The Hartford 2014 Annual Report Download - page 90

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Pandemic risk is the exposure to loss arising from widespread influenza or other pathogens or bacterial infections that create an aggregation of loss across the
Company's insurance or asset portfolios. Consistent with industry practice, the Company assesses exposure to pandemics by analyzing the potential impact
from a variety of pandemic scenarios based on conditions consistent with historical outbreaks of flu-like viruses such as the “Severe” 1918 Spanish Flu, the
Asian flu of 1957, the Hong Kong flu of 1968, and the 2009 outbreak of the swine flu. For pandemic risk, the Company generally limits its estimated pre-tax
loss from a single 250 year event to less than 10% of total available capital resources. In evaluating these scenarios, the Company assesses the impact on
group life policies, short-term and long term disability, annuities, COLI, property & casualty claims, and losses in the investment portfolio associated with
market declines in the event of a widespread pandemic. While ERM has a process to track and manage these limits, from time to time, the estimated loss for
pandemics may fluctuate above or below these limits due to changes in modeled loss estimates, exposures, or statutory surplus. Currently, the Company's
estimated pre-tax loss for pandemic is less than 10% of enterprise statutory surplus.
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The Hartford utilizes reinsurance to transfer risk to affiliated and unaffiliated insurers. Reinsurance is used to manage aggregation of risk as well as to transfer
certain risk to reinsurance companies based on specific geographic or risk concentrations. All reinsurance processes are aligned under a single enterprise
reinsurance risk management policy. Reinsurance purchasing is a centralized function across Commercial Lines, Personal Lines and Talcott Resolution to
support a consistent strategy and to ensure that the reinsurance activities are fully integrated into the organization's risk management processes.
A variety of traditional reinsurance products are used as part of the Company's risk management strategy, including excess of loss occurrence-based products
that protect property and workers compensation exposures, and individual risk or quota share arrangements, that protect specific classes or lines of business.
The Company has no significant finite risk contracts in place and the statutory surplus benefit from all such prior year contracts is immaterial. Facultative
reinsurance is used by the Company to manage policy-specific risk exposures based on established underwriting guidelines. The Hartford also participates in
governmentally administered reinsurance facilities such as the Florida Hurricane Catastrophe Fund (“FHCF”), the Terrorism Risk Insurance Program
established under The Terrorism Risk Insurance Program Reauthorization Act of 2015 (“TRIPRA”) and other reinsurance programs relating to particular risks
or specific lines of business.
Reinsurance for Catastrophes
The Company has several catastrophe reinsurance programs, including reinsurance treaties that cover property and workers’ compensation losses aggregating
from single catastrophe events. The following table summarizes the primary catastrophe treaty reinsurance coverages that the Company has in place as of
January 1, 2015:
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Principal property catastrophe program covering property catastrophe losses
from a single event [1]
1/1/2015 to
1/1/2016
90%
$ 850
$ 350
Reinsurance with the FHCF covering Florida Personal Lines property
catastrophe losses from a single event
6/1/2014 to
6/1/2015
90%
$ 109 [2] $ 41
Workers compensation losses arising from a single catastrophe event [3]
7/1/2014 to
7/1/2015
80%
$ 350
$ 100
[1] Certain aspects of our catastrophe treaty have terms that extend beyond the traditional one year term.
[2] The per occurrence limit on the FHCF treaty is $109 for the 6/1/2014 to 6/1/2015 treaty year based on the Company's election to purchase the required coverage from
FHCF. Coverage is based on the best available information from FHCF, which was updated in January 2015.
[3] In addition to the limit shown above, the workers compensation reinsurance includes a non-catastrophe, industrial accident layer, 80% placement of a $30 per event limit in
excess of a $20 retention.
In addition to the property catastrophe reinsurance coverage described in the above table, the Company has other catastrophe and working layer treaties and
facultative reinsurance agreements that cover property catastrophe losses on an aggregate excess of loss and on a per risk basis. The principal property
catastrophe reinsurance program and certain other reinsurance programs include a provision to reinstate limits in the event that a catastrophe loss exhausts
limits on one or more layers under the treaties. In addition, covering the period from January 1, 2014 to December 31, 2016, the Company has an aggregate
loss treaty in place which provides one limit of $200 over the three-year period of aggregate qualifying property catastrophe losses in excess of a net
retention of $860.
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