The Hartford 2009 Annual Report Download - page 115

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The Texas Windstorm Insurance Association (“TWIA”)
The Texas Windstorm Insurance Association provides hail and windstorm coverage to Texas residents of 14 counties along the Texas
Gulf coast who are unable to obtain insurance from other carriers. Insurance carriers who write property insurance in the state of Texas,
including The Hartford, are required to be members of TWIA and are obligated to pay assessments in the event that TWIA losses exceed
funds on hand, the available funds in the Texas Catastrophe Reserve Trust Fund (“CRTF”) and any available reinsurance. Assessments
are allocated to carriers based on their share of premium writings in the state of Texas, as defined.
During 2008, the board of directors of TWIA notified its member companies that it would assess them $430 to cover TWIA losses from
hurricane Ike. In the third quarter of 2008, the Company accrued a liability of $27 for its estimate of assessments it would ultimately get
from TWIA. In the first quarter of 2009, the Company reduced its estimated assessments by $14, from $27 to $13, resulting in a
reduction in insurance operating costs and expenses. The Company estimates that of the $13 of accrued assessments for Ike, it will
ultimately be able to recoup $8 through premium tax credits.
Florida Citizens Assessments
Citizens Property Insurance Corporation in Florida (“Citizens”) provides property insurance to Florida homeowners and businesses that
are unable to obtain insurance from other carriers, including for properties deemed to be “high risk”. Citizens maintains a Personal
Lines account, a Commercial Lines account and a High Risk account. If Citizens incurs a deficit in any of these accounts, Citizens may
impose a “regular assessment” on other insurance carriers in the state to fund the deficits, subject to certain restrictions and subject to
approval by the Florida Office of Insurance Regulation. Carriers are then permitted to surcharge policyholders to recover the
assessments over the next few years. Citizens may also opt to finance a portion of the deficits through issuing bonds and may impose
“emergency assessments” on other insurance carriers to fund the bond repayments. Unlike with regular assessments, however,
insurance carriers only serve as a collection agent for emergency assessments and are not required to remit surcharges for emergency
assessments to Citizens until they collect surcharges from policyholders. Under U.S. GAAP, the Company is required to accrue for
regular assessments in the period the assessments become probable and estimable and the obligating event has occurred. Surcharges to
recover the amount of regular assessments may not be recorded as an asset until the related premium is written. Emergency assessments
that may be levied by Citizens are not recorded in the income statement.
Reinsurance Recoverables
The following table shows the components of the gross and net reinsurance recoverable as of December 31, 2009 and 2008:
Reinsurance Recoverable December 31, 2009 December 31, 2008
Paid loss and loss adjustment expenses $ 208 $ 326
Unpaid loss and loss adjustment expenses 3,321 3,492
Gross reinsurance recoverable 3,529 3,818
Less: allowance for uncollectible reinsurance (335) (379)
Net reinsurance recoverable $ 3,194 $ 3,439
Reinsurance recoverables represent loss and loss adjustment expenses recoverable from a number of entities, including reinsurers and
pools. As shown in the following table, a portion of the total gross reinsurance recoverable relates to the Company’ s mandatory
participation in various involuntary assigned risk pools and the value of annuity contracts held under structured settlement agreements.
Reinsurance recoverables due from mandatory pools are backed by the financial strength of the property and casualty insurance
industry. Annuities purchased from third-party life insurers under structured settlements are recognized as reinsurance recoverables in
cases where the Company has not obtained a release from the claimant. Of the remaining gross reinsurance recoverable as of December
31, 2009 and 2008, the following table shows the portion of recoverables due from companies rated by A.M. Best.
Distribution of gross reinsurance recoverable December 31, 2009 December 31, 2008
Gross reinsurance recoverable $ 3,529 $ 3,818
Less: mandatory (assigned risk) pools and structured settlements (642) (638)
Gross reinsurance recoverable excluding mandatory
pools and structured settlements $ 2,887 $3,180
% of Total % of Total
Rated A- (Excellent) or better by A.M. Best [1] $ 2,091 72.4% $ 2,426 76.3%
Other rated by A.M. Best 48 1.7% 52 1.6%
Total rated companies 2,139 74.1% 2,478 77.9%
Voluntary pools 152 5.3% 181 5.7%
Captives 209 7.2% 220 6.9%
Other not rated companies 387 13.4% 301 9.5%
Total $ 2,887 100% $ 3,180 100.0%
[1] Based on A.M. Best ratings as of December 31, 2009 and 2008, respectively.