Travelers 2012 Annual Report Download - page 221

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. INSURANCE CLAIM RESERVES (Continued)
respectively, related to policyholders with whom the Company had entered into settlement agreements
limiting the Company’s liability.
Environmental Reserves. 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.
The Company has received and 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.
Asbestos and Environmental Reserves. As a result of the processes and procedures discussed
above, management believes that the reserves carried for asbestos and environmental claims at
December 31, 2012 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
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