Travelers 2015 Annual Report Download - page 147

• Geographic spread of business
Fidelity and Surety book of business risk factors
• Changes in policy provisions (e.g., deductibles, limits, endorsements)
• Changes in underwriting standards
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 fidelity and surety, a 1% increase
(decrease) in incremental paid loss development for each future calendar year could result in a 1.3%
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 36% to 1% (averaging 14%) for the Company, and from 17% to 1%
(averaging 8%) 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. Fidelity
and surety reserves represent approximately 2% of the Company’s total claims and claim adjustment
expense reserves.
In general, developments on single large claims (both adverse and favorable) are a primary source
of changes in reserve estimates for this product line.
The Company’s change in reserve estimate for this product line was 30% for 2015, 36% for
2014 and 21% for 2013. The 2015 change was primarily driven by better than expected loss
experience in the fidelity and surety product line for accident years 2008 through 2014, which was
partially driven by a reduction in outstanding exposures related to the financial crisis that commenced
in 2007. The 2014 change reflected better than expected loss experience in the contract surety product
line for accident years 2012 and prior. The 2013 change reflected better than expected loss experience
in the contract surety product line for accident years 2010 and prior.
Personal Automobile
Personal automobile includes both short and long tail coverages. The payments that are made
quickly typically pertain to auto physical damage (property) claims and property damage (liability)
claims. The payments that take longer to finalize and are more difficult to estimate relate to bodily
injury claims. Reporting lags are relatively short and the claim settlement process for personal
automobile liability generally is the least complex of the liability products. It is generally viewed as a
high frequency, low to moderate severity product line. Overall, the claim liabilities for this line create a
moderate estimation risk.
Personal automobile reserves are typically analyzed in five components: bodily injury liability,
property damage liability, no-fault losses, collision claims and comprehensive claims. These last two
components have minimum reserve risk and fast payouts and, accordingly, separate factors are not
presented.
Examples of common risk factors, or perceptions thereof, that could change and, thus, affect the
required personal automobile reserves (beyond those included in the general reserve discussion section)
include:
Bodily injury and property damage liability risk factors
• Trends in jury awards
• Changes in the underlying court system and its philosophy
• Changes in case law
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