The Hartford 2013 Annual Report Download - page 61

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Reserve changes for accident years 2003 & Prior
The largest impacts of net reserve re-estimates are shown in the “2003 & Prior” accident years. The reserve deterioration is driven, in
part, by deterioration of reserves for asbestos, environmental, assumed casualty reinsurance, workers’ compensation, and general
liability claims. Numerous actuarial assumptions on assumed casualty reinsurance turned out to be low, including loss cost trends,
particularly on excess of loss business, and the impact of deteriorating terms and conditions.
The reserve re-estimates in calendar years 2004 through 2006 were largely attributable to reductions in the reinsurance recoverable asset
associated with older, long-term casualty liabilities, and unexpected development on mature claims in both general liability and workers’
compensation.
During the 2007 calendar year, the Company refined its processes for allocating incurred but not reported (“IBNR”) reserves by accident
year, resulting in a reclassification of $347 of IBNR reserves from the 2003 to 2006 accident years to the 2002 and prior accident years.
This reclassification of reserves by accident year had no effect on total recorded reserves within any segment or on total recorded
reserves for any line of business within a segment.
The reserve re-estimates during calendar year 2008 were largely driven by increases in asbestos, environmental and general liability
reserves. The reserve re-estimates in calendar years 2009, 2010, 2011 and 2013 were largely due to increases in asbestos and
environmental reserves, resulting from the Company’s annual evaluations of these liabilities. These reserve evaluations reflect
deterioration in the litigation environment surrounding asbestos and environmental liabilities during this period.
Reserve changes for accident years 2004 through 2008
During calendar year 2005 and 2006, favorable re-estimates occurred for both loss and allocated loss adjustment expenses. In addition,
catastrophe reserves related to the 2004 and 2005 hurricanes developed favorably in 2006. During calendar years 2005 through 2008, the
Company recognized favorable re-estimates of both loss and allocated loss adjustment expenses on workers’ compensation claims,
driven, in part, by state regulatory reforms in California and Florida, underwriting actions, and expense reduction initiatives that had a
greater impact in controlling costs than originally estimated. Even after considering the reclassification of IBNR reserves, accident years
2004 through 2007 show favorable development in calendar years 2005 through 2011. A portion of the release comes from short-tail
lines of business, where results emerge quickly. In 2007, the Company released reserves for package business claims as reported losses
emerged favorably to previous expectations. In 2007 through 2009, the Company released reserves for general liability claims due to the
favorable emergence of losses for high hazard and umbrella general liability claims. Reserves for professional liability claims were
released in 2008 and 2009 related to the 2004 through 2007 accident years due to a lower estimate of claim severity on both directors’
and officers’ insurance claims and errors and omissions insurance claims. Reserves of auto liability claims, within Consumer Markets,
were released in 2008 due largely to an improvement in emerged claim severity for the 2005 to 2007 accident years.
Reserve changes for accident years 2009 through 2010
Accident year 2009 remains reasonably close to original estimates. Modest favorable reserve re-estimates during calendar periods 2009
through 2013 are primarily related to liability lines of business. Unfavorable reserve re-estimates in calendar year 2011 on accident year
2010 are largely driven by workers' compensation. Loss cost trends were higher than initially expected as an increase in frequency
outpaced a moderation of severity trends. Unfavorable reserve re-estimates in calendar year 2013 on accident year 2010 are primarily
related to workers' compensation and commercial auto liability.
Reserve changes for accident year 2011
Unfavorable reserve re-estimates in calendar year 2013 are driven by commercial auto liability and workers’ compensation. Commercial
auto liability was driven by higher frequency of large loss bodily injury claims. Workers’ compensation loss cost trends were higher than
initially expected as an increase in frequency outpaced a moderation of severity trends.
Reserve changes for accident year 2012
Accident year 2012 remains reasonably close to the original estimate. Modest unfavorable reserve re-estimates during calendar year
2013 are primarily related to commercial auto liability driven by higher frequency of large loss bodily injury claims offset by reserve
releases related to Storm Sandy.