The Hartford 2008 Annual Report Download - page 416

Table of Contents
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
5. Investments and Derivative Instruments (continued)
Derivative Change
Notional Amount Fair Value in Value, Before-tax
Hedging Strategy 2008 2007 2008 2007 2008 2007
Contingent Capital Facility
During the first quarter of 2007, the
Company entered into a put
option agreement that provides
the Company the right to
require a third party trust to
purchase, at any time, The
Hartford’s junior subordinated
notes in a maximum aggregate
principal amount of $500.
Under the put option
agreement, The Hartford will
pay premiums on a periodic
basis and will reimburse the
trust for certain fees and
ordinary expenses. The
instrument is accounted for as a
derivative. $ 500 $ 500 $ 42 $ 43 $ (3) $ (4)
Japanese fixed annuity hedging
instruments
The Company enters into currency
rate swaps and forwards to
mitigate the foreign currency
exchange rate and Yen interest
rate exposures associated with
the Yen denominated individual
fixed annuity product. The
associated liability is adjusted
for changes in spot rates which
was $450 and $(102),
before-tax, as of December 31,
2008 and 2007, respectively,
and offsets the derivative
change in value. 2,334 1,849 383 (115) 487 53
Guaranteed Minimum Accumulation
Benefit (“GMAB”) product
derivatives
The Company offers certain
variable annuity products in
Japan that may have a GMAB
rider. The GMAB is a
bifurcated embedded derivative
that provides the policyholder
with their initial deposit in a
lump sum after a specified
waiting period. The notional
value of the embedded
derivative is the Yen
denominated GRB balance
converted to U.S. dollars at the
current December 31, 2008 and
2007, foreign spot exchange
rate, respectively. 206 2,768 — 2 2 2
GMWB product derivatives
The Company offers certain
variable annuity products with a
GMWB rider, primarily in the
U.S. and, to a lesser extent, the
U.K. and Japan. The GMWB is
a bifurcated embedded
derivative that provides the
policyholder with a GRB if the
account value is reduced to zero
through a combination of
market declines and
withdrawals. The GRB is
generally equal to premiums
less withdrawals. The
48,767 45,900 (6,620) (715) (5,786) (670)
Source: HARTFORD FINANCIAL S, 10-K, February 12, 2009