Travelers 2015 Annual Report Download - page 214

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. INSURANCE CLAIM RESERVES (Continued)
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, radiological, cyber-attacks,
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 the Company in estimating reserves for that reporting period. The estimates
related to catastrophes are adjusted as actual claims emerge.
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