Travelers 2014 Annual Report Download - page 28

Table of Contents
The gross and net cumulative deficiency (redundancy) by calendar year as set forth in the table above includes the following impact of
unfavorable prior year reserve development related to asbestos and environmental claims and claim adjustment expenses, in millions:
Reserves on Statutory Accounting Basis
At December 31, 2014, 2013 and 2012, claims and claim adjustment expense reserves (net of reinsurance) shown in the preceding table, which
are prepared in accordance with U.S. generally accepted accounting principles (GAAP reserves), were $29 million higher, $17 million higher and
$22 million lower, respectively, than those reported in the Company's respective annual reports filed with insurance regulators, which are prepared
in accordance with statutory accounting practices (statutory reserves).
The differences between GAAP and statutory reserves are primarily due to the differences in GAAP and statutory accounting for two items:
(1) fees associated with billing of required reimbursements under large deductible business, and (2) the accounting for retroactive reinsurance. For
large deductible business, the Company pays the deductible portion of a casualty insurance claim and then seeks reimbursement from the insured,
plus a fee. This fee is reported as fee income for GAAP reporting, but as an offset to claim expenses paid for statutory reporting. Retroactive
reinsurance balances result from reinsurance placed to cover losses on insured events occurring prior to the inception of a reinsurance contract.
For GAAP reporting, retroactive reinsurance balances are included in reinsurance recoverables and result in lower net reserve amounts. Statutory
accounting practices require retroactive reinsurance balances to be recorded in other liabilities as contra
- liabilities rather than in loss reserves.
Asbestos and Environmental Claims
Asbestos and environmental claims are segregated from other claims and are handled separately by the Company's Special Liability Group, a
separate unit staffed by dedicated legal, claim, finance and engineering professionals. For additional information on asbestos and environmental
claims, see "Item 7—Management's Discussion and Analysis of Financial Condition and Results of Operations—Asbestos Claims and Litigation"
and "—Environmental Claims and Litigation."
INTERCOMPANY REINSURANCE POOLING ARRANGEMENTS
Most of the Company's domestic insurance subsidiaries are members of an intercompany property and casualty reinsurance pooling
arrangement. Pooling arrangements permit the participating companies to rely on the capacity of the entire pool's statutory capital and surplus
rather than just on its own statutory capital and surplus. Under such arrangements, the members share substantially all insurance business that is
written and allocate the combined premiums, losses and expenses.
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Asbestos
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Gross
$
2,361
$
1,527
$
1,330
$
1,331
$
1,261
$
1,076
$
814
$
619
$
448
$
258
Net
$
2,172
$
1,341
$
1,185
$
1,185
$
1,115
$
930
$
790
$
615
$
440
$
250
Environmental
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Gross
$
867
$
850
$
742
$
560
$
475
$
390
$
345
$
265
$
166
$
94
Net
$
843
$
813
$
693
$
508
$
423
$
353
$
318
$
242
$
152
$
87