Travelers 2007 Annual Report Download - page 104

bankruptcy court. On March 29, 2006, the U.S. District Court for the Southern District of New York
substantially affirmed the bankruptcy court’s orders, while vacating that portion of the bankruptcy
court’s orders which required all future direct actions against TPC to first be approved by the
bankruptcy court before proceeding in state or federal court. Various parties appealed the district
court’s March 29, 2006 ruling to the U.S. Court of Appeals for the Second Circuit. On February 15,
2008, the Second Circuit issued an opinion vacating the District Court’s order on jurisdictional grounds.
The parties’ obligations under the settlement agreements are contingent upon approval of the
bankruptcy court’s order. Unless the Second Circuit’s decision is reversed on further appeal and the
bankruptcy court’s order is reinstated and becomes final, the settlements will be voided, TPC will have
no obligation to pay the amounts due under the settlement agreements (other than certain
administrative expenses) and the Company intends to litigate the direct action cases vigorously. (For a
description of these matters, see ‘‘Item 3—Legal Proceedings’’).
Because each policyholder presents different liability and coverage issues, the Company generally
reviews the exposure presented by each policyholder at least annually. In the course of this review, the
Company considers, among other factors: available insurance coverage, including the role of any
umbrella or excess insurance the Company has issued to the policyholder; limits and deductibles; an
analysis of each policyholder’s potential liability; the jurisdictions involved; past and anticipated future
claim activity and loss development on pending claims; past settlement values of similar claims;
allocated claim adjustment expense; potential role of other insurance; the role, if any, of non-asbestos
claims or potential non-asbestos claims in any resolution process; and applicable coverage defenses or
determinations, if any, including the determination as to whether or not an asbestos claim is a products/
completed operation claim subject to an aggregate limit and the available coverage, if any, for that
claim.
In the third quarter of 2007, the Company completed its annual in-depth asbestos claim review. As
in prior years, the 2007 annual review considered active policyholders and litigation cases, including
cases challenging the applicability of aggregate limits on asbestos claims. The trends noted at the
completion of the 2006 review continued into 2007. The trends include:
• the emergence of more stable payment trends for a large proportion of policyholders;
• a decrease in the number of new claims received;
• a decrease in the number of large asbestos exposures confronting the Company due to
additional settlement activity;
• a decrease in the number and volatility of asbestos-related bankruptcies; and
• the absence of new theories of liability or new classes of defendants.
The Company believes that these trends indicate a reduction in the volatility associated with the
Company’s overall asbestos exposure. Nonetheless, there remains a high degree of uncertainty with
respect to future exposure from asbestos claims.
Beginning in 2007 the Company supplemented the existing annual in-depth asbestos claim review
and the existing quarterly asbestos review process with additional aggregate quarterly reserve analyses.
These additional analyses provide the Company with an increased ability to detect and respond to
emerging trends in its quarterly reserve estimates.
The Company’s asbestos reserve review includes an analysis of exposure and claim payment
patterns by policyholder category, as well as recent settlements, policyholder bankruptcies, judicial
rulings and legislative actions. Developing payment trends among policyholders in the Home Office,
Field Office and Assumed and International categories are also analyzed. The Company also reviews its
historical gross and net loss and expense paid experience, year-by-year, to assess any emerging trends,
fluctuations, or characteristics suggested by the aggregate paid activity. For those policyholders for
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