The Hartford 2008 Annual Report Download - page 181

Table of Contents
Net realized capital gains (losses)
When fixed maturity, equity or other investments are sold, any gain or loss is reported in net realized capital gains (losses).
Individual securities may be sold for a variety of reasons, including a decision to change the Company’s asset allocation in
response to market conditions and the need to liquidate funds to meet large claim settlements. Accordingly, net realized
capital gains (losses) for any particular period are not predictable and can vary significantly. In addition, net realized capital
gains (losses) include other-than-temporary impairments in the fair value of investments, changes in the fair value of
non-qualifying derivatives and hedge ineffectiveness on qualifying derivative instruments. Refer to the Investment section of
MD&A for further discussion of net investment income and net realized capital gains (losses).
Reserves
Reserving for property and casualty losses is an estimation process. As additional experience and other relevant claim data
become available, reserve levels are adjusted accordingly. Such adjustments of reserves related to claims incurred in prior
years are a natural occurrence in the loss reserving process and are referred to as “reserve development”. Reserve
development that increases previous estimates of ultimate cost is called “reserve strengthening”. Reserve development that
decreases previous estimates of ultimate cost is called “reserve releases”. Reserve development can influence the
comparability of year over year underwriting results and is set forth in the paragraphs and tables that follow. The “prior
accident year development (pts.)” in the following table represents the ratio of reserve development to earned premiums. For
a detailed discussion of the Company’s reserve policies, see Notes 1, 11 and 12 of Notes to Consolidated Financial
Statements and the Critical Accounting Estimates section of the MD&A.
Based on the results of the quarterly reserve review process, the Company determines the appropriate reserve adjustments, if
any, to record. Recorded reserve estimates are changed after consideration of numerous factors, including but not limited to,
the magnitude of the difference between the actuarial indication and the recorded reserves, improvement or deterioration of
actuarial indications in the period, the maturity of the accident year, trends observed over the recent past and the level of
volatility within a particular line of business. In general, changes are made more quickly to more mature accident years and
less volatile lines of business. For information regarding reserving for asbestos and environmental claims within Other
Operations, refer to the Other Operations segment discussion.
As part of its quarterly reserve review process, the Company is closely monitoring reported loss development in certain lines
where the recent emergence of paid losses and case reserves could indicate a trend that may eventually lead the Company to
change its estimate of ultimate losses in those lines. If, and when, the emergence of reported losses is determined to be a
trend that changes the Company’s estimate of ultimate losses, prior accident year reserves would be adjusted in the period
the change in estimate is made.
For example, the Company has experienced favorable emergence of reported workers’ compensation claims for recent
accident years and, during 2008, released workers’ compensation reserves in Small Commercial and Middle Market by a
total of $156, primarily related to accident years 2000 to 2007. If reported losses on workers’ compensation claims for recent
accident years continue to emerge favorably, reserves could be reduced further.
The Company has also seen favorable emergence during 2008 on Personal Lines auto liability claims. The severity of
reported claims for the 2005 through 2007 accident years and the frequency of reported claims for the 2008 accident year
have been lower than expected and reserves were released in the third and fourth quarter of 2008 as a result. If these
favorable trends continue, future releases are possible.
The Company expects to perform its regular reviews of asbestos liabilities in the second quarter of 2009, Other Operations’
reinsurance recoverables and the allowance for uncollectible reinsurance in the second quarter of 2009 and environmental
liabilities in the third quarter of 2009. If there are significant developments that affect particular exposures, reinsurance
arrangements or the financial conditions of particular reinsurers, the Company will make adjustments to its reserves, or the
portion of liabilities it expects to cede to reinsurers.
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Source: HARTFORD FINANCIAL S, 10-K, February 12, 2009