Travelers 2012 Annual Report Download - page 110

Company may have for other claims, including but not limited to asbestos and other cumulative injury
claims. The Company and its policyholders may also agree to settlements which extinguish any liability
arising from known specified sites or claims. Where appropriate, these agreements also include
indemnities and hold harmless provisions to protect the Company. The Company’s general purpose in
executing these agreements is to reduce the Company’s potential environmental exposure and eliminate
the risks presented by coverage litigation with the policyholder and related costs.
In establishing environmental reserves, the Company evaluates the exposure presented by each
policyholder and the anticipated cost of resolution, if any. In the course of this analysis, the Company
generally considers the probable liability, available coverage, relevant judicial interpretations and
historical value of similar exposures. In addition, the Company considers the many variables presented,
such as: the nature of the alleged activities of the policyholder at each site; the number of sites; the
total number of potentially responsible parties at each site; the nature of the alleged environmental
harm and the corresponding remedy at each site; the nature of government enforcement activities at
each site; the ownership and general use of each site; the overall nature of the insurance relationship
between the Company and the policyholder, including the role of any umbrella or excess insurance the
Company has issued to the policyholder; the involvement of other insurers; the potential for other
available coverage, including the number of years of coverage; the role, if any, of non-environmental
claims or potential non-environmental claims in any resolution process; and the applicable law in each
jurisdiction. The evaluation of the exposure presented by a policyholder can change as information
concerning that policyholder and the many variables presented is developed. Conventional actuarial
techniques are not used to estimate these reserves.
In its review of environmental reserves, the Company considers: past settlement payments;
changing judicial and legislative trends; its reserves for the costs of litigating environmental coverage
matters; the potential for policyholders with smaller exposures to be named in new clean-up actions for
both on- and off-site waste disposal activities; the potential for adverse development; the potential for
additional new claims beyond previous expectations; and the potential higher costs for new settlements.
The duration of the Company’s investigation and review of these claims and the extent of time
necessary to determine an appropriate estimate, if any, of the value of the claim to the Company vary
significantly and are dependent upon a number of factors. These factors include, but are not limited to,
the cooperation of the policyholder in providing claim information, the pace of underlying litigation or
claim processes, the pace of coverage litigation between the policyholder and the Company and the
willingness of the policyholder and the Company to negotiate, if appropriate, a resolution of any
dispute pertaining to these claims. Because these factors vary from claim-to-claim and
policyholder-by-policyholder, the Company cannot provide a meaningful average of the duration of an
environmental claim. However, based upon the Company’s experience in resolving these claims, the
duration may vary from months to several years.
The Company continues to receive notices from policyholders tendering claims for the first time,
frequently under policies issued prior to the mid-1980’s. These policyholders continue to present
smaller exposures, have fewer sites and are lower tier defendants. Further, in many instances, clean-up
costs have been reduced because regulatory agencies are willing to accept risk-based site analyses and
more efficient clean-up technologies. Overall net environmental claim payments in 2012 were essentially
unchanged from 2011. Over the past several years, the Company has experienced generally favorable
trends in the number of new policyholders tendering environmental claims for the first time and in the
number of pending declaratory judgment actions relating to environmental matters. The degree to
which those favorable trends have continued, however, has been less than anticipated. As a result, in
2012 and 2011, the Company increased its net environmental reserves by $90 million and $76 million,
respectively. In 2010, the Company 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.
98