The Hartford 2008 Annual Report Download - page 291

Table of Contents
Securitized Assets
The majority of securitized assets depressed over 20%, as well as, over 50% for six consecutive months are primarily related
to CMBS and sub-prime RMBS. Based upon the Company’s cash flow modeling in a severe negative economic outlook,
which shows no loss of principal and interest, and the Company’s assertion of its ability and intent to retain the securities
until recovery, it has been determined that these securities are temporarily impaired as of December 31, 2008.
All Other Securities
The majority of all other securities depressed over 20% for six consecutive months or greater in the tables above primarily
relate to financial services sector securities that include corporate bonds, as well as, preferred equities issued by large high
quality financial institutions that are lower in the capital structure, and as a result have incurred greater price depressions.
Based upon the Company’s analysis of these securities and current macroeconomic conditions, the Company expects to see
significant price recovery on these securities over time and, therefore, has determined that these securities are temporarily
impaired as of December 31, 2008. For further discussion on these securities, see the discussion below the “Consolidated
Available-for-Sale Securities by Type” table in this section above.
Future changes in the fair value of the investment portfolio are primarily dependent on the extent of future issuer credit
losses, return of liquidity and changes in general market conditions, including interest rates and credit spread movements.
As part of the Company’s ongoing security monitoring process by a committee of investment and accounting professionals,
the Company has reviewed its investment portfolio and concluded that there were no additional other-than-temporary
impairments as of December 31, 2008 and 2007. During this analysis, the Company asserts its intent and ability to retain
until recovery those securities judged to be temporarily impaired. Once identified, these securities are systematically
restricted from trading unless approved by the committee. The committee will only authorize the sale of these securities
based on predefined criteria that relate to events that could not have been reasonably foreseen at the time the committee
rendered its judgment on the Company’s intent and ability to retain such securities until recovery. Examples of the criteria
include, but are not limited to, the deterioration in the issuer’s creditworthiness, a change in regulatory requirements or a
major business combination or major disposition.
The evaluation for other-than-temporary impairments is a quantitative and qualitative process, which is subject to risks and
uncertainties in the determination of whether declines in the fair value of investments are other-than-temporary. The risks
and uncertainties include changes in general economic conditions, the issuer’s financial condition and/or future prospects,
the effects of changes in interest rates or credit spreads and the expected recovery period. In addition, for securitized assets
with contractual cash flows (e.g., ABS and CMBS), projections of expected future cash flows may change based upon new
information regarding the performance of the underlying collateral. As of December 31, 2008 and 2007, management’s
expectation of the discounted future cash flows on these securities was in excess of the associated securities’ amortized cost.
For a further discussion, see “Evaluation of Other-Than-Temporary Impairments on Available-for-Sale Securities” included
in the “Critical Accounting Estimates” section of the MD&A, “Other-Than-Temporary Impairments on Available-for-Sale
Securities” section in Note 1 of Notes to Consolidated Financial Statements and Item 1A, Risk Factors.
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Source: HARTFORD FINANCIAL S, 10-K, February 12, 2009