The Hartford 2008 Annual Report Download - page 347

Table of Contents
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. Basis of Presentation and Accounting Policies (continued)
Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements
No. 87, 88, 106 and 132(R)
In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other
Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132(R)” (“SFAS 158”). This statement
requires an entity to: (a) recognize an asset for the funded status, measured as the difference between the fair value of plan
assets and the benefit obligation, of defined benefit postretirement plans that are overfunded and a liability for plans that are
underfunded, measured as of the employer’s fiscal year end; and (b) recognize changes in the funded status of defined
benefit postretirement plans, other than for the net periodic benefit cost included in net income, in accumulated other
comprehensive income, net of tax (“AOCI”). For pension plans, the funded status must be based on the projected benefit
obligation which includes an assumption for future salary increases. The provisions of FASB Statement No. 87,
“Employers’ Accounting for Pensions” (“SFAS 87”) and FASB Statement No. 106, “Employers’ Accounting for
Postretirement Benefits Other Than Pensions” in measuring plan assets and benefit obligations and in determining the
amount of net periodic benefit cost continue to apply upon initial and subsequent application of SFAS 158. SFAS 158 is
effective for public entities with years ending after December 15, 2006, with certain exceptions not applicable to The
Hartford, through an adjustment to the ending balance of AOCI. As of December 31, 2006, the effect of adopting SFAS 158
was a decrease of $717 in the net defined benefit postretirement plan asset and a corresponding after-tax decrease of $466 in
the accumulated other comprehensive income component of equity. Because the Company recorded a decrease of $560, net
of tax, in its additional minimum liability adjustment related to its pension plans, the balance sheet change was an increase
of $145 in the net defined benefit postretirement plan asset and a corresponding after-tax increase of $94 in the accumulated
other comprehensive income component of equity.
Accounting by Insurance Enterprises for Deferred Acquisition Costs (“DAC”) in Connection with Modifications or
Exchanges of Insurance Contracts
In September 2005, the American Institute of Certified Public Accountants (“AICPA”) issued Statement of Position 05-1,
“Accounting by Insurance Enterprises for Deferred Acquisition Costs (“DAC”) in Connection with Modifications or
Exchanges of Insurance Contracts” (“SOP 05-1”). SOP 05-1 provides guidance on accounting by insurance enterprises for
DAC on internal replacements of insurance and investment contracts. An internal replacement is a modification in product
benefits, features, rights or coverages that occurs by the exchange of a contract for a new contract, or by amendment,
endorsement, or rider to a contract, or by the election of a feature or coverage within a contract. Modifications that result in a
replacement contract that is substantially changed from the replaced contract should be accounted for as an extinguishment
of the replaced contract. Unamortized DAC, unearned revenue liabilities and deferred sales inducements from the replaced
contract must be written-off. Modifications that result in a contract that is substantially unchanged from the replaced
contract should be accounted for as a continuation of the replaced contract. The Company adopted SOP 05-1 on January 1,
2007 and recognized the cumulative effect of the adoption of SOP 05-1 as a reduction in retained earnings of $53, after-tax.
Future Adoption of New Accounting Standards
Equity Method Investment Accounting Considerations
In November 2008, the FASB issued EITF 08-6, “Equity Method Investment Accounting Considerations” (“EITF 08-6”).
EITF 08-6 addresses the effects of the issuances of SFAS 141(R) and SFAS 160 on the application of the equity method
under Accounting Principles Board (“APB”) Opinion 18, “The Equity Method of Accounting for Investments in Common
Stock” EITF 08-6 requires that (a) an entity determine the initial carrying value of an equity method investment by applying
the cost accumulation model; (b) an entity shall use the other than temporary impairment model of APB Opinion 18;
however, investors should adjust any impairments’ recorded by an investee for existing differences between the investor’s
basis and the underlying investees’ basis in such impaired assets; (c) share issuances by an investee should be accounted for
as if the equity method investor had sold a proportionate share of its investment; and (d) when an investment is no longer
within the scope of equity method accounting and instead is within the scope of cost method accounting or SFAS 115,
“Accounting for Certain Investments in Debt and Equity Securities” (“SFAS 115”), the investor should prospectively apply
the provisions of APB Opinion 18 or SFAS 115 and use the current carrying amount of the investment as its initial cost. The
EITF is effective on a prospective basis in fiscal years beginning on or after December 15, 2008 and interim periods within
those fiscal years, consistent with the effective dates of SFAS No. 141(R) and SFAS No. 160. The adoption of EITF 08-6 on
January 1, 2009 did not have a material effect on the Company’s consolidated financial statements.
F-10
Source: HARTFORD FINANCIAL S, 10-K, February 12, 2009