Home
Jump to Risk Factors
Jump to Industries
Jump to Exposures
Jump to Event Codes
Jump to Wiki Summary

Industries
Investment Banking and Brokerage
Health Care Facilities

Exposures
Military
Express intent
Leadership
Judicial
Intelligence
Rights
Regime

Event Codes
Human death
Solicit support
Promise
Warn
Yield to order
Sanction
Propose
Acknowledge responsibility
Sports contest
Natural disaster
Host meeting
Military blockade
Accident

Wiki	Wiki Summary
Catastrophe modeling	This article refers to the use of computers to estimate losses caused by disasters. For other meanings of the word catastrophe, including catastrophe theory in mathematics, see catastrophe (disambiguation).Catastrophe modeling (also known as cat modeling) is the process of using computer-assisted calculations to estimate the losses that could be sustained due to a catastrophic event such as a hurricane or earthquake.
Catastrophe theory	In mathematics, catastrophe theory is a branch of bifurcation theory in the study of dynamical systems; it is also a particular special case of more general singularity theory in geometry.\nBifurcation theory studies and classifies phenomena characterized by sudden shifts in behavior arising from small changes in circumstances, analysing how the qualitative nature of equation solutions depends on the parameters that appear in the equation.
Pass by catastrophe	Pass by catastrophe is an academic urban legend proposing that if some particular catastrophic event occurs, students whose performance could have been affected by the event are automatically awarded passing grades, on the grounds that there would then be no way to assess them fairly and they should not be penalized for the catastrophe.\n\n\n== Examples of the legend ==\nIf someone dies during an exam, all the other students present pass.
Liability insurance	Liability insurance (also called third-party insurance) is a part of the general insurance system of risk financing to protect the purchaser (the "insured") from the risks of liabilities imposed by lawsuits and similar claims and protects the insured if the purchaser is sued for claims that come within the coverage of the insurance policy.\nOriginally, individual companies that faced a common peril formed a group and created a self-help fund out of which to pay compensation should any member incur loss (in other words, a mutual insurance arrangement).
Mark-to-market accounting	Mark-to-market (MTM or M2M) or fair value accounting refers to accounting for the "fair value" of an asset or liability based on the current market price, or the price for similar assets and liabilities, or based on another objectively assessed "fair" value. Fair value accounting has been a part of Generally Accepted Accounting Principles (GAAP) in the United States since the early 1990s, and is now regarded as the "gold standard" in some circles.
Lloyd's of London	Lloyd's of London, generally known simply as Lloyd's, is an insurance and reinsurance market located in London, United Kingdom. Unlike most of its competitors in the industry, it is not an insurance company; rather, Lloyd's is a corporate body governed by the Lloyd's Act 1871 and subsequent Acts of Parliament.
Limited liability company	A limited liability company (LLC) is the US-specific form of a private limited company. It is a business structure that can combine the pass-through taxation of a partnership or sole proprietorship with the limited liability of a corporation.
Balance sheet	In financial accounting, a balance sheet (also known as statement of financial position or statement of financial condition) is a summary of the financial balances of an individual or organization, whether it be a sole proprietorship, a business partnership, a corporation, private limited company or other organization such as government or not-for-profit entity. Assets, liabilities and ownership equity are listed as of a specific date, such as the end of its financial year.
Financial accounting	Financial accounting is the field of accounting concerned with the summary, analysis and reporting of financial transactions related to a business. This involves the preparation of financial statements available for public use.
Financial statement	Financial statements (or financial reports) are formal records of the financial activities and position of a business, person, or other entity.\nRelevant financial information is presented in a structured manner and in a form which is easy to understand.
International Financial Reporting Standards	International Financial Reporting Standards, commonly called IFRS, are accounting standards issued by the IFRS Foundation and the International Accounting Standards Board (IASB). They constitute a standardised way of describing the company's financial performance and position so that company financial statements are understandable and comparable across international boundaries.
