The Hartford 2007 Annual Report Download - page 229

THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-52
9. Separate Accounts, Death Benefits and Other Insurance Benefit Features
The Company records the variable portion of individual variable annuities, 401(k), institutional, 403(b)/457, private placement life and
variable life insurance products within separate account assets and liabilities, which are reported at fair value. Separate account assets
are segregated from other investments. Investment income and gains and losses from those separate account assets, which accrue
directly to, and whereby investment risk is borne by the policyholder, are offset by the related liability changes within the same line
item in the consolidated statements of operations. The fees earned for administrative and contract holder maintenance services
performed for these separate accounts are included in fee income. During 2007, 2006 and 2005, there were no gains or losses on
transfers of assets from the general account to the separate account.
Many of the variable annuity and universal life (“UL”) contracts issued by the Company offer various guaranteed minimum death,
withdrawal, income, accumulation, and UL secondary guarantee benefits. UL secondary guarantee benefits ensure that your policy
will not terminate, and will continue to provide a death benefit, even if there is insufficient policy value to cover the monthly
deductions and charges. Guaranteed minimum death and income benefits are offered in various forms as described in further detail
throughout this Note. The Company currently reinsures a significant portion of the death benefit guarantees associated with its in-force
block of business. Effective April 1, 2006, the Company began reinsuring certain of its death benefit guarantees associated with the in-
force block of variable annuity products offered in Japan. Changes in the gross U.S. guaranteed minimum death benefit (“GMDB”),
Japan GMDB/guaranteed minimum income benefits (“GMIB”), and UL secondary guaranty benefits sold with annuity and/or UL
products accounted for and collectively known as “SOP 03-1 reserve liabilities” are as follows:
U.S. GMDB [1] Japan GMDB/GMIB [1]
UL Secondary
Guarantees [1]
Liability balance as of January 1, 2007 $ 475 $ 35 $ 7
Incurred 142 16 12
Paid (84) (3) —
Unlock (4) (9) —
Currency translation adjustment — 3 —
Liability balance as of December 31, 2007 $ 529 $ 42 $ 19
[1] The reinsurance recoverable asset related to the U.S. GMDB was $327 as of December 31, 2007. The reinsurance recoverable asset related to
the Japan GMDB was $8 as of December 31, 2007. The reinsurance recoverable asset related to the UL Secondary Guarantees was $10 as of
December 31, 2007.
U.S. GMDB [1] Japan GMDB/GMIB [1]
UL Secondary
Guarantees [1]
Liability balance as of January 1, 2006 $ 158 $ 50 $ 5
Incurred 129 28 2
Paid (106) (1) —
Unlock 294 (41) —
Currency translation adjustment — (1) —
Liability balance as of December 31, 2006 $ 475 $ 35 $ 7
[1] The reinsurance recoverable asset related to the U.S. GMDB was $316 as of December 31, 2006. The reinsurance recoverable asset related to
the Japan GMDB was $4 as of December 31, 2006. The reinsurance recoverable asset related to the UL Secondary Guarantees was $6 as of
December 31, 2006.
The net SOP 03-1 reserve liabilities are established by estimating the expected value of net reinsurance costs and death and income
benefits in excess of the projected account balance. The excess death and income benefits and net reinsurance costs are recognized
ratably over the accumulation period based on total expected assessments. The SOP 03-1 reserve liabilities are recorded in reserve for
future policy benefits in the Company’ s consolidated balance sheets. Changes in the SOP 03-1 reserve liabilities are recorded in
benefits, losses and loss adjustment expenses in the Company’ s consolidated statements of operations. In a manner consistent with the
Company’ s accounting policy for deferred acquisition costs, the Company regularly evaluates estimates used and adjusts the additional
liability balances, with a related charge or credit to benefit expense if actual experience or other evidence suggests that earlier
assumptions should be revised. As described within the Unlock Results in Note 1, the Company unlocked its assumptions related to its
SOP 03-1 reserves during the third quarter of 2007 and the fourth quarter of 2006.