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1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2010
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ______________
Commission file number 001-13958
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3317783
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Hartford Plaza, Hartford, Connecticut 06155
(Address of principal executive offices) (Zip Code)
(860) 547-5000
(Registrant’ s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: the following, all of which are listed on the New York Stock Exchange, Inc.
Common Stock, par value $0.01 per share
Depositary shares, representing interests in 7.25% Mandatory Convertible Preferred Stock, Series F, par value $0.01 per share
Warrants (expiring June 26, 2019)
6.10% Notes due October 1, 2041
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [X] No [ ]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes [ ] No [X]
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes [ ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant’ s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer [X] Accelerated filer [ ] Non-accelerated filer [ ] Smaller Reporting Company [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
The aggregate market value of the shares of Common Stock held by non-affiliates of the registrant as of June 30, 2010 was approximately $9.8 billion,
based on the closing price of $22.13 per share of the Common Stock on the New York Stock Exchange on June 30, 2010.
As of February 18, 2011, there were outstanding 444,734,147 shares of Common Stock, $0.01 par value per share, of the registrant.
Documents Incorporated by Reference
Portions of the registrant’ s definitive proxy statement for its 2011 annual meeting of shareholders are incorporated by reference in Part III of this Form
10-K.

Table of contents

  • Page 1
    ... file number 001-13958 THE HARTFORD FINANCIAL SERVICES GROUP, INC. (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) One Hartford Plaza, Hartford, Connecticut 06155 (Address of principal executive offices) (Zip Code) (860...

  • Page 2
    ..., Executive Officers and Corporate Governance of The Hartford...Executive Compensation...Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters...Certain Relationships and Related Transactions, and Director Independence...Principal Accounting Fees and Services...

  • Page 3
    ... rates, credit spreads, equity prices, foreign exchange rates, and implied volatility levels, as well as uncertainty in key sectors such as the global real estate market, that continued to pressure our results in 2010; volatility in our earnings resulting from our adjustment of our risk management...

  • Page 4
    ... and/or risk-based capital requirements related to secondary guarantees under universal life and variable annuity products; the Company' s ability to distribute its products through distribution channels, both current and future; the uncertain effects of emerging claim and coverage issues; the...

  • Page 5
    ... divisions Commercial Markets, Consumer Markets, and Wealth Management. In 2010, the Company announced the sale of two businesses that are not core to its focus and strategy: its Canadian mutual fund business, Hartford Investments Canada Corporation, and Specialty Risk Services, LLC, a third-party...

  • Page 6
    ... the insurer's short- and long-term group disability and workers' compensation insurance with its leave management administration services. Marketing and Distribution Standard commercial lines provide insurance products and services through the Company' s home office located in Hartford, Connecticut...

  • Page 7
    ... Hartford competes against a number of large national carriers, as well as regional competitors in certain territories. Competitors include other stock companies, mutual companies and other underwriting organizations. The small commercial market has become increasingly competitive as favorable loss...

  • Page 8
    ... loss experience but also lower average premiums. Wealth Management The Wealth Management division consists of the following reporting segments: Global Annuity, Life Insurance, Retirement Plans and Mutual Funds. Wealth Management provides investment products for over 7 million customers and life...

  • Page 9
    ... case market; financial advisors that work with individual investors; investment banking and wealth management specialists; benefits consulting firms; investment consulting firms employed by retirement plan sponsors; and The Hartford employees. Retirement Plans distribution network includes Company...

  • Page 10
    ... Credit Risk Section of the MD&A. In addition to managing the general account assets of the Company, HIMCO is also a SEC registered investment adviser for third party institutional clients, a sub-advisor for certain mutual funds and serves as the sponsor and collateral manager for capital markets...

  • Page 11
    ...ERCC"), which includes the Company' s Chief Executive Officer ("CEO"), Chief Risk Officer, Chief Financial Officer, Chief Investment Officer, the Presidents and Chief Operating Officers of Commercial Markets, Consumer Markets, and Wealth Management and the Company' s General Counsel. The ERCC, which...

  • Page 12
    ... faced with greater restrictions than domestic competitors domiciled in that particular jurisdiction. The Hartford' s international operations are comprised of insurers licensed in their respective countries. In 2009, the Company acquired Federal Trust Corporation, a thrift holding company, and as...

  • Page 13
    ..., foreign currency exchange rates and global real estate market deterioration. One important exposure to equity risk relates to the potential for lower earnings associated with certain of our wealth management businesses, such as variable annuities, where fee income is earned based upon the fair...

  • Page 14
    ... market liquidity and higher risk premiums. This could result in impairments of real estate backed securities, a reduction in net investment income associated with real estate partnerships, and increases in our valuation allowance for mortgage loans. Significant declines in equity prices, changes...

  • Page 15
    ... annuities that contain death benefits or certain living benefits. The RBC formula for property and casualty companies adjusts statutory surplus levels for certain underwriting, asset, credit and off-balance sheet risks. In any particular year, statutory surplus amounts and RBC ratios may increase...

  • Page 16
    ... that vary by property type and location and average cumulative collateral loss rates that vary by vintage year; • other subjective factors, including concentrations and information obtained from regulators and rating agencies; • our intent to sell a debt or an equity security with debt-like...

  • Page 17
    ...DAC and increase reserves for guaranteed minimum death and income benefits, which could have a material adverse effect on our results of operations and financial condition. The Company defers acquisition costs associated with the sales of its universal and variable life and variable annuity products...

  • Page 18
    ... adverse effect on our operating results, financial condition and liquidity. We continue to receive asbestos and environmental claims. Significant uncertainty limits the ability of insurers and reinsurers to estimate the ultimate reserves necessary for unpaid losses and related expenses for both...

  • Page 19
    ...firms, investment advisers, mutual funds, banks and other financial institutions. In recent years, there has been substantial consolidation and convergence among companies in the insurance and financial services industries resulting in increased competition from large, well-capitalized insurance and...

  • Page 20
    ... of care for investment advisers and broker-dealers who provide personalized advice about securities to retail customers; additional regulation of compensation in the financial services industry; and enhancements to corporate governance, especially regarding risk management. The changes resulting...

  • Page 21
    ... on marketing and sales practices, distribution arrangements and payment of inducements; establishing statutory capital and reserve requirements and solvency standards; fixing maximum interest rates on insurance policy loans and minimum rates for guaranteed crediting rates on life insurance policies...

  • Page 22
    ... the principal source of cash flow to meet our obligations. These obligations include payments on our debt securities and the payment of dividends on our capital stock. The Connecticut insurance holding company laws limit the payment of dividends by Connecticut-domiciled insurers. In addition, these...

  • Page 23
    ..., without limitation, providing insurance quotes, processing premium payments, making changes to existing policies, filing and paying claims, administering variable annuity products and mutual funds, providing customer support and managing our investment portfolios and hedging programs. Systems...

  • Page 24
    ...loss to us that could adversely affect our businesses. Our business performance is highly dependent on our ability to manage risks that arise from a large number of day-to-day business activities, including insurance underwriting, claims processing, servicing, investment, financial and tax reporting...

  • Page 25
    ... the other related to alleged conduct in connection with the sale of group benefits products. The Company and various of its subsidiaries are named in both complaints. The complaints assert, on behalf of a putative class of persons who purchased insurance through broker defendants, claims under the...

  • Page 26
    ... that Hartford Investment Financial Services, LLC received excessive advisory and distribution fees in violation of its statutory fiduciary duty under Section 36(b) of the Investment Company Act of 1940. Plaintiff seeks to rescind the investment management agreements and distribution plans between...

  • Page 27
    ....12(a) of the NYSE' s Listed Company Manual. There are also various legal and regulatory limitations governing the extent to which The Hartford' s insurance subsidiaries may extend credit, pay dividends or otherwise provide funds to The Hartford Financial Services Group, Inc. as discussed in Part II...

  • Page 28
    ... Hartford' s annual percentage return and five-year total return on its common stock including reinvestment of dividends in comparison to the S&P 500 and the S&P Insurance Composite Index. Annual Return Percentage Company/Index The Hartford Financial Services Group, Inc. S&P 500 Index S&P Insurance...

