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SECURITIES AND EXCHANGE COMMISSION
þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Delaware | 13-3317783 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices) (Zip Code)
(Registrant’s telephone number, including area code)
Common Stock, par value $0.01 per share
6.1% Notes due October 1, 2041
7.9% Notes due June 15, 2010 | 5.375% Notes due March 15, 2017 | |
5.25% Notes due October 15, 2011 | 6.3% Notes due March 15, 2018 | |
4.625% Notes due July 15, 2013 | 6.0% Notes due January 15, 2019 | |
4.75% Notes due March 1, 2014 | 5.95% Notes due October 15, 2036 | |
7.3% Debentures due November 1, 2015 | 8.125% Junior Subordinated Debentures due June 15, 2068 | |
5.5% Notes due October 15, 2016 |
Large accelerated filerþ | Accelerated filero | Non-accelerated filero | Smaller Reporting Companyo |
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2009
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• | significant risks and uncertainties related to the Company’s current operating environment, which reflects continued volatility in financial markets, constrained capital and credit markets and uncertainty about the timing and strength of an economic recovery and the impact of governmental budgetary and regulatory initiatives and whether management’s initiatives to address these risks will be effective; |
• | risks associated with our continued execution of steps to realign our business and reposition our investment portfolio, including the potential need to adjust our plans to take other restructuring actions, such as divestitures; |
• | market risks associated with our business, including changes in interest rates, credit spreads, equity prices, foreign exchange rates, as well as challenging or deteriorating conditions in key sectors such as the commercial real estate market, that have pressured our results and are expected to continue to do so in 2010; |
• | volatility in our earnings resulting from our recent adjustment of our risk management program to emphasize protection of statutory surplus; |
• | the impact on our statutory capital of various factors, including many that are outside the Company’s control, which can in turn affect our credit and financial strength ratings, cost of capital, regulatory compliance and other aspects of our business and results; |
• | risks to our business, financial position, prospects and results associated with downgrades in the Company’s financial strength and credit ratings or negative rating actions relating to our investments; |
• | the potential for differing interpretations of the methodologies, estimations and assumptions that underlie the valuation of the Company’s financial instruments that could result in changes to investment valuations; |
• | the subjective determinations that underlie the Company’s evaluation of other-than-temporary impairments on available-for-sale securities; |
• | losses due to nonperformance or defaults by others; |
• | the potential for further acceleration of deferred policy acquisition cost amortization; |
• | the potential for further impairments of our goodwill or the potential for establishing valuation allowances against deferred tax assets; |
• | the possible occurrence of terrorist attacks and the Company’s ability to contain its exposure, including the effect of the absence or insufficiency of applicable terrorism legislation on coverage; |
• | the difficulty in predicting the Company’s potential exposure for asbestos and environmental claims; |
• | the possibility of a pandemic or other man-made disaster that may adversely affect the Company’s businesses and cost and availability of reinsurance; |
• | weather and other natural physical events, including the severity and frequency of storms, hail, snowfall and other winter conditions, natural disasters such as hurricanes and earthquakes, as well as climate change, including effects on weather patterns, greenhouse gases, sea, land and air temperatures, sea levels, rain and snow; |
• | the response of reinsurance companies under reinsurance contracts and the availability, pricing and adequacy of reinsurance to protect the Company against losses; |
• | the possibility of unfavorable loss development; |
• | actions by our competitors, many of which are larger or have greater financial resources than we do; |
• | the costs, compliance and other consequences of the Company’s participation in the Capital Purchase Program under the Emergency Economic Stabilization Act of 2008 and the eventual repayment thereof; |
• | unfavorable judicial or legislative developments; |
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• | the potential effect of domestic and foreign regulatory developments, including those that could adversely impact the demand for the Company’s products, operating costs and required capital levels, including changes to statutory reserves and/or risk-based capital requirements related to secondary guarantees under universal life and variable annuity products; |
• | the Company’s ability to distribute its products through distribution channels, both current and future; |
• | the uncertain effects of emerging claim and coverage issues; |
• | the ability of the Company’s subsidiaries to pay dividends to the Company; |
• | the Company’s ability to effectively price its property and casualty policies, including its ability to obtain regulatory consents to pricing actions or to non-renewal or withdrawal of certain product lines; |
• | the Company’s ability to maintain the availability of its systems and safeguard the security of its data in the event of a disaster or other unanticipated events; |
• | the potential for difficulties arising from outsourcing relationships; |
• | the impact of potential changes in federal or state tax laws, including changes affecting the availability of the separate account dividend received deduction; |
• | the impact of potential changes in accounting principles and related financial reporting requirements; |
• | the Company’s ability to protect its intellectual property and defend against claims of infringement; and |
• | other factors described in such forward-looking statements. |
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(Dollar amounts in millions, except for per share data, unless otherwise stated)
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Property And Casualty Loss And Loss Adjustment Expense Liability Development — Net of Reinsurance
For the Years Ended December 31, [1]
1999 | 2000 | 2001 | 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | ||||||||||||||||||||||||||||||||||
Liabilities for unpaid losses and loss adjustment expenses, net of reinsurance | $ | 12,476 | $ | 12,316 | $ | 12,860 | $ | 13,141 | $ | 16,218 | $ | 16,191 | $ | 16,863 | $ | 17,604 | $ | 18,231 | $ | 18,347 | $ | 18,210 | ||||||||||||||||||||||
Cumulative paid losses and loss expenses | ||||||||||||||||||||||||||||||||||||||||||||
One year later | 2,994 | 3,272 | 3,339 | 3,480 | 4,415 | 3,594 | 3,702 | 3,727 | 3,703 | 3,771 | ||||||||||||||||||||||||||||||||||
Two years later | 5,019 | 5,315 | 5,621 | 6,781 | 6,779 | 6,035 | 6,122 | 5,980 | 5,980 | |||||||||||||||||||||||||||||||||||
Three years later | 6,437 | 6,972 | 8,324 | 8,591 | 8,686 | 7,825 | 7,755 | 7,544 | — | |||||||||||||||||||||||||||||||||||
Four years later | 7,652 | 9,195 | 9,710 | 10,061 | 10,075 | 9,045 | 8,889 | — | �� | |||||||||||||||||||||||||||||||||||
Five years later | 9,567 | 10,227 | 10,871 | 11,181 | 11,063 | 9,928 | — | — | — | |||||||||||||||||||||||||||||||||||
Six years later | 10,376 | 11,140 | 11,832 | 12,015 | 11,821 | — | — | — | — | |||||||||||||||||||||||||||||||||||
Seven years later | 11,137 | 11,961 | 12,563 | 12,672 | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
Eight years later | 11,856 | 12,616 | 13,166 | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
Nine years later | 12,432 | 13,167 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
Ten years later | 12,939 | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
Liabilities re-estimated | ||||||||||||||||||||||||||||||||||||||||||||
One year later | 12,472 | 12,459 | 13,153 | 15,965 | 16,632 | 16,439 | 17,159 | 17,652 | 18,005 | 18,161 | ||||||||||||||||||||||||||||||||||
Two years later | 12,527 | 12,776 | 16,176 | 16,501 | 17,232 | 16,838 | 17,347 | 17,475 | 17,858 | |||||||||||||||||||||||||||||||||||
Three years later | 12,698 | 15,760 | 16,768 | 17,338 | 17,739 | 17,240 | 17,318 | 17,441 | — | |||||||||||||||||||||||||||||||||||
Four years later | 15,609 | 16,584 | 17,425 | 17,876 | 18,367 | 17,344 | 17,497 | — | — | |||||||||||||||||||||||||||||||||||
Five years later | 16,256 | 17,048 | 17,927 | 18,630 | 18,554 | 17,570 | — | — | — | |||||||||||||||||||||||||||||||||||
Six years later | 16,568 | 17,512 | 18,686 | 18,838 | 18,836 | — | — | — | — | |||||||||||||||||||||||||||||||||||
Seven years later | 17,031 | 18,216 | 18,892 | 19,126 | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
Eight years later | 17,655 | 18,410 | 19,192 | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
Nine years later | 17,841 | 18,649 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
Ten years later | 18,055 | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
Deficiency (redundancy), net of reinsurance | $ | 5,579 | $ | 6,333 | $ | 6,332 | $ | 5,985 | $ | 2,618 | $ | 1,379 | $ | 634 | $ | (163 | ) | $ | (373 | ) | $ | (186 | ) | |||||||||||||||||||||
[1] | The above table excludes Hartford Insurance, Singapore as a result of its sale in September 2001; Hartford Seguros as a result of its sale in February 2001; and Zwolsche as a result of its sale in December 2000. |
For the Years Ended December 31, [1]
2000 | 2001 | 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | |||||||||||||||||||||||||||||||
Net reserve, as initially estimated | $ | 12,316 | $ | 12,860 | $ | 13,141 | $ | 16,218 | $ | 16,191 | $ | 16,863 | $ | 17,604 | $ | 18,231 | $ | 18,347 | $ | 18,210 | ||||||||||||||||||||
Reinsurance and other recoverables, as initially estimated | 3,871 | 4,176 | 3,950 | 5,497 | 5,138 | 5,403 | 4,387 | 3,922 | 3,586 | 3,441 | ||||||||||||||||||||||||||||||
Gross reserve, as initially estimated | $ | 16,187 | $ | 17,036 | $ | 17,091 | $ | 21,715 | $ | 21,329 | $ | 22,266 | $ | 21,991 | $ | 22,153 | $ | 21,933 | $ | 21,651 | ||||||||||||||||||||
Net re-estimated reserve | $ | 18,649 | $ | 19,192 | $ | 19,126 | $ | 18,836 | $ | 17,570 | $ | 17,497 | $ | 17,441 | $ | 17,858 | $ | 18,161 | ||||||||||||||||||||||
Re-estimated and other reinsurance recoverables | 5,644 | 5,802 | 5,426 | 5,348 | 5,250 | 5,571 | 3,997 | 3,745 | 3,409 | |||||||||||||||||||||||||||||||
Gross re-estimated reserve | $ | 24,293 | $ | 24,994 | $ | 24,552 | $ | 24,184 | $ | 22,820 | $ | 23,068 | $ | 21,438 | $ | 21,603 | $ | 21,570 | ||||||||||||||||||||||
Gross deficiency (redundancy) | $ | 8,106 | $ | 7,958 | $ | 7,461 | $ | 2,469 | $ | 1,491 | $ | 802 | $ | (553 | ) | $ | (550 | ) | $ | (363 | ) | |||||||||||||||||||
[1] | The above table excludes Hartford Insurance, Singapore as a result of its sale in September 2001; Hartford Seguros as a result of its sale in February 2001; and Zwolsche as a result of its sale in December 2000. |
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Calendar Year | ||||||||||||||||||||||||||||||||||||||||||||
2000 | 2001 | 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | Total | ||||||||||||||||||||||||||||||||||
By Accident year | ||||||||||||||||||||||||||||||||||||||||||||
1999 & Prior | $ | (4 | ) | $ | 55 | $ | 171 | $ | 2,911 | $ | 647 | $ | 312 | $ | 463 | $ | 624 | $ | 186 | $ | 214 | $ | 5,579 | |||||||||||||||||||||
2000 | — | 88 | 146 | 73 | 177 | 152 | 1 | 80 | 8 | 25 | 750 | |||||||||||||||||||||||||||||||||
2001 | — | — | (24 | ) | 39 | (232 | ) | 193 | 38 | 55 | 12 | 61 | 142 | |||||||||||||||||||||||||||||||
2002 | — | — | — | (199 | ) | (56 | ) | 180 | 36 | (5 | ) | 2 | (12 | ) | (54 | ) | ||||||||||||||||||||||||||||
2003 | — | — | — | — | (122 | ) | (237 | ) | (31 | ) | (126 | ) | (21 | ) | (6 | ) | (543 | ) | ||||||||||||||||||||||||||
2004 | — | — | — | — | — | (352 | ) | (108 | ) | (226 | ) | (83 | ) | (56 | ) | (825 | ) | |||||||||||||||||||||||||||
2005 | — | — | — | — | — | — | (103 | ) | (214 | ) | (133 | ) | (47 | ) | (497 | ) | ||||||||||||||||||||||||||||
2006 | — | — | — | — | — | — | — | (140 | ) | (148 | ) | (213 | ) | (501 | ) | |||||||||||||||||||||||||||||
2007 | — | — | — | — | — | — | — | — | (49 | ) | (113 | ) | (162 | ) | ||||||||||||||||||||||||||||||
2008 | — | — | — | — | — | — | — | — | — | (39 | ) | (39 | ) | |||||||||||||||||||||||||||||||
Total | $ | (4 | ) | $ | 143 | $ | 293 | $ | 2,824 | $ | 414 | $ | 248 | $ | 296 | $ | 48 | $ | (226 | ) | $ | (186 | ) | $ | 3,850 | |||||||||||||||||||
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• | the length of time and the extent to which the fair value has been less than cost or amortized cost; |
• | changes in the financial condition, credit rating and near-term prospects of the issuer; |
• | whether the issuer is current on contractually obligated interest and principal payments; |
• | changes in the financial condition of the security’s underlying collateral; |
• | the payment structure of the security; |
• | the potential for impairments in an entire industry sector or sub-sector; |
• | the potential for impairments in certain economically depressed geographic locations; |
• | the potential for impairments of securities where the issuer, series of issuers or industry has suffered a catastrophic type of loss or has exhausted natural resources; |
• | unfavorable changes in forecasted cash flows on mortgage-backed and asset-backed securities; |
• | for mortgage-backed and asset-backed securities, commercial and residential property value declines that vary by property type and location and average cumulative collateral loss rates that vary by vintage year; |
• | other subjective factors, including concentrations and information obtained from regulators and rating agencies; |
• | our intent to sell a debt or an equity security with debt-like characteristics (collectively, “debt security”) or whether it is more likely than not that the Company will be required to sell the debt security before its anticipated recovery; and |
• | our intent and ability to retain an equity security without debt-like characteristics for a period of time sufficient to allow for the recovery of its value. |
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• | Our continued participation in the CPP, even as other financial institutions have repaid their government assistance, may cause us to be perceived as having greater capital needs and weaker overall financial prospects than those of our competitors that have not participated in the CPP, which could adversely affect our competitive position and results, including new product sales and policy retention rates, and affect trading prices for our common stock. |
• | As a condition to our participation in CPP, we acquired Federal Trust Corporation, the parent company of Federal Trust Bank (“FTB”), a federally chartered, FDIC-insured thrift. As a savings and loan holding company, we are subject to regulation, supervision and examination by the OTS and OTS reporting requirements. All of our activities must be financially-related activities as defined by federal law (which includes insurance activities), and OTS has enforcement authority over us, including the right to pursue administrative orders or penalties and the right to restrict or prohibit activities determined by OTS to be a serious risk to FTB. We must also be a source of strength to FTB, which could require further capital contributions. |
• | Receipt of CPP funds subjects us to restrictions, oversight and costs that may have an adverse impact on our business, results or the trading prices for our common stock. For example, we are subject to significant limitations on the amount and form of bonus, retention and other incentive compensation that we may pay to executive officers and senior management. These provisions may adversely affect our ability to attract and retain executive officers and other key personnel. Other regulatory initiatives applicable to participants in federal funding programs may also be forthcoming. Compliance with such current and potential regulation and scrutiny may significantly increase our costs, impede the efficiency of our internal business processes, require us to increase our regulatory capital and limit our ability to pursue business opportunities in an efficient manner. |
• | Future federal statutes may adversely affect the terms of the CPP that are applicable to us, and the Treasury may amend the terms of our agreement unilaterally if required by future statutes, including in a manner materially adverse to us. |
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• | While our objective is to repay the CPP funds invested in us, our ability to do so is subject to federal regulatory approvals that may impose significant conditions, including a requirement that we raise additional capital, and we cannot predict whether or when we may reach agreement with the federal regulators with respect to the terms of our repayment. Our ability to raise capital as a condition to repayment will in turn depend on a variety of considerations, including our capital resources and market conditions at the time, as well as the terms on which we could raise capital, and any potential dilutive impact on shareholders. |
• | licensing companies and agents to transact business; |
• | calculating the value of assets to determine compliance with statutory requirements; |
• | mandating certain insurance benefits; |
• | regulating certain premium rates; |
• | reviewing and approving policy forms; |
• | regulating unfair trade and claims practices, including through the imposition of restrictions on marketing and sales practices, distribution arrangements and payment of inducements; |
• | establishing statutory capital and reserve requirements and solvency standards; |
• | fixing maximum interest rates on insurance policy loans and minimum rates for guaranteed crediting rates on life insurance policies and annuity contracts; |
• | approving changes in control of insurance companies; |
• | restricting the payment of dividends and other transactions between affiliates; |
• | establishing assessments and surcharges for guaranty funds, second-injury funds and other mandatory pooling arrangements; |
• | requiring insurers to dividend to policy holders any excess profits; and |
• | regulating the types, amounts and valuation of investments. |
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Item 5. | MARKET FOR THE HARTFORD’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
1st Qtr. | 2ndQtr. | 3rdQtr. | 4thQtr. | |||||||||||||
2009 | ||||||||||||||||
Common Stock Price | ||||||||||||||||
High | $ | 19.68 | $ | 18.16 | $ | 28.62 | $ | 29.20 | ||||||||
Low | $ | 3.62 | $ | 7.67 | $ | 10.18 | $ | 23.16 | ||||||||
Dividends Declared | $ | 0.05 | $ | 0.05 | $ | 0.05 | $ | 0.05 | ||||||||
2008 | ||||||||||||||||
Common Stock Price | ||||||||||||||||
High | $ | 84.93 | $ | 79.13 | $ | 67.74 | $ | 38.11 | ||||||||
Low | $ | 66.05 | $ | 64.57 | $ | 40.99 | $ | 4.95 | ||||||||
Dividends Declared | $ | 0.53 | $ | 0.53 | $ | 0.53 | $ | 0.32 |
Approximate Dollar | ||||||||||||||||
Total Number of | Value of Shares that | |||||||||||||||
Shares Purchased as | May Yet Be | |||||||||||||||
Total Number | Average Price | Part of Publicly | Purchased Under | |||||||||||||
of Shares | Paid Per | Announced Plans or | the Plans or | |||||||||||||
Period | Purchased [1] | Share | Programs | Programs | ||||||||||||
(in millions) | ||||||||||||||||
October 1, 2009 – October 31, 2009 | 22,353 | $ | 27.49 | — | $ | 807 | ||||||||||
November 1, 2009 – November 30, 2009 | 2,210 | $ | 24.49 | — | $ | 807 | ||||||||||
December 1, 2009 – December 31, 2009 | 2,519 | $ | 24.40 | — | $ | 807 | ||||||||||
Total | 27,082 | $ | 26.96 | — | N/A | |||||||||||
[1] | Primarily relates to shares acquired from employees of the Company for tax withholding purposes in connection with the Company’s stock compensation plans. |
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For the Years Ended December 31, | ||||||||||||||||||||
Company/Index | 2005 | 2006 | 2007 | 2008 | 2009 | |||||||||||||||
The Hartford Financial Services Group, Inc. | 25.83 | % | 10.82 | % | (4.55 | %) | (79.99 | %) | 43.91 | % | ||||||||||
S&P 500 Index | 4.91 | % | 15.79 | % | 5.49 | % | (37.00 | %) | 26.46 | % | ||||||||||
S&P Insurance Composite Index | 14.10 | % | 10.91 | % | (6.31 | %) | (58.14 | %) | 13.90 | % |
Base | ||||||||||||||||||||||||
Period | For the Years Ended December 31, | |||||||||||||||||||||||
Company/Index | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | ||||||||||||||||||
The Hartford Financial Services Group, Inc. | $ | 100 | $ | 125.83 | $ | 139.44 | $ | 133.09 | $ | 26.63 | $ | 38.32 | ||||||||||||
S&P 500 Index | $ | 100 | $ | 104.91 | $ | 121.48 | $ | 128.16 | $ | 80.74 | $ | 102.11 | ||||||||||||
S&P Insurance Composite Index | $ | 100 | $ | 114.10 | $ | 126.56 | $ | 118.57 | $ | 49.63 | $ | 56.53 |
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(In millions, except for per share data and combined ratios)
2009 | 2008 | 2007 | 2006 | 2005 | ||||||||||||||||
Income Statement Data | ||||||||||||||||||||
Earned premiums | $ | 14,424 | $ | 15,503 | $ | 15,619 | $ | 15,023 | $ | 14,359 | ||||||||||
Fee income | 4,576 | 5,135 | 5,436 | 4,739 | 4,012 | |||||||||||||||
Net investment income (loss): | ||||||||||||||||||||
Securities available-for-sale and other | 4,031 | 4,335 | 5,214 | 4,691 | 4,384 | |||||||||||||||
Equity securities, trading | 3,188 | (10,340 | ) | 145 | 1,824 | 3,847 | ||||||||||||||
Total net investment income (loss) | 7,219 | (6,005 | ) | 5,359 | 6,515 | 8,231 | ||||||||||||||
Net realized capital gains (losses) [1] | (2,010 | ) | (5,918 | ) | (994 | ) | (251 | ) | 17 | |||||||||||
Other revenues | 492 | 504 | 496 | 474 | 464 | |||||||||||||||
Total revenues | 24,701 | 9,219 | 25,916 | 26,500 | 27,083 | |||||||||||||||
Benefits, losses and loss adjustment expenses | 13,831 | 14,088 | 13,919 | 13,218 | 12,929 | |||||||||||||||
Benefits, losses and loss adjustment expenses — returns credited on International variable annuities | 3,188 | (10,340 | ) | 145 | 1,824 | 3,847 | ||||||||||||||
Amortization of deferred policy acquisition costs and present value of future profits | 4,267 | 4,271 | 2,989 | 3,558 | 3,169 | |||||||||||||||
Insurance operating costs and expenses | 3,749 | 3,993 | 3,894 | 3,252 | 3,227 | |||||||||||||||
Interest expense | 476 | 343 | 263 | 277 | 252 | |||||||||||||||
Goodwill impairment | 32 | 745 | — | — | — | |||||||||||||||
Other expenses | 886 | 710 | 701 | 769 | 674 | |||||||||||||||
Total benefits, losses and expenses | 26,429 | 13,810 | 21,911 | 22,898 | 24,098 | |||||||||||||||
Income (loss) before income taxes | (1,728 | ) | (4,591 | ) | 4,005 | 3,602 | 2,985 | |||||||||||||
Income tax expense (benefit) | (841 | ) | (1,842 | ) | 1,056 | 857 | 711 | |||||||||||||
Net income (loss) | (887 | ) | (2,749 | ) | 2,949 | 2,745 | 2,274 | |||||||||||||
Preferred stock dividends and accretion of discount | 127 | 8 | — | — | — | |||||||||||||||
Net income (loss) available to common shareholders | $ | (1,014 | ) | $ | (2,757 | ) | $ | 2,949 | $ | 2,745 | $ | 2,274 | ||||||||
Balance Sheet Data | ||||||||||||||||||||
Separate account assets | $ | 150,394 | $ | 130,184 | $ | 199,946 | $ | 180,484 | $ | 150,875 | ||||||||||
Total assets | 307,717 | 287,583 | 360,361 | 326,544 | 285,412 | |||||||||||||||
Short-term debt | 343 | 398 | 1,365 | 599 | 719 | |||||||||||||||
Long-term debt | 5,496 | 5,823 | 3,142 | 3,504 | 4,048 | |||||||||||||||
Separate account liabilities | 150,394 | 130,184 | 199,946 | 180,484 | 150,875 | |||||||||||||||
Stockholders’ equity, excluding AOCI | 21,177 | 16,788 | 20,062 | 18,698 | 15,235 | |||||||||||||||
AOCI, net of tax | (3,312 | ) | (7,520 | ) | (858 | ) | 178 | 90 | ||||||||||||
Total stockholders’ equity | 17,865 | 9,268 | 19,204 | 18,876 | 15,325 | |||||||||||||||
Earnings (Loss) Per Common Share Data | ||||||||||||||||||||
Basic | $ | (2.93 | ) | $ | (8.99 | ) | $ | 9.32 | $ | 8.89 | $ | 7.63 | ||||||||
Diluted | (2.93 | ) | (8.99 | ) | 9.24 | 8.69 | 7.44 | |||||||||||||
Cash dividends declared per common share | 0.20 | 1.91 | 2.03 | 1.70 | 1.17 | |||||||||||||||
Other Data | ||||||||||||||||||||
Mutual fund assets [2] | $ | 64,997 | $ | 50,126 | $ | 55,531 | $ | 43,732 | $ | 32,705 | ||||||||||
Operating Data Combined ratios | ||||||||||||||||||||
Ongoing Property & Casualty Operations | 90.4 | 90.7 | 90.8 | 89.3 | 93.2 | |||||||||||||||
[1] | Included in 2009 and 2008 are impairments of $1.5 billion and $4.0 billion, respectively. | |
[2] | Mutual funds are owned by the shareholders of those funds and not by the Company. As a result, they are not reflected in total assets in the Company’s balance sheet. |
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AND RESULTS OF OPERATIONS
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100 | ||||
103 | ||||
106 | ||||
109 | ||||
110 | ||||
111 | ||||
116 | ||||
126 | ||||
133 | ||||
143 |
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(In millions, except for per share data) | For the years ended December 31, | |||||||||||
Operating Summary | 2009 | 2008 | 2007 | |||||||||
Earned premiums | $ | 14,424 | $ | 15,503 | $ | 15,619 | ||||||
Fee income | 4,576 | 5,135 | 5,436 | |||||||||
Net investment income (loss): | ||||||||||||
Securities available-for-sale and other | 4,031 | 4,335 | 5,214 | |||||||||
Equity securities, trading [1] | 3,188 | (10,340 | ) | 145 | ||||||||
Total net investment income (loss) | 7,219 | (6,005 | ) | 5,359 | ||||||||
Net realized capital losses: | ||||||||||||
Total other-than-temporary impairment (“OTTI”) losses | (2,191 | ) | (3,964 | ) | (483 | ) | ||||||
OTTI losses recognized in other comprehensive income | 683 | — | — | |||||||||
Net OTTI losses recognized in earnings | (1,508 | ) | (3,964 | ) | (483 | ) | ||||||
Net realized capital losses, excluding net OTTI losses recognized in earnings | (502 | ) | (1,954 | ) | (511 | ) | ||||||
Total net realized capital losses | (2,010 | ) | (5,918 | ) | (994 | ) | ||||||
Other revenues | 492 | 504 | 496 | |||||||||
Total revenues | 24,701 | 9,219 | 25,916 | |||||||||
Benefits, losses and loss adjustment expenses | 13,831 | 14,088 | 13,919 | |||||||||
Benefits, losses and loss adjustment expenses — returns credited on International variable annuities [1] | 3,188 | (10,340 | ) | 145 | ||||||||
Amortization of deferred policy acquisition costs and present value of future profits | 4,267 | 4,271 | 2,989 | |||||||||
Insurance operating costs and expenses | 3,749 | 3,993 | 3,894 | |||||||||
Interest expense | 476 | 343 | 263 | |||||||||
Goodwill impairment | 32 | 745 | — | |||||||||
Other expenses | 886 | 710 | 701 | |||||||||
Total benefits, losses and expenses | 26,429 | 13,810 | 21,911 | |||||||||
Income (loss) before income taxes | (1,728 | ) | (4,591 | ) | 4,005 | |||||||
Income tax expense (benefit) | (841 | ) | (1,842 | ) | 1,056 | |||||||
Net income (loss) | $ | (887 | ) | $ | (2,749 | ) | $ | 2,949 | ||||
Supplemental Operating Data | ||||||||||||
Diluted earnings (loss) per common share | $ | (2.93 | ) | $ | (8.99 | ) | $ | 9.24 | ||||
Total revenues, excluding net investment income on equity securities, trading | 21,513 | 19,559 | 25,771 | |||||||||
DAC Unlock benefit (charge), after-tax | (1,034 | ) | (932 | ) | 213 |
As of December 31, | ||||||||||||
Summary of Financial Condition | 2009 | 2008 | 2007 | |||||||||
Total assets | $ | 307,717 | $ | 287,583 | $ | 360,361 | ||||||
Total investment, excluding equity securities, trading | 93,235 | 89,287 | 94,904 | |||||||||
Total stockholders’ equity | 17,865 | 9,268 | 19,204 |
[1] | Includes investment income and mark-to-market effects of equity securities, trading, supporting the international variable annuity business, which are classified in net investment income with corresponding amounts credited to policyholders within benefits, losses and loss adjustment expenses. |
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Increase | Increase | |||||||||||||||||||
(Decrease) From | (Decrease) From | |||||||||||||||||||
Net Income (Loss) by Operation and Life Segment | 2009 | 2008 | 2007 | 2008 to 2009 | 2007 to 2008 | |||||||||||||||
Life | ||||||||||||||||||||
Retail | $ | (410 | ) | $ | (1,399 | ) | $ | 812 | $ | 989 | $ | (2,211 | ) | |||||||
Individual Life | 15 | (43 | ) | 182 | 58 | (225 | ) | |||||||||||||
Group Benefits | 193 | (6 | ) | 315 | 199 | (321 | ) | |||||||||||||
Retirement Plans | (222 | ) | (157 | ) | 61 | (65 | ) | (218 | ) | |||||||||||
International | (183 | ) | (325 | ) | 223 | 142 | (548 | ) | ||||||||||||
Institutional | (515 | ) | (502 | ) | 17 | (13 | ) | (519 | ) | |||||||||||
Other | (165 | ) | (11 | ) | (52 | ) | (154 | ) | 41 | |||||||||||
Total Life | (1,287 | ) | (2,443 | ) | 1,558 | 1,156 | (4,001 | ) | ||||||||||||
Property & Casualty | ||||||||||||||||||||
Ongoing Operations | ||||||||||||||||||||
Underwriting results | ||||||||||||||||||||
Personal Lines | 120 | 280 | 322 | (160 | ) | (42 | ) | |||||||||||||
Small Commercial | 395 | 437 | 508 | (42 | ) | (71 | ) | |||||||||||||
Middle Market | 258 | 169 | 157 | 89 | 12 | |||||||||||||||
Specialty Commercial | 170 | 71 | (18 | ) | 99 | 89 | ||||||||||||||
Ongoing Operations underwriting results | 943 | 957 | 969 | (14 | ) | (12 | ) | |||||||||||||
Net servicing income [1] | 37 | 31 | 52 | 6 | (21 | ) | ||||||||||||||
Net investment income | 943 | 1,056 | 1,439 | (113 | ) | (383 | ) | |||||||||||||
Net realized capital losses | (266 | ) | (1,669 | ) | (160 | ) | 1,403 | (1,509 | ) | |||||||||||
Other expenses | (223 | ) | (219 | ) | (248 | ) | (4 | ) | 29 | |||||||||||
Income before income taxes | 1,434 | 156 | 2,052 | 1,278 | (1,896 | ) | ||||||||||||||
Income tax expense (benefit) | 374 | (33 | ) | 575 | 407 | (608 | ) | |||||||||||||
Ongoing Operations | 1,060 | 189 | 1,477 | 871 | (1,288 | ) | ||||||||||||||
Other Operations | (77 | ) | (97 | ) | 30 | 20 | (127 | ) | ||||||||||||
Total Property & Casualty | 983 | 92 | 1,507 | 891 | (1,415 | ) | ||||||||||||||
Corporate | (583 | ) | (398 | ) | (116 | ) | (185 | ) | (282 | ) | ||||||||||
Net income (loss) | $ | (887 | ) | $ | (2,749 | ) | $ | 2,949 | $ | 1,862 | $ | (5,698 | ) | |||||||
[1] | Net of expenses related to service business. |
• | A decrease in net realized losses, which included other-than-temporary impairments of $1.5 billion compared to $4.0 billion in 2009 and 2008, respectively, and gains on the variable annuity hedge program of $631 in 2009 compared to losses of $639 in 2008. Partially offsetting the decrease in realized losses was approximately $300 in net realized capital losses in 2009 related to the settlement of a contingent obligation to Allianz SE (“Allianz”). |
• | Goodwill impairments in 2009 were $32, after-tax, recorded in Corporate compared to $597, after-tax, in 2008 with $323, after-tax, recorded in Corporate and $274, after-tax, recorded in Life. |
• | Net realized losses of $5.9 billion in 2008 compared to $994 in 2007, which included other-than-temporary impairments of $4.0 billion in 2008 and $483 in 2007. |
• | DAC Unlock, after-tax, impact to earnings was a charge of $932 in 2008 compared to a benefit of $213 in 2007. |
• | Goodwill impairments in 2008 were $597, after-tax, with $323, after-tax, recorded in Corporate and $274, after-tax, in Life compared to no goodwill impairments recorded in 2007. |
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Personal | Small | Middle | Specialty | Ongoing | Other | Total | ||||||||||||||||||||||
Lines | Commercial | Market | Commercial | Operations | Operations | P&C | ||||||||||||||||||||||
Reserve Line of Business | ||||||||||||||||||||||||||||
Property | $ | 323 | $ | 2 | $ | 42 | $ | 56 | $ | 423 | $ | — | $ | 423 | ||||||||||||||
Auto physical damage | 16 | 5 | 5 | 9 | 35 | — | 35 | |||||||||||||||||||||
Auto liability | 1,674 | 248 | 238 | 161 | 2,321 | — | 2,321 | |||||||||||||||||||||
Package business | — | 1,131 | 881 | 136 | 2,148 | — | 2,148 | |||||||||||||||||||||
Workers’ compensation | 9 | 1,933 | 2,270 | 2,272 | 6,484 | — | 6,484 | |||||||||||||||||||||
General liability | 26 | 145 | 693 | 1,286 | 2,150 | — | 2,150 | |||||||||||||||||||||
Professional liability | — | — | — | 742 | 742 | — | 742 | |||||||||||||||||||||
Fidelity and surety | — | — | — | 261 | 261 | — | 261 | |||||||||||||||||||||
Assumed Reinsurance [1] | — | — | — | — | — | 496 | 496 | |||||||||||||||||||||
All other non-A&E | — | — | — | — | — | 936 | 936 | |||||||||||||||||||||
A&E | 2 | 2 | 8 | 3 | 15 | 2,199 | 2,214 | |||||||||||||||||||||
Total reserves-net | 2,050 | 3,466 | 4,137 | 4,926 | 14,579 | 3,631 | 18,210 | |||||||||||||||||||||
Reinsurance and other recoverables | 20 | 137 | 305 | 2,118 | 2,580 | 861 | 3,441 | |||||||||||||||||||||
Total reserves-gross | $ | 2,070 | $ | 3,603 | $ | 4,442 | $ | 7,044 | $ | 17,159 | $ | 4,492 | $ | 21,651 | ||||||||||||||
[1] | These net loss and loss adjustment expense reserves relate to assumed reinsurance that was moved into Other Operations (formerly known as “HartRe”). |
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Personal | Small | Middle | Specialty | Ongoing | Other | Total | ||||||||||||||||||||||
Lines | Commercial | Market | Commercial | Operations | Operations | P&C | ||||||||||||||||||||||
Beginning liabilities for unpaid losses and loss adjustment expenses-gross | $ | 2,052 | $ | 3,572 | $ | 4,744 | $ | 6,981 | $ | 17,349 | $ | 4,584 | $ | 21,933 | ||||||||||||||
Reinsurance and other recoverables | 60 | 176 | 437 | 2,110 | 2,783 | 803 | 3,586 | |||||||||||||||||||||
Beginning liabilities for unpaid losses and loss adjustment expenses-net | 1,992 | 3,396 | 4,307 | 4,871 | 14,566 | 3,781 | 18,347 | |||||||||||||||||||||
Provision for unpaid losses and loss adjustment expenses | ||||||||||||||||||||||||||||
Current accident year before catastrophes | 2,700 | 1,396 | 1,352 | 842 | 6,290 | — | 6,290 | |||||||||||||||||||||
Current accident year catastrophes | 228 | 44 | 32 | 2 | 306 | — | 306 | |||||||||||||||||||||
Prior accident years | (33 | ) | (36 | ) | (187 | ) | (172 | ) | (428 | ) | 242 | (186 | ) | |||||||||||||||
Total provision for unpaid losses and loss adjustment expenses | 2,895 | 1,404 | 1,197 | 672 | 6,168 | 242 | 6,410 | |||||||||||||||||||||
Payments | (2,837 | ) | (1,334 | ) | (1,367 | ) | (617 | ) | (6,155 | ) | (392 | ) | (6,547 | ) | ||||||||||||||
Ending liabilities for unpaid losses and loss adjustment expenses—net | 2,050 | 3,466 | 4,137 | 4,926 | 14,579 | 3,631 | 18,210 | |||||||||||||||||||||
Reinsurance and other recoverables | 20 | 137 | 305 | 2,118 | 2,580 | 861 | 3,441 | |||||||||||||||||||||
Ending liabilities for unpaid losses and loss adjustment expenses—gross | $ | 2,070 | $ | 3,603 | $ | 4,442 | $ | 7,044 | $ | 17,159 | $ | 4,492 | $ | 21,651 | ||||||||||||||
Earned premiums | $ | 3,952 | $ | 2,580 | $ | 2,101 | $ | 1,228 | $ | 9,861 | $ | — | $ | 9,861 | ||||||||||||||
Loss and loss expense paid ratio [1] | 71.8 | 51.7 | 65.1 | 50.4 | 62.5 | |||||||||||||||||||||||
Loss and loss expense incurred ratio | 73.3 | 54.4 | 57.0 | 54.7 | 62.6 | |||||||||||||||||||||||
Prior accident years development (pts) [2] | (0.8 | ) | (1.4 | ) | (8.9 | ) | (14.0 | ) | (4.3 | ) |
[1] | The “loss and loss expense paid ratio” represents the ratio of paid losses and loss adjustment expenses to earned premiums. | |
[2] | “Prior accident years development (pts)” represents the ratio of prior accident years development to earned premiums. |
Personal | Small | Middle | Specialty | Ongoing | Other | Total | ||||||||||||||||||||||
Lines | Commercial | Market | Commercial | Operations | Operations | P&C | ||||||||||||||||||||||
Directors’ and officers’ claims | $ | — | $ | — | $ | — | $ | (127 | ) | $ | (127 | ) | $ | — | $ | (127 | ) | |||||||||||
General liability | — | — | (112 | ) | — | (112 | ) | — | (112 | ) | ||||||||||||||||||
Workers’ compensation | — | (40 | ) | (52 | ) | — | (92 | ) | — | (92 | ) | |||||||||||||||||
Personal auto liability | (77 | ) | — | — | — | (77 | ) | — | (77 | ) | ||||||||||||||||||
Commercial auto liability | — | (33 | ) | (14 | ) | — | (47 | ) | — | (47 | ) | |||||||||||||||||
Package business | — | 38 | — | — | 38 | — | 38 | |||||||||||||||||||||
Surety business | — | — | — | 28 | 28 | — | 28 | |||||||||||||||||||||
Homeowners’ claims | 18 | — | — | — | 18 | — | 18 | |||||||||||||||||||||
Net asbestos reserves | — | — | — | — | — | 138 | 138 | |||||||||||||||||||||
Net environmental reserves | — | — | — | — | — | 75 | 75 | |||||||||||||||||||||
Other Operations’ non-asbestos and non-environmental reserves | — | — | — | — | — | 35 | 35 | |||||||||||||||||||||
Uncollectible reinsurance | — | — | — | (20 | ) | (20 | ) | (20 | ) | (40 | ) | |||||||||||||||||
Other reserve re-estimates, net [1] | 26 | (1 | ) | (9 | ) | (53 | ) | (37 | ) | 14 | (23 | ) | ||||||||||||||||
Total prior accident years development for the year ended December 31, 2009 | $ | (33 | ) | $ | (36 | ) | $ | (187 | ) | $ | (172 | ) | $ | (428 | ) | $ | 242 | $ | (186 | ) | ||||||||
[1] | Includes reserve discount accretion of $24, including $7 in Small Commercial, $9 in Middle Market and $8 in Specialty Commercial. |
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• | While the Company expects its losses from the sub-prime mortgage and credit crisis, as well as its exposure to the Madoff and Stanford cases to be manageable, there is nonetheless the risk that claims under directors’ and officers’ (“D&O”) and errors and omissions (“E&O”) insurance policies incurred in the 2007 and 2008 accident years may develop adversely as the claims are settled. However, so far, the Company has seen no evidence of adverse loss experience related to these events. In fact, reported losses to date for claims under D&O and E&O policies for the 2007 accident year have been emerging favorably to initial expectations. In addition, for the 2003 to 2006 accident years, reported losses for claims under D&O and E&O policies have been emerging favorably to initial expectations due to lower than expected claim severity. The Company released a total of $127 of reserves for D&O and E&O claims in 2009 related to the 2003 to 2008 accident years. Any continued favorable emergence of claims under D&O and E&O insurance policies for the 2008 and prior accident years could lead the Company to reduce reserves for these liabilities in future quarters. |
• | Released reserves for general liability claims by $112, primarily related to accident years 2003 to 2007. Beginning in the third quarter of 2007, the Company observed that reported losses for high hazard and umbrella general liability claims, primarily related to the 2001 to 2006 accident years, were emerging favorably and this caused management to reduce its estimate of the cost of future reported claims for these accident years, resulting in a reserve release in each quarter since the third quarter of 2007. During 2009, management determined that the lower level of loss emergence was also evident in accident year 2007 and had continued for accident years 2003 to 2006 and, as a result, the Company reduced the reserves. In addition, during the third quarter of 2009, the Company recognized that the cost of late emerging exposures were likely to be higher than previously expected. Also in the third quarter, the Company recognized additional ceded losses on accident years 1999 and prior. These third quarter events were largely offsetting. |
• | Released workers’ compensation reserves by $92 in 2009, primarily related to additional ceded losses on accident years 1999 and prior and lower allocated loss adjustment expense reserves in accident years 2003 to 2007. During the first quarter of 2009, the Company observed lower than expected allocated loss adjustment expense payments on older accident years. As a result, the Company reduced its estimate for future expense payments on more recent accident years. |
• | Released reserves for Personal Lines auto liability claims by $77 in 2009. Beginning in the first quarter of 2008, management observed an improvement in emerged claim severity for the 2005 through 2007 accident years attributed, in part, to changes made in claim handling procedures in 2007. During 2009, the Company recognized that favorable development in reported severity was a sustained trend for those accident years and, accordingly, management reduced its reserve estimate. In the third quarter of 2009, management also recognized sustained favorable development trends in AARP for accident year 2008 and released reserves for that accident year. The fourth quarter 2009 reserve release is in response to a continuation of these same favorable trends, primarily for accident years 2006 to 2008. |
• | Released reserves for commercial auto liability claims by $47 in 2009 including $33 in Small Commercial, primarily related to accident years 2003 to 2008. In the fourth quarter of 2009, the Company recognized that the full value of large auto liability claims was being recognized as case reserves at an earlier age. The increased adequacy of case reserves caused the Company to decrease its estimate of reserves for IBNR loss and loss adjustment expenses. |
• | The Company reviewed its allowance for uncollectible reinsurance for Ongoing Operations in the second quarter of 2009 and reduced its allowance for Ongoing Operations by $20 driven, in part, by a reduction in gross ceded loss recoverables. The allowance for uncollectible reinsurance for Ongoing Operations is recorded within the Specialty Commercial segment. |
• | Strengthened reserves for liability claims under Small Commercial package policies by $38 in 2009, primarily related to allocated loss adjustment expenses for accident years 2000 to 2005 and 2007 and 2008. During the first quarter of 2009, the Company identified higher than expected expense payments on older accident years related to the liability coverage. Additional analysis in the second quarter of 2009 showed that this higher level of loss adjustment expense is likely to continue into more recent accident years. As a result, in the second quarter of 2009, the Company increased its estimates for future expense payments for the 2007 and 2008 accident years. In addition, during the third quarter of 2009, the Company recognized the cost of late emerging exposures were likely to be higher than previously expected. Also in the third quarter, the Company recognized a lower than expected frequency of high severity claims. These third quarter events were largely offsetting. |
• | Strengthened reserves for surety business by a net of $28 in 2009, primarily related to accident years 2004 to 2007. The net $28 of strengthening consisted of $55 strengthening of reserves for customs bonds, partially offset by a $27 release of reserves for contract surety claims. During 2008, the Company became aware that there were a large number of late reported surety claims related to customs bonds. Continued high volume of late reported claims during 2009 caused the Company to strengthen the reserves. Because the pattern of claim reporting for customs bonds has not been similar to the reporting pattern of other surety bonds, future claim activity is difficult to predict. It is possible that as additional claim activity emerges, our estimate of both the number of future claims and the cost of those claims could change substantially. |
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• | Strengthened reserves for homeowners’ claims by $18 in 2009, primarily driven by increased claim settlement costs in recent accident years and increased losses from underground storage tanks in older accident years. In 2008, the Company began to observe increasing claim settlement costs for the 2005 to 2008 accident years and, in the first quarter of 2009, determined that this higher cost level would continue, resulting in a reserve strengthening of $9 for these accident years. In addition, beginning in 2008, the Company observed unfavorable emergence of homeowners’ casualty claims for accident years 2003 and prior, primarily related to underground storage tanks. Following a detailed review of these claims in the first quarter of 2009, management increased its estimate of the magnitude of this exposure and strengthened homeowners’ casualty claim reserves by $9. |
Personal | Small | Middle | Specialty | Ongoing | Other | Total | ||||||||||||||||||||||
Lines | Commercial | Market | Commercial | Operations | Operations | P&C | ||||||||||||||||||||||
Beginning liabilities for unpaid losses and loss adjustment expenses—gross | $ | 2,042 | $ | 3,470 | $ | 4,697 | $ | 6,873 | $ | 17,082 | $ | 5,071 | $ | 22,153 | ||||||||||||||
Reinsurance and other recoverables | 81 | 177 | 414 | 2,316 | 2,988 | 934 | 3,922 | |||||||||||||||||||||
Beginning liabilities for unpaid losses and loss adjustment expenses—net | 1,961 | 3,293 | 4,283 | 4,557 | 14,094 | 4,137 | 18,231 | |||||||||||||||||||||
Provision for unpaid losses and loss adjustment expenses | ||||||||||||||||||||||||||||
Current accident year before catastrophes | 2,542 | 1,447 | 1,460 | 941 | 6,390 | — | 6,390 | |||||||||||||||||||||
Current accident year catastrophes | 258 | 122 | 116 | 47 | 543 | — | 543 | |||||||||||||||||||||
Prior accident years | (51 | ) | (89 | ) | (134 | ) | (81 | ) | (355 | ) | 129 | (226 | ) | |||||||||||||||
Total provision for unpaid losses and loss adjustment expenses | 2,749 | 1,480 | 1,442 | 907 | 6,578 | 129 | 6,707 | |||||||||||||||||||||
Payments | (2,718 | ) | (1,377 | ) | (1,418 | ) | (593 | ) | (6,106 | ) | (485 | ) | (6,591 | ) | ||||||||||||||
Ending liabilities for unpaid losses and loss adjustment expenses—net | 1,992 | 3,396 | 4,307 | 4,871 | 14,566 | 3,781 | 18,347 | |||||||||||||||||||||
Reinsurance and other recoverables | 60 | 176 | 437 | 2,110 | 2,783 | 803 | 3,586 | |||||||||||||||||||||
Ending liabilities for unpaid losses and loss adjustment expenses—gross | $ | 2,052 | $ | 3,572 | $ | 4,744 | $ | 6,981 | $ | 17,349 | $ | 4,584 | $ | 21,933 | ||||||||||||||
Earned premiums | $ | 3,926 | $ | 2,724 | $ | 2,299 | $ | 1,382 | $ | 10,331 | $ | 7 | $ | 10,338 | ||||||||||||||
Loss and loss expense paid ratio [1] | 69.2 | 50.5 | 61.6 | 42.8 | 59.1 | |||||||||||||||||||||||
Loss and loss expense incurred ratio | 70.0 | 54.3 | 62.7 | 65.6 | 63.7 | |||||||||||||||||||||||
Prior accident year development (pts.) [2] | (1.3 | ) | (3.3 | ) | (5.9 | ) | (5.8 | ) | (3.4 | ) |
[1] | The “loss and loss expense paid ratio” represents the ratio of paid losses and loss adjustment expenses to earned premiums. | |
[2] | “Prior accident year development (pts)” represents the ratio of prior accident year development to earned premiums. |
Personal | Small | Middle | Specialty | Ongoing | Other | Total | ||||||||||||||||||||||
Lines | Commercial | Market | Commercial | Operations | Operations | P&C | ||||||||||||||||||||||
Gross incurred claim and claim adjustment expenses for current accident year catastrophes | $ | 260 | $ | 124 | $ | 130 | $ | 58 | $ | 572 | $ | — | $ | 572 | ||||||||||||||
Ceded claim and claim adjustment expenses for current accident year catastrophes | 2 | 2 | 14 | 11 | 29 | — | 29 | |||||||||||||||||||||
Net incurred claim and claim adjustment expenses for current accident year catastrophes | 258 | 122 | 116 | 47 | 543 | — | 543 | |||||||||||||||||||||
Assessments owed to Texas Windstorm Insurance Association due to hurricane Ike | 10 | 7 | 3 | — | 20 | — | 20 | |||||||||||||||||||||
Reinstatement premium ceded to reinsurers due to hurricane Ike | 1 | — | — | — | 1 | — | 1 | |||||||||||||||||||||
Total current accident year catastrophe impacts | $ | 269 | $ | 129 | $ | 119 | $ | 47 | $ | 564 | $ | — | $ | 564 | ||||||||||||||
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Personal | Small | Middle | Specialty | Ongoing | Other | Total | ||||||||||||||||||||||
Lines | Commercial | Market | Commercial | Operations | Operations | P&C | ||||||||||||||||||||||
Workers’ compensation | $ | — | $ | (92 | ) | $ | (64 | ) | $ | — | $ | (156 | ) | $ | — | $ | (156 | ) | ||||||||||
General liability | — | (15 | ) | (90 | ) | — | (105 | ) | — | (105 | ) | |||||||||||||||||
Directors’ and officers’ claims | — | — | — | (75 | ) | (75 | ) | — | (75 | ) | ||||||||||||||||||
Personal auto liability | (46 | ) | — | — | — | (46 | ) | — | (46 | ) | ||||||||||||||||||
Commercial auto liability | — | — | (27 | ) | — | (27 | ) | — | (27 | ) | ||||||||||||||||||
Extra-contractual liability claims under non-standard personal auto policies | (24 | ) | — | — | — | (24 | ) | — | (24 | ) | ||||||||||||||||||
Construction defect claims | — | — | — | (10 | ) | (10 | ) | — | (10 | ) | ||||||||||||||||||
General liability and products liability | — | 17 | 50 | — | 67 | — | 67 | |||||||||||||||||||||
National account general liability allocated loss adjustment expense reserves | — | — | — | 25 | 25 | — | 25 | |||||||||||||||||||||
Net environmental reserves | — | — | — | — | — | 53 | 53 | |||||||||||||||||||||
Net asbestos reserves | — | — | — | — | — | 50 | 50 | |||||||||||||||||||||
Other reserve re-estimates, net [1] | 19 | 1 | (3 | ) | (21 | ) | (4 | ) | 26 | 22 | ||||||||||||||||||
Total prior accident years development for the year ended December 31, 2008 | $ | (51 | ) | $ | (89 | ) | $ | (134 | ) | $ | (81 | ) | $ | (355 | ) | $ | 129 | $ | (226 | ) | ||||||||
[1] | Includes reserve discount accretion of $26, including $6 in Small Commercial, $9 in Middle Market, $8 in Specialty Commercial and $3 in Other Operations. |
• | Released workers’ compensation reserves primarily related to accident years 2000 to 2007 by $156. These reserve releases are a continuation of favorable developments first recognized in 2005 and recognized in both 2006 and 2007. The reserve releases in 2008 resulted from a determination that workers’ compensation losses continue to develop even more favorably from prior expectations due, in part, to state legal reforms, including in California and Florida, and underwriting actions as well as cost reduction initiatives first instituted in 2003. In particular, the state legal reforms and underwriting actions have resulted in lower than expected medical claim severity. The $156 reserve release represented 3% of the Company’s net reserves for workers’ compensation claims as of December 31, 2007. |
• | Released reserves for general liability claims primarily related to the 2001 to 2007 accident years by $105. Beginning in the third quarter of 2007, the Company observed that reported losses for high hazard and umbrella general liability claims, primarily related to the 2001 to 2006 accident years, were emerging favorably and this caused management to reduce its estimate of the cost of future reported claims for these accident years, resulting in a reserve release in each quarter since the third quarter of 2007. During 2008, the Company observed that this favorable trend continued with the 2007 accident year. The number of reported claims for this line of business has been lower than expected, a trend first observed in 2005. Over time, management has come to believe that the lower than expected number of claims reported to date will not be offset by a higher than expected number of late reported claims. The $105 reserve release represented 4% of the Company’s net reserves for general liability claims as of December 31, 2007. |
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• | Released reserves for professional liability claims for accident years 2003 to 2006 by $75. During 2008, the Company updated its analysis of certain professional liability claims and the new analysis showed that claim severity for directors and officers losses in the 2003 to 2006 accident years were favorable to previous expectations, resulting in a reduction of reserves. The analysis also showed favorable emergence of claim severity on errors and omission policy claims for the 2004 and 2005 accident years, resulting in a release of reserves. The $75 reserve release represented 13% of the Company’s net reserves for professional liability claims as of December 31, 2007. |
