Travelers 2009 Annual Report Download - page 150

(averaging 3%) 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 of historical
adverse development comes from certain businesses that the Company has since exited, 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. Property reserves represent approximately 4% of the
Company’s total loss reserves.
While property is considered a short tail coverage, the one year change for property can be more
volatile than that for the longer tail product lines. This is due to the fact that the majority of the
reserve for property relates to the most recent accident year, which is subject to the most uncertainty
for all product lines. This recent accident year uncertainty is relevant to property because of weather
related events which tend to be concentrated in the second half of the year, and generally are not
completely resolved until the following year. Reserve estimates associated with major catastrophes may
take even longer to resolve. The reserve estimates for this product line are also potentially subject to
material changes due to uncertainty in measuring ultimate losses for unprecedented significant
catastrophes such as the events of September 11, 2001 and Hurricane Katrina.
The Company’s change in reserve estimate for this product line was 9% for 2009, 22% for
2008 and 18% for 2007. The 2009 change was primarily driven by better than expected loss
development in the 2007 and 2008 accident years for certain large national property and inland marine
exposures. In addition, the 2005 accident year experience improved due to the litigation environment
relating to, and ongoing claim settlements for, Hurricane Katrina. The 2008 change was primarily
driven by favorable development in the 2007 accident year for certain large property, national programs
and ocean marine claim exposures, and improvements in the litigation environment relating to, and
ongoing claim settlements for, Hurricane Katrina. The 2007 change was due to fewer than expected
late reported claims related to non-catastrophe weather events that occurred late in 2006 as well as
better than expected frequency and severity due in part to changes in the marketplace, such as higher
deductibles and lower policy limits. In addition, the property product line experienced better than
expected large loss outcomes which were partially attributable to favorable litigation resolutions.
Commercial Multi-Peril
Commercial multi-peril provides a combination of property and liability coverage typically for small
businesses and, therefore, includes both short and long tail coverages. For property coverage, it
generally takes a relatively short period of time to close claims, while for the other coverages, generally
for the liability coverages, it takes a longer period of time to close claims.
The reserving risk for this line is dominated by the liability coverage portion of this product, except
occasionally in the event of catastrophic or large single losses. The reserving risk for this line differs
from that of the general liability product line and the property product line due to the nature of the
customer. Commercial multi-peril is generally sold to smaller-sized accounts, while the customer profile
for general liability and property includes larger customers.
See ‘‘Property risk factors’’ and ‘‘General liability risk factors,’’ discussed above, with regard to
reserving risk for commercial multi-peril.
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 commercial multi-peril (excluding
asbestos and environmental), a 1% increase (decrease) in incremental paid loss development for each
future calendar year could result in a 1.2% 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 16% to 2% (averaging 5%) for the Company, and from 5% to 6%
(averaging 1%) 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
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