Travelers 2010 Annual Report Download - page 217

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, 2010 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 the cost
to resolve and/or the number of 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, including the outcome of legal challenges to legislative and/or judicial reforms
establishing medical criteria for the pursuit of asbestos claims, 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.
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 a variety of
events, including, among others, hurricanes, earthquakes, windstorms, hail, wildfires, severe winter
weather, floods and volcanic eruptions. Catastrophes can also result from a terrorist attack (including
those involving nuclear, biological, chemical or radiological events) or as 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
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