• | Released reserves for Personal Lines auto liability claims by $46, principally related to AARP business for the 2005 through 2007 accident years. Beginning in the first quarter of 2008, management observed an improvement in emerged claim severity for the 2005 through 2007 accident years attributed, in part, to changes made in claim handling procedures in 2007. In the third and fourth quarter of 2008, the Company recognized that favorable development in reported severity was a sustained trend and, accordingly, management reduced its reserve estimate. The $46 reserve release represented 3% of the Company’s net reserves for Personal Lines auto liability claims as of December 31, 2007. |
• | Released commercial auto liability reserves by $27, primarily related to accident years 2002 to 2007. Management has observed fewer than previously expected large losses in accident years 2006 and 2007 and lower than previously expected severity on large claims in accident years 2002 to 2005. In 2008, management recognized that favorable development in reported claim severity was a sustained trend and, accordingly, management reduced its estimate of the reserves. The $27 reserve release represented 9% of the Company’s net reserves for Middle Market commercial auto liability claims as of December 31, 2007. |
• | Released reserves for extra-contractual liability claims under non-standard personal auto policies by $24. As part of the agreement to sell its non-standard auto insurance business in November, 2006, the Company continues to be obligated for certain extra-contractual liability claims arising prior to the date of sale. Reserve estimates for extra-contractual liability claims are subject to significant variability depending on the expected settlement of individually large claims and, during 2008, the Company determined that the settlement value of a number of these claims was expected to be less than previously anticipated, resulting in a $24 release of reserves. The $24 reserve release represented 1% of the Company’s net reserves for Personal Lines auto liability claims as of December 31, 2007. |
• | Released reserves for construction defect claims in Specialty Commercial by $10 for accident years 2005 and prior due to lower than expected reported claim activity. Lower than expected claim activity was first noted in the first quarter of 2007 and continued throughout 2007. In the first quarter of 2008, management determined that this was a verifiable trend and reduced reserves accordingly. The $10 reserve release represented 1% of the Company’s net reserves for Specialty Commercial general liability claims as of December 31, 2007. |
• | Strengthened reserves for general liability and products liability claims primarily for accident years 2004 and prior by $67 for losses expected to emerge after 20 years of development. In 2007, management observed that long outstanding general liability claims have been settling for more than previously anticipated and, during the first quarter of 2008, the Company increased the estimate of late development of general liability claims. The $67 reserve strengthening represented 3% of the Company’s net reserves for general liability claims as of December 31, 2007. |
• | Strengthened reserves for allocated loss adjustment expenses on national account general liability claims within Specialty Commercial by $25. Allocated loss adjustment expense reserves on general liability excess and umbrella claims were strengthened for accident years 2004 and prior as the Company observed that the cost of settling these claims has exceeded previous expectations. The $25 reserve strengthening represented 2% of the Company’s net reserves for Specialty Commercial general liability claims as of December 31, 2007. |
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• | See Other Operations Claims Reserve Activity for information concerning the Company’s annual evaluation of these reserves and related reinsurance. |
Personal | Small | Middle | Specialty | Ongoing | Other | Total | ||||||||||||||||||||||
Lines | Commercial | Market | Commercial | Operations | Operations | P&C | ||||||||||||||||||||||
Beginning liabilities for unpaid losses and loss adjustment expenses-gross | $ | 1,959 | $ | 3,421 | $ | 4,536 | $ | 6,359 | $ | 16,275 | $ | 5,716 | $ | 21,991 | ||||||||||||||
Reinsurance and other recoverables | 134 | 214 | 479 | 2,260 | 3,087 | 1,300 | 4,387 | |||||||||||||||||||||
Beginning liabilities for unpaid losses and loss adjustment expenses-net | 1,825 | 3,207 | 4,057 | 4,099 | 13,188 | 4,416 | 17,604 | |||||||||||||||||||||
Provision for unpaid losses and loss adjustment expenses | ||||||||||||||||||||||||||||
Current accident year before catastrophes | 2,576 | 1,594 | 1,561 | 961 | 6,692 | — | 6,692 | |||||||||||||||||||||
Current accident year catastrophes | 125 | 28 | 15 | 9 | 177 | — | 177 | |||||||||||||||||||||
Prior accident years | (4 | ) | (209 | ) | (16 | ) | 84 | (145 | ) | 193 | 48 | |||||||||||||||||
Total provision for unpaid losses and loss adjustment expenses | 2,697 | 1,413 | 1,560 | 1,054 | 6,724 | 193 | 6,917 | |||||||||||||||||||||
Payments | (2,503 | ) | (1,222 | ) | (1,248 | ) | (720 | ) | (5,693 | ) | (597 | ) | (6,290 | ) | ||||||||||||||
Reallocation of reserves for unallocated loss adjustment expenses [1] | (58 | ) | (105 | ) | (86 | ) | 124 | (125 | ) | 125 | — | |||||||||||||||||
Ending liabilities for unpaid losses and loss adjustment expenses-net | 1,961 | 3,293 | 4,283 | 4,557 | 14,094 | 4,137 | 18,231 | |||||||||||||||||||||
Reinsurance and other recoverables | 81 | 177 | 414 | 2,316 | 2,988 | 934 | 3,922 | |||||||||||||||||||||
Ending liabilities for unpaid losses and loss adjustment expenses-gross | $ | 2,042 | $ | 3,470 | $ | 4,697 | $ | 6,873 | $ | 17,082 | $ | 5,071 | $ | 22,153 | ||||||||||||||
Earned premiums | $ | 3,889 | $ | 2,736 | $ | 2,420 | $ | 1,446 | $ | 10,491 | $ | 5 | $ | 10,496 | ||||||||||||||
Loss and loss expense paid ratio [2] | 64.4 | 44.7 | 51.5 | 49.8 | 54.3 | |||||||||||||||||||||||
Loss and loss expense incurred ratio | 69.3 | 51.6 | 64.5 | 73.0 | 64.1 | |||||||||||||||||||||||
Prior accident year development (pts.) [3] | (0.1 | ) | (7.6 | ) | (0.7 | ) | 5.8 | (1.4 | ) |
[1] | Prior to the second quarter of 2007, the Company evaluated the adequacy of the reserves for unallocated loss adjustment expenses on a company-wide basis. During the second quarter of 2007, the Company refined its analysis of the reserves at the segment level, resulting in the reallocation of reserves among segments, including a reallocation of reserves from Ongoing Operations to Other Operations. | |
[2] | The “loss and loss expense paid ratio” represents the ratio of paid loss and loss adjustment expenses to earned premiums. | |
[3] | “Prior accident year development (pts)” represents the ratio of prior accident year development to earned premiums. |
Personal | Small | Middle | Specialty | Ongoing | Other | Total | ||||||||||||||||||||||
Lines | Commercial | Market | Commercial | Operations | Operations | P&C | ||||||||||||||||||||||
Workers’ compensation | $ | — | $ | (184 | ) | $ | 40 | $ | 47 | $ | (97 | ) | $ | — | $ | (97 | ) | |||||||||||
Package business liability | — | (30 | ) | — | — | (30 | ) | — | (30 | ) | ||||||||||||||||||
Surety business | — | — | — | (22 | ) | (22 | ) | — | (22 | ) | ||||||||||||||||||
Commercial auto liability | — | — | (18 | ) | — | (18 | ) | — | (18 | ) | ||||||||||||||||||
Personal auto liability | (16 | ) | — | — | — | (16 | ) | — | (16 | ) | ||||||||||||||||||
Errors and omissions | — | — | — | (15 | ) | (15 | ) | — | (15 | ) | ||||||||||||||||||
Adverse arbitration decision | — | — | — | — | — | 99 | 99 | |||||||||||||||||||||
General liability | — | — | (35 | ) | 59 | 24 | — | 24 | ||||||||||||||||||||
Net environmental reserves | — | — | — | — | — | 25 | 25 | |||||||||||||||||||||
Other reserve re-estimates, net [1] | 12 | 5 | (3 | ) | 15 | 29 | 69 | 98 | ||||||||||||||||||||
Total prior accident years development for the year ended December 31, 2007 | $ | (4 | ) | $ | (209 | ) | $ | (16 | ) | $ | 84 | $ | (145 | ) | $ | 193 | $ | 48 | ||||||||||
[1] | Includes reserve discount accretion of $31, including $6 in Small Commercial, $8 in Middle Market, $11 in Specialty Commercial and $6 in Other Operations. |
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• | Released Small Commercial workers’ compensation reserves by $151, primarily related to accident years 2002 to 2006. This reserve release is a continuation of favorable developments first recognized in 2005 and 2006. The workers’ compensation reserve releases in 2007 resulted from a determination that workers’ compensation losses continue to develop even more favorably from prior expectations due to the California and Florida legal reforms and underwriting actions as well as cost reduction initiatives first instituted in 2003. In particular, the state legal reforms and underwriting actions have resulted in lower than expected medical claim severity. In addition, the Company determined that paid losses related to workers’ compensation policies sold through payroll service providers were emerging favorably, leading to a release of reserves for the 2003 to 2006 accident years. The $151 reserve release represented 9% of the Company’s net reserves for Small Commercial workers’ compensation claims as of December 31, 2006. Released Small Commercial workers’ compensation reserves related to accident years 2000 and prior by $33. The severity of workers’ compensation medical claims for these accident years has emerged favorably to previous expectations. As the continued development of these claims has resulted in a sustained favorable trend, management released reserves in the fourth quarter of 2007. The $33 reserve release represented 2% of the Company’s net reserves for Small Commercial workers’ compensation claims as of December 31, 2006. |
• | Released reserves for Middle Market general liability claims related to the 2003 to 2006 accident years by $49. Beginning in the third quarter of 2007, the Company observed that reported losses for high hazard and umbrella general liability claims for the 2003 to 2006 accident years were emerging favorably and this caused management to reduce its estimate of the cost of future reported claims for these accident years, resulting in a reserve release in the third and fourth quarter of 2007. This reserve development is unrelated to the reserve strengthening in 2005 and 2006 of other Middle Market general liability claims which developed unfavorably due to higher than anticipated loss payments beyond four years of development. The $49 reserve release represented 6% of the Company’s net reserves for Middle Market general liability claims as of December 31, 2006. |
• | Recorded a $30 net release of reserves for Small Commercial package business related to the 2003 to 2006 accident years. Reserve reviews completed during 2007 identified that the frequency of reported liability claims on Small Commercial package business policies for these accident years was lower than the previously expected frequency. In addition, reported loss costs on property coverages have emerged favorably for the 2006 accident year. In recognition of these trends, in the second and fourth quarter of 2007, management reduced reserves by a total of $30. The $30 reserve release represented 3% of the Company’s net reserves for Small Commercial package business claims as of December 31, 2006. |
• | Released reserves for commercial surety business by $22 for accident years 2003 to 2006. Reported losses for commercial surety business have been emerging favorably resulting in the Company lowering its estimate of ultimate unpaid losses during the third quarter of 2007. The $22 reserve release represented 14% of the Company’s net reserves for fidelity and surety claims as of December 31, 2006. |
• | Released Middle Market commercial auto liability reserves by $18 for accident years 2003 and 2004. Since the first quarter of 2007, reported losses for commercial auto liability claims in these accident years have emerged favorably although management did not determine that this was a verifiable trend until the third quarter of 2007 when it released the reserves. The $18 reserve release represented 6% of the Company’s net reserves for Middle Market auto liability claims as of December 31, 2006. |
• | Released reserves for Personal Lines auto liability claims for accident years 2002 to 2006 by $16. This reserve release was a continuation of trends first observed in 2006. During the first quarter of 2006, the Company released auto liability reserves related to the 2005 accident year due to frequency emerging favorable to initial expectations. During the second quarter of 2006, the Company observed that loss cost severity on auto liability claims for the 2004 accident year was emerging favorable to initial expectations and released reserves to recognize this trend. For each of the 2002 to 2006 accident years, the Company has continued to observe favorable trends in reported severity and, in the fourth quarter of 2007, the Company released an additional $16 in reserves. The $16 reserve release represented 1% of the Company’s net reserves for Personal Lines auto liability claims as of December 31, 2006. |
• | Released reserves for E&O claims for accident year 2005 by $15. During the fourth quarter of 2007, the Company updated its analysis of certain professional liability claims and the new analysis showed that claims under E&O policies were emerging favorable to initial expectations, resulting in this reserve release. The $15 reserve release represented 3% of the Company’s net reserves for professional liability claims as of December 31, 2006. |
• | Strengthened Specialty Commercial workers’ compensation reserves by $47, primarily related to accident years 1987 to 2001. Management has been observing larger than expected increases in loss cost severity, particularly on high deductible and excess policies. The $47 reserve strengthening represented 2% of the Company’s net reserves for Specialty Commercial workers’ compensation claims as of December 31, 2006. |
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• | Strengthened Middle Market workers’ compensation reserves by $40 for accident years 1973 and prior, primarily driven by a reduction in reinsurance recoverables from the commutation of certain reinsurance treaties. Due to the commutations, within the past two years, net paid losses on these claims have begun to emerge unfavorably to initial expectations and, during 2007, the Company determined that this trend in higher paid losses would ultimately result in unpaid losses settling for more than management’s previous estimates. The $40 reserve strengthening represented 2% of net reserves for Middle Market workers’ compensation claims as of December 31, 2006. |
• | Strengthened general liability reserves by $39 for accident years more than 20 years old, including $25 in Specialty Commercial. The Company has experienced an increase in defense costs for certain mass tort claims and, during 2007, the Company determined that the increase in defense costs was a sustained trend that resulted in an increase in reserves. The $39 reserve strengthening represented 2% of the Company’s net reserves for general liability claims as of December 31, 2006. |
• | Strengthened reserves for Specialty Commercial general and products liability claims by $34, primarily related to the 1987 to 1997 accident years. Reported losses on general and products liability claims have been emerging unfavorably to previous expectations and loss adjustment expenses have been higher than expected on late emerging claims. The $34 reserve strengthening represented 3% of the Company’s net reserves for Specialty Commercial general liability claims as of December 31, 2006. |
• | Also during 2007, the Company refined its processes for allocating IBNR reserves by accident year, resulting in a reclassification of $347 of IBNR reserves from the 2003 to 2006 accident years to the 2002 and prior accident years. This reclassification of reserves by accident year had no effect on total recorded reserves within any segment or on total recorded reserves for any line of business within a segment. |
• | See Other Operations Claims Reserve Activity for information concerning the Company’s annual evaluation of these reserves and related reinsurance. |
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Asbestos | Environmental | All Other [1] | Total | |||||||||||||
2009 | ||||||||||||||||
Beginning liability – net [2] [3] | $ | 1,884 | $ | 269 | $ | 1,628 | $ | 3,781 | ||||||||
Losses and loss adjustment expenses incurred | 138 | 75 | 29 | 242 | ||||||||||||
Losses and loss adjustment expenses paid | (181 | ) | (40 | ) | (171 | ) | (392 | ) | ||||||||
Reclassification of asbestos and environmental liabilities [4] | 51 | 3 | (54 | ) | — | |||||||||||
Ending liability – net [2] [3] | $ | 1,892 | [6] | $ | 307 | $ | 1,432 | $ | 3,631 | |||||||
2008 | ||||||||||||||||
Beginning liability – net [2] [3] | $ | 1,998 | $ | 251 | $ | 1,888 | $ | 4,137 | ||||||||
Losses and loss adjustment expenses incurred | 68 | 54 | 7 | 129 | ||||||||||||
Losses and loss adjustment expenses paid | (182 | ) | (36 | ) | (267 | ) | (485 | ) | ||||||||
Ending liability – net [2] [3] | $ | 1,884 | $ | 269 | $ | 1,628 | $ | 3,781 | ||||||||
2007 | ||||||||||||||||
Beginning liability – net [2] [3] | $ | 2,242 | $ | 316 | $ | 1,858 | $ | 4,416 | ||||||||
Losses and loss adjustment expenses incurred | 43 | 28 | 122 | 193 | ||||||||||||
Losses and loss adjustment expenses paid | (287 | ) | (93 | ) | (217 | ) | (597 | ) | ||||||||
Reallocation of reserves for unallocated loss adjustment expenses [5] | — | — | 125 | 125 | ||||||||||||
Ending liability – net [2] [3] | $ | 1,998 | $ | 251 | $ | 1,888 | $ | 4,137 | ||||||||
[1] | “All Other” includes unallocated loss adjustment expense reserves. “All Other” also includes The Company’s allowance for uncollectible reinsurance. When the Company commutes a ceded reinsurance contract or settles a ceded reinsurance dispute, the portion of the allowance for uncollectible reinsurance attributable to that commutation or settlement, if any, is reclassified to the appropriate cause of loss. | |
[2] | Excludes asbestos and environmental net liabilities reported in Ongoing Operations of $10 and $5, respectively, as of December 31, 2009, $12 and $6, respectively, as of December 31, 2008, and $9 and $6, respectively, as of December 31, 2007. Total net losses and loss adjustment expenses incurred in Ongoing Operations for the years ended December 31, 2009, 2008 and 2007 includes $16, $16 and $10, respectively, related to asbestos and environmental claims. Total net losses and loss adjustment expenses paid in Ongoing Operations for the years ended December 31, 2009, 2008 and 2007 includes $19, $13 and $10, respectively, related to asbestos and environmental claims. | |
[3] | Gross of reinsurance, asbestos and environmental reserves, including liabilities in Ongoing Operations, were $2,484 and $367, respectively, as of December 31, 2009, $2,498 and $309, respectively, as of December 31, 2008, and $2,707 and $290, respectively, as of December 31, 2007. | |
[4] | During the three months ended June 30, 2009, the Company reclassified liabilities of $54 that were previously classified as “All Other” to “Asbestos” and “Environmental”. | |
[5] | Prior to the second quarter of 2007, the Company evaluated the adequacy of the reserves for unallocated loss adjustment expenses on a Company-wide basis. During the second quarter of 2007, the Company refined its analysis of the reserves at the segment level, resulting in the reallocation of reserves among segments, including a reallocation of reserves from Ongoing Operations to Other Operations. | |
[6] | The one year and average three-year net paid amounts for asbestos claims, including Ongoing Operations, were $192 and $224, respectively, resulting in a one year net survival ratio of 9.9 and a three year net survival ratio of 8.5. Net survival ratio is the quotient of the net carried reserves divided by the average annual payment amount and is an indication of the number of years that the net carried reserve would last (i.e. survive) if the future annual claim payments were consistent with the calculated historical average. |
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As of December 31, 2009
Number of | Total | |||||||
Gross Environmental Reserves as of September 30, 2009 [1] | Accounts [2] | Reserves | ||||||
Accounts with future exposure > $2.5 | 8 | $ | 43 | |||||
Accounts with future exposure < $2.5 | 562 | 109 | ||||||
Other direct [3] | — | 115 | ||||||
Total Direct | 570 | 267 | ||||||
Assumed Reinsurance | 56 | |||||||
London Market | 61 | |||||||
Total gross environmental reserves as of September 30, 2009 [1] | 384 | |||||||
Gross paid loss activity for the fourth quarter 2009 | (18 | ) | ||||||
Gross incurred loss activity for the fourth quarter 2009 | 1 | |||||||
Total gross environmental reserves as of December 31, 2009 [4] [5] | $ | 367 | ||||||
[1] | Gross Environmental Reserves based on the third quarter 2009 environmental reserve study. | |
[2] | Number of accounts established as of June 2009. | |
[3] | Includes unallocated IBNR. | |
[4] | The one year gross paid amount for total environmental claims is $54, resulting in a one year gross survival ratio of 6.8. | |
[5] | The three year average gross paid amount for total environmental claims is $75, resulting in a three year gross survival ratio of 4.9. |
• | Structured Settlements are those accounts where the Company has reached an agreement with the insured as to the amount and timing of the claim payments to be made to the insured. |
• | The Wellington subcategory includes insureds that entered into the “Wellington Agreement” dated June 19, 1985. The Wellington Agreement provided terms and conditions for how the signatory asbestos producers would access their coverage from the signatory insurers. |
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• | The Other Major Asbestos Defendants subcategory represents insureds included in Tiers 1 and 2, as defined by Tillinghast that are not Wellington signatories and have not entered into structured settlements with The Hartford. The Tier 1 and 2 classifications are meant to capture the insureds for which there is expected to be significant exposure to asbestos claims. |
• | Accounts with future expected exposures greater or less than $2.5 include accounts that are not major asbestos defendants. |
• | The Unallocated category includes an estimate of the reserves necessary for asbestos claims related to direct insureds that have not previously tendered asbestos claims to the Company and exposures related to liability claims that may not be subject to an aggregate limit under the applicable policies. |
As of December 31, 2009
Number of | All Time | Total | All Time | |||||||||||||
Accounts [2] | Paid [3] | Reserves | Ultimate [3] | |||||||||||||
Gross Asbestos Reserves as of June 30, 2009 [1] | ||||||||||||||||
Major asbestos defendants [5] | ||||||||||||||||
Structured settlements (includes 4 Wellington accounts) [6] | 7 | $ | 270 | $ | 475 | $ | 745 | |||||||||
Wellington (direct only) | 29 | 904 | 43 | 947 | ||||||||||||
Other major asbestos defendants | 29 | 474 | 168 | 642 | ||||||||||||
No known policies (includes 3 Wellington accounts) | 5 | — | — | — | ||||||||||||
Accounts with future exposure > $2.5 | 73 | 744 | 547 | 1,291 | ||||||||||||
Accounts with future exposure < $2.5 | 1,104 | 424 | 119 | 543 | ||||||||||||
Unallocated [7] | 1,687 | 366 | 2,053 | |||||||||||||
Total Direct | 4,503 | 1,718 | 6,221 | |||||||||||||
Assumed Reinsurance | 1,110 | 557 | 1,667 | |||||||||||||
London Market | 581 | 347 | 928 | |||||||||||||
Total as of June 30, 2009 [1] | 6,194 | 2,622 | 8,816 | |||||||||||||
Gross paid loss activity for the third quarter and fourth quarter 2009 | 143 | (143 | ) | — | ||||||||||||
Gross incurred loss activity for the third quarter and fourth quarter 2009 | — | 5 | 5 | |||||||||||||
Total as of December 31, 2009 [4] | $ | 6,337 | $ | 2,484 | $ | 8,821 | ||||||||||
[1] | Gross Asbestos Reserves based on the second quarter 2009 asbestos reserve study. | |
[2] | An account may move between categories from one evaluation to the next. Reclassifications were made as a result of the reserve evaluation completed in the second quarter of 2009. | |
[3] | “All Time Paid” represents the total payments with respect to the indicated claim type that have already been made by the Company as of the indicated balance sheet date. “All Time Ultimate” represents the Company’s estimate, as of the indicated balance sheet date, of the total payments that are ultimately expected to be made to fully settle the indicated payment type. The amount is the sum of the amounts already paid (e.g. “All Time Paid”) and the estimated future payments (e.g. the amount shown in the column labeled “Total Reserves”). | |
[4] | Survival ratio is a commonly used industry ratio for comparing reserve levels between companies. While the method is commonly used, it is not a predictive technique. Survival ratios may vary over time for numerous reasons such as large payments due to the final resolution of certain asbestos liabilities, or reserve re-estimates. The survival ratio is computed by dividing the recorded reserves by the average of the past three years of payments. The ratio is the calculated number of years the recorded reserves would survive if future annual payments were equal to the average annual payments for the past three years. The 3-year gross survival ratio of 8.0 as of December 31, 2009 is computed based on total paid losses of $937 for the period from January 1, 2007 to December 31, 2009. As of December 31, 2009, the one year gross paid amount for total asbestos claims is $245 resulting in a one year gross survival ratio of 10.1. | |
[5] | Includes 25 open accounts at both June 30, 2009 and 2008. | |
[6] | Structured settlements include the Company’s reserves related to PPG Industries, Inc. (“PPG”). In January 2009, the Company, along with approximately three dozen other insurers, entered into a modified agreement in principle with PPG to resolve the Company’s coverage obligations for all of its PPG asbestos liabilities, including principally those arising out of its 50% stock ownership of Pittsburgh Corning Corporation (“PCC”), a joint venture with Corning, Inc. The agreement is contingent on the fulfillment of certain conditions, including the confirmation of a PCC plan of reorganization under Section 524(g) of the Bankruptcy Code, which have not yet been met. | |
[7] | Includes closed accounts (exclusive of Major Asbestos Defendants) and unallocated IBNR. |
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Environmental
Asbestos [1] | Environmental [1] | |||||||||||||||
Paid | Incurred | Paid | Incurred | |||||||||||||
Losses & LAE | Losses & LAE | Losses & LAE | Losses & LAE | |||||||||||||
2009 | ||||||||||||||||
Gross | ||||||||||||||||
Direct | $ | 160 | $ | 117 | $ | 29 | $ | 92 | ||||||||
Assumed Reinsurance | 56 | 52 | 7 | — | ||||||||||||
London Market | 18 | — | 10 | 12 | ||||||||||||
Total | 234 | 169 | 46 | 104 | ||||||||||||
Ceded | (53 | ) | (31 | ) | (6 | ) | (29 | ) | ||||||||
Net prior to reclassification | 181 | 138 | 40 | 75 | ||||||||||||
Reclassification of asbestos and environmental liabilities [2] | — | 51 | — | 3 | ||||||||||||
Net | $ | 181 | $ | 189 | $ | 40 | $ | 78 | ||||||||
2008 | ||||||||||||||||
Gross | ||||||||||||||||
Direct | $ | 207 | $ | 76 | $ | 32 | $ | 69 | ||||||||
Assumed Reinsurance | 61 | — | 9 | (17 | ) | |||||||||||
London Market | 19 | — | 6 | 13 | ||||||||||||
Total | 287 | 76 | 47 | 65 | ||||||||||||
Ceded | (105 | ) | (8 | ) | (11 | ) | (11 | ) | ||||||||
Net | $ | 182 | $ | 68 | $ | 36 | $ | 54 | ||||||||
2007 | ||||||||||||||||
Gross | ||||||||||||||||
Direct | $ | 251 | $ | (289 | ) | $ | 90 | $ | 43 | |||||||
Assumed – Domestic | 112 | 72 | 16 | — | ||||||||||||
London Market | 31 | 76 | 8 | — | ||||||||||||
Total | 394 | (141 | ) | 114 | 43 | |||||||||||
Ceded | (107 | ) | 184 | (21 | ) | (15 | ) | |||||||||
Net | $ | 287 | $ | 43 | $ | 93 | $ | 28 | ||||||||
[1] | Excludes asbestos and environmental paid and incurred loss and LAE reported in Ongoing Operations. Total gross losses and LAE incurred in Ongoing Operations for the years ended December 31, 2009, 2008 and 2007 includes $17, $15 and $9, respectively, related to asbestos and environmental claims. Total gross losses and LAE paid in Ongoing Operations for the years ended December 31, 2009, 2008 and 2007 includes $20, $12 and $10, respectively, related to asbestos and environmental claims. | |
[2] | During the three months ended June 30, 2009, the Company reclassified liabilities of $54 that were previously classified as “All Other” to “Asbestos” and “Environmental”. |
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Personal | Small | Middle | Specialty | Ongoing | Other | Total | ||||||||||||||||||||||
Lines | Commercial | Market | Commercial | Operations | Operations | P&C | ||||||||||||||||||||||
Range of prior accident year unfavorable (favorable) development for the five years ended December 31, 2009 [1] | (5.2) – (0.2 | ) | (6.5) – (1.0 | ) | (4.3) – 1.6 | (3.5) – 3.1 | (2.9) – 0.3 | 3.1 – 7.4 | (1.2) – 1.5 |
[1] | Over the past ten years, reserve re-estimates for total Property & Casualty ranged from (1.2)% to 21.5%. Excluding the reserve strengthening for asbestos and environmental reserves, over the past ten years reserve re-estimates for total Property & Casualty ranged from (3.0)% to 1.6%. |
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Individual Variable | Individual Variable | |||||||||||||||||||||||
Annuities – U.S. | Annuities – Japan | Individual Life | ||||||||||||||||||||||
2009 | 2008 | 2009 | 2008 | 2009 | 2008 | |||||||||||||||||||
DAC | $ | 3,378 | $ | 4,844 | $ | 1,566 | $ | 1,834 | $ | 2,528 | $ | 2,931 | ||||||||||||
SIA | $ | 324 | $ | 436 | $ | 28 | $ | 19 | $ | 42 | $ | 36 | ||||||||||||
URR | $ | 85 | $ | 109 | $ | 1 | $ | — | $ | 1,185 | $ | 1,299 | ||||||||||||
Death and Other Insurance Benefit Reserves | $ | 1,232 | $ | 867 | $ | 580 | $ | 229 | $ | 76 | $ | 40 |
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Death and | ||||||||||||||||||||
Other | ||||||||||||||||||||
Insurance | ||||||||||||||||||||
Segment | Benefit | |||||||||||||||||||
After-tax (charge) benefit | DAC | URR | Reserves [1] | SIA | Total [2] | |||||||||||||||
Retail | $ | (429 | ) | $ | 17 | $ | (158 | ) | $ | (36 | ) | $ | (606 | ) | ||||||
Retirement Plans | (55 | ) | — | — | (1 | ) | (56 | ) | ||||||||||||
Individual Life | (101 | ) | 54 | (4 | ) | — | (51 | ) | ||||||||||||
Institutional | (1 | ) | — | — | — | (1 | ) | |||||||||||||
International [3] | (103 | ) | 6 | (210 | ) | (10 | ) | (317 | ) | |||||||||||
Corporate | (3 | ) | — | — | — | (3 | ) | |||||||||||||
Total | $ | (692 | ) | $ | 77 | $ | (372 | ) | $ | (47 | ) | $ | (1,034 | ) | ||||||
[1] | As a result of the Unlock, Retail reserves increased $522, pre-tax, offset by an increase in reinsurance recoverables of $279, pre-tax. International reserves increased $357, pre-tax, offset by an increase in reinsurance recoverables of $34, pre-tax. | |
[2] | The most significant contributor to the Unlock was a result of actual separate account returns being significantly below our aggregated estimated return for the period from October 1, 2008 to March 31, 2009, offset by actual returns being greater than our aggregated estimated return for the period from April 1, 2009 to December 31, 2009. | |
[3] | Includes $(49) related to DAC recoverability impairment associated with the decision to suspend sales in the U.K. variable annuity business. |
Death and | ||||||||||||||||||||
Other | ||||||||||||||||||||
Insurance | ||||||||||||||||||||
Segment | Benefit | |||||||||||||||||||
After-tax (charge) benefit | DAC | URR | Reserves [1] | SIA | Total [2] | |||||||||||||||
Retail | $ | (648 | ) | $ | 18 | $ | (75 | ) | $ | (27 | ) | $ | (732 | ) | ||||||
Retirement Plans | (49 | ) | — | — | — | (49 | ) | |||||||||||||
Individual Life | (29 | ) | (12 | ) | (3 | ) | — | (44 | ) | |||||||||||
International | (23 | ) | (1 | ) | (90 | ) | (2 | ) | (116 | ) | ||||||||||
Corporate | 9 | — | — | — | 9 | |||||||||||||||
Total | $ | (740 | ) | $ | 5 | $ | (168 | ) | $ | (29 | ) | $ | (932 | ) | ||||||
[1] | As a result of the Unlock, Retail reserves increased $389, pre-tax, offset by an increase in reinsurance recoverables of $273, pre-tax. International reserves increased $164, pre-tax, offset by an increase in reinsurance recoverables of $25, pre-tax. | |
[2] | The most significant contributors to the Unlock were: |
• | Actual separate account returns were significantly below our aggregated estimated return. |
• | The Company reduced its 20-year projected separate account return assumption from 7.8% to 7.2% in the U.S. |
• | Retirement Plans reduced its estimate of future fees as plans met contractual size limits (“breakpoints”), causing a lower fee schedule to apply, and the Company increased its assumption for future deposits by existing plan participants. |
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Death and | ||||||||||||||||||||
Other | ||||||||||||||||||||
Insurance | ||||||||||||||||||||
Segment | Benefit | |||||||||||||||||||
After-tax (charge) benefit | DAC | URR | Reserves [1] | SIA | Total [2] | |||||||||||||||
Retail | $ | 180 | $ | (5 | ) | $ | (4 | ) | $ | 9 | $ | 180 | ||||||||
Retirement Plans | (9 | ) | — | — | — | (9 | ) | |||||||||||||
Institutional | 1 | — | — | — | 1 | |||||||||||||||
Individual Life | 24 | (8 | ) | — | — | 16 | ||||||||||||||
International | 16 | — | 6 | — | 22 | |||||||||||||||
Corporate | 3 | — | — | — | 3 | |||||||||||||||
Total | $ | 215 | $ | (13 | ) | $ | 2 | $ | 9 | $ | 213 | |||||||||
[1] | As a result of the Unlock, Retail reserves decreased $4, pre-tax, offset by a decrease, in reinsurance recoverables of $10, pre-tax. | |
[2] | The most significant contributors to the Unlock were: |
• | Actual separate account returns were above our aggregated estimated return. |
• | During the third quarter of 2007, the Company estimated gross profits using the mean of EGPs derived from a set of stochastic scenarios that have been calibrated to our estimated separate account return as compared to prior year where we used a single deterministic estimation. The impact of this change in estimation was a benefit of $20, after-tax, for U.S. variable annuities, and $13, after-tax, for Japan variable annuities. |
• | Dynamic lapse behavior assumptions, reflecting that lapse behavior will be different depending upon market movements, along with other base lapse rate assumption changes resulted in an approximate benefit of $40, after-tax, for U.S. variable annuities. |
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• | risk-free rates as represented by the current LIBOR forward curve rates; |
• | forward market volatility assumptions for each underlying index based primarily on a blend of observed market “implied volatility” data; |
• | correlations of market returns across underlying indices based on actual observed market returns and relationships over the ten years preceding the valuation date; |
• | three years of history for fund regression; and |
• | current risk-free spot rates as represented by the current LIBOR spot curve to determine the present value of expected future cash flows produced in the stochastic projection process. |
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Segment Goodwill | Goodwill in Corporate | Total | ||||||||||
Other Retail | $ | 159 | $ | 92 | $ | 251 | ||||||
Retirement Plans | 87 | 69 | 156 | |||||||||
Individual Life | 224 | 118 | 342 | |||||||||
Group Benefits | — | 138 | 138 | |||||||||
Personal Lines | 119 | — | 119 | |||||||||
Hartford Financial Products within Specialty Commercial | 30 | — | 30 | |||||||||
Federal Trust Corporation within Corporate[1] | — | 168 | 168 | |||||||||
Total | $ | 619 | $ | 585 | $ | 1,204 | ||||||
[1] | In 2009, the Company completed the acquisition of Federal Trust Corporation which resulted in additional goodwill of $168 in Corporate. |
Segment Goodwill | Goodwill in Corporate | Total | ||||||||||
Other Retail | $ | 159 | $ | 92 | $ | 251 | ||||||
Retirement Plans | 79 | 69 | 148 | |||||||||
Institutional Solutions Group | — | 32 | 32 | |||||||||
Individual Life | 224 | 118 | 342 | |||||||||
Group Benefits | — | 138 | 138 | |||||||||
Personal Lines | 119 | — | 119 | |||||||||
Hartford Financial Products within Specialty Commercial | 30 | — | 30 | |||||||||
Total | $ | 611 | $ | 449 | $ | 1,060 | ||||||
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Quoted Prices in | ||||||||||||||||
Active Markets | Significant | Significant | ||||||||||||||
for Identical | Observable | Unobservable | ||||||||||||||
Assets | Inputs | Inputs | ||||||||||||||
(Level 1) | (Level 2) | (Level 3) | Total | |||||||||||||
Priced via third-party pricing services | $ | 785 | $ | 58,274 | $ | 1,711 | $ | 60,770 | ||||||||
Priced via independent broker quotations | — | — | 4,071 | 4,071 | ||||||||||||
Priced via matrices | — | — | 7,053 | 7,053 | ||||||||||||
Priced via other methods [1] | — | — | 480 | 480 | ||||||||||||
Short-term investments | 6,846 | 3,511 | — | 10,357 | ||||||||||||
Total | $ | 7,631 | $ | 61,785 | $ | 13,315 | $ | 82,731 | ||||||||
% of Total | 9.2 | % | 74.7 | % | 16.1 | % | 100.0 | % | ||||||||
[1] | Represents securities for which adjustments were made to reduce prices received from third parties and certain private equity investments that are carried at the Company’s determination of fair value from inception. |
Notional Value | Fair Value | |||||||
Quoted prices in active markets for identical assets (Level 1) | $ | 2,279 | $ | 6 | ||||
Significant observable inputs (Level 2) | 40,871 | (9 | ) | |||||
Significant unobservable inputs (Level 3) | 44,917 | 337 | ||||||
Total | $ | 88,067 | $ | 334 | ||||
Notional Value | Fair Value | |||||||
Credit derivatives | $ | 5,166 | $ | (193 | ) | |||
Interest derivatives | 2,591 | (2 | ) | |||||
Equity derivatives | 37,135 | 532 | ||||||
Currency derivatives | 25 | — | ||||||
Total Level 3 | $ | 44,917 | $ | 337 | ||||
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Ratios | 2009 | 2008 | 2007 | |||||||||
Retail | ||||||||||||
Individual annuity ROA | (48.6 | ) bps | (133.5 | ) bps | 58.9 | bps | ||||||
Effect of net realized losses, net of tax and DAC on ROA | (18.8 | ) bps | (96.5 | ) bps | (13.3 | ) bps | ||||||
Effect of DAC Unlock on ROA [1] | (67.1 | ) bps | (68.0 | ) bps | 15.6 | bps | ||||||
ROA excluding realized losses and DAC Unlock | 37.3 | bps | 31.0 | bps | 56.6 | bps | ||||||
Individual Life | ||||||||||||
After-tax margin | 1.3 | % | (4.7 | %) | 16.0 | % | ||||||
Effect of net realized losses, net of tax and DAC on after-tax margin | (6.5 | %) | (13.1 | %) | (1.3 | %) | ||||||
Effect of DAC Unlock on after-tax margin [1] | (4.9 | %) | (4.7 | %) | 1.4 | % | ||||||
After-tax margin excluding realized losses and DAC Unlock | 12.7 | % | 13.1 | % | 15.9 | % | ||||||
Group Benefits | ||||||||||||
After-tax margin (excluding buyouts) | 4.2 | % | (0.1 | %) | 6.7 | % | ||||||
Effect of net realized losses, net of tax on after-tax margin (excluding buyouts) | (1.6 | %) | (7.3 | %) | (0.4 | %) | ||||||
After-tax margin (excluding buyouts) excluding realized losses | 5.8 | % | 7.2 | % | 7.1 | % | ||||||
Retirement Plans | ||||||||||||
Retirement ROA | (54.8 | ) bps | (47.9 | ) bps | 22.9 | bps | ||||||
Effect of net realized losses, net of tax and DAC on ROA | (44.8 | ) bps | (51.5 | ) bps | (10.5 | ) bps | ||||||
Effect of DAC Unlock on ROA [1] | (13.8 | ) bps | (15.0 | ) bps | (3.4 | ) bps | ||||||
ROA excluding realized losses and DAC Unlock | 3.8 | bps | 18.6 | bps | 36.8 | bps | ||||||
International — Japan | ||||||||||||
International — Japan ROA | (16.7 | ) bps | (72.9 | ) bps | 73.4 | bps | ||||||
Effect of net realized gains (losses) excluding net periodic settlements, net of tax and DAC on ROA [2] | 9.5 | bps | (65.1 | ) bps | (8.1 | ) bps | ||||||
Effect of DAC Unlock on ROA [1] | (68.3 | ) bps | (31.9 | ) bps | 6.4 | bps | ||||||
ROA excluding realized gains (losses) and DAC Unlock | 42.1 | bps | 24.1 | bps | 75.1 | bps | ||||||
Institutional | ||||||||||||
Institutional ROA | (86.5 | ) bps | (83.3 | ) bps | 3.0 | bps | ||||||
Effect of net realized losses, net of tax and DAC on ROA | (80.3 | ) bps | (85.0 | ) bps | (21.5 | ) bps | ||||||
Effect of DAC Unlock on ROA [1] | (0.2 | ) bps | — | 0.2 | bps | |||||||
ROA excluding realized losses and DAC Unlock | (6.0 | ) bps | 1.7 | bps | 24.3 | bps |
[1] | See Unlocks within the Critical Accounting Estimates section of the MD&A. | |
[2] | Included in the net realized capital gain (losses) are amounts that represent the net periodic accruals on currency rate swaps used in the risk management of Japan fixed annuity products. |
• | Individual Annuity’s ROA, excluding realized losses and DAC Unlock, increased primarily due to the impact of the write off of goodwill in 2008 of $274 after-tax or 19.4 bps, partially offset by higher DAC amortization and lower investment spread in 2009. |
• | The decrease in Individual Life’s after-tax margin, excluding realized losses and DAC Unlock, was primarily due to a higher DAC amortization rate, partially offset by a lower effective tax rate and lower operating expenses. |
• | The decrease in Retirement Plans ROA, excluding realized losses and DAC Unlock, was primarily driven by lower returns on fixed maturities and a full year of activity from the businesses acquired in 2008, which produce a lower ROA as they are mutual fund businesses. |
• | The decrease in Group Benefits after-tax margin, excluding realized losses, was primarily due to the unfavorable loss ratio, that resulted from unfavorable morbidity experience, which was primarily due to unfavorable reserve development from the 2008 incurral loss year and higher new incurred long-term disability claims in 2009. |
• | International-Japan ROA, excluding realized gains (losses) and DAC Unlock, increased primarily due to lower 3 Win related charges in 2009 versus 2008 of $40 and $152, after-tax, respectively. Excluding the effects of the 3 Win charge, ROA, excluding realized gains (losses) and DAC Unlock, would have been 53.7 bps in 2009 and 66.3 bps in 2008. The decline of ROA excluding the 3 Win charge is due to lower surrender fees due to a reduction in lapses and a higher benefit margin, partially offset by a decrease in the DAC amortization rate due to higher actual gross profits. |
• | The decrease in Institutional’s ROA, excluding realized losses, is primarily due to lower yields on investments. |
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• | The decrease in Individual Annuity’s ROA, excluding realized losses and the effect of the DAC Unlock, reflects the write-off of goodwill of $274 after-tax, or 19.4 bps; lower limited partnership and other alternative investment income; and the net effect of lower fees. |
• | The decrease in Individual Life’s after-tax margin, excluding realized losses and the effect of the DAC Unlock, was primarily due to unfavorable mortality expense, partially offset by a lower effective tax rate. |
• | The decrease in Retirement Plans ROA, excluding realized losses and the effect of the DAC Unlock, was primarily driven by an increase in assets under management due to the acquired rights to service $18.7 billion in mutual funds, comprised of $15.8 billion in mutual funds from Sun Life Retirement Services, Inc., and $2.9 billion in mutual funds from Princeton Retirement Group, both of which closed in the first quarter of 2008. The acquired blocks of assets produce a lower ROA as they are comprised of mutual fund assets and assets under management as opposed to traditional annuity contracts. Also contributing to the decrease was lower yields on fixed maturity investments and a decline in limited partnership and other alternative investment income, higher service and technology costs and additional expenses associated with the acquisitions. Partially offsetting these decreases were tax benefits primarily associated with DRD. |
• | The Group Benefit increase in after-tax margin was primarily due to the favorable expense ratio. |
• | International-Japan ROA, excluding realized gains (losses) and the effect of the DAC Unlock, declined due to lower earned fees as a result of declining account values, lower surrender fees due to a reduction in lapses and an increase in the DAC amortization rate due to lower actual gross profits, as well as the accelerated DAC amortization associated with the 3 Win trigger. |
• | The decrease in Institutional’s ROA, excluding realized losses, is primarily due to a decline in limited partnership and other alternative investment income. The decrease is also due to unfavorable mortality and lower yields on fixed maturity investments. |
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2009 | 2008 | 2007 | ||||||||||
Ongoing Operations earned premium growth | ||||||||||||
Personal Lines | 1 | % | 1 | % | 3 | % | ||||||
Small Commercial | (5 | %) | — | 3 | % | |||||||
Middle Market | (9 | %) | (5 | %) | (4 | %) | ||||||
Specialty Commercial | (11 | %) | (4 | %) | (3 | %) | ||||||
Total Ongoing Operations | (5 | %) | (2 | %) | 1 | % | ||||||
Ongoing Operations combined ratio | ||||||||||||
Combined ratio before catastrophes and prior year development | 91.7 | 88.9 | 90.5 | |||||||||
Catastrophe ratio | ||||||||||||
Current year | 3.1 | 5.3 | 1.7 | |||||||||
Prior years | (0.2 | ) | (0.2 | ) | 0.1 | |||||||
Total catastrophe ratio | 2.9 | 5.0 | 1.8 | |||||||||
Non-catastrophe prior year development | (4.2 | ) | (3.2 | ) | (1.5 | ) | ||||||
Combined ratio | 90.4 | 90.7 | 90.8 | |||||||||
Other Operations net income (loss) | $ | (77 | ) | $ | (97 | ) | $ | 30 | ||||
Personal Lines | • Earned premium grew 1% in 2009, primarily due to new business growth on both AARP and Agency, partially offset by lower average renewal earned premium on auto business. | |
Small Commercial | • The change to a 5% earned premium decline in 2009 was primarily attributable to lower earned audit premium on workers’ compensation business and the effect of non-renewals outpacing new business in package business and commercial auto. | |
Middle Market | • The steeper earned premium decline in 2009 was primarily driven by decreases in general liability, commercial auto and marine due to renewal earned pricing decreases and the effect of non-renewals outpacing new business. | |
Specialty Commercial | • Earned premium declined in all lines of business in 2009, including a larger decrease in property earned premium due to the sale of the Company’s core excess and surplus lines property business. |
Combined ratio before catastrophes and prior accident years development | • In 2009, the 2.8 point increase in the combined ratio before catastrophes and prior accident year development was primarily driven by a 1.9 point increase in the current accident year loss and loss adjustment expense ratio before catastrophes and a 1.2 point increase in the expense ratio. | |
• Among other factors, the increase in the current loss and loss adjustment expense ratio before catastrophes was driven by an increase for Personal Lines auto and homeowners’ business. | ||
• The increase in the expense ratio in 2009 period includes the effects of the decrease in earned premiums, higher amortization of Personal Lines acquisition costs and increased IT costs. The increase in the expense ratio also includes a $23 increase in taxes, licenses and fees due to a $6 increase in the assessment for a second injury fund and $17 reserve strengthening for other state funds and taxes. Partially offsetting these expense increases was a $34 decrease in Texas Windstorm Insurance Association (“TWIA”) assessments related to hurricane Ike. | ||
Catastrophes | • The catastrophe ratio decreased 2.1 points in 2009 as losses from hurricane Ike in 2008 were higher than catastrophe losses in 2009 from hail and windstorms in Colorado, the Midwest and the Southeast. | |
Non-catastrophe prior accident years development | • Favorable reserve development in 2009 included, among other reserve changes, the release of reserves for directors’ and officers’ claims for accident years 2003 to 2008, the release of reserves for general liability claims, primarily related to accident years 2003 to 2007, and the release of workers’ compensation reserves, partially offset by strengthening of reserves for Small Commercial package business. See “Reserve Rollforwards and Development” in the Critical Accounting Estimates section of the MD&A for a discussion of prior accident year reserve development for Ongoing Operations in 2009. |
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• | Other Operations reported a lower net loss in 2009 as compared to 2008 primarily due to a decrease in net realized capital losses and a decrease in the allowance for uncollectible reinsurance as a result of the Company’s annual evaluation of reinsurance recoverables. Partially offsetting these drivers was an increase in net unfavorable prior accident year reserve development and a decrease in net investment income. See the Other Operations segment MD&A for further discussion. |
Personal Lines | • The decrease in the earned premium growth rate from 2007 to 2008 was due to a significantly lower growth rate on AARP business and a change to declining earned premium in Agency, partially offset by the effect of the sale of Omni in 2006 which lowered the growth rate in 2007. Excluding Omni, Personal Lines earned premium grew 7% in 2007. The effects of larger declines in auto and homeowners’ new business premium and a change to declining homeowners’ renewal retention since the middle of 2007 were largely offset by the effect of a change to modest earned pricing increases in auto. | |
Small Commercial | • The earned premium growth rate in 2008 was reduced from moderate earned premium increases in 2007 to no growth in 2008. The decrease in the growth rate was primarily attributable to slightly larger earned pricing decreases in 2008 compared to 2007 and a change to decreasing premium renewal retention since the middle of 2007. | |
Middle Market | • Earned premium declined in the mid-single digits in both 2007 and 2008. The effect of slightly larger earned pricing decreases in 2008 has been largely offset by the effect of a change to new business growth since the second quarter of 2008. | |
Specialty Commercial | • Earned premium decreased by 4% in 2008 compared to a decrease of 3% in 2007. A larger earned premium decrease in property and a change from earned premium growth in professional liability, fidelity and surety in 2007 to no growth in 2008 was partially offset by an improvement in the rate of earned premium decline in casualty. |
Combined ratio before catastrophes and prior accident year development | • The combined ratio before catastrophes and prior accident year development decreased by 1.6 points as the effects of a lower loss and loss adjustment expense ratio for Small Commercial and Middle Market workers’ compensation claims, lower claim frequency on Personal Lines auto claims and lower non-catastrophe losses on Small Commercial package business were partially offset by earned pricing decreases across the commercial lines businesses and higher non-catastrophe losses on Middle Market property and Personal Lines homeowners’ business. | |
Catastrophes | • The catastrophe ratio increased by 3.2 points, primarily due to an increase in current accident year catastrophes in 2008, driven by losses from hurricane Ike and losses from tornadoes and thunderstorms in the South and Midwest. | |
Non-catastrophe prior accident year development | • Net non-catastrophe prior accident year reserve development in Ongoing Operations was more favorable in 2008 than in 2007. Favorable non-catastrophe reserve development of 3.2 points, or $333, in 2008 included, among other reserve changes, a $156 release of reserves for workers’ compensation claims, primarily related to accident years 2000 to 2007, a $105 release of general liability claims, primarily related to accident years 2001 to 2007, and a $75 release of reserves for professional liability claims related to accident years 2003 through 2006. See “Reserve Rollforwards and Development” in the Critical Accounting Estimates Section of the MD&A for a discussion of prior accident year reserve development for Ongoing Operations in 2008. |
