Travelers 2011 Annual Report Download - page 150

The Company’s change in reserve estimate for this product line was 5% for 2011, 25% for
2010 and 9% for 2009. The 2011 change primarily reflected better than expected development in the
2008 and 2009 accident years for certain large national property and ocean marine exposures. The 2010
change primarily occurred in the 2008 and 2009 accident years as a result of better than expected loss
development in Industry-Focused Underwriting and Target Risk Underwriting. 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.
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 claims and claim adjustment expense
reserves.
Historically, the one-year change in the reserve estimate for this product line over the last nine
years has varied from 16% to 3% (averaging 5%) for the Company, and from 5% to 6%
(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. The Company believes that its range of historical outcomes
is illustrative of reasonably possible one-year changes in reserve estimates for this product line.
Commercial multi-peril reserves (excluding asbestos and environmental reserves) represent
approximately 7% of the Company’s total claims and claim adjustment expense reserves.
As discussed above, this line combines general liability and property coverages and it has been
impacted in the past by many of the same events as those two lines.
The Company’s change in reserve estimate for this product line was 3% for 2011, 0% for 2010 and
8% for 2009. The 2011 change reflected unfavorable loss development driven by late reporting of hail
claims incurred in 2010. The 2009 change was attributable to several factors, including improved legal
and judicial environments, and enhanced risk control, underwriting and claim process initiatives. Also
contributing to the change was improvement in the litigation environment relating to, and ongoing
claim settlements for, Hurricane Katrina.
Commercial Automobile
The commercial automobile product line is a mix of property and liability coverages and, therefore,
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
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