The Hartford 2015 Annual Report Download - page 172

Table of Contents THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
5. Reinsurance
F-41
The Company cedes insurance to affiliated and unaffiliated insurers to enable the Company to manage capital and risk exposure. Such
arrangements do not relieve the Company of its primary liability to policyholders. Failure of reinsurers to honor their obligations could
result in losses to the Company. The Company's procedures include careful initial selection of its reinsurers, structuring agreements to
provide collateral funds where necessary, and regularly monitoring the financial condition and ratings of its reinsurers. The Company
has ceded reinsurance in connection with the sales of its Retirement Plans and Individual Life businesses in 2013 to MassMutual and
Prudential, respectively.
Reinsurance Recoverables
Reinsurance recoverables include balances due from reinsurance companies and are presented net of an allowance for uncollectible
reinsurance. Reinsurance recoverables include an estimate of the amount of gross losses and loss adjustment expense reserves that may
be ceded under the terms of the reinsurance agreements, including incurred but not reported unpaid losses. The Company’s estimate of
losses and loss adjustment expense reserves ceded to reinsurers is based on assumptions that are consistent with those used in
establishing the gross reserves for business ceded to the reinsurance contracts. The Company calculates its ceded reinsurance projection
based on the terms of any applicable facultative and treaty reinsurance, including an estimate of how incurred but not reported losses
will ultimately be ceded under reinsurance agreements. Accordingly, the Company’s estimate of reinsurance recoverables is subject to
similar risks and uncertainties as the estimate of the gross reserve for unpaid losses and loss adjustment expenses.
The Company's reinsurance recoverables are summarized as follows:
As of
December 31, 2015 December 31, 2014
Property and Casualty Insurance Products:
Paid loss and loss adjustment expenses $ 119 $ 133
Unpaid loss and loss adjustment expenses 2,662 2,868
Gross reinsurance recoverables 2,781 3,001
Allowance for uncollectible reinsurance (266) (271)
Net reinsurance recoverables $ 2,515 $ 2,730
Life Insurance Products:
Future policy benefits and unpaid loss and loss adjustment expenses and other
policyholder funds and benefits payable
Sold businesses (MassMutual and Prudential) $ 19,369 $ 18,997
Other reinsurers 1,305 1,193
Net reinsurance recoverables [1] $ 20,674 $ 20,190
Reinsurance recoverables, net $ 23,189 $ 22,920
[1] No allowance for uncollectible reinsurance is required as of December 31, 2015 and December 31, 2014.
As of December 31, 2015, the Company has reinsurance recoverables from MassMutual and Prudential of $8.6 billion and $10.8 billion,
respectively. As of December 31, 2014, the Company had reinsurance recoverables from MassMutual and Prudential of $8.6 billion and
$10.4 billion, respectively. The Company's obligations to its direct policyholders that have been reinsured to MassMutual and Prudential
are secured by invested assets held in trust. Net of invested assets held in trust, as of December 31, 2015, the Company has no
reinsurance-related concentrations of credit risk greater than 10% of the Company’s consolidated stockholders’ equity.
The allowance for uncollectible reinsurance reflects management’s best estimate of reinsurance cessions that may be uncollectible in the
future due to reinsurers’ unwillingness or inability to pay. The Company analyzes recent developments in commutation activity between
reinsurers and cedants, recent trends in arbitration and litigation outcomes in disputes between reinsurers and cedants and the overall
credit quality of the Company’s reinsurers. Based on this analysis, the Company may adjust the allowance for uncollectible reinsurance
or charge off reinsurer balances that are determined to be uncollectible. Where its contracts permit, the Company secures future claim
obligations with various forms of collateral, including irrevocable letters of credit, secured trusts, funds held accounts and group-wide
offsets.
Due to the inherent uncertainties as to collection and the length of time before reinsurance recoverables become due, it is possible that
future adjustments to the Company’s reinsurance recoverables, net of the allowance, could be required, which could have a material
adverse effect on the Company’s consolidated results of operations or cash flows in a particular quarter or annual period.