The Hartford 2008 Annual Report Download - page 439

Table of Contents
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
12. Commitments and Contingencies (continued)
Asbestos and Environmental Claims
The Company continues to receive asbestos and environmental claims. Asbestos claims relate primarily to bodily injuries
asserted by people who came in contact with asbestos or products containing asbestos. Environmental claims relate
primarily to pollution and related clean-up costs.
The Company wrote several different categories of insurance contracts that may cover asbestos and environmental claims.
First, the Company wrote primary policies providing the first layer of coverage in an insured’s liability program. Second, the
Company wrote excess policies providing higher layers of coverage for losses that exhaust the limits of underlying
coverage. Third, the Company acted as a reinsurer assuming a portion of those risks assumed by other insurers writing
primary, excess and reinsurance coverages. Fourth, subsidiaries of the Company participated in the London Market, writing
both direct insurance and assumed reinsurance business.
With regard to both environmental and particularly asbestos claims, significant uncertainty limits the ability of insurers and
reinsurers to estimate the ultimate reserves necessary for unpaid losses and related expenses. Traditional actuarial reserving
techniques cannot reasonably estimate the ultimate cost of these claims, particularly during periods where theories of law are
in flux. The degree of variability of reserve estimates for these exposures is significantly greater than for other more
traditional exposures. In particular, the Company believes there is a high degree of uncertainty inherent in the estimation of
asbestos loss reserves.
In the case of the reserves for asbestos exposures, factors contributing to the high degree of uncertainty include inadequate
loss development patterns, plaintiffs’ expanding theories of liability, the risks inherent in major litigation, and inconsistent
emerging legal doctrines. Furthermore, over time, insurers, including the Company, have experienced significant changes in
the rate at which asbestos claims are brought, the claims experience of particular insureds, and the value of claims, making
predictions of future exposure from past experience uncertain. Plaintiffs and insureds also have sought to use bankruptcy
proceedings, including “pre-packaged” bankruptcies, to accelerate and increase loss payments by insurers. In addition, some
policyholders have asserted new classes of claims for coverages to which an aggregate limit of liability may not apply.
Further uncertainties include insolvencies of other carriers and unanticipated developments pertaining to the Company’s
ability to recover reinsurance for asbestos and environmental claims. Management believes these issues are not likely to be
resolved in the near future.
In the case of the reserves for environmental exposures, factors contributing to the high degree of uncertainty include
expanding theories of liability and damages, the risks inherent in major litigation, inconsistent decisions concerning the
existence and scope of coverage for environmental claims, and uncertainty as to the monetary amount being sought by the
claimant from the insured.
It is also not possible to predict changes in the legal and legislative environment and their effect on the future development
of asbestos and environmental claims. Although potential Federal asbestos-related legislation was considered by the Senate
in 2006, it is uncertain whether such legislation will be reconsidered or enacted in the future and, if enacted, what its effect
would be on the Company’s aggregate asbestos liabilities.
The reporting pattern for assumed reinsurance claims, including those related to asbestos and environmental claims, is much
longer than for direct claims. In many instances, it takes months or years to determine that the policyholder’s own
obligations have been met and how the reinsurance in question may apply to such claims. The delay in reporting reinsurance
claims and exposures adds to the uncertainty of estimating the related reserves.
Given the factors described above, the Company believes the actuarial tools and other techniques it employs to estimate the
ultimate cost of claims for more traditional kinds of insurance exposure are less precise in estimating reserves for its
asbestos and environmental exposures. For this reason, the Company relies on exposure-based analysis to estimate the
ultimate costs of these claims and regularly evaluates new information in assessing its potential asbestos and environmental
exposures.
As of December 31, 2008 and December 31, 2007, the Company reported $1.9 billion and $2.0 billion of net asbestos
reserves and $275 and $257 of net environmental reserves, respectively. The Company believes that its current asbestos and
environmental reserves are appropriate. However, analyses of future developments could cause The Hartford to change its
estimates and ranges of its asbestos and environmental reserves, and the effect of these changes could be material to the
Company’s consolidated operating results, financial condition, and liquidity.
F-72
Source: HARTFORD FINANCIAL S, 10-K, February 12, 2009