Travelers 2006 Annual Report Download - page 39

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Environmental 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Gross................ $ 1,093 $ 1,014 $ 891$ 752$ 677$ 619$ 465$ 406$ 125 $ 108
Net.................. $ 881 $ 816 $ 766$ 709$ 645$ 599$ 449$ 390$ 150 $ 120
(a)Includes reserves of The Northland Company and its subsidiaries and Commercial Guaranty Lloyds Insurance Company which
were acquired from Citigroup on October 1, 2001. Also includes reserves of Commercial Guaranty Casualty Insurance
Company, which was contributed to TPC by Citigroup on October 3, 2001. At December 31, 2001, these gross reserves were
$867 million, and net reserves were $633 million.
(b)For years prior to 2004, excludes SPC reserves, which were acquired on April 1, 2004. Accordingly, the reserve development
(net reserves for claims and claim adjustment expenses reestimated as of subsequent years less net reserves recorded at the end
of the year, as originally estimated) for years prior to 2004relates only to losses recorded by TPC and does not include reserve
development recorded by SPC. For 2004 and subsequent years, includes SPC reserves and subsequent development recorded by
SPC. At December 31,2004, SPC gross res erves were $23,274million and net reserves were $15,959 million.
Reserves on Statutory Accounting Basis
At December 31, 2006, 2005 and 2004, claim and claim adjustment expense reserves (net of
reinsurance) shown in the preceding table, which areprepared in accordance U.S. generally accepted
accounting principles (GAAP), were $104 million, $296 million and $282 million lower, respectively, than
those reported in the Company’s respective annual reports filed with insurance regulators, which are
prepared in accordance with statutory accounting practices. The accounting for retroactive reinsurance is a
significant factor in the difference in reserves. Retroactive reinsurance balances result from reinsurance
placed to cover losses on insured events occurring prior to the contract inception. For GAAP reporting,
retroactive reinsurance balances are included in reinsurance recoverables and result in lower net reserve
amounts. Statutory accounting practices require retroactive reinsurance balances to be recorded in other
liabilities as contra-liabilities rather than in loss reserves.
Asbestos and Environmental Claims
Asbestos and environmental claims are segregated from other claims and are handled separately by
the Company’s Special Liability Group, aseparate unit staffed by dedicated legal, claim, finance and
engineering professionals. For additional information on asbestos and environmental claims, see “Item 7—
Management’s Discussion and Analysis of Financial Conditions and Results ofOperations.”
INTERCOMPANY REINSURANCE POOLING ARRANGEMENTS
Most of the Company’s insurance subsidiaries are members of intercompany property and casualty
reinsurance pooling arrangements. Pooling arrangements permit the participating companies to rely on the
capacity of the entire pool’s capital and surplus rather than just on its own capital and surplus. Under such
arrangements, the members share substantially all insurance business that is written, and allocate the
combined premiums, losses and expenses. During 2005, the Company combined the previously separate
St. Paul Insurance Group and Travelers Property Casualty pools, forming the new Travelers Reinsurance
Pool. Travelers Indemnity Company is the lead company of the new pool, which includes 28 companies.
The Company also merged Gulf Insurance Company, the lead company of the former Gulf Insurance
Group, into Travelers Indemnity Company effective July 1, 2005. Asof December 31, 2006, there were two
intercompany pooling arrangements: the Travelers ReinsurancePool and the Northland Pool.