The Hartford 2009 Annual Report Download - page 44

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Uncertainties Regarding Adequacy of Asbestos and Environmental Reserves
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, 2009 of $2.21 billion
($1.90 billion and $312 for asbestos and environmental, respectively) is within an estimated range, unadjusted for covariance, of $1.75
billion to $2.52 billion. The process of estimating asbestos and environmental reserves remains subject to a wide variety of
uncertainties, which are detailed in Note 12 of the Notes to Consolidated Financial Statements. The Company believes that its current
asbestos and environmental reserves are appropriate. However, analyses of future 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. Consistent with the Company’ s long-standing reserving practices, the
Company will continue to review and monitor its reserves in the Other Operations segment regularly and, where future developments
indicate, make appropriate adjustments to the reserves.
Total Property & Casualty Reserves, Net of Reinsurance, Results
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, 2009 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.
Reserve Rollforwards and Development
Based on the results of the quarterly reserve review process, the Company determines the appropriate reserve adjustments, if any, to
record. Recorded reserve estimates are changed after consideration of numerous factors, including but not limited to, the magnitude of
the difference between the actuarial indication and the recorded reserves, improvement or deterioration of actuarial indications in the
period, the maturity of the accident year, trends observed over the recent past and the level of volatility within a particular line of
business. In general, changes are made more quickly to more mature accident years and less volatile lines of business.
As part of its quarterly reserve review process, the Company is closely monitoring reported loss development in certain lines where the
recent emergence of paid losses and case reserves could indicate a trend that may eventually lead the Company to change its estimate of
ultimate losses in those lines. If, and when, the emergence of reported losses is determined to be a trend that changes the Company's
estimate of ultimate losses, prior accident years reserves would be adjusted in the period the change in estimate is made. Such
adjustments of reserves are referred to as “reserve development”. Reserve development that increases previous estimates of ultimate
cost is called “reserve strengthening”. Reserve development that decreases previous estimates of ultimate cost is called “reserve
releases”. Reserve development can influence the comparability of year over year underwriting results and is set forth in the paragraphs
and tables that follow.