Travelers 2008 Annual Report Download - page 37

would be included in the cumulative deficiencies in each of the years 1998 to 2004 shown in the
accompanying table.
Various factors may distort the re-estimated reserves and cumulative deficiency or redundancy
shown in the table. For example, a substantial portion of the cumulative deficiencies shown in the table
arise from claims on policies written prior to the mid-1980s involving liability exposures such as
asbestos and environmental claims. In the post-1984 period, the Company has developed more stringent
underwriting standards and policy exclusions and has significantly contracted or terminated the writing
of these risks. See ‘‘Item 7—Management’s Discussion and Analysis of Financial Condition and Results
of Operations—Asbestos Claims and Litigation,’’ and ‘‘—Environmental Claims and Litigation.’’
General conditions and trends that have affected the development of these liabilities in the past will
not necessarily recur in the future.
Other factors that affect the data in the table include the discounting of certain reserves (as
discussed above) and the use of retrospectively rated insurance policies. For example, workers’
compensation indemnity reserves (tabular reserves) are discounted to reflect the time value of money.
Apparent deficiencies will continue to occur as the discount on these workers’ compensation reserves is
accreted at the appropriate interest rates. Also, a portion of National Accounts business is underwritten
with retrospectively rated insurance policies in which the ultimate loss experience is primarily borne by
the insured. For this business, increases in loss experience result in an increase in reserves and an
offsetting increase in amounts recoverable from insureds. Likewise, decreases in loss experience result
in a decrease in reserves and an offsetting decrease in amounts recoverable from these insureds. The
amounts recoverable on these retrospectively rated policies mitigate the impact of the cumulative
deficiencies or redundancies on the Company’s earnings but are not reflected in the table.
Because of these and other factors, it is difficult to develop a meaningful extrapolation of
estimated future redundancies or deficiencies in loss reserves from the data in the table.
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