The Hartford 2008 Annual Report Download - page 34

Table of Contents
Principal Products
Specialty Commercial offers a variety of customized insurance products and risk management services. Specialty
Commercial provides standard commercial insurance products including workers’ compensation, automobile and liability
coverages to large-sized companies. Specialty Commercial also provides professional liability, fidelity, surety and specialty
casualty coverages as well as property excess and surplus lines coverages not normally written by standard lines insurers. A
significant portion of specialty casualty business, including workers’ compensation business, is written through large
deductible programs where the insured typically provides collateral to support loss payments made within their deductible.
The specialty casualty business also provides retrospectively-rated programs where the premiums are adjustable based on
loss experience. Captive and Specialty Programs, within Specialty Commercial, provides insurance products and services
primarily to captive insurance companies, pools and self-insurance groups. In addition, Specialty Commercial provides
third-party administrator services for claims administration, integrated benefits and loss control through Specialty Risk
Services, LLC, a subsidiary of the Company.
Marketing and Distribution
Specialty Commercial provides insurance products and services through its home office located in Hartford, Connecticut
and multiple domestic office locations. The segment markets its products nationwide utilizing a variety of distribution
networks including independent retail agents, brokers and wholesalers. Brokers, independents agents and wholesalers are not
employees of The Hartford.
Competition
Specialty Commercial is comprised of a diverse group of businesses that operate independently within their specific
industries. These businesses, while somewhat interrelated, have different business models and operating cycles. Specialty
Commercial is largely considered a transactional business and, therefore, competes with other companies for much of its
business on an account by account basis due to the complex nature of each transaction.
For specialty casualty business, written pricing competition continues to be significant, particularly for the larger individual
accounts. Written pricing declines and expanded terms and conditions have reduced the profitability of this business.
Carriers are trying to protect their in-force casualty business by starting to renew policies well before the policy renewal
date. Employing this early renewal practice often prevents other carriers from quoting on the business, resulting in fewer
new business opportunities within the marketplace. With national account business, as the market continues to soften, more
insureds may opt for guaranteed cost policies in lieu of loss-sensitive products. The market for loss sensitive casualty
business in 2009 will likely continue to experience price competition and the use of expanded terms and conditions. For
property business, written pricing on catastrophe-exposed business continues to be under pressure as standard market
carriers have increased their risk appetite for this business.
For professional liability business, we expect written pricing to firm for financial services companies and related classes of
business driven by an increase in federal shareholder class action lawsuits arising from the financial market turmoil. For
other classes of business, we expect a moderate decline in written pricing. Carriers writing professional liability business are
increasingly more focused on profitable private, middle market companies. This trend has continued as the downturn in the
economy has led to a significant drop in the number of initial public offerings and volatility for all public companies. Losses
taken on investment portfolios have affected the financial strength ratings of some insurers in the marketplace for directors
and officers and errors and omissions insurance and a carrier’s new business opportunities can be significantly affected by
customer perceptions about its financial strength. In February 2009, rating agencies lowered the insurance financial strength
ratings of the Company’s group of principal property and casualty subsidiaries.
For surety business, favorable underwriting results in recent years has led to more intense competition for market share. This
could lead to written price declines and less favorable terms and conditions. Driven by the upheaval in the credit markets,
new private construction activity has declined dramatically, resulting in lower demand for contract surety business. For both
professional liability business and fidelity and surety business, the economic downturn and weakened credit environment
may increase loss costs in 2009.
Disciplined underwriting and targeted returns are the objectives of Specialty Commercial since premium writings may
fluctuate based on the segment’s view of perceived market opportunity. Specialty Commercial competes with other stock
companies, mutual companies, alternative risk sharing groups and other underwriting organizations. The relatively large size
and underwriting capacity of The Hartford provide opportunities not available to smaller companies.
Other Operations
The Other Operations segment operates 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 Hartford that have
discontinued writing new business. The second is the management of claims (and the associated reserves) related to
asbestos, environmental and other exposures. Including net realized capital gains (losses) and net investment income, total
Source: HARTFORD FINANCIAL S, 10-K, February 12, 2009