Travelers 2012 Annual Report Download - page 159

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
specific coverage provided, the jurisdiction, the distribution system (e.g., underwriting pool versus
direct) and the proximity of the insurance sale to the insured hazard (e.g., insured and insurer located
in different countries). In particular, liabilities arising from the underwriting pools in runoff may result
in significant reporting lags, settlement lags and claim complexity, due to the need to coordinate with
other pool members or co-insurers through a broker or lead-insurer for claim settlement purposes.
International and other reserves are generally analyzed by program/pool, country and general
coverage category (e.g., U.S. Liability—excess of loss reinsurance, or General Liability—
Municipalities—by country). The business is also generally split by direct versus assumed reinsurance
for a given coverage/jurisdiction. Where the underlying insured hazard is outside the United States, the
underlying coverages are generally similar to those described under the General Liability and
Commercial Property discussion above, provided that reserves relating to insured hazards outside the
United States are analyzed taking into account differences in the legal environment and differences in
terms and conditions, including, for example and where applicable, that in some jurisdictions there are
no aggregate policy limits on certain liability coverages. Where the underlying hazard is within the U.S.,
the coverage involved is typically that of General Liability and Commercial Property, but on an excess
or excess-of-loss reinsurance basis. Excess exposure requires the insured to ‘‘prove’’ not only claims
under the policy, but also the prior payment of claims reaching up to the excess policy’s attachment
point.
Examples of common risk factors, or perceptions thereof, that could change and, thus, affect the
required International and other reserves (beyond those included in the general discussion section)
include:
International and other risk factors
• Changes in claim handling procedures, including those of the primary carriers
• Changes in policy provisions or court interpretation of such provision
• New theories of liability
• Trends in jury awards
• Changes in the propensity to sue
• 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
• Changes in claim adjuster office structure (causing distortions in the data)
International and other book of business risk factors
• Changes in policy provisions (e.g., deductibles, policy limits, endorsements, ‘‘claims-made’’
language)
• Changes in underwriting standards
• Product mix (e.g., size of account, industries insured, jurisdiction mix)
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