The Hartford 2013 Annual Report Download - page 121

121
CAPITAL RESOURCES AND LIQUIDITY
The following section discusses the overall financial strength of The Hartford and its insurance operations including their ability to
generate cash flows from each of their business segments, borrow funds at competitive rates and raise new capital to meet operating and
growth needs over the next twelve months.
Liquidity Requirements and Sources of Capital
The Hartford Financial Services Group, Inc.
The liquidity requirements of the holding company of The Hartford Financial Services Group, Inc. (“HFSG Holding Company”) have
been and will continue to be met by HFSG Holding Company’s fixed maturities, short-term investments and cash, dividends from its
subsidiaries, principally its insurance operations, as well as the issuance of common stock, debt or other capital securities and
borrowings from its credit facilities, as needed.
As of December 31, 2013, HFSG Holding Company held fixed maturities, short-term investments and cash of $1.9 billion. On February
22, 2013, following extraordinary dividend approval from the State of Connecticut Insurance Department, $1.2 billion was distributed to
the HFSG Holding Company from its Connecticut domiciled life insurance subsidiaries. In addition, Champlain Life Reinsurance
Company, the Company's Vermont life reinsurance captive, returned approximately $340 of capital to the HFSG Holding Company.
The Hartford has an intercompany liquidity agreement that allows for short-term advances of funds among the HFSG Holding Company
and certain affiliates of up to $2.0 billion for liquidity and other general corporate purposes. The Connecticut Insurance Department
granted approval for certain affiliated insurance companies that are parties to the agreement to treat receivables from a parent, including
the HFSG Holding Company, as admitted assets for statutory accounting purposes. On April 29, 2013 Hartford Life Insurance Company
("HLIC"), an indirect wholly-owned subsidiary of the Company, issued a Revolving Note (the "Note") in the principal amount of $100
to Hartford Life and Accident Insurance Company ("HLA"), a subsidiary of the Company, under the intercompany liquidity agreement.
The Note bears interest at 0.92% and matures on April 29, 2014. On May 29, 2013 Hartford Life and Annuity Insurance Company
("HLAI"), an indirect wholly-owned subsidiary of the Company, issued a Note in the principal amount of $225 to Hartford Life and
Accident Insurance Company, under the intercompany liquidity agreement. The Note bears interest at 1.00% and matures on May 29,
2014. On February 28, 2014, the total outstanding balances on these notes were repaid in full.
HLAI cedes certain variable annuity contracts and their associated riders as well as certain payout annuities issued by HLAI or assumed
by it to White River Life Reinsurance Company ("WRR"), an affiliate captive reinsurer. This arrangement provides the Company with a
vehicle to provide more efficient financing of the risk associated with this business with internal funds. The reinsurance arrangement
between HLAI and WRR does not impact the Company's reserving methodology or the amount of required regulatory capital associated
with the reinsured business. The effects of this intercompany arrangement are eliminated in consolidation.
Pursuant to an intercompany note agreement between WRR and HFSG Holding Company, WRR may borrow up to $1 billion from the
HFSG Holding Company in order to maintain certain statutory capital levels required by its plan of operations and which can be used by
WRR to settle outstanding intercompany payables with HLAI. WRR has borrowed $655 under the intercompany note agreement as of
December 31, 2013. The effects of this intercompany arrangement are eliminated in consolidation. In the first half of 2014, the
Company expects to dissolve WRR and recapture all reinsured risks to HLAI. The Company will take appropriate action to ensure that
its life insurance subsidiaries are adequately capitalized. This transaction is subject to regulatory approvals.
On January 31, 2013, the Board of Directors authorized a capital management plan which provided for a $500 equity repurchase
program to be completed by December 31, 2014 and for the reduction of approximately $1.0 billion of debt including repayment of $320
of 4.625% senior notes due in July 2013 and $200 of 4.75% senior notes due in March 2014. In June 2013, the Board of Directors
approved a $750 increase in the Company's 2013-2014 equity repurchase program, bringing the total authorization to $1.25 billion. On
July 15, 2013, the Company repaid the 4.625% senior notes upon maturity. In January 2014, the Board of Directors approved an increase
in the Company's authorized equity repurchase program by an amount that, when combined with the amount remaining under the
existing authorization, provides the Company with the ability to repurchase $2 billion, in equity during the period commencing on
January 1, 2014 and ending on December 31, 2015.
Expected liquidity requirements of the HFSG Holding Company for the next twelve months include interest on debt of approximately
$380 and common stockholder dividends, subject to the discretion of the Board of Directors, of approximately $270.
Equity
During the year ended December 31, 2013, the Company repurchased 19.2 million common shares for $600, and 1.6 million warrants
for $33 under the equity repurchase program. In addition, the Company repurchased 7.7 million common shares, for $262, from January
1, 2014 to February 25, 2014. For further information see Note 16 - Equity of Notes to Consolidated Financial Statements.