Travelers 2007 Annual Report Download - page 109

Net paid losses in 2007 and 2006 were $113 million and $127 million, respectively. TPC entered
into a significant settlement with one policyholder in 2005. TPC executed an agreement with this
policyholder which resolved all past, present and future hazardous waste and pollution property damage
claims, and all related past and pending bodily injury claims. In 2006, the Company made the final
payment related to this settlement and billed a substantial portion of the total settlement to its
reinsurers. In addition, TPC and this policyholder entered into a coverage-in-place agreement which
addressed the handling and resolution of all future hazardous waste and pollution bodily injury claims.
Under the coverage-in-place agreement, TPC has no defense obligation, and there is an overall cap
with respect to any indemnity obligation that might be owed.
At December 31, 2007, approximately 87% of the net environmental reserve (approximately
$428 million) was carried in a bulk reserve and included unresolved environmental claims, incurred but
not reported environmental claims and the anticipated cost of coverage litigation disputes relating to
these claims. The bulk reserve the Company carries is established and adjusted based upon the
aggregate volume of in-process environmental claims and the Company’s experience in resolving those
claims. The balance, approximately 13% of the net environmental reserve (approximately $62 million),
consists of case reserves.
The following table displays activity for environmental losses and loss expenses and reserves:
(at and for the year ended December 31, in millions) 2007 2006 2005
Beginning reserves:
Direct ...................................................... $413 $494 $725
Ceded ..................................................... 5(69) (84)
Net ....................................................... 418 425 641
Incurred losses and loss expenses:
Direct ...................................................... 182 108 17
Ceded ..................................................... 312 13
Net ....................................................... 185 120 30
Losses paid:
Direct ...................................................... 117 189 248
Ceded ..................................................... (4) (62) (2)
Net ....................................................... 113 127 246
Ending reserves:
Direct ...................................................... 478 413 494
Ceded ..................................................... 12 5 (69)
Net ....................................................... $490 $418 $425
UNCERTAINTY REGARDING ADEQUACY OF ASBESTOS AND ENVIRONMENTAL RESERVES
As a result of the processes and procedures described above, management believes that the
reserves carried for asbestos and environmental claims at December 31, 2007 are appropriately
established based upon known facts, current law and management’s judgment. However, the
uncertainties surrounding the final resolution of these claims continue, and it is difficult to determine
the ultimate exposure for asbestos and environmental claims and related litigation. As a result, these
reserves are subject to revision as new information becomes available and as claims develop. The
continuing uncertainties include, without limitation, the risks and lack of predictability inherent in
complex litigation, any impact from the bankruptcy protection sought by various asbestos producers and
other asbestos defendants, a further increase or decrease in asbestos and environmental claims beyond
that which is anticipated, the role of any umbrella or excess policies the Company has issued, the
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