Travelers 2014 Annual Report Download - page 143

Table of Contents
claims were reasonably foreseeable and intended to be covered at the time the contracts were written (i.e., coverage dispute potential), and the
potential for mass claim actions. Claims with longer reporting lags result in greater inherent risk. This is especially true for alleged claims with a
latency feature, particularly where courts have ruled that coverage is spread over multiple policy years, hence involving multiple defendants (and
their insurers and reinsurers) and multiple policies (thereby increasing the potential dollars involved and the underlying settlement complexity).
Claims with long latencies also increase the potential recognition lag (i.e., the lag between writing a type of policy in a certain market and the
recognition that such policies have potential mass tort and/or latent claim exposure).
The amount of reserve estimate uncertainty also varies significantly by component for the general liability product line. The components in
this product line with the longest latency, longest reporting lags, largest potential dollars involved and greatest claim settlement complexity are
asbestos and environmental. Components that include latency, reporting lag and/or complexity issues, but to a materially lesser extent than
asbestos and environmental, include construction defect and other mass tort actions. Many components of general liability are not subject to
material latency or claim complexity risks and hence have materially less uncertainty than the previously mentioned components. In general,
policies providing coverage with shorter reporting lags, fewer parties involved in settlement negotiations, only one policy potentially triggered per
claim, fewer potential settlement dollars, reasonably foreseeable (and stable) potential hazards/claims and no mass tort potential result in much less
reserve estimate uncertainty than policies without those characteristics.
In addition to the conventional actuarial methods mentioned in the general discussion section, the company utilizes various report year
development and S
- curve methods for the construction defect components of this product line. The Construction Defect report year development
analysis is supplemented with projected claim counts and average values for IBNR claim counts. For components with greater lags in claim
reporting, such as excess and umbrella components of this product line, the company relies more heavily on the BF method than on the paid and
case incurred development methods.
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
142