The Hartford 2011 Annual Report Download - page 125

125
Contractholder Obligations
As of
December 31,
2011
Total Life contractholder obligations
$
239,723
Less: Separate account assets [1]
(143,870)
International statutory separate accounts [1]
(30,461)
General account contractholder obligations
$
65,392
Composition of General Account Contractholder Obligations
Contracts without a surrender provision and/or fixed payout dates [2]
$
30,339
Fixed MVA annuities [3]
9,727
International fixed MVA annuities
2,642
Guaranteed investment contracts (“GIC”) [4]
567
Other [5]
22,117
General account contractholder obligations
$
65,392
[1] In the event customers elect to surrender separate account assets or international statutory separate accounts, Life Operations will use the
proceeds from the sale of the assets to fund the surrender, and Life Operations’ liquidity position will not be impacted. In many instances Life
Operations will receive a percentage of the surrender amount as compensation for early surrender (surrender charge), increasing Life
Operations’ liquidity position. In addition, a surrender of variable annuity separate account or general account assets (see below) will decrease
Life Operations’ obligation for payments on guaranteed living and death benefits.
[2] Relates to contracts such as payout annuities or institutional notes, other than guaranteed investment products with an MVA feature (discussed
below) or surrenders of term life, group benefit contracts or death and living benefit reserves for which surrenders will have no current effect on
Life Operations’ liquidity requirements.
[3] Relates to annuities that are held in a statutory separate account, but under U.S. GAAP are recorded in the general account as Fixed MVA
annuity contract holders are subject to the Company’s credit risk. In the statutory separate account, Life Operations is required to maintain
invested assets with a fair value equal to the MVA surrender value of the Fixed MVA contract. In the event assets decline in value at a greater
rate than the MVA surrender value of the Fixed MVA contract, Life Operations is required to contribute additional capital to the statutory
separate account. Life Operations will fund these required contributions with operating cash flows or short-term investments. In the event that
operating cash flows or short-term investments are not sufficient to fund required contributions, the Company may have to sell other invested
assets at a loss, potentially resulting in a decrease in statutory surplus. As the fair value of invested assets in the statutory separate account are
generally equal to the MVA surrender value of the Fixed MVA contract, surrender of Fixed MVA annuities will have an insignificant impact on the
liquidity requirements of Life Operations.
[4] GICs are subject to discontinuance provisions which allow the policyholders to terminate their contracts prior to scheduled maturity at the lesser
of the book value or market value. Generally, the market value adjustment reflects changes in interest rates and credit spreads. As a result, the
market value adjustment feature in the GIC serves to protect the Company from interest rate risks and limit Life Operations’ liquidity
requirements in the event of a surrender.
[5] Surrenders of, or policy loans taken from, as applicable, these general account liabilities, which include the general account option for Individual
Annuity’s individual variable annuities and Individual Life variable life contracts, the general account option for Retirement Plans’ annuities and
universal life contracts sold by Individual Life may be funded through operating cash flows of Life Operations, available short-term investments,
or Life Operations may be required to sell fixed maturity investments to fund the surrender payment. Sales of fixed maturity investments could
result in the recognition of significant realized losses and insufficient proceeds to fully fund the surrender amount. In this circumstance, Life
Operations may need to take other actions, including enforcing certain contract provisions which could restrict surrenders and/or slow or defer
payouts.
Off-Balance Sheet Arrangements and Aggregate Contractual Obligations
The Company does not have any off-balance sheet arrangements that are reasonably likely to have a material effect on the financial
condition, results of operations, liquidity, or capital resources of the Company, except for the contingent capital facility described above
and the following:
• The Company has unfunded commitments to purchase investments in limited partnerships, private placements and mortgage loans
of approximately $1.4 billion as disclosed in Note 12 of Notes to Consolidated Financial Statements.