Travelers 2014 Annual Report Download - page 217

Table of Contents
THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. INSURANCE CLAIM RESERVES (Continued)
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.
Catastrophe Exposure
The Company has geographic exposure to catastrophe losses, which can be caused by a variety of events, including, among others,
hurricanes, tornadoes and other windstorms, earthquakes, hail, wildfires, severe winter weather, floods, tsunamis, volcanic eruptions and other
naturally
- occurring events, such as solar flares. Catastrophes can also result from terrorist attacks and other intentionally destructive acts
(including those involving nuclear, biological, chemical or radiological events), explosions and infrastructure failures. The incidence and severity of
catastrophes are inherently unpredictable. The extent of losses from a catastrophe is a function of both the total amount of insured exposure in the
area affected by the event and the severity of the event. Most catastrophes are restricted to small geographic areas; however, hurricanes and
earthquakes may produce significant damage in larger areas, especially those that are heavily populated. The Company generally seeks to mitigate
its exposure to catastrophes through individual risk selection and the purchase of catastrophe reinsurance.
There are also risks which impact the estimation of ultimate costs for catastrophes. For example, the estimation of reserves related to hurricanes
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 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; the impact of demand surge; the potential impact of changing climate conditions, including higher frequency
and severity of weather
- related events; infrastructure disruption; fraud; the effect of mold damage and business income interruption costs; and
reinsurance collectibility. The timing of a catastrophe's occurrence, such as at or near the end of a reporting period, can also affect the information
available to us in estimating reserves for that reporting period. The estimates related to catastrophes are adjusted as actual claims emerge.
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