Travelers 2014 Annual Report Download - page 138

Table of Contents
weaknesses of the particular estimation methods when applied to a particular group of claims can also change over time. Therefore, the actual
choice of estimation method(s) can change with each evaluation. The estimation method(s) chosen are those that are believed to produce the most
reliable indication at that particular evaluation date for the claim liabilities being evaluated.
In most cases, multiple estimation methods will be valid for the particular facts and circumstances of the claim liabilities being evaluated. This
will result in a range of reasonable estimates for any particular claim liability. The Company uses such range analyses to back test whether
previously established estimates for reserves at the reporting segments are reasonable, given subsequent information. Reported values found to be
closer to the endpoints of a range of reasonable estimates are subject to further detailed reviews. These reviews may substantiate the validity of
management's recorded estimate or lead to a change in the reported estimate.
The exact boundary points of these ranges are more qualitative than quantitative in nature, as no clear line of demarcation exists to determine
when the set of underlying assumptions for an estimation method switches from being reasonable to unreasonable. As a result, the Company does
not believe that the endpoints of these ranges are or would be comparable across companies. In addition, potential interactions among the different
estimation assumptions for different product lines make the aggregation of individual ranges a highly judgmental and inexact process.
Property
- casualty insurance policies are either written on a claims - made or on an occurrence basis. Claims - made policies generally cover,
subject to requirements in individual policies, claims reported during the policy period. Policies that are written on an occurrence basis require that
the insured demonstrate that a loss occurred in the policy period, even if the insured reports the loss many years later.
Most general liability policies are written on an occurrence basis. These policies are subject to substantial loss development over time as facts
and circumstances change in the years following the policy issuance. The occurrence form, which accounts for much of the reserve development in
asbestos and environmental exposures, is also used to provide coverage for construction general liability, including construction defect.
Occurrence
- based forms of insurance for general liability exposures require substantial projection of various trends, including future inflation,
judicial interpretations and societal litigation trends (e.g., size of jury awards and propensity of individuals to pursue litigation), among others.
A basic premise in most actuarial analyses is that past patterns demonstrated in the data will repeat themselves in the future, absent a material
change in the associated risk factors discussed below. To the extent a material change affecting the ultimate claim liability is known, such change is
quantified to the extent possible through an analysis of internal company data and, if available and when appropriate, external data. Such a
measurement is specific to the facts and circumstances of the particular claim portfolio and the known change being evaluated. Significant
structural changes to the available data, product mix or organization can materially impact the reserve estimation process.
Informed judgment is applied throughout the reserving process. This includes the application of various individual experiences and expertise
to multiple sets of data and analyses. In addition to actuaries, experts involved with the reserving process also include underwriting and claims
personnel and lawyers, as well as other company management. Therefore, management may have to consider varying individual viewpoints as part
of its estimation of claims and claim adjustment expense reserves. It is also likely that during periods of significant change, such as a merger,
consistent application of informed judgment becomes even more complicated and difficult.
The variables discussed above in this general discussion have different impacts on reserve estimation uncertainty for a given product line,
depending on the length of the claim tail, the reporting lag, the impact of individual claims and the complexity of the claim process for a given
product line.
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