The Hartford 2008 Annual Report Download - page 32

Table of Contents
Insurance companies have been improving their pricing sophistication and ease of doing business with the agent. Carriers
are developing more sophisticated pricing and predictive modeling tools and have invested in technology to speed up the
process of evaluating a risk and quoting on new business. Price competition has increased as companies seek to retain
profitable business and agents are seeking competitive quotes for renewals more frequently, particularly for larger accounts
within small commercial. Carriers also compete on service with agents expecting enhanced automation and faster
turnaround on quotes.
The Hartford is the sixth largest commercial lines insurer in the United States based on direct written premiums for the year
ended December 31, 2007 according to A.M. Best. The relatively large size and underwriting capacity of The Hartford
provide opportunities not available to smaller insurers.
Middle Market
Middle Market provides standard commercial insurance coverage to middle market commercial businesses primarily
throughout the United States. Middle market businesses generally represent companies with greater than $5 in annual
payroll, $15 in annual revenues or $15 in total property values. Earned premiums for 2008, 2007, and 2006 were $2.3 billion
$2.4 billion, and $2.5 billion, respectively. The segment had underwriting income of $169, $157, and $214 in 2008, 2007,
and 2006, respectively.
Principal Products
Middle Market offers workers’ compensation, property, automobile, liability, umbrella, marine and livestock coverages
under several different products. Workers’ compensation insurance accounts for the largest share of the written premium in
the Middle Market segment.
Marketing and Distribution
Middle Market provides insurance products and services through its home office located in Hartford, Connecticut, and
multiple domestic regional office locations and insurance centers. The segment markets its products nationwide utilizing
brokers and independent agents. Brokers and independent agents are not employees of The Hartford. The current pace of
consolidation within the independent agent and broker distribution channel will likely continue such that, in the future, a
larger share of written premium will likely be concentrated with the larger agents and brokers.
Competition
The middle market commercial insurance marketplace is a highly competitive environment regarding product, price and
service. The Hartford competes against a number of large, national carriers as well as regional insurers in certain territories.
Competitors include other stock companies, mutual companies and alternative risk sharing groups. These competitors sell
primarily through independent agents and brokers across a broad array of product lines, and with a high level of variation
regarding geographic, marketing and customer segmentation.
Middle Market business is characterized as “high touch” with case-by-case underwriting and pricing decisions. Compared to
Small Commercial, the pricing of Middle Market accounts is prone to more significant variation or cyclicality from year to
year. Legislative reforms in a number of states in recent years have helped to control indemnity costs on workers’
compensation claims, but these have also led to rate reductions in many states. In addition, companies writing middle market
business have continued to experience a reduction in average premium size due to continued price competition. The
downturn in the economy and rising unemployment will likely cause soft market conditions to continue into 2009.
Soft market conditions, characterized by highly competitive pricing on new business, have lessened the number of new
business opportunities as carriers look to secure their renewals early. In the soft market, we are seeing an increase in
industry specialization by agents and brokers which has placed even greater importance on the carrier’s need to demonstrate
industry expertise to win new business. To gain a competitive advantage, carriers are improving automation with the agent
or broker, appointing more agents and enhancing their product offerings. There was some consolidation of carriers within
the industry in 2008 and management expects a modest level of consolidation to continue in the industry going forward.
The Hartford is the sixth largest commercial lines insurer in the United States based on direct written premiums for the year
ended December 31, 2007 according to A.M. Best. The relatively large size and underwriting capacity of The Hartford
provide opportunities not available to smaller companies.
Specialty Commercial
Specialty Commercial provides a wide variety of property and casualty insurance products and services to large commercial
clients requiring specialized coverages. Excess and surplus lines coverages not normally written by standard line insurers are
also provided, primarily through wholesale brokers. Specialty Commercial had earned premiums of $1.4 billion,
$1.4 billion, and $1.5 billion in 2008, 2007, and 2006, respectively. Underwriting income (loss) was $71, $(18), and $46 in
Source: HARTFORD FINANCIAL S, 10-K, February 12, 2009