The Hartford 2008 Annual Report Download - page 202

Table of Contents
The Company’s modeled loss estimates are derived by averaging 21 modeled loss events representing a 250-year return
period loss. For the peril of earthquake, the 21 events averaged to determine the modeled loss estimate include events
occurring in California as well as the Northwestern, Northeastern, Southeastern and Midwestern regions of the United States
with associated magnitudes ranging from 6.9 to 7.9 on the Richter scale. For the peril of hurricane, the 21 events averaged to
determine the modeled loss estimate include category 3, 4 and 5 events in Florida as well as other Southeastern,
Northeastern and Gulf region landfalls.
Hurricane Earthquake
Net of
Expected Net of Expected
Before Reinsurance Before Reinsurance
Reinsurance Recoveries Reinsurance Recoveries
Estimated 250-year probable maximum loss, before-tax $ 1,891 $ 671 $ 953 $ 316
After-tax effect as a percentage of statutory surplus of
the Property & Casualty operations as of
December 31, 2008 7% 3%
Terrorism
The Company is exposed to losses from terrorist attacks, including losses caused by nuclear, biological, chemical or
radiological weapons (NBCR) attacks. For terrorism, private sector catastrophe reinsurance capacity is limited and generally
unavailable for terrorism losses caused by nuclear, biological, chemical or radiological weapons attacks. As such, the
Company’s principal reinsurance protection against large-scale terrorist attacks is the coverage currently provided through
the Terrorism Risk Insurance Program Reauthorization Act (“TRIPRA”). On December 26, 2007, the President signed
TRIPRA extending the Terrorism Risk Insurance Act of 2002 (“TRIA”) through the end of 2014. TRIPRA provides a
backstop for insurance-related losses resulting from any “act of terrorism” certified by the Secretary of the Treasury, in
concurrence with the Secretary of State and Attorney General, that result in industry losses in excess of $100. In addition,
TRIPRA revised the TRIA definition of a certified “act of terrorism” by removing the requirement that an act be committed
“on behalf of any foreign person or foreign interest.” As a result, domestic acts of terrorism can now be certified as “acts of
terrorism” under the program, subject to the other requirements of TRIPRA. Under the program, in any one calendar year,
the federal government would pay 85% of covered losses from a certified act of terrorism after an insurer’s losses exceed
20% of the company’s eligible direct commercial earned premiums of the prior calendar year, up to a combined annual
aggregate limit for the federal government and all insurers of $100 billion. If an act of terrorism or acts of terrorism result in
covered losses exceeding the $100 billion annual industry aggregate limit, a future Congress would be responsible for
determining how additional losses in excess of $100 billion will be paid.
Among other items, TRIPRA required that the President’s Working Group on Financial Markets (“PWG”) continue to
perform an analysis regarding the long-term availability and affordability of insurance for terrorism risk. Among the
findings detailed in the PWG’s initial report, released October 2, 2006, were that the high level of uncertainty associated
with predicting the frequency of terrorist attacks, coupled with the unwillingness of some insurance policyholders to
purchase insurance coverage, makes predicting long term development of the terrorism risk market difficult, and that there is
likely little potential for future market development for nuclear, biological, chemical and radiological (“NBCR”) coverage.
A December 2008 study by the U.S. Government Accountability Office (GAO) found that property and casualty insurers
still generally seek to exclude NBCR coverage from their commercial policies when permitted. However, while nuclear,
pollution and contamination exclusions are contained in many property and liability insurance policies, the GAO report
concluded that such exclusions may be subject to challenges in court because they were not specifically drafted to address
terrorist attacks. Furthermore, workers’ compensation policies generally have no exclusions or limitations. The GAO found
that commercial property and casualty policyholders, including companies that own high-value properties in large cities,
generally reported that they could not obtain NBCR coverage. Commercial property and casualty insurers generally remain
unwilling to offer NBCR coverage because of uncertainties about the risk and the potential for catastrophic losses.
The Texas Windstorm Insurance Association (“TWIA”)
The Texas Windstorm Insurance Association (“TWIA”) provides hail and windstorm coverage to Texas residents of 14
counties along the Texas Gulf coast who are unable to obtain insurance from other carriers. Insurance carriers who write
property insurance in the state of Texas, including The Hartford, are required to be members of TWIA and are obligated to
pay assessments in the event that TWIA losses exceed funds on hand, the available funds in the Texas Catastrophe Reserve
Trust Fund (“CRTF”) and any available reinsurance. Assessments are allocated to carriers based on their share of premium
writings in the state of Texas, as defined.
During 2008, the board of directors of TWIA notified its member companies that it would assess them $100 to cover TWIA
losses from hurricane Dolly and a total of $430 for hurricane Ike. For hurricane Dolly, the Company’s share of the
assessment was $4, which was recorded as incurred losses within current accident year catastrophes in 2008.
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Source: HARTFORD FINANCIAL S, 10-K, February 12, 2009