The Hartford 2008 Annual Report Download - page 269

Table of Contents
The following table represents when the borrowers can return the loaned securities to the Company and, in turn, when the
cash collateral would be returned to the borrower.
Cash Collateral
December 31, 2008
Thirty days or less $ 917
Thirty one to 90 days 838
Over three to six months 784
Over six to nine months 430
Over nine months to one year —
Total $ 2,969
Variable Interest Entities (“VIE”)
The Company is involved with variable interest entities primarily as a collateral manager and as an investor through normal
investment activities. The Company’s involvement includes providing investment management and administrative services
for a fee and holding ownership or other interests as an investor. The Company also has involvement with VIEs as a means
of accessing capital.
VIEs may or may not be consolidated on the Company’s consolidated financial statements. When the Company is the
primary beneficiary of the VIE, all of the assets and liabilities of the VIE are consolidated into the Company’s financial
statements. The Company also reports a liability for the portion of the VIE that represents the minority interest of other
investors in the VIE. When the Company concludes that it is not the primary beneficiary of the VIE, only the fair value of
the Company’s interest in the VIE is recorded in the Company’s financial statements.
As of December 31, 2007, HIMCO was the collateral manager of four VIEs with provisions that allowed for termination if
the fair value of the aggregate referenced bank loan portfolio declined below a stated level. These VIEs were market value
CLOs that invested in senior secured bank loans through total return swaps. Two of these market value CLOs were
consolidated, and two were not consolidated. During the first quarter of 2008, the fair value of the aggregate referenced bank
loan portfolio declined below the stated level in all four market value CLOs and the total return swap counterparties
terminated the transactions. Three of these CLOs were restructured from market value CLOs to cash flow CLOs without
market value triggers and the remaining CLO terminated in January 2009. The Company realized a capital loss of $90,
before-tax, from the termination of these CLOs. In connection with the restructurings, the Company purchased interests in
two of the resulting VIEs, one of which the Company is the primary beneficiary. These purchases resulted in an increase in
the Company’s maximum exposure to loss for both consolidated and non-consolidated VIEs.
At December 31, 2008 and 2007, the Company had relationships with five and seven VIEs, respectively, where the
Company was the primary beneficiary. The following table sets forth the carrying value of assets and liabilities, and the
Company’s maximum exposure to loss on these consolidated VIEs.
December 31, 2008 December 31, 2007
Maximum Maximum
Total Total Exposure Total Total Exposure
Assets Liabilities [1] to Loss [2] Assets Liabilities [1] to Loss
CLOs $ 339 $ 69 $ 257 $ 128 $ 47 $ 107
Limited partnerships 151 43 108 309 47 262
Other investments 249 59 221 377 71 317
Total $ 739 $ 171 $ 586 $ 814 $ 165 $ 686
[1] Creditors have no recourse against the Company in the event of default by the VIE.
[2] The Company’s maximum exposure to loss represents the maximum loss amount that the Company could recognize as
a reduction in net investment income or as a realized capital loss and is the consolidated assets net of liabilities at cost.
The Company has no implied or unfunded commitments to these VIEs.
CLOs represent one fund at December 31, 2008, which is a cash flow CLO financed by issuing debt in tranches of varying
seniority and is a VIE due to the lack of voting equity in the capital structure. The Company provides collateral management
services to the CLO and earns a fee for those services and also has investments in debt issued by the CLO. Taking those
interests into consideration, the Company has performed a quantitative analysis and determined that it will absorb a majority
of the expected losses or residual returns in the fund and as a result is the primary beneficiary. Consolidated assets are
classified in cash and fixed maturities and consolidated liabilities are classified in other liabilities. At December 31, 2007,
CLOs represent two market value CLOs, one of which converted to the cash flow CLO described above and the second
which terminated during the fourth quarter of 2008.
Source: HARTFORD FINANCIAL S, 10-K, February 12, 2009