  • Page 29
    ... Total revenues Benefits, losses and loss adjustment expenses Benefits, losses and loss adjustment expenses - returns credited on international variable annuities Amortization of deferred policy acquisition costs and present value of future profits Insurance operating costs and other expenses 2009...

  • Page 30
    ...Hartford' s Operations Overview ...Key Performance Measures and Ratios...Property & Casualty Commercial ...Group Benefits ...Consumer Markets ...Global Annuity...Life Insurance...Retirement Plans ...Mutual Funds ...Corporate and Other ...Insurance Risk Management ...Investment Credit Risk Management...

  • Page 31
    ... Group Benefits 2010 2009 $ Commercial Markets Consumer Markets Global Annuity Life Insurance Retirement Plans Mutual Funds 995 185 1,180 143 404 262 47 132 845 (488) 1,680 $ 899 $ 193 1,092 140 (1,166) 39 (222) 34 (1,315) 2008 133 (6) 127 102 (2,287) (19) (157) 37 (2,426) Wealth Management...

  • Page 32
    ... Company including payments from its separate account assets. The separate account foreign tax credit is estimated for the current year using information from the most recent filed return, adjusted for the change in the allocation of separate account investments to the international equity markets...

  • Page 33
    ... continued direct marketing to AARP members, marketing to households associated with other affinity groups, expanding the sale of the Open Road Advantage auto product through independent agents and introducing an enhanced homeowners product called Hartford Home Advantage. The Company distributes its...

  • Page 34
    ... performance and creating new investment solutions for current and future mutual fund shareholders. Wealth Management will increase future sales of its Life Insurance products by implementing strategies to expand distribution capabilities, including utilizing independent agents and continuing to...

  • Page 35
    ...in the case of claims-made policies, the calendar year in which a loss is reported. Reserve estimates can change over time because of unexpected changes in the external environment. Potential external factors include (1) changes in the inflation rate for goods and services related to covered damages...

  • Page 36
    ... quarter, including loss and loss adjustment expense reserves for property, auto physical damage, auto liability, package business, workers' compensation, most general liability, professional liability and fidelity and surety. Other reserves are reviewed semi-annually (twice per year) or annually...

  • Page 37
    ... Company has discounted liabilities funded through structured settlements and has discounted certain reserves for indemnity payments due to permanently disabled claimants under workers' compensation policies. Provided below is a general discussion of which methods are preferred by line of business...

  • Page 38
    ... health care reform will impact medical payments in workers' compensation. These changes increase the uncertainty in the application of development patterns. In addition, over the past several accident years, the Company has experienced favorable claim frequency on workers' compensation claims...

  • Page 39
    ...business (such as workers' compensation) and, therefore, less volatile. However, the size of the reserve base means that future changes in estimates could be material to the Company' s results of operations in any given period. The key indicator for Consumer Markets auto liability is the annual loss...

  • Page 40
    ... of management, based upon the known facts and current law, the reserves recorded for the Company' s property and casualty businesses at December 31, 2010 represent the Company' s best estimate of its ultimate liability for losses and loss adjustment expenses related to losses covered by policies...

  • Page 41
    ... Payments Ending liabilities for unpaid losses and loss adjustment expenses, net Reinsurance and other recoverables Ending liabilities for unpaid losses and loss adjustment expenses, gross Earned premiums Loss and loss expense paid ratio [1] Loss and loss expense incurred ratio Prior accident years...

  • Page 42
    ... following reserve strengthenings (releases): For the year ended December 31, 2010 Property & Casualty Consumer Commercial Markets Auto liability $ (54) $ (115) Professional liability (88) - Workers' compensation (70) - General liability, umbrella and high hazard liability (66) - General liability...

  • Page 43
    ... 31, 2009 Property & Casualty Consumer Commercial Markets Auto liability $ (47) $ (77) Professional liability (127) - General liability, umbrella and high hazard liability (112) - Workers' compensation (92) - Package business 38 - Fidelity and surety 28 - Homeowners - 18 Net environmental reserves...

  • Page 44
    ... reserves for general liability claims, primarily related to accident years 2003 to 2007. Beginning in the third quarter of 2007, the Company observed that reported losses for high hazard and umbrella general liability claims, primarily related to the 2001 to 2006 accident years, were emerging...

  • Page 45
    ... earns a fee for collecting premiums and processing claims. Under the program, the Company services both personal lines and commercial lines flood insurance policies and does not assume any underwriting risk. As a result, catastrophe losses in the above table do not include any losses related to the...

  • Page 46
    ...-contractual liability claims under non-standard personal auto policies - (24) Construction defect claims (10) - National account general liability allocated loss adjustment expense reserves 25 - Net environmental reserves - - Net asbestos reserves - - Discount accretion on workers' compensation 26...

  • Page 47
    ... reserves for allocated loss adjustment expenses on national account general liability claims. Allocated loss adjustment expense reserves on general liability excess and umbrella claims were strengthened for accident years 2004 and prior as the Company observed that the cost of settling these claims...

  • Page 48
    ...net carried reserve would last (i.e. survive) if the future annual claim payments were consistent with the calculated historical average. For paid and incurred losses and loss adjustment expenses reporting, the Company classifies its asbestos and environmental reserves into three categories: Direct...

  • Page 49
    ...' s Bermuda operations. During the third quarters of 2010, 2009 and 2008, the Company completed its annual ground up environmental reserve evaluations. In each of these evaluations, the Company reviewed all of its open direct domestic insurance accounts exposed to environmental liability as well as...

  • Page 50
    ... year gross survival ratio of 6.8. During the second quarters of 2010, 2009 and 2008, the Company completed its annual ground-up asbestos reserve evaluations. As part of these evaluations, the Company reviewed all of its open direct domestic insurance accounts exposed to asbestos liability, as well...

  • Page 51
    ...three years of payments. The ratio is the calculated number of years the recorded reserves would survive if future annual payments were equal to the average annual payments for the past three years. The 3-year gross survival ratio of 7.5 as of December 31, 2010 is computed based on total paid losses...

  • Page 52
    ... for variability in recorded loss reserves. Property & Casualty Commercial Range of prior accident year unfavorable (favorable) development for the ten years ended December 31, 2010 [1] [2[ Consumer Markets Corporate and Other Total Property and Casualty Insurance (3.1) - 1.5 (5.2) - 5.1 2.9 - 67...

  • Page 53
    ... on excess of loss business, and the impact of deteriorating terms and conditions. Workers' compensation reserves also deteriorated, as medical inflation trends were above initial expectations. The reserve re-estimates in calendar year 2003 include an increase in reserves of $2.6 billion related to...

  • Page 54
    ...losses for high hazard and umbrella general liability claims. Reserves for professional liability claims were released in 2008 and 2009 related to the 2003 through 2007 accident years due to a lower estimate of claim severity on both directors' and officers' insurance claims and errors and omissions...

  • Page 55
    ...other insurance benefit features on variable annuity and universal life-type contracts. See Note 9 of the Notes to Consolidated Financial Statements for additional information on death and other insurance benefit reserves. As of December 31, 2010 and 2009 the most significant EGP based balances that...

  • Page 56
    ... by hedging, annuitization estimates on Japan products, and long-term expected rate of return updates. For the year ended December 31, 2009: Segment After-tax (charge) benefit Global Annuity Life Insurance Retirement Plans Corporate and Other Total Death and Other Insurance Benefit Reserves (368...

  • Page 57
    ..., the level of the Company' s own share price and assumptions that market participants would make in valuing the reporting unit. Other assumptions include levels of economic capital, future business growth, earnings projections, assets under management for Wealth Management reporting units and the...

  • Page 58
    ... 15 $ 1,051 $ Hartford Financial Products within Property & Casualty Commercial Group Benefits Consumer Markets Individual Life within Life Insurance Retirement Plans Mutual Funds Federal Trust Corporation within Corporate and Other Total As of December 31, 2009, the Company had goodwill allocated...

  • Page 59
    ... certain health care and life insurance benefits for eligible retired employees. The Company maintains international plans which represent an immaterial percentage of total pension assets, liabilities and expense and, for reporting purposes, are combined with domestic plans. Pursuant to accounting...

