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SECURITIES AND EXCHANGE COMMISSION
þ | QUARTERLY 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 | (I.R.S. Employer | |
incorporation or organization) | Identification No.) |
(Address of principal executive offices) (Zip Code)
(Registrant’s telephone number, including area code)
Large accelerated filerþ | Accelerated filero | Non-accelerated filero | Smaller reporting companyo | |||
(Do not check if a smaller reporting company) |
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2011
Item | Description | Page | ||||||
1. | ||||||||
5 | ||||||||
6 | ||||||||
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8 | ||||||||
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10 | ||||||||
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2. | 60 | |||||||
3. | 119 | |||||||
4. | 119 | |||||||
1. | 120 | |||||||
1A. | 122 | |||||||
2. | 122 | |||||||
6. | 122 | |||||||
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124 | ||||||||
Exhibit 10.01 | ||||||||
Exhibit 15.01 | ||||||||
Exhibit 31.01 | ||||||||
Exhibit 31.02 | ||||||||
Exhibit 32.01 | ||||||||
Exhibit 32.02 | ||||||||
EX-101 INSTANCE DOCUMENT | ||||||||
EX-101 SCHEMA DOCUMENT | ||||||||
EX-101 CALCULATION LINKBASE DOCUMENT | ||||||||
EX-101 LABELS LINKBASE DOCUMENT | ||||||||
EX-101 PRESENTATION LINKBASE DOCUMENT | ||||||||
EX-101 DEFINITION LINKBASE DOCUMENT |
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• | challenges related to the Company’s current operating environment, including continuing uncertainty about the strength and speed of the recovery in the United States and other key economies and the impact of governmental stimulus and austerity initiatives, sovereign credit concerns, including the potential consequences associated with downgrades to the credit ratings of debt issued by the United States government, and other developments on financial, commodity and credit markets and consumer spending and investment; |
• | the success of our initiatives relating to the realignment of our business in 2010 and plans to improve the profitability and long-term growth prospects of our key divisions, including through opportunistic acquisitions or divestitures, and the impact of regulatory or other constraints on our ability to complete these initiatives and deploy capital among our businesses as and when planned; |
• | market risks associated with our business, including changes in interest rates, credit spreads, equity prices, foreign exchange rates, and implied volatility levels, as well as continuing uncertainty in key sectors such as the global real estate market; |
• | volatility in our earnings resulting from our adjustment of our risk management program to emphasize protection of statutory surplus, and cash flows; |
• | 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 negative rating actions or downgrades in the Company’s financial strength and credit ratings or negative rating actions or downgrades 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 changes in 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, earthquake, or other natural or man-made disaster that may adversely affect our businesses and cost and availability of reinsurance; |
• | weather and other natural physical events, including the severity and frequency of storms, hail, winter storms, hurricanes and tropical storms, as well as climate change and its potential impact on weather patterns; |
• | 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; |
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• | the restrictions, oversight, costs and other consequences of being a savings and loan holding company, including from the supervision, regulation and examination by The Federal Reserve as the Company’s regulator and the Office of the Controller of the Currency as regulator of Federal Trust Bank; |
• | the cost and other effects of increased regulation as a result of the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”), which will, among other effects, vest a newly created Financial Services Oversight Council with the power to designate “systemically important” institutions, require central clearing of, and/or impose new margin and capital requirements on, derivatives transactions, and may affect our ability as a savings and loan holding company to manage our general account by limiting or eliminating investments in certain private equity and hedge funds; |
• | the potential effect of other 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 or changes in U.S. federal or other tax laws that affect the relative attractiveness of our investment 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; |
• | regulatory limitations on the ability of the Company and certain of its subsidiaries to declare and pay dividends; |
• | 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 risk that our framework for managing business risks may not be effective in mitigating material risk and loss; |
• | 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; |
• | unfavorable judicial or legislative developments; and |
• | other factors described in such forward-looking statements. |
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Item 1. | Financial Statements |
The Hartford Financial Services Group, Inc.
Hartford, Connecticut
August 3, 2011
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Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
(In millions, except for per share data) | 2011 | 2010 | 2011 | 2010 | ||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
Revenues | ||||||||||||||||
Earned premiums | $ | 3,545 | $ | 3,506 | $ | 7,064 | $ | 7,033 | ||||||||
Fee income | 1,219 | 1,186 | 2,428 | 2,366 | ||||||||||||
Net investment income (loss): | ||||||||||||||||
Securities available-for-sale and other | 1,104 | 1,148 | 2,212 | 2,202 | ||||||||||||
Equity securities, trading | (597 | ) | (2,649 | ) | 206 | (1,948 | ) | |||||||||
Total net investment income (loss) | 507 | (1,501 | ) | 2,418 | 254 | |||||||||||
Net realized capital gains (losses): | ||||||||||||||||
Total other-than-temporary impairment (“OTTI”) losses | (31 | ) | (292 | ) | (150 | ) | (632 | ) | ||||||||
OTTI losses recognized in other comprehensive income | 8 | 184 | 72 | 372 | ||||||||||||
Net OTTI losses recognized in earnings | (23 | ) | (108 | ) | (78 | ) | (260 | ) | ||||||||
Net realized capital gains (losses), excluding net OTTI losses recognized in earnings | 92 | 117 | (256 | ) | (5 | ) | ||||||||||
Total net realized capital gains (losses) | 69 | 9 | (334 | ) | (265 | ) | ||||||||||
Other revenues | 61 | 65 | 125 | 129 | ||||||||||||
Total revenues | 5,401 | 3,265 | 11,701 | 9,517 | ||||||||||||
Benefits, losses and expenses | ||||||||||||||||
Benefits, losses and loss adjustment expenses | 3,976 | 3,592 | 7,154 | 6,725 | ||||||||||||
Benefits, losses and loss adjustment expenses — returns credited on international variable annuities | (597 | ) | (2,649 | ) | 206 | (1,948 | ) | |||||||||
Amortization of deferred policy acquisition costs and present value of future profits | 835 | 935 | 1,499 | 1,582 | ||||||||||||
Insurance operating costs and other expenses | 1,224 | 1,111 | 2,344 | 2,226 | ||||||||||||
Interest expense | 128 | 132 | 256 | 252 | ||||||||||||
Total benefits, losses and expenses | 5,566 | 3,121 | 11,459 | 8,837 | ||||||||||||
Income (loss) from continuing operations before income taxes | (165 | ) | 144 | 242 | 680 | |||||||||||
Income tax expense (benefit) | (269 | ) | (31 | ) | (211 | ) | 185 | |||||||||
Income from continuing operations, net of tax | 104 | 175 | 453 | 495 | ||||||||||||
Income (loss) from discontinued operations, net of tax | (80 | ) | (99 | ) | 82 | (100 | ) | |||||||||
Net income | $ | 24 | $ | 76 | $ | 535 | $ | 395 | ||||||||
Preferred stock dividends and accretion of discount | 11 | 11 | 21 | 494 | ||||||||||||
Net income (loss) available to common shareholders | $ | 13 | $ | 65 | $ | 514 | $ | (99 | ) | |||||||
Income from continuing operations, net of tax, available to common shareholders per common share | ||||||||||||||||
Basic | $ | 0.21 | $ | 0.37 | $ | 0.97 | $ | — | ||||||||
Diluted | $ | 0.19 | $ | 0.34 | $ | 0.89 | $ | — | ||||||||
Net income (loss) available to common shareholders per common share | ||||||||||||||||
Basic | $ | 0.03 | $ | 0.15 | $ | 1.16 | $ | (0.24 | ) | |||||||
Diluted | $ | 0.03 | $ | 0.14 | $ | 1.06 | $ | (0.24 | ) | |||||||
Cash dividends declared per common share | $ | 0.10 | $ | 0.05 | $ | 0.20 | $ | 0.10 | ||||||||
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June 30, | December 31, | |||||||
(In millions, except for share and per share data) | 2011 | 2010 | ||||||
(Unaudited) | ||||||||
Assets | ||||||||
Investments: | ||||||||
Fixed maturities, available-for-sale, at fair value (amortized cost of $77,367 and $78,419) (includes variable interest entity assets, at fair value, of $177 and $406) | $ | 78,132 | $ | 77,820 | ||||
Fixed maturities, at fair value using the fair value option (includes variable interest entity assets of $333 and $323) | 1,227 | 649 | ||||||
Equity securities, trading, at fair value (cost of $32,774 and $33,899) | 32,278 | 32,820 | ||||||
Equity securities, available-for-sale, at fair value (cost of $1,070 and $1,013) | 1,081 | 973 | ||||||
Mortgage loans (net of allowances for loan losses of $171 and $155) | 5,304 | 4,489 | ||||||
Policy loans, at outstanding balance | 2,188 | 2,181 | ||||||
Limited partnerships and other alternative investments (includes variable interest entity assets of $7 and $14) | 2,028 | 1,918 | ||||||
Other investments | 973 | 1,617 | ||||||
Short-term investments | 8,861 | 8,528 | ||||||
Total investments | 132,072 | 130,995 | ||||||
Cash | 1,898 | 2,062 | ||||||
Premiums receivable and agents’ balances, net | 3,418 | 3,273 | ||||||
Reinsurance recoverables, net | 4,851 | 4,862 | ||||||
Deferred policy acquisition costs and present value of future profits | 9,584 | 9,857 | ||||||
Deferred income taxes, net | 3,362 | 3,725 | ||||||
Goodwill | 1,036 | 1,051 | ||||||
Property and equipment, net | 1,020 | 1,150 | ||||||
Other assets | 2,743 | 1,629 | ||||||
Separate account assets | 157,485 | 159,742 | ||||||
Total assets | $ | 317,469 | $ | 318,346 | ||||
Liabilities | ||||||||
Reserve for future policy benefits and unpaid losses and loss adjustment expenses | $ | 40,184 | $ | 39,598 | ||||
Other policyholder funds and benefits payable | 44,073 | 44,550 | ||||||
Other policyholder funds and benefits payable — international variable annuities | 32,237 | 32,793 | ||||||
Unearned premiums | 5,315 | 5,176 | ||||||
Short-term debt | 400 | 400 | ||||||
Long-term debt | 6,214 | 6,207 | ||||||
Consumer notes | 368 | 382 | ||||||
Other liabilities (includes variable interest entity liabilities of $439 and $394) | 9,518 | 9,187 | ||||||
Separate account liabilities | 157,485 | 159,742 | ||||||
Total liabilities | 295,794 | 298,035 | ||||||
Commitments and Contingencies (Note 9) | ||||||||
Stockholders’ Equity | ||||||||
Preferred stock, $0.01 par value — 50,000,000 shares authorized, 575,000 shares issued, liquidation preference $1,000 per share | 556 | 556 | ||||||
Common stock, $0.01 par value — 1,500,000,000 shares authorized, 469,754,771 shares issued | 5 | 5 | ||||||
Additional paid-in capital | 10,393 | 10,448 | ||||||
Retained earnings | 12,503 | 12,077 | ||||||
Treasury stock, at cost — 24,468,484 and 25,205,283 shares | (1,705 | ) | (1,774 | ) | ||||
Accumulated other comprehensive loss, net of tax | (77 | ) | (1,001 | ) | ||||
Total stockholders’ equity | 21,675 | 20,311 | ||||||
Total liabilities and stockholders’ equity | $ | 317,469 | $ | 318,346 | ||||
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Six Months Ended | ||||||||
June 30, | ||||||||
(In millions, except for share data) | 2011 | 2010 | ||||||
(Unaudited) | ||||||||
Preferred Stock, at beginning of period | $ | 556 | $ | 2,960 | ||||
Issuance of mandatory convertible preferred stock | — | 556 | ||||||
Accelerated accretion of discount from redemption of preferred stock issued to U.S. Treasury | — | 440 | ||||||
Redemption of preferred stock issued to the U.S. Treasury | — | (3,400 | ) | |||||
Preferred Stock, at end of period | 556 | 556 | ||||||
Common Stock | 5 | 5 | ||||||
Additional Paid-in Capital, at beginning of period | 10,448 | 8,985 | ||||||
Issuance of common shares under public offering | — | 1,599 | ||||||
Issuance of shares under incentive and stock compensation plans | (45 | ) | (108 | ) | ||||
Tax expense on employee stock options and awards | (10 | ) | (6 | ) | ||||
Additional Paid-in Capital, at end of period | 10,393 | 10,470 | ||||||
Retained Earnings, at beginning of period, before cumulative effect of accounting change, net of tax | 12,077 | 11,164 | ||||||
Cumulative effect of accounting change, net of tax | — | 26 | ||||||
Retained Earnings, at beginning of period, as adjusted | 12,077 | 11,190 | ||||||
Net income | 535 | 395 | ||||||
Accelerated accretion of discount from redemption of preferred stock issued to U.S. Treasury | — | (440 | ) | |||||
Dividends on preferred stock | (21 | ) | (54 | ) | ||||
Dividends declared on common stock | (88 | ) | (42 | ) | ||||
Retained Earnings, at end of period | 12,503 | 11,049 | ||||||
Treasury Stock, at Cost, at beginning of period | (1,774 | ) | (1,936 | ) | ||||
Issuance of shares under incentive and stock compensation plans from treasury stock | 76 | 129 | ||||||
Return of shares under incentive and stock compensation plans and other to treasury stock | (7 | ) | (3 | ) | ||||
Treasury Stock, at Cost, at end of period | (1,705 | ) | (1,810 | ) | ||||
Accumulated Other Comprehensive Loss, Net of Tax, at beginning of period | (1,001 | ) | (3,312 | ) | ||||
Total other comprehensive income | 924 | 1,933 | ||||||
Accumulated Other Comprehensive Loss, Net of Tax, at end of period | (77 | ) | (1,379 | ) | ||||
Noncontrolling Interest, at beginning of period | — | 29 | ||||||
Recognition of noncontrolling interest in other liabilities | — | (29 | ) | |||||
Noncontrolling Interest, at end of period | — | — | ||||||
Total Stockholders’ Equity | $ | 21,675 | $ | 18,891 | ||||
Preferred Shares Outstanding, at beginning of period (in thousands) | 575 | 3,400 | ||||||
Redemption of shares issued to the U.S. Treasury | — | (3,400 | ) | |||||
Issuance of mandatory convertible preferred shares | — | 575 | ||||||
Preferred Shares Outstanding, at end of period | 575 | 575 | ||||||
Common Shares Outstanding, at beginning of period (in thousands) | 444,549 | 383,007 | ||||||
Issuance of shares under public offering | — | 59,590 | ||||||
Issuance of shares under incentive and stock compensation plans | 972 | 1,639 | ||||||
Return of shares under incentive and stock compensation plans and other to treasury stock | (235 | ) | (125 | ) | ||||
Common Shares Outstanding, at end of period | 445,286 | 444,111 | ||||||
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Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
(In millions) | 2011 | 2010 | 2011 | 2010 | ||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
Comprehensive Income | ||||||||||||||||
Net income | $ | 24 | $ | 76 | $ | 535 | $ | 395 | ||||||||
Other comprehensive income (loss) | ||||||||||||||||
Change in net unrealized gain / loss on securities | 536 | 719 | 846 | 1,578 | ||||||||||||
Change in OTTI losses recognized in other comprehensive income | (4 | ) | 21 | 1 | 53 | |||||||||||
Change in net gain / loss on cash-flow hedging instruments | 71 | 163 | 3 | 229 | ||||||||||||
Change in foreign currency translation adjustments | 58 | 77 | 26 | 41 | ||||||||||||
Amortization of prior service cost and actuarial net losses included in net periodic benefit costs | 26 | 18 | 48 | 32 | ||||||||||||
Total other comprehensive income | 687 | 998 | 924 | 1,933 | ||||||||||||
Total comprehensive income | $ | 711 | $ | 1,074 | $ | 1,459 | $ | 2,328 | ||||||||
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Six Months Ended | ||||||||
June 30, | ||||||||
(In millions) | 2011 | 2010 | ||||||
(Unaudited) | ||||||||
Operating Activities | ||||||||
Net income | $ | 535 | $ | 395 | ||||
Adjustments to reconcile net income to net cash provided by operating activities | ||||||||
Amortization of deferred policy acquisition costs and present value of future profits | 1,499 | 1,589 | ||||||
Additions to deferred policy acquisition costs and present value of future profits | (1,306 | ) | (1,338 | ) | ||||
Change in reserve for future policy benefits and unpaid losses and loss adjustment expenses and unearned premiums | 651 | 200 | ||||||
Change in reinsurance recoverables | (33 | ) | 162 | |||||
Change in receivables and other assets | (339 | ) | 72 | |||||
Change in payables and accruals | 87 | (342 | ) | |||||
Change in accrued and deferred income taxes | (416 | ) | (128 | ) | ||||
Net realized capital losses | 215 | 265 | ||||||
Net disbursements from investment contracts related to policyholder funds — international variable annuities | (556 | ) | (2,137 | ) | ||||
Net decrease in equity securities, trading | 542 | 2,138 | ||||||
Depreciation and amortization | 384 | 315 | ||||||
Goodwill impairment | — | 153 | ||||||
Other operating activities, net | (299 | ) | (144 | ) | ||||
Net cash provided by operating activities | 964 | 1,200 | ||||||
Investing Activities | ||||||||
Proceeds from the sale/maturity/prepayment of: | ||||||||
Fixed maturities, available-for-sale | 18,076 | 23,292 | ||||||
Fixed maturities, fair value option | 1 | — | ||||||
Equity securities, available-for-sale | 122 | 158 | ||||||
Mortgage loans | 228 | 1,297 | ||||||
Partnerships | 106 | 249 | ||||||
Payments for the purchase of: | ||||||||
Fixed maturities, available-for-sale | (17,295 | ) | (23,796 | ) | ||||
Fixed maturities, fair value option | (534 | ) | — | |||||
Equity securities, available-for-sale | (192 | ) | (100 | ) | ||||
Mortgage loans | (1,075 | ) | (69 | ) | ||||
Partnerships | (128 | ) | (135 | ) | ||||
Proceeds from business sold | 278 | 130 | ||||||
Derivatives, net | (300 | ) | 584 | |||||
Change in policy loans, net | (7 | ) | (8 | ) | ||||
Change in payables for collateral under securities lending, net | — | (46 | ) | |||||
Other investing activities, net | (87 | ) | 44 | |||||
Net cash provided by (used for) investing activities | (807 | ) | 1,600 | |||||
Financing Activities | ||||||||
Deposits and other additions to investment and universal life-type contracts | 5,840 | 6,410 | ||||||
Withdrawals and other deductions from investment and universal life-type contracts | (11,701 | ) | (11,183 | ) | ||||
Net transfers from separate accounts related to investment and universal life-type contracts | 5,649 | 4,120 | ||||||
Proceeds from issuance of long-term debt | — | 1,090 | ||||||
Repayments at maturity for long-term debt and payments on capital lease obligations | — | (343 | ) | |||||
Repayments at maturity or settlement of consumer notes | (14 | ) | (684 | ) | ||||
Net proceeds from issuance of mandatory convertible preferred stock | — | 556 | ||||||
Net proceeds from issuance of common shares under public offering | — | 1,600 | ||||||
Redemption of preferred stock issued to the U.S. Treasury | — | (3,400 | ) | |||||
Proceeds from net issuance of shares under incentive and stock compensation plans, excess tax benefit and other | 2 | 14 | ||||||
Dividends paid on preferred stock | (21 | ) | (64 | ) | ||||
Dividends paid on common stock | (64 | ) | (40 | ) | ||||
Changes in bank deposits and payments on bank advances | (10 | ) | (43 | ) | ||||
Net cash provided by (used for) financing activities | (319 | ) | (1,967 | ) | ||||
Foreign exchange rate effect on cash | (2 | ) | 23 | |||||
Net increase (decrease) in cash | (164 | ) | 856 | |||||
Cash — beginning of period | 2,062 | 2,142 | ||||||
Cash — end of period | $ | 1,898 | $ | 2,998 | ||||
Supplemental Disclosure of Cash Flow Information | ||||||||
Income taxes paid | $ | 246 | $ | 248 | ||||
Interest paid | $ | 250 | $ | 233 |
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Tax expense (benefit) at U.S. Federal statutory rate | $ | (58 | ) | $ | 50 | $ | 85 | $ | 238 | |||||||
Tax-exempt interest | (38 | ) | (38 | ) | (75 | ) | (78 | ) | ||||||||
Dividends-received deduction | (90 | ) | (40 | ) | (127 | ) | (81 | ) | ||||||||
Valuation allowance | (89 | ) | — | (91 | ) | 86 | ||||||||||
Other | 6 | (3 | ) | (3 | ) | 20 | ||||||||||
Income tax expense (benefit) | $ | (269 | ) | $ | (31 | ) | $ | (211 | ) | $ | 185 | |||||
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
(In millions, except for per share data) | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Earnings | ||||||||||||||||
Income from continuing operations | ||||||||||||||||
Income from continuing operations, net of tax | $ | 104 | $ | 175 | $ | 453 | $ | 495 | ||||||||
Less: Preferred stock dividends and accretion of discount | 11 | 11 | 21 | 494 | ||||||||||||
Income from continuing operations, net of tax, available to common shareholders | 93 | 164 | 432 | 1 | ||||||||||||
Add: Dilutive effect of preferred stock dividends | — | — | — | — | ||||||||||||
Income from continuing operations, net of tax, available to common shareholders and assumed conversion of preferred shares | $ | 93 | $ | 164 | $ | 432 | $ | 1 | ||||||||
Income (loss) from discontinued operations, net of tax | $ | (80 | ) | $ | (99 | ) | $ | 82 | $ | (100 | ) | |||||
Net income | ||||||||||||||||
Net income | $ | 24 | $ | 76 | $ | 535 | $ | 395 | ||||||||
Less: Preferred stock dividends and accretion of discount | 11 | 11 | 21 | 494 | ||||||||||||
Net income (loss) available to common shareholders | 13 | 65 | 514 | (99 | ) | |||||||||||
Add: Dilutive effect of preferred stock dividends | — | — | 21 | — | ||||||||||||
Net income (loss) available to common shareholders and assumed conversion of preferred shares | $ | 13 | $ | 65 | $ | 535 | $ | (99 | ) | |||||||
Shares | ||||||||||||||||
Weighted average common shares outstanding, basic | 445.1 | 443.9 | 444.9 | 418.8 | ||||||||||||
Dilutive effect of warrants | 36.3 | 35.2 | 38.6 | — | ||||||||||||
Dilutive effect of stock compensation plans | 1.0 | 1.1 | 1.4 | — | ||||||||||||
Dilutive effect of mandatory convertible preferred shares | — | — | 20.7 | — | ||||||||||||
Weighted average shares outstanding and dilutive potential common shares | 482.4 | 480.2 | 505.6 | 418.8 | ||||||||||||
Earnings (loss) per common share | ||||||||||||||||
Basic | ||||||||||||||||
Income from continuing operations, net of tax, available to common shareholders | $ | 0.21 | $ | 0.37 | $ | 0.97 | $ | — | ||||||||
Income (loss) from discontinued operations, net of tax | (0.18 | ) | (0.22 | ) | 0.19 | (0.24 | ) | |||||||||
Net income (loss) available to common shareholders | $ | 0.03 | $ | 0.15 | $ | 1.16 | $ | (0.24 | ) | |||||||
Diluted | ||||||||||||||||
Income from continuing operations, net of tax, available to common shareholders | $ | 0.19 | $ | 0.34 | $ | 0.89 | $ | — | ||||||||
Income (loss) from discontinued operations, net of tax | (0.16 | ) | (0.20 | ) | 0.17 | (0.24 | ) | |||||||||
Net income (loss) available to common shareholders | $ | 0.03 | $ | 0.14 | $ | 1.06 | $ | (0.24 | ) | |||||||
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Property & Casualty Commercial | $ | 121 | $ | 270 | $ | 448 | $ | 476 | ||||||||
Group Benefits | 41 | 48 | 52 | 99 | ||||||||||||
Consumer Markets | (174 | ) | (13 | ) | (64 | ) | 43 | |||||||||
Global Annuity | 228 | (114 | ) | 278 | (34 | ) | ||||||||||
Life Insurance | 66 | 103 | 101 | 127 | ||||||||||||
Retirement Plans | 30 | 14 | 45 | 8 | ||||||||||||
Mutual Funds | 27 | 23 | 55 | 49 | ||||||||||||
Corporate and Other | (315 | ) | (255 | ) | (380 | ) | (373 | ) | ||||||||
Net income | $ | 24 | $ | 76 | $ | 535 | $ | 395 | ||||||||
15
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Earned premiums, fees, and other considerations | ||||||||||||||||
Property & Casualty Commercial | ||||||||||||||||
Workers’ compensation | $ | 685 | $ | 573 | $ | 1,350 | $ | 1,148 | ||||||||
Property | 134 | 137 | 269 | 277 | ||||||||||||
Automobile | 145 | 151 | 291 | 303 | ||||||||||||
Package business | 285 | 282 | 568 | 561 | ||||||||||||
Liability | 134 | 135 | 269 | 274 | ||||||||||||
Fidelity and surety | 54 | 57 | 109 | 113 | ||||||||||||
Professional liability | 80 | 80 | 159 | 163 | ||||||||||||
Total Property & Casualty Commercial | 1,517 | 1,415 | 3,015 | 2,839 | ||||||||||||
Group Benefits | ||||||||||||||||
Group disability | 516 | 502 | 993 | 1,033 | ||||||||||||
Group life and accident | 511 | 514 | 1,028 | 1,026 | ||||||||||||
Other | 49 | 58 | 99 | 117 | ||||||||||||
Total Group Benefits | 1,076 | 1,074 | 2,120 | 2,176 | ||||||||||||
Consumer Markets | ||||||||||||||||
Automobile | 657 | 711 | 1,329 | 1,424 | ||||||||||||
Homeowners | 282 | 284 | 566 | 567 | ||||||||||||
Total Consumer Markets [1] | 939 | 995 | 1,895 | 1,991 | ||||||||||||
Global Annuity | ||||||||||||||||
Variable annuity | 631 | 628 | 1,270 | 1,228 | ||||||||||||
Fixed / MVA and other annuity | 17 | 11 | 27 | 23 | ||||||||||||
Institutional investment products | (3 | ) | 4 | (2 | ) | 17 | ||||||||||
Total Global Annuity | 645 | 643 | 1,295 | 1,268 | ||||||||||||
Life Insurance | ||||||||||||||||
Variable life | 91 | 101 | 182 | 203 | ||||||||||||
Universal life | 109 | 104 | 215 | 209 | ||||||||||||
Term / other life | 12 | 11 | 24 | 24 | ||||||||||||
PPLI | 45 | 43 | 89 | 83 | ||||||||||||
Total Life Insurance | 257 | 259 | 510 | 519 | ||||||||||||
Retirement Plans | ||||||||||||||||
401(k) | 88 | 80 | 172 | 156 | ||||||||||||
Government plans | 13 | 9 | 26 | 20 | ||||||||||||
Total Retirement Plans | 101 | 89 | 198 | 176 | ||||||||||||
Mutual Funds | ||||||||||||||||
Non-proprietary | 161 | 152 | 323 | 303 | ||||||||||||
Proprietary | 14 | 15 | 30 | 31 | ||||||||||||
Total Mutual Funds | 175 | 167 | 353 | 334 | ||||||||||||
Corporate and Other | 54 | 50 | 106 | 96 | ||||||||||||
Total earned premiums, fees, and other considerations | 4,764 | 4,692 | 9,492 | 9,399 | ||||||||||||
Net investment income (loss): | ||||||||||||||||
Securities available-for-sale and other | 1,104 | 1,148 | 2,212 | 2,202 | ||||||||||||
Equity securities, trading | (597 | ) | (2,649 | ) | 206 | (1,948 | ) | |||||||||
Total net investment income (loss) | 507 | (1,501 | ) | 2,418 | 254 | |||||||||||
Net realized capital gains (losses) | 69 | 9 | (334 | ) | (265 | ) | ||||||||||
Other revenues | 61 | 65 | 125 | 129 | ||||||||||||
Total revenues | $ | 5,401 | $ | 3,265 | $ | 11,701 | $ | 9,517 | ||||||||
[1] | For the three months ended June 30, 2011 and 2010, AARP members accounted for earned premiums of $694 and $716, respectively. For the six months ended June 30, 2011 and 2010, AARP members accounted for earned premiums of $1.4 billion. |
16
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NOTES TO CONDENSED 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 securities, 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 fixed maturities 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 exchange traded equity securities, investment grade private placement securities and 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 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 below investment grade private placement securities. Also included in Level 3 are guaranteed product embedded and reinsurance derivatives and other complex derivative securities, including customized guaranteed minimum withdrawal benefit (“GMWB”) hedging derivatives (see Note 4a for further information on GMWB product related financial instruments), equity derivatives, long dated derivatives, swaps with optionality, certain complex credit derivatives and certain other liabilities. Because Level 3 fair values, by their nature, contain one or more significant unobservable 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. |
