The Hartford 2014 Annual Report Download - page 122

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Total Life contractholder obligations $ 186,943
Less: Separate account assets [1] 134,702
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Contracts without a surrender provision and/or fixed payout dates [2] $ 22,135
U.S. Fixed MVA annuities and Other [3] 8,748
Guaranteed investment contracts (“GIC”) [4] 26
Other [5] 21,332
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[1] In the event customers elect to surrender separate account assets or international statutory separate accounts, Life Operations will use the proceeds from the sale of the
assets to fund the surrender, and Life Operations’ liquidity position will not be impacted. In many instances Life Operations will receive a percentage of the surrender
amount as compensation for early surrender (surrender charge), increasing Life Operations’ liquidity position. In addition, a surrender of variable annuity separate account
or general account assets (see below) will decrease Life Operations’ obligation for payments on guaranteed living and death benefits.
[2] Relates to contracts such as payout annuities or institutional notes, other than guaranteed investment products with an MVA feature (discussed below) or surrenders of term
life, group benefit contracts or death and living benefit reserves for which surrenders will have no current effect on Life Operations’ liquidity requirements.
[3] Relates to annuities that are recorded in the general account (under U.S. GAAP), as the contractholders are subject to the Company's credit risk, although these annuities are
held in a statutory separate account. In the statutory separate account, Life Operations is required to maintain invested assets with a fair value equal to the MVA surrender
value of the Fixed MVA contract. In the event assets decline in value at a greater rate than the MVA surrender value of the Fixed MVA contract, Life Operations is required to
contribute additional capital to the statutory separate account. Life Operations will fund these required contributions with operating cash flows or short-term investments. In
the event that operating cash flows or short-term investments are not sufficient to fund required contributions, the Company may have to sell other invested assets at a loss,
potentially resulting in a decrease in statutory surplus. As the fair value of invested assets in the statutory separate account are generally equal to the MVA surrender value of
the Fixed MVA contract, surrender of Fixed MVA annuities will have an insignificant impact on the liquidity requirements of Life Operations.
[4] GICs are subject to discontinuance provisions which allow the policyholders to terminate their contracts prior to scheduled maturity at the lesser of the book value or market
value. Generally, the market value adjustment reflects changes in interest rates and credit spreads. As a result, the market value adjustment feature in the GIC serves to
protect the Company from interest rate risks and limit Life Operations’ liquidity requirements in the event of a surrender.
[5] Surrenders of, or policy loans taken from, as applicable, these general account liabilities, which include the general account option for Life Operations' individual variable
annuities and the variable life contracts of the former Individual Life business, the general account option for annuities of the former Retirement Plans business and universal
life contracts sold by the former Individual Life business, may be funded through operating cash flows of Life Operations, available short-term investments, or Life
Operations may be required to sell fixed maturity investments to fund the surrender payment. Sales of fixed maturity investments could result in the recognition of realized
losses and insufficient proceeds to fully fund the surrender amount. In this circumstance, Life Operations may need to take other actions, including enforcing certain contract
provisions which could restrict surrenders and/or slow or defer payouts. The Company has ceded reinsurance in connection with the sales of its Retirement Plans and
Individual Life businesses in 2013 to MassMutual and Prudential, respectively.
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