The Hartford 2011 Annual Report Download - page 197

THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-62
11. Reserves for Future Policy Benefits and Unpaid Losses and Loss Adjustment Expenses (continued)
Most of the Company’ s property and casualty insurance products insurance reserves are not discounted. However, the Company has
discounted liabilities funded through structured settlements and has discounted certain reserves for indemnity payments due to
permanently disabled claimants under workers' compensation policies. Structured settlements are agreements that provide fixed
periodic payments to claimants and include annuities purchased to fund unpaid losses for permanently disabled claimants and, prior to
2008, agreements that funded loss run-offs for unrelated parties. Most of the annuities have been issued by the Company and these
structured settlements are recorded at present value as annuity obligations, either within the reserve for future policy benefits if the
annuity benefits are life-contingent or within other policyholder funds and benefits payable if the annuity benefits are not life-
contingent. If not funded through an annuity, reserves for certain indemnity payments due to permanently disabled claimants under
workers' compensation policies are recorded as property and casualty insurance products reserves and were discounted to present value
at an average interest rate of 4.4% in 2011 and 4.8% in 2010. As of December 31, 2011 and 2010, property and casualty insurance
products reserves were discounted by a total of $542 and $524, respectively. The current accident year benefit from discounting
property and casualty insurance products reserves was $58 in 2011, $46 in 2010 and $40 in 2009. The growth in discounting benefit
over the past three years is due to growth in the workers’ compensation line of business, tempered by a reduction in the discount rate,
reflecting a lower risk-free rate of return over this period. Accretion of discounts for prior accident years totaled $38 in 2011, $26 in
2010, and $24 in 2009. For annuities issued by the Company to fund certain workers’ compensation indemnity payments where the
claimant has not released the Company of its obligation, the Company has recorded annuity obligations totaling $867 as of December
31, 2011 and $896 as of December 31, 2010.
Property and Casualty Insurance products Unpaid Losses and Loss Adjustment Expenses
A rollforward of liabilities for unpaid losses and loss adjustment expenses follows:
For the years ended December 31,
2011
2010
2009
Beginning liabilities for unpaid losses and loss adjustment expenses, gross
$
21,025
$
21,651
$
21,933
Reinsurance and other recoverables
3,077
3,441
3,586
Beginning liabilities for unpaid losses and loss adjustment expenses, net
17,948
18,210
18,347
Add provision for unpaid losses and loss adjustment expenses
Current year
7,420
6,768
6,596
Prior years
367
(196)
(186)
Total provision for unpaid losses and loss adjustment expenses
7,787
6,572
6,410
Less payments
Current year
3,181
2,952
2,776
Prior years
4,037
3,882
3,771
Total payments
7,218
6,834
6,547
Ending liabilities for unpaid losses and loss adjustment expenses, net
18,517
17,948
18,210
Reinsurance and other recoverables
3,033
3,077
3,441
Ending liabilities for unpaid losses and loss adjustment expenses, gross
$
21,550
$
21,025
$
21,651
In the opinion of management, based upon the known facts and current law, the reserves recorded for The Hartford’ s property and
casualty insurance products at December 31, 2011 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. Based on information or trends that are not presently
known, future reserve re-estimates may result in adjustments to these reserves. Such adjustments could possibly be significant,
reflecting any variety of new and adverse or favorable trends. Because of the significant uncertainties surrounding environmental 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
Hartford’ s results of operations, financial condition and liquidity. For a further discussion, see Note 12.
Examples of current trends affecting frequency and severity include increases in medical cost inflation rates, the changing use of
medical care procedures, the introduction of new products and changes in internal claim practices. Other trends include changes in the
legislative and regulatory environment over workers’ compensation claims and evolving exposures to claims relating to molestation or
abuse and other mass torts. In the case of the reserves for asbestos exposures, factors contributing to the high degree of uncertainty
include inadequate loss development patterns, plaintiffs’ expanding theories of liability, the risks inherent in major litigation, and
inconsistent emerging legal doctrines. In the case of the reserves for environmental exposures, factors contributing to the high degree of
uncertainty include expanding theories of liabilities 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.