The Hartford 2015 Annual Report Download - page 90

90
Pandemic Risk
Pandemic risk is the exposure to loss arising from widespread influenza or other pathogens or bacterial infections that create an
aggregation of loss across the Company's insurance or asset portfolios. Consistent with industry practice, the Company assesses
exposure to pandemics by analyzing the potential impact from a variety of pandemic scenarios based on conditions consistent with
historical outbreaks of flu-like viruses such as the “Severe” 1918 Spanish Flu, the Asian flu of 1957, the Hong Kong flu of 1968, and the
2009 outbreak of the swine flu. For pandemic risk, the Company generally limits its estimated pre-tax loss from a single 250 year event
to less than 10% of total available capital resources. In evaluating these scenarios, the Company assesses the impact on group life
policies, short-term and long term disability, annuities, COLI, property & casualty claims, and losses in the investment portfolio
associated with market declines in the event of a widespread pandemic. While ERM has a process to track and manage these limits, from
time to time, the estimated loss for pandemics may fluctuate above or below these limits due to changes in modeled loss estimates,
exposures, or statutory surplus. Currently, the Company's estimated pre-tax loss for pandemic is less than 10% of total available capital
resources and is based on a single 250 year event.
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 across
Commercial Lines, Personal Lines and Talcott Resolution 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 workers 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 2015 (“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 coverages that the Company has in place as of January 1, 2016:
Coverage Effective for the period % of layer(s) reinsurance
Per
occurrence
limit Retention
Principal property catastrophe program covering property catastrophe
losses from a single event [1]
1/1/2016 to
1/1/2017 90% $ 850 $ 350
Reinsurance with the FHCF covering Florida Personal Lines property
catastrophe losses from a single event
6/1/2015 to
6/1/2016 90% $ 116 [2] $ 37
Workers compensation losses arising from a single catastrophe event [3]
7/1/2015 to
7/1/2016 80% $ 350 $ 100
[1] Certain aspects of our catastrophe treaty have terms that extend beyond the traditional one year term.
[2] The per occurrence limit on the FHCF treaty is $116 for the 6/1/2015 to 6/1/2016 treaty year based on the Company's election to purchase the
required coverage from FHCF. Coverage is based on the best available information from FHCF, which was updated in January 2016
[3] In addition to the limit shown, the workers compensation reinsurance includes a non-catastrophe, industrial accident layer, 80% of a $30 per event
limit in excess of 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 certain 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, covering the
period from January 1, 2014 to December 31, 2016, the Company has an aggregate loss treaty in place which provides one limit of $200
over the three-year period of aggregate qualifying property catastrophe losses in excess of a net retention of $860.