Travelers 2012 Annual Report Download - page 105

homeowners and other net written premiums compared to 2010. The direct to consumer business had
160,000 and 140,000 active policies at December 31, 2012 and 2011, respectively.
Interest Expense and Other
(for the year ended December 31, in millions) 2012 2011 2010
Operating loss .................................. $(261) $(279) $(318)
The operating loss for Interest Expense and Other in 2012 was $18 million lower than in 2011.
The operating loss in 2011 was $39 million lower than in 2010, primarily reflecting $39 million of after-
tax 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. 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. After-tax interest expense in 2012, 2011 and 2010 was $246 million, $251
million and $252 million, respectively.
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 has received and continues to receive a
significant number of asbestos claims from the Company’s policyholders (which includes others seeking
coverage under a policy). Factors underlying these claim filings include intensive advertising by lawyers
seeking asbestos claimants and the continued 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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