Reliance Retail	Reliance Retail is an Indian retail company and a subsidiary of Reliance Industries Limited. Founded in 2006, it is the largest retailer in India in terms of revenue.
Financial crisis of 2007–2008	The financial crisis of 2008, or Global Financial Crisis, was a severe worldwide economic crisis that occurred in the early 21st century. It was the most serious financial crisis since the Great Depression (1929).
Special Activities Center	The Special Activities Center (SAC) is a division of the Central Intelligence Agency responsible for covert operations and paramilitary operations. The unit was named Special Activities Division (SAD) prior to 2015.
Operations management	Operations management is an area of management concerned with designing and controlling the process of production and redesigning business operations in the production of goods or services. It involves the responsibility of ensuring that business operations are efficient in terms of using as few resources as needed and effective in meeting customer requirements.
Surgery	Surgery is a medical or dental specialty that uses operative manual and instrumental techniques on a person to investigate or treat a pathological condition such as a disease or injury, to help improve bodily function, appearance, or to repair unwanted ruptured areas.\nThe act of performing surgery may be called a surgical procedure, operation, or simply "surgery".
Operation (mathematics)	In mathematics, an operation is a function which takes zero or more input values (called operands) to a well-defined output value. The number of operands (also known as arguments) is the arity of the operation.
Munich Re	Munich Re Group or Munich Reinsurance Company (German: Münchener Rück; Münchener Rückversicherungs-Gesellschaft) is a German multinational insurance company based in Munich, Germany. It is one of the world's leading reinsurers.
Limited liability	Limited liability is a legal status where a person's financial liability is limited to a fixed sum, most commonly the value of a person's investment in a corporation, company or partnership. If a company that provides limited liability to its investors is sued, then the claimants are generally entitled to collect only against the assets of the company, not the assets of its shareholders or other investors.
Product liability	Product liability is the area of law in which manufacturers, distributors, suppliers, retailers, and others who make products available to the public are held responsible for the injuries those products cause. Although the word "product" has broad connotations, product liability as an area of law is traditionally limited to products in the form of tangible personal property.
Limited liability partnership	A limited liability partnership (LLP) is a partnership in which some or all partners (depending on the jurisdiction) have limited liabilities. It therefore can exhibit elements of partnerships and corporations.
No liability	A no-liability company in Australia (suffix NL) is a company which, under the Corporations Act 2001 (Cth), must have as its stated objects that it is solely a mining company and that it is not entitled to calls on the unpaid issue price of shares. It is a company which is restricted to mining activities and is the only sort of corporation which is entitled to this form of liability, given the sometimes financially risky business of mining.
Vicarious liability	Vicarious liability is a form of a strict, secondary liability that arises under the common law doctrine of agency, respondeat superior, the responsibility of the superior for the acts of their subordinate or, in a broader sense, the responsibility of any third party that had the "right, ability or duty to control" the activities of a violator. It can be distinguished from contributory liability, another form of secondary liability, which is rooted in the tort theory of enterprise liability because, unlike contributory infringement, knowledge is not an element of vicarious liability.
Adverse effect	An adverse effect is an undesired harmful effect resulting from a medication or other intervention, such as surgery. An adverse effect may be termed a "side effect", when judged to be secondary to a main or therapeutic effect.
Adverse possession	Adverse possession, sometimes colloquially described as "squatter's rights", is a legal principle in the Anglo-American common law under which a person who does not have legal title to a piece of property—usually land (real property)—may acquire legal ownership based on continuous possession or occupation of the property without the permission (licence) of its legal owner. The possession by a person is not adverse if they are in possession as a tenant or licensee of the legal owner.
Regulation	Regulation is the management of complex systems according to a set of rules and trends. In systems theory, these types of rules exist in various fields of biology and society, but the term has slightly different meanings according to context.
List of largest insurance companies	These are lists of the insurance companies in the world, as measured by total non-banking assets and by net premiums written.\n\n\n== By non-banking assets ==\nThe list is based on the 2018 report of the 25 largest insurance companies in the world by AM Best.
