The Hartford 2008 Annual Report Download - page 454

Table of Contents
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
15. Stockholders’ Equity (continued)
Statutory Results
The domestic insurance subsidiaries of HFSG prepare their statutory financial statements in conformity with statutory
accounting practices prescribed or permitted by the applicable state insurance department which vary materially from U.S.
GAAP. Prescribed statutory accounting practices include publications of the National Association of Insurance
Commissioners (“NAIC”), as well as state laws, regulations and general administrative rules. The differences between
statutory financial statements and financial statements prepared in accordance with U.S. GAAP vary between domestic and
foreign jurisdictions. The principal differences are that statutory financial statements do not reflect deferred policy
acquisition costs and limit deferred income taxes, life benefit reserves predominately use interest rate and mortality
assumptions prescribed by the NAIC, bonds are generally carried at amortized cost and reinsurance assets and liabilities are
presented net of reinsurance.
The statutory net income amounts for the years ended December 31, 2007 and 2006, and the statutory surplus amounts as of
December 31, 2007 and 2006 in the table below are based on actual statutory filings with the applicable regulatory
authorities. The statutory net income (loss) amounts for the year ended December 31, 2008 and the statutory surplus
amounts as of December 31, 2008 are estimates, as the respective 2008 statutory filings have not yet been made.
For the years ended December 31,
Statutory Net Income (Loss) 2008 2007 2006
Life operations $ (4,553) $ 729 $ 1,123
Property & Casualty operations 497 1,803 1,326
Total $ (4,056) $ 2,532 $ 2,449
As of December 31,
Statutory Surplus 2008 2007
Life operations $ 6,047 $ 5,786
Japan life operations 1,718 1,620
Property & Casualty operations 6,012 8,509
Total $ 13,777 $ 15,915
The Company has received approval from the Connecticut Insurance Department regarding the use of two permitted
practices in the statutory financial statements of its Connecticut-domiciled life insurance subsidiaries as of December 31,
2008. The first permitted practice relates to the statutory accounting for deferred income taxes. Specifically, this permitted
practice modifies the accounting for deferred income taxes prescribed by the NAIC by increasing the realization period for
deferred tax assets from one year to three years and increasing the asset recognition limit from 10% to 15% of adjusted
statutory capital and surplus. The benefits of this permitted practice may not be considered by the Company when
determining surplus available for dividends. The second permitted practice relates to the statutory reserving requirements for
variable annuities with guaranteed living benefit riders. Actuarial guidelines prescribed by the NAIC require a stand-alone
asset adequacy analysis reflecting only benefits, expenses and charges that are associated with the riders for variable
annuities with guaranteed living benefits. The permitted practice allows for all benefits, expenses and charges associated
with the variable annuity contract to be reflected in the stand-alone asset adequacy test. These permitted practices resulted in
an increase to Life operations estimated statutory surplus of $987 as of December 31, 2008. The effects of these permitted
practices are included in the 2008 Life operations surplus amount in the table above.
HFSG and HLI are holding companies which rely upon operating cash flow in the form of dividends from their subsidiaries,
which enable them to service debt, pay dividends, and pay certain business expenses. Dividends to the Company from its
insurance subsidiaries are restricted. The payment of dividends by Connecticut-domiciled insurers is limited under the
insurance holding company laws of Connecticut. These laws require notice to and approval by the state insurance
commissioner for the declaration or payment of any dividend, which, together with other dividends or distributions made
within the preceding twelve months, exceeds the greater of (i) 10% of the insurer’s policyholder surplus as of December 31
of the preceding year or (ii) net income (or net gain from operations, if such company is a life insurance company) for the
twelve-month period ending on the thirty-first day of December last preceding, in each case determined under statutory
insurance accounting principles. In addition, if any dividend of a Connecticut-domiciled insurer exceeds the insurer’s earned
surplus, it requires the prior approval of the Connecticut Insurance Commissioner. The insurance holding company laws of
the other jurisdictions in which The Hartford’s insurance subsidiaries are incorporated (or deemed commercially domiciled)
generally contain similar (although in certain instances somewhat more restrictive) limitations on the payment of dividends.
It is estimated that the Company’s property-casualty insurance subsidiaries will be permitted to pay up to a maximum of
approximately $1.2 billion in dividends to HFSG in 2009 without prior approval from the applicable insurance
Source: HARTFORD FINANCIAL S, 10-K, February 12, 2009