  • Page 60
    ...discount rate will increase pension expense by approximately $15 and a 25 basis point change in the long-term asset return assumption will increase/decrease pension expense by approximately $10. The Company uses a five-year averaging method to determine the market-related value of Plan assets, which...

  • Page 61
    ... variable universal life products and from mutual funds. Cost of insurance charges are assessed on the net amount at risk for investment-oriented life insurance products. Service fees principally include revenues from third party claims administration services and revenues from member contact center...

  • Page 62
    ... ratios Account Value Account value includes policyholders' balances for investment contracts and reserves for future policy benefits for insurance contracts. Account value is a measure used by the Company because a significant portion of the Company' s fee income is based upon the level of account...

  • Page 63
    ... business as buyouts may distort the loss ratio. Among other factors, the loss and loss adjustment expense ratio needed for the Company to achieve its targeted return on equity fluctuates from year to year based on changes in the expected investment yield over the claim settlement period, the timing...

  • Page 64
    ... those related to the Company' s GMWB product and related reinsurance and hedging programs), and the related crediting rates on average general account assets under management. The net investment spreads are for the total portfolio of relevant contracts in each segment and reflect business written...

  • Page 65
    ... gains and losses on net periodic settlements on the Japan fixed annuity cross-currency swap. These net realized gains and losses are directly related to an offsetting item included in the statement of operations, such as net investment income. DAC Unlocks occur when the Company determines based on...

  • Page 66
    ... auto liability loss costs relative to average premium. The current accident year loss and loss adjustment expense ratio before catastrophes for home increased 0.7 points primarily due to an increase in loss adjustment expenses, partially offset by the effect of earned pricing increases. 2010...

  • Page 67
    ...key indicator of overall profitability for the Global Annuity, Retirement Plans and Mutual Funds reporting segments as a significant portion of their earnings is based on average assets under management. Ratios Global Annuity [1] ROA Effect of net realized losses, net of tax and DAC on ROA Effect of...

  • Page 68
    ... for the Life Insurance and Group Benefits reporting segments as a significant portion of their earnings are a result of the net margin from losses incurred on earned premiums, fees and other considerations. 2010 Life Insurance After-tax margin Effect of net realized gains (losses), net of tax...

  • Page 69
    ... variable annuity product. Total net investment income, excluding equity securities, trading, increased primarily due to improved performance of limited partnerships and other alternative investments primarily within real estate and private equity funds, partially offset by lower income on fixed...

  • Page 70
    ...GMWB derivatives, net Macro hedge program Total results of variable annuity hedge program Other, net [2] Net realized capital losses, before-tax adjustment for changes in the dollar/yen exchange spot rate. [2] Primarily consists of losses on Japan 3Win related foreign currency swaps, changes in fair...

  • Page 71
    ... market volatility and a general increase in long-term interest rates, partially offset by rising equity markets. Increasing equity markets resulted in a loss of $895 related to the Company' s macro hedge program. Total gains related to GMWB hedging in 2009 were $1.5 billion. For further information...

  • Page 72
    ...accident year catastrophes Prior accident years Total losses and loss adjustment expenses Amortization of deferred policy acquisition costs Insurance operating costs and expenses Underwriting results Net servicing income Net investment income Net realized capital gains (losses) Other expenses Income...

  • Page 73
    ...higher severity on package business and workers' compensation, as well as an increased ratio for specialty casualty. Current accident year catastrophe losses in 2010 were higher than in 2009 primarily due to more severe windstorm events, particularly from hail in the West, Midwest, plains states and...

  • Page 74
    ... number of policies in-force increased in 2009, as the growth in policies in-force does not correspond directly with the change in earned premiums due to the effect of changes in earned pricing and changes in the average premium per policy. Current accident year losses and loss adjustment expenses...

  • Page 75
    ... Credit Risk section of the MD&A. The segment' s loss ratio increased primarily due to unfavorable morbidity experience, which was primarily due to unfavorable reserve development from the 2008 incurral loss year and higher new incurred long term disability claims in 2009. In addition, premiums...

  • Page 76
    ... policy acquisition costs Insurance operating costs and expenses Underwriting results Net servicing income Net investment income Net realized capital gains (losses) Other expenses Income before income taxes Income tax expense Net income Written Premiums Product Line Automobile Homeowners Total...

  • Page 77
    ... of the Company' s non-renewal of Florida homeowners' agency business in 2009. Compared to 2009, the number of policies in-force as of 2010 decreased for both auto and home, driven by the decreases in policy retention and new business. Current accident year losses and loss adjustment expenses before...

  • Page 78
    ... auto liability reserves. For additional information on prior accident year reserve development, see the Property and Casualty Insurance Product Reserves, Net of Reinsurance section within Critical Accounting Estimates. The expense ratio increased due largely to higher amortization of deferred...

  • Page 79
    ... Equity securities, trading [1] Total net investment income (loss) Net realized capital losses Total revenues Benefits, losses and loss adjustment expenses Benefits, losses and loss adjustment expenses - returns credited on international variable annuities [1] Amortization of DAC Insurance operating...

  • Page 80
    ... in the general insurance expense ratio, primarily associated with the U.S. annuity product and the restructuring and active expense management of Japan' s operations, which have been partially offset by an increase in the average asset base from continued improvements in equity markets. The higher...

  • Page 81
    ... international operations. These efforts have also resulted in a decline in the general insurance expense ratio. Fee income and other decreased in 2009 primarily due to a decline in average account values of variable annuities driven by significant declines in market value during 2008, continued net...

  • Page 82
    ... Life Insurance In-force Variable universal life insurance Universal life, interest sensitive whole life, modified guaranteed life insurance Term life Total life insurance in-force Net Investment Spread Individual variable universal and individual universal life insurance Death Benefits $ $ 2010...

  • Page 83
    ... 2009 Unlock and increased cost of insurance charges of $38 for individual life products, as a result of growth in guaranteed universal life insurance in-force, partially offset by lower variable life fees as a result of equity market declines. Life Insurance' s net realized losses decreased in 2009...

  • Page 84
    ...to service mutual fund assets from Sun Life Retirement Services, Inc., and Princeton Retirement Group. [2] Lifetime Income and Maturity Funding business of $194 was transferred from Global Annuity to Retirement Plans effective January 1, 2010. Also in 2010, the Company identified specific plans that...

  • Page 85
    ... Estimates within the MD&A. Fee income and other increased primarily due to increases in asset based fees on higher average account values resulting from improvements in equity markets and increased net flows. Retirement Plans' effective tax rate differs from the statutory rate of 35% primarily due...

  • Page 86
    ... and Canadian mutual fund assets, resulting in higher fee income, partially offset by higher trail commissions, as well as capital infusions to the money market funds. Also contributing to the net income in 2010 is the increase in scale of the reporting segment' s businesses. Year ended December...

  • Page 87
    CORPORATE AND OTHER Operating Summary Earned premiums Fee income [1] Net investment income Net realized capital gains (losses) Other revenues Total revenues Benefits, losses and loss adjustment expenses Insurance operating costs and other expenses [1] Interest expense Goodwill impairment Total ...

  • Page 88
    ... property and workers' compensation losses for earthquake events resulting from a single event. The estimates provided are based on 250-year return period loss estimates, which have a 0.4% likelihood of being exceeded in any single year. The net loss estimates provided above assume that the Company...

  • Page 89
    ...life policies, short-term and long-term disability, annuities, COLI, property & casualty claims, and losses in the investment portfolio associated market declines in the event of a widespread pandemic. Given the evolving science around the risk of pandemics, the Company has not adopted formal limits...

  • Page 90
    ... drafted to address terrorist attacks. Furthermore, workers' compensation policies generally have no exclusions or limitations. The GAO found that commercial property and casualty policyholders, including companies that own high-value properties in large cities, generally reported that they...

  • Page 91
    ... Property Insurance Corporation in Florida ("Citizens") provides property insurance to Florida homeowners and businesses that are unable to obtain insurance from other carriers, including for properties deemed to be "high risk". Citizens maintains a Personal Lines account, a Commercial Lines account...

  • Page 92
    ... underwriting of the risks. Additional limits on investment activity, including setting of policy and defining acceptable risk levels, is subject to regular review and approval by Enterprise Risk Management and senior management. The Company invests primarily in securities which are rated investment...

