The Hartford 2007 Annual Report Download - page 17

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legislative and regulatory environment for workers’ compensation claims and evolving exposures to claims asserted against religious
institutions and other organizations relating to molestation or abuse and other mass torts.
The Hartford continues to receive claims that assert damages from asbestos-related and environmental-related exposures. Asbestos
claims relate primarily to bodily injuries asserted by those who came in contact with asbestos or products containing asbestos.
Environmental claims relate primarily to pollution-related clean-up costs. As discussed further in the Critical Accounting Estimates
and Other Operations sections of the MD&A, significant uncertainty limits the Company’ s ability to estimate the ultimate reserves
necessary for unpaid losses and related expenses with regard to environmental and particularly asbestos claims.
Most of the Company’ s property and casualty reserves are not discounted. However, certain liabilities for unpaid losses for
permanently disabled claimants have been discounted to present value using an average interest rate of 5.5% and 5.6% in 2007 and
2006, respectively. As of December 31, 2007 and 2006, such discounted reserves totaled $647 and $707, respectively (net of discounts
of $483 and $510, respectively). In addition, certain structured settlement contracts that fund loss run-offs for unrelated parties having
payment patterns that are fixed and determinable have been discounted to present value using an average interest rate of 5.5% for both
2007 and 2006. As of December 31, 2007 and 2006, such discounted reserves totaled $282 and $273, respectively (net of discounts of
$85 and $95, respectively). Accretion of discounts totaled $31, $32 and $30 in 2007, 2006 and 2005, respectively.
As of December 31, 2007, net property and casualty reserves for losses and loss adjustment expenses reported under accounting
principles generally accepted in the United States of America (“U.S. GAAP”) were approximately equal to net reserves reported on a
statutory basis. Under U.S. GAAP, liabilities for unpaid losses for permanently disabled workers’ compensation claimants are
discounted at rates that are no higher than risk-free interest rates and which generally exceed the statutory discount rates set by
regulators, such that workers’ compensation reserves for statutory reporting are higher than the reserves for U.S. GAAP reporting.
Largely offsetting the effect of the difference in discounting is that a portion of the U.S. GAAP provision for uncollectible reinsurance
is not recognized under statutory accounting.
Further discussion on The Hartford’ s property and casualty reserves, including asbestos and environmental claims reserves, may be
found in the Reserves section of the MD&A– Critical Accounting Estimates.