The Hartford 2008 Annual Report Download - page 265

Table of Contents
The following table summarizes Property & Casualty’s limited partnerships and other alternative investments.
Composition of Limited Partnerships and Other Alternative Investments
December 31, 2008 December 31, 2007
Amount Percent Amount Percent
Hedge funds [1] $ 561 48.1% $ 728 57.8%
Mortgage and real estate [2] 292 25.1% 291 23.1%
Mezzanine debt [3] 61 5.2% 48 3.8%
Private equity and other [4] 252 21.6% 193 15.3%
Total $ 1,166 100.0% $ 1,260 100.0%
[1] Hedge funds include investments in funds of funds as well as direct funds. The hedge funds of funds invest in
approximately 25 to 50 different hedge funds within a variety of investment styles. Examples of hedge fund strategies
include long/short equity or credit, event driven strategies and structured credit.
[2] Mortgage and real estate funds consist of investments in funds whose assets consist of mortgage loans, participations
in mortgage loans, mezzanine loans or other notes which may be below investment grade credit quality as well as
equity real estate. Also included is the investment in a real estate joint venture.
[3] Mezzanine debt funds consist of investments in funds whose assets consist of subordinated debt that often times
incorporates equity-based options such as warrants and a limited amount of direct equity investments.
[4] Private equity and other funds primarily consist of investments in funds whose assets typically consist of a diversified
pool of investments in small non-public businesses with high growth potential.
Investment Results
The following table below summarizes Property & Casualty’s net investment income.
2008 2007 2006
(Before-tax) Amount Yield [1] Amount Yield [1] Amount Yield [1]
Fixed maturities [2] $ 1,418 5.4% $ 1,511 5.7% $ 1,386 5.5%
Equity securities,
available-for-sale 68 6.5% 50 6.0% 35 5.5%
Mortgage loans 40 5.5% 38 6.2% 16 5.6%
Limited partnerships and other
alternative investments (212) (15.5%) 140 14.5% 64 9.9%
Other [3] (36) — (27) — 9 —
Investment expense (25) — (25) — (24) —
Net investment income,
before-tax $ 1,253 4.4% $ 1,687 5.9% $ 1,486 5.5%
Net investment income,
after-tax [4] $ 921 3.2% $ 1,246 4.4% $ 1,107 4.1%
[1] Yields calculated using investment income before investment expenses divided by the monthly weighted average
invested assets at cost, amortized cost, or adjusted carrying value, as applicable excluding collateral received
associated with the securities lending program. Included in the fixed maturity yield is Other income (loss) as it
primarily relates to fixed maturities (see footnote [3] below). Included in the total net investment income yield is
investment expense.
[2] Includes net investment income on short-term bonds.
[3] Includes fees associated with securities lending activities of $30, $41 and $0, respectively, for the years ended
December 31, 2008, 2007 and 2006. The income from securities lending activities is included within fixed maturities.
Also included are derivatives that qualify for hedge accounting under SFAS 133. These derivatives hedge fixed
maturities.
[4] Due to significant holdings in tax-exempt investments, after-tax net investment income and yield are also included.
Year ended December 31, 2008 compared to the year ended December 31, 2007
Before-tax net investment income decreased $434, or 26%, and after-tax net investment income decreased $325, or 26%,
compared to the prior year period. The decrease in net investment income was primarily due to lower yield on variable rate
securities due to declines in short term interest rates, increased allocation to lower yielding U.S. Treasuries and short-term
investments, and a decrease in investment yield for limited partnership and other alternative investments. The decrease in
limited partnerships and other alternative investments yield was largely due to negative returns on hedge funds and real
estate partnerships as a result of the lack of liquidity in the financial markets and a wider credit spread environment. Based
Source: HARTFORD FINANCIAL S, 10-K, February 12, 2009