The Hartford 2012 Annual Report Download - page 98

Table of Contents
Financial Risk Management
The Company identifies the following categories of financial risk:
•Liquidity Risk
•Interest Rate Risk
•Equity Risk
•Foreign Currency Exchange Risk
•Credit Risk
Financial risks include direct and indirect risks to the Company's financial objectives coming from events that impact market conditions or prices. Financial
risk also includes exposure to events that may cause correlated movement in multiple risk factors. The primary source of financial risks are the Company's
general account assets and the liabilities which those assets back, together with the guarantees which the company has written over various liability products,
particularly its portfolio of variable annuities. The Company assesses its financial risk on a U.S. GAAP, statutory and economic basis. The Hartford has
developed a disciplined approach to financial risk management that is well integrated into the Company's underwriting, pricing, hedging, claims, asset and
liability management, new product, and capital management processes. Consistent with its risk appetite, the Company establishes financial risk limits to
control potential loss. Exposures are actively monitored, and mitigated where appropriate. The Company uses various risk management strategies, including
reinsurance and over-the-counter and exchange traded derivatives to transfer risk to well-established and financially secure counterparties. Together, the
Company's Chief Market Risk Officer, HIMCO Chief Risk Officer and Head of Asset Liability Management have enterprise responsibility for establishing
and maintaining the framework, principles, and guidelines of The Hartford's financial risk management program.
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Liquidity risk is the risk to current or prospective earnings or capital arising from the company's inability or perceived inability to meet its contractual cash
obligations at the legal entity level when they come due over given horizons without incurring unacceptable costs and without relying on uncommitted funding
sources. Liquidity risk includes the inability to manage unplanned increases or accelerations in cash outflows, decreases or changes in funding sources, and
changes in market conditions that affect the ability to liquidate assets quickly to meet obligations with minimal loss in value. Components of liquidity risk
include funding risk, transaction risk and market liquidity risk. Funding risk is the gap between sources and uses of cash under normal and stressed
conditions taking into consideration structural, regulatory and legal entity constraints. Changes in institution-specific conditions that affect the Company's
ability to sell assets or otherwise transact business without incurring a significant loss in value is transaction risk. Changes in general market conditions that
affect the institution's ability to sell assets or otherwise transact business without incurring a significant loss in value is market liquidity risk.
The Company has defined ongoing monitoring and reporting requirements to assess liquidity across the enterprise. The Company measures and manages
liquidity risk exposures and funding needs within prescribed limits and across legal entities, business lines and currencies, taking into account legal,
regulatory and operational limitations to the transferability of liquidity. The Company also monitors internal and external conditions, identifies material risk
changes and emerging risks that may impact liquidity. The Company's CFO has primary responsibility for liquidity risk.
For further discussion on liquidity see the section on Capital Resources and Liquidity.
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