The Hartford 2008 Annual Report Download - page 51

Table of Contents
Our application to participate in the CPP may not be approved or, if approved, may subject us to additional restrictions,
which could have a material adverse effect on our business.
In order to supplement our capital position, we have applied to the U.S. Treasury Department to receive funds from its
Capital Purchase Program (“CPP”). If approved, we estimate that we may be eligible to receive between $1.1 billion and
$3.4 billion in funds. There can be no assurance, however, that we will be approved to participate in the CPP or, if approved,
that we will receive an amount consistent with our estimates. If other insurance companies are approved to participate in the
CPP but we are not so approved, it could create negative market perceptions of our financial strength and capital position,
reduce our available options to raise capital and otherwise have an adverse effect on our results of operations, financial
condition and liquidity.
If we do receive approval to participate in the CPP, receipt of CPP funds will subject us to additional regulation and
restrictions that may have a negative impact on our operations. In order to be eligible to receive CPP funds, we agreed to
acquire (contingent on our approval to participate in the CPP) the parent company of Federal Trust Bank (“FTB”), a
federally chartered, FDIC-insured thrift. As required by the OTS as a condition to consummating that acquisition, we have
since been approved by the OTS to become a savings and loan holding company. As a result, if we are approved to
participate in the CPP and consummate the acquisition of FTB, we will be subject to supervision and examination by the
OTS. New legislation or regulations may also be adopted that would impose additional constraints on the operations of
recipients of CPP funds. Such restrictions, combined with OTS oversight, may make it more difficult to recruit and retain
key employees and otherwise restrict our flexibility to respond to changing market conditions. In addition, if we
consummate the acquisition of FTB, we have agreed with OTS to contribute approximately $100 to the capital of FTB and
to serve as a source of strength to FTB, which could require the contribution of additional capital to FTB in the future. These
factors could have a material adverse effect on our results of operations, financial condition and liquidity.
We have experienced and may experience additional future downgrades in our financial strength or credit ratings, which
may make our products less attractive, increase our cost of capital and inhibit our ability to refinance our debt, which
would have a material adverse effect on our business, results of operations, financial condition and liquidity.
Financial strength and credit ratings, including commercial paper ratings, are an important factor in establishing the
competitive position of insurance companies. During February 2009, our financial strength and credit ratings have been
downgraded by multiple rating agencies. See our ratings in Capital Resources and Liquidity section of the MD&A. Rating
agencies assign ratings based upon several factors. While most of the factors relate to the rated company, some of the factors
relate to the views of the rating agency, general economic conditions, and circumstances outside the rated company’s
control. In addition, rating agencies may employ different models and formulas to assess the financial strength of a rated
company, and from time to time rating agencies have, in their discretion, altered these models. Changes to the models,
general economic conditions, or circumstances outside our control could impact a rating agency’s judgment of its rating and
the rating it assigns us. We cannot predict what actions rating agencies may take, or what actions we may take in response to
the actions of rating agencies, which may adversely affect us.
Our financial strength ratings, which are intended to measure our ability to meet policyholder obligations, are an important
factor affecting public confidence in most of our products and, as a result, our competitiveness. The recent downgrades we
have experienced, a further downgrade, or an announced potential further downgrade, in the rating of our financial strength
or of one of our principal insurance subsidiaries could affect our competitive position in the insurance industry and make it
more difficult for us to market our products, as potential customers may select companies with higher financial strength
ratings thereby reducing future sales of our products and lowering future earnings.
The recent downgrades we have experienced, a further downgrade of our credit ratings, or an announced potential further
downgrade, could affect our ability to raise additional debt with terms and conditions similar to our current debt, or at all,
and accordingly, would likely increase our cost of capital. The recent downgrades we have experienced, or a further
downgrade of our credit ratings could also make it more difficult to raise capital to refinance any maturing debt obligations,
to support business growth at our insurance subsidiaries and to maintain or improve the current financial strength ratings of
our principal insurance subsidiaries described above. After taking into consideration rating agency actions through
February 10, 2009, a downgrade of three levels below our current insurance financial strength levels could begin to trigger
potentially material collateral calls on certain of our derivative instruments and could also trigger counterparty rights to
terminate derivative relationships, both of which could limit our ability to purchase additional derivative instruments. If any
of these negative events were to occur, our business, results of operations, financial condition and liquidity may be adversely
affected.
25
Source: HARTFORD FINANCIAL S, 10-K, February 12, 2009