Travelers 2006 Annual Report Download - page 143

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Historically, the one-year change in the reserve estimate for this product line over the last nine years
has varied from -15% to +138% (averaging +20%) for the Company and -9% to +24% (averaging +7%)
for the industry overall. The Company’s year-to-year changes are driven by and are based on observed
events during the year. Because the high end of the Company’s range was due to acquired business in 2004,
the Company believes that the industry’s range of historical outcomes is illustrative of reasonably possible
one-year changes in reserve estimates for this product line. Fidelity and surety reserves represent
approximately 3% of the Company’s total loss reserves.
In general, developments on single large claims (both adverse and favorable) are a primary source of
changes in reserve estimates for this product line.
The Company’s change in reserve estimate for this product line was -5% for 2006, 0% for 2005
and +138% for 2004. The 2006 change was due to better than expected large loss activity. The 2004 change
resulted from acquired business, including a large construction contractor loss discussed on page 77 of this
narrative.
Personal Automobile
Personal automobile includes both short and long tailcoverages. 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 difficultto estimate relate to bodily injury claims.
Reporting lags are relatively short and the claim settlement process for personal automobile liability
generally is the least complex of the liability products. It is generally viewed as a high frequency, low to
moderate severity product line. Overall, the claim liabilities for this line createa moderate estimation risk.
Personal automobile reserves are typically analyzed in five components: bodily injury liability,
property damage liability, no-fault losses, collision claims and comprehensive claims. These last two
components have minimum reserve risk and fast payouts and, accordingly, separate factors are not
presented.
Examples of common risk factors, or perceptions thereof, that could change and, thus, affect the
required personal automobile reserves (beyond those included in the general discussion section) include:
Bodily injury and property damage liability risk factors
Trends in jury awards
Changes in the underlying court system and its philosophy
Changes in case law
Litigation trends
Frequency of claims with payment capped by policy limits
Change in average severity of accidents, or proportion of severe accidents
Subrogation opportunities
Degree of patient responsiveness to treatment
Changes in claim handling philosophies
No-fault risk factors (for selected states and time periods)
Effectiveness of no-fault laws
Frequency of visits to health providers
Number of medical procedures given during visits to health providers
Types of health providers used
Types of medical treatments received
Changes in cost of medical treatments
Degree of patient responsiveness to treatment