  • Page 93
    ... movement in the overall credit quality of the Company' s portfolio was primarily attributable to purchases of U.S. Treasuries and investment grade corporate securities. This was partially offset by rating agency downgrades primarily associated with commercial real estate ("CRE") collateralized debt...

  • Page 94
    ... changes in value will be recorded in net realized capital gains (losses). The Company continues to rebalance its AFS investment portfolio to securities with more favorable risk/return profiles, in particular investment grade corporate securities, while reducing its exposure to real estate related...

  • Page 95
    ... likely at a slower rate, and capital and liquidity management remains conservative. Commercial Real Estate During the fourth quarter, the commercial real estate market continued to show signs of improving fundamentals, such as increases in market pricing, tightening credit spreads and more readily...

  • Page 96
    ...incorporates equity-based options such as warrants and a limited amount of direct equity investments. Private equity and other funds primarily consist of investments in funds whose assets typically consist of a diversified pool of investments in small non-public businesses with high growth potential...

  • Page 97
    ...maturity or as real estate related market spreads return to more normalized levels. Most of the securities depressed over 20% for greater than nine months are structured securities with exposure to commercial and residential real estate, as well as certain floating rate corporate securities or those...

  • Page 98
    ... factors, such as a high unemployment rate, as well as sector specific factors such as property value declines, commercial real estate delinquency levels and changes in net operating income. Those assumptions included CMBS peak-to-trough property value declines, on average, of 36% and RMBS...

  • Page 99
    ...which are paying less than at purchase date. In general, larger liquidity premiums and wider credit spreads are the result of deterioration of the underlying collateral performance of the securities, as well as the risk premium required to reflect future uncertainty in the real estate market. Future...

  • Page 100
    ... Financial Statements. In addition, management evaluates performance of certain Wealth Management products based on net investment spread which is, in part, influenced by changes in interest rates. For further discussion, see the Global Annuity, Life Insurance, and Retirement Plans sections...

  • Page 101
    ... the Company. Rate increases are expected to provide additional net investment income, increase sales of fixed rate Wealth Management investment products, reduce the cost of the variable annuity hedging program, limit the potential risk of margin erosion due to minimum guaranteed crediting rates in...

  • Page 102
    ...by the Company to hedge its exposure to interest rate risk in the investment portfolios supporting these contracts. This analysis does not include the assets and corresponding liabilities of certain insurance products such as auto, property, whole and term life insurance, and certain life contingent...

  • Page 103
    ... Company' s variable products include variable annuity contracts, mutual funds, and variable life insurance. Generally, declines in equity markets will reduce the value of assets under management and the amount of fee income generated from those assets; reduce the value of equity securities trading...

  • Page 104
    ... Company' s GMDB liability, see Note 9 of the Notes to Consolidated Financial Statements. GMIB In the second quarter of 2009, the Company suspended all new product sales in Japan. Prior to that, the Company offered variable annuity products in Japan with a GMIB. For GMIB contracts, in general, the...

  • Page 105
    ..., customized derivatives, and dynamic hedging and macro hedging programs. In addition, the Company recently launched a new variable annuity product with reduced equity risk and has increased GMWB rider fees on new sales of the Company' s legacy variable annuities and the related in-force policies...

  • Page 106
    ... managed funds underlying the separate accounts and their respective indices. Dynamic Hedging The Company' s dynamic hedging program uses derivative instruments to provide protection against the risks associated with the GMWB variable annuity product guarantees including equity market declines...

  • Page 107
    ... Hedge Program [5] Total Net Impact Macro Hedge Program [5] Total Net Impact Expected for fourth quarter based on September 30, 2010 $ $ $ Expected for first quarter based on December 31, 2010 Equity markets increase / decrease 1% [1] [2] Volatility increases / decreases 1% [3] Interest rates...

  • Page 108
    ..., generally surplus levels will increase. RBC ratios will also tend to increase when equity markets increase. However, as a result of a number of factors and market conditions, including the level of hedging costs and other risk transfer activities, reserve requirements for death and living benefit...

  • Page 109
    ...manage liquidity; to control transaction costs; or to enter into replication transactions. Downgrades to the credit ratings of The Hartford' s insurance operating companies may have adverse implications for its use of derivatives including those used to hedge benefit guarantees of variable annuities...

  • Page 110
    ... reinsured to Hartford Life Insurance Company, a U.S. dollar based wholly-owned indirect subsidiary of HLI. During 2009, the Company has since suspended new sales of the Japan business. The underlying investment involves investing in U.S. securities markets, which offer favorable credit spreads. The...

  • Page 111
    ... Hartford Financial Services Group, Inc. ("HFSG Holding Company") have been and will continue to be met by HFSG Holding Company' s fixed maturities, short-term investments and cash of $2.0 billion at December 31, 2010, dividends from its insurance operations, as well as the issuance of common stock...

  • Page 112
    ... received $1.0 billion in dividends from its property-casualty insurance subsidiaries. Other Sources of Capital for the HFSG Holding Company The Hartford endeavors to maintain a capital structure that provides financial and operational flexibility to its insurance subsidiaries, ratings that support...

  • Page 113
    ...ratio was 17%. Quarterly, the Company certifies compliance with the financial covenants for the syndicate of participating financial institutions. As of December 31, 2010, the Company was in compliance with all such covenants. The Hartford' s Japan operation also maintains lines of credit in support...

  • Page 114
    ... Property & Casualty Operation' s short-term investments would be satisfied with current operating funds, including premiums received or through the sale of invested assets. A sale of invested assets could result in significant realized losses. Life Operations Life Operation' s total general account...

  • Page 115
    ... Life Insurance' s variable life contracts, the general account option for Retirement Plans' annuities and universal life contracts sold by Life Insurance may be funded through operating cash flows of Life Operations, available short-term investments, or Life Operations may be required to sell fixed...

  • Page 116
    ... reserves for losses and loss adjustment expenses in cases where the payment pattern and ultimate loss costs are fixed and determinable on an individual claim basis. For the Company, these include claim settlements with permanently disabled claimants. As of December 31, 2010, the total property...

  • Page 117
    ... 31, 2009 The increase in cash provided by operating activities, compared to the prior year period, was primarily the result of increases in fee income. Cash used for investing activities in 2010 primarily relates to net purchases of available-for-sale securities of $1.5 billion and net payments on...

  • Page 118
    ... 18, 2011. Insurance Financial Strength Ratings: Hartford Fire Insurance Company Hartford Life Insurance Company Hartford Life and Accident Insurance Company Hartford Life and Annuity Insurance Company Other Ratings: The Hartford Financial Services Group, Inc.: Senior debt Commercial paper A.M. Best...

  • Page 119
    ... for life insurance companies to evaluate the adequacy of statutory capital and surplus in relation to investment and insurance risks. The requirements provide a means of measuring the minimum amount of statutory surplus appropriate for an insurance company to support its overall business operations...

  • Page 120
    ... purchase those policies. The proposals would also change the method used to determine the amount of dividend income received by a life insurance company on assets held in separate accounts used to support products, including variable life insurance and variable annuity contracts, that are eligible...

  • Page 121
    ...management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company' s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal...

  • Page 122
    ... Board of Directors and Stockholders of The Hartford Financial Services Group, Inc. Hartford, Connecticut We have audited the internal control over financial reporting of The Hartford Financial Services Group, Inc. and its subsidiaries (collectively, the "Company") as of December 31, 2010, based on...

  • Page 123
    ... affect, the Company's internal control over financial reporting. Item 9B. OTHER INFORMATION On February 22, 2011 (the "Effective Date"), The Hartford Financial Services Group, Inc. ("The Hartford") adopted The Hartford Senior Executive Officer Severance Pay Plan (the "Tier 1 Plan"), providing for...

  • Page 124
    ... Senior Vice President, Personal Lines Division, with overall responsibility for the Company' s auto and homeowners business. Mr. Bennett worked at CIGNA from 1994 to 1999, serving as Vice President and Product Manager in charge of the institutional fund strategy at CIGNA's Retirement Division. He...

