The Hartford 2008 Annual Report Download - page 185

Table of Contents
During 2008, the Company’s re-estimates of prior accident year reserves included the following significant reserve changes:
Ongoing Operations
• Released workers’ compensation reserves primarily related to accident years 2000 to 2007 by $156. These reserve
releases are a continuation of favorable developments first recognized in 2005 and recognized in both 2006 and 2007.
The reserve releases in 2008 resulted from a determination that workers’ compensation losses continue to develop even
more favorably from prior expectations due, in part, to state legal reforms, including in California and Florida, and
underwriting actions as well as cost reduction initiatives first instituted in 2003. In particular, the state legal reforms
and underwriting actions have resulted in lower than expected medical claim severity. The $156 reserve release
represented 3% of the Company’s net reserves for workers’ compensation claims as of December 31, 2007.
• Released reserves for general liability claims primarily related to the 2001 to 2007 accident years by $105. Beginning
in the third quarter of 2007, the Company observed that reported losses for high hazard and umbrella general liability
claims, primarily related to the 2001 to 2006 accident years, were emerging favorably and this caused management to
reduce its estimate of the cost of future reported claims for these accident years, resulting in a reserve release in each
quarter since the third quarter of 2007. During 2008, the Company observed that this favorable trend continued with the
2007 accident year. The number of reported claims for this line of business has been lower than expected, a trend first
observed in 2005. Over time, management has come to believe that the lower than expected number of claims reported
to date will not be offset by a higher than expected number of late reported claims. The $105 reserve release
represented 4% of the Company’s net reserves for general liability claims as of December 31, 2007.
• Released reserves for professional liability claims for accident years 2003 to 2006 by $75. During 2008, the Company
updated its analysis of certain professional liability claims and the new analysis showed that claim severity for directors
and officers losses in the 2003 to 2006 accident years were favorable to previous expectations, resulting in a reduction
of reserves. The analysis also showed favorable emergence of claim severity on errors and omission policy claims for
the 2004 and 2005 accident years, resulting in a release of reserves. The $75 reserve release represented 13% of the
Company’s net reserves for professional liability claims as of December 31, 2007.
• Released reserves for Personal Lines auto liability claims by $46, principally related to AARP business for the 2005
through 2007 accident years. Beginning in the first quarter of 2008, management observed an improvement in emerged
claim severity for the 2005 through 2007 accident years attributed, in part, to changes made in claim handling
procedures in 2007. In the third and fourth quarter of 2008, the Company recognized that favorable development in
reported severity was a sustained trend and, accordingly, management reduced its reserve estimate. The $46 reserve
release represented 3% of the Company’s net reserves for Personal Lines auto liability claims as of December 31, 2007.
• Released commercial auto liability reserves by $27, primarily related to accident years 2002 to 2007. Management has
observed fewer than previously expected large losses in accident years 2006 and 2007 and lower than previously
expected severity on large claims in accident years 2002 to 2005. In 2008, management recognized that favorable
development in reported claim severity was a sustained trend and, accordingly, management reduced its estimate of the
reserves. The $27 reserve release represented 9% of the Company’s net reserves for Middle Market commercial auto
liability claims as of December 31, 2007.
• Released reserves for extra-contractual liability claims under non-standard personal auto policies by $24. As part of the
agreement to sell its non-standard auto insurance business in November, 2006, the Company continues to be obligated
for certain extra-contractual liability claims arising prior to the date of sale. Reserve estimates for extra-contractual
liability claims are subject to significant variability depending on the expected settlement of individually large claims
and, during 2008, the Company determined that the settlement value of a number of these claims was expected to be
less than previously anticipated, resulting in a $24 release of reserves. The $24 reserve release represented 1% of the
Company’s net reserves for Personal Lines auto liability claims as of December 31, 2007.
• Released reserves for construction defect claims in Specialty Commercial by $10 for accident years 2005 and prior due
to lower than expected reported claim activity. Lower than expected claim activity was first noted in the first quarter of
2007 and continued throughout 2007. In the first quarter of 2008, management determined that this was a verifiable
trend and reduced reserves accordingly. The $10 reserve release represented 1% of the Company’s net reserves for
Specialty Commercial general liability claims as of December 31, 2007.
• Strengthened reserves for general liability and products liability claims primarily for accident years 2004 and prior by
$67 for losses expected to emerge after 20 years of development. In 2007, management observed that long outstanding
general liability claims have been settling for more than previously anticipated and, during the first quarter of 2008, the
Company increased the estimate of late development of general liability claims. The $67 reserve strengthening
represented 3% of the Company’s net reserves for general liability claims as of December 31, 2007.
• Strengthened reserves for allocated loss adjustment expenses on national account general liability claims within
Specialty Commercial by $25. Allocated loss adjustment expense reserves on general liability excess and umbrella
claims were strengthened for accident years 2004 and prior as the Company observed that the cost of settling these
Source: HARTFORD FINANCIAL S, 10-K, February 12, 2009