National Insurance Company	National Insurance Company Limited (NICL) is an Indian nationalised general insurance company. It is under the ownership of Ministry of Finance , Government of India.
List of Canadian insurance companies	This is a list of Canadian insurance companies.\nThe top insurance providers in Canada are Manulife, Canada Life (subsidiary of Great-West Lifeco), Sun Life Financial, Desjardins, and IA Financial Group (aka Industrial Alliance).
List of insurance companies in Uganda	This is a list of insurance companies in Uganda regulated by the Insurance Regulatory Authority of Uganda:
Pool Re	Pool Reinsurance Company Limited, also known as Pool Re, was set up in 1993 by the insurance industry in cooperation with the UK Government in the wake of the IRA bombing of the Baltic Exchange in 1992.Pool Re is a mutual reinsurer whose members comprise the vast majority of insurers and Lloyd’s Syndicates which offer commercial property insurance in the UK, with membership of the scheme affording them a guarantee which ensures that they can provide cover for losses resulting from acts of terrorism, regardless of the scale of the claims.\nThe Scheme, which was the first public/private partnership to cover insured losses caused by acts of terrorism, is owned by its members but is underpinned by a HM Treasury commitment to support Pool Re if ever it has insufficient funds to pay a legitimate claim.
Security (finance)	A security is a tradable financial asset. The term commonly refers to any form of financial instrument, but its legal definition varies by jurisdiction.
Mortgage-backed security	A mortgage-backed security (MBS) is a type of asset-backed security (an 'instrument') which is secured by a mortgage or collection of mortgages. The mortgages are aggregated and sold to a group of individuals (a government agency or investment bank) that securitizes, or packages, the loans together into a security that investors can buy.

Risk Factors
HCC INSURANCE HOLDINGS INC/DE/ Item 1A Risk Factors Risks Relating to our Industry Because we are a property and casualty insurer, our business may suffer as a result of unforeseen catastrophic losses
Property and casualty insurers are subject to claims arising from catastrophes
Catastrophic losses have had a significant impact on our historical results
Catastrophes can be caused by various events, including hurricanes, tsunamis, windstorms, earthquakes, hailstorms, explosions, severe winter weather and fires and may include man-made events, such as terrorist attacks
The incidence, frequency and severity of catastrophes are inherently unpredictable
The extent of losses from a catastrophe is a function of both the total amount of insured exposure in the area affected by the event and the severity of the event
Insurance companies are not permitted to reserve for a catastrophe until it has occurred
Catastrophes can cause losses in a variety of our property and casualty lines, and most of our past catastrophe-related claims have resulted from hurricanes and earthquakes; however, we experienced a significant loss as a result of the September 11, 2001 terrorist attack
Most of our exposure to catastrophes comes from our London market account
Although we typically purchase reinsurance protection for risks we believe bear a significant level of catastrophe exposure, the nature or magnitude of losses attributed to a catastrophic event or events may result in losses which exceed our reinsurance protection
It is therefore possible that a catastrophic event or multiple catastrophic events could have a material adverse effect on our financial position, results of operations and liquidity
The insurance and reinsurance business is historically cyclical, and we expect to experience periods with excess underwriting capacity and unfavorable premium rates, which could cause our results to fluctuate
The insurance and reinsurance business historically has been a cyclical industry characterized by periods of intense price competition due to excessive underwriting capacity, as well as periods when shortages of capacity permitted an increase in pricing and, thus, more favorable premium levels
An increase in premium levels is often over time offset by an increasing supply of insurance and reinsurance capacity, either by capital provided by new entrants or by the commitment of additional capital by existing insurers or reinsurers, which may cause prices to decrease
Any of these factors could lead to a significant 26 _________________________________________________________________ [80]Table of Contents reduction in premium rates, less favorable policy terms and fewer opportunities to underwrite insurance risks, which could have a material adverse effect on our results of operations and cash flows
In addition to these considerations, changes in the frequency and severity of losses suffered by insureds and insurers may affect the cycles of the insurance and reinsurance business significantly
These factors may also cause the price of our common stock to be volatile
Our loss reserves are based on an estimate of our future liability, which may prove to be inadequate
We maintain loss reserves to cover our estimated liability for unpaid losses and loss adjustment expenses, including legal and other fees as well as a portion of our general expenses, for reported and unreported claims incurred at the end of each accounting period
