The Hartford 2008 Annual Report Download - page 412

Table of Contents
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
5. Investments and Derivative Instruments (continued)
The following table summarizes the derivative instruments used by the Company and the primary hedging strategies to
which they relate. Derivatives in the Company’s separate accounts are not included because the associated gains and losses
accrue directly to policyholders. The notional amount of derivative contracts represents the basis upon which pay or receive
amounts are calculated and are not reflective of credit risk. The fair value amounts of derivative assets and liabilities are
presented on a net basis as of December 31, 2008 and 2007. The total ineffectiveness of all cash-flow, fair-value and net
investment hedges and total change in value of other derivative-based strategies which do not qualify for hedge accounting
treatment, including periodic derivative net coupon settlements, (“non-qualifying strategies”) are presented below on a
before-tax basis for the years ended December 31, 2008 and 2007.
Hedge
Ineffectiveness,
Notional Amount Fair Value Before-tax
Hedging Strategy 2008 2007 2008 2007 2008 2007
Cash-Flow Hedges
Interest rate swaps
Interest rate swaps are primarily used
to convert interest receipts on
floating-rate fixed maturity
securities to fixed rates. These
derivatives are predominantly
used to better match cash receipts
from assets with cash
disbursements required to fund
liabilities.
The Company also enters into
forward starting swap agreements
to hedge the interest rate
exposure related to the purchase
of fixed-rate securities or the
anticipated future cash flows of
floating-rate fixed maturity
securities due to changes in the
benchmark interest rate,
London-Interbank Offered Rate
(“LIBOR”). These derivatives are
primarily structured to hedge
interest rate risk inherent in the
assumptions used to price certain
liabilities.
Interest rate swaps are also used to
hedge a portion of the
Company’s floating-rate
guaranteed investment contracts.
These derivatives convert the
floating-rate guaranteed
investment contract payments to
a fixed rate to better match the
cash receipts earned from the
supporting investment portfolio.
$ 9,030 $ 5,049 $ 640 $ 113 $ 9 $ 3
Foreign currency swaps
Foreign currency swaps are used to
convert foreign denominated cash
flows associated with certain
foreign denominated fixed
maturity investments to U.S.
dollars. The foreign fixed
maturities are primarily
denominated in euros and are
swapped to minimize cash flow
fluctuations due to changes in
currency rates. In addition,
foreign currency swaps are also
used to convert foreign
denominated cash flows
associated with certain liability
payments to U.S. dollars in order
to minimize cash flow
fluctuations due to changes in
1,210 1,588 (7) (318) — (2)
Source: HARTFORD FINANCIAL S, 10-K, February 12, 2009