The Hartford 2011 Annual Report Download - page 202

THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-67
12. Commitments and Contingencies (continued)
Lease Commitments
The total rental expense on operating leases was $122, $132, and $154 in 2011, 2010, and 2009, respectively, which excludes sublease
rental income of $13, $4, and $2 in 2011, 2010 and 2009, respectively. Future minimum lease commitments are as follows:
Years ending December 31,
Operating Leases
2012
$
58
2013
47
2014
34
2015
26
2016
21
Thereafter
56
Total minimum lease payments [1]
$
242
[1] Excludes expected future minimum sublease income of approximately $7and $3 in 2012 and 2013, respectively.
The Company’ s lease commitments consist primarily of lease agreements on office space, data processing, furniture and fixtures, office
equipment, and transportation equipment that expire at various dates. Capital lease assets are included in property and equipment.
Unfunded Commitments
As of December 31, 2011, the Company has outstanding commitments totaling $1.4 billion, of which $700 is committed to fund limited
partnership and other alternative investments, which may be called by the partnership during the commitment period (on average two to
four years) to fund the purchase of new investments and partnership expenses. Once the commitment period expires, the Company is
under no obligation to fund the remaining unfunded commitment but may elect to do so. Additionally, $553 is largely related to
commercial whole loans expected to fund in the first half of 2012. The remaining outstanding commitments are related to various
funding obligations associated with private placement securities. These have a commitment period of one month to one year.
Guaranty Fund and Other Insurance-related Assessments
In all states, insurers licensed to transact certain classes of insurance are required to become members of a guaranty fund. In most states,
in the event of the insolvency of an insurer writing any such class of insurance in the state, members of the funds are assessed to pay
certain claims of the insolvent insurers. 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 one or
two percent of the premiums written per year depending on the state.
The Hartford accounts for guaranty fund and other related assessments in accordance with Accounting Standards Codification 405-30,
“Insurance-Related Assessments.” Liabilities for guaranty fund and other insurance-related assessments are accrued when an
assessment is probable, when it can be reasonably estimated, and when the event obligating the Company to pay an imposed or probable
assessment has occurred. Liabilities for guaranty funds and other insurance-related assessments are not discounted and are included as
part of other liabilities in the Consolidated Balance Sheets. As of December 31, 2011 and 2010, the liability balance was $145 and
$118, respectively. As of December 31, 2011 and 2010, $31 and $14 related to premium tax offsets were included in other assets. In
2011, The Company recognized $22 for expected assessments related to the Executive Life Insurance Company of New York (ELNY)
insolvency.
Derivative Commitments
Certain of the Company’ s derivative agreements contain provisions that are tied to the financial strength ratings of the individual legal
entity that entered into the derivative agreement as set by nationally recognized statistical rating agencies. If the legal entity’ s financial
strength were to fall below certain ratings, the counterparties to the derivative agreements could demand immediate and ongoing full
collateralization and in certain instances demand immediate settlement of all outstanding derivative positions traded under each
impacted bilateral agreement. The settlement amount is determined by netting the derivative positions transacted under each agreement.
If the termination rights were to be exercised by the counterparties, it could impact the legal entity’ s ability to conduct hedging activities
by increasing the associated costs and decreasing the willingness of counterparties to transact with the legal entity. The aggregate fair
value of all derivative instruments with credit-risk-related contingent features that are in a net liability position as of December 31, 2011,
is $725. Of this $725 the legal entities have posted collateral of $716 in the normal course of business. Based on derivative market
values as of December 31, 2011, a downgrade of one level below the current financial strength ratings by either Moody’ s or S&P could
require approximately an additional $37 to be posted as collateral. Based on derivative market values as of December 31, 2011, a
downgrade by either Moody’ s or S&P of two levels below the legal entities’ current financial strength ratings could require
approximately an additional $48 of assets to be posted as collateral. These collateral amounts could change as derivative market values
change, as a result of changes in our hedging activities or to the extent changes in contractual terms are negotiated. The nature of the
collateral that we would post, if required, would be primarily in the form of U.S. Treasury bills and U.S. Treasury notes.