Travelers 2011 Annual Report Download - page 148

• Changes in the propensity to litigate rather than settle a claim
• Changes in statutes of limitations
• Changes in the underlying court system
• Distortions from losses resulting from large single accounts or single issues
• Changes in tort law
• Shifts in law suit mix between federal and state courts
• Changes in claim adjuster office structure (causing distortions in the data)
• Changes in settlement patterns (e.g., medical malpractice)
General liability book of business risk factors
• Changes in policy provisions (e.g., deductibles, policy limits, endorsements)
• Changes in underwriting standards
• Product mix (e.g., size of account, industries insured, jurisdiction mix)
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 general liability (excluding asbestos and
environmental), a 1% increase (decrease) in incremental paid loss development for each future
calendar year could result in a 1.5% increase (decrease) in claims and claim adjustment expense
reserves.
Historically, the one-year change in the reserve estimate for this product line, excluding estimated
asbestos and environmental amounts, over the last nine years has varied from 8% to 14% (averaging
1%) for the Company and from 5% to 7% (averaging 0%) 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. General
liability reserves (excluding asbestos and environmental) represent approximately 25% of the
Company’s total claims and claim adjustment expense reserves.
The Company’s change in reserve estimate for this product line, excluding estimated asbestos and
environmental amounts, was 8% for 2011, 5% for 2010 and 5% for 2009. The 2011 change was
concentrated in excess coverages for accident years 2005-2008 and reflected what the Company believes
are more favorable legal and judicial environments than what the Company previously expected. The
2010 change was primarily concentrated in excess coverages for accident years 2006 and prior and
reflected what the Company believes are more favorable legal and judicial environments than what the
Company previously expected. The 2009 change was driven by several factors, including improved legal
and judicial environments, as well as enhanced risk control, underwriting and claim process initiatives.
Property
Property is generally considered a short tail line with a simpler and faster claim reporting and
adjustment process than liability coverages, and less uncertainty in the reserve setting process (except
for more complex business interruption claims). It is generally viewed as a moderate frequency, low to
moderate severity line, except for catastrophes and coverage related to large properties. The claim
reporting and settlement process for property coverage claim reserves is generally restricted to the
insured and the insurer. Overall, the claim liabilities for this line create a low estimation risk, except
possibly for catastrophes and business interruption claims.
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