Mercury Insurance 2009 Annual Report Download - page 59

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(2) Claim Count Development
The Company generally estimates ultimate claim counts for an accident period based on development of
claim counts in prior accident periods. For California automobile BI claims, the Company has experienced that
approximately 2% to 10% additional claims will be reported in the year subsequent to an accident year. However,
such late reported claims could be more or less than the Company’s expectations. Typically, almost every claim
is reported within one year following the end of an accident year and at that point the Company has a high degree
of certainty as to what the ultimate claim count will be. The following table shows the number of BI claims
reported at the end of the accident period and one year later:
California Bodily Injury Claim Count Development Table
Accident year
Number of claims
reported at December 31 of
each accident year
Number of claims
reported at December 31
one year later
Percentage increase in
number of claims
reported
2003 ........... 33,043 36,314 9.9%
2004 ........... 35,084 37,246 6.2%
2005 ........... 34,845 36,802 5.6%
2006 ........... 34,455 37,098 7.7%
2007 ........... 33,378 35,638 6.8%
2008 ........... 29,647 30,229 2.0%
As illustrated in the table above, excluding 2003 and 2008, the range of the percentage increase in number
of claims reported has been between approximately 5% and 8%. The number of BI claims increased by 9.9% and
2.0% in 2003 and 2008, respectively, amounts that are somewhat outside the normal range. There are many
potential factors that can affect the number of claims reported after a period end. These factors include changes
in weather patterns, a change in the number of litigated files, and whether the last day of the year falls on a
weekday or a weekend. However, the Company is unable to determine which, if any, of the factors actually
impact the number of claims reported and, if so, by what magnitude.
At December 31, 2009, there were 25,684 BI claims reported for the 2009 accident year and the Company
estimates that these are expected to ultimately grow by 5.9%. The Company believes that while actual
development in recent years has ranged between approximately 2% and 10%, it is reasonable to expect that the
range could be as great as between 0% and 12%. Actual development may be more or less than the expected
range.
The following table shows the effect on loss development based on different claim count within the broader
possible range at December 31, 2009:
California Bodily Injury Claim Count Reserve Sensitivity Analysis
2009 Accident Year Claims Reported
Amount Recorded
at 12/31/09 at 5.9%
Claim Count
Development
Total Expected
Amount If Claim
Count Development is
0%
Total Expected
Amount If Claim
Count Development is
12%
Claim Count .................... 25,684 27,199 25,684 28,766
Approximate average cost per claim . . Not meaningful $ 8,938 $ 8,938 $ 8,938
Total dollars ..................... Notmeaningful $243,100,000 $229,600,000 $257,100,000
Total Loss Development—Favorable (Unfavorable) ..... $ 13,500,000 $ (14,000,000)
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