Reserves do not represent an exact calculation of liability
Rather, reserves represent an estimate of what we expect the ultimate settlement and administration of claims will cost
These estimates, which generally involve actuarial projections, are based on our assessment of facts and circumstances then known, as well as estimates of future trends in claims severity, frequency, judicial theories of liability and other factors
These variables are affected by both internal and external events, such as changes in claims handling procedures, inflation, judicial trends and legislative changes
Additionally, there may be a significant reporting delay between the occurrence of the insured event and the time it is reported to us
The inherent uncertainties of estimating reserves are greater for certain types of liabilities, particularly those in which the various considerations affecting the type of claim are subject to change and in which long periods of time may elapse before a definitive determination of liability is made
Reserve estimates are continually refined in a regular and ongoing process as experience develops and further claims are reported and settled
Adjustments to reserves are reflected in our results of operations in the periods in which such estimates are changed
Because setting reserves is inherently uncertain, there can be no assurance that current reserves will prove adequate in light of subsequent events
If actual claims prove to be greater than our reserves, our financial position, results of operations and liquidity may be adversely affected
The effects of emerging claim and coverage issues on our business are uncertain
As industry practices and legal, judicial, social and other environmental conditions change, unexpected and unintended issues related to claims and coverage may emerge
These issues may adversely affect our business by either extending coverage beyond our underwriting intent or by increasing the number or size of claims
In some instances, these changes may not become apparent until some time after we have issued insurance or reinsurance contracts that are affected by the changes
As a result, the full extent of liability under our insurance or reinsurance contracts may not be known for many years after a contract is issued and our financial position and results of operations may be adversely affected
We are subject to extensive governmental regulation, which could adversely affect our business
We are subject to extensive governmental regulation and supervision
Our business depends on compliance with applicable laws and regulations and our ability to maintain valid licenses and approvals for our operations
Most insurance regulations are designed to protect the interests of policyholders rather than shareholders and other investors
In the United States, this regulation is generally administered by departments of insurance in each state in which we do business and includes a comprehensive framework of oversight of our operations and review of our financial position
US Federal legislation may lead to additional federal regulation of the insurance industry in the coming years
Also, foreign governments regulate our international operations
Each foreign jurisdiction has its own unique regulatory framework which applies to our operations in that jurisdiction
Regulatory authorities have broad discretion to grant, renew or revoke licenses and approvals
Regulatory authorities may deny or revoke licenses for various reasons, including the violation of regulations
In some instances, we follow practices based on our interpretations of regulations, or those we believe to be generally followed by the industry, which may be different from the requirements or interpretations of regulatory authorities
If we do not have the requisite licenses and approvals and do not comply with applicable regulatory requirements, the insurance regulatory 27 _________________________________________________________________ [81]Table of Contents authorities could preclude or temporarily suspend us from carrying on some or all of our activities or otherwise penalize us
That type of action could have a material adverse effect on our results of operations
Also, changes in the level of regulation of the insurance industry (whether federal, state or foreign), or changes in laws or regulations themselves or interpretations by regulatory authorities, could have a material adverse effect on our business
Virtually all states require insurers licensed to do business in that state to bear a portion of the loss suffered by some insureds as the result of impaired or insolvent insurance companies
The effect of these arrangements could adversely affect our results of operations
Our reliance on brokers subjects us to their credit risk
In accordance with industry practice, we generally pay amounts owed on claims under our insurance and reinsurance contracts to brokers, and these brokers, in turn, pay these amounts over to the clients that have purchased insurance or reinsurance from us
Although the law is unsettled and depends upon the facts and circumstances of the particular case, in some jurisdictions, if a broker fails to make such a payment, we might remain liable to the insured or ceding insurer for the deficiency