• | The change from net income in 2007 to a net loss in 2008 was primarily due to an increase in net realized capital losses and lower net investment income, partially offset by a decrease in net unfavorable prior accident year reserve development. See the Other Operations segment MD&A for further discussion. |
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December 31, 2009 | December 31, 2008 | |||||||||||||||
Amount | Percent | Amount | Percent | |||||||||||||
Fixed maturities, AFS, at fair value | $ | 71,153 | 76.3 | % | $ | 65,112 | 72.9 | % | ||||||||
Equity securities, AFS, at fair value | 1,221 | 1.3 | % | 1,458 | 1.6 | % | ||||||||||
Mortgage loans | 5,938 | 6.4 | % | 6,469 | 7.3 | % | ||||||||||
Policy loans, at outstanding balance | 2,174 | 2.3 | % | 2,208 | 2.5 | % | ||||||||||
Limited partnerships and other alternative investments | 1,790 | 1.9 | % | 2,295 | 2.6 | % | ||||||||||
Other investments [1] | 602 | 0.7 | % | 1,723 | 1.9 | % | ||||||||||
Short-term investments | 10,357 | 11.1 | % | 10,022 | 11.2 | % | ||||||||||
Total investments excluding equity securities, trading | $ | 93,235 | 100.0 | % | $ | 89,287 | 100.0 | % | ||||||||
Equity securities, trading, at fair value [2] | 32,321 | 30,820 | ||||||||||||||
Total investments | $ | 125,556 | $ | 120,107 | ||||||||||||
[1] | Primarily relates to derivative instruments. | |
[2] | These assets primarily support the International variable annuity business. Changes in these balances are also reflected in the respective liabilities. |
For the years ended December 31, | ||||||||||||||||||||||||
2009 | 2008 | 2007 | ||||||||||||||||||||||
Amount | Yield [1] | Amount | Yield [1] | Amount | Yield [1] | |||||||||||||||||||
Fixed maturities [2] | $ | 3,618 | 4.5 | % | $ | 4,310 | 5.2 | % | $ | 4,653 | 5.8 | % | ||||||||||||
Equity securities, AFS | 93 | 6.5 | % | 167 | 6.9 | % | 139 | 6.6 | % | |||||||||||||||
Mortgage loans | 316 | 5.0 | % | 333 | 5.6 | % | 293 | 6.3 | % | |||||||||||||||
Policy loans | 139 | 6.3 | % | 139 | 6.5 | % | 135 | 6.5 | % | |||||||||||||||
Limited partnerships and other alternative investments | (341 | ) | (15.6 | %) | (445 | ) | (4.3 | %) | 255 | 13.3 | % | |||||||||||||
Other [3] | 318 | — | (72 | ) | — | (161 | ) | — | ||||||||||||||||
Investment expense | (112 | ) | — | (97 | ) | — | (100 | ) | — | |||||||||||||||
Total net investment income excluding equity securities, trading | $ | 4,031 | 4.1 | % | $ | 4,335 | 4.6 | % | $ | 5,214 | 5.9 | % | ||||||||||||
Equity securities, trading | 3,188 | — | (10,340 | ) | — | 145 | — | |||||||||||||||||
Total net investment income (loss), before-tax | $ | 7,219 | $ | (6,005 | ) | $ | 5,359 | |||||||||||||||||
[1] | Yields calculated using annualized investment income before investment expenses divided by the monthly average invested assets at cost, amortized cost, or adjusted carrying value, as applicable, excluding collateral received associated with the securities lending program and consolidated variable interest entity noncontrolling interests. Included in the fixed maturity yield is other, which primarily relates to fixed maturities (see footnote [3] below). Included in the total net investment income yield is investment expense. | |
[2] | Includes net investment income on short-term investments. | |
[3] | Includes income from derivatives that qualify for hedge accounting and hedge fixed maturities. Also includes fees associated with securities lending activities of $5, $100 and $138, respectively, for the years ended December 31, 2009, 2008 and 2007. The income from securities lending activities is included within fixed maturities. |
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For the years ended December 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
Gross gains on sales | $ | 1,056 | $ | 607 | $ | 374 | ||||||
Gross losses on sales | (1,397 | ) | (856 | ) | (291 | ) | ||||||
Net OTTI losses recognized in earnings | (1,508 | ) | (3,964 | ) | (483 | ) | ||||||
Japanese fixed annuity contract hedges, net [1] | 47 | 64 | 18 | |||||||||
Periodic net coupon settlements on credit derivatives/Japan | (49 | ) | (33 | ) | (25 | ) | ||||||
Fair value measurement transition impact [2] | — | (650 | ) | — | ||||||||
Results of variable annuity hedge program | ||||||||||||
GMWB derivatives, net | 1,526 | (713 | ) | (286 | ) | |||||||
Macro hedge program | (895 | ) | 74 | (12 | ) | |||||||
Total results of variable annuity hedge program | 631 | (639 | ) | (298 | ) | |||||||
Other, net | (790 | ) | (447 | ) | (289 | ) | ||||||
Net realized capital losses, before-tax | $ | (2,010 | ) | $ | (5,918 | ) | $ | (994 | ) | |||
[1] | Relates to derivative hedging instruments, excluding periodic net coupon settlements, and is net of the Japanese fixed annuity product liability adjustment for changes in the dollar/yen exchange spot rate. | |
[2] | See Note 4a of the Notes to Consolidated Financial Statements. |
Gross gains and losses on sales | • Gross gains and losses on sales for the year ended December 31, 2009 were predominantly within corporate, government and structured securities. Also included were gains of $360 related to the sale of Verisk/ISO securities. Gross gains and losses on sales primarily resulted from efforts to reduce portfolio risk through sales of subordinated financials and real estate related securities and from sales of U.S. Treasuries to manage liquidity. | |
• Gross gains and losses on sales for the year ended December 31, 2008 primarily resulted from the decision to reallocate the portfolio to securities with more favorable risk/return profiles. Also included was a gain of $141 from the sale of a synthetic CDO. | ||
• Gross gains and losses on sales for the year ended December 31, 2007 were primarily comprised of corporate, foreign government and municipal securities. | ||
Net OTTI losses | • For further information, see Other-Than-Temporary Impairments within the Investment Credit Risk section of the MD&A. | |
Variable annuity hedge program | • For the year ended December 31, 2009, the net gain on GMWB related derivatives was primarily due to liability model assumption updates related to favorable policyholder experience of $566, the relative outperformance of the underlying actively managed funds as compared to their respective indices of $550, and the impact of the Company’s own credit standing of $154. Additional net gains of $56 resulted from lower implied market volatility and a general increase in long-term interest rates, partially offset by rising equity markets. Increasing equity markets resulted in a loss of $895 related to the Company’s macro hedge program. Total gains related to GMWB hedging in 2009 were $1.5 billion. For further information, see Note 4a of the Notes to Consolidated Financial Statements. In addition, see the Company’s variable annuity hedging program sensitivity disclosures within Capital Markets Risk Management section of the MD&A. | |
• For the year ended December 31, 2008, the net loss on GMWB derivatives was primarily due to losses of $904 related to market-based hedge ineffectiveness due to extremely volatile capital markets and $355 related to the relative underperformance of the underlying actively managed funds as compared to their respective indices, partially offset by gains of $470 in the fourth quarter related to liability model assumption updates for lapse rates. | ||
• For the year ended December 31, 2007, the net loss on GMWB derivatives was primarily due to losses of $158 related to liability model assumption updates and model refinements made during the year, including those for dynamic lapse behavior and correlations of market returns across underlying indices, as well as updates to reflect newly reliable market inputs for volatility. |
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Other, net | • Other, net losses for the year ended December 31, 2009 primarily resulted in net losses of $463 on credit derivatives where the Company purchased credit protection due to credit spread tightening, $400 related to net additions to valuation allowances on impaired mortgage loans, and approximately $300 from contingent obligations associated with the Allianz transaction. These losses were partially offset by gains of $155 on credit derivatives that assume credit risk due to credit spread tightening, as well as $140 from a change in spot rates related to transactional foreign currency predominately on the internal reinsurance of the Japan variable annuity business, which is offset in accumulated other comprehensive income (loss) (“AOCI”). | |
• Other, net losses for the year ended December 31, 2008 were primarily due to net losses of $291 related to transactional foreign currency losses predominately on the internal reinsurance of the Japan variable annuity business, which is offset in AOCI, resulting from appreciation of the Yen, as well as credit derivative losses of $312 due to significant credit spread widening. Also included were derivative related losses of $46 due to counterparty default related to the bankruptcy of Lehman Brothers Holdings Inc. | ||
• Other, net losses for the year ended December 31, 2007 were primarily driven by the change in value of non-qualifying derivatives due to credit spread widening, as well as fluctuations in interest rates and foreign currency exchange rates. |
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Operating Summary | 2009 | 2008 | 2007 | |||||||||
Fee income and other | $ | 2,139 | $ | 2,757 | $ | 3,117 | ||||||
Earned premiums | (7 | ) | (4 | ) | (62 | ) | ||||||
Net investment income | 750 | 747 | 801 | |||||||||
Net realized capital losses | (7 | ) | (1,910 | ) | (381 | ) | ||||||
Total revenues [1] | 2,875 | 1,590 | 3,475 | |||||||||
Benefits, losses and loss adjustment expenses | 1,310 | 1,008 | 820 | |||||||||
Insurance operating costs and other expenses | 1,049 | 1,187 | 1,221 | |||||||||
Amortization of deferred policy acquisition costs and present value of future profits | 1,389 | 1,344 | 406 | |||||||||
Goodwill impairment | — | 422 | — | |||||||||
Total benefits, losses and expenses | 3,748 | 3,961 | 2,447 | |||||||||
Income (loss) before income taxes | (873 | ) | (2,371 | ) | 1,028 | |||||||
Income tax expense (benefit) | (463 | ) | (972 | ) | 216 | |||||||
Net income (loss) [2] | $ | (410 | ) | $ | (1,399 | ) | $ | 812 | ||||
Assets Under Management | 2009 | 2008 | 2007 | |||||||||
Individual variable annuity account values | $ | 84,679 | $ | 74,578 | $ | 119,071 | ||||||
Individual fixed annuity and other account values | 12,110 | 11,278 | 10,243 | |||||||||
Other retail products account values | — | 398 | 677 | |||||||||
Total account values [3] | 96,789 | 86,254 | 129,991 | |||||||||
Retail mutual fund assets under management | 42,829 | 31,032 | 48,383 | |||||||||
Other mutual fund assets under management | 1,202 | 1,678 | 2,113 | |||||||||
Total mutual fund assets under management | 44,031 | 32,710 | 50,496 | |||||||||
Total assets under management | $ | 140,820 | $ | 118,964 | $ | 180,487 | ||||||
Account Value and Assets Under Management Roll Forward | 2009 | 2008 | 2007 | |||||||||
Individual Variable Annuities | ||||||||||||
Account value, beginning of period | $ | 74,578 | $ | 119,071 | $ | 114,365 | ||||||
Net flows | (7,122 | ) | (6,235 | ) | (2,733 | ) | ||||||
Change in market value and other | 17,223 | (38,258 | ) | 7,439 | ||||||||
Account value, end of period | $ | 84,679 | $ | 74,578 | $ | 119,071 | ||||||
Retail Mutual Funds | ||||||||||||
Assets under management, beginning of period | $ | 31,032 | $ | 48,383 | $ | 38,536 | ||||||
Net sales | 2,004 | 2,840 | 5,545 | |||||||||
Change in market value and other | 9,793 | (20,191 | ) | 4,302 | ||||||||
Assets under management, end of period | $ | 42,829 | $ | 31,032 | $ | 48,383 | ||||||
Net Investment Spread | 2009 | 2008 | 2007 | |||||||||
Individual Annuities | ||||||||||||
Individual Annuity | 28 | bps | 73 | bps | 174 | bps |
Expense Ratios | 2009 | 2008 | 2007 | |||||||||
Individual Annuities | ||||||||||||
General insurance expense ratio | 21.0 | bps | 21.0 | bps | 17.9 | bps | ||||||
DAC amortization ratio [4] | 244.3 | % | 218.5 | % | 25.5 | % | ||||||
DAC amortization ratio, excluding realized losses and DAC Unlocks [4] [5] | 61.6 | % | 65.2 | % | 47.9 | % |
[1] | For the year ended December 31, 2008, the transition impact related to the adoption of fair value accounting guidance was a reduction in revenues of $616. For further discussion of the fair value guidance transition impact, see Note 4a of the Notes to Consolidated Financial Statements. | |
[2] | For the year ended December 31, 2008, the transition impact related to the adoption of fair value accounting guidance was a reduction in net income of $209. For further discussion of the fair value guidance transition impact, see Note 4a of the Notes to Consolidated Financial Statements. | |
[3] | Includes policyholders’ balances for investment contracts and reserves for future policy benefits for insurance contracts. | |
[4] | Excludes the effects of realized gains and losses. | |
[5] | See Unlock discussion. |
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Fee income and other | • Fee income and other decreased primarily as a result of lower variable annuity and mutual fund fee income due to a decline in average account values. Average variable annuity account values declined from $99.8 billion in 2008 to $77.3 billion in 2009 driven by net outflows of $7.1 billion during 2009 as well as the effect of the equity market declines in 2008 and the first quarter of 2009. Net outflows were driven by surrender activity resulting from the aging of the variable annuity in-force block of business; lower deposits driven by increased competition, particularly competition related to guaranteed living benefits, and volatility in the equity markets. Average retail mutual fund assets under management declined from $42.4 billion to $35.5 billion driven primarily by the effect of the equity market declines in 2008 and the first quarter of 2009, partially offset by net flows of $2.0 billion during 2009. | |
Net investment income | • Net investment income in 2009 was relatively consistent with 2008 as increased derivative income and an increase in general account assets was largely offset by maintaining a greater percentage of assets in short-term investments and lower yields on fixed maturities. | |
Net investment spread | • The drop in net investment spread is primarily related to lower earnings on fixed maturities of 15 bps, higher average crediting rates of 14 bps, lower partnership returns of 8 bps and lower earnings on equities of 4 bps. The decline in fixed maturity returns was primarily related to a higher percentage of fixed maturities being held in short-term investments. | |
Net realized capital losses | • Net realized capital losses decreased as a result of the recognition of $1.5 billion of gains on GMWB derivatives in 2009 compared with losses of $631 in 2008; the transition impact related to the adoption of fair value accounting guidance, which resulted in losses of $616 in 2008; and impairment losses of $263 in 2009 compared with $474 in 2008. Partially offsetting these items were losses of $733 in 2009 related to the Company’s macro hedge program compared with gains of $40 in 2008 and net losses on sales of $329 in 2009 compared with net losses of $31 in 2008. | |
Benefits, losses and loss adjustment expenses | • Benefits, losses and loss adjustment expenses increased primarily as a result of the net impact of the Unlocks over the last twelve months, which increased the benefit ratio used in the calculation of GMDB reserves. | |
Insurance operating costs and other expenses | • Insurance operating costs and other expenses decreased primarily as a result of lower asset based trail commissions due to equity market declines, as well as ongoing efforts to actively reduce operating expenses. | |
General insurance expense ratio | • The general expense ratio has remained flat as a result of management’s efforts to reduce expenses, offset by a decline in the average asset base. | |
Amortization of DAC | • Amortization of DAC increased primarily due to the higher individual annuity DAC amortization rate in 2009 as compared to 2008 due primarily to Unlock assumption changes made in 2008 and 2009 and lower gross profits in 2009. Additionally, the adoption of fair value accounting guidance at the beginning of the first quarter of 2008 resulted in a DAC benefit. | |
DAC amortization ratio, excluding realized losses and DAC Unlocks | • The Retail DAC amortization ratio, excluding realized losses and DAC Unlocks, decreased due to the impairment of goodwill in the fourth quarter of 2008, which reduced pre-tax earnings but did not affect EGPs. Excluding the impacts of the goodwill impairment, realized losses and DAC Unlock, the DAC amortization ratio was 43.3%. The 61.6% ratio in 2009 reflects lower EGPs driven by lower fee income due to declines in average account value and lower net investment income due to a greater percentage of fixed maturities being held in short-term investment and lower returns on investments in limited partnerships and other alternative investments. | |
Income tax benefit | • The income tax benefit is primarily due to the pre-tax losses driven by the factors discussed previously. 2009 included a higher DRD benefit than 2008. The difference from a 35% tax rate is primarily due to the recognition of tax benefits associated with the DRD and foreign tax credits. |
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Fee income and other | • Fee income and other decreased $360 primarily as a result of lower variable annuity fee income due to a decline in average account values. The decrease in average variable annuity account values can be attributed to market depreciation of $38.2 billion and net outflows of $6.2 billion during the year. Net outflows were driven by surrender activity resulting from the aging of the variable annuity in-force block of business; increased competition, particularly competition related to guaranteed living benefits, and volatility in the equity markets. Also contributing to the decrease in fee income was lower mutual fund fees due to declining assets under management primarily driven by market depreciation of $20.1 billion, partially offset by $2.8 billion of net flows. | |
Earned premiums | • Earned Premiums increased primarily due to an increase in life contingent premiums combined with a decrease in reinsurance premiums as a result of the lapsing of business covered by reinsurance and the significant decline in the equity markets. | |
Net investment income | • Net investment income was lower primarily due to a $77 decline in income from limited partnerships and other alternative investments, combined with lower yields on fixed maturity investments due to interest rate declines, partially offset by an increase in general account assets from increased fixed account sales. | |
Net investment spread | • The decline in net investment spread is attributable to lower fixed income returns of 62 bps and lower limited partnership returns of 45 bps, partially offset by a reduction in the average credited rate of 3 bps. The decline in fixed maturity returns was primarily related to a higher percentage of fixed maturities being held in short-term investments. | |
Net realized capital losses | • Net realized capital losses increased primarily as a result of losses on GMWB derivatives of $631 in 2008 compared with losses of $286 in 2007; the transition impact related to the adoption of fair value accounting guidance, which resulted in losses of $616 in 2008; and impairments of $474 in 2008 compared with $87 in 2007. | |
Benefits, losses and loss adjustment expenses | • Benefits, losses and loss adjustment expenses increased primarily as a result of the impact of the 2008 Unlock which increased the benefit ratio used in the calculation of GMDB reserves. | |
Insurance operating costs and other expenses | • Insurance operating costs and other expenses decreased primarily as a result of lower non deferrable asset based trail commissions due to equity market declines. | |
General insurance expense ratio | • The general insurance expense ratio increased due to the impact of a declining asset base on relatively consistent expenses. | |
Amortization of DAC | • Amortization of DAC increased primarily due to the impact of the 2008 Unlock charge as compared to the 2007 Unlock benefit. This was partially offset by a DAC benefit associated with the adoption of fair value accounting guidance at the beginning of the first quarter of 2008. | |
DAC amortization ratio, excluding realized losses and DAC Unlocks | • The Retail DAC amortization ratio, excluding realized losses and DAC Unlocks, increased due to the impairment of goodwill in the fourth quarter of 2008, which reduced pre-tax earnings but did not affect EGPs. Excluding the impacts of the goodwill impairment, realized losses, and DAC Unlock, the 2008 DAC amortization ratio was 43.3%, which reflects the 2008 effect of changes in assumptions made as part of the 2007 and 2008 Unlocks. | |
Goodwill impairment | • As a result of testing performed during the fourth quarter of 2008, all goodwill attributed to the individual annuity business in Retail was deemed to be impaired and was written down to $0. For further discussion of this impairment, see Note 8 in the Notes to Consolidated Financial Statements. | |
Income tax expense (benefit) | • The effective tax rate increased from 21% to 41% for the year ended December 31, 2008 as compared to the prior year primarily due to losses before income taxes in 2008 compared to pre-tax earnings in 2007. The impact of DRD and other permanent differences caused an increase in the tax benefit to above 35% on the 2008 pre-tax loss and a decrease in the tax expense on the 2007 pre-tax income. |
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Operating Summary | 2009 | 2008 | 2007 | |||||||||
Fee income and other | $ | 1,027 | $ | 899 | $ | 870 | ||||||
Earned premiums | (87 | ) | (71 | ) | (62 | ) | ||||||
Net investment income | 335 | 338 | 359 | |||||||||
Net realized capital losses | (145 | ) | (252 | ) | (28 | ) | ||||||
Total revenues | 1,130 | 914 | 1,139 | |||||||||
Benefits, losses and loss adjustment expenses | 640 | 627 | 562 | |||||||||
Insurance operating costs and other expenses | 188 | 202 | 193 | |||||||||
Amortization of deferred policy acquisition costs and present value of future profits | 314 | 169 | 121 | |||||||||
Total benefits, losses and expenses | 1,142 | 998 | 876 | |||||||||
Income (loss) before income taxes | (12 | ) | (84 | ) | 263 | |||||||
Income tax expense (benefit) | (27 | ) | (41 | ) | 81 | |||||||
Net income (loss) | $ | 15 | $ | (43 | ) | $ | 182 | |||||
Account Values | 2009 | 2008 | 2007 | |||||||||
Variable universal life insurance | $ | 5,766 | $ | 4,802 | $ | 7,284 | ||||||
Universal life/interest sensitive whole life | 5,071 | 4,727 | 4,388 | |||||||||
Modified guaranteed life and other | 622 | 653 | 677 | |||||||||
Total account values | $ | 11,459 | $ | 10,182 | $ | 12,349 | ||||||
Life Insurance In-force | ||||||||||||
Variable universal life insurance | $ | 78,671 | $ | 78,853 | $ | 77,566 | ||||||
Universal life/interest sensitive whole life | 55,169 | 52,356 | 48,636 | |||||||||
Term life | 69,932 | 63,334 | 52,298 | |||||||||
Modified guaranteed life and other | 897 | 921 | 983 | |||||||||
Total life insurance in-force | $ | 204,669 | $ | 195,464 | $ | 179,483 | ||||||
Net Investment Spread | 81 | bps | 90 | bps | 130 | bps | ||||||
Death Benefits | $ | 346 | $ | 359 | $ | 298 | ||||||
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Fee income and other | • Fee income and other increased primarily due to the impact of the 2009 Unlock “amortization of” unearned revenue reserves of $83 and increased cost of insurance charges of $38 as a result of growth in guaranteed universal life insurance in-force, partially offset by lower variable life fees as a result of equity market declines. For further discussion on the Unlock, see the Critical Accounting Estimates section of the MD&A. | |
Earned premiums | • Earned premiums, which include premiums for ceded reinsurance, decreased primarily due to increased ceded reinsurance premiums due to aging and growth in life insurance in-force. | |
Net investment spread | • Net investment spread was lower due to a $3 decline in investment income and a $2 increase in interest credited. Interest credited increased due primarily to increased average account values, partially offset by a reduction in the average credited rate of 18 bps. | |
Net realized capital losses | • Net realized capital losses improved primarily related to lower losses from impairments. For further discussion on impairments, see Other-Than-Temporary Impairments within the Investment Credit Risk section of the MD&A. | |
Benefits, losses and loss adjustment expenses | • Benefits, losses and loss adjustment expenses increased primarily related to reserve increases on secondary guaranteed universal life products due to aging and growth in life insurance in-force, partially offset by favorable mortality experience. | |
Death benefits | • Death benefits decreased due to favorable mortality partially offset by an increase in net amount at risk for variable universal life policies caused by equity market declines. | |
Insurance operating costs and other expenses | • Insurance operating costs and other expenses decreased primarily as a result of continued active expense management efforts. | |
Amortization of DAC | • Amortization of DAC increased primarily as a result of the additional Unlock charges in 2009 compared to 2008. DAC amortization had a partial offset in amortization of unearned revenue reserves, which drove the increase in fee income noted above. | |
Income tax benefit | • Income tax benefit decreased as a result of improved earnings before income taxes primarily due to lower net realized capital losses and the effects of the 2009 Unlocks. The effective tax rate for 2009 differs from the statutory rate of 35% primarily due to the recognition of the DRD. |
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Fee income and other | • Fee income and other increased primarily due to an increase in cost of insurance charges of $45 as a result of growth in guaranteed universal life insurance in-force and fees on higher surrenders of $12 due to internal exchanges from non-guaranteed universal life insurance to variable universal life insurance. Partially offsetting these increases are the impacts of the 2008 and 2007 Unlocks as well as lower variable life fees as a result of equity market declines. | |
Earned premiums | • Earned premiums, which include premiums for ceded reinsurance, decreased primarily due to increased ceded reinsurance premiums due to life insurance in-force growth. | |
Net investment income | • Net investment income decreased primarily due to lower income from limited partnerships and other alternative investments, lower yields on fixed maturity investments, and reduced net investment income associated with a more efficient capital approach for our secondary guarantee universal life business, which released assets supporting capital and the related net investment income earned on those assets (described further in the “Outlook” section), partially offset by growth in general account values. | |
Net investment spread | • The decrease in net investment spread was attributable to lower limited partnership returns of 52 bps and lower fixed maturity income returns, partially offset by a reduction in the credited rate of 23 bps. | |
Net realized capital losses | • Net realized capital losses increased primarily related to losses from impairments. For further discussion on impairments, see Other-Than-Temporary Impairments within the Investment Credit Risk section of the MD&A. | |
Benefits, losses and loss adjustment expenses | • Benefits, losses and loss adjustment expenses increased as a result of higher death benefits consistent with a larger life insurance in-force and unfavorable mortality, as well as the impact of the 2008 Unlock. | |
Death benefits | • Death benefits increased, primarily due to growth of life insurance in-force and unfavorable mortality. | |
Insurance operating costs and other expenses | • Insurance operating costs and other increased less than the growth of in-force business as a result of active expense management efforts. | |
Amortization of DAC | • Amortization of DAC increased primarily as a result of the Unlock expense in 2008 as compared to the Unlock benefit in 2007, partially offset by reduced DAC amortization primarily attributed to net realized capital losses. This increase in DAC amortization had a partial offset in amortization of unearned revenue reserves, included in fee income. | |
Income tax expense (benefit) | • Income tax benefits were a result of lower income before income taxes primarily due to an increase in net realized capital losses and DAC amortization. |
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Operating Summary | 2009 | 2008 | 2007 | |||||||||
Premiums and other considerations | $ | 4,350 | $ | 4,391 | $ | 4,301 | ||||||
Net investment income | 403 | 419 | 465 | |||||||||
Net realized capital losses | (124 | ) | (540 | ) | (30 | ) | ||||||
Total revenues | 4,629 | 4,270 | 4,736 | |||||||||
Benefits, losses and loss adjustment expenses | 3,196 | 3,144 | 3,109 | |||||||||
Insurance operating costs and other expenses | 1,120 | 1,128 | 1,131 | |||||||||
Amortization of deferred policy acquisition costs | 61 | 57 | 62 | |||||||||
Total benefits, losses and expenses | 4,377 | 4,329 | 4,302 | |||||||||
Income (loss) before income taxes | 252 | (59 | ) | 434 | ||||||||
Income tax expense (benefit) | 59 | (53 | ) | 119 | ||||||||
Net income (loss) | $ | 193 | $ | (6 | ) | $ | 315 | |||||
Earned Premiums and Other | 2009 | 2008 | 2007 | |||||||||
Fully insured — ongoing premiums | $ | 4,309 | $ | 4,355 | $ | 4,239 | ||||||
Buyout premiums | — | 1 | 27 | |||||||||
Other | 41 | 35 | 35 | |||||||||
Total earned premiums and other | $ | 4,350 | $ | 4,391 | $ | 4,301 | ||||||
Fully insured ongoing sales, excluding buyouts | $ | 741 | $ | 820 | $ | 770 | ||||||
Persistency | 87 | % | 89 | % | 87 | % | ||||||
Ratios, excluding buyouts | ||||||||||||
Loss ratio | 73.5 | % | 71.6 | % | 72.1 | % | ||||||
Loss ratio, excluding financial institutions | 77.8 | % | 76.3 | % | 77.3 | % | ||||||
Expense ratio | 27.1 | % | 27.0 | % | 27.9 | % | ||||||
Expense ratio, excluding financial institutions | 22.6 | % | 22.4 | % | 23.0 | % |
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Premiums and other considerations | • Premiums and other considerations decreased primarily due to reductions in covered lives within our customer base. | |
Net investment income | • Net investment income decreased primarily as a result of lower yields on fixed maturity investments. | |
Net realized capital losses | • Lower net realized capital losses were primarily driven by fewer impairments in 2009 compared to 2008. For further discussion on impairments, see Other-Than-Temporary Impairments within the Investment Credit Risk section of the MD&A. | |
Loss ratio | • The segment’s loss ratio increased primarily due to unfavorable morbidity experience, which was primarily due to unfavorable reserve development from the 2008 incurral loss year and higher new incurred long-term disability claims in 2009. | |
Expense ratio | • The segment’s expense ratio, excluding buyouts increased compared to the prior year due primarily to a commission accrual adjustment recorded in 2009 on financial institutions business. | |
Income tax expense (benefit) | • Income tax expense increased as a result of improved earnings before income taxes primarily due to lower net realized capital losses. The effective tax rate for 2009 differs from the statutory rate of 35% primarily due to investments in tax exempt securities. | |
Fully insured ongoing sales, excluding buyouts | • Fully insured ongoing sales, excluding buyouts, decreased in 2009 from 2008 primarily due to the competitive marketplace and economic environment. |
Premiums and other considerations | • Premiums and other considerations increased largely due to business growth driven by new sales and persistency over the last twelve months. | |
Net investment income | • Net investment income decreased primarily as a result of lower yields on fixed maturity investments and lower limited partnership and other alternative investment returns of $33. | |
Net realized capital losses | • Higher net realized capital losses were primarily driven by higher impairments in 2008 compared to 2007. For further discussion on impairments, see Other-Than-Temporary Impairments within the Investment Credit Risk section of the MD&A. | |
Loss ratio | • The segment’s loss ratio decreased due to favorable disability and medical stop loss experience partially offset by unfavorable mortality. | |
Expense ratio | • The segment’s expense ratio, excluding buyouts decreased compared to the prior year due primarily to lower commission expenses. | |
Income tax expense (benefit) | • 2008 had an income tax benefit compared to an income tax expense in 2007 as a result of higher net realized capital losses. The effective tax rate for 2008 differs from the statutory rate of 35% primarily due to investments in tax exempt securities. |
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Operating Summary | 2009 | 2008 | 2007 | |||||||||
Fee income and other | $ | 321 | $ | 334 | $ | 238 | ||||||
Earned premiums | 3 | 4 | 4 | |||||||||
Net investment income | 315 | 342 | 355 | |||||||||
Net realized capital losses | (333 | ) | (272 | ) | (41 | ) | ||||||
Total revenues | 306 | 408 | 556 | |||||||||
Benefits, losses and loss adjustment expenses | 269 | 271 | 249 | |||||||||
Insurance operating costs and other expenses | 346 | 335 | 170 | |||||||||
Amortization of deferred policy acquisition costs and present value of future profits | 56 | 91 | 58 | |||||||||
Total benefits, losses and expenses | 671 | 697 | 477 | |||||||||
Income (loss) before income taxes | (365 | ) | (289 | ) | 79 | |||||||
Income tax expense (benefit) | (143 | ) | (132 | ) | 18 | |||||||
Net income (loss) | $ | (222 | ) | $ | (157 | ) | $ | 61 | ||||
Assets Under Management | 2009 | 2008 | 2007 | |||||||||
403(b)/457 account values | $ | 11,116 | $ | 10,242 | $ | 12,363 | ||||||
401(k) account values | 16,142 | 11,956 | 14,731 | |||||||||
Total account values [1] | 27,258 | 22,198 | 27,094 | |||||||||
403(b)/457 mutual fund assets under management | 245 | 99 | 26 | |||||||||
401(k) mutual fund assets under management [2] | 16,459 | 14,739 | 1,428 | |||||||||
Total mutual fund assets under management | 16,704 | 14,838 | 1,454 | |||||||||
Total assets under management | $ | 43,962 | $ | 37,036 | $ | 28,548 | ||||||
Total assets under administration — 401(k) [3] | $ | 5,588 | $ | 5,122 | $ | — | ||||||
Account Value and Assets Under Management Roll Forward | 2009 | 2008 | 2007 | |||||||||
Retirement Plans Group Annuities | ||||||||||||
Account value, beginning of period | $ | 22,198 | $ | 27,094 | $ | 23,575 | ||||||
Net flows | 563 | 2,418 | 1,669 | |||||||||
Change in market value and other | 4,497 | (7,314 | ) | 1,850 | ||||||||
Account value, end of period | $ | 27,258 | $ | 22,198 | $ | 27,094 | ||||||
Retirement Plans Mutual Funds | ||||||||||||
Assets under management, beginning of period | $ | 14,838 | $ | 1,454 | $ | 1,140 | ||||||
Net sales/(redemptions) | (1,705 | ) | (446 | ) | 103 | |||||||
Acquisitions | — | 18,725 | — | |||||||||
Change in market value and other | 3,571 | (4,895 | ) | 211 | ||||||||
Assets under management, end of period | $ | 16,704 | $ | 14,838 | $ | 1,454 | ||||||
Net Investment Spread | 66 | bps | 92 | bps | 162 | bps | ||||||
[1] | Includes policyholder balances for investment contracts and reserves for future policy benefits for insurance contracts. | |
[2] | During the year ended December 31, 2008, Life acquired the rights to service mutual fund assets from Sun Life Retirement Services, Inc., and Princeton Retirement Group. | |
[3] | During the year ended December 31, 2008, Life acquired the rights to service assets under administration (“AUA”) from Princeton Retirement Group. Servicing revenues from AUA are based on the number of plan participants and do not vary directly with asset levels. As such, they are not included in assets under management upon which asset based returns are calculated. |
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Fee income and other | • Fee income and other decreased primarily due to lower average account values. Despite equity market improvements during the last nine months of 2009, account values have not returned to early 2008 levels. Net flows in group annuities and net sales in mutual funds have declined due primarily to a few large case surrenders. | |
Net investment income | • Net investment income decreased primarily as a result of lower yields on fixed maturity investments partially offset by an increase in derivative income. | |
Net investment spread | • The decline in net investment spread is attributable to lower fixed income returns of 34 bps and lower partnership returns of 3 bps, partially offset by a reduction in credited rates of 10 bps. | |
Net realized capital losses | • Net realized capital losses increased primarily as a result of realized losses of $56 on non-qualifying derivatives in 2009 compared with $14 of gains in 2008 and mortgage valuation allowances of $38 in 2009, partially offset by OTTI impairment losses of $178 in 2009 compared with $243 in 2008. | |
Insurance operating costs and other expenses | • Insurance operating costs and other expenses increased primarily due to a full year of operating expenses associated with the businesses acquired in the latter part of the first quarter of 2008 and lower deferrable acquisition expenses due to low sales levels, partially offset by expense management initiatives. | |
Amortization of DAC | • Amortization of DAC decreased as a result of lower gross profits in 2009 than 2008. | |
Income tax benefit | • The income tax benefit is greater than the prior year income tax benefit due to a higher loss before income taxes primarily due to the income items discussed above. The effective tax rate differs from the statutory rate of 35% primarily due to the recognition of the DRD. |
Fee income and other | • Fee income and other increased primarily due to $109 of fees earned on assets relating to the acquisitions in the first quarter of 2008. Offsetting this increase was lower annuity fees driven by lower average account values as a result of market depreciation of $7.3 billion, partially offset by positive net flows of $2.4 billion over the past four quarters. Group annuities had positive net flows driven by higher deposits as a result of the expanded sales force obtained through the 2008 acquisitions. | |
Net investment income | • Net investment income declined due to a decrease in the returns from limited partnerships and other alternative investments income of $33, partially offset by growth in general account assets. | |
Net investment spread | • The decline in net investment spread is attributable to lower limited partnership returns of 50 bps and lower fixed income returns of 25 bps, partially offset by a reduction in credited rates of 6 bps. | |
Net realized capital losses | • Net realized capital losses increased primarily due to impairment losses of $243 in 2008 compared with losses of $22 in 2007. | |
Insurance operating costs and other expenses | • Insurance operating costs and other expenses increased primarily attributable to operating expenses associated with the acquired businesses. Also contributing to higher insurance operating costs were higher trail commissions resulting from an aging portfolio and higher service and technology costs. | |
Amortization of DAC | • Amortization of DAC increased as a result of the higher Unlock charge in the third quarter of 2008 of $75 as compared to the Unlock charge in the third quarter of 2007 of $14, partially offset by lower DAC amortization associated with lower gross profits. For further discussion, see Unlocks within the Critical Accounting Estimates section of the MD&A. | |
Income tax expense (benefit) | • The income tax benefit for 2008 as compared to the prior year periods income tax expense was due to lower income before income taxes primarily due to increased net realized capital losses and increased tax benefits associated with the dividends received deduction. |
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Operating Summary | 2009 | 2008 | 2007 | |||||||||
Fee income | $ | 834 | $ | 881 | $ | 843 | ||||||
Earned premiums | (7 | ) | (9 | ) | (11 | ) | ||||||
Net investment income | 182 | 167 | 131 | |||||||||
Net realized capital gains (losses) | 35 | (422 | ) | (116 | ) | |||||||
Total revenues [1] | 1,044 | 617 | 847 | |||||||||
Benefits, losses and loss adjustment expenses | 621 | 270 | 32 | |||||||||
Insurance operating costs and other expenses | 291 | 321 | 246 | |||||||||
Amortization of deferred policy acquisition costs | 364 | 496 | 214 | |||||||||
Total benefits, losses and expenses | 1,276 | 1,087 | 492 | |||||||||
Income (loss) before income taxes | (232 | ) | (470 | ) | 355 | |||||||
Income tax expense (benefit) | (49 | ) | (145 | ) | 132 | |||||||
Net income (loss) [2] | $ | (183 | ) | $ | (325 | ) | $ | 223 | ||||
Assets Under Management — Japan | 2009 | 2008 | 2007 | |||||||||
Japan variable annuity account values | $ | 30,521 | $ | 29,726 | $ | 35,793 | ||||||
Japan fixed annuity and other account values [3] | 4,365 | 4,769 | 1,844 | |||||||||
Total assets under management — Japan | $ | 34,886 | $ | 34,495 | $ | 37,637 | ||||||
Account Value and Assets Under Management Roll Forward | 2009 | 2008 | 2007 | |||||||||
Japan Annuities | ||||||||||||
Account value, beginning of period | $ | 34,495 | $ | 37,637 | $ | 31,343 | ||||||
Net flows [4] | (1,200 | ) | 714 | 4,525 | ||||||||
Change in market value and other | 2,270 | (10,921 | ) | (608 | ) | |||||||
Effect of currency translation | (679 | ) | 7,065 | 2,377 | ||||||||
Account value, end of period | $ | 34,886 | $ | 34,495 | $ | 37,637 | ||||||
Expense Ratios | 2009 | 2008 | 2007 | |||||||||
International — Japan | ||||||||||||
General insurance expense ratio | 40.6 | bps | 49.4 | bps | 48.4 | bps | ||||||
DAC amortization ratio [5] | 225.2 | % | 109.3 | % | 35.3 | % | ||||||
DAC amortization ratio excluding realized gains (losses) and DAC Unlocks [5] [6] | 42.5 | % | 42.4 | % | 40.0 | % |
[1] | The transition impact related to the adoption of fair value accounting guidance was a reduction in revenues of $34, for the year ended December 31, 2008. For further discussion of the fair value guidance transition impact, see Note 4a of the Notes to Consolidated Financial Statements. | |
[2] | The transition impact related to the adoption of fair value accounting guidance was a reduction in net income of $11 the year ended December 31, 2008. For further discussion of the fair value guidance transition impact, refer to Note 4a of the Notes to Consolidated Financial Statements. | |
[3] | Japan fixed annuity and other account values include a $1.8 billion increase as of December 31, 2009 due to the impact of the GMIB pay-out annuity account value trigger for the 3 Win product with a corresponding decrease to Japan variable annuity account values. This payout annuity account value is not expected to generate material future profit or loss to the Company. | |
[4] | Includes the effect of the triggering of the guaranteed minimum income benefit (“GMIB”) for the 3 Win product in 2008, of which $(809) relates to policyholders surrendering and $(181) relates to the current period annuity payments. In 2009, net flows decreased due to the suspension of sales and an additional $(267) related to the current period annuity payments for the 3 Win product. | |
[5] | Excludes the effects of realized gains and losses except for net periodic settlements. Included in the net realized capital gain (losses) are amounts that represent the net periodic accruals on currency rate swaps used in the risk management of Japan fixed annuity products. | |
[6] | Excludes the effects of 3 Wins related charges in 2009 and 2008, of $62 and $237, pre-tax, on net income. Including the effects of 3 Wins related charges DAC amortization would have been 48.9% and 77.8%, respectively. |
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Fee income | • Fee income decreased primarily due to lower variable annuity fee income due to a decline in Japan’s average variable annuity account value. Average variable annuity account value declined due to net outflows driven by the suspension of new sales in the second quarter of 2009 as well as the effect of equity market declines in 2008 and the first quarter 2009. | |
Benefits, losses and loss adjustment expenses | • Benefits, losses and loss adjustment expense increased, driven by an unfavorable Unlock in the first quarter of 2009, a charge related to the 3 Win product of $39, after-tax, and increased claim cost. For further discussion on the Unlocks, see Unlocks within the Critical Accounting Estimates section of the MD&A. | |
Net realized capital gains (losses) | • Gains for the year ended December 31, 2009 were primarily driven by transactional foreign currency gains predominately on the internal reinsurance of the Japan variable annuity business, which is entirely offset in AOCI, resulting from depreciation of the Yen and GMWB derivative gains. These gains were partially offset by the $51 loss on the pending sale of the joint venture interest in ICATU Hartford Seguros, S.A and macro hedge program losses of $163. | |
Insurance operating costs and other expenses | • Insurance operating costs and other expenses decreased due to expense savings associated with the restructuring of the International operations. | |
General insurance expense ratio | • Japan general insurance expense ratio decreased due to the restructuring of Japan’s operations. | |
Amortization of DAC | • Amortization of DAC decreased as a result of a favorable Unlock in the third quarter of 2009. For further discussion see Unlocks within the Critical Accounting Estimates section of the MD&A. | |
Income tax benefit | • Income tax benefit declined as a result of fluctuating earnings and varying tax rates by country. |
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Fee income | • Fee income increased primarily due to growth in Japan’s variable annuity average assets under management. The increase in average assets under management over the prior year was driven by deposits of $3.0 billion and a $6.6 billion increase due to foreign currency exchange translation as the yen strengthened compared to the U.S. dollar. Deposits and favorable foreign currency exchange were offset by unfavorable market performance of $10.9 billion. Net flows have decreased in Japan annuities due the 3 Win trigger and to increased competition from domestic and foreign insurers, particularly competition relating to products offered with living benefit guarantees. | |
Benefits, losses and loss adjustment expenses | • Benefits, losses and loss adjustment expense increased as a result of the impacts of the Unlock in the third quarter of 2008 as compared to the third quarter of 2007, the impact of the 3 Win trigger, as well as higher GMDB net amount at risk and increased claims costs. | |
Net realized capital gains (losses) | • Losses for the year ended December 31, 2008 were primarily driven by transactional foreign currency losses predominately on the internal reinsurance of the Japan variable annuity business, which is entirely offset in AOCI, resulting from appreciation of the Yen, fair value measurement transition and impairments. | |
Insurance operating costs and other expenses | • Insurance operating costs and other expenses increased due to the growth and strategic investment in the Japan and Other International operations, as well as lower capitalization of deferred policy acquisition costs, as acquisition costs exceeded pricing allowables. | |
Amortization of DAC | • Amortization of DAC increased as a result of the impacts of the Unlock in the third quarter of 2008 as compared to the third quarter of 2007, as well as the accelerated amortization associated with the 3 Win trigger. | |
DAC amortization ratio, excluding realized gains (losses) and DAC Unlocks | • Japan DAC amortization ratio, excluding realized gains (losses) and DAC Unlocks, increased due to actual gross profits being less than expected as a result of lower fees earned on declining assets resulting in negative true-ups and a higher DAC amortization rate, as well as the accelerated amortization associated with the impact of the 3 Win trigger. | |
Income tax expense (benefit) | • Income tax expense decreased primarily as a result of a decline in income before taxes. |
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Operating Summary | 2009 | 2008 | 2007 | |||||||||
Fee income and other | $ | 143 | $ | 152 | $ | 251 | ||||||
Earned premiums | 352 | 889 | 987 | |||||||||
Net investment income | 833 | 1,004 | 1,241 | |||||||||
Net realized capital losses | (738 | ) | (789 | ) | (188 | ) | ||||||
Total revenues | 590 | 1,256 | 2,291 | |||||||||
Benefits, losses and loss adjustment expenses | 1,301 | 1,907 | 2,074 | |||||||||
Insurance operating costs and expenses | 83 | 120 | 185 | |||||||||
Amortization of deferred policy acquisition costs | 17 | 19 | 23 | |||||||||
Total benefits, losses and expenses | 1,401 | 2,046 | 2,282 | |||||||||
Income (loss) before income taxes | (811 | ) | (790 | ) | 9 | |||||||
Income tax benefit | (296 | ) | (288 | ) | (8 | ) | ||||||
Net income (loss) | $ | (515 | ) | $ | (502 | ) | $ | 17 | ||||
Assets Under Management | 2009 | 2008 | 2007 | |||||||||
Institutional account values [1] | $ | 22,373 | $ | 24,081 | $ | 25,103 | ||||||
Private Placement Life Insurance account values [1] | 33,356 | 32,459 | 32,792 | |||||||||
Mutual fund assets under management | 4,262 | 2,578 | 3,581 | |||||||||
Total assets under management | $ | 59,991 | $ | 59,118 | $ | 61,476 | ||||||
Net Investment Spread | 2009 | 2008 | 2007 | |||||||||
Stable Value (GICs, Funding Agreements, Funding Agreement Backed Notes and Consumer Notes) | (48 | )bps | 21 | bps | 101 | bps |
Expense Ratios | 2009 | 2008 | 2007 | |||||||||
General insurance expense ratio | 11.8 | bps | 14.1 | bps | 14.1 | bps |
[1] | Includes policyholder balances for investment contracts and reserves for future policy benefits for insurance contracts. |
Fee income and other | • Fee income and other was lower due to lower asset levels through beginning of the year as well as lower positive flows than prior year, offset by an increase in market return and higher sales. | |
Earned premiums | • Earned premiums decreased as ratings downgrades reduced payout annuity sales. The decrease in earned premiums was offset by a corresponding decrease in benefits, losses, and loss adjustment expenses. | |
Net investment income | • Net investment income declined due to lower income on fixed maturities resulting from a decline in average rates and fixed maturity investments, as well as an increased average asset base of securities with greater market liquidity. This was partially offset by a corresponding decrease in interest credited on liabilities reported in benefits, losses, and loss adjustment expenses. | |
Net investment spread | • Stable Value, net investment spreads were negatively impacted by 166 bps due to lower yields on variable rate securities and maintaining additional liquidity in the Institutional portfolios in the form of short term and U.S. Treasuries. In both periods, the drop in variable rate yields was partially offset by lower credited rates on floating rate liabilities. | |
Net realized capital losses | • Net realized capital losses were slightly lower due to smaller impairments. |
