The Hartford 2008 Annual Report Download - page 397

Table of Contents
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. Fair Value Measurements (continued)
[4] The freestanding derivatives, excluding reinsurance derivatives instruments, are reported in this table on a net basis
for asset/(liability) positions and reported on the consolidated balance sheet in other investments and other liabilities.
[5] AOCI refers to “Accumulated other comprehensive income” in the consolidated statement of comprehensive income
(loss). All amounts are before income taxes and amortization of DAC.
[6] The realized/unrealized gains (losses) included in net income for separate account assets are offset by an equal
amount for separate account liabilities, which results in a net zero impact on net income for the Company.
[7] Transfers in and/or (out) of Level 3 during the twelve months ended December 31, 2008 are attributable to a change
in the availability of market observable information for individual securities within the respective categories.
[8] These amounts represent certain Allianz warrants. See Note 21 for further discussion.
[9] The net loss on US GMWB since January 1, 2008 was primarily related to liability model assumption updates for
mortality in the first quarter and market-based hedge ineffectiveness in the third and fourth quarters due to extremely
volatile capital markets, partially offset by gains in the fourth quarter related to liability model assumption updates for
lapse rates.
[10] During July 2008, the Company reinsured, with a third party, U.S. GMWB risks associated with approximately
$7.8 billion of account value sold between 2003 and 2006. The reinsurance agreement is an 80% quota-share
agreement. The third party’s financial strength is rated A+ by A.M. Best, AA- by Standard and Poor’s and Aa2 by
Moody’s. The reinsurance agreement is accounted for as a free-standing derivative.
[11] The ‘Purchases, issuances, and settlements’ primarily relates to the receipt of cash on futures and option contracts
classified as Level 1 and interest rate, currency and credit default swaps classified as Level 2.
For comparative and informational purposes only, the following table rolls-forward the customized and freestanding
derivatives used to hedge US GMWB, the reinsurance recoverable for US GMWB and the embedded derivatives reported in
other policyholder funds and benefits payable for the twelve month period ended December 31, 2007. The fair value
amounts in the following table are the Pre-SFAS 157 fair values.
Roll-forward for the twelve months from January 1, 2007 to December 31, 2007
Total
Fair value Realized/unrealized Fair value
as of gains (losses) Purchases, as of
January 1, included in: issuances, and December 31,
2007 Net income settlements 2007
Assets
Customized derivatives used to hedge
US GMWB $ — $ 50 $ — $ 50
Other freestanding derivatives used to
hedge US GMWB 346 198 48 592
Reinsurance recoverable for US
GMWB (22) 127 23 128
Liabilities
Other policyholder funds and benefits
payable accounted for at fair value
US GMWB $ 53 $ (661) $ (99) $ (707)
UK GMWB — (8) — (8)
Japan GMAB — 2 — 2
Institutional Notes 4 (28) — (24)
Equity Linked Notes — 1 (22) (21)
Total other policyholder funds and
benefits payable accounted for at
fair value 57 (694) (121) (758)
Supplemental Information:
Net US GMWB (Embedded
derivative, freestanding derivatives
and reinsurance recoverable) [1] 377 (286) (28) 63
[1] The net loss on US GMWB was primarily due to liability model assumption updates made during the second and third
quarter to reflect newly reliable market inputs for volatility and model refinements.
Source: HARTFORD FINANCIAL S, 10-K, February 12, 2009