Conversely, in certain jurisdictions, when the insured or ceding insurer pays premiums for these policies to brokers for payment over to us, these premiums might be considered to have been paid and the insured or ceding insurer will no longer be liable to us for those amounts, whether or not we have actually received the premiums from the broker
Consequently, we assume a degree of credit risk associated with brokers with whom we transact business
However, due to the unsettled and fact-specific nature of the law, we are unable to quantify our exposure to this risk
Risks Relating to our Business Our increased retentions in various lines of business means that we are exposed to a greater portion of potential losses
Over the past few years, we have significantly increased our retentions in a number of the lines of business underwritten by our insurance companies
The determination to reduce the amount of reinsurance we purchase or not to purchase reinsurance for a particular risk or line of business is based on a variety of factors including market conditions, pricing, availability of reinsurance, the level of our capital and loss history
Such determinations have the effect of increasing our financial exposure to losses associated with such risks or in the subject line of business and could have a material adverse effect on our financial position, results of operations and cash flows in the event of significant losses associated with such risks or lines of business
If we are unable to purchase adequate reinsurance protection for some of the risks we have underwritten, we will be exposed to any resulting losses
We purchase reinsurance for a portion of the risks underwritten by our insurance companies, especially volatile and catastrophe-exposed risks
Market conditions beyond our control determine the availability and cost of the reinsurance protection we purchase
In addition, the historical results of reinsurance programs and the availability of capital also affect the availability of reinsurance
Our reinsurance facilities are generally subject to annual renewal
We cannot assure that we can maintain our current reinsurance facilities or that we can obtain other reinsurance facilities in adequate amounts and at favorable rates
Further, we cannot determine what effect catastrophic losses will have on the reinsurance market in general and on our ability to obtain reinsurance in adequate amounts and at favorable rates in particular
If we are unable to renew or to obtain new reinsurance facilities, either our net exposures would increase or, if we are unwilling to bear such an increase, we would have to reduce the level of our underwriting commitments, especially in catastrophe-exposed risks
Either of these potential developments could have a material adverse effect on our financial position, results of operations and cash flows
The lack of available reinsurance may also adversely affect our ability to generate fee and commission income in our underwriting agency and reinsurance broker operations
We purchase reinsurance by transferring, or ceding, part of the risk we have assumed as a primary insurer to a reinsurance company in exchange for part of the premium we receive in connection with the risk
Through reinsurance, we have the contractual right to collect the amount above our retention from our reinsurers
Although reinsurance makes the reinsurer liable to us to the extent the risk is transferred or ceded to the reinsurer, it does not relieve us, the reinsured, of our full liability to our policyholders
Accordingly, we bear credit risk with respect to our reinsurers
We cannot assure you that our reinsurers will pay all of our reinsurance claims, or that they will pay our claims on a timely basis
Additionally, catastrophic losses from multiple primary insurers may accumulate within the more concentrated reinsurance market and result in claims which adversely impact the financial condition of such reinsurers and thus their ability to pay such claims
If we become liable for risks we have ceded to reinsurers or if our reinsurers cease to meet their obligations to us, whether because they are in a weakened financial position as a result of incurred losses or otherwise, our financial position, results of operations and cash flows could be materially adversely affected
As a primary insurer, we may have significant exposure for terrorist acts
To the extent that reinsurers have excluded coverage for terrorist acts or have priced such coverage at rates that we believe are not practical, we, in our capacity as a primary insurer, do not have reinsurance protection and are exposed for potential losses as a result of any terrorist acts
To the extent an act of terrorism is certified by the Secretary of Treasury, we may be covered under The Terrorism Risk Insurance Act, originally enacted in 2002 and subsequently extended, for up to 90prca of our losses in 2006
However, any such coverage would be subject to a mandatory deductible
Our deductible under the Act during 2006 is dlra91dtta9 million
If the Act is not extended beyond its currently stated termination date of December 31, 2007 or replaced by a similar program, our liability for terrorist acts could be a material amount
We may be unsuccessful in competing against larger or more well established business rivals