  • Page 125
    ... retail product management group and was responsible for the Company' s annuities, U.S. and Canadian mutual funds, 401(k), 529 college savings plans, and offshore products; he held this position until 2005 when he joined HIMCO. GREGORY McGREEVEY (Executive Vice President and Chief Investment Officer...

  • Page 126
    ... Executive Vice President and Chief Risk Officer of the Company, roles she assumed in March 2010. Ms. Zlatkus joined the Company in 1983 and has held positions of increasing responsibility in finance, risk management and business operations. In 1996, she became director of The Hartford' s disability...

  • Page 127
    ...his or her annual income from the Company is eligible. Terms of options - Nonqualified stock options ("NQSOs") to purchase shares of common stock are available for grant under the PLANCO Plan. The administrator of the PLANCO Plan, the Compensation and Management Development Committee, (i) determines...

  • Page 128
    ... caption "Governance of the Company" and is incorporated herein by reference. Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES The information called for by Item 14 will be set forth in the Proxy Statement under the caption "Audit Committee Charter and Report Concerning Financial Matters - Fees to...

  • Page 129
    ... 2010, 2009 and 2008...Notes to Consolidated Financial Statements...Schedule I - Summary of Investments - Other Than Investments in Affiliates...Schedule II - Condensed Financial Information of The Hartford Financial Services Group, Inc...Schedule III - Supplementary Insurance Information...Schedule...

  • Page 130
    ... Connecticut We have audited the accompanying consolidated balance sheets of The Hartford Financial Services Group, Inc. and its subsidiaries (collectively, the "Company") as of December 31, 2010 and 2009, and the related consolidated statements of operations, changes in equity, comprehensive income...

  • Page 131
    THE HARTFORD FINANCIAL SERVICES GROUP, INC. Consolidated Statements of Operations (In millions, except for per share data) For the years ended December 31, 2010 2009 2008 Revenues Earned premiums Fee income Net investment income (loss): Securities available-for-sale and other Equity securities, ...

  • Page 132
    ...losses of $155 and $366) Policy loans, at outstanding balance Limited partnerships and other alternative investments (includes variable interest entity assets of $14 as of December 31, 2010) Other investments Short-term investments Total investments Cash Premiums receivable and agents' balances, net...

  • Page 133
    ...compensation plans Reclassification of warrants from other liabilities to equity and extension of warrants' term Tax expense on employee stock options and awards Additional Paid-in Capital, at end of period Retained Earnings, at beginning of period, before cumulative effect of accounting change, net...

  • Page 134
    THE HARTFORD FINANCIAL SERVICES GROUP, INC. Consolidated Statements of Comprehensive Income (Loss) (In millions) Comprehensive Income (Loss) Net income (loss) Other comprehensive income (loss) Change in net unrealized gain (loss) on securities Change in other-than-temporary impairment losses ...

  • Page 135
    ... equity issuance plan Proceeds from net issuance of shares under incentive and stock compensation plans and excess tax benefit Treasury stock acquired Dividends paid on preferred stock Dividends paid on common stock Changes in bank deposits and payments on bank advances Net cash provided...

  • Page 136
    ... Presentation and Accounting Policies Basis of Presentation The Hartford Financial Services Group, Inc. is a holding company for insurance and financial service subsidiaries that provide investment products and life and property and casualty insurance to both individual and business customers in the...

  • Page 137
    ... was an increase in assets of $432, an increase in liabilities of $406, and an increase in January 1, 2010 retained earnings, net of tax, of $26. The Company has investments in mutual funds, limited partnerships and other alternative investments, including hedge funds, mortgage and real estate funds...

  • Page 138
    ...in premiums receivable and agents' balances in the Consolidated Balance Sheets was $119 and $121 as of December 31, 2010 and 2009, respectively. Traditional life and group disability products premiums are generally recognized as revenue when due from policyholders. Fee income for universal life-type...

  • Page 139
    ...at each year end and income statement accounts are translated at the average rates of exchange prevailing during the year. The national currencies of the international operations are generally their functional currencies. Mutual Funds The Company maintains a retail mutual fund operation, whereby the...

  • Page 140
    ... for the stock compensation plans include option exercise price payments, unamortized stock compensation expense and tax benefits realized in excess of the tax benefit recognized in net income. The difference between the number of shares assumed issued and number of shares purchased represents the...

  • Page 141
    ... former Personal Lines reporting segment. The Wealth Management division consists of the following reporting segments: Global Annuity, Life Insurance, Retirement Plans and Mutual Funds. Global Annuity includes the individual variable, fixed market value adjusted ("MVA"), and single premium immediate...

  • Page 142
    ...loss) for each reporting segment, as well as the Corporate and Other category. Net Income (Loss) Property & Casualty Commercial Group Benefits Consumer Markets Global Annuity Life Insurance Retirement Plans Mutual Funds Corporate and Other Net income (loss) For the years ended December 31, 2010 2009...

  • Page 143
    ...PPLI Total Life Insurance Retirement Plans 401(k) Government plans Total Retirement Plans Mutual Funds Non-Proprietary Proprietary Total Mutual Funds Corporate and Other Total earned premiums, fees, and other considerations Net investment income (loss): Securities available-for-sale and other Equity...

  • Page 144
    ... $ 24,225 8,904 6,737 164,837 54,939 28,180 159 19,736 $ 307,717 Assets Property & Casualty Commercial Group Benefits Consumer Markets Global Annuity Life Insurance Retirement Plans Mutual Funds Corporate and Other Total Assets $ $ 2010 23,736 9,028 6,778 166,684 64,063 34,152 301 13,604 318,346...

  • Page 145
    ... identical assets or liabilities in active markets that the Company has the ability to access at the measurement date. Level 1 securities include highly liquid U.S. Treasuries, money market funds and exchange traded equity securities, open-ended mutual funds reported in separate account assets and...

  • Page 146
    ... related to the Company' s living benefits and associated hedging programs, which are reported in Note 4a. December 31, 2010 Quoted Prices in Active Significant Markets for Observable Identical Assets Inputs (Level 1) (Level 2) Total Assets accounted for at fair value on a recurring basis Fixed...

  • Page 147
    ..., AFS ABS CDOs CMBS Corporate Foreign government/government agencies Municipal RMBS U.S. Treasuries Total fixed maturities, AFS Equity securities, trading Equity securities, AFS Derivative assets [1] Short-term investments Separate account assets [2] Total assets accounted for at fair value on...

  • Page 148
    ..., fixed maturities, FVO, equity securities, trading, and short-term investments in an active and orderly market (e.g. not distressed or forced liquidation) are determined by management after considering one of three primary sources of information: third-party pricing services, independent broker...

  • Page 149
    ... issuer financial statements. Short-term investments - Primary inputs also include material event notices and new issue money market rates. Equity securities, trading - Consist of investments in mutual funds. Primary inputs include net asset values obtained from third party pricing services. Credit...

  • Page 150
    ... in mutual funds but also have investments in fixed maturity and equity securities. The separate account investments are valued in the same manner, and using the same pricing sources and inputs, as the fixed maturity, equity security, and short-term investments of the Company. Assets and Liabilities...

  • Page 151
    ... net income related to financial instruments still held at December 31, 2010 [1] Asset (Liability) Assets Fixed maturities, AFS ABS $ 580 $ CDOs 2,835 CMBS 307 Corporate 8,027 Foreign govt./govt. agencies 93 Municipal 262 RMBS 1,153 Total fixed maturities, AFS 13,257 Fixed maturities, FVO -- Equity...

  • Page 152
    ...income and and/or (out) as of instruments still held at 2009 [1] OCI [2] settlements of Level 3 [3] December 31, 2009 December 31, 2009 [1] Asset (Liability) Assets Fixed maturities, AFS ABS CDO CMBS Corporate Foreign govt./govt. agencies Municipal RMBS Total fixed maturities, AFS Equity securities...

  • Page 153
    ... account assets are offset by an equal amount for separate account liabilities, which results in a net zero impact on net income for the Company. [5] Transfers in and/or (out) of Level 3 are attributable to a change in the availability of market observable information for individual securities...

  • Page 154
    ... liabilities accounted for using the fair value option reported in net realized capital gains and losses in the Company' s Consolidated Statements of Operations. For the year ended December 31, 2010 Assets Fixed maturities, FVO ABS Corporate CRE CDOs RMBS Other liabilities Credit-linked notes Total...

