The Hartford 2008 Annual Report Download - page 196

Table of Contents
• 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 Company determined that the facts and circumstances necessitated an increase in the reserve
estimate. The $30 of reserve strengthening represented 2% of the Company’s net reserves for Personal Lines auto
liability claims as of December 31, 2005.
• Strengthened Middle Market general liability loss and loss adjustment expense reserves by $20 for accident years 1998
to 2005, primarily as a result of increasing allocated loss adjustment expenses associated with closing older claims. The
$20 of reserve strengthening represented 2% of the Company’s net reserves for general liability claims as of
December 31, 2005.
• Released allocated loss adjustment expense reserves by $58 for accident years 2003 to 2005, primarily for workers’
compensation business and package business, as a result of cost reduction initiatives implemented by the Company to
reduce allocated loss adjustment expenses for both legal and non-legal expenses. The Company began implementing
cost reduction initiatives in late 2003. It was initially uncertain what effect those efforts would have on controlling
allocated loss adjustment expenses. During 2004, favorable trends started to emerge, particularly on shorter-tailed auto
liability claims, but it was not clear if these trends would be sustained. In early 2005, favorable trends continued and the
Company analyzed claims involving legal expenses separate from claims that do not involve legal expenses. This
analysis included a review of the trends in the number of claims involving legal expenses, the average expenses
incurred and trends in legal expenses. During the second quarter of 2005, the Company released allocated loss
adjustment expense reserves on shorter-tailed auto liability claims as the favorable trends on shorter-tailed business
emerged more quickly and were determined to be reliable. During both the second and fourth quarter of 2006, the
Company determined that the favorable development on package business and workers’ compensation business had
become a verifiable trend and, accordingly, reserves were reduced. The $58 release represented 1% of total net reserves
for workers’ compensation and package business as of December 31, 2005.
• Released Personal Lines auto liability reserves related to AARP and other affinity business by $22. AARP auto liability
reserves for accident year 2004 were reduced as a result of favorable loss cost severity trends. AARP auto liability
severity, as measured by reported data, began declining in 2005; however, the Company was uncertain whether this
trend would prove persistent over time since paid loss data did not support a decline. During the second quarter of
2006, the Company determined that all the metrics supported a decline in severity estimates and, therefore, the
Company released reserves. Auto liability reserves for other affinity business related to accident years 2003 to 2005
were reduced to recognize favorable developments in loss costs that have emerged. The $22 reserve release represented
1% of the Company’s net reserves for Personal Lines auto liability claims as of December 31, 2005.
• Strengthened construction defect claim reserves by $45 for accident years 1997 and prior as a result of an increase in
claim severity trends. In 2004, two large construction defects claims were reported, but these were not viewed as an
indication of an increase in the severity trend for all claims. In 2005, two additional large cases were reported.
Management performed an expanded review of construction defects claims in the second quarter of 2006. Based on the
expanded review and additional reported claim experience, management concluded that reported losses would likely
continue at a higher level in the future and this resulted in strengthening the recorded reserves. The $35 of reserve
strengthening in Specialty Commercial represented 4% of the Company’s net reserves for Specialty Commercial
general liability claims as of December 31, 2005. The $10 of strengthening in Middle Market represented 1% of net
reserves for Middle Market general liability claims as of December 31, 2005.
• Strengthened Specialty Commercial workers’ compensation allocated loss adjustment expense reserves by $20 for loss
adjustment expense payments expected to emerge after 20 years of development. During 2005, the Company had done
an in-depth study of loss payments expected to emerge after 20 years of development. At that time, it was believed that
allocated loss adjustment expenses for a particular subset of business (primary policies on national accounts business)
developed more quickly than allocated loss adjustment expenses for smaller insureds and that a similar reserve
strengthening for national accounts business was not required. During the second quarter of 2006, the Company’s
reserve review indicated that the development pattern for this business should be adjusted to be more consistent with
that for smaller insureds. Because the Company has written very little of this business in recent years, the increase in
reserves affects accident years 1995 and prior. The $20 of reserve strengthening represented 1% of the Company’s net
reserves for Specialty Commercial workers’ compensation claims as of December 31, 2005.
Other Operations
• Reduced the reinsurance recoverable asset associated with older, longer-term casualty liabilities by $243. The
Company reviewed the reinsurance recoverables and allowance for uncollectible reinsurance associated with older,
long-term casualty liabilities in the second quarter 2006. As a result of this study, and the outcome of an agreement that
resolved, with minor exception, all of the Company’s ceded and assumed domestic reinsurance exposures with Equitas,
Other Operations recorded prior accident year development of $243.
• Strengthened environmental reserves by $43 as a result of an environmental reserve evaluation completed in the third
Source: HARTFORD FINANCIAL S, 10-K, February 12, 2009