Travelers 2014 Annual Report Download - page 40

Table of Contents
39
The basic premise of the method is that the historical ratio of additional claim activity to
earned premium for a given product line component/age
- to - age period is stable and
predictable. It implicitly assumes that the actual activity to date for past periods for that
cohort is not a credible predictor of future activity for that cohort, or at least is not credible
enough to override the "a priori" assumption as to future activity. It may be applied to either
paid or case incurred claim data. It is used most often where the claim data is sparse and/or
volatile and for relatively young cohorts with low volumes and/or data credibility.
To illustrate, the method may assume that the ratio of additional paid losses from the 12 to
24 month period for an accident year is 10% of the original "a priori" expected losses for that
accident year. The original "a priori" expected losses are typically based on the original loss
ratio assumption for that accident year, with subsequent adjustment as facts develop.
The ultimate losses equal actual activity to date plus the expected values for future periods.
Broker
One who negotiates contracts of insurance or reinsurance on behalf of an insured party,
receiving a commission from the insurer or reinsurer for placement and other services
rendered.
Capacity
The percentage of statutory capital and surplus, or the dollar amount of exposure, that an
insurer or reinsurer is willing or able to place at risk. Capacity may apply to a single risk, a
program, a line of business or an entire book of business. Capacity may be constrained by
legal restrictions, corporate restrictions or indirect restrictions.
Captive
A closely - held insurance company whose primary purpose is to provide insurance coverage
to the company's owners or their affiliates.
Case - incurred development method
A conventional actuarial method to estimate ultimate losses for a given cohort of claims
such as an accident year/product line component. If the paid
- to - date losses are then
subtracted from the estimated ultimate losses, the result is an indication of the unpaid
losses.
The approach is the same as that described in this glossary under the "paid loss
development method," but based on the growth in cumulative case
- incurred losses (i.e., the
sum of claim - adjustor incurred estimates for claims in the cohort) rather than paid losses.
The basic premise of the method is that cumulative case incurred losses for a given cohort of
claims will grow in a stable, predictable pattern from year
- to - year, based on the age of the
cohort.
Case reserves
Claim department estimates of anticipated future payments to be made on each specific
individual reported claim.