Travelers 2011 Annual Report Download - page 104

Interest Expense and Other
(for the year ended December 31, in millions) 2011 2010 2009
Operating loss .................................. $(279) $(318) $(233)
The operating loss for Interest Expense and Other in 2011 was $39 million lower than in 2010,
primarily reflecting $39 million of expenses related to the Company’s purchase and retirement of a
significant portion of its 6.25% fixed-to-floating rate junior subordinated debentures in 2010. After-tax
interest expense in 2011 and 2010 was $251 million and $252 million, respectively. The $85 million
increase in operating loss for Interest Expense and Other in 2010 compared with 2009 primarily
reflected the $39 million of expenses referred to above. The operating loss in 2010 also included a
$12 million increase in tax expense associated with recent federal health care legislation and an
increase in interest expense. In addition, the operating loss in 2009 included a benefit of $28 million
from the favorable resolution of various prior year tax matters. After-tax interest expense in 2010 was
$252 million, compared with $248 million in 2009.
ASBESTOS CLAIMS AND LITIGATION
The Company believes that the property and casualty insurance industry has suffered from court
decisions and other trends that have expanded insurance coverage for asbestos claims far beyond the
original intent of insurers and policyholders. The Company continues to receive a significant number of
asbestos claims from the Company’s policyholders (which includes others seeking coverage under a
policy), including claims against the Company’s policyholders by individuals who do not appear to be
impaired by asbestos exposure. Factors underlying these claim filings include intensive advertising by
lawyers seeking asbestos claimants and the focus by plaintiffs on previously peripheral defendants. The
focus on these defendants is primarily the result of the number of traditional asbestos defendants who
have sought bankruptcy protection in previous years. In addition to contributing to the overall number
of claims, bankruptcy proceedings may increase the volatility of asbestos-related losses by initially
delaying the reporting of claims and later by significantly accelerating and increasing loss payments by
insurers, including the Company. The bankruptcy of many traditional defendants has also caused
increased settlement demands against those policyholders who are not in bankruptcy but that remain in
the tort system. Currently, in many jurisdictions, those who allege very serious injury and who can
present credible medical evidence of their injuries are receiving priority trial settings in the courts,
while those who have not shown any credible disease manifestation are having their hearing dates
delayed or placed on an inactive docket. This trend of prioritizing claims involving credible evidence of
injuries, along with the focus on previously peripheral defendants, contributes to the claims and claim
adjustment expense payments experienced by the Company. The Company’s asbestos-related claims and
claim adjustment expense experience also has been impacted by the unavailability of other insurance
sources potentially available to policyholders, whether through exhaustion of policy limits or through
the insolvency of other participating insurers.
The Company continues to be involved in coverage litigation concerning a number of
policyholders, some of whom have filed for bankruptcy, who in some instances have asserted that all or
a portion of their asbestos-related claims are not subject to aggregate limits on coverage. In these
instances, policyholders also may assert that each individual bodily injury claim should be treated as a
separate occurrence under the policy. It is difficult to predict whether these policyholders will be
successful on both issues. To the extent both issues are resolved in a policyholder’s favor and other
Company defenses are not successful, the Company’s coverage obligations under the policies at issue
would be materially increased and bounded only by the applicable per-occurrence limits and the
number of asbestos bodily injury claims against the policyholders. Accordingly, although the Company
has seen a moderation in the overall risk associated with these lawsuits, it remains difficult to predict
the ultimate cost of these claims.
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