  • Page 155
    ... 1,194 [1] Excludes guarantees on variable annuities, group accident and health and universal life insurance contracts, including corporate owned life insurance. [2] Included in long-term debt in the Consolidated Balance Sheets, except for current maturities, which are included in short-term debt...

  • Page 156
    ... SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 4a. Fair Value Measurements - Guaranteed Living Benefits These disclosures provide information as to the extent to which the Company uses fair value to measure financial instruments related to variable annuity product...

  • Page 157
    ...' net income. Each component described below is unobservable in the marketplace and require subjectivity by the Company in determining their value. Best Estimate Claim Payments The Best Estimate Claim Payments is calculated based on actuarial and capital market assumptions related to projected cash...

  • Page 158
    ... default spreads from capital markets, adjusted for market recoverability. Prior to the first quarter of 2009, the Company calculated the Credit Standing Adjustment by using default rates published by rating agencies, adjusted for market recoverability. The credit standing adjustment assumption, net...

  • Page 159
    ... rate, currency and credit default swaps classified as Level 2. For GMWB reinsurance and guaranteed withdrawal benefits, purchases, issuances and settlements represent the reinsurance premium paid and the attributed fees collected, respectively. [4] Disclosure of changes in unrealized gains (losses...

  • Page 160
    ... rate, currency and credit default swaps classified as Level 2. For GMWB reinsurance and guaranteed withdrawal benefits, purchases, issuances and settlements represent the reinsurance premium paid and the attributed fees collected, respectively. [4] Disclosure of changes in unrealized gains (losses...

  • Page 161
    ... of cash on futures and option contracts classified as Level 1 and interest rate, currency and credit default swaps classified as Level 2. [6] The variable annuity hedging derivatives and the macro hedge program derivatives are reported in this table on a net basis for asset/(liability) positions...

  • Page 162
    THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 5. Investments and Derivative Instruments Significant Investment Accounting Policies Overview The Company' s investments in fixed maturities include bonds, redeemable preferred stock and commercial ...

  • Page 163
    ... s security monitoring process reviews mortgage loans on a quarterly basis to identify potential credit losses. Commercial mortgage loans are considered to be impaired when management estimates that, based upon current information and events, it is probable that the Company will be unable to collect...

  • Page 164
    ...years ended December 31, 2010, 2009 and 2008. Net investment income on equity securities, trading, includes dividend income and the changes in market value of the securities associated with the variable annuity products sold in Japan and the United Kingdom. The returns on these policyholder-directed...

  • Page 165
    ... as net realized capital gains and losses. Periodic derivative net coupon settlements are recorded in the line item of the consolidated statements of operations in which the cash flows of the hedged item are recorded. Other Investment and/or Risk Management Activities The Company' s other investment...

  • Page 166
    ...the consolidated balance sheets, is carried at fair value with changes in fair value reported in net realized capital gains and losses. Credit Risk The Company' s derivative counterparty exposure policy establishes market-based credit limits, favors long-term financial stability and creditworthiness...

  • Page 167
    ...) Fixed maturities Equity securities, AFS Mortgage loans Policy loans Limited partnerships and other alternative investments Other investments Investment expenses Total securities AFS and other Equity securities, trading Total net investment income (loss) For the years ended December 31, 2010 2009...

  • Page 168
    ...flows Balance as of end of period Available-for-Sale Securities The following table presents the Company' s AFS securities by type. $ $ [1] These additions are included in the net OTTI losses recognized in earnings in the Consolidated Statements of Operations. December 31, 2010 December 31, 2009...

  • Page 169
    ... agencies, the Company' s three largest exposures by issuer were JP Morgan Chase & Co., Bank of America Corporation and Wells Fargo & Co. which each comprised less than 0.5% of total invested assets. The Company' s three largest exposures by sector as of December 31, 2010 were commercial real estate...

  • Page 170
    ... months or more relate to structured securities with exposure to commercial and residential real estate, as well as certain floating rate corporate securities or those securities with greater than 10 years to maturity, concentrated in the financial services sector. Current market spreads continue to...

  • Page 171
    THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 5. Investments and Derivative Instruments (continued) The following tables present the carrying value of the Company' s mortgage loans by region and property type. Mortgage Loans by Region December 31,...

  • Page 172
    ..., earns a fee for those services and also holds investments in the securities issued by the trusts. During 2010, the Company liquidated this investment trust. Non-Consolidated VIEs The following table presents the carrying value of assets and liabilities, and the maximum exposure to loss relating to...

  • Page 173
    ... 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. These derivatives are primarily structured to hedge interest rate risk...

  • Page 174
    ... Credit default swaps are used to purchase credit protection on an individual entity or referenced index to economically hedge against default risk and credit-related changes in value on fixed maturity securities. These contracts require the Company to pay a periodic fee in exchange for compensation...

  • Page 175
    THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 5. Investments and Derivative Instruments (continued) Equity index swaps and options The Company offers certain equity indexed products, which may contain an embedded derivative that requires ...

  • Page 176
    ... Currency forward contracts Foreign interest rate swaps Cross-currency equity options Long currency options Short currency options Total GMAB product derivatives The GMAB rider associated with certain of the Company' s Japanese variable annuity products is accounted for as a bifurcated embedded...

  • Page 177
    THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 5. Investments and Derivative Instruments (continued) Derivative Balance Sheet Classification The table below summarizes the balance sheet classification of the Company' s derivative related fair value...

  • Page 178
    ... offset by an increase in the equity market. The notional amount related to interest rate swaps that qualify for cash flow hedge accounting, which are used to convert interest receipts on floating-rate fixed maturity securities to fixed rates, declined $1.3 billion due to swap maturities. The...

  • Page 179
    ... is based on the anticipated interest payments on hedged investments in fixed maturity securities that will occur over the next twelve months, at which time the Company will recognize the deferred net gains (losses) as an adjustment to interest income over the term of the investment cash flows...

  • Page 180
    ... Net Realized Capital Gains (Losses) December 31, 2010 2009 Interest rate contracts Interest rate swaps, caps, floors, and forwards Foreign exchange contracts Foreign currency swaps and forwards Japan 3Win foreign currency swaps [1] Japanese fixed annuity hedging instruments [2] Japanese variable...

  • Page 181
    THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 5. Investments and Derivative Instruments (continued) For the year ended December 31, 2009, the net realized capital gain (loss) related to derivatives used in non-qualifying strategies was primarily ...

  • Page 182
    ... the future changes in value of, or losses paid related to, the original swap. [4] Includes $3.9 billion and $2.5 billion as of December 31, 2010 and 2009, respectively, of standard market indices of diversified portfolios of corporate issuers referenced through credit default swaps. These swaps are...

  • Page 183
    ...increase net investment income. The Company received cash collateral of $33 and $42 as of December 31, 2010 and 2009, respectively. The following table presents the classification and carrying amount of loaned securities and derivative instruments collateral pledged. Fixed maturities, AFS Short-term...

  • Page 184
    ... Company also assumes reinsurance from other insurers. In addition, the Company reinsures a portion of the U.S minimum death benefit guarantees, Japan' s guaranteed minimum death and income benefits, as well as guaranteed minimum withdrawal benefits, offered in connection with its variable annuity...

  • Page 185
    ... letters of credit, secured trusts, funds held accounts and group-wide offsets. Due to the inherent uncertainties as to collection and the length of time before reinsurance recoverables become due, it is possible that future adjustments to the Company' s reinsurance recoverables, net of the...

  • Page 186
    ... minimum income and universal life secondary guarantee benefits. These benefits are accounted for and collectively referred to as death and other insurance benefit reserves and are held in addition to the account value liability representing policyholder funds. For most contracts, the Company...

  • Page 187
    ... are assumption updates related by benefits from withdrawals and lapses, offset by hedging, annuitization estimates on Japan products, and long-term expected rate of return updates. The most significant contributors to the Unlock charge recorded during the year ended December 31, 2009 were the...