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Benefits, losses and loss adjustment expenses | • Benefits, losses and loss adjustment expenses were lower driven by lower interest credited due to lower rates on floating rate GIP’s as well as an overall smaller block of business. | |
Insurance operating costs and expenses and general insurance expense ratio | • Insurance operating costs and other expenses decreased due to active expense management efforts and reduced information technology expenses. | |
Income tax benefit | • The income tax benefit was flat due to flat income before taxes. |
Fee income and other | • Fee income and other decreased primarily due to lower front-end loads on private placement life insurance (“PPLI”) cases during 2008. PPLI collects front-end loads recorded in fee income, offset by corresponding premium taxes reported in insurance operating costs and other expenses. For 2008 and 2007, PPLI deposits of $247 and $5.2 billion, respectively, resulted in fee income due to front-end loads of $2 and $107, respectively. | |
Earned premiums | • Earned premiums decreased as compared to the prior year due to greater amounts of life contingent business sold in 2007. The decrease in earned premiums was offset by a corresponding decrease in benefits, losses, and loss adjustment expenses. | |
Net investment income | • Net investment income declined due to losses from limited partnership and other alternative investments of $(127), lower yields on fixed maturity investments indexed to LIBOR, and lower assets under management. The decline in yield on fixed maturities was largely offset by a corresponding decrease in interest credited on liabilities reported in benefits, losses, and loss adjustment expense. Assets under management decreased primarily due to stable value outflows. | |
Net investment spread | • Stable Value, net investment spreads were negatively impacted by 158 bps due to lower yields on variable rate securities and maintaining additional liquidity in the Institutional portfolios in the form of short-term investments and U.S. Treasuries, and 55 bps attributable to negative limited partnership returns. In both periods, the drop in variable rate yields was partially offset by lower credited rates on floating rate liabilities. | |
Net realized capital losses | • Net realized capital losses were higher due to significant impairments. | |
Benefits, losses and loss adjustment expenses | • Benefits, losses and loss adjustment expenses decreased primarily due to lower reserve increases as the result of lower sales in life contingent business, as well as lower interest credited on liabilities indexed to LIBOR. The decrease was partially offset by an increase in mortality losses of $8. | |
Insurance operating costs and expenses and general insurance expense ratio | • Insurance operating costs and other expenses decreased due to a decline in premium tax, driven by reduced PPLI deposits, partially offset by discontinued administrative system projects and product development expenses. | |
Income tax benefit | • The income tax benefit increased compared to the prior year primarily due to a decline in income before taxes primarily due to increased realized capital losses. |
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Operating Summary | 2009 | 2008 | 2007 | |||||||||
Fee income and other | $ | 58 | $ | 60 | $ | 67 | ||||||
Net investment income (loss) | ||||||||||||
Securities available-for-sale and other | 85 | 28 | 145 | |||||||||
Equity securities, trading [1] | 3,188 | (10,340 | ) | 145 | ||||||||
Total net investment income (loss) | 3,273 | (10,312 | ) | 290 | ||||||||
Net realized capital gains (losses) | (176 | ) | 47 | (35 | ) | |||||||
Total revenues | 3,155 | (10,205 | ) | 322 | ||||||||
Benefits, losses and loss adjustment expenses | 84 | 154 | 156 | |||||||||
Benefits, losses and loss adjustment expenses — returns credited on International variable annuities [1] | 3,188 | (10,340 | ) | 145 | ||||||||
Insurance operating costs and other expenses | 124 | 7 | 84 | |||||||||
Total benefits, losses and expenses | 3,396 | (10,179 | ) | 385 | ||||||||
Loss before income taxes | (241 | ) | (26 | ) | (63 | ) | ||||||
Income tax benefit | (76 | ) | (15 | ) | (11 | ) | ||||||
Net loss | $ | (165 | ) | $ | (11 | ) | $ | (52 | ) | |||
[1] | Includes investment income (loss) and mark-to-market effects of equity securities, trading, supporting the international variable annuity business, which are classified in net investment income with corresponding amounts credited to policyholders within benefits, losses and loss adjustment expenses. |
Net investment income — securities available-for-sale and other | • Net investment income on securities available-for-sale and other increased due to reduced losses on limited partnerships and other alternative investments, partially offset by the effects of inter-segment eliminations in 2009. | |
Net realized capital gains (losses) | • Net realized capital losses increased due to increases in mortgage loan valuation allowances in 2009. | |
Insurance operating costs and other expenses | • Insurance operating costs and other expenses increased due to restructuring costs that include severance benefits and other costs associated with the suspension of sales in International’s Japan and European operations as well as other restructuring costs across Life operations of $119. See Note 23 of the Notes to Consolidated Financial Statements for further details on the Company’s restructuring, severance and other costs. |
Net investment income — securities available-for-sale and other | • Net investment income on securities available-for-sale and other declined primarily due to decreases in yields on fixed maturity investments and declines in limited partnership and other alternative investment income. | |
Net realized capital gains (losses) | • Net realized capital gains increased due to trading and valuation gains on derivatives, partially offset by increased impairments. | |
Insurance operating costs and other expenses | • Insurance operating costs and other expenses decreased for the year ended December 31, 2008 as compared to the prior year period, primarily due to a charge of $21 for regulatory matters in the second quarter of 2007 and reallocation of expenses to the applicable lines of business in 2008. |
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Underwriting Summary | 2009 | 2008 | 2007 | |||||||||
Written premiums | $ | 3,987 | $ | 3,925 | $ | 3,947 | ||||||
Change in unearned premium reserve | 35 | (1 | ) | 58 | ||||||||
Earned premiums | 3,952 | 3,926 | 3,889 | |||||||||
Losses and loss adjustment expenses | ||||||||||||
Current accident year before catastrophes | 2,700 | 2,542 | 2,576 | |||||||||
Current accident year catastrophes | 228 | 258 | 125 | |||||||||
Prior accident years | (33 | ) | (51 | ) | (4 | ) | ||||||
Total losses and loss adjustment expenses | 2,895 | 2,749 | 2,697 | |||||||||
Amortization of deferred policy acquisition costs | 674 | 633 | 617 | |||||||||
Insurance operating costs and expenses | 263 | 264 | 253 | |||||||||
Underwriting results | $ | 120 | $ | 280 | $ | 322 | ||||||
Written Premiums | 2009 | 2008 | 2007 | |||||||||
Business Unit | ||||||||||||
AARP | $ | 2,871 | $ | 2,813 | $ | 2,750 | ||||||
Agency | 1,061 | 1,050 | 1,123 | |||||||||
Other | 55 | 62 | 74 | |||||||||
Total | $ | 3,987 | $ | 3,925 | $ | 3,947 | ||||||
Product Line | ||||||||||||
Automobile | $ | 2,869 | $ | 2,829 | $ | 2,848 | ||||||
Homeowners | 1,118 | 1,096 | 1,099 | |||||||||
Total | $ | 3,987 | $ | 3,925 | $ | 3,947 | ||||||
Earned Premiums | 2009 | 2008 | 2007 | |||||||||
Business Unit | ||||||||||||
AARP | $ | 2,844 | $ | 2,778 | $ | 2,681 | ||||||
Agency | 1,049 | 1,080 | 1,123 | |||||||||
Other | 59 | 68 | 85 | |||||||||
Total | $ | 3,952 | $ | 3,926 | $ | 3,889 | ||||||
Product Line | ||||||||||||
Automobile | $ | 2,850 | $ | 2,824 | $ | 2,822 | ||||||
Homeowners | 1,102 | 1,102 | 1,067 | |||||||||
Total | $ | 3,952 | $ | 3,926 | $ | 3,889 | ||||||
Premium Measures | 2009 | 2008 | 2007 | |||||||||
Policies in force at year end | ||||||||||||
Automobile | 2,395,421 | 2,323,882 | 2,349,402 | |||||||||
Homeowners | 1,488,408 | 1,455,954 | 1,481,542 | |||||||||
Total policies in force at year end | 3,883,829 | 3,779,836 | 3,830,944 | |||||||||
New business premium | ||||||||||||
Automobile | $ | 455 | $ | 364 | $ | 424 | ||||||
Homeowners | $ | 149 | $ | 106 | $ | 140 | ||||||
Policy count retention | ||||||||||||
Automobile | 86 | % | 86 | % | 87 | % | ||||||
Homeowners | 86 | % | 87 | % | 89 | % | ||||||
Renewal written pricing increase | ||||||||||||
Automobile | 3 | % | 4 | % | 3 | % | ||||||
Homeowners | 5 | % | 6 | % | 7 | % | ||||||
Renewal earned pricing increase | ||||||||||||
Automobile | 4 | % | 4 | % | 3 | % | ||||||
Homeowners | 6 | % | 5 | % | 7 | % | ||||||
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Ratios and Supplemental Data | 2009 | 2008 | 2007 | |||||||||
Loss and loss adjustment expense ratio | ||||||||||||
Current accident year before catastrophes | 68.3 | 64.8 | 66.2 | |||||||||
Current accident year catastrophes | 5.8 | 6.6 | 3.2 | |||||||||
Prior accident years | (0.8 | ) | (1.3 | ) | (0.1 | ) | ||||||
Total loss and loss adjustment expense ratio | 73.3 | 70.0 | 69.3 | |||||||||
Expense ratio | 23.7 | 22.8 | 22.4 | |||||||||
Combined ratio | 97.0 | 92.9 | 91.7 | |||||||||
Catastrophe ratio | ||||||||||||
Current accident year | 5.8 | 6.6 | 3.2 | |||||||||
Prior accident years | 0.1 | 0.2 | 0.2 | |||||||||
Total catastrophe ratio | 5.9 | 6.8 | 3.4 | |||||||||
Combined ratio before catastrophes | 91.1 | 86.1 | 88.3 | |||||||||
Combined ratio before catastrophes and prior accident year development | 92.0 | 87.6 | 88.6 | |||||||||
Other revenues [1] | $ | 153 | $ | 135 | $ | 141 | ||||||
[1] | Represents servicing revenues. |
Combined Ratios | 2009 | 2008 | 2007 | |||||||||
Automobile | 96.6 | 91.0 | 96.2 | |||||||||
Homeowners | 98.0 | 97.6 | 79.8 | |||||||||
Total | 97.0 | 92.9 | 91.7 | |||||||||
• | AARP earned premiums grew $66 in 2009, reflecting an increase in new business written premium over the first nine months of 2009, driven by increased direct marketing spend, higher auto policy conversion rates and cross-selling homeowners’ insurance to insureds who have auto policies. |
• | Agency earned premiums decreased by $31, reflecting a decrease in policy count retention and a decrease in average renewal premium per policy, partially offset by an increase in new business written premium. The decrease in policy count retention was primarily due to a decrease in retention on homeowners as a result of the Company’s decision to stop renewing Florida homeowners’ policies. The increase in new business was primarily due to an increase in the number of agency appointments, an increase in the number of policy quotes and an increase in the policy issue rate for auto. |
• | Other earned premiums decreased primarily due to a strategic decision to reduce other affinity business. |
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New business premium | • Auto and homeowners’ new business written premium increased by $91, or 25% and $43 or 41%, respectively, in 2009. AARP new business written premium increased for both auto and home primarily due to increased direct marketing spend, higher auto policy conversion rates and cross-selling homeowners’ insurance to insureds who have auto policies. Agency new business written premium increased for both auto and home primarily due to an increase in the number of agency appointments, an increase in the number of policy quotes and an increase in the policy issue rate for auto. | |
Policy count retention | • Policy count retention for auto remained flat in 2009 for both AARP and Agency policies, primarily due to stable renewal written pricing increases and policy retention initiatives. Policy count retention for homeowners decreased slightly in 2009, primarily due to a decrease in policy retention for Agency business largely due to the Company’s decision to stop renewing Florida homeowners’ policies. | |
Renewal earned pricing increase | • The increases in renewal earned pricing during 2009 were primarily a reflection of written pricing changes over the last two years. Renewal written pricing in 2009 increased in auto by 3% due to rate increases and the effect of policyholders purchasing newer vehicle models in place of older models. Homeowners’ renewal written pricing increased by 5% due to rate increases and increased coverage amounts reflecting higher rebuilding costs. For both auto and home, the Company has increased rates in certain states for certain classes of business to maintain profitability in the face of rising loss costs. | |
Policies in-force | • The number of policies in-force increased 3% in auto, driven by an increase in both AARP and Agency and increased 2% for homeowners, driven by an increase in AARP. |
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• | AARP earned premium grew $97, reflecting modest renewal earned pricing increases for both auto and homeowners and the effect of new business premium outpacing non-renewals in the last nine months of 2007. New business offset non-renewals in 2008 and new business in 2008 was driven by growth in the size of the AARP target market, the effect of direct marketing programs and the effect of cross-selling homeowners insurance to insureds who have auto policies. |
• | Agency earned premium decreased by $43 as the effect of a decline in new business premium and policy count retention since the middle of 2007 was partially offset by the effect of modest renewal earned pricing increases. The market environment continued to be intensely competitive in 2008. The increase in advertising for auto business among the top carriers also occurred with homeowners’ business, particularly in non-coastal and non-catastrophe prone areas. In 2008, a number of Personal Lines carriers began to increase rates although a significant portion of the market continued to compete heavily on price. |
• | Other earned premium decreased by $17, primarily due to a decision to reduce other affinity business. |
New business premium | • Both auto and homeowners’ new business written premium decreased in 2008 including decreases in AARP and Agency. Auto new business decreased by $60, or 14% and homeowners’ new business decreased by $34, or 24%. AARP new business written premium decreased primarily due to lower auto and homeowners’ policy conversion rates, driven by increased competition, including the effect of price decreases by some carriers and the effect of continued advertising among carriers for new business. Agency new business written premium decreased primarily due to price competition driven, in part, by a greater number of agents using comparative rating software to obtain quotes from multiple carriers. | |
Policy count retention | • Policy count retention for auto decreased, driven primarily by a decrease in policy retention for both AARP and Agency business. Policy count retention for homeowners decreased for both AARP and Agency business. The decrease in policy count retention for AARP homeowners’ business was driven by increased price competition by some carriers. The decrease in policy count retention for Agency homeowners’ business was due, in part, to Florida policyholders non-renewing as a result of the Company’s decision to stop renewing Florida homeowners’ policies sold through agents. | |
Renewal earned pricing increase | • Auto renewal earned pricing increases of 4% represent the portion of the 4% increase in renewal written pricing for 2008 that is reflected in earned premium. In 2008, the Company increased auto insurance rates in certain states for certain classes to maintain profitability in the face of rising loss costs. Renewal written pricing increases in 2008 included the effect of policyholders purchasing newer vehicle models in place of older models. Homeowners’ renewal earned pricing increases of 5% primarily reflected the earning of a blend of mid-single digit renewal written pricing increases recognized over the last nine months of 2007 and renewal written pricing increases recognized in the first nine months of 2008. Renewal written pricing increases in homeowners were largely driven by increases in coverage limits due to rising replacement costs. | |
Policies in-force | • The number of policies in-force decreased slightly for both auto and homeowners, primarily due to a 7% decline in the number of Agency policies in-force, partially offset by a 1% increase in the number of AARP policies in-force. |
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Underwriting Summary | 2009 | 2008 | 2007 | |||||||||
Written premiums | $ | 2,572 | $ | 2,696 | $ | 2,747 | ||||||
Change in unearned premium reserve | (8 | ) | (28 | ) | 11 | |||||||
Earned premiums | 2,580 | 2,724 | 2,736 | |||||||||
Losses and loss adjustment expenses | ||||||||||||
Current accident year before catastrophes | 1,396 | 1,447 | 1,594 | |||||||||
Current accident year catastrophes | 44 | 122 | 28 | |||||||||
Prior accident years | (36 | ) | (89 | ) | (209 | ) | ||||||
Total losses and loss adjustment expenses | 1,404 | 1,480 | 1,413 | |||||||||
Amortization of deferred policy acquisition costs | 622 | 636 | 635 | |||||||||
Insurance operating costs and expenses | 159 | 171 | 180 | |||||||||
Underwriting results | $ | 395 | $ | 437 | $ | 508 | ||||||
Premium Measures | 2009 | 2008 | 2007 | |||||||||
New business premium | $ | 482 | $ | 446 | $ | 481 | ||||||
Policy count retention | 81 | % | 82 | % | 84 | % | ||||||
Renewal written pricing increase (decrease) | — | (1 | %) | (1 | %) | |||||||
Renewal earned pricing increase (decrease) | — | (1 | %) | — | ||||||||
Policies in-force end of period | 1,077,189 | 1,055,463 | 1,038,542 |
Ratios | 2009 | 2008 | 2007 | |||||||||
Loss and loss adjustment expense ratio | ||||||||||||
Current accident year before catastrophes | 54.1 | 53.1 | 58.3 | |||||||||
Current accident year catastrophes | 1.7 | 4.5 | 1.0 | |||||||||
Prior accident years | (1.4 | ) | (3.3 | ) | (7.6 | ) | ||||||
Total loss and loss adjustment expense ratio | 54.4 | 54.3 | 51.6 | |||||||||
Expense ratio | 30.2 | 29.1 | 29.2 | |||||||||
Policyholder dividend ratio | — | 0.5 | 0.6 | |||||||||
Combined ratio | 84.7 | 84.0 | 81.4 | |||||||||
Catastrophe ratio | ||||||||||||
Current accident year | 1.7 | 4.5 | 1.0 | |||||||||
Prior accident years | (0.1 | ) | (0.1 | ) | 0.2 | |||||||
Total catastrophe ratio | 1.6 | 4.4 | 1.2 | |||||||||
Combined ratio before catastrophes | 83.1 | 79.6 | 80.3 | |||||||||
Combined ratio before catastrophes and prior accident year development | 84.4 | 82.8 | 88.0 |
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New business premium | • New business written premium was up $36, or 8%, in 2009 primarily driven by an increase in workers’ compensation business and the impact from the rollout of a new business owners policy product during the second half of 2009. The Company continues to increase its new business for workers’ compensation through refinement of pricing and underwriting appetite in certain markets. | |
Policy count retention | • Policy count retention decreased slightly due to the impact from declining economic conditions including increased mid-term cancellations. The impact affected all lines of business. | |
Renewal earned pricing increase (decrease) | • Renewal earned pricing was flat as an increase in renewal earned pricing for package business was offset by a decrease for workers’ compensation. Renewal earned pricing for the commercial auto business was essentially flat. The earned pricing changes were primarily a reflection of written pricing changes over the last two years. In addition to the effect of written pricing decreases in workers’ compensation, average premium per policy in Small Commercial has declined due to a reduction in the payrolls of workers’ compensation insureds and the effect of declining endorsements. | |
Policies in-force | • The number of policies-in-force increased by 2% in 2009. Despite the growth in policies, earned premiums have decreased by 5%, reflecting the decrease in average premium per policy. The growth or decline in policies in-force does not correspond directly with the change in earned premiums due to the effect of changes in earned pricing and changes in the average premium per policy. |
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New business premium | • New business written premium was down $35, or 7%, driven by a decrease in new package and commercial automobile business. New business for package and commercial auto business declined due to increased competition despite the use of lower pricing on targeted accounts and an increase in commissions paid to agents. New business written premium for workers’ compensation was up modestly. | |
Policy count retention | • Policy count retention decreased in all lines of business. | |
Renewal earned pricing increase (decrease) | • Renewal earned pricing decreased for workers’ compensation and commercial auto and was relatively flat for package business. The earned pricing changes during 2008 were primarily a reflection of written pricing changes over the last two years. | |
Policies in-force | • While earned premium was slightly down for 2008, the number of policies in-force has increased 2%. The growth in policies in-force does not correspond directly with the change in earned premiums due to the effect of changes in earned pricing and changes in the average premium per policy. |
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Underwriting Summary | 2009 | 2008 | 2007 | |||||||||
Written premiums | $ | 2,021 | $ | 2,242 | $ | 2,326 | ||||||
Change in unearned premium reserve | (80 | ) | (57 | ) | (94 | ) | ||||||
Earned premiums | 2,101 | 2,299 | 2,420 | |||||||||
Losses and loss adjustment expenses | ||||||||||||
Current accident year before catastrophes | 1,352 | 1,460 | 1,561 | |||||||||
Current accident year catastrophes | 32 | 116 | 15 | |||||||||
Prior accident years | (187 | ) | (134 | ) | (16 | ) | ||||||
Total losses and loss adjustment expenses | 1,197 | 1,442 | 1,560 | |||||||||
Amortization of deferred policy acquisition costs | 486 | 513 | 529 | |||||||||
Insurance operating costs and expenses | 160 | 175 | 174 | |||||||||
Underwriting results | $ | 258 | $ | 169 | $ | 157 | ||||||
Premium Measures | 2009 | 2008 | 2007 | |||||||||
New business premium | $ | 434 | $ | 420 | $ | 394 | ||||||
Policy count retention | 77 | % | 79 | % | 80 | % | ||||||
Renewal written pricing decrease | (2 | %) | (6 | %) | (5 | %) | ||||||
Renewal earned pricing decrease | (4 | %) | (6 | %) | (4 | %) | ||||||
Policies in-force as of end of period | 95,540 | 97,308 | 94,828 |
Ratios | 2009 | 2008 | 2007 | |||||||||
Loss and loss adjustment expense ratio | ||||||||||||
Current accident year before catastrophes | 64.3 | 63.5 | 64.5 | |||||||||
Current accident year catastrophes | 1.5 | 5.1 | 0.6 | |||||||||
Prior accident years | (8.9 | ) | (5.9 | ) | (0.7 | ) | ||||||
Total loss and loss adjustment expense ratio | 57.0 | 62.7 | 64.5 | |||||||||
Expense ratio | 30.4 | 29.0 | 28.5 | |||||||||
Policyholder dividend ratio | 0.4 | 0.9 | 0.6 | |||||||||
Combined ratio | 87.7 | 92.6 | 93.5 | |||||||||
Catastrophe ratio | ||||||||||||
Current accident year | 1.5 | 5.1 | 0.6 | |||||||||
Prior accident years | (0.7 | ) | (0.5 | ) | (0.1 | ) | ||||||
Total catastrophe ratio | 0.9 | 4.6 | 0.5 | |||||||||
Combined ratio before catastrophes | 86.9 | 88.1 | 93.0 | |||||||||
Combined ratio before catastrophes and prior accident year development | 95.1 | 93.4 | 93.5 |
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New business premium | • New business written premium increased by $14 primarily due to an increase in new business written premium for workers’ compensation, partially offset by a decrease in new business for marine, general liability and commercial auto. Despite continued pricing competition, the Company has increased new business for workers’ compensation by targeting business in selected industries and regions of the country where attractive new business opportunities remain. | |
Policy count retention | • Policy count retention decreased largely due to a decrease in workers’ compensation, property, general liability and marine. Policy count retention declined due to the effects of the downturn in the economy which caused business closures and increased shopping of policies by businesses seeking lower premiums. | |
Renewal earned pricing decrease | • Earned pricing decreased in workers’ compensation, commercial auto, general liability, property and marine. The earned pricing changes were primarily a reflection of written pricing changes over the last two years. A number of carriers have continued to compete fairly aggressively on price, particularly on larger accounts within Middle Market. Beginning in the second quarter of 2009, however, written pricing decreases moderated for workers’ compensation, general liability and marine and were flat or slightly positive for property and commercial auto. | |
Policies in-force | • The number of policies in-force decreased by 2%, partially contributing to the decline in earned premiums. |
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New business premium | • New business written premium increased by $26, or 7%, in 2008 as an increase in new business written premium for workers’ compensation was partially offset by a decrease in new business for general liability, marine and commercial auto. While continued price competition and the effect of some state-mandated rate reductions in workers’ compensation has lessened the attractiveness of new business in certain lines and regions, the Company has increased new business for workers’ compensation due, in part, to the effect of targeting business in selected industries and regions of the country. | |
Policy count retention | • Policy count retention decreased due largely to a decrease in retention for general liability. | |
Renewal earned pricing decrease | • Renewal earned pricing decreased in workers’ compensation, commercial auto, general liability, property and marine. The earned pricing decreases in 2008 were primarily a reflection of written pricing changes over the last two years. A number of carriers have continued to compete fairly aggressively on price, particularly on larger accounts within Middle Market, which has contributed to mid-single digit price decreases across the industry. | |
Policies in-force | • The number of policies in-force increased by 3%, due largely to growth on smaller accounts. |
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Underwriting Summary | 2009 | 2008 | 2007 | |||||||||
Written premiums | $ | 1,127 | $ | 1,361 | $ | 1,415 | ||||||
Change in unearned premium reserve | (101 | ) | (21 | ) | (31 | ) | ||||||
Earned premiums | 1,228 | 1,382 | 1,446 | |||||||||
Losses and loss adjustment expenses | ||||||||||||
Current accident year before catastrophes | 842 | 941 | 961 | |||||||||
Current accident year catastrophes | 2 | 47 | 9 | |||||||||
Prior accident years | (172 | ) | (81 | ) | 84 | |||||||
Total losses and loss adjustment expenses | 672 | 907 | 1,054 | |||||||||
Amortization of deferred policy acquisition costs | 284 | 313 | 323 | |||||||||
Insurance operating costs and expenses | 102 | 91 | 87 | |||||||||
Underwriting results | $ | 170 | $ | 71 | $ | (18 | ) | |||||
2009 | 2008 | 2007 | ||||||||||
Written Premiums | ||||||||||||
Property | $ | (16 | ) | $ | 50 | $ | 111 | |||||
Casualty | 494 | 538 | 534 | |||||||||
Professional liability, fidelity and surety | 582 | 691 | 689 | |||||||||
Other | 67 | 82 | 81 | |||||||||
Total | $ | 1,127 | $ | 1,361 | $ | 1,415 | ||||||
Earned Premiums | ||||||||||||
Property | $ | 21 | $ | 87 | $ | 133 | ||||||
Casualty | 496 | 526 | 543 | |||||||||
Professional liability, fidelity and surety | 643 | 685 | 685 | |||||||||
Other | 68 | 84 | 85 | |||||||||
Total | $ | 1,228 | $ | 1,382 | $ | 1,446 | ||||||
Ratios | 2009 | 2008 | 2007 | |||||||||
Loss and loss adjustment expense ratio | ||||||||||||
Current accident year before catastrophes | 68.6 | 68.1 | 66.6 | |||||||||
Current accident year catastrophes | 0.1 | 3.4 | 0.6 | |||||||||
Prior accident years | (14.0 | ) | (5.8 | ) | 5.8 | |||||||
Total loss and loss adjustment expense ratio | 54.7 | 65.6 | 73.0 | |||||||||
Expense ratio | 31.4 | 28.3 | 27.4 | |||||||||
Policyholder dividend ratio | 0.1 | 0.9 | 0.9 | |||||||||
Combined ratio | 86.2 | 94.8 | 101.3 | |||||||||
Catastrophe ratio | ||||||||||||
Current accident year | 0.1 | 3.4 | 0.6 | |||||||||
Prior accident years | (0.4 | ) | (1.2 | ) | 0.1 | |||||||
Total catastrophe ratio | (0.3 | ) | 2.2 | 0.7 | ||||||||
Combined ratio before catastrophes | 86.5 | 92.6 | 100.6 | |||||||||
Combined ratio before catastrophes and prior accident year development | 100.1 | 97.3 | 94.9 | |||||||||
Other revenues [1] | $ | 340 | $ | 371 | $ | 354 |
[1] | Represents servicing revenue |
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• | Property earned premiums decreased by $66 primarily due to the sale of the Company’s core excess and surplus lines property business. Effective March 31, 2009, the Company sold its core excess and surplus lines property business, to Beazley Group PLC. Concurrent with the sale, the in-force book of business was ceded to Beazley under a separate reinsurance agreement, whereby the Company ceded $26 of unearned premium, net of $10 in ceding commission. The ceding of the unearned premium was reflected as a reduction of written premium as of December 31, 2009. |
• | Casualty earned premiums decreased by $30, primarily due to lower audit premiums and a decrease in insured exposures driven by the downturn in the economy. |
• | Professional liability, fidelity and surety earned premium decreased by $42 primarily due to the effects of lower new business and premium renewal retention and earned pricing decreases. The adverse impact of ratings downgrades early in 2009 and the loss of key leadership personnel contributed to a decline in new business and renewal retention. |
• | Within the “Other” category, earned premium decreased by $16 in 2009. The “Other” category of earned premiums includes premiums assumed under inter-segment arrangements. |
• | Property earned premiums decreased by $46, primarily due to the Company’s decision to stop writing specialty property business with large, national accounts and the effect of increased competition for core excess and surplus lines business. As a result of increased competition and capacity for core excess and surplus lines business, the Company has experienced a decrease in earned pricing, lower new business growth and lower premium renewal retention since the third quarter of 2007, particularly for catastrophe-exposed business. |
• | Casualty earned premiums decreased by $17, primarily because of lower earned premium from captive programs and a decline in new business premium on loss-sensitive business written with larger accounts over the last nine months of 2007 and first three months of 2008. |
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• | Professional liability, fidelity and surety earned premium was flat. Earned premium for professional liability was relatively flat as the effect of earned pricing decreases in 2008 and the effect of a decline in new business written premium over the last nine months of 2007 and the first six months of 2008 were largely offset by the effect of a decrease in the portion of risks ceded to outside reinsurers. Earned premium for fidelity and surety business was also relatively flat as a modest decrease in commercial surety was largely offset by a modest increase in contract surety. |
• | Within the “Other” category, earned premium remained relatively flat from 2007 to 2008. The “Other” category of earned premiums includes premiums assumed under inter-segment arrangements. |
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Operating Summary | 2009 | 2008 | 2007 | |||||||||
Written premiums | $ | 4 | $ | 7 | $ | 5 | ||||||
Change in unearned premium reserve | 4 | — | — | |||||||||
Earned premiums | — | 7 | 5 | |||||||||
Losses and loss adjustment expenses — prior year | 242 | 129 | 193 | |||||||||
Insurance operating costs and expenses | 19 | 23 | 22 | |||||||||
Underwriting results | (261 | ) | (145 | ) | (210 | ) | ||||||
Net investment income | 163 | 197 | 248 | |||||||||
Net realized capital losses | (28 | ) | (208 | ) | (12 | ) | ||||||
Other expenses | — | (3 | ) | (1 | ) | |||||||
Income (loss) before income taxes | (126 | ) | (159 | ) | 25 | |||||||
Income tax benefit | (49 | ) | (62 | ) | (5 | ) | ||||||
Net income (loss) | $ | (77 | ) | $ | (97 | ) | $ | 30 | ||||
• | A $180 decrease in net realized capital losses, primarily due to fewer impairments and stabilizing market and credit conditions. |
• | A $116 decrease in underwriting results, primarily due to a $113 increase in unfavorable prior year loss development. Reserve development in 2009 included $138 of asbestos reserve strengthening and $75 of environmental reserve strengthening as a result of the Company’s annual asbestos and environmental reserve evaluations, partially offset by a decrease of $20 in the allowance for uncollectible reinsurance as a result of the Company’s annual evaluation of reinsurance recoverables. In 2008, reserve development included $50 of asbestos reserve strengthening and $53 of environmental reserve strengthening. |
• | A $34 decrease in net investment income, primarily as a result of a decrease in investment yield for fixed maturities and, to a lesser extent, lower income on limited partnerships and other alternative investments. |
• | A $13 decrease in income tax benefit due to the pre-tax factors described above. |
• | A $65 increase in underwriting results, primarily due to a $64 decrease in unfavorable prior year loss development. Reserve development in 2008 included $50 of asbestos reserve strengthening and $53 of environmental reserve strengthening. In 2007, reserve development included $99 principally as a result of an adverse arbitration decision and $25 of environmental reserve strengthening. |
• | A $51 decrease in net investment income, primarily as a result of net losses on limited partnerships and other alternative investments in 2008 and decreased fixed maturity income. |
• | A $196 increase in net realized capital losses, primarily due to realized losses in 2008 from impairments of subordinated fixed maturities and preferred equity securities in the financial services sector as well as of securitized assets. |
• | A $57 increase in income tax benefit, primarily as a result of a change from pre-tax income in 2007 to a pre-tax loss in 2008. |
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Operating Summary | 2009 | 2008 | 2007 | |||||||||
Fee income | $ | 13 | $ | 17 | $ | 16 | ||||||
Net investment income | 22 | 37 | 30 | |||||||||
Net realized capital gains (losses) | (228 | ) | 97 | (3 | ) | |||||||
Total revenues | (193 | ) | 151 | 43 | ||||||||
Amortization of deferred policy acquisition costs and present value of future profits | — | — | 1 | |||||||||
Interest expense | 476 | 341 | 259 | |||||||||
Goodwill impairment | 32 | 323 | — | |||||||||
Other expenses | 53 | (14 | ) | (40 | ) | |||||||
Total expenses | 561 | 650 | 220 | |||||||||
Loss before income taxes | (754 | ) | (499 | ) | (177 | ) | ||||||
Income tax benefit | (171 | ) | (101 | ) | (61 | ) | ||||||
Net loss [1] | $ | (583 | ) | $ | (398 | ) | $ | (116 | ) | |||
[1] | The year ended December 31, 2009 includes a net loss from Federal Trust Corporation of $6. See Note 22 of the Notes to Consolidated Financial Statements for further information on the Company’s acquisition of Federal Trust Corporation. |
Net realized capital gains (losses) | • The change was primarily due to approximately $300 in net realized losses related to the settlement of a contingent obligation to Allianz partially offset by realized gains of $70 on the change in fair value of the liability related to warrants issued to Allianz. Additionally, 2008 included realized gains of $110 on the change in fair value of the liability related to warrants issued to Allianz. See Note 21 of the Notes to Consolidated Financial Statements for a further discussion on Allianz. | |
Interest expense | • The increase in interest expense was primarily due to the issuance of $1.75 billion 10.0% junior subordinated debentures on October 17, 2008, partially offset by a reduction from debt repayments of $955 in 2008. For further discussion on the Company’s debt see Note 14 of the Notes to Consolidated Financial Statements. | |
Goodwill impairment | • The Company’s goodwill impairment test performed during 2009 resulted in a write-down of $32 in Corporate related to the Institutional segment as compared to $323 in 2008 related to the Individual Annuity and International reporting units. See Note 8 of the Notes to Consolidated Financial Statements for a further discussion on Goodwill. | |
Other expenses | • The increase in other expenses was a result of $19 in expenses incurred in 2009 from Federal Trust Corporation, a company The Hartford acquired in June of 2009, restructuring costs of $12 and an increase of $17 in the DAC Unlock charge recorded in Corporate. Additionally, 2008 included a benefit of $15 from interest charged by Corporate on the amount of capital held by the Life and Property & Casualty operations in excess of the amount needed to support the capital requirements of the respective operations. |
Net realized capital gains (losses) | • The change was primarily due to a realized gain of approximately $110 on the change in fair value of the liability related to warrants issued to Allianz in 2008. See Note 21 of the Notes to Consolidated Financial Statements for a further discussion on Allianz. | |
Interest expense | • The additional interest expense was primarily due to $106 related to total debt issuances in 2008 of $3.25 billion, partially offset by a reduction of $23 from debt repayments of $955 and $300 in 2008 and 2007, respectively. See Note 14 of the Notes to Consolidated Financial Statements for a further discussion on the Company’s debt. | |
Goodwill impairment | • The Company’s goodwill impairment test performed during 2008 resulted in a write-down of $323 in Corporate related to the Individual Annuity and International reporting units. See Note 8 of the Notes to Consolidated Financial Statements for a further discussion on Goodwill. | |
Other expenses | • The increase in other expenses was a result of a reduction of $62 in the benefit received from interest charged by Corporate on the amount of capital held by the Life and Property & Casualty operations in excess of the amount needed to support the capital requirements of the respective operations, which was offset by an increase of $8 in the DAC Unlock benefit and a benefit of $28 related to modifications to stock option awards and other compensation. |
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% of layer(s) | ||||||||||
Coverage | Treaty term | reinsured | Per occurrence limit | Retention | ||||||
Principal property catastrophe program covering property catastrophe losses from a single event | 1/1/2010 to 1/1/2011 | Varies by layer, but averages 81% across all layers | Aggregates to $690 across all layers | $ | 250 | |||||
Reinsurance with the FHCF covering Florida Personal Lines property catastrophe losses from a single event | 6/1/2009 to 6/1/2010 | 90% | 293 [1] | 69 | ||||||
Workers’ compensation losses arising from a single catastrophe event | 7/1/2009 to 7/1/2010 | 95% | 280 | 20 |
[1] | The per occurrence limit on the FHCF treaty is $293 for the 6/1/2009 to 6/1/2010 treaty year based on the Company’s election to purchase additional limits under the “Temporary Increase in Coverage Limit (TICL)” statutory provision in excess of the coverage the Company is required to purchase from the FHCF. |
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Bond amount issued by | ||||||||
Foundation Re, | ||||||||
Foundation Re II or | ||||||||
Covered perils | Treaty term | Covered losses | Foundation Re III | |||||
Hurricane loss events affecting the Gulf and Eastern Coast of the United States and loss events arising from California, Pacific Northwest, and New Madrid earthquakes. | 2/17/2006 to 2/17/2010 | 26% of $400 in losses in excess of an index loss trigger equating to approximately $1.3 billion in Hartford losses | $ | 105 | ||||
Hurricane loss events affecting the Gulf and Eastern Coast of the United States | 11/17/2006 to 11/17/2010 | 45% of $400 in losses in excess of an index loss trigger equating to approximately $1.85 billion in Hartford losses | 180 | |||||
Hurricane loss events affecting the Gulf and Eastern Coast of the United States | 1/27/2010 to 1/27/2014 | 90% of $200 in losses in excess of an index loss trigger equating to approximately $1.2 billion in Hartford losses | 180 |
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Hurricane | Earthquake | |||||||||||||||
Net of | ||||||||||||||||
Expected | Net of Expected | |||||||||||||||
Before | Reinsurance | Before | Reinsurance | |||||||||||||
Reinsurance | Recoveries | Reinsurance | Recoveries | |||||||||||||
Estimated 250-year probable maximum loss, before-tax | $ | 1,587 | $ | 603 | $ | 686 | $ | 316 | ||||||||
After-tax effect as a percentage of statutory surplus of the Property & Casualty operations as of December 31, 2009 | 7 | % | 3 | % |
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Reinsurance Recoverable | December 31, 2009 | December 31, 2008 | ||||||
Paid loss and loss adjustment expenses | $ | 208 | $ | 326 | ||||
Unpaid loss and loss adjustment expenses | 3,321 | 3,492 | ||||||
Gross reinsurance recoverable | 3,529 | 3,818 | ||||||
Less: allowance for uncollectible reinsurance | (335 | ) | (379 | ) | ||||
Net reinsurance recoverable | $ | 3,194 | $ | 3,439 | ||||
Distribution of gross reinsurance recoverable | December 31, 2009 | December 31, 2008 | ||||||||||||||
Gross reinsurance recoverable | $ | 3,529 | $ | 3,818 | ||||||||||||
Less: mandatory (assigned risk) pools and structured settlements | (642 | ) | (638 | ) | ||||||||||||
Gross reinsurance recoverable excluding mandatory pools and structured settlements | $ | 2,887 | $ | 3,180 | ||||||||||||
% of Total | % of Total | |||||||||||||||
Rated A- (Excellent) or better by A.M. Best [1] | $ | 2,091 | 72.4 | % | $ | 2,426 | 76.3 | % | ||||||||
Other rated by A.M. Best | 48 | 1.7 | % | 52 | 1.6 | % | ||||||||||
Total rated companies | 2,139 | 74.1 | % | 2,478 | 77.9 | % | ||||||||||
Voluntary pools | 152 | 5.3 | % | 181 | 5.7 | % | ||||||||||
Captives | 209 | 7.2 | % | 220 | 6.9 | % | ||||||||||
Other not rated companies | 387 | 13.4 | % | 301 | 9.5 | % | ||||||||||
Total | $ | 2,887 | 100 | % | $ | 3,180 | 100.0 | % | ||||||||
[1] | Based on A.M. Best ratings as of December 31, 2009 and 2008, respectively. |
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December 31, 2009 | December 31, 2008 | |||||||||||||||||||||||
Percent of | Percent of | |||||||||||||||||||||||
Amortized | Total Fair | Amortized | Total Fair | |||||||||||||||||||||
Cost | Fair Value | Value | Cost | Fair Value | Value | |||||||||||||||||||
United States Government/Government agencies | $ | 7,299 | $ | 7,172 | 10.1 | % | $ | 9,409 | $ | 9,568 | 14.7 | % | ||||||||||||
AAA | 11,974 | 11,188 | 15.7 | % | 17,844 | 13,489 | 20.7 | % | ||||||||||||||||
AA | 14,845 | 13,932 | 19.6 | % | 14,093 | 11,646 | 17.9 | % | ||||||||||||||||
A | 19,822 | 18,664 | 26.2 | % | 18,742 | 15,831 | 24.4 | % | ||||||||||||||||
BBB | 17,886 | 17,071 | 24.0 | % | 15,749 | 12,794 | 19.6 | % | ||||||||||||||||
BB & below | 4,189 | 3,126 | 4.4 | % | 2,401 | 1,784 | 2.7 | % | ||||||||||||||||
�� | ||||||||||||||||||||||||
Total fixed maturities | $ | 76,015 | $ | 71,153 | 100.0 | % | $ | 78,238 | $ | 65,112 | 100.0 | % | ||||||||||||
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December 31, 2009 | December 31, 2008 | |||||||||||||||||||||||||||||||||||||||
Percent | Percent | |||||||||||||||||||||||||||||||||||||||
Cost or | Gross | Gross | of Total | Cost or | Gross | Gross | of Total | |||||||||||||||||||||||||||||||||
Amortized | Unrealized | Unrealized | Fair | Fair | Amortized | Unrealized | Unrealized | Fair | Fair | |||||||||||||||||||||||||||||||
Cost | Gains | Losses | Value | Value | Cost | Gains | Losses | Value | Value | |||||||||||||||||||||||||||||||
Asset-backed securities (“ABS”) | ||||||||||||||||||||||||||||||||||||||||
Consumer loans | $ | 2,087 | $ | 15 | $ | (277 | ) | $ | 1,825 | 2.6 | % | $ | 2,251 | $ | — | $ | (589 | ) | $ | 1,662 | 2.6 | % | ||||||||||||||||||
Small business | 548 | 1 | (232 | ) | 317 | 0.4 | % | 570 | — | (250 | ) | 320 | 0.5 | % | ||||||||||||||||||||||||||
Other | 405 | 20 | (44 | ) | 381 | 0.5 | % | 610 | 6 | (132 | ) | 484 | 0.7 | % | ||||||||||||||||||||||||||
CDOs | ||||||||||||||||||||||||||||||||||||||||
CLOs [1] | 2,727 | — | (288 | ) | 2,439 | 3.5 | % | 2,865 | — | (735 | ) | 2,130 | 3.3 | % | ||||||||||||||||||||||||||
CREs | 1,319 | 21 | (901 | ) | 439 | 0.6 | % | 1,763 | 2 | (1,302 | ) | 463 | 0.7 | % | ||||||||||||||||||||||||||
Other | 8 | 6 | — | 14 | — | 27 | — | (8 | ) | 19 | — | |||||||||||||||||||||||||||||
CMBS | ||||||||||||||||||||||||||||||||||||||||
Agency backed [2] | 62 | 3 | — | 65 | 0.1 | % | 433 | 16 | — | 449 | 0.7 | % | ||||||||||||||||||||||||||||
Bonds | 9,600 | 52 | (2,241 | ) | 7,411 | 10.4 | % | 11,144 | 10 | (4,370 | ) | 6,784 | 10.4 | % | ||||||||||||||||||||||||||
Interest only (“IOs”) | 1,074 | 59 | (65 | ) | 1,068 | 1.5 | % | 1,396 | 17 | (333 | ) | 1,080 | 1.7 | % | ||||||||||||||||||||||||||
Corporate | ||||||||||||||||||||||||||||||||||||||||
Basic industry | 2,642 | 112 | (56 | ) | 2,698 | 3.8 | % | 2,138 | 33 | (338 | ) | 1,833 | 2.8 | % | ||||||||||||||||||||||||||
Capital goods | 3,085 | 140 | (51 | ) | 3,174 | 4.5 | % | 2,480 | 32 | (322 | ) | 2,190 | 3.3 | % | ||||||||||||||||||||||||||
Consumer cyclical | 1,946 | 75 | (45 | ) | 1,976 | 2.8 | % | 2,335 | 34 | (388 | ) | 1,981 | 3.0 | % | ||||||||||||||||||||||||||
Consumer non-cyclical | 4,737 | 281 | (22 | ) | 4,996 | 7.0 | % | 3,435 | 60 | (252 | ) | 3,243 | 5.0 | % | ||||||||||||||||||||||||||
Energy | 3,070 | 163 | (18 | ) | 3,215 | 4.5 | % | 1,669 | 24 | (146 | ) | 1,547 | 2.4 | % | ||||||||||||||||||||||||||
Financial services | 8,059 | 118 | (917 | ) | 7,260 | 10.1 | % | 8,422 | 254 | (1,543 | ) | 7,133 | 10.9 | % | ||||||||||||||||||||||||||
Tech./comm. | 3,984 | 205 | (75 | ) | 4,114 | 5.8 | % | 3,738 | 86 | (400 | ) | 3,424 | 5.3 | % | ||||||||||||||||||||||||||
Transportation | 698 | 22 | (23 | ) | 697 | 1.0 | % | 508 | 8 | (90 | ) | 426 | 0.7 | % | ||||||||||||||||||||||||||
Utilities | 5,755 | 230 | (85 | ) | 5,900 | 8.3 | % | 4,859 | 92 | (578 | ) | 4,373 | 6.7 | % | ||||||||||||||||||||||||||
Other [3] | 1,342 | 22 | (151 | ) | 1,213 | 1.7 | % | 1,475 | — | (444 | ) | 1,031 | 1.6 | % | ||||||||||||||||||||||||||
Foreign govt./govt. agencies | 1,376 | 52 | (20 | ) | 1,408 | 2.0 | % | 2,786 | 100 | (65 | ) | 2,821 | 4.3 | % | ||||||||||||||||||||||||||
Municipal | ||||||||||||||||||||||||||||||||||||||||
Taxable | 1,176 | 4 | (205 | ) | 975 | 1.4 | % | 1,115 | 8 | (229 | ) | 894 | 1.4 | % | ||||||||||||||||||||||||||
Tax-exempt | 10,949 | 314 | (173 | ) | 11,090 | 15.6 | % | 10,291 | 194 | (724 | ) | 9,761 | 15.0 | % | ||||||||||||||||||||||||||
RMBS | ||||||||||||||||||||||||||||||||||||||||
Agency | 3,383 | 99 | (6 | ) | 3,476 | 4.9 | % | 3,092 | 88 | (15 | ) | 3,165 | 4.9 | % | ||||||||||||||||||||||||||
Non-agency | 143 | — | (16 | ) | 127 | 0.2 | % | 213 | — | (48 | ) | 165 | 0.2 | % | ||||||||||||||||||||||||||
Alt-A | 218 | — | (58 | ) | 160 | 0.2 | % | 305 | — | (108 | ) | 197 | 0.3 | % | ||||||||||||||||||||||||||
Sub-prime | 1,768 | 5 | (689 | ) | 1,084 | 1.5 | % | 2,435 | 8 | (862 | ) | 1,581 | 2.4 | % | ||||||||||||||||||||||||||
U.S. Treasuries | 3,854 | 14 | (237 | ) | 3,631 | 5.1 | % | 5,883 | 112 | (39 | ) | 5,956 | 9.2 | % | ||||||||||||||||||||||||||
Total fixed maturities | 76,015 | 2,033 | (6,895 | ) | 71,153 | 100.0 | % | 78,238 | 1,184 | (14,310 | ) | 65,112 | 100.0 | % | ||||||||||||||||||||||||||
Equity securities | ||||||||||||||||||||||||||||||||||||||||
Financial Services | 836 | 7 | (164 | ) | 679 | 973 | 13 | (196 | ) | 790 | ||||||||||||||||||||||||||||||
Other | 497 | 73 | (28 | ) | 542 | 581 | 190 | (103 | ) | 668 | ||||||||||||||||||||||||||||||
Total equity securities | 1,333 | 80 | (192 | ) | 1,221 | 1,554 | 203 | (299 | ) | 1,458 | ||||||||||||||||||||||||||||||
Total AFS securities [4] | $ | 77,348 | $ | 2,113 | $ | (7,087 | ) | $ | 72,374 | $ | 79,792 | $ | 1,387 | $ | (14,609 | ) | $ | 66,570 | ||||||||||||||||||||||
[1] | As of December 31, 2009, 79% of these senior secured bank loan collateralized loan obligations (“CLOs”) were rated AA and above with an average subordination of 29%. | |
[2] | Represents securities with pools of loans by the Small Business Administration whose issued loans are backed by the full faith and credit of the U.S. government. | |
[3] | Includes structured investments with an amortized cost and fair value of $533 and $433, respectively, as of December 31, 2009 and $526 and $364, respectively, as of December 31, 2008. The underlying securities supporting these investments are primarily diversified pools of investment grade corporate issuers which can withstand a 15% cumulative default rate, assuming a 35% recovery. | |
[4] | Gross unrealized gains represent gains of $1,474, $633, and $6 for Life, Property & Casualty, and Corporate, respectively, as of December 31, 2009 and $860, $526, and $1, respectively, as of December 31, 2008. Gross unrealized losses represent losses of $5,592, $1,491, and $4 for Life, Property & Casualty, and Corporate, respectively, as of December 31, 2009 and $10,766, $3,835, and $8, respectively, as of December 31, 2008. |
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December 31, 2009 | December 31, 2008 | |||||||||||||||||||||||
Percent of | Percent of | |||||||||||||||||||||||
Amortized | Total Fair | Amortized | Total Fair | |||||||||||||||||||||
Cost | Fair Value | Value | Cost | Fair Value | Value | |||||||||||||||||||
AAA | $ | 299 | $ | 290 | 3.7 | % | $ | 728 | $ | 628 | 7.9 | % | ||||||||||||
AA | 1,913 | 1,867 | 23.5 | % | 2,067 | 1,780 | 22.5 | % | ||||||||||||||||
A | 4,510 | 3,987 | 50.2 | % | 5,479 | 4,606 | 58.1 | % | ||||||||||||||||
BBB | 1,664 | 1,379 | 17.4 | % | 1,015 | 816 | 10.3 | % | ||||||||||||||||
BB & below | 509 | 416 | 5.2 | % | 106 | 93 | 1.2 | % | ||||||||||||||||
Total [1] | $ | 8,895 | $ | 7,939 | 100.0 | % | $ | 9,395 | $ | 7,923 | 100.0 | % | ||||||||||||
[1] | The credit qualities above include downgrades that have shifted the portfolio from higher rated assets to lower rated assets since December 31, 2008. |
December 31, 2009 | ||||||||||||||||||||||||||||||||||||||||||||||||
AAA | AA | A | BBB | BB and Below | Total | |||||||||||||||||||||||||||||||||||||||||||
Amortized | Fair | Amortized | Fair | Amortized | Fair | Amortized | Fair | Amortized | Fair | Amortized | Fair | |||||||||||||||||||||||||||||||||||||
Cost | Value | Cost | Value | Cost | Value | Cost | Value | Cost | Value | Cost | Value | |||||||||||||||||||||||||||||||||||||
2003 & Prior | $ | 40 | $ | 31 | $ | 76 | $ | 58 | $ | 70 | $ | 48 | $ | 18 | $ | 12 | $ | 67 | $ | 41 | $ | 271 | $ | 190 | ||||||||||||||||||||||||
2004 | 82 | 68 | 286 | 210 | 61 | 38 | 7 | 4 | 6 | 2 | 442 | 322 | ||||||||||||||||||||||||||||||||||||
2005 | 67 | 42 | 270 | 196 | 148 | 90 | 86 | 26 | 153 | 40 | 724 | 394 | ||||||||||||||||||||||||||||||||||||
2006 | 8 | 7 | 11 | 8 | 21 | 16 | 27 | 10 | 155 | 79 | 222 | 120 | ||||||||||||||||||||||||||||||||||||
2007 | — | — | — | — | — | — | — | — | 109 | 58 | 109 | 58 | ||||||||||||||||||||||||||||||||||||
Total | $ | 197 | $ | 148 | $ | 643 | $ | 472 | $ | 300 | $ | 192 | $ | 138 | $ | 52 | $ | 490 | $ | 220 | $ | 1,768 | $ | 1,084 | ||||||||||||||||||||||||
Credit protection | 48.2 | % | 53.3 | % | 40.6 | % | 35.8 | % | 25.4 | % | 41.6 | % |
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December 31, 2008 | ||||||||||||||||||||||||||||||||||||||||||||||||
AAA | AA | A | BBB | BB and Below | Total | |||||||||||||||||||||||||||||||||||||||||||
