The Hartford 2015 Annual Report Download - page 62

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Reserve changes for accident years 2005 and Prior
The largest impacts of net reserve re-estimates are shown in the “2005 & Prior” accident years. The net reserve re-estimates are driven,
in part, by increased 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 net reserve re-estimates in 2006 were largely attributable to decreases in the reinsurance recoverable asset associated with older,
long-term casualty liabilities, and unexpected unfavorable development on mature claims in both general liability and workers’
compensation. In contrast, catastrophe reserves related to the 2004 and 2005 hurricanes developed favorably in 2006.
In 2007, 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 in 2009, 2010, 2011, 2013, 2014 and 2015 were largely driven by 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 2006 through 2009
During 2007 and 2008, the Company recognized favorable re-estimates of both loss and allocated loss adjustment expenses for the 2006
and 2007 accident years 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 2006 and 2007 show favorable reserve development in 2007
through 2011. A portion of the favorable reserve development comes from short-tail lines of business, where results emerge quickly.
Unfavorable reserve re-estimates in 2015 for accident years 2006 and 2008 are primarily related to elevated workers' compensation loss
emergence. Accident year 2008 was also unfavorably impacted in 2015 by an increase in general liability reserves.
In 2007, the Company decreased reserves for accident year 2006 package business claims as reported losses emerged favorably to
previous expectations. In 2007 through 2009, the Company decreased reserves for accident year 2006 general liability claims due to the
favorable emergence of losses for high hazard and umbrella general liability claims. Reserves for professional liability claims were
decreased in 2008 and 2009 related to the 2006 and 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 for Personal Lines auto liability claims were decreased in
2008 due largely to an improvement in emerged claim severity for the 2006 and 2007 accident years.
Modest favorable reserve re-estimates in 2010 through 2013 for accident year 2009 are primarily related to liability lines of business.
Reserve changes for accident years 2010 and 2011
Unfavorable reserve re-estimates in 2011 on accident year 2010 were 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
2013 on accident year 2010 and 2011 were primarily related to workers' compensation and commercial auto liability. Workers'
compensation loss cost trends were higher than initially expected as an increase in frequency outpaced a moderation of severity trends.
Unfavorable commercial auto liability reserve re-estimates were driven by higher frequency of large loss bodily injury claims.
Favorable reserve re-estimates in 2014 for accident year 2010 were driven by lower frequency of professional liability reported claims,
favorable bond claim emergence and lower frequency of late emerging liability claims.
Modest unfavorable reserve re-estimates in 2015 for accident years 2010 and 2011 were driven by increased reserves in commercial auto
liability due to increased severity of large claims.
Reserve changes for accident years 2012 and 2013
Modest unfavorable reserve re-estimates during 2013 for accident year 2012 were primarily related to commercial auto liability driven
by higher frequency of large loss loss bodily injury claims offset by reserve releases related to Storm Sandy. Reserves were decreased in
2015 for accident year 2012 due to favorable frequency and medical severity trends for workers' compensation, favorable professional
liability claim emergence and lower frequency of late emerging general liability claims, partially offset by increased reserves in
commercial auto liability due to increased severity of large claims.