The Hartford 2013 Annual Report Download - page 221

F-85
Regulatory Capital Requirements
The Hartford's U.S. insurance companies' states of domicile impose risk-based capital (“RBC”) requirements. The requirements provide
a means of measuring the minimum amount of statutory capital and surplus, referred to collectively as capital, appropriate for an
insurance company to support its overall business operations based on its size and risk profile. Regulatory compliance is determined by
a ratio of a company's total adjusted capital (“TAC”) to its authorized control level RBC (“ACL RBC”). Companies below specific
trigger points or ratios are classified within certain levels, each of which requires specified corrective action. The minimum level of
TAC before corrective action commences is two times the ACL RBC (“Company Action Level”). The adequacy of a company's capital
is determined by the ratio of a company's TAC to its Company Action Level (known as the RBC ratio). All of The Hartford's operating
insurance subsidiaries had RBC ratios in excess of the minimum levels required by the applicable insurance regulations. On an
aggregate basis, The Hartford's U.S. property and casualty insurance companies' RBC ratio was in excess of 200% of Company Action
Level as of December 31, 2013 and 2012. The RBC ratios for The Hartford's principal life insurance operating subsidiaries were all in
excess of 425% of Company Action Level as of December 31, 2013 and 2012. In addition, all other domestic life insurance subsidiaries,
comprising less than 10% of the capital of the Company's U.S. life insurance subsidiaries, have RBC ratios that exceed the minimum
level required by the applicable insurance regulations. The reporting of RBC ratios is not intended for the purpose of ranking any
insurance company or for use in connection with any marketing, advertising or promotional activities.
Similar to the RBC ratios that are employed by U.S. insurance regulators, regulatory authorities in the international jurisdictions in
which The Hartford operates generally establish minimum solvency requirements for insurance companies. All of The Hartford's
international insurance subsidiaries have solvency margins in excess of the minimum levels required by the applicable regulatory
authorities. The solvency margin ratio for The Hartford's insurance subsidiary in Japan as of its last fiscal year end, March 31, 2013,
was in excess of three times the amount of capital that would require corrective action.
Dividend Restrictions
Dividends to the HFSG Holding Company from its insurance subsidiaries are restricted. The payment of dividends by Connecticut-domiciled
insurers is limited under the insurance holding company laws of Connecticut. These laws require notice to and approval by the state insurance
commissioner for the declaration or payment of any dividend, which, together with other dividends or distributions made within the preceding
twelve months, exceeds the greater of (i) 10% of the insurer’s policyholder surplus as of December 31 of the preceding year or (ii) net
income (or net gain from operations, if such company is a life insurance company) for the twelve-month period ending on the thirty-first
day of December last preceding, in each case determined under statutory insurance accounting principles. In addition, if any dividend of a
Connecticut-domiciled insurer exceeds the insurer’s earned surplus, it requires the prior approval of the Connecticut Insurance Commissioner.
The insurance holding company laws of the other jurisdictions in which The Hartford’s insurance subsidiaries are incorporated (or deemed
commercially domiciled) generally contain similar (although in certain instances somewhat more restrictive) limitations on the payment
of dividends. Dividends paid to HFSG Holding Company by its life insurance subsidiaries are further dependent on cash requirements of
HLI and other factors. In addition to statutory limitations on paying dividends, the Company also takes other items into consideration when
determining dividends from subsidiaries. These considerations include, but are not limited to expected earnings and capitalization of the
subsidiary, regulatory capital requirements and liquidity requirements of the individual operating company.
The Company’s property-casualty insurance subsidiaries are permitted to pay up to a maximum of approximately $1.5 billion in dividends
to HFSG Holding Company in 2014 without prior approval from the applicable insurance commissioner. The life insurance subsidiaries'
dividend limitation under the holding company laws of Connecticut is $560 in 2014. In 2014, HFSG Holding Company anticipates receiving
approximately $800 in dividends from its property-casualty insurance subsidiaries, net of dividends to fund interest payments on an
intercompany note between Hartford Holdings, Inc. and Hartford Fire Insurance Company, and no ordinary dividends from the life insurance
subsidiaries.
On February 5, 2013 the Company received approval from the State of Connecticut Insurance Department for a $1.2 billion extraordinary
dividend from its Connecticut domiciled life insurance subsidiaries. This dividend was paid on February 22, 2013. In 2013, HFSG Holding
Company and HLI received no ordinary dividends from the life insurance subsidiaries, and HFSG Holding Company received $950 in
ordinary dividends from its property-casualty insurance subsidiaries. The amount received from its property-casualty insurance subsidiaries
included $150 related to funding interest payments on an intercompany note between Hartford Holdings Inc. and Hartford Fire Insurance
Company and $800 used in conjunction with other resources at the HFSG Holding Company principally to fund dividends, interest, capital
contributions to subsidiaries, debt maturities and equity repurchases.
There are no current restrictions on the HFSG Holding Company's ability to pay dividends to its shareholders.
Restricted Net Assets
The Company's insurance subsidiaries had net assets of $20 billion, determined in accordance with U.S. GAAP, that were restricted from
payment to the HFSG Holding Company, without prior regulatory approval at December 31, 2013.
Table of Contents THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
16. Equity (continued)