Travelers 2014 Annual Report Download - page 153

Table of Contents
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Trends in jury awards
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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
Catastrophe risk factors
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Physical concentration of policyholders
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Availability and cost of local contractors
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Local building codes
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Quality of construction of damaged homes
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Amount of time to return property to residential use
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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
Homeowners book of business risk factors
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Policy provisions mix (e.g., deductibles, policy limits, endorsements, etc.)
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Degree of concentration of policyholders
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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 homeowners and personal lines other, 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 (excluding the umbrella line of business, which for statutory
reporting purposes is included with the general liability line of business) over the last nine years has varied from –22% to 2% (averaging –
11%) for
the Company, and from –7% to –2% (averaging –5%) 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. Homeowners and personal lines other reserves represent approximately 2% of the Company's
total claims and claim adjustment expense reserves.
This line combines both liability and property coverages; however, the majority of the reserves relate to property. While property is
considered a short tail coverage, the one year change for 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 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 property because of weather related events which, notwithstanding 2010 and 2011
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 Company's change in reserve estimate for this product line (excluding the umbrella line of business) was –
16% for 2014, – 17% for 2013 and
–11% for 2012. The 2014 change was primarily
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