Travelers 2007 Annual Report Download - page 201

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. INSURANCE CLAIM RESERVES (Continued)
2005.
In 2005, estimated claims and claim adjustment expenses for claims arising in prior years totaled a
net $260 million, including $325 million of net unfavorable prior year reserve development impacting
the Company’s results of operations which excludes $59 million of accretion of discount. In 2005,
estimated claims and claim adjustment expenses for claims arising in prior years included $30 million of
net favorable loss development on Business Insurance loss sensitive policies in various lines; however,
since the business to which it relates was subject to premium adjustments, there was no impact on
results of operations.
Business Insurance. Net unfavorable prior year reserve development in 2005 was $757 million,
which included the asbestos and environmental charges that are discussed in more detail in the
following ‘‘Asbestos and Environmental Reserves’’ section, and reserve strengthening for assumed
reinsurance, which is in runoff. Those increases were partially offset by favorable prior year reserve
development from lower frequency and severity for both casualty and property-related lines of business.
Drivers of the reduction in both frequency and severity were increasingly favorable legal and judicial
environments, coupled with better than expected results from changes in policy provisions as well as
underwriting and pricing criteria. Company initiatives relating to claims handling, which affected claims
staffing and workflows, also are believed to have contributed to the emergence of favorable severity
experience in 2005.
Financial, Professional & International Insurance. Net favorable prior year reserve development
totaled $72 million in 2005, attributable to the better than anticipated favorable impact from changes in
underwriting and pricing strategies for International property-related exposures.
Personal Insurance. Net favorable prior year reserve development in 2005 totaled $360 million. In
the Automobile line of business, the improvement was driven by better than expected results from
changes in claim handling practices. These changes included practices which have allowed case reserves
to be established more accurately earlier in the claim settlement process, thereby changing historical
loss development patterns. In addition, both industry and internal initiatives to fight fraud in several
states caused a decrease in the total number of claims, as well as a change in the historical loss
development patterns. In the Homeowners and Other line of business, the improvement was driven
primarily by a significant decrease in the number of claims, attributable to changes in the marketplace,
including higher deductibles and fewer small-dollar claims. These changes also resulted in a change in
the historical loss development patterns.
For each of the years ended December 31, 2007, 2006 and 2005, changes in allocations between
accident years of loss adjustment expenses, pursuant to regulatory reporting requirements, are included
in claims and claim adjustment expenses for claims arising in prior years and did not impact results of
operations.
Asbestos and Environmental Reserves
At December 31, 2007 and 2006, the Company’s claims and claim adjustment expense reserves
included $4.22 billion and $4.47 billion, respectively, for asbestos and environmental-related claims, net
of reinsurance.
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