The Hartford 2011 Annual Report Download - page 96

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Reinsurance as a Risk Management Strategy
The Hartford utilizes reinsurance to transfer risk to affiliated and unaffiliated insurers. Reinsurance is used to manage aggregation of
risk as well as to transfer certain risk to reinsurance companies based on specific geographic or risk concentrations. All reinsurance
processes are aligned under a single enterprise reinsurance risk management policy. Reinsurance purchasing is a centralized function
within Commercial, 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 worker’ s 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.
Reinsurance for Catastrophes
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 coverage’ s that the Company has in place as of February 1, 2012:
Coverage
Treaty term
% of layer(s)
reinsured
Per occurrence limit
Retention
Principal property catastrophe program
covering property catastrophe losses from a
single event
1/1/2012 to
1/1/2013
90%
$
750
$
350
Reinsurance with the FHCF covering Florida
Personal Lines property catastrophe losses
from a single event
6/1/2011 to
6/1/2012
90%
145
[1]
55
Workers compensation losses arising from a
single catastrophe event [2]
7/1/2011 to
7/1/2012
95%
350
100
[1] The per occurrence limit on the FHCF treaty is $145 for the 6/1/2011 to 6/1/2012 treaty year based on the Company’s election to purchase the
required coverage from FHCF. For 6/1/2010 to 6/1/2011, the Company elected not to purchase additional limits under the Temporary Increase
in Coverage Limit (TICL) statutory provision.
[2] In addition, to the limit shown above, the workers compensation reinsurance includes a non-catastrophe, industrial accident layer, 80% of $30
excess a $20 retention.
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 Hartford has fully collateralized reinsurance coverage’ s 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.
The following table summarizes the terms of the reinsurance treaties with Foundation Re III that were in place as of December 31,
2011:
Covered perils
Treaty term
Covered losses
Bond amount issued
by Foundation Re III
Hurricane loss events affecting the
Gulf and Eastern Coast of the
United States
1/27/2010 to
1/27/2014
90% of $200 in losses in excess of an index
loss trigger equating to approximately $1.2
billion in losses to The Hartford
$
180
Hurricane loss events affecting the
Gulf and Eastern Coast of the
United States
2/18/2011 to
2/18/2015
67.5% of $200 in losses in excess of an index
loss trigger equating to approximately $1.4
billion in losses to The Hartford
135
As of December 31, 2011, there have been no events that are expected to trigger a recovery under the Foundation Re III reinsurance
program and, accordingly, the Company has not recorded any recoveries from the associated reinsurance treaties.