The Hartford 2012 Annual Report Download - page 7

Table of Contents
In the surety business, favorable underwriting results over the past couple of years have led to increased competition for market share, setting the stage for
potential written price decreases. Driven by the upheaval in the credit markets, new private construction activity has declined dramatically, resulting in lower
demand for contract surety business.
Specialty lines 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 lines competes on an account- by-account basis due to the complex nature of each
transaction. Competition in this market includes other stock companies, mutual companies, alternative risk sharing groups and other underwriting
organizations. The relatively large size and underwriting capacity of The Hartford provides opportunities not available to smaller companies. Disciplined
underwriting and targeted returns are the objectives of specialty lines since premium writings may fluctuate based on the segment’s view of perceived market
opportunity.
For specialty casualty businesses, written pricing competition continues to be significant, particularly for the larger individual accounts. Carriers are
aggressively negotiating renewals with customers by initiating the renewal process well in advance of the policy renewal date, to improve retention, reducing
new business opportunities within the marketplace. Within the national account business, as the market firms, more insureds may opt for loss-sensitive
products in lieu of guaranteed cost policies.
Carriers writing professional liability business are increasingly 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. Also, carriers’ new
business opportunities in the marketplace for directors & officers and errors & omissions insurance have been significantly influenced by customer
perceptions of financial strength, as investment portfolio losses have had a negative effect on the financial strength ratings of some insurers.
In the commercial marketplace, the weak economy has prompted carriers to offer differentiated products and services as a means of gaining a competitive
advantage. In addition to the initiatives specific to each of The Hartford’s Property & Casualty Commercial lines of business noted above, the Company is
leveraging its diverse product, service and distribution capabilities to deliver differentiated value in the market, while simultaneously increasing its ability to
access its own diverse customer base for new product sales.
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Principal Products and Services
Consumer Markets provides standard automobile, homeowners and home-based business coverages to individuals across the United States, including a
special program designed exclusively for members of AARP (“AARP Program”). The Hartford's auto and homeowners products provide coverage options and
customized pricing tailored to a customer's individual risk. The Hartford has individual customer relationships with AARP Program policyholders and, as a
group, these customers represent a significant portion of the total Consumer Markets' business. Business sold to AARP members, either direct or through
independent agents, amounted to earned premiums of $2.8 billion, $2.8 billion and $2.9 billion in 2012, 2011 and 2010, respectively. Consumer Markets
also operates a member contact center for health insurance products offered through the AARP Health program, with the current agreement in place through
2018.
Marketing and Distribution
Consumer Markets reaches diverse customers through multiple distribution channels including direct sales to the consumer, brokers and independent agents.
In direct sales to the consumer, the Company markets its products through a mix of media, including direct mail and e-commerce marketing, television and
advertising, both digitally and in publications. Most of Consumer Markets' direct sales to the consumer are associated with its exclusive licensing arrangement
with AARP, with the current agreement in place until January 1, 2020, to market automobile, homeowners and home-based business insurance products to
AARP's approximately 37 million members. This agreement provides Consumer Markets with an important competitive advantage given the number of “baby
boomers” over age 50, many of whom become AARP members.
Consumer Markets is also focused on targeting specific customer groups and writing business through partnerships and affinities other than AARP. The
Company has affinity agreements with the American Kennel Club, Sierra Club, the National Wildlife Federation and Direct Selling Association. In addition to
selling product through its relationship with AARP and other affinities, the Company markets direct to the consumer within select underwriting markets,
acquired through partnerships or list acquisitions, and to consumers in geographies where it is especially competitive.
The agency channel provides customized products and services to customers through a network of independent agents in the standard personal lines market.
These independent agents are not employees of The Hartford. During 2011 and 2012, the Company completed the rollout of its Open Road Advantage auto
product and its Hartford Home Advantage homeowners' product.
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