The Hartford 2011 Annual Report Download - page 77

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Year ended December 31, 2011 compared to the year ended December 31, 2010
Net income decreased in 2011, as compared to the prior year, primarily due to a decrease in underwriting results due to higher current
accident year losses, including catastrophes, and unfavorable prior accident years development in 2011 compared to favorable prior
accident years development in 2010. The decrease in underwriting results was partially offset by the net realized capital gain on the sale
of SRS. The annual goodwill assessment for the Property & Casualty Commercial reporting unit resulted in a write-down of goodwill
of $30, pre-tax for the year ended December 31, 2011. For further discussion, see Goodwill and Other Intangible Assets within Note 8
of the Notes to Consolidated Financial Statements.
Current accident year catastrophe losses increased $168, pre-tax, from 2010 to 2011. In 2011, catastrophes primarily included severe
thunderstorms and tornadoes in the Midwest and Southeast, Hurricane Irene in the Northeast, Tropical Storm Lee, and winter storms,
earlier in the year, in the Northeast and Midwest. In 2010, catastrophes primarily included tornadoes, thunderstorms and hail events in
the Midwest, Plains States and the Southeast and winter storms in the Mid-Atlantic and Northeast.
For information regarding prior accident years reserve development, including reserve (releases) strengthenings by reserve line, see the
Property and Casualty Insurance Product Reserves, Net of Reinsurance section within Critical Accounting Estimates.
The increase in earned premiums in 2011, is primarily due to improvements in workers’ compensation, driven by higher new business
premium, renewal earned pricing increases and an increase in policies-in-force. The earned pricing changes were primarily a reflection
of written pricing changes over the last year. Renewal written pricing increased for all standard commercial lines driven by improving
market conditions.
Current accident year losses and loss adjustment expenses before catastrophes increased, due primarily to the increase in earned
premiums for workers’ compensation, as well as an increase in the current accident year loss and loss adjustment expense ratio before
catastrophes. The ratio increased primarily due to loss costs outpacing earned pricing increases driven by an increase in workers'
compensation claim frequency, partially offset by moderating severity, resulting in an increase in current accident year reserve
strengthening.
Underwriting expenses increased in 2011, driven by an increase in technology costs, partially offset by a decrease in compensation
related costs. The year ended December 31, 2011 included a $12 release of reserves for other state funds and taxes, while the year
ended December 31, 2010 included strengthening of $20, which was due to an increase in the assessment for New York state funds and
taxes. The change in dividends to policyholders is due to a decrease in 2010 of dividends payable primarily for workers’ compensation
policyholders.
Net realized capital losses increased primarily due to losses on derivatives, partially offset by lower impairments. For additional
information, see the Investment Results section within Key Performance Measures and Ratios.
The effective tax rate, in both periods, differs from the U.S. Federal statutory rate primarily due to permanent differences related to
investments in tax exempt securities. In addition, due to the availability of additional tax planning strategies, the Company released
$22, or 100%, of the valuation allowance associated with investment realized capital losses in 2011. For further discussion, see Income
Taxes within Note 13 of the Notes to Consolidated Financial Statements.