The Hartford 2013 Annual Report Download - page 10

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Reinsurance
The Hartford cedes insurance to affiliated and unaffiliated insurers for both its property and casualty and life insurance products. Such
arrangements do not relieve The Hartford of its primary liability to policyholders. Failure of reinsurers to honor their obligations could
result in losses to The Hartford.
For property and casualty insurance products, reinsurance arrangements are intended to provide greater diversification of business and
limit The Hartford’s maximum net loss arising from large risks or catastrophes. A major portion of The Hartford’s property and casualty
insurance product reinsurance is effected under general reinsurance contracts known as treaties, or, in some instances, is negotiated on an
individual risk basis, known as facultative reinsurance. The Hartford also has in-force excess of loss contracts with reinsurers that protect
it against a specified part or all of a layer of losses over stipulated amounts.
For life insurance products, The Hartford is involved in both the cession and assumption of insurance with other insurance and
reinsurance companies. The Company entered into two reinsurance transactions to cede risks upon completion of the sales of its
Retirement Plans and Individual Life businesses in January 2013. For further discussion of these transactions, see Note 2 - Business
Dispositions of Notes to Consolidated Financial Statements. In addition, the Company has reinsured to third parties a portion of the risk
associated with U.S. variable annuities and the associated guaranteed minimum death benefit (“GMDB”) and guaranteed minimum
withdrawal benefit (“GMWB”) riders, and of the risks associated with variable annuity contract and rider benefits issued by Hartford
Life Insurance KK (“HLIKK”), an indirect wholly owned subsidiary.
For further discussion of reinsurance, see Part II, Item 7, MD&A — Enterprise Risk Management. Additional discussion of reinsurance
may also be found in Note 1 - Basis of Presentation and Significant Accounting Policies of Notes to Consolidated Financial Statements.
Investment Operations
The majority of the Company’s investment portfolios are managed by Hartford Investment Management Company (“HIMCO”). HIMCO
manages the portfolios to maximize economic value, while attempting to generate the income necessary to support the Company’s
various product obligations, within internally established objectives, guidelines and risk tolerances. The portfolio objectives and
guidelines are developed based upon the asset/liability profile, including duration, convexity and other characteristics within specified
risk tolerances. The risk tolerances considered include, for example, asset sector, credit issuer allocation limits, maximum portfolio
limits for below investment grade holdings and foreign currency exposure limits. The Company attempts to minimize adverse impacts to
the portfolio and the Company’s results of operations from changes in economic conditions through asset diversification, asset allocation
limits, asset/liability duration matching and through the use of derivatives. For further discussion of HIMCO’s portfolio management
approach, see Part II, Item 7, MD&A — Enterprise Risk Management.
In addition to managing the general account assets of the Company, HIMCO is also a SEC registered investment adviser for third party
institutional clients, a sub-advisor for certain mutual funds and serves as the sponsor and collateral manager for capital markets
transactions. HIMCO specializes in investment management that incorporates proprietary research and active portfolio management
within a disciplined risk framework that seeks to provide value added returns versus peers and benchmarks. As of December 31, 2013
and 2012, the fair value of HIMCO’s total assets under management was approximately $112.6 billion and $144.1 billion, respectively,
of which $6.1 billion and $7.6 billion, respectively, were held in HIMCO managed third party accounts.
Enterprise Risk Management
The Company has an enterprise risk management function (“ERM”) that is charged with providing analysis of the Company's risks on an
individual and aggregated basis and with ensuring that the Company's risks remain within its risk appetite and tolerances. ERM plays an
integral role at The Hartford by fostering a strong risk management culture and discipline. The mission of ERM is to support the
Company in achieving its strategic priorities by:
• Providing a comprehensive view of the risks facing the Company, including risk concentrations and correlations;
• Helping management define the Company's overall capacity and appetite for risk by evaluating the risk return profile of the
business relative to the Company's strategic intent and financial underpinning;
• Assisting management in setting specific risk tolerances and limits that are measurable, actionable, and comply with the
Company's overall risk philosophy;
• Communicating and monitoring the Company's risk exposures relative to set limits and recommending, or implementing as
appropriate, mitigating strategies; and
• Providing valuable insight to assist leaders in growing the businesses and achieving optimal risk-adjusted returns within
established guidelines.