Travelers 2015 Annual Report Download - page 212

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. INSURANCE CLAIM RESERVES (Continued)
While the Company believes that over the past several years there has been a reduction in the
volatility associated with the Company’s overall asbestos exposure, there nonetheless remains a high
degree of uncertainty with respect to future exposure from asbestos claims.
In the Home Office and Field Office category, which accounts for the vast majority of
policyholders with active asbestos-related claims, both the number of policyholders tendering asbestos
claims for the first time and the number of policyholders with open asbestos claims declined when
compared with 2014. Gross asbestos payments in this category were essentially unchanged when
compared with 2014, while net asbestos-related payments increased in 2015 due to significant
reinsurance billings relating to one policyholder in 2014. Payments on behalf of policyholders in these
categories continue to be influenced by the high level of litigation activity in a limited number of
jurisdictions where individuals alleging serious asbestos-related injury, primarily mesothelioma, continue
to target defendants who were not traditionally primary targets of asbestos litigation.
The Company’s quarterly asbestos reserve reviews include an analysis of exposure and claim
payment patterns by policyholder category, as well as recent settlements, policyholder bankruptcies,
judicial rulings and legislative actions. The Company also analyzes developing payment patterns among
policyholders in the Home Office and Field Office, and Assumed Reinsurance and Other categories as
well as projected reinsurance billings and recoveries. In addition, the Company reviews its historical
gross and net loss and expense paid experience, year-by-year, to assess any emerging trends,
fluctuations, or characteristics suggested by the aggregate paid activity. Conventional actuarial methods
are not utilized to establish asbestos reserves nor have the Company’s evaluations resulted in any way
of determining a meaningful average asbestos defense or indemnity payment.
The completion of these reviews and analyses in 2015, 2014 and 2013 resulted in $224 million,
$250 million and $190 million increases, respectively, in the Company’s net asbestos reserves. In each
year, the reserve increases were primarily driven by increases in the Company’s estimate of projected
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. 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.
Environmental Reserves. In establishing environmental reserves, the Company evaluates the
exposure presented by each policyholder and the anticipated cost of resolution, if any. In the course of
this analysis, the Company generally considers the probable liability, available coverage and relevant
judicial interpretations. In addition, the Company considers the many variables presented, such as: the
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