The Hartford 2009 Annual Report Download - page 46

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During 2009, the Company’ s re-estimates of prior accident years reserves included the following significant reserve changes:
Ongoing Operations
• While the Company expects its losses from the sub-prime mortgage and credit crisis, as well as its exposure to the Madoff and
Stanford cases to be manageable, there is nonetheless the risk that claims under directors’ and officers’ (“D&O”) and errors and
omissions (“E&O”) insurance policies incurred in the 2007 and 2008 accident years may develop adversely as the claims are
settled. However, so far, the Company has seen no evidence of adverse loss experience related to these events. In fact, reported
losses to date for claims under D&O and E&O policies for the 2007 accident year have been emerging favorably to initial
expectations. In addition, for the 2003 to 2006 accident years, reported losses for claims under D&O and E&O policies have been
emerging favorably to initial expectations due to lower than expected claim severity. The Company released a total of $127 of
reserves for D&O and E&O claims in 2009 related to the 2003 to 2008 accident years. Any continued favorable emergence of
claims under D&O and E&O insurance policies for the 2008 and prior accident years could lead the Company to reduce reserves
for these liabilities in future quarters.
• Released reserves for general liability claims by $112, primarily related to accident years 2003 to 2007. 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 2009,
management determined that the lower level of loss emergence was also evident in accident year 2007 and had continued for
accident years 2003 to 2006 and, as a result, the Company reduced the reserves. In addition, during the third quarter of 2009, the
Company recognized that the cost of late emerging exposures were likely to be higher than previously expected. Also in the third
quarter, the Company recognized additional ceded losses on accident years 1999 and prior. These third quarter events were largely
offsetting.
• Released workers' compensation reserves by $92 in 2009, primarily related to additional ceded losses on accident years 1999 and
prior and lower allocated loss adjustment expense reserves in accident years 2003 to 2007. During the first quarter of 2009, the
Company observed lower than expected allocated loss adjustment expense payments on older accident years. As a result, the
Company reduced its estimate for future expense payments on more recent accident years.
• Released reserves for Personal Lines auto liability claims by $77 in 2009. 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. During 2009, the Company recognized that favorable development in reported severity was
a sustained trend for those accident years and, accordingly, management reduced its reserve estimate. In the third quarter of 2009,
management also recognized sustained favorable development trends in AARP for accident year 2008 and released reserves for that
accident year. The fourth quarter 2009 reserve release is in response to a continuation of these same favorable trends, primarily for
accident years 2006 to 2008.
• Released reserves for commercial auto liability claims by $47 in 2009 including $33 in Small Commercial, primarily related to
accident years 2003 to 2008. In the fourth quarter of 2009, the Company recognized that the full value of large auto liability claims
was being recognized as case reserves at an earlier age. The increased adequacy of case reserves caused the Company to decrease
its estimate of reserves for IBNR loss and loss adjustment expenses.
• The Company reviewed its allowance for uncollectible reinsurance for Ongoing Operations in the second quarter of 2009 and
reduced its allowance for Ongoing Operations by $20 driven, in part, by a reduction in gross ceded loss recoverables. The
allowance for uncollectible reinsurance for Ongoing Operations is recorded within the Specialty Commercial segment.
• Strengthened reserves for liability claims under Small Commercial package policies by $38 in 2009, primarily related to allocated
loss adjustment expenses for accident years 2000 to 2005 and 2007 and 2008. During the first quarter of 2009, the Company
identified higher than expected expense payments on older accident years related to the liability coverage. Additional analysis in
the second quarter of 2009 showed that this higher level of loss adjustment expense is likely to continue into more recent accident
years. As a result, in the second quarter of 2009, the Company increased its estimates for future expense payments for the 2007 and
2008 accident years. In addition, during the third quarter of 2009, the Company recognized the cost of late emerging exposures
were likely to be higher than previously expected. Also in the third quarter, the Company recognized a lower than expected
frequency of high severity claims. These third quarter events were largely offsetting.
• Strengthened reserves for surety business by a net of $28 in 2009, primarily related to accident years 2004 to 2007. The net $28 of
strengthening consisted of $55 strengthening of reserves for customs bonds, partially offset by a $27 release of reserves for contract
surety claims. During 2008, the Company became aware that there were a large number of late reported surety claims related to
customs bonds. Continued high volume of late reported claims during 2009 caused the Company to strengthen the reserves.
Because the pattern of claim reporting for customs bonds has not been similar to the reporting pattern of other surety bonds, future
claim activity is difficult to predict. It is possible that as additional claim activity emerges, our estimate of both the number of
future claims and the cost of those claims could change substantially.