The Hartford 2014 Annual Report Download - page 47

Uncertainties Regarding Adequacy of Asbestos and Environmental Reserves
A number of factors affect the variability of estimates for asbestos and environmental reserves including assumptions with respect to the frequency of claims,
the average severity of those claims settled with payment, the dismissal rate of claims with no payment and the expense to indemnity ratio. The uncertainty
with respect to the underlying reserve assumptions for asbestos and environmental adds a greater degree of variability to these reserve estimates than reserve
estimates for more traditional exposures. While this variability is reflected in part in the size of the range of reserves developed by the Company, that range
may still not be indicative of the potential variance between the ultimate outcome and the recorded reserves. The recorded net reserves as of December 31,
2014 of approximately$2.0 billion ($1.7 billion and $0.3 billion for asbestos and environmental, respectively) are within an estimated range, unadjusted for
covariance, of $1.6 billion to $2.3 billion. The process of estimating asbestos and environmental reserves remains subject to a wide variety of uncertainties,
which are detailed in Note 14 - Commitments and Contingencies of Notes to Consolidated Financial Statements. The Company believes that its current
asbestos and environmental reserves are appropriate. However, analyses of future developments could cause the Company 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 or cash flows.
Consistent with the Company's long-standing reserve practices, the Company will continue to review and monitor its reserves in Property & Casualty Other
Operations regularly, including its annual reviews of asbestos liabilities, reinsurance recoverables and the allowance for uncollectible reinsurance, and
environmental liabilities, and where future developments indicate, make appropriate adjustments to the reserves.
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Based on the results of the quarterly reserve review process, the Company determines the appropriate reserve adjustments, if any, to record. Recorded reserve
estimates are changed after consideration of numerous factors, including but not limited to, the magnitude of the difference between the actuarial indication
and the recorded reserves, improvement or deterioration of actuarial indications in the period, the maturity of the accident year, trends observed over the
recent past and the level of volatility within a particular line of business. In general, adjustments are made more quickly to more mature accident years and
less volatile lines of business. Such adjustments of reserves are referred to as “reserve development”. Reserve development that increases previous estimates
of ultimate cost is called “reserve strengthening”. Reserve development that decreases previous estimates of ultimate cost is called “reserve releases”. Reserve
development can influence the comparability of year over year underwriting results and is set forth in the paragraphs and tables that follow.
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In the opinion of management, based upon the known facts and current law, the reserves recorded for the Company’s property and casualty insurance
products at December 31, 2014 represent the Company’s best estimate of its ultimate liability for losses and loss adjustment expenses related to losses
covered by policies written by the Company. However, because of the significant uncertainties surrounding reserves, and particularly asbestos and
environmental exposures, it is possible that management’s estimate of the ultimate liabilities for these claims may change and that the required adjustment to
recorded reserves could exceed the currently recorded reserves by an amount that could be material to the Company’s results of operations or cash flows.
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