The Hartford 2008 Annual Report Download - page 245

Table of Contents
OTHER OPERATIONS (INCLUDING ASBESTOS AND ENVIRONMENTAL CLAIMS)
Operating Summary
2008 2007 2006
Written premiums $ 7 $ 5 $ 4
Change in unearned premium reserve — — (1)
Earned premiums 7 5 5
Losses and loss adjustment expenses — prior year 129 193 360
Insurance operating costs and expenses 23 22 11
Underwriting results (145) (210) (366)
Net investment income 197 248 261
Net realized capital gains (losses) (208) (12) 26
Other expenses (3) (1) (1)
Net income (loss) before income taxes (159) 25 (80)
Income tax benefit 62 5 45
Net income (loss) $ (97) $ 30 $ (35)
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, 2008 compared to the year ended December 31, 2007
Other Operations reported a net loss of $97 in 2008 compared to net income of $30 in 2007, driven by the following:
• A $65 increase in underwriting results, primarily due to a $64 decrease in unfavorable prior year loss development.
Reserve development in 2008 included $50 of asbestos reserve strengthening and $53 of environmental reserve
strengthening. In 2007, reserve development included $99 principally as a result of an adverse arbitration decision and
$25 of environmental reserve strengthening.
• A $51 decrease in net investment income, primarily as a result of net losses on limited partnerships and other
alternative investments in 2008 and decreased fixed maturity income.
• A $196 increase in net realized capital losses, primarily due to realized losses in 2008 from impairments of
subordinated fixed maturities and preferred equity securities in the financial services sector as well as of securitized
assets.
• A $57 increase in income tax benefit, primarily as a result of a change from pre-tax income in 2007 to a pre-tax loss in
2008.
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 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.
Source: HARTFORD FINANCIAL S, 10-K, February 12, 2009