The Hartford 2009 Annual Report Download - page 216

THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-67
12. Commitments and Contingencies (continued)
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 the premiums written per year depending on the state.
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, 2009 and 2008, the liability balance was $111 and $128, respectively. As of
December 31, 2009 and 2008, $18 and $17, respectively, related to premium tax offsets were included in other assets.
Derivative Commitments
Certain of the Company’ s derivative agreements contain provisions that are tied to the financial strength ratings of the individual legal
entity that entered into the derivative agreement as set by nationally recognized statistical rating agencies. If the insurance operating
entity’ s financial strength were to fall below certain ratings, the counterparties to the derivative agreements could demand immediate
and ongoing full collateralization and in certain instances demand immediate settlement of all outstanding derivative positions traded
under each impacted bilateral agreement. The settlement amount is determined by netting the derivative positions transacted under each
agreement. If the termination rights were to be exercised by the counterparties, it could impact the insurance operating entity’ s ability to
conduct hedging activities by increasing the associated costs and decreasing the willingness of counterparties to transact with the
insurance operating entity. The aggregate fair value of all derivative instruments with credit-risk-related contingent features that are in a
net liability position as of December 31, 2009, is $655. Of this $655, the insurance operating entities have posted collateral of $591 in
the normal course of business. Based on derivative market values as of December 31, 2009, a downgrade of one level below the current
financial strength ratings by either Moody’ s or S&P could require approximately an additional $50 to be posted as collateral. Based on
derivative market values as of December 31, 2009, a downgrade by either Moody’ s or S&P of two levels below the insurance operating
entities’ current financial strength ratings could require approximately an additional $70 of assets to be posted as collateral. These
collateral amounts could change as derivative market values change, as a result of changes in our hedging activities or to the extent
changes in contractual terms are negotiated. The nature of the collateral that we may be required to post is primarily in the form of U.S.
Treasury bills and U.S. Treasury notes.