The Hartford 2015 Annual Report Download - page 58

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In the fourth quarters of 2015, 2014 and 2013, the Company completed evaluations of certain of its non-asbestos and non-environmental
reserves in Property & Casualty Other Operations, including its assumed reinsurance liabilities. In 2015 and 2014, the Company's prior
year development was impacted by unfavorable frequency of international workers' compensation claims. The Company's prior year
development on these reserves was immaterial in 2013.
During the second quarters of 2015, 2014 and 2013, the Company completed its annual ground-up asbestos reserve evaluations. As part
of these evaluations, the Company reviewed all of its open direct domestic insurance accounts exposed to asbestos liability, as well as
assumed reinsurance accounts and its London Market exposures for both direct insurance and assumed reinsurance. During 2015, the
Company found a substantial majority of direct accounts have trended as expected, and the Company has seen no material changes in the
underlying legal environment during the past year. However, a small percentage of the Company’s direct accounts have experienced
greater than expected claim filings, including mesothelioma claims. This was driven by a subset of peripheral defendants with a high
concentration of filings in specific, adverse jurisdictions. As a result, the aggregate indemnity and defense costs have not declined as
expected. To a lesser degree, the Company also saw unfavorable development on certain assumed reinsurance accounts, driven by
various account-specific factors, including filing activity experienced by the direct accounts. Based on this evaluation, the Company
increased its net asbestos reserves by $146 in second quarter 2015. During 2014, the Company found estimates for certain direct
accounts increased, principally due to a higher than previously estimated number of mesothelioma claim filings and an increase in costs
associated with asbestos litigation. The Company also experienced unfavorable development on certain of its assumed reinsurance
accounts driven by a variety of account-specific factors, including those experienced by the direct policyholders. Based on this
evaluation, the Company increased its net asbestos reserves by $212 in second quarter 2014. During 2013, the Company found
estimates for individual cases changed based upon the particular circumstances in such accounts. These cases were case specific and not
as a result of any underlying change in current environment. The Company experienced moderate increases in claim frequency and
severity as well as expense and costs associated with litigating asbestos coverage matters, particularly against certain smaller, more
peripheral insureds. The Company also experienced unfavorable development on certain of its assumed reinsurance accounts driven
largely by the same factors experienced by the direct policyholders. Based on this evaluation, the Company increased its net asbestos
reserves by $130 in second quarter 2013. The Company currently expects to continue to perform an evaluation of its asbestos liabilities
annually.
During the second quarters of 2015, 2014 and 2013, the Company completed its annual ground-up environmental reserve evaluations. In
each of these evaluations, the Company reviewed all of its open direct domestic insurance accounts exposed to environmental liability,
as well as assumed reinsurance accounts and its London Market exposures for both direct and assumed reinsurance. During 2015, the
substantial majority of the Company's environmental exposures trended as expected, however the Company found loss and expense
estimates for certain individual account exposures increased based upon an increase in clean-up costs, including at a handful of
Superfund sites. In addition, new claim severity has deteriorated, although frequency continues to decline as expected. During 2014 and
2013, the Company found estimates for certain individual account exposures increased based upon unfavorable litigation results and
increased clean-up and expense costs. The net effect of these account-specific changes as well as quarterly actuarial evaluations of new
account emergence and historical loss and expense paid experience resulted in increases of $58, $30 and $12 in net environmental
reserves in 2015, 2014 and 2013, respectively. The Company currently expects to continue to perform an evaluation of its
environmental liabilities annually.
The Company divides its gross asbestos and environmental exposures into Direct, Assumed Reinsurance and London Market. Direct
asbestos exposures include Major Asbestos Defendants, Non-Major Accounts, and Unallocated Direct Accounts.
• Major Asbestos Defendants represent the “Top 70” accounts in Tillinghast's published Tiers 1 and 2 and Wellington accounts.
Major Asbestos Defendants have the fewest number of asbestos accounts and include reserves related to PPG Industries, Inc.
(“PPG”). In January 2009, the Company, along with approximately three dozen other insurers, entered into a modified
agreement in principle with PPG to resolve the Company's coverage obligations for all its PPG asbestos liabilities. The
agreement is contingent on the fulfillment of certain conditions. Major Asbestos Defendants gross asbestos reserves accounted
for approximately 25% of the Company's total Direct gross asbestos reserves as of June 30, 2015.
• Non-Major Accounts are all other open direct asbestos accounts and largely represent smaller and more peripheral defendants.
These exposures represented 1,132 accounts and contained approximately 46% of the Company's total Direct gross asbestos
reserves as of June 30, 2015.
• Unallocated Direct Accounts includes an estimate of the reserves necessary for asbestos claims related to direct insureds that
have not previously tendered asbestos claims to the Company and exposures related to liability claims that may not be subject
to an aggregate limit under the applicable policies.