The Hartford 2008 Annual Report Download - page 281

Table of Contents
The Company’s investment sector allocations as a percentage of total fixed maturities have significantly changed since
December 31, 2007 primarily due to efforts to reallocate the portfolio to higher quality, risk averse assets, such as U.S.
government/government agencies, and recession resistant sectors, such as consumer non-cyclical, while reducing its
exposure to CMBS, financial services and consumer cyclical sectors.
The available-for-sale net unrealized loss position increased $12.5 billion since December 31, 2007 primarily as a result of
credit spread widening, partially offset by declining interest rates and impairments. Credit spreads widened primarily due to
continued deterioration in the U.S. housing market, tightened lending conditions and the market’s flight to quality securities,
as well as, a U.S. recession and a declining global economy. Despite steps taken by the government to stabilize the financial
system, liquidity and confidence in the markets have not yet been restored. The sectors most significantly impacted include
financial services, residential and commercial mortgage backed investments, and consumer loan backed investments. The
following sections illustrate the Company’s holdings and provide commentary on these sectors.
Financial Services
Financial companies remain under significant stress driven initially by the housing market collapse which led to massive
asset write-downs, an inability to source capital, funding pressure and a loss of confidence in the financial system.
Numerous government initiatives were put forth over the course of 2008 to address the seizure in the financial and capital
markets, including the injection of capital into financial institutions through the Treasury’s Capital Purchase Program, and
the establishment of the FDIC Temporary Liquidity Guarantee Program (“TLGP”) whereby the FDIC guarantees newly
issued unsecured debt for participating institutions. While the government’s efforts have provided some stability, financial
institutions remain vulnerable to ongoing asset write-downs, increasing credit losses associated with a deteriorating
economy, weak earnings prospects, and potentially the need for additional capital if losses further weaken current capital
positions.
The Company has exposure to the financial services sector predominantly through banking, insurance and finance firms. A
comparison of fair value to amortized cost is not indicative of the pricing of individual securities as rating downgrades and
impairments have occurred. The following table represents the Company’s exposure to the financial services sector included
in the corporate and equity securities, available-for-sale lines in the Consolidated Available-for-Sale Securities by Type
table above. Of the Company’s $7.9 billion on a fair value basis, $3.4 billion is senior debt, $1.9 billion is subordinate and
Tier 2 holdings and $2.6 billion is Tier 1 and preferred exposure. The Company’s exposure to European financial
institutions comprises $702 of senior debt, $816 of subordinate and Tier 2 holdings and $875 of Tier 1 and preferred
holdings.
Financial Services by Credit Quality
December 31, 2008 December 31, 2007
Percent of Percent of
Amortized Total Fair Amortized Total Fair
Cost Fair Value Value Cost Fair Value Value
AAA $ 728 $ 628 7.9% $ 635 $ 614 4.8%
AA 2,067 1,780 22.5% 4,141 4,008 31.5%
A 5,479 4,606 58.1% 6,755 6,525 51.3%
BBB 1,015 816 10.3% 1,378 1,283 10.1%
BB & below 106 93 1.2% 306 289 2.3%
Total $ 9,395 $ 7,923 100.0% $ 13,215 $ 12,719 100.0%
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Source: HARTFORD FINANCIAL S, 10-K, February 12, 2009