Travelers 2006 Annual Report Download - page 141

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Degree of legal involvement
Changes in the interpretations and processes of the workers’ compensation commissions’ oversight of
claims(1)
Future wage inflation for states that index benefits
Changes in the administrative policies of second injury funds
Medical risk factors
Changes in the cost of medical treatments (including prescription drugs) and underlying fee schedules
(“inflation”)
Frequency of visits to health providers
Number of medical procedures given during visits to health providers
Types of health providers used
Type of medical treatments received
Use of preferred provider networks and other medical cost containment practices
Availability of new medical processes and equipment
Changes in the use of pharmaceutical drugs
Degree of patient responsiveness to treatment
General workers’ compensation risk factors
Frequency of claim reopenings on claims previously closed
Mortality trends of injured workers with lifetime benefits and medical treatment
Degree of cost shifting between workers’ compensation and health insurance
Workers’ compensation book of business risk factors
Product mix
Injury type mix
Changes in underwriting standards
Unanticipated changes in risk factors can affect reserves. As an indicator of the causal effect that a
change in one or more risk factors could have on reserves for workers’ compensation, a 1% increase
(decrease) in incremental paid loss development for each future calendar year could result in a 1.3%
increase (decrease) in loss reserves.
Historically, the one-year change in the reserve estimate for this product line over the last nine years
has varied from -2% to +2% (averaging -1%) for the Company and -2% to +4% (averaging +1%) for the
industry overall. The Company’s year-to-year changes are driven by and are based on observedevents
during the year. The Company believes that its range of historical outcomes is illustrative of reasonably
possible one-year changes in reserve estimates for this product line. Workers’ compensation reserves
represent approximately 26% of the Company’s total loss reserves.
The Company’s change in reserve estimate for this product line was 0% for 2006, 0% for 2005
and +1%for 2004.
Fidelity and Surety
Fidelity is generally considered a short tail coverage. It takes a relatively short period of time to
finalize and settle fidelity claims. The volatility of fidelity reserves is generally related to the type of
business of the insured, the size and complexity of the insured’s business operations, amount of policy limit
(1) These are administrative bodies that evaluate whether or not a given claim for workers’ compensation
benefits is valid.Duties include the determination of whether a given injury arose out of the scope of
employment, or the determination of the degree of injury wheredisputes exist.