The Hartford 2008 Annual Report Download - page 103

Table of Contents
The following table presents the fair value of the significant asset sectors within the SFAS 157 Level 3 securities
classification as of December 31, 2008.
% of Total
Fair Value Fair Value
ABS
Below prime $ 1,643 13.3%
Collateralized loan obligations (“CLOs”) 2,131 17.3%
Other 560 4.5%
Corporate
Matrix priced private placements 4,641 37.6%
Other 1,755 14.2%
CMBS 802 6.5%
Preferred stock 337 2.7%
Other 482 3.9%
Total Level 3 securities $ 12,351 100.0%
• ABS below prime primarily represents sub-prime and Alt-A securities which are classified as Level 3 due to the lack of
liquidity in the market.
• ABS CLOs represent senior secured bank loan CLOs which are primarily priced by independent brokers.
• ABS other primarily represents broker priced securities.
• Corporate matrix priced represents private placement securities that are thinly traded and priced using a pricing matrix
which includes significant non-observable inputs.
• Corporate other primarily represents broker priced public securities and private placement securities qualified for sale
under rule 144A, and long-dated fixed maturities where the term of significant inputs may not be sufficient to be
deemed observable.
• CMBS primarily represents CMBS bonds and commercial real estate collateralized debt obligations (“CRE CDOs”)
which were either fair valued by the Company or by independent brokers due to the illiquidity of this sector.
• Preferred stock primarily represents lower quality preferred securities that are less liquid due to market conditions.
Valuation of Derivative Instruments, excluding embedded derivatives within liability contracts
Derivative instruments are reported on the consolidated balance sheets at fair value and are reported in Other Investments
and Other Liabilities. Derivative instruments are fair valued using pricing valuation models, which utilize market data inputs
or independent broker quotations. As of December 31, 2008 and 2007, 94% and 89% of derivatives, respectively, based
upon notional values, were priced by valuation models, which utilize independent market data. The remaining derivatives
were priced by broker quotations. The derivatives are valued using mid-market level inputs, with the exception of the
customized swap contracts that hedge GMWB liabilities, that are predominantly observable in the market. Inputs used to
value derivatives include, but are not limited to, interest swap rates, foreign currency forward and spot rates, credit spreads
and correlations, interest and equity volatility and equity index levels. The Company performs a monthly analysis on
derivative valuations which includes both quantitative and qualitative analysis. Examples of procedures performed include,
but are not limited to, review of pricing statistics and trends, back testing recent trades, analyzing the impacts of changes in
the market environment, and review of changes in market value for each derivative including those derivatives priced by
brokers.
The following table presents the notional value and net fair value of derivatives instruments by SFAS 157 hierarchy level as
of December 31, 2008.
Notional Value Fair Value
Quoted prices in active markets for identical assets (Level 1) $ 4,502 $ —
Significant observable inputs (Level 2) 26,011 1,108
Significant unobservable inputs (Level 3) 23,915 2,330
Total $ 54,428 $ 3,438
The following table presents the notional value and net fair value of the derivative instruments within the SFAS 157 Level 3
securities classification as of December 31, 2008.
Notional Value Fair Value
Source: HARTFORD FINANCIAL S, 10-K, February 12, 2009