The Hartford 2015 Annual Report Download - page 49

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Once the gross ultimate exposure for indemnity and allocated loss adjustment expense is determined for its insureds by each policy year,
the Company calculates its ceded reinsurance projection based on any applicable facultative and treaty reinsurance and the Company’s
experience with reinsurance collections.
Uncertainties Regarding Adequacy of Asbestos and Environmental Reserves
A number of factors affect the variability of estimates for asbestos and environmental reserves including assumptions with respect to the
frequency of claims, the average severity of those claims settled with payment, the dismissal rate of claims with no payment, resolution
of coverage disputes with our policyholders and the expense to indemnity ratio. The uncertainty with respect to the underlying reserve
assumptions for asbestos and environmental adds a greater degree of variability to these reserve estimates than reserve estimates for
more traditional exposures. While this variability is reflected in part in the size of the range of reserves developed by the Company, that
range may still not be indicative of the potential variance between the ultimate outcome and the recorded reserves. The recorded net
reserves as of December 31, 2015 of approximately $2.0 billion ($1.7 billion and $0.3 billion for asbestos and environmental,
respectively) are within an estimated range, unadjusted for covariance, of $1.6 billion to $2.4 billion. The process of estimating asbestos
and environmental reserves remains subject to a wide variety of uncertainties, which are detailed in Note 12 - Commitments and
Contingencies of Notes to Consolidated Financial Statements. The Company believes that its current asbestos and environmental
reserves are appropriate. However, analyses of future developments could cause the Company to change its estimates and ranges of its
asbestos and environmental reserves, and the effect of these changes could be material to the Company's consolidated operating results
and liquidity. Consistent with the Company's long-standing reserve practices, the Company will continue to review and monitor its
reserves in Property & Casualty Other Operations regularly, including its annual reviews of asbestos liabilities, reinsurance recoverables,
the allowance for uncollectible reinsurance, and environmental liabilities, and where future developments indicate, make appropriate
adjustments to the reserves. In 2016, the Company will complete the annual ground-up asbestos and environmental reserve studies
during the second quarter.
Reserve Roll-forwards and Development
Based on the results of the quarterly reserve review process, the Company determines the appropriate reserve adjustments, if any, to
record. Recorded reserve estimates are adjusted after consideration of numerous factors, including but not limited to, the magnitude of
the difference between the actuarial indication and the recorded reserves, improvement or deterioration of actuarial indications in the
period, the maturity of the accident year, trends observed over the recent past and the level of volatility within a particular line of
business. In general, adjustments are made more quickly to more mature accident years and less volatile lines of business. Such
adjustments of reserves are referred to as “prior accident year development”. Increases in previous estimates of ultimate loss costs are
referred to as either an increase in prior accident year reserves or as unfavorable reserve development. Decreases in previous estimates of
ultimate loss costs are referred to as either a decrease in prior accident year reserves or as favorable reserve development. Reserve
development can influence the comparability of year over year underwriting results and is set forth in the paragraphs and tables that
follow.
Total Property and Casualty Insurance Product Reserves, Net of Reinsurance, Results
In the opinion of management, based upon the known facts and current law, the reserves recorded for the Company’s property and
casualty insurance products at December 31, 2015 represent the Company’s best estimate of its ultimate liability for losses and loss
adjustment expenses related to losses covered by policies written by the Company. However, because of the significant uncertainties
surrounding reserves, and particularly asbestos and environmental exposures, it is possible that management’s estimate of the ultimate
liabilities for these claims may change and that the required adjustment to recorded reserves could exceed the currently recorded reserves
by an amount that could be material to the Company’s results of operations and liquidity.