Travelers 2009 Annual Report Download - page 114

The Company continues to receive notices from policyholders tendering claims for the first time.
These policyholders generally present smaller exposures, have fewer sites and are lower tier defendants.
Further, in many instances clean-up costs have been reduced because regulatory agencies are willing to
accept risk-based site analyses and more efficient clean-up technologies. In recent years, the Company
had experienced a decline in both the number of new policyholders tendering claims for the first time
and the number of pending lawsuits between the Company and its policyholders pertaining to coverage
for environmental claims. However, during 2009 the Company experienced an increase in the number
of policyholders tendering claims for the first time and in the number of pending environmental-related
coverage actions. In addition, the Company experienced upward development in the expected defense
and settlement costs for certain of its pending policyholders. As a result, the Company increased its net
environmental reserves by $70 million in the second quarter of 2009. In 2008, the Company increased
its environmental reserves by $85 million as a result of upward development in the anticipated defense
and settlement costs for certain of its pending policyholders. In 2007, the Company increased its
environmental reserves by $185 million primarily in response to the moderation in the rate of decline in
both the number of new policyholders tendering claims for the first time and the number of pending
lawsuits between the Company and its policyholders pertaining to coverage for environmental claims.
In December 2008, the Company completed the sale of Unionamerica, which comprised its United
Kingdom-based runoff insurance and reinsurance businesses. Included in the claims and claim
adjustment expense reserves transferred to the purchaser were gross and net environmental reserves of
$40 million and $33 million, respectively.
Net paid losses in 2009 and 2008 were $91 million and $128 million, respectively. At December 31,
2009, approximately 93% of the net environmental reserve (approximately $365 million) was carried in
a bulk reserve and included unresolved environmental claims, incurred but not reported environmental
claims and the anticipated cost of coverage litigation disputes relating to these claims. The bulk reserve
the Company carries is established and adjusted based upon the aggregate volume of in-process
environmental claims and the Company’s experience in resolving those claims. The balance,
approximately 7% of the net environmental reserve (approximately $28 million), consists of case
reserves.
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