The Hartford 2009 Annual Report Download - page 158

THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-9
1. Basis of Presentation and Accounting Policies (continued)
Adoption of New Accounting Standards
Other-Than-Temporary Impairments
In April 2009, the Financial Accounting Standards Board (“FASB”) updated the guidance related to the recognition and presentation of
other-than-temporary impairments. The Company adopted this guidance for its interim reporting period ending on June 30, 2009 and
recognized a $912, net of tax and deferred acquisition costs, increase to retained earnings with an offsetting decrease in Accumulated
Other Comprehensive Income (Loss) reported in the Company’ s Consolidated Statements of Operations, Changes in Equity and
Comprehensive Income (Loss). See Note 5 for the Company’ s accounting policy and disclosures.
Noncontrolling Interests
A noncontrolling interest refers to the minority interest portion of the equity of a subsidiary that is not attributable directly or indirectly
to a parent. The guidance establishes accounting and reporting standards that require for-profit entities that prepare consolidated
financial statements to: (a) present noncontrolling interests as a component of equity, separate from the parent’ s equity, (b) separately
present the amount of consolidated net income attributable to noncontrolling interests in the income statement, (c) consistently account
for changes in a parent’ s ownership interests in a subsidiary in which the parent entity has a controlling financial interest as equity
transactions, (d) require an entity to measure at fair value its remaining interest in a subsidiary that is deconsolidated, and (e) require an
entity to provide sufficient disclosures that identify and clearly distinguish between interests of the parent and interests of noncontrolling
owners. This guidance applies to all for-profit entities that prepare consolidated financial statements, and affects those for-profit entities
that have outstanding noncontrolling interests in one or more subsidiaries or that deconsolidate a subsidiary. This guidance is effective
for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008 with earlier adoption prohibited.
Upon adoption of this guidance on January 1, 2009, the Company reclassified $78 of noncontrolling interest, recorded in other
liabilities, to equity as of January 1, 2007. The adoption did not have a material effect on the Company’ s Consolidated Statements of
Operations and Comprehensive Income (Loss). See Note 5 for the Company’ s accounting policy and disclosures.
Future Adoption of New Accounting Standards
Amendments to Consolidation Guidance for Variable Interest Entities
In June 2009, the FASB issued accounting guidance which amends the current quantitative consolidation requirements applicable to
variable interest entities (“VIE”). Under this new guidance, an entity would consolidate a VIE when the entity has both (a) the power to
direct the activities of a VIE that most significantly impact the entity’ s economic performance and (b) the obligation to absorb losses of
the entity that could potentially be significant to the VIE or the right to receive benefits from the entity that could potentially be
significant to the VIE. The FASB also issued a proposed amendment to this guidance in January 2010 which defers application of this
guidance to certain entities that apply specialized accounting guidance for investment companies.
The Company adopted this updated guidance on January 1, 2010, the effective date. As a result of adoption, in addition to those VIEs
the Company currently consolidates under the old guidance, the Company determined it will consolidate a Company sponsored
collateralized debt obligation (“CDO”) and a Company sponsored collateralized loan obligation (“CLO”) that are VIEs. The Company
expects the impact of these consolidations on its consolidated financial statements to be an increase in assets and increase in liabilities of
approximately $400. The Hartford concluded that the Company has control over the activities that most significantly impact the
economic performance of these VIEs as they provide collateral management services, earn a fee for these services and also have
investments issued by the entities. These vehicles issued securities which have no recourse to the general credit of The Hartford. The
Hartford’ s maximum exposure to loss for these vehicles is their investment in the entities, fair valued at $263 as of December 31, 2009.
The Company has investments in mutual funds, limited partnerships and other alternative investments including hedge funds, mortgage
and real estate funds, mezzanine debt funds, and private equity and other funds which may be VIEs. The accounting for these
investments will remain unchanged as they fall within the scope of the proposed deferral of this new consolidation guidance.