The Hartford 2008 Annual Report Download - page 131

Table of Contents
Premiums
Traditional insurance type products, such as those sold by Group Benefits, collect premiums from policyholders in exchange
for financial protection for the policyholder from a specified insurable loss, such as death or disability. These premiums
together with net investment income earned from the overall investment strategy are used to pay the contractual obligations
under these insurance contracts. Two major factors, new sales and persistency, impact premium growth. Sales can increase
or decrease in a given year based on a number of factors, including but not limited to, customer demand for the Company’s
product offerings, pricing competition, distribution channels and the Company’s reputation and ratings. Persistency refers to
the percentage of policies remaining in-force from year-to-year.
For the years ended December 31,
Group Benefits 2008 2007 2006
Total premiums and other considerations $ 4,391 $ 4,301 $ 4,149
Fully insured ongoing sales (excluding buyouts) 820 770 861
Persistency 89% 87% 87%
• Earned premiums and other considerations include $1, $27 and $12 in buyout premiums for the years ended
December 31, 2008, 2007 and 2006, respectively. Total premiums and other considerations, excluding buyouts,
increased in 2008 compared to 2007 due to increases in sales and persistency that were offset by lower premiums in the
medical stop loss business as a result of the renewal rights transaction that closed during the second quarter of 2007.
The increase in premiums and other considerations for Group Benefits in 2007 compared to 2006 was driven by growth
in the block of business.
• Fully insured ongoing sales, excluding buyouts, increased in 2008 from 2007 primarily due to national account and
small case sales growth. Fully insured ongoing sales, excluding buyouts, declined in 2007 from 2006 primarily due to
fewer large national account sales, and the small case competitive environment remained intense. The Company also
completed a renewal rights arrangement associated with its medical stop loss business during the second quarter of
2007 eliminating new sales related to this business. In addition, there was an anticipated decrease in association life
sales from an unusually high comparable prior year period.
Expenses
There are three major categories for expenses. The first major category of expenses is benefits and losses. These include the
costs of mortality and morbidity, particularly in the group benefits business, and mortality in the individual life businesses,
as well as other contractholder benefits to policyholders. In addition, traditional insurance type products generally use a loss
ratio which is expressed as the amount of benefits incurred during a particular period divided by total premiums and other
considerations, as a key indicator of underwriting performance. Since Group Benefits occasionally buys a block of claims
for a stated premium amount, the Company excludes this buyout from the loss ratio used for evaluating the underwriting
results of the business as buyouts may distort the loss ratio.
The second major category is insurance operating costs and expenses, which is commonly expressed in a ratio of a revenue
measure depending on the type of business. The third major category is the amortization of deferred policy acquisition costs
and the present value of future profits, which is typically expressed as a percentage of pre-tax income before the cost of this
amortization (an approximation of actual gross profits). Retail — Individual Annuity business accounts for the majority of
the amortization of deferred policy acquisition costs and present value of future profits for Life.
For the years ended December 31,
2008 2007 2006
Retail
General insurance expense ratio (individual annuity) 21.0 bps 17.9 bps 17.2 bps
DAC amortization ratio (individual annuity) [1] 218.5% 25.5% 65.3%
DAC amortization ratio (individual annuity) excluding DAC
Unlock [1] [3] 65.2% 47.9% 52.4%
Individual Life
Death benefits $ 359 $ 298 $ 251
Group Benefits
Total benefits, losses and loss adjustment expenses $ 3,144 $ 3,109 $ 3,002
Loss ratio (excluding buyout premiums) 71.6% 72.1% 72.3%
Expense ratio (excluding buyout premiums) 27.0% 27.9% 27.6%
International — Japan
General insurance expense ratio 49.4 bps 48.4 bps 49.1 bps
Source: HARTFORD FINANCIAL S, 10-K, February 12, 2009