Travelers 2011 Annual Report Download - page 217

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. INSURANCE CLAIM RESERVES (Continued)
2009.
In 2009, estimated claims and claim adjustment expenses incurred included $1.45 billion of net
favorable development for claims arising in prior years, including $1.33 billion of net favorable prior
year reserve development impacting the Company’s results of operations, which excludes $54 million of
accretion of discount.
Business Insurance. Net favorable prior year reserve development totaled $1.03 billion in 2009,
driven by better than expected loss development primarily concentrated in the general liability
(excluding increases to asbestos and environmental reserves discussed below), commercial multi-peril,
commercial automobile and commercial property product lines for recent accident years. The general
liability and commercial multi-peril product lines experienced better than anticipated loss development
that 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
commercial automobile line of business experienced better than expected loss development that was
attributable to what the Company believes are more favorable legal and judicial environments than
what the Company previously expected, claim handling initiatives and improvements in auto safety
technology. The commercial property product line improvement primarily occurred in the 2007 and
2008 accident years as a result of better than expected loss development for certain large national
property and inland marine exposures. In addition, the commercial property product line’s 2005
accident year experience improved due to the litigation environment relating to, and ongoing claim
settlements for, Hurricane Katrina. The net favorable prior year reserve development in these product
lines in 2009 was partially offset by a $185 million increase to asbestos reserves and a $70 million
increase to environmental reserves.
Financial, Professional & International Insurance. Net favorable prior year reserve development
totaled $168 million in 2009, driven by better than expected loss development in International,
particularly in the United Kingdom and Canada. In addition, the Aviation and Property lines of
business at Lloyd’s experienced net favorable prior year loss development in 2009. In Bond & Financial
Products, better than expected loss development for the contract surety business within the fidelity and
surety product line for recent accident years also resulted in net favorable prior year reserve
development in 2009.
Personal Insurance. Net favorable prior year reserve development totaled $135 million in 2009,
driven by favorable loss development related to Hurricanes Ike and Katrina, as well as the 2007
California wildfires.
Asbestos and Environmental Reserves
At December 31, 2011 and 2010, the Company’s claims and claim adjustment expense reserves
included $2.78 billion and $2.90 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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