Travelers 2011 Annual Report Download - page 105

Many coverage disputes with policyholders are only resolved through settlement agreements.
Because many policyholders make exaggerated demands, it is difficult to predict the outcome of
settlement negotiations. Settlements involving bankrupt policyholders may include extensive releases
which are favorable to the Company but which could result in settlements for larger amounts than
originally anticipated. There also may be instances where a court may not approve a proposed
settlement, which may result in additional litigation and potentially less beneficial outcomes for the
Company. As in the past, the Company will continue to pursue settlement opportunities.
In addition to claims against policyholders, proceedings have been launched directly against
insurers, including the Company, by individuals challenging insurers’ conduct with respect to the
handling of past asbestos claims and by individuals seeking damages arising from alleged asbestos-
related bodily injuries. It is possible that the filing of other direct actions against insurers, including the
Company, could be made in the future. It is difficult to predict the outcome of these proceedings,
including whether the plaintiffs will be able to sustain these actions against insurers based on novel
legal theories of liability. The Company believes it has meritorious defenses to these claims and has
received favorable rulings in certain jurisdictions.
Travelers Property Casualty Corp. (TPC), a wholly-owned subsidiary of the Company, had entered
into settlement agreements, which are subject to a number of contingencies, in connection with a
number of these direct action claims. For a full discussion of these settlement agreements, including
subsequent appeals and court decisions that have delayed their implementation, see the ‘‘Asbestos
Direct Action Litigation’’ section of note 15 of notes to the consolidated financial statements.
Because each policyholder presents different liability and coverage issues, the Company generally
reviews the exposure presented by each policyholder at least annually. Among the factors which the
Company may consider in the course of this review are: available insurance coverage, including the role
of any umbrella or excess insurance the Company has issued to the policyholder; limits and deductibles;
an analysis of the policyholder’s potential liability; the jurisdictions involved; past and anticipated future
claim activity and loss development on pending claims; past settlement values of similar claims;
allocated claim adjustment expense; potential role of other insurance; the role, if any, of non-asbestos
claims or potential non-asbestos claims in any resolution process; and applicable coverage defenses or
determinations, if any, including the determination as to whether or not an asbestos claim is a products/
completed operation claim subject to an aggregate limit and the available coverage, if any, for that
claim.
The Company’s quarterly asbestos reserve reviews include an analysis of exposure and claim
payment patterns by policyholder category, as well as recent settlements, policyholder bankruptcies,
judicial rulings and legislative actions. The Company also analyzes developing payment patterns among
policyholders in the Home Office, Field Office and Assumed Reinsurance and Other categories as well
as projected reinsurance billings and recoveries. In addition, the Company reviews its historical gross
and net loss and expense paid experience, year-by-year, to assess any emerging trends, fluctuations, or
characteristics suggested by the aggregate paid activity. Conventional actuarial methods are not utilized
to establish asbestos reserves nor have the Company’s evaluations resulted in any way of determining a
meaningful average asbestos defense or indemnity payment.
In the third quarter of 2011, the Company completed its annual in-depth asbestos claim review and
noted the following trends:
• continued high level of litigation activity involving individuals alleging serious asbestos-related
illness;
• an increase in severity for certain policyholders as a result of the continued high level of
litigation activity;
• stable payment patterns for a significant proportion of policyholders;
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