Travelers 2014 Annual Report Download - page 46

Table of Contents
45
National Association of Insurance Commissioners
(NAIC)
An organization of the insurance commissioners or directors of all 50 states, the District of
Columbia and the five U.S. territories organized to promote consistency of regulatory
practice and statutory accounting standards throughout the United States.
Net written premiums
Direct written premiums plus assumed reinsurance premiums less premiums ceded to
reinsurers.
New business volume
The amount of written premium related to new policyholders and additional products sold to
existing policyholders.
Operating income (loss)
Net income (loss) excluding the after - tax impact of net realized investment gains (losses),
discontinued operations and cumulative effect of changes in accounting principles when
applicable.
Operating income (loss) per share
Operating income (loss) on a per share basis.
Operating return on equity
The ratio of operating income to average equity excluding net unrealized investment gains
and losses and discontinued operations, net of tax.
Paid 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 basic premise of the method is that cumulative paid 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.
These age
- to - age growth factors are sometimes called "link ratios."
For example, if cumulative paid losses for a product line XYZ for accident year 2004 were
$100 as of December 31, 2004 (12 months after the start of that accident year), then grew to
$120 as of December 31, 2005 (24 months after the start), the link ratio for that accident year
from 12 to 24 months would be 1.20. If the link ratio for other recent accident years from 12 to
24 months for that product line were also at or around 1.20, then the method would assume a
similar result for the most recent accident year, i.e., that it too would have its cumulative paid
losses grow 120% from the 12 month to 24 month valuation.
This is repeated for each age - to - age period into the future until the age - to - age link ratios for
future periods are assumed to be 1.0 (i.e., the age at which cumulative losses are assumed to
have stopped growing).