The Hartford 2008 Annual Report Download - page 78

Table of Contents
Through both facultative and treaty reinsurance agreements, the Company cedes a share of the risks it has underwritten to
other insurance companies. The Company’s net reserves for loss and loss adjustment expenses include anticipated recovery
from reinsurers on unpaid claims. The estimated amount of the anticipated recovery, or reinsurance recoverable, is net of an
allowance for uncollectible reinsurance.
Reinsurance recoverables include an estimate of the amount of gross loss and loss adjustment expense reserves that may be
ceded under the terms of the reinsurance agreements, including incurred but not reported unpaid losses. The Company
calculates its ceded reinsurance projection based on the terms of any applicable facultative and treaty reinsurance, including
an estimate of how incurred but not reported losses will ultimately be ceded by reinsurance agreement. Accordingly, the
Company’s estimate of reinsurance recoverables is subject to similar risks and uncertainties as the estimate of the gross
reserve for unpaid losses and loss adjustment expenses.
The Company provides an allowance for uncollectible reinsurance, reflecting management’s best estimate of reinsurance
cessions that may be uncollectible in the future due to reinsurers’ unwillingness or inability to pay. The Company analyzes
recent developments in commutation activity between reinsurers and cedants, recent trends in arbitration and litigation
outcomes in disputes between reinsurers and cedants and the overall credit quality of the Company’s reinsurers. Where its
contracts permit, the Company secures future claim obligations with various forms of collateral, including irrevocable letters
of credit, secured trusts, funds held accounts and group-wide offsets. The allowance for uncollectible reinsurance was $379
as of December 31, 2008, including $254 related to Other Operations and $125 related to Ongoing Operations.
Due to the inherent uncertainties as to collection and the length of time before reinsurance recoverables become due, it is
possible that future adjustments to the Company’s reinsurance recoverables, net of the allowance, could be required, which
could have a material adverse effect on the Company’s consolidated results of operations or cash flows in a particular
quarter or annual period.
The Hartford, like other insurance companies, categorizes and tracks its insurance reserves for its segments by “line of
business”, such as property, auto physical damage, auto liability, commercial multi-peril package business, workers’
compensation, general liability professional liability and fidelity and surety. Furthermore, The Hartford regularly reviews the
appropriateness of reserve levels at the line of business level, taking into consideration the variety of trends that impact the
ultimate settlement of claims for the subsets of claims in each particular line of business. In addition, within the Other
Operations segment, the Company has reserves for asbestos and environmental (“A&E”) claims. Adjustments to previously
established reserves, which may be material, are reflected in the operating results of the period in which the adjustment is
determined to be necessary. In the judgment of management, information currently available has been properly considered
in the reserves established for losses and loss adjustment expenses. Incurred but not reported (“IBNR”) reserves represent
the difference between the estimated ultimate cost of all claims and the actual reported loss and loss adjustment expenses
(“reported losses”). Reported losses represent cumulative loss and loss adjustment expenses paid plus case reserves for
outstanding reported claims. Company actuaries evaluate the total reserves (IBNR and case reserves) on an accident year
basis. An accident year is the calendar year in which a loss is incurred, or, in the case of claims-made policies, the calendar
year in which a loss is reported.
The following table shows loss and loss adjustment expense reserves by line of business and by operating segment as of
December 31, 2008, net of reinsurance:
Personal Small Middle Specialty Ongoing Other Total
Lines Commercial Market Commercial Operations Operations P&C
Reserve Line of
Business
Property $304 $2 $61 $86 $453 $— $453
Auto physical
damage 23 4 6 11 44 — 44
Auto liability 1,615 281 252 142 2,290 — 2,290
Package business — 1,108 938 149 2,195 — 2,195
Workers’
compensation 11 1,854 2,226 2,241 6,332 — 6,332
General liability 36 145 814 1,256 2,251 — 2,251
Professional
liability — — — 773 773 — 773
Fidelity and surety — — — 210 210 — 210
Assumed
Reinsurance [1] — — — — — 562 562
All other non-A&E — — — — — 1,066 1,066
A&E 3 2 10 3 18 2,153 2,171
Total reserves-net 1,992 3,396 4,307 4,871 14,566 3,781 18,347
60 176 437 2,110 2,783 803 3,586
Source: HARTFORD FINANCIAL S, 10-K, February 12, 2009