Progressive 2013 Annual Report Download - page 58

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The table below presents the actuarial adjustments implemented and the loss reserve development experienced in the
years ended December 31:
($ in millions) 2013 2012 2011
ACTUARIAL ADJUSTMENTS
Reserve decrease/(increase)
Prior accident years $ 62.4 $ 85.1 $ 151.7
Current accident year 22.0 (48.3) 91.7
Calendar year actuarial adjustments $ 84.4 $ 36.8 $ 243.4
PRIOR ACCIDENT YEARS DEVELOPMENT
Favorable/(Unfavorable)
Actuarial adjustments $ 62.4 $ 85.1 $ 151.7
All other development (107.5) (107.1) 90.3
Total development $ (45.1) $ (22.0) $ 242.0
(Increase)/decrease to calendar year combined ratio (.3) pts. (.1) pts. 1.6 pts.
Total development consists both of actuarial adjustments and “all other development.” The actuarial adjustments represent
the net changes made by our actuarial department to both current and prior accident year reserves based on regularly
scheduled reviews. Through these reviews, our actuaries identify and measure variances in the projected frequency and
severity trends, which allows them to adjust the reserves to reflect the current costs. We report these actuarial adjustments
separately for the current and prior accident years to reflect these adjustments as part of the total prior accident years’
development.
“All other development” represents claims settling for more or less than reserved, emergence of unrecorded claims at rates
different than anticipated in our incurred but not recorded (IBNR) reserves, and changes in reserve estimates on specific
claims. Although we believe that the development from both the actuarial adjustments and “all other development” generally
results from the same factors, as discussed below, we are unable to quantify the portion of the reserve development that
might be applicable to any one or more of those underlying factors.
Our objective is to establish case and IBNR reserves that are adequate to cover all loss costs, while incurring minimal
variation from the date that the reserves are initially established until losses are fully developed. As reflected in the table
above, we experienced minor unfavorable reserve development in 2013 and 2012 and favorable reserve development in
2011.
2013
• Approximately 80% of the unfavorable reserve development was attributable to accident year 2011, while the
remaining 20% was related to accident year 2012. The aggregate reserve development for accident years 2010
and prior was slightly favorable.
• About 55% of our unfavorable reserve development was in our Commercial Lines business, with the remainder
split about equally between our Personal Lines business and our run-off businesses. In our Personal Lines
business, unfavorable development in our Agency auto channel was offset in large part by favorable development
in our Direct auto channel.
• The unfavorable reserve development in our Agency auto business was in our IBNR reserves due to higher
frequency and severity on late emerging claims, as primarily reflected in the “all other development.”
• Lower than anticipated severity costs on case reserves was the primary contributor to the favorable development in
our Direct auto business.
• In our Commercial Lines business, we experienced unfavorable development due to higher frequency and severity
on late emerging claims primarily in our bodily injury coverage for our truck business.
• In our other businesses, we experienced unfavorable development primarily due to reserve increases in our run-off
professional liability group business based on recent internal actuarial reviews of our claims history.
App.-A-58