Amortized | Fair | Amortized | Fair | Amortized | Fair | Amortized | Fair | Amortized | Fair | Amortized | Fair | |||||||||||||||||||||||||||||||||||||
Cost | Value | Cost | Value | Cost | Value | Cost | Value | Cost | Value | Cost | Value | |||||||||||||||||||||||||||||||||||||
2003 & Prior | $ | 49 | $ | 41 | $ | 162 | $ | 136 | $ | 60 | $ | 43 | $ | 32 | $ | 26 | $ | 34 | $ | 20 | $ | 337 | $ | 266 | ||||||||||||||||||||||||
2004 | 112 | 81 | 349 | 277 | 8 | 7 | 10 | 7 | — | — | 479 | 372 | ||||||||||||||||||||||||||||||||||||
2005 | 90 | 71 | 543 | 367 | 154 | 77 | 24 | 16 | 23 | 18 | 834 | 549 | ||||||||||||||||||||||||||||||||||||
2006 | 77 | 69 | 126 | 56 | 18 | 9 | 120 | 50 | 143 | 54 | 484 | 238 | ||||||||||||||||||||||||||||||||||||
2007 | 42 | 27 | 40 | 10 | 38 | 18 | 47 | 26 | 134 | 75 | 301 | 156 | ||||||||||||||||||||||||||||||||||||
Total | $ | 370 | $ | 289 | $ | 1,220 | $ | 846 | $ | 278 | $ | 154 | $ | 233 | $ | 125 | $ | 334 | $ | 167 | $ | 2,435 | $ | 1,581 | ||||||||||||||||||||||||
Credit protection | 40.5 | % | 47.6 | % | 31.4 | % | 21.9 | % | 19.9 | % | 41.0 | % |
[1] | The vintage year represents the year the underlying loans in the pool were originated. | |
[2] | Includes second lien residential mortgages with an amortized cost and fair value of $42 and $34, respectively, as of December 31, 2009 and $173 and $82, respectively, as of December 31, 2008, which are composed primarily of loans to prime and Alt-A borrowers. | |
[3] | As of December 31, 2009, the weighted average life of the sub-prime residential mortgage portfolio was 4.1 years. | |
[4] | Approximately 93% of the portfolio is backed by adjustable rate mortgages. | |
[5] | The credit qualities above include downgrades that have shifted the portfolio from higher rated assets to lower rated assets since December 31, 2008. |
December 31, 2009 | ||||||||||||||||||||||||||||||||||||||||||||||||
AAA | AA | A | BBB | BB and Below | Total | |||||||||||||||||||||||||||||||||||||||||||
Amortized | Fair | Amortized | Fair | Amortized | Fair | Amortized | Fair | Amortized | Fair | Amortized | Fair | |||||||||||||||||||||||||||||||||||||
Cost | Value | Cost | Value | Cost | Value | Cost | Value | Cost | Value | Cost | Value | |||||||||||||||||||||||||||||||||||||
2003 & Prior | $ | 1,732 | $ | 1,716 | $ | 297 | $ | 230 | $ | 150 | $ | 113 | $ | 20 | $ | 17 | $ | 11 | $ | 7 | $ | 2,210 | $ | 2,083 | ||||||||||||||||||||||||
2004 | 639 | 626 | 82 | 52 | 52 | 34 | 15 | 7 | — | — | 788 | 719 | ||||||||||||||||||||||||||||||||||||
2005 | 1,011 | 930 | 356 | 230 | 228 | 123 | 100 | 64 | 89 | 54 | 1,784 | 1,401 | ||||||||||||||||||||||||||||||||||||
2006 | 1,945 | 1,636 | 430 | 275 | 536 | 247 | 323 | 132 | 231 | 83 | 3,465 | 2,373 | ||||||||||||||||||||||||||||||||||||
2007 | 498 | 408 | 139 | 101 | 169 | 68 | 346 | 160 | 201 | 98 | 1,353 | 835 | ||||||||||||||||||||||||||||||||||||
Total | $ | 5,825 | $ | 5,316 | $ | 1,304 | $ | 888 | $ | 1,135 | $ | 585 | $ | 804 | $ | 380 | $ | 532 | $ | 242 | $ | 9,600 | $ | 7,411 | ||||||||||||||||||||||||
Credit protection | 26.5 | % | 21.2 | % | 13.1 | % | 11.6 | % | 8.7 | % | 22.0 | % |
December 31, 2008 | ||||||||||||||||||||||||||||||||||||||||||||||||
AAA | AA | A | BBB | BB and Below | Total | |||||||||||||||||||||||||||||||||||||||||||
Amortized | Fair | Amortized | Fair | Amortized | Fair | Amortized | Fair | Amortized | Fair | Amortized | Fair | |||||||||||||||||||||||||||||||||||||
Cost | Value | Cost | Value | Cost | Value | Cost | Value | Cost | Value | Cost | Value | |||||||||||||||||||||||||||||||||||||
2003 & Prior | $ | 2,057 | $ | 1,869 | $ | 455 | $ | 299 | $ | 175 | $ | 102 | $ | 36 | $ | 27 | $ | 37 | $ | 25 | $ | 2,760 | $ | 2,322 | ||||||||||||||||||||||||
2004 | 667 | 576 | 85 | 35 | 65 | 22 | 23 | 10 | — | — | 840 | 643 | ||||||||||||||||||||||||||||||||||||
2005 | 1,142 | 847 | 475 | 152 | 325 | 127 | 55 | 27 | — | — | 1,997 | 1,153 | ||||||||||||||||||||||||||||||||||||
2006 | 2,562 | 1,498 | 385 | 110 | 469 | 168 | 385 | 140 | 40 | 12 | 3,841 | 1,928 | ||||||||||||||||||||||||||||||||||||
2007 | 981 | 504 | 438 | 128 | 148 | 45 | 134 | 60 | 5 | 1 | 1,706 | 738 | ||||||||||||||||||||||||||||||||||||
Total | $ | 7,409 | $ | 5,294 | $ | 1,838 | $ | 724 | $ | 1,182 | $ | 464 | $ | 633 | $ | 264 | $ | 82 | $ | 38 | $ | 11,144 | $ | 6,784 | ||||||||||||||||||||||||
Credit protection | 24.4 | % | 16.4 | % | 12.2 | % | 5.3 | % | 4.4 | % | 20.6 | % |
[1] | The vintage year represents the year the pool of loans was originated. | |
[2] | The credit qualities above include downgrades that have shifted the portfolio from higher rated assets to lower rated assets since December 31, 2008. |
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December 31, 2009 | ||||||||||||||||||||||||||||||||||||||||||||||||
AAA | AA | A | BBB | BB and Below | Total | |||||||||||||||||||||||||||||||||||||||||||
Amortized Cost | Fair Value | Amortized Cost | Fair Value | Amortized Cost | Fair Value | Amortized Cost | Fair Value | Amortized Cost | Fair Value | Amortized Cost | Fair Value | |||||||||||||||||||||||||||||||||||||
2003 & Prior | $ | 60 | $ | 41 | $ | 30 | $ | 15 | $ | 69 | $ | 26 | $ | 165 | $ | 44 | $ | 95 | $ | 14 | $ | 419 | $ | 140 | ||||||||||||||||||||||||
2004 | 19 | 11 | 70 | 22 | 37 | 11 | 27 | 4 | 23 | 4 | 176 | 52 | ||||||||||||||||||||||||||||||||||||
2005 | 17 | 8 | 72 | 12 | 35 | 14 | 49 | 8 | 26 | 6 | 199 | 48 | ||||||||||||||||||||||||||||||||||||
2006 | 23 | 13 | 108 | 33 | 82 | 28 | 69 | 22 | 23 | 12 | 305 | 108 | ||||||||||||||||||||||||||||||||||||
2007 | 62 | 33 | 12 | 3 | 20 | 5 | 26 | 9 | 15 | 10 | 135 | 60 | ||||||||||||||||||||||||||||||||||||
2008 | 22 | 12 | — | — | 5 | 1 | 15 | 4 | 13 | 3 | 55 | 20 | ||||||||||||||||||||||||||||||||||||
2009 | 15 | 8 | — | — | 2 | — | 4 | 1 | 9 | 2 | 30 | 11 | ||||||||||||||||||||||||||||||||||||
Total | $ | 218 | $ | 126 | $ | 292 | $ | 85 | $ | 250 | $ | 85 | $ | 355 | $ | 92 | $ | 204 | $ | 51 | $ | 1,319 | $ | 439 | ||||||||||||||||||||||||
Credit protection | 40.0 | % | 10.5 | % | 25.5 | % | 34.9 | % | 31.6 | % | 28.1 | % |
December 31, 2008 | ||||||||||||||||||||||||||||||||||||||||||||||||
AAA | AA | A | BBB | BB and Below | Total | |||||||||||||||||||||||||||||||||||||||||||
Amortized Cost | Fair Value | Amortized Cost | Fair Value | Amortized Cost | Fair Value | Amortized Cost | Fair Value | Amortized Cost | Fair Value | Amortized Cost | Fair Value | |||||||||||||||||||||||||||||||||||||
2003 & Prior | $ | 180 | $ | 59 | $ | 96 | $ | 29 | $ | 79 | $ | 17 | $ | 64 | $ | 7 | $ | 31 | $ | 7 | $ | 450 | $ | 119 | ||||||||||||||||||||||||
2004 | 129 | 38 | 17 | 6 | 31 | 9 | 11 | 2 | 14 | 3 | 202 | 58 | ||||||||||||||||||||||||||||||||||||
2005 | 94 | 37 | 62 | 15 | 65 | 12 | 10 | 2 | 1 | — | 232 | 66 | ||||||||||||||||||||||||||||||||||||
2006 | 242 | 76 | 91 | 25 | 81 | 20 | 15 | 2 | — | — | 429 | 123 | ||||||||||||||||||||||||||||||||||||
2007 | 139 | 45 | 106 | 19 | 101 | 11 | 12 | 1 | — | — | 358 | 76 | ||||||||||||||||||||||||||||||||||||
2008 | 43 | 13 | 22 | 5 | 24 | 3 | 3 | — | — | — | 92 | 21 | ||||||||||||||||||||||||||||||||||||
Total | $ | 827 | $ | 268 | $ | 394 | $ | 99 | $ | 381 | $ | 72 | $ | 115 | $ | 14 | $ | 46 | $ | 10 | $ | 1,763 | $ | 463 | ||||||||||||||||||||||||
Credit protection | 29.7 | % | 21.3 | % | 18.2 | % | 19.4 | % | 57.0 | % | 25.4 | % |
[1] | The vintage year represents the year that the underlying collateral in the pool was originated. Individual CDO fair value is allocated by the proportion of collateral within each vintage year. | |
[2] | As of December 31, 2009, approximately 42% of the underlying CRE CDOs collateral are seasoned, below investment grade securities. | |
[3] | For certain CRE CDOs, the collateral manager has the ability to reinvest proceeds that become available, primarily from collateral maturities. The increase in the 2008 and 2009 vintage years represents reinvestment under these CRE CDOs. | |
[4] | The credit qualities above include downgrades that have shifted the portfolio from higher rated assets to lower rated assets since December 31, 2008. |
December 31, 2009 | December 31, 2008 | |||||||||||||||||||||||||||||||||||||||||||||||
AAA | A | BBB | BB and Below | Total | AAA | |||||||||||||||||||||||||||||||||||||||||||
Amortized | Fair | Amortized | Fair | Amortized | Fair | Amortized | Fair | Amortized | Fair | Amortized | Fair | |||||||||||||||||||||||||||||||||||||
Cost | Value | Cost | Value | Cost | Value | Cost | Value | Cost | Value | Cost | Value | |||||||||||||||||||||||||||||||||||||
2003 & Prior | $ | 331 | $ | 352 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 331 | $ | 352 | $ | 440 | $ | 423 | ||||||||||||||||||||||||
2004 | 207 | 217 | — | — | — | — | — | — | 207 | 217 | 268 | 199 | ||||||||||||||||||||||||||||||||||||
2005 | 284 | 275 | — | — | 1 | 2 | — | — | 285 | 277 | 354 | 245 | ||||||||||||||||||||||||||||||||||||
2006 | 137 | 120 | 3 | 1 | — | — | 1 | 2 | 141 | 123 | 165 | 104 | ||||||||||||||||||||||||||||||||||||
2007 | 110 | 99 | — | — | — | — | — | — | 110 | 99 | 169 | 109 | ||||||||||||||||||||||||||||||||||||
Total | $ | 1,069 | $ | 1,063 | $ | 3 | $ | 1 | $ | 1 | $ | 2 | $ | 1 | $ | 2 | $ | 1,074 | $ | 1,068 | $ | 1,396 | $ | 1,080 | ||||||||||||||||||||||||
[1] | The vintage year represents the year the pool of loans was originated. | |
[2] | The credit qualities above include downgrades that have shifted the portfolio from higher rated assets to lower rated assets since December 31, 2008. |
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December 31, 2009 | December 31, 2008 | |||||||||||||||||||||||
Amortized | Valuation | Carrying | Amortized | Valuation | Carrying | |||||||||||||||||||
Cost [1] | Allowance | Value | Cost [1] | Allowance | Value | |||||||||||||||||||
Whole loans | $ | 3,319 | $ | (40 | ) | $ | 3,279 | $ | 3,557 | $ | (2 | ) | $ | 3,555 | ||||||||||
A-Note participations | 391 | — | 391 | 460 | (13 | ) | 447 | |||||||||||||||||
B-Note participations | 701 | (176 | ) | 525 | 724 | — | 724 | |||||||||||||||||
Mezzanine loans | 1,081 | (142 | ) | 939 | 1,108 | — | 1,108 | |||||||||||||||||
Total [2] | $ | 5,492 | $ | (358 | ) | $ | 5,134 | $ | 5,849 | $ | (15 | ) | $ | 5,834 | ||||||||||
[1] | Amortized cost represents carrying value prior to valuation allowances, if any. | |
[2] | Excludes agricultural and residential mortgage loans. For further information on the total mortgage loan portfolio, see Note 5 of the Notes to Consolidated Financial Statements. |
December 31, 2009 | ||||||||||||||||||||||||||||||||||||||||||||||||
AAA | AA | A | BBB | BB and Below | Total | |||||||||||||||||||||||||||||||||||||||||||
Amortized | Fair | Amortized | Fair | Amortized | Fair | Amortized | Fair | Amortized | Fair | Amortized | Fair | |||||||||||||||||||||||||||||||||||||
Cost | Value | Cost | Value | Cost | Value | Cost | Value | Cost | Value | Cost | Value | |||||||||||||||||||||||||||||||||||||
Auto [1] | $ | 136 | $ | 137 | $ | 47 | $ | 47 | $ | 96 | $ | 96 | $ | 105 | $ | 103 | $ | 22 | $ | 17 | $ | 406 | $ | 400 | ||||||||||||||||||||||||
Credit card | 703 | 714 | — | — | 26 | 24 | 197 | 186 | — | — | 926 | 924 | ||||||||||||||||||||||||||||||||||||
Student loan [2] | 292 | 186 | 326 | 249 | 137 | 66 | — | — | — | — | 755 | 501 | ||||||||||||||||||||||||||||||||||||
Total [3] | $ | 1,131 | $ | 1,037 | $ | 373 | $ | 296 | $ | 259 | $ | 186 | $ | 302 | $ | 289 | $ | 22 | $ | 17 | $ | 2,087 | $ | 1,825 | ||||||||||||||||||||||||
December 31, 2008 | ||||||||||||||||||||||||||||||||||||||||||||||||
AAA | AA | A | BBB | BB and Below | Total | |||||||||||||||||||||||||||||||||||||||||||
Amortized | Fair | Amortized | Fair | Amortized | Fair | Amortized | Fair | Amortized | Fair | Amortized | Fair | |||||||||||||||||||||||||||||||||||||
Cost | Value | Cost | Value | Cost | Value | Cost | Value | Cost | Value | Cost | Value | |||||||||||||||||||||||||||||||||||||
Auto | $ | 135 | $ | 109 | $ | 29 | $ | 27 | $ | 142 | $ | 103 | $ | 209 | $ | 162 | $ | 30 | $ | 20 | $ | 545 | $ | 421 | ||||||||||||||||||||||||
Credit card | 419 | 367 | 6 | 3 | 108 | 97 | 351 | 248 | 58 | 39 | 942 | 754 | ||||||||||||||||||||||||||||||||||||
Student loan | 294 | 159 | 332 | 244 | 138 | 84 | — | — | — | — | 764 | 487 | ||||||||||||||||||||||||||||||||||||
Total | $ | 848 | $ | 635 | $ | 367 | $ | 274 | $ | 388 | $ | 284 | $ | 560 | $ | 410 | $ | 88 | $ | 59 | $ | 2,251 | $ | 1,662 | ||||||||||||||||||||||||
[1] | As of December 31, 2009, approximately 8% of the auto consumer loan-backed securities were issued by lenders whose primary business is to sub-prime borrowers. | |
[2] | As of December 31, 2009, approximately half of the student loan-backed exposure is guaranteed by the Federal Family Education Loan Program, with the remainder comprised of loans to prime borrowers. | |
[3] | The credit qualities above include downgrades that have shifted the portfolio from higher rated assets to lower rated assets since December 31, 2008. |
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December 31, 2009 | December 31, 2008 | |||||||||||||||
Amount | Percent | Amount | Percent | |||||||||||||
Hedge funds | $ | 596 | 33.3 | % | $ | 834 | 36.3 | % | ||||||||
Mortgage and real estate funds | 302 | 16.9 | % | 551 | 24.0 | % | ||||||||||
Mezzanine debt funds | 133 | 7.4 | % | 156 | 6.8 | % | ||||||||||
Private equity and other funds | 759 | 42.4 | % | 754 | 32.9 | % | ||||||||||
Total | $ | 1,790 | 100.0 | % | $ | 2,295 | 100.0 | % | ||||||||
December 31, 2009 | December 31, 2008 | |||||||||||||||||||||||||||||||
Cost or | Cost or | |||||||||||||||||||||||||||||||
Amortized | Fair | Unrealized | Amortized | Fair | Unrealized | |||||||||||||||||||||||||||
Items | Cost | Value | Loss | Items | Cost | Value | Loss | |||||||||||||||||||||||||
Three months or less | 1,237 | $ | 11,197 | $ | 10,838 | $ | (359 | ) | 1,718 | $ | 16,425 | $ | 14,992 | $ | (1,433 | ) | ||||||||||||||||
Greater than three to six months | 105 | 317 | 289 | (28 | ) | 972 | 6,533 | 5,247 | (1,286 | ) | ||||||||||||||||||||||
Greater than six to nine months | 311 | 2,940 | 2,429 | (511 | ) | 764 | 7,053 | 5,873 | (1,180 | ) | ||||||||||||||||||||||
Greater than nine to twelve months | 134 | 2,054 | 1,674 | (380 | ) | 741 | 6,459 | 4,957 | (1,502 | ) | ||||||||||||||||||||||
Greater than twelve months | 2,020 | 22,445 | 16,636 | (5,809 | ) | 2,417 | 25,279 | 16,071 | (9,208 | ) | ||||||||||||||||||||||
Total | 3,807 | $ | 38,953 | $ | 31,866 | $ | (7,087 | ) | 6,612 | $ | 61,749 | $ | 47,140 | $ | (14,609 | ) | ||||||||||||||||
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December 31, 2009 | December 31, 2008 | |||||||||||||||||||||||||||||||
Cost or | Cost or | |||||||||||||||||||||||||||||||
Amortized | Fair | Unrealized | Amortized | Fair | Unrealized | |||||||||||||||||||||||||||
Consecutive Months | Items | Cost | Value | Loss | Items | Cost | Value | Loss | ||||||||||||||||||||||||
Three months or less | 161 | $ | 951 | $ | 672 | $ | (279 | ) | 1,789 | $ | 21,512 | $ | 13,483 | $ | (8,029 | ) | ||||||||||||||||
Greater than three to six months | 51 | 55 | 38 | (17 | ) | 225 | 2,139 | 800 | (1,339 | ) | ||||||||||||||||||||||
Greater than six to nine months | 159 | 2,046 | 1,397 | (649 | ) | 112 | 1,448 | 618 | (830 | ) | ||||||||||||||||||||||
Greater than nine to twelve months | 86 | 1,398 | 913 | (485 | ) | 169 | 1,989 | 610 | (1,379 | ) | ||||||||||||||||||||||
Greater than twelve months | 715 | 8,146 | 4,228 | (3,918 | ) | 33 | 377 | 71 | (306 | ) | ||||||||||||||||||||||
Total | 1,172 | $ | 12,596 | $ | 7,248 | $ | (5,348 | ) | 2,328 | $ | 27,465 | $ | 15,582 | $ | (11,883 | ) | ||||||||||||||||
December 31, 2009 | December 31, 2008 | |||||||||||||||||||||||||||||||
Cost or | Cost or | |||||||||||||||||||||||||||||||
Amortized | Fair | Unrealized | Amortized | Fair | Unrealized | |||||||||||||||||||||||||||
Consecutive Months | Items | Cost | Value | Loss | Items | Cost | Value | Loss | ||||||||||||||||||||||||
Three months or less | 62 | $ | 169 | $ | 61 | $ | (108 | ) | 650 | $ | 8,350 | $ | 2,923 | $ | (5,427 | ) | ||||||||||||||||
Greater than three to six months | 28 | 5 | 2 | (3 | ) | 38 | 352 | 56 | (296 | ) | ||||||||||||||||||||||
Greater than six to nine months | 54 | 190 | 74 | (116 | ) | 28 | 267 | 44 | (223 | ) | ||||||||||||||||||||||
Greater than nine to twelve months | 58 | 592 | 210 | (382 | ) | 3 | 15 | 3 | (12 | ) | ||||||||||||||||||||||
Greater than twelve months | 220 | 2,553 | 735 | (1,818 | ) | — | — | — | — | |||||||||||||||||||||||
Total | 422 | $ | 3,509 | $ | 1,082 | $ | (2,427 | ) | 719 | $ | 8,984 | $ | 3,026 | $ | (5,958 | ) | ||||||||||||||||
For the years ended December 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
ABS | $ | 54 | $ | 27 | $ | 19 | ||||||
CDOs | ||||||||||||
CREs | 483 | 398 | — | |||||||||
Other | 28 | — | — | |||||||||
CMBS | ||||||||||||
Bonds | 257 | 141 | 18 | |||||||||
IOs | 25 | 61 | — | |||||||||
Corporate | ||||||||||||
Financial services | 137 | 1,342 | 67 | |||||||||
Other | 61 | 510 | 98 | |||||||||
Equity securities | ||||||||||||
Financial services | 92 | 1,142 | 36 | |||||||||
Other | 53 | 19 | 20 | |||||||||
Foreign govt./govt. agencies | — | 31 | 13 | |||||||||
Municipal | 18 | 21 | — | |||||||||
RMBS | ||||||||||||
Non-agency | 4 | 13 | — | |||||||||
Alt-A | 62 | 24 | — | |||||||||
Sub-prime | 232 | 235 | 212 | |||||||||
U.S. Treasuries | 2 | — | — | |||||||||
Total | $ | 1,508 | $ | 3,964 | $ | 483 | ||||||
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• | Commercial property value declines that averaged 40% to 45% from the valuation peak but differed by property type and location. |
• | Average cumulative CMBS collateral loss rates that varied by vintage year but reached approximately 12% for the 2007 vintage year. |
• | Residential property value declines that averaged 40% to 45% from the valuation peak but differed by location. |
• | Average cumulative RMBS collateral loss rates that varied by vintage year but reached approximately 50% for the 2007 vintage year. |
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Change in Net Economic Value As of December 31, | ||||||||||||||||
2009 | 2008 | |||||||||||||||
Basis point shift | - 100 | + 100 | - 100 | + 100 | ||||||||||||
Amount | $ | (30 | ) | $ | (9 | ) | $ | (173 | ) | $ | 114 | |||||
Change in Fair Value As of December 31, | ||||||||||||||||
2009 | 2008 | |||||||||||||||
Basis point shift | - 100 | + 100 | - 100 | + 100 | ||||||||||||
Amount | $ | 2,326 | $ | (2,230 | ) | $ | 2,015 | $ | (1,944 | ) | ||||||
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• | reduce the value of assets under management and the amount of fee income generated from those assets; |
• | reduce the value of equity securities, trading, for international variable annuities, the related policyholder funds and benefits payable, and the amount of fee income generated from those variable annuities; |
• | increase the liability for GMWB benefits resulting in realized capital losses; |
• | increase the value of derivative assets used to dynamically hedge product guarantees resulting in realized capital gains; |
• | increase costs under the Company’s hedging program; |
• | increase the Company’s net amount at risk for GMDB and GMIB benefits; |
• | decrease the Company’s actual gross profits, resulting in increased DAC amortization; |
• | increase the amount of required statutory capital necessary to maintain targeted risk based capital ratios; |
• | turn customer sentiment toward equity-linked products negative, causing a decline in sales; and |
• | decrease the Company’s estimated future gross profits. See Life Estimated Gross Profits Used in the Valuation and Amortization of Assets and Liabilities Associated with Variable Annuity and Other Universal Life-Type Contracts within the Critical Accounting Estimates section of MD&A for further information. |
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GMWB | ||||||||||||
Account | % of GMWB | |||||||||||
Risk Management Strategy | Duration | Value | Account Value | |||||||||
Entire GMWB risk reinsured with a third party | Life of the product | $ | 11,299 | 25 | % | |||||||
Capital markets risk transferred to a third party — behavior risk retained by the Company | Designed to cover the effective life of the product | 10,838 | 24 | % | ||||||||
Dynamic hedging of capital markets risk using various derivative instruments [1] | Weighted average of 4 years [2] | 23,369 | 51 | % | ||||||||
$ | 45,506 | 100 | % | |||||||||
[1] | During 2009, the Company continued to maintain a reduced level of dynamic hedge protection on U.S GAAP earnings while placing a greater relative emphasis on the protection of statutory surplus including the macro hedging program. | |
[2] | The weighted average of 4 years reflects varying durations by hedging strategy and the impact of non parallel shifts will increase GAAP volatility. |
Net Impact on | ||||
Hedging Program | ||||
Pre-Tax/DAC | ||||
Capital Market Factor | Gain (Loss) | |||
Equity markets increase 1% [1] | $ | (12 | ) | |
Equity markets decrease 1% [1] | 12 | |||
Volatility increases 1% [2] | (30 | ) | ||
Volatility decreases 1% [2] | 30 | |||
Interest rates increase 1 basis point [3] | 2 | |||
Interest rates decrease 1 basis point [3] | (2 | ) |
[1] | Represents the aggregate net impact of a 1% increase or decrease in each of the S&P 500, NASDAQ and EAFE indices. | |
[2] | Represents the aggregate net impact of a 1% increase or decrease in blended implied volatility that is generally skewed towards longer durations of each of the S&P 500, NASDAQ and EAFE indices. | |
[3] | Represents the aggregate net impact of a 1 basis point parallel shift on the LIBOR yield curve. |
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Maximum Available As of | Outstanding As of | |||||||||||||||||||||||
Effective | Expiration | December 31, | December 31, | |||||||||||||||||||||
Description | Date | Date | 2009 | 2008 | 2009 | 2008 | ||||||||||||||||||
Commercial Paper | ||||||||||||||||||||||||
The Hartford | 11/10/86 | N/A | $ | 2,000 | $ | 2,000 | $ | — | $ | 374 | ||||||||||||||
Revolving Credit Facility | ||||||||||||||||||||||||
5-year revolving credit facility | 8/9/07 | 8/9/12 | 1,900 | 1,900 | — | — | ||||||||||||||||||
Total Commercial Paper and Revolving Credit Facility | $ | 3,900 | $ | 3,900 | $ | — | $ | 374 | ||||||||||||||||
As of December 31, 2009 | ||||||||
Ratings levels | Notional Amount | Fair Value | ||||||
Either BBB+ or Baa1 | $ | 4,700 | $ | 211 | ||||
Both BBB+ and Baa1 [1] [2] | $ | 14,057 | $ | 381 |
[1] | The notional amount and fair value include both the scenario where only one rating agency takes action to this level as well as where both rating agencies take action to this level. | |
[2] | The notional and fair value amounts include a customized GMWB derivative with a notional amount of $5.4 billion and a fair value of $137, for which the Company has a contractual right to make a collateral payment in the amount of approximately $61 to prevent its termination. |
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Fixed maturities [1] | $ | 23,911 | ||
Short-term investments | 1,283 | |||
Cash | 240 | |||
Less: Derivative collateral | (103 | ) | ||
Total | $ | 25,331 | ||
[1] | Includes $829 of U.S. Treasuries. |
Fixed maturities [1] | $ | 46,912 | ||
Short-term investments | 7,079 | |||
Cash | 1,898 | |||
Less: Derivative collateral | (1,591 | ) | ||
Cash associated with Japan variable annuities | (634 | ) | ||
Total | $ | 53,664 | ||
[1] | Includes $2.6 billion of U.S. Treasuries. |
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As of | ||||
December 31, | ||||
2009 | ||||
Contractholder Obligations | ||||
Total Life contractholder obligations | $ | 247,658 | ||
Less: Separate account assets [1] | (150,394 | ) | ||
International statutory separate accounts [1] | (32,296 | ) | ||
General account contractholder obligations | $ | 64,968 | ||
Composition of General Account Contractholder Obligations | ||||
Contracts without a surrender provision and/or fixed payout dates [2] | $ | 31,759 | ||
Retail fixed MVA annuities [3] | 11,029 | |||
International fixed MVA annuities | 2,565 | |||
Guaranteed investment contracts (“GIC”) [4] | 1,362 | |||
Other [5] | 18,253 | |||
General account contractholder obligations | $ | 64,968 | ||
[1] | In the event customers elect to surrender separate account assets or international statutory separate accounts, Life will use the proceeds from the sale of the assets to fund the surrender, and Life’s liquidity position will not be impacted. In many instances Life will receive a percentage of the surrender amount as compensation for early surrender (surrender charge), increasing Life’s liquidity position. In addition, a surrender of variable annuity separate account or general account assets (see below) will decrease Life’s obligation for payments on guaranteed living and death benefits. | |
[2] | Relates to contracts such as payout annuities or institutional notes, other than guaranteed investment products with an MVA feature (discussed below) or surrenders of term life, group benefit contracts or death and living benefit reserves for which surrenders will have no current effect on Life’s liquidity requirements. | |
[3] | Relates to annuities that are held in a statutory separate account, but under U.S. GAAP are recorded in the general account as Fixed MVA annuity contract holders are subject to the Company’s credit risk. In the statutory separate account, Life is required to maintain invested assets with a fair value equal to the MVA surrender value of the Fixed MVA contract. In the event assets decline in value at a greater rate than the MVA surrender value of the Fixed MVA contract, Life is required to contribute additional capital to the statutory separate account. Life will fund these required contributions with operating cash flows or short-term investments. In the event that operating cash flows or short-term investments are not sufficient to fund required contributions, the Company may have to sell other invested assets at a loss, potentially resulting in a decrease in statutory surplus. As the fair value of invested assets in the statutory separate account are generally equal to the MVA surrender value of the Fixed MVA contract, surrender of Fixed MVA annuities will have an insignificant impact on the liquidity requirements of Life. | |
[4] | GICs are subject to discontinuance provisions which allow the policyholders to terminate their contracts prior to scheduled maturity at the lesser of the book value or market value. Generally, the market value adjustment reflects changes in interest rates and credit spreads. As a result, the market value adjustment feature in the GIC serves to protect the Company from interest rate risks and limit Life’s liquidity requirements in the event of a surrender. | |
[5] | Surrenders of, or policy loans taken from, as applicable, these general account liabilities, which include the general account option for Retail’s individual variable annuities and Individual Life’s variable life contracts, the general account option for Retirement Plans’ annuities and universal life contracts sold by Individual Life may be funded through operating cash flows of Life, available short-term investments, or Life may be required to sell fixed maturity investments to fund the surrender payment. Sales of fixed maturity investments could result in the recognition of significant realized losses and insufficient proceeds to fully fund the surrender amount. In this circumstance, Life may need to take other actions, including enforcing certain contract provisions which could restrict surrenders and/or slow or defer payouts. |
As of | ||||
December 31, | ||||
Liquidity available to The Hartford | 2009 | |||
Short-term investments | $ | 10,357 | ||
U.S. Treasuries | 3,631 | |||
Cash | 2,142 | |||
Less: Derivative collateral | (1,694 | ) | ||
Cash associated with Japan variable annuities | (634 | ) | ||
Total liquidity available | $ | 13,802 | ||
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• | The Company has unfunded commitments to purchase investments in limited partnerships, private placements and mortgage loans of about $1.2 billion as disclosed in Note 12 of the Notes to Consolidated Financial Statements. |
Payments due by period | ||||||||||||||||||||
Less than | More than | |||||||||||||||||||
Total | 1 year | 1-3 years | 3-5 years | 5 years | ||||||||||||||||
Property and casualty obligations [1] | $ | 22,162 | $ | 5,649 | $ | 4,796 | $ | 3,055 | $ | 8,662 | ||||||||||
Life, annuity and disability obligations [2] | 398,035 | 27,387 | 55,721 | 51,925 | 263,002 | |||||||||||||||
Operating lease obligations [3] | 392 | 130 | 168 | 55 | 39 | |||||||||||||||
Capital lease obligations [3] | 73 | 73 | — | — | — | |||||||||||||||
Long-term debt obligations [4] | 18,466 | 727 | 1,262 | 1,342 | 15,135 | |||||||||||||||
Consumer notes [5] | 1,392 | 176 | 471 | 338 | 407 | |||||||||||||||
Purchase obligations [6] | 2,919 | 2,669 | 218 | 32 | — | |||||||||||||||
Other long-term liabilities reflected on the balance sheet [7] | 1,425 | 1,237 | 94 | 31 | 63 | |||||||||||||||
Total [8] | $ | 444,864 | $ | 38,048 | $ | 62,730 | $ | 56,778 | $ | 287,308 | ||||||||||
[1] | The following points are significant to understanding the cash flows estimated for obligations under property and casualty contracts: |
• | Reserves for Property & Casualty unpaid losses and loss adjustment expenses include IBNR and case reserves. While payments due on claim reserves are considered contractual obligations because they relate to insurance policies issued by the Company, the ultimate amount to be paid to settle both case reserves and IBNR is an estimate, subject to significant uncertainty. The actual amount to be paid is not finally determined until the Company reaches a settlement with the claimant. Final claim settlements may vary significantly from the present estimates, particularly since many claims will not be settled until well into the future. | ||
• | In estimating the timing of future payments by year, the Company has assumed that its historical payment patterns will continue. However, the actual timing of future payments could vary materially from these estimates due to, among other things, changes in claim reporting and payment patterns and large unanticipated settlements. In particular, there is significant uncertainty over the claim payment patterns of asbestos and environmental claims. Also, estimated payments in 2010 do not include payments that will be made on claims incurred in 2010 on policies that were in force as of December 31, 2009. In addition, the table does not include future cash flows related to the receipt of premiums that may be used, in part, to fund loss payments. | ||
• | Under U.S. GAAP, the Company is only permitted to discount reserves for losses and loss adjustment expenses in cases where the payment pattern and ultimate loss costs are fixed and determinable on an individual claim basis. For the Company, these include claim settlements with permanently disabled claimants. As of December 31, 2009, the total property and casualty reserves in the above table are gross of a reserve discount of $511. |
[2] | Estimated life, annuity and disability obligations include death and disability claims, policy surrenders, policyholder dividends and trail commissions offset by expected future deposits and premiums on in-force contracts. Estimated life, annuity and disability obligations are based on mortality, morbidity and lapse assumptions comparable with Life’s historical experience, modified for recent observed trends. Life has also assumed market growth and interest crediting consistent with assumptions used in amortizing deferred acquisition costs. In contrast to this table, the majority of Life’s obligations are recorded on the balance sheet at the current account values and do not incorporate an expectation of future market growth, interest crediting, or future deposits. Therefore, the estimated obligations presented in this table significantly exceed the liabilities recorded in reserve for future policy benefits and unpaid losses and loss adjustment expenses, other policyholder funds and benefits payable and separate account liabilities. Due to the significance of the assumptions used, the amounts presented could materially differ from actual results. | |
[3] | Includes future minimum lease payments on operating and capital lease agreements. See Notes 12 and 14 of the Notes to Consolidated Financial Statements for additional discussion on lease commitments. | |
[4] | Includes contractual principal and interest payments. Long-term debt obligations primarily have fixed rates of interest, for the Company’s junior subordinated debentures, where the interest is fixed for a period of time and then floating, the period of variable interest is computed using prevailing rates at December 31, 2009 and, as such, does not consider the impact of future rate movements. See Note 14 of the Notes to Consolidated Financial Statements for additional discussion of long-term debt obligations. | |
[5] | Consumer notes include principal payments and contractual interest for fixed rate notes and interest based on current rates for floating rate notes. See Note 14 of the Notes to Consolidated Financial Statements for additional discussion of consumer notes. | |
[6] | Includes $1.2 billion in commitments to purchase investments including about $886 of limited partnership, $284 of private placements and $47 of mortgage loans. Outstanding commitments under these limited partnerships and mortgage loans are included in payments due in less than 1 year since the timing of funding these commitments cannot be reliably estimated. The remaining commitments to purchase investments primarily represent payables for securities purchased which are reflected on the Company’s consolidated balance sheet. Also included in purchase obligations is $484 relating to contractual commitments to purchase various goods and services such as maintenance, human resources, information technology, and transportation in the normal course of business. Purchase obligations exclude contracts that are cancelable without penalty or contracts that do not specify minimum levels of goods or services to be purchased. | |
[7] | Includes cash collateral of $888 which the Company has accepted in connection with the Company’s derivative instruments. Since the timing of the return of the collateral is uncertain, the return of the collateral has been included in the payments due in less than 1 year. Includes deposits and bank advances that were acquired through the purchase of Federal Trust Corporation in the second quarter of 2009. Also included in other long-term liabilities is $48 of net unrecognized tax benefits. | |
[8] | Does not include estimated voluntary contribution of $200 to the Company’s pension plan in 2010. |
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December 31, | December 31, | |||||||||||
2009 | 2008 | Change | ||||||||||
Short-term debt (includes current maturities of long-term debt and capital lease obligations) | $ | 343 | $ | 398 | (14 | %) | ||||||
Long-term debt | 5,496 | 5,823 | (6 | %) | ||||||||
Total debt [1] | 5,839 | 6,221 | (6 | %) | ||||||||
Stockholders’ equity excluding AOCI | 21,177 | 16,788 | 26 | % | ||||||||
AOCI, net of tax | (3,312 | ) | (7,520 | ) | 56 | % | ||||||
Total stockholders’ equity | $ | 17,865 | $ | 9,268 | 93 | % | ||||||
Total capitalization including AOCI | $ | 23,704 | $ | 15,489 | 53 | % | ||||||
Debt to stockholders’ equity | 33 | % | 67 | % | ||||||||
Debt to capitalization | 25 | % | 40 | % |
[1] | Total debt of the Company excludes $1.1 billion and $1.2 billion of consumer notes as of December 31, 2009 and 2008, respectively, and $78 of Federal Home Loan Bank advances recorded in other liabilities as of December 31, 2009 that were acquired through the purchase of Federal Trust Corporation in the second quarter of 2009. |
Stockholders’ equity excluding AOCI, net of tax | • Increased primarily due to the issuance of $3.4 billion in preferred stock and warrants to Treasury as a part of the CPP, cumulative effect of accounting change of $912, issuance of common shares of $887, reclassification of warrants from other liabilities to equity and extension of certain warrants’ term of $186 partially offset by a net loss of $887. See Notes 1 and 15 of the Notes to Consolidated Financial Statements for additional information on the cumulative effect of accounting change and issuance of preferred stock and warrants to Treasury as a part of the CPP, respectively. | |
AOCI, net of tax | • Increased primarily due to decreases in unrealized losses on available-for-sale securities of $5.7 billion primarily due to tightening credit spreads, partially offset by a cumulative effect of accounting change of $912, see Note 1 of the Notes to Consolidated Financial Statements for further information on the cumulative effect of accounting change. | |
Total debt | • Total debt has decreased due to the repayment of commercial paper of $375 and payments on capital lease obligations in 2009. |
2009 | 2008 | 2007 | ||||||||||
Net cash provided by operating activities | $ | 2,974 | $ | 4,192 | $ | 5,991 | ||||||
Net cash used for investing activities | $ | (3,123 | ) | $ | (8,827 | ) | $ | (6,176 | ) | |||
Net cash provided by financing activities | $ | 523 | $ | 4,274 | $ | 499 | ||||||
Cash — end of year | $ | 2,142 | $ | 1,811 | $ | 2,011 |
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A.M. Best | Fitch | Standard & Poor’s | Moody’s | |||||
Insurance Financial Strength Ratings: | ||||||||
Hartford Fire Insurance Company | A | A+ | A | A2 | ||||
Hartford Life Insurance Company | A | A- | A | A3 | ||||
Hartford Life and Accident Insurance Company | A | A- | A | A3 | ||||
Hartford Life and Annuity Insurance Company | A | A- | A | A3 | ||||
Other Ratings: | ||||||||
The Hartford Financial Services Group, Inc.: | ||||||||
Senior debt | bbb+ | BBB- | BBB | Baa3 | ||||
Commercial paper | AMB-2 | F2 | A-2 | P-3 | ||||
Junior subordinated debentures | bbb- | BB | BB+ | Ba1 | ||||
Hartford Life, Inc.: | ||||||||
Senior debt | bbb+ | BBB- | BBB | Baa3 | ||||
Hartford Life Insurance Company: | ||||||||
Short term rating | — | — | A-1 | P-2 | ||||
Consumer notes | a | BBB+ | A | Baa1 |
2009 | 2008 | |||||||
Life Operations, includes domestic captive insurance subsidiaries | $ | 7,287 | $ | 6,046 | ||||
Property & Casualty Operations, excluding non-Property & Casualty subsidiaries | 7,364 | 6,012 | ||||||
Total | $ | 14,651 | $ | 12,058 | ||||
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• | Costs incurred by the Company to acquire insurance policies are deferred under U.S. GAAP while those costs are expensed immediately under U.S. STAT. |
• | Temporary differences between the book and tax basis of an asset or liability which are recorded as deferred tax assets are evaluated for recoverability under U.S. GAAP while those amounts deferred are subject to limitations under U.S. STAT. |
• | The assumptions used in the determination of Life benefit reserves is prescribed under U.S. STAT, while the assumptions used under U.S. GAAP are generally the Company’s best estimates. The methodologies for determining Life reserve amounts may also be different. For example, reserving for living benefit reserves under U.S. STAT is generally addressed by the Commissioners’ Annuity Reserving Valuation Methodology and the related Actuarial Guidelines, while under U.S. GAAP, those same living benefits may be considered embedded derivatives and recorded at fair value or they may be considered SOP 03-1 reserves. The sensitivity of these Life reserves to changes in equity markets, as applicable, will be different between U.S. GAAP and U.S. STAT. |
• | The difference between the amortized cost and fair value of fixed maturity and other investments, net of tax, is recorded as an increase or decrease to the carrying value of the related asset and to equity under U.S. GAAP, while U.S. STAT only records certain securities at fair value, such as equity securities and certain lower rated bonds required by the NAIC to be recorded at the lower of amortized cost or fair value. |
• | U.S. STAT for life insurance companies establishes a formula reserve for realized and unrealized losses due to default and equity risks associated with certain invested assets (the Asset Valuation Reserve), while U.S. GAAP does not. Also, for those realized gains and losses caused by changes in interest rates, U.S. STAT for life insurance companies defers and amortizes the gains and losses, caused by changes in interest rates, into income over the original life to maturity of the asset sold (the Interest Maintenance Reserve) while U.S. GAAP does not. |
• | Goodwill arising from the acquisition of a business is tested for recoverability on an annual basis (or more frequently, as necessary) for U.S. GAAP, while under U.S. STAT goodwill is amortized over a period not to exceed 10 years and the amount of goodwill is limited. |
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• | In general, as equity market levels decline, our reserves for death and living benefit guarantees associated with variable annuity contracts increases, sometimes at a greater than linear rate, reducing statutory surplus levels. In addition, as equity market levels increase, generally surplus levels will increase. RBC ratios will also tend to increase when equity markets increase. However, as a result of a number of factors and market conditions, including the level of hedging costs and other risk transfer activities, reserve requirements for death and living benefit guarantees and RBC requirements could increase resulting in lower RBC ratios. |
• | As the value of certain fixed-income and equity securities in our investment portfolio decreases, due in part to credit spread widening, statutory surplus and RBC ratios may decrease. |
• | As the value of certain derivative instruments that do not get hedge accounting decreases, statutory surplus and RBC ratios may decrease. |
• | Life’s exposure to foreign currency exchange risk exists with respect to non-U.S. dollar denominated assets and liabilities. Assets and liabilities denominated in foreign currencies are accounted for at their U.S. dollar equivalent values using exchange rates at the balance sheet date. As foreign currency exchange rates strengthen in comparison to the U.S. dollar, the remeasured value of those non-dollar denominated assets or liabilities will increase causing an increase or decrease to statutory surplus, respectively. In addition, certain of our Life products offer guaranteed benefits which could substantially increase our potential obligation and statutory capital exposure should the yen strengthen versus other currencies. |
• | Our statutory surplus is also impacted by widening credit spreads as a result of the accounting for the assets and liabilities in our fixed market value adjusted (“MVA”) annuities. Statutory separate account assets supporting the fixed MVA annuities are recorded at fair value. In determining the statutory reserve for the fixed MVA annuities, we are required to use current crediting rates in the U.S. and Japanese LIBOR in Japan. In many capital market scenarios, current crediting rates in the U.S. are highly correlated with market rates implicit in the fair value of statutory separate account assets. As a result, the change in statutory reserve from period to period will likely substantially offset the change in the fair value of the statutory separate account assets. However, in periods of volatile credit markets, such as we are now experiencing, actual credit spreads on investment assets may increase sharply for certain sub-sectors of the overall credit market, resulting in statutory separate account asset market value losses. As actual credit spreads are not fully reflected in the current crediting rates in the U.S. or Japanese LIBOR in Japan, the calculation of statutory reserves will not substantially offset the change in fair value of the statutory separate account assets resulting in reductions in statutory surplus. This has resulted and may continue to result in the need to devote significant additional capital to support the product. |
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The Hartford Financial Services Group, Inc.
Hartford, Connecticut
Hartford, Connecticut
February 23, 2010
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(Executive Vice President; President and Chief Operating Officer, Property & Casualty Operations)
(Senior Vice President and Controller)
(Executive Vice President and General Counsel)
145
Table of Contents
(Executive Vice President and Chief Investment Officer)
(Executive Vice President; President and Chief Operating Officer, Hartford Life Operations)
(Senior Vice President, Marketing and Communications)
(Executive Vice President, Human Resources)
(Executive Vice President and Chief Financial Officer)
146
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(a) | (b) | (c) | ||||||||||
Number of Securities | Weighted-average | Number of Securities Remaining | ||||||||||
to be Issued Upon | Exercise Price of | Available for Future Issuance | ||||||||||
Exercise of | Outstanding | Under Equity Compensation Plans | ||||||||||
Outstanding Options, | Options, Warrants | (Excluding Securities Reflected in | ||||||||||
Warrants and Rights | and Rights | Column (a)) | ||||||||||
Equity compensation plans approved by stockholders | 6,450,678 | $ | 49.75 | 11,607,634[1] | ||||||||
Equity compensation plans not approved by stockholders | 18,188 | 53.52 | 251,309 | |||||||||
Total | 6,468,866 | $ | 49.76 | 11,858,943 | ||||||||
[1] | Of these shares, 7,970,259 shares remain available for purchase under the ESPP. |
147
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(1) | Consolidated Financial Statements.See Index to Consolidated Financial Statements and Schedules elsewhere herein. | |
(2) | Consolidated Financial Statement Schedules.See Index to Consolidated Financial Statement and Schedules elsewhere herein. | |
(3) | Exhibits.See Exhibit Index elsewhere herein. |
148
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
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F-1
Table of Contents
The Hartford Financial Services Group, Inc.
Hartford, Connecticut
Hartford, Connecticut
February 23, 2010
F-2
Table of Contents
For the years ended December 31, | ||||||||||||
(In millions, except for per share data) | 2009 | 2008 | 2007 | |||||||||
Revenues | ||||||||||||
Earned premiums | $ | 14,424 | $ | 15,503 | $ | 15,619 | ||||||
Fee income | 4,576 | 5,135 | 5,436 | |||||||||
Net investment income (loss): | ||||||||||||
Securities available-for-sale and other | 4,031 | 4,335 | 5,214 | |||||||||
Equity securities, trading | 3,188 | (10,340 | ) | 145 | ||||||||
Total net investment income (loss) | 7,219 | (6,005 | ) | 5,359 | ||||||||
Net realized capital losses: | ||||||||||||
Total other-than-temporary impairment (“OTTI”) losses | (2,191 | ) | (3,964 | ) | (483 | ) | ||||||
OTTI losses recognized in other comprehensive income | 683 | — | — | |||||||||
Net OTTI losses recognized in earnings | (1,508 | ) | (3,964 | ) | (483 | ) | ||||||
Net realized capital losses, excluding net OTTI losses recognized in earnings | (502 | ) | (1,954 | ) | (511 | ) | ||||||
Total net realized capital losses | (2,010 | ) | (5,918 | ) | (994 | ) | ||||||
Other revenues | 492 | 504 | 496 | |||||||||
Total revenues | 24,701 | 9,219 | 25,916 | |||||||||
Benefits, losses and expenses | ||||||||||||
Benefits, losses and loss adjustment expenses | 13,831 | 14,088 | 13,919 | |||||||||
Benefits, losses and loss adjustment expenses – returns credited on International variable annuities | 3,188 | (10,340 | ) | 145 | ||||||||
Amortization of deferred policy acquisition costs and present value of future profits | 4,267 | 4,271 | 2,989 | |||||||||
Insurance operating costs and expenses | 3,749 | 3,993 | 3,894 | |||||||||
Interest expense | 476 | 343 | 263 | |||||||||
Goodwill impairment | 32 | 745 | — | |||||||||
Other expenses | 886 | 710 | 701 | |||||||||
Total benefits, losses and expenses | 26,429 | 13,810 | 21,911 | |||||||||
Income (loss) before income taxes | (1,728 | ) | (4,591 | ) | 4,005 | |||||||
Income tax expense (benefit) | (841 | ) | (1,842 | ) | 1,056 | |||||||
Net income (loss) | $ | (887 | ) | $ | (2,749 | ) | $ | 2,949 | ||||
Preferred stock dividends and accretion of discount | 127 | 8 | — | |||||||||
Net income (loss) available to common shareholders | $ | (1,014 | ) | $ | (2,757 | ) | $ | 2,949 | ||||
Earnings (Loss) per common share | ||||||||||||
Basic | $ | (2.93 | ) | $ | (8.99 | ) | $ | 9.32 | ||||
Diluted | $ | (2.93 | ) | $ | (8.99 | ) | $ | 9.24 | ||||
Weighted average common shares outstanding | 346.3 | 306.7 | 316.3 | |||||||||
Weighted average common shares outstanding and dilutive potential common shares | 346.3 | 306.7 | 319.1 | |||||||||
Cash dividends declared per common share | $ | 0.20 | $ | 1.91 | $ | 2.03 | ||||||
F-3
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As of December 31, | ||||||||
(In millions, except for share data) | 2009 | 2008 | ||||||
Assets | ||||||||
Investments | ||||||||
Fixed maturities, available-for-sale, at fair value (amortized cost of $76,015 and $78,238) | $ | 71,153 | $ | 65,112 | ||||
Equity securities, trading, at fair value (cost of $33,070 and $35,278) | 32,321 | 30,820 | ||||||
Equity securities, available-for-sale, at fair value (cost of $1,333 and $1,554) | 1,221 | 1,458 | ||||||
Mortgage loans (net of allowances for loan losses of $366 and $26) | 5,938 | 6,469 | ||||||
Policy loans, at outstanding balance | 2,174 | 2,208 | ||||||
Limited partnerships and other alternative investments | 1,790 | 2,295 | ||||||
Other investments | 602 | 1,723 | ||||||
Short-term investments | 10,357 | 10,022 | ||||||
Total investments | 125,556 | 120,107 | ||||||
Cash | 2,142 | 1,811 | ||||||
Premiums receivable and agents’ balances, net | 3,404 | 3,604 | ||||||
Reinsurance recoverables, net | 5,384 | 6,357 | ||||||
Deferred policy acquisition costs and present value of future profits | 10,686 | 13,248 | ||||||
Deferred income taxes, net | 3,940 | 5,239 | ||||||
Goodwill | 1,204 | 1,060 | ||||||
Property and equipment, net | 1,026 | 1,075 | ||||||
Other assets | 3,981 | 4,898 | ||||||
Separate account assets | 150,394 | 130,184 | ||||||
Total assets | $ | 307,717 | $ | 287,583 | ||||
Liabilities | ||||||||
Reserve for future policy benefits and unpaid losses and loss adjustment expenses | ||||||||
Property and casualty | $ | 21,651 | $ | 21,933 | ||||
Life | 17,980 | 16,747 | ||||||
Other policyholder funds and benefits payable | 45,852 | 53,753 | ||||||
Other policyholder funds and benefits payable – International variable annuities | 32,296 | 30,799 | ||||||
Unearned premiums | 5,221 | 5,379 | ||||||
Short-term debt | 343 | 398 | ||||||
Long-term debt | 5,496 | 5,823 | ||||||
Consumer notes | 1,136 | 1,210 | ||||||
Other liabilities | 9,454 | 11,997 | ||||||
Separate account liabilities | 150,394 | 130,184 | ||||||
Total liabilities | 289,823 | 278,223 | ||||||
Commitments and Contingencies (Note 12) | ||||||||
Equity | ||||||||
Preferred stock, $0.01 par value — 50,000,000 shares authorized, 3,400,000 and 6,048,387 shares issued, liquidation preference $1,000 and $0.02 per share | 2,960 | — | ||||||
Common stock, $0.01 par value — 1,500,000,000 and 750,000,000 shares authorized, 410,184,182 and 329,920,310 shares issued | 4 | 3 | ||||||
Additional paid-in capital | 8,985 | 7,569 | ||||||
Retained earnings | 11,164 | 11,336 | ||||||
Treasury stock, at cost — 27,177,019 and 29,341,378 shares | (1,936 | ) | (2,120 | ) | ||||
Accumulated other comprehensive loss, net of tax | (3,312 | ) | (7,520 | ) | ||||
Total stockholders’ equity | 17,865 | 9,268 | ||||||
Noncontrolling interest | 29 | 92 | ||||||
Total equity | 17,894 | 9,360 | ||||||
Total liabilities and equity | $ | 307,717 | $ | 287,583 | ||||
F-4
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For the years ended December 31, | ||||||||||||
(In millions, except for share data) | 2009 | 2008 | 2007 | |||||||||
Preferred Stock | ||||||||||||
Balance at beginning of year | $ | — | $ | — | $ | — | ||||||
Issuance of shares to U.S. Treasury | 2,920 | — | — | |||||||||
