The Hartford 2010 Annual Report Download - page 115

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Contractholder Obligations
As of
December 31,
2010
Total Life contractholder obligations $ 256,040
Less: Separate account assets [1] (159,742)
International statutory separate accounts [1] (32,793)
General account contractholder obligations $ 63,505
Composition of General Account Contractholder Obligations
Contracts without a surrender provision and/or fixed payout dates [2] $ 29,303
Fixed MVA annuities [3] 10,467
International fixed MVA annuities 2,723
Guaranteed investment contracts (“GIC”) [4] 912
Other [5] 20,100
General account contractholder obligations $ 63,505
[1] In the event customers elect to surrender separate account assets or international statutory separate accounts, Life Operations will use the
proceeds from the sale of the assets to fund the surrender, and Life Operation’s liquidity position will not be impacted. In many instances Life
Operations will receive a percentage of the surrender amount as compensation for early surrender (surrender charge), increasing Life
Operation’s liquidity position. In addition, a surrender of variable annuity separate account or general account assets (see below) will decrease
Life Operation’s obligation for payments on guaranteed living and death benefits.
[2] Relates to contracts such as payout annuities or institutional notes, other than guaranteed investment products with an MVA feature (discussed
below) or surrenders of term life, group benefit contracts or death and living benefit reserves for which surrenders will have no current effect on
Life Operation’s liquidity requirements.
[3] Relates to annuities that are held in a statutory separate account, but under U.S. GAAP are recorded in the general account as Fixed MVA
annuity contract holders are subject to the Company’s credit risk. In the statutory separate account, Life Operation is required to maintain
invested assets with a fair value equal to the MVA surrender value of the Fixed MVA contract. In the event assets decline in value at a greater
rate than the MVA surrender value of the Fixed MVA contract, Life Operation is required to contribute additional capital to the statutory separate
account. Life Operation will fund these required contributions with operating cash flows or short-term investments. In the event that operating
cash flows or short-term investments are not sufficient to fund required contributions, the Company may have to sell other invested assets at a
loss, potentially resulting in a decrease in statutory surplus. As the fair value of invested assets in the statutory separate account are generally
equal to the MVA surrender value of the Fixed MVA contract, surrender of Fixed MVA annuities will have an insignificant impact on the liquidity
requirements of Life Operation.
[4] GICs are subject to discontinuance provisions which allow the policyholders to terminate their contracts prior to scheduled maturity at the lesser
of the book value or market value. Generally, the market value adjustment reflects changes in interest rates and credit spreads. As a result, the
market value adjustment feature in the GIC serves to protect the Company from interest rate risks and limit Life Operation’s liquidity
requirements in the event of a surrender.
[5] Surrenders of, or policy loans taken from, as applicable, these general account liabilities, which include the general account option for Global
Annuity’s individual variable annuities and Life Insurance’s variable life contracts, the general account option for Retirement Plans’ annuities
and universal life contracts sold by Life Insurance may be funded through operating cash flows of Life Operations, available short-term
investments, or Life Operations may be required to sell fixed maturity investments to fund the surrender payment. Sales of fixed maturity
investments could result in the recognition of significant realized losses and insufficient proceeds to fully fund the surrender amount. In this
circumstance, Life Operations may need to take other actions, including enforcing certain contract provisions which could restrict surrenders
and/or slow or defer payouts.
Consolidated Liquidity Position
The following table summarizes the liquidity available to The Hartford:
Liquidity available to The Hartford
As of
December 31,
2010
Short-term investments $8,528
U.S. Treasuries 5,029
Cash 2,062
Less: Derivative collateral (1,899)
Cash associated with Japan variable annuities (702)
Total liquidity available $13,018