Travelers 2013 Annual Report Download - page 113

estimate of projected settlement and defense costs related to a broad number of policyholders in the
Home Office category and by higher projected payments on assumed reinsurance accounts. The
increase in the estimate of projected settlement and defense costs resulted from payment trends that
continue to be moderately higher than previously anticipated due to the impact of the current litigation
environment discussed above. Notwithstanding these trends, the Company’s overall view of the
underlying asbestos environment is essentially unchanged from recent periods, and there remains a high
degree of uncertainty with respect to future exposure to asbestos claims.
Net asbestos losses paid in 2013, 2012 and 2011 were $218 million, $236 million and $284 million,
respectively. Approximately 1%, 6% and 19% of total net paid losses in 2013, 2012 and 2011,
respectively, related to policyholders with whom the Company had entered into settlement agreements
limiting the Company’s liability.
The Company categorizes its asbestos reserves as follows:
Number of Net Asbestos
Policyholders Total Net Paid Reserves
(at and for the year ended December 31, $ in millions) 2013 2012 2013 2012 2013 2012
Policyholders with settlement agreements .......... 15 15 $3 $13 $ 108 $91
Home office and field office .................... 1,690 1,678 195 199 2,047 2,089
Assumed reinsurance and other ................. ——20 24 195 198
Total ................................... 1,705 1,693 $218 $236 $2,350 $2,378
The ‘‘policyholders with settlement agreements’’ category includes structured settlements, coverage
in place arrangements and, with respect to TPC, Wellington accounts. Reserves are based on the
expected payout for each policyholder under the applicable agreement. Structured settlements are
arrangements under which policyholders and/or plaintiffs agree to fixed financial amounts to be paid at
scheduled times. Coverage in place arrangements represent agreements with policyholders on specified
amounts of coverage to be provided. Payment obligations may be subject to annual maximums and are
only made when valid claims are presented. Wellington accounts refer to the 35 defendants that are
parties to a 1985 agreement settling certain disputes concerning insurance coverage for their asbestos
claims. Many of the aspects of the Wellington agreement are similar to those of coverage in place
arrangements in which the parties have agreed on specific amounts of coverage and the terms under
which the coverage can be accessed.
The ‘‘home office and field office’’ category relates to all other policyholders and also includes
unallocated IBNR reserves and reserves for the costs of defending asbestos-related coverage litigation.
Policyholders are identified for the annual home office review based upon, among other factors: a
combination of past payments and current case reserves in excess of a specified threshold (currently
$100,000), perceived level of exposure, number of reported claims, products/completed operations and
potential ‘‘non-product’’ exposures, size of policyholder and geographic distribution of products or
services sold by the policyholder. In addition to IBNR amounts contained in the reserves for ‘‘home
office and field office’’ policyholders and the costs of litigating asbestos coverage matters, the Company
has established a reserve for further adverse development related to existing policyholders, new claims
from policyholders reporting claims for the first time and policyholders for which there is, or may be,
litigation and direct actions against the Company. During 2012, $502 million of reserves included in
‘‘Policyholders with settlement agreements’’ were reclassified to the unallocated IBNR component in
the ‘‘home office and field office’’ category as a result of the U.S. District Court ruling on March 1,
2012 that the conditions of the Direct Action Settlements had not been satisfied. For a full discussion
of these settlement agreements see the ‘‘Asbestos Direct Action Litigation’’ section of note 16 of notes
to the consolidated financial statements. The ‘‘assumed reinsurance and other’’ category primarily
consists of reinsurance of excess coverage, including various pool participations.
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