Travelers 2008 Annual Report Download - page 150

The Company’s change in reserve estimate for this product line was 10% for 2008, 1% for
2007 and 5% for 2006. The 2008 change was a result of better than expected loss experience for the
contract surety business within this product line, primarily driven by favorable settlements on large
claims from older accident years. The 2006 change was due to better than expected large loss activity.
Personal Automobile
Personal automobile includes both short and long tail coverages. 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 difficult to 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 create a
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 reserve 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
Personal automobile book of business risk factors
Changes in policy provisions (e.g., deductibles, policy limits, endorsements, etc.)
Changes in underwriting standards
Changes in the use of credit data for rating and underwriting
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.
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