Travelers 2007 Annual Report Download - page 106

released from escrow to the asbestos trust to be created under ACandS’ plan of reorganization. The
funds will be released back to the Company if the remaining settlement contingencies are not met. The
ACandS matter was included in the home office, field office and other category in 2006. (For a
description of this matter, see ‘‘Item 3—Legal Proceedings’’). Coverage in place arrangements represent
agreements with major policyholders on specified amounts of coverage to be provided. Payment
obligations may be subject to annual maximums and are only made when valid claims are presented.
Wellington accounts refer to the 35 defendants that are parties to a 1985 agreement settling certain
disputes concerning insurance coverage for their asbestos claims. Many of the aspects of the Wellington
agreement are similar to those of coverage in place arrangements in which the parties have agreed on
specific amounts of coverage and the terms under which the coverage can be accessed.
Home office, field office and other relates to policyholders for which settlement agreements have
not been reached, and also includes unallocated IBNR. Policyholders are identified for home office
review based upon, among other factors: a combination of past payments and current case reserves in
excess of a specified threshold (currently $100,000), perceived level of exposure, number of reported
claims, products/completed operations and potential ‘‘non-product’’ exposures, size of policyholder and
geographic distribution of products or services sold by the policyholder. In addition to IBNR amounts
contained in the reserves for home office and field office policyholders, the Company has established a
reserve for further adverse development related to existing policyholders, new claims from policyholders
reporting claims for the first time and policyholders for which there is, or may be, litigation and direct
actions against the Company.
Assumed reinsurance exposure primarily consists of reinsurance of excess coverage, including
various pool participations. International is exposed to U.S. asbestos liabilities through participations in
excess insurance policies, quota share and excess of loss reinsurance policies, and retrocession policies,
underwritten in the London insurance market. Details of exposures under the reinsurance and
retrocession policies are identified only when the Company is advised by the cedant.
The Company recorded no asbestos reserve additions in 2007 and recorded pretax asbestos reserve
additions of $155 million and $830 million in 2006 and 2005, respectively. Approximately half of the
$155 million 2006 pretax reserve adjustment was due to an increase in the projected defense costs for
ten policyholders. The majority of the remainder of the reserve adjustment was primarily due to
continued litigation activity against smaller, peripheral defendants. The asbestos reserve addition in
2005 resulted, in part, from higher than expected defense costs due to increased trial activity for
seriously impaired plaintiffs and prolonged litigation before cases are settled or dismissed. The 2005
reserve addition also considered the January 2006 court decision voiding, on procedural grounds, the
previously rendered favorable arbitration decision in the ongoing ACandS litigation (described in more
detail in note 15). At December 31, 2007, net asbestos reserves totaled $3.73 billion, compared with
$4.05 billion at December 31, 2006.
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