Travelers 2007 Annual Report Download - page 202

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. INSURANCE CLAIM RESERVES (Continued)
It is difficult to estimate the reserves for asbestos and environmental-related claims due to the
vagaries of court coverage decisions, plaintiffs’ expanded theories of liability, the risks inherent in
complex litigation and other uncertainties, including without limitation, those which are set forth below.
Asbestos Reserves. 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
which an estimate of the gross ultimate exposure for indemnity and related claim adjustment expense is
determined, the Company calculates, by each policy year, a ceded reinsurance projection based on any
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