Travelers 2007 Annual Report Download - page 144

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
Personal automobile book of business risk factorsc
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 6% to 0% (averaging
2%) for the industry overall. The Company’s year-to-year changes are driven by and are based on
observed events 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 5% for 2007, 7% for 2006
and 9% for 2005. The decreases in 2007, 2006 and 2005 were primarily due to better than expected
results from changes in claim handling practices as well as initiatives to fight fraud.
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 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.
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