The Hartford 2008 Annual Report Download - page 229

Table of Contents
Year ended December 31, 2007 compared to the year ended December 31, 2006
Underwriting results increased by $86, from $422 to $508, with a corresponding 2.7 point improvement in the combined
ratio, from 84.1 to 81.4, due to:
Change in underwriting results
Increase in earned premiums $ 84
Losses and loss adjustment expenses
Volume change — Increase in current accident year loss and loss adjustment expenses before
catastrophes due to the increase in earned premium (47)
Ratio change — An increase in the current accident year loss and loss adjustment expense ratio
before catastrophes (38)
Net increase in current accident year loss and loss adjustment expenses before catastrophes (85)
Catastrophes — Decrease in current accident year catastrophe losses 6
Reserve changes — Increase in net favorable prior accident year reserve development 134
Net decrease in losses and loss adjustment expenses 55
Operating expenses
Increase in amortization of deferred policy acquisition costs (1)
Increase in insurance operating costs and expenses (52)
Increase in operating expenses (53)
Increase in underwriting results from 2006 to 2007 $ 86
Earned premium increased by $84
Small Commercial earned premium increased by $84, or 3%, to $2,736. Refer to the earned premium discussion for a
description of the increase in earned premium.
Losses and loss adjustment expenses decreased by $55
Current accident year loss and loss adjustment expenses before catastrophes increased by $85
Small Commercial current accident year loss and loss adjustment expenses before catastrophes increased by $85 in 2007, to
$1,594, due to an increase in earned premium and a 1.4 point increase in the current accident year loss and loss adjustment
expense ratio before catastrophes, to 58.3. The 1.4 point increase in the current accident year loss and loss adjustment
expense ratio before catastrophes was primarily due to a higher loss ratio and loss adjustment expense ratio for package
business and commercial auto claims, partially offset by a lower loss and loss adjustment expense ratio for workers’
compensation claims. The higher loss and loss adjustment expense ratio on package business was primarily driven by an
increase in the number of individual large losses and the higher loss and loss adjustment expense ratio for auto claims was
driven, in part, by earned pricing decreases. Expected loss and loss adjustment expenses on workers’ compensation claims
for the 2007 accident year were lower as the assumed level of medical claim severity was not as high as it had been for the
2006 accident year.
Current accident year catastrophes decreased by $6
Current accident year catastrophe losses in 2007 of $28, or 1.0 point, were moderately lower than current accident year
catastrophes of $34, or 1.3 points, in 2006. The largest catastrophe losses in 2007 were from spring windstorms in the
Southeast and Northeast, tornadoes and thunderstorms in the Midwest and wildfires in California. Catastrophes in 2006
included tornadoes and hail storms in the Midwest.
Increase in net favorable prior accident year development by $134
Net favorable prior accident year reserve development increased from $75, or 2.8 points, in 2006 to $209, or 7.6 points, in
2007. Net favorable reserve development of $209 in 2007 included a $151 release of workers’ compensation loss and loss
adjustment expense reserves for accident years 2002 to 2006, a $33 release of workers’ compensation loss reserves accident
years 1987 to 2000 and a $30 release of loss reserves for package business for accident years 2003 to 2006.
Net favorable reserve development of $75 in 2006 included a $33 reduction in allocated loss adjustment expense reserves,
primarily for workers’ compensation and package business related to accident years 2003 to 2005, and a $22 reduction in
prior accident year catastrophe reserves in 2006 related to hurricanes Katrina, Rita and Wilma in 2005 and hurricanes
Charley, Frances and Jeanne in 2004.
Source: HARTFORD FINANCIAL S, 10-K, February 12, 2009