The Hartford 2007 Annual Report Download - page 126

126
Year ended December 31, 2006 compared to the year ended December 31, 2005
Underwriting results improved by $217
Underwriting results improved by $217, with a corresponding 12.5 point decrease in the combined ratio, to 96.7, due to:
Change in underwriting results
Earned premiums
A decrease in earned premium, excluding a decrease in catastrophe treaty reinstatement premium $ (231)
An increase in earned premium due to a decrease in catastrophe treaty reinstatement premium 27
Net decrease in earned premiums (204)
Losses and loss adjustment expenses
Volume change — Decrease in current accident year loss and loss adjustment expenses before catastrophes
due to the decrease in earned premium 152
Ratio change — Excluding the effect of catastrophe treaty reinstatement premium, a slight increase in the
current accident year non-catastrophe loss and loss adjustment expense ratio before catastrophes (5)
Net decrease in current accident year loss and loss adjustment expenses before catastrophes 147
Catastrophes — Decrease in current accident year catastrophe losses 156
Reserve changes — Decrease in net unfavorable prior accident year reserve development 69
Decrease in losses and loss adjustment expenses 372
Operating expenses
Increase in amortization of deferred policy acquisition costs (20)
Decrease in insurance operating costs and expenses 69
Net decrease in operating expenses 49
Improvement in underwriting results from 2005 to 2006 $ 217
Earned premium decreased by $204
Specialty Commercial earned premium decreased by $204, or 12%, to $1,562. Refer to the earned premium discussion for a description
of the decrease in earned premium.
Losses and loss adjustment expenses decreased by $372
Current accident year loss and loss adjustment expenses before catastrophes decreased by $147
Specialty Commercial current accident year loss and loss adjustment expenses before catastrophes decreased by $147 in 2006, to
$1,069, due almost entirely to a decreased in earned premium. Excluding the effect of catastrophe treaty reinstatement premium, the
current accident year loss and loss adjustment expense ratio before catastrophes increased by 0.3 points, to 68.2, due to a higher loss and
loss adjustment expense ratio on casualty and professional liability business and the effect of an increase in the allocation to Specialty
Commercial of premiums ceded under the Company’ s principal property catastrophe reinsurance program, partially offset by lower non-
catastrophe property loss costs.
Current accident year catastrophes decreased by $156
Current accident year catastrophe losses decreased by $156, from $165, or 9.3 points, in 2005 to $9, or 0.6 points, in 2006. Catastrophe
losses in 2005 included losses for hurricanes Katrina, Rita and Wilma.
Decrease in net unfavorable prior accident year development by $69
Net unfavorable prior accident year reserve development decreased from $103, or 5.8 points, in 2005 to $34, or 2.3 points, in 2006. Net
unfavorable prior accident year reserve development of $34 in 2006 included a $35 strengthening of reserves for construction defects
claims on casualty business for accident years 1997 and prior and a $20 strengthening of allocated loss adjustment expense reserves on
workers’ compensation policies, partially offset by a $35 reduction in catastrophe reserves related to the 2005 hurricanes. The reduction
in catastrophe reserves included a $28 reduction in net losses related to hurricane Katrina, despite a $24 increase in the gross loss
estimate for hurricane Katrina. The decrease in net catastrophe loss reserves was primarily because hurricane Katrina losses on
specialty property business were reimbursable under a specialty property reinsurance treaty covering national account business as well
as under the Company’ s principal property catastrophe reinsurance program. Under the provisions of an inter-segment reinsurance
arrangement, a portion of the recoveries from the Company’ s principal property catastrophe reinsurance program related to the reserve
strengthening were allocated to Specialty Commercial.
Net unfavorable prior accident year reserve development of $103 in 2005 included a $70 strengthening of workers’ compensation
reserves for claim payments expected to emerge after 20 years of development. Reserve development in 2005 also included a release of
reserves for directors and officers insurance related to accident years 2003 and 2004 and strengthening of prior accident year reserves