Travelers 2014 Annual Report Download - page 26

Table of Contents
Claims and Claim Adjustment Expense Development Table
The table that follows sets forth the year
- end reserves from 2004 through 2014 and the subsequent changes in those reserves, presented on a
historical basis. The original estimates, cumulative amounts paid and re
- estimated reserves in the table for 2004 through 2012 have not been
restated to reflect the acquisition of Dominion in November 2013. The table includes Dominion's reserves beginning at December 31, 2013.
The data in the table is presented in accordance with reporting requirements of the Securities and Exchange Commission (SEC). Care must be
taken to avoid misinterpretation by those unfamiliar with this information or familiar with other data commonly reported by the insurance industry.
The data in the table is not accident year data, but rather a display of 2004 to 2014 year
- end reserves and the subsequent changes in those
reserves.
For instance, the cumulative deficiency or redundancy shown in the table for each year represents the aggregate amount by which original
estimates of reserves as of that year
- end have changed in subsequent years. Accordingly, the cumulative deficiency or redundancy for a year
relates only to reserves at that year
- end and those amounts are not additive. Expressed another way, if the original reserves at the end of 2004
included $4 million for a loss that is finally paid in 2008 for $5 million, the $1 million deficiency (the excess of the actual payment of $5 million over
the original estimate of $4 million) would be included in the cumulative deficiency for 2004 and would also be reflected as a reduction in the
cumulative redundancies in each of the years 2005 to 2007 shown in the accompanying table.
Various factors may distort the re
- estimated reserves and cumulative deficiency or redundancy shown in the table. For example, a substantial
portion of the cumulative deficiency shown in the table for 2004 arise from claims on policies written prior to the mid
- 1980s involving liability
exposures such as asbestos and environmental claims. In the post
- 1984 period, the Company has developed more stringent underwriting standards
and policy exclusions and has significantly contracted or terminated the writing of these risks. See "Item 7—Management's Discussion and
Analysis of Financial Condition and Results of Operations—Asbestos Claims and Litigation," and "—Environmental Claims and Litigation."
General conditions and trends that have affected the development of these liabilities in the past will not necessarily recur in the future.
Other factors that affect the data in the table include the discounting of certain reserves (as discussed above) and the use of retrospectively
rated insurance policies. For example, reserves for long
- term disability and annuity claim payments (tabular reserves), primarily arising from workers'
compensation insurance and workers' compensation excess insurance policies, are discounted to reflect the time value of money. Apparent
deficiencies will continue to occur as the discount on these workers' compensation reserves is accreted at the appropriate interest rates. Also, a
portion of National Accounts business is underwritten with retrospectively rated insurance policies in which the ultimate loss experience is
primarily borne by the insured. For this business, increases in loss experience result in an increase in reserves and an offsetting increase in
amounts recoverable from insureds. Likewise, decreases in loss experience result in a decrease in reserves and an offsetting decrease in amounts
recoverable from these insureds. The amounts recoverable on these retrospectively rated policies mitigate the impact of the cumulative deficiencies
or redundancies on the Company's earnings but are not reflected in the table.
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