The Hartford 2010 Annual Report Download - page 184

THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-56
6. Reinsurance
Accounting Policy
Through both facultative and treaty reinsurance agreements, the Company cedes a share of the risks it has underwritten to other
insurance companies. Assumed reinsurance refers to the Company’ s acceptance of certain insurance risks that other insurance
companies have underwritten.
Reinsurance accounting is followed for ceded and assumed transactions when risk transfer provisions have been met. To meet risk
transfer requirements, a reinsurance contract must include insurance risk, consisting of both underwriting and timing risk, and a
reasonable possibility of a significant loss to the reinsurer.
Earned premiums and incurred losses and loss adjustment expenses reflect the net effects of ceded and assumed reinsurance
transactions. Included in other assets are prepaid reinsurance premiums, which represent the portion of premiums ceded to reinsurers
applicable to the unexpired terms of the reinsurance contracts. Reinsurance recoverables include balances due from reinsurance
companies for paid and unpaid losses and loss adjustment expenses and are presented net of an allowance for uncollectible reinsurance.
The Hartford cedes insurance to other insurers in order to limit its maximum losses and to diversify its exposures and provide surplus
relief. Such transfers do not relieve The Hartford of its primary liability under policies it wrote and, as such, failure of reinsurers to
honor their obligations could result in losses to The Hartford. The Hartford also is a member of and participates in several reinsurance
pools and associations. The Hartford evaluates the financial condition of its reinsurers and monitors concentrations of credit risk. The
Hartford’ s reinsurance is placed with reinsurers that meet strict financial criteria established by The Hartford. As of December 31, 2010
and 2009, The Hartford had no reinsurance-related concentrations of credit risk greater than 10% of the Company’ s stockholders’
equity.
Results
In accordance with normal industry practice, the Company is involved in both the cession and assumption of insurance with other
insurance and reinsurance companies. As of December 31, 2010 and 2009, the Company's policy for the largest amount of life
insurance retained on any one life by any company was $10.
Life insurance fees, earned premiums and other were comprised of the following:
For the years ended December 31,
2010 2009 2008
Gross fee income, earned premiums and other $ 9,518 $9,448 $ 10,441
Reinsurance assumed 192 162 263
Reinsurance ceded (576) (484) (421)
Net fee income, earned premiums and other $ 9,134 $9,126 $ 10,283
The Company reinsures certain of its risks to other reinsurers under yearly renewable term, coinsurance, and modified coinsurance
arrangements. Yearly renewable term and coinsurance arrangements result in passing all or a portion of the risk to the reinsurer.
Generally, the reinsurer receives a proportionate amount of the premiums less an allowance for commissions and expenses and is liable
for a corresponding proportionate amount of all benefit payments. Modified coinsurance is similar to coinsurance except that the cash
and investments that support the liabilities for contract benefits are not transferred to the assuming company, and settlements are made
on a net basis between the companies. Coinsurance with funds withheld is a form of coinsurance except that the investment assets that
support the liabilities are withheld by the ceding company.
The cost of reinsurance related to long-duration contracts is accounted for over the life of the underlying reinsured policies using
assumptions consistent with those used to account for the underlying policies. Life insurance recoveries on ceded reinsurance contracts,
which reduce death and other benefits, were $275, $305 and $331 for the years ended December 31, 2010, 2009 and 2008, respectively.
The Company also assumes reinsurance from other insurers.
In addition, the Company reinsures a portion of the U.S minimum death benefit guarantees, Japan’ s guaranteed minimum death and
income benefits, as well as guaranteed minimum withdrawal benefits, offered in connection with its variable annuity contracts.