The Hartford 2008 Annual Report Download - page 425

Table of Contents
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
6. Reinsurance
The Hartford cedes insurance to other insurers in order to limit its maximum losses and to diversify its exposures and
provide surplus relief. Such transfers do not relieve The Hartford of its primary liability under policies it wrote and, as such,
failure of reinsurers to honor their obligations could result in losses to The Hartford. The Hartford also is a member of and
participates in several reinsurance pools and associations. The Hartford evaluates the financial condition of its reinsurers and
monitors concentrations of credit risk. The Hartford’s property and casualty reinsurance is placed with reinsurers that meet
strict financial criteria established by a credit committee. As of December 31, 2008 and 2007, The Hartford had no
reinsurance-related concentrations of credit risk greater than 10% of the Company’s stockholders’ equity.
Life
In accordance with normal industry practice, Life is involved in both the cession and assumption of insurance with other
insurance and reinsurance companies. As of December 31, 2008 and 2007, the Company’s policy for the largest amount of
life insurance retained on any one life by any company comprising the life operations was $10.
Life insurance fees, earned premiums and other were comprised of the following:
For the years ended December 31,
2008 2007 2006
Gross fee income, earned premiums and other $ 10,441 $ 10,675 $ 9,372
Reinsurance assumed 263 273 313
Reinsurance ceded (421) (405) (369)
Net fee income, earned premiums and other $ 10,283 $ 10,543 $ 9,316
Life reinsures certain of its risks to other reinsurers under yearly renewable term, coinsurance, and modified coinsurance
arrangements. Yearly renewable term and coinsurance arrangements result in passing all or a portion of the risk to the
reinsurer. Generally, the reinsurer receives a proportionate amount of the premiums less an allowance for commissions and
expenses and is liable for a corresponding proportionate amount of all benefit payments. Modified coinsurance is similar to
coinsurance except that the cash and investments that support the liabilities for contract benefits are not transferred to the
assuming company, and settlements are made on a net basis between the companies. Coinsurance with funds withheld is a
form of coinsurance except that the investment assets that support the liabilities are withheld by the ceding company.
The cost of reinsurance related to long-duration contracts is accounted for over the life of the underlying reinsured policies
using assumptions consistent with those used to account for the underlying policies. Life insurance recoveries on ceded
reinsurance contracts, which reduce death and other benefits, were $331, $89 and $59 for the years ended December 31,
2008, 2007 and 2006, respectively. Life also assumes reinsurance from other insurers.
In addition, the Company reinsures a portion of U.S minimum death benefit guarantees, Japan’s guaranteed minimum death
benefits, as well as guaranteed minimum withdrawal benefits, offered in connection with its variable annuity contracts.
Property and Casualty
In managing risk, The Hartford utilizes reinsurance to transfer risk to well-established and financially secure reinsurers.
Reinsurance is used to manage aggregations of risk as well as specific risks based on accumulated property and casualty
liabilities in certain geographic zones. All treaty purchases related to the Company’s property and casualty operations are
administered by a centralized function to support a consistent strategy and ensure that the reinsurance activities are fully
integrated into the organization’s risk management processes.
A variety of traditional reinsurance products are used as part of the Company’s risk management strategy, including excess
of loss occurrence-based products that protect aggregate property and workers’ compensation exposures, and individual risk
or quota share arrangements, that protect specific classes or lines of business. There are no significant finite risk contracts in
place and the statutory surplus benefit from all such prior year contracts is immaterial. Facultative reinsurance is also used to
manage policy-specific risk exposures based on established underwriting guidelines. The Hartford also participates in
governmentally administered reinsurance facilities such as the Florida Hurricane Catastrophe Fund (“FHCF”), the Terrorism
Risk Insurance Program established under The Terrorism Risk Insurance Extension Act of 2005 and other reinsurance
programs relating to particular risks or specific lines of business.
F-60
Source: HARTFORD FINANCIAL S, 10-K, February 12, 2009