Travelers 2010 Annual Report Download - page 109

both on- and off-site waste disposal activities; the potential for adverse development; the potential for
additional new claims beyond previous expectations; and the potential higher costs for new settlements.
The duration of the Company’s investigation and review of these claims and the extent of time
necessary to determine an appropriate estimate, if any, of the value of the claim to the Company vary
significantly and are dependent upon a number of factors. These factors include, but are not limited to,
the cooperation of the policyholder in providing claim information, the pace of underlying litigation or
claim processes, the pace of coverage litigation between the policyholder and the Company and the
willingness of the policyholder and the Company to negotiate, if appropriate, a resolution of any
dispute pertaining to these claims. Because these factors vary from claim-to-claim and
policyholder-by-policyholder, the Company cannot provide a meaningful average of the duration of an
environmental claim. However, based upon the Company’s experience in resolving these claims, the
duration may vary from months to several years.
Although the Company continues to receive notices from policyholders tendering claims for the
first time, the number of new policyholders submitting those notices declined from 2009. These
policyholders continue to 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. However, the Company has
experienced modest 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
$35 million in 2010. 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 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 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 environmental losses paid in 2010, 2009 and 2008 were $77 million, $91 million and
$128 million, respectively. At December 31, 2010, approximately 93% of the net environmental reserve
(approximately $327 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
$24 million), consists of case reserves.
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