Travelers 2014 Annual Report Download - page 146

Table of Contents
Commercial Multi - Peril
Commercial multi - peril provides a combination of property and liability coverage typically for small businesses and, therefore, includes both
short and long tail coverages. For property coverage, it generally takes a relatively short period of time to close claims, while for the other
coverages, generally for the liability coverages, it takes a longer period of time to close claims.
The reserving risk for this line is dominated by the liability coverage portion of this product, except occasionally in the event of catastrophic or
large single losses. The reserving risk for this line differs from that of the general liability product line and the property product line due to the
nature of the customer. Commercial multi
- peril is generally sold to smaller - sized accounts, while the customer profile for general liability and
commercial property includes larger customers.
See "Commercial property risk factors" and "General liability risk factors," discussed above, with regard to reserving risk for commercial multi
-
peril.
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 commercial multi
- peril (excluding asbestos and environmental), a 1% increase (decrease) in incremental paid loss development
for each future calendar year could result in a 1.2% 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 –19% to 5% (averaging –
4%) for the Company, and from –6% to 0% (averaging –3%) 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 multi - peril reserves (excluding asbestos and environmental reserves) represent
approximately 7% of the Company's total claims and claim adjustment expense reserves.
As discussed above, this line combines general liability and commercial property coverages and it has been impacted in the past by many of
the same events as those two lines.
The Company's change in reserve estimate for this product line was 3% for 2014, 2% for 2013 and –
1% for 2012. The 2014 change primarily
reflected higher than expected loss experience for liability coverages for accident years 2010 through 2013. The 2013 change primarily reflected
higher than expected loss experience for liability coverages for accident years 2008 through 2011, driven by higher than expected severity and
defense costs.
Commercial Automobile
The commercial automobile product line is a mix of property and liability coverages and, therefore, includes both short and long tail coverages.
The payments that are made quickly typically pertain to auto physical damage (property) claims and property damage (liability) claims. The
payments that take longer to finalize and are more difficult to estimate relate to bodily injury claims. In general, claim reporting lags are minor, claim
complexity is not a major issue, and the line is viewed as high frequency, low to moderate severity. Overall, the claim liabilities for this line create a
moderate estimation risk.
Commercial automobile reserves are typically analyzed in four components: bodily injury liability; property damage liability; collision claims;
and comprehensive claims. These last two components have minimum reserve risk and fast payouts and, accordingly, separate risk factors are not
presented.
The Company utilizes the conventional actuarial methods mentioned in the general discussion above in estimating claim liabilities for this line.
This is supplemented with detailed custom analyses where needed.
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