Travelers 2003 Annual Report Download - page 76

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Property
Property is considered a short tail line with a simpler and faster claim adjustment process than liability coverages, and
less uncertainty in the reserve setting process. The claim reporting and settlement process for property coverage claim
reserves is generally restricted to the insured and the insurer.
Property reserves are typically analyzed in two components, one for catastrophic or other large single events, and
another for all other events. Examples of common risk factors that can change and, thus, affect the required property
reserves (beyond those included in the general discussion section) include:
Property risk factors
Physical concentration of policyholders
Availability and cost of local contractors
For the more severe catastrophic events, “demand surge” inflation, whereby the greatly increased demand for building
materials such as plywood far surpasses the immediate supply, leading to short-term material increases in building
material costs
Local building codes
Amount of time to return property to full usage (for business interruption claims)
Court interpretation of policy provisions (such as occurrence definition)
Lags in reporting claims (e.g. winter damage to summer homes, hidden damage after an earthquake)
Court or legislative changes to the statute of limitations
Property book of business risk factors
Policy provisions mix (e.g., deductibles, policy limits, endorsements)
Changes in underwriting standards
Commercial Multi-Peril
Commercial multi-peril provides a combination of property and liability coverage typically for small businesses and,
therefore, includes both short and long tail coverages. For property coverage, it generally takes a relatively short
period of time to close claims, while for the other coverages, generally for the liability coverages, it takes a longer
period of time to close claims.
The reserving risk for this line is dominated by the liability coverage portion of this product, except occasionally in the
event of catastrophic or large single losses. The reserving risk for this line differs from that of the general liability
product line and the property product line due to the nature of the customer. Commercial multi-peril is generally sold
to smaller sized accounts, while the customer profile for general liability and property include larger customers.
See the discussions under the property and general liability product lines with regard to reserving risk for commercial
multi-peril.
Commercial Automobile
The commercial automobile product line is a mix of property and liability coverages and, therefore, includes both short
and long tail coverages. The payments that are made quickly typically pertain to auto physical damage (property)
claims and property damage (liability) claims. The payments that take longer to finalize and are more difficult to
estimate relate to bodily injury claims. This mixture of claim payments creates a moderate estimation risk.
Commercial automobile reserves are typically analyzed in four components; bodily injury liability, property damage
liability, collision claims and comprehensive claims. These last two components have minimum reserve risk and fast
payouts and, accordingly, separate risk factors are not presented.