Travelers 2006 Annual Report Download - page 203

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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6. INSURANCE CLAIM RESERVES (Continued)
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 from an 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. The 2006 review of 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 anddefense payments 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 decreasein 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 in particular 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 will provide the Company with an increased ability to
detect and respond to emerging trends, including reflecting any such trends in its quarterly reserve
estimates.
Environmental Reserves. In establishingenvironmental reserves, theCompany evaluates the
exposure presented by each policyholder and the anticipated cost of resolution, if any. In the course of this
analysis, the Company considers the probable liability, available coverage, relevant judicial interpretations
and historical value of similar exposures. In addition, the Company considers the many variables
presented, such as the nature of the alleged activities of the policyholder at each site; the allegations of
environmental harm at each site; the number of sites; the total number of potentially responsible parties at
each site; the nature of environmental harm and the corresponding remedy at each site; the nature of
government enforcement activities at each site; the ownership and general use of each site; the overall
nature of the insurance relationship between the Company and the policyholder, including the role of any
umbrella or excess insurance the Company has issued to the policyholder; the involvement of other
insurers; the potential for other available coverage, including the number of years of coverage; the role, if
any, of non-environmental claims or potential non-environmental claims, in any resolution process; and the
applicable law in each jurisdiction. Conventional actuarial techniques are not used to estimate these
reserves.