Travelers 2009 Annual Report Download - page 96

experience improved due to the litigation environment relating to, and ongoing claim settlements for,
Hurricane Katrina. The net favorable prior year reserve development in these product lines in 2009 was
partially offset by a $185 million increase to asbestos reserves (discussed in more detail in the ‘‘Asbestos
Claims and Litigation’’ section herein), a $70 million increase to environmental reserves recorded in the
second quarter (discussed in more detail in the ‘‘Environmental Claims and Litigation’’ section herein).
Claims and claim adjustment expenses in 2008 totaled $6.61 billion, an increase of $65 million, or
1%, over 2007, primarily reflecting a significant increase in the cost of catastrophes, a small increase in
the number of large property losses and the impact of loss cost trends, which were largely offset by an
increase in net favorable prior year reserve development. The cost of catastrophes included in claims
and claim adjustment expenses in 2008 totaled $642 million, compared with $4 million in 2007. Net
favorable prior year reserve development in 2008 and 2007 totaled $1.12 billion and $301 million,
respectively. Net favorable prior year development in 2008 was driven by better than expected loss
results primarily concentrated in the general liability and commercial multi-peril product lines, an
increase in anticipated ceded reinsurance recoveries for older accident years in the general liability
product line and better than anticipated loss development in the commercial property and commercial
automobile product lines. The net favorable prior year reserve development in the general liability and
commercial multi-peril lines was attributable to several factors, including improved legal and judicial
environments, as well as enhanced risk control, underwriting and claim process initiatives. The
commercial property product line improvement occurred primarily in the 2007 accident year as a result
of better than expected loss development for certain large national property, national programs, and
ocean marine claim exposures and lower than expected weather-related losses during the last half of
2007, as well as favorable loss development in certain large inland marine claim exposures and in ceded
reinsurance recoveries for commercial property large claims. In addition, the commercial multi-peril
and property product lines’ 2005 accident year results experienced improvement due to the litigation
environment relating to, and ongoing claim settlements for, Hurricane Katrina. The commercial
automobile product line improvement was attributable to several factors, including improved legal and
judicial environments, as well as enhanced risk control, underwriting and claim process initiatives. The
net favorable prior year reserve development in the foregoing product lines in 2008 was partially offset
by net unfavorable prior year reserve development in the workers’ compensation product line, primarily
driven by higher than anticipated medical costs related to 2004 and prior accident years, and by
$70 million and $85 million increases to asbestos and environmental reserves, respectively (discussed in
more detail in the ‘‘Asbestos Claims and Litigation’’ and ‘‘Environmental Claims and Litigation’’
sections herein).
Net favorable prior year reserve development of $301 million in 2007 was primarily driven by
better than expected loss development for recent accident years in the commercial multi-peril, general
liability, commercial automobile and property product lines. The commercial multi-peril and general
liability product lines experienced better than anticipated loss development that was attributable to
several factors, including improved legal and judicial environments, as well as enhanced risk control,
underwriting and claim process initiatives. The commercial automobile product line experienced better
than expected loss development due to more favorable legal and judicial environments, claim handling
initiatives focused on the automobile line of insurance and improvements in auto safety technology.
The property product line experienced fewer than expected late reported claims related to
non-catastrophe weather events that occurred late in 2006, as well as better than expected frequency
and severity due in part to changes in the marketplace, such as higher deductibles and lower policy
limits. In addition, the property product line experienced better than expected large loss outcomes
which were partially attributable to favorable litigation resolutions. Net total prior year reserve
development in 2007 included a $185 million increase to environmental reserves (discussed in more
detail in the ‘‘Environmental Claims and Litigation’’ section herein).
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