17
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2011 | ||||||||||||||||
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, AFS | ||||||||||||||||
ABS | $ | 3,297 | $ | — | $ | 2,845 | $ | 452 | ||||||||
CDOs | 2,575 | — | — | 2,575 | ||||||||||||
CMBS | 7,277 | — | 6,623 | 654 | ||||||||||||
Corporate | 41,629 | — | 39,519 | 2,110 | ||||||||||||
Foreign government/government agencies | 1,864 | — | 1,813 | 51 | ||||||||||||
States, municipalities and political subdivisions (“Municipal”) | 12,781 | — | 12,501 | 280 | ||||||||||||
RMBS | 5,214 | — | 4,100 | 1,114 | ||||||||||||
U.S. Treasuries | 3,495 | 411 | 3,084 | — | ||||||||||||
Total fixed maturities, AFS | 78,132 | 411 | 70,485 | 7,236 | ||||||||||||
Fixed maturities, FVO | 1,227 | — | 671 | 556 | ||||||||||||
Equity securities, trading | 32,278 | 2,227 | 30,051 | — | ||||||||||||
Equity securities, AFS | 1,081 | 377 | 604 | 100 | ||||||||||||
Derivative assets | ||||||||||||||||
Credit derivatives | (3 | ) | — | (17 | ) | 14 | ||||||||||
Equity derivatives | 3 | — | — | 3 | ||||||||||||
Foreign exchange derivatives | 428 | — | 428 | — | ||||||||||||
Interest rate derivatives | 23 | — | (25 | ) | 48 | |||||||||||
Other derivative contracts | 30 | — | — | 30 | ||||||||||||
Total derivative assets [1] | 481 | — | 386 | 95 | ||||||||||||
Short-term investments | 8,861 | 327 | 8,534 | — | ||||||||||||
Separate account assets [2] | 153,140 | 116,044 | 36,028 | 1,068 | ||||||||||||
Total assets accounted for at fair value on a recurring basis | $ | 275,200 | $ | 119,386 | $ | 146,759 | $ | 9,055 | ||||||||
Percentage of level to total | 100 | % | 43 | % | 54 | % | 3 | % | ||||||||
Liabilities accounted for at fair value on a recurring basis | ||||||||||||||||
Other policyholder funds and benefits payable | ||||||||||||||||
Equity linked notes | $ | (10 | ) | $ | — | $ | — | $ | (10 | ) | ||||||
Derivative liabilities | ||||||||||||||||
Credit derivatives | (478 | ) | — | (62 | ) | (416 | ) | |||||||||
Equity derivatives | 3 | — | — | 3 | ||||||||||||
Foreign exchange derivatives | 214 | — | 214 | — | ||||||||||||
Interest rate derivatives | (254 | ) | — | (213 | ) | (41 | ) | |||||||||
Total derivative liabilities [3] | (515 | ) | — | (61 | ) | (454 | ) | |||||||||
Other liabilities | (44 | ) | — | — | (44 | ) | ||||||||||
Consumer notes [4] | (4 | ) | — | — | (4 | ) | ||||||||||
Total liabilities accounted for at fair value on a recurring basis | $ | (573 | ) | $ | — | $ | (61 | ) | $ | (512 | ) | |||||
[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 June 30, 2011, $410 of a cash collateral liability was netted against the derivative asset value in the Condensed Consolidated Balance Sheet and is excluded from the table above. See footnote 3 below for derivative liabilities. | |
[2] | As of June 30, 2011, excludes approximately $4 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. |
18
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 2010 | ||||||||||||||||
Quoted Prices in | ||||||||||||||||
Active Markets | Significant | Significant | ||||||||||||||
for Identical | Observable | Unobservable | ||||||||||||||
Assets | Inputs | Inputs | ||||||||||||||
Total | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Assets accounted for at fair value on a recurring basis | ||||||||||||||||
Fixed maturities, AFS | ||||||||||||||||
ABS | $ | 2,889 | $ | — | $ | 2,412 | $ | 477 | ||||||||
CDOs | 2,611 | — | 30 | 2,581 | ||||||||||||
CMBS | 7,917 | — | 7,228 | 689 | ||||||||||||
Corporate | 39,884 | — | 37,755 | 2,129 | ||||||||||||
Foreign government/government agencies | 1,683 | — | 1,627 | 56 | ||||||||||||
Municipal | 12,124 | — | 11,852 | 272 | ||||||||||||
RMBS | 5,683 | — | 4,398 | 1,285 | ||||||||||||
U.S. Treasuries | 5,029 | 434 | 4,595 | — | ||||||||||||
Total fixed maturities, AFS | 77,820 | 434 | 69,897 | 7,489 | ||||||||||||
Fixed maturities, FVO | 649 | — | 127 | 522 | ||||||||||||
Equity securities, trading | 32,820 | 2,279 | 30,541 | — | ||||||||||||
Equity securities, AFS | 973 | 298 | 521 | 154 | ||||||||||||
Derivative assets | ||||||||||||||||
Credit derivatives | 3 | — | (18 | ) | 21 | |||||||||||
Equity derivatives | 2 | — | — | 2 | ||||||||||||
Foreign exchange derivatives | 868 | — | 868 | — | ||||||||||||
Interest rate derivatives | (106 | ) | — | (70 | ) | (36 | ) | |||||||||
Other derivative contracts | 32 | — | — | 32 | ||||||||||||
Total derivative assets [1] | 799 | — | 780 | 19 | ||||||||||||
Short-term investments | 8,528 | 541 | 7,987 | — | ||||||||||||
Separate account assets [2] | 153,727 | 116,717 | 35,763 | 1,247 | ||||||||||||
Total assets accounted for at fair value on a recurring basis | $ | 275,316 | $ | 120,269 | $ | 145,616 | $ | 9,431 | ||||||||
Percentage of level to total | 100 | % | 44 | % | 53 | % | 3 | % | ||||||||
Liabilities accounted for at fair value on a recurring basis | ||||||||||||||||
Other policyholder funds and benefits payable | ||||||||||||||||
Equity linked notes | $ | (9 | ) | $ | — | $ | — | $ | (9 | ) | ||||||
Derivative liabilities | ||||||||||||||||
Credit derivatives | (482 | ) | — | (71 | ) | (411 | ) | |||||||||
Equity derivatives | 2 | — | — | 2 | ||||||||||||
Foreign exchange derivatives | (34 | ) | — | (34 | ) | — | ||||||||||
Interest rate derivatives | (266 | ) | — | (249 | ) | (17 | ) | |||||||||
Total derivative liabilities [3] | (780 | ) | — | (354 | ) | (426 | ) | |||||||||
Other liabilities | (37 | ) | — | — | (37 | ) | ||||||||||
Consumer notes [4] | (5 | ) | — | — | (5 | ) | ||||||||||
Total liabilities accounted for at fair value on a recurring basis | $ | (831 | ) | $ | — | $ | (354 | ) | $ | (477 | ) | |||||
[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, 2010, $968 of cash collateral liability was netted against the derivative asset value in the Condensed Consolidated Balance Sheet and is excluded from the table above. See footnote 3 below for derivative liabilities. | |
[2] | As of December 31, 2010, excludes approximately $6 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. |
19
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
20
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Level 2 | The fair values of most of the Company’s Level 2 investments are determined by management after considering prices received from third party pricing services. These investments include most fixed maturities and preferred stocks, including those reported in separate account assets. |
• | ABS, CDOs, CMBS and RMBS— Primary inputs also include monthly payment information, collateral performance, which varies by vintage year and includes delinquency rates, collateral valuation loss severity rates, collateral refinancing assumptions, credit default swap indices and, for ABS and RMBS, estimated prepayment rates. |
• | Corporates— Primary inputs also include observations of credit default swap curves related to the issuer. |
• | Foreign government/government agencies— Primary inputs also include observations of credit default swap curves related to the issuer and political events in emerging markets. |
• | Municipals— Primary inputs also include Municipal Securities Rulemaking Board reported trades and material event notices, and issuer financial statements. |
• | Short-term investments— Primary inputs also include material event notices and new issue money market rates. |
• | Equity securities, trading— Consist of investments in mutual funds. Primary inputs include net asset values obtained from third party pricing services. |
• | Credit derivatives — Significant inputs primarily include the swap yield curve and credit curves. |
• | Foreign exchange derivatives —Significant inputs primarily include the swap yield curve, currency spot and forward rates, and cross currency basis curves. |
• | Interest rate derivatives —Significant input is primarily the swap yield curve. |
21
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Level 3 | Most of the Company’s securities classified as Level 3 are valued based on brokers’ prices. Certain long-dated securities are priced based on third party pricing services, including municipal securities and foreign government/government agencies, as well as bank loans and below investment grade private placement securities. Primary inputs for these long-dated securities are consistent with the typical inputs used in Level 1 and Level 2 measurements noted above, but include benchmark interest rate or credit spread assumptions that are not observable in the marketplace. Also included in Level 3 are certain derivative instruments that either have significant unobservable inputs or are valued based on broker quotations. Significant inputs for these derivative contracts primarily include the typical inputs used in the Level 1 and Level 2 measurements noted above, but also may include the following: |
• | Credit derivatives —Significant unobservable inputs may include credit correlation and swap yield curve and credit curve extrapolation beyond observable limits. |
• | Equity derivatives —Significant unobservable inputs may include equity volatility. |
• | Interest rate contracts —Significant unobservable inputs may include swap yield curve extrapolation beyond observable limits and interest rate volatility. |
22
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Fixed Maturities, AFS | ||||||||||||||||||||||||||||||||
Foreign | Total Fixed | |||||||||||||||||||||||||||||||
govt./govt. | Maturities, | |||||||||||||||||||||||||||||||
Assets | ABS | CDOs | CMBS | Corporate | agencies | Municipal | RMBS | AFS | ||||||||||||||||||||||||
Fair value as of March 31, 2011 | $ | 446 | $ | 2,674 | $ | 741 | $ | 2,096 | $ | 63 | $ | 276 | $ | 1,124 | $ | 7,420 | ||||||||||||||||
Total realized/unrealized gains (losses) | ||||||||||||||||||||||||||||||||
Included in net income [1] | (1 | ) | — | 13 | (6 | ) | — | — | — | 6 | ||||||||||||||||||||||
Included in OCI [2] | 17 | 10 | 34 | 27 | 1 | 9 | (16 | ) | 82 | |||||||||||||||||||||||
Purchases | — | — | — | 35 | — | — | 25 | 60 | ||||||||||||||||||||||||
Settlements | (7 | ) | (43 | ) | (20 | ) | (42 | ) | (1 | ) | — | (33 | ) | (146 | ) | |||||||||||||||||
Sales | (2 | ) | (66 | ) | (193 | ) | (61 | ) | (3 | ) | (2 | ) | — | (327 | ) | |||||||||||||||||
Transfers into Level 3 [3] | 19 | — | 79 | 78 | — | — | 14 | 190 | ||||||||||||||||||||||||
Transfers out of Level 3 [3] | (20 | ) | — | — | (17 | ) | (9 | ) | (3 | ) | — | (49 | ) | |||||||||||||||||||
Fair value as of June 30, 2011 | $ | 452 | $ | 2,575 | $ | 654 | $ | 2,110 | $ | 51 | $ | 280 | $ | 1,114 | $ | 7,236 | ||||||||||||||||
Changes in unrealized gains (losses) included in net income related to financial instruments still held at June 30, 2011 [1] | $ | (1 | ) | $ | — | $ | 13 | $ | (6 | ) | $ | — | $ | — | $ | — | $ | 6 | ||||||||||||||
Freestanding Derivatives [4] | ||||||||||||||||||||||||||||||||
Fixed | Equity | Interest | Other | Total Free- | ||||||||||||||||||||||||||||
Maturities | Securities, | Credit | Equity | Rate | Derivative | Standing | Separate | |||||||||||||||||||||||||
Assets | FVO | AFS | Derivatives | Derivatives | Derivatives | Contracts | Derivatives | Accounts | ||||||||||||||||||||||||
Fair value as of March 31, 2011 | $ | 579 | $ | 80 | $ | (382 | ) | $ | 5 | $ | 9 | $ | 31 | $ | (337 | ) | $ | 1,207 | ||||||||||||||
Total realized/unrealized gains (losses) | ||||||||||||||||||||||||||||||||
Included in net income [1] | (22 | ) | — | (17 | ) | 1 | (2 | ) | (1 | ) | (19 | ) | 5 | |||||||||||||||||||
Included in OCI [2] | — | 2 | — | — | — | — | — | — | ||||||||||||||||||||||||
Purchases | — | 24 | — | — | — | — | — | (94 | ) | |||||||||||||||||||||||
Settlements | (1 | ) | — | (3 | ) | — | — | — | (3 | ) | — | |||||||||||||||||||||
Sales | — | (1 | ) | — | — | — | — | — | (22 | ) | ||||||||||||||||||||||
Transfers into Level 3 [3] | — | — | — | — | — | — | — | 3 | ||||||||||||||||||||||||
Transfers out of Level 3 [3] | — | (5 | ) | — | — | — | — | — | (31 | ) | ||||||||||||||||||||||
Fair value as of June 30, 2011 | $ | 556 | $ | 100 | $ | (402 | ) | $ | 6 | $ | 7 | $ | 30 | $ | (359 | ) | $ | 1,068 | ||||||||||||||
Changes in unrealized gains (losses) included in net income related to financial instruments still held at June 30, 2011 [1] | $ | (22 | ) | $ | — | $ | (19 | ) | $ | 1 | $ | (2 | ) | $ | (1 | ) | $ | (21 | ) | $ | 4 | |||||||||||
Liabilities | Equity Linked Notes | Other Liabilities | Consumer Notes | |||||||||
Fair value as of March 31, 2011 | $ | (10 | ) | $ | (51 | ) | $ | (5 | ) | |||
Total realized/unrealized gains (losses) | ||||||||||||
Included in net income [1] | — | 7 | 1 | |||||||||
Fair value as of June 30, 2011 | $ | (10 | ) | $ | (44 | ) | $ | (4 | ) | |||
Changes in unrealized gains (losses) included in net income related to financial instruments still held at June 30, 2011 [1] | $ | — | $ | 7 | $ | 1 | ||||||
23
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Fixed Maturities, AFS | ||||||||||||||||||||||||||||||||
Foreign | Total Fixed | |||||||||||||||||||||||||||||||
govt./govt. | Maturities, | |||||||||||||||||||||||||||||||
Assets | ABS | CDOs | CMBS | Corporate | agencies | Municipal | RMBS | AFS | ||||||||||||||||||||||||
Fair value as of January 1, 2011 | $ | 477 | $ | 2,581 | $ | 689 | $ | 2,129 | $ | 56 | $ | 272 | $ | 1,285 | $ | 7,489 | ||||||||||||||||
Total realized/unrealized gains (losses) | ||||||||||||||||||||||||||||||||
Included in net income [1] | (6 | ) | (15 | ) | 11 | (28 | ) | — | — | (9 | ) | (47 | ) | |||||||||||||||||||
Included in OCI [2] | 37 | 123 | 147 | 19 | 1 | 9 | 25 | 361 | ||||||||||||||||||||||||
Purchases | — | — | — | 52 | 2 | — | 25 | 79 | ||||||||||||||||||||||||
Settlements | (18 | ) | (78 | ) | (30 | ) | (73 | ) | (2 | ) | — | (67 | ) | (268 | ) | |||||||||||||||||
Sales | (2 | ) | (66 | ) | (315 | ) | (134 | ) | (5 | ) | (2 | ) | (16 | ) | (540 | ) | ||||||||||||||||
Transfers into Level 3 [3] | 68 | 30 | 152 | 273 | 11 | 4 | 14 | 552 | ||||||||||||||||||||||||
Transfers out of Level 3 [3] | (104 | ) | — | — | (128 | ) | (12 | ) | (3 | ) | (143 | ) | (390 | ) | ||||||||||||||||||
Fair value as of June 30, 2011 | $ | 452 | $ | 2,575 | $ | 654 | $ | 2,110 | $ | 51 | $ | 280 | $ | 1,114 | $ | 7,236 | ||||||||||||||||
Changes in unrealized gains (losses) included in net income related to financial instruments still held at June 30, 2011 [1] | $ | (6 | ) | $ | (15 | ) | $ | 11 | $ | (28 | ) | $ | — | $ | — | $ | (9 | ) | $ | (47 | ) | |||||||||||
Freestanding Derivatives [4] | ||||||||||||||||||||||||||||||||
Fixed | Equity | Interest | Other | Total Free- | ||||||||||||||||||||||||||||
Maturities | Securities, | Credit | Equity | Rate | Derivative | Standing | Separate | |||||||||||||||||||||||||
Assets | FVO | AFS | Derivatives | Derivatives | Derivatives | Contracts | Derivatives | Accounts | ||||||||||||||||||||||||
Fair value as of January 1, 2011 | $ | 522 | $ | 154 | $ | (390 | ) | $ | 4 | $ | (53 | ) | $ | 32 | $ | (407 | ) | $ | 1,247 | |||||||||||||
Total realized/unrealized gains (losses) | ||||||||||||||||||||||||||||||||
Included in net income [1] | 36 | (10 | ) | (6 | ) | 2 | (5 | ) | (2 | ) | (11 | ) | 24 | |||||||||||||||||||
Included in OCI [2] | — | 1 | — | — | — | — | — | — | ||||||||||||||||||||||||
Purchases | — | 37 | 1 | — | 64 | — | 65 | 34 | ||||||||||||||||||||||||
Settlements | (2 | ) | — | (7 | ) | — | 1 | — | (6 | ) | — | |||||||||||||||||||||
Sales | — | (1 | ) | — | — | — | — | — | (169 | ) | ||||||||||||||||||||||
Transfers into Level 3 [3] | — | — | — | — | — | — | — | 12 | ||||||||||||||||||||||||
Transfers out of Level 3 [3] | — | (81 | ) | — | — | — | — | — | (80 | ) | ||||||||||||||||||||||
Fair value as of June 30, 2011 | $ | 556 | $ | 100 | $ | (402 | ) | $ | 6 | $ | 7 | $ | 30 | $ | (359 | ) | $ | 1,068 | ||||||||||||||
Changes in unrealized gains (losses) included in net income related to financial instruments still held at June 30, 2011 [1] | $ | 36 | $ | (10 | ) | $ | (8 | ) | $ | 2 | $ | (3 | ) | $ | (2 | ) | $ | (11 | ) | $ | 1 | |||||||||||
Liabilities | Equity Linked Notes | Other Liabilities | Consumer Notes | |||||||||
Fair value as of January 1, 2011 | $ | (9 | ) | $ | (37 | ) | $ | (5 | ) | |||
Total realized/unrealized gains (losses) | ||||||||||||
Included in net income [1] | — | (7 | ) | 1 | ||||||||
Settlements | (1 | ) | — | — | ||||||||
Fair value as of June 30, 2011 | $ | (10 | ) | $ | (44 | ) | $ | (4 | ) | |||
Changes in unrealized gains (losses) included in net income related to financial instruments still held at June 30, 2011 [1] | $ | — | $ | (7 | ) | $ | 1 | |||||
24
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Fixed Maturities, AFS | ||||||||||||||||||||||||||||||||
Foreign | Total Fixed | |||||||||||||||||||||||||||||||
govt./ govt. | Maturities, | |||||||||||||||||||||||||||||||
Assets | ABS | CDOs | CMBS | Corporate | agencies | Municipal | RMBS | AFS | ||||||||||||||||||||||||
Fair value as of March 31, 2010 | $ | 533 | $ | 2,749 | $ | 442 | $ | 8,612 | $ | 59 | $ | 322 | $ | 1,174 | $ | 13,891 | ||||||||||||||||
Total realized/unrealized gains (losses) | ||||||||||||||||||||||||||||||||
Included in net income [1] | (3 | ) | (22 | ) | (42 | ) | 6 | — | — | (21 | ) | (82 | ) | |||||||||||||||||||
Included in OCI [2] | 15 | 105 | 189 | 103 | — | 16 | 75 | 503 | ||||||||||||||||||||||||
Purchases, issuances, and settlements | (13 | ) | (48 | ) | (17 | ) | 61 | (2 | ) | (21 | ) | 238 | 198 | |||||||||||||||||||
Transfers into Level 3 [3] | 28 | 11 | 139 | 174 | — | — | — | 352 | ||||||||||||||||||||||||
Transfers out of Level 3 [3] | (12 | ) | (17 | ) | (59 | ) | (140 | ) | (6 | ) | — | — | (234 | ) | ||||||||||||||||||
Fair value as of June 30, 2010 | $ | 548 | $ | 2,778 | $ | 652 | $ | 8,816 | $ | 51 | $ | 317 | $ | 1,466 | $ | 14,628 | ||||||||||||||||
Changes in unrealized gains (losses) included in net income related to financial instruments still held at June 30, 2010 [1] | $ | (4 | ) | $ | (28 | ) | $ | (39 | ) | $ | 2 | $ | — | $ | — | $ | (16 | ) | $ | (85 | ) | |||||||||||
Freestanding Derivatives [4] | ||||||||||||||||||||||||||||
Equity | Interest | Other | Total Free- | |||||||||||||||||||||||||
Securities, | Credit | Equity | Rate | Derivative | Standing | Separate | ||||||||||||||||||||||
Assets | AFS | Derivatives | Derivatives | Derivatives | Contracts | Derivatives | Accounts | |||||||||||||||||||||
Fair value as of March 31, 2010 | $ | 65 | $ | (491 | ) | $ | (1 | ) | $ | (6 | ) | $ | 35 | $ | (463 | ) | $ | 955 | ||||||||||
Total realized/unrealized gains (losses) | ||||||||||||||||||||||||||||
Included in net income [1] | (1 | ) | (47 | ) | 1 | 1 | — | (45 | ) | (2 | ) | |||||||||||||||||
Included in OCI [2] | 2 | — | — | — | — | — | — | |||||||||||||||||||||
Purchases, issuances, and settlements | 8 | 5 | — | (44 | ) | — | (39 | ) | 5 | |||||||||||||||||||
Transfers into Level 3 [3] | 6 | — | — | — | — | — | (2 | ) | ||||||||||||||||||||
Transfers out of Level 3 [3] | — | — | — | — | — | — | (19 | ) | ||||||||||||||||||||
Fair value as of June 30, 2010 | $ | 80 | $ | (533 | ) | $ | — | $ | (49 | ) | $ | 35 | $ | (547 | ) | $ | 937 | |||||||||||
Changes in unrealized gains (losses) included in net income related to financial instruments still held at June 30, 2010 [1] | $ | (4 | ) | $ | (47 | ) | $ | 1 | $ | (20 | ) | $ | — | $ | (66 | ) | $ | 9 | ||||||||||
Other Policyholder Funds and Benefits Payable | ||||||||||||||||||||
Total Other | ||||||||||||||||||||
Institutional | Equity Linked | Policyholder Funds | ||||||||||||||||||
Liabilities | Notes | Notes | and Benefits Payable | Other Liabilities | Consumer Notes | |||||||||||||||
Fair value as of March 31, 2010 | $ | (7 | ) | $ | (9 | ) | $ | (16 | ) | $ | (22 | ) | $ | (5 | ) | |||||
Total realized/unrealized gains (losses) | ||||||||||||||||||||
Included in net income [1] | 9 | 2 | 11 | 6 | 1 | |||||||||||||||
Fair Value as of June 30, 2010 | $ | 2 | $ | (7 | ) | $ | (5 | ) | $ | (16 | ) | $ | (4 | ) | ||||||
Changes in unrealized gains (losses) included in net income related to financial instruments still held at June 30, 2010 [1] | $ | 9 | $ | 2 | $ | 11 | $ | — | $ | 1 | ||||||||||
25
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Fixed Maturities, AFS | ||||||||||||||||||||||||||||||||
Foreign | Total Fixed | |||||||||||||||||||||||||||||||
govt./ govt. | Maturities, | |||||||||||||||||||||||||||||||
Assets | ABS | CDOs | CMBS | Corporate | agencies | Municipal | RMBS | AFS | ||||||||||||||||||||||||
Fair value as of January 1, 2010 | $ | 580 | $ | 2,835 | $ | 307 | $ | 8,027 | $ | 93 | $ | 262 | $ | 1,153 | $ | 13,257 | ||||||||||||||||
Total realized/unrealized gains (losses) | ||||||||||||||||||||||||||||||||
Included in net income [1] | (3 | ) | (85 | ) | (114 | ) | 8 | — | — | (34 | ) | (228 | ) | |||||||||||||||||||
Included in OCI [2] | 43 | 320 | 275 | 232 | 2 | 34 | 164 | 1,070 | ||||||||||||||||||||||||
Purchases, issuances, and settlements | (23 | ) | (67 | ) | (23 | ) | 277 | (8 | ) | 25 | 206 | 387 | ||||||||||||||||||||
Transfers into Level 3 [3] | 28 | 27 | 266 | 510 | 6 | — | — | 837 | ||||||||||||||||||||||||
Transfers out of Level 3 [3] | (77 | ) | (252 | ) | (59 | ) | (238 | ) | (42 | ) | (4 | ) | (23 | ) | (695 | ) | ||||||||||||||||
Fair value as of June 30, 2010 | $ | 548 | $ | 2,778 | $ | 652 | $ | 8,816 | $ | 51 | $ | 317 | $ | 1,466 | $ | 14,628 | ||||||||||||||||
Changes in unrealized gains (losses) included in net income related to financial instruments still held at June 30, 2010 [1] | $ | (4 | ) | $ | (91 | ) | $ | (110 | ) | $ | 2 | $ | — | $ | — | $ | (29 | ) | $ | (232 | ) | |||||||||||
Freestanding Derivatives [4] | ||||||||||||||||||||||||||||
Equity | Interest | Other | Total Free- | |||||||||||||||||||||||||
Securities, | Credit | Equity | Rate | Derivative | Standing | Separate | ||||||||||||||||||||||
Assets | AFS | Derivatives | Derivatives | Derivatives | Contracts | Derivatives | Accounts | |||||||||||||||||||||
Fair value as of January 1, 2010 | $ | 58 | $ | (228 | ) | $ | (2 | ) | $ | 5 | $ | 36 | $ | (189 | ) | $ | 962 | |||||||||||
Total realized/unrealized gains (losses) | ||||||||||||||||||||||||||||
Included in net income [1] | (2 | ) | (20 | ) | 2 | 1 | (1 | ) | (18 | ) | 16 | |||||||||||||||||
Included in OCI [2] | 9 | — | — | — | — | — | — | |||||||||||||||||||||
Purchases, issuances, and settlements | 9 | 5 | — | (44 | ) | — | (39 | ) | 82 | |||||||||||||||||||
Transfers into Level 3 [3] | 6 | (290 | ) | — | — | — | (290 | ) | 4 | |||||||||||||||||||
Transfers out of Level 3 [3] | — | — | — | (11 | ) | — | (11 | ) | (127 | ) | ||||||||||||||||||
Fair value as of June 30, 2010 | $ | 80 | $ | (533 | ) | $ | — | $ | (49 | ) | $ | 35 | $ | (547 | ) | $ | 937 | |||||||||||
Changes in unrealized gains (losses) included in net income related to financial instruments still held at June 30, 2010 [1] | $ | (5 | ) | $ | (20 | ) | $ | 2 | $ | (20 | ) | $ | (1 | ) | $ | (39 | ) | $ | 13 | |||||||||
Other Policyholder Funds and Benefits Payable | ||||||||||||||||||||
Total Other | ||||||||||||||||||||
Institutional | Equity Linked | Policyholder Funds | ||||||||||||||||||
Liabilities | Notes | Notes | and Benefits Payable | Other Liabilities | Consumer Notes | |||||||||||||||
Fair value as of January 1, 2010 | $ | (2 | ) | $ | (10 | ) | $ | (12 | ) | $ | — | $ | (5 | ) | ||||||
Total realized/unrealized gains (losses) | ||||||||||||||||||||
Included in net income [1] | 4 | 3 | 7 | (5 | ) | 1 | ||||||||||||||
Transfers into Level 3 [3] | — | — | — | (11 | ) | — | ||||||||||||||
Fair Value as of June 30, 2010 | $ | 2 | $ | (7 | ) | $ | (5 | ) | $ | (16 | ) | $ | (4 | ) | ||||||
Changes in unrealized gains (losses) included in net income related to financial instruments still held at June 30, 2010 [1] | $ | 4 | $ | 3 | $ | 7 | $ | — | $ | 1 | ||||||||||
[1] | All amounts in these rows are reported in net realized capital gains/losses. 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. All amounts are before income taxes and amortization of deferred policy acquisition costs and present value of future profits (“DAC”). | |
[2] | All amounts are before income taxes and amortization of DAC. | |
[3] | Transfers in and/or (out) of Level 3 are primarily attributable to the availability of market observable information and the re-evaluation of the observability of pricing inputs. | |
[4] | Derivative instruments are reported in this table on a net basis for asset/(liability) positions and reported in the Condensed Consolidated Balance Sheet in other investments and other liabilities. |
26
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
(Before-tax) | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Assets | ||||||||||||||||
Fixed maturities, FVO | ||||||||||||||||
Corporate | $ | 2 | $ | 1 | $ | 14 | $ | 2 | ||||||||
CRE CDOs | (25 | ) | (4 | ) | 21 | (4 | ) | |||||||||
Foreign government | 17 | — | 11 | — | ||||||||||||
Other liabilities | ||||||||||||||||
Credit-linked notes | 7 | 6 | (7 | ) | (5 | ) | ||||||||||
Total realized capital gains (losses) | $ | 1 | $ | 3 | $ | 39 | $ | (7 | ) | |||||||
Assets | June 30, 2011 | December 31, 2010 | ||||||
Fixed maturities, FVO | ||||||||
ABS | $ | 65 | $ | 65 | ||||
CRE CDOs | 290 | 270 | ||||||
Corporate | 267 | 250 | ||||||
Foreign government | 605 | 64 | ||||||
Total fixed maturities, FVO | $ | 1,227 | $ | 649 | ||||
Other liabilities | ||||||||
Credit-linked notes [1] | $ | 44 | $ | 37 | ||||
[1] | As of June 30, 2011 and December 31, 2010, the outstanding principal balance of the notes was $243. |
27
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2011 | December 31, 2010 | |||||||||||||||
Carrying | Fair | Carrying | Fair | |||||||||||||
Amount | Value | Amount | Value | |||||||||||||
Assets | ||||||||||||||||
Mortgage loans | $ | 5,304 | $ | 5,393 | $ | 4,489 | $ | 4,524 | ||||||||
Policy loans | 2,188 | 2,318 | 2,181 | 2,294 | ||||||||||||
Liabilities | ||||||||||||||||
Other policyholder funds and benefits payable [1] | $ | 10,837 | $ | 11,141 | $ | 11,155 | $ | 11,383 | ||||||||
Senior notes [2] | 4,880 | 5,167 | 4,880 | 5,072 | ||||||||||||
Junior subordinated debentures [2] | 1,734 | 2,634 | 1,727 | 2,596 | ||||||||||||
Consumer notes [3] | 364 | 377 | 377 | 392 |
[1] | Excludes guarantees on variable annuities, group accident and health and universal life insurance contracts, including corporate owned life insurance. | |
[2] | Included in long-term debt in the Condensed Consolidated Balance Sheets, except for current maturities, which are included in short-term debt. | |
[3] | Excludes amounts carried at fair value and included in disclosures above. |
• | 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. |
• | Fair value for policy loans and consumer notes were estimated using discounted cash flow calculations using current interest rates. |
• | Fair values for other policyholder funds and benefits payable, not carried at fair value, are determined by estimating future cash flows, discounted at the current market rate. |
