Travelers 2015 Annual Report Download - page 24

Claims and Claim Adjustment Expense Development Table
The table that follows sets forth the year-end reserves from 2005 through 2015 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 2005 through 2012 have not been restated to reflect the
acquisition of Dominion in November 2013 or the acquisition of Travelers Participa¸c˜ oes em Seguros
Brasil S.A. in October 2015. The table includes Dominion’s reserves beginning at December 31, 2013
and Travelers Participa¸c˜ oes em Seguros Brasil S.A.’s reserves beginning at December 31, 2015.
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 2005 to 2015 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 2005 included $4 million for a loss that is finally paid in 2009 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 as a reduction in the cumulative redundancies in each of the years 2005
to 2008 shown in the accompanying table.
Various factors may distort the re-estimated reserves and cumulative deficiency or redundancy
shown in the table. For example, each year is impacted by claims on policies written prior to the
mid-1980’s 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 a 5% interest rate. 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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