The Hartford 2013 Annual Report Download - page 197

F-61
Non-qualifying Strategies
For non-qualifying strategies, including embedded derivatives that are required to be bifurcated from their host contracts and accounted
for as derivatives, the gain or loss on the derivative is recognized currently in earnings within net realized capital gains (losses). The following
table presents the gain or loss recognized in income on non-qualifying strategies:
Non-qualifying Strategies
Gain (Loss) Recognized within Net Realized Capital Gains (Losses)
December 31,
2013 2012 2011
Interest rate contracts
Interest rate swaps, caps, floors, and forwards $ 54 $ 21 $ (22)
Foreign exchange contracts
Foreign currency swaps and forwards 2 19 3
Japan 3Win foreign currency swaps [1] (268)(300) 31
Japanese fixed annuity hedging instruments [2] (207)(178) 109
Credit contracts
Credit derivatives that purchase credit protection (38)(64) (10)
Credit derivatives that assume credit risk 72 293 (174)
Equity contracts
Equity index swaps and options (33) (39) (89)
Variable annuity hedge program
U.S. GMWB product derivative 1,306 1,430 (780)
U.S. GMWB reinsurance contracts (192) (280) 131
U.S. GMWB hedging instruments (852)(631) 252
U.S. macro hedge program (234)(340) (216)
International program product derivatives 16 42 (13)
International program hedging instruments (1,602)(1,509) 704
Other
Contingent capital facility put option (7) (6) (5)
Modified coinsurance reinsurance contracts 67 — —
Total [3] $ (1,916) $ (1,542) $ (79)
[1] The associated liability is adjusted for changes in spot rates through realized capital gains and was $250, $189 and $(100) for the years
ended December 31, 2013, 2012 and 2011, respectively.
[2] The associated liability is adjusted for changes in spot rates through realized capital gains and losses and was $324, $245 and $(129)
for the years ended December 31, 2013, 2012 and 2011, respectively.
[3] Excludes investments that contain an embedded credit derivative for which the Company has elected the fair value option. For further
discussion, see the Fair Value Option section in Note 5 - Fair Value Measurements.
For the year ended December 31, 2013 the net realized capital gain (loss) related to derivatives used in non-qualifying strategies was
primarily comprised of the following:
• The net loss associated with the international program hedging instruments was primarily driven by an improvement in global equity
markets and depreciation of the Japanese yen in relation to the euro and the U.S. dollar.
• The net loss related to the Japan 3Win foreign currency swaps and Japanese fixed annuity hedging instruments was primarily due to
the depreciation of the Japanese yen in relation to the U.S. dollar.
• The net gain related to the combined GMWB hedging program, which includes the GMWB product, reinsurance, and hedging
derivatives, was primarily driven by revaluing the liability for living benefits resulting from favorable policyholder behavior largely
related to increased full surrenders and liability assumption updates for partial lapses and withdrawal rates.
• The net loss on the U.S. macro hedge program was primarily due to an improvement in domestic equity markets, an increase in
interest rates and a decline in equity volatility.
Table of Contents THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
6. Investments and Derivative Instruments (continued)