Travelers 2011 Annual Report Download - page 157

Overall, the line is generally high frequency, low to moderate severity (except for catastrophes),
with simple to moderate claim complexity.
Homeowners reserves are typically analyzed in two components: non-catastrophe related losses and
catastrophe loss payments.
Examples of common risk factors, or perceptions thereof, that could change and, thus, affect the
required homeowners reserves (beyond those included in the general discussion section) include:
Non-catastrophe risk factors
• Salvage opportunities
• Amount of time to return property to residential use
• Changes in weather patterns
• Local building codes
• Litigation trends
• Trends in jury awards
• Court interpretation of policy provisions (such as occurrence definition, or wind versus flooding)
• Lags in reporting claims (e.g., winter damage to summer homes, hidden damage after an
earthquake, hail damage to roofs and/or equipment on roofs)
• Court or legislative changes to the statute of limitations
Catastrophe risk factors
• Physical concentration of policyholders
• Availability and cost of local contractors
• Local building codes
• Quality of construction of damaged homes
• Amount of time to return property to residential use
• For the more severe catastrophic events, ‘‘demand surge’’ inflation, which refers to significant
short-term increases in building material and labor costs due to a sharp increase in demand for
those materials and services
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 claims and claim adjustment expense reserves.
Historically, the one-year change in the reserve estimate for this product line (excluding the
umbrella line of business, which for statutory reporting purposes is included with the general liability
line of business) over the last nine years has varied from 31% to 3% (averaging 12%) for the
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