The Hartford 2008 Annual Report Download - page 224

Table of Contents
Sale of Omni
The Company sold its Omni non-standard auto business in the fourth quarter of 2006. Omni accounted for an underwriting
loss of $52 in 2006, including $127 of earned premiums, $140 of loss and loss adjustment expenses, $30 of amortization of
deferred policy acquisition costs and $9 of insurance operating costs and expenses.
Earned premium increased by $129
Personal Lines earned premium increased by $129, or 3%, to $3,889, primarily driven by an increase in AARP and Agency
earned premium, partially offset by a decrease of $122 due to the sale of Omni in 2006. Refer to the earned premium
discussion for a description of the increase in earned premium.
Losses and loss adjustment expenses increased by $219
Current accident year loss and loss adjustment expenses before catastrophes increased by $180
Personal Lines current accident year loss and loss adjustment expenses before catastrophes increased by $180 in 2007, to
$2,576, due to an increase in earned premium and an increase in the current accident year loss and loss adjustment expense
ratio before catastrophes, partially offset by a decrease due to the sale of Omni. Excluding the effect of Omni, the current
accident year loss and loss adjustment expense ratio before catastrophes increased by 3.3 points, to 66.2. The increase was
primarily due to a higher loss and loss adjustment expense ratio for auto liability claims, increased frequency on auto
property damage claims and, to a lesser extent, increased severity on homeowners claims, partially offset by the effect of
earned pricing increases in homeowners. The higher loss and loss adjustment expense ratio for auto liability claims was
primarily driven by increased bodily injury severity.
Current accident year catastrophes increased by $5
Current accident year catastrophe losses of $125, or 3.2 points, in 2007 were slightly higher than current accident year
catastrophe losses of $120, or 3.2 points, in 2006. The largest catastrophe losses in 2007 were from wildfires in California,
spring windstorms in the Southeast and Northeast, tornadoes and thunderstorms in the Midwest and a December ice storm in
the Midwest. Catastrophes losses during 2006 included tornadoes and hail storms in the Midwest and windstorms in Texas
and on the East coast.
Net favorable prior accident year reserve development decreased by $34
Net favorable prior accident year reserve development decreased from $38, or 1.0 point, in 2006 to $4, or 0.1 points, in
2007. Net favorable reserve development of $4 in 2007 included a $16 release of reserves for loss and allocated loss and loss
adjustment expenses on Personal Lines auto liability claims for accident years 2002 to 2006.
Net favorable prior accident year reserve development of $38 in 2006 included a $53 reduction in prior accident year
reserves for auto liability claims related to accident years 2003 to 2005 and a $23 reduction in hurricane catastrophe reserves
related to the 2004 and 2005 hurricanes, partially offset by a $30 increase in reserves for personal auto liability claims due to
an increase in estimated severity on claims where the Company is exposed to losses in excess of policy limits.
Operating expenses increased by $17
The expense ratio decreased by 0.3 points, to 22.4, in 2007, due largely to an increase in insurance operating costs and
expenses. Omni accounted for $9 of insurance operating costs and expenses in 2006. Excluding Omni, insurance operating
costs and expenses increased by $31, or 14%, primarily due to the effect of a $19 reduction of estimated Citizen’s
assessments in 2006 related to 2005 Florida hurricanes. Also contributing to the increase in insurance and operating costs
was an increase in AARP distribution costs and other insurance operating costs, partially offset by lower IT costs.
Omni accounted for $30 of amortization of deferred policy acquisition costs in 2006. Excluding Omni, amortization of
deferred policy acquisition costs increased by $25, or 4%, driven primarily by the increase in earned premium.
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Source: HARTFORD FINANCIAL S, 10-K, February 12, 2009