In our specialty insurance operations, we compete in narrowly-defined niche classes of business such as the insurance of private aircraft (aviation), directors’ and officers’ liability (diversified financial products), employer sponsored, self-insured medical plans (medical stop-loss), professional indemnity (diversified financial products) and surety (diversified financial products), as distinguished from such general lines of business as automobile or homeowners insurance
We compete with a large number of other companies in our selected lines of business, including: Lloyd’s, ACE and XL in our London market business; American International Group and US Aviation Insurance Group (a subsidiary of Berkshire Hathaway, Inc
) in our aviation line of business; United Health, Symetra Financial Corp
and Hartford Life in our group life, accident and health business; and American International Group, The Chubb Corporation, ACE, St
Paul Travelers and XL in our diversified financial products business
We face competition from specialty insurance companies, underwriting agencies and reinsurance brokers, as well as from diversified financial services companies that are larger than we are and that have greater financial, marketing and other resources than we do
Some of these competitors also have longer experience and more market recognition than we do in certain lines of business
In addition to competition in the operation of our business, we face competition from a variety of sources in attracting and retaining qualified employees
We cannot assure you that we will maintain our current competitive position in the markets in which we operate, or that we will be able to expand our operations into new markets
If we fail to do so, our results of operations and cash flows could be materially adversely affected
If the rating agencies downgrade us, our business and competitive position in the industry may suffer
Ratings have become an increasingly important factor in establishing the competitive position of insurance companies
Our insurance companies are rated by AM Best Company, Inc
and Standard & Poor’s Corporation, whose ratings reflect their opinions of an insurance company’s and insurance holding 29 _________________________________________________________________ [83]Table of Contents company’s financial strength, operating performance, strategic position and ability to meet its obligations to policyholders and are not evaluations directed to investors
Our ratings are subject to periodic review by those entities and the continuation of those ratings cannot be assured
If our ratings are reduced from their current levels by those entities, our results of operations could be adversely affected
We may require additional capital in the future, which may not be available or may only be available on unfavorable terms
Our future capital requirements depend on many factors, including our ability to write new business successfully and to establish premium rates and reserves at levels sufficient to cover losses
We may need to raise additional funds through financings or curtail our growth and reduce our assets
Any equity or debt financing, if available at all, may be on terms that are not favorable to us
In the case of equity financings, dilution to our shareholders could result, and in any case such securities may have rights, preferences and privileges that are senior to those of our common stock
If we cannot obtain adequate capital on favorable terms or at all, our business, results of operations and liquidity could be adversely affected
We may be unable to attract and retain qualified employees
We depend on our ability to attract and retain experienced underwriting talent and other skilled employees who are knowledgeable about our business
If the quality of our underwriting team and other personnel decreases, we may be unable to maintain our current competitive position in the specialized markets in which we operate and be unable to expand our operations into new markets, which could adversely affect our business
We invest a significant amount of our assets in fixed income securities that have experienced market fluctuations, which may greatly reduce the value of our investment portfolio
At December 31, 2005, dlra2dtta3 billion of our dlra3dtta3 billion investment portfolio was invested in fixed income securities
The fair value of these fixed income securities and the related investment income fluctuate depending on general economic and market conditions
With respect to our investments in fixed income securities, the fair value of these investments generally increases or decreases in an inverse relationship with fluctuations in interest rates, while net investment income realized by us from future investments in fixed income securities will generally increase or decrease with interest rates
In addition, actual net investment income and/or cash flows from investments that carry prepayment risk (such as mortgage-backed and other asset-backed securities) may differ from those anticipated at the time of investment as a result of interest rate fluctuations
An investment has prepayment risk when there is a risk that the timing of cash flows that result from the repayment of principal might occur earlier than anticipated because of declining interest rates or later than anticipated because of rising interest rates
