Travelers 2003 Annual Report Download - page 72

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CLAIMS AND CLAIM ADJUSTMENT EXPENSE RESERVES
Claims and claim adjustment expense reserves by product line were as follows:
(at the year ended December 31, $ in millions) 2003 2002
General liability $ 11,041.8 $ 10,864.4
Property 2,161.9 2,237.2
Commercial multi-peril 3,384.1 3,195.3
Commercial automobile 2,718.3 2,499.1
Workers’ compensation 11,287.5 11,142.6
Fidelity and surety 580.8 655.3
Personal automobile 2,383.6 2,177.4
Homeowners and personal lines - other 916.2 857.1
Property-casualty 34,474.2 33,628.4
Accident and health 98.4 107.6
Claims and claim adjustment expense reserves $ 34,572.6 $ 33,736.0
Asbestos and environmental reserves are included in the General liability and Commercial multi-peril lines in the
summary table. Asbestos and environmental reserves are discussed separately, see “Asbestos Claims and Litigation”,
“Environmental Claims and Litigation” and “Uncertainty Regarding Adequacy of Asbestos and Environmental
Reserves”.
General Discussion
Claims and claim adjustment expense reserves represent management’s estimate of the unpaid liability for claim and
claim adjustment expenses. The process for estimating these liabilities begins with the collection and analysis of claim
data. Data on individual reported claims, both current and historical, including paid amounts and individual claim
adjuster estimates, are grouped by common characteristics (“components”) and evaluated by actuaries in their analyses
of ultimate claim liabilities by product line. Such data is occasionally supplemented with external data. The process
of analyzing reserves for a component is undertaken on a regular basis, generally quarterly, in light of continually
updated information.
Multiple estimation methods are available for the analysis of ultimate claim liabilities Each estimation method has its
own set of assumption variables, and its own advantages and disadvantages, with no single estimation method being
better than the others in all situations and no one set of assumption variables being meaningful for all product line
components. The relative strengths and weaknesses of the particular estimation methods when applied to a particular
group of claims can also change over time (and potentially for each reporting date). Therefore, the actual choice of
estimation method(s) can change with each evaluation. The estimation method(s) chosen are those that are believed to
produce the most reliable indication at that particular evaluation date for the claim liabilities being evaluated.
In most cases, multiple estimation methods will be valid for the particular facts and circumstances of the claim
liabilities being evaluated. This will result in a range of reasonable estimates for any particular claim liability.
Travelers uses such range analyses to back test whether previously established estimates for reserves at the reporting
segments are reasonable, given subsequent information. Reported values found to be closer to the endpoints of a range
of reasonable estimates are subject to further detailed reviews. These reviews may substantiate the validity of
management’s recorded estimate or lead to a change in the reported estimate.