Travelers 2015 Annual Report Download - page 100

settlement and defense costs related to a broad number of policyholders in the Home Office category
due to a higher level of litigation activity surrounding mesothelioma claims than previously anticipated.
In addition, the reserve increase in 2013 also reflected 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 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 paid loss and loss expenses in 2015, 2014 and 2013 were $770 million, $242 million
and $218 million, respectively. Net payments in 2015 included the payment of the $502 million
settlement amounts related to the Settlement of Asbestos Direct Action Litigation as described in more
detail in note 16 of notes to the consolidated financial statements herein. Approximately 69%, 8% and
1% of total net paid losses in 2015, 2014 and 2013, respectively, related to policyholders with whom the
Company had entered into settlement agreements limiting the Company’s liability.
The Company categorizes its asbestos reserves as follows:
Number of Net Asbestos
Policyholders Total Net Paid Reserves
(at and for the year ended December 31, $ in millions) 2015 2014 2015 2014 2015 2014
Policyholders with settlement agreements .......... 18 17 $532 $19 $ 554 $ 613
Home office and field office .................... 1,624 1,692 220 197 1,101 1,574
Assumed reinsurance and other ................. ——18 26 155 170
Total ................................... 1,642 1,709 $770 $242 $1,810 $2,357
The Policyholders with Settlement Agreements category includes structured settlements, coverage
in place arrangements and, with respect to TPC, Wellington accounts. Reserves are based on the
expected payout for each policyholder under the applicable agreement. Structured settlements are
arrangements under which policyholders and/or plaintiffs agree to fixed financial amounts to be paid at
scheduled times. Coverage in place arrangements represent agreements with policyholders on specified
amounts of coverage to be provided. Payment obligations may be subject to annual maximums and are
only made when valid claims are presented. Wellington accounts refer to the 35 defendants that are
parties to a 1985 agreement settling certain disputes concerning insurance coverage for their asbestos
claims. Many of the aspects of the Wellington agreement are similar to those of coverage in place
arrangements in which the parties have agreed on specific amounts of coverage and the terms under
which the coverage can be accessed. As discussed above, in 2015 the Company paid a $502 million
settlement related to the asbestos direct action litigation. That amount had been included in the
Policyholders with Settlement Agreements category in the foregoing table at December 31, 2014.
On January 29, 2009, the Company and PPG Industries, Inc (‘‘PPG’’), along with approximately 30
other insurers of PPG, agreed in principle to an agreement to settle asbestos-related coverage litigation
under insurance policies issued to PPG. The tentative settlement agreement has been incorporated into
the Modified Third Amended Plan of Reorganization (‘‘Amended Plan’’) proposed as part of the
Pittsburgh Corning Corp. (‘‘PCC,’’ which is 50% owned by PPG) bankruptcy proceeding. Pursuant to
the proposed Amended Plan, which was filed on January 30, 2009, PCC, along with enumerated other
companies (including PPG as well as the Company as a participating insurer), are to receive protections
afforded by Section 524(g) of the Bankruptcy Code from certain asbestos-related bodily injury claims.
Under the agreement in principle, the Company has the option to make a series of payments over
20 years totaling approximately $620 million to the Trust to be created under the Amended Plan, or it
may elect to make a one-time discounted payment, which, as of June 30, 2016, would total
approximately $525 million. On January 7, 2016, the final objections to the Amended Plan were
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