The Hartford 2007 Annual Report Download - page 104

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Losses and loss adjustment expenses decreased by $109
Current accident year loss and loss adjustment expenses before catastrophes increased by $143
Ongoing Operations’ current accident year loss and loss adjustment expenses before catastrophes increased by $143 in 2006, to $6,507,
due largely to the increase in earned premium. Excluding the effect of catastrophe treaty reinstatement premium, the current accident
year loss and loss adjustment expense ratio before catastrophes increased by 0.2 points, to 62.4, due to an increase in the current
accident year loss and loss adjustment expense ratio before catastrophes of 0.9 points in Personal Lines, 2.1 points in Middle Market and
0.3 points in Specialty Commercial, largely offset by a decrease in the current accident year loss and loss adjustment expense ratio
before catastrophes of 1.8 points in Small Commercial.
Personal
Lines
Excluding the effect of catastrophe treaty reinstatement premium, the 0.9 point increase in the current
accident year loss and loss adjustment expense ratio before catastrophes in Personal Lines was primarily
due to an increase in non-catastrophe property loss costs for homeowners, primarily driven by an increase
in claim severity, and an increase in the loss and loss adjustment expense ratio for auto liability claims,
partially due to a shift to more Dimensions product business within Agency.
Small
Commercial
Excluding the effect of catastrophe treaty reinstatement premium, the 1.8 point decrease in the current
accident year loss and loss adjustment expense ratio before catastrophes in Small Commercial was
primarily due to a lower loss and loss adjustment expense ratio on workers’ compensation business and a
decrease in non-catastrophe property loss costs, partially offset by a shift to more workers’ compensation
premium which has a higher loss and loss adjustment expense ratio than other business in the segment.
Non-catastrophe property loss costs were favorable primarily due to favorable claim frequency.
Middle
Market
Excluding the effect of catastrophe treaty reinstatement premium, the 2.1 point increase in the current
accident year loss and loss adjustment expense ratio before catastrophes in Middle Market was primarily
due to an increase in non-catastrophe property loss costs, the effect of earned pricing decreases and the
effect of a shift to more workers’ compensation premium which has a higher loss and loss adjustment
expense ratio than other business in the segment. The increase in non-catastrophe property loss costs was
primarily due to increasing claim severity.
Specialty
Commercial
Excluding the effect of catastrophe treaty reinstatement premium, the 0.3 point increase in the current
accident year loss and loss adjustment expense ratio before catastrophes in Specialty Commercial was
primarily due to a higher loss and loss adjustment expense ratio on casualty and professional liability
business and the effect of an increase in the allocation to Specialty Commercial of premiums ceded under
the Company’ s principal property catastrophe reinsurance program, partially offset by lower non-
catastrophe property loss costs.
Current accident year catastrophes decreased by $152
Current accident year catastrophe losses decreased by $152, from $351, or 3.5 points, in 2005 to $199, or 1.9 points, in 2006. The
decrease in current accident year catastrophe losses was primarily due to $264 of net losses incurred for hurricanes Katrina, Rita and
Wilma in 2005, partially offset by an increase in non-hurricane related catastrophes in 2006. Catastrophe losses in 2006 included
tornadoes and hail storms in the Midwest and windstorms in Texas and on the East coast.
Change to net favorable prior accident year reserve development by $100
Prior accident year reserve development changed from net unfavorable development of $36, or 0.4 points, in 2005 to net favorable
development of $64, or 0.6 points, in 2006. The $64 of net favorable prior accident year development in 2006 for Ongoing Operations
was primarily due to an $83 release of prior accident year hurricane reserves and a $58 release of allocated loss adjustment expense
reserves for workers’ compensation and package business, partially offset by reserve strengthenings in Specialty Commercial. Net
unfavorable reserve development of $36 in 2005 included a $120 increase in workers’ compensation reserves related to reserves for
claim payments expected to emerge after 20 years of development, a $40 strengthening of general liability reserves within Middle
Market for accident years 2000 to 2003 due to higher than anticipated loss payments beyond four years of development and $33 of
reserve strengthening related to the third quarter 2004 hurricanes. Partially offsetting the reserve increases in 2005 was a $95 reduction
in prior accident year reserves for allocated loss adjustment expenses in Personal Lines, predominantly related to auto liability claims,
and a $75 reduction in workers’ compensation reserves recorded related to accident years 2003 and 2004. See the “Reserves” section of
the MD&A for further discussion of reserve development.