The Hartford 2007 Annual Report Download - page 110

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Net favorable prior accident year reserve development decreased by $34
Net favorable prior accident year reserve development decreased from $38, or 1.0 point, in 2006 to $4, or 0.1 points, in 2007. Net
favorable reserve development of $4 in 2007 included a $16 release of reserves for loss and allocated loss and loss adjustment expenses on
Personal Lines auto liability claims for accident years 2002 to 2006.
Net favorable prior accident year reserve development of $38 in 2006 included a $53 reduction in prior accident year reserves for auto
liability claims related to accident years 2003 to 2005 and a $23 reduction in hurricane catastrophe reserves related to the 2004 and 2005
hurricanes, partially offset by a $30 increase in reserves for personal auto liability claims due to an increase in estimated severity on
claims where the Company is exposed to losses in excess of policy limits.
Operating expenses increased by $17
The expense ratio decreased by 0.3 points, to 22.4, in 2007, due largely to an increase in insurance operating costs and expenses. Omni
accounted for $9 of insurance operating costs and expenses in 2006. Excluding Omni, insurance operating costs and expenses increased
by $31, or 14%, primarily due to the effect of a $19 reduction of estimated Citizen's assessments in 2006 related to 2005 Florida
hurricanes. Also contributing to the increase in insurance and operating costs was an increase in AARP distribution costs and other
insurance operating costs, partially offset by lower IT costs.
Omni accounted for $30 of amortization of deferred policy acquisition costs in 2006. Excluding Omni, amortization of deferred policy
acquisition costs increased by $25, or 4%, driven primarily by the increase in earned premium.
Year ended December 31, 2006 compared to the year ended December 31, 2005
Underwriting results decreased by $31, from $460 to $429, with a corresponding 1.3 point increase in the combined ratio, from 87.3 to
88.6, due to:
Change in underwriting results
Earned premiums
An increase in earned premium, excluding a decrease in catastrophe treaty reinstatement premium $ 119
An increase in earned premium due to a decrease in catastrophe treaty reinstatement premium 31
Increase in earned premiums 150
Losses and loss adjustment expenses
Volume change — Increase in current accident year loss and loss adjustment expenses before catastrophes
due to the increase in earned premium (75)
Ratio change — Excluding the effect of catastrophe treaty reinstatement premium, an increase in the current
accident year non-catastrophe loss and loss adjustment expense ratio before catastrophes (30)
Total increase in current accident year loss and loss adjustment expenses before catastrophes (105)
Catastrophes — Increase in current accident year catastrophe losses (22)
Reserve changes — Decrease in net favorable prior accident year reserve development (57)
Increase in losses and loss adjustment expenses (184)
Operating expenses
Increase in amortization of deferred policy acquisition costs (41)
Decrease in insurance operating costs and expenses 44
Net decrease in operating expenses 3
Decrease in underwriting results from 2005 to 2006 $ (31)
Earned premium increased by $150
Personal Lines earned premium increased by $150, or 4%, to $3,760, in part due to $31 of catastrophe treaty reinstatement premium
recorded as a reduction of earned premium in 2005. Refer to the earned premium discussion for a description of the increase in earned
premium.
Losses and loss adjustment expenses increased by $184
Current accident year loss and loss adjustment expenses before catastrophes increased by $105
Personal Lines current accident year loss and loss adjustment expenses before catastrophes increased by $105 in 2006, to $2,396, due to
an increase in earned premium and an increase in the current accident year loss and loss adjustment expense ratio before catastrophes.
Excluding the effect of catastrophe treaty reinstatement premium, the current accident year loss and loss adjustment expense ratio before
catastrophes increased by 0.9 points, to 63.8, due to an increase in non-catastrophe property loss costs for homeowners, primarily driven
by an increase in claim severity, and an increase in the loss and loss adjustment expense ratio for auto liability claims, partially due to a
shift to more Dimensions product business within Agency.