The Hartford 2014 Annual Report Download - page 19

The Company also has exposure to foreign-based issuers of securities and providers of reinsurance. These foreign issuers include European and certain
emerging market issuers. Despite stabilization in the European market, there are still fundamental structural issues that remain and may result in the re-
emergence of fiscal and economic issues. In addition, there has been recent volatility within certain emerging market countries spurred by concerns over the
potential for rising U.S. interest rates, slowing global growth, lower prices for oil and other commodities, and the devaluation of certain currencies. Further
details of the European and certain emerging market private and sovereign issuers held within the investment portfolio can be found in Part II, Item 7, MD&A
- Enterprise Risk Management - Investment Portfolio Risks and Risk Management. The Company's European based reinsurance arrangements are further
described in Part II, Item 7, MD&A - Enterprise Risk Management - Investment Portfolio Risks and Risk Management.
Property value declines and loss rates that exceed our current estimates, as outlined in Part II, Item 7, MD&A - Enterprise Risk Management - Other-Than-
Temporary Impairments, or a worsening of global economic conditions could have a material adverse effect on our business, financial condition, results of
operations and liquidity.
To the extent the investment portfolio is not adequately diversified, concentrations of credit risk may exist which could negatively impact the Company if
significant adverse events or developments occur in any particular industry, group of related industries or geographic regions. The Company’s investment
portfolio is not exposed to any credit concentration risk of a single issuer greater than 10% of the Company's stockholders' equity other than U.S. government
and U.S. government agencies backed by the full faith and credit of the U.S. government. However, if issuers of securities or loans we hold are acquired,
merge or otherwise consolidate with other issuers of securities or loans held by the Company, our investment portfolio’s credit concentration risk to issuers
could increase above the 10% threshold, for a period of time, until the Company is able to sell securities to get back in compliance with the established
investment credit policies. For discussion of the Company’s exposure to credit concentration risk of reinsurers, see the risk factor, “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.”
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 use reinsurance to reduce the effect of losses that may arise from catastrophes, transfer other risks that can cause unfavorable
results of operations, or effect the sale of one line of business to an independent company. 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 dispute their contractual obligations. 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. This risk may be magnified by a concentration of reinsurance-
related credit risk resulting from the sale of the Company’s Individual Life business. Further details of such concentration can be found in Part II, Item 7,
MD&A - Reinsurance as a Risk Management Strategy - Life Insurance Product Reinsurance Recoverable.
In addition, market conditions beyond our control determine the availability and cost of the reinsurance we are able to purchase. Reinsurance pricing
changes significantly over time, and 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 to the extent possible other alternatives to reinsurance. Further, due to the inherent uncertainties as to collection and the length
of time before reinsurance recoverables will be due, it is possible that future adjustments to the Company’s reinsurance recoverables, net of the allowance,
could be required, which could have a material adverse effect on the Company’s consolidated results of operations or cash flows in a particular quarterly or
annual period.
Our ability to declare and pay dividends is subject to limitations.
The payment of future dividends on our capital stock is subject to the discretion of our board of directors, which considers, among other factors, our operating
results, overall financial condition, credit-risk considerations and capital requirements, as well as general business and market conditions.
19