The Hartford 2007 Annual Report Download - page 120

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Earned premium decreased by $103
Middle Market earned premium decreased by $103, or 4%, to $2,351. Refer to the earned premium discussion for a description of the
decrease in earned premium.
Losses and loss adjustment expenses decreased by $60
Current accident year loss and loss adjustment expenses before catastrophes decreased by $10
Middle Market current accident year loss and loss adjustment expenses before catastrophes decreased by $10 in 2007, to $1,523, due to
a decrease in earned premium, largely offset by the effect of an increase in the current accident year loss and loss adjustment expense
ratio before catastrophes. Before catastrophes, the current accident year loss and loss adjustment expense ratio increased by 2.2 points,
to 64.8, primarily due to a higher loss and loss adjustment expense ratio for workers’ compensation, general liability and commercial
auto claims driven, in part, by earned pricing decreases. For commercial auto, loss costs increased for both liability and property
damage claims.
Current accident year catastrophes decreased by $21
Current accident year catastrophe losses decreased by $21, from $36, or 1.5 points, in 2006 to $15, or 0.7 points, in 2007. Compared to
2007, there were more severe catastrophes in 2006, including tornadoes and hail storms in the Midwest and windstorms in Texas and on
the East coast. The largest catastrophe losses in 2007 were from spring windstorms in the Southeast and wildfires in California.
Change to favorable prior accident year development by $29
Prior accident year reserve development changed from net unfavorable prior accident year reserve development of $15, or 0.6 points, in
2006 to net favorable prior accident year reserve development of $14, or 0.6 points, in 2007. Net favorable reserve development of $14
in 2007 included a $49 release of general liability loss and loss adjustment expense reserves for accident years 2003 to 2006 and an $18
release of commercial auto liability reserves for accident years 2003 and 2004, partially offset by a $40 strengthening of workers’
compensation reserves for accident years 1973 & prior and a $14 strengthening of general liability reserves for accident years more than
20 years old.
Net unfavorable reserve development of $15 in 2006 consisted primarily of a $20 increase in general liability loss and loss adjustment
expense reserves related to accident years 1998 to 2005 and a $10 increase in construction defect reserves, partially offset by a $25
reduction in allocated loss adjustment expense reserves for workers’ compensation business related to accident years 2003 to 2005.
Operating expenses increased by $20
The 1.7 point increase in the expense ratio and the 0.4 point increase in the policyholder dividend ratio was primarily due to an increase
in insurance operating costs and expenses and the decrease in earned premiums. Insurance operating costs and expenses increased by
$35, partially due to the effect of a $12 reduction of estimated Citizens’ assessments related to the 2005 Florida hurricanes recorded in
2006. Also contributing to the increase in insurance operating costs and expenses was an increase in IT costs, an increase in non-
deferrable salaries and benefits, and an $8 increase in policyholder dividends. The increase in policyholder dividends was largely due to
an $8 increase in the estimated amount of dividends payable to certain workers’ compensation policyholders due to underwriting profits.
Amortization of deferred policy acquisition costs decreased by $15, due largely to the decrease in earned premium and corresponding
decrease in acquisition costs.