Travelers 2013 Annual Report Download - page 224

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. INSURANCE CLAIM RESERVES (Continued)
The completion of these reviews and analyses in 2013, 2012 and 2011 resulted in $190 million,
$175 million and $175 million increases, respectively, in the Company’s net asbestos reserves in each
period. In each year, the reserve increases were primarily driven by increases in the Company’s
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.
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 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. 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. However, the degree to which those favorable trends have continued has been less than
anticipated. In addition, reserve development on existing environmental claims has been greater than
anticipated. As a result, in 2013, 2012 and 2011, the Company increased its net environmental reserves
by $65 million, $90 million and $76 million, respectively.
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
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