The Hartford 2008 Annual Report Download - page 76

Table of Contents
OVERVIEW
The Hartford is an insurance and financial services company with operations dating back to 1810. The Company is
headquartered in Connecticut and is organized into two major operations: Life and Property & Casualty, each containing
reporting segments. Within the Life and Property & Casualty operations, The Hartford conducts business principally in
eleven reporting segments. Corporate primarily includes the Company’s debt financing and related interest expense, as well
as other capital raising activities and purchase accounting adjustments.
Life is organized into four groups which are comprised of six reporting segments: The Retail Products Group (“Retail”) and
Individual Life segments make up the Individual Markets Group. The Retirement Plans and Group Benefits segments make
up the Employer Markets Group. The Institutional Solutions Group (“Institutional”) and International segments each make
up their own group. Through Life the Company provides retail and institutional investment products such as variable and
fixed annuities, mutual funds, private placement life insurance and retirement plan services, individual life insurance
products including variable universal life, universal life, interest sensitive whole life and term life; and group benefit
products, such as group life and group disability insurance.
Property & Casualty is organized into five reporting segments: the underwriting segments of Personal Lines, Small
Commercial, Middle Market and Specialty Commercial (collectively “Ongoing Operations”), and the Other Operations
segment. Through Property & Casualty the Company provides a number of coverages, as well as insurance-related services,
to businesses throughout the United States, including workers’ compensation, property, automobile, liability, umbrella,
specialty casualty, marine, livestock, fidelity and surety, professional liability and director’s and officer’s liability coverages.
Property & Casualty also provides automobile, homeowners, and home-based business coverage to individuals throughout
the United States, as well as insurance-related services to businesses.
Many of the principal factors that drive the profitability of The Hartford’s Life and Property & Casualty operations are
separate and distinct. To present its operations in a more meaningful and organized way, management has included separate
overviews within the Life and Property & Casualty sections of the MD&A. For further overview of Life’s profitability and
analysis, see page 70. For further overview of Property & Casualty’s profitability and analysis, see page 94.
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements, in conformity with accounting principles generally accepted in the United States of
America (“U.S. GAAP”), requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results could differ, and in the past have differed,
from those estimates.
The Company has identified the following estimates as critical in that they involve a higher degree of judgment and are
subject to a significant degree of variability: property and casualty reserves, net of reinsurance; life estimated gross profits
used in the valuation and amortization of assets and liabilities associated with variable annuity and other universal life-type
contracts; living benefits required to be fair valued; valuation of investments and derivative instruments; evaluation of
other-than-temporary impairments on available-for-sale securities; pension and other postretirement benefit obligations;
contingencies relating to corporate litigation and regulatory matters; and goodwill impairment. In developing these estimates
management makes subjective and complex judgments that are inherently uncertain and subject to material change as facts
and circumstances develop. Although variability is inherent in these estimates, management believes the amounts provided
are appropriate based upon the facts available upon compilation of the financial statements.
Property and Casualty Reserves, Net of Reinsurance
The Hartford establishes property and casualty reserves to provide for the estimated costs of paying claims under insurance
policies written by the Company. These reserves include estimates for both claims that have been reported and those that
have not yet been reported, and include estimates of all expenses associated with processing and settling these claims.
Estimating the ultimate cost of future losses and loss adjustment expenses is an uncertain and complex process. This
estimation process is based largely on the assumption that past developments are an appropriate predictor of future events
and involves a variety of actuarial techniques that analyze experience, trends and other relevant factors. Reserve estimates
can change over time because of unexpected changes in the external environment. Potential external factors include
(1) changes in the inflation rate for goods and services related to covered damages such as medical care, hospital care, auto
parts, wages and home repair, (2) changes in the general economic environment that could cause unanticipated changes in
the claim frequency per unit insured, (3) changes in the litigation environment as evidenced by changes in claimant attorney
representation in the claims negotiation and settlement process, (4) changes in the judicial environment regarding the
interpretation of policy provisions relating to the determination of coverage and/or the amount of damages awarded for
certain types of damages, (5) changes in the social environment regarding the general attitude of juries in the determination
of liability and damages, (6) changes in the legislative environment regarding the definition of damages and (7) new types of
injuries caused by new types of injurious exposure: past examples include breast implants, lead paint and construction
defects. Reserve estimates can also change over time because of changes in internal company operations. Potential internal
Source: HARTFORD FINANCIAL S, 10-K, February 12, 2009