Travelers 2009 Annual Report Download - page 157

Homeowners book of business risk factors
Policy provisions mix (e.g., deductibles, policy limits, endorsements, etc.)
Degree of concentration of policyholders
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 homeowners and personal lines other, 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 31% to 3% (averaging 12%) for the Company, and from 8% to 11%
(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.
Homeowners and personal lines other reserves represent approximately 2% of the Company’s total loss
reserves.
This line combines both liability and property coverages; however, the majority of the reserves
relate to property. 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 Company’s change in reserve estimate for this product line was 14% for 2009, 13% for
2008 and 3% for 2007. The 2009 change primarily reflected favorable loss experience related to
Hurricanes Ike and Katrina, as well as the 2007 California wildfires. The 2008 change was primarily
driven by favorable loss experience related to Hurricane Katrina, by claim initiatives, by better than
expected outcomes on 2007 catastrophe-related claims and by improvements in older accident years for
the umbrella line. The 2007 change was due to fewer than expected late reported claims related to
non-catastrophe weather events that occurred in the fourth quarter of 2006. In addition, a portion of
the change was attributable to a decrease in the number of claims due to changes in the marketplace,
including higher deductibles and fewer small-dollar claims.
International and other
International and other includes products written by International and other products not discussed
above. The principal component of ‘‘other’’ claim reserves is assumed reinsurance written on an
excess-of-loss basis, which may include reinsurance of non-U.S. exposures, and is runoff business.
International and other claim liabilities result from a mix of coverages, currencies and
jurisdictions/countries. The common characteristic is the need to customize the analysis to the
individual component, and the inability to rely on data characterizations and reporting requirements in
the U.S. statutory reporting framework.
Due to changes in the business mix for this line over time, the recently incurred claim liabilities
are relatively short term (due to both the products and the jurisdictions involved, e.g., the Republic of
Ireland and the United Kingdom), while the older liabilities include some from runoff operations that
are extremely long tail (e.g., U.S. excess liabilities reinsured through the London market, and several
underwriting pools in runoff). The speed of claim reporting and claim settlement is a function of the
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