  • Page 188
    .... December 31, 2010 Accumulated Carrying Impairments Value Gross Commercial Markets Property & Casualty Commercial Total Commercial Markets Consumer Markets Wealth Management Global Annuity Life Insurance Retirement Plans Mutual Funds Total Wealth Management Corporate and Other Total Goodwill $ 30...

  • Page 189
    ... within Wealth Management and Corporate and Other, resulted in a write-down of $32 in the Institutional reporting unit within Corporate and Other. As a result of rating agency downgrades of the Company' s financial strength ratings during the first quarter of 2009 and high credit spreads related to...

  • Page 190
    ... Investment income and gains and losses from those separate account assets accrue directly to the policyholder, who assumes the related investment risk, and are offset by the related liability changes reported in the same line item in the Consolidated Statements of Operations. The Company earns fees...

  • Page 191
    ... HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 9. Separate Accounts, Death Benefits and Other Insurance Benefit Features (continued) U.S. GMDB, International GMDB/GMIB, and UL Secondary Guarantee Benefits Changes in the gross U.S. GMDB, International...

  • Page 192
    ..., when a policy goes into benefit status on a GMWB or GMIB, its GMDB NAR is released. In the U.S. , account balances of contracts with guarantees were invested in variable separate accounts as follows: Asset type Equity securities (including mutual funds) [1] Cash and cash equivalents Total As of...

  • Page 193
    ... disability contracts, as well as its individual term life insurance policies, include amounts for unpaid losses and future policy benefits. Liabilities for unpaid losses include estimates of amounts to fully settle known reported claims, as well as claims related to insured events that the Company...

  • Page 194
    ... property and casualty insurance products insurance reserves are not discounted. However, the Company has discounted liabilities funded through structured settlements and has discounted certain reserves for indemnity payments due to permanently disabled claimants under workers' compensation policies...

  • Page 195
    ... law, the reserves recorded for The Hartford' s property and casualty insurance products at December 31, 2010 represent the Company' s best estimate of its ultimate liability for losses and loss adjustment expenses related to losses covered by policies written by the Company. Based on information...

  • Page 196
    ... the other related to alleged conduct in connection with the sale of group benefits products. The Company and various of its subsidiaries are named in both complaints. The complaints assert, on behalf of a putative class of persons who purchased insurance through broker defendants, claims under the...

  • Page 197
    ... that Hartford Investment Financial Services, LLC received excessive advisory and distribution fees in violation of its statutory fiduciary duty under Section 36(b) of the Investment Company Act of 1940. Plaintiff seeks to rescind the investment management agreements and distribution plans between...

  • Page 198
    ...inadequate loss development patterns, plaintiffs' expanding theories of liability, the risks inherent in major litigation, and inconsistent emerging legal doctrines. Furthermore, over time, insurers, including the Company, have experienced significant changes in the rate at which asbestos claims are...

  • Page 199
    ...of the funds are assessed to pay certain claims of the insolvent insurer. A particular state' s fund assesses its members based on their respective written premiums in the state for the classes of insurance in which the insolvent insurer was engaged. Assessments are generally limited for any year to...

  • Page 200
    ...reserves Tax basis deferred policy acquisition costs Unearned premium reserve and other underwriting related reserves Investment-related items Employee benefits Net unrealized losses on investments Minimum tax credit Capital loss carryover Net operating loss carryover Other Total Deferred Tax Assets...

  • Page 201
    ... of debt securities with market value losses until recovery, selling appreciated securities to offset capital losses, business considerations, such as asset-liability matching, and the sales of certain corporate assets, including a subsidiary. Such tax planning strategies are viewed by management as...

  • Page 202
    ... 332 508 $ 476 $ 343 Short-term debt Long-term debt Total interest expense $ $ The weighted-average interest rate on commercial paper was 2.4% and 2.9% for 2009, and 2008, respectively. The Company did not hold commercial paper in 2010. Senior Notes On June 15, 2010, The Hartford repaid its $275...

  • Page 203
    ...statement allows for the following types of securities to be offered: debt securities, junior subordinated debt securities, preferred stock, common stock, depositary shares, warrants, stock purchase contracts, and stock purchase units. In that The Hartford is a well-known seasoned issuer, as defined...

  • Page 204
    ... individual limit is $250 thousand per individual. Derivative instruments are utilized to hedge the Company' s exposure to market risks in accordance with Company policy. As of December 31, 2010, these consumer notes have interest rates ranging from 4% to 6% for fixed notes and, for variable notes...

  • Page 205
    THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 15. Equity Increase in Authorized Common Shares On May 27, 2009, at the Company's annual meeting of shareholders, shareholders approved an increase in the aggregate authorized number of shares of ...

  • Page 206
    THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 15. Equity (continued) On March 31, 2010, the Company repurchased all 3.4 million shares of Series E preferred stock issued to the Treasury for an aggregate purchase price of $3.4 billion and made a ...

  • Page 207
    ... from Insurance Subsidiaries Dividends to The Hartford Financial Services Group, Inc. holding company ("HFSG Holding 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...

  • Page 208
    ... change Change in net loss on cash-flow hedging instruments [1] [3] Change in foreign currency translation adjustments [1] Change in pension and other postretirement plan adjustment [1] Balance, end of year For the year ended December 31, 2009 Balance, beginning of year Unrealized gain on securities...

  • Page 209
    ...accrue retirement benefits in excess of Internal Revenue Code limitations. The Company provides certain health care and life insurance benefits for eligible retired employees. The Company' s contribution for health care benefits will depend upon the retiree' s date of retirement and years of service...

  • Page 210
    ... care and life insurance benefit plans for the years ended December 31, 2010 and 2009. International plans represent an immaterial percentage of total pension assets, liabilities and expense and, for reporting purposes, are combined with domestic plans. During 2010 the amount of lump sum benefit...

  • Page 211
    ... of lump sum benefit payments exceeded the amount of service and interest cost for the year ended December 31, 2010. As a result, the Company recorded settlement expense of $20 to recognize the actuarial loss associated with the pro-rata portion of the obligation that has been settled. Total net...

  • Page 212
    ... 31, 2010 2009 2010 2009 Equity securities 22% 28% 22% 21% Fixed income securities 61% 57% 78% 79% Alternative Assets 17% 15% - - Total 100% 100% 100% 100% The Plan assets are invested primarily in separate portfolios managed by HIMCO, a wholly-owned subsidiary of the Company. These portfolios...

  • Page 213
    ...: Asset Category Short-term investments [1] Fixed Income Securities: Corporate RMBS U.S. Treasuries Foreign government CMBS Other fixed income [2] Equity Securities: Large-cap domestic Mid-cap domestic Small-cap domestic International Other investments: Hedge funds Total pension plan assets at...

  • Page 214
    THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 17. Pension Plans and Postretirement Health Care and Life Insurance Benefit Plans (continued) The tables below provide a fair value level 3 roll forward for the twelve months ended December 31, 2010 ...

  • Page 215
    ... FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 17. Pension Plans and Postretirement Health Care and Life Insurance Benefit Plans (continued) Other Postretirement Plan Assets The fair value of the Company' s other postretirement plan assets at December 31, 2010...

  • Page 216
    ...HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 17. Pension Plans and Postretirement Health Care and Life Insurance Benefit Plans (continued) Cash Flows The following table illustrates the Company' s prior contributions. Employer Contributions 2010 2009...

  • Page 217
    ... shares purchased in the open market. In 2010 and 2009, the Company issued shares from treasury in satisfaction of stock-based compensation. For the year ended December 31, 2010 2009 2008 94 $ 72 $ 62 (33) (20) (19) 61 $ 52 $ 43 Stock-based compensation plans expense Income tax benefit Total stock...

  • Page 218
    ... 7.3 years 8 years Expected dividend yield Expected annualized spot volatility Weighted average annualized volatility Risk-free spot rate Expected term A summary of the status of non-qualified stock options included in the Company' s Stock Plans as of December 31, 2010 and changes during the year...

  • Page 219
    ... The Hartford Deferred Stock Unit Plan ("Deferred Stock Unit Plan"), and, on October 22, 2009, it was amended. The Deferred Stock Unit Plan provides for contractual rights to receive cash payments based on the value of a specified number of shares of stock. The Deferred Stock Unit Plan provides for...

