Travelers 2009 Annual Report Download - page 225

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. INSURANCE CLAIM RESERVES (Continued)
Asbestos and Environmental Reserves. As a result of the processes and procedures described
above, management believes that the reserves carried for asbestos and environmental claims at
December 31, 2009 are appropriately established based upon known facts, current law and
management’s judgment. However, the uncertainties surrounding the final resolution of these claims
continue, and it is difficult to determine the ultimate exposure for asbestos and environmental claims
and related litigation. As a result, these reserves are subject to revision as new information becomes
available and as claims develop. The continuing uncertainties include, without limitation, the risks and
lack of predictability inherent in complex litigation, any impact from the bankruptcy protection sought
by various asbestos producers and other asbestos defendants, a further increase or decrease in asbestos
and environmental claims beyond that which is anticipated, the role of any umbrella or excess policies
the Company has issued, the resolution or adjudication of disputes pertaining to the amount of
available coverage for asbestos and environmental claims in a manner inconsistent with the Company’s
previous assessment of these claims, the number and outcome of direct actions against the Company,
future developments pertaining to the Company’s ability to recover reinsurance for asbestos and
environmental claims and the unavailability of other insurance sources potentially available to
policyholders, whether through exhaustion of policy limits or through the insolvency of other
participating insurers. In addition, uncertainties arise from the insolvency or bankruptcy of
policyholders and other defendants. It is also not possible to predict changes in the legal, regulatory
and legislative environment and their impact on the future development of asbestos and environmental
claims. This development will be affected by future court and regulatory decisions and interpretations,
as well as changes in applicable legislation. It is also difficult to predict the ultimate outcome of
complex coverage disputes until settlement negotiations near completion and significant legal questions
are resolved or, failing settlement, until the dispute is adjudicated. This is particularly the case with
policyholders in bankruptcy where negotiations often involve a large number of claimants and other
parties and require court approval to be effective. As part of its continuing analysis of asbestos and
environmental reserves, the Company continues to study the implications of these and other
developments. (Also, see ‘‘Part I—Item 3, Legal Proceedings’’).
Because of the uncertainties set forth above, additional liabilities may arise for amounts in excess
of the current related reserves. In addition, the Company’s estimate of claims and claim adjustment
expenses may change. These additional liabilities or increases in estimates, or a range of either, cannot
now be reasonably estimated and could result in income statement charges that could be material to
the Company’s operating results in future periods.
Catastrophe Exposure
The Company has geographic exposure to catastrophe losses, which can be caused by various
natural events including, among others, hurricanes, earthquakes, windstorms, hail, wildfires, severe
winter weather, floods and volcanic eruptions. Catastrophes can also be man-made, such as a terrorist
attack (including those involving nuclear, biological, chemical or radiological events) or a consequence
of political instability. The incidence and severity of catastrophes are inherently unpredictable. The
extent of losses from a catastrophe is a function of both the total amount of insured exposure in the
area affected by the event and the severity of the event. Most catastrophes are restricted to small
geographic areas; however, hurricanes and earthquakes may produce significant damage in larger areas,
especially those that are heavily populated. The Company generally seeks to mitigate its exposure to
catastrophes through individual risk selection and the purchase of catastrophe reinsurance.
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