The Hartford 2014 Annual Report Download - page 94

ORM works closely with the Operational Risk Committee (“ORC”), an enterprise wide governance group comprised of senior leaders from functional areas
such as ORM, Operations and Technology, Claims, Legal, Compliance, Finance and Internal Audit. The ORC meets regularly and provides a forum for
ensuring the effective identification, assessment, control, ownership, management and reporting of operational risks across the enterprise. Individual
committees, such as the Enterprise Privacy and Security Committee, Enterprise Health, Environment and Safety Committee, and the Model Oversight
Committees focus on specific operational risk issues.
ORM has various tools and processes for identifying, monitoring, measuring, prioritizing, and reporting operational risks. ORM facilitates the business risk
assessment process which is used to identify the top risks in the business and functional areas, evaluate controls to mitigate those risks, and monitor control
improvements. ORM also facilitates loss event collection and analysis, scenario analysis, and aggregated reporting of risks. ORM uses a centralized
Governance, Risk, and Compliance (GRC) system to help manage operational risk primarily within the Company's finance, legal, compliance, data security,
and information technology functions.
Financial Risk Management
The Company identifies the following categories of financial risk:
• Liquidity Risk
• Interest Rate Risk
• Equity Risk
• Foreign Currency Exchange Risk
• Credit Risk
Financial risks include direct and indirect risks to the Company's financial objectives coming from events that impact market conditions or prices. Financial
risk also includes exposure to events that may cause correlated movement in multiple risk factors. The primary sources of financial risks are the Company's
general account assets and the liabilities and the guarantees which the company has written over various liability products, particularly its portfolio of
variable annuities. The Company assesses its financial risk on a U.S. GAAP, statutory and economic basis. The Hartford has developed a disciplined approach
to financial risk management that is well integrated into the Company's underwriting, pricing, hedging, claims, asset and liability management, new product,
and capital management processes. Consistent with its risk appetite, the Company establishes financial risk limits to control potential loss. Exposures are
actively monitored, and mitigated where appropriate. The Company uses various risk management strategies, including reinsurance and derivative-based
hedging to transfer risk to well-established and financially secure counterparties.
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Liquidity risk is the risk to current or prospective earnings or capital arising from the Company's inability or perceived inability to meet its contractual cash
obligations at the legal entity level when they come due over given horizons without incurring unacceptable costs and without relying on uncommitted
funding sources. Liquidity risk includes the inability to manage unplanned increases or accelerations in cash outflows, decreases or changes in funding
sources, and changes in market conditions that affect the ability to liquidate assets quickly to meet obligations with minimal loss in value. Components of
liquidity risk include funding risk, transaction risk and market liquidity risk. Funding risk is the gap between sources and uses of cash under normal and
stressed conditions taking into consideration structural, regulatory and legal entity constraints. Changes in institution-specific conditions that affect the
Company's ability to sell assets or otherwise transact business without incurring a significant loss in value is transaction risk. Changes in general market
conditions that affect the institution's ability to sell assets or otherwise transact business without incurring a significant loss in value is market liquidity risk.
The Company has defined ongoing monitoring and reporting requirements to assess liquidity across the enterprise. The Company measures and manages
liquidity risk exposures and funding needs within prescribed limits and across legal entities, business lines and currencies, taking into account legal,
regulatory and operational limitations to the transferability of liquidity. The Company also monitors internal and external conditions, identifies material risk
changes and emerging risks that may impact liquidity. The Company's CFO has primary responsibility for liquidity risk.
For further discussion on liquidity see the section on Capital Resources and Liquidity.
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