Travelers 2012 Annual Report Download - page 219

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. INSURANCE CLAIM RESERVES (Continued)
reinsurance resulted primarily from favorable resolutions of claims and disputes from accident years
2002 and prior. In addition, better than expected loss development in the Business Insurance segment
in recent years resulted in a favorable re-estimation of reserves for unallocated loss adjustment
expenses in 2010. The net favorable prior year reserve development in these product lines in 2010 was
partially offset by $140 million and $35 million increases to asbestos and environmental reserves,
respectively.
Financial, Professional & International Insurance. Net favorable prior year reserve development
totaled $259 million in 2010. In Bond & Financial Products, net favorable prior year reserve
development in 2010 was driven by better than expected loss development in the surety and
management liability lines of business due to lower than expected claim activity and loss severity in the
2008 and prior accident years. In International, the majority of net favorable prior year reserve
development in 2010 occurred at the Company’s operation at Lloyd’s, in Canada and in the United
Kingdom.
Personal Insurance. Net favorable prior year reserve development of $87 million in 2010 was
concentrated in the Homeowners and Other product line, primarily driven by favorable loss
development in the 2008 and prior accident years, primarily for the umbrella line of business, partially
offset by unfavorable loss development in the 2009 accident year for the homeowners line of business
that was driven by higher than anticipated late-reported claims related to storms in 2009.
Asbestos and Environmental Reserves
At December 31, 2012 and 2011, the Company’s claims and claim adjustment expense reserves
included $2.73 billion and $2.78 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.
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.
In the third quarter of 2012, the Company completed its annual in-depth asbestos claim review. As
in prior years, the annual claim review considered active policyholders and litigation cases for potential
product and ‘‘non-product’’ liability. The Company noted the following trends:
• continued high level of litigation activity in certain jurisdictions involving individuals alleging
serious asbestos-related illness;
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