  • Page 220
    THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 18. Stock Compensation Plans (continued) Employee Stock Purchase Plan In 1996, the Company established The Hartford Employee Stock Purchase Plan ("ESPP"). Beginning in 2010, under this plan, eligible ...

  • Page 221
    ... adjustments, in net realized capital losses of $44, after-tax. Sale of Hartford Investments Canada Corporation In October 2010, the Company announced the sale of Hartford Investments Canada Corporation. This sale of The Hartford' s Canadian mutual fund business closed in fourth quarter 2010...

  • Page 222
    ...to ten years and $200 in cash paid on October 15, 2009. The Hartford recorded a liability for the cash payment and an adjustment to additional paid-in capital for the warrant modification resulting in a net realized capital loss of approximately $300. Debentures The 10% Fixed-to-Floating Rate Junior...

  • Page 223
    ... 34,308,872 shares of The Hartford' s common stock. As a result of this shareholder approval, the Company is not obligated to pay Allianz any cash payment related to these warrants and therefore these warrants no longer provide for any form of net cash settlement outside the Company' s control. As...

  • Page 224
    ... discontinuation or disposition of various business lines. Following that review, the Company announced that it would suspend all new sales in International' s Japan and European operations. The Company has also executed on plans to change the management structure of the organization and reorganized...

  • Page 225
    ...redeemable preferred stocks Total equity securities, available-for-sale Equity securities, trading Total equity securities Mortgage loans Policy loans Investments in partnerships and trusts Futures, options and miscellaneous Short-term investments Total investments As of December 31, 2010 Amount at...

  • Page 226
    ... FINANCIAL SERVICES GROUP, INC. (Registrant) (In millions) Condensed Balance Sheets Assets Fixed maturities, available-for-sale, at fair value Other investments Short-term investments Investment in affiliates Deferred income taxes Unamortized Issue Costs Other assets Total assets Liabilities...

  • Page 227
    ... stock compensation plans and excess tax benefits Treasury stock acquired Dividends paid - Preferred shares Dividends paid - Common Shares Cash provided by (used for) financing activities Net change in cash Cash - beginning of year Cash - end of year Supplemental Disclosure of Cash Flow Information...

  • Page 228
    ... Policy Benefits, Value of Future Unpaid Losses and Loss Profits Adjustment Expenses Other Policyholder Funds and Benefits Payable Segment As of December 31, 2010 Property & Casualty Commercial Group Benefits Consumer Markets Global Annuity Life Insurance Retirement Plans Mutual Funds Corporate...

  • Page 229
    ... Life Insurance 359 Retirement Plans 690 Mutual Funds 190 Corporate and Other Consolidated $ 19,319 For the year ended December 31, 2009 6,237 Property & Casualty Commercial $ 4,350 Group Benefits 4,113 Consumer Markets 2,673 Global Annuity 1,054 Life Insurance 324 Retirement Plans 518 Mutual Funds...

  • Page 230
    ... HARTFORD FINANCIAL SERVICES GROUP, INC. SCHEDULE IV REINSURANCE (In millions) Assumed From Other Companies Percentage of Amount Assumed to Net Gross Amount For the year ended December 31, 2010 Life insurance in-force Insurance revenues Property and casualty insurance Life insurance and annuities...

  • Page 231
    ...Translation Adjustment Write-offs/ Payments/ Other Balance December 31, THE HARTFORD FINANCIAL SERVICES GROUP, INC. SCHEDULE VI SUPPLEMENTAL INFORMATION CONCERNING PROPERTY AND CASUALTY INSURANCE OPERATIONS (In millions) Discount Deducted From Liabilities [1] Years ended December 31, 2010 2009 2008...

  • Page 232
    ..., the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized. THE HARTFORD FINANCIAL SERVICES GROUP, INC. By: /s/ Beth A. Bombara Beth A. Bombara Senior Vice President and Controller (Chief Accounting Officer and duly authorized signatory) Date...

  • Page 233
    ... Subordinated Indenture, dated as of June 6, 2008, between The Hartford Financial Services Group, Inc. and The Bank of New York Trust Company, N.A., as Trustee (incorporated herein by reference to Exhibit 4.1 to the Company' s Current Report on Form 8-K filed on June 6, 2008). First Supplemental...

  • Page 234
    ... The Hartford Financial Services Group, Inc. and The United States Department of the Treasury, dated June 26, 2009 (incorporated herein by reference to Exhibit 10.02 to The Hartford' s Current Report on Form 8-K, filed June 26, 2009). The Hartford Senior Executive Officer Severance Pay Plan. Amended...

  • Page 235
    ... ended December 31, 2002). The Hartford Employee Stock Purchase Plan, as amended (incorporated by reference to Exhibit 10.01 of The Hartford' s Quarterly Report on Form 10-Q for the third quarter ended September 30, 2009). The Hartford Investment and Savings Plan, amended effective January 1, 2011...

  • Page 236
    ... HARTFORD FINANCIAL SERVICES GROUP, INC. COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES AND PREFERRED SHARE DIVIDENDS (In millions) Years Ended December 31, 2010 EARNINGS: Income (loss) before income taxes Less: Undistributed earnings from limited partnerships and other alternative investments...

  • Page 237
    ... Financial Products International Limited (UK) Hartford Financial Services, LLC (Delaware) Hartford Fire General Agency, Inc. (Texas) Hartford Fire Insurance Company (Connecticut) Hartford Hedge Fund Company, LLC (Delaware) Hartford Holdings, Inc. (Delaware) Hartford Insurance Company of Illinois...

  • Page 238
    ... General Agency, Inc. (Texas) Hartford Residual Market, L.L.C. (Connecticut) Hartford Retirement Services, LLC (Delaware) Hartford Securities Distribution Company, Inc. (Connecticut) Hartford Specialty Insurance Services of Texas, LLC (Texas) Hartford Strategic Investments, LLC (Delaware) Hartford...

  • Page 239
    ..., relating to the financial statements and financial statement schedules of The Hartford Financial Services Group, Inc. (the "Company") (which report expresses an unqualified opinion and includes an explanatory paragraph relating to the Company' s change in its method of accounting and reporting for...

  • Page 240
    ... and lawful attorneys-in-fact and agents, in his or her name, place and stead to execute on his or her behalf, as an officer and/or director of The Hartford Financial Services Group, Inc. (the "Company"), an Annual Report on Form 10-K for the year ended December 31, 2010 (the "Annual Report"), and...

  • Page 241
    ... and report financial information; and Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant' s internal control over financial reporting. /s/ Liam E. McGee Liam E. McGee Chairman, President and Chief Executive Officer b. Date...

  • Page 242
    ... financial information; and Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant' s internal control over financial reporting. /s/ Christopher J. Swift Christopher J. Swift Executive Vice President and Chief Financial Officer...

  • Page 243
    ... the Securities Exchange Act of 1934; and 2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: February 25, 2011 /s/ Liam E. McGee Liam E. McGee Chairman, President and Chief Executive Officer...

  • Page 244
    ...Act of 1934; and 2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: February 25, 2011 /s/ Christopher J. Swift Christopher J. Swift Executive Vice President and Chief Financial Officer II-13

  • Page 245
    ... of The Hartford Financial Services Group, Inc. (the "Company") has discussed, reviewed, and evaluated with senior risk officers at least every six months during any part of the most recently completed fiscal year that was a TARP period, senior executive officer (SEO) compensation plans and employee...

  • Page 246
    ... order of level of annual compensation, and with the name, title, and employer of each SEO and most highly compensated employee identified. The Company is not required to submit such information with respect to 2011 because it repaid its TARP obligation on March 31, 2010; and I understand that...

  • Page 247
    ... Recovery and Reinvestment Act of 2009 I, Christopher J. Swift, certify, based on my knowledge, that: (i) The compensation committee of The Hartford Financial Services Group, Inc. (the "Company") has discussed, reviewed, and evaluated with senior risk officers at least every six months during...

  • Page 248
    ... (xvi) To the extent the foregoing certifications are forward-looking, I hereby certify that such actions will be taken solely to the extent required by applicable law. Date: February 25, 2011 /s/ Christopher J. Swift Christopher J. Swift Executive Vice President and Chief Financial Officer II-17