The Hartford 2008 Annual Report Download - page 254

Table of Contents
The following table sets forth, for the years ended December 31, 2008, 2007 and 2006, paid and incurred loss activity by the
three categories of claims for asbestos and environmental.
Paid and Incurred Losses and Loss Adjustment Expenses (“LAE”) Development — Asbestos and Environmental
Asbestos [1] Environmental [1]
Paid Incurred Paid Incurred
Losses & LAE Losses & LAE Losses & LAE Losses & LAE
2008
Gross
Direct $ 207 $ 76 $ 32 $ 69
Assumed — Domestic 61 — 9 (17)
London Market 19 — 6 13
Total 287 76 47 65
Ceded (105) (8) (11) (11)
Net $ 182 $ 68 $ 36 $ 54
2007
Gross
Direct $ 251 $ (289) $ 90 $ 43
Assumed — Domestic 112 72 16 —
London Market 31 76 8 —
Total 394 (141) 114 43
Ceded (107) 184 (21) (15)
Net $ 287 $ 43 $ 93 $ 28
2006
Gross
Direct $ 346 $ 5 $ 45 $ 57
Assumed — Domestic 199 4 50 (25)
London Market 66 — 9 3
Total 611 9 104 35
Ceded (248) 305 2 27
Net $ 363 $ 314 $ 106 $ 62
[1] Excludes asbestos and environmental paid and incurred loss and LAE reported in Ongoing Operations. Total gross
loss and LAE incurred in Ongoing Operations for the twelve months ended December 31, 2008, 2007, and 2006
includes $15, $9 and $10, respectively, related to asbestos and environmental claims. Total gross loss and LAE paid in
Ongoing Operations for the twelve months ended December 31, 2008, 2007, and 2006 includes $12, $10 and $12,
respectively, related to asbestos and environmental claims.
A number of factors affect the variability of estimates for asbestos and environmental reserves including assumptions with
respect to the frequency of claims, the average severity of those claims settled with payment, the dismissal rate of claims
with no payment and the expense to indemnity ratio. The uncertainty with respect to the underlying reserve assumptions for
asbestos and environmental adds a greater degree of variability to these reserve estimates than reserve estimates for more
traditional exposures. While this variability is reflected in part in the size of the range of reserves developed by the
Company, that range may still not be indicative of the potential variance between the ultimate outcome and the recorded
reserves. The recorded net reserves as of December 31, 2008 of $2.18 billion ($1.90 billion and $275 for asbestos and
environmental, respectively) is within an estimated range, unadjusted for covariance, of $1.80 billion to $2.42 billion. The
process of estimating asbestos and environmental reserves remains subject to a wide variety of uncertainties, which are
detailed in the “Critical Accounting Estimates—Property & Casualty Reserves, Net of Reinsurance” section of
Management’s Discussion and Analysis of Financial Condition and Results of Operations. The Company believes that its
current asbestos and environmental reserves are reasonable and appropriate. However, analyses of further developments
could cause the Company to change its estimates and ranges of its asbestos and environmental reserves, and the effect of
these changes could be material to the Company’s consolidated operating results, financial condition and liquidity. If there
are significant developments that affect particular exposures, reinsurance arrangements or the financial condition of
particular reinsurers, the Company will make adjustments to its reserves or to the amounts recoverable from its reinsurers.
During the second quarter of 2007, an arbitration panel found that a Hartford subsidiary, established as a captive reinsurance
company in the 1970s by The Hartford’s former parent, ITT, had additional obligations to ITT’s primary insurance carrier
under ITT’s captive insurance program, which ended in 1993. When ITT spun off The Hartford in 1995, the former captive
became a Hartford subsidiary. The arbitration concerned whether certain claims could be presented to the former captive in a
different manner than ITT’s primary insurance carrier historically had presented them. Principally as a result of this adverse
arbitration decision, the Company recorded a charge of $99.
Source: HARTFORD FINANCIAL S, 10-K, February 12, 2009