The Hartford 2008 Annual Report Download - page 122

Table of Contents
Institutional
Institutional’s markets are highly competitive from a pricing perspective, and a small number of cases often account for a
significant portion of deposits. Most Institutional product issuances depend on pricing levels as well as the Company’s credit
ratings and perceived financial stability and may be negatively impacted by rating agency downgrades of the Company that
have occurred during February 2009 or could occur in the future.
During 2008, the Company ceased issuance of retail and institutional funding agreement backed notes, largely due to the
change in customer preference to FDIC-insured products. Prospectively, the Company will issue only Guaranteed
Investment Contracts (GIC) and on a limited basis, funding agreements. The Company will be disciplined and opportunistic
in capturing new GIC and funding agreement opportunities, and accordingly, deposits in 2009 are expected to be
substantially lower than 2008 amounts. The Company expects stable value products will experience negative net flows in
2009 as contractual maturities and the payments associated with certain contracts which allow an investor to accelerate
principal repayments (after a defined notice period of typically thirteen months). Approximately $3.9 billion of account
value will be paid out on stable value contracts during 2009. As of December 31, 2008, Institutional has no remaining
contracts that contain an unexercised investor option feature that allows for contract surrender at book value. The Company
has the option to accelerate the repayment of principal for certain other stable value products and will evaluate calling these
contracts individually based upon the financial benefits to the Company.
The net income of this segment will depend on Institutional’s ability to increase assets under management, mix of business,
net investment spread and investment performance. The net investment spread, discussed in the Performance Measures
section of this MD&A, has declined in 2008 versus prior year amounts and we expect investment spread will remain
pressured in 2009 due to the anticipated performance of limited partnerships and other alternative investments as well as the
decline in short term interest rates.
Property & Casualty
In 2009, management expects Ongoing Operations written premium to be flat to slightly lower, reflecting the continuation of
competitive market conditions. However, written premium growth in 2009 may be significantly lower if the economy
deteriorates more than management expects or if the market perceives greater uncertainty about the financial strength of the
Company as a result of reductions in the financial strength ratings of the Company’s property and casualty subsidiaries that
have occurred or could occur.
Within the Personal Lines segment, the Company expects written premium to be flat to modestly higher in 2009, with
growth in AARP partially offset by a decline in Agency. The Company expects personal auto written premium to be flat to
modestly higher and homeowners’ written premium to be flat to slightly lower. The expected increase in AARP written
premium will be largely driven by continued direct marketing to AARP members and an expansion of underwriting appetite
through the continued roll-out of the “Next Gen Auto” product. The expected decline in Agency written premium will be
driven by the Company’s decision to stop renewing Florida homeowners’ policies sold through agents. Apart from the effect
of non-renewing Florida homeowners business in Agency, management expects a slight increase in Agency written
premium driven by appointing more agents and increasing market penetration in select markets.
In 2009, the Company expects to increase its auto and homeowners written premium generated from direct sales to the
consumer and from agents selling the AARP product. In 2008, the Company launched a brand and channel expansion pilot
in four states: Arizona, Illinois, Tennessee and Minnesota and expects to expand the initiative to additional states in 2009. In
the targeted states, the Company will increase Personal Lines brand advertising and launch direct marketing efforts beyond
its existing AARP program. In addition, certain agents in the targeted states will be authorized to offer the Company’s
AARP product.
While carriers in the personal lines industry will continue to compete on price, management expects that written pricing in
Personal Lines will continue to increase modestly in 2009 in response to rising loss costs. For the Company, written pricing
in 2008 increased 2% in both auto and homeowners.
Within Small Commercial, management expects written premium in 2009 to be flat to slightly lower, primarily driven by an
increase in workers’ compensation written premium with an expected decline in commercial auto written premium.
Contributing to the expected increase in workers’ compensation written premium will be an expansion of underwriting
appetite in selected industries and an expansion of business written through payroll service providers. In 2008, average
premium per policy in Small Commercial is expected to continue to decline due to written pricing decreases, a lower
average premium on Next Generation Auto business and the potential for an increase in mid-term endorsements as insureds
reduce coverage due to the economic downturn. Written pricing in Small Commercial decreased by 2% in 2008.
Management expects that 2009 written premium for Middle Market will be lower as the Company takes a disciplined
approach to evaluating and pricing risks in the face of declines in written pricing. Written pricing for Middle Market
business declined by 5% in 2008 and while management expects written pricing to begin to stabilize in 2009, management
expects carriers will continue to price new business more aggressively than renewals. Management expects to compete for
Source: HARTFORD FINANCIAL S, 10-K, February 12, 2009