Travelers 2013 Annual Report Download - page 117

UNCERTAINTY REGARDING ADEQUACY OF 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, 2013 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 emergence of a greater
number of asbestos claims than anticipated as a result of extended life expectancies resulting from
medical advances and lifestyle improvements, 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 of direct actions against the Company, future developments
pertaining to the Company’s ability to recover reinsurance for asbestos and environmental claims and
the unavailability of other insurance sources potentially available to policyholders, whether through
exhaustion of policy limits or through the insolvency of other participating insurers. In addition,
uncertainties arise from the insolvency or bankruptcy of policyholders and other defendants. It is also
not possible to predict changes in the legal, regulatory and legislative environment and their impact on
the future development of asbestos and environmental claims. This environment could be affected by
changes in applicable legislation and future court and regulatory decisions and interpretations, including
the outcome of legal challenges to legislative and/or judicial reforms establishing medical criteria for
the pursuit of asbestos claims. It is also difficult to predict the ultimate outcome of complex coverage
disputes until settlement negotiations near completion and significant legal questions are resolved or,
failing settlement, until the dispute is adjudicated. This is particularly the case with policyholders in
bankruptcy where negotiations often involve a large number of claimants and other parties and require
court approval to be effective. As part of its continuing analysis of asbestos and environmental reserves,
the Company continues to study the implications of these and other developments. (Also see note 16 of
notes to the consolidated financial statements).
Because of the uncertainties set forth above, additional liabilities may arise for amounts in excess
of the Company’s current reserves. In addition, the Company’s estimate of claims and claim adjustment
expenses may change. These additional liabilities or increases in estimates, or a range of either, cannot
now be reasonably estimated and could result in income statement charges that could be material to
the Company’s operating results in future periods.
INVESTMENT PORTFOLIO
The Company’s invested assets at December 31, 2013 were $73.16 billion, of which 93% was
invested in fixed maturity and short-term investments, 1% in equity securities, 1% in real estate and
5% in other investments. As a result of the acquisition of Dominion, total investments increased by
$2.62 billion at November 1, 2013, of which $1.83 billion were fixed maturity investments. Because the
primary purpose of the investment portfolio is to fund future claims payments, the Company employs a
conservative investment philosophy. A significant majority of funds available for investment are
deployed in a widely diversified portfolio of high quality, liquid taxable U.S. government, tax-exempt
U.S. municipal and taxable corporate and U.S. agency mortgage-backed bonds.
The carrying value of the Company’s fixed maturity portfolio at December 31, 2013 was
$63.96 billion. The Company closely monitors the duration of its fixed maturity investments, and
investment purchases and sales are executed with the objective of having adequate funds available to
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