The Hartford 2008 Annual Report Download - page 235

Table of Contents
Operating expenses decreased by $15
The $16 decrease in the amortization of deferred policy acquisition costs was largely due to the decrease in earned premium,
partially offset by the amortization of higher underwriting costs. Insurance operating costs and expenses included
policyholder dividends of $21 in 2008 and $14 in 2007 which increased primarily due to a $6 increase in the estimated
amount of dividends payable to certain workers’ compensation policyholders due to underwriting profits. Apart from
policyholder dividends, insurance operating costs and expenses decreased by $6 as the effect of lower compensation-related
costs was partially offset by higher IT costs and an estimated $3 of TWIA assessments in 2008. The expense ratio increased
by 0.5 points, to 29.0, due to the amortization of higher underwriting costs, the TWIA assessments in 2008 and the effect of
lower earned premiums, partially offset by the effect of lower compensation-related costs.
Year ended December 31, 2007 compared to the year ended December 31, 2006
Underwriting results decreased by $57, from $214 to $157, with a corresponding 2.0 point increase in the combined ratio,
from 91.5 to 93.5, due to:
Change in underwriting results
Decrease in earned premiums $ (103)
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 61
Ratio change — An increase in the current accident year loss and loss adjustment expense ratio
before catastrophes (45)
Net decrease in current accident year loss and loss adjustment expenses before catastrophes 16
Catastrophes — Decrease in current accident year catastrophe losses 21
Reserve changes — Change to net favorable prior accident year reserve development 29
Net decrease in losses and loss adjustment expenses 66
Operating expenses
Decrease in amortization of deferred policy acquisition costs 15
Increase in insurance operating costs and expenses (35)
Net increase in operating expenses (20)
Decrease in underwriting results from 2006 to 2007 $ (57)
Earned premium decreased by $103
Middle Market earned premium decreased by $103, or 4%, to $2,420. Refer to the earned premium discussion for a
description of the decrease in earned premium.
Losses and loss adjustment expenses decreased by $66
Current accident year loss and loss adjustment expenses before catastrophes decreased by $16
Middle Market current accident year loss and loss adjustment expenses before catastrophes decreased by $16 in 2007, to
$1,561, due to a decrease in earned premium, largely offset by the effect of an increase in the current accident year loss and
loss adjustment expense ratio before catastrophes. Before catastrophes, the current accident year loss and loss adjustment
expense ratio increased by 1.9 points, to 64.5, primarily due to a higher loss and loss adjustment expense ratio for workers’
compensation, general liability and commercial auto claims driven, in part, by earned pricing decreases. For commercial
auto, loss costs increased for both liability and property damage claims.
Current accident year catastrophes decreased by $21
Current accident year catastrophe losses decreased by $21, from $36, or 1.5 points, in 2006 to $15, or 0.6 points, in 2007.
Compared to 2007, there were more severe catastrophes in 2006, including tornadoes and hail storms in the Midwest and
windstorms in Texas and on the East coast. The largest catastrophe losses in 2007 were from spring windstorms in the
Southeast and wildfires in California.
Change to favorable prior accident year development by $29
Prior accident year reserve development changed from net unfavorable prior accident year reserve development of $13, or
0.5 points, in 2006 to net favorable prior accident year reserve development of $16, or 0.7 points, in 2007. Net favorable
reserve development of $16 in 2007 included a $49 release of general liability loss and loss adjustment expense reserves for
accident years 2003 to 2006 and an $18 release of commercial auto liability reserves for accident years 2003 and 2004,
Source: HARTFORD FINANCIAL S, 10-K, February 12, 2009