The Hartford 2008 Annual Report Download - page 442

Table of Contents
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
12. Commitments and Contingencies (continued)
Unfunded Commitments
At December 31, 2008, The Hartford has outstanding commitments totaling approximately $1.1 billion, of which
approximately $1.0 billion is committed to fund limited partnership investments. These capital commitments can be called
by the partnership during the commitment period (on average two to five years) to fund the purchase of new investments and
partnership expenses. Once the commitment period expires, the Company is under no obligation to fund the remaining
unfunded commitment but may elect to do so. The remaining outstanding commitments are primarily related to various
funding obligations associated with investments in mortgage and construction loans. These have a commitment period of
one month to three years.
Guaranty Fund and Other Insurance-related Assessments
In all states, insurers licensed to transact certain classes of insurance are required to become members of a guaranty fund. In
most states, in the event of the insolvency of an insurer writing any such class of insurance in the state, members of the
funds are assessed to pay certain claims of the insolvent insurer. A particular state’s fund assesses its members based on
their respective written premiums in the state for the classes of insurance in which the insolvent insurer was engaged.
Assessments are generally limited for any year to one or two percent of premiums written per year depending on the state.
The Hartford accounts for guaranty fund and other insurance assessments in accordance with Statement of Position
No. 97-3, “Accounting by Insurance and Other Enterprises for Insurance-Related Assessments”. Liabilities for guaranty
fund and other insurance-related assessments are accrued when an assessment is probable, when it can be reasonably
estimated, and when the event obligating the Company to pay an imposed or probable assessment has occurred. Liabilities
for guaranty funds and other insurance-related assessments are not discounted and are included as part of other liabilities in
the Consolidated Balance Sheets. As of December 31, 2008 and 2007, the liability balance was $128 and $147, respectively.
As of December 31, 2008 and 2007, $17 and $19, respectively, related to premium tax offsets were included in other assets.
Tax Matters
The Company’s federal income tax returns are routinely audited by the Internal Revenue Service (“IRS”). During 2008, the
IRS completed its examination of the Company’s U.S. income tax returns for 2002 through 2003. The Company received
notification of the approval by the Joint Committee on Taxation of the results of the examination subsequent to
December 31, 2008. The examination will not have a material effect on the Company’s net income or financial position. The
2004 through 2006 examination began during 2008, and is expected to close by the end of 2010. In addition, the Company is
working with the IRS on a possible settlement of an issue related to prior periods which, if settled, may result in the booking
of tax benefits in 2009. Such benefits are not expected to be material to the Company’s net income or financial position.
Management believes that adequate provision has been made in the financial statements for any potential assessments that
may result from tax examinations and other tax-related matters for all open tax years.
The separate account dividends-received deduction (“DRD”) is estimated for the current year using information from the
prior year-end, adjusted for current year equity market performance and other appropriate factors, including estimated levels
of corporate dividend payments. The estimated DRD was updated in the third quarter for the provision-to-filed-return
adjustments, and in the fourth quarter based on current year ultimate mutual fund distributions and fee income from the
Company’s variable insurance products. The actual current year DRD varied from earlier estimates based on, but not limited
to, changes in eligible dividends received by the mutual funds, amounts of distributions from these mutual funds, amounts of
short-term capital gains and asset values at the mutual fund level and the Company’s taxable income before the DRD. Given
recent financial markets’ volatility, the Company intends to review its DRD computations on a quarterly basis, beginning in
2009. The Company recorded benefits of $176, $155 and $174 related to the separate account DRD in the years ended
December 31, 2008, December 31, 2007 and December 31, 2006, respectively. The 2008 benefit included a benefit of $9
related to a true-up of the prior year tax return, the 2007 benefit included a charge of $1 related to a true-up of the prior year
tax return, and the 2006 benefit included a benefit of $6 related to true-ups of prior years’ tax returns.
In Revenue Ruling 2007-61, issued on September 25, 2007, the IRS announced its intention to issue regulations with respect
to certain computational aspects of the DRD on separate account assets held in connection with variable annuity contracts.
Revenue Ruling 2007-61 suspended Revenue Ruling 2007-54, issued in August 2007 that purported to change accepted
industry and IRS interpretations of the statutes governing these computational questions. Any regulations that the IRS may
ultimately propose for issuance in this area will be subject to public notice and comment, at which time insurance companies
and other members of the public will have the opportunity to raise legal and practical questions about the content, scope and
application of such regulations. As a result, the ultimate timing and substance of any such regulations are unknown, but they
could result in the elimination of some or all of the separate account DRD tax benefit that the Company receives.
Management believes that it is highly likely that any such regulations would apply prospectively only.
Source: HARTFORD FINANCIAL S, 10-K, February 12, 2009