The Hartford 2011 Annual Report Download - page 23

23
If we are designated as a systemically important institution, we could be subject to higher capital requirements and additional regulatory
oversight imposed by The Federal Reserve, as well as to post-event assessments imposed by the FDIC to recoup the costs associated
with the orderly liquidation of other systemically important institutions in the event one or more such institutions fails. Further, the
FDIC is authorized to petition a state court to commence an insolvency proceeding to liquidate an insurance company that fails in the
event the insurer’ s state regulator fails to act. We may also be restricted from sponsoring and investing in private equity and hedge
funds, which would limit our discretion in managing our general account. The Federal Reserve issued a proposed rule in December
2011 that would apply capital and liquidity requirements, single-counterparty credit limits, and stress testing and risk management
requirements to systemically important institutions, and subject such institutions to an early remediation regime based on these
requirements. The Federal Reserve has noted that they may tailor the application of the proposed rule to the particular attributes of
systemically important nonbank financial companies. If The Hartford were to be designated as systemically important by the FSOC,
these requirements could apply to The Hartford. However, it is not yet clear how or to what extent these requirements would be applied
to systemically important nonbank financial companies.
We may experience unfavorable judicial or legislative developments involving claim litigation that could have a material adverse
effect on our business, financial condition, results of operations and liquidity.
The Hartford is involved in claims litigation arising in the ordinary course of business, both as a liability insurer defending or providing
indemnity for third-party claims brought against insureds and as an insurer defending coverage claims brought against it. The Hartford
accounts for such activity through the establishment of unpaid loss and loss adjustment expense reserves. The Company is also
involved in legal actions that do not arise in the ordinary course of business, some of which assert claims for substantial amounts.
Pervasive or significant changes in the judicial environment relating to matters such as trends in the size of jury awards, developments in
the law relating to the liability of insurers or tort defendants, and rulings concerning the availability or amount of certain types of
damages could cause our ultimate liabilities to change from our current expectations. Changes in federal or state tort litigation laws or
other applicable law could have a similar effect. It is not possible to predict changes in the judicial and legislative environment and their
impact on the future development of the adequacy of our loss reserves, particularly reserves for longer-tailed lines of business, including
asbestos and environmental reserves, and how those changes might adversely affect our ability to price our products appropriately. Our
business, financial condition, results of operations and liquidity could also be adversely affected if judicial or legislative developments
cause our ultimate liabilities to increase from current expectations.
Our business, financial condition, results of operations and liquidity may be adversely affected by the emergence of unexpected and
unintended claim and coverage issues.
As industry practices and legal, judicial, social and other environmental conditions change, unexpected and unintended issues related to
claims and coverage may emerge. These issues may either extend coverage beyond our underwriting intent or increase the frequency or
severity of claims. In some instances, these changes may not become apparent until some time after we have issued insurance contracts
that are affected by the changes. As a result, the full extent of liability under our insurance contracts may not be known for many years
after a contract is issued, and this liability may have a material adverse effect on our business, financial condition, results of operations
and liquidity at the time it becomes known.
Potential changes in domestic and foreign regulation may increase our business costs and required capital levels, which could have
a material adverse effect on our business, financial condition, results of operations and liquidity.
We are subject to extensive U.S. and non-U.S. laws and regulations that are complex, subject to change and often conflicting in their
approach or intended outcomes. Compliance with these laws and regulations is costly and can affect our strategy, as well as the demand
for and profitability of the products we offer.
State insurance laws regulate most aspects of our U.S. insurance businesses, and our insurance subsidiaries are regulated by the
insurance departments of the states in which they are domiciled, licensed or authorized to conduct business. U.S. state laws grant
insurance regulatory authorities broad administrative powers with respect to, among other things:
• licensing companies and agents to transact business;
• calculating the value of assets to determine compliance with statutory requirements;
• mandating certain insurance benefits;
• regulating certain premium rates;
• reviewing and approving policy forms;
• regulating unfair trade and claims practices, including through the imposition of restrictions on marketing and sales practices,
distribution arrangements and payment of inducements;
• protecting privacy;
• establishing statutory capital and reserve requirements and solvency standards;
• fixing maximum interest rates on insurance policy loans and minimum rates for guaranteed crediting rates on life insurance
policies and annuity contracts;
• approving changes in control of insurance companies;
• approving acquisitions, divestitures and similar transactions;
• restricting the payment of dividends to the parent company and other transactions between affiliates;
• establishing assessments and surcharges for guaranty funds, second-injury funds and other mandatory pooling arrangements;
• requiring insurers to dividend any excess profits to policy holders; and
• regulating the types, amounts and valuation of investments.