The Hartford 2008 Annual Report Download - page 90

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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.
A number of factors affect the variability of estimates for asbestos and environmental reserves including assumptions with
respect to the frequency of claims, the average severity of those claims settled with payment, the dismissal rate of claims
with no payment and the expense to indemnity ratio. The uncertainty with respect to the underlying reserve assumptions for
asbestos and environmental adds a greater degree of variability to these reserve estimates than reserve estimates for more
traditional exposures. While this variability is reflected in part in the size of the range of reserves developed by the
Company, that range may still not be indicative of the potential variance between the ultimate outcome and the recorded
reserves. The recorded net reserves as of December 31, 2008 of $2.18 billion ($1.90 billion and $275 for asbestos and
environmental, respectively) is within an estimated range, unadjusted for covariance, of $1.80 billion to $2.42 billion. The
process of estimating asbestos and environmental reserves remains subject to a wide variety of uncertainties, which are
detailed in Note 12 of Notes to Consolidated Financial Statements. The Company believes that its current asbestos and
environmental reserves are reasonable and appropriate. However, analyses of further developments could cause the
Company 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. If there are significant
developments that affect particular exposures, reinsurance arrangements or the financial condition of particular reinsurers,
the Company will make adjustments to its reserves or to the amounts recoverable from its reinsurers.
Total Property & Casualty Reserves, Net of Reinsurance
In the opinion of management, based upon the known facts and current law, the reserves recorded for the Company’s
property and casualty businesses at December 31, 2008 represent the Company’s best estimate of its ultimate liability for
losses and loss adjustment expenses related to losses covered by policies written by the Company. However, because of the
significant uncertainties surrounding reserves, and particularly asbestos exposures, it is possible that management’s estimate
of the ultimate liabilities for these claims may change and that the required adjustment to recorded reserves could exceed the
currently recorded reserves by an amount that could be material to the Company’s results of operations, financial condition
and liquidity.
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Source: HARTFORD FINANCIAL S, 10-K, February 12, 2009