Travelers 2011 Annual Report Download - page 220

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. INSURANCE CLAIM RESERVES (Continued)
increased its net environmental reserves by $35 million due to a modest upward development in the
expected defense and settlement costs for certain of its pending policyholders. The Company increased
its net environmental reserves by $70 million in 2009, due to a slight increase in the number of
policyholders tendering claims for the first time and upward development in the expected defense and
settlement costs for certain of its pending policyholders.
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, 2011 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 environment could be affected by changes in applicable legislation and
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. 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, tornadoes and other windstorms, earthquakes, hail,
wildfires, severe winter weather, floods and volcanic eruptions. Catastrophes can also result from a
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