The Hartford 2011 Annual Report Download - page 21

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We are particularly vulnerable to losses from catastrophes, both natural and man-made, which could materially and adversely affect
our business, financial condition, results of operations and liquidity.
Our insurance operations expose us to claims arising out of catastrophes. Catastrophes can be caused by various unpredictable events,
including earthquakes, hurricanes, hailstorms, severe winter weather, fires, tornadoes, explosions, pandemics and other natural or man-
made disasters. The geographic distribution of our business subjects us to catastrophe exposure for natural events occurring in a number
of areas, including, but not limited to, hurricanes in Florida, the Gulf Coast, the Northeast and the Atlantic coast regions of the United
States, tornadoes in the Midwest and Southeast, and earthquakes in California and the New Madrid region of the United States. We
expect that increases in the values and concentrations of insured property in these areas will continue to increase the severity of
catastrophic events in the future. Starting in 2004 and 2005, third-party catastrophe loss models for hurricane loss events have
incorporated medium-term forecasts of increased hurricane frequency and severity — reflecting the potential influence of multi-decadal
climate patterns within the Atlantic. In addition, changing climate conditions across longer time scales, including the potential risk of
broader climate change, may be increasing, or may in the future increase, the severity of certain natural catastrophe losses across various
geographic regions. In addition, changing climate conditions, primarily rising global temperatures, may be increasing, or may in the
future increase, the frequency and severity of natural catastrophes such as hurricanes. Potential examples of the impact of climate
change on catastrophe exposure include, but are not limited to the following: an increase in the frequency or severity of wind and
thunderstorm and tornado/hailstorm events due to increased convection in the atmosphere, more frequent brush fires in certain
geographies due to prolonged periods of drought, higher incidence of deluge flooding, and the potential for an increase in severity of the
largest hurricane events due to higher sea surface temperatures. Our operations are also exposed to risk of loss from catastrophes
associated with pandemics and other events that could significantly increase our mortality and morbidity exposures. Policyholders may
be unable to meet their obligations to pay premiums on our insurance policies or make deposits on our investment products.
Our liquidity could be constrained by a catastrophe, or multiple catastrophes, which could result in extraordinary losses. In addition, in
part because accounting rules do not permit insurers to reserve for such catastrophic events until they occur, claims from catastrophic
events could have a material adverse effect on our business, financial condition, results of operations and liquidity. To the extent that
loss experience unfolds or models improve, we will seek to reflect any increased risk in the design and pricing of our products.
However, the Company may be exposed to regulatory or legislative actions that prevent a full accounting of loss expectations in the
design or pricing of our products or result in additional risk-shifting to the insurance industry.
We may incur losses due to our reinsurers’ unwillingness or inability to meet their obligations under reinsurance contracts and the
availability, pricing and adequacy of reinsurance may not be sufficient to protect us against losses.
As an insurer, we frequently seek to reduce the losses that may arise from catastrophes, or other events that can cause unfavorable
results of operations, through reinsurance. Under these reinsurance arrangements, other insurers assume a portion of our losses and
related expenses; however, we remain liable as the direct insurer on all risks reinsured. Consequently, ceded reinsurance arrangements
do not eliminate our obligation to pay claims, and we are subject to our reinsurers’ credit risk with respect to our ability to recover
amounts due from them. Although we regularly evaluate the financial condition of our reinsurers to minimize our exposure to
significant losses from reinsurer insolvencies, our reinsurers may become financially unsound or choose to dispute their contractual
obligations by the time their financial obligations become due. The inability or unwillingness of any reinsurer to meet its financial
obligations to us could have a material adverse effect on our results of operations. In addition, market conditions beyond our control
determine the availability and cost of the reinsurance we are able to purchase. Historically, reinsurance pricing has changed
significantly from time to time. No assurances can be made that reinsurance will remain continuously available to us to the same extent
and on the same terms as are currently available. If we were unable to maintain our current level of reinsurance or purchase new
reinsurance protection in amounts that we consider sufficient and at prices that we consider acceptable, we would have to either accept
an increase in our net liability exposure, reduce the amount of business we write, or develop other alternatives to reinsurance.