The Hartford 2008 Annual Report Download - page 56

Table of Contents
It is difficult for us to predict our potential exposure for asbestos and environmental claims, and our ultimate liability
may exceed our currently recorded reserves, which may have a material adverse effect on our operating results, financial
condition and liquidity.
We continue to receive asbestos and environmental claims. Significant uncertainty limits the ability of insurers and
reinsurers to estimate the ultimate reserves necessary for unpaid losses and related expenses for both environmental and
particularly asbestos claims. We believe that the actuarial tools and other techniques we employ to estimate the ultimate cost
of claims for more traditional kinds of insurance exposure are less precise in estimating reserves for our asbestos and
environmental exposures. Traditional actuarial reserving techniques cannot reasonably estimate the ultimate cost of these
claims, particularly during periods where theories of law are in flux. Accordingly, the degree of variability of reserve
estimates for these exposures is significantly greater than for other more traditional exposures. 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 has been considered in the Senate, it is
uncertain whether such legislation will be reconsidered or enacted in the future and, if so, what its effect would be on our
aggregate asbestos liabilities. Because of the significant uncertainties that limit the ability of insurers and reinsurers to
estimate the ultimate reserves necessary for unpaid losses and related expenses for both environmental and particularly
asbestos claims, the ultimate liabilities may exceed the currently recorded reserves. Any such additional liability cannot be
reasonably estimated now but could have a material adverse effect on our consolidated operating results, financial condition
and liquidity.
The occurrence of one or more terrorist attacks in the geographic areas we serve or the threat of terrorism in general
may have a material adverse effect on our business, consolidated operating results, financial condition and liquidity.
The occurrence of one or more terrorist attacks in the geographic areas we serve could result in substantially higher claims
under our insurance policies than we have anticipated. Private sector catastrophe reinsurance is extremely limited and
generally unavailable for terrorism losses caused by attacks with nuclear, biological, chemical or radiological weapons.
Reinsurance coverage from the federal government under the Terrorism Risk Insurance Program Reauthorization Act of
2007 is also limited. Accordingly, the effects of a terrorist attack in the geographic areas we serve may result in claims and
related losses for which we do not have adequate reinsurance. This would likely cause us to increase our reserves, adversely
affect our earnings during the period or periods affected and, if significant enough, could adversely affect our liquidity and
financial condition. Further, the continued threat of terrorism and the occurrence of terrorist attacks, as well as heightened
security measures and military action in response to these threats and attacks, may cause significant volatility in global
financial markets, disruptions to commerce and reduced economic activity. These consequences could have an adverse
effect on the value of the assets in our investment portfolio as well as those in our separate accounts. The continued threat of
terrorism also could result in increased reinsurance prices and potentially cause us to retain more risk than we otherwise
would retain if we were able to obtain reinsurance at lower prices. Terrorist attacks also could disrupt our operations centers
in the U.S. or abroad. As a result, it is possible that any, or a combination of all, of these factors may have a material adverse
effect on our business, consolidated operating results, financial condition and liquidity.
We may incur losses due to our reinsurers’ unwillingness or inability to meet their obligations under reinsurance
contracts and the availability, pricing and adequacy of reinsurance may not be sufficient to protect us against losses.
As an insurer, we frequently seek to reduce the losses that may arise from catastrophes or mortality, or other events that can
cause unfavorable results of operations, through reinsurance. Under these reinsurance arrangements, other insurers assume a
portion of our losses and related expenses; however, we remain liable as the direct insurer on all risks reinsured.
Consequently, ceded reinsurance arrangements do not eliminate our obligation to pay claims, and we are subject to our
reinsurers’ credit risk with respect to our ability to recover amounts due from them. Although we evaluate periodically the
financial condition of our reinsurers to minimize our exposure to significant losses from reinsurer insolvencies, our
reinsurers may become financially unsound or choose to dispute their contractual obligations by the time their financial
obligations become due. The inability or unwillingness of any reinsurer to meet its financial obligations to us could have a
material adverse effect on our consolidated operating results. In addition, market conditions beyond our control determine
the availability and cost of the reinsurance we are able to purchase. Historically, reinsurance pricing has changed
significantly from time to time. No assurances can be made that reinsurance will remain continuously available to us to the
same extent and on the same terms as are currently available. If we were unable to maintain our current level of reinsurance
or purchase new reinsurance protection in amounts that we consider sufficient and at prices that we consider acceptable, we
would have to either accept an increase in our net liability exposure, reduce the amount of business we write, or develop
other alternatives to reinsurance.
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Source: HARTFORD FINANCIAL S, 10-K, February 12, 2009