The Hartford 2007 Annual Report Download - page 123

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SPECIALTY COMMERCIAL
Specialty Commercial offers a variety of customized insurance products and risk management services. The segment provides standard
commercial insurance products including workers’ compensation, automobile and liability coverages to large-sized companies.
Specialty Commercial also provides professional liability, fidelity and surety, specialty casualty and livestock coverages, as well as core
property and excess and surplus lines coverages not normally written by standard lines insurers. Specialty Commercial provides other
insurance products and services primarily to captive insurance companies, pools and self-insurance groups. In addition, Specialty
Commercial provides third-party administrator services for claims administration, integrated benefits and loss control through Specialty
Risk Services.
Written Premiums [1] 2007 2006 2005
Property $ 180 $ 212 $ 211
Casualty 534 582 826
Professional liability, fidelity and surety 689 697 613
Other 81 117 167
Total $ 1,484 $ 1,608 $ 1,817
Earned Premiums [1]
Property $ 202 $ 213 $ 245
Casualty 543 579 796
Professional liability, fidelity and surety 685 650 555
Other 85 120 170
Total $ 1,515 $ 1,562 $ 1,766
[1] The difference between written premiums and earned premiums is attributable to the change in unearned premium reserve.
Earned Premiums
Year ended December 31, 2007 compared to the year ended December 31, 2006
Earned premiums for the Specialty Commercial segment decreased by $47, or 3%, for the year ended December 31, 2007, primarily due
to a decrease in casualty, property and other earned premiums, partially offset by an increase in professional liability, fidelity and surety
earned premiums.
• Property earned premiums decreased by $11, or 5%, primarily due to lower premium renewal retention and the effect of an
arrangement with Berkshire Hathaway to share premiums written under subscription policies. Under the arrangement with
Berkshire Hathaway that commenced in the second quarter of 2007, a share of excess and surplus lines business that was previously
written entirely by the Company is now being written in conjunction with Berkshire Hathaway under subscription policies, whereby
both companies share, or participate, in the business written. The arrangement with Berkshire Hathaway enables the Company to
offer its insureds larger policy limits and thereby enhance its competitive position in the marketplace. The decrease in earned
premium was partially offset by the effect of earned pricing increases, new business growth, lower reinsurance costs and a decrease
in reinstatement premium payable to reinsurers. Renewal retention has decreased in 2007, primarily due to increased competition
on national account business as well as in the standard excess and surplus lines market. After experiencing significant rate
increases throughout 2006 and smaller rate increases for the first six months of 2007, written pricing decreased in the last six
months of the year. While new business decreased in the fourth quarter of 2007, new business increased for the full year, largely
because the Company had significantly curtailed new business in 2006 in order to reduce catastrophe loss exposures in certain
geographic areas.
• Casualty earned premiums decreased by $36, or 6%, for the year ended December 31, 2007, primarily because of a decline in new
business written premium and lower premium renewal retention on business written through industry trade groups. Also
contributing to the decrease in earned premiums was an increase in the estimated return premium due to insureds under
retrospectively-rated policies.
• Professional liability, fidelity and surety earned premium grew $35, or 5%, for the year ended December 31, 2007 due to an
increase in earned premiums in professional liability and surety business. The increase in earned premium from professional
liability business was primarily due to a decrease in the portion of risks ceded to outside reinsurers and an increase in the mix of
lower limit middle market professional liability premium, partially offset by the effect of earned pricing decreases and a decrease in
new business written premium. A lower frequency of class action cases in the past couple of years has put downward pressure on
rates during 2006 and 2007. The increase in earned premium from surety business was primarily due to an increase in public
construction spending and construction costs, resulting in more bonded work programs for current clients and larger bond limits.
• Within the “other” category, earned premium decreased by $35, or 29%. The “Other” category of earned premiums includes
premiums assumed under inter-segment arrangements. Beginning in the third quarter of 2006, the Company reduced the premiums
assumed by Specialty Commercial under inter-segment arrangements covering certain liability claims.