Travelers 2015 Annual Report Download - page 142

majority of the reserve for commercial 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
commercial property because of weather-related events which, notwithstanding 2013 through 2015
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 reserve estimates for this product line are also potentially subject to material
changes due to uncertainty in measuring ultimate losses for significant catastrophes such as the events
of September 11, 2001, Hurricane Katrina and Storm Sandy.
The Company’s change in reserve estimate for this product line was 21% for 2015, 18% for
2014 and 17% for 2013. The 2015 change primarily reflected better than expected loss experience
related to catastrophe losses for accident years 2011, 2012 and 2014, and non-catastrophe losses for
accident years 2013 and 2014. The 2014 change primarily reflected better than expected loss experience
for accident years 2010 through 2013, including catastrophe losses from Storm Sandy for accident year
2012. The 2013 change primarily reflected better than expected loss experience related to both
catastrophe and non-catastrophe losses for accident years 2010 through 2012.
Commercial Multi-Peril
Commercial multi-peril provides a combination of property and liability coverage typically for small
businesses and, therefore, includes both short and long tail coverages. For property coverage, it
generally takes a relatively short period of time to close claims, while for the other coverages, generally
for the liability coverages, it takes a longer period of time to close claims.
The reserving risk for this line is dominated by the liability coverage portion of this product, except
occasionally in the event of catastrophic or large single losses. The reserving risk for this line differs
from that of the general liability product line and the property product line due to the nature of the
customer. Commercial multi-peril is generally sold to small- to mid-sized accounts, while the customer
profile for general liability and commercial property includes larger customers.
See ‘‘Commercial property risk factors’’ and ‘‘General liability risk factors,’’ discussed above, with
regard to reserving risk for commercial multi-peril.
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 commercial multi-peril (excluding
asbestos and environmental), a 1% increase (decrease) in incremental paid loss development for each
future calendar year could result in a 1.2% 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 19% to 5% (averaging 3%) for the Company, and from 6% to 0%
(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.
Commercial multi-peril reserves (excluding asbestos and environmental reserves) represent
approximately 7% of the Company’s total claims and claim adjustment expense reserves.
As discussed above, this line combines general liability and commercial property coverages and it
has been impacted in the past by many of the same events as those two lines.
The Company’s change in reserve estimate for this product line was 1% for 2015, 3% for 2014
and 2% for 2013. The 2015 change primarily reflected better than expected loss experience for property
coverages related to non-catastrophe losses for accident years 2012 and 2014. The 2014 change
primarily reflected higher than expected loss experience for liability coverages for accident years 2010
through 2013. The 2013 change primarily reflected higher than expected loss experience for liability
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