The Hartford 2007 Annual Report Download - page 89

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Prior accident year development recorded in 2006
Included within prior accident year development for the year ended December 31, 2006 were the following reserve strengthenings
(releases).
Personal
Lines
Small
Commercial
Middle
Market
Specialty
Commercial
Ongoing
Operations
Other
Operations
Total
P&C
Net release of catastrophe loss reserves for
2004 and 2005 hurricanes $ (23) $ (22) $ (3) $ (35) $ (83) $ — $ (83)
Release of Personal Lines auto liability
reserves for accident year 2005 (31) — — — (31) — (31)
Strengthening of Personal Lines auto liability
reserves for claims with exposure in excess of
policy limits 30 —
—
—
30
—
30
Strengthening of general liability loss and loss
adjustment expense reserves for accident
years 1998 to 2005 — — 20 —
20 — 20
Release of allocated loss adjustment expense
reserves for workers’ compensation and
package business for accident years 2003 to
2005
—
(33)
(25)
—
(58) — (58)
Release of Personal Lines auto liability
reserves for accident year 2003 to 2005 (22) — — — (22) — (22)
Strengthening of Specialty Commercial
construction defect claim reserves for
accident years 1997 and prior — — 10 35 45 — 45
Strengthening of Specialty Commercial
workers’ compensation allocated loss
adjustment expense reserves — — — 20 20 — 20
Effect of Equitas agreement and strengthening
of allowance for uncollectible reinsurance — — — — — 243 243
Strengthening of environmental reserves — — — — — 43 43
Other reserve re-estimates, net [1] 8 (20) 13 14 15 74 89
Total prior accident year development for
the year ended December 31, 2006 $ (38) $ (75) $ 15 $ 34 $ (64) $ 360 $ 296
[1] Includes reserve discount accretion of $32, including $6 in Small Commercial, $8 in Middle Market, $11 in Specialty Commercial and $7 in Other
Operations.
During the year ended December 31, 2006, the Company’ s re-estimates of prior accident year reserves included the following
significant reserve changes.
Ongoing Operations
• Released net reserves related to prior year hurricanes by a total of $83, including $57 for hurricanes Katrina and Rita in 2005 and
$26 for hurricanes Charley, Frances and Jeanne in 2004. Initial reserve estimates for the 2005 and 2004 hurricanes were higher
because of the difficulty claim adjusters had in accessing the most significantly impacted areas and initially higher estimates of the
cost of building materials and contractors due to “demand surge”. As the reported claims have matured, the estimated settlement
value of the claims has decreased from the initial estimates. The ultimate estimate for hurricane Katrina was increased in the first
quarter of 2006 because of higher than expected claim reporting, particularly in Personal Lines. Net loss reserves within Specialty
Commercial decreased, primarily because hurricane Katrina losses on specialty property business were reimbursable under a
specialty property reinsurance treaty as well as under the Company’ s principal property catastrophe reinsurance program. After the
first quarter of 2006, Katrina new claim intake abated and settlement percentages increased, resulting in a reduction of reserves in
the last nine months of 2006. In addition, the rate of newly reported compensable claims for Rita and the 2004 hurricanes was less
than expected, resulting in a reduction of reserves for these hurricanes.
• Released Personal Lines auto liability reserves by $31 related to the fourth accident quarter of 2005 as a result of better than
expected frequency trends. During the third and fourth quarter of 2005, the Company had reduced the 2005 accident year loss and
loss adjustment expense ratio for Personal Lines auto liability claims related to the first three accident quarters of 2005. Favorable
frequency for the fourth accident quarter of 2005 emerged during the fourth quarter of 2005. However, the Company did not
release reserves at that time, since reserve indications at only three months of development were not reliable. The Company
released reserves in 2006 after further development indicated that early indications of reduced frequency were representative of a
real trend. The $31 reserve release represented 2% of the Company’ s net reserves for Personal Lines auto liability claims as of
December 31, 2005.
• Strengthened reserves for personal auto liability claims by $30 due to an increase in estimated severity on claims where the
Company is exposed to losses in excess of policy limits. From the Company’ s reserve review during the first quarter of 2006, the