The Hartford 2007 Annual Report Download - page 128

128
OTHER OPERATIONS (INCLUDING ASBESTOS AND ENVIRONMENTAL CLAIMS)
Operating Summary
2007 2006 2005
Written premiums $5 $ 4 $ 4
Change in unearned premium reserve — (1) —
Earned premiums 5 5 4
Losses and loss adjustment expenses – prior year 193 360 212
Amortization of deferred policy acquisition costs — — (3)
Insurance operating costs and expenses 22 11 21
Underwriting results (210) (366) (226)
Net investment income 248 261 283
Net realized capital gains (losses) (12) 26 25
Other expenses (1) (1) (1)
Income tax benefit (expense) 5 45 (10)
Net income (loss) $30 $ (35) $ 71
The Other Operations segment includes operations that are under a single management structure, Heritage Holdings, which is
responsible for two related activities. The first activity is the management of certain subsidiaries and operations of the Company that
have discontinued writing new business. The second is the management of claims (and the associated reserves) related to asbestos,
environmental and other exposures. The Other Operations book of business contains policies written from approximately the 1940s to
2003. The Company’ s experience has been that this book of run-off business has, over time, produced significantly higher claims and
losses than were contemplated at inception.
Year ended December 31, 2007 compared to the year ended December 31, 2006
Other Operations reported net income of $30 in 2007 compared to a net loss of $35 in 2006, driven by the following:
• A $156 increase in underwriting results, primarily due to a $167 decrease in unfavorable prior year loss development. Reserve
development in 2007 included $99 principally as a result of an adverse arbitration decision and $25 of environmental reserve
strengthening. In 2006, reserve development included a $243 reduction in net reinsurance recoverables, $43 of environmental
reserve strengthening and $12 of reserve strengthening for assumed reinsurance.
• A $13 decrease in net investment income, primarily as a result of a decrease in invested assets resulting from net losses and loss
adjustment expenses paid.
• A change from $26 of net realized capital gains in 2006 to $12 of net realized capital losses in 2007, primarily due to an increase in
credit-related impairments and decreases in the fair value of non-qualifying derivatives attributable to changes in value associated
with credit derivatives due to credit spreads widening.
• A $40 decrease in income tax benefit, primarily as a result of a change from a pre-tax loss in 2006 to pre-tax income in 2007.
Year ended December 31, 2006 compared to the year ended December 31, 2005
Other Operations reported a net loss of $35 in 2006 compared to net income of $71 in 2005, driven by the following:
• A $140 decrease in underwriting results, primarily due to a $148 increase in prior year loss development. Reserve development in
2006 included a $243 reduction in net reinsurance recoverables as a result of the agreement with Equitas and the Company’ s
evaluation of the reinsurance recoverables and allowance for uncollectible reinsurance associated with older, long-term casualty
liabilities reported in the Other Operations segment, $43 of environmental reserve strengthening, and $12 of reserve strengthening
for assumed reinsurance. In 2005, reserve development included $85 of reserve strengthening for assumed reinsurance, $37 of
environmental reserve strengthening, and a $20 increase in the allowance for uncollectible reinsurance.
• A $22 decrease in net investment income, primarily as a result of a decrease in invested assets resulting from net loss and loss
adjustment expenses paid.
• A change from an income tax expense of $10 in 2005 to an income tax benefit of $45 in 2006, as a result of a pre-tax loss in 2006.