The Hartford 2007 Annual Report Download - page 125

125
Underwriting Results and Ratios
Year ended December 31, 2007 compared to the year ended December 31, 2006
Underwriting results decreased by $58, with a corresponding 3.7 point increase in the combined ratio, to 100.4, due to:
Change in underwriting results
Decrease in earned premiums $(47)
Losses and loss adjustment expenses
Volume change — Decrease in current accident year loss and loss adjustment expenses before
catastrophes due to the decrease in earned premium 37
Ratio change — Decrease in the current accident year non-catastrophe loss and loss adjustment expense
ratio before catastrophes 33
Total decrease in current accident year loss and loss adjustment expenses before catastrophes 70
Reserve changes — Increase in net unfavorable prior accident year reserve development (48)
Net decrease in losses and loss adjustment expenses 22
Operating expenses
Increase in amortization of deferred policy acquisition costs (17)
Increase in insurance operating costs and expenses (16)
Increase in operating expenses (33)
Decrease in underwriting results from 2006 to 2007 $ (58)
Earned premium decreased by $47
Specialty Commercial earned premium decreased by $47, or 3%, to $1,515. Refer to the earned premium discussion for a description of
the decrease in earned premium.
Losses and loss adjustment expenses decreased by $22
Current accident year loss and loss adjustment expenses before catastrophes decreased by $70
Specialty Commercial current accident year loss and loss adjustment expenses before catastrophes decreased by $70 in 2007 to $999,
due to a decrease in earned premium and a 2.2 point decrease in the loss and loss adjustment expense ratio before catastrophes and prior
accident year development, to 66.0. The decrease in the loss and loss adjustment expense ratio before catastrophes and prior accident
year development was driven by a lower loss and loss adjustment ratio on directors and officers insurance in professional liability and a
decrease in non-catastrophe property loss costs on property business, partially offset by a higher loss and loss adjustment expense ratio
on casualty business.
Increase in net unfavorable prior accident year development by $48
Net unfavorable prior accident year reserve development increased from $34, or 2.3 points, in 2006 to $82, or 5.4 points, in 2007. Net
unfavorable prior accident year reserve development of $82 in 2007 consisted primarily of a $47 strengthening of workers’
compensation loss and loss adjustment expense reserves for accident years 1987 to 2001, a $34 strengthening of general liability reserves,
primarily related to accident years 1987 to 1997 and a $25 strengthening of general liability reserves for accident years more than 20 years
old. Partially offsetting the unfavorable reserve development in 2007 was a $22 release of reserves for surety business for accident years
2003 to 2006.
Net unfavorable prior accident year reserve development of $34 in 2006 included a $35 strengthening of reserves for construction
defects claims on casualty business for accident years 1997 and prior and a $20 strengthening of allocated loss adjustment expense
reserves on workers’ compensation policies for claim payments expected to emerge after 20 years of development, partially offset by a
$35 reduction in catastrophe reserves related to the 2005 hurricanes.
Operating expenses increased by $33
Insurance operating costs and expenses increased by $16, primarily due to a $16 increase in policyholder dividends. The $16 increase
in policyholder dividends was largely due to a $10 reduction in estimated policyholder dividends recorded in 2006 and a $7 increase in
estimated policyholder dividends recorded in 2007. The $7 increase in dividends in 2007 was primarily driven by an increase in the
estimated amount of dividends payable to certain workers’ compensation policyholders due to underwriting profits. Amortization of
deferred policy acquisition costs increased by $17, due largely to an increase in amortization for professional liability, fidelity and
surety business driven largely by the increase in earned premiums for that business and a reduction in ceding commissions. The
expense ratio increased by 1.8 points, to 27.5, due largely to the reduction in ceding commission on professional liability business and
the decrease in earned premiums.