The Hartford 2012 Annual Report Download - page 200

Table of Contents
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

As of December 31, 2012, the before-tax deferred net gains on derivative instruments recorded in AOCI that are expected to be reclassified to earnings during
the next twelve months are $180. This expectation 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. The maximum term over which the Company is hedging its exposure to the variability of future cash flows (for forecasted
transactions, excluding interest payments on existing variable-rate financial instruments) is approximately three years. Also included are deferred gains related
to cash flow hedges associated with fixed-rate bonds sold as part of the Retirement Plans and Individual Life business dispositions completed January 1, 2013
and January 2, 2013, respectively. For further information on the business dispositions, see Note 2.
During the year ended December 31, 2012, the before-tax deferred net gains on derivative instruments reclassified from AOCI to earnings totaled $ 99. This
primarily resulted from the discontinuance of cash flow hedges due to forecasted transactions no longer probable of occurring associated with variable rate
bonds sold as part of the Individual Life and Retirement Plans business dispositions. For further information on the business dispositions, see Note 2. For the
years ended December 31, 2011 and 2010, the Company had no net reclassifications and less than $1 of net reclassifications, respectively, from AOCI to
earnings resulting from the discontinuance of cash-flow hedges due to forecasted transactions that were no longer probable of occurring.

For derivative instruments that are designated and qualify as a fair value hedge, the gain or loss on the derivative, as well as the offsetting loss or gain on the
hedged item attributable to the hedged risk are recognized in current earnings. The Company includes the gain or loss on the derivative in the same line item as
the offsetting loss or gain on the hedged item. All components of each derivative’s gain or loss were included in the assessment of hedge effectiveness.
The Company recognized in income gains (losses) representing the ineffective portion of fair value hedges as follows:


  
     
Interest rate swaps
Net realized capital gains (losses) $(3) $ (3) $ (73) $ 70 $(43) $ 36
Benefits, losses and loss adjustment expenses — — (1) — (1)3
Foreign currency swaps
Net realized capital gains (losses) (7) 7 (1) 1 8 (8)
Benefits, losses and loss adjustment expenses (6) 6 (22) 22 (12) 12
         
[1] The amounts presented do not include the periodic net coupon settlements of the derivative or the coupon income (expense) related to the hedged item.
The net of the amounts presented represents the ineffective portion of the hedge.
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