The Hartford 2014 Annual Report Download - page 56

During the second quarters of 2014, 2013 and 2012, the Company completed its annual ground-up asbestos reserve evaluations. As part of these evaluations,
the Company reviewed all of its open direct domestic insurance accounts exposed to asbestos liability, as well as assumed reinsurance accounts and its
London Market exposures for both direct insurance and assumed reinsurance. During 2014, the Company found estimates for certain direct accounts
increased, principally due to a higher than previously estimated number of mesothelioma claim filings and an increase in costs associated with asbestos
litigation. The Company also experienced unfavorable development on certain of its assumed reinsurance accounts driven by a variety of account-specific
factors, including those experienced by the direct policyholders. Based on this evaluation, the Company strengthened its net asbestos reserves by $212 in
second quarter 2014. During 2013, the Company found estimates for individual cases changed based upon the particular circumstances in such accounts.
These cases were case specific and not as a result of any underlying change in current environment. The Company experienced moderate increases in claim
frequency and severity as well as expense and costs associated with litigating asbestos coverage matters, particularly against certain smaller, more peripheral
insureds. The Company also experienced unfavorable development on certain of its assumed reinsurance accounts driven largely by the same factors
experience by the direct policyholders. Based on this evaluation, the Company strengthened its net asbestos reserves by $130 in second quarter 2013. During
2012, the Company found estimates for individual cases changed based upon the particular circumstances of such accounts. These changes were case specific
and not as a result of any underlying change in the current environment. The Company experienced moderate increases in claim severity, expense and costs
associated with litigating asbestos coverage matters, particularly against certain smaller, more peripheral insureds. The Company also experienced
unfavorable development on certain of its assumed reinsurance accounts driven largely by the same factors experienced by direct policy holders. Based on
this evaluation, the Company strengthened its net asbestos reserves by $48 in second quarter 2012. The Company currently expects to continue to perform an
evaluation of its asbestos liabilities annually.
During the second quarters of 2014, 2013 and 2012, the Company completed its annual ground-up environmental reserve evaluations. In each of these
evaluations, the Company reviewed all of its open direct domestic insurance accounts exposed to environmental liability, as well as assumed reinsurance
accounts and its London Market exposures for both direct and assumed reinsurance. The Company found estimates for certain individual account exposures
increased based upon unfavorable litigation results and increased clean-up and expense costs. The net effect of these account-specific changes as well as
quarterly actuarial evaluations of new account emergence and historical loss and expense paid experience resulted in increases of $30, $12 and $10 in net
environmental reserves in 2014, 2013 and 2012, respectively. The Company currently expects to continue to perform a ground-up evaluation of its
environmental liabilities annually and to regularly evaluate the Company's historical direct 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.
The Company divides its gross asbestos and environmental exposures into Direct, Assumed Reinsurance and London Market. Direct asbestos exposures
include Major Asbestos Defendants, Non-Major Accounts, and Unallocated Direct Accounts.
• Major Asbestos Defendants represent the “Top 70” accounts in Tillinghast's published Tiers 1 and 2 and Wellington accounts. Major Asbestos
Defendants have the fewest number of asbestos accounts and include reserves related to PPG Industries, Inc. (“PPG”). In January 2009, the Company,
along with approximately three dozen other insurers, entered into a modified agreement in principle with PPG to resolve the Company's coverage
obligations for all its PPG asbestos liabilities. The agreement is contingent on the fulfillment of certain conditions. Major Asbestos Defendants gross
asbestos reserves accounted for approximately 25% of the Company's total Direct gross asbestos reserves as of June 30, 2014.
• Non-Major Accounts are all other open direct asbestos accounts and largely represent smaller and more peripheral defendants. These exposures
represented 1,115 accounts and contained approximately 49% of the Company's total Direct gross asbestos reserves as of June 30, 2014.
• Unallocated Direct Accounts includes an estimate of the reserves necessary for asbestos claims related to direct insureds that have not previously
tendered asbestos claims to the Company and exposures related to liability claims that may not be subject to an aggregate limit under the applicable
policies.
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