Travelers 2009 Annual Report Download - page 111

The Company categorizes its asbestos reserves as follows:
Number of Net Asbestos
Policyholders Total Net Paid Reserves
(at and for the year ended December 31, $ in millions) 2009 2008 2009 2008 2009 2008
Policyholders with settlement agreements . . . . . . . . . . 18 23 $139 $389 $ 621 $ 749
Home office and field office . . . . . . . . . . . . . . . . . . . . 1,697 1,651 176 217 1,956 1,983
Assumed reinsurance and other . . . . . . . . . . . . . . . . . ——26 41 181 182
International ............................... ———11 ——
Total ................................... 1,715 1,674 $341 $658 $2,758 $2,914
The ‘‘policyholders with settlement agreements’’ category includes structured settlements, coverage
in place arrangements and, with respect to TPC, Wellington accounts. Reserves are based on the
expected payout for each policyholder under the applicable agreement. Structured settlements are
arrangements under which policyholders and/or plaintiffs agree to fixed financial amounts to be paid at
scheduled times. Included in this category are TPC’s settlements of the Statutory and Hawaii Actions
and the Common Law Claims (collectively the Direct Action Settlement). Unless the bankruptcy court’s
order approving the settlement is reinstated and becomes final, the Direct Action Settlement will be
voided and TPC will have no obligation to pay the amounts under the Direct Action Settlement (other
than certain administrative expenses). In that event, the reserves assigned to the settlement will be
returned to TPC’s unallocated asbestos reserve. (For a description of these matters, see ‘‘Item 3—Legal
Proceedings’’). Coverage in place arrangements represent agreements with major policyholders on
specified amounts of coverage to be provided. Payment obligations may be subject to annual maximums
and are only made when valid claims are presented. Wellington accounts refer to the 35 defendants
that are parties to a 1985 agreement settling certain disputes concerning insurance coverage for their
asbestos claims. Many of the aspects of the Wellington agreement are similar to those of coverage in
place arrangements in which the parties have agreed on specific amounts of coverage and the terms
under which the coverage can be accessed.
The ‘‘home office and field office’’ category relates to all other policyholders and also includes
unallocated IBNR reserves and reserves for the costs of defending asbestos-related coverage litigation.
Policyholders are identified for home office review based upon, among other factors: a combination of
past payments and current case reserves in excess of a specified threshold (currently $100,000),
perceived level of exposure, number of reported claims, products/completed operations and potential
‘‘non-product’’ exposures, size of policyholder and geographic distribution of products or services sold
by the policyholder. In addition to IBNR amounts contained in the reserves for ‘‘home office and field
office’’ policyholders and the costs of litigating asbestos coverage matters, the Company has established
a reserve for further adverse development related to existing policyholders, new claims from
policyholders reporting claims for the first time and policyholders for which there is, or may be,
litigation and direct actions against the Company. The ‘‘assumed reinsurance and other’’ category
primarily consists of reinsurance of excess coverage, including various pool participations.
On January 29, 2009, the Company and PPG Industries, Inc (‘‘PPG’’), along with approximately 30
other insurers of PPG, agreed in principle to an agreement to settle asbestos-related coverage litigation
under insurance policies issued to PPG. The tentative settlement agreement has been incorporated into
the Modified Third Amended Plan of Reorganization (‘‘Amended Plan’’) proposed as part of the
Pittsburgh Corning Corp. (‘‘PCC’’, which is 50% owned by PPG) bankruptcy proceeding. Pursuant to
the proposed Amended Plan, which was filed on January 30, 2009, PCC, along with enumerated other
companies (including PPG as well as the Company as a participating insurer), are to receive protections
afforded by Section 524(g) of the Bankruptcy Code from certain asbestos-related bodily injury claims.
Under the agreement in principle, the Company has the option to make a series of payments over the
next 20 years totaling approximately $620 million to the Trust to be created under the Amended Plan,
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