If any of the issuers of our fixed income securities suffer financial setbacks, the ratings on the fixed income securities could fall (with a concurrent fall in fair value) and, in a worst case scenario, the issuer could default on its financial obligations
Historically, the impact of market fluctuations has affected our financial statements
Because all of our fixed income securities are classified as available for sale, changes in the fair value of our securities are reflected in our other comprehensive income
Similar treatment is not available for liabilities
Therefore, interest rate fluctuations could adversely affect our financial position
Unrealized pre-tax net investment losses on investments in fixed income securities were dlra29dtta3 million in 2005, dlra9dtta3 million in 2004 and dlra3dtta7 million in 2003
Our strategy of acquiring other companies for growth may not succeed
Our strategy for growth includes growing through acquisitions of insurance industry related companies
This strategy presents risks that could have a material adverse effect on our business and financial performance, including: 1) the diversion of our management’s attention, 2) our ability to assimilate the operations and personnel of the acquired companies, 3) the contingent and latent risks associated with the past operations of, and other unanticipated problems arising in, the acquired companies, 4) the need to 30 _________________________________________________________________ [84]Table of Contents expand management, administration and operational systems and 5) increased competition for suitable acquisition opportunities and qualified employees
We cannot predict whether we will be able to acquire additional companies on terms favorable to us or if we will be able to successfully integrate the acquired operations into our business
We do not know if we will realize any anticipated benefits of completed acquisitions or if there will be substantial unanticipated costs associated with new acquisitions
In addition, future acquisitions by us may result in potentially dilutive issuances of our equity securities, the incurrence of additional debt and the recognition of potential impairment of goodwill and other intangible assets
Each of these factors could adversely affect our financial position and results of operations
We are an insurance holding company and, therefore, may not be able to receive dividends in needed amounts from our subsidiaries
Historically, we have had sufficient cash flow from our non-insurance company subsidiaries to meet our corporate cash flow requirements for paying principal and interest on outstanding debt obligations, dividends to shareholders and corporate expenses
However, in the future we may rely on dividends from our insurance companies to meet these requirements
The payment of dividends by our insurance companies is subject to regulatory restrictions and will depend on the surplus and future earnings of these subsidiaries, as well as the regulatory restrictions
As a result, should our other sources of funds prove to be inadequate, we may not be able to receive dividends from our insurance companies at times and in amounts necessary to meet our obligations, which could adversely affect our financial position and liquidity
Because we operate internationally, fluctuations in currency exchange rates may affect our receivable and payable balances and our reserves
We underwrite insurance coverages that are denominated in a number of foreign currencies and we establish and maintain our loss reserves with respect to these policies in their respective currencies
Our net earnings could be adversely affected by exchange rate fluctuations, which would adversely affect receivable and payable balances and reserves
Our principal area of exposure relates to fluctuations in exchange rates between the major European currencies (particularly the British pound sterling and the Euro) and the US dollar
Consequently, a change in the exchange rate between the US dollar and the British pound sterling or the Euro could have an adverse effect on our results of operations
Our information technology systems may fail or suffer a loss of security, which could adversely affect our business
Our business is highly dependent upon the successful and uninterrupted functioning of our computer and data processing systems
We rely on these systems to perform actuarial and other modeling functions necessary for writing business, as well as to process and make claims payments
We have a highly trained staff that is committed to the development and maintenance of these systems
However, the failure of these systems could interrupt our operations
In addition, a security breach of our computer systems could damage our reputation or result in liability
We retain confidential information regarding our business dealings in our computer systems
We may be required to spend significant capital and other resources to protect against security breaches or to alleviate problems caused by such breaches
It is critical that these facilities and infrastructure remain secure
Despite the implementation of security measures, this infrastructure may be vulnerable to physical break-ins, computer viruses, programming errors, attacks by third parties or similar disruptive problems
In addition, we could be subject to liability if hackers were able to penetrate our network security or otherwise misappropriate confidential information