Travelers 2008 Annual Report Download - page 218

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. INSURANCE CLAIM RESERVES (Continued)
Homeowners and Other loss experience was favorable due to continued evidence of a less than
expected impact from ‘‘demand surge,’’ which refers to significant short-term increases in building
material and labor costs due to a sharp increase in demand for those materials and services. Included
in net favorable prior year reserve development in 2006 was a reduction in loss estimates for
catastrophes incurred in 2005, primarily due to lower than expected additional living expense losses
related to Hurricane Katrina.
Asbestos and Environmental Reserves
At December 31, 2008 and 2007, the Company’s claims and claim adjustment expense reserves
included $3.33 billion and $4.22 billion, respectively, for asbestos and environmental-related claims, net
of reinsurance. In December 2008, the Company completed the sale of Unionamerica, which comprised
its United Kingdom-based runoff direct insurance and reinsurance businesses. Included in the claims
and claim adjustment expense reserves transferred to the purchaser were net asbestos and
environmental reserves of $265 million.
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 generally 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 the 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 2008, the Company completed its annual in-depth asbestos claim review.
The trends observed over the past three reviews have been generally consistent. The trends include:
• 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;
• fewer and less volatile asbestos-related bankruptcies; and
• the absence of new theories of liability or new classes of defendants.
While the Company believes that these trends indicate a reduction in the volatility associated with
the Company’s overall asbestos exposure, there nonetheless remains a high degree of uncertainty with
respect to future exposure from asbestos claims.
The Home Office and Field Office categories, which account for the vast majority of policyholders
with active asbestos-related claims, again experienced an overall reduction in new claim filings in 2008.
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