7. Unpaid claims and claim adjustment expenses

Asbestos and environmental claims exposure

The Group’s obligation for claims payments and claims settlement charges also includes obligations for long-latent injury claims arising out of policies written prior to 1985, in particular in the area of US asbestos and environmental liability. A reconciliation of the beginning and ending reserve balances for asbestos, environmental and other long-latent liability claims and claim adjustment expenses for the periods presented is as follows:

CHF millions	2002	2003

Balance as of 1 January	3077	2378
Reinsurance recoverable	-320	-260

Net claims reserve	2757	2118
Claims incurred	-1	88
Claims paid	-213	-327
Effect of foreign currency translation	-436	-204
Effect of acquisitions	11

Net claims reserve	2118	1675
Reinsurance recoverable	260	204

Balance as of 31 December	2378	1879

The Group maintains an active commutation strategy to reduce exposure. The number and amount of commutations were higher in 2003 compared to 2002, and paid claims have increased in 2003 versus 2002 due to the effect of this strategy. When commutation payments are made, the traditional "survival ratio" is artificially reduced by premature payments, which should not imply a reduction in reserve adequacy.

The Group provisions are the undiscounted value of potential ultimate claims payments and claims settlement charges, less amounts paid to date.

Provisions for long-latent injury claims outstanding at 31 December 2003 reflect the estimated future trend of claims payments and claims settlement charges. Due to the inherent uncertainties and assumptions on which these estimates are based, however, the Group cannot exclude the need to make further additions to these provisions in the future.