The Hartford 2014 Annual Report Download - page 192

Table of Contents



Change in Notional Amount
The net decrease in notional amount of derivatives since December 31, 2013 was primarily due to the following:
• The decrease in notional amount related to the international program hedging instruments resulted from the termination of the hedging program
associated with the Japan variable annuity product due to the sale of HLIKK. For further discussion on the sale, see the Sale of Hartford Life Insurance
KK section in Note 2 - Business Dispositions of Notes to the Consolidated Financial Statements.
• The decrease in notional amount related to the GMWB hedging instruments primarily resulted from portfolio re-balancing, including the termination
of offsetting positions.
• The decrease in notional amount associated with the macro hedge program was primarily driven by the expiration of certain out-of-the-money options.
• These declines in notional amount were partially offset by an increase in notional amount related to non-qualifying interest rate swaps and futures
related to duration shortening positions, which were subsequently closed by offset.
Change in Fair Value
The net improvement in the total fair value of derivative instruments since December 31, 2013 was primarily related to the following:
• The increase in fair value of qualifying interest rate derivatives was primarily due to a decline in interest rates.
• The net increase in fair value related to the combined GMWB hedging program, which includes the GMWB product, reinsurance, and hedging
derivatives, was primarily driven by liability model assumption updates and increased volatility, partially offset by a decline in fair value resulting
from policyholder behavior primarily related to increased surrenders.
• The increase in the fair value associated with the international program hedging instruments resulted from the termination of the hedging program
associated with the Japan variable annuity product due to the sale of HLIKK. For further discussion on the sale, see the Sale of Hartford Life Insurance
KK section in Note 2 - Business Dispositions of Notes to the Consolidated Financial Statements.
• These improvements in fair value were partially offset by a decrease in fair value associated with the fixed payout annuity hedges primarily driven by a
decline in U.S. interest rates and by a depreciation of the Japanese yen in relation to the U.S. dollar.
• Additional declines in fair value related to modified coinsurance reinsurance contracts, which are accounted for as embedded derivatives and transfer to
the reinsurer the investment experience related to the assets supporting the reinsured policies, were driven by a decline in interest rates, slightly offset
by credit spread widening.
F-56