Travelers 2014 Annual Report Download - page 145

Table of Contents
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For the more severe catastrophic events, "demand surge" inflation, which refers to significant short - term increases in building
material and labor costs due to a sharp increase in demand for those materials and services
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Local building codes
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Amount of time to return property to full usage (for business interruption claims)
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Frequency of claim re - openings on claims previously closed
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Court interpretation of policy provisions (such as occurrence definition, or wind versus flooding)
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Lags in reporting claims (e.g., winter damage to summer homes, hidden damage after an earthquake, hail damage to roofs and/or
equipment on roofs)
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Court or legislative changes to the statute of limitations
Commercial property book of business risk factors
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Policy provisions mix (e.g., deductibles, policy limits, endorsements)
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Changes in underwriting standards
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 property, a 1% increase (decrease) in incremental paid loss development for each future calendar year could result in a 1.1%
increase (decrease) in claims and claim adjustment expense reserves.
Historically, the one
- year change in the reserve estimate for this product line over the last nine years has varied from –25% to –5% (averaging
–16%) for the Company, and from –14% to –5% (averaging –9%) 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. Commercial property reserves represent approximately 3% of the Company's total
claims and claim adjustment expense reserves.
Since commercial property is considered a short tail coverage, the one year change for commercial 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 commercial 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 commercial property because of
weather
- related events which, notwithstanding 2013 and 2014 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
reserve estimates for this product line are also potentially subject to material changes due to uncertainty in measuring ultimate losses for significant
catastrophes such as the events of September 11, 2001, Hurricane Katrina and Storm Sandy.
The Company's change in reserve estimate for this product line was –
18% for 2014, – 17% for 2013 and –22% for 2012. The 2014 change
primarily reflected better than expected loss experience for accident years 2010 through 2013, including catastrophe losses from Storm Sandy for
accident year 2012. The 2013 change primarily reflected better than expected loss experience for accident years 2010 through 2012, driven by
favorable loss development related to both catastrophe and non - catastrophe losses. The 2012 change primarily reflected better than expected
development for accident years 2009 through 2011, driven by favorable loss development related to catastrophe losses incurred in 2011, and by
higher subrogation and salvage recoveries for accident years 2009 through 2011.
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