflected a $500
million charge to strengthen construction reserves, a $174 million addition to the reserve for uncollectible
reinsurance recoverables, $150 million of net unfavorableprior year reserve development recorded in
TPC’s Construction operation prior to the merger, $74 million related to the commutation of agreements
with a major reinsurer, along with a strengthening of Gulf reserves, which was partially offset by favorable
prior year reserve developmentin several core Business Insurance operations due to lower frequency of
non-catastrophe related losses attributable to better underwriting and pricing strategies in the prior year,
the results of which emerged in the2004 calendar year.
Financial, Professional & International Insurance.Net unfavorable prior year reserve development
totaled $739 million in 2004, which included a $300 million charge to strengthen surety reserves, as well as
a $252 million charge related to a specific construction contractor and $39 million related tothe
commutation of agreements with a major reinsurer. Results in 2004 also reflected a charge to increase the
allowance for estimated uncollectible amounts due from a co-surety on a specific construction contractor
claim.
Personal Insurance.Net favorable prior year reserve development in 2004 was $378 million. In the
homeowners line of business, the improvement was driven by a significant decrease in the number of
claims, attributable to changes in the marketplace, including higher policy deductible levels and fewer
small dollar claims. These changes resulted in a change in the historical loss development patterns. Net
favorable prior year reserve development in the Automobile line of business was driven by better than
expected frequency andseverity which is believed to have been caused by societal trends. In addition, both
industry and internal initiatives to fight fraud in several states caused adecrease in the total number of
claims, as well as a change in the historicalloss development patterns.
For each of the years ended December 31, 2006, 2005 and 2004, changes in allocations between
accident years of loss adjustment expenses, pursuant to regulatory reporting requirements, are included in
claims and claim adjustment expenses for claims arising in prior years and did not impact results of
operations.