The Hartford 2014 Annual Report Download - page 167

Table of Contents
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The Company utilizes derivative instruments to manage the risk associated with certain assets and liabilities. However, the derivative instrument may not be
classified with the same fair value hierarchy level as the associated assets and liabilities. Therefore the realized and unrealized gains and losses on derivatives
reported in the Level 3 rollforward may not reflect the offsetting impact of the realized and unrealized gains and losses of the associated assets and liabilities.
Limited partnerships and other alternative investments
A portion of limited partnerships and other alternative investments include hedge funds where investment company accounting has been applied to a wholly-
owned fund of funds measured at fair value. These funds are fair valued using the net asset value per share or equivalent (“NAV”), as a practical expedient,
calculated on a monthly basis and is the amount at which a unit or shareholder may redeem their investment, if redemption is allowed. Certain impediments
to redemption include, but are not limited to the following: 1) redemption notice periods vary and may be as long as 90 days, 2) redemption may be restricted
(e.g. only be allowed on a quarter-end), 3) a holding period referred to as a lock-up may be imposed whereby an investor must hold their investment for a
specified period of time before they can make a notice for redemption, 4) gating provisions may limit all redemptions in a given period to a percentage of the
entities' equity interests, or may only allow an investor to redeem a portion of their investment at one time and 5) early redemption penalties may be imposed
that are expressed as a percentage of the amount redeemed. The Company regularly assesses impediments to redemption and current market conditions that
will restrict the redemption at the end of the notice period. Any funds that are subject to significant liquidity restrictions are reported in Level 3; all others
have been classified as Level 2.
Valuation Techniques and Inputs for Investments
Generally, the Company determines the estimated fair value of its AFS and FVO securities, equity securities, trading, and short-term investments using the
market approach. The income approach is used for securities priced using a pricing matrix, as well as for derivative instruments. Certain limited partnerships
and other alternative investments are measured at fair value using a NAV as a practical expedient. For Level 1 investments, which are comprised of on-the-run
U.S. Treasuries, exchange-traded equity securities, short-term investments, and exchange traded futures and option contracts, valuations are based on
observable inputs that reflect quoted prices for identical assets in active markets that the Company has the ability to access at the measurement date.
For most of the Company’s debt securities, the following inputs are typically used in the Company’s pricing methods: reported trades, benchmark yields, bids
and/or estimated cash flows. For securities except U.S. Treasuries, inputs also include issuer spreads, which may consider credit default swaps. Derivative
instruments are valued using mid-market inputs that are predominantly observable in the market.
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