The Hartford 2007 Annual Report Download - page 116

116
Year ended December 31, 2006 compared to the year ended December 31, 2005
Underwriting results increased by $190, from $232 to $422, with a corresponding 6.3 point decrease in the combined ratio, from 90.4 to
84.1, due to:
Change in underwriting results
Earned premiums
An increase in earned premium, excluding a decrease in catastrophe treaty reinstatement premium $ 224
An increase in earned premium due to a decrease in catastrophe treaty reinstatement premium 7
Increase in earned premiums 231
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 (132)
Ratio change — Excluding the effect of catastrophe treaty reinstatement premium, a decrease in the current
accident year non-catastrophe loss and loss adjustment expense ratio before catastrophes 49
Net increase in current accident year loss and loss adjustment expenses before catastrophes (83)
Catastrophes — Decrease in current accident year catastrophe losses 16
Reserve changes — Increase in net favorable prior accident year reserve development 51
Net increase in losses and loss adjustment expenses (16)
Operating expenses
Increase in amortization of deferred policy acquisition costs (38)
Decrease in insurance operating costs and expenses 13
Net increase in operating expenses (25)
Increase in underwriting results from 2005 to 2006 $ 190
Earned premium increased by $231
Small Commercial earned premium increased by $231, or 10%, to $2,652. Refer to the earned premium discussion for a description of
the increase in earned premium.
Losses and loss adjustment expenses increased by $16
Current accident year loss and loss adjustment expenses before catastrophes increased by $83
Small Commercial current accident year loss and loss adjustment expenses before catastrophes increased by $83 in 2006, to $1,509, due
to an increase in earned premium, partially offset by a decrease 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 decreased by 1.8 points, to 56.9, due to a lower loss and loss adjustment expense ratio on
workers’ compensation business and a decrease in non-catastrophe property loss costs, partially offset by a shift to more workers’
compensation premium which has a higher loss and loss adjustment expense ratio than other business in the segment. Non-catastrophe
property loss costs were favorable primarily due to favorable claim frequency.
Current accident year catastrophes decreased by $16
Current accident year catastrophe losses decreased by $16, from $50, or 2.1 points, in 2005 to $34, or 1.3 points, in 2006. Catastrophe
losses in 2005 included catastrophe losses from hurricanes Katrina, Rita and Wilma. While hurricane losses were significantly lower in
2006, non-hurricane catastrophe losses increased significantly due, in large part, to tornadoes and hail storms in the Midwest.
Increase in net favorable prior accident year development by $51
Net favorable prior accident year reserve development increased from $24, or 1.0 point, in 2005 to $75, or 2.8 points, in 2006. Net
favorable reserve development of $75 in 2006 included a $33 reduction in allocated loss adjustment expense reserves, primarily for
workers’ compensation and package business related to accident years 2003 to 2005, and a $22 reduction in prior accident year
catastrophe reserves in 2006 related to hurricanes Katrina, Rita and Wilma in 2005 and hurricanes Charley, Frances and Jeanne in 2004.
Net favorable reserve development of $24 in 2005 included a $23 reduction of reserves for allocated loss adjustment expenses and a $37
reduction in workers’ compensation reserves related to accident years 2003 and 2004, partially offset by a $15 increase in workers’
compensation reserves related to reserves for claim payments expected to emerge after 20 years of development and a $20 strengthening
of reserves for the 2004 hurricanes.