Travelers 2010 Annual Report Download - page 216

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. INSURANCE CLAIM RESERVES (Continued)
Net asbestos losses paid in 2010, 2009 and 2008 were $350 million, $341 million and $658 million,
respectively. (Asbestos payments in 2008 included the Company’s one-time net payment of $365 million
associated with the settlement of the ACandS, Inc. matter). Approximately 32%, 41% and 59% of total
net paid losses in 2010, 2009 and 2008, respectively, related to policyholders with whom the Company
had entered into settlement agreements limiting the Company’s liability.
The Company recorded a net $140 million increase in the Company’s asbestos reserves in 2010,
driven by increases in the Company’s estimate of 1) projected settlement and defense costs related to a
broad number of policyholders; 2) costs of litigating asbestos-related coverage matters; and 3) projected
payments on assumed reinsurance accounts. This increase included a $70 million benefit from the
reduction in the allowance for uncollectible reinsurance resulting from a recent favorable ruling related
to a reinsurance dispute, and an increase in estimated reinsurance recoverables. In 2009, the Company
recorded a $185 million increase in asbestos reserves, primarily driven by a slight increase in the
Company’s assumption for projected defense costs related to many policyholders. The Company
recorded a $70 million increase to asbestos reserves in 2008, which was driven by a change in the
estimated costs associated with litigating asbestos coverage matters and a change in estimated losses for
certain individual policyholders. Overall, the company’s assessment of the underlying asbestos
environment did not change significantly from recent periods.
Environmental Reserves. In establishing environmental reserves, the Company evaluates the
exposure presented by each policyholder and the anticipated cost of resolution, if any. In the course of
this analysis, the Company generally considers the probable liability, available coverage, relevant judicial
interpretations and historical value of similar exposures. In addition, the Company considers the many
variables presented, such as the nature of the alleged activities of the policyholder at each site; the
allegations of environmental harm at each site; the number of sites; the total number of potentially
responsible parties at each site; the nature of environmental harm and the corresponding remedy at
each site; the nature of government enforcement activities at each site; the ownership and general use
of each site; the overall nature of the insurance relationship between the Company and the
policyholder, including the role of any umbrella or excess insurance the Company has issued to the
policyholder; the involvement of other insurers; the potential for other available coverage, including the
number of years of coverage; the role, if any, of non-environmental claims or potential
non-environmental claims in any resolution process; and the applicable law in each jurisdiction.
Conventional actuarial techniques are not used to estimate these reserves.
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. The Company increased its net environmental reserves by $70 million in 2009, due
to a slight increase in the number of policyholders tendering claims for the first time and upward
development in the expected defense and settlement costs for certain of its pending policyholders. 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.
204