The Hartford 2008 Annual Report Download - page 213

Table of Contents
Personal Lines • Excluding the effect of Omni, the 3.3 point increase in the current accident year
loss and loss adjustment expense ratio before catastrophes in Personal Lines was
primarily due to increased severity on auto liability claims, increased frequency on
auto property damage claims and, to a lesser extent, increased severity on
homeowners claims, partially offset by the effect of earned pricing increases in
homeowners.
Small Commercial • The 1.4 point increase in the current accident year loss and loss adjustment expense
ratio before catastrophes in Small Commercial was primarily due to a higher loss
ratio and loss adjustment expense ratio for package business and commercial auto
claims, partially offset by a lower loss and loss adjustment expense ratio for
workers’ compensation claims.
Middle Market • The 1.9 point increase in the current accident year loss and loss adjustment expense
ratio before catastrophes in Middle Market was primarily due to a higher loss and
loss adjustment expense ratio for workers’ compensation, general liability and
commercial auto claims driven, in part, by earned pricing decreases. For
commercial auto, loss costs increased for both liability and property damage
claims.
Specialty Commercial • The 1.8 point decrease in the current accident year loss and loss adjustment expense
ratio before catastrophes in Specialty Commercial was primarily due to a lower
loss and loss adjustment ratio on directors and officers insurance in professional
liability, partially offset by a higher loss and loss adjustment expense ratio on
casualty business.
Current accident year catastrophes decreased by $22
Current accident year catastrophe losses decreased by $22, from $199, or 1.9 points, in 2006 to $177, or 1.7 points, in 2007.
The largest catastrophe losses in 2007 were from wildfires in California, spring windstorms in the Southeast and Northeast,
tornadoes and thunderstorms in the Midwest and a December ice storm in the Midwest. Catastrophes in 2006 included
tornadoes and hail storms in the Midwest and windstorms in Texas and on the East coast.
Increase in net favorable prior accident year reserve development by $81
Net favorable prior accident year reserve development increased from $64, or 0.6 points, in 2006 to $145, or 1.4 points, in
2007. Net favorable reserve development of $145 in 2007 included several changes in reserves, including a $151 release of
workers’ compensation loss and loss adjustment expense reserves, primarily for accident years 2002 to 2006. Refer to the
“Reserves” section of the MD&A for further discussion of the prior accident year reserve development in 2007.
The $64 of net favorable prior accident year development in 2006 included several changes in reserves, including an $83 net
release of prior accident year hurricane reserves. Refer to the “Reserves” section of the MD&A for further discussion of the
prior accident year reserve development in 2006.
Operating expenses increased by $123
The 0.7 point increase in the expense ratio and the 0.3 point increase in the policyholder dividend ratio was primarily due to
an increase in insurance operating costs and expenses. Insurance operating costs and expenses increased by $125, partly
because insurance operating costs and expenses in 2006 included the effect of a $41 reduction of estimated Citizens’
assessments related to the 2005 Florida hurricanes. Also contributing to the increase in insurance and operating costs and
expenses was a $34 increase in policyholder dividends due largely to a $20 increase in the estimated amount of dividends
payable to certain workers’ compensation policyholders due to underwriting profits. Apart from the effect of Citizens
assessments and policyholder dividends, insurance operating costs and expenses increased by $50, primarily due to an
increase in IT costs and an increase in non-deferrable salaries and benefits and other internal operating costs.
Despite the increase in earned premium, amortization of deferred policy acquisition costs remained relatively flat from 2006
to 2007 due to the effect of the sale of Omni. Excluding the effect of Omni, amortization increased by $28, or 1%, primarily
driven by the 2% growth in earned premiums excluding Omni. In 2006, Omni accounted for $127 of earned premiums and
$30 of amortization.
Net investment income increased by $214
Primarily driving the $214 increase in net investment income was a higher average invested asset base and income earned
from a higher portfolio yield. The increase in the average invested asset base contributing to the increase in investment
income was primarily due to positive operating cash flows, partially offset by the return of capital to Corporate. Contributing
Source: HARTFORD FINANCIAL S, 10-K, February 12, 2009