• | Fair values for senior notes and junior subordinated debentures are based primarily on market quotations from independent third-party pricing services. |
28
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2011 | ||||||||||||||||
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 | $ | 144 | $ | — | $ | (33 | ) | $ | 177 | |||||||
Macro hedge program | 265 | — | 88 | 177 | ||||||||||||
Reinsurance recoverable for U.S. GMWB | 237 | — | — | 237 | ||||||||||||
Total assets accounted for at fair value on a recurring basis | $ | 646 | $ | — | $ | 55 | $ | 591 | ||||||||
Liabilities accounted for at fair value on a recurring basis | ||||||||||||||||
Other policyholder funds and benefits payable | ||||||||||||||||
U.S. guaranteed withdrawal benefits | $ | (1,420 | ) | $ | — | $ | — | $ | (1,420 | ) | ||||||
International guaranteed withdrawal benefits | (30 | ) | — | — | (30 | ) | ||||||||||
Variable annuity hedging derivatives | 285 | — | (86 | ) | 371 | |||||||||||
Macro hedge program | 206 | — | 126 | 80 | ||||||||||||
Total liabilities accounted for at fair value on a recurring basis | $ | (959 | ) | $ | — | $ | 40 | $ | (999 | ) | ||||||
December 31, 2010 | ||||||||||||||||
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 | $ | 339 | $ | — | $ | (122 | ) | $ | 461 | |||||||
Macro hedge program | 386 | 2 | 176 | 208 | ||||||||||||
Reinsurance recoverable for U.S. GMWB | 280 | — | — | 280 | ||||||||||||
Total assets accounted for at fair value on a recurring basis | $ | 1,005 | $ | 2 | $ | 54 | $ | 949 | ||||||||
Liabilities accounted for at fair value on a recurring basis | ||||||||||||||||
Other policyholder funds and benefits payable | ||||||||||||||||
U.S. guaranteed withdrawal benefits | $ | (1,611 | ) | $ | — | $ | — | $ | (1,611 | ) | ||||||
International guaranteed withdrawal benefits | (36 | ) | — | — | (36 | ) | ||||||||||
International other guaranteed living benefits | 3 | — | — | 3 | ||||||||||||
Variable annuity hedging derivatives | 128 | — | (11 | ) | 139 | |||||||||||
Macro hedge program | (2 | ) | (2 | ) | — | — | ||||||||||
Total liabilities accounted for at fair value on a recurring basis | $ | (1,518 | ) | $ | (2 | ) | $ | (11 | ) | $ | (1,505 | ) | ||||
29
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
• | risk-free rates as represented by the Eurodollar futures, LIBOR deposits and swap rates to derive forward curve rates; |
• | market implied volatility assumptions for each underlying index based primarily on a blend of observed market “implied volatility” data; |
• | correlations of historical returns across underlying well known market indices based on actual observed returns over the ten years preceding the valuation date; and |
• | three years of history for fund indexes compared to separate account fund regression. |
30
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
31
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Variable Annuity Hedging Derivatives [5] | ||||||||||||
Total Variable Annuity | ||||||||||||
Asset/(liability) | Levels 1 and 2 | Level 3 | Hedging Derivatives | |||||||||
Fair value as of March 31, 2011 | $ | (142 | ) | $ | 488 | $ | 346 | |||||
Total realized/unrealized gains (losses) | ||||||||||||
Included in net income [1],[2],[6] | (17 | ) | 60 | 43 | ||||||||
Settlements[3] | 40 | — | 40 | |||||||||
Fair value as of June 30, 2011 | $ | (119 | ) | $ | 548 | $ | 429 | |||||
Changes in unrealized gains (losses) included in net income related to financial instruments still held at June 30, 2011 [1], [2], [4] | $ | 52 | ||||||||||
Total Guaranteed | ||||||||||||||||
International | Withdrawal Benefits | |||||||||||||||
Reinsurance | U.S. Guaranteed | Guaranteed | Net of Reinsurance | |||||||||||||
Recoverable | Withdrawal | Withdrawal | and Hedging | |||||||||||||
Asset/(liability) | for GMWB | Benefits – Level 3 | Benefits – Level 3 | Derivatives | ||||||||||||
Fair value as of March 31, 2011 | $ | 224 | $ | (1,301 | ) | $ | (23 | ) | $ | (754 | ) | |||||
Total realized/unrealized gains (losses) | ||||||||||||||||
Included in net income [1],[2],[6] | 4 | (80 | ) | (4 | ) | (37 | ) | |||||||||
Settlements[3] | 9 | (39 | ) | (3 | ) | 7 | ||||||||||
Fair value as of June 30, 2011 | $ | 237 | $ | (1,420 | ) | $ | (30 | ) | $ | (784 | ) | |||||
Changes in unrealized gains (losses) included in net income related to financial instruments still held at June 30, 2011 [1], [2], [4] | $ | 4 | $ | (80 | ) | $ | (4 | ) | ||||||||
Macro Hedge Program [5] | International Other | |||||||||||||||
Total Macro | Guaranteed Living | |||||||||||||||
Asset/(liability) | Levels 1 and 2 | Level 3 | Hedge Program | Benefits – Level 3 | ||||||||||||
Fair value as of March 31, 2011 | $ | (92 | ) | $ | 125 | $ | 33 | $ | 3 | |||||||
Total realized/unrealized gains (losses) | ||||||||||||||||
Included in net income [1],[2],[6] | 53 | (18 | ) | 35 | (2 | ) | ||||||||||
Purchases [3] | 99 | 185 | 284 | — | ||||||||||||
Settlements[3] | 154 | (35 | ) | 119 | (1 | ) | ||||||||||
Fair value as of June 30, 2011 | $ | 214 | $ | 257 | $ | 471 | $ | — | ||||||||
Changes in unrealized gains (losses) included in net income related to financial instruments still held at June 30, 2011 [1], [2], [4] | $ | (3 | ) | $ | (2 | ) | ||||||||||
32
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Variable Annuity Hedging Derivatives [5] | ||||||||||||
Total Variable Annuity | ||||||||||||
Asset/(liability) | Levels 1 and 2 | Level 3 | Hedging Derivatives | |||||||||
Fair value as of January 1, 2011 | $ | (133 | ) | $ | 600 | $ | 467 | |||||
Total realized/unrealized gains (losses) | ||||||||||||
Included in net income [1],[2],[6] | (125 | ) | (59 | ) | (184 | ) | ||||||
Purchases [3] | — | 23 | 23 | |||||||||
Settlements[3] | 139 | (16 | ) | 123 | ||||||||
Fair value as of June 30, 2011 | $ | (119 | ) | $ | 548 | $ | 429 | |||||
Changes in unrealized gains (losses) included in net income related to financial instruments still held at June 30, 2011 [1], [2], [4] | $ | (61 | ) | |||||||||
Total Guaranteed | ||||||||||||||||
International | Withdrawal Benefits | |||||||||||||||
Reinsurance | U.S. Guaranteed | Guaranteed | Net of Reinsurance | |||||||||||||
Recoverable | Withdrawal | Withdrawal | and Hedging | |||||||||||||
Asset/(liability) | for GMWB | Benefits – Level 3 | Benefits – Level 3 | Derivatives | ||||||||||||
Fair value as of January 1, 2011 | $ | 280 | $ | (1,611 | ) | $ | (36 | ) | $ | (900 | ) | |||||
Total realized/unrealized gains (losses) | ||||||||||||||||
Included in net income [1],[2],[6] | (61 | ) | 268 | 11 | 34 | |||||||||||
Purchases [3] | — | — | — | 23 | ||||||||||||
Settlements[3] | 18 | (77 | ) | (5 | ) | 59 | ||||||||||
Fair value as of June 30, 2011 | $ | 237 | $ | (1,420 | ) | $ | (30 | ) | $ | (784 | ) | |||||
Changes in unrealized gains (losses) included in net income related to financial instruments still held at June 30, 2011 [1], [2], [4] | $ | (61 | ) | $ | 268 | $ | 11 | |||||||||
Macro Hedge Program [5] | ||||||||||||||||
International Other | ||||||||||||||||
Total Macro | Guaranteed Living | |||||||||||||||
Asset/(liability) | Levels 1 and 2 | Level 3 | Hedge Program | Benefits – Level 3 | ||||||||||||
Fair value as of January 1, 2011 | $ | 176 | $ | 208 | $ | 384 | $ | 3 | ||||||||
Total realized/unrealized gains (losses) | ||||||||||||||||
Included in net income [1],[2],[6] | (221 | ) | (101 | ) | (322 | ) | (1 | ) | ||||||||
Purchases [3] | 99 | 185 | 284 | — | ||||||||||||
Settlements[3] | 160 | (35 | ) | 125 | (2 | ) | ||||||||||
Fair value as of June 30, 2011 | $ | 214 | $ | 257 | $ | 471 | $ | — | ||||||||
Changes in unrealized gains (losses) included in net income related to financial instruments still held at June 30, 2011 [1], [2], [4] | $ | (85 | ) | $ | (1 | ) | ||||||||||
33
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Variable Annuity Hedging Derivatives [5] | ||||||||||||
Total Variable Annuity | ||||||||||||
Asset/(liability) | Levels 1 and 2 | Level 3 | Hedging Derivatives | |||||||||
Fair value as of March 31, 2010 | $ | (166 | ) | $ | 311 | $ | 145 | |||||
Total realized/unrealized gains (losses) | ||||||||||||
Included in net income [1],[2],[6] | 208 | 617 | 825 | |||||||||
Purchases, issuances, and settlements [3] | (133 | ) | — | (133 | ) | |||||||
Fair value as of June 30, 2010 | $ | (91 | ) | $ | 928 | $ | 837 | |||||
Changes in unrealized gains (losses) included in net income related to financial instruments still held at June 30, 2010 [1], [2],[4] | $ | 617 | ||||||||||
Total Guaranteed | ||||||||||||||||
International | Withdrawal Benefits | |||||||||||||||
Reinsurance | U.S. Guaranteed | Guaranteed | Net of Reinsurance | |||||||||||||
Recoverable | Withdrawal | Withdrawal | and Hedging | |||||||||||||
Asset/(liability) | for GMWB | Benefits – Level 3 | Benefits – Level 3 | Derivatives | ||||||||||||
Fair value as of March 31, 2010 | $ | 295 | $ | (1,655 | ) | $ | (31 | ) | $ | (1,246 | ) | |||||
Total realized/unrealized gains (losses) | ||||||||||||||||
Included in net income [1],[2],[6] | 246 | (1,458 | ) | (39 | ) | (426 | ) | |||||||||
Included in OCI [2] | — | — | (1 | ) | (1 | ) | ||||||||||
Purchases, issuances, and settlements [3] | 9 | (35 | ) | (1 | ) | (160 | ) | |||||||||
Fair value as of June 30, 2010 | $ | 550 | $ | (3,148 | ) | $ | (72 | ) | $ | (1,833 | ) | |||||
Changes in unrealized gains (losses) included in net income related to financial instruments still held at June 30, 2010 [1], [2], [4] | $ | 246 | $ | (1,458 | ) | $ | (39 | ) | ||||||||
Macro Hedge Program [5] | International Other | |||||||||||||||
Total Macro | Guaranteed Living | |||||||||||||||
Asset/(liability) | Levels 1 and 2 | Level 3 | Hedge Program | Benefits – Level 3 | ||||||||||||
Fair Value as of March 31, 2010 | $ | 54 | $ | 151 | $ | 205 | $ | 4 | ||||||||
Total realized/unrealized gains (losses) | ||||||||||||||||
Included in net income [1],[2],[6] | 117 | 280 | 397 | (5 | ) | |||||||||||
Purchases, issuances, and settlements [3] | 19 | 232 | 251 | — | ||||||||||||
Fair value as of June 30, 2010 | $ | 190 | $ | 663 | $ | 853 | $ | (1 | ) | |||||||
Changes in unrealized gains (losses) included in net income related to financial instruments still held at June 30, 2010 [1], [2],[4] | $ | 300 | $ | (5 | ) | |||||||||||
34
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Variable Annuity Hedging Derivatives [5] | ||||||||||||
Total Variable Annuity | ||||||||||||
Asset/(liability) | Levels 1 and 2 | Level 3 | Hedging Derivatives | |||||||||
Fair value as of January 1, 2010 | $ | (184 | ) | $ | 236 | $ | 52 | |||||
Total realized/unrealized gains (losses) | ||||||||||||
Included in net income [1],[2],[6] | 123 | 539 | 662 | |||||||||
Purchases, issuances, and settlements [3] | (30 | ) | 153 | 123 | ||||||||
Fair value as of June 30, 2010 | $ | (91 | ) | $ | 928 | $ | 837 | |||||
Changes in unrealized gains (losses) included in net income related to financial instruments still held at June 30, 2010 [1], [2],[4] | $ | 502 | ||||||||||
Total Guaranteed | ||||||||||||||||
International | Withdrawal Benefits | |||||||||||||||
Reinsurance | U.S. Guaranteed | Guaranteed | Net of Reinsurance | |||||||||||||
Recoverable | Withdrawal | Withdrawal | and Hedging | |||||||||||||
Asset/(liability) | for GMWB | Benefits – Level 3 | Benefits – Level 3 | Derivatives | ||||||||||||
Fair value as of January 1, 2010 | $ | 347 | $ | (1,957 | ) | $ | (45 | ) | $ | (1,603 | ) | |||||
Total realized/unrealized gains (losses) | ||||||||||||||||
Included in net income [1],[2],[6] | 185 | (1,120 | ) | (24 | ) | (297 | ) | |||||||||
Purchases, issuances, and settlements [3] | 18 | (71 | ) | (3 | ) | 67 | ||||||||||
Fair value as of June 30, 2010 | $ | 550 | $ | (3,148 | ) | $ | (72 | ) | $ | (1,833 | ) | |||||
Changes in unrealized gains (losses) included in net income related to financial instruments still held at June 30, 2010 [1], [2], [4] | $ | 185 | $ | (1,120 | ) | $ | (24 | ) | ||||||||
Macro Hedge Program [5] | International Other | |||||||||||||||
Total Macro | Guaranteed Living | |||||||||||||||
Asset/(liability) | Levels 1 and 2 | Level 3 | Hedge Program | Benefits – Level 3 | ||||||||||||
Fair Value as of January 1, 2010 | $ | 28 | $ | 290 | $ | 318 | $ | 2 | ||||||||
Total realized/unrealized gains (losses) | ||||||||||||||||
Included in net income [1],[2],[6] | 92 | 141 | 233 | (2 | ) | |||||||||||
Purchases, issuances, and settlements [3] | 70 | 232 | 302 | (1 | ) | |||||||||||
Fair value as of June 30, 2010 | $ | 190 | $ | 663 | $ | 853 | $ | (1 | ) | |||||||
Changes in unrealized gains (losses) included in net income related to financial instruments still held at June 30, 2010 [1], [2],[4] | $ | 161 | $ | (2 | ) | |||||||||||
[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 payment and receipt of cash on futures and option contracts classified as Level 1 and interest rate, currency and credit default swaps classified as Level 2. As of January 1, 2011, for GMWB reinsurance and guaranteed withdrawal benefits, purchases, issuances and settlements represent the reinsurance premium paid and the attributed fees collected, respectively. | |
[4] | Disclosure of changes in unrealized gains (losses) is 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 in the Condensed Consolidated Balance Sheet in other investments and other liabilities. | |
[6] | Includes both market and non-market impacts in deriving realized and unrealized gains (losses). |
35
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
OTTI losses recognized in OCI | $ | (8 | ) | $ | (184 | ) | $ | (72 | ) | $ | (372 | ) | ||||
Changes in fair value and/or sales | 3 | 223 | 67 | 477 | ||||||||||||
Tax and deferred acquisition costs | 1 | (18 | ) | 6 | (52 | ) | ||||||||||
Change in non-credit impairments recognized in OCI | $ | (4 | ) | $ | 21 | $ | 1 | $ | 53 | |||||||
36
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
(Before-tax) | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Gross gains on sales | $ | 261 | $ | 343 | $ | 322 | $ | 475 | ||||||||
Gross losses on sales | (98 | ) | (94 | ) | (231 | ) | (205 | ) | ||||||||
Net OTTI losses recognized in earnings | (23 | ) | (108 | ) | (78 | ) | (260 | ) | ||||||||
Valuation allowances on mortgage loans | 26 | (40 | ) | 23 | (152 | ) | ||||||||||
Japanese fixed annuity contract hedges, net [1] | 6 | 27 | (11 | ) | 11 | |||||||||||
Periodic net coupon settlements on credit derivatives/Japan | (2 | ) | (4 | ) | (9 | ) | (11 | ) | ||||||||
Results of variable annuity hedge program | ||||||||||||||||
GMWB derivatives, net | (37 | ) | (426 | ) | 34 | (297 | ) | |||||||||
Macro hedge program | 35 | 397 | (322 | ) | 233 | |||||||||||
Total results of variable annuity hedge program | (2 | ) | (29 | ) | (288 | ) | (64 | ) | ||||||||
Other, net | (99 | ) | (86 | ) | (62 | ) | (59 | ) | ||||||||
Net realized capital gains (losses) | $ | 69 | $ | 9 | $ | (334 | ) | $ | (265 | ) | ||||||
[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, as well as Japan FVO securities. |
37
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
(Before-tax) | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Balance as of beginning of period | $ | (2,003 | ) | $ | (2,341 | ) | $ | (2,072 | ) | $ | (2,200 | ) | ||||
Additions for credit impairments recognized on [1]: | ||||||||||||||||
Securities not previously impaired | (8 | ) | (52 | ) | (36 | ) | (164 | ) | ||||||||
Securities previously impaired | (8 | ) | (52 | ) | (25 | ) | (91 | ) | ||||||||
Reductions for credit impairments previously recognized on: | ||||||||||||||||
Securities that matured or were sold during the period | 83 | 151 | 192 | 154 | ||||||||||||
Securities due to an increase in expected cash flows | 3 | 13 | 8 | 20 | ||||||||||||
Balance as of end of period | $ | (1,933 | ) | $ | (2,281 | ) | $ | (1,933 | ) | $ | (2,281 | ) | ||||
[1] | These additions are included in the net OTTI losses recognized in earnings in the Condensed Consolidated Statements of Operations. |
June 30, 2011 | December 31, 2010 | |||||||||||||||||||||||||||||||||||||||
Cost or | Gross | Gross | Non- | Cost or | Gross | Gross | Non- | |||||||||||||||||||||||||||||||||
Amortized | Unrealized | Unrealized | Fair | Credit | Amortized | Unrealized | Unrealized | Fair | Credit | |||||||||||||||||||||||||||||||
Cost | Gains | Losses | Value | OTTI [1] | Cost | Gains | Losses | Value | OTTI [1] | |||||||||||||||||||||||||||||||
ABS | $ | 3,551 | $ | 54 | $ | (308 | ) | $ | 3,297 | $ | (11 | ) | $ | 3,247 | $ | 38 | $ | (396 | ) | $ | 2,889 | $ | (2 | ) | ||||||||||||||||
CDOs | 2,928 | — | (353 | ) | 2,575 | (68 | ) | 3,088 | 1 | (478 | ) | 2,611 | (82 | ) | ||||||||||||||||||||||||||
CMBS | 7,360 | 250 | (333 | ) | 7,277 | (28 | ) | 8,297 | 235 | (615 | ) | 7,917 | (9 | ) | ||||||||||||||||||||||||||
Corporate [2] | 39,972 | 2,311 | (611 | ) | 41,629 | — | 38,496 | 2,174 | (747 | ) | 39,884 | 7 | ||||||||||||||||||||||||||||
Foreign govt./govt. agencies | 1,765 | 107 | (8 | ) | 1,864 | — | 1,627 | 73 | (17 | ) | 1,683 | — | ||||||||||||||||||||||||||||
Municipal | 12,738 | 278 | (235 | ) | 12,781 | — | 12,469 | 150 | (495 | ) | 12,124 | — | ||||||||||||||||||||||||||||
RMBS | 5,487 | 144 | (417 | ) | 5,214 | (108 | ) | 6,036 | 109 | (462 | ) | 5,683 | (124 | ) | ||||||||||||||||||||||||||
U.S. Treasuries | 3,566 | 23 | (94 | ) | 3,495 | — | 5,159 | 24 | (154 | ) | 5,029 | — | ||||||||||||||||||||||||||||
Total fixed maturities, AFS | 77,367 | 3,167 | (2,359 | ) | 78,132 | (215 | ) | 78,419 | 2,804 | (3,364 | ) | 77,820 | (210 | ) | ||||||||||||||||||||||||||
Equity securities, AFS | 1,070 | 112 | (101 | ) | 1,081 | — | 1,013 | 92 | (132 | ) | 973 | — | ||||||||||||||||||||||||||||
Total AFS securities | $ | 78,437 | $ | 3,279 | $ | (2,460 | ) | $ | 79,213 | $ | (215 | ) | $ | 79,432 | $ | 2,896 | $ | (3,496 | ) | $ | 78,793 | $ | (210 | ) | ||||||||||||||||
[1] | Represents the amount of cumulative non-credit OTTI losses recognized in OCI on securities that also had credit impairments. These losses are included in gross unrealized losses as of June 30, 2011 and December 31, 2010. | |
[2] | Gross unrealized gains (losses) exclude the change in fair value of bifurcated embedded derivative features of certain securities. Subsequent changes in fair value are recorded in net realized capital gains (losses). |
June 30, 2011 | ||||||||
Contractual Maturity | Amortized Cost | Fair Value | ||||||
One year or less | $ | 2,545 | $ | 2,573 | ||||
Over one year through five years | 16,181 | 17,009 | ||||||
Over five years through ten years | 14,627 | 15,312 | ||||||
Over ten years | 24,688 | 24,875 | ||||||
Subtotal | 58,041 | 59,769 | ||||||
Mortgage-backed and asset-backed securities | 19,326 | 18,363 | ||||||
Total fixed maturities, AFS | $ | 77,367 | $ | 78,132 | ||||
38
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2011 | ||||||||||||||||||||||||||||||||||||
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 | $ | 264 | $ | 257 | $ | (7 | ) | $ | 1,331 | $ | 1,030 | $ | (301 | ) | $ | 1,595 | $ | 1,287 | $ | (308 | ) | |||||||||||||||
CDOs | 337 | 317 | (20 | ) | 2,570 | 2,237 | (333 | ) | 2,907 | 2,554 | (353 | ) | ||||||||||||||||||||||||
CMBS | 1,334 | 1,282 | (52 | ) | 2,495 | 2,214 | (281 | ) | 3,829 | 3,496 | (333 | ) | ||||||||||||||||||||||||
Corporate [1] | 5,789 | 5,590 | (194 | ) | 3,617 | 3,162 | (417 | ) | 9,406 | 8,752 | (611 | ) | ||||||||||||||||||||||||
Foreign govt./govt. agencies | 182 | 180 | (2 | ) | 53 | 47 | (6 | ) | 235 | 227 | (8 | ) | ||||||||||||||||||||||||
Municipal | 4,340 | 4,249 | (91 | ) | 1,016 | 872 | (144 | ) | 5,356 | 5,121 | (235 | ) | ||||||||||||||||||||||||
RMBS | 810 | 791 | (19 | ) | 1,424 | 1,026 | (398 | ) | 2,234 | 1,817 | (417 | ) | ||||||||||||||||||||||||
U.S. Treasuries | 1,289 | 1,228 | (61 | ) | 133 | 100 | (33 | ) | 1,422 | 1,328 | (94 | ) | ||||||||||||||||||||||||
Total fixed maturities | 14,345 | 13,894 | (446 | ) | 12,639 | 10,688 | (1,913 | ) | 26,984 | 24,582 | (2,359 | ) | ||||||||||||||||||||||||
Equity securities | 211 | 206 | (5 | ) | 569 | 473 | (96 | ) | 780 | 679 | (101 | ) | ||||||||||||||||||||||||
Total securities in an unrealized loss | $ | 14,556 | $ | 14,100 | $ | (451 | ) | $ | 13,208 | $ | 11,161 | $ | (2,009 | ) | $ | 27,764 | $ | 25,261 | $ | (2,460 | ) | |||||||||||||||
December 31, 2010 | ||||||||||||||||||||||||||||||||||||
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 | $ | 302 | $ | 290 | $ | (12 | ) | $ | 1,410 | $ | 1,026 | $ | (384 | ) | $ | 1,712 | $ | 1,316 | $ | (396 | ) | |||||||||||||||
CDOs | 321 | 293 | (28 | ) | 2,724 | 2,274 | (450 | ) | 3,045 | 2,567 | (478 | ) | ||||||||||||||||||||||||
CMBS | 556 | 530 | (26 | ) | 3,962 | 3,373 | (589 | ) | 4,518 | 3,903 | (615 | ) | ||||||||||||||||||||||||
Corporate [1] | 5,533 | 5,329 | (199 | ) | 4,017 | 3,435 | (548 | ) | 9,550 | 8,764 | (747 | ) | ||||||||||||||||||||||||
Foreign govt./govt. agencies | 356 | 349 | (7 | ) | 78 | 68 | (10 | ) | 434 | 417 | (17 | ) | ||||||||||||||||||||||||
Municipal | 7,485 | 7,173 | (312 | ) | 1,046 | 863 | (183 | ) | 8,531 | 8,036 | (495 | ) | ||||||||||||||||||||||||
RMBS | 1,744 | 1,702 | (42 | ) | 1,567 | 1,147 | (420 | ) | 3,311 | 2,849 | (462 | ) | ||||||||||||||||||||||||
U.S. Treasuries | 2,436 | 2,321 | (115 | ) | 158 | 119 | (39 | ) | 2,594 | 2,440 | (154 | ) | ||||||||||||||||||||||||
Total fixed maturities | 18,733 | 17,987 | (741 | ) | 14,962 | 12,305 | (2,623 | ) | 33,695 | 30,292 | (3,364 | ) | ||||||||||||||||||||||||
Equity securities | 53 | 52 | (1 | ) | 637 | 506 | (131 | ) | 690 | 558 | (132 | ) | ||||||||||||||||||||||||
Total securities in an unrealized loss | $ | 18,786 | $ | 18,039 | $ | (742 | ) | $ | 15,599 | $ | 12,811 | $ | (2,754 | ) | $ | 34,385 | $ | 30,850 | $ | (3,496 | ) | |||||||||||||||
[1] | Unrealized losses exclude the change in fair value of bifurcated embedded derivative features of certain securities. Subsequent changes in fair value are recorded in net realized capital gains (losses). |
39
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2011 | December 31, 2010 | |||||||||||||||||||||||
Amortized | Valuation | Carrying | Amortized | Valuation | Carrying | |||||||||||||||||||
Cost [1] | Allowance | Value | Cost [1] | Allowance | Value | |||||||||||||||||||
Commercial | $ | 5,324 | $ | (129 | ) | $ | 5,195 | $ | 4,492 | $ | (152 | ) | $ | 4,340 | ||||||||||
Residential | 151 | (42 | ) | 109 | 152 | (3 | ) | 149 | ||||||||||||||||
Total mortgage loans | $ | 5,475 | $ | (171 | ) | $ | 5,304 | $ | 4,644 | $ | (155 | ) | $ | 4,489 | ||||||||||
[1] | Amortized cost represents carrying value prior to valuation allowances, if any. |
2011 | 2010 | |||||||
Balance as of January 1 | $ | (155 | ) | $ | (366 | ) | ||
Additions | (27 | ) | (152 | ) | ||||
Deductions | 11 | 178 | ||||||
Balance as of June 30 | $ | (171 | ) | $ | (340 | ) | ||
Commercial Mortgage Loans Credit Quality | ||||||||||||||||
June 30, 2011 | December 31, 2010 | |||||||||||||||
Carrying | Avg. Debt-Service | Carrying | Avg. Debt-Service | |||||||||||||
Loan-to-value | Value | Coverage Ratio | Value | Coverage Ratio | ||||||||||||
Greater than 80% | $ | 1,032 | 1.51x | $ | 1,358 | 1.49x | ||||||||||
65% - 80% | 2,379 | 1.71x | 1,829 | 1.93x | ||||||||||||
Less than 65% | 1,784 | 2.30x | 1,153 | 2.26x | ||||||||||||
Total commercial mortgage loans | $ | 5,195 | 1.88x | $ | 4,340 | 1.87x | ||||||||||
Mortgage Loans by Region | ||||||||||||||||
June 30, 2011 | December 31, 2010 | |||||||||||||||
Carrying | Percent of | Carrying | Percent of | |||||||||||||
Value | Total | Value | Total | |||||||||||||
East North Central | $ | 76 | 1.4 | % | $ | 77 | 1.7 | % | ||||||||
Middle Atlantic | 498 | 9.4 | % | 428 | 9.5 | % | ||||||||||
Mountain | 127 | 2.4 | % | 109 | 2.4 | % | ||||||||||
New England | 296 | 5.6 | % | 259 | 5.8 | % | ||||||||||
Pacific | 1,307 | 24.6 | % | 1,147 | 25.6 | % | ||||||||||
South Atlantic | 1,150 | 21.7 | % | 1,177 | 26.3 | % | ||||||||||
West North Central | 34 | 0.6 | % | 36 | 0.8 | % | ||||||||||
West South Central | 225 | 4.2 | % | 231 | 5.1 | % | ||||||||||
Other [1] | 1,591 | 30.1 | % | 1,025 | 22.8 | % | ||||||||||
Total mortgage loans | $ | 5,304 | 100.0 | % | $ | 4,489 | 100.0 | % | ||||||||
[1] | Primarily represents loans collateralized by multiple properties in various regions. |
40
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Mortgage Loans by Property Type | ||||||||||||||||
June 30, 2011 | December 31, 2010 | |||||||||||||||
Carrying | Percent of | Carrying | Percent of | |||||||||||||
Value | Total | Value | Total | |||||||||||||
Commercial | ||||||||||||||||
Agricultural | $ | 258 | 4.9 | % | $ | 315 | 7.0 | % | ||||||||
Industrial | 1,615 | 30.5 | % | 1,141 | 25.4 | % | ||||||||||
Lodging | 124 | 2.3 | % | 132 | 2.9 | % | ||||||||||
Multifamily | 974 | 18.4 | % | 713 | 15.9 | % | ||||||||||
Office | 944 | 17.8 | % | 986 | 22.1 | % | ||||||||||
Retail | 986 | 18.6 | % | 669 | 14.9 | % | ||||||||||
Other | 294 | 5.4 | % | 384 | 8.5 | % | ||||||||||
Residential | 109 | 2.1 | % | 149 | 3.3 | % | ||||||||||
Total mortgage loans | $ | 5,304 | 100.0 | % | $ | 4,489 | 100.0 | % | ||||||||
June 30, 2011 | December 31, 2010 | |||||||||||||||||||||||
Maximum | Maximum | |||||||||||||||||||||||
Total | Total | Exposure | Total | Total | Exposure | |||||||||||||||||||
Assets | Liabilities [1] | to Loss [2] | Assets | Liabilities [1] | to Loss [2] | |||||||||||||||||||
CDOs [3] | $ | 510 | $ | 439 | $ | 48 | $ | 729 | $ | 393 | $ | 289 | ||||||||||||
Limited partnerships | 7 | — | 7 | 14 | 1 | 13 | ||||||||||||||||||
Total | $ | 517 | $ | 439 | $ | 55 | $ | 743 | $ | 394 | $ | 302 | ||||||||||||
[1] | Included in other liabilities in the Company’s Condensed 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 cost basis of the Company’s investment. | |
[3] | Total assets included in fixed maturities, AFS, and fixed maturities, FVO, in the Company’s Condensed Consolidated Balance Sheets. |
41
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
42
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
43
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
44
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Notional Amount | Fair Value | |||||||||||||||
June 30, | December 31, | June 30, | December 31, | |||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Customized swaps | $ | 9,615 | $ | 10,113 | $ | 175 | $ | 209 | ||||||||
Equity swaps, options, and futures | 5,239 | 4,943 | 372 | 391 | ||||||||||||
Interest rate swaps and futures | 2,752 | 2,800 | (118 | ) | (133 | ) | ||||||||||
Total | $ | 17,606 | $ | 17,856 | $ | 429 | $ | 467 | ||||||||
Notional Amount | Fair Value | |||||||||||||||
June 30, | December 31, | June 30, | December 31, | |||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Long equity options, swaps and futures | $ | 8,650 | $ | 13,332 | $ | 231 | $ | 205 | ||||||||
Short equity options, swaps and futures | 2,116 | 1,168 | 23 | — | ||||||||||||
Long currency forward contracts | 196 | 1,791 | (4 | ) | 64 | |||||||||||
Short currency forward contracts | 2,778 | 1,441 | 56 | 29 | ||||||||||||
Foreign interest rate swaps | 2,192 | 2,182 | 30 | 21 | ||||||||||||
Cross-currency equity options | 121 | 1,000 | 4 | 3 | ||||||||||||
Long currency options | 2,155 | 3,075 | 139 | 67 | ||||||||||||
Short currency options | 465 | 2,221 | (8 | ) | (5 | ) | ||||||||||
Total | $ | 18,673 | $ | 26,210 | $ | 471 | $ | 384 | ||||||||
45