Accretion of preferred stock discount on issuance to U.S. Treasury | 40 | — | — | |||||||||
Balance at end of year | 2,960 | — | — | |||||||||
Common Stock | 4 | 3 | 3 | |||||||||
Additional Paid-in Capital | ||||||||||||
Balance at beginning of year | 7,569 | 6,627 | 6,321 | |||||||||
Issuance of warrants to U.S. Treasury | 480 | — | — | |||||||||
Issuance of shares under discretionary equity issuance plan | 887 | — | — | |||||||||
Issuance of convertible preferred shares | — | 727 | — | |||||||||
Issuance of warrants | — | 240 | — | |||||||||
Reclassification of warrants from other liabilities to equity and extension of warrants’ term | 186 | — | — | |||||||||
Issuance of shares and compensation expense due to incentive and stock compensation plans | (126 | ) | (36 | ) | 257 | |||||||
Tax (expense) benefit on employee stock options and awards and other | (11 | ) | 11 | 49 | ||||||||
Balance at end of year | 8,985 | 7,569 | 6,627 | |||||||||
Retained Earnings | ||||||||||||
Balance at beginning of year, before cumulative effect of accounting changes, net of tax | 11,336 | 14,686 | 12,421 | |||||||||
Cumulative effect of accounting changes, net of tax | — | (3 | ) | (41 | ) | |||||||
Balance at beginning of year, as adjusted | 11,336 | 14,683 | 12,380 | |||||||||
Net income (loss) | (887 | ) | (2,749 | ) | 2,949 | |||||||
Cumulative effect of accounting change, net of tax | 912 | — | — | |||||||||
Accretion of preferred stock discount on issuance to U.S. Treasury | (40 | ) | — | — | ||||||||
Dividends on preferred stock | (87 | ) | (8 | ) | — | |||||||
Dividends declared on common stock | (70 | ) | (590 | ) | (643 | ) | ||||||
Balance at end of year | 11,164 | 11,336 | 14,686 | |||||||||
Treasury Stock, at Cost | ||||||||||||
Balance at beginning of year | (2,120 | ) | (1,254 | ) | (47 | ) | ||||||
Treasury stock acquired | — | (1,000 | ) | (1,193 | ) | |||||||
Issuance of shares under incentive and stock compensation plans from treasury stock | 187 | 152 | — | |||||||||
Return of shares to treasury stock under incentive and stock compensation plans | (3 | ) | (18 | ) | (14 | ) | ||||||
Balance at end of year | (1,936 | ) | (2,120 | ) | (1,254 | ) | ||||||
Accumulated Other Comprehensive Loss, Net of Tax | ||||||||||||
Balance at beginning of year | (7,520 | ) | (858 | ) | 178 | |||||||
Cumulative effect of accounting change, net of tax | (912 | ) | — | — | ||||||||
Total other comprehensive income (loss) | 5,120 | (6,662 | ) | (1,036 | ) | |||||||
Balance at end of year | (3,312 | ) | (7,520 | ) | (858 | ) | ||||||
Total Stockholders’ Equity | 17,865 | 9,268 | 19,204 | |||||||||
Noncontrolling Interest (Note 15) | ||||||||||||
Balance at beginning of year | 92 | 92 | 78 | |||||||||
Change in noncontrolling interest ownership | (56 | ) | 57 | 7 | ||||||||
Noncontrolling income (loss) | (7 | ) | (57 | ) | 7 | |||||||
Balance at end of year | 29 | 92 | 92 | |||||||||
Total Equity | $ | 17,894 | $ | 9,360 | $ | 19,296 | ||||||
Outstanding Preferred Shares (in thousands) | ||||||||||||
Balance at beginning of year | 6,048 | — | — | |||||||||
Issuance of convertible preferred shares | — | 6,048 | — | |||||||||
Conversion of preferred to common shares | (6,048 | ) | — | — | ||||||||
Issuance of shares to U.S. Treasury | 3,400 | — | — | |||||||||
Balance at end of year | 3,400 | 6,048 | — | |||||||||
Outstanding Common Shares (in thousands) | ||||||||||||
Balance at beginning of year | 300,579 | 313,842 | 323,315 | |||||||||
Treasury stock acquired | (27 | ) | (14,682 | ) | (12,878 | ) | ||||||
Conversion of preferred to common shares | 24,194 | — | — | |||||||||
Issuance of shares under discretionary equity issuance plan | 56,109 | — | — | |||||||||
Issuance of shares under incentive and stock compensation plans | 2,356 | 1,673 | 3,549 | |||||||||
Return of shares to treasury stock under incentive and stock compensation plans | (204 | ) | (254 | ) | (144 | ) | ||||||
Balance at end of year | 383,007 | 300,579 | 313,842 | |||||||||
F-5
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For the years ended December 31, | ||||||||||||
(In millions) | 2009 | 2008 | 2007 | |||||||||
Comprehensive Income (Loss) | ||||||||||||
Net income (loss) | $ | (887 | ) | $ | (2,749 | ) | $ | 2,949 | ||||
Other comprehensive income (loss) | ||||||||||||
Change in net unrealized gain (loss) on securities | 5,909 | (7,127 | ) | (1,417 | ) | |||||||
Change in other-than-temporary impairment losses recognized in other comprehensive income (loss) | (224 | ) | — | — | ||||||||
Change in net gain (loss) on cash-flow hedging instruments | (387 | ) | 784 | 94 | ||||||||
Change in foreign currency translation adjustments | (23 | ) | 196 | 146 | ||||||||
Changes in pension and other postretirement plan adjustments | (155 | ) | (515 | ) | 141 | |||||||
Total other comprehensive income (loss) | 5,120 | (6,662 | ) | (1,036 | ) | |||||||
Total comprehensive income (loss) | $ | 4,233 | $ | (9,411 | ) | $ | 1,913 | |||||
F-6
Table of Contents
For the years ended December 31, | ||||||||||||
(In millions) | 2009 | 2008 | 2007 | |||||||||
Operating Activities | ||||||||||||
Net income (loss) | $ | (887 | ) | $ | (2,749 | ) | $ | 2,949 | ||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities | ||||||||||||
Amortization of deferred policy acquisition costs and present value of future profits | 4,267 | 4,271 | 2,989 | |||||||||
Additions to deferred policy acquisition costs and present value of future profits | (2,853 | ) | (3,675 | ) | (4,194 | ) | ||||||
Change in reserve for future policy benefits and unpaid losses and loss adjustment expenses and unearned premiums | 558 | 1,026 | 1,357 | |||||||||
Change in reinsurance recoverables | 236 | 300 | 487 | |||||||||
Change in receivables and other assets | 380 | (4 | ) | 128 | ||||||||
Change in payables and accruals | (1,271 | ) | (103 | ) | 306 | |||||||
Change in accrued and deferred income taxes | (246 | ) | (2,156 | ) | 619 | |||||||
Net realized capital losses | 2,010 | 5,918 | 994 | |||||||||
Net receipts (disbursements) from investment contracts related to policyholder funds — International variable annuities | 1,498 | (2,276 | ) | 4,695 | ||||||||
Net (increase) decrease in equity securities, trading | (1,501 | ) | 2,295 | (4,701 | ) | |||||||
Depreciation and amortization | 470 | 361 | 794 | |||||||||
Goodwill impairment | 32 | 745 | — | |||||||||
Other operating activities, net | 281 | 239 | (432 | ) | ||||||||
Net cash provided by operating activities | 2,974 | 4,192 | 5,991 | |||||||||
Investing Activities | ||||||||||||
Proceeds from the sale/maturity/prepayment of: | ||||||||||||
Fixed maturities, available-for-sale | 53,538 | 26,097 | 34,063 | |||||||||
Equity securities, available-for-sale | 949 | 616 | 468 | |||||||||
Mortgage loans | 629 | 386 | 1,365 | |||||||||
Partnerships | 391 | 438 | 324 | |||||||||
Payments for the purchase of: | ||||||||||||
Fixed maturities, available-for-sale | (54,346 | ) | (32,708 | ) | (37,799 | ) | ||||||
Equity securities, available-for-sale | (307 | ) | (714 | ) | (1,224 | ) | ||||||
Mortgage loans | (233 | ) | (1,469 | ) | (3,454 | ) | ||||||
Partnerships | (274 | ) | (678 | ) | (1,229 | ) | ||||||
Derivatives, net | (561 | ) | 909 | (271 | ) | |||||||
Change in policy loans, net | 34 | (147 | ) | (10 | ) | |||||||
Change in payables for collateral under securities lending, net | (2,925 | ) | (1,405 | ) | 2,218 | |||||||
Other investing activities, net | (18 | ) | (152 | ) | (627 | ) | ||||||
Net cash used for investing activities | (3,123 | ) | (8,827 | ) | (6,176 | ) | ||||||
Financing Activities | ||||||||||||
Deposits and other additions to investment and universal life-type contracts | 14,239 | 21,015 | 32,494 | |||||||||
Withdrawals and other deductions from investment and universal life-type contracts | (24,341 | ) | (25,793 | ) | (30,443 | ) | ||||||
Net transfers from separate accounts related to investment and universal life-type contracts | 7,203 | 7,353 | (761 | ) | ||||||||
Proceeds from issuance of long-term debt | — | 2,670 | 495 | |||||||||
Repayments at maturity for long-term debt and payments on capital lease obligations | (24 | ) | (992 | ) | (300 | ) | ||||||
Change in commercial paper | (375 | ) | — | 75 | ||||||||
Net issuance (repayments) at maturity or settlement of consumer notes | (74 | ) | 401 | 551 | ||||||||
Proceeds from issuance of convertible preferred shares | — | 727 | — | |||||||||
Proceeds from issuance of warrants | — | 512 | — | |||||||||
Proceeds from issuance of preferred stock and warrants to U.S. Treasury | 3,400 | — | — | |||||||||
Net proceeds from issuance of shares under discretionary equity issuance plan | 887 | — | — | |||||||||
Proceeds from net issuance of shares under incentive and stock compensation plans and excess tax benefit | 17 | 41 | 217 | |||||||||
Treasury stock acquired | — | (1,000 | ) | (1,193 | ) | |||||||
Dividends paid on preferred stock | (73 | ) | — | — | ||||||||
Dividends paid on common stock | (149 | ) | (660 | ) | (636 | ) | ||||||
Changes in bank deposits and payments on bank advances | (187 | ) | — | — | ||||||||
Net cash provided by financing activities | 523 | 4,274 | 499 | |||||||||
Foreign exchange rate effect on cash | (43 | ) | 161 | 273 | ||||||||
Net increase (decrease) in cash | 331 | (200 | ) | 587 | ||||||||
Cash — beginning of period | 1,811 | 2,011 | 1,424 | |||||||||
Cash — end of period | $ | 2,142 | $ | 1,811 | $ | 2,011 | ||||||
Supplemental Disclosure of Cash Flow Information | ||||||||||||
Net Cash Paid (Received) During the Period For: | ||||||||||||
Income taxes | $ | (243 | ) | $ | 253 | $ | 451 | |||||
Interest | $ | 475 | $ | 286 | $ | 257 |
F-7
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F-8
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-9
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Accounting Policy | Note | |||
Fair Value Measurements – Financial Instruments Excluding Guaranteed Living Benefits | 4 | |||
Fair Value Measurements – Guaranteed Living Benefits | 4a | |||
Investments and Derivative Instruments | 5 | |||
Reinsurance | 6 | |||
Deferred Policy Acquisition Costs and Present Value of Future Profits | 7 | |||
Goodwill and Other Intangible Assets | 8 | |||
Separate Accounts | 9 | |||
Sales Inducements | 10 | |||
Reserve for Future Policy Benefits and Unpaid Losses and Loss Adjustment Expenses | 11 | |||
Contingencies | 12 | |||
Income Tax | 13 | |||
Pension Plans and Postretirement Healthcare and Life Insurance Benefit Plans | 17 |
F-10
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-11
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the years ended December 31, | ||||||||||||
(In millions, except for per share data) | 2009 | 2008 | 2007 | |||||||||
Income (loss) | ||||||||||||
Net income (loss) | $ | (887 | ) | $ | (2,749 | ) | $ | 2,949 | ||||
Less: Preferred stock dividends and accretion of discount | 127 | 8 | — | |||||||||
Net income (loss) available to common shareholders | $ | (1,014 | ) | $ | (2,757 | ) | $ | 2,949 | ||||
Common shares | ||||||||||||
Basic | ||||||||||||
Weighted average common shares outstanding | 346.3 | 306.7 | 316.3 | |||||||||
Diluted | ||||||||||||
Stock compensation plans | — | — | 2.8 | |||||||||
Weighted average shares outstanding and dilutive potential common shares | 346.3 | 306.7 | 319.1 | |||||||||
Earnings (loss) per common share | ||||||||||||
Basic [1] [2] | $ | (2.93 | ) | $ | (8.99 | ) | $ | 9.32 | ||||
Diluted [2] | $ | (2.93 | ) | $ | (8.99 | ) | $ | 9.24 |
[1] | Due to the net loss for the year ended December 31, 2008, no allocation of the net loss was made to the preferred shareholders under the two-class method in the calculation of basic earnings per share, as the preferred shareholders had no contractual obligation to fund the net losses of the Company. In the absence of the net loss, any such income would be allocated to the preferred shareholders based on the weighted average number of preferred shares outstanding as of December 31, 2008. | |
[2] | As a result of the net loss in the years ended December 31, 2009 and 2008, the Company used basic weighted average common shares outstanding in the calculation of the year ended December 31, 2009 and 2008 diluted loss per share, since the inclusion of shares for warrants of 14.6 and 0, respectively, stock compensation plans of 0.9 million and 1.3 million, respectively, and the assumed conversion of the preferred shares to common of 0 and 5.0 million, respectively, would have been antidilutive to the earnings per share calculation. In the absence of the net loss, weighted average common shares outstanding and dilutive potential common shares would have totaled 361.8 million and 313.0 million for the years ended December 31, 2009 and 2008, respectively. |
F-12
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-13
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Net assumed (ceded) earned premiums under inter-segment | For the years ended December 31, | |||||||||||
arrangements and retention | 2009 | 2008 | 2007 | |||||||||
Personal Lines | $ | (5 | ) | $ | (6 | ) | $ | (7 | ) | |||
Small Commercial | (24 | ) | (31 | ) | (29 | ) | ||||||
Middle Market | (21 | ) | (31 | ) | (34 | ) | ||||||
Specialty Commercial | 50 | 68 | 70 | |||||||||
Total | $ | — | $ | — | $ | — | ||||||
F-14
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the years ended December 31, | ||||||||||||
Revenues by Product Line | 2009 | 2008 | 2007 | |||||||||
Life | ||||||||||||
Earned premiums, fees, and other considerations | ||||||||||||
Retail | ||||||||||||
Individual annuity: | ||||||||||||
Individual variable annuity | $ | 1,468 | $ | 1,943 | $ | 2,225 | ||||||
Fixed / MVA annuity | (2 | ) | (6 | ) | 2 | |||||||
Retail mutual funds | 504 | 618 | 642 | |||||||||
Other | 162 | 198 | 186 | |||||||||
Total Retail | 2,132 | 2,753 | 3,055 | |||||||||
Individual Life | ||||||||||||
Variable life | 503 | 374 | 379 | |||||||||
Universal life | 390 | 405 | 374 | |||||||||
Term/Other life | 47 | 49 | 55 | |||||||||
Total Individual Life | 940 | 828 | 808 | |||||||||
Group Benefits | ||||||||||||
Group disability | 1,975 | 2,020 | 1,920 | |||||||||
Group life and accident | 2,126 | 2,084 | 1,926 | |||||||||
Other | 249 | 287 | 455 | |||||||||
Total Group Benefits | 4,350 | 4,391 | 4,301 | |||||||||
Retirement Plans | ||||||||||||
401(k) | 286 | 290 | 187 | |||||||||
403(b)/457 | 38 | 48 | 55 | |||||||||
Total Retirement Plans | 324 | 338 | 242 | |||||||||
International | ||||||||||||
Variable annuity | 763 | 876 | 820 | |||||||||
Fixed MVA annuity | 31 | (7 | ) | 10 | ||||||||
Other | 33 | 3 | 2 | |||||||||
Total International [1] | 827 | 872 | 832 | |||||||||
Institutional | ||||||||||||
Institutional investment products | 381 | 923 | 1,015 | |||||||||
PPLI | 114 | 118 | 223 | |||||||||
Total Institutional | 495 | 1,041 | 1,238 | |||||||||
Other [1] | 58 | 60 | 67 | |||||||||
Total earned premiums, fees, and other considerations | 9,126 | 10,283 | 10,543 | |||||||||
Net investment income (loss) | ||||||||||||
Securities available-for-sale and other | 2,903 | 3,045 | 3,497 | |||||||||
Equity securities, trading | 3,188 | (10,340 | ) | 145 | ||||||||
Total net investment income (loss) | 6,091 | (7,295 | ) | 3,642 | ||||||||
Net realized capital losses | (1,488 | ) | (4,138 | ) | (819 | ) | ||||||
Total Life | 13,729 | (1,150 | ) | 13,366 | ||||||||
[1] | Included in International’s revenues for the year ended December 31, 2009 is $68 of investment income from an inter-segment funding agreement with Institutional. This investment income is eliminated in Life Other. |
F-15
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the years ended December 31, | ||||||||||||
Revenues by Product Line (continued) | 2009 | 2008 | 2007 | |||||||||
Property & Casualty | ||||||||||||
Ongoing Operations | ||||||||||||
Earned premiums | ||||||||||||
Personal Lines | ||||||||||||
Automobile | $ | 2,850 | $ | 2,824 | $ | 2,822 | ||||||
Homeowners | 1,102 | 1,102 | 1,067 | |||||||||
Total Personal Lines | 3,952 | 3,926 | 3,889 | |||||||||
Small Commercial | ||||||||||||
Workers’ Compensation | 1,178 | 1,241 | 1,230 | |||||||||
Package Business | 1,123 | 1,167 | 1,169 | |||||||||
Automobile | 279 | 316 | 337 | |||||||||
Total Small Commercial | 2,580 | 2,724 | 2,736 | |||||||||
Middle Market | ||||||||||||
Workers’ Compensation | 847 | 847 | 861 | |||||||||
Property | 555 | 611 | 627 | |||||||||
Automobile | 288 | 335 | 382 | |||||||||
Liability | 411 | 506 | 550 | |||||||||
Total Middle Market | 2,101 | 2,299 | 2,420 | |||||||||
Specialty Commercial | ||||||||||||
Workers’ Compensation | 250 | 288 | 304 | |||||||||
Property | 42 | 86 | 117 | |||||||||
Automobile | 86 | 84 | 83 | |||||||||
Liability | 208 | 241 | 246 | |||||||||
Fidelity and surety | 250 | 272 | 256 | |||||||||
Professional Liability | 393 | 414 | 429 | |||||||||
Other | (1 | ) | (3 | ) | 11 | |||||||
Total Specialty Commercial | 1,228 | 1,382 | 1,446 | |||||||||
Total Ongoing Operations | 9,861 | 10,331 | 10,491 | |||||||||
Other Operations | — | 7 | 5 | |||||||||
Total earned premiums | 9,861 | 10,338 | 10,496 | |||||||||
Other revenues [1] | 492 | 504 | 496 | |||||||||
Net investment income | 1,106 | 1,253 | 1,687 | |||||||||
Net realized capital losses | (294 | ) | (1,877 | ) | (172 | ) | ||||||
Total Property & Casualty | 11,165 | 10,218 | 12,507 | |||||||||
Corporate | (193 | ) | 151 | 43 | ||||||||
Total revenues | $ | 24,701 | $ | 9,219 | $ | 25,916 | ||||||
[1] | Represents servicing revenue. |
For the years ended December 31, | ||||||||||||
Geographical Revenue Information | 2009 | 2008 | 2007 | |||||||||
United States of America | $ | 20,429 | $ | 18,904 | $ | 24,842 | ||||||
Japan | 3,816 | (9,745 | ) | 968 | ||||||||
Other | 456 | 60 | 106 | |||||||||
Total revenues | $ | 24,701 | $ | 9,219 | $ | 25,916 | ||||||
F-16
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the years ended December 31, | ||||||||||||
Net Income (Loss) | 2009 | 2008 | 2007 | |||||||||
Life | ||||||||||||
Retail | $ | (410 | ) | $ | (1,399 | ) | $ | 812 | ||||
Individual Life | 15 | (43 | ) | 182 | ||||||||
Group Benefits | 193 | (6 | ) | 315 | ||||||||
Retirement Plans | (222 | ) | (157 | ) | 61 | |||||||
International [1] | (183 | ) | (325 | ) | 223 | |||||||
Institutional [1] | (515 | ) | (502 | ) | 17 | |||||||
Other [1] | (165 | ) | (11 | ) | (52 | ) | ||||||
Total Life | (1,287 | ) | (2,443 | ) | 1,558 | |||||||
Property & Casualty | ||||||||||||
Ongoing Operations | ||||||||||||
Underwriting Results | ||||||||||||
Personal Lines | 120 | 280 | 322 | |||||||||
Small Commercial | 395 | 437 | 508 | |||||||||
Middle Market | 258 | 169 | 157 | |||||||||
Specialty Commercial | 170 | 71 | (18 | ) | ||||||||
Total Ongoing Operations underwriting results | 943 | 957 | 969 | |||||||||
Net servicing income [2] | 37 | 31 | 52 | |||||||||
Net investment income | 943 | 1,056 | 1,439 | |||||||||
Net realized capital losses | (266 | ) | (1,669 | ) | (160 | ) | ||||||
Other expenses | (223 | ) | (219 | ) | (248 | ) | ||||||
Income before income taxes | 1,434 | 156 | 2,052 | |||||||||
Income tax expense (benefit) | 374 | (33 | ) | 575 | ||||||||
Ongoing Operations | 1,060 | 189 | 1,477 | |||||||||
Other Operations | (77 | ) | (97 | ) | 30 | |||||||
Total Property & Casualty | 983 | 92 | 1,507 | |||||||||
Corporate | (583 | ) | (398 | ) | (116 | ) | ||||||
Net income (loss) | $ | (887 | ) | $ | (2,749 | ) | $ | 2,949 | ||||
[1] | Included in net income (loss) of International and Institutional is investment income and interest expense, respectively, for the year ended December 31, 2009 of $68 on an inter-segment funding agreement. This investment income and interest expense is eliminated in Life Other. | |
[2] | Net of expenses related to service business. |
For the years ended December 31, | ||||||||||||
Amortization of deferred policy acquisition costs and present value of future profits | 2009 | 2008 | 2007 | |||||||||
Life | ||||||||||||
Retail | $ | 1,389 | $ | 1,344 | $ | 406 | ||||||
Individual Life | 314 | 169 | 121 | |||||||||
Group Benefits | 61 | 57 | 62 | |||||||||
Retirement Plans | 56 | 91 | 58 | |||||||||
International | 364 | 496 | 214 | |||||||||
Institutional | 17 | 19 | 23 | |||||||||
Total Life | 2,201 | 2,176 | 884 | |||||||||
Property & Casualty | ||||||||||||
Ongoing Operations | ||||||||||||
Personal Lines | 674 | 633 | 617 | |||||||||
Small Commercial | 622 | 636 | 635 | |||||||||
Middle Market | 486 | 513 | 529 | |||||||||
Specialty Commercial | 284 | 313 | 323 | |||||||||
Total Ongoing Operations | 2,066 | 2,095 | 2,104 | |||||||||
Total Property & Casualty | 2,066 | 2,095 | 2,104 | |||||||||
Corporate | — | — | 1 | |||||||||
Total amortization of deferred policy acquisition costs and present value of future profits | $ | 4,267 | $ | 4,271 | $ | 2,989 | ||||||
F-17
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the years ended December 31, | ||||||||||||
Income tax expense (benefit) | 2009 | 2008 | 2007 | |||||||||
Life | ||||||||||||
Retail | $ | (463 | ) | $ | (972 | ) | $ | 216 | ||||
Individual Life | (27 | ) | (41 | ) | 81 | |||||||
Group Benefits | 59 | (53 | ) | 119 | ||||||||
Retirement Plans | (143 | ) | (132 | ) | 18 | |||||||
International | (49 | ) | (145 | ) | 132 | |||||||
Institutional | (296 | ) | (288 | ) | (8 | ) | ||||||
Other | (76 | ) | (15 | ) | (11 | ) | ||||||
Total Life | (995 | ) | (1,646 | ) | 547 | |||||||
Property & Casualty | ||||||||||||
Ongoing Operations | 374 | (33 | ) | 575 | ||||||||
Other Operations | (49 | ) | (62 | ) | (5 | ) | ||||||
Total Property & Casualty | 325 | (95 | ) | 570 | ||||||||
Corporate | (171 | ) | (101 | ) | (61 | ) | ||||||
Total income tax expense (benefit) | $ | (841 | ) | $ | (1,842 | ) | $ | 1,056 | ||||
As of December 31, | ||||||||||||
Assets | 2009 | 2008 | 2007 | |||||||||
Life | ||||||||||||
Retail | $ | 102,880 | $ | 97,222 | $ | 136,023 | ||||||
Individual Life | 15,089 | 13,770 | 15,590 | |||||||||
Group Benefits | 8,904 | 9,036 | 9,295 | |||||||||
Retirement Plans | 28,180 | 22,581 | 27,986 | |||||||||
International | 41,530 | 41,502 | 41,625 | |||||||||
Institutional | 62,091 | 59,853 | 78,766 | |||||||||
Other | 6,060 | 3,927 | 6,891 | |||||||||
Total Life | 264,734 | 247,891 | 316,176 | |||||||||
Property & Casualty | ||||||||||||
Ongoing Operations | 33,437 | 31,484 | 35,899 | |||||||||
Other Operations | 4,965 | 5,196 | 5,942 | |||||||||
Total Property & Casualty | 38,402 | 36,680 | 41,841 | |||||||||
Corporate | 4,581 | 3,012 | 2,344 | |||||||||
Total Assets | $ | 307,717 | $ | 287,583 | $ | 360,361 | ||||||
F-18
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Level 1 | Observable inputs that reflect quoted prices for identical assets or liabilities in active markets that the Company has the ability to access at the measurement date. Level 1 securities include highly liquid U.S. Treasuries, money market funds and exchange traded equity, open-ended mutual funds reported in separate account assets and derivative securities, including futures and certain option contracts. | |
Level 2 | Observable inputs, other than quoted prices included in Level 1, for the asset or liability or prices for similar assets and liabilities. Most debt securities and preferred stocks, including those reported in separate account assets, are model priced by vendors using observable inputs and are classified within Level 2. Also included in the Level 2 category are derivative instruments that are priced using models with significant observable market inputs, including interest rate, foreign currency and certain credit default swap contracts and have no significant unobservable market inputs. | |
Level 3 | Valuations that are derived from techniques in which one or more of the significant inputs are unobservable (including assumptions about risk). Level 3 securities include less liquid securities such as highly structured and/or lower quality asset-backed securities (“ABS”), commercial mortgage-backed securities (“CMBS”), commercial real estate (“CRE”) collateralized debt obligations (“CDOs”), residential mortgage-backed securities (“RMBS”) primarily backed by below- prime loans, and private placement securities. Also included in Level 3 are guaranteed product embedded and reinsurance derivatives and other complex derivatives securities, including customized GMWB hedging derivative (see Note 4a for further information of GMWB product related financial instruments), equity derivatives, long dated derivatives, swaps with optionality and certain complex credit derivatives are also included in Level 3. Because Level 3 fair values, by their nature, contain unobservable market inputs as there is little or no observable market for these assets and liabilities, considerable judgment is used to determine the Level 3 fair values. Level 3 fair values represent the Company’s best estimate of an amount that could be realized in a current market exchange absent actual market exchanges. |
F-19
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 2009 | ||||||||||||||||
Quoted Prices | ||||||||||||||||
in Active | Significant | Significant | ||||||||||||||
Markets for | Observable | Unobservable | ||||||||||||||
Identical Assets | Inputs | Inputs | ||||||||||||||
Total | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Assets accounted for at fair value on a recurring basis | ||||||||||||||||
Fixed maturities | ||||||||||||||||
ABS | $ | 2,523 | $ | — | $ | 1,943 | $ | 580 | ||||||||
CDOs | 2,892 | — | 57 | 2,835 | ||||||||||||
CMBS | 8,544 | — | 8,237 | 307 | ||||||||||||
Corporate | 35,243 | — | 27,216 | 8,027 | ||||||||||||
Foreign government/government agencies | 1,408 | — | 1,315 | 93 | ||||||||||||
States, municipalities and political subdivisions (“Municipal”) | 12,065 | — | 11,803 | 262 | ||||||||||||
RMBS | 4,847 | — | 3,694 | 1,153 | ||||||||||||
U.S. Treasuries | 3,631 | 526 | 3,105 | — | ||||||||||||
Total fixed maturities | 71,153 | 526 | 57,370 | 13,257 | ||||||||||||
Equity securities, trading | 32,321 | 2,443 | 29,878 | — | ||||||||||||
Equity securities, AFS | 1,221 | 259 | 904 | 58 | ||||||||||||
Derivative assets [1] | 178 | — | 97 | 81 | ||||||||||||
Short-term investments | 10,357 | 6,846 | 3,511 | — | ||||||||||||
Separate account assets [2] | 147,432 | 112,877 | 33,593 | 962 | ||||||||||||
Total assets accounted for at fair value on a recurring basis | $ | 262,662 | $ | 122,951 | $ | 125,353 | $ | 14,358 | ||||||||
Liabilities accounted for at fair value on a recurring basis | ||||||||||||||||
Other policyholder funds and benefits payable | ||||||||||||||||
Institutional notes | $ | (2 | ) | $ | — | $ | — | $ | (2 | ) | ||||||
Equity linked notes | (10 | ) | — | — | (10 | ) | ||||||||||
Total other policyholder funds and benefits payable | (12 | ) | — | — | (12 | ) | ||||||||||
Derivative liabilities [3] | (214 | ) | — | 56 | (270 | ) | ||||||||||
Consumer notes [4] | (5 | ) | — | — | (5 | ) | ||||||||||
Total liabilities accounted for at fair value on a recurring basis | $ | (231 | ) | $ | — | $ | 56 | $ | (287 | ) | ||||||
[1] | Includes over-the-counter derivative instruments in a net asset value position which may require the counterparty to pledge collateral to the Company. As of December 31, 2009, $149 of cash collateral liability was netted against the derivative asset value in the Consolidated Balance Sheet and is excluded from the table above. See footnote 3 below for derivative liabilities. | |
[2] | As of December 31, 2009, excludes approximately $3 billion of investment sales receivable that are not subject to fair value accounting. | |
[3] | Includes over-the-counter derivative instruments in a net negative market value position (derivative liability). In the Level 3 roll-forward table included below in this Note 4, the derivative asset and liability are referred to as “freestanding derivatives” and are presented on a net basis. | |
[4] | Represents embedded derivatives associated with non-funding agreement-backed consumer equity linked notes. |
F-20
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 2008 | ||||||||||||||||
Quoted Prices | ||||||||||||||||
in Active | Significant | Significant | ||||||||||||||
Markets for | Observable | Unobservable | ||||||||||||||
Identical Assets | Inputs | Inputs | ||||||||||||||
Total | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Assets accounted for at fair value on a recurring basis | ||||||||||||||||
Fixed maturities | $ | 65,112 | $ | 3,541 | $ | 49,761 | $ | 11,810 | ||||||||
Equity securities, trading | 30,820 | 1,634 | 29,186 | — | ||||||||||||
Equity securities, AFS | 1,458 | 246 | 671 | 541 | ||||||||||||
Derivative assets [1] | 976 | — | 1,005 | (29 | ) | |||||||||||
Short-term investments | 10,022 | 7,025 | 2,997 | — | ||||||||||||
Separate account assets [2] | 126,777 | 94,804 | 31,187 | 786 | ||||||||||||
Total assets accounted for at fair value on a recurring basis | $ | 235,165 | $ | 107,250 | $ | 114,807 | $ | 13,108 | ||||||||
Liabilities accounted for at fair value on a recurring basis | ||||||||||||||||
Other policyholder funds and benefits payable | ||||||||||||||||
Institutional notes | $ | (41 | ) | $ | — | $ | — | $ | (41 | ) | ||||||
Equity linked notes | (8 | ) | — | — | (8 | ) | ||||||||||
Total other policyholder funds and benefits payable | (49 | ) | — | — | (49 | ) | ||||||||||
Derivative liabilities [3] | (339 | ) | — | 76 | (415 | ) | ||||||||||
Consumer notes [4] | (5 | ) | — | — | (5 | ) | ||||||||||
Total liabilities accounted for at fair value on a recurring basis | $ | (393 | ) | $ | — | $ | 76 | $ | (469 | ) | ||||||
[1] | Includes over-the-counter derivative instruments in a net asset value position which may require the counterparty to pledge collateral to the Company. As of December 31, 2008, $574 of cash collateral liability was netted against the derivative asset value in the Consolidated Balance Sheet and is excluded from the table above. See footnote 3 below for derivative liabilities. | |
[2] | As of December 31, 2008, excludes approximately $3 billion of investment sales receivable net of investment purchases payable that are not subject to fair value accounting. | |
[3] | Includes over-the-counter derivative instruments in a net negative market value position (derivative liability). In the Level 3 roll-forward table included below in this Note 4, the derivative asset and liability are referred to as “freestanding derivatives” and are presented on a net basis. | |
[4] | Represents embedded derivatives associated with non-funding agreement-backed consumer equity linked notes. |
F-21
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-22
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-23
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Changes in unrealized | ||||||||||||||||||||||||||||
gains (losses) | ||||||||||||||||||||||||||||
Fair value | Total realized/unrealized | Purchases, | included in net income | |||||||||||||||||||||||||
as of | gains (losses) included in: | issuances, | Transfers in | Fair value | related to financial | |||||||||||||||||||||||
January 1, | Net income | and | and/or (out) | as of | instruments still held at | |||||||||||||||||||||||
Asset (Liability) | 2009 | [1] | OCI [2] | settlements | of Level 3 [3] | December 31, 2009 | December 31, 2009 [1] | |||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||
Fixed maturities | ||||||||||||||||||||||||||||
ABS | $ | 536 | $ | (44 | ) | $ | 176 | $ | (45 | ) | $ | (43 | ) | $ | 580 | $ | (34 | ) | ||||||||||
CDO | 2,612 | (491 | ) | 827 | (65 | ) | (48 | ) | 2,835 | (447 | ) | |||||||||||||||||
CMBS | 341 | (308 | ) | 338 | (93 | ) | 29 | 307 | (94 | ) | ||||||||||||||||||
Corporate | 6,396 | (73 | ) | 1,192 | 915 | (403 | ) | 8,027 | (52 | ) | ||||||||||||||||||
Foreign govt./govt. agencies | 100 | 2 | — | 11 | (20 | ) | 93 | 2 | ||||||||||||||||||||
Municipal | 163 | — | 3 | 25 | 71 | 262 | — | |||||||||||||||||||||
RMBS | 1,662 | (441 | ) | 214 | (243 | ) | (39 | ) | 1,153 | (264 | ) | |||||||||||||||||
Fixed maturities | 11,810 | (1,355 | ) | 2,750 | 505 | (453 | ) | 13,257 | (889 | ) | ||||||||||||||||||
Equity securities, AFS | 541 | 2 | 6 | (19 | ) | (472 | ) | 58 | (1 | ) | ||||||||||||||||||
Freestanding derivatives [4] | (281 | ) | 76 | (4 | ) | 29 | (9 | ) | (189 | ) | 131 | |||||||||||||||||
Separate accounts [5] | 786 | (65 | ) | — | 344 | (103 | ) | 962 | (38 | ) | ||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||
Other policyholder funds and benefits payable | ||||||||||||||||||||||||||||
Institutional notes | $ | (41 | ) | $ | 39 | $ | — | $ | — | $ | — | $ | (2 | ) | $ | 39 | ||||||||||||
Equity linked notes | (8 | ) | (2 | ) | — | — | — | (10 | ) | (2 | ) | |||||||||||||||||
Total other policyholder funds and benefits payable | (49 | ) | 37 | — | — | — | (12 | ) | 37 | |||||||||||||||||||
Other derivative liabilities [6] | (163 | ) | 70 | — | 93 | — | — | — | ||||||||||||||||||||
Consumer notes | (5 | ) | — | — | — | — | (5 | ) | — | |||||||||||||||||||
[1] | All amounts in these columns are reported in net realized capital gains (losses) except for $3, which is reported in benefits, losses and loss adjustment expenses. All amounts are before income taxes and amortization of DAC. | |
[2] | All amounts are before income taxes and amortization of DAC. | |
[3] | Transfers in and/or (out) of Level 3 are attributable to a change in the availability of market observable information and re-evaluation of the observability of pricing inputs primarily for certain long-dated corporate bonds and preferred stocks. | |
[4] | Derivative instruments are reported in this table on a net basis for asset/(liability) positions and reported in the Consolidated Balance Sheet in other investments and other liabilities. | |
[5] | The realized/unrealized gains (losses) included in net income for separate account assets are offset by an equal amount for separate account liabilities, which results in a net zero impact on net income for the Company. | |
[6] | On March 26, 2009, certain of the Allianz warrants were reclassified to equity, at their current fair value, as shareholder approval of the conversion of these warrants to common shares was received. See Note 21 for further discussion. |
F-24
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Changes in unrealized | ||||||||||||||||||||||||||||
gains (losses) | ||||||||||||||||||||||||||||
Fair value | Total realized/unrealized | Purchases, | included in net income | |||||||||||||||||||||||||
as of | gains (losses) included in: | issuances, | Transfers in | Fair value | related to financial | |||||||||||||||||||||||
January 1, | Net income | and | and/or (out) | as of | instruments still held at | |||||||||||||||||||||||
Asset (Liability) | 2008 | [1] | OCI [3] | settlements | of Level 3 [5] | December 31, 2008 | December 31, 2008 [1] | |||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||
Fixed maturities | $ | 17,996 | $ | (988 | ) | $ | (4,178 | ) | $ | 858 | $ | (1,878 | ) | $ | 11,810 | $ | (811 | ) | ||||||||||
Equity securities, AFS | 1,339 | (77 | ) | 11 | 64 | (796 | ) | 541 | (67 | ) | ||||||||||||||||||
Freestanding derivatives [2] | (419 | ) | (471 | ) | 16 | 491 | 102 | (281 | ) | (301 | ) | |||||||||||||||||
Separate accounts [4] | 701 | (204 | ) | — | (26 | ) | 315 | 786 | (73 | ) | ||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||
Other policyholder funds and benefits payable | ||||||||||||||||||||||||||||
Institutional notes | $ | (24 | ) | $ | (17 | ) | $ | — | $ | — | $ | — | $ | (41 | ) | $ | (17 | ) | ||||||||||
Equity linked notes | (21 | ) | 13 | — | — | — | (8 | ) | 13 | |||||||||||||||||||
Total other policyholder funds and benefits payable | (45 | ) | (4 | ) | — | — | — | (49 | ) | (4 | ) | |||||||||||||||||
Other Liabilities | ||||||||||||||||||||||||||||
Derivative liability-warrants [6] | — | 110 | — | (273 | ) | — | (163 | ) | 110 | |||||||||||||||||||
Consumer notes | (5 | ) | 5 | — | (5 | ) | — | (5 | ) | 5 | ||||||||||||||||||
[1] | All amounts in these columns are reported in net realized capital gains/losses except for $6 for the twelve months ending December 31, 2008, which is reported in benefits, losses and loss adjustment expenses. All amounts are before income taxes and amortization of DAC. | |
[2] | The freestanding derivatives are reported in this table on a net basis for asset/(liability) positions and reported in the Consolidated Balance Sheet in other investments and other liabilities. | |
[3] | All amounts are before income taxes and amortization of DAC. | |
[4] | The realized/unrealized gains (losses) included in net income for separate account assets are offset by an equal amount for separate account liabilities, which results in a net zero impact on net income for the Company. [5] Transfers in and/or (out) of Level 3 are attributable to a change in the availability of market observable information for individual securities within the respective categories. | |
[6] | These amounts represent certain Allianz warrants. See Note 21 for further discussion. |
F-25
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. | Fair Value Measurements — Financial Instruments Excluding Guaranteed Living Benefits (continued) |
December 31, 2009 | December 31, 2008 | |||||||||||||||
Carrying | Fair | Carrying | Fair | |||||||||||||
Amount | Value | Amount | Value | |||||||||||||
Assets | ||||||||||||||||
Policy loans | $ | 2,174 | $ | 2,321 | $ | 2,208 | $ | 2,435 | ||||||||
Mortgage loans | 5,938 | 5,091 | 6,469 | 5,654 | ||||||||||||
Liabilities | ||||||||||||||||
Other policyholder funds and benefits payable [1] | $ | 12,330 | $ | 12,513 | $ | 14,839 | $ | 14,576 | ||||||||
Commercial paper [2] | — | — | 374 | 374 | ||||||||||||
Senior notes [3] | 4,054 | 4,037 | 4,052 | 3,119 | ||||||||||||
Junior subordinated debentures [3] | 1,717 | 2,338 | 1,703 | 1,420 | ||||||||||||
Consumer notes [4] | 1,131 | 1,194 | 1,205 | 1,188 |
[1] | Excludes guarantees on variable annuities, group accident and health and universal life insurance contracts, including corporate owned life insurance. | |
[2] | Included in short-term debt in the Consolidated Balance Sheets. As of December 31, 2009, The Hartford has no commercial paper outstanding. | |
[3] | Included in long-term debt in the Consolidated Balance Sheets, except for current maturities, which are included in short-term debt. | |
[4] | Excludes amounts carried at fair value and included in disclosures above. |
• | Fair value for policy loans and consumer notes were estimated using discounted cash flow calculations using current interest rates. |
• | Fair values for mortgage loans were estimated using discounted cash flow calculations based on current lending rates for similar type loans. Current lending rates reflect changes in credit spreads and the remaining terms of the loans. |
• | Other policyholder funds and benefits payable, not carried at fair value, is determined by estimating future cash flows, discounted at the current market rate. |
• | Carrying amounts approximate fair value for commercial paper. As of December 31, 2009, the Company has no outstanding commercial paper. |
• | Fair value for long-term debt is based primarily on market quotations from independent third-party pricing services. |
F-26
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 2009 | ||||||||||||||||
Quoted Prices | ||||||||||||||||
in Active | Significant | Significant | ||||||||||||||
Markets for | Observable | Unobservable | ||||||||||||||
Identical Assets | Inputs | Inputs | ||||||||||||||
Total | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Assets accounted for at fair value on a recurring basis | ||||||||||||||||
Variable annuity hedging derivatives | $ | 9 | $ | — | $ | — | $ | 9 | ||||||||
Macro hedge program | 203 | 8 | 16 | 179 | ||||||||||||
Reinsurance recoverable for U.S. guaranteed minimum withdrawal benefit (“GMWB”) | 347 | — | — | 347 | ||||||||||||
�� | ||||||||||||||||
Total assets accounted for at fair value on a recurring basis | $ | 559 | $ | 8 | $ | 16 | $ | 535 | ||||||||
Liabilities accounted for at fair value on a recurring basis | ||||||||||||||||
Other policyholder funds and benefits payable | ||||||||||||||||
U.S. guaranteed withdrawal benefits | $ | (1,957 | ) | $ | — | $ | — | $ | (1,957 | ) | ||||||
International guaranteed withdrawal benefits | (45 | ) | — | — | (45 | ) | ||||||||||
International other guaranteed living benefits | 2 | — | — | 2 | ||||||||||||
Variable annuity hedging derivatives | 43 | — | (184 | ) | 227 | |||||||||||
Macro hedge program | 115 | (2 | ) | 6 | 111 | |||||||||||
Total liabilities accounted for at fair value on a recurring basis | $ | (1,842 | ) | $ | (2 | ) | $ | (178 | ) | $ | (1,662 | ) | ||||
December 31, 2008 | ||||||||||||||||
Quoted Prices | ||||||||||||||||
in Active | Significant | Significant | ||||||||||||||
Markets for | Observable | Unobservable | ||||||||||||||
Identical Assets | Inputs | Inputs | ||||||||||||||
Total | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Assets accounted for at fair value on a recurring basis | ||||||||||||||||
Variable annuity hedging derivatives | $ | 600 | $ | — | $ | 13 | $ | 587 | ||||||||
Reinsurance recoverable for U.S. GMWB | 1,302 | — | — | 1,302 | ||||||||||||
Total assets accounted for at fair value on a recurring basis | $ | 1,902 | $ | — | $ | 13 | $ | 1,889 | ||||||||
Liabilities accounted for at fair value on a recurring basis | ||||||||||||||||
Other policyholder funds and benefits payable | ||||||||||||||||
U.S. Guaranteed withdrawal benefits | $ | (6,526 | ) | $ | — | $ | — | $ | (6,526 | ) | ||||||
International guaranteed withdrawal benefits | (94 | ) | — | — | (94 | ) | ||||||||||
International other guaranteed living benefits | — | — | — | — | ||||||||||||
Variable annuity hedging derivatives | 2,064 | — | 14 | 2,050 | ||||||||||||
Macro hedge program | 137 | — | — | 137 | ||||||||||||
Total liabilities accounted for at fair value on a recurring basis | $ | (4,419 | ) | $ | — | $ | 14 | $ | (4,433 | ) | ||||||
F-27
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
• | The relative outperformance (underperformance) of the underlying actively managed funds as compared to their respective indices resulting in a gain (loss) of approximately $550, $(355) and $(2) for the years ended December 31, 2009, 2008 and 2007, respectively; and |
• | Assumption updates, including policyholder behavior assumptions, affected best estimates and margins for a total realized gain pre-tax of $566 and $470 for the years ended December 31, 2009 and 2008, respectively. For the year ended December 31, 2007, these updates affected best estimates resulting in a pre-tax loss of $(158). |
• | The credit standing adjustment, resulting in a pre-tax gain of approximately $154 and $6 for the years ended December 31, 2009 and 2008, respectively. |
F-28
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Changes in unrealized | ||||||||||||||||||||||||||||
gains (losses) | ||||||||||||||||||||||||||||
Fair value | Total realized/unrealized | Purchases, | included in net income | |||||||||||||||||||||||||
as of | gains (losses) included in: | issuances, | Transfers in | Fair value | related to financial | |||||||||||||||||||||||
January 1, | Net income | and | and/or (out) | as of | instruments still held at | |||||||||||||||||||||||
2009 | [1] [6] | OCI [2] | Settlements [3] | of Level 3 | December 31, 2009 | December 31, 2009 [1] | ||||||||||||||||||||||
Variable annuity hedging derivatives [5] | ||||||||||||||||||||||||||||
Levels 1 and 2 | $ | 27 | $ | (1,175 | ) | $ | — | $ | 964 | $ | — | $ | (184 | ) | $ | [4] | ||||||||||||
Level 3 | 2,637 | (1,059 | ) | — | (1,342 | ) | — | 236 | (635 | ) | ||||||||||||||||||
Total variable annuity hedging derivatives | 2,664 | (2,234 | ) | — | (378 | ) | — | 52 | ||||||||||||||||||||
Reinsurance recoverable for GMWB [1] | 1,302 | (988 | ) | — | 33 | — | 347 | (988 | ) | |||||||||||||||||||
U.S. guaranteed withdrawal benefits — Level 3 | (6,526 | ) | 4,686 | — | (117 | ) | — | (1,957 | ) | 4,686 | ||||||||||||||||||
International guaranteed withdrawal benefits — Level 3 | (94 | ) | 62 | (3 | ) | (10 | ) | — | (45 | ) | 62 | |||||||||||||||||
Total Guaranteed withdrawal benefits net of reinsurance and hedging derivatives | (2,654 | ) | 1,526 | (3 | ) | (472 | ) | — | (1,603 | ) | ||||||||||||||||||
Macro hedge program [5] | ||||||||||||||||||||||||||||
Levels 1 and 2 | — | (311 | ) | — | 339 | — | 28 | [4] | ||||||||||||||||||||
Level 3 | 137 | (584 | ) | — | 737 | — | 290 | (535 | ) | |||||||||||||||||||
Total macro hedge program | 137 | (895 | ) | — | 1,076 | — | 318 | |||||||||||||||||||||
International other guaranteed living benefits — Level 3 | — | 5 | — | (3 | ) | — | 2 | 5 |
[1] | The Company classifies gains and losses on GMWB reinsurance derivatives and Guaranteed Living Benefit embedded derivatives as unrealized gains (losses) for purposes of disclosure in this table because it is impracticable to track on a contract-by-contract basis the realized gains (losses) for these derivatives and embedded derivatives. | |
[2] | All amounts are before income taxes and amortization of DAC. | |
[3] | The ‘Purchases, issuances, and settlements’ primarily relates to the receipt of cash on futures and option contracts classified as Level 1 and interest rate, currency and credit default swaps classified as Level 2. | |
[4] | Disclosure of changes in unrealized gains (losses) are not required for Levels 1 and 2. Information presented is for Level 3 only. | |
[5] | The variable annuity hedging derivatives and the macro hedge program derivatives are reported in this table on a net basis for asset/(liability) positions and reported on the consolidated balance sheet in other investments and other liabilities. | |
[6] | Includes both market and non-market impacts in deriving realized and unrealized gains (losses). |
F-29
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Changes in unrealized | ||||||||||||||||||||||||||||
gains (losses) | ||||||||||||||||||||||||||||
Fair value | Total realized/unrealized | Purchases, | included in net income | |||||||||||||||||||||||||
as of | gains (losses) included in: | issuances, | Transfers in | Fair value | related to financial | |||||||||||||||||||||||
January 1, | Net income | and | and/or (out) | as of | instruments still held at | |||||||||||||||||||||||
2008 | [2] | OCI [3] | Settlements [5] | of Level 3 | December 31, 2008 | December 31, 2008 [2] | ||||||||||||||||||||||
Variable annuity hedging derivatives [6] | ||||||||||||||||||||||||||||
Levels 1 and 2 | $ | (12 | ) | $ | 1,363 | $ | — | $ | (1,324 | ) | $ | — | $ | 27 | $ | [7] | ||||||||||||
Level 3 | 655 | 2,011 | — | (29 | ) | — | 2,637 | 1,893 | ||||||||||||||||||||
Total variable annuity hedging derivatives | 643 | 3,374 | — | (1,353 | ) | — | 2,664 | |||||||||||||||||||||
Total reinsurance recoverable for GMWB [1] [2] [4] | 238 | 962 | — | 102 | — | 1,302 | 962 | |||||||||||||||||||||
U.S. guaranteed withdrawal benefits [2] — Level 3 | (1,433 | ) | (4,967 | ) | — | (126 | ) | — | (6,526 | ) | (4,967 | ) | ||||||||||||||||
International guaranteed withdrawal benefits Level 3 | (17 | ) | (82 | ) | 11 | (6 | ) | — | (94 | ) | (83 | ) | ||||||||||||||||
Total Guaranteed withdrawal benefits net of reinsurance and hedging derivatives | (569 | ) | (713 | ) | 11 | (1,383 | ) | — | (2,654 | ) | ||||||||||||||||||
Macro hedge program [6] | ||||||||||||||||||||||||||||
Levels 1 and 2 | — | (11 | ) | — | 11 | — | — | [7] | ||||||||||||||||||||
Level 3 | 18 | 85 | — | 34 | — | 137 | 102 | |||||||||||||||||||||
Total macro hedge program | 18 | 74 | — | 45 | — | 137 | ||||||||||||||||||||||
International other guaranteed living benefits Level 3 | (22 | ) | 25 | (1 | ) | (2 | ) | — | — | 25 |
[1] | The January 1, 2008 fair value of $238 includes the pre-transition adjustment fair value of $128 and transitional adjustment of $110. | |
[2] | The Company classifies all the gains and losses on GMWB reinsurance derivatives and GMWB embedded derivatives as unrealized gains/losses for purposes of disclosure in this table because it is impracticable to track on a contract-by-contract basis the realized gains/losses for these derivatives and embedded derivatives. | |
[3] | All amounts are before income taxes and amortization of DAC. | |
[4] | During July 2008, the Company reinsured, with a third party, U.S. GMWB risks associated with approximately $7.8 billion of account value sold between 2003 and 2006. The reinsurance agreement is an 80% quota-share agreement. The third party’s financial strength is rated A+ by A.M. Best, AA- by Standard and Poor’s and Aa2 by Moody’s. The reinsurance agreement is accounted for as a free-standing derivative. | |
[5] | The ‘Purchases, issuances, and settlements’ primarily relates to the receipt of cash on futures and option contracts classified as Level 1 and interest rate, currency and credit default swaps classified as Level 2. | |
[6] | The variable annuity hedging derivatives and the macro hedge program derivatives are reported in this table on a net basis for asset/(liability) positions and reported on the consolidated balance sheet in other investments and other liabilities. | |
[7] | Disclosure of changes in unrealized gains (losses) is not required for Levels 1 and 2. Information presented is for Level 3 only. |
F-30
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-31
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-32
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-33
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-34
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the years ended December 31, | ||||||||||||
(Before-tax) | 2009 | 2008 | 2007 | |||||||||
Fixed maturities | $ | 3,618 | $ | 4,310 | $ | 4,653 | ||||||
Equity securities, AFS | 93 | 167 | 139 | |||||||||
Mortgage loans | 316 | 333 | 293 | |||||||||
Policy loans | 139 | 139 | 135 | |||||||||
Limited partnerships and other alternative investments | (341 | ) | (445 | ) | 255 | |||||||
Other investments | 318 | (72 | ) | (161 | ) | |||||||
Investment expenses | (112 | ) | (97 | ) | (100 | ) | ||||||
Total net investment income excluding equity securities, trading | 4,031 | 4,335 | 5,214 | |||||||||
Equity securities, trading | 3,188 | (10,340 | ) | 145 | ||||||||
Total net investment income (loss) | $ | 7,219 | $ | (6,005 | ) | $ | 5,359 | |||||
For the years ended December 31, | ||||||||||||
(Before-tax) | 2009 | 2008 | 2007 | |||||||||
Gross gains on sales | $ | 1,056 | $ | 607 | $ | 374 | ||||||
Gross losses on sales | (1,397 | ) | (856 | ) | (291 | ) | ||||||
Net OTTI losses recognized in earnings | (1,508 | ) | (3,964 | ) | (483 | ) | ||||||
Japanese fixed annuity contract hedges, net [1] | 47 | 64 | 18 | |||||||||
Periodic net coupon settlements on credit derivatives/Japan | (49 | ) | (33 | ) | (25 | ) | ||||||
Fair value measurement transition impact | — | (650 | ) | — | ||||||||
Results of variable annuity hedge program | ||||||||||||
GMWB derivatives, net | 1,526 | (713 | ) | (286 | ) | |||||||
Macro hedge program | (895 | ) | 74 | (12 | ) | |||||||
Total results of variable annuity hedge program | 631 | (639 | ) | (298 | ) | |||||||
Other, net [2] | (790 | ) | (447 | ) | (289 | ) | ||||||
Net realized capital losses | $ | (2,010 | ) | $ | (5,918 | ) | $ | (994 | ) | |||
[1] | Relates to derivative hedging instruments, excludingperiodic net coupon settlements, and is net of the Japanese fixed annuity product liability adjustment for changes in the dollar/yen exchange spot rate. | |
[2] | Consists of changes in fair value on non-qualifyingderivatives, hedge ineffectiveness on qualifying derivatives, foreign currency gains and losses related to the internal reinsurance of the Japan variable annuity business, which is offset in AOCI, valuation allowances, approximately $300 of losses in 2009 related to contingent obligations associated with the Allianz transaction, and other investment gains and losses. |
F-35
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the years ended December 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
Fixed maturities | ||||||||||||
Sale proceeds | $ | 41,973 | $ | 19,599 | $ | 21,968 | ||||||
Gross gains | 755 | 511 | 424 | |||||||||
Gross losses | (1,272 | ) | (873 | ) | (276 | ) | ||||||
Equity securities, AFS | ||||||||||||
Sale proceeds | $ | 941 | $ | 616 | $ | 468 | ||||||
Gross gains | 429 | 38 | 28 | |||||||||
Gross losses | (151 | ) | (78 | ) | (15 | ) |
Credit Impairment | ||||
Balance as of January 1, 2009 | $ | — | ||
