The Hartford 2008 Annual Report Download - page 309

Table of Contents
CAPITAL RESOURCES AND LIQUIDITY
Capital resources and liquidity represent the overall financial strength of The Hartford and its ability to generate strong cash
flows from each of the business segments, borrow funds at competitive rates and raise new capital to meet operating and
growth needs.
Liquidity Requirements
The liquidity requirements of The Hartford have been and will continue to be met by funds from operations as well as the
issuance of commercial paper, common stock, debt or other capital securities and borrowings from its contingent capital
facility and credit facilities. Current and expected patterns of claim frequency and severity may change from period to period
but continue to be within historical norms and, therefore, the Company’s current liquidity position is considered to be
sufficient to meet anticipated demands over the next twelve months. However, if an unanticipated demand were placed on
the Company it is likely that the Company would either sell certain of its investments to fund claims which could result in
larger than usual realized capital gains and losses, would enter the capital markets to raise further funds to provide the
requisite liquidity or take other actions. For a discussion and tabular presentation of the Company’s current contractual
obligations by period including those related to its Life and Property & Casualty insurance operations refer to the
Off-Balance Sheet Arrangements and Aggregate Contractual Obligations section below. Also see Item 1A, Risk Factors.
Sources of Capital
The Hartford endeavors to maintain a capital structure that provides financial and operational flexibility to its insurance
subsidiaries, ratings that support its competitive position in the financial services marketplace (see the “Ratings” section
below for further discussion), and strong shareholder returns. As a result, the Company may from time to time raise capital
from the issuance of stock, debt or other capital securities and is continuously evaluating strategic opportunities. The
issuance of common stock, debt or other capital securities could result in the dilution of shareholder interests or reduced net
income due to additional interest expense.
The principal sources of operating funds are premiums and investment income, while investing cash flows originate from
maturities and sales of invested assets. The primary uses of funds are to pay claims, policy benefits, operating expenses and
commissions and to purchase new investments. In addition, The Hartford holds a significant short-term investment position
to meet liquidity needs. As of December 31, 2008 and 2007, HFSG held total fixed maturity investments of $1.6 billion and
$457, respectively, of which $1.5 billion and $154 were short-term investments, respectively. The funds are intended to be
used for general corporate purposes, which may include the capital and liquidity needs of our operations. For a discussion of
the Company’s investment objectives and strategies, see the Investments and Capital Markets Risk Management sections.
As of December 31, 2008, the Company’s key sources of liquidity included $11.8 billion of cash and short-term investments
(which includes securities with maturities of one year or less at the time of purchase), of which $3.4 billion was collateral
received from, and held on behalf of, derivative counterparties and $341 was collateral pledged to derivative counterparties.
The Company also held $6.0 billion of treasury securities, of which $402 had been pledged to derivative counterparties.
On November 14, 2008, the Company announced that it applied to participate in the U.S. Treasury Department’s Capital
Purchase Program (“CPP”). In conjunction with this application, the Company also applied to the Office of Thrift
Supervision (“OTS”) to become a savings and loan holding company and signed a merger agreement to acquire the parent
company of Federal Trust Bank (“FTB”), a federally chartered, FDIC-insured savings bank. Federal Trust Bank is owned by
Federal Trust Corporation, a unitary thrift holding company headquartered in Sanford, Florida. The completion of this
acquisition will satisfy a key eligibility requirement for participation in the CPP. On January 9, 2009, the Office of Thrift
Supervision approved the Company’s application to become a savings and loan holding company and on January 26, 2009,
Federal Trust Corporation’s shareholders approved the acquisition. The Company’s purchase of Federal Trust Corporation
remains contingent on the U.S. Treasury’s approval of the Company’s participation in the CPP. The Company estimates
that, if approved for participation in the CPP, it would be eligible for a capital purchase of between $1.1 billion and
$3.4 billion under existing Treasury guidelines. The final amount of capital requested will be determined following approval
by Treasury. Because the Company’s application to participate in the CPP is subject to approval by the U.S. Treasury, there
can be no assurance that the Company will participate in the CPP or that it will not need to pursue alternate sources of
capital. In addition, if we consummate the acquisition of FTB, we have agreed with OTS to contribute approximately $100
to the capital of FTB and to serve as a source of strength to FTB, which could require the contribution of additional capital
to FTB in the future.
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Source: HARTFORD FINANCIAL S, 10-K, February 12, 2009