The Hartford 2012 Annual Report Download - page 215

Table of Contents
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The Company continues to receive asbestos and environmental claims. Asbestos claims relate primarily to bodily injuries asserted by people who came in
contact with asbestos or products containing asbestos. Environmental claims relate primarily to pollution and related clean-up costs.
The Company wrote several different categories of insurance contracts that may cover asbestos and environmental claims. First, the Company wrote primary
policies providing the first layer of coverage in an insured’s liability program. Second, the Company wrote excess policies providing higher layers of coverage
for losses that exhaust the limits of underlying coverage. Third, the Company acted as a reinsurer assuming a portion of those risks assumed by other
insurers writing primary, excess and reinsurance coverages. Fourth, subsidiaries of the Company participated in the London Market, writing both direct
insurance and assumed reinsurance business.
Significant uncertainty limits the ability of insurers and reinsurers to estimate the ultimate reserves necessary for unpaid losses and expenses related to
environmental and particularly asbestos claims. The degree of variability of reserve estimates for these exposures is significantly greater than for other more
traditional exposures.
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. Furthermore, over time, insurers,
including the Company, have experienced significant changes in the rate at which asbestos claims are brought, the claims experience of particular insureds,
and the value of claims, making predictions of future exposure from past experience uncertain. Plaintiffs and insureds also have sought to use bankruptcy
proceedings, including “pre-packaged” bankruptcies, to accelerate and increase loss payments by insurers. In addition, some policyholders have asserted new
classes of claims for coverages to which an aggregate limit of liability may not apply. Further uncertainties include insolvencies of other carriers and
unanticipated developments pertaining to the Company’s ability to recover reinsurance for asbestos and environmental claims. Management believes these
issues are not likely to be resolved in the near future.
In the case of the reserves for environmental exposures, factors contributing to the high degree of uncertainty include expanding theories of liability 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.
The reporting pattern for assumed reinsurance claims, including those related to asbestos and environmental claims, is much longer than for direct claims. In
many instances, it takes months or years to determine that the policyholder’s own obligations have been met and how the reinsurance in question may apply to
such claims. The delay in reporting reinsurance claims and exposures adds to the uncertainty of estimating the related reserves.
It is also not possible to predict changes in the legal and legislative environment and their effect on the future development of asbestos and environmental
claims.
Given the factors described above, the Company believes the actuarial tools and other techniques it employs to estimate the ultimate cost of claims for more
traditional kinds of insurance exposure are less precise in estimating reserves for certain of its asbestos and environmental exposures. For this reason, the
Company principally relies on exposure-based analysis to estimate the ultimate costs of these claims and regularly evaluates new account information in
assessing its potential asbestos and environmental exposures. The Company supplements this exposure-based analysis with evaluations of the Company’s
historical direct net loss and expense paid and reported experience, and net loss and expense paid and reported experience by calendar and/or report year, to
assess any emerging trends, fluctuations or characteristics suggested by the aggregate paid and reported activity.
As of December 31, 2012 and December 31, 2011, the Company reported $1.8 billion and $1.9 billion of net asbestos reserves and $297 and $328 of net
environmental reserves, respectively. The Company believes that its current asbestos and environmental reserves are appropriate. However, analyses of future
developments could cause The Hartford 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.
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