The Hartford 2007 Annual Report Download - page 121

121
Year ended December 31, 2006 compared to the year ended December 31, 2005
Underwriting results increased by $44, from $163 to $207, with a corresponding 1.6 point decrease in the combined ratio.
Earned premium increased by $99
Middle Market earned premium increased by $99, or 4%, to $2,454. Refer to the earned premium discussion for a description of the
increase in earned premium.
Losses and loss adjustment expenses increased by $63
Current accident year loss and loss adjustment expenses before catastrophes increased by $102
Middle Market current accident year loss and loss adjustment expenses before catastrophes increased by $102 in 2006, to $1,533, 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 2.1 points, to 62.6, primarily due to an increase in non-catastrophe property loss costs, the effect of earned
pricing decreases and the effect of a shift to more workers’ compensation premium which has a higher loss and loss adjustment expense
ratio than other business in the segment. The increase in non-catastrophe property loss costs was primarily due to increasing claim
severity.
Current accident year catastrophes decreased by $2
Current accident year catastrophe losses decreased by $2, from $38, or 1.6 points, in 2005 to $36, or 1.5 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 and
windstorms in Texas and on the East coast.
Decrease in net unfavorable prior accident year development by $37
Net unfavorable prior accident year reserve development decreased from $52, or 2.2 points, in 2005 to $15, or 0.6 points, in 2006. 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. Net
unfavorable reserve development of $52 in 2005 primarily included a $35 increase in workers’ compensation reserves related to
reserves for claim payments expected to emerge after 20 years of development and a $40 strengthening of general liability reserves for
accident years 2000 to 2003 due to higher than anticipated loss payments beyond four years of development. Partially offsetting the
reserve increases in 2005 was a $38 reduction in workers’ compensation reserves related to accident years 2003 and 2004.
Change in underwriting results
Earned premiums
An increase in earned premium, excluding a decrease in catastrophe treaty reinstatement premium $ 91
An increase in earned premium due to a decrease in catastrophe treaty reinstatement premium 8
Increase in earned premiums 99
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 (50)
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 (52)
Total increase in current accident year loss and loss adjustment expenses before catastrophes (102)
Catastrophes — Decrease in current accident year catastrophe losses 2
Reserve changes — Decrease in net unfavorable prior accident year reserve development 37
Net increase in losses and loss adjustment expenses (63)
Operating expenses
Increase in amortization of deferred policy acquisition costs (7)
Decrease in insurance operating costs and expenses 15
Net decrease in operating expenses 8
Increase in underwriting results from 2005 to 2006 $ 44