Travelers 2011 Annual Report Download - page 218

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. INSURANCE CLAIM RESERVES (Continued)
Asbestos Reserves. 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;
• a further decrease in the number of large asbestos exposures confronting the Company due to
additional settlement activity;
• continued moderate level of asbestos-related bankruptcy activity; and
• the absence of new theories of liability or new classes of defendants.
While the Company believes that over the past several years there has been a reduction in the
volatility associated with the Company’s overall asbestos exposure, there nonetheless remains a high
degree of uncertainty with respect to future exposure from asbestos claims.
As in prior years, the annual claim review considered active policyholders and litigation cases for
potential product and ‘‘non-product’’ liability. While the Home Office and Field Office categories,
which account for the vast majority of policyholders with active asbestos-related claims, experienced a
slight reduction in the number of policyholders with open asbestos claims compared with the prior year
period, gross asbestos-related payments in these categories increased slightly in 2011 compared with
2010. Payments on behalf of policyholders in these categories continue to be influenced by the high
206