The Hartford 2014 Annual Report Download - page 93

Annually, the Company completes evaluations of the reinsurance recoverable asset associated with older, long-term casualty liabilities reported in the
Property & Casualty Other Operations reporting segment, and the allowance for uncollectible reinsurance reported in the Commercial Lines reporting
segment. For a discussion regarding the results of these evaluations, see MD&A - Critical Accounting Estimates, Property and Casualty Insurance Product
Reserves, Net of Reinsurance.
Life Insurance Product Reinsurance Recoverables
Life insurance product reinsurance recoverables represent future policy benefits and unpaid loss and loss adjustment expenses and other policyholder funds
and benefits payable that are recoverable from a number of reinsurers.
The components of the gross and net reinsurance recoverables are as follows:

  


 
    
Less: Allowance for uncollectible reinsurance [1] — —
    
[1] No allowance for uncollectible reinsurance is required as of December 31, 2014 and 2013.
As of December 31, 2014, the Company has reinsurance recoverables from MassMutual and Prudential of $8.6 billion and $10.4 billion, respectively. As of
December 31, 2013 the Company has reinsurance recoverables from MassMutual and Prudential of $9.5 billion and $9.9 billion, respectively. These
reinsurance recoverables are secured by invested assets held in trust for the benefit of the Company in the event of a default by the reinsurers. As of December
31, 2014, the fair value of assets held in trust securing the reinsurance recoverables from MassMutual and Prudential is $9.0 billion for each of these parties.
As of December 31, 2014, the Company has no reinsurance-related concentrations of credit risk greater than 10% of the Company’s consolidated
stockholders’ equity.

As part of its risk management strategy, the Company regularly monitors the financial wherewithal of other insurers and, in particular, activity by insurance
regulators and various state guaranty associations relating to troubled insurers. In all states, insurers licensed to transact certain classes of insurance are
required to become members of a guaranty fund. In most states, in the event of the insolvency of an insurer writing any such class of insurance in the state,
members of the funds are assessed to pay certain claims of the insolvent insurer. A particular state's fund assesses its members based on their respective written
premiums in the state for the classes of insurance in which the insolvent insurer was engaged. Assessments are generally limited for any year to one or two
percent of the premiums written per year depending on the state. The amount and timing of assessments related to past insolvencies is unpredictable.
Citizens Property Insurance Corporation in Florida (“Citizens”), a non-affiliate insurer, provides property insurance to Florida homeowners and businesses
that are unable to obtain insurance from other carriers, including for properties deemed to be “high risk.” Citizens maintains a Personal Lines account, a
Commercial Lines account and a High Risk account. If Citizens incurs a deficit in any of these accounts, Citizens may impose a “regular assessment” on other
insurance carriers in the state, such as the Company, to fund the deficits, subject to certain restrictions and subject to approval by the Florida Office of
Insurance Regulation. Carriers are then permitted to surcharge policyholders to recover the assessments over the next few years. Citizens may also opt to
finance a portion of the deficits through issuing bonds and may impose “emergency assessments” on other insurance carriers to fund the bond repayments.
Unlike with regular assessments, however, insurance carriers only serve as a collection agent for emergency assessments and are not required to remit
surcharges for emergency assessments to Citizens until they collect surcharges from policyholders. Under U.S. GAAP, the Company is required to accrue for
regular assessments in the period the assessments become probable and estimable and the obligating event has occurred. Surcharges to recover the amount of
regular assessments may not be recorded as an asset until the related premium is written. Emergency assessments that may be levied by Citizens are not
recorded in the income statement.
Operational Risk Management
The Hartford has an Operational Risk Management (“ORM”) function whose responsibility is to provide a comprehensive and enterprise-wide view of the
Company's operational risk on an aggregate basis. The Company defines operational risk as the risk of loss resulting from inadequate or failed internal
processes, people and systems, or from external events. Operational risk is inherent in our business and functional areas. It includes legal risk and considers
reputational risk as an impact.
ORM is responsible for establishing, maintaining and communicating the framework, principles and guidelines of The Hartford's operational risk
management program. In addition, ORM also manages business continuity, model risk management, the ORM system, and risk assessments. Responsibility
for day-to-day management of operational risk lies within each business unit and functional area.
93