Travelers 2014 Annual Report Download - page 152

Table of Contents
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Changes in cost of medical treatments
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Degree of patient responsiveness to treatment
Personal automobile book of business risk factors
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Changes in policy provisions (e.g., deductibles, policy limits, endorsements, etc.)
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Changes in underwriting standards
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Changes in the use of credit data for rating and underwriting
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 personal automobile, 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 –7% to 3% (averaging –
1%) for the Company, and from –4% to –1% (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. Personal automobile reserves represent approximately 5% of the Company's total claims and
claim adjustment expense reserves.
The Company's change in reserve estimate for this product line was 1% for 2014, 1% for 2013 and 2% for 2012. The 2012 change was primarily
driven by higher than expected bodily injury severity for accident year 2011.
Homeowners and Personal Lines Other
Homeowners is generally considered a short tail coverage. Most payments are related to the property portion of the policy, where the claim
reporting and settlement process is generally restricted to the insured and the insurer. Claims on property coverage are typically reported soon
after the actual damage occurs, although delays of several months are not unusual. The resulting settlement process is typically fairly short term,
although exceptions do exist.
The liability portion of the homeowners policy generates claims which take longer to pay due to the involvement of litigation and negotiation,
but with generally small reporting lags.
Overall, the line is generally high frequency, low to moderate severity (except for catastrophes), with simple to moderate claim complexity.
Homeowners reserves are typically analyzed in two components: non
- catastrophe related losses and catastrophe loss payments.
Examples of common risk factors, or perceptions thereof, that could change and, thus, affect the required homeowners reserves (beyond those
included in the general discussion section) include:
Non
- catastrophe risk factors
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Salvage opportunities
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Amount of time to return property to residential use
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Changes in weather patterns
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Local building codes
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Litigation trends
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