Travelers 2014 Annual Report Download - page 108

Table of Contents
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 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.
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, 2014 were $73.26 billion, of which 93% was invested in fixed maturity and short
- term
investments, 1% in equity securities, 1% in real estate investments and 5% in other 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, 2014 was $63.47 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 satisfy the Company's insurance and debt obligations. The weighted average credit quality of the Company's fixed maturity portfolio, both
including and excluding U.S. Treasury securities, was "Aa2" at
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