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Net Derivatives | Asset Derivatives | Liability Derivatives | ||||||||||||||||||||||||||||||
Notional Amount | Fair Value | Fair Value | Fair Value | |||||||||||||||||||||||||||||
Jun. 30, | Dec. 31, | Jun. 30, | Dec. 31, | Jun. 30, | Dec. 31, | Jun. 30, | Dec. 31, | |||||||||||||||||||||||||
Hedge Designation/ Derivative Type | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | ||||||||||||||||||||||||
Cash flow hedges | ||||||||||||||||||||||||||||||||
Interest rate swaps | $ | 9,941 | $ | 10,290 | $ | 183 | $ | 115 | $ | 206 | $ | 188 | $ | (23 | ) | $ | (73 | ) | ||||||||||||||
Foreign currency swaps | 302 | 335 | 7 | 6 | 27 | 29 | (20 | ) | (23 | ) | ||||||||||||||||||||||
Total cash flow hedges | 10,243 | 10,625 | 190 | 121 | 233 | 217 | (43 | ) | (96 | ) | ||||||||||||||||||||||
Fair value hedges | ||||||||||||||||||||||||||||||||
Interest rate swaps | 1,277 | 1,120 | (60 | ) | (46 | ) | 1 | 5 | (61 | ) | (51 | ) | ||||||||||||||||||||
Foreign currency swaps | 677 | 677 | 15 | (12 | ) | 96 | 71 | (81 | ) | (83 | ) | |||||||||||||||||||||
Total fair value hedges | 1,954 | 1,797 | (45 | ) | (58 | ) | 97 | 76 | (142 | ) | (134 | ) | ||||||||||||||||||||
Non-qualifying strategies | ||||||||||||||||||||||||||||||||
Interest rate contracts | ||||||||||||||||||||||||||||||||
Interest rate swaps, swaptions, caps, floors, and futures | 9,044 | 7,938 | (354 | ) | (441 | ) | 219 | 126 | (573 | ) | (567 | ) | ||||||||||||||||||||
Foreign exchange contracts | ||||||||||||||||||||||||||||||||
Foreign currency swaps and forwards | 369 | 368 | (29 | ) | (18 | ) | — | 1 | (29 | ) | (19 | ) | ||||||||||||||||||||
Japan 3Win foreign currency swaps | 2,285 | 2,285 | 152 | 177 | 152 | 177 | — | — | ||||||||||||||||||||||||
Japanese fixed annuity hedging instruments | 2,137 | 2,119 | 487 | 608 | 494 | 608 | (7 | ) | — | |||||||||||||||||||||||
Japanese variable annuity hedging instruments | 3,526 | 1,720 | 10 | 73 | 61 | 74 | (51 | ) | (1 | ) | ||||||||||||||||||||||
Credit contracts | ||||||||||||||||||||||||||||||||
Credit derivatives that purchase credit protection | 1,396 | 2,559 | (10 | ) | (9 | ) | 17 | 29 | (27 | ) | (38 | ) | ||||||||||||||||||||
Credit derivatives that assume credit risk [1] | 2,270 | 2,569 | (444 | ) | (434 | ) | 5 | 8 | (449 | ) | (442 | ) | ||||||||||||||||||||
Credit derivatives in offsetting positions | 8,535 | 8,367 | (70 | ) | (75 | ) | 114 | 98 | (184 | ) | (173 | ) | ||||||||||||||||||||
Equity contracts | ||||||||||||||||||||||||||||||||
Equity index swaps and options | 192 | 189 | (8 | ) | (10 | ) | 6 | 5 | (14 | ) | (15 | ) | ||||||||||||||||||||
Variable annuity hedge program | ||||||||||||||||||||||||||||||||
GMWB product derivatives [2] | 39,593 | 42,739 | (1,450 | ) | (1,647 | ) | — | — | (1,450 | ) | (1,647 | ) | ||||||||||||||||||||
GMWB reinsurance contracts | 7,886 | 8,767 | 237 | 280 | 237 | 280 | — | — | ||||||||||||||||||||||||
GMWB hedging instruments | 17,606 | 17,856 | 429 | 467 | 575 | 647 | (146 | ) | (180 | ) | ||||||||||||||||||||||
Macro hedge program | 18,673 | 26,210 | 471 | 384 | 486 | 394 | (15 | ) | (10 | ) | ||||||||||||||||||||||
Other | ||||||||||||||||||||||||||||||||
GMAB product derivatives [2] | 237 | 246 | — | 3 | — | 3 | — | — | ||||||||||||||||||||||||
Contingent capital facility put option | 500 | 500 | 30 | 32 | 30 | 32 | — | — | ||||||||||||||||||||||||
Total non-qualifying strategies | 114,249 | 124,432 | (549 | ) | (610 | ) | 2,396 | 2,482 | (2,945 | ) | (3,092 | ) | ||||||||||||||||||||
Total cash flow hedges, fair value hedges, and non-qualifying strategies | $ | 126,446 | $ | 136,854 | $ | (404 | ) | $ | (547 | ) | $ | 2,726 | $ | 2,775 | $ | (3,130 | ) | $ | (3,322 | ) | ||||||||||||
Balance Sheet Location | ||||||||||||||||||||||||||||||||
Fixed maturities, available-for-sale | $ | 703 | $ | 728 | $ | (43 | ) | $ | (39 | ) | $ | — | $ | — | $ | (43 | ) | $ | (39 | ) | ||||||||||||
Other investments | 27,523 | 55,948 | 890 | 1,524 | 1,223 | 2,105 | (333 | ) | (581 | ) | ||||||||||||||||||||||
Other liabilities | 50,410 | 28,333 | (24 | ) | (654 | ) | 1,266 | 387 | (1,290 | ) | (1,041 | ) | ||||||||||||||||||||
Consumer notes | 39 | 39 | (4 | ) | (5 | ) | — | — | (4 | ) | (5 | ) | ||||||||||||||||||||
Reinsurance recoverables | 7,886 | 8,767 | 237 | 280 | 237 | 280 | — | — | ||||||||||||||||||||||||
Other policyholder funds and benefits payable | 39,885 | 43,039 | (1,460 | ) | (1,653 | ) | — | 3 | (1,460 | ) | (1,656 | ) | ||||||||||||||||||||
Total derivatives | $ | 126,446 | $ | 136,854 | $ | (404 | ) | $ | (547 | ) | $ | 2,726 | $ | 2,775 | $ | (3,130 | ) | $ | (3,322 | ) | ||||||||||||
[1] | The derivative instruments related to this strategy are held for other investment purposes. | |
[2] | These derivatives are embedded within liabilities and are not held for risk management purposes. |
46
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
• | The notional amount related to the macro hedge program declined $7.5 billion primarily due to the expiration of certain currency and equity index options. The notional amount was not replaced given the levels of market risk coverage for both equity and foreign exchange rate risk were within the Company defined limits. |
• | The GMWB product derivative notional declined $3.1 billion primarily as a result of policyholder lapses and withdrawals. |
• | The notional amount related to non-qualifying interest rate contracts increased by $1.1 billion primarily as a result of the Company adding LIBOR swaptions to manage duration between assets and liabilities. |
• | The increase in the combined GMWB hedging program, which includes the GMWB product, reinsurance, and hedging derivatives, was primarily a result of lower implied market volatility and outperformance of the underlying actively managed funds as compared to their respective indices. |
• | The fair value related to interest rate swaps increased primarily as a result of declining interest rates. |
Derivatives in Cash Flow Hedging Relationships | ||||||||||||||||||||||||||||||||||
Gain (Loss) Recognized in | ||||||||||||||||||||||||||||||||||
Gain (Loss) Recognized in OCI | Income on Derivative | |||||||||||||||||||||||||||||||||
on Derivative (Effective Portion) | (Ineffective Portion) | |||||||||||||||||||||||||||||||||
Three Months | Six Months | Three Months | Six Months | |||||||||||||||||||||||||||||||
Ended | Ended | Ended | Ended | |||||||||||||||||||||||||||||||
June 30, | June 30, | June 30, | June 30, | |||||||||||||||||||||||||||||||
2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | |||||||||||||||||||||||||||
Interest rate swaps | Net realized capital gains (losses) | $ | 148 | $ | 260 | $ | 82 | $ | 360 | $ | — | $ | 4 | $ | (2 | ) | $ | 3 | ||||||||||||||||
Foreign currency swaps | Net realized capital gains | — | 6 | — | 15 | — | — | — | — | |||||||||||||||||||||||||
Total | $ | 148 | $ | 266 | $ | 82 | $ | 375 | $ | — | $ | 4 | $ | (2 | ) | $ | 3 | |||||||||||||||||
Derivatives in Cash Flow Hedging Relationships | ||||||||||||||||||
Gain (Loss) Reclassified from AOCI into Income | ||||||||||||||||||
(Effective Portion) | ||||||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||||
June 30, | June 30, | |||||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||||
Interest rate swaps | Net realized capital gains | $ | 2 | $ | 4 | $ | 4 | $ | 4 | |||||||||
Interest rate swaps | Net investment income | 31 | 22 | 63 | 34 | |||||||||||||
Foreign currency swaps | Net realized capital gains (losses) | 3 | (11 | ) | 8 | (16 | ) | |||||||||||
Foreign currency swaps | Net investment income | — | — | — | — | |||||||||||||
Total | $ | 36 | $ | 15 | $ | 75 | $ | 22 | ||||||||||
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Derivatives in Fair Value Hedging Relationships | ||||||||||||||||||||||||||||||||
Gain (Loss) Recognized in Income [1] | ||||||||||||||||||||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||
June 30, | June 30, | |||||||||||||||||||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||||||||||||||||||
Hedge | Hedge | Hedge | Hedge | |||||||||||||||||||||||||||||
Derivative | Item | Derivative | Item | Derivative | Item | Derivative | Item | |||||||||||||||||||||||||
Interest rate swaps | ||||||||||||||||||||||||||||||||
Net realized capital gains (losses) | $ | (27 | ) | $ | 26 | $ | (40 | ) | $ | 37 | $ | (17 | ) | $ | 17 | $ | (52 | ) | $ | 47 | ||||||||||||
Benefits, losses and loss adjustment expenses | — | — | (7 | ) | 8 | — | — | (2 | ) | 3 | ||||||||||||||||||||||
Foreign currency swaps | ||||||||||||||||||||||||||||||||
Net realized capital gains (losses) | 22 | (22 | ) | (11 | ) | 11 | 36 | (36 | ) | (40 | ) | 40 | ||||||||||||||||||||
Benefits, losses and loss adjustment expenses | (1 | ) | 1 | — | — | (9 | ) | 9 | (1 | ) | 1 | |||||||||||||||||||||
Total | $ | (6 | ) | $ | 5 | $ | (58 | ) | $ | 56 | $ | 10 | $ | (10 | ) | $ | (95 | ) | $ | 91 | ||||||||||||
[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. |
48
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Non-qualifying Strategies | ||||||||||||||||
Gain (Loss) Recognized within Net Realized Capital Gains (Losses) | ||||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Interest rate contracts | ||||||||||||||||
Interest rate swaps, swaptions, caps, floors, futures, and forwards | $ | (4 | ) | $ | (5 | ) | $ | 1 | $ | (5 | ) | |||||
Foreign exchange contracts | ||||||||||||||||
Foreign currency swaps, forwards, and swaptions | (7 | ) | 23 | (12 | ) | 29 | ||||||||||
Japan 3Win hedging derivatives [1] | 33 | 65 | (25 | ) | 9 | |||||||||||
Japanese fixed annuity hedging instruments [2] | 57 | 160 | (5 | ) | 141 | |||||||||||
Japanese variable annuity hedging instruments | 6 | 32 | (56 | ) | 45 | |||||||||||
Credit contracts | ||||||||||||||||
Credit derivatives that purchase credit protection | (3 | ) | 38 | (20 | ) | 38 | ||||||||||
Credit derivatives that assume credit risk | (14 | ) | (50 | ) | 5 | (13 | ) | |||||||||
Equity contracts | ||||||||||||||||
Equity index swaps, options, and futures | 2 | 4 | 2 | 5 | ||||||||||||
Variable annuity hedge program | ||||||||||||||||
GMWB product derivatives | (84 | ) | (1,497 | ) | 279 | (1,144 | ) | |||||||||
GMWB reinsurance contracts | 4 | 246 | (61 | ) | 185 | |||||||||||
GMWB hedging instruments | 43 | 825 | (184 | ) | 662 | |||||||||||
Macro hedge program | 35 | 397 | (322 | ) | 233 | |||||||||||
Other | ||||||||||||||||
GMAB product derivatives | (2 | ) | (5 | ) | (1 | ) | (2 | ) | ||||||||
Contingent capital facility put option | (1 | ) | (1 | ) | (3 | ) | (2 | ) | ||||||||
Total | $ | 65 | $ | 232 | $ | (402 | ) | $ | 181 | |||||||
[1] | The associated liability is adjusted for changes in spot rates through realized capital gains and was $(49) and $(103) for the three months ended June 30, 2011 and 2010, respectively, and $(7) and $(96) for the six months ended June 30, 2011 and 2010, respectively. | |
[2] | The associated liability is adjusted for changes in spot rates through realized capital gains and was $(63) and $(126) for the three months ended June 30, 2011 and 2010, respectively, and $(10) and $(119) for the six months ended June 30, 2011 and 2010, respectively. |
• | For the three months ended June 30, 2011 the net gain related to the Japanese fixed annuity hedging instruments is primarily due to the U.S. dollar weakening in comparison to the Japanese yen. |
• | For the three months ended June 30, 2011 the net gain associated with the macro hedge program is primarily due to a decline in Japanese interest rates and foreign currency movements. For the six months ended June 30, 2011 the net loss related to the macro hedge program is primarily the result of foreign currency movements and a higher equity market valuation. |
• | For the three months ended June 30, 2011 the loss related to the combined GMWB hedging program, which includes the GMWB product, reinsurance, and hedging derivatives, is primarily a result of a general decrease in long-term interest rates. For the six months ended June 30, 2011 the gain related to the combined GMWB hedging program is primarily due to a lower implied market volatility and outperformance of the underlying actively managed funds as compared to their respective indices. |
• | For the six months ended June 30, 2011 the net loss associated with the Japan variable annuity hedging instruments is primarily due to the Japanese yen currency movements in comparison to the euro and the U.S. dollar. |
49
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
• | The net gain associated with the macro hedge program was primarily due to lower equity market valuation and appreciation of the Japanese yen. |
• | The net gain on the Japanese fixed annuity hedging instruments was primarily due to the U.S. dollar weakening in comparison to the Japanese yen and the increased demand for the U.S. dollar. |
• | The net gain for the three months ended June 30, 2010, related to the Japan 3 Win hedging derivatives was primarily due to the strengthening of the Japanese yen in comparison to the U.S. dollar, partially offset by the decrease in long-term interest rates. |
• | The loss related to the combined GMWB hedging program which includes the GMWB product, reinsurance, and hedging derivatives was primarily driven by higher implied market volatility and a general decrease in long-term interest rates. |
As of June 30, 2011 | ||||||||||||||||||||||||||||
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 | $ | 1,585 | $ | (3 | ) | 3 years | Corporate Credit/Foreign Gov. | A+ | $ | 1,446 | $ | (53 | ) | |||||||||||||||
Below investment grade risk exposure | 180 | (4 | ) | 2 years | Corporate Credit | BB- | 144 | (8 | ) | |||||||||||||||||||
Basket credit default swaps [4] | ||||||||||||||||||||||||||||
Investment grade risk exposure | 3,144 | 10 | 3 years | Corporate Credit | BBB+ | 2,128 | (18 | ) | ||||||||||||||||||||
Investment grade risk exposure | 525 | (66 | ) | 6 years | CMBS Credit | BBB+ | 525 | 66 | ||||||||||||||||||||
Below investment grade risk exposure | 578 | (396 | ) | 4 years | Corporate Credit | BBB+ | 25 | 1 | ||||||||||||||||||||
Embedded credit derivatives | ||||||||||||||||||||||||||||
Investment grade risk exposure | 25 | 24 | 3 years | Corporate Credit | BBB- | — | — | |||||||||||||||||||||
Below investment grade risk exposure | 500 | 438 | 6 years | Corporate Credit | BB+ | — | — | |||||||||||||||||||||
Total | $ | 6,537 | $ | 3 | $ | 4,268 | $ | (12 | ) | |||||||||||||||||||
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
As of December 31, 2010 | ||||||||||||||||||||||||||||
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 | $ | 1,562 | $ | (14 | ) | 3 years | Corporate Credit/Foreign Gov. | A+ | $ | 1,447 | $ | (41 | ) | |||||||||||||||
Below investment grade risk exposure | 204 | (6 | ) | 3 years | Corporate Credit | BB- | 168 | (13 | ) | |||||||||||||||||||
Basket credit default swaps [4] | ||||||||||||||||||||||||||||
Investment grade risk exposure | 3,145 | (1 | ) | 4 years | Corporate Credit | BBB+ | 2,019 | (14 | ) | |||||||||||||||||||
Investment grade risk exposure | 525 | (50 | ) | 6 years | CMBS Credit | BBB+ | 525 | 50 | ||||||||||||||||||||
Below investment grade risk exposure | 767 | (381 | ) | 4 years | Corporate Credit | BBB+ | 25 | — | ||||||||||||||||||||
Embedded credit derivatives | ||||||||||||||||||||||||||||
Investment grade risk exposure | 25 | 25 | 4 years | Corporate Credit | BBB- | — | — | |||||||||||||||||||||
Below investment grade risk exposure | 525 | 463 | 6 years | Corporate Credit | BB+ | — | — | |||||||||||||||||||||
Total | $ | 6,753 | $ | 36 | $ | 4,184 | $ | (18 | ) | |||||||||||||||||||
[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 $3.7 billion and $3.9 billion as of June 30, 2011 and December 31, 2010, 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 $553 and $542 as of June 30, 2011 and December 31, 2010, respectively, of customized diversified portfolios of corporate issuers referenced through credit default swaps. |
2011 | 2010 | |||||||
Balance, January 1 | $ | 9,857 | $ | 10,686 | ||||
Deferred Costs | 1,306 | 1,338 | ||||||
Amortization — DAC | (1,439 | ) | (1,445 | ) | ||||
Amortization — DAC from discontinued operations | — | (7 | ) | |||||
Amortization — Unlock charge, pre-tax | (60 | ) | (137 | ) | ||||
Adjustments to unrealized gains and losses on securities available-for-sale and other | (87 | ) | (828 | ) | ||||
Effect of currency translation | 7 | 82 | ||||||
Balance, June 30 | $ | 9,584 | $ | 9,689 | ||||
51
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
International | UL Secondary | |||||||||||
U.S. GMDB | GMDB/GMIB | Guarantees | ||||||||||
Liability balance as of January 1, 2011 | $ | 1,053 | $ | 696 | $ | 113 | ||||||
Incurred | 110 | 61 | 27 | |||||||||
Paid | (95 | ) | (76 | ) | — | |||||||
Unlock | (63 | ) | 2 | — | ||||||||
Currency translation adjustment | — | 2 | — | |||||||||
Liability balance as of June 30, 2011 | $ | 1,005 | $ | 685 | $ | 140 | ||||||
Reinsurance recoverable asset, as of January 1, 2011 | $ | 686 | $ | 36 | $ | 30 | ||||||
Incurred | 65 | (3 | ) | 5 | ||||||||
Paid | (65 | ) | 1 | — | ||||||||
Unlock | (27 | ) | 6 | — | ||||||||
Currency translation adjustment | — | — | — | |||||||||
Reinsurance recoverable asset, as of June 30, 2011 | $ | 659 | $ | 40 | $ | 35 | ||||||
International | UL Secondary | |||||||||||
U.S. GMDB | GMDB/GMIB | Guarantees | ||||||||||
Liability balance as of January 1, 2010 | $ | 1,233 | $ | 599 | $ | 76 | ||||||
Incurred | 127 | 62 | 20 | |||||||||
Paid | (155 | ) | (61 | ) | — | |||||||
Unlock | 107 | 32 | — | |||||||||
Currency translation adjustment | — | 32 | — | |||||||||
Liability balance as of June 30, 2010 | $ | 1,312 | $ | 664 | $ | 96 | ||||||
Reinsurance recoverable asset, as of January 1, 2010 | $ | 787 | $ | 51 | $ | 22 | ||||||
Incurred | 74 | (2 | ) | 4 | ||||||||
Paid | (94 | ) | — | — | ||||||||
Unlock | 65 | (7 | ) | — | ||||||||
Currency translation adjustment | — | 2 | — | |||||||||
Reinsurance recoverable asset, as of June 30, 2010 | $ | 832 | $ | 44 | $ | 26 | ||||||
52
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Individual Variable and Group Annuity Account Value by GMDB/GMIB Type | |||||||||||||||||||
Retained Net | |||||||||||||||||||
Net Amount | Amount | Weighted Average | |||||||||||||||||
Account | at Risk | at Risk | Attained Age of | ||||||||||||||||
Maximum anniversary value (“MAV”) [1] | Value (“AV”) | (“NAR”) [10] | (“RNAR”) [10] | Annuitant | |||||||||||||||
MAV only | $ | 24,081 | $ | 4,765 | $ | 1,030 | 68 | ||||||||||||
With 5% rollup [2] | 1,648 | 416 | 131 | 68 | |||||||||||||||
With Earnings Protection Benefit Rider (“EPB”) [3] | 6,228 | 747 | 91 | 65 | |||||||||||||||
With 5% rollup & EPB | 685 | 142 | 30 | 68 | |||||||||||||||
Total MAV | 32,642 | 6,070 | 1,282 | ||||||||||||||||
Asset Protection Benefit (“APB”) [4] | 26,268 | 1,820 | 1,171 | 65 | |||||||||||||||
Lifetime Income Benefit (“LIB”) — Death Benefit [5] | 1,252 | 53 | 53 | 64 | |||||||||||||||
Reset [6] (5-7 years) | 3,584 | 193 | 191 | 68 | |||||||||||||||
Return of Premium (“ROP”) [7]/Other | 23,557 | 462 | 439 | 65 | |||||||||||||||
Subtotal U.S. GMDB [8] | 87,303 | 8,598 | 3,136 | 66 | |||||||||||||||
Less: General Account Value with U.S. GMDB | 7,008 | ||||||||||||||||||
Subtotal Separate Account Liabilities with GMDB | 80,295 | ||||||||||||||||||
Separate Account Liabilities without U.S. GMDB | 77,190 | ||||||||||||||||||
Total Separate Account Liabilities | $ | 157,485 | |||||||||||||||||
Japan GMDB [9], [11] | $ | 30,785 | $ | 8,469 | $ | 7,233 | 69 | ||||||||||||
Japan GMIB [9], [11] | $ | 28,526 | $ | 5,442 | $ | 5,442 | 69 | ||||||||||||
[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 or 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 which allows for free withdrawal of earnings, paid through a fixed payout annuity, after a minimum deferral period of 10, 15 or 20 years. The GRB related to the Japan GMIB was $33.2 billion and $33.9 billion as of June 30, 2011 and December 31, 2010, respectively. The GRB related to the Japan GMAB and GMWB was $687 and $707 as of June 30, 2011 and December 31, 2010, 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 June 30, 2011, 55% of the GMDB RNAR and 68% of the GMIB NAR 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. Additionally Japan’s NAR and RNAR are highly sensitive to currency movements and increase when the Yen strengthens. | |
[11] | Policies with a guaranteed living benefit (GMIB in Japan) also have a guaranteed death benefit. The NAR for each benefit is shown in the table above, however these benefits are not additive. When a policy terminates due to death, any NAR related to GMWB or GMIB is released. Similarly, when a policy goes into benefit status on a GMWB or GMIB, its GMDB NAR is released. |
Asset type | As of June 30, 2011 | As of December 31, 2010 | ||||||
Equity securities (including mutual funds) | $ | 72,395 | $ | 75,601 | ||||
Cash and cash equivalents | 7,900 | 8,365 | ||||||
Total | $ | 80,295 | $ | 83,966 | ||||
53
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
2011 | 2010 | |||||||
Balance, January 1 | $ | 459 | $ | 438 | ||||
Sales inducements deferred | 9 | 15 | ||||||
Amortization | (20 | ) | (13 | ) | ||||
Amortization — Unlock charge, pre-tax | (8 | ) | (15 | ) | ||||
Balance, June 30 | $ | 440 | $ | 425 | ||||
54
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
55
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
56
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Pension Benefits | Other Postretirement Benefits | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Service cost | $ | 24 | $ | 24 | $ | 1 | $ | 1 | ||||||||
Interest cost | 66 | 63 | 5 | 6 | ||||||||||||
Expected return on plan assets | (75 | ) | (72 | ) | (4 | ) | (3 | ) | ||||||||
Settlement expense | — | 20 | — | — | ||||||||||||
Amortization of prior service credit | (3 | ) | (3 | ) | — | — | ||||||||||
Amortization of actuarial loss | 42 | 28 | — | — | ||||||||||||
Net periodic benefit cost | $ | 54 | $ | 60 | $ | 2 | $ | 4 | ||||||||
Pension Benefits | Other Postretirement Benefits | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Service cost | $ | 52 | $ | 51 | $ | 2 | $ | 3 | ||||||||
Interest cost | 130 | 125 | 10 | 11 | ||||||||||||
Expected return on plan assets | (149 | ) | (143 | ) | (7 | ) | (6 | ) | ||||||||
Settlement expense | — | 20 | — | — | ||||||||||||
Amortization of prior service credit | (5 | ) | (5 | ) | — | — | ||||||||||
Amortization of actuarial loss | 79 | 54 | — | — | ||||||||||||
Net periodic benefit cost | $ | 107 | $ | 102 | $ | 5 | $ | 8 | ||||||||
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Stock-based compensation plans expense | $ | 25 | $ | 19 | $ | 46 | $ | 41 | ||||||||
Income tax benefit | (9 | ) | (7 | ) | (16 | ) | (15 | ) | ||||||||
Total stock-based compensation plans expense, after-tax | $ | 16 | $ | 12 | $ | 30 | $ | 26 | ||||||||
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Revenues | ||||||||||||||||
Fee income | $ | 1 | $ | 9 | $ | 1 | $ | 18 | ||||||||
Net investment income | 3 | 5 | 11 | 11 | ||||||||||||
Net realized capital gains (losses) | (1 | ) | 2 | (5 | ) | — | ||||||||||
Other revenues | — | 55 | 47 | 109 | ||||||||||||
Total revenues | 3 | 71 | 54 | 138 | ||||||||||||
Benefits, losses and expenses | ||||||||||||||||
Amortization of deferred policy acquisition costs and present value of future profits | — | 3 | — | 7 | ||||||||||||
Insurance operating costs and other expenses | 14 | 66 | 46 | 130 | ||||||||||||
Goodwill impairment | — | 153 | — | 153 | ||||||||||||
Total benefits, losses and expenses | 14 | 222 | 46 | 290 | ||||||||||||
Income (loss) before income taxes | (11 | ) | (151 | ) | 8 | (152 | ) | |||||||||
Income tax expense (benefit) | (5 | ) | (52 | ) | 2 | (52 | ) | |||||||||
Income (loss) from operations of discontinued operations, net of tax | (6 | ) | (99 | ) | 6 | (100 | ) | |||||||||
Net realized capital gain (loss) on disposal, net of tax | (74 | ) | — | 76 | — | |||||||||||
Income (loss) from discontinued operations, net of tax | $ | (80 | ) | $ | (99 | ) | $ | 82 | $ | (100 | ) | |||||
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2011 | December 31, 2010 | |||||||||||||||||||||||
Accumulated | Carrying | Accumulated | Carrying | |||||||||||||||||||||
Gross | Impairments | Value | Gross | Impairments | Value | |||||||||||||||||||
Commercial Markets | ||||||||||||||||||||||||
Property & Casualty Commercial | $ | 30 | $ | — | $ | 30 | $ | 30 | $ | — | $ | 30 | ||||||||||||
Total Commercial Markets | 30 | — | 30 | 30 | — | 30 | ||||||||||||||||||
Consumer Markets | 119 | — | 119 | 119 | — | 119 | ||||||||||||||||||
Wealth Management | ||||||||||||||||||||||||
Global Annuity | 422 | (422 | ) | — | 422 | (422 | ) | — | ||||||||||||||||
Life Insurance | 224 | — | 224 | 224 | — | 224 | ||||||||||||||||||
Retirement Plans | 87 | — | 87 | 87 | — | 87 | ||||||||||||||||||
Mutual Funds | 159 | — | 159 | 159 | — | 159 | ||||||||||||||||||
Total Wealth Management | 892 | (422 | ) | 470 | 892 | (422 | ) | 470 | ||||||||||||||||
Corporate and Other | 940 | (523 | ) | 417 | 940 | (508 | ) | 432 | ||||||||||||||||
Total Goodwill | $ | 1,981 | $ | (945 | ) | $ | 1,036 | $ | 1,981 | $ | (930 | ) | $ | 1,051 | ||||||||||
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AND RESULTS OF OPERATIONS
(Dollar amounts in millions except share data unless otherwise stated)
Description | Page | |||
61 | ||||
64 | ||||
65 | ||||
75 | ||||
75 | ||||
84 | ||||
86 | ||||
87 | ||||
90 | ||||
92 | ||||
93 | ||||
95 | ||||
96 | ||||
97 | ||||
97 | ||||
105 | ||||
113 | ||||
119 |
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Three Months Ended | Six Months Ended | |||||||||||||||||||||||
June 30, | June 30, | |||||||||||||||||||||||
Operating Summary | 2011 | 2010 | Change | 2011 | 2010 | Change | ||||||||||||||||||
Earned premiums | $ | 3,545 | $ | 3,506 | 1 | % | $ | 7,064 | $ | 7,033 | — | |||||||||||||
Fee income | 1,219 | 1,186 | 3 | % | 2,428 | 2,366 | 3 | % | ||||||||||||||||
Net investment income (loss): | ||||||||||||||||||||||||
Securities available-for-sale and other | 1,104 | 1,148 | (4 | %) | 2,212 | 2,202 | — | |||||||||||||||||
Equity securities, trading [1] | (597 | ) | (2,649 | ) | 77 | % | 206 | (1,948 | ) | NM | ||||||||||||||
Total net investment income (loss) | 507 | (1,501 | ) | NM | 2,418 | 254 | NM | |||||||||||||||||
Net realized capital gains (losses) | 69 | 9 | NM | (334 | ) | (265 | ) | (26 | %) | |||||||||||||||
Other revenues | 61 | 65 | (6 | %) | 125 | 129 | (3 | %) | ||||||||||||||||
Total revenues | 5,401 | 3,265 | 65 | % | 11,701 | 9,517 | 23 | % | ||||||||||||||||
Benefits, losses and loss adjustment expenses | 3,976 | 3,592 | 11 | % | 7,154 | 6,725 | 6 | % | ||||||||||||||||
Benefits, losses and loss adjustment expenses — returns credited on international variable annuities [1] | (597 | ) | (2,649 | ) | 77 | % | 206 | (1,948 | ) | NM | ||||||||||||||
Amortization of deferred policy acquisition costs and present value of future profits (“DAC”) | 835 | 935 | (11 | %) | 1,499 | 1,582 | (5 | %) | ||||||||||||||||
Insurance operating costs and other expenses | 1,224 | 1,111 | 10 | % | 2,344 | 2,226 | 5 | % | ||||||||||||||||
Interest expense | 128 | 132 | (3 | %) | 256 | 252 | 2 | % | ||||||||||||||||
