The Hartford 2013 Annual Report Download - page 204

F-68
9. Goodwill (continued)
The annual goodwill assessment for the Mutual Funds and Consumer Markets reporting units and the Group Benefits reporting unit
within Corporate was completed as of October 31, 2012, which resulted in no write-downs of goodwill for the year ended December 31,
2012. The reporting units passed the first step of their annual impairment test with a significant margin with the exception of the Group
Benefits reporting unit. Group Benefits passed the first step of its annual impairment test with less than a 10% margin. The fair value of
the Group Benefits reporting unit is based on discounted cash flows using earnings projections on in force business and future business
growth. There could be a positive or negative impact on the result of step one in future periods if assumptions change about the level of
economic capital, future business growth, earnings projections or the weighted average cost of capital.
Year ended December 31, 2011
During the second quarter of 2011, the Company wrote off the remaining $15 of goodwill associated with the Federal Trust Corporation
(“FTC”) reporting unit within Corporate due to the announced divestiture of FTC. The write-off of the FTC reporting unit goodwill was
recorded as a loss on disposal within discontinued operations.
The Consumer Markets reporting unit completed its annual goodwill assessment on October 1, 2011 and again on October 31, 2011,
which resulted in no impairment of goodwill. In both tests, the Consumer Markets reporting unit passed the first step of the annual
impairment tests with a significant margin. The annual goodwill assessment for the Property & Casualty Commercial reporting unit that
was performed on October 1, 2011 resulted in a write-down of goodwill of $30, pre-tax leaving no remaining goodwill. The results of
the discounted cash flow calculations indicated that the fair value of the reporting unit was less than the carrying value; this was due
primarily to a decrease in future expected underwriting cash flows. The decrease in future expected underwriting cash flows is driven by
an expected reduction in written premium in the short term as the Company maintains pricing discipline in a downward market cycle,
while retaining long term capabilities for future opportunities.
The Company completed its annual goodwill assessment for Mutual Funds, Individual Life, Retirement Plans and Group Benefits,
including the goodwill within Corporate, on January 1, 2011 and October 31, 2011, which resulted in no impairment of goodwill. In both
tests, the reporting units passed the first step of their annual impairment tests with a significant margin with the exception of the
Individual Life reporting unit at the January 1, 2011 test. The Individual Life reporting unit had a margin of less than 10% between fair
value and book value on January 1, 2011. As of the October 31, 2011 impairment test, the Individual Life reporting unit had a fair value
in excess of book value of approximately 15%, a modest improvement from January 1, 2011 results due to improving cost of capital.
10. Sales Inducements
The Company offered enhanced crediting rates or bonus payments to contract holders on certain of its individual and group annuity
products. The expense associated with offering a bonus is deferred and amortized over the life of the related contract in a pattern
consistent with the amortization of deferred policy acquisition costs. Amortization expense associated with expenses previously deferred
is recorded over the remaining life of the contract. Consistent with the Unlock, the Company unlocks the amortization of the sales
inducement asset. For further information concerning the Unlock, see Note 8 - Deferred Policy Acquisition Costs and Present Value of
Future Profits of Notes to Consolidated Financial Statements.
Changes in sales inducement activity are as follows:
For the years ended December 31,
2013 2012 2011
Balance, beginning of period $ 325 $ 434 $ 459
Sales inducements deferred — 7 20
Amortization — Unlock charge [1] (72)(82) (28)
Amortization charged to income (33)(34) (17)
Amortization charged to business dispositions [2] (71)— —
Balance, end of period $ 149 $ 325 $ 434
[1] Includes Unlock charge of $52 in the first quarter of 2013 related to elimination of future estimated gross profits on the Japan variable annuity
block due to the increased costs associated with expanding Japan variable annuity hedging program.
[2] Represents accelerated amortization of $22 and $49 in the first quarter of 2013 recognized upon the sale of the Retirement Plans and Individual
Life businesses, respectively. For further information, see Note 2 - Business Dispositions of Notes to Consolidated Financial Statements.
Table of Contents THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)