The Hartford 2012 Annual Report Download - page 152

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Dividends to Policyholders
Policyholder dividends are paid to certain property and casualty and life insurance policyholders. Policies that receive dividends are referred to as participating
policies. Such dividends are accrued using an estimate of the amount to be paid based on underlying contractual obligations under policies and applicable state
laws.
Net written premiums for participating property and casualty insurance policies represented 10%, 9% and 8% of total net written premiums for the years
ended December 31, 2012, 2011 and 2010, respectively. Participating dividends to policyholders were $14, $18 and $5 for the years ended December 31,
2012, 2011 and 2010, respectively.
Total participating policies in-force represented 1% of the total life insurance policies in-force as of December 31, 2012, 2011 and 2010. Dividends to
policyholders were $20, $17 and $21 for the years ended December 31, 2012, 2011 and 2010, respectively. There were no additional amounts of income
allocated to participating policyholders. If limitations exist on the amount of net income from participating life insurance contracts that may be distributed to
stockholder’s, the policyholder’s share of net income on those contracts that cannot be distributed is excluded from stockholder’s equity by a charge to
operations and a credit to a liability.
Fair Value
The following financial instruments are carried at fair value in the Company’s Consolidated Financial Statements: fixed maturity and equity securities,
available-for-sale (“AFS”), fixed maturities at fair value using fair value option (“FVO”), equity securities, trading, short-term investments, freestanding and
embedded derivatives, limited partnerships and other alternative investments, separate account assets and certain other liabilities.
Investments
Overview
The Company’s investments in fixed maturities include bonds, redeemable preferred stock and commercial paper. These investments, along with certain
equity securities, which include common and non-redeemable preferred stocks, are classified as AFS and are carried at fair value. The after-tax difference
from cost or amortized cost is reflected in stockholders’ equity as a component of Other Comprehensive Income (Loss) (“OCI”), after adjustments for the
effect of deducting the life and pension policyholders’ share of the immediate participation guaranteed contracts and certain life and annuity deferred policy
acquisition costs and reserve adjustments. Fixed maturities for which the Company elected the fair value option are classified as FVO and are carried at fair
value. The equity investments associated with the variable annuity products offered in Japan are recorded at fair value and are classified as trading with
changes in fair value recorded in net investment income. Policy loans are carried at outstanding balance. Mortgage loans are recorded at the outstanding
principal balance adjusted for amortization of premiums or discounts and net of valuation allowances. Short-term investments are carried at amortized cost,
which approximates fair value. Limited partnerships and other alternative investments are reported at their carrying value with the change in carrying value
primarily accounted for under the equity method and accordingly the Company’s share of earnings are included in net investment income. In addition,
investment fund accounting is applied to a wholly-owned fund of funds. Recognition of limited partnerships and other alternative investment income is
delayed due to the availability of the related financial information, as private equity and other funds are generally on a three-month delay and hedge funds are
on a one-month delay. Accordingly, income for the years ended December 31, 2012, 2011, and 2010 may not include the full impact of current year changes in
valuation of the underlying assets and liabilities, which are generally obtained from the limited partnerships and other alternative investments’ general
partners. Other investments primarily consist of derivatives instruments which are carried at fair value.
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