Travelers 2014 Annual Report Download - page 137

Table of Contents
process, including the application of various individual experiences and expertise to multiple sets of data and analyses. The Company continually
refines its estimates in a regular ongoing process as historical loss experience develops and additional claims are reported and settled. The
Company rigorously attempts to consider all significant facts and circumstances known at the time claims and claim adjustment expense reserves
are established. Due to the inherent uncertainty underlying these estimates including, but not limited to, the future settlement environment, final
resolution of the estimated liability for claims and claim adjustment expenses may be higher or lower than the related claims and claim adjustment
expense reserves at the reporting date. Therefore, actual paid losses, as claims are settled in the future, may be materially different than the amount
currently recorded—favorable or unfavorable.
Because establishment of claims and claim adjustment expense reserves is an inherently uncertain process involving estimates, currently
established claims and claim adjustment expense reserves may change. The Company reflects adjustments to the reserves in the results of
operations in the period the estimates are changed.
There are also additional risks which impact the estimation of ultimate costs for catastrophes. For example, the estimation of reserves related to
hurricanes, tornadoes and other catastrophic events can be affected by the inability of the Company and its insureds to access portions of the
impacted areas, the complexity of factors contributing to the losses, the legal and regulatory uncertainties, including the interpretation of policy
terms and conditions, and the nature of the information available to establish the reserves. Complex factors include, but are not limited to:
determining whether damage was caused by flooding versus wind; evaluating general liability and pollution exposures; estimating additional living
expenses; estimating the impact of demand surge, infrastructure disruption, fraud, the effect of mold damage and business interruption costs; and
reinsurance collectibility. The timing of a catastrophe, such as at or near the end of a reporting period, can also affect the information available to
the Company in estimating reserves for that reporting period. The estimates related to catastrophes are adjusted as actual claims emerge.
A portion of the Company's gross claims and claim adjustment expense reserves (totaling $2.87 billion at December 31, 2014) are for asbestos
and environmental claims and related litigation. While the ongoing review of asbestos and environmental claims and associated liabilities considers
the inconsistencies of court decisions as to coverage, plaintiffs' expanded theories of liability and the risks inherent in complex litigation and other
uncertainties, in the opinion of the Company's management, it is possible that the outcome of the continued uncertainties regarding these claims
could result in liability in future periods that differs from current reserves by an amount that could be material to the Company's future operating
results. See the preceding discussion of "Asbestos Claims and Litigation" and "Environmental Claims and Litigation."
General Discussion
The process for estimating the liabilities for claims and claim adjustment expenses begins with the collection and analysis of claim data. Data
on individual reported claims, both current and historical, including paid amounts and individual claim adjuster estimates, are grouped by common
characteristics (components) and evaluated by actuaries in their analyses of ultimate claim liabilities by product line. Such data is occasionally
supplemented with external data as available and when appropriate. The process of analyzing reserves for a component is undertaken on a regular
basis, generally quarterly, in light of continually updated information.
Multiple estimation methods are available for the analysis of ultimate claim liabilities. Each estimation method has its own set of assumption
variables and its own advantages and disadvantages, with no single estimation method being better than the others in all situations and no one set
of assumption variables being meaningful for all product line components. The relative strengths and
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