The Hartford 2014 Annual Report Download - page 97

Interest Rate Sensitivity
Invested Assets Supporting Fixed Liabilities
Included in the following table is the before-tax change in the net economic value of investment contracts (e.g., fixed annuity contracts) issued by the
Company’s Talcott Resolution segment, as well as certain insurance product liabilities (e.g., disability contracts) issued by the Company’s Group Benefits
segment, for which the payment rates are fixed at contract issuance and the investment experience is substantially absorbed by the Company’s operations,
along with the corresponding invested assets. Also included in this analysis are the interest rate sensitive derivatives used by the Company to hedge its
exposure to interest rate risk in the investment portfolios supporting these contracts. This analysis does not include the assets and corresponding liabilities of
certain insurance products such as auto, property, term life insurance, and certain life contingent annuities. Certain financial instruments, such as limited
partnerships and other alternative investments, have been omitted from the analysis due to the fact that the investments generally lack sensitivity to interest
rate changes. Separate account assets and liabilities are excluded from the analysis because gains and losses in separate accounts accrue to policyholders. The
calculation of the estimated hypothetical change in net economic value below assumes a 100 basis point upward and downward parallel shift in the yield
curve.
 
 
Basis point shift -100 +100 -100 +100
Increase (decrease) in economic value, before tax $ (452) $ 304 $ (234) $ 128
[1] The table above excludes all assets and liabilities associated with the Company's former Japan variable and fixed annuity business.
The carrying value of fixed maturities, commercial mortgage loans and short-term investments related to the businesses included in the table above was $27.2
billion and $28.6 billion, as of December 31, 2014 and 2013, respectively. The hypothetical change in net economic value increased as compared to
December 31, 2013, primarily as a result of the impact of higher asset fair values driven by lower interest rates. The assets supporting the fixed liabilities are
monitored and managed within set duration guidelines, and are evaluated on a daily basis, as well as annually using scenario simulation techniques in
compliance with regulatory requirements.
Invested Assets Not Supporting Fixed Liabilities
The following table provides an analysis showing the estimated before-tax change in the fair value of the Company’s investments and related derivatives,
excluding assets supporting fixed liabilities which are included in the table above, assuming 100 basis point upward and downward parallel shifts in the
yield curve as of December 31, 2014 and 2013. Certain financial instruments, such as limited partnerships and other alternative investments, have been
omitted from the analysis due to the fact that the investments are accounted for under the equity method and generally lack sensitivity to interest rate
changes.
 
 
Basis point shift -100 +100 -100 +100
Increase (decrease) in fair value, before tax $ 2,182 $ (2,083) $ 2,100 $ (2,005)
[1] The table above excludes all assets associated with the Company's former Japan variable and fixed annuity business.
The carrying value of fixed maturities, commercial mortgage loans and short-term investments related to the businesses included in the table above was $43.1
billion and $40.7 billion, as of December 31, 2014 and 2013, respectively. The selection of the 100 basis point parallel shift in the yield curve was made only
as an illustration of the potential hypothetical impact of such an event and should not be construed as a prediction of future market events. Actual results
could differ materially from those illustrated above due to the nature of the estimates and assumptions used in the above analysis. The Company’s sensitivity
analysis calculation assumes that the composition of invested assets and liabilities remain materially consistent throughout the year and that the current
relationship between short-term and long-term interest rates will remain constant over time. As a result, these calculations may not fully capture the impact of
portfolio re-allocations, significant product sales or non-parallel changes in interest rates.

Equity risk is defined as the risk of financial loss due to changes in the value of global equities or equity indices. The Company has exposure to equity risk
from assets under management, embedded derivatives within the Company’s variable annuities and assets that support the Company’s pension plans. Equity
Risk on the Company’s Variable Annuity products is mitigated through various hedging programs. (See the Variable Annuity Hedge Program Section)
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