The Hartford 2007 Annual Report Download - page 19

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The following table is derived from the Loss Development table and summarizes the effect of reserve re-estimates, net of reinsurance,
on calendar year operations for the ten-year period ended December 31, 2007. The total of each column details the amount of reserve
re-estimates made in the indicated calendar year and shows the accident years to which the re-estimates are applicable. The amounts in
the total accident year column on the far right represent the cumulative reserve re-estimates during the ten year period ended December
31, 2007 for the indicated accident year(s).
Effect of Net Reserve Re-estimates on Calendar Year Operations
Calendar Year
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Total
By Accident year
1997 & Prior $ (155) $ (297) $ (135) $(45) $41 $2,868 $452 $142 $ 524 $603 $3,998
1998 — 57 42 60 38 11 82 72 (15) 38 385
1999 — — 89 40 92 32 113 98 (46) (17) 401
2000 — — — 88 146 73 177 152 1 80 717
2001 — — — — (24) 39 (232) 193 38 55 69
2002 — — — — — (199) (56) 180 36 (5) (44)
2003 — — — — — — (122) (237) (31) (126) (516)
2004 — — — — — — — (352) (108) (226) (686)
2005 — — — — — — — — (103) (214) (317)
2006 — — — — — — — — — (140) (140)
Total $ (155) $ (240) $ (4) $143 $293 $2,824 $414 $248 $ 296 $48 $3,867
During the 2007 calendar year, the Company refined its processes for allocating incurred but not reported (IBNR) reserves by accident
year, resulting in a reclassification of $347 of IBNR reserves from the 2003 to 2006 accident years to the 2002 and prior accident years.
This reclassification of reserves by accident year had no effect on total recorded reserves within any segment or on total recorded
reserves for any line of business within a segment.
Reserve changes for accident years 1997 & Prior
The largest impacts of net reserve re-estimates are shown in the “1997 & Prior” accident years. The reserve re-estimates in calendar
year 2003 include an increase in reserves of $2.6 billion related to reserve strengthening based on the Company’ s evaluation of its
asbestos reserves. The reserve evaluation that led to the strengthening in calendar year 2003 confirmed the Company’s view of the
existence of a substantial long-term deterioration in the asbestos litigation environment. The reserve re-estimates in calendar years
2004 and 2006 were largely attributable to reductions in the reinsurance recoverable asset associated with older, long-term casualty
liabilities. Excluding the impacts of asbestos and environmental strengthening, over the past ten years, reserve re-estimates for total
Property & Casualty ranged from (3)% to 1.6% of total net recorded reserves.
Apart from the effect of reserve reclassifications by accident year, during the 2007 calendar year, the Company strengthened workers’
compensation and general liability reserves by $79 related to accident years prior to 1987 and recorded a charge of $99 principally as a
result of an adverse arbitration decision involving claims prior to 1993 that were owed to an insurer of the Company’ s former parent.
Reserve changes for accident years 1998 to 2000
Until calendar year 2006, there was reserve deterioration, spread over several calendar years, on accident years 1998-2000. Assumed
casualty reinsurance contributed in part to this deterioration. Numerous actuarial assumptions on assumed casualty reinsurance turned
out to be low, including loss cost trends, particularly on excess of loss business, and the impact of deteriorating terms and conditions.
Workers’ compensation also contributed to this deterioration, as medical inflation trends were above initial expectations.
Reserve changes for accident years 2001 and 2002
Accident years 2001 and 2002 are reasonably close to original estimates. However, each year shows some swings by calendar period,
with some favorable development later offset by unfavorable development. The release for accident year 2001 during calendar year
2004 relates primarily to reserves for September 11. Subsequent adverse developments on accident year 2001 relate to assumed
casualty reinsurance and unexpected development on mature claims in both general liability and workers’ compensation. Reserve
releases for accident year 2002 during calendar years 2003 and 2004 come largely from short-tail lines of business, where results
emerge quickly and actual reported losses are predictive of ultimate losses. Reserve increases on accident year 2002 during calendar
year 2005 were recognized, as unfavorable development on accident years prior to 2002 caused the Company to increase its estimate of
unpaid losses for the 2002 accident year.
Reserve changes for accident years 2003 through 2006
Even after considering the reclassification of $347 of IBNR reserves from the 2003 to 2006 accident years to the 2002 and prior
accident years, accident years 2003 through 2006 show favorable development in calendar years 2004 through 2007. A portion of the
release comes from short-tail lines of business, where results emerge quickly. During calendar year 2005 and 2006, favorable re-
estimates occurred in Personal Lines for both loss and allocated loss adjustment expenses. During calendar years 2005 through 2007,
the Company recognized favorable re-estimates of both loss and allocated loss adjustment expenses on workers’ compensation claims
as the latest evaluations indicate that expense reduction initiatives and reform in states such as California and Florida have had a greater