The Hartford 2013 Annual Report Download - page 169

F-33
A description of additional inputs used in the Company’s Level 2 and Level 3 measurements is listed below:
Level 2 The fair values of most of the Company’s Level 2 investments are determined by management after considering prices
received from third party pricing services. These investments include most fixed maturities and preferred stocks, including
those reported in separate account assets; as well as, certain limited partnerships and other alternative investments and
derivative instruments.
• ABS, CDOs, CMBS and RMBS — Primary inputs also include monthly payment information, collateral performance,
which varies by vintage year and includes delinquency rates, collateral valuation loss severity rates, collateral
refinancing assumptions, credit default swap indices and, for ABS and RMBS, estimated prepayment rates.
• Corporates, including investment grade private placements — Primary inputs also include observations of credit
default swap curves related to the issuer.
• Foreign government/government agencies - Primary inputs also include observations of credit default swap curves
related to the issuer and political events in emerging markets.
• Municipals — Primary inputs also include Municipal Securities Rulemaking Board reported trades and material event
notices, and issuer financial statements.
• Short-term investments — Primary inputs also include material event notices and new issue money market rates.
• Equity securities, trading — Consist of investments in mutual funds. Primary inputs include net asset values obtained
from third party pricing services.
• Credit derivatives — Significant inputs primarily include the swap yield curve and credit curves.
• Foreign exchange derivatives — Significant inputs primarily include the swap yield curve, currency spot and forward
rates, and cross currency basis curves.
• Interest rate derivatives — Significant input is primarily the swap yield curve.
• Limited partnerships and other alternative investments — Primary inputs include a NAV for investment companies
with no redemption restrictions as reported on their U.S. GAAP financial statements.
Level 3 Most of the Company's securities classified as Level 3 include less liquid securities such as lower quality ABS, CMBS,
commercial real estate ("CRE") CDOs and RMBS primarily backed by below-prime loans. Securities included in level 3
are primarily valued based on broker prices or broker spreads, without adjustments. Primary inputs for non-broker priced
investments, including structured securities, are consistent with the typical inputs used in Level 2 measurements noted
above, but are Level 3 due to their less liquid markets. Additionally, certain long-dated securities are priced based on third
party pricing services, including municipal securities, foreign government/government agencies, 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. Level 3 investments also include certain limited partnerships and
other alternative investments measured at fair value where the Company does not have the ability to redeem the investment
in the near-term at the NAV. 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 include equity and interest
rate volatility and swap yield curves beyond observable limits.
Table of Contents THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
5. Fair Value Measurements (continued)