Total benefits, losses and expenses | 5,566 | 3,121 | 78 | % | 11,459 | 8,837 | 30 | % | ||||||||||||||||
Income (loss) from continuing operations before income taxes | (165 | ) | 144 | NM | 242 | 680 | (64 | %) | ||||||||||||||||
Income tax expense (benefit) | (269 | ) | (31 | ) | NM | (211 | ) | 185 | NM | |||||||||||||||
Income from continuing operations, net of tax | 104 | 175 | (41 | %) | 453 | 495 | (8 | %) | ||||||||||||||||
Income (loss) from discontinued operations, net of tax | (80 | ) | (99 | ) | 19 | % | 82 | (100 | ) | NM | ||||||||||||||
Net income | $ | 24 | $ | 76 | (68 | %) | $ | 535 | $ | 395 | 35 | % | ||||||||||||
Supplemental Operating Data | ||||||||||||||||||||||||
Income from continuing operations, net of tax, available to common shareholders per diluted common share | $ | 0.19 | $ | 0.34 | $ | 0.89 | $ | — | ||||||||||||||||
Net income (loss) available to common shareholders per diluted common share | 0.03 | 0.14 | 1.06 | (0.24 | ) | |||||||||||||||||||
Total revenues, excluding net investment income on equity securities, trading | 5,998 | 5,914 | 11,495 | 11,465 | ||||||||||||||||||||
June 30, | December 31, | |||||||
Summary of Financial Condition | 2011 | 2010 | ||||||
Total assets | $ | 317,469 | $ | 318,346 | ||||
Total investments, excluding equity securities, trading | 99,794 | 98,175 | ||||||
Total stockholders’ equity | 21,675 | 20,311 |
[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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Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||
Increase | Increase | |||||||||||||||||||||||
(Decrease) From | (Decrease) From | |||||||||||||||||||||||
Segment Results | 2011 | 2010 | 2011 to 2010 | 2011 | 2010 | 2011 to 2010 | ||||||||||||||||||
Property & Casualty Commercial | $ | 121 | $ | 270 | $ | (149 | ) | $ | 448 | $ | 476 | $ | (28 | ) | ||||||||||
Group Benefits | 41 | 48 | (7 | ) | 52 | 99 | (47 | ) | ||||||||||||||||
Commercial Markets | 162 | 318 | (156 | ) | 500 | 575 | (75 | ) | ||||||||||||||||
Consumer Markets | (174 | ) | (13 | ) | (161 | ) | (64 | ) | 43 | (107 | ) | |||||||||||||
Global Annuity | 228 | (114 | ) | 342 | 278 | (34 | ) | 312 | ||||||||||||||||
Life Insurance | 66 | 103 | (37 | ) | 101 | 127 | (26 | ) | ||||||||||||||||
Retirement Plans | 30 | 14 | 16 | 45 | 8 | 37 | ||||||||||||||||||
Mutual Funds | 27 | 23 | 4 | 55 | 49 | 6 | ||||||||||||||||||
Wealth Management | 351 | 26 | 325 | 479 | 150 | 329 | ||||||||||||||||||
Corporate and Other | (315 | ) | (255 | ) | (60 | ) | (380 | ) | (373 | ) | (7 | ) | ||||||||||||
Net income | $ | 24 | $ | 76 | $ | (52 | ) | $ | 535 | $ | 395 | $ | 140 | |||||||||||
• | Current accident year catastrophe losses of $290, after-tax, in 2011, primarily due to severe tornadoes and wind storms in the Midwest and South, compared to $150, after-tax, in 2010, primarily due to tornadoes, thunderstorms and hail events in the Midwest, plains states and the Southeast. |
• | An asbestos reserve increase of $189, after-tax, in 2011, compared to $110, after-tax, in 2010 resulting from the Company’s annual review of its asbestos liabilities within the Other Operations operating segment. The reserve increase in 2011 was primarily driven by higher frequency and severity of mesothelioma claims, particularly against certain smaller, more peripheral insureds, while the reserve increase in 2010 was primarily driven by increases in claim severity and expenses. For further information, see Other Operations Claims within the Property and Casualty Insurance Product Reserves, Net of Reinsurance section in Critical Accounting Estimates. |
• | A $73, after-tax, charge in the second quarter of 2011 related to the write-off of capitalized costs associated with a policy administration software project that was discontinued. |
• | The Company recorded strengthenings of $18, after-tax, in 2011, compared to releases of $97, after-tax, in 2010, in its property and casualty insurance prior accident years development, excluding asbestos reserves. For additional information regarding prior accident years development, see Critical Accounting Estimates within the MD&A. |
• | The Unlock charge was $77, after-tax, in 2011 as compared to an Unlock charge of $230, after-tax, in 2010. The charge in both 2011 and 2010 was due to macro hedge program and actual separate account returns being below our aggregated estimated return. For further discussion of Unlocks see the Critical Accounting Estimates within the MD&A. |
• | For the three months ended June 30, 2011 the Company released $86 of the income tax valuation allowance associated with investment realized capital losses. See Note 1 of the Notes to Condensed Consolidated Financial Statements for a reconciliation of the tax provision at the U.S. Federal statutory rate to the provision for income taxes. |
• | For the three months ended June 30, 2011, the Company recorded a $52 income tax benefit related to a resolution of a tax matter with the Internal Revenue Service (“IRS”) for the computation of dividends received deduction for years 1998, 2000 and 2001. For additional information see Note 1 of the Notes to Condensed Consolidated Financial Statements. |
• | For the three months ended June 30, 2011, the loss from discontinued operations, net of tax, is due to a charge of $74, after-tax, in the second quarter of 2011 related to the disposition of Federal Trust Corporation. For the three months ended June 30, 2010, loss from discontinued operations, net of tax, primarily relates to goodwill impairment on Federal Trust Corporation of approximately $100, after-tax, recorded in the second quarter of 2010. |
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• | Income (loss) from discontinued operations, net of tax, increased due to a realized gain on the sale of Specialty Risk Services of $150, after-tax, in the first quarter of 2011, which was partially offset by a loss of $74, after-tax, from the disposition of Federal Trust Corporation in the second quarter of 2011. In 2010, loss from discontinued operations, net of tax, primarily relates to goodwill impairment on Federal Trust Corporation of approximately $100, after-tax, recorded in the second quarter of 2010. |
• | The Unlock charge was $15, after-tax, in 2011 as compared to an Unlock charge of $145, after-tax, in 2010. The Unlock charge for the six months ended June 30, 2011 consisted of a charge related to the impact of the macro hedge program, which includes an extension of existing hedging duration implemented in the second quarter of 2011 for U.S. annuity business, and a benefit from actual separate account returns for the six months ended June 30, 2011 being above the Company’s aggregated estimated return. The Unlock charge for the six months ended June 30, 2010 consisted of a charge due to the macro hedge program and a charge from actual separate account returns for the six months ended June 30, 2010 being below the Company’s aggregated estimated return. For further discussion of Unlocks see the Critical Accounting Estimates within the MD&A. |
• | The first quarter of 2010 includes an accrual for a litigation settlement of $73, before-tax, for further information see Structured Settlement Class Action in Note 12 of the Notes to Consolidated Financial Statements in The Hartford’s 2010 Form 10-K Annual Report. |
• | Income tax expense (benefit) in 2010 includes a valuation allowance expense of $86 compared to a benefit of $91 in 2011. See Note 1 of the Notes to Condensed Consolidated Financial Statements for a reconciliation of the tax provision at the U.S. Federal statutory rate to the provision for income taxes. |
• | For the three months ended June 30, 2011, the Company recorded a $52 income tax benefit related to a resolution of a tax matter with the IRS for the computation of dividends received deduction for years 1998, 2000 and 2001. For additional information see Note 1 of the Notes to Condensed Consolidated Financial Statements. |
• | Current accident year catastrophe losses of $341, after-tax, in 2011, primarily due to severe tornadoes and wind storms in the Midwest and South, as well as, winter storms in the Northeast and Midwest, compared to $200, after-tax, in 2010, primarily due to tornadoes, thunderstorms and hail events in the Midwest, plains states and the Southeast, as well as, winter storms in the Mid-Atlantic and Northeast. |
• | An asbestos reserve increase of $189, after-tax, in 2011, compared to $110, after-tax, in 2010 resulting from the Company’s annual review of its asbestos liabilities within the Other Operations operating segment. The reserve increase in 2011 was primarily driven by higher frequency and severity of mesothelioma claims, particularly against certain smaller, more peripheral insureds, while the reserve increase in 2010 was primarily driven by increases in claim severity and expenses. For further information, see Other Operations Claims within the Property and Casualty Insurance Product Reserves, Net of Reinsurance section in Critical Accounting Estimates. |
• | A $73, after-tax, charge in the second quarter of 2011 related to the write-off of capitalized costs associated with a policy administration software project that was discontinued. |
• | Net realized capital losses increased primarily due the results of the variable annuity hedge program, partially offset by a decline in impairment losses and valuation allowances on mortgage loans. For further discussion, see Net Realized Capital Gains (Losses) within Investment Results of Key Performance Measures and Ratios of this MD&A. |
• | The Company recorded releases of $16, after-tax, in 2011, compared to releases of $153, after-tax, in 2010, in its property and casualty insurance prior accident years development, excluding asbestos reserves. For additional information regarding prior accident years development, see Critical Accounting Estimates within the MD&A. |
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• | property and casualty insurance product reserves, net of reinsurance; |
• | estimated gross profits used in the valuation and amortization of assets and liabilities associated with variable annuity and other universal life-type contracts; |
• | evaluation of other-than-temporary impairments on available-for-sale securities and valuation allowances on investments; |
• | living benefits required to be fair valued (in other policyholder funds and benefits payable); |
• | goodwill impairment; |
• | valuation of investments and derivative instruments; |
• | pension and other postretirement benefit obligations; |
• | valuation allowance on deferred tax assets; and |
• | contingencies relating to corporate litigation and regulatory matters. |
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Six Months Ended June 30, 2011 | ||||||||||||||||
Total | ||||||||||||||||
Property & | Property and | |||||||||||||||
Casualty | Consumer | Corporate and | Casualty | |||||||||||||
Commercial | Markets | Other | Insurance | |||||||||||||
Beginning liabilities for unpaid losses and loss adjustment expenses, gross | $ | 14,727 | $ | 2,177 | $ | 4,121 | $ | 21,025 | ||||||||
Reinsurance and other recoverables | 2,361 | 17 | 699 | 3,077 | ||||||||||||
Beginning liabilities for unpaid losses and loss adjustment expenses, net | 12,366 | 2,160 | 3,422 | 17,948 | ||||||||||||
Provision for unpaid losses and loss adjustment expenses | ||||||||||||||||
Current accident year before catastrophes | 1,912 | 1,239 | 1 | 3,152 | ||||||||||||
Current accident year catastrophes | 212 | 313 | — | 525 | ||||||||||||
Prior accident years | 25 | (49 | ) | 290 | 266 | |||||||||||
Total provision for unpaid losses and loss adjustment expenses | 2,149 | 1,503 | 291 | 3,943 | ||||||||||||
Payments | (1,852 | ) | (1,494 | ) | (198 | ) | (3,544 | ) | ||||||||
Ending liabilities for unpaid losses and loss adjustment expenses, net | 12,663 | 2,169 | 3,515 | 18,347 | ||||||||||||
Reinsurance and other recoverables | 2,356 | 6 | 751 | 3,113 | ||||||||||||
Ending liabilities for unpaid losses and loss adjustment expenses, gross | $ | 15,019 | $ | 2,175 | $ | 4,266 | $ | 21,460 | ||||||||
Earned premiums | $ | 3,015 | $ | 1,895 | ||||||||||||
Loss and loss expense paid ratio [1] | 61.4 | 78.8 | ||||||||||||||
Loss and loss expense incurred ratio | 71.3 | 79.4 | ||||||||||||||
Prior accident years development (pts) [2] | 0.8 | (2.6 | ) | |||||||||||||
[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. |
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Three Months Ended June 30, 2011 | ||||||||||||||||
Property & Casualty | Consumer | Corporate and | Total Property and | |||||||||||||
Commercial | Markets | Other | Casualty Insurance | |||||||||||||
Auto liability | $ | — | $ | (9 | ) | $ | — | $ | (9 | ) | ||||||
Homeowners | — | 1 | — | 1 | ||||||||||||
Professional liability | 2 | — | — | 2 | ||||||||||||
Package business | 3 | — | — | 3 | ||||||||||||
Workers’ compensation | 4 | — | — | 4 | ||||||||||||
General liability | 6 | — | — | 6 | ||||||||||||
Fidelity and surety | (2 | ) | — | — | (2 | ) | ||||||||||
Commercial property | (7 | ) | — | — | (7 | ) | ||||||||||
Net asbestos reserves | — | — | 290 | 290 | ||||||||||||
Change in workers’ compensation discount, including accretion | 10 | — | — | 10 | ||||||||||||
Catastrophes | 10 | 9 | — | 19 | ||||||||||||
Other reserve re-estimates, net | 5 | (1 | ) | (4 | ) | — | ||||||||||
Total prior accident years development | $ | 31 | $ | — | $ | 286 | $ | 317 | ||||||||
Six Months Ended June 30, 2011 | ||||||||||||||||
Property & Casualty | Consumer | Corporate and | Total Property and | |||||||||||||
Commercial | Markets | Other | Casualty Insurance | |||||||||||||
Auto liability | $ | (1 | ) | $ | (64 | ) | $ | — | $ | (65 | ) | |||||
Homeowners | — | (13 | ) | — | (13 | ) | ||||||||||
Professional liability | (7 | ) | — | — | (7 | ) | ||||||||||
Package business | (4 | ) | — | — | (4 | ) | ||||||||||
Workers’ compensation | 3 | — | — | 3 | ||||||||||||
General liability | 12 | — | — | 12 | ||||||||||||
Fidelity and surety | (2 | ) | — | — | (2 | ) | ||||||||||
Commercial property | (5 | ) | — | — | (5 | ) | ||||||||||
Net asbestos reserves | — | — | 290 | 290 | ||||||||||||
Net environmental reserves | — | — | 2 | 2 | ||||||||||||
Change in workers’ compensation discount, including accretion | 17 | — | — | 17 | ||||||||||||
Catastrophes | 5 | 28 | — | 33 | ||||||||||||
Other reserve re-estimates, net | 7 | — | (2 | ) | 5 | |||||||||||
Total prior accident years development | $ | 25 | $ | (49 | ) | $ | 290 | $ | 266 | |||||||
• | Released reserves for personal auto liability claims for both the three and six months ended June 30, 2011, primarily for accident years 2005 through 2010. Favorable trends in reported severity have persisted over this time period. As these accident years develop, the uncertainty around the ultimate losses is reduced and management places more weight on the emerged experience. |
• | Released homeowners’ reserves, for the six months ended June 30, 2011, due to favorable emergence losses primarily for accident years 2009 and 2010. This was partially driven by an increase in the speed at which claims are being settled, a trend that is expected to continue as these accident years develop. |
• | Strengthened reserves for general liability and high hazard liability, for both the three and six months ended June 30, 2011, driven by increasing indications for allocated claim handling cost primarily in accident years 2006 through 2010. |
• | Prior year catastrophe strengthening, for the three and six month period, primarily related to a severe wind and hail storm event in Arizona during the fourth quarter of 2010. |
• | Refer to the Other Operations Claims section for further discussion on strengthening of net asbestos reserves. |
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Six Months Ended June 30, 2010 | ||||||||||||||||
Property & Casualty | Consumer | Corporate and | Total Property and | |||||||||||||
Commercial | Markets | Other | Casualty Insurance | |||||||||||||
Beginning liabilities for unpaid losses and loss adjustment expenses, gross | $ | 15,051 | $ | 2,109 | $ | 4,491 | $ | 21,651 | ||||||||
Reinsurance and other recoverables | 2,570 | 11 | 860 | 3,441 | ||||||||||||
Beginning liabilities for unpaid losses and loss adjustment expenses, net | 12,481 | 2,098 | 3,631 | 18,210 | ||||||||||||
Provision for unpaid losses and loss adjustment expenses | ||||||||||||||||
Current accident year before catastrophes | 1,746 | 1,353 | — | 3,099 | ||||||||||||
Current accident year catastrophes | 121 | 187 | — | 308 | ||||||||||||
Prior accident years | (221 | ) | (17 | ) | 172 | (66 | ) | |||||||||
Total provision for unpaid losses and loss adjustment expenses | 1,646 | 1,523 | 172 | 3,341 | ||||||||||||
Payments | (1,701 | ) | (1,411 | ) | (217 | ) | (3,329 | ) | ||||||||
Ending liabilities for unpaid losses and loss adjustment expenses, net | 12,426 | 2,210 | 3,586 | 18,222 | ||||||||||||
Reinsurance and other recoverables | 2,431 | 12 | 814 | 3,257 | ||||||||||||
Ending liabilities for unpaid losses and loss adjustment expenses, gross | $ | 14,857 | $ | 2,222 | $ | 4,400 | $ | 21,479 | ||||||||
Earned premiums | $ | 2,839 | $ | 1,991 | ||||||||||||
Loss and loss expense paid ratio [1] | 59.9 | 70.9 | ||||||||||||||
Loss and loss expense incurred ratio | 57.9 | 76.5 | ||||||||||||||
Prior accident years development (pts) [2] | (7.8 | ) | (0.8 | ) | ||||||||||||
[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. |
Three Months Ended June 30, 2010 | ||||||||||||||||
Property & Casualty | Consumer | Corporate and | Total Property and | |||||||||||||
Commercial | Markets | Other | Casualty Insurance | |||||||||||||
Auto liability | $ | (16 | ) | $ | (24 | ) | $ | — | $ | (40 | ) | |||||
Professional liability | (61 | ) | — | — | (61 | ) | ||||||||||
General liability | (32 | ) | — | — | (32 | ) | ||||||||||
Commercial property | (2 | ) | — | — | (2 | ) | ||||||||||
Package business | 1 | — | — | 1 | ||||||||||||
Workers’ compensation | (10 | ) | — | — | (10 | ) | ||||||||||
Fidelity and surety | (5 | ) | — | — | (5 | ) | ||||||||||
Net asbestos reserves | — | — | 169 | 169 | ||||||||||||
Homeowners | — | 9 | — | 9 | ||||||||||||
Change in workers’ compensation discount, including accretion | 6 | — | — | 6 | ||||||||||||
Catastrophes | 4 | 4 | — | 8 | ||||||||||||
Uncollectible reinsurance | (30 | ) | — | — | (30 | ) | ||||||||||
Other reserve re-estimates, net | 6 | 1 | 2 | 9 | ||||||||||||
Total prior accident years development | $ | (139 | ) | $ | (10 | ) | $ | 171 | $ | 22 | ||||||
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Six Months Ended June 30, 2010 | ||||||||||||||||
Property & Casualty | Consumer | Corporate and | Total Property and | |||||||||||||
Commercial | Markets | Other | Casualty Insurance | |||||||||||||
Auto liability | $ | (25 | ) | $ | (41 | ) | $ | — | $ | (66 | ) | |||||
Professional liability | (79 | ) | — | — | (79 | ) | ||||||||||
General liability | (47 | ) | — | — | (47 | ) | ||||||||||
Commercial property | (14 | ) | — | — | (14 | ) | ||||||||||
Package business | (9 | ) | — | — | (9 | ) | ||||||||||
Workers’ compensation | (19 | ) | — | — | (19 | ) | ||||||||||
Fidelity and surety | (9 | ) | — | — | (9 | ) | ||||||||||
Net asbestos reserves | — | — | 169 | 169 | ||||||||||||
Homeowners | — | 24 | — | 24 | ||||||||||||
Change in workers’ compensation discount, including accretion | 13 | — | — | 13 | ||||||||||||
Catastrophes | — | 3 | — | 3 | ||||||||||||
Uncollectible reinsurance | (30 | ) | — | — | (30 | ) | ||||||||||
Other reserve re-estimates, net | (2 | ) | (3 | ) | 3 | (2 | ) | |||||||||
Total prior accident years development | $ | (221 | ) | $ | (17 | ) | $ | 172 | $ | (66 | ) | |||||
• | Released reserves for professional liability claims in the three and six months ended June 30, 2010, primarily related to directors’ and officers’ (“D&O”) claims in accident years 2008 and prior. For these accident years, reported losses for claims under D&O policies have been emerging favorably to initial expectations due to lower than expected claim severity. Any continued favorable emergence of claims under D&O insurance policies for prior accident years could lead the Company to reduce reserves for these liabilities in future quarters. |
• | Released reserves for general liability umbrella claims in the three and six months ended June 30, 2010. The Company observed that reported losses for general liability umbrella continue to emerge favorably and this caused management to reduce its estimate of the cost of future reported claims. In addition, the Company released reserves related to high hazard liability claims in the three months ended June 30, 2010, primarily related to accident years 2007 and prior. During 2009 and 2010, the Company recognized that loss emergence for high hazard liability was less than expected, and accordingly, management reduced its reserve estimate. Partially offsetting the reserve releases in the three months ended June 30, 2010 was strengthenings in commercial general liability, excluding umbrella driven by higher than expected allocated loss adjustment expenses on claims from accident years 2000 and prior. |
• | Released reserves for personal auto liability claims in the three and six months ended June 30, 2010. During 2009, the Company recognized that favorable development in reported severity, due in part to changes made to claim handling procedures in 2007, was a sustained trend for accident years 2005 through 2008 and, accordingly, management reduced its reserve estimate. The reserve releases in the first and second quarters of 2010 are in response to a continuation of these same favorable trends, primarily affecting accident years 2005 through 2009. |
• | Released reserves for specialty programs claims in the three months ended June 30, 2010, primarily related to accident years 2006 and prior. Over the course of several years, claim activity on prior accident years has been lower than anticipated. Management now believes that this lower level of claim activity will continue into the future and has reduced its reserve estimate. |
• | Released reserves for commercial auto liability in the three months ended June 30, 2010, when the Company lowered its reserve estimate to recognize a lower severity trend during 2009 and 2010 on larger claims in accident years 2002 to 2009. |
• | Strengthened reserves for homeowners’ claims in the three and six months ended June 30, 2010. During 2010, the Company observed a lengthening of the claim reporting period for homeowners’ claims for prior accident years which resulted in increasing management’s estimate of the ultimate cost to settle these claims. |
• | The Company reviewed its allowance for uncollectible reinsurance for Property & Casualty Commercial in the three months ended June 30, 2010 and reduced its allowance driven, in part, by a reduction in gross ceded loss recoverables. |
• | Refer to the Other Operations Claims section for further discussion on strengthening of net asbestos reserves. |
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For the Three Months Ended June 30, 2011 | Asbestos | Environmental | All Other [1] | Total | ||||||||||||
Beginning liability — net [2][3] | $ | 1,731 | $ | 323 | $ | 1,255 | $ | 3,309 | ||||||||
Losses and loss adjustment expenses incurred | 290 | — | (4 | ) | 286 | |||||||||||
Losses and loss adjustment expenses paid | (44 | ) | (8 | ) | (27 | ) | (79 | ) | ||||||||
Ending liability — net [2][3] | $ | 1,977 [4] | $ | 315 | $ | 1,224 | $ | 3,516 | ||||||||
For the Six Months Ended June 30, 2011 | Asbestos | Environmental | All Other [1] | Total | ||||||||||||
Beginning liability — net [2][3] | $ | 1,787 | $ | 334 | $ | 1,302 | $ | 3,423 | ||||||||
Losses and loss adjustment expenses incurred | 290 | 2 | (2 | ) | 290 | |||||||||||
Losses and loss adjustment expenses paid | (100 | ) | (21 | ) | (76 | ) | (197 | ) | ||||||||
Ending liability — net [2][3] | $ | 1,977 [4] | $ | 315 | $ | 1,224 | $ | 3,516 | ||||||||
[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 amounts reported in Property & Casualty Commercial and Consumer Markets reporting segments (collectively “Ongoing Operations”) for asbestos and environmental net liabilities of $10 and $10, respectively, as of June 30, 2011, $11 and $10 respectively, as of March 31, 2011 and $11 and $5, respectively, as of December 31, 2010; total net losses and loss adjustment expenses incurred for the three and six months ended June 30, 2011 includes $3 and $12, respectively, related to asbestos and environmental claims; and total net losses and loss adjustment expenses paid for the three and six months ended June 30, 2011 includes $4 and $8, respectively, related to asbestos and environmental claims. | |
[3] | Gross of reinsurance, asbestos and environmental reserves, including liabilities in Ongoing Operations, were $2,558 and $368, respectively, as of June 30, 2011, $2,225 and $376, respectively, as of March 31, 2011, and $2,308 and $378, respectively, as of December 31, 2010. | |
[4] | The one year and average three year net paid amounts for asbestos claims, including Ongoing Operations, are $284 and $233, respectively, resulting in a one year net survival ratio of 7.0 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. |
• | 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. |
• | 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. |
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Number of | All Time | Total | All Time | |||||||||||||
Accounts [1] | Paid [2] | Reserves | Ultimate [2] | |||||||||||||
Major asbestos defendants [4] | ||||||||||||||||
Structured settlements (includes 4 Wellington accounts) [5] | 8 | $ | 331 | $ | 438 | $ | 769 | |||||||||
Wellington (direct only) | 29 | 908 | 43 | 951 | ||||||||||||
Other major asbestos defendants | 28 | 527 | 28 | 555 | ||||||||||||
No known policies (includes 3 Wellington accounts) | 5 | — | — | — | ||||||||||||
Accounts with future exposure > $2.5 | 85 | 929 | 702 | 1,631 | ||||||||||||
Accounts with future exposure < $2.5 | 1,075 | 342 | 122 | 464 | ||||||||||||
Unallocated [6] | 1,895 | 563 | 2,458 | |||||||||||||
Total direct | 4,932 | 1,896 | 6,828 | |||||||||||||
Assumed reinsurance | 1,302 | 379 | 1,681 | |||||||||||||
London market | 646 | 283 | 929 | |||||||||||||
Total as of June 30, 2011 [3] | $ | 6,880 | $ | 2,558 | $ | 9,438 | ||||||||||
[1] | 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 2011. | |
[2] | “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”). | |
[3] | 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 three-year gross survival ratio of 8.2 as of June 30, 2011 is computed based on total paid losses of $937 for the period from July 1, 2008 to June 30, 2011. As of June 30, 2011, the one year gross paid amount for total asbestos claims is $373, resulting in a one year gross survival ratio of 6.9. | |
[4] | Includes 24 open accounts at June 30, 2011. Included 25 open accounts at June 30, 2010. | |
[5] | 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. | |
[6] | Includes closed accounts (exclusive of Major Asbestos Defendants) and unallocated IBNR. |
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Asbestos [1] | Environmental [1] | |||||||||||||||
Paid | Incurred | Paid | Incurred | |||||||||||||
Three Months Ended June 30, 2011 | Losses & LAE | Losses & LAE | Losses & LAE | Losses & LAE | ||||||||||||