Credit impairments remaining in retained earnings related to adoption of new accounting guidance in April 2009 | (1,320 | ) | ||
Additions for credit impairments recognized on [1]: | ||||
Securities not previously impaired | (840 | ) | ||
Securities previously impaired | (292 | ) | ||
Reductions for credit impairments previously recognized on: | ||||
Securities that matured or were sold during the period | 245 | |||
Securities that the Company intends to sell or more likely than not will be required to sell before recovery | 3 | |||
Securities due to an increase in expected cash flows | 4 | |||
Balance as of December 31, 2009 | $ | (2,200 | ) | |
[1] | These additions are included in the net OTTI losses recognized in earnings of $1.5 billion in the Consolidated Statements of Operations, as well as impairments on debt securities for which the Company intended to sell and on equity securities. |
December 31, 2009 | December 31, 2008 | |||||||||||||||||||||||||||||||||||
Cost or | Gross | Gross | Non- | Cost or | Gross | Gross | ||||||||||||||||||||||||||||||
Amortized | Unrealized | Unrealized | Fair | Credit | Amortized | Unrealized | Unrealized | Fair | ||||||||||||||||||||||||||||
Cost | Gains | Losses | Value | OTTI [1] | Cost | Gains | Losses | Value | ||||||||||||||||||||||||||||
ABS | $ | 3,040 | $ | 36 | $ | (553 | ) | $ | 2,523 | $ | (48 | ) | $ | 3,431 | $ | 6 | $ | (971 | ) | $ | 2,466 | |||||||||||||||
CDOs | 4,054 | 27 | (1,189 | ) | 2,892 | (174 | ) | 4,655 | 2 | (2,045 | ) | 2,612 | ||||||||||||||||||||||||
CMBS | 10,736 | 114 | (2,306 | ) | 8,544 | (6 | ) | 12,973 | 43 | (4,703 | ) | 8,313 | ||||||||||||||||||||||||
Corporate | 35,318 | 1,368 | (1,443 | ) | 35,243 | (23 | ) | 31,059 | 623 | (4,501 | ) | 27,181 | ||||||||||||||||||||||||
Foreign govt./govt. agencies | 1,376 | 52 | (20 | ) | 1,408 | — | 2,786 | 100 | (65 | ) | 2,821 | |||||||||||||||||||||||||
Municipal | 12,125 | 318 | (378 | ) | 12,065 | (3 | ) | 11,406 | 202 | (953 | ) | 10,655 | ||||||||||||||||||||||||
RMBS | 5,512 | 104 | (769 | ) | 4,847 | (185 | ) | 6,045 | 96 | (1,033 | ) | 5,108 | ||||||||||||||||||||||||
U.S. Treasuries | 3,854 | 14 | (237 | ) | 3,631 | — | 5,883 | 112 | (39 | ) | 5,956 | |||||||||||||||||||||||||
Total fixed maturities | 76,015 | 2,033 | (6,895 | ) | 71,153 | (439 | ) | 78,238 | 1,184 | (14,310 | ) | 65,112 | ||||||||||||||||||||||||
Equity securities | 1,333 | 80 | (192 | ) | 1,221 | — | 1,554 | 203 | (299 | ) | 1,458 | |||||||||||||||||||||||||
Total AFS securities | $ | 77,348 | $ | 2,113 | $ | (7,087 | ) | $ | 72,374 | $ | (439 | ) | $ | 79,792 | $ | 1,387 | $ | (14,609 | ) | $ | 66,570 | |||||||||||||||
[1] | Represents the amount of cumulative non-credit OTTI losses recognized in OCI on securities that also had a credit impairment. These losses are included in gross unrealized losses as of December 31, 2009. |
F-36
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 2009 | ||||||||
Maturity | Amortized Cost | Fair Value | ||||||
One year or less | $ | 1,404 | $ | 1,418 | ||||
Over one year through five years | 13,240 | 13,593 | ||||||
Over five years through ten years | 14,165 | 14,366 | ||||||
Over ten years | 23,864 | 22,970 | ||||||
Subtotal | 52,673 | 52,347 | ||||||
Mortgage-backed and asset-backed securities | 23,342 | 18,806 | ||||||
Total | $ | 76,015 | $ | 71,153 | ||||
F-37
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 2009 | ||||||||||||||||||||||||||||||||||||
Less Than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||||||||||||||
Amortized | Fair | Unrealized | Amortized | Fair | Unrealized | Amortized | Fair | Unrealized | ||||||||||||||||||||||||||||
Cost | Value | Losses | Cost | Value | Losses | Cost | Value | Losses | ||||||||||||||||||||||||||||
ABS | $ | 445 | $ | 376 | $ | (69 | ) | $ | 1,574 | $ | 1,090 | $ | (484 | ) | $ | 2,019 | $ | 1,466 | $ | (553 | ) | |||||||||||||||
CDOs | 1,649 | 1,418 | (231 | ) | 2,388 | 1,430 | (958 | ) | 4,037 | 2,848 | (1,189 | ) | ||||||||||||||||||||||||
CMBS | 1,951 | 1,628 | (323 | ) | 6,330 | 4,347 | (1,983 | ) | 8,281 | 5,975 | (2,306 | ) | ||||||||||||||||||||||||
Corporate | 5,715 | 5,314 | (401 | ) | 6,675 | 5,633 | (1,042 | ) | 12,390 | 10,947 | (1,443 | ) | ||||||||||||||||||||||||
Foreign govt./govt. agencies | 543 | 530 | (13 | ) | 43 | 36 | (7 | ) | 586 | 566 | (20 | ) | ||||||||||||||||||||||||
Municipal | 2,339 | 2,283 | (56 | ) | 2,184 | 1,862 | (322 | ) | 4,523 | 4,145 | (378 | ) | ||||||||||||||||||||||||
RMBS | 855 | 787 | (68 | ) | 1,927 | 1,226 | (701 | ) | 2,782 | 2,013 | (769 | ) | ||||||||||||||||||||||||
U.S. Treasuries | 2,592 | 2,538 | (54 | ) | 648 | 465 | (183 | ) | 3,240 | 3,003 | (237 | ) | ||||||||||||||||||||||||
Total fixed maturities | 16,089 | 14,874 | (1,215 | ) | 21,769 | 16,089 | (5,680 | ) | 37,858 | 30,963 | (6,895 | ) | ||||||||||||||||||||||||
Equity securities | 419 | 356 | (63 | ) | 676 | 547 | (129 | ) | 1,095 | 903 | (192 | ) | ||||||||||||||||||||||||
Total securities in an unrealized loss | $ | 16,508 | $ | 15,230 | $ | (1,278 | ) | $ | 22,445 | $ | 16,636 | $ | (5,809 | ) | $ | 38,953 | $ | 31,866 | $ | (7,087 | ) | |||||||||||||||
December 31, 2008 | ||||||||||||||||||||||||||||||||||||
Less Than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||||||||||||||
Amortized | Fair | Unrealized | Amortized | Fair | Unrealized | Amortized | Fair | Unrealized | ||||||||||||||||||||||||||||
Cost | Value | Losses | Cost | Value | Losses | Cost | Value | Losses | ||||||||||||||||||||||||||||
ABS | $ | 1,190 | $ | 958 | $ | (232 | ) | $ | 2,092 | $ | 1,353 | $ | (739 | ) | $ | 3,282 | $ | 2,311 | $ | (971 | ) | |||||||||||||||
CDOs | 688 | 440 | (248 | ) | 3,941 | 2,144 | (1,797 | ) | 4,629 | 2,584 | (2,045 | ) | ||||||||||||||||||||||||
CMBS | 5,704 | 4,250 | (1,454 | ) | 6,647 | 3,398 | (3,249 | ) | 12,351 | 7,648 | (4,703 | ) | ||||||||||||||||||||||||
Corporate | 16,604 | 14,145 | (2,459 | ) | 7,028 | 4,986 | (2,042 | ) | 23,632 | 19,131 | (4,501 | ) | ||||||||||||||||||||||||
Foreign govt./govt. agencies | 1,263 | 1,211 | (52 | ) | 43 | 30 | (13 | ) | 1,306 | 1,241 | (65 | ) | ||||||||||||||||||||||||
Municipal | 5,153 | 4,640 | (513 | ) | 2,578 | 2,138 | (440 | ) | 7,731 | 6,778 | (953 | ) | ||||||||||||||||||||||||
RMBS | 731 | 546 | (185 | ) | 2,607 | 1,759 | (848 | ) | 3,338 | 2,305 | (1,033 | ) | ||||||||||||||||||||||||
U.S. Treasuries | 4,120 | 4,083 | (37 | ) | 66 | 64 | (2 | ) | 4,186 | 4,147 | (39 | ) | ||||||||||||||||||||||||
Total fixed maturities | 35,453 | 30,273 | (5,180 | ) | 25,002 | 15,872 | (9,130 | ) | 60,455 | 46,145 | (14,310 | ) | ||||||||||||||||||||||||
Equity securities | 1,017 | 796 | (221 | ) | 277 | 199 | (78 | ) | 1,294 | 995 | (299 | ) | ||||||||||||||||||||||||
Total securities in an unrealized loss | $ | 36,470 | $ | 31,069 | $ | (5,401 | ) | $ | 25,279 | $ | 16,071 | $ | (9,208 | ) | $ | 61,749 | $ | 47,140 | $ | (14,609 | ) | |||||||||||||||
F-38
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 2009 | December 31, 2008 | |||||||||||||||||||||||
Amortized | Valuation | Carrying | Amortized | Valuation | Carrying | |||||||||||||||||||
Cost [1] | Allowance | Value | Cost [1] | Allowance | Value | |||||||||||||||||||
Agricultural | $ | 604 | $ | (8 | ) | $ | 596 | $ | 646 | $ | (11 | ) | $ | 635 | ||||||||||
Commercial | 5,492 | (358 | ) | 5,134 | 5,849 | (15 | ) | 5,834 | ||||||||||||||||
Residential [2] | 208 | — | 208 | — | — | — | ||||||||||||||||||
Total mortgage loans | $ | 6,304 | $ | (366 | ) | $ | 5,938 | $ | 6,495 | $ | (26 | ) | $ | 6,469 | ||||||||||
[1] | Amortized cost represents carrying value prior to valuation allowances, if any. | |
[2] | Represents residential mortgage loans held at Federal Trust Corporation, a company The Hartford acquired in June 2009. For further information on Federal Trust Corporation, see Note 22. |
2009 | 2008 | |||||||
Balance as of January 1 | $ | (26 | ) | $ | — | |||
Additions | (408 | ) | (26 | ) | ||||
Deductions | 68 | — | ||||||
Balance as of December 31 | $ | (366 | ) | $ | (26 | ) | ||
December 31, 2009 | December 31, 2008 | |||||||||||||||
Carrying | Percent of | Carrying | Percent of | |||||||||||||
Value | Total | Value | Total | |||||||||||||
East North Central | $ | 125 | 2.1 | % | $ | 162 | 2.5 | % | ||||||||
Middle Atlantic | 689 | 11.6 | % | 825 | 12.8 | % | ||||||||||
Mountain | 138 | 2.3 | % | 223 | 3.4 | % | ||||||||||
New England | 449 | 7.6 | % | 487 | 7.5 | % | ||||||||||
Pacific | 1,377 | 23.2 | % | 1,495 | 23.1 | % | ||||||||||
South Atlantic [1] | 1,213 | 20.4 | % | 1,102 | 17.0 | % | ||||||||||
West North Central | 51 | 0.9 | % | 64 | 1.0 | % | ||||||||||
West South Central | 297 | 5.0 | % | 333 | 5.2 | % | ||||||||||
Other [2] | 1,599 | 26.9 | % | 1,778 | 27.5 | % | ||||||||||
Total mortgage loans | $ | 5,938 | 100.0 | % | $ | 6,469 | 100.0 | % | ||||||||
[1] | Includes mortgage loans held at Federal Trust Corporation as of December 31, 2009. | |
[2] | Primarily represents multi-regional properties. |
December 31, 2009 | December 31, 2008 | |||||||||||||||
Carrying | Percent of | Carrying | Percent of | |||||||||||||
Value | Total | Value | Total | |||||||||||||
Agricultural | $ | 596 | 10.0 | % | $ | 635 | 9.8 | % | ||||||||
Industrial | 1,068 | 18.0 | % | 1,118 | 17.3 | % | ||||||||||
Lodging | 421 | 7.1 | % | 483 | 7.5 | % | ||||||||||
Multifamily | 835 | 14.1 | % | 1,131 | 17.5 | % | ||||||||||
Office | 1,727 | 29.1 | % | 1,885 | 29.1 | % | ||||||||||
Residential | 208 | 3.5 | % | — | — | |||||||||||
Retail | 712 | 12.0 | % | 858 | 13.3 | % | ||||||||||
Other | 371 | 6.2 | % | 359 | 5.5 | % | ||||||||||
Total mortgage loans | $ | 5,938 | 100.0 | % | $ | 6,469 | 100.0 | % | ||||||||
F-39
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 2009 | December 31, 2008 | |||||||||||||||||||||||
Maximum | Maximum | |||||||||||||||||||||||
Total | Total | Exposure | Total | Total | Exposure | |||||||||||||||||||
Assets | Liabilities [1] | to Loss [2] | Assets | Liabilities [1] | to Loss [2] | |||||||||||||||||||
CDO | $ | 226 | $ | 32 | $ | 196 | $ | 339 | $ | 69 | $ | 257 | ||||||||||||
Limited partnerships | 31 | 1 | 30 | 151 | 43 | 108 | ||||||||||||||||||
Other investments | 111 | 20 | 87 | 249 | 59 | 221 | ||||||||||||||||||
Total | $ | 368 | $ | 53 | $ | 313 | $ | 739 | $ | 171 | $ | 586 | ||||||||||||
[1] | Includes noncontrolling interest in limited partnerships and other investments of $11 and $82 as of December 31, 2009 and 2008, respectively, that is reported as a separate component of equity in the Company’s Consolidated Balance Sheets. | |
[2] | The maximum exposure to loss represents the maximum loss amount that the Company could recognize as a reduction in net investment income or as a realized capital loss and is the consolidated assets at cost net of liabilities. |
December 31, 2009 | December 31, 2008 | |||||||||||||||||||||||
Maximum | Maximum | |||||||||||||||||||||||
Exposure | Exposure | |||||||||||||||||||||||
Assets | Liabilities | to Loss | Assets | Liabilities | to Loss | |||||||||||||||||||
CDOs [1] | $ | 262 | $ | — | $ | 273 | $ | 311 | $ | — | $ | 364 | ||||||||||||
Other [2] | 36 | 36 | 5 | 42 | 40 | 5 | ||||||||||||||||||
Total | $ | 298 | $ | 36 | $ | 278 | $ | 353 | $ | 40 | $ | 369 | ||||||||||||
[1] | Maximum exposure to loss represents the Company’s investment in securities issued by CDOs at cost. | |
[2] | Maximum exposure to loss represents issuance costs that were incurred to establish the contingent capital facility. |
F-40
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-41
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-42
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-43
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Asset | Liability | |||||||||||||||||||||||||||||||
Net Derivatives | Derivatives | Derivatives | ||||||||||||||||||||||||||||||
Notional Amount | Fair Value | Fair Value | Fair Value | |||||||||||||||||||||||||||||
Dec. 31, | Dec. 31, | Dec. 31, | Dec. 31, | Dec. 31, | Dec. 31, | Dec. 31, | Dec. 31, | |||||||||||||||||||||||||
Hedge Designation/ Derivative Type | 2009 | 2008 | 2009 | 2008 | 2009 | 2008 | 2009 | 2008 | ||||||||||||||||||||||||
Cash flow hedges | ||||||||||||||||||||||||||||||||
Interest rate swaps | $ | 11,170 | $ | 9,030 | $ | 123 | $ | 640 | $ | 294 | $ | 643 | $ | (171 | ) | $ | (3 | ) | ||||||||||||||
Forward rate agreements | 6,355 | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Foreign currency swaps | 381 | 1,210 | (3 | ) | (7 | ) | 30 | 154 | (33 | ) | (161 | ) | ||||||||||||||||||||
Total cash flow hedges | 17,906 | 10,240 | 120 | 633 | 324 | 797 | (204 | ) | (164 | ) | ||||||||||||||||||||||
Fair value hedges | ||||||||||||||||||||||||||||||||
Interest rate swaps | 1,745 | 2,138 | (21 | ) | (86 | ) | 16 | 41 | (37 | ) | (127 | ) | ||||||||||||||||||||
Foreign currency swaps | 696 | 696 | (9 | ) | (57 | ) | 53 | 47 | (62 | ) | (104 | ) | ||||||||||||||||||||
Total fair value hedges | 2,441 | 2,834 | (30 | ) | (143 | ) | 69 | 88 | (99 | ) | (231 | ) | ||||||||||||||||||||
Non-qualifying strategies | ||||||||||||||||||||||||||||||||
Interest rate contracts | ||||||||||||||||||||||||||||||||
Interest rate swaps, caps, floors, and futures | 8,355 | 8,156 | (84 | ) | (97 | ) | 250 | 931 | (334 | ) | (1,028 | ) | ||||||||||||||||||||
Foreign exchange contracts | ||||||||||||||||||||||||||||||||
Foreign currency swaps and forwards | 1,296 | 1,372 | (21 | ) | 56 | 14 | 68 | (35 | ) | (12 | ) | |||||||||||||||||||||
Japan 3Win related foreign currency swaps | 2,514 | — | (19 | ) | — | 35 | — | (54 | ) | — | ||||||||||||||||||||||
Japanese fixed annuity hedging instruments | 2,271 | 2,334 | 316 | 383 | 319 | 383 | (3 | ) | — | |||||||||||||||||||||||
Credit contracts | ||||||||||||||||||||||||||||||||
Credit derivatives that purchase credit protection | 2,606 | 3,668 | (50 | ) | 340 | 45 | 361 | (95 | ) | (21 | ) | |||||||||||||||||||||
Credit derivatives that assume credit risk [1] | 1,158 | 1,199 | (240 | ) | (403 | ) | 2 | — | (242 | ) | (403 | ) | ||||||||||||||||||||
Credit derivatives in offsetting positions | 6,176 | 2,626 | (71 | ) | (11 | ) | 185 | 125 | (256 | ) | (136 | ) | ||||||||||||||||||||
Equity contracts | ||||||||||||||||||||||||||||||||
Equity index swaps, options, and futures | 220 | 256 | (16 | ) | (16 | ) | 3 | 3 | (19 | ) | (19 | ) | ||||||||||||||||||||
Warrants [1] | — | 869 | — | (163 | ) | — | — | — | (163 | ) | ||||||||||||||||||||||
Variable annuity hedge program | ||||||||||||||||||||||||||||||||
GMWB product derivatives [2] | 47,329 | 48,767 | (2,002 | ) | (6,620 | ) | — | — | (2,002 | ) | (6,620 | ) | ||||||||||||||||||||
GMWB reinsurance contracts | 10,301 | 11,437 | 347 | 1,302 | 347 | 1,302 | — | — | ||||||||||||||||||||||||
GMWB hedging instruments | 15,567 | 18,620 | 52 | 2,664 | 264 | 2,697 | (212 | ) | (33 | ) | ||||||||||||||||||||||
Macro hedge program | 27,448 | 2,188 | 318 | 137 | 558 | 137 | (240 | ) | — | |||||||||||||||||||||||
Other | ||||||||||||||||||||||||||||||||
GMAB product derivatives [2] | 226 | 206 | 2 | — | 2 | — | — | — | ||||||||||||||||||||||||
Contingent capital facility put option | 500 | 500 | 36 | 42 | 36 | 42 | — | — | ||||||||||||||||||||||||
Total non-qualifying strategies | 125,967 | 102,198 | (1,432 | ) | (2,386 | ) | 2,060 | 6,049 | (3,492 | ) | (8,435 | ) | ||||||||||||||||||||
Total cash flow hedges, fair value hedges, and non-qualifying strategies | $ | 146,314 | $ | 115,272 | $ | (1,342 | ) | $ | (1,896 | ) | $ | 2,453 | $ | 6,934 | $ | (3,795 | ) | $ | (8,830 | ) | ||||||||||||
Balance Sheet Location | ||||||||||||||||||||||||||||||||
Fixed maturities, available-for-sale | $ | 269 | $ | 304 | $ | (8 | ) | $ | (3 | ) | $ | — | $ | — | $ | (8 | ) | $ | (3 | ) | ||||||||||||
Other investments | 24,006 | 18,667 | 390 | 1,576 | 492 | 2,172 | (102 | ) | (596 | ) | ||||||||||||||||||||||
Other liabilities | 64,061 | 35,763 | (56 | ) | 1,862 | 1,612 | 3,460 | (1,668 | ) | (1,598 | ) | |||||||||||||||||||||
Consumer notes | 64 | 70 | (5 | ) | (5 | ) | — | — | (5 | ) | (5 | ) | ||||||||||||||||||||
Reinsurance recoverables | 10,301 | 11,437 | 347 | 1,302 | 347 | 1,302 | — | — | ||||||||||||||||||||||||
Other policyholder funds and benefits payable | 47,613 | 49,031 | (2,010 | ) | (6,628 | ) | 2 | — | (2,012 | ) | (6,628 | ) | ||||||||||||||||||||
Total derivatives | $ | 146,314 | $ | 115,272 | $ | (1,342 | ) | $ | (1,896 | ) | $ | 2,453 | $ | 6,934 | $ | (3,795 | ) | $ | (8,830 | ) | ||||||||||||
[1] | The derivative instruments related to these hedging strategies are held for other investment purposes. | |
[2] | These derivatives are embedded within liabilities and are not held for risk management purposes. |
F-44
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
• | The net improvement in the fair value of GMWB related derivatives is primarily due to liability model assumption updates related to favorable policyholder experience, the relative outperformance of the underlying actively managed funds as compared to their respective indices, and the impacts of the Company’s own credit standing. Additional improvements in the net fair value of GMWB related derivatives include lower implied market volatility and a general increase in long-term interest rates, partially offset by rising equity markets. For more information on the policyholder behavior and liability model assumption updates, see Note 4a. |
• | The fair value of interest rate derivatives used in cash flow hedge relationships declined due to rising long-term interest rates. |
• | The fair value related to credit derivatives that economically hedge fixed maturity securities decreased as a result of credit spreads tightening. This decline was partially offset by an increase in the fair value related to credit derivatives that assume credit risk as a part of replication transactions. |
Net Realized Capital Gains (Losses) | ||||||||||||||||||||||||
Gain (Loss) Recognized in OCI | Recognized in Income | |||||||||||||||||||||||
on Derivative (Effective Portion) | on Derivative (Ineffective Portion) | |||||||||||||||||||||||
2009 | 2008 | 2007 | 2009 | 2008 | 2007 | |||||||||||||||||||
Interest rate swaps | $ | (461 | ) | $ | 908 | $ | 97 | $ | (3 | ) | $ | 9 | $ | 3 | ||||||||||
Foreign currency swaps | (194 | ) | 233 | (53 | ) | 75 | — | (2 | ) | |||||||||||||||
Total | $ | (655 | ) | $ | 1,141 | $ | 44 | $ | 72 | $ | 9 | $ | 1 | |||||||||||
Gain (Loss) Reclassified from AOCI | ||||||||||||||
into Income (Effective Portion) | ||||||||||||||
2009 | 2008 | 2007 | ||||||||||||
Interest rate swaps | Net realized capital gains (losses) | $ | 11 | $ | 34 | $ | (3 | ) | ||||||
Interest rate swaps | Net investment income (loss) | 47 | (17 | ) | (20 | ) | ||||||||
Foreign currency swaps | Net realized capital gains (losses) | (119 | ) | (83 | ) | (79 | ) | |||||||
Foreign currency swaps | Net investment income (loss) | 2 | 1 | — | ||||||||||
Total | $ | (59 | ) | $ | (65 | ) | $ | (102 | ) | |||||
�� |
F-45
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Gain (Loss) Recognized in Income [1] | ||||||||||||||||||||||||
2009 | 2008 | 2007 | ||||||||||||||||||||||
Hedged | Hedged | Hedged | ||||||||||||||||||||||
Derivative | Item | Derivative | Item | Derivative | Item | |||||||||||||||||||
Interest rate swaps | ||||||||||||||||||||||||
Net realized capital gains (losses) | $ | 72 | $ | (68 | ) | $ | (138 | ) | $ | 130 | $ | (103 | ) | $ | 99 | |||||||||
Benefits, losses and loss adjustment expenses | (37 | ) | 40 | 25 | (18 | ) | 32 | (28 | ) | |||||||||||||||
Foreign currency swaps | ||||||||||||||||||||||||
Net realized capital gains (losses) | 51 | (51 | ) | (124 | ) | 124 | 25 | (25 | ) | |||||||||||||||
Benefits, losses and loss adjustment expenses | 2 | (2 | ) | 42 | (42 | ) | 9 | (9 | ) | |||||||||||||||
Total | $ | 88 | $ | (81 | ) | $ | (195 | ) | $ | 194 | $ | (37 | ) | $ | 37 | |||||||||
[1] | The amounts presented do not include the periodic net coupon settlements of the derivative or the coupon income (expense) related to the hedged item. The net of the amounts presented represents the ineffective portion of the hedge. |
F-46
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Gain (Loss) Recognized within Net Realized Capital Gains (Losses)
December 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
Interest rate contracts | ||||||||||||
Interest rate swaps, caps, floors, and forwards | $ | 31 | $ | 12 | $ | 29 | ||||||
Foreign exchange contracts | ||||||||||||
Foreign currency swaps and forwards | (66 | ) | 87 | (24 | ) | |||||||
Japan 3Win related foreign currency swaps [1] | (22 | ) | — | — | ||||||||
Japanese fixed annuity hedging instruments [2] | (12 | ) | 487 | 53 | ||||||||
Credit contracts | ||||||||||||
Credit derivatives that purchase credit protection | (533 | ) | 302 | 84 | ||||||||
Credit derivatives that assume credit risk | 167 | (623 | ) | (332 | ) | |||||||
Equity contracts | ||||||||||||
Equity index swaps, options, and futures | (3 | ) | (25 | ) | 2 | |||||||
Warrants | 70 | 110 | — | |||||||||
Variable annuity hedge program | ||||||||||||
GMWB product derivatives | 4,748 | (5,786 | ) | (670 | ) | |||||||
GMWB reinsurance contracts | (988 | ) | 1,073 | 127 | ||||||||
GMWB hedging instruments | (2,234 | ) | 3,374 | 257 | ||||||||
Macro hedge program | (895 | ) | 74 | (12 | ) | |||||||
Other | ||||||||||||
GMAB product derivatives | 5 | 2 | 2 | |||||||||
Contingent capital facility put option | (8 | ) | (3 | ) | (4 | ) | ||||||
Total | $ | 260 | $ | (916 | ) | $ | (488 | ) | ||||
[1] | The associated liability is adjusted for changes in dollar/yen exchange spot rates through realized capital gains and losses and was $64 for the year ended December 31, 2009. There was no Japan 3Win related foreign currency swaps for the years ended December 31, 2008 and 2007. | |
[2] | The associated liability is adjusted for changes in dollar/yen exchange spot rates through realized capital gains and losses and was $67, $450, and $(102) for the years ended December 31, 2009, 2008 and 2007, respectively. |
• | The net gain on GMWB related derivatives for the year ended December 31, 2009, was primarily due to liability model assumption updates given favorable trends in policyholder experience, the relative outperformance of the underlying actively managed funds as compared to their respective indices, and the impact of the Company’s own credit standing. Additional net gains on GMWB related derivatives include lower implied market volatility and a general increase in long-term interest rates, partially offset by rising equity markets. For more information on the policyholder behavior and liability model assumption updates, see Note 4a. |
• | The net loss on the macro hedge program was primarily the result of an increase in the equity markets and the impact of trading activity. |
• | The net loss on credit derivatives that purchase credit protection to economically hedge fixed maturity securities and the net gain on credit derivatives that assume credit risk as a part of replication transactions resulted from credit spreads tightening. |
F-47
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
• | The net loss on GMWB related derivatives was primarily due to liability model assumption updates related to market-based hedge ineffectiveness due to extremely volatile capital markets, and the relative underperformance of the underlying actively managed funds as compared to their respective indices, partially offset by gains in the fourth quarter related to liability model assumption updates for lapse rates. |
• | The net loss on credit default swaps was primarily due to losses on credit derivatives that assume credit risk as a part of replication transactions, partially offset by gains on credit derivatives that purchase credit protection, both resulting from credit spreads widening significantly during the year. |
• | The gain on the Japanese fixed annuity hedging instruments was primarily a result of weakening of the U.S. dollar against the Japanese Yen. |
• | The net loss on GMWB related derivatives was primarily due to liability model assumption updates and model refinements made during the year, including those for dynamic lapse behavior and correlations of market returns across underlying indices, as well as other assumption updates made during the second quarter to reflect newly reliable market inputs for volatility. |
• | The net loss on credit derivatives that assume credit risk was due to credit spreads widening. |
• | The gain on the Japanese fixed annuity hedging instruments was primarily a result of weakening of the U.S. dollar against the Japanese Yen. |
F-48
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Underlying Referenced | ||||||||||||||||||||||||||||
Weighted | Credit Obligation(s) [1] | |||||||||||||||||||||||||||
Average | Average | Offsetting | ||||||||||||||||||||||||||
Credit Derivative type by derivative | Notional | Fair | Years to | Credit | Notional | Offsetting | ||||||||||||||||||||||
risk exposure | Amount [2] | Value | Maturity | Type | Rating | Amount [3] | Fair Value [3] | |||||||||||||||||||||
Single name credit default swaps | ||||||||||||||||||||||||||||
Investment grade risk exposure | $ | 1,226 | $ | 4 | 4 years | Corporate Credit/Foreign Gov. | AA- | $ | 1,201 | $ | (59 | ) | ||||||||||||||||
Below investment grade risk exposure | 156 | (4 | ) | 3 years | Corporate Credit | B+ | 85 | (12 | ) | |||||||||||||||||||
Basket credit default swaps [4] | ||||||||||||||||||||||||||||
Investment grade risk exposure | 2,052 | (54 | ) | 4 years | Corporate Credit | BBB+ | 1,277 | (21 | ) | |||||||||||||||||||
Investment grade risk exposure | 525 | (141 | ) | 7 years | CMBS Credit | A | 525 | 141 | ||||||||||||||||||||
Below investment grade risk exposure | 200 | (157 | ) | 5 years | Corporate Credit | BBB+ | — | — | ||||||||||||||||||||
Credit linked notes | ||||||||||||||||||||||||||||
Investment grade risk exposure | 87 | 83 | 2 years | Corporate Credit | BBB+ | — | — | |||||||||||||||||||||
Total | $ | 4,246 | $ | (269 | ) | $ | 3,088 | $ | 49 | |||||||||||||||||||
Underlying Referenced | ||||||||||||||||||||||||||||
Weighted | Credit Obligation(s) [1] | |||||||||||||||||||||||||||
Average | Average | Offsetting | ||||||||||||||||||||||||||
Credit Derivative type by derivative | Notional | Fair | Years to | Credit | Notional | Offsetting | ||||||||||||||||||||||
risk exposure | Amount [2] | Value | Maturity | Type | Rating | Amount [3] | Fair Value [3] | |||||||||||||||||||||
Single name credit default swaps | ||||||||||||||||||||||||||||
Investment grade risk exposure | $ | 60 | $ | (1 | ) | 4 years | Corporate Credit | A- | $ | 35 | $ | (9 | ) | |||||||||||||||
Below investment grade risk exposure | 82 | (19 | ) | 4 years | Corporate Credit | B- | — | — | ||||||||||||||||||||
Basket credit default swaps [4] | ||||||||||||||||||||||||||||
Investment grade risk exposure | 1,778 | (235 | ) | 5 years | Corporate Credit | A- | 1,003 | 21 | ||||||||||||||||||||
Investment grade risk exposure | 275 | (92 | ) | 8 years | CMBS Credit | AAA | 275 | 92 | ||||||||||||||||||||
Below investment grade risk exposure | 200 | (166 | ) | 6 years | Corporate Credit | BB+ | — | — | ||||||||||||||||||||
Credit linked notes | ||||||||||||||||||||||||||||
Investment grade risk exposure | 117 | 106 | 2 years | Corporate Credit | BBB+ | — | — | |||||||||||||||||||||
Total | $ | 2,512 | $ | (407 | ) | $ | 1,313 | $ | 104 | |||||||||||||||||||
[1] | The average credit ratings are based on availability and the midpoint of the applicable ratings among Moody’s, S&P, and Fitch. If no rating is available from a rating agency, then an internally developed rating is used. | |
[2] | Notional amount is equal to the maximum potential future loss amount. There is no specific collateral related to these contracts or recourse provisions included in the contracts to offset losses. | |
[3] | The Company has entered into offsetting credit default swaps to terminate certain existing credit default swaps, thereby offsetting the future changes in value of, or losses paid related to, the original swap. | |
[4] | Includes $2.5 billion and $1.9 billion as of December 31, 2009 and 2008, respectively, of standard market indices of diversified portfolios of corporate issuers referenced through credit default swaps. These swaps are subsequently valued based upon the observable standard market index. Also includes $325 as of December 31, 2009 and 2008 of customized diversified portfolios of corporate issuers referenced through credit default swaps. |
F-49
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, | December 31, | |||||||
2009 | 2008 | |||||||
Fixed maturities | $ | 891 | $ | 3,263 | ||||
Equity securities, AFS | — | 10 | ||||||
Short-term investments | 14 | 618 | ||||||
Total loaned securities and collateral pledged | $ | 905 | $ | 3,891 | ||||
F-50
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the years ended December 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
Gross fee income, earned premiums and other | $ | 9,448 | $ | 10,441 | $ | 10,675 | ||||||
Reinsurance assumed | 162 | 263 | 273 | |||||||||
Reinsurance ceded | (484 | ) | (421 | ) | (405 | ) | ||||||
Net fee income, earned premiums and other | $ | 9,126 | $ | 10,283 | $ | 10,543 | ||||||
F-51
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the years ended December 31, | ||||||||||||
Premiums Written | 2009 | 2008 | 2007 | |||||||||
Direct | $ | 10,185 | $ | 10,831 | $ | 11,281 | ||||||
Assumed | 238 | 218 | 205 | |||||||||
Ceded | (712 | ) | (818 | ) | (1,046 | ) | ||||||
Net | $ | 9,711 | $ | 10,231 | $ | 10,440 | ||||||
Premiums Earned | ||||||||||||
Direct | $ | 10,386 | $ | 10,999 | $ | 11,396 | ||||||
Assumed | 253 | 216 | 204 | |||||||||
Ceded | (778 | ) | (877 | ) | (1,104 | ) | ||||||
Net | $ | 9,861 | $ | 10,338 | $ | 10,496 | ||||||
F-52
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-53
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
2009 | 2008 | 2007 | ||||||||||
Balance, January 1 | $ | 11,988 | $ | 10,514 | $ | 9,071 | ||||||
Cumulative effect of accounting change, pre-tax [1] [4] | (78 | ) | — | (79 | ) | |||||||
Balance, January 1, as adjusted | 11,910 | 10,514 | 8,992 | |||||||||
Deferred Costs | 784 | 1,548 | 2,059 | |||||||||
Amortization — DAC | (1,191 | ) | (1,023 | ) | (1,212 | ) | ||||||
Amortization — Unlock, pre-tax [2] | (1,010 | ) | (1,153 | ) | 327 | |||||||
Adjustments to unrealized gains and losses on securities available-for-sale and other [3] | (1,031 | ) | 1,754 | 230 | ||||||||
Effect of currency translation | (39 | ) | 348 | 118 | ||||||||
Balance, December 31 | $ | 9,423 | $ | 11,988 | $ | 10,514 | ||||||
[1] | The Company’s cumulative effect of accounting change includes an additional $(1), pre-tax, related to SIA. | |
[2] | The most significant contributor to the Unlock amount recorded for the year ended 2009 was a result of actual separate account returns being significantly below our aggregated estimated return for the period from October 1, 2008 to March 31, 2009, offset by actual returns being greater than our aggregated estimated return for the period from April 1, 2009 to December 31, 2009. | |
[3] | The adjustment reflects the effect of credit spreads tightening, resulting in unrealized gains on securities in 2009. | |
[4] | The effect of adopting new accounting guidance for investments other than temporarily impaired resulted in an increase to retained earnings and, as a result, a DAC charge of $78. In addition, an offsetting amount was recorded in unrealized losses as unrealized losses increased upon adoption of new accounting guidance for investments other-than-temporarily impaired. |
For the years ended December 31, | ||||
2010 | $ | 38 | ||
2011 | 34 | |||
2012 | 31 | |||
2013 | 28 | |||
2014 | 25 |
2009 | 2008 | 2007 | ||||||||||
Balance, January 1 | $ | 1,260 | $ | 1,228 | $ | 1,197 | ||||||
Deferred costs | 2,069 | 2,127 | 2,135 | |||||||||
Amortization | (2,066 | ) | (2,095 | ) | (2,104 | ) | ||||||
Balance, December 31 | $ | 1,263 | $ | 1,260 | $ | 1,228 | ||||||
F-54
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 2009 | December 31, 2008 | |||||||||||||||||||||||
Accumulated | Carrying | Accumulated | Carrying | |||||||||||||||||||||
Gross | Impairments | Value | Gross | Impairments | Value | |||||||||||||||||||
Life | ||||||||||||||||||||||||
Retail | $ | 581 | $ | (422 | ) | $ | 159 | $ | 581 | $ | (422 | ) | $ | 159 | ||||||||||
Individual Life | 224 | — | 224 | 224 | — | 224 | ||||||||||||||||||
Retirement Plans | 87 | — | 87 | 79 | — | 79 | ||||||||||||||||||
Total Life | 892 | (422 | ) | 470 | 884 | (422 | ) | 462 | ||||||||||||||||
Property & Casualty | ||||||||||||||||||||||||
Personal Lines | 119 | — | 119 | 119 | — | 119 | ||||||||||||||||||
Specialty Commercial | 30 | — | 30 | 30 | — | 30 | ||||||||||||||||||
Total Property & Casualty | 149 | — | 149 | 149 | — | 149 | ||||||||||||||||||
Corporate | 940 | (355 | ) | 585 | 772 | (323 | ) | 449 | ||||||||||||||||
Total Goodwill | $ | 1,981 | $ | (777 | ) | $ | 1,204 | $ | 1,805 | $ | (745 | ) | $ | 1,060 | ||||||||||
F-55
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 2009 | December 31, 2008 | |||||||||||||||
Accumulated Net | Accumulated Net | |||||||||||||||
Acquired Intangible Assets | Gross | Amortization | Gross | Amortization | ||||||||||||
Renewal rights | $ | — | $ | — | $ | 22 | $ | 21 | ||||||||
Distribution agreements | 71 | 16 | 70 | 11 | ||||||||||||
Servicing intangibles | 13 | 1 | 14 | 1 | ||||||||||||
Other | 6 | 1 | 15 | 14 | ||||||||||||
Total Acquired Intangible Assets | $ | 90 | $ | 18 | $ | 121 | $ | 47 | ||||||||
Renewal | Distribution | Servicing | ||||||||||||||||||
Rights | Agreement | Intangibles | Other | Total | ||||||||||||||||
For the year ended December 31, 2009 | ||||||||||||||||||||
Balance, beginning of year | $ | 1 | $ | 59 | $ | 13 | $ | 1 | $ | 74 | ||||||||||
Acquisition of businesses | — | 1 | — | 5 | 6 | |||||||||||||||
Amortization, net of the accretion of interest | (1 | ) | (5 | ) | (1 | ) | (1 | ) | (8 | ) | ||||||||||
Balance, end of year | $ | — | $ | 55 | $ | 12 | $ | 5 | $ | 72 | ||||||||||
For the year ended December 31, 2008 | ||||||||||||||||||||
Balance, beginning of year | $ | 2 | $ | 65 | $ | — | $ | — | $ | 67 | ||||||||||
Acquisition of businesses | — | — | 14 | 1 | 15 | |||||||||||||||
Amortization, net of the accretion of interest | (1 | ) | (6 | ) | (1 | ) | — | (8 | ) | |||||||||||
Balance, end of year | $ | 1 | $ | 59 | $ | 13 | $ | 1 | $ | 74 | ||||||||||
For the year ended December 31, 2007 | ||||||||||||||||||||
Balance, beginning of year | $ | 2 | $ | — | $ | — | $ | 4 | $ | 6 | ||||||||||
Distribution agreement | — | 70 | — | — | 70 | |||||||||||||||
Amortization, net of the accretion of interest | — | (5 | ) | — | (4 | ) | (9 | ) | ||||||||||||
Balance, end of year | $ | 2 | $ | 65 | $ | — | $ | — | $ | 67 | ||||||||||
For the years ended December 31, | ||||
2010 | $ | 7 | ||
2011 | 7 | |||
2012 | 8 | |||
2013 | 6 | |||
2014 | 7 |
F-56
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
UL Secondary | ||||||||||||
U.S. GMDB [1] | Japan GMDB/GMIB [1] | Guarantees [1] | ||||||||||
Liability balance as of January 1, 2009 | $ | 870 | $ | 229 | $ | 40 | ||||||
Incurred | 298 | 91 | 41 | |||||||||
Paid | (457 | ) | (117 | ) | — | |||||||
Unlock | 522 | 341 | (5 | ) | ||||||||
Currency translation adjustment | — | 36 | — | |||||||||
Liability balance as of December 31, 2009 | $ | 1,233 | $ | 580 | $ | 76 | ||||||
[1] | The reinsurance recoverable asset related to the U.S. GMDB was $787 as of December 31, 2009. The reinsurance recoverable asset related to the Japan GMDB was $37 as of December 31, 2009. The reinsurance recoverable asset related to the UL Secondary Guarantees was $22 as of December 31, 2009. |
UL Secondary | ||||||||||||
U.S. GMDB [1] | Japan GMDB/GMIB [1] | Guarantees [1] | ||||||||||
Liability balance as of January 1, 2008 | $ | 529 | $ | 42 | $ | 19 | ||||||
Incurred | 221 | 26 | 21 | |||||||||
Paid | (269 | ) | (42 | ) | — | |||||||
Unlock | 389 | 164 | — | |||||||||
Currency translation adjustment | — | 39 | — | |||||||||
Liability balance as of December 31, 2008 | $ | 870 | $ | 229 | $ | 40 | ||||||
[1] | The reinsurance recoverable asset related to the U.S. GMDB was $595 as of December 31, 2008. The reinsurance recoverable asset related to the Japan GMDB was $31 as of December 31, 2008. The reinsurance recoverable asset related to the UL Secondary Guarantees was $16 as of December 31, 2008. |
F-57
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Retained Net | ||||||||||||||||
Account | Net Amount | Amount | Weighted Average | |||||||||||||
Value | at Risk | at Risk | Attained Age of | |||||||||||||
Maximum anniversary value (“MAV”) [1] | (“AV”) | (“NAR”) [10] | (“RNAR”) [10] | Annuitant | ||||||||||||
MAV only | $ | 27,423 | $ | 8,408 | $ | 2,461 | 67 | |||||||||
With 5% rollup [2] | 1,868 | 664 | 259 | 67 | ||||||||||||
With Earnings Protection Benefit Rider (EPB) [3] | 6,567 | 1,409 | 140 | 63 | ||||||||||||
With 5% rollup & EPB | 784 | 224 | 45 | 66 | ||||||||||||
Total MAV | 36,642 | 10,705 | 2,905 | |||||||||||||
Asset Protection Benefit (“APB”) [4] | 28,612 | 5,508 | 3,535 | 64 | ||||||||||||
Lifetime Income Benefit (“LIB”) — Death Benefit [5] | 1,330 | 214 | 214 | 62 | ||||||||||||
Reset [6] (5-7 years) | 3,790 | 490 | 486 | 67 | ||||||||||||
Return of Premium (“ROP”) [7] /Other | 21,446 | 1,445 | 1,405 | 64 | ||||||||||||
Subtotal U.S. GMDB [8] | 91,820 | $ | 18,362 | $ | 8,545 | 65 | ||||||||||
Less: General Account Value with U.S. GMDB | 6,802 | |||||||||||||||
Subtotal Separate Account Liabilities with GMDB | 85,018 | |||||||||||||||
Separate Account Liabilities without U.S. GMDB | 65,376 | |||||||||||||||
Total Separate Account Liabilities | $ | 150,394 | ||||||||||||||
Japan GMDB and GMIB [9] | $ | 30,521 | $ | 6,335 | $ | 5,238 | 68 | |||||||||
[1] | MAV GMDB is the greatest of current AV, net premiums paid and the highest AV on any anniversary before age 80 (adjusted for withdrawals). | |
[2] | Rollup GMDB is the greatest of the MAV, current AV, net premium paid and premiums (adjusted for withdrawals) accumulated at generally 5% simple interest up to the earlier of age 80 or 100% of adjusted premiums. | |
[3] | EPB GMDB is the greatest of the MAV, current AV, or contract value plus a percentage of the contract’s growth. The contract’s growth is AV less premiums net of withdrawals, subject to a cap of 200% of premiums net of withdrawals. | |
[4] | APB GMDB is the greater of current AV or MAV, not to exceed current AV plus 25% times the greater of net premiums and MAV (each adjusted for premiums in the past 12 months). | |
[5] | LIB GMDB is the greatest of current AV, net premiums paid, or for certain contracts a benefit amount that ratchets over time, generally based on market performance. | |
[6] | Reset GMDB is the greatest of current AV, net premiums paid and the most recent five to seven year anniversary AV before age 80 (adjusted for withdrawals). | |
[7] | ROP GMDB is the greater of current AV and net premiums paid. | |
[8] | AV includes the contract holder’s investment in the separate account and the general account. | |
[9] | GMDB includes a ROP and MAV (before age 80) paid in a single lump sum. GMIB is a guarantee to return initial investment, adjusted for earnings liquidity, paid through a fixed annuity, after a minimum deferral period of 10, 15 or 20 years. The guaranteed remaining balance (“GRB”) related to the Japan GMIB was $28.6 billion and $30.6 billion as of December 31, 2009 and 2008, respectively. The GRB related to the Japan GMAB and GMWB was $(648) and $567 as of December 31, 2009 and 2008, respectively. These liabilities are not included in the Separate Account as they are not legally insulated from the general account liabilities of the insurance enterprise. As of December 31, 2009, 59% of the AV and 52% of RNAR is reinsured to a Hartford affiliate. | |
[10] | NAR is defined as the guaranteed benefit in excess of the current AV. RNAR represents NAR reduced for reinsurance. NAR and RNAR are highly sensitive to equity markets movements and increase when equity markets decline. |
Asset type | As of December 31, 2009 | As of December 31, 2008 | ||||||
Equity securities (including mutual funds) [1] | $ | 75,720 | $ | 63,114 | ||||
Cash and cash equivalents | 9,298 | 10,174 | ||||||
Total | $ | 85,018 | $ | 73,288 | ||||
[1] | As of December 31, 2009 and December 31, 2008, approximately 16% and 16%, respectively, of the equity securities above were invested in fixed income securities through these funds and approximately 84% and 84%, respectively, were invested in equity securities. |
F-58
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
2009 | 2008 | |||||||
Balance, January 1 | $ | 553 | $ | 467 | ||||
Sales inducements deferred | 59 | 151 | ||||||
Amortization charged to income | (105 | ) | (21 | ) | ||||
Amortization — Unlock | (69 | ) | (44 | ) | ||||
Balance, end of period, December 31 | $ | 438 | $ | 553 | ||||
F-59
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the years ended December 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
Beginning liabilities for life unpaid losses and loss adjustment expenses-gross | $ | 6,066 | $ | 6,028 | $ | 5,877 | ||||||
Reinsurance recoverables | 231 | 261 | 236 | |||||||||
Beginning liabilities for life unpaid losses and loss adjustment expenses | 5,835 | 5,767 | 5,641 | |||||||||
Add provision for life unpaid losses and loss adjustment expenses | ||||||||||||
Current year | 3,244 | 3,243 | 3,186 | |||||||||
Prior years | (88 | ) | (118 | ) | (125 | ) | ||||||
Total provision for life unpaid losses and loss adjustment expenses | 3,156 | 3,125 | 3,061 | |||||||||
Less payments | ||||||||||||
Current year | 1,580 | 1,554 | 1,470 | |||||||||
Prior years | 1,493 | 1,503 | 1,465 | |||||||||
Total payments | 3,073 | 3,057 | 2,935 | |||||||||
Ending liabilities for life unpaid losses and loss adjustment expenses, net | 5,918 | 5,835 | 5,767 | |||||||||
Reinsurance recoverables | 213 | 231 | 261 | |||||||||
Ending liabilities for life unpaid losses and loss adjustment expenses-gross | $ | 6,131 | $ | 6,066 | $ | 6,028 | ||||||
2009 | 2008 | |||||||
Group Life Term, Disability and Accident unpaid losses and loss adjustment expenses | $ | 6,131 | $ | 6,066 | ||||
Group Life Other unpaid losses and loss adjustment expenses | 232 | 253 | ||||||
Individual Life unpaid losses and loss adjustment expenses | 123 | 123 | ||||||
Future Policy Benefits | 11,494 | 10,305 | ||||||
Future Policy Benefits and Unpaid Losses and Loss Adjustment Expenses | $ | 17,980 | $ | 16,747 | ||||
F-60
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-61
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the years ended December 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
Beginning liabilities for property and casualty unpaid losses and loss adjustment expenses-gross | $ | 21,933 | $ | 22,153 | $ | 21,991 | ||||||
Reinsurance and other recoverables | 3,586 | 3,922 | 4,387 | |||||||||
Beginning liabilities for property and casualty unpaid losses and loss adjustment expenses-net | 18,347 | 18,231 | 17,604 | |||||||||
Add provision for property & casualty unpaid losses and loss adjustment expenses | ||||||||||||
Current year | 6,596 | 6,933 | 6,869 | |||||||||
Prior years | (186 | ) | (226 | ) | 48 | |||||||
Total provision for property and casualty unpaid losses and loss adjustment expenses | 6,410 | 6,707 | 6,917 | |||||||||
Less payments | ||||||||||||
Current year | 2,776 | 2,888 | 2,563 | |||||||||
Prior years | 3,771 | 3,703 | 3,727 | |||||||||
Total payments | 6,547 | 6,591 | 6,290 | |||||||||
Ending liabilities for property and casualty unpaid losses and loss adjustment expenses-net | 18,210 | 18,347 | 18,231 | |||||||||
Reinsurance and other recoverables | 3,441 | 3,586 | 3,922 | |||||||||
Ending liabilities for property and casualty unpaid losses and loss adjustment expenses-gross | $ | 21,651 | $ | 21,933 | $ | 22,153 | ||||||
F-62
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-63
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-64
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-65
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Years ending December 31, | Capital Leases | Operating Leases | ||||||
2010 | $ | 73 | $ | 130 | ||||
2011 | — | 105 | ||||||
2012 | — | 63 | ||||||
2013 | — | 37 | ||||||
2014 | — | 18 | ||||||
Thereafter | — | 39 | ||||||
Total minimum lease payments [1] | $ | 73 | $ | 392 | ||||
Amounts representing interest | (5 | ) | ||||||
Present value of net minimum lease payments | 68 | |||||||
Current portion of capital lease obligation | (68 | ) | ||||||
Total | $ | — | ||||||
[1] | Excludes expected future minimum sublease rental income of approximately $3, $2 and $1 in 2010, 2011 and 2012, respectively. |
F-66
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-67
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the years ended December 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
Income Tax Expense (Benefit) | ||||||||||||
Current — U.S. Federal | $ | 502 | $ | (247 | ) | $ | 436 | |||||
— International | — | — | — | |||||||||
Total current | 502 | (247 | ) | 436 | ||||||||
Deferred — U.S. Federal Excluding NOL Carryforward | (1,580 | ) | (1,574 | ) | 473 | |||||||
— Net Operating Loss Carryforward | 712 | (742 | ) | — | ||||||||
— International | (475 | ) | 721 | 147 | ||||||||
Total deferred | (1,343 | ) | (1,595 | ) | 620 | |||||||
Total income tax expense (benefit) | $ | (841 | ) | $ | (1,842 | ) | $ | 1,056 | ||||
Deferred Tax Assets | 2009 | 2008 | ||||||
Tax discount on loss reserves | $ | 682 | $ | 725 | ||||
Tax basis deferred policy acquisition costs and reserves | 641 | 703 | ||||||
Unearned premium reserve and other underwriting related reserves | 401 | 405 | ||||||
Investment-related items | 1,718 | 2,000 | ||||||
Employee benefits | 494 | 419 | ||||||
Net unrealized losses on investments | 1,581 | 4,265 | ||||||
Minimum tax credit | 1,102 | 641 | ||||||
Capital loss carryover | 535 | 195 | ||||||
Net operating loss carryover | 86 | 850 | ||||||
Other | 66 | 25 | ||||||
Total Deferred Tax Assets | 7,306 | 10,228 | ||||||
Valuation Allowance | (86 | ) | (75 | ) | ||||
Deferred Tax Assets, Net of Valuation Allowance | 7,220 | 10,153 | ||||||
Deferred Tax Liabilities | ||||||||
Financial statement deferred policy acquisition costs and reserves | (3,179 | ) | (4,816 | ) | ||||
Other depreciable & amortizable assets | (43 | ) | (13 | ) | ||||
Other | (58 | ) | (85 | ) | ||||
Total Deferred Tax Liabilities | (3,280 | ) | (4,914 | ) | ||||
Net Deferred Tax Asset | $ | 3,940 | $ | 5,239 | ||||
F-68
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the years ended December 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
Balance, at January 1 | $ | 91 | $ | 76 | $ | 8 | ||||||
Additions based on tax positions related to the current year | — | 27 | 33 | |||||||||
Additions for tax positions for prior years | — | — | 35 | |||||||||
Reductions for tax positions for prior years | (35 | ) | (12 | ) | — | |||||||
Settlements | (8 | ) | — | — | ||||||||
Balance, at December 31 | $ | 48 | $ | 91 | $ | 76 | ||||||
For the years ended December 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
Tax provision at U.S. Federal statutory rate | $ | (605 | ) | $ | (1,607 | ) | $ | 1,402 | ||||
Tax-exempt interest | (149 | ) | (161 | ) | (157 | ) | ||||||
Dividends received deduction | (188 | ) | (191 | ) | (170 | ) | ||||||
Nondeductible costs associated with warrants | 78 | — | — | |||||||||
Goodwill | 12 | 113 | — | |||||||||
Other | 11 | 4 | (19 | ) | ||||||||
Provision for income taxes | $ | (841 | ) | $ | (1,842 | ) | $ | 1,056 | ||||
F-69
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Short-Term Debt | 2009 | 2008 | ||||||
Commercial paper | $ | — | $ | 374 | ||||
Current maturities of long-term debt and capital lease obligations | 343 | 24 | ||||||
Total Short-Term Debt | $ | 343 | $ | 398 | ||||
Long-Term Debt | ||||||||
Senior Notes and Debentures | ||||||||
7.9% Notes, due 2010 | $ | — | $ | 275 | ||||
5.25% Notes, due 2011 | 400 | 400 | ||||||
4.625% Notes, due 2013 | 320 | 319 | ||||||
4.75% Notes, due 2014 | 199 | 199 | ||||||
7.3% Notes, due 2015 | 200 | 200 | ||||||
5.5% Notes, due 2016 | 300 | 300 | ||||||
5.375% Notes, due 2017 | 499 | 499 | ||||||
6.3% Notes, due 2018 | 500 | 500 | ||||||
6.0% Notes, due 2019 | 499 | 499 | ||||||
7.65% Notes, due 2027 | 149 | 148 | ||||||
7.375% Notes, due 2031 | 92 | 92 | ||||||
5.95% Notes, due 2036 | 298 | 298 | ||||||
6.1% Notes, due 2041 | 323 | 323 | ||||||
Total Senior Notes and Debentures | 3,779 | 4,052 | ||||||
Junior Subordinated Debentures | ||||||||
3 month LIBOR plus 295 basis points, Notes due 2033 | 5 | — | ||||||
8.125% Notes, due 2068 | 500 | 500 | ||||||
10.0% Notes, due 2068 | 1,212 | 1,203 | ||||||
Total Junior Subordinated Debentures | 1,717 | 1,703 | ||||||
Capital lease obligations | — | 68 | ||||||
Total Long-Term Debt | $ | 5,496 | $ | 5,823 | ||||
For the years ended December 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
Short-term debt | $ | 3 | $ | 11 | $ | 13 | ||||||
Long-term debt | 473 | 332 | 250 | |||||||||
Total interest expense | $ | 476 | $ | 343 | $ | 263 | ||||||
F-70
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
2010 | $ | 275 | ||
2011 | 400 | |||
2012 | — | |||
2013 | 320 | |||
2014 | 200 | |||
Thereafter | 5,205 |
F-71
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Maximum Available As of | Outstanding As of | |||||||||||||||||||||||
Effective | Expiration | December 31, | December 31, | |||||||||||||||||||||
Description | Date | Date | 2009 | 2008 | 2009 | 2008 | ||||||||||||||||||
Commercial Paper | ||||||||||||||||||||||||
The Hartford | 11/10/86 | N/A | $ | 2,000 | $ | 2,000 | $ | — | $ | 374 | ||||||||||||||
Revolving Credit Facility | ||||||||||||||||||||||||
5-year revolving credit facility | 8/9/07 | 8/9/12 | 1,900 | 1,900 | — | — | ||||||||||||||||||
Total Commercial Paper and Revolving Credit Facility | $ | 3,900 | $ | 3,900 | $ | — | $ | 374 | ||||||||||||||||
F-72
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-73
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the years ended December 31, | ||||||||||||
Statutory Net Income (Loss) | 2009 | 2008 | 2007 | |||||||||
Life operations | $ | 1,928 | $ | (4,553 | ) | $ | 729 | |||||
Property & Casualty operations | 889 | 497 | 1,803 | |||||||||
Total | $ | 2,817 | $ | (4,056 | ) | $ | 2,532 | |||||
As of December 31, | ||||||||
Statutory Surplus | 2009 | 2008 | ||||||
Life Operations, includes domestic captive insurance subsidiaries | $ | 7,287 | $ | 6,046 | ||||
Property & Casualty Operations, excluding non-Property & Casualty subsidiaries | 7,364 | 6,012 | ||||||
Total | $ | 14,651 | $ | 12,058 | ||||
F-74
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-75
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Net Gain | Pension and | |||||||||||||||||||
(Loss) on | Foreign | Other | Accumulated | |||||||||||||||||
Unrealized | Cash-Flow | Currency | Postretirement | Other | ||||||||||||||||
Gain (Loss) | Hedging | Translation | Plan | Comprehensive | ||||||||||||||||
on Securities | Instruments | Adjustments | Adjustment | Income (Loss) | ||||||||||||||||
For the year ended December 31, 2009 | ||||||||||||||||||||
Balance, beginning of year | $ | (7,486 | ) | $ | 644 | $ | 222 | $ | (900 | ) | $ | (7,520 | ) | |||||||
Unrealized gain on securities [1] [2] | 5,909 | — | — | — | 5,909 | |||||||||||||||
Change in other-than-temporary impairment losses recognized in other comprehensive income [1] | (224 | ) | — | — | — | (224 | ) | |||||||||||||
Cumulative effect of accounting change | (912 | ) | — | — | — | (912 | ) | |||||||||||||
Change in net gain on cash-flow hedging instruments [1] [3] | — | (387 | ) | — | — | (387 | ) | |||||||||||||
Change in foreign currency translation adjustments [1] | — | — | (23 | ) | — | (23 | ) | |||||||||||||
Change in pension and other postretirement plan adjustment [1] | — | — | — | (155 | ) | (155 | ) | |||||||||||||
Balance, end of year | $ | (2,713 | ) | $ | 257 | $ | 199 | $ | (1,055 | ) | $ | (3,312 | ) | |||||||
For the year ended December 31, 2008 | ||||||||||||||||||||
Balance, beginning of year | $ | (359 | ) | $ | (140 | ) | $ | 26 | $ | (385 | ) | $ | (858 | ) | ||||||
Unrealized loss on securities [1] [2] | (7,127 | ) | — | — | — | (7,127 | ) | |||||||||||||
Change in net loss on cash-flow hedging instruments [1] [3] | — | 784 | — | — | 784 | |||||||||||||||
Change in foreign currency translation adjustments [1] | — | — | 196 | — | 196 | |||||||||||||||
Change in pension and other postretirement plan adjustment [1] | — | — | — | (515 | ) | (515 | ) | |||||||||||||
Balance, end of year | $ | (7,486 | ) | $ | 644 | $ | 222 | $ | (900 | ) | $ | (7,520 | ) | |||||||
�� | ||||||||||||||||||||
For the year ended December 31, 2007 | ||||||||||||||||||||
Balance, beginning of year | $ | 1,058 | $ | (234 | ) | $ | (120 | ) | $ | (526 | ) | $ | 178 | |||||||
Unrealized loss on securities [1] [2] | (1,417 | ) | — | — | — | (1,417 | ) | |||||||||||||
Change in net loss on cash-flow hedging instruments [1] [3] | — | 94 | — | — | 94 | |||||||||||||||
Change in foreign currency translation adjustments [1] | — | — | 146 | — | 146 | |||||||||||||||
Change in pension and other postretirement plan adjustment [1] | — | — | — | 141 | 141 | |||||||||||||||
Balance, end of year | $ | (359 | ) | $ | (140 | ) | $ | 26 | $ | (385 | ) | $ | (858 | ) | ||||||
[1] | Included in the unrealized gain/loss balance as of December 31, 2009, 2008 and 2007 was net unrealized gains (losses) credited to policyholders of $(82), $(101) and $3, respectively. Included in the AOCI components were the following: |
• | Unrealized gain/loss on securities is net of tax and Life deferred acquisition costs of $2,358, $(3,366), and $(718) for the years ended December 31, 2009, 2008 and 2007, respectively. |
• | Change in other-than-temporary losses recognized in other comprehensive income is net of changes in the fair value and/or sales of non-credit impaired securities of $244 and net of tax and Life deferred acquisition costs of $215 for the year ended December 31, 2009. |
• | Net gain (loss) on cash-flow hedging instruments is net of tax of $(208), $422, and $51 for the years ended December 31, 2009, 2008 and 2007, respectively. |
• | Changes in foreign currency translation adjustments are net of tax of $(12), $106 and $79 for the years ended December 31, 2009, 2008 and 2007, respectively. |
• | Change in pension and other postretirement plan adjustment is net of tax of $(86), $(276), and $48 for the years ended December 31, 2009, 2008 and 2007, respectively. |
[2] | Net of reclassification adjustment for gains/losses realized in net income of $(1,202), $(2,876), and $(192) for the years ended for the years ended December 31, 2009, 2008 and 2007, respectively. | |
[3] | Net of amortization adjustment of $49, $(16), and $(20) to net investment income for the years ended December 31, 2009, 2008 and 2007, respectively. |
F-76
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Pension Benefits | Other Postretirement Benefits | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Discount rate | 6.00 | % | 6.25 | % | 5.75 | % | 6.25 | % | ||||||||
Rate of increase in compensation levels | 4.00 | % | 4.25 | % | N/A | N/A |
F-77
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the year ended December 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
Discount rate | 6.25 | % | 6.25 | % | 5.75 | % | ||||||
Expected long-term rate of return on plan assets | 7.30 | % | 7.30 | % | 8.00 | % | ||||||
Rate of increase in compensation levels | 4.25 | % | 4.25 | % | 4.25 | % |
As of December 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
Pre-65 Health care cost trend rate | 9.05 | % | 8.80 | % | 9.30 | % | ||||||
Post-65 Health care cost trend rate | 7.60 | % | 7.00 | % | 7.70 | % | ||||||
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) | 5.00 | % | 5.00 | % | 5.00 | % | ||||||
Year that the rate reaches the ultimate trend rate | 2018 | 2015 | 2013 |
Other Postretirement | ||||||||||||||||
Pension Benefits | Benefits | |||||||||||||||
Change in Benefit Obligation | 2009 | 2008 | 2009 | 2008 | ||||||||||||
Benefit obligation — beginning of year | $ | 3,938 | $ | 3,713 | $ | 384 | $ | 364 | ||||||||
Service cost (excluding expenses) | 105 | 121 | 6 | 6 | ||||||||||||
Interest cost | 243 | 230 | 24 | 23 | ||||||||||||
Plan participants’ contributions | — | — | 16 | 15 | ||||||||||||
Actuarial loss (gain) | 71 | 65 | (5 | ) | 17 | |||||||||||
Change in assumptions | 118 | (2 | ) | 17 | — | |||||||||||
Benefits paid | (197 | ) | (175 | ) | (46 | ) | (42 | ) | ||||||||
Retiree drug subsidy | — | — | 5 | 2 | ||||||||||||
Foreign exchange adjustment | 5 | (14 | ) | — | (1 | ) | ||||||||||
Benefit obligation — end of year | $ | 4,283 | $ | 3,938 | $ | 401 | $ | 384 | ||||||||
Other Postretirement | ||||||||||||||||
Pension Benefits | Benefits | |||||||||||||||
Change in Plan Assets | 2009 | 2008 | 2009 | 2008 | ||||||||||||
Fair value of plan assets — beginning of year | $ | 3,326 | $ | 3,957 | $ | 154 | $ | 170 | ||||||||
Actual return on plan assets | 184 | (441 | ) | 21 | (16 | ) | ||||||||||
Employer contributions | 201 | 2 | — | — | ||||||||||||
Benefits paid | (177 | ) | (164 | ) | — | — | ||||||||||
Expenses paid | (13 | ) | (14 | ) | — | — | ||||||||||
Foreign exchange adjustment | 5 | (14 | ) | — | — | |||||||||||
Fair value of plan assets — end of year | $ | 3,526 | $ | 3,326 | $ | 175 | $ | 154 | ||||||||
Funded status — end of year | $ | (757 | ) | $ | (612 | ) | $ | (226 | ) | $ | (230 | ) | ||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, | ||||||||
2009 | 2008 | |||||||
Projected benefit obligation | $ | 4,239 | $ | 3,893 | ||||
Accumulated benefit obligation | 4,209 | 3,869 | ||||||
Fair value of plan assets | 3,471 | 3,275 |
Pension Benefits | Other Postretirement Benefits | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Noncurrent assets | $ | 12 | $ | 6 | $ | — | $ | — | ||||||||
Current liabilities | (54 | ) | (20 | ) | (33 | ) | (32 | ) | ||||||||
Noncurrent liabilities | (715 | ) | (598 | ) | (193 | ) | (198 | ) | ||||||||
Total | $ | (757 | ) | $ | (612 | ) | $ | (226 | ) | $ | (230 | ) | ||||
Pension Benefits | Other Postretirement Benefits | |||||||||||||||||||||||
2009 | 2008 | 2007 | 2009 | 2008 | 2007 | |||||||||||||||||||
Service cost | $ | 105 | $ | 121 | $ | 128 | $ | 6 | $ | 6 | $ | 7 | ||||||||||||
Interest cost | 243 | 230 | 209 | 24 | 23 | 21 | ||||||||||||||||||
Expected return on plan assets | (276 | ) | (279 | ) | (283 | ) | (11 | ) | (12 | ) | (8 | ) | ||||||||||||
Amortization of prior service credit | (9 | ) | (9 | ) | (13 | ) | (1 | ) | (1 | ) | (6 | ) | ||||||||||||
Amortization of actuarial loss | 74 | 59 | 90 | — | — | — | ||||||||||||||||||
Net periodic benefit cost | $ | 137 | $ | 122 | $ | 131 | $ | 18 | $ | 16 | $ | 14 | ||||||||||||
Pension Benefits | Other Postretirement Benefits | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Amortization of net loss | $ | (74 | ) | $ | (59 | ) | $ | — | $ | — | ||||||
Amortization of prior service credit | 9 | 9 | 1 | 1 | ||||||||||||
Net loss/(gain) arising during the year | 302 | 795 | 3 | 45 | ||||||||||||
Total | $ | 237 | $ | 745 | $ | 4 | $ | 46 | ||||||||
Pension Benefits | Other Postretirement Benefits | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Net loss/(gain) | $ | 1,681 | $ | 1,454 | $ | 9 | $ | 6 | ||||||||
Prior service cost/(credit) | (39 | ) | (49 | ) | (1 | ) | (2 | ) | ||||||||
Transition obligation | — | — | 1 | 1 | ||||||||||||
Total | $ | 1,642 | $ | 1,405 | $ | 9 | $ | 5 | ||||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Target Asset Allocation | ||||||||
Pension Plan | Other Postretirement Plan | |||||||
Equity securities | 10% – 30% | 20% – 40% | ||||||
Fixed income securities | 50% – 70% | 60% – 80% | ||||||
Alternative Assets | 10% – 25% | — |
Percentage of Pension Plan Assets | Percentage of Other Postretirement Plan | |||||||||||||||
Fair Value at December 31, | Assets Fair Value at December 31, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Equity securities | 28 | % | 36 | % | 21 | % | 19 | % | ||||||||
Fixed income securities | 57 | % | 58 | % | 79 | % | 81 | % | ||||||||
Alternative Assets | 15 | % | 6 | % | — | — | ||||||||||
Total | 100 | % | 100 | % | 100 | % | 100 | % | ||||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Pension Plan Assets at Fair Value as of December 31, 2009 | ||||||||||||||||
Asset Category | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Short-term investments [1] | $ | 197 | $ | 98 | $ | — | $ | 295 | ||||||||
Fixed Income Securities: | ||||||||||||||||
Corporate | — | 903 | 12 | 915 | ||||||||||||
RMBS | — | 368 | 24 | 392 | ||||||||||||
U.S. Treasuries | 9 | 279 | — | 288 | ||||||||||||
Foreign government | — | 80 | 2 | 82 | ||||||||||||
CMBS | — | 113 | — | 113 | ||||||||||||
Other fixed income [2] | — | 19 | 8 | 27 | ||||||||||||
Equity Securities: | ||||||||||||||||
Large-Cap Domestic Equities | — | 435 | — | 435 | ||||||||||||
Mid-Cap Domestic Equities | 130 | — | — | 130 | ||||||||||||
Small-Cap Domestic Equities | 82 | — | — | 82 | ||||||||||||
International Equities | 313 | — | — | 313 | ||||||||||||
Other Equities [3] | — | 1 | — | 1 | ||||||||||||
Other type of investments: | ||||||||||||||||
Hedge funds | — | — | 501 | 501 | ||||||||||||
Total investments at fair value [4] | $ | 731 | $ | 2,296 | $ | 547 | $ | 3,574 | ||||||||
[1] | Includes $47 of initial margin requirements related to the Plan’s duration overlay program. | |
[2] | Includes ABS and municipal bonds. | |
[3] | Includes private placement bonds with a coupon and preferred stock with a coupon. | |
[4] | Excludes approximately $67 of investment payables net of investment receivables that are not carried at fair value. Also excludes approximately $19 interest receivable carried at fair value. |
Actual return on plan assets | ||||||||||||||||||||||||
Relating to | ||||||||||||||||||||||||
Beginning | assets still | Relating to | Purchase, | Transfers | Ending | |||||||||||||||||||
Balance | held at the | assets sold | issuances, | in and / or | balance, | |||||||||||||||||||
January 1, | reporting | during the | and | out of | December 31, | |||||||||||||||||||
Asset Category | 2009 | date | period | settlements | Level 3 | 2009 | ||||||||||||||||||
Corporate | $ | 24 | $ | 7 | $ | (4 | ) | $ | (10 | ) | $ | (5 | ) | $ | 12 | |||||||||
RMBS | 1 | 1 | (1 | ) | 23 | — | 24 | |||||||||||||||||
Foreign Government | — | — | — | 2 | — | 2 | ||||||||||||||||||
Other Fixed Income | 3 | 1 | — | 4 | — | 8 | ||||||||||||||||||
Hedge Funds | 199 | 57 | (9 | ) | 254 | — | 501 | |||||||||||||||||
Totals | $ | 227 | $ | 66 | $ | (14 | ) | $ | 273 | $ | (5 | ) | $ | 547 | ||||||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Other Postretirement Plan Assets at Fair | ||||||||||||||||
Value as of December 31, 2009 | ||||||||||||||||
Asset Category | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Short-term investments | $ | — | $ | 7 | $ | — | $ | 7 | ||||||||
Fixed Income Securities: | ||||||||||||||||
Corporate | — | 65 | — | 65 | ||||||||||||
RMBS | — | 39 | — | 39 | ||||||||||||
U.S. Government | — | 17 | — | 17 | ||||||||||||
CMBS | — | 12 | — | 12 | ||||||||||||
Other Fixed Income | — | 1 | — | 1 | ||||||||||||
Equity Securities: | ||||||||||||||||
Large-Cap | — | 37 | — | 37 | ||||||||||||
Total investments at fair value [1] | $ | — | $ | 178 | $ | — | $ | 178 | ||||||||
[1] | Excludes approximately $4 of investment payables net of investment receivables that are not carried at fair value. Also excludes approximately $1 interest receivable carried at fair value. |
Employer Contributions | Pension Benefits | Other Postretirement Benefits | ||||||
2008 | $ | 2 | $ | — | ||||
2009 | $ | 201 | — |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
�� | ||||||||
Pension Benefits | Other Postretirement Benefits | |||||||
2010 | $ | 268 | $ | 37 | ||||
2011 | 253 | 40 | ||||||
2012 | 275 | 40 | ||||||
2013 | 293 | 40 | ||||||
2014 | 309 | 41 | ||||||
2015–2019 | 1,736 | 196 | ||||||
Total | $ | 3,134 | $ | 394 | ||||
2010 | $ | 4 | ||
2011 | 4 | |||
2012 | 4 | |||
2013 | 5 | |||
2014 | 5 | |||
2015–2019 | 32 | |||
Total | $ | 54 | ||
F-83
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the year ended December 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
Expected dividend yield | 3.2% | 2.9% | 2.0% | |||||||||
Expected annualized spot volatility | 57.8% – 57.8% | 37.0% – 32.2% | 21.0% – 31.3% | |||||||||
Weighted average annualized volatility | 57.8% | 33.3% | 29.0% | |||||||||
Risk-free spot rate | 0.3% – 4.2% | 2.0% – 5.0% | 4.4% – 5.2% | |||||||||
Expected term | 7.3 years | 8 years | 8 years |
Weighted | ||||||||||||||||
Average | ||||||||||||||||
Weighted | Remaining | |||||||||||||||
Number of Options | Average | Contractual | Aggregate | |||||||||||||
(in thousands) | Exercise Price | Term | Intrinsic Value | |||||||||||||
Outstanding at beginning of year | 5,829 | $ | 60.43 | 3.8 | $ | — | ||||||||||
Granted | 1,411 | 7.04 | ||||||||||||||
Exercised | — | — | ||||||||||||||
Forfeited | (719 | ) | 57.82 | |||||||||||||
Expired | (52 | ) | 52.02 | |||||||||||||
Outstanding at end of year | 6,469 | 49.76 | 3.8 | — | ||||||||||||
Exercisable at end of year | 5,203 | $ | 57.05 | 2.6 | — | |||||||||||
Weighted average fair value of options granted | $ | 3.06 |
F-84
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Shares | Weighted-Average | |||||||
Non-vested Shares | (in thousands) | Grant-Date Fair Value | ||||||
Non-vested at beginning of year | 1,968 | $ | 79.63 | |||||
Granted | 733 | 9.68 | ||||||
Decrease for change in estimated performance factors | (33 | ) | — | |||||
Vested | (573 | ) | 80.32 | |||||
Forfeited | (250 | ) | 69.36 | |||||
Non-vested at end of year | 1,845 | $ | 53.19 | |||||
Weighted-Average | Weighted-Average | |||||||||||||||
Deferred Units | Grant-Date Fair | Restricted Units | Grant-Date Fair | |||||||||||||
Non-vested Units | (in thousands) | Value | (in thousands) | Value | ||||||||||||
Non-vested at beginning of year | — | $ | — | — | $ | — | ||||||||||
Granted | 36 | 24.12 | 243 | 20.80 | ||||||||||||
Vested | (36 | ) | 24.12 | (106 | ) | 16.49 | ||||||||||
Forfeited | — | — | — | — | ||||||||||||
Non-vested at end of year | — | $ | — | 137 | $ | 24.12 | ||||||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the year ended December 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
Dividend yield | 1.4 | % | 3.5 | % | 2.1 | % | ||||||
Implied volatility | 91.4 | % | 45.5 | % | 23.2 | % | ||||||
Risk-free spot rate | 0.3 | % | 1.9 | % | 4.7 | % | ||||||
Expected term | 6 months | 3 months | 3 months |
F-86
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-87
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-88
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
To Be Well Capitalized | ||||||||||||||||||||||||
Under Prompt | ||||||||||||||||||||||||
For Minimum Capital | Corrective Action | |||||||||||||||||||||||
Actual | Adequacy Purposes | Provisions | ||||||||||||||||||||||
At December 31, 2009 | Amount | % | Amount | % | Amount | % | ||||||||||||||||||
Total capital (to risk-weighted assets) | $ | 32.3 | 13.2 | % | $ | 19.5 | 8 | % | $ | 24.4 | 10 | % | ||||||||||||
Tier I capital (to risk-weighted assets) | $ | 32.2 | 13.2 | % | $ | 9.8 | 4 | % | $ | 14.6 | 6 | % | ||||||||||||
Tier I capital (to average adjusted assets) | $ | 32.2 | 8.3 | % | $ | 15.6 | 4 | % | $ | 19.5 | 5 | % |
Severance benefits | $ | 52 | ||
Asset impairment charges | 53 | |||
Other contract termination charges | 34 | |||
Total severance and other costs for the year ended December 31, 2009 | $ | 139 | ||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Three Months Ended | ||||||||||||||||||||||||||||||||
March 31, | June 30, | September 30, | December 31, | |||||||||||||||||||||||||||||
2009 | 2008 | 2009 | 2008 | 2009 | 2008 | 2009 | 2008 | |||||||||||||||||||||||||
Revenues [1] | $ | 5,394 | $ | 1,544 | $ | 7,637 | $ | 7,503 | $ | 5,230 | $ | (393 | ) | $ | 6,440 | $ | 565 | |||||||||||||||
Benefits, losses and expenses | $ | 7,411 | $ | 1,453 | $ | 7,619 | $ | 6,851 | $ | 5,687 | $ | 3,790 | $ | 5,712 | $ | 1,716 | ||||||||||||||||
Net income (loss) [2] | $ | (1,209 | ) | $ | 145 | $ | (15 | ) | $ | 543 | $ | (220 | ) | $ | (2,631 | ) | $ | 557 | $ | (806 | ) | |||||||||||
Less: Preferred stock dividends and accretion of discount | — | — | 3 | — | 62 | — | 62 | 8 | ||||||||||||||||||||||||
Net income (loss) available to common shareholders [2] | $ | (1,209 | ) | $ | 145 | $ | (18 | ) | $ | 543 | $ | (282 | ) | $ | (2,631 | ) | $ | 495 | $ | (814 | ) | |||||||||||
Basic earnings (losses) per common share [3] | $ | (3.77 | ) | $ | 0.46 | $ | (0.06 | ) | $ | 1.74 | $ | (0.79 | ) | $ | (8.74 | ) | $ | 1.29 | $ | (2.71 | ) | |||||||||||
Diluted earnings (losses) per common share [4] | $ | (3.77 | ) | $ | 0.46 | $ | (0.06 | ) | $ | 1.73 | $ | (0.79 | ) | $ | (8.74 | ) | $ | 1.19 | $ | (2.71 | ) | |||||||||||
Weighted average common shares outstanding | 320.8 | 313.8 | 325.4 | 311.7 | 356.1 | 301.1 | 382.7 | 300.2 | ||||||||||||||||||||||||
Weighted average common shares outstanding and dilutive potential common shares | 320.8 | 315.7 | 325.4 | 313.1 | 356.1 | 301.1 | 416.2 | 300.2 |
[1] | Included in the three months ended March 31, 2008, September 30, 2008 and December 31, 2008 are net investment losses of $3.6 billion, $3.4 billion and $4.5 billion, respectively, related to the mark-to-market effects of equity securities, trading, supporting the International variable annuity business and net realized capital losses of $1.4 billion, $3.4 billion and $816, respectively. | |
[2] | Included in the three months ended March 31, 2008 are net realized capital losses of $648, after-tax. | |
Included in three months ended September 30, 2008 are net realized capital losses of $2.2 billion, after-tax, and a DAC unlock charge of $932, after-tax. | ||
Included in the three months ended December 31, 2008 is an after-tax charge of $597 related to goodwill testing and net realized capital losses of $610. | ||
Included in the three months end March 31, 2009 is a DAC unlock charge of $1.5 billion, after-tax. | ||
Included in the three months ended June 30, 2009 are net realized capital losses of $649, after-tax, and a DAC unlock benefit of $360, after-tax. | ||
Included in the three months ended September 30, 2009 are net realized capital losses of $885, after-tax. | ||
[3] | Due to the net loss for the three months ended December 31, 2008, no allocation of the net loss was made to the preferred shareholders under the two-class method in the calculation of basic earnings per share, as the preferred shareholders had no contractual obligation to fund the net losses of the Company. In the absence of the net loss, any such income would be allocated to the preferred shareholders based on the weighted average number of preferred shares outstanding as of December 31, 2008. | |
[4] | In periods of a net loss, the Company uses basic weighted average common shares outstanding in the calculation of diluted loss per share, since the inclusion of shares for warrants, stock compensation plans and the assumed conversion of the preferred shares to common would have been antidilutive to the earnings per share calculation. In the absence of the net loss, weighted average common shares outstanding and dilutive potential common shares would have totaled 302.1 million, 320.9 million, 321.5 million, 326.6 million, and 382.5 million, for the three months ended September 30, 2008, December 31, 2008, March 31, 2009, June 30, 2009 and September 30, 2009, respectively. |
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As of December 31, 2009 | ||||||||||||
Amount at | ||||||||||||
which shown on | ||||||||||||
Type of Investment | Cost | Fair Value | Balance Sheet | |||||||||
Fixed Maturities | ||||||||||||
Bonds and notes | ||||||||||||
U.S. government and government agencies and authorities (guaranteed and sponsored) | $ | 7,299 | $ | 7,172 | $ | 7,172 | ||||||
States, municipalities and political subdivisions | 12,125 | 12,065 | 12,065 | |||||||||
Foreign governments | 1,376 | 1,408 | 1,408 | |||||||||
Public utilities | 5,755 | 5,900 | 5,900 | |||||||||
All other corporate bonds | 29,563 | 29,343 | 29,343 | |||||||||
All other mortgage-backed and asset-backed securities | 19,897 | 15,265 | 15,265 | |||||||||
Total fixed maturities | 76,015 | 71,153 | 71,153 | |||||||||
Equity Securities | ||||||||||||
Common stocks | ||||||||||||
Industrial, miscellaneous and all other | 248 | 293 | 293 | |||||||||
Non-redeemable preferred stocks | 1,085 | 928 | 928 | |||||||||
Total equity securities, available-for-sale | 1,333 | 1,221 | 1,221 | |||||||||
Equity securities, trading | 33,070 | 32,321 | 32,321 | |||||||||
Total equity securities | 34,403 | 33,542 | 33,542 | |||||||||
Mortgage loans | 5,938 | 5,091 | 5,938 | |||||||||
Real estate | 107 | 107 | 107 | |||||||||
Policy loans | 2,174 | 2,321 | 2,174 | |||||||||
Investments in partnerships and trusts | 1,790 | 1,790 | 1,790 | |||||||||
Futures, options and miscellaneous | 1,019 | 495 | 495 | |||||||||
Short-term investments | 10,357 | 10,357 | 10,357 | |||||||||
Total investments | $ | 131,803 | $ | 124,856 | $ | 125,556 | ||||||
S-1
Table of Contents
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
(Registrant)
(In millions)
As of December 31, | ||||||||
Condensed Balance Sheets | 2009 | 2008 | ||||||
Assets | ||||||||
Fixed maturities, available-for-sale, at fair value | $ | 309 | $ | 149 | ||||
Other investments | 36 | 42 | ||||||
Short-term investments | 1,936 | 1,484 | ||||||
Investment in affiliates | 21,642 | 14,517 | ||||||
Deferred income taxes | 755 | 583 | ||||||
Unamortized issue costs | 51 | 55 | ||||||
Other assets | 368 | 33 | ||||||
Total assets | $ | 25,097 | $ | 16,863 | ||||
Liabilities and Stockholders’ Equity | ||||||||
Net payable to affiliates | $ | 366 | $ | 779 | ||||
Short-term debt (includes current maturities of long-term debt) | 275 | 374 | ||||||
Long-term debt | 5,250 | 5,514 | ||||||
Other liabilities | 1,341 | 928 | ||||||
Total liabilities | 7,232 | 7,595 | ||||||
Total stockholders’ equity | 17,865 | 9,268 | ||||||
Total liabilities and stockholders’ equity | $ | 25,097 | $ | 16,863 | ||||
For the years ended December 31, | ||||||||||||
Condensed Statements of Operations | 2009 | 2008 | 2007 | |||||||||
Net investment income | $ | 8 | $ | 30 | $ | 24 | ||||||
Net realized capital gains (losses) | (231 | ) | 103 | (4 | ) | |||||||
Total revenues | (223 | ) | 133 | 20 | ||||||||
Interest expense | 457 | 323 | 241 | |||||||||
Other expenses | 8 | (3 | ) | 18 | ||||||||
Total expenses | 465 | 320 | 259 | |||||||||
Loss before income taxes and earnings of subsidiaries | (688 | ) | (187 | ) | (239 | ) | ||||||
Income tax benefit | (157 | ) | (102 | ) | (83 | ) | ||||||
Loss before earnings of subsidiaries | (531 | ) | (85 | ) | (156 | ) | ||||||
Earnings of subsidiaries | (356 | ) | (2,664 | ) | 3,105 | |||||||
Net income (loss) | $ | (887 | ) | $ | (2,749 | ) | $ | 2,949 | ||||
the consolidated financial statements and notes thereto.
S-2
Table of Contents
THE HARTFORD FINANCIAL SERVICES GROUP, INC. (continued)
(Registrant)
For the years ended December 31, | ||||||||||||
Condensed Statements of Cash Flows | 2009 | 2008 | 2007 | |||||||||
Operating Activities | ||||||||||||
Net income (loss) | $ | (887 | ) | $ | (2,749 | ) | $ | 2,949 | ||||
Undistributed earnings of subsidiaries | 1,307 | (4,766 | ) | (1,422 | ) | |||||||
Change in operating assets and liabilities | (590 | ) | 9,372 | 18 | ||||||||
Cash provided by (used for) operating activities | (170 | ) | 1,857 | 1,545 | ||||||||
Investing Activities | ||||||||||||
Net sales (purchases) of short-term investments | (412 | ) | (892 | ) | (76 | ) | ||||||
Purchase price of business acquired | (10 | ) | — | — | ||||||||
Capital contributions to subsidiaries | (3,115 | ) | (2,300 | ) | (127 | ) | ||||||
Cash used for investing activities | (3,537 | ) | (3,192 | ) | (203 | ) | ||||||
Financing Activities | ||||||||||||
Issuance of long-term debt | — | 2,670 | 495 | |||||||||
Repayment/maturity of long-term debt | — | (955 | ) | (300 | ) | |||||||
Change in commercial paper | (375 | ) | — | 75 | ||||||||
Issuance of convertible preferred shares | — | 727 | — | |||||||||
Issuance of warrants | — | 512 | — | |||||||||
Proceeds from issuance of preferred stock and warrants to U.S. Treasury | 3,400 | — | — | |||||||||
Proceeds from issuance of shares under discretionary equity issuance plan | 887 | — | — | |||||||||
Proceeds from issuances of shares under incentive and stock compensation plans, net | 20 | 54 | 186 | |||||||||
Treasury stock acquired | — | (1,000 | ) | (1,193 | ) | |||||||
Return of shares to treasury stock under incentive and stock compensation plans to treasury stock | (3 | ) | (18 | ) | (14 | ) | ||||||
Excess tax benefits on stock-based compensation | — | 5 | 45 | |||||||||
Dividends Paid — Preferred shares | (73 | ) | — | — | ||||||||
Dividends Paid — Common Shares | (149 | ) | (660 | ) | (636 | ) | ||||||
Cash provided by (used for) financing activities | 3,707 | 1,335 | (1,342 | ) | ||||||||
Net change in cash | — | — | — | |||||||||
Cash — beginning of year | — | — | — | |||||||||
Cash — end of year | $ | — | $ | — | $ | — | ||||||
Supplemental Disclosure of Cash Flow Information | ||||||||||||
Interest Paid | $ | 454 | $ | 265 | $ | 239 | ||||||
Dividends Received from Subsidiaries | $ | 243 | $ | 2,279 | $ | 1,668 |
the consolidated financial statements and notes thereto.
S-3
Table of Contents
Deferred Policy | ||||||||||||||||
Acquisition | Other | |||||||||||||||
Costs and | Future Policy Benefits, | Policyholder | ||||||||||||||
Present Value of | Unpaid Losses and Loss | Unearned | Funds and | |||||||||||||
Segment | Future Profits | Adjustment Expenses | Premiums | Benefits Payable | ||||||||||||
As of December 31, 2009 | ||||||||||||||||
Life | ||||||||||||||||
Retail | $ | 3,821 | $ | 1,749 | $ | 10 | $ | 17,950 | ||||||||
Individual Life | 2,623 | 842 | 1 | 6,330 | ||||||||||||
Group Benefits | 78 | 6,403 | 84 | 401 | ||||||||||||
Retirement Plans | 980 | 293 | — | 6,156 | ||||||||||||
International | 1,775 | 659 | — | 37,697 | ||||||||||||
Institutional | 146 | 7,984 | 72 | 9,302 | ||||||||||||
Other | — | 50 | 1 | 312 | ||||||||||||
Total Life | 9,423 | 17,980 | 168 | 78,148 | ||||||||||||
Property & Casualty | ||||||||||||||||
Personal Lines | 643 | 2,070 | 1,938 | — | ||||||||||||
Small Commercial | 277 | 3,603 | 1,306 | — | ||||||||||||
Middle Market | 215 | 4,442 | 1,034 | — | ||||||||||||
Specialty Commercial | 128 | 7,044 | 776 | — | ||||||||||||
Total Ongoing Operations | 1,263 | 17,159 | 5,054 | — | ||||||||||||
Other Operations | — | 4,492 | 1 | — | ||||||||||||
Total Property & Casualty | 1,263 | 21,651 | 5,055 | — | ||||||||||||
Corporate | — | — | (2 | ) | — | |||||||||||
Consolidated | $ | 10,686 | $ | 39,631 | $ | 5,221 | $ | 78,148 | ||||||||
As of December 31, 2008 | ||||||||||||||||
Life | ||||||||||||||||
Retail | $ | 5,801 | $ | 1,353 | $ | 11 | $ | 22,164 | ||||||||
Individual Life | 3,027 | 781 | 1 | 6,010 | ||||||||||||
Group Benefits | 81 | 6,356 | 85 | 402 | ||||||||||||
Retirement Plans | 877 | 313 | — | 6,437 | ||||||||||||
International | 2,046 | 229 | — | 36,461 | ||||||||||||
Institutional | 156 | 7,667 | 40 | 11,255 | ||||||||||||
Other | — | 48 | 1 | 1,823 | ||||||||||||
Total Life | 11,988 | 16,747 | 138 | 84,552 | ||||||||||||
Property & Casualty | ||||||||||||||||
Personal Lines | 606 | 2,052 | 1,904 | — | ||||||||||||
Small Commercial | 282 | 3,572 | 1,318 | — | ||||||||||||
Middle Market | 232 | 4,745 | 1,128 | — | ||||||||||||
Specialty Commercial | 140 | 6,980 | 893 | — | ||||||||||||
Total Ongoing Operations | 1,260 | 17,349 | 5,243 | — | ||||||||||||
Other Operations | — | 4,584 | 1 | �� | — | |||||||||||
Total Property & Casualty | 1,260 | 21,933 | 5,244 | — | ||||||||||||
Corporate | — | — | (3 | ) | — | |||||||||||
Consolidated | $ | 13,248 | $ | 38,680 | $ | 5,379 | $ | 84,552 | ||||||||
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Amortization of | ||||||||||||||||||||||||
Deferred Policy | ||||||||||||||||||||||||
Acquisition | ||||||||||||||||||||||||
Earned | Benefits, Losses | Costs and | ||||||||||||||||||||||
Premiums, Fee | Net | and Loss | Present Value | |||||||||||||||||||||
Income and | Investment | Adjustment | of Future | Other | Net Written | |||||||||||||||||||
Segment | Other | Income | Expenses | Profits | Expenses [1] | Premiums | ||||||||||||||||||
For the year ended December 31, 2009 | ||||||||||||||||||||||||
Life | ||||||||||||||||||||||||
Retail | $ | 2,132 | $ | 750 | $ | 1,310 | $ | 1,389 | $ | 1,049 | ||||||||||||||
Individual Life | 940 | 335 | 640 | 314 | 188 | |||||||||||||||||||
Group Benefits | 4,350 | 403 | 3,196 | 61 | 1,120 | |||||||||||||||||||
Retirement Plans | 324 | 315 | 269 | 56 | 346 | |||||||||||||||||||
International | 827 | 182 | 621 | 364 | 291 | |||||||||||||||||||
Institutional | 495 | 833 | 1,301 | 17 | 83 | |||||||||||||||||||
Other | 58 | 3,273 | 3,272 | — | 124 | |||||||||||||||||||
Total Life | 9,126 | 6,091 | 10,609 | 2,201 | 3,201 | N/A | ||||||||||||||||||
Property & Casualty | ||||||||||||||||||||||||
Personal Lines | 4,105 | 183 | 2,895 | 674 | 459 | $ | 3,987 | |||||||||||||||||
Small Commercial | 2,580 | 223 | 1,404 | 622 | 217 | 2,572 | ||||||||||||||||||
Middle Market | 2,100 | 258 | 1,197 | 486 | 194 | 2,021 | ||||||||||||||||||
Specialty Commercial | 1,568 | 279 | 672 | 284 | 492 | 1,127 | ||||||||||||||||||
Total Ongoing Operations | 10,353 | 943 | 6,168 | 2,066 | 1,362 | 9,707 | ||||||||||||||||||
Other Operations | — | 163 | 242 | — | 19 | 4 | ||||||||||||||||||
Total Property & Casualty | 10,353 | 1,106 | 6,410 | 2,066 | 1,381 | 9,711 | ||||||||||||||||||
Corporate | 13 | 22 | — | — | 561 | — | ||||||||||||||||||
Consolidated | $ | 19,492 | $ | 7,219 | $ | 17,019 | $ | 4,267 | $ | 5,143 | $ | 9,711 | ||||||||||||
[1] | Includes insurance operating costs, interest, goodwill impairment, and other expenses. | |
N/A | — Not applicable to life insurance pursuant to Regulation S-X. |
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Amortization of | ||||||||||||||||||||||||
Deferred Policy | ||||||||||||||||||||||||
Acquisition | ||||||||||||||||||||||||
Earned | Benefits, Losses | Costs and | ||||||||||||||||||||||
Premiums, Fee | Net | and Loss | Present Value | |||||||||||||||||||||
Income and | Investment | Adjustment | of Future | Other | Net Written | |||||||||||||||||||
Segment | Other | Income | Expenses | Profits | Expenses [1] | Premiums | ||||||||||||||||||
For the year ended December 31, 2008 | ||||||||||||||||||||||||
Life | ||||||||||||||||||||||||
Retail | $ | 2,753 | $ | 747 | $ | 1,008 | $ | 1,344 | $ | 1,609 | ||||||||||||||
Individual Life | 828 | 338 | 627 | 169 | 202 | |||||||||||||||||||
Group Benefits | 4,391 | 419 | 3,144 | 57 | 1,128 | |||||||||||||||||||
Retirement Plans | 338 | 342 | 271 | 91 | 335 | |||||||||||||||||||
International | 872 | 167 | 270 | 496 | 321 | |||||||||||||||||||
Institutional | 1,041 | 1,004 | 1,907 | 19 | 120 | |||||||||||||||||||
Other | 60 | (10,312 | ) | (10,186 | ) | — | 7 | |||||||||||||||||
Total Life | 10,283 | (7,295 | ) | (2,959 | ) | 2,176 | 3,722 | N/A | ||||||||||||||||
Property & Casualty | ||||||||||||||||||||||||
Personal Lines | 4,061 | 209 | 2,749 | 633 | 431 | $ | 3,925 | |||||||||||||||||
Small Commercial | 2,724 | 222 | 1,480 | 636 | 224 | 2,696 | ||||||||||||||||||
Middle Market | 2,297 | 279 | 1,442 | 513 | 208 | 2,242 | ||||||||||||||||||
Specialty Commercial | 1,753 | 346 | 907 | 313 | 530 | 1,361 | ||||||||||||||||||
Total Ongoing Operations | 10,835 | 1,056 | 6,578 | 2,095 | 1,393 | 10,224 | ||||||||||||||||||
Other Operations | 7 | 197 | 129 | — | 26 | 7 | ||||||||||||||||||
Total Property & Casualty | 10,842 | 1,253 | 6,707 | 2,095 | 1,419 | 10,231 | ||||||||||||||||||
Corporate | 17 | 37 | — | — | 650 | — | ||||||||||||||||||
Consolidated | $ | 21,142 | $ | (6,005 | ) | $ | 3,748 | $ | 4,271 | $ | 5,791 | $ | 10,231 | |||||||||||
[1] | Includes insurance operating costs, interest, goodwill impairment, and other expenses. | |
N/A | — Not applicable to life insurance pursuant to Regulation S-X. |
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Amortization of | ||||||||||||||||||||||||
Deferred Policy | ||||||||||||||||||||||||
Acquisition | ||||||||||||||||||||||||
Earned | Benefits, Losses | Costs and | ||||||||||||||||||||||
Premiums, Fee | Net | and Loss | Present Value | |||||||||||||||||||||
Income and | Investment | Adjustment | of Future | Other | Net Written | |||||||||||||||||||
Segment | Other | Income | Expenses | Profits | Expenses [1] | Premiums | ||||||||||||||||||
For the year ended December 31, 2007 | ||||||||||||||||||||||||
Life | ||||||||||||||||||||||||
Retail | $ | 3,055 | $ | 801 | $ | 820 | $ | 406 | $ | 1,221 | ||||||||||||||
Individual Life | 808 | 359 | 562 | 121 | 193 | |||||||||||||||||||
Group Benefits | 4,301 | 465 | 3,109 | 62 | 1,131 | |||||||||||||||||||
Retirement Plans | 242 | 355 | 249 | 58 | 170 | |||||||||||||||||||
International | 832 | 131 | 32 | 214 | 246 | |||||||||||||||||||
Institutional | 1,238 | 1,241 | 2,074 | 23 | 185 | |||||||||||||||||||
Other | 67 | 290 | 301 | — | 84 | |||||||||||||||||||
Total Life | 10,543 | 3,642 | 7,147 | 884 | 3,230 | N/A | ||||||||||||||||||
Property & Casualty | ||||||||||||||||||||||||
Personal Lines | 4,030 | 249 | 2,697 | 617 | 402 | $ | 3,947 | |||||||||||||||||
Small Commercial | 2,737 | 299 | 1,413 | 635 | 239 | 2,747 | ||||||||||||||||||
Middle Market | 2,420 | 389 | 1,560 | 529 | 208 | 2,326 | ||||||||||||||||||
Specialty Commercial | 1,800 | 502 | 1,054 | 323 | 537 | 1,415 | ||||||||||||||||||
Total Ongoing Operations | 10,987 | 1,439 | 6,724 | 2,104 | 1,386 | 10,435 | ||||||||||||||||||
Other Operations | 5 | 248 | 193 | — | 23 | 5 | ||||||||||||||||||
Total Property & Casualty | 10,992 | 1,687 | 6,917 | 2,104 | 1,409 | 10,440 | ||||||||||||||||||
Corporate | 16 | 30 | — | 1 | 219 | — | ||||||||||||||||||
Consolidated | $ | 21,551 | $ | 5,359 | $ | 14,064 | $ | 2,989 | $ | 4,858 | $ | 10,440 | ||||||||||||
[1] | Includes insurance operating costs, interest and other expenses. | |
N/A | — Not applicable to life insurance pursuant to Regulation S-X. |
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Percentage | ||||||||||||||||||||
Assumed | of Amount | |||||||||||||||||||
Gross | Ceded to Other | From Other | Net | Assumed | ||||||||||||||||
Amount | Companies | Companies | Amount | to Net | ||||||||||||||||
For the year ended December 31, 2009 | ||||||||||||||||||||
Life insurance in-force | $ | 970,455 | $ | 128,144 | $ | 49,273 | $ | 891,584 | 6 | % | ||||||||||
Insurance revenues | ||||||||||||||||||||
Property and casualty insurance | $ | 10,386 | $ | 778 | $ | 253 | $ | 9,861 | 3 | % | ||||||||||
Life insurance and annuities | 7,245 | 433 | 91 | 6,903 | 1 | % | ||||||||||||||
Accident and health insurance | 2,203 | 51 | 71 | 2,223 | 3 | % | ||||||||||||||
Total insurance revenues | $ | 19,834 | $ | 1,262 | $ | 415 | $ | 18,987 | 2 | % | ||||||||||
For the year ended December 31, 2008 | ||||||||||||||||||||
Life insurance in-force | $ | 924,987 | $ | 123,074 | $ | 43,736 | $ | 845,649 | 5 | % | ||||||||||
Insurance revenues | ||||||||||||||||||||
Property and casualty insurance | $ | 10,999 | $ | 877 | $ | 216 | $ | 10,338 | 2 | % | ||||||||||
Life insurance and annuities | 8,187 | 390 | 173 | 7,970 | 2 | % | ||||||||||||||
Accident and health insurance | 2,254 | 31 | 90 | 2,313 | 4 | % | ||||||||||||||
Total insurance revenues | $ | 21,440 | $ | 1,298 | $ | 479 | $ | 20,621 | 2 | % | ||||||||||
For the year ended December 31, 2007 | ||||||||||||||||||||
Life insurance in-force | $ | 824,608 | $ | 216,439 | $ | 82,282 | $ | 690,451 | 12 | % | ||||||||||
Insurance revenues | ||||||||||||||||||||
Property and casualty insurance | $ | 11,396 | $ | 1,104 | $ | 204 | $ | 10,496 | 2 | % | ||||||||||
Life insurance and annuities | 8,360 | 369 | 188 | 8,179 | 2 | % | ||||||||||||||
Accident and health insurance | 2,315 | 36 | 85 | 2,364 | 4 | % | ||||||||||||||
Total insurance revenues | $ | 22,071 | $ | 1,509 | $ | 477 | $ | 21,039 | 2 | % | ||||||||||
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Charged to | Write-offs/ | |||||||||||||||||||
Balance | Costs and | Translation | Payments/ | Balance | ||||||||||||||||
January 1, | Expenses | Adjustment | Other | December 31, | ||||||||||||||||
2009 | ||||||||||||||||||||
Allowance for doubtful accounts and other | $ | 125 | $ | 53 | $ | — | $ | (57 | ) | $ | 121 | |||||||||
Allowance for uncollectible reinsurance | 379 | 11 | — | (55 | ) | 335 | ||||||||||||||
Accumulated depreciation of property and equipment | 1,601 | 253 | — | (110 | ) | 1,744 | ||||||||||||||
Valuation allowance on mortgage loans | 26 | 408 | — | (68 | ) | 366 | ||||||||||||||
Valuation allowance for deferred taxes | 75 | 11 | — | — | 86 | |||||||||||||||
2008 | ||||||||||||||||||||
Allowance for doubtful accounts and other | $ | 126 | $ | 53 | $ | — | $ | (54 | ) | $ | 125 | |||||||||
Allowance for uncollectible reinsurance | 404 | 12 | — | (37 | ) | 379 | ||||||||||||||
Accumulated depreciation of property and equipment | 1,395 | 228 | — | (22 | ) | 1,601 | ||||||||||||||
Valuation allowance on mortgage loans | — | 26 | — | — | 26 | |||||||||||||||
Valuation allowance for deferred taxes | 43 | 32 | — | — | 75 | |||||||||||||||
2007 | ||||||||||||||||||||
Allowance for doubtful accounts and other | $ | 114 | $ | 47 | $ | — | $ | (35 | ) | $ | 126 | |||||||||
Allowance for uncollectible reinsurance | 412 | 12 | — | (20 | ) | 404 | ||||||||||||||
Accumulated depreciation of property and equipment | 1,241 | 232 | — | (78 | ) | 1,395 | ||||||||||||||
Valuation allowance for deferred taxes | 60 | (17 | ) | — | — | 43 | ||||||||||||||
PROPERTY AND CASUALTY INSURANCE OPERATIONS
(In millions)
Discount | Losses and Loss Adjustment | Paid Losses and | ||||||||||||||
Deducted From | Expenses Incurred Related to: | Loss Adjustment | ||||||||||||||
Liabilities [1] | Current Year | Prior Year | Expenses | |||||||||||||
Years ended December 31, | ||||||||||||||||
2009 | $ | 511 | $ | 6,596 | $ | (186 | ) | $ | 6,547 | |||||||
2008 | $ | 488 | $ | 6,933 | $ | (226 | ) | $ | 6,591 | |||||||
2007 | $ | 568 | $ | 6,869 | $ | 48 | $ | 6,290 |
[1] | Reserves for permanently disabled claimants and certain structured settlement contracts that fund loss run-offs have been discounted using the weighted average interest rates of 5.0%, 5.4%, and 5.5% for 2009, 2008, and 2007, respectively. |
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THE HARTFORD FINANCIAL SERVICES GROUP, INC. | ||||
By: | /s/ Beth A. Bombara | |||
Beth A. Bombara | ||||
Senior Vice President and Controller (Chief Accounting Officer and duly authorized signatory) | ||||
Signature | Title | Date | ||
/s/ Liam E. McGee | Chairman, Chief Executive Officer and Director (Principal Executive Officer) | February 23, 2010 | ||
/s/ Lizabeth H. Zlatkus | Executive Vice President and Chief Financial Officer (Principal Financial Officer) | February 23, 2010 | ||
/s/ Beth A. Bombara | Senior Vice President and Controller (Principal Accounting Officer) | February 23, 2010 | ||
* | Director | February 23, 2010 | ||
* | Director | February 23, 2010 | ||
* | Director | February 23, 2010 | ||
* | Director | February 23, 2010 | ||
* | Director | February 23, 2010 | ||
* | Director | February 23, 2010 | ||
* | Director | February 23, 2010 |
*By: | /s/ Alan J. Kreczko | |||||
Alan J. Kreczko | ||||||
As Attorney-in-Fact |
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FOR THE FISCAL YEAR ENDED DECEMBER 31, 2009
Exhibit No. | Description | |||
3.01 | Amended and Restated Certificate of Incorporation of The Hartford Financial Services Group, Inc. (“The Hartford”), incorporated by reference to Exhibit 3.01 to The Hartford’s Current Report on Form 8-K, filed June 2, 2009). | |||
3.02 | Certificate of Designations of The Hartford Financial Services Group, Inc. with respect to Series E Fixed Rate Cumulative Perpetual Preferred Stock, dated June 25, 2009 (incorporated herein by reference to Exhibit 3.01 to The Hartford’s Current Report on Form 8-K, filed June 26, 2009). | |||
3.02 | Amended and Restated By-Laws of The Hartford, amended effective May 27, 2009 (incorporated herein by reference to Exhibit 3.01 to The Hartford’s Current Report on Form 8-K, filed June 2, 2009). | |||
4.01 | Warrant to Purchase Shares of Common Stock of The Hartford Financial Services Group, Inc., dated June 26, 2009 (incorporated herein by reference to Exhibit 4.01 to The Hartford’s Current Report on Form 8-K, filed June 26, 2009). | |||
4.02 | Senior Indenture, dated as of October 20, 1995, between The Hartford and The Chase Manhattan Bank (National Association) as Trustee (incorporated herein by reference to Exhibit 4.03 to the Registration Statement on Form S-3 (Registration No. 333-103915) of The Hartford, Hartford Capital IV, Hartford Capital V and Hartford Capital VI). | |||
4.03 | Supplemental Indenture No. 1, dated as of December 27, 2000, to the Senior Indenture filed as Exhibit 4.02 hereto, between The Hartford and The Chase Manhattan Bank, as Trustee (incorporated herein by reference to Exhibit 4.30 to The Hartford’s Registration Statement on Form S-3 (Amendment No. 1) (Registration No. 333-49666) dated December 27, 2000). | |||
4.04 | Supplemental Indenture No. 2, dated as of September 13, 2002, to the Senior Indenture filed as Exhibit 4.02 hereto, between The Hartford and JPMorgan Chase Bank, as Trustee (incorporated herein by reference to Exhibit 4.1 to The Hartford’s Current Report on Form 8-K, filed September 17, 2002). | |||
4.05 | Form of Global Security (included in Exhibit 4.04). | |||
4.06 | Supplemental Indenture No. 3, dated as of May 23, 2003, to the Senior Indenture filed as Exhibit 4.02 hereto, between The Hartford and JPMorgan Chase Bank, as Trustee (incorporated herein by reference to Exhibit 4.1 of The Hartford’s Current Report on Form 8-K, filed May 30, 2003). | |||
4.07 | Senior Indenture, dated as of March 9, 2004, between The Hartford and JPMorgan Chase Bank, as Trustee (incorporated herein by reference to Exhibit 4.1 to The Hartford’s Current Report on Form 8-K, filed March 12, 2004). | |||
4.08 | Junior Subordinated Indenture, dated as of February 12, 2007, between The Hartford and LaSalle Bank, N.A., as Trustee (incorporated herein by reference to Exhibit 4.1 to The Hartford’s Current Report on Form 8-K, filed February 16, 2007). | |||
4.09 | Senior Indenture, dated as of April 11, 2007, between The Hartford and The Bank of New York Trust Company, N.A., as Trustee (incorporated herein by reference to Exhibit 4.03 to the Registration Statement on Form S-3 (Registration No. 333-142044) of The Hartford, Hartford Capital IV, Hartford Capital V and Hartford Capital VI, filed on April 11, 2007). | |||
*10.01 | Separation Agreement and General Release by and between The Hartford and Thomas M. Marra, dated as of February 24, 2009 (incorporated herein by reference to Exhibit 10.01 to The Hartford’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2009). | |||
10.02 | Letter Agreement, dated as of June 9, 2009, by and between The Hartford Financial Services Group, Inc., Allianz SE and Allianz Finance II Luxembourg S.a.r.l. (incorporated herein by reference to Exhibit 10.01 to The Hartford’s Current Report on Form 8-K, filed June 12, 2009). | |||
10.03 | Letter Agreement including the Securities Purchase Agreement-Standard Terms incorporated therein, between The Hartford Financial Services Group, Inc. and The United States Department of Treasury, dated June 26, 2009 (incorporated herein by reference to Exhibit 10.01 to The Hartford’s Current Report on Form 8-K, filed June 26, 2009). |
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Exhibit No. | Description | |||
10.04 | Letter Agreement between The Hartford Financial Services Group, Inc. and The United States Department of the Treasury, dated June 26, 2009 (incorporated herein by reference to Exhibit 10.02 to The Hartford’s Current Report on Form 8-K, filed June 26, 2009). | |||
*10.05 | Letter Agreement between The Hartford Financial Services Group, Inc. and Liam E McGee, dated September 23, 2009 (incorporated herein by reference to Exhibit 10.01 to The Hartford Current Report on Form 8-K, filed September 30, 2009). | |||
*10.06 | Form of Key Executive Employment Protection Agreement between The Hartford and certain executive officers of The Hartford, as amended (incorporated herein by reference to Exhibit 10.06 to The Hartford’s Current Report on Form 8-K, filed September 12, 2006) to which John C. Walters is a signatory as of September 7, 2006. | |||
*10.07 | The Hartford Restricted Stock Plan for Non-Employee Directors (incorporated herein by reference to Exhibit 10.05 to The Hartford’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2004). | |||
*10.08 | The Hartford 1995 Incentive Stock Plan, as amended (incorporated herein by reference to Exhibit 10.09 to The Hartford’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005). | |||
*10.09 | The Hartford Incentive Stock Plan, as amended (incorporated herein by reference to Exhibit 10.10 to The Hartford’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005). | |||
*10.10 | The Hartford 2005 Incentive Stock Plan, as amended. † | |||
*10.11 | The Hartford Deferred Restricted Stock Unit Plan, as amended (incorporated herein by reference to Exhibit 10.12 to The Hartford’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005). | |||
*10.12 | The Hartford Deferred Compensation Plan, as amended (incorporated herein by reference to Exhibit 10.03 to The Hartford’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2004). | |||
*10.13 | The Hartford Senior Executive Severance Pay Plan, as amended (incorporated herein by reference to Exhibit 10.07 to The Hartford’s Current Report on Form 8-K, filed September 12, 2006). | |||
*10.14 | The Hartford Executive Severance Pay Plan I, as amended (incorporated herein by reference to Exhibit 10.18 to The Hartford’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002). | |||
*10.15 | The Hartford Planco Non-Employee Option Plan, as amended (incorporated herein by reference to Exhibit 10.19 to The Hartford’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002). | |||
*10.16 | Employment Agreement between the Company and Christopher J. Swift dated February 14, 2010. | |||
*10.17 | The Hartford Investment and Savings Plan, as amended. † | |||
*10.18 | The Hartford 2005 Incentive Stock Plan Forms of Individual Award Agreements (incorporated herein by reference to Exhibit 10.2 to The Hartford’s Current Report on Form 8-K, filed May 24, 2005). | |||
*10.19 | The Hartford Deferred Stock Unit Plan, as amended on October 22, 2009 (incorporated by reference to Exhibit 10.02 to The Hartford’s Current Report on Form 8-K, filed October 22, 2009). | |||
*10.20 | Form of Award Letters for Deferred Unit and Restricted Units under The Hartford’s Deferred Stock Unit Plan (incorporated by reference to Exhibit 10.03 to The Hartford’s Quarterly Report on Form 10-Q for the third quarter ended September 30, 2009). | |||
*10.21 | Employment Agreement and amendment thereto dated November 14, 2008, between the Company and John C. Walters (incorporated herein by reference to Exhibit 10.1 to The Hartford’s Current Report on Form 8-K, filed November 14, 2008). |
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Exhibit No. | Description | |||
10.22 | Amended and Restated Five-Year Competitive Advance and Revolving Credit Facility, dated August 9, 2007, among The Hartford and the syndicate of lenders named therein, including Bank of America, N.A., as administrative agent, JPMorgan Chase Bank, N.A. and Citibank, N.A., as syndication agents, and Wachovia Bank, N.A., as documentation agent, as amended (incorporated herein by reference to Exhibit 10.1 to The Hartford’s Current Report on Form 8-K, filed August 10, 2007; Exhibit 10.1 to The Hartford’s Current Report on Form 8-K, filed July 14, 2008; and Exhibit 10.1 to The Hartford’s Current Report on Form 8-K, filed December 18, 2008). | |||
10.23 | Remarketing Agreement, dated as of May 9, 2006, between The Hartford and Merrill Lynch, Pierce, Fenner & Smith Incorporated, Goldman Sachs & Co., J.P. Morgan Securities Inc., and J.P. Morgan Chase Bank, N.A. (incorporated herein by reference to Exhibit 10.1 to The Hartford’s Current Report on Form 8-K, filed May 15, 2006). | |||
10.24 | Initial Remarketing Agreement, dated as of August 10, 2006, between The Hartford, and Merrill Lynch, Pierce, Fenner & Smith Incorporated, Morgan Stanley & Co. Incorporated, and J.P. Morgan Chase Bank, N.A. (incorporated herein by reference to Exhibit 10.1 to The Hartford’s Current Report on Form 8-K, filed August 11, 2006). | |||
10.25 | Form of Agreement among the Attorney General of the State of Connecticut and the Attorney General of New York and The Hartford dated May 10, 2006 (incorporated herein by reference to Exhibit 10.1 of the Hartford’s Current Report on Form 8-K, filed May 11, 2006). | |||
10.26 | Form of Order of the Securities and Exchange Commission dated November 8, 2006 (incorporated herein by reference to Exhibit 10.26 to The Hartford’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006). | |||
10.27 | Put Option Agreement, dated February 12, 2007, among The Hartford, Glen Meadow ABC Trust and LaSalle Bank, N.A. (incorporated herein by reference to Exhibit 10.1 to The Hartford’s Current Report on Form 8-K, filed February 16, 2007). | |||
10.28 | Form of Assurance of Discontinuance entered into by the New York Attorney General’s Office, the Illinois Attorney General’s Office and The Hartford, dated July 23, 2007 (incorporated herein by reference to Exhibit 10.1 to The Hartford’s Current Report on Form 8-K, filed July 24, 2007). | |||
10.29 | Investment Agreement, dated as of October 17, 2008 between The Hartford and Allianz SE (incorporated herein by reference to Exhibit 10.1 to The Hartford’s Current Report on Form 8-K, filed October 17, 2008). | |||
12.01 | Statement Re: Computation of Ratio of Earnings to Fixed Charges. † | |||
21.01 | Subsidiaries of The Hartford Financial Services Group, Inc. † | |||
23.01 | Consent of Deloitte & Touche LLP to the incorporation by reference into The Hartford’s Registration Statements on Form S-8 and Form S-3 of the report of Deloitte & Touche LLP contained in this Form 10-K regarding the audited financial statements is filed herewith. † | |||
24.01 | Power of Attorney. † | |||
31.01 | Certification of Liam E. McGee pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. † | |||
31.02 | Certification of Lizabeth H. Zlatkus pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. † | |||
32.01 | Certification of Liam E. McGee pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. † | |||
32.02 | Certification of Lizabeth H. Zlatkus pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. † | |||
99.01 | Certification of Liam E. McGee pursuant to Section 111(b)(4) of the Emergency Economic Stabilization Act of 2008, as Amended by the American Recovery and Reinvestment Act of 2009. † | |||
99.02 | Certification of Lizabeth H. Zlatkus pursuant to Section 111(b)(4) of the Emergency Economic Stabilization Act of 2008, as Amended by the American Recovery and Reinvestment Act of 2009. † |
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Table of Contents
Exhibit No. | Description | |||
101.INS | XBRL Instance Document. [1] | |||
101.SCH | XBRL Taxonomy Extension Schema. | |||
101.CAL | XBRL Taxonomy Extension Calculation Linkbase. | |||
101.DEF | XBRL Taxonomy Extension Definition Linkbase. | |||
101.LAB | XBRL Taxonomy Extension Label Linkbase. | |||
101.PRE | XBRL Taxonomy Extension Presentation Linkbase. |
[1] | Includes the following materials contained in this Annual Report on Form 10-K for the year ended December 31, 2009 formatted in XBRL (eXtensible Business Reporting Language) (i) the Consolidated Statements of Operations, (ii) the Consolidated Balance Sheets, (iii) the Consolidated Statements of Changes in Equity, (iv) the Consolidated Statements of Comprehensive Income (Loss), (v) the Consolidated Statements of Cash Flows, and (vi) the Notes to Consolidated Financial Statements, which is tagged as blocks of text. | |
* | Management contract, compensatory plan or arrangement. | |
† | Filed with the Securities and Exchange Commission as an exhibit to this report. |
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