The Hartford 2008 Annual Report Download - page 365

Table of Contents
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. Basis of Presentation and Accounting Policies (continued)
The Hartford regularly reviews the adequacy of its estimated losses and loss adjustment expense reserves by line of business
within the various reporting segments. Adjustments to previously established reserves are reflected in the operating results
of the period in which the adjustment is determined to be necessary. Such adjustments could possibly be significant,
reflecting any variety of new and adverse or favorable trends.
Most of the Company’s property and casualty reserves are not discounted. However, the Company has discounted liabilities
funded through structured settlements and has discounted certain reserves for indemnity payments due to permanently
disabled claimants under workers’ compensation policies. Structured settlements are agreements that provide fixed periodic
payments to claimants and include annuities purchased to fund unpaid losses for permanently disabled claimants and, prior
to 2008, agreements that funded loss run-offs for unrelated parties. Most of the annuities have been purchased from Life and
these structured settlements are recorded at present value as annuity obligations of Life, either within the reserve for future
policy benefits if the annuity benefits are life-contingent or within other policyholder funds and benefits payable if the
annuity benefits are not life-contingent. If not funded through an annuity, reserves for certain indemnity payments due to
permanently disabled claimants under workers’ compensation policies are recorded as property and casualty reserves and
were discounted to present value at an average interest rate of 5.4% in 2008 and 5.5% in 2007. Reserves for structured
settlements that funded loss run-offs for unrelated parties were discounted at an average interest rate of 5.5% in 2007.
As of December 31, 2008 and 2007, property and casualty reserves were discounted by a total of $488 and $568,
respectively. The current accident year benefit from discounting property and casualty reserves was $38 in 2008, $46 in
2007 and $63 in 2006. Contributing to the decrease in the current accident year benefit from discounting over the past three
years has been a reduction in the discount rate, reflecting a lower risk-free rate of return over that period. Accretion of
discounts for prior accident years totaled $26 in 2008, $31 in 2007, and $32 in 2006. For annuities issued by Life to fund
certain P&C workers’ compensation indemnity payments where the claimant has not released the P&C Company of its
obligation, Life has recorded annuity obligations totaling $945 as of December 31, 2008 and $962 as of December 31, 2007.
Other Policyholder Funds and Benefits Payable
The Company has classified its fixed and variable annuities, 401(k), certain governmental annuities, private placement life
insurance (“PPLI”), variable universal life insurance, universal life insurance and interest sensitive whole life insurance as
universal life-type contracts. The liability for universal life-type contracts is equal to the balance that accrues to the benefit
of the policyholders as of the financial statement date (commonly referred to as the account value), including credited
interest, amounts that have been assessed to compensate the Company for services to be performed over future periods, and
any amounts previously assessed against policyholders that are refundable on termination of the contract.
The Company has classified its institutional and governmental products, without life contingencies, including funding
agreements, certain structured settlements and guaranteed investment contracts, as investment contracts. The liability for
investment contracts is equal to the balance that accrues to the benefit of the contract holder as of the financial statement
date, which includes the accumulation of deposits plus credited interest, less withdrawals and amounts assessed through the
financial statement date. Contract holder funds include funding agreements held by Variable Interest Entities issuing
medium-term notes.
Revenue Recognition
Life — For investment and universal life-type contracts, the amounts collected from policyholders are considered deposits
and are not included in revenue. Fee income for universal life-type contracts consists of policy charges for policy
administration, cost of insurance charges and surrender charges assessed against policyholders’ account balances and are
recognized in the period in which services are provided. For the Company’s traditional life and group disability products
premiums are recognized as revenue when due from policyholders.
Property & Casualty — Property and casualty insurance premiums are earned on a pro rata basis over the lives of the
policies and include accruals for ultimate premium revenue anticipated under auditable and retrospectively rated policies.
Unearned premiums represent the premiums applicable to the unexpired terms of policies in force. An estimated allowance
for doubtful accounts is recorded on the basis of periodic evaluations of balances due from insureds, management’s
experience and current economic conditions. The allowance for doubtful accounts included in premiums receivable and
agents’ balances in the consolidated balance sheets was $125 and $126 as of December 31, 2008 and 2007, respectively.
Other revenue consists primarily of revenues associated with the Company’s servicing businesses.
Foreign Currency Translation
Source: HARTFORD FINANCIAL S, 10-K, February 12, 2009