Travelers 2004 Annual Report Download - page 115

insurer. Claims on property coverage are typically reported soon after the actual damage occurs, although delays
of several months are not unusual. The claim is settled when the two parties agree on the amount due in
accordance with the policy contract language and the appropriate payment is made (or alternatively, the property
replacement/repair is performed by the insurer). The resulting settlement process is typically fairly short term,
although exceptions do exist.
The liability portion of the homeowners policy generates claims which take longer to pay due to the
involvement of litigation and negotiation, but with generally small reporting lags. In addition, reserves related to
umbrella coverages have greater uncertainty since umbrella liability payments are often made far into the future.
Overall, the line is generally high frequency, low to moderate severity (except for catastrophes), with simple
to moderate claim complexity.
Homeowners reserves are typically analyzed in two components: non-catastrophe related losses and
catastrophe loss payments.
Examples of common risk factors that can change and, thus, affect the required homeowners reserves
(beyond those included in the general reserve discussion section) include:
Non-catastrophe risk factors
Salvage opportunities
Amount of time to return property to residential use
Changes in weather patterns
Local building codes
Litigation trends
Trends in jury awards
Catastrophe risk factors
Physical concentration of policyholders
Availability and cost of local contractors
Local building codes
Quality of construction of damaged homes
Amount of time to return property to residential use
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
Homeowners book of business risk factors
Policy provisions mix (e.g., deductibles, policy limits, endorsements, etc.)
Degree of concentration of policyholders
Changes in underwriting standards
International and other
International and other includes the international product line and other products not discussed above. The
principle component of “other” is assumed reinsurance written on an excess-of-loss basis, which may include
reinsurance of non-U.S. exposures, and is primarily run-off business.
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