Travelers 2010 Annual Report Download - page 214

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. INSURANCE CLAIM RESERVES (Continued)
development in certain large inland marine claim exposures and in ceded 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 what the Company believes is 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 a
$70 million and $85 million increase to asbestos and environmental reserves, respectively.
Financial, Professional & International Insurance. Net favorable prior year reserve development
totaled $274 million in 2008, primarily driven by better than expected loss development in
International. The improvements in longer-tail lines of business were attributable to several factors,
including enhanced risk control and underwriting strategies throughout International. In the property
line of business, the improvement primarily resulted from better than anticipated loss development in
the United Kingdom, in part due to favorable claim activity relating to 2007 flood losses. In Bond &
Financial Products, better than expected loss development for the contract surety business within the
fidelity and surety product line, resulting from favorable settlements on large claims (primarily from
accident years prior to 2005), resulted in net favorable prior year reserve development in 2008.
Personal Insurance. Net favorable prior year reserve development in 2008 totaled $143 million,
primarily driven by favorable loss development related to Hurricane Katrina, and better than expected
loss development from recent accident years for the Homeowners and Other product line. This
improvement was driven in part by claim initiatives as well as better than expected outcomes on 2007
catastrophe-related claims. In addition, the Homeowners and Other product line experienced
improvement in older accident years for the umbrella line as well as favorable experience from accident
year 2007 for allied coverages due to less than expected claim activity.
Asbestos and Environmental Reserves
At December 31, 2010 and 2009, the Company’s claims and claim adjustment expense reserves
included $2.90 billion and $3.15 billion, respectively, for asbestos and environmental-related claims, net
of reinsurance.
It is difficult to estimate the reserves for asbestos and environmental-related claims due to the
vagaries of court coverage decisions, plaintiffs’ expanded theories of liability, the risks inherent in
complex litigation and other uncertainties, including without limitation, those which are set forth below.
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