Travelers 2015 Annual Report Download - page 213

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. INSURANCE CLAIM RESERVES (Continued)
nature of the alleged activities of the policyholder at each site; the number of sites; the total number of
potentially responsible parties at each site; the nature of the alleged environmental harm and the
corresponding remedy at each site; the nature of government enforcement activities at each site; the
ownership and general use of each site; the overall nature of the insurance relationship between the
Company and the policyholder, including the role of any umbrella or excess insurance the Company
has issued to the policyholder; the involvement of other insurers; the potential for other available
coverage, including the number of years of coverage; the role, if any, of non-environmental claims or
potential non-environmental claims in any resolution process; and the applicable law in each
jurisdiction. The evaluation of the exposure presented by a policyholder can change as information
concerning that policyholder and the many variables presented is developed. Conventional actuarial
methods are not used to estimate these reserves.
The Company continues to receive notices from policyholders tendering claims for the first time,
frequently under policies issued prior to the mid-1980s. These policyholders continue to present smaller
exposures, have fewer sites and are lower tier defendants. Further, in many instances, clean-up costs
have been reduced because regulatory agencies are willing to accept risk-based site analyses and more
efficient clean-up technologies. Over the past several years, the Company has experienced generally
favorable trends in the number of new policyholders tendering environmental claims for the first time
and in the number of pending declaratory judgment actions relating to environmental matters.
However, the degree to which those favorable trends have continued has been less than anticipated. In
addition, reserve development on existing environmental claims has been greater than anticipated. As a
result of these factors, in 2015, 2014 and 2013, the Company increased its net environmental reserves
by $72 million, $87 million and $65 million, respectively.
Asbestos and Environmental Reserves. As a result of the processes and procedures discussed
above, management believes that the reserves carried for asbestos and environmental claims are
appropriately established based upon known facts, current law and management’s judgment. However,
the uncertainties surrounding the final resolution of these claims continue, and it is difficult to
determine the ultimate exposure for asbestos and environmental claims and related litigation. As a
result, these reserves are subject to revision as new information becomes available and as claims
develop. The continuing uncertainties include, without limitation, the risks and lack of predictability
inherent in complex litigation, any impact from the bankruptcy protection sought by various asbestos
producers and other asbestos defendants, a further increase or decrease in the cost to resolve, and/or
the number of, asbestos and environmental claims beyond that which is anticipated, the emergence of a
greater number of asbestos claims than anticipated as a result of extended life expectancies resulting
from medical advances and lifestyle improvements, the role of any umbrella or excess policies the
Company has issued, the resolution or adjudication of disputes pertaining to the amount of available
coverage for asbestos and environmental claims in a manner inconsistent with the Company’s previous
assessment of these claims, the number and outcome of direct actions against the Company, future
developments pertaining to the Company’s ability to recover reinsurance for asbestos and
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
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