Gross | ||||||||||||||||
Direct | $ | 30 | $ | 350 | $ | 6 | $ | — | ||||||||
Assumed Reinsurance | 9 | 12 | 1 | — | ||||||||||||
London Market | 5 | 16 | 1 | — | ||||||||||||
Total | 44 | 378 | 8 | — | ||||||||||||
Ceded | — | (88 | ) | — | — | |||||||||||
Net | $ | 44 | $ | 290 | $ | 8 | $ | — | ||||||||
Paid | Incurred | Paid | Incurred | |||||||||||||
Six Months Ended June 30, 2011 | Losses & LAE | Losses & LAE | Losses & LAE | Losses & LAE | ||||||||||||
Gross | ||||||||||||||||
Direct | $ | 87 | $ | 350 | $ | 12 | $ | 2 | ||||||||
Assumed Reinsurance | 24 | 12 | 3 | — | ||||||||||||
London Market | 14 | 16 | 3 | — | ||||||||||||
Total | 125 | 378 | 18 | 2 | ||||||||||||
Ceded | (25 | ) | (88 | ) | 3 | — | ||||||||||
Net | $ | 100 | $ | 290 | $ | 21 | $ | 2 | ||||||||
[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 three and six months ended June 30, 2011 includes $4 and $13, respectively, related to asbestos and environmental claims. Total gross losses and LAE paid in Ongoing Operations for the three and six months ended June 30, 2011 includes $4 and $9, respectively, related to asbestos and environmental claims. |
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Global Annuity | Life Insurance | Retirement Plans | ||||||||||||||||||||||
Jun. 30, | Dec. 31, | Jun. 30, | Dec. 31, | Jun. 30, | Dec. 31, | |||||||||||||||||||
2011 | 2010 | 2011 | 2010 | 2011 | 2010 | |||||||||||||||||||
DAC | $ | 4,593 | $ | 4,868 | $ | 2,742 | $ | 2,667 | $ | 846 | $ | 820 | ||||||||||||
SIA | 350 | 370 | 46 | 45 | 23 | 23 | ||||||||||||||||||
URR | 127 | 142 | 1,499 | 1,383 | — | — | ||||||||||||||||||
Death and Other Insurance Benefit Reserves | 1,690 | 1,748 | 140 | 113 | 1 | 1 |
Global Annuity | Life Insurance | Retirement Plans | Total | |||||||||||||||||||||||||||||
2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | |||||||||||||||||||||||||
DAC | $ | (62 | ) | $ | (129 | ) | $ | (3 | ) | $ | (8 | ) | $ | (5 | ) | $ | (5 | ) | $ | (70 | ) | $ | (142 | ) | ||||||||
SIA | (7 | ) | (12 | ) | — | — | — | — | (7 | ) | (12 | ) | ||||||||||||||||||||
URR | 3 | 4 | 1 | 5 | — | — | 4 | 9 | ||||||||||||||||||||||||
Death and Other Insurance Benefit Reserves | (4 | ) | (85 | ) | — | — | — | — | (4 | ) | (85 | ) | ||||||||||||||||||||
Total | $ | (70 | ) | $ | (222 | ) | $ | (2 | ) | $ | (3 | ) | $ | (5 | ) | $ | (5 | ) | $ | (77 | ) | $ | (230 | ) | ||||||||
Global Annuity | Life Insurance | Retirement Plans | Total | |||||||||||||||||||||||||||||
2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | |||||||||||||||||||||||||
DAC | $ | (34 | ) | $ | (80 | ) | $ | (4 | ) | $ | (6 | ) | $ | (1 | ) | $ | (4 | ) | $ | (39 | ) | $ | (90 | ) | ||||||||
SIA | (5 | ) | (10 | ) | — | — | — | — | (5 | ) | (10 | ) | ||||||||||||||||||||
URR | 2 | 3 | 1 | 6 | — | — | 3 | 9 | ||||||||||||||||||||||||
Death and Other Insurance Benefit Reserves | 26 | (54 | ) | — | — | — | — | 26 | (54 | ) | ||||||||||||||||||||||
Total | $ | (11 | ) | $ | (141 | ) | $ | (3 | ) | $ | — | $ | (1 | ) | $ | (4 | ) | $ | (15 | ) | $ | (145 | ) | |||||||||
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Segment | Goodwill in | |||||||||||
Goodwill | Corporate and Other | Total | ||||||||||
Hartford Financial Products within Property & Casualty Commercial | $ | 30 | $ | — | $ | 30 | ||||||
Group Benefits | — | 138 | 138 | |||||||||
Consumer Markets | 119 | — | 119 | |||||||||
Individual Life within Life Insurance | 224 | 118 | 342 | |||||||||
Retirement Plans | 87 | 69 | 156 | |||||||||
Mutual Funds | 159 | 92 | 251 | |||||||||
Total | $ | 619 | $ | 417 | $ | 1,036 | ||||||
Segment | Goodwill in | |||||||||||
Goodwill | Corporate and Other | Total | ||||||||||
Hartford Financial Products within Property & Casualty Commercial | $ | 30 | $ | — | $ | 30 | ||||||
Group Benefits | — | 138 | 138 | |||||||||
Consumer Markets | 119 | — | 119 | |||||||||
Individual Life within Life Insurance | 224 | 118 | 342 | |||||||||
Retirement Plans | 87 | 69 | 156 | |||||||||
Mutual Funds | 159 | 92 | 251 | |||||||||
Federal Trust Corporation within Corporate and Other | — | 15 | 15 | |||||||||
Total | $ | 619 | $ | 432 | $ | 1,051 | ||||||
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Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Property & Casualty Commercial | ||||||||||||||||
Combined ratio | 105.8 | 89.6 | 101.7 | 89.6 | ||||||||||||
Catastrophe ratio | 11.6 | 6.2 | 7.2 | 4.3 | ||||||||||||
Non-catastrophe prior year development | 1.4 | (10.1 | ) | 0.7 | (7.8 | ) | ||||||||||
Combined ratio before catastrophes and prior year development | 92.8 | 93.6 | 93.9 | 93.1 | ||||||||||||
Consumer Markets | ||||||||||||||||
Combined ratio | 121.5 | 106.9 | 104.1 | 100.7 | ||||||||||||
Catastrophe ratio | 30.8 | 15.0 | 18.0 | 9.5 | ||||||||||||
Non-catastrophe prior year development | (1.0 | ) | (1.4 | ) | (4.1 | ) | (1.0 | ) | ||||||||
Combined ratio before catastrophes and prior year development | 91.6 | 93.2 | 90.1 | 92.2 | ||||||||||||
• | Property & Casualty Commercial’s combined ratio before catastrophes and prior year development improved for the three-month period primarily due to a less favorable expense ratio in the 2010 period driven by reserve strengthening for other state funds and taxes. The change in the expense ratio was partially offset by an increase in current accident year losses and loss adjustment expenses before catastrophes primarily due to loss costs outpacing earned pricing increases. For the six-month period, the combined ratio before catastrophes and prior year development deteriorated, as the change in the expense ratio was more than offset by an increase in current accident year losses and loss adjustment expenses before catastrophes, as well as, an increase in the policyholder dividend ratio. The increase in the policyholder dividend ratio was driven by an increase in the amount of dividends payable to certain workers’ compensation policyholders. |
• | Consumer Markets combined ratio before catastrophes and prior year development improved primarily as a result of a lower ratio of current accident year losses and loss adjustment expenses before catastrophes for auto, partially offset by an increase in the current accident year losses and loss adjustment expenses before catastrophes home. The decrease for auto was primarily due to earned pricing increases and lower estimated average severity on auto liability claims, partially offset by the effect of higher auto physical damage emerged loss costs. The increase for home was primarily due to an increase in the frequency of non-catastrophe weather claims, partially offset by the effect of earned pricing increases. |
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Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
Ratios | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Global Annuity | ||||||||||||||||
ROA | 61.3 bps | (30.3) bps | 37.3 bps | (4.5) bps | ||||||||||||
Effect of net realized losses, net of tax and DAC on ROA | 5.1 bps | (27.9) bps | (21.3) bps | (31.1) bps | ||||||||||||
Effect of Unlock on ROA | (4.1) bps | (43.1) bps | 5.9 bps | (11.0) bps | ||||||||||||
ROA, excluding realized losses and Unlock | 60.3 bps | 40.7 bps | 52.7 bps | 37.6 bps | ||||||||||||
Retirement Plans | ||||||||||||||||
ROA | 21.6 bps | 12.4 bps | 16.7 bps | 3.6 bps | ||||||||||||
Effect of net realized gains (losses), net of tax and DAC on ROA | 10.1 bps | 3.5 bps | 3.0 bps | (6.0) bps | ||||||||||||
Effect of Unlock on ROA | (2.9) bps | (2.6) bps | — bps | (0.9) bps | ||||||||||||
ROA, excluding realized losses and Unlock | 14.4 bps | 11.5 bps | 13.7 bps | 10.5 bps | ||||||||||||
Mutual Funds | ||||||||||||||||
ROA | 10.6 bps | 9.9 bps | 11.0 bps | 10.9 bps | ||||||||||||
Effect of discontinued operations on ROA | — bps | (0.4) bps | — bps | (0.4) bps | ||||||||||||
Effect of net realized gains (losses), net of tax and DAC on ROA | — bps | 0.2 bps | 0.2 bps | — bps | ||||||||||||
ROA, excluding realized gains (losses ) and Unlock | 10.6 bps | 10.1 bps | 10.8 bps | 11.3 bps | ||||||||||||
• | Global Annuity’s ROA, excluding realized losses and Unlock, increased primarily due to lower DAC amortization costs, a DRD tax settlement benefit, lower benefits, losses and loss adjustment expenses and a release of a reserve related to a product in Japan. |
• | Retirement Plans’ ROA, excluding realized gains (losses) and Unlock, increased due to a DRD tax settlement benefit and improvements in the equity markets, which led to increased fee income from higher account values. |
• | Mutual Funds’ ROA, excluding realized gains (losses) and Unlock, increase was primarily driven by increased fee income and other as a result of increased account values attributed to improved equity markets. Revenue increased at a lower rate than the increase in AUM due to a business mix shift, related to sales of funds that have lower management fees or fee waivers. |
• | Global Annuity’s ROA, excluding realized losses and Unlock, increased primarily due to lower DAC amortization costs, a DRD tax settlement benefit, and lower benefits, losses and loss adjustment expenses. |
• | Retirement Plans’ ROA, excluding realized gains (losses) and Unlock, increased primarily due to improvements in the equity markets, which led to increased fee income from higher account values. |
• | Mutual Funds’ ROA, excluding realized gains (losses) and Unlock, decrease was primarily driven by a business mix shift, related to sales of funds that have lower management fees or fee waivers, further offset by higher commission expenses as a result of higher sales. |
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Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Life Insurance | ||||||||||||||||
After-tax margin | 16.0 | % | 22.6 | % | 13.0 | % | 15.7 | % | ||||||||
Effect of net realized gains (losses), net of tax and DAC | 1.1 | % | 7.4 | % | (1.2 | %) | 1.8 | % | ||||||||
Effect of Unlock | (0.6 | %) | (1.0 | %) | (0.5 | %) | (0.7 | %) | ||||||||
After-tax margin, excluding realized losses and Unlock | 15.5 | % | 16.2 | % | 14.7 | % | 14.6 | % | ||||||||
Group Benefits | ||||||||||||||||
After-tax margin (excluding buyouts) | 3.6 | % | 4.0 | % | 2.3 | % | 4.2 | % | ||||||||
Effect of net realized gains, net of tax | 1.0 | % | 1.1 | % | 0.2 | % | 0.6 | % | ||||||||
After-tax margin (excluding buyouts), excluding realized gains (losses) | 2.6 | % | 2.9 | % | 2.1 | % | 3.6 | % | ||||||||
• | The decrease in Life Insurance’s after-tax margin, excluding realized losses and Unlock, for the three-month period was primarily due to an increase in benefits, losses, and loss adjustment expenses, as a result of favorable mortality in the prior year. For the six-month period, Life Insurance’s after-tax margin, excluding realized gains (losses) and Unlock increased primarily due to higher net investment income driven by higher average invested assets and favorable partnership income, partially offset by favorable mortality in the comparable prior year period. |
• | The decrease in Group Benefits’ after-tax margin (excluding buyouts), excluding realized gains (losses), in both periods was primarily due to decreases in fully insured ongoing premiums driven by lower sales over the past year, as well as, from a challenging economic environment. |
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June 30, 2011 | December 31, 2010 | |||||||||||||||
Amount | Percent | Amount | Percent | |||||||||||||
Fixed maturities, AFS, at fair value | $ | 78,132 | 78.3 | % | $ | 77,820 | 79.2 | % | ||||||||
Fixed maturities, at fair value using the fair value option | 1,227 | 1.2 | % | 649 | 0.7 | % | ||||||||||
Equity securities, AFS, at fair value | 1,081 | 1.1 | % | 973 | 1.0 | % | ||||||||||
Mortgage loans | 5,304 | 5.3 | % | 4,489 | 4.6 | % | ||||||||||
Policy loans, at outstanding balance | 2,188 | 2.2 | % | 2,181 | 2.2 | % | ||||||||||
Limited partnerships and other alternative investments | 2,028 | 2.0 | % | 1,918 | 2.0 | % | ||||||||||
Other investments [1] | 973 | 1.0 | % | 1,617 | 1.6 | % | ||||||||||
Short-term investments | 8,861 | 8.9 | % | 8,528 | 8.7 | % | ||||||||||
Total investments excluding equity securities, trading | 99,794 | 100.0 | % | 98,175 | 100.0 | % | ||||||||||
Equity securities, trading, at fair value [2] [3] | 32,278 | 32,820 | ||||||||||||||
Total investments | $ | 132,072 | $ | 130,995 | ||||||||||||
[1] | Primarily relates to derivative instruments. | |
[2] | These assets primarily support the Global Annuity-International variable annuity business. Changes in these balances are also reflected in the respective liabilities. | |
[3] | As of June 30, 2011 and December 31, 2010, approximately $30.1 billion and $30.5 billion, respectively, of equity securities, trading, support Japan variable annuities. Those equity securities, trading, were invested in mutual funds, which, in turn, invested in the following asset classes; Japan equity 21%, Japan fixed income (primarily government securities) 15%, global equity 21%, global government bonds 42%, and cash and other 1% for both periods presented. |
Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||
June 30, | June 30, | |||||||||||||||||||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||||||||||||||||||
(Before-tax) | Amount | Yield [1] | Amount | Yield [1] | Amount | Yield [1] | Amount | Yield [1] | ||||||||||||||||||||||||
Fixed maturities [2] | $ | 870 | 4.3 | % | $ | 887 | 4.5 | % | $ | 1,716 | 4.3 | % | $ | 1,761 | 4.4 | % | ||||||||||||||||
Equity securities, AFS | 8 | 3.3 | % | 13 | 4.3 | % | 19 | 3.8 | % | 27 | 4.3 | % | ||||||||||||||||||||
Mortgage loans | 67 | 5.2 | % | 63 | 5.4 | % | 130 | 5.3 | % | 129 | 5.2 | % | ||||||||||||||||||||
Policy loans | 34 | 6.2 | % | 35 | 6.4 | % | 67 | 6.1 | % | 68 | 6.2 | % | ||||||||||||||||||||
Limited partnerships and other alternative investments | 78 | 16.6 | % | 86 | 20.0 | % | 178 | 18.9 | % | 92 | 10.5 | % | ||||||||||||||||||||
Other [3] | 77 | 90 | 158 | 174 | ||||||||||||||||||||||||||||
Investment expense | (30 | ) | (26 | ) | (56 | ) | (49 | ) | ||||||||||||||||||||||||
Total securities AFS and other | 1,104 | 4.6 | % | 1,148 | 4.8 | % | 2,212 | 4.6 | % | 2,202 | 4.5 | % | ||||||||||||||||||||
Equity securities, trading | (597 | ) | (2,649 | ) | 206 | (1,948 | ) | |||||||||||||||||||||||||
Total net investment income (loss) | $ | 507 | $ | (1,501 | ) | $ | 2,418 | $ | 254 | |||||||||||||||||||||||
Total securities, AFS and other excluding limited partnerships and other alternative investments | $ | 1,026 | 4.3 | % | $ | 1,062 | 4.5 | % | $ | 2,034 | 4.3 | % | $ | 2,110 | 4.4 | % | ||||||||||||||||
[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 consolidated variable interest entity noncontrolling interests. Included in the fixed maturity yield is Other, which primarily relates to derivatives (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. |
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Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
(Before-tax) | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Gross gains on sales | $ | 261 | $ | 343 | $ | 322 | $ | 475 | ||||||||
Gross losses on sales | (98 | ) | (94 | ) | (231 | ) | (205 | ) | ||||||||
Net OTTI losses recognized in earnings | (23 | ) | (108 | ) | (78 | ) | (260 | ) | ||||||||
Valuation allowances on mortgage loans | 26 | (40 | ) | 23 | (152 | ) | ||||||||||
Japanese fixed annuity contract hedges, net [1] | 6 | 27 | (11 | ) | 11 | |||||||||||
Periodic net coupon settlements on credit derivatives/Japan | (2 | ) | (4 | ) | (9 | ) | (11 | ) | ||||||||
Results of variable annuity hedge program | ||||||||||||||||
GMWB derivatives, net | (37 | ) | (426 | ) | 34 | (297 | ) | |||||||||
Macro hedge program | 35 | 397 | (322 | ) | 233 | |||||||||||
Total results of variable annuity hedge program | (2 | ) | (29 | ) | (288 | ) | (64 | ) | ||||||||
Other, net | (99 | ) | (86 | ) | (62 | ) | (59 | ) | ||||||||
Net realized capital gains (losses) | $ | 69 | $ | 9 | $ | (334 | ) | $ | (265 | ) | ||||||
[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, as well as Japan FVO securities. |
Gross gains and losses on sales | • | Gross gains and losses on sales for the three and six months ended June 30, 2011 were predominately from sales of investment grade corporate securities and CMBS as the Company continues to reduce its commercial real estate exposure. Additionally, net gain on sales for the six months ended June 30, 2011 included losses on sales of U.S. Treasuries. | ||
• | Gross gains on sales for the three and six months ended June 30, 2010 were predominantly from investment grade corporate securities and U.S. Treasuries in order to take advantage of attractive market opportunities. Gross losses on sales resulted from real estate related and subordinated financial investments due to efforts to reduce portfolio risk. | |||
Net OTTI losses | • | For further information, see Other-Than-Temporary Impairments within the Investment Credit Risk section of the MD&A. | ||
Valuation allowances on mortgage loans | • | For further information, see Valuation Allowances on Mortgage Loans within the Investment Credit Risk section of the MD&A. | ||
Variable annuity hedge program | • | The loss on GMWB related derivatives, net, for the three months ended June 30, 2011 was primarily due to a change in long-term interest rates that resulted in a charge of $39. The gain on GMWB related derivatives, net, for the six months ended June 30, 2011 was primarily due to a gain of $33 resulting from lower implied market volatility and a gain of $29 resulting from the outperformance of the underlying actively managed funds as compared to their respective indices. The gain on the macro hedge program for the three months ended June 30, 2011 was primarily the result of a decline in Japanese interest rates and foreign currency movements. The loss on the macro hedge program for the six months ended June 30, 2011 was primarily the result of foreign currency movements and a higher equity market valuation. | ||
• | The loss on GMWB derivatives, net, for the three and six months ended June 30, 2010 was primarily due to losses on higher implied market volatility of $196 and $82, respectively, and losses due to a general decrease in long-term interest rates of $192 and $214, respectively. The net gain on the macro hedge program was primarily the result of lower equity market valuation and appreciation of the Japanese yen. |
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Other, net | • | Other, net loss for the three months ended June 30, 2011 was primarily due to losses of $52 on transactional foreign currency re-valuation due to an increase in value of the Japanese yen versus the U.S. dollar associated with the internal reinsurance of the Japan variable annuity business, which is offset in AOCI and losses of $25 on credit derivatives driven by credit spread widening. Other, net loss for the six months ended June 30, 2011 was primarily due to losses of $56 related to Japan variable annuity hedging instruments primarily driven by foreign currency movements and losses of $32 on Japan 3Win foreign currency swaps primarily driven by a decrease in long-term U.S interest rates. | ||
• | Other, net losses for the three and six months ended June 30, 2010 were primarily due to losses of $121 and $117, respectively, from a change in spot rates related to transactional foreign currency re-valuation due to an increase in the value of the Japanese yen versus the U.S. dollar associated with the internal reinsurance of the Japan variable annuity business, which is offset in AOCI. Also included are losses of $38 and $87, respectively, related to the Japan 3Win foreign currency swaps driven by a decrease in U.S. interest rates. These losses are partially offset by gains of $56 and $74, respectively, related to other foreign currency strategies. Additional net gains of $48 for the six months ended June 30, 2010, were related to credit derivatives due to credit spread widening. |
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Three Months Ended | Six Months Ended | |||||||||||||||||||||||
June 30, | June 30, | |||||||||||||||||||||||
Underwriting Summary | 2011 | 2010 | Change | 2011 | 2010 | Change | ||||||||||||||||||
Written premiums | $ | 1,498 | $ | 1,388 | 8 | % | $ | 3,143 | $ | 2,900 | 8 | % | ||||||||||||
Change in unearned premium reserve | (19 | ) | (27 | ) | 30 | % | 128 | 61 | 110 | % | ||||||||||||||
Earned premiums | 1,517 | 1,415 | 7 | % | 3,015 | 2,839 | 6 | % | ||||||||||||||||
Losses and loss adjustment expenses | ||||||||||||||||||||||||
Current accident year before catastrophes | 950 | 855 | 11 | % | 1,912 | 1,746 | 10 | % | ||||||||||||||||
Current accident year catastrophes | 166 | 83 | 100 | % | 212 | 121 | 75 | % | ||||||||||||||||
Prior accident years | 31 | (139 | ) | NM | 25 | (221 | ) | NM | ||||||||||||||||
Total losses and loss adjustment expenses | 1,147 | 799 | 44 | % | 2,149 | 1,646 | 31 | % | ||||||||||||||||
Amortization of deferred policy acquisition costs | 339 | 340 | — | 675 | 680 | (1 | %) | |||||||||||||||||
Insurance operating costs and expenses | 120 | 130 | (8 | %) | 243 | 218 | 11 | % | ||||||||||||||||
Underwriting results | (89 | ) | 146 | NM | (52 | ) | 295 | NM | ||||||||||||||||
Net servicing income | 4 | 3 | 33 | % | 4 | 3 | 33 | % | ||||||||||||||||
Net investment income | 239 | 245 | (2 | %) | 481 | 467 | 3 | % | ||||||||||||||||
Net realized capital gains (losses) | 13 | 13 | — | (10 | ) | (16 | ) | 38 | % | |||||||||||||||
Other expenses | (38 | ) | (35 | ) | (9 | %) | (78 | ) | (70 | ) | (11 | %) | ||||||||||||
Income from continuing operations before income taxes | 129 | 372 | (65 | %) | 345 | 679 | (49 | %) | ||||||||||||||||
Income tax expense | 5 | 105 | (95 | %) | 54 | 207 | (74 | %) | ||||||||||||||||
Income from continuing operations, net of tax | 124 | 267 | (54 | %) | 291 | 472 | (38 | %) | ||||||||||||||||
Income (loss) from discontinued operations, net of tax [1] | (3 | ) | 3 | NM | 157 | 4 | NM | |||||||||||||||||
Net income | $ | 121 | $ | 270 | (55 | %) | $ | 448 | $ | 476 | (6 | %) | ||||||||||||
[1] | Represents the income from operations and sale of Specialty Risk Services (“SRS”). For additional information, see Note 12 of the Notes to Condensed Consolidated Financial Statements. |
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
Premium Measures [1] | 2011 | 2010 | 2011 | 2010 | ||||||||||||
New business premium | $ | 286 | $ | 276 | $ | 589 | $ | 573 | ||||||||
Standard commercial lines policy count retention | 82 | % | 83 | % | 83 | % | 84 | % | ||||||||
Standard commercial lines renewal written pricing increase | 3 | % | 1 | % | 3 | % | 1 | % | ||||||||
Standard commercial lines renewal earned pricing increase | 2 | % | — | 2 | % | — | ||||||||||
Standard commercial lines policies in-force as of end of period | 1,250,152 | 1,191,477 | ||||||||||||||
[1] | Standard commercial lines represents the Company’s small commercial and middle market property and casualty lines. |
Three Months Ended | Six Months Ended | |||||||||||||||||||||||
June 30, | June 30, | |||||||||||||||||||||||
Ratios | 2011 | 2010 | Change | 2011 | 2010 | Change | ||||||||||||||||||
Loss and loss adjustment expense ratio | ||||||||||||||||||||||||
Current accident year before catastrophes | 62.6 | 60.3 | (2.3 | ) | 63.4 | 61.5 | (1.9 | ) | ||||||||||||||||
Current accident year catastrophes | 11.0 | 5.9 | (5.1 | ) | 7.0 | 4.3 | (2.7 | ) | ||||||||||||||||
Prior accident years | 2.1 | (9.9 | ) | (12.0 | ) | 0.8 | (7.8 | ) | (8.6 | ) | ||||||||||||||
Total loss and loss adjustment expense ratio | 75.6 | 56.4 | (19.2 | ) | 71.3 | 57.9 | (13.4 | ) | ||||||||||||||||
Expense ratio | 30.0 | 33.0 | 3.0 | 30.2 | 31.8 | 1.6 | ||||||||||||||||||
Policyholder dividend ratio | 0.3 | 0.3 | — | 0.3 | (0.1 | ) | (0.4 | ) | ||||||||||||||||
Combined ratio | 105.8 | 89.6 | (16.2 | ) | 101.7 | 89.6 | (12.1 | ) | ||||||||||||||||
Catastrophe ratio | ||||||||||||||||||||||||
Current accident year | 11.0 | 5.9 | (5.1 | ) | 7.0 | 4.3 | (2.7 | ) | ||||||||||||||||
Prior accident years | 0.7 | 0.3 | (0.4 | ) | 0.2 | — | (0.2 | ) | ||||||||||||||||
Total catastrophe ratio | 11.6 | 6.2 | (5.4 | ) | 7.2 | 4.3 | (2.9 | ) | ||||||||||||||||
Combined ratio before catastrophes | 94.2 | 83.5 | (10.7 | ) | 94.5 | 85.3 | (9.2 | ) | ||||||||||||||||
Combined ratio before catastrophes and prior accident year development | 92.8 | 93.6 | 0.8 | 93.9 | 93.1 | (0.8 | ) | |||||||||||||||||
Other revenues [1] | $ | 26 | $ | 25 | 4 | % | $ | 49 | $ | 46 | 7 | % | ||||||||||||
[1] | Represents servicing revenues. |
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Three Months Ended | Six Months Ended | |||||||||||||||||||||||
June 30, | June 30, | |||||||||||||||||||||||
Operating Summary | 2011 | 2010 | Change | 2011 | 2010 | Change | ||||||||||||||||||
Premiums and other considerations | $ | 1,076 | $ | 1,074 | — | $ | 2,120 | $ | 2,176 | (3 | %) | |||||||||||||
Net investment income | 106 | 110 | (4 | %) | 210 | 217 | (3 | %) | ||||||||||||||||
Net realized capital gains (losses) | 10 | 23 | (57 | %) | (4 | ) | 32 | NM | ||||||||||||||||
Total revenues | 1,192 | 1,207 | (1 | %) | 2,326 | 2,425 | (4 | %) | ||||||||||||||||
Benefits, losses and loss adjustment expenses | 850 | 846 | — | 1,678 | 1,689 | (1 | %) | |||||||||||||||||
Amortization of deferred policy acquisition costs | 14 | 15 | (7 | %) | 28 | 31 | (10 | %) | ||||||||||||||||
Insurance operating costs and other expenses | 281 | 281 | — | 567 | 564 | 1 | % | |||||||||||||||||
Total benefits, losses and expenses | 1,145 | 1,142 | — | 2,273 | 2,284 | — | ||||||||||||||||||
Income before income taxes | 47 | 65 | (28 | %) | 53 | 141 | (62 | %) | ||||||||||||||||
Income tax expense | 6 | 17 | (65 | %) | 1 | 42 | (98 | %) | ||||||||||||||||
Net income | $ | 41 | $ | 48 | (15 | %) | $ | 52 | $ | 99 | (47 | %) | ||||||||||||
Premiums and other considerations | ||||||||||||||||||||||||
Fully insured — ongoing premiums | $ | 1,013 | $ | 1,041 | (3 | %) | $ | 2,041 | $ | 2,093 | (2 | %) | ||||||||||||
Buyout premiums | 49 | 21 | 133 | % | 49 | 58 | (16 | %) | ||||||||||||||||
Other | 14 | 12 | 17 | % | 30 | 25 | 20 | % | ||||||||||||||||
Total premiums and other considerations | $ | 1,076 | $ | 1,074 | — | $ | 2,120 | $ | 2,176 | (3 | %) | |||||||||||||
Fully insured ongoing sales, excluding buyouts | $ | 92 | $ | 101 | (9 | %) | $ | 336 | $ | 397 | (15 | %) | ||||||||||||
Ratios, excluding buyouts | ||||||||||||||||||||||||
Loss ratio | 78.0 | % | 78.3 | % | 78.7 | % | 77.0 | % | ||||||||||||||||
Loss ratio, excluding financial institutions | 83.5 | % | 84.2 | % | 84.0 | % | 82.6 | % | ||||||||||||||||
Expense ratio | 28.7 | % | 28.1 | % | 28.7 | % | 28.1 | % | ||||||||||||||||
Expense ratio, excluding financial institutions | 23.9 | % | 23.4 | % | 23.8 | % | 23.3 | % | ||||||||||||||||
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Three Months Ended | Six Months Ended | |||||||||||||||||||||||
June 30, | June 30, | |||||||||||||||||||||||
Operating Summary | 2011 | 2010 | Change | 2011 | 2010 | Change | ||||||||||||||||||
Written premiums | $ | 969 | $ | 1,033 | (6 | %) | $ | 1,853 | $ | 1,976 | (6 | %) | ||||||||||||
Change in unearned premium reserve | 30 | 38 | (21 | %) | (42 | ) | (15 | ) | (180 | %) | ||||||||||||||
Earned premiums | 939 | 995 | (6 | %) | 1,895 | 1,991 | (5 | %) | ||||||||||||||||
