Travelers 2008 Annual Report Download - page 215

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. INSURANCE CLAIM RESERVES (Continued)
Gross claims and claim adjustment expense reserves at December 31, 2007 decreased by
$1.58 billion from the same date in 2006, primarily reflecting payments related to operations in runoff
(including asbestos and environmental payments), prior years’ hurricane losses, and favorable prior year
reserve development.
The $1.19 billion decline in reinsurance recoverables in 2008 primarily reflected the sale of
Unionamerica, various commutation agreements and collections on reinsurance recoverables, including
those related to prior years’ hurricane losses.
The $1.84 billion decline in reinsurance recoverables in 2007 primarily reflected significant
collections on reinsurance recoverables, including those related to prior years’ hurricane losses,
operations in runoff (primarily Gulf) and various commutation agreements.
Prior Year Reserve Development
The following disclosures regarding reserve development are on a ‘‘net of reinsurance’’ basis.
2008.
In 2008, estimated claims and claim adjustment expenses incurred included $1.73 billion of net
favorable development for claims arising in prior years, including $1.54 billion of net favorable prior
year reserve development impacting the Company’s results of operations, which excludes $60 million of
accretion of discount.
Business Insurance. Net favorable prior year reserve development totaled $1.12 billion in 2008,
driven by better than expected loss results primarily concentrated in the general liability and
commercial multi-peril product lines, an increase in anticipated ceded recoveries for older accident
years in the general liability product line and better than anticipated loss development in the
commercial property and commercial automobile product lines. The net favorable prior year reserve
development in the general liability and commercial multi-peril lines was attributable to several factors,
including improved legal and judicial environments, as well as enhanced risk control, underwriting and
claim process initiatives. The commercial property product line improvement occurred primarily in the
2007 accident year as a result of better than expected development for certain large national property,
national programs, and ocean marine claim exposures and lower than expected weather-related losses
during the last half of 2007, as well as favorable development in certain large inland marine claim
exposures and in ceded recoveries for commercial property large claims. In addition, the commercial
multi-peril and property product lines’ 2005 accident year results experienced improvement due to the
litigation environment relating to, and ongoing claim settlements for, Hurricane Katrina. The
commercial automobile product line improvement was attributable to several factors, including
improved legal and judicial environments, as well as enhanced risk control, underwriting and claim
process initiatives. The net favorable prior year reserve development in the foregoing product lines in
2008 was partially offset by net unfavorable prior year reserve development in the workers’
compensation product line, primarily driven by higher than anticipated medical costs related to 2004
and prior accident years, and by a $70 million and $85 million increase to asbestos and environmental
reserves, respectively.
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