Travelers 2006 Annual Report Download - page 144

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Personal automobile book of business risk factors
Changes in policy provisions (e.g., deductibles, policy limits, endorsements, etc.)
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 personal automobile, a 1% increase (decrease) in
incremental paid loss development for each future calendar year could result in a 1.1% 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 -9% to +1% (averaging -4%) for the Company and -7% to 0% (averaging -3%) 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. Personal automobile reserves
represent approximately 4% of the Company’s total loss reserves.
The Company’s change in reserve estimate for this product line was -7% for 2006, -9% for 2005
and -6% for 2004. The decreases in 2006 and 2005 were primarily due to better than expected results from
changes in claim handling practices as well as initiatives to fight fraud. The 2004 change was driven by
better than expected frequency and severity, which isbelieved to have been principally caused by societal
trends as well as fraud initiatives.
Homeowners and Personal Lines Other
Homeowners is generally considered a short tail coverage. Most payments are related to the property
portion of the policy, where the claim reporting and settlement process is generally restricted to the
insured and the 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 theinsurer). 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 withgenerally 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.