The Hartford 2012 Annual Report Download - page 173

Table of Contents



















Other policyholder funds and benefits payable
U.S guaranteed withdrawal benefits $ (2,538) $ — $ — $ (2,538)
International guaranteed withdrawal benefits (66) — — (66)
International other guaranteed living benefits (5) — — (5)
Equity linked notes (9) — — (9)
Total other policyholder funds and benefits payable (2,618) — — (2,618)
Derivative liabilities
Credit derivatives (573) — (25) (548)
Equity derivatives 9 — — 9
Foreign exchange derivatives 134 —134 —
Interest rate derivatives (527) — (421)(106)
U.S. GMWB hedging instruments 400 — — 400
International program hedging instruments 19 —23 (4)
Total derivative liabilities [4] (538) — (289) (249)
Other liabilities (9) — — (9)
Consumer notes [5] (4) — — (4)
       
[1] Includes over-the-counter derivative instruments in a net asset value position which may require the counterparty to pledge collateral to the
Company. As of December 31, 2012 and 2011, $160 and $1.4 billion, respectively, was netted against the derivative asset value in the
Consolidated Balance Sheet and is excluded from the table above. See footnote 4 below for derivative liabilities.
[2] Represents hedge funds where investment company accounting has been applied to a wholly-owned fund of funds measured at fair value.
[3] Approximately $3.1 billion and $4.0 billion of investment sales receivable that are not subject to fair value accounting are excluded as of
December 31, 2012 and 2011, respectively.
[4] Includes over-the-counter derivative instruments in a net negative market value position (derivative liability). In the Level 3 roll-forward table
included below in this Note 5, the derivative asset and liability are referred to as “freestanding derivatives” and are presented on a net basis.
[5] Represents embedded derivatives associated with non-funding agreement-backed consumer equity linked notes.
Determination of Fair Values
The valuation methodologies used to determine the fair values of assets and liabilities under the “exit price” notion, reflect market-participant objectives and are
based on the application of the fair value hierarchy that prioritizes relevant observable market inputs over unobservable inputs. The Company determines the
fair values of certain financial assets and financial liabilities based on quoted market prices where available and where prices represent a reasonable estimate of
fair value. The Company also determines fair value based on future cash flows discounted at the appropriate current market rate. Fair values reflect
adjustments for counterparty credit quality, the Company’s default spreads, liquidity and, where appropriate, risk margins on unobservable parameters. The
following is a discussion of the methodologies used to determine fair values for the financial instruments listed in the above tables.
The fair value process is monitored by the Valuation Committee, which is a cross-functional group of senior management within the Company that meets at
least quarterly. The Valuation Committee is co-chaired by the Heads of Investment Operations and Accounting, and has representation from various
investment sector professionals, accounting, operations, legal, compliance and risk management. The purpose of the committee is to oversee the pricing policy
and procedures by ensuring objective and reliable valuation practices and pricing of financial instruments, as well as addressing fair valuation issues and
approving changes to valuation methodologies and pricing sources. There is also a Fair Value Working Group (“Working Group”) which includes the Heads
of Investment Operations and Accounting, as well as other investment, operations, accounting and risk management professionals that meet monthly to review
market data trends, pricing and trading statistics and results, and any proposed pricing methodology changes described in more detail in the following
paragraphs.
F-31