Travelers 2014 Annual Report Download - page 142

Table of Contents
provided for the U.S. product lines. This information is provided for both the Company and the industry for the nine most recent years, and is
based on the most recent publicly available data for the reported line(s) that most closely match the individual product line being discussed. These
changes were calculated, net of reinsurance, from statutory annual statement data found in Schedule P of those statements, and represent the
reported reserve development on the beginning
- of - the - year claim liabilities divided by the beginning claim liabilities, all accident years combined,
excluding non
- defense related claim adjustment expense. Data presented for the Company includes history for the entire Travelers group (U.S.
companies only), whether or not the individual subsidiaries were originally part of The St. Paul Companies, Inc. (SPC) or TPC. This treatment is
required by the statutory reporting instructions promulgated by state regulatory authorities for Schedule P. Comparable data for non
- U.S.
companies is not available.
General Liability
General liability is generally considered a long tail line, as it takes a relatively long period of time to finalize and settle claims from a given
accident year. The speed of claim reporting and claim settlement is a function of the specific coverage provided, the jurisdiction and specific policy
provisions such as self
- insured retentions. There are numerous components underlying the general liability product line. Some of these have
relatively moderate payment patterns (with most of the claims for a given accident year closed within five to seven years), while others can have
extreme lags in both reporting and payment of claims (e.g., a reporting lag of a decade or more for "construction defect" claims).
While the majority of general liability coverages are written on an "occurrence" basis, certain general liability coverages (such as those
covering directors and officers or professional liability) are typically insured on a "claims
- made" basis.
General liability reserves are generally analyzed as two components: primary and excess/umbrella, with the primary component generally
analyzed separately for bodily injury and property damage. Bodily injury liability payments reimburse the claimant for damages pertaining to
physical injury as a result of the policyholder's legal obligation arising from non
- intentional acts such as negligence, subject to the insurance
policy provisions. In some cases the damages can include future wage loss (which is a function of future earnings power and wage inflation) and
future medical treatment costs. Property damage liability payments result from damages to the claimant's private property arising from the
policyholder's legal obligation for non - intentional acts. In most cases, property damage losses are a function of costs as of the loss date, or soon
thereafter.
In addition, sizable or unique exposures are reviewed separately. These exposures include asbestos, environmental, other mass torts,
construction defect and large unique accounts that would otherwise distort the analysis. These unique categories often require a very high degree
of judgment and require reserve analyses that do not rely on conventional actuarial methods.
Defense costs are also a part of the insured costs covered by liability policies and can be significant, sometimes greater than the cost of the
actual paid claims. For some products this risk is mitigated by policy language such that the insured portion of defense costs is included in the
policy limit available to pay the claim. Such "defense within the limits" policies are most common for "claims
- made" products. When defense costs
are outside of the policy limits, the full amount of the policy limit is available to pay claims and the amounts paid for defense costs have no
contractual limit.
This line is typically the largest source of reserve estimate uncertainty in the United States (excluding assumed reinsurance contracts covering
the same risk). Major contributors to this reserve estimate uncertainty include the reporting lag (i.e., the length of time between the event triggering
coverage and the actual reporting of the claim), the number of parties involved in the underlying tort action, whether the "event" triggering
coverage is confined to only one time period or is spread over multiple time periods, the potential dollars involved (in the individual claim actions),
whether such
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