Losses and loss adjustment expenses | ||||||||||||||||||||||||
Current accident year before catastrophes | 623 | 686 | (9 | %) | 1,239 | 1,353 | (8 | %) | ||||||||||||||||
Current accident year catastrophes | 281 | 146 | 92 | % | 313 | 187 | 67 | % | ||||||||||||||||
Prior accident years | — | (10 | ) | 100 | % | (49 | ) | (17 | ) | (188 | %) | |||||||||||||
Total losses and loss adjustment expenses | 904 | 822 | 10 | % | 1,503 | 1,523 | (1 | %) | ||||||||||||||||
Amortization of deferred policy acquisition costs | 160 | 168 | (5 | %) | 321 | 336 | (4 | %) | ||||||||||||||||
Insurance operating costs and expenses | 76 | 73 | 4 | % | 148 | 146 | 1 | % | ||||||||||||||||
Underwriting results | (201 | ) | (68 | ) | (196 | %) | (77 | ) | (14 | ) | NM | |||||||||||||
Net servicing income | 3 | 6 | (50 | %) | 9 | 15 | (40 | %) | ||||||||||||||||
Net investment income | 49 | 49 | — | 99 | 93 | 6 | % | |||||||||||||||||
Net realized capital gains (losses) | 2 | 2 | — | (2 | ) | (3 | ) | 33 | % | |||||||||||||||
Other expenses | (131 | ) | (16 | ) | NM | (145 | ) | (33 | ) | NM | ||||||||||||||
Income (loss) before income taxes | (278 | ) | (27 | ) | NM | (116 | ) | 58 | NM | |||||||||||||||
Income tax expense (benefit) | (104 | ) | (14 | ) | NM | (52 | ) | 15 | NM | |||||||||||||||
Net income (loss) | $ | (174 | ) | $ | (13 | ) | NM | $ | (64 | ) | $ | 43 | NM | |||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||||||||||
June 30, | June 30, | |||||||||||||||||||||||
Written Premiums | 2011 | 2010 | Change | 2011 | 2010 | Change | ||||||||||||||||||
Product Line | ||||||||||||||||||||||||
Automobile | $ | 665 | $ | 719 | (8 | %) | $ | 1,306 | $ | 1,415 | (8 | %) | ||||||||||||
Homeowners | 304 | 314 | (3 | %) | 547 | 561 | (2 | %) | ||||||||||||||||
Total | $ | 969 | $ | 1,033 | (6 | %) | $ | 1,853 | $ | 1,976 | (6 | %) | ||||||||||||
Earned Premiums | ||||||||||||||||||||||||
Product Line | ||||||||||||||||||||||||
Automobile | $ | 657 | $ | 711 | (8 | %) | $ | 1,329 | $ | 1,424 | (7 | %) | ||||||||||||
Homeowners | 282 | 284 | (1 | %) | 566 | 567 | — | |||||||||||||||||
Total | $ | 939 | $ | 995 | (6 | %) | $ | 1,895 | $ | 1,991 | (5 | %) | ||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
Premium Measures | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Policies in-force end of period | ||||||||||||||||
Automobile | 2,137,351 | 2,341,594 | ||||||||||||||
Homeowners | 1,380,301 | 1,479,749 | ||||||||||||||
Total policies in-force end of period | 3,517,652 | 3,821,343 | ||||||||||||||
New business written premium | ||||||||||||||||
Automobile | $ | 75 | $ | 82 | $ | 141 | $ | 175 | ||||||||
Homeowners | $ | 23 | $ | 30 | $ | 42 | $ | 60 | ||||||||
Policy count retention | ||||||||||||||||
Automobile | 82 | % | 84 | % | 82 | % | 84 | % | ||||||||
Homeowners | 84 | % | 85 | % | 83 | % | 85 | % | ||||||||
Renewal written pricing increase | ||||||||||||||||
Automobile | 6 | % | 6 | % | 6 | % | 6 | % | ||||||||
Homeowners | 9 | % | 9 | % | 9 | % | 9 | % | ||||||||
Renewal earned pricing increase | ||||||||||||||||
Automobile | 7 | % | 4 | % | 7 | % | 4 | % | ||||||||
Homeowners | 10 | % | 7 | % | 10 | % | 6 | % | ||||||||
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Three Months Ended | Six Months Ended | |||||||||||||||||||||||
June 30, | June 30, | |||||||||||||||||||||||
Ratios and Supplemental Data | 2011 | 2010 | Change | 2011 | 2010 | Change | ||||||||||||||||||
Loss and loss adjustment expense ratio | ||||||||||||||||||||||||
Current accident year before catastrophes | 66.5 | 69.0 | 2.5 | 65.4 | 68.0 | 2.6 | ||||||||||||||||||
Current accident year catastrophes | 29.9 | 14.6 | (15.3 | ) | 16.5 | 9.4 | (7.1 | ) | ||||||||||||||||
Prior accident years | — | (0.9 | ) | (0.9 | ) | (2.6 | ) | (0.8 | ) | 1.8 | ||||||||||||||
Total loss and loss adjustment expense ratio | 96.4 | 82.6 | (13.8 | ) | 79.4 | 76.5 | (2.9 | ) | ||||||||||||||||
Expense ratio | 25.1 | 24.3 | (0.8 | ) | 24.7 | 24.2 | (0.5 | ) | ||||||||||||||||
Combined ratio | 121.5 | 106.9 | (14.6 | ) | 104.1 | 100.7 | (3.4 | ) | ||||||||||||||||
Catastrophe ratio | ||||||||||||||||||||||||
Current year | 29.9 | 14.6 | (15.3 | ) | 16.5 | 9.4 | (7.1 | ) | ||||||||||||||||
Prior years | 1.0 | 0.5 | (0.5 | ) | 1.5 | 0.2 | (1.3 | ) | ||||||||||||||||
Total catastrophe ratio | 30.8 | 15.0 | (15.8 | ) | 18.0 | 9.5 | (8.5 | ) | ||||||||||||||||
Combined ratio before catastrophes | 90.6 | 91.8 | 1.2 | 86.1 | 91.2 | 5.1 | ||||||||||||||||||
Combined ratio before catastrophes and prior accident years development | 91.6 | 93.2 | 1.6 | 90.1 | 92.2 | 2.1 | ||||||||||||||||||
Other revenues [1] | $ | 36 | $ | 40 | (10 | %) | $ | 76 | $ | 83 | (8 | %) | ||||||||||||
[1] | Represents servicing revenues. |
Three Months Ended | Six Months Ended | |||||||||||||||||||||||
June 30, | June 30, | |||||||||||||||||||||||
Product Line Combined Ratios | 2011 | 2010 | Change | 2011 | 2010 | Change | ||||||||||||||||||
Automobile | 99.5 | 98.7 | (0.8 | ) | 92.5 | 96.2 | 3.7 | |||||||||||||||||
Homeowners | 172.8 | 128.8 | (44.0 | ) | 130.8 | 112.9 | (17.9 | ) | ||||||||||||||||
Total | 121.5 | 106.9 | (14.6 | ) | 104.1 | 100.7 | (3.4 | ) | ||||||||||||||||
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Three Months Ended | Six Months Ended | |||||||||||||||||||||||
June 30, | June 30, | |||||||||||||||||||||||
Operating Summary | 2011 | 2010 | Change | 2011 | 2010 | Change | ||||||||||||||||||
Fee income and other | $ | 596 | $ | 586 | 2 | % | $ | 1,187 | $ | 1,174 | 1 | % | ||||||||||||
Earned premiums | 49 | 57 | (14 | %) | 108 | 94 | 15 | % | ||||||||||||||||
Net investment income: | ||||||||||||||||||||||||
Securities available-for sale and other | 414 | 447 | (7 | %) | 831 | 851 | (2 | %) | ||||||||||||||||
Equity securities, trading [1] | (597 | ) | (2,649 | ) | 77 | % | 206 | (1,948 | ) | NM | ||||||||||||||
Total net investment income (loss) | (183 | ) | (2,202 | ) | 92 | % | 1,037 | (1,097 | ) | NM | ||||||||||||||
Net realized capital gains (losses) | 15 | (109 | ) | NM | (294 | ) | (305 | ) | 4 | % | ||||||||||||||
Total revenues | 477 | (1,668 | ) | NM | 2,038 | (134 | ) | NM | ||||||||||||||||
Benefits, losses and loss adjustment expenses | 476 | 683 | (30 | %) | 912 | 1,143 | (20 | %) | ||||||||||||||||
Benefits, losses and loss adjustment expenses — returns credited on international variable annuities [1] | (597 | ) | (2,649 | ) | 77 | % | 206 | (1,948 | ) | NM | ||||||||||||||
Amortization of DAC | 237 | 335 | (29 | %) | 338 | 393 | (14 | %) | ||||||||||||||||
Insurance operating costs and other expenses | 189 | 185 | 2 | % | 385 | 370 | 4 | % | ||||||||||||||||
Total benefits, losses and expenses | 305 | (1,446 | ) | NM | 1,841 | (42 | ) | NM | ||||||||||||||||
Income (loss) before income taxes | 172 | (222 | ) | NM | 197 | (92 | ) | NM | ||||||||||||||||
Income tax benefit | (56 | ) | (108 | ) | 48 | % | (81 | ) | (58 | ) | (40 | %) | ||||||||||||
Net income (loss) | $ | 228 | $ | (114 | ) | NM | $ | 278 | $ | (34 | ) | NM | ||||||||||||
Assets Under Management | ||||||||||||||||||||||||
Variable annuity account values | $ | 112,328 | $ | 107,295 | ||||||||||||||||||||
Fixed MVA annuity and other account values [2] | 16,802 | 17,067 | ||||||||||||||||||||||
Institutional investment products account values | 17,745 | 19,950 | ||||||||||||||||||||||
Total assets under management | $ | 146,875 | $ | 144,312 | ||||||||||||||||||||
Account Value Roll Forward | ||||||||||||||||||||||||
Variable Annuities | ||||||||||||||||||||||||
Account value, beginning of period | $ | 116,004 | $ | 118,405 | $ | 116,520 | $ | 119,387 | ||||||||||||||||
Transfers affecting beginning of period [3] | — | — | — | (1,355 | ) | |||||||||||||||||||
Account Value, beginning of period, as adjusted | 116,004 | 118,405 | 116,520 | 118,032 | ||||||||||||||||||||
Net flows | (3,806 | ) | (2,905 | ) | (7,461 | ) | (5,749 | ) | ||||||||||||||||
Change in market value and other | (684 | ) | (9,761 | ) | 3,069 | (6,282 | ) | |||||||||||||||||
Effect of currency translation | 814 | 1,556 | 200 | 1,294 | ||||||||||||||||||||
Account value, end of period | $ | 112,328 | $ | 107,295 | $ | 112,328 | $ | 107,295 | ||||||||||||||||
Net Investment Spread | 33 bps | 32 bps | 32 bps | 14 bps | ||||||||||||||||||||
Expense Ratios | ||||||||||||||||||||||||
General insurance expense ratio | 5.9 bps | 5.6 bps | 11.7 bps | 10.9 bps | ||||||||||||||||||||
DAC amortization ratio | 58 | % | 296 | % | 63 | % | 131 | % | ||||||||||||||||
DAC amortization ratio, excluding realized losses and Unlocks | 43.2 | % | 49.9 | % | 44.0 | % | 52.6 | % | ||||||||||||||||
[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. | |
[2] | Fixed MVA annuity and other account values includes approximately $2.6 billion related to the triggering of the guaranteed minimum income benefit for the 3Win product as of June 30, 2011 and $1.9 billion as of June 30, 2010. This account value is not expected to generate material future profit or loss to the Company. | |
[3] | Canadian mutual funds were transferred from Global Annuity to Mutual Funds effective January 1, 2010. |
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Three Months Ended | Six Months Ended | |||||||||||||||||||||||
June 30, | June 30, | |||||||||||||||||||||||
Operating Summary | 2011 | 2010 | Change | 2011 | 2010 | Change | ||||||||||||||||||
Fee income and other | $ | 282 | $ | 282 | — | $ | 559 | $ | 564 | (1 | %) | |||||||||||||
Earned premiums | (25 | ) | (23 | ) | (9 | %) | (49 | ) | (45 | ) | (9 | %) | ||||||||||||
Net investment income | 147 | 135 | 9 | % | 289 | 259 | 12 | % | ||||||||||||||||
Net realized capital gains (losses) | 8 | 61 | (87 | %) | (23 | ) | 32 | NM | ||||||||||||||||
Total revenues | 412 | 455 | (9 | %) | 776 | 810 | (4 | %) | ||||||||||||||||
Benefits, losses and loss adjustment expenses | 237 | 202 | 17 | % | 473 | 419 | 13 | % | ||||||||||||||||
Amortization of DAC | 43 | 43 | — | 74 | 91 | (19 | %) | |||||||||||||||||
Insurance operating costs and other expenses | 53 | 57 | (7 | %) | 105 | 110 | (5 | %) | ||||||||||||||||
Total benefits, losses and expenses | 333 | 302 | 10 | % | 652 | 620 | 5 | % | ||||||||||||||||
Income before income taxes | 79 | 153 | (48 | %) | 124 | 190 | (35 | %) | ||||||||||||||||
Income tax expense | 13 | 50 | (74 | %) | 23 | 63 | (63 | %) | ||||||||||||||||
Net income | $ | 66 | $ | 103 | (36 | %) | $ | 101 | $ | 127 | (20 | %) | ||||||||||||
Account Values | ||||||||||||||||||||||||
Individual variable universal life insurance | $ | 5,993 | $ | 5,507 | ||||||||||||||||||||
Universal life, interest sensitive whole | 6,373 | 5,873 | ||||||||||||||||||||||
life, modified guaranteed life insurance and other | ||||||||||||||||||||||||
PPLI | 36,700 | 35,049 | ||||||||||||||||||||||
Total account values | $ | 49,066 | $ | 46,429 | ||||||||||||||||||||
Individual Life Insurance In-Force | ||||||||||||||||||||||||
Variable universal life insurance | $ | 71,977 | $ | 76,445 | ||||||||||||||||||||
Universal life insurance, interest sensitive | 60,759 | 56,571 | ||||||||||||||||||||||
whole life, modified guaranteed life insurance | ||||||||||||||||||||||||
Term life | 78,714 | 72,625 | ||||||||||||||||||||||
Total individual life insurance in-force | $ | 211,450 | $ | 205,641 | ||||||||||||||||||||
Individual Life Net Investment Spread | 175 bps | 175 bps | 161 bps | 150 bps | ||||||||||||||||||||
Death Benefits | $ | 134 | $ | 100 | $ | 263 | $ | 214 | ||||||||||||||||
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Three Months Ended | Six Months Ended | |||||||||||||||||||||||
June 30, | June 30, | |||||||||||||||||||||||
Operating Summary | 2011 | 2010 | Change | 2011 | 2010 | Change | ||||||||||||||||||
Fee income and other | $ | 99 | $ | 87 | 14 | % | $ | 193 | $ | 172 | 12 | % | ||||||||||||
Earned premiums | 2 | 2 | — | 5 | 4 | 25 | % | |||||||||||||||||
Net investment income | 100 | 93 | 8 | % | 199 | 174 | 14 | % | ||||||||||||||||
Net realized capital gains (losses) | 11 | 6 | 83 | % | 2 | (10 | ) | NM | ||||||||||||||||
Total revenues | 212 | 188 | 13 | % | 399 | 340 | 17 | % | ||||||||||||||||
Benefits, losses and loss adjustment expenses | 75 | 70 | 7 | % | 147 | 133 | 11 | % | ||||||||||||||||
Insurance operating costs and other expenses | 90 | 81 | 11 | % | 180 | 166 | 8 | % | ||||||||||||||||
Amortization of DAC | 30 | 21 | 43 | % | 39 | 26 | 50 | % | ||||||||||||||||
Total benefits, losses and expenses | 195 | 172 | 13 | % | 366 | 325 | 13 | % | ||||||||||||||||
Income before income taxes | 17 | 16 | 6 | % | 33 | 15 | 120 | % | ||||||||||||||||
Income tax expense (benefit) | (13 | ) | 2 | NM | (12 | ) | 7 | NM | ||||||||||||||||
Net income | $ | 30 | $ | 14 | 114 | % | $ | 45 | $ | 8 | NM | |||||||||||||
Assets Under Management | ||||||||||||||||||||||||
401(k) account values | $ | 21,963 | $ | 16,926 | ||||||||||||||||||||
403(b)/457 account values | 13,118 | 11,017 | ||||||||||||||||||||||
401(k)/403(b) mutual funds | 20,474 | 15,848 | ||||||||||||||||||||||
Total assets under management | $ | 55,555 | $ | 43,791 | ||||||||||||||||||||
Assets Under Management Roll Forward | ||||||||||||||||||||||||
Assets under management, beginning of period | $ | 52,518 | $ | 43,962 | ||||||||||||||||||||
Transfers affecting the beginning of the period [1] | 267 | 194 | ||||||||||||||||||||||
Assets under management, beginning of period, as adjusted | 52,785 | 44,156 | ||||||||||||||||||||||
Net flows | 487 | 934 | ||||||||||||||||||||||
Change in market value and other | 2,283 | (1,299 | ) | |||||||||||||||||||||
Assets under management, end of period | $ | 55,555 | $ | 43,791 | ||||||||||||||||||||
Net Investment Spread | 124 bps | 126 bps | 132 bps | 95 bps | ||||||||||||||||||||
[1] | Lifetime Income and Maturity Funding business of $194 was transferred from Global Annuity to Retirement Plans effective January 1, 2010. |
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Three Months Ended | Six Months Ended | |||||||||||||||||||||||
June 30, | June 30, | |||||||||||||||||||||||
Operating Summary | 2011 | 2010 | Change | 2011 | 2010 | Change | ||||||||||||||||||
Fee income and other | $ | 175 | $ | 167 | 5 | % | $ | 353 | $ | 334 | 6 | % | ||||||||||||
Net investment loss | (1 | ) | (2 | ) | 50 | % | (2 | ) | (4 | ) | 50 | % | ||||||||||||
Net realized capital gains | — | — | — | 1 | 1 | — | ||||||||||||||||||
Total revenues | 174 | 165 | 5 | % | 352 | 331 | 6 | % | ||||||||||||||||
Insurance operating costs and other expenses | 120 | 115 | 4 | % | 243 | 227 | 7 | % | ||||||||||||||||
Amortization of DAC | 12 | 13 | (8 | %) | 24 | 25 | (4 | %) | ||||||||||||||||
Total benefits, losses and expenses | 132 | 128 | 3 | % | 267 | 252 | 6 | % | ||||||||||||||||
Income from continuing operations, before income taxes | 42 | 37 | 14 | % | 85 | 79 | 8 | % | ||||||||||||||||
Income tax expense | 15 | 13 | 15 | % | 30 | 28 | 7 | % | ||||||||||||||||
Income from continuing operations | 27 | 24 | 13 | % | 55 | 51 | 8 | % | ||||||||||||||||
Loss from discontinued operations, net of tax [1] | — | (1 | ) | 100 | % | — | (2 | ) | 100 | % | ||||||||||||||
Net income | $ | 27 | $ | 23 | 17 | % | $ | 55 | $ | 49 | 12 | % | ||||||||||||
Assets Under Management | ||||||||||||||||||||||||
Retail mutual fund assets | $ | 49,584 | $ | 41,162 | ||||||||||||||||||||
Investment Only mutual fund assets | 6,954 | 4,919 | ||||||||||||||||||||||
529 College Savings Plan and Canadian mutual fund (“CMF”) assets [2] | 1,612 | 2,678 | ||||||||||||||||||||||
Total non-proprietary and Canadian mutual fund assets | 58,150 | 48,759 | ||||||||||||||||||||||
Proprietary mutual fund assets | 42,204 | 39,402 | ||||||||||||||||||||||
Total mutual fund assets under management | $ | 100,354 | $ | 88,161 | ||||||||||||||||||||
Non-Proprietary and CMF AUM Roll Forward [2] | ||||||||||||||||||||||||
Non-Proprietary and CMF AUM, beginning of period | $ | 56,884 | $ | 44,031 | ||||||||||||||||||||
Transfers affecting the beginning of the period [3] | — | 5,617 | ||||||||||||||||||||||
Non-Proprietary and CMF AUM, beginning of period, as adjusted | 56,884 | 49,648 | ||||||||||||||||||||||
Net flows | (188 | ) | 2,362 | |||||||||||||||||||||
Change in market value and other | 1,454 | (3,251 | ) | |||||||||||||||||||||
Non-Proprietary and CMF AUM, end of period | $ | 58,150 | $ | 48,759 | ||||||||||||||||||||
Proprietary Mutual Fund AUM Roll Forward | ||||||||||||||||||||||||
Proprietary Mutual Fund AUM, beginning of period | $ | 43,602 | $ | — | ||||||||||||||||||||
Transfers affecting the beginning of the period [4] | — | 43,890 | ||||||||||||||||||||||
Proprietary Mutual Fund AUM, beginning of period, as adjusted | 43,602 | 43,890 | ||||||||||||||||||||||
Net flows | (3,111 | ) | (2,464 | ) | ||||||||||||||||||||
Change in market value | 1,713 | (2,024 | ) | |||||||||||||||||||||
Proprietary Mutual Fund AUM, end of period | $ | 42,204 | $ | 39,402 | ||||||||||||||||||||
[1] | Represents the loss from operations of Hartford Investments Canada Corporation. (“HICC”). For additional information, see Note 12 of the Notes to Condensed Consolidated Financial Statements. | |
[2] | Canadian mutual funds representing approximately $1.8 billion in AUM were sold in December 2010, therefore are not included in the 2011 beginning balance. | |
[3] | In 2010, Investment Only and Canadian mutual fund assets were transferred to Mutual Funds from Global Annuity effective January 1, 2010. | |
[4] | Proprietary mutual fund assets under management are included in the Mutual Fund reporting segment effective January 1, 2010. |
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Three Months Ended | Six Months Ended | |||||||||||||||||||||||
June 30, | June 30, | |||||||||||||||||||||||
Operating Summary | 2011 | 2010 | Change | 2011 | 2010 | Change | ||||||||||||||||||
Earned premiums | $ | 1 | $ | (2 | ) | NM | $ | — | $ | (1 | ) | — | ||||||||||||
Fee income | 53 | 52 | 2 | % | 106 | 97 | 9 | % | ||||||||||||||||
Net investment income | 50 | 71 | (30 | %) | 105 | 145 | (28 | %) | ||||||||||||||||
Net realized capital gains (losses) | 10 | 13 | (23 | %) | (4 | ) | 4 | NM | ||||||||||||||||
Other revenues | (1 | ) | — | — | — | — | — | |||||||||||||||||
Total revenues | 113 | 134 | (16 | %) | 207 | 245 | (16 | %) | ||||||||||||||||
Benefits, losses and loss adjustment expenses | 287 | 170 | 69 | % | 292 | 172 | 70 | % | ||||||||||||||||
Insurance operating costs and other expenses | 71 | 82 | (13 | %) | 138 | 211 | (35 | %) | ||||||||||||||||
Interest expense | 128 | 132 | (3 | %) | 256 | 252 | 2 | % | ||||||||||||||||
Total benefits, losses and expenses | 486 | 384 | 27 | % | 686 | 635 | 8 | % | ||||||||||||||||
Loss from continuing operations before income taxes | (373 | ) | (250 | ) | (49 | %) | (479 | ) | (390 | ) | (23 | %) | ||||||||||||
Income tax benefit | (135 | ) | (96 | ) | (41 | %) | (174 | ) | (119 | ) | (46 | %) | ||||||||||||
Loss from continuing operations, net of tax | (238 | ) | (154 | ) | (55 | %) | (305 | ) | (271 | ) | (13 | %) | ||||||||||||
Loss from discontinued operations, net of tax | (77 | ) | (101 | ) | 24 | % | (75 | ) | (102 | ) | 26 | % | ||||||||||||
Net loss | $ | (315 | ) | $ | (255 | ) | (24 | %) | $ | (380 | ) | $ | (373 | ) | (2 | %) | ||||||||
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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 | 1/1/2011 to 1/1/2012 | 90 | % | $ | 750 | $ | 350 | |||||||||
Reinsurance with the Florida Hurricane Catastrophe Fund (“FHCF”) covering Florida Personal Lines property catastrophe losses from a single event | 6/1/2011 to 6/1/2012 | 90 | % | $ | 174 [1] | $ | 64 | |||||||||
Workers’ compensation losses arising from a single catastrophe event | 7/1/2011 to 7/1/2012 | 95 | % | $ | 350 [2] | $ | 100 | |||||||||
[1] | The estimated per occurrence limit on the FHCF treaty is $174 for the 6/1/2011 to 6/1/2012 treaty year based on the Company’s election to purchase the required coverage from the FHCF. Coverage is estimated based upon the best available information until the FHCF releases actual results in October. | |
[2] | In addition to the limit shown above, the workers’ compensation reinsurance treaty includes a non-catastrophe, industrial accident layer of $30 excess of a $20 retention. |
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Fixed Maturities by Credit Quality | ||||||||||||||||||||||||
June 30, 2011 | December 31, 2010 | |||||||||||||||||||||||
Percent of | Percent of | |||||||||||||||||||||||
Amortized | Total Fair | Amortized | Total Fair | |||||||||||||||||||||
Cost | Fair Value | Value | Cost | Fair Value | Value | |||||||||||||||||||
United States Government/Government agencies | $ | 7,996 | $ | 8,073 | 10.3 | % | $ | 9,961 | $ | 9,918 | 12.7 | % | ||||||||||||
AAA | 9,180 | 9,409 | 12.0 | % | 10,080 | 10,174 | 13.1 | % | ||||||||||||||||
AA | 15,890 | 15,900 | 20.4 | % | 15,933 | 15,554 | 20.0 | % | ||||||||||||||||
A | 19,915 | 20,470 | 26.2 | % | 19,265 | 19,460 | 25.0 | % | ||||||||||||||||
BBB | 20,009 | 20,568 | 26.3 | % | 18,849 | 19,153 | 24.6 | % | ||||||||||||||||
BB & below | 4,377 | 3,712 | 4.8 | % | 4,331 | 3,561 | 4.6 | % | ||||||||||||||||
Total fixed maturities | $ | 77,367 | $ | 78,132 | 100.0 | % | $ | 78,419 | 77,820 | 100.0 | % | |||||||||||||
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Securities by Type | ||||||||||||||||||||||||||||||||||||||||
June 30, 2011 | December 31, 2010 | |||||||||||||||||||||||||||||||||||||||
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 | $ | 2,729 | $ | 26 | $ | (172 | ) | $ | 2,583 | 3.3 | % | $ | 2,496 | $ | 23 | $ | (221 | ) | $ | 2,298 | 2.9 | % | ||||||||||||||||||
Small business | 449 | — | (122 | ) | 327 | 0.4 | % | 453 | — | (141 | ) | 312 | 0.4 | % | ||||||||||||||||||||||||||
Other | 373 | 28 | (14 | ) | 387 | 0.5 | % | 298 | 15 | (34 | ) | 279 | 0.4 | % | ||||||||||||||||||||||||||
CDOs | ||||||||||||||||||||||||||||||||||||||||
Collateralized loan obligations (“CLOs”) | 2,370 | — | (159 | ) | 2,211 | 2.8 | % | 2,429 | 1 | (212 | ) | 2,218 | 2.9 | % | ||||||||||||||||||||||||||
CREs | 552 | — | (194 | ) | 358 | 0.5 | % | 653 | — | (266 | ) | 387 | 0.5 | % | ||||||||||||||||||||||||||
Other | 6 | — | — | 6 | — | 6 | — | — | 6 | — | ||||||||||||||||||||||||||||||
CMBS | ||||||||||||||||||||||||||||||||||||||||
Agency backed [1] | 554 | 16 | (1 | ) | 569 | 0.7 | % | 519 | 9 | (4 | ) | 524 | 0.7 | % | ||||||||||||||||||||||||||
Bonds | 6,136 | 162 | (308 | ) | 5,990 | 7.7 | % | 6,985 | 147 | (583 | ) | 6,549 | 8.4 | % | ||||||||||||||||||||||||||
Interest only (“IOs”) | 670 | 72 | (24 | ) | 718 | 0.9 | % | 793 | 79 | (28 | ) | 844 | 1.1 | % | ||||||||||||||||||||||||||
Corporate | ||||||||||||||||||||||||||||||||||||||||
Basic industry [2] | 3,320 | 207 | (53 | ) | 3,473 | 4.4 | % | 2,993 | 190 | (24 | ) | 3,159 | 4.1 | % | ||||||||||||||||||||||||||
Capital goods | 3,244 | 234 | (19 | ) | 3,459 | 4.4 | % | 3,179 | 223 | (23 | ) | 3,379 | 4.3 | % | ||||||||||||||||||||||||||
Consumer cyclical | 1,960 | 123 | (10 | ) | 2,073 | 2.7 | % | 1,883 | 115 | (12 | ) | 1,986 | 2.6 | % | ||||||||||||||||||||||||||
Consumer non-cyclical | 5,948 | 430 | (22 | ) | 6,356 | 8.1 | % | 6,126 | 444 | (29 | ) | 6,541 | 8.4 | % | ||||||||||||||||||||||||||
Energy | 3,554 | 241 | (15 | ) | 3,780 | 4.8 | % | 3,377 | 212 | (23 | ) | 3,566 | 4.6 | % | ||||||||||||||||||||||||||
Financial services | 7,991 | 281 | (343 | ) | 7,929 | 10.2 | % | 7,545 | 253 | (470 | ) | 7,328 | 9.4 | % | ||||||||||||||||||||||||||
Tech./comm. | 4,306 | 283 | (53 | ) | 4,536 | 5.8 | % | 4,268 | 269 | (68 | ) | 4,469 | 5.7 | % | ||||||||||||||||||||||||||
Transportation | 1,118 | 67 | (9 | ) | 1,176 | 1.5 | % | 1,141 | 69 | (13 | ) | 1,197 | 1.5 | % | ||||||||||||||||||||||||||
Utilities | 7,743 | 436 | (65 | ) | 8,114 | 10.4 | % | 7,099 | 386 | (58 | ) | 7,427 | 9.5 | % | ||||||||||||||||||||||||||
Other [2] | 788 | 9 | (22 | ) | 733 | 0.9 | % | 885 | 13 | (27 | ) | 832 | 1.1 | % | ||||||||||||||||||||||||||
Foreign govt./govt. agencies | 1,765 | 107 | (8 | ) | 1,864 | 2.4 | % | 1,627 | 73 | (17 | ) | 1,683 | 2.2 | % | ||||||||||||||||||||||||||
Municipal | ||||||||||||||||||||||||||||||||||||||||
Taxable | 1,372 | 27 | (100 | ) | 1,299 | 1.7 | % | 1,319 | 9 | (129 | ) | 1,199 | 1.5 | % | ||||||||||||||||||||||||||
Tax-exempt | 11,366 | 251 | (135 | ) | 11,482 | 14.7 | % | 11,150 | 141 | (366 | ) | 10,925 | 14.0 | % | ||||||||||||||||||||||||||
Residential mortgage-backed securities (“RMBS”) | ||||||||||||||||||||||||||||||||||||||||
Agency | 3,876 | 138 | (5 | ) | 4,009 | 5.2 | % | 4,283 | 109 | (27 | ) | 4,365 | 5.6 | % | ||||||||||||||||||||||||||
Non-agency | 68 | — | (1 | ) | 67 | 0.1 | % | 78 | — | (3 | ) | 75 | 0.1 | % | ||||||||||||||||||||||||||
Alt-A | 122 | — | (17 | ) | 105 | 0.1 | % | 168 | — | (19 | ) | 149 | 0.2 | % | ||||||||||||||||||||||||||
Sub-prime | 1,421 | 6 | (394 | ) | 1,033 | 1.3 | % | 1,507 | — | (413 | ) | 1,094 | 1.4 | % | ||||||||||||||||||||||||||
U.S. Treasuries | 3,566 | 23 | (94 | ) | 3,495 | 4.5 | % | 5,159 | 24 | (154 | ) | 5,029 | 6.5 | % | ||||||||||||||||||||||||||
Fixed maturities, AFS | 77,367 | 3,167 | (2,359 | ) | 78,132 | 100.0 | % | 78,419 | 2,804 | (3,364 | ) | 77,820 | 100.0 | % | ||||||||||||||||||||||||||
Equity securities | ||||||||||||||||||||||||||||||||||||||||
Financial services | 515 | 9 | (96 | ) | 428 | 569 | 4 | (127 | ) | 446 | ||||||||||||||||||||||||||||||
Other | 555 | 103 | (5 | ) | 653 | 444 | 88 | (5 | ) | 527 | ||||||||||||||||||||||||||||||
Equity securities, AFS | 1,070 | 112 | (101 | ) | 1,081 | 1,013 | 92 | (132 | ) | 973 | ||||||||||||||||||||||||||||||
Total AFS securities | $ | 78,437 | $ | 3,279 | $ | (2,460 | ) | $ | 79,213 | $ | 79,432 | $ | 2,896 | $ | (3,496 | ) | $ | 78,793 | ||||||||||||||||||||||
Fixed maturities, FVO | $ | 1,227 | $ | 649 | ||||||||||||||||||||||||||||||||||||
[1] | Represents securities with pools of loans issued by the Small Business Administration which are backed by the full faith and credit of the U.S. government. | |
[2] | Gross unrealized gains (losses) exclude the change in fair value of bifurcated embedded derivative features of certain securities. Subsequent changes in fair value are recorded in net realized capital gains (losses). |
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June 30, 2011 | December 31, 2010 | |||||||||||||||||||||||
Amortized | Net | Amortized | Net | |||||||||||||||||||||
Cost | Fair Value | Unrealized | Cost | Fair Value | Unrealized | |||||||||||||||||||
AAA | $ | 368 | $ | 379 | $ | 11 | $ | 302 | $ | 309 | $ | 7 | ||||||||||||
AA | 2,112 | 2,132 | 20 | 2,085 | 2,095 | 10 | ||||||||||||||||||
A | 3,978 | 3,913 | (65 | ) | 3,760 | 3,599 | (161 | ) | ||||||||||||||||
BBB | 1,799 | 1,698 | (101 | ) | 1,677 | 1,518 | (159 | ) | ||||||||||||||||
BB & below | 249 | 235 | (14 | ) | 290 | 253 | (37 | ) | ||||||||||||||||
Total | $ | 8,506 | $ | 8,357 | $ | (149 | ) | $ | 8,114 | $ | 7,774 | $ | (340 | ) | ||||||||||
June 30, 2011 | ||||||||||||||||||||||||||||||||||||||||||||||||
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 | $ | 509 | $ | 523 | $ | 131 | $ | 132 | $ | 84 | $ | 82 | $ | 36 | $ | 34 | $ | 59 | $ | 57 | $ | 819 | $ | 828 | ||||||||||||||||||||||||
2004 | 403 | 425 | 33 | 34 | 57 | 54 | 53 | 50 | 12 | 9 | 558 | 572 | ||||||||||||||||||||||||||||||||||||
2005 | 527 | 555 | 111 | 106 | 132 | 123 | 261 | 232 | 121 | 112 | 1,152 | 1,128 | ||||||||||||||||||||||||||||||||||||
