The Hartford 2008 Annual Report Download - page 423

Table of Contents
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
5. Investments and Derivative Instruments (continued)
Securities Lending and Collateral Arrangements
The Company participates in securities lending programs to generate additional income, whereby certain domestic fixed
income securities are loaned for a specified period of time from the Company’s portfolio to qualifying third parties, via two
lending agents. Borrowers of these securities provide collateral of 102% of the market value of the loaned securities and can
return the securities to the Company for cash at varying maturity dates. Acceptable collateral may be in the form of cash or
U.S. government securities. The market value of the loaned securities is monitored and additional collateral is obtained if the
market value of the collateral falls below 100% of the market value of the loaned securities. Under the terms of securities
lending programs, the lending agent indemnifies the Company against borrower defaults. As of December 31, 2008 and
2007, the fair value of the loaned securities was approximately $2.9 billion and $4.3 billion, respectively, and was included
in fixed maturities and short-term investments in the consolidated balance sheets. As of December 31, 2008, the Company
had received collateral against the loaned securities in the amount of $3.0 billion. The Company earns income from the cash
collateral or receives a fee from the borrower. The Company recorded before-tax income from securities lending
transactions, net of lending fees, of $28 and $9 for the years ended December 31, 2008 and 2007, respectively, which was
included in net investment income.
The Company enters into various collateral arrangements in connection with its derivative instruments, which require both
the pledging and accepting of collateral. As of December 31, 2008 and 2007, collateral pledged having a fair value of
$1.0 billion and $508, respectively, was included in fixed maturities in the consolidated balance sheets.
From time to time, the Company enters into secured borrowing arrangements as a means to increase net investment income.
The Company received cash collateral of $89 and $121 as of December 31, 2008 and 2007, respectively.
The classification and carrying amount of the loaned securities and the derivative instrument collateral pledged at
December 31, 2008 and 2007 were as follows:
Loaned Securities and Collateral Pledged 2008 2007
ABS $ 12 $ 18
CMOs — 45
CMBS — 450
Corporate 2,395 3,164
MBS 410 492
Government/Government Agencies
Foreign 44 47
United States 402 650
Short-term 618 1
Preferred stock 10 77
Total $ 3,891 $ 4,944
As of December 31, 2008 and 2007, the Company had accepted collateral relating to securities lending programs and
derivative instruments consisting of cash, U.S. government and U.S. government agency securities with a fair value of
$6.9 billion and $5.0 billion, respectively. At December 31, 2008 and 2007, cash collateral of $6.3 billion and $4.8 billion,
respectively, was invested and recorded in the consolidated balance sheets in fixed maturities and short-term investments
with a corresponding amount predominately recorded in other liabilities. Included in this cash collateral was $3.4 billion and
$290 for derivative cash collateral as of December 31, 2008 and 2007, respectively. In accordance with FSP FIN 39-1, a
portion of the liability associated with the derivative cash collateral was reclassed out of other liabilities and into a
receivable in other assets of $574 and $175 as of December 31, 2008 and 2007, respectively. For further discussion on the
adoption of FSP FIN 39-1, see Note 1. The Company is only permitted by contract to sell or repledge the noncash collateral
in the event of a default by the counterparty. The Company incurred counterparty default losses related to the bankruptcy of
Lehman Brothers Holdings Inc. for the year ended December 31, 2008, and no counterparty default losses for the year ended
December 31, 2007. As of December 31, 2008 and 2007, noncash collateral accepted was held in separate custodial
accounts.
Securities on Deposit with States
The Company is required by law to deposit securities with government agencies in states where it conducts business. As of
December 31, 2008 and 2007, the fair value of securities on deposit was approximately $1.3 billion.
Source: HARTFORD FINANCIAL S, 10-K, February 12, 2009