The Hartford 2010 Annual Report Download - page 150

THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-22
4. Fair Value Measurements – Financial Instruments Excluding Guaranteed Living Benefits (continued)
Level 3 Most of the Company’ s securities classified as Level 3 are valued based on brokers’ prices. Certain long-dated securities are
priced based on third party pricing services, including municipal securities and foreign government/government agencies, as
well as bank loans and below investment grade private placement securities. Primary inputs for these long-dated securities
are consistent with the typical inputs used in Level 1 and Level 2 measurements noted above, but include benchmark interest
rate or credit spread assumptions that are not observable in the marketplace. Also included in Level 3 are certain derivative
instruments that either have significant unobservable inputs or are valued based on broker quotations. Significant inputs for
these derivative contracts primarily include the typical inputs used in the Level 1 and Level 2 measurements noted above, but
also may include the following:
• Credit derivatives- Significant unobservable inputs may include credit correlation and swap yield curve and credit
curve extrapolation beyond observable limits.
• Equity derivatives – Significant unobservable inputs may include equity volatility.
• Interest rate contracts – Significant unobservable inputs may include swap yield curve extrapolation beyond observable
limits and interest rate volatility.
Separate Account Assets
Separate account assets are primarily invested 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 Measured at Fair Value on a Recurring Basis Using Significant Unobservable Inputs (Level 3)
The tables below provide fair value roll-forwards for the year ended December 31, 2010 and 2009, for the financial instruments
classified as Level 3, excluding those related to the Company’ s living benefits and associated hedging programs, which are reported in
Note 4a.