Travelers 2013 Annual Report Download - page 162

• 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 1.0% 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 22% to 3% (averaging 9%) for the
Company, and from 8% to 2% (averaging 5%) 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. Homeowners and personal lines other reserves represent
approximately 2% of the Company’s total claims and claim adjustment expense reserves.
This line combines both liability and property coverages; however, the majority of the reserves
relate to property. While property is considered a short tail coverage, the one year change for property
can be more volatile than that for the longer tail product lines. This is due to the fact that the majority
of the reserve for property relates to the most recent accident year, which is subject to the most
uncertainty for all product lines. This recent accident year uncertainty is relevant to property because of
weather related events which, notwithstanding 2010 and 2011 experience, tend to be concentrated in
the second half of the year, and generally are not completely resolved until the following year. Reserve
estimates associated with major catastrophes may take even longer to resolve.
The Company’s change in reserve estimate for this product line (excluding the umbrella line of
business) was 17% for 2013, 11% for 2012 and 7% for 2011. The 2013 change was primarily
driven by better than expected loss experience for catastrophe losses incurred in 2012 and
non-catastrophe weather-related losses and non-weather-related losses for accident years 2012 and
2011. The 2012 change reflected better than expected loss development related to catastrophe losses
incurred in 2011 and non-catastrophe losses incurred in accident years 2010 and 2011. The 2011 change
reflected better than expected loss development related to catastrophe losses incurred in the first half
of 2010.
International and other
International and other includes products written by the Company’s international operations, as
well as all other products not explicitly discussed above. The principal component of ‘‘other’’ claim
reserves is assumed reinsurance written on an excess-of-loss basis, which may include reinsurance of
non-U.S. exposures, and is runoff business.
International and other claim liabilities result from a mix of coverages, currencies and jurisdictions/
countries. The common characteristic is the need to customize the analysis to the individual
component, and the inability to rely on data characterizations and reporting requirements in the U.S.
statutory reporting framework.
Due to changes in the business mix for this line over time, including the recent acquisition of
Dominion, the recently incurred claim liabilities are relatively shorter tail (due to both the products and
the jurisdictions involved, e.g., Canada, 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
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