The Hartford 2008 Annual Report Download - page 386

Table of Contents
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. Fair Value Measurements (continued)
The SFAS 157 transition amounts, before the effects of DAC amortization and income taxes, as of January 1, 2008 are
shown below by type of guaranteed benefit liability and derivative asset.
SFAS 157 Transition Adjustment for Guaranteed Benefit Liabilities and Derivative Assets
As of January 1, 2008
Transition
Adjustment
SFAS 157 Pre-SFAS 157 Gain (Loss)
Fair Value Fair Value [Before tax and
Asset (Liability) Asset (Liability) DAC amortization]
Guaranteed Benefits
U.S. Guaranteed Minimum Withdrawal Benefits $ (1,114) $ (553) $ (561)
Non-Life Contingent Portion of “for Life”
Guaranteed Minimum Withdrawal Benefits
U.S. Riders (319) (154) (165)
International Riders (17) (7) (10)
Total (336) (161) (175)
International Guaranteed Minimum
Accumulation Benefits (22) 2 (24)
Total Guaranteed Benefits (1,472) (712) (760)
GMWB Reinsurance 238 128 110
Total $ (1,234) $ (584) $ (650)
The transition adjustment as of January 1, 2008 was comprised of the following amounts by transition component:
Transition Adjustment
Gain (Loss)
[Before tax and
DAC amortization]
Actively-Managed Volatility Adjustment $ (100)
Credit Standing Adjustment 4
Market Illiquidity Premium (194)
Behavior Risk Margin (360)
Total SFAS 157 Transition Adjustment before tax and DAC amortization $ (650)
Fair Value Disclosures
The following section applies the SFAS 157 fair value hierarchy and disclosure requirements to the Company’s financial
instruments that are carried at fair value. SFAS 157 establishes a fair value hierarchy that prioritizes the inputs in the
valuation techniques used to measure fair value into three broad Levels (Level 1, 2 or 3).
Level
1
Observable inputs that reflect quoted prices for identical assets or liabilities in active markets that the Company
has the ability to access at the measurement date. Level 1 securities include highly liquid U.S. Treasury securities,
money market funds, certain mortgage backed securities, and exchange traded equity and derivative securities.
Level
2
Observable inputs, other than quoted prices included in Level 1, for the asset or liability or prices for similar assets
and liabilities. Most debt securities and some preferred stocks are model priced by vendors using observable inputs
and are classified within Level 2. Also included in the Level 2 category are derivative instruments that are priced
using models with observable market inputs, including interest rate, foreign currency and certain credit swap
contracts.
Level
3
Valuations that are derived from techniques in which one or more of the significant inputs are unobservable
(including assumptions about risk). Level 3 securities include less liquid securities such as highly structured and/or
lower quality asset-backed securities (“ABS”) and commercial mortgage-backed securities (“CMBS”), including
ABS backed by sub-prime loans, and private placement debt and equity securities. Embedded derivatives and
complex derivatives securities, including equity derivatives, longer dated interest rate swaps and certain complex
credit derivatives are also included in Level 3. Because Level 3 fair values, by their nature, contain unobservable
Source: HARTFORD FINANCIAL S, 10-K, February 12, 2009