The Hartford 2014 Annual Report Download - page 68

Full Surrender Rates
Full surrender rates are an internal measure of contract surrenders calculated using annualized full surrenders divided by a two-point average of annuity
account values. The full surrender rate represents full contract liquidation and excludes partial withdrawals.
Loss and loss adjustment expense ratio
The loss and loss adjustment expense ratio is a measure of the cost of claims incurred in the calendar year divided by earned premium and includes losses
incurred for both the current and prior accident years, as well as the costs of mortality and morbidity and other contractholder benefits to policyholders.
Among other factors, the loss and loss adjustment expense ratio needed for the Company to achieve its targeted return on equity fluctuates from year to year
based on changes in the expected investment yield over the claim settlement period, the timing of expected claim settlements and the targeted returns set by
management based on the competitive environment.
The loss and loss adjustment expense ratio is affected by claim frequency and claim severity, particularly for shorter-tail property lines of business, where the
emergence of claim frequency and severity is credible and likely indicative of ultimate losses. Claim frequency represents the percentage change in the
average number of reported claims per unit of exposure in the current accident year compared to that of the previous accident year. Claim severity represents
the percentage change in the estimated average cost per claim in the current accident year compared to that of the previous accident year. As one of the
factors used to determine pricing, the Company’s practice is to first make an overall assumption about claim frequency and severity for a given line of
business and then, as part of the ratemaking process, adjust the assumption as appropriate for the particular state, product or coverage.
Loss ratio, excluding buyouts
The loss ratio is utilized for the Group Benefits segment and is expressed as a ratio of benefits, losses and loss adjustment expenses to premiums and other
considerations, excluding buyout premiums. Since Group Benefits occasionally buys a block of claims for a stated premium amount, the Company excludes
this buyout from the loss ratio used for evaluating the underwriting results of the business as buyouts may distort the loss ratio. Buyout premiums represent
takeover of open claim liabilities and other non-recurring premium amounts.
Mutual Fund Assets
Mutual fund assets are owned by the shareholders of those funds and not by the Company and therefore are not reflected in the Company’s consolidated
financial statements. Mutual fund assets are a measure used by the Company because a significant portion of the Company’s revenues are based upon asset
values. These revenues increase or decrease with a rise or fall in the amount of account value whether caused by changes in the market or through net flows.
New business written premium
New business written premium represents the amount of premiums charged for policies issues to customers who were not insured with the Company in the
previous policy term. New business written premium plus renewal policy written premium equals total written premium.
Policies in force
Policies in force represent the number of policies with coverage in effect as of the end of the period. The number of policies in force is a growth measure used
for Personal Lines and standard commercial lines within Commercial Lines and is affected by both new business growth and policy count retention.
Policy count retention
Policy count retention represents the ratio of the number of policies renewed during the period divided by the number of policies available to renew. The
number of policies available to renew represents the number of policies, net of any cancellations, written in the previous policy term. Policy count retention
is affected by a number of factors, including the percentage of renewal policy quotes accepted and decisions by the Company to non-renew policies because
of specific policy underwriting concerns or because of a decision to reduce premium writings in certain classes of business or states. Policy count retention is
also affected by advertising and rate actions taken by competitors.
Policyholder dividend ratio
The policyholder dividend ratio is the ratio of policyholder dividends to earned premium.
Prior accident year loss and loss adjustment expense ratio
The prior year loss and loss adjustment expense ratio represents the increase (decrease) in the estimated cost of settling catastrophe and non-catastrophe
claims incurred in prior accident years as recorded in the current calendar year divided by earned premiums.
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