The Hartford 2010 Annual Report Download - page 89

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Pandemic
Pandemic risk is the exposure to loss in the Company’ s market value, earnings or surplus arising from widespread influenza or other
pathogens or bacterial infections that create an aggregation of loss across the Company’ s insurance or asset portfolios. Consistent with
industry practice, The Hartford assesses exposure to pandemics by analyzing the potential impact from a variety of pandemic scenarios
based on conditions consistent with earlier outbreaks of flu-like viruses, including the “Severe” 1918 Spanish Flu, the Asian flu in 1957,
the Hong Kong flu in 1968, and the 2009 outbreak of swine flu. In evaluating these scenarios, The Hartford assesses the impact on
group and individual life policies, short-term and long-term disability, annuities, COLI, property & casualty claims, and losses in the
investment portfolio associated market declines in the event of a widespread pandemic. Given the evolving science around the risk of
pandemics, the Company has not adopted formal limits for pandemic but continues to manage the risk of pandemic exposures within
acceptable management tolerances.
Reinsurance
In managing risk, The Hartford utilizes reinsurance to transfer risk to well-established and financially secure reinsurers. Reinsurance is
used to manage aggregations of risk as well as to transfer certain risks to reinsurance companies based on specific geographic or risk
concentrations. All reinsurance processes are aligned under a single enterprise reinsurance governance policy with treaty purchases
administered by a centralized function within Commercial and Consumer Markets and Wealth Management to support a consistent
strategy and to ensure that the reinsurance activities are fully integrated into the organization’ s risk management processes.
A variety of traditional reinsurance products are used as part of the Company’ s risk management strategy, including excess of loss
occurrence-based products that protect property and workers’ compensation exposures, and individual risk or quota share arrangements,
that protect specific classes or lines of business. The Company has no significant finite risk contracts in place and the statutory surplus
benefit from all such prior year contracts is immaterial. Facultative reinsurance is used by the Company to manage policy-specific risk
exposures based on established underwriting guidelines. The Hartford also participates in governmentally administered reinsurance
facilities such as the Florida Hurricane Catastrophe Fund (“FHCF”), the Terrorism Risk Insurance Program established under The
Terrorism Risk Insurance Program Reauthorization Act of 2007 (“TRIPRA”) and other reinsurance programs relating to particular risks
or specific lines of business.
The Company has several catastrophe reinsurance programs, including reinsurance treaties that cover property and workers’
compensation losses aggregating from single catastrophe events. The following table summarizes the primary catastrophe treaty
reinsurance coverages that the Company has in place as of February 18, 2011:
Coverage Treaty term
% of layer(s)
reinsured Per occurrence limit Retention
Principal property catastrophe program
covering property catastrophe losses from a
single event
1/1/2011 to
1/1/2012
90% $750 $ 350
Reinsurance with the FHCF covering Florida
Personal Lines property catastrophe losses
from a single event
6/1/2010 to
6/1/2011
90% 175 [1] 64
Workers compensation losses arising from a
single catastrophe event [2]
7/1/2010 to
7/1/2011
95% 300 50
[1] The per occurrence limit on the FHCF treaty is $175 for the 6/1/2010 to 6/1/2011 treaty year based on the Company’s election to purchase the
required coverage from FHCF. For 2010/11, the Company elected not to purchase additional limits under the Temporary Increase in Coverage
Limit (TICL) statutory provision.
[2] In addition, the Company also purchased an industrial accident only WC coverage for the 7/1/2010 to 7/1/2011 treaty year providing reinsurance
of 80% of $30 of per occurrence limit in excess of $20.
In addition to the property catastrophe reinsurance coverage described in the above table, the Company has other catastrophe and
working layer treaties and facultative reinsurance agreements that cover property catastrophe losses on an aggregate excess of loss and
on a per risk basis. The principal property catastrophe reinsurance program and other reinsurance programs include a provision to
reinstate limits in the event that a catastrophe loss exhausts limits on one or more layers under the treaties.
In addition to the reinsurance protection provided by The Hartford’ s traditional property catastrophe reinsurance program described
above, the Company has fully collateralized reinsurance coverages from Foundation Re III for losses sustained from qualifying
hurricane loss events. Under the terms of the treaties, the Company is reimbursed for losses from hurricanes using customized industry
index contracts 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.