The Hartford 2007 Annual Report Download - page 117

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Operating expenses increased by $25
The expense ratio decreased by 1.7 points, to 28.5, primarily due to a decrease in insurance operating costs and expenses. Insurance
operating costs decreased by $13, largely because of a $10 decrease in estimated Citizens’ assessments in 2006 compared to a $16
increase in Citizens assessments in 2005. Partially offsetting the improvement due to changes in the Citizens’ assessments was an
increase in IT and other insurance operating costs. Amortization of deferred policy acquisition costs increased by $38, due largely to
the increase in earned premium.
Outlook
Management expects written premium in 2008 to be flat to 3% higher than in 2007 as it seeks to increase the flow of new business from
its agents. Small Commercial expects to increase written premium by selectively expanding its underwriting appetite, refining its
pricing models and upgrading product features. In 2008, the Company expects to add a pricing tier for workers’ compensation business
to provide more pricing flexibility and introduce an enhanced renewal pricing model for the Company’ s Spectrum business owners’
package product. Despite a decline in new business in 2007, management expects new business will increase in 2008, driven by an
increased flow of new business submissions from the larger producers. Including supplemental commissions, the Company has
increased commissions paid to agents and expects that this will help it achieve its growth objectives in 2008.
Through technology and process improvements, in 2008, the Company plans to improve efficiency and service levels in its underwriting
centers and enhance the agent’ s on-line experience. Average premium per policy is expected to continue to decline due to the sale of
more liability-only policies, workers’ compensation rate reductions and a lower average premium on Next Generation Auto business.
Written pricing has remained relatively flat for Small Commercial business as carriers have competed for new business through new
product features and expanded coverage. In 2008, the Company will continue to focus on renewal retention, particularly in the mid-
Western states, where competition has been particularly strong.
Reflecting favorable trends in workers’ compensation loss costs in recent accident years, management expects a slightly lower loss and
loss adjustment expense ratio for workers’ compensation claims in the 2008 accident year, although the improvement, if any, depends
on continued favorable frequency. Loss costs are expected to continue to increase on non-catastrophe commercial auto property claims,
reflecting a continuation of higher loss costs on commercial auto business in 2007. Based on anticipated trends in earned pricing and
loss costs, the combined ratio before catastrophes and prior accident year development is expected to be in the range of 86.0 to 89.0 in
2008. The combined ratio before catastrophes and prior accident year development was 88.0 in 2007.
To summarize, management’ s outlook in Small Commercial for the 2008 full year is:
• Written premium flat to 3% higher
• A combined ratio before catastrophes and prior accident year development of 86.0 to 89.0