The Hartford 2011 Annual Report Download - page 99

99
Operational Risk Management
The Hartford has an Operational Risk Management (“ORM”) function whose responsibility is to provide a comprehensive and
enterprise-wide view of the Company’ s operational risk on an aggregate basis. The Company defines operational risk as the risk of loss
resulting from inadequate or failed internal processes, people and systems, or from external events. This inadequacy or failure may
come from internal or external events. It includes legal risk and considers reputational risk as an impact. The Company has developed
a library of operational risks which have been classified into the following seven risk categories:
• Internal Fraud
• External Fraud
• Employment Practices & Workplace Safety
• Business Disruption & Systems Failures
• Clients, Products & Business Practice
• Damage to Physical Assets
• Execution, Delivery & Process Management
ORM is led by the Chief Operational Risk Officer (“CORO”) who is responsible for establishing, maintaining and communicating the
framework, principles and guidelines of The Hartford’ s operational risk management program. Responsibility for day-to-day
management of operational risk lies within each business unit and functional area..
ORM works closely with the Operational Risk Committee (“ORC”), an enterprise wide governance body comprised of senior leaders
from functional areas such as ORM, Enterprise Services, Enterprise Operations, Claims, Information Technology, Compliance and
Internal Audit. The ORC meets regularly and provides a forum for ensuring the effective management of operational risks across the
enterprise. The ORC’ s responsibilities include reviewing and approving: policies governing operational risk, functional risk tolerances,
and risk mitigation strategies. This group also identifies emerging operational risks, prioritizes them, and determines action plans.
Individual committees, such as the Enterprise Sourcing Board, Enterprise Privacy and Security Committee and the Enterprise Health,
Environment and Safety Committee, focus on specific operational risk issues and report to the ORC.
ORM is responsible for ensuring controls and providing a framework for managing operational risks. ORM has various tools and
processes for identifying, monitoring, measuring, prioritizing, and reporting operational risks. ORM uses a centralized Governance,
Risk, and Compliance (GRC) system to help manage operational risk across the Company’ s finance, legal, data security, and
information technology functions. The Company’ s business risk assessment process is used to identify operational risks and evaluate
controls to mitigate those risks.
Financial Risk Management
The Company identifies the following categories of financial risk:
• Liquidity Risk
• Interest Rate Risk
• Equity Risk
• Foreign Currency Exchange Risk
• Credit Risk
Financial risks include direct, and indirect risks to the Company’ s financial objectives coming from events that impact market
conditions or prices. Financial risk also includes exposure to events that may cause correlated movement in multiple risk factors. The
primary source of financial risks are the Company's general account assets and the liabilities which those assets back, together with the
guarantees which the company has written over various liability products, particularly its portfolio of variable annuities. The Company
assesses its financial risk on a U.S. GAAP, statutory and economic basis. The Hartford has developed a disciplined approach to financial
risk management that is well integrated into the Company’ s underwriting, pricing, hedging, claims, asset and liability management, new
product, and capital management processes. Consistent with its risk appetite, the Company establishes financial risk limits to control
potential loss. Exposures are actively monitored, and mitigated where appropriate. The Company uses various risk management
strategies, including reinsurance and over-the-counter and exchange traded derivatives to transfer risk to well-established and financially
secure counterparties. The Company's Chief Market Risk Officer has enterprise responsibility for establishing and maintaining the
framework, principles, and guidelines of The Hartford’ s financial risk management program.