Travelers 2013 Annual Report Download - page 152

Examples of common risk factors, or perceptions thereof, that could change and, thus, affect the
required general liability reserves (beyond those included in the general discussion section) include:
General liability risk factors
• Changes in claim handling philosophies
• Changes in policy provisions or court interpretation of such provisions
• New or expanded theories of liability
• Trends in jury awards
• Changes in the propensity to sue, in general with specificity to particular issues
• 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 lawsuit mix between federal and state courts
• Changes in claim adjuster office structure (causing distortions in the data)
• The potential impact of inflation on loss costs
• Changes in settlement patterns
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 4% (averaging
3%) for the Company and from 5% to 5% (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. General liability reserves (excluding asbestos and
environmental) represent approximately 22% 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 4% for 2013, 3% for 2012 and 8% for 2011. The 2013 change was
primarily concentrated in accident years 2010 and prior and reflected what the Company believes are
more favorable legal and judicial environments than what the Company previously expected. The 2012
change was primarily concentrated in excess coverages for accident years 2009 and prior and reflected
what the Company believes are more favorable legal and judicial environments than what the Company
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