The Hartford 2008 Annual Report Download - page 177

Table of Contents
Policies in force
Policies in force represent the number of policies with coverage in effect as of the end of the period. The number of policies
in force is a growth measure used for Personal Lines, Small Commercial and Middle Market and is affected by both new
business growth and premium renewal retention.
Written pricing increase (decrease)
Written pricing increase (decrease) over the comparable period of the prior year includes the impact of rate filings, the
impact of changes in the value of the rating bases and individual risk pricing decisions. A number of factors impact written
pricing increases (decreases) including expected loss costs as projected by the Company’s pricing actuaries, rate filings
approved by state regulators, risk selection decisions made by the Company’s underwriters and marketplace competition.
Written pricing changes reflect the property and casualty insurance market cycle. Prices tend to increase for a particular line
of business when insurance carriers have incurred significant losses in that line of business in the recent past or the industry
as a whole commits less of its capital to writing exposures in that line of business. Prices tend to decrease when recent loss
experience has been favorable or when competition among insurance carriers increases.
Earned pricing increase (decrease)
Written premiums are earned over the policy term, which is six months for certain Personal Lines auto business and
12 months for substantially all of the remainder of the Company’s business. Because the Company earns premiums over the
6 to 12 month term of the policies, earned pricing increases (decreases) lag written pricing increases (decreases) by 6 to
12 months.
New business written premium
New business written premium represents the amount of premiums charged for policies issues to customers who were not
insured with the Company in the previous policy term. New business written premium plus renewal policy written premium
equals total written premium.
Premium renewal retention
Premium renewal retention represents the ratio of net written premium in the current period that is not derived from new
business divided by total net written premium of the prior period. Accordingly, premium renewal retention includes the
effect of written pricing changes on renewed business. In addition, the renewal retention rate is affected by a number of
other factors, including the percentage of renewal policy quotes accepted and decisions by the Company to non-renew
policies because of specific policy underwriting concerns or because of a decision to reduce premium writings in certain
lines of business or states. Premium renewal retention is also affected by advertising and rate actions taken by competitors.
Loss and loss adjustment expense ratio
The loss and loss adjustment expense ratio is a measure of the cost of claims incurred in the calendar year divided by earned
premium and includes losses incurred for both the current and prior accident years. Among other factors, the loss and loss
adjustment expense ratio needed for the Company to achieve its targeted return on equity fluctuates from year to year based
on changes in the expected investment yield over the claim settlement period, the timing of expected claim settlements and
the targeted returns set by management based on the competitive environment.
The loss and loss adjustment expense ratio is affected by claim frequency and claim severity, particularly for shorter-tail
property lines of business, where the emergence of claim frequency and severity is credible and likely indicative of ultimate
losses. Claim frequency represents the percentage change in the average number of reported claims per unit of exposure in
the current accident year compared to that of the previous accident year. Claim severity represents the percentage change in
the estimated average cost per claim in the current accident year compared to that of the previous accident year. As one of
the factors used to determine pricing, the Company’s practice is to first make an overall assumption about claim frequency
and severity for a given line of business and then, as part of the ratemaking process, adjust the assumption as appropriate for
the particular state, product or coverage.
Current accident year loss and loss adjustment expense ratio before catastrophes
The current accident year loss and loss adjustment expense ratio before catastrophes is a measure of the cost of
non-catastrophe claims incurred in the current accident year divided by earned premiums. Management believes that the
current accident year loss and loss adjustment expense ratio before catastrophes is a performance measure that is useful to
investors as it removes the impact of volatile and unpredictable catastrophe losses and prior accident year reserve
development.
Current accident year catastrophe ratio
Source: HARTFORD FINANCIAL S, 10-K, February 12, 2009