The Hartford 2008 Annual Report Download - page 201

Table of Contents
In addition to the reinsurance protection provided by The Hartford’s reinsurance program described above, the Company has
fully collateralized reinsurance coverages from Foundation Re and Foundation Re II for losses sustained from qualifying
hurricane and earthquake loss events and other qualifying catastrophe losses. Foundation Re and Foundation Re II are
Cayman Islands reinsurance companies which financed the provision of the reinsurance through the issuance of catastrophe
bonds. Under the terms of the treaties with Foundation Re and Foundation Re II, the Company is reimbursed for losses from
natural disaster events using a customized industry index contract designed to replicate The Hartford’s own catastrophe
losses, with a provision that the actual losses incurred by the Company for covered events, net of reinsurance recoveries,
cannot be less than zero.
The following table summarizes the terms of the reinsurance treaties with Foundation Re and Foundation Re II that were in
place as of January 1, 2009:
Bond amount issued by
Foundation Re or
Covered perils Treaty term Covered losses Foundation Re II
Hurricane loss events affecting the Gulf and Eastern
Coast of the United States and loss events arising
from California, Pacific Northwest, and New
Madrid earthquakes.
2/17/2006 to
2/24/2010
26% of $400 in losses in excess of an
index loss trigger equating to
approximately $1.3 billion in Hartford
losses
$105
Hurricane loss events affecting the Gulf and Eastern
Coast of the United States
11/17/2006 to
11/26/2010
45% of $400 in losses in excess of an
index loss trigger equating to
approximately $1.85 billion in Hartford
losses
180
As of December 31, 2008, there have been no events that are expected to trigger a recovery under any of the reinsurance
programs with Foundation Re or Foundation Re II and, accordingly, the Company has not recorded any recoveries from the
associated reinsurance treaties.
Estimated Catastrophe Exposures
The Company uses third party models to estimate the potential loss resulting from various catastrophe events and the
potential financial impact those events would have on the Company’s financial position and results of operations. The
following table shows modeled loss estimates before expected reinsurance recoveries and after expected reinsurance
recoveries. The loss estimates represent total property losses for hurricane events and property and workers’ compensation
losses for earthquake events resulting from a single event. The estimates provided are based on 250-year return period loss
estimates, which have a 0.4% likelihood of being exceeded in any single year. The net loss estimates assume that the
Company would be able to recover all losses ceded to reinsurers under its reinsurance programs. There are various
methodologies used in the industry to estimate the potential property and workers’ compensation losses that would arise
from various catastrophe events and companies may use different models and assumptions in their estimates. Therefore, the
Company’s estimates of gross and net losses arising from a 250-year hurricane or earthquake event may not be comparable
to estimates provided by other companies. Furthermore, the Company’s estimates are subject to significant uncertainty and
could vary materially from the actual losses that would arise from these events.
119
Source: HARTFORD FINANCIAL S, 10-K, February 12, 2009