The Hartford 2008 Annual Report Download - page 367

Table of Contents
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. Basis of Presentation and Accounting Policies (continued)
Dividends to Policyholders
Policyholder dividends are paid to certain life and property and casualty policies, which are referred to as participating
policies. Such dividends are accrued using an estimate of the amount to be paid based on underlying contractual obligations
under policies and applicable state laws.
Life — Participating life insurance in force accounted for 7%, 7% and 3% as of December 31, 2008, 2007 and 2006,
respectively, of total life insurance in force. Dividends to policyholders were $14, $11 and $22 for the years ended
December 31, 2008, 2007 and 2006, respectively. There were no additional amounts of income allocated to participating
policyholders. If limitations exist on the amount of net income from participating life insurance contracts that may be
distributed to stockholders, the policyholder’s share of net income on those contracts that cannot be distributed is excluded
from stockholders’ equity by a charge to operations and a credit to a liability.
Property & Casualty — Net written premiums for participating property and casualty insurance policies represented 8% of
total net written premiums for each of the years ended December 31, 2008, 2007 and 2006, respectively. Participating
dividends to policyholders were $21, $19 and $6 for the years ended December 31, 2008, 2007 and 2006, respectively.
Mutual Funds
The Company maintains a retail mutual fund operation, whereby the Company, through wholly-owned subsidiaries,
provides investment management and administrative services to The Hartford Mutual Funds, Inc. and The Hartford Mutual
Funds II, Inc (“The mutual funds”), families of 62 mutual funds and 1 closed end fund. The Company charges fees to the
shareholders of the mutual funds, which are recorded as revenue by the Company. Investors can purchase “shares” in the
mutual funds, all of which are registered with the Securities and Exchange Commission (“SEC”), in accordance with the
Investment Company Act of 1940.
The mutual funds are owned by the shareholders of those funds and not by the Company. As such, the mutual fund assets
and liabilities and related investment returns are not reflected in the Company’s consolidated financial statements since they
are not assets, liabilities and operations of the Company.
Reinsurance
Through both facultative and treaty reinsurance agreements, the Company cedes a share of the risks it has underwritten to
other insurance companies. Assumed reinsurance refers to the Company’s acceptance of certain insurance risks that other
insurance companies have underwritten.
Reinsurance accounting is followed for ceded and assumed transactions when the risk transfer provisions of SFAS 113,
“Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts,” have been met. To meet risk
transfer requirements, a reinsurance contract must include insurance risk, consisting of both underwriting and timing risk,
and a reasonable possibility of a significant loss to the reinsurer.
Earned premiums and incurred losses and loss adjustment expenses reflect the net effects of ceded and assumed reinsurance
transactions. Included in other assets are prepaid reinsurance premiums, which represent the portion of premiums ceded to
reinsurers applicable to the unexpired terms of the reinsurance contracts. Reinsurance recoverables include balances due
from reinsurance companies for paid and unpaid losses and loss adjustment expenses and are presented net of an allowance
for uncollectible reinsurance. The allowance for uncollectible reinsurance was $379 and $404 as of December 31, 2008, and
2007, respectively.
F-22
Source: HARTFORD FINANCIAL S, 10-K, February 12, 2009