The Hartford 2008 Annual Report Download - page 205

Table of Contents
Reinsurance recoverables represent loss and loss adjustment expenses recoverable from a number of entities, including
reinsurers and pools. As shown in the following table, a portion of the total gross reinsurance recoverable relates to the
Company’s mandatory participation in various involuntary assigned risk pools and the value of annuity contracts held under
structured settlement agreements. Reinsurance recoverables due from mandatory pools are backed by the financial strength
of the property and casualty insurance industry. Annuities purchased from third party life insurers under structured
settlements are recognized as reinsurance recoverables in cases where the Company has not obtained a release from the
claimant. Of the remaining gross reinsurance recoverable as of December 31, 2008 and 2007, the following table shows the
portion of recoverables due from companies rated by A.M. Best.
Distribution of gross reinsurance recoverable December 31, 2008 December 31, 2007
Gross reinsurance recoverable $ 3,818 $ 4,135
Less: mandatory (assigned risk) pools and
structured settlements (638) (635)
Gross reinsurance recoverable excluding
mandatory pools and structured settlements $ 3,180 $ 3,500
% of Total % of Total
Rated A- (Excellent) or better by A.M. Best [1] $ 2,426 76.3% $ 2,614 74.7%
Other rated by A.M. Best 52 1.6% 90 2.6%
Total rated companies 2,478 77.9% 2,704 77.3%
Voluntary pools 181 5.7% 195 5.6%
Captives 220 6.9% 231 6.6%
Other not rated companies 301 9.5% 370 10.5%
Total $ 3,180 100.0% $ 3,500 100.0%
[1] Based on A.M. Best ratings as of December 31, 2008 and 2007, respectively.
Where its contracts permit, the Company secures future claim obligations with various forms of collateral, including
irrevocable letters of credit, secured trusts, funds held accounts and group wide offsets. As part of its reinsurance
recoverable review, the Company analyzes recent developments in commutation activity between reinsurers and cedants,
recent trends in arbitration and litigation outcomes in disputes between cedants and reinsurers and the overall credit quality
of the Company’s reinsurers. Due largely to investment losses sustained by reinsurers in 2008, the financial strength ratings
of some reinsurers have been downgraded and the financial strength ratings of other reinsurers have been put on negative
watch. Nevertheless, as indicated in the above table, approximately 98% of the gross reinsurance recoverables due from
reinsurers rated by A.M. Best were rated A- (excellent) or better as of December 31, 2008. Due to the inherent uncertainties
as to collection and the length of time before such amounts will be due, it is possible that future adjustments to the
Company’s reinsurance recoverables, net of the allowance, could be required, which could have a material adverse effect on
the Company’s consolidated results of operations or cash flows in a particular quarterly or annual period.
Annually, the Company completes an evaluation of the reinsurance recoverable asset associated with older, long-term
casualty liabilities reported in the Other Operations segment. As a result of this evaluation, the Company reduced its net
reinsurance recoverable by $243 in 2006. See the “Other Operations” section of the MD&A for further discussion.
Monitoring Reinsurer Security
To manage the potential credit risk resulting from the use of reinsurance, management evaluates the credit standing,
financial performance, management and operational quality of each potential reinsurer. Through that process, the Company
maintains a list of reinsurers approved for participation on all treaty and facultative reinsurance placements. The Company’s
approval designations reflect the differing credit exposure associated with various classes of business. Participation
authorizations are categorized along property, short-tail casualty and long-tail casualty lines. In addition to defining
participation eligibility, the Company regularly monitors each active reinsurer’s credit risk exposure in the aggregate and
limits that exposure based upon independent credit rating levels.
Unless otherwise specified, the following discussion speaks to changes for the year ended December 31, 2008 compared to
the year ended December 31, 2007 and the year ended December 31, 2007 compared to the year ended December 31, 2006.
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Source: HARTFORD FINANCIAL S, 10-K, February 12, 2009