The Hartford 2015 Annual Report Download - page 97

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Interest Rate Sensitivity
Invested Assets Supporting Fixed Liabilities
Included in the following table is the before-tax change in the net economic value of investment contracts (e.g., fixed annuity contracts)
issued by the Company’s Talcott Resolution segment, as well as certain insurance product liabilities (e.g., disability contracts) issued by
the Company’s Group Benefits segment, for which the payment rates are fixed at contract issuance and/or the investment experience is
substantially absorbed by the Company’s operations, along with the corresponding invested assets. Also included in this analysis are the
interest rate sensitive derivatives used by the Company to hedge its exposure to interest rate risk in the investment portfolios supporting
these contracts. This analysis does not include the assets and corresponding liabilities of certain insurance products such as auto,
property, term life insurance, and certain life contingent annuities. Certain financial instruments, such as limited partnerships and other
alternative investments, have been omitted from the analysis due to the fact that these investments generally lack sensitivity to interest
rate changes. Insulated separate account assets and liabilities are excluded from the analysis because gains and losses in separate
accounts accrue to policyholders. The calculation of the estimated hypothetical change in net economic value below assumes a 100 basis
point upward and downward parallel shift in the yield curve.
Interest Rate Sensitivity of Fixed Liabilities and Invested Assets Supporting Them Change in Net Economic Value as of December 31,
2015 2014
Basis point shift -100 +100 -100 +100
Increase (decrease) in economic value, before tax $ (420) $ 261 $ (452) $ 304
The carrying value of fixed maturities, commercial mortgage loans and short-term investments related to the businesses included in the
table above was $25.3 billion and $27.2 billion, as of December 31, 2015 and 2014, respectively. The assets supporting the fixed
liabilities are monitored and managed within set duration guidelines, and are evaluated on a daily basis, as well as annually using
scenario simulation techniques in compliance with regulatory requirements.
Invested Assets not Supporting Fixed Liabilities
The following table provides an analysis showing the estimated before-tax change in the fair value of the Company’s investments and
related derivatives, excluding assets supporting fixed liabilities which are included in the table above, assuming 100 basis point upward
and downward parallel shifts in the yield curve as of December 31, 2015 and 2014. Certain financial instruments, such as limited
partnerships and other alternative investments, have been omitted from the analysis due to the fact that these investments generally lack
sensitivity to interest rate changes.
Interest Rate Sensitivity of Invested Assets not Supporting Fixed Liabilities Change in Fair Value as of December 31,
2015 2014
Basis point shift -100 +100 -100 +100
Increase (decrease) in fair value, before tax $ 2,186 $ (2,063) $ 2,182 $ (2,083)
The carrying value of fixed maturities, commercial mortgage loans and short-term investments related to the businesses included in the
table above was $41.9 billion and $43.1 billion, as of December 31, 2015 and 2014, respectively. The selection of the 100 basis point
parallel shift in the yield curve was made only as an illustration of the potential hypothetical impact of such an event and should not be
construed as a prediction of future market events. Actual results could differ materially from those illustrated above due to the nature of
the estimates and assumptions used in the above analysis. The Company’s sensitivity analysis calculation assumes that the composition
of invested assets and liabilities remain materially consistent throughout the year and that the current relationship between short-term
and long-term interest rates will remain constant over time. As a result, these calculations may not fully capture the impact of portfolio
re-allocations, significant product sales or non-parallel changes in interest rates.
Equity Risk
Equity risk is defined as the risk of financial loss due to changes in the value of global equities or equity indices. The Company has
exposure to equity risk from assets under management, embedded derivatives within the Company’s variable annuities and assets that
support the Company’s pension and other post retirement benefit plans. Equity Risk on the Company’s Variable Annuity products is
mitigated through various hedging programs. (See the Variable Annuity Hedge Program Section)