The Hartford 2008 Annual Report Download - page 310

Table of Contents
HFSG and HLI are holding companies which rely upon operating cash flow in the form of dividends from their subsidiaries,
which enable them to service debt, pay dividends, and pay certain business expenses. Dividends to the Company from its
insurance subsidiaries are restricted. The payment of dividends by Connecticut-domiciled insurers is limited under the
insurance holding company laws of Connecticut. These laws require notice to and approval by the state insurance
commissioner for the declaration or payment of any dividend, which, together with other dividends or distributions made
within the preceding twelve months, exceeds the greater of (i) 10% of the insurer’s policyholder surplus as of December 31
of the preceding year or (ii) net income (or net gain from operations, if such company is a life insurance company) for the
twelve-month period ending on the thirty-first day of December last preceding, in each case determined under statutory
insurance accounting principles. In addition, if any dividend of a Connecticut-domiciled insurer exceeds the insurer’s earned
surplus, it requires the prior approval of the Connecticut Insurance Commissioner. The insurance holding company laws of
the other jurisdictions in which The Hartford’s insurance subsidiaries are incorporated (or deemed commercially domiciled)
generally contain similar (although in certain instances somewhat more restrictive) limitations on the payment of dividends.
It is estimated that the Company’s property-casualty insurance subsidiaries will be permitted to pay up to a maximum of
approximately $1.2 billion in dividends to HFSG in 2009 without prior approval from the applicable insurance
commissioner. Through at least October 30, 2009, substantially all dividend payments from the Company’s
property-casualty insurance subsidiaries will be subject to prior approval of the Connecticut Insurance Commissioner due to
extraordinary dividend limitations under the insurance holding company laws of Connecticut. With respect to dividends to
HLI, it is estimated that the Company’s life insurance subsidiaries’ non-extraordinary dividend limitation under the
insurance holding company laws of Connecticut is approximately $631 in 2009. However, because the life insurance
subsidiaries’ earned surplus is only approximately $597 as of December 31, 2008, the Company’s life insurance subsidiaries
will be permitted to pay dividends up to this amount to HLI in 2009 without prior approval from the applicable insurance
commissioner. In 2008, HFSG and HLI received a combined total of $2.8 billion from their insurance subsidiaries.
In June 2008, The Hartford’s Board of Directors authorized an incremental $1 billion stock repurchase program which was
in addition to the previously announced $2 billion program. The Company’s repurchase authorization permits purchases of
common stock, which may be in the open market or through privately negotiated transactions. The Company also may enter
into derivative transactions to facilitate future repurchases of common stock. The timing of any future repurchases will be
dependent upon several factors, including the market price of the Company’s securities, the Company’s capital position,
consideration of the effect of any repurchases on the Company’s financial strength or credit ratings, the Company’s potential
participation in the CPP, and other corporate considerations. The repurchase program may be modified, extended or
terminated by the Board of Directors at any time. As of December 31, 2008, The Hartford has completed the $2 billion stock
repurchase program and has $807 remaining for stock repurchase under the $1 billion repurchase program. For further
discussion of common stock acquired in 2008, refer to the Stockholders’ Equity section below.
Shelf Registrations
On April 11, 2007, The Hartford filed an automatic shelf registration statement (Registration No. 333-142044) for the
potential offering and sale of debt and equity securities with the Securities and Exchange Commission. The registration
statement allows for the following types of securities to be offered: (i) debt securities, preferred stock, common stock,
depositary shares, warrants, stock purchase contracts, stock purchase units and junior subordinated deferrable interest
debentures of the Company, and (ii) preferred securities of any of one or more capital trusts organized by The Hartford
(“The Hartford Trusts”). The Company may enter into guarantees with respect to the preferred securities of any of The
Hartford Trusts. In that The Hartford is a well-known seasoned issuer, as defined in Rule 405 under the Securities Act of
1933, the registration statement went effective immediately upon filing and The Hartford may offer and sell an unlimited
amount of securities under the registration statement during the three-year life of the shelf.
Contingent Capital Facility
On February 12, 2007, The Hartford entered into a put option agreement (the “Put Option Agreement”) with Glen Meadow
ABC Trust, a Delaware statutory trust (the “ABC Trust”), and LaSalle Bank National Association, as put option calculation
agent. The Put Option Agreement provides The Hartford with the right to require the ABC Trust, at any time and from time
to time, to purchase The Hartford’s junior subordinated notes (the “Notes”) in a maximum aggregate principal amount not to
exceed $500. Under the Put Option Agreement, The Hartford will pay the ABC Trust premiums on a periodic basis,
calculated with respect to the aggregate principal amount of Notes that The Hartford had the right to put to the ABC Trust
for such period. The Hartford has agreed to reimburse the ABC Trust for certain fees and ordinary expenses. The Company
holds a variable interest in the ABC Trust where the Company is not the primary beneficiary. As a result, the Company did
not consolidate the ABC Trust, as they did not meet the consolidation requirements under FASB Interpretation No. 46
(revised December 2003), “Consolidation of Variable Interest Entities, an interpretation of ARB No. 51” (“FIN 46(R)”).
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Source: HARTFORD FINANCIAL S, 10-K, February 12, 2009