2006 | 597 | 625 | 408 | 404 | 300 | 296 | 489 | 453 | 562 | 500 | 2,356 | 2,278 | ||||||||||||||||||||||||||||||||||||
2007 | 207 | 220 | 154 | 159 | 160 | 149 | 295 | 250 | 215 | 183 | 1,031 | 961 | ||||||||||||||||||||||||||||||||||||
2008 | — | — | — | — | 55 | 60 | — | — | — | — | 55 | 60 | ||||||||||||||||||||||||||||||||||||
2010 | 10 | 10 | — | — | — | — | — | — | — | — | 10 | 10 | ||||||||||||||||||||||||||||||||||||
2011 | 155 | 153 | — | — | — | — | — | — | — | — | 155 | 153 | ||||||||||||||||||||||||||||||||||||
Total | $ | 2,408 | $ | 2,511 | $ | 837 | $ | 835 | $ | 788 | $ | 764 | $ | 1,134 | $ | 1,019 | $ | 969 | $ | 861 | $ | 6,136 | $ | 5,990 | ||||||||||||||||||||||||
Credit protection | 28.3 | % | 25.4 | % | 18.6 | % | 17.3 | % | 10.1 | % | 21.8 | % | ||||||||||||||||||||||||||||||||||||
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December 31, 2010 | ||||||||||||||||||||||||||||||||||||||||||||||||
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 | $ | 782 | $ | 803 | $ | 146 | $ | 142 | $ | 107 | $ | 103 | $ | 24 | $ | 21 | $ | 26 | $ | 22 | $ | 1,085 | $ | 1,091 | ||||||||||||||||||||||||
2004 | 489 | 511 | 35 | 35 | 68 | 61 | 33 | 27 | 6 | 5 | 631 | 639 | ||||||||||||||||||||||||||||||||||||
2005 | 610 | 632 | 131 | 121 | 213 | 177 | 182 | 147 | 123 | 96 | 1,259 | 1,173 | ||||||||||||||||||||||||||||||||||||
2006 | 1,016 | 1,050 | 566 | 536 | 256 | 224 | 496 | 416 | 436 | 339 | 2,770 | 2,565 | ||||||||||||||||||||||||||||||||||||
2007 | 305 | 320 | 278 | 250 | 71 | 55 | 253 | 200 | 278 | 198 | 1,185 | 1,023 | ||||||||||||||||||||||||||||||||||||
2008 | 55 | 58 | — | — | — | — | — | — | — | — | 55 | 58 | ||||||||||||||||||||||||||||||||||||
Total | $ | 3,257 | $ | 3,374 | $ | 1,156 | $ | 1,084 | $ | 715 | $ | 620 | $ | 988 | $ | 811 | $ | 869 | $ | 660 | $ | 6,985 | $ | 6,549 | ||||||||||||||||||||||||
Credit protection | 28.8 | % | 22.5 | % | 13.3 | % | 13.8 | % | 8.0 | % | 21.5 | % |
[1] | The vintage year represents the year the pool of loans was originated. |
Commercial Mortgage Loans | ||||||||||||||||||||||||
June 30, 2011 | December 31, 2010 | |||||||||||||||||||||||
Amortized | Valuation | Carrying | Amortized | Valuation | Carrying | |||||||||||||||||||
Cost [1] | Allowance | Value | Cost [1] | Allowance | Value | |||||||||||||||||||
Agricultural | $ | 278 | $ | (20 | ) | $ | 258 | $ | 339 | $ | (23 | ) | $ | 316 | ||||||||||
Whole loans | 4,321 | (30 | ) | 4,291 | 3,326 | (23 | ) | 3,303 | ||||||||||||||||
A-Note participations | 267 | — | 267 | 319 | — | 319 | ||||||||||||||||||
B-Note participations | 312 | (72 | ) | 240 | 327 | (70 | ) | 257 | ||||||||||||||||
Mezzanine loans | 146 | (7 | ) | 139 | 181 | (36 | ) | 145 | ||||||||||||||||
Total [2] | $ | 5,324 | $ | (129 | ) | $ | 5,195 | $ | 4,492 | $ | (152 | ) | $ | 4,340 | ||||||||||
[1] | Amortized cost represents carrying value prior to valuation allowances, if any. | |
[2] | Includes commercial whole loans and excludes residential mortgage loans related to Federal Trust Corporation. For further information on the total mortgage loan portfolio, see Note 5 of the Notes to Condensed Consolidated Financial Statements. |
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June 30, 2011 | December 31, 2010 | |||||||||||||||
Amount | Percent | Amount | Percent | |||||||||||||
Hedge funds | $ | 435 | 21.4 | % | $ | 439 | 22.8 | % | ||||||||
Mortgage and real estate funds | 470 | 23.2 | % | 406 | 21.2 | % | ||||||||||
Mezzanine debt funds | 122 | 6.0 | % | 132 | 6.9 | % | ||||||||||
Private equity and other funds | 1,001 | 49.4 | % | 941 | 49.1 | % | ||||||||||
Total | $ | 2,028 | 100.0 | % | $ | 1,918 | 100.0 | % | ||||||||
June 30, 2011 | December 31, 2010 | |||||||||||||||||||||||||||||||
Cost or | Cost or | |||||||||||||||||||||||||||||||
Amortized | Fair | Unrealized | Amortized | Fair | Unrealized | |||||||||||||||||||||||||||
Items | Cost | Value | Loss [1] | Items | Cost | Value | Loss [1] | |||||||||||||||||||||||||
Three months or less | 806 | $ | 6,867 | $ | 6,727 | $ | (140 | ) | 1,503 | $ | 17,431 | $ | 16,783 | $ | (643 | ) | ||||||||||||||||
Greater than three to six months | 142 | 636 | 600 | (36 | ) | 115 | 732 | 690 | (42 | ) | ||||||||||||||||||||||
Greater than six to nine months | 567 | 6,569 | 6,312 | (252 | ) | 91 | 438 | 397 | (41 | ) | ||||||||||||||||||||||
Greater than nine to eleven months | 49 | 484 | 461 | (23 | ) | 42 | 185 | 169 | (16 | ) | ||||||||||||||||||||||
Twelve months or more | 1,051 | 13,208 | 11,161 | (2,009 | ) | 1,231 | 15,599 | 12,811 | (2,754 | ) | ||||||||||||||||||||||
Total | 2,615 | $ | 27,764 | $ | 25,261 | $ | (2,460 | ) | 2,982 | $ | 34,385 | $ | 30,850 | $ | (3,496 | ) | ||||||||||||||||
[1] | Unrealized losses exclude the fair value of bifurcated embedded derivative features of certain securities. Subsequent changes in fair value are recorded in net realized capital gains (losses). |
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June 30, 2011 | December 31, 2010 | |||||||||||||||||||||||||||||||
Cost or | Cost or | |||||||||||||||||||||||||||||||
Amortized | Fair | Unrealized | Amortized | Fair | Unrealized | |||||||||||||||||||||||||||
Consecutive Months | Items | Cost | Value | Loss | Items | Cost | Value | Loss | ||||||||||||||||||||||||
Three months or less | 100 | $ | 757 | $ | 584 | $ | (173 | ) | 99 | $ | 771 | $ | 582 | $ | (189 | ) | ||||||||||||||||
Greater than three to six months | 32 | 24 | 17 | (7 | ) | 22 | 136 | 104 | (32 | ) | ||||||||||||||||||||||
Greater than six to nine months | 38 | 223 | 161 | (62 | ) | 28 | 234 | 169 | (65 | ) | ||||||||||||||||||||||
Greater than nine to eleven months | 8 | 55 | 42 | (13 | ) | 13 | 43 | 32 | (11 | ) | ||||||||||||||||||||||
Twelve months or more | 269 | 2,426 | 1,541 | (885 | ) | 390 | 4,361 | 2,766 | (1,595 | ) | ||||||||||||||||||||||
Total | 447 | $ | 3,485 | $ | 2,345 | $ | (1,140 | ) | 552 | $ | 5,545 | $ | 3,653 | $ | (1,892 | ) | ||||||||||||||||
June 30, 2011 | December 31, 2010 | |||||||||||||||||||||||||||||||
Cost or | Cost or | |||||||||||||||||||||||||||||||
Amortized | Fair | Unrealized | Amortized | Fair | Unrealized | |||||||||||||||||||||||||||
Consecutive Months | Items | Cost | Value | Loss | Items | Cost | Value | Loss | ||||||||||||||||||||||||
Three months or less | 23 | $ | 39 | $ | 17 | $ | (22 | ) | 20 | $ | 27 | $ | 12 | $ | (15 | ) | ||||||||||||||||
Greater than three to six months | 10 | 9 | 4 | (5 | ) | 1 | 2 | 1 | (1 | ) | ||||||||||||||||||||||
Greater than six to nine months | 11 | 16 | 6 | (10 | ) | 12 | 65 | 29 | (36 | ) | ||||||||||||||||||||||
Greater than nine to eleven months | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Twelve months or more | 65 | 354 | 119 | (235 | ) | 94 | 722 | 260 | (462 | ) | ||||||||||||||||||||||
Total | 109 | $ | 418 | $ | 146 | $ | (272 | ) | 127 | $ | 816 | $ | 302 | $ | (514 | ) | ||||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
ABS | $ | 2 | $ | 5 | $ | 10 | $ | 5 | ||||||||
CRE CDOs | — | 29 | 15 | 93 | ||||||||||||
CMBS | ||||||||||||||||
Bonds | 14 | 39 | 14 | 111 | ||||||||||||
IOs | 2 | 1 | 3 | 1 | ||||||||||||
Corporate | 3 | 6 | 21 | 6 | ||||||||||||
Equity | — | 4 | 10 | 5 | ||||||||||||
RMBS | ||||||||||||||||
Non-agency | — | 1 | — | 1 | ||||||||||||
Alt-A | — | 7 | — | 9 | ||||||||||||
Sub-prime | — | 16 | 3 | 29 | ||||||||||||
Other | 2 | — | 2 | — | ||||||||||||
Total | $ | 23 | $ | 108 | $ | 78 | $ | 260 | ||||||||
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Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Credit-related concerns | $ | 26 | $ | (34 | ) | $ | 26 | $ | (68 | ) | ||||||
Held for sale Agricultural loans | — | (5 | ) | (3 | ) | (10 | ) | |||||||||
B-note participations | — | — | — | (22 | ) | |||||||||||
Mezzanine loans | — | (1 | ) | — | (52 | ) | ||||||||||
Total | $ | 26 | $ | (40 | ) | $ | 23 | $ | (152 | ) | ||||||
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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 supporting the 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 hedge product guarantees resulting in realized capital gains; |
• | increase the costs of the hedging instruments we use in our 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 assets to be held backing variable annuity guarantees to maintain required regulatory reserve levels and targeted risk based capital ratios; |
• | adversely affect customer sentiment toward equity-linked products, causing a decline in sales; and |
• | decrease the Company’s estimated future gross profits. See 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 the MD&A for further information. |
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GMIB [1] | ||||||||
($ in billions) | Account Value | Net Amount at Risk | ||||||
2013 | $ | 0.3 | $ | — | ||||
2014 | 4.7 | 0.6 | ||||||
2015 | 7.6 | 1.4 | ||||||
2016 | 2.6 | 0.6 | ||||||
2017 | 2.9 | 0.7 | ||||||
2018 & beyond [2] | 7.2 | 1.5 | ||||||
Total | $ | 25.3 | $ | 4.8 | ||||
[1] | Excludes certain non-GMIB living benefits of $3.2 billion of account value and $0.6 billion of net amount at risk where annuitization is based on attained age. | |
[2] | In 2018 & beyond, $2.7 billion of the $7.2 billion is primarily associated with account value that is eligible in 2021. |
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Variable Annuity Guarantee [1] | U.S. GAAP Treatment [1] | Primary Market Risk Exposures [1] | |||
U.S. Variable Guarantees | |||||
GMDB | Accumulation of the portion of fees required to cover expected claims, less accumulation of actual claims paid | Equity Market Levels | |||
GMWB | Fair Value | Equity Market Levels / Implied Volatility / Interest Rates | |||
For Life Component of GMWBInternational Variable Guarantees | Accumulation of the portion of fees required to cover expected claims, less accumulation of actual claims paid | Equity Market Levels | |||
GMDB & GMIB | Accumulation of the portion of fees required to cover expected claims, less accumulation of actual claims paid | Equity Market Levels / Interest Rates / Foreign Currency | |||
GMWB | Fair Value | Equity Market Levels / Implied Volatility / Interest Rates /Foreign Currency | |||
GMAB | Fair Value | Equity Market Levels / Implied Volatility / Interest Rates /Foreign Currency |
[1] | Each of these guarantees and the related U.S. GAAP accounting volatility will also be influenced by actual and estimated policyholder behavior. |
Variable Annuity Guarantee | Reinsurance | Customized Derivative | Dynamic Hedging [1] | Macro Hedging [2] | ||||
GMDB | ü | ü | ||||||
GMWB | ü | ü | ü | ü | ||||
For Life Component of GMWB | ü | |||||||
GMIB | ü | |||||||
GMAB | ü |
[1] | Through the second quarter in 2011, the Company continued to maintain a reduced level of dynamic hedge protection on GMWB while placing a greater relative emphasis on the protection of statutory surplus through the inclusion of a macro hedging program. This portion of the GMWB hedge strategy may include derivatives with maturities of up to 10 years. U.S. GAAP fair value volatility will be driven by a reduced level of dynamic hedge protection and macro program positions. | |
[2] | As described below, the Company’s macro hedging program is not designed to provide protection against any one variable annuity guarantee program, but rather is a broad based hedge designed to provide protection against multiple guarantees and market risks, primarily focused on cash flows, statutory liability and surplus volatility. |
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The Company’s macro hedging program uses derivative instruments such as options, futures, swaps and forwards on equities, interest rates, and currencies to provide protection against the statutory tail scenario risk arising from U.S., U.K. and Japan GMWB, GMDB, GMIB and GMAB liabilities, on the Company’s cash flows, statutory surplus and the associated target RBC ratios (see Capital Resources and Liquidity). These macro hedges cover some of the residual risks not otherwise covered by specific dynamic hedging programs. Management assesses this residual risk under various scenarios in designing and executing the macro hedge program. During the second quarter, the Company has increased its currency and equity hedging coverage. The macro hedge program, which is designed to reduce statutory reserve and capital volatility, will result in additional U.S. GAAP earnings volatility as changes in the fair value of the macro hedge derivatives will not be closely aligned to changes in U.S. GAAP liabilities, since the macro hedge derivatives are marked to market and the non-fair value U.S. GAAP liabilities are not.
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U.S. GAAP Hedging Program Gain (Loss), Pre-Tax and DAC | ||||||||||||
Net Impact | Net Impact | |||||||||||
GMWB Liability | GMWB Liability | |||||||||||
and Dynamic | Macro Hedge | Total Net | and Dynamic | Macro Hedge | Total Net | |||||||
Hedge Program | Program [5] | Impact | Hedge Program | Program [5] | Impact | |||||||
Expected for second quarter 2011 based on | Expected for third quarter 2011 based on | |||||||||||
Capital Market Factor | March 31, 2011 | June 30, 2011 | ||||||||||
Equity markets increase / decrease 1% [1] [2] | $(0) / $0 | $(23) / $23 | $ (23) / $23 | $ (1) / $1 | $(33) / $33 | $(34) / $34 | ||||||
Volatility increases / decreases 1% [3] | $(23) / $23 | $8 / $(8) | $ (15) / $15 | $ (23) / $23 | $8 / $(8) | $(15) / $15 | ||||||
Interest rates increase / decrease 1 basis point [4] | $1 / $(1) | $(2) / $2 | $(1) / $1 | $ 2 / $(2) | $(3) / $3 | $(1) / $1 | ||||||
Yen strengthens /weakens 1% versus all other currencies | N/A | $48 / $(48) | $48 / $(48) | N/A | $53 / $(53) | $53 / $(53) |
[1] | Represents the aggregate net impact of a 1% increase or decrease in broadly traded global equity indices. | |
[2] | Due to the structure of the macro hedging program, the increase in equity sensitivity was primarily due to additional purchase of equity macro hedges in the second quarter of 2011. | |
[3] | Represents the aggregate net impact of a 1% increase or decrease in blended implied volatility that is generally skewed towards longer durations for broadly traded global equity indices. | |
[4] | Represents the aggregate net impact of a 1 basis point parallel shift on the global LIBOR yield curve. |
For the three months ended June 30, 2011, the net realized pre-tax gain of $4 related to the Company’s variable annuity hedge programs was primarily comprised of the following:
• | A net realized pre-tax gain of $41 associated with the macro hedge program (including other currency hedges) primarily due to a general decline in Japanese interest rates and a strengthened Yen, partially offset by the impact of elapsed time from the hedges. |
• | A net realized pre-tax loss of $37 related to the net of GMWB derivatives primarily as a result of a general decrease in long-term interest rates. |
The table below provides a predicted pre-tax net realized gain (loss) calculated using the Company’s sensitivities expected for the second quarter disclosed above, as compared to the actual net changes:
Predicted Earnings Impact | ||||
Three Months Ended | ||||
GMWB Net Liability and Dynamic and Global Macro Programs | June 30, 2011 | |||
Equity markets flat | $ | — | ||
Volatility increased approximately 1% | (15 | ) | ||
Interest rates decreased approximately 30 basis points | 30 | |||
Yen strengthened approximately 3% against USD and 1% against euro | 96 | |||
Total implied pre-tax net realized gain [2] | $ | 111 | ||
Actual reported pre-tax net realized gain [1] [2] | $ | 4 | ||
[1] | The actual reported pre-tax net realized gain of $4 includes a gain of $6 from other FX hedges that are disclosed in the “Other, net” line of the Net Realized Capital Gains (Losses) within Investment Results of Key Performance Measures and Ratios of this MD&A. | |
[2] | For the three months ended June 30, 2011, the major factors to the variance in the actual reported result and the implied first order sensitivities calculation pre-tax net realized gain/(loss) were attributed to the following: (i) the impact of elapsed time on short duration hedge assets, (ii) hedging activities including timing of rebalancing, trading, and changes in the composition of the underlying hedging instruments, and (iii) partially offset by favorable policyholder behavior. | |
Additional factors attributed to the variance, the impact of which cannot be incorporated in the calculation of these simplified sensitivities, include non-parallel shifts in capital market factors, specific market index and interest rate movements, interest rate and currency volatilities, variation in the underlying fund performance relative to the hedged indices, changes in The Hartford’s own credit, and changes in Non-U.S. GMWB fair value liabilities. This difference may vary materially from quarter-to-quarter. |
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• | In general, as equity market levels and interest rates decline, the amount and volatility of both our actual potential obligation, as well as the related statutory surplus and capital margin for death and living benefit guarantees associated with U.S. variable annuity contracts can be materially negatively affected, sometimes at a greater than linear rate. Other market factors that can impact statutory surplus, reserve levels and capital margin include differences in performance of variable subaccounts relative to indices and/or realized equity and interest rate volatilities. 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 with rising equity markets, resulting in lower RBC ratios. Non-market factors, which can also impact the amount and volatility of both our actual potential obligation, as well as the related statutory surplus and capital margin, include actual and estimated policyholder behavior experience as it pertains to lapsation, partial withdrawals, and mortality. |
• | Similarly, for guaranteed benefits (GMDB, GMIB and GMWB) reinsured from our international operations to our U.S. insurance subsidiaries, the amount and volatility of both our actual potential obligation, as well as the related statutory surplus and capital margin can be materially affected by a variety of factors, both market and non-market. Market factors include declines in various equity market indices and interest rates, changes in value of the yen versus other global currencies, difference in the performance of variable subaccounts relative to indices, and increases in realized equity, interest rate, and currency volatilities. Non-market factors include actual and estimated policyholder behavior experience as it pertains to lapsation, withdrawals, mortality, and annuitization. Risk mitigation activities, such as hedging, may also result in material and sometimes counterintuitive impacts on statutory surplus and capital margin. Notably, as changes in these market and non-market factors occur, both our potential obligation and the related statutory reserves and/or required capital can increase or decrease at a greater than linear rate. |
• | 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. |
• | The life insurance subsidiaries’ 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 vary in comparison to the U.S. dollar, the remeasured value of those non-dollar denominated assets or liabilities will also vary, causing an increase or decrease to statutory surplus. |
• | 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 have experienced, 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. |
• | With respect to our fixed annuity business, sustained low interest rates may result in a reduction in statutory surplus and an increase in National Association of Insurance Commissioners (“NAIC”) required capital. |
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Maximum Available As of | Outstanding As of | |||||||||||||||||||||||
Effective | Expiration | June 30, | December 31, | June 30, | December 31, | |||||||||||||||||||
Description | Date | Date | 2011 | 2010 | 2011 | 2010 | ||||||||||||||||||
Commercial Paper | ||||||||||||||||||||||||
The Hartford | 11/10/86 | N/A | $ | 2,000 | $ | 2,000 | $ | — | $ | — | ||||||||||||||
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 | $ | — | $ | — | ||||||||||||||||
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Fixed maturities | $ | 25,286 | ||
Short-term investments | 1,022 | |||
Cash | 255 | |||
Less: Derivative collateral | (201 | ) | ||
Total | $ | 26,362 | ||
Fixed maturities | $ | 54,048 | ||
Short-term investments | 5,565 | |||
Cash | 1,638 | |||
Less: Derivative collateral | (1,833 | ) | ||
Cash associated with Japan variable annuities | (721 | ) | ||
Total | $ | 58,697 | ||
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As of | ||||
Contractholder Obligations | June 30, 2011 | |||
Total Life contractholder obligations | $ | 252,887 | ||
Less: Separate account assets [1] | (157,485 | ) | ||
International statutory separate accounts [1] | (32,237 | ) | ||
General account contractholder obligations | $ | 63,165 | ||
Composition of General Account Contractholder Obligations | ||||
Contracts without a surrender provision and/or fixed payout dates [2] | $ | 28,765 | ||
Fixed MVA annuities [3] | 10,151 | |||
International fixed MVA annuities | 2,644 | |||
Guaranteed investment contracts (“GIC”) [4] | 767 | |||
Other [5] | 20,838 | |||
General account contractholder obligations | $ | 63,165 | ||
[1] | In the event customers elect to surrender separate account assets or international statutory separate accounts, Life Operations will use the proceeds from the sale of the assets to fund the surrender, and Life Operations’ liquidity position will not be impacted. In many instances Life Operations will receive a percentage of the surrender amount as compensation for early surrender (surrender charge), increasing Life Operations’ liquidity position. In addition, a surrender of variable annuity separate account or general account assets (see below) will decrease Life Operations’ 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 Operations’ 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 Operations 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 Operations is required to contribute additional capital to the statutory separate account. Life Operations 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 Operations. | |
[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 Operations’ 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 Global Annuity’s individual variable annuities and Life Insurance’s variable life contracts, the general account option for Retirement Plans’ annuities and universal life contracts sold by Life Insurance may be funded through operating cash flows of Life Operations, available short-term investments, or Life Operations 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 Operations may need to take other actions, including enforcing certain contract provisions which could restrict surrenders and/or slow or defer payouts. |
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June 30, | December 31, | |||||||||||
2011 | 2010 | Change | ||||||||||
Short-term debt (includes current maturities of long-term debt) | $ | 400 | $ | 400 | — | |||||||
Long-term debt | 6,214 | 6,207 | — | |||||||||
Total debt [1] | 6,614 | 6,607 | — | |||||||||
Stockholders’ equity excluding accumulated other comprehensive loss, net of tax (“AOCI”) | 21,752 | 21,312 | 2 | % | ||||||||
AOCI, net of tax | (77 | ) | (1,001 | ) | 92 | % | ||||||
Total stockholders’ equity | $ | 21,675 | $ | 20,311 | 7 | % | ||||||
Total capitalization including AOCI | $ | 28,289 | $ | 26,918 | 5 | % | ||||||
Debt to stockholders’ equity | 31 | % | 33 | % | ||||||||
Debt to capitalization | 23 | % | 25 | % | ||||||||
[1] | Total debt of the Company excludes $368 and $382 of consumer notes as of June 30, 2011 and December 31, 2010, respectively, and $25 of Federal Home Loan Bank advances recorded in other liabilities as of June 30, 2011 and December 31, 2010. |
Six Months Ended | ||||||||
June 30, | ||||||||
2011 | 2010 | |||||||
Net cash provided by operating activities | $ | 964 | $ | 1,200 | ||||
Net cash provided by (used for) investing activities | $ | (807 | ) | $ | 1,600 | |||
Net cash used for financing activities | $ | (319 | ) | $ | (1,967 | ) | ||
Cash — end of period | $ | 1,898 | $ | 2,998 |
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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 | ||||||||||||
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
U.S. life insurance subsidiaries, includes domestic captive insurance subsidiaries | $ | 7,951 | $ | 7,731 | ||||
Property and casualty insurance subsidiaries | 7,627 | 7,721 | ||||||
Total | $ | 15,578 | $ | 15,452 | ||||
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Item 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Item 4. | CONTROLS AND PROCEDURES |
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Item 1. | LEGAL PROCEEDINGS |
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Item 1A. | RISK FACTORS |
Item 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
Total Number of | ||||||||||||||||
Shares Purchased as | Approximate Dollar Value | |||||||||||||||
Total Number | Average Price | Part of Publicly | of Shares that May Yet Be | |||||||||||||
of Shares | Paid Per | Announced Plans or | Purchased Under | |||||||||||||
Period | Purchased [1] | Share | Programs | the Plans or Programs [2] | ||||||||||||
(in millions) | ||||||||||||||||
April 1, 2011 — April 30, 2011 | 1,800 | $ | 27.57 | — | $ | 807 | ||||||||||
May 1, 2011 — May 31, 2011 | 64,914 | $ | 28.06 | — | $ | 807 | ||||||||||
June 1, 2011 — June 30, 2011 | — | $ | — | — | $ | — | ||||||||||
Total | 66,714 | $ | 28.04 | — | N/A | |||||||||||
[1] | Primarily represents shares acquired from employees of the Company for tax withholding purposes in connection with the Company’s stock compensation plans. | |
[2] | On June 10, 2008, the Company’s Board of Directors approved a $1 billion stock repurchase program that authorized purchases of the Company’s common stock and derivative transactions to facilitate future repurchases of the Company’s common stock. This repurchase authorization expired on June 10, 2011. |
Item 6. | EXHIBITS |
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The Hartford Financial Services Group, Inc. (Registrant) | ||||
Date: August 3, 2011 | /s/ Beth A. Bombara | |||
Beth A. Bombara | ||||
Senior Vice President and Controller (Chief accounting officer and duly authorized signatory) |
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FOR THE QUARTER ENDED JUNE 30, 2011
FORM 10-Q
Exhibit No. | Description | |||
*10.01 | Written Summary of Compensation-related Arrangement with a Named Executive Officer effective May 18, 2011. | |||
15.01 | Deloitte & Touche LLP Letter of Awareness. | |||
31.01 | Certification of Liam E. McGee pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |||
31.02 | Certification of Christopher J. Swift 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 Christopher J. Swift pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |||
101.INS | XBRL Instance Document. | |||
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. |
* | Management compensation-related arrangement. |
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