The Hartford 2008 Annual Report Download - page 63

Table of Contents
Additionally, the property and casualty insurance market is historically cyclical, experiencing periods characterized by
relatively high levels of price competition, less restrictive underwriting standards and relatively low premium rates, followed
by periods of relatively low levels of competition, more selective underwriting standards and relatively high premium rates.
Prices tend to increase for a particular line of business when insurance carriers have incurred significant losses in that line of
business in the recent past or when the industry as a whole commits less of its capital to writing exposures in that line of
business. Prices tend to decrease when recent loss experience has been favorable or when competition among insurance
carriers increases. In a number of product lines and states, we continue to experience premium rate reductions. In these
product lines and states, there is a risk that the premium we charge may ultimately prove to be inadequate as reported losses
emerge. Even in a period of rate increases, there is a risk that regulatory constraints, price competition or incorrect pricing
assumptions could prevent us from achieving targeted returns. Inadequate pricing could have a material adverse effect on
our consolidated results of operations.
If we are unable to maintain the availability of our systems and safeguard the security of our data due to the occurrence
of disasters or other unanticipated events, our ability to conduct business may be compromised, which may have a
material adverse effect on our business, consolidated results of operations, financial condition or cash flows.
We use computer systems to store, retrieve, evaluate and utilize customer and company data and information. Our computer,
information technology and telecommunications systems, in turn, interface with and rely upon third-party systems. Our
business is highly dependent on our ability, and the ability of certain affiliated third parties, to access these systems to
perform necessary business functions, including, without limitation, providing insurance quotes, processing premium
payments, making changes to existing policies, filing and paying claims, administering variable annuity products and mutual
funds, providing customer support and managing our investment portfolios. Systems failures or outages could compromise
our ability to perform these functions in a timely manner, which could harm our ability to conduct business and hurt our
relationships with our business partners and customers. In the event of a disaster such as a natural catastrophe, an industrial
accident, a blackout, a computer virus, a terrorist attack or war, our systems may be inaccessible to our employees,
customers or business partners for an extended period of time. Even if our employees are able to report to work, they may be
unable to perform their duties for an extended period of time if our data or systems are disabled or destroyed. Our systems
could also be subject to physical and electronic break-ins, and subject to similar disruptions from unauthorized tampering
with our systems. This may impede or interrupt our business operations and may have a material adverse effect on our
business, consolidated operating results, financial condition or liquidity.
If we experience difficulties arising from outsourcing relationships, our ability to conduct business may be compromised.
We outsource certain technology and business functions to third parties and expect to do so selectively in the future. If we
do not effectively develop and implement our outsourcing strategy, third-party providers do not perform as anticipated, or
we experience problems with a transition, we may experience operational difficulties, increased costs and a loss of business
that may have a material adverse effect on our consolidated results of operations.
Potential changes in federal or state tax laws, including changes impacting the availability of the separate account
dividend received deduction, could adversely affect our business, consolidated operating results or financial condition or
liquidity.
Many of the products that the Company sells benefit from one or more forms of tax-favored status under current federal and
state income tax regimes. For example, the Company sells life insurance policies that benefit from the deferral or
elimination of taxation on earnings accrued under the policy, as well as permanent exclusion of certain death benefits that
may be paid to policyholders’ beneficiaries. We also sell annuity contracts that allow the policyholders to defer the
recognition of taxable income earned within the contract. Other products that the Company sells also enjoy similar, as well
as other, types of tax advantages. The Company also benefits from certain tax benefits, including but not limited to,
tax-exempt bond interest, dividends-received deductions, tax credits (such as foreign tax credits), and insurance reserve
deductions.
There is risk that federal and/or state tax legislation could be enacted that would lessen or eliminate some or all of the tax
advantages currently benefiting the Company or its policyholders. This could occur in the context of deficit reduction or
other tax reforms. The effects of any such changes could result in materially lower product sales, lapses of policies currently
held, and/or our incurrence of materially higher corporate taxes.
We may not be able to protect our intellectual property and may be subject to infringement claims.
We rely on a combination of contractual rights and copyright, trademark, patent and trade secret laws to establish and
protect our intellectual property. Although we use a broad range of measures to protect our intellectual property rights, third
parties may infringe or misappropriate our intellectual property. We may have to litigate to enforce and protect our
copyrights, trademarks, patents, trade secrets and know-how or to determine their scope, validity or enforceability, which
represents a diversion of resources that may be significant in amount and may not prove successful. The loss of intellectual
property protection or the inability to secure or enforce the protection of our intellectual property assets could have a
material adverse effect on our business and our ability to compete.
Source: HARTFORD